Digest of important case law – June 2010

S. 5 : Income – Accrual – Guarantee Commission

When the bank gives guarantee for period extending the close of the year and there is no obligation to refund the amount in case such guarantee is revoked prior to the prescribed period, the entire commission accrues to it at the time of giving guarantee and no part of such commission can be said to be deferred to next year.
Dy. Director of IT vs. Chohung Bank (2010) 40 DTR 75 (Mum.) (Trib.)

S. 5: Income – Accrual – Interest on Government Securities
Interest on Government securities can be said to accrue only when it becomes due and therefore there can not be charge to such income until such time that becomes due.

CIT vs. Bank of Rajasthan Ltd. (2010) 40 DTR 173 (Bom.)

S. 9 : Income – Deemed to accrue or arise in India

When there is outright purchase of plant know-how and not a case of transfer of interest, the payment could not be treated as royalty.
CIT vs. Maggronic Devices (P) Ltd. (2010) 190 Taxman 382 (HP)

S. 10(5B) : Exemption – Technician – Diploma holder
Assessee having a diploma holder in textile technology who has extensive knowledge and experience in the filed of textile manufacturing and yarn manufacturing machines having produced documentary evidence showing that he was actively involved in providing consultation for erecting spinning plants etc, in the course of his employment with an Indian company was entitled for exemption under section 10(5B).
ACIT vs. Andreas Beising (2010) 130 TTJ 100 (Del.) (UO)
Editorial Note:- Section omitted by the Finance Act, 2002 w.e.f. 1-4-2003.

S. 10(16) : Exemption – Scholarships – Stipend not salary
Scholarship / stipend received by a student from College / Government for pursuing higher studies cannot be termed as salary and therefore, same would be exempt under section 10(16).
Rahul Tugnait (Dr.) vs. ITO (2010) 124 ITD 480 (Chd.)
 
S. 10B : Exemption – Profit of business – Profit on forward contracts in Foreign Exchange assessable as speculative business – [S. 28, 43(5)]
Exporter having entered in to forward contracts in respect of foreign exchange receivable as a result of export of turnover, the profit from forward contract could not be included in the profits of business of the undertaking for the purpose of computing deduction under section 10B. Such profit assessable as profit from speculation business.
ACIT vs. K. Mohan & Co. (Exports) (P) Ltd. (2010) 39 DTR 97 (Bang.) (Trib.)

S. 10B : Exemption – Export oriented undertaking – brought forward loss and unabsorbed depreciation
Benefit of section 10B has to be allowed to an assessee before setting–off brought forward loss and unabsorbed depreciation.
Patspin India Ltd. vs. CIT (2010) 38 SOT 369 (Cochin)

S. 10B : Exemption – Export oriented undertaking – Plant and Machinery -Ownership
For claiming deduction under section 10B, it is not requirement that assessee company should it self own plant and machinery or equipment and manufacture or produce computer software on same in order to eligible for exemption.
ITO vs. Techdrive (India) (P) Ltd. (2010) 124 ITD 249 (Delhi)
Editorial Note:- Affirmed by Delhi High Court, CIT vs. Techdrive (I) P. Ltd (2010) 186 Taxman 208 (Del.)   

S. 11(1)(a) : Charitable purpose – Application of income need not be in India
Application of income should result and should be for the purpose of charitable purposes in India and application need not be in India. Expenditure incurred at an event at Hannover, Germany is eligible for exemption.
National Association of Software & Services Companies (NASSCOM) vs. Dy. CIT (2010) 38 DTR 105 (Delhi) (Trib.)

S. 17(2) : Salary – Perquisites – Concessional loan
Where loan was granted by an employer at rate of interest less than lending rate of State Bank of India, such a loan is to be regarded as a concessional loan and consequently, value of perquisite thereon is to be calculated.
All India Punjab National Bank Officer’s Association vs. Chairman-cum-Managing Director, Punjab  National Bank (2010) 190 Taxman 221 (MP)

S. 17(2) : Salary – Perquisites – Rule dealing with valuation
Rule 3 of the Income Tax Rules, 1962 dealing with the method of computing valuation of perquisites under section 17(2), of the Act, is not invalid after it was amended by the Income Tax Act (twenty second amendment) Rules 2001. It is not inconsistent with the parent Act, nor is it ultra vires Article 14 of the Constitution of India.
BHEL Workers Union and anr. vs. UOI (2010) 324 ITR 26 (SC)

S. 17(3)(i) : Salary – Non-compete fee – Profit in lieu of salary
Non compete fee received by assessee from the employer company on his retirement for not to take up any employment is a capital receipt and it can not come under the term “profits in lieu of salary”. Section 17(3)(iii) inserted by Finance Act 2001, w.e.f. 1st April 2002, is prospective and applicable only to Asst. Year 2002-03 onwards.
CIT vs. A. K. Khosla (2010) 39 DTR 82 (Mad.)

S. 28(1) : Business loss – Non refund deposit – Trading in shares
Deposit given to Calcutta Stock Exchange to become corporate member of exchange was written off as business loss. The assessee entitled to deduction as business loss.
Parlight Securities Ltd. vs. ACIT (2010) 3 ITR 628 (Ahd.) (Trib.)                        

S. 28(1) : Business loss – Renounce – Right to subscribe shares
Where the assessee renounced the right to subscribe shares in favour of unknown persons (by foregoing the right to subscribe to right shares) for nil consideration, there is no transfer, hence the notional loss on account of diminution in the value of its shares cannot be allowed.
CIT vs. United Breweries Ltd. & Anr. (2010) 39 DTR 49 (Kar.)

S. 28(1) : Business loss – Securities held by bank – Current Investment
Securities held by bank in the nature of current investments automatically became the stock-in-trade of the bank and therefore, loss arising from the sale of “current investments” is a business loss.
Dy. Director IT vs. Chohung Bank (2010) 40 DTR 75 (Mum.) (Trib.)

S. 28(1) : Business loss – Fluctuation in Foreign Exchange – Group Companies
Group companies of assessee situated abroad incurred certain expenditure on its behalf, at time of repayment, due to fluctuation in exchange rate amount payable became more than what was accounted for in terms of dollar rate on date of incurring. Since transactions of assessee with group companies were on trading account loss incurred on account of fluctuation in foreign exchange rate is allowable deduction.
C. B. Richard Ellis Mauritius Ltd. vs. Dy. DIT (2010) 38 SOT 236 (Delhi)

S. 28(1) : Business loss – Loss on revaluation of unquoted shares
Loss on revaluation of unquoted shares was not allowable as business loss.
Catholic Syrian Bank Ltd. vs. ACIT (2010) 38 SOT 553 (Cochin)

S. 32 : Depreciation – leasing of workers quarters – Business Income
Since workers’ quarters were let out as apart of plant and income so derived was assessed as business income, claim for depreciation had nexus with the business of assessee depreciation to be allowed.
CIT vs. Rieta Biscuit Co. Ltd. (2010) 190 Taxman 188 (P & H)

S. 32 : Depreciation – Block of assets – Use of individual assets
In case of block of assets, in order to allow assessee’s claim under section 32(1), use of individual asset for purpose of its business can be examined only in first year when asset is purchased and subsequent years use of block of assets is to be examined. Existence of an individual asset in block of assets itself amounts to use for purpose of business and therefore, depreciation is allowable on it, even though said asset is not actually used in course of business during relevant assessment year.
Swati Synthetics Ltd. vs. ITO (2010) 38 SOT 208 (Mum.)

S. 32(2) : Depreciation – Carry forward and set-off
Unabsorbed depreciation relating to assessment year 1997-98 to 1999-2000, cannot be set off in 2003-04 and 2004-05 against income from other sources.
Dy. CIT vs. Times Guaranty Ltd. (2010) 4 ITR 210 (Mum.) (Trib.) (SB)

S. 32A : Investment Allowance – Leasing of Plant and Machinery
Where assessee had leased out plant and machinery to another concern and income assessed as its business income investment allowance on such plant and machinery is allowable.
CIT vs. Rieta Biscuit Co. (P) Ltd. (2010) 190 Taxman 188 (P & H)

S. 32(1)(ii) : Depreciation – Allowability – IPR
Where the assessee company had taken over the business of the firm with IPR at the value determined by the valuers and such value was made part of the agreement as the cost of consideration which passed on from the company to the firm and the cost so determined was the real amount then it is wrong to presume that there was a notional amount which was transacted between the parties; assessee was entitled to claim depreciation on the value of such IPR.
Modular Infotech (P) Ltd. vs. Dy. CIT (2010) 40 DTR 172 (Pune) (Trib.)

S. 32(1)(ii) : Depreciation – Allowability – Goodwill
Assessee company having not acquired any special rights of business or commercial nature in the course of amalgamation of three group companies with it, the goodwill appearing in its books of account as a balancing figure for the assets acquired and the price paid is goodwill simpliciter and therefore, it is not eligible for depreciation.
Borker Packaging (P) Ltd. vs. ACIT (2010) 40 DTR 29 (Panaji) (Trib.)

S. 35AB : Expenditure on know-how
Assessee following mercantile system of accounting, agreement providing for lump sum consideration for know–how is deductible, considering the meaning of “paid” in section 43(2).
Amco Power Systems Ltd. vs. ITO (2010) 3 ITR 775 (Trib.) (Bang.)

S. 36(1)(ii) : Business expenditure – Bonus – Ex-gratia payment
Ex-gratia payment made in excess of the limit prescribed under the payment of Bonus Act 1965, is allowable business expenditure either under section 36(1)(ii) or section 37(1) of the Income Tax Act, I961.
CIT vs. Maina Ore Transport P. Ltd. (2010) 324 ITR 100 (Bom.)
[ Editor : See CIT vs. Sinnar Bidi Udyof Ltd. (2002) 257 ITR 217 (Bom) ]

S. 36(1)(iv) : Provident fund contribution
Contributions made to approved employees pension fund account based on actuarial valuation is allowable deduction.
Catholic Syrian Bank Ltd. vs. ACIT (2010) 38 SOT 553 (Cochin)
 
S. 36(1)(vii) : Bad debts – Write off – Accounted income for the relevant year or in earlier years
As per the amended provisions if debt has been written off as irrecoverable in accounts of assessee, it would be sufficient for claiming it as bad debts subject to condition that amount so written off has already been accounted for as income in relevant year or in earlier years.
C. B. Richard Ellis Mauritius Ltd. vs. Dy. DIT (2010) 38 SOT 236 (Delhi)

S. 36(1)(vii) : Bad debts – Share Broker
If brokerage offered to tax, the principal debt qualifies as a “bad debt” u/s 36(1)(vii) r.w.s. 36(2)
DCIT vs. Shreyas S. Morakhia (ITAT Mumbai Special Bench)(www.itatonline.org)

As per the amended provisions if debt has been written off as irrecoverable in accounts of assessee, it would be sufficient for claiming it as bad debts subject to condition that amount so written off has already been accounted for as income in relevant year or in earlier years.
C. B. Richard Ellis Mauritius Ltd. vs. Dy. DIT (2010) 38 SOT 236 (Delhi)

S. 36(2) : Bad debt – Discontinuance of business
Debt taken in to account in computing the income from money lending business. Money lending business discontinued, bad debt is allowable.
CIT vs. Rajini Investment Pvt. Ltd. (2010) 216 Taxation 553 (Mad.) 

S. 37(1): Business Expenditure – Allowability – Expenditure Incurred By Firm on Foreign Education of Partner
Unless the commercial expediency of the firm is demonstrated, expenditure incurred by the firm on foreign education of a partner cannot be treated as incurred wholly and exclusively for the purposes of the business of the firm but is to be treated as personal expenditure and not allowable under section 37(1).
Kohinoor Cloth Stores vs. ACIT (2010) 40 DTR 60 (Pune) (Trib.)

S. 37(1) : Business Expenditure – Technical Know How Fees
Assessee did not acquire an asset of a capital nature by obtaining a non exclusive licence for five years restricted to the territory of India to manufacture and use tube making machines as the proprietary rights in the patents continued to vest in the licensor and therefore the technical know how fees paid by the assessee under the terms of the agreement is allowable as revenue expenditure.
CIT vs. Essel Propack Ltd. (2010) 40 DTR 26 (Bom.)

S. 37(1) : Business expenditure – Expenses on issue of Convertible Debentures
Expenditure incurred on issue of convertible debentures is to be allowed as revenue expenditure.
CIT vs. ITC Hotels Ltd. (2010) 190 Taxman 430 (Kar.)

S. 37(1) : Business Expenditure – Capital or Revenue – Renovation of premises on lease
Assessee firm acquired a premises on lease from PHPL. It paid certain amount to PHPL towards renovation and alterations carried out in premises on its behalf. The expenditure being capital in nature not allowable. The PHPL has offered the said amount as income is immaterial consideration for the assessee.
ITO vs. Pritam Juice (2010) 124 ITD 237 (Mum.)  

S. 40(a)(i) : Amounts not deductible – SAP Software – Depreciation
Payment for SAP software could not be charged to tax in India as interest or royalty or fee for technical services. Even otherwise because of non-discriminatory clause 24(1) of DTAA with India and Germany, foreign national could not be subjected to provisions of section 40(a)(i). As regards depreciation which is allowable under section 32 provisions of section 40(a)(i) are not applicable.
SMS Demag (P) Ltd. vs. Dy. CIT (2010) 38 SOT 496 (Delhi)

S. 40A(3) : Amounts not deductible – Payment in cash
Amendment by Finance Act, 2009 w.e.f. 01-04-2009 is prospective. Hence no disallowance can be made in A.Y. 2006 – 2007 for multiple cash payments made to same party on a single day.
Habib Agro Industries vs. ACIT (2010) 38 DTR 519 (Bang)

S. 41(1) : Business income – Remission or cessation of liability – deemed profits
Once the assessee gets back the amount which was claimed and allowed as business expenditure during the earlier year, the deeming provision in section 41(1), of the Income Tax Act, 1961, comes into play and it is not necessary that the Revenue should await the verdict of a higher Court or Tribunal. The Court or Tribunal upholds the levy at a later date, the assessee will not be without remedy to get back the relief.
CIT vs. Beirsdorf (India) Ltd. vs. CIT (2010) 324 ITR 106 (Bom.)

S. 43B : Deduction – Actual Payment – Employees Contribution
Payment of employees and employees contribution to PF made beyond the due dates could not be disallowed under section 43B for the asst year 2003-04.
CIT vs. Lakhani India Ltd. (2010) 39 DTR 210 (P & H)

S. 44C : Deduction – Head Office – Non-resident – [S. 37(1)]
Salary paid by assessee’s head office outside India to expatriates who were actually working with the assessee outside India, is not covered by section 44C and is allowable as deduction under section 37(1).
Dy. Director of IT vs. Chouhung Bank (2010) 40 DTR 75 (Mum.) (Trib.)

S. 45 : Capital Gains – Business Income – Invest in Shares – Volume of Transactions – (S. 28)
Where the assessee has investment in shares under the head “investment” in the balance sheet for many years and the same is accepted by the Assessing Officer in the past, there is no justification for treating the activity of the assessee of purchase and sale of shares as “business” mainly on the reason of the volume of transactions, particularly when no money has been borrowed for making investment in shares.
Bharat Kunverji Kenia vs. Addl. CIT (2010) 130 TTJ 86 (Mum.) (UO)

S. 45 : Capital Gain – Shares – Full Value of Consideration – FMV
Transfer of shares being at face value and it is also not the case of the department that over and above that assessee has received any amount, no capital gains chargeable to tax accrued to the assessee.
Reliance Communications Infrastructure Ltd. vs. CIT (2010) 40 DTR 186 (Mum.) (Trib.)

S. 45 : Capital Gain – Holding Period – Conversion – Stock-in-trade – Capital Asset
When stock in trade is converted into capital asset, the holding period of capital asset for the purpose of computing capital gains is to be reckoned from the date of conversion of stock in trade into capital asset because prior to that date, the asset was not held as capital assets; after conversion of stock in trade of shares into capital assets, shares were not held for 12 months before sale and therefore exemption under section 10(38) was not allowable.
Lohia Metals (P) Ltd. vs. ACIT (2010) 40 DTR 246 (Chennai) (Trib.)

S. 45 : Capital Gains – Transfer – Part Performance – [S. 2(47)(v)]
Where buyer could not acquire any right of ownership, use or possession in corpus of property or income arising there from due to unauthorized occupants provisions of section 2(47)(v), would not be attracted.
ITO vs. Satyawati Devi Verma (2010) 124 ITD 467 (Delhi)

S. 48 : Capital Gains – Indexation – Non-resident – Foreign institutional Investor – (S. 112, 115AD)
Foreign institutional investor is assessable as per section 1115AD, and is not entitled to the benefit of indexation on the transactions resulting in long term capital gain/loss.
Advantage Advisors Inc. vs. Dy. CIT (2010) 39 DTR 217 (Mum.)(Trib.)   

S. 50B : Capital Gains – Slump Sale – Itemized Sale – (S. 50)
Where itemized sale of assets and liabilities of an undertaking takes place, the nomenclature of “slump sale’’ cannot be assigned thereto and in such a case short term capital gain is to be computed in accordance with the provisions of section 50.
Harvey Heart Hospitals Ltd. vs. ACIT (2010) 130 TTJ 700 (Chennai)

S. 54 – Capital Gain – Profit on sale of property used for residence -investment from bank loan
Assessee having sold self occupied flat and purchased a new residential house partly by taking bank loan and repaid the bank loan partly in the relevant year out of sale proceeds of the original flat, he is entitled for exemption under section 54.
Ishar Singh Chawla vs. Dy. CIT (2010) 130 TTJ 108 (Mum.) (UO)

S. 69 : Undisclosed Investment – Stamp Valuation – (S. 50C, 69B)
Section 50C creates a legal fiction for taxing capital gains in lands of seller and it cannot be extended for taxing difference between apparent consideration and valuation done by stamp authorities as undisclosed investment under section 69 and 69B.
ITO vs. Harley Street Pharmaceuticals Ltd. (2010) 38 SOT 486 (Hyd.)

S. 57(iii) : Income from other sources – Deduction – Interest
Assessee having borrowed money from group company and invested the same in a sister concern managed by her close associates and relative which is running in loss, the expenditure towards interest on loan cannot be said to have been laid out wholly and exclusively for the purpose of making earning income but was a colourable device, to utilize the funds of one company in the other sister concern and therefore, the interest on loan is not allowable deduction under section 57(iii).
CIT vs. Swapna Roy (Smt.) (2010) 40 DTR 193 (All)

S. 68 : Cash credit – Foreign Gift
When assessee files confirmation, and establishes the capacity addition can not be made under section 68 of the Act.
CIT vs. Asha Hampannavar, SLP rejected (2009) 319 ITR (St.) 5
Refer ITA No. 1108 of 2008 dt. 26-9-2008 (Bombay High Court)
ITA No. 5319/Mum/2007 Bench ‘A’ dt. 30-6-2008 Asst. Year 2003-04.    

S. 69 : Income from undisclosed source – Addition on the basis of statement of third party
Addition in the hands of the assessee having been made merely on the basis of a third party without there being any corroborative evidence, the Tribunal was justified in deleting the addition particularly when the assessee was not allowed opportunity to cross examine the persons who made such a statement.
Dy. CIT vs. Mahendra Ambalal Patel (2010) 40 DTR 243 (Guj.) 

S. 69A : Unexplained money – Deemed income – Owner
Assessee engaged in contract carriage of goods to be delivered to purchaser but not delivering is owner of goods liable to tax on them. Goods are “valuable article” addition of value of goods short delivered in hands of assessee is valid.
D. N. Singh vs. CIT (2010) 324 ITR 304 (Patna)

S. 69A : Unexplained money – VDIS 1997 – Sale of Jewellery
Sale of jewellery disclosed in the VDIS 1997 certificate had been issued. Once identity of purchasers were accounted for, in the absence of any contrary material to the contrary it was difficult to hold that the transactions were not genuine. Deletion of addition by the Tribunal was justified.
CIT vs. Kiran Deepak Kukreja (2010) 190 Taxman 393 (Bom.)
(Also See : CIT vs. Uttam Chand Jain (2008) 320 ITR 554 (Bom)

S. 73 : Losses in speculation business – business of financing – Shares
Where assessee company was engaged in business of financing, trading in paper, shares and real estate and highest funds were employed in investment activities while principal business was of granting loans and advances, merely because income / loss in dealing in shares in a particular year was more than income / loss from principal business of granting loans and advances, assessee was not covered by deeming provisions of explanation to section 73.
ITO vs. Bijay Paper Traders & Investments Ltd. (2010) 38 SOT 578 (Delhi)

S. 73 : Speculation loss – Limit of carried forward
Any speculation loss computed for Asst year 2006-07 and latter assessment years alone would be hit by the amendment made w.e.f. 1-4-2006 by Finance Act 2005 to section 73(4). Limit of carry forward of subsequent assessment years applies only to such loss.
Virendra Kumar Jain vs. ACIT, ITA No. 1009/Mum/2010 Asst. Year 2006-07 Bench ‘B’ dt. 31-5-2010. (BCAJ July P. 42 (493 (2010) 42A BCAJ)   

S. 79 : Carry forward and set off losses – Change in voting power – Holding company
Section 79 of the Act is applicable if 51% of the voting power is beneficially held during the year under reference by persons who held such voting power during the year in which the loss had incurred. Since the board of directors of APIL were controlled by ABL, holding company the voting power of APIL was controlled by ABL and beneficially held by ABL, the assessee was entitled to set-off of carry forward business loss.
Amco Power Systems Ltd. vs. ITO (2010) 3 ITR 775 (Bang.) (Trib.)

S. 80HHC : Deduction – Export profits – DEPB
DEPB sale proceeds cannot be bifurcated into “profits” and “face value”. The entire amount is “profits” for s. 80HHC r.w.s. 28(iiid)
CIT vs. Kalpataru Colours and Chemicals (Bom)(Source : www.itatonline.org)
Editor : Special bench in case of Topman Exports vs. ITO (2009) 318 ITR 87 (MUM)(AT) reversed

S. 80IA(4C) : Deduction – Industrial Undertaking – Telecommunication services
While computing deduction under section 80IA(4C), attributing the income in the ratio of old and new telephone exchanges is not proper, in view of complete revolution after 1995 in the telephone sector, most of the income is attributable to new exchanges and therefore, seventy five percent of the income from various services to be treated as having been served by virtue of new exchanges and 25 percent of the income to be attributed to the old exchanges.
Mahanagar Telephone Nigam Ltd. vs. ACIT (2010) 130 TTJ 497 / 39 DTR 57 (Delhi) (Trib.)
 
S. 80IA(3) : Deduction – Industrial Undertakings – Reconstruction – Formation
Bar provided under section 80IA(3), is in relation to the formation of undertaking and once the formation is complete, the development of undertaking cannot be put under restrain of section 80IA(3). If for Asst. Year 2004-05, the assessee has been granted the claim of deduction under section 80IA(4)(ii), the same cannot be denied for the subsequent assessment year by applying the restraint of section 80IA(3), further the provisions of section 80IA(3) apply to section 80IA(4)(ii), only from Asst. Year 2005-06 and not retrospectively.
Tata Communications Internet Services Ltd. Vs. ITO (2010) 130 TTJ 509 (Del.)    

S. 80IB(iii), (iv) : Deduction – Manufacture – Assembling activity – Workers – Permanent – Temporary
Assembling activity of wind mill of the assessee were covered under the definition of “manufacture” and “production”. All workers whether permanent or causal, employed by the assessee in the manufacturing process as well as in subsidiary activities are to be counted for determining compliance with the requirement of Act.. If ten or more workers were employed for substantial part of the working period of factory, it would be sufficient compliance with the condition. The section talks of workers and not employees.
Chiranjjeevi Wind Energy Ltd. vs. ACIT (2010) 4 ITR 9 (Chennai) (Trib.)

S. 80IB(10) : Deduction – Housing Project – Approval in favour of Co-venture 
Assessee having entered in to an agreement with OSHB, lessee of a plot, on principal to principal basis for constructing a multi–storeyed residential complex whereby it was assigned the right to use, develop, construct. sell or transfer the saleable area, it was not a contractor at all and therefore, deduction under section 80IB(10), is allowable to the assessee ,notwithstanding the fact that the approval for developing the housing project was given by the competent authority in favour of OSHB.
KZK Developers vs. CIT (2010) 130 TTJ 57 (Cuttack) (UO)

S. 80IB(10) : Deduction – Housing Project – Proportionate Deduction – Condition of Section 80IB(2)
Assessee undertaking engaged in development of housing projects could not be denied deduction under section 80IB, on the ground that it failed to fulfill all conditions of “industrial undertaking”, as prescribed by sub section (2) of section 80IB. In cases where the built up area of flats exceeded 1000 square feet, the exemption can not be denied entirely, assessee will be eligible for proportionate deduction.
C. V. Corporation vs. ITO (2010) 38 SOT 174 (Mum.)

S. 80IB(10) : Deduction – Housing Project – Proportionate Deduction
Assessee constructing residential units some of which were above specified limit and some below such limit. Assessee entitled to deduction in respect of residential units below specified area.
SJR Builders vs. ACIT (2010) 3 ITR 569 (Bang.) (Trib.)

S. 80IB : Deduction – Industrial Undertaking – Reimbursement  of discounting charges – Interest on delayed payment of price of goods – Interest on unsecured loans
Promissory note drawn by purchaser of goods discounted by assessee with bank. Reimbursement of discounting charges by purchaser with interest. Interest on delayed payment of price of goods sold is part of sale price and derived from industrial undertaking and deduction to be allowed. Interest received from unsecured loans not received from industrial undertaking hence does not form part of business income for deduction under section 80IB.
CIT vs. Vidyut Corporation (2010) 324 ITR 221 (Bom.)/ 39 DTR 252    

S. 80I : Deduction – Industrial Undertaking – (S. 80HH)
Assessee would be entitled to relief under section 80I at rate of 20% of profit without allowing it deduction under section 80HH.
CIT vs. Venus Electricals (2010) 190 Taxman 89 (Guj.)

S. 80O : Deduction in respect of royalties
Royalty payments received in convertible foreign exchange for the use of architectural design supplied was eligible for deduction u/s 80O as the design were used outside India.
CIT vs. Charles M. Correa (2010) 39 DTR 76 (Bom)

S. 80P : Deductions – Co-operative Societies – Attributable – Interest on fixed deposit
Since funds kept in bank could be said to be ready for utilization by assessee in its business for providing credit facilities to its members, income from monies kept in bank could be said to be attributable to business of providing credit facilities so as to fall within ambit of section 80P(2)(a)(i).
PunjabState Co-operative Federation of Housing Building Societies Ltd. vs. ACIT (2010) 38 SOT 284 (Chd.)

S. 90 : Double Taxation Relief – International Taxation – India-UAE – Resident of UAE – (Art . 4, 7 & 12)
It is not necessary that unless a person be taxed in the UAE that person cannot claim the benefits of Indo-UAE tax treaty in India, what is really relevant to see is whether or not the recipient was resident of the UAE.
Hindustan Petroleum Corporation Ltd. vs. ADIT (2010) 130 TTJ 518 (Mum.)

S. 90 : Double Taxation Relief – International Taxation – India-Mauritius – Capital Gains
Applicant is not liable to pay capital gain tax in India in respect of the transfer of shares held in the Indian Company to HSBC, having regard to provisions of the India-Mauritius DTAA.
E. Trade Mauritius Ltd., in Re. (2010) 324 ITR 1 / 190 Taxman 232 (AAR)

S. 90 : Double Taxation Relief – International Taxation – Permanent Establishment – Hardware
Except in regard to the payment made to Raytheon for hardware and COTS software that go with hardware, which are not liable to be taxed in India, the payments for other items fall with in the scope of Article 12 and therefore, can be taxed in India, irrespective of the fact that Raytheon has no PE in India. The applicant is liable to deduct tax at source on the payment made to Raytheon other than for hardware, the rate of withholding tax is governed by section 115A(1)(b)(BB) which is more beneficial to the tax payer when compared to the rate prescribed in Article 12 of the treaty.
Airports Authority of India, In Re. (2010) 190 Taxman 209 (AAR) (New Delhi)

S. 90 : Double Taxation Relief – India-Singapore – Permanent  Establishment – Agent – Income Attributable
Since the agent is only performing the functions of soliciting orders for sale of assessee’s products and promoting the sales, while all other main or core activities regarding arrangement or acquisition of products are performed in Singapore at least 10 percent of the profit earned from the activities of sale of spares by the assessee company to Indian customers can be said to be attributable to PE in India.
Rolls Royce Singapore (P) Ltd. vs. Addl Director of IT (2010) 40 DTR 289 (Del.) (Trib.)

S. 90 : Double Taxation Relief – Export – Non-resident – (S. 80HHC)
Deduction under section 80HHC is not available to non resident.
Mustaq Ahmed vs. ADIT (2010) 124 ITD 312 (Chennai)

S. 90 : Double Taxation Relief – DTAA – Permanent Establishment
Professional Firms can have a ‘service PE’. The words “indirectly attributable to the PE” encompass the “force of attraction” principle and even services rendered offshore for Indian projects are assessable in India.
Linklaters LLP vs. ITO (ITAT Mumbai) (Source : www.itatonline.org)

S. 90 : Double Taxation Relief – DTAA – Permanent Establishment
Royalty paid by non-resident does not “arise” in India if there is no “economic link” between the PE and the royalty
DDIT vs. SET Satellite (Singapore) (ITAT Mumbai) (Source : www.itatonline.org)

S. 90 : Double Taxation Relief – DTAA – Royalty
Profits from supply of ‘shrink-wrapped’ software is not ‘royalty’
Velankani Mauritius vs. DDIT (ITAT Bangalore) (Source: www.itatonline.org)

Sec – 92 – Transfer Pricing
Transfer Pricing TNMM must be applied to transaction margins and not to enterprise level margins. Adjustments must be confined to international transactions
DCIT vs. M/s Starlite (ITAT Mumbai) (Source : www.itatonline.org)

Sec – 92 – Transfer Pricing 
The AO/TPO can reject the price computed by the assessee only if he finds that the data used by the assessee is unreliable, incorrect or inappropriate or he finds evidence, which discredits the data used and/or the methodology applied by the assessee. Transfer Pricing Law for user of foreign trademarks & advertisement expenditure laid down.
Maruti Suzuki India vs. ACIT (Delhi) (Source: www.itatonline.org)

S. 92C : Transfer pricing – International Taxation – Arm’s Length Price – Interest on Loan
TPO in the instant case had not followed the mandate of the Act. No method has been specified. Under these circumstances, the adjustment made by the TPO under section 96A(3) could not be sustained. Even on merits assessee had not charged interest on fees receivable by it from WSN, where as it had charged interest on loan granted to NCWN. On facts charging of interest on loan granted is different from charging interest on bills raised for services rendered. Both are not comparable. Thus additions were deleted.
Nimbus Communications Ltd. vs. ACIT (2010) 38 SOT 246 (Mum.)

S. 92C : Transfer Pricing – Arm’s Length Price – Comparable making losses
Merely because a comparable is making losses, it cannot be excluded for purposes of computation of arm’s length price. Even at the stage of appeal before the Tribunal the assessee is entitled to raise the plea that the comparable was wrongly taken. Matter was remanded to Assessing Officer to re do the assessment deno.
Dy. CIT vs. Quark Systems (P) Ltd. (2010) 38 SOT 307 (Chd.)(SB)

S. 92C : Transfer pricing – Arm’s Length Price – ALP – TNMM
While determining ALP by adopting TNMM against retail price method adopted by the assessee, the tax authorities below have not conducted the independent study by choosing their own comparables and in relying on six comparables out of seven comparables used by the assessee for applying retail price method have not done proper screening of such comparables and therefore, the matter is restored to the Assessing Officer for de novo consideration.
AXALTO Cards & Terminals India Ltd. vs. ACIT (2010) 40 DTR 113 (Del.) (Trib.)

S. 94(7) : Dividend Stripping
Pre S. 94(7) dividend stripping loss cannot be disallowed. Transaction cannot be ignored on ground that it is for tax-planning.
CIT vs. Walfort Share & Stock Brokers (SC)  (Source : www.itatonline.org)
Editor : Decision in case of CIT vs. Walfort Share & Stock Brokers (P) Ltd. (2009) 310 ITR 421 (Bom) approved.

S. 94(7) : Avoidance of tax – Units Purchased and sold beyond three months
The conditions spelt out in clauses(a), (b) and (c) are cumulative and not alternative. Purchase of units within a period of less than three months from the record date, but sale beyond a period of three moths loss cannot be ignored.
CIT vs. Alka Bhosle (Smt.) (2010) July BCAJ 49 ITA No. 2656 of 2009 dt. 9-6-2010 (Bombay High Court) 500 (2010) BCAJ 42A.

S. 111A : Short Term Capital Gains – Tax – Set-off Loss – Securities Transaction Act – Option to set off – (S. 70)
For the Asst Year 2005-06, in view of introduction of section 111A, choice has been left over to the assessee in taking decision about setting off of short term capital loss from one transaction against any other short term capital gain whether with in or outside the cut-off date.      
FirstState Investments (Hongkong) Ltd. vs. Asst. Director IT (2010) 40 DTR 415 (Mum.) (Trib.)

S. 115JA – Book Profit – Exempt income
Even exempt income is taxable under MAT / s.115JB
Rain Commodities vs. DCIT (ITAT Hyderabad Special Bench)(Source: www.itatonline.org)

S. 115JA – Book Profit – Credit for MAT – Interest – (S. 234B, 234C)
As important question of law arose as to whether credit of Minimum Alternative Tax should be given effect to under section 115JA, before charging interest or after charging interest under section 234B and 234C, registry is directed to incorporate in weekly boards and also website.
CIT vs. Lakshmi Sarswati (Armi) (P) Ltd. (2010) 190 Taxman 160 (SC)

S. 119(2) : CBDT – Waiver Application – Reasoned Order – (S. 234C)
Board as a quasi judicial authority while exercising the power under section 119(2)(a), would be entitled to entertain application from an individual assessee against the order of the Assessing Officer declining the waiver of interest under section 234C and while doing so it is expected in law to give reasons while considering and passing on such application.
Precot Mills Ltd. vs. CBDT (2010) 40 DTR 54 (Mad.)   
S. 139 : Return – Defect – Non-signing by proper person
Defect of not signing the return by proper person makes the return defective and not invalid. The matter restored to remove the defect.
Morgan Stanley Asset Management INC vs. Dy. CIT (2010) 39 DTR 240 (Mum.) (Trib.)

S. 145(1) : Accounts – Method of Accounting – Mercantile or Cash – Foreign Company
Assessee, a Foreign company, having maintained its accounts on mercantile basis in respect of all its transactions, it has to determine its taxable income in India only on the basis of mercantile system of accounting.  
Rolls Royce Singapore (P) Ltd. vs. Addl. Director of Income Tax (2010) 40 DTR 289 (Del.)(Trib.) 

S. 158BC : Block Assessment – Search and Seizure – Validity
Block assessment made by Assessing Officer who was holding the power of ACIT by virtue of an order of the CIT is valid and proper.
CIT vs. Narendra Narayan Banik (2010) 39 DTR 232 (Gau.)   

S. 143(2) : Assessment – Notice – Before filing of return – Validity
Assessment made in pursuance of a notice under section 143(2) issued on 23rd  March 2000, when the return was filed on 27th march, 2000 is invalid.
DIT vs. Society for Worldwide Interbank Financial Telecommunications (2010) 40 DTR 17 (Del.)

S. 143(2) : Assessment – Notice – Limitation
Notice having been served after the expiry of 12 months from the end of the month in which the return is furnished, Assessing Officer had no jurisdiction to frame the assessment.
Dy. CIT vs. Maxima Systems Ltd. (2010) 40 DTR 49 (Guj.)

S. 145 : Accounts – Rejection – Non-maintenance of Stock Register
Where Assessing Officer has not pointed out any defects in the books of account and explanation given by the assessee regarding non-maintenance   of stock register has been accepted by the Tribunal while deleting addition made on account of fall in gross profit, the finding of facts cannot be disturbed.
CIT vs. JasbJack Elegance Exports (2010) 40 DTR 236 (Del.)

S. 147 : Reassessment – beyond four years – Failure to disclose necessary facts
Receipt of interest on tax refund and netting against section 220 interest was disclosed in the return and details were furnished in reply to query by assessing officer. No failure to disclose material facts. Reassessment proceedings on ground that part of income had escaped assessment not valid.
Arthur Anderson and Co. vs. ACIT (2010) 324 ITR 240 (Bom.)
Editorial Note:- Dr. Amin’s  Pathology Laboratory vs. P. N. Prasad (2001) 252 ITR 673 (Bom.), distinguished. 

S. 147 : Reassessment – reasons to believe
Even s. 143(1)(a) cannot be reopened u/s 147 without proper “reasons to believe”
Pirojsha Godrej Foundation vs. ADIT (Mum)(Source : www.itatonline.org)
  
S. 163 : Representative assessee – Agent – Non-Resident – (S. 160, 195)
When non-resident does not remain in India and therefore, proceedings under section 160 to 163 are taken to fasten on its agent in respect of income which non-resident is entitled to assessee carried on business of asset management. It had made payments to non-residents upon redemption of units of a debt scheme of Birla Mutual fund without any deduction at source. Since payments were made through assessee to non-residents in terms of section 163(1)(c), assessee was to be treated as agent of said non-residents so that assessment proceedings could be taken against assessee in regard to tax liability of non-resident investor.
Birla Sunlife Asset Management Co. Ltd. vs. ITO (2010) 38 SOT 523 (Mum)

S. 173(3A) : Discontinued business – Succession of firm by Company (S. 189)
Business of the erstwhile firm having been taken over and continued by a company there was no discontinuation of business and therefore, the amount of arbitration award pertaining to the claim made by the firm can not be taxed in the hands of partners by invoking the provisions of section 176(3A). Section 189 also would not be invoked said award cannot be taxed also in the hands of alleged AOP.
ITO vs. Jalamsingh B. Barad (2010) 130 TTJ 573 (Ahd.)       

S. 194C : Deduction of tax at source – Labourers through representative –Mukadams – [S. 40A (3), 201(1A)]
When payment made to labourer through their representative, single payment not exceeding Rs. 20000/-. Tax need not be deducted at source.
Dy. CIT vs. Laxmi Protein Products P. Ltd. (2010) 3 ITR 768 (Ahd.)(Trib)

S. 195 : Deduction of tax at source – Non-resident – Fees for Technical Services
Logistic services rendered off-shore though utilized in India. Indian company not liable to deduct tax at source.
Sun Microsystems India Pvt. Ltd. vs. ITO (2010) 3 ITR 808 (Bang.) (Trib.) / 130 TTJ 597 / 39 DTR 69 (Bang.) (Trib.)     
S. 195A : Deduction of tax at source – Grossing up – Tax borne by employee
Grossing up was done by Assessing Officer presumably on the basis that advance tax paid by employer, where as it was paid by assessee himself and therefore, grossing up of tax liability was not valid.
CIT vs. Tadashi Murakami (2010) 40 DTR 191 (Del.)

S. 197(1) : Deduction of tax at source – Withholding tax
Assessee applying for nil tax withholding certificate in respect of payments received for firm function services rendered to Indian branches. Orders passed under section 264 by Commissioner and Assessing Officer under section 197, specifying the rate of tax for other years. Assessing Officer without any valid reasons deviating from position adopted by Commissioner for earlier years. Court directed the assessing officer to issue the certificate.
Mckinsey and Company Inc. vs. UOI (2010) 324 ITR 367 (Bom.)

S. 197(1) : Deduction of tax at source – Grant of Certificate
If conditions for grant of certificate under section 197 are duly fulfilled, it would be impermissible for Assessing Officer to reject application merely on a whim and caprice.
Larsen & Toubro Ltd. vs. ACIT (TDS) (2010) 190 Taxman 373 (Bom.)   

S. 199 : Deduction of tax at source – Credit for tax deducted
When a particular income is received by assessee after deduction of tax at source and TDS has been duly deposited with Government and assessee received requisite certificate to this effect, on production of certificate assessee becomes entitled to credit of TDS, even if assessee has not directly offered said income for tax as assessee considers that same is not liable to tax.
Supreme Renewable Energy Ltd. vs. ITO (2010) 124 ITD 394 (Chennai)

S. 246A : Appeal – CIT(A)
Appeal against assessment made consequent to order passed under section 264 is maintainable under section 246A, but only to the extent of issues which have not attained finality in order passed under section 264.
A. Naresh Babu (Dr.) vs. ITO (2010) 124 ITD 28 (Hyd.)       

S. 251 : Appeal – Commissioner (Appeals) – Powers – (S. 23 Wealth Tax Act)
Commissioner (Appeals) in appeal can consider grounds not raised before assessing officer.
Binny Ltd. vs. ACWT (2010) 324 ITR 34 (Mad.)

S. 253 : Appellate Tribunal – Special Bench – Judicial discipline – Member who has decided the issue – Depreciation on goodwill
If a member has already taken a view, it would be interest of judicial discipline to rescue him self from hearing of instant appeal. Issue of allowability of depreciation on good will is kept pending till the decision of High Court.
CLC & Sons (P) Ltd. vs. ACIT (2010) 38 SOT 439 (Delhi) (SB) 

S. 253(5) : Appellate Tribunal – Condonation of delay – Reasonable cause
Where the delay in filing the appeal before the Tribunal was caused due to the pendency of the application under section 154 before the CIT(A) and the assessee has shown just and sufficient cause for the delay in filling the appeal, Tribunal was not justified in refusing to condone the delay.
Subhash Malik vs. CIT (2010) 39 DTR 245 (All)

S. 254(1) : Appellate Tribunal – Powers – Additional claim by way letter in the course of assessment
If facts are on record before the Assessing Officer, claim of bad debt in the form of letter has to be considered.
Franco-Indian Pharmaceutical Pvt. Ltd. vs. ITO (2010) 3 ITR 754 (Bom.) (Trib.)

S. 254(1) : Appellate Tribunal – Reasoned Order
Tribunal was not justified in dismissing the revenue’s appeal mechanically, merely to maintain consistency, disregarding several issues decided by the Assessing Officer, more so when the tax effect was substantial. It should have dealt with the issues adjudicated by the Assessing Officer by passing reasoned order instead of relying upon the out come of the earlier assessment year.
CIT vs. Swapna Roy (Smt.) (2010) 40 DTR 193 (All)

S. 254(2) : Appellate Tribunal – Rectification of Mistake – Variation in order pronounced in open Court and final order
In view of alleged variation between the order pronounced by the Tribunal in the open Court on the conclusion of hearing on the sat application and the final order passed subsequently as regards the amount of deposit directed by the Tribunal. The Court directed the Tribunal to take up the hearing of the miscellaneous application filed by the assessee expeditiously to obviate any further complications.
Asia Satellite Telecommunications Co. Ltd. vs. ADIT (2010) 39 DTR 241 (Del.) / (2010) 232 CTR 177 (Del.)

S. 254(2): Appellate Tribunal – Rectification of mistake – Order relied without giving an opportunity
Tribunal passing order relying on its own decision in another case. Assessee filing application contending that no opportunity given to deal with decision which had not been cited by either side when arguments were heard. The tribunal dismissed the application. The Court held that assessee to be given an opportunity to deal with distinguishable features of case relied on. Matter remanded to decide on merit.
Inventure Growth and Securities Ltd. vs. ITAT (2010) 324 ITR 319 (Bom.)
[ Refer: Naresh K. Pahuja vs. ITO (2009) 224 CTR 284 (Bom.)
  Lakhani Mewalal Das vs. ITO (1972) 84 ITR 649 (659)
  Vindhya Telelink Ltd. vs. Jt. CIT (2008) 15 DTR 238 (Jab.) (TM) ]

S. 260A : Appeal – Maintainability – Rule of Consistency
If the revenue has not challenged the order of CIT(A) for assessment year 1990-91 and thus accepted the view of the CIT(A), then on principles of consistency it is not open to the revenue to challenge the similar findings in respect of earlier year.
CIT vs. Prakash Industries Ltd. (2010) 40 DTR 20 (P & H)

S. 260A : Appeal – failure to consider a ground
The non consideration of a ground by itself could not be a reason for filing an appeal. The revenue could have approached the Tribunal pointing out the mistake in not considering the specific ground raised by the Revenue and obtained an order by rectification. Appeal was dismissed.
CIT vs. Malladi Project Management P. Ltd. (2010) 324 ITR 87 (Mad.)

S. 261 : Appeal to Supreme Court – Adjournments – Awarded Cost
For taking repeated adjournment the department was directed to pay the cost of Rs. 10000/- and directed to make an enquiry in that regard, if it was found that fault with an officer, it would take necessary steps including recovery.
CIT vs. Varanashi Wines (2010) 190 Taxman 167 (SC)

S. 263 : Revision – Erroneous and Prejudicial Order – Enquiry held by assessee
Since an enquiry was specifically held with reference to which a disclosure of details was called for by the Assessing Officer and made by the assessee, the observation of the CIT that the Assessing Officer had arrived at his findings without conducting an enquiry was erroneous and therefore the CIT wrongly exercised the powers by recourse to section 263.
CIT vs. Development Credit Bank Ltd. (2010) 40 DTR 61 (Bom.)

S. 264 : Revision – Deduction at source – Lower rate of tax
Where the assessee filed revision application against order of Assessing Officer rejecting application under section 197, the Commissioner was not justified in rejecting the application on the ground that revision was not maintainable. Commissioner was directed to pass the order with in four weeks.
Larsen & Toubro Ltd. vs. ACIT (TDS) (2010) 190 Taxman 373 (Bom.)

S. 271(1)(c) : Penalty – concealment – Long Term Capital Gains against Short Term Capital Gains
In the absence of any falsity in the details submitted by the assessee regarding computation of income, penalty under section 271(1)(c) is not  leviable in respect of inadvertent wrong claim made by assessee for adjusting the long term capital loss against short term capital gains.
Mahinder Sidhu (Mrs.) vs. ACIT (2010) 39 DTR 233 (Del.)(Trib.)

S. 271(1)(c) : Penalty – Concealment – Business Loss as speculative loss – change of head
Mere fact that the Assessing Officer had treated the business loss as speculative loss did not automatically result in the inference of concealment of income justification of penalty.
CIT vs. Aretic Investment (P) Ltd. (2010) 39 DTR 243 (Del.)

S. 271D : Penalty – failure to comply with provisions of section 269SS
Loan was taken in cash because it wanted to purchase a piece of agricultural land for developing the same as business proposition. It was further stated that there was an advantages of negotiating for purchase of agricultural land with ready cash backing. Besides when deal fell through, assessee deposited cash in bank and issued a cheque for discharging liability of loan. As the explanation offered by the assessee could not be regarded as improbable or impossible the penalty levied was deleted.
Jitu Builders (P) Ltd. vs. Addl. CIT (2010) 124 ITD 134 (Ahd.) (TM)

S. 271D : Penalty – Failure to comply with provision of Section 269SS
Assessee taking money in cash from his parents out of business expediency, penalty under section 271D, cannot be levied.
Swapan Dutta vs. Jt. CIT (2010) Tax L.R. 166 (Kol.) (Trib.)

S. 273A : Power to waive or reduction of penalty – Disclosure – Search and Seizure – Voluntary – Block Assessment
Any disclosure made subsequent to seizure of incriminating material would not be treated as voluntary. Assessee applying for waiver must make out a case of genuine hardship.
Shardadevi P. Jhunjunwala vs. CIT (2010) 190 Taxman 194 (Bom.)

S. 282 : Service of notice – Courier – Reassessment – (S. 148)
Where department reopened assessment of assessee by sending notices through courier, since the department failed to produce the copy of acknowledgement in token of service of notices, it could be said that notices were not actually served and therefore, reassessment proceedings were to be quashed.
ACIT vs. Ashiana Automobiles (P) Ltd. (2010) 124 ITD 425 (Patna)