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Month: January 2017

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DATE: January 11, 2017 (Date of pronouncement)
DATE: January 23, 2017 (Date of publication)
AY: 2001-02
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CITATION:
S. 147/ 151: The mere appending of the word "approved" by the CIT while granting approval u/s 151 to the reopening u/s 147 is not enough. While the CIT is not required to record elaborate reasons, he has to record satisfaction after application of mind. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal

Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer

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DATE: January 12, 2017 (Date of pronouncement)
DATE: January 23, 2017 (Date of publication)
AY: 2002-03
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CITATION:
S. 254(2): Facts recorded by the ITAT have to be accepted as correct and conclusive and cannot be contradicted by affidavit or otherwise. The mere placing of a case law in the paper book does not mean that it was cited before the ITAT and non-consideration thereof is not a mistake apparent from the record. A MA to rectify such alleged mistake of non-consideration of a judgement must be filed as quickly as possible

It is settled position in law that statement of fact recorded in the order of the Court/Tribunal has to be accepted as correct and conclusive. It cannot be contradicted by affidavit or otherwise as held by the Supreme Court in State of Maharashtra vs. Ramdas S. Nayak 1982 (2) SCC 463, Central Bank of India vs. Vrajlal K. Gandhi 2003(6) SCC 573 and Jagvir Singh & Others vs. State (Delhi Admn.) 2007 (5) SCC 359. Thus, mere filing of the paperbook is no indication of the fact that the case law referred to in paperbook was relied upon and submissions made on it during course of hearing of the appeal. Moreover, in cases such as this where it is contended by a party that particular case was not considered by the Court/Tribunal/Adjudicating Authority was cited during the course of hearing and is relevant to the issue, then a party would be expected to move the Tribunal as quickly as possible. This for the reason that the issues would be fresh in the mind of the Court/Tribunal/Adjudicating Authority

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DATE: January 3, 2017 (Date of pronouncement)
DATE: January 20, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 92A Transfer Pricing: Important law explained on meaning of expression "associated enterprise". The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises "associated enterprises" so as to subject their transactions to the rigors of transfer pricing law

If a form of participation in management, capital or control is not recognized by Section 92A(2), even if it ends up in de facto or even de jure participation in management, capital or control by one of the enterprise in the other enterprise, it does not result in the related enterprises being treated as ‘associated enterprises’. Section 92A(1) and (2), in that sense, are required to be read together, even though Section 92A(2) does provide several deeming fictions which prima facie stretch the basic rule in Section 92A(1) quite considerably on the basis of, what appears to be, manner of participation in “control” of the other enterprise. What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control over the other enterprises, the two enterprises cannot be said to be associated enterprises

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DATE: January 4, 2017 (Date of pronouncement)
DATE: January 20, 2017 (Date of publication)
AY: 2011-12
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CITATION:
S. 206AA: In case where payments have been made to deductees on the strength of the beneficial provisions of s. 115A(1)(b) of the Act or as per DTAA rates r.w.s. 90(2) of the Act, the provisions of s. 206AA cannot be invoked by the AO insisting to deduct tax @ 20% for non-availability of PAN

It is only elementary that, under the scheme of the Income Tax Act 1961- as set out under section 90(2) of the Act, the provisions of the applicable tax treaties override the provisions of the Income Tax Act 1961- except when the provisions of the Act are more beneficial to the assessee. The provisions of the applicable tax treaty, in the present case, prescribe the tax rate @ 10%. This rate of 10% is applicable on the related income whether or not the assessee has obtained the permanent account number. In effect, therefore, even when a foreign entity does not obtain PAN in India, the applicable tax rate is 10% in this case. Section 206AA, which provides a higher tax burden- i.e. taxability @ 20% in the event of foreign entity not obtaining the permanent account number in India, therefore, cannot be pressed into service, as has been done in the course of processing of return under section 200A. To that extent, short deduction of tax at source demand, raised in the course of processing of TDS return under section 200A, is unsustainable in law

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DATE: January 3, 2017 (Date of pronouncement)
DATE: January 18, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 9(1): Important law explained as to the taxability of export sale commission payments received by non-resident agents and the obligation of the assessee to deduct TDS thereon in the context of s. 9(1)(i)/ 9(1)(vii) of the Act and relevant provisions of the DTAA

In the light of the above legal position, what we need to decide at the outset is whether the amounts paid by the assessee to the non-resident agents could be termed as “consideration for the rendering of any managerial, technical and consultancy services”. As we do so, it is useful to bear in mind the fact that even going by the stand of the Assessing Officer, at best services rendered by the nonresident to the agent included technical services but it is for this reason that the amounts paid to these agents, on account of commission on exports, should be treated as fees for technical services. Even proceeding on the assumption that these non-resident agents did render the technical services, which, as we will see a little later, an incorrect assumption anyway, what is important to appreciate is that the amounts paid by the assessee to these agents constituted consideration for the orders secured by the agents and not the services alleged rendered by the agents. The event triggering crystallization of liability of the assessee, under the commission agency agreement, is the event of securing orders and not the rendition of alleged technical services. In a situation in which the agent does not render any of the services but secures the business anyway, the agent is entitled to his commission which is computed in terms of a percentage of the value of the order

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DATE: January 4, 2017 (Date of pronouncement)
DATE: January 18, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 37(1): Stock Options (appreciation rights) are intended to motive employees and so the expenditure thereon is a deductible revenue expenditure. The discount (difference between market price and vesting price) is allowable upon vesting subject to reversal if the options lapse

The discount under ESOP is in the nature of employees cost and is hence deductible during the vesting period w.r.t. the market price of shares at the time of grant of options to the employees. The amount of discount claimed as deduction during the vesting period is required to be reversed in relation to the unvesting/lapsing options at the appropriate time. However, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option. No accounting principle can be determinative in the matter of computation of total income under the Act

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DATE: December 30, 2016 (Date of pronouncement)
DATE: January 18, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 144C: The lapse committed by the AO in passing the assessment order without first passing a draft order, against which the assesee may file objections with the DRP, seeking its directions to the AO, is only a procedural irregularity, which does not impinge on the jurisdiction on the AO to pass the assessment order. The assessee has no vested right against procedure. However, as the lapse was held to be fatal in Vijay Television 369 ITR 113 (Mad), the same has to be followed

The lapse committed by the AO in passing the assessment order without first passing a draft order, against which the assesee may file objections with the DRP, seeking its directions to the AO, is only a procedural irregularity, which does not impinge on the jurisdiction on the AO to pass the assessment order, which he assumes on the issue of notice u/s. 143(2), even as observed by the Hon’ble jurisdictional High Court itself in a number of cases, reference to one of which, i.e., R.V. Sarojini Devi v. IAC [2000] 242 ITR 329 (Mad) stands made in the decision itself (also refer Asst. CIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC)). Reference in this regard may be made to the decision in Daewon Kang Up Co. Ltd. v. DDIT Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC), wherein the Apex Court clarified that the AO assumes jurisdiction to assess on issue of a valid notice, and which obtained till the same remained to be disposed of. The proceedings completed without allowing the assessee an opportunity of being heard was an illegality, vitiating the proceedings, which would relate back in time, having occurred during the course of the assessment proceedings itself. The impugned order was to be set aside, and the proceedings to commence from the stage the illegality or the irregularity had occurred

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DATE: January 3, 2017 (Date of pronouncement)
DATE: January 16, 2017 (Date of publication)
AY: 2013-14
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CITATION:
S. 9(1)(vi)/ 9(1)(vii): Important law explained on whether payment for use of equipment can be assessed as "royalty" and whether payment for rendering of services can be assessed as "fees for technical services" in the context of s. 9(1)(vi) and 9(1)(vii) and Article 12 of the India-Canada DTAA

Article 12(4) provides that, “The term “fees for technical included services” as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein”. In order to invoke article 12(4)(a) it is necessary that such services should “make available” technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design The services provided by BT Canada were simply management support or consultancy services which did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression ‘make available’

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DATE: January 6, 2017 (Date of pronouncement)
DATE: January 16, 2017 (Date of publication)
AY: 2005-06
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CITATION:
Bogus capital gains from penny stocks: The fact that the Stock Exchanges disclaimed the transaction is irrelevant because purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were sham or bogus

Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee

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