Held, affirming the majority view of the Special Bench in DCIT vs. Oman International Bank 100 ITD 285 that:
(i) Though the Circulars issued by the CBDT are not binding on the court as held in CCE vs. Ratan Melting & Wire Industries 231 ELT 22 (S.C.), it is binding on the authorities and while it is for the Court to read the section in its proper context, while so reading the Court will bear in mind the circular issued by the CBDT. Circulars are sometimes issued to obviate difficulties in the operation of the provisions and these are aspects which Courts do bear in mind while considering the Circulars. Accordingly, Circulars have to be taken into account.
(ii) The decision of an assessee to treat a debt as a bad debt in his books has to be a business or commercial decision and not whimsical or fanciful and must be based on material that the debt is not recoverable. The decision must be bona fide;
(iii) Post amendment of s. 36 (1)(vii) & 36 (2), the burden is not on the assessee to show the debt is “bad”. In order to disallow, the AO must show that the decision of the assessee was not bona fide.
Where s. 35G of the Central Excise Act (= 260A of the I. T. Act) provided a time limit of 180 days for filing an appeal and there was no provision for condoning delay by showing sufficient cause after the prescribed period, there was complete exclusion of section 5 of the Limitation Act and the High Court had no power to condone the delay after expiry of the prescribed period. Even otherwise, the legislature had provided sufficient time for filing a reference to the High Court which was more than the period prescribed for an appeal and revision.
Note: The judgement of the Full Bench of the Bombay High Court in CCE vs. Shree Rubber Plast is impliedly overruled.
Where the question arose whether in respect of an appeal admitted u/s 260A, the High Court has power to grant stay of recovery of outstanding demand, HELD:
(i) S. 260A provides that the provisions of the Code of Civil Procedure relating to appeals to the High Court shall apply;
(ii) Rules 5 (1) and 5 (3) of Order 41 of the Code of Civil Procedure authorize the Court to grant stay provided it is satisfied:
(a) that substantial loss may result to the party applying for stay of execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.
(iii) On facts, as these conditions were satisfied, the assessee was entitled to stay subject to conditions.
Where the question arose whether the Explanation to s. 73 (which deems the loss from trading in shares by a company to be speculation loss) can be confined only to cases where there is manipulation and whether the loss arising on valuation of closing stock of shares is also covered, HELD:
(i) Though the Circular of the CBDT supports the interpretation that the object of the Expl. to s. 73 is to curb manipulation of group companies’ shares, the scope of the Expl. extends to all companies carrying on business in shares;
(ii) Though the Expl. refers to purchase and sale of shares and not to losses suffered on account of valuation, it applies to valuation losses as well as there is no difference between trading losses and valuation losses.
The judgement of the Supreme Court in Dharmendra Textiles Processors which holds that penalty u/s.271(I)(c) is a civil liability and that “willful concealment” and “mens rea” are not essential ingredients for imposing penalty cannot be read to mean that in all cases where addition is confirmed, penalty shall mechanically follow. In order to attract s. 271 (1) (c), there must be “concealment” – the fact that the same is willful or unintentional is irrelevant.
Where the assessee made a VDIS declaration in which diamonds were disclosed and he later claimed that the moneys received by him were the sale proceeds of the said diamonds which could not be taxed but the AO held that the sale was fictitious as the second purchaser to whom the diamonds were stated to have been sold by the first purchaser was not traceable, HELD
In view of the fact that the diamonds formed a part of the declaration which was accepted by the department and the consideration was received from the purchaser by cheque and recorded in the books of accounts, the assessee had proved the possession of the diamonds at the time of declaration and the sale thereof could not be disbelieved merely because there was doubt about the second sale.
Where the assessee transferred rights in feature films by way of lease outside India and the question arose whether films constituted “goods or merchandise” for purposes of s. 80HHC, HELD
Today the difference between goods and services is getting blurred with globalization and cross-border
Transactions and with technological advancement one has to change one’s thinking regarding concepts like goods, merchandise and articles. The telecast “rights” certainly fall in the category of articles of trade and commerce, hence, merchandise and are eligible u/s 80HHC.
Where the assessee suo motu filed returns as “agent” of a non-resident but no assessment was made and after the expiry of two years from the end of the assessment year a notice under section 148 of the Act seeking to assess the income and the question arose whether the said notice was barred by limitation u/s 149 (3), HELD:
(i) Ss 160 to 166 are machinery and enabling provisions and give the department the option to either assess the non-resident or his agent;
(ii) U/ss 160 to 166, agents are of two types: (1) agents who admit their liability as agents of a non-resident either expressly or impliedly. In such cases, there is no obligation to give a hearing or even to pass an order treating them as an agent u/s 163. (2) Agents u/ss 160(1)(i) or 163(1) who deny their liability to be agents of the non-resident. In such cases, an opportunity of a hearing and a formal order is require to be passed. Whether a person falls in one or the other category depends on the facts of the case;
(iii) S. 149 (3) applies only in a case where a person is “treated as an agent” of a non-resident u/s 163 i.e. persons disputing their liability as agent. It does not apply to persons who have voluntarily treated themselves as an agent of the non-resident.
(iv) On facts, as the assessee had treated himself as the “agent”, it was not necessary for authorities in this case to provide any opportunity of being heard to the assessee as regards his liability to be treated as an agent under the Act. The time limit prescribed in s. 149 (3) was also not applicable.
Where the assessee entered into an agreement with the Vidharbha Irrigation department for supply, erection and installation of dam gates and the question arose whether it was “developing an infrastructural facility” so as to be eligible for deduction u/s 80-IA(4) or it was a mere contractor, HELD:
(i) Though the Explanation to s. 80IA (4) inserted by the FA 2007 w.r.e.f 1.4.2000 provides that s. 80-IA shall not apply to a person executing a works contract, the assessee was not a mere “contractor”. The term “developer” means a person who makes things happen and as the assessee was mobilizing and synthesizing people, plans, technical expertise, supervision, co-ordination and control etc, it could be regarded as the developer. The term “contractor” is not essentially contradictory to the term “developer”.
(ii) The Explanation to s. 80IA does not apply to a works contract entered into by the Government and the enterprise. It only applies to a work contract entered into between the enterprise and other party’s “sub-contractor”. The amendment merely aims at denying deduction to the sub-contractor who executes a works contract with the enterprise;
(iii) It is not required that the developer should also “operate and maintain” the infrastructure facilities so as to be eligible for deduction.
Where the assessee entered into a ‘secondment agreement’ with a US Company and obtained the services of an employee and the question arose whether the reimbursement by the assessee to the US Company of the salary paid by the US Company was chargeable to tax as “fees for technical services” HELD:
(i) Though the US Co was the employer in a legal sense but since the services of the employee had been seconded to the assessee and since the assessee was to reimburse the emoluments and it controlled the services of the employee, it was the assessee which for all practical purposes was the employer. Accordingly, the salary reimbursed to the US Co was not chargeable to tax;
(ii) Though the person deputed by the US Co was a technical person, the consideration paid under the secondment agreement was not “fees for technical services” because the fact that the seconded employee was responsible and subservient to the payer (assessee) and was required to also act as officer or authorized signatory or nominee of the assessee made it inconsistent with an agreement for providing technical services.
AT & S India P. Ltd 287 ITR 421 (AAR) – where a secondment agreement was held to constitute technical services distinguished.