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Month: March 2011

Archive for March, 2011

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COURT:
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DATE: (Date of pronouncement)
DATE: March 19, 2011 (Date of publication)
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CITATION:

In order to constitute a “slump sale” u/s 2(42C), the transfer must be as a result of a “sale” i.e. for a money consideration and not by way of an “Exchange”. The difference between a sale and an exchange is this that in the former the price is paid in money, whilst in the latter it is paid in goods by way of barter. The presence of money consideration is an essential element in a transaction of sale. If the consideration is not money but some other valuable consideration it may be an exchange or barter but not a sale. On facts, as the undertaking was transferred in consideration of shares & bonds, it was a case of “exchange” and not “sale” and so s. 2(42C) and s. 50B cannot apply

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DATE: (Date of pronouncement)
DATE: March 18, 2011 (Date of publication)
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CITATION:

Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till AY 2003-04. It is only by s. 28(va) inserted by FA 2002 w.e.f. 1.4.2003 that the said capital receipt is now made taxable. S. 28(va) is amendatory and not clarificatory

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COURT:
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DATE: (Date of pronouncement)
DATE: March 17, 2011 (Date of publication)
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CITATION:

The AO held the transaction to be an “adventure in the nature of trade” and not normal investment on the basis that (a) assessee had borrowed funds at an exorbitant rate of 30% and (b) the shares were held by the lender till the entire loan was paid. However, this reasoning loses sight of the fact that merely because the shares had been purchased from borrowed funds obtained on high rate of interest would not change the nature of the transaction from investment to one in the nature of an “adventure in the nature of trade”. Moreover, as the shares were held for a long-period of 14 months, the intention of the assessee had always been that of making investment in shares and not dealing in shares. This is also apparent from the fact that the shares had not been treated as stock in trade by the assessee. The fact that the shares were in the physical possession of the lender was not relevant because the assessee was the owner thereof

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DATE: (Date of pronouncement)
DATE: March 14, 2011 (Date of publication)
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CITATION:

As regards deductibility of the interest, though a branch and the HO are the “same person” in general law, Articles 5 & 7 of the DTAA provide that the PE shall be assessable as a separate entity. Under Article 7(3)(b) payment of interest by a bank’s PE to its HO is allowed as a deduction. The result is that the interest paid by the PE to the HO is deductible in computing the PE’s profits (Betts Hartley Huett 116 ITR 425 (Cal) distinguished)

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DATE: (Date of pronouncement)
DATE: March 12, 2011 (Date of publication)
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CITATION:

On merits, the department’s argument that the amounts paid for development of websites cannot be allowed as business loss because if the websites had been successfully put up, the expenditure would have been capital expenditure is not acceptable. because (a) as the expenditure was abortive, no capital asset has in fact been acquired and (b) even if the website had materialized, it does not result in an advantage of an enduring nature or in the capital field as it is only for the day-to-day running of the business and provision of information

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DATE: (Date of pronouncement)
DATE: March 11, 2011 (Date of publication)
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CITATION:

In view of Pithwa Engineering 276 ITR 519 (Bom) & Ashok Patel 317 ITR 386 (MP) followed in CIT vs. P. S. Jain & Co (included in file) where it was held that the CBDT Circular imposing limits on the filing of appeals by the department applied to pending appeals, Instruction No. 3/2011 Dated 9-2-2011 also applied to pending appeals and as the tax effect was less than Rs. Rs. 10 lakhs, the appeal was not maintainable.

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DATE: (Date of pronouncement)
DATE: March 10, 2011 (Date of publication)
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CITATION:

Article 26(2) of the India-USA DTAA provides that the taxation of a PE of an enterprise of a Contracting State in the other Contracting State shall not be less favorably levied in that other State than the tax levied on enterprises of that other Contracting State carrying on the same activities. In simple language, Article 26(2) means that taxation of a PE of a USA resident shall not be less favorable than the taxation of resident enterprise carrying on the same activities. The result is that the exemptions and deductions available to Indian enterprises would also be granted to the US enterprises if they are carrying on the same activities. As the assessee was carrying on the “same activities” of export of software as done by residents, it was entitled to deduction u/s 80-HHE as admissible to a resident assessee (Automated Securities Clearance Inc vs. ITO 118 TTJ (Pune) 619 reversed; Metchem Canada Inc vs. DCIT 99 TTJ (Mum) 702 referred to)

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DATE: (Date of pronouncement)
DATE: March 9, 2011 (Date of publication)
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CITATION:

While s. 91 allows credit for Federal & State taxes, the DTAA allows credit only for Federal taxes. The result is that the s. 91 is more beneficial to the assessee & by virtue of s. 90(2) it must prevail over the DTAA. Though s. 91 applies only to a case where there is no 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. S. 91 must consequently be treated as general in application and must prevail where the DTAA is not more beneficial to the assessee. Accordingly, even an assessee covered by the scope of the DTAA will be eligible for credit of State taxes u/s 91 despite the DTAA not providing for the same

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COURT:
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DATE: (Date of pronouncement)
DATE: March 9, 2011 (Date of publication)
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CITATION:

The answer to the question whether the waiver of a loan is taxable as income or not depends on the purpose for which the loan was taken. If the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax u/s 28(iv) or 41(1). On the other hand, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result in income more so when it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344 (SC)

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COURT:
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DATE: (Date of pronouncement)
DATE: March 8, 2011 (Date of publication)
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CITATION:

If an assessment happens to be an under-assessment or a mistaken order, the course open to the AO is either to rectify the mistake u/s 154 or to make a reassessment u/s 147. While, it is correct, as held in EID Parry 216 ITR 489 (Mad), that the AO has to choose between the two and cannot initiate both proceedings at the same time, the principle of constructive res judicata made applicable by the Madras High Court that the AO having initiated rectification proceedings u/s 154 should stick to the same only and cannot drop that and proceed u/s 147 is not acceptable. The fact that the AO invoked s. 154 and dropped it does not affect the validity of re-assessment u/s 147

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