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DATE: April 27, 2018 (Date of pronouncement)
DATE: April 30, 2018 (Date of publication)
AY: 2001-02
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CITATION:
S. 80HHC: Law laid down in Baby Marine Exports 290 ITR 323 & Sushil Kumar Gupta 210 TM 251 (SC) is not correct. Question whether supporting manufacturer who receives export incentives in the form of duty draw back (DDB), Duty Entitlement Pass Book (DEPB) etc. is entitled for deduction u/s 80HHC is referred to the larger Bench

we are not in the agreement with the decisions in Baby Marine Exports 290 ITR 323 & Sushil Kumar Gupta 210 TM 251 (SC) and as Explanation (baa) of Section 80HHC specifically reduces deduction of 90% of the amount referable to Section 28 (iiia) to (iiie) of the IT Act, hence, we are of the view that these decisions require re-consideration by a larger Bench since this issue has larger implication in terms of monetary benefits for both the parties

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DATE: April 27, 2018 (Date of pronouncement)
DATE: April 30, 2018 (Date of publication)
AY: 1986-87
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CITATION:
S. 35AB: Question whether the term "acquiring know-how" means acquiring on ownership basis or on lease and whether deduction can be allowed u/s 37(1) for revenue expenditure explained. Judgements in Anil Starch Products 232 TM 129 and Diffusion Engineers 376 ITR 487 (Kar) (based on Swaraj Engines 301 ITR 284 (SC)) dissented from

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)

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DATE: April 18, 2018 (Date of pronouncement)
DATE: April 27, 2018 (Date of publication)
AY: 2001-02
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CITATION:
The CBDT should reconsider the practice of appointing retired revenue officers as panel counsel. While the retired officials have domain expertise and do render assistance, they lack the skill and conduct required to appear as an Advocate. They also lack the objectivity expected from officers of the court. The CBDT could consider holding of a training programme, where leading Advocates could address the domain expert on the ethics, obligation and standard expected of Advocates before they start representing the State. The CBDT should lay down a standard procedure in respect of manner in which the Departmental Officer/ Assessing Officer assist the Counsel for the Revenue while promoting/ protecting Revenue’s cause so that the Revenue’s Counsel are not left to fend for themselves

We have for a long time, taken into account that many of these are fresh entrants to the bar and in due course, would learn the standard expected of an Advocate. However, to our disappointment, many of them are refusing to learn. Therefore, the CBDT could consider holding of a training programme, where leading Advocates could address the domainexpert on the ethics, obligation and standard expected of Advocates before they start representing the State. This is only a suggestion and it is entirely for the CBDT to take appropriate steps to ensure that the Revenue is properly represented to serve the greater cause of justice and fair play. In any case, we would expect the CBDT to lay down a standard procedure in respect of manner in which the Departmental Officer/ Assessing Officer assist the Counsel for the Revenue while promoting/ protecting Revenue’s cause. We find in most cases, atleast during the final hearing, Revenue’s Counsel are left to fend for themselves and that even papers at times are borrowed from the other side or taken from the Court Records. If the mind set of the Revenue Officer changes and they attend to the case diligently till it is disposed of, only then would it be ensured that the State is properly represented

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DATE: April 11, 2018 (Date of pronouncement)
DATE: April 27, 2018 (Date of publication)
AY: 2006-07
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CITATION:
Transfer Pricing: The "international transaction" as defined in s. 92F(v) has to be a genuine transaction. Transfer pricing provisions do not apply to non-genuine or sham transactions

It is elementary that the ALP is determined of an `international transaction’, which has been defined in section 92B of the Act. The term `transaction’, for the purposes of the Chapter–X containing transfer pricing provisions, has been defined in clause (v) of section 92F to include an arrangement, understanding or action in concert. It shows that the ALP is always determined of an international transaction, which is genuine, but may be formal or in writing and whether or not intended to be enforceable by legal proceeding. If a transaction itself is not genuine, there can be no question of applying the transfer pricing provisions to it. In such an eventuality of a supposed genuine transaction turning out to be non-genuine, all the consequences which would have flowed for a real transaction, are reversed. In other words, certain deductions which would have been otherwise allowed in case of a genuine international transaction, are denied. Nitty-gritty of the matter is that only a declared and accepted genuine international transaction can be subjected to the transfer pricing regulations. If an international transaction is proved to be not genuine, the transfer pricing provisions are not triggered

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 2001-02
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CITATION:
S. 147/ 148: In order to constitute "change in opinion", the assessment earlier made must either expressly or by necessary implication have expressed an opinion on the subject matter of reopening. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the AO any opinion on the questions that are raised in the proposed re-assessment proceedings. The reassessment cannot be struck down as being based on "change of opinion" if the assessment order does not address itself to the aspect sought to be examined in the re-assessment proceedings.

Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings.

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: -
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CITATION:
S. 56: Interest accrued on account of deposit of share application money is not taxable income. Such interest is inextricably linked with the requirement to raise share capital and is thus adjustable towards the expenditures involved for the share issue. The fact that part of the share application money would normally have to be returned to unsuccessful applicants, and therefore, the entire share application money would not ultimately be appropriated by the Company, make no significant difference. The Interest earned from share application money has statutorily required to be kept in separate account and was being adjusted towards the cost of raising share capital

The common rationale that is followed in Bokaro Steel Ltd (1999) 236 ITR 315 (SC) and Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 (SC) is that if there is any surplus money which is lying idle and it has been deposited in the bank for the purpose of earning interest then it is liable to be taxed as income from other sources but if the income accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some additional income then the income is not liable to be assessed and is eligible to be claimed as deduction. Putting the above rationale in terms of the present case, if the share application money that is received is deposited in the bank in light of the statutory mandatory requirement then the accrued interest is not liable to be taxed and is eligible for deduction against the public issue expenses.

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1998-99
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CITATION:
Law on whether amount received by an employee from redemption of Stock Appreciation Rights (SARs) can be assessed as "perquisite" u/s 17(2) (iii) or as "profits of business" u/s 28 (iv) or as "capital gains" (despite no "cost of acquisition") u/s 45 explained. CBDT Circular No. 710 dated 24.07.1995 considered

The word “Perquisite” in common parlance may be defined as any perk or benefit attached to an employee or position besides salary or remuneration. Broadly speaking, these are usually noncash benefits given by an employer to an employee in addition to entitled salary or remuneration. It may be said that these benefits are generally provided by the employers in order to retain the talented employees in the organization. There are various instances of perquisite such as concessional rent accommodation provided by the employer, any sum paid by an employer in respect of an obligation which was actually payable by the employee etc. Section 17(2) of the IT Act was enacted by the legislature to give the broad view of term perquisite

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: -
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CITATION:
Diversion of income by overriding title: Only income that has actually accrued to the assessee is taxable. What income has really occurred to be decided, not by reference to physical receipt of income, but by the receipt of income in reality. The fact that there is no written agreement to show that the assessee was acting as a broker is not relevant. The relationship of the assessee vis-a-vis others can be inferred from the conduct of the parties

The income that has actually accrued to the Respondent is taxable. What income has really occurred to be decided, not by reference to physical receipt of income, but by the receipt of income in reality. Given the fact that the Respondent had acted only as a broker and could not claim any ownership on the sum of Rs. 14,73,91,000/- and that the receipt of money was only for the purpose of taking demand drafts for the payment of the differential interest payable by Indian Bank and that the Respondent had actually handed over the said money to the Bank itself, we have no hesitation in holding that the Respondent held the said amount in trust to be paid to the public sector units on behalf of the Indian Bank based on prior understanding reached with the bank at the time of sale of securities and, hence, the said sum of Rs. 14,73,91,000/- cannot be termed as the income of the Respondent

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1999-00
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CITATION:
Bifurcation of lease rentals into interest and loan recovery: An assessee can only be taxed on "real income". The bifurcation of lease rental is not an artificial calculation. Lease equalization is an essential step in the accounting process to ensure that real income from the transaction in the form of revenue receipts only is captured for the purposes of income tax. The Guidance Note issued by the ICAI carries great weight. The method of accounting prescribed in such a Guidance Note, in order to compute real income and offering the same for taxation, cannot be disregarded by the AO unless such action falls within the scope and ambit of S. 145(3) of the IT Act

The method of accounting followed, as derived from the ICAI’s Guidance Note, is a valid method of capturing real income based on the substance of finance lease transaction. The rule of substance over form is a fundamental principle of accounting, and is in fact, incorporated in the ICAI’s Accounting Standards on Disclosure of Accounting Policies being accounting standards which is a kind of guidelines for accounting periods starting from 01.04.1991. It is a cardinal principle of law that the difference between capital recovery and interest or finance income is essential for accounting for such a transaction with reference to its substance. If the same was not carried out, the Respondent would be assessed for income tax not merely on revenue receipts but also on non-revenue items which is completely contrary to the principles of the IT Act and to its Scheme and spirit

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1989-90 to 1999-2000
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CITATION:
S. 158BD Block Assessment: Although s. 158BD does not speak of ‘recording of reasons’ as postulated in s. 148, but since proceedings u/s 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the AO in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings u/s 158BD. Notice u/s 158BC issued on the same date to the searched person and the other person is not valid as no reasonable or prudent man can come to the satisfaction that any undisclosed income belongs to the other person unless the seized books of accounts etc are verified. The AO is empowered to issue a second notice u/s 158BD to the other person

The very object of the Section 158BD is to give jurisdiction to the Assessing Officer to proceed against any person other than the person against whom a search warrant is issued. Although Section 158BD does not speak of ‘recording of reasons’ as postulated in Section 148, but since proceedings under Section 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the Assessing Officer in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings under Section 158BD

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