Where the Tribunal had dismissed the appeal filed by the assessee by holding that it was not entitled to exemption u/s 11 and subsequently, on an application filed by the assessee u/s 254(2), recalled the said order on the ground that it had not considered a judgement of the jurisdictional High Court and that there was a mistake apparent from the record and the question arose whether such recall was justified, HELD, upholding the order of the Tribunal:

(i) A mistake apparent from the record is one that is patent, manifest and self-evident and which does not require elaborate discussion of evidence or argument to establish it;

(ii) The non-consideration of a decision of jurisdictional Court or of the Supreme Court is a “mistake apparent from the record” irrespective of whether such decision was rendered prior or subsequent to the rectification;

(iiii) A judicial decision acts retrospectively because it is not the function of the Court to pronounce a `new rule’ but to maintain and expound the `old one’. Judges do not make law; they only discover or find the correct law. A subsequent decision which alters the earlier one has to be applied retrospectively;

(iv) Rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and to disturb the finality.

See also: Honda Siel vs. CIT (SC) & Deva Metal Products (SC).

Where the record did not show that the assessee had been served with a notice under section 143(2) before the due date HELD that the assessment proceedings were not valid as the non-service of the notice was a jurisdictional defect and not merely a procedural defect. Held also that s. 292BB was procedural and prospective.

See also: CIT vs. Eqbal Singh Sindhana (Del)

Where the assessee, a Korean company, had entered into two contracts, one for on-shore execution of a fiber optic system and the other for offshore supply and services and it had a project office in India and the question arose whether any part of the profits from offshore supply was taxable in India, HELD:

(1) The primary question is whether the provisions of the Act are applicable or not. If there is no liability under the Act, the question of considering the applicability of the DTAA cannot arise. A DTAA can never create a liability if there is none under the Act;

(2) The fact that the assessee had undertaken to erect and commission the equipment in India (for separate consideration) did not mean that the profits from the off-shore supply became taxable. Under Expl. 1 to s. 9 (1) (1), profits that are not attributable to activities carried out in India are not chargeable to tax in India;

(3) In accordance with s. 23 of the Sale of Goods Act, title to goods passed outside India as soon as the equipment was loaded on the ship and the Bill of Lading was handed over to the bank issued the Letter of Credit;

(4) The fact that under the erection agreement the assessee had on-shore obligations towards completion of the fiber optic project did not mean that title to the off-shore equipment passed only after the completion of such obligations. The off-shore transfer of title to the buyer was complete and unequivocal and all that the assessee retained, in the event of non-payment of the price by the purchaser was the rights of an unpaid seller u/s 46 of the Sale of Goods Act;

(5) The fact that the assessee had to test and commission the equipment and undertake warranty obligations and that there were other clauses in the contract to protect the buyer’s interest did not have affect the fact that transfer of title took place outside India.

(i) Where the assessee is carrying on an illegal activity which is treated as a business, any loss arising in such business as a result of confiscation by the authorities is an allowable loss. However, where the assessee is carrying on a lawful business, any loss arising as a result of infraction of the law is not allowable.

(ii) The amount assessed as undisclosed income u/s 69A has to be assessed as ‘income from other sources’ and not as ‘business income’.

Where the assessee, a resident of Singapore, received consideration from Indian customers for grading and certification reports of diamonds and the AO took the view in s. 197 proceedings that the income was taxable as “royalty” on the ground that there was transfer of commercial experience in the shape of the diamond grading report, HELD

(i) The grading report was a statement of fact as to the characteristics of the diamond and did not amount to transfer of any industrial or commercial experience or transfer of any skill or knowledge to the customers. The payments were not for the use or the right to use experience but for the application of experience to a certain factual situation. Meaning of the terms “experience”, “use” and “impart” considered in detail;

(ii) The term “royalty” in Article 12 of the DTAA envisages a person who is the owner of any intellectual property right etc. who retains the property in them and permits the use or allows the right to use such right etc. to another person. Where there is no transfer of the right to use, payment made cannot be treated as royalty. If such person merely uses his experience and technical know-how for a consideration without parting with that information, it is not royalty;

(iii) Article 12(3)(a) of the DTAA is a tax liability and has to be interpreted on the settled principles of interpretation of taxation provisions – tax can be charged only if the activity sought to be taxed falls squarely within the taxing entry and not on inferences;

(iv) Accordingly the action of the AO in refusing to issue the certificate u/s 197 was without jurisdiction.

Where in respect of the asst. year 1990-91, the assessee claimed deduction under section 80-HHC on traded goods on the proportion that the export turnover bore to the total turnover even though there were no profits from the export activity and the High Court held, relying on IPCA Laboratories vs. CIT 266 ITR 521 (SC), that in the absence of export profits deduction u/s 80-HHC was not available, HELD, reversing the judgement of the High Court that in accordance with the CBDT Circular issued under the then prevailing s. 80-HHC, deduction was allowable on the proportionate basis notwithstanding the absence of profits from the export activity and the judgement in IPCA Laboratories had no application.

For purposes of Article 20 of the India-Korea DTAA, a Government undertaking with corporate status cannot be equated to the Government. Even if the Articles of Incorporation make it clear that the Government has pervasive control over the undertaking, it still cannot be treated to be a wing or an integral part of the Government. However, the fundamental requirement of Article 20(1)(a) is that the remuneration should be paid by the Contracting State. Even if it is paid out of funds allocated by the Government to the undertaking specifically towards personnel expenses, the requirement of Article 20(1) is satisfied. It is as good as payment by the State itself. The expression “payment by a Contracting State” cannot be given a rigid or literal interpretation so as to cover the payments made directly by Government or a department of the Government. Even if the payment is made out of State’s funds set apart for that purpose, the requirement of Section 20(1)(a) will be attracted and the Indian income-tax cannot be levied in such a case.

(1) As s. 35-G of the Central Excise Act (and s. 130 of the Customs Act) provides that an appeal to the High Court shall be filed within 180 days of the receipt of the order appealed against and there is no provision for condonation of delay the court has no power to condone delay;

(2) The power of the Court to condone delay flows from the provisions of the relevant law. If the relevant law specifies a period of limitation, then the inherent powers of Court to condone delay under the Limitation Act cannot apply;

(3) Upon expiration of period of limitation prescribed under a statute, a right in favour of the beneficiary or decree holder to treat the decree or order binding between the parties accrues and this is a legal right which accrues and should not be light heartedly disturbed. Delay cannot be condoned on grounds of equity or hardship;

(4) Further held in CCE vs. Arun Asher that the judgement of the Full Bench in Velingkar Brothers 289 ITR 382 (Bom) that the Limitation Act applies to appeals filed under s. 260A of the Income-tax Act cannot be termed as a correct exposition of law in face of the judgment of the Supreme Court in the case of Singh Enterprises v. CCE 2008 (221) ELT 163 (S.C.) where the Supreme Court took the view that in absence of statutory provisions for condoning the delay recourse to inherent power would not be permissible.

See Also: CCE Punjab Fibres 223 ELT 337 (SC) & CCE vs. Asia Pacific Marbles (Bom)

But Also See: Ornate Traders vs. ITO (Bom)

Where the assessee transferred its undertaking under a scheme of demerger which provided that neither the assessee nor its shareholders would receive any consideration from the transferee company as the value of the liabilities taken over were more than the value of the assets taken over and the assessee treated the difference between the said liabilities and assets as a capital reserve and the question arose whether such difference was assessable to tax, Held:

(a) The scheme did not qualify as a ‘demerger’ u/s 2 (19AA) and exemption u/s 47 (vib) was not available as the resulting company had not issued any shares to the shareholders of the transferor;

(b) However, as the transfer was by way of a scheme of arrangement and not by way of a “sale”, it did not constitute a “slump sale” as defined in s. 2(42C) and consequently s. 50B had not application.

(c) In so far as the provisions of ss. 45 and 48 are concerned, as the subject matter of the transfer was a “going concern” for which a “cost of acquisition” cannot be predicated, the machinery provisions of s. 48 break down and consequently the charging provisions of s. 45 cannot apply.

Premier Automobiles 264 ITR 193 (Bom) distinguished.

The result is that the assessee is not chargeable to tax in respect of the aforesaid transfer.

Where the assessee had entered into a production sharing contract with a consortium which was governed by section 42 of the Act and the assessee made contribution at a certain rate to the consortium whereas the expenditure incurred out of the said contribution stood converted on the basis of a different exchaneg rate which exercise resulted into a loss on conversion of foreign currency to the assessee and the AO held the loss to be a notional loss, Held,

(a) S. 42 represented an independent regime of taxation which had to be governed in accordance with the PSC. The PSC specified the deductions allowable and also a special manner of accounting which was at variance with the normal accounting standards. The said “PSC accounting” obliterated the difference between capital and revenue expenditure.

(b) The PSC contemplated currency translation because capital contributions by the co-venturers had to be converted under the PSC at one rate whereas the expenditure had to be converted at a different rate. This exercise resulted into loss/profit on conversion.

(c) Given the nature of a PSC, the profits cannot be ascertained without taking into account translation losses. Accordingly it cannot be said that “translation losses” under the PSC are illusory losses.

See Also: Woodward Governer 294 ITR 451 (Del).