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DATE: July 30, 2018 (Date of pronouncement)
DATE: July 31, 2018 (Date of publication)
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Entire law on interpretation of statues relating to 'purposive interpretation', 'strict interpretation', 'literal interpretation', etc explained. Difference in interpretation of statutes vs. exemption notifications explained. Q whether there is doubt or ambiguity in interpretation of a statute or notification benefit of doubt should go to the taxpayer or to the revenue explained. Law on Doctrine of substantial compliance and “intended use” also explained

Literally exemption is freedom from liability, tax or duty. Fiscally, it may assume varying shapes, specially, in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principles requires it to be construed strictly. Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject, but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction

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DATE: February 19, 2018 (Date of pronouncement)
DATE: February 27, 2018 (Date of publication)
AY: 2005-06
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CITATION:
S. 143(2) service of notice: If the assessee is not available to take service of the s. 143(2) notice, service on the authorized representative is sufficient to draw inference of deemed service of notice on the assessee. The fact that the authorized representative is disowned by the assessee is irrelevant

The non-availability of the respondent – Assessee to receive the notice sent by registered post as many as on two occasions and service of notice on 19th October, 2006 on the authorized representative of the respondent Assessee whom the respondent Assessee now disowns, in our considered view, is sufficient to draw an inference of deemed service of notice on the respondent – Assessee and sufficient compliance of the requirement of Section 143(2) of the Income Tax Act, 1961

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DATE: December 5, 2017 (Date of pronouncement)
DATE: December 7, 2017 (Date of publication)
AY: -
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S. 80-IB: The incentive meant for small scale industrial undertakings cannot be availed by undertakings which do not continue as small scale industrial undertakings during the relevant period. Each assessment year is a different assessment year. The fact that the object of legislature is to encourage industrial expansion does not mean that the incentive should remain applicable even where on account of industrial expansion, the small scale industrial undertakings ceases to be small scale industrial undertakings. The fact that in the initial year eligibility was satisfied is irrelevant

The observations in the impugned order are that the object of legislature is to encourage industrial expansion which implies that incentive should remain applicable even where on account of industrial expansion small scale industrial undertakings ceases to be small scale industrial undertakings. We are unable to appreciate the logic for these observations. Incentive is given to a particular category of industry for a specified purpose. An incentive meant for small scale industrial undertaking cannot be availed by an assessee which is not such an undertaking. It does not, in any manner, mean that the object of permitting industrial expansion is defeated, if benefit is not allowed to other undertakings. On this logic, incentive must be given irrespective of any condition as the incentive certainly helps further expansion by reducing the tax burden. The concept of vertical equity is well known under which all the assessees need not be uniformally taxed. Progressive taxation is a well known element of tax policy. Higher slabs of tax or higher tax burden on an assessee having higher income or higher capacity cannot in any manner, be considered unreasonable

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DATE: May 8, 2017 (Date of pronouncement)
DATE: May 8, 2017 (Date of publication)
AY: 2002-03
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CITATION:
S. 14A disallowance has to be made also with respect to dividend on shares and units on which tax is payable by the payer u/s 115-O & 115-R. Argument that such dividends are not tax-free in the hands of the payee is not correct. S. 14A cannot be invoked in the absence of proof that expenditure has actually been incurred in earning the dividend income. If the AO has accepted for earlier years that no such expenditure has been incurred, he cannot take a contrary stand for later years if the facts and circumstances have not changed

While it is correct that Section 10(33) exempts only dividend income under Section 115-O of the Act and there are other species of dividend income on which tax is levied under the Act, we do not see how the said position in law would assist the assessee in understanding the provisions of Section 14A in the manner indicated. What is required to be construed is the provisions of Section 10(33) read in the light of Section 115-O of the Act. So far as the species of dividend income on which tax is payable under Section 115-O of the Act is concerned, the earning of the said dividend is tax free in the hands of the assessee and not includible in the total income of the said assessee. If that is so, we do not see how the operation of Section 14A of the Act to such dividend income can be foreclosed. The fact that Section 10(33) and Section 115-O of the Act were brought in together; deleted and reintroduced later in a composite manner, also, does not assist the assessee. Rather, the aforesaid facts would countenance a situation that so long as the dividend income is taxable in the hands of the dividend paying company, the same is not includible in the total income of the recipient assessee. At such point of time when the said position was reversed (by the Finance Act of 2002; reintroduced again by the Finance Act, 2003), it was the assessee who was liable to pay tax on such dividend income. In such a situation the assessee was entitled under Section 57 of the Act to claim the benefit of exemption of expenditure incurred to earn such income. Once Section 10(33) and 115-O was reintroduced the position was reversed. The above, actually fortifies the situation that Section 14A 44 of the Act would operate to disallow deduction of all expenditure incurred in earning the dividend income under Section 115-O which is not includible in the total income of the assessee

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DATE: March 21, 2017 (Date of pronouncement)
DATE: April 5, 2017 (Date of publication)
AY: -
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CITATION:
S. 132/ 158BC, 158BD: The fact that the search was invalid because the warrant was in the name of a dead person does not make the s. 158BC/158BD proceedings invalid if the assessee participated in them. Information discovered in the search, if capable of generating the satisfaction for issuing a s. 158BD notice, cannot altogether become irrelevant because the search is invalid

The point urged before us, shortly put, is that if the original search warrant is invalid the consequential action under Section 158BD would also be invalid. We do not agree. The issue of invalidity of the search warrant was not raised at any point of time prior to the notice under Section 158BD. In fact, the petitioner had participated in the proceedings of assessment initiated under Section 158BC of the Act. The information discovered in the course of the search, if capable of generating the satisfaction for issuing a notice under Section 158BD, cannot altogether become irrelevant for further action under Section 158BD of the Act

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DATE: November 29, 2016 (Date of pronouncement)
DATE: December 21, 2016 (Date of publication)
AY: -
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CITATION:
S. 192/ 234B: Where receipt is by way of salary, TDS deductions u/s 192 has to be made. No question of payment of advance tax can arise in cases of receipt by way of 'salary'. Consequently, S. 234B & 234C which levy interest for deferment of advance tax have no application

A perusal of the relevant provisions of Chapter VII of the Act [Part A, B, C and F of Chapter VII] would go to show that against salary a deduction, at the requisite rate at which income tax is to be paid by the person entitled to receive the salary, is required to be made by the employer failing which the employer is liable to pay simple interest thereon. The provisions relating to payment of advance tax is contained in Part ‘C’ and interest thereon in Part ‘F’ of Chapter VII of the Act. In cases where receipt is by way of salary, deductions under Section 192 of the Act is required to be made. No question of payment of advance tax under Part ‘C’ of Chapter VII of the Act can arise in cases of receipt by way of ‘salary’. If that is so, Part ‘F’ of Chapter VII dealing with interest chargeable in certain cases (Section 234B – Interest for defaults in payment of advance tax and Section 234C – Interest for deferment of advance tax) would have no application to the present situation

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DATE: December 16, 2016 (Date of pronouncement)
DATE: December 19, 2016 (Date of publication)
AY: -
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S. 10A/ 10B: Though s. 10A/ 10B were amended by FA 2000 w.e.f. 01.04.2001 to change "exemption" to "deduction", the "deduction" contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. The deduction of the profits and gains of the business of an eligible undertaking has to be made independently and before giving effect to the provisions for set off and carry forward contained in s. 70, 72 and 74. The deductions u/s 10A/10B are prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income

If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’

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DATE: December 7, 2016 (Date of pronouncement)
DATE: December 12, 2016 (Date of publication)
AY: 1999-00
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CITATION:
S. 4: Law laid down in Sahney Steel 228 ITR 253 (SC) and Ponni Sugars 306 ITR 392 (SC) regarding the taxability of subsidies as a revenue receipt does not apply to voluntary subsidies (subvention) paid by a holding company to its loss making subsidiary. The said subsidy is to protect the capital investment of the holding company and is a capital receipt in the hands of the recipient

The question of law that was presented before the High Court, namely, whether subvention was capital or revenue receipt, was sought to be answered by the High Court by making a reference to two decisions of this Court in Sahney Steel & Press Works Ltd., Hyderabad versus Commissioner of Income Tax, A.P.-I, Hyderabad [(1997) 7 SCC 764]/ 228 ITR 253 and Commissioner of Income Tax, Madras versus Ponni Sugars and Chemicals Limited [(2008) 9 SCC 337]/ 306 ITR 392 (SC). The view expressed by this Court that unless the grant-in-aid received by an Assessee is utilized for acquisition of an asset, the same must be understood to be in the nature of a revenue receipt was held by the High Court to be a principle of law applicable to all situations. The aforesaid view tends to overlook the fact that in both Ponni Sugars (supra) and Sahney Steel (supra) the subsidies received were in the nature of grant-in-aid from public funds and not by way of voluntary contribution by the parent Company as in the present cases. The above apart, the voluntary payments made by the parent Company to its loss making Indian company can also be understood to be payments made in order to protect the capital investment of the Assessee Company. If that is so, we will have no hesitation to hold that the payments made to the Assessee Company by the parent Company for Assessment Years in question cannot be held to be revenue receipts

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DATE: December 5, 2016 (Date of pronouncement)
DATE: December 6, 2016 (Date of publication)
AY: 1978-79
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CITATION:
S. 10(19A): Though principles of res judicata do not apply, the Dept should not endlessly pursue matters which have attained finality in earlier years. Principles of interpretation of statutes explained. Interplay between s. 10(19A), s. 23 of the Income-tax Act & s. 5(iii) of the Wealth-tax Act explained

Though principle of res judicata does not apply to income-tax proceedings and each assessment year is an independent year in itself, yet, in our view, in the absence of any valid and convincing reason, there was no justification on the part of the Revenue to have pursued the same issue again to higher Courts. There should be a finality attached to the issue once it stands decided by the higher Courts on merits. This principle, in our view, applies to this case on all force against the Revenue

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