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

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)

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

When a payment is made by cheque, then the ‘date of payment‘ is the ‘date of the cheque‘ even though the cheque may be encashed subsequently. As the cheque was issued within 6 months of the transfer, s. 54EC relief was available even though the cheque was encashed, and bonds were allotted, later

Despite high volume & short holding period, shares gain is STCG

S. 254 (2) can be invoked only if there is a mistake in the order passed by the Tribunal u/s 254(1). As the MA filed by the assessee is against an order passed u/s 254(2) it has to be rejected CIT vs. ITAT 196 ITR 838 (Ori) followed

The law relating to validity of the assessment proceedings in absence of issuance of notice u/s 143(2), in a case where the AO proceeded to frame the assessment in pursuance of a return is well established. If the assessment is framed u/s 143 (3), either read with s. 158 BC or s. 147, it is mandatory for him to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is mandatory and not procedural. If the notice is not served within the prescribed period, the assessment order is invalid (Pawan Gupta 318 ITR 322 (Del), Hotel Blue Moon 321 ITR 362 (SC) & C. Palaniappan 284 ITR 257 (Mad) followed)

U/s 72(1)(i), the brought forward business loss can be set-off against “the profits and gains of any business or profession carried on” by the assessee. S. 72 (1)(i) does not use the word “assessable under the ‘head‘ profits & gains of business”. So, the question is whether the securities formed part of the trading assets of the business and the income there from was income from the business. The answer to this question has to be decided on commercial principles and not on the basis of the classification of ‘heads of income’ in s. 14. Though for the 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 (Cocanada Radhaswmi Bank 57 ITR 306 (SC) & New India Investment 130 ITR 778 (Cal) followed)

There is a difference between “issue” and “service”. To obtain jurisdiction to assess/reassess the escaped income, the s. 148 notice has to be “issued” but need not be “served”. Service is not a condition precedent to conferment of jurisdiction on the AO but a condition precedent only to the making of the order of assessment. The word “issue” means that the notice must leave the custody of the AO and as the Post Office is not the department’s agent, sending it by post completes “issue”. Accordingly, though the first notice was not (according to the assessee & department) served on the assessee, the AO was vested with power to assess/reassess the escaped income (R. K. Upadhyaya 166 ITR 163 (SC) & Sheo Kumari Debi 157 ITR 13 (Pat) (FB) followed)

U/s 92C read with Rule 10B, the most appropriate method has to be applied for determination of arm’s length price. In principle, the CUP method (the traditional transaction method) is preferable to the other methods because all other things being equal, the CUP and traditional transactional methods lead to more reliable results vis-a-vis the results obtained by applying transaction profit method (UCB India 121 ITD 131 and Serdia Pharmaceuticals followed)