Month: May 2012

Archive for May, 2012


B4U International Holdings Ltd vs. DCIT (ITAT Mumbai)

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DATE: May 29, 2012 (Date of publication)
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In Asia Satellite 332 ITR 340 (Del) it was held that in order to constitute “royalty”, the payer must have the right to control the equipment. A payment for a standard service would not constitute “royalty” merely because equipment was used to render that service. A similar view was taken in Skycell Communications 251 ITR 53 (Mad). In De Beers (Kar) & Guy Carpenter (Del) it was held that to “make available” technical knowledge, mere provisions of service was not enough and the payer had to be enabled to perform services himself. The department’s argument that the amendments by the Finance Act, 2012 changes the position is not acceptable because there is no change in the DTAA between India and USA and the DTAA prevails where it is favourable to the assessee

DDIT vs. B4U International Holdings Ltd (ITAT Mumbai)

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DATE: May 29, 2012 (Date of publication)
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Under Article 5(5), an agent is deemed not to be of independent status when his activities are devoted exclusively or almost exclusively to the non-resident enterprises. Though in DHL Operations B.V. 142 TM 1 (Mum) it was held that the question whether the agent is “dependent” has to be seen from the perspective of the non-resident principal, this view cannot be followed because it is contrary to the language of Article 5(5). The wordings refer to the activities of an agent and its devotion to the non-resident and not the other way round. The perspective should be from the angle of the agent and not of the non-resident. As the income from the assessee was only 4.69% of the agent’s income, the agent was not a “dependent agent” (Morgan Stanley 272 ITR 416 (AAR) & Rolls Royce (Del) followed)

CIT vs. Cargil Global Trading Pvt. Ltd (Supreme Court)

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DATE: May 29, 2012 (Date of publication)
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The assessee paid Rs. 3.97 Crores to an associate concern in Singapore on account of discounted charges for getting the export sale bills discounted. The AO held that that the discounting charges was “interest” u/s 2(28A) and that as there was no TDS, the expenditure had to be disallowed u/s 40(a)(i). This was reversed by the CIT (A) and Tribunal. The High Court (335 ITR 94 (Del) included in file) relied on Circular No.65 dated 2.09.1971, Circular No.674 dated 22.03.1993 & Vijay Ship Breaking 219 CTR 639 (SC) held that as the discounting charges were not in respect of any debt incurred or money borrowed and were merely discount of the sale consideration on sale of goods, it was not “interest” u/s 2(28A) and there was no obligation to deduct TDS thereon. On appeal by the department to the Supreme Court, HELD

Jagran Prakashan Ltd vs. DCIT (TDS) (Allahabad High Court)

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DATE: May 28, 2012 (Date of publication)
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To constitute “commission or brokerage” u/s 194H, it is necessary that person receiving payment should be acting as agent and rendering services. The relationship between the assessee and the advertising agency in accordance with the INS Rules is that of a principal to principal because (a) the assessee has no control over the advertising agency, (b) the advertising agency is responsible for payment even if the advertiser has not paid the advertising agency, (c) the advertising agencies are rendering service to the advertisers/ customers & other terms. The “discount” was not “commission”

CIT vs. Havells India Ltd (Delhi High Court)

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DATE: May 28, 2012 (Date of publication)
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S. 9(1)(vii)(b) provides that fees for technical services payable by a resident in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India shall not be taxable in India. The term “source” means not a legal concept but one which a practical man would regard as a real source of income. It is a spring or fount from which a clearly defined channel of income flows. The assessee manufactured goods in India and concluded the export contracts in India. The source of income is created the moment the export contracts are concluded in India. The customer located outside India is not the source of the income though he is the source of the monies received. There is a distinction between the source of income and the source of receipt of monies. In order to fall u/s 9(1)(vii)(b), the source of the income, and not the receipt, should be situated outside India. Further, though the profits arise both from the manufacturing activity and from the sale, bifurcation of the fees is not permissible (Aktiengesellschaft 262 ITR 513 (Mad) not followed)

CIT vs. High Energy Batteries (India) Ltd (Madras High Court)

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DATE: (Date of pronouncement)
DATE: May 25, 2012 (Date of publication)
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In Vodafone International Holdings 341 ITR 1 (SC), McDowell was considered extensively and it was held that there is no conflict between McDowell and Azadi Bachao Andolan 263 ITR 706 (SC) & Mathuram Agarwal 8 SCC 667. It was pointed out that the task of the Revenue/Court is to ascertain the legal nature of the transaction and while doing so, it has to look at the entire transaction as a whole and not to adopt a dissecting approach. It was pointed out that “the Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the “look at” test to ascertain its true legal nature. Genuine strategic tax planning has not been abandoned by any decision of the English courts till date.” It was held that while colourable devices cannot be a part of tax planning, it cannot be said that all tax planning is illegal/ impermissible. Applying this ratio, the mere fact that what had been purchased had been leased out to the vendor or that vendor had undertaken to pay the hire charges on behalf of the assessee to the hire purchase company does not per se lead to a conclusion that the transaction is a sham one

Ambala Central Cooperative Bank Ltd vs. ITO (ITAT Chandigarh)

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DATE: May 24, 2012 (Date of publication)
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We would like to take this opportunity to bring to the notice of CBDT that after the procedure of Central processing of returns, many issues have come before various forums where unnecessary demands have been raised due to non-grant of TDS, wrong computation of income, adjustment of the previous year demand which have already been deleted by the jurisdictional assessing officer. Therefore, we would like to urge the CBDT to take up this matter urgently and establish proper coordination between the assessing authority and Central Processing Authority so that these problems are immediately solved and unnecessary litigation can be avoided. Copy of this order should be forwarded to the Chief Commissioner of Income-tax, Chandigarh and Chairman of CBDT for necessary action

All Cargo Global Logistics Ltd vs. DCIT (ITAT Mumbai Special Bench)

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DATE: May 23, 2012 (Date of publication)
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The assessee’s argument that as the ground was taken in the memorandum of appeal, it was not an “additional ground” for which leave was required from the Tribunal is not acceptable because s. 253(1) permits an assessee “aggrieved” to file an appeal. A person can be “aggrieved” only if a ground had been raised and it is decided against him. S. 253(1) bars a ground which was not raised and not decided by the CIT(A) because there can be no grievance in respect of a matter which is not raised at all (Pokhraj Hirachand 49 ITR 293 (Bom) followed)

Court On Its Own Motion vs. CIT (Delhi High Court)

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DATE: (Date of pronouncement)
DATE: May 19, 2012 (Date of publication)
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One Anand Parkash, FCA, addressed a letter dated 30.4.2012 to the High Court in which he set out the numerous problems being faced by the assesses across the Country owing to the faulty processing of the Income Tax Returns and non-grant of TDS credit & refunds. He claimed that because of the department’s fault, the assessees were being harassed. The High Court took judicial notice of the letter, converted it into a public interest writ petition and directed the CBDT to answer each of the allegations made in the letter. In addition, the Court demanded an answer to the following issues

CIT vs. Awadh Hotels (P) Ltd (Allahabad High Court)

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DATE: May 18, 2012 (Date of publication)
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In CIT vs. Ranchi Club Ltd 247 ITR 209 (SC) it was held that the order of the AO in the assessment order to charge interest has to be specific and clear and the assessee must be made to know that the AO after applying his mind has ordered charging of interest. In Anjum M.H. Ghaswala 252 ITR 1 (SC), it was held, in the context of whether the Settlement Commission could waive interest, that the levy was mandatory and could not be waived. Subsequently, in Insilco Ltd 278 ITR 1 (SC), the Supreme Court remanded the matter to decide whether the law laid down in Ranchi Club had been changed by Anjum M.H. Ghaswala or not. Ranchi Club Ltd has not been expressly overruled nor has a different view been taken in Anjum M.H. Ghaswala‘s case. There is also no force in the department’s argument that even if assessment order or computation sheet does not provide for interest, since interest is mandatory, it can be charged in the demand notice which is signed by the AO. Even if a provision of law is mandatory and provides for charging of tax or interest, the view taken in Ranchi Club Ltd is that such charge by the AO should be specific and clear and assessee must be made to know that the AO has applied his mind and has ordered charging of interest. The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the proviso of law under which such interest is charged are two different things. Consequently, if the assessment order is silent, interest u/s 234A, 234B & 234C cannot be levied

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