Digest of important case law – December 2011

S. 2(IA): Agricultural income – Seeds – Human labour and efforts – Sale of hybrid seeds could not be treated as agricultural income for the purpose of exemption under section 10(1). [S. 10(1)]
Irrespective of nature of produce or product of land, whatever is grown on land with assistance of human labour and effort and whatever does not grow wild or spontaneously on soil without human labour and effort would be an agricultural product and process of producing it would be ‘agriculture’ within the meaning of expression in section 2(IA), therefore seeds are agricultural product and sale of seeds can be agricultural income. Assessee company was in business of cultivation, production and marketing of open hybrid seeds both for domestic and international market and it entered in to agreement with farmers for production of open hybrid tomoto seeds for its own benefit or on behalf of its overseas principals. By virtue of agreement farmers agreed to demarcate a particular acreage of land earmarked for purpose of cultivation of particular seeds during fixed period and to carry on cultivation of open hybrid seeds in the land so earmarked under guidance, specifications and supervision of assessee company. Preparation of bed, sowing of seeds, cultivation and harvesting of hybrid seeds was done by farmers and they were entitled a price fixed by assessee per quintal for all such seeds which would qualify specification indicated by assessee. The Court held that reading the terms of agreement would only indicate that assessee company was interested only to have healthy foundation seeds grown for process of converting same as certified seeds, therefore on facts income arising to assessee by sale of hybrid seeds could not be treated as agricultural income for purpose of exemption under section 10(1). (A. Ys. 1998-99 to 2004-05).
CIT v. Namdari Seeds (P) Ltd. (2011) 203 Taxman 565 / 64 DTR 153 (Karn.)(High Court)

S. 2(14) : Capital asset – Capital gains – Agricultural land – Outside municipal limits. (S. 45)
During the relevant assessment year, the assessee sold a piece of land. According to assessee the said land was agricultural land and did not fall within the definition of capital asset as defined in section 2(14)(iii) because it was located 9/9 kms., away from local municipality. The Assessing Officer treated the land as capital asset falling with in the provisions of section 2(14)(iii). The Tribunal held that in the instance case the agricultural land of the assessee was out side the municipal limits and that also 2.5 kms. away from the outer limits of the said municipality, assessee’s land did not come within the purview of section 2(14)((iii) either under sub clause (a) or (b), hence, the same could not be considered as capital asset within the meaning, hence no capital gain tax could be charged on the sale transaction of the land entered by the assessee. (A. Y. 2007-08).
Dy. CIT v. Arjit Mitra (2011) 48 SOT 544 (Kol.)(Trib.)

S. 2(14) : Capital asset – Capital gains – Agricultural land – Beyond 5 Kms. municipal limits – Not notified. (S. 45)
Assessee company sold certain land which was claimed to be agricultural land and not liable for capital gains tax. Assessing Officer relying on the reply of Tehsildar, Samlakha, observed that the land was situated with in the local; municipality limits and thus, it was a “capital asset” as defined in section 2(14), hence, liable to capital gains tax. The Tribunal held that where land belonging to assessee was not located in area falling with in 5 Kms. of local municipal limit as notified by Central Government, it was to be regarded as an agricultural land and ,thus capital gains arising on sale of it was not liable to tax. (A. Y. 2003-04).
ITO v. Gahlot Farmas (P) Ltd. (2011) 48 SOT 303 (Delhi)(Trib.)

S. 2(22)(e) : Deemed dividend – Not a share holder – Loan or advance.
Assessee company took certain loan from two companies. Assessing Officer was of view that said loan was to be added to assessee’s income as deemed dividend under section 2(22)(e). The Court held that an assessee who is not a share holder of company, from which he received a loan or advance, cannot be treated as being covered by definition of word ‘dividend’ as provided in section 2(22)(e). (A. Y. 2006-07).
CIT v. Navyug Promoters (P) Ltd. (2011) 203 Taxman 618 (Delhi)(High Court)

S. 2(22)(e) : Deemed dividend – Share holder – Unsecured loan.
Assessee company not being a shareholder in the company HEBPL, unsecured loan received by the assessee from that company can not be taxed as deemed dividend under section 2(22)(e) in the hands of the assessee company because a common share holder being more than 20 percent shares in both companies. (A. Ys. 2002-03 to 2005-06).
ACIT v. Bombay Real Estate Development Company (P) Ltd. (2011) 64 DTR 137 (Mum.)(Trib.)

S. 2(22)(e) : Deemed dividend – Share holder – Security deposit.
Assessee company leased out its property to ‘M’ Ltd. for 22 years against an advance of Rs. 320 crores to be adjusted against rent payable by the lessee. A dispute arose between the assessee and M Ltd. and for amicable settlement, a new agreement was entered into between them agreeing thereby, that “M Ltd.” would pay security deposit of Rs. 3.80 crores to the assessee to be refunded at the end of lease period and after handing over the possession of the property to the assessee. Assessing Officer treated the security deposit as deemed dividend under section 2(22)(e) on the basis that two of the beneficial shareholders of the lease company i.e. M Ltd were also shareholders and had substantial interest in the assessee company. The assessee submitted that it neither held any share in” M Ltd. nor had any beneficial interest in the said company and that deemed dividend in terms of section 2(22)(e) can be assessed only in hands of a person who is a shareholder of the lender-company and not in the hands of a person other than a shareholder. The Tribunal accepted the contention of assessee and held that deemed dividend can be assessed only in the hands of a person who is a shareholder of lender company and not in hands of a person other than a share holder. Expression “share holder being person who is beneficial owner of shares” referred in first limb of section 2(22)(e), refers to both a registered share holder and beneficial share holder. If a person is a registered share holder but not beneficial then provision of section 2(22)(e) will not apply, similarly, if a person is a beneficial share holder but not registered shareholder then also provision of section 2(22)(e) will not apply. Accordingly the order of Commissioner (Appeals) who has deleted the addition was confirmed. (A. Y. 2003-04)
Dy. CIT v. Madusudan Investment & Trading Co. Ltd. (2011) 48 SOT 360 (Kol.)(Trib.)

S. 4 : Income – Income or capital – Capital receipt – Sales tax incentive.
The object of the subsidy was to encouraging the setting up of industries in back ward area by generating employment therein, thus, the subsidy was on capital account and the sales tax incentive was a capital receipt. (A. Y. 1997-98).
CIT v. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom.)(High Court)
Editorial:- Supreme Court set aside the matter to the High Court to frame the question and decide afresh. CIT v. Reliance Industries Ltd. www.itatonline.org.

S. 4 : Income – Capital or revenue – Subsidy for industrial development – 90% of sales tax paid.
Subsidy received by assessee from the State Government under a scheme of industrial promotion, which was meant to provide financial assistance to specified industries for expansion of capacities, modernization and improving their marketing capabilities, is capital receipt, though the amount of subsidy is equivalent to 90 percent of the sales-tax paid by the beneficiary. (A. Y. 1995-96).
CIT v. Rasoli Ltd. (2011) 245 CTR 667 (Cal.)(High Court)

S. 4 : Income – Chargeable – Interest on Income-tax refund – Set off against tax paid – Gross or net.
Assessee earned interest income on income tax refund. It also paid interest on late payment of tax. Assessee claimed that interest paid by it was to be set off against interest received and it was only net interest was liable to tax. The assessing officer rejected the claim. The Tribunal confirmed the view of the Assessing Officer that the gross interest was liable to be assessed. (A. Y. 1992-93)
Dy. CIT v. Sandvik Asia Ltd. (2011) 133 ITD 126 (Pune)(TM)(Trib.)

S. 4 : Income – Accrual – Housing project – Project completion method – Certificate of completion – Occupancy certificate – Handing over of possession.
Assessee following the project completion method of accounting having completed the construction of flats in all respect according to the specifications and handed over to same to the purchasers only after the end of the financial year 2006-07, revenue in respect of the said flats is to be recognized in assessment year 2008-09 and not in the relevant assessment year i.e. 2007-08, though the occupancy certificates were obtained on 26th June, 2006 and 29th September, 2006. (A. Ys. 2002-03 to 2005-06).
ACIT v. Bombay Real Estate Development Company (P) Ltd. (2011) 64 DTR 137 (Mum.)(Trib.)

S. 4 : Income – Court decree – Capital receipt – Income from other sources – Easement. (S. 56)
In year 2004, the assessee had purchased certain land. On the eastern side of property, “P” a public company of developers, had trespassed assessee’s property by using a private road to reach their land located the said property. To get the encroached portion retrieved, the assessee filed civil suit for restraining that company’s entry on assessee’s land. As per the Court decree resulted in to by way of compromise between parties, the assessee permitted the use of private road enabling “P” to reach its property and in turn “P” paid certain amount to assessee. The assessee treated the said receipt as capital receipt. The assessing officer treated the said receipt as rent and taxable as income from house property. Commissioner (Appeals), reversed the finding of Assessing Officer. The Tribunal held that there being no relationship of land lord and tenant, between parties, amount received by assessee was only a capital receipt could not be taxed under the Act being an intangible asset having no cost. The Tribunal also held that the said receipt cannot be taxed as income from other sources. (A. Y. 2007-08).
Dy. CIT v. T. Kannan (2011) 48 SOT 374 (Chennai)(Trib.)

S. 4 : Income – Capital or revenue receipt – Amount received by widow of deceased partner.
Payment received by the widow of the deceased partner from the partnership firm after death of her husband under the terms of partnership deed was not chargeable to tax in her hands as revenue receipt as such payment did not relate to any business done by her for the firm and was not to compensate the assessee any loss of profits suffered by her because of the firm or to compensation for any services rendered by her either in present or future. (A. Y. 2005-06).
Dy. CIT v. Lakshmi M. Iyer (Mrs) (2011) 64 DTR 420 (Mum.)(Trib.)

S. 4 : Income – Mutuality – Transfer fee – Non occupancy charges – Members – Housing Society. [S. 2(24)]
Amount received in excess of the limits prescribed under the law from its members by the Housing Society is also exempt from tax on the principle of mutuality. (A. Y. 2005-06).
ITO v. Damodar Bhuvan CHS Ltd. ITA No. 1610/Mum/2010 dated 16-9-2011 Bench ‘D’. 421 (2012) 43-B BCAJ. (2012) Jan 33

S. 5 : Income – Accrual – Builder – Slum rehabilitation project – Sale of TDR – Project completion method – Method of accounting. (S. 145)
Assessee being a builder, had taken a slum rehabilitation project. Assessee had been allotted TDR in lieu of handing over possession of constructed transit building. Assessee has sold the TDR in two installments. Assessing Officer taxed the receipts of TDR as independent income. Assessee contended that as they are following project completion method as per AS. 7, income from project had to be computed in year of completion. The Tribunal directed the Assessing Officer to compute the income of project after taking into consideration entire expenditure and receipt from beginning of year including TDRs. In case the project was not found complete, Assessing Officer would set off TDR receipts against work in progress and no income would be assessed on account of TDR receipts separately. (A. Y. 2007-08).
ACIT v. Skylark Build (2011) 48 SOT 306 (Mum.)(Trib.)

S. 5 : Income – Accrual – Security deposit – Method of accounting. (S. 145)
Assessee company engaged in manufacturing of ice –creams, cheese, butter, etc., supplied freezers to venders after taking security deposits. On termination of agreement, assessee would own freezers and it would deduct certain percentage of cost of freezers from security deposit. Assessing Officer treated the deposit as income. The Tribunal held that the assessee could not treat these two amounts as receipts in nature of income unless agreement terminated. Tribunal accepted the method of accounting followed by assessee. (A. Y. 2007-08).
HighRange Foods (P) Ltd. v. Dy. CIT (2011) 48 SOT 453 (Coch.)(Trib.)

S. 9 : Income deemed to accrue or arise in India – Business connection – Permanent Establishment – Royalty – Profits from offshore supply of equipment & software not taxable in India – DTAA – India-Swish. (Article 13)
The assessee, a Swedish company, entered into contracts with ten cellular operators for the supply of hardware equipment and software. The contracts were signed in India. The supply of the equipment was on CIF basis and the assessee took responsibility thereof till the goods reached India. The equipment was not to be accepted by the customer till the acceptance test was completed (in India). The assessee claimed that the income arising from the said activity was not chargeable to tax in India. The Assessing Officer & CIT(A) held that the assessee had a “business connection” in India under section 9(1)(i) & a “permanent establishment” under Article 5 of the DTAA. It was also held that the income from supply of software was assessable as “royalty” under section 9(1)(vi) & Article 13. On appeal, it was held that as the equipment had been transferred by the assessee offshore, the profits therefrom were not chargeable to tax. It was also held that the profits from the supply of software was not assessable to tax as “royalty”. On appeal by the department to the High Court, HELD dismissing the appeal held that
(i) The profits from the supply of equipment were not chargeable to tax in India because the property and risk in goods passed to the buyer outside India. The assessee had not performed installation service in India. The fact that the contracts were signed in India could not by itself create a tax liability. The nomenclature of a “turnkey project” or “works contract” was not relevant. The fact that the assessee took “overall responsibility” was also not material. Though the supply of equipment was subject to the “acceptance test” performed in India, this was not material because the contract made it clear that the “acceptance test” was not a material event for passing of the title and risk in the equipment supplied. If the system did not conform to the specifications, the only consequence was that the assessee had to cure the defect. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. Consequently, the assessee did not have a “business connection” in India.
(ii) The argument that the software component of the supply should be assessed as “royalty” is not acceptable because the software was an integral part of the GSM mobile telephone system and was used by the cellular operator for providing cellular services to its customers. It was embedded in the equipment and could not be independently used. It merely facilitated the functioning of the equipment and was an integral part thereof. The fact that in the supply contract, the lump sum price was bifurcated is not material. There is a distinction between the acquisition of a “copyright right” and a “copyrighted article”.

DIT v. Ericsson AB (Delhi)(High Court) www.itatonline.org

S. 9 : Income deemed to accrue or arise in India – Royalties – Fees for included services – Permanent establishment – DTAA – India-USA. [Article 12(3)]
Assessee was non resident incorporated as corporation under Laws of USA. Main object of assessee was to provide high quality medical training and enhance quality of patient care and research by teaching training and sharing medical and technological know how with scientists and health care professionals in various countries. During the relevant assessment years the assessee received certain amount from hospitals located in India. Assessing Officer held that 90 percent of receipts taxable as royalty under Article 12(3) of DTAA between India and USA and 10 percent of payment was in nature of Fees for included services (FIS) taxable under Article 12(4). The Tribunal held that consideration received by assessee could not be said to be royalty as it was not a payment for right to use any copy right, trade mark or industrial, commercial or scientific experience. Assessee also did not make available any technical knowledge, experience, skill for included services. Therefore, it could be concluded that entire payment received by assessee from WHL was in the nature of business profits and since assessee did not have permanent establishment in India, same could not be brought to tax in India. The assessee received certain amount as reimbursement of expenses. Assessing Officer was of the view that reimbursement of expenses was also part of consideration for rendering the services he applied the same ratio. The Tribunal held that if it is held to be business income the same cannot be taxable in India applying as the assessee does not have any permanent establishment. If it is held to be other income the same cannot be brought to tax in view of Article 23(1) of DTAA. Accordingly the Tribunal deleted the addition made by the Assessing Officer. (A. Ys. 2002-03 and 2003-04).
Jt. Director v. Harward Medical International, USA (2011) 48 SOT 623 (Mum.)(Trib.)

S. 9 : Income deemed to accrue or arise in India – Permanent establishment – Cargo consolidation – Agent – DTAA – India-Singapore. [S. 163, Article 5(9)]
One “W” Ltd. was engaged in the business of Cargo Consolidation. It received Cargo from various shippers / consignors at Mumbai Port / Container Freight Station Mumbai / JNPT for shipments to various destinations world wide. A delivery schedule of Cargo had to be strictly adhered to. Assessing Officer noticed that “W” Ltd. had payment to assessee, a company located at Singapore on which no tax was deducted at source. Assessing Officer issued show cause notice to “W” Ltd. calling upon to why it should not be treated as an agent of Non-resident under section 163. Assessing Officer estimated profitability at 10 percentage of freight income earned by assessee and same was treated as business income. Commissioner of (Appeals) confirmed the order of Assessing Officer. Tribunal found that “W” Ltd. was acting on behalf of several non-residents and therefore, Article 5(9) was not attracted as the “W” Ltd. had no permanent Establishment in India, even if income accrued or arose to it in form of business income, same could not be taxed in India. (A. Ys. 2002-03 and 2003-04).
WSA Shipping (Bombay) (P) Ltd. v. ADIT (IT)(2011) 48 SOT 551 (Mum.)(Trib.)

S. 9 : Income deemed to accrue or arise in India – Permanent establishment – Liaison office of non-resident – Permanent establishment.
Liaison office of non-resident assessee in India carrying out activities of selection of right goods and negotiation of price as part of purchasing process as per instructions of assessee could not be considered as permanent establishment of assessee in India and therefore profit attributable to liaison office could not be held to have accrued or arisen in India. (A. Ys. 2004-05 and 2005-06).
Dy. DIT (International) v. M. Fabricant & Sons Inc. (2011) 48 SOT 576 (Mum.)(Trib.)

S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalties and fees for included services – Data base – DTAA – India-USA – Non-Resident – Deduction at source. (S. 195, Art. 12)
Assessee made certain payments to a non-resident ‘G’ USA/ Ireland, on which no tax was deducted under section 195, on the ground that the payment was akin to making a subscription for a journal or magazine of a foreign publisher and though the journal contained information concerning commercial, industrial or technical knowledge, payee made no attempt to impart same to payer and thus, payment fell outside scope of clause (ii) of Explanation 2 to section 9(1)(vi) as well as article 12 of Indo-US DTAA. Assessing Officer held that payments made to ‘G’ was ‘royalty’ within the meaning of Explanation 2 to section 9(1)(vi) and in alternative ‘fees for technical services’(Included services) both of which were liable for tax in India in terms of section 195, read with section 9(1)(vi) and (vii) and relevant provisions of DTAA. The Court held that ‘G’ had maintained a data base and it had granted online access of same to assessee therefore, the payment made by assessee for licence to use data base maintained by ‘G’ was to be treated as royalty. Since assessee failed to deduct tax at source while making payment of royalty to ‘G’ impugned order passed by Assessing Officer was up held. (A. Ys. 2001-02 to 2003-04).
CIT v. Wipro Ltd. (2011) 203 Taxman 621 (Karn.)(High Court)

S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – DTAA – India-Australia – Permanent Establishment – Foreign companies – Royalties – Even if not assessable as “fees for technical services” under DTAA, bar in section 44D against deduction of expenses will apply. [S. 44D, 115A, Article 7(3)]
The assessee, an Australian company, set up a permanent establishment (PE) in India to render technical services for evaluation of coal deposits and conducting feasibility studies for transportation of iron ore. The Assessing Officer & CIT(A) held that the payments received by the assessee were taxable as “fee for technical services” under section 9(1)(vii) read with section 115A on a gross basis without any deduction in view of section 44D at the rate of 20%. On appeal, the Tribunal held that as the assessee had a PE in India, the receipts were chargeable to tax as “business profits” after deduction of expenses under Article 7 of the DTAA and section 44D & 115A did not apply. On appeal by the department, HELD partly reversing the Tribunal:
(i) As the assessee had a PE in India from which the income arose, the income was chargeable to tax as “business profits” under Article 7 of the DTAA and not as “fees for technical services” under Article 12;
(ii) Article 7(3) permits a deduction of expenditure “in accordance with and subject to limitations of the law” relating to tax in India including executive and general administrative expenses so incurred regardless whether they have incurred in India or elsewhere. The words “in accordance with and subject to limitation of the law relating to tax” applies not only to the “executive and general administrative expenses” but to all expenditure;
(iii) The income received by the assessee, though not assessable as “fees for technical services” under the DTAA, is “fees for technical services” under Explanation 2 to section 9(1)(vii) because it is for providing technical information and does not arise from a “project”. Consequently, section 44D, which provides that no deduction shall be admissible while computing income of the nature of “fees for technical services” shall apply.
DIT v. Rio Tinto Technical Services (Delhi)(High Court) www.itatonline.org

S. 9(1)(vii) : Income deemed to accrue or arise in India – Royalties – Fees for technical services – DTAA – India-United Kingdom. [Article 13(4)(c)]
Assessee company, incorporated in London, operated as a recongnized insurance broker and it was licensed to intermediate insurance business by Financial Services Authority (FSA) of United Kingdom. It entered in to an agreement with “N” Ltd., in India to reinsurance on an excess loss basis, catastrophe risk arising from its primary insurance cover in conjunction with “J” “M” “A” and “G” Ltd. For services rendered, assessee along with other insurance brokers acting as an intermediary in reinsurance process for “N” Ltd. would be entitled to 10 % brokerage. Assessing Officer held that the service provided by assessee would be consultancy in nature and payments received by assessee would fall within definition of “fees for technical services”. The Tribunal held that since the service rendered assessee did not involve technical expertise, nor assessee made available any technical know how expertise, skill, etc., and was merely acting as an intermediary in process of finalization of reinsurance suggesting various options to Indian Insurance company for their consideration and acceptance, it could not be said that payment received by assessee from insurance company in India was fee for technical services, therefore, it could not be brought to tax in India. (A. Y. 2006-07).
Guy Carpenter & Co. Ltd. v. Addl. Income-tax (2011) 48 SOT 463 (Delhi)(Trib.)

S. 9(1)(vii) : Income deemed to accrue or arise in India – Permanent establishment – Fees for technical services – Double taxation relief – DTAA – India-Singapore. (S. 90, Art. 5)
Assessee had no fixed place or service permanent establishment in India with in the meaning of Art. 5 of DTAA between India and Singapore and assessee’s receipts from PB production and generation of live television signals were in the nature of “fees for technical services” and not by way of “business income” since assessee had no PE in India, receipts were taxable @ 10 percent as per Art. 12(2), advertisement revenue received by the assessee in Singapore for matches played abroard was not taxable in India. (A. Ys. 2003-04 & 2004-05).
Nimbus Sport International Pte. Ltd. v. Dy. CIT (2011) 63 DTR 374 (Delhi)(Trib.)

S. 10(23C) : Exemption – Educational institutions – Charitable purpose – Adult education – Sports. (S. 2(15), 12)
The petitioner filed application for seeking exemption under section 10(23C)(vi). The petitioners application was rejected on the ground that the object of the petitioner does not exist solely for educational purpose. The rejection order was challenged before the High Court. The High Court held that, the ‘education’ means process of training and developing, knowledge, skill, mind and character of students. Activities such as maintaining, library, conducting classes of stitching, weaving, embroidery and adult education, fall within ‘education’. Sports and recreational activities also fall with in modern concept of education. Educational society running school having such other objects cannot be denied approval under section 10(23C)(vi) on ground that society is not existing solely for educational purpose.
Little Angles Shiksha Samiti Dal Bazzar, Gwalior & Anr. v. UOI (2011) Tax L.R. 941 (MP)(High Court)

S. 10(23C)(iv) : Exemption – Charitable purpose – Coaching classes and conduct of examination – Applicability of proviso. [S. 2 (15), 11(5)]
Assessee Institute has given the duty and function to approve academic courses, conduct examination for enrolment, prescribe fee, make regulation for registration for encouragement, training of articled and audit clerks, prescribe qualification for registration, grant or refuse to grant certificate of practice and regulate and maintain the standards of members. Section 30A of the Chartered Accountants Act empowers the Central Government to give direction or special directions to the Council constituted under section 9 to ensure compliance. There is clear distinction between coaching classes conducted by private coaching institutions and the courses and examinations which are held by the petitioner Institute. The court held that the Director General was not justified in refusing exemption under section 10(23C)(iv) by cryptic order on the ground that by holding coaching classes for fee ,it was engaged in “business” without considering whether it was engaged in “trade commerce or business” with in the meaning of first proviso to section 2(15) and further without considering the plea of assessee that it had not violated section 11(5) or third proviso to section 10(23C)(iv) . The Court remanded the matter for consideration afresh keeping in view the observations made. (A. Ys. 2006-07 to 2009-10).
The Institute of Chartered Accountants of India & Anr. v. DGIT (Exemption) (2011) 245 CTR 541 / 64 DTR 226 (Delhi)(High Court)

S. 10(23C)(vi) : Exemption – Educational institutions – University existing for educational purposes – Haryana Private Universities Act, 2006.
Petitioner university created under section 3 of Haryana Private University Act, 2006 having obtained recognition from the Bar Council of India as well as University Grants Commission and also set up infrastructure for starting law courses, it is an existing educational institution and therefore entitled to approval. Rejection on the ground that petitioner is yet to commence educational activities is set aside and the Commissioner was directed to pass an order granting approval under section 10(23C)(vi). (A. Y. 2008-09).
O. P. Jindal Global University v. CCIT (Exemption) (2011) 64 DTR 22 (P&H)(High Court)

S. 10(23FB) : Exemption – Income of venture capital company – Interest on deposits with banks.
Assessee trust has been registered under the provisions of Registration Act, 1908 and also registered under SEBI as per Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. The assessee deposited certain amount on deposit with banks and earned interest on said deposits. The assessee contended that the entire income must be exempt. Assessing Officer held that investment in fixed deposit has violated the conditions. The Tribunal held that the assessee Trust registered under the provisions of Registration Act 1908, as well as under SEBI (Venture Capital Funds) Regulations, 1996 hence interest income from fixed deposit will be exempt under section 10(23FB) of the Income-tax Act. The Tribunal held that it is only from the Assessment year 2008-09 on wards the income from investment in specified undertakings would be exempt and other income will be taxable. (A. Ys. 2001-02 to 2005-06).
ITO v. Gujarat Information Technology Fund (2011) 64 DTR 169 (Hyd.)(Trib.)

S. 10(38) : Exemption – Capital gains – Income arising from transfer of shares – Security Transaction Tax (STT) not paid – Listed Security. (S. 45, 112)
Assessee was a promoter–director of a company “PLL”. PLL issued shares for public subscription through initial public offer (IPO) as per SEBI guidelines, which permitted existing shareholders also to sell their shares in IPO for diluting their equity holding. Assessee sold certain shares of “PLL” and received certain amount as sale consideration. Assessee claimed that said gains were not includible in his total income. Assessee has not paid Securities Transaction Tax (STT) on said shares. Assessing Officer has not allowed the exemption on the ground that the assessee has not paid STT on said shares and the Shares of PLL were not listed on any stock exchange on the date of sale. The Tribunal confirmed the order of Assessing Officer and held that the assessee was liable to be taxed at 20 percent. (A. Y. 2006-07).
Uday Punj v. Dy. CIT (2011) 133 ITD 354 (Delhi)(Trib.)

S. 10(38) : Exemption – Capital gains – Income arising from transfer of shares – Security Transaction Tax – Stock-in-trade. (S. 112)
Exemption under section 10(38) can be allowed only on sale of shares held as capital asset which has suffered Securities Transaction Tax (STT). If on date of sale, shares are converted into stock-in-trade, exemption would not be available under section 10(38). Provisions of section 10(38) are applicable only to capital assets and not in case of business transaction. (A. Y. 2006-07).
Alka Agrwal v. Asst. Director of Income-tax (2011) 48 SOT 493 (Delhi)(Trib.)

S. 10A : Exemption – Free trade zone – Total turnover – Export turn over – Communication charges. (Sec. 263)
The Assessing Officer in the original assessment proceedings had not included the communication charges in the figure of total turnover for computing eligible deduction under section 10A. Commissioner passed the revision order under section 263. On appeal the Tribunal up held the order of Commissioner however on merit the Tribunal, held that the communication charges had to be excluded from the total turnover for the purpose of computing the deduction under section 10A. The High Court held that when export turnover was component of total turnover and consequently, when telecommunication charges had been specifically excluded from export turn over, it being a component of total turnover, it stood to reason that telecommunication charges had also to be excluded from total turnover, hence, the Tribunal was justified in directing that the Assessing Officer to exclude communication charges out of total turnover for computing eligible deduction under section 10A. (A. Y. 2004-05).
CIT v. Genpat India (2011) 203 Taxman 632 (Delhi)(High Court)

S. 11 : Exemption – Charitable purpose – Advance of money to treasurer. (S. 12A, 13)
Assessee a registered society under section 12A, advanced certain sum without any security to its treasurer. It could not furnish any detail about rate of interest and mode of recovery of loan and same was also not reflected in its books as well as audit report except resolution which could not be relied upon. It was a clear case of violation of section 13 and exemption had been rightly denied to it. (A. Y. 2001-02).
CIT v. Audh Educational Society (2011) 203 Taxman 166 (All)(High Court)

S. 11 : Exemption – Charitable purpose – Depreciation – Application of income – Expenditure incurred in earlier year. (S. 32)
Assessee charitable trust is entitled claim for depreciation on the assets owned by it. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust, then there would be no way to preserve the corpus of trust. Expenditure incurred in the earlier year can be met out of the income of the subsequent year and utilization of such income for meeting the expenditure of the earlier year would amount to such income being applied for charitable or religious purposes. (A. Ys. 2004-05 to 2006-07).
CIT v. Shri Gujarati Samaj (Regd.) (2011) 64 DTR 76 (MP)(High Court)

S. 11 : Exemption – Charitable purpose – Contribution from institutional members. [S. 13(1)(c)]
Assessee was set up under sponsorship of Government of India for sole purpose of providing physical environment to various institutions for carrying out their activities. Assessee claimed the exemption under section 11 which was granted by the Assessing Officer. Commissioner under section 263 set aside the order of Assessing Officer on grounds that institutional members fell within category of substantial contributors in terms of section 13(3) and since space in superstructure had been allotted to organizations below market price, provisions of section 13(1)(c) read with section 13(3)(b) were attracted and therefore the assessee was not entitled to exemption. The Tribunal reversed the finding of Commissioner. On appeal the Court held that in view of fact that funds received from institutional members were shown in balance sheet of assessee as liabilities and not as contributions towards “corpus”, there is no violation of section 13(3). Since allotment of space was subject to approval of Government and was based on a self financing model, there could be no question of allotment of super structure at price below market price hence there is no violation of section 13(1)(c). Accordingly the High Court up held the order of Tribunal. (A. Y. 1990-91).
Director of Income-tax v. India Habitant Centre (2011) 203 Taxman 510 (Delhi)(High Court)

S. 11 : Exemption – Charitable purpose – Accumulation of income – Form No. 10.
Tribunal held that the filing of form No. 10 before assessment is not an empty formality, benefit of accumulation of income under section 11(2) cannot be availed in the absence of filing of form No. 10 before completion of assessment. (A. Y. 2007-08).
Hans Raj Samarak Society v. ITO (2011) 133 ITD 530 (Delhi)(Trib.)

S. 11 : Exemption – Charitable purpose – Income from property. (S. 2(15), 12AA)
Assessee authority was formed with object to promote and secure development of certain area according to plan. For said purpose assessee had power to acquire hold manage and dispose of land and other property. The assessee had the registration under section 12AA of the Income-tax Act. The assessee filed the return of income claiming exemption under section 11. Assessing Officer held that the nature of activities carried on by the assessee were in the nature of carrying on of business hence surplus of said activity was liable to tax. It was argued before the Tribunal that since assessee carried on a business which was incidental to attaining of its main object. The Tribunal held that in such situation, exemption under sub sections (1)(2)(3)(3A) of section 11 would be available to assessee only if it maintained separate books of account for said business. Since aforesaid aspect had not been examined by authorities below, matter was to be remanded back to Assessing Officer for fresh disposal. (A. Y. 2007-08).
ITO v. Moradabad Development Authority (2011) 133 ITD 485 (Delhi)(Trib.)

S. 11 : Exemption – Charitable purpose – Educational institution – Loan to another Society. [S. 12, 12AA, 13 (1)(d)]
Assessee running a educational institutions was registered under section 12A. It had filed its Income-tax return declaring nil income. Assessee had given loan of Rs. 1.28 crores to another society which was also engaged in charitable activities of education. Assessing Officer and Commissioner (Appeals) held that as assessee had violated provisions of section 13(1)(d) invoked the provisions of section 11(5) and denied the exemption under section 11 and 12. Tribunal held that assessee neither invested impugned amount nor deposited same otherwise than in any one of forms or modes specified in section (5) of section 11 because loan was neither an investment nor a deposit, provisions of section 13(1)(d) were not applicable hence the Assessing Officer was directed to allow the exemption (A. Y. 2006-07).
Kanpur Subhash Shikasha Samiti v. Dy. CIT (2011) 133 ITD 182 (Luck.)(Trib.)

S. 11 : Exemption – Charitable trust – Survey – Capitation fee – Voluntary contribution – In Voluntary contributions – Denial of exemption. (S. 12)
During survey Assessing Officer observed that assessee had collected capitation fee from students and no receipt were given for such collection. Assessing Officer was of the view that what is exempted from taxation under section 11 and 12 were are only voluntary contributions and not contributions collected against allotment of seats. However, there was no material on record to show that assessee had accepted capitation fee against allotment of seats, in view of decision of earlier year the exemption was allowed. The Tribunal further held that there is no difference between voluntary contributions and involuntary contributions, only distinction is that voluntary contributions are to be treated as income under section 12 and corpus donations are to be treated as capital receipt under section 11. If the said income is applied for the charitable purpose the exemption to be allowed. (A. Ys. 2002-03 to 2008-09).
ACIT v. Balaji Educational & Charitable Public Trust (2011) 48 SOT 281 (Chennai)(Trib.)

S. 12A : Exemption – Charitable purpose – Telecasting and broad casting programmes – Registration. [S. 2(15)]
The assessee company was formed with object of to telecast and broad cast programmes and to as an agent, broker liasiner et.c, will not make the object clause charitable. Activities of the company are purely commercial activities not exclusively intended for advancement of any object of general public utility, assessee is not entitled to be registered as charitable institution. Subsequent amendment to the constitution is not relevant for the registration of relevant year. Order of Tribunal was reversed and order of Commissioner confirming the refusal of registration was confirmed.
CIT v. A. Y. Broadcast Foundation (2011) Tax L.R. 892 (Ker.)(High Court)

S. 12A : Exemption – Charitable purpose – Registration – Cancellation. [S. 12AA(3)]
Objects of the assessee society having been considered and found to be charitable in nature when the registration under section 12A was granted, said registration could not be cancelled by Commissioner by invoking the provisions of section 12AA(3) in the absence of anything on record to show that there was any change in the objects of the society or that its activities were not in accordance with those objects. Proceedings under section 80G and proceedings under section 12A are separate distinct and independent of each other and therefore, proceedings under section 80G cannot form basis for initiation of proceedings under section 12AA(3).
Maulana Mohammad Ali Jauhar Trust v. CIT (2011) 63 DTR 416 (Luck.)(Trib.)

S. 12AA : Exemption – Charitable purpose – Registration – Educational institutions on commercial line. (S. 2(15), 11, 12)
Assessee trust was formed to run educational institutions. It applied for registration under section 12AA. DIT(E) rejected the application on ground that probable fees to be collected from students was having a component for future expansion of institution and same component was in nature of profit and thus ,objects of trust would also include profit motive. The Tribunal held that since the object of trust was to establish a number of educational institutions in a brand name and run those institutions on commercial line, it could not be regarded as charitable activity, therefore, DIT (Exemption) was justified in rejecting assessee’s application seeking registration under section 12AA.
Rajah Sir Annamali Chettiar Foundation v. DIT (2011) 48 SOT 502 (Chennai)(Trib.)

S. 13 : Exemption – Charitable purpose – Religious trust – Benefit of Dawoodi Bohra community. (S. 11)
The assessee was religious trust for benefit of Dawoodi Bohra community. The Commissioner rejected registration of trust on ground that assessee trust was not established for benefit of general public and had violated the provisions of section 13(1)(a) and 13(1)(b). The assessee contended that said section 13(1)(b) would not be applicable to religious trust. The Tribunal held that since the benefit of Trust was available to all persons of Dawoodi Bohra community .i.e., benefit was available to a section of people and was not confined to some specific individuals, it could not be said that assessee trust was established for private religious purpose, therefore assessee is entitled for registration.
Shiya Dawoodi Bohra Jamat v. CIT (2011) 133 ITD 271 (Ahd.)(Trib.)

S. 13 : Exemption – Charitable purpose – Religious purpose – Registration – Minorities and back word classes. (S. 12A)
The assessee trust were formed for charitable and religious purposes, the beneficiaries of the trust were the financially poor minorities and other back ward classes in Tellicherry Municipality and its suburbs. The Assessee applied for registration under section 12A. The Commissioner found that the trust was established for the benefit of a particular religious community or caste and thus hit by section 13(1)(b). It was further held that Explanation (2) below section 13(7), which provides an exception to section 13(1)(b) for schedule castes, back word class schedule tribes or women and children, would not be applicable in the instant case as the word “minority” cannot be applicable in the instant case as the word “minority” cannot be categorized as either scheduled caste or back ward community. He accordingly, rejected assessee’s application for grant of registration. The Tribunal held that the by reading the Trust deed as a whole the word ‘Minority to mean the religious minorities hence section 13(1)(b) would stand automatically attracted, hence the order of Commissioner was up held.
Tellicherry Minority Welfare Trust v. CIT (2011) 48 SOT 313 (Coch.)(Trib.)

S. 14A : Business expenditure – Exempted income – Method of computation – Reasonableness – Rule 8D – Prospective.
Section 14A(2), 14(3) and Rule 8D are prospective. For earlier years the Assessing Officer is required to reject the claim of assessee with regard to the extent of such expenditure for cogent reasons and then determine the amount of such expenditure on the basis of reasonable and acceptable method of apportionment. (A. Y. 1998-99 to 2005-06).
Maxopp Investment Ltd. & Ors. v. CIT (2011) 64 DTR 122 (Delhi)(High Court)
CIT v. Escorts Finance Ltd. & Ors. (2011) 64 DTR 122 (Delhi)(High Court)

S. 14A : Business expenditure – Exempted income – Dividend – No expenditure incurred.
When no expenditure in fact incurred in earning dividend income, no disallowance permissible. (A. Y. 1997-98).
CIT v. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom.)(High Court)

S. 14A : Business expenditure – Exempted income – Proviso – First assessment – Reassessment. (S. 143(1), 147)
On facts of the assessee, assessment proceedings initially completed under section 143(1). Subsequently Assessing Officer initiated reassessment proceedings in course of which he made certain disallowance under section 14A. Since notice under section 148 was issued to make an assessment at first instance, Assessing Officer was justified in dealing with issue arising under section 14A. Bar stated in proviso to section 14A does not operate in a case of first assessment. (A. Y. 1999-2000).
ACIT v. Tube Investments of India Ltd. (2011) 133 ITD 79 (Chennai)(TM)(Trib.)

S. 14A : Business expenditure – Exempted income – Interest free funds.
If there were funds available, both interest free and interest bearing, then a presumption would arise that interest free funds have been generated for investments and no disallowance of interest could be made under section 14A. (A. Y. 2004-05).
Bunge Agribusiness (India) (P) Ltd. v. Dy. CIT (2011) 64 DTR 201 (Mum.)(Trib.)

S. 14A : Business expenditure – Exempted income – Dividend – Interest UTI Bonds – Rule 8D.
Assessee claimed that no expenditure was incurred for earning for earning tax free income. Assessing Officer held that some expenditure must have been incurred to earn said income and he estimated 1 percent of tax free income and disallowed Rs. 42,130 under section 14A. Commissioner (Appeals) by applying Rule 8D retrospectively, disallowed Rs. 10.29 lakhs. Assessee before Tribunal challenged applicability of Rule 8D. The Tribunal held that Rule 8D was not applicable, however, went into reasonableness of estimation and quantification before Tribunal, estimation as made by Assessing Officer was to be up held. (A. Y. 2004-05).
Dy. CIT v. Philips Carbon Black Ltd. (2011) 133 ITD 189 (Kol.)(TM )(Trib.)

S. 14A : Business expenditure – Exempted income – Interest paid.
Assessee bank borrowed certain funds, which were invested in purchase of tax free bonds for meeting SLR requirement of RBI. Assessing Officer disallowed the interest under section 14A. The Tribunal deleted the disallowance. On appeal High Court held that the object or purpose of investment does not affect operation of section 14A in as much as any expenditure incurred for earning tax free income is not an allowable expenditure, therefore, even though purchase of tax free bonds was for meeting SLR requirements, interest and other expenses incurred on borrowals for investment in tax free bonds was to be disallowed.
CIT v. State Bank of Travancore (2011) 203 Taxman 639 (Ker.)(High Court)

S. 28(i) : Business income – Capital gains – Firm – Development of property. (S. 45)
The assessee firm was carrying on business of dealing in grocery items. The object of the firm included development and sale of property. Firm constructed a commercial complex. The portions of said property was sold in relevant years and consideration received was utilized to clear debt which had been incurred for development of property. Assessee claimed the income as capital gain which was rejected by the Assessing officer and assessed as business income. The Court held that notwithstanding that the objects of firm income would be assessed as capital gains. (A. Ys. 1996-97 to 1997-98 and 1999-2000).
CIT v. Pai Provision Stores (2011) 203 Taxman 196 (Karn.)(High Court).

S. 28(i) : Business loss – Valuation of interest rate swap contract. (S. 145)
Loss on account of valuation of interest rate swap contract is allowable as deduction and it cannot be disallowed on the ground that it is a notional or imaginary loss. (A. Y. 2003-04).
ABN Amro Securities India (P) Ltd. v. ITO (2011) 133 ITD 343 (Mum.)(Trib.)

S. 28(iiia) : Business income – Accrual – Notional export benefits receivable – Advance licence. (S. 5)
It is now a settled law that if a particular income shown in the profit and loss is not taxable under the Act, it cannot be taxed on the basis of estoppels or any other equitable doctrine. Equity is outside the purview of tax laws; Under section 28(iiia), only profit on sale of license should be chargeable but not the profit which may come in future on sale of the licence. (A. Y. 1997-98).
GKW v. CIT (2011) 64 DTR 79 (Cal.)(High Court)

S. 28(va) : Business income – Non compete fees – Compensation for not carrying on activity in relation to any business for a period of 11 years – Capital gains. (S. 45)
The assessee was one of the promoter of “TP Ltd.” and together with other promoters held substantial shares in the company. By an agreement “I Ltd.” (Acquirer) agreed to purchase share holding of the assessee along with other promoters of “TP Ltd”. The Acquirer with a view to ensure that the promoters after sale of the shares did not indulge in competing business entered in to a non compete agreement whereby the assessee was paid Rs. 2 crores for agreeing not to carry or be engaged, concerned or interest in any competing business for a period of 11 years. The assessee treated the said receipts as capital receipt. The Assessing Officer held that the receipt in question was a fee received for not carrying out any activity in relation to any business and therefore, chargeable to tax under section 28(va). The Tribunal held that for proviso (i) to section 28(va)(a) to apply there must be transfer of the right to carry on any business. The assessee in the instant case was not carrying on any business on his own but was the promoter and director of the company whose shares were purchased by the acquirer. The provisions of section 45 would get attracted only when there is a capital gains arising as a result of transfer of a capital asset. The definition of transfer in given is section 2(47). In a agreement by which the assessee refrained form indulging in a business competing with the promoter, there cannot be transfer in any modes set out in section 2(47) therefore the payments on account of non compete fee cannot be brought to tax under section 45 hence in the instant case the proviso (i) to section 28(va)(a) will not apply. Consequently the receipt in question would be chargeable to tax as business income and not capital gains, accordingly the order of Commissioner was up held. (A. Y. 2007-08).
Ramesh D. Tainwala v. ITO (2011) 48 SOT 324 (Mum.)(Trib.)

S. 32 : Depreciation – Charitable Trust. (S. 11)
Assessee charitable trust is entitled claim for depreciation on the assets owned by it. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust, then there would be no way to preserve the corpus of trust. (A. Ys. 2004-05 to 2006-07).
CIT v. Shri Gujarati Samaj (Regd.) (2011) 64 DTR 76 (MP)(High Court)

S. 32 : Depreciation – Unabsorbed – Business discontinued.
The business of assessee as carried on in earlier years had been discontinued , in view of provisions of section 32(2) as amended with effect from 1-4-2002, assessee’s claim of set off of unabsorbed depreciation pertaining to those years against income of current year was to be rejected. (A. Y. 2002-03, 2004-05 and 2006-07).
Vidhyavihar Containers Ltd. v. Dy. CIT (2011) 133 ITD 363 (Mum.)(Trib.)

S. 32 : Depreciation – Amalgamation – Second proviso – Quantification.
The assets have been acquired and used from 29th August, 2003. In this case therefore proportion adopted by the assessee as fifty–fifty seems to be correct, however this apportionment has to be done out of total depreciation which was allowable at 100 percent in view of second proviso i.e. Amalgamating company has rightly claimed the depreciation for the first six months because only depreciation of six months has been claimed in the case of amalgamated company. The Tribunal set a side the order of Commissioner (Appeals) and directed the Assessing Officer to allow the depreciation for six months. ( A. Y. 2004-05).
Bunge Agribusiness (India) (P) Ltd. v. Dy. CIT (2011) 64 DTR 201 (Mum.)(Trib.)

S. 32 : Depreciation – Additional depreciation – Enhancement of installed capacity – Qua Business or Qua an Undertaking.
Assessing Officer held that enhancement of installed capacity had to be considered in respect of whole business and not with reference to one single unit and disallowed additional depreciation. Tribunal held that one should consider increase in capacity of an undertaking in which additional machinery was installed. Since concerned unit was an independent unit which had increased its capacity by more than 10 percent, said undertaking, satisfied conditions prescribed in section 32, hence additional depreciation was to be allowed there on. (A. Y. 2005-06).
NRB Bearings Ltd. v. Dy. CIT (2011) 133 ITD 306 (Mum.)(Trib.)

S. 32AB : Investment deposit – Amount paid as advance for purchase of machinery.
Amount given in advance for purchase of plant and machinery amounts to utilization in the year for the purpose of section 32AB(1)(b). Installation of plant and machinery is not a condition precedent for availing the benefit of section 32AAB. (A. Y. 1989-90).
CIT v. Vindhya Telelinks Ltd. (2011) 63 DTR 313 (MP)(High Court)

S. 35AB : Business expenditure – Expenditure on know-how – Purchase of designs and drawings – Consultancy charges. [S. 37(1)]
Assessee has paid Rs. 11,39,195 for purchase of designs and drawings. Out of which 10,39,195 was paid for getting designs and drawings for manufacturing of opening roller, while remaining amount of Rs. 1,00,000 was paid as a consultancy charges. Assessee claimed entire deduction under section 37(1). Assessing Officer has allowed only 1/6th of expenditure under section 35AB. On appeal, Commissioner (Appeals) held that entire expenditure was allowable under section 37(1). Tribunal up held the order of Commissioner (Appeals). On further appeal to High Court, the High Court held that the amount spent for acquiring technical knowhow for increasing its product range therefore it attract the provision of section 35AB, hence only 1/6th of the said amount would be deductible in relevant assessment year. In respect of consultancy charges provisions of section 35AB cannot be applied, the said amount will be allowable under section 37(1) of the Income-tax Act. (A. Y. 1990-91).
CIT v. Lalkshmi Card Clothing Manufacturing Co. Ltd. (2011) 203 Taxman 647 (Mad.)(High Court)

S. 35D : Business expenditure – Preliminary expenses – Amortisation – Issue of shares capital base.
Expenditure incurred on issue of shares so as to increase its capital base did not qualify to be amortised under section 35D. (A. Y. 2006-07).
Medreich Ltd. v. Dy. CIT (2011) 48 SOT 579 (Bang.)(Trib.)

S. 35E : Business expenditure – Deduction – Prospecting, etc. – Minerals.
Assessee which is engaged in prospecting and exploration of minerals, it also provided consultancy services in same field, expenditure incurred towards prospecting and exploring activities were capitalized and amortization of same was claimed under section 35E. Expenditure incurred to earn consultancy service were claimed as business expenditure under section 37(1). Assessing Officer held that all the expenditure were to treated as eligible for amortisation under section 35E. The Tribunal held that only such expenses which are incurred wholly and exclusively on any operations relating to prospecting as envisaged under provisions of section 35E(2) read with section 35(E)(5)(a), and rest of unconnected expenses which may have been incurred by an assessee are eligible deduction in normal course of computation of business income. (A. Y. 2005-06).
De Beers India (P) Ltd. v. Dy. CIT (2011) 48 SOT 506 (2012) 13 ITR 1 (Mum.)(Trib.)

S. 36(1)(iii) : Business expenditure – Interest on borrowed capital – Year of allowability -Compromise decree.
Assessee could not repay the loan due to financial difficulty. Lender filed the suit and demanded the interest. After some time a consent decree was passed on 8-2-2001 on which the assessee has agreed to repay the loan with interest. The assessee claimed the interest as deduction on the ground that same was crystallised when the consent term was passed. Assessing Officer held that the interest cannot be allowed in the relevant year. The Court held that since compromise decree was passed on 8-2-2001, assessee was entitled to claim deduction of that liability in year in question. (A. Y. 2000-01).
CIT v. Jain Studio Ltd. (2011) 203 Taxman 522 (Delhi)(High Court)

S. 37(1) : Business expenditure – Capital or revenue – Repair of existing road.
Expenses incurred on repair of existing road in its factory premises to make it conducive for use are allowable as revenue expenditure. (A. Y. 2006-07).
CIT v. Voith Paper Fabrics India Ltd. (2011) 64 DTR 58 / 245 CTR 516 (P&H)(High Court)

S. 37(1) : Business expenditure – Capital or revenue – Customising the software.
Amount paid by the assessee for customizing the software according to new requirement which involved only a modification of the existing software and not acquisition of any new software is revenue expenditure.
CIT v. Voith Paper Fabrics India Ltd. (2011) 64 DTR 58 / 245 CTR 516 (P&H)(High Court)

S. 37(1) : Business expenditure – Secret Commission for procuring contract – Explanation to section 37(1).
Assessee was awarded a contract for construction at tendered rates. Subsequently, the amount received by the assessee at tendered rates was agreed to be repaid but the same was repaid to the directors of the company who awarded the contract. The amount repaid was named as commission in consideration of awarding the construction contract and claimed as deduction. Assessing Officer disallowed the commission, which was up held by the Tribunal. On further appeal, the High court held that, amount paid to the directors of a company in consideration of company awarding contract being immoral is not allowable in view of explanation to section 37(1); if the assessee commits an offence under any law in the course of his business and incurs expenditure for any purpose in connection with the said offence, the said amount is not deductible under section 37. (A. Ys. 1983 & 1984 -85).
J. K. Panthaki & Co. v. ITO (2011) 64 DTR 283 / (2012) 246 CTR 59 (Karn.)(High Court)

S. 37(1) : Business expenditure – Non-compete fee – Capital expenditure – Amount paid for non-compete rights while acquiring business is capital expenditure.
The assessee acquired the mailing business of Kilburn Office as a going concern on a slump sale basis pursuant to a Business Transfer Agreement. The consideration for the transfer was Rs. 18.92 crores which included Rs. 5.94 Crores by way of non-compete fee for a period of 5 years. In the accounts, the expenditure was treated as a capital payment though a deduction was claimed in the computation under section 37(1). The Assessing Office disallowed the claim though the CIT(A) allowed it as deferred revenue expenditure. On appeal by the department, the Tribunal reversed the finding of CIT(A) and directed to consider whether the payment was an “intangible asset” for purposes of depreciation. On appeal by the assessee, HELD dismissing the appeal the court held that in the books, the assessee treated the non-compete expenditure as capital in nature. Warding off competition in business even to a rival dealer will constitute capital expenditure. It is not necessary that the non-compete fee has to be paid to create monopoly rights. The non-compete agreement was to last for 5 years, which period is sufficient to give enduring benefit and whether depreciation is eligible left for determination by Assessing Officer).

Pitney Bowes India Pvt. Ltd. v. CIT (Delhi)(High Court) www.itatonline.org

S. 37(1) : Business expenditure – Capital or revenue – Removal of encroachments.
The assessee incurred expenditure on removal of encroachments and claimed the same as a revenue deduction on the ground that the expenditure was incurred in the normal course of the business. The Assessing Officer, CIT(A) & Tribunal rejected the claim on the basis that the assessee had acquired an advantage of an enduring nature. The High Court (for an earlier year, Airport Authority of India v. CIT 303 ITR 433) upheld the view of the authorities that the expenditure was capital in nature. For the present year, the issue was referred to the Full Bench. HELD by the Full Bench reversing the lower authorities:
The question that has to be considered is whether the expenditure is incurred for initiating the business or for removing an obstruction to facilitate an existing business. Expenditure incurred for running the business or working it, with a view to produce profits is in the nature of revenue expenditure. The aim and object of the expenditure determines its character and not the source and manner of its payment. The fact that the expenditure is ‘once and for all’ is not conclusive. While expenditure for acquisition of a source of income would ordinarily be capital expenditure, expenditure which merely enables the profit making structure to work more efficiently would be in the nature of revenue expenditure. Expenditure incurred to fine tune trading operations to enable the management to run the business effectively, efficiently and profitably leaving the fixed assets untouched would be an expenditure of a revenue nature even though the advantage obtained may last for an indefinite period. On facts, the land belonged to the assessee and the amount paid for removal of encroachers was not for acquisition of new assets. The payment was made to facilitate its smooth functioning of the business i.e. in relation to carrying on the business in a profitable manner (Airport Authority of India 303 ITR 433 (Delhi) reversed; Bikaner Gypsum v. CIT 187 ITR 39 (SC) followed)

Airport Authority of India v. CIT (Delhi)(High Court)(Full Bench). www.itatonline.org

S. 37(1) : Business expenditure – Compensation – Drivers – Labour Court.
As per the settlement arrived in the labour Court giving an undertaking to provide employment to drivers whose employment was terminated by the hire operators which were rendering services to the assessee, compensation paid by assessee to said drivers for giving up their rights in full and settlement of their claims is allowable as deduction, as the assessee got apparent advantage in the form of reduced car hire charges as a result of impugned payment. (A. Y. 2003-04).
ITO v. Taj Services (P) Ltd. (2011) 64 DTR 105 / (2012) 143 TTJ 70 (Mum.)(Trib.)

S. 37(1) : Business expenditure – Interest – Loans from its holding company.
Assessee obtained loan from its holding company in year for its business of manufacturing, it was discontinued in year 1998-99 and there was no activity relating to said business in year under consideration. Since loan borrowed by assessee from its holding company was not utilized for business carried on by it in year under consideration, Interest on same could not be allowed as deduction. (A. Y. 2002-03, 2004-05 and 2006-07).
Vidhyavihar Containers Ltd. v. Dy. CIT (2011) 133 ITD 363 (Mum.)(Trib.)

S. 37(1) : Business expenditure – Capital or revenue – Lease premises – Renovation expenses – Depreciation. (S. 32)
Expenditure incurred towards renovation of premises taken on lease will be capital in nature and assessee would be entitled depreciation on it. (A. Y. 2006-07).
ACIT v. Efftronics Systems (P) Ltd. (2011) 133 ITD 460 (Visakhapatanam)(Trib.)

S. 37(1) : Business expenditure – Provision for doubtful debts – Notional loss on valuation of shares – Provision for premium on debenture – Business loss. [S. 28(1)]
Provision for doubtful debt was not allowable as bad debt, however the same can not be allowed as business loss as the said amount was not crystallised during the year. Notional loss on revaluation of shares and there was no transfer of any share such loss can not be allowable. Option was given to redeem debentures in to equity shares after six months on payment of premium. Assessee company made ‘provision for premium debenture’ and claimed loss. Since an event had not yet occurred, there was no crystallization of liability and loss could not be allowed. (A .Y. 2000-01).
Mahindra Intertrade Ltd. v. Dy. CIT (2011) 133 ITD 597 (Mum.)(Trib.)

S. 37(1) : Business expenditure – Promotion of new products – Brands – Year of allowability.
During relevant assessment year assessee incurred expenses on promotion of new products and brands which had been treated as deferred revenue expenditure in books and amortized for a period of six years, however, while computing the taxable income entire expenditure was claimed as revenue expenditure. Tribunal held that revenue expenditure is allowable in year in which liability had crystallized and accounting treatment given by assessee is not relevant for purpose of determining whether or not expenditure was allowable as deduction. (A. Ys. 2003-04 and 2004-05).
ACIT v. Kopran Ltd. (2011) 48 SOT 225 (Mum.)(Trib.)

S. 37(1) : Business expenditure – Bank services – Issue of shares to increase capital.
Amount paid by assessee company for bank services rendered in connection with issue to increase capital base of company, could not be allowed as revenue expenditure under section 37(1). (A. Y. 2006-07).
Medreich Ltd. v. Dy. CIT (2011) 48 SOT 579 (Bang.)(Trib.)

S. 37(1) : Business expenditure – Deduction – Prospecting, etc. – Minerals.
Assessee which is engaged in prospecting and exploration of minerals, it also provided consultancy services in same field, expenditure incurred towards prospecting and exploring activities were capitalized and amortization of same was claimed under section 35E. Expenditure incurred to earn consultancy service were claimed as business expenditure under section 37(1). Assessing Officer held that all the expenditure were to treated as eligible for amortisation under section 35E. The Tribunal held that only such expenses which are incurred wholly and exclusively on any operations relating to prospecting as envisaged under provisions of section 35E(2) read with section 35(E)(5)(a), and rest of unconnected expenses which may have been incurred by an assessee are eligible deduction in normal course of computation of business income. (A. Y. 2005-06).
De Beers India (P) Ltd. v. Dy. CIT (2011) 48 SOT 506, (2012) 13 ITR 1 (Mum.)(Trib.)

S. 40(a)(ia) : Amounts not deductible – Professional fees – Brokerage and commission – Deduction at source – Payments made before due date of filing of return. [S. 139(1)]
Tax deducted from the payments of professional fees in the month of March, 2005 having been deposited on 22nd June, 2005, within due date as per section 139(1), the payments can not be disallowed. As regards the brokerage and Commission payment on which tax was deducted in February, 2005, but deposited on 6th April 2005, i.e. after the end of relevant previous year, is to be disallowed under section 40(a)(ia). (A. Ys. 2002-03 to 2005-06).
ACIT v. Bombay Real Estate Development Company (P) Ltd. (2011) 64 DTR 137 (Mum.)(Trib.)

S. 40(a)(ia) : Amounts not deductible – lease rent for cranes – Works contract – Deduction at source. (S. 194C)
Payment made by the assessee for hiring of cranes to crane owners was with reference to the period of lease and not at all related to the work/ out derived from the cranes and therefore such payment cannot be said to be payment made for “works contract” covered by section 194C and therefore was not required to deduct tax at source under section 194C and consequently the payments could not be disallowed under section 40(a)(ia). (A. Y. 2006-07).

ACIT v. Sanjay Kumar (2011) 48 SOT 615 (Delhi)(Trib.)

S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub contractor – Labour charges. (S. 194C)
Assessee paid labour charges to various labourers which included cash payments exceeding Rs. 50,000 to some labourers throughout year. Assessing Officer disallowed such payments by invoking provisions of section 40(a)(ia) for non-deduction of tax at source under section 194C. According to assessee the number of persons from one family worked as casual labourers at site on daily wage basis and due to practical difficulties for preparing individual vouchers for each labour payment, only one voucher was prepared in name of head of family who received the money and if individual labourers were taken into consideration, payment does not exceed Rs. 50,000 in a year to each person. Assessee also filed the confirmation from persons who received the sums on behalf of a number of members and same had not been repudiated by revenue. Tribunal held that the disallowance was not justified. (A. Y. 2006-07).
Nalawade C. Maruti v. Jt. CIT (2011) 48 SOT 566 (Pune)(Trib.)

S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub-contractor – Hiring of tractors and trolleys – Transport and Octroi charges. (S. 194C, 194I)
Assessee hired Tractors and trolleys from nearby villages for purpose of business and debited payments on day basis under head “transportation and octori charges”. Assessing Officer disallowed the same on ground that said payments were transport charges and hence required deduction at source under section 194C. The Tribunal held that the nature of expenditure cannot be deduced merely on the basis treatment accorded in account books, but to be decided on basis of substantive character of transaction. As hiring of tractors / trolleys for purpose of using them in business could not be equated to a contract for transportation for carriage as contemplated under section 194C, therefore disallowance of expenses by invoking provisions of section 40(a)(ia) was unjustified. Even if such an arrangement is considered to be falling with in the purview of section 194I of the Act, however for the period under consideration the requirement of deduction at source on machinery rentals are not applicable. (A. Y. 2006-07).
Nalawade C. Maruti v. Jt. CIT (2011) 48 SOT 566 (Pune)(Trib.)

S. 40(b) : Amounts not deductible – Interest and salary to partner – Partnership deed – CBDT- Circular. (S. 119)
Assessee had not filed certified copy of the partnership deed signed by all the partners specifying the individual share of partners. There was no agreement in respect of quantification of the salary or the rate of interest on the capital contribution of the partners and such payment was left to the discretion of the partners at the end of financial year. Circular No. 739 dt. 25th March, 1996 does not run counter to any of the provisions of the Act, therefore the Circular being clarificatory in nature cannot be said to be beyond the powers of the Board. When there was no agreement in respect of quantification of the salary or rate of interest on the capital contribution of the partners and such payment was left to the discretion of the partners at the end of the financial year deduction for interest and salary under section 40(b) could not be allowed. (A. Y. 1993-94).
Sood Bhandari & Co. v. Central Board of Direct Taxes (2011) 64 DTR 338 / (2012) 246 CTR 89 (P&H)(High Court)

S. 40A(2) : Business expenditure – Disallowance – Managing Director – Remuneration.
M is a Chartered Accountant from London and had quality experience as employee of AAF for ten years before joining the assessee Company. He is also stated to be running the entire business and other two directors are not so qualified and also did not take part in the business. Assessing Officer has not brought any evidence to show that the payment made to the Managing Director was is excessive or unreasonable having regard to the fair value of the services for which the payment was made or the benefits derived from such services, the conditions of section 40A(2) are not satisfied and, therefore, no part of such payments made to other directors. (A. Ys. 2002-03 to 2005-06).
ACIT v. Bombay Real Estate Development Company (P) Ltd. (2011) 64 DTR 137 (Mum.)(Trib.)

S. 40A(3) : Business expenditure – Cash payments exceeding prescribed limit – Principal – Agent.
The assessee was distributor of “R” communication products. During relevant assessment year, the assessee made payments to principal by directly depositing cash in his bank account aggregating to Rs. 46.39 lakhs. Assessing Officer invoked the provisions of section 40A(3) and disallowed the payments. The Tribunal held that since the relation ship between “R” communication and assessee was one of principal and agent, the payment cannot disallowed under section 40A(3), accordingly deleted the disallowance. (A. Y. 2007-08).
Koottummal Groups v. ITO (2011) 133 ITD 335 (Coch.)(Trib.)

S. 41(1) : Profits chargeable to tax – Income – Unilateral writing off the liability – Cessation of liability.
Creditors did not encash the cheques within the validity period does not imply that those debts have been either extinguished or became barred. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act, therefore there was no cessation of liability which could be charged as income under section 41(1). (A. Y. 1995-96).
Goodricke Group Ltd. v. CIT (2011) 63 DTR 360 (Cal.)(High Court)

S. 44 : Insurance business – Insurance Act – Rule 5 First Schedule – Adjustment by the Assessing Officer.
Section 44 read with Rule 5 of First Schedule makes figure of profit disclosed by Profit and loss account drawn as per Insurance Act as absolute and binding both on assessee Insurance company as well as revenue and it is amenable only for adjustments expressly sanctioned by mandate of clauses (a) and (c) of Rule 5, for computing total income. Insurance company is required to be strictly made as per Rule 5 of First Schedule and it is not open to authorities under the Act to examine items separately debited or credited to profit and loss account with a view to determine their deductibility or inclusion in total income of assessee as per provisions of Act. (A. Y. 2004-05).
New India Assurance Co. Ltd. v. Addl. CIT (2011) 133 ITD 131 (Mum.)(Trib.)

S. 45 : Capital gains – Business income – Firm – Development of property. [S. 28(i)]
The assessee firm was carrying on business of dealing in grocery items. The object of the firm included development and sale of property. Firm constructed a commercial complex. The portions of said property was sold in relevant years and consideration received was utilized to clear debt which had been incurred for development of property. Assessee claimed the income as capital gain which was rejected by the Assessing Officer and assessed as business income. The Court held that notwithstanding the objects of firm, income would be assessed as capital gains. (A. Ys. 1996-97 to 1997-98 and 1999-2000).
CIT v. Pai Provision Stores (2011) 203 Taxman 196 (Karn.)(High Court)

S. 45 : Capital gains – Business income – Investment in shares. [S. 28(i)]
During relevant assessment year assessee company sold shares of company “ICL” which were held by it since 1996 and had been shown in its balance sheets as investment. It treated income there from as long term capital gain and claimed exemption under section 10(38). The Assessing Officer treated the same as business income and denied the exemption. Commissioner (Appeals) up held the view of assessee. The Tribunal upheld the view of Commissioner (Appeals). (A. Y. 2006-07).
ACIT v. Stargate Investments (P) Ltd. (2011) 48 SOT 379 / 10 ITR 211 (Chennai)(Trib.)

S. 45 : Capital gains – Business income – Investment in Land. [S. 28(i)]
Object of assessee company were to manufacture, produce, process, purchase, sell or deal in ice–cream etc. It made investment in land and same was shown as fixed assets. Assessee sold lands when it got good price, income from same was shown as capital gain. Assessing Officer treated the said income as business income being adventure in nature of trade. The Tribunal held that there was only transfer of capital assets and not any income from adventure in nature of trade, claim of assessee was justified. (A. Y. 2007-08).
HighRange Foods (P) Ltd. v. Dy. CIT (2011) 48 SOT 453 (Coch.)(Trib.)

S. 45 : Capital gains – Transfer – Development agreement. [S. 2(47)(v)]
On the facts of the case the assessee neither received full consideration nor handed over possession of the property, capital gains cannot be assessed in the year of execution of development agreement. (A. Y. 2004-05).
B. V. Kodre (HUF) v. ITO, ITA No. 834/PN/2008 dated 4-10-2011.174 (2011) 43-BCAJ (November-46) Bench – “B”

S. 45 : Capital gains – Sale of shares – DTAA – India-France. (S. 90, Article 14)
Applicant MA, a French company, pursuant to an understanding with the other applicant GIMD, also a French a company having floated a 100 percent subsidiary and acquired majority shares of an Indian Company in the name of said subsidiary and later both the applicants having sold their shares in the subsidiary to another French company, it was a preordained scheme to deal with the assets and control of the Indian Company without actually dealing with its shares thereby avoiding payment of tax on the capital gains in India, in substance, it involved alienation of the assets and controlling interest of the Indian company having assets, business and income in India in terms of Para. 5 of Article 14 of DTAA between India and France .
Groupe Industrial Marcel Dassault In Re (2011) 64 DTR 1 (AAR)

S. 45(2) : Capital gains – Land converted in to stock-in-trade – Cost of improvement – Payment made to State Government to change of user of land. (S. 48)
Assessee company which was engaged in the business of manufacturing of containers in the year 1999 and thereupon converted the factory land in to stock-in-trade. The land was converted in to stock-in-trade by passing a special resolution, in extraordinary general meeting of share holders approving the commencement of business of real estate. Assessing officer rejected the claim of the assessee and held that it was a simple transfer of said land as capital asset by assessee company for a stipulated consideration in terms of development agreement and rejected the claim of benefit under section 45(2) of the Income-tax Act. The Tribunal held that since the business of real estate development was duly carried on by assessee, it was entitled to benefit of provisions of section 45(2) in respect of conversion of factory land in to stock in trade. Payment made by the assessee prior date of conversion of land in to stock in trade, would constitute cost of improvement of land since land as a result of said expenditure had became fit for development / redevelopment. (A. Y. 2002-03, 2004-05 and 2006-07).
Vidhyavihar Containers Ltd. v. Dy. CIT (2011) 133 ITD 363 (Mum.)(Trib.)

S. 45(6) : Capital gains – Investment made under Equity Linked Savings Scheme – Transfer -Switchover. [S. 2(47), 80CCB(1)]
Units of mutual funds by way of switchover not being units in respect of which assessee had claimed deduction under section 80CCB(1) nor those units were originally issued under a plan formulated under any equity linked savings scheme, they were not of the type of units mentioned in sub section (2) of section 80CCB and therefore, surplus arising to the assessee on account of switch over of the units cannot be assessed as capital gains under section 45(6). (A. Y. 2000-01).
A. Vadivel & Ors. v. Dy. CIT (2011) 142 TTJ 875 (Chennai)(Trib.)

S. 48 : Capital gains – Deduction – Compensation – To free the encumbrance of lessee.
Assessee purchased an Aircraft from MFL subject to the rights of MAL (lessee) under the lease agreement between MFL and MAL, compensation paid by assessee to MAL for surrendering its pre-existing rights in order to resell the Air craft and deliver the same to the purchaser free of all encumbrances is inextricably connected to the transfer of air craft the same is allowable as deduction under section 48(1). (A. Y. 2003-04)
ITO v. Taj Services (P) Ltd. (2011) 64 DTR 105 / (2012) 143 TTJ 70 (Mum.)(Trib.)

S. 50C : Capital gains – Special provision for full value of consideration in certain cases – Stamp valuation not challenged by assessee under section 50C(2).
Assessee sold a piece of land value of which sale deed was registered was found to be value below value determined by Stamp Valuation Authority. Assessing Officer invoked provisions of section 50C and brought to tax differential. As the assessee has accepted the valuation determined by Stamp Valuation Authority and not availed the opportunity under sub section(2) of section 50C for demonstrating that fair market value was less than stamp duty valuation, Tribunal held that Assessing Officer had rightly invoked the provision of section 50C.
Sanjaybhai Z. Patel v. ACIT (2011) 48 SOT 231 (Ahd.)(Trib.)

S. 50C : Capital gains – Special provision for full value of consideration in certain cases – Stamp valuation – Transfer took place on 28-12-2000.
Transfer of land took place on 28-12-2000. Section 50C which applies to transfer of plot of land and considers value assessed by Stamp Valuation Authority to be deemed full value of sale consideration for purpose of computing capital gain was inserted by Finance Act, 2002 with effect from 1-4-2003 and hence not applicable to the facts of the assessee. (A. Y. 2005-06).
Rajshree Bihani (Smt) v. ITO (2011) 48 SOT 594 (Kol.)(Trib.)

S. 51 : Capital gains – Advance money received – Cost of acquisition. (S. 48)
The assessee was the co-owner of an immoveable property acquired prior to 31-3-1981. Both the co-owners agreed to sell the property in 1994 and they have received advances in installment. Transfer took place in the year 2003-04. Assessing Officer and Commissioner (Appeals) held that advance reduced by the assessee should be deducted from the value of property as on 1-4-1981, while computing cost of acquisition. The Tribunal held that the provisions of section 51 are applicable to an aborted transaction only. In the case of the assessee, the advances were received from transaction which was not aborted, therefore Assessing Officer was not justified in reducing the advance money received from cost of acquisition. (A. Y. 2004-05).
Upendra Shah v. ITO, ITA No. 1730/Mum/2009 dated 30-8-2011. 299 (2011) 43-B BCAJ (December P35) Bench “F”

S. 54 : Capital gains – Profit on sale of property used for residential house – Investment of sale consideration – No requirement that such investment should be in the name of assessee only – Property purchased in the joint names of assessee and husband. (S. 54EC)
To claim exemption under section 54 and 54EC what is material is investment of sale consideration in acquiring residential premises or constructing a residential premises or investing amount in bonds set out in section 54EC, there is no requirement that such investments should be in name of assessee only. Assessee sold her residential house property and invested part of sale proceeds in purchasing residential house property and specified bonds in joint names of assessee and her husband. The Court held that as entire consideration had flown from assessee and no consideration had flown from her husband, merely because either in sale deed or in bonds her husband’s name is mentioned, in law, he would not have any right, and assessee could not be denied benefit of deduction under section 54 and 54EC. (A. Y. 2007-08).
DIT v. Jennifer Bhide (2011) 203 Taxman 208 (Karn.)(High Court)

S. 54 : Capital gains – Transfer – Purchase of new flat – Section 53A of Transfer of Property Act, 1882. (S. 2(47), 45)
Assessee sold a building on 30-4-2004 and claimed deduction under section 54 in respect of capital gain arising on sale of building as he has invested in a new flat on 25-6-2003. i.e. with in one year from date of transfer of building. Assessing Officer was of the view that as registration of transfer deed of building was dated 26-8-2004 hence, claim under section 54 was denied. The Tribunal held that buyer had performed their part of their obligation as on 30-4-2004, in such a situation, mere non registration of transfer deed would not change date of transfer of building to 26-8-2004. Tribunal held that assessee was entitle to deduction under section 54. (A. Y. 2005-06).
Sureshchandra Agarwal v. ITO (2011) 48 SOT 210 (Mum.)(Trib.)

S. 54EC : Capital gains – Profit on sale of property used for residential house – Investment of sale consideration – No requirement that such investment should be in the name of assessee only – Property purchased in the joint names of assessee and husband. (S. 54)
To claim exemption under section 54 and 54 EC what is material is investment of sale consideration in acquiring residential premises or constructing a residential premises or investing amount in bonds set out in section 54EC, there is no requirement that such investments should be in name of assessee only. Assessee sold her residential house property and invested part of sale proceeds in purchasing residential house property and specified bonds in joint names of assessee and her husband. The Court held that as entire consideration had flown from assessee and no consideration had flown from her husband, merely because either in sale deed or in bonds her husband’s name is mentioned, in law, he would not have any right, and assessee could not be denied benefit of deduction under section 54 and 54EC. (A. Y. 2007-08).
CIT v. Voith Paper Fabrics India Ltd. (2011) 64 DTR 58 / 245 CTR 516 (P&H)(High Court)

S. 54EC : Capital gains – Investment in Bonds – Six months from the end of month. (S. 45)
During the previous year relevant to the assessment year under consideration the assessee sold shares of two companies on 24th February 2005. The assessee invested entire sale consideration on 30th August 2005, in the bonds specified under section 54EC. i.e. REC Bonds. The Tribunal held that the word used in section is “any time with in a period of six months after the date of such transfer”. The term “month” is not defined in the Income-tax Act, 1961. Applying the expression used in the General clauses Act, 1897, the term six months should be reckoned from the end of month in which the transfer takes place. On the facts as the invest were made on 30th August, 2005, the Tribunal held that the assessee is entitled to exemption under section 54EC. (A. Y. 2005-06).
Yahya E. Dhariwala v. Dy. CIT, ITA No. 5501/Mum/2009 dated 25-11-2011 Bench ‘G’ 420 ( 2012) 43B BCAJ (2012) Jan., P. 32

S. 54F : Capital gains – Exemption – Purchase price of new house adjusted – Construction of new house. (S. 45)
Assessee sold the land to MTDC on 31st March 2005, and possession of new constructed bungalow has been given by the MTDC to the assessee on 31st March 2008 and even otherwise as the entire purchase price of the new house property was adjusted on 31st March 2005, itself i.e. the date of transfer of land in question to MTDC, assessee was entitled to exemption under section 54F. The contention of the revenue stating that as construction was not started prior to date of filing of return i.e. 31st July 2005, the assessee should have deposited the consideration received on transfer of land in capital gains account with the bank which has not been done. The Tribunal held that there was no occasion for depositing the amount in question as it was not received by the assessee any point of time. According to the Tribunal the view of Assessing Officer was not correct. (A. Y. 2005-06).
Chetan Vithal Tupe v. ACIT (2011) 64 DTR 218 (Pune)(Trib.)

S. 54F : Capital gains – Exemption – Investment in residential house – Cost of acquisition – Advocate fee – Brokerage – Expenditure on laying tiles, white-washing, electrical rewiring, and wood work. (S. 45)
Tribunal held that expenses relating to advocate fee and brokerage of property would be included in cost of acquisition. Expenditure incurred by assessee on laying tiles, white-washing, electrical rewiring, and wood work after acquisition of property could not be treated as part of acquisition cost. (A. Y. 2008-09).
S. Sudha (Smt) v. ACIT (2011) 48 SOT 335 (Chennai)(Trib.)

S. 54F : Capital gains – Exemption – Investment in residential house – Two commercial properties. (S. 45)
Assessee sold two commercial properties/ capital assets and claimed deduction under section 54F on ground of purchase of two residential units being ground and first floor in a Group Housing Complex. Assessing Officer disallowed same on ground that deduction was not allowable as two distinct properties were purchased. Commissioner (Appeals) considering all the factors held that assessee had in possession was one single unit comprising of two floors of one and same double storeyed residential house having common stair case kitchen, etc. The Tribunal held that assessee would be entitled to exemption as claimed. (A. Y. 2005-06).
ACIT v. Sudha Gurtoo (2011) 48 SOT 393 (Delhi)(Trib.)

S. 54F : Capital gains – Exemption-Investment in residential house – (S. 2(47), 45, 50C).
Assessee transferred her 1/3 share in land which was sold vide agreement dated 28-12-2000, for a total consideration of Rs. 24-10 lakhs to orginal purchaser in part performance of contract. Possession was handed over on 28-12-2000. Subsequently on request of the purchaser conveyance deed was entered in to in flavour of nominee during previous year 2005-06. Assessee purchased a residential flat for a total consideration of Rs 23-50 Lakhs vide agreement for sale dated 23-3-2001 and possession of said property was delivered to assessee on 27-4-2001, it means that long term capital gain arising out of sale of land was invested in residential house, therefore exemption under section 54F would be allowable. (A. Y. 2005-06).
Rajshree Bihani (Smt.) v. ITO (2011) 48 SOT 594 (Kol.)(Trib.)

S. 54F : Capital gains – Investment in house in house – Revision of orders prejudicial to revenue – Exemption – Capital gains – Investment in house with in time specified under section 139(4). (S. 263)
Commissioner passed the order under section 263 withdrawing exemption under section 54F, on the ground that new house was registered in favour of the assessee beyond the due date prescribed under sub section (1), of section 139 and that the assessee failed to deposit the sale proceeds as provided under section 54F(4). High Court held that Tribunal was justified in setting aside the order of the Commissioner by holding that the investment made by the assessee being with in time specified under section 139 (4) ,the assessee is eligible for exemption under section 54F in view of the binding decision of the Jurisdictional High Court. (A. Y. 2006-07).
CIT v. Vrinder P. Issac (Smt.) (2011) 64 DTR 376 (Karn.)(High Court)

S. 54F : Capital gains – Exemption – Investment in two adjacent flats. (S. 45)
The assessee had purchased two adjacent flats which were interconnected and used as one residential house. Assessing Officer denied the exemption. On appeal the Tribunal held that the Assessing Officer shall allow the exemption in respect of both the flats if it is found that the flats are being used as one residential house and the investment was made by assessee himself. In appeal by revenue the Bombay High Court up held the decision of Tribunal.
CIT v. Joe B. Fernandes ITA No. 1467 of 2007 dt. 10-12-2008 429 (2012) 43. B.BCAJ (January- 2012 – P. 41)
Editorial:- Departmental SLP (C) No. 23581 of 2009 dated 7-9-2009 was rejected by Supreme Court (2010) 322 ITR (St.) 8 also refer CIT v. Rashmi Khanna (Smt.) SLP (C) No. 30894 of 2009 dt. 9/11/2009 (2010) 322 ITR (St.) 8.

S. 55 : Capital gains – Cost of acquisition – Determination of fair value as on 1-4-1981.
Assessee acquired 1/9 right in a property. She sold her share of property. She adopted 1 lakh per ground as fair market value of property as on 1-4-1981. Inspector visited concerned sub registrar Office and gathered the details on basis of fair market value of Rs. 15,000 per ground. The Assessing Officer adopted the guideline value of registrar’s office for computing capital gains. The Tribunal held that the guidline value collected from sub-registrar office is only a guiding factors for valuing a property and such guideline value need not be market value for all time. Market value has to be determined by so many external factors including prevelant market conditions hence detailed enquiry is needed for arriving at a reasonable market value of property. Accordingly the Tribunal remanded the matter for fresh consideration. (A. Y. 2007-08)
ITO v. Usha Ramesh (Smt) (2011) 133 ITD 67 (Chennai) (Trib.)(TM)

S. 56 : Income from other sources -Business income – Interest income.
During the year under consideration, assessee company had taken loans amounting to Rs. 56.88 Crores from its holding company and same was advanced to four companies belonging to same group. Assessee claimed that the said interest is taxable as income from business income. The Tribunal held that since there was nothing on record to show that assessee company was in business of finance or money lending in year under consideration, net interest income earned by it was chargeable to tax under head income from other sources. (A. Y.2002-03, 2004-05 and 2006-07).
Vidhyavihar Containers Ltd. v. Dy. CIT (2011) 133 ITD 363 (Mum.)(Trib.)

S. 68 : Cash credits – Deposits – Burden of proof – Public notice.
Assessee company raised deposits by public notice and brought on record every possible information regarding the depositors which was included in the application forms submitted by them, the Court held that it has discharged the initial onus that lay on it under section 68, hence addition could not be made merely for the reason that no confirmation letters were filed in respect of some depositors. (A. Y. 1997-98)
CIT v. Samtel Color Limited (2011) 64 DTR 46 (Delhi)(High Court)

S. 68 : Cash credits – Gift from father in law – Cash withdrawals not proved.
Assessee received gift of Rs. 8 lakhs from father in law, however the father in law failed to prove the source of gifts on the basis of confirmation filed, therefore addition was justified. (A. Y. 2005-06).
Mukesh Shaw v. ITO (2011) 64 DTR 353 / (2012) 246 CTR 82 (Jharkhand)(High Court).

S. 72 : Carry forward and set off of business losses – Gains arising from “business assets” not eligible for set-off against brought forward business loss.
The assessee sold land & building used for business purposes. Though the gain was offered as capital gains, the assessee claimed, relying on Cocanada Radhaswami Bank Ltd. 57 ITR 306 (SC) and other judgements, that as the assets were “business assets”, the gains there from were eligible for set-off against the brought forward business loss Under section 72. The issue was referred to a Special Bench. HELD by the Special Bench against the assessee:
Section 72(1) allows brought forward business loss to be set-off against the “profits & gains of any business or profession” of the subsequent year. The expression “profits & gains of business” means income earned out of business carried on by the assessee and not just income connected in some way to the business or profession carried on by the assessee. The land & building were fixed & capital assets used by the assessee for its business purposes. The gains arising there from were assessable as capital gains and were not eligible for set-off against the brought forward business loss u/s 72 (Express Newspapers 53 ITR 250 (SC) followed; Cocanada Radhaswami Bank 55 ITR 17(SC) distinguished; Steelcon Industries reversed)

Nandi Steels Ltd v. ACIT (Bang.)(SB)(Trib.) www.itatonline.org

S. 73 : Loss in speculation business – Set off of business loss – Speculative transaction – Purchase and sale of shares. [S. 43(5)]
Assessee, company dealing with transaction of sale and purchase of shares and suffering loss. The Transaction should be treated to be speculative transaction within the meaning of section 73, though it is not speculative nature as there has been actual delivery of share scripts. Business loss arising out such transaction could be carried forward and set off only against speculative transaction and not from any other head. (A. Y.1991-92)
R.P.G. Industries Ltd. v. CIT (2011) Tax. L. R. 913 (Nov.)(Cal.)(High Court)

S. 80CCB : Deduction – Investment made under Equity Linked Savings Scheme – Transfer -Switchover. [S. 2(47), 45(6)]
Units of mutual funds by way of switchover not being units in respect of which assessee had claimed deduction under section 80CCB(1) nor those units were originally issued under a plan formulated under any equity linked savings scheme, they were not of the type of units mentioned in sub section (2) of section 80CCB and therefore, surplus arising to the assessee on account of switch over of the units can not be assessed as capital gains under section 45(6). (A. Y. 2000-01).
A. Vadivel & Ors. v. Dy. CIT (2011) 142 TTJ 875 (Chennai)(Trib.)

S. 80G : Deductions – Donation to certain funds, charitable institutions – Educational institutions. (S. 11AA)
Assessee filed application under section 80G(5)(vi) which was rejected on the ground that assessee society was running five educational institutions and was charging high fee and further its profit ranged from 20.44% to 28.49 and further assessee was enhancing earning capacity of institutions through acquiring of buildings and fixed assets and not fulfilling any noble objects. The Court held that solely because the assessee was charging fees and was getting surplus would not be a reason to deny registration under section 80G(5)(vi) when the consideration laid down in Rule 11AA had been complied with.
CIT v. Gaur Brahmin Vidya Pracharini Sabha (2011) 203 Taxman 226 (P&H)(High Court)

S. 80G : Deductions – Donations – Renewal of application – Failure to take any action.
Where assessee Trust filed an application seeking renewal of approval under section 80G(5)(vi) and Commissioner failed to take any action on said application within time limit prescribed by Rule 11AA(6) of Income-tax Rules 1962, it was held that assessee became legitimately entitled for approval of renewal, a s applied for. (A. Y. 2010-2011).
S. Lakha Singh Bahra Charitable Trust v. CIT (2011) 133 ITD 201 (Amritsar)(Trib.)

S. 80HHC : Deductions – Export – Computation – Total turnover – Two units.
When an assessee runs and manages two separate units, one of which is engaged fully and partially in earning through exports then, in calculation of proportionate deductible profits for the purpose of deduction under section 80HHC the “Total turnover of the business” would include only the turn over of the export business and not that of the domestic business (A. Y. 1997-98).
CIT v. Padmini Technologies Ltd. (2011) 64 DTR 217 (Delhi)(High Court)

S. 80IA : Deductions – Profits and gains from infrastructure undertakings – Develops and operates or maintains and operates an industrial park – Information Technology park.
Section 80IA(4)(iii), only postulate that section would apply to any undertaking which develops, develops and operates or maintains and operates an industrial park notified by Central Government in accordance with a scheme framed for a period beginning on 1-4-1997 and ending with 31-3-2006. Section does not contain a condition to effect that industrial park must commence operation by 31-3-2006. The Court held that stipulation in para. 3 of Industrial Park Scheme, 2002, that industrial park should be developed, developed and operated or to be maintained and operated for period beginning on 1-4-1997 and ending on 31-3-2006 must be read harmoniously with Para. 9 of scheme which contemplates a situation where commencement of any industrial park is delayed by more than one year from date indicated in application in which a fresh approval has to be granted.
SilverLand Developers (P) Ltd v. Empowered Committee (2011) 203 Taxman 529 (Bom.)(High Court)

S. 80IA : Deductions – Profits and gains from infrastructure under takings – Derived from – Flay ash – Generation and sale of electricity – Not eligible.
Assessee was engaged in business of generation of and sale of electricity. Flash ash was a by product generated out of production of electricity. Assessee used Fly ash in making fly ash bricks. Assessee claimed that profit earned on sale of fly ash bricks is also eligible profits for the purpose of claiming of deduction under section 80IA. The Tribunal held that brick making unit of assesee was a separate unit with a distinct set up and process , separate technology and manpower etc, profits derived from manufacture and trade of bricks , could not constitute “operational income” of” Power generating unit” of assessee , therefore assessing officer was justified in rejecting asseseee’s claim. ( A.Ys 2004-05 to 2006-07)
Asst CIT v. Godavari Power & Ispact Ltd. (2011) 133 ITD 502 ( Bilaspur) (Trib).

S. 80IA: Deductions – Development of infrastructure facility-Solid Waste Management – Organisation Must participates in the policy making etc – Cleaning the beaches.
An activity can be considered as a solid waste management activity in a case where an organization involves it self in a comprehensive activity of not only collection , transport and treatment of waste but also participates in the policy making etc. The Activity of the assesse i.e. clearing the beaches,without being involved in control of generation, disposal and policy, making cannot be considered as a solid waste management activity, hence the assessee is not eligible for deduction under section 80IA though the activity carried on was approved by BMC (Solid Waste Management Department). ( A.Y. 2004-05)
Anthony Motors (P) Ltd v. Asst CIT ( 2011) 64 DTR 470 ( Mum.) (Trib)

S. 80IA(8): Deductions -Profits and gains from infrastructure undertakings- Generation and distribution of electricity- Captive consumption-Price at which SEB supplied to its consumer to be considered as market price.
Assessee had two undertakings i.e. undertaking engaged in business of generation and distribution of electricity and other one was a steel division. Steel division drew the electricity from the undertaking which generated the electricity. The income of Electricity division is exempt under section 80IA.The assessing found that the assessee has charged more rate than it has charged to State Electricity Board (SEB). The assessing Officer took the view that the assessee has inflated the profit of eligible undertaking and deflated taxable profits of steel undertaking hence invoked the provision of section 80 IA (8). The Tribunal held that price at which SEB supplied to its consumer to be considered as market price in respect of electricity drawn for captive consumption of assessee’s steel division for the purpose of section 80IA(8) and not price at which electricity was sold by assessee to SEB, accordingly upheld the order of Commissioner (Appeals).( A.Ys 2004-05 to 2006-07)
Asst CIT v. Godavari Power & Ispact Ltd ( 2011) 133 ITD 502 ( Bilaspur) (Trib).

S. 80IB: Deductions-Manufacture-Number of employees- Job workers (Hired through Contractor) – Condition of Sec. 80IB(2)(vi) complied.
Manufacturing activity was carried out at the factory premises of the assessee with the help of permanent employee and job workers. The total number of workers employed by the assessee directly and those hired through a contractor in the manufacturing activity being more than ten condition set out in section 80IB (2) (iv) stood complied , even though the workers employed by the assessee directly were less than ten. Assessee was held to be entitled to deduction under section 80IB. (A.Y. 2003-04 and 2004-05).
CIT v. Jyoti Plastic Works (P ) Ltd ( 2011)339 ITR 491/ 63 DTR 345/ 203 Taxman 546/ (2011) Vol. 113(6) Bom.L.R.4083 (Bom) (High Court).

S.80IB: Deductions-Profits and gains from Industrial undertakings- Manufacture- Ginning and processing of cotton- Derived- Interest; income from weigh bridges etc – Not eligible:
Assessee engaged in business of manufacturing activity of ginning and processing of cotton, cannot claim deduction under section 80IB with regard to excess cash, interest credited and income earned from weigh bridges , as said items of income could not be said to have been derived from or have nexus with eligible industrial undertaking. ( A.Y 2007-08)
Maa Vaishno Devi v. ITO ( 2011) 48 SOT 399 (Indore ) (Trib)

S.80IB(10): Deductions- Housing project- Jointly development.
Assessee entered in to an agreement for jointly developing a housing project on its land ,undertaking the responsibility of obtaining all statutory clearance permissions, etc for putting up the housing project on the land as well as responsibility to remove all structures and unauthorized occupants of the land, and agreeing to share the gross sale proceeds the housing project with the other company in an agreed ratio, the activities undertaken by the assessee are activities relating ti development of housing project and therefore are activities relating to development of the housing project and, therefore , it is to be treated as a developer entitled to deduction under section 80IB (10).( A.ys 2002-03 to 2005-06 ).
Asstt CIT v. Bombay Real Estate Development Company ( P ) Ltd ( 2011) 64 DTR 137 (Mum. ) (Trib).

S. 80IB (10): Deductions- Housing project-Combined area of flats- Built up area.
When as per the approved plan the assessee has sold each flat under separate agreement which are less than 1000 sg. Ft. deduction under section 80IB can not be denied to the assessee merely because some of the purchasers have purchased more than one flat and combined the same and area of such flats is more than 1000 sg. ft. of built up area. The definition of “Built up area” as given in sub section 14 (a) of section 80IB is inserted by the Finance (No 2 ) Act 2004 w.e.f. 1st April 2005 and therefore the same is applicable only in respect of the projects approved after 1st April, 2005 and consequently, balcony / terrace cannot be included in the built up area of the flats in the hosing projects approved prior to 1st April 2005. ( A.Ys 2005-06 to 2007-08).
Haware Constructions (P ) Ltd v. ITO ( 2011) 64 DTR 251 ( Mum. ) (Trib)

S. 80IB (10): Deductions- Housing project – Land in the name of Owner- Not in the name of Developer-Built up area-Open terrace-.
Assessee having purchased land and developed a housing project consisting of residential flats having built up area of less than 1500 sq.ft each by incurring all expenses and taking all the risk involved therein and received entire sale consideration from the buyers after completion of the housing project in its own right , deduction under section 80IB(10) could not be denied on the ground that the permissions and approvals by the local authorities were in the name of the housing society (Land owner) and not in the name of the assessee. As per the definition given in section 80IB (14)(a), built up area means, inner measurement of the residential unit at the floor level including the projections and balconies as increased by the thickness of the walls but does not include the common areas shared with other residential units. Open terrace is open to sky would not be part of the inner measurement of the residential unit at any floor level. The Assessing Officer was not justified in rejecting the assesee’s claim by taking the open terrace , the built up area of each of the 110 units less than 1500 sq.ft ,therefore the claim of assesse was allowed. ( A.Y. 2006-07)
Amaltas Associates v. ITO ( 2011) 64 DTR 329 / 142 TTJ 849 (Ahd.) (Trib).

S. 80IC: Deductions – Conversion of proprietorship concern in to partnership- Not transfer of Capital asset. ( S.45 (3), 80IA (12 ).
Conversion proprietorship in to a partnership was nether a case of amalgamation nor transfer of capital asset attracting the provisions of section 45 (3) for charge of capital gains tax, the assessee would not be denied the deduction s under section 80IC for remaining unexpired period after such conversion (A.Y. 2006-07).
CIT v. Mega Packages ( 2011) 203 Taxman 236 ( P &H) (High Court).

S.88E.: Rebate- Life Insurance- Pubic provident fund-Book profit-Company- STT. ( S.115JB ).
Rebate under section 88E is allowable in respect of payment of STT even if total income assessed under section 115JB. ( A.Y. 2005-06)
CIT v. Horizon capital Ltd ( 2011) 64 DTR 306 ( Karn.) (High Court)

S.90: Double taxation relief- Permanent Establishment- DTAA-India- France-Onus on Assessing Officer has to show foreign co has a Permanent Establishment in India. Under India-France DTAA, even dependent agent is not PE in absence of finding that transactions are not at ALP (Article 5 .)
The assessee, a French company, engaged in the operation of ships in international traffic, claimed that it did not have a PE in India and that no part of its income was chargeable to tax in India. The AO & DRP held that as the assessee had an agent in India which concluded contracts, obtained clearances and did the other work, there was a PE in India under Articles 5(5) & 5(6) of the DTAA. On appeal by the assessee, HELD allowing the appeal:
(i) In order to constitute a PE under Article 5(1) & 5(2), three criteria are required to be satisfied viz; physical criterion (existence), functionality criterion (carrying out of business through that place of physical location) & subjective criterion (right to use that place). There must exist a physical “location”, the enterprise must have the “right” to use that place and the enterprise must “carry on” business through that place. An “agency” PE will not satisfy this condition because the enterprise will not have the “right” to use the place of the agent. Under Article 5(6) of the India-French DTAA (which is at variance with the UN & OECD Model Conventions), even a wholly dependent agent is to be treated as an independent agent unless if it is shown that the transactions between him and the enterprise are not at arms’ length. The Department’s argument that as the AO had not examined whether the transactions were done in arm’s length conditions, the matter should be restored to him is not acceptable because the onus was on the Revenue to demonstrate that the assessee had a PE. The onus is greater where the very foundation of DAPE rested on the negative finding that the transactions between the agent and the enterprise were not made under at arms length conditions. A negative finding about transactions with the dependent agent not being at ALP is sine qua non for existence of a DAPE under the India-France DTAA. The AO could not be granted a fresh inning for making roving and fishing enquiries whether the transactions were at arm’s length conditions or not (Airlines Rotables 44 SOT 368 followed);
(ii) (Observed, on a conceptual note, taking note of revenue’s plea but without deciding) If as a result of a DAPE, no additional profits, other than the agent’s remuneration in the source country – which is taxable in the source state anyway de hors the existence of PE, become taxable in the source state, the very approach to the DAPE profit attribution seems incongruous. Further, before accepting the DAPE profit neutrality theory, as per Morgan Stanley 292 ITR 416 (SC), the arm’s length remuneration paid to the PE must take into account ‘all the risks of the foreign enterprise as assumed by the PE’. In an agency PE situation, a DAPE assumes the entrepreneurship risk in respect of which the agent can never be compensated because even as DAPE inherently assumes the entrepreneurship risk, an agent cannot assume that entrepreneurship risk. To this extent, there may be a subtle line of demarcation between a dependent agent and a dependent agency PE. The tax neutrality theory, on account of existence of DAPE, may not be wholly unqualified at least on a conceptual note.

Delmas, France v. ADIT (Mum.) (Trib.) www.itatonline.org.

S. 92C: Avoidance of tax – Transfer pricing- International transaction-Computation- Arms length- Air time sale-DTAA- India- United Kingdom. (Article 7)
Assessee was a British company and was part of BBC group. It had appointed an Indian company, BWIPL as its authorized agent in India under an airtime sales agreement to solicit orders for sale of advertisement airtime on channel at rates and on terms and advertising provided by assessee and pass on such orders to assessee for acceptance and confirmation. In consideration of service provided by BWIPL, it was to receive 15 percent marketing commission of advertisement revenues received by assessee from Indian advertisers. Assessee claimed that since BWIPL had been remunerated from arm’s length price no further income was taxable in India. Tribunal has accepted the contention of assessee and allowed the appeal. On appeal the High Court upheld the order of Tribunal. (A.Y.2002-03).
Director of Income Tax v. BBC World wide ( 2011) 203 Taxman 554 ( Delhi) (High Court).

S. 92C: Avoidance of tax- Transfer pricing-Arm’s length price- International transaction.
Expansion of jurisdiction of TPO by insertion of sub –section (2A) to section 92CA, empowering him to determine arm’s length price of any international transaction other than an international transaction referred to him by Assessing Officer under section (1) of section 92CA can only have prospective effect from 1-6-2011,there fore, prior to introduction of sub section (2A) of section 92CA, jurisdiction of TPO was restricted to computation of arm’s length price only those transactions which were specifically referred to him by Assessing Officer. (A.Y. 2006-07)
CIT v. Amadeus India (P) Ltd ( 2011) 203 Taxman 602 ( Delhi)(High Court)

S. 92C: Avoidance of tax- Transfer pricing- International transaction-Assessing Officer’s decision to refer to Transfer pricing Officer must be based on material and not be arbitrary-Transfer pricing officer has no jurisdiction to decide the validity of any such reference.
The assessee entered into transactions with a party named Blue Gems BVBA. In the preceding year, the assessee treated the transactions as an “international transaction” for transfer pricing purposes. However, in the present year, the assessee claimed that though the said party was a “related party”, it was not an “affiliated entity” as defined in s. 92CA. However, instead of deciding the issue, the AO made a reference to the TPO to determine the ALP and the TPO asked the assessee to show-cause why the transaction with the said party was not subject to transfer pricing proceedings. The assessee filed a Writ Petition to challenge the action of the AO/TPO. HELD by the High Court:

The AO has jurisdiction to make a reference to the TPO only if there is an “international transaction”. Though the question as to whether there is an “international transaction” may be disputed, the AO is not obliged to grant hearing to the assessee, invite and consider the objections with respect to the question whether there was an “international transaction” before making a reference to the TPO. The AO’s opinion has to be based on available material and would have “ad-hoc” finality. The power cannot be exercised arbitrarily or at whims or caprice. S. 92C (1) has inbuilt safeguards to ensure that the reference is made only in appropriate cases with approval of the higher authority. At the stage of framing the assessment in terms of the TPO’s report the AO is entitled (despite the amendment to s. 92CA(4)) to consider the objections of the assessee that in fact there had been no “international transaction”. If the assessee succeeds in establishing such fact, the AO would have to drop the entire transfer pricing proceedings. Even the DRP has the power to consider whether there was an international transaction or not and it can annul the computations proposed on the basis of the TPO’s order. However, the TPO has no jurisdiction to decide the validity of any such reference and his task is only to determine the ALP. On facts, as the parties were closely related and the assessee had accepted in the preceding year that the transactions were subject to transfer pricing, the AO’s reference could not be interfered in writ proceedings.( A.Y.2008-09)

Veer Gems v. ACIT (2012) 65 DTR 66 / 204 Taxman 16 (Guj.)(High Court)

S. 92C: Avoidance of tax – Transfer pricing- International transaction-Computation- Arms length- Cost plus- Mark up-Resjudicata-Each assessment is a separate unit.
When the Associated Enterprise is receiving the compensation at FOB value and the assessee which is providing critical functions with the help of tangible and unique intangibles developed over the years and with the help of tangible and management which are important to achieve the strategic and pricing advantages, cost plus 5 percentage mark up is definitely not on arm’s length while working out the compensation for the services rendered by the assessee to the Associated enterprise; in such a situation, mark up on the FOB value of the goods sourced through the assessee shall be the most appropriate method to work out the correct compensation at ALP; distribution of compensation received by Associated Enterprise @ 5 percent of the FOB value of the exports between the assessee and Associated Enterprise should be in the ratio of 80: 20: ( A.Y. 2006-07)
Li & Fung (India ) (P ) Ltd v. Dy. CIT ( 2011) 64 DTR 73 ( Delhi) (Trib).

S. 92C: Avoidance of tax – Transfer pricing- International transaction- Motive to shift the profits out side India or to evade taxes in India is irrelevant.
Where a transaction is entered in to by Associated enterprise being resident and a non resident, the transaction shall amount to an international transaction falling under section 92B(1) and Chapter X is applicable; once the transactions fall under the category of international transactions the transfer pricing mechanism dies get activated and the fact that there is no motive to shift the profits out side India or to evade taxes in India, is irrelevant.( A.Y. 2006-07)
ITO v. Tianjin Tianshi India (P ) Ltd ( 2011) 64 DTR 98/ 133 ITD 123 ( Delhi ) (Trib).

S. 92C: Avoidance of tax – Transfer pricing- International transaction- Computation- Arm’s length price- Selection of comparables-Rule 10D.
The TPO has rejected the companies which are making losses as comparables. This shows that there is a limit for the lower end identifying the comparables. Similarly a big company would also be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better out put. When companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded; for the purpose of classification of companies on the basis of net sales or turnover , a reasonable classification has to be made , matter remanded for reconsideration ,after providing an opportunity.( A.Y. 2006-07 )
Genisys Integrating Systems (India) (P) Ltd v. Dy CIT ( 2011) 64 DTR 225 ( Bang.) (Trib).

S.92C: Avoidance of tax – Transfer pricing- International transaction- Computation- Arm’s length price- CUP method-TNM method.(Rule 10B )
Assessee was engaged in manufacturing and supply of additives. Raw materials and finished goods were purchased from foreign Associated Enterprise. Assesse computed arm’s length value of purchase of raw materials by adopting CUP method. No proper reason could be found as to why TPO rejected method adopted by assessee and applied TNM method based on financial of a company IIP, however, from fianancial of IIP it was found that its sales were of Rs 14 lakhs against sales of Rs 120 Crores of assessee. Said IIP had not paid any excise duty and indirect taxes, but incurred only packaging cost in addition to cost of materials. IIP was not engaged in any major manufacturing activity nor had ita comparable turn over. As there were substantial differences in financial data of two companies which eroded degree of comparability between two. Tribunal held that TPO had not only wrongly adopted TNM method without rejecting CUP method followed by assessee, but also made improper addition based on financial results of an uncomparable entity. As regards purchases from Associated enterprises the Tribunal held that assessee had committed fundamental mistakes in working out arm’s length price based on resale price method and, therefore matter was set back to file of Assessing Officer. Since 70 percent of assessee’s sales were out of purchases sourced from associate enterprises, working out gross profit margin internally , after excluding such transactions would be inappropriate due to negligible quantities of balance purchases and sales, hence, in such cases gross profit margin should be taken from comparable uncontrolled transactions entered in to by similarly placed concerns.

Indian Additives Ltd v. Asst CIT ( 2011) 48 SOT 164 ( Chennai) (Trib)

S.92C: Avoidance of tax – Transfer pricing- International transaction- Computation- Arm’s length price- Ship management- Foreign principals- Comparables.
TPO after examining set of comparables given by assessee held that assessee had erred in including loss making entities in its comparables hence rejected the comparables and made adjustments to ALP. In appeal Commissioner (Appeals) deleted the addition .On Appeal Tribunal held that assessee in its transfer pricing study analysis had given set of comparables relating to financial years 2000-01 and 2001-02 contending that data for financial year 2002-03 was not available at time TP report was compiled. Tribunal set a side the matter to the Assessing Officer for fresh adjudication with a direction to give sufficient opportunity to assessee to file fresh comparables of financial year 2002-03 so that proper ALP could be determined in accordance with law. ( A.Y.2003-04)
Dy CIT v. Mitsui O.S.K.Lines Maritime (India) (P) Ltd ( 2011) 48 SOT 155 (Mum.) (Trib).

S.92C: Avoidance of tax – Transfer pricing- International transaction- Computation- Arm’s length price- Royalty-
Assessee was engaged in business of manufacture of polystyrene and expandable polystyrene. It was wholly owned subsidiary of LG Chemicals India (P) Ltd (Holding Company) . Said holding company was 100 percent subsidiary of another company namely LG Chemicals Ltd Korea.Assessee entered in to an “Trade mark sub-licence agreement’ with its associated enterprise LG chemicals Ltd Korea as per which assessee was given non exclusive sub licence for use “LG” trade marks for its business. The assessee had paid royalty for use of trade mark .On reference the TPO held that the transaction was a sham one and motive behind same was to shift profits of assessee company out of country . He determined the royalty as nil . Accordingly the assessing Officer disallowed entire payment of royalty . Dispute Resolution panel up held the view of TPO. The Tribunal held that company may use foreign brand /logo for not only increasing its market share , but also for maintaining its existing market share, it was to be held that there was a business necessity for assessee to make impugned royalty payment to its associated enterprise and ,TPO/ DRP wrongly concluded that impugned royalty payment to its associated enterprise was a sham transaction. Accordingly the Tribunal set a side the order and directed the Assessing Officer to examine a fresh. ( A.Y. 2006-07)
LG Polymers India (P) Ltd v. Additional CIT ( 2011) 48 SOT 269 ( Visakhpatnam ) ( Trib).

S.92C: Avoidance of tax – Transfer pricing- International transaction- Computation- Arm’s length price- Tax haven-Comparison with domestic market.
Assesseee was a manufacturer of fabrics . It exported fabrics to its Associated enterprise at Panama at rate of US $1.16 per meter and same fabric was also sold in domestic market at rate of Rs 72 ( US $ equivalent 1.515) . Transfer pricing Officer adopted domestic price as ALP for export sale to Associated Enterprise The assessee contended that while comparing the domestic price adjustments were required to be made like incentives on export, discount on sales promotion , advertisement expenses etc. The Tribunal held that the Transfer pricing Officer was error in not taking in to consideration the above factor hence the method adopted by the Assessee has to be accepted. The Tribunal further held that the fact that the associated enterprise is located in tax heaven .has no bearing in so far as method of application of ALP determination is concerned. ( A.Y. 2002-03).
Arvia Industries Ltd v Asst CIT ( 2011) 48 SOT 418 (Mum.) (Trib)

S. 92AC: Avoidance of tax- Transfer Pricing- CUP method will determine ALP of interest-free loan.
The assessee advanced Rs. 7.39 crores to its AE on interest-free terms. For transfer pricing purposes, it claimed that no external comparable uncontrolled price was available for benchmarking the transaction and so TNMM was applicable to determine the arm’s length basis of the loan. Applying TNMM, the assessee claimed that the notional interest was factored in the software development income and no separate addition could be made. This was rejected by the TPO & CIT (A) on the ground that the giving of interest-free loans to the AE was an entirely separate transaction not in conjunction with the activity of software development and hence merited a separate analysis. On appeal by the assessee, HELD by the Tribunal:
The assessee was required to comply with the transfer pricing provisions of s. 92 to 92F with respect to the transaction of interest-free loan to its subsidiary. The CUP method is the most appropriate method in order to ascertain the ALP of such international transaction by taking into account prices at which similar transactions with other unrelated parties have been entered into. For that purpose, an assessment of the credit quality of the borrower and estimation of a credit rating, evaluation of the terms of the loan e.g period of loan, amount, currency, interest rate basis, and additional inputs such as convertibility and finally estimation of arm’s length terms for the loan based upon the key comparability factors and internal and/or external comparable transactions are relevant. None of these inputs have anything to do with the costs; they only refer to prevailing prices in similar unrelated transactions instead of adopting the prices at which the transactions have been actually entered in such cases, the hypothetical arms length prices, at which these associated enterprises, but for their relationship, would have entered into the same transaction, are taken into account. Whether the funds are advanced out of interest bearing funds or interest free advances or are commercially expedient for the assessee or not, is wholly irrelevant in this context. As the transaction is of lending money, in foreign currency, to its foreign subsidiary, the comparable transaction should also be of foreign currency lending by unrelated parties

Aithent Technologies Pvt Ltd v. ITO (Trib) ( Delhi). www.itatonline.org.

S.92C: Avoidance of tax – Transfer pricing- International transaction- Computation- Arm’s length price- TNMM method- Profit split method.
The assessee is doing business of manufacturing and trading of jewellery and precious and semi precious stones. The assessee applied TNMM to international transactions , where as Assessing Officer held that split method is applicable . While applying profit split method the Assessing Officer has taken value of one doller at Rs 78.44 .He has not explained how he adopted the said value. The Tribunal held that TNMM is the most appropriate method and the Assessing Officer was not justified in making addition on profit split method.( A.Y. 2004-05)
Asst CIT v. Shankar Exports ( 2011) 64 DTR 409 (Jp.) (Trib).
S. 92C : Avoidance of tax- Transfer pricing- Computation – Arm’s length price- International transaction- Information- Important Principles on scope, data and comparability. (S. 133 (6), Rule 19 D (4).
In a transfer pricing matter, the Tribunal had to consider the following issues (i) whether transfer pricing adjustments have to be restricted to AE transactions only, (ii) whether a turnover filter can be applied and only companies with turnover within the range can be considered for comparison; (iii) whether the TPO is entitled to collect information u/s 133(6) for determining the ALP or he is confined to data available in public domain on the specified date, (iv) Whether the +/- 5% adjustment is a “standard deduction”, (v) whether an adjustment to the ALP can be made for “low capacity utilization”? HELD by the Tribunal:
(i) Under Chapter X, only international transactions between AEs are required to be computed having regard to the ALP. Accordingly, the transfer pricing adjustments have to be restricted to the AE transactions by adopting the operating revenue and operating costs of only those transactions;
(ii) Though the Act & Rules does not provide for a turnover filter, there has to be an upper and lower limit because size does matter in business. A big company is in a position to bargain the price and attract more customers. It also has a broad base of skilled employees who are able to give better output. A small company may not have these benefits and the turnover would come down reducing profit margin. When are loss making companies are excluded from comparables, super-profit making companies should also be excluded. A reasonable classification of companies on the basis of net sales or turnover has to be made
(iii) While Rule 10D(4) requires that the information should be “contemporaneous” and exist latest by the “specified date”, there is no “cut-off date” upto which only the information available in public domain can be considered by the TPO. Even data that becomes available in the public domain after the specified date can be considered. If the TPO collects information u/s 133(6), he is not required to inform the assessee about the process used by him nor is he required to furnish the entire information to the assessee. However, the assessee must be given proper hearing if any information is proposed to be used against it;
(iv) The +/-5% adjustment is a “standard deduction” and not merely the range within which if the ALP falls that the ALP of the assessee is required to be accepted
(v) All comparables have to be compared on similar standards and the assessee cannot be put in a disadvantageous position, when in the case of other companies adjustments for under utilization of manpower is given. The assessee should also be given adjustment for under utilization of its infrastructure.
Genisys Integrating Systems v. DCIT (Bang.) (Trib) . www. Itatonline.org

S. 112:Capital gains- Income arising from transfer of shares –Security Transaction Tax (STT )not paid- Listed Security (S.10 (38), 45)
Assessee was a promoter –director of a company “PLL”. PLL issued shares for public subscription through initial public offer (IPO) as per SEBI guidelines, which permitted existing shareholders also to sell their shares in IPO for diluting their equity holding. Assessee sold certain share of “PLL” and received certain amount as sale consideration. Assessee claimed that said gains were not includible in his total income . Assessee has not paid Securities Transaction Tax (STT) on said shares. Assessing Officer has not allowed the exemption on the ground that the assessee has not paid STT on said shares and the Shares of PLL were not listed on any stock exchange on the date of sale. The Tribunal confirmed the order of assessing officer and held that the assessee was liable to be taxed at 20 percent.( A.Y 2006-07)
Uday Punj v. Dy CIT ( 2011) 133 ITD 354 ( Delhi) (Trib).

S. 112: Capital gains- Long term capital gains-Non resident-Investment- Stock in trade. (S.10 (38)45.)
Assessee a non resident . had converted shares purchased earlier years which were held as investment in to stock in trade and out of such shares had sold some shares during the year through recognized stock exchange on which STT was paid , long term capital gain on sale of such shares would be taxed at a rate of 20 percent in terms of section 112 (1)(c ).( A.Y. 2006-07)
Alka Agarwal( Smt) v. Asst Director of Income tax ( 2011) 48 SOT 493 (Delhi) (Trib).

S. 115JA: Book profit- Company-Profit on sale of fixed assets- Sale of lease hold right.
Under clause 2 of Part II of schedule VI of the Companies Act, where a company receives an amount of surrender of lease hold rights, it is bound to disclose in the Profit and loss account the said amount an non recurring transaction or a transaction of an exceptional nature irrespective of its nature whether it is capital or revenue. Further, Profit and loss account shall disclose every material feature including transaction or transaction of an exceptional nature, which includes profits on sale of fixed assets, therefore profit on sale of fixed assets formed part of the book profit under section 115JA. (A.Y.1997-98)
GKW v. CIT ( 2011) 64 DTR 79 (Cal) (High Court).

S. 115JA: Book profit- Company-Carry forward and set off looses under the Act-More than 8 years. (S. 70 to 79).
Assessee company’s total income was less than 30 percent of book profit . For purpose of MAT provision, assessee bifurcated its accumulated loss shown in books of account in to business loss and depreciation. As depreciation was less than business loss, he deducted same from profit. Assessing officer deducted business loss from same profits earned. While doing so, applying the provisions of Income-tax Act in respect of carry forward of business loss, he also ignored losses of years which were more than 8 years old as end of year. The tribunal held that loss incurred in a year cannot be ignored. i.e; it is not possible to omit past; loss from books of account under double entry system of accounting. The Tribunal held that principle prescribed in sections 70 to 79 is not applicable for computing accumulated losses shown in books of account following Accounting principles. There is drastic variation between income tax provisions and accounting provisions in respect of carry forward and set off losses. ( A.Y. 2000-01).
SusiSea Foods (P) Ltd v. Asst CIT (2011) 48 SOT 424 ( Visakhapatnam ) (Trib).

S. 115JB : Book profit- Company- Interest-Retrospective amendment of law- Impossible of performance.
Provisions relating to payment of advance tax are applicable in a case where the book profit is deemed to be the total income under section 115JB. On the facts of the assessee there was no liability to make payment of the advance tax on the last day of the financial year i.e. 31st March 2001 when its book profit was nil according to section 115JB. Provision of section 115JB having been amended by the Finance Act, 2002, with retrospective effect from 1st April 2001, the assessee cannot be held defaulter of payment of advance tax, where on the last date of the financial year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he cannot be asked to pay interest under section 234B and 234C for no default in making payment of tax in advance which was physically impossible there fore interests under sections 234B and 234C can not be charged.( A.Y. 2001-02).
Emami Ltd v. CIT ( 2011) 63 DTR 301 ( Cal ) (High Court).

S.115JB: Book profit-Company- Rebate – STT. ( S. 88E ).
Rebate under section 88E is allowable in respect of payment of STT even if total income assessed under section 115JB . ( A.Y. 2005-06)
CIT v. Horizon capital Ltd ( 2011) 64 DTR 306 ( Karn.) (High Court)

S. 132: Search and seizure- Warrant of authorization- Validity-Satisfaction.
Warrant of authorization issued based on material and satisfaction note by higher authority can not be held to be invalid in writ petition under Article 226 of the Constitution of India.
Dipin G.Patel v. Director General of Income –Tax( Investigation) and others ( 2011) 339 ITR 636 (Guj) (High Court).
S. 132: Search and seizure – Appellate Tribunal- Power– Validity- Authorisation. ( S. 254)
Validity of search and seizure operation could not be gone in to by the Tribunal in appeal proceedings.
Brij Mohan Bhatia v. Income Tax Appellate Tribunal (2011) 64 DTR 212 (P& H )(High Court).

S. 132: Search and seizure – Authorisation – Recording of satisfaction- Notice ( S. 131(IA), 133 (6)..
If there is sufficient and intangible material available on record, prior to search, based on which the concerned officer has formed the requisite belief under section 132(1), merely because certain other information has been sought for by authorized officer or any other officers mentioned in section 131(IA) the same would not render the search proceedings invalid. It may be possible that notice under section 131(IA) issued after search might itself be invalid but it cannot invalidate search conducted under a valid authorization under section 132(1). In the absence of any specific allegation against any particular officer, notice under section 133(6) cannot be challenged as suffering from malafides.
Neesa Liesure Ltd v. UOI ( 2011) 64 DTR 312 (Guj) (High Court).

S. 139: Return- Revised return- Intimation- Revision. (S. 143(1, 264).
Assessee filed the original return of income showing the capital gain on full value of consideration of deemed transfer. The assessing Officer passed the order of intimation under section 143(1), accepting the return. Assessee filed the revised return within one year of end of assessment year. Assessing Officer has not passed the order on the basis of revised return. Assessee filed the revision petition under section 264 before the Commissioner. Commissioner rejected the petition. On a writ petition, the Court held that, once the revised return is filed within the period of limitation, it is incumbent on the Assessing Officer to process and decide the same with in statutory period of limitation and by not doing so the department cannot be permitted to gain benefit thereof. Accordingly the petition was allowed. ( A.Y.1998-99)
Saiyad Umarmiya Usmanmiya v ITO ( 2011) TAX.L.R. 971 ( Guj.) (High Court).

S. 145: Method of accounting –Project completion method- Housing project- Enhancement- Power of Commissioner (Appeals)( S. 251 (2) )
Assessee having regularly followed project completion method which is an accepted method of accounting and the Assessing Officer having accepted the same in the preceding as well as in the subsequent assessment years, there was no justification to reject the said method and apply the percentage completion method when the assessee has offered the income in the year of completion of the project. As the Commissioner of (Appeals) has not issued the enhancement notice as required under section 252 (2) , while enhancing the income , the Commissioner of (Appeals) was not justified in enhancing the income by rejecting the project completion method followed by the assessee. ( A.Ys 2005-06 to 2007-08).
Haware Constructions (P ) Ltd v. ITO ( 2011) 64 DTR 251 ( Mum. ) (Trib)

S.145: Method of accounting –Project completion method – Income – Accrual –Builder-Slum rehabilitation project-Sale of TDR- Income. (S. 5).
Assessee is in the business of builder ,had taken a slum rehabilitation project . Assessee had been allotted TDR in lieu of handing over possession of constructed transit building. Assessee has sold the TDR in two installments . Assessing Officer taxed the receipts of TDR as independent income. Assesee contended that as they are following project completion method as per AS.7 income from project had to be computed in year of completion. The Tribunal directed the Assessing Officer to compute the income of project after taking into consideration entire expenditure and receipt from beginning of year including TDRs. In case the project was not found complete , Assessing Officer would set off TDR receipts against work in progress and no income would be assessed on account of TDR receipts separately. ( A.Y. 2007-08).
Assistant CIT v. Skylark Build ( 2011) 48 SOT 306 (Mum. ) (Trib)

S. 145: Method of accounting- Valuation of stock – Excess stock found during Survey.(S. 133A).
A survey was conducted at assesse’s premises in course of which inventory of stock was prepared. There was discrepancy in value of stock as per books and as per inventory taken at the time of survey. After survey assesse filed its return wherein value of excess stock found at the time of survey was reduced by an amount of Rs 5.18 lakhs. Assessee contended that assorted or mixed pipes valued at market price were merely scrap, and thus their scrap value was to be taken in to account while valuing the stock. The Tribunal held that burden lied on assessee for changing value drastically in respect of valuation of stock. As the assessee has not filed any credible or reliable evidence to show that cost or market price was either of items mentioned was not proper at the time of survey, the contention of the assessee was not accepted. ( A.Y. 2003-04)
K.G. Sharma v. Dy CIT ( 2011) 133 ITD 112 (Delhi) (Trib).

S. 147: Reassessment-Change of opinion-Revised statement beyond the statutory period under section 139 (5).( S. 139 (5), 148 )
On receipt of notice under section 142(1), the assessee filed a revised statement of total income at Rs.99, 45 288, which included capital gains of Rs.95,14,653 as against the originally declared income of Rs.1,34,47,493 and capital gain of Rs.1,30,21,230/-. The assessment was completed accepting the revised statement. The assessment was reopened on the ground that the assessee was not entitled to file revised statement beyond the statutory period under section 139(5). The court held that an opinion having been formed on the very issue on which the assessment is sought to be reopened , and that too only issue, it can only be viewed as a change of opinion on the part of the successor Assessing Officer, hence reopening is valid. ( A.Y 2006-07)
Rotary Club of Ahmedabad v. Asst CIT ( 2011) 63 DTR 388 ( Guj) (High Court).

S. 147: Reassessment-Reason to believe- Absence of new material.- Assessment under section 143(3).
Assessing Officer reopened the assessment on the ground that business expenses claimed by the assessee could not be allowed as no business was carried on in the relevant assessment year. It was found that earlier years the expenses were allowed under section 143 (3), therefore in the absence of any fresh material before the Assessing Officer, reopening of assessment on the basis of material which was already taken in to consideration by the Assessing Officer at the time of original assessment was not valid.( A. Y. 2001-02)
CIT v. Trimurti Builders ( 2011) 64 DTR 91 (MP ) (High Court)
S. 147: Reassessment- Failure to disclose material facts- After four years- Limitation-Effect of section 149 (1) (b).( S. 149 (1) (b).
Section 149 of the income-tax Act 1961, merely prescribes the maximum time limit for issuance of notice under section 148 of the Act based upon the amount involved . The provision does not in any manner override the proviso to section 147 of the Act, after the expiry of four years from the end of the relevant assessment year unless the conditions stipulated there under are satisfied, therefore even in those cases falling under clause (b) of sub section (1) of section 149 of the Act, if the notice under section 148 is issued beyond a period of four years but with in a period of six years from the end of the relevant assessment year, for the purpose of invoking section 147 of Act, the requirements of the proviso, namely, that there should be failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment still requires to be satisfied. ( A.Y. 2003-04).
Sayaji Hotels Ltd v. ITO ( 2011) 339 ITR 498 (Guj) (High Court).

S. 147: Reassessment- Audit objection- If Assessing Officer disputes Audit objection, she cannot use that as “reason to believe”.
The Revenue Audit raised an objection that the assessee had made remittances to foreign parties without deduction of TDS u/s 195 and that the expenditure ought to have been disallowed u/s 40(a)(i). In reply, the AO wrote back stating that as the amounts remitted to the foreign parties were not chargeable to tax in India, the assessee was under no obligation to deduct tax u/s 195 and that the expenditure was not disallowable u/s 40(a)(i). However, she still issued a notice u/s 147 and reopened the assessment to disallow the said expenditure. The assessee filed a Writ Petition to challenge the reopening. HELD allowing the Petition:
U/s 147, it is only the AO’s opinion with respect to the income escaping assessment which is relevant for the purpose of reopening an assessment. While it is true if the audit party brings certain aspects to the notice of the AO and thereupon, the AO forms his own belief, it may be a valid basis for reopening assessment, the mere opinion of the Audit Party cannot form the basis for the AO to reopen an assessment. On facts, the AO had categorically come to the conclusion that the objection of the audit party was not valid and that the assessee’s explanation with respect to non-requirement of collection of TDS was required to be accepted. Accordingly, the AO could have no “reason to believe” that income had escaped assessment and so the s. 148 notice was without jurisdiction .

Cadila Healthcare Ltd v. ACIT (Guj.) ( High Court) www.itatonline.org.

S. 147: Reassessment- Change of opinion- Permanent establishment.
During the course of the original assessment proceedings, the assessee was called upon to give information and details regarding the nature of business activities in India, it was stated in the letter that the assessee does not have any Permanent establishment in India. Assessing Officer in original assessment accepted the contention of assessee. Reassessment on the ground that the assesee had permanent establishment in India on the same facts was not justified and liable to be quashed. (A.Y.2002-03)
Tractebel Industry Engineering v. Asst Director of Income Tax( 2011) 64 DTR 344 ( Delhi) (High Court).

S. 147: Reassessment – Full and true disclosure-Disclosure made in notes forming accounts- Change of opinion-Beyond four years.
During the year under review assessee has entered in to financial restructuring with lenders, according to which the lenders have agreed to waive / foego accumulated finance cost to the tune of Rs.20,58,24,991. This accumulated finance cost was credited to the work in progress account to that extent the company has contingent liability the amount of which is unascertainable. The assessment was completed under section 143 (3), after detailed scrutiny. Assessing Officer reopened the assessment, on challenge before the High Court, the High Court held that Assessing officer reopened the assesse’s assessment without referring to any failure on the part of the assessee to disclose material facts or making any allegation of suppression on the part of the assessee, and in fact, relying upon a disclosure made in one of the notes forming part of the accounts as stated in the reasons recorded by him, Assessing Officer clearly acted in excess of his jurisdiction in reopening the assessment beyond four years. ( A.Y 2004-05)
Lok Housing & Construction Ltd v. Dy CIT ( 2011) 64 DTR 401 ( Bom) (High Court)

S. 147: Reassessment- Sanction- Commissioner- Joint Commissioner- Curable irregularity-Sanction of Commissioner instead of Joint Commissioner renders reopening invalid-. ( S. 148 , 151 (2), 292B)
The AO issued a notice u/s 148 to reopen an assessment. As a s. 143 (3) order had not been passed & 4 years had elapsed, the AO ought to have obtained the sanction of the Joint/Additional CIT u/s 151(2). Instead, he routed the file through the Additional CIT and obtained the sanction of the CIT. On appeal by the assessee, the Tribunal struck down the reopening on the ground that correct sanction had not been obtained. On appeal by the department, HELD upholding the Tribunal:
(i) S. 151(2) requires the sanction to be accorded by the Joint/Additional CIT. The AO sought the sanction of the CIT. Though the file was routed through the Addl. CIT, the latter only made an endorsement “CIT may kindly accord sanction”. This showed that the Addl. CIT did not apply his mind or gave any sanction. Instead, he requested the CIT to accord approval. This is not an irregularity curable u/s 292B;
(ii) The different authorities specified in s. 116 have to exercise their powers in accordance with law. If powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. If the statute requires a thing to be done in a certain manner it has to be done in that manner alone. Also, the designated authority should apply his independent mind to record his satisfaction and it should not be at the behest of a superior authority.
CIT v. SPL’s Siddhartha Ltd (Delhi) ( High Court). www. Itatonline .org

S. 147: Reassessment- Non disclosure of primary facts-Prima facie reason – Assessment under section 143(1)( S. 14A, 143(1)).
What is necessary to reopen an assessment is not final verdict but a prima facie reason . Once reason is recorded by Assessing Officer and subject to other conditions laid down in enabling provision , Assessing Officer assumes jurisdiction to issue notice under section 148. Merely because for earlier assessment years issue in dispute has been decided by Commissioner (Appeals) in favour of assessee can not be a fetter to Assessing Officer in exercising his jurisdiction under section 147 . ( A.Y 1999-2000)
Asst CIT v. Tube Investments of India Ltd ( 2011) 133 ITD 79 (Chennai) (TM )(Trib)

S. 147: Reassessment- Brought forward business loss – Unabsorbed depreciation-Deduction- Export-Manner of computation.( S. 80HHC).
Assessee’s claim for deduction under section 80HHC was allowed on amount of income before reducing brought forward business loss and unabsorbed depreciation hence the Assessing Officer was justified in reopening assessment on that issue. Once assessment is reopened under section 147 on more than one point and one such point is finally taken in to consideration while determining the total income under section, read with section 147, it cannot be held that initiation of reassessment was illegal. Similarly when no escapement of income is found to have taken place on account of reasons which led to issuance of notice under section 148 ,then the Assessing Officer cannot assessee or reassess any other income which comes to his knowledge during course of reassessment proceedings, however if escapement of income is found in respect of any of reasons basis of which notice under section 148 was issued, then the jurisdiction of Assessing Officer to reassess any income which earlier escaped assessment and now comes to his notice during course of reassessment proceedings can not be held to be invalid. In order to justify initiation of reassessment it is sine qua non that there must be some income which escaped assessment . Where the manner of computation done by assessee is incorrect but does not reduce total income or ultimate tax liability , it can not be a case of escaping assessment covered under section 147. ( A.ys 1999-2000 and 2000-2001).
Priya Ltd v. ITO ( 2011) 133 ITD 38 (Mum.) (Trib)

S. 148: Reassessment-Notice- Reasons recorded.
When notice under section 148 is issued ,Assessing Officer is bound to furnish reasons recorded with in a reasonable time after return has been filed so that assesee could file the objections if any. When so such reasons are furnished to assessee either along with notice under section 148 or at time when hearing are conducted but furnished only before assessment order is passed , such assessment is to be set a side and remanded back for re-adjudication after supplying copy of reasons recorded. (A.Y.2005-06)
Kaushalendra Pratap Singh v. ITO(2011)133 ITD 111 (Kol.) (Trib)

S. 154: Rectification of mistake-Prima facie adjustment-Intimation. (S 143(1) (a)).
Where the issue involved of debatable , an intimation under section 143(1) (a) disallowing claim based on such debatable issue on ground that it is prima facie in admissible, cannot be sustained. When error is pointed out it is the duty of Assessing Officer to amend under section 154(1)(b).
Asst CIT v. Haryana Telecom Ltd ( 2011) 133 ITD 99 ( Delhi) (Trib).

S. 158BC: Block assessment- Search and seizure- Computation- Undisclosed income.
Search was conducted by the Central Excise department and unaccounted cash amounting to Rs.10,25,000 was found and recovered. The Tribunal merely relying on the order of Assessing Officer reversed the finding of Commissioner (Appeals), without giving any reason, High Court set a side the order of Tribunal and directed the Tribunal to readjudication. Further, the plausibility of the explanation submitted by the assessee on the basis of sales bills produced by him also requires to be considered by the Tribunal.
Brij Mohan Bhatia v. Income Tax Appellate Tribunal (2011) 64 DTR 212 (P& H )(High Court).

S. 158BC: Block assessment- Search and seizure- Anonymous donations. ( S. 11 ).
Assessee society running a middle school received certain anonymous donations, The Tribunal held that such donations are liable to be taxed under section 158BC, where as in respected of other donations received receipts contains the details of name and addresses the said donations can not be assessed under section 158BC. ( A.Y 2007-08)
Hans Raj Samarak Society v. ITO ( 2011) 133 ITD 530 ( Delhi) (Trib).

S. 158BFA(2): Block assessment – Search and seizure – Penalty-Undisclosed income-Statement- Quantum confirmed by Tribunal.
In quantum appeal the Income tax Appellate Tribunal has not accepted the retraction made by the assessee, in the absence of any contrary, material placed on record by the Assessee, the assessee was liable to penalty under section 158BFA (2).
Gunanath B. Thakoor v. Asst CIT ( 2011) 64 DTR 23/ 142 TTJ 770(Mum.) ( Trib).

S. 184: Firm – Association of persons- Registration –Certified copy of partnership deed ( S. 40(b), 185 ).
Assessee filed the return of income for the asst year 1993-94 on 30 – August,1993 which was assessed under section 143(1). In the course of reassessment proceedings the Assessing Officer found that the assessee had not furnished certified copy of the partnership deed along with the return of income, however during the course of assessment proceedings the assessee filed the a photo copy of a partnership deed. The Assessing Officer assessed the firm as an AOP and disallowed the salary and interest paid to the partners under section 40(b) of the income-tax Act. On appeal the CIT(A) and Tribunal held that as the assess had filed the deed of copy partnership which was signed by all the partners the assessee was liable to be assessed as partnership as the procedure requirement of the Act had been complied with. On appeal the High court held that the order of Tribunal being proper and the status of firm has been correctly assessed as partnership. ( A.Y. 1993-94).
CIT v. Nand Lal Lalu Ram ( 2011) 245 CTR 525 ( P&H ) (High Court).

S. 194 C: Deduction at source- Contractor- Transportation of building material- Hiring of dumpers- Rent.( S.194 I ).
Assessee engaged in transportation of building material, hiring Dumpers and making payments to contractor for hiring dumpers. The payment was not rent for machinery or equipment but the payment was for works contract of shifting of goods from one place to another, therefore section 194C and not section 194I .( A.Y. 2007-08)
CIT (TDS) v. Shree Mhalaxmi Transport co ( 2011) 339 ITR 484 (Guj.) (High Court)

S. 194 C: Deduction at source- Contractor- Transportation of goods – Rent (S. 194I )
Assessee entering in to works contracts for transport of goods belonging to assessee to clients through their vehicles . Payment was not rent for machinery or equipment but payment for works contract, tax deducted under section 194C and provision of section 194I cannot be applied. (A.Y. 2007-08)
CIT (TDS) v. Swayam Shipping services P .Ltd ( 2011) 339 ITR 647 (Guj) (High Court).

S. 194 C: Deduction at source- Sub-Contractors-Union of Truck operators.
The assessee was a truck operators’ union and procured contracts for its members. During the assessment of its income, the Assessing Officer made an addition after disallowance under section 40(a)(ia) of the income-tax Act, on the ground that it failed to deduct tax at source as required under section 194 C (2) of the Act. The court held that there being no sub contract the tax was not deductible at source under section 194C.
CIT v. Truck Operators Union ( 2011) 339 ITR 532 ( Mad. ) (High Court).

S. 194C: Deduction at source-Contractor-Sub contractor-Service of security personnel
Service rendered by security personnel under a contract with agency would fall with in the meaning of section 194C ,because security guards are skilled persons carrying out work of guarding premises from any untoward incidence therefore assessee was justified the deduction of tax at source at 2.26%. (A.Ys.2006-07 to 2008-09.
Glaxo Smith Kline Pharmaceuticals Ltd v. ITO (TDS) ( 2011) 48 SOT 643 (Pune) (Trib).

S. 194C): Deduction at source- Contractor-Sub contractor-Amounts not deductible- lease rent for cranes – Works contract –Deduction at source (S.40(a)(ia)).
Payment made by the assessee for hiring of cranes to crane owners was with reference to the period of lease and not at all related to the work / out derived from the cranes and therefore such payment can not be said to be payment made for “works contract ” covered by section 194C and therefore was no requirement to deduct tax at source under section 194C and consequently the payments could not be disallowed under section 40(a)(ia). (A.Y. 2006-07).
Asstt .CIT v. Sanjay Kumar(2011) 48 SOT 615 ( Delhi ) (Trib).

S. 194C: Deduction at source- Contractor- Sub contractor- Labour charges.( S. 40(a) (ia).
Assessee paid labour charges to various labourers which included cash payments exceeding Rs.50,000/- to some labourers throughout year. Assessing Officer disallowed such payments by invoking provisions of section 40(a) (ia) for non deduction of tax at source under section 194C. According to assessee the number of persons from one family worked as casual labourers at site on daily wage basis and due to practical difficulties for preparing individual vouchers for each labour payment, only one voucher was prepared in name of head of family who received the money and if individual labourerers were taken in to consideration ,payment does not exceed Rs.50,000/- in a year to each person. Assessee also filed the confirmation from from persons who received the sums on behalf of a number of members and same had not been repudiated by revenue. Tribunal held that the disallowance was not justified. ( A.Y 2006-07)
Nalawade C Maruti v. JCIT ( 2011) 48 SOT 566 ( Pune) (Trib).

S. 194C: Deduction at source- Contractor- Sub contractor- Hiring of tractors and trolleys- Transport and octori charges. S. 40(a) (ia).
Assessee hired Tractors and trolleys from nearby villages for purpose of business and debited payments were on a day basis under head “transportation and Octori charges” . Assessing Officer disallowed the same on ground that said payments were transport charges and hence required deduction at source under section 194C. The Tribunal held that the nature of expenditure cannot be deduced merely on the basis treatment accorded in account books, but to be decided on basis of substantive character of transaction. As hiring of tractors /trolleys for purpose of using them in business could not be equated to a contract for transportation for carriage as contemplated under section 194C,therefore disallowance of expenses by invoking provisions of section 40(a)(ia) was unjustified. Even if such an arrangement is considered to be falling with in the purview of section 194I of the Act, however for the period under consideration the requirement of deduction at source on machinery rentals are not applicable. (A.Y.2006-07).
Nalawade C Maruti v. JCIT ( 2011) 48 SOT 566 ( Pune) (Trib).

S. 194H : Deduction at source-Commission or brokerage-“Principal-Agent”.( S. 40 (a) (i).
The assessee entered into agreements with hospitals etc (“collection centres“) in accordance with which the centres collected samples from patients seeking laboratory tests and forwarded it to the assessee. The centres raised a bill on the patient, retained their “discount” and paid the balance to the assessee. The assessee claimed that it had rendered “professional services” & that the centres had rightly deducted TDS u/s 194J. The AO held that in collecting the sample and forwarding it to the assessee, the centres acted as an “agent” of the assessee and that the “discount” retained by it was “commission” and that the assessee ought to have deducted TDS u/s 194H. He consequently disallowed the “discount” u/s 40(a)(i) in the hands of the assessee. This was upheld by the CIT(A). On appeal by the assessee, HELD reversing the AO & CIT(A):
(i) To fall within s. 194-H, the payment must be by a “person acting on behalf of another person“. The element of “agency” has necessarily to be there. If the dealings between the parties is not on a “principal to agent” basis, s. 194-H does not get attracted;
(ii) On facts, the relationship between the assessee and the Centres was not on a “principal & agent” basis because (a) under the agreement, the Centres availed the professional services of the assessee to test the samples and were under no obligation to always forward these samples to the assessee; (b) The Centres issued its own bill to the patient, collected the fees and issued the receipt, (c) the assessee raised its invoice on the Centres after giving a “discount” over the standard price list; (d) the rates charged by the Centres from its customers were not decided by the assessee, (e) there was no privity of contract between the assessee & the patient, (f) the amounts collected by the Centres was not on behalf of the assessee. Consequently, the relationship between the assessee and the Centres was on principal to principal basis and s. 194H did not apply.
(iii) Further, the obligation of TDS u/s 194 H arises only at the time of “payment” or “credit”. As the assessee had not paid or credited any amount to the account of the Centres, s. 194H had no application. The assessee had only credited the net amount received from the Centres as its income.

SRL Ranbaxy Ltd v. ACIT (Trib) ( Delhi). www.itatonline.org.

S. 194J: Deduction at source- Fees for professional- Technical services- Service of security personnel. ( S.9(1) (vii), 194C)
The Tribunal held that payment made for services of security guard provided by a contractor can not be kept in nature of managerial , technical or consultancy services to attract clause (vii) to section 9 (1) reads with section 194J. For treating the payment for technical services to be covered under section 194J , should be a consideration for acquiring or using technical know how simplicitor provided or made available by human element and there should be direct and live link between payment and receipt /use of technical services information .The contention of assessee that payment is covered under section 194C is accepted. ( A.ys 2006-07 to 2008-09.
Glaxo Smith Kline Pharmaceuticals Ltd v.ITO (TDS)( 2011) 48 SOT 643 (Pune) (Trib).

S. 195: Deduction at source- Other sums-Interest-Protocol- Non –resident- DTAA-India- France(S.90, Article 12)
Interest payable by the applicant , an Indian company , to a French company as well as its assignee , another French company , on the credit extended by it which is insured by COFACE of France is not taxable in India , in view of the Most Favoured Nation Clause in the protocol to the DTAA ,therefore there is no obligation on the applicant to withhold tax on the interest paid by it .
Poonawalla Aviation (P) Ltd., In Re (2011) 64 DTR 395 / (2012) 246 CTR 22 (AAR).

S. 201(IA): Deduction at source- Interest –Interest other than interest on securities- Retrospective amendment . ( S.194A ).
In view of the retrospective amendment of section 201 w.e.f. Ist June 2002, by Finance Act , 2008 , all persons who were liable to deduct tax at source under section 194A are liable to pay interest under section 201(IA ) if they have not deducted the amount; assessee’s liability ceases from the day the creditor pays the tax . ( A.Ys 2004-05 to 2006-07).
Solar Automobiles India (P ) Ltd v. Dy CIT ( 2011) 64 DTR 34 (Karn.) (High Court).

S. 201 (IA): Deduction at source-Interest-Unequal deduction – Salary ( S. 192 ).
If there were bonafide reasons in deducting a lesser tax during the earlier months of financial year and is made good immediately after noticing such short fall, then section 192 (3) , would save the employer from liability of making payment of interest under section 201 (IA ) ; however , if the Assessing Officer finds that employer has taken the deduction casually during the earlier months of the financial year , by not deducting the tax at the end of the financial year , then interest can be charged. ( A.Y . 2004-05 ).
Madhya Gujarat Vij Co Ltd v. ITO ( 2011) 64 DTR 127/ 133 ITD 89( Ahd.) ( Trib).

S. 206C:Collection at source-Forest produce- Tax paid by purchaser.
As per the provision of section 206C(6), the liability in respect of Tax collection at source is fastened upon the person engaged in collection of forest produce and selling them whether or not he collects the Tax collection at source as per provision of section 206C (1) and therefore , the contention that the assessee should not be made liable to pay the Tax collection at source on the impugned sales , since the purchasers have already paid the tax thereon was not sustainable. Accordingly the assessee was made liable to pay the demand.( A.Y. 2005-06)
Girijan Co-Op- Corporation Ltd v. Asst CIT ( 2011) 64 DTR 433 ( Visakhapattanam ) (Trib).

S. 220:Collection and recovery-Assessee deemed in default-Stay- Appeal pending before Commissioner (Appeals)- Writ .( Art 226, 227, Constitution of India)
Writ petition filed by the asssessee seeking stay of recovery of demand during the pendency of appeal before the Commissioner (Appeal) is not maintainable, however Commissioner (Appeal) is directed to decide the appeal expeditiously , preferably with in a period of three months..( A.Y. 2007-08)
Countrywide Buildrstate (P) Ltd v. UOI (2011) 63 DTR 343 (Raj.) (High Court).

S.220:Collection and Recovery- Interest-Assessee deemed in default.
For the assessment year 1994-95 ,the assessment was completed under section 143 (3) on 28-2-1997 . The original assessment order was set a side by Tribunal and fresh assessment order was passed on 24-12-2006. Assessing Officer held that the Interest under section 220(2) to commence after thirty days from the date of service of the original demand notice dated 28-2-1997. Tribunal held that interest would be applicable on the demand notice pursuant to fresh assessment order i.e. 24-12-2006 and question of demanding interest for the period prior to 24-2-2006 does not arise .Order of Tribunal was confirmed by High Court.
CIT v Chika Oversea Pvt Ltd .ITA NO 3737 of 2010 dated 18-11-2011..429 (2012) 43-B.BACAJ . January 2012.-P. 41.

S. 220(2): Collection and recovery- Interest- Notice of demand -If original demand not fully paid, interest payable even for period when demand was not in existence. ( S. 156 ).
The AO passed an assessment order and raised a demand of Rs. 21.24 lakhs of which Rs. 10.50 lakhs was paid by the assessee and the balance of Rs. 10.94 was stayed. On 20.5.1998, the CIT (A) allowed the appeal of the assessee and no demand remained payable by the assessee. The AO refunded the taxes paid by the assessee. Subsequently, the Tribunal reversed the CIT (A). The AO gave effect to the Tribunal’s order on 30.7.2004 and charged interest u/s 220(2) for the entire period. The assessee filed a Writ Petition claiming that it was not liable to pay interest for the period from 20.5.1998 to 30.7.2004 (6y 3M) when the CIT(A)’s order was operative and no sum was due from it. HELD by the High Court:
S. 220(2) provides for levy of interest if the demand is not paid within 30 days of the service of notice u/s 156. A distinction has to be drawn between a case where the assessee pays up the entire demand raised pursuant to the assessment order within the period specified in s. 156, wins in appeal and the amount is refunded and subsequently loses in further appeal and has to repay the taxes. In such a case, as the assessee is not in default in the first instance, no interest u/s 220(2) is payable for the period when the favourable verdict of the appellate authority was operative. However, if the assessee has not paid up the entire tax within the specified period, it is liable to pay interest u/s 220(2) from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no effect on the liability of the assessee to pay the interest. On facts, as the assessee had paid only a part of the demand at the first stage, it was held liable to pay interest for the entire period including the period when the favourable CIT(A)’s order was operative though no interest was payable on the s. 244A interest

Girnar Investment Ltd v. CIT (Delhi) ( High Court) www.itatonline.org.

S. 234B : Interest- Advance tax- Book profit- Company- -Retrospective amendment of law- Impossible of performance.( S. 115JB, 234C )
Provisions relating to payment of advance tax are applicable in a case where book profit is deemed to be total income under section 115JB. On the facts of assessee ,there was no liability to make payment of the advance tax on the last day of the financial year i.e. 31st March 2001 when its book profit was nil according to section 115JB. Provision of section 115JB having been amended by the Finance Act , 2002, with retrospective effect from 1st April 2001, the assessee cannot be held defaulter of payment of advance tax, where on the last date of the financial year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he cannot be asked to pay interest under section 234B and 234C for no default in making payment of tax in advance which was physically impossible therefore interests under sections 234B and 234C cannot be charged.( A.Y. 2001-02).
Emami Ltd v. CIT ( 2011) 63 DTR 301 ( Cal ) (High Court).

S. 234B: Interest- Advance tax-Cash seized- Search and seizure. ( S.132B(1)(i), 234C.)
Cash was seized in the course of search and seizure action on 12th January 2007. Prior to the last date for payment of installment of advance tax assessee filed a letter dated 14-3-2007 requesting to adjust the cash seized, towards the existing advance tax liability. The Tribunal directed to adjust the cash seized towards advance tax liability. High Court confirmed the view of Tribunal .( A.Y. 2007-08)
CIT v Jyotindra B. Mody ITA NO 3741 of 2010 dt 21-9-2011 (Bom) (High Court) ) 181 (2011) 43B- BCAJ 53(November-52)
S. 244A: Interest on refunds-Self assessment tax-Regular assessment-Notice of demand .( S. 156)
Where the assessee is entitled to refund of self assessment tax, interest under section 244A ,is to be calculated from the date of payment of tax till the date of refund and not from the 1st April of the assessment year or from the regular assessment.( A.Y. 2002-03)
CIT v. Vijaya Bank ( 2011) 64 DTR 411 ( Karn.) (High Court).

S. 245 D: Settlement Commission-Finality of order- Power –Jurisdiction- Assessing Officer.(S. 245C, 245F , 245-I.)
Settlement Commission passed an order under section 245D (4) with observation that Commissioner of Income Tax / Assessing Officer may take such action as appropriate in respect of the matter not placed before the Commission by the applicant as per provision of section 245 F (4). Assessing Officer issued notice thereafter and made additions over and above that sustained by Settlement Commission. The matter was taken up before the Tribunal, the Tribunal deleted the additions made by the Assessing Officer. In an Appeals filed by the revenue the Court held that, after passing the order by the Settlement Commission, no power vests in the Assessing Officer or any authority to issue the notice in respect of the period and income covered by the order of the Settlement Commission, except in the case of fraud or misrepresentation of facts. Assessing Officer therefore had no power to issue notice in respect of the period and income covered by the order of Settlement Commission (A.ys 2001 to 2006-07).
CIT v. Diksha Singh ( Smt) (2011) 64 DTR 268 (All) (High Court)
CIT v. Late Paramjeet Singh ( 2011) 64 DTR 268 ( All) (High Court)

S. 245 R: Advance Ruling-Application-Capital gains- Colourable device -Pendency of proceedings (.45, 195, 201 ).
Applicant MA , a French company , pursuant to an understanding with the other applicant GIMD , also a French a company having floated a 100 percent subsidiary and acquired majority shares of an Indian Company in the name of said subsidiary and later both the applicants having sold their shares in the subsidiary to another French company , it was a preordained scheme to deal with the assets and control of the Indian Company without actually dealing with its shares thereby avoiding payment of tax on the capital gains in India and therefore , in view of clause (iii) of the proviso to section 245R(2) Ruling on the question relating to the taxability of the capital gains arising from the sale of said shares by the applicant was declined. The Authority also held that nature of proceedings under section 201 on the basis of section 195 are only preliminary and not conclusive and therefore ,pendency of proceedings or order passed under section 201 against the purchaser of shares cannot in the way of the Authority in giving an Advance Ruling under section 245 R (4 ).
Groupe Industrial Marcel Dassault, in Re ( 2011) 64 DTR 1 (AAR).

S. 254: Appellate Tribunal- Power- Search and seizure- Validity- Authorisation. ( S. 132(1))
Validity of search and seizure operation could not be gone in to by the Tribunal in appeal proceedings.
Brij Mohan Bhatia v. Income Tax Appellate Tribunal (2011) 64 DTR 212 (P& H )(High Court).

S. 254: Appellate Tribunal – Power-Stay – Deduction at source- Disallowance of interest- Commission- Interest. ( S. 40(a) (ia), 220 (2), 234B, 234D)
Assessee moved the stay application before the Tribunal to stay the demand of tax and interest. Demand has arisen mainly because of disallowance of interest commission etc due to failure to deduct tax at source. The Tribunal held that the assessee has failed to prove a prima facie case in his favour, hence the stay application was rejected. (A.Y. 2007-08)
Maharastra State Electricity Distribution Co Ltd v. Asst CIT ( 2011) 133 ITD 519 (Mum. )(SB) (Trib).

S. 263 : Revision of orders prejudicial to revenue-Assessing Officer’s self-determination of ALP without referring to TPO is “erroneous & prejudicial to interests of revenue”- International transaction- Transfer pricing (S. 92C).

The assessee entered into international transactions with its AEs, the value of which exceeded Rs. 5 crores. The AO passed an order u/s 143(3) in which he recorded the finding that he had examined the transactions and found them to be at arms’ length and no transfer pricing adjustment was required to be made. The CIT thereafter passed an order u/s 263 on the ground that in view of Instruction No. 3 of 2003 dated 20.5.2003, the AO ought to have referred the issue to the TPO instead of himself determining the arms’ length price of the transactions and that the assessment order was consequently “erroneous and prejudicial to the interests of the revenue”. On appeal, the Tribunal (114 TTJ (Del) 1) upheld the revision order. On further appeal by the assessee, HELD dismissing the appeal:

Though s. 92CA enables the AO to refer an international transaction to the TPO if he considers it “necessary or expedient” to do so, Instruction No. 3 dated 25.5.2003 makes it mandatory for the AO to make a reference to the TPO if the aggregate value of the international transaction exceeds Rs. 5 crores. This Circular, having been issued u/s.119, is binding on the AO. The AO ought to have referred the matter to the TPO having regard to the fact that Specialized Cell was created to deal with complicated and complex issues arising out of the transfer mechanism. The AO’s omission to follow the binding Circular amounted to making assessment without conducting proper inquiry and investigation and resulted in the order becoming “erroneous and prejudicial to the interest of the Revenue”. The observations in Sony India 288 ITR 52 (Del) (while upholding the constitutional validity of the aforesaid Circular) that the said Circular was a “Guideline” which did not take away the discretion of the AO was made in a different context.

Ranbaxy Laboratories Ltd v. CIT (Delhi) ( High Court). www.itatonline.org.

S. 263: Revision of orders prejudicial to revenue- Exemption –Capital gains- Investment in house with in time specified under section 139(4).( S. 54F).)
Commissioner passed the order under section 263 withdrawing exemption under section 54F, on the ground that new house was registered in favour of the assessee beyond the due date prescribed under sub section (1), of section 139 and that the assessee failed to deposit the sale proceeds as provided under section 54F (4). High Court held that Tribunal was justified in setting a side the order of the Commissioner by holding that the investment made by the assessee being with in time specified under section 139(4) ,the assessee is eligible for exemption under section 54F in view of the binding decision of the Jurisdictional High Court.( A.Y. 2006-07)
CIT v. Vrinder P.Issac( Smt) ( 2011) 64 DTR 376 ( Karn.) (High Court)

S. 263: Revision of orders prejudicial to revenue-Power-Sweeping manner – Cannot direct A.O. to frame entire assessment.
While exercising revisional jurisdiction under section 263 commissioner can not ordinarily exercise this power in a sweeping manner directing Assessing Officer to frame entire assessment afresh, when assessment order indicates consideration of majority of relevant issues (A.Y. 2004-05 )
New India Assurance Co Ltd v. Addl Commissioner ( 2011) 133 ITD 131 (Mum.) (Trib)

S. 263: Revision of orders prejudicial to revenue- – Penalty- Concealment – Cannot initiate penalty proceeding. (S. 271(1)(c).)
The Tribunal held that once revision order is passed, it is for assessing authority to consider whether penalty is to be levied or not and if assessing authority has not levied penalty where it is imperative, then only , Commissioner can in his wisdom interfere in the matter. Therefore when there is no penalty order subsisting at time of passing of revision order it is not proper on part of Commissioner to initiate penalty proceedings under section 271 (1)(c ) ( A.Y. 2008-09 ).
S. Sudaha (Smt) v. Asst CIT ( 2011) 48 SOT 335 ( Chennai) (Trib).

S. 271 (1) (c ): Penalty – Concealment- Survey – Additional income. (S. 133A ).
Assessing Officer has not give a clear finding in penalty order whether addition on account of concealment of income or furnishing in accurate particulars of income. The tribunal held penalty was not justified. ( A.Y. 2006-07).
Asst CIT v. Rmp Infotech P Ltd ( 2011) 12 ITR 581 ( Chennai ) (Trib).

S. 271 (1) (c ):Penalty- Concealment- Search and seizure- Revised return ( S. 153A ).
A Search and seizure operation was conducted at assesses premises . In response to notice under section 153A, the assessee filed return showing income of Rs 2,11, 297, without disclosing any unaccounted income. In response to further enquiry, assessee filed revised return disclosing additional income by way of declaring gross profit rate of 15 % as against 6.93 % which was declared in return filed under section 153A. Assessing Officer completed assessment by taking gross profit at 15%. The Tribunal held that since the assessee had failed to establish that disclosure of additional income in revised return under section 153A was made voluntarily and in good faith to buy peace with revenue and since, assessee filed the revised return only after concealment was detected by Assessing Officer, penalty under section 271 (1 )( c ) was rightly imposed. ( A.Y.2005-06).
Dy CIT v. Sushma Devi Agrwal ( 2011) 133 ITD 155 (Kol.) (TM ) (Trib).

S. 271 (1) ( c ): Penalty- Concealment- Search and seizure- Statement –Retraction-Unaccounted donation.
There was a search in case of one of trustees , during course of which several incriminating documents w were found which among other showed unaccounted transaction by trust. The Trustees had clearly stated that unaccounted donations were received , though retracted after thought. The Tribunal held that assessee had concealed particulars of income with in meaning of provision of Explanation 1 to section 271 (1) (c ). ( A.Ys 1989 and 1990-91 .)
Dy .DIT v. St .Xavier’s Education Trust ( 2011) 133 ITD 576 ( Mum.) (Trib)

S. 271 (1) (c ): Penalty- Concealment-Survey- Stock – Addition ( S.69 ).
On the date of survey, as per physical verification stock found was of value of Rs 87,93 380 , where as stock as per books of account maintained works out Rs 78,93 380. Assessee had agreed pay tax on excess stock so worked amounting to Rs 9 lakhs. In the trading account for period ending 31-3- 2000 the assessee shown the said amount as other income, however the assessee increased the valuation of opening stock by Rs 9 Lakhs and nullified the effect of declaration. The Assessing Officer made addition of Rs 9 lakah as unexplained investment in stock under section 69 and also levied the penalty under section 271(1)(c). The Tribunal held that the assessee had deliberately prepared trading account in such away so as to nullify effect of excess stock found during survey, conduct clearly showed that asessee had concealed income hence justified the levy of penalty. ( A.Y. 2000-01)
Tribhovandas Chelaram v. Asst CIT (20110 133 ITD 587 ( Ahd.) (Trib).

S. 271 (1) (c ): Penalty- Concealment – Good will- Depreciation- Intangible asset.
The assessee has goodwill as ‘certain other intangible assets’ and claimed depreciation. The Tribunal held that claimed such a false claim could not be considered as a debatable or possible claim and assessee was liable to penalty under section 271 (1) (c ). (A.Y. 2000-01 )
Mahindra Intertrade Ltd v. Dy CIT ( 2011) 133 ITD 597 (Mum.) (Trib)

S. 271 (1) (c ): Penalty- Concealment – Commissioner- Revision- Cost of acquisition.( S. 263).
The Tribunal held that once revision order is passed, it is for assessing authority to consider whether penalty is to be levied or not and if assessing authority has not levied penalty where it is imperative, then only , Commissioner can in his wisdom interfere in the matter. Therefore when there is no penalty order subsisting at time of passing of revision order it is not proper on part of Commissioner to initiate penalty proceedings under section 271(1)(c). On merit the Tribunal held that whether the expenses relating to tiles, white washing electrical rewiring and wood work incurred after purchasing of property as part of acquisition on a bonafide belief that law permits such a treatment, there was no question of furnishing any inaccurate particulars or any case concealment of income ,therefore penalty under section 271(1)(c) cannot be levied. ( A.Y. 2008-09 ).
S. Sudaha (Smt) v. Asst CIT ( 2011) 48 SOT 335 ( Chennai) (Trib).

S. 271AA: Penalty- Transfer pricing- Failure to maintain and keep documents- International Transaction (S. 92D ,Rule 1D).
Assessee was engaged in business of manufacturing and distributing non-pharmaceutical health care products .It had entered in to an International transactions with its associated enterprises (AE). During the course of assessment proceedings the Assessing Officer observed that as the asssesse failed to maintain books of accounts for international transaction levied the penalty of Rs 13,57,720.The Tribunal held that the Assessing Officer did not specify what was the failure on part of assessee under section 92D read with Rule 10D, secondly in the course of assessment proceedings assess had furnished all details required by Assessing Officer and International transaction with Associated Enterprise which had been accepted to be one confirming to arm’s length price by the Assessing Officer. The Tribunal held that the penalty levied by the Assessing Officer was without any basis hence cancelled the penalty order. (A.Y 2003-04).
Asst CIT v. Smith & Newphew Healthcare (P) Ltd ( 2011) 48 SOT 607 ( Mum. (Trib).

S. 275 : Penalty- Concealment –Bar of limitation for imposing concealment penalty. ( S. 271 (1) (c ).
Assessee, a public Limited Company, filed a loss return. Assessing Officer completed assessment at positive income by making various additions and disallowances. The additions were confirmed by Commissioner (Appeals) and Tribunal on 30-8-2004 and 9-5-2008, respectively. Assessing Officer imposed penalty order under section 271(1)(c) on 30-1-2009. Assessee claimed that said order of penalty order of 30-1-2009 was barred by limitation in terms of section 275. The Tribunal held that where assessee had filed an appeal before Tribunal against quantum, section 275(1)(a) fixes time limit of six months from date of receipt of order of Tribunal by Commissioner /Chief Commissioner or passing an order of penalty , therefore penalty levied was proper.( A.Y. 2000-01)
Mahindra Intertrade Ltd v. Dy CIT ( 2011) 133 ITD 597 (Mum.) (Trib)

Interest- tax Act , 1974.
S. 5: Interest –Tax-Charge- Loans and advance – Bills rediscounting scheme.
Interest received by the assessee on loans and advances made under the bills rediscounting scheme from different banking companies to which the Banking Regulation Act , 1949, applies did not form part of chargeable interest defined under the Act and no tax was payable on such amount.( A.Y. 1992-93).
National Insurance Co Ltd v. CIT ( 2011) 339 ITR 573 ( Cal) (High Court).

Wealth-Tax ACT, 1957.
S.2 (e): Wealth –Tax- Asset –Land taken on lease.
Assessee was in possession of after expiry of lease . As the assessee does not have vested interest inland for a period exceeding six years .Following the earlier year, the property was not liable to wealth tax. ( A.Y. 1992-93 )
George Oakes Ltd v. Dy. CWT (2011) 339 ITR 630 (Mad.)(High Court).

Voluntary Disclosure Scheme- Finance Act (26) of 1997- Criminal Procedure Code- Prosecution-Benefit of scheme.
Person against whom only F.I.R. filed is not a person against whom prosecution is pending. Prosecution gets initiated when summons is issued by court on report of investigating officer, therefore the benefit of scheme cannot be denied to a person against whom only F.I.R. is filed, therefore the order of Tribunal was confirmed.
CIT v Meena Goyal (Smt) (2011) TAX.L.R.936 (Uttarakhand) (High Court)