In the case of bonus shares, the question of indexation does not arise because the cost of acquisition is taken to be nil. What the proviso to s. 112 essentially requires is that where the tax payable in respect of a listed security (being LTCG) exceeds 10% of the capital gains before indexation, such excess beyond 10% is liable to be ignored. The proviso to s. 112 requires a comparison to be made between the tax payable at 20% after indexation with the tax payable at 10% before indexation. If the shares were acquired at a cost, it becomes necessary for purposes of the proviso to s. 112(1) to compute capital gains before giving effect to indexation. However, that does not arise in respect of bonus shares. There is nothing in the s. 112 to suggest that the assessee would be entitled to a set off of the loss u/s 70 but without the benefit of indexation

In CIT vs. Alagendran Finance 293 ITR. 1 (SC) it was held that the doctrine of merger does not apply where the subject matter of reassessment and original assessment is not one and the same. Where the assessment is reopened on a specific ground and the reassessment is confined to that ground, the original assessment continues to hold the field except for those grounds on which a reassessment has been made. Consequently, an appeal on the grounds on which the original assessment was passed and which does not form the subject of reassessment continues to subsist and does not abate. The order of assessment is not subsumed in the order of reassessment in respect of those items which do not form part of the order of reassessment

In Bangalore Clothing Co 260 ITR 371 (Bom) it was held that If an item of income is closely linked with business operations and constitutes “operational income”, it cannot be excluded under Explanation (baa) to s. 80HHC. This proposition is inconsistent with the law in Ravindranathan Nair and is no longer good law. The submission that Bangalore Clothing was impliedly approved in Baby Marine Exports 290 ITR 323 (SC) is not acceptable because that judgement turned on the fact that the export house premium was an integral part of the consideration for the sale realized by the assessee, a supporting manufacturer

The 3rd Proviso to s. 254 (2A) is a stringent provision as a result of which even if the delay in disposing of the appeal is not attributable to the assessee, the stay has to stand vacated in any event upon the lapse of a period of 365 days. Having regard to the nature of the provision which has been enacted by Parliament, the Tribunal is under a bounden duty and obligation to ensure that the appeal is disposed off, so as to not result in prejudice to the assessee, particularly in a situation where no fault can be found with the conduct of the assessee. The fact that an issue was pending before the Special Bench was not a reason for the Tribunal not to dispose of the appeal, particularly since the consequence of the inability of the Tribunal to do so would result in the vacating of the order of stay. It is unfortunate that the Tribunal simply adjourned the appeal merely on the ground of the pendency of an identical issue before the Special Bench. The state of affairs which has come to pass could well have been avoided by the appeal being taken up for final disposal

The argument of the revenue based on McDowell & Co cannot be accepted because the judgment rendered therein by Justice Chinnappa Reddy has been explained in detail by the later judgment in Azadi Bachao Andolan. It is well settled that if a smaller Bench of the Supreme Court has later on explained its earlier larger Bench then the later judgment is binding on the High Court. (Precedents referred to). Accordingly, the view expressed in Azadi Bachao Andolan has to be accepted as binding and it cannot be said that the principle of law laid down by the House of Lords in Duke of Westminster as applied in Azadi Bachao Andolan is no longer applicable. Moreover, no such principles having been laid down in the majority judgment in McDowell & Co

The argument of the Revenue that the restrictions imposed on the manufacturer to (a) utilise the formula provided by the assessee, (b) affix the trade-mark of the assessee, (c) manufacture as per specifications provided by the assessee and (iii) deal exclusively with the assessee show that the contract is not one of sale is not acceptable because this has not been the understanding of the law at any point of time even by the CBDT and judicial precedents. Though a product is manufactured to the specifications of a customer, the agreement would constitute a contract for sale, if (i) the property in the article passes to the customer upon delivery and (ii) the material that was required was not sourced from the customer / purchaser, but was independently obtained by the manufacturer from a third party

Once Parliament has legislated both in regard to the nature of the exclusion and the extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. In Shri Ram Honda Power Equip 289 ITR 475 the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed

In KEC International it was noted that in a large number of matters orders are passed perfunctorily by the department only with an idea of effecting recovery before March 31, though such orders could have been passed earlier in detail and after recording proper reasons. The law laid down by the Division Bench has not led the authorities to act in compliance. This is an unfortunate state of affairs

To decide whether an institution exists solely for education and not to earn profit the predominant object of the activity has to be seen. The mere fact that an educational institution generates surplus after meeting the expenditure over a period of time does not mean that it ceases to exist ‘solely’ for educational. The test to be applied is whether the predominant object of the activity is to sub-serve the educational purpose or to earn profit. It should be seen whether profit-making is the predominant object of the activity or whether profit is incidental to the carrying of the activity. There is no requirement that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realization but would also reflect unsound principle of management

The view taken by the Tribunal is not the correct approach. If the Tribunal wanted to differ to the earlier view taken by the Tribunal in the identical set of facts, judicial discipline required reference to the larger bench. One co-ordinate bench finding fault with another co-ordinate bench is not a healthy way of dealing with the matters