|Digest of important case law – February 2012|
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Journals Referred : BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ, www.itatonline.org
S. 2(22)(e) : Dividend – Deemed dividend – Credit balances in the normal course of business cannot be assessed as deemed dividend.
Assessee has filed the confirmation and copies of accounts showing that the amounts representing in the accounts were receipts due to the appellant, in the normal course of business dealings with these companies. The Court held that receipts from these companies cannot be treated as deemed dividend. (A. Y. 2003-04).
CIT v. Francies Waczirag (2012) 66 DTR 453 (Delhi)(High Court)
S. 4 : Income – Capital or revenue receipt – Acquisition of land – Award – Interest received till date of award is capital receipt.
The assessee’s land was taken by the agreement on October 31, 1998 and the award was passed on March 29, 1992. The Assessing Officer took the view that interest was a revenue receipt. The Commissioner (Appeals) and Tribunal held that the interest was a capital receipt. On appeal to the High Court, the Court held that the interest paid, for the period 1-11-1998, up to date of award (i.e. 20-3-1992) must be treated as a capital receipt.
CIT v. V. Subbaraju (2012) 341 ITR 584 (AP)(High Court)
S. 4 : Income – Contingent deposit – Sales tax – Collection of contingency deposit against sales tax liability is revenue receipt.
The High Court in CIT v. Southern Explosives Co. (2000) 242 ITR 107 (Mad.), has held that the receipt of the amount for payment of sales tax and keeping it in deposit would amount to a “revenue receipt” and it would form part of the assessee’s income, hence the collection of contingency deposit against payment of sales tax would form revenue receipt, the matter decided in favour of revenue. (A. Ys. 1996-97 & 1997-98).
CIT v. Sundaram Finance Ltd. (2012) 205 Taxman 37 / 67 DTR 117 (Mad.)(High Court)
S. 4 : Income – Capital or revenue – Subsidy for power consumption is revenue receipt.
Power subsidy received by the assessee for encourage setting up of new industries in backward areas assessee treated the said subsidy as capital receipt. The Court held that subsidy was given for five years at a particular percentage on the total consumption is a revenue receipt. Decided in favour of revenue. (A. Y. 1995-96).
CIT v. Karaikal Chlorates Ltd. (2012) 341 ITR 624 (Mad.)(High Court)
S. 5 : Income – Accrual – Bill discounting charges – Pertaining to period after 31st March, 2000, could not be assessed in assessment year 2000-01 on accrual basis.
The Tribunal applied the ‘matching concept’ in the mercantile system of accounting and held that if due date of bill crosses the date of closure of the financial year, the bank discounting the bill will incur matching interest cost on its year and also the deductible in the current year. The interest cost of subsequent year cannot be deductible hence the income pertaining to next year shall also not accrue as income in the current year. Therefore, amounts representing discounting charges pertaining to period after 31st March, 2000 could not be assessed in the assessment year 2000-01 on accrual basis. (A. Y. 2000-01)
The Siam Commercial Bank PCL v. Dy. Director of IT (2012) 66 DTR 369 / 144 TTJ 235 (Mum.)(Trib.)
S. 9 : Income deemed to accrue or arise in India – Transfer of shares of foreign company – Off shore transaction tax authorities in India has no jurisdiction to split payment.
Pursuant to the judgement in Vodafone International Holdings B. V. v. UOI (2012) 341 ITR 1 (SC), holding that Vodafone was not liable to pay capital gains on the transfer of shares, the Union of India filed a review petition in the Supreme Court seeking a review of the aforesaid judgement. Held by the Supreme Court dismissing the review petition.
“We have carefully gone through the review petition filed by the Union of India on 17th February, 2012. We find no merit in the review petition. The review petition is, accordingly, dismissed. Review Petition dismissed” .
UOI v Vodafone International Holding (Review Petition) (SC) www.itatonline.org
S. 9 : Income deemed to accrue or arise in India – Royalty – Amount paid for right to use know how for a specified period and there was no our right transfer of know-how the amount is taxable in India – DTAA – India-Sweden (Art. 7).
The assessee a non-resident Swedish company had entered in to an agreement with Atlas Copo (India) Ltd. for supply of the technical know how for the manufacture of screw type air compressors and to render technical assistance that may be required in the said manufacture during the existence of the agreement against the lump sum consideration payable in three installments. It was contended by the assessee that the amount received during the year pursuant to the aforesaid agreement was not taxable as per the provisions of the Double taxation Avoidance Agreement. The Assessing Officer held that the amount received by the assessee was royalty which is covered under DTAA. The said order was confirmed in appeal by the Tribunal. In an reference at the instance of the assessee the Court held that since amount was paid to assessee on account of transfer of know-how by assessee–company to Indian Company it was in the nature of ‘royalty’ covered under Article VII of DTAA , hence, the Tribunal was justified in holding that the amount in question was taxable in India. (A. Y. 1986-87).
Atlas CopcoABSweden v. CIT (2012) 205 Taxman 5 (Bom.)(High Court)
S. 9(1) : Income deemed to accrue or arise in India – Business connection – Offshore supply of equipment – Right title has passed outside India and the applicant is not owner, amount received is not liable to tax in India.
As per the terms of the contract, applicant is responsible for off shore supplies, off shore services and mandatory spares (for off shore supplies). Applicant can be said to have a business connection in India, however, it has not carried out any part of the business relating to offshore supplies in India. As the applicant is not the owner of the supplies in India. Right title, payment, etc. in the supplies had passed on to P. Ltd. outside India, therefore, the amount received /receivable by the applicant from P. Ltd. for off shore supplies in terms of contract is not liable to tax in India.
CTCI Overseas Corporation Ltd. (2012) 247 CTR 233 / 66 DTR 506 (AAR)
S. 9(1) : Income deemed to accrue or arise in India – Business connection – Offshore sale amount received was not liable to tax in India.
Applicant Chinese company entered in to a supply contract with JP Ltd. to carryout design, engineering, procuring and transportation to the port of loading of the equipment for a coal fire power station built for the Indian company. In the agreement the parties had stipulated for passing of the title to the equipment outside the country. Technical requirements were that of the owner. The payments were to be made in Euros and Dollars. In bill of lading and bill of entry, the Indian company was shown as the owner of the equipment, therefore, there was an off shore sale and amount received by the applicant was not liable to tax in India.
Speco III Electric Power construction Corporation (2012) 247 CTR 230 / 66 DTR 511 / 205 Taxman 115 (AAR)
S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalties and fees for technical services -Non-resident – Production and distribution of films – As the assessee did not have any permanent establishment in India income arising outside Indian Territories could not be brought to tax as business income – DTAA – India-USA. (Art. 12).
Assessee was a non-resident company having business in production and distribution of films. It entered in to an agreement with an Indian company, WBPIPL whereby the assessee granted exclusive rights of distribution of cinematographic films on payment of royalty. The assessee received certain sum as royalty. WBPIPL deducted the tax at source while remitting the amount. The assessee filed the return and claimed the refund of tax deducted at source. The Assessing Officer held that the royalty received was taxable as per article 12(2) at 15%. The Commissioner (Appeals) held that royalty received was not taxable. The Tribunal held that assessee did not have any permanent establishment in India, income in question arising outside Indian Territories could not be brought to as business income. (A. Y. 2006-07)
ADIT (International) v. Warner Brother Pictures Inc. (2012) 49 SOT 438 (Mum.)(Trib.)
S. 9(1)(vi) : Income deemed to accrue or arise in India – Fees for technical services – Business support services is considered as fees for technical services and is taxable in India and liable to deduct tax at source under section 195 – DTAA – India-UK. (Art. 13.4).
The applicant has entered in to cost contribution agreement with foreign company SIPCL for the provision of business support services, in the form of general finance advice, taxation advice, legal advice on information technology, media advice on information technology, media advice, taxation advice, legal advice, etc. SIPCL is in the business of providing of providing various advices and services to various Shell operating companies. On the facts the applicant will be able to use any know how intellectual property generated from the services independent of the service provider and hence the services under the agreement are made available to the applicant, hence payment received by SIPCL is chargeable to tax in India and the applicant is liable to with hold tax under section 195.
Shell India Markets (P) Ltd. (2012) 67DTR 3 / 247 CTR 300 (AAR)
S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Consideration received for supplying the repair technical documents are also in the nature of ‘fee for technical services’ and liable to be taxed.
Assessee a public sector undertaking, engaged in ship building, ship repairs etc entered in to an agreement with a Russian Company for transfer of repair technical documentation and for supplying technical documents on detailed project report for augmentation of infrastructural facilities of Hindustan Shipyard Ltd. In the return of income the assessee claimed the exemption in respect of amount received on the ground that technical documents fell in category of goods and since, these goods were supplied outside India, there was no tax liability. Assessing Officer treated entire amount received by assessee as ‘fees for technical services’ under section 9(1) (vii) hence, taxable. The Tribunal held that the assignment undertaken by assessee involved study of existing infrastructural facilities available with Hindustan Shipyard Ltd. and making of appropriate suggestion for augmentation and improvement of infrastructural facilities in order to enable Hindustan Shipyard Ltd. to undertake repair of a specific type of submarines. The Tribunal held that only because the detailed reports were received in bound volumes, it cannot be said that it is not ‘fees for technical services’. Accordingly the Tribunal held that the Assessing Officer was justified in assessing the income as ‘fees for technical services’. Assessee’s appeal was dismissed. (A. Ys. 2006-07 & 2007-08)
Hindustan Shipyard Ltd. v. ITO (2012) 49 SOT 685 (Visakhapatnam)(Trib.)
S. 10(1) : Exemption – Agricultural income – Income from floricultural project on land taken on lease held to be agricultural income.
Assessee acquired land from agriculturist on lease and constructed a green house floriculture project on said land. It started growing of rose flowers / plants on bridge of plastic trays erected with help of M.S. stand 2.3 ft. above land. The assessee claimed the income from rose flowers as exempt. The Assessing Officer held that the rose plants were not planted on earth land and no basis operation was carried out by assessee on land hence, not eligible for exemption. According to assessee, for plantation of roses a very well treated soil was required, manures were mixed in soil for preparing a base for growing rose plants trays were filed with mixture of soil, insecticides were sprinkled on plants to save plants from any disease, root stocks were brought from market and planted in green house, mother plant was otherwise reared on earth, subsequently saplings were planted on plastic trays which were kept at height of 2-3 ft. placed on M.S. stand, purpose of growing rose plants at a height was primarily to avoid pest and to develop in a controlled atmosphere and green house was used for various benefits so that sunlight and humidity level both could be maintained. The Tribunal held that the claim of exemption was justified. (A. Y. 2005-06).
Dy. CIT v. Best Roses Biotech (P) Ltd. (2012) 49 SOT 277 / 67 DTR 337 (Ahd.)(Trib.)
S. 10(10CC) : Exemption – Tax on perquisite – Tax paid by employer on salary income is exempt.
The assessee an employee claimed that the tax paid by the employer on his salary income is not liable to be included in his total income as it is exempt under section 10(10CC). Assessing Officer disallowed the claim. The Tribunal following the Special bench in RBF Rigs Corpn. LIC (RBFRC) v. ACIT (2007) 109 ITD 141 (SB) (Delhi)(Trib.) held that tax borne by the employer on behalf of the employee would constitute a non-monetary payment as such the same is exempt under section 10(10CC). (A. Y. 2008-09)
ADIT v. Halliburton Offshore Services Inc. (2012) 49 SOT 544 (Delhi)(Trib.)
S. 10(23C)(vi) : Exemption – Educational institution – Investment in share market – Profit motive - Solely for educational purpose – Not entitled for exemption.
Assessee made investments in the share markets and not maintained separate books of account. Commissioner of Income tax refused the registration on the ground that the institution does not exist solely for the educational purpose and the nature of activities undertaken by it amounts to carrying on business, hence, it is not entitled to exemption under section 10(23C)(vi). On writ petition, the High Court held that on the basis of material, the prescribed authority has rightly held that the petitioner–institution does not exist solely for the educational purposes hence, it is not entitled for exemption under section 10(23C)(vi). (A. Y. 2007-08).
Xavier’s Institute of Management v. State of Orissa & Ors. (2012) 66 DTR 169 / 247 CTR 268 (Orissa)(High Court)
S. 10(23)(c)(iv) : Exemption – Educational institution – Registration cannot be refused only on the ground that abnormal variation in administration expenses.
The Court set aside the order of the competent authority, who refused the registration on the allegation of abnormal variation of administrative expenses and improper maintenance of books of account and vouchers. Authorities were directed to decide application for registration a fresh. (A. Y. 2009-10).
The Synodical Board of Health Services v. DGI (2012) 66 DTR 433 (Delhi)(High Court)
S. 10(29) : Exemption – Income from letting out of godowns, etc – Fumigation, disinfestations and supervisory charges collected from customers is eligible for exemption.
Assessee is an authority constituted under the provisions of the Karnataka Warehouse Act, 1961, has claimed exemption in respect of Fumigation, disinfestations and supervisory charges collected by assessee, a State warehousing corporation, from its customers to whom warehouse is let out purpose of storage and then facilitate marketing of commodities, are eligible for exemption under section 10(29). (A. Ys. 1992-93 to 1997-98).
Karnataka State Ware Housing Corporation v. Dy. CIT (2012) 66 DTR 484 (Karn.)(High Court)
Editorial: Section 10(29) is omitted by the Finance Act, 2002, w.e.f. 1-4-2003.
S. 14A : Business expenditure – Exempted income – Shipping business – Company – Book profit -Tonnage tax – When income is computed as per provisions of Chapter XII-G disallowance under section 14A cannot be made. (S. 115VP).
Assessee is a company engaged in the business of hiring and operation of ships opted for assessing the income as per provisions of section 115VP. During the relevant year the assessee received the dividend income was claimed as exempt under section 10(34). Assessing Officer disallowed the expenditure by applying the provisions of section 14A read with Rule 8D. Tribunal held that when the income is computed in accordance with the provisions of Chapter XII-G, no separate disallowance can be made under section 14A. (A. Y. 2008-09).
Varun Shipping Company Ltd. v. Addl. CIT (2012) 134 ITD 339 / 66 DTR 390 / 144 TTJ 286 (Mum.)(Trib.)
S. 23 : Income from house property – Annual value – Option of choosing property for claiming exemption is with assessee, Assessing Officer cannot thrust his choice on assessee.
The Assessee was in occupation of three properties, which were situated at Palam, Vihar, Greater Kailash and Malviya Nagar. In the return of income the assessee mentioned address of Malviya Nagar property as self occupied property. During assessment proceedings the assessee stated that Greater Kailash Property was self occupied property. The Assessing Officer held that property at Greater Kailash was lying vacant for so many months hence he estimated the rent at Rs. 50000/- per month and estimated the annual value at Rs. 6 lakh. In Appeal the Commissioner (Appeals), confirmed the order of Assessing Officer. On appeal to the Tribunal, the Tribunal held that provisions of section 23(4), provide option to assessee to chose any one property mentioned in sub-section (2) of section 23 as self occupied property and no restrictions can be put on such option. The Assessing Officer cannot thrust upon his choice on assessee. (A. Y. 2007-08).
Deepak Kapoor v. ITO (2012) 49 SOT 701 (Delhi)(Trib.)
S. 28(i) : Business loss – Loss on sale of properties – Loss on purchase and sale of properties is allowable as business loss.
The Tribunal held that the purchase and sale of land and flat are necessarily parts of the regular business carried on by the assessee, the loss arising out of sale of those assets should be considered as the loss incurred on its regular business, hence, allowable as business loss. (A. Y. 2007-08).
ACIT v. Madeena Constructions (2012) 134 ITD 1 / 67 DTR 1 / 14 ITR 14 / 144 TTJ 137 (Chennai)(TM)(Trib.)
S. 28(1) : Business income – Income from house property – Development of technology park and providing various facilities and amenities, income derived from lessees is assessable as business income and not as income from house property. (S. 22).
Assessee had developed a technology park, and let out its building along with other amenities and facilities. Since the assessee is carrying on a commercial complex activity of setting up software technology park with various facilities and amenities the income derived from lessees is to be taxed as business income and not as income from house property. (A. Y. 1999-2000 to 2004-05).
ITO v. Information Technology Park Ltd. (2012) 49 SOT 491 (Bang.)(Trib.)
S. 28(i) : Business income – Setting up of business – Participating in tender construed as setting up of business and interest income was assessed as business income. (S. 56).
Assessee company was incorporated to carry on business of real estate development. It filed the return of income declaring the loss return. Assessee raised interest bearing loan for participating in tender and deposited the amount as security deposit. The tender was not materialized and the amount was returned with interest. The Assessing Officer treated the interest received as income from other sources and not allowed the interest paid. The Tribunal held that participating in the tender is one activity for acquiring the land for development therefore, the business was set up and interest earned has to be assessed as business income after setting up the interest paid. (A. Y. 2006-07)
Dhoomketu Builders & Developers (P) Ltd. v. Addl. CIT (2012) 49 SOT 312 (Delhi)(Trib.)
S. 32 : Depreciation – Leasing truck – Not entitled to higher rate of depreciation – Income-tax Rules, 1962, Appendix I, Entry III, Clause (2)(ii).
The assessee purchased a Truck and gave it on lease. The assessee claimed the higher rate of depreciation of 50 percent on the ground that the truck was run on hire by the lessee. The Tribunal allowed the appeal. On appeal by revenue the Court held that as the assessee was not carrying on the business of hiring of the vehicle, not entitled to higher rate of depreciation. (A. Y.1991-92).
CIT v. Pradip N. Desai (HUF) (2012) 341 ITR 277 (Guj.)(High Court)
S. 32 : Depreciation – Ownership of asset – Vehicle registered in the name of company – Company entitled to depreciation – Vehicle given on lease – Not entitled higher rate of depreciation.
Vehicles though registered in the names of the directors were used for the purpose of business of the company, company entitled to claim depreciation. The Court held that the assessee is not entitled to higher rate of depreciation when the assessee had given vehicles on lease.
CIT v. Aravali Finlease Ltd. (2012) 341 ITR 282 (Guj.)(High Court)
S. 32 : Depreciation – Genuineness of assets – When the assessee has not established the genuineness of purchase of assets, no depreciation can be allowed, though the assets were leased to third parties.
The assessee claimed the depreciation in respect of two flameless furnaces purchased by the assessee company and which was leased to third parties. On enquiry conducted by Joint Director (Inv.), it was revealed that the alleged the supplier of machinery has no capacity to manufacture such assets and the partner of the firm disowned the invoices produced by the assessee in support of purchase of said assets. The Tribunal has allowed the depreciation. On appeal by the revenue the Court held that as the genuineness of purchase has not been established, merely because the assessee has leased out the said assets to third parties, depreciation cannot be allowed. (A. Y. 1996-97).
CIT v. S & S Power Switchgear Ltd. (2012) 67 DTR 59 / 247 CTR 604 (Mad.)(High Court)
S. 32 : Depreciation – Block of assets – Passive user – Asset forming block of assets depreciation is allowable even if not used for the relevant year – Unit remained closed for six years depreciation is not allowable.
Depreciation is allowable to block of assets, irrespective of fact that a particular asset is used or not, Revenue cannot segregate a particular asset there from on the ground that it was not put to use. The individual assets have lost their identity when a particular asset is part of block of assets. Once it is established that a particular unit was used for the purpose of business, the depreciation is allowable to entire block. The Court also held that if the Unit is closed for six years and if there is no sign of unit becoming functional the concept of ‘passive user’ could not be extended to absorbed limits, otherwise, the words “used for the purpose of business” would lose their total sanctity. However the Tribunal was right in allowing depreciation based on “block of assets”. (A. Y.1998-99).
CIT v. Oswal Agro Mills Ltd. (2012) 341 ITR 467 (Delhi)(High Court)
CIT v. Oswal Chemicals and Fertilizers Ltd. (2012) 341 ITR 467 (Delhi)(High Court)
S. 32 : Depreciation – Lease of assets – When assets are leased and installed at a place of lessee the assessee is entitled for depreciation irrespective of put to use.
For the relevant assessment year 1997-98, the assessee claimed depreciation on the boiler given on lease, stating that the said boiler had been installed in the factory in the month of Feb., 1997 and the boiler was put to use on 26-3-1997. The Assessing Officer disallowed the depreciation on the ground that the said boiler was put to sue only on 6-5-1997. On appeal by the revenue the High Court held that, as and when leased assets are installed at place of lessee, it could be presumed for purpose of depreciation that they had been used by lessee, hence, for allowability of depreciation actual date on which such assets were put to use by lessee has no relevance. The Court answered the question in favour of assessee. (A. Ys. 1996-97 & 1997-98).
CIT v. Sundaram Finance Ltd. (2012) 205 Taxman 37 / 67 DTR 117 (Mad.)(High Court)
S. 32 : Depreciation – Finance lease – Operating lease – Lessee can be treated as owner in case of a finance lease and lessee who is entitled depreciation and not the lessor.
The assessee, a bank, purchased a boiler and gave it on lease to Indo-Gulf Fertilisers. The assessee claimed depreciation on the said boiler on the basis that it was the “owner” thereof. The Assessing Officer & CIT(A) disallowed the claim for depreciation on the basis that the transaction was a “finance lease” which was akin to a loan given by the assessee and that the assessee was not the “owner”. On a reference to the Special Bench held:
(i) The distinction between a “Finance lease” and an “operating lease” is set out in the Guidance Note on Accounting for Leases and Accounting Standard (AS) 19. It is also set out in the judgement of the Supreme Court in Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India (IFCI) (2006) 154 Taxman 512 (SC) & Association of Leasing & Financial Services Companies v. UOI.(2010)235 CTR 521(SC). In a finance lease, the lessee selects the equipment & the lessor provides the funds, acquires the title to the equipment and allows the lessee to use it for its expected life. A finance lease is for a fixed period & non-cancellable. There is a fixed obligation on the lessee for payment of lease money & in case of premature termination, the lessor is entitled to recover his investment with expected interest. In substance, finance lease is a loan from the lessor to the lessee. In an operating lease, the lessor bears the risk of loss, the period is cancellable and lease rentals are not synchronized with the economic life of the asset. On facts, the assessee’s lease agreement had all the characteristics of a finance lease;
(ii) The assessee’s argument that even in the case of a finance lease, depreciation should be allowed to the lessor is not acceptable because all risks & rewards incidental to ownership are borne by the lessee and the lessor’s “ownership” is nominal & symbolic & serves no purpose other than as security for the recoupment of the investment with interest in the form of lease rentals. It is the lessee who is the actual and real owner of the asset (CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC) & Mysore Minerals Ltd. (1999) 239 ITR 775 (SC) applied), MCorp Global (P) Ltd. (2009) 309 ITR 434 (SC) distinguished).
(iii) On facts, the assessee had already advanced a loan to Indo-Gulf to purchase the boiler much prior to the entering into of the lease agreement. The lease agreement was entered into subsequently with the sole purpose of enabling the assessee to artificially fulfill the twin requirements of ownership and user of the asset so as to claim depreciation, to which it was not otherwise entitled as per law and thereby reduce its income in a mala fide manner. The agreement was consequently a “sham“. The assessee’s argument that the issue of depreciation is tax neutral because the tax rates on the lessor & lessee is the same is not correct because while the assessee had huge income, the lessee had a loss. The lease agreement was thus a “dubious way” to mitigate the assessee’s tax liability. (A. Ys. 1998-99, 1999-2000).
IndusInd Bank Ltd. v. ACIT (Mum.)(SB)(Trib.) www.itatonline.org
S. 32 : Depreciation – Additional depreciation – Raw grounded blades purchased from market and made ready to use in commercial market amounted manufacture and entitled additional depreciation.
Assessee company which is engaged in the business of exporting of safety razor blades and twin track shaving system. It purchased semi finished ground blades not suitable for shaving. Unfinished blades were processed in the factory of assessee from grinding till the final packing. The Assessee has claimed additional depreciation under section 32(1)(iia) at 20 percent on actual cost of machinery and plant which was acquired and installed after 31-3-2005. Assessing Officer held that the processing does not amount to manufacture and the assessee is not entitled additional depreciation. The Tribunal held that the final product manufactured by assessee is commercially new and different article having distinctive name, character and use, hence, the assessee is manufacturer and is entitled for additional depreciation. (A. Y. 2006-07).
Dy. CIT v. N. V. Exports (P) Ltd. (2012) 49 SOT 534 (Kol.)(Trib.)
S. 32 : Depreciation – Machinery put to use – Assessee installed the machinery prior to 31-3-2005 hence depreciation cannot be denied.
Assessee has claimed the depreciation in respect of a gunsun sorter machine. The Assessing Officer has denied the depreciation on the ground that the machinery was not put to use. The Tribunal held that the machinery was purchased on 14-3-2005 and installation like electric fittings had been done prior to 31-3-2005, hence, the disallowance of depreciation was not justified. (A. Y. 2005-06).
ACIT v. Nayan L. Mepani (2012) 49 SOT 641 (Mum.)(Trib.)
S. 36(1)(iii) : Business expenditure – Interest on borrowed capital – Money lending business -Borrowals had been accepted in earlier year – Interest cannot be disallowed. (S. 14A)
Assessee is in the business of money lending. Interest on borrowed money was allowed in earlier years. The interest is allowable as deduction subject to provisions of section 14A. (A. Y. 1998-99).
Rajendra Kumar Dabriwala & Ors. v. CIT (2012) 247 CTR 206 / 66 DTR 420 (Cal.)(High Court)
S. 36(1)(vii) : Business expenditure – Bad debts – Banks are entitled to bad debts and provision for doubtful debts – Both deductions- Circulars are binding on department . [S. 36(1)(viia),119]
The Supreme Court had to consider whether a bank was eligible to claim a deduction for bad debts under section 36(1)(vii) in respect of its (rural & urban) advances and also claim a provision for bad and doubtful debts under section 36(1)(viia) in respect of its rural advances in view of the Proviso to section 36(1)(vii) which provides that only the excess over the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) can be claimed. The Special Bench of the Tribunal in Dy. CIT v. Catholic Syrian Bank Ltd (2004) 88 ITD 185 held that as section 36(1)(viia) was confined to rural advances, a claim for bad debts of urban advances was not subject to the limitation of the Proviso to section 36(1)(vii). However, the Full Bench of the Kerala High Court took a contrary view in CIT vs. South Indian Bank Ltd (2010) 326 ITR 174/ 233 CTR 214 (Ker.)(FB) and held that a bank was entitled to claim deduction of bad debts under section 36(1)(vii) only to extent it exceeded the provision allowed as deduction under section 36(1)(viia). On appeal to the Supreme Court, held reversing the Full Bench of the High Court: Held that,
(i) The clear legislative intent of section 36(1)(vii) & 36(1)(viia) together with the circulars issued by the CBDT demonstrate that the deduction on account of provision for bad and doubtful debts under section 36(1)(viia) is distinct and independent of section 36(1)(vii) relating to allowance of bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The functioning of such banks is such that the rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of accounts of the head office. An interpretation which serves the legislative object and intent is to be preferred rather than one which subverts the same. The deduction under section 36(1)(vii) cannot be negated by reading into it the limitations of section 36(1)(viia) as it would frustrate the object of granting such deductions. The Revenue’s argument that this would lead to double deduction is not correct in view of the Proviso to section 36(1)(vii) which provides that in respect of rural advances, the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allowed under section 36(1)(viia) (Southern Technologies Ltd v.JCIT (2010) 320 ITR 577 (SC) & Vijaya Bank v.CIT (2010 323 ITR 166 (SC) referred).
(ii) Under section 119, the CBDT is entitled to issue Circulars to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act (UCO Bank v. CIT (1999)237 ITR 889 (SC) followed).
Per S. H. KAPADIA, CJI (concurring)
(iii) Section 36(1)(vii) & 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields. Section 36(1)(vii) allows a deduction for bad debts in respect of urban and rural debts. However, by virtue of the Proviso to section 36(1)(vii), the deduction in respect of rural debts is limited to the extent of difference between the debt or part thereof written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia). The proviso prevents benefit of double deduction with reference to rural loans. This is in consonance with the CBDT’s interpretation in the Circulars.
Catholic Syrian Bank Ltd. v. CIT (SC) www.itatonline.org
S. 36(1)(vii) :Business expenditure- Bad debt – Share broker – Brokerage offered to tax, the principal debt qualifies as a “bad debt” under section 36(1)(vii) r.w.s. 36(2).
The assessee, a share broker, claimed deduction under section 36(1)(vii) of Rs. 28.24 lakhs as a “bad debt” being the amount due to him by his clients on account of transactions of shares effected by the assessee on their behalf which had become irrecoverable. The Assessing Officer rejected the claim on the ground that as the assessee had offered only the amount of brokerage as income and not the entire amount due from the client, the condition in section 36(2) that the amount of bad debts must be taken into account in computing the total income was not satisfied. The CIT(A) & the Special Bench of the Tribunal (Dy.CIT v. Shreyas .S.Morakhia ( 2010)40 SOT 432 (SB)) allowed the claim. On appeal by the department to the High Court, Held dismissing the appeal:
Section 36(2)(i) provides that a deduction on account of a bad debt can be allowed only where such debt or part thereof has been taken into account in computing the income of the assessee. The debt comprised of the value of the shares transacted and the brokerage payable by the client. The brokerage as well as the value of the shares constituted a part of the debt due to the assessee since both arose out of the same transaction. The fact that the liability to pay brokerage arose at a point in time anterior to the liability to pay the value of the shares transacted makes no material difference to the position. As the brokerage from the transaction of the purchase of shares had been taxed in the hands of the assessee as business income, the debt or part thereof has been taken into account in computing the income of the assessee and the requirements of section 36(1)(vii) r.w.s. 36(2) were satisfied. (Issue regarding the value of the shares which remain in the hands of the assessee which has to be adjusted against the amount receivable from the client left open) (CIT v. T. Veerabhadra Rao( 1985) 155 ITR 152 (SC) CIT v. Bonanza Portfolio Ltd.( 2010) 320 ITR 178 (Delhi) followed).
CIT v. Shreyas S. Morakhia (Bom.)(High Court) www.itatonline.org
S. 36(1)(vii) : Business expenditure – Bad debt – Interest income offered as income in earlier years which was not realized written back is allowable as bad debts.
Assessee a financial institution which is governed by RBI guidelines offered interest in earlier years as income and assessed as such, as the amount was not realised the same was written back, when it is found that the same is not recoverable. The said amount is allowed as bad debt. (A. Y. 2000-01).
CIT v. Industrial Finance Corporation of India Ltd. (2012) 66 DTR 490 (Delhi)(High Court).
S. 36(1)(viii) : Business expenditure – Special reserve by financial corporation – Amount transferred from general reserve to special reserve account for doubtful account was deductible prior to 1st April, 1998. [S. 41(4A)]
Assessee a financial institution claimed deduction being special reserve created under section 36(1)(viii). Assessee transferred certain amount to provision for bad and doubtful debts accounts. The Assessing Officer disallowed the claim. The Court held that prior to assessment year 1998-99 the only requirement for claiming deduction under section 36(1)(viii) was creation of reserve equivalent to 40 percent of total income by debit to the profit and loss account. Only from the assessment year 1998-99 that the amendment provided for such reserve to be maintained intact and in case of any withdrawal from such reserve to be maintained intact and in case of any withdrawal of tax under section 41(4A) in the year of withdrawal .Provision being prospective. Deduction is allowable as bad debt. (A. Ys. 1993-94 to 1998-99).
CIT v. Industrial Finance Corporation of India Ltd. (2012) 66 DTR 490 (Delhi)(High Court)
S. 36(1)(vii) : Business expenditure – Bad debt – Provision for bad debts – Claim of bad debts can be allowed only to the extent of opening balance in the provision for bad and doubtful debts account as at the beginning of the year.
The Tribunal held that from a conjoint reading of clause (vii) and (viia) it clearly emerges that opening balances of the provision is required to be adjusted against the amount of bad debts written off during the year for computing the amount deductible under cl. (vii) and it is only thereafter that the provision is made under clause (viia) in respect of the remaining debts outstanding as at the end of the year. Accordingly the Tribunal held that the Commissioner (Appeals) was justified in directing the Assessing Officer to restrict the claim of bad debts by the amount of opening balances in the provision for bad debt and doubtful debts account as at the beginning of the year instead of the closing balance then allowing deduction under section 36(1)(viia). (A. Y. 2000-01).
The Siam Commercial Bank PCL v. Dy. Director of IT (2012) 66 DTR 369 / 144 TTJ 235 (Mum.)(Trib.)
S. 37(1) : Business expenditure – Capital or revenue – Acquiring unfinished works and inventories of another company – Stock-in-trade – Revenue expenditure.
The assessee is engaged in the business of construction of buildings. The assessee entered into an agreement with AFEL on July 1, 1992, to take over by assignment and complete all the pending projects / contracts / work in progress remaining to be completed by transfer company and in future, take up by itself, housing projects. Apart from those projects, the agreement also contemplated takeover of future projects etc. The assessee claimed the amount paid as revenue expenditure. The Assessing Officer held that the said expenditure was capital in nature, which was confirmed by the Tribunal. On appeal to High Court, the Court held that what was transferred under the agreement was in the nature of stock-in-trade and not entire building division of the transferor and there were no clauses to lead to inference that with the transfer of the on going projects and projects awaiting agreements to be signed, the transferor company had transferred its entire business. The expenditure was deductible as revenue expenditure. (A. Y. 1993-94).
Alacrity Housing Ltd. v. CIT (2012) 341 ITR 264 (Mad.)(High Court)
S. 37(1) : Business expenditure – Expenditure in connection with swapping of foreign currency is allowable expenditure.
Expenditure incurred in connection with swapping of foreign currency is allowable as business expenditure. (A. Ys. 1993-94 to 1998-99)
CIT v. Industrial Finance Corporation of India Ltd. (2012) 66 DTR 490 (Delhi)(High Court)
S. 37(1) : Business expenditure – Payment made by stock broker for late submission of margin certificate, trading beyond exposure limit is allowable deduction, it is not infraction of law.
Assessee a stock broker has made payment to stock exchange for violation of trading beyond exposure limit, late submission of margin certificate and delay in making deliveries of shares due to deficiencies were deductible as a business expenditure, as the amounts were paid during course of business of the assessee’s business and there was no infarction of law. (A. Y. 2000-01).
CIT v. Prasad and Co. (2012) 341 ITR 480 (Delhi)(High Court)
S. 37(1) : Business expenditure – Corporate membership fee, ISO certificate, repair of leased premises are revenue in nature.
The Court held that corporate membership fee paid by assessee to acquire membership of club, amounts paid to obtain ISO certification, which is useful in international business, and expenditure incurred towards repairs and maintenance of leased premises is revenue expenditure. (A. Y. 1998-99).
CIT v. Infosys Technologies Ltd. (2012) 205 Taxman 59 (Karn.)(High Court)
S. 37(1) : Business expenditure – Expenditure incurred on foreign tour of chairman’s wife is held not allowable.
The assessee company claimed the foreign tour expenses of the chairman’s wife who accompanied him in foreign tour held to be not allowable when she is not occupying any official position in the company. (A. Y.1996-97).
CIT v. S & S Power Switchgear Ltd. (2012) 67 DTR 59 / 247 CTR 604 (Mad.)(High Court)
S. 37(1) : Business expenditure – SWAP cost in forward contracts – SWAP cost which pertained to the contracts which had not matured during the previous year, relevant assessment year cannot be allowed as deduction.
Assessee entered in to forward contract with third party for purchasing equivalent number of dollars. The difference between buying and selling rate was claimed as loss spread over of two years. The Tribunal held that disallowance of loss by the Assessing Officer was justified as the SWAP cost which pertained to the contracts which had not matured during the previous year relevant to the assessment year under consideration as there was no relation whatsoever between the transaction of the assessee receiving FCNR deposit and converting in to Indian rupees with the transaction by which it entered into a forward contract as both these transactions are independent of each other and whether such rate would be higher or lower at the time of maturity in the succeeding year is not capable of ascertainment at the close of the year on 31st March, 2000. Tribunal upheld the disallowance made by the Assessing Officer. (A. Y. 2000-01).
The Siam Commercial Bank PCL v. Dy. DIT (2012) 66 DTR 369 / 144 TTJ 235 (Mum.)(Trib.)
S. 37(1) : Business expenditure – Rent paid in advance – Advance paid in advance was lost, loss is allowable as business expenditure.
Assessee entered in to a contract for purpose of storage of Kerosene oil and paid advance rent. But the Government prohibited the import of Kerosene oil. The assessee claimed the payment of advance rent as business loss. The Assessing Officer disallowed the loss on the ground that the assessee actually not used the storage facility. The Tribunal held that loss was incurred in the course of business and same is allowable as business loss under section 37. (A. Y. 2004-05).
Seven Seas Petroleum P. Ltd v. ACIT (2012) 14 ITR 21 (Chennai)(Trib.)
S. 37(1) : Business expenditure – Capital or revenue – Expenditure incurred on renovation of rented premises is allowable as revenue expenditure. [S. 30(a)(i)]
Assessee a Solicitor had taken office premises on rental basis. During relevant assessment year the assessee carried our renovation work in office premises which included tiling, plastering, POP, electrification work, etc. The Assessing Officer treated the said expenses as capital expenditure. The Tribunal held that since the expenses had been incurred by assessee only to create a better working environment and agreement specifically provided that repairs shall be carried out only by assessee subject to permission of land lord. The expenses were allowable under section 30(a)(i) as well as under section 37(1). (A. Y. 2001-02).
Dy. CIT v. Bijesh Thakkar (2012) 49 SOT 502 (Mum.)(Trib.)
S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – Assessee deducted tax at source when the amount was credited hence no disallowance can be made on the ground that no tax was deducted at the time of payment. (S. 195)
The assessee had entered in to a research and know how agreement with AB Sandvik Coromant Sweden during assessment year 1991-92. The Assessing Officer held that as the duration of agreement being five years the appellant is entitled to deduction of 1/5 of the amount for five years. The assessee deducted the tax on entire amount payable to the party concerned including the future installment payable. For the Asst. year 1994-95 the assessee had claimed the deduction of Rs.42,89,872/- which included the fourth installment and exchange fluctuation loss of Rs.8,82,234/- . The Assessing Officer disallowed the exchange fluctuation loss of Rs.8,82,234/- on the ground that loss pertaining to earlier year. Commissioner (Appeals) directed the Assessing Officer to allow the loss subject to deduction of tax at source. The Assessing Officer held that as the tax was not deducted at source in respect of exchange fluctuation as there is violation of section 40(a)(i), which was upheld by the Commissioner (Appeals). The Tribunal held that as the tax was deducted at source when such income was actually credited to account of foreign party as per the prevailing foreign exchange rate, subsequently when such income was actually paid by foreign concern, same would not again invite deduction at source as per section 195(1). Accordingly the disallowance made by the Assessing Officer was deleted. (A. Y. 1994-95).
Sandvik Asia Ltd. v. Jt .CIT (2012) 49 SOT 554 (Pune)(Trib.)
S. 40(a)(ia) : Amounts not deductible – TDS amendment to give extended time for payment is retrospective.
The assessee deducted tax at source from paid charges between the period 1.4.2005 & 28.4.2006 though it paid the TDS in July and August 2006. The TDS was deposited after the end of the F.Y. though before the due date of filing of the return of income. The assessing office invoked section 40(a)(ia) and held that as the TDS had not been paid on or before the last day of the previous year, the deduction was not admissible. The Tribunal allowed the assessee’s claim. On appeal by the department, the High Court had to consider whether the amendment to section 40(a)(ia) by the FY 2010 w.e.f. 1.4.2010 to provide that the TDS has to be paid on or before the due date for filing the ROI was prospective or retrospective. Held by the High Court dismissing the department’s appeal:
In Allied Motors (P) Ltd v.CIT (1997) 224 ITR 677(SC) & CIT v. Alom Extrusions Ltd. (2009) 319 ITR 306(SC), the Supreme Court held that the amendments to the aforesaid provision (section 43B) have retrospective application. Also, in R. B. Jodha Mal Kuthiala v.CIT (1971) 82 ITR 570 (SC), the Supreme Court held that a provision which was inserted the remedy to make a provision workable requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this Court cannot decide otherwise. Hence the appeal is dismissed.
CITv.Virgin Creations (Cal) (High Court). www.itatonline.org
Editorial : Special Judgement in Bharti Shipyard Ltd. v. Dy. CIT (2011) 132 ITD 53 (Mum.)(SB)(Trib.), may not be good law, requires reconsideration.
S. 40(a)(ia) : Amounts not deductible – Interest – Commission -Short deduction of tax at source provisions of section 40(a)(ia) cannot be applied. (S. 192, 194J)
Assessee firm of Chartered Accountants had employed 18 consultants for a period of two years. During the period the assessee firm paid salary to consultants and deducted the tax at source under section 192. The Assessing Officer held that the as there was no employer and employee relation the payment nature of payment being professional services the provision of section 194J will be applicable. Assessing Officer invoked the provision of section 40(a)(ia) and disallowed the entire payment. The Tribunal held that the assessee has deducted the tax at source under section 192, hence, the provisions of section 40(a)(ia) do not apply, as the said provisions can be invoked only in the event of non-deduction of tax at source but not for lesser deduction of tax. Accordingly the order of Commissioner (Appeals) confirmed. (A. Y. 2006-07).
Dy. CIT v. Chandabhoy & Jassobhoy (2012) 49 SOT 448 (Mum.)(Trib.)
S. 40(a)(ia) : Amounts not deductible – Deduction at source – Sub-contractor – Amendment by Finance Act, 2010 is retrospective hence no disallowance can be made if payment is made before the due date of filing of return.
Payment made to sub-contractor from April, 2007 to February, 2008 the tax was deducted at source on March 27, 2008 and May 12, 2008. The Assessing Officer disallowed the expenses on the ground that the Tax deducted at source ought to have been deposited on or before 31-3-2008. The Commissioner (Appeals) also confirmed the disallowance. In appeal before the Tribunal it was contended that the due date of payment was to be considered in accordance with the amended provisions with effect from April 1, 2010, has to be treated as retrospective effect with effect from April 1, 2005, as the payment was made before due date of filing of return no disallowance can be made. The Tribunal held that the disallowance was held to be not justified. (A. Y. 2008-09).
Sanjay Kumar Pradhan v. ACIT (2012) 14 ITR 150 (Cuttack)(Trib.)
Editorial: Special Bench of Mumbai Tribunal in Bharati Shipyard Ltd. v. Dy. CIT (2011) 11 ITR 599 (Mum.)(SB)(Trib.) is distinguished.
S. 40(a)(ia) : Amounts not deductible – Deduction at source – Failure to deduct tax at source on commission to franchisees under section 194H, the amounts will not be allowable as deduction. (S. 194H)
The assessee an individual who is running a business as a liaison officer for the London Institute of Technology & Research, UK. During relevant assessment year the assessee made payment of commission to various parties. Assessing Officer held that as the tax was not deducted at source under section 194H provisions of section 40(a)(ia) was held applicable hence disallowed the commission. On appeal the Commissioner (Appeals) deleted the disallowance on the ground that since the assessee did not receive the professional fee component from the liaison office as his income the provisions of section 194H is not applicable. On appeal by the revenue the Tribunal held that amount paid to franchisees / Commission agents was for advertisement campaign and other services etc. for the courses offered by the LITR UK and therefore, the same falls within the meaning of “commission” since the assessee failed to deduct tax at source, the Assessing Officer was justified in disallowing the payment of commission under section 40(a)(ia). (A. Ys. 2005-06 & 2006-07).
ACIT v. Edroos Syed Mohammed Zakir (2012) 67 DTR 236 (Mum.)(Trib.)
S. 40(b) : Amounts not deductible – Firm – Salary to partners – Remuneration paid to working partner was disallowed as the authorisation was not accordance with the provision.
The deed of partnership stated that the remuneration has to be computed as per Explanation 3 to section 40(b). The Tribunal held that where the authorisation in the partnership deed is such that correct quantification of the remuneration payable to the working partner cannot be done, it cannot be construed as a type of authorization which would satisfy the requirement of section 40(b), therefore, the disallowance of remuneration was upheld. (A. Y. 2007-08).
ACIT v. Madeena Constructions (2012) 134 ITD 1 / 67 DTR 1 / 14 ITR 25 / 144 TTJ 137 (Chennai)(TM)(Trib.)
S. 40A(3) : Expenses or payments not deductible – Financial crises may be “exceptional or unavoidable circumstance” for cash payment.
The assessee made payments exceeding Rs. 10,000 in cash and claimed that a disallowance under section 40A(3) read with Rule 6DD(j) & Circular No. 220 dated 31.05.1997 could not be made as a payment by cheque, etc. was not possible due to “exceptional or unavoidable circumstances”, etc. The Tribunal rejected the assessee’s claim on the ground that that the assessee’s explanation that the payees would not accept cheques as they had been dishonoured on earlier occasions was “fantastic and fanciful” as in such case the assessee could have deposited cash and obtained bank drafts. It was also held that the assessee had not explained how it obtained the cash for making the payments & if the amounts were borrowed, there was a violation of section 269SS. On appeal by the assessee to the High Court, held reversing the Tribunal:
Section 40A(3) & Rule 6DD(j) have been incorporated in the Act to check the incurring of bogus and fictitious expenses to non-existing parties. In the present case, there is no dispute on the identity of the payee and genuineness of the transaction. The only question is whether the assessee has been able to establish “exceptional or unavoidable circumstances” why the payment made in cash. The assessee was not doing well in its business and was facing liquidity and financial crunch. The assessee’s explanation that payments were made in cash as preparation of a bank draft or issue of cheque would have resulted in a missed opportunity or failure of a good business deal with third parties is acceptable because there were earlier cases of bounced cheques and when a party is facing liquidity problem, it can get difficult as third parties are reluctant to accept cheques and insist on cash payments. Arranging funds is also a problem and not easy. Also, the cash was obtained from a known party and the Assessing Officer had not made any addition on that score. Accordingly, disallowance under section 40A(3) was not justified.
Basu Distributor Pvt. Ltd. v. ACIT (Delhi) (High Court) www.itatonline.org
S. 40A(3) : Expenses or payments not deductible – Provision of section 40A(3) is applicable to payment made for purchase of stock-in-trade – Payment made to union cannot be treated as payment to producers of milk in terms of section rule 6DD(f).
Assessee has made cash payments to Hoshiarpur District Co-operative Milk Producers Union Ltd. As per bye laws of Society no individual producers of milk can be a member of a said society, only a registered milk producers society and the State Government can be a producers of Milk, hence, the payment made by the assessee to the said society can not be treated as payment made to producers of milk in terms of rule 6DD(f), there for disallowance was justified. Further the provisions of section 40A(3) is also applicable for purchase of stock-in-trade as the same also amounts to expenditure.
Chanchal Dogra (Smt) v. ITO (2012) 67 DTR 108 / 247 CTR 616 (HP)(High Court)
S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Amounts not allowed as deduction in earlier years cannot be assessed as income – Explanation 1 to section 41 (1), is applicable in relation to Asst. year 1997-98 on wards and can not have retrospective.
During the year the assessee had written back certain amount representing, unclaimed salaries, wages, and bonus, credit balances unclaimed by the suppliers, credit balances unclaimed by customers, unclaimed cheques, excess dividend and excess provision made for doubtful debts in its books of account. Assessing Officer treated as income of the assessee. In appeal, Commissioner (Appeals) deleted the addition which was confirmed by the Tribunal. On appeal by the revenue the High Court held that, where the amount not allowed as deduction the same can not be assessed as income under section 41(1). As regards unclaimed salaries, wages and bonus and unclaimed suppliers and customers balances could not amount to cessation of liability as Explanation 1 to section 41(1), which provides that unilateral act of assessee by way of writing off such liability in its accounts would be considered as remission or cessation of liability, will apply in relation to assessment year 1997-98 and subsequent years and it does not have any retrospective effect. Departmental appeal was dismissed. (A. Y. 1995-96).
CIT v. Mohan Meakin Ltd. (2012) 205 Taxman 43 (Delhi)(High Court)
S. 43B : Deductions on actual payment – Business expenditure – Interest – Disallowance was not justified – Sick Industrial Companies (Special Provisions) Act , 1985. [S. 32, 41(1)]
Assessee took over a sick company under a scheme of a rehabilitation for emulated by the Board for Industrial and Financial Reconstruction. In the rehabilitation scheme the Board had observed that the Income-tax authorities may consider allowing deduction under section 43B of the Income-tax Act, 1961 of interest “payable” by the sick company to banks and financial institutions even though it had not been paid during the year. For the assessment years 1990-91 and 1992-93 the Commissioner (Appeals) did not allow the assessee’s claim. The Tribunal allowed the claim relying on two circulars issued by the Board (Circular No. 523 dated 5-10-1988 (1988) 174 ITR (St) 1, & 576 dated 30-8-1990 (1990) 185 ITR (St) 48). The Court held that the Scheme should be read keeping in mind the object of the provisions of SICA for rehabilitation measure in respect sick industry, therefore, the Tribunal is justified in allowing the deduction under section 43B. (A. Ys. 1990-91 & 1992-93).
CIT v. Tube Investments of India Ltd. (2012) 341 ITR 199 / 204 Taxman 686 (Mad.)(High Court)
S. 43B : Deductions on actual payment – Business expenditure – Sales tax provision, which was paid before due date of filing of return, cannot be disallowed.
The Court held that sales tax liability on or before due date of filing for furnishing the return of income for the relevant year could not be disallowed. (A. Y.1984-85).
Kishan Automobile v. CIT (2012) 66 DTR 465 (MP) (High Court)
S. 43B : Deductions on actual payment – Business expenditure – Excise duty paid on suppressed sale – When income is estimated the excise duty paid on suppressed sales deemed to have been allowed as deduction, hence, separate deduction cannot be allowed.
The assessee is carrying on business of manufacturing and selling of tobacco, but some sales have been kept outside the books by not paying excise duty. The Assessing Officer estimated the gross profit. The Assessee claimed the deduction under section 43B in respect of excise duty paid. The Tribunal held that when income is estimated on gross profit the excise duty deemed to have been allowed hence, excise duty paid on suppressed sales cannot be allowed as deduction under section 43B. The Tribunal also observed that as the sales are kept outside the books by unlawful means, i.e. payment of excise duty cannot be allowed. (A. Y. 1999-2000).
Chetna Zarda Company v. Dy. CIT (2012) 67 DTR 22 / 144 TTJ 401 (Mum.)(Trib.)
S. 45 : Capital gains – Agricultural land – Date of permission for conversion treated as the cut-off date – No capital gains tax leviable. (S. 2(14), 48)
The Tribunal held that the assessee retained its agricultural character till the date of the order permitting non-agricultural use and could be treated as capital asset only thereafter, therefore capital gains cannot be levied. High Court confirmed the view of Tribunal.
CIT v. K. Leelavathy (2012) 341 ITR 287 (Karn.)(High Court)
S. 45 : Capital gains – Non-compete fee – Consideration received under a non-competition agreement is only chargeable from 1st April 2003 under section 28(va) as profits and gains of business, same cannot be charged under section 55(2)(a). Hence on facts held to be capital receipt not chargeable to tax.
Assessee received the amount under non –compete agreement dated 9th Feb., 1988 for not to manufacture of carbon dioxide gas agreed, in lieu of consideration received not to engage in similar business in any capacity for a period of 10 years. Revenue contended that prior to 1st April 2003, such receipts were chargeable to tax under section 45, read with section 55. The Court held that section 55 is not charging section, the consideration paid to him was not for transferring any capital asset to purchaser nor the assessee has transferred any right to produce or manufacture any article, therefore, it would not fall under section 55(2)(a). It is only from 1st April 2003 the consideration received under non–compete agreement is chargeable to tax under section 28(va), as profits and gains of business. As the sum received by the assessee before said amendment the said amount is not chargeable to tax. (A. Y. 1999-2000).
CIT v. K. Chandrakanth Kini (2012) 66 DTR 467 (Karn.)(High Court)
S. 45 : Capital gains – Short term capital loss disallowed – Tax avoidance – Tax planning – Transaction within four corners of law can be treated as “sham” and “colourable device” by looking at “human probabilities” – Court held loss cannot be allowed.
In A. Y. 2000-01 the assessee borrowed Rs. 48 crores from the G. K. Rathi group and used that to buy shares in three 100% subsidiary companies. Though the fair value of the shares was Rs. 24, the assessee paid Rs. 150 for each share. The amount received by the said subsidiary companies was transferred back to another company of the G. K. Rathi group. In A.Y. 2001-02, the said shares were sold for Rs. 5 each and a short-term capital loss was claimed and this was set-off against other long-term capital gains. The Assessing Officer, Commissioner (Appeals) & Tribunal rejected the transaction of investment into, and sale of, shares as a sham. On appeal by the assessee, Court dismissing the appeal, held that:
Whenever there are reasons to believe that the apparent is not real; then the taxing authorities are entitled to look into surrounding circumstances to find out the reality and apply the test of human probabilities. The judgement of the Supreme Court in Vodafone International v. UOI makes it clear that a colourable device cannot be a part of tax planning. Where a transaction is sham and not genuine, it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. It was clarified that there is no conflict between McDowell & Co. Ltd. v. GTO (1985) 154 ITR 148 (SC), UOI v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) & Mathuram Agarwal. On facts, as the purchase and sale of shares was found to be a sham, the loss cannot be allowed (Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) followed).
Killick Nixon Ltd. v. Dy. CIT (Bom.)(High Court) www.itatonline.org
S. 45 : Capital gains – Indexation – Previous owner – In case of transfer by gift, will, trust, etc. indexed cost to be determined with reference to holding by previous owner.
The settlor acquired property before 1.4.1981 and he settled in on trust on 5.1.1996. The assessee-trust sold the property and computed the indexed cost of acquisition on the basis that it “held” the property from the time the settlor had held it. The Assessing Officer accepted that the settlor’s cost of acquisition had to be treated as the assessee’s cost of acquisition but held that the settlor’s period of holding could not be treated as the assessee’s period of holding. This was upheld by the Tribunal. On appeal by the assessee to the High Court, Held reversing the Tribunal:
The department’s contention that in a case where section 49 applies the holding of the predecessor has to be accounted for the purpose of computing the cost of acquisition, cost of improvement and indexed cost of improvement but not for the indexed cost of acquisition will result in absurdities. It leads to a disconnect and contradiction between “indexed cost of acquisition” and “indexed cost of improvement”. This cannot be the intention behind the enactment of section 49 and the Explanation to section 48. There is no reason why the legislature would want to deny or deprive an assessee the benefit of the previous holding for computing “indexed cost of acquisition” while allowing the said benefit for computing “indexed cost of improvement”. The benefit of indexed cost of inflation is given to ensure that the taxpayer pays capital gain tax on the “real” or actual “gain” and not on the increase in the capital value of the property due to inflation. The expression “held by the assessee” used in Explanation (iii) to section 48 has to be understood in the context and harmoniously with other Sections and as the cost of acquisition stipulated in section 49 means the cost for which the previous owner had acquired the property, the term “held by the assessee” should be interpreted to include the period during which the property was held by the previous owner (CIT v. Manjula J. Shah ( 2012) 204 Taxman 42 (Bom) followed).
Arun Shungloo Trust v. CIT (Delhi)(High Court) www.itatonline.org
S. 45 : Capital loss – Setoff – Short term capital loss cannot be setoff against cancellation of agreement.
Assessee suffered the short term capital loss on cancellation of the agreement of sell (banakhat), and set off the same against short term capital gains on sale of diamond disclosed under Voluntary Disclosure Scheme (VDIS). The Court held that, as no assets were owned by the assessee and nothing was transferred loss can not be set off. On facts the sale was held to be non genuine. (A. Y. 1999-2000, 2000-01).
Dinesh Babulal Thakkar v. ACIT (2012) 341 ITR 632 (Guj.)(High Court)
S. 45 : Capital gains – Assignment of land to joint venture with another company – Capital gains cannot be charged for the relevant year.
As per joint venture agreement the assessee company has agreed to provide its land for the development of the joint venture company is getting 50 percent rights in the development of the joint venture the assessee company is getting 50 percent rights in the developed property. The extinguishment of its 50 percent right over the land is compensated by its 50 percent right in built up area. The joint venture has not started the construction during relevant year. The commercial complex is a yet to a proposed project. The Tribunal held that, a transfer is contemplated only in case of an existing property. In the present case the property is only in the nature of mutual rights, in the project and development yet to happen. Therefore, there is no extinguishment of any right in the property. During relevant year only agreement is entered into hence, no capital gains is chargeable for the relevant year. (A. Y. 2007-08).
Vijay Productions (P) Ltd. v. Addl. CIT (2012)134 ITD 19 / 66 DTR 314 / 144 TTJ 1 (Chennai)(TM ) (Trib.)
S. 45 : Capital gains – Accrual – Disputes between share holders – Till final decision the capital gains cannot arise.
There was disputes between two groups and the matter is pending before the Supreme Court. The amount was deposited in fixed deposit as per interim order of Supreme Court. The Tribunal held that till the dispute is settled capital gains could not be taxed as the capital gains has not accrued. (A. Y. 2007-08).
Dy. CIT v. Ashwani Chopra and Others (2012) 143 TTJ 759 (Asr.)(Trib.)
S. 47(xiv) : Capital gains – Transactions not regarded as transfer – Conversion of proprietary concern into company – For continuing the bank account of proprietary concern by the company and issuing the shares on revaluation of shares exemption cannot be denied.
Assessee has transferred all his assets and liabilities of his proprietary concern to a closely held limited company and claimed exemption under section 47(xiv) of the Act. Assessing Officer held that bank accounts of sole proprietary concern still continued and not been transferred to a company nor said accounts were closed as conditions of section not satisfied he disallowed the exemption. The Tribunal held that as the agreement which assigned business in favour of private limited company showed that assessee had transferred all bank accounts in favour of the company and balance sheet referred of company referred to all bank accounts and same had been treated as company’s bank account hence exemption cannot be denied. The Assessing Officer also held that the assessee had revalued the intangible assets and transferred the reserves to his capital accounts and the shares have been issued to the assessee on revalued amounts hence the assessee is not entitled for exemption. The Tribunal also held that receipt of higher number of shares because of revaluation cannot be treated as consideration or benefit received other than by way of allotment of shares for attracting proviso (c) to section 47(xiv), hence, denial of exemption was not justified. (A. Y. 2005-06).
ACIT v. Nayan L. Mepani (2012) 49 SOT 641 (Mum.)(Trib.)
S. 50 : Capital gains – Depreciable assets – Block of assets – Transfer of EOU units after tax holiday period, capital gains is to be computed by adjusted the depreciable assets of same block of assets.
Assessee carried on business as an export undertaking as well as on domestic in India. On expiry of the period of tax holiday under section 10B the assessee transferred the export undertaking and while working out the capital gains under section 50(2) made adjustment in the matter of working out the capital gains in respect of another unit. The Tribunal held that on expiry of period of tax holiday normal provision of income tax is applicable hence, the assessee was justified in computing the capital gains after adjusting the machineries which fall in the same block of assets. (A. Y.1993-94).
S. Muthurajan v. Dy .CIT (2012) 67 DTR 165 (Mad.)(High Court)
S. 50B : Capital gains – Slump sale – For computing the capital gains for section 50B “Slump Sale”, liabilities reflected in “negative net worth” cannot be treated as “consideration” but the resultant “negative net worth” has to be added to the “consideration”.
Pursuant to a scheme of arrangement under section 391 & 394 of the Companies Act, the assessee transferred its “Power Transmission Business” to KEC International Ltd for a total consideration of Rs. 143 crores. The assessee claimed this transaction to be a “slump sale” under section 50B. The “net worth of the undertaking” was computed at a negative figure of Rs. 157.19 crores, being the excess of liabilities over assets. The assessee treated the net worth as Nil and offered the entire sale consideration of Rs. 143 crore as LTCG. The Assessing Officer held that as the purchaser had taken over liabilities of Rs. 157.19 crores, the same had to be added to the consideration of Rs. 143 crores to arrive at the “full value of consideration” of Rs. 300 crores. The CIT(A), relying on Zuari Industries Ltd v.Asst CIT(2007) 105 ITD 569 (Mum.) & Paper Base Co Ltd v. Asst.CIT( 2008)19 SOT 163 (Delhi), held that the “net worth’ in section 50B could not be a negative figure and if it was so because of the liabilities exceeding the assets, the net worth had to taken at Nil. The Special Bench had to consider two issues (i) whether the excess of liabilities over assets could be treated as “consideration” in the hands of the assessee & (ii) whether the resultant “negative net worth” could be treated as Nil or had to be added to the “consideration”? Held by the Special Bench:
(i) On the issue as to the “full value of consideration“, the department’s argument that since the transferor’s liabilities have been taken over by the transferee, it would have to be treated as consideration received by the transferor is not acceptable. In the case of a slump sale, one lump sum value of the undertaking derived by adding all assets and reducing all the liabilities is arrived at. This is the “full value of the consideration”. If one adds the liabilities to this value, one is arriving at the consideration for the “assets” but not the consideration for the “undertaking“. Also, once the sale consideration has been approved by the High Court, it is unrealistic for the Revenue to contend that the consideration of Rs. 143 crore does not represent the full value of consideration of the undertaking. Accordingly, the “consideration” is Rs. 143 crores and not Rs. 300 crores as calculated by the Assessing Officer (CIT v.George Henderson and Co Ltd(1967) 66 ITR 622 (SC),CIT v. Gillanders Arbuthnot & Co (1973) 87 ITR 407 (SC) & CIT v.Attili N. Rao (2001 252 ITR 880 (SC) distinguished);
(ii) On the issue as to the “net worth” of the undertaking, the assessee’s argument that if the net worth is negative (excess of liabilities over assets), it should be taken at Nil is not acceptable. Though, in ordinary parlance, the terms “cost” & “net worth” may not have a negative value, in the context of section 50B, if the liabilities exceed the assets, there would be a negative net worth. The said negative net worth has to be “deducted from” (i.e. “added to“) the full value of consideration. Consequently, the chargeable capital gain is Rs. 300 crores (Rs. 143 crores + Rs. 157 crores) (Zuari Industries Ltd v.Asst.CIT (2007) 105 ITD 569 (Mum.) & Paper Base Co. Ltd v. Asst.CIT (2008) 19 SOT 163 (Delhi) reversed).
Dy. CIT v. Summit Securities Ltd. (Mum.)(SB)(Trib.) www.itatonline.org
S. 50C : Capital gains – Full value of consideration – Development agreement provision of section 50C is applicable.
Assessee as a co-owner of building entered in to development agreement with developers. Consideration received was Rs. 2,18,35,000, however, the stamp authorities have valued at Rs. 3,82,50,000. The Tribunal held that in accordance with the terms of agreement, the developer were to demolish the ten structure and redevelop the land in to building 50-50 percent sharing basis. As there was transfer of land and building section 50C is applicable however the matter remanded for proper computation of capital gains after providing benefit of indexation. (A. Y. 2005-06)
Chiranjeev Lal Khanna v. ITO (2012) 66 DTR 260 (Mum.)(Trib.)
S. 50C : Capital gains – Full value of consideration – Provision of section 50C does not apply to transfer of tenancy/ leasehold rights.
The assessee held lease hold rights for 99 years in a house property. By a tripartite agreement, the owner sold his rights in the property while the assessee assigned his leasehold rights. The assessee received Rs. 3.19 crores. The Assessing Officer held that as the stamp duty valuation of the said property was higher than the agreed consideration, section 50C applied and the assessee was assessable on the basis of the stamp duty valuation. This was reversed by the CIT(A) on the ground that section 50C did not apply to leasehold rights. On appeal by the department to the Tribunal, held dismissing the appeal:
There is a distinction between a receipt for transfer of ownership rights in property and a receipt for transfer of tenancy rights in respect of a property because though both are assessable as capital gains, in the case of tenancy rights, the “cost of acquisition” is deemed to be Nil under section 55(2)(a) unless if it is purchased for a cost. The fact that the assessee assigned his rights, together with the owner, pursuant to the tripartite agreement did not mean that the assessee’s had ownership rights in the property. Section 50C applies “where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government …… for the purpose of payment of stamp duty in respect of such transfer”. The sine qua non for application of section 50C is that the transfer must be of a “capital asset, being land or building or both”. A “leasehold right in land or building” cannot be equated with the “land or building”. Accordingly, section 50C has no application to the assignment of leasehold/ tenancy rights.
Dy. CIT v. Tejinder Singh (Kol.)(Trib) www.itatonline.org
S. 54EC : Capital gains – Investment in bonds - Investment time limit begins from date of receipt of consideration and not from date of transfer , hence, entitled for exemption.
The assessee entered into an agreement and handed over possession to the buyer which constituted a “transfer”. The consideration received from the buyer was invested by the assessee in section 54EC Bonds beyond 6 months from the date of transfer though within 6 months from the date of receipt of the consideration. The Tribunal had to consider whether in view of the language of section 54EC that the consideration had to be invested in the specified bonds within 6 months of the date of transfer, the relief could be allowed. Held by the Tribunal:
In a case where the consideration for the transfer was received several months after the date of transfer, the period of 6 months for making deposit under section 54EC should be reckoned from the date of actual receipt of the consideration. If the period is reckoned from the date of agreement and receipt of part payment at the first instance, it would lead to an impossible situation by asking assessee to invest money in specified asset before actual receipt of the same. Also, section 54EC requires the “consideration” to be invested. If the consideration is not received, there is no question of investing it (S. Gopal Reddy v.CIT (1990) 181 ITR 378 (AP), CITv.Janardhan Dass (2008)) 299 ITR 210 (All) Darapaneni Chenna Krishnayya(HUF) v. CIT (2007) 291 ITR 98 (AP) (compulsory acquisition cases) followed).
Chanchal Kumar Sircar v. ITO (Kol.)(Trib.) www.itatonline.org
S. 54EC : Capital gains – Investment in bonds – Limit of Rs. 50 lakhs applies to the transaction & not financial year – Order of Assessing Officer was confirmed.
In A.Y. 2008-08, the assessee sold property for Rs. 2.47 crores and disclosed capital gain of Rs. 1.14 crores. To overcome the restriction in the Proviso to section 54EC that the investment made in the specified asset “during any financial year” should not exceed Rs. 50 lakhs, the assessee, within the prescribed period of 6 months, invested Rs. 50 lakhs on 31.03.2008 (F.Y. 2007-08) & 10.06.2008 (F.Y. 2008-09) and claimed a deduction of Rs. 1 crore. The AO rejected the claim though the CIT(A) allowed it. On appeal by the department, Held reversing the CIT(A):
The object of the proviso to section 54EC is to provide a ceiling of Rs. 50 lakhs on investment by an assessee in the long term specified assets. If the assessee’s interpretation is accepted then, because the transfer of assets has taken place from 1st Oct., to 31st March, the assessee is able to invest Rs. 50 lakhs in the financial year in which the transfer took place and Rs. 50 lakhs in the subsequent financial year. However, assessees who have made a transfer of assets from 1st April to 30th Sept will not be entitled to do so. Accordingly, the investment has to be linked to the financial year in which transfer has taken place and the claim for deduction cannot exceed Rs. 50 lakhs.
ACIT v. Raj Kumar Jain & Sons (HUF) (Jaipur)(Trib.) www.itatonline.org
S. 54F : Capital gains – Investment in residential house – Purchased – Constructed – Section does not require construction to be complete within specified period, just because the construction is not complete the assessee cannot be denied the exemption.
The assessee sold shares for Rs. 4.18 crores and within 12 months, invested Rs. 2.16 crores thereof to construct a house property and claimed exemption under section 54F. However, as even after the expiry of 3 years of the date of transfer, the construction of the house was not complete and sale deed not executed, the Assessing Officer & CIT(A) denied relief under section 54F though the Tribunal granted it. On appeal by the department to the High Court, Held dismissing the appeal:
Section 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. The condition precedent for claiming benefit under section 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim section 54F relief (CIT v.Sardarmal Kothari and another (2008) 302 ITR 286 (Mad.) followed).
CIT v. Sambandam Udaykumar (Karn.)(High Court) www.itatonline.org
S. 54F : Capital gains – Investment in residential house – Assessee is not entitled to construct the house with in period of three years due to Court’s restraint order, assessee is entitled to exemption.
The assessee sold one of her capital assets in the previous year relevant to the assessment year 2007-08, and purchased land for construction of house and claimed exemption in respect of capital gains under section 54F. The assessee could not construct the house due to injunction order from Civil Court. The Assessing Officer rejected the claim under section 54F. The Tribunal held that, without purchasing the land the assessee was not entitled to construct the house, as the assessee has spent entire amount for purchase of land, the assessee is entitled to exemption under section 54F. (A. Y. 2007-08).
V. A. Tharabai (Smt) v. Dy. CIT (2012) 14 ITR 15 (Chennai )(Trib.)
S. 56 : Income from other sources – Business income – Lease rent from hotel is assessable as business income or income from other sources, matter set a side to the Assessing Officer.
Assessee has shown the lease rent from Hotel as business income, the Assessing Officer without discussing anything treated the said income as income from other sources. The Tribunal set aside the matter to decide the issue a fresh in accordance with law. (A. Y. 2007-08).
Vijay Productions (P) Ltd. v. Addl.CIT (2012) 134 ITD 19 / 66 DTR 314 / 144 TTJ 1 (Chennai)(TM ) (Trib.)
S. 56 : Income from other sources – Interest from fixed deposit of surplus amount is assessable as income from other sources.
Assessee which is engaged in the business of developing, operating and maintaining an industrial park, interest income earned by it from surplus funds kept as fixed deposits in various banks is to be taxed under the head income from other sources. (A. Y. 1999-2000 to 2004-05).
ITO v. Information Technology Park Ltd. (2012) 49 SOT 491 (Bang.)(Trib.)
S. 56 : Income from other sources – Gift on the occasion of marriage of daughter – Gift received on the occasion of marriage of daughter is taxable as income from other sources.
Assessee received the gift from NRI friends and relatives on the occasion of marriage of daughter as shoguns. The Assessing Officer has held that the gifts were received on occasion of assessee’s daughter marriage of assessee and not the marriage of assessee and the cheques were in the name of the assessee and the same were credited by the assessee to his bank account hence the said amount is taxable as income from other sources, which was up held by the Commissioner (Appeals). On appeal to the Tribunal the Tribunal held that “A perusal of the provisions of section 56(2)(vi) read with the proviso there under clearly revels that they shall not apply to any sum of money received (b) ‘on the occasion of the marriage of the individual’. Therefore, the word ‘individual’ in the context of marriage of individual. Therefore, the word ‘individual’ in the context of marriage can only be the bride or bridegroom and cannot include group of individuals”. As the cheques were in the name of assessee which were credited to his account the addition was justified as income from other sources. (A. Y. 2007-08).
Rajinder Mohan Lal v. Dy. CIT (2012) 49 SOT 713 (Chandigarh)(Trib.)
S. 68 : Cash credits – Gifts – Failure to establish relationship of donor with assessee addition held to be justified.
Assessee had not furnished any iota of evidence for love and affection or being an acquaintance. Activities of donor, suspicious circumstances emerging from the material, non-availability of donor personally but by his father and the huge amount of gift being sent to different persons including assessee without any occasion and without any relationship, connection of family of the donor with the activities of the assessee, the Court held that addition under section was justified. (A. Y. 1999-2000 & 2000-01).
Dinesh Babulal Thakkar v. ACIT (2012) 341 ITR 632 (Guj.)(High Court)
S. 68 : Cash credits – Firm – Partner – Loan – Capital introduced by partners addition cannot be made in the hands of firm.
The Tribunal held that in respect of capital introduced by the partners, the Assessing Officer is entitled to proceed against partners and assess the sum in their hands, if their explanation was not found satisfactory, but addition cannot be made in the hands of firm. As regards loan from third parties the assessee has filed confirmation, PAN and acknowledgement of income tax return. The Assessing Officer has not made any enquiry, the Tribunal held that the assessee has discharged the burden and hence additions cannot be made under section 68. (A. Y. 2005-06).
Sarjan Corporation v. ACIT (2012) 14 ITR 140 (Ahd.)(Trib.)
S. 72 : Losses – Carry forward and set off of business losses – Loss incurred on account of payment of interest treated as business loss and allowed to be carried forward.
The assessee borrowed the money and utilized the said amount for depositing in tender. The tender was not materialized and amount was returned with the interest. The Assessee incurred the loss due to higher rate of interest to lender. The Tribunal held that participation in the process of tender will amount to setting up of business and the loss is to be treated as business loss and allowed to be carried forward. (A. Y. 2006-07).
Dhoomketu Builders & Developers (P) Ltd. v. Addl. CIT (2012) 49 SOT 312 (Delhi)(Trib.)
S. 80HHA : Deduction – Profits and gains from newly established industrial undertakings – Rural area – Industry situated with in 15 kms. of municipality is legible is eligible exemption.
Assessee has claimed the deduction under section 80HHA, in respect of unit situated at Kandla. The Assessing Officer disallowed the claim on the ground that Kandla was part of the greater Municipality Limits of Gandhinagar and with in fifteen kilometers. The Tribunal held that as the unit is situated beyond eight kilometers the assessee is eligible deduction under section 8OHHA. The Court held that for denial of exemption under section 80HHA the distance to be considered of eight kilometers. On the facts as the unit is situated beyond eight kilometers the Tribunal was justified in allowing the claim of assessee under section 80HHA. (A. Y. 1989-90).
CIT v. Friends Salt & Allied Industries (2012) 67 DTR 79 (Guj.)(High Court)
S. 80HHC : Deduction – Export – Computation – Profits of business – DEPB sale proceeds is not profits – The face value of DEPB shall be deducted from the sale proceeds. [S. 28(iii)(b), 28(iii)(d)]
The Apex Court held that when assessee sold DEPB his profit on transfer of DEPB, would be the sale value of DEPB less its face value which represents the cost of the DEPB, Ninety percent of the net receipt which has to be included in profits of the assessee as computed under the head “profits and gains of business or profession” and not the gross receipt is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business. (A. Ys. 2001-02 & 2004-05).
Vikas Kalra v. CIT (2012) 67 DTR 214 / 247 CTR 382 (SC)
S. 80HHC : Deduction – Export – Computation – A new industrial undertaking – Deduction eligible on both the sections on the gross total income independently. (S. 80IA)
The assessee is engaged in the manufacture and export of garments. The assessee claimed the deduction under section 80HHC without reducing the deduction under allowable under section 80IB(13), read with 80IA(9). The Commissioner set aside the order. The Tribunal restored the order of Assessing Officer. On appeal by the revenue the High Court held that the view of Tribunal is correct. The Karnataka High Court preferred to follow the view of Bombay High Court in Associated Capsules P. Ltd. v .Dy. CIT (2011) 332 ITR 42 (Bom.) and dissented the view of Delhi and Kerala High Court. (A. Y. 2001-02).
CIT v. Millipore India P. Ltd. (2012) 341 ITR 219 (Karn.)(High Court)
S. 80HHC : Deduction – Export – Computer software recorded on magnetic tapes, floppies, discs or CDs is goods or merchandise and entitled to deduction for export thereof. (S. 80HHE)
Computer software recorded on magnetic tapes or floppies, discs or CDs, etc., would amount to goods or merchandise and entitled to deduction under section 80HHC. Though special provision is introduced for export of software with effect from April 1, 1991, the assessee is entitled to deduction under general provision for period prior thereto under section 80HHC. (A. Y. 1989-90).
CIT v. Ajay Automation (P) Ltd. (2012) 341 ITR 577 (AP)(High Court)
S. 80HHE : Deduction – Export – Computer software – Fluctuation in valuation of currency which has direct nexus of export of software has to be taken into consideration for allowing deduction under section 80HHE.
The Court held that fluctuation in the valuation of currency which has to be converted to foreign currency has direct nexus to the export of software should be taken into consideration for computation of deduction under section 80HHE, said amount cannot be assessed as income from other sources. (A. Y. 1998-99).
CIT v. Infosys Technologies Ltd. (2012) 205 Taxman 59 (Karn.)(High Court)
S. 80I : Deduction – Profits and gains derived from industrial undertaking – Manufacture – Dry cleaning charges do not constitute income derived from industrial undertaking hence not eligible for deduction.
Assessee which is engaged in the business of manufacturing and sale of cotton hosiery goods, claimed deduction under section 80I in respect of dry cleaning charges. The Court held that dry cleaning charges do not constitute income derived from industrial undertaking, hence, not eligible for deduction. (A. Ys. 1990-91 & 1991-92).
Nahar Spinning Mills Ltd. v. CIT (2012) 66 DTR 257 (P&H)(High Court)
S. 80I : Deduction – New Industrial undertaking – Substantial expansion – Despite “Dependence” on Old unit, unit can be “New Industrial Undertaking” and entitled deduction.
The assessee had a plant to produce caustic soda. It increased capacity from 37425 MT to 70425 MT by installing “12 new cells” and incurred expenditure of Rs. 7.5 crore towards new machinery and plant added to the existing plant. The assessee claimed that a “new industrial undertaking” had come into being which was eligible for relief under section 80-I. The Assessing Officer, CIT(A) & Tribunal disallowed the claim on the ground that it was a case of substantial expansion and not a “new industrial undertaking” on the ground that though new plant and machinery by investing substantial funds had been installed, the undertaking was not an “integral unit by itself” but was dependent on the old undertaking for its functioning. On appeal by the assessee to the High Court, held reversing the lower authorities:
The principal object of section 80-I is to encourage setting up of new industrial undertakings by offering tax incentives. A reasonable and purposive construction should be adopted. There is no logic in the argument of the department that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument is accepted, it will amount to adding a new clause in section 80-I of the Act. The fact that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim under section 80-I. The test laid down in Textile Machinery Corporation Ltd v.CIT (1977) 107 ITR 195 (SC), namely that the new unit should have a “separate and distinct identity” is not violated only because the new undertaking is to a certain extent dependent on the existing unit. It all depends on the nature of the technology and the mechanism of production. One cannot ignore the fact that new machinery and new plant have been installed at an investment of Rs. 7 crore and the fact that production has gone from 34000 MT to 75000 MT (CIT v.Associated Cement Companies Ltd (1979) 118 ITR 406 (Bom) (High Court) distinguished / explained).
Gujarat Alkalies & Chemicals Ltd. v. CIT (Guj.)(High Court) www.itatonline.org
S. 80IA : Deduction – Profits and gains from industrial undertakings – Computation of revision of claim was allowed – When assessee maintained a separate books of account apportionment of other expenses of other unit on turn over basis held to be not proper.
Assessee in the return of income claimed the excess depreciation due to mistake. The same was rectified and revised chart was filed due to which claim under section 80IA was increased. The Tribunal held that assessee is entitled to deduction as per revised chart. Assessee maintained separate books of account, and also allocated the expenses. The Assessing Officer allocated the expenses in “total turn over ratio”. The Tribunal held that when the assessee maintained a separate books of account apportioned of expenses on the basis of “total turn over ratio” was not proper and dismissed the appeal of department. (A. Y. 2006-07).
ACIT v. P. I. Industries (2012) 144 TTJ 353 (Jodhpur)(Trib.)
S. 80IC : Deduction – Undertaking or enterprises in certain category States – Assembling of TV sets would amounts to manufacture and entitled to deduction.
Assessee which is in the business of producing of TV sets by purchasing and assembling items like cabinet, chassis, IC, Picture tube, etc., could be held to be manufacturing activity and entitled to deduction under section 80IC. (A. Y. 2004-05).
CIT v. I. Tech Electronics (2012) 341 ITR 533 / 67 DTR 257 (Gau.)(High Court)
S. 115WA : Fringe benefits – Hospitality and sales promotion – Providing free car accessories can not be treated as hospitality and is not covered under section 115WA.
Assessee is a car dealer. Assessing Officer held that car accessories provided free of cost to the customers was in the nature of hospitality and hence covered under section 115WB(2)(B). On appeal the High Court held that providing free car accessories cannot be treated as hospitality provided by the appellant to any person nor can treated as sales promotion expenses, as consideration thereof is in built in the price of the car and therefore provision of such accessories to customers is not covered by section 115WA. (A. Y. 2006-07).
T & T Motors Ltd. v. ACIT (2012) 341 ITR 332 / 67 DTR 98 / 247 CTR 384 (Delhi)(High Court)
S. 132 : Search and seizure – Conversion of survey in to search without application of mind held to be invalid consequently all proceedings including the impugned assessment order held to be null and void.
There was survey on 6-2-2003 at business premises of the assessee, and detailed inventory was prepared. Survey was converted into search. On verification of satisfaction note the Tribunal found that the satisfaction note has been prepared after the officials of the department were stoned and incriminating documents were snatched .The Additional Commissioner has put up the satisfaction note for conversion of survey into search. The Commissioner authorized the search on the basis of satisfaction note of Additional Commissioner. The Tribunal after examining the records found that there being nothing on the record to suggest that reason for conversion of survey in to search nor the recorded reason showed that the assessee would not comply with the directions if he is called upon to produce. There was no material before the department to convert the survey in to search. The Tribunal also observed that the department has not found nothing other than what was inventorised during the survey, therefore the search held to be invalid.
Badri Ram Choudhary v. ACIT (2012) 67 DTR 107 (Jodhpur)(Trib.)
S. 132A : Search and Seizure – Requisition – Reason to believe – Recovery of cash and silver -Requisition held valid.
Police recovered about 118 kgs. of silver and about Rs. 4 lakh in cash from the petitioner in a hotel and later tried to conceal his identity by not giving out his correct name or residential address and could not disclose the source of these possessions, there was ‘reason to believe’ for the Income Tax Authority to come to the conclusion that there was a likely wood of non-disclosure of these assets and therefore, impugned requisition issued by the Income Tax department to the police is held to be valid under section 132A.
Krishna Gopal v. Director of Income-tax (Investigation) (2012) 66 DTR 231 / 247 CTR 239 (MP)(High Court)
S. 132B : Search and seizure – Application of seized or requisitioned assets – Shares used as working capital was seized, interest is not payable on value of such shares.
Assessee was a member of the Madras Stock Exchange carrying on business as a share broker. During a search the shares and debentures were also seized. The shares were released subsequently on different dates. The Assessee claimed that the shares formed part of his working capital and he should be paid interest on the shares. The claim was rejected. On writ petition against the order, the dismissing the petition the Court held that merely because the shares seized did form part of the capital assets of the petitioner and the petitioner as jobber was in the process of buying and selling shares which was his vocation, it did not mean that the shares should be construed as money, for the purpose of claiming interest. (A. Y. 1991-92, 1992-93, 1993-94).
Anil Kedia v. Settlement Commissioner of Income-tax and Wealth-tax (2012) 341 ITR 613 (Mad.)(High Court)
S. 143(2) : Assessment – “Issue” of notice is equivalent to its “service” – Assessment cannot be held to be bad in law.
In respect of A.Y. 2009-10, the assessee filed a ROI on 29.09.2009. The last date for service of the section 143(2) notice was 30.09.2010. A notice under section 143(2) was served by affixation at 11.20 p.m. on 30.09.2010. The assessee filed a Writ Petition claiming that under section 282(1), a notice or requisition had to be served either by post or as if it was a summons issued by a Court under the CPC and that service by affixture was invalid. The assessee relied on CIT v. AVI-OIL India P.Ltd (2010) 323 ITR 242 (P&H) where it was held that a notice under section 143(2) had not only to be issued, but had to be served before the expiry of 12 months (now 6M) from the end of the month in which the return was furnished.Asst.CIT v. Hotel Blue Moon (2010) 321 ITR 362 (SC) was relied upon to contend that in the absence of a section 143(2) notice, the assessment was invalid. Held dismissing the Petition:
Section 143(2)(ii) provides that no notice shall be “served” on the assessee after the expiry of six months. The question is that what is the meaning of expression ‘served’? Is it used literally, so as to mean actual physical receipt of notice by the addressee or the expression ‘served’ is inter changeable with the word issue. We are of the opinion that the expressions ‘serve’ and ‘issue’ are interchangeable. In view of the law laid down in several judgments, the date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation. The expression “serve” means the date of issue of notice. The date of receipt of notice cannot be left to be undetermined, dependent upon the will of the addressee. Therefore, to bring certainly and to avoid attempts of the addressee to evade the process of receipt of notice, the purpose of the statute will be better served, if the date of issue of notice is considered as compliance of the requirement of proviso to section 143(2) of the Act. In fact that is the only conclusion that can be arrived at to the expression ‘serve” in section 143(2). In CIT v.AVI-OIL India P. Ltd (2010) 323 ITR 242 (P&H), a literal meaning of the term “service” was taken in ignorance of the binding precedents. It does not lay down any binding principle and is per incuriam.
V. R. A. Cotton Mills (P) Ltd. v. UOI (P&H)(High Court) www.itatonline.org
S.144C : Dispute Resolution Panel – Draft assessment order – Application to withdrawal of reference – Order passed by the Panel confirming the draft order was not justified – Draft order without jurisdiction.
Assessing Officer framed the draft assessment order. Assessee submitted the objection to the Dispute Resolution Panel. Subsequently the assessee came to know that a Clarification had been issued by the Central Board of Direct taxes regarding the objections before Dispute Resolution panel which clarified that a choice had been given to the assessee to go before the Dispute Resolution panel or prefer normal appellate Channel. The assessee wrote to the Panel to withdraw the reference and pursue the normal appellate Channel. The Dispute Resolution Panel held that as the assessee had chosen to withdraw the appeal hence, the order passed by the Assessing Officer is correct. The Dispute Resolution Panel further directed the Assessing Officer under section 144C(5) of the Act to pass the assessment order in accordance with the draft assessment order passed by him. The Assessee filed the Writ petition against the said order. During pendency the Assessing Officer passed the order. The High Court held that the order of Dispute Resolution Panel is contrary to facts, law and non application of mind. The order has caused immense prejudice to the assessee in the circumstances the order of Dispute Resolution Panel could not be sustained. Consequently the assessment order could not be sustained. The writ petition was decided in favour of assessee.
AIA Engineering Ltd. v. Dispute Resolution Panel and another (2012) 341 ITR 145 (Guj.)(High Court)
S.144C :Dispute Resolution Panel – Speaking order-Matter set a side to pass a speaking order.
The order passed by DRP was a non speaking order and not stating objections raised by assessee and reasons also not been given only orders of TPO and Assessing Officer were referred, Tribunal set a side the entire matter to DRP to pass a detailed order stating all objections of assessee and disposing them by giving cogent and germane reasons.(A.Y. 2006-07)
Evalueserve .com (P) Ltd v.ITO ( 2012) 134 ITD 546 (Delhi) (Trib).
S. 147 : Assessment – Reassessment – Reason to believe – Accommodation entries – Reopening held valid. (S. 148)
The Court dismissed the writ petition challenging the reopening on the ground that in the reasons recorded the Assessing Officer had referred to the investigation made by the Director of Income-tax (Investigation), who was in charge of the investigation into groups that operated as entry operators, in the various branches of banks to introduce unaccounted money in the guise of gifts, loans, share application money, etc. After referring to the broad and general modus operandi adopted by the entry providers, the Assessing Officer specifically noticed from the list of entries given to him by the investigation wing that assessee had taken accommodation entry from S in the amount of Rs. 3 lakhs. The reasons to believe recorded in writing by the Assessing Officer were detailed and showed application of mind .At the stage when reasons are recorded for reopening the assessment, the Assessing Officer is not required to build a fool proof case for making addition to the assessee’s income; all that is required to do at that stage is to form a prima facie opinion or belief that income has escaped assessment. On the facts the Court up held the reopening of assessment and dismissed the writ petition. (A. Y. 2004-05).
Rajat Export Import India Pvt. Ltd. v. ITO (2012) 341 ITR 135 (Delhi)(High Court)
S. 147 : Assessment – Reassessment – Beyond four years – Housing project – Reassessment held to be invalid only on the basis of retrospective amendment as there is no failure to disclose fully and truly all material facts. [S. 80IB(10)]
Assessee claimed the deduction under section 80(IB)(10) after enquiry the deduction was allowed. The amendment was introduced by Finance Act, 2009, inserting Explanation with retrospective effect from 1st April, 2001 which denied benefit of deduction under section 80IB(10) to works contractors execution housing project. The only reason for issuing the notice, was amendment brought in the statute book with retrospective effect. The said notice was challenged before the High Court. High Court quashed the notice and held that reopening only on the basis of retrospective amendment of law is not justified. (A. Y. 2004-05).
Pravin Kumar Bhogilal Shah v. ITO (2012) 66 DTR 236 (Guj.)(High Court)
Vinayak Construction v. ITO (2012) 66 DTR 233 (Guj.)(High Court)
S. 147 : Assessment – Reassessment – Change of opinion – Once in the course of original assessment the claim of exemption was allowed based on the communication with the Chairman CBDT, reassessment will be a change of opinion hence notice is held to be invalid.
The Assessing Officer has allowed the claim based upon the communication to the Chairman of Insurance Regulatory and Development Authority (IRDA). The communication clarifies that the exemption available to any other Assessee under any clauses of section 10 is also available to any other person carrying on non life insurance business subject to fulfillment of the conditions. The Court held that the issue as to whether the assessee is entitled for an exemption under clauses (15), (23G) and (33) of Section is directly covered by the decision of Life Insurance Corporation v. CIT (1978) 115 ITR 45 (Bom.) CIT v. New India Assurance Co. Ltd. (1969) 71 ITR 761 (Bom.), the decision is binding on the Assessing Officer. The communication of Chairman of CBDT has also considered by the Assessing Officer in original assessment proceedings. Accordingly the High Court quashed the reassessment proceedings. (A. Y. 2006-07).
General Insurance Corporation of India v. Dy .CIT (2012) Vol.114 (1) Bom. L.R. 0246 (High Court)
S. 147 : Assessment – Reassessment – Notice after expiry of four years – Assessing Officer has discovered in subsequent year that the purchase of components was bogus the reopening of assessment held to be justified.
The Assessee for the assessment year 2004-05 claimed the depreciation on an Effluent Treatment Plant (ETP) which was said to have been supplied by the Vendor. In the assessment year 2008-09 after enquiry, the Assessing Officer treated the purchase from the said vendor as bogus and disallowed the depreciation. On the basis of said order, the Assessment year 2004-05 was reopened. The Assessee challenged the reopening of assessment, the Court held that reopening of assessment was justified. (A. Y. 2004-05).
Indo European Breweries Ltd. v. ITO (2012) 66 DTR 479 / 247 CTR 540 (Bom.)(High Court)
S. 147 : Assessment – Reassessment – Notice after expiry of four years – Reassessment held to be invalid.
In the course of original assessment proceedings the assessee furnished the details of dividend received and the expenses incurred towards the portfolio management scheme and depository charges. Therefore, reopening of assessment beyond four years held to be invalid. (A. Y. 2004-05).
HCL Corporation Ltd. v. ACIT (2012) 66 DTR 473 (Delhi)(High Court)
S. 147 : Assessment – Reassessment – Reopening, even within 4 years, on basis of retrospective amendment to section 80IB(10) is held to be invalid.
For A.Y. 2006-07, the assessee claimed section 80-IB(10) deduction of Rs. 11.38 crores which was accepted by the Assessing Officer in section 143(3) assessment. Subsequently, within 4 years from the end of the A.Y., the Assessing Officer reopened the assessment under section 148 on the ground that the assessee had not complied with section 80-IB(10) including that after the insertion of the Explanation to section 80-IB(10) by the F.A. (No. 2) Act 2009 w.r.e.f. 1.4.2000, a contractor was not eligible for deduction under section 80-IB(10). The assessee challenged the section 148 notice by a Writ Petition. HELD allowing the Petition:
The main reason for reopening the assessment was the insertion of the Explanation to section 80-IB(10) by the F.A. (No. 2) Act, 2009 w.r.e.f. 1.04.2000 which denies deduction to a contractor in respect of works contract awarded by any person and that at the stage of the original assessment, no opinion regarding the allowability or otherwise of deduction under section 80IB(10) was given of the Act. As regards the retrospective amendment, if an Explanation is added to a section for the removal of doubts, the implication is that the law was the same from the very beginning and the same is further explained by way of addition of the Explanation. It is not a case of introduction of a new provision of law by retrospective operation. As regards the formation of opinion, the assessee had disclosed all the material relevant for claiming section 80-IB(10) deduction and there was no suppression of material. The fact that the Assessing Officer in the section 143(3) assessment did not give any opinion regarding the allowability or otherwise of deduction under section 80IB(10) of the Act cannot be a ground for invoking section 147.
Ganesh Housing Corporation Ltd. v. Dy. CIT (Guj)(High Court) www.itatonline.org
S. 148 : Assessment – Reassessment – Undesirable haste in passing assessment order results in miscarriage of justice – Awarded cost on department – Reassessment order was quashed.
The Assessing Officer issued a reopening notice under section 148 and furnished the recorded reasons pursuant to which the assessee submitted its objections as required by GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC). The objections were filed on 26.10.2010 and were disposed of vide order dated 2.11.2010 by a non-speaking and cryptic order. Thereafter, without issuing any further notice or hearing the assessee, the Assessing Officer passed an assessment order dated 19.11.2010 even though the limitation period for passing the order was to expire on 31.12.2010. The assessee filed a Writ Petition to challenge the reopening. HELD by the High Court quashing the reassessment order and passing strictures:
Though, pursuant to GKN Driveshaft, the Assessing Officer was under an obligation to dispose of the objections to the reopening by passing a speaking order, he passed a non-speaking and cryptic order. Further, though the Assessing Officer had sufficient time to complete the assessment, he had proceeded with the reassessment proceedings with undesirable haste and hurry, in violation of principles of natural justice and contrary to the procedure mandated and this had resulted in a miscarriage of justice. The fact that the assessee had an alternative remedy of filing an appeal (which it had exercised) was no bar to the exercise of writ jurisdiction. The concerned CIT should examine the reassessment file in the present case and take appropriate action if warranted. The department to pay cost of Rs.10,000/- to the assessee.
Sak Industries Pvt. Ltd. v. Dy. CIT (Delhi)(High Court) www.itatonline org
S. 147 : Assessment – Reassessment – Reasons recorded not supplied to the assessee within reasonable time, Tribunal remanded the matter to the Assessing Officer.
On the facts of the case the Tribunal found that the Assessing Officer has not supplied the reasons recorded within a reasonable time. Even after several hearings the reasons recorded were not disclosed to the Assessee. The Tribunal Set a side the order and remanded the matter back to the Assessing Officer for readjudication after supplying the copy of recorded reasons. The Tribunal also held that the ground of appeal contesting the validity of re assessment proceedings is wide enough to challenge the entire proceeding initiated by the Assessing Officer including the non supply of reasons recorded. (A. Y. 2005-06).
Kaushalendra Pratap Singh v. ITO (2012) 144 TTJ 384 / 67 DTR 267 (Kol.)(TM)(Trib.)
S. 149 : Assessment – Reassessment – Agent of non-resident – Limitation – Reassessment on the agent of non-resident under section 163 after expiry of two years from the end of relevant year held to be barred by limitation. (S. 148, 153B,163)
Search and seizure action was carried out at the premises of the petitioner on 17th September, 2007. The Assessing Officer of the view that there was business connection between the assessee and Bermudian Company, hence issued the notice under section 148 proposing to treat the assessee as agent under section 163 for proposing to levy capital gains tax for the Asst. year 2005-06. The notice under section 163 was issued dated 22-11-2010.The petitioner challenged the order passed under section 163 r.w.s. 147, on the ground that the said order was time barred. The Court held that proceedings initiated for treating the petitioner as an agent of a non-resident under section 163 after expiry of two years from the end of the relevant assessment year was clearly barred by limitation under section 149(3). For the relevant assessment year the such notice ought to have been issued on or before 31st March, 2008, where as the notice was issued on 22nd Nov., 2010. The revenue relied on the provisions of section 153B. The Court held that provision of section 153B cannot be said to obviate the bar of limitation on the facts of the case because the search was of the Indian Company and not of the person who is sought to be assessed. The High Court quashed the reassessment to treat the assessee as an agent of non-resident. (A. Y. 2005-06).
Ingram Micro India Ltd. v. Dy. CIT (2012) 67 DTR 50 / 247 CTR 262 (Bom.)(High Court)
S. 154 : Assessment – Rectification of mistakes – Subsequent decision of Supreme Court would not obliterate conflict of opinion existing on the date of order – Revenue appeal was dismissed.
Assessee filed the return of income claiming unabsorbed investment allowance to be set off under section 115J. The return was processed under section 143(1)(a). Subsequently, the Assessing Officer passed the order under section 154, withdrawing the claim. The Tribunal agreed with the contention of assessee that brought forward allowance could not be set off as against the income computed under section 115J. On appeal by revenue the High Court held that, a debatable point of law cannot be taken as a mistake apparent from record. A subsequent decision of the Supreme Court would not obliterate the conflict of opinion which existed as on the date of passing of assessment order. Order of Tribunal is up held and the appeal of revenue is dismissed. (A. Ys. 1991-92 &1992-93).
CIT v. Thambi Modern Spinning Mills Ltd. (2012) 341 ITR 229 (Mad.)(High Court)
S. 158BFA(2) : Assessment – Search and seizure – Block assessment – Penalty – Concealment – Additions confirmed over and above income declared by assessee, levy of penalty was justified.
The assessee made disclosure of income for the block period, which had not been offered to tax. While framing the assessment certain additions were made by the Assessing Officer. In appeal Tribunal confirmed the addition. The Assessing Officer levied the penalty under section 158BFA(2) of the Income-tax Act, 1961, this was confirmed by the Tribunal. On appeal to High Court the Court held that nothing was pointed out to demonstrate how the levy of penalty was not justified, accordingly the High Court confirmed the order of Tribunal.
Kandoi Bhogilal Mulchand v. Dy. CIT (2012) 341 ITR 271 / 67 DTR 361 (Guj.)(High Court)
S. 158BFA(2) : Assessment – Search and seizure – Block assessment – Penalty – Concealment – Though the Tribunal has confirmed the addition, as the appeal against the quantum addition is admitted by High Court, penalty levied was deleted by the Tribunal.
On the facts the Tribunal has confirmed the addition on account of gross profit merely on the basis that the entries were found and recorded in the ledger account found in the possession of a third party pertaining to assessee and not on the basis of material found in the possession of assessee. Appeal against the quantum was admitted by the High Court. The Tribunal held that where question of law has been admitted by the High Court against quantum addition no penalty can be levied. The Tribunal deleted the penalty on law as well as on facts.
Sadhu Ram Goyal v. Dy. CIT (2012) 144 TTJ 111 (Jaipur)(Trib.)
Praveen Kumar Goyal v. Dy. CIT (2012) 144 TTJ 111 (Jaipur)(Trib.)
S. 194A : Deduction at source – Interest – Housing Board – Interest credited or paid by Housing Board on amount deposited by allottees on account of delayed allotment of flats is not subject to deduction of tax at source. [S. 2(28A)]
The Assessee had floated a self financing scheme for sale of Houses /flats. Allottees were required to deposit some amount with the assessee. One of the condition of allotment was if there was delay in construction of project the assessee was liable to pay interest to the allottees. Assessee paid interest to allottees. The Assessing Officer held that the payment being interest with in the meaning of section 2(28A) the assessee was liable to deduct tax at source. On appeal Commissioner (Appeals) held that the payment was in the nature of compensation hence the assessee was not liable to deduct tax at source. The Tribunal confirmed the view of the Commissioner (Appeals). On further appeal by the revenue, the Court held that the Tribunal was right in law in holding that interest paid/ credited by the housing Board on the amount deposited by the allottees on account of delayed allotment of flats does not fall under the definition of interest as assigned to it in clause (28A) of section 2 and that the interest paid or credited by Housing Board to its allottees was of capital nature and thus is not subject to deduction at source.
CIT v. H. P. Housing Board (2012) 205 Taxman 1 / 67 DTR 113 / 247 CTR 464 (Himachal Pradesh)(High Court)
S. 194C : Deduction at source – Payments to contractor and sub-contractors – Electricity Board – Additional transmission lines – Assessee is not liable to deduct tax at source on payment made to State Electricity Boards. [S. 201(1), 201(1A)]
Assessee made payments to State Electricity Boards for construction of transmission lines for providing power to Railway traction sub-station. Payment was made for necessary infrastructure by a person requiring electricity supply under section 46 of the Electricity Act, 2003 is not contractual payment. The payment does not tantamount to works contract hence, the assessee is not liable to deduct the tax at source. Accordingly the demand raised under section 201(1) and interest charged under section 201(1A) of the Act was deleted.
Chief Project Manager, Railway Electrification, Ambala Cantt v. ITO (2012) 67 DTR 48 / 144 TTJ 495 (Chd.)(Trib.)
S. 194C : Deduction at source – Payments to contractor and sub-contractors – Proviso which was inserted with effect from 1-10-2004 for aggregation of payments of Rs. 50,000, does not have retrospective effect.
Amendment by Finance Act, 2004, with effect from October 1, 2004, insertion of proviso to section 194C(3), providing for aggregation of payments credited or paid exceeds Rs. 50,000 during the financial years, the assessee is liable to deduct tax at sources though the each payment is below Rs. 20,000. The Tribunal held that the proviso is not retrospective hence, the payments made before October 1, 2004 which are below Rs. 20,000 cannot be disallowed. (A. Y. 2005-06).
K. D. Manufacturing v. ITO (2012) 14 ITR 265 (Ahd.)(Trib.)
S. 195 : Deduction at source – Non-resident – Under section 195 tax deduction at source liability is on payer if payee is not assessed.
The assessee made a public issue of Global Depository Receipts (GDR) for which it engaged international lead managers like Jardine Fleming, Merrill Lynch etc and paid management and underwriting commission of Rs. 7.68 crores without deducting TDS. The Assessing Officer & CIT(A) held that the said commission constituted “fees for technical services” and that the assessee ought to have deducted TDS under section 195. The assessee was held to be in default under section 201. Before the Tribunal, the assessee argued that as no action has been taken by the department against the payees and the time for taking such action had expired, no order under sections 195 & 201 could be passed. Held by the Tribunal:
No order under section 201(l) or (1A) holding the payer to be in default can be passed where the Revenue has not taken any action against the payee and the time limit for taking action against the payee under section 147 has expired. On facts, the admitted position is that no assessment has been made in the hands of the payee in respect of the sums received from the assessee in respect of GDR issues. Similarly no proceedings have been taken against it till date for assessing such income. The time limit for issuing notice under section 148 has also come to an end. As the time limit for taking action against the payee under section 147 is not available, and there is no course left to the Revenue for making the assessment of the non-resident, exconsequenti, no lawful order can be passed against the assessee either under section 201(1) or (1A) (Mahindra and Mahindra Ltd v. Deputy CIT(2009) 313 ITR 263 (Mum.)(SB)(AT)(SB) followed).
Crompton Greaves Ltd. v. Dy. CIT (Mum.)(Trib.) www.itatonline.org
S. 201 : Deduction at source – Consequences of failure to deduct or pay – Salary – VRS – Bonafide – Assessee cannot be held as assessee in default – Not liable for interest. (S. 192, 201IA)
Assessee has deducted the tax at source in regard to payments in excess of that permitted under Rule 2BA, assessee acted in a bonafide manner and could not be treated as assessee in default. The department has accepted in assessments of employees that they are entitled to exemption under section 10(10C), in respect of amounts received under the VRS and assessee having deducted tax at source. Assessee cannot be held as assessee in default. (A. Y. 2002-03).
CIT v. Maruti Udyog Ltd. (2012) 66 DTR 201 (Delhi)(High Court)
S. 201 : Collection and recovery – Deduction at source – Limitation – Extended time limit in section 201(3) Proviso does not save proceedings initiated before 1-4-2010 even if order passed after that date.
Pursuant to a search conducted on 11.09.2007, the Assessing Officer passed an order dated 27.4.2010 under section 201(1) / 201(1A) for F. Ys. 2002-03, 2003-04 and 2004-05 in respect of TDS on salary & perquisites of expatriate employees. The assessee relied on CIT v. NHK Japan Broadcasting Corporation . (20O8) 305 ITR 137 (Delhi) (High Court) &CIT v. Hutchison Essar Telecom Ltd. (2010) 323 ITR 230 (Delhi) (High Court & argued that as the order was passed after 4 years from the end of the F.Y., it was barred by limitation. The Assessing Officer relied on the Proviso to section 201(3) inserted by the F.A. 2009 w.e.f. 1-4-2010 which provides that an order for a financial year commencing on or before 1.4.2007 may be passed at any time on or before 31.3.2011. The CIT(A) allowed the appeal on the ground that one had to see the law as of the date of initiation of proceedings and held that the order was beyond limitation. On appeal by the department, Held dismissing the appeal:
Section 201(3) inserted by the F.A. 2009 w.e.f. 1.4.2010 imposes a time limit for the passing of section 201 orders. The Proviso to section 201(3) provides that an order for a financial year commencing on or before 1.4.2007 may be passed at any time on or before 31.3.2011. In the present case, the proceedings were initiated after the search on 16.11.2009. On this date, the amended provisions of section 201(3) had not come into force. Accordingly, the law prevailing as on that date as per NHK & Hutchison applied where it was held that an order under section 201 could not be passed after the expiry of 4 years from the end of the F.Y.. The section 201 order was consequently beyond limitation. (CIT(TDS) v.H.M.T. Ltd.ITA nos 524 to 527 of 2009 dt 14-7-2011(2012) 67 DTR 405 (P&H)(High Court) & Bhura Exports Ltd v.ITO (TDS)(2011) 202 Taxman 88 (Cal.)(High Court) not followed).
ACIT v. Catholic Relief Services (Delhi)(Trib.) www.itatonline.org
S. 220(6) : Collection and recovery – Stay – Assessing Officer must pass reasoned order to deal with stay applications.
The Assessing Officer passed an assessment order raising a demand of Rs. 5.76 Crores. The assessee filed a stay application stating that the CIT(A) had heard the appeal and stay of demand be granted till the order on the appeal. The Assessing Officer rejected the stay application and directed that the demand be paid without giving any reasons. The assessee approached the Addl. CIT who noted that as the Assessing Officer had already started recovery proceedings, there was no point before him to consider. The assessee’s bank accounts were attached under section 226(3). The assessee filed a Writ Petition. Held by the Court:
In several judgments of this Court, the parameters for the exercise of jurisdiction under section 220(6) of the Act have been spelt out. In KEC International Ltd. v. B. R. Balakrishnan and Others(2001) 251 ITR 158, the importance of reasoned orders being passed on the stay applications was emphasized. The Assessing Officers consistently refuse to follow the law laid down in the judgment of this Court. The Assessing Officer & the appellate authorities are duty bound to act in accordance with binding precedent and there is no reason or justification to act in the manner in which the applications for stay have been disposed of in this case.
Tata Toyo Radiators Pvt. Ltd. v. UOI (Bom.)(High Court) www.itatonline.org
S. 220(6) : Collection and recovery – Stay – Assessing Officer and Appellate Authorities are not mere tax gatherers; have duty to be fair to the assessee – Stay was granted.
The assessee, a professional, offered income of Rs. 19.41 crores. The Assessing Officer passed an assessment order under section 143(3) assessing the total income at Rs. 22.43 crores and raised a demand of Rs. 1.18 crores. The assessee filed a stay application before the CIT(A) who directed that a refund of Rs. 78 lakhs due for a subsequent year be adjusted and the balance of Rs. 41 lakhs be paid. The CIT(A) held that considering “the financial status and affairs” of the assessee, the payment of the balance demand would not cause financial hardship. The assessee filed a Writ Petition to challenge the rejection of the stay application. Held by the Court allowing the petition:
The power which is vested in the Assessing Officer under section 220(6) and on the CIT(A) to grant a stay of demand is a judicial power. It is necessary for both the Assessing Officer as well as the appellate authorities constituted under the Income-tax Act to have due regard to the fact that their function is not merely to act as tax gatherers, but equally as quasi judicial authorities, they owe a duty of fairness to the assessee. This seems to be lost sight of in the manner in which the authority has acted in the present case. The parameters for the exercise of the jurisdiction to grant a stay of demand has been set out in several judgments of this Court, including in KEC International v. B. R. Balakrishnan and others (2001) 251 ITR 158. The assessee’s submissions on merits require consideration. The CIT(A) ought to have devoted a more careful consideration to the issue as to whether a stay of demand was warranted. As out of a total demand of Rs. 1.18 crores, Rs. 78 lakhs has been adjusted, the balance has to be stayed.
Nishith Madanlal Desai v. CIT (Bom.)(High Court) www.itatonline.org
S. 220(6) : Collection and recovery – Stay – Guidelines laid down on how stay application should be dealt with - The recovery cannot be made without following due process of law.
The assessee, a mutual fund, was a beneficiary of a trust named India Corporate Loan Securitisation Trust which was set up for securitising a loan of Rs. 300 crores by issue of Pass Through Certificates (PTCs). The assessee had subscribed to the PTCs and its beneficial interest was proportionate to the PTCs subscribed. The Trust received interest of Rs. 21.49 crores in respect of a loan and distributed the income to its beneficiaries in their respective shares. The Assessing Officer passed an assessment order on the trust in the capacity of an AOP. Though a stay application was filed, the Assessing Officer, without disposing of the stay application, demanded that 50% of the demand be paid. He also directed the assessee to pay Rs. 9.63 crores on the ground that it was a member of the AOP (Trust) and was jointly and severally liable in respect of the demand against the AOP. The assessee filed a stay application which was disposed of by the Assessing Officer on 9.3.2012 (received by the assessee on 13.3.2012). On 12.3.2012, the Assessing Officer attached the assessee’s bank account under section 226(3). The assessee filed a Writ Petition pointing out that the action had been in pursuance of the CBDT Chairman’s letter dated 7.2.2012 promising postings commensurate with tax recovery. The Court held:
The Revenue has made an unfortunate and hasty attempt to make a recovery of the demand without enabling the assessee to take reasonable recourse to the remedies available in law. The assessee filed a stay application before the Assessing Officer on 7.3.2012 and moved the Commissioner of Income-tax on 9.3.2012. Before service of the order rejecting the stay application, the assessee’s bank account was attached on 12.3.2012. Administrative directions for fulfilling recovery targets, the sanctity of the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Assessing Officers & appellate authorities perform quasi-judicial functions under the Act. Applications for stay require judicial consideration. Rejecting such applications without hearing the assessee, considering submissions and indicating at least brief reasons is impermissible. In KEC International Ltd v. B.R. Balakrishnan and others (2001 251 ITR 158 guidelines regard to the manner in which applications for stay should be disposed of have been laid down. Unfortunately these guidelines are now being breached by the Revenue. In Coca Cola India P.Ltd v. Addl.CIT(2006) 285 ITR 419 the conduct of the Revenue was deprecated. In attaching bank accounts even before communicating the order passed the following guidelines should be borne in mind for effecting recovery:
1. No recovery of tax should be made pending
(a) Expiry of the time limit for filing an appeal;
(b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
2. The stay application, if any, moved by the assessee should be disposed of after hearing the assessee and bearing in mind the guidelines in KEC International;
3. If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay;
4. When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;
5. In exercising the powers of stay, the ITO should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the Assessing Officer has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order: the matter must be considered from all its facets, balancing the interest of the assessee with the protection of the Revenue.
UTI Mutal Fund v. ITO (Bom.)(High Court) www.itatonline.org
S. 220(2A) : Collection and recovery – Waiver or reduction – Genuine hardship – The Commissioner has power to waive the interest in respect of amounts already paid, accordingly the order was set aside and directed the commissioner to pass the order in accordance with the law.
The legal heir of deceased assessee filed application under section 220(2A) for waiver of application of interest levied amounting to Rs. 1,95,570. The Commissioner has waived an interest of Rs. 24,408, which was balance amount due from the deceased assessee. The Assessee filed the writ petition, the Court held that Taxation laws (Amendment) Act, 1984 has conferred the power on the Chief Commissioner or the Commissioner to reduce or waive the amount of interest already paid, therefore the there is no reason to restrict the waiver to the amounts remaining due payable, accordingly the order of Commissioner was set aside for reconsideration. (A. Y. 1989-90).
E. M. Joseph v. CIT (2012) 67 DTR 86 (Ker.)(High Court)
S. 234B : Interest – Book profit – Company – Advance tax – Assessee cannot be charged interest under section 234B and 234C, for the Asst. years 2001-02 and 2002-03, prior to amendment of section 115JB by the Finance Act, 2002.
The assessment was done by applying the provisions of section 115JB and the interest was charged under section 234B and 234C of the Income-tax Act. The assessee contended that the provisions of sections 234B and 234C are not applicable, which was rejected by the Assessing Officer and allowed by the Commissioner (Appeal) and Tribunal. On appeal to High Court by the revenue, the Court held that prior to amendment of section 115JB by the Finance Act , 2002, the advance tax was payable on book profit which is deemed to be total income. As the assessee was under no obligation on the date of the alleged default to pay tax at that particular rate for financial years 2000-01 and 2001-02. The Court held that though assessee was liable to pay advance tax as per amended provisions of section 115JB for the Assessment years 2001-02 and 2002-03 assessee could not be charged interest under section 234B and 234C on differential amount of pre amended total income and post amended deemed total income. (A. Ys. 2001-02 & 2002-03).
CIT v. Jupiter Bio-Science Ltd. (2012) 67 DTR 91 (Karn.)(High Court)
S. 244A : Refund – Interest on refund – Search and seizure – Assessee is entitled to interest on excess cash retained excess of liability. [S. 132, 132B(4)]
During a search at the business and residential of the petitioner on September 4, 1992, cash of Rs. 1,60,000 was seized by the Department. On 24-12-1992 order under section 132(5) was passed determining provisional tax liability of Rs. 3,34,492 and the cash seized was apportioned. On regular assessment after giving effect to the Order of Commissioner (Appeals), the tax payable was only Rs. 1654. On 19-8-1996 the assessee applied for refund of Rs. 1,60,000 with interest. On 2-12-1996, the sum of Rs. 1,60,000 was refunded to him without interest. The assessee filed writ petition seeking interest under section 132B(4) and 244A of the Act. The Court held that last assessment was 4-7-1996, excess amount was retained hence, the assessee is entitled the interest from 5-7-1996, till 2-12-1996. The Court also held that if the interest is not paid with in three months the assessee is entitled to interest till the receipt interest, under section 244A(1)(b). (A. Y.1993-94).
Sitram v. CIT (2012) 341 ITR 549 (Bom.)(High Court)
S. 254(1) : Appellate Tribunal – Power – Validity of search – Tribunal has power to decide the legality and propriety of search under section 132, accordingly the matter was set aside to the Tribunal to decide afresh.
The assessee has filed the writ petition challenging the validity of search under section 132 of the Income tax Act, 1961. When the matter was pending before the Tribunal the Tribunal held that it cannot go into the question because the issue is pending before the High Court. The assessee made a prayer to withdraw the writ petition and purse the matter before the Tribunal. The Court held that in view of judgment in CIT v. Chitra Devi Soni (Smt.) (2009) 313 ITR 174 (Raj.), where in the SLP of department was also dismissed (2009) 313 ITR (St) 28, the appeal was set aside and remanded the appeal to the Tribunal to decide on merits strictly in accordance with the law.
Badri Ram Choudhary v. ACIT (2012) 67 DTR 83 / 247 CTR 461 (Raj.)(High Court)
Editorial: Refer Tribunal order Badri Ram Choudhary v. ACIT (2010) 128 TTJ 339 / 34 DTR 335 (Jd.)(Trib.), was set aside. (ITA No. 55/Jd/2006 dated 29th January, 2009)
S. 254(2) : Appellate Tribunal – Mistake apparent from the record – Tribunal cannot recall the entire order.
The High Court held that the power conferred under section 254(2) is to amend the order passed under section 254(1) to rectify the mistake which is apparent from the record. While deciding the mistake apparent from the record the recalling of entire order is not proper. (A. Y. 2006-07).
Srinidhi Gold v. ITO (2012) 66 DTR 429 (Karn.)(High Court)
S. 254(2) : Appellate Tribunal – Mistake apparent from the record – Erroneous opinion cannot be subject matter of rectification under section 254(2).
The Tribunal held that in a miscellaneous application, it is not possible to consider the plea of the assessee that the view expressed by the Tribunal was erroneous. The scope of a miscellaneous application under section 254(2) was only to rectify an apparent mistake in the order of the Tribunal. In a miscellaneous application it is not possible to seek review of the order of the Tribunal. (A. Y. 1997-98).
Reuters Ltd. v. Jt. CIT (2012) 14 ITR 48 (Mum.)(Trib.)
S. 254(2) : Appellate Tribunal – Mistake apparent from the record – Order – Third member – Decision of third member is not a final order disposing of entire appeal as contemplated by section 254(1) and consequently an application would not lie under section 254 (2) against third member order. (S. 254, 255)
Revenue filed an application under section 254 (2) against the order of third member. The assessee raised a preliminary objection for rectification of mistakes apparent from the record stating that rectification application under section 254(2) would not lie against the third member order. The Tribunal held that the decision of the third member order is not a final order disposing of the entire appeal as contemplated by section 254(1), therefore application under section 254(2) would not lie against the order of third member. (A. Y. 1998-99).
Dy. CIT v. Telco Dadajee Dhackjee Ltd. (2012) 49 SOT 549 (Mum.)(TM )(Trib.)
S. 260A : Appeal to High Court – Apex Court held that High Court to consider whether the monetary limit of tax fixed by the CBDT Circular No. 3/2001 dated 9-2-2011 has retrospective effect.
The Department filed an appeal under section 260A in 2006 where the tax effect was less than Rs. 10 lakhs. The High Court, relying on Instruction No. 3/2011 Dated 9-2-2011(2011) 332 ITR 1 (St) (which had been held to apply to pending appeals in CIT v. Delhi Race Club Ltd.) dismissed the appeal as not maintainable. The Department challenged the decision on the ground that para. 11 of Instruction No. 3/2011 dated 9-2-2011 made it clear that it would apply only to appeals filed on or after 9.2.2011 and not to appeals filed earlier. HELD by the Supreme Court:
In view of Para 11 of CBDT Instruction No.3/2011 dated 9th February, 2011, liberty is granted to the Department to move the High Court by way of review within four weeks.
CIT v. Virgo Marketing Pvt. Ltd (SC). www.itatonline.org
S. 260A : Appeal to high Court – Monetary limit – Less than 10 lakhs – CBDT’s decision to confine the effect of low tax effect Instruction to fresh appeals is contrary to the object of Section 268A & the National Litigation Policy hence appeal is not maintainable.
The department filed an appeal in the year 2005, the tax effect of which was less than Rs. 10 lakhs. The High Court had to consider whether inspite of para 11 of CBDT’s Instruction No. 3 of 2011 dated 9.2.2011 which declared that that the bar on filing departmental appeals with tax effect of less than Rs. 10 lkahs would apply only to appeals filed after 9.2.2011, the Instruction could still be considered to be applicable to pending appeals. HELD by the High Court dismissing the appeal as non-maintainable:
Though paragraph 11 of Instruction No. 3/2011 provides that the revised tax limits will apply only to fresh appeals, the same has to be held to be applicable to pending appeals as well because (i) the Department has not kept in mind the object with which such Instructions have been issued from time to time; (ii) the object of section 268A which empowers the CBDT to issue such instructions & under the National Litigation Policy, the Government has to be an “efficient & responsible” litigant and not a “compulsive” litigant and appeals should not be pursued in low-tax matters, (iii) a beneficial circular has to be applied retrospectively (iv) extending the benefit of the Instruction to pending matters will be only in the nature of a one-time settlement akin to the KVSS & VDIS, (v) by experience it is seen that tax is levied by defeating Parliament’s intention to grant incentives to trade and industry & where the Tribunal has come to the rescue of the assessees, appeals are filed mechanically & compulsively with the approach of “let the Court decide” & to “save their skin”; (vi) there would be an anomaly in confining the Instruction to fresh appeals because if the Tribunal has decided a case expeditiously, such matters will be denied the benefit of the bar on filing appeals while if there is no disposal by the Tribunal owing to pendency etc, the benefit accrues to the assessee. The benefit to which the assessee is entitled cannot depend on the date of the decision over which neither the assessee nor revenue has any control; (vii) the Instruction would be discriminatory, if held to be prospective only. It can be saved from the vice of discrimination by holding it as retrospective.
CIT v. Ranka & Ranka (Karn.)(High Court) www.itatonline.org
S. 260A : Appeal to high court – Frivolous appeal – High Court awarded the cost of Rs. 1 lakh on officer is personally who had file the appeal – High Court held that only way to prevent dept from filing frivolous appeals is by imposing heavy costs.
The assessee set up a 100% EOU unit in A.Y. 1993-94 and claimed 5 year deduction till A.Y. 1997-98 as was then allowable under section 10B. By the IT (SA) Act, 1998, section 10B was amended w.e.f. 1.4.1999 to allow deduction for 10 years from the date the eligible unit started software development. Accordingly, the assessee claimed section 10B deduction for A.Y. 1999-2000 to 2001-02. The Assessing Officer held that as the deduction under the amended provision was allowable only for the “unexpired period”, it was necessary that as on the date of the amendment, there was “unexpired period” and as the assessee’s entitlement had ended in A.Y. 1997-98, it was not eligible for further relief. The CIT(A) & Tribunal allowed the claim on the ground that there was nothing in the Act to provide that the units which have fully availed the exemption under section l0-B will not get the benefit of the amended provision. On appeal by the department, held dismissing the appeal while passing strictures and imposing heavy costs:
(i) It is clear from the amended section 10B that the benefit of tax holiday is extended for a period of ten consecutive assessment years beginning with the assessment year in which the undertaking begins to manufacture or produce articles. The object behind the amendment is to give added thrust to exports. lf the assessee has already availed the benefit under the unamended provision and 10 years have expired as of 01.04.1999, the assessee would not be entitled to the said benefit. If 10 years from the date of production has not expired prior to 01.04.1999, he would be entitled for the remaining unexpired period. The department’s stand that if the 5 year period had expired as of the date of the amendment, the benefit is not available runs counter to the intention with which the amended provision was enacted and negates it.
(ii) This case shows how the department is filing appeals without proper application of mind and wasting the precious time of the Court and the tax payer’s money. Even if the Assessing Officer was overzealous in passing the assessment order, there was no need to file an appeal to the High Court. This is not an isolated case. The department is filing appeals mechanically either for the purpose of statistics or to save their skins without application of mind. In the process, a person eligible to tax holiday has been denied the benefit and made to contest the proceedings. If the object of extending the benefits was to give added thrust to exports, the assessee is made to unnecessarily waste his time in fighting the dispute in different forums. The only way to bring reason to the department is by imposing costs so that appropriate action may be taken against the person who has taken a decision to file the appeal and recover the same after enquiry. The department is directed to pay costs of Rs. 1 lakh for wasting the tax payer’s money. lt is open to the authorities to recover the money from the person who has taken a decision to file the frivolous appeal.
CIT v. DSL DSoftware Ltd. (Karn.)(High Court) www.itatonline.org
S. 263 : Revision of orders prejudicial to revenue – Not application of mind to relevant material or an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of order being erroneous, hence, revision held to be valid.
The assessee bought shares on 21.4.2000 for Rs. 19,536 and sold them on 2.5.2001 for Rs. 6,36,640. A gain of more than 30 times was made in one year. The Assessing Officer accepted the LTCG and allowed section 54F relief. The CIT passed an order under section 263 in which he held the order to be ‘erroneous and prejudicial to the interest of the revenue’ on the ground that the Assessing Officer had not made any enquiry to determine the genuineness of the transaction though the circumstances warranted the same. On appeal of the assessee, the Tribunal relied on B & A Plantation & Industries & Anr. v. CIT (2007) 290 ITR 395 (Gau.) and held that as the order of the Assessing Officer was not without jurisdiction, it could not be held to be ‘erroneous’ for purposes of section 263. On appeal by the department, the issue was referred by the Full Bench as to the supposed conflict between various judgements of the Court on the subject:
Jurisdiction under Section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Not holding such inquiry as is normal and not applying mind to relevant material would make the assessment ‘erroneous’ warranting exercise of revisional jurisdiction. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being ‘erroneous’. Non application of mind and omission to follow natural justice is in same category. CIT v. Daga Entrade (P) Ltd. (2010) 327 ITR 467 (Gau.) lays down the correct law and is not in conflict with Rajendra Singh v. Superintendent of taxes & Ors. (1990) 1979 STC 10 (Gau.). (A. Y. 2002-03).
CIT v. Jawahar Bhattacharjee (2012) 341 ITR 434 / 67 DTR 217 / 247 CTR 473 (Gauhati)(High Court)(FB)
S. 263 : Revision of orders prejudicial to revenue – Reasoned order – Double taxation relief – India-Canada – As the computation was not clearly indicated in the assessment order the revision was held to be valid. (Art. 23)
Assessee while filing the return of income, claimed relief under DTAA relief in respect of Canada and Thailand. Assessing Officer has allowed the claim under section 143(3). The Commissioner passed the order under section 263, and directed the Assessing Officer to examine the enactment of both the countries and to ascertain the exact relief that the assessee can claim under Article 23(2) with Canada and Article 23(3) of the DTAA of Thailand .Tribunal set aside the order of Commissioner and restored the order of the Assessing Officer. On further appeal to High Court by the revenue the court held that as the Assessing Officer has not clearly indicated the computation with the relevant Articles of DTAA and the basis, can be construed as an order both erroneous and prejudicial to the interest of revenue hence the revision order was justified. (A. Ys. 1995-96 & 1996-97).
CIT v. Infosys Technologies Ltd. (No 2) (2012) 341 ITR 293 / 67 DTR 33 / 205 Taxman 98 / 247 CTR 410 (Karn.)(High Court)
S. 263 : Revision of orders prejudicial to revenue – Limitation – Order giving effect of order of Commissioner (Appeals) – Revision of orders beyond the period of two years held to be bad in law.
Assessment order was passed on 27th Feb., 1997. The assessment order was subject matter of appeal, while giving effect the Assessing Authority had passed an order dated on 31st March, 1999. The Commissioner has passed the revision order on 31st March, 1999. The Tribunal set aside the order of Commissioner. On appeal to High Court by revenue the High Court held that the order passed by the Commissioner in exercise of the revisional jurisdiction beyond two years of assessment order was clearly barred by limitation and confirmed the order of Tribunal. (A. Y. 1994-95).
CIT v. Infosys Technologies Ltd. (No. 1) (2012) 341 ITR 290 / 67 DTR 57 / 247 CTR 573 (Karn.)(High Court)
S. 263 : Revision of orders prejudicial to revenue – Revision of order on the ground that the Institute was carrying on business of coaching against charge of fee held to be not valid.
The Assessing Officer has passed the order under section 143(3) and allowed the exemption under section 10(23C)(iv). Commissioner revised the order under section 263 on the ground that the assessee was carrying on business of coaching against charges of fee and separate books of account were not maintained. High Court in appeal quashed the order passed under section 263 of the Income-tax Act, 1961 and held that Institute cannot be said to be carrying on business. (A. Y. 2005-06).
DIT (Exemption) v. The Institute of Chartered Accountants of India (2012) 67 DTR 67 (Delhi)(High Court)
S. 263 : Revision of orders prejudicial to revenue – Commissioner must give finding on merits and cannot simply remand to Assessing Officer.
The assessee purchased property for Rs. 69.63 lacs in 1997, yielding a rent of Rs. 2.05 lacs per month, and sold it for Rs. 70 lacs in 2003. The assessee claimed indexation loss which was accepted by the Assessing Officer. The CIT passed an order under section 263 holding that a high-yielding asset could not be disposed off at such a low value and that the assessment order was erroneous & prejudicial to the interests of the revenue as the Assessing Officer had not examined the aspect of full value of consideration receivable by the assessee. The Tribunal reversed the CIT on the ground that he had not come to the conclusion that the actual receipt of consideration was more than what was declared in the return. On appeal by the department to the High Court, Held dismissing the appeal:
While the Assessing Officer is both an investigator and an adjudicator, a distinction has to be drawn between a case where the Assessing Officer has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous; and (ii) where there is failure to make proper or full verification or enquiry (“inadequate inquiry”). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the Assessing Officer has not applied his mind on the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of the Revenue. In a case where there is inquiry by the Assessing Officer, even if inadequate, the CIT would not be entitled to revise under section 263 on the ground that he has a different opinion in the matter. Also, in a case where the Assessing Officer has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the section 263 order. The CIT is entitled to collect new material to show how the order of the Assessing Officer is erroneous. The CIT cannot remand the matter to the Assessing Officer for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the Assessing Officer implies that the CIT has not decided whether the order is erroneous but has directed the Assessing Officer to decide the aspect which is not permissible. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated (Gee Vee Enterprises v. Addl.CIT (1975 )99 ITR 375 (Delhi),CIT v. Sunbeam Auto Ltd (2011) )332 ITR 167 (Delhi) &CIT v. Gabriel India Ltd (1993 )203 ITR 108 (Bom.) followed).
ITO v. DG Housing Projects Ltd. (Delhi)(High Court) www.itatonline.org
S. 271(1)(c) : Penalty – Concealment – Unexplained cash credits – Surrender of income – Explanation 1 – Penalty justified.
Department has collected sufficient material against the assessee and only after incriminating material collected by the Department was brought to the knowledge of the assessee, the surrender was made by the assessee under the constraint of exposure to adverse action by the Assessing Officer. On the facts the assessee failed to discharge the onus laid down upon him in terms of Explanation 1 to section 271(1)(c) and did not offer any explanation during the penalty proceedings before the Assessing Officer, the Tribunal held that levy of penalty was justified. (A. Y. 2001-02).
Sanjay Enterprises (P) Ltd. v. ITO (2012) 66 DTR 187 / 144 TTJ 198 (Delhi)(Trib.)
S. 271(1)(c) : Penalty – Concealment – Disallowance of provision for doubtful debt and MODVAT credit under section 43B – Possible view levy of penalty is not justified.
The assessee has disclosed full particulars in the return of income. The Assessing Officer has disallowed the provision for doubtful debts and MODVAT credit component under section 43B of the Act. The additions were confirmed by the Tribunal. In the penalty matter the Tribunal held that full particulars were disclosed by the assessee in the computation of income enclosed with the return. The stand taken by the assessee was supported by subsequent decision of another assessee. The Tribunal held that the stand taken by the assessee at the time of filing of return was a possible and plausible view and therefore penalty was not justified. (A. Y. 1998-99).
Hero Honda Motors Ltd. v. Dy. CIT (2012) 14 ITR 161 (Delhi)(Trib.)
S. 271(1)(c) : Penalty – Concealment – Conditional offer – Seized documents did not contain signatures or initials or director or family members burden is on revenue to prove, Levy of penalty was not justified.
During the search various documents were found, the assessee has made disclosure of certain amount however in the course of assessment proceedings the assessee offered additional income with the condition that no penalty should be levied .In appeal the Commissioner (Appeals) partly allowed the penalty, in further appeal to the Tribunal by revenue and assessee, the Tribunal held that, though the conditional offer made by the assessee consequent to search operation is justify for addition in quantum assessment, the same is not sufficient to attract the levy of penalty under section 271(1)(c), when the seized document did not contain signatures or initials of director or any family member. Accordingly the appeal of assessee was allowed and appeal of revenue was dismissed. (A. Y. 2005-06).
Marathon Nextgen Reality & Textiles Ltd. v. Dy. CIT (2012) 67 DTR 249 (Mum.)(Trib.)
S. 271AAA : Penalty – Search and seizure – Immunity from section 271AAA penalty available even if tax on undisclosed income unpaid till passing assessment order.
Pursuant to a search under section 132 the assessee disclosed additional income under section 132(4) and offered the same to tax. However, the taxes due on the same were paid only after the passing of the assessment order. The Assessing Officer held that as the taxes were not paid at the time of filing the ROI, the immunity from penalty under section 271AAA was not available. This was reversed by the CIT(A) on the ground that under section 271AAA (2), there was no precondition that the tax & interest had to be paid before filing of return or any other specified date. On appeal by the department, held dismissing the appeal:
Section 271AAA makes a paradigm shift on the imposition of penalty in respect of unaccounted income unearthed as a result of search operation. Unlike section 271(1)(c), section 271AAA penalty is imposable on undisclosed income without “concealment” or “furnishing inaccurate particulars” having to be shown. Section 271AAA(2) grants immunity from penalty if (i) in the section 132(4) statement, the undisclosed income is admitted and the manner of deriving it is specified; (ii) the manner in which the undisclosed income was derived is substantiated; and (iii) the tax & interest on the undisclosed income is paid. While payment of taxes & interest is a condition precedent for availing immunity under section 271AAA(2), there is no time limit for such payment. In the absence of a time limit for payment of tax & interest in the statute, the Assessing Officer’s stand that it ought to have been paid at the time of filing the ROI is not acceptable. Further, though in the context of Explanation 5 to section 271(1)(c) it has been held in CIT v. Mahendra Shah (2008) 299 ITR 305 (Guj)(High Court) that the conclusion of the assessment proceedings is the outer limit for making payment of tax & interest, that was in the context of section 271(1)(c) which required the Assessing Officer to record his satisfaction in the course of the assessment proceedings itself. As there is no such requirement in section 271AAA, there is no outer limit for payment of the due tax & interest. On facts, as the assessee had paid the due tax & interest within the time specified in the section 156 notice of demand, section 271AAA penalty was not imposable.
Dy. CIT v. Pioneer Marbles & Interiors Pvt. Ltd. (Kol.) www.itatonline.org
S. 276C : Offences and prosecution – False verification – Willful attempt to evade tax – Penalty set aside by Tribunal prosecution does not survive. (S. 271(1)(c), 277, 278)
The Court held that when the concealment penalty is set a side by the Tribunal prosecution does not survive.
ITO v. Nandlal and Co. (2012) 341 ITR 646 (Bom.)(High Court)
ITO v. Veer Radios (2012) 341 ITR 646 (Bom.)(High Court)
ITO v. Vishram (2012) 341 ITR 646 (Bom.)(High Court)
Wealth-tax Act, 1957
S. 5(1)(i) : Exemption – Charitable trust – Kalyan Mandapam – Wealth tax cannot be levied. (Income-tax Act – S. 11)
Income of assessee charitable trust from “kalian Mandapam” having accepted as property held under trust and allowed exemption under section 11, exemption under wealth tax cannot be denied. (A. Ys. 1986-87 to 1988-89 &1990-91).
DIT (Exemption) v. Samyuktha Gowda Sarswatha Sabha (2012) 66 DTR 211 / 247 CTR 593 (Mad.)(High Court)
Wealth Tax – Finance Act, 1983 – S. 40(3)(vib) – Exemption – Leasing – Property leased as part of business is entitled to exemption – Part of property used by managing director as residential accommodation is entitled to exemption.
One of the business of assessee is leasing and in the course of business it had leased out the premises to a factory manufacturing inks, as the property is commercially exploited it was nit liable to be included in the net wealth. The part of property was used by managing director as residential accommodation is also entitled to exemption. (A. Y. 1989-90 to1992-93).
CIT v. Kumudum Printers P. Ltd. (2012) 341 ITR 514 (Mad.)(High Court)
Voluntary Disclosure of Income Scheme, 1997.
S. 64(2) : Finance Act, 1997 – Voluntary disclosure – Search and Seizure – Firm – Partners – Partners are not entitled to immunity. (S. 132, 158BC)
Search and seizure action was conducted against firm and partners. Partners name were included in the warrant of authorization, therefore the partner is not entitled to immunity under VDS on the basis of the declaration of undisclosed income made by him under the VDS after the search proceedings.
Naresh Chand Baid v. ACIT (2012) 66 DTR 221 / 247 CTR 196 (Chattisgarh)(High Court)
Appellate Tribunal – Section 129(6) of Customs Act barring ex-Members from practice before CESTAT is valid.
The appellant was appointed Member (Technical) of CEGAT on 1-11-1990 and demitted office on 7-3-1993. He enrolled as an advocate with the Bar Council of India on 18-4-1993. Section 129(6) of the Customs Act, 1962 introduced by F.A. 2003 debarred ex-Members from appearing, acting or pleading before the CEGAT/ CESTAT. Section 129(6) was challenged before the High Court on the ground that (i) it was ultra vires Article 19(6) of the Constitution of India & (ii) could not apply to persons who had demitted office before the insertion of the provision. The High Court (P.C. Jain vs. UOI) rejected the plea on the ground that the restriction was to remove a perceived bias and was not unreasonable. On appeal to the Supreme Court, held dismissing the appeal:
(i) As regards the constitutional challenge, while the right to practice as an advocate is not only a statutory right under the Advocates Act but is also a fundamental right under Article 19(1)(g) of the Constitution, it is subject to reasonable restrictions. The restriction imposed by section 129(6) of the Customs Act is constitutional because (i) the restriction is partial to the extent of practice before CESTAT and does not bar practice before other judicial bodies & (ii) the restriction is intended to serve a larger public interest and to uplift the professional values and standards of advocacy in the country. It adds to public confidence in the administration of justice by the Tribunal;
(ii) The contention that the restriction is based on an illogical presumption of likelihood of bias is also not acceptable because when one has been a member of a Tribunal over a long period and other members have been his co-members, it is difficult to hold that there would be no possibility of bias or no real danger of bias. Even if this possibility was ruled out, it is still in the interest of the institution that restrictions are enforced. Then alone will the mind of the litigant be free from a lurking doubt of likelihood of bias and this would enhance the image of the Tribunal;
(iii) The contention that section 129(6) cannot be given effect to retrospectively so as to adversely affect persons who were enrolled as advocates when the provision was not on the statute book is not acceptable because there is a distinction between a law being enforced retrospectively and a law that operates retroactively. The restriction in the present case is one where the right to practice before a limited forum is being taken away in present while leaving all other forums open for practice. Though the restriction has the effect of relating back to a date prior to the present, the law stricto sensu is not retrospective, but is retroactive. The restriction does not interfere with settled or vested rights.
N. K. Bajpai v. UOI (SC) www.itatonline.org
Appellate Tribunal – Concern expressed at “mutual acrimony” between Members of Chandigarh Bench.
The Applicant, an Accountant Member of the Tribunal, was transferred from Chandigarh to Rajkot. He challenged the transfer on the ground that it was punitive and had arisen because of a complaint against him by a Judicial Member. It was alleged that the Sr. VP, who decided the complaint, had indicted him without a hearing and that the said VP was part of the Collegium which had recommended the transfer. In turn, the Judicial Member alleged that she had been subjected to harassment by the Applicant and other Members of the Chandigarh Bench. She claimed that she had heard a bunch of appeals with the Applicant and that though she had drafted the judgement, the Applicant did not sign it till he sat on another Bench and decided another bunch of appeals by taking a contrary view to the view taken by her. She claimed that the Applicant had “purposely” kept the draft judgement in abeyance in order to be able to take a different view in another Bench while the Applicant alleged that there was something “extra judicial in her mind“. HELD by the CAT, dismissing the application:
(i) The documentation indicates an unsavoury and uneasy situation prevalent at the Chandigarh Bench of the ITAT and the litigating parties are found to be engaged in an unenviable endeavour to wash the proverbial dirty linen in public. The prevalence of the factual scenario, indicating almost complete want of trust and faith inter-se, ought to be foreign to each segment of dispensation of justice which (system), for optimum and unbiased delivery requires an ambience based upon balanced and conscientious approach. For reasons of propriety, we are not noticing any part of the mutual acrimony as between the personnel who are a part of the dispensation at the local Bench of ITAT. We express our deep sense of exasperation at the prevalent scenario and hope and trust that the sentiments expressed by the President of the ITAT in the course of his letter dated 4.1.2012 for ensuring bonhomie at the local Bench of the ITAT, would be pursued to its logical conclusion;
(ii) Transfer is an incident of public service. It is well settled that Courts/ Tribunals ought to refrain from interfering in transfer matters unless there is an element of perversity or extreme arbitrariness/ bias in the grant of the relevant order. The transfer order was passed on the recommendation of the collegium and though the Applicant found fault with the association of the VP who dealt with the complaint, no bias on part of the President or the other VP was alleged. Further, the claim that as the transfer was pursuant to a complaint, the competent authority ought to have granted a hearing is not acceptable. An employer is free to effect transfer on the basis of a complaint or adverse report without hearing the employee. The giving of a hearing may actually be counter-productive in such matters. Also, the Applicant was not free from blame because, having heard the bunch of appeals with the JM and having allotted the matters to her for dictation, it was not appropriate for him to retain the draft judgement till he sat on another Bench and took a view contrary to the one taken by the JM. If he was not agreeable with the view of the JM, he ought to have written an order of dissent. (Desire expressed that the competent authority may consider the feasibility of doing something to establish appropriate ambience at the Chandigarh Bench of the ITAT).
D. K. Srivastava v. UOI & Ors. (Central Administrative Tribunal) www.itatonline.org
Appeal – Condonation of delay – Appeal by department – Delay by Department in filing appeal cannot be mechanically condoned.
The Government filed an appeal to challenge the judgement of the High Court. There was a delay of 427 days in filing the appeal which was caused due to the normal bureaucratic procedure. The department cited a number of judgements and argued that in matters relating to the Government, a lenient view had to be taken as there was no want of bona fides. Held dismissing the appeal:
In the absence of plausible and acceptable explanation for the delay, the question to be posed is why the delay should be mechanically condoned merely because the Government is a party. Though in a matter of condonation of delay when there was no gross negligence or deliberate inaction or lack of bonafide, a liberal concession has to be adopted to advance substantial justice, in the facts and circumstances, the Department cannot take advantage of various earlier decisions. The claim on account of impersonal machinery and inherited bureaucratic methodology of making several notes cannot be accepted in view of the modern technologies being used and available. The law of limitation undoubtedly binds everybody including the Government. It is the right time to inform all the government bodies, their agencies and instrumentalities that unless they have reasonable and acceptable explanation for the delay and there was bonafide effort, there is no need to accept the usual explanation that the file was kept pending for several months/years due to considerable degree of procedural red-tape in the process. The government departments are under a special obligation to ensure that they perform their duties with diligence and commitment. Condonation of delay is an exception and should not be used as an anticipated benefit for government departments. The law shelters everyone under the same light and should not be swirled for the benefit of a few. As there was no proper explanation for the delay except mentioning of various dates and the Department has miserably failed to give any acceptable and cogent reasons sufficient to condone such a huge delay, the appeals have to be dismissed on the ground of delay.
Chief Post Master General v. Living Media India Ltd (SC) www.itatonline.org
Judicial enquiry – Out sourcing of Judgment – Judge alleged to have “outsourced” judgements can be dismissed without opportunity of hearing or enquiry.
The appellant was appointed sub-ordinate Judge in the Garhwa Civil Court. The Inspecting Judge inspected the records of the Civil Court and submitted a confidential report to the Chief Justice of the Jharkhand High Court that the appellant did not prepare judgments on his own but got it prepared by somebody else before delivering the judgments. The Chief Justice referred the matter to the Full Court. The Full Court resolved that the appellant be recommended for removal from service without any enquiry as it was felt that it was not practicable in the interest of the institution to hold an inquiry since it may lead to the question of validity of several judgments rendered by him. Pursuant to that resolution, the Governor exercised power under proviso (b) to Article 311(2) of the Constitution and removed the appellant from service. This was unsuccessfully challenged before the High Court. In appeal before the Supreme Court, it was argued that an enquiry for the purpose of removal of a judicial officer could not be dispensed with. It was also claimed that there was no evidence to show that the appellant was guilty of any misconduct as alleged. Held dismissing the appeal:
(i) Under the “doctrine of pleasure” recognized under Article 310, all civil posts under the Government are held at the pleasure of the Government and are terminable at its will. Under Articles 310 and 311, public servants are given protection from being dismissed, removed or reduced in rank without holding a proper inquiry or giving a hearing. Exceptions to Article 311 have been provided that the said Article shall not apply to such employees who have been punished for conviction in a criminal case, where inquiry is not practicable to be held for reasons to be recorded in writing or where the President or the Governor as the case may be is satisfied that such an inquiry is not to be held in the interest of the security of the State. The power to dispense with an enquiry is an absolute power of the disciplinary authority who after following the procedure laid down therein can resort to such extra ordinary power provided it follows the pre-conditions laid down therein meaningfully and effectively;
(ii) On facts, the allegation against the Judge was that he did not prepare judgments on his own but got it prepared through somebody else. The view of the High Court that it is not possible to hold an enquiry and that holding of such enquiry should be dispensed with in view of the fact that if an enquiry is held the same may lead to the question of validity of several judgments rendered by the Judge is a legal and valid ground for not holding an enquiry. There was also no necessity for giving the Judge any opportunity of hearing before removal from service.
Ajit Kumar v. State of Jharkhand (SC) www.itatonline.org
Professional misconduct – Chartered Accountant – Chartered Accountant issuing wrong section 80HHC certificate is guilty of “gross professional misconduct”.
The CIT, Delhi, filed a complaint before the ICAI that the Respondent-CA had issued an audit report in Form No. 10CCAC certifying that the assessee had exports and that it was eligible for deduction under section 80HHC of Rs. 18.32 lakhs. However, during the assessment, the claim was found to be false and the assessee admitted that. The assessee’s accounts showed that sale proceeds had not been realized within the prescribed period of 6 months. After enquiry, the ICAI held the CA to be guilty of professional misconduct under clause (7) of Part- I of the Second Schedule read with section 22 & 21 of the Chartered Accountants Act, 1949. It recommended that the CA’s name be removed from the Register of Members for a period of three years and filed a reference seeking confirmation of that. In his defence, the CA argued that he had practiced for 21 years without a single incident of professional misconduct or negligence and that he could not put up his defence properly because he had suffered paralytic attack and the assessee had taken away the file and that a lenient view should be taken. Held by the High Court:
(i) The Accountants’ profession occupies a place of pride amongst various professions of the world and makes observance of professional duties and propriety more imperative. When conduct of a member of the profession is contrary to honesty, or opposed to good morals, or is unethical, it is misconduct-warranting consequences indicated in the Statute. A breach of confidence is a stigma not only on the individual concerned, but is also likely to have effect on credibility of the profession as a whole.
(ii) The CA’s explanation that the assessee had taken away the file and that he suffered a paralytic stroke does not inspire any confidence because the relevant documents and information were supplied to him. The assessee accepted the fact that the section 80HHC claim was not maintainable during the assessment proceedings. Once it is established that no payment was received against the export, the certificate issued by the CA was false. It is a bogey raised by the CA that he has verified all the documents and only then issued the certificate. On the quantum of punishment, on the one hand, the CA pleads his sickness, has an otherwise unblemished practice of 21 years and the incident is old. On the other hand, the misconduct is of serious nature because submitting a false/bogus certificate to the client to enable him to make false claim of deduction under the Income-tax Act, is of serious offence. That the CA made an attempt to dupe the tax authorities and help the assessee to avoid the tax to that extent such a conduct has to be taken seriously. He accordingly cannot be let off merely by giving him reprimand. Some penalty needs to be imposed so that it acts as deterrent and such professional misconduct are not committed. Weighing the circumstances, the ends of justice would be subserved by removing his name from the Register of Members for a period of six months.
Council of ICAI v. Ajay Kumar Gupta (Delhi)(High Court) www.itatonline.org
Legal Practice – Foreign Lawyers cannot practice law in India but are entitled to visit India for short periods to advice on foreign law & conduct international commercial arbitration
A Writ Petition was filed claiming that Foreign Law Firms and foreign lawyers were practicing the profession of law in India in contravention of the Advocates Act and that they should be restricted from having any legal practice either on the litigation side or in the field of non-litigation and commercial transactions within the territory of India. Held by the High Court:
(i) Foreign law firms or foreign lawyers cannot practice the profession of law in India either on the litigation or non-litigation side, unless they fulfill the requirement of the Advocates Act, 1961 and the Bar Council of India Rules. As rightly held in Lawyers Collective v. Bar Council 112 BLR 32 establishing liaison office in India by the foreign law firm and rendering liaisoning activities is not permissible. However, given that the foreign law firms have to give legal advise to their clients in India regarding foreign law or their own system of law and on diverse international legal issues, there can be no bar in their visiting India for a temporary period on a “fly in and fly out” basis, for such purpose. Also, having regard to the aim and object of the International Commercial Arbitration introduced in the Arbitration and Conciliation Act, 1996, foreign lawyers cannot be debarred to come to India and conduct arbitration proceedings in respect of disputes arising out of a contract relating to international commercial arbitration (Vodafone International Holdings B.V referred).
(ii) The BPO Companies providing a wide range of customised and integrated services and functions to its customers like word-processing, secretarial support, transcription services, proof-reading services, travel desk support services, etc. do not come within the purview of the Advocates Act, 1961 or the Bar Council of India Rules. However, in the event of any complaint made against these B.P.O. Companies violating the provisions of the Act, the Bar Council of India may take appropriate action against such erring companies.
A. K. Balaji v. GOI (Mad.)(High Court) www.itatonline.org
Circulars / Instructions.
Instruction No. 1 of 2002 dt. 2nd Feb., 2012 (2012) 247 CTR (St) 1, processing of returns of assessment year 2011-12. Steps to clear backlog.
S. 90 : Double taxation relief – Agreement between the Government of Republic of India and the Government of Georgia for the Avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income and on capital.
Notification No. S. O 34(E) dated 6th January, 2012 (2012) 341 ITR (St) 1.
S. 2(15) : Amendment to section 2(15) – Is it constitutionally valid? By S. Rajaratnam (2012) 341 ITR (Journal) 1
S. 14A : Section 14A lack application vis-à-vis trade strategic Investments – Rule 8D must carry exceptions to be workable by Gopal Natahni (2012) 341 ITR (Journal) 11.
S. 115JA : Company – MAT – Brought forward loss for minimum alternative tax – A case for change by Rajesh Kumar Jha (2012) 247 CTR (Articles) 17.
S.123 : Income tax Authority – Could the posts of inspecting Assistant Commissioners under section 123(1) and section 125A(1) be held by different Officers by M. S. Prasad (2012) 247 CTR (Articles) 9.
S. 144C : Dispute Resolution Panels : A failed solution Already? By Tarun Jain (2012) 341 ITR (Journal) 52
S. 147 : Reassessment – Validity of proceedings where approval is obtained from a wrong Authority by R. Raghunathan (2012) 247 CTR (Articles) 5.
S. 245 : Stay of recovery – Whether Affects Adjustment of Refund – By Minu Agarwal (2012) 247 CTR (Articles) 25
S. 271(1)(c) : Penalty – Concealment – Income disclosed during search or survey irrational consequences by Minu Agarwal (2012) 247 CTR (Articles) 1.
The Vodafone saga by T. C. A. Ramanujam and T. C. A. Sangeetha (2012) 341 ITR (Journal) 18.
Vodafone – “A Daniel come to Judgment by Dr. C. P. Ramaswami (2012) 341 ITR (Journal) 41.
Vodafone – ‘Look Out’ Concept not applicable to section 9 – Supreme Court decides in Vodafone’s case by T. N. Pandey (2012) 247 CTR (Articles) 28
Vodafone – The Vodafone decision – A Commonsense decision by Sageeta Jain (2012) 247 CTR (Articles) 35
Tax Planning : A right gone wrong? By Prerana Chaudhari & Rohit Tiwari (2012) 205 Taxman 1 (Mag.) 1
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