Consolidated Digest of Case Laws Jan 2011 To Sept 2011

ConsolidatedDigestofCaseLaws(January2011toSeptember2011) (Journals Referred: ACAJ / BCAJ / BLR / CITC / CTR / DTR / ITD / ITR (Trib.
.) / ITR / SOT / TTJ / TLR / Taxman / Taxation/TaxWorld,www.itatonline.org) Compiledby:KSALegalChambers S.2(IA):AgriculturalIncomeSaleofRubberscrapScrapgeneratedinIndustrialactivity. Saleofscraprubberwhichisgeneratedincourseofextractionofrubberlatexfromtreescannotbe broughttoIncometaxbyapplyingrule7Abecausescrapisgeneratedincourseoftakingyieldwhich is purely an agricultural operation. However ,income from scrap generated in industrial activity of processinglatexintoproductsreferredtoinrule7A(1)hastobebroughttoincometaxunderrule. CITvStateFarmingCorporationLtd(2011)199Taxman371(Ker)(HighCourt). S.2(IB):AmalgamationSubsidiaryTaxAvoidance. AssessingOfficerrejectedtheschemeofAmalgamationwithitssubsidiaryholdingthatitwasameredeviceto avoid tax. CIT(A) accepted the scheme. On revenues appeal the tribunal held that as the scheme has been sanctionedbyHighCourtanditcannotbeheldthattherewasmotivetoavoidtax,furthertheshareswereissued tooutsideshareholdersbyassesseecompanyintermsofschemesanctionedbyHighCourtandtheallotmentof sharesweredoneonthebasisofvaluationreportsubmittedbyanindependentvaluer.(A.Y.20042005) ACITvs.TVSMotorsCo.Ltd.(2011)128ITD47/36DTR89(Chennai)(Trib) S.2(13):AdventureinnatureoftradeInvestmentinagriculturalland. A person makes investment in agricultural land within limits of town panchayats, and agricultural income was shownanddeclaredyearafteryear.Permissionwassoughttodeveloplands.Nofurtheraction,wastakenfor over12yearstilldateofsale,andentirelandissoldafteritsvalueappreciated,itwouldnotbecomeadventurein thenatureoftrade. ITOvChandarHUF(2011)47SOT17(Chennai)(Trib). S.2(14):CapitalassetAgriculturallandPaymentofcompensationofcertainimmovableproperty.(S.194LA). Definition of agricultural land as given in section 2 (14) cannot be imported for purpose of payment of compensationonacquisitionofcertainimmovablepropertyaspersection194LA.(A.Y.200506). ITOTDSvSpeciallandAcquisitionOfficer(2011)46SOT458(Mum)(Trib). S.2(14):CapitalassetsCapitalgainsTownPanchayat. ATownPanchayatisnotifiedforurbanagglomeration,butitisnotamunicipality.Agriculturallandsfallingwithin said town panchayat would not fall within municipality , and hence is not a capital asset as per the definition undersection2(14)(iii).(A.Y.200607) ITOvChanderHUF(2011)47SOT17(Chennai)(Trib). S.2(14)(iii):AgriculturalLandinIndiaCapitalAssetDistanceMeasurement. Formeasurementofdistanceforthepurposeofdecidingthecharacterofland,whetheragricultureornot,isto bedoneintermsoftheapproachbyroadandnotbystraightlinedistanceonhorizontalplaneoraspercrows flight.OrderofTribunalisaffirmedbyHighCourt.(A.Y.200102) CITvs.SatinderPalSingh(2010)188Taxman54/229CTR82/33DTR281(P&H)(HighCourt)
ConsolidatedDigestofCaseLaws(JanSept2011)
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S.2(15):CharitablepurposeProductionoftelevisionandradioprogrammesRegistration(S.12A). Production of television and radio programmes for purpose of telecasting and broad casting through assesseesownnetworkorthroughonehiredbyitwouldnotconstituteadvancementofanyobjectof general public utility with in the meaning of section 2 (15).Application for registration has to be considered with reference to objects of assessee available as on end of previous year during which registrationissoughtundersection12A. CITvA.Y.BroadCastFoundation(2011)199Taxman376(Ker)(HighCourt). S.2(22)(e):DeemedDividendLoansorAdvancesShareHolder Inorderthatthefirstpartofcl.(e)ofsection2(22)isattracted,thepaymentbyacompanyhastobebywayofan advance or loan. The advance or loan has to be made, as the case may be either to a shareholder, being a beneficialownerholdingnotlessthantenpercentofthevotingpowerortoanyconcerntowhichsuchashare holder is a member or a partner and in which he has a substantial interest. Amount received from a company been misappropriated by shareholder, there was no loan or advance. Further, even assuming that it was a dividend,ithavetobetaxedinthehandsoftheshareholdersandnotinthehandsoftheassessee.(A.Y.200304) CITvs.UniversalMedicare(P.)Ltd.(2011)237CTR147/324ITR263/37DTR409/190Taxman144(Bom.)(HighCourt) S.2(22)(e):DeemeddivifendDeemeddividendisnotassessableifrecipientnotashareholder. Whereassesseeisnotashareholderofthepayingcompany,thedividendisnotassessableinitshands.Thelegal fiction in S. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of a shareholder. Asst. CIT vs. Bhaumik Colour Pvt. Ltd. (2009) 313 ITR 146 (Mum) (AT) (SB) approved in CIT vs. UniversalMedicarePvt.Ltd.(2010)324ITR263(Bom)&CITvs.HotelHilltop(2009)313ITR116(Raj.)followed. CITvsAnkitechPvt.Ltd(2011)57DTR345/242CTR129/(2011)TaxLR629(Delhi)(HighCourt). S.2(22)(e):DeemeddividendSecuritydepositDateofdeposit. Since on the date on which the security deposit was given by the company to the assessee , the assesseeheldlessthan10percentbeneficialinterestinthecompany,theamountofsecuritydeposit can not be treated as deemed dividend under section 2 (22) (e) , merely on the ground that share holdingincreasedto44%onissueofsharesbythecompanyinlieuofsecuritydeposit.(A.Y.199899) CITvLateC.R.Das(2011)57DTR201(Delhi)(HighCourt). S.2(22)(e):DeemeddividendLoanoradvancesshareholderLoansintheordinarycourseofbusinesswasnot acceptedAllotmentofsharesofanothercompany. Additionofdeemeddividendundersection2(22)(e)byrejectingtheexplanationthatthepaymentwasmadefor allotment of shares in another company , was justified since no certificate from the ROC in support of his contentionthatshareshadindeedbeenallottedtotheinvestingcompanieswasproduced.TheCourtheldthat findingsoftheTribunalareperverseandadditionundersection2(22)(e)wassustainable.(A.Y.200506). CITvSunilChopra(2011)242CTR498(Delhi)(HighCourt). S.2(22)(e):DeemedDividendsharesheldinthenameofpartnersofthefirmforpurposeofS.2(22)(e)firmis consideredasshareholderthoughsharesheldinnamesofpartners Itwasheldthatfors.2(22)(e),afirmhastobetreatedastheshareholdereventhoughitisnottheregistered shareholder.Thefirstlimbofs.2(22)(e)isattractedifthepaymentismadebyacompanybywayofadvanceor loantoashareholder,beingapersonwhoisthebeneficialownerofshares.Whileitiscorrectthatthepersonto
whom the payment is made should not only be a registered shareholder but a beneficial share holder, the argumentthatafirmcannotbetreatedasashareholderonlybecausethesharesareheldinthenamesofits partnersisnotacceptable.Ifthiscontentionisaccepted,innocaseapartnershipfirmcancomewithinthemischief ofs.2(22)(e)becausetheshareswouldalwaysbeheldinthenamesofthepartnersandneverinthenameofthe firm.Thiswouldfrustratetheobjectofs.2(22)(e)andleadtoabsurdresults. CITvNationaltravelService(Delhi)(HighCourt).(www.itatonline.org) S.2(22)(e):DeemedDividendAdvancegivenforthepurposeofBusiness. Assessee,ManagingDirectorhavingreceivedadvancesfromthecompany,pursuanttoresolutionpassedbyitto enable the assessee to purchase land which was to be developed by the company in order to bifurcate the ownershipoflandfromthedevelopmentorconstructionofflatsthereonsoastoreducetheincidenceofstamp duty on the ultimate customers, the transaction was motivated by assessee considerations and commercial expediency,therefore,theadvancescannotbetreatedasdeemeddividend.(A.Y.20062007) ACITvs.HarsadV.Doshi(2011)49DTR181/136TTJ351(Chennai)(Trib.) S.2(22)(e):DeemedDividendDebentureLoanInvestment Debentureisaloanaccountandtherefore,debenturessubscribedbytheassesseeshareholderaretobetakenin to account for ascertaining his indebtedness to the company visvis the loan or advance taken by him and determiningdeemeddividendundersection2(22)(e).(A.Y.20032004) AnilKumarAgarwalvs.ITO(2011)51DTR251/132ITD314(Mum.)(Trib.) S.2(22)(e):DeemedDividendAdvancesgiventoBusinessPurposes. Assessee,ManagingDirector,havingreceivedadvancesfromthecompany,pursuanttoresolutionspassedbyit to enable the assessee to purchase land which was to be developed by the company in order to bifurcate the ownershipoflandfromthedevelopmentorconstructionofflatsthereonsoastoreducetheincidenceofstamp duty on the ultimate customers, the transaction was motivated by business considerations and commercial expediency and therefore, the advances can not be treated as deemed dividend under section 2(22)(e).(A. Y. 200607) ACITvs.HarshadV.Doshi(2011)136TTJ351/49DTR181(Chennai)(Trib) S.2(22)(e):DeemedDividendTransferofsumfromonecompanytoanother. Assessee is a director in two companies holding substantial shareholding in both. Certain sum was transferred fromonecompanytoanotheratinstanceofassessee.Assesseehavingsubstantialcreditbalancewithcompany, cannotheldasloanordepositnorcanbeassessedasdeemeddividend.(Asstyears200102,200506). Asstvs.C.Rajini(Smt)(2011)9ITR(Trib)487/140TTJ218(Chennai)(Trib). DyCITvC.SubbaReddy(HUF)(2011)9ITR(Trib)487(Chennai)(Trib). S.2(22)(e):DeemeddividendLoantoaconcerninwhichshareholderisapartnerSecuritydeposit. PartnersoftheassesseefirmandnottheassesseefirmbeingashareholderofthecompanyAGltd. Amount received by the assessee firm from the company as security deposit can not be regarded as deemed dividend . Even other wise ,the amount received from AG Ltd being security deposits under an agreement between the parties coupled with certain obligations , it can not be regarded to be payment by the company by way of advance or loan and hence , it can not be assessed to tax under section2(22)(e).(Assstyear200607). DyCITvAtulEngineeringUdyog(2011)57DTR433(Agra)(Trib).
S.2(24):IncomeNonoccupancyChargesCooperativeHousingSocietyMutuality. The receipts of nonoccupancy charges, transfer fees and voluntary contribution from its members by the co operativehousingsocietyisnottaxable. ITOvs.GrandParadiCHSLtd.,ITANo.521/Mum/2010,dt.27082010,ITATG,MumbaiBench,BCAJpg.20,Vol.42 B,Part4,January2011(Trib.) S.2(28A):InterestDiscountingofpromissorynote. Discounting of a promissory note does not involve creation of a debt or existence of a debtor creditor relationship,theamountofdiscountcannotbetermedasinterestpaidbysellerofpromissorynotewithinthe meaningofsection2(28A). ABCInternationalIncUSA(2011)199Taxman211/241CTR289/55DTR393(AAR). S.2(31)(v).PersonAssociationofpersonsIndividualAssessmentHUFCapitalgains.(S.4,45). Afterthedeathofsolemalememberofthefamily,theonlypersonleftinthefamilywasthewidow of the deceased and three daughters were already married. The property of the deceased would devolve on the window and three married daughters in equal shares , since the property of the deceased was sold without dividing the same among the assessee and her three married daughters , thecapitalgainsonthesaleofthepropertywouldbeassessableinthehandsoftheBOIconsistingof theassesseeandherthreemarrieddaughters(AsstYear200506).. ITOvShantiDubey(2011)139TTJ502/58DTR422(Jab)(Trib). S. 2(42A) :Short term capital asset Capital Gains Short term capital loss Colourable Transaction Genuine Transaction. In November, 1995 assessee company took over SKB with all its assets and liabilities including rights under contract for using trade mark of Pepsico Inc., USA for certain consideration which was paid through account payee cheques. However, assessee company could not run business of SKB for various reasons including necessity of making further investment, therefore it sold entire shares of SKB vide share purchase agreement dated23121995ataloss of`8.60crores.AssessingOfficertooktheview thatassesseecouldhavewaitedfor more reasonable time for watching the market and could have invested further amount of ` 9 to 10 crores to revivebusinessofSKBandperiodofonemonthwastooshorttimefortakingsuchamajordecisionregarding disinvestmentofsharesofSKB.Hefurtherheldthattransactionwasofacolourablenatureanddeclinedtoallow claimofassesseetowardsshorttermcapitalloss.InappealCommissionerof(Appeals)andTribunalallowedthe appealofassessee.OnappealtoHighCourt,theHighCourtupheldtheorderofTribunal.(A.Y.199697) CITvs.OberoiHotels(P)Ltd.(2011)198Taxman310(Cal.)(HighCourt) S.2(47):TransferCapitalgainsPossessionofproperty.(S.45.) Assesseewasgivenpossessionofpropertyaspersaleagreementdated341999andassesseealsomadepart paymentoftheconsideration,assetswouldbedeemedtobetransferredtoassesseeon341999andsinceland wassoldon442003/252003,itwouldbealongtermcapitalassetandwouldbelongtermcapitalgains. HasmukhbhaivAsstCIT(2011)46SOT419(Ahd)(Trib). Chapter11.Chargeofincometax. S.4:IncomeCapitalorRevenueReceiptSubsidyforsettingupIndustry.
Subsidy received for setting up agro based industrial unit in backward area was determined with reference to capitalinvestment,isacapitalreceipt. CITvs.SiyaRamGarg(HUF)(2011)49DTR126/237CTR321(P&H)(HighCourt) S.4:IncomeCapitalorRevenueReceiptInterestPrecommencement. Interest on deposit of margin money for opening of letter for credit for import of machinery at the stage of settingupofindustrialunitoftheassesseeisacapitalreceiptandthesameistobesetoffagainstpreoperative expenses.(A.Y.200506) CITvs.ArihantThreadsLtd.(2011)49DTR251(P&H)(HighCourt) S.4:IncomeCapitalorRevenueReceiptCompensationTerminationfromlandowner. Compensationreceivedfromthelandowneronterminationofdevelopmentagreementwasthedeprivationof potentialincomeandlossoffutureprofitsasmentionedinthesettlementagreementandnotfordivestingthe assesseeofitsearningapparatusasrestrictivecovenantinthesaidagreementonlyprohibitedtheassesseefrom undertaking a similar project in the vicinity of the existing project without consent of the land owner for the limiteddurationofthreeyears,andtherefore,thecompensationwasarevenuereceipt.(A.Y.200102) AnsalProperties&IndustriesLtd.vs.CIT(2011)238CTR126/196Tax45/49DTR78(Del.) (HighCourt) S.4:IncomeAssessmentLawApplicableFinancialYearAssessmentYear(S.143) Unlessitismadeclearinanamendmentastowhetheritcomesintoeffectfortheassessmentyearorfinancial year,normallyitistobedeemedthatsuchbenefitoftheamendmentisfortheassessmentyear.(A.Y.200001) MukeshC.Patelvs.CIT(2011)238CTR332/51DTR62(Kar.)(HighCourt) S.4:IncomeCapitalorRevenueShareofProfitfromfirmpendingdissolution. Profit which is calculated on notional basis by deducting 40% from two years average profit, received by the assesseepartnerfortheperiodof234dayswhenthedissolutionofthefirmwaspendingunderthedirectionsof theCourtistobetreatedasrevenuereceipt.(A.Y.199596) B. Rachurama Prabhu Estate, Executrix, Smt. Kaveri Bai & Ors. (2011) 52 DTR 122 / 239 CTR 274/ 335 ITR 394 (Kar.)(HighCourt) S. 4 : Income Accrual Interest Income Banks and Nonbanking Financial Institutions Nonperforming AssetsAccruedinteresttobeexcludedfromincome. CreditofaccruedinterestmaybeexcludedfromtheincomeofBankandnonbankingfinancialinstitutions,where interest outstanding is attributable to assets characterised as a nonperforming assets under the notification issued by the RBI. The High Court held that mercantile system of accounting recognises only income which is realisable.(A.Y.199596to200001) CITvs.CoimbatoreLakshmiInv.andFinanceCo.(2011)331ITR229(Mad.)(HighCourt) S.4:IncomeCapitalorRevenueExcessRefundInterestSubsidyCapitalReceipt. Excise Refund and Interest Subsidy received by the assessee from Government of India in pursuance to a New Industrial Policy of Government which was aimed at acceleration of industrial development and generating employmentintheStateinpublicinterestwereheldtobecapitalreceiptinthehandsoftheassessee. ShreeBalajiAlloys&Ors.vs.CIT&Ors.(2011)51DTR217/239CTR70/333ITR335(J&K)(HighCourt)
S. 4 : Income Mutuality Income of Club from Surplus funds Interest from Fixed deposits and Government Securities. Assesseecompanyisrunningarecreationclubforitsmemberstheincomeearnedfromthemembersisexempt ontheprincipleofmutuality.IncomeoftheclubfromFDRsinbanksandGovernmentsecurities,dividendincome andprofitonsaleofinvestmentisalsocoveredbythedoctrineofmutualityandisnottaxable.(A.Y.200304) CITvs.DelhiGymkhanaClubLtd.(2011)53DTR330/198Taxman207(Mag)(Delhi)(HighCourt) S.4.IncomeInterestearnedPerformanceguarantee. Interestincomeearnedbytheassesseeonthefixeddepositforperformanceofguaranteeofcontract washeldtobecapitalinnatureandcannotbeassessedasincomefromothersources. CITvs.JaypeeDSCVenturesLtd.(2011)53DTR305(Del)(HighCourt). S.4:IncomeDiversionofatsourcebyoverridingTitleApplicationofIncome: AssesseehadavailedvariousfacilitiesfromMaduraiBankoveryears,repaymentofwhichwasguaranteedbyway ofchangeonpropertiesofassessee.Asassesseefailedtopaydues,bankfiledacivilsuit.Subsequently,outof settlement was reached at an amount of ` 160 lakhs. Vide Government resolution dt. 14121994 and 1971995, NSSKwaspermittedtobuyspares,plantandmachineryofassessee.Itwastopay,onbehalfofassesseeasumof `160lakhstoMadhuraiBanktowardssettlementofamountdue.TheassesseeclaimedthatasNSSKdirectlypaid MaduraiBankitshouldbeexcludedfromthesaleconsiderationasthatneverbecametheincomeoftheassessee asitstooddivertedofoverridingtitleandhence,shouldbeignoredforthepurposeofcalculatingcapitalgain. TheTribunalheldthatpayment tobankisonlyapplicationofincomenotachargeonincome.The paymentto bankandsaleconsiderationofitsassetsareentirelytwodistincttransactionshavingnorelationwitheachother except for the fact that there was a charge by bank on assets. Hence, amount not deductable from sale consideration.(A.Y.199697) ShreeChangdeoSugarMillsLtd.vs.Jt.CIT(2011)44SOT479/58DTR340/139TTJ646(Mum.)(Trib.) S. 4 : Income Capital or Revenue Receipt Compensation for premature termination of joint venture agreement. Consideration received for premature termination of the joint venture agreement constituted revenue receipt.(19992000) IonExchange(India)Ltd.vs.ITO(2011)52DTR411/140TTJ576(Mum.)(Trib) S.4:IncomeCapitalorrevenueAmountreceivedfromfirmbywidowofthepartnerisacapitalreceipt. Payment towards recognition of valued services rendered by partner during life time and a sort of relief to distressedfamily,andthattooaspertermsofpartnershipdeed,couldnotbesaidtohavearevenuecharacterin assesseeshands.Amountreceivedbyassessee,afterdeathofherhusbandfromfirm,inwhichhewasapartner ,wouldbeacapitalreceipt.(A.Y.200506). DyCITvLakshmiM.Aiyar(Mrs)(2011)131ITD436(Mum)(Trib). S.4: Income Interest awarded by High Court Capital receipt Income wrongly offered for tax Powers of Commissioner(Appeals).(S.139,251). InterestawardedbyHighCourtisacapitalreceiptandnottaxable. Though the amount erroneously offered to tax in the return ,the assessee is entitled to raise plea before Appellate Authorities against the assessment. The Assessing Officer cannot assess an amount which is not taxableunderthelaw,thoughshownbytheassesseeinthereturn.(A.Y.200506)
SushilKumarDasvITO(2011)11ITR(Trib)17(Kolkata)(Trib). Scopeoftotalincome. S.5:IncomeAccrualAdvanceReceipt. Feesreceivedinadvancebytheassesseefromtheclientsofitsbeautyandslimmingclinicswhichisattributable tounexecutedpackagesi.e.servicesaretoberenderedinthesucceedingyeardidnotaccrueintherelevant year.(A.Y.199798) CITvs.DineshKumarGoel(2011)239CTR46/50DTR254/331ITR10(Delhi)(HighCourt) S.5:IncomeAccrualInterestonenhancedcompensationofland. Interestonenhancedcompensationoflandisliabletobetaxedonceitwasreceived.(Asstyears200001to2002 03) DyCITvGopalRamnarayanKasat(2011)240CTR266/54DTR228(Bom)(HighCourt). S.5:IncomeAccrualofincomeWaiverofinterestMethodofaccounting.(S.145.) Waiverofinterestbeforeendofaccountingyear,interestdidnotaccruetoassessee.(Asstyear199798). BagoriaUdyogvCIT(2011)334ITR280(Cal)(HighCourt). S.5.IncomeAccrual. Hypotheticalincomecreditedbytheassesseeintheprofitandlossaccountinrespectofexciserefund based on a Supreme Court decision in case of a third party cannot be said to have accrued to the assessee.(A.Y.198889) CITvs.NuchemLtd.(2011)55DTR14(P&H)(HighCourt). S.5:IncomeCapitalorReceiptCollectionfrombuyers. Whereassesseeiscollectingsumfromeverybuyertowardsflatownersassociation,suchcorpusfundcannotbe assessesasincomeofassessee.(AsstYears200102,200506) AsstvC.Rajini(Smt)(2011)9ITR(Trib)487(Chennai)(Trib). DyCITvC.SubbaReddy(HUF)(2011)9ITR(Trib)487(Chennai)(Trib). S.5:IncomeAccrualTuitionfeesreceivedinadvance(S.145.). Assessee in receipt of non refundable advances from coaching students can be charged to tax only to the extentofreceiptwhichaccruedtotheassesseeasincomeduringtherelevantpreviousyearandnottheentire receipts. CareerLauncher(India)LtdvAsstCIT(2011)139TTJ48/131ITD414/131ITD414(Delhi)(Trib). S.5.IncomeAccrualofIncomeEarnestmoneySaleofland. Earnest money received for transfer of land . Transaction not taking place in year. Earnest money receivednottobetreatedasincomeinyearunderconsideration.(Asstyear200405). DYCITvShivSaiDevelopers(2011)10ITR80(Mumbai)(Trib). S.5:IncomeAccrualDividendrecoveredRighttoreceiveincome. Assessee a non banking finance company ,it sold shares which it held as investment. Transfer of names of transferee was not recorded in register of members of company whose shares were transferred by assessee, thereforedividenddeclaredbycompaniesonthoseshareswaspaidtoassessee.Theassesseehasshownthe
saiddividendasundertheheadingExcessdividendreceivedrefundable.AssessingOfficertreatedthesameas incomeoftheassessee.Thetribunalheldthatwhenthereisrighttoreceiveincomecanbesaidtohavebeen accruedandwithoutlegallyenforceablerighttherecanbenoaccrualofincome.(A.Y.200607). DyCITvTataInvestmentCorporationLtd(2011)46SOT359/61DTR473(Mum)(Trib). S.5:IncomeAccrualFixeddepositsinbanksInterest. Assessee society held fixed deposits in banks for a term exceeding more than one year. It had not shown any interestincomefromsaidFDsduringpreviousyearongroundthatincomefromFDswouldbeofferedtotaxon itsreceiptfrombankonmaturityonbasisofcertificateofTDSissuedbybank.AssessingOfficeraddedinterest at10%onestimatebasis.TheTribunalheldthattheassesseewasnotliabletodeclareinterestincomeaccruedbut not due to it in relevant assessment year in view of fact that said sum was not acknowledged by bank or by assesseeitself.(A.Y.200708). PuriDistrictCoOpMilkProducersUnionLtdvITO(2011)132ITD127(Cuttack)(Trib). S.5(2)(b):IncomeSalaryNonResidentOnboardofShip[Ss.9(1)(ii),15)] Salaryearnedbynonresidentforservicesperformedduringhisstayof225daysoutsideIndiaworkingonboard onshipwhichwasoutsideIndia,didnotaccrueorariseinIndiaandassuchthesamewasnottaxableinIndia.(A. Y.200506) DIT(InternationalTaxation)&Anr.vs.PrahladVijendraRao(2011)51DTR95/239CTR107(Karn.)(HighCourt) S.6(1):ResidenceinIndiaNonresidentResidentialStatusBusinessProfession. For purpose of Explanation (a) to section 6(1)(c), employment include self employment like business or professiontakenupbyassesseeabroad.(A.Y.198990) CITvs.O.AbdulRazak(2011)337ITR267/198Taxman1/241CTR485/56DTR133/337ITR267(Ker.)(HighCourt) S.9(i).IncomedeemedtoaccrueorariseinIndiaLiaisonofficeDTAAIndiaUS. On facts, Liaison office purchasing diamonds for export to HO does not constitute PE under IndiaUS DTAAanditwascoveredunderexplanation1(b)tosection9(1)(i)ofIncomeTaxAct. ADITvs.M.Fabrikant&SonsLtd.,dt.28012011,A.Y.19992000to200203&20032004,BCAJpg.42, Vol.43A,Part2,May2011. S.9(i).IncomedeemedtoaccrueorariseinIndiaSaleofsharesbyMauritiusCocanbetreatedassale by 100% USA parent. Sale of shares of foreign company taxable if object is to acquire the Indian assets(S.148,163,195.). (i) The argument that s. 163 applies only with respect to income deemed to accrue or arise in India u/s9andnottoincomeaccruingorarisingisnotacceptable.PursuanttoEliLily312ITR225(SC),the incomeaccruingorarisinginIndiatoNCWS,USAontransferofacapitalassetsituateinIndia,(shares ofIdeaCellular)isdeemedtoaccrueorariseinIndiatoNCWSandcanbeassessedeitherinthehands ofNCWSorinthehandsofthepayerasagentofthenonresidentu/s163; (ii)TheargumentthattheAOhavingissuedaNOCu/s195(2)permittingAdityaBirlaNuvotoremitthe sale proceeds without TDS could not recover the tax from the payer by treating it as agent is not acceptable because the said order was obtained by suppressing material facts relating to the circumstances in which the shares of Idea Cellular were issued in the name of AT&T Mauritius. As the payer had obtained the s. 195(2) Certificate by making a representation which was incorrect to its
knowledge,itcouldnotclaimthatthes.195(2)Certificatewasvalidlyissued.Further,theproceedings u/s163&195operateindifferentfields; (iii)TheargumentthatoncetheAOexerciseshisoptionu/s166toassessthenonresidentNCWSUSA directly by issuing notice u/s 148, the proceedings initiated against the payer must come to an end is not acceptable because there is nothing in the Act to suggest that the option to assess either in the hands of the representative assessee or in the hands of the nonresident must be exercised at the threshold itself and not at the end of the assessment proceedings. While ordinarily, the AO must not proceed against the representative assessee once proceedings are initiated against the nonresident, in exceptional cases like the present one where complex issues are involved and the AO is unable to makeuphismindonaccountofsuppressionofmaterialfacts,itisopentotheAOtocontinuewiththe assessment proceedings against the representative assessee and the nonresident simultaneously till hedecidestoassesseitherofthem; (iv)NCWSargumentthatthes.148noticeiswithoutjurisdictionisnotacceptablebecausetheprima facie belief of the AO that the transaction was in fact a transaction for transfer of a capital asset situate in India (shares of Idea Cellular) was with substance. It is open to NCWS to prove to the contrarybyplacingallmaterialfactsintheassessmentproceedings; (v) Tata Industries argument that no gains are taxable in India as the subject matter of sale were shares of AT&T Mauritius and not the shares of Idea Cellular is not acceptable because prima facie it appears that the transaction for sale of shares of AT&T Mauritius was a colourable transaction and wasinfactforsaleofthesharesofIdeaCellular. Adiya Birla Nuvo Limited vs DDIT ( 2011) 200 Taxman 437/ 59 DTR 1/ 242 CTR 561( Bombay) ( High Court) S.9(i):IncomedeemedtoaccrueorariseinIndiaBusinessconnectionActivitiesofliaisonofficein India.(S.5(2)(b)) Since the Indian Office of the non resident assessee company practically carry out all operations of thebusinessofthecommissionagentexcepttheformationofthecontractbetweenthevendorsand the buyers , it can not be argued that no income accrues or arise in India from the commission , howeverastheCIT(A)hasoverstatedtheroleoftheIndianOfficesintheoverallconductofbusiness , instead of allocation of commission at 30 percent commission income is allocated to the Indian operationsat50percent.(AsstYears19992000to200506). LinmarkInternational(HongKong)LtdvDyCIT(2011)57DTR340(Delhi)(Trib) S. 9(i): Income deemed to accrue or arise in India NonResident, with business connection, taxed only in respect of business operations carried out in India canvassing agent not `business connection,fairfeeextinguishesnonresidentsliabilitytotax. (i) The expression business connection does not cover mere canvassing for business by an agent in India.Itpostulatesa realand intimate relation betweenbusiness activitycarried on outsideIndiaand business activity within India, the relation between the two contributing to the earning of income by the nonresident in his business activity. The business operations carried out outside India and inside Indiamusthavesucharelationshipastocontributetobusinessoperationsasawhole. (ii) The scope of deeming fiction u/s 9 (1)(i) which prima facie appears to be an extension of the classicalsourceruleoftaxationisinfactconfinedtothesimplicitertaxabilityofanincomeearnedina tax jurisdiction because while the main provision of the deeming fiction seems to be taking a rather aggressiveviewofthesourcerule,theExplanationstothedeemingfictionconsiderablynarrowdownthe
scope of the same and to that extent there is overlapping of s. 9(1)(i) and s.5(2)(b). Further, while s. 9(1)(i) provides that an income with business connection in India is chargeable to tax no matter in which part of the world it accrues or arises, the income which can be subjected to tax in India can neverexceedtheincomeattributabletooperationscarriedoutinIndiabythenonresidentorbythe agent.Thisismadeclearbyclause(a)ofExplanation1tos.9(1)(i)andExplanation3.Theresultisthat if the agent (the business connection) has been compensated with fair remuneration, there cannot befurtherincomeofthenonresidentwhichcanbebroughttotaxu/s9(1)(i)r.w.s.5(2)(b). ADCIT vs Star Cruise India Travel Services Pvt. Ltd. (2011) 59 DTR 418 ( Mumbai)( Trib). www.itatonline.org. S.9(1):IncomedeemedtoaccrueorariseinIndiaFinanceAct,2010. SincebyFinanceAct,2010,section9hasbeenamendedwitheffectfrom161976,departmentwaspermittedto movetoHighCourtbywayofreviewpetitionagainstitsjudgmentinJindalThermalPowerCo.Ltd.vs.Dy.CIT (2009)182Taxman252(Kar.) Dy.CITvs.JindalThermalPowerCo.Ltd.(2011)196Taxman495(SC) S. 9(1) : Income deemed to accrue or arise in India Purchase of Technical know how Royalty Permanent EstablishmentBusinessReceiptInternationalTaxationTaxDeductionatSource(S.195) Purchase of technical know how by foreign company, was business receipt. As there was no permanent establishmentinIndia,thesamewasnotliabletobetaxedinIndia,thoughthesamewastreatedasroyalty.(A. Y.199192) VesilSPAItalyvs.Jt.CIT(2011)43SOT137(Hyd.)(Trib) S.9(1):IncomedeemedtoaccrueorariseinIndiaDTAAIndiaNetherlands(Art12) One of the group companies of assessee, located at Netherlands had acquired musical recording rights from otherrepertoirecompaniesandgrantedcommercialexploitationrightsofsuchmusicaltrackinIndiatoULtd. TheassesseereceivedroyaltyforfouryearsfromULtd.TheroyaltyagreementwasapprovedbyGovernment ofIndia.FurtherassesseehadfiledacertificatefromtaxauthorityofNetherlandshavingJurisdictionoveritin which it was certified that assessee was beneficial owner of royalty income received from U Ltd, within the meaningofarticle12ofDTAA.Thus,theassesseewasbeneficialownerofroyaltyandsamehadtobetaxedat rateof10percentforalltheyears.(Asstyears(200001to200304). AsstDITvUniversalInternationalMusicBV(2011)45SOT219/55DTR348(Mum)(Trib). S.9(1):IncomedeemedtoaccrueorariseinIndiaSoftwareembeddedinoffshoresupplymaybetaxableeven ifsupplynottaxable Theassessee,aUSAcompany,enteredintotwoseparatecontractswithAAI,oneforsupplyofequipmentand theotherforrenderinginstallationandtrainingservices.TheAO&CIT(A)held(i)thatthetwocontractswerean indivisibleworkscontract,(ii)thatasthesupplyinvolvedembeddedsoftware,theincomehadtobebifurcated between supply of equipment and royalty in the ratio of 30:70, (iii) that the equipmentsupply profits had accruedoncompletionofcontractandnotatthetimeoftransferoftitle,(iv)that50%oftheequipmentsupply profitswas attributabletotheassesseesPEinIndiaandthiswastaxableattheglobalprofitrateof 13.4%.On appealtotheTribunal,HELD: (i) Thetwocontractsconstituteoneagreementbecause(a)theessentialpurposeofbothcontractswasto set up the ATS, (b) the contract for supply of equipment and software would have been of no consequence withoutinstallationandperformanceservices,(c)thedatesofpaymentforthesupplycontractwereconnected
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with the service contract and (d) it was difficult to segregate the contract from installation/service contract (IshikawajimaHarima288ITR408(SC)referred); (ii) ThePEcameintoexistenceonclearanceofthegoodsinIndiabecauseaftertransferoftitleoutsideIndia, thepossessionwashandedovertotheassesseeforsafecustody,installationetc.Thisrequiredstoragespaceand supervision which cannot be said to be preliminary or auxiliary activities in nature as the equipments were requiredtobeinstalled; (iii) Thebifurcationofrevenueintosupplyofequipmentandsoftwareintheratioof30:70hadtobeupheld because(a)thoughthesoftwarewasembeddedintheequipmentandsuppliedasonepackageforoneprice,it waspermissibletosegregatethecompositeconsiderationintodifferentcomponentsand(b)theassesseehad notshownthesegregationdonebythecustomsauthoritiesforimposingdutyontheequipmentandsoftware (RotemCompany279ITR165(AAR)&Motorola95ITD269(SB)referred); (iv) Inaturnkeycontract,inwhichtheassesseeisunderobligationtosupplytheequipmentandthesoftware andalsoinstallthem,the1profitistaxableoncompletionofeachmilestoneandnotatthetimeofhandingover the functioning system to the contracting party. The departments argument that in a works contract, mere supply of equipment and software is of no consequence till installation and so profits should be taxed at that stage is not correct because even if turnkey, the taxable events in the execution of a contract may arise in several stages in several years if the obligations under the contract are distinct ones. The supply profits are consequentlynottaxableasitaccruedonsupplyoutsideIndia; (v) Onfacts,as thesupplyofequipmentandsoftwareconstitutedamilestoneinthecontract,theincome therefromaroseintheyearofshipmentwhichwasinanearlieryear.Itdidnotaccrueorariseinthepresentyear. AsthePEcameintoexistencewhentheequipmentwashandedovertoitbytheAAI,theprofitsfrominstallation contractandserviceswastaxable. RaytheonCompanyvs.DDIT(ITATDelhi)(www.itatonline.org) S.9(1): IncomedeemedtoaccrueorariseinIndiaSalarytostaffatNetherland(S.40(a)(iii),192). AssesseedidnotdeducttaxatsourceonsalarypaymentsmadetostaffatNetherlands.Assessingofficerinvoked theprovisionsof40(a)(iii),anddisallowedthepaymentsmadeonthegroundthatthetaxwasnotdeducted under section 192.The Tribunal held that since salaries had been paid to nonresidents for services rendered abroad,provisionsofExplanationtosection9(1)(ii)werenotapplicabletoassessee.Sincesalarypaidtonon residentsforservicesrenderedinNetherlandswasnotchargeabletotaxinIndia,provisionsofsection192can not be applied hence disallowance made by applying the provisions of section 40(a) (iii) were liable to be deleted.(AsstYear200304). DyCITvMotherDairyFruits&Veg(P)Ltd(2011)45SOT186(Delhi)(Trib). S.9(1): IncomedeemedtoaccrueorariseinIndiaRoyaltyorfeefortechnicalservicesBandwidthchargespaid toforeigncompaniesfordatacommunication.(S.40(a)(i),195). WheretheassesseehadmadepaymentstoserviceproviderssuchasAT&TorMCITelecommunicationsforuseof bandwidthprovidedfordownlinkingsignalsinUnitedStatesanditwasfoundthatthepaymentswerenotinthe natureofmanagerial,consultancyortechnicalservicesnorwasitforuseorrighttouseindustrial,commercialor scientific,equipment.Thepaymentwasnotinthenatureofroyaltyorfeefortechnicalservicesassesseewasnot liabletodeducttaxatsource.(AsstYear200405). InfosysTechnologiesLtdvDyCIT(2011)45SOT157(Bang)(Trib). S.9(1) : Income deemed to accrue and arise in India Royalty or fee for technical services For Equipment Royaltyu/s9(1)(vi),controlofequipmentbypayeressential
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(i) The word use in relation to equipment occurring in clause (iva) of Expl to s. 9(1)(vi) is not to be understoodinthebroadsenseofavailingofthebenefitofanequipment.Thecontextandcollocationofthetwo expressions use and right to use followed by the word equipment indicate that there must be some positiveactofutilization,applicationoremploymentofequipmentforthedesiredpurpose.Ifanadvantagewas taken from sophisticated equipment installed and provided by another, it could not be said that the recipient/customerusedtheequipmentassuch.Thecustomermerelymadeuseofthefacility,thoughhedid nothimselfusetheequipment.Whatiscontemplatedbytheworduseinclause(iva)ofExpl2tos.9(1)(vi)is thecustomercamefacetofacewiththeequipment,operateditorcontrolleditsfunctionsinsomemanner.Butif it did nothing to or with the equipment and did not exercise any possessory rights in relation thereto, it only made use of the facility created by the service provider who was the owner of the entire network and related equipment and there was no scope to invoke clause (iva) in such a case because the element of service predominated(ISROSatellite307ITR59(AAR),DellInternational305ITR37(AAR)&AsiaSatellite332ITR340 (Del)followed;FrontlineSoft12DTR131(Hyd)heldnotgoodlaw); (ii) Onfacts,thebanneradvertisementhostingservicesdidnotinvolveuseorrighttousebytheassessee anyindustrial,commercialorscientificequipmentandnosuchusewasactuallygrantedbyYahoo(HongKong) Ltdtotheassessee.Uploadinganddisplayofbanneradvertisementonitsportalwasentirelytheresponsibilityof Yahoo (Hong Kong) and the assessee was only required to provide the banner Ad to Yahoo (Hong Kong) for uploadingthesameonitsportal.TheassesseehadnorighttoaccesstheportalofYahoo(HongKong)andthere was nothing to show any positive act of utilization or employment of the portal of Yahoo (Hong Kong) by the assess YahooIndiaPvt.Ltd.Vs.DCIT(2011)59DTR1/140TTJ195(Mumbai)(Trib).(www.itatonline.org) S.9(1):IncomedeemedtoaccrueorariseinIndiaBusinessincomeDiscountingofpromissorynoteDTAAIndia USA.(Art7). It was not in dispute that income arising to applicant from discounting promissory note payable in India , is businessincometaxableinIndia.,Howeverarticle7ofDTAA,profitsofanenterpriseofacontractingStateshall betaxableonlyinStateunlessenterpriseofacontractingstate,throughapermanentestablishmentsituated therein.ItisassumedforthepurposeofthisRulingthatapplicanthasnopermanentestablishmentinIndia,it hastoberuledthatincomeofapplicantfromdiscountingofpromissorynotewouldnotbetaxedinIndia.Even otherwise,discountingofabillofexchangeorpromissorynotebeingapurchaseofinstrumentasitwereand especiallywhenitdiscountedwithoutrecourse,applicantisnotliabletotaxinIndiainviewofDTAAbetween IndiaandUSA. ABCInternationalInc.(2011)199Taxman211/241CTR289/55DTR393(AAR) S.9(1):IncomedeemedtoaccrueorariseinIndiaRoyaltiesandfeesfortechnicalservicesDTAAIndiaUSA.(S. 195.art12). Applicant a wholly owned subsidiary of US company, procured the services of US based personnel who are under the employment of GTEOC, and affiliate of its parent company. Personnel secondment agreement specifically provides that the seconded employees shall remain the employees of GTEOC and continue to get their salaries from GTEOC as long as they remain in its employment. The authority held that (1) Amounts reimbursedbytheapplicantrepresentincomeaccruingtoGTEOC(ii)Theamountsreimbursedbytheapplicant aretaxableasFeesforIncludedServices(FIS)undertheDTAAandalsoundertheAct.(iii)FeesforIncluded Services(FIS)istaxableattherateof20percentasprovideunderarticle12(4)(b)oftheDTAA.AccordinglyTDS wouldbedeductibleaspersection195 VerizonDataServicesIndia(P)Ltd(2011)199Taxman242/241CTR393/56DTR81/337ITR192(AAR).
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S.9(1):IncomedeemedtoaccrueorariseinIndiaFeesforTechnicalServicesDTAAIndiaCanada[S.115A, 234B,Art.12(4)] The assessee was a non resident company engaged in the business of providing consultancy for infrastructure projects. It had entered into an agreement with the National High way Authority of India and under the agreement the asseseee was to provide technical drawings and reports to NHAI to enable it to use the technologyforitsinfrastructureprojectswhichwasfoundedbytheWorldBank.Thecontentionoftheassessee was that the fee received from NHAI was to be treated as fees for included services as prescribed in article 12(4) of the Double Taxation Avoidance Agreement between India and Canada. In terms of this article, the tax chargeableisat15%.HowevertheAssessingOfficerwasoftheopinionthatfeechargedfortheaforesaidproject didnotincludefeeforincludedservices.Heaccordinglyisoftheopinionthattheincomewasderivedasfeefor technical services was chargeable to tax under the provisions of section 9(1)(viii) read with section 115A of the Act.Accordingtothissectionthetaxischargeablewasat20percent.TheTribunalacceptedthecontentionof assessee.InappealtheHighCourtaffirmedtheviewoftheTribunal.Theamountreceivedbytheassesseewas taxableunderArticle12oftheIndoCandiantreaty.Theassesseewasnotliabletopayadvancetaxandtherefore, interestundersection234Bwasnotchargeable. DITvs.SNCLalvalinInternational,Inc.(2011)332ITR314(Delhi)(HighCourt) S.9(1)(i):IncomedeemedtoaccrueinIndiaNoincomedeemedtoariseevenifrevenuearisesduetoviewers inIndiaInternationalTaxation. Forincometobetaxableundersection9(1)(i),thecarryingofoperationsinIndiaisasinequanon.Itwasheld that merely because the footprint area included India and programmes were watched by Indian viewers, it did notmeanthattheassesseewascarryingoutbusinessoperationsinIndia.Thetransponderusedwasinorbitand merelybecauseitsfootprintwasonIndiadidnotmeanthattheprocesshadtakenplaceinIndia.Ishikawaima Harima Heavy Industries 288 ITR 408 (SC) followed. It was further observed that the payment by the telecast operatorsoutsideIndiatotheassesseecannotbetaxedonthebasisthattheendconsumersareinIndia. Asia Satellite Telecommunication Co. Ltd. vs. DIT (2011) 51 DTR 1 / 238 CTR 233/197 Taxman 263/332 ITR 340(Delhi)(HighCourt), S. 9(1)(i) : Income deemed to accrue or arise in India Business Connection Offshore supply of equipment InternationalTaxation. Considerationfortheoffshoresupplyofequipmentbytheassessee,aKoreancompany,toanIndiancompany cannotbedeemedtohaveaccruedorariseninIndiaasthetermsoftheagreementstipulatedtransferoftitle/ propertyinthegoodsassoonasthegoodswereloadedontheshipattheportofshipmenti.e.outsideIndia,and thereisnomaterialtoshowthattheaccrualofincomefromthissalewasattributabletoanyoperationscarried outinIndiaorthatthePEoftheassesseeinIndiahadanyroletoplayintheoffshoresupplyofequipment.(A.Y. 200203) DirectorofIncomeTaxvs.LGCableLtd.(2011)237CTR438/50DTR1(Delhi)(HighCourt) Editorial:LGCableLtd.vs.Dy.DIT(2008)119TTJ34(Del.),affirmed. S. 9 (1) (i): Income deemed to accrue or arise in IndiaDependent Agent Permanent Establishment Fees for technicalservicesDTAAIndiaSingapore.(Art.5(9)). Theassessee,aSingaporecompany,renderedrepairandmaintenanceservicesandsuppliedsparestocustomers inIndia.Whiletheincomefromrepairswasofferedtotaxasfeesfortechnicalservices,theincomefromsupply of spares was claimed to be not taxable on the ground that it had accrued outside India. The AO, CIT (A) and
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Tribunaltooktheviewthattheassesseehadapermanentestablishmentonthebasisthatithadadependent agentinIndiaunderArticle5(9)oftheIndiaSingaporeDTAAandthattheincomeearnedfromsupplyingspare partswastaxableinIndia.OnappealtotheHighCourt,heldthat(i)ToconstituteaDependentAgentPermanent EstablishmentunderArticle5(9)oftheDTAAithastobeseenwhethertheactivitiesoftheagentaredevoted whollyoralmostwhollyonbehalfoftheassessee.Whiletheissuesasto(a)whethertheagentiswasprohibited from taking competitive products and (b) whether the assessee exercised extensive control over the agent were relevant,theyarenotconclusive.Itisnotcorrecttosaythatmerelybecausetheagentisprohibitedfromtakinga competitive product means that it is not an agent of independent status. What has to be seen is whether the activitiesoftheagentaredevotedwhollyoralmostwhollyonbehalfoftheassessee.Iftheassesseecanshow that it was not the sole client of the agent and that activitiesof the agent were not devoted wholly or almost whollyonbehalfoftheassessee,theremaybenoDAPE.Theincomeearnedbytheagentfromotherclientsand theextentofsuchincomeisveryrelevanttodecidewhetherthecriteriastipulatedinArticle5(9)issatisfiedor not.(Matterremandedforfreshconsideration); (ii)Whileinprincipleitiscorrectthatifafairpriceispaidbytheassesseetotheagentfortheactivitiesofthe assesseeinIndiathroughtheDAPEandthesaidpriceistaxedinIndiaatthehandsoftheagent,thennoquestion oftaxingtheassesseeagainwouldarise,thisissubjecttoaTransferPricingAnalysisbeingundertakenu/s92.The TransferPricinganalysistodeterminethearmslengthpricehastobedonebytakingtheFunctions,Assets usedandRiskinvolved(FAR).Asthishasnotbeendone,theassesseesargumentonarmslengthpriceisnot acceptable (iii) As the commission paid by the agent to the DAPE is not at arms length, the estimation that 10% of the profitsonsalesofsparepartswereattributabletotheactivitiescarriedoutbytheagentinIndiaandtaxableis reasonable. The test is profits expected to make and has to be determined bearing in mind the fact that the agent was merely rendering support services and had no authority to negotiate and accept contracts and also assumedlimitedrisk. RollsRoyceSingaporePvt.Ltd.vADCIT(Delhi)(HighCourt).www.itatonline.org. S. 9(1)(i) : Income deemed to accrue or arise in India Tax Deduction at Source Technical Services InternationalTaxation(S.40(a)(i),194J) Assessee was a dealer for Xerox India Ltd. (XIL), authorized to sell and otherwise, promote latter in specified territories.Apartfromsales,assesseewasalsorequiredtorenderservicesupporttocustomers,i.e.purchasersof productofXIL.AssesseeclaimedthatpaymentsmadetoXILcouldnotbetreatedasfeesfortechnicalservices. Tribunalheldthatthepaymentinquestionamountedtofeesfortechnicalserviceshencedisallowancemadeby thelowerauthoritieswerejustified.(A.Y.200708) DivyaBusinessSystems(P)Ltd.vs.ACIT(2011)43SOT155/138TTJ582(Cochin)(Trib) S.9 (1) (i): Income deemed to accrue or arise in India Foreign agent CommissionBusiness connection Permanentestablishment.(S.4(1),40(a)(ia),195). WhereaforeignagentofanIndianexporteroperatesinhisowncountryandhiscommissionisdirectlyremitted tohim.SuchcommissionisnotreceivedbyhimorinhisbehalfinIndia,thensuchagentisnotliabletoincome taxinIndiaoncommissionreceivedbyhim.AstherewasnorighttoreceiveincomeearnedinIndianortherewas anybusinessconnectionbetweenassesseeandETUK,thereforewhenincomewasnotchargeabletotaxinIndia under section 4 (1), there was no question of invoking provisions of section 195 hence no disallowance can be madeundersection40(a)(ia).(A.Y.200708). DyCITvEonTechnology(P)Ltd(2011)46SOT323(Delhi)(Trib).
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S.9(1)(i):IncomedeemedtoaccrueorariseinIndiaPrinciplesonsplittingofturnkeycontractsOffshore supplyDTAAIndiaKorea.(Art.5.(1),5(2).) Theassessee,aKoreancompany,entered(togetherwithL&T)intoacontractdated28.2.2006withONGCforthe surveys, design, engineering, procurement, installation etc of a project on turnkey basis. On 24.5.2006, the assesseeopenedaProjectOfficewhichconstitutedaPermanentEstablishment.Theassesseeclaimed,relying on IshikawajimaHarima 288 ITR 408 (SC) & Hyundai Heavy Industries 291 ITR 482 (SC) that the revenue from offshoresupplyandoffshoreserviceswasnotassessabletotaxinIndiaasnopartofitwasattributabletothe PE. The AO & DRP rejected the claim on the basis that (i) the assessee had actively participated in prebid meetingsandtheprojectofficewasinexistenceevenatthestageofthekickoffmeeting,onappealbythe assesseetotheTribunal,TheTribunalheld(i)Thecontractwasnotdivisibleintoonepartforthefabricationof platformandtheotherforinstallation&commissioning.Itstermsshowedthatitwasacompositecontractfrom surveysofpreengineeringtostartupandcommissioningoftheentirefacilities; (ii) TheopeningoftheProjectOfficewasaconditionprecedentbeforethecommencementoftheactivityof thecontractor.ThescopeoftheProjectOfficewasnotrestrictedeitherbytheassesseeorbytheRBI.Also,the resolutionsoftheassesseeshowedthattheProjectOfficewasopenedforcoordinationandexecutionofproject. It was clear that all the activities to be carried out in respect of the contract were to be routed through the ProjectOffice; (iii) Hyundai Heavy Industries 291 ITR 482 (SC) is not applicable because there (a) the project office was to workonlyasaliaison officeandwas notauthorizedtocarry onanybusinessactivityand(b)thecontractwas divisibleintotwopartsandsotheargumentthatthePEdoesnotcomeintoexistencetillthefabricationworkis donewasaccepted; (iv) The argument that if an installation PE is to come into existence under Article 5(3), one cannot have regardtothePEunderArticles5(1)&5(2)isnotacceptable.TheProjectOfficeconstitutedaPEunderArticle5(1) andanInstallationPEwasnotnecessary; (v) Theonusisontheassesseetoshowthatofficedidnotplayaroleintheproject.Ontheotherhand,the contractproceedsonthebasisthatthePOplayedavitalroleintheexecutionoftheproject; (vi) TheattributiontoIndiaofprofitfromoffshoresupplyhastobebasedonmaterialanddonebasedonthe extentofactivitydonebythePO(matterremanded). SamsungHeavyIndustriesCo.ltd.vADCIT(Delhi)(Trib).www.itatonline.org. S. 9 (1) (i):Income deemed to accrue or arise in India Business connectionOffshore supply of equipments Deductionoftaxatsource.Nonresident. Non resident company is not liable to tax in India in respect of payments for off shore supply of equipments under the composite contracts for setting up transmission lines and consequently , no tax is required to be deductedatsourcefromthepaymentsmadetoitforthesupplyofequipments. DeepakCables(India)Ltd(2011)242CTR469(AAR). S.9(1) (i): Income deemed to accrue or arise in India Business connection Offshore supply of equipments materialsDTAAIndiaKorea.(S.245R(2). Applicant , a Korean company , having entered a separate contract for off shore supply of equipments and materialsalongwithtwoothercontractsforonshoresupplyandonshoreservicesforvariousprojectsinIndia, and the consideration for the sale is separately specified , it can be separated from the whole, and since the transaction of sale and the transfer of ownership and property in goods took place out side Indian territory , applicantisnotliabletotaxinrespectofoffshoresupplies. LSCablesLtd(2011)59DTR216/337ITR35(AAR).
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S.9(1)(i):IncomedeemedtoaccrueorariseinIndiaBusinessconnectionLiaisonofficeofforeigncompany DTAAIndiaUSA.(Art.5,7). LiaisonofficeoftheapplicantforeigncompanyoperatinginIndiacarryingonvariousactivitiesitcannotbesaid thattheoperationsoftheliaisonofficeareconfinedtopurchaseofgoodsinIndiaforthepurposeofexportand itsincomeisnotcoveredbyExplanation((b)tosection9(1)(i),eventhoughnoproductoftheapplicantissoldin India.Theliaisonofficecanbetermedaspermanentestablishmentwithinthemeaningofart5.(1)oftheIndo USADTAAandcannotbeexcludedfromthedefinitionofPermanentestablishmentbyreasonofclause(d)and (e)ofart5(3),hencetheapplicantisliabletotaxinIndiaintermsofart7(1). ColumbiaSpotswearCompany(2011)337ITR407/59DTR233/243CTR42(AAR). S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaCopyrightedSoftwareNonResidentRoyaltyDouble TaxationAvoidanceAgreementIndiaMauritiusArt.12 BoththeassesseecompaniesdidnothavepermanentestablishmentinIndia.Thepaymentsreceivedagainstsale ofsoftwarecouldnotbetreatedasincomefromroyaltyeitherundertheincometaxAct,1961orundertheterms oftheDoubleTaxationAvoidanceAgreementbecausepaymentsweremadeforsaleofcopyrightedarticles.(A.Y. 200506) VelankaniMaritiusLtd.vs.Dy.CIT(2011)7ITR171/42DTR193/132TTJ124(Trib.)(Bang.) S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaEquipmentUseRoyaltyIfPayerhasnocontrolover equipmentDTAAIndiaUK.[Art.12(3)(b)] Theactivityoftransmittingrawdatatouser,processingofthedatabysuchuserbyusingsoftwarebelongingto assessee and transmission of such data to assessee does not involve use of any process so as to constitute royaltyunderArticle12(3)(a). In order to constitute use of equipment, the customer should actually have domain or control over the equipmentsitshouldbeatitsdisposal.(A.Y.200405) StandardCharteredBankvsDDIT(2011)11ITR(Trib)721/61DTR370(Mum.)(Trib.)Source:www.itatonline.org S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltyIncomefromlicenseofsoftwarenotassessable asroyalty.Gracemacnotfollowed;MotorolastillgoodlawDTAAIndiaIsraeli. The assessee, an Israeli company, entered into an agreement with Reliance Infocomm for supply and license of softwareforRILswirelessnetworkinIndia.TheassesseereceivedRs.3croreswhichitclaimedtobebusiness profitsandnottaxableforwantofapermanentestablishment(PE)inIndia.TheAOtooktheviewthatthesaid sumwasassessableasroyalty.ThiswasreversedbytheCIT(A)followingMotorolaInc96TTJ1(Del)(SB).In appealbeforetheTribunal,thedepartmentarguedthatinviewofGracemacCorp42SOT550(Del),theuseof softwarewasassessableasroyalty.TheTribunaldismissingtheappealheldthat,(i)UnderArticle12(3)ofthe IndiaIsrael DTAA, royalty is defined inter alia to mean payments for the use of a copyright or a process. Thereisadistinctionbetweenuseofcopyrightanduseofacopyrightedarticle.Inordertoconstituteuseof acopyright,thetransfereemustenjoyfourrightsviz:(i)therighttomakecopiesofthesoftwarefordistribution tothepublic,(ii)Therighttopreparederivativecomputerprogrammesbaseduponthecopyrightedprogramme, (iii)therighttomakeapublicperformanceofthecomputerprogrammeand(iv)Therighttopubliclydisplaythe computerprogramme.Iftheserightsarenotenjoyed,thereisnouseofacopyright.Theconsiderationisalso notforuseofaprocessbecausewhatthecustomerispayingforisnotfortheprocessbutfortheresults achievedbyuseofthesoftware.Itwillbeahypertechnicalapproachtotallydivorcedfromgroundbusinessrealities
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toholdthattheuseofsoftwareisuseofaprocess.(MotorolaInc96TTJ1(Del)(SB)andAsiaSat332ITR340 (Del)followed.GracemacCorp42SOT550(Del)notfollowed); (ii)ItiswellsettledthataDTAAprevailsovertheActwhereitismorefavourabletotheassessee.Theviewtaken inGracemac,relyingonGramophoneCoAIR1984SC667,thattheActoverridesthetreatyprovisionswherethere isirreconcilableconflictisnotacceptablebecause(a)itisobiterdicta,(b)contrarytoAzadiBachaoAndolan263 ITR 706 (SC) and (c) Gramophone Co not applicable to I. T. Act as it dealt with law in which specific enabling clausefortreatyoverridedidnotexist.(RamJethmalanivsUOIalsoconsidered). ADITvTIIteamTelecomInternationalPvt.Ltd.(2011)60DTR177/140TTJ649(Mum)(Trib).www.itatonline.org. S. 9(1)(vii) : Income deemed to accrue or arise in India Fees for Technical Services Technology advanced in countriesIncomeTaxDepartmentTechnicalExpertsDeductionoftaxatsourceInternationalTaxation. Incasesrequiringexaminationbytechnicalexperts,thedepartmentoughtnottoproceedonlybythecontracts placed before the officers. The department ought to examine technical experts so that the matters could be disposedoffexpeditiously.Intheinstantcase,acellularproviderunderanagreementpaidinterconnect/access/ portchargestoBSNL/MTNL,thequestionwhetherthecellularproviderhasrenderedtechnicalservicesandhas to deduct tax at source, depended on whether the charges were for technical services and this involved determination of whether any human intervention was involved, which could not be determined without technicalassistance.ThedecisionofDelhiHighCourtinCITvs.BharatiCellularLtd.(2009)319ITR139,setaside andmatterremandedtotheAssessingOfficerwithdirections. CITvs.BharatiCelluarLtd.(2011)330ITR239(SC)/CITvs.HutchisonEssarTelecomLtd.(2011)330ITR239/234CTR 146/193Taxman97/44DTR190(SC) S. 9(1)(vii) : Income deemed to accrue or arise Validity challenged Parliaments power to make laws with extraTerritorialeffect. Theconstitutionalvalidityofsection9(1)(vii)(b)waschallengedbywayanappealtotheSupremeCourtsoasto determinetheextenttowhichlawsenactedbyParliamentcanhaveextraterritorialeffectunderArticle245.The Constitution Bench held that Parliament is constitutionally restricted from enacting legislation with respect to extraterritorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangibleimpact(s)onoreffect(s)inorconsequencesfor:(a)theterritoryofIndia,oranypartofIndia;or(b) the interests of, welfare of, wellbeing of, or security of inhabitants of India, and Indians. In all other respects, Parliamentmayenactlegislationwithextraterritorialeffect.AllthatisrequiredisthattheconnectiontoIndiabe realorexpectedtobereal,andnotillusoryorfanciful.ParliamentcanonlymakelawsforIndiaandanylawwhich hasnoimpactonornexuswithIndiawouldbeultravires. GVKIndustriesLtd.vs.ITO(2011)332ITR130/239CTR113/197Taxman337/52DTR1/162CaomCase574(SC)5Member Bench, S.9(1)(Vii).IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservices. IncomereceivedbyaUScompany,bywayoffeesfortechnicalservicescouldnotbedeemedtohave accrued or arisen in India as the services under the agreement were not rendered with in India even though services received from it may have been utilized by the Indian company in India.( Asst year 199192). GrasimIndustriesLtd&OrsvCIT(2011)58DTR47/242CTR166(Bom)(HighCourt). S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaRoyaltyComputerSoftwareCopyrightedArticleTax DeductionatSourceInternationalTaxationDTAAIndiaUSAArt.7and12(S.195)
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Where the payment is made in respect of the software which is granted on terms of nonexclusive, perpetual, irrevocable, royalty free worldwide license to use the number of copies of the software enumerated in the agreementsolelyforinternaloperation,andnotdirectlyaccessibletothirdpartycouldnotbeconsideredasa RoyaltyundertheAct.Asthepaymentwasbusinessincomeofthepartyreceivingthepayment,asthatnon residentpartydidnothaveaPermanentEstablishmentinIndiaandthusasperD.T.A.A.thesamecannotbetaxed inIndia.Theassesseeisnotliabletodeducttaxatsource. Dy.DITvs.RelianceIndustriesLtd.(2011)43SOT506(Mum.)(Trib.) S. 9(1)(vii) : Income deemed to accrue or arise in India Fees for Technical Services International Taxation DTAAIndiaDenmark Amountreceivedbyassessee,aDanishshippingcompany,fromitsagentsinIndiatowardstheirshareofcostof globaltelecommunicationfacilityprovidedtotheagentstoenablethemtohaveaccesstovarietyofinformation regardingtrackingofcargo,transportationschedule,etc.,tofacilitateinternationalshippingbusinessbeingonly reimbursement of cost and not involving any profit element, cannot be considered as fees for technical services.(A.Y.200102and200203) DampskibsselskabetAF1912A/SAktiesIskabetvs.Addl.DIT(2011)51DTR148(Mum.)(Trib.) S.9(1) (vii).Income deemed to accrue or arise in India Fees for Technical Services Permanent establishment DeductionoftaxatsourceDTAAIndiaItaly(S.90,195,arts5,7,13.) Considerationpaidtoforeigncompanywasonlyforsupervisingtheerectionofmachineswhichcannotbesaid tobeapaymentforassemblyofmachinestofallwithintheexclusionclauseofExplanation2tosection9(1)(vii). However , as persons who rendered services were not present in India for the required number of days as envisagedbyart5(j)oftheDTAAreadwithart13(5),incomewasnotchargeabletotaxinIndiaandtherewas noobligationtodeducttaxatsourceonsuchpayment.(AsstYear200607). AdityaBiralNuvoLtdvAsstCIT(2011)56DTR100/11ITR812(Trib)/61DTR343(Mumbai)(Trib). S.9(1)(vii).IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDevelopingtoolingvalidating newprocessformanufactureDeductionoftaxatsourceDTAAIndiaUSA.(S.195,201,Art12(4). Assesseeisengagedinthemanufactureofsteelwheelsforcommercialvehicles,passengercars,utilityvehicles, earthmovingconstructionequipment,agriculturaltractorsanddefencevehicles.Assesseedevelopedthenew processofmanufacturingsteelwheelsfortrucksetc,howeveritdidnothaverequisiteknowhowfordesigning the machine capable of manufacturing the product as patented process. Assessee approached the two US Companies which had the required knowledge. Assessee made advance payment in respect of entire services undertheagreementwererenderedoutsideIndiaandhencenoincomechargeabletotaxinIndia.TheTribunal heldthatintermsofArticle12(4)ofIndiaUStaxtreaty,paymentmadetoUScompanyfordevelopingtooling andvalidatingnewprocessformanufactureofwheelsforcommercialvehiclesisfeesforincludedservices WheelsIndiaLtd.vsITO,ITANo.1792/Mds./2006,dt.19042011,A.Y.20052006,ChennaiITAT,BCAJpg.29,Vol. 43A,Part3,June2011. S.9(1)(vii): Income deemed to accrue or arise in India Deduction of tax at source Payment to non residentTrainingitspersonnelFeesfortechnicalserviceIncomedeemedtoaccrueorariseinIndia. (S,40(a))(i),195.) Assesseecompanyduringrelevantassessmentyearmadepaymenttononresidentpartyfortraining its personnel or customers to explain proposed buyers salient features of products imported by assesseeinIndiaandtoimparttrainingtocustomerstouseequipment.Thepaymentmadecouldnot
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besaidtobefeesfortechnicalservicesandnotliablefordeductionoftaxatsource.(AsstYear2007 08). AsstCITvPCILtd(2011)46SOT183(Delhi)(Trib). S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDeductionoftaxatsource DTAAIndiaUK.(90,195). ServicesrenderedbytheUKcompanytotheapplicantIndianCompanypursuanttothedataprocessingservices agreementbeinginthenatureofroutinedataentry,applicationsortingdocumenthandinganddatacapturing services,cannotbesaidtobemanagerialortechnicalserviceswithinthemeaningofart13oftheIndoUKDTAA or Explanation 2 to section 9 (1) (vii) and therefore , consideration received for such services is not taxable in Indiaandaccordingly,thereisnoquestionofwithholdingtaxundersection195. R.R.DonnelleyIndiaOutsource(P)Ltd(2011)241CTR305/199Taxman255/56DTR1(AAR). S.9(1)(vii):IncomedeemedtoaccrueorariseinIndiaFeesfortechnicalservicesDTAAIndiaUSA.(Art.12). AssesseerunningbusinessofHotelmakingpaymentstoUSbasedinteriorLandscapingconsultantsM.Work donebyMisbasicallyinspectionofhotel,reviewingofthefacilities,comparingthesamewithMsstandardsand suggestingimprovements/changewhereverrequiredtoMstandard,whichdidnotamounttotechnicalservices andthereforenotaxwasdeductibleatsource.Similarly,feespaidtoUKcompanyAwasalsoforworkofdesign ,documentationanddidnotfallunderart13ofIndoUKDTAA,likewise,feespaidtoThailandcompanyBD,for renderingservicesoflandscapearchitecturalconsultancywasnotassessableinIndia.(A.Y.200304to200506). AsstCITvViceroyHotelsLtd(2011)60DTR1(Hyd)(Trib). Chapter111Incomewhichdonotformpartoftotalincome. S.10(22):ExemptincomesEducationalInstitutionPurposeofprofit.(S.11(1)(a),13(1)(c),13(3). Exemption under section 10 (22) is available only if the assessee is running an educational institution solelyforeducationalpurposesandnotforpurposesofprofit:Exemptionundersection10(22)isnot allowable to the assessee as its objects include establishing small scale industries of all kind and to aid and assist the poor , the grief stricken ,the destitute , and persons and animals suffering from calamities.(Asstyears198384to198586). CITvGurukulGhatkeswarTrust(2011)58DTR122(AP)(HighCourt). S.10(23C):ExemptincomesCharitablepurposeEducationSubsidygrantfromGovernment.(S.2.(15).) A grant coming from Government will qualify for exemption from taxation if same has been granted for a particular purpose of public utility or public importance or to alleviate a situation affecting general public and cannotbeusedforanyotherpurpose.AssesseewhichisGovernmentcompanywithinthemeaningofsection 617ofCompaniesAct,1956,whichisengagedinbusinessofprinting,saleoftextbookandjobworksrelatingto printing,etc.,theincomewillbeexempt.Theactivityofassesseewerecoveredbyexpressioneducationaswell as advancement of any other object of general public utility occurring in definition of Charitable purpose undersection2(15).(Asstyear200506) BiharStateTextBookPublishingCorporationvCIT(2011)199Taxman196/241CTR403(Patna)(HighCourt). S.10 (23C)(vi):Educational institutions Registration under Andhra Pradesh Charitable and Hindu Religious InstitutionsandEndowments,Act,1987SeminarsSymposiumsWorkshopsApplicationofincomeAdvanceof moneytoanothereducationalinstitutions.
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Inordertobeeligibleforexemption,undersection10(23C(vi),itisnecessarythatsuchinstitutionmustexist solely , for educational purposes , and institution should not exist for purpose of profit. Registration under section 43A of A.P. Act is not a condition precedent for seeking approval , Chief commissioner has to examine independently.ObjectofSocietytoconductseminars,symposiums,workshopsandinviteexpertsfromIndia and abroad to improve quality of education and to support students to elevate themselves to international standards is incidental and ancillary object to primary objects of carrying on educational activities. Money advancedtoanothereducationalinstitutioncannotbetreatedasapplicationofincomesolelyforthepurposeof education. NewNobleEducationSocietyvChiefCommissioner(2011)201Taxman33(AP)(HighCourt). S.10(23FB):ExemptincomesVentureCapitalfundIncomefromothersources. It was held that exemption claimed with respect of any income from any VCF prior to 1/4/2008 was exempt as the amendment to s. 10(23FB), which restricted to the exemption to income from investmentbyVCF,iswitheffectfrom1/4/2008andisprospective. ITOvKshitijCapitalFund(2011)131ITD290(Mumbai)(Trib). S.10A:ExemptIncomesFreeTradeZoneForeignTrade(DevelopmentandRegulation)Act,1992Allocation ofExpenses. WhereassesseeentireincomeisfromSTPunitanditisgovernedunderaschemepromulgatedbysection3(1)of Foreign Trade (Development and Regulation) Act, 1992, it was held by the Tribunal that Foreign Trade (DevelopmentandRegulation)Act,1992,doesnotcontainanyprovisionoverridingprovisionsofIncomeTaxAct, therefore, the assessee can get the exemption only as per section 10A of the Income Tax Act. Where travel expenses, telecommunication charges, professional charges and professional consultancy charges as reduced from export turnover bore no element of profit which would require allocation by apportionment, the said chargeswouldstandtobeexcludedfromcomputationofTotalTurnoveraswell.(A.Y.200102to20042005) Dy.CITvs.IBSSoftwareServices(P)Ltd.(2011)129ITD21/137TTJ54/52DTR179(Cochin)(Trib) S.10A:ExemptincomesFreeTradeZoneInterestfromBankDepositsTurnoverFreightCharges. Interest received from bank deposit and other income shall not form part of profit from business for the purposeofcomputationofdeductionundersection10A.Aftersubstitutionofsubsection(4)ofsection10Aby Finance Act, 2001, total turnover for relevant assessment years shall comprise of total turnover of business carried on by eligible undertaking only and not total turnover of all units of assessee for the purpose of calculationofdeductionundersection10A.Forthepurposeofcalculatingdeductionundersection10A,export turnoverhastobereducedbyfreightcharges,telecommunicationchargesorinsurancechargesattributableto deliveryofarticlesorthingsorcomputersoftwareoutsideIndiaorexpensesifanyincurredinforeignexchange, inprovidingtechnicalservicesoutsideIndia.Commissionchargesthataredeductedfromexportturnovershould alsobedeductedfromtotalturnover.(A.Y.20032006) MiracleSoftwareSystemsIndia(P)Ltd.vs.ACIT(2011)44SOT203/59DTR333/140TTJ703(Visakhapatanam)(Trib) S.10A:ExemptincomesFreeTradeZoneDeductionInterestonBankSTPUnitTotalTurnover. Interestonbankdepositexemptionundersection10A,isnoteligible.Whentheamounttobeproportioneddid notincludetheunrealizedsaleproceeds,thesamewouldalsobeincludedinthetotalturnoverundersection10A. Whenassesseeexcludedtravelexpensestelecommunicationchargesandprofessionalconsultancychargesinthe computation of export turnover, the same has to be reduced from the figure of total turnover, for the purposeofsection10A.(A.Y.200102to20042005)
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Dy.CITvs.IBSSoftwareServices(P)Ltd.(2011)137TTJ54/52DTR179/129ITD21(Coch.)(Trib.) S. 10A: Exempt incomes Free Trade ZoneAdjustment of loss against taxable profit of other unit. Exportturnover. From Assessment year 200102 section 10A is no longer an exemption provision and it allows only deduction from total income , loss from 10A unit has to be adjusted against taxable profit of other unit after deduction under section 10A has been allowed in respect of eligible units. Assessee had incurreddatalinecostbeingtelecommunicationchargesinrespectofitsunitandsamewasincluded in export turnover for purpose of deduction under section 10A. Assessing Officer excluded the data line cost from export turnover. Since expenses incurred on development of software in India could not be considered as expenses attributable to delivery of computer soft ware out side India , such expensescouldnotbeexcludedfromexportturnover.(AsstYear200607). CapgeminiIndia(P)LtdvAddlCIT(2011)46SOT195(Mumbai)(Trib). S.10B:ExemptincomesExportorientedundertakingActualexport. Assesseehundredpercentexportorientedundertaking(EOU),whichhascommencedproductionpriorto1stApril 1994,exemptionundersection10Bwasallowableevenifitsexportwaslessthanseventyfivepercentasunder thepreamendedprovisions,thebenefitwasavailablebymereobtainingacertificateofEOUundertheIDRAct. (AsstYear19992000) CITvBaehalSoftwareLtd(2011)240CTR316(Kar)(HighCourt). S.10B:ExemptionEOUJobworkdonebysisterconcern. Assessee, an EOU, approved by NEPZ authorities , being engaged in manufacture of articles and exporting the samecannotbedeniedexemptionundersection10Bonlybecause,itwasgettingsomejobworkdonefromits sisterconcern.(A.Y.200304). CITvContinentalEnginesLtd(2011)60DTR40(Delhi)(HighCourt). S.10B:ExemptincomesDeductionExportChangeofOwnershipofUnitReconstructionofexistingUnit. Firmconvertedintocompany,changeofownershipofunitnotareconstructionhence,deductionundersection 10Bisavailable.(A.Y.200708) ITOvs.VetoElectropowers(2011)8ITR76/56DTR313/(TaxWorld)Feb.,2011P.66(Jaipur)(Trib.) S.10B:ExemptincomesExportOrientedUndertakingExportTurnover. Expensesincurredinconnectionwithdevelopmentofsoftwarebytheemployeesatforeignbranchshouldnot beexcludedfromtheexportturnoverforcomputingdeductionunderthesection10B.(A.Y.200304) ZylogSystemsLtd.vs.ITO(2011)128ITD105/135TTJ0129/7ITR348/49DTR1(Chennai)(SB)(Trib.) S.10B:ExemptincomesExportOrientedUndertakingOptionDeclaration. Ifanassesseefilesadeclarationtoavailoptionofnotclaimingdeductionundersection10B,thenprovisionsof sectionwouldnotbeapplicableforanyrelevantassessmentyear.Filingofdeclarationismandatoryandtimelimit isdirectory.(A.Y.200304) WiproBPOSolutionsLtd.vs.Dy.CIT(2011)44SOT353(Bang.)(Trib.) S.10B:ExemptincomesComputationTransactionwithrelatedconcern.(S.80IA(10).
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Assesseeengagedinmanufacturingofpreciousandsemipreciousstones.GPrateassessedwasmuchhigheras comparedtoanotherconcerni.e.V.R.Exports.AssessingOfficerclubbedtheturnoverofboththeconcernsand determinedtheaverageGPrateafterconsideringthedirectexpensesandreduceddeductionundersection10B. The Tribunal held that since there is no business between the assessee and VR Exports, provisions of section 80IA (10) are not applicable and net profit rate of the two concerns cannot be apportioned in the ratio of turnoverofbothconcerns.(Asstyear200506). ITOvKanchanTaraExports(2011)138TTJ592(JP)(Trib). S. 10B:Exempt incomes DeductionSplitting up or reconstruction of existing business Lease of undertaking. Assessee company claimed the deduction under section 10B on the basis of the lease arrangement between the assessee company and the predecessor , the tribunal held that such claim of benefit under section 10 B for the balance unexpired period was not allowable because the claim was not basedontheestablishmentofnewindustrialundertaking.(AsstYears200607&200708). SynergiesCastingLtdvDyCIT(2011)57DTR503(Hyd)(Trib). S.10B:Exempt incomes DeductionExport of computer software Back office operationComputation Transactionwithrelatedconcerns.(S.80IA(10). Activities of software programming carried on by the assessee company to render quality and testing assurance services to foreign clients and transmitting the same through internet are in the nature of back office operations covered by CBDT Notification no 890 (E) dt 26 th September , 2000 issued for the purpose of Explanation 2 to section 10B and therefore , assessee company registered as a 100 percent EOU with STPI is entitled to deduction under section 10B. The assessee company had raised thebillsfortheservicesrenderedbyitinconsonancewiththetermsofagreementsettledbetweenit anditsclientsfromtimetotime andSTPIhavingcertifiedthatsuchservices,itcannotbesaidthat profitsshownbytheassesseeareonthehighersideandtherefore,profitsoftheassesseecompany could not be reworked by applying the provisions of section 80IA (10) for the purpose of allowing exemptionundersection10B.(Asstyears200506to200708). BeboTechlogies(P)LtdvJCIT(2011)57DTR402(Chd)(Trib). S.10B(6):ExemptincomesDepreciationUnabsorbedCarryforwardandsetoff Unabsorbed depreciation of earlier assessment years in which no deduction was claimed under section 10B is availableforsetoffagainstothertaxableincomeofthesubsequentassessmentyears.(A.Y.200205) PatspinIndiaLtd.vs.Dy.CIT(2011)51DTR57/129ITD35/136TTJ377(Cochin)(Trib.)(TM) S.10B(6)(ii): Exempt incomes Depreciation Unabsorbed Carry forward and set offExempted income ( Incomefromothersources.(S.32(2),56,72(2)). Assesseebeingentitledtodeductionundersection10Buptoasstyear200506,provisionsofsection10B(6)are notapplicableintherelevantasstyearie200405andthereforeunabsorbeddepreciationbroughtforwardfrom asstyearpriortoasstyear200001canbesetoffagainstbusinessincomeoragainstanyotherheadofincome includingincomefromothersources.(Asstyear200405) DyCITvAkayFalvours&Aromatics(P)Ltd(2011)55DTR1/130ITD219(Coch)(TM)(Trib). S.10(10CC):ExemptincomesPerquisiteTaxbornebyEmployer.
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Taxpaidbyemployerinrespectofsalarypaidtoemployeeswouldconstituteanonmonetaryperquisiteeligible forexemptionundersection10(10CC).(A.Y.20042005) TransoceanDiscoverervs.ACIT(2011)44SOT248(Delhi)(Trib) S.10(20):ExemptincomesLocalAuthorityNotifiedAreaSuratMunicipality. The assessee was a notified area in Surat for industrial development. It had been notified by the State Government under Gujarat Industrial Development, 1962. The assessee had been entrusted with the work of collectionoftaxunderanotificationissuedbyGujaratMunicipalityAct,1963.Onthefactsofthepresentcase,the assesseewasregardedasamunicipalityundersection10(20)andthereforeitsincomewasexemptunderthe saidsection.(A.Y.200304) ITOvs.SachinNotifiedArea(2011)43SOT411/7ITR699/132TTJ610/42DTR478(Ahd.)(Trib.) S.10(23C)(vi):ExemptincomesEducationalInstitutional. Theassumptionthatforexemptionthereshouldnotbeanysurplusandifitisotherwisetheinstitutionsociety exists for profit and not charity is not justified. Thus, exemption cannot be rejected merely because there is a surplus.VanitaVishramTrust327ITR121(Bom.),MaaSaraswatiTrust194TM84(HP)andPinegroveInternational CharitableTrust327ITR73(P&H)followed). St.LawrenceEducationalSocietyvs.CIT(2011)130ITD439(Delhi)(HighCourt) S.11:ExemptincomesCharitableTrustApplicationofIncomeDepreciation. Depreciationclaimisnothingbutapplicationofincome,hence,depreciationshouldbereducedfromtheincome fordeterminingthepercentageoffundswhichhadtobeappliedforthepurposesofthetrust.(A.Y.200607) CITvs.TinnyTontsEducationSociety(2011)330ITR21(P&H)(HighCourt) S.11:ExemptincomesCharitableTrustExemptionSetoffofloss. Theexcessofapplicationofthecurrentyear/Pastyearcanbesetoffagainsttheincomeofsubsequent/current year. RaghuvanshiCharitableTrustandothersvs.DIT(2011)221Taxation250(Delhi)(HighCourt) S.11.ExemptincomesCharitableTrustApplicationofincomeLegalexpensestodefendmemberofsocietyin contemptproceedings.(S12,37(1)). LegalexpensesincurredbytheassesseeSocietytodefenditsmemberincontemptofCourtProceedingscannot besaidtobeforpromotingtheobjectsoftheassociationnorforthebenefitoftheassociation,therefore,could notbeallowedasdeduction.(Asstyears200405,200506and200607). CITvIASOfficersAssociation(2011)56DTR239(Kar)(HighCourt). S.11:ExemptincomesCharitabletrustPropertysublet. Inordertocarryoutthecharitableactivityofthetrustineffectivemannerifthepropertyofthetrust issubletandrentalincomeisreceivedthereontheexemptionundersection11cannotbedeniedby theassessingofficerinvokingprovisionsofsection11(4A)oftheAct.(A.Y.199192) DirectorofIncometax(Exemption)vs.SahuJainTrust(2011)56DTR402(Cal)(HighCourt). S.12A:ExemptincomesCharitableTrustRegistrationGenuinenessofTrust. Registrationundersection12AoftheActcannotbedeniedtoatrustwhichisnewlyformedonthegroundthatit
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hadnotcommencedanyactivity.Whilegrantingregistrationundersection12AoftheActonlytheobjectsofthe trustistobeexaminedtoascertainthegenuinenessofthetrust.(A.Y.200405) DIT(E)vs.MeenakshiAmmaEndowmentTrust(2011)50DTR243(Kar.)(HighCourt) S. 12A :Exempt incomes Charitable Trust Religious Trust Cancellation of Registration Exemption [S. 10(23C)] Rejectionofapplicationundersection10(23C)(vi)cannotbeareasontocancelregistrationundersection12A. SunbeamEnglishSchoolSocietyvs.CIT(2011)129ITD299/56DTR52(All)(Trib.) S.12A:ExemptincomesCharitablePurposeRegistrationActivityofgivingmicrofinanceandearningInterest [S.2(15),11] Where an assessee is registered under section 25 of Companies Act, 1956, it in itself shows that the company intendstoapplyitsprofitinpromotingcharity.Andwheretheobjectoftheassesseestatesthatitshallpromote microfinanceservicestopoorpersonandhelpthemariseoutofpoverty.Meresurplusfromsuchmicrofinance servicecannotbyitselfbeagroundtosaythatnocharitablepurposeexists.FollowedThanthiTrust247ITR785 (SC)andAgriculturalproduceandmarketcommittee291ITR419(Bom.) DishIndiaMicroCreditvs.CIT(ITATDelhi)Source:www.itatonline.org S. 12A:Exempt incomes Charitable Trust Registration as Public Trust not necessary for S.12A Charity registration. Registration as a Public Trust is not a condition precedent for grant of registration u/s. 12A. There is no requirementintheIncometaxActthattheinstitutionconstitutedforadvancementofcharity,mustberegistered asaturstunderthePublicTrustsAct. AgricultureProduceandMarketCommittee291ITR419(Bom)&DishaIndiaMicroCredit(Del.),followed. GrameenInitiativeforWomenvDIT(E),(ITAT)(Mumbai)(www.itatonline.org) S. 12A.Exempt incomes Charitable purpose Stock exchange benefit to individual stock broker or membersoremployeesnoexemptiongrantedu/s.11. When a stock exchange carries out any activity for sole benefit of its members or ex members or employees or ex employees or their dependents and not for benefit of general public which is distinguished from class or community consisting of its members , ex members , employees or ex employees or their dependents and connections , it would not be entitled for exemption under section 11.Members of exchange being integral part of constitution of exchange who are interested persons as per provisions of section 13 (1) (c ), they are precluded from taking any undue advantages fromassesseeexchange.Assesseebeingregisteredundersection12A,benefitofassesseeexchange wouldbe forpublicatlargeand notforbenefit ofindividualstock brokers or members ofGoverning body of stock exchange . Since the assessee incurred expenditure for benefit of its members and subsidiarycompanyonly,provisionsofsection13(1)(C) readwithsection13(2)(b)and13(3)(cc) was applicable to fact of case and consequently , assessee was not entitled for exemption under section11.(Asstyears200102to200607). HyderabadStockExchangeLtdvAsstDirectorofIncomeTax(2011)46SOT1(Hyd)(Trib). S.12A.ExemptincomesCharitableTrustRegistrationofTrust.(S.80G) Application for renewal of exemption certificate rejected for the reason that changes made in object clauseoftrustwithoutfollowingtherequiredprocedure,hencethetrustbecameinvalid.TheTribunal
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observedthatonlyoneadditionwasmadeintheobjectclause,andeventhatremainedcharitableand did not cause any detriment to original object. There was no statutory requirement of intimating the changes except the one mentioned in the Form 10A, and even there was no time limit. Held that revenuewasnotjustifiedinrefusingtorenewexemptioncertificate. Mehta JivrajMakandas&ParekhGovindajiKalyanjiModhVanikVidyarthiPublicTrustvs. DIT(E), ITA No.2212/Mum/2010,dt.11032011,`GBench,MumbaiITAT,BCAJpg.32,Vol.43A,Part1,April2011. S.12A:ExemptionCharitablepurposeCharitableorreligiousRegistrationPropagationofVedas. Assessee trust formed for propagation of Vedas was entitled to registration under section 12A, in status of religiousandcharitabletrust.(A.Y.200809). KasyapaVedaResearchFoundationvCIT(2011)131ITD370(Cochin)(Trib). S.12A:ExemptionCharitablepurposeDeductionDonationRequirementofformno10A.(S.80G) Ininstantcasetrusthadbeenregisteredasacharitableinstitutionundersection12Avideorderdated27111975. Subsequently,inviewoftheorderdated1731994oftheCharityOfficerundersection50A(1)oftheBPTAct ,objectsoftheTrustwereamended.TheCaseoftherevenuewasthatobjectsoftrustcouldnotbeamended without the approval of the High Court. It was also argued that the changes in the objects of trust was not intimatedtothedepartmentasprovidedintheFormno10A.Theassesseecontendedthatthewhenthechange in the object clause approved by the Charity commissioner under section 50A(1) approval of High Court is not required.RequirementofintimationofchangestodepartmentwasprovidedonlyinFormno10A,whichwasnot astatutoryrequirementandincasetheassesseehadintimatedthesaidchangetodepartmentlateron.Eventhe amended objects remained charitable and had not caused any detriment to original objects. The Tribunal held thattheassesseetrustcontinuedtobeeligibleforregistrationundersection12Aandthus,impugnedorderof DIT(E)rejectingforrenewalofapprovalundersection80Gcouldnotbesustained. MehataJivrajMakandas&ParekhGovindjiKalyaniModhVanikVidyarthiPublicTrustvDirectorofIncometax( 2011)131ITD462(Mum)(Trib). S. 12AA:Exempt incomes Charitable TrustRegistration granted under section 12A can not be withdrawn in section12AA(3). Assesseetrustgotregistrationunder12AinDecember1974andonthatbasisgotexemptionofincometaxforthe Asst years 199697 to 200506. DIT (Exemptions) denied exemption and cancelled registration under section 12AA(3)witheffectfromassessmentyear200203.Thecourtheldthatregistrationgrantedundersection12Ain December1974toassesseecouldnotbewithdrawn.(Asstyears200203to200607) DirectorofIncomeTax(Exemption)vMoolChandKhairaitiRamTrust(2011)199Taxman1/58DTR254(Delhi) (HighCourt). Chapter1VComputationoftotalincome. S. 14A : Business Expenditure Disallowance Exempt Income Borrowed Funds Interest Disallowance of Interest on borrowings on ground that the assessee ought not to have used own funds for tax Free Investmentsinvalid. ItwasheldbyHonbleHighCourtthattheassesseehassufficientlyexplainedthatamajorityoftheinvestmentin thetaxfreesecuritywasmadebeforetheborrowing.Theassesseehaddemonstratedthatithadothersources of investment and that no part of the borrowed fund could be stated to have been diverted to earn tax free income.Asborrowedfundswerenotusedforearningtaxfreeincome,applyingsection14Awasnotjustified.
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CITvs.GujaratPowerCorporationLtd.(GujaratHighCourt)Source:www.itatonline.org S.14A:BusinessExpenditureDisallowanceExemptIncomeApportionmentofExpensesRule8DPreAsst. Year200809. For pre Asst. Year 200809, the assessee earned tax free dividend income from investments in units, bonds, shares,etc.Theassesseedidnotmaintainseparatebooksofaccountfortaxfreesecuritiesbutclaimedthatthe samehadbeeninvestedfromitsownfundsandnopartoftheinterestpaidbytheassesseeonitsborrowings togetherwiththeadministrativeexpensescouldbedisallowed.AssessingOfficertooktheviewthattheinterest paidonborrowingsandadministrativeexpensescouldbedisallowedundersection14A.Onappeal,theTribunal heldthatasnorulehadbeenmadeprescribedforcomputingthedisallowancenodisallowanceundersection14A could be made. On appeal by the department, the Court held that in the absence of any precise formula for proportionatedisallowance,nodisallowanceiscalledforinrespectofadministrativecostattributabletoearning oftaxfreeincomeuntilRule8Dcameintoforce. CITvs.CatholicSyriyanBankLtd.&Ors.(2011)237CTR164/49DTR57(Ker.)(HighCourt) Editorial:Godrej&BoyceMfgCoLtd(2010)328ITR81(Bom.) DhanalakshmiBank(2007)12SOT625(Coch.) S.14A: BusinessExpenditureDisallownceExempt Income DespiteProvisotoS.14A,disallowancecanbe madeforearlieryears. The protection of proviso to section 14A w.r.t. A.Y. 200102 & earlier years was inserted w.e.f. 11/05/2001. Thus, whereorderofCITundersection263waspassedearlieri.e.on29/12/1999,theprotectionundertheprovisoisto available(A.Y.199596). MaheshG.Shetty&Ors.(2011)51DTR104/238CTR440(Kar.)HighCourt) S.14A:BusinessexpenditureDisallowanceExemptincomeInterestonborrowedcapitalDirectionofTribunal. During the course of assessment proceedings , the Assessing Officer made a query in respect of disallowance undersection14AoftheIncometaxAct,howevernodisallowancewasmade.Revenuehadnotchallengedthe nonapplicabilityofsection14A.Tribunalgavedirectiontoconsiderapplicabilityofsection14A.Thedirectionof Tribunalwasquashed. TopstarMercantileP.LtdvAsstCIT(2011)334ITR374(Bom)(HighCourt). S.14A:BusinessexpenditureExemptedincomeInvestmentintaxfreeincome. Iftheinvestmentintaxfreeincomeyieldingsecuritiesismadefrominterestfreefunds,nodisallowancecanbe madeundersection14A.(A.Y.200102). CITvLubiSummersiblesLtd(ACAJVol35Part5August2011P.319)(Guj)(HighCourt) S. 14A : Business Expenditure Disallowance Exempt Income No expenditure incurred for earning the exemptedincome. Whennoexpenditureisincurredforearningexemptedincomedisallowanceundersection14Acannotbemade. ACIT vs. Pradip N. Desai, ITA No. 2488/AHD/2008 A.Y. 200506 Bench A dt. 28/12/2010, Ahmedabad Chartered AccountantsJournal,Vol.34Part10January2011,Pg.478(Trib) S. 14A : Business Expenditure Disallowance Exempt Income Appellate Tribunal Power Applicability of provisionofsection14AforthefirsttimebeforeTribunal[S.254(1)] Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the provision of section 14A, was not invoked against the assessee by the Assessing Officer while making
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disallowance of interest expenditure under section 36(1)(iii) and CIT(A) also at no stage considered the applicationofsection14A.(A.Y.200304) ACITvs.DeliteEnterprises(P)Ltd.(2011)135TTJ663/50DTR193/128ITD146(Mum.)(Trib.) S.14A:BusinessExpenditureDisallowanceExemptIncomeApportionmentofExpenditure. Assesseemadeinvestmentforearningtaxfreeincomefrom mixfundsanditisnotpossibletoascertainasto whethertheinvestmentintaxfreewasoutofassesseesownfundsandtheAssessinghavingnotestablishedthe nexus between the borrowed funds and investment in tax free funds disallowance on pro rata basis was not proper. Dy.CITvs.MaharashtraSeamlessLtd.(2011)52DTR5(Delhi)(Trib.) S.14A:BusinessExpenditureDisallwanceExemptIncomeInterestonBorrowedFundsusedtobuyshares fortradingpurposes. Incaseofassessee,engagedintradingandinvestmentofsharesandreceivedtaxfreedividendincomeofinA.Y. 200405.ItwasheldbyTribunalthatRule8DdoesnotapplypriortoA.Y.200809(Godrej&BoyceMfg.Co.Ltd. (2010) 328 ITR 81 (Bom.) followed). It was further observed that the expression in relation to in section 14A means dominant and immediate connection or nexus with the exempt income. In order to disallow expenditure under section 14A, there must be a live nexus between the expenditure incurred and the taxfree income. Disallowance cannot be made on presumptions and estimation by the Assessing Officer. When it is possible to determine the actual expenditure in relation to the exempt income or where no expenditure is incurred in relationtotheexemptincome,theprincipleofapportionmentembeddedinsection14Ahasnoapplication. YatishTradingCo.Pvt.Ltd.vs.ACIT(ITATMumbai)(Trib)Source:www.itatonline.org S.14A:BusinessExpenditureDisallowanceExemptIncomeDisallowancecannotbemadefordepreciation It was held that section 14A permits a disallowance of expenditure incurred by the assessee and not of allowance admissible to him. There is a distinction between expenditure and allowance. The expression expendituredoesnotincludeallowancessuchasdepreciationallowance.Accordingly,depreciationcannotbe thesubjectmatterofdisallowanceundersection14A(ratioofNectarBeverages314ITR314(SC)followed); Similarly,itwasfurtherheldthatthedeductionundersection80Disnotexpenditureforearningtaxfreeincome butisapermissibledeductionfromgrosstotalincomeunderChapterVIA. HoshangD.Nanavativs.ACIT(ITATMumbai)(Trib)Source:www.itatonline.org S.14A:BusinessExpenditureDisallowanceExemptIncomeInterestonborrowingsongroundthatassessee oughttohaverepaidborrowingsinsteadofinvestingintaxfreeinvestmentsinvalid. Whereborrowedfundswereutilizedforbusinesspurposesandinvestmentinsharesismadeoutofownfunds, thendisallowanceundersection14Aofinterestonborrowedfundwasnotpermissible.CITvs.HeroCyclesLtd. 323ITR518(P&H)(A.Y.200506) GodrejIndustriesLtd.vs.Dy.CIT(Mum.)(Trib.)Source:www.itatonline.org S.14A:BusinessExpenditureDisallowanceExemptIncomeSeparateBooks. Theassesseeismaintainingseparatebooksofaccountforthepurposeofbusiness.Thetaxfreeinvestmentsare inhispersonalcapacity.AstheAssessingOfficerhasnotdisallowedanyexpenditureofpersonalnatureoutofthe businessincome,theexpenditureclaimedinthebusinessofsharedealingscannotbecorrelatedtotheincomes earnedinpersonalcapacitythattooondividend,PPFinterestandtaxfreeinterestonRBIbonds.Accordingly,the estimationofexpenditureof`20,000outofbusinessexpenditureasbeingincurredforearningtaxfreeincomeis
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notacceptable.(A.Y.200506) PawanKumarParmeshwarlalvs.ACIT,ITANo. 530/Mum/2009,dt.1112011,ITATMumbaiCBench,BCAJpg.27, Vol.42B,Part5,February2011(Trib.) S. 14A : Business Expenditure Disallowance Exempt income No disallowance if assessee has no taxfree income S. 14A uses the words for the purpose of computing the total income under this Chapter . expenditure incurred in relation to income which does not form part of the total income under this Act. Thus for the applicabilityofs.14Atheremustbe(a)taxableincomeand(b)taxfreeincome.Ifeitheroneisabsent,s.14Ahas no applicability. If there is no claim for taxfree income, there cannot be any disallowance u/s 14A . If the transactionoflendingmoniesbetweentheassesseeandtheAEisinforeigncurrencyandthetransactionisan internationaltransaction,ithastobeevaluatedbyapplyingthecommercialprinciplesapplicabletointernational transaction. SivaIndustries&HoldingsLtd.vsACIT(ITAT)(Chennai)(www.itatonline.org) EditorialWalfortShareandStockBrokers326ITR1(SC),Godrej&Boyce328ITR81(Bom)&WinsomeTextile 319ITR204(P&H)referred(A.Y.200607) S.14A:BusinessexpenditureExemptedincomeInvestmentDividendincome. For the applicability of section 14A there must be (i) income which is taxable under the Act, for the relevant assessment year and (2) there should also be income which does not form part of total income under the Act duringrelevantassessmentyear.Ifeitheroneisabsent,thensection14Ahasnoapplicability.(A.Y.200607). SivaIndustries&HoldingsLtdvAsstCIT(2011)59DTR182(Chennai)(Trib). S.14A:BusinessexpenditureExemptedincomeOldinvestmentsOwnfunds. Investmentsinsharesweremadebytheassesseefromownfunds,nodisallowancesweremadeinearlieryears. Nodisallowancecanbemadefortherelevantyear.(A.Y.200506). G.D.Metsteel(P)LtdvAsstCIT(2011)47SOT62(Mum)(Trib). S. 14A : Business Expenditure Exempted Income No nexus between investment in taxfree securities and borrowedfunds.NodisallowancetomadeDisallowanceundersection14Acannotexceedexemptincome. In AY 200708, the assessee received dividend of in respect of investment in shares made in earlier years. No investmentsweremadeduringtheyear.Itwasclaimedthattheinvestmentintheearlieryearswasmadeoutof reserves&surplusandthattherewasnoexpenditureincurredduringtheyeartoearnthedividend.TheAOheld thatasintheearlieryears,theassesseehadborrowedfunds,s.14Aapplied.Itwasheldthatifthereisnonexus betweenborrowedfundsandinvestmentsmadeinpurchaseofshares,disallowanceu/s14Aisnotwarranted.( A.Y.200708). ACITvPunjabstateCoop&Mktg(Chandigarh)(Trib)(www.itatonline.org) S.14A:BusinessExpenditureRule8Dtobeappliedonlyaftershowinghowassesseesmethodisincorrect It is a prerequisite that before invoking Rule 8D, the AO must record his satisfaction on how the assessees calculation is incorrect. The AO cannot apply Rule 8D without pointing out any inaccuracy in the method of apportionment or allocation of expenses. Further, the onus is on the AO to show that expenditure has been incurred by the assessee for earning taxfree income. Without discharging the onus, the AO is not entitled to make an ad hoc disallowance. A clear finding of incurring of expenditure is necessary. No disallowance can be madeonthebasisofpresumptions DCITvJindalPhotoLimited(Delhi)(Trib)(www.itatonline.org)
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S.15:SalariesChargeablePerquisitesTaxpaidbyemployerinrespectofsalary.(S.17,rule3). Taxpaidbyemployerinrespectofsalarypaidtoexpatriateemployeesissalaryunderrule3oftheIncometax Rules,1962,forpurposeofcomputingvalueofperquisitesinrespectofrentfreeaccommodationprovidedto saidemployees.(A.Ys.199697to199899). MitsubishiCorporationvCIT(2011)200Taxman372/337ITR498(Delhi)(HighCourt). S.15:SalariesProfitsinlieuofsalaryTipscollectedandpaidtoemployees.(S.2(24),17(1)(iv),17(3)). Payment of banquet and restaurant tips to the employees of assessee in its capacity as employer constitutes salarywithinthemeaningofsection15readwithsection17(3).(A.Ys.199992000to200506). CITvITCLtd(2011)59DTR312/243CTR114(Delhi)(HighCourt). S.17(2)(iiia):PerquisitesEmployeesstockoptionEquitywarrantcertificates. WarrantissuedinFebruary1999andassesseexercisingoptioninApril1999. Perquisitesariseandtaxableinfinancialyear19992000relevanttoassessmentyear20002001.Dateofexercise ofoptionisdateofacquisitionofsharesandnotdateofcertificate.(A.Y.200001). DyCITvVijayGopalJindal(2011)11ITR451(Delhi)(Trib). CIncomefromhouseproperty. S. 22 : Income from House Property Ownership Building constructed on land taken on lease and let out DeemedOwner[S.23,27(iii)] AssesseehavingconstructedthebuildingonlandtakenonleasefromNDMC,whichisowner,furtherinviewof theprovisionsofsection27(iii)itisthesublicenseewhowouldbedeemedownerofthosepremiseswhichthe sublicensestransferredtotheoccupiersandthoseoccupiersarepayingrent/licensefeetothesublicenseesand assessee only collected interest free security deposits from sub licensees and no rent, therefore, provisions of section23arenotapplicable.(A.Y.19992000) CITvs.C.J.InternationalHotelsLtd.(2011)53DTR92(Delhi)(HighCourt) S.22:IncomefromHousePropertyBusinessIncomeSubletofProperty[S.28(i)] Wheretheassesseewasengagedinbusinessofmanufacturingandsaleoffooditemsacquiredpropertyonlease for a long period and in turn sub let the same, the income therefrom, was held to be taxable under the head income from house property and not business income as letting out property was not its business activity. Furtherthelettingoutwasnottemporaryarrangement.(A.Y.200304) SheetalKhuranaFoodsP.Ltd.vs.ITAT(2011)51DTR129(P&H)(HighCourt) S.22:IncomefromHousepropertyBusinessIncomeRentalincome(S.28(i). Assessee letting out flats in a multi storeyed complex . Assessee was nether in possession of the propertynordoinganybusinessthere.Incomewasrightlytaxesasincomefromhouseproperty. CITvSranHoldings(P)Ltd(2011)57DTR82(Pat)(HighCourt). S.22:IncomefromhousepropertyCompensation. Where the assessee was assessed to tax under the head income from house property with respect to notionalincome of rentdeemedto haveearnedbythe assesseeafterthe expiry of leaseperiod,year after year. Thereafter, the compensation actually received by the assessee from the lessee under a
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settlement agreement, for the occupation of the leased premise after lease period cannot be taxed underadifferentheadthanincomefromhouseproperty. JasmineCommercialsLtd.vs.CIT(2011)56DTR159/200Taxman338(Cal)(HighCourt). S.22:IncomefromHousePropertyOwnership. Wherethebuilderhadreceivedfullconsiderationagainstthesaleofshopsandflattheannualvalueof the property cannot be assessed in the hands of the builder even though the sale deed of the shops andflatwerenotregistered. CITvs.BabuKhanBuilders&Ors.(2011)55DTR329(AP)(HighCourt). S. 22: Income from House property Business income Business of construction and development of residentialCommercialunit.[(S.28(i).] In case where assessee who is engaged in constructions and development of residential/commercial units and where there was no material on record to show that leasing of residential/commercial units was one of the principal objects of the company and that lease rent received by it was from exploitation of property by way of complex activities, the rent income derived as owner of property willbeassessedas`IncomefromHouseProperty. RomaBuilders(P)LtdvJCIT(2011)131ITD91(Mumbai)(Trib). S.22:IncomefromhousepropertyAnnualvalueSecondpropertyRentcontrolAct. Assessee having two self occupied properties. In case of the second property, relevant provisions of the Rent control Act were applicable. The Assessing Officer is bound to determine the standard rent of the premises in accordance with provisions of Act. However ,where the standard rent has not been determined by the rent controlauthority,theAssessingOfficerisdutyboundtodotheexcisehimselfanddeterminethestandardrent aspertheprovisionsoftherelevantRentControlAct. JayantibhaiMeghibhaivAddlCIT(ACAJVol35Part5.August2011P.320)(Ahd)(Trib) S.23:IncomefromhousepropertyAnnualLettingvalueMaintenanceandothercharges. Maintenanceandotherchargesaredeductiblefromrentwhilecalculatingannuallettingvalue.(Asstyears1996 9720001). CITvR.J.WoodP.Ltd(2011)334ITR358(Delhi)(HighCourt) S. 23: Income from house property Annual value Property let out Licencee Sub let Higher value TaxPlanningtransactionnotShamifpartiesassessedDoubletaxation. The assessee let out its premises to Minicon pursuant to a leave and license agreement. Minicon thereafter let out the said premises to various third parties. One director was common between the assesseeandMinicon. Itwasheldthatsaveandexceptthefactthatoneofthedirectorsoftheassesseecompanywasalsoa directorinMinicon,thereisnothingonrecordtoshowthatthetransactionbetweentheassesseeand Minicon is a sham transaction. Accordingly, the decision of the Tribunal that the amounts received by Minicononaccountoflettingoutthepremisesisliabletobeassessedinthehandsoftheassesseeon the ground that the transaction between the assessee and Minicon is a sham and bogus transaction cannotbeaccepted. AkshayTextileTrading304ITR401(Bom)followed SahneyKirwoodPvt.LtdvsACIT(Bombay)(HighCourt)www.itatonline.org
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S.23:IncomefromhousepropertyAnnualvalueInterestfreedeposit. Interestfreesecuritydeposittakenbyassesseehighlydisproportionatetomonthlyrentcharged.Thisbeingthe devicetocircumventliabilitytoincometax,notionalinterestonsecuritydeposittobetreatedasincomefrom houseproperty.(A.Y.199596). CITvK.StreetliteElectricCorporation(2011)336ITR348(P&H)(HighCourt). S.23(1)(a):IncomefromHousePropertyAnnualValueNotionalRentInterestFreeDeposit For applying provisions of section 23(1)(a) of the Act, municipal valuation / ratable value should be the determiningfactor.Sincetherentreceivedbytheassesseewasmorethanthesumforwhichthepropertymight reasonablybeexpectedtobeletfromyeartoyear,theactualrentreceivedshouldbetheannualvalueofthe propertyundersection23(1)(b)oftheAct.Notionalinterestoninterestfreesecuritydeposit/rentreceivedin advanceshouldnotbeaddedtothesame. Dy.CITvs.ReclamationRealtyIndiaPvt.Ltd.,ITANo.1411/Mum.2007,dt.26112010,ITATDBench,BCAJpg.25, Vol.42B,Part5,February2011/Source:www.itatonline.org(Trib.) S.23(1)(a):IncomefromHousePropertyAnnualValueNotionalInterestDepositMunicipalRatableValue ForAnnualValueundersection23,notionalinterestondepositnotincludible.MunicipalvalueisordinarilyALV forsection23thoughAssessingOfficerentitledtodepartforsufficientcause. S.23(1)(a)requiresdeterminationofthefairrentbeingthesumfor whichthepropertymightreasonablybe expectedtoletfromyeartoyear.IfoninquiryAssessingOfficerfindsthattheactualrentreceivedislessthanthe fair/market rent because the assessee has received abnormally high interest free security deposit, he can undertakenecessaryexerciseinthat behalf.However,bynostretchofimagination,thenotionalinterestonthe interest free security can be taken as determinative factor to arrive at the fair rent. The ALV fixed by the Municipal Authorities can be the basis of adopting the ALV for purposes of section 23. Also in determining the reasonable/fairrent,extraneouscircumstancesmayinflate/deflatethefairrent. CITvs.MoniKumarSubba(2011)333ITR38/199Taxman301(Delhi)(HighCourt)(FB) Editorial:ReferDy.CITvs.ReclamationRealityIndiaPvt.Ltd.(ITATMumbai)Source:www.itatonline.org(Trib) S.23(1)(a):IncomefromHousePropertyAnnualvalueNotboundbystandardrent,rateblevalue&canadjust ifinterestfreedepositreasonforlowactualrent. ItwasheldthatforpurposeofdeterminingtheALVundersection23(1)(a)theAssessingOfficerhastodetermine the fair / reasonable rent expected to be fetched by the property. Various factors must be considered by Assessing Officer. Therefore, Notional Interest on interest free security cannot be considered as determinative factor to arrive at fair sent. In the instant case, the matter was remanded back as no inquiry was made by AssessingOfficertodeterminefairrentundersection23(1)(a).(A.Y.199293,199394) TivoliInvestmentandTradingCo.P.ltd.vs.ACIT(2011)130ITD521/58DTR84/139TTJ520(Mum.)(Trib.) S.24.IncomefromhousepropertyDeductionBrokerage. Brokeragepaidwasnotanadmissibleexpenditureundersec.24(AsstYear199798) AravaliEngineersP.lTDvCIT(2011)335ITR508(P&H).(HighCourt). S. 24: Income from house propertyDeductionInterest on Loans raised for repayment of original loanMaintenancechargesLiftLightingSweepingCharges.(S.22,23). Loanraisedforrepaymentoforiginalloantakentopurchasehousepropertypartakesthecharacterof original loanandthereforeinterestpaid onsuch subsequentloanisdeductible undersection24from
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therentalincome ofproperty.Chargespaidtothesocietyforthefacilitiesofgenerator,lift,lighting etcweredeductiblefromthegrossrentreceivedbytheassessee.(AsstYear200405). CITvSunilKumarAgarwal(2011)139TTJ49(Luck)(UO)(Trib). S.24(1)(iv).IncomefromhousepropertyDeductionAnnualcharge. Remuneration payable to Shebaits by the assessee deity does not amount to annual charge on the propertyandthus,nodeductionundersection24(1)(iv)ispermissible.(Asstyear199798). EstateofSreeSreeRaddhaKishanJewvCIT&Anr(2011)58DTR131(Cal)(HighCourt). 25B:IncomefromhousepropertyArrearsofrent.(S.23.). Arrears of rent received in subsequent year cannot be spread over previous years , it is taxable in the year of receipt.(Asstyears199697200001). CITvR.J.WoodP.Ltd(2011)334ITR358(Delhi)(HighCourt). S.26:IncomefromhousepropertyCoownerAssessment. QuantificationofannualvalueofcoownedpropertyincourseofassessmentofAOPconsistingofcoownersis notaconditionprecedentfortaxabilityofindividualshareofsuchincomeinhandsofcoowners.(A.Y.200203). SujeerProperties(AOP)vITO(2011)131ITD377(Mum)(Trib). D.Profitsandgainsofbusinessorprofession. S.28(i):BusinessincomeCapitalgainsSharesPMSfee,evenifNAVbased,isdeductibleincomputingPMS capitalgains(S.48) Incomputingcapitalgainsu/s48,paymentsaredeductibleintwoways,onebytakingfullvalueofconsideration net of such payments and the other by deducting the sameas expenditure incurred wholly and exclusively in connection with the transfer. The expression full value of consideration contemplates additions and deductionsfromtheapparentvalue.Itmeanstherealandeffectiveconsideration,whichcanbearrivedatonly after allowing the deductible expenditure. The PMS fee, on profit sharing basis, was for the twin purposes of acquisitionandsaleofthesecurities.Thefactthatbifurcationbetweenthetwoisnot possibleisnotrelevant. Accounting Standard 13 (Accounting for Investments) issued by ICAI provides that brokerage, fees and duties havetoaddedtothecostofinvestments.(AY:200405to200607) (CITvShakuntalaKantilal(1991)190ITR56(Bom)followed);DevendraKothari(2011)50DTR369(Mum)(Trib) notfollowed) KRAHolding&TradingP.Ltd.vDCIT(2011)46SOT19(ITAT)(Pun)(www.itatonline.org) S. 28(i) : Business Income Capital gains Tests to determine whether shares gains assessable as STCG or businessprofits: The Supreme Court vide order dated 15.11.2010 dismissed the Departments Special Leave Petition against the judgmentoftheBombayHighCourtinCITvs.GopalPurohit(2010)228CTR582(Bom). CITvsGopalPurohit(2011)334ITR308(St.)(SC) S.28(1):BusinessLossSpeculativeLossSaleandpurchaseofUnitsofUTI(S.43(5),70,73) Assessee tea plantation company purchased units of UTI on cum dividend basis shortly before declaration of dividendandsoldthesameatalowerprice.i.e.exdividendimmediatelyafterreceivingthedividend.Transaction ofpurchaseandsaleofunitswhendoneasabusinessinaspeculativemanner,thelosstherefromcouldbesetoff only against profit arising in speculation business. Assessee claimed set off of loss from speculation business
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against income from tea plantation which is not admissible due to the prohibition contained in section 73(1), however,inviewoftheSupremeCourtdecisioninAppolloTyresLtd.vs.CIT(2002)255ITR273(SC)assessees claimwassustainable. CITvs.PeriakaramalaiTea&ProduceCo.Ltd.(2011)51DTR186/195Taxman185(Ker.)(HighCourt) S.28(i):BusinessincomeIncomefromothersourcesInterestincome.(S.56.) Thetribunalhasgivenfindingthattheborrowings,madebytheassessee,wereverymuchpartandparcelof assesseesinvestmentinacquiringtheship.EventheRBIspermissionwasobtainedforthesameandinterest earnedfromtheunutilisedportionofthesaidborrowingwillconstitutebusinessincome. CITvVarunShippingCoLtd(2011)334ITR263(Bom)(HighCourt). EditorialTheSupremecourthasgrantedspecialleavetothedepartmenttoappealagainstthisjudgment.(2010) 325ITR(ST)5(Bom). S.28(i):BusinessincomeRentfromLeaveandLicenseofofficepremisestaxableasbusinessprofits ApplyingthetestlaiddowninUniversalPlastLtd237ITR454(SC)astowhenincomefrompropertyisassessable asbusinessprofitsandasincomefromhouseproperty.Itwasheldthatrentalincomehastobeassessedas businessprofitsbecause(i)allassetsofthebusinesswerenotrentedoutbytheassesseeanditcontinuedthe mainbusinessofdealinginscientificapparatusetc,(ii)thepropertywasbeingusedfortheRegionalOfficeand wasletoutbywayofexploitationofbusinessassetsformakingprofit,(iii)theassesseehadnotsoldawaythe properties or abandoned its business activities. The transaction was a commercial venture taken in order to exploitbusinessassetsandforreceivinghigherincomefromcommercialassets. TheScientificInstrumentco.Ltd.vCIT(All)(HighCourt).www.itatonline.org. S.28(i):BusinessLossBadDebtClaimforBusinesslossmaintainableWebsiteDevelopmentExpenseisnot CapitalExpenditure[S.37(1)] The assessee, engaged in investment activities, advanced ` 27.97 lakhs for development of a website. As the advancewasnotrecoverable,theassesseewroteofftheamountandclaimeditasabaddebteventhoughthe conditions of section 36(1)(vii) & 36(2) were not satisfied. The Assessing Officer rejected the claim though the CIT(A)allowedit.OnappealbythedepartmenttotheTribunal,HELD: (i) Though the claim as a bad debt is not allowable, the assessee is entitled under Rule 27 to support the CIT(A)sorderonthegroundthattheamountshouldbeallowedasabusinessloss.Thesubjectmatterofan appeal should be understood not in a narrow and unrealistic manner but should be so comprehended as to encompasstheentirecontroversybetweenthepartieswhichistobeadjudicateduponbytheTribunal.Sucha claim can be considered provided no new facts are needed (Edward Keventer 123 ITR 200 (Del.) & Gilbert & Barker111ITR529(Bom.)followed); (ii)Onmerits,thedepartmentsargumentthattheamountspaidfordevelopmentofwebsitescannotbeallowed asbusinesslossbecauseifthewebsiteshadbeensuccessfullyputup,theexpenditurewouldhavebeencapital expenditure is not acceptable. because (a) as the expenditure was abortive, no capital asset has in fact been acquiredand(b)evenifthewebsitehadmaterialized,itdoesnotresultinanadvantageofanenduringnatureor inthecapitalfieldasitisonlyforthedaytodayrunningofthebusinessandprovisionofinformation. Dy.CITvs.EdelweissCapitalLtd.(ITATMumbai)Source:www.itatonline.org S.28(i)BusinessincomeCapitalgainsInvestmentinsharesDespiteborrowing,sharesgaincanbeSTCG&not businessprofits.
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The fact that the assessee borrowed for the purpose of buying shares is not conclusive that the assessee intendedtodobusinessinsharesandnotmerelyinvestinthemiftheinterestiscapitalizedascostoftheshares &notclaimedasarevenueexpenditure(Shanmugam120ITD469(Pune)followed).Thefactofborrowingcannot be held against the assessee if there are other predominating factors in favour. Also as the assessee has own funds,itcanbepresumedthattheshareswereboughtoutofthosefunds.(Asstyears200506&200607) MahendraC.ShahvsAddlCIT(2011)58DTR242/140TTJ16(Mumbai)(Trib) Editorial:CITvs.GopalPurohit(2010)228CTR582(Bom). S.L.P.rejected(2011)334ITR308(St.) S.28(i):BusinessIncomeComputationCostoflandcontributedbypartnertothefirm(S.4) Incomputingtheprofitsandgainsofthefirmonthesaleofpropertyinquestion,thevalueoftheplotbroughtby oneofthepartnersbywayofcapitalcontributionshouldbetakenasperamountdeclaredinrevisedreturnsas valuationoflandinquestionwhichwasacceptedbythewealthtaxauthoritiesandnotatvaluewhichwasearlier showninthebooks.(A.Y.197273to19791980) HansallayaPropertiesvs.CIT(2011)49DTR231/196Taxman496(Delhi)(HighCourt) S.28(i):BusinessIncomeDevelopmentRightsRetirementValueofflatstobeallottedlatter Assessee,abuilderhavingconstitutedapartnershipfirmwithfourothersbycontributinghisdevelopmentrights in a plot and retired from the firm within 11 days. The Tribunal held that the firm is not genuine and entire considerationreceivedwastaxableasbusinessincome.Valueofflatstobeallottedtobetreatedasconsideration received,thoughtheflatsaretobeallottedinfuture.(A.Y.200405) ACITvs.DilipS.Hate(2011)49DTR49/136TTJ40/131ITD348(Mum.)(Trib.) S.28(i):BusinessIncomeCapitalGainsInvestmentinShares(S.45) Activityoffrequentbuyingandsellingofsharesoverashortspanofperiodhastobetreatedasadventureinthe nature of trade. The assessee had made only 37 transactions in 35 scripts. In the preceding year the Assessing Officerhasacceptedtheshorttermgainsandlongtermgainsasinvestment.TheTribunalheldthattheprinciple of resjudicata cannot be applied to Income Tax proceedings and each assessment year is independent. The Tribunalalsoheldthatthetreatmentinthebooksofanassesseeisnotconclusive.(A.Y.200506) HarshaN.Mehta(Smt.)vs.Dy.CIT(2011)43SOT332(Mum.)(Trib) S.28(i):BusinessincomeProfessionalIncomeAIRInformation. In the absence of contrary material brought by the Revenue authorities, that the assessee had received professionalfeesmorethanwhathasbeendeclaredbyhim,noadditionshouldbemadebytheAssessingOfficer on account of non furnishing of partywise details of professional fees received during the year and non reconciliationofprofessionalfeesreceivedwithAIRinformation. S.Ganeshvs.ACIT(2011)TIOL87ITATMum.701/(2011)42B.BCAJ(MarchP.33)(Trib) S.28(i):BusinessIncomeCapitalGainsTransactionsinSharesVolumeandfrequencyofthetransactions(S. 45). Where the assessee had carried out about 800 transactions in shares of more than 200 listed companies with borrowed funds and the purchases and sale of shares was the only activity of the assessee with a very short holdingsperiod,andsubstantialtimewasdevotedforsuchactivity,inaregularandsystematicmanner,theprofit fromsuchtransactionswasrightlytreatedasbusinessprofitasagainstshorttermcapitalgainsclaimedbythe assessee.(A.Y.200405)
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JayshreePradipShahvs.ACIT(2011)51DTR344/131ITD326(Mum.)(Trib.). S. 28(i) : Business Income Capital Gains Volume Despite Large number of transactions in shares, profit assessableasCapitalGains(S.45). Where assessee is a HUF and offers income from sale of shares as short term capital gain, the fact that the assesseehastransactedin158sharesshouldnotbethesolecriteriontocometotheconclusionthatassesseeisa traderinshares.Followingcircumstancestobeconsideredwhileassessingsuchincomeascapitalgain.Theseare whether(a)theassesseewasholdingthesharesinitsbooksasaninvestor,(b)theassesseehaveanyofficeor administration set up, (c) the shares were acquired out of own funds and family funds and not through borrowing,(d)therewasnotasingleinstancewheretheassesseehadsquareduptransactionsonthesameday withouttakingdeliveryoftheshares,(e)Inthepreviousandsubsequentassessmentyears,theAssessingOfficer hadvidescrutinyassessmentstreatedtheassesseeasaninvestor. NagindasP.Sheth(HUF)vs.ACIT(ITATMumbai)(Trib)Source:www.itatonline.org S.28(i):BusinessIncomeCapitalGainsInvestmentinSharesInvestorTraderLargevolumeinsharesot decidingfactortoholdassesseetrader(S.45). Theincomeofanassesseewhohasinvestedinsharestobeassessedascapitalgainifthefollowingconditions aresatisfied.If(a)Theassesseewasagoodtimerofpurchaseandsaleofsharestherebysubstantiallyincreasing his gains in the stock market, (b) The large turnover was because of bulk purchases and sales in a scrip. There wereveryfewtransactionsofpurchaseandsale,astheassesseewaspurchasinginblockofaparticularsharein largevolume.Accordingly,largevolumecannotbeadecidingfactortoholdasatrader,(c)theassesseewasnot a broker or subbroker and did not have any office establishment, (d) The assessee did not do any speculative activity nor indulge in any sales without delivery, (e) The shares were shown as capital assets in the books of account,(f)Theassesseehadnotpledgedanyshareswithanyfinancialinstitutions,norborrowedanyfunds. RameshBabuRaovs.ACIT(ITATMumbai)(Trib)Source:www.itatonline.org S.28(i):BusinessIncomeCapitalGainsTransactioninSharesShareBrokerTwoseparateaccounts;(S.45) Assesseeisabrokeraswellasinvestor.Ithasmaintainedtheinvestmentportfolioseparatelyincomeofwhich wasliabletobetaxedascapitalgains,asintentioninrespectofthiswastoholdtheinvestmentasinvestment only and shown as such in the books of accounts. Income thereon was shown and treated as capital gains in successiveassessments.Incometobeassessedascapitalgains.(A.Y.200506) ACITvs.Bulls&BearsPortfoliosLtd.(2011)137TTJ741(Delhi)(Trib.) S.28(i):BusinessIncomeCapitalGainsInvestmentinSharesIncometreatedasSTCGRuleofconsistency applied;(S.45). Thoughincaseoftransactionoflargevolumes,magnitude,frequency,continuity,regularity,theratiobetween purchase&saleofsharesaretreatedasincomefrombusiness,butisincertaincircumstances,incomefromsuch transactionsistreatedasSTCGasareasonofRuleof consistencypropoundedbyBombayHighCourtinGopal Purohit228CTR582(Bom.),whichissquarelyapplicable.(A.Y.200607) ShantilalM.Jainvs.ACIT(Mum.)(Trib.)Source:www.itatonline.org S.28(i):BusinessIncomeCapitalGainsGainsarisingfromPMStransactionsNotbusinessprofits. TransactionscarriedoutviaPMSareinnatureoftransactionsmeantforWealthmaximization&notencashing profitsonappreciationinvalueofshares.Incasewhereassesseeisengagedinsystematicactivityofholdingof portfoliothroughPMSmanager,itcannotbesaidthatmainobjectofholdingtheportfolioistomakeprofitby
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saleofshares.Thehighnumberoftransactionsaremisleadingasthesearecomputersplittransactionsandnot independenttransactions.Hence,gainsarisingoutofPMStransactionhastobeassessedasCapitalGainandnot businessincome.(A.Y.200607) ITOvs.RadhaBirjuPatel(Mum.)(Trib.)Source:www.itatonline.org S.28(i):BusinessIncomeIncomefromOtherSourcesInterestfromPartnershipFirm WhenaspecificprovisionhasbeenenshrinedintheActandtheincomeistaxableundertheheadProfits&Gains ofBusinessorProfession,thenthereisnoquestionoftreatingthesameasincomefromothersources.(A.Y. 200304) ACITvs.DeliteEnterprisesP.Ltd.(2011)135TTJ663/128ITD146/50DTR193(Mum.)(Trib.) S.28(i): Business income Adventure in the nature of tradePurchasing land under acquisition by Government InterestoncompensationIncomefromothersources.(S.2(13),(2(14),56.) CompensationreceivedonpurchasinglandnotifiedforAcquisitionbytheGovernment,notheldascapitalasset wasliabletobetaxedasbusinessincome,assuchtransactionfallunderdefinitionofadventureinthenatureof tradeu/s.2(13).Interestoncompensationoncompulsoryacquisitionoflandistaxableasbusinessincomeand notasincomefromothersources. DyCITvGopalRamnarayanKasat(2011)240CTR266/54DTR228(Bom)(HighCourt). S.28(i):BusinessincomeSubsidyTomeetthepartofexpenditureincurredRevenuenature. Subsidy received by Government to meet the part of the expenditure to be incurred for rectification and improvementofpowerlinedamagedduetocyclonewillberevenueinnature.(Asstyear198788). DyCITvA.P.StateElectricityBoard(2011)130ITD1/138TTJ425(Hyd)(TM)(Trib). S.28(i):BusinessincomeValuationofclosingstockFirmdissolvedBusinesstakenoverbyanotherconcern S.45(4). Where assessee firm was dissolved and its closing stock was taken over by another concern , same had to be valued in profit and loss account itself on date of dissolution on market price and excess of market price of closingstockoveritsbookvaluehadtobeassessedasbusinessprofitsofassesseefirm.(Asstyear199293). AsstCITvGoelUdyog(2011)45SOT444(Delhi)(Trib). S.28(i)BusinessIncomePropertyRentalassessableasbusinessprofitsifcommercialactivitiescarriedout Merelybecauseincomeisattachedtoimmovableproperty,itcannotbethesolefactorforassessmentofsuch income as income from property. Primary object of the assessee while exploiting the property has to be considered.Ifthemainintentionistoexploittheimmovablepropertybywayofcomplexcommercialactivities, theincomeisassessableasbusinessincome.(Asst.Year:200607) ITOIvsShanayaEnterprises(Mumbai)(ITAT)(www.itatonline.org) EditorialSultan Brothers (1964) 51 ITR 353 (SC) explained as not being in conflict with Shambhu Investments (2003)263ITR143(SC). S. 28 (i) :Business income Capital gains Shares PMS transaction gains are STCG and not business profits.( S. 45.) (i)Giventhedefinitionsofthetermbusinessandcapitalassetins.2(13)&2(14),shares,ifheldformorethan 12months,willbealongtermcapitalasset,inspiteofcontinuedandsystematicdealings;
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(ii)Onfacts,astheassesseehadengagedaportfoliomanagertolookafteritsinvestmentsandalldecisionsto buy and sell were taken by the portfolio manager and not by the asessee, the assessee cannot be called a dealer; (iii) The object of the PMS was to maximize the value of the portfolio. It was wealth maximization and not profitmaximization; (iv)Inthebalancesheet,theshareswerevaluedatcostandnotatlowerofcostormarketvalue; ARATrading&InvestmentPvt.Ltd.vsDCIT(2011)47SOT172(Pune)(ITAT)www.itatonline.org. S.28(i):BusinessIncomeMethodofAccountingEnhancedRateSaleofFlat(S.4,145) Assessing Officer having not brought any material on record to prove that the assessee has sold the flats at a pricehigherthanthepricerecordedinthebooksofaccount,additionmadebytheassessingofficerbyenhancing thesellingratescannotbesustained.(A.Y.1998to2000) ACITvs.DhartiEstate(2011)51DTR28/129ITD1/136TTJ263(Mum.)(Trib.)(TM) S.28(iv):BusinessIncomeBenefitorPerquisiteWaiverofLoan[S.2(24),41(1)] Loanreceivedforthepurposeofacquiringcapitalassetsdidnotconstituteatradingliabilityandhenceneither section28(iv)norsection41(1)hasapplicationwhereloanwaivedbythebank.(A.Y.200102) IskraemecoRegentLtd.vs.CIT(2011)237CTR239/49DTR185/237CTR239(Mad.)(HighCourt) S.28(iv):BusinessIncomeBenefitorPerquisiteBenefitarisingoutofBusinessBankLoanWaiverofloanby Bank[S.41(1)] The assessee was not trading in money transactions. A grant of loan by a bank cannot be termed a trading transactionnorconstruedtobeinthecourseof business.Indisputably,theassesseeobtainedtheloanforthe purposeofinvestingincapitalassets.Apartofthisloanwithinterestwaswaivedunderagreementbetweenthe parties. The amount referable to the loans obtained by the assessee towards the purchase of its capital asset could not constitute a trading receipt. Therefore, the facts were totally different from the facts in CIT vs. T. V. SundaramItengarandSonsLtd.(1996)222ITR344(SC).(A.Y.200102) IskaraemecoRegentLtd.vs.CIT(2011)331ITR317/196Tax103/49DTR185(Mad.)(HighCourt) S. 28(iv) : Business Income Benefit or PerquisiteWaiver of loan Capital or Revenue Receipt Depends on whetherloanwasusedforCapitalorRevenuepurposes Itwasheldthatincomefromwaiverofloandependsonthepurposeforwhichloanistaken.Incasetheloanwas taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax under section28(iv)or41(1).Whereas,iftheloanwastakenforatradingpurposeandwastreatedassuchfromthevery beginninginthebooksofaccount,itswaiverwouldresultinincomemoresowhenitwastransferredtotheP&L A/cinviewofSundaramIyengar222ITR344(SC). LogitronicsPvt.Ltd.vs.CIT(2011)53DTR50(Del)(HighCourt) S.28(iv).BusinessincomeBenefitorPerquisteWaiverofloan. Waiverofloantakenbyassesseeforbusinessactivity,assessableasbusinessincome.(Asstyear200405). CITvJubilantSecuritiesP.Ltd(2011)333ITR386/59DTR172(Delhi)(HighCourt). S.28(iv):Remissionofloanliability(S.41(1). Thetribunalheldthatsinceloanreceivedwasutilizedforacquiringcapitalassets,theamountremittedwasnot taxableundersection41(1).Asitwasremissionofliabilitysection28(iv)wasalsonotapplicable.
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TerraAgroTechnologiesvs.ACIT,ITANo.1503/Mds./2010,Dt.09062011,A.Y.200405,BCAJSeptember2011,pg. 23,Vol.43A,Part6 S.28(v):BusinessIncomeIncomefromOtherSourcesInterestfromPartnershipFirm(S.56) When there is a specific provision for treating interest and salary, etc. earned by a partner of from a firm as taxableundertheheadProfitsandgainsorbusinessorprofessionthereisnoquestionofcategorizingitunder theresidualheadofincome.(A.Y.200304) ACITvs.DeliteEnterprises(P)Ltd.(2011)135TTJ663/50DTR193(Mum.)(Trib.) S. 28(va) : Business Income Capital or Revenue Noncompete compensation Prior to Asst. Year 200203. Section28(va)insertedw.e.f.A.Y.200203,noncompetecompensationisacapitalreceipt(S.4). Thepaymentreceivedasanoncompetitionfeeunderanegativecovenantwasalwaystreatedasacapitalreceipt till AY 200304. There is a dichotomy between receipt of compensation received for loss of agency, which is treatedasrevenuereceiptandreceiptofcompensationattributabletonegative/restrictivecovenantwhichis treatedascapitalreceipt.Itshouldbenotedthatitisonlybysection28(va)insertedbyFinanceAct2002w.e.f. 1/4/2003,whichisamendatoryandnotclarificatorythatthesaidcapitalreceiptisnowmadetaxable.(A.Y.1997 98) GuffinChemP.Ltd.vs.CIT(2011)239CTR225/52DTR289/332ITR602/198Taxman78(SC).(SupremeCourt) S. 28(va) : Business Income Capital or revenue Share Transfer Agreement Noncompete covenant No transferofcontrollinginterest. It was held that a Share Transfer Agreement is merely agreement for sale of shares and is a noncompete covenant.Itdoesnotinanymannerrefertotransferofanycontrollinginterest.Thus,theamountassessableas businessincome.(A.Y.200607) ACITvs.R.K.B.K.FiscalServicesLtd.(2011)52DTR29(Trib)(Kol), S.28(vi):BusinessIncomeKeymanInsurancePolicy[S.10(10D)] AmountreceivedonmaturityofkeymaninsurancepolicyisliabletobetaxedinhandsofassesseefortheAsst. Year 200506 in view of clarificatory amendment, by the Finance (No. 2) Act, 1996, w.e.f. 1st Oct., 1996, though policywastakenearlier.(A.Y.200506) BinjrajkaSteelTubesLtd.vs.ACIT(2011)50DTR89/136TTJ113/130ITD46(Hyd.)(Trib.) S.31(1):RepairsandinsuranceofmachineryPlantandfurniture.(S.37(1).). Expenditureconsistedofdismantling,cleaningandinspectionofvariousparts,repairsandreplacementofworn out parts , geometrical alignments of machines , painting of machines , overhauling and repair of power transmissionunitandreplacementofelectricpanel.Expenditurewason accountofcurrent repairs forwhich deductionwouldbeallowableundersection31(1)aswellasundersection37.(A.Ys.200506200607) BharatGearsLtdvCIT(2011)201Taxman86/337ITR368/337ITR368(Delhi)(HighCourt). S.32:DepreciationNonuserofAssetBlockofAssets Theassesseeclaimeddepreciationundersection32inrespectoftheassetsatitsBhopalunitwhichwasclosed forsixyears.Theclaimwasonthebasisthat(1)despiteclosureoftheunittherewasapassiveuseroftheasset werepartoftheBlockofassets,depreciationcouldnotbedisallowed.AssessingOfficerandCIT(A)rejected the claim. Tribunal upheld the claim. On appeal to High Court, the Court held that despite nonuser of assets, depreciationisallowable,ifitispartofBlockofassets.
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CITvs.OswalAgroMillsLtd.(2011)50DTR305/238CTR113/197Taxman25(Delhi)(HighCourt) S.32:DepreciationAssetusedbythefirmbelongtopartnerInsuranceonbuilding Assessee is not entitled to depreciation on factory building owned by it but used in business of firm in which assesseewaspartner.Insurancechargespaidonsaidbuildingalsonotallowable.(A.Y.20052006) KaranRaghavExport(P)Ltd.vs.CIT(2011)196Taxman504/49DTR327(Delhi)(HighCourt) S.32:DepreciationApproachRoadInsideFactoryBuilding Approachroadconstructedbytheassesseeinsideitsfactorypremisesshouldbetreatedaspartofbuildingas such,depreciationhastobeallowedonthesame. CITvs.SunshineGlassIndusP.Ltd.(2011)49DTR31(Raj.)(HighCourt) S. 32 : Depreciation Fluctuation in Foreign Exchange To be allowed on outstanding liability though no amountwaspaidduringtheyear. TheAssessingOfficerpartlydisallowedtheclaimfordepreciationcalculationonthebasisofincreasedvalueof assetsoftheassesseeonaccountoffluctuationofforeignexchangerates.TheCIT(A)heldthattheassesseeis followingmercantilesystemofaccountingandallowedtheclaimonthebalanceoutstandingliability.TheHigh Court and Tribunal affirmed the same and also referred to the judgments in the case of CIT vs. Woodward Governor India P. Ltd. 312 ITR 254 and ONGC vs. 322 ITR 180, wherein it was held that increase and decrease in liabilityintherepaymentofforeignloanshouldbetakenintoaccounttomodifythefigureofactualcostinthe yearinwhichtheincreaseordecreaseinliabilityarisesonaccountoffluctuationinrateofexchange.(A.Y.1998 99) CITvs.NationalHydroelectricPowerCorpn.Ltd.(2011)332ITR322(P&H)(HighCourt) S.32:DepreciationAssetsinthenameofManagingDirector Depreciationundersection32wasallowabletotheassesseecompanyontheassetswhichwerepurchasedinthe name of the managing director of the assessee company and his wife but, used exclusively for the assessees business.(A.Y.200405) CITvs.MetalmanAutoP.Ltd.(2011)52DTR385/336ITR434(P&H)(HighCourt) S.32:DepreciationLeasingofvehiclesHigherrateofdepreciation. Assesseecompanyengagedinbusinessofleasingofmotorvehiclesetctoitsclientsisnotentitledtohigherrate ofdepreciation.Thebasicrequirementforbeingentitledtodepreciationathigherrateof50percentageunder EntryNo111(2)(ii)ofAppendixItoIncomeTaxRulesisuserofvehiclesinbusinessoftransportationorbusiness ofhire.(Asstyears198990199293). BhatwatiAppliancesvITO(2011)199Taxman131(Guj)(HighCourt). S.32.DepreciationRateUPSat60%. DepreciationisallowableonUPS@60% CITvOrientCeramics&IndustriesLtd(2011)56DTR397(Delhi)(HighCourt). S.32:DepreciationActualCost. Where the assessee paid custom duty under protest on imported machinery, the assessee would be entitletoaddthesametothecostoftheplantandmachineryforcomputingdepreciationthereon CITvs.OrientCeramics&IndustriesLtd.(2011)56DTR397(Del)(HighCourt).
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S.32:DepreciationUPS.60%. Depreciationisallowableattherateofsixtypercent(60%)onU.P.S. CITvs.OrientCeramics&IndustriesLtd.(2011)56DTR397(Del)(HighCourt). S.32:DepreciationUserofassetKeptreadyforproduction. Wheretheplantandmachinerywerekeptreadyforproduction,theassesseewouldbeentitletoclaim depreciationundertheprovisionsofsection32oftheActeventhoughsuchplantandmachinerywere notactuallyputtousebytheassesseeduringtheyear.(A.Y.199596) CITvs.ShahbadCooperativeSugarMillLtd.(2011)56DTR414(P&H)(HighCourt). S.32:DepreciationPoultryshed. Poultry shed is a building and not a plant, as such not eligible for higher rate depreciation as applicabletoplantandmachinery.(A.Y.199192&9293) PadmavathiHatcheries(P)Ltd.&Ors.(2011)55DTR105(AP)(HighCourt) S.32:Depreciationintangibleassetgoodwilldepreciationallowable. The assessee had purchased a hospital with its land, building, equipment, staff, name, trademark and goodwill as a going concern. Under the sale deed the value of the goodwill included the name of the hospital, its logo and trademark was 2 crores. The AO disallowed the depreciation on the goodwill on thegroundthatitwasnotcoveredundersection32(1)(ii).TheCIT(A)andtribunalheldinfavourofthe Department. On appeal to the High Court by the assessee, the High Court while allowing the appeal held that though goodwill is not specifically mentioned in section 32(1)(ii) of the IncomeTax Act, depreciationisallowablenotonlyontangibleassetscoveredbyclause(i)ofsection32(1),butalsoon the intangible assets specifically enumerated in clause (ii) and such other business or commercial rights similar to the items specifically covered there in. The High Court held that, by transferring the right to use the name of the hospital itself, the previous owner had transferred the goodwill to the assessee and the benefit derived by the assessee was a retention of continued trust of the patients who were patients of the previous owner. The amount paid for the goodwill for ensuring retention andcontinuedbusinessinthehospital,itwasoneacquiringabusinessandcommercialrightsandthe samewascomparablewithtrademark,franchise,copyrightetc.,theHighCourtheldthatgoodwillwas coveredbytheprovisionsofsection32(1)(ii)entitlingtheassesseefordepreciation.(AY200405). B.RaveendranPillaiv.CIT[2011]332ITR531(Ker)(HighCourt). S. 32: Depreciation Sale and lease back.Despite Tax Avoidance, 100% Depreciation on Sale & Lease BackAllowable. The assessee purchased equipment from the Haryana State Electricity Board (HSEB) which was already installed at the Boards Thermal Power Station at Faridabad and immediately leased the equipment back to the HSEB. The assessee claimed 100% depreciation on the said equipment. The AO disalloweddepreciationonthegroundthatthetransactionwasnotoneofpurchaseandleasebutwasa purefinancialandloantransaction. TheHonbleHighCourthelddismissingthedept.appealthat (i) The real intention of the parties in entering into the sale and lease agreement has to be gathered fromthewordsintheagreementinatangibleandinanobjectivemannerandnotuponahypothetical assessmentofthesupposedmotiveoftheassesseetoavoidtax.(IndustrialDevelopmentCorporation
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of Orissa 268 ITR 130 (Ori), Rajasthan State Electricity Board 204 CTR 415 (Raj) and Gujarat Gas Company308ITR243(Guj)followed); (ii) In order to deny the claim of depreciation, it would have to be held that the transaction was not genuine and that the same was a subterfuge. Merely because an assessee gets a commercial advantage because of the factoring in of a tax benefit, it cannot be said that the transaction is not genuine. There is no finding or evidence to indicate that the transaction was not genuine. The observations of Chinappa Reddy, J in McDowell is not good law in view of UOI vs. Azadi Bachao Andolan 263 ITR 706 (SC) where it was held that tax planning may be legitimate provided it is within theframeworkoflaw; (iii) The observations in Asea Brown Boveri Ltd with regard to the nature of a financial lease are not ofmuchusetotherevenueinviewofthefactualbackdropthatthetransactionhasbeenfoundtobe genuine.Onceitisestablishedthatthe ownershipoftheequipmentisthatof theassessee,itisclear thattheassesseeisentitledtoclaimdepreciation. CITvsCosmoFilmsLtd(2011)59DTR153/200Taxman384(Delhi)(HighCourt). S.32:DepreciationGasCylinderRateMountedonachassisofatruckAppendix1. Liquefiedgascylindermountedonthechassisofthetruckisforallpurposesasagascylinderincludingvalvesand regulatorsasdefinedinAppendix1itemIII(ii)F(4)oftheincometaxRulesandthereforedepreciationat100 percentwasallowable,insteadof40percentapplicabletotransportvehicles. CITvAnathaGasSuppliers(2011)59DTR116/242CTR488(AP)(FB)(HighCourt). S.32:DepreciationUnabsorbedCarryforwardandsetoff. Provisions of section 32 (2) as amended w.e.f. 1st April ,1997 permit set off of brought forward unabsorbed depreciationfirstlyagainstthebusinessprofitsandthenagainstincomeunderanyotherheadinAsstYear1997 98 and subsequent assessment years for a period of eight years ,therefore unabsorbed depreciation for the perioduptoassessmentyear199697couldbebroughtforwardandsetoffagainstincomechargeableunderthe headincomefromothersources.(A.ys1989to200203). CITvKirtiResorts(P)Ltd(2011)60DTR138/243CTR340(HP)(HighCourt). S.32:DepreciationRateHardwareComputer Assessee engaged in printing business, used certain hardware for execution of printing process, said hardware could not be categorized as computer and would not be eligible for higher depreciation. It is only where machineisbeingusedessentiallyandpredominantlyforcomputingcapabilityandwhereitisnotbeingharnessed forotherspecializedindustrialuses,beitmechanical,electricorelectronic(oracompositethereof)activitythatit couldbecalledasacomputer.(A.Y.200506) S.T.Reddiar&Sonsvs.Dy.CIT(2011)129ITD475/135TTJ480/49DTR326(Cochin)(Trib.) S.32:DepreciationActualCostRegisteredValuationReportSlumpSale[S.43(1)] It was held by Honble Mumbai Tribunal that where cost of fixed assets was adopted by assessee on basis of registeredvaluersreportandtherewasnoevidenceoftransactionacollusiveone,ortoreducetaxliabilityand therebeingnoclauseforpaymentofgoodwill,theassesseewasentitledtodepreciationonactualcostshownin thebooksofaccounts.(A.Y.200001) Dy.CITvs.LafargeIndiaLtd.(2011)9ITR118(Mum.)(Trib.) S.32:DepreciationTollRoadBusinessofsettingupofinfrastructuralfacilities.
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AssesseewasentitledtodepreciationontollroadwhichisconstructedonBuildownoperatetransferbasis (Asstyears2003&200405). GujaratRoad&InfrastructureCoLtdvCIT(2011)56DTR73(Ahd)(Trib). S.32:DepreciationBlockofassetsSaleofassetsClosureofonemanufacturingactivities.(S.50). AssesseehavingcloseddownitsmanufacturingactivitiesinoneofUnitandsoldalltheassetsofthatunitexcept motor vehicles and software , block of assets viz, building and plant and machinery , ceased to exist and thereafter these assets neither belonged to the assessee nor were used for the purpose its business and therefore,assesseeisnotentitledtodepreciationthereon.(Asstyears200506and200607). SonyIndia(P)LtdvAddlCIT(2011)56DTR156(Delhi)(Trib). S.32:DepreciationGoodwillCommercialrightsCommercialbenefits. Wheretheassesseehasmadetheexcesspaymentoverandabovethecostofintangibleassetsandthatexcess payment was claimed to have been made against goodwill , only the portion of goodwill representing cost of acquisition of the commercial rights shall be eligible for depreciation and not the portion relating to acquiring commercialbenefits.OnthefactsTribunaldirectedtheAssessingOfficertodividetheentirecostofgoodwillin twopartsand50percentofthecostofthegoodwillbetreatedasacostofacquisitionofthecommercialrights andallowthedepreciationthereonataprescribedrate.(Asstyears200506&200607). JeyporeSugarCompanyLtdvAsstCIT(2011)56DTR229(Visakha)(Trib). S.32:DepreciationComputerperipheralsPrintersScannersserversUPS. Computerperipheralssuchas printersscanners,servers,UPSetc,formintegralpartofcomputer systemonwhichhigherdepreciationof60%isallowable.(AsstYear200506). ITO v Omni Globe Information Technologies India (P) Ltd ( 2011) 131 ITD 280 / 141 TTJ 86 ( Delhi) (Trib). S.32:DepreciationTrustCostofassetallowedasApplicationofincome. Claim of depreciation by assessee trust in respect of assets , cost of which had been claimed as an application of income towards its objects , would amount to double deduction which is prohibited by law.(Asstyear200607). DyDirectorofIncometax(Exemption)vAdiSankaraTrust(2011)46SOT230(Coch)(Trib). S.32:DepreciationBuildingLandscapingexpensesHotelStoragetank. Since the assessee is in Hotel business its building is not merely a structure of four walls but includes all such thingsasarenecessarytogivethebuildingbetterlookandisamatterofattractionforthecustomers,therefore Landscapingdonebyassesseeinitshotelistobetreatedasbuildinganddepreciationisallowable. PaymentsmadebyassesseetoNDMCforunauthorizedoccupation,constructionofdieselstoragetanksandfire fightingtanksandcoveringsanitarylineswithoutapprovalinrespectofthehotelacquiredbyitfromtheCentral Government formed part of purchase consideration as these payments were made to perfect the title of the assesseeinthepropertyandtheamountbeingcapitalizedtheassesseeisentitledfordepreciation.(A.Ys2003 04to200708) DyCITvHotelExcelsiorLtd(2011)60DTR450/141TTJ248(Delhi)(Trib). S.32(1)(ii):DepreciationOwnershipHirePurchase HirerofanassetunderhirepurchaseagreementisentitledtodepreciationinviewoftheCBDTCircularNo.9dt 2331943(C&PVol.10.P.5375384thEdition).(A.Y.199596)
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CITvs.KaveriEngineeringIndustries(2011)53DTR102(Mad.)(HighCourt) S.32(1)(ii):DepreciationUserforbusinessNewaircraftreadyfortheuse. Assesseeobtaineddeliveryofthenewaircraftpurchasedbyitinthelaterhalfoftherelevantpreviousyearand gotthesameinsured,itwasheldthattheaircraftwasmadereadytouseinbusiness,hencedepreciationwas allowable.(Asstyear199697) CITvE.I.H.Ltd.(2011)54DTR249(Cal)(HighCourt). S.32(1)(ii):DepreciationDiscontinuanceofbusiness. AssesseecompanydidnotdoanyhotelbusinessafteritshotelbuildingwaswashedawayinfloodsinSeptember, 1995.However,assesseecompanybeingajuristicentityincorporatedundertheCompaniesAct,didnotceaseto exist. Since it has to fulfill its obligations imposed by Companies Act till it is would up some, staff has to be maintained. Therefore, once the assessee company is in existence, it is entitled to depreciation though it has discontinueditsbusiness.(A.Ys199899to200203). CITvKirtiResorts(P)Ltd(2011)60DTR138/243CTR341(HP)(HighCourt). S.32(1)(ii):DepreciationBlockofAssetsOwnershipPurchaseofshareswithrighttooccupypremises. The assessee made total payment of ` 4.44 crores to WRPL which has been divided in to two parts viz. considerationforsharesat`2.76croresandnonrefundableconstructionof`1.67crores.Boththesepayments areaimedatacquiring,usingandoccupyingtheproperty.Butforthepurchaseofsharesitisnotpermissibleto becamemember.Theassesseeisentitledtodepreciationontheentireconsideration.(A.Y.20002001) SRIAdhikariBrothersTelevisionNetworksLtd.vs.ACIT(2011)52DTR295/130ITD439(Mum.)(Trib.) S.32(1)(ii):DepreciationWebsite. In view of the amendment of Appendix I w.e.f. Asst. Year 200304 allowing depreciation @ 60 percent on software,depreciationisallowableonexpenditurefordevelopmentofwebsite@60percent.(A.Y.200304& 05) Dy.CITvs.C.M.Y.K.PrintechLtd.(2011)53DTR59(Delhi)(Trib.) S.32(1)(ii):DepreciationIntangibleAssetsGoodwill. Depreciationisallowableonspecifiedintangibleassetslike,licenseoranyotherbusinessorcommercialrightsof similarnatureandnotonGoodwill.(A.Y.2002to2005) OsramIndia(P)Ltd.vs.Dy.CIT(2011)51DTR297/137TTJ749(Delhi)(Trib.) S.32(1(ii):DepreciationNoncompetefee. Noncompetefeeisnotinthenatureofknowhow,patentscopyright,trademarks,licensesorfranchiseswithin themeaningofsection32(1)(ii),depreciationisnotallowable. SharpBusinessSystems(India)LtdvDyCIT(2011)59DTR385(Delhi)(Trib). S.32(2): Depreciation Unabsorbed Carry forward and set offExempted income Income from other sources. S.10B(6),56,72(2) Assesseebeingentitledtodeductionundersection10BuptoA.Y.200506,provisionsofsection10B(6)arenot applicable in the relevant A.Y. ie 200405 and therefore unabsorbed depreciation brought forward from assessment years prior to A.Y. 200001 can be set off against business income or against any other head of incomeincludingincomefromothersources.(Asstyear200405)
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DyCITvAkayFalvours&Aromatics(P)Ltd(2011)55DTR1/130ITD41(Coch)(TM)(Trib). S.35(1)(iv):ExpenditureonscientificresearchChapterVIAdeductionS.80B(5),80HH,80I. Deduction under section 35 (1) (iv) read with section 35 ( 2) has to be first allowed in computing of business incomeasawholeandthereafterdeductionsundersection80HH and80I havetobegrantedonlyfromnet incomeattributabletotheeligibleindustrialunit. CITvDuroflexCoirIndustries(P)Ltd(2011)55DTR133(Ker)(HighCourt). S.35(1)(iv):ExpenditureonScientificresearch BusinessExpenditure CapitalExpenditure Developmentof software. Businessoftheassesseebeingdevelopmentofsoftwareforitsclientsandnotsolelyresearchanddevelopment, anyexpenditureindoingsocannotitselffallwithintheparametersofsection35(1)(iv)andcannotbeallowedas deductionunderthatsection.(A.Y.200203) 3iInfotechLtd.vs.Dy.CIT(2011)51DTR385/136TTJ641(Mum(Trib.) S.35D:AmortisationofcertainpreliminaryexpensesBusinessexpenditurePublicissueexpenses. Assessee company was incorporated in 1976, hence public issue expenses relating to assessment year 199596 couldnotbeclaimedundersection35D.(Asstyears19992000and200102). CITvShasunChemicals&DrugsLtd(2011)199Taxman107(Mad)(HighCourt). S.35DDA.AmortisationofexpenditureincaseofamalgamationordemergerBusinessexpenditurePaymentto employeesonvoluntaryretirement(S.10(10C),37(1).) Section35DDAwouldbeattractedonly whenpaymenthas beenmadetoanemployeeinconnection withhis voluntary retirement , in accordance with the scheme or schemes of voluntary retirement. Since the payment reducestheburdenontheassesseerelatabletosubsequentyears,thelegislatureinsertedthissectioninorder toallowonly1/5oftotalsumpaidbytheassesseetoitsemployees.Thisamountinthehandsoftheemployee has been exempted under section 10 (10C) to the extent of Rs 5 Lakhs.. Provisions of section 35DD were not attractedinthematterofVRScompensationpaidtotheretiringemployeesastheconditionsofRule2BAwere notmetandthesaidexpenditureisallowableundersection37(1).(Asstyear200304) DYCITvWarnerLambert(India)(P)Ltd(2011)56DTR121(Mumbi)(Trib). S.35DDA Amortisation ofexpenditureincaseofamalgamationordemerger BusinessexpenditureScheme floatedbytheassesseegivingoptiontotheemployeesofoneunit.(S.10(10C),readwithrule2BA). Theschemefloatedbytheassesseegivingoptiontotheemployeesofoneunittoleaveitsemploymentwithout anyqualifyingconditionregardingageorlengthofserviceagainstpaymentofcompensationistobetreatedas VRS though it is not conformity with Rule 2BA and assessee is entitled to deduction of one fifth of the expenditureincurredonthepaymentsunderthenschemeinaccordancewiththeprovisionsofsection35DDA.( Asstyears200506&200607). SonyIndia(P)LtdvAddlCIT(2011)56DTR156(Delhi)(Trib). S. 36(1)(ii) Business Expenditure Bonus or commission Section bars tax avoidance scheme of paying commissioninsteadofdividend. (i) The argument that s. 36(1)(ii) is applicable only to employees who are not shareholders is not acceptable because payment of dividend to shareholders is not compulsory. S. 36(1)(ii) applies to all employees including
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shareholderemployeesthoughthedisallowabilityisrestrictedtopartnersandshareholdersbecauseitisonlyin thosecasesthatpaymentcanbesaidtobeinlieuofprofitordividend; (ii) The argument that as no dividend was payable, s. 36(1)(ii) does not apply is not acceptable because the wordpayabledoesnotmeanthatdividendshouldbestatutorilyorlegallypayable.Sincepaymentofdividend isdiscretionaryandnotcompulsory,anysuchconstructionwillleadtoabsurdresults.Thewordpayablemeans thatdividendwouldhavebeendeclaredbyanyreasonablemanagementonthefactsandcircumstancesofthe caseconsideringtheprofitabilityandotherrelevantfactorsandbecomepayabletoshareholders.Ifareasonable conclusion can be drawn that the dividend ought to have been paid and that instead of paying dividend, commissionwaspaid,s.36(1)(ii)wouldbeattracted; (iii)Onfacts,thereisnoevidencetoshowthatthedirectorshadrenderedanyextraservicesforpaymentofhuge commission in addition to services rendered as an employee for which salary was paid. Further, though the turnoverandtheprofit wasexceptionallyhighascomparedtotheearlieryears,thiswasbecauseofthestock marketboom.Theassesseebeingasharebrokergetscommissiononsale/purchaseofsharesbyinvestors/traders anditsincomeisassuredirrespectiveofwhethertheinvestor/traderlosesorgainsinthetransaction.Thesteady riseinperformancewasduetoimprovedmarketconditionsandnotbecauseofanyextraservicerenderedbythe directors.Also,nodividendwasdeclaredeventhoughanyreasonablemanagementwouldhavedeclaredatleast about20%dividendintheyearswhenthereweresubstantialprofits; (iv)Thedeviceadoptedbytheassesseewasobviouslywiththeintentiontoavoidpaymentoffulltaxes.Thereis obvious tax avoidance. S. 36(1)(ii) is intended to prevent escape from taxation by describing the payment as bonusorcommissionwheninfactitshouldhavereachedtheshareholdersasprofitordividend(LoyalMotor14 ITR647(Bom)referred) DalalBroachaStockBrokingPvtLtdvs.ACIT(2001)10ITR357(Trib)/131ITD36/59DTR41/140TTJ129(Mumbai)( SB)(Trib). S.36(1)(iii):BusinessExpenditureInterestonborrowedcapitaltosettleloanliabilityofsisterconcern Interest on loan obtained by assessee to settle liability of its sister concern, to retain business premises of assesseethesameisallowable.(A.Y.199798) CITvs.NeelkanthSyntheticsandChemicalsP.Ltd.(2011)330ITR463(Bom.)(HighCourt) S.36(1)(iii):BusinessExpenditureInterestonborrowedcapitalInterestandPenaltyunderSalesTaxAct InterestpaidonfundsborrowedforinterestandpenaltyunderSalesTaxActforbelatedpaymentallowableas businessexpenditure.Revenueappealwasdismissedasnosubstantialquestionoflaw. CITvs.InternationalFisheriesLtd.(2011)220Taxation11(Bom.)(HighCourt) S.36(1)(iii):BusinessExpenditureInterestonborrowedcapital. Where the assessee was having sufficient noninterest bearing fund by way of share capital and reserves and there was no nexus between the borrowings of the assessee and advances made by it, no disallowance under section36(1)(iii)oftheActwascalledfor.(A.Y.200102,200304,200405) CITvs.BhartiTeleventureLtd.(2011)51DTR98(Del.)(HighCourt) S. 36(1) (iii): Business expenditure Interest on borrowed capitalInvestment in sister concernShares of subsidiaryControloverthecompany.
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Investmentmadebytheassesseecompanyoutofbankoverdraftinthesharesofitssubsidiarycompanytohave control over that company being an integral part of its business ,interest paid by the assessee which is attributabletosaidborrowingsisallowableasdeductionundersection36(1)(iii). CITvPhilCorporation(2011)61DTR15/244CTR226(Bom)(HighCourt). S.36(1)(vii):BusinessexpenditureBaddebtsNonfinancialcompanyBankGuarantee. Assessee being a non banking financial company ,its activity of giving guarantee on behalf of another company was part of its money lending business and ,therefore the security amount adjusted by the bank against the dues of the said company following default on the part of the latter which has becameirrecoverableisallowableasbaddebt.(AsstYears199899,19992000&200304). CITvTulpiStarHotelsLtd(2011)57DTR210(Delhi)(HighCourt). S.36(1)(iii):BusinessExpenditureInterestonborrowedcapitalInvestmentascapitalinpartnershipfirm Interestpaidonborrowedamountinvestedinascapitalofpartnershipfirm,interestexpenditureallowableunder section36(1)(iii)andnodisallowancecanbemadeundersection14A. ACITvs.DeliteEnterprises(P)Ltd.(2011)135TTJ663/50DTR193/128ITD146(Mum.)(Trib.) S. 36 (1) (iii): Business expenditure Interest on borrowed capitalAdvance to sister concern Mutual accommodationsCommercialexpediency. Whenthereismutualaccommodationbybothpartiesintermsandlendingandborrowingfromeachother,the assesseesclaimofcommercialexpedienthastobeaccepted.(Asstyear200405). RamkishinTextilesP.LtdvITO(2011)9ITR(Trib)321(Mumbai)(Trib). S.36(1)(vii):BusinessexpenditureBadDebtsWriteoffinthebooks. Where the assessee had written off certain debts as bad in its books of accounts, there is no further requirementtoprovethatthedebtswasatradedebtorthefactthatitisirrecoverable.(A.Y.199697 &9899) CIT&Anr.vs.KroneCommunicationLtd.(2011)53DTR120(Kar)(HighCourt). S.36(1)(vii):BusinessexpenditureBaddebtsAlternativeclaimIfbaddebtnotallowableu/s36(1)(vii),claim fordeductionu/s37(1)canberaisedforfirsttimeevenbeforeHighCourt..S..37(1). IflossofdebtdoesnotcomewithinS.36(1)(vii),aclaimcanbemadeu/s.37(1).Merelybecauseclaimwasmade under one provision of Act and not under another provision, it does not debar the assessee from claiming deductionu/s.37(1)evenifitwasnotraisedbeforelowerauthorities. MohanMeakinLimitedvsCIT(2011)59DTR401(Delhi)(HighCourt).www.itatonline.org. S.36(1)(vii):BusinessexpenditureBaddebtsBusinesslossIfNotBadDebt,BusinessLossclaimsansspecific groundinvalid(S.28(i).Rule27) BeforetheTribunal,theassesseeraisedagroundonlyonbaddebt(andnotbusinessloss).Atthehearing,it concededtheclaimforbaddebtandpressedfortheclaimforbusinessloss.TheTribunalheldthattheclaim regardingbusinesslosscannotbeentertainedbecause,thoughtheCIT(A)hasdealtwiththeissue,thereisno specificground.TheclaimisalsonotmaintainableunderRule27sincethatappliesonlytoaRespondentinthe appeal.(Asstyear200304). ManoriPropertiesPvt.Ltd.vsITO(Mumbai)(Trib)www.itatonline.org.
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Editorial : A contra view, in the same factsituation, was taken in Mohan Meakin vs. DCIT (Delhi High Court) www.itatonline.org.TheHighCourtheldthatifgrantofreliefonanothergroundisjustified,theTribunalwouldbe underadutytograntthatrelief. S.36(1)(vii):BusinessexpenditureBaddebtsAssesseeonlytowriteitoffasbaddebtNotrequiredtoprove thatdebtshadbecamebad. Amerewriteoffofbaddebtwassufficientundersection36(1)(vii)andthatitwasnotnecessaryfortheassessee toestablishthatdebthadactuallybecomebad.ThelawsettledbytheSupremeCourtwasbindingonallincluding theAssessingOfficer,underarticle141oftheConstitutionofIndia.(T.R.F.LtdvCIT(2010)323ITR397(SC).(Asst year200506). Assst.CITvSafeEnterprises(2011)9ITR(Trib)553(Mumbai)(Trib). S.36 (2) (i).Business expenditure Bad debts: Share broker entire amount of debt need not be taken intoaccount. InthepresentcasefollowingtheSpecialBenchdecisioninthecaseofShreyasMorakhia{40SOT432}, itwasheldthatinordertosatisfytheconditionsstipulatedinsection36(2)(i),itisnotnecessarythat theentireamountofdebthastobetakenintoaccountincomputingtheincomeoftheassesseeandit will be sufficient even if part of such debt is taken into account in computing the income of the assessee.Thisprincipleappliestoasharebroker.Theamountreceivableonaccountofbrokerageisa part of debt receivable by the share broker from his client against purchase of shares and once such brokerage is credited to the profit and loss account and taken into account in computing his income, the condition stipulated in section 36(2) (i) of the Act gets satisfied. The bad debt therefore claimed bythebrokerwasallowed.(A.Y.20032004.) DCITvIITInvestrustLtd(2011)45SOT1(Mumbai)(Trib). S.37(1):BusinessExpenditureCapitalorRevenueExpenditureStudyreport. ConsultancychargespaidforobtainingstudyreportsinBitumenisrevenueexpenditure. CITvs.ShellBitumenIndia(P)Ltd.(2011)221Taxation44(Delhi)(HighCourt) S. 37(1) : Business Expenditure Capital or Revenue Expenditure Expenditure on setting up new sugar units ExpansionofBusiness. Expenses incurred by assessee, a sugar manufacturer, by way of salaries, wages, bonus, provident fund contribution,workmenwelfareexpenses,power,fuelandwater,manufactureexpensesrentforofficebuilding, etc.onsettingupnewsugarunitswereexpensesforthepurposeofmanufactureofsugarinrespectivefactories andtherefore,thesameareallowableasrevenueexpenditure.(A.Y.199293) CITvs.SakhtiSugarsLtd.(2011)237CTR51/194Tax91/45DTR134(Mad.)(HighCourt) S.37(1):BusinessExpenditureReplacementofMouldsRevenueExpenditure Replacementofmouldsdidnotresultincreationofnewcapitalassetorbenefitofenduringnature,merefact that moulds were used in production process could not be conclusive as to the nature of expenditure, hence, expenditureonreplacementofmouldswasrevenueexpenditure. CITvs.MalerkotlaSteels&Alloys(P.)Ltd.(2011)237CTR201/49DTR1(P&H)(HighCourt) S.37(1):BusinessExpenditureShareofprofitfromfirmExemptIncomeInterestonCapitalBorrowed[S.10 (2A)]
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Interest expenditure incurred on amount borrowed for purpose of contributing funds in form of capital in partnership firm can be allowed against interest income received from partnership firm on credit balance of capital.(A.Y.200506) KaranRaghavExport(P)Ltd.vs.CIT(2011)196Taxman504/49DTR327(Delhi)(HighCourt) S.37(1):BusinessExpenditureCapitalorRevenueExpenditureonproductionoffilmforadvertisement. Expenditure incurred by assessee on production of films by way of advertisement for promoting marketing of products manufactured by it being in respect of ongoing business of assessee is allowable as revenue expenditure. CIT vs. Geoffrey Manners & Co. Ltd. (2011) 238 CTR 49/(2009)315 ITR 134/(2009)180 Tax 87/(2009)19 DTR 249 (Bom.)(HighCourt) S.37(1):BusinessExpenditureExpenditureonForeignEducationofmanagingdirectorssonAllowable. Amountspenttowardseducationalexpensesofastudent,inwhichtheassesseeiscarryingonitsbusinesswas allowable expenditure under section 37(1) notwithstanding the fact that the student was son of managing director.(A.Y.1997to1999) CITvs.RasInformationTechnologies(P)Ltd.(2011)238CTR76/50DTR93(Kar.)(HighCourt) S.37(1):BusinessExpenditureCapitalorRevenueExpenditureVoluntaryRetirementScheme(S.35DDA) Evenfortheperiodpriortotheintroductionofsection35DDA,w.e.f.1stApril,2001,theassesseewasentitledto claim deduction of expenditure incurred under VRS only in a phased manner; however, in view of consistent views of various High Courts, the assessee had to be allowed deduction of entire expenditure, as revenue expenditureinrespectofAsst.Year19992000 CITvs.O.E.N.IndiaLtd.(2011)238CTR340/196Tax131/49DTR94(Ker.)(HighCourt) S.37(1):BusinessExpenditurePartoflargermachines. Wherepartsoflargermachinesarepurchasedbytheassessee,expenditureonsuchpartsisallowableasrevenue expenditure.(A.Y.200102to200405) CITvs.ModiIndustriesLtd.(2011)197Taxman76(Del.)(HighCourt) S.37(1):BusinessExpenditureWarranty. Provisionforwarrantyclaimmadebytheassesseebasedonascientificmethodandworkedontheaverageof earlieryearswarrantysettlementclaimswasheldtobeallowablebusinessexpenditure.(A.Y.19992000,2000 01,200102,200203,200304,200405) CITvs.LukIndiaP.Ltd.(2011)52DTR117(Mad.)(HighCourt) S.37(1):BusinessExpenditureAdhocExpenditure. Adhocexpenditureoutofcartage,labourandsealingexpensescannotbemadebytheassessingauthoritywhen similarexpensesareallowedintotalitybyAppellateAuthorityinearlieryears.(A.Y.199293) FriendsClearingAgencyP.Ltd.vs.CIT(2011)49DTR297/237CTR464(Del.)(HighCourt) S.37(1):BusinessExpenditureContingentLiabilitySuitfiledby Bank. Interest payable to the bank on the loan with respect to which the bank had filed suit for recovery cannot be disallowed treating the same as contingent liability merely for the reason that the bank had not shown the
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accruedinterestinitsbooks.(A.Y.199293) FriendsClearingAgencyP.Ltd.vs.CIT(2011)49DTR297/237CTR464(Del.)(HighCourt) S.37(1):BusinessExpenditureRealEstateBusinessIncomefromHousePropertyBrokerageCommission. Wheretheassesseederivedincomefromrealestatebusinessandalsoincomefromhouseproperty,theassessee is claim for deduction of brokerage and commission cannot be disallowed against the business income on the groundthattheassesseeisnotentitledtoanyfurtherdeductionotherthanthoseprovidedundersection24of theAct.(A.Y.200304) MuktiPropertiesP.Ltd.vs.CIT(2011)50DTR273/238CTR174(Cal.)(HighCourt) S.37(1):BusinessExpenditureConvertibleDebenturesCapitalorRevenueExpenditure. ExpensesincurredontheissueofconvertibledebentureshastobetreatedasRevenueexpenditure.(A.Y.1993 94) CITvs.ITCHotelsLtd.(2011)238CTR447/32DTR215/190Taxman430/334ITR109(Kar.)(HighCourt) S.37(1):BusinessExpenditureExpensestowardsretrenchmentof workersonclosureofaunitAllowable Theassesseecarriedmanufacturingfromvariousunitsandtheywereinterdependentandunityofcontrolbetween theunitsestablishedbytheexistenceofcommonmanagement,acommonbusinessorganization,administrationand fund. The closure of one unit did not involve the closure of the business. Therefore, the expenses towards retrenchmentofworkerswasthereforeanallowabledeductionwithinthemeaningofsection37(1)sincetherewasno closureofbusiness.(Asst.Year200102). CITvs.PfizerLtd.(2011)330ITR62/42DTR32/233CTR521(Bom.)(HighCourt) S. 37(1) : Business Expenditure Closure of one branch Amortisation of expenses Claim of unabsorbed expenditureclaimedintheyearthebranchwasclosedAllowableintheyearthebranchisclosed The assessee had incurred expenditure for opening branches, the cost of which were to be amortised by spreading it over 10 years in equal instalments. One branch was closed, the assessee claimed the unabsorbed expenditure of the closed branch. The High Court held that the business of the assessee continue after the closureofthebranch,andthedeductionofamortisedexpenditureneednotwaitaftertheclosureofthebranch. (A.Y.200304) VictoriaGoldGalleryvs.CIT(2011)330ITR330(Ker.)(HighCourt) S.37(1):BusinessExpenditureCapitalorRevenueFeasibilityStudyStudyAbandonedRevenueExpenditure Feasibility studies conducted by the assessee for the existing business with a common administration and common fund and the studies were abandoned without creating any new asset, therefore, expenses were of revenueexpenditure. CITvs.PriyaVillageRoadShowsLtd.(2011)332ITR594(Delhi)(HighCourt) S.37(1):BusinessexpenditureCapitalorrevenueExpenditureonabandonedexpansionplans. Theassesseehadincurredexpenditureonengagingservicesofconsultantsforimprovingoperationalefficiencies inextricably linked to the existing business. The project was abandoned, with no new asset to be created. The expenditureheldtoberevenueexpenditure.(Asstyear20002001) IndoRamaSyntheticsIndiaLtdv.CIT(2011)333ITR18(Delhi)(HighCourt). Editorial:SLPrejected(2010)328ITR(St)9(SC).
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S. 37 (1): Business expenditureProfessionals heart surgery expense not deductible Not allowable as repair expenses.(s.31). Expenditureincurredonheartoperationwasnotdeductibleu/s.31asalso37(1)becauseoffollowingreasons: 1) Heartcannotbeconsideredplantasitdidnothaveanymentioninassesseesbalancesheetunderassets anditscostofacquisitioncouldnotbedetermined. 2) Deductionu/s.37(1)cannotbegrantedastheexpenditureincurreddoesnothaveanyimmediateordirect nexusbetweentheexpensesincurredonsurgeryandhisefficiencyintheprofessionalfieldperse. 3) Before expenses on repair of plant are admitted as a deduction , plant would necessarily have to be reflectedasanassetinbooksofaccount.(AsstYear198384). ShantiBhushanvsCIT(2011)199Taxman181/57DTR233/333ITR26/242CTR375(Delhi)(HighCourt). S.37(1):BusinessexpenditurePaymenttobankasguarantorLoanofsubsidiarycompanySurety. Asperthedevelopmentagreementtheassesseewasobligedtoconveymarketabletitletothepurchasersofthe flatstobebuiltonaproperty.Assesseepaidmoneytothebankassuretytodischargetheloanobtainedbyits sister concern so as to secure release of the aforesaid property which was mortgaged with the bank. The paymentwastoavoidbreachoftermsofthedevelopmentagreement.Thesaidpaymentisallowableasbusiness expenditure.(AsstYear199394). CITvRudraIndustrailCommercialCorporation(2011)55DTR5(Kar)(HighCourt). S. 37 (1): Business expenditure Tractor Charges Assessee requesting the AO to issue summons Addition withoutissuingsummonsNotvalid.(S.131.). Assesseemadepaymentsoftractorchargestopartiespartlyinchequeandpartlyincash.Assesseerequested the assessing officer to summon person to whom cash payments were made. Assessing officer made addition withoutsummoningperson.Thecourtheldthatadditionwasnotproper. CITvBrijPalSharma(2011)333ITR229(P&H)(HighCourt) S.37(1).BusinessexpenditureCapitalorrevenueExpenditureonglowsignboard. Expenditureonglowsignboardsisallowableasrevenueexpenditure. CITvOrientCeramics&IndustriesLtd(2011)56DTR397(Delhi)(HighCourt). S.37(1)BusinessexpenditureKeymaninsurancepremium.(S.10(10D). AssesseeisaCharteredAccountanthaddebitedanamountofRs50LakhstowardsKeymanInsurance Premium,whichwastakeninoneofthehisemployeewhowastheheadofthefinancialconsultancy divisionandlookingafterthefinancialconsultancyforcorporatefinance.Theappealoftheassessee wasallowedbytheTribunal.OnappealbytherevenuetheCourtheldthatitistheprerogativeofthe businessmantoconsideranddecideastowhichoftheemployeesisimportantforthebusinessandit is for him to take life insurance policy for such an employee keeping in mind various factors and circumstances..TheHighCourtconfirmedtheorderofTribunal. CITvKamleshM.SolankiTaxappealno2421of2009dt2642011(ACAJVol35part03June2011P. 165(Guj)(HighCourt). S. 37 (1): Business expenditureForeign studies of person appointed as trainee in company Son of president.
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Fact that trainee happens to be son of President does not make the expenditure personal in nature. Since son of President was appointed by resolution and an agreement as been entered into, that the trainee after completion of the education from abroad will be obliged to resume service in the companyasatechnicalexecutiveatleastfortenyears.Expensesincurredonforeignstudiesofperson appointedastraineeincompanyarebusinessexpenditure. GournityeTea&IndustriesLtdvCIT(2011)TaxLR315(Cal)(HighCourt). S.37 (I). Business expenditureForeign Travelling expenditure of Managing Director and his wife Authorisedbyresolution. When the board of directors of the assessee had thought it fit to spend on foreign tour of the accompanying wife of the managing director for commercial expediency for reasons reflected in its resolution ,itwas not withintheprovince oftheincometaxauthority todisallowsuchexpenditure. There was resolution of company authorizing foreign travel of managing director and his wife for businesspurposes.TheCourtappliedtheratioofCITvWalchandandcoP.Ltd(1967)65ITR381(SC). However , as there was no resolution authorizing the wife of the deputy managing director, the expenditureonsuchtravelwererightlydisallowed.(A.Y.20001) J.K.IndustriesLtdvCIT(2011)335ITR170(Cal)(HighCourt). S.37(1):BusinessExpenditurePartiesfoundnonexistenceafterthreeyearsExpenditurecannotbe disallowed. Wherethe assesseetookcareto purchasematerials for hisbusinessby way ofaccountpayeecheque from third party and subsequently the parties do not appear before the assessing authorities as they had discontinued their business, the assessees claim of genuine business expenditure cannot be disallowedfortheirnonexistenceafterthreeyearsoftransactions.(A.Y.199899) Diagnosticsvs.CIT(2011)56DTR317(Cal)(HighCourt). S.37(1):BusinessExpenditureCapitalorRevenueGlowsignboard. Expenditure incurred by the assessee on glow signboard was held to be an allowable business expenditure. CITvs.OrientCeramics&IndustriesLtd.(2011)56DTR397(Del)(HighCourt). S.37(1):BusinessExpenditureCompanyPersonaluse. In case of Company there cannot be disallowance of car expense for personal use of car.(A. Y. 1988 89) CITvs.NuchemLtd.(2011)55DTR14(P&H)(HighCourt) S;37(1).BusinessLossAbandonedprojectCapitalasset. Amount paid as advance for acquisition of a capital asset for a project which was abandoned, did not qualify for deduction as a business loss since the amount spent was in relation to acquisition of a capitalasset. CITv.SouthernGasLtd.{2011}198Taxman165(Ker.)(Mag.)(HighCourt). S.37(1).BusinessExpenditureExpensesprohibitedonaccountofbeingillegal. Where the assessee paid sums to local goons and the police for maintenance of law & order, it was heldthatsuchexpenditurebeingprohibitedbylaw,didnotqualifyfordeduction.(A.Y.199293)
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CITv.Swaminathan{2011}198Taxman140(Kar.)(Mag.)(HighCourt). S.37 (1 ): Business expenditure assessee requesting AO to summon person addition without summoningnotproper. In the instant case the assessee had a paid a sum in cash and cheque, being tractor charges to D. During the assessment proceeding the assessee had made a mention of his inability to produce D for verification of the transaction, but had also requested the AO to issue summons to the D, so as to enabletheAOtodetermineforhimselftheveracityoftheassesseeclaim.TheAO,howevermadethe additionswithoutissuingsummonstoD.TheCIT(A)andITATbothruledinfavouroftheassessee.On appeal to the High Court, the High Court while deciding the issue in favour of the assessee held that the CIT(A) and ITAT had given a finding that the AO had made additions without any material whatsoever, and the AO could have enforced the presence of D especially since a substantial part of thepaymentsweremadebytheassesseebybankingchannels. CITv.GrijPalSharma[2011]333ITR229(P&H)(HighCourt). S. 37 (1). Business expenditure capital or revenue ERP Software Package Allowable As Revenue Expenditure. The assessee, engaged in manufacturing of telecommunication and power cable accessories and tradinginoilretracingsystemandotherproducts,incurredexpenditureofRs.23lakhsonpurchaseof Enterprises Resources Planning (ERP) package. The AO treated the expenditure as capital in nature. The Tribunal applied the functional test laid down by the Special Bench (presumably Amway India Enterprisevs.CIT111ITD112(Del))andheldthattheexpenditurewasallowableasadeductiononthe basis that the software facilitated the assessees trading operations or enabling the management to conduct the assessees business more efficiently or more profitably but it is not in the nature of profit makingapparatus.ThedepartmentfiledanappealbeforetheHighCourt.HELDdismissingtheappeal: In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure wasallowableasrevenueexpenditure. CITvsRaychemRPGLTd.(Bombay)(HighCourt).www.itatonline.org. S.37(1):BusinessExpenditureEducationexpensesofsonofmanagingdirectorforhighereducation. Whereassesseebeingaconsultingagencyinmanufacturingandengineeringindustryenteredintoanagreement withsonofManagingDirector,agreeingtospendmoneyonhighereducationinUSAontermsthatthesonof ManagingDirectorwouldworkwithassesseecompanyaftercompletionofthecourse.SuchMoneyspentbyan assessee either in sponsoring a student or towards educational expenses of a student in a discipline , in which assesseeiscarryingonitsbusiness,isavalidexpenditureandisentitledtodeduction.(A.Ys.199798and1998 99). CITvRasInformationTechnologies(P)Ltd(2011)200Taxman305(Kar)(HighCourt). S.37(1):BusinessexpenditureRoyalty. PaymentofroyaltybyassesseecompanytoitsUSbasedholdingcompanywhichhasbeenincurredwhollyand exclusivelyforthepurposeofbusinessoftheassesseeisallowableasbusinessexpenditure.(A.Y.19992000to 200102). CITvOracleIndia(P)Ltd(2011)59DTR222/243CTR103(Delhi)(HighCourt). S.37(1):BusinessexpenditureDemolitionofstructureCapitalorrevenue. Amountspentbyassesseeondemolitionofstructurewhichhadcaughtfireandmajorrepairofpremisesduring theperiodwhenthebusinesswasinexistenceareadmissibleasrevenueexpenditure.(A.Y.199596).
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CITvBhupinderaFlourMills(P)Ltd(2011)59DTR307(P&H). S.37(1):BusinessexpenditureCapitalorrevenueReconditioningofmachinery. Assesseeincurredhugeexpenditureontotalreconditioningandoverhaulingofmachinery.Sincereconditioning had resulted in imparting useful life to hitherto old and unfit machinery and thus , resulting in a benefit of enduringnatureexpenditurewascapitalinnature.(A.Y.199495). BharatGerasLtdvCIT(2011)201Taxman86/337ITR368(Delhi)(HighCourt). S. 37 (1): Business expenditure Ransom moneyWhile kidnapping is an offense, paying ransom is not; Bar in Explanation1tos.37(1)notattracted. Wherepaymentismadebyassesseeasaransomtosecurethereleaseofakidnappeddirector,itwasheldthat suchapaymentisnotprohibited.TheExplanationofs.37(1)providesthatexpenditureincurredbyanassessee foranypurposewhichisanoffenceorwhichisprohibitedbylawshallnotbedeemedtohavebeenincurredfor the purpose of business. It has to be seen whether the expenditure is incurred for any purpose which is an offence or prohibited by law. Accordingly, the Explanation of to s. 37 (1) is not applicable and the ransom is deductibleasbusinessexpenditure. CIT v Khemchand Motilal Jain Tobaco Products (P) LTD (2011) 243 CTR 270 / 60 DTR 113 (MP) (High Court). www.itatonline.org. S.37(1):BusinessExpenditureCorporateGuaranteeSubsidiaryOnetimesettlementwithBank Givingcorporateguaranteewasnotonlyoneoftheobjectsoftheassesseecompanybutthesamewasgivenfor itssubsidiarycompanyanditwasintheinterestoftheassesseecompanyandhence,thecommerciallyexpedient decision,hence,onetimesettlementwithbankwasallowableasbusinessloss.(A.Y.200405) ACITvs.W.C.Industries(India)Ltd.(2011)128ITD98/40DTR106(Chennai)(Trib) S.37(1):BusinessExpenditureKeymanInsuranceHospitalConsultancyFeesSoftwareMaintenance. KeymanInsurancepremiumpaidbytheCompanyonthelivesofChiefcardiacsurgeon,chairman,andmanaging director of company was qualified as deduction under section 37(1). Consultancy fees paid for maintenance of softwareweretobeallowedasrevenueexpenditure.(A.Y.200506) EscortHeartInstitute&ResearchCenterLtd.vs.ACIT(2011)128ITD108(Delhi)(Trib) S.37 (1) : Business expenditure Capital or RevenueRectification and improvement of power line Revenue expenditure. Expenditure incurred by assessee on rectification and improvement of power line was a revenue expenditure , evenif,itwasspentoutofsubsidyamountreceivedfromGovernment.(Asstyear198788). DyCITvA.P.StateElectricityBoard(2011)130ITD1/138TTJ425(Hyd)(TM)(Trib). S.37(1):BusinessexpenditureCompanyDisallowanceVehiclesandtelephoneexpensesofDirectors. Thereisnopersonalusagebythecompany,hencenodisallowancecanbemadeonaccountofpersonaluseof thevehicles/telephonebythedirectors/officialsofthecompany.(Asstyear200405). RamkishinTextilesP.LtdvITO(2011)9ITR(Trib)321(Mumbai)(Trib). S.37(1).BusinessexpenditureCapitalorrevenueRoyaltyforuseoflogo. Paymentmadebytheassesseefornonexclusiveuseroflogobasedonturnoverandnotlumpsumpaymentis allowableasrevenueexpenditure.(Asstyear200607).
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AsstCITvShriramTransportFinanceCoLtd(2011)9ITR(Trib)543(Chennai)(Trib). S.37(1):BusinessexpenditureServicechargestoGovernment Service charges paid toGovernment as per directives of State Government allowable as deduction.( Asst Year 199899). DyCITvTravancoreTitaniumProductsLtd(2011)130ITD161/138TTJ276(Cochin)(TM)(Trib). S.37(i):BusinessExpenditureRepairofLeaseBuildingForeignTravellingexpenses ofChiefEditorandstaffAllowable. The assessee company was engaged in the business of printing and publication of various periodicals. The assesseecompanytookonleaseabuildingandgotrepairedanemptyderelicthall,whichwasconvertedintoa recreationroomandwasusedbytheassesseesstaff.Theassesseecompanyclaimedadeductionofthesame and the same was allowed under section 37(1) of the Act on the ground that the assessee had not acquired a capitalassetbutputupaconstructionofbuildingonlyforthepurposeofbusiness.Theforeigntravelexpenses claimed by the assessee also for the travelling of the Chief Editor, Assistant Editor and other staff was also allowedasabusinessexpenditureasthesamewasnecessitatedtogrowbusinessoftheassesseesmagazines, periodicals,etc.(A.Y.200506&07) ACITvs.M.M.Publications(2011)43SOT59(Cochin)(Trib.) S.37(1)BusinessExpenditureLicenceFeeParentCompany Licence fee paid by the assesseecompany to its parent company under technical assistance agreement is allowablebusinessexpenditure.(A.Y.200506) Dy.CITvs.NestleIndiaLtd.(2011)7ITR758(Delhi)(Trib.) S. 37(1) : Business Expenditure Capital or Revenue Expenses on Development Upgradation of computer softwareDepreciation(S.32). Assessee engaged in the business of development of computer software having followed the method of accounting whereby it is treating the expenditure on development of computer software as part of work in progress during the period of development and capitalization the same when the software attains technically feasibilityandisreadyforsale,theexpenditureincurredondevelopment,upgradationofsoftwareproductshas to be treated as capital expenditure, however, depreciation would be allowable thereon in the year of capitalization.(A.Y.200203) 3iInfotechLtd.vs.Dy.CIT(2011)51DTR385/136TTJ641(Mum(Trib.) S. 37(1) : Business Expenditure Litigation Expenses Criminal Proceedings against an actor in his individual capacity. Theassesseeanactorincurredexpenditureindefendinghimselfagainstcriminalproceedingswhicharoseoutof the film shooting. The Tribunal held that the criminal proceedings were filed against the individual, this has nothing to do with the assessees profession. The expenditure was purely of a personnel nature and not allowable.(A.Y.200304and200405) Dy.CITvs.SalmanKhan(2011)8ITR150/52DTR137/137TTJ15/130ITD81(Mum.)(Trib.) S.37(1):BusinessExpenditureCapitalorRevenueEntrancefeestoaClubCorporateMembership.
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Entrancefeespaidtowardscorporatemembershipoftheclubisanexpenditureincurredwhollyandexclusively forthepurposeofbusinessandnottowardscapitalaccountasitonlyfacilitatessmoothandefficientrunningofa businessenterpriseanddoesnotaddtotheprofitearningapparatusofabusinessenterprisesandaccordingly CIT (A) was justified in deleting the disallowances of entrances fee made by the Assessing Officer.(A. Y. 2004 2005) Dy.CITvs.BankofAmericaSecurities(India)(P)Ltd.(2011)136TTJ441(Mum.)(Trib) S.37(1):BusinessexpenditureSecretCommissionforprovidingcontract Secret commission paid by the assessee to directors of the company giving construction contract to the assessee can not be allowed as expenditure in view of Explanation 1 to section 37(1).( Asst years 198384&198485). J.K.Panthaki&CovITO(2011)57DTR233/139TTJ337(Bang)(Trib). S.37(1):BusinessexpenditureCapitalorRevenueExpenditureEntrancefeetoaclub,formembership ofitsdirector. Thecompanyhadtakenmembershipinthenameofthedirectoroftheassesseecompanyandnoneof the executives of the company appeared to have been made members of the club. The expenditure incurred for club membership was disallowed on the ground that the assessee failed to produce any evidenceandprovethatthebenefitofmembershipwasutilizedwhollyorexclusivelyforthepurpose ofbusiness. NewIndiaExclusions(P)LtdV/s.AsstC.I.T.(2011)46SOT14(Mum)(URO) S.37(1):BusinessExpenditurePaymentofCompensation. Paymentmadebytheassesseetoclosefamilymembersforgettingvacantandpeacefulpossessionof premiseswasheldcapitalexpenditureastherewasnodisputegoingonbetweenthepartiestoshow thatthepaymentwasnecessaryfortakingpeacefulpossession.(A.Y.200304) ITOvs.PritamJuice(2011)138TTJ294(Mum.(Trib). S.37(1):BusinessexpenditureCapitalorrevenueConvertibledebentures. Expenditureinconnectionwithissueof4percentfullyconvertibledebentureswhichwerelaterconvertedinto equitysharesoftheassesseecompanywasofrevenuenature.(A.Y.200506). HavellsIndiaLtdvAddlCIT(2011)59DTR118/140TTJ283/47sot61(Delhi)(Trib). S.37(1):BusinessexpenditureCapitalorrevenueexpenditurePreoperativeexpensesExpansionofexisting business. Wherethereiscompleteinterlacingandintermixingofthefundsoftheassessee,inallitsunits,besidesthere beingacommonmanagementassesseeisjustifiedinclaimingpreoperativeexpensesincurredfornewproject asdeductibleasrevenueexpenditure.(A.Y.200506). HavellsIndiaLtdvAddlCIT(2011)59DTR118/140TTJ283/47SOT61(Delhi)(Trib). S.37(1):BusinessexpenditureRoyaltypaidtoforeignassociatedenterprise. Royaltypaidtoforeignassociatedenterpriseunderforeigntechnologycollaborationagreementisallowableas revenueexpenditure.(A.Y.200506). CabotIndiaLtdvDyCIT(2011)46SOT402(Mum)(Trib). S.37(1):BusinessexpenditureCapitalorrevenueNoncompetefeesDeferredrevenueexpenditure.
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Expenditureincurredbytheassesseetowardoffthecompetitionforaperiodofsevenyearsduringwhichany company could have set up its products and reputation in the market , expenditure can not be allowed as revenue expenditure. As non compete fee is held to be capital expenditure , claim for treating it as revenue expenditureentitledtodeductionforsevenyearsisalsonotallowable.(A.Y.200102). SharpBusinessSystems(India)LtdvDyCIT(2011)59DTR385(Delhi)(Trib). S.37(1):BusinessexpenditureCapitalorrevenueExpenditureonsoftware. Expenses incurred by the assessee for obtaining license to use software are to be treated as revenue expenditure.(A.Ys200304,200405&200607) STMicroelectronics(P)LtdvCIT(2011)61DTR1(Delhi)(Trib). S.40(a)(i):AmountsnotdeductibleNonResidentTaxDeductionatSourceTechnicianoutsideIndia(S.195) PaymentmadeoutsideIndiaforservicesrenderedbynonresidencetechniciansoutsideIndianodisallowancecan bemadeasprovisionsofsection195isnotapplicable. CITvs.InternationalCreativeFoods(P.)Ltd.(2011)49DTR150(Ker.)(HighCourt) S.40(a)(i):AmountsnotdeductibleBusinessExpenditureNonresidentTaxdeductionatsourceSoftware. TheassesseehadpurchasedasoftwarefromMandsoldintheIndianmarket.Theassesseeactedasadealer.This couldnotbetermedasroyalty,thereforesection40(a)(i)hadnoapplication. CITvs.DynamicVerticalSoftwareIndiaP.Ltd(2011)332ITR222(Delhi)(HighCourt) S. 40(a)(i) : Amounts not deductible Non resident Interest Branch of foreign Bank Head office Tax deductionatsourcePermanentEstablishment(S.195) ItwasheldthatasregardstaxabilityinthehandsoftheHO&obligationforTDSundersection195,thesamewas notchargeabletotaxinthehandsoftheHO.ThePEbeingassessableasseparatelegalentitypursuanttoprovisions of DTAA there is no obligation to deduct tax under section 195 and consequently no disallowance under section 40(a)(i) can be made in the hands of the branch. Interest paid by a branch. Thus, interest paid by a branch of a ForeignentitytoitsHOisdeductibleinthehandsofthebranch.SuchinterestisnottaxableintheHOshands ABNAMROBankNVvs.CIT(2011)57DTR85/241CTR552(CalcuttaHighCourt). Editorial:BettsHartleyHuett(1979)116ITR425(Cal.)distinguished HyundaiHeavyIndustries(2007)291ITR482(SC)&MorganStanley(2007)292ITR416(SC)followed S.40(a)(i):AmountsnotdeductibleBusinessexpenditureDiscountingchargesExportsalesbillDeductionof taxatsourceInterest.[S.2(28A),195] Discountingchargespaidbyassesseetoaforeigncompanyfordiscountingexportsalebillsisnotinterestas definedinsection2(28A),sinceforeigncompanyhasnopermanentestablishmentinIndia,itwasnotliabletotax inrespectofdiscountingchargesandtherefore,assesseewasundernoobligationtodeducttaxatsourceunder section195andthediscountingchargescouldnotbedisallowedundersection40(a)(i).(Asstyears200405& 200506). CITvCargillGlobalTrading(I)(P)Ltd(2011)241CTR443/56DTR188/199Taxman320(Delhi)(HighCourt). S. 40 (a) (i): Amounts not deductible Business expenditure Deduction of tax at source Royalty Paid or deducted. Aspertheprovisotosection40(a)(i),deductionforroyaltycouldbeallowedintheyearinwhichTDSwaseither paidordeductedunderChapterXVIIB;whereastaxwasdeductedinAsstyear199596butpaymentwasmade
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inthenextassessmentyeari.e.199697,assesseewasnotentitledtoclaimthesameasdeductioninAsstYear 199697butcouldbeclaimedinasstyear199596,only.(AsstYear199697). CITvWhirpoolofIndiaLtd(2011)56DTR65/242CTR245(Delhi)(HighCourt). S. 40(a)(i) : Amounts not Deductible Business Expenditure Payment of Commission Disallowance Non residentDeductionoftaxatsource.(S.195) Taxisnotdeductibleundersection195withregardtopaymentofcommissiontoforeignagentinviewofCircular No.23of1969andCircularNo.786of2000.Thepaymentcannotbedisallowedundersection40(a)(i)asCircular No.7of2009hadnoretrospectiveeffect.(A.Y.200708) Dy.CITvs.SanjivGupta(2011)135TTJ641/50DTR225(Luck.)(Trib.) S.40(a)(i):AmountsnotdeductibleFeesfortechnicalservicesDeductionoftaxatsourceNonresident.(S.9 (1)(vii)(b),195). Inordertofallwithintheexceptionofsection9(1)(vii)(b),thetechnicalservicesforwhich,thefeeshavebeen paid,oughttohavebeenutilizedbyresidentinabusinessoutsideIndiaorforthepurposeofmakingorearning anyincomefromanysourceoutsideIndia.Assesseehavingestablishedthatthetestingandcertificationservices providedbyitbyCSAwereutilizedonlyforexportactivity,section9(1)(vii)(b)beingnotattracted,section40 (a)(i)couldnotbeinvoked. (A.Y.200506). HavellsIndiaLtdvAddlCIT(2011)59DTR118140TTj283/47SOT61(Delhi)(Trib). S.40(a)(i).AmountsnotdeductibleDeductionoftaxatsourceNonresidentAFeeforuserofnameand accreditationnottaxableasroyalty.(S.195). Theassessee,engagedinmanufactureoftoothpasteetcpaidRs11,71,826asaccreditationpanelfeestoBritish DentalHealthFoundationUKwithoutdeductionoftaxatsource.TheAOdisallowedthesumu/s40(a)(i)onthe ground that the sum was taxable as royalty and tax had not been deducted at source u/s 195(1). The CIT(A) deleted the disallowance. Before the Tribunal, the department argued that since the assessee derived valuable advantagefromtheaccreditationbyBDHFandusethesameasamarketingtool,theamountconstitutedroyalty. TheTribunaldismissingtheappealheldthat,(i)Theobligationtodeducttaxu/s195(1)arisesonlyifthepayment ischargeabletotaxinthehandsofnonresidentrecipient.Iftherecipientoftheincomeisnotchargeabletotax, thevicariousliabilityonthepayerisineffectual.AstheAOhadnotestablishedhowtherecipientwasliabletopay tax,hewasinerrorindisallowingu/s40(a)(i)(GEIndiaTechnologyCenter327ITR456(SC)followed; (ii) On merits, though the accreditation fees permitted the assessee the use of name of British Dental Health Foundation, it did not constitute royalty under Article 13 of the IndiaUK DTAA because it did not allow the accredited product to use, or have a right to use, a trademark, nor any information concerning industrial, commercialorscientificexperiencesoastofallwithinthedefinitionoftheterm. ACITvAnchorHealthandBeautyCarePvt.Ltd.(Mum)(Trib)www.itatonline.org. S. 40 (a) (i): Amounts not deductibleDeduction of tax at source Non residentA Fee for user of name and accreditationnottaxableasroyalty.(S.195) Theassessee,engagedinmanufactureoftoothpasteetcpaidRs11,71,826asaccreditationpanelfeestoBritish DentalHealthFoundationUKwithoutdeductionoftaxatsource.TheAOdisallowedthesumu/s40(a)(i)onthe ground that the sum was taxable as royalty and tax had not been deducted at source u/s 195(1). The CIT(A) deleted the disallowance. Before the Tribunal, the department argued that since the assessee derived valuable
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advantagefromtheaccreditationbyBDHFandusedthesameasamarketingtool,theamountconstitutedroyalty. HELDdismissingtheappeal: (i) The obligation to deduct tax u/s 195(1) arises only if the payment is chargeable to tax in the hands of non resident recipient. If the recipient of the income is not chargeable to tax, the vicarious liability on the payer is ineffectual.AstheAOhadnotestablishedhowtherecipientwasliabletopaytax,hewasinerrorindisallowing u/s40(a)(i). (ii) On merits, though the accreditation fees permitted the assessee the use of name of British Dental Health Foundation, it did not constitute royalty under Article 13 of the IndiaUK DTAA because it did not allow the accredited product to use, or have a right to use, a trademark, nor any information concerning industrial, commercialorscientificexperiencesoastofallwithinthedefinitionoftheterm.Thepurposeoftheaccreditation byareputedbodywastogivecertaincomfortleveltotheendusersoftheproductandtoconstitutetheUSPof theproduct.Thetermroyaltycannotbeconstruedasperitsnormalconnotationsinbusinessparlancebuthas tobeconstruedasperthedefinitioninArticle13.Theamountconstitutedbusinessprofitsandastherecipient didnothaveaPEinIndia,itwasnottaxableinIndia. ACITvAnchorHealthandBeautyCarePvt.Ltd.(Mum)(Trib).www.itatonline.org. S.40(a)(iii):AmountsnotDeductibleSalarypayableoutsideIndiaNonresidentDedcutionoftaxatsource DTAAIndiaNetherlands.(S.5,9) Employees were nonresidents who rendered services outside India and also received salaries outside India, salariespaidtothemwerenotliabletotaxinIndiahenceprovisionsofsection40(a)(iii)werenotapplicable.(A. Y.200203) MotherDairyFruit,Vegetable(P)Ltd.vs.CIT(2011)198Taxman33/240CTR40/53DTR70(Delhi)(HighCourt) S.40(a)(iii).AmountsnotdeductibleTaxdeductionatsourceIncomedeemedtoaccrueorariseinIndiaSalary tostaffatNetherland(S.9,192). AssesseedidnotdeducttaxatsourceonsalarypaymentsmadetostaffatNetherlands.Assessingofficerinvoked theprovisionsof40(a)(iii),anddisallowedthepaymentsmadeonthegroundthatthetaxwasnotdeducted under section 192.The Tribunal held that since salaries had been paid to nonresidents for services rendered abroad,provisionsofExplanationtosection9(1)(ii)werenotapplicabletoassessee.Sincesalarypaidtonon residentsforservicesrenderedinNetherlandswasnotchargeabletotaxinIndia,provisionsofsection192can not be applied hence disallowance made by applying the provisions of section 40(a) (iii) were liable to be deleted.(AsstYear200304). DyCITvMotherDairyFruits&Veg(P)Ltd(2011)45SOT186/60DTR220/141TTJ97(Delhi)(Trib). S.40(a)(ia):AmountsnotdeductiblePaymentsbyfirmtopartnersSubcontractTaxDeductionatSource. (S.194C) Partnersoftheassesseefirmhavingexecutedthetransportation,contractsundertakenbythefirmbyusingtheir owntrucksandtheassesseehavingactedasanagentinroutingthepaymentstopartners,itcannotbeheldthat there was a separate contract between the firm and the partners and, therefore, such payments could not be disallowedundersection40(a)(ia)onthegroundthattaxwasnotdeductedatsourceundersection194C.(A.Y. 200607) CITvs.GrewalBrothers(2011)54DTR99(P&H)(HighCourt) S. 40(a)(ia) : Amounts not Deductible Deduction of Tax at Source Contractor Subcontractor Labour Charges.(S.194C)
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Itwasnotedfromrecordsthatasmallfrictionoftotalexpenditurewasinformoflabourcharges,andassuch,it wasdifficulttosaythatcontractwasforsupplyoflabourorworkandwouldratherbecategorizedasonefor purchaseof goods,thoughsomelabourworkstoodperformed.Asitwasnotacase ofcontractforserviceor labour,provisionofsection194Ccannotbeapplicableconsequentlydisallowancewasdeleted.(A.Y.200506) S.T.Reddiar&Sonsvs.Dy.CIT(2011)129ITD475/135TTJ480/49DTR326(Coch.)(Trib.) S.40(a)(ia):AmountsnotDeductibleBusinessExpenditureDedcutionoftaxatsourcePaymentforGoods& LabourCharges. Disallowancecannotbemadeundersection40(a)(ia)onaccountofnondeductionoftaxatsourceinrespectof estimatedlabourchargeswhichisasmallfractionofthetotalexpenditureinrespectofgoodspurchased.(A.Y. 200506) S.T.Reddiar&Sonsvs.Dy.CIT(2011)129ITD475/135TTJ480/49DTR326(Coch.)(Trib.) S.40(a)(ia):AmountsnotdeductibleTaxdeductionatsourceContractorAmendmentClarificatoryTax deducteddepositedbeforeduedateoffilingofreturn Provisionsofsection40(a)(ia),asamendedbytheFinanceAct,2010,w.e.f.142010,whichwasbeeninsertedby theFinance(No.2)Act,2004,w.e.f142005tosection40oftheActisremedialinnature,designedtoeliminate unintendedhardshiptothetaxpayersandwhichmadetheprovisionunworkableorunjustinaspecificsituation andisclarificatoryinnatureand,therefore,hastobetreatedasretrospectivewitheffectfrom1stApril2005,the dateonwhichsection40(a)(ia)hasbeeninsertedbytheFinanceAct(No.2)Act,2004.(A.Y.200506) KanubhaiRamjiMakwanavs.ITO(2011)49DTR70/135TTJ364(Ahd.)(Trib.) S.40(a)(ia):AmountsnotdeductibleTaxdeductionatsourceInterestCommissionSubcontractorFreight Charges AssesseedeductedthetaxatsourceandpaidtoGovernmentbeyonddatestipulatedinsection200butbefore the due date of filing of his return of income for the year under consideration. Finance Act 2010 had made amendmentstoprovisionsofsection 40(a)(ia)asperwhichif taxhasbeendeductedinrelevantpreviousyear andsamehasbeenpaidonorbeforeduedateoffilingofreturnofincomeforsaidpreviousyearasspecifiedin section 139(1), corresponding amount from which tax has been deducted shall be allowed as deduction. Said amendmentwasremedial/curativeinnature,itwouldapplyrespectivelywitheffectfrom142005.(A.Y.2006 07) BansalParivahan(India)(P)Ltd.vs.ITO(2011)43SOT619/53DTR40/137TTJ319/9ITR565(Trib)(Mum.)(Trib.) S.40(a)(ia).AmountsnotdeductibleBusinessexpenditurePaymenttotruckoperatorswithoutdeductionTDS Deductionoftaxatsource.(S.194C.) Assessee operating trailer lorries disbursing freight charges amounting to Rs 46,70,365 to 16 parties without deducting TDS as specified in section 194C . Assessee was liable to deduct tax at source . Amendment to sub section(3)ofsection194CmadethroughFinanceAct2005,wherebysecondandthirdprovisionswereaddedto itw.e.f1stJune,2005hasnoretrospectiveeffect.TheTribunalheldthattheAssessingOfficerwasjustifiedin makingdisallowanceundersection40(a)(ia).(AsstYear200506). ITOvM.Sankar(2011)138TTJ690/55DTR289(Chennai)(Trib) S.40(a)(ia).AmountsnotdeductibleDeductionoftaxatsourceFranchiseeagreementSharingofprofits.(S. 194C)
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Franchiseeagreementdidnotstipulatepaymenttobemadetothelicenceforanyworkdoneonbehalfofthe assessee and it was merely a case of running a study centre and to apportion profits thereof between the assesseeandthelicenceandthereforeprovisionsofsection194Cwerenotapplicableandnodisallowanceunder section40(a)(ia)canbemade.(Asstyears200506,200607). CareerLauncher(India)LtdvAsstCIT(2011)139TTJ48/56DTR10(Delhi)(Trib). S.40(a)(ia).AmountsnotdeductiblePaymentofcontractorsDeductionoftaxatsourceFormno15I(S.194C) OnceassesseehasobtainedFormno15Ifromthesubcontractors,heisnotliabletodeducttaxfromthe payments made to sub contractors and no disallowance can be made under section 40 (a) (ia) . Belated furnishingofformNo15JtotheCITisanactposteriorintimetopaymentsmadeundertosubcontractorand thereforethiscannotitselfundotheeligibilityofexemptioncreatedbysecondprovisotosection194C(3)(i)by virtueofsubmissionofFormno15Ibythesubcontractors.(AsstYear200607) ValibhaiKhanbhaiMankadvDyCIT(2011)56DTR89/46SOT469(Ahd)(Trib). S.40(a)(ia)AmountsnotdeductiblePaymenttocontractorDedcutionoftaxatsource(S.194C). Section 40 (a) (ia) applies even in respect of amount paid and not merely payable to the contractors and thereforeCIT(A)wasjustifiedinconfirmingdisallowancesundersection40(a)(ia)astheassesseehadfailedto deducttaxundersection194C.(Asstyear200708). DyCITvAshikaBrokingLtd(2011)56DTR417(Kol)(Trib). S.40(a)(ia):AmountsnotdeductiblePaymentstoIndianAgentsofforeignshippinglinesDeduction oftaxatsource(S.194C.) Transportationofgoodsbyrailwaysdoesnotfallwithintheambitofworkwithinthemeaningof section 194C and therefore , there was no obligation on the assessee to deduct tax at source under section194CfromthepaymentsmadetoIndianagentsofforeignshippinglinesforinlandhaulageof goods by railways and accordingly , no disallowance can be made under section 40 (a) (ia)( Asst year 200607). Airtech(P)LtdvDyCIT(2011)57DTR169(DelhI)(Trib). S. 40 (a) (ia): Amounts not deductible Payment to contractors Section is applicable in respect of amountpaidandpayable. Assessee contended that the section 40 (a) (ia) is not applicable in case where sum has been paid as the section refers the sums payable . The Tribunal held that section is applicable in respect of amountpaidalsohencetheassesseefailedtodeductthetaxundersection194C,disallowancewas justified.(AsstYear200708) DyCITvAshikaStockBrokingLtd(2011)139TTJ192(Kol)(Trib). EditorialContraryViewwastakenbyJaipurBenchinJaipurVidyutVitranNigamLtdvDyCIT(2009) 123TTJ888(JP)(Trib). S.40(a) (ia):Amounts not deductiblePayable to a contractor or sub contractorAdjustment of RefundDeductionoftaxatsource. Irrespective of fact that an assessee is entitled to claim refund of excess tax paid or get adjusted against tax liability under provisions of Act, assessee can not with hold TDS deducted from payment madetoacontractorsoastoadjustsameagainstexcesstaxespaidearlierandifanassesseedoesso thenprovisionsofsection40(a)(ia)areattractedinrespectofpaymentsomade.(AsstYear200506).
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HCCPatiJointVenturevAsstCIT(2011)46SOT263(Mumbai)(Trib). S.40(a)(ia):AmountsnotdeductibleInterestpaymentadditionalcostTaxdeductionatsource.(S 194A). When the amount of interest paid has been considered to be part of the purchase price and not interest under section 194A, such payment cannot be disallowed under section 40a(ia). ( Asst year 200506). Parag Manshuklal shah v ITO ITA no 2075 /Ahd/ 2008 CO no 120/Ahd /2008 Bench A dt. 3062011. ACAJVol35Part3.June2011P.166 S. 40(a)(ia): Amounts not deductible Fees for technical services Deduction of tax at source Non resident DTAAIndiaUK.(S.9(1)(vii)(b),195,arts13&15) ByamendmentintheFinanceAct,2007,thelegislatureinsertedtheExplanationwithretrospectiveeffectfrom1 stJune,1976tosection9(2)anditwasimpossiblefortheassesseetodeducttaxinthefinancialyear2003041 stApril,2003to31stMarch2004,whentheobligationtodeductTDSwasnotontheassesseeduringthatperiod disallowancewasnotsustainable.AssesseeactedbonafideinconformitywiththeprovisionsofAct.(A.Y.2004 05). SterlingAbbraiveLtdvAsstCIT(2011)140TTJ68(Ahd)(Trib). S.40(a)(ia):AmountsnotdeductibleDeductionoftaxatsourceDepositedbeforeduedateoffilingofreturn AmendmentbyFA2010isnotretrospective. TheFinanceAct,2010amendeds.40(a)(ia)w.r.e.f1.4.2010toprovidethatnodisallowancewouldbemadeifthe TDSwasdepositedonorbeforetheduedateforfilingthereturn.Theassesseeclaimedthatthesaidamendment was remedial and curative in nature and applicable from AY 200506. The Special Bench, held that, the amendment to s. 40(a)(ia) by the FA 2010 was made retrospectively applicable only from AY 201011 and not earlier. It is nowhere stated that the amendment is curative or declaratory in nature nor is such an intention discernible. A provision giving relief cannot be regarded as retrospective only because the original provision caused hardship to the assessee. S. 40(a)(i) caused intended difficulty with the object of discouraging non compliancewiththeTDSprovisions.Apartialrelaxationinitsrigor,insertedwithprospectiveeffect,cannotbe treatedasretrospective. Bharati Shipyard ltd. v DCIT (2011) 132 ITD 253/ 61 DTR 41/ 11 ITR (Trib) 599/ 141 TTJ 129 ( Mum) (SB) (Trib). (www.itatonline.org.) S.40(a)(ia):ExpensesorpaymentsnotdeductibleInterestFormno15G. Depositorshavingsubmittedformno15Gtotheassesseewellintime,interestpaidtothemwithoutdeduction of tax at source cannot be disallowed under section 40(a)(ia) simply because the said forms could not be submittedtotheAOthewithinthetimestipulatedintheAct,oncethesamewereavailabletotheAOwhile framingtheassessment.(A.Y.200607). ShyamSunderKailashChandvITO(2011)60DTR270(Jaipur)(Trib). S.40(a)(ia).ExpensesorpaymentsnotdeductibleCommissionNonresidentAgentServicerenderedoutside India.(S.9(1)(i),195). CommissionpaidtononresidentagentforservicesrenderedoutsideIndianotbeingchargeabletotaxinIndia couldnotbedisallowedundersection40(a)(ia).(A.Ys200102to200405). DyCITvDevisLaboratoriesLtd(2011)60DTR210/140TTJ746.(Hyd)(Trib)/
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S.40A(2):ExpensesorPaymentsnotdeductibleExcessiveorunreasonableSamerateoftaxDisallowance notjustified Whereassesseepurchasedfromitssubsidiarymaterialatpriceshigherthanthemarketrateforassuredsupply, there was no question of diversion of funds since both the assessee and the subsidiary were subjected to the samerateoftax,hencetherewasnowarrantforadditionbyinvokingsection40A(2).(A.Y.198586) CITvs.V.S.Dempo&Co.P.Ltd.(2011)196Taxman193/61DTR74/244CTR102/336ITR209(Bom.)(HighCourt) S.40A(2)(b):ExpensesorpaymentsnotdeductibleTechnicalknowhowParentCompany.(S.92). Once it is found that having n regard to the nature , quantum and quality assurance aspects of technical know how and other services provided to the assessee by the parent/ foreign company , compensation paid in the form of royalty / consideration can not be treated as excessive or unreasonable.TribunalwasjustifiedindeletingtheadditionmadebyAObyrelyinguponsection40A (2)(b)andsection92.(AsstYear199798). CITvNestleIndiaLtd(2011)57DTR65/337ITR103(Del)(HighCourt). S.40A(3):ExpensesorPaymentsnotdeductibleBlockAssessmentGPEstimated(S.158BC) Section 40A(3) applies to block proceedings. It is not accepted that the provisions of block assessment are special,andthattheyareacompleteCodeandtheotherprovisionscannotapply.SureshGupta297ITR322(SC) & M. G. Pictures 185 CTR 185 (Mad.) followed; Cargo Clearing Agency 218 CTR 541 (Guj.) not followed. The argument that if income is assessed by estimation on GP rate, no other disallowance can be made is not of universal application. If expenditure which is legally not permissible has been taken into account that can certainlybedisallowedevenwhereincomeisestimated. CITvs.SaiMetalWorks(HighCourtP&H)Source:www.itatonline.org S. 40A(3) : Expenses or payments not deductible Business Expenditure Disallowance Payment to Government(Rule6DD) Cash payments made by the assessee to the State Government who granted the contract to collect royalty on behalfoftheGovernmentcannotbedisallowedundersection40A(3)inviewofRule6DD(b).(A.Y.200506) CITvs.KalyanPrasadGupta(2011)51DTR191(Raj.)(HighCourt) S.40A(3):ExpensesorpaymentsnotDeductibleDisallowanceCashpaymentsfortelephonecards,recharge coupons,etc.bydistributortocellularserviceprovider. Assesseedistributordoesnotmakeany'purchaserseitherofgoodsorservicesontheacceptanceofdeliveryof telephonecards,rechargecouponsorotherserviceproductsofthecellularserviceproviderand,therefore,no disallowancecanbemadebyapplyingsection40A(3)irrespectiveofthemodeofpayment.(A.Y.200607) S.Rahumathullavs.ACIT(2011)49DTR115/135TTJ720/127ITD440(Coch.)(Trib.) S:40A(3):BusinessdisallowanceRejectionofbooksofaccount.(S.145). Assessing Officer having rejected the books of account and applied the net profit rate for the purpose of computingincome,nodisallowancecouldbemadeundersection40A(3).(A.Y.200203). ITOvSadhwaniBrothers(2011)58DTR368(JP)(Trib) S.40A(3):AmountsnotdeductibleBlockAssessmentProfitestimated.(S.158BB).
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Provisionsofsection40A(3)cannotbeinvokedinblockassessmentwithrespecttothepurchasesfoundasper seizedmaterialandunrecordedintheregularbooksofaccount,especially,whentheprofitfromtheunrecorded transactionshasbeenestimatedanddeclared. KirtiFoodsLtdvAsstCIT(2011)60DTR96(Pune)(Trib). S.40A(9):AmountsnotdeductibleNodisallowanceforstatutorycorpsastheirServiceRegulationshaveforce oflaw The assessee, a corporation setup under a State Act, made a contribution of Rs.16.77 lakhs, in its capacity as employerandaspertheserviceregulations,totheMSWKarmachariWelfareFund.TheAO&CIT(A)tookthe viewthatthepaymenttoafund,washitbys.40A(9)andnotallowableasadeduction.TheTribunalallowing the appeal held that ,S. 40A(9) provides that no deduction shall be allowed in respect of any sum paid by the assessee as an employer as contribution to any fund except where such sum is so paid as required by or underanyotherlawforthetimebeinginforce.Inthecaseofstatutorycorporations,theregulationsproviding forthetermsandconditionsofemploymentandconditionsofservicehavetheforceoflaw.Consequently,the service regulations framed by the assessee by which it agreed to make payment to the Fund carried statutory force and fell within the expression as required by or under any other law for purposes of s. 40A(9). (U. P. WarehousingCorporation19803SCC459followed) MaharashtrastatewarehousingcorporationvACIT(Pune)(Trib).www.itatonline,org. S.40A(9):AmountsnotdeductibleBonustoemployeesActualpayment.(S.43B). Section 40A (9), is an overriding section to 43B, therefore payment of bonus payable to employees to an employees bonus trust would be hit by section 40A(9), even if such payment was made to comply with the provisionsofsection43B.(AsstYear19992000and200102). CITvShasunChemicals&DrugsLtd(2011)199Taxman107(Mad)(HighCourt). S. 40A (9): Amounts not deductible Corporation State ActContribution For statutory corps as their Service Regulationshaveforceoflaw The assessee, a corporation set up under a State Act, made a contribution of Rs. 16.77 lakhs, in its capacity as employerandaspertheserviceregulations,totheMSWKarmachariWelfareFund.TheAO&CIT(A)tookthe viewthatthepayment,beingtoafund,washitbys.40A(9)andnotallowableasadeduction.Intheappealto theTribunal,theassesseeclaimedthatitsserviceregulationshadtheforceoflawands.40A(9)didnotapply. HELDallowingtheappeal: S.40A(9)providesthatnodeductionshallbeallowedinrespectofanysumpaidbytheassesseeasanemployer ascontributiontoanyfundexceptwheresuchsumissopaidasrequiredbyorunderanyotherlawforthe timebeinginforce.Inthecaseofstatutorycorporations,theregulationsprovidingforthetermsandconditions of employment and conditions of service have the force of law. There is no distinction in principle between a person directly under the employment of the Government and a person under the employment of a statutory corporation.Consequently,theserviceregulationsframedbytheassesseebywhichitagreedtomakepayment to the Fund carried statutory force and fell within the expression as required by or under any other law for purposesofs.40A(9). MaharashtrastateWarehousingCorporationvACIT(Pune)(Trib).www.itatonline.org. S.40(b)(i):AmountsnotdeductibleSalarytoworkingpartnerHUFKarta. Salary paid to working partner even though as Karta of HUF , is received as individual and as working partner ,henceallowableasdeductionwhilecomputingincomeoffirm.(A.Y.200506). CITvJugalKishor&Sons(2011)Tax.L.R.550(All)(HighCourt).
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S.40(b)(v):AmountsnotdeductibleFirmRemunerationNotWorkingPartner Where remuneration is paid to a partner who is not a working partner, remuneration payable to him even in accordancewiththedeedofpartnershipisnotallowableundertheprovisionsofsection40(b)oftheAct.(A.Y. 19992000to20042005) ReliableSurfaceCoatingsvs.ACIT(2011)7ITR183(Ahd.)(Trib.) S.40(b)(v):AmountsnotdeductiblePartnershipRemunerationtoPartnersCBDTCircular,whichspecifies thatforsection40(b)(v),thepartnershipdeedshouldspecifytheremuneration,isinvalid. Section 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits. Section 40(b)(v) does not laydown any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration. Accordingly, CBDT Circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individualshouldbefixedintheagreementorthepartnershipagreementdeedshouldlaydownthemannerof quantifying such remuneration goes beyond section 40(b)(v). The CBDT cannot issue a circular which goes againsttheprovisionsoftheAct.TheCBDTcanonlyclarifyissuesbutcannotinserttermsandconditionswhich arenotpartofthemainstatute.Apartnershipdeedwhichprovidesthattheremunerationwouldbeasperthe provisions of the Act meaning thereby that the remuneration would not exceed the maximum remuneration providedintheActisvalidanddeductionisadmissible. DurgaDassDevkiNandanvs.ITO(2011)241CTR180(HP)(HighCourt). S.41(1).ProfitschargeabletotaxIncomeBusinessincomeRemissionofliability. Investmentcompanyhastakenloanandinvestedinlongtermshares.Astherewasnocommunicationandclaim for many years by lenders and unsecured loan written back . No deduction was claimed in respect of loan . Amountwrittenbackcannotbeassessedasbusinessincomeundersection41(1).(Asstyear200405). LogitronicsP.LtdvCIT(2011)333ITR386(Delhi)(HighCourt.) CITvJubilantSecuritiesP.Ltd(2011)333ITR386/59DTR172(Delhi)(HighCourt). S.41(1):ProfitschargeabletotaxIncomeBusinessIncomeUnclaimedinsurancepremium. Unclaimed insurance premium credited to profit and loss account which was the amount collected by the assessee from the hirers as insurance premium as unclaimed balance becomes income of the assesseeandliabletobetaxasbusinessincome.(A.Y.199798&200304) MotorGeneralFinanceLtd.vs.CIT(2011)53DTR273/199Taxman51(Del)(HighCourt) S.41(1):ProfitschargeabletotaxDepreciationBalancingChargeBenefitorPerquisite[S.28(iv),41(2)] Where the cost of assets purchased by the assessee in earlier year was reduced by the seller on settlement of dispute,benefitofdepreciationobtainedbytheassesseeintheearlieryearscannotbetermedasanallowanceor expenditureclaimedbytheassesseeintheearlieryearstowarrantinvocationofprovisionsofsection41(1),or 41(2). However, Assessing Officer is directed to bring back to tax, the amount of depreciation granted to the assesseeintheearlieryearsontheallegedexcessamountof`2croresundersection28(iv)andredeterminethe closingWDVoftheblockassetsintheyearunderconsideration.(A.Y.200506) BinjarjkaSteelTubesLtd.vs.ACIT(2011)50DTR89/136TTJ113(Hyd.)(Trib.) S.41(1):ProfitsChargeabletoTaxBusinessIncomeLiabilityoutstandingmorethanthreeyears.
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There is no rule that liability outstanding for more than three years need not be paid and the same becomes incomeoftheassessee.IntheabsenceofanyspecificinformationinthepossessionoftheAOthattheamounts outstanding for more than three years were no longer payable by the assessee, same could not be treated as deemedincomeundersection41(1).(A.Y.200304&05) Dy.CITvs.C.M.Y.K.PrintechLtd.(2011)53DTR59(Delhi)(Trib.) S.41(1):ProfitsChargeabletoTaxBusinessIncomeRemissionorCessationofLiability. Wheretheamountceasedtobepayableinthebooksbyshowingnilbalanceandtheassesseehadclaimedthe deductionofsameamountinearlieryear,theprovisionsofsection41(1)wererightlyattracted.(A.Y.200405to 200607) ITOvs.E.A.InfrastructureOperationsP.Ltd.(2011)135TTJ239/41SOT269/48DTR200(Mum.)(Trib.) S.41(1):ProfitschargeabletotaxIncomeCapitalorrevenuereceiptWaiverloan.(S.(2(24),28(iv)) Principal amount of loan, which is taken for the purpose of business or trading activity, on its waiver by the creditor, would constitute income chargeable to tax; however, if the loan is utilized for the purpose of acquiring any capital asset, the same, on its waiver, would not constitute income chargeabletotaxeitherunders.41(1)ors.28(iv)ors.2(24).(A.Y.200607) Dy.CITvs.Logitronics(P)Ltd.(2011)53DTR73(Del)(Trib). S. 41 (1):Profits Chargeable to taxIncomeRemission or cessation of trading liabilityOutstanding Credit. Fortreatingamountofoutstandingcreditastaxableundersection41(1),therehastobeapositiveact on part of creditor in current year which would provide benefit to assessee by way of remission; merely because certain amount is outstanding for number of years will not be a case for holding that thereisacessationorremission.TheTribunaldismissedtheappealofrevenue.(Asstyear200708). ITOvBhaveshPrints(P)Ltd(2011)46SOT268(Ahd)(Trib). S.41(1):ProfitschargeabletotaxIncomeLiabilitiesoutstandingmorethanthreeyears. Out standing liabilities of the assessee can not be said to have ceased to exist merely because the relevant accountshavebecomenonoperationalorperiodofthreeyearshaveexpiredand,thereforesuchliabilitiescan not be charged to tax by invoking the provisions of section 41(1) , more so when the assessee has not written backsuchliabilitiesinitsprofitandlossaccount.(A.Ys200305to200708). DyCITvHotelExcelsiorLtd(2011)60DTR450/141TTJ448(Delhi)(Trib). S.43(i)ActualcostDepreciationAssetsacquiredfromfranchiseesValuationonthebasisofvaluationreport [S.32,43(6)] Assessee company engaged in the business of manufacture of soft drinks acquired manufacturing assets and otherassets,landandbuildingofitsfranchiseesonthebasisofvaluationdonebytheapprovedvaluer.Assessing Officerincreasedthevalueoflandby50%onestimatedbasisandvalueofbottlesandcrateswasreducedby50% andplantandmachineryby25%.TheCourtheldthatTribunalwasjustifiedindirectiontheAssessingOfficerto acceptthevaluationofassetsacquiredbytheassesseefromfivevendorcompaniesonthebasisofreportofthe registeredvaluerwhentherewasnobasistodiscardthevaluationreport.(AsstYear199697). CITvPepsicoIndiaHoldings(P)Ltd(2011)56DTR137(Delhi)(HighCourt). S.43(1):ActualcostDepreciationCustomdutypaidunderprotest.(S.32).
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Assesseeisentitledtoaddthedisputedcustomsdutypaidbyitunderprotestontheimportedmachinerytothe costofplantandmachineryanddepreciationthereon. CITvOrientCeramics&IndustriesLtd(2011)56DTR397(Delhi)(HighCourt). S.43(5):SpeculativetransactionDerivative.Futurecontractsforpurchase/saleofsecurities. LossesincurredfromtheExchangetradedderivativetransactions carried onbytheassesseeduring relevant assessment year are speculative transactions covered under section 43 (5) of the Act and the loss incurred in thosetransactionsareliabletobetreatedasspeculativeloss.Section43(5)isnotrestrictedtocontractswhich arecapableofperformancebyactualdelivery,andtherefore,factthatfuturescontractssettledotherwisethan by actual delivery cannot be a ground to hold that futures contracts are not speculative transactions under section43(5).Clause(d)insertedinprovisotosection43(5)witheffectfrom142006isprospectiveinnature and ,therefore , transactions covered under clause (d) are deemed not be speculative transactions only with effectfrom142006.(Asstyear200304). CITvBharatR.Ruia(HUF)(2011)199Taxman265/241CTR1(2011)vol113(3)Bom.L.R.1499. S.43(5).SpeculativetransactionlossSetoffoflossPropertyincome.(S.73) Loss from speculative transaction can not be set off against income from property.( Asst year 1997 98). AravaliEngineersP.LtdvCIT(2011)335ITR508(P&H).(HighCourt). S. 43 (5); Speculative transaction Post s. 43(5) amendment, preA.Y. 200607 derivatives speculation losses havetobetreatedasnonspeculationbusinesslossesforpurposesofsetoff. (i) When an assessee suffers a loss in business, speculative or nonspeculative, he has a statutory right to carryforwardtheunabsorbedlossandsetitoffagainstprofitsandgainsfromthesamebusinessforthenext year.Thetruenatureofthelosshastobedeterminedintheyearofsetoff.Afindingastothecharacterofthe loss reached in the year of incurring the loss is not binding in the year of setoff of the loss, even though the assessmentmayhavereachedfinality.Assuchdualcharacterizationispermissible(ManmohanDas59ITR699 (SC)&WesternIndiaOilDistributingLtd126ITR497(Bom)followed); (ii) Though,asheldinCITvs.BharatRuia,derivativestransactions,priortotheamendmenttos.43(5)w.e.f. AY 200607, are speculative transactions and the losses suffered therefrom are speculative losses, the questionwhethertheyareeligibleforsetoffhastobedeterminedasperthelawprevailingintheyearofsetoff. As in the year of setoff, derivatives transactions are not, pursuant to the amendment to s. 43(5), treated as speculative transactions, the losses incurred prior to the amendment have to be treated as normal business lossesandareeligibleforsetoffagainstallbusinessincomeinaccordancewiths.72(ShreegopalPurohit33SOT1 distinguished); (iii) Also, the question whether the assessment order is erroneous or not has to be determined as per the thenprevailinglawandasitwasthenheldthattheamendmenttos.43(5)wasclarificatoryandthatderivative transactions were not speculative transactions, the order was not erroneous (G.M. Stainless Steel 263 ITR 255 (SC)followed)(Asstyear200607) GajendraKumarTAgarwalvsITO(2011)BCAJJulyP.33.Vol43APart4.(Mumbai)(Trib).www.itatonline.org. S.43(5):SpeculativetransactionDerivativesForeigninstitutionalinvestors (S.115AD). Transactions in derivatives , both index based and individual share based , are to be considered as speculative transactions with in the meaning of section 43 (5) and they can not be treated as normal
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business or non speculative transactions. Section 43 (5) has no application to FIIs in respect of securitiesasdefinedinExplanationtosection115AD,incomefromsaleofsecuritiestobeconsidered asshorttermorlongtermgains.(AsstYear200405). LGAsianPlusLtdvAsstCIT(2011)46SOT159/140TTJ668(Mum)(Trib). S.43(5):SpeculativeTransactionDerivatives. Derivative transactions carried out form 142005 to 2512006 through stock exchanges , which were recognised by notification issued by CBDT on 2512006 , would be eligible for being treated as non speculative transactions with in the meaning of clause ( d) of proviso to section 43 (5) . ( Asst year 200607). AsstCITvHirenJaswantraiShah(2011)46SOT276(Ahd)(Trib). S.43(6)(c)(i)(B).DepreciationComputationBlockofassetsApparentconsiderationNotFairmarketvalue.( S.2(14),32). TheexpressionmoneyspayableaccordingtoExplanation4tosection43(6)shallhavethemeaningasisinthe Explanationbelowsubsection4ofsection41.Therefore,thewrittendownvalueofalltheassetsfallingwithin theblockofassetsatthebeginningofthepreviousyearhastobeadjustedbytheamountatwhichtheassetsis actuallysoldandnotthefairvalueoftheassetthatissold. CITvCablecorporationofIndiaLtd(2011)336ITR56/120Taxman339(Bom)(HighCourt). S.43B:BusinessexpenditureDeductionsActualPaymentSalesTaxExtendedfilingofReturn.(S.139) Wheretimeforfilingofreturnisextendedintermsofprovisotosection139(1),itautomaticallymeansextension of due date for purpose of section 43B, thus, Sales Tax paid within extended time for filing return cannot be disallowedundersection43B.(A.Y.198889) CITvs.NarendraAnand(2011)198Taxman51/55DTR193(Delhi)(HighCourt) S.43B:BusinessexpenditureDeductiononactualpaymentContributiontoEmployeesStateInsurance. Omissionofthesecondprovisoandtheamendmentofthefirstprovisotosection43BbytheFinanceAct,2003, wherebypaymentmadebytheemployertowardscontributiontoprovidentfund,employeesStateinsurance, gratuity,superannuationandotherwelfarefundswouldoperateretrospectivelyfromApril1,1998onwards.The paymentmadeforESIcontributionscouldnotbedisallowed.(Asstyear199899). CITvRaiAgroIndustriesLtd(2011)334ITR122(P&H)(HighCourt). S.43B:BusinessexpenditureDeductiononactualpaymentExcisedutypaidinadvance. Assessingofficerholdingthatdeductioncanbeclaimedonlyonremovalofgoodsfromfactories.HighCourt heldthattheassesseeisentitledtodeductioninrespectofexcisedutypaidinadvance.(Asstyear198990). CITvModiponLtd(NO2).(2011)334ITR106(Delhi)(HighCourt). S.43BBusinessExpenditureActualpayment.Licencefee. License fees payable under the Abkari Act for grant of right/ privilege to sell liquor if not paid within the period specified in section 43 B of the Act cannot be disallowed, as the same is consideration payabletotheGovernmentonlyforgrantofright/privilegetosellliquorandnotinthenatureofany tax,duty,cessorfeesasprovidedinsection43B(a)oftheAct.(19992000) CITv.G.Soman(2011)53DTR220(Ker)(HighCourt). S.43B:BusinessdisallowanceActualpaymentBonustoemployeesBeforeduedateoffilingofreturn.
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Bonuspaymentmadebeforeduedateoffilingofreturnnodisallowancecanbemade.(A.Y.200506). G.D.Metsteel(P)LtdvAsstCIT(2011)47SOT62(Mum)(Trib). S.44BB:BusinessofExploration,etc.ofMineralOilsComputation ofprofitsofforeigncompanies. ApplicanthasenteredintoacontractwithONGCandCairnEnergytoconductseismicsurveyanddataacquisition activities. It has specialization for identifying the surface of the ocean for tapping gas and oil reserves AAR observedthatunlessaseismicsurveyistaken,itisdifficulttolocatetheoceansurfacewithoilandgasreserves. Drilling and other examinations are ancillary for this purpose and hence activities of the applicant fit into descriptionofsaidsectiondemandingcomputationofitsincomeinaccordancewiththisprovision GlobalGeophysicalServicesLtd.,CaymanIslandsAARNo873/2010dt.1532011(AAR) S.44BB:BusinessofexplorationofmineraloilNonResident(S.9(1)(vii),S.44DA) Revenues earned by the applicant , a UK company ,under seismic data acquisition and processingcontracts in Indiaaretaxableundersection44BB. OHAMLtd(2011)241CTR327/55DTR413/335ITR423(AAR) S.44BBBusinessexpenditureNondeductionofTDS(S.40(a)(ia),195) Sincepaymenttononresidentiscoveredunderthespecialregimeofsection44BB,withholdingofappropriate taxbypayerwithoutapproachingtheA.O.doesnotleadtoanyviolationofwithholdingtaxprovisions,expenses cannotbedisallowedu/s40(a)(ia)onthegroundofshortdeductionoftax. FrontierOffshoreExploration(India)Ltd.vs.DCIT,ITANo.200/Mds./2009,A.Y.20042005,dt.04022011,ITAT, BCAJpg.35,Vol.43A,Part1,April2011. S.44BB:Businessofexploration,etc.ofmineraloils Applicant, incorporated in Norway provides geophysical services to oil and gas exploration industry and is awarded contract by Cairn Energy Pvt. Limited (Cairn), India to conduct seismic surveys and provide onshore seismic data acquisition and other associated services. Revenue contends that servicesextendedbytheapplicantfallunderExplanation2ofsection9(1)(vii)andnotunderS.44BBas theapplicantisnotundertakingaminingorlikeprojectbutisundertakenbysomeoneelseandcertain technical services are rendered by the applicant to the business enterprise that takes up the project. AAR held that S. 44BB will apply relying on its ruling in Geofizyka Torun Sp.zo.o, in AAR/813 of 2009 whereitwasheldthatifalltheservicesthatareinthenatureoftechnicalserviceswithinthemeaning of Explanation 2 to section 9(1)(vii) are to be computed in accordance with 44DA, very little purpose will be served by incorporating special provision in 44BB for computing the profits in relation to the servicesconnectedwiththeexplorationandextractionofmineraloils. VBergenOilfieldServicesAS,NorwayAARNo857/2009dt.16.05.2011(AAR). S.44BB:Businessofexploration,etc.ofmineraloilsNonresident(S.9(1)(vii),44DA). Applicant, incorporated in Singapore has entered into a time charter vessels hiring agreement for provisionofitsoffshoreservicevesselstoTransoceanOffshoreInternationalVenturesLtd.(TOIVL)in India who in turn is providing various offshore drilling and support services to ONGC. Being a time charteragreement,theentireoperation,navigationandmanagementofthevesselprovidedonhireis undertheexclusivecommandandcontroloftheapplicantthoughthevesselisoperatedandservices are rendered as requested by TOIVL. AAR observed that for the purposes of section 44BB of the Act, the vessels provided are covered under the definition of plant. The consideration received for
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supplyofplanti.e.thevesselsonhirewhenusedintheprospectingfororextractionorproduction of oil and gas is covered under the special provision for computing profits and gains under said section.AARfurtherheldthatsaidsectionwillapplyrelyingonitsrulinginGeofizykaTorunSp.zo.o,in AAR/813 of 2009 where it had held that if all the services that are in the nature of technical services withinthe meaningofExplanation2tosection 9(1)(vii) aretobecomputedinaccordancewith44DA, verylittlepurposewill beservedbyincorporatingspecialprovision in44BBfor computing the profits inrelationtotheservicesconnectedwiththeexplorationandextractionofmineraloils. BourbonOffshoreAsiaPte.Ltd,Singapore(2011)242CTR225/58DTR155/200Taxman408(AAR). S.44BB: Business of exploration of mineral oil Technical services RoyaltiesNon residentMobilization and demobilizationrevenues.S.9(1)(vii),44DA). Applicant, a foreign company, having entered in to a contract with another foreign company whereby it is providingseismicvesselsandseismiccrewattheareaofoperationstocarryout2Dgeophysicalsurveyoffshore India,itisengagedinthebusinessofprovidingservicesorfacilitiesinconnectionwithextractionorproductionof oil and therefore , revenues earned by the applicant under the said contract are taxable in accordance with section44BB,neithersection9(1)(vii)norsection44DAwasapplicable.Entiremobilizationanddemobilization revenuesreceivedbytheapplicantinrespectofseismicdataacquisitionandorprocessingactivitiesistaxablein Indiaundersection44BBataneffectiverateof4.223percent. WesternInternationalLtd(2011)242CTR634(AAR). S.44BB:BusinessofexplorationofmineraloilTechnicalservicesRoyaltiesNonresidentDTAAIndiaNorway ServicetaxFinanceAct,1994.S.68(S.90,Art23,24). Activitiesofprovidingsealogisticsservicesviztransportationofcargo,materialandpersonnelrequiredattherig, bytheapplicant,toONGCarenottechnicalservicesandthus,theincomederivedbytheapplicantfromthesaid activities is out of the purview of section 9 (1) (vii) and is liable to be taxed under section 44BB. Applicant company having shifted its managerial control to Norway in January , 2010 , it is liable to be taxed in India in termsofarticle23oftheDTAAbetweenIndiaandNorwayw.e.f.1stJan2010.Servicetaxsaidtobeincludedin the consideration received by the applicant from ONGC has to go into computation while calculating the considerationfortheservicesorfacilitiesundersection44BBorart23(4)oftheDTAA. SiemOffshore(2011)242CTR625/337ITR207(AAR). S.44BB:BusinessofexplorationofmineraloilRoyaltiesFeesfortechnicalservicesDTAAIndiaNorway. Service of conducting seismic surveys and providing onshore seismic data acquisition and other associated services are taxable under special provision .Entire receipts are subjects to deeming provision under section 44BB,incomecannotbesplit. BergenOilfieldServicesAS,Norway(2011)337ITR167(AAR). S.44BBB:ForeignCompaniesCivilConstructionTurnkeyProjects. Contract awarded to the applicant, a Japanese company, for erection of steam turbines, turbo generators and auxiliary equipments / heaters to execute a power project in India by an Indian Company being separate and machineriesforthesameprojecttotheholdingcompanyoftheapplicant,thecontractawardedtotheapplicant fitsintothedescriptiongiveninsection44BBBandtherefore,itiseligibleforpresumptivetaxationundersection 44BBB. ToshibaPlantSystems&ServicesCorporation,InRe(2011)52DTR155/198Taxman26(AAR)
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S.44C:NonresidentsHeadofficeexpenditure. AnyexpendituretofallinconsiderationZoneofdeductibilityundertheAct,whetherundersection44Corunder general,musthavebeenincurredforpurposeofbusinessofIndianbranch.Ifexpensesareshared/allocated/ apportioned/nonexclusiveheadofficeexpenses,thentheywillfindtheirresidenceinoveralllimitundersection 44C,ontheotherhandexclusiveexpensesincurredbyheadofficeforIndianbranchshallbedistinctlyconsidered undergeneralprovisionsofAct.(A.Y.200203) Addl.DirectorofIncomeTaxvs.BankofBahrain&Kuwait(2011)44SOT693(Mum.)(Trib.) E.Capitalgains. S.45:CapitalGainsSaleofleaseholdlandwithincompletebuildingShortTerm[S.2(29B),2(42B)] CapitalGainarisingtotheassesseeonthesaleofleaseholdlandwithincompletebuildingistobebifurcatedinto gainarisingoutofsaleofleaseholdinterestinlandandsaleofbuilding.Intheabsenceofperversityinthefinding oftheTribunalestimatingthevalueofthebuildingat`2.15croresasagainsttheconstructioncostof`1.85crore, the gain arising on the sale of land is to be treated as a long term capital gain where as the gain of ` 30 lakhs arisingonthesaleofincompletebuildingistobetreatedasshorttermcapitalgain.(A.Y.199697) CITvs.HindustanHotelsLtd.(2011)237CTR32/49DTR17/199Taxman127(Bom.)(HighCourt) S.45:CapitalGainsTransferofGoodwillSaleofEntireBusiness Sale of entire business, including all assets and liabilities, as a going concern, not possible to bifurcate considerationreceivedonaccountoftransfer.Transferdoesnotgiverisetocapitalgains.(A.Y.198586) ACITvs.PatelSpecificFamilyTrust(2011)330ITR397(Guj.)(HighCourt) S.45:CapitalGainsBusinessIncomeSaleofSharesLoanBorrowedInterestPaidCapitalGains[S.28(iv)] It was held that a capital investment and resale does not lose its capital nature merely because the resale was foreseenandcontemplatedwhentheinvestmentwasmadeandthepossibilityofenhancedvaluesmotivatedthe investment[SutlejCottonMillsSupplyAgencyLtd100ITR706(SC)]followed. Merelybecausesharesarepurchasedbytakingloanathighinterestdoesnotmeangainsaretaxableasbusiness profits. CITvs.NirajAmidharSurti(GujaratHighCourt)Source:www.itatonline.org S.45:CapitalgainsCompensationforgivinguptherighttospecificperformance(S.48). Compensation received for giving up the right to specific performance of an agreement to sell , constitutes capitalgainchargeabletotax,howeverdeductionisallowableaspersection48.(Asstyear199899). CITvH.AnilKumar(2011)56DTR384/242CTR537(Kar)(HighCourt). S.45CapitalgainsCapitalassetDeductionoftaxatsourceNonResidentCorporateVeilcanbeliftedtotax sale(S.2(14),195) The assessee, a company based in Cyprus, bought shares (100% together with another company) of a UK companycalledFinsiderInternational,fromanotherUKcompany.Finsider,UK,held51%sharesofSesaGoaLtd, India.TheAOtooktheviewthatthe51%sharesinSesaGoaheldbyFinsider,UK,constitutedacapitalassetu/s 2(14)andthatthetransferofthesharesofFinsideramountedtoatransferofthesaid51%sharesofSesaGoaand that the assessee was liable to deduct tax at source u/s 195 when it bought the shares of Finsider, UK. He accordinglyissuedashowcausenoticeu/s201seekingtotreattheassesseeasadefaulter.Theassesseefileda Writ Petition to challenge the notice on the ground that as one nonresident had sold shares of a foreign
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company to another nonresident, there was no liability under Indian law. HELD not accepting the assessees contention: Whatisunderchallengeisonlytheshowcausenoticeissuedu/s195itmaybenecessaryforthefactfinding authoritytoliftthecorporateveiltolookintotherealnatureoftransactiontoascertainvirtualfacts.Itisalsoto beascertainedwhethertheassessee,asamajorityshareholder,enjoysthepowerbywayofinterestandcapital gainsintheassetsofSesaGoaandwhethertransferofsharesinthecaseonhandincludesindirecttransferof assetsandinterestinSesaGoa. RicterHoldingLtd.vsADIT(Karnataka)(HighCourt).www.itatonline.org. S.45:CapitalgainsTrademarks,brands,copyrightandgoodwillBusinessincome.(S.28(va),55). Trade marks brands, copyright and goodwill constitute of business and are profit earning apparatus. Assessee was owner of brand name of journals which were also registered /indexed with Indian National Scientific Documentation Centre (INSDOC). Assessee company entered in to a specified AssetsTransferAgreementwithoneCMPforsaleofallitsrightstitlesandinterestinspecifiedassets ofitshealthcarejournalsandcommunicationbusiness.Inconsiderationtheassesseereceivedcertain amount from CMP which it showed as income from long term capital gains in its return. Assessing Officer , however held that amount received by assessee taxable as income from business under section28(va).HighCourtheldthattheconsiderationreceivedwouldbecomputedascapitalgains.( Asstyear200607) CITvMediworldPublications(P)Ltd(2011)200Taxman1/337ITR178(Delhi)(HighCourt). S.45:CapitalGainsCompensationSpecificperformance. Compensation received by the assessee for giving up the right to specific performance of an agreementtosellwasheldtobeacapitalassetchargeabletocapitalgaintax.(A.Y.199899) CIT&Anr.v.H.AnilKumar(2011)56DTR384(Kar)(HighCourt). S.45:CapitalGainsInvestmentinsharesHighvolumeandshortholdingperiodGainstobeconsideredas shorttermcapitalgains.(s.28) IntheinstantcasetheTribunalrecordedthefindingthatinanumberofcasestheassesseehadheldtheLTCG shares for more than 10 years and that the purchase and sale of shares within a period of one year had been offered as STCG. The same was accepted in the preceding assessment year. It was held that it is open to an assessee to trade in the shares and also to invest in shares. When shares are held as investment, the income arisingonsaleofthosesharesisassessableasLTCG/STCG.Accordingly,thedecisionoftheTribunalinholdingthat the income arising on sale of shares held as investment were liable to be assessed as LTCG/STCG cannot be faulted. CITvNaishadhV.Vachharajani(BombayHighCourt).(www.itatonline.org) S.45:CapitalgainsSharesPurchaseandsaleShorttime. Merefactthatthesharesweresoldinashortspanoftimeofacquisitionduetosteepandunanticipatedrisein stockmarketdoesnotmeanthattheintention wasnottoholdthemforlongperiodoftimeordealinthem. Profitonsaleofshareswithinshortspanof7to10monthsheldtobecapitalgainsandnotasbusinessincome.( A.Y.200506). CITvConsolidatedFinvestandHoldingLtd(2011)337ITR264(Delhi)(HighCourt). S.45:CapitalGainsBusinessIncomeSharesDespitehighvolume&shortholdingperiodSharesGainis STCG[S.28(iv)]
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TheassesseeofferedincomebywayofLongTermCapitalGain,ShortTermCapitalGain,speculativeprofitand profitfromfuturetrading.Insuchacase,wheresharesareheldforseveralyearsandsoassesseehadactedas investorandnottrader,thesaidthegainshallbeassessableaslongtermcapitalgain.Insimilarmannerwhere thereisnointradaytrading,sharesareheldforperiodof2to5monthsandtherearenoborrowings,thesame shallbeassessedasLongTermCapitalGain. ACITvs.NaishadhV.Vachharajani(Mumi)(Trib):www.itatonline.org S.45:CapitalGainsAgriculturalLandBeyondMunicipalLimits[S.2(14)(iii)] Saleofagriculturallandsituatedbeyond8Kmfrommunicipallimitsofthevillagehavingapopulationoflessthan 10,000personsisnotliabletocapitalgainstax. ACITvs.AshokKumarAgarwal(2011)TaxWorldFeb.P.No.112(Jaipur)(Trib.) S.45:CapitalGainsConversionofunitsofUTIintotaxfreebondsTransfer[S.2(47)] AssesseeclaimedcapitallossonaccountofconversionofunitsofUTIintotaxfreebonds.TheTribunalheldthat intheinstantcasewasasimplecaseofconversionofoneassetintoanotherandtherewasnotransferofasset withinthemeaningofsection2(47)hencetheAssessingofficerrightlyrejectedtheclaim.(A.Y.200405) ACITvs.ABCBearingsLtd.(2011)44SOT338(Mumbai)(Trib) S.45:CapitalGainsConsentbyLandownerTDRCompensationpaidtomembers[S.2(24)] Mere grant of consent by the land owner to the developer to construct by consuming TDR purchased by the developer from the third party does not amount to transfer of land or any rights therein. Amount of compensationpaidbythedevelopertothemembersofthesocietycannotbetaxedinthehandsofthesociety. Raj Ratan Palace CoOperative Hsg. Ltd. vs. Dy. CIT ITA No. 674/Mum/2004 Bench B dated 2522011 (Asst. Year 199798)(2011)43ABCAJApril33(Trib) S.45:CapitalGainsTransferofDevelopmentRight(TDR)TDRhasnocostofacquisition,amountreceivednot taxable.(S.48) Transferable Development Rights (TDR) granted by the Development Control Regulations for Greater Mumbai, 1991,qualifyingforequivalentFloorSpaceIndex(FSI)havenocostofacquisitionandsosalethereofdoesnot giverisetotaxablecapitalgains(JethalalD.Mehtavs.DCIT2SOT422(Mum)followed).(A.Y.199798) ITOvs.HemandasJ.Pariyani(Mum.)(Trib.)Source:www.itatonline.org S.45:CapitalGainsLicenseNoCostofAcquisitionNotliabletoCapitalGainTax. In the absence of any cost of acquisition for acquiring the license, consideration received for transferring such licensenotliabletocapitalgain.(A.Y.199697) ShreeChangdeoSugarMillsLtd.vs.Jt.CIT(2011)44SOT479(Mum.)(Trib.) S. 45: Capital Gains Deduction Shares PMS fee, even if NAV based, is deductible in computing PMS capital gains. (i) In computing capital gains u/s 48, payments are deductible in two ways, one by taking full value of considerationnetofsuchpaymentsandtheotherbydeductingthesameasexpenditureincurredwhollyand exclusivelyinconnectionwiththetransfer.Theexpressionfullvalueofconsiderationcontemplatesadditions anddeductionsfromtheapparentvalue.Itmeanstherealandeffectiveconsideration,whichcanbearrivedat onlyafterallowingthedeductibleexpenditure(CITvShakuntalaKantilal190ITR56(Bom)followed);
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(ii) ThePMSfee,onprofitsharingbasis,wasforthetwinpurposesofacquisitionandsaleofthesecurities. The fact that bifurcation between the two is not possible is not relevant. The departments argument that fee shouldbesharespecificisabsurdbecausefeesforsharestransactionsisneversharespecificbutisvolumebased; (iii) Accounting Standard 13 (Accounting for Investments) issued by ICAI provides that brokerage, fees and dutieshavetoaddedtothecostofinvestments.Theassesseesmethodofaccountingistoproportionatelyload thePMSfeesontheopeningportfolioandinvestmentsmadeduringtheyearwhichmeansthatnodeductionis claimedforthefeesontheunsoldinvestments; (iv) Devendra Kothari 50 DTR 369 (Mum) cannot be followed because (i) it unfortunately did not refer to the readdowninterpretationofs.48aslaiddowninShakuntalaKantilaland(ii)onfacts,theclaimtherewasonthe entireturnoveronglobalbasisandnotrestrictedtoonlyinvestments. KRAHolding&TradingPvt.Ltd.vsDCIT(Pune)(ITAT)www.itatonline.org S. 45: Capital gains Transfer Assignment or release of interest by retiring partner in favour of continuing partner.S.2(47).47(ii). The continuing partners agreed to pay to the retiring partner for assigning or release of interest by retiring partnerinfavourcontinuingpartners,transactionwouldamounttoatransferwithinthemeaningofsection2 (47).Iftheretiringpartnerispaidsomethingoverandabovesumstandingtocreditofhiscapitalaccount,there wouldbeacapitalgainchargeabletotax.InviewofamendmentcarriedoutbyFinanceAct,1987byomitting section 47 (ii) ,profits or gains arising from transfer of a capital asset by a firm to a partner on dissolution or otherwisewouldbechargeableasfirmsincomeinpreviousyearinwhichtransfertookplaceandforpurposesof computationofcapitalgains,fairmarketvalueofconsiderationreceivedoraccruingasaresultoftransfer.(Asst year200708). SudhkarM.ShettyvAsstCIT(2011)130ITR197(Mum)(Trib). S.45:CapitalgainsShorttermcapitalgainsMarketvalue. Assesseeacquired10percentofshareholdingincompanyatparvalueinexchangeforsharesintwocompanies alsoatpar.MauritiusCompanyacquired45percentofshareholdingsinsamecompanyatpremium.Therewas noproofthattransactionswerelinkedinsamechain.Therewasnoproofthatmarketvalueofsharesattimeof purchasebyassesseewashigherthanpricepaidbyhim.Additionsmadebytheassessingofficerbytakingprice paidbyMauritiuscompanyasmarketvaluewasdeleted.(Asstyear200405). AthappanNandakumarvITO(2011)9ITR(Trib)436(Chennai)(Trib). S.45:CapitalgainsTransferPartperformanceofcontract Assesseecompanypurchasedapieceofagriculturallandon20111999.Itenteredintoanagreement forsaleofsaidlandwithKon592002andsimilarlyexecutedapowerofattorneyinfavourofM a,representativeofK.authorisinghimtocultivatesaidlandandtosellagriculturalproducegrown on it . The said power of attorney was registered before sub registrar on 21112002 . Sale consideration had been paid to assessee through cheque prior to 592002 . Assessee claimed that transferoflandgotcompletedon21112002andtherefore,capitalgainsarisingonsaleoflandwasto beassessedaslongtermcapitalgains.Howevertheassessingofficertookdateofexecutionofpower of attorney and agreement to sell . ie. 592002, to be date of transfer and assessed capital gains as short term capital gains .The Tribunal held that , once a document is registered , its effective from date ,when it was executed, therefore ,power of attorney ,event though registered on 21112002 , couldbeeffectivewiththeeffectfrom592002andassuch,itcouldbeheldthatpossessionofland
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hadbeengiven on592002when thepower ofattorneywasexecuted,therefore ,allingredients as arerequiredtobecompliedwithforapplicabilityofsection53AOf1882Actweresatisfiedininstant caseon592002andaccordinglyitwastobeheldthattransferoflandhaddulytakenplaceon59 2002 ,itself and , therefore order of assessing Officer assessing the same as short term capital gain wasupheld.(AsstYear200304). V.RamChandraConstruction(P)LtdvAsstCIT(2011)131ITD71/59DTR249/140TTJ521(Agra)(TM )(Trib). S.45:Capitalgains BusinessincomeSharesEvengainsonsharesheldfor30days&lessisSTCG & notbusinessprofits.[S.28(i)] To decide whether a capital gain is short term or long term, it was held that holding period is one of thecriteria.Theprinciplesthathavetobeappliedare(a) theintentionoftheassesseeatthetime of purchase, (b) whether borrowed funds were used, (c) the frequency of purchase and sales, (d) the treatment in the books etc. No single criteria is conclusive and an overall view has to be taken (AssociatedIndustrialDevelopment82ITR586(SC)&HolckLarsen160ITR67(SC)followed); Hitesh Satishcandra Doshi vs JCIT (2011) 58 DTR 258/ 140 TTJ 32/ 46 SOT 336/140 TTJ 32( Mumbai) (Trib). S.45.CapitallossLossonproratareductionofsharecapitalisNotional.Inabsenceofconsideration,capital gainsprovisionsdonotapply TheassesseeinvestedRs.24.84croresinequitysharesofTimesGuaranteeLtd.Pursuanttoaschemeofreduction u/s100oftheCompaniesAct,thefacevalueofTimesGuaranteeshareswasfirstreducedtoRs.5fromRs.10and thereaftertwoequitysharesofRs.5eachwereconsolidatedintooneequityshareofRs.10.Theresultwasthatthe assesseesinvestmentwasreducedtoRs.12.42crores.Theassessee,claimedthatthereductioninfacevaluewasa transferandthatithadsufferedalongtermcapitallossofRs.22.21croresafterindexation.TheAOdisallowed theclaimonthegroundthat(i)therewasnotransferand(ii)therewasnoconsiderationandthemachinery provisionsofs.48cannotapply.TheissuewasreferredtotheSpecialBench.Heldbythemajority (i)Firstthefacevalueof eachshare wasreducedfromRs.10 toRs.5and thentwosharesofRs.5eachwere consolidatedintooneshareofRs.10each.Iftheargumentisthatearliershareswerereplacedorsubstitutedby newshares,thenthereisnotransferbutitismerelyacaseofsubstitutionofonekindofsharewithanother kindofshare (ii)Assumingthatareductionofsharesinthemannerdonebytheassesseeamountstoatransfer,s.45isnot attracted because there is no consideration received by the assessee for the transfer. Unless and until a particular transaction leads to computation of capital gains or loss as contemplated by s. 45 & 48, it cannot attractcapitalgaintax.Onfacts,theassesseehadnotreceivedanyconsiderationforreductionofsharecapital. Whilethenumberofsharesheldbytheassesseehasreducedto50%,nothinghadmovedfromthesideofthe companytotheassessee. (iii)Further,bythereduction,theassesseesrightshadnotbeenextinguishedbecauseitcontinuedtoholdthe samepercentageintheholdingofTimesGuarenteeasitdidbeforethereduction.Therewasnochangeinthe intrinsicvalueofhissharesandevenhisrightsvisvisothershareholdersaswellasvisviscompanyremained thesame.Theconceptofcapitalgainshastobeunderstoodasinthecommercialworldandtherewasnoloss that can be said to have actually accrued to the shareholder as a result of reduction in the share capital. Also, therewouldbenochangeeveninthecostofacquisitionofsharesbyvirtueofs.55(v). Minorityviewisthat,
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(i)Onthepointoftransfer,areductionofsharecapitalu/s100oftheCompaniesActcantakeplaceeitherby paying excess capital to the shareholders or by cancelling lost capital. While the first method amounts to a transfer the other method (adopted by the assessee) results in an extinguishment of rights in the shares whichisalsoatransfer.Consequently,areductionofcapitalbycancellationofsharesresultsinatransfer; (ii)Onthepointthatacapitallosscannotbecomputedifthereisnoconsideration,whileitistruethatthefailure ofthecomputationprovisionsresultsinafailureofthechargingprovisions.thereisadistinctionbetweenacase wherethecomputationprovisionisincapableofascertainmentandacasewhereitisascertainedaszeroorNil.In thepresentcase,theconsiderationreceivedbytheassesseewasNil.Itwasnotacasewheretheconsiderationwas incapableofascertainment; (iii) On the point that there is no loss, the argument that as with the reduction of capital, there is a correspondingincreaseinthenetworthpershareandtheassesseesinterestinTGLremainsunaffectedonan overallbasisisnotacceptablebecauseafterthereduction,theassesseeisleftwithlessernumberofshares.The factthatthebookvaluehasincreasedhasnoeffect.Anincreaseordecreaseinthemarketvalueofsharesisofno consequenceifthesharesareheldasinvestment; (iv)theapprehensionthattheassesseewouldderiveadoubleadvantagebyclaimingthelossnowandtheentire cost at the time of sale is unfounded because (a) the assessees books shows the investments at the reduced amountand(b)u/s55(2)(iv)(v),thecostofacquisitionoftheremainingconsolidatedshareswillbethereduced amount. BennettColeman&Co.Ltd.vACIT(Mum)(SpecialBench)(Trib)www.itatonline.org. S. 45 : Capital Gains PMS Fees not deductible against capital gains Despite dissenting orders, reference to SpecialBenchnotnecessary WhetheranearlierordershouldbefollowedorareferencetotheSpecialBenchbemadedependsonwhether theBenchissatisfiedornotaboutthecorrectnessoftheearlierorderandnotontheviewpointoftheaggrieved party. It is only when a subsequent Bench finds itself unable to endorse the earlier view that it may make referencefortheconstitutionoftheSpecialBench.TheaggrievedpartycannotcompelthelaterBenchtoeither takeacontraryviewormakeareferencefortheconstitutionoftheSpecialBench. HomiK.BhabhavITO(Mum)(Trib)(www.itatonline.org) S.45:CapitalGainsTaxIndiaMauritiusDTAA[Article13(4)] ApplicantisacompanyincorporatedinMauritiusandwasissuedaTaxResidenceCertificatebytheMauritiusTax Authorities. It realized capital gains from sale of shares in Indian company AAR observed that in the case of AzadiBachaoAndolan263ITR706,theHonorableSupremeCourthasheldthatthecertificateofresidenceissued byMauritiusRevenueAuthorityconstitutesavalidandsufficientevidenceofresidentialstatusunderDTAA.Also, CBDT in Circular No. 682 dated 30.03.1994 has further clarified that under the DTAA, a resident of Mauritius havingincomefromalienationofsharesofIndiancompanyshallbeliabletotaxonlyinMauritius.Inthecaseof E*TradeMauritius,AARNo.862of2009,and,theDelhiITATinthecaseofSaraswatiHoldingCorporation,2009 TIOL529ITATDEL, held the view that the gains arising out of alienation of shares of an Indian Company to a company who is a resident of Mauritius is liable to tax only in Mauritius in terms of Article 13(4) of the DTAA. Henceruledthatonthefactspresentedbytheapplicantandinthelightoflegalpositiondiscussed,theapplicant isnotliabletopaycapitalgainstaxinIndiainrespectofthetransferofshares. D.B.ZwirnMauritiusTradingNo.3Ltd.,Mauritius(2011)333ITR32/240CTR1(AAR) S.45:CapitalgainsTransferofsharesWhollyownedsubsidiaryWithoutconsideration(S.48,92,92C,195).
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Transferofsharestosubsidiarycompanywithoutconsideration,wouldnotattractliabilitytotaxundersection 45readwithsection48,astheconsiderationisinapplicableonthedateoftransfer,asnoincomeischargeable totax,provisionsofsection195orprovisionsofsections92to92Fwouldnotapply. GoodYearTire&RubberCo,INRE.(2011)240CTR209/54DTR281/334ITR69(AAR). S.45:CapitalgainsTransferofsharestowhollyownedsubsidiaryTransactionnotregardedastransfer(S.47 (iii),S.92to92f,139). TransferofsharesofwhollyownedIndiansubsidiarybytheapplicantaUScompanytoanothergroupcompany basedinSingaporewithoutconsiderationbeingagiftisnottaxableundertheprovisionsofsection45,inthe absence any income accruing from the transfer of shares , provisions of section 92 to 92F relating to transfer pricingarenotapplicable,howeverapplicantisunderobligationtofilereturnundersection139. Deere&Company,Inre(2011)56DTR242/337ITR277(AAR). S.45 (2). Capital gains ComputationCost of inflation index Conversion of immovable property into stock in trade.(S48.) Assesseefirmconverteditsimmoveablepropertyin198788intostockintradeanddevelopedbyenteringintoan agreementwithdeveloper.Revenuedidnottreatthesaidarrangementasatransferatthatstage.Capitalgains arising on sale of flats and registration of deeds in 199293 is to be computed by applying the cost of inflation indexasapplicabletoAsstyear199293andnotthatapplicablein198788.(Asstyear199394). CITvRudraIndustrialCommercialCorporation(2011)55DTR5(Kar)(HighCourt). S.45(2):CapitalGainsCapitalAssetStockintradeValuation When a partnership firm is dissolved and the erstwhile partner receives stock, it is a capital asset in his hands. Whenthatassetisintroducedintoabusinessasstock,itgetsconvertedintostockintrade.Thevalueofthisstock willhavetobethemarketvalueonthedateofintroduction.Thesameprinciplewouldapplyiftheassesseeused hershareofthestockobtainedfromthedissolvedfirminthenewbusiness MaduRaniMehravs.CIT(DelhiHighCourt)Source:www.itatonline.org S.45(4):CapitalGainsAssetstakenoverbypartnersondissolutionoffirmbyCourtOrder[S.2(14),2(47), 45(1)] Outgoing partners of the firm having received amount towards their respective shares in the net assets of the firmfromagroupofthreepartnerswhotookoverthebusinessinanauctionfollowingdissolutionofthefirm,as per order of Court, the capital gains arising on transfer of the assets of the erstwhile firm were taxable in the handsofsuchoutgoingpartners.(A.Y.199596) B. Raghurama Prabhu Estate, Executraix Smt. M. Kaveri Bai & Ors. vs. Jt. CIT (2011) 52 DTR 122 / 239 CTR 274 (Kar.)(HighCourt) S.45(4):CapitalGainsTransferDissolutionOtherwise[S.2(47)] Landwastransferredinthenameofthepartnersbybookentries,theassesseecontendedthatasnoregistration is done, the immoveable property was not legally transferred and also contended that as there was no dissolution,section45(4)cannotbeapplied.TheTribunalheldthattheprovisionofsection45(4)wereapplicable. Thewordotherwisecoversthetransferotherthanthedissolutionalso.(A.Y.20012002) NewGujaratTinPrintingWorksvs.ITO(2011)128ITD182/136TTJ64(Ahd.)(Trib) S.45(4):CapitalGainsTransferRetirementofPartner.
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Theassesseewhichwasapartnershipfirmconsistedoftwopartners.Thebusinessofthepartnershipfirmwas that of builders, developers, contractors and real estate consultants. The assessee firm commenced the businessanddevelopmentoftheprojectandallthecostsincurredinconnectionwiththesamewereshownas workinprogress.Oneofthepartnersofthefirmdiedandhislegalheirsdecidedtocontinuethebusinesswith theotherpartner.Thelegalheirsalsoretiredfromthefirmandtheexistingpartnertookovertheassetsand liabilitiesofthefirm.Thistransferwasheldasatransferundertheprovisionsofsection45(4)oftheActand the matter was remanded back to the Assessing Officer for computation of capital gains in hands of the assessee.(A.Y.200506) ITOvs.OmNamahShivayBuilders&Developers(2011)43SOT397/138TTJ49(Mum.)(Trib.) S.45(4):CapitalGainsTransferofassettopartnerbybookentryRegistration.[S.2(47)] Ifatransactionfallswithintheambitofthedefinitionoftransferunderthesection2(47)thenirrespectiveofthe fact as to whether the transaction is a transfer within the Transfer of Property Act, 1881 or not, the resultant incomeaccruedischargeabletotaxundertheprovisionsofsection45(4).(A.Y.200102) NewGujaratTinPrintingWorksvs.ITO(2011)128ITD182/136TTJ64/50DTR289(Ahd.)(Trib.) S.45(5):CapitalGainsEnhancedCompensation. Enhancedcompensationalongwithinterestthereonisassessableentirelyintheyearinwhichitisreceived.(A.Y. 19992000to200203) Dy.CITvs.AjaySharma(2011)135TTJ222/49DTR65/140TTJj388(Del.)(Trib.) S.47(iv):CapitalgainsCapitallossTransferofbusinessandworkinprogress100percentsubsidiary. Assesseetransferredbusinessandworkinprogresstohundredpercentsubsidiary,whichisIndianCompany.In viewofprovisionsofsection47(iv),capitalgainsonsuchtransferofcapitalassetwasnotchargeabletotax.At thesametimelossarisingontransferofbusinessassetswouldalsonotbeallowedasdeduction.(Asstyear2003 04). DyCITvMotherDairyFruits&Veg(P)Ltd(2011)45SOT186(Delhi)(Trib). S. 48: Capital gains Cost of acquisitionLand Acquired by succession from exRuler Cost of acquisition of previousownernotascertainableCostofacquisitiontobetakenmarketvalue.(S.49,55(2),55(3). Fortheassessmentyears199778and197980,theassesseesoldplotsoflandforconsideration.Theassessee contendedthatthepreviousownerwasanexrulerofPepsuStateandsincetheassetwasacquiredunderthe instrument of annexation its cost of acquisition could not be ascertained and that capital gains tax was not attracted . The Assessing Officer assessed the capital gains taking the market value as on January 1, 1954 or January 1, 1964 as the cost of acquisition depending on the dates specified under section 55 (2) of the as applicabletotheassessmentyear.OnappealtheTribunalfollowingthejudgmentofB.C.SrinivasaSetty(1981) 128ITR294(sc),acceptedthecontentionofassessee.OnreferencetheHighCourtheldthatthecontentionthat thevaluewasinapplicablebeingascertained,wasnottenable.Itwasnotthecaseoftheassesseethattheland hadnomarketvalueatallonthedateofacquisition.Evenwherethecostofacquisitionofcapitalassetcannot be ascertained but the asset has a market value , capital gains tax will be attracted by taking the cost of acquisitiontobefairmarketvalueasonJanuary1,1954oronadatestatutorilyspecifiedorattheoptionby assessee,marketvalueonthedateofacquisition.(Asstyears197778,197980). CITvRajaMalwinderSingh(2011)334ITR48/56DTR366/241CTR520(P&H)(FB)(HighCourt). S.48.CapitalgainsCostofacquisitionSaleoforiginalandbonusshare.(S.55(2)(b).
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Capitalgainsonsaleoforiginalandbonusshareshavetobecomputedbyspreadingthecostofacquisitionof originalsharesovertheoriginalsharesandthebonusshares.(Asstyear199091). M.B.&COLtdvAsstCIT(2011)55DTR76/337ITR29(Mad)(HighCourt). S.48:CapitalGainsRectifyingthedefectintitle. Amount incurred by the assessee for rectifying the defect in title to the property and removing encumbrance on the property were held to be amount spent in connection with the transfer of the propertyandallowableasdeductionwhilecomputingcapitalgain. V.LakshmiReddyvs.ITO(2011)55DTR241(Mad)(HighCourt). S. 48 : Capital Gains Cost of Acquisition Indexed Cost Date of Allotment Letter Stamp Duty Interest ProcessingCharges(S.45). Stampduty,interest,processingfee,developmentcharges,firefightingcharges,generatorcharges,etc.paidto thebuilderformpartofcostofacquisitionincurredbytheassesseeforacquiringtheownershipoftheflatand therefore, assessee is entitled to deduction of all aforesaid payments under section 48(ii) on computation of capitalgainonthesaleofflat. Assesseeisalsoentitledtoindexationfrom1995,whenhestartedmakingthepaymenttobuilderandreceived theallotmentletterandnotfromthedateofconveyancedeedin2001.(A.Y.200708) PraveenGuptavs.ACIT(2011)52DTR334(Delhi)(Trib.) S.48:CapitalgainsComputationFairmarketvalue. Provision contained in section 48 regarding computation of capital gains contemplates ascertainment of full value of consideration received or accruing as a result of transfer capital asset , said provision doesnotcontainwordstoeffectfairmarketvalueetc.Wheretherewasnoevidenceonrecordthat transferees were related to directors of assessee company and that assessee had received amount more than stated consideration , income was to be computed by Assessing Officer on basis of considerationactuallyreceived.(AsstYear200607). DyCITvJindalEquipmentLeasing&ConsultancyServicesLtd(2011)131ITD263(Delhi)(Trib). S.48:CapitalgainsFeespaidforPortfolioManagementservicesCostofacquisitionDiversionofincome. FeespaidbyassesseeforPMSwasnotinextricablylinkedwithparticularinstanceofpurchaseandsaleofshares and securities and sale of shares and securities so as to treat the same as expenditure incurred wholly and exclusivelyinconnectionwithcostofacquisition,improvement,ofsharesandsecuritiessoastobeeligiblefor deductionincomputingcapitalgainsundersection48.PaymentoffeesbyassesseeforPMSdidnotamountto diversionofincomebyanoverridingtitle(A.Y.200405) DevendraMotilalKotharivDyCIT(2011)132ITD173(Mum)(Trib). S.48:CapitalgainsComputationIndexationPreferenceshares. Once shares are specifically covered by indexation of costs ,and unless there is a specific exclusion clause for preferenceshares,itcannotbeopentoAssessingOfficertodeclineindexationbenefitstopreferenceshares.( A.Y.200506). G.D.Metsteel(P)LtdvAsstCIT(2011)47SOT62(Mum)(Trib). S.48:CapitalGainsNonresidentIndexationDTAAIndiaCanadaShares(S.90,Art.24)
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Denialofthebenefitofthesecondprovisotosection48toanonresidentassesseewhilecomputingcapitalgains from the sale of shares would not amount to discriminatory treatment in terms of Art. 24 of the DTAA with Canada. TransworldGarnetCompanyLtd.,InRe.(2011)239CTR152/52DTR161(AAR) S.49:CostwithreferencetocertainmodeofAcquisitionCapitalGainsFamilyArrangementCompanyAssets HUFDirector(S.45) AssesseesareDirectorsinacompanyAG.Bywayoffamilyarrangementhalfofthelandownedbycompanycame totheshareofthepresentassesseesandotherhalfwenttotheshareofanotherfamilygroup.Assesseessold theirshareoflandforanamountof`2.9crores.Assesseescomputedthecapitalgainsbyapplyingtheprovision ofsection49(1).TheAssessingOfficerheldthatassetsinquestionarenotthepropertyofHUFbutitwasowned by company AG and there was no distribution of its assets, because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by AG and did not became the property of the assesseeshandstherefore section49(1)would notapply.The CourtdirectedtheAssessingOfficer tocompute thecapitalgainsinthesaidcompanyandgivecreditoftaxespaidbyassessee. CIT vs. Shashi Charla (2011) 51 DTR 232 / CIT vs. Atul Charla / Baldev Charla / Jyoti Chrala (2011) 51 DTR 232/(2010)195Taxman148/243CTR394(DelhiHighCourt) S. 49 : Cost with reference to certain mode of Acquisition Capital Gains Family Arrangement Company AssetsHUFDirector(S.45) AssesseesareDirectorsinacompanyAG.Bywayoffamilyarrangementhalfofthelandownedbycompanycame totheshareofthepresentassesseesandotherhalfwenttotheshareofanotherfamilygroup.Assesseessold theirshareoflandforanamountof`2.9crores.Assesseescomputedthecapitalgainsbyapplyingtheprovision ofsection49(1).TheAssessingOfficerheldthatassetsinquestionarenotthepropertyofHUFbutitwasowned by company AG and there was no distribution of its assets, because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by AG and did not became the property of the assesseesandthereforesection49(1)wouldnotapply.TheCourtdirectedtheAssessingOfficertocomputethe capitalgainsinthesaidcompanyandgivecreditoftaxespaidbyassessee. CITvs.ShashiCharla(2011)51DTR232(Delhi)/CITvs.AtulCharla/BaldevCharla/JyotiCharla(2011)51DTR232 (Delhi)(HighCourt) S.49(1)CostwithreferencetocertainmodeofAcquisitionCapitalgainsCostofacquisitionS.50C Onceaparticularamountisconsideredasfullvalueofconsiderationatthetimeofitspurchase,thesameshall automaticallybecomethecostofacquisitionatthetimewhensuchcapitalassetissubsequentlytransferred. Section50Cappliestoacapitalassetbeinglandorbuildingorbothandnottoanyrightinlandorbuildingor both.Leaseholdrightsinplotoflandisnotlandorbuildingorbothandhencesection50Cdoesnotapplyto leaseholdrights. AnilG.Puranikvs.ITO,ITANo.3051/Mum/2010,dt.13052011,`ABench,A.Y.20062007,MumbaiITAT,BCAJpg. 27,Vol.43A,Part3,June2011. S.50:CapitalGainsDepreciableAssetsTransferofUndertakingsTangibleandIntangibleAssets(S.45). In the case of transfer of entire business undertaking, section 50 has application as far as tangible assets are concerned, assessee having transferred its entire marketing undertaking consisting of both tangible and intangibleassetstoanothercompany,AssessingOfficerisdirectedtoapportionand/orsegregatetheamountof
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consideration received by the assessee by way of transfer of tangible assets out of the total consideration for assessmentundertheheadcapitalgainsundersection45,readwithsection50.(A.Y.9697) KwalityIceCreams(India)Ltd.vs.CIT(2011)52DTR366/198Taxman65/336ITR100(Cal.)(HighCourt) S.50:CapitalGainsDepreciableAssetsLossCarryForwardandSetoffofbroughtforwardbusinessloss Incomeassessedbytheassesseeintherelevantyearonsaleoffactorybuilding,plantandmachineryalthough nottaxableasprofitsandgainsofbusinessorprofessionisanincomeinthenatureofbusinessthoughassessed ascapitalgainsundersection50andtherefore,assesseeisentitledtosetoffofbroughtforwardbusinesslosses againstthesaidcapitalgains.(.A.Y.200506) DigitalElectronicsLtd.vs.Addl.CIT(2011)49DTR484/135TTJ419(Mum.)(Trib.) Editorial:SeeJ.K.ChemicalsLtd.vs.ACIT,ITANo.8206/Bom/1089and8618/Bom/89BenchAdt.1111993,Sri PadmavathiSrinivasaCottonGinningFactoryvs.Dy.CIT(2009)29DTR1(Visakha)(Trib.) S.50:CapitalGainsDepreciableAssetsBlockofAssets. Section50(1)(iii)doesnotmakeadistinctionbetweenblockofassetsofoneunitandblockofassetsofanother unit,eveniftheyareindependentunits.Evenifnewassetisnotusedforthepurposeofbusiness,itscostwill have to be deducted from full value of consideration received or accruing on transfer of block of assets, while computingshorttermcapitalgains.(A.Y.198990) Dy.CITvs.AnsalProperties&InfrastructureLtd.(2011)44SOT236/60DTR294/141TTJ257(Delhi)(Trib) S.50:CapitalGainsDepreciableAssetsIndexation. Assesseeclaimeddepreciationoncapitalasset(flat)fortwoyearsasitwasusedasofficepremiseswhichwas allowed.Flatwastheonlyassetintheblockofassets.Nodepreciationwasclaimedforlatteryearsastheflatwas notusedforthepurposesofbusinessbutleasedonrent.AssessingOfficerandCIT(A)heldthattheastheflat beingonlyassetintheblockofassetsthecapitalgainsisassessableasshorttermcapitalgains.Onappealthe Tribunalheldthatthemomenttheassesseestoppedclaimingdepreciationinrespectoftheflatandevenletout thesameforrent,itceasedtobeabusinessasset.TheTribunaldirectedtheAssessingOfficertoallowbenefitof indexationasclaimedbytheassesseetreatingthesaleaslongtermcapitalasset. PrabodhInvestment&TradingCompanyPvt.Ltd.vs.ITO,ITANo.6557/Mum/2008BenchCdt.2822011(2011)43 ABCAJAprilP.34(Trib) S.50:CapitalGainsDepreciableAssetsBlockofAssets.[S.2(11)] IfanycapitalassetonwhichdepreciationhasbeenallowedunderIncomeTaxAct1961,orIndianIncomeTaxAct 1922,andwhichotherwisequalifiestoformapartofblockofassetsason141988,specialprovisionscontainedin section50shallapplyontransferofsuchasset.Therefore,asregardsplantandmachineryassesseewasallowed depreciationupto1984,theyconstitutedblockofassetshence,provisionofsection50wouldbeapplicable.(A.Y. 199697) ShreeChangdeoSugarMillsLtd.vs.Jt.CIT(2011)44SOT479(Mum.)(Trib.) S.50:CapitalGainsDepreciableAssets. Provisions of section 50 are not attracted in a case whereon the asset transferred depreciation was neither claimednorallowed. DivineConstructionCo.vs.ACIT(2011)138TTJ72(Mum)(Trib.)
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S.50:CapitalgainsDepreciableassetsIncomeincludelossSaleofentireassetsofmanufacturingUnit. Onthesaleofentireassetsofmanufacturingunit,caseofassesseefallswithintheambitofsection50because thewordincomeincludeswithinintheambittheloss,AssessingOfficerisdirectedtoheartheassessee andcomputethelossasprovidedinsection50(2).(Asstyears200506and200607) SonyIndia(P)LtdvAddlCIT(2011)56DTR156/141TTJ432(Delhi)(Trib). S.50.CapitalgainsDepreciableassetLongterm Capital gains arising on transfer of a capital asset (Flat) on which depreciation was allowed for two years but thereafter the assessee stopped claiming deprecation and also gave the flat on rent is chargeableaslongtermcapitalgainsafterallowingthebenefitofindexation. PrabodhInvestment&Trading CompanyPvt.Ltd., ITA No.6557/Mum/2008, dt.28022011, A.Y.2004 2005,`CBench,MumbaiITAT,BCAJpg.24,Vol.43A,Part1,April2011. S.50:CapitagainsCapitalossDepreciableassetsSetoffofbroughtforwardlongtermcapitalloss.( S.74). Prescriptions of section 50 are to be extended only up to the stage of computation of capital gains andtherefore,capitalgainresultingfromtransferofdepreciableassetswhichwereheldforaperiod of more than three years would retain the character of long term capital gain for all other provisions andconsequentlyqualifyforsetoffagainstbroughtforwardlossfromlongtermcapitalassets.(Asst year200506). ManaliInvestmentsvAsstCIT(2011)139TTJ411(Mumbai)(Trib). S.50B.CapitalgainsSlumpsaleDepreciationBlockofassets(S.2(11),32,43(6)(i)(C) Inthecaseofslumpsale,depreciationhastobeallowedontheassetssoldinslumpsaleuptodateoftransfer andallowabledepreciationhastobecomputedforallyearsafter1stApril1998,forcomputingvalueofassetsto be reduced from block of assets irrespective of the fact whether in the books the assessee had charged depreciationornot.(AsstYear200304). DYCITvWarnerLambert(India)(P)Ltd(2011)56DTR121(Mumbai)(Trib). S.50B:CapitalGainsSaleofentirebusinessasgoingconcernSlumpSale(S.45). Assessee having transferred the assets and liabilities pertaining to its business as one whole unit as a going concernforalumpsumconsiderationwithoutassigninganyseparatevaluetoland,building/structure,plantand machinery, office equipment, furniture and fixtures and vehicles, the sale was a slump sale and therefore, the sameisnotexigibletotaxundertheheadCapitalGains.(A.Y.200203) CITvs.ChemicalIndustriesConsultingBureau(2011)51DTR283(Karn.)(HighCourt) S.50B:CapitalGainsDepreciableAssetsSlumpSale.(S.2(42C),45,50) Saleofanindustrialundertakingasawholewhichincludeslandbuilding,machinery,equipments,etc.asagoing concernwithalltheassetsandliabilities,wasassessableundersection50Btreatingthetransactionasaslump saleandnotundersection50asasaleofdepreciableassets.(A.Y.200304) CIT vs. Accelerated Freeze Drying Co. Ltd. (2011) 53 DTR 44 / 198 Taxman 18 / 240 CTR 90/ (2011) Tax.L.R.448 (Ker.)(HighCourt) S.50B:CapitalgainsSlumpSaleCapitalGainsTransferofUndertakingNonmoneyconsiderationCostof Acquisitionnotdeterminable(S.2(42C),45)
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Inordertoconstituteaslumpsaleundersection2(42C),thetransfermustbeasaresultofasalei.e.fora moneyconsiderationandnotbywayofanExchange.Thedifferencebetweenasaleandanexchangeisthis thatintheformerthepriceispaidinmoney,whilstinthelatteritispaidingoodsbywayofbarter.Thepresence of money consideration is an essential element in a transaction of sale. As the undertaking was transferred in considerationofshares&bonds,itwasacaseofexchangeandnotsaleandsosection2(42C)andsection 50Bcannotapply.Asregardstaxabilityundersection45&48,thecapitalassetwhichwastransferredwasthe entireundertakingandnotindividualassetsandliabilitiesformingpartoftheundertaking.Intheabsenceofa cost/dateofacquisition,thecomputation&chargingprovisionsofsection45failandthetransactioncannotbe assessed(PremierAuto264ITR193(Bom.)distinguished) BharatBijileeLimitedvs.ACIT(Mum.)(Trib))www.itatonline.org. S.50B:CapitalgainsSlumpsaleSaleofundertakingNotionaldepreciation.(S.43(6)(c)(i)(c)). Whenassesseetransferreditsentireassetsbywayofslumpsale,depreciationforearlierassessmentyearwhich wasnotclaimedbyitcannotbenotionallyallowedincomputingthecapitalgainsundersection50B,provisions ofsections43(6)(c)(i)(c)(b)havenoapplicationwheretheentireassetsformingpartofblockaresoldbywayof slumpsale.(AsstYear200102) DharmpalSatyapalLtdvDyCIT(2011)138TTJ74(Del)(Trib). S.50C:CapitalGainsDepreciableAssetsStampValuationAppliestoDepreciableAssets.(S.2(11),48,50) There are two deeming fictions created in section 50 and section 50C for computing capital gains on building. Whilesection50modifiesthecostofacquisitionforpurposesofsection48,section50Cmodifiesthetermfull value of the consideration received or accruing as a result of transfer of the capital asset. The two deeming fictionsoperateindifferentfieldsandthereisnoconflictbetweenthem.Assection50Cwasinsertedtoprevent assesseesindulginginundervaluation,thereisnologicwhyitshouldnotbeappliedtoadepreciablebuilding. ITOvs.UnitedMarineAcademy(2011)138TTJ129/9ITR(Trib)639/130ITD113(Mum.)(SB)(Trib.) S.50C:CapitalGainsStampDutyValuationDoesnotapplytotransferofleaseholdrightsasitisnotland orbuilding Section50Cisadeemingprovisionwhichextendsonlytoacapitalassetwhichislandorbuildingorboth.A deemingprovisioncannotbeextendedbeyondthepurposeforwhichitisenacted.Ifacapitalassetcannotbe describedaslandorbuildingorboth,section50Ccannotapply.Aleaserightinaplotoflandisneitherlandor buildingorboth.Thedistinctionbetweenacapitalassetbeinglandorbuildingorbothandanyrightinland or building or both is well recognized. Land or building is distinct from any right in land or building. Consequently,section50Cdoesnotapplytoleaseholdrights.(A.Y.200607) AtulG.Puranikvs.ITO(2011)58DTR208/11ITR(Trib)120/141TTJ69/132ITD499(Mum.)(Trib) S.50C:CapitalGainsStampValuationFullvalueofConsiderationTransferGrantingDevelopmentRights fordemolitionandreconstructionofbuildingresultsintransferofland&building.[S.2(47),(45)] Wherethereistransferofexistingland&buildingwhichwasdemolishedbybuilderforfreshconstructionand documentswereregisteredinsuchcasesthereinvolvesatransferofland/FSIincaseofgrantofdevelopment right.Thus,itdoesincludecostofacquisition. ChairanjeevLalKhannavsITO(Mum.)(Trib.)Source:www.itatonline.org S.50C:CapitalGainsFullValueofConsiderationStampValuationOwnershipofLand(S.45)
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Assesseepurchasedcertainlandthroughherfatherinlawwhowasherpowerofattorneyholder.Subsequently, assessee sold said land again through her father in law. The assessing officer applied the provisions of section 50C.OnappealCommissioner(Appeals)heldthatsinceassesseesownnamedidnotappearinrevenuerecords asownerofland,provisionsofsection50Cdidnotapply.OnfurtherappealtoTribunal,theTribunalheldthatin ordertoapplyprovisionsofsection50C,itisnotnecessarythatassesseeshouldbedirectownerofproperty.The TribunalconfirmedtheviewofAssessingOfficer.(A.Y.200304) ITOvs.SushmaGupta(Smt.)(2011)44SOT568(Delhi)(Trib) S.50C:CapitalgainsStampvaluationofficerDistrictValuationOfficer.(DVO). TheDVOdeterminedfairmarketvalueatRs46.48lakhs,whichislowerthanthevalueforthepurposeofstamp dutyatRs1.18Crores.Aspertheprovisionsofsection50C(2)thecapitalgainsisrequiredtobecomputedby consideringthefairmarketvalueofthepropertywhichwasatRs46,48,781asthefullvalueoftheconsideration receivedoraccruingtotheassesseeasaresultofthetransferofcapitalasset.AssessingOfficercannotdisregard thevaluedeterminedbytheDVOundersection50(C)(2)readwith16AofthewealthtaxActandproceedto computelongtermcapitalgaininaccordancewiththevaluedeterminedbystampvaluationauthority.(Asstyear 200506). BharatiJayeshSanganivITO(2011)55DTR212(Mumbai)(Trib). S.50C:CapitalgainsStampvaluationReferencetovaluation. AssessingOfficercanreferforvaluationofcapitalassetstovaluationofficerundersection50Cifhe finds that consideration received is less than value adopted by stamp valuation authority for purpose ofstampduty.(Asstyear200607). ITOvChandrakantR.Patel(2011)13ITD1(Ahd)(Trib). S.50C.CapitalgainsspecialprovisionforfullvalueconsiderationValueadoptedbyAO. The assessee pointed out strong reasons that sale consideration is less than value determined for stamp duty, such cases have to be referred to DVO and in such cases sale consideration which has been deemed to be value adopted for stamp duty purposes as per main provisions, would be value adopted by DVO. As such the matter when once referred to the DVO, the valuation given by the DVO hadtobeadoptedasdeemedconsideration(A.Y.20062007) NanditaKhosla(Mrs)v.I.T.O.(2011)46SOT90(Mumbai)(Trib). S.50C:CapitalgainsComputationvaluationbystampvaluationauthorityvisvisDVO. AO cannot disregard the value determined by the DVO under s. 50C(2) r.w.s 16A of WT Act, and proceed to compute long term capital gain in accordance with the value determined by stamp valuationauthority.(A.Y.200506) BhartiJayeshSanghani(Smt)vs.ITO.(2011)55DTR212(Mum)(Trib) S.50C:CapitalgainsspecialprovisionforfullvalueconsiderationMayValuationbystampauthority. If stamp valuation adopted by stamp authority is disputed before Assessing Officer , then Assessing OfficerisboundtorefermattertoDVOfordeterminingfairmarketvalueofproperty.Thetermmay usedinsubsection(2)ofsection50Cistobereadasshall.(Asstyear200405). ManjulaSinghalvITO(2011)46SOT149(Jodh)(Trib). S.50C:CapitalgainsStampvaluationPowerofAssessingOfficer.
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Oncedocumentiswithstampauthority,valueadoptedbystampdutyauthorityistobeconsideredasvalueof asset for purpose of clause (b) of section 50C. Assessing Officer can not substitute value which the stamp authorityoughttohaveadoptedforpurposeofstampduty.(A.Y.200405). HasmukhbhaivAsstCIT(2011)46SOT419(Ahd)(Trib). S.50C:CapitalgainsDevelopmentrightsTransferValuationTransferofpropertyAct,S.53A.(S.2(47)(v),45). Provisionsofsection50Cwereapplicabletotransferofdevelopmentrightsintheproperty.Oncetheassessee handedoverthepossessionofthepropertytothedeveloperagainstpaymentthenthepropertydeemedtohave beentransferredasperdeemingprovisionsofsection2(47)(v).Notmakingchangesinmunicipalityrecordsisnot relevant. Valuation officer has valued much less than the stamp authority, hence there the valuation has to be accepted. ArifAkhatarHussainvITO(2011)59DTR307(Mum)(Trib). S.54:CapitalGainsExemptionInvestmentintwohouses Assessee was not entitled to exemption in respect of two independent residential houses situated at different locations.(A.Y.200506) PawanAryavs.CIT(2011)237CTR210/49DTR123/200Taxman66(P&H)(HighCourt) S.54:CapitalGainsProfitonsaleofpropertyusedforresidenceExemptionisavailabletomultiplesales& purchasesofresidentialhouses(S.45). Thoughsection54referstocapitalgainsarisingfromtransferofaresidentialhouse,itdoesnotprovidethat the exemption is available only in relation to one house. If an assessee has sold multiple houses, then the exemptionundersection54isavailableinrespectofallhousesiftheotherconditionsarefulfilled.Ifmorethan onehouseissoldandmorethanonehouseisbought,acorrespondingexemptionundersection54isavailable. However,theexemptionisnotavailableonanaggregatebasisbuthastobecomputedconsideringeachsaleand thecorrespondingpurchaseadoptingacombinationbeneficialtotheassessee. ThedecisionoftheSpecialBenchinITOvs.SushilaJhaveri(2007)292ITR(AT)1isdistinguishable. RajeshKeshavPillaivs.ITO(2011)44SOT617/60DTR402/60DTR402/141TTJ183(Trib)(Mum) S.54B:CapitalGainsInvestmentinAgriculturalpurposesAssessesnameNameofwifeandotherrelations. Deductionundersection54BoftheActwillbeadmissibleonlyinrespectofinvestmentmadeinthepurchaseofa newassetinhisownname,however,deductionshallnotbeavailableinrespectoftheamountinvestedinthe purchaseofnewassetinthenameofwifeandotherrelations. ITOvs.RameshwarSharma(2011)TaxWorldFeb.,P.114(Jaipur)(Trib) S. 54EC : Capital Gains Investment in certain bonds Cheque issued within six months Cleared after six months ForthepurposeofcomputationofLTCGincaseofNABARDbondswhichwerenotspecifiedassetason1/4/2006 andinvestmentwasnotwithin6monthsoftransfer,thelawhastobereadasitstoodonthedateoftransferof capital asset. Thus, section 54EC relief is available even though cheque was encashed and bonds were allotted later. KumarpalAmrutlalDoshivs.Dy.CIT(ITATMumbai)Source:www.itatonline.org(Trib) S.54EC:CapitalgainsDeductionallowablebeforesetoffofbroughtforwardloss.
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While s. 54EC is an exemption provision which exempts capital gains and takes them outside the purview of chargeablecapitalgains,s.74dealswiththecarryforwardandsetoffoflossundertheheadcapitalgains. Thestageatwhichsetoffofcarriedforwardlongtermcapitallossistobegivenissubsequenttothestageat whichincomeundertheheadcapitalgainsiscomputedanddeductionu/s54ECistobegiveninthecourseofthe latter.Accordingly,s.54ECdeductionhastobegivenbeforesetoffoflosses. TheTataPowerCo.Ltd.vs.ACIT((Mumbai)(ITAT).www.itatonline.org. S.54EC:CapitalGainsExemptionDateofpaymentconsidereddateofdelivery/investment. TheTribunalheldthatsincetheassesseehaddeliveredthechequetoNABARDby09022006,thedate of paymentwouldbethedate of delivery of thecheque.Thedate whenthecheque wasencashedby NABARDcannotbesaidtobethedateofinvestment. Kumar Amrutlal Doshi v. DCIT, ITA No. 1523/Mum/2010, dt. 09022011, A.Y. 2006 2007, `G Bench, MumbaiITAT,BCAJpg.31,Vol.43A,Part1,April2011 S.54F:CapitalGainsExemptionincaseofinvestmentinResidentialHouseDepositinCapitalGainScheme. [S.45(3)] Whereassesseehadearnedcapitalgainsbyvirtueofsection45(3)i.e.onaccountofintroducingcapitalassetina partnership firm by way of capital contribution, the assessee could not claim benefit of section 54F by constructing a new house if he had not deposited the sale proceeds in capital gains scheme account. Further since the assessee had utilized borrowed amount to construct new property he was debarred from claiming benefitundersection54F.(A.Y.199596) CITvs.V.R.Desai(2011)197Taxman52(Ker.)(HighCourt) S. 54F. Capital gains Investment in house Property sale proceeds from out of transfer of an asset otherthanaresidentialhouseacquisitionofpropertypriortotransferofassetdeductionallowed. The assessee purchased a residential house and within one year of such purchase, sold his insurance survey business and claimed deduction u/s. 54F against the purchase of residential house. The Assessing Officer rejected the same on the ground that the property was not purchased out of sale considerationofthetransferredasset.Itwasheldthattheassesseewasentitledtothedeductionu/s. 54Fsincethesectionitselfprovidesforacquisitionofpropertypriortotransferofasset. CITv.R.Srinivasan{2011}198Taxman26(Mad.)(Mag.)(HighCourt). S.54F:CapitalGainsExemptionPurchaseofnewhousevisvis depositunderCapitalGainsaccountsscheme. Assessee having deposited the sale proceeds of property in his bank account under the capital gains account schemewithintheprescribedperiodandpurchasedanewpropertybyavailingofaloanwhichwaspaidoutof thesamebankaccount,hehascompliedwiththeprovisionsofCapitalGainsAccountsSchemeand,therefore, assesseeisentitledtoexemptionundersection54F.(A.Y.200607) P.Thirumoorthyvs.ITO(2011)49DTR91/135TTJ75(UOI)(Chennai)(Trib.) S.54F:CapitalGainsExemptionInvestmentinresidentialhouseTimeLimit Where the assessee had purchased a flat after one year of sale of original asset and constructed a new house withinthreeyearsofsaleoforiginalassetproviso(ii)tosection54Fwasnotattractedandassesseewasentitled toexemptionundersection54Finrespectofnewhouseconstructedbyhim.(A.Y.200607) P.R.Kulkarni&Sons(HUF)vs.Addl.CIT(2011)49DTR442/135TTJ630(Bang.)(Trib.)
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S.54F(1)(a):CapitalGainsExemptionStampDutyValuation(S.45,50C) Capital gains arising from the transfer of any long term capital asset for the purpose of section 54F has to be worked out applying section 48 without imposing section 50C into it, when sale consideration was shown at ` 20,00,000/stampdutyvaluationwas`36,00,000/andtheassesseeinvestedinnewhouse`24,00,000/including `20,00,000/saleconsideration,hecouldclaimexemptionundersection54Fonlyof`18,06,494/andnotentire` 36,00,000/.(A.Y.200506) GauliMahadevappavs.ITO(2011)49DTR207/128ITD15(Bang.)(Trib.) Editorial: Gyan Chand Batra vs. ITO (2010) 133 TTJ 482 / 45 DTR 41 (Jaipur)(Trib.) Tribunal has taken different view. S.54F(4):CapitalGainsExemptionDepositinSavingsBankAccount Where the assessee had deposited sale proceeds in normal savings account as against scheme specified by CentralGovernmentthroughnotificationinofficialGazetteaspersection54F(4),itviolatedprovisionsofsection 54F(4),hence,noteligibleforexemption.(A.Y.199697) ThakorlalHarkishandasIntwalavs.ITO(2011)43SOT347(Ahd.)(Trib) S.55(2)(b):CapitalgainsCostofacquisitionFairmarketvalue141981. FairmarketvalueoflandatRs330persquareyardasonIstApril,1981adoptedbytheTribunalinviewofsaleof landbyInvestmentTruston1st June ,1981and other comparablesaleinstancesinthesamearea whichisnot showntobeerroneousthesamehastobeacceptedasagainstRs60persquareyardadoptedbytheAssessing Officer.(A.Y.199596). CITvBhupinderaFlourMills(P)Ltd(2011)59DTR307(P&H)(HighCourt) S.55(2)(b).CapitalgainsCostofacquisition(S.2(22B),50C). Cost of acquisition of the property u/s 55(2)(b)(i) will be its fair market value as on 01041981 as determinedbytheregisteredvaluerandnotthecirclerate. Pyare Mohan Mathur HUF vs ITO, ITA No. 471/Agra/2009, dt.21042011, A.Y. 2005 2006, Agra ITAT, BCAJpg.28,Vol.43A,Part3,June2011. S.55A:CapitalgainsReferencetovaluationOfficerFairmarketvalue(S.48) Section55A,ismeantonlytoascertainfairmarketvalueofacapitalassetbutnotmeanttodetermine fullvalueofconsiderationreceivedasresultoftransfer andthereforeithasits ownlimitationforits operation. Since section 48 do not prescribe determination of capital gain on fair market value it is outofambitofreferenceprescribedundersection55A.(AsstYear200607). ITOvChandrakantR.Patel(2011)131ITD1(Ahd)(Trib). S.56:IncomefromOthersourceFixeddepositplacedwithBankasperformanceguarantee. Fixed deposit placed with Bank as performance guarantee as condition for being awarded contract work.Interestonfixeddepositsnotassessableasincomefromothersources.(AsstYear200304). CITvJaypeeDscVenturesLtd(2011)335ITR132(Delhi)(HighCourt) F.Incomefromothersources. S.56(2)(v):IncomeformOtherSourcesGiftsreceivedbyminorsonsMaternalUncle(S.64)
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Section 56(2)(v), read with Explanation speaks of relationship between the donor and donee and not deemed assessee,maternaluncleoftheassesseewhomadegiftsof`5Lakhstotwominorsonsoftheassesseeisnota relativeofthedoneeswithinthemeaningofexplanationtosection56(2)(v)andtherefore,theimpugnedsum ischargeabletotaxinthehandsoftheassesseeundertheprovisionsofsection56readwithsection64.(A.Y. 200506) ACITvs.LuckyPamnani(2011)49DTR501/135TTJ607/129ITD489(Mum.)(Trib.) S.56(2)(v)Incomefromothersourcesamountreceivedandrepaidasloan Amountreceivedandrepaidasaloancannotcomewithintheambitofsection56(2)(v). CITv.SaranapalSingh(HUF){2011}198Taxman202(P&H.)(Mag.)(HighCourt). S.56(2)(v):IncomefromothersourcesAmountreceivedbylegalheirforabstainingformcontestingthewillof deceased. Assessee,alegalheirofdeceasedhavingreceivedacompromiseamountunderasettlementwiththelegatee foragreeingtotheCourtgrantingprobateinrespectofthelastwillofthedeceasedandwithdrawinghiscaveat againstgrantofprobate,theabstinenceoftheassesseefromcontestingthewillconstitutedtheconsideration forpaymentand,thereforetheprovisionsofsection56(2)(v)arenotattractedandtheamountreceivedbythe assesseecannotbetreatedasincomeundersection56(2)(v).(AsstYear200607). PurvezA.PoonawalavITO(2011)138TTJ773/55DTR297(Mumbai)(Trib). S.56(2)(v):IncomefromothersourcesGiftreceivedfromHUFExemptHUFisarelativeu/s56(2)(v),(vi) &(vii) Where assessee receives gift from HUF it was held that though the definition of the term relative does not specificallyincludeaHinduUndividedFamily,aHUFconstitutesallpersonslineallydescendedfromacommon ancestorandincludestheirmothers,wivesorwidowsandunmarrieddaughters.Asallthesepersonsfallinthe definitionofrelative,anHUFisagroupofrelatives.Asagiftfromarelativeisexempt,agiftfromagroup ofrelativesisalsoexemptsincethesingularwillincludetheplural;(A.Y.200506) VineetkumarRaghavjibhaiBhalodiavsITO(2011)46SOT97/58DTR412/140TTJ58(Rajkot)(Trib). S.56(2)(viia):IncomefromothersourcesReceiptofshareswithoutconsiderationSharesofquotedcompany.( S.92to92F). ApplicantistoreceivecontributionofsharesofGILwithoutconsideration.GILisacompanyinwhichpublicare substantiallyinterestedanditssharesarelistedonBSE,thereforenoincomeisliabletotaxwithinthemeaning ofsection56(2)(viia).Consequently,provisionsofsections92to92Farenotapplicable. GoodYearTire&RubberCOINRE.(2011)240CTR209/54DTR281(AAR). S.57(iii):IncomefromOtherSourcesDeductionsInterestAssessingOfficercanliftveil&determinelegal effectbutcannotignorelegaleffectongroundofsubstance ItisheldbytheLargerBenchthatundersection57(iii),expenditurelaidoutorexpendedwhollyorexclusivelyfor thepurposeofmakingorearningincomeisdeductible.Itisthepurposeoftheexpenditurethatisrelevantbut thepurposeneednotbefulfilled.R.P.Moody115ITR519(SC)followed.Theassesseemustactbonafide&show nexus between the advancing of funds and his business interest. The dominant purpose for making the investmentmustbetoearnincome&toascertainthepurposetheAssessingOfficermaylifttheveil(SwapnaRoy 233CTR10(All)&PunjabStainless324ITR396(Del.)followed);
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It was also held that legal effect of a transaction cannot be displaced by probing into the substance of the transaction.Thus,theexerciseofjurisdictioncannotbestretchedtoholdarovingenquiryordeepprobe.(A.Y. 198687) CITvs.RockmanCyclesIndustriesPvt.Ltd.(2011)331ITR401/51DTR169/238CTR363(P&H)(HighCourt) S.57(iii):DeductionsIncomefromOtherSourcesFixedDepositinBanks. WheretheassesseeborrowedfundsfrombankandinvestedthesameinFixedDeposits(F.D)andearnedmore interestontheF.D.thantheinterestpayableontheborrowedfundstakingadvantageofExportImportpolicyof theGovernmentinterestpaidontheborrowingwasheldtobeallowableasdeductionundersection57(iii)ofthe ActfromtheinterestearnedonF.Dastherewasdirectnexusbetweentheinterestearnedandinterestpaidby theassessee.(A.Y.200506&07) CITvs.TajInternationalJewellers(2011)50DTR348(Del.)(HighCourt) ChapterVI.AggregationofincomeandsetofforCarryforwardofloss. S.68:CashCreditsShareApplicationMoneySatisfactoryexplanationastothenatureofthesource TheHonbleHighCourtheldthatinordertoprovidesatisfactoryexplanationastothenatureandsourceofa sum found credited in his books, the initial burden is on the assessee. The assessee is required to prove (a) Identityoftheshareholder;(b)Genuinenessoftransaction;and(c)creditworthinessofshareholders; CITvs.OasisHospitalitiesPvt.Ltd(2011)198Taxman247(Delhi)(HighCourt). S.68:CashCreditsWorkinprogress.Partnerscapitalaccount.Burdenofproof.. WIPinaconstructionprojecttransferredbyacontractorfirmtotheAssesseefirmandcreditedtothe CapitalAccountsofpartner.SuchcreditcouldnotbetreatedasCashCreditsincethetransactionsare genuineandidentityofpartiesareestablished. CITVs.S.K.BanerjeeJ.V.TransportPlaza(2011)241CTR152/335ITR563(Bom)(HighCourt). S.68:CashCreditsShareapplication. Where the assesse had provided to the assessing authority the name, age, address, date of filing the shareapplicationandnumberofsharesappliedbyeachshareholder,additionundersection68ofthe Actcannotbemade.(200001&200203) CITvs.STLExtrusion(P)Ltd.(2011)53DTR97(MP)(HighCourt) S.68:CashCreditsGiftsRelationOccasionUnexplainedinvestments.(S.69). Where the donors who had made the gifts to the assessee having appeared before the Assessing Officer , submittedaffidavitonoathconfirmingthegiftsmadebythem,citingtheiroldrelationswiththeassesseeand provedtheircapacitytomakegifts,saidgiftscouldnotbetreatedasnongenuinesimplybecausetherewasno occasionformakingthegiftsortherewasnobloodrelationbetweenthedonorsandthedoneeorthatthegifts weremadebydonorsbytakingloans.TheorderofTribunaldeletingtheadditionwasconfirmed.(A.Y.200304). CITvMayawati(MS).(2011)59DTR177/201/Taxman1/243CTR9(Delhi)(HighCourt). EditorialDelhiTribunalinMayawati(2010)48DTR233(Delhi)(Trib)wasaffirmed. S.68:CashCreditShareapplicationmoneyIdentityofshareholders.
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Assessee having established identity of shareholders , addition under section 68 could not be made on the groundthatassesseefailedtoexplainthesourceofcredit.Departmentwasfreetoproceedagainstshareholders inaccordancewithlaw.(A.Y.199293). HindustanLinks&ResinsLtdvDyCIT(2011)60DTR18(Guj)(HighCourt). S.68:CashCreditsGift. Assessee has filed address of both the donors, however, revenue authorities did not examine them in person before making addition, further the revenue authorities failed to bring any evidence on record showing that amountreceivedbyassesseefromdonorswasactuallyherownundisclosedincome.Additionconfirmedbythe CIT(A)wasdeleted.(A.Y.200203) AmitaDevi(Smt)vs.ACIT(2011)129ITD72/53DTR214(Gau.)(TM)(Trib) S.68:CashCreditsGift. Assessee received the gift by way of cheques which have been confirmed by the donors in their affidavits and disclosedintheirrespectivereturns,thesamecouldnotbetreatedasnongenuine.(A.Y.200405) Dy.CITvs.VishwanathPrasadGupta(2011)52DTR346/130ITD73/57DTR89/139TTJ257(Jab.)(Trib.)(TM)(Trib) S.68:CashCreditsShareApplicationMoney. Assessee had established identity of each of share holder, and also proved that each of them was income tax assesseeandshareapplicationmoneycreditedtotheiraccountswasdulyreflectedintheirincometaxreturns and balance sheets, hence, the order of Commissioner (Appeals) deleting the addition was confirmed. (A. Y. 200506) Dy.CITvs.DolphineMarbles(P)Ltd.(2011)129ITD163/139TTJ129(JB)(TM)(Trib.) S.68:CashCreditsGifts. Assesseereceivedgiftof`1lakhfromtenindividuals.Itwasnotedfromtherecordsthatdonorshaddeposited moniesintheirbankaccountonsamedayoronedaypriortomakingofgiftsthroughaccountpayeecheques.It was observed that , personal withdrawals of donors for their house hold expenses were petty and it did not supportstatusofdonorstogiftof`1lakh,besidesnoneofdonorswasrelativeofassessee,inviewofthefacts giftsreceivedbytheassesseeconfirmedascashcredits.(A.Y.200102) ArvindKumarMohanivs.ITO(2011)129ITD117/54DTR33/138TTJ403(JB)(TM)(Trib.) S.68:CashCreditsGiftFailuretoproduceDonors. No addition could be made simply rejecting explanation and evidences filed on record in support of the gift without any scrutiny about the confirmation and without bringing any conclusive evidence brought on record merelyonthepleathattheassesseefailedtoproducedonorsforexamination.(A.Y.200607) P.R.Kulkarni&Sons(HUF)vs.Addl.CIT(2011)135TTJ630(Bang.)(Trib.) S.68:CashcreditsExistenceofbooksofaccount. Where the assessee had not maintained books of account, there was no legal scope to invoke provisions of section68.Existenceofbooksofaccountbyassesseeisaconditionprecedentformakingadditionundersection 68. MadhuRaitanivAsstCIT(2011)45SOT231(Gau)(TM)(Trib). S.68:CashCreditsShareApplicationmoney
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Assessee company having filed letters of the share applicant companies written to the Asstt CIT confirmingthattheyhadappliedforsharesintheassesseecompanygivingdetailsofdrafts,copiesof acknowledgment of returns , certificates of incorporation and balance sheets of the said companies where in investment made in the assessee company is shown , it has discharged the onus which lay upon it under section 68 establishing the identity and credit worthiness of each share holder. The Tribunalheldthatadditioncannotbemadeundersection68.(Asstyear200506). DyCITvDolphineMarbles(P)LTD(2011)57DTR58(Jab)(TM)(Trib). S. 68: Cash Credits Confirmation Satisfaction of AO to be based on proper appreciation of materialsandsurroundingcircumstancesavailableonrecord. Assesseehadfiledconfirmationandcopyofbankstatementaswellascashbook.Itcouldbesaidthat assessee had proved genuineness of loan and no addition could be made under section 68 of the IncomeTaxAct.OpinionofAssessingOfficerfornotacceptingexplanationofferedbyassesseeunder section 68 as not satisfactory. It must be based on proper appreciation of material and other surrounding circumstances available on record and Assessing Officer can not reject each and every explanationofassessee.(AsstYear200001) UmeshElectricalsvAsstCIT(2011)131ITD127/60DTR385/141TTJ288(Agra)(TM)(Trib). S. 69 : Unexplained Investments Difference in statement of value of stock furnished to bank and entries in booksofaccountsadditionjustified Wherethestockstatementofhypothecatedgoodsfurnishedbankwasatvariancewithstockrecordedinbooks ofaccounts.Itwasheldthatadditionwasjustifiedastheassesseeneitherdeniedstatementmadetobanknor furnishedvalidexplanationofdiscrepancy.(A.Y.199596) B.T.SteelsLtd.vs.CIT(2011)196Taxman362/(2010)328ITR471/(2011)196Tax362/(2010)47DTR227(P&H)(High Court) S.69:UnexplainedInvestmentsIncomefromUndisclosedSourcesGenuinenessofSaleofShares(S.54F) Purchaseandsaleofsharessaidtohavebeenmadebytheassesseebeingthesolitarytransactioninsharesby himallegedlymadethroughabrokerwhoisnotregisteredwiththestockexchangeandconcernedcompanyas well as the said broker having denied the transaction, Assessing Officer was justified in not accepting the said transactionasgenuinebyapplyingthetestofhumanprobabilitiesandtreatingtheimpugnedamountasincome fromundisclosedsources.(A.Y.199798) CITvs.HakumatRai(2011)237CTR513/49DTR266(P&H)(HighCourt) S.69:IncomefromundisclosedsourcesAdditionSetoffonaccountofintangible. If the intangible additions are made as undisclosed income during survey for earlier assessment years , while considering the assessment of subsequent assessment year and making addition of unexplained investment in stock,theassessingOfficershouldconsiderthequestionofsetoffoftheintangibleadditionmadeinappeal.( AsstYear199798). BlaramSahavCIT(2011)56DTR209(Cal)(HighCourt). S.69:UnexplainedinvestmentsSearchandseizureJewelleryCBDTCircular. The court held that the CBDT circular had been issued for the purpose of non seizure on the basis of recognized customs prevailing in Hindu Society , and unless the revenue showed anything to the contrary , it could safely be presumed that source to extent as stated in Circular no 1916 stands explained,accordinglytheorderofTribunaldeletingtheadditionwasconfirmed.
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CITvRatanlalVyaparilalJain(2011)199Taxman90(Guj)(Mag)(HighCourt). S.69:IncomefromundisclosedsourceStatementinthecourseofsearchRetraction[S.132(4)] Merelyonthebasisofstatementmadeundersection132(4),inrespectofloans,additionundersection69as incomefromundisclosedsourcecannotbemadewhenthesaidstatementwasretractedandevidencetoshow thegenuinenessofloanwasfiled.ThecourtalsoreferredtheCircularofCBDTNoF.NO.286/2/2003IT(Inv)dt10th March2003.(A.Y.199495) M.Naranan&BrosvAsstCIT(2011)60DTR233(Mad)(HighCourt). S.69:UnexplainedInvestmentsAIRInformationSecondowneroftheUnitsofMutualfunds. AdditiononaccountofunexplainedinvestmentcannotbemadeinthehandsoftheassesseeonthebasisofAIR information,whentheassesseewasonlythesecondowneroftheunitsofmutualfundsandtheidentityofthe firstownerwasestablishedandtheyareassessedtotax. S.Ganeshvs.ACIT(2011)TIOL87ITATMum.701/(2011)42B.BCAJ(MarchP.33)(Trib) S.69A:UnexplainedMoneyClaimforredemptionfineDeductionnotallowed Itwasheldthatsection69Adoesnotprovideforanydeduction,thusclaimforredemptionfineisnotadmissible. Adjudication, confiscation and later redemption fine does not affect the assessment in case of seized articles undersection69A.(A.Y.198990) P.Sonamvs.CIT,Ernakulam(2011)196Taxman335(Ker.)(HighCourt) S.69A:UnexplainedmoneyStatementofthirdpartySurvey. Noincriminatingmaterialwasfoundduringsearchproceedings.Merelyonthebasisofstatementofthirdparty noadditioncanbemade. CITvConcordeCapitalManagementCoLtd(2011)334ITR346(Delhi)(HighCourt). S.69A:UnexplainedmoneySaleproceedsofshares. Where the shares sold by the assessee were received by the assessee in her demat account on July 3, 2003 transferredfromanotherclientandwerenotthosesharesstatedtobepurchasedbytheassesseeonJune17, 2002.ThecreditindemataccountoftheassesseeonJuly3,2003remainingunexplainedandhenceadditionwas justified.(A.Y.200405). KusumLata(Smt)vAsstCIT(2011)10ITR737(Trib)(Delhi)(Trib). S.69A:UnexplainedmoneyGiftOnusonassesseetoproveOccasion. Whenassesseereceivedthegiftonusisonhimnotonlytoestablishidentityofpersonmakinggiftbutalsohis capacitytomakesuchgiftandheisalsorequiredtodemonstrate,whatkindofrelationshiporwhatkindoflove andaffectiondonorhasforassesseandtoexplaincircumstancesinwhichgiftweremade.(A.Y.200102). SushilKumarMohananivITO(2011)131ITD237(Jab)(TM)(Trib). S.69B:AmountsofInvestmentsnotfullydisclosedinbooksofaccountUndisclosed Income. Addition under section 69B of the Act alleging undisclosed investment cannot be made merely on the basis of DistrictValuationOfficers(D.V.O.)reportwhenthebooksofaccountsoftheassesseearenotrejectednorany incriminating material was found during the search to suggestthatassesseehadmadeanypaymentoverandabovetheconsiderationmentionedinthereturn. CITvs.BajrangLalBansal(2011)51DTR287/241CTR64(Del.)(HighCourt)
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S.69B: Amounts of Investments not fully disclosed in books of account Income from undisclosed sources ReferencetoDVOBlockassessmentSearchandseizure.(S.142A). Proviso to section 142A has no retrospective effect , assessment by Assessing Officer and appeal by CIT (A) having been decided prior to 30th Sept , 2004 , it was not open to the Assessing Officer to order valuation of propertybyDVO. CITvNaveenGera(2011)56DTR170(Delhi)(HighCourt). S.71:lossesSetofffromoneheadagainstincomefromanotherCapitallossCapitalgains. AssesseesoldcertainsharesofCompanyAandclaimedcapitalloss.AssessingOfficerdisallowedlossholding thatassesseesoldsharessoastoclaimsetoffthislossagainstcapitalgainsarisingonsaleofland.Tribunalheld thatsincesharesweredulytransferredandrecordedinbooksofaccountandfurther,assesseealsoexplained thecircumstancesinwhichhesoldshares,capitallossonsaleofsharescannotbedisallowed.(A.Y.200405). HasmukhbhaiM.PatelvAsstCIT(2011)46SOT419(Ahd)(Trib). S.72:CarryforwardandsetoffofbusinesslossExemptedincome.(S.10B(6),10B(8).) Where the assessee had forfeited the claim under section 10B because they were debonded by the DevelopmentCommissionerandhenceintheIncomereturnfiledfortheAsstyear19992000deductionunder section 10B was not claimed , the tribunal held that technically non compliance of section 10B (8) should not deprivetheassesseefromclaimingthebenefitofcarryforwardofbusinesslosscomputedforthatyear(Asst Year19992000). CITvTorryHarrisSeaFoods(P)Ltd(2011)55DTR239(Ker)(HighCourt). S.72:CarryforwardandsetoffofbusinesslossesHotelbusinessagreementwithanothercompany for running hotels disputes hotel business run by court receiver no cessation of business broughtforwardlosses: The assessee was in the business of running hotels and for that purpose had entered into an agreement with another company to run the same. Disputes arose between the assessee and the company, the court pending adjudication of dispute appointed a court receiver to run the hotel business of the assessee. The dispute was decided by the court and the possession of the hotel was handed overtotheassessee,the assesseeranthe hotel business onitsown. The Honble HighCourt held that there was no cessation of business by the assessee, as the business was managed by the court receiver, who was none other than its own directors, and the business and assets were also neverdivestedwiththereceiver,andthereforetheassesseewasentitledtocarryforwardandsetoff lossesanddepreciationrelatingtoearlieryears(AY199091) CITv.DencomarHotels(Goa)Ltd.[2011]332ITR441(Bom)(HighCourt). S.72:CarryforwardandsetoffofBusinessLossDividendIncomeSharesheldforbusiness. Under section 72(1)(i), the brought forward business loss can be setoff against the profits and gains of any businessorprofessioncarriedonbytheassessee.Section72(1)(i)doesnotusethewordassessableunderthe headprofits&gainsofbusiness.Theanswertothequestionastowhetherthesecuritiesformedpartofthe trading assets of the business and the income there from was income from the business has to bedecided on commercialprinciplesandnotonthebasisoftheclassificationofheadsofincomeinsection14.Thoughforthe purpose of computation of the income, dividends are assessable under the head Other Sources, it does not cease to be part of the income from business if the securities are part of the trading assets. Accordingly, the
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assesseeiseligibleforsetoffofdividendincomeasagainstbusinessloss(CocanadaRadhaswmiBank57ITR306 (SC)&NewIndiaInvestment130ITR778(Cal.)followed). GanganTradingCo.Ltd.vs.Dy.CIT(Mum)(Trib)Source:www.itatonline.org S.73:LossesinSpeculationBusinessDeliverybasedlossonsharesalsoSpeculationLoss ItisheldthattheExplanationtosection73createsafictionthatthelosssufferedbycertaincompaniesfromthe business of purchase & sale of shares shall be deemed to be speculation loss. The definition of speculative transactioninsection43(5)notapplicabletoExplanationtosection73.TheCBDTCirculardated24.7.1976cannot be treated as guide for interpretation of section 73 when the provision is very clear and free from any ambiguity.(A.Y.199495) PaharpurCoolingTowersLtd.vs.ACIT(2011)52DTR41/239CTR394(Cal)(HighCourt) Editorial:ReferPaharpurCoolingTowersLtd.vs.Dy.CIT(2003)85ITD745(Kol.) S.73:LossesinSpeculationBusinessSpeculativeLoss. Where the Company amended its memorandum and articles of association so as to enable it to make money lending as its main business, the loss on account of sale and purchase of shares was allowed to be adjusted againstotherbusinessincomeastheassesseescasefellunderexceptionclauseofsection73oftheAct.(A.Y. 199798) CITvs.FrontLineSecuritiesLtd.(2011)50DTR337(Del.)(HighCourt) S.73:LossesinspeculationbusinessExplanationGrantofloans. WheninrespectoftheassessmentoftheassesseeoftheforAsstyears199899,199697and199596, the Tribunal specifically held that the principal business of the assessee was grant of loans ,the assesseecomes within theexceptiontotheExplanation undersection73 ,andthereforetheTribunal was not justified in holding that the business loss was to be treated as speculation loss.( Asst Year 199798). PCBLIndustriesLtdvCIT(2011)58DTR25(Cal)(HighCourt). S.73:LossesinSpeculativeBusinessLossinsharedealingsSpeculativeTransactions[S.43(5)] BadlachargesclaimedbytheassesseecompanywererightlytreatedtobespeculativelossinviewofExplanation to section 73, since entire share trading activity was deemed to be speculative, provisions of Explanation to section73beingdeemingprovisions,section43(5)cannotoverridesection73.(A.Y.200102) DartmourHoldings(P)Ltd.vs.ITO(2011)51DTR321/136TTJ432(Mum.)(Trib.) S.73:Losses in speculative business Speculation lossShares valuation of closing Stock Trading in shares InvestmentCapitalgains.Company. Lossfromvaluationofclosingstockcannotbeexcludedwhiledeterminingthelossfromsharetradingbusiness, therefore,Explanationtosection73isapplicableeventothelossarisingfromthevaluationofclosingstockof shares. Ifthesharesareheldbytheassesseecompanyasinvestmentandnotasstockintrade,thesecondconditionof Explanationtosection73Viz.businessofpurchaseandsaleofsharesisnotsatisfiedandtherefore,capitalgain arisingfromthesaleofsharesheldasinvestmentisnothitbyExplanationtosection73.(Asstyear200102). KrishnaLakshmiMultiTrade(P)LtdvAsstCIT(2011)55DTR167/138TTJ623(Ahd)(Trib).
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S.79:CarryforwardandsetofflossesinthecaseofcertaincompaniesMergerChangeinShareHoldings. DuetomergerofIIPLholding98%sharesofassesseecompanywiththeassesseecompany,theshareholdersof theIIPLwereallottedsharesbuttherewasnochangeinthemanagementwhichcontinuedtobewithpersonsof the family who were having the control and management of the IIPL as well as of the assessee company and therefore,provisionsofsection79werenotviolatedandtheassesseewasentitledtocarryforwardofloss.(A.Y. 2004200506) Dy.CITvs.SelectHolidayResorts(P)Ltd.(2011)52DTR14/138TTJ304(Delhi)(Trib.) ChapterV1A.Dedcutionstobemadeincomputingtotalincome. S.80:SubmissionofreturnforlossesCarryForwardBelatedfilingofreturn.[S.139(3)] Assesseeisnotentitledtocarryforwardthebusinesslossifthereturnisnotfiledwithintheprescribedtimelimit undersection139(1).AssessingtheincomebytheAssessingOfficerwillnotmandatetocarryforwardtheloss.(A. Y.19992000) JoginderPaul(HUF)vs.CIT(2011)239CTR566(P&H)(HighCourt) S.80:SubmissionofreturnforlossesCarryforwardofunabsorbeddepreciation(S.32(2),139(3). Periodoflimitationforfilinglossreturnnotapplicableforcarryingforwardofunabsorbeddepreciation.Section 80and139(3)applytobusinesslossandnottounabsorbeddepreciationgovernedundersection32(2).(Asst years200101,200102). CITvGovindNagarSugarLtd(2011)334ITR13/56DTR35(Delhi)(HighCourt). S. 80HH :Deduction Process of ship breaking activity, whether production of newgoods Words and PhrasesManufactureandProduction,scopeof. InviewofExplanation2addedtosection10(15(iv)(c),usanceinterestpaidforpurchaseofimportedshipforship breakingisexemptfrompaymentofincometax.Distinctarticlesemergeinprocessofshipbreaking.Processof shipbreakingisakintoproduction.Assesseeentitledtobenefitofsections80HHand80I. Manufacture and Production are distinct terms. Reiterated, production has a wider connotation than manufacture. Production takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also includes byeproducts, intermediate products and residual products which emergeincourseofmanufactureofgoods. VijayShipBreakingCorporationandOthersvs.CIT(2010)10SCC39(SC) S.80HHC:DeductionExportProfitsofBusinessInterestonDepositsIntercorporateDeposits Finding of the authorities below that interest income received by the assessee company on bank deposits and intercorporatedepositsisapartofbusinessprofitnothavingbeenshowntobeperverse,thesamecannotbe excludedfromthebusinessprofitwhilecalculatingthedeductionundersection80HHC. CITvs.SociendadeDeFomentoIndustrialLtd.(2011)237CTR141/49DTR161(Bom.)(HighCourt) S.80HHC:DeductionExportReceiptsFreightInsurancePackingChargesSalesTaxsetoff 90%ofreceiptsfromfreightandinsurance,packingcharges, salestaxsetoffandgrossserviceincomewasbe excluded from the profits of the business in terms of explanation (baa) to section 80HHC of the Income Tax Act.(A.Y.200304) CITvs.DresserRandIndiaP.Ltd(2011)330ITR453(Bom.)(HighCourt)
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Editorial:Refer,CITvs.DresserRandIndiaPvt.Ltd.(2010)323ITR429(Bom.).InPfizerLtd.(2010)233CTR521/ (2011)330ITR62(Bom.)distinguished. S.80HHC:DeductionExportSeparateBooksProfitsofallBusiness For the purpose of 80HHC of the Act, even though the assessee had maintained separate books for each business,deductionundersection80HHCistobecomputedonthebasisofprofitderivedfromallthesebusiness. (A.Y.200304) G.J.Fernandezvs.ACIT(2011)52DTR345(Kar.)(HighCourt) S.80HHC:DeductionExportFluctuationinForeignExchangeExportturnover. Surplusrealizationduetofluctuationinforeignexchangeratesispartandparceloftheexportturnoverforthe purposeofsection80HHC. RaghunathExports(P)Ltd.vs.CIT(2011)240CTR79(Cal.)(HighCourt) S.80HHC:DeductionExportCompositeservices. Professional charges received by the assessee for procuring order and rendering composite services are to be reduced while computing deduction under section 80 HHC of the Act as the same do not formpartofexportsalesproceeds.(A.Y.200102) AnilDangvs.ITO(2011)55DTR349(Kar)(HighCourt). S.80HHC:DeductionExportInterestonLoangiventoemployeesBusinessincome. Interest earned on loans given to employees is to be treated as part of business income for the purposeofcomputationofdeductionundersection80HHC. KirloskarEbaraPumpsvs.Dy.CIT(2011)138TTJ211(Pune)(Trib). S.80HHD:DeductionShoppingcommissionForeigntourists. Assessee was receiving the commission, from shopkeepers and not in foreign exchange from the touristsdirectly.Assesseewasnoteligiblefordeductionundersection80HHD. CIT v Le Passage to India Tour and Travels (P ) Ltd ( 2011) 57 DTR 98/ 241 CTR 535 (Del) / 335 ITR 69 (HighCourt). S.80HHD:DeductionInterestTouroperatorForeigntouristsIncomederived. Interest earned by assessee tour operator by making deposits of advances received from foreign tourists can not be said to have been derived from the services provided to foreign tourists and ,therefore , such interest income did not qualify for benefit of section 80HHD , more so as it was receivedfrombanksinIndiainIndiancurrencyandnotinforeignexchange. LotusTransTravels(P)LtdvCIT(2011)241CTR530(Del)(HighCourt). S.80HHE:DeductionExportComputerSoftwareNonresidentDiscriminationClauseDTAA As per Article 26(2) of IndiaUSA DTAA Taxation of a PE of a USA resident shall not be less favorable than the taxation of a resident enterprise carrying on the same activities. Thus exemptions and deductions available to Indian enterprises would also be granted to the US enterprises if they are carrying on the same activities. Therefore, assessee was entitled to section 80HHE deduction as admissible to a resident assessee(Automated SecuritiesClearanceInc.vs.ITO118TTJ619(Pune)reversed;MetchemCanadaInc.vs.Dy.CIT99TTJ702(Mum.) referredto);
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FurtherwheretheprovisionscontainedintheDTAAarecapableofclearandunambiguousinterpretation,itisnot necessarytorefertothecommentaryontheOECDModelConvention,theUSTechnicalExplanationordecisions ofanyforeignjurisdiction(CITvs.PVALKulandaganChettiar267ITR654(SC)followed).(A.Y.200203to2004 05) RajeevSureshbhaiGajwanivs.ACIT(2011)52DTR201/129ITD145(AHD)(SB)(Trib) S.80HHE:DeductionExportofComputerSoftwareForm10CCAFExportturnoverretainedabroad. Benefitofdeductionundersection80HHEcannotbedeniedtotheassesseesimplybecausetheincomecertified fordeductionisnilinformno10CCAFforthereasonthatthecomputationoftotalincomeasperreturnwasloss. Assesseeisentitledtodeductionundersection80HHEontheamountofexportturnoverretainedabroadtothe extentofitsoutstandingduestothatcompanyandtheamountretainedbyassesseesforeignbranchinrespect of expenses incurred by it on behalf of assessee provided there is nexus between the outstanding payable / expenditureincurredabroadandthebusinessofexportwhichhasyieldedtheincome.(A.Y.200203) 3iInfotechLtd.vs.Dy.CIT(2011)51DTR385/136TTJ641(Mum(Trib.) S.80HHF:DeductionExportExportTurnover. Claimoftheassesseethatthemeaningoftotalturnoverinclause(j)ofExplanationtosection80HHFshould berestrictedonlytotheexportturnoverofthebusinessofexportsandnottheentirebusinessisnotsustainable. While computing deduction under section 80 HHF by multiplying export turnover with the profits of the businessasdividedbythetotalturnoverofthebusiness.(A.Y.20002001) SRIAdikariBrothersTelevisionNetworksLtd.vs.ACIT(2011)52DTR295(Mum.)(Trib.) S.80I:DeductionsProfitsandgainsfromIndustrialundertakingsReconstructionofbusiness. Where assessee firm was formed by reconstruction of a business already in existence as a sole proprietary concern,itdidnotfulfilconditionlaiddowninsection80I(2)(i)andtherefore,itwasnotentitledtodeduction undersection80I.Inordertoclaimdeductionundersection80IanIndustrialundertakingshastofulfilallfour clausesundersection80I(2),andifitdoesnotfulfilevenoneclausethereof,deductionisnotallowable.(Asst Year199293). AsstCITvGoelUdyog(2011)45SOT444(Delhi)(Trib) S.80IA:DeductionsManufactureProductionCoatingwithoxidesofnoblemetalsontitaniummetalelectrode/ anode. Coatingwithoxideofnoblemetalsontitaniummetalelectrode/anodebringingaboutinitscharacterandusefor making it fit for use in the production of chlorine and caustic soda in an electrolytic process is manufacture or productionofarticleorthingwithinthemeaningofsection80IAandentitledtodeduction.(Asstyear199495). TitanorComponentsLtdvCIT(2011)55DTR157(Delhi)(HighCourt). S.80IA:DeductionsProfitsandgainsderivedfromIndustrialundertakingTransportsubsidy. Source of transport subsidy is not the business of the assessee but the scheme framed by the Central Government and therefore ,transport subsidy received from the Government by the assessee cannot be includedinprofitsderivedfromtheindustrialundertakingandisnoteligiblefordeductionundersection80IA. CITvMaharaniPackaging(P)Ltd(2011)55DTR340(HP)(Highcourt). S.80IA.DeductionsTransportsubsidyIndustrialundertaking.
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Transport subsidy received by the assessee under the scheme framed by the Central Government cannot be profits derived from the industrial undertaking and is not eligible for deduction under section80IAoftheAct CITvs.MaharaniPackaging(P)Ltd.(2011)55DTR340(HP)(HighCourt). S.80IA: DeductionProfits and gains derived from industrial undertaking Liquidated damages Interest on delayedpayment. Interest on delayed payment of sale amount is eligible for deduction under section 80IA , further , during the courseofthebusinesstheassesseereceives/payliquidateddamagesfornothonouringacontractforsaleof products and therefore, such income is directly derived from the industrial undertaking, thus eligible for deductionundersection80IA.(A.Y.200001). CITvPrakashOilsLtd(2011)58DTR279(MP)(HighCourt). S.80IA: DeductionIndustrial undertaking Developing, operating and maintaining industrial parkWithdrawal ofapprovalWritmaintainable.(Art226). As per the scheme, what was required to be done by the petitioner was to provide for infrastructural facilities beforelastdateenvisagedunderthescheme.Thereaftertherewasnoobligationonthepartofthepetitionerto ensurethatindustrialunitsonsuchplotsmustalsocomeintoexistenceandcommencetheirproductionactivities , therefore impugned show cause notice for withdrawal of approval of assessees Industrial Park was quashed andtheCBDTwasdirectedtonotifythesame.OrdinarilyCourtsdonotencouragelitigationattheshowcause noticestatebutwheretheshowcausenoticeisbasedonpremisewhichislegallynotsustainable,writpetition heldtobemaintainable. GaneshHousingCorporationLtdvPadamSinghUndersecretary(2011)61DTR1(Guj)(HighCourt). S.80IA:DeductionsIndustrialUndertakinginInfrastructureDevelopmentAbsorptionoflossinearlieryear, section80IAunitlosstobesetoffagainstsection80IAprofits It was held that deduction under section 80IA has to be computed after deduction of the notional brought forwardlossesanddepreciationofbusinesseventhoughtheyhavebeenallowedsetoffagainstotherincomein earlieryearsasconcludedbytheITATSpecialBenchjudgementinACITvs.GoldMineShares&Finance(P)Ltd. 113ITD209(Ahd.)(SB)againsttheassessee. HyderabadChemicalSuppliesLtd.vs.ACIT(2011)53DTR371(Hyd.)(Trib). S. 80 IA: Deduction Profits and gains derived from industrial undertaking Initial yearSubstantial expansion Takeoverofexistingunits.(80IB). Conditionsaslaiddownforclaimingdeductionundersection80IA/80IBaretobecompliedwithintheinitialyear and not in all the assessment years in which the assessee is eligible for deduction. Once the assessee has compliedwiththeconditionsaslaiddowninsections80IA/80IBintheinitialyear,expansionorextensionofthe existingunitbyacquiringassetsofanotherunitsinasubsequentyeardoesnotdisentitletheassesseetoclaim deductionundersections80IA/80IBinrespectofincreasedprofitduetosuchexpansionorextensionofindustrial undertaking.(A.Ys.200405&200506). AquaPlumbing(P)LtdvAsstCIT(2011)59DTR22/46SOT366(Agra)(Trib). S.80IA:DeductionIndustrialundertakingGenerationandsupplyofpowerDeemedgenerationofpower. Assessee entered into agreement for supply of power. Agreement providing that if power not required, compensation charges to be paid. Amount received for deemed generation of power is entitled to deduction
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undersection80IAasthecompensationhasdirectnexuswiththebusinessofgenerationofpower.(A.Y.2004 05). MagnumPowerGenerationLtdvDyCIT(2011)11ITR493(Delhi)(Trib). S. 80IA(4): DeductionsInfrastructure development Industrial undertakings Deduction available eventocontractorwhomerelydevelopsbutdoesnotoperate&maintaintheinfrastructurefacility. RelyingonthejudgementoftheLargerBenchinB.T.Patil&Sons126TTJ577(Mum),theassessees claimfordeductionu/s80IA(4)wasdeniedbytheTribunalonthegroundthattheassesseewasonlya contractorandhadnotcompliedwithalltheconditionsspecifiedinsubclauses(a),(b)&(c)ofclause(i) ofs.80IA(4).TheorderwasrecalledpursuanttotheassesseesMAclaimingthatthejudgementofthe Bombay High Court in ABG Heavy Industries Ltd 322 ITR 323 covered the issue in its favour. HELD decidingtheissueafresh: The contractor who merely develops but does not operate or maintain the infrastructure facility is eligible for deduction u/s. 80IA(4). Harmonious reading of s. 80IA(4) led to the conclusion that the deduction was available to an assessee who (i) develops or (ii) operates and maintains or (iii) develops, operates and maintains the infrastructure facility. The 2001 amendment made it clear that thethreeconditionsofdevelopment,operationandmaintenancewerenotintendedtobecumulative in nature. A developer who is only developing the infrastructure facility cannot be expected to fulfill the condition in subclause (c) which is an impossibility and requiring it to be fulfilled will be an absurdity.(B.T.Patil&SonsBelgaumvs.ACIT126TTJ577(Mum)impliedlyheldnotgoodlaw). LaxmiCivilEngineeringPvt.Ltd.vsACIT(Pune)(Trib).www.itatonline.org. S.80IA(4)(iii):DeductionsIncomefromdeveloping,operatingormaintainingindustrialpark. Assessee having constructed multistoried buildings for the purpose of developing infrastructure facilitiesasapprovedbytheMinistryofIndustryandCommerceandleasedouttofive/fourfloorsto some tenants who are carrying on their diverse operations as functionally independent units, each floor could be taken as independent unit, and deduction under section 80 IA (4) (iii) could not be denied on the ground that all the floors of the same building occupied by same tenant cannot be construedasoneunitandthatitwasnotoperatingfiveunitsinasstyear200708andfourunitsinthe next year as stipulated in the approval granted by the said Ministry. Once the projects are approved andnotificationsaremadebytheappropriateauthoritiestheapprovalandnotificationrunbacktothe date of commencement of the activities and therefore, deduction under section 80IA (4)(iii) cannot bedeclinedon theground thattheassessee hasstartedfunctioningevenbeforetheformal order of approvalandnotification.(AsstYear200708&200809). PrimalProjects(P)LtdvDyCIT(2011)139TTJ233(Bang)(Trib)/56DTR291 S.80IA(4)(iv):DeductionsIncomefromGenerationofPowerCaptiveconsumptionofelectricity Assesseeisentitledtodeductionundersection80IAinrespectofnotionalincomefromgenerationofelectricity whichwascaptivelyconsumedbyitself. TamilNaduPetroProductsLtd.vs.ACIT(2011)51DTR67/238CTR454(Mad.)(HighCourt) S. 80IA(8) : Deductions Industrial Undertaking Tariff fixed by MERC for sale of power does not reflect marketvalue Itisheldthatundersection80IA(8),thetransferofgoodsfromaneligiblebusinesstoanoneligiblebusinessis required to be taken at market value. But the tariff determined by MERC is based on the concepts of clear profits and reasonable return and does not reflect the market value of the electricity. Further, the tariff is
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fixedforbothactivitiesofgenerationanddistributionofpowerandmaynotreflectthetruerateswithregardto onlytheactivityofgeneration.Thus, evenafterthefixationoftariffbyMERC,theprofitsfromthebusinessof generation of power has to be worked out on the basis of the price paid to the outside party for purchase of power. RelianceInfrastructureLtd.vs.ACIT(Mum.)(Trib.)Source:www.itatonline.org S.80IB:DeductionIndustrialUndertakingsInterestMiscellaneousIncome Interest on deposits would not be allowable towards the deduction under section 80IB. Miscellaneous income (reversalofLDcharges),thematterwasremandedtotheTribunalforfreshconsideration.(A.Y.200203) CITvs.DresserRandIndiaP.Ltd(2011)330ITR453(Bom.)(HighCourt) S. 80IB : Deduction Industrial Undertakings Manufacture or Production Job work Compound Rubber InterestfromCustomersBelatedPaymentsBusinessIncome Productionofcompoundrubberonjobworkforthetyremanufacturingcompaniesbytheassesseeamountsto productionofanarticleorthingqualifyingfordeductionundersection80IB.Thereisnothinginsection80IBto indicate that article or thing produced or manufactured should be final product in itself. If the interest is assessable as business income then only it qualifies for deduction under section 80IB as profit earned. In the absenceofrelevantdetailsoftheinterestreceivedbytheassesseefromthecustomersforbelatedpaymentof jobworkchargesmatterremandedtotheAssessingOfficerforreconsideration. MidasPolymerCompounds(P)Ltd.vs.ACIT(2011)237CTR401/331ITR68/50DTR139(Ker.)(FB)(HighCourt) S.80IB:DeductionIndustrialUndertakingsCentralExciseDutyRefundTransportandInterestSubsidy. Central Excise Duty refund has inextricable link with manufacturing activity hence eligible for deduction under section 80IB, however, transport and interest subsidies have no direct nexus with the business of industrial undertakinghencenoteligiblefordeductionundersection80IB. CITvs.MeghalayaSteelsLtd.(2011)221Taxation79/332ITR91/55DTR27/241CTR384(Gauhati)(HighCourt) S.80IB:DeductionSmallscaleindustrialundertakingNotclaimingthereliefininitialyearcannotbethebarfor claiminginlateryears. Registration of an Industrial undertaking as a small scale industrial undertaking under Industries (Development and Regulations) Act , 1951 , is not a condition precedent for treating the same as a small scale industrial undertaking and it is sufficient if it fulfills the eligibility criteria for being regarded as a small scale industrial undertaking for the purposes of said Act. Assessee cannot be deprived the benefit of section 80IB merely becausehehasnotclaimedsuchbenefitintheinitialyearinwhichhewaseligibletoclaimthebenefit.(Asstyear 200405). PraveenSonivCIT(2011)54DTR334/241CTR542(Delhi)(HighCourt). S.80IB:DedcutionManufactureorproductionConvertingrawfishintofinishedfish. Processinvolvedinconvertingrawfishintotinnedfishdidnotamounttomanufactureandthereforeassessee wasnotentitledtodeductionundersection80IB.(Asstyear200405). CITvGitwakoFarma(I)(P)Ltd(2011)241CTR449/55DTR124(Delhi)(HighCourt). S.80 IB: DeductionProfits and gains derived from industrial undertakings Sale of scrap ManufactureLabourcharges.
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Activity of forging which involves heat treatment of material to produce automobile parts is manufactureandtherefore,labourchargesandjobworkchargesearnedbytheassesseefordoing the job of forging for customers are gains derived from industrial undertakings and the same are entitled for deduction under section 80IB. Sale of scrap which generated in the process of manufacturing activity and proximate there to constitute gains derived from Industrial undertaking forthepurposeofcomputingdeductionundersection80IB.(A.Y.200405) CITvSadhuForgingsLtd(2011)57DTR194/242CTR158(Delhi)(HighCourt). S.80IB.DeductionProfitsofundertakingJobworkMiscellaneousreceipts. Deduction u/s. 80IB is allowable on profits of job work and also on miscellaneous receipts, rebate/discountsandbalanceswrittenoff. CITv.MetalmanAutoP.Ltd.{2011}199Taxman149(P&H.)(Mag.)(HighCourt). S.80IB:DeductionManufactureProductionAssemblingofdifferentpartsofwindmill. Different parts of windmill when assembled get transformed in to an ultimate product which is commercially knownasawindmillwhichamountstomanufactureorproductionwiththemeaningofsection80IB(2)(iii).( A.Y.200506). CITvChiranjeeviWindEnergyLtd(2011)243CTR195(Mad)(HighCourt). S.80IB:DeductionIndustrialUndertakingDerivedfromPaymentsDisallowed[S.40(a)(ia)] Payments disallowed under section 40(a)(ia), has to be treated as part of profits and gains of business or professionandtherefore,thesamequalifiesfordeductionundersection80IB.(A.Y.200203to200607) ITOvs.ComputerForce(2011)136TTJ221/128ITD116/49DTR298(Ahd.)(Trib) 80IB:DeductionIndustrialUndertakingsInterestMiscellaneousIncome. Interestondepositswouldnotbeallowabletowardsthedeductionundersection80IBasthesameistreatedas miscellaneousincome.(reversalofLDcharges).ThematterwasremandedtotheTribunalforfreshconsideration. (A.Y.200304) CITvs.DresserRandIndiaP.Ltd(2011)330ITR453(Bom.)(HighCourt) S.80IB:DeductionManufactureorProductionManufactureneednotbefinalproductRubbercompound usedintyremanufacturing. To avail benefit under section 80IB, product manufactured need not be a final product, it could be saleable intermediate product, as in the present case a rubber compound used in the manufacture of tyres, which was manufactured by processing rubber with chemicals, oil, etc., and the same was inferred by the High Court as manufactureforthepurposesofsection80IB. MidasPolymerCompoundsP.Ltd.vs.ACIT(2011)331ITR68/237CTR401/50DTR139(Ker.)(FB)(HighCourt) S.80IB:DeductionIndustrialUndertakingsDerivedfromRebateDiscountsLabourjobreceipts. Labourjobreceipts,miscellaneousincomeconsistingofrebateanddiscountsandbalancewrittenoff.etc.,were heldtobeincomesderivedfromindustrialundertakingeligiblefordeductionundersection80IBoftheAct.(A. Y.200405) CITvs.MetalmanAutoP.Ltd.(2011)52DTR385(P&H)(HighCourt) S.80IB:DeductionIndustrialUndertakingsJobWork. Amount received on account of job work is not a result of manufacturing or producing article or thing and
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therefore,theassesseeisnotentitledtoclaimdeductionundersection80IAand80IBoftheAct.(A.Y.2000 2001) FriendsCastingsP.Ltd.vs.CIT(2011)50DTR61(P&H)(HighCourt) S.80IB:DeductionExportAfterDeductionundersection 80IA(S.80HHC) Deduction under section 80HHC of the Act is to be allowed after reducing the amount of deduction allowable undersection80IAoftheAct. FriendsCastingsP.Ltd.vs.CIT(2011)50DTR61(P&H)(HighCourt) Editorial:ReferBombayHighCourtinthecaseofCITvs.AssociatedCapsulesPvt.Ltd,(2011)332ITR42(Bom) S.80IB:DeductionManufactureorProductionJobWorkKnittedFabrics. Wheretheassesseeisengagedinthebusinessofmanufactureandsaleofknittedfabricsandgarmentswasheld tobeeligiblefordeductionundersection80IBoftheActinrespectofjobworkdonebyitforothers.(A.Y.2004 05) CITvs.VallabhYarnsP.Ltd.(2011)51DTR236(P&H)(HighCourt) S. 8OIB : Deduction Industrial Undertakings Excise Refund Subsidy Despite Liberty India, Excise Refund Eligibleforsection80IB. FollowingDelhiHighCourtdecisioninCITvs.DharampalPremchand(2009)317ITR353,itwasheldthatexcise dutyrefundwaseligibleundersection80IBonthegroundthat(a)therewasadirectnexusbetweentherefund ofexcisedutyandtheundertakingand(b)iftheproperaccountingmethodologywasfollowedforthepayment andrefundofexciseduty,theneteffectontheP&LA/cwasnil.Also,therefundofexcisedutyistheassessees ownmoneycomingbackandisnotincomeatall.(A.Y.200708) J.K.AluminiumCo.vsITO(Delhi)(Trib.)Source:www.itatonline.org S.80IB:DeductionProcessingofSeedsManufacture. Processingofseedsbytheassesseewhichisboughtfromtheagriculturists,doesnotresultinmanufacturingof anynewarticleorthing,thereforetheassesseeisnoteligibletoclaimdeductionundersection80IB.(A.Y.2002 03to200405) ITOvs.DaftriAgro(2011)135TTJ729/50DTR215/130ITD496(Hyd.)(Trib.) S.80IB:DeductionManufactureProductionWaterpurificationsystemOutsourcingTwentyormoreworkers. Assessee himself is making the final product ie. ,water purification system , it can not be said that he is not engaged in manufacture merely because , some material is readily purchased from the market and some raw material is got manufactured by outsourcing , assessee having employed twenty or more workers during the majorpartoftheyear,thereissubstantialcomplianceoftheconditionofemploymentofminimumnumberof workersand,thereforeassesseeisentitledfordeductionundersection80IB,moresowhensimilardeduction hasbeenallowedintheprecedingyears.(A.Y.200102). P.L.PatelvITO(2011)60DTR53(Mum)(Trib). S.80IB: DeductionProfits and gains from Industrial undertakings other than infrastructure development undertakingsJobworkchargesApportionmentofreceipts. Assessee HUF was engaged in manufacturing of moulds for ball pens and, supplying same to ball pen manufacturingconcerns.Italsoprovidedservicestobuyersbywayofrepairandmaintenanceofmouldssoldto them and charged job work charges ,which included receipt on account of sale of spare parts and repair and
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maintenance charges. The Tribunal held that income earned by assessee could not be from repairs and maintenance charges could not be equated at par with income from manufacturing and hence not eligible deductionintermsofsection80IB.Sinceintheabsenceofrecordofassesseeitwasnotpossibletodecidehow muchwasforrepairsandhowmuchforwasjobchargesitwasestimatedat50%ofreceiptasjobworkcharges on which the assessee would entitled deduction under section 80IB and balance 50% as receipt on account of repairandmaintenancechargesonwhichtheassesseewouldnotbeentitledtogetdeductionundersection80IB .(A.Y.200506). DyCITvRajeshkr.Drolia(2011)132ITD23/12ITR(Trib)1/(Kolkata)(SB)(Trib). S.80IB(2):DeductionIndustrialUndertakingReconstructionNewUnit Assessee having set up a new unit after closing the old unit at a new place for manufacturing new type of telephone instruments by employing new technology in a newly constructed business premises and making substantialinvestmentinplantandmachinery,itisnotacaseofsplittingupofoldbusinessandthereforeclaim forundersection80IBcouldnotbedisallowedonthegroundthattheassesseehasmerelyshifteditsbusiness fromoneplacetoanotherandnotstartedanewbusiness.(A.Y.200203) ITOvs.ComputerForce(2011)136TTJ221/128ITD116/49DTr298(Ahd.)(Trib) S.80IB(10):DeductionHousingProjectDisallowanceonaccountofnonpaymentoftaxdeductionatsource (S.80AB,40(a)(ia),29) WheretheAssessingOfficermakesadditionstoincomeofassesseeundersection40(a)(ia),fornoncompliance of tax deduction at source, such additional income also should be considered for the purpose of allowing deductionundersection80IB(10)aspersection80AB,readwithsection29.(A.Y.200607) S.B.Builders&Developersvs.ITO(2011)50DTR299/136TTJ420/45SOT335(Mum.)(Trib.) S.80IB(10):DeductionHousingProjectDateofCompletion Tribunalheldthatwhatiscrucialisnotthedateofissueofletterbylocalauthority,butdatementionedinthe lettercertifyingcompletionoftheproject.Therefore,itrejectedthecontentionoftherevenuetotheeffectthat the date of completion shall be taken as the date on which the certificate is physically issued by the local authority. D.K.Constructionvs.ITO(2011)BCAJFeb.,24(ITATIndore)(572)(2011)42B.BCAJ)(Trib) S. 80IB(10) : Deduction Housing Project Pre A. Y. 0506, a project approved as housing project by local authority eligible for deduction under section 80IB(10) irrespective of extent of commercial user Where the legislaturehasprovidedthatthedeductionundersection80IB(10)isavailabletoallhousingprojectsapprovedby a local authority, the result is that even projects with commercial user approved as a housing project are eligible for deduction. Thus, the Tribunal was justified in confirming the deduction only to projects having commercialareaupto10%ofBUA.Iftheprojectisapprovedasahousingprojectdeductionundersection80 IB(10) is allowable irrespective of the commercial area. It was further held that the insertion of clause (d) to section80IB(10)w.e.f.1.4.2005todenysection80IB(10)deductiontoprojectshavingcommercialuserbeyond theprescribedlimitsisnotretrospective.(A.Y.200304) CITvs.BrahmaAssociates(2011)333ITR289/51DTR298/239CTR301/2011VOL113(2)Bom.L.R.0995/(BombayHigh Court),www.itatonline.org S.80IB(10):DeductionHousingProjectJointDevelopmentAgreementOwnersofland
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Assessee developer had entered into joint development agreement with owners of land for construction of residentialflatsconsistingoffourwingsinconsiderationofgiving49%oftheconstructedareatolandownersand allotherconditionsofsection80IB(10)havingbeenfoundtobefulfilled,deductionundersection80IB(10)could notbedenied.(A.Y.200506to200708) MudhitMadanlalGuptavs.ACIT(2011)51DTR217(Mum.)(Trib.) S.80IB(10):DeductionHousingProjectPropertydeveloperOwnerCarparkingarea. Assesseeapropertydeveloperpayingfullconsiderationtolandownerandbuildinghousingproject,allworkin connectionwithprojectdonebyassessee,assesseeisconsideredasdefactoownerofland,assesseeisentitled to deduction under section 80IB (10). Car parking area not to be included in reckoning permissible area of residentialarea.(AsstYears200102,200506) AsstvC.Rajini(Smt)(2011)9ITR(Trib)487(Chennai)(Trib). S.80IB (10): Deduction Housing project Built up area of two units exceeded 1500 square feet Assessee not entitledfordeduction. The assessing officer conducted spot enquiry and physical inspection revealed that individual residential unit measuringlessthan1500sqfeetinbuiltupareaonpaperwasnevermeanttobesoldassuchbutwasalwaysto besoldtogetherwithadjoiningunit.Thebuiltupareaofthetwounitsexceeded1500sqfeet.Assesseehadonly oneelectricitymeterfortwoadjacentflats.All104unitshavebeensoldtoadjoiningpairsto52familiesandthe buyers have been shown either same persons or husband and wife and only one entity was shown in the broucherfortwoflats.TheTribunalheldthatCIT(A)wasjustifiedinconfirmingtheorderofAssessingOfficer refusingtograntdeductionundersection80IB(10).(Asstyear200304). ThistleProperties(P)LtdvAsstCIT(2011)55DTR81/138TTJ538(Mumbai)(Trib). S.80IB(10).DeductionHousingProjectCommercialareaProjectscommencedpriorto142005Restrictionof 5%isnotapplicable. Thetribunalnotedthattheassesseesprojecthadcommencedpriorto142005.Italsonotedthatinthecaseof Brahma Associates ,the High Court has held that the amendment to section 80IB is prospective in operation . SincetheassessessesprojecthadcommencedinDecember2003,theTribunalheldthatamendmenttosection 80IB (10) w.e.f Assessment Year 200506 , restricting the commercial area to 5 % is not applicable to projects commencedpriorto142005.(AsstYear200506). ITO vs. Chheda Construction Co., ITA No. 2764/Mum/2009, dt.27042011, `C Bench, A.Y. 2005 2006, Mumbai ITAT,BCAJpg.29,Vol.43A,Part3,June2011. S.80IB(10):DeductionProratabasisHousingprojectResidentialbuildingsAreaexceeding1500square feet. Whether deduction should be allowed in the case of flats having build up area not exceeding 1500 sq ft, even thoughsomeoftheflatswereexceeding1500sqft.Onreferencetothirdmember,thethirdmemberheldthat inviewoforderpassedbyCalcuttaHighCourtinCITvBengalAmbujaHousingDevelopmentLtd(ITAppealno 458 of 2006 dated 512007 ) , assessee was entitled to deduction under section 80 IB (10) in respect of flats having built up area not exceeding 1500 square feet and not entitled for deduction in respect of those flats havingtheirbuiltupareaexceeding1500squarefeet.ThethirdmemberalsoheldthatinviewofCITvBrahma Associates(2011)197Taxman459(Bom)(HighCourt),findingofVicepresidentontheissueoffixinglimitof10 percentcapdoesnotholdgood.(A.Ys.200506&200607). Sanghvi&DoshiEnterprisevITO(2011)131ITD151/60DTR306(Chennai)(TM)(Trib).
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S.80IB(10):DeductionHousingprojectCompletionofentireproject. Forclaimingdeductionundersection80IB,itisnotnecessaryforassesseetocomputeentireprojectandevenon partialcompletionofproject,assesseewouldbeeligiblefordeductionundersection80IB.(A.Y.200506). NagarjunaHomesvITO(2011)46SOT287(Hyd)(Trib). S.80IB(10):DeductionHousingProjectDevelopmentAgreementNotOwnerCommencementCertificate. Deduction under section 80IB(10) can not be denied on the ground that the assessee is not the owner of the propertywhichheundertakestodevelop,norcanitbedeniedonthegroundthatdevelopmentagreementisnot registered. Merely because the commencement was obtained prior to 1101998, it does not mean that the assesseehascommencedthedevelopmentandconstructionoftheprojectunlesstheassesseehastakensome effectivestepsonthesite.(A.Y.200304and20042005) EssemCapitalMarketsLtd.vs.ITO(2011)TIOL196ITATMum.171(2011)43ABCAJ(May.P31) S.80IB(10):DeductionHousingProjectDateofCompletion. Tribunalheldthatwhatiscrucialisnotthedateofissueofletterbylocalauthority,butdatementionedinthe lettercertifyingcompletionoftheproject.Therefore,itrejectedthecontentionoftherevenuetotheeffectthat the date of completion shall be taken as the date on which the certificate is physically issued by the local authority. D. K. Construction vs. ITO, ITA No. 243/Ind/2010, dt. 6122010, ITAT Indore Bench, BCAJ p. 24, Vol. 42B, Part 5, February2011.(Trib.) S.80IB(10):DeductionHousingprojectCommercialarea8.8%. Commercialareaoftheresidentialpluscommercialprojectdidnotexceed8.8%oftotalarea,further,deductionis eligible to housing project approved by the local authority as such or as residential plus commercial project havingresidentialaswellascommercialunitstotheextentpermittedundertheDCRules.Assesseeisentitledto deductionundersection80IB(10).(A.Y.200405). BhumirajHomesLtdvDyCIT(2011)60DTR65(Mum)(Trib). S. 80IB (10): DeductionHousing project Sale of pair of flats in the name of family members exceeding 1000 squarefeetAmendmentwitheffectfrom142010isprospectiveinnature. Underpreamendedsectionaslongas aresidentialunithaslessthanspecifiedarea, isasperdulyapproved plansandiscapableofbeingusedforresidentialpurposesonstandalonebasis,deductionundersection80IB (10),cannotbedeclinedinrespectofsamemerelybecauseenduser,bybuyingmorethanonesuchunitinname offamilymembershasmergedthoseresidentialunitsintoalargerresidentialunitofasizewhichisinexcessof specifiedsize.Amendment,madetosection80IB(10)witheffectfrom142010,isprospectiveinnature.(A.Y. 200405). EmgeenHoldings(P)LtdvDyCIT(2011)47SOT98(Mum)(Trib). S.80P:DeductionCooperativeSocietyIncome. Incomereceivedbyacooperativebankfromdeposits,whetherornottheyaremadetodischargeofastatutory obligationorotherwise,beingincomefrombankingbusinesswouldbeeligibleforexemptionundersection80 P. CITvAndhraPradeshStateCooperativeBankLtd(2011)200Taxman220/60DTR281(AP)(HighCourt).
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S.80P:DedcutionCoOperativeSocietyInterest.Exemptedincome.(S.14A). Deductionundersection80P(2)(d)isavailableafterdeductingtheexpenditureincurredinearningtheincome.( A.Y.200203). PunjabStateCoOperativeMilkProducersFederationLtdvCIT(2011)336ITR495(P&H)(HighCourt). ChapterVIII.RebatesandReliefs S.88E:RebateSecuritiesTransactionTax[S.40(a)(ib)] Disallowanceofdeductionforsecuritiestransactiontaxundersection40(a)(ib)couldnotdeprivetheassesseeof rebateundersection88E.(A.Y.200607) ITOvs.ChunilalT.Mehata(2011)7ITR50(Kol.)(Trib.) Chapter1X.DoubletaxationRelief. S.90:DoubleTaxationReliefliaisonoffice. Liaison office of a South Korean company carrying on activities of identifying the buyers, negotiating withthem,procuringpurchaseorders,forwardingthesametoheadofficeinKorea,followingupwith thecustomerforrealisationofpaymentsandofferingaftersalesserviceswasheldtobeaPermanent Establishment (P.E.) and the profits earned in India through this liaison office are taxable in India as perArticle5oftheDTAAbetweenIndiaandSouthKorea(A.Y.200102to200607) Jebon Corporation India Liaison Officer vs. CIT (Int. Taxation) & Anr. (2011) 55 DTR 113 (Kar)( High Court). S.90:DoubleTaxationReliefRoyaltyDTAAIndiaSingapore(Art.12) Assessee, aSingaporean company, which is engaged in providing international telecommunication connectivity services,theamountreceivedbyitfromIndiancustomersisforuseofprocessbesidesforuseoforrighttouse industrial,commercialorscientificequipmentandtherefore,paymentsmadebyIndiancustomerstotheassessee companyareroyaltywithinthemeaningofArt.12(3)oftheIndoSingaporeDTAA.(A.Y.200203&200304). VerizonCommunicationsSingaporePTELtd.vs.ITO(2011)54DTR65/45SOT263(Chennai)(Trib.) S.90:DoubleTaxationReliefDTAAIndiaAustraliaInterestonTaxRefundnoteffectivelyconnectedwith PE.[Art.11(4)] UnderArticle11(4)oftheDTAA,interestfromindebtednesseffectivelyconnectedwithaPEoftherecipientis taxableunderArticle7andnotunderArticle11.Thepaymentoftaxwastheresponsibilityoftheforeigncompany andthefactthatitwasdischargedbywayofTDSdidnotestablisheffectiveconnectionoftheindebtednesswith thePE.Inordertobeeffectivelyconnected,itisnotnecessarythattheinterestincomehastobenecessarily businessincomeinnature.Eveninterestassessableunderothersourcescanqualify.(Asstyear200304) ACITvs.CloughEngineeringLtd.(2011)138TTJ385/9ITR618(Trib)/55DTR34/130ITD137(Delhi)(SB)(Trib.) S.90:DoubletaxationReliefLiaisonofficeDTAAIndiaSouthKorea. (Art5.). LiaisonofficeofSouthKoreancompanycarryingoncommercialactivitiesofidentifyingthebuyers,negotiating withthebuyers,agreeingtotheprice,procuringpurchaseordersandforwardingthesametotheheadoffice andthefollowupactivitiesrelatingtorealizationofpaymentsfromcustomersandofferingaftersalessupportis
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a PE as defined under art 5 of the DTAA between India and South Korea and therefore ,the business profits earnedinIndiathroughthisliaisonofficearetaxableinIndia.(Asstyears200102to200607). JebonCorporationIndiaLiaisonOfficevCIT(2011)55DTR113(Kar)(HighCourt). S.90:DoubletaxationreliefInterestonincometaxrefundIndiaGermanDTAA.Art11,8(3). Interestonincometaxrefundischargeabletotaxunderart11ofIndoGermanDTAA,Authoritiesbelowwere justifiedinrejectingthecontentionoftheassesseeforitsinclusioninart8(3)asonlyinterestonfundswhichare connectedwiththeoperationofshipsoraircraftsiscoveredwithintheambitofart8(3).(Asstyear200405). HapagLloydContainerLineGMBHvAsstDirector(2011)56DTR185/131ITD122/141TTJ169(Mumbai)(Trib). S.90:DoubletaxationReliefRoyaltyDTAAIndiaSrilanka.(art,7,12). Applicant,aSriLankancompanyhavingundertakenacontractfordredgingfromanIndiancompanyandgranted nontransferrableandnonexclusiverighttotheIndiancompanytouseitsproprietarysoftwareaspartofthe agreementinordertotransferthescientificexperienceinhydrologypossessedbytheapplicantwithouttransfer ofintellectualpropertyrightsinthesoftwareandtherefore,considerationreceivedbytheapplicantfallsunder thetermroyaltiesandisliabletotaxunderart12oftheDTAAbetweenIndiaandSriLankaandnotunderart7 thereof. LankaHydraulicInstituteLtd(2011)241CTR314/199Taxman232/56DTR11(AAR). S.91:DoubleTaxationReliefCountrieswithnoagreementexistsFederalTaxesForeignStateDTAATax Credit The view that State taxes cannot be allowed as a deduction and also cannot be taken into account for giving creditisincongruousandresultsinacontradiction.Whilesection91allowscreditforFederal&StateTaxes,the DTAAallowscreditonlyforFederalTaxes.Theresultisthatthesection91ismorebeneficialtotheassessee&by virtueofsection90(2)itmustprevailovertheDTAA.Thoughsection91appliesonlytoacasewherethereisno DTAA, a literal interpretation will result in a situation where an assessee will be worse off as a result of the provisions of the DTAA which is not permissible under the Act. Section 91 must consequently be treated as generalinapplicationandmustprevailwheretheDTAAisnotmorebeneficialtotheassessee.Accordingly,even anassesseecoveredbythescopeoftheDTAAwillbeeligibleforcreditofStatetaxesundersection91despitethe DTAAnotprovidingforthesame. TataSonsLtd.vs.Dy.CIT(2011)9ITR154(Trib)(Mum) ChapterX.Specialprovisionsrelatingtoavoidanceoftax. S.92:AvoidanceoftaxTransferPricingRoyaltyDeductibilityofexpenses. Section 92 does not apply in respect of payments of royalty etc which are not the part of regular businesscarriedonbetweenaresidentandNonresident.(A.Y.199798&199899) CITvNestleIndiaLtd(2011)57DTR65(Del)(HighCourt). S.92:AvoidanceoftaxTransferPricingInternationaltransactionArmslengthPriceDebitbalances A continuing debit balance in the account of the Associated Enterprise by itself does not amount to an internationaltransactionundersection92Binrespectofwhicharmslengthpriceadjustmentcanbemade.Even assuming that the continuing debit balances of AEs can be treated as International Transactions the right courseofapplyingtheCUPmethodwouldhavebeenbycomparingthisnotchargingofinterestwithothercases in which other enterprises have charged the interest , in respect of over dues in respect of similar business
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transactions,withindependententerprises.Asnoexercisehasbeencarriedoutadditionwasdeleted.(Asstyear 200405). NimbusCommunicationsLtdvAsstCIT(2011)43SOT695/55DTR163/139TTJ214(Mumbai)(Trib). S.92A:AvoidanceofTaxTransferPricingAssociatedEnterprisesDefactocontrolofanunrelatedparty unrelatedpartiesalsoconsideredassociatedenterprises. Ifoneenterprisecontrolsthedecisionmakingoftheotherorifthedecisionmakingoftwoormoreenterprises arecontrolledbysameperson,theseenterprisesarerequiredtobetreatedasassociatedenterprises.Though theexpressionusedinthestatuteisparticipationincontrolormanagementorcapital,essentiallyallthesethree ingredientsrefertodefactocontrolondecisionmaking. The argument, based on Quark Systems 38 SOT 307 (SB), that exceptionally high and low profit making comparablesarerequiredtobeexcludedfromthelistofTNMMcomparablesisnotacceptable.Merelybecause anassesseehasmadehighprofitorhighlossisnotsufficientgroundforexclusionifthereisnolackoffunctional comparability.Whilethereissomemeritinexcludingcomparablesatthetopendoftherangeandatthebottom end of the range as done in the US Transfer Pricing Regulations, this cannot be adopted as a practice in the absenceofanyprovisionstothiseffectintheIndianTPregulations.(Benefitof+/5%adjustmentasdirectedinUE TradeCorporation44SOT457tobegiven); The adjustment made by the TPO with regard to the advertisement expenditure incurred by the assessee was withoutjurisdictionbecausetheAOhadnotmadeanyreferenceonthisissuetotheTPO.Asthereferencetothe TPOistransactionspecificandnotenterprisespecific,theTPOOfficerhasnopowertogointoamatterwhichhas not been referred to him by the AO. Even the CBDT Instructions are clear on this (3i Infotech Ltd 136 TTJ 641 followed)(A.Y.200607). DiageoIndiaPvt.LtdvACIT(2011)47SOT252(Mum)(Trib) S.92C:AvoidanceofTaxTransferPricingComputationArmsLengthPriceOpportunityofbeingheard(S. 144C) Order was passed by TPO without granting extension of time sought by the petitioner for furnishing more documentsandgivinganopportunityofpersonalhearingtoitandalsodocumentswerenotconsiderwhichwere alreadyonrecordintheirrightperspectivetheimpugnedorderwassetasideandTPOwasdirectedtopassan orderandalsopersonnelhearing.(A.Y.200708) ToyotaKirloskarMotor(P)Ltd.vs.Addl.CIT(2011)52DTR393(Kar.)(HighCourt) S.92C:AvoidanceoftaxTransferpricingRoyaltyBusinessexpenditure. PaymentofroyaltybyassesseecompanytoitsUSbasedholdingcompanyisnothitbytheprovisionsofsection 92intheabsenceofanycomparablecaseonrecordtodeterminetheordinaryprofitinsimilarbusinessandthe price fixed has been accepted as ALP by the TPO. Payment of royalty being a business expenditure which is incurred wholly and exclusively for the purpose of business of the assessee ,it is to be allowed as business expenditure.(A.Y.19992000TO200102) CITvOracleIndia(P)Ltd(2011)59DTR222(Delhi)(HighCourt). S.92C:AvoidanceoftaxTransferpricingComputationSelectionofcomparables. Held that in the absence of any perversity in the finding of the Tribunal in the selection of a different set of comparables for determination of ALP and recomputation of ratio of operating profit/total cost at 21.97% as against35.26%adoptedbyTPO,nointerferenceiswarranted.TheHighcourtfurtherupheldthedecisionofthe
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Tribunalofallowingdepreciationonadministrativeassetsfordeterminingtheoperatingprofitswhilecomputing theALP.(A.Y.200506). CITvRakhraTechnologies(P)Ltd(2011)243CTR505/60DTR159(P&H)(HighCourt). S.92C:AvoidanceofTaxTransferPricingInternationalTaxationDeterminationofALPofslumpsale ForpurposeoftransferpricinginordertodeterminetheALPintheabsenceofotheridenticaltransactions,the valuation by a registered valuer is the most appropriate means under CUP method. However, as the valuation report filed by the assessee is not reliable, the only option is to adopt the value of the assets sold as per the company law or incometax WDV. In the sale of a going concern, factors like profitability of the branch office, goodwill,andvariousothercommercialandtechnicalaspectswillhaveabearingontheALP. InterAsiaElectronicsIncvs.ADIT(ITATBangalore)www.itatonline.org(Trib) S.92C:AvoidanceofTaxTransferPricingInternationalTaxation+/5%Variationonlyifmorethanoneprice determined The benefit of +/ 5% variation as per the Proviso to section 92C(2) is available only if more than one price is determined. It does not apply where only one price has been determined. CBDT Circular No.12 dated 23.8.2001 providesthattheAOshallnotmakeanyadjustmenttothearmslengthpricedeterminedbythetaxpayerifsuch priceisunto5%lessorunto5%morethanthepricedeterminedbytheAO.Circularwasissuedconsideringpractical difficulties.AstheCircularnevercameintooperationthus,CircularNo.12isotioseandcannotbereliedupon. ACITvs.EssarSteelLtd.(Trib)(ITATVizag)Source:www.itatonline.org S.92C:AvoidanceofTaxTransferPricingInternationalTaxationSupernormalprofitcomustbeexcluded fromcomparable The assessee, engaged in providing software development services reported an OP/Cost Margin of 14.96%. The TPOworkedouttheaverageofarithmeticmeanofALP(OP/OC)of42comparablesat24.91%anddirectedthatan adjustment of ` 10.40 crores be made. In its objections to the DRP, the assessee claimed that the comparables included three companies which were supernormal profit making and that these should be excluded. It was claimedthatifthesaidcompanieswereexcluded,thearithmeticmeanofOP/OCofthecomparableswas17.15% whichwaswithinthe+/5%rangepermittedbysection92(C)(2).TheTPOrejectedthecontentionontheground that one company was listed and audited and showing consistent growth at the same level and there was no abnormality and that the other companys information was not listed in the database. The third abnormal companywasnotdealtwithbytheTPO.TheDRPdismissedtheobjectionsoftheassesseebyaverycursoryand laconicorder.Onappealbytheassessee,HELDallowingtheappeal: (i) The TPO rejected the assessees contention with regard to inclusion of the three supernormal profit companies without any cogent reason. It is undisputed that the three companies have shown supernormal profits as compared to other comparables. Their exclusion from the list of comparable is quite correct. After excludingthethreecompaniesthearithmeticmeanofthecomparablesfallswithinthe+5%rangepermittedby section92(C)(2); (ii) Despite the voluminous submissions and paper book filed, the DRP passed a very cursory & laconic order withoutgoingintothedetailsofthesubmissionswhichisquitecontrarytothemandateofs.144C. AdobeSystemsIndiaPvt.Ltd.vs.ACIT(2011)44SOT49/138TTJ122(Delhi)(Trib.)(UOR), S. 92C : Avoidance of Tax Transfer Pricing Computation Arms Length Price Choice of Method InternationalTaxation
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ChoiceofmethodofdeterminationofALPisnotanunaffectedchoiceonthepartofthetaxpayerandthischoice hastobeexercisedonthetouchstoneofprinciplesgoverningselectionofmostappropriatemethodsetoutin section92C(1),wheretheAssessingOfficerfindsthatselectionofmostappropriatemethodisnotcorrect,hehas the powers as well as corresponding duty to select the most appropriate method and compute the ALP by applyingthatmethod.(A.Y.200203to200405) SerdiaPharmaceuticals(India)(P)Ltd.vs.ACIT(2011)50DTR98/136TTJ129(Mum.)(Trib.) S.92C:AvoidanceofTaxTransferPricingInternationalTaxationSelectionofComparables(S.144C) Unlessthefunctionalprofilesofassesseecompanyareexaminedminutelyanddetail.Itisverydifficulttosaythat theassesseeisengagedinthebusinessofsoftwaredevelopmentasdecidedbyTPOandnotinthebusinessof renderingsupportinrespectofengineeringdesignsanddrawingsasclaimedbytheassessee.FurtherDRPhas neither examined assessees contention nor passed speaking and reasoned order. Matter is remanded back to thefileoftheAO/TPOforfreshadjudication.(A.Y.200607) BechtelIndia(P)Ltd.vs.Dy.CIT(2011)136TTJ212/50DTR206/46SOT429(Delhi)(Trib.) S.92C:AvoidanceofTaxTransferPricingComputationArmsLengthPriceInternationalTaxation. WherethefindingofCIT(A)isbasedonnetprofitmarginoftheassesseecompanyworkedoutbyhimat6.97%on thebasisofoperatingprofits/sales,whichwaswithin+/5%rangeofALP,thereisnoreasontointerfereinthe orderofCIT(A).(A.Y.200203to200405) OsramIndia(P)Ltd.vs.Dy.CIT(2011)51DTR297(Delhi)(Trib.) S.92C:AvoidanceofTaxTransferPricingExternalcomparables. Assessee company having provided same software related services to AEs and unrelated parties, it was not required to make segmental reporting or disclose separate financial information in respect of transactions enteredintowithAEsandnonAEsaspertheguidelinesprovidedunderAS17andtherefore,ALPinrespectof international transactions undertaken by the assessee with AEs was rightly determined on the basis of international comparison of profit earned from the international transactions with AEs and profit earned from internationaltransactionswithunrelatedpartiesandnotbyrecoursetoexternalcomparables.(A.Y.200607) Birlasoft(India)Ltd.vs.Dy.CIT(2011)51DTR353/136TTJ505/46SOT437(Delhi)(Trib.) S. 92C : Avoidance of Tax Transfer Pricing Computation Arms Length Price Jurisdiction International Taxation. ThoughthedeputationofthreeemployeesbytheassesseetoitsUSsubsidiarywithoutconsiderationiscovered by the definition of international transaction under section 92B (1), it was not necessary for the Assessing OfficertodeterminetheALPofthesaidtransactionastherewouldbeerosionoftaxbaseofIndiaiftheassessee chargesthecostofdeputationofemployeesinasmuchasassesseeisremuneratingthesubsidiaryonthecost plus basis for the services and entire revenue accrues to the assessee. Jurisdiction of TPO is restricted to the transactions referred by the Assessing Officer under section 92CA(1) and therefore, TPO cannot determine the ALPinrelationtoaninternationaltransactionnotreferredtohimbytheAssessingOfficerundersection92CA(1), further,sincetheconditionslaiddowninsection92C(3)werenotsatisfiedtheimpugnedadditioncannotalsobe sustainedonthepremisethattheAssessingOfficerasdeterminedtheALPonthebasisofmaterialorinformation ordocumentinhispossession.(A.Y.200203) 3iInfotechLtd.vs.Dy.CIT(2011)51DTR385/136TTJ641/129ITD422(Mum)(Trib.) S.92C:AvoidanceofTaxTransferPricingComputationArmsLengthPrice.
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AssesseecompanyenteredintointernationaltransactionswithBykwhichcomprisedofexportofintermediates and clinical trial services. Assessing Officer made reference to TPO in order to find out whether international transactionswereatarmslengthpriceornot.Inregardtoclinicaltrialservicesperformedbyassesseecompany forByk,TPOafterexaminingvariousaspects,concludedthatmarkupof5%overcostwasnotasperarmslength priceandsameshouldbe17.4%onbasisofcomparablecost.OnappealCommissioner(Appeals)concludedthat 5%markupasreturnedbyassesseewasfullyjustified.OnappealbyrevenuetheTribunalnoticedthatincourseof providing clinical trial service, major part of research activities was carried out by Byk itself and function of assessee was only to collect data from various hospitals and transmit same to Byk for which it was suitably reimbursedbymarkupof5%overcost.Itwasalsonotedthatprofitsofassesseewereexemptundersection10B andthus,companywasinnowaybenefitedbycharging5%markupasagainst17.4%fixedbyTPO.TheTribunal heldthatonfactstherewasnoinfirmityinimpugnedorderpassedbyCommissioner(Appeals)andthesamewas upheld.(A.Y.200203to200304) ITOvs.ZydusAltantaHealthCare(P)Ltd.(2011)44SOT132(Mum.)(Trib) S.92C:AvoidanceofTaxTransferPricingBadDebtsWrittenoffInternationalTransactions(S.10B). Baddebtswrittenoffcannotbefactortodeterminethearmslengthpriceofanyinternationaltransaction.The TransferPricingOfficerhadexceededhislimitsinfollowingamethodnotauthorizedundertheActorRules.(A.Y. 20020304) C.A.ComputerAssociatesP.Ltd.vs.Dy.CIT(2011)8ITR142(Mum.)(Trib.) S. 92C : Avoidance of Tax Transfer Pricing Arms Length Price Report of the TPO is not binding on the AssessingOfficer.Provisosubstitutedw.e.f.1stOctober2009,operateonlyformAsst.Year200910. ThereportoftheTPOisnotbindingontheAssessingOfficer.AssessingOfficercanreferthemattertotheTPO for determination ALP of an International taxation transaction or he may determine it on his own. AO can determinethepriceofimportsofhisown.Newprovisotosection92C(2)cameintooperationfromasstyear 200910 and therefore, did not apply to asst year 200304, further, where only one price is determined in the matterofALP,theoptionoffivepercentunderprovisotosection92C(2)isnotavailabletotheassessee.(A.Y. 200304) ACITvs.UETradeCorporation(India)Ltd.(2011)136TTJ297/50DTR379/45SOT197(Del.)(Trib) S.92C:AvoidanceofTaxTransferPricingInternationalTaxationArmsLengthPrice[Rule10B(1)(e)] Under Chapter X of the Income Tax Act, 1961, the determination of the arms length price of an international transaction has to be only at the transaction level or at a class of transactions. The law does not permit determinationofthearmslengthpriceofinternationaltransactions,bycomparingmarginsatentrylevelorby takingoverallindustrylevelaverages.Thematterwassetaside.(A.Y.200203) Dy.CITvs.AnkitDiamonds(2011)8ITR487(Mum.)(Trib.) S.92C:AvoidanceofTaxTransferPricingInternationalTaxationIfALPdeterminedbyarithmeticalmean,5% deductionallowable. Indeterminingthearmslengthpricefortransferpricingpurposesinrespectofinternationaltransactionsrelating to procurement Support Services, it was held that pursuant to the First proviso to section 92C(2) (pre amendment by Finance (No. 2) Act, 2009 w.e.f. 1.10.09) which provides that where more than one price is determined by the most appropriate method, the arms length price shall be taken to be the arithmetical mean of suchpricesorattheoptionoftheassessee,apricewhichmayvaryfromthearithmeticalmeanofanamountnot exceeding five per cent of such arithmetical mean it is clear that the assessee has an option when there is
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arithmeticalmeaninvolvedwhilecomputingthearmslengthpriceandithappensonlyifmorethanonepriceis determined by the most appropriate method. The First Proviso becomes operational where more than one comparablepriceisdetermined.Theassesseeathisoptioncanmakeclaimofdeductionoutofthearithmeticmean notexceeding5%.Allthejudicialpronouncements(SAPLabs6ITR81(Bang.)(Trib.),Sony315ITR(AT)150(Del.), UE Trade Corp (Del.), Essar Steel (Vizag.) & Perot Systems 130 TTJ 685 (Del.) are uniform in making the propositionthatwherearithmeticmeanisinvolved,theassesseeobtainstheeligibilityforclaimofdeductionoutof sucharithmeticmean. CumminsIndiaLimitedvs.Dy.CIT(ITATPune)Source:www.itatonline.org(Trib) S.92C:AvoidanceofTaxTransferPricingInternationalTaxationPriorYearsdatacannotordinarilyberelied upontojustifyALP.Nonoperatingincome&expenditureshouldbeexcludedwhilecomparing. ItwasheldthattheassesseehastoadoptthedataavailablefortheTPstudyatthetimeoffilingofthereturn. TheOECDguidelinesarenotofbindingnatureandeventheProvisotoRule10B(4)providesthatanysubsequent yeardatacannotbeconsidered.Thecontemporaneousdataofrelevantfinancialyearistobeusedformakingthe comparable analysis for arriving at the ALP unless it is proved otherwise. For arriving at the net margin of operating income, only operating income and operating expenses for the relevant business activity of the assessee has to be taken into consideration. Other income, such as dividend income, profit on sale of assets, donationsaswellasnonoperatingexpenseswhichareincludedintheoperatingincomesofothercomparable companiesshouldbeexcludedasiteffectsthenetmarginoftheoperatingprofitsofthecomparables.Working capitaladjustmentsalsohavetobeconsideredwhilearrivingattheoperatingnetmargins.Alsotheassesseeis entitledtoastandarddeductionof5%asprovidedunderprovisotosection92C(2)beforemakingadjustmentsof thetransferprice.(SchefenackerMotherson123TTJ509(Del.)andSAPLabs6ITR81(Bang.)(Trib.)followed) TNTIndiaLimitedvs.ACIT(2011)45SOT471/61DTR81(Bang.)(Trib.)Source:www.itatonline.org(Trib) S. 92C : Avoidance of Tax Transfer Pricing International Taxation. For TNMM, interest on surplus and abnormalcoststobeexcluded Where interest on surplus funds is assessed as business income, it has to be excluded in computing the operating profits because if it is included, one is computing the return on investment which is an inappropriateprofitlevelindicatorforaserviceprovider.AsthePLIistheOperatingMarginonCost,neitherthe interest income nor interest expenses is a relevant factor. The essential element is the cost incurred for the operatingactivitywhichhastobetakenintoaccount.IncomputingtheALP,abnormalexpenseswhicharenotof a routine nature as well as those of a personal nature have to be excluded. The assessee has to demonstrate exactdetails,exhibitingtheriskbornbythecomparablevisvistheriskinrunningtheassesseesbusiness(Sony India114ITD448(Del)wherea20%adjustmentwaspermitteddistinguished).Thebenefitof+/5%adjustmentis notastandarduniversaldeduction. ThisoptionisavailableonlywhenassesseeiscomputingtheALPandnot whentheAO/TPOiscomputingtheALP. MarubeniIndiaPrivateLtd.vs.ACIT(ITATDelhi)(Trib),Source:www.itatonline.org S.92(C):AvoidanceofTaxTransferPricingMethodCUPMethodTNMM The assessee sold automobile wipers to its associated enterprise and claimed that as per the Comparable UncontrolledPrice(CUP)method,thetransactionswereatarmslengthbasis.TheTPOrejectedtheCUPmethod on the basis that the comparability of controlled and uncontrolled transactions was not established with certain degreeofreasonablenessandaccuracyandthattheconditionsprevailinginthemarketwerenotestablishedtobe identical.TheTPOadoptedtheTNMManddirectedthatanadjustmentbemadebyadoptingthemeanprofitof comparables.ThiswasconfirmedbytheDRP.Onappeal,HELD: (i) Undersection92CreadwithRule10B,themostappropriatemethodhastobeappliedfordetermination ofarmslengthprice.Inprinciple,theCUPmethod(thetraditionaltransactionmethod)ispreferableto
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theothermethodsbecauseallotherthingsbeingequal,theCUPandtraditionaltransactionalmethods lead to more reliable results visvis the results obtained by applying transaction profit method (UCB India121ITD131andSerdiaPharmaceuticalsfollowed); (ii) FortheCUPmethod,thefocusisonthemarketinwhichtheproductsaresoldbytheassesseeandany unique feature of the market in which assessee is situated is of no importance in relative terms. As the goodsweresoldbytheassesseeaswellasthecompetitiveChinesemanufacturersintheUSAmarket,the market conditions in the territory of sale were the same. The buyer in the USA market will be more concerned with quality and price rather than economic conditions prevailing in China and India (SNF (Australia)Pty.Ltd.vs.COT(2010)FCA635referredto); (iii) AsregardsthecomparabilityoftheproductstheassesseehastoprovidethesaledataoftheAEinterms of sale price of Chinese and assessees goods in the USA market and quantitative data of purchase of ChineseandIndianwipersbytheAEandthetermsofpaymentandtheAssessingOfficershallcompute thearmslengthpriceusingthisdataonCUPmethod. ClearPlusIndiaPvt.Ltd.vs.Dy.CIT(ITATDelhi)(Trib)Source:www.itatonline.org S. 92C : Avoidance of Tax Transfer Pricing Lossmaking and superprofit companies are not comparable InternationalTaxation. WhenlossmakingcompanieshavebeentakenoutfromthelistofcomparablesbytheTPO,ZenithInfotechLtd. which showed super profits should also be excluded. The fact that assessee has himself included in the list of comparablesinitially,cannotactasestoppel,particularlyinlightofthefactthattheAssessingOfficerhadonly chosen the companies which are showing profits and had rejected the other companies which showed loss (QuarkSystemvs.Dy.CIT38SOT307(SB)followed).(A.Y.200607) SapientCorporationPvt.Ltd.vs.Dy.CIT(Delhi)(Trib.)Source:www.itatonline.org S.92C:AvoidanceofTaxTransferPricingInternationalTaxation. LowT/Ocompaniesarenotcomparable.Onlyoperationalprofitstobeconsideredforcomparison (i)Theassesseesargumentthatcomparableswithaturnoverlessthan20%oftheassesseesturnovershouldbe consideredisnotacceptablebecauseitisauniversalfactthattherearelotofdifferencesbetweenlargebusinesses andsmallbusinessesoperatinginthesamefield.Inthecaseofsmallbusiness,economiesofscalearenotavailable and they are generally less profitable. The fact that such companies were considered comparable in an earlier yearisnotconclusiveforwantoffactsofthatyearandalsobecausethereisnoresjudicata; (ii)Theargumentthatsegmentalresultsofacompanyengagedindiverseactivitiesshouldbeconsideredisalso not acceptable because it is a common experience that in many such results certain expenditures, particularly relatingtointerestandheadoffice,aregenerallynotallocated.Whendirectcomparablesareavailable,thereisno needtoconsidersegmentedresults; (iii)Inprinciple,shouldbeonlytheoperatingprofitofthecomparablesconsidered.Itemslikeinterestincome, rent,dividend,penaltycollected,rentdepositsreturnedback,foreignexchangefluctuationsandprofitonsaleof assets do not form part of the operational income because these items have nothing to do with the main operationsoftheassessee.Insurancechargeswoulddependonthenatureofinsurancecharges.Iftheinsurance charges were on account of loss of some parcel or courier against which courier has made a payment of compensationthensuchchargeswouldconstituteoperationalincome.(A.Y.200607). SeeAlsoAdobeSystemsIndia(ITATDelhi)(supernormalprofitcompaniestobeexcluded)&MarubeniIndia(ITAT Delhi)(interestonsurplus&abnormalcoststobeexcluded) DHLExpress(India)Pvt.Ltd.vs.ACIT(2011)46SOT379(Mum)(Trib).
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S.92C.AvoidanceoftaxTransferPricingprinciplesonuseofmultiyeardata,turnoverfilter,riskadjustment& +/5%adjustment (i)IftheTransactionalNetMarginMethod(TNMM)isadopted,thecomparisonhastobemadebetweenthe net margin realised from the operation of the uncontrolled parties transaction and net margin derived by the assesseeonsimilarinternationaltransactions.Thecomparisonshouldbebetweenthenetmarginsontransaction basisandnotatenterpriselevel; (ii) U/s 92CA(3), the TPO is entitled to consider material in public domain which, though not available to the assesseeatthetimeoftheTPstudy,isrelevantforthefinancialyear; (iii)Ordinarilyonlythedatapertainingtothefinancialyearofthetransactioncanbeconsidered.Theprovisoto Rule 10B (4) which permits the use of data relating to other than the financial year in which the international transactionhasbeenenteredinto;beingnotmorethantwoyearspriortosuchfinancialyeardoesnotmeanthat onecaninsistontheuseofmultiyeardatabutithasalimitedroleonlywhenthedataofearlieryearsrevealfacts which could have influenced on determination of the TP in relation to the transaction being compared. As the assessee has not made out a case that taking the data for only the current financial year will not present the correctandfairfinancialresultofthecomparables,theclaimformultiyeardatacannotbeentertained; (iv) While in principle, comparables having an abnormal difference of turnover and distorted operating profits have to be excluded for determining the ALP, the claim that as the assessee revenue is about Rs. 20 crores, comparableshavingmorethan50croresandlessthan5croresofturnovershouldbeexcludedisnotacceptable because no specific fact has been brought on record to show that due to the difference in turnover the comparablesbecomenoncomparables.Itisacceptedeconomicprincipleandcommercialpracticethatinhighly competitivemarketcondition,onecansurviveandsustainonlybykeepinglowmarginbuthighturnover.Thus, highturnoverandlowmarginarenecessityofthehighlycompetitivemarkettosurvive.Similarly,lowturnover doesnotnecessarilymeanhighmarginincompetitivemarketcondition.Therefore,unlessanduntilitisbrought onrecordthattheturnoverofsuchcomparableshasundueinfluenceonthemargins,itisnotthegeneralruleto excludethesamethattoowhenthecomparablesareselectedbytheassesseeitself; (v)Theargumentthatanadjustmentshouldbemadefordifferenceinfunctionandrisklevelisnotacceptable becausetheassesseehasnotbroughtonrecordhowsuchfunctionaldifferenceandriskhasinfluencedtheresult ofthecomparableswithquantifieddata.Further,the+/5%adjustmentasthe2ndProvisotos.92Cisintendedto adjustforsuchdifferences; (vi)ThedepartmentsargumentthattheamendmentbyFA2009w.e.f.1.10.2009tothe2ndProvisotos.92Cwith regard to the +/5% variation from the arithmetic mean of the ALP is clarificatory and procedural and so retrospectiveisnotcorrect. SymantecsoftwareSolutionsPvt.Ltd.vsACIT(Mumbai)(Trib).www.itatonline.org. S.92C.AvoidanceoftaxTransferPricingprinciplesonuseofmultiyeardata,adjustmenttooperatingprofits& +/5%adjustment. (i) The rejection of comparables on the ground of nonavailability of current years financial data is proper because under Rule 10B(4), only the current years financial data is relevant for determination of ALP except where it is shown that the data of the earlier two years reveals facts which could have an influence on the determinationofthetransferprice; (ii) A selected comparable should be functionally comparable. A company which is majorly dealing in other segmentscannotbeacceptedasfunctionallycomparable; (iii)Thereisnoprincipleoflawthatifonlyonecomparableremains,theentireexercisewouldfail; (iv)Theargumentthatexpensesincurredpriortothecommencementofmanufacturingactivityhenceshouldbe excludedfromoperatingexpensesunderRule10B(1)(e)(i)isnotacceptablebecauseoperationalexpensesisthat
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whichisincurredtoearnthatincome.Expenseswithnexuswithrevenuehavetobeconsideredasoperational expenses and cannot be excluded only on the ground that the date of occurrence of the revenue is later and expenseshavebeenincurredpriortothat; (v) The assessees argument that the margins have to be recomputed after claiming adjustment of capacity utilizationisnotacceptable.UndertheTNMM,thenetprofitmarginactuallyrealizedhastobeconsideredand thereisnoroomforanyassumptionfortakingtheprofitmargin.Itisnotpermissibletodeviatefromthebook resultsonthegroundofcapacityutilization.UnderRule10B(3)(ii),therecannotbeanydeviationinthenetprofit shown in the books of account and the adjustment, if any, can be made to the same to eliminate the material affects to such differences to the extent of these adjustments are reasonably accurate. As no credible and accurateinformationwithregardtocapacityutilizationwasfurnished,adjustmentwasnotallowable; (vi)TheProvisotos.92CwhichgivestheassesseetheoptiontoadjusttheALPby+/5%isapplicableonlywhere morethanonepriceisdeterminedbythemostappropriatemethod.Inacasewhereonlyonepriceisdetermined bythemostappropriatemethod,thebenefitof+/5%isnotavailabletotheassessee.(Asstyear200607). Haworth(India)Pvt.Ltd.vsDCIT(2011)131ITD215/58DTR36/11ITR757(Trib)(Delhi)(Trib).www.itatonline.org. S.92C.AvoidanceoftaxTransferPricingLoss/HighProfitcostneednotpersebeexcluded. The assessee rendered three services to its AE and while it received a markup for application of technical development services and promoting the licensing of technology, it did not receive any markup for applicationresearch.TheargumentthatthethreeactivitiesshouldbeaggregatedtodeterminetheALPisnot acceptablebecausetheentirebenefitoftheapplicationresearchwasretainedbytheAEandnotsharedwith theassesseeandsotherewasnojustificationfornotcompensatingtheassessee; Whileinprinciple,itiscorrectthatiflossmakingunitsareexcluded,abnormalprofitmakingunitsshouldalsobe excluded,onfacts,theTPOhadrightlyrejectedthelossmakingcompaniesasnotbeingcomparable.Inprinciple, neitherlossmakingunitsnorhighprofitmakingunitscanbeeliminatedfromthecomparablesunless,thereare specificreasonsforeliminatingthesamewhichisotherthanthegeneralreasonthatacomparablehasincurred lossorhasmadeabnormalprofits. ExxonMobilCompanyIndiaPvt.Ltd.vs.DCIT(ITAT)(Mum)(www.itatonline.org). S.92C:AvoidanceoftaxTransferPricingComparisonQualitySize. WithoutascertainingthequalityandsizeofpreciousstonesassoldtoAssociatedEnterpriseascomparedto other enterprises, the Assessing Officer could not have made any adjustment on account of quality, and therefore,theadditionmadebyAssessingofficeronaccountofALPwasliabletobedeleted.(AssstYear2005 56). ITOvKanchanTaraExports(2011)138TTJ592(JP)(Trib). S.92C.AvoidanceoftaxTransferPricingNetmarginAdjustedbookprofits. Whiledeterminingarmslengthprice,itisprofitasperbooksofaccountthathastobeconsideredforcomputing netmarginofassesseeandnotadjustedbookprofits.(AsstYear200607). GeodisOverseas(P)LtdvDyCIT(2011)45SOT375/57DTR191(Delhi)(Trib). S.92C:AvoidanceoftaxTransferPricingSelectionofcomparable(S.10B(1)(e). The AO had accepted the license fees for the month of February and March , 2003 to be at arms length . However the steep increase given from the beginning of the year with retrospective effect has not been accepted .CIT (A) has accepted the computation made by the assessee, based on the comparable as well as department has accepted the method of computation for the asst year 200405. The Tribunal restored the
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mattertothefileofAOforreworkingofthetransferpricingadjustmentsusingTNMMonthebasisoffactsand figuresavailableforasstyear200304inrespectofthecomparableselectedbytheassessee.(AsstYear2003 04) AsstCITvNCGNetwork(India)(P)Ltd(2011)56DTR1(Mumbai)(Trib). S.92C:AvoidanceoftaxTransferPricingComputationofarmslengthpriceProvisionforimportduty. Provision for import duty made by the assessee which has been reversed in the immediately succeeding year beingmerelyabookentry,istobeexcludedforworkingouttheoperatingprofitratioforcomputationofALP (Asstyear200506&200607).. SonyIndia(P)LtdvAddlCIT(2011)56DTR156(Delhi)(Trib). S.92C:AvoidanceofTaxTransferPricingComputationExpensesofpersonalnatureCompensationInterest Incomeoninvestmentbenefitof5%. In computing ALP , expenses in the nature of abnormal items or personal nature are to be excluded from operating cost. Where the assessee had failed to bring any evidence on record to show that there exists any differenceintheriskprofileofthecomparablecompaniesvisavistheassessee,nobenefitofadjustmenttobe given to assessee in determination of ALP. Benefit of 5 percent provided in the proviso to section 92 C (2) is available only when assessee is computing the ALP and not when the AO/TPO is computing the ALP. Interest incomeoninvestmentshouldbeexcludedfromoperatingincomewhileworkingoutALP.When,byvirtueof closingdowncertainbranches,assesseehasreducedthecostofAEandifsuchaclosurehasadirectlinkwith theinternationaltransactionandcompensationreceivedforsuchaclosurecannotbeexcludedfromoperating expenses.(Asstyears200203,200304) MarubeniIndia(P)LtdvAddl.CIT(2011)56DTR252(Delhi)(Trib). S.92C.AvoidanceofTaxTransferPricingComputationComparableAdjustment. TransferPricingOfficerhavingexcludedthelossmakingcompaniesfromthelistofcomparablesinthetransfer pricinganalysis,onecompanywhichshowedthesuperprofitsisalsotobeexcludedasitisengagedinsoftware productcompany.WhereastheassesseeisengagedinrenderingsoftwaredevelopmentservicesinOP/TCofthe assesseeiswiththesafeharbourrangeof+5percent,noadjustmentiswarrantedonaccountofdifferencein ALPoftheinternationaltransaction.(AsstYear200607). SapientCorporation(P)LtdvDyCIT(2011)56DTR465(Delhi)(Trib). S.92C:AvoidanceoftaxTransferpricingComputationSelectionofcomparablesandmaintenanceof documents.(Rule10D). Each transaction of sale made by the assessee to its AE in UK being a separate transaction and there being no subsisting agreement between the assessee and the AE from beginning in 1996 , proviso to rule 10(4) is not applicable to the facts of the case and therefore , assessee was required to maintain documents as per rule 10D . Cases relied upon by the TPO not being comparable cases, matter is restored to the AO to obtain data of comparable cases so as to come to an informed decision as to whetherthepricechargedbytheassesseefromitsAEisarmslengthornot.(A.Y.200607). Airtech(P)LtdvDyCIT(2011)57DTR169(DelhI)(Trib). S.92C:AvoidanceoftaxTransferPricingComparablesDomesticExternal. Assessee having cited six comparables , TPO /AO was not justified in rejecting the same and applying domestictransactionsoftheassesseewhentheAO/TPOhasacceptedsaidsixexternalcomparablesin
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thesubsequentassessmentyearandthereissimilarityoffactsinboththeyears,furthertheassessee isentitledtoeconomicadjustmentsinthecircumstancesofundercapacityutilizationofthecompany, matterissetasideforexaminingtheissuedenovo.(AsstYear200607) BringtonsCarpetsAsia(P)LtdvDyCIT(2011)57DTR121(Pune)(Trib). S. 92C: Avoidance of tax Transfer PricingComputation Arms Length Price One price determined Concessionprescribedinproviso. The Honble Tribunal held that, where there was shortage of price in respect of transactions entered withAEvisvisNAEtheAOwasrightinrejectingthecontentionthatpriceneednotbedisturbedas one declared by assessee was less than 5% variation in transaction with AE and NAE relying on CBDT circularNo.12dated23/8/2011.TheTribunalfurtherobservedthatProviso,forwhichCircularno12was issuedhadnevercomeintooperationandhencequestionofadministrationofsaidprovisotosection 92 C (2) did not arise at all. Subsequent amendment brought in Finance Act , 2002 , said circular had became otiose therefore the assessee could not place reliance on circular no 12 and for relevant year underconsiderationonlyprovisotosection92C(2)asamendedbyFinanceAct,2002wasapplicable. Since in the instant case, only one price had been determined under most appropriate method assessee was not entitled to concession , as prescribed in proviso to section 92C(2), hence the order ofAssessingOfficerwasconfirmed.(Asstyear200405). AsstCITvEssarSteelLtd(2011)131ITD22(Visakh)(Trib). S. 92C:Avoidance of tax Transfer pricing International transaction Comparable Financial informationBaddebt.(S.36(1)(vii)) TPOcanusefinancialinformationavailableatthetimeofassessment,thoughitwasnotavailableat the time of study. It is impossible to have a perfect comparable without any difference or variation regardingturnover,riskprofileandfunctionaldifferencesandtherefore,legislaturehasprovideda marginof+5%whiledeterminingtheALP;therefore,whenassesseeishavingsuchbenefitofchoice /option provided by second proviso to section 92(C ) (2) , no separate adjustment is required on accountofriskandfunctionaldifferences.Further,amendmentinsecondprovisotosection92C(2)is not retrospective but is prospective from day from which this amendment is effected . i.e. 110 2009.Thereisnodifferencebetweenfirstandsecondlimbofprovisotosection92C(2)asfarasright of assessee to challenge determined price concerned: Second limb only allows marginal relief to an assesseeathisoptiontotakeALPnotexceeding5percentofarithmeticmeanandtherefore,benefit of second limb of proviso to section 92C (2) is available to all assessees irrespective of fact that price of international transaction disclosed by them exceeds margin provided in said proviso. During the year assessee had written off certain amount as bad debt , which represented excess commission charged by it from its foreign associated enterprise and claimed deduction of same, the tribunal held thatitisirrelevantforpurposeofdeterminingarmslengthpriceforinternationaltransactionwhether actual price charged by an assessee in relation to international transaction is less or excessive and therefore,deductionofbaddebtwasnotallowable.(A.Y.200405) SymantecSoftwareSolutions(P)LtdvAsstCIT(2011)46SOT48(Mumbai)(Trib) S.92C: Avoidance of tax Transfer Pricing Arm s length priceTransfer PricingSelection of comparables. Exact nature of the business needs to be taken in to consideration vis a vis the nature of business activity carried on by other parties so as to ascertain whether the said parties can be selected as
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comparable cases for transfer pricing analysis ; Four companies included by the assessee company , therewas nojustifiablereasontoselectthesameascomparables;however,exclusionofcompanies showingsupernormalprofitsascomparedtoothercomparableisfullyjustified.(AsstYear200405). TevaIndia(P)LtdvDyCIT(2011)57DTR212(Trib)(MumbI). S.92C:Avoidance of tax Transfer PricingComputation of arms length price Adjustment of 5% to singlepricedeterminedbytheassessee. Adjustmentof5%isnotapplicableifasinglepriceisdeterminedbytheassessee.Circularno12dated 2382001doesnotapplytothecaseunderconsiderationasthepricevariationismorethan5%.(Asst Year200405). ADP(P)ltdvDyCIT(2011)57DTR310(Hyd)(Trib). S..92C:AvoidanceofTaxTransferPricingComparable. Inviewofthefactthatannualreports/databaseextractsofthreecompanieswhichwereselectedas comparable cases were not available earlier in the public domain and having regard to the fact that these documents are essential for determining ALP , these additional evidences are admitted for consideration:TPOisdirectedtomakeafreshtransferpricingorderbytakingintoaccountdatabase ofsaidcompaniesnowsubmittedandalsotodecideastowhetherallthecomparablesselectedbythe assessee are proper comparables for the purpose of determining ALP after considering the relevant parameters.(Asstyear200506). AsstCITvNITLtd(2011)57DTR334(Del)(Trib). S.92C:AvoidanceofTaxTransferPricingComputationArmslengthprice5%variationinALP. Whenassesseeshowedthepricechargedwaswithin5%variationofALP,noadditionwasrequiredto bemade.(AsstYear200607) CapgeminiIndia(P)LtdvAddlCIT(2011)46SOT195(Mumbai)(Trib). S. 92C.:Avoidance of tax Transfer Pricing: Important Principles on comparability & +/5% adjustment stated. (i)TheexpressionshallinRule10B(4)makesitclearthatitismandatorytousethecurrentyeardata first and if any circumstances reveal an influence on the determination of ALP in relation to the transactionbeingcomparedthanotherdataforperiodnotmorethantwoyearspriortosuchfinancial yearmaybeused.IfthecurrentyearsdataofcomparablesisnotavailableatthetimeoffilingtheROI afreshsearchofcomparablesduringthetransferpricingproceedingsispermissible; (ii) The +/5% tolerance band in s. 92C is not a standard deduction. If the arithmetic mean falls within the tolerance band, then there should not be any ALP adjustment. If it exceeds the said tolerance band,ALPadjustmentisnotrequiredtobecomputedafterallowingthedeductionat5%.Thatmeans, actualworkingistobetakenfordeterminingtheALPwithoutgivingdeductionof5%; (iii)Thetransferpricingrulesapplywhenoneofthepartiestothetransactionisanonresident,even ifthetransactiontakesplacewithinIndia.Thereisnoneedtofindoutthelegislativeintentbehindthe transfer pricing provision when the provisions were unambiguous. The existence of actual cross bordertransactionsormotivetoshiftprofitsoutsideIndiaortoevadetaxesisnotapreconditionfor transferpricingprovisionstoapply. DCITvsDeloitteConsultingIndiaPvt.Limited(2011)61DTR101(Hyd)(Trib).www.itatonline.org.
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S.92C:AvoidanceoftaxTransferPricing:DisallowanceofcostsongroundthatAEalsobenefitednot permissible. (i)Acontinuingdebitbalanceperse,intheaccountoftheassociatedenterprises,doesnotamountto aninternationaltransactionu/s92BinrespectofwhichALPadjustmentscanbemade.Itisaresultof international transaction. The factum of payment has to be considered visvis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transactioninrespectofwhichpaymentisdelayed.(NimbusCommunicationsfollowed); (ii) U/s 92B(1), the apportionment of cost is permissible only where there exists a mutual agreement or arrangement between two or more Associated Enterprises for apportionment of cost incurred in connection with a benefit, service or facility provided to any one or more of such Enterprises. In the absenceofsuchanagreementtosharethecostsincurredontheMcKinseystudy,thecostscannotbe apportioned. The bare allegation that the AEs had received specific and identifiable benefits is not sufficienttojustifyapportionment.Further,evenassumingthattheAEswereliabletocompensatethe assessee, the TPO ought to have determined the ALP of such international transaction after taking into consideration all the rights obtained and obligations incurred by the two entities, including the advantagesobtainedbytheAEs.Heoughttohaveidentifiedcomparablesandrecordedafindingthat the consultancy charges were higher than what a similarly situated and comparable independent domesticentitywouldhaveincurred. PatniComputerSystemsLtd.DCIT(2011)60DTR113/141TTJ190(Pune)(Trib).www.itatonline.org. S.92C.: Avoidance of tax Transfer Pricing: CBDTs view that +/5% variation amendment applies to pendingproceedingsincorrect. In respect of AY 200607, the assessee entered into international transaction with its associate enterprises for a sum of Rs. 14.33 crores. The TPO applied the TNMM and determined the ALP at Rs. 15.08croresandmadeanadjustmentofRs.75lakhs.Theassesseeclaimedthatasthesaidadjustment was within +/5%of the ALP, no adjustmentcouldbemade under the provisoto s.92C(2)as itstoodpre amendment by the F (No. 2) Act, 2009. The Department relied on Circular No.F.142/13/2010SO (TPL) dated 30.9.2010 (Corrigendum) where the view was expressed that as the amendment came into effect from 1.10.2009, it would apply in relation to all cases in which proceedings are pending before theTransferPricingOfficeronoraftersuchdate.HELDdisagreeingwiththeDepartmentscontention: While the Finance (No.2) Act, 2009 provides that the substituted Proviso shall come into effect on 1.10.2009 and applies in respect of AY 200910 & subsequent years, the Explanatory Notes to the Finance (No.2) Act, 2009 issued vide Circular No.5/2010 dated 3.6.2010 incorrectly states that the amendment comes into effect on 1.4.2009. In the Corrigendum, it is stated that the amendment shall applytoproceedingspendingbeforetheTPOonorafter1.10.2009.Itisdifficulttoaccepttheargument of the Department that retrospective or prospective applicability of a provision should be decided in the manner explained by the CBDT. A procedural provision resulting in creating a new disability or which imposes a new duty in respect of transactions already completed cannot be applied retrospectively.AstheamendedProvisobringsaboutasubstantialchangeinthereliefavailabletoan assessee, it cannot be treated as being retrospective in nature. Kuber Tobacco Products 117 ITD 273 (Del)(SB)&EktaPromoters113ITD719(Del)(SB)followed iPolicyNetworkPvt.Ltd.vsITO(2011)59DTR209(Delhi)(Trib).www.itatonline.org. S.92C:AvoidanceofTaxTransferPricingDespiteFARmatching,LossCotobeexcluded.
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Fromthelistofcomparablesprovidedbytheassessee(afterexcludingpersistentlossmakingcompanies),theTPO rejectedsomeotherlossmakingcompanies&determinedtheALPapplyingtheTNMMandmadeanadjustmentof Rs.2.28crores.TheTribunaldismissingtheappealheldthat: Merelybecauseacompanyisshowinglosses,itdoesnotloseitsstatusofcomparableiftheothercriteriadepict itsstatusasacomparablebecausethedeclarationoflossisanincidentofbusinesswhichisatparwithprofit.The FARAnalysisofacompanyindicatedtheavowedobjectiveofthecompanyandthetoolsthatitsoughttoemploy to achieve that objective but it was the financial result which decided whether that company has been successfully in achieving the objective or not. The TPO held that if the assessees contention based on FAR analysisonlyisacceptedthentheprocessofchoosingcomparablewillnotproceedbeyondthematchingofFAR. Alltypesofothertestsi.e.databasescreening,qualityandquantitativescreeningoruseofdiagnosticwithratios willberenderedmeaninglessandunnecessary.Comparablityhasbeentakenintoconsiderationbytheassessee onthebasisofFARanalysisandotheraspectshavenotbeenconsidered.TPOhadlookedintootheraspects also. YumRestaurants(India)Pvt.Ltd(ITATDelhi).www.itatonline.org. S.92C:AvoidanceoftaxTransferpricingComputationCUPmethodTNMM. TPOhavingcomputedtheALPbyapplyingCUPmethodasagainstTNMMadoptedbytheassesseeandrejecting the objections raised by the assessee on the ground that all those objections were considered by the TPO in earlieryears.TheassesseehavingraisedvarioussubmissionsbeforetheTribunalwhichneedverificationatthe leveloftheAO/TPOmatterrestoredforfreshverificationasperlaw.(A.Y.200607). Fulford(India)LtdvDyCIT(2011)59DTR106/140TTJ183(Mumbai)(Trib). S.92C:AvoidanceoftaxTransferpricingComputationCupmethod. Where no data was available in respect of uncontrolled transactions which were similar to transactions of assessee with its foreign associated enterprise, CUP method could not be considered as most appropriate methodtodeterminearmslengthpriceofroyaltybyassesseetoitsAEfortechnologycollaboration.Tribunalset asidemattertothefileofAssessingOfficerwithdirectiontodotheexerciseofdeterminingthearmslength pricebyapplyingthemostappropriatemethod.(A.Y.200506) CabotIndiaLtdvDyCIT(2011)46SOT402/61DTR408(Mum)(Trib). S.92C:AvoidanceoftaxTransferpricingInterestonloangrantedbyassesseetoAE. In case of grant of loan by assessee to its foreign subsidiary in foreign currency out of its own funds . For determiningALP,itistheinternationalLIBORratethatwouldapplyandnotthedomesticprimelendingrate, andassesseecharginginterestataratehigherthanthelaborrate,noadditioncanbemadeonthiscount.(A.Y. 200607) SivaIndustries&HoldingsLtdvAsstCIT(2011)59DTR182(Chennai)(Trib). S. 92C:Avoidance of taxTransfer Pricing & Cost Contribution Agreements: Law Explained Commercial wisdomnottobequestioned Theassesseeenteredintoacost contribution agreementwithitsparentcompanypursuant towhichitpaida sumofRs.10.55croresasitsshareofthecosts.TheTPO,AO&DRPdisallowedtheexpenditure.Onappealbythe assessee, the Tribunal held that(i) The TPO was not entitled to determine the ALP under the cost contribution agreementatNilonthebasisthattheassesseedidnotneedtheservicesatall.Howanassesseeconductshis business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not. The TPO went beyond his powers in questioning the commercial wisdom of the
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assessees decision to take benefit of its parent companys expertise. Further, the TPOs argument that the assesseedidnotbenefitfromtheservicesisirrelevantbecausewhetherthereisbenefitornothasnobearingon theALPoftheservices.Thefactthatsimilarservicesmayhavebeengrantedinthepastongratuitousbasisisalso irrelevant in determining the ALP. The argument that no evidence of services having been rendered was producedis notacceptablebecause theassesseedidproducevoluminous evidencebeforetheDRPwhichwas notdealtwith.TheDRPoughttohavedealtwiththematerialandgivenreasons.MatterremandedtotheAOto determineactualrenderingofservices(VodafoneEssarLtdvs.DRP240CTR263(Del)followed); (ii)Acostcontributionarrangementhastobeconsistentwiththearmslengthprinciple.Theassesseesshareof overall contribution to costs must be consistent with the benefits expected to be received, as an independent enterprisewouldhaveassignedtothecontributioninhypotheticallysimilarsituation. (iii) The disallowance of payment under the cost contribution agreement u/s 37(1) & 40A(2) is not justified becausethepaymentdidnotinvolvemarkupandwasatarmslengthprice.Theserviceswereforfurtheranceof theassesseesbusinessinterests; (iv) The disallowance of payment u/s 40(a)(i) for want of TDS is not justified because the payment was not taxableintheAEshandsunderArticle5&12oftheIndiaUSADTAAastheAEdidnothaveaPEandtheservices didnotconstitutefeesforincludedservices.(GEIndiaTechnologyCentre327ITR456(SC)followed); (v)TheTPOsargumentthatinchargingfortheservicesrenderedtotheAE,a10%discountcouldnotbegivenis notacceptable.Discountisanormaloccurrenceeveninindependentbusinesssituations.Thematerialfactoris whetherthe10%discountisanarmslengthdiscountandthereisnothingonrecordtosuggestthatitisnotso. DresserRandIndiaPvt.Ltd.vACIT(2011)61DTR137/141TTJ385/61DTR265(Mum)(Trib).www.itatonline.org. S.92C:AvoidanceofTaxTransferPricingSaleofIPRsImportantPrinciplesofLawExplained. Thereisnothingins.92CAthatrequirestheAOtofirstformaconsideredopinionbeforemakingareferenceto the TPO. It is sufficient if he forms a prima facie opinion that it is necessary and expedient to make such a reference.Themakingofthereferenceisastepinthecollectionofmaterialformakingtheassessmentanddoes not visit the assessee with civil consequences. There is a safeguard of seeking prior approval of the CIT. Moreover,byvirtueofCBDTsInstructionNo.3of2003dated20.5.2003itismandatoryfortheAOtorefercases withaggregatevalueofinternationaltransactionsmorethanRs.5crorestotheTPO TheargumentthattheExcessEarningMethodadoptedbytheTPOisnotaprescribedmethodisnotacceptable. AsaleofIPRisnotaroutinetransactioninvolvingregularpurchaseandsale.Therearenocomparablesavailable. The Excess Earning Method is an established method of valuation which is upheld by the U.S Courts in the contextofsoftwareproducts.TheExcessEarningMethodmethodsupplementstheCUPmethodandisusedto arriveattheCUPpricei.e.thepriceatwhichtheassesseewouldhavesoldinanuncontrolledcondition. TallySolutionsPvt.Ltd.vDCIT(Bang)(Trib)(www.itatonline.org) S.92C:AvoidanceofTaxTransferPricingPrinciplesofComparableUncontrolledTransactionexplained. Under Rule 10B(1)(e)(ii), the net profit margin realized by the enterprise or by an unrelated enterprise from a comparableuncontrolledtransactionoranumberofsuchtransactioniscomputedhavingregardtothesamebase. Thetermuncontrolledtransactionisdefinedin Rule10A(a)tomean a transaction betweenenterprisesother than associate enterprises, whether resident or nonresident. The result is that in applying the TNMM, the net profit margin realized from a comparable uncontrolled transaction is to be taken into consideration. The conditionsrequirethatacaseshouldnotonlybecomparablebutalsohaveuncontrolledtransactions.Thesetwin conditionsneedtobecumulativelysatisfied.Ifacaseisonlycomparablebuthascontrolledtransactionsorvice versa,itfallsoutsidetheambitofthelistofcomparablecases;
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The fact whether the comparable has a higher or lower profit rate has not been prescribed as a determinative factortomakeacaseincomparable.Thisisbecauseprofitisnotafactorinitself,butaconsequenceoftheeffectof variousfactors.Onlyifthehigherorlowerprofitrateresultsonaccountoftheeffectoffactorsgiveninrule10B (2) read with subrule (3), that such case shall merit omission. If however such extreme profit rate is achieved becauseoffactorsotherthanthosegivenintherule,thensuchcasewouldcontinuetofinditsplaceinthelistof comparables; DCITvBPIndiaServicePvt.Ltd.(Mum)(Trib)(www.itatonline.org) S.92C:AvoidanceofTax TransferPricingMethodsofcomputingALP ImportantPrinciplesofCostPlus, CUP&TNMMExplained The assessee, engaged in the business of manufacture and export of studded diamond and gold jewellery, imported&exporteddiamondsandexportedjewellerytoassociatedenterprises.Fortransferpricingpurposes, theALPoftheimported&exporteddiamondswasevaluatedusingtheComparableUncontrolledPrice(CUP) methodwhiletheexportsofjewellerywasevaluatedusingtheCostPlusMethod(CPM).TheTPO&AOrejected both methods on the ground that adequate material to support it was not available and instead adopted the TNMMandmadeanadjustment.Onappeal,theCIT(A)upheldtheadoptionofCPMontheimports&exportsof diamonds on the ground that total cost details were maintained and the average margin earned from AE transactionswashigherthanthatearnedfromnonAEtransactions.However,hedidnotdealwiththeALVon exportofjewellery.Onappealbythedepartment,HELDreversingtheCIT(A): (i)AsregardstheCPM,ithadnotbeencorrectlyapplied.TheapplicationofCPMprovidesfor(a)ascertainingthe directandindirectcostsofpropertytransferred,orservicesrendered,totheAE;(b)ascertainingthenormalmark up of profit over aggregate of costs in respect of similar property or services to unrelated enterprises and (c) adjustingthenormalmarkupfordifferences,ifany,inthematerialfactorssuchasriskprofile,creditperiodetc. Whilethebenchmarkgrossprofitcanbesetbytakingintoaccountseveraltransactionswithunrelatedenterprise onaglobalbasis,thebenchmarkcannotbeappliedonaglobalbasisbuthastobeonatransactionbasis.Eg.if thebenchmarkGPis20%andtheassesseechargesamarkupof2%inonetransactionwithAEand38%inanother transactionwiththeAE,bothtransactions,willmeettheALPtestresultinginanincongruity.Onfacts,whilethe normal mark up has been computed at 16.31%, and the average of mark up on sales to AEs has been taken at 17.08% and all AE transactions taken to be at ALP, there are individual instances which are less than the benchmark.ThisisnotthecorrectwaytoapplytheCPM.Also,thecostsofinputshavenotbeenverifiedanditis notshownthatthetermsofsaletotheAEsandallotherrelevantfactorsaremateriallysimilartothetransactions withindependententerprises.Also,theCPMhasbeenappliedbycomparinggrossprofitonsales,whereasthe method requires comparison of mark up on costs on transactions with AEs visvis mark up on costs on transactionswithnonAEs(matterremandedtoCIT(A)fordenovoconsideration); (ii) As regards the CUP for import & export of diamonds (which was not decided by the CIT (A)), the assessee oughttohaveproducedevidencetoshowthatthetransactionsareatprevailingmarketprices; (iii) As regards the TNMM, International transactions with AEs have three significant areas of impact on the overallprofitabilityi.e.salesoffinishedgoodstoAEs,salesofrawmaterialstoAEsandpurchaseofrawmaterials ofAEs),andiftheALPcannotbereasonablydeterminedbyCUPoranyotherdirectmethod(i.e.CPMandRPM) inrespectofevenoneoftheseareas,theapplicationofTNMMorotherindirectmethod(i.e.profitsplitmethod) isinevitable.Onaconceptualnote,whenALPofthetransactionswithAEscannotbereasonablyascertained,the profit earned by the assessee entering into these transactions is to be estimated, and that is precisely what TNMMdoes.WhenTNMMisappliedinthecontextofsalesoffinishedgoodstoAEs,itisthisfigurewhichistaken as variable figure and it bears the impact of higher margins, and when TNMM is applied in the context of purchases of raw materials from AEs, it is the figure of purchases of raw material from AEs which is taken as
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variable figure and it bears the impact of higher margins. Beyond that, the cause of invoking TNMM does not makemuchmaterialdifference(pointwhetherTNMMhastobeappliedtothetransactionsandnotonoverall profitsleftopen); (iv)Theargument,relyingonIndoAmericanJewelleryLtd41SOT1,thatnoALPadjustmentcanbemadeasthe assessee enjoys s. 10A tax benefits and has no motive to avoid tax is not acceptable because those observationsareobiterdictawithoutbindingforceandinviewofAztechSoftware107ITDSB141whereitwas heldthattaxavoidancemotivesneednotbeshownbeforeinvokingtransferpricingprovisions. ACITvTaraUltimoPrivateLimited(Mum)(Trib)(www.itatonline.org) S.92C:AvoidanceoftaxTransferpricingComputationDataSelectionofcomparable5%Adjustments. Theexpressionshallhasbeenusedinrule10B(4)whichmakesitabundantlyclearthatonlycurrentyeardata ofanuncontrolledtransactionistobeusedforthepurposeofcomparabilitywhileexaminingtheinternational transactionswithAEs,unlessthecaseiscoveredbytheprovisoi.e.ifthedataofprecedingtwoyearsreveals factswhichcouldhaveaninfluenceonthedeterminationoftransferprice.Assesseecompanybeingengagedin producingsemiconductorintegratedcircuitsisacomplexproductrequiringskilledworkforce.TPOwasjustified in treating it as high end service provider for the purpose of selection of comparables. The fact that the assesseesroleisonly2to3percentoftheoveralloperationsperformedbythegroupisnotatallrelevantfor deciding whether it is high end performer or low end performer. Assessee having submitted a TP report every yearbyusingdifferentfiltersforselectingcomparablesarecommensuratetotheresultdeclaredbyit.TPOwas justified in rejecting the same and selecting new comparables by applying quantitative as well as qualitative filters.Tolerancebandprovidedintheprovisotosection92C(2)isnottobeconstruedasastandarddeduction.If thearithmeticmeanofcomparablesfallswithinrangeofsaidtoleranceband,noadjustmentisrequired,ifit exceedsthentheultimateadjustmentisnotrequiredtobecomputedafterreducingthearithmeticmeanby5 percent.(A.Ys200304,200405,200607) STMicroelectronics(p)LtdvCIT(2011)61DTR1(Trib)(Delhi). S.92CA:AvoidanceofTaxTransferPricingComputationArmsLengthPriceReimbursementofExpenses InternationalTaxation PaymentreceivedbytheassesseecompanyfromitsAE/parentcompanywasinthenatureofreimbursementof incentivespaidtotheemployeesoftheassesseeanditdidnothave anyelementofincomeandtherefore,no adjustmentcouldbemadeinthecomputationofALPbynotionallyimputingamarkuponthatamount,moreso whennosuchadjustmenthasbeenmadeintheearlierorsubsequentyearswhereinalsosimilarincentiveswere paidandthefactswereidentical.(A.Y.200607) AricentTechnologies(Holdings)Ltd.vs.Dy.CIT(2011)51DTR17/137TTJ209(Delhi)(Trib.) S. 92CA :Avoidance of tax Transfer Pricing Computation Arms Length Price International Taxation Adjustment. On a reference under section 92CA(1), TPO can suggest adjustment only in respect of the international transactions entered in to by the assessee with AEs which are referred to him for computation of ALP by the Assessing Officer. TPO cannot suo motu take cognizance of any other international transaction for suggesting adjustmentintheALP.(A.Y.200607) AmadeusIndia(P)Ltd.vs.ACIT(2011)52DTR378(Delhi)(Trib.) S.92CA:AvoidanceoftaxTransferPricingComputationArmsLengthPriceTraderResaleMethod.
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Assessee engaged in business of import of rough diamonds and selling same in local markets without value addition to goods, resale price method is most appropriate method for determining ALP with respect to AE transaction. Ifcomparablescitedbyassesseewerenotfoundappropriate,freshcomparablescouldbesearched,butmethod adopted was not to be rejected. Matter was set aside to Assessing Officer for disposal afresh after finding appropriatecomparableandadoptingresalepricemethod.(A.Y.200405) StarDiamondGroupvs.Dy.CIT(2011)44SOT532(Mum.)(Trib.) S.92CA:AvoidanceofTaxTransferPricingCollaborationAgreementCapitalorRevenueInternational Taxation. TPOisnotconcerned,norishecompetenttodecideastowhetherthepaymentundercollaborationagreement wascapitalorrevenueandonthefactsandcircumstances,referencetotheTPOfordetermining'arm'slength price'maynotbenecessary. HondaSielCarsIndiaLtd.vs.ACIT(2011)129ITD200(Delhi)(Trib.) S.92(C)(2):AvoidanceofTaxTransferPricingComputationArmsLengthPriceInternationalTaxation WhereonlyonepricehasbeendeterminedundermostappropriatemethodforevaluationofALP,thequestion ofapplicationofprovisotosection92C(2)doesnotarise,therefore,assesseewasnotentitledtotheconcession of5percentasprescribedinthesaidproviso.(A.Y.200405) ACITvs.EssarSteelLtd.(2011)51DTR177/136TTJ470(Visakha)(Trib.) S.94:AvoidanceoftaxTransactioninsecuritiesTaxfreedividendLossonsaleofunits.(S.10(33). AssesseehadpurchasedcertainunitsofUTIfromPon2951989atrate ofRs14.75perunit,atthesametime assesseeenteredintoanirrecoverablecommitmenttosellbackthoseunitstoPatrateofRs13peruniton317 1989. The assessee received dividend at the rate of 18 percent on those units. The assessee incurred loss. The assessingofficerdisallowedthelossholdingthatthesamewaspredetermined.TheHighcourtheldthatevenifit wasassumedthattransactionwasapreplannedone,therewasnothingtoimpeachgenuinenessoftransaction andtherefore,assesseewasentitledtoclaimthelossonsaidtransaction.(A.Y.199091) EvereadayIndustriesLtdvCIT(2011)201Taxman278(Cal)(HighCourt). S.94(7):AvoidanceofTaxTransactioninSecuritiesCapitalLossRedemptionofUnits. Whenunitshavebeenredeemedbyassessee,samewouldconstitutetransferforthepurposeofsection94(7) and short term capital loss to the extent of dividend is not allowable. CIT(A) was justified in applying the provisionsofsection94(7)andsettingoffdividendincomeof`97,90628ofAsstYear200203againsttheshort termcapitallossof`1,06,03,428oftheAsst.Year200304. AdministratorofEstateofLateE.F.Dinshawvs.ITO(2011)52DTR23/128ITD365 (Mum.)(Trib.) S.94(7).AvoidanceoftaxTransactioninsecuritiesConditions. Entriesandtreatmentintheassesseesbooksofaccountisnotrelevant.Lossonvaluationhasnoplaceinsection 94 (7).Amendment in section 94 (7) , brought by the Finance Act , 2004should be applied prospectively is not sustainable.(Asstyear200506) AshokKumarDamanivAddlCIT(2011)138TTJ45/130ITD287(Mumbai)(Trib). S.112(1):CapitalgainsComputationNonresidentSaleofsharesProviso.(S.48).
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Operationoftheprovisotosection112(1),isconfinedtoassetsnotcoveredbythefirstprovisotosection48and the assets specified in the proviso to section 112 (1) itself ,therefore , a non resident is not eligible to avail the benefitoflowerrateoftaxof10percentonthecapitalgainsonthesaleofshares.(S.48). CairnU.K.HoldingsLtdINRE(2011)59DTR121/242CTR449(AAR). ChapterXII.Determinationoftaxincertainspecialcases. S.115A:CapitalGainsSaleofSharesinIndianCompanyDTAAIndiaMa uritiusInternationalTaxation[S.90,Art.13(4)] Article13(4)ofDTAAconfersthepoweroftaxationofcapitalgainsderivedbyaresidentofacontractingState from the alienation of specified property only in the State of residence, therefore, the applicant, a Mauritian company,isnotliabletopaytaxinIndiaonthecapitalgainsarisingontransferofsharesofanIndiancompanyto anotherMauritiusbasedcompany. D.B.ZwirnMauritiusTradingNo.3Ltd.,InRe(2011)333ITR32/240CTR1(AAR) S.115A:CapitalGainsTransferofSharesofIndianCompanytoSwissCompaniesDTAAIndiaNetherland[S. 90,92,Art.13(5)] Capital Gains earned by a Dutch company, on transfer of shares of an Indian company to Swiss companies are covered by Art. 13(5) of the IndoNetherlands DTAA and therefore, it is taxable only in Netherlands and not in India hence transfer pricing provisions are not attracted as the transaction of shares is between non resident companies. VnuInternationalB.V.InRe(2011)240CTR12/198Taxman454/334ITR56(AAR) S. 115AD:Foreign Institutional Investors Capital gains Business income Investment in securities.( S, 43(5)). Foreigninstitutionalinvestors(FIIs)canonlymakeinvestmentinsecuritiesincountryscapitalmarket and they can not undertake trade in them .Income arising to a FII from transfer of securities falls within ambit of section 115AD , as per which income arising from transfer of such securities is held to be falling under head capital gains, it can not be considered as business income whether speculative or non speculative . Section 43(5) has no application to FIIs in respect of securities as defined in Explanation to section 115AD , income from sale of securities is to be considered as short termorlongtermcapitalgains.(AsstYear200405). LGAsianPlusLtdvAsstDIT(InternationalTaxation)(2011)46SOT159(Mumbai)(Trib). S.115F:CapitalgainsForeignexchangeassetsBonusshareseligiblefors.115Freliefiforiginalshares acquiredinforeigncurrency. The assessee, a NRI, purchased shares in foreign currency. On the sale of bonus shares, the assessee claimed relief u/s 115F. The departments objection that the assessee has received bonus shares withoutinvestinganyconvertibleforeignexchangeisnotcorrectbecauseastheoriginalshareswere acquired by investing convertible foreign exchange, it cannot be said that the bonus shares were acquired without taking into consideration the original shares. In accordance with Dalmia Investment 52 ITR 567 (SC) the cost of acquisition of the original shares is closely interlinked with the bonus shares.Oncebonussharesareissued,theaveragingoutformulahastobefollowedwithregardtoall shares.Accordingly,bonussharesarecoveredbys.115C(b)andeligibleforbenefitu/s115F. SanjayGalavsITO(2011)46SOT482(Mumbai)(Trib).www.itatonline.org.
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S.115F:CapitalgainsForeignexchangeassetsNonresidentBonusshares. Theassesseeacquiredtheoriginalsharesbyinvestinginconvertibleforeignexchangeandtherefore,itcannot be said that the bonus shares are acquired in isolation without taking in to consideration the original shares acquiredbytheassessee.Thereforebonusshareswereheldtobecoveredbysection115C(b)oftheActandthe sameareeligibleforbenefitundersection115F.(A.Y.200607). SanjayGalavs.ITO,ITANo.2989/Mum/2008,Dt.15072011,A.Y.200506,BCAJSeptember2011,pg.20,Vol.43A, Part6 S.115H:NonresidentsInterestoninvestmentmadeoutofforeignfundsConcessionalrate. Where assessee received interest on investment made out of foreign funds which was chargeable to tax at concessionalrateundersection115H,saidspecialtreatmentcouldnotbeextendedtointerestoninterestre depositedwithoriginalsum.(A.Y.199697). M.Manohar(Dr)vAsstCIT(2011)201Taxman106(Mad)(HighCourt). S.115H:NonresidentIncomefromforeignexchangeasset.Coverableforeignexchange(S.115E.). Iftheoriginalsourceofthedepositisconvertibleforeignexchange,thetransferofsuchforeignexchangeasset, namelyfromonebanktoanotherwillnotaffectitsidentityasaforeignexchangeasset,assesseewasentitledto concessionalrateoftaxontheinterestearnedfromNRNRdepositsundersection115Hreadwithsection115E. CITvM.C.George(2011)60DTR166/243CTR404(Ker)(HighCourt). ChapterXIIB.Specialprovisionsrelatingtoceratincompanies. S.115J:CompanyBookProfitZeroTaxCompanies FortheAsst.Year198889,therewasnoprovisioninsection115Jtocomputebookprofitasperaccountprepared inaparticularmannerandtherefore,itwasopentoassesseetocomputebookprofiteitheronbasisofprofitand lossaccountpreparedunderprovisionsofpartIIandpartIIIofscheduleVIofCompaniesAct,orasperannual accountsplacedbeforeAGM.However,afterinsertionofsubsection(1A)insection115Jfromassessmentyear 199091,accountsforthepurposeofbookprofithavetobepreparedasperPartIIandPartIIIofScheduleVIof CompaniesAct.(A.Y.198889) Dy.CITvs.AnagramFinanceLtd.(2011)43SOT433(Mum.)(Trib) S.115JA:CompanyBookProfitsExportSetoffofcarriedforwardbusinesslossandunabsorbedbusiness lossNegativeIncome(S.80AB,80AB(5),80HHC,115JB) TheCourtheldthattheassesseeisentitledtodeductionundersection80HHCcomputedinaccordancewithsub section(3)(3A)of80HHCbecauseassessmentundersection115JBisonlyanalternativeschemeofassessment andwhatisclearfromclause(iv)oftheExplanationtheretoisthateveninthealternativeschemeofassessment undersection115JB,theassesseeisentitledtodeductionofexportprofitundersection80HHC.Inotherwords, theexportprofiteligiblefordeductionundersection80HHCisallowableunderbothschemesofassessment.The restrictioncontainedinsection80ABorsection80B(5)cannotbeappliedinasmuchascarriedforwardbusiness loss or depreciation should not be first set off leaving the gross total income at nil, which would disentitle the assesseefordeductionunderotherprovisionsofChapterVIAC,whichincludessection80HHCalso.Thereisno provisioninsection80HHCtodeterminetheexportprofitwithreferencetheprofitandlossaccountmaintained under companies Act, Therefore, the assessee would be entitled to deduction of export profit under section 80HHCandthereliefistobegrantedintermsofsubsection(3)and3(A)ofthatsection.
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CITvs.PackworthUdyogLtd.(2011)331ITR416(Ker.)(FB)/51DTR251/198Taxman10/239CTR24(Ker)(FB)/Kerala Chemicals and Proteins Ltd. (2011) 331 ITR 416/239 CTR24 (Ker.)(FB) / 51 DTR 251/198 Taxman 10 (Ker)(FB)/ G.T.N. Industries Ltd. (2011) 331 ITR 416/239 CTR 24 /198 Taxman 10(Ker.)(FB) /331 ITR 416/ 51 DTR 251/231 CTR 24/198 Taxman10(Ker)(FB)(HighCourt) S.115JA:CompanyBookProfitsAdvanceTaxInterestispayableonfailuretopayadvancetaxinrespectof taxpayableundersection115JA(S.115JB,234B) Section115J/115JAarespecialprovisions.Forpurposesofadvancetaxtheevaluationofcurrentincomeandthe determination of the assessed income had to be made in terms of the statutory scheme comprising section 115J/115JA. Hence, levying of interest was inescapable. The assessee was bound to pay advance tax under the scheme of the Act. Section 234B is clear that it applies to all companies. There is no exclusion of section 115J/115JAinthelevyofinterestundersection234B(KwalityBiscuitsLtdvs.CIT243ITR519(Kar.)(SLPdismissed in284ITR434)considered Jt.CITvs.RoltaIndiaLtd.(2011)237CTR329/49DTR346/330ITR470/196Taxman594/2SCC408(SC) S. 115JA : Book Profits Minimum Alternative Tax MAT Credit to be set off before computing Advancetax shortfallandliabilityforsection234B,234Cinterest(S.234B,234C) Theschemeofsection115JA(1)and115JAAshowsthatrighttosetoffthetaxcreditfollowsasamatterofcourse oncetheconditionsofsection115JAAarefulfilled.Thegrantofcreditisnotdependentupondeterminationby the Assessing Officer except that the ultimate amount of tax credit to be allowed depends upon the determinationoftotalincomeforthefirstassessmentyear.Thus,theassesseeisentitledtotakeintoaccountthe setoff whileestimatingitsliabilitytopayadvancetax.TheamendmenttoExplanation1tosection234BbyFA 2006w.e.f.1.4.2007toprovidethatMATcreditundersection115JAAshallbeexcludedwhilecalculatingadvance taxliabilityistoremovetheimmensehardshipthatwouldresultifthiswasnotdone; ThefactthattheForm&Rulesprovidedforsetoffof MATcreditbalanceaftercomputationofinterestunder section234Bisirrelevantbecauseitisdirectlycontrarytoaplainreadingofsection115JAA(4).(A.Y.199899to 20002001) CITvs.TulsyanNECLtd.(2011)330ITR226/49DTR129(SC) S.115JA:BookprofitCompanyBroughtforwardbusinessloss.(S.154). Inordertoallowdeductionofbroughtforwardbusinesslossorunabsorbeddepreciationinthecomputationof bookprofitundersection115JA,bothshouldbeavailableaspertheaccountsoftheassessee.Sincenothingis leftaftersettingoffbroughtforwardbusinesslossupto199495againstprofit,assesseewasnotentitledtoany reliefunderclause(b)ofExplanation(iii)ofsection115JAforassessmentyear199798.Rectificationorderpassed undersection154heldtobevalid.(A.Y.199798). CITvCarbon&ChemicalsIndiaLtd(2011)59DTR396(Ker)(HighCourt). S. 115JB: Company Book Profits Computation Reduction of net profit by amount withdrawn from revaluation reserve Amount withdrawn from revaluation reserve & credited to P&L A/c. cannot be reduced frombookprofitevenifinyearofcreationofreserve,theP&LA/cwasnotdebited Where the assessee had revalued its fixed assets in the year and in the relevant year an amount representing differentialdepreciationwastransferredoutofthesaidrevaluationreserveandcreditedtotheP&Laccountthe amounttransferredfromtherevaluationreservetotheP&Laccountcouldnotbereducedforcomputationof bookprofitsintheearlieryearwhenitwascreated.(A.Y.200102) IndoRamaSynthetics(I)Ltd.vs.CIT(2011)330ITR363/237CTR217/49DTR241/2SCC1168(SC)
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S.115JB:CompanyBookProfitsProvisionforGratuity. Provisionforapprovedgratuityisascertainedliabilityandcannotbeaddedbackwhilecomputingthebookprofit undersection115JB.(A.Y.200405) ITOvs.JonesLangLasallePropertyConsultants(India)(P)Ltd.(2011)135TTJ94(Delhi)(Trib.) S.115JB:CompanyBookprofitsUndertakingSpecialcategories.(S.80IC.) Section115JBwillapplytoanassesseebeingacompany,evenifitisentitledtodeductionsmentionedinsection 80IC. SidculIndustrialAssociationvStateofUttarakhand.(2011)199Taxman75(Uttarakhand)(HighCourt). S.115JB:CompanyBookprofitsMinimumalternativetaxProvisionfordiminutioninvalue. Reflectionofamountofprovisionfordiminutioninvalueofinvestmentseparatelyonliabilitysideof balance sheet or by way of reduction from figure of investment on asset side of balance sheet is totally alien for computing book profit and only requirement is that if any provision for diminution in valueofanyassethasbeendebitedtoprofitandlossaccountsamewillautomaticallystandaddedto amount of net profitfor working outbook profit.Therefore, onceprovisionis madefor diminutionin valueofanyasset,samehastobeaddedforcomputingbookprofit,regardlessoffactwhetherornot thereisanybalancevalueofasset.(AsstYear200405). ITOvTCFCFinanceLtd(2011)131ITD103/11ITR(Trib)153(Mumbai)(Trib). S.115JB:CompanyBookProfitsMATRevaluationofassets. The amount on account of revaluation of assets sold and taken to the balance sheet as revaluation reservedcannotbeaddedtobookprofits. ITOvs.GalaxySawsP.Ltd.,(2011)132ITD236(Mum)(Trib)BCAJpg.40,Vol.43A,Part2,May2011. S.115JB:CompanyBookprofitsMinimumalternativetaxCapitalgainsExemption.(S.54EC.). Profitonsaleofassetscreditedtoprofitandlossaccountcannotbeexcludedincomputingbookprofitunder section115JBeventhoughcapitalgainarisingfromsaleofthatassetisnotsubjecttotaxundernormalprovisions ofActbyvirtueofprovisionsofsection54EC.(A.Y.200506). Technicarts(P)LtdvITO(2011)46SOT294(Mum)(Trib). ChapterXIIH.Incometaxonfringebenefits S.115WB:FringeBenefitsRentforCarParkingAreaRevision(S.263) Inthepresentcaseitwasheldthattheessentialfacilitiesattachedtoarentedbuildinghadtobetreatedaspart of building itself and therefore, rent or license fee paid for such facilities should be treated as forming part of rent.Itwasfurtherheldthatinviewoftheabove,therentpaidforcarparkingareadidnotfallundercategoryof running,maintenanceandrepairexpensesofcarandthusassesseewasnotliabletopayfringebenefittaxon thesaidamount.(A.Y.200607) HewlettPackardIndiaSales(P.)Ltd.vs.CIT(2011)43SOT124(Bang.)(Trib) S.119:InstructionstosubordinateauthoritiesCBDTCircularsAdministrativerelief. Benevolentcircularsprovidingadministrativerelieftotheassessee havetobe giveneffecttoevenif theyareissuedsubsequenttothedecisionofanauthorityundertheAct.(A.Y.199596&199697)
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ChhabilDassAgarwalvs.UOI(2011)56DTR19(Sikkim)(HighCourt). S.119:CircularsBindingnatureConflictinlawlaiddownbyHighCourtorSupremeCourt. IfacircularisinconflictwiththelawlaiddownbyHighCourtsorSupremecourt,therevenueauthoritieswhile actingquasijudicially,shouldignoresuchcircularindischargeoftheirquasijudicialfunctions.(A.Y.199899) BhartiaIndustriesLtdvCIT(2011)243CTR328/60DTR121(Cal)(HighCourt). ChapterXII.C.Powers. S.132:SearchandSeizureWarrantofAuthorisationJointNamesBlockAssessment(S.158BC) Awarrantofauthorizationmustbeissuedindividually.Ifitisnotissuedindividually,thentheassessmentcannot be made in individual capacity. Warrant of authorization issued in joint names of husband and wife. Individual assessmentonwifealonenotvalid.(A.Y.1995to2001) CITvs.VandanaVerma(Smt.)330ITR533/(2009)227CTR388/(2009)31DTR214/(2010)186Tax88(All)(HighCourt) S.132:SearchandSeizureValidityInformationWritPetitionDismissedongroundofdelay On the facts the court upheld the validity of search on the ground that the Assessing Officer gathered the information about undisclosed income. Apart from that the Writ petition was filed after two years hence the petitionwasdismissedongroundoflaches.Section131(1A),operatesinadifferentfieldthansection132,while section131(1A),occupiesfieldbeforeissuingsearchandseizurewarrant,section132comesintoplaythereafter. Assumingthepowerisinvokeditwillnotanywayaffectthevalidityofsearchandseizureoperation. V.S.Chauhan(Dr)vDirectorofIncomeTax(2011)200Taxman413(All)(HighCourt). S.132:SearchandSeizureWarrantofAuthorisationCommonSearchWarrantValidity Common search warrant specifying names and addresses of persons residing at different places, held to be valid.(A.Y.200506) EmbassyClassicP.Ltd&Anothervs.ACIT(2011)7ITR287(Bang.)(Trib.) S.132:SearchandSeizureWarrantofAuthorisationCommonSearchWarrantValidity. Commonsearchwarrantspecifyingnamesandaddressesofpersonsresidingatdifferentplaces,heldtobevalid. (A.Y.200506) EmbassyClassicP.Ltd.&Anothervs.ACIT(2011)7ITR287(Bang.)(Trib.) S.132:SearchandSeizure.IfSearch&Seizureactionviolateshumanrights,officerspersonallyliabletopay compensation The incometax department conducted search and seizure operations u/s 132 at the premises of the assessee wheninterrogation&recordingofstatementwasconductedformorethan30hoursandtilltheoddhoursofthe night without any break or interval. The assessee filed a complaint alleging violation of human rights. HELD upholdingtheplea: TheCommissionisoftheviewthatthemembersoftheraidingpartymaytaketheirowntimetoconcludethe search&seizureoperationsbutsuchoperationsmustbecarriedoutkeepinginviewthebasichumanrightsof the Individual. They have no right to cause physical and mental torture to him. If the officerincharge of the Interrogation/recordingofstatementswantedtocontinuewiththeprocessheshouldhavestoppedthesameat thepropertimeandresumeditnextmorning.Butcontinuingtheprocesswithoutanybreakorintervalatodd hoursupto3:30AM,forcingtheapplicantand/orhisfamilymemberstoremainawakewhenitistimetosleep
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wastorturousactwhichandcannotbecountenancedinacivilisedsociety.Itwasviolativeoftheirrightsrelating todignityoftheindividualandthereforeviolativeofhumanrights.Evendiehardcriminaloffendershavecertain humanrightswhichcannotbetakenaway.Theapplicantspositionwasnotworsethanthat.Intheopinionofthe Commission,theIncomeTaxDepartmentshouldensurethatthesearch&seizureoperationsatlargeinfuture arecarriedoutwithoutviolatingonesbasichumanrights. RajendraSingh(BiharHumanRightsCommission).www.itatonline.org. S.132(1):SearchandSeizureAuthorisationWarrantinjointnamesValidity What is required to be stated in search warrant is precise details about the assessee and the persons to be searchedwhichcontainedinthewarrantsissuedinthesecases.Thewarrantsauthorizingsearchofagroupof concernsbyawarrantissuedundersection132isvalid. JoseCyriacvs.CIT(2011)238CTR207/50DTR292(Ker.)(HighCourt) S.132B:ApplicationofseizedorretainedassetsDelayinpaymentofrefundInterest. Delayinpayingrefundinterestpayableundersection132B.(A.Y.199596) VishwanathKhannavUOI(2011)335ITR548/244CTR208(Delhi)(HighCourt). S.133A:SurveyStatementDisclosureRetractionAddition Additioncannotbemadesolelyonthebasisofstatementrecordedduringsurveyinabsenceofanycorroborative evidenceandsupportingmaterialincasewhereinithasbeenretracted. ACITvs.PrabhuDayalKanojia(2011)TaxWorldVol.XLVPart1.Page23.(January,11)(Trib) S.133A:SurveyUnexplainedInvestmentReportsofFactsExplanationandReconciliation(S.69) Thereportsoffactscollectedattimeofsurveyarealwayssubjecttoexplanationandreconciliationbyassessee which can be explained either at the time of survey or after survey before Assessing Officer at the time of assessment,therefore,merelyonthe basisofthatsomedifferenceswerefoundatthetimeofsurveyinstock additioncannotbemadeautomatic.(A.Y.200506) ChawalaBrothers(P)Ltd.vs.ACIT(2011)43SOT651(Mum.)(Trib.) S.133A:SurveyStatementDisclosureRetractionAddition. Additioncannotbemadesolelyonthebasisofstatementrecordedduringsurveyinabsenceofanycorroborative evidenceandsupportingmaterialincasewhereinithasbeenretracted. ACITvs.PrabhuDayalKanojia(2011)TaxWorldVol.XLVPart1Page23.(January,11)(Trib.) CahpterXIV. Procedureforassessment. S.139:ReturnRevisedReturnAmalgamationofCompaniesBIFRUnabsorbedBusinessLossSickCompany TheSickIndustrialCompanies(SpecialProvisions)Act,1985(S.72A,80) BIFR can specify date from which its scheme becomes effective. Amalgamation in January 1994, Scheme sanctioned by BIFR with effect from February 1, 1992. The assessee filed revised return on 3131994, claiming unabsorbedbusinesslossofsickcompany.Returnheldtobevalid.SpecialprovisionsoftheActhasoverriding effectoverIncomeTaxAct.(A.Y.199293) CITvs.J.K.CorporationLtd.(2011)331ITR303/239CTR196(Cal.)(HighCourt) S.139(1):ReturnForeignCompanyDTAAIndiaNetherland
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Aforeigncompany,whichisliabletobetaxedinIndiabyvirtueofsection5(2)isrequiredtofileitsreturnunder section139notwithstandingthatitisnotliabletopaytaxinIndiaduetoprovisionsofDTAA. VnuInternationalB.V.InRe(2011)240CTR12(AAR) S.139(5):RevisedreturnIntimation.(S.143(1)(a)). Anintimationundersection143(1)(a)oftheActcannotbeequatedwithanassessmentframedundersection 143(3)oftheActandtheAssessingOfficercannotrefusetoprocesstherevisedreturnandmodifytheintimation inaccordancewithsection143(1B)oftheAct.(Asstyear199596). CITvHimagiriFoodsLimited(2011)333ITR508(Delhi)(HighCourt). S.140:ReturnNotsignedbyManagingDirectorCurableDefects(S.292B) Return of Company not signed by Managing Director but by person authorized by Board resolution, defects curableundersection292B.(A.Y.200102and200203) HindSamacharLtd.vs.UOI(2011)330ITR266/(2008)217CTR637/169Tax302/5DTR88(P&H)(HighCourt) S.142A:EstimatebyValuationOfficerincertaincasesReferencetoDistrictValuationOfficer. WheretheassessmentisframedbytheassessingofficerandtheappealisdecidedbytheCIT(A)prior to30.09.2004itisnotopentotheassessingofficertoordervaluationofpropertybyDistrictValuation Officer(DVO)astheprovisionofsection142Aarenotretrospective. CITvs.NaveenGera(2011)56DTR170(Del)(HighCourt). S. 142(2A) : Assessment Special Audit No evidence that Assessing Officer had found accounts complex OrderforSpecialAuditnotvalid. No record that the Assessing Officer had considered the accounts and found them to be complex, and in the absence of recording with regards to the complexities of accounts on which he had formed an opinion with regardstothecomplexitiesofaccountsorderpassedundersection142(2A)forspecialauditwasheldtobenot valid.(A.Y.200506) FarmsonsFashionPvt.Ltd.vs.Dy.CIT(2011)332ITR115/55DTR364(Guj.)(HighCourt) S.143:AssessmentOpportunityforcrossexaminationEntireordercannotbesetaside. WhereanorderhadbeenpassedbytheAssessingofficerwithoutgrantingtheassesseeanopportunitytocross examineandtheassesseepreferredawritpetition.TheApexcourtheldthattheHighCourtoughtnottohave setasidetheorderofassessmentbuttohaveonlygrantedtheassesseeanopportunitytocrossexaminethe witness.(Asstyear200405). ITOvM.PiraiChoodi(2011)334ITR262(SC). EditorialDecisionofmadrasHighCourtinM.PiraiChoodivITO(2008)302ITR40(Mad),setaside. S.143(2)AssessmentNotice. Wherenoticeu/s.143(2)wasservedupontheassesseeafteraperiodof12monthsfromtheendofthe monthinwhichthereturnwasfiled,itwasheldthattheproceedingsinpursuanceofsuchnoticewas invalidandliabletobequashed. DCITV/s.MaximaSystemsLtd.{2011}198Taxman192(Guj.)Mag.)(HighCourt). S.143(2):AssessmentValidityServiceofNotice. In the absence of service of notice under section 143(2) or if the notice is served after the statutory time limit
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undersection143(2)thentheassessmentinsuchcircumstancesisinvalid.(A.Y.200405to200607) CITvs.Mayawati(Ms.)(2011)135TTJ167(Delhi)(Trib.) KiranBansal(Mrs.)vs.ACIT(2011)135TTJ676(Delhi)(Trib.) S.143(2):AssessmentValidityofnoticeNotpressedbeforeCIT(A)Cannotpressthegroundaftergapoffive years. Assessee contended that it did not receive notice issued under section 143 (2), Assessees representative attendedandassesseehasnotraisedtheissueofserviceofnoticebeforetheAssessingOfficer.Thegroundwas taken before the CIT (A) and the same was not pressed. The Tribunal held that the assessee cannot press the groundaftergapoffiveyears.(Asstyear200304). ThistleProperties(P)LtdvAsstCIT(2011)55DTR81(Mumbai)(Trib). S.143(2):AssessmentSearchandSeizureNotice.(S.153A). While making an assessment under section 153A service of notice under section 143 (2), within the prescribed timeismandatory.Intheabsenceofserviceofsuchnotice,theAssessingOfficercannotmaketheadditioninthe income of the assessee and the Assessing Officer is bound to accept the income as returned by the assessee. (Asstyear200102) NarendraSinghvITO(2011)138TTJ615(Agra)(Trib) S.143(3):AssessmentOpportunitytoCrossexamine. The AO passed the order without granting an opportunity to crossexamine. The High Court set aside the assessment order in the writ petition. Held, the High Court ought not to have set aside the assessmentorderbutshouldhavegrantedtheassesseeanopportunitytocrossexaminethewitness.( A.Y.200405) ITOv.M.PiraiChoodi[2011]334ITR262(SC) S.143(3):AssessmentAdhocDisallowanceBusinessExpenditure Ad hoc disallowance without any basis out of carriage, labour and sealing expenses cannot be sustained particularlywhentheTribunalhasallowedsimilarexpensesintotalityinanearlieryear.(A.Y.199293) FriendsClearingAgency(P)Ltd.vs.CIT(2011)237CTR464/49DTR297(Delhi)(HighCourt) S.143(3):AssessmentAdditionsOpportunityofCrossExaminationNaturalJustice. Where addition had been made on the basis of a statement of party, behind the assessees back and without providinganyopportunitytocrossexaminethepartydespitebeingaskedforbytheassessee,itwasheldthat thematterwastoberemandedbacktotheAssessingOfficerfordisposalafresh.(A.Y.199899) AshokLalwanivs.ITO(2011)196Taxman82(Delhi)(Mag.)(HighCourt) S.143(3):AssessmentNoticebyAffixtureAssessmentheldtobeinvalid. Wherenoticeforassessmenthadbeengivenonlyaweekpriortotheexpiryofthelimitationperiodbywayof affixtureandneitherwasanyothermodeofserviceadoptednorwasitshownthattheassesseehadrefusedto acceptservice,itwasheldthatthenoticewasinvalidandconsequentlytheassessmentwasstruckdown.(A.Y. 196970) CITvs.KishanChand(2011)196Taxman88(P&H)(Mag.)(HighCourt) S.143(3)AssessmentAdditions.
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Where the assessee himself offered Rs. 20 Lacs as income purportedly on account of deficit in stocks but apartfromtheassesseesoffer,there wasnoothermaterialpointingtowardssuchdeficit,it was heldthatadditionwasnotjustified. CITV/s.C.Jayantilal{2011}199Taxman34(Mad.)(Mag.)(High(Court). S.143 (3): Assessment Order giving effect to order of Tribunal Scope Binding nature of order of Tribunal. ( S.237,254(1)) While giving effect to the appellate order, the Assessing Officer cannot travel beyond the order of Tribunal. AssessingOfficerbeingaquasijudicialauthorityandsubordinatetotheTribunalisboundbythedecisionofthe Tribunal.(A.Y.200102). LopmudraMishravAsstCIT(2011)59DTR257(Orissa)(HighCourt). S.143(3):AssessmentAdditionAdhocAdditionSelfmadevouchers Adhoc disallowance cannot be made simply holding that self made vouchers cannot be taken as correct and proved,unlesssomeofsuchvouchersareprovedasbogusorfake. ITOvs.BajrangTradingCompany(2011)TaxWorldVol.XLVPart1Page33(January,11)(Trib) S.144C:DisputeResolutionPanelActtoexpectations&nothaveperfunctoryapproach TheDRP,isanauthoritycreatedunderastatuteandconferredwiththepowers,whichhastheobligationtoact asabodylivingtotheexpectationswhichthelawmandates.Itwasheldthatsection144CempowerstheDispute ResolutionPanel(DRP)toissuedirectionstotheAssessingOfficerandcannotbetreatedastotallyredundantor absolutelyinefficaciousremedytotheassessee.Thus,noassesseecanhaveanykindofapprehensionthatthe approachtotheDRPisperfunctory. EricssonABvs.ADIT(DelhiHighCourt)Source:www.itatonline.org S.144C:DisputeResolutionPanelTransferPricingOrdercannotbepassedifnotransferpricingadjustments madebyTPO(S.92CA) WherenotransferpricingadjustmentshadbeenmadebytheTPO,theassesseewasnotaneligibleassessee andtheAssessingOfficerhadnojurisdictiontopassthedraftassessmentorder.(A.Y.200607) PankajExtractionLtd.vs.ACIT(2011)198Taxman6/56DTR32/241CTR390(Guj)(HighCourt) S. 144C: Dispute resolution panel Transfer Pricing Jurisdictional CIT should not be part of DRP to avoidlikelihoodofbiasReassessment(S.147.). Where DITII was exercising supervisory functions over the AO, the real likelihood of official bias cannot be ruled out. Even if the officer is impartial and there is no personal bias or malice, nonetheless,arightmindedpersonwouldthinkthatinthecircumstances,therecouldbe alikelihood ofbiasonhispart.Inthatevent,theofficershouldnotsitandadjudicateuponthematter.Heshould recusehimself.Thisfollowsfromtheprinciplethatjusticemustnotonlybedonebutseentobedone. In order to ensure that no person should think that there is a real likelihood of bias on the part of the officerconcerned,theCBDTisdirectedtoensurethatajurisdictionalCommissionerisnotnominatedasa memberoftheDRPunderRule3(2)ofthe Rules.Bydoingthis,theprinciplethatjusticemustnotonly bedonebutseentobedonewouldbeensured.NonethelesstheconstitutionalvalidityofS.144Cand R.3(2)oftheRuleswasupheld. Hyundai HeavyIndustriesLtd.vs UOI(2011)60DTR145/ 243CTR313/(2011) Tax L.R.744.(Uttarakhand) (HighCourt)www.itatonline.org.
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S.144C:DisputesResolutionpanelDirection. Direction given by the Dispute Resolution Panel to the Assessing Officer to reconsider petitioners claim for deduction under section 10A after verifying the income from engineering and design services and examining whether the same qualified for deduction or not giving liberty to Assessing Officer to decide the issue , after hearingthepetitioner,isnotviolativeofsubsection(5)and(8)ofsection144C.(A.Y.200607). GEIndiaTechnologyCentre(P)LtdvDYCIT(2011)242CTR462/60DTR322(Kar)(HighCourt). S.144C:DisputeResolutionPanelTransferPricingSpeakingOrder Where the Dispute Resolution Panel has brushed a side assessees submissions without even a whisper of the assessees objections against draft assessment order, and passed a laconic nonspeaking order, the matter is remittedtothefilesofDisputeResolutionPanelforspeakingorder.(A.Y.200607) GAPInternationalSourcingIndia(P)Ltd.vs.Dy.CIT(2011)49DTR313/9ITR129(Trib.)(Delhi) S.144C.DisputeResolutionPanelTransferpricingSpeakingorder.(S.92C.). WhereorderofDRPisanonspeakingorder,samecannotwithstandtestoflaw.(AsstYear200607). GeodisOvearseas(P)LtdvDyCIT(2011)45SOT375(Delhi)(Trib). S. 145 : Method of Accounting Accounting Standard Advance received in current year for service to be renderedissubsequentyearIncomeaccruedinsubsequentyear. Accountingstandardprovidesthatincomeaccruesonlyifthecorrespondingservicehastoberenderedduring the same relevant year. In an event where amount received in advance for a service is to be performed in subsequentyear,theadvancecouldnotbetakenasincomeintheyearofreceipt.(A.Y.199298) CITvs.DineshKumarGoel(2011)331ITR10(Delhi)(HighCourt) S. 145. Method of accountingAccounts Valuation of unquoted Govt. securities basis of RBI guidelines.Sustainablemethodofvaluation. In case where the securities are not quoted in market, market price is not known under these circumstances Valuation done by assessee of the unquoted Government securities on the basis of ReserveBankofIndiaguidelineswasheldtobeasustainablemethodofvaluation.(A.Y.199495) CITvs.TheLordKrishnaBankLtd.(2011)55DTR277(Ker)(HighCourt) S.145:MethodofAccountingValuationofStockCompletionofContractMethodWorkinprogress Assesseehavingfollowedpercentagecompletionmethodconsistentlywhichhasbeenacceptedinearlieraswell as in subsequent years valuation of closing work in progress made by it at historical cost cannot be disturbed particularlywhenthecategoricalfindingsoftheCIT(A)highlightingthattheassesseehasnotdeviatedfromthe guidelinesissuedbytheICICIunderAS7hasnotbeenchallengedbytherevenue.AdditionmadebytheAssessing Officerbyreworkingtheclosingworkinprogressatcurrentratesrightlydeleted.(A.Y.19981999,19992000) ACITvs.DhartiEstate(2011)51DTR28/129ITD1/136TTJ263(Mum.)(Trib.)(TM) S.145:MethodofaccountingEstimationofprofitsSurveyRejectionofbooksofaccounts. Fortherelevantassessmentyeartheassesseefiledthenilincome.InthecourseofsurveytheAssessingOfficer found that there was certain unaccounted stock . The Assessing Officer rejected the books of account under section145(3)andestimatedthenetprofitandalsosales.Healsomadeseparateadditionweremadeinrespect ofunaccountedstockundersection69aswellasdisallowancesandadditionsinrespectofexcesswastagesetc.
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ThedirectiongiventotheCommissioner(Appeals)toworkoutthenetprofitbyapplyingarateashadbeenin theimmediatelyprecedingassessmentyear.(A.Y.200102). AsstCITvRatanIndustries(P)Ltd(2011)131ITD195(Agra)(TM)(Trib). S. 145 : Method of Accounting Despite s. 209(3) of the Cos Act, company can follow cash system for tax purposes AsperSec.209(3)oftheCosAct,acompanyisobligedtofollowthemercantilesystemandthatisitsregular method for purposes of s. 145. It was held that the assessee has regularly employed the cash system of accounting in recording its day to day business transactions. It is not a case where the assessee has been maintaining its accounts of day to day business under the mercantile system of accounting and thereafter preparesaccountsinaccordancewithcashsystemofaccountingforincometaxpurposes.Section209(3)ofthe CompaniesAct,1956doesnotoverrides.145oftheIncometaxAct.TherewasalsonovalidbasisfortheAOsaction in rejecting the books of account and system of accounting followed by the assessee. Further, since the departmenthasacceptedtheassesseessystemforthepastseveralyears,theprinciplesofconsistencyapplyand thereshouldbefinalityandcertaintyinlitigationintheabsenceoffreshfactstoshowthattheassesseessystem ofaccountingisarbitraryorperverse. DCITvStupconsultantsPvt.Ltd.(Mum)(Trib)(www.itatonline.org) S.145A:MethodofAccountingAccountsValuationofclosingstockExciseduty. Excisedutyonsugarmanufacturedbutnotsoldisnottobeincludedinthevalueofclosingstock.In respectof excisablegoodsmanufacturedandlyinginstockexcise dutyliabilitywouldgetcrystallized ondateofclearanceofgoodsandnotondateofmanufactureandtherefore,tilldateofclearanceof excisablegoods,assesseecannotbesaidtohaveincurredexcisedutyliability(Asstyear200102). CITvLokneteBalasahebDesaiS..S.K.Ltd(2011)200Taxman238/59DTR169/243CTR181(Bom)(High Court). S.145(3):MethodofaccountingAssessmentAccountRejectionofBooks. Where discrepancy in stock found during the survey was negligible and no other incriminating documents or material was found. The Honble High Court confirmed the order of the Tribunal, that merelyonbecausetheassesseehadnotmaintainedstockregisterbookofaccountsmaintainedbythe assesseeintheordinarycourseofbusinesscannotberejected.(A.Y.19992000) CITvs.BindalsApparels(2011)56DTR202(Del)(HighCourt) S. 147: ReassessmentExempted incomeDespite bar in Proviso to s. 14A, s. 147 reopening for earlier yearsvalid.(S.14A.) ForAY200001,theassesseefiledareturnon30.11.2000.Ass.14AwasinsertedsubsequentlybyFA2001 (w.r.e.f1.4.62)andwastabledinParliamenton28.2.2001,theassesseedidnotmakeanydisallowanceu/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A. The assesseechallengedthereopeningonthegroundthat(i)undertheProvisotos.14A,areopeningu/s 147 for AY 200102 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court (197 TM 415) dismissed the Writ Petition inter alia on the ground that the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospectiveamendment.ThoughtheROIwasfiledbefores.14Awasenacted,theassessmentorderwas
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passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality. On appeal by the assessee to the SupremeCourt,HELDdismissingtheSLP: Inourview,thereopeningofassessmentisfullyjustifiedonthefactsandcircumstancesofthecase. However, on the merits of the case, it would be open to the assessee to raise all contentions with regardtotheamountofRs.98.46lakhsbeingofferedfortaxaswellasitscontentiononSection14A oftheIncomeTaxAct,1961. HondaSielPowerProductsLtdvsDCIT(SC).www.itatonline.org. S.147:ReassessmentScopeItemsunconnectedwithescapementforwhichnoticewasissued(S.148) Ifinthecourseofreassessment,itcomestothenoticeoftheAssessingOfficerthatanyitemoritemsotherthan the item of escaped income for which original assessment was reopened, have also escaped assessment, he is boundtoassesssuchitemsofincomealsointhecourseofreassessment.(A.Y.2001to2003) CITvs.BestWoodIndustries&SawMills(2011)237CTR404/331ITR63/50DTR143(Ker.)(FB)(HighCourt) S.147:ReassessmentFullandTrueDisclosureAfterFourYearsDeductionCaptivePowerPlantExpansion ofProject(S.80IA,80IB) Assesseehavingclaimeddeductionundersection80IA,inrespectoftheprofitsmadebyitscaptivepowerplant disclosingthecomputationofprofitsandexplainingthebreakupthereofanddisclosedthebasisonwhichit wasclaimeddeductionundersection80IB,inrespectoftherefineryexpansionprojectandlubeunit,itcannotbe said that there was a failure on the part of the assessee to disclose fully all material facts necessary for the assessmentandthereforereopeningofassessmentbeyondtheperiodoffouryearsfromtheendoftherelevant yearwasnotjustified.(A.Y.20022003) HindustanPetroleumCorporationLtd.vs.Dy.CIT(2011)238CTR28/(2010)328ITR534/(2010)192Tax178/(2010)42 DTR262(Bom.)(HighCourt) S.147:ReassessmentFullandtruedisclosureAfterfouryearsChangeofOpinion AssessingOfficerhavingreopenedtheassessmentonthesolebasisthatthesystemofaccountingadoptedby theassesseewhichhasbeenacceptedwhileframingtheoriginalassessmentisnotappropriate,withoutmaking anyallegationthattherewasnondisclosureofmaterialfactsbytheassesseeatthattimeoforiginalassessment, Itisacaseofmerechangeofopinionandtherefore,reopeningofassessmentafterexpiryoffouryearsfromthe endoftherelevantassessmentyearswasnotvalid.(A.Y.199596and199798) CITvs.ManishAjmera(2011)51DTR117(Raj.)(HighCourt) S.147:ReassessmentReopeningForA.Y.200001validdespiteProvisotosection14AMaterialfactsmustbe disclosedduringassessmentproceedings The Proviso to section 14A bars reassessment but not original assessment on the basis of the retrospective amendment.TheobjectandpurposeoftheProvisoistoensurethattheretrospectiveamendmentisnotmadeas atooltoreopenpastcaseswhichhaveattainedfinality. ItisthedutyoftheassesseetobringtothenoticeoftheAssessingOfficerparticularitemsinthebooksofaccountor portions of documents which are relevant. Material facts are those facts which if taken into accounts they would haveanadverseaffectonassesseebythehigherassessmentofincomethantheoneactuallymade.(Consolidated Photo281ITR394(Del.)followed);
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Accordingly,thefactthatthereweresection154proceedingsisnotabartothesection147proceedings.Itwas furtherheldthatthescopeofsection154&147/148aredifferentanditcannotbesaidasageneralprinciplethat if notice under section 154 is issued, then notice under section 147 / 148 is barred or prohibited (Hindustan UnileverLtd.325ITR102(Bom.)distinguished).(A.Y.20002001) HondaSielPowerProductsLtd.vs.Dy.CIT(2011)197Taxman415(Delhi).(DelhiHighCourt) S.147:ReassessmentReasontoBelieveSubsequentSupremeCourtDecision[S.10(29)] Judgment of the Supreme Court holding that exemption under section 10(29) is available only to that part of incomewhichisderivedfromlettingofgodownsorwarehousesandnottheincomederivedfromothersources constitutedavalidbasisforreopeningtheassessments.TheTribunalhavingnottoucheduponthequestionasto whether or not this very issue was discussed in the original assessment to the assessee that it was a case of change of opinion, order of Tribunal is set aside and the matter is remitted back to the Tribunal for fresh considerationonlyonthisaspect.(A.Y.199596and199798) CentralWarehousingCorporationvs.ACIT(2011)51DTR198(DelhiHighCourt) S.147:ReassessmentBeyondfouryearsNofailureonthepartofassesseeBadDebts. Allowanceofbaddebtwasspecificallyraisedintheoriginalassessmentproceedingsandonreceivingexplanation fromassesseetheclaimofassesseewasallowed,reassessmentheldtobeinvalid.(A.Y.200405) YashRajFilmsP.Ltd.vs.ACIT(2011)332ITR428(Bom.)(HighCourt) S.147:ReassessmentCompensationonAcquisitionofLandEnhancementbySupremeCourt. Initiationof thereassessmentproceedingsinrespectofescapedincomeduetoacquisitionofpetitionersland was not vitiated as Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment.(A.Y.198990to19941995and199899) MayaRastogi(Smt)vs.CIT(2011)52DTR237(All)(HighCourt) S.147:ReassessmentChangeofOpinionIncomesubjectmatterofblockassessment(S.158BC) OncetheAssessingOfficerproceedstomakeblockassessmentundersection158BCbasedonmaterialsgathered duringsearchundersection132,hecannotproceedtomakereassessmentundersection147onthebasisofthe same material, after block assessment is cancelled by the first appellate authority. Assessing Officer has no jurisdiction to assess the very same amount, which was considered and given up while making block assessment.(A.Y.199293) CITvs.C.Sivanandan(2011)52DTR428(Ker.)(HighCourt) S.147:ReassessmentChangeofOpinionInvestmentBusinessIncome. Whereassessmentwascompletedholdingthattheincomefromconversionofequitysharefromstockintrade to investment was business income. Reassessment proceedings initiated merely by taking view that income shouldtaxedundertheheadshorttermcapitalgainamountedtoamerechangeofopinionassuchliabletobe quashed.(A.Y.200506) RituInvestmentP.Ltd.vs.CIT(2011)51DTR162(Del.)(HighCourt) S.147:ReassessmentSearchandSeizureSameMaterialBlockAssessmentheldtobeinvalid.(S.158BC) Oncematerialsaregatheredduringthesearchproceedingsundersection132oftheActitisuptotheAssessing Officer to make either block assessment under sections 158BC or assessment under section 147 of the Act
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whicheverhefindsappropriate.However,oncetheassessingofficerproceedstomakeassessmentundersection 158BCwhichiscancelledbytheappellateauthority.TheAssessingOfficercannotproceedtomakeassessment undersection147oftheActonthebasisofthesamematerial.(A.Y.199293) CITvs.C.Sivanandan(2011)52DTR428(Ker.)(HighCourt) S.147:ReassessmentChangeofOpinion. Change of opinion leading to reason to believe opinion formed on a claim at the time of framing original assessmentcannotbechangedsubsequentlyonthesamesetofmaterialsavailableinrecord.Intheabsenceof anysubstantiveadditionalmaterials,itwillamounttochangeofopinion;therefore,reopeningofassessmentis badinlaw.(A.Y.199596) GujaratPowerCorporationLtd.vs.Dy.CIT(2011)238CTR91(Guj.)(HighCourt) S.147:ReassessmentCompensationonAcquisitionofLandEnhancementbySupremeCourt. Initiationof thereassessmentproceedingsinrespectofescapedincomeduetoacquisitionofpetitionersland was not vitiated as Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment.(198990to199495&199899) MayaRastogi(Smt)vs.CIT(2011)52DTR237(All)(HighCourt) S.147:ReassessmentChangeofOpinionIncomesubjectmatterofblockassessment.(S.158BC) OncetheAssessingOfficerproceedstomakeblockassessmentundersection158BCbasedonmaterialsgathered duringsearchundersection132,hecannotproceedtomakereassessmentundersection147onthebasisofthe same material, after block assessment is cancelled by the first Appellate Authority. Assessing Officer has no jurisdictiontoassesstheverysameamount,whichwasconsideredandgivenupwhilemakingblockassessment. (A.Y.199293) CITvs.C.Sivanandan(2011)52DTR428(Ker.)(HighCourt) S.147:ReassessmentCBDTbyNotificationwithdrewapprovalfordeductiontotheassesseewithrespectto thedeductionofdonationundersection35(1)(ii)assessmentreopenedNotificationquashedReasonsfor reopeningdoesnotsurvive.(S.35,148) The assessee was granted deduction for donation to an institute which was approved under section 35(1)(ii). CBDT withdrew the approval to the institution, on the basis of which the assessee assessment was reopened. Subsequently the notification was quashed by the Allahabad High Court, the High Court held that reasons for reopeningtheassessmentundersection147/148doesnotsurvive. UltraMarineAirAids(P)Ltd.vs.ACIT(2011)332ITR273(Delhi)(HighCourt) S.147: ReassessmentFullandtruedisclosureBeyondfouryearsEOU.(S.10B). Whentherewasnofailuretodisclosefullyandtrulyallmaterialfactsbyassessee,presumptiononthepartofthe AOthattheassesseehasfailedtoachieve82percentvalueadditioninordertobetreatedashundredpercent EOU required for availing deduction under section 10B was incorrect and reopening of the assessment beyond fouryearswasbadinlaw.(AsstYear200304). JayantAgroChemicalsLtdvITO(2011)241CTR242/55DTR361(Bom)(HighCourt). S.147:ReassessmentIfassesseedoesnotaskfors.147reasons&objecttoreopening,ITATcannotremandto AO&giveassesseeanotheropportunity.
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WhiletheAOisrequiredtorecordreasons,LawdoesnotmandatetheAOtosuomotosupplythereasonstothe assessee. It is for the assessee to demand the reasons and raise objections to the reopening which the AO is required to dispose of by passing a speaking order. As the assessee did not ask for the reasons and instead participatedinthereassessmentproceedings,theTribunalcouldnothaverestoredthematterbacktothefileof theAOandgiveanotheropportunitytotheassesseetoraiseobjectionstothereasonstobelieverecordedby the AO. It is trite that what cannot be done directly, it is not allowed indirectly as well. This novel and ingenuousness method adopted by the Tribunal in setting aside the reassessment orders on merits cannot be accepted. However,alsoheldthatastheassesseehadchallengedthevalidityofreassessmentbeforetheCIT(A),itoughtto havebeenprovidedwiththereasonsandsothematterwasremittedforsupplyofreasons. CITvsSafetagInternationalIndiaPvt.Ltd.(Delhi)(HighCourt) www.itatonline.org. S.147:ReassessmentIfAOdoesnotassessincomeforwhichreasonswererecordedu/s147,hecannotassess otherincomeu/s147. Though Explanation 3 to s. 147 inserted by the F.A. 2009 w.e.f 1.4.1989 permits the AO to assess or reassess incomewhichhasescapedassessmenteveniftherecordedreasonshavenotbeenrecordedwithregardtosuch items, it is essential that the items in respect of which the reasons had been recorded are assessed. If the AO accepts that the items for which reasons are recorded have not escaped assessment, it means he had no reasonstobelievethatincomehasescapedassessmentandtheissueofthenoticebecomesinvalid.Ifso,he hasnojurisdictiontoassessanyotherincome.(JetAirways331ITR236(Bom)followed). RanbaxyLaboratoriesLtd.vsCIT(2011)60DTR77(Delhi)(HighCourt).www.itatonline.org. S.147:ReassessmentDespiteWrongClaim,reopeninginvalidiffailuretodisclosenotalleged. ItisnecessaryfortheAOtofirststatethatthereisafailuretodisclosefullyandtrulyallmaterialfacts.Ifhedoes notrecordsuchafailurehewouldnotbeentitledtoproceedu/s147.Thereisawellknowndifferencebetweena wrongclaimmadebyanassesseeafterdisclosingallthetrueandmaterialfactsandawrongclaimmadebythe assesseebywithholdingthematerialfacts. TitanorComponentsLimitedvsACIT(2011)60DTR273(Bombay(HighcourtAtGoa).www.itatonline.org. EditorialHindustanLever(2004)268ITR332(Bom)followed). S.147:ReassessmentReasontobelieveSupremeCourt. Decision of Supreme Court forming the law from the very beginning of the existence of provision formsthematerialbeliefonescapementandtherefore,becomesavalidreasontoreopen.(A.Y.2005 06&200607) KartikeyaInternationalVs.CIT(2011)241CTR489(All)(HighCourt). S.147:Reassessmentchangeofopinion. On the claim of 80IB, the Assessee had furnished all the informations during assessment proceeding regarding the alleged manufacturing process involved on the basis of which the assessment was concluded by the Assessing Officer. On the same set of facts and materials, the Assessing Officer cannottakeadifferentviewbytakingrecoursetoSec.147whichwillamounttochangeofopinion.( A.Y.199899to200102) AnritfeesLtd.Vs.CIT(2011)239CTR82(Cal)(HighCourt).
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S.147:ReassessmentAfterfouryearsInternalauditor. Noticeissuedafterexpiryoffouryearsfromtheendoftherelevantassessmentyearmerelybasedon the report of the internal auditors was held to be bad in law when all the particulars were duly disclosed by the Appellant during the original assessment proceedings under section 143 (3) of the Act.(199798) CITvs.SimbhaoliSugarMillsLtd.(2011)55DTR233(Del)(HighCourt). S.147:ReassessmentAfterfouryearsExemption. Noticeissuedundersection148oftheActtoreassesstheincomeoftheassesseeafterexpiryoffour (4) years was held to be bad in law where the assessee had duly disclosed all the fact relating to sale ofshares,workingofcapitalgainandexemptionclaimedundersection54FoftheActinhisreturnof income and in the course of original assessment proceedings under section 143 (3) of the Act.( A. Y. 199697) VikramKothari(HUF)vs.StateofUttarPardesh&Ors.(2011)56DTR43(All)(Highcourt). S.147:ReassessmentMergerDeductionWithinfouryears.(S.80HHC,80I,80IA). Where the assessing officer after due application of his mind allowed the assessees claim of deductionundersection80HHC,80Iand80IAoftheActaftersomemodification,forwhichassessee preferred an appeal before the appellate authority. Reopening the assessment within four (4) years onthegroundthatdeductionundersection80HHC,80Iand80IBoftheActwasexcessivewasheld tobebadinlawforthereasonthattheassessmentorderhasmergedwiththeorderoftheCIT(A)and hadnoindependentexistence.(199697) UnitedPhosphorusLtd.vs.Addl.CIT(2011)56DTR193(Guj)(HighCourt). S.147:ReassessmentFullandtruedisclosureNoticeafterexpiryoffouryearsChangeinShareholding.(S.79). Assessingofficerreopenedtheassessmentonlyonthegroundthatthereisachangeintheshareholdingmore than 51 %in the assessment year 200102 in which the loss was incurred and therefore the loss incurred in the assessmentyear200102cannotbeallowedtobesetoffintheassessmentyear200304.Thecourtheldthatthe effectiveshareholdingofNedBankNihilentTechnologies(P)Ltdintheassesseecompanyhasgonedownbelow 51%havingbeenspecificallybroughttothenoticeoftheAssessingOfficerbytheassessee,therewasnofailureto disclosefullyandtrulyallmaterialfactsnecessaryforthepurposeofassessmentandreassessmentproceedings couldnotbeinitiatedafterfouryeas.(A.Y.200304) NihilentTechnologies(P)LtdvDyCIT(2011)59DTR281/243CTR77(Bom)(HighCourt) S.147:ReassessmentValuationofclosingstock(S.145A). AssesseehadnotincludedCSTandexcisedutypaidonclosingstock,whilemakingitsvaluationtherebyclaimed excess loss. The Court held that the Assessing Officer had sufficient reason to form belief that income of assesseehadescapedassessment,hencereassessmentheldtobevalid.(A.Y.20002001,200102). GinniFilamentsLtdvCIT(2011)Tax.L.R.538(All)(HighCourt). S.147:ReassessmentNoticeValidityStatusHUF(S.292B). Assessee and also his counsel through their respective letters having submitted that return which had already filedinthecapacityofHUFmaybetreatedtohavebeenfiledinpursuancetothenoticeissuedundersection148. ThesaidnoticeissuedbytheAssessingOfficerwithoutspecifyingthestatusoftheassesseedidnotrenderthe proceedingsinvalid,asthesaiddefectstoodcuredbyoperationofsection292B.(A.Ys197677to197879)
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CITvRajbirSingh(2011)59DTR285/243CTR185(P&H)(HighCourt). S.147:ReassessmentNoticeValidityService(S.292B,292BB). Assessee having filed return stating that the same is filed in response to notice under section 148 and no objectionwasraisedbeforetheAssessingOfficerregardingvalidityofserviceofnoticeundersection148,inview ofsection292BBitcannotbecontendedthattherewasvalidserviceofnotice.Section292BBisapplicabletoalI proceedingspendingon1stApril,2008. CITvPanchvatiMotors(P)Ltd(2011)59DTR289/243CTR189(P&H)(HighCourt). S.147:ReassessmentNonissueofNotice[S.143(2)] ItismandatorynotmerelyproceduralfortheAssessingOfficertoissuenoticeundersection143(2).Ifthenoticeis notservedwithintheprescribedperiod,theassessmentorderisinvalid(PawanGupta318ITR322(Del.),HotelBlue Moon321ITR362(SC)&C.Palaniappan284ITR257(Mad.)followed). UKTSoftwareTechnologiesvs.ITO(ITATDelhi)Source:www.itatonline.org(Trib) S.147:ReassessmentReasontoBelieveFindingofSubsequentYear(S.148) Informationobtainedintheassessmentofasubsequentassessmentyearcanbeagoodtoinitiateproceedings undersection147/148.Disallowanceofinterestexpendituremadeinassessmentofsubsequentassessmentyear onthebasisthattheinterestfreeadvancesconstitutedprimafaciematerialfortheAssessingOfficertoforma reasonablebeliefthatcertainincomehadescapedassessmentinthepresentyear.(A.Y.19992000) MarutiCivilWorksvs.ITO(2011)51DTR257(Pune)(Trib.) S.147:ReassessmentBeyondfouryearsRevaluationofAssets(S.45,50) Assessee firm having duly disclosed the fact of revaluation of assets, creation of self generated asset. Viz., goodwillandalsothatthedifferencebetweenthecostandrevaluedamountoftheassetshasbeentransferred topartnerscapitalaccountsandthesamewasfollowedbydissolutionoffirm,allprimaryfactsstooddisclosed bytheassesseeintheoriginalassessmentproceedingsitselfandtherefore,assessmentcouldnotbereopened afterexpiryoffouryearsfromtheendoftherelevantassessmentyearonthegroundthatdifferencebetween WDVoftheassetsandthevaluethereofafterrevaluationistaxableundertheprovisionsofsection45readwith section50whichhasescapedassessment.(A.Y.198687) IndustrialLiningvs.Dy.CIT(2011)52DTR233/45SOT60(Ahd.)(TM)(Trib.) S.147:ReassessmentAssessmentundersection143(1)WithinfouryearsReasonstobelieveNotvalid. [S.143(1)] Original assessment order was made under section 143(1) and the re opening of the assessment was initiated withinaperiodof4years,itwasstillnecessarythatthereshouldbereasonstobelievethatincomehadescaped assessmentandsuchreasonsaresubjecttojudicialscrutiny.Thereessentiallyhavetobevalidreasonstobelieve thatincomehasescapedassessmentandthesereasonsonstandalonebasismustbeconsideredappropriatefor arriving at the conclusion arrived at by the officer recording the reasons. In view of the above the initiation of reassessmentproceedingsintheinstantcasebytheAssessingOfficerwasheldbadinlawandtheproceedings werequashed.(A.Y.200102) PirojshaGodrejFoundationvs.Asst.DirectorofIncometax(2011)44SOT24(Mum.)(URO)(Trib.) S.147:ReassessmentSettlementcommission(S.254D(4).)
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Settlement Commission having already accepted the undisclosed income as shown by the assessee which coveredalltheissuesarisingoutoftheseizedpapersincludingrentalincome,orderundersection245(D)(4) waspassed.Intheabsenceofanynewdocumentormaterialtocometoadifferentconclusionthanthatwas acceptedbytheDepartment,assessmentsoftherelevantperiodcouldnotbereopenedbytheAObytakinga differentviewregardingassessabilityofrentalincome.(Asstyears200405to200607). JamulaShyamSundarRao(HUF)vAsstCIT(2011)138TTJ602(Ctk.)(Trib). S.147:ReassessmentRectificationpending(S.154) Whenproceedingsundersection154werependingonthesameissueandnotconcluded,parallelproceedings undersection147initiatedbytheAssessingOfficerareinvalidabinito,especiallywhenexceptthereturnandits enclosures,noothermaterialorinformationwasinthepossessionoftheassessingOfficer.(Asstyear200405) MahinderFreightCarriersvDyCIT(2011)56dtr247(Mumbai)(Trib). S.147:ReassessmentBlockassessment. Block assessment framed under chapter XIV B of the Act can be reopened under section 147 of the Act.(A.Y.199596) CIT&Anr.vs.RinkuChakraborthy(2011)56DTR227/242CTR425(Kar)(HighCourt) S.147:ReassessmentReasontobelieveDevelopmentagreementCapitalgains.(S.148). Assesseeenteredintodevelopmentagreementon1792004,onaconsiderationofRs4crores.Asthe developer failed to pay the agreed consideration, of Rs 30 lakhs before 31101994 , the assessee terminated the agreement .Thereafter issuing the cheques for Rs 30 lakhs on 3062005, the development agreement was restored. In view of further default on the part of developer, on 195 2010,thedevelopmentagreementwasonceagainterminated.Thedeveloperhasfiledthesuitbefore Bombay High Court , which was ultimately settled on 252011 , where in the consideration was enhanced from 4 crore to 7.5.crores . It was ordered the possession of the property to the developer on 252011.In the mean while the Assessing Officer issued notice under section 148 dated 2532010 , proposingtotaxthecapitalgaintaxarisingfromdevelopmentagreementintheAsstyear200506.In apetitionfiledbytheassesseetheHonourableBombay,Highcourtallowedthepetitionandquashed thenoticeissuedundersection148. AmarR.ShanbagvITO(WPNO552of2011dt1872011(593(2011)43ABCAJAugustp29.) S.147:ReassessmentDoubletaxationavoidanceIndiaMalaysia.(S.90). Assessee having permanent establishment in Malaysia . Income earned in Malaysia is taxable there under the provisions of Double taxation Avoidance Agreement between India and Malaysia. No Tax actuallyleviedbecauseamounthadnotbeenbroughtintoMalaysia.TheAmountnottaxableinIndia. ReassessmentproceedingstotaxamountinIndianotvalid.ThereisnoRulethatassesseeshouldpay taxinatleastonejurisdictiontobeeligibleforrelief. (AsstYears200101to200203and200506). SivagamiHoldingsP.LtdvAsstCIT(2011)10ITR48(Chennai)Trib). S.147:ReassessmentReasontobelieveChangeofopinionWithinperiodofFouryears. Once an assessment has been completed under section 143 (3) after raising a query on a particular issue and accepting assessees reply to the query. Assessing Officer has no jurisdiction to reopen the assessmentmerelybecausetheissueinquestionisnotspecificallyadvertedintheassessmentorder,
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unless there tangible material before the Assessing Officer to come to the conclusion that there is escapementofincome.(AsstYear199899). AsstCITvRoltaIndiaLtd(2011)57DTR370/139TTJ385/132ITD98(Mumbai)(TM)(Trib). S.147:ReassessmentIncomefromhousepropertyCoownerAssessment.(s.22). Scheme of the Act does not envisage that annual value of co owned property , upon being determined in assessmentofAOP,istobedividedamongstcoownersinpredeterminedratio.inhandsofAOPwaswholly academic infructuous . Quantification of annual value of coowned property in course of assessment of AOP consistingofcoownersisnotaconditionprecedentfortaxabilityofindividualshareofsuchincomeinhandsof coowners.TheveryinitiationofreassessmentproceedingsinhandsofAOPofcoownerswasunsustainableby law.(A.Y.200203). SujeerProperties(AOP)vITO(2011)131ITD377(Mum)(Trib). S.147:ReassessmentIssueissubjectmatterofappealTribunal.(S.148). OnceanissueissubjectmatterofappealbeforeTribunal,issuanceofnoticeofreassessmentonsaidgroundhas tobeconsideredbadinlaw.(A.Y.200001). ChikaOverseas(P)LtdvITO(2011)131ITD471(Mum)(Trib). S.147:ReassessmentAdditionsnotmadeonthebasisofreopeningReassessmentbadinlaw.(S.148). Ifnoadditionismadeonthebasisofrecordingofreasons,thereassessmentisbadinlaw.(A.Y.200001). ITOvBidbhanjanInvestment&TradingCO(P)Ltd(2011)59DTR345(Mum)(Trib). S.147:ReassessmentValuationofpropertyInspectorsreport. Merelybecausethestampvaluationauthorityhasadoptedcertainvaluationforpaymentofstampdutyonthe property purchased by the assessee, the same cannot be the basis to conclude that assessees income has escapedassessment,particularlywhennotangiblematerialhasbeenbroughtonrecordtosuggestescapement ofincomeexcepttheinspectorsreportwhichcouldnotbereliedupontoascertainthemarketvalueofproperty, hencereassessmentquashedbytheCIT(A)wasupheld.(A.Y.200506). ITOvShivShaktiBuildHome(P)Ltd(2011)141TTJ123(Jodhpur)(Trib). S.147:Reassessment:AssessingOfficerraisedspecificandpointedqueriesins.143(3)assessment,AOcannot besaidtohaveformedanyopinionifexplicitopinionnotrecorded. ThequestionofchangeofopinionariseswhentheAOformsanopinionanddecidesnottomakeanadditionand holds that the assessee is correct. Here, though the AO had asked specific and pointed queries there was no discussion,groundorreasonwhyadditionwasnotmadeinspiteoftheassesseesfailuretofurnishconformation anddetailstothatextent.Theargumentthatwhentheassessmentorderdoesnotrecordanyexplicitopinionon theaspectsnowsoughttobeexamined,itmustbepresumedthatthoseaspectswerepresenttothemindofthe AOandhadbeenheldinfavouroftheassesseeistoofarfetchedapropositiontomeritacceptance Thetermfailureonthepartoftheassesseeisnotrestrictedonlytotheincometaxreturnbutextendsalsoto the assessment proceedings. If the assessee does not disclose or furnish to the AO complete and correct informationanddetailsitisrequiredandunderanobligationtodisclose,thereisafailureonitspart. DalmiaPvt.Ltd.vCIT(Delhi)(HighCourt)(www.itatonline.org) S.147:ReassessmentHousingproject.(S.80IB(10).
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Asthereassessmentproceedingsareaimedattaxingtheincomewhichhasescapedassessment,thesecannot be taken as a tool for putting the assessee in a better position than in which it was before such proceedings.( A.Y.200405). BhumirajHomesLtdvDyCIT(2011)60DTR65(Mum)(Trib). S.148:ReassessmentTransferpricingJurisdictionWritpetition.(S,92C,Art226oftheconstitution. Honourablecourtobservedthatasfundamentalfactshavetoestablished,theassesseeoughtnottohavefiled thewritpetition.AccordinglytheassesseerelegatedtoproceedingspendingbeforeAuthorities.(Judgmentof HighCourt(CocaCoalaIndiaIncvAsstCIT(2009)309ITR194(P&H). CocaColaIndiaIncvAdddlCIT(2011)336ITR1(SC). S.148:ReassessmentSanctionofCommissionerApplicationofMind(S.151) A material fact which is not in existence right up to the time of assessment cannot possibly be disclosed. Therefore,afactwhichcomesintoexistencesubsequenttothemakingoftheassessmentcannotbeamaterial fact within the purview of section 147. The duty to disclose material factsnecessarily postulates existence of a thingormaterial.Ifamaterialisnotinexistenceorifamaterialissuchofwhichtheassesseehadnoknowledge therewouldbenodutytodisclosesuchmaterial(TirathRamAhuja(HUF)306ITR173(Del.)followed); TheCentralIndiaElectricSupplyCo.Ltd.vs.ITO(2011)51DTR51(DelhiHighCourt) S.148: ReassessmentValidityNoticeAmendmentFinanceAct,2006.(S.143(2),153(2).). AsperFinanceAct,2006,withretrospectiveeffectfrom1stOct.1991,allsuchnoticeswhichhavebeenserved undersub(2)ofsection143,afterexpiryof12months,havebeensaved.Thus,noticesundersubsection(2)of section 143, in respect of return furnished during the period commencing from 1st day of October, 1991 and endingon30thSept,2005,havebeensavedprovidedsuchanoticeisissuedbeforetheexpiryoftimelimitfor makingtheassessmentorreassessmentasspecifiedinsubsection2(ofsection153,hencereassessmentheldto bevalid.(Asstyears200001to200203) DyCITvGopalRamnarayanKasat(2011)240CTR266/54DTR228(Bom)(HighCourt). S.148:ReassessmentNoticeLimitationMeaningofissue.(S.149). Noticefortheassessmentyear200304wassignedon3132010andsenttospeedpostcentreon742010.The courtheldthatdateofissuewouldbedateonwhichnoticewashandedoverforservicetoproperofficer,hence noticewasbarredbylimitation. KanubhaiMPatel(HUF)vHirenBhattorhissuccessorstoOfficeandothers(2011)334ITR25(Guj)(HighCourt). S.148:ReassessmentNoticeOldaddressParticipatesinassessmentproceedings.(S.149,292BB.). WhenassesseedoesnotraiseobjectionregardingnonissueofnoticeandappearsbeforetheAssessingofficer and assessing officer gives copy of notice under section 148, Assessee participates in the assessment proceedings.Theserviceofnoticeevenattheoldaddressoftheassesseeconstitutesserviceofnoticewithin ambitofsection148.Whatiscontemplatedundersection149istheissueofnoticeundersection148andnotthe servicethereofontheassesseeandtheserviceofnoticeundersection148isonlyrequiredbeforeassessment, reassessmentorrecomputation.(Asst.year19992000). CITvThreeDeeExim(P)Ltd.(2011)55DTR147(Delhi)(HighCourt). S.148:ReassessmentNoticeAOentitledtodropnoticeissuedundersection154&issuenoticeundersection 148(S.154)
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ThoughtheprincipleofconstructiveresjudicatawasmadeapplicablebytheMadrasHighCourtinEIDParry216ITR 489(Mad.)thattheAssessingOfficerhavinginitiatedrectificationproceedingsundersection154shouldsticktothe sameonlyandcannotdropthatand proceedunder section147 is notacceptable.ButthefactthattheAssessing Officerinvokedsection154anddroppeditdoesnotaffectthevalidityofreassessmentundersection147. CITvs.IndiaSeaFoods(2011)54DTR223(Ker)(HighCourt)) S.148:ReassessmentNoticeissuedintime,dateofhandingoverbyAOtopostofficetobeseen.( S.148). Forpurposesofs.149,theexpression noticeshall beissuedmeansthat thenoticeshouldgo out of thehandsoftheAO.Merelysigningthenoticesonaparticulardatecannotbeequatedwithissuance of notice as contemplated u/s 149. The date of issue would be the date on which the same was handed over for service to the proper officer, which in the present case would be the date on which thenoticeswasactuallyhandedovertothepostofficeforthepurposeofbookingforthepurposeof effecting service on the assessee. Till the point of time the envelopes are properly stamped with adequatevalueofpostalstamps,itcannotbestatedthattheprocessofissueiscomplete. KanubhaiM.PatelHUFvsHirenBhatt(Guj)(HighCourt).www.itatonline.org. S. 148 : Reassessment Nonsupply of Reasons for Reopening within the limitation period time Reopening void Where the notice has been issued within the said period of six years but the reasons have not been furnished withinthatperiodishitbythebaroflimitationbecausetheissuanceofthenoticeandthecommunicationand furnishing of reasons go handinhand. A notice under section 148 without the communication of the reasons thereforeismeaninglessinasmuchastheAssessingOfficerisboundtofurnishthereasonswithinareasonable time.TheexpressionwithinareasonableperiodoftimeasusedinGKNDriveshafts259ITR19(SC)cannotbe stretchedtosuchanextentthatitextendsevenbeyondthesixyearsstipulatedinsection149. BalwantRaiWadhwavs.ITO(Delhi)(Trib.)Source:www.itatonline.org S.148:ReassessmentServiceofNoticeSecondNoticeValidityofAssessmentLimitationfromfirstnotice Itwasheldthatfirstnoticesentbyspeedpostaspermittedbysection282ispresumedtohavebeendulyserved upon the assessee and was valid. As the first section 148 notice was valid and reassessment proceedings were pending,thesecondsection148noticeisnotanirregularitybutanullity.(RanchhodasKarsandas26ITR105(SC) andJaiDevJain227ITR301(Raj.)followed.Thus,thelimitationperiodreckonedwithreferencetothefirstnotice. SanjayKumarGargvs.ACIT(ITATDelhi)Source:www.itatonline.org(Trib) S.148.ReassessmentServiceofnoticeServiceofnoticeoncharteredaccountant.(S282.) Serviceofnoticeundersection148onacharteredaccountantwhowasnotempoweredtoreceivesuchnotice on behalf of the assessee company or any other person who was not authorised to receive was not a valid serviceofnoticeontheassessee,moresowhenitwasnotshownthattheassesseewaskeepingoutofwayfor thepurposeofavoidingserviceofnoticeorthattherewasanyotherreasonthatthenoticecouldnotbeserved ontheassesseeintheordinarywayandtherefore,assessmentcompletedpursuanttosaidnoticewasbadin law.(Asstyear19992000). HarsingarGutkha(P)LtdvDyCIT(2011)138TTJ318(lucknow)(Trib). S.148:ReassessmentSanctiontoissuenoticeChiefcommissionerCommissionerAfterfouryears. (S.151.)
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Originalassessmentwascompletedundersection143(3)on2912001.Subsequently,AssessingOfficer who of rank of Assistant Commissioner (ACIT) initiated proceedings under section 147 vide notice dated 2432005 issued under section 148 , after obtaining approval from Joint Commissioner ( JCIT). As proceedings under section 147 were initiated after 4 years from relevant assessment year , assessee objected to jurisdiction of Assessing Officer in issuing notice under section 148 on ground that Assessing Officer had not obtained sanction of Chief Commissioner (CCIT) or Commissioner (CCIT).In view of Shashi Kant Garg (Dr) v CIT ( 2006) 285 ITR 158 (All) , objection raised by assessee wastobeupheldandconsequently,impugnednoticewasquashed.(AsstYear199899). ITOvBhaveshKumar(2011)131ITD1/59DTR145/140TTJ257(Agra)(TM)(Trib). S.149:ReassessmentTimelimitIssuanceofnotice.(S.148.) Section149onlyrequiresissuanceofnoticeundersection148,withinlimitationperiodanditcanbeservedon properpersonsubsequently,i.e.afterexpiryoflimitationperiod.(Asstyear199899). ITOvSikandarLalJain(2011)45SOT113(Agra)(TM)(Trib). S.150:ReassessmentLimitationFindingorDirection.(S.149.). Assessment having not been reopened to give effect to the order of the CIT (A). According to the Assessing OfficerbecauseofgivingeffecttotheordermadebytheCIT(A),willresultintoescapementofincome.The courtheldthatsection150didnotapply.Astherewasnofailureonthepartofassesseetodisclosefullyandtruly allmaterialfacts,reassessmentisclearlytimebarred.(A.Y.198889). HarsiddhSpecificFamilyTrustvJCIT(2011)58DTR149(Guj)(HighCourt). S.150:ReassessmentFindingDirectionLimitation.(S.149). Since no findings or directions had been given in assessment year 199293 to tax the receipt in question in assessmentyear199495underappealwhichisalsoinherentlyimpossibleinviewofthefindingsthatitiscapital receipt,provisionsofsection150wouldapplyinthecaseoftheassesseeandreopeningoftheassessmentmade afteraperiodofsixyearsfromtheendoftheassessmentyearwasclearlytimebarred.(A.Y.199495). VadilalDairyInternationalLtdvAsstCIT(2011)140TTJ371(Ahd)(Trib). S.150:ReassessmentPowerofAppellateauthority. Section150doesnotenableorrequireanappellateauthoritytogiveanydirectionsforreopeningofassessment, but it deals with a situation in which a reassessment is to be initiated to give effect to finding or direction of appellateauthorityorCourt.(A.Y.200203). SujeerProperties(AOP)vITO(2011)131ITD377(Mum)(Trib). S.151:ReassessmentSanctionLimitation. Incasescoveredundersection151,thenoticeistobeissuedbytheAssessingOfficerandtheonlyrequirementis thattheJt.CITshouldbesatisfiedonthereasonsrecordedbytheAssessingOfficer.Therewasnosatisfactionof theJt.CITfortheAsst.Year198990to199495,hence,noticesfortheseyearsareinvalid.(A.Y.198990to1994 95and199899) MayaRastogi(Smt.)vs.CIT(2011)52DTR237(All)(HighCourt) S.151:ReassessmentSanctionforissueofnoticeApplicationofMind.(S.148) Merely affixing a yes stamp and signing underneath suggested that the decision was taken by the Board in a mechanicalmannerassuch,thesamewasnotasufficientcomplianceundersection151oftheAct.(A.Y.196566)
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CentralIndiaElectricSupplyCo.Ltd.vs.ITO(2011)51DTR51(Del.)(HighCourt) S.153A:SearchandSeizureSpecialProcedureforAssessmentOnMoneyPaymentCompanyDirector Merely on the basis of entry in seized material not supported by corroborative evidence, and contradictions in statementofpurchaserofproperty,additionsmadeinthehandsofcompanyonsubstantivebasisandadditionin thehandsofDirectoronprotectivebasiswasdeleted.(A.Y.200506) EmbassyClassicP.Ltd&Anothervs.ACIT(2011)7ITR287(Bang.)(Trib.) S.153A:SearchandSeizureAssessmentSearchandSeizureValidityvisvisabsenceofnoticeundersection 143(2)Serviceofnoticepriortoissueofnoticeforfilingofreturn.[S.143(2)] Compliance of the provisions of section 143(2) can happen only after the receipt of return or documents as specifiedundersection142(1)(ii),hence,issueofnoticeundersection143(2)priortosuchstagedoesnotserve anypurpose,hence,redundant;asnonoticeundersection143(2)wasservedontheassesseeafterthefilingof return,theassessmentproceedingsarequashedasnullandvoid. ACITvs.G.M.Infrastructure(2011)49DTR151(Ind.)(Trib.) S.153A:SearchandSeizureSpecialProcedureforAssessmentOnMoneyPaymentCompanyDirector. Merely on the basis of entry in seized material not supported by corroborative evidence, and contradictions in statementofpurchaserofproperty,additionsmadeinthehandsofcompanyonsubstantivebasisandadditionin thehandsofDirectoronprotectivebasiswasdeleted.(A.Y.200506) EmbassyClassicP.Ltd&Anothervs.ACIT(2011)7ITR287(Bang.)(Trib.) S.153A:SearchandSeizureAssessmentincaseofsearchorrequisition. Once the warrant of authorization or requisition is issued and search is conducted, Panchanama is drawn, all the relevant six assessment years would get reopened irrespective of any incriminating material is found or not in respect of any particular assessment year falling within the relevant six assessmentyears.(200203to200506) MansukhKanjibhaiShah(Dr)v.Asstt.CIT(2011)129ITD376(Ahd)(Trib). S.153A:SearchandSeizureAbatementAssessmentpending. Only the assessments pending before the Assessing Officer for completion shall abate and under section 153A the issues decided in the assessment can not be reconsidered and readjudicated unless thereissome fresh material foundduringthecourse ofsearch in relationtosuch points. (AsstYears 200304to200506&200708). GurupreranaEnterprisesvAsstCIT(2011)57DTR465(Mumbai)(Trib). S. 153C: Search and seizureAssessment in case of any other person Assessment sans speaking & incriminatingdocumentsvoid.(S.132.) ForpurposeofattractingS.153C,thedocumentseizedmustnotonlybeaspeakingone,butalsoprimafacie incriminatingone.Thedocumentscannotbesaidincriminatingone,merelybecauseitcontainsthenotingsof entrieswhicharealreadyrecordedinbooksofaccountsorissubjectedtoscrutinyofAssessingofficerinthepast inregularassessmentu/s.143(3)oftheAct. SinhgadTechnicalEducationSocietyvsACIT(2011)57DTR241/140TTJ233(Pune)(Trib). S.153C:SearchandSeizureAssessmentComputationofundisclosedincomeCashCredit.
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Where the assessee has proved identity of the person the genuineness of the transaction as well as the capacity of the lenders and departmental authorities have not found any falsity in the evidences noadditioncouldbemadeundersection68.(AsstYears200304to200506&200708). GurupreranaEnterprisesvAsstCIT(2011)57DTR465(Mumbai)(Trib). S.153(2A):AssessmentLimitationSomeoftheadditionssetasideFreshAssessment.[S.153(3)(ii)] WhenseveraladditionshavebeenmadebytheAssessingOfficerandtheappellateauthoritysetsasideoneor moreoftheissuestothefileoftheAssessingOfficer,thatsituationwouldnotgiverisetoafreshassessment andinthatcasessection153(3)(ii)wouldapplyandnotsection153(2A). S.M.Dalvivs.ACIT(2011)53DTR105(Mum.)(Trib.) S.154:RectificationofMistakeIntimationu/s143(1)(a)cannotberectifiedafterorderpassedu/s143(3) Rectificationorderundersection154cannotbepassedtorectifyanintimationgivenundersection143(1)(a)after finalassessmentorderundersection143(3)ispassed.(A.Y.199495) TamilNaduMagnesiteLtd.vs.CIT,Coimbatore(2011)196Taxman271(Mad.)(HighCourt) S.154:RectificationofMistakeSettingasideofAssessment. Whereassessmentorderpassedundersection143(3)/147hasbeensetaside,consequentialorderundersection 154hasalsotobesetaside(A.Y.199798). CITvs.DCMFinancialServicesLtd.(2011)196Taxman439(Delhi)(HighCourt) S.154:RectificationofmistakesApparentfromrecordsOverlookingstatutoryprovision. Overlookingofstatutoryprovisionisclearlyamistakeonrecordand,onthatbasis,rectificationundersection 154isclearlyadmissible.(A.Y.198586). CITvSteelStripsLtd(2011)200Taxman368(Punj&Har)(HighCourt). S.154:RectificationofmistakesApparentfromrecordsSalariesPerquisitesTaxpaidbyemployerMerger.(S. 15,17). Whilecomputingassesseesoriginalassessment,AssessingOfficerdidnotincludetaxpaymentbyemployerto exchequeronbehalfofemployeeaspartofsalaryforcomputingvalueofrentfreeaccommodationperquisite under rule 3 . On appeal , Tribunal quashed of Assessing Officer for financial years 199596 to 199798, after grossing up income under section 195A and directed Assessing Officer to recomputed tax liability for said financialyears.Ordergivingeffectwasalsopassed.Howeverthereafter,AssessingOfficerrectifiedassessment under section 154 by recomputing value of perquisite in rest of rent free accommodation after including tax elementingrosssalary.Assesseechallengedtheorderonthegroundthattheissuebeingdebatableandoriginal order being merged with the order of Tribunal the Assessing Officer did not have jurisdiction to rectify the mistake under section 154.High Court held that when an earlier occasion ,Tribunal had not at all considered aforesaidissue,doctrineofmergerwouldnotbeapplicableininstantcase.WhenjurisdictionalCourtandother Courtshadheldatrelevanttimethatincometaxpaidbyemployeronbehalfofemployeeispartofsalary,issue couldnotbesaidtobedebatableandtherefore,therewaslegalerrorapparentfromrecordwhichwasrightly correctedbyAssessingOfficerundersection154. MitsubishiCorporationvCIT(2011)200Taxman372/337ITR498(Delhi)(Highcourt). S.154:RectificationofMistakeSubsequentdecisionofSupremeCourt.(S.10(10C).
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In view of subsequent judgment of the Supreme Court setting a side the judgment of the High Court, ,the assesseesareentitledtoexemptionundersection10(10C),andthereforeAssessingOfficerisdirectedtorectify theassessmentordertoallowexemptionundersection10(10C) K.R.Alagappan&OrsvAsstCIT(2011)59DTR295/243CTR85(Mad)(HighCourt). S.154:RectificationofmistakesBookprofitNotconsideringthestatutoryprovision.(S.115JA). Whenoriginalassessmentiscompletedwithoutreferencetothestatutoryprovisionandinclearviolationofthe same , such assessment could be rectified under section 154.In order to allow deduction of brought forward businesslossorunabsorbeddepreciationinthecomputationofbookprofitundersection115JA,bothshouldbe availableaspertheaccountsoftheassessee.Sincenothingisleftaftersettingoffbroughtforwardbusinessloss upto199495againstprofit,assesseewasnotentitledtoanyreliefunderclause(b)ofExplanation(iii)ofsection 115JAforassessmentyear199798.(A.Y.199798). CITvCarbon&ChemicalsIndiaLtd(2011)59DTR396(Ker)(HighCourt). S.154(7):RectificationofMistakeNoticeofDemandLimitation Orderundersection154purportedtohavebeenpassedon24thJanuary2000,andtheconsequentialcalculation oftaxpayableinFormNo.ITNS150havingbeenservedontheassesseeon24thMay2005and6thJune,2005, respectivelyi.e.Afterexpiryoflimitationundersection154(7),itcannotbeacceptedthattheorderwasinfact passedon24thJanuary2000,especiallywhennonoticeofdemandwasissuedandnorecoveryproceedingswere initiated.(A.Y.199596) V.B.DesaiFinancialServicesLtd.vs.Dy.CIT(2011)51DTR205/137TTJ338(Mum.)(Trib.) ChapterXIVB.Specialprocedureforassessmentofsearchcases. S.158BA:BlockAssessmentSearchandSeizureAssessmentofUndisclosedIncomeStock Itwasnoticedonverificationthattherewasnonotingorcomputationtoshowthattherewasdeficitofphysical stockattimeofsearchwhencomparedtobookstock.Itwasalsonotedthatbasicvariablesofcomputingstock positionthemselveswereestimatesassumedbytheAssessingOfficer.Alsothepartnerwhohadinitiallydeposed before the revenue authorities against the assessee firm, did not turn up for cross examination and thus the evidentiary value built on statement of the said person collapsed. In view of the above facts, the impugned additionmadebytheauthoritieswereheldnotsustainable.(A.Y.198990to199899) SunriseSalesCorporationvs.Dy.CIT(2011)43SOT16(Bang.)(URO)(Trib.) S. 158B(b) : Block Assessment Search and Seizure Computation of Undisclosed Income Belated filing of ReturnDisclosureofIncome[S.132(4)] Ifthesearchundersection132takesplaceaftertheduedateoffilingofnormalreturnandnoreturnisfiledby thattime,andtheassesseeisnotabletodemonstratethathehaddisclosedhisincometothedepartmentbefore thedateofsearchinthesomemannerortheother,filingofreturnthereafterundersection139(4)wouldbeof no consequence for the applicability of Chapter XIVB and the income of the assessee is to be treated as undisclosed.(A.Y.19992000) CITvs.A.T.InvofinIndia(P)Ltd.(2011)237CTR360/49DTR141(Delhi)(HighCourt) S. 158BB : Block AssessmentSearch and Seizure Computation of Undisclosed Income Belated Return SurrenderofIncomeGiftfromNRI.
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Incomedeclaredinabelatedreturnaftersearchcouldnotbetreatedasdisclosedincome.Assesseebeingunable togiveanyvalidexplanationfortheallegedgiftreceivedfromNRI,havingsurrendertheamountasunexplained income,Tribunalwasnotjustifiedintreatingthegiftsasexplainedsimplybecausethesameweredisclosedinthe regularreturn. CITvs.AshwaniTrehan(2011)239CTR10(P&H)(HighCourt) S.158BB: Block Assessment Search and SeizureUndisclosed income Some evidence must be found in the courseofsearch. Blockassessmentcanbemadeinrespectofundisclosedincomewhichisrecoveredasaresultofevidencefound duringthecourseofsearchandnotasaresultofotherdocumentsormaterialwhichcametopossessionof AssessingOfficersubsequenttoconclusionofsearchoperationunlessanduntilsuchevidencerecoveredduring courseofsearch.Itisapparentthatsomeevidenceistobefoundasaresultofoperationanditisonlythereafter thatremainingpartofprovisionscomeintoplay. KrishnaTerine(P)LtdvAsstCIT(2011)130ITD411(Ahd)(Trib). S.158BC:BlockAssessmentSearchandSeizureProtectiveAssessmentbeframed(S.158BD) TheAssessingOfficerinabsenceofanyspecificpowerundertheAct,haspowertomakeprotectiveassessment incaseofregularaswellasblockassessmentundercertaincircumstancesLaljiHaridasvs.ITO43ITR387(SC) followed. CITvs.MahindraFinleasePvt.Ltd.(DelhiHighCourt)Source:www.itatonline.org S.158BC:BlockAssessmentSearchandSeizureDepreciation(S.158BH) Section 158BH, makes all other provisions applicable to the assessment under. Chapter XIVB, unless it is otherwise provided for, therefore even in block assessment, the Assessing Officer must allow the claim of the assesseeforthedepreciationwhichislegallypermittedundertheprovisionsoftheAct.(A.Y.1999798and2003 04) CITvs.C.Sabira(Smt.)(2011)237CTR477(2010)40DTR153(Ker.)(HighCourt) S. 158BC : Block Assessment Search and Seizure Computation of Undisclosed Income Set off of excess income Assesseeisnotentitledtosetoffofexcessincomedisclosedinaparticularyearfallingwithintheblockperiod againsttheundisclosedincomeofsubsequentyearfallingwithinthesameblockperiod. CITvs.KamalaDeviJain(2011)51DTR70/238CTR328(Guj.)(HighCourt) S.158BC:BlockAssessmentSearchandSeizureMaterialnotfound. Where no evidence/material was found in the course of search or any information relating to any undisclosed income earned by the assessee, block assessment framed by the Assessing Officer making addition of the undisclosedincomemerelyonthebasisofthirdpartystatementwasheldtobebadandsetaside.(A.Y.198687 to199697) CITvs.T.Sivaprabhaskar(2011)50DTR329(Mad.)(HighCourt) S.158BC:BlockAssessmentSearchandSeizureServiceofNotice. Intheabsenceofanymaterialorevidencetoprimafacieshowthattheallegednoticeundersection158BCwas actuallysenttotheassessee,itcannotbepresumed,intheabsenceofacknowledgementofthesaidnotice,that
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might have been served upon the assessee and therefore, the proceedings initiated by the Assessing Officer undersection158BCaswellasblockassessmentarenullandvoidinitio.(A.Y.1995to99and1989to2000) ACITvs.LakshmiIndustries(2011)135TTJ112/(2010)48DTR54/(2011)7ITR495(Chennai)(Trib) S.158BC:BlockAssessmentSearchandSeizureNoticeundersection158BDStatementofpersons.(158BD.). In the absence of any search warrant in the name of the assessee and search against him ,the provisions of section158BCinthehandsoftheassesseewithoutissuinganynoticeundersection158BD,onlyonthebasisof statements of three persons that the money recovered from them belonging to the assessee was held to be illegal. AnilKumarChadha(Guddu)vDyCIT(2011)138TTJ574/132ITD330(All)(Trib). S.158BC:BlockassessmentSearchandSeizureWarrantofauthorizationJointnamesAssessmentin thenameofIndividualisnotinvalid. Warrant of authorization issued in the names of three companies including assessee , separated only by a comma without the word and between the names of the companies is a common warrant in the case of said three companies and not a warrant in the joint names of three companies and therefore,theblockassessmentorderframedintheindividualnameoftheassesseecompanyisnotin valid. RadanMultimedialtdvDyCIT(2011)58DTR129(Mumbai)(Trib). S.158BC:Block assessmentTransactions which are subject matter of regular assessment Can not be treatedasundisclosedincomeDepreciationFinancecharges. Assessee having disclosed all the transactions relating to its claim for depreciation on plant and machineryaswellaspaymentoffinancechargesbyfilingalldetailsinthereturnfiledpriortothedate of search which has been subject matter of enquiry in a regular assessment and all the machineries having been physically found at the time of survey as well as search at the business premises of the assessee , depreciation and finance charges could not be disallowed and treated as undisclosed incomeintheblockassessmentintheabsenceofdetectionofanymaterialasaresultofsearch. RadanMultimedialtdvDyCIT(2011)58DTR129(Mumbai)(Trib). S. 158BD :Block Assessment Search and Seizure Undisclosed income of any other person Statement Recorded Proceedingsinitiatedagainsttheassesseeundersection158BDonthebasisofstatementrecordedduringsearch arenotvalidasstatementisneitherdocumentnorasset;further,initiationofproceedingsundersection158BD bytheAssessingOfficeragainsttheassesseeswithoutrecordingtherequisitesatisfactionwasillegal. CITvs.LateRajPalBhatia(2011)49DTR9/237CTR1(Delhi)(HighCourt) S. 158BD : Block Assessment Search and Seizure Undisclosed Income of any other person Recording of Satisfaction Assessing Officer of searched person, having nowhere recorded any satisfaction that the assessees income of the relevant block period had escaped assessment nor forwarded the records of the case to the assessees, AssessingOfficerproceedingsundersection158BDagainsttheassesseewererightlysetaside. CITvs.SunilBhala(2011)238CTR18/50DTR238(Delhi)(HighCourt) S. 158BD : Block Assessment Search and Seizure Undisclosed income of any other person Notice
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Jurisdiction. Where the assessee had not raised the plea that the Assessing Officer had no jurisdiction over him within one monthfromthedateonwhichhewasservednoticeundersection158BDoftheAct,theassessmentproceedings cannotbeheldtobeinvalidforwantofjurisdictioninviewofsection124(3)oftheAct.(A.Y.199798to200304) CITvs.KapilJain(2011)50DTR342(Del.)(HighCourt) S.158BD:BlockassessmentSeaechandSeizureUndisclosedincomeofanyotherpersonordervoidifreferring AOssatisfactionnotrecorded. Mere mention of the word satisfaction in the order / note will not meet the requirement of the concept of satisfactionasusedinS.158BD.TheAssessingofficermustreachaclearconclusionthatgoodgroundexistsfor theAssessingofficerofthethirdpersontoinitiateproceedingsasmaterialbeforehimshowsorwouldestablish undisclosedincomeofthirdperson. ManishMaheshwarivs.ACIT(2007)289ITR341(SC)followed. CITvsRadheyShyamBansal(2011)337ITR217/243CTR375(Delhi)(HighCourt).www.itatonline.org. S. 158BD; Block Assessment Search and SeizureUndisclosed income of any other personRecording of satisfactionPriortohandingoverofdocuments. AsnosatisfactionhasbeenrecordedbytheAssessingofficerofthepersonwithrespecttowhomthesearchwas made,priortohandingoverthedocumentstotheAssessingOfficerofpetitioner,theimpugnednoticeunder section158BDisliabletobequashed. ChandrakantbhaiAmratlalThakkarvDyCIT(2011)55DTR249/ 337ITR258(Guj).(HighCourt). S.158BD:BlockAssessmentThirdpersonOfficenotePresumption.(S.292C). If any material is found during search and seizure indicating undisclosed income of third person , further investigation is not necessary. Presumption under section 292C is applicable. Office note of Assessing Officer regardingundisclosedincomeofthirdpersonisvalidforproceedingsundersection158BDoftheIncomeTaxAct. CITvMuktaMetalWorks(2011)336ITR555(P&H)(HighCourt). S.158BD:BlockAssessmentSearchandSeizureUndisclosedincomeofanyotherpersonBlockAssessment JudiciousSatisfactionRecordedinBlockassessmentofpersonsearched.(S.158BC) Satisfaction recorded under section 158BD before initiation of block assessment proceedings of the person searcheddoesnotsatisfytherequirementoflaw;further,socalledsatisfactionrecordedbytheAssessingOfficer intheordersheetwithoutevenstatingthatundisclosedincomepertainingtotheassesseeshasbeendetected from the seized record of the persons searched was not in accordance with the provisions of section 158BD, thereforetheblockassessmentsoftheassesseesundersection158BDarenotvalid. ACITvs.MuktaGoenka(Smt.)(2011)53DTR1/129ITD201(Jab.)(TM)(Trib.) S.158BD: Block Assessment Search and seizureUndisclosed income of any other person Recording of satisfactionBeforecompletionofassessmentofpersonsearched.(S.158BC.). Recording of satisfaction for taking action against any other person under section 158BD has to be between initiation proceedings under section 158BC and before completion of block assessment under section 158BC in caseofpersonsearched.Noticeissuedbeyondperiodprescribedwasbadinlaw. CITvPraveenFabrics(P)Ltd(2011)198Taxman463(Punj&Har)(HighCourt).
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Editorial View of Delhi Special Bench in Manoj Aggrawal v Dy CIT ( 2008) 113 ITD 377 (Delhi) (SB ) (Trib), affirmed. S.158BD: Block assessment Search and Seizure Assessment of third personAction under section 158BDmustbetakenbeforecompletionofsearchassessmentofsearchedperson.(S.158BC). Actionundersection158BDmustbetakenbeforecompletionofassessmentofsearchedperson.Block assessment under section 158BC , was completed on 3032005 . Satisfaction under section 158BD recordedon1572005.Thecourtheldproceedingsheldtobenotvalid.(BlockPeriod1998to2003) CITvMridula,PropDhruvFabrics(2011)335ITR266(P&H)(HighCourt) Editorial.ReferManojAggarwalvs.DCIT(2008)113ITD377(Del)(SB)/117TTJ145/11DTR1. S:158BDBlockassessmentSearchandseizureAssessmentofundisclosedincomeofotherperson. The assessment of the person put to search was completed on 2822005 and proceedings u/s. 158BD were initiated on 02122006 by issue of notice. The satisfaction u/s. 158BD was recorded 31032006. Since the satisfaction u/s. 158BD was recorded after the completion of proceedings u/s. 158BC, it was heldthatproceedingsu/s.158BDaretimebarred CITv.ParveenFabricsP.Ltd.{2011}198Taxman463(P&H.)(HighCourt).. S.158BE:BlockAssessmentLimitationSearchandSeizureLastPanchanamasProhibitoryOrder.[S.132(3)] Panchanamasdrawnon27thand28thMarch2003inrespectofresidentialandbusinesspremisesofthepetitioner beingthelastpanchnamasthedateofthesameisthedateofconclusionofthesearchforreckoningthetime limitoftwoyearsforcompletionofthesearchandnot17thand14thJune2003,onwhichdatesprohibitoryorders undersection132(3)wereliftedthoughtimeperiodof60daysalreadyexpiredon27thMay,2003andtherefore, theimpugnedassessmentorderpassedon30thJune2005,wasbarredbylimitation.(A.Y.199798to200304) RakeshSarinvs.Dy.CIT(2011)240CTR56(Mad.)(HighCourt) S.158BE:BlockAssessmentSearchandSeizureLimitationServiceofnonsignedcopyofAssessmentOrder. (S.292B) OnthefactsitwasestablishedthatdraftassessmentwasapprovedbytheCITundersection158BGon23rdMay, 1997 and that the assessment was finalized by the Assessing Officer on 27th May, 1997 i.e. before expiry of limitationon31stMay,1997.Thecopyoftheassessmentorderfirstsenttotheassesseeon30thMay,1997along with signed notice of demand did not contain the signature of the Assessing Officer did not invalidate the assessmentwhichwasvalidlycompletedwithintheperiodoflimitation.(BlockperiodApril1986May1996) CITvs.T.O.Abraham&Co.(2011)54DTR105(Ker.)(HighCourt) S.158BFA:InterestTaxpaidafterduedateoffilingofreturnCredit. Whilecalculatinginterestundersection158BFA(1),creditcannotbeallowedforthetaxpaidbytheassesseeon variousdatesaftertheduedateoffilingofreturn. KirtiFoodsLtdvAsstCIT(2011)60DTR96(Pune)(Trib). S,158BHBlockAssessmentSearchandSeizureDisallowanceRule6DD.(S.40(A)(3). Whilecomputingthe income of theAppellantunderchapter XIV B of theActiftheassessee failsto bringhiscasewithintheambitofexceptionalcircumstanceasprovidedinrule6DDoftheIncometax Rules, 1962 expenditure can be disallowed invoking provisions of section 40 A (3) of the Act.( Block Period1990to2000)
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CITvs.SaiMetalWorks(2011)54DTR327(P&H)(HighCourt). ChapterXV.Liabilityinspecialcases. Alegalrepresentatives. S.159:legalrepresentativesNoticeondeadpersonAssesseeReassessment.(2(7),148.). Assessingofficerissuedthenoticeundersection148inthenameofassesseewhoalreadyexpired.Thetribunal heldthatnoticewasnotvalidhenceproceedingsinitiatedundersection147wasquashed.(Asstyear199899). ITOvSikandarLalJain(2011)45SOT113(Agra)(TM)(Trib). S.159(2):LegalrepresentativesAssessmentDeadPersonSearchandSeizure Assessmentcannotbeframedonadeadperson,wheretheassesseehadalreadydiedon2ndFeb.,1990andthe searchwasconductedthereafteron13thSept.,1990,section159(2)wasnotattractedandnoassessmentcouldbe framedonadeadperson.Thereforeadditionmadeundersection69Bwasliabletobedeleted. LateSmt.LaxmibaiKaranpuriaThroughL/HRajendraKaranapuriavs.ACIT(2011)135TTJ123/49DTR59/130ITD 40(Ind.)(Trib.) M.Privatecompanies. S.161:RepresentativeAssesseeNoliabilityforunconnectedincome.(S.163). ThewholeofthesharecapitalofGenpactIndia,anIndiancompany,washeldbyaMauritiuscompany.Thewhole of the share capital of the Mauritius company was in turn held by General Electric Co, USA. The Mauritius companygiftedthesharesofGenpactIndiatoanotherMauritiuscompany,whoseshareswerethenultimately sold to a Luxembourg company. The AO claimed that the transaction of transfer of shares of Genpact India had resultedincapitalgainstoGeneralElectric,USA,andsoheissuedanoticeu/s163proposingtotreatGenpactIndiaas anagentofGeneralElectricandtoassessitasarepresentativeassessee.ThiswaschallengedbyaWritPetition. Upholding the challenge the court held that, the mere fact that a person is an agent or is to be treated as an agentu/s163andisassessableasrepresentativeassesseedoesnotautomaticallymeanthatheisliabletopay taxes on behalf of the nonresident. U/s 161, a representative assessee is liable only as regards the income in respect of which he is a representative assessee. This means that there must be some connection or concern between the representative assessee and the income. On facts, even assuming that Genpact India was the agentandsorepresentativeassesseeofGeneralElectric,therewasnoconnectionbetweenGenpactIndia and the capital gains alleged to have arisen to General Electric (from the sale of shares of Genpact India). Consequently, the s. 163 proceedings seeking to assess Genpact India for the capital gains of General Electric werewithoutjurisdiction. GeneralElectricCovDDIT(2011)243CTR417/60DTR297(Delhi)(HighCourt)www.itatonline.org. S.179:LiabilitiesofDirectorofprivatecompanyTaxcontemplatedundersection179doesnotincludeinterest andpenalty. Whiledeciding,ifthenomenclaturetaxwouldincludeothercomponentssuchaspenaltyaswellasinterest,the HighCourtplacedrelianceonthejudgementinthecaseofSomaSundaramsLtd.vs.CIT 116ITR620,whichhad heldthattheCourthasdecidedlystatedthatthecomponentincometaxdoesnotincludepaymentofpenaltyas wellasinterest. H.EbrahimandOthersvs.Dy.CIT(2011)332ITR122(Karn.)(HighCourt) ChapterXVI.Specialprovisionsapplicabletofirms.
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S.184:FirmAssessmentCertifiedcopytobefiledeveryyearMandatory. Section 184 provides that the assessee firms should file copy of ruling partnership deed certified by all the partnersalongwithreturnofincome,therequirementismandatory,otherwisetheassesseecanonlybetreated asAOP.Thefactthatassesseehasbeentreatedasfirminearlieryearswillnotbesufficient.(A.Y.199394&95) BhaskarandCo.vs.CIT(2011)331ITR90(Ker.)(HighCourt) ChapterXVII.Collectionandrecoveryoftax. B.DedcutionatSource. S.192:DeductionoftaxatsourceSalaryAmountsnotdeductibleIncomedeemedtoaccrueorariseinIndia SalarytostaffatNetherland[S.9,40(a)(iii)]. Wheresalarieshadbeenpaidtononresidentsforservicesrenderedabroad,provisionsofExplanationtosection 9(1)(ii)werenotapplicabletoassessee.SincesalarypaidtononresidentsforservicesrenderedinNetherlands was not chargeable to tax in India , provisions of section 192 cannot be applied hence disallowance made by applyingtheprovisionsofsection40(a)(iii)wereliabletobedeleted.(AsstYear200304). CITvMotherDairyFruits&Veg(P)Ltd(2011)45SOT186(Delhi)(Trib). S.194A:DeductionofTaxatSourceInterestotherthaninterestonsecuritiesCompensationInterestLimit tobeworkedseparately. WheretheMotorAccidentClaimTribunalapportionatedthecompensationamountandinterestpayabletoeach claimants.Theinterestincomeofeachoftheclaimantistobetakenintoaccountseparatelyforapplyingthelimit prescribedundersection194A(3)(ix)forthepurposeofdeductingtaxatsourceundersection194AoftheAct. NationalInsuranceCo.Ltd.vs.Smt.Draupadibai&Ors.(2011)50DTR282(MP)(HighCourt) S. 194A: Deduction of tax at source Interest other than interest on securities Interest on compensation by MotorAccidentClaimsTribunal. IftheamountofinterestoncompensationawardedbyMotorAccidentClaimsTribunalpayabletotheclaimantin particularfinancialyeardoesnotexceedfiftythousandrupees thenthepersonresponsibleforpaymentisnot requiredtodeducttaxatsourceundersection194A.InterestAwardedhastobespreadoverinnumberofyears fromthedateoffilingofclaimpetitiontillthedueofpayment. UnitedIndiaInsuranceCoLtdvRamanlal&Ors(2011)56DTR407(MP)(HighCourt). S.194C:DeductionofTaxatSourcePaymentstocontractorsandsubcontractorsAmountsnotDeductible PaymentsbyfirmtoPartnersSubContract.[S.40(a)(ia)] Partnersoftheassesseefirmhavingexecutedthetransportation,contractsundertakenbythefirmbyusingtheir owntrucksandtheassesseehavingactedasanagentinroutingthepaymentstopartners,itcannotbeheldthat there was a separate contract between the firm and the partners and, therefore such payments could not be disallowedundersection40(a)(ia)onthegroundthattaxwasnotdeductedatsourceundersection194C.(A.Y. 200607) CITvs.GrewalBrothers(2011)54DTR99(P&H)(HighCourt) S. 194 C: Deduction of tax at source Payment to contractors and sub contractors Contractual paymentFreightchargesDisallowanceu/s.40(a)(ia).
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Intheabsenceofanyoralorwrittenagreementforpaymentofanyfreightchargestotruckowners,it does not become a case u/s. 40(a)(ia) r.w.s. 194C. Therefore, the disallowance made is not sustainable.(A.Y.200607) CITvs.BhagwatiSteels(2011)241CTR480(P&H)(HighCourt). S. 194C : Deduction of tax at Source Payments to contractors and sub contractors Printing Material Paymentstocontractor Paymentmadeforpurchaseofprintedpackingmaterialtosuppliers,noworkinvolvingskillorsecrecy,itbeing sale,section194Cisnotattracted.(A.Y.200405and200506) ITOvs.MotherDairyFoodProcessingLtd.(2011)7ITR16(Delhi)(Trib.) S.194C:DeductionoftaxatSourcePaymentstocontractorsandsubcontractorsShippingAgentCarriageof GoodsTechnicalServicesPaymentstoContractors(S.194J) Payment made for carriage of goods from the customers trailers to the vessel in the case of export and vice versa in the case of import of goods are covered by section 194C rather than section 194J which cannot be applied.(A.Y.200405) ACITvs.MerchantShippingServices(P)Ltd.(2011)49DTR97/129ITD109/8ITR(Trib)1.(Mum.)(Trib.) S. 194C : Deduction of Tax at Source Payments to contractors and sub contractors Contractor and Sub contractor[S.40(a)(ia)] Wherethetransportersarehiredbythevendorsofthegoods,whodirectlymadesuppliestothefactoryofthe assesseeandchargedtheamountoftransportationseparatelyintheirbilltotheassessee,provisionsofsection 194Carenotapplicable,hence,amountpaidcannotbedisallowedbyapplyingtheprovisionsofsection40(a)(ia). ChangHingTanneryvs.Dy.CIT/(2011)42BBCAJMarchP.32(Kol)(Trib) S. 194C : Deduction of Tax at Source Payments to contractors and sub contractors Society engaged in CharitableActivities(S.40(a)(ia),194J). For nondeduction of tax at source from paying the payments made towards advertisement expenses, the AssessingOfficerdisallowedthesumof`5.10lacsandtaxedthesameasbusinessincome.BeforetheTribunal theassesseecontendedthatsinceitsincomeisnotchargeableundersection26tosection44ADunderthehead Businessincometheprovisionsofsection40(a)(ia)werenotapplicable.TheTribunalrelyingonthedecisionin thecaseofITOvs.SangatBhaiPheruSikhEducationSociety(ITANos.201to203/ASR/2004dt.3132006andCIT vs.IndiaMagnumFund(2002)74TTJ620(Mumbai)acceptedthecontentionandallowedtheappealofassessee. BabaFaridVidyakSocietyvs.ACIT,ITANo.180/ASR/2010Asst.Year200607dt.3112011(2011)43ABCAJAprilP. 34(Trib) S.194C.:DeductionoftaxatsourcePaymentstocontractorsandsubcontractorsPaymenttotruckoperators withoutdeductionTDSDeductionoftaxatsourceSecondandthirdprovisotosection194C(3)w.e.f.1stJune 2005isnotretrospective.(S.40(a)(ia).). Assessee operating trailer lorries disbursing freight charges amounting to Rs 46,70,365 to 16 parties without deducting TDS as specified in section 194C . Assessee was liable to deduct tax at source . Amendment to sub section(3)ofsection194CmadethroughFinanceAct2005,wherebysecondandthirdprovisionswereaddedto itw.e.fIstJune,2005hasnoretrospectiveeffect.TheTribunalheldthattheAssessingOfficerwasjustifiedin makingdisallowanceundersection40(a)(ia).(AsstYear200506). ITOvM.Sankar(2011)138TTJ690(Chennai)(Trib).
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S. 194C.Dedcution of tax at source Payments to contractors and sub contractors Franchisee agreement Sharingofprofits.(S.40(a)(ia). Franchiseeagreementdidnotstipulatepaymenttobemadetothelicenceforanyworkdoneonbehalfofthe assessee and it was merely a case of running a study centre and to apportion profits thereof between the assesseeandthelicenceandthereforeprovisionsofsection194Cwerenotapplicableandnodisallowanceunder section40(a)(ia)canbemade.(Asstyears200506,200607). CareerLauncher(India)LtdvAsstCIT(2011)139TTJ48/56DTR10(Delhi)(Trib). S.194D:DeductionoftaxatSourceInsuranceCommission. Assessee,ageneralinsurancecompany,enteredintoanarrangementwithoneBforfacultativereinsurance.As per said arrangement, assessee was liable to pay certain percentage of premium as reinsurance inward commissiontoB.AssesseewasreceivingonlynetpremiumonreinsurancefromB.Profitcommission,ifany,was sharedbetweenassesseeandBincertainpercentage.AssessingOfficerheldthatassesseewasliabletodeduct taxonreinsurancecommissionpaidtoBundersection194D.TheTribunalheldthatprovisionsofsection194D werenotapplicabletopaymentofreinsurancecommissionmadebyassesseetoB.(A.Y.200506and200809) TataAIGGeneralInsuranceCo.Ltd.vs.ITO(2011)43SOT215/55DTR254/140TTJ319(Mum.)(Trib) S.194E:DedcutionoftaxatsourcePaymentstononresidentsportsmenorsportsassociations(S.115BBA) Once income accrues to a non resident sports man or sports association on fulfillment of the condition as mentioned in section 115BBA, then the statutory obligation of the payer under section 194E comes into play irrespective of taxability thereof, payments including guarantee money made by the assessee a committee formedbythreehostmembersofWorldCupCricket,1996forthepurposeofconductingthetournamenttoICC aswellastocricketcontrolboards/associationsofmembercountriesofICCinrelationtomatchesplayedinIndia wereliabletoTDSundersection194Ereadwithsection115BBA.(A.Y.199596) PILCOMvs.CIT(2011)51DTR147/238CTR387/335ITR147/243CTR511(Cal.)(HighCourt) S.194 E: Deduction of tax at sourcePayments to non resident sportsman or sports association Umpires Match referees are neither sports men nor are they on resident sports association or institution(S.115BBA). AmountspaidtoforeignteamforparticipationinmatchinIndiainanyshape,eitherasprizemoneyor as administrative expenses , is income deemed to have accrued in India and is taxable under section 115BBAandthus,section194Eisattracted.However,paymentsmadetoumpiresormatchrefereesdo not come with in purview of section 115BBA because umpires and match referee are nether sportsmen (including an athletic) nor are they non resident sports association or institution so as to attract provisions contained in section 115BBA and therefore , liability to deduct tax at source under section194Edoesnotarise.(AsstYear199697). IndcomvCIT(2011)200Taxman40/58DTR1/335ITR485/242CTR337(Cal)(HighCourt). S.194H:DeductionofTaxatSourceCommissionorBrokerage. Agents of Airline companies are permitted to sell tickets at any rate between fixed minimum commercial price andpublishedprice.Differencebetweencommercialpriceandpublishedpriceneithercommissionnorbrokerage taxneednotbedeductedundersection194H. CITvs.QatarAirways(2011)332ITR253(Bom.)(HighCourt)
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S.194H:DeductionoftaxatsourceCommissionorBrokerageDiscount. Where agreement between assessee and distributor was on principal to principal basis payments madebytheassesseetothedistributorwereincentivesanddiscountsandnotcommission,therewas noneedtodeducttaxundersection194Honsuchpayments.(Asstyear200405). CITvJaiDrinks(P)Ltd(2011)57DTR261/242CTR505(Delhi)(HighCourt). S.194H:DeductionoftaxatsourceCommissionBrokerageDiscount. Assesseecompanywasengagedinbusinessofprovidingcellularmobiletelephoneservicesunderbrandname Airtel , provided the services through its distributors/franchisees who kept sufficient stock of rechargeable couponsandstarterpackswiththem.AftersellingtheSimcardsandprepaidcouponstoretailers,franchisees weretomakepaymentofsaleproceedstoassesseeafterdeductingthediscount.Thecourtheldthatreceiptof discountbyfranchiseewasinrealsense,commissionpaidtofranchiseesandsamewouldattractprovisionsof section194H. BharatiCellularLtdvAsstCIT(2011)200Taxman254(Cal)(HighCourt). S.194H:DeductionoftaxatSourceCommissionorBrokerage Transactionbetweenassesseeandconcessionaries,principaltoprincipal.Paymentstoconcessionariesforsaleof milkproductsbeingnotcommission,taxnotdeductible.(A.Y.200405and200506) ITOvs.MotherDairyFoodProcessingLtd.(2011)7ITR16(Delhi)(Trib.) S.194H:DeductionofTaxatSourceCommissionorBrokerageBookingofDomesticandInternationalAirline Tickets[S.40(a)(ia)] The transaction in question were not transactions between principal and agent but those transactions were betweenprincipalandprincipal.InordertobringservicesortransactionswithinexpressionCommissionand Brokerageundersection194H,elementofagencymustbepresent.Whenthediscountallowed/givenbythe assesseetotheintermediarieswasalsoallowedtopassengerdirectlywhobookedtheticketswiththeassessee andtheassesseewasrecordingthetransactioninitsbooksofaccountonnetamountoftheinvoice,thenitwas not a case of commission or brokerage paid or payable by the assessee to the intermediaries, hence, the provisionsofsection194Hwerenotapplicablethereforenodisallowancecanbemadeundersection40(a)(ia).(A. Y.200607) ITLToursandTravels(P)Ltd.vs.ITO(2011)44SOT277(Mum.)(Trib) S.194H:DeductionoftaxatsourceCommissionBrokerageDiscount. The assessee mobile phone service provider to the distributors in the course of selling SIM cards and recharge coupons under prepaid scheme against advance payment received from the distributors. Section 194H is applicable.(A.Y.200708&200809). ITOvVodafoneEssarCellularLtd(2011)59DTR75/141TTJ401(Chennai)(Trib). S.194I:DeductionoftaxatsourceRentHireofMachinery(S.194C. Amendmentofsection194Itoincluderentforhireofmachineryw.e.f.162007Assesseepayinghire charges for Millers and Rollers for laying Roads , there is no liability to deduct tax at source in accountingyearrelevanttoassessmentyear200506.OperationofmachinerybyownerofMachinery not a case of composit contract for labour and hire of machinery.. Section 194I of the Act came to provide for deduction of tax at source in respect of machinery /equipment with effect from June 1 ,
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2007,andtherelevantassessmentyearwas200506,therewasnoscopetodisallowtheexpenditure applyingtheprovisionsofsection40(a)(ia).(AsstYear200506). CITvD.Rathinam(2011)335ITR101/55DTR382(Mad)(HighCourt). S.194I:DeductionofTaxatSourceRentMobileServiceProvider. Paymentbyassesseetoothermobiletelephoneserviceprovidersfornationalroamingfacilityisnotforuseof equipment.Theassesseewasmereafacilitatorbetweenitssubscriberandotherserviceprovider,facilitatinga roaming call to be made by the subscriber. The payment of roaming charges by the assessee to other service providers could not be considered as rent within the meaning of Explanation (i) below section 194I, therefore therewasnoliabilityonthepartoftheassesseetodeducttaxatsource.(A.Y.200708,200809,200910) VodafoneEssarLtd.vs.Dy.CIT(2011)9ITR182(Mum.)(Trib.) S.194I:DeductionofTaxatSourceRentFixedchargesforhireofvehiclesnotrentforsection194ITDS Provisionsundersection194Capplicable.(S.194C) Where cars were owned and maintained by the contractor and all expenditure was borne by contractor, the contractwasforcarriageofpassengersforwhichafixedamountwaspaid.Pursuanttodefinitionofworkas persection194C,itwasobservedthat,thepaymentofvehiclehirechargesfellwithinthescopeofsection194C andwasnotrentforsection194I.(A.Y.200910) Ahmedabad Urban Devlopment Authority vs. ACIT (Ahmedabad) (Trib.) ACAJ March 2011. P. 623 / Source: www.itatonline.org S. 194J : Deduction of Tax at Source Fees for professional or technical services Mobile Service Provider TechnicalServices. Consideringtheimportanceofissuewhetherpaymentmadebymobileserviceproviderforroamingfacilityisfor technicalservice,thematterwasremandedbacktotheassessingofficerinthelightofobservationmadebythe SupremeCourtinCITvs.BhartiCelluarLtd.(2011)330ITR239(SC).(A.Y.200708,200809,200910) VodafoneEssarLtd.vs.Dy.CIT(2011)9ITR182/135TTJ385(Mum.)(Trib.) S.194LA:PaymentofcompensationonacquisitionofcertainimmoveablepropertyDeductionoftaxatsource Agriculturalland.(S.2(14).) When land itself was agricultural land though it may not be used for agricultural purpose but unless and until same was used for non agricultural purpose , it had to be treated as agricultural land for purpose of section 194LA, therefore Special Land Acquisition Officer was not required to deduct tax at source from amount of compensation paid for acquisition of land .Definition of agricultural land as given in section 2 (14) cannot be importedforpurposeofsection194LA.(A.Y.200506). ITO,TDSvSpeciallandAcquisitionOfficer(2011)46SOT458(Mum)(Trib). S.195:DedcutionoftaxatsourceOthersumsDiscountingchargesExportsalesbillDeductionoftaxatsource Interest.S.2(28A),40(a)(i) Discountingchargespaidbyassesseetoaforeigncompanyfordiscountingexportsalebillsisnotinterestas definedinsection2(28A),sinceforeigncompanyhasnopermanentestablishmentinIndia,itwasnotliabletotax inrespectofdiscountingchargesandtherefore,assesseewasundernoobligationtodeducttaxatsourceunder section195andthediscountingchargescouldnotbedisallowedundersection40(a)(i).(Asstyears200405& 200506).
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CITvCargillGlobalTrading(I)(P)Ltd(2011)241CTR443/56DTR188(Delhi)(HighCourt). S.195DeductionofTaxatsourceOthersumssaleofsharesofForeignCobyNonResidenttoNonResident attractsIndiantaxAOtofirstrecordfindinganddecidepreliminaryissue Whereonenonresidenthadsoldsharesofaforeigncompanytoanotherandshowcausenoticewasissuedu/s 195,inviewofthejudgementoftheSupremeCourtinVodafoneInternationalvs.UOI221CTR617itwasheldthat theinterestoftheassesseeissafeguardedbydirectingthattheAOshallrecordafindingonthepreliminaryissue relating to jurisdictional fact (as to whether the overseas transaction attracts Indian tax at all). If the assessee is aggrievedbythefinding,itisentitledtochallengethesamebyaWritPetition. RichterHoldingLtd.vsADIT(IT)(Karnataka)(HighCourt).WWW.itatonlin.org. EditorialSeealsoVodafoneInternationalHoldingsB.V.vs.UOI329ITR126(Bom)onthesamepoint S.195: Deduction of tax at source Other sums Income deemed to accrue or arise in India Royalty or fee for technicalservicesBandwidthchargespaidtoforeigncompaniesfordatacommunication.(S.9,40(a)(i)) AssessingofficerheldthatassesseewasrequiredtodeducttaxatsourceinrespectofpaymentsmadetoAT&T andMCITelecommunicationswerecoveredundersection195.Wherepaymentsaremadetoserviceproviders such as AT&T or MCI Telecommunications for use of band width provided for down linking signals in United Statesandsuchpaymentsarenotinthenatureofmanagerial,consultancyortechnicalservicesnorforuseor righttouseindustrial,commercialorscientific,equipment.Thenthesaidpaymentarenotinthenatureofroyalty orfeefortechnicalservicesassesseeandthusnotliabletodeducttaxatsource.(AsstYear200405). InfosysTechnologiesLtdvDyCIT(2011)45SOT157(Bang)(Trib). S. 195: Deduction of tax at sourceNon Other sumsResident Commission paid out side India Fees fortechnicalservicesDTAAIndiaRussia.(S.9(1)(i),40(a)(ia),.Art7,13). Commission was paid out side India for services rendered out side India , tax was not deductible at source. The definition of fees for technical services in article 13 of the Double taxation Avoidance Agreement does not include managerial service . Hence the definition of the technical services as given in the Double Taxation Avoidance Agreement is to be applied and it was beneficial . Hence the sales commission in respect of parties situated in the U.K. could not have been subjected to tax at source because it was business profits and not fees for technical services . More over the , non residents had not made available technical knowledge or experience . Hence clause 13 of the Double TaxationAvoidanceAgreementbetweenIndiaandtheU.Kwasnotapplicable.(Asstyears200708to 2010201011). AsstCITvModernInsulatorLtd(2011)10ITR147(Jaipur)(Trib). S.195: Deduction of tax at source Other sumsPayment to non resident Training its personnelFees fortechnicalserviceIncomedeemedtoaccrueorariseinIndia.(S.9). Assessee company during relevant assessment year made payment to non resident party for training its personnel or customers to explain proposed buyers salient features of products imported by assesseeinIndiaandtoimparttrainingtocustomerstouseequipment.Thepaymentmadecouldnot besaidtobefeesfortechnicalservicesandnotliablefordeductionoftaxatsource.(AsstYear2007 08). AsstCITvPCILtd(2011)46SOT183(Delhi)(Trib).
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S.195:DeductionoftaxatsourceOthersumsRemittancesofsaleproceedsofsharesbybankUAE residentDTAAIndiaUAE.(S.201,201(1A),Article13(3). Abu Dahbi Commercial Bank,(ADCB) was engaged in the business of banking and operated through branch in India. ADCB made remittances to individuals being UAE residents , in respect of sale proceeds of shares which resulted in short term capital gain in India. Remittance was made without deducting tax at source. AO treated the ADCB as an assessee in default , under section 201 and also levied interest under section 201(IA).On appeal CIT (A) held that though ADCB could be regarded as payerundersection204,therewasnowithholdingtaxobligationduetoavailabilityoftreatybenefit. ThetribunalheldthatLiabilitytodeducttaxonremittance,doesnotariseasbankisonlyactingasan authorized dealer in transferring the funds on behalf of the share broker in absence of liability to deducttax,thebankcouldnotbetreatedasanassesseeindefault. ITO v Abu Dhabi Commercial Bank ( 2011) TII 103 ITAT MumITNL dated 1252011 ( 591 ( 2011) 43A BCAJAugustP.27.(Mumbai)(Trib). S.195:OthersumsPaymentstononresidentsDeductionoftaxatsourceIncomedeemedtoaccrueorarisein IndiaForeignagentCommissionBusinessconnectionPermanentestablishment.(S.4(1),40(a)(ia),195). AforeignagentofanIndianexporteroperatesinhisowncountryandhiscommissionisdirectlyremittedtohim. SuchcommissionisnotreceivedbyhimorinhisbehalfinIndia,andsuchagentisnotliabletoincometaxinIndia on commission received by him. As there was no right to receive income earned in India nor there was any business connection between assessee and ETUK, therefore when income was not chargeable to tax in India under section 4 (1), there was no question of invoking provisions of section 195 hence no disallowance can be madeundersection40(a)(ia).(A.Y.200708). DyCITvEonTechnology(P)Ltd(2011)46SOT323(Delhi)(Trib). S.195:OthersumsPaymentstononresidentsDeductionoftaxatsourceOfftheShelfSoftwareFeeforuserof softwaretaxableasRoyaltyDTAAIndiaSwitzerland.(S.9(1)(vi),201). Whilethelicensetousetheshrinkwrappedorofftheshelfsoftwaredoesnotinvolvetransferofintellectual property, it constitutes royalty u/s 9(1)(vi) and Article 12(3) of the DTAA because it is for the use of and the right to use of intellectual property such as copyright of a literary, artistic or scientific work or any patent, trade mark, design or model, plan etc. Thus, the consideration received by Oracle for use of its software constitutes royaltyandtheassesseeoughttohavedeductedtaxatsource. INGVysyaBankLtdvDDCIT(2011)61DTR401(Bang)(Trib).www.itatonline.org. S.195:DeductionoftaxatsourceOthersumsNonResidentDataProcessingServices Services involving routine data entry ,application sorting , document handling and data capturing servicenotinvolvinguseofsophisticatedtechnology.Servicesrenderednonmanagerial,technicalor consultancy service . Fees based on invoice from non resident . Not Fees for technical services . Not taxableinIndia. R.R.DonnelleyIndiaOutsourceP.Ltd(2011)335ITR122(AAR). S.195: Deduction of tax at source Other sums Nonresident Capital gains Transfer of sharesWholly owned subsidiaryWithoutconsideration(S.45,48,92,92C,195). Transferofsharestosubsidiarycompanywithoutconsideration,wouldnotattractliabilitytotaxundersection 45readwithsection48.Astheconsiderationisinapplicableonthedateoftransfer,asnoincomeischargeable totax,provisionsofsection195orprovisionsofsections92to92Fwouldnotapply.
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GoodYearTire&RubberCo,INRE.(2011)240CTR209/54DTR281/334ITR69(AAR). S. 195(2) : Deduction of Tax at Source Other sums NonResident Assessee in Default Certificate not withdrawn,assesseenotinDefault(S.201) The assessee made payment of daily allowance to a Japanese company on account of the stay of Japanese engineerswithoutdeductionoftaxatsource.TheAssessingOfficerheldthatthepaymentwasassessabletotaxas feesfortechnicalservicesandthattheassesseewasliableundersection201forfailuretodeducttaxatsource.It was held that the Assessing Officer had issued a certificate under section 195(2) authorizing the remittance withoutdeductionoftaxatsource.Asthiscertificatewasnotcancelledundersection195(4),theassesseewasnot requiredtodeducttaxatsourceandcouldnotbetreatedasassesseeindefault.Theissuewhetherthepayments weretaxableornotneednotbegoneinto CITvs.SwarajMazdaLtd.(P&H)Source:www.itatonline.org(HighCourt) S.199:CreditforTaxDeductedRefund(S.203) Assessee, from whose payments taxes have been deducted at source and who is also in receipt of the appropriatecertificatesinaccordancewiththeschemeoftheAct,mustgetcreditadmissibleundersection199 uninfluencedbyanyrefundofTDSsubsequentlygrantedtothetaxdeductor.(A.Y.200203) LucentTechnologiesGRLLLCvs.Dy.DirectorofIT(2011)136TTJ291/45SOT311(Mum.)(Trib) S.199:DeductionoftaxatsourceCreditfortaxdeducted. CreditforTDS,undersection199istobeallowedinyearinwhichcorrespondingincomeisassessable totax.(AsstYear200607). ITOvShriAnupallaviFinance&Investments(2011)131ITD205(Chennai)(Trib). S.201:ConsequencesoffailuretodeductorpayAssesseeindefaultPaymenttononresident[S.163,195(2), 201(IA)] TheAssessingOfficeraskedtheassesseetodeductthetaxandremittheamount.Theassesseeapproachedthe CourtofAppealinLondonforpermissiontodeductthetaxatsourcefromtheawardamount.Pendingthestay theCourtdirectedtheassesseetoremittheamounttoescrowaccountmaintainedinnamesofboththeparties. Theentireamountwasremittedasbycourtorder.Indiantaxauthoritiessoughttoproceedholdingassesseein default under section 201(1)(IA). The Tribunal held that assessee could not be held to be assessee in default in termsofsection201(1)and201(IA),asitwasacaseofimpossibilityofperformance,andhenceassesseewouldbe releasedfromobligationtodeducttaxatsource.(A.Y.200102) NationalAviationCo.ofIndiavs.Dy.CIT(2011)43SOT362/137TTJ662(Mum.)(Trib) S.201:ConsequencesoffailuretodeductorpayAssesseeinDefaultLimitationTaxdulypaidbypayee Maximumtimelimitforinitiatingandcompletingtheproceedingsundersection201(1)hastobeatparwiththe time limit available for initiating and completing the assessment / reassessment of the payee; impugned order undersection201(1)passedbytheAssessingOfficerwithintheperiodofsixyearsfromtheendoftherelevant assessmentyearisnottimebarred. Personresponsiblefordeductiontaxcannotbetreatedasanassesseeindefaultinrespectoftaxundersection 201(1)ifthepayeehaspaidthetaxdirectly.(A.Y.200405) ACITvs.MerchantShippingServices(P)Ltd.(2011)49DTR97/135TTj589(Mum.)(Trib.) S.201.ConsequencesoffailuretodeductorpayAssesseeindefaultBurdenofProof.(S.194I)
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Whenassesseeprovidedpermanentaccountnumbersofpayeesandconfirmationfromsomeofthem.Itisthe duty of the assessing officer to verify payment of tax by payees. Treating the assessee as in default placing burdenofproofwhollyonitwasnotreasonable.(A.Y.200708,200809,200910) VodafoneEssarLtd.vs.Dy.CIT(2011)9ITR182/135TTJ385(Mum.)(Trib.) S.201(1)ConsequencesoffailuretodeductorpayAssesseeindefaultPayeeshowingthesaleconsideration. (S.195,201IA.). Oncethepayeeacknowledgesthereceiptofthesaleconsideration,filedthereturnassessingthesaidamounts inhishandsandpaidtax,whichisacceptedbythedepartment,thepayerceasestobeassesseeindefault.(Asst year200405). CITvIntelTechIndia(P)Ltd(2011)55DTR173(Kar)(HighCourt). S.201(1):ConsequencesoffailuretodeductorpayAssesseeindefaultDemandnotice(S.156,195,200,201 (IA). Wheresection201(1)isattractedthereisnoneedofgivinganydemandnoticeundersection156,andifanysuch noticeisgiventhesameshouldbeheldtoberedundant.Provisionsofsection195,200and201,whenconjointly read,dealwithaliabilitywhichatnopointoftime,dependsonpassinganyorderundertheActbutisattracted immediatelyuponthehappeningofthedefaultmentionedtherein,ie,failuretodeducttaxorfailuretocreditthe sumasrequiredbysection200.Assoonassuchfailureoccursliabilityarisesautomaticallyandthereisnofurther requirementofcomputationorreassessmentorserviceofnoticeofdemandundersection156.(Asstyear1995 96). PilcomvCIT(2011)55DTR209(Cal)(HighCourt). S.201(1):ConsequencesoffailuretodeductorpayAssesseeinDefaultTimeLimit. Time limit for treating deductor as in default, is maximum time limit available for initiating and completing reassessment.OnthefactsastheorderpassedbytheAssessingOfficerwaswithinsixyearsfromtheendofthe relevantassessmentyear,theorderpassedbytheAssessingOfficerwasnottimebarred.(A.Y.200405) ACITvs.MerchantShippingServices(2011)8ITR1(Mum.)(Trib.) D.Collectionandrecovery. S.201(IA):InterestDeductionoftaxatsourceAssesseeindefaultProfitsinlieuofsalaryTipscollectedand paidtoemployees.(S.2(24),1517(1)(iv),17(3)),192,201,273B). Payment of banquet and restaurant tips to the employees of assessee in its capacity as employer constitutes salarywithinthemeaningofsection15readwithsection17(3).Assesseeisconsideredasassesseeindefaultfor non deduction of tax at source on account of banquet and restaurant tips collected by its employees and was liable to interest under section 201 (IA). In the given circumstances no under section 201 could be charged , however levy of interest under section 201 (IA), is neither treated as penalty nor has the said provision been includedinsection273Btomakereasonablenessofthecauseforthefailuretodeductarelevantconsideration, hencethereisnoquestionofwaiverofsuchinterestonthebasisthatdefaultwasnotintentionaloranyother basis.(A.Ys.199992000to200506). CITvITCLtd(2011)59DTR312(Delhi)(HighCourt). S.201(IA):InterestDeductionoftaxatsourcePaymentbychequeDelaybycollectingbank. AssesseehavingdepositedtheTDSforJune2008,videpayorderdated4thJuly2008,intheauthorizedbankand thelatterhavingcollectedthesameon7thJuly,2008,whichwastheduedateforpaymentofsaidTDS,itcannot
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be said that there was a default on the part of the assessee simply because the amount was credited to the Central Government by the bank on 8th July 2008 , and therefore ,interest under section 201 (IA) was not chargeable.(A.Y.200910). ICICIBankLtdvDyCIT(2011)58DTR284(Lucknow)(Trib). S. 220 :When tax payable and when assessee deemed in default Recovery Stay Appellate Tribunal [S. 254(1)] AssessingOfficerandCIT(A)hasdisallowedtheexpensesundersection40(a)(ia),mainlyrelyingonthedecision ofKarnatakaHighCourtwhichnowstandsoverruledbytheSupremeCourtandliquiditybeingnotfavourable, the entire demand is stayed till the disposal of assessees appeal by the Tribunal or for a period of six months whicheverisearlier.(A.Y.200708) SoftcellTechnologiesLtd.vs.AdditionalCIT(2011)49DTR129/135TTJ249(Mum.)(Trib.) S.222:CertificatetoTaxRecoveryOfficerWritSaleofImmoveablePropertyBeneficiariesofTrustRule11, ScheduleII(Article226) Petitionfiledby twobeneficiariesofatrustchallengingtheattachmentandproclamationofsaleofproperties belonging to the trust for recovery of tax dues of their deceased father without arraying the third beneficiary eitheraspetitionerorasapartyrespondentcannotbeentertainedsincetheimpugnedorderhasbecamefinal andconclusiveasregards1/3rdundividedinterestofthethirdbeneficiaryandnoinconsistentordercanbepassed bytheCourtinthesamelis.Petitionershaveanalternativeremedyofappealagainsttheimpugnedorderpassed bytherespondentauthoritiesrejectingtheirobjectionsunderrule11ofScheduleIIandtherefore,petitionfiledby two petitioners (beneficiaries of a trust) challenging the attachment and proclamation of sale of properties belongingtothetrustforrecoveryoftaxdueisdismissedinlimine.(A.Y.199293) SagarSharma&Anr.vs.Addl.CIT(2011)336ITR611/52DTR89/239CTR169(Bom.)(HighCourt) S.226:OthermodesofrecoveryCollectionandRecoverofTaxLiabilityofHUFforindividualsDefaultsHUF notliablePartnerinFirm. TheassesseewasapartnerofafirmandkartaofaHUF.TheHighCourtheldthatjustbecausetheassesseeis karta of HUF, the family properties could not be subject matter of recovery proceedings in respect of tax due fromfirm. ITOvs.TippalaChinaAppaRao(2011)331ITR248(AP)(HighCourt) S.226:OthermodesofrecoveryCollectionandRecoveryoftaxAttachmentofpropertyHUFLiabilityofsons taxarrearsoffather. Fatherhavingjoinedasapartnerofafirminhisindividualcapacityandnotrepresentingthejointfamily,onlyhis 1/5thshareinthejointfamilypropertyalonewasliabletobeproceededagainstforrealizationoftaxarrearsand notthefourfifthshareofthesons,membersundividedfamily,forrecoveryoftheincometaxarrearsoffather. (Asstyears197172&197273) ITOvTippalaChinaAppaRao&Ors(2011)240CTR298/54DTR260(AP)(HighCourt). S.226(3):OthermodesofrecoveryCollectionandRecoveryoftaxStayGarnisheeproceedingsApplication pendingReasonedorder. Thoughapplicationhasbeenfiledbypetitionerundersection220(6),noorderwaspassedandthereforenotice undersection226(3)cannotbeactedupon.Revenuewasdirectedtodecidetheapplicationundersection220
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(6) without taking any steps under section 226 (3). As the Commissioner has not passed a reasoned order the orderpassedbytheCommissionerwassetasideandCourtdirectedtopassaspeakingorder.(Asstyear2004 05) DagnyDesouza(Smt)vITO(2011)56DTR263/198Taxman205/242CTR176(Bom)(HighCourt). S.226(3)OthermodesofrecoveryCollectionandRecoveryoftaxAssessingOfficerisdirectedtopaycosts forrecoveryharassment. TheAOsorderofattachingthebankaccountoftheassesseeevenbeforetheserviceoftheCIT(A)sorderwas wronginviewof (a)theCBDTsletterdated25.3.2004advisingthatpenaltiesu/s271D&271Eforviolationofs.269SS&269T shouldnotbeindiscriminatelyimposedwithoutconsiderings.273B, (b)theCCITsdirectionthatdemandarisingoutofpenaltiesimposedu/s271D&271Eshouldbestayedincases ofcooperativecreditsocieties, (c)UOIv/sRajaMohammedAmirMohammedAIR2005SC4383whereconcernwasexpressedoverdangerous attitudedevelopingamongstExecutiveresultingininstitutionaldamage& (d) KEC International Ltd 251 ITR 158 (Bom) where it was held that generally coercive measures may not be adoptedduringtheperiodprovidedbytheStatutetogoinappeal. Accordingly,theassesseewasunnecessarilysubjectedtoharassmentbytheactionsofthelowerauthorities.Itis thus a fit case for imposing costs u/s 254(2B) on the Revenue to compensate the harassment caused by the officersoftheRevenueatfault. ShramjiviNagariSahakariPatSansthavsACIT(ITATPune)www.itatonline.org F.Interestchargeableincertaincases. S.234B:InterestAdvancetaxCompanyMAT(S.115JA,115JB,234C) In view of specific provisions in section 115JA and 115JB, to the effect that all other provisions of the Act, shall applytotheMATcompany,interestundersections234A,234Bispayableonfailuretopayadvancetaxinrespect oftaxpayableundersections115JA,115JB. Jt.CITvs.RoltaIndiaLtd.(2011)237CTR329/49DTR346/330ITR470/196Taxman594/2SCC408(SC) S.234B:InterestAdvanceTaxTaxDeductionatSourceSalary(S.191,192,195) Advancetaxisnotpayableonthesalaryofanemployeeinasmuchastheobligationtodeducttaxatsourceis upontheemployerundersection192,uponfailureonthepartoftheemployertodeductatsource,theassessee (employee) only becomes liable to pay the tax directly under section 191 and does not become liable to pay interestundersection234B. Director of IT vs. Maersk Co. Ltd., as Agent of Henning Skov (2011) 54 DTR 41 /198 Taxman 518/240 CTR 218(FB)(Uttarakhand)(HighCourt) S.234B: Interest Advance TaxDifficulty faced while computing interest can be the ground for not to levy of interest.Enhancedcompensation. Thedifficultiesfacedbytheassesseewhilecomputingadvancetaxcannotdefeattheliabilitytopayadvancetax. Ascompensationwas liabletobetaxedasbusinessincome,theassesseeisliabletopayinterest.(Asstyears 200001to200203). DyCITvGopalRamnarayanKasat(2011)240CTR266/54DTR228(Bom)(HighCourt). S.234B:InterestAdvancetaxCapitalgains(S.47(v),139(9),292B).
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Assessee claiming exemption in respect of capital gains on sale of shares to holding company. Return found defectiveandassesseefiledcorrectedreturn.Bythattimeholdingcompanywasnolongerholdingcompany. Thecourtheldthatnodefaultattimeofpaymentofadvancetax.Interestfordefaultnotchargeable.(Asstyear 199192). PrimeSecuritiesLtdvAsstCIT(2011)333ITR464/59DTR251/243CTR229(Bom)(HighCourt). S.234B:InterestAdvancetaxMinimumalternativetaxSetoff.(S.115JAA,234C). Minimum alternative credit in terms of section 115JAA has to be set off against tax payable before calculating interestundersection234B,234C. CITvDeccanCreations(P)Ltd(2011)55DTR206(Kar)(HighCourt). S. 234B: Interest for default in payment of advance taxSearch and seizureRetention of seized Asserts.(S.234C.). Assets seized were released on deposit of money. Assessing Officer failing to accede to request of assesseeandadjustadvancetaxagainstdeposits.Interestundersection234Band234Cfordefaultin paymentofadvancetaxcannotbelevied.(A.Y.199596) VishwanathKhannavUOI(2011)335ITR548(Delhi)(HighCourt). S.234D:InterestonexcessrefundChargeability. Section 234D is applicable only from Ist June , 2003 and therefore , no interest under that section couldbeleviedfromearlierdate.(AsstYear19992000). CITvFauncIndiaLtd(2011)57DTR340(Kar)(HighCourt). S.234D:InterestonExcessRefundAsst.Year200304. Section234Dwasbroughtunderstatutebookfromtheassessmentyear200405theAssessingOfficerwasnotto levytheinterestundersection234D.(A.Y.200203and200304) C.A.ComputerAssociatesP.Ltd.vs.Dy.CIT(2011)8ITR142(Mum.)(Trib.) ChapterXIX.Refunds . S.244A:InterestonrefundsRefundoftaxadjustedoutofseizedamount. Inrespectofrefundoftaxrecoveredbytheauthoritiesbywayofadjustmentoutoftheamountseizedfromthe assesseetrust,subcl.(b)ofsection244Aisattractedandaccordingly,interestundersection244Aispayableto theassesseeonsuchrefund.(A.Y.200405) CITvs.IslamicAcademyEducation(2011)52DTR69(Kar.)(HighCourt) S.244A.InterestonrefundsInterestMATCredit. From the tax payable by assessee under section 115JA ,MAT credits is to be adjusted first ,then what becomes refundable after adjustment of MAT credit is excess advance tax , paid by assessee and on such refundable advance tax interest under section 244A has to be calculated and paid.( Asst Year 198899). CITvBharatAluminiumCoLtd(2011)200Taxman57/58DTR113/242CTR366(Delhi)(HighCourt). S.244A:InterestonRefunds(S.201) Interest under section 244A(1)(b) is allowable and should be granted on refund of tax paid in pursuance of an orderundersection201oftheAct.
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RelianceInfrastructureLtd.vs.Dy.CIT,ITANo.7509/Mum/2010,dt.28012011,ITATMumbaiDBench,BCAJp.37, Vol.42B,Part6,March2011(Trib.) S.244A.:InterestonrefundsSelfassessmenttax. An assesseeis entitled to interest on excess payment of self assessmenttax in termsof section 244A (1) (b) , fromdateofpaymentofsuchamountuptodateonwhichrefundisactuallygranted.(Asstyear200708). AsstDirectorofIncometaxvRoyalBankofScotlandN.V.(2011)130ITD305/138TTJ698(Kol)(Trib). ChapterX1XB.AdvanceRulings. S.245R:ProcedureonreceiptofapplicationAdvanceRulingsProcedureJurisdiction. Section245Risanintegratedsectionnotonlydealingwithadmissionofanapplicationbutalsoitsfinaldisposal .AARcanindependentlyconsidernatureoftransactionputforwardincontextofproviso(iii)tosection245R(2) because said proviso gives jurisdiction to Authority to test transaction projected before it in order to find out whetheritisdesignedprimafacieforavoidanceofincometax. ABCInternationalInc(2011)199Taxman211/241CTR289/55DTR393(AAR). S.245S.AuthorityforAdvanceRulingsPrecedentBindingnature. AnadvancerulingundertheActisconfinedtothefactsandlawprojectedintheapplicationleadingtotheruling andisbindingonlyonthepartyandtherevenue. CairnU.K.HoldingsLtdINRE(2011)59DTR121/242CTR449(AAR). ChapterXX.AppealsandRevision. A. AppealstotheDepityCommissioner(Appeals)andCommissioner(Appeals). S.246A:AppealableordersCommissioner(Appeals)RecoveryoftaxSaleinrecoveryproceedingsLimitation fromthedateofserviceoforder. TaxrecoveryofficerconfirmingsaleinrecoveryproceedingsScheduleII,RR,63,65,86isnotconclusive,appeal maintainable.Forcomputinglimitationthedateofordertobeconstruedtomeandateofknowledgeoforder. VijayKumarRuiavCIT(2011)334ITR38/57DTR300/242CTR292/TaxL.R.553(All)(HighCourt). S.246A:AppealCommissionerofIncometax(Appeals)PowerDirection. ProceedingsforassessmentofanassesseecannotbebasedondirectionsissuedbyanothercoordinateTribunal or even a higher forum , if that was not the subject matter before it. That would be an exercise without jurisdiction.Powerofcommissioner(Appeals),directingtotaxcertainamountsinhandsofathirdparty,heldto benotvalid.(A.Y.200607). CITvKrishiUtpadanMandiSamiti(2011)336ITR77/200Taxman362(All)(HighCourt). S.246A.:AppealableordersCommissioner(Appeals)AppealableordersShippingNonResident.(S.172(4). Orderdeterminingamountoftaxundersection172(4)isappellable. ITOvMSCAgency(India)P.Ltd(2011)9ITR(Trib)425(Chennai). S.246A(1)(a):AppealCommissioner(Appeals)Withholdingtax(S.90,91). Question of not allowing relief in respect of withholding tax under section 90/91 has direct effect of reducing refundorenhancingamountoftaxpayable,suchanissueissquarelycoveredwithinambitofsection246A(1)
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(a).Amountoftaxdeterminedaspersection246A(1)(a)encompassesnotonlydeterminationofamountof taxontotalincomebutalsoanyotherthingwhichhasaneffectofreducingorenhancingtotalamountoftax payablebyassessee.(A.Y.200607). CapgeminiBusinessServices(India)LtdvDyCIT(2011)131ITD396(Mum)(Trib). S. 249(4)(a) :Form of appeal and limitation Commissioner(Appeals) Admitted Tax Limitation Refund of earlieryears Commissioner(Appeals),dismissedtheappealonthegroundthattheassesseehasnotpaidtheadmittedtax.The assesseecontendedthatintheearlieryearstheassesseehadmadeexcesspaymentsoftaxanditwasentitled refunds,andfurtherthebankaccountwasalsoattached.Theassesseemadepaymentsafterwards.TheTribunal setasidetheorderofCommissionerof(Appeals)anddirectedhimtodecideonmerit.(A.Y.200708) EndeavourIndustriesLtd.vs.Dy.CIT(2011)43SOT322/55DTR128(Hyd.)(Trib) S.249(4):FormofappealandlimitationCommissioner(Appeals)AdmittedTax Iftheappealisfiledwithoutthepaymentoftaxonreturnedincomebutsubsequentlytherequiredamountoftax ispaid,theappealshallbeadmittedonpaymentoftaxandappealhastobedecidedonmerit.(A.Y.200708) BhumirajConstructionsvs.Addl.CIT(2011)49DTR195/135TTJ357/131ITD406(Mum.)(Trib.) S. 249 (4). Form of appeal and limitation Commissioner of income tax (Appeals) Admitted tax Refund of earlieryear. Assessee paid the tax after filing an appeal. Assessee was also entitled to refund of earlier year and the Bank account was also attached. Rejection of appeal for nonpayment of admitted tax was not justified.( Asst year 200708). EndeavourIndustriesLtdvDyCIT(2011)55DTR128(Hyd)(Trib). S.250:ProcedureinappealCommissioner(Appeals)AdditionalEvidence.Rule46A. Commissioner (Appeals) had recorded the reasons for admission of additional evidence, further, as per Rule 46(A)(3) he had also given an opportunity to Assessing Officer to state his objections, if any to admission of additionalevidenceandthoughAssessingOfficerhadraisedobjectiontoadmissionofadditionalevidence,yethe had not stated anything about veracity of additional evidence filed by assessee, Tribunal held that the Commissioner(Appeals) had not violated provisions of Rule 46A, and therefore, the order of Commissioner(Appeals)upheld. Dy.CITvs.DolphineMarbles(P)Ltd.(2011)129ITD163(JB)(TM)(Trib.) S.250(4)ProcedureinappealCommissioner(Appeals)Additionalevidence.(Rule46A). Assessing Officer never directed the assessee company to produce any evidence to prove the genuineness of share holdings by the subscribing companies nor expressed any doubts regarding the genuinenessofshareholdingsofthesecompaniespriortreatingtheassesseescapitalasunexplained CIT (A) correctly admitted the additional evidence produced before him and there is no question of givinganopportunitytotheAOtoexaminetheadditionalevidence.(AsstYear200506). DyCITvDolphineMarbles(P)lTD(2011)57DTR58(Jab)(TM)(Trib). S.250(5):ProcedureinappealCommissioner(Appeals)PowersValidityofAssessmentSecondroundof appealSearchandSeizure
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Assesseehavingnotchosentochallengethevalidityofassessmentsontheallegationofdefectorirregularityin thewarrantissuedeitherbeforetheAssessingOfficerorinthefirstroundofappealsandraisedthecontention afterremandbeforetheCIT(A)forthefirsttime,isnotpermissible. JoseCyriacvs.CIT(2011)238CTR207/50DTR292(Ker.)(HighCourt) S.250(6):ProcedureinappealCommissioner(Appeals)ReasonedOrderPointforDetermination. An order passed by CIT(A) without mentioning point of determination as also without giving any reason for decisionwhiledismissingtheappealisviolativeofsection250(6)oftheActandcannotbesustained. RangRasayanAgenciesvs.ITO,ITANo.917/Ahd./2009,dt.18012011,ITATCBench,Ahmedabad,BCAJp.25,Vol. 42B,Part5,February2011(Trib.) S.251:PowersoftheCommissioner(Appeals)AdditionalEvidenceRule.46A:IncomeTaxRules,1962. WhentheassesseefilesadditionalevidencebeforetheCIT(A)itisnotnecessarythattheCIT(A)mustremandthe mattertotheAssessingOfficer,itdependsonthenatureoftheevidence.TheCIT(A)inappropriatecasewithout prejudicetoeitherpartiescanlookintotheevidenceitself.(A.Y.200102) CITvs.JindCooperativeSugarMillsLtd.(2011)51DTR121/335ITR43(P&H)(HighCourt) S.251:PowersoftheCommissioner(Appeals)Omissiontoclaiminthereturn. Mereomissionoftheassesseetoclaimexemptionundersection10(35)inthereturnofincomecouldnotdebar theassesseefrommakingtheclaimbeforethefirstAppellateAuthorityduringtheappellateproceedings.(A.Y. 200405) CITvs.MetalmanAutoP.Ltd.(2011)52DTR385(P&H)(HighCourt) S.251:AppealCommissioner(Appeals)PowersNoJurisdictiontodeterminetaxliabilityofthirdparty: Powersofappellateauthorityisnormallycoextensivewiththatoforiginalauthority.Itwouldnotbeopento appellate authority to exercise a jurisdiction which Assessing Officer did not have. Assessee claimed to be charitable institution, in its assessment. Assessing Officer held that amount transferred by assessee to Mandi Parishadasdevelopmentcessandadministrativeexpenditurewerefornoncharitablepurposeand,therefore, wereaddedinassesseesincome. OnappealCommissioner(Appeals)heldthatbothamountscouldnotbeassessedinhandsofassessee,butin handsofParishad.HeobservedthatamounttransferredtoMandiParishadwasnotcreditedtoCessFund( Central Mandi Fund) . Accordingly he directed Assessing Officer to make a reference to Assessing Officer of MandiParishadtomakeremedialmeasures,ifnecessary,inrelevantassessmentyearstotaxrelevantreceiptsin handsofMandiParishad.Thecourtheldthatitisnotopentoanotherquasijudicialauthoritytogivedirectionto determine tax liability of third party. Accordingly observations made by Commissioner (Appeals) were without jurisdiction. CITvKrishiUtpadanMandiSamiti(2011)336ITR77/200Taxman362(All)(HighCourt). S.251(1)(c):PowersoftheCommissioner(Appeals)NewclaimNonfilingofrevisedreturnPowerof CIT(A). When the assessee , during the course of assessment claimed the cost of acquisition of the capital asset as per the valuation report stating the fair market value as on Ist April 1981, the Assessing Officer should have entertained the said claim and CIT (A) also erred in not considering the claim , whichisalegallypermissibleclaim.(AsstYear200506). GopiS.Shivnani(Mrs)vITO(2011)139TTJ308(Mumbai)(Trib).
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S.253(1):AppealtotheAppellateTribunalPowerPenalty.(S.246A(1)(q),271FA). Income tax Appellate Tribunal has no power to entertain the appeal against the order passed under section 271FA ie delay in filing information.. An appeal against the order passed under section 271FA canbepreferredbeforetheCIT(A).(A.Y.200506to200809) SubRegistrarNakoarvDirectorofIncometax(2011)57DTR497(Asr)(Trib). S.253(1):AppealTribunalMaintainabilityPenalty(S.246A(1)(q),271FA). Tribunalhasnopowertoentertaintheappealagainsttheorderpassedundersection271FA.Appealagainstthe orderpassedundersection271FAcanbeappealedundersection246A(1)(q)beforeCommissioner(Appeals).( A.Y.200506). SubRegistrar,NakoarvDyCIT(2011)139TTJ734(Asr)(Trib). S.253(6)(c):AppealstotheAppellateTribunalFeesIncomeDeterminedOrderunderSection154. Orderpassedundersection143(1),assessedincomeis`13,06,780/.Appealfiledagainstorderundersection154. Totalincomedeterminedatmorethan`2lakhsfeepayableshallbeonepercentofassessedincomesubjecttoa maximumof`10,000/.TheTribunalheldthatfeeratedependentontotalincomedetermined.(A.Y.200203) M.M.BagwanandBrothersvs.ACIT(2011)7ITR298(Bang.)(Trib.) S.254(1):OrdersofAppellateTribunalCrossObjectionDismissalofRevenueAppealAdjudication RevenuefilingappealandtheassesseefilingcrossobjectionbeforetheTribunal.Tribunaldismissedtherevenues appealandnotadjudicatedtheassessescrossobjection.TheCourtheldthatthecrossobjectiontobedecided. RamJiDass&Co.vs.CIT(2011)220Taxation90(P&H)(HighCourt) S.254(1):OrdersofAppellateTribunalDutyofTribunalReasonedOrder. Ajudicialordermustbesupportedbysufficientreasonsforcomingtotheconclusion.Failuretorecordreason would violate the principles of natural justice and is against the basic concept of fairness and transparency, therefore,orderspassedbytheCIT(A)andtheTribunalsufferfromviolationofprinciplesofnaturaljusticecan notbesustained.(A.Y.200102) IskraremecoRegentLtd.vs.CIT(2011)237CTR239/49DTR185(Mad.)(HighCourt) S. 254(1) : Orders of Appellate Tribunal Additional Grounds Factual Plea Rule 11 : Income Tax Appellate TribunalRule,1963. Where the Revenue had not contested / urged before the lower appellate authority or as an additional ground beforetheTribunalnortheAssessingOfficerhadtakensuchstandinhisassessmentorder.TheTribunalwasheldto havecommittedanerrorinallowingtheRevenuetoraisesuchnewfactualpleaforthefirsttimebeforeitatthe stageofargumentandadjudicatinguponsuchplea. MeghjiGirdhar(HUF)vs.CIT(2011)52DTR397(MP)(HighCourt) S.254(1):OrdersofAppellateTribunalDutyofTribunalReasonedOrder. A judicial order must be supported by sufficient reasons for coming to the conclusion. Failure to record reason would violate the principles of natural justice and is against the basic concept of fairness and transparency, therefore,orderspassedbytheCIT(A)andtheTribunalsufferfromviolationofprinciplesofnaturaljusticecannot besustained.(A.Y.200102) IskraremecoRegentLtd.vs.CIT(2011)237CTR239/49DTR185(Mad.)(HighCourt)
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S.254(1):OrdersofAppellateTribunalAdditionalGroundIssueofNotice. Assesseecannotbeallowedtoraisethepleaastowhetherthenoticeundersection143(2)wasvalidlyservedon itforthefirsttimebeforetheTribunal.(A.Y.199798) AravaliEngineersP.Ltd.vs.CIT&Anr.(2011)49DTR68/237CTR312(P&H)(HighCourt) S.254(1):OrdersofAppellateTribunalNaturaljusticeAdministrativelawOpportunityforfilingpaperbook. The Tribunal had decided the Departmental appeal against the assessee without waiting for the paper book containingtherelevantdocumentspromisedtobefiledbytheDepartment.TheDepartmentappealwasallowed. TheHighcourtremittedthematterbacktotheTribunaltodecidethematterafresh. KrishanKumarSethivCIT(2011)333ITR16(Delhi)(HighCourt) S.254(1):OrdersofAppellateTribunalDuty. The assessee had raised a specific ground challenging the jurisdiction of the assessing officer on framing the assessment order beyond limitation before the CIT (A) and succeeded before him in appeal. The Tribunal was held not justified in deciding the issue on merits and reversing the order of theCIT(A)withoutdecidingtheissueonjurisdictionundersection147oftheAct.(A.Y.199091) KumudamPrinters(P)Ltd.vs.CIT(2011)56DTR61(Mad)(HighCourt). S.254(1):AppellateTribunalOrdergivingeffecttoorderofTribunalScopeBindingnatureoforderofTribunal Assessment.(S.143(3),237) WhilegivingtotheeffecttotheappellateorderAssessingOfficercannottravelbeyondtheorderofTribunaland assessee the prize money as income from other sources. Assessing Officer being a quasi judicial authority and subordinatetotheTribunalisboundbythedecisionoftheTribunal.Theassesseeisentitledtorefundofadvance taxcollectedwithinterestasperlaw.(A.Y.200102). LopamudraMisra(Miss)vAsstCIT(2011)59DTR257/243CTR66/337ITR92(Orissa)(HighCourt). S.254(1):AppellateTribunalDutyAdditionalevidenceReportofForensic&SScientificLaboratory TherevenuehasfiledthereportoftheForensicScienceLaboratorywasarelevantmaterialandsowasaffidavit ofthesearchedperson.Theadditionalevidencewasnecessaryforjustdecisionofthematter.TheTribunalwas not justified in declining to consider the additional evidence comprising the opinion of the laboratory of the Governmentexaminerandalsotheaffidavitoftheauthorofthediary,asthedocumentshadadirectbearingon theissue. CITvMuktaMetalWorks(2011)336ITR555(P&H)(HighCourt). S. 254(1) : Orders of Appellate Tribunal Power Applicability of provision of section 14A for the first time beforeTribunal(S.14A) Issue of disallowance under section 14A, cannot be raised for the first time before the Tribunal where the provision of section 14A, was not invoked against the assessee by the Assessing Officer while making disallowance of interest expenditure under section 36(1)(iii) and CIT(A ) also at no stage considered the applicationofsection14A. ACITvs.DeliteEnterprises(P)Ltd.(2011)135TTJ663/50DTR193(Mum.)(Trib) S.254(1):OrdersofAppellateTribunalRecoveryStay(S.220)
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Besides considerations like existence of strong prima facie case, financial constraints of the applicant are important, even if not sole or qualifying consideration in entertaining a stay application, and therefore stay grantedtotheassesseesubjecttocertainconditions.(A.Y.200607) KECInternationalLtd.vs.Addl.CIT(2011)136TTJ60/49DTR428(Mum.)(Trib) S.254(1):OrdersofAppellateTribunalPrecedentDecisionofCoordinateBench WhentheissueisalreadycoveredbyanearlierorderofTribunal,thattooinassessesowncase,acoordinate benchofTribunalshouldnotdiffertheearlierdecisionofthebenchsimplyforthereasonthatacontraryviewis possible.(A.Y.200102to20042005) PatspinIndiaLtd.vs.Dy.CIT(2011)51DTR57/129ITD35/136TTJ377(Cochin)(Trib.)(TM) S.254(1).OrdersofAppellateTribunalCBDTCircularonmonetarylimitsforfilingappealsappliestopending appeals. AsperInstructionNo.3of2011dated09.02.2011appealbeforeTribunalcanbefiledwherethetaxeffectexceeds themonetarylimitofRs.3lakhs.However,consideringthesimilarsituationwheretaxlimitsweremodifiedbythe CBDTInstructionNo.5of2008thejurisdictionalHighCourtinMadhukarK.Inamdar(HUF)318ITR149heldthat thecircularwillbeapplicabletothecasespendingbeforethecourteitherforadmissionorforfinaldisposal.In viewoftheorderofthejurisdictionalHighCourtweholdthatInstructionNo.3dated09.02.2011isapplicablefor theappealpreferredbytheRevenue. ITOvsLaxmiJewelPvt.(2011)BCAJJulyP.33Vol43A.Part4.(Mumbai)(ITAT)www.itatonline.org S.254(1):OrdersofAppellateTribunalStayDirectStayApplicationtoTribunalMaintainableNotnecessary thatlowerauthoritiesmustbeapproachedfirst(S.220) It is settled law that a Direct Stay Application filed before the Tribunal is maintainable and it is not the requirement of the law that assessee should necessarily approach the CIT before approaching the Tribunal for grantofstay.Indecidingastayapplication,thefollowingaspectshavetobeconsidered:(i)liquidityofthefunds oftheassesseetoclearthetaxarrearsoutofownfundsattherelevantpointoftimebasedontheassessees financial status at the time of the stay petition hearing; (ii) creditworthiness of the assessee to outsource the funds toclearthedepartmentaldues;(iii)primafacieviewsonthelikelydecisionoftheTribunalontheissues raisedintheappeal;(iv)departmentalurgenciesinmattersofcollectionandrecovery;(v)guaranteesprovidedby theassesseetosafeguardtheinterestoftherevenueetc.(A.Y.200607) HoneywellAutomationIndiaLtd.vs.Dy.CIT(2011)54DTR265/138TTJ373(Pune) S.254(1)OrdersofAppellateTribunalPowerStayDespiteThirdProvisotosection254(2A),Tribunalhas powertoextendstaybeyond365daysifdelaynotattributabletoassessee(Sec.220,245) TheThirdProvisotosection254(2A),asamendedw.e.f.1.10.2008,providesthatiftheappealfiledbytheassessee isnotdisposedoffwithintheperiodofstaygrantedbytheTribunal(whichcannotexceed365days),theorderof stay shall stand vacated even if the delay in disposing of the appeal is not attributable to the assessee. The assesseefiledastayapplicationrequestingstayofdemandforpenaltyof`369crores.Ontheexpiryof365days ofstay,theassesseeaskedforextensionofstayrelyingontheTribunalsorderinRonakIndustrieswhere,stay hadbeengrantedbeyond365daysrelyingonthejudgementoftheBombayHighCourtinNarangOverseas295 ITR 22 (Bom.). As it was felt by the Tribunal that the reliance in Ronak Industries and Narang Overseas was misplaced in view of the amendment to the Third proviso to section 254(2A) w.e.f. 1.10.2008, the question whethertheTribunalhadjurisdictiontoextendstaybeyond365daysreferredtotheSpecialBench.HELDbythe SpecialBench:
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(i)InRonakIndustries,theTribunalheld,relyingonNarangIndustries,thattheTribunalhasthepowertoextend staybeyond365days.ThisdecisionoftheTribunalwaschallengedbythedepartmentintheBombayHighCourt by specifically raising a question as to the applicability of the Third Proviso to section 254(2A) as amended w.e.f 1.10.2008.TheHighCourt,videorderdated22.10.2010,dismissedthedepartmentsappeal.Assuch,theTribunals orderholdingthattherewaspowertoextendstayevenafter365daysstoodaffirmed; (ii)ThedepartmentsargumentthattheHighCourtsorderinRonakIndustriesshouldbetreatedasperincuriam onthegroundthattheamendmentmadebytheFA2008wasnotconsideredbyitisnotacceptablebecause(a) InNarangOverseas(renderedpriortotheamendment)awiderviewwastakenasregardsthepowertogrant stay,(b)IntheappealfiledbythedepartmentinRonakIndustriesaspecificquestionwithregardtotheeffectof the Third Proviso was raised and so it cannot be said that the High Court had not taken cognizance of the amendment,(c)theTribunalcannotignoreaHighCourtsdecisiononthegroundthataprovisionoflawwasnot considered by the High Court and (d) the fact that there is no discussion in the High Courts order in Ronak Industriesdoesnotmeanthatdoesnotlaydownanyratiodecidendi; (iii) However, the recovery of the arrears by the Assessing Officer on the expiry of 365 days of stay cannot be orderedtoberefundedbecauseonthedateofrecoverythestayhadexpiredandtheapplicationforextension was pending before the Special Bench. The Assessing Officers act was bona fide and as the recovery was by adjustmentofrefunds,itwasnotacoercivemeasure(RPGEnterprises251ITR(AT)20(Mum)&othercases holding that the Assessing Officer must refund taxes collected during the pendency of a stay application distinguished).(A.Y.2000to200203) TataCommunicationLtd.vs.ACIT(2011)130ITD19/54DTR274/138TTJ259(Mum)(SB) S. 254(1 ):Orders of Appellate Tribunal Even issues subjudice before High Court can be heard by Tribunal. The objection to the Special Bench hearing the issue only on the ground that the High Court has admittedtheappealisnotacceptablefortworeasons. Firstly,themerefactthatasuperiorauthority isseizedofanissueidenticaltotheonebeforethelowerauthoritydoesnotcreateanyimpedimenton the powers of the lower authority in disposing off the matters involving such issue as per prevailing law. If the suggestion is accepted, there would be chaos and the entire working of the Tribunal will come to standstill. Secondly, the Special Bench was constituted at the assessees request because it thenwantedanescaperoutefromapotentialadverseview.Theassesseecannotnowarguethatthe SpecialBenchbedeconstituted.Suchvacillatingstandcannotbeapproved. DCIT vs Summit Securities Limited (2011) 59 DTR 313 8 ITR (Trib) 88/ 132 ITD 1( Mumbai) ( SB)( Trib) . www.itatonlne.org. S.254(1):OrdersofAppellateTribunalAdditionalevidenceDataofcomparablesAnnualreports. Inviewofthefactthatannualreports/databaseextractsofthreecompanieswhichwereselectedas comparablecaseswerenot available earlier inthe publicdomain and havingregardtothefactthat these documents are essential for determining ALP , these additional evidences are admitted for consideration.(AsstYear200506). AsstCITvNITltd(2011)57DTR334(Delhi)(Trib). S.254(1):AppellateTribunalPowersAssessmentNewclaimWithoutrevisedreturn. AssesseehasraisednewclaimbeforetheAssessingOfficerwithregardtodoctrineofmutualitywithoutfiling revisedreturnundersection139.AssessingofficerhasnotentertainedtheclaimfollowingthejudgmentofApex courtinGoetze(India)LtdvCIT(2006)284ITR323(SC),whichwasconfirmedbyCIT(A).Onfurtherappeal,the
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Tribunalheldthatastheissuerequiredproperverificationoffactsandrelevantfactsarenotavailableonrecord norintheassessmentproceedingsitcouldnotbeadmitted.Ifthisgroundwasadmitted,ithadtogobacktothe Assessing Officer to verify the facts and adjudicate the claim of assessee would be against the spirit of the Supreme Court Judgment. Therefore , the claim of assessee with regard to doctrine of mutuality could not be entertainedatthisstage.(A.Y.200405). JayBharatCooperativeSocietyLtdvITO(2011)10ITR717(Trib)(Mumbai). EditorialRefer(Mumbai)andDelhi(HighCourt)CITvJaiParabolicSpringsLtd(2008)306ITR42(Delhi)& CITvs.RamcoInternational(2009)221CTR491(P&H) S. 254(1) : Appellate TribunalPowers ContemptCITDRs false & frivolous submissions constitute criminal contempt&justifyrecoveryofcostsfromsalary. Inthedepartmentsappeal,theassesseeraisedapreliminaryobjectionthatthenoticeu/s143(2)wasnotissued withintheprescribedperiodof12months.TheAOacceptedthatthes.143(2)noticehadnotbeenissuedintime. Accordingly, the Tribunal, relying on Hotel Blue Moon 321 ITR 362 (SC), dismissed the departments appeal without going into the merits of the appeal. Thereafter, the CITDR addressed two letters to the Honble Membersinwhichitmadecertainallegationagainstthebench.Itwasalsoallegedthattheletterwassentby postastheBenchclerkhadrefusedtoaccepttheletter.ThelettersweretreatedasaMAbytheTribunaland heard. Thereafter, the CITDR filed a letter of apology clarifying that it was not his intention to hurt the sentiments of the Members though he did not appear personally before the Bench. The Tribunal dealing meticulouslywitheachassertionmadebytheCITDRandtermingthemasfrivolousanduntrueandheldthat: We are of the view that the conduct of the learned CIT(A) in addressing correspondence to the Honble Membersinrespectofanappealwhichhasbeenheardandunderconsiderationforpassingordersisimproper.It isanattempttointerferewiththeduecourseofanyjudicialproceedingandtendstointerferewithorobstructs ortendstoobstructtheadministrationofjusticeandassuchwouldbeCriminalcontemptwithinthemeaning oftheContemptofCourtsAct,1971.Theallegationsmadeinthelettersdated23.3.2010and24.3.2010areserious enoughtowarrantanactionseekingprotectionoftheHonbleHighCourtinexerciseofitspowerstopunishfor contemptofthesubordinateCourtsandTribunals.Inouropinion,therecannotbeafittercaseforimpositionof exemplarycostsonthelearnedDepartmentalRepresentative,whoinourview,isresponsibleforsuchaM.A.and forwastingthetimeoftheTribunalbyraisingfrivolousargumentsandmakingblatantlyfalsesubmissions.The costshouldhavetoberecoveredfromthesalaryofthedelinquentemployee,whoisresponsibleforsuchactions and entry made in his service record on the adverse comments made against the D.R. by the Tribunal. We howeverrefrainfromdoingsointhehopethatsuchindiscretionwouldnotberepeatedinfutureandalsoinview oftheletterofapologyfiledbytheD.R. Commissioner(Departmentalrepresentative)vSimoniGems(Mum)(Trib).www.itatonline.org. S.254(1):AppealTribunalPrecedentDecisionofCoordinateBench. A CoOrdinate Bench decision , which is admittedly contrary to earlier precedents on the issue from other Co ordinateBenches,doesnotbindthesubsequentCoordinateBenches.(A.Y.200607). AdditionalDirectorofIT(Internationaltaxation)vTIITeamTelecomInternational(P)Ltd(2011)60DTR177/ 140TTJ649(Mum)(Trib). S.254(2):OrdersofAppellateTribunalRectificationofMistakeReview. While exercising the power of rectification under section 254(2), Tribunal can recall its order in entirety if it is satisfiedthatprejudicehasresultedtothepartywhichisattributabletotheTribunalsmistake,errororomission
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andwhicherrorisamanifesterrorandithasnothingtodowiththedoctrineorconceptofinherentpowerof review.(A.Y.20002001to200506) LachmanDassBhatiaHingwala(P)Ltd.vs.ACIT(2011)237CTR117/330ITR243/(2011)TaxLR101(Del.)(FB) S.254(2).OrdersofAppellateTribunalRectificationofmistakesBusinessloss(S.28.) Loss was allowed for earlier and subsequent year . Appellate Tribunal refused the rectify the order . The Apex courtremandedthemattertoTribunalforconsiderationafreshinlightofCITvWoodwardGovernorIndiaP.Ltd( 2009)312ITR254(SC).(Asstyear199899). PerfettiVanMelleIndia(P)LtdvCIT(2011)334ITR259(SC). S.254(2):OrdersofAppellateTribunalRectificationofMistakePowertoReviewAdditionalEvidence Once the Tribunal has disposed the appeal on merits, it cannot review its order and therefore, miscellaneous application filed by the assessee seeking modification of the order of Tribunal so as to admit more additional evidencethanthatpermittedbytheorderwasrightlyrejectedbytheTribunal.(A.Y.199899) IndrakumarPatodiavs.ITO(2011)51DTR183/238CTR437(Bom.)(HighCourt) S.254(2):OrdersofAppellateTribunalRectificationofMistakesordersnotcitedTribunalentitledtodoown researchandrelyonnoncitedcases. Relianceandreferencetoreasonsstatedinanotherdecisioncannotberegardedasamistakeapparentfromthe record. It is not unusual or abnormal for Judges or adjudicators to refer and rely upon judgements / decisions aftermakingtheirownresearch. GeofinInvestment(P)Ltd.vs.CIT(Delhi)(HighCourt). S.254(2):OrdersofAppellateTribunalRectificationofmistakesAdmissionbycounsel. Tribunalrecordingadmissionbycounselforassessee,assesseefilingapplicationdenyingadmission,application shouldbeconsideredonmerits.(Asstyear199798). BagoriaUdyogvCIT(2011)334ITR320/60DTR386(Cal)(HighCourt). S.254(2):OrdersofAppellateTribunalRectificationofMistakeMerger On the facts of the case, the High Court had reversed the order passed by the Tribunal holding that since the assessee had paid arms length remuneration for services of its Indian agent, no further profits could be attributedtoforeignenterprisesinIndiaunderArticle7(1)ofDTAA. Insuchcasestheapplicationfiledbytherevenueundersection254readwithsection9&90oftheIncometax Act, 1961 Article 7 of DTAA between India and Singapore was rendered infructuous as the impugned order of Tribunal had already merged with the order passed by High Court & Tribunal had no jurisdiction to modify its earlierorder.Therevenuesapplicationwasthereforedismissed.(A.Y.19992000) Dy.DirectorofITvs.SETSatellite(Singapore)PteLtd.(2011)43SOT1(Mum.)(URO)(Trib) S. 254(2) : Orders of Appellate Tribunal Rectification of Mistake Mistake in order passed under section 254(2),cannotberectified The miscellaneous application filed by the assessee against earlier order passed under section 254(2) is not maintainableonlycourseopentotheassesseeistofileanappealagainstthesaidorder.(A.Y.199596) PadmaPrakash(HUF)vs.ITO(2011)51DTR1/136TTJ257/8ITR135/131ITD121(Delhi)(Trib.)(SB)/ S.254(2):OrdersofAppellateTribunalPowersRectificationofmistakesStay.
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PowerofTribunaltopassanorderofstayisnotconfinedtoacasewhereanappealispendingbeforeTribunal, butalsoextendstoanyproceedingsrelatingtoanappealpendingbeforeit. Applicationundersection254(2)ismaintainableagainstorderpassedbyTribunalgrantingstay.(A.Y.200708and 20092010) ITOvs.VodafoneEssarLtd.(2011)44SOT304/54DTR253/138TTJ284(Mum.)(Trib) S. 254(2) Orderrs of Appellate Tribunal Rectification of Mistakes ITAT Rule 34 Rectifiable Order Pronouncement. Orderpronouncedattheconclusionofhearing,thoughnotpassedinwriting,constituteanorderoftheTribunal andthesamecouldberectifiedundersection254(2).(A.Y.19992000to200405) ITOvs.V.Meenakshi(Smt.)(2011)128ITD1/(2010)128TTJ619/36DTR42(Chennai)(TM)(Trib.) S.254(2):OrdersofAppellateTribunalSecondrectificationapplicationPower. TheTribunalhasnopowertoadjudicateuponsubsequentapplicationfiledundersection254(2).Only course permissible to assessee in such a case is to file an appeal against that order .( Asst year 1995 96). ShriPadmaPrakash(HUF)vITO(2011)131ITD121(DelhI)(SB)(Trib). S.254(2A):OrdersofAppellateTribunalPowerStayExtensionofPeriod. TheTribunalhaspowertoextendperiodofstaybeyondthreehundredandsixtyfivedaysundertheprovisionsof section254(2A)oftheIncomeTaxAct1961.(A.Y.200304) CITvs.RonukIndustriesLtd.(2011)333ITR99/240CTR265/54DTR291(Bom.)(HighCourt) S.255:AppealTribunalAbatementLegalheirsonrecordRule26ITATRulesCPC1908,order22,r,4. ThoughRule26oftheITATRules1963,providesforbringinglegalheirsofdeceasedonrecord,notimelimithas beenprescribedunderthatrule,andprovisionsoforder22rule4oftheCPC,1908havetobeapplied.Revenue havingfailedtobringthelegalheirsofdeceasedassesseeonrecord,inspiteofgivingreasonableopportunity theappealofrevenuewasdismissed.(A.Ys.19992000to200203). ITOvMyeniRaghavaRao(2011)139TTJ740/131ITD321(Visakhapatnam)(Trib) S.255(4):OrdersofAppellateTribunalThirdmemberJurisdictionScope. Jurisdictionofthethirdmemberislimitedtotheissueinthequestionreferredtohimandheisnotsupposedto investigatenewfactsbeyondthescopeofthequestionreferredtohim.(AsstYear200405). DyCITvAkayFlavours&Aromatics(P)Ltd(2011)55DTR1/130ITD41/138TTJ513(Coch)(TM)(Trib). CCAppealstoHighCourt. S.260A:AppealHighCourtSubstantialQuestionofLawCashCredit(S.68) Itismanifestfromabarereadingofsection260AoftheIncomeTaxAct,1961,thatanappealtoHighCourtfroma decisionoftheTribunalliesonlywhenasubstantialquestionoflawisinvolved,andwheretheHighCourtcomes totheconclusionthatasubstantialquestionoflawarisesfromtheorderofTribunal,itismandatorythatsuch questionsmustbeformulated.Afindingoffactmaygiverisetoasubstantialquestionoflaw,interalia,inthe eventthefindingsarebasedonnoevidenceand/orwhilearrivingatthesaidfinding,relevantevidencehasbeen taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidencehasbeenmisread.OnthefactstheTribunalhasgivenafindingthattheassesseehasfailedtoprovethe sourceofcashcreditsatisfactorilyhence,thenoquestionoflawarisefromtheorder.(A.Y.198384)
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VijayKumarTalwarvs.CIT(2011)330ITR1/1SCC673(SC) S. 260A Appeal High Court condonation of delay Long Delay due to procedural reasons in filing Dept appealscannotbecondoned The SLP challenging the order of the Bombay High Court declining to condone delay of 656 days in filing the appeal was dismissed on the basis that several facts such as non traceability of case records, procedural formalitiesinvolvedintheDepartmentandthepapersaretobeprocessedthroughdifferentofficersinrankfor their comments, approval etc. and then the preparation of the draft of appeal memo, paper book and the administrativedifficultiessuchasshortageofstaffdoesnotmakesufficientcauseforcondonationofdelay. CITvIndianHotelsCo.Ltd.(SupremeCourt)(www.itatonline.org) S.260A:AppealHighCourtCondonationofDelay. Thedepartmentdelayedinfilingappealinthematterinvolvinghugestakes.TheHighCourtdismissed the appeal. Held, considering the amount of tax involved, the High Court ought to have decided the appeal before it on the merits. The matter was remanded to the High Court to decide de novo in accordancewithlaw. CITv.WestBengalInfrastructureDevelopmentFinanceCorp.Ltd.[2011]334ITR269(SC) S. 260A: Appeal High CourtLimit of 10 laksCBDTs low tax effect circular not applicable to matters having cascadingeffect. TheHighCourt,relyingonCBDTsInstructionNo.3/2011dated922011,dismissedthedepartmentsappealasnot maintainable on the ground that the tax effect was less than Rs. 10 lakhs. The department filed a SLP in the SupremeCourt.TheApexcourtallowingthepetitionheldthat,LibertyisgiventotheDepartmenttomovethe HighCourtpointingoutthattheCirculardated9thFebruary,2011,shouldnotbeappliedipsofacto,particularly, whenthematterhasacascadingeffect.TherearecasesundertheIncomeTaxAct,1961,inwhichacommon principlemaybeinvolvedinsubsequentgroupofmattersorlargenumberofmatters.TheHighCourtshallnot applytheCircularipsofacto.Forthatpurpose,libertywasgrantedtotheDepartmenttomovetheHighCourtin twoweeks. CITvSuryaHerbalLtd(2011)60DTR165/243CTR327/243CTR327(SC).www,itatonline.org. S.260A:AppealHighCourtPowerofReview Section 35G(9) of the Central Excise Act (= s. 260A (7) of the IT Act) provides that the provisions of Civil Procedure Code, 1908 relating to appeals to the High Court shall as far as may be apply in the case of appeals underthisSection.GiventhatonlytheprovisionsoftheCPCrelatingtoappealsaremadeapplicableandnot thoserelatingtoreview,theHighCourthadtoconsiderwhethertheprovisionsofsection114andOrderXLVII oftheCivilProcedureCodewhichconferpowerontheHighCourttoreviewitsjudgmentsapplytoappealsfiled undertheExciseAct.TheassesseeandthedepartmentwereagreedthattheHighCourthadthatpower.HELD acceptingtheclaim: (i)TheHighCourtisaCourtofrecordasenvisagedinArticle215oftheConstitutionandhasinherentpowersto correct the record. As the High Court has plenary jurisdiction, it has inherent power of review to prevent miscarriageofjusticeortocorrectgraveandpalpableerrorscommittedbyit.CCEvs.HongoIndia(236)ELT417 (SC)&D.N.Singhvs.CIT325ITR349(Pat)(FB)followed; (ii)Indealingwithmattersunderaspecialenactment,thepracticeandprocedureoftheordinaryCourtwillapply ifthespecialenactmentreferstoandadoptsthepracticeandproceduretobefollowedbytheordinaryCourt. Accordingly,allprovisionsoftheCPCapplytoappealsundertheExciseAct;
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(iii)Section35G(9)doesnotrestrictthejurisdictionoftheHighCourttoonlytheprovisionsoftheCPCrelatingto appeal.Section35G(9)isenactedoutofabundantcautiontoprovidethatinrespectofmattersnotdealtwithby thespecialenactment,theprovisionsoftheCPCshallapply.Evenifsection35G(9)werenotthere,theordinary lawofthecourthavetobeappliedintheabsenceofanythingcontraryinthespeciallaw; (iv) One of the grounds of review is an error apparent on the face of the record. Where a statute is amended retrospectively,ajudgmentapplyingtheunamendedlawconstitutesanerrorapparentonthefaceofrecordand canbereviewed. VIPIndustriesLtd.vs.CCESource:www.itatonline.org(BombayHighCourt) S.260A:AppealHighCourtMonetaryLimitCBDTCircularFilingAppealsPendingAppeals TheDepartmentfiledanappealintheyear2008wherethetaxeffectwaslessthan`10lakhs.Thequestionarose whetherinviewofInstructionNo.3/2011Dated922011theappealwasmaintainable.HELDdismissingtheappeal: InviewofCITvs.P.S.Jain&Co(includedinfile)whichfollowedPithwaEngineering276ITR519(Bom.)&Ashok Patel317ITR386(MP)andwhereitwasheldthattheCBDTCircularimposinglimitsonthefilingofappealsbythe departmentappliedtopendingappeals,InstructionNo.3/2011Dated922011alsoappliedtopendingappealsand asthetaxeffectwaslessthan`10lakhs,theappealwasnotmaintainable. CITvs.DelhiRaceClubLtd./Source:www.itatonline.org(DelhiHighCourt) S.260A:AppealHighCourtMonetaryLimitCBDTCircularPendingAppeal Circular dated 15.5.2008 laying down monetary limit controls the filing of the appeals and not their hearing. Appealsfiledasperapplicablelimitatthetimeoffilingcannotbegovernedbycircularapplicableatthetimeof hearing.TheobjectoftheCircularu/s268Aisonlytogovernmonetarylimitforfilingoftheappeals.Thereisno scope for reading the circular as being applicable to pending appeals. [Abhinav Gupta 41 DTR 129 (P&H) (FB) reversed] CITvs.VarinderConstructionCo.(2011)51DTR290/239CTR1/198Taxman42/331ITR449(P&H)(FB)(HighCourt) S;260AAppealHighCourtMonetorylimitInstructionofBoardNo.3/2001.F.No.279/Misc142/2007ITJ/Dt. 9thFebruary,2011.(2011)332ITR1(ST).www.itatonline.org AppealbeforeAppellateTribunal ` 3,00,000. Appealu/s260AbeforeHighCourt ` 10,00,000. AppealbeforeSupremeCourt. ` 25,00,000. Appealappealfiledonorafter9thFebruary,2011. ReferencetocaselawsBombayHighCourt. CWTvs.ExecutorsoflateD.T.Udeshi(1991)189ITR319(Bom.)(HighCourt) CITvs.CamcoColourCo.(2002)254ITR565/173CTR255/122Tax226(Bom.)(HighCourt) CITvs.PithwaEnggWorks(2005)276ITR519/197CTR655(Bom.)(HighCourt) CITvs.ZeobTopiwalla(2006)284ITR379/199CTR656(Bom.)(HighCourt) CITvs.MadhukarK.Inamdar(HUF)(2009)318ITR149(2010)229CTR77/(2009)185Tax101/27DTR132(Bom.)(High Court) CITvsVitesseeTradingLtd(2011)331ITR433(Bom) S.260A:AppealHighCourtNoticePaperPublicationPropermode. IncomeTaxDepartmenthavingfailedtoservenoticeontheassesseecompany(Respondent)otherthanbyway ofpaperpublicationattheadmissionoftheappeal,CITisdirectedtosetrightthedefectinthepresentationof theappeal.IncomeTaxDepartmentisdeprecatedforwastingpublicmoneybyresortingtoserviceofnoticeby
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paper publication as a matter of routine thereby incurring considerable unnecessary expenditure on cost of advertisement. CITvs.HappyFarms&ResortsLtd.(2011)51DTR334(Karn.)(HighCourt) S.260A:AppealHighCourtQuestionofLaw. Wherethoughthe appeal wasadmittedonthequestion,asto whethertheDy.Director ofInspection has power to make reference to the Valuation Officer under section 131 (1A) of the Act. The Honble High Court dismissed the appeal of the revenue holding that the question did not arise for consideration of the High Court, as non of the lower authorities recorded the finding that the Dy. DirectorofInspectionwashavingnopowertomakereferencetoValuationOfficer.(A.Y.199899) I.T.O.vs.HotelShyama(2011)56DTR174(MP)(HighCourt). S.260A:AppealHighCourtAbatementofAppeal. If the assessee dies, the question of abatement of appeal filed under section 260 A of the Act would not arise. Further, the Honble High Court condoned delay of 523 day in filing the application for bringingthelegalheirsonrecordbytheRevenue,rejectingtheobjectiontakenbytheassesseeunder Order22ofCivilProcedureCode,whichprovidesthat,ifthereisdelayinbringinglegalheirsonrecord theproceedingsabatesdoesnotapplytoanappealfiledundersection260AoftheAct. CIT&Anr.vs.V.Rukmini(Smt)sByLRs(2011)53DTR30(Kar)(HighCourt). S.260A:AppealHighCourtSmalltaxeffectBelow2lakhsAppealbeforeTribunal.(S.253(2).) In cases where tax effect is below Rs 2,00,000, Revenue can not file appeal contrary to the terms of circularwhichisbindingonthedepartment.(A.Y.199798&199899) CITvMangilalJain(2011)58DTR20(MP)(HighCourt). S.260A:AppealHighCourtPleanotraisedbeforeTribunal. PleanotraisedbeforeTribunal,cannotberaisedforfirsttimebeforeHighCourt. CITvVijayEnterprises(2011)59DTR98/(2011)Tax.L.R.497.9(A.P)(HighCourt). S.260A:AppealHighCourtSingleappealtoHighCourtCourtfeeispayableinrespectofeachappeal. One appeal in respect of common order is maintainable however Court fee will be payable in respect of each appeal.(A.Y.200607). DirectorIncometax(International)vTransoceanOffshoreInternationalVenturesLtdandothers.(2011)336ITR 637(Uttarakhand)(HighCourt). E.RevisionbytheCommissioner. S.263:RevisionofordersprejudicialtorevenueCITnotpermittedtochangeview&reviseundersection263 withoutchangedcircumstances Itwasheldthatasthedepartmenthadexaminedthefundamentalnatureofthetransactionintheearlieryears anditsnatureremainedunchanged,thedepartmentcouldnothavechangeditsviewasregardsthenatureofthe transactionbydubbingitaserroneous.Thedepartmentisnotentitledtoreopenanassessmentbasedonafresh inferenceoftransactionsacceptedbytherevenueforseveralprecedingyearsonthepretextofdubbingthemas erroneous. AssociatedFoodProducts280ITR377(MP),SirpurPaperMillsLtd114ITR404(AP)&CITvs.GopalPurohit228 CTR582(Bom.)followed. CITvs.EscortsLtd.(2011)51DTR321(Delhi)(HighCourt)
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S.263:RevisionofOrdersprejudicialtoRevenueDepreciationGoodwill(S.32) AssessingOfficeralloweddepreciationongoodwilltreatingthesameasintangibleasset.Commissionerrevised theorder,theTribunalquashedtheorderofrevision.HighCourtconfirmedtheorderofTribunal.TheCourtheld that where two views are possible and the assessing officer accepting one view which is plausible one, not appropriatetoexercisepowerundersection263.(A.Y.200102to200304) CITvs.HindustanCocaColaBeveragesP.Ltd(2011)331ITR192/238CTR1(Delhi)(HighCourt) Editorial:ReferHindustanCocaColaBeverages(P)Ltd.vs.Dy.CIT(2010)132TTJ602(Delhi) S. 263 : Revision of orders prejudicial to Revenue Exempted Income Proviso to section 14A Law on the passingoftheorderundersection263hastobeconsidered(S.14A) Provisotosection14AdidnotapplytothefactsofthecaseasondateofordersofCITundersection263(29th December1999),saidprovisowasnotevenexistence,CITwasjustifiedinrevisingtheorderofAssessingOfficer andindirectinghimtocomputetheinterestpayableonsuchsumwhichhasbeeninvestedinthepartnershipfirm (Whichwaserroneouslyallowedbyhimearlier)anddisallowthoseportionswhichcanbeattributabletowards investmentinpartnership.(199596) MaheshG.Shetty&Ors.vs.CIT(2011)51DTR104(Kar.)(HighCourt) S.263:RevisionOrdersPrejudicialtoRevenueExportDeduction.(S.80HHC) WheretheAssessingOfficerhadalloweddeductionundersection80HHCoftheActwithoutexcludingthecertain receipts as mentioned in Explanation (baa) to section 80HHC of the Act. CIT was held to be justified in invoking jurisdiction under section 263 of the Act and setting aside the assessment order passed by the Assessing Officer undersection143(3)oftheAct,astherewasaprimafacieerrorcommittedbytheAssessingOfficerwhileframing assessmentundersection143(3)oftheAct.(A.Y.19959697) CITvs.N.C.John&SonsP.Ltd.(2011)51DTR142(Ker.)(HighCourt) S. 263: Revision of orders prejudicial to revenue effect order not passed within reasonable time order becomesinfructuous Evenifthereisnoperiodoflimitationprescribedu/s153(3)(ii)togiveeffecttos.263orders,theAOisrequiredto passtheorderwithinareasonableperiod.NonspecificationofperiodoflimitationdoesnotmeanthattheAO canwaitforindefiniteperiodbeforepassingtheconsequentialorder. CITvsGoyalM.G.CasesPvt.Ltd.((2011)TaxworldAugust2011P.41.)(Delhi)(HighCourt).www.itatonline.org S.263:RevisionofordersprejudicialtorevenueBlockAssessmentDocumentsseized. In the block assessment order the assessing Officer made an addition of Rs 90 Lakhs on the basis of the documents seized from the premises of Viswas R. Bhoir . The said addition was deleted by the Tribunal and the appeal is pending before the Bombay High court. In the mean time the CIT passed a revision order under section 263 on 160 2005 , directing the Assessing Officer to consider the tax implication of page nos 1 to 13 of bundle no 12seized from the residence of Viswas R.Bhoir. The Tribunal held that once taxability under both the documents has been considered by the Assessing OfficerandtheCIT(A),itisnotopentoCITtoinvokethejurisdictionundersection263.Onappealto theHighCourt,theHighCourtconfirmedtheorderofTribunal CITvMukeshJ.Upadhyaya(Bom)(HighCourt)(.ITAno428of2010dated1362011.(594(2011)43A BCAJAugustP.30).
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S.263:RevisionofordersprejudicialtorevenuePenaltyTwoViews TheAssessingOfficerdroppedthepenaltyproposalholdingthatappealagainstthequantumispendingbefore theHighCourt.TheCommissionerofIncomeTaxrevisedtheorder.TheTribunalheldthattheviewofAssessing Officer cannot be held to be erroneous in dropping penalty proceedings. The Assessing Officer can impose penalty even after appeal is determined by High Court. Two view possible hence revision was held to be not valid.(A.Y.200405) V.K.Natesan(2011)128ITD81/49DTR233/135TTJ257(Cochin)(TM)(Trib) S.263:RevisionofordersprejudicialtorevenueShowcauseNoticeReasonsnotstatedinshowcausenotice Orderinvalid. Ifagroundofrevisionisnotmentionedintheshowcausenotice,itcannotbemadethebasisoftheorderforthe reason that the assessee would have had no opportunity to meet the point (Maxpack Investments 13 SOT 67 (Del.),G.K.Kabra211ITR336(AP)&JagadhriElectricSupply140ITR490(P&H)followed); SynergyEnterpreneurSolutionsPvt.Ltd.vs.Dy.CIT(ITATMumbai)Source:www.itatonline.org(Trib) S.263:RevisionofordersprejudicialtorevenueBlockAssessmentTimeLimit(Ss.158BC,158BE) Provisionsofsection263areapplicabletotheBlockAssessment.Insuchcasesquestionofrestrictionundersection 158BEasregardstimelimitcompletionoffreshassessmentdoesnotarise.Insuchcasesbyvirtueofsection156BH limitationaslaiddowninsection153(2A)wouldbeapplicable. BhartibenM.Kelawala(Smt.)vs.CIT(2011)128ITD468/135TTJ455(Ahd.)(Trib.)/AmitaDeviSanganeria(Smt.)vs. ACIT(2011)129ITD72/53DTR214(Gau.)(TM)(Trib.) ChapterXXC.PurcahsebyCentralGovernmentofimmoveablepropertiesincertaincasesoftransfer. S. 263: Revision of orders prejudicial to revenue JurisdictionPower of CIT Absence of notice unders.143(2)visvislimitationforcompletionofassessment. When the assessment for asst. year 198788 was completed under S. 143(1)(a) and notice under s. 143(2) had not been issued and time for completing asst. under s. 143(3) expired on 31 st March 1990, CITcouldnotdirectasst.underS.143(3)byhisrevisionorderunderS.263dated22 nd March,1991,the orderwasheldtobecontrarytoprovisionsofS.143(2),143(3)and153(1)(a). V.Narayananvs.Dy.CIT(2011)53DTR188(Chennai)(TM)(Trib) S.269UA(f)(i):PurchaseofimmoveablepropertybyCentralGovernmentLeasefor9yearsRenewableatthe optionforafurtherperiodof9years Leasefor9yearsrenewableatoptionoflesseeforafurtherperiodof9years,amountstoleaseformorethan12 years.PartiesobligedtosubmitFormNo.37I,within15daysofdraftagreement. GovindImpexP.Ltd&Othersvs.AppropriateAuthority(2011)330ITR10/1SSC529/(2011)TaxLR1(SC) ChapterXXI.Penaltiesimposable. S.271(1)(c):PenaltyConcealmentRevisedReturnAfterSurveyVoluntary Revised return filed disclosing additional income as a consequence of followup proceedings taken by Deputy DirectorofIncomeTaxinrespectofpurchasershencerevisedreturncannotbesaidtobevoluntary,hence,levy ofpenaltywasjustified.(A.Y.198586and198788) LMPPrecisionEngg.Co.Ltd.vs.Dy.CIT(2011)330ITR93/(2009)223CTR301/183Tax12/20DTR294(Guj.)(High Court)
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S.271(1)(c):PenaltyConcealmentDisclosureofallfactsNoPenaltyforConcealment. In penalty proceedings, it is incumbent on the Tribunal to examine independently, the evidence and material on recordforthepurposeofjudgingwhetherpenaltyproceedingsarejustifiedonaccountofconcealmentofincome or furnishing of inaccurate particulars thereof. If the assessee has disclosed all the facts, then just because the departmentdoesnotagreewiththelegalstandtakenbytheassessee,thesamewouldnotresultintopenalty.(A. Y.199596) DevsonsP.Ltd.vs.CIT(2011)196Taxman21(Delhi)(HighCourt) S.271(1)(c):PenaltyConcealmentRevisedReturn. Wheretherevisedreturnwasfiledbytheassesseewithinthetimelimitprescribedundersection139(5)oftheAct and there was nothing to suggest that the assessee had filed revised return with the knowledge that the department had detected such additional income. Penalty under section 271(1)(c) of the Act was not leviable as therewasnowillfulanddeliberatesuppressionofincome.(A.Y.200506) CITvs.R.Gopalakrishnan(Dr.)(2011)50DTR345(Mad.)(HighCourt) S.271(1)(c):PenaltyConcealmentWithdrawalofClaim. Wheretheassesseewithdrawitsclaimofdeductionundersection80IAoftheActbyfilingrevisedreturnunder section139(5)oftheActimmediately,afteritreceivednoticeundersection154oftheActproposingtowithdraw deductionundersection80IAoftheActforearlieryear.Penaltyundersection271(1)(c)oftheActwasheldtobe notleviableastheclaimundersection80IAwasmadeunderabonafidebelievewhichwasrectifiedlateronbythe assesseebyfilingrevisedreturn.(A.Y.200102) CITvs.BackboneEnterprises(2011)50DTR321(Guj.)(HighCourt) S.271(1)(c):PenaltyConcealmentWheresurrenderofincomeis notvoluntaryLevyofpenaltyjustified. In the instant case the assessee has surrendered his income after the Assessing Officer had made substantial progressintheinvestigationandtheassesseehadalsonotcooperatedwiththeenquiry.TheHighCourtheldthat suchsurrendercannotheldtobevoluntarynormadebonafide,soastoavoidpenalty.TheHighCourtreliedonthe decisioninthecaseofBhairavLalVermavs.UnionofIndia230ITR855,wherethemeaningofwordvoluntaryin thecontextofwaiverprovisionsundersection273Awasdiscussed.(A.Y.200405) CITvs.RakeshSuri(2011)331ITR458(All)(HighCourt) S.271(1)(c).PenaltyConcealmentDespitedetectioninsurvey,Concealmentpenaltycannotbeleviedifincome wasofferedinreturnfiled.(S.133A). Penaltyu/s.271(1)(c)canbeleviedonlyifAssessingofficerduringthecourseofproceedingsissatisfiedthatthere is concealment or furnishing if inaccurate particulars. Where assessee offers detected income in the return, there was neither concealment nor furnishing of inaccurate particulars. Thus penalty u/s. 271(1)(c) cannot be levied. CITvsSASPharmaceutical(2011)60DTR258(Delhi)(HighCourt).www.itatonline.org. S.271(1)(c):PenaltyConcealmentValuationofclosingstockExplanation1. ValuationofstockonaccountofdeteriorationofoldstockandthesamehasnotbeenacceptedbytheRevenue, penaltyundersection271(1)(c)isnotleviable,intheabsenceofanyfindingthattheclaimoftheassesseewas falseorthatitfudgedthebooksofaccount.(Asstyear198788). CITvH.P.StateForestCorporationLtd(2001)56DTR113(HP)(HighCourt)
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S.271(1)(c).PenaltyConcealmentFailuretofilereturnExplanation3. For the purpose of invoking the provisions of Expln. 3 to section 271 (1), the conditions enumerated thereinarerequiredtobetobesatisfiedcumulatively:AssessingOfficerhavingissuedanoticeunder section 148 to the petitioner with in the period specified under section 153 (1), the third condition , namely , the notice under section 142 (1) or 148 should have been issued with in the period specified undersubsection(1)orofsection153isclearlynotsatisfiedandtherefore,thefailureonthepartof thepetitionertofurnishreturnwithinthespecifiedperiodcannotbedeemedtobeconcealmentwith inthemeaningofExplanation3tosection271(I)(c),andpenaltyundersection271(1)(c)couldnot belevied.(AsstYear199495). ChhaganlalSuteriyavITO(2011)58DTR89/242CTR528(Guj).(HighCourt). S.271(1)(c).PenaltyConcealmentImmunityunderExplanation5Disloureundersection132(4). Unaccounted stock surrendered by assessee in the statement recorded under section 132 (4), on the date of search is covered by other valuable articles or things and therefore , the conditions enumerated under explanation5tosection271(1)(c),werefulfilledandpenaltyundersection271(1)(c)isnotleviable.(AY1989 90). CITvBhandariSilkStore(2011)242CTR443(P&H)(HighCourt). S.271(1)(c):PenaltyConcealmentSearchandSeizureExplanation5. Income offered after detection consequent to search operations was rightly treated as concealed income, therefore ,penalty under section 271 (1) (c ) , was rightly levied ; in the circumstances , Explanation 5 was not attracted.(A.Ys.198283&198384). D.K.B.&CovDyCIT(2011)58DTR299/243CTR198(Ker)(HighCourt). S.271(1)(c):PenaltyConcealmentSearchandseizureDisclosureDuedateoffilingofreturnExplanation5.(S. 132(4). Assessee made disclosure under section 132 (4), and paid the tax. Time for filing of return has not expired . Penaltycannotbeimposed.(A.Y.198990. CITvBhandariSilkStore(2011)337ITR153(P&H)(HighCourt). S. 271 (1)(c ) : Penalty ConcealmentNo penalty can be levied without Assessing officers finding on InaccurateParticulars. WherethereisnofindingbytheAOthattheassesseefurnishedinaccurateparticularsandthatitsexplanation wasnotbonafide,theimpositionofpenaltyu/s271(1)(c)wasacompletenonstarter.Amereerroneousclaim madebyanassessee,thoughunderabonafidebeliefthat,itwasaclaimwhichwasmaintainableinlawcannotlead to animpositionof penalty.Theclaimfordeductionwasmadeinabonafidemannerandtheinformationwith respect to the claims was provided in the return and documents appended thereto. Accordingly, there is no furnishingofinaccurateparticulars.Makingofanincorrectclaimforexpendituredoesnotconstitutefurnishing ofinaccurateparticularsofincome CITvMahanagarTelphoneNigamLtd(Delhi)(HighCourt)(www.itatonline.org) S.271(1)(c):PenaltyConcealmentFurnishingInaccurateParticularsDespitedisclosureofconversionofstock intoinvestmentandacceptancebytheAssessingOfficerclaimthatgainsisLongtermcapitalgainpenaltyis leviable.
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Theassesseeownedaplotoflandwhichintheearlieryearswastreatedasstockintrade.Intheyearofsale, theassesseeconvertedthestockintoinvestmentandofferedthegainsasLongtermcapitalgain.Penaltyu/s 271(1)(c)waslevied.Itwasheldthatthough theAssessing Officer accepted the conversion, the assesseesclaim thatthegainswasaLTCGamountedtofurnishinginaccurateparticularsofincome.Theissuewasnotdebatableas held by the Tribunal. When the order of the AO in quantum proceedings was sustained by all successive authoritiesandtheHighCourtalsodismissedtheappealattheadmissionstage,albeitafteradmittingthesame, itcannotbesaidthattheissuewasdebatable. CITvSplenderConstruction(Delhi)(HighCourt).(www.itatonline.org) S.271(1)(c):PenaltyConcealmentTwosetofbooksofaccounts. Inthepresentcase,theassesseewasmaintainingtwosetsofbooks;onewasmeantforshowingtoIncomeTax Authoritiesandtheotherforhimself.Inthesecondset,hewasrecordingsalesandcertainexpensesonthebasis ofthesedocumentaryevidence,additionhadbeenmadewhichhadbeenconfirmeduptotheTribunal.Thusit was not the case of simplicitor estimation of the income by disbelieving the books of account or other details submittedbytheassesseeduringthecourseofassessmentproceedings.Inthepresentcasethedepartmentwas able to lay its hands on the documentary evidence exhibiting the conduct of assessee for avoiding tax and carrying out the business activity out of the regular books. In the above circumstances penalty under section 271(1)(c)oftheAct,whichwasconfirmedbythecommissioner(A)wasupheld.(A.Y.198586and199091) ShyamBeharivs.ACIT(2011)43SOT129(Delhi)(Trib) S.271(1)(c):PenaltyConcealmentReturnfiledaftersurvey. The assessee disclosed the income in the Return filed after survey. The Tribunal held that what is punishable under section 271(1)(c) is actual concealment of income in the Return of income and not merely an attempt to makeconcealment.Iftheassesseerectifiesititselfanddeclaresthecorrectincomeinvalidreturnofincomeand does not file return by concealing the income then such act is not punishable under section 271(1)(c). Hence, penaltyundersection271(1)(c)cannotbelevied. Sadhbav Builders vs. ITO, ITA No. 1418/Ahd/2008, A.Y. 200203 Bench D dt. 21/1/2011, Ahmedabad Chartered AccountantsJournal,Vol.34Part10January2011,Pg.480 S. 271(1)(c) : Penalty Concealment Admission by High Court Mere admission of Appeal by High Court sufficienttodisbarsection271(1)(c)penalty. Inquantumproceedings,theTribunalupheldtheadditionofthreeitemsofincome.Theassesseefiledanappealto theHighCourtwhichwasadmitted.TheAssessingOfficerleviedpenaltyundersection271(1)(c)inrespectofthe saidthreeitems.ThepenaltywasupheldbytheCIT(A).OnappealtotheTribunal,HELDallowingtheappeal: WhentheHighCourtadmitssubstantialquestionoflawonanaddition,itbecomesapparentthattheadditionis certainly debatable. In such circumstances penalty cannot be levied under section 271(1)(c). The admission of substantial question of law by the High Court lends credence to the bona fides of the assessee in claiming deduction.Onceitturns outthatthe claimofthe assesseecouldhavebeenconsidered fordeductionaspera person properly instructed in law and is not completely debarred at all, the mere fact of confirmation of disallowancewouldnotperseleadtotheimpositionofpenalty. NayanBuilders&DevelopersPvt.Ltd.vs.ITO(2011)43ABCAJ,MayPg.37(Trib.) Editorial:ReferRupamMercantileLtd.vs.Dy.CIT(2004)91ITD237(Ahd.)(TM)(Trib) S.271(1)(c):PenaltyConcealmentBookProfitDespiteConcealment,nosection271(1)(c)penaltyifsection 115JBbookprofitsassessed.(S.115JB)
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Pursuant to a search under section 132 and the detection of incriminating documents, the assessee offered additional income. The Assessing Officer computed the income under the normal provisions and levied penalty undersection271(1)(c)forconcealmentofincome.However,asthebookprofitscomputedundersection115JBwas higher, the assessee was assessed under section 115JB. The assessees appeal against the levy of penalty under section271(1)(c)wasrejectedbytheCIT(A).However,onappealtotheTribunal,HELD: It was heldby Honble Mumbai Tribunal that, the concealment of income had its repercussions only when the assessmentwasdoneunderthenormalprocedure.Iftheassessmentasperthenormalprocedurewasnotacted uponanditwasthedeemedincomeassessedu/s115JBwhichbecamethebasisofassessment,theconcealment hadnoroletoplayandwastotallyirrelevant.Theconcealmentdidnotleadtotaxevasionatall.(A.Y.200506) Ruchi Strips & Alloys Ltd. vs. Dy. CIT BCAJ p. 39, Vol. 42B, Part 6, March 2011 (Trib.) (Mum.) Source: www.itatonline.org S. 271(1)(c) : Penalty Concealment Failure to Voluntarily apply section 50C does not attract penalty under section271(1)(c).(S.50C) Nopenaltyundersection271(1)(c)canbeleviedwhereassesseeagreedtotheadditionmadeundersection50C asthefactthatassesseeagreedtoadditionisnotconclusiveproofthatthesaleconsiderationasperagreement is not correct or accurate. The addition made purely on the basis of deeming provisions of section 50C. (A. Y. 200607). RenuHingoranivs.ACITBCAJp.38,Vol.42B,Part6,March2011(Trib.)(Mum.)www.itatonline.org S.271(1)(c):PenaltyConcealmentMeremakingofclaimnot sustainableinlawnotsufficientforlevyofpenalty. Mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particularsregardingtheincomeoftheassessee.Suchaclaimmadeinthereturncannotamounttofurnishing inaccurateparticulars.TheassesseeinthepresentcasehadmadeabonafideclaimandhencefollowingtheApex CourtsdecisioninthecaseofReliancePetroProductsPvt.Ltd.,itwasheldthatpenaltyundersection271(1)(c)of theActwasnotleviable.(A.Y.200607) WalterSaldhanavs.Dy.CIT(2011)44SOT26(Mum.)(Trib.) S.271(1)(c):PenaltyConcealmentValuationbyStampAuthorities. Penalty under section 271(1)(c) is not leviable on addition arising under section 50C as per valuation by stamp authorities. RenuHingoranivs.ACIT,BCAJp.38,Vol.42B,Part6,March2011(Trib.) S.271(1)(c):PenaltyConcealmentBookProfitTotalIncomelessthanBookProfit. Assessee returning income based on book profits. Pursuant to search action additional income declared. Total incomeaspernormalprovisionsoftheActlessthanthebookprofit.Penaltycannotbeimposed. RuchiStrips&AlloysLtd.vs.Dy.CIT,BCAJp.39,Vol.42B,Part6,March2011(Trib.) S.271(1)(c):PenaltyConcealmentAdditionalincomeaftersurveyRevisedreturn. Assesseehavingdeclaredadditionalincomefollowingsurveyundersection133Aandfurtherenhancedthesame filingarevisedreturndespitethefactthatnoincriminatingmaterialwasfoundeitherduringthesurveyactionor during the post survey enquiries and the AO having accepted the revised return without pointing out any inaccuracythereinormakinganyfurtheraddition,penaltyundersection271(1)(c)wasnotleviable,moresoasthe
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additionalincomeisnotfreefromdisputeasfarasitsownershipandtheyearofincidenceoftaxisconcerned.( Asstyears200203&200304). DilipYeshwantOAKvAsstCIT(2011)55DTR113/138TTJ559(Pune)(Trib). S.271(1)(c);PenaltyConcealmentFailuretodisallowu/s14Atherecannotbepenalty. AsthereisnoallegationbytheAOthattherewascollusionbetweentheauditorandtheassesseetoignores. 14A,itcannotbesaidthattheexplanationwasnotbonafide.Further,asRule8Dwasnotenactedatthetime, segregationofexpenditurerelatabletotaxfreeincomewouldbedisputableandleadtobonafidedifferencein opinion.So,penaltyu/s271(1)(c)cannotbelevied(Asstyear200506). DCITvsNalwaInvestmentLtd.(Mumbai)(Trib).www.itatonline.org. S.271(1)(c).PenaltyConcealmentSurrenderofincomeduringsurvey.(S.133A.)Nopenaltyleviable Where A O has not brought on record any material to show that the additional income surrendered by the assesseeduringsurveyundersection133Awasconcealedincomeorthatexplanationwasfalse,penaltyunder section271(1)(c)isnotleviable.(Asstyear200607). DyCITvBhanwarLalMahendraKunarSoni(2011)138TTJ381(JD)(Trib). S. 271 (1) (c ): Penalty ConcealmentNon genuine gift claimed as capital gainsTransfer of tenancy right. In the return of income the assessee declared of Rs 17 lakhs as long term capital gains arising from transfer of tenancy right and paid tax @ 20% applicable to long term capital gains. Claim of assessee wasthatamountpaidforreceivingthegiftwasfromthecashreceivedonsurrenderoftenancyright. Assessing officer held that as there was no supporting evidence the amount was assessed as income fromundisclosedsources. The Tribunal held that as tax sought to be evaded is very clear as the tax rate applicable on the impugnedreceipt of Rs.17 lakhsis30 %being incomefromundisclosedsources,whereas theassessee has paid 20% claiming the same to be capital gain on transfer of tenancy right, provisions of Explanation 1 are not applicable to the instant case as tax sought to be evaded was because of the lower rate of tax paid and not because of any addition to the income and, therefore, penalty is imposableunderthemainprovisionsofs.271(1)(c). HarishP.MashruwalavAsstCIT(2011)139TTJ563(Mumbai)(SB)(Trib). S.271(1)(c):PenaltyConcealmentSurveySurrenderofadditionalincome. Assessee having surrendered additional income following detection of certain discrepancies in the documents found during the survey proceedings at its premises despite filing an explanation and AO proceeded to assess the said income on the basis of the surrender made by the assessee Penalty undersection271(1)(C)isnotleviable.(AsstYear200506). AjaySangari&CompanyvAdditionalCIT(2011)57DTR397(Chd)(Trib). S. 271 (1) (c ). Penalty ConcealmentAO reprimanded for harassing the assessee by wrongly levying penalty. Intheinstantcase,theassessmentordersuppliedbyAOtoassesseedidnotcontainanydirectionfor initiation of penalty though assessment order filed by dept. with memo of appeal had a reference to issueofnoticeu/s.271(1)(c).TheTribunalconsideringthecasefitforawardingcostu/s.254(2B)ofthe Act, held that they were inclined to record over here that AO should have confined himself in making
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justandproperassessmentonly,aspertheprovisionsofthelawandharassmentofassessee,whichis notpermittedunderthestatuteshouldhavebeenavoidedatallcost. ITOvsAudyogikTantraShikshan(Pune)(Trib).www.itatonline.org. S.271(1)(c):PenaltyConcealmentRevisedreturnAdditionalincomeExplanation2. AdditionalincomeofferedbywayofrevisedreturnandacceptedbyAssessingOfficercannotbesaidtobean additionsoastoattractExplanation2tosection271(1)(c).(AY200405). SVCProjects(P)LtdvJCIT(2011)58DTR433/140TTJ79/132ITD11(Visakha)(Trib). S.271(1)(c):PenaltyConcealmentFeespaidforROCforincreasingauthorizedsharecapital. AssesseehavingclaimeddeductionoffeespaidtotheROCforincreasingauthorizedsharecapitalcontraryto therulingoftheSupremeCourt,theclaimisexfaciewrongandcannotbeacceptedasabonafideclaimasthe circumstancesinwhichtheauditorscommittedtheerroroftreatingthesameasrevenueexpenditurehavenot beenexplainedand,therefore,levyofpenaltyundersection271(1)(c)isjustified.(A.Y.200607). TrinityTouch(P)LtdvITO(2011)59DTR195/140TTJ309(Delhi)(Trib). S. 271 (1) (c ): Penalty ConcealmentDespite disclosure, legal opinion, favourable CIT(A) order & High Court appealonmerits,s.271(1)(c)penaltyleviableifissuenotdebatableinTribunalsview. Theassessee,afirmofCharteredAccountants,wasoneoftheassociatemembersofDeloitteHaskins&Sells pursuanttowhichitwasentitledtopracticeinthatname.Deloittedesiredtomergealltheassociatemembers into one firm. As this was not acceptable to the assessee, it withdrew from the membership and received consideration of Rs. 1.15 crores from Deloitte. The said amount was credited to the partners capital accounts & claimedtobeanontaxablecapitalreceiptbytheassessee.TheAOrejectedtheclaimthoughtheCIT(A)accepted it on the ground that it had great force. The Tribunal reversed the CIT (A). The AO levied s. 271(1)(c) penalty whichtheCIT(A)deleted.OnappealbythedepartmenttotheTribunal,theassesseearguedthatpenaltywasnot leviablebecause(i)therewasadisclosureofthefactsinthecomputation&thebalancesheet,(ii)theopinionof3 tax experts had been taken, (iii) the issue was debatable & (iv) the assessees appeal on the merits had been admittedbytheHighCourt.HELDallowingtheappeal: (i)S.271(1)(c)imposesstrictcivilliability. (ii) The fact that the legal opinions were not furnished during the assessment proceedings (but were furnished only during the CIT(A) penalty proceedings) indicates that the assessee realized the ineffectiveness of these opinionsandstillventuredintomakingthenonallowableclaim; (iii) Though there was disclosure in the computation and balance sheet, in order to minimize disclosure, the assesseetookthesmartrouteofdirectlycreditingthereceiptinthecapitalaccountsofpartnerstoevadetax; (iv)ThefactthatasubstantialquestionoflawonthemeritswasadmittedbyHighCourtdoesnotmeanpenalty isnotleviable(RupamMercantiles91ITD237(Ahd)(TM)notfollowed); ACITvKhanna&Annadhanam(Delhi)(Trib).www.itatonline.org. S.271(1)(C):PenaltyConcealmentTransferpricingNopenaltyunderExpl7tos.271(1)(c)fordisputeregarding ALPmethod. TheassesseeadoptedtheTNMMtodeterminetheALPinrespectofthebrokingtransactionsenteredintowithits affiliates.TheAO&TPOheldthattheassesseeoughttohaveadoptedtheCUPmethodandmadeanadjustment ofRs.1.10crores.Thiswasacceptedbytheassessee.TheAOleviedpenaltyunderExplanation1tos.271(1)(c)onthe groundthattheassesseehadfiledinaccurateparticularsofincome.ThiswasdeletedbytheCIT(A).Onappealby thedepartmenttotheTribunal,theTribunaldismissingtheappealheldthat,Explanation1tos.271(1)(c)doesnot
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applytotransferpricingadjustments.PenaltyfortransferpricingadjustmentsisgovernedbyExplanation7tos. 271(1)(c).UnderExplanation7tos.271(1)(c),theonusontheassesseeisonlytoshowthattheALPwascomputed bytheassesseeinaccordancewiththeschemeofs.92Cingoodfaithandwithduediligence.Theassessee adopted the TNMM and no fault was found with the computation of ALP as per that method. Instead, the method was rejected on the ground that CUP method was applicable. It is a contentious issue whether any priorityinthemethodsofdeterminingALPsexists.So,whenTNMMisrejected,withoutanyspecificreasonsfor inapplicability of the TNMM and simply on the ground that a direct method is more appropriate to the fact situation,itisnotafitcaseforimpositionofpenalty. DCITvRBSEquitiesIndiaLtd.(2011)60DTR273/141TTJ58(Mum)(Trib).www.itatonline.org. S. 271 (1) (c ):Penalty ConcealmentCarry forward loss shown at a wrong figureMistake of consultant Disallowanceofdeductionundersection80G. Carryforwardlossshownat awrongfigureduetomistake oftaxconsultantwould notattractpenaltyunder section271(1)(c),asthecorrectfigurewasavailablewithAssessingOfficerfromtheassessmentofearlieryears andthemistakewasrectifiedonbeingpointedoutbeforefinalizationofassessment.Recognitiontodoneetrust undersection80Gbeingavailableearlier,therewasbonafidebelieftoclaimdeductionundersection80Ghence therewasnocaseforlevyingpenaltyundersection271(1)(c).(A.Y.200405) AsstCITvA.H.Wheeler&Co(P)Ltd(2011)60DTR25(All)(Trib). S. 271B :Failure to get accounts audited Penalty Project Completion Method Advance received cannot be treatedassale. Whentheassesseewasfollowingtheprojectcompletionmethodofaccounting,theadvancesreceivedagainst bookingofflatscouldnotbetreatedassaleproceeds/turnover/grossreceipts.Thuspenaltyundersection271Bis deleted. SiroyaDevelopersvs.Dy.CIT,ITANo.600/Mum/2010,dt.1212011,ITATMumbaiIBench,BCAJp.38,Vol.42B,Part 6,March2011(Trib.) S.271BA:PenaltyFailuretofurnishtransferpricingreportundersection92E.Reasonablecause.(S273B). Assesseehasnotobtainedtheauditreportasrequiredundersection92Eduetofailureofauditortoadvicewho hasauditedtheaccountsundersection44ABoftheAct,howeverfiledthesameimmediatelywhenhecameto know that he was required to file such report in Form no 3 CEB before completion of assessments for the relevantyears,astherewasbonafidereasonfornotobtainingthereportinformno3CEBintimeanditwas venialandtechnicaldefault,penaltycannotbeattracted. RaviKumarRawatvITO(2011)138TTJ254(Jaipur)(Trib). S. 271C:Penalty for failure to deduct tax at sourceFailure to deduct tax attract penalty and also imprisonment.(S.192,200,206,271C,276Band276BB,S.482ofCrPC. Where the materials show that the proceeding is of a civil nature and cannot be adjudicated by the criminal court or, if it is an abuse of the process of the court, the High Court would be well within its power to exercise its inherent jurisdiction and quash the same. In view of the provisions of the Incometax Act and the assertion of the appellants that deductions were being made for all the persons liable to pay tax in terms of the Incometax Act, the proper remedy for the respondents was toapproachtheauthority/officerconcernedandnotbyfilingacomplaint. Rajeswar Tiwari and Ors. v. Nanada Kishore Roy( 2010) 8 SCC 442/ [2011] 333 ITR 534 / 59 DTR 75/242 CTR476/200Taxman139(SC)
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S.271C:PenaltyforfailuretodeducttaxatsourceMalafideintentionDeliberatedefianceoflawNopenalty fortaxdeductionatsourcebreachifnomalafideintentionordeliberatedefianceoflaw(S.194C,194I, 194J,201). Itwasheldthatthefactthattheassesseehasnotdisputedthequantumisnotagoodgroundforimpositionof penaltyunlessanduntilmaterialisbroughtonrecordtotheeffectthatassesseedeliberatelydefiedtheprovisions (AnwarAli76ITR696(SC)referred).Further,itwasalsoobservedthatlevyofpenaltyundersection271Cisnot automatic. (Woodward Governor India 253 ITR 745 (Del.) followed). If no malafide intentions of any kind are attributed to the assessee for deducting tax under one provision of law than other, thus no penalty could be levied. CITvs.CadburyIndiaLtd.(2001)55DTR318(Delhi)(HighCourt). S.271C:PenaltyFailuretoDeductionTaxatSourceLimitation[S.201(1)] TheTribunalhasquashedtheorderpassedbytheDCIT(TDS)undersection201(1)and201(IA),onthegroundthat initiation of proceedings was beyond a period of six years and hence was barred by limitation. The Tribunal in penaltyappealheldthatpenaltyundersection271Ccannotbeleviediftheorderundersection201(1)isbarredby limitation.(A.Y.200001to200203). ACITvs.AmericanSchoolofBombayEducationTrust(2011)TIOL209ITATMum.(172)(2011)43ABCAJ,MayP.32 (Trib.) S.272A(2)(c):PenaltyFailuretofileTDSreturnStatementQuarterlyReturn. Failuretofilequarterlyreturnpenaltyisnotleviable.Clause(c)ofsection272A(2)relatestoreturn/statement undersection133,206and206C,whichareunrelatedtoTDS,therefore,penaltyundersection272A(2)(C)is notleviablefornonsubmissionofquarterlyreturnsforTDS. PorwalCreativeVision(P)LtdvAddlCIT(2011)139TTJ1/55DTR241.(Mumbai)(Trib). S.275(1)(a):PenaltyConcealmentBaroflimitationonimpositionlimitationperiodnotcurbedbyProviso., The period of six months provided for imposition of penalty u/s 275(1)(a) starts running after the successive appealsfromanassessmentorderhavebeenfinallydecidedbytheCIT(A)ortheITAT.Theprovisotos.275(1)(a) extendstheperiodforimposingpenaltyfromsixmonthstooneyearofthereceiptoftheCIT(A)sorderafter 1.6.2003.Theprovisocarvesoutanexceptionfromthemainsectioninasmuchasincaseswherenoappealisfiled beforetheITATtheAOmustimposepenaltywithinaperiodofoneyearofthedateofreceiptoftheCIT(A)s order.Aprovisoismerelyasubsidiarytothemainsectionandmustbeconstruedharmoniously withthemain provision. The proviso to s. 275(1)(a) does not nullify the availability to the AO of the period of limitation of six monthsfromtheendofthemonthwhentheorderoftheITATisreceived. CITv.MohirInvestment&TradingCo.(Delhi)(HighCourt)(www.itatonline.org) S.276B:OffencesandProsecutionCompoundingofoffencesGuidelinesTechnicaloffences. Under the guidelines of September 30, 1994 , technical offences could be compounded by the Chief CommissionerorDirectorGeneraloncertainconditions.Thecourtheldthatcompoundingisnotpossibleafter filingofcomplaint.(A.Y.198283). AnilBatravChiefCIT(2011)337ITR251(Delhi)(HighCourt). ChapterXXII.OffencesandProcecutions
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S.276C:WilfulattempttoevadetaxProsecutionPenaltysetasideNoProsecution. WherepenaltyissetasideinappealbytheTribunalwhichwasconfirmedbytheHighCourt,holdingthatthenon disclosureoftheitemsofincomewaspurelyduetomistakeonthepartoftheassessee.Inthelightofthedecision of the Court it cannot be said that the assessee has made a wilful attempt to evade taxes, therefore, assessee cannotbeprosecutedforallegedoffenceundersection276CoftheAct.(A.Y.198990) N.S.Babuvs.CIT(2011)50DTR27(Ker.)(HighCourt) S.276C:OffencesandProsecutionProofofsigningofreturnbyaccused.(S.277,278). Accused partner of the assessee firm not having raised any objection at any point of time that the return did not bear his signature or that it was not filed by him and paid the penalty levied in the assessment,theaccusedcouldnotbeacquittedoftheoffencesundersections276C,277AND278on thegroundthattheprosecutionhasnotbeenabletoprovethatthereturnwassignedbytheaccused partner : the impugned orders are set a side and the judgment of conviction passed by the Chief Magistrateisrestored. ITO v Mangat Ram Norata Ram Narwana and another ( 2011) 336 ITR 624/ 57 DTR 257 / 242 CTR 113/ 200Taxman432/(SC). S.282:ServiceofnoticeReceivedbyassesseeServiceoncounselauthorizedtoreceivealldocuments.(S288, IncomeTax(AppellateTribunal)Rules,1963.R35,CodeofCivilProcedureCode,O.3.r3.). The assessees counsel who duly authorized to receive all documents on behalf of the assessee, received the certified copy of the order of the Tribunal , which was passed it on to another counsel of the assessee from whom the assessee collected the certified copy of order . On appeal to the High Court with an application for condonationofdelay,infilingtheappeal,contendingthatcertifiedcopyoftheorderofTribunalwasnotserved ontheassesseebytheofficeoftheTribunalinaccordancewithrule35oftheIncomeTax(AppellateTribunal) Rules,1963.Thecourtheldthatthephrasereceivedbytheassesseemeansreceivedbyassesseeeitherhim selforthroughhisauthorizedagent.ThecounselwasempoweredtoacceptthecopyoftheorderoftheTribunal andhencetheserviceonhimwasvalidserviceforpurposesofcalculationoflimitationforfilinganappeal.Thus theappealfiledbytheassesseewasbarredbylimitation.(A.Y.199798). SultanpurKshetriyaGrminBankvJCIT(2011)336ITR156(All)(HighCourt). S.288(2):AuthorisedRepresentativeNeednotbearegisteredIncomeTaxpractitioner. Underrule49(a),oftheIncometaxRules,1962,anauthorizedincometaxpractitionermeansanyauthorized representativeasdefinedinclause(v)orclause(vi)orclause(vii)ofsection(2)ofsection288oftheIncometax Act , 1961, for appearing before the Tribunal. It can not be read to mean that an authorized representative as definedinsubsection(2)hastogethimselfregisteredasanauthorizedincometaxpractitioner.Section288(2) does not say that the authorized representative shall also be an authorized income tax practitioner registered underrule54and55oftheRules.TherightgiveninthisrespectbytheActcannotbedilutedbytheRulesnorcan itberestricted,byspecifyingaprocedureforregistration.Therightgiventoanassesseetoappointaqualified authorizedrepresentativecannotbedenied. VidyaSikshaaEducationalandCharitableTrustvCIT(2011)11ITR(Trib)236(Chennai)(Trib). ChapterXXII.Miscellaneous . S.2(5A):ChargeableinterestFinancialcompanyBusinessofhirepurchaseandleasing.
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High Court has not examined whether the transactions entered into by the assessee constituted financial transactionssoastoattracttheprovisionsofthe1974Act,apartfromthefactthattheissuescoveredawide spectrum,theimpugnedorderissetasideandmatterrestoredbackforfreshadjudication. Motor&GeneralFinanceLtdvCIT(2011)242CTR472(SC). Editorial.CITvMotorandGeneralFinanceLtd(2010)236CTR487/48DTR118(Delhi)(HighCourt)setaside. S.2(5):ChargeableinterestInterestonloansandadvancesBillsdiscounting. (S.2(7),5,6,). Sections5and6oftheInterestAct,specificallyexcludetheinterestaccruingorarisingtoacreditinstitutionon loans and advances made to other credit institutions from the purview of chargeable interest and, therefore, interest received by the assessee on loans and advances made under the bills rediscounting scheme from different banking companies to which Banking Regulation Act 1949, applies, does not form part of chargeable interest.(A.Y.199293). NationalInsuranceCoLtdvCIT(2011)58DTR137(Cal)(HighCourt). Internationaldecisions. SoftwareLicenseincomeisassessableasRoyalty InternationalBusinessMachinesCorporation&IBMWorldTradeCorporation(IBM),bothUScompanies,entered intoaSoftwareLicenseAgreementwithIBMAustralia,an Australiancompany,underwhichtheygrantedthe latter the nonexclusive rights (i) to license and distribute copies of IBM Programs for their ultimate use by customers,(ii)tousesuchIBMProgramsinrevenueproducingactivities,(iii)tousesuchIBMProgramsinternally,(iv) to make or have made copies for the purposes described above, for distribution to affiliated companies etc. In consideration,IBMAustraliaagreedtopayIBMafeeof40%oftherevenuebilledforeachcopyofanIBMprogram distributedtoathirdparty.IBMAustraliainitiallywithheldtaxonthepaymentsonthebasisthatitconstituted royalty under Article 12(4) of the AustraliaUSA DTAA though it later sought a refund on the basis that the wholepaymentwasnotroyaltywhichwasrejectedbytheDepartment.IBMfiledanapplicationforadeclaration thatthewholeoftheamountsreceivedwasnotassessableasroyalty.HELDdismissingtheapplication: (i) Under Article 12(4) of the Treaty, royalty is defined to mean consideration forthe right to use any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right (Article12(4)(a)(i))or.thesupplyoftechnicalorcommercialknowledgeorinformationorforthesupplyof any assistanceofan ancillary and subsidiary naturetoenabletheapplicationoftherightsreferredtoinArticle 12(4)(a)(i)ortheknowledge/informationreferredtoinArticle12(4)(b)(i)(Article12(4)(b)(ii)); (ii) On facts, the argument that the SLA is in essence a distributorship agreement for the marketing of IBM computer programs and that the IP licenses granted to IBMA is only to enable it to carry on the function of a distributor is not acceptable. The SLA is not a distribution agreement which confers distribution rights independentlyofthegrantofIPrights.ThereisnoreferenceintheSLAtothepaymentsbeingfortheexerciseof general distributorship rights. Rather, the payments are described as being for the acquisition of the stated IP rights. The detail of the SLA concerns the definition of IP and IP rights. There is no such detail with respect to distributionrights.Therights/contentgrantedbytheSLAare,ineachcase,rights/contentofakindcontemplated byArticle12(4)andsothewholeoftheconsiderationisassessableasroyalty. InternationalBusinessMachinesCorpvcomm.Oftaxation(FederalCourtofAustralia).www.itatonline.org. S.282.ServiceofnoticeReassessmentServiceofnoticeoncharteredaccountant.(S148.) Serviceofnoticeundersection148onacharteredaccountantwhowasnotempoweredtoreceivesuchnotice on behalf of the assessee company or any other person who was not authorised to receive was not a valid
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serviceofnoticeontheassessee,moresowhenitwasnotshownthattheassesseewaskeepingoutofwayfor thepurposeofavoidingserviceofnoticeorthattherewasanyotherreasonthatthenoticecouldnotbeserved ontheassesseeintheordinarywayandtherefore,assessmentcompletedpursuanttosaidnoticewasbadin law.(Asstyear19992000). HarsingarGutkha(P)LtdvDyCIT(2011)138TTJ318(lucknow)(Trib). WEALTHTAX S.2(ea)(3):WealthTaxAssetHouseBusinessCentre(S.7ScheduleIII,R.3,5&8). Premises in a business centre cannot be said to be a house within the meaning of cl. (3) of section 2(ea). The assesseehadgiventhepremisesonleaseunderanagreementwhichhadallthecovenantsthatareusuallyfound tobeincludedinaleaseanditcannotbesaidthattheagreementwasforalicenceandtherefore,itcannotbe saidthathewasinoccupationofthepropertyforthepurposeofabusinessorprofessioncarriedonbyhimsoas toexcludeitfromthedefinitionofthetermasset.(A.Y.199798and199899) CravatexLtd.vs.Addl.CIT(2011)52DTR123(Mum.)(Trib.) S.2(ea):WealthTaxActAssetWareHousePurposeofBusiness. Inacasewheretheassesseeownsawarehousewhichisletoutonrentalbasisandthesameisnotusedbythe assessee for the purposes of its business but is used by the tenant for its business, the warehouse is to be excludedasanassetinviewofSection2(ea)(i)(5)oftheAct. Dy.CITvs.HindCeramicsPvt.Ltd.,WTANo.42&43/Kol.2010,dt.07012011,ITATKolkataBBench,BCAJpg.27, Vol.42B,Part5,February2011(Trib.) S.2(m):WealthTaxNetWealthDebtOwedSecurityDeposit Security deposit received against the lease of chargeable property, is debt owed, that deposit invested in securitiesexemptfromwealthtaxisnotrelevant.Debtdeductiblenetwealth.(A.Y.198687and198889) Miss Denna J. Jeejeebhoy vs. WTO (2011) 330 ITR 149 / (2009) 222 CTR 202/180 Tax 586/ 18 DTR 273(Bom.)(High Court) S.2(m):WealthTaxNetWealthBelongingtoAssesseeAssetsContrabandArticle. Goldgivenontrustbytheassesseetosomepersonswhichhasneitherreturnedbythemnorrecoveredbythe policeistobetreatedaslostoncecivilremedyhasbecametimebarredanditisnottobeincludedinthenet wealthoftheassessee.Goldallegedgivenbyassesseetothirdpartieswhichwasrecoveredfromthirdparties and has been delivered to Gold control authority by an order of the Court, same being a contraband article, cannot be said to be assets belonging to the assessee on the relevant valuation dates and therefore, it is not includibleinitsnetwealth. MeghjiGirdhar(HUF)vs.CWT(2011)52DTR397/239CTR411(MP)(HighCourt) S.16(4):WealthTaxReassessmentAmalgamationNoticeissuedtononexistingpersonisvoidReopening NoticeissuedtoAmalgamatingCo.Void&notsavedbysection292B(S.17,42CIncomeTaxS.292B). Thelawiswellsettledthatthejurisdictiontoreopenaproceedingdependsuponissueofavalidnotice.Ifthe noticeisnotproperlyissued,theproceedingsareultravires.Anoticeissuedonanonexistentpersonisvoid.The factthattheassesseehasfiledareturninresponsetothenoticemakesnodifference.Section42C(S.292B)does notsavethedefectinthenotice.Thedefectgoestotherootofthejurisdictiontoreopentheproceedings. L.K.AgenciesPvt.Ltd.vs.WTO(Calcutta)(HighCourt)Source:www.itatonline.org)
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S.17.ReassessmentNoticetoapersonwhoisnotinexistenceAmalgamatedcompanyReasons.(S.42C.). Noticeundersection17issuedtoapersonwhoisnotinexistenceatthetimeofissuingsuchnoticeisnotvalid .Factthattheassessee(Amalgamatedcompany)subsequentlyfileditsreturnwiththeobjectionthatnoticein thenameofamalgamatingcompanyisinvalidcannotcurethedefectswhichgototherootofthejurisdictionto reopentheproceedings.Reasonforinitiationofreopeningproceedingsneednotbeknowntotheassesseeby reflectingthesameinthenotice. L.K.Agencies(P)LtdvCWT(2011)55DTR138(Cal)(HighCourt). S.17:ReassessmentWealthtaxAct,1957ReasonsNotice. Reasonsforinitiationofreopeningproceedingsneednotbemadeknowntotheassesseebyreflecting thesameinthenoticeissuedundersection17oftheWealthtaxAct,1957. I.K.Agencies(P)Ltd.vs.CWT(2011)55DTR138(Cal)(HighCourt). S.17.ReassessmentNonexistingpersonWealthtaxAct,1957. Reassessmentnoticeundersection17oftheWealthtaxActissuedinthenameofapersonwhoisnot in existence at the time when the notice was issued, notice issued on such non existing person was heldtobeinvalidandsuchdefectwhichgoestotherootofthejurisdictiontoreopentheproceedings cannotbecured. I.K.Agencies(P)Ltd.vs.CWT(2011)55DTR138(Cal)(HighCourt). NaturalJustice:AdjudicationDutyofDisclosureExtentandScopeForeignExchange The documents which the appellants wanted were documents upon which no reliance was placed by the authorityforsettingthelawintomotion.Thedemandforsupplyofalldocumentsinpossessionoftheauthority wasbasedonvague,indefiniteandirrelevantgrounds.Theappellantswerenotsurewhethertheywereasking for copies of documents in the possession of the adjudicating authority or in the possession of the authorized officerwholodgedthecomplaint.Theonlyobjectinmakingsuchdemandwastoobstructtheproceedings. KanwarNatwarSinghvs.DirectorofEnforcement(2011)330ITR374(SC)(2010)160CompCas301(SC)./Kanwar JagatSinghvs.DirectorofEnforcement(2011)330ITR374(SC)(2010)160CompCas301(SC). InterpretationPrecedentContextualInterpretation Ajudgmentcannotbereadlikeastatute.Courtsshouldnotplacerelianceondecisionwithoutdiscussingfactual situationinvolvedinthesaiddecisionandhowitwouldapplytothefactsinvolvedinthesubsequentcase.Aratio laiddownbyahigherforumshouldnotbetakenoutcontextandconstruedlikeastatute.(A.Y.200102) IskrarecoRegentLtd.vs.CIT(2011)237CTR239/49DTR185(Mad.)(HighCourt) CompaniesActMerger S.391:CompaniesActMergerDemergerSanctionofCourtTaxAvoidanceGift. Proposedschemeofarrangementwhichcontemplatestransferofpassiveinfrastructureassetsofthepetitioner andothergroupcompaniestoanothergroupcompanywithoutanyconsiderationandthereafteramalgamation/ mergerofthetransfereecompanywithanothercompanyisexplicitlyaschemeoftaxavoidanceasitisdevisedto artificially deplete the taxable profits of the transferor companies apart from evading tax on capital gains by showing the transfer as gift and therefore, the proposed scheme cannot be sanctioned under 391 of the CompaniesAct,1956. VodafoneEssarGujaratLtd.,InRe(2011)52DTR293/239CTR229(Guj.)(HighCourt)
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AppealCondonationofDelaySubstantialJusticeAppealUnlessmalafidesarewritlarge,delayshouldbe condoned.Mattersshouldbedisposedofonmeritsandnottechnicalities. Justicecanbedoneonlywhenthematterisfoughtonmeritsandinaccordancewithlawratherthantodisposeit of on such technicalities and that too at the threshold. Unless malafides are writ large on the conduct of the party,generallyasanormalrule,delayshouldbecondoned. ImprovementTrustvs.UjagarSingh(2010)6SSC786/(2010)6Scale173(SupremeCourt) AppealCondonationofdelayDepartmentalSLPDismissed ThedepartmentfiledaSLPchallengingtheorderoftheBombayHighCourtdecliningtocondonedelayof656 daysinfilingtheappeal.Thedelaywasexplainedashavingbeencausedbyseveralfactssuchasnontraceability ofcaserecords,proceduralformalitiesinvolvedintheDepartmentandthepapersaretobeprocessedthrough differentofficersinrankfortheircomments,approvaletc.andthenthepreparationofthedraftofappealmemo, paperbookandtheadministrativedifficultiessuchasshortageofstaff.HELDdismissingtheSLP: Inouropinion,thesaidexplanationdoesnotmakeoutasufficientcauseforcondonationofdelayinfilingthe appeal before the High Court. In that view of the matter, we do not find any ground to interfere with the impugnedjudgment.TheSpecialLeavePetitionisdismissedonthegroundofdelayaswellasonmerits. CITvsIndianHotelsCo.Ltd.(SupremeCourt)(www.itatonline.org) S.35B:OffencesandProsecutionWillfulfailuretofilereturnSanctionCriminalprocedureCodeS.245(1).(S. 35O). Sanction authority has sanctioned the prosecution, without application of mind ,there was no evidence that defaultwaswillful.TheCourtheldthatprosecutionwasnotvalid.(A.Y.199394). J.JayalaithavAsstCIT(2011)337ITR1/60DTR169/243CTR467(Mad)(HighCourt). FinanceAct,1983WealthtaxValuationLandUrbanlandCeilingActScheduleIII. AssesseeslandwasdeclaredassurplusunderULCRAbutpossessionwasnottakenoverbyauthoritiesandin viewofsection3and4ofrepealedAct,1999,theassesseecontinuedtobeownerofthelandanditsvaluewas includible in net wealth. Land being subject to ULCRA , the same has to be valued taking in to consideration restrictionunderULCRA.(A.Ys198485to198990,199192&199293). CWTvChemsfordClubLtd(2011)243CTR89(Delhi)(HighCourt) GENERAL TransferPricingAustralianTaxOfficeRulingonTransferPricingImplications The Australian Taxation Office has issued a Taxation Ruling dated 9.2.2011 in which it has discussed the applicationofthetransferpricingprovisionstobusinessrestructuringbymultinationalenterprises. TheRulingconsiderssituationswheresuchtransfersoccurbetweenMNEmemberstoimplementchangesinthe MNEsexistingbusinessarrangementsoroperations.Commonexamplesareproductsupplychainrestructurings involving conversion of a distributor into a sales agency arrangement or of a manufacturer into a provider of manufacturing services. Business restructurings also commonly involve the transfer of the ownership and managementofintangiblessuchaspatents,trademarksandbrandnames. TheRulingexplainsthefollowingprocessforsettingorreviewingtransferpricing Step 1: Characterize the international dealings between the associated enterprises in the context of the taxpayersbusiness Step2:Selectthemostappropriatetransferpricingmethodologyormethodologies Step3:Applythemostappropriatemethodanddetermineanarmslengthoutcome
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The Ruling refers extensively to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations(OECDGuidelines). TheRulingalsogivespracticalexamplestoexplainthetransferpricinglaw. Source:www.itatonline.org AppealInterDepartmentalLitigationPublicSectorUndertakingsClearancefromCommitteeonDisputes SupremeCourtrecallslawrequiringPSUstoobtainCODapproval LargerBenchofSupremeCourtrecalleditsorderlaiddowninONGCvs.CCE104CTR(SC)31andONGCvs.CIDCO (2007) 7 SCC 39, that no litigation could be proceeded with in the absence of COD approval in case of dispute betweenGovernmentandPSUs.Itwasheldthatthemechanismwassetupwithalaudatoryobject.However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. Thus, in view of the said circumstancesitwasdecidedbyLargerBenchtorecallthedirectionsofthisCourt. Electronics Corporation of India Ltd. vs. UOI / CCE vs. Bharat Petroleum Corpn. Ltd. (2011) 51 DTR 193 / 238 CTR 353/332ITR58(SC)(5MemberBench)/Source:www.itatonline.org InterpretationBindingPrecedentSubsequentDecisionofsmallerBenchofSupremeCourtArticle149ofthe ConstitutionofIndia. IfsubsequentdecisionofsmallerBenchofSupremeCourtinterpretingdecisionoflargerBenchofSupremeCourt is placed before a High Court, latter is bound to follow subsequent decision by smaller Bench which interprets decisionofLargerBenchbecausethatisinterpretationoflargerBenchofSupremeCourtandHighCourtcannot makeadifferentinterpretationthanonemadebysubsequentdecisionofSupremeCourtwhichisbindinguponit. (A.Y.199697) CITvs.OberoiHotels(P)Ltd.(2011)198Taxman310/59DTR272(Cal.)(HighCourt) TransferPricingHoldingandSubsidiaryCo.CanadaCourtRulingImplicitsupportbyholdingcompanyto subsidiarytobeconsideredindeterminingarmslengthprice Indeterminingthearmslengthprice,alleconomicallyrelevantfactors(includingtheimplicitsupportthatthe subsidiary enjoys from the holding company) have to be considered. The explicit guarantee by the holding company also has a value to the subsidiary.The yield method can be adopted which requires a comparison betweenthecreditratingwhichanarmslengthparty,inthesamecircumstancesastheassessee,wouldhave obtainedandthecreditratingwhichwouldhavebeenobtainedwithouttheexplicitguarantee. TheQueenvs.GeneralElectricCapitalCanadaInc.Source:www.itatonline.org PrecedentAdvanceRulingsBindingnatureBindingonothers. The Andhra Pradesh High Court held that the Advance Ruling Authorities order under section 67(4)(11) was bindingnotonlyontheapplicantbutalsosimilarsituatedotherdealers. TirupatiChemicals,Vijaywada&Anr.vs.Dy.CommercialTaxOfficer(2011)52APSTJP.48(AP)(HighCourt) ContemptofCourtsAct1971MaliciousImputationsagainstJudicialOfficerApologytenderednotaccepted (S.6) Thecontemnerhasmadewildallegationsagainstthejudicialofficer,whencontemptproceedingswereinitiated he tendered apology. The Honble Court refuse to accept the apology. Before discussing the facts the Honble Court referred the observation of Apex Court in M. R. Parashar vs. Dr. Farooq Abdullah AIR 1984 SC 615 which readsasunder.TheJudgescannotdefendthemselves.Theyneeddueprotectionoflawfromunfoundedattacks ontheircharacter.LawofContemptisonesuchlaws.WewouldliketoremindthosewhocriticisetheJudiciary
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thatithasnoformfromwhichtodefenditself.Thelegislaturecanactindefenceofitselffromthefloorofthe House.Itenjoysprivilegeswhicharebeyondreachoflaw.Theexecutiveisallpowerfulandampleresourcesand media at itscommand to explain its actions and, if need be, to counter attack. Those, who attack the judiciary mustrememberthattheyareattackingtheinstitutionwhichisindispensableforthesurvivaloftheruleoflaw butwhichhasnomeansofdefendingitself. TheswordofJusticeisinthehandsofGoddessofJustice,notinthehandsofmortaljudges.Therefore,Judges mustreceivethedueprotectionoflawfromunfoundedattacksontheircharacter. AccordinglytheHonbleCourtheldthatbenefitofsection6oftheContemptCourtsAct1971maynotbegivento thecontemnerastheallegationsimputedagainstthejudicialOfficerwerenotingoodfaith. HighCourtonitsownmotionvs.DnyandevTulshiramJadhavandStateofMaharashtra(2011)Vol113920Bom.L.R. 1145(April) Note:ReferContemptofCourt.www.itat.online.org PrecedentBindingnatureNonJurisdictionalHighCourtTribunal. In the absence of any contrary view , decisions of non jurisdictional High Court have to be followed by the Tribunal.Itisnotpermissiblefortheauthoritiesbelowtoignorethedecisionofthehigherforumonpretextthat anappealisfiledintheSupremeCourt,whichispendingorthatstepsaretobetakentofileanappeal(Asstyear 200708). AddlCITvRoyalBankofScotlandN.V.(2011)130ITD305/138TTJ698(Kol)(Trib). BiasQuestionofbiasinjudicialfunctionmustbeseenfromreasonablemansperspective. To decide whether there is bias, the real likelihood test has to be adopted. In each case, the Court has to consider whether a fair minded and informed person, having considered all the facts would reasonably apprehendthattheJudgewouldnotactimpartially.Toputitdifferently,thetestwouldbewhetherareasonably intelligentmanfullyapprisedofallthefactswouldhaveaseriousapprehensionofbias.Indecidingthequestion ofbiasonehastotakeintoconsiderationhumanprobabilitiesandordinarycourseofhumanconduct; P.D.Dinakaran,JusticevHonbleJudgesInquirycommittee(supremecourt)www.Itatonline.org. BlackMoneyDTAADoesNotProtectTaxEvaders.SITFormedToProbeBlackMoney. Weareconvincedthatthesaidagreement,byitself,doesnotproscribethedisclosureoftherelevantdocuments anddetailsofthesame,includingthenamesofvariousbankaccountholdersinLiechtenstein.Theinformation thatisreferredtoinArticle26isthatwhichisnecessaryforcarryingoutthepurposesofthisagreement,i.e. the IndoGerman DTAA. Therefore, the information sought does not fallwithin the ambit of thisprovision. It is disingenuous for the Union of India, under these circumstances, to repeatedly claim that it is unable to reveal the documentsandnamesassoughtbythePetitionersonthegroundthatthesameisproscribedbythesaidagreement. ItisfortheUnionofIndia,andthecourts,inappropriateproceedings,todeterminewhethersuchinformation concernsmattersthatarecoveredbythedoubletaxationagreementornot. RamJethmalanivsUOI(2011)200Taxman171(SC)(www.itatonline.org) AppealCBDTdirectedtoformulateuniformpolicywithstrictparametersonappealfiling. ItishightimewhentheCentralBoardofDirectandIndirectTaxescomesoutwithauniformpolicy,laying down strict parameters for the guidance of the field staff for deciding whether or not an appeal in a particular case is to be filed. We are constrained to observe that the existing guidelines are followed moreinbreach,resultinginavoidableallegationsofmalafidesetconthepartoftheofficersconcerned. CCEvsDoabaSteelRollingMills(SC).www.itatonline.org.
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ProsecutionFERA,1973Ss.8,9,50,51and56 Adjudicationproceedingsandcriminalproceedingscanbeinitiatedsimultaneouslyandindependentof each other finding in the adjudication proceeding is not binding in the criminal proceeding adjudication proceedings does not attract the provisions of Art. 20(2) of the Constitution or S. 300 of theCrPCiftheexonerationintheadjudicationproceedingisonthemerit,acriminalprosecutionon thesamefactscannotbeallowedtocontinue StandardCharteredBankv.DirectorateofEnforcement[2006]130CompCas341(SC)distinguished. RadheshyamKejriwalv.StateofWestBengalandAnr.[2011]333ITR58/(266)ELT294(SC) Interpretation of Taxing statutes Term not defined under income tax act definition in different actsandmeaningcommonparlancetobetaken The High Court held that though specific provisions are made in respect of investment in bonds of financial corporation state or central govt. that would not mean that one has to give restrictive meaning to the term debenture more particularly when the term is not defined under the Act. The principle of interpretation is that in the absence of any definition given to a particular term in a statute, the meaning which is to be given to the term is the meaning in which it is understood in commonparlance. DIT v. Shree Visheshwar Nath Memorial Public Charitable Trust [2011] 333 ITR 248 (Delhi) (High Court). PrecedentDismissalofappealbySupremeCourt. Though the appeal is dismissed by Supreme Court in one line order, High Courts order stand merged andoperatesasbindingprecedent. BinaniIndustriesLtdvCIT(2011)TaxLR.343(Cal)(HighCourt). GeneralAntiAvoidanceRule(GAAR)LawExplained The assessee, a Canadian Co controlled by its sole director Peter Cohen, earned capital gain of $7.7M fromthetransferofproperty.AnothercompanynamedRcongoldSystemsIncwhichwascontrolled by the assessee issued 8,000 voting common shares for a consideration of $8M to the assessee. Thereafter, Rcongold issued 80,000 Class E nonvoting preferred shares with a redemption price of $100 each to the shareholders (the assessee) by way of dividend. The redemption price of the Class Enonvotingpreferredshareswasidenticaltothefairmarketvalue(FMV)ofthecommonshares. The said 8,000 common shares of Rcongold were sold by the assessee to the Peter Cohen Trust for an amount of $65, which resulted in the assessee reporting a capital loss of $7.9 M. The assessees claim to setoff the said capital loss of $7.9M against the capital gain of $7.9M was denied by the AO on theground thatthescheme was onefor tax avoidance and hit by the General AntiAvoidance Rule (GAAR)ins.245oftheCanadianIncometaxAct.HELDupholdingthestandoftheAO: (i)FortheGAARins.245toapply,threeaspectshavetobesatisfied (a)theassesseemustobtainataxbenefitfromatransactionorseriesoftransactions, (b) the transaction(s) must be an avoidance transaction in the sense of not having been arranged primarilyforbonafidepurposesotherthantoobtainthetaxbenefitand (c)theavoidancetransaction(s)mustbeabusiveoftheprovisionsoftheAct,theburdenbeingonthe AOtoestablishtheabuse; (ii)Onfacts,allthreerequirementsweresatisfiedbecause
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(1) there were a series of transactions comprising of (a) the incorporation of Rcongold, (b) the subscription for shares of Rcongold by the assessee, (c) the declaration of a stock dividend by Rcongold, (d) the creation of the trust and (d) the sale by the assessee of shares of Rcongold to the trustandtherewasataxbenefitasaresultofthetransactions; (2) the primary purpose of each transaction in the series was the avoidance of tax. While the incorporation of Rcongold and the issuance by it of common shares were not avoidance transactions in and of themselves, they were necessary steps taken in furtherance of the scheme. The primary purpose of the entire series of transactions was to obtain a tax benefit and so the entire series of transactionsisanavoidancetransaction; (3) The transactions amounted to abusive tax avoidance because they sought to defeat the underlying rationale of the capital loss provisions in the Act. The assessee sought to create an artificialcapitallosswithoutincurringanyrealeconomicloss. TriadGetscoLtdvsH.M.theQueen(CanadaTaxCourt).www.itatonline.org. Dependent Agent Permanent Establishment: Tests to determine Agents right to bind, & dependence on, principal Theassessee,acompanyregisteredintheNetherlandsbutresidentinIrelandfortaxpurposesappointedDellAS, aNorwegiancompany,asitscommissionaireforsalestocustomersinNorway.DellASenteredintoagreements initsownnameanditsacts(underthecommissionagreementandCommissionAct)didnotbindtheprincipal.The assesseeclaimedthatitwasnottaxableinNorwayinrespectoftheproductssoldthroughDellASontheground that Dell ASwas not its Dependent Agent Permanent Establishment (DAPE) under Article 5(5) ofthe Norway Ireland DTAA on the ground that (a) the agent had no authority to enter into contracts in the name of the assesseeandlegallybindtheassesseeand(b)theagentwasnotadependentagent.However,theincometax departmenttooktheviewthatDellASconstitutedaPEunderArticle5(5)oftheDTAAandthat60percentofDell ProductsnetprofitonsalesinNorwaywasattributabletothePE.ThiswasconfirmedbytheOsloDistrictCourt. OnappealbytheassesseetotheCourtofAppeal,HELDdismissingtheappeal: (i) Under Article 5(5) of the DTAA, an agent is considered a permanent establishment for the principal if two conditionsarefulfilled(i)theagentmustbedependentontheprincipaland(ii)theagentmusthavetheright to conclude contracts in the name of the principal. The question whether the agent has the authority to conclude contracts on behalf of the enterprise has to be considered, not from a literal sense whether the contractsareinthenameoftheenterprise,butfromafunctionalsensewhethertheagentinrealitybinds theprincipal.TheobjectiveofArticle5(5)istoprotecttheprincipleofsourcetaxation,i.e.thatthetaxshallbe duetothecountrywheretherevenuewascreated.Thisprinciplewouldbedisregardedifonlythecommission relationshipwasconsidereddespitethefinancialandlegalattachmentbetweentheagentandtheprincipalbeing strong. To ask if Dell AS in reality binds Dell Products is in accordance with the functional interpretation of Article 5 (5). The substance must prevail over the form. The fact that a commissionaire under the CommissionaireActandthecommissionagreementdoesnotbindtheprincipalthroughhissalesisnotenoughto rule out that a permanent establishment does not exist (Vienna Convention, OECD Model Convention Commentary,CommentariesbyKlausVogel&ArvidSkaarconsidered,decisionoftheFrenchSATinZimmerthat as the commissionaire did not bind the principal, it was not a PE despite dependence on the principal not followed); (ii)Onfacts,DellProductswasinrealityboundbythecontractsconcludedbyDellASbecause(a)allsaleswere madeunderthetrademarkDell;(b)thesalesweremadeonstandard/approvedconditionslaiddownbyDell
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Products; (c) in practice, all of the agents agreements were honoured by the principal and (d) there were no instanceswheretheagentssaleshavenotbeenacceptedbytheprincipal; (iii) The question whether the agent is dependent on the principal has to be decided on the application of varioustestssuchasthedegreeofinstructionandcontrol.Onfacts,DellASwasdependentonDellProducts because (a) Dell AS was only allowed to sell permitted products on conditions of prices and guarantees determined by Dell Products, (b) there was an overlap of board members in the two companies and a board memberofDellProductswasthegeneralmanagerofDellAS,(c)duetotheintegratedaccountingsystemofthe DellcompaniesDellProductshadfullinsighttothefinancesofDellAS,(d)underthecommissionagreement,Dell Products had access to Dell AS premises, (e) Dell AS sold goods as a commissionaire only on behalf of Dell Products though it had the theoretical right to sell for others; (f) all business of Dell AS was done under the trademarkDell,itsletterheads,agreementsandadvertisementshadthelogoDell.DellASwasthusbranded identically as the rest of the Dell Group, but without owning the brand. All these facts made Dell AS fully dependentontheprincipal.Withoutthecommissionagreement,DellASmayaswellclosedownitsoperations. Thefactthattheagentactedindependentlyinmattersofstaffhire,purchaseandleaseofassetsandpremises, etcwasirrelevantbecausethebigpictureshowedDellAStobedependentonDellProducts; (iv)ThedeterminationofprofitsattributabletothePEhastobedoneasiftheagentwasindependentofthe principal.Onthemethodstobeused,Article7(2)oftheDTAAprovidesforthedirectmethodofallocatingall costsandrevenuebetweentheHOandthePEwhileArticle7(4)providesfortheindirectmethodofallocating only the net profits using keys such as sales, revenues, expenses, number of employees, capital structure or a combination of these factors. In Norway, the indirect method is in practice. This is practical because the accountsdonotpermitindividualitemsofincomeandexpendituretobeidentifiedforallocationpurposesand also because it gives a result which is in accordance with thearms length principle. While under Article 7(2), a twostep procedure has to be adopted by first determining a commercial remuneration for Dell AS and then a commercialprofitforotherfunctionsperformedbythePE,underArticle7(4)itissufficientthattheresulttoa reasonable degree corresponds to the arms length principle and requires that the PE should be allocated revenues in accordance with its functions, risk and assets used. On facts, the value creation occurred through salesmadebyDellASanditwasthemajorvaluedriver.DellProductsfunctionsandcontributiontothevalue creation was limited compared to the activity of Dell AS. Consequently, allocating 60% of Dell Products profits fromsalesinNorwaytothePEwasreasonable(over&abovetheassessmentofcommissionintheagentshands). DellProductsvsTaxEast(NorwayCourtofAppeal)www.itatonline.org
Disclaimer:Thecontentsofthisdocumentaresolelyforinformationalpurpose.Itdoesnotconstituteprofessionaladviceor a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissionshereinisnotruledout.Neithertheauthornoritatonline.organditsaffiliatesacceptsanyliabilitiesforanylossor damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, noncommercial use) withoutexpresswrittenpermissionofitatonline.org.
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