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Compiled By: Ajay R. Singh, Paras S. Savla, Rahul K. Hakani and Sujeet S. Karkal, Advocates

Digest of important case law – May 2011  
Download monthly (May 2011) digest in pdf format Click here to download the judgement (digest_case_laws_may_2011.pdf)

Download Consolidated Digest (Jan 2011 to April 2011) in pdf format  
Looking for the Previous Month’s digest? Click here. Click here to download the judgement (Consolidated_Digest_of_Case_Laws_Jan_2011_to_Apr_2011.pdf)

Journals Referred : BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ, www.itatonline.org


S. 2(22)(e):      “deemed dividend” not assessable if recipient not shareholder.
Where assessee is not a shareholder of the paying company, the dividend is not assessable in its hands. The legal fiction in S. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of a “shareholder”.
Asst. CIT vs. Bhaumik Colour Pvt. Ltd. (2009) 313 ITR 146 (Mum) (AT) (SB) approved in CIT vs. Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom) & CIT vs. Hotel Hilltop (2009) 313 ITR 116 (Raj.) followed.
CIT vs Ankitech Pvt.Ltd. (Delhi) ( High Court). www.itatonline.org.

S. 2 (22)( e): Deemed dividend-Transfer of sum from one company to another.
Assessee is a director in two companies holding substantial shareholding in both. Certain sum was transferred from one company to another at instance of assessee. Assessee having substantial credit balance with company, cannot held as loan or deposit nor can be assessed as deemed dividend.( Asst years 2001-02, 2005-06).
Asst vs. C. Rajini (Smt) ( 2011) 9 ITR ( Trib) 487 (Chennai)( Trib).
Dy CIT v C. Subba Reddy (HUF) ( 2011 ) 9  ITR (Trib) 487 ( Chennai) (Trib). 
 
S.5:  Income- Accrual-Interest on enhanced compensation of land.
Interest on enhanced compensation of land is liable to be taxed once it was received.(Asst years 2000-01 to 2002-03)
Dy CIT v Gopal Ramnarayan Kasat ( 2011) 240 CTR 266 / 54 DTR 228(Bom) (High Court).

S.5: Income- Capital or Receipt-Collection from buyers.
Where assessee is collecting sum from every buyer towards flat owners association, such corpus fund cannot be assesses as income of assessee.( Asst Years 2001-02 , 2005-06)
Asst  v C. Rajini ( Smt) ( 2011) 9 ITR ( Trib) 487 (Chennai)( Trib).
Dy CIT v C. Subba Reddy (HUF) ( 2011 ) 9  ITR (Trib) 487 ( Chennai) (Trib). 
S.9: Income deemed to accrue or arise in India- DTAA-India-Netherlands – (Art 12 )
One of the group companies of assessee, located at Netherlands had acquired musical recording rights from other repertoire companies and granted commercial exploitation rights of such musical track in India to “U” Ltd. The assessee received royalty for four years from “U” Ltd.  The royalty agreement was approved by Government of India. Further assessee had filed a certificate from tax authority of Netherlands having Jurisdiction over it in which it was certified that assessee was beneficial owner of royalty income received from “U” Ltd, within the meaning of article 12 of DTAA. Thus, the assessee was beneficial owner of royalty and same had to be taxed at rate of 10 percent for all the  years.( Asst years (2000-01 to 2003-04).
Asst DIT v Universal International Music BV ( 2011)45 SOT 219 (Mum)(Trib).         

S.9: Income deemed to accrue or arise in India- Software embedded in off-shore supply may be taxable even if supply not taxable
The assessee, a USA company, entered into two separate contracts with AAI, one for supply of equipment and the other for rendering installation and training services. The AO & CIT(A) held (i) that the two contracts were an “indivisible works contract“, (ii) that as the supply involved embedded software, the income had to be bifurcated between “supply of equipment” and “royalty” in the ratio of 30:70, (iii) that the equipment-supply profits had accrued on completion of contract and not at the time of transfer of title, (iv) that 50% of the equipment-supply profits was attributable to the assessee’s PE in India and this was taxable at the global profit rate of 13.4%. On appeal to the Tribunal, HELD:

(i) The two contracts constitute one agreement because (a) the essential purpose of both contracts was to set up the ATS, (b) the contract for supply of equipment and software would have been of no consequence without installation and performance services, (c) the dates of payment for the supply contract were connected with the service contract and (d) it was difficult to segregate the contract from installation/service contract (Ishikawajima-Harima 288 ITR 408 (SC) referred);

(ii) The PE came into existence on clearance of the goods in India because after transfer of title outside India, the possession was handed over to the assessee for safe custody, installation etc. This required storage space and supervision which cannot be said to be preliminary or auxiliary activities in nature as the equipments were required to be installed;

(iii) The bifurcation of revenue into supply of equipment and software in the ratio of 30:70 had to be upheld because (a) though the software was embedded in the equipment and supplied as one package for one price, it was permissible to segregate the composite consideration into different components and (b) the assessee had not shown the segregation done by the customs authorities for imposing duty on the equipment and software (Rotem Company 279 ITR 165 (AAR) & Motorola 95 ITD 269 (SB) referred);

(iv) In a turnkey contract, in which the assessee is under obligation to supply the equipment and the software and also install them, the profit is taxable on completion of each milestone and not at the time of handing over the functioning system to the contracting party. The department’s argument that in a works contract, mere supply of equipment and software is of no consequence till installation and so profits should be taxed at that stage is not correct because even if “turnkey”, the taxable events in the execution of a contract may arise in several stages in several years if the obligations under the contract are distinct ones. The supply profits are consequently not taxable as it accrued on supply outside India;

(v)        On facts, as the supply of equipment and software constituted a milestone in the contract, the income therefrom arose in the year of shipment which was in an earlier year. It did not accrue or arise in the present year. As the PE came into existence when the equipment was handed over to it by the AAI, the profits from installation contract and services was taxable.
Raytheon Company vs. DDIT (ITAT Delhi)(www.itatonline.org)

S.9:      Income deemed to accrue  or arise in India- Salary to staff at Netherland ( S. 40 (a) (iii), 192).
Assessee did not deduct tax at source on salary payments made to staff at Netherlands. Assessing officer invoked the provisions of 40 (a) (iii) , and disallowed the payments made on the ground that the tax was not deducted under section 192.The  Tribunal held that since salaries had been paid to non-residents for services rendered abroad ,provisions of Explanation to section 9 (1) (ii) were not applicable to assessee. Since salary paid  to non resident’s for services rendered in Netherlands was not chargeable to tax in India , provisions of section 192 can not be applied hence disallowance made by applying the provisions of section 40(a) (iii) were  liable to be deleted. (Asst Year 2003-04).
Dy CIT v Mother Dairy Fruits & Veg (P) Ltd ( 2011) 45 SOT 186 (Delhi ) (Trib).

S.9:      Income deemed to accrue  or arise in India- Royalty or fee for technical services-Band width charges paid to foreign companies for data communication. ( S. 40(a) (i), 195).    
Where the assessee had made payments to service providers such as AT&T or MCI Telecommunications for use of band width provided for down linking signals in United States and it was found that the payments were not in the nature of managerial, consultancy  or technical services nor was it for use or right to use industrial , commercial or scientific ,equipment. The payment was not in the nature of royalty or fee for technical services assessee was not liable to deduct tax at source. (Asst Year 2004-05).
Infosys Technologies Ltd v Dy CIT ( 2011) 45 SOT 157 (Bang) (Trib).

S.9 : Income deemed to accrue and arise in India – Royalty or fee for technical services – For “Equipment Royalty” u/s 9(1)(vi), control of equipment by payer essential
(i)         The word “use” in relation to equipment occurring in clause (iva) of Expl to s. 9(1)(vi) is not to be understood in the broad sense of availing of the benefit of an equipment. The context and collocation of the two expressions “use” and “right to use” followed by the word “equipment” indicate that there must be some positive act of utilization, application or employment of equipment for the desired purpose. If an advantage was taken from sophisticated equipment installed and provided by another, it could not be said that the recipient/customer “used” the equipment as such. The customer merely made use of the facility, though he did not himself use the equipment. What is contemplated by the word “use” in clause (iva) of Expl 2 to s. 9(1)(vi) is the customer came face to face with the equipment, operated it or controlled its functions in some manner. But if it did nothing to or with the equipment and did not exercise any possessory rights in relation thereto, it only made use of the facility created by the service provider who was the owner of the entire network and related equipment and there was no scope to invoke clause (iva) in such a case because the element of service predominated (ISRO Satellite 307 ITR 59 (AAR), Dell International 305 ITR 37 (AAR) & Asia Satellite 332 ITR 340 (Del) followed; Frontline Soft 12 DTR 131 (Hyd) held not good law);

(ii)        On facts, the banner advertisement hosting services did not involve use or right to use by the assessee any industrial, commercial or scientific equipment and no such use was actually granted by Yahoo (Hong Kong) Ltd to the assessee. Uploading and display of banner advertisement on its portal was entirely the responsibility of Yahoo (Hong Kong) and the assessee was only required to provide the banner Ad to Yahoo (Hong Kong) for uploading the same on its portal. The assessee had no right to access the portal of Yahoo (Hong Kong) and there was nothing to show any positive act of utilization or employment of the portal of Yahoo (Hong Kong) by the assess
Yahoo India Pvt. Ltd. Vs. DCIT (ITAT Mumbai) (www.itatonline.org)

S.10B:   Exemption-Export oriented undertaking-Actual export.
Assessee hundred percent export oriented undertaking (EOU),which has commenced production prior to 1st  April 1994, exemption under section 10B was allowable even if its export was less than seventy five percent as under the pre amended provisions , the benefit was available by mere obtaining a certificate of EOU under the IDR Act. (Asst Year 1999-2000)
CIT v Baehal Software Ltd (2011) 240 CTR 316 (Kar) (High Court).     

S.10B (6)(ii):     Exemption- Depreciation- Unabsorbed- Carry forward and set off-Exempted income ( -Income from other sources.(S.32(2),56,72(2) ).
Assessee being entitled to deduction under section 10B up to asst year 2005-06, provisions of section 10B (6)  are not applicable in the relevant asst year ie 2004-05 and therefore unabsorbed depreciation brought forward from asst year prior to asst year 2000-01 can be set off against business income or against any other head of income including income from other sources.(Asst year 2004-05)

Dy CIT v Akay Falvours & Aromatics (P) Ltd ( 2011) 55 DTR 1/ 130 ITD 219 (Coch) (TM) (Trib).

S. 12A: Charitable Trust – Registration as Public Trust not necessary for S.12A “Charity” registration.
Registration as a Public Trust is not a condition precedent for grant of registration u/s. 12A. There is no requirement in the Income-tax Act that the institution constituted for advancement of charity, must be registered as a turst under the Public Trusts Act.
Agriculture Produce and Market Committee 291 ITR 419 (Bom) & Disha India Micro Credit (Del.), followed.
Grameen Initiative for Women v DIT (E), (ITAT) (Mumbai) (www.itatonline.org)  

S. 12AA: Charitable Trust-Registration granted under section 12A can not be withdrawn in section 12AA(3).
Assessee trust got registration under 12A in December 1974 and on that basis got exemption of income tax for the Asst years 1996-97 to 2005-06. DIT (Exemptions) denied exemption and cancelled registration under section 12AA(3)  with effect from assessment year 2002-03.The court held that registration granted  under section 12A in  December 1974 to assessee could not be withdrawn. (Asst years 2002-03 to 2006 -07)
Director of Income Tax (Exemption) v Mool Chand Khairaiti Ram Trust (2011) 199 Taxman 1 (Delhi) (High Court).  

S. 28 : Capital gains – Shares PMS fee, even if NAV based, is deductible in computing PMS capital gains – (S. 48)
In computing capital gains u/s 48, payments are deductible in two ways, one by taking full value of consideration net of such payments and the other by deducting the same as “expenditure incurred wholly and exclusively in connection with the transfer”. The expression “full value of consideration” contemplates additions and deductions from the apparent value. It means the “real and effective consideration”, which can be arrived at only after allowing the deductible expenditure. The PMS fee, on profit sharing basis, was for the twin purposes of acquisition and sale of the securities. The fact that bifurcation between the two is not possible is not relevant. Accounting Standard 13 (Accounting for Investments) issued by ICAI provides that brokerage, fees and duties have to added to the cost of investments. (AY : 2004 -05 to 2006-07)
(CIT v Shakuntala Kantilal (1991) 190 ITR 56 (Bom) followed); Devendra Kothari (2011) 50 DTR 369 (Mum) (Trib) not followed)
KRA Holding & Trading P. Ltd. v DCIT (ITAT ) (Mum) (www.itatonline.org)

S.28(i): Business income- Adventure in the nature of trade-Purchasing land under acquisition by Government-Interest on compensation-Income from other sources. (S. 2(13), (2(14), 56.)
Compensation received on purchasing land notified for Acquisition by the Government, not held as capital asset was liable to be taxed as business income, as such transaction fall under definition of “adventure in the nature of trade” u/s. 2(13). Interest on compensation on compulsory acquisition of land is taxable as business income and not as income from other sources.  
Dy  CIT v Gopal Ramnarayan Kasat ( 2011) 240 CTR 266 / 54 DTR 228 (Bom) (High Court).  
S.28 (i): Business income- Subsidy –To meet the part of expenditure incurred- Revenue nature.
Subsidy received by Government to meet the part of the expenditure to be incurred for rectification and improvement of power line damaged due to cyclone will be revenue in nature.( Asst year 1987-88).
Dy CIT v A.P. State Electricity Board ( 2011) 130 ITD 1/ 138 TTJ 425 (Hyd) (TM ) (Trib).

S. 28 (1) Business income- Capital gains- Investment in shares-Despite borrowing, shares gain can be STCG & not business profits.
The fact that the assessee borrowed for the purpose of buying shares is not conclusive that the assessee intended to do business in shares and not merely invest in them if the interest is capitalized as cost of the shares & not claimed as a revenue expenditure (Shanmugam 120 ITD 469 (Pune) followed). The fact of borrowing cannot be held against the assessee if there are other predominating factors in favour. Also as the assessee has own funds, it can be presumed that the shares were bought out of those funds. (Asst  years 2005-06 & 2006-07)
Mahendra C. Shah vs Addl CIT ( Mumbai)(Trib) . www.itatonline.org.
Editorial : CIT vs. Gopal Purohit (2010) 228 CTR 582 (Bom).
S.L.P. rejected (2011) 334 ITR 308 (St.)

S. 28 (iv). Business income- Waiver of loan taken.
Waiver of loan taken by assessee for business activity , assessable as business income. (Asst year 2004-05).
Logitronics P. Ltd v CIT ( 2011) 333 ITR 386 ( Delhi) (High Court.)
CIT v Jubilant Securities P. Ltd ( 2011) 333 ITR 386 ( Delhi)( High Court).

S. 32(1) (ii): Depreciation- User for business- New aircraft ready  for the use.
Assessee obtained delivery of the new aircraft purchased by it in the later half of the relevant previous year and got the same insured, it  was held that the aircraft was made ready to use in business , hence depreciation was allowable.(Asst year 1996-97)
CIT v E.I.H. Ltd. ( 2011) 54 DTR 249 ( Cal) (High Court).

S.32(2): Depreciation- Unabsorbed- Carry forward and set off-Exempted income -Income from other sources. S.10B (6), 56, 72 (2)
Assessee being entitled to deduction under section 10B upto A.Y. 2005-06, provisions of section 10B (6) are not applicable in the relevant A.Y. ie 2004-05 and therefore unabsorbed depreciation brought forward from assessment years prior to A.Y. 2000-01 can be set off against business income or against any other head of income including income from other sources.(Asst year 2004-05)
Dy CIT v Akay Falvours & Aromatics (P) Ltd ( 2011) 55 DTR 1 / 130 ITD 41 (Coch) (TM ) (Trib).

S. 35 (1) (iv ): Expenditure on scientific research- Chapter  VI-A deduction – S. 80B (5) , 80 HH, 80I.
Deduction under section 35 (1) (iv) read with section 35 ( 2) has to be first allowed in computing of business income as a whole and thereafter deductions under section 80 HH  and 80I  have to be granted only from net income attributable to the eligible industrial unit.
CIT v Duroflex Coir Industries ( P ) Ltd ( 2011) 55 DTR 133 ( Ker) (High Court).

S. 36(1)(ii) – Business Expenditure – Section bars tax avoidance scheme of paying commission instead of dividend.
(i) The argument that s. 36(1)(ii) is applicable only to employees who are not shareholders is not acceptable because payment of dividend to shareholders is not compulsory. S. 36(1)(ii) applies to all employees including shareholder employees though the disallowability is restricted to partners and shareholders because it is only in those cases that payment can be said to be in lieu of profit or dividend;

(ii) The argument that as no dividend was “payable”, s. 36(1)(ii) does not apply is not acceptable because the word “payable” does not mean that dividend should be statutorily or legally payable. Since payment of dividend is discretionary and not compulsory, any such construction will lead to absurd results. The word “payable” means that dividend would have been declared by any reasonable management on the facts and circumstances of the case considering the profitability and other relevant factors and become payable to shareholders. If a reasonable conclusion can be drawn that the dividend ought to have been paid and that instead of paying dividend, commission was paid, s. 36(1)(ii) would be attracted;

(iii) On facts, there is no evidence to show that the directors had rendered any extra services for payment of huge commission in addition to services rendered as an employee for which salary was paid. Further, though the turnover and the profit was exceptionally high as compared to the earlier years, this was because of the stock market boom. The assessee being a share broker gets commission on sale/purchase of shares by investors/traders and its income is assured irrespective of whether the investor/ trader loses or gains in the transaction. The steady rise in performance was due to improved market conditions and not because of any extra service rendered by the directors. Also, no dividend was declared even though any reasonable management would have declared at least about 20% dividend in the years when there were substantial profits;

(iv) The device adopted by the assessee was obviously with the intention to avoid payment of full taxes. There is obvious tax avoidance. S. 36(1)(ii) is intended to prevent escape from taxation by describing the payment as bonus or commission when in fact it should have reached the shareholders as profit or dividend (Loyal Motor 14 ITR 647 (Bom) referred)
Dalal Broacha Stock Broking Pvt Ltd vs. ACIT (ITAT Mumbai – Special Bench)(www.itatonline.org)

S. 36 (1) (iii): Business expenditure- Interest on borrowed capital-Advance to sister concern- Mutual accommodations- Commercial expediency.
When there is mutual accommodation by both parties in terms and lending and borrowing  from each other, the assessees claim of commercial expedient  has to be accepted. (Asst year 2004-05).
Ramkishin Textiles P. Ltd v ITO ( 2011) 9  ITR (Trib) 321 (Mumbai) (Trib).

S. 36 (1)(vii):Bad debt- Business expenditure –Alternative claim- If  “bad debt” not allowable u/s 36(1)(vii), claim for deduction u/s 37(1) can be raised for first time even before High Court . – S. 37 (1).
If loss of debt does not come within S. 36(1)(vii), a claim can be made u/s. 37(1). Merely because claim was made under one provision of Act and not under another provision, it does not debar the assessee from claiming deduction u/s. 37(1) even if it was not raised before lower authorities.
Mohan Meakin Limited vs CIT (Delhi) ( High Court). www.itatonline.org.
S. 36 (1)(vii): Bad debt- Business loss-If Not ‘Bad Debt’, ‘Business Loss’ claim sans specific ground invalid ( S. 28 (i).Rule 27 )
Before the Tribunal, the assessee raised a ground only on “bad debt” (and not “business loss”). At the hearing, it conceded the claim for “bad debt” and pressed for the claim for “business loss”. The Tribunal held that the claim regarding “business loss” cannot be entertained because, though the CIT(A) has dealt with the issue, there is no specific ground. The claim is also not maintainable under Rule 27 since that applies only to a Respondent in the appeal. (Asst year 2003-04).
Manori Properties Pvt. Ltd. vs ITO ( Mumbai)( Trib) www.itatonline.org.
Editorial : A contra view, in the same fact-situation, was taken in Mohan Meakin vs. DCIT (Delhi High Court) www.itatonline.org. The High Court held that if grant of relief on another ground is justified, the Tribunal would be under a duty to grant that relief.

S. 36 (1) (vii):  Bad debts – Assessee only to write  it off as bad  debt- Not required to prove that debts had became bad.
A mere write-off of bad debt was sufficient under section 36 (1)(vii) and that it was not necessary for the assessee to establish that debt had actually become bad. The law settled by the Supreme Court was binding on all including the Assessing Officer , under article 141 of the Constitution of India. (T.R.F. Ltd v CIT (2010) 323 ITR 397 (SC). ( Asst year 2005 -06).
Assst. CIT v Safe Enterprises ( 2011) 9 ITR ( Trib) 553 (Mumbai )(Trib). 

S. 37(1):  Business expenditure-Capital or revenue- Expenditure on abandoned expansion plans.
The assessee had incurred expenditure on engaging services of consultants for improving operational  efficiencies inextricably linked to the existing business. The project was abandoned, with no new asset to be created. The expenditure held to be revenue expenditure.  ( Asst year 2000-2001)
Indo Rama Synthetics India Ltd v. CIT (2011) 333 ITR 18 (Delhi) (High Court). 
Editorial:  SLP rejected (2010) 328 ITR (St) 9 (SC).

S. 37 (1): Business expenditure-Professional’s heart surgery expense not deductible. (s. 31).
Expenditure incurred on heart operation was not deductible u/s. 31 as also 37(1) because of following reasons:

(i) Heart cannot be considered plant as it did not have any mention in assessee’s balance sheet under assets and its cost of acquisition could not be determined.

(ii) Deduction u/s. 37(1) cannot be granted as the expenditure incurred does not have any immediate or direct nexus between the expenses incurred on surgery and his efficiency in the professional field per se.  

Shanti Bhushan vs CIT (Delhi) ( High Court). www.itatonline.org.

S.37 (1): Business expenditure- Payment to bank as guarantor- Loan of subsidiary company- Surety.
As per the development agreement the assessee was obliged  to convey marketable title to the purchasers of the flats to be built on a property. Assessee paid money to the bank as surety to discharge the loan obtained by its sister concern so as to secure release of the aforesaid property which was mortgaged with the bank. The payment was to avoid breach of terms of the development agreement. The said payment is allowable as business expenditure.( Asst Year 1993-94).
CIT v Rudra Industrail Commercial Corporation ( 2011) 55 DTR 5 ( Kar) (High Court).

S.37 (1) : Business expenditure- Capital or Revenue-Rectification and improvement of power line- Revenue expenditure.
Expenditure incurred by assessee on rectification and improvement of power line was a revenue expenditure , even if ,it was spent out of subsidy amount received from Government.( Asst year 1987-88).
Dy CIT v A.P.State Electricity Board ( 2011) 130 ITD 1/ 138 TTJ 425 (Hyd) (TM) (Trib).          

S.37(1): Business expenditure- Company- Disallowance- Vehicles and telephone expenses of Directors.
There is no personal usage by  the company ,hence no disallowance can be made on account of personal use of the vehicles /telephone by the directors /officials of the company.(Asst year 2004-05).
 Ramkishin Textiles P. Ltd v ITO ( 2011) 9  ITR (Trib) 321 (Mumbai) (Trib).
S. 37 (1). Business expenditure- Capital or revenue- Royalty for use of logo.
Payment made by the assessee for non exclusive user of logo based on turnover and not lump sum payment is allowable as revenue expenditure. ( Asst year 2006-07).
Asst CIT v Shriram Transport Finance Co Ltd ( 2011) 9 ITR ( Trib) 543 (Chennai) (Trib).

S.40 (a) (iii). Amounts not deductible-Tax deduction at source-Income deemed to accrue  or arise in India- Salary to staff at Netherland ( S.9, 192).
Assessee did not deduct tax at source on salary payments made to staff at Netherlands. Assessing officer invoked the provisions of 40 (a) (iii) , and disallowed the payments made on the ground that the tax was not deducted under section 192.The  Tribunal held that since salaries had been paid to non-residents for services rendered abroad ,provisions of Explanation to section 9 (1) (ii) were not applicable to assessee. Since salary paid  to non resident’s for services rendered in Netherlands was not chargeable to tax in India , provisions of section 192 can not be applied hence disallowance made by applying the provisions of section 40(a) (iii) were  liable to be deleted. (Asst Year 2003-04).
Dy CIT v Mother Dairy Fruits & Veg (P) Ltd ( 2011) 45 SOT 186 (Delhi ) (Trib).

S. 41 (1).Profits chargeable to tax-Income- Business income- Remission of liability.
Investment company has taken loan and invested in long term shares. As there  was no communication and claim for many years by lenders and unsecured loan written back . No deduction was claimed in respect of loan . Amount written back cannot be assessed as business income under section 41 (1).( Asst year 2004-05).
Logitronics P. Ltd v CIT ( 2011) 333 ITR 386 ( Delhi) (High Court.)
CIT v Jubilant Securities P. Ltd ( 2011) 333 ITR 386 ( Delhi)( High Court).

S. 43 (5): Speculative transactions-Derivative.-Future contracts for purchase / sale of securities.
Losses incurred from the Exchange traded derivative transactions  carried  on by the assessee during  relevant assessment year are speculative transactions covered under section 43 (5) of the Act and the loss incurred in those transactions are liable to be treated as speculative  loss.  Section 43 (5) is not restricted to contracts which are capable of performance by actual delivery , and therefore , fact that futures contracts settled otherwise than by actual delivery cannot be a ground to hold that futures contracts are not speculative transactions under section 43 (5).  Clause (d) inserted in proviso to section 43 (5) with effect from 1-4-2006  is prospective  in nature and ,therefore , transactions covered under clause (d) are deemed not be speculative transactions only with effect from 1-4-2006. ( Asst year 2003-04).
CIT v Bharat R.Ruia ( HUF)( 2011) 199 Taxman 265/ (2011) vol 113 (3) Bom. L.R. 1499.    

S. 43 (5).Definitions- Speculative transaction- Post s. 43(5) amendment, pre-A.Y. 2006-07 derivatives “speculation” losses have to be treated as “non-speculation” business losses for purposes of set-off.
(i)         When an assessee suffers a loss in business, speculative or non-speculative, he has a statutory right to carry forward the unabsorbed loss and set it off against profits and gains from the same business for the next year. The true nature of the loss has to be determined in the year of set-off. A finding as to the character of the loss reached in the year of incurring the loss is not binding in the year of set-off of the loss, even though the assessment may have reached finality. As such dual characterization is permissible (Manmohan Das 59 ITR 699 (SC) & Western India Oil Distributing Ltd 126 ITR 497 (Bom) followed);

(ii)        Though, as held in CIT vs. Bharat Ruia, derivatives transactions, prior to the amendment to s. 43(5) w.e.f. AY 2006-07, are “speculative transactions” and the losses suffered therefrom are “speculative losses”, the question whether they are eligible for set-off has to be determined as per the law prevailing in the year of set-off. As in the year of set-off, derivatives transactions are not, pursuant to the amendment to s. 43(5), treated as “speculative transactions”, the losses incurred prior to the amendment have to be treated as normal business losses and are eligible for set-off against all business income in accordance with s. 72 (Shreegopal Purohit 33 SOT 1 distinguished);

(iii)       Also, the question whether the assessment order is erroneous or not has to be determined as per the then prevailing law and as it was then held that the amendment to s. 43(5) was clarificatory and that derivative transactions were not speculative transactions, the order was not erroneous (G.M. Stainless Steel 263 ITR 255 (SC) followed)( Asst year 2006-07)

Gajendra Kumar T Agarwal vs ITO ( Mumbai)( Trib). www.itatonline.org.

S. 45: Capital gains- Transfer- Assignment  or release of interest by retiring partner in favour of continuing partner. S. 2(47). 47 (ii).
The continuing partners agreed to pay to the retiring partner for assigning  or release of interest by retiring partner in favour continuing partners, transaction would amount to  a transfer within the meaning of section 2 (47).If the retiring partner is paid something over and above sum standing to credit of his capital account ,there would be a  capital gain chargeable to tax. In view of amendment carried out by Finance Act ,1987 by omitting section 47 (ii) ,profits or gains arising from transfer of a capital asset by a firm to a partner on dissolution or otherwise would be chargeable as firm’s income in previous year in which transfer took place and for purposes of computation of capital gains , fair market value of consideration received or accruing as a result of transfer. ( Asst year 2007-08).
Sudhkar M. Shetty v Asst CIT ( 2011) 130 ITR 197 (Mum) (Trib).

S.45:  Capital gains – Short term capital gains – Market value.
Assessee acquired 10 percent of share holding in company at par value in exchange for shares in two companies  also at par. Mauritius  Company acquired 45 percent of share holdings in same company at premium . There was no proof that transactions were linked in same chain. There was no proof that market value of shares at time of purchase by assessee was higher than price paid by him. Additions made by the assessing officer by taking price paid by Mauritius company as market value  was deleted.( Asst year 2004-05).
Athappan Nandakumar v ITO ( 2011) 9  ITR (Trib) 436 (Chennai) (Trib). 

S.45: Capital gains- Transfer of shares-Wholly owned subsidiary-Without consideration( S. 48, 92, 92C, 195).
Transfer of shares to subsidiary company without  consideration , would not attract liability  to tax under section 45 read with section 48 , as the consideration is inapplicable on the date of transfer , as no income is chargeable to tax ,provisions of section 195 or provisions of sections 92 to 92 F would not apply. 
Good Year Tire & Rubber Co, IN RE. ( 2011) 240 CTR 209/ 54 DTR 281/ 334 ITR 69 (AAR).

S.45 (2). Capital gains- Computation-Cost of inflation index- Conversion of immovable property  in to stock in trade. ( S 48.)
Assessee firm converted its immoveable property in 1987-88 into stock in trade and developed by entering into an agreement with developer. Revenue did not treat the said arrangement as a transfer at that stage. Capital gains arising on sale of flats and registration of deeds in 1992-93 is to be computed by applying the cost of inflation index as applicable to Asst year 1992-93 and not that applicable in 1987-88. ( Asst year 1993-94).
CIT v Rudra Industrial Commercial Corporation  (2011) 55 DTR 5 (Kar) (High Court).

S.47(iv): Capital gains – Capital loss-  Transfer of  business and work in progress-100 percent subsidiary.
Assessee transferred business and work in progress to hundred percent subsidiary, which is Indian Company. In view of provisions of section 47 (iv), capital gains on such transfer of capital asset was not chargeable to tax. At the same time loss arising on transfer of business assets would also not be allowed as deduction. (Asst year 2003-04).
Dy CIT v Mother Dairy Fruits  & Veg (P) Ltd ( 2011) 45 SOT 186 (Delhi) (Trib).

S. 48:  Capital gains- Cost of acquisition-Land Acquired by succession from ex-Ruler – Cost of acquisition of previous owner not ascertainable- Cost of acquisition to be taken market value. (S. 49, 55(2), 55( 3).
For the assessment years 1997-78 and 1979-80 , the assessee sold plots of land for consideration. The assessee contended that the previous  owner was an ex ruler of Pepsu State and since the asset was acquired under the instrument of annexation its cost of acquisition could not be ascertained and that capital gains tax  was not attracted . The Assessing Officer assessed the capital gains taking the market value as on January 1, 1954 or January 1, 1964 as the cost of acquisition depending on the dates specified under section 55 (2) of the as applicable to the assessment year. On appeal the Tribunal  following the judgment  of B.C. Srinivasa Setty ( 1981) 128 ITR 294 (sc), accepted the contention of assessee. On reference the High Court held that  the contention that the value was inapplicable being ascertained , was not tenable . It was not the case of the assessee that the land had no market value at all on the date of acquisition . Even where the cost of acquisition of capital asset cannot be ascertained but the asset has a market value , capital gains tax will be attracted  by taking  the cost of acquisition  to be fair market value as on January 1, 1954  or on a date  statutorily specified or at the option by assessee , market value on the date of acquisition .( Asst years 1977-78 , 1979-80).
CIT  v Raja Malwinder Singh ( 2011) 334 ITR 48 ( P &H) (FB) (High Court). 

S. 48. Capital gains- Cost of acquisition- Sale of original and bonus share. (S.55 (2) (b).
Capital gains on sale of original and bonus  shares have to be computed by  spreading the cost of acquisition of original shares over the original shares and the bonus  shares. ( Asst year 1990-91).
M.B. & CO Ltd v Asst CIT ( 2011) 55  DTR 76 (Mad) (High Court).

S.50B: Capital gains- Slump sale-Sale of undertaking- Notional depreciation. (S. 43 (6)(c)(i)(c)).
When assessee transferred its entire assets by way of slump sale , depreciation for earlier assessment year which was not claimed  by it cannot be notionally allowed in computing the capital gains under section 50B , provisions of sections 43(6)(c)(i)(c) (b) have no application where the entire  assets forming part of block are sold by way of slump sale.( Asst Year 2001-02)
Dharmpal Satyapal Ltd   v Dy CIT ( 2011) 138 TTJ 74 (Del) (Trib).  

S.50C: Capital gains- Stamp valuation officer – District Valuation Officer. (DVO).
The DVO determined fair market value at Rs 46.48 lakhs , which is lower than the value for the purpose of stamp duty at Rs 1.18 Crores. As per the provisions of section 50C (2)  the capital gains is required to be computed by considering the fair market value of the property which was at Rs 46,48,781 as the full value of the consideration received or accruing to the assessee as a result of the transfer of capital asset. Assessing Officer cannot disregard the value determined by the DVO under section 50 ( C) (2)  read with 16A of the wealth tax Act and proceed to compute long term capital gain in accordance with the value determined by stamp valuation authority.( Asst year 2005-06).
Bharati Jayesh Sangani v ITO ( 2011) 55 DTR 212 (Mumbai)(Trib).

S. 56(2)(viia) : Income from other sources-Receipt of shares without consideration- Shares of quoted company.( S. 92 to 92F).
Applicant is to receive contribution of shares of GIL without consideration. GIL is a company in which public are substantially interested and its shares are listed on BSE ,  therefore no income is liable to tax within the meaning of section 56 (2) (viia). Consequently ,provisions of sections 92 to 92 F are not applicable.
Good Year Tire & Rubber CO IN RE. (2011) 240 CTR 209/54 DTR 281 (AAR).

S.68: Cash credits- Existence of books of account.
Where the assessee had not maintained books of account, there was no legal scope to invoke provisions of section 68. Existence of books of account by assessee is a condition precedent for making addition under section 68.
Madhu Raitani v Asst CIT ( 2011) 45 SOT 231 ( Gau) (TM ) (Trib).

S.72: loss – Carry forward and set off- Exemption. S. 10B (6), 10B (8).
Where the assessee had forfeited the claim under section 10B because they were     de-bonded by the Development Commissioner and hence in the Income return filed for the Asst year 1999-2000  deduction under section 10B  was not claimed , the tribunal held that technically non compliance of section 10B (8) should not deprive the assessee from claiming the benefit of carry forward of business loss computed for that year ( Asst Year 1999-2000).
CIT v Torry Harris Sea Foods ( P) Ltd ( 2011) 55 DTR 239 ( Ker) (High Court).

S.73: Speculation loss-Shares valuation of closing Stock- Trading in shares- Investment- Capital gains.- Company.
Loss from valuation of closing stock cannot be excluded while determining the loss from share  trading business , therefore , Explanation to section 73 is applicable even to the loss arising from the valuation of closing stock of shares.

If the shares are held  by the assessee company as investment and not as stock in trade, the second condition of Explanation to section 73 Viz . business of purchase and sale of shares is not satisfied and therefore , capital gain arising from the sale of shares held as investment is not hit by Explanation  to section 73. (Asst year 2001-02).
Krishna Lakshmi  Multi Trade (P) Ltd v Asst CIT ( 2011) 55 DTR 167 / 138 TTJ 623 ( Ahd) (Trib).  

S.80: Return of loss- Carry forward of unabsorbed depreciation (S.32 (2), 139(3).
Period of limitation for filing loss return not applicable for carrying forward of unabsorbed depreciation. Section 80 and 139 (3) apply to business loss and not to unabsorbed depreciation governed under section 32 (2).( Asst years 2001-01 , 2001-02 ).
CIT v Govind Nagar Sugar Ltd ( 2011) 334 ITR 13 ( Delhi) (High Court).

S.80IA: Deduction-Manufacture –Production-Coating with oxides of noble metals on titanium metal electrode / anode.
Coating with oxide of noble metals on titanium metal electrode / anode bringing about in its character and use for making it fit for use in the production of chlorine and caustic soda in an electrolytic process is manufacture or production of article or thing within the  meaning of section 80 IA and entitled to deduction.( Asst year 1994-95).
Titanor Components Ltd v CIT ( 2011) 55  DTR 157 ( Delhi) (High Court).

S.80IB: Deduction- Small scale industrial undertaking-Not claiming the relief in initial year cannot be the bar for claiming in later years.
Registration of an Industrial undertaking as a small scale industrial undertaking under Industries (Development and Regulations) Act , 1951 , is not a condition precedent for treating the same as a small –scale industrial undertaking and it is sufficient if it fulfills the eligibility criteria for being regarded as a small scale industrial undertaking for the purposes of said Act. Assessee cannot be deprived the benefit of section 80IB merely because he has not claimed such benefit in the initial year in which he was eligible to claim the benefit.(Asst year 2004-05).
Praveen Soni v CIT ( 2011) 54 DTR 334 (Delhi) (High Court).

S.80IB (10): Deduction- Housing Project-Property developer- Owner- Car parking area.
Assessee a property developer paying full consideration to land owner and building housing project, all work in connection with project done by assessee, assessee is considered as  de facto  owner of land , assessee is entitled to deduction under section 80IB (10).   Car parking area  not to be included in reckoning  permissible area of residential area. ( Asst Years 2001-02 , 2005-06)
Asst  v C. Rajini (Smt) ( 2011) 9 ITR ( Trib) 487 (Chennai)( Trib).
Dy CIT v C.Subba Reddy (HUF) ( 2011 ) 9  ITR (Trib) 487 (Chennai)(Trib). 

S.80IB (10): Deduction- Housing project- Built up area of two units exceeded 1500 square feet- Assessee not entitled  for deduction.
The assessing officer conducted spot enquiry and physical inspection revealed that  individual residential unit measuring less than 1500 sq feet in built  up area on paper was never meant to be sold as such but was always to be sold together with adjoining unit. The built up area of the two units exceeded 1500 sq feet . Assessee had only one electricity meter for two adjacent flats . All 104 units have been sold to adjoining pairs to 52 families and the buyers have been shown either same persons or husband and wife and only one entity  was shown in the broucher for two flats . The Tribunal held that CIT (A)  was justified in confirming the order of Assessing Officer refusing to grant deduction under section 80IB (10). (Asst year 2003-04).
Thistle Properties (P) Ltd v Asst CIT ( 2011) 55 DTR 81 / 138 TTJ 538 (Mumbai) (Trib). 

S.90: Double taxation Relief- Liaison office- DTAA- India- South Korea.   (Art 5.).
Liaison office of South Korean company carrying on commercial activities of identifying the buyers, negotiating with the buyers, agreeing  to the price ,procuring purchase orders and forwarding the same to the head office and the follow up activities relating to realization of payments from customers and offering after sales support is a PE as defined under art 5 of the DTAA between India and South Korea and therefore ,the business profits earned in India through this liaison office are taxable in India. ( Asst years 2001-02 to 2006-07).
Jebon Corporation India Liaison Office v CIT ( 2011) 55  DTR 113 ( Kar) (High Court).

S. 92: Avoidance of tax- Transfer  Pricing-International transaction-Arm’s length Price- Debit balances
A continuing debit balance in the account of the Associated Enterprise by itself does not amount to an international transaction under section 92B in respect of which arm’s length price adjustment can be made. Even assuming that the continuing debit balances of AEs can be treated as “International Transactions” the right course of applying the CUP method would  have been by comparing this not charging of interest with other cases in which other enterprises have charged the interest , in respect of over dues in respect of similar business transactions, with independent enterprises. As no exercise has been carried out addition was deleted.( Asst year 2004-05).
Nimbus Communications v Asst CIT ( 2011) 43 SOT 695/ 55  DTR 163 (Mumbai ) (Trib).

S. 92 C. Avoidance of tax- Transfer Pricing principles on use of multi-year data, turnover filter, risk adjustment & +/- 5% adjustment
(i) If the Transactional Net Margin Method (“TNMM”) is adopted, the comparison has to be made between the net margin realised from the operation of the uncontrolled parties’ transaction and net margin derived by the assessee on similar international transactions. The comparison should be between the net margins on transaction basis and not at enterprise level;

(ii) U/s 92CA(3), the TPO is entitled to consider material in public domain which, though not available to the assessee at the time of the TP study, is relevant for the financial year;

(iii) Ordinarily only the data pertaining to the financial year of the transaction can be considered. The proviso to Rule 10B (4) which permits the use of data relating to other than the financial year in which the international transaction has been entered into; being not more than two years prior to such financial year does not mean that one can insist on the use of multi-year data but it has a limited role only when the data of earlier years reveal facts which could have influenced on determination of the TP in relation to the transaction being compared. As the assessee has not made out a case that taking the data for only the current financial year will not present the correct and fair financial result of the comparables, the claim for multi-year data cannot be entertained;

(iv) While in principle, comparables having an abnormal difference of turnover and distorted operating profits have to be excluded for determining the ALP, the claim that as the assessee revenue is about Rs. 20 crores, comparables having more than 50 crores and less than 5 crores of turnover should be excluded is not acceptable because no specific fact has been brought on record to show that due to the difference in turnover the comparables become non-comparables. It is accepted economic principle and commercial practice that in highly competitive market condition, one can survive and sustain only by keeping low margin but high turnover. Thus, high turnover and low margin are necessity of the highly competitive market to survive. Similarly, low turnover does not necessarily mean high margin in competitive market condition. Therefore, unless and until it is brought on record that the turnover of such comparables has undue influence on the margins, it is not the general rule to exclude the same that too when the comparables are selected by the assessee itself;

(v) The argument that an adjustment should be made for difference in function and risk level is not acceptable because the assessee has not brought on record how such functional difference and risk has influenced the result of the comparables with quantified data. Further, the +/-5% adjustment as the 2nd Proviso to s. 92C is intended to adjust for such differences;

(vi) The department’s argument that the amendment by FA 2009 w.e.f. 1.10.2009 to the 2nd Proviso to s. 92C with regard to the +/-5% variation from the arithmetic mean of the ALP is clarificatory and procedural and so retrospective is not correct.
Symantec software Solutions Pvt. Ltd. vs ACIT (Mumbai)(Trib). www.itatonline.org.

S. 92C. Avoidance of tax-Transfer Pricing principles on use of multi-year data, adjustment to operating profits & +/- 5% adjustment.
(i) The rejection of comparables on the ground of non-availability of current year’s financial data is proper because under Rule 10B(4), only the current year’s financial data is relevant for determination of ALP except where it is shown that the data of the earlier two years reveals facts which could have an influence on the determination of the transfer price;

(ii) A selected comparable should be functionally comparable. A company which is majorly dealing in other segments cannot be accepted as functionally comparable;

(iii) There is no principle of law that if only one comparable remains, the entire exercise would fail;

(iv) The argument that expenses incurred prior to the commencement of manufacturing activity hence should be excluded from operating expenses under Rule 10B(1)(e)(i) is not acceptable because operational expenses is that which is incurred to earn that income. Expenses with nexus with revenue have to be considered as operational expenses and cannot be excluded only on the ground that the date of occurrence of the revenue is later and expenses have been incurred prior to that;

(v) The assessee’s argument that the margins have to be recomputed after claiming adjustment of capacity utilization is not acceptable. Under the TNMM, the net profit margin actually realized has to be considered and there is no room for any assumption for taking the profit margin. It is not permissible to deviate from the book results on the ground of capacity utilization. Under Rule 10B(3)(ii), there cannot be any deviation in the net profit shown in the books of account and the adjustment, if any, can be made to the same to eliminate the material affects to such differences to the extent of these adjustments are reasonably accurate. As no credible and accurate information with regard to capacity utilization was furnished, adjustment was not allowable;

(vi) The Proviso to s. 92C which gives the assessee the option to adjust the ALP by +/- 5% is applicable only where more than one price is determined by the most appropriate method. In a case where only one price is determined by the most appropriate method, the benefit of +/- 5% is not available to the assessee. ( Asst year 2006-07).
Haworth (India)Pvt. Ltd. vs DCIT ( Delhi) (Trib) . www.itatonline.org.

S. 92C. Avoidance of tax – Transfer Pricing – Loss / High – Profit cost need not per se be excluded.
The assessee rendered three services to its AE and while it received a mark-up for “application of technical development services” and “promoting the licensing of technology”, it did not receive any mark-up for “application research”. The argument that the three activities should be aggregated to determine the ALP is not acceptable because the entire benefit of the “application research” was retained by the AE and not shared with the assessee and so there was no justification for not compensating the assessee;

While in principle, it is correct that if loss making units are excluded, abnormal profit making units should also be excluded, on facts, the TPO had rightly rejected the loss making companies as not being comparable. In principle, neither loss making units nor high profit making units can be eliminated from the comparables unless, there are specific reasons for eliminating the same which is other than the general reason that a comparable has incurred loss or has made abnormal profits.
Exxon Mobil Company India Pvt. Ltd. vs. DCIT (ITAT) (Mum) (www.itatonline.org).

S.94 (7). Avoidance of tax- Transaction insecurities-Conditions.
Entries and treatment in the assessee’s books of account is not relevant. Loss on valuation has no place in section 94 (7).Amendment in section 94 (7) , brought by the Finance Act , 2004 should be applied prospectively is not sustainable.( Asst year 2005-06)  
Ashok Kumar Damani v Addl CIT ( 2011) 138 TTJ 45 / 130 ITD 287 (Mumbai) (Trib).

S.115JB: Book profits- Company-Undertaking –Special categories.(S. 80IC.)
Section 115JB will apply to an assessee being a company , even if it is entitled to deductions mentioned in section 80IC.
Sidcul Industrial Association v State of Uttarakhand .( 2011) 199 Taxman 75 (Uttarakhand) ( High Court).

S. 139 (5): Revised return- Intimation .( S. 143 (1)(a)).
An intimation under section 143 (1) (a) of the Act  cannot be equated with an assessment framed under section 143 (3) of the Act and the Assessing Officer cannot refuse to process the revised return and modify the intimation in accordance with section 143 (1B)  of the Act.( Asst year 1995-96).
CIT v Himagiri Foods Limited ( 2011) 333 ITR 508 ( Delhi) (High Court). 

S. 143 (2): Assessment- Validity of notice-Not pressed before CIT (A)- Cannot press the ground after gap of five years.
Assessee contended  that it did not receive notice issued under section 143 (2), Assessee’s representative attended and assessee has  not  raised the issue of service of notice before the Assessing Officer. The ground was taken before the CIT (A) and the same was not pressed. The Tribunal held that the assessee cannot press the ground after gap of five years.( Asst year 2003-04).
Thistle Properties (P) Ltd v Asst CIT ( 2011) 55   DTR 81 (Mumbai ) (Trib).    

S.148:  Reassessment-Validity –Notice-Amendment- Finance Act ,2006. (S. 143 (2), 153(2).).
As per Finance Act , 2006 , with retrospective effect from 1st  Oct. 1991, all such notices which have been served under sub (2) of section 143 , after expiry of 12 months, have been saved. Thus, notices under  sub section (2) of section 143 , in respect of  return furnished  during the period commencing from 1st  day of October, 1991 and ending on 30th  Sept , 2005 , have been saved provided such a notice is issued before the expiry of time – limit for making the assessment or reassessment as specified in sub section 2 (of section 153, hence reassessment held to be valid. (Asst years 2000 -01 to 2002-03)
Dy  CIT v  Gopal Ramnarayan Kasat ( 2011) 240 CTR 266/54 DTR 228 (Bom) (High Court).

S. 148: Reassessment- Notice-Limitation- Meaning of “issue”. ( S.149).
Notice for the assessment year 2003-04 was signed on 31-3-2010 and sent to speed post centre on 7-4-2010.The court held that date of issue would be date on which notice was handed over for service to proper officer ,hence notice was barred by limitation.
Kanubhai M Patel (HUF ) v Hiren Bhatt or his successors to  Office and others (2011) 334 ITR 25 (Guj) (High Court).

S. 148: Reassessment- Notice- Old address- Participates in assessment proceedings. ( S.149, 292BB.).
When assessee does not raise objection regarding non issue of notice and appears before the Assessing officer and assessing officer gives copy of notice under section 148, Assessee participates in the assessment proceedings. The service of notice even at the old address of the assessee constitutes service of notice with in ambit of section 148. What is contemplated under section 149 is the issue of notice under section 148 and not the service thereof on the assessee and the service of notice under section 148 is only required before assessment , reassessment or recomputation. (Asst. year 1999-2000).
CIT v Three Dee Exim ( P) Ltd. ( 2011)  55 DTR 147 ( Delhi) (High Court).

S. 148. Reassessment- Service of notice-  Service of notice on chartered accountant. (S 282.)
Service of notice under section 148 on a chartered accountant  who was not empowered to receive such notice on behalf of the assessee company or any other person who was not authorised  to receive was not a valid service  of notice on the assessee , more so when it was not shown that the assessee was  keeping out of way for the purpose of avoiding service of notice or that there was any other reason that the notice could not be served on the assessee  in the ordinary way and therefore , assessment completed pursuant to said notice was bad in law. ( Asst year 1999-2000).
Harsingar Gutkha (P ) Ltd v Dy CIT ( 2011) 138 TTJ 318 (lucknow) (Trib).
 
S.149: Reassessment- Time limit – Issuance of notice. ( S.148.)
Section 149  only requires issuance of notice under section 148 , within limitation period and it can be served on proper person subsequently, i.e. after expiry of limitation period.( Asst year 1998-99).
ITO v Sikandar Lal Jain ( 2011) 45 SOT 113 (Agra ) (TM ) (Trib).     

S. 153C: Search and seizure-Assessment in case of any other person – Assessment sans “speaking” & “incriminating” documents void.( S. 132.)
For purpose of attracting S. 153C, the document seized must not only be a ‘speaking one’, but also prima facie ‘incriminating one’. The documents cannot be said “incriminating one”, merely because it contains the notings of entries which are already recorded in books of accounts or is subjected to scrutiny of Assessing officer in the past in regular assessment u/s. 143(3) of the Act.   
Sinhgad Technical Education Society vs ACIT (Pune)(Trib). www.itatonline.org.

S. 158BD:  Block assessment- Undisclosed income of any other person- order void if referring AO’s “satisfaction” not recorded.
Mere mention of the word ‘satisfaction’ in the order / note will not meet the requirement of the concept of satisfaction as used in S. 158BD. The Assessing officer must reach a clear conclusion that good ground exists for the Assessing officer of the third person to initiate proceedings as material before him shows or would establish “undisclosed income” of third person.
Manish Maheshwari vs. ACIT (2007) 289 ITR 341 (SC) followed.
CIT vs Radhey Shyam Bansal (Delhi) ( High Court).www.itatonline.org.

S. 158BD; Block Assessment- Recording of satisfaction-Prior to handing over of documents.
As no satisfaction has been recorded by the Assessing officer of the person with respect to whom the search was made, prior to handing over the documents to the Assessing Officer  of petitioner, the impugned notice under section 158BD is liable to be quashed.
Chandrakantbhai Amratlal Thakkar v Dy CIT ( 2011) 55  DTR 249 (Guj). (High Court).

S.158BD: Block Assessment- Search and seizure-Undisclosed income of any other person- Recording of satisfaction-Before completion of assessment of person searched. (S. 158BC.).
Recording of satisfaction for taking action against any other person under section 158BD  has to be between initiation proceedings under section 158BC and before completion of block assessment under section 158BC in case of person searched. Notice issued beyond period prescribed was bad in law.
CIT  v Praveen Fabrics (P) Ltd ( 2011) 198 Taxman 463 (Punj &Har) (High Court).
Editorial- View of  Delhi Special Bench in Manoj Aggrawal v Dy CIT ( 2008) 113 ITD 377 (Delhi) (SB ) (Trib), affirmed.  

S.159: legal representatives-Notice on dead person- Assessee- Reassessment.  (2 (7), 148.).
Assessing officer issued the notice under section 148 in the name of  assessee who already expired. The tribunal held that notice was not valid hence proceedings initiated under section 147 was quashed.(Asst year 1998-99).
ITO v Sikandar Lal Jain ( 2011) 45 SOT 113 (Agra) (TM ) (Trib). 

S.192: Deduction of tax at source – Salary – Amounts not deductible-Income deemed to accrue  or arise in India- Salary to staff at Netherland [S.9,40 (a) (iii)].
Where salaries had been paid to non-residents for services rendered abroad, provisions of Explanation to section 9 (1) (ii) were not applicable to assessee. Since salary paid  to non resident’s for services rendered in Netherlands was not chargeable to tax in India , provisions of section 192 cannot be applied hence disallowance made by applying the provisions of section 40(a) (iii) were  liable to be deleted. (Asst Year 2003-04).
CIT v Mother Dairy Fruits & Veg (P) Ltd ( 2011) 45 SOT 186 (Delhi) (Trib).

S.195: Deduction of tax at source- Income deemed to accrue  or arise in India- Royalty or fee for technical services-Band width charges paid to foreign companies for data communication. (S.9,  40(a) (i))    
Assessing officer held that assessee was required to deduct tax at source in respect of payments made to AT& T and MCI  Telecommunications were covered under section 195. Where payments are made to service providers such as AT&T or MCI Telecommunications for use of band width provided for down linking signals in United States and such payments are not in the nature of managerial , consultancy  or technical services nor for use or right to use industrial, commercial or scientific, equipment. Then the said payment are not in the nature of royalty or fee for technical services assessee and thus not liable to deduct tax at source.( Asst Year 2004-05).
Infosys Technologies Ltd v Dy CIT ( 2011) 45 SOT 157 (Bang) (Trib).
S.195: Deduction of tax at source – Non-resident – Capital gains- Transfer of shares-Wholly owned subsidiary – Without consideration (S.45, 48, 92, 92C, 195).
Transfer of shares to subsidiary company without  consideration, would not attract liability  to tax under section 45 read with section 48. As the consideration is inapplicable on the date of transfer , as no income is chargeable to tax ,provisions of section 195 or provisions of sections 92 to 92 F would not apply. 
Good Year Tire & Rubber Co, IN RE. ( 2011) 240 CTR 209 /54 DTR 281/ 334 ITR 69 (AAR).
S. 201 (1): Assessee in default- Tax deduction at source-Payee showing the sale consideration. ( S. 195, 201 IA.).
Once the payee acknowledges the receipt of the sale consideration , filed the return assessing the said amounts in his hands and paid tax , which is accepted by the department , the payer ceases to be assessee in default. (Asst year 2004-05).
CIT v Intel Tech India ( P) Ltd ( 2011) 55 DTR 173 ( Kar) (High Court).

S. 201 ( 1): Assessee in default- Demand notice ( S. 156,195,200, 201 (IA).
Where section 201(1) is attracted there is no need of giving any demand notice under section 156 , and if any such notice is given the same should be held to be redundant. Provisions of section 195, 200 and 201 , when conjointly read , deal with a liability which at no point of time , depends on passing any order under the Act  but is attracted immediately upon the happening of the default mentioned therein ,ie, failure to deduct tax or failure to credit the sum as required by section 200. As soon as such failure occurs liability arises automatically and there is no further requirement of computation or reassessment or service of notice of demand under section 156.   (Asst year 1995-96).
Pilcom v CIT ( 2011) 55 DTR 209 ( Cal) (High Court).

S.226: Recovery-Attachment of property-HUF- Liability of sons tax arrears of father.
Father having joined as a partner of a firm in his individual capacity and not representing the joint family ,only his 1/5 th share  in the joint family property alone was liable to be proceeded against for realization of tax arrears and not the four –fifth share of the sons , members undivided family , for recovery of the income tax arrears of father. (Asst years 1971-72 & 1972-73)
ITO v Tippala China Appa Rao & Ors ( 2011) 240 CTR 298 /54 DTR 260(AP) (High Court).

S.234B:  Interest- Difficulty faced while computing interest can be the ground for not to levy of interest.- Enhanced compensation.
The difficulties faced by the assessee while computing advance tax can not defeat the liability to pay advance tax. As compensation was  liable to be taxed as business income , the assessee is liable to pay interest.( Asst years 2000-01 to 2002-03).
Dy CIT v Gopal Ramnarayan Kasat ( 2011) 240 CTR 266 / 54 DTR 228 (Bom) (High Court).  

S. 234B: Interest- Advance tax- Capital gains-(S. 47 (v), 139 (9), 292B ).
Assessee claiming exemption in respect of capital gains on sale of shares to holding company. Return found defective  and assessee filed corrected return . By that time holding company was no longer holding company . The court held that no default at time of payment of advance tax.  Interest for default not chargeable. ( Asst year 1991-92).
Prime Securities Ltd v Asst CIT ( 2011) 333  ITR 464 ( Bom) (High Court). 

S. 234B: Interest- Minimum alternative tax- Set off. ( S. 115JAA, 234C).
Minimum alternative credit in terms of section 115JAA has to be set off against tax payable before calculating interest under section 234B, 234C.
CIT v Deccan Creations ( P) Ltd  ( 2011) 55 DTR 206 ( Kar) (High Court).

S. 246A: Appeal Commissioner (Appeals)- Recovery of tax- Sale in recovery proceedings- Limitation from the date of service of order.
Tax recovery officer confirming sale in recovery proceedings   Schedule II, RR, 63, 65, 86  is not conclusive, appeal maintainable. For computing limitation the date of order to be construed  to mean date of knowledge of order.
Vijay Kumar Ruia v CIT ( 2011) 334 ITR 38 (All) (High Court). 

S. 246A.: Appeal  Commissioner ( Appeals) Appealable orders- Shipping- Non  -Resident. ( S. 172 (4).
Order determining  amount of tax under section 172 (4) is  appellable.
ITO v MSC Agency ( India) P.Ltd ( 2011) 9 ITR ( Trib) 425 (Chennai).

S. 249 (4). Appeal Commissioner of income tax (Appeals)- Admitted tax- Refund of earlier year.
Assessee paid the tax after filing an appeal. Assessee was also entitled to refund of earlier year and the Bank account was also attached. Rejection of appeal for nonpayment of admitted tax was not justified.( Asst year 2007-08).
Endeavour Industries Ltd v Dy CIT ( 2011) 55 DTR 128 ( Hyd) (Trib).   

S.254(1): Appellate Tribunal- Natural justice-Administrative law-Opportunity for filing paper book.
The Tribunal had decided the Departmental appeal against the assessee without waiting for the paper book containing the relevant documents promised to be filed by the Department. The Department appeal was allowed. The High court remitted the matter back to the Tribunal to decide the matter a fresh.
Krishan Kumar Sethi v CIT ( 2011) 333 ITR 16 (Delhi) (High Court)

S.254(2): Appellate Tribunal- Rectification of Mistakes – orders not cited- Tribunal entitled to do “own research” and rely on non-cited cases.
Reliance and reference to reasons stated in another decision cannot be regarded as a mistake apparent from the record. It is not unusual or abnormal for Judges or adjudicators to refer and rely upon judgements / decisions after making their own research.    
Geofin Investment (P) Ltd. vs. CIT (Delhi) (High Court).

S. 255(4) : Appellate Tribunal- Third member- Jurisdiction-Scope.
Jurisdiction of the third member is limited to the issue in the question referred to him  and he is not supposed to investigate new facts beyond the scope of the question referred to him. (Asst  Year 2004-05).
Dy CIT v Akay Flavours & Aromatics (P) Ltd ( 2011) 55 DTR 1 /130 ITD 41 /138 TTJ 513 (Coch)( TM ) (Trib).

S. 271(1) (c). Penalty- Concealment- Despite detection in survey, Concealment penalty cannot be levied if income was  offered in return filed. (S.133A).
Penalty u/s. 271(1)(c)can be levied only if Assessing officer ‘during the course of proceedings’ is satisfied that there is ‘concealment’ or ‘furnishing if inaccurate particulars’. Where assessee offers detected income in the return, there was neither concealment nor furnishing of inaccurate particulars. Thus penalty u/s. 271(1)(c) cannot be levied.
CIT vs SAS Pharmaceutical (Delhi)( High Court). www.itatonline.org.

S. 271 (1) (c) : Penalty – Concealment- Additional income after survey –  Revised return.
Assessee having declared additional income following  survey  under section 133A and further enhanced the same filing a revised return despite the fact that no incriminating material was found either during the survey action or during the post survey enquiries and the AO having accepted the revised return without pointing out any inaccuracy therein or making any further addition ,penalty under section 271(1)(c) was not leviable, more so as the additional income is not free from dispute as far as its ownership  and the year of incidence of tax is concerned.( Asst years 2002-03 & 2003-04).
Dilip Yeshwant OAK  v Asst CIT ( 2011) 55   DTR 113 / 138 TTJ 559 (Pune) (Trib).
S.  271(1)(c); Penalty- Concealment- Failure to disallow u/s 14A there cannot be penalty.
As there is no allegation by the AO that there was collusion between the auditor and the assessee to ignore s. 14A, it cannot be said that the explanation was not bona fide. Further, as Rule 8D was not enacted at the time, segregation of expenditure relatable to tax-free income would be disputable and lead to bona fide difference in opinion. So, penalty u/s 271(1)(c) cannot be levied (Asst year 2005-06).
DCIT vs Nalwa Investment Ltd. (Mumbai)(Trib) . www.itatonline.org.

S. 271 (1) (c ).  Penalty – Concealment-Surrender of income during survey.( S. 133A. ) – No penalty leviable
Where A O has not brought on record  any material  to show that the additional income surrendered by the assessee during survey under section 133A   was concealed income  or that explanation  was false , penalty under section 271 (1) (c )  is not leviable. ( Asst year 2006-07).
Dy  CIT v Bhanwar Lal Mahendra Kunar Soni ( 2011) 138 TTJ 381 (JD ) (Trib).
S. 271BA: Penalty-Failure to furnish  transfer pricing report under section 92E.-Reasonable cause.( S 273B).
Assessee has not obtained the audit report as required under section 92E due to failure of auditor to advice who has audited the accounts under section 44AB of the Act, however filed the same immediately when he came to know that he was required to file such report in Form no 3 CEB  before completion of assessments for the relevant years ,  as there was bonafide reason for not obtaining the report in form no 3CEB  in time and it was venial and technical default, penalty cannot be attracted.
Ravi Kumar Rawat v ITO ( 2011) 138 TTJ 254 (Jaipur ) (Trib).

S. 282.  Service of notice – Reassessment – Service of notice on chartered accountant. ( S 148.)
Service of notice under section 148 on a chartered accountant  who was not empowered to receive such notice on behalf of the assessee company or any other person who was not authorised  to receive was not a valid service  of notice on the assessee , more so when it was not shown that the assessee was  keeping out of way for the purpose of avoiding service of notice or that there was any other reason that the notice could not be served on the assessee  in the ordinary way and therefore , assessment completed pursuant to said notice was bad in law. ( Asst year 1999-2000).
Harsingar Gutkha (P ) Ltd v Dy CIT ( 2011) 138 TTJ 318 (lucknow ) (Trib).

Condonation of delay – Departmental SLP Dismissed

The department filed a SLP challenging the order of the Bombay High Court declining to condone delay of 656 days in filing the appeal. The delay was explained as having been caused by “several facts such as non traceability of case records, procedural formalities involved in the Department and the papers are to be processed through different officers in rank for their comments, approval etc. and then the preparation of the draft of appeal memo, paper book and the administrative difficulties such as shortage of staff“. HELD dismissing the SLP:

In our opinion, the said explanation does not make out a sufficient cause for condonation of delay in filing the appeal before the High Court. In that view of the matter, we do not find any ground to interfere with the impugned judgment. The Special Leave Petition is dismissed on the ground of delay as well as on merits.

CIT vs Indian Hotels Co. Ltd. (Supreme Court) (www.itatonline.org)

Wealth Tax.
S. 17. Reassessment- Notice to a person who is not in existence- Amalgamated company- Reasons .(S.42C.).
Notice under section 17 issued to a person who is not in existence at the time of issuing such notice is not valid .Fact that the assessee (Amalgamated company)  subsequently filed  its return with the objection that notice in the name of amalgamating company is invalid cannot cure the defects which go to the root of the jurisdiction to reopen the proceedings. Reason for initiation of reopening proceedings need not be known to the assessee  by reflecting the same in the notice.
L.K. Agencies ( P) Ltd v CWT (2011) 55  DTR 138 ( Cal) (High Court).

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