Digest Of Important Case Laws – January To December 2013

S.2(1A): Agricultural income – Tea manufacture – Composite income before apportionment.[S. 28(iiia)/(iiic), Rule 8 of the Income-tax Rules, 1962]
When an income shall be chargeable to tax under head of ‘profits and gains derived from business’, it would be wholly impermissible for Assessing Officer to treat income which fell within ambit of clause (iiia) and clause (iiic) of section 28, as income which was not composite income. Amount received from premium on import licence, sale of scrap, miscellaneous garden income and excise duty had direct nexus with assessee’s activities of growing, manufacturing and selling of tea, same should be treated as composite income of assessee before apportionment. (AY. 2004-05)
McLeod Russel India Ltd. .v. CIT (2013) 218 Taxman 139(Mag.) (Gau.)(HC)

S.2(15): Charitable purpose –Registration and annual fee-  Nominal profit- Benefit of registration could not be denied.  [S. 10(23C)]
Profit motive is determinative and critical factor to discern whether an activity is business, trade or commerce. However, charging a nominal fee to use coding system and to avail advantages and benefits therein was neither reflective of business aptitude nor indicative of profit oriented intent. Thus, the contention of revenue that petitioner charged fee, and therefore, was carrying on business, had to be rejected. Benefit of registration could not be denied.
GS1 India .v. DGIT (2013) 219 Taxman 205 (Delhi) (HC)

 S. 2(15): Charitable purpose – General public utility –Even if some profit in activity carried on by trust, dominant  object to be seen.[S.11, 12A]
After 1-4-1984, even if there is some profit in activity carried on by trust/institution, so long as dominant object is of general public utility, trust/institution would be considered as established for charitable purpose.
CIT .v. State Urban Development Agency (SUDA (2013) 218 Taxman 146 (All.)(HC)

S.2(15): Charitable purpose –Cancellation of registration – Letting out of Auditorium to outsiders-Promotion of educational activities. [S. 12AA]
Auditorium incidentally let out to outsiders for commercial purpose will not fall in the category of “advancement of any other object of general public utility”. Hence, cancellation of registration was not justified.(AY 2009-2010)
Lala Lajpatrai Memorial Trust .v. DIT (Exemption) (2013) 28 ITR 546 (Mum.)(Trib.) 

S.2(15):Charitable purpose-Education- Yoga training through well structured yoga camps falls under category of imparting education.[S.11] 
Imparting of yoga training through well structured yoga camps falls under category of imparting education which is one of charitable objects defined under section 2(15) and, such an activity is not hit by proviso to section 2(15). (AY. 2009-10)
Divya Yog Mandir Trust .v. JCIT (2013) 60 SOT 154(URO)  (Delhi)(Trib.)
 
S.2(15): Charitable purpose – Impart Education and free health Check-up Power of Commissioner – Object and activities. [S. 12A]
The Commissioner is only required to satisfy himself as to objects of trust and genuineness of the activities of the trust. The main object of the assessee was to impart education and conduct free health check-up camps. Held, the assessee entitled to registration. (AY. 2010-2011)
Society for Advance Health Education .v. CIT (2013) 28 ITR 706 (Agra)(Trib.)

S.2(15): Charitable purpose-Blood bank- Neither an educational institution, nor hospital or medical institution-Sale of fresh frozen plasma (FFP) with its associated concern-Not entitle to exemption. [S.11, 12,13]
Assessee, registered under section 12AA, was engaged in running a blood bank. During year, it had entered into transaction of sale of fresh frozen plasma (FFP) with its associated concern. AO  held that  the  assessee had supplied FFP to patients at higher price and held that assessee was not eligible for deduction under section 11 as it had granted concessional benefit to its associated concern .Since assessee was not an educational institution and it also could not be said to be a hospital or medical institution as it was not engaged in dispensing medical facility, assessee was not entitled to exemption under section 11.](AY.2009-10)
Advance Transfusion Medicine Research Foundation .v. ADIT (E) (2013) 60 SOT 276 (Ahd.)(Trib.)

S.2(15): Charitable purpose–Educational–Nursing Institution-Directed to grant registration. [S.12AA]
The assessee was running general nursery and mid wifery institution importing G.N.M. in nursing. It filed for registration under section 12AA. The Commissioner held assessee charging high fees, hence with profit motive and also the assessee was running a hostel, therefore the assessee not within the ambit of S. 2(15). On appeal, the Tribunal deciding in favour of assessee held that from records it was found that after meeting expenditure on importing education only a small amount of surplus was left and thus there was no profit motive of the assessee. The provision of hostel facility for its students was only incidental to the aims and objects of assessee. The Commissioner was directed to grant registration to assessee trust. (AY. 2010-11)
Society for Advance Health Education .v. CIT (2013) 145 ITD 257 (Agra)(Trib.)

S.2(22)(e): Deemed dividend –Loans and advances-Failure to offer explanation – Shareholder in companies-Deposits retained in firm-Assessed as deemed dividend. [S. 28(iv)].
Amounts which had been collected from depositors on behalf of group companies was retained in the firm, in which assessee was partner. Since the amount so collected by the firm on behalf of group companies was supposed to be sent to the company promptly and also firm had showed the same on liability side in balance sheet, it was held to be a loan for the firm. Since assessee had failed to explain for what reason heavy deposits made by investors were retained by assessee in firm for a long period, it was a case of deemed income as assessee was a shareholder in all companies. (AY. 1997-98)
CIT .v. Subrata Roy (2013) 219 Taxman 133 (All.)(HC)
 
S.2(22)(e): Deemed dividend–Accumulated profit–Liabilities reducing from accumulated profits there was no profits – Could not be regarded as ‘deemed dividend’ .
‘Deemed dividend’ taken together in hands of all persons cannot exceed accumulated profits of company. Since, in instant case, both the companies in question were having tax or excise liability during assessment year under consideration and as a result there were no accumulated profits in their hands in beginning of year, amount of loan taken by assessee from said companies could not be regarded as ‘deemed dividend’.(AY.1989-90)
CIT .v. Vikram M. Kothari (2013) 218 Taxman 59(Mag) (All.)(HC)
S.2(22)(e): Deemed dividend–Loan to shareholder–Sum received as advance on sale of land-Not assessable as deemed dividend.
Sum received by assessee as advance for sale of land is not loan or advance, and hence, not taxable as deemed dividend. (AY.2004-2005)
CIT .v. Om Prakash Suri (No.2) (2013) 359 ITR 41(MP)(HC)

S.2(22)(e): Deemed dividend-Loan-Common shareholder-Not share holder in lending company-Cannot be treated as deemed dividend. 
Loan advanced to the assessee cannot be treated as dividend in terms of section 2(22)(e), if the assessee is not a shareholder of the lending company. (AY. 2003-2004, 2004-2005)
CIT .v. G.T.Z. Securities Ltd. (2013) 359 ITR 345 (J&K)(HC)

S.2(22)(e): Deemed dividend – Loan to company –Piercing of corporate veil.
The two common shareholders of the assessee and the other company, held 50% shares in that company but they held only 1.07% share capital of the assessee. Therefore, they did not satisfy the test of holding substantial interest in the assessee. (AY.2006-2007)
Source Hub India P. Ltd. v. ACIT (2013) 27 ITR 470(Bang.)(Trib.)

S.2(22)(e): Deemed dividend-Loans or advances-Trade advances –Provision is not applicable.
Trade advances, which are in nature of money transacted to give effect to commercial transaction, would not fall within ambit of section 2(22)(e).(AY.2008-09)
ACIT .v. Pravin C. Pandya (2013) 60 SOT 133 (URO) (Indore)(Trib.)

S.2(22)(e): Deemed dividend -Loan or advances–Amount received from dealers for onward remittances cannot be assessed as deemed dividend.
Assessee received payments from its dealers on behalf of HHFL, in which assessee held 30 % shares, and remitted same to HHFL in 2-3 days.AO  held that amount received by assessee from dealers as loan/advance given by HHFL to assessee and deemed same as dividend under section 2 (22)(e).Tribunal held that where there was no privity of contract between Assessee and HHFL and there was no positive act of granting loan or advance given by HHFL to assessee.Assessee had not used funds for its own purposes, therefore amount received from dealers for remittance to HHFL could not be deemed as dividend.(AY. 2007 – 08)
Hero Moto Corp Ltd. .v. ACIT(2013)60 SOT 25(URO) / 36 taxmann.com 103 (Delhi)(Trib.)

S.2(47): Transfer –Capital gains- Transfer to AOP – Transfer to ultimate purchaser- Capital gains assessable in the hand of assessee and not in the hands of AOP. [S. 45, 53A of the Transfer of Property Act, 1882]
The assessee had an agricultural land which was declared as industrial estate. He and other landowners within that industrial estate formed an AOP and transferred their lands to it and the AOP sold land to the ultimate purchaser.Held, since there was no agreement between the assessee and AOP nor contention by AOP that in part performance thereof, that  it was in possession of land, transaction would not amount to transfer. Assessing the capital gains in the hands of assessee was held to be justified. (AY. 2008-09)
Rajesh Kumar Agarwal .v. ITO (2013) 218 Taxman 60(Mag.) (Uttarakhand) (HC)

S.2(47): Transfer–Capital gains–Sale consideration as confirming party  was held to be assessable as capital gains and not as professional income. [S.28(i), 45, S.53A of Transfer of Property Act, 1882]
The agreement stated that the assessee, an advocate would undertake the job of obtaining patta and layout of the properties and for the services rendered, the owners agreed to transfer 3 grounds of land to the assessee. In pursuance of the agreement, possession of the property was handed over to the assessee and general power of attorney was executed in favour of assessee. Sale agreement was entered in to in respect of said property for sale consideration of Rs 1.5 crores, out of which, the assessee received the consideration of Rs 90 lakhs as “confirming party”. The assessee claimed the sale consideration as capital gains. CIT(A)  and Tribunal held that the said amount was assessable as capital gains. On appeal by revenue the Court held that the  the AO was not justified in rejecting the claim of the assessee to tax the amount so received as capital gains and treating it as  income from professional services. (AY. 2006-07)
CIT .v. J. Mahalingam (2013) 218 Taxman 157 (Mad) (HC)

S.2(47): Transfer-Capital gains-Land-Converted in to stock in trade- No activities were carried on  intervening period stock in Conversion in to stock in trade cannot be doubted. [S.28(i),45]
In year 1992, assessee decided to convert its factory land at Goregaon into stock-in-trade for the purpose of engaging in business of real estate development. Assessee sought permission to shift its factory as well as to convert factory land from industrial zone land to residential zone land. It also obtained an NOC from BMC for change of user of factory land in October, 1993. It also made various efforts with Urban Land Ceiling (ULC) authorities, seeking permission for development under section 22 of ULC Act, 1976. Necessary permission was obtained in October 1999. Assessing Officer on basis that there was no activity on factory land since 1992 to 1999 concluded that factory land had not been converted into stock-in-trade. Commissioner (Appeals) and Tribunal arrived at finding of fact that factory land was converted into stock-in-trade during assessment year 1992-93. On appeal the Court up held the order of Tribunal. (AY. 2000-01)
CIT .v. Eastern Ceramics Ltd. (2013) 219 Taxman 66(Mag.) (Bom.)(HC)

S.2(47)(v): Transfer–Development agreement-A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty. [S.45, Transfer of Property Act, S.53A]
The assessee entered into a Development Agreement-cum-GPA with MAK Projects on 15.12.2006 (AY 2007-08). The agreement provided the MAK would construct a villa township in 30 months and that the assessee was entitled was entitled to a certain portion (16 villas) of the developed area as consideration for the transfer of the land. Though possession of the property was handed over to the developer, the assessee claimed that the transaction did not give rise to capital gains in AY 2007-08 on the basis that (a) the consideration was neither received nor quantified, (b) the project was at the conception stage and even the building plan approvals were not received & (c) the developer had not incurred any expenditure on the project. The AO & CIT(A) relied on Chaturbhuj Dwarakadas Kapadia v.CIT (2003) 260 ITR 491 (Bom.) where it was held that the execution of a development agreement amounted to a transfer u/s 2(47)(v) and gave rise to capital gains. On appeal by the assessee to the Tribunal HELD allowing the appeal:

S.2(47)(v) provides that the term ‘transfer‘ includes “any transaction involving the allowing of, the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness” has to be absolute and unconditional. If willingness is studded with a condition, it is no more than an offer and cannot be termed as willingness. On facts, the “willingness” of the developer to perform his part of the obligations is not ascertainable in AY 2007-08 because (a) the consideration was not paid to the assessee, (b) the building plans had not been approved, (c) there was no progress with regard to development in the AY, (d) there was no investment by the developer in the construction activity during the AY. It is not possible to say whether the developer is prepared to carry out those parts of the agreement to their logical end. The fact that the assessee has given possession is not relevant. Consequently, s. 2(47)(v) does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia v. CIT (2003) 260 ITR 491 (Bom) explained/ distinguished) ( ITA No. 477/Hyd/2013, dt. 03.01.204)  (AY. 2007-08,)
Fibars Infratech Pvt. Ltd. .v. ITO (Hyd.)(Trib.) www.itatonline.org