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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: February 27, 2012 (Date of publication)
AY:
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CITATION:

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 AO 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

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COURT:
CORAM:
SECTION(S):
GENRE:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: February 21, 2012 (Date of publication)
AY:
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CITATION:

Foreign law firms or foreign lawyers cannot practice the profession of law in India either on the litigation or non-litigation side, unless they fulfil the requirement of the Advocates Act, 1961 and the Bar Council of India Rules. As rightly held in Lawyers Collective vs. 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)

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COURT:
CORAM:
SECTION(S):
GENRE:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: February 20, 2012 (Date of publication)
AY:
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CITATION:

The clear legislative intent of s. 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 u/s 36(1)(viia) is distinct and independent of s. 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 u/s 36(1)(vii) cannot be negated by reading into it the limitations of s. 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 s. 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 u/s 36(1) (viia) (Southern Technologies 320 ITR 577 (SC) & Vijaya Bank 323 ITR 166 (SC) referred)

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COURT:
CORAM:
SECTION(S):
GENRE:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: February 19, 2012 (Date of publication)
AY:
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CITATION:

S. 271 AAA makes a paradigm shift on the imposition of penalty in respect of unaccounted income unearthed as a result of search operation. Unlike s. 271(1)(c), s. 271 AAA penalty is imposable on undisclosed income without “concealment” or “furnishing inaccurate particulars” having to be shown. S. 271AAA(2) grants immunity from penalty if (i) in the s. 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 u/s 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 AO’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 s. 271(1)(c) it has been held in Mahendra Shah 299 ITR 305 (Guj) that the conclusion of the assessment proceedings is the outer limit for making payment of tax & interest, that was in the context of s. 271(1)(c) which required the AO to record his satisfaction in the course of the assessment proceedings itself. As there is no such requirement in s. 271 AAA, 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 s. 156 notice of demand, s. 271AAA penalty was not imposable

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: February 17, 2012 (Date of publication)
AY:
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CITATION:

The department’s contention that in a case where s. 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 s. 49 and the Explanation to s. 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 s. 48 has to be understood in the context and harmoniously with other Sections and as the cost of acquisition stipulated in s. 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 16 Taxman 42 (Bom) followed

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DATE: (Date of pronouncement)
DATE: February 16, 2012 (Date of publication)
AY:
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CITATION:

The taxability of a non-compete fee depends on the purpose for which it is paid. A non-compete fee can be divided into two categories: (a) consideration received by the transferor of a business for agreeing not to carry on the same business; (b) consideration received by other persons associated with the transferor to ensure that they do not indulge in competing business. For AY 2003-04 & onwards, non-compete fee received by the transferor of a business is taxable as a capital gains in view of s. 55(2)(a) which provides that the cost of a “right to carry on business” shall be Nil. Though s. 55(2)(a) as amended by the FA 1997 w.e.f. 1.4.1998 referred to a “right to manufacture, produce or process any article or thing“, that would not cover a non-compete covenant. For AY 2003-04 & onwards, a non-compete fee received by a person associated with the transferor is taxable as “business profits” u/s 28(va)(a) as being a payment for “not carrying out any activity in relation to any business“. A non-compete fee received in an earlier year is not chargeable to tax in view of Guffic Chem vs. CIT 320 ITR 602 (SC)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: February 14, 2012 (Date of publication)
AY:
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CITATION:

The department’s argument that Ericsson AB 204 TM 192 was confined to a case where the software was embedded to the equipment is not correct. The Court did hold that consideration paid merely for right to use cannot be held to be royalty and the ratio would also apply when “shrink wrap” software is sold. Where two views are possible, the view in favour of the assessee has to be preferred. This principle is applicable to non-resident assessees as well in view of Article 24(1) of the DTAA (non-discrimination) which provides that nationals of a Contracting State shall not be treated less favourably than the nationals of the other Contracting State

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: February 13, 2012 (Date of publication)
AY:
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CITATION:

The Act makes a clear distinction between “issue of notice” and “service of notice”. S. 149 which prescribes the period of limitation provides that no notice u/s 148 shall be “issued” after the expiry of the limitation period. The “service” of the notice is necessary u/s 148 only to make the order of assessment. Once a notice is “issued” within the period of limitation, the AO has jurisdiction to make the assessment. A notice is considered to have been “issued” if it is placed in the hands of a person authorized to serve it, and with a bona fide intent to have it served. Service of the notice is not a condition precedent to conferment of jurisdiction on the AO but it is a condition precedent to the making of the order of assessment. On facts, as the AO had issued the notice within the period of limitation, he had jurisdiction to reopen the assessment (R.K.Upadhyay vs. Patel 166 ITR 163 (SC) followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: February 12, 2012 (Date of publication)
AY:
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CITATION:

The assessee transferred “Development Rights” being the FSI and the “right to load TDR” on the land. While the right to construct on the land by consuming FSI was a capital asset which was acquired at a cost, the right to load TDR arose pursuant to the DC Regulations, 1991 without payment of any cost. The said right to “load TDR” was an improvement to the “capital asset” held by the assessee. If the “cost of improvement” of an asset is not determinable, capital gains are not chargeable. The result was that even the consideration attributable to the FSI (which had a cost) was not assessable to tax. Principle laid down in Jethalal D. Mehta 2 SOT 422 (Mum) & Maheshwar Prakash CHS 24 SOT 366 (Mum) in the context of transfer of only TDR followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: February 12, 2012 (Date of publication)
AY:
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CITATION:

The department’s submission that in computing the gross total income for the purpose of the explanation to s. 73, income under the heads of “Profits and gains of business” must be ignored and /or that the share loss should not be allowed to be set off against the income from any other source under the head “Profits and gains of business” is not acceptable because it leads to an incongruous situation where in determining whether a company is carrying on a speculation business within the meaning of the Explanation, sub-section (1) of s. 73 is applied in the first instance. This is not permissible as a matter of statutory interpretation because the Explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub-section (1) of s. 73 can apply. Applying the provisions of s. 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. Legislature has mandated that in order to determine whether the exception that is carved out by the Explanation applies, a computation of the gross total income has to be made in accordance with the normal provisions of the Act and it is only thereafter that it has to be determined whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the Explanation to s. 73 or not

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