Courts and the Tax Authorities can look into the real purpose of the commercial arrangements and transactions to reach the truth and the transactions having the sole purpose of tax avoidance may be held to be having no effect on the actual tax liability of the tax payer. Book entries and Method of Accounting is not determinative and conclusive for deciding the computation of ‘taxable income’ in the hands of the Assessee though they may be relevant to be considered. “Diversion of income by transfer of overriding title at source” should normally have the support of the statutory requirements or some decretal binding character of Courts of law and even though the private contractual obligations can also bring about such “diversion of income at source” but in this last sphere of private contractual obligations, the Courts and the Income Tax Authorities have to examine such aspects carefully in comparison to the above two other categories of statutory requirements and the Court decrees and then examine the real purport and object of such private arrangements and Contracts
That on a plain reading of the above provision of section 40(a) (ii), it is evident that a sum paid of any rate or tax is expressly disallowed by this sub-clause in two cases : (i) where the rate is levied on the profit or gains of any business or profession, and (ii) where the rate or tax is assessed at a proportion of or otherwise on the basis of any such profits or gains. It is evident that nowhere in the said section it has been mentioned that education cess is not allowable. Education cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of, or otherwise on the basis of, any such profits or gains.
While the judgment in Challapalli Sugars Ltd is that of a two Judge bench of the Supreme Court, the judgment in Tutirorin Alkali Chemicals and Fertilizers Ltd is that of a three Judge bench of the Supreme Court. As the judgment in Challapalli Sugars Ltd was noticed by the Supreme Court, in its subsequent judgment in Tutirorin Alkali Chemicals and Fertilizers Ltd, the law declared in Challapalli Sugars Ltd, as explained in the subsequent judgment of the Supreme Court in Tutirorin Alkali Chemicals and Fertilizers Ltd, is binding on this Court. The law declared in Challapalli Sugars Ltd, as explained in Tutirorin Alkali Chemicals and Fertilizers Ltd, is that, in the absence of a provision in the Income-tax Act indicating the contrary, the rules of accountancy or the Accounting Standards framed by the Institute of Chartered Accountants of India can be adopted.
The distinction between the judgment in R.B. Seth Moolchand Sugachand and the judgment in Bikanker Gypsums Ltd is that in Bikaner Gypsums Ltd there was a pre-existing right and the expenditure was incurred not to assert a new right but to exercise a pre-existing right. In the present case, it is the same as in Bikaner Gypsums Ltd. since the mining licence was previously issued in favour of the assessee and the payment of the NPV did not extend the area of the assessee’s mining operations, it merely removed an impediment in the carrying on of the operations in terms of the original licence
The respondent – assessee had done everything to produce necessary evidence, which would indicate that the payments have been made to the parties concerned. The details furnished by the respondent assessee were sufficient for the Assessing Officer to take further steps if he still doubted the genuineness of the payments to examine whether or not the payment was genuine. The Assessing Officer on receipt of further information did not carry out the necessary enquiries on the basis of the PAN numbers, which were available with him to find out the genuineness of the parties. The CIT(A) as well as the Tribunal have correctly held that it is not possible for the assessee to compel the appearance of the parties before the Assessing Officer
Therefore, the reliance by the Gujarat High Court in Anil Starch Products Ltd. (supra) and Sayaji Industries Ltd.(supra) and Karnataka High Court in Diffusion Engineers Ltd. (supra) on the basis of the Apex Court decision in Swaraj Industries Ltd. (supra) to hold that all expenditure which is revenue in nature would not fall under section 35AB of the Act and would have necessarily to fall under Section 37 of the Act to our mind is not warranted by the decision of the Apex Court in Swaraj Engines Ltd. (SC)
The question as to whether the fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under the Income Tax Act and, if so, in which year of assessment is a mixed question of law and fact. In our considered opinion, in order to decide the issue of deduction, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over the question
When we apply the aforesaid parameters to the facts of the present case, the conclusion drawn by the High Court that expenditure incurred was of capital nature, appears to be unblemished. Admittedly, there was no existing business and, thus, question of improvising the existing technical know-how by borrowing the technical know-how of the HMCL, Japan did not arise. The assessee was not in existence at all and it was the result of joint venture of HMCL, Japan and M/s. HSCIL, India. The very purpose of Agreement between the two companies was to set up a joint venture company with aim and objective to establish a unit for manufacture of automobiles and part thereof. As a result of this agreement, assessee company was incorporated which entered into TCA in question for technical collaboration. This technical collaboration included not only transfer of technical information, but, complete assistance, actual, factual and on the spot, for establishment of plant, machinery etc. so as to bring in existence manufacturing unit for the products. Thus, a new business was set up with the technical know-how provided by HMCL, Japan and lumpsum royalty, though in five instalments, was paid therefor
Even though it is a debatable issue but as Gujarat High Court in the case of Ahmedabad Mfg. & Calico (P) Ltd. (supra) had taken a view that it is capital expenditure which was subsequently followed by Alembic Glass Industries Ltd. V. CIT (supra) and the registered office of the respondent assessee being in the State of Gujarat, the law laid down by the Gujarat High Court was binding. (See Taylor Instrument Com.(India) Ltd. v. Commissioner of Income Tax (1998) 232 ITR 771, Commissioner of Gift Tax v. J.K. Jain (1998) 230 ITR 839, Commissioner of Income Tax v. Sunil Kumar (1995) 212 ITR 238, Commissioner of Income Tax v. Thana Electricity Supply Ltd. – (1994) 206 ITR 727, Indian Tube Company Ltd. v. Commissioner of Income Tax & Ors. (1993) 203 ITR 54, Commissioner of Income Tax v. P.C. Joshi & B.C. Joshi (1993) 202 ITR 1017 and Commissioner of Income Tax, West Bengal, Calcutta v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466). Therefore, so far as the present case is concerned, it cannot be said that the issue was a debatable one
A similar issue viz. distinction between setting up of business and commencement of business had come up for consideration before this Court in Western India Vegetable Products Ltd. vs. Commissioner of Income Tax 1954 Vol. 26 ITR Page 151. This Court had held that business is said to have been set up when it is established and ready to be commence. However, there may be an interval between a business which is set up and a business which is commenced. However, all expenses incurred during the interregnum between setting up of business and commencement of business would be permissible deductions