The amount of share application money received by a Company from alleged bogus shareholders cannot be regarded as undisclosed income under S. 68 of I. T. Act for the simple reason that if the names of the alleged bogus shareholders are given to the AO, then the Department is free to proceed to re-open their individual assessments in accordance with law.

Note: The judgement of the Delhi High Court against which the SLP was filed is reported in 299 ITR 268/158 TM 440. (download).

See also: CWT vs. Value Capital Services (Delhi High Court)

(1) In a case where it is alleged that persons contributing share application moneys are bogus, it is quite obvious that is very difficult for the assessee-company to show the creditworthiness of strangers. If the Revenue has any doubt with regard to their ability to make the investment, their returns may be re-opened by the department.

(2) In any case, there is an additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the assessee-company so as to enable it to be treated as the undisclosed income of the assessee-company.

See also: CIT vs. Divine Leasing & Finance (Supreme Court)

Once the assessee has moved the rectification application within four years from the date of the appeal order, the Tribunal cannot reject that application on the ground that four years have lapsed, which includes the period of pendency of the application before the Tribunal. The Tribunal is bound to decide the application on merits and cannot dismiss the same on the ground of limitation.

Note: For the merits see Malayala Manorama vs. CIT (SC).

Held, after dismissing on merits the objections to the auction sale for recovery of arrears, that

(i) It is an established principle of law that in a third party auction, the purchaser’s interest in the auctioned property continues to be protected notwithstanding that the underlying decree is subsequently set aside or otherwise.

(ii) The law makes a clear distinction between a stranger who is a bona fide purchaser of the property at an auction sale and a decree holder purchaser at a court auction. The strangers to the decree are afforded protection by the court because they are not connected with the decree. Unless protection is extended to them the court sales would not fetch market value or fair price of the property.

(i) It is not open to the WTO u/s 16A of the W. T. Act to call for the report of the Valuation Officer after the assessment proceedings are completed and use that report to commence proceedings for reassessment. The jurisdiction conferred on the WTO is limited to calling for the report when the proceeding are pending and not when the Wealth Tax Officer becomes functious officio.

(ii) A report of the DVO called for after the assessment proceedings is without jurisdiction and consequently a nullity. Such report cannot give “reason to believe” to reopen the assessment u/s 17.

(iii) The position in law in so far as a report which was called for but not received during the pendency of the proceedings but received subsequent to the proceeding will have to be treated differently. The fact that the assessment has been completed is not a bar to considering the DVO’s report and to be used as the basis for reopening the assessment.

Where an Australian company which owned trademarks, brands and other intellectual property had registered and licensed such trademarks etc to parties in India and after termination of the license agreements had assigned the said trademarks etc and the question arose whether the “situs” of such trademarks etc can be said to be in India so as to be exigible to tax on capital gains, HELD:

(i) As the trademarks etc had been registered and used in India and enjoyed high reputation and goodwill in the Indian market, they had a “tangible presence” in India and were located in India. The facts showed that they became inextricable components of the business of manufacture and marketing of Foster’s lager beer in India by the group company of the applicant.

(ii) It is not correct to say that on the termination of the license agreements with the Indian parties, the situs shifted back to Australia because the predominant component of trademarks and brands is good-will associated with them which cannot be said to have perished in India and shifted to Australia on termination.

(iii) There is no legal principle that the situs of intangible assets such as trademark and goodwill would always go with ownership and they have no situs other than the country of fiscal residence of the owner. On the other hand, there is sufficient authority for the proposition that the intangible assets or incorporeal property can have more than one situs. Goodwill is territorial in the sense that it exists at a place where the related business exists. The fact that the trademarks etc originated in Australia is irrelevant.

(iv) Though the trademarks etc property can be notionally treated to be existing also at the place where the owner resides, there is no legal basis for apportionment on the ground that the situs of the property transferred is fictionally at another place. The entire consideration is chargeable to tax in India.

(v) However, the brewing intellectual property represented by the Brewing Manual, though in the nature of a trade intangible, was also in the nature of goods and as it was located abroad at the point of transfer was not exigible to tax.

(1) Deduction u/s 80-HHF (1) is available in respect of the ‘profits of the business’ which means the entire business profits and not only the profits derived from the export activity. Accordingly, deduction is allowable even if the export activity has resulted in a loss provided there is an overall business profit;

(2) Income arising from an activity involving turnover cannot be excluded from profits of business in terms of Expl. (baa) to s. 80HHC/Expl. (f) to s. 80HHF;

(3) K. Ravindranathan Nair 295 ITR 228 (SC) is not an authority for the proposition that in the case of an independent activity involving element of turnover, 90% of the receipts should be excluded from the profits of business. The decision merely lays down that in such case the receipt would form part of total turnover;

(4) Bangalore Clothing 260 ITR 371 (Bom) is an authority for the proposition that where a business activity results in operational income, the receipts therefrom form part of total turnover and no part of it can be excluded from the profits of the business.

(1) Transportation cost incurred by a foreign assessee in providing transportation facility for movement of offshore employees from their residence in home country to the place of work and back is liable to Fringe Benefit Tax u/s 115WA.

(2) Sub-sections (1) and (2) of section 115WB operate in different fields. S. 115WB(2) cannot be regarded as an extension of section 115WB(1). Sub-sec (3) of s. 115WB has application only in respect of sub-sec (1) and ex facie does not have any application in regard to the matters referred to in sub-sec (2).

(3) The contention that the employees must be based in India for purposes of sub-sec. (3) of s. 115WB cannot be accepted because it is contrary to the language and the CBDT Circular.

(4) The CBDT’s interpretation, being in the realm of executive construction, should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the courts. It is a contemporaneous exposition and akin to a representation made by an authority like Minister presenting the Bill before the Parliament.

(5) On facts, the AO to consider on material on record whether the payments were made on a regular basis or whether the expenditures incurred would strictly come within the purview of Section 115WB or not.

Note: The judgement of the AAR is reported in 289 ITR 369.

Jurisdiction u/s S. 143(1)(a) and 143 (1A) is confined to making “prima facie” adjustments. When there are conflicting judgments on interpretation of Section 80-O, it is not permissible to make “prima facie” adjustments u/s 143(1)(a) and consequently additional tax u/s 143(1A) is not payable.