(11.7 KiB, 1,353 DLs)

Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid

For AY 2000-01, the assessee filed a return on 30.11.2000. As s. 14A was inserted subsequently by FA 2001 (w.r.e.f 1.4.62) and was tabled in Parliament on 28.2.2001, the assessee did not make any disallowance u/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A. The assessee challenged the reopening on the ground that (i) under the Proviso to s. 14A, a reopening u/s 147 for AY 2001-02 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court (click here) (197 TM 415) dismissed the Writ Petition inter alia on the ground that “the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospective amendment. Though the ROI was filed before s. 14A was enacted, the assessment order was passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality“. On appeal by the assessee to the Supreme Court, HELD dismissing the SLP:

In our view, the re-opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it’s contention on Section 14A of the Income Tax Act, 1961.

(168.7 KiB, 767 DLs)

Tax Planning transaction not “Sham” if parties assessed

The assessee let out its premises to Minicon on a monthly rent of Rs.47,000 pursuant to a leave and license agreement. Minicon thereafter let out the said premises to various third parties. The AO, CIT (A) & Tribunal took the view that as one director was common between the assessee and Minicon, the transaction of leave & license was a “sham” and that the amount received by Minicon from various persons was assessable in the hands of the assessee. On appeal by the assessee, HELD allowing the appeal:

As the amounts received by Minicon from the third parties have been taxed in the hands of Minicon and that has attained finality, taxing the very same amount once again in the hands of the assessee would amount to taxing an income twice which is not permissible in law. In Akshay Textile Trading 304 ITR 401 (Bom) it was held that in the absence of any cogent evidence to show that the transaction was not genuine, the amounts received by an intermediary cannot be assessed in the hands of the assessee. In the present case, save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction. Accordingly, the decision of the Tribunal that the amounts received by Minicon on account of letting out the premises is liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon is a sham and bogus transaction cannot be accepted.

(363.0 KiB, 1,093 DLs)

Non-residents not eligible for benefit of second proviso to s. 112

The applicant, a company based in Scotland sold shares of Cairns India Limited to Petronas Corporation Intl. Limited for a consideration of USD 241,426,379 in off-market-mode and not through a recognized stock exchange. The assessee filed an application for advance ruling claiming that it was entitled to the benefit of the Proviso to s. 112 (1) and liable to pay tax at 10% of the capital gains. The Revenue resisted the plea on the ground that the benefit of the Proviso to s. 112 was available only to assessees who were eligible to the benefit of indexation in the second proviso to s. 48 and as the assessee was not eligible for indexation, it could not claim the benefit of the lower rate of tax in the Proviso to s. 112. HELD upholding the Revenue’s plea:

The expression “before giving effect to the 2nd proviso to s. 48‟ in the Proviso to s. 112(1) pre-supposes the existence of a case where computation of long-term capital gains could be made in accordance with the formula contained in the 2nd proviso in s. 48. It means that the asset must be one qualified for indexation under the second proviso to s. 48. There is no justification in not giving effect to the words used in the proviso. As the 2nd proviso to s. 48 is not applicable to non-residents, occasion to apply the proviso to s. 112(1) does not arise. A non-resident foreign company cannot claim the double benefit of protection against rupee value fluctuation as well as indexation (Timken 294 ITR 513 (AAR) not followed; BASF AG 293 ITR (AT) 1 followed).