Digest Of Important Case Laws – December 2014

S. 2(13)  :  Business – Solitary transaction of selling a property –Not in the nature of trade or adventure.[S.28(i)]
The assessee and others entered into an agreement to purchase the property from its owners. Thereafter, the very same property, the possession of which was taken by them along with others after paying the entire sale consideration to the owner, was sold. The transaction in question being a solitary transaction entered into by the assessees and in the absence of any material to show that they were in the same business and they have entered into such agreement and that they have sold such properties, it is not possible to accept the contention of the revenue that the transaction in question is in the nature of trade or adventure and therefore, the said contention was rejected. (AY. 2001-02)
CIT .v. Irfan Razack Director of Prestige Estate Projects (P.) Ltd.(2014) 227 Taxman 121 (Mag.) / 51 taxmann.com 45 (Kar.)(HC)

S. 2(14)((iii)(b)  :  Capital gains-Agricultural land-Classification of lands in revenue records as agricultural lands-Adangal and letter of tahsildar satisfying other conditions of section 2(14)-Adjacent lands divided into plots for sale not a reason that lands sold by assessee were for purposes of development of plots-Record showing lands are agricultural lands classified as dry lands for which kist has been paid-Entitled to exemption.[S.2(29B, 45, 50C]
Held, the assessees had also produced a copy of the adangal and the letter from the tahsildar, which showed that the lands were agricultural in nature and the Revenue had also accepted that the lands were falling within the restricted zone in terms of section 2(14) . The assessees have qualified under clause 11(1) since as per the adangal records, these lands were classified as agricultural lands and the assessees have also paid revenue kist, namely, revenue payment. The tests laid down by the Gujarat High Court relied on by the Tribunal clearly stated that any one of the factors can be present in a case to qualify for the benefit of classification as agricultural lands. The reason given by the Tribunal was that the adjacent lands were put to commercial use by way of plots and, therefore, the very character of the lands of the assessees was doubted as agricultural in nature. The manner in which the adjacent lands were used by the owner therein was not a ground for the Tribunal to come to a conclusion that the assessees` lands were not agricultural in nature. The reason given by the Tribunal that the adjacent lands have been divided into plots for sale would not mean that the lands sold by the assessees were for the purpose of development of plots. Also the reasoning given by the Tribunal "No agriculturists would have purchased the land sold by the assessee for pursuing any agricultural activity" was based on mere conjectures and surmises. Therefore, the assessees were entitled to exemption.
Sakunthala Vedachalam (Mrs.) v. ACIT (2014) 369 ITR 558 /(2015) 53 taxmann.com 62(Mad.) (HC)
Vanitha Manickavasagam(Mrs)  v.ACIT (2014)369 ITR 558 /(2015) 53 taxmann.com 62(Mad.)(HC)

S. 2(22)(e)  :  Deemed dividend –Subsidiary company-Advance to purchase of raw materials-Could not be considered as deemed dividend.
Where subsidiary company was advancing money to assessee company for purchase of raw material and to make payments to a company to meet their business liabilities, said amount could not be considered as deemed dividend income of assessee company within purview of section 2(22)(e). (AY. 1993-94)
CIT .v. India Fruits Ltd. (2014) 274 CTR 67 / (2015) 53 taxmann.com 307 / 228 Taxman 243 (Mag.)(AP)(HC)

S. 2(22)(e)  :  Deemed dividend-Loan to shareholder-Company having running account with shareholder-No evidence of intent to evade tax-Loan could not be treated as dividend.
Dismissing the appeal of revenue the  Court held that  from the material on record it was clear that the CIT(A)  and  the Tribunal had concurrently recorded that the assessee had a running account with Dada Motors Pvt Ltd and had been advancing money to it. The assessee had in fact advanced money to the company and there was credit for only 55 days for which the provisions of section 2(22)(e) of the Act could not be invoked. Provision could not be invoked  when there isa genuine business transaction between the two entities and the  funds of the  director were in fact lying with the company for most of the time.( AY. 2008-2009)
CIT v. Suraj Dev Dada (2014) 367 ITR 78/224 Taxman 189 (Mag) (P&H)(HC)

S. 2(29B)  :  Long-term capital gain–Expiry of tenancy thereafter month to month basis-Capital asset-Amount received on surrender of tenancy assessable as long term capital gains.[S.2(14), 2(42A) 45, Transfer of Property Act, 1882 S.106, 116]
The assessee-company had acquired tenancy right in a building, on the basis of an agreement of lease deed for occupation of that property for a period of 3 years, during the financial year 1972-73. After the end of the said term of 3 years, the assessee continued to occupy the premises as a tenant, but no fresh written document was executed. Pursuant to a Memorandum with the third party, the assessee vacated the tenanted area and surrendered the tenancy rights to the owner during the financial year 1996-97 and in return received some amount from the third party which was offered to be taxed as long-term capital gain. The Assessing Officer treated it as short-term capital gain on ground that after initial period of 3 years i.e. after expiry of lease, tenancy turned into one on ‘month to month’ basis. Thus, tenancy rights extinguished on the last day of each month and a fresh or new tenancy was created. The Court held that, in the present case, the assessee had acquired tenancy rights on 15th March, 1973 and since then they had held the said tenancy rights till the surrender was made on 18th February, 1997. The transfer of tenancy had taken place on 18th February, 1977 and not before. The period of holding, therefore, was from 15th March, 1973 till 18th February, 1997. No third person, who had come into possession of the property during the period and it is not a case of the revenue that assessee did not hold the property during the entire period of over 14 years. The word, ‘held’ as used in section 2(42A) is with reference to a capital asset and the term, ‘capital asset’ is not confined and restricted to ownership of a property or an asset. Capital assets can consist of rights other than ownership right in an asset, like leasehold rights, allotment rights, etc. The sequitur, therefore, it was held that the word ‘held’ or ‘hold’ is not synonymous with right over the asset as an owner and had to be given a broader and wider meaning. Amount received on surrender of tenancy was held to be assessable as long term capital gains .
CIT .v. Frick India Ltd. (2014) 227 Taxman 128 (Mag.) / 51 taxmann.com 58 / 369 ITR 328 (Delhi)(HC)

S. 2(31)  :  Association of persons-Essential features-Association amongst members must be real and substantial-Ruling of AAR  was set aside.[S.9(1)(i), 90]
Court held that before an association can be considered as a separate homogenous taxable entity (i.e.,an association of persons), it must exhibit the following essential features :  (i) must be constituted by two or more persons; (ii) the constituent members must have come together for a common purpose; (iii) the association must move by common action and there must be some scheme of common management; and (iv) the co-operation and association amongst the constituent members must not be perfunctory or merely in form. The association amongst members must be real and substantial. Accordingly, that the question as to whether the petitioner and CINDA constituted an association of persons would have to be examined on the basis of the legal principles.
CTCI Overseas Corporation Ltd. .v. DIT(IT) (2014) 366 ITR 33 (Delhi.)(HC)
Editorial : Ruling of AAR in CTCI Overseas Corporation Ltd., In re [2012] 342 ITR 217 (AAR) set aside.

S. 4  :  Charge of income-tax-Sikkim-Application of Actwith effect from 1-4-1990-Effect-Repeal of Sikkim State Tax Manual by necessary implication-Assessments made under Sikkim Tax Manual for assessment years 1997-98 to 2005-06 not valid-State directed to refund amount. [Constitution of India, art. 371F(n),Sikkim State Income-tax Manual, 1948,]
Held, the 1961 Act was already in force, and was extended to the State of Sikkim on April 1, 1990. Thus, it was not an instance of enacting a new taxation law for the State of Sikkim after it became a part of India. Therefore, the principle that the Legislature, while enacting a law, has complete knowledge of the existing laws on the same subject-matter and the possible consequence thereof would not be applicable. In such a situation, merely because it does not provide a repealing provision, it could not be held that the intention was not to repeal the existing legislation. The provisions of the two enactments are quite different and the enactments cannot stand together. The 1961 Act is more exhaustive than the 1948 Sikkim Manual and they occupy the same field relating to levy of income-tax and its recovery. If both the statutes are held to be operating in the same field, there would be a situation of existing two laws relating to income-tax and in the absence of any protection coming forward, the assessees may be subjected to double taxation. It is, thus, clear that on account of the inconsistencies, the two enactments could not stand together and on extension of the 1961 Act, the 1948 Sikkim Manual was repealed by necessary implication. The assessee claimed its rights as an assessee under the 1961 Act. Therefore, any adverse plea like it was not an assessee under the 1961 Act or that the 1961 Act was not applicable to the assessee, being a plea relating to the statute would not operate as estoppel against it. After extension of the 1961 Act to the State of Sikkim with effect from April 1, 1990, the 1948 Sikkim Manual stood repealed and the assessments made thereunder for the assessment years 1997-98 to 2005-06 were without authority of law, nonest and nullity. Consequently, the order of assessment, the demand notice and the other consequential orders were quashed. The State was directed to refund a sum of Rs. 76,53,655 to the assessee within a period of 90 days from today, failing which the amount shall carry interest at 6 per cent. per annum from the date commencing after completion of 90 days till realisation.(AY. 1997-1998 to2005-2006)
Sikkim Manipal University v. State of Sikkim (2014) 369 ITR 567 (Sikkim) (HC)

S. 4  :  Charge of income-tax-Accrual of income-Ten per cent. of cost of conductor to be paid only upon certification of quality conforming to specifications-No accrual of income till such stage.[S.145]
The assessee was a manufacturer of electrical conductors. It supplied an item of conductor to a purchaser. Under the agreement, 10 per cent. of the cost of the goods was to be paid only after final certification of the conductor after erection and charging. For the assessment year 1998-99, the AO added a sum of Rs. 64,58,606, representing 10 per cent. of the cost of the conductor sold by the assessee on the ground that though the amount would be paid at a later stage, the assessee had acquired the right to receive the amount. The Tribunal set aside the order of assessment made by the AO. On appeal  High Court also affirmed the view of Tribunal .Followed the ratio in, CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC) applied.(AY. 1998-1999)
CIT .v. India Fruits Ltd. (2014) 369 ITR 586 (T & AP)(HC)

S. 4  :  Charge of income-tax –Mutuality-Transfer Fees received  by Co-op Hsg Soc from incoming & outgoing members (even in excess of limits) is exempt on the ground of mutuality-Contribution to building repair fund is not transfer fee.[Constitution of India , Art 43A]
The assessee, a Co-operative Housing Society, received a sum of Rs.39,68,000 on account of transfer of flat and garage and credited it to ‘general amenities fund’ as well as ‘repair fund’. The assessee claimed that the said receipt is exempted from tax on the ground of mutuality. However, the AO held that the principles of mutuality will not apply. However, the CIT(A) and Tribunal allowed the assessee’s claim by relying on Sind Co-operative Housing Society vs. ITO ( 2009) 317 ITR 47. On appeal by the department to the High Court HELD dismissing the appeal :
The very issue and the very question was raised repeatedly in the case of the assessee society. Repeatedly the Revenue has failed in convincing the Tribunal that Sind Co-operative Housing Society will not cover the Society’s case. The contribution is made to the repair fund or to the general fund and credited as such. While it may be true that it is occasioned by transfer of a flat and garage, yet, we do not see how merely because there was cap or restriction placed on the transfer fees or the quantum thereof, in this case the principle of mutuality cannot be applied. The underlying principle and of a co-operative movement has been completely overlooked by the Revenue. The Revenue seems to be of the view that a Co-operative Housing Society makes profit, if it receives something beyond this amount of Rs.25,000. There has to be material brought and which will have a definite bearing on this issue. If the amount is received on account of transfer of a flat and which is not restricted to Rs.25,000/- but much more, then different consideration may apply. However, in the present case, what has been argued and vehemently is the amount was received by the Society when the flat and the garage were transferred. Therefore, it must be presumed to be nothing but transfer fees. It may have been credited to the fund and with a view to demonstrate that it is nothing but a voluntarily contribution or donation to the Society, but still it constitutes its income. However, for rendering such a conclusive finding there has to be material brought by the Revenue on record. Beyond urging that it has been received at the time of a transfer of the flat and credited to such a fund will not be enough to displace the principle laid down in the decision of Sind Cooperative Housing Society. The attempt of the Revenue therefore is nothing but overcoming the binding judgment of this Court. In the present case, the Commissioner and the Tribunal both have held that the receipt may have been occasioned by the transfer but the principle of mutuality will still apply. It is a typical relationship between the member of the Co-operative Society and particularly a Housing Society and the Society which is a body Corporate and a legal entity by itself that is forming the basis of the principle laid down by the Division Bench. Co-operative movement is a socio economic and a moral movement. It has now been recognized by Article 43A of the Constitution of India. It is to foster and encourage the spirit of brotherhood and co-operation that the Government encourages formation of Co-operative Societies. The members may be owning individually the flats or immovable properties but enjoying, in common, the amenities, advantages and benefits. The Society as a legal entity owns the building but the amenities are provided and that is how the terms “flat” and the “housing society” are defined in the statute in question. We do not therefore find any reason to deviate from the principle laid down in Sind Co-operative Housing Society’s case and which followed a Supreme Court judgment.( ITA No. 1472 of 2012, dt. 18/12/2014 ) (AY. 2005-06)
CIT .v. Darbhanga Mansion CHS Ltd.( 2015) 370 ITR 443 (Bom.)(HC) www.itatonline.org

S. 4  : Charge of income-tax-Capital or revenue-Termination of lease of business asset-Compensation towards loss of revenue and non-compete fee under agreement in March 1993–Capital receipt. [S.28(va),28(ii),55].
Dismissing the appeal of revenue the Court held that the amount in question being compensation towards the loss of source of income and also towards non-competition fee to prevent the assessee from carrying on the similar business using the know-how possessed by the assessee as a competitor, the amount of Rs. 5.31 crores paid was capital in nature. There being no cost of acquisition, the capital gains were not computable. In view of the amendment to the Finance Act, 2002, with effect from April 1, 2003, the capital receipt was made taxable under section 28(va) of the Income-tax Act, 1961. The amendment was not applicable to the case of the assessee. (Ay.1999-2000)
CIT .v. Sapthagiri Distilleries Ltd. (2014) 366 ITR 270/224 Taxman 229 (Mag.)(Karn.)(HC)

S. 5  :  Scope of total income –Method of accounting-Incentives-After expiry of accounting period- Cannot be brought to tax. [S.145] 
The assessee-firm was engaged in the business of reselling of the electrical goods.Tribunal held that sales performance based incentives received by assessee from its suppliers after expiry of relevant accounting year could not be brought to tax in assessment year in question even though assessee was following mercantile system of accounting .(ITA Nos. 1301 (Mum.) of 2011 & 1896 & 7266 (Mum.) of 2012 dt. 30-06-2014)(AYs. 2007-08, 2008-09 & 2009-10)
Dy.CIT .v. Vijay Sales (2014) 33 ITR 546 / 52 taxmann.com 310 / (2015) 67 SOT 99 (Mum.)(Trib.)

S.9(1)(i) :  Income deemed to accrue or arise in India- Permanent establishment-DTAA-India-USA;[S. 90, Art. 5]
High court held that  word ‘used’ as specified in article 5 of Indo –USA DTAA clarifies usage  of an installation or structure for exploration of natural resources and if it was so used for aperiod of 120 days in 12 months , only then it could be considered as PE in India and not merely on being ready for use .
DIT(IT) v. R& B  Offshore Ltd. (2014) 223 Taxman 266/ 271 CTR 111 (Uttarakhand)(HC)
Editorial :  Revenue sought leave to withdraw special leave petition   to file review petition before High Court.Permission to withdraw the Special Leave petition was granted . SLP nos 14430 , 14702&14861 of 2014 dt 12-09-2014 ( 2014) 227 Taxman 367 (SC)

S. 9(1)(i)  :  Income deemed to accrue or arise in India-Business connection-Determination of quantum of income attributable to India in case of assessee followed by High Court in earlier years-In absence of new data and facts on issue of profits attributable to India operations-Tribunal not justified in remitting matter to Assessing Officer by adopting globalisation and commercial test.
The assessee, a company incorporated in the Netherlands, was engaged in the business of providing electronic distribution services to the travel industry through computerised reservation system. It appointed an exclusive distributor in India under an agreement. For determination of quantum of income attributable to India in case of assessee followed by High Court in earlier years. Tribunal set aside the matter to the AO   to determine the income  by adopting globalisation and commercial test. On appeal the  Court held that in absence of new data and facts on issue of profits attributable to India operations-,Tribunal was  not justified in remitting matter to AO by adopting globalisation and commercial test. (AYs. 2003-2004 to 2006-2007)
Galileo Nederland BV .v. ADIT (IT) (2014) 367 ITR 319/271 CTR 568/ 51 taxmann.com 419/ (2015) 228 Taxman 81 (Delhi)(HC)

S. 9(1)(i)  :  Income deemed to accrue or arise in India-Business connection-Liaison office-Promoting sales-Taxable in India on business income-DTAA-India-USA-Matter remanded.[Art.5(3)(e), 7]
The assessee, a company incorporated in the USA, the assessee claimed that it was maintaining a liaison office and the receipts were on account of a remittance of expenses incurred. The assessee stated that the expenses included the salary of its consultants and the chief representative officer. The assessee disclosed that besides the fixed remuneration, it had a sales incentive plan under which the employees were entitled to receive up to 25 per cent. of their annual remuneration as an incentive. When called upon to disclose the details of the targets which were fixed and the payments under the sales incentive plan, the assessee submitted that during the assessment year no incentive had been paid. The AO recorded the statement of the chief representative officer of the assessee and came to the conclusion that the activities of the assessee were not restricted only to providing a channel of communication between the buyers of the products sold by the parent company but the activities were extended to searching for prospective buyers, providing required information and persuading them of the worth of the brand of the assessee in the US, which was, in turn, a subsidiary of a Swedish company. The Assessing Officer held that the activities of the assessee involved marketing activities in India and that the assessee was, in fact, carrying on business activities. On this basis, the income of the assessee was computed at Rs. 24.86 lakhs, comprising the receipts of Rs. 63.72 lakhs less the expenses of Rs. 38.86 lakhs, which was taken as the profit from business activities carried on in India. CIT(A)  and Tribunal confirmed the order of AO. On appeal the Court held that; Liaison office  maintained by the assesse was for  promoting sales of goods of assessee through its employees. Sales incentive for achieving sales target. Performance of employees judged by orders secured hence the Liaison office’s activity not of a preliminary or preparatory nature therefore exclusionary clause in Agreement not applicable Income is taxable in India on business income. The  AO did not apply his mind to the crucial requirement which defines the extent of taxability. The AO was directed  fora fresh determination of the extent of the taxable income having regard to the provisions of article 7 of the DTAA. (AY. 2003-2004)
Brown and Sharpe Inc. .v. CIT (2014) 369 ITR 704/51 taxman.com 327 (All.)(HC)

S. 10(2A)  :  Exemption-Firm-Partner-Share of partner from firm not liable to tax-Concept of "total income" in section 10(2A) different from concept in section 2(45)-.Total income of firm does not include incomes which are exempt from tax–Partner entitled to exemption in respect of exempted income allotted to him.[S.2(45), 10(34),10(35), 10(36)]
The petitioner challenged the assessment order by filing the Writ petition ,  for not granting exemption under section 10(2A), in respect of share of profit of the firm income which is exempted from tax under clause  34, of section 10, and clause 35 of the section 10 of the Act. In substance, a declaration is sought to the effect that the total income referred in clause (2A)  of  section 10 of the Act  does not include income of the partnership firm which is exempted from tax .Allowing the petition the Court held that :  Explanation to clause (2A) of sec tion 10 with respect to its placement in Chapter III, does not envisage taxation of the shares of profits of the firm at the hands of the partners. The expression "total income" as defined in clause (45) of section 2 of the Act is distinct from the expression "total income" used in section 10 of the Act. A perusal of section 10 would make it clear that Parliament intended that certain incomes should not be included in the total income of a person, i.e., gross total income. What section 10 read with the Explanation thereto envisages is the amount to be determined as not includible in the total income of the partner. For this, three factors have to be considered  :  (a) the total income of the firm ; (b) the share of partners’ profit in the firm; (c) the business share profits of the firm. In this context, the total income of the firm is not the taxable income of the firm. The object of clause (2A) of section 10 is to avoid double taxation vis-a-vis the profits of the firm, which are distributed in the hands of the partners. It does not mean that income which is taxed in the hands of the firm is taxable in the hands of the partners and on the same principle, when the income is not taxed in the hands of the firm, it becomes taxable in the hands of the partner. The share of the partner in the profits of the firm which is after taxation of the firm, would also include that portion of the income on which the firm would not have paid any tax on account of the firm also having the benefit of certain provisions of Chapter III but which would nevertheless be part of the profits of the firm. Hence, a partner would be entitled to exemption under clause (2A) of section 10 of the Act, on the share of profit of the firm, inclusive of the income, which is exempted under clauses (34), (35) and (38) of section 10 of the Act, as the total income referred to in clause (2A) of section 10 of the Act, includes exempted income of the firm.(AY 2010-2011)
Vidya Investment and Trading Co. P. Ltd. .v. UOI (2014) 367 ITR 33/223 Taxman 199 (Karn.)(HC)

S. 10(14)  :  Exemption-Special allowance to meet expenses of office-Conveyance and additional conveyance allowance for Development Officers fixed by formula-Exempt from tax.
Court held that special allowance to meet expenses of office,-Conveyance and additional conveyance allowance for Development Officers fixed by formula is held to be exempt from tax.(AY 1998-1999 -2000-01)
CIT .v. Madan Gopal Bansal (2014) 366 ITR 319/223 taxman 169(Mag) (Raj.)(HC)

S. 10(23C)(vi)  :  Educational institution-Delay in filing application–Condonation of delay-Chief Commissioner is not a court-Order of Principal Chief Commissioner rejecting application did not suffer from any error.[Limitation Act, 1963, S. 5.]
The assessee filed an application under section 10(23C)(vi) of the Income-tax Act, 1961, for the assessment year 2013-14 on March 19, 2014. The Principal Chief Commissioner by his order dated April 25, 2014, declined to entertain the application on the ground that it was filed beyond the stipulated date. On a writ petition  :
Held, dismissing the petition, that there was no basis or foundation in the submission that the delay in filing the application for an exemption under section 10(23C)(vi) beyond the statutory date of September 30, 2013, should have been condoned. Thus, order of the Principal Chief Commissioner did not suffer from any error.Applied the ratio in
Commissioner of Customs and Central Excise v. Hongo India P. Ltd. [2009] 315 ITR 449 (SC) (AY. 2013-2014)
I.D. Education Society .v. Principal CCIT (2014) 369 ITR 307 (All.)(HC)

S. 10(23C)(vi)  :  Educational institution-Other objects-Does not mean institution not existing solely for educational purposes-Order refusing approval of exemption not sustainable.
Held, that the assessee-society was running an educational institution. Merely because there were other objects of the society that did not mean that the educational institution was not existing solely for educational purpose. The emphasis of the word "solely" is in relation to the educational institution, which is running not for the purpose of making profit and is not in relation to the objects of the society. The prescribed authority had misdirected itself in not considering the stipulated conditions mentioned under section 10(23C)(vi) and had digressed from the main issue in considering the irrelevant considerations. He had considered the expenditure depicted by the assessee-society in the previous assessment years. He also considered the findings of the Assessing Officer, which findings had been set aside in appeal by the appellate authority. Consequently, the order refusing approval for exemption could not be sustained, the authority was to consider it and pass appropriate orders.((AY. 2003-2004  to 2010-2011).
Simpkins School v. DIT (Inv.) (2014) 367 ITR 335/ 226 Taxman 160(Mag.) (All.)(HC)

S. 10(23C(vi)  :Educational institution-Defect in Trust deed was rectified-Rejection of application was held to be not justified. 
Application under section 10(23C)(vi)  was rejected on ground trust deed did not provide for distribution of funds on dissolution. Defect in trust deed rectified. Rejection of application not justified.(AY.2012-2013)
St. Kabir Educational Society .v. CBDT (2014) 366 ITR 378 (P&H)(HC)

S. 10(23C)(vi)  :  Educational institution-Education-Training-Matter remanded.
Allowing the petition the Court held that prescribed authority to consider whether some form of information or training regarding a subject imparted by institution, whether such information resulted in intellectual, moral or social benefit in keeping with education,Whether educational process being carried on in a systematic way by its arrangement into courses, classes, a specific number and length of classes in a day, system of promotion, gradation, granting of diploma certificates also to be gone into. As the Commissioner has not considered all the above facts, matter was remanded for fresh consideration.
Swar Sangam v. CCIT (2014) 368 ITR 395 (Cal.)(HC)

S. 10A  :  Free trade zone-Development of computer software-Customs bonding not a condition precedent-Assessee fulfilling conditions laid down in section 10A-Entitled to exemption..
The assessee was in the business of computer software development and established in a software technology park. The assessee claimed deduction under section 10A of the Act. The particulars furnished showed the date of commencement of production and the date of initial registration with the Software Technology Parks of India (STPI) were on the same day. While granting permission for setting up of the units, the STPI authorities had laid down some conditions. Condition No. 5 was that the units should be customs bonded. The licence for private bonded warehouse obviously would be a date after the permission granted by the STPI authorities to set up the STPI units. The assessing authority was of the view that the assessee would be entitled to the benefit under section 10 only if production commenced in the customs bonded area after such permission and that as the assessee had commenced production before that date the assessee was not entitled to the benefit. Accordingly, the claim for exemption was denied to the assessee. The CIT(A) and the Tribunal held that the assessee was entitled to the exemption. On appeal to the High Court :

Held, dismissing the appeals, that the assessee commenced production prior to the customs bonding. However, invoices were raised after the customs bonding. The conditions stipulated in the permission granted by the STPI was that the units shall be customs bonded. The benefit of such customs bonding is that the assessee would be entitled to the benefit of customs duty and excise duty. It had nothing to do with the grant of exemption under section 10A of the Act. The assessee was entitled to the exemption.
CIT v. Caritor (India) P. Ltd. (2014) 369 ITR 463 (Karn.)(HC)

S. 10A  :  Free trade zone –Human resources services-IT enabled services-Entitled to benefit.
The assessee was a hundred per cent export oriented unit registered under STPI and was engaged in hiring overseas information technology consultants for a US based company. The services rendered by them to their client included sourcing, screening and interviewing prospective candidates having information technology skills for recruitment for their overseas customers. It claimed deduction under section 10A and, accordingly, declared nil income.

On second appeal, the Tribunal allowed the assessee’s claim holding that the assessee-company provides recruitment services by extensively using information technology skills. It was held that the services provided by the assessee were covered by section 10A, read with Notification bearing No. SO 890(E), dated 26-9-2000.

On appeal by the revenue dismissing the appeal of revenue the Court held that,It was found that assesseecompany provide recruitment services by extensively using information technology. It was using information technology in scanning data, processing it, conducting online tests for short-listed candidate, and analysing their results. Even list of selected candidate also took place using CATS application software. These activities were covered under Notification bearing No. SO 890(E), dated 26-9-2000, i.e., human resource service. Therefore assessee would be entitled to benefit under section 10A. (ITA No. 1255 of 2011 dt. 03-09-2014)(AY. 2007-08)
CIT .v. ML Outsourcing Services (P.) Ltd. (2014) 271 CTR 553 / 51 taxmann.com 453 / (2015) 228 Taxman 54 (Mag.)(Delhi)(HC)

S.10A  :  Free trade zone–Certificate was not filed before AO-Quoting wrong provision  exemption cannot be denied.[S.10B,Form No. 56G]
The assessee-company was engaged in the business of medical transcription and it claimed deduction under section 10B by claiming that it was a 100 per cent export-oriented unit. AO rejected claim on ground that assessee failed to obtain required certificate and other evidence to establish claim of deduction. Before CIT (A) assessee claimed exemption under section 10A on ground that all requisite conditions were fulfilled. CIT(A) granted deduction by recording that merely because assessee had quoted a wrong provision of law before AO, same was not good reason to deny relief when otherwise assessee was entitled to deduction. On appeal by   revenue the Tribunal held that finding of fact recorded by CIT(A) needed no interference.(ITA No. 1871 (Mum.) of 2011 dt. 08-05-2014) (AY. 2007-08)
ITO .v. Accentia Technologies Ltd. (2014) 34 ITR 505 / 52 taxmann.com 89 / (2015) 67 SOT 165 (Mum.)(Trib.)

S. 10B  :  Export oriented unit-Profits derived from export-Interest earned on deposits for opening letters of credit-Attributable to activity of export–Entitled to exemption-Public issue of shares by assessee-Interest on share application moneys deposited by applicants for shares not income derived from export activity-Not entitled to exemption-Interest on deposits made from share application moneys pending issue of shares-Not entitled to exemption.
Obtaining of letters of credit is an essential activity for undertaking exports and the deposit of amounts for that purpose is a condition precedent. The interest yielded on the deposits was attributable to or could be said to be derived from the activity of export. Therefore, the interest earned in respect of the bank deposits kept for opening letters of credit was entitled to exemption.
The interest given by banks in respect of moneys received by them, on behalf of the assessee, against public issue of shares was not entitled to exemption as it was not part of scheme of export.
CIT .v. Indo Aquatics Ltd. (2014) 369 ITR 589 (T & AP)(HC)

S. 10B  : Export Oriented undertaking –Unabsorbed depreciation-Cannot adjust unabsorbed depreciation against other income.[S.56]
Court held that since section 10B provides 100 per cent exemption for export income and not for other income, unabsorbed depreciation should be adjusted against income of export oriented business only, assessee cannot adjust unabsorbed depreciation against other income so as to take exemption from payment of tax even for other income. (ITA No. 1501 of 2008 dt. 19-09-2013)(AY.1994-95)
Himatsingka Seide Ltd. .v. CIT (2014) 266 CTR 141 / 48 taxmann.com 357 / (2015) 228 Taxman 63(Mag.)(SC)
Editorial :  Decision in CIT v. Himatasingike Seide Ltd ( 2006)286 ITR 255/ 156 Taxman 151/206  CTR 106 (Karn)(HC) is affirmed.,

S.10B : Export oriented undertaking-Assessee’s sister undertaking fulfilling requirements of section 10B(2)(ii) and (iii) at time of formation–Transfer of entire business to assessee-Entitled to exemption-
The assessee was engaged in export of digitised medical transcription. It acquired the entire business relating to medical transcription of its sister concern in relation to the AY 2002-03 and claimed exemption under section 10B for the AY.2004-05. The AO disallowed the claim on the grounds that (i) the assessee did not satisfy the requirement of sub-section (2) of section 10B,The CIT(A) held that the undertaking had not been set up by the assessee but was set up earlier by its sister concern and was transferred to the assessee and, hence, there was no violation of section 10B(2)(ii) or section 10(2)(iii) as the assessee had entered into a business transfer agreement with its sister concern. There was no finding that the sister concern had acquired or previously used machinery or equipment. The Tribunal allowed the appeals of the Revenue in respect of the assessment years 2002-03 and 2003-04 relying upon sub-section (9) of section 10B but dismissed the appeal for the assessment year 2004-05 observing that sub-section (9) of section 10B was omitted and was not applicable for the assessment year 2004-05. On appeal   by revenue the dismissing the appeal the Could held that the assessee, could not be denied the benefit under S.10B. (AY 2004-2005)
CIT .v. Heartland Delhi Transcription Services P. Ltd. (2014) 366 ITR 523/270 CTR   373 / (2015) 228 Taxman 326(Mag)(Delhi)(HC)

S.10B :Export oriented undertaking-Requisite approval from Board constituted under Industries (Development and Regulation) Act, 1951 not possessed by assessee-Tribunal not entitled to rewrite law or accept anything in lieu of what was required by statute–Matter remanded to AO,with directions.[S. 254(1).
Tribunal, following an earlier decision, allowed the claim of the assessee for exemption under S.10B of the Act,on the basis of a letter of the General Manager, District Industries Centre, Directorate of Cottage and Small Scale Industries. On appeal by revenue, allowing the appeal partly, held (i) that since the assessee did not possess the requisite approval as 100 per cent. export oriented undertaking by the Board appointed by the Central Government in exercise of powers by section 14 of the Industries (Development and Regulation) Act, 1951 and the Rules made thereunder, the Tribunal could not have rewritten the law nor could have accepted anything in lieu of what was required by the statute. Therefore, the view of the Tribunal was wrong and was, therefore, set aside and the AO  was directed to consider whether the assessee was entitled to any other benefit under the Act on the basis that hundred per cent. profits were earned from exports.
CIT .v. J.E. Enterprises P. Ltd. (2014) 366 ITR 571/272  CTR 102/(2015) 228  Taxman 171(Mag) (Cal.)(HC)

S.10B : Export oriented undertaking -Subsidiary merging with assessee-Assessee eligible for benefit of exemption-.
Rejecting the appeal of revenue the Court held that the subsidiary of assessee, a 100 per cent. export oriented unit, merging with assessee by order of court is not a case of business formed by splitting up or reconstruction of a business already in existence. Assessee’s status as 100 per cent. export oriented unit approved by Government of India. Assessee eligible for benefit of exemption.Referred to the Central Board of Direct Taxes Circular No. 378, dated March 3, 1984(1984) 149 ITR (St.)1, and held that the benefit was attached to the undertaking and not to the ownership, thus, allowed the claim.(AY.1994-1995)
CIT .v. Shri Renuga Textiles Mills Ltd.(2012) 254 CTR 423 / (2014) 366 ITR 649 (Mad.)(HC)