Digest of important case law – April 2011

S. 2(14)(iii) : Agricultural Land – Capital Asset – Distance – Measurement.
For measurement of distance for the purpose of deciding the character of land, whether agriculture or not, is to be done in terms of the approach by road and not by straight line distance on horizontal plane or as per crow’s flight. Order of Tribunal is affirmed by High Court. (A. Y. 2001-02)
CIT vs. Satinder Pal Singh (2010) 188 Taxman 54 / 229 CTR 82 / 33 DTR 281 (P&H ) (High Court)

S. 2(24) : Income – Non-occupancy Charges – Co-operative Housing
Society – Mutuality.
The receipts of non-occupancy charges, transfer fees and voluntary contribution from its members by the co-operative housing society is not taxable.
ITO vs. Grand Paradi CHS Ltd., ITA No. 521/Mum/2010, dt. 27-08-2010, ITAT ‘G’, Mumbai Bench, BCAJ pg. 20, Vol. 42-B, Part 4, January 2011 (Trib.)

S. 2(42A) : Capital Gains – Short term capital loss – Colourable Transaction – Genuine Transaction.
In November, 1995 assessee company took over SKB with all its assets and liabilities including rights under contract for using trade mark of Pepsico Inc., USA for certain consideration which was paid through account payee cheques. However, assessee company could not run business of SKB for various reasons including necessity of making further investment, therefore it sold entire shares of SKB vide share purchase agreement dated 23-12-1995 at a loss of ` 8.60 crores. Assessing Officer took the view that assessee could have waited for more reasonable time for watching the  market and could have invested further amount of ` 9 to 10 crores to revive business of SKB and period of one month was too short time for taking such a major decision regarding disinvestment of shares of SKB. He further held that transaction was of a colourable nature and declined to allow claim of assessee towards short term capital loss. In appeal Commissioner of (Appeals) and Tribunal allowed the appeal of assessee. On appeal to High Court, the High Court up held the order of Tribunal. (A. Y. 1996-97)
CIT vs. Oberoi Hotels (P) Ltd. (2011) 198 Taxman 310 (Cal.)(High Court)

S. 4 : Charge of Income Tax – Income – Accrual – Interest Income – Banks and Non-banking Financial Institutions – Non-performing Assets – Accrued interest to be excluded from income.
Credit of accrued interest maybe excluded from the income of Bank and non banking financial institutions, where interest outstanding is attributable to assets characterised as a non-performing assets under the notification issued by the RBI. The High Court held that mercantile system of accounting recognises only income which is realisable. (A. Y. 1995-96 to 2000-01)
CIT vs. Coimbatore Lakshmi Inv. and Finance Co. (2011) 331 ITR 229 (Mad.)(High Court)

S. 4 : Income – Capital or Revenue – Excess Refund – Interest Subsidy – Capital Receipt.
Excise Refund and Interest Subsidy received by the assessee from Government of India in pursuance to a New Industrial Policy of Government which was aimed at acceleration of industrial development and generating employment in the State in public interest were held to be capital receipt in the hands of the assessee.
Shree Balaji Alloys & Ors. vs. CIT & Ors. (2011) 51 DTR 217 / 239 CTR 70 (J&K)(High Court)

S. 4 : Income – Mutuality – Income of Club from Surplus funds -Interest from Fixed deposits and Government Securities.
Assessee company is running a recreation club for its members the income earned from the members is exempt on the principle of mutuality. Income of the club from FDR’s in banks and Government securities, dividend income and profit on sale of investment is also covered by the doctrine of mutuality and is not taxable. (A. Y. 2003-04)
CIT vs. Delhi Gymkhana Club Ltd. (2011) 53 DTR 330 (Delhi)(High Court)

S. 4 : Income – Diversion of at source by overriding Title – Application of Income :
Assessee had availed various facilities from Madurai Bank over years, repayment of which was guaranteed by way of change on properties of assessee. As assessee failed to pay dues, bank filed a civil suit. Subsequently, out of settlement was reached at an amount of ` 160 lakhs. Vide Government resolution dt. 14-12-1994 and 19-7-1995, NSSK was permitted to buy spares, plant and machinery of assessee. It was to pay, on behalf of assessee a sum of ` 160 lakhs to Madhurai Bank towards settlement of amount due. The assessee claimed that as NSSK directly paid Madurai Bank it should be excluded from the sale consideration as that never became the income of the assessee as it stood diverted of overriding title and hence, should be ignored for the purpose of calculating capital gain. The Tribunal held that payment to bank is only application of income not a charge on income. The payment to bank and sale consideration of its assets are entirely two distinct transactions having no relation with each other except for the fact that there was a charge by bank on assets. Hence, amount not deductable from sale consideration. (A. Y. 1996-97)          
Shree Changdeo Sugar Mills Ltd. vs. Jt. CIT (2011) 44  SOT 479 (Mum.)(Trib.) 
 
S. 5(2)(b) : Income – Salary – Non Resident – On board of Ship – [Ss. 9(1)(ii), 15)]
Salary earned by non-resident for services performed during his stay of 225 days outside India working on board on ship which was outside India, did not accrue or arise in India and as such the same was not taxable in India. (A. Y. 2005-06)
DIT (International – Taxation) & Anr. vs. Prahlad Vijendra Rao (2011) 51 DTR 95 / 239 CTR 107 (Karn.)(High Court)

S. 6(1) : Residence in India – Non-resident – Residential Status –Business – Profession.
For purpose of Explanation (a) to section 6(1)(c), “employment” include self employment like business or profession taken up by assessee abroad. (A. Y. 1989-90)
CIT vs. O. Abdul Razak (2011) 198 Taxman 1 (Ker.)(High Court)

S. 9(1)(vi) : Income deemed to accrue or arise in India – “Equipment-Use” Royalty If Payer has no control over equipment – DTAA – India-UK.  [Art. 12(3)(b)]
The activity of transmitting raw data to user, processing of the data by such user by using software belonging to assessee and transmission of such data to assessee does not involve “use of any process” so as to constitute royalty under Article 12(3)(a).
In order to constitute ‘use of equipment’, the customer should actually have domain or control over the equipments it should be at its disposal. (A. Y. 2004-05)
Standard Chartered Bank vs DDIT (Mum.)(Trib.) Source: www.itatonline.org

S. 10(20) : Exemption – Local Authority – Notified Area – Surat – Municipality.
The assessee was a notified area in Surat for industrial development. It had been notified by the State Government under Gujarat Industrial Development, 1962. The assessee had been entrusted with the work of collection of tax under a notification issued by Gujarat Municipality Act, 1963. On the facts of the present case, the assessee was regarded as a ‘municipality’ under section 10(20) and therefore its income was exempt under the said section. (A. Y. 2003-04)
ITO vs. Sachin Notified Area (2011) 43 SOT 411 / 7 ITR 699 / 132 TTJ 610 / 42 DTR 478 (Ahd.)(Trib.)

S. 10B : Exemption – Export Oriented Undertaking – Export Turnover.
Expenses incurred in connection with development of software by the employees at foreign branch should not be excluded from the export turnover for computing deduction under the section 10B. (A. Y. 2003-04)
Zylog Systems Ltd. vs. ITO (2011) 128 ITD 105 / 135 TTJ 0129 / 7 ITR 348 / 49 DTR 1 (Chennai)(SB)(Trib.)

S. 10B : Exemption – Export Oriented Undertaking – Option –Declaration.
If an assessee files a declaration to avail option of not claiming deduction under section 10B, then provisions of section would not be applicable for any relevant assessment year. Filing of declaration is mandatory and time limit is directory. (A. Y. 2003-04)
Wipro BPO Solutions Ltd. vs. Dy. CIT (2011) 44 SOT 353 (Bang.)(Trib.)

S. 11 : Charitable Trust – Exemption – Set off of loss.
The excess of application of the current year / Past year can be set off against the income of subsequent / current year.
Raghuvanshi Charitable Trust and others vs. DIT (2011) 221 Taxation 250 (Delhi)(High Court)

S. 12A : Charitable Trust – Registration – Genuineness of Trust.
Registration under section 12A of the Act cannot be denied to a trust which is newly formed on the ground that it had not commenced any activity. While granting registration under section 12A of the Act only the objects of the trust is to be examined to ascertain the genuineness of the trust. (A. Y. 2004-05)
DIT (E) vs. Meenakshi Amma Endowment Trust (2011) 50 DTR 243 (Kar.)(High Court)

S. 12A : Charitable Trust – Religious Trust – Cancellation of Registration – Exemption – [S. 10(23C)]
Rejection of application under section 10(23C)(vi) cannot be a reason to cancel registration under section 12A.
SunbeamEnglishSchool Society vs. CIT (2011) 129 ITD 299 (All)(Trib.)

S. 14A : Business Expenditure – Exempted Income – Disallowance -Interest on borrowings on ground that assessee ought to have repaid borrowings instead of investing in tax-free investments invalid.
Where borrowed funds were utilized for business purposes and investment in shares is made out of own funds, then disallowance under section 14A of interest on borrowed fund was not permissible. CIT vs. Hero Cycles Ltd. 323 ITR 518 (P&H) (A. Y. 2005-06)
Godrej Industries Ltd. vs. Dy. CIT (Mum.)(Trib.) Source: www.itatonline.org
 
S. 14A : Business Expenditure – Exempted Income – Separate Books.
The assessee is maintaining separate books of account for the purpose of business. The tax-free investments are in his personal capacity. As the Assessing Officer has not disallowed any expenditure of personal nature out of the business income, the expenditure claimed in the business of share dealings cannot be correlated to the incomes earned in personal capacity that too on dividend, PPF interest and tax free interest on RBI bonds. Accordingly, the estimation of expenditure of ` 20,000 out of business expenditure as being incurred for earning tax free income is not acceptable. (A. Y. 2005-06)
Pawan Kumar Parmeshwarlal vs. ACIT, ITA No. 530/Mum/2009, dt. 11-1-2011, ITAT Mumbai ‘C’ Bench, BCAJ pg. 27, Vol. 42-B, Part 5, February 2011 (Trib.)

S. 22 : Income from House Property – Ownership – Building  constructed on land taken on lease and let out – Deemed Owner – [S. 23, 27(iii)]
Assessee having constructed the building on land taken on lease from NDMC, which is owner, further in view of the provisions of section 27(iii) it is the sub licensee who would be “deemed owner” of those premises which the sub licenses transferred to the occupiers and those occupiers are paying rent/ license fee to the sub-licensees and assessee only collected interest free security deposits from sub licensees and no rent, therefore, provisions of section 23 are not applicable. (A. Y. 1999-2000)
CIT vs. C. J. International Hotels Ltd. (2011) 53 DTR 92 (Delhi)(High Court)

S. 22 : Income from House Property – Business Income – Sub-let of
Property – [S. 28(i)]
Where the assessee was engaged in business of manufacturing and sale of food items acquired property on lease for a long period and in turn sub let the same, the income therefrom, was held to be taxable under the head income from house property and not business income as letting out property was not its business activity. Further the letting out was not temporary arrangement. (A. Y. 2003-04)
Sheetal Khurana Foods P. Ltd. vs. ITAT (2011) 51 DTR 129 (P&H)(High Court)

S. 23 : Income from House Property – Annual Value – Notional Rent –
Interest Free Deposit
For applying provisions of section 23(1)(a) of the Act, municipal valuation / ratable value should be the determining factor. Since the rent received by the assessee was more than the sum for which the property might reasonably be expected to be let from year to year, the actual rent received should be the annual value of the property under section 23(1)(b) of the Act. Notional interest on interest – free security deposit/rent received in advance should not be added to the same.
Dy. CIT vs. Reclamation Realty India Pvt. Ltd., ITA No. 1411/Mum. 2007, dt. 26-11-2010, ITAT ‘D’ Bench, BCAJ pg. 25, Vol. 42-B, Part 5, February 2011 / Source: www.itatonline.org (Trib.)

S. 23(1)(a) : Income from House Property – Determination of ALV – Not bound by standard rent, rateble value & can adjust if interest-free deposit reason for low actual rent.
It was held that for purpose of determining the ALV under section 23(1)(a) the Assessing Officer has to determine the fair / reasonable rent expected to be fetched by the property. Various factors must be considered by Assessing Officer. Therefore, Notional Interest on interest free security cannot be considered as determinative factor to arrive at fair sent. In the instant case, the matter was remanded back as no inquiry was made by Assessing Officer to determine fair rent under section 23(1)(a). (A. Y. 1992-93, 1993-94)
Tivoli Investment and Trading Co. vs. ACIT (Mum.)(Trib.)  Source: www.itatonline.org

S. 28(i) : Business Income – Capital Gains – Transaction in Shares – Share Broker – Two separate accounts;  (S. 45)
Assessee is a broker as well as investor. It has maintained the investment portfolio separately income of which was liable to be taxed as capital gains, as intention in respect of this was to hold the investment as investment only and shown as such in the books of accounts. Income thereon was shown  and treated as capital gains in successive  assessments. Income to be assessed as capital gains.(A. Y. 2005-06)
ACIT vs. Bulls & Bears Portfolios Ltd. (2011) 137 TTJ 741 (Delhi)(Trib.)  

S. 28 (i) : Business Income – Capital Gains – Investment in Shares – Income treated as STCG – Rule of consistency applied ; (S. 45)
Though in case of transaction of large volumes, magnitude, frequency, continuity, regularity, the ratio between purchase & sale of shares are treated as income from business, but is in certain circumstances, income from such transactions is treated as STCG as a reason of Rule of consistency propounded by Bombay High Court in Gopal Purohit 228 CTR 582 (Bom.), which is squarely applicable. (A. Y. 2006-07)
Shantilal M. Jain vs. ACIT (Mum.)(Trib.) Source: www.itatonline.org

S. 28(i) : Business Income – Capital Gains – Gains arising from PMS transactions – Not business profits.
Transactions carried out via PMS are in nature of transactions meant for Wealth maximization & not encashing profits on appreciation in value of shares. In case where assessee is engaged in systematic activity of holding of portfolio through PMS manager, it cannot be said that main object of holding the portfolio is to make profit by sale of shares. The high number of transactions are misleading as these are computer split transactions and not independent transactions. Hence, gains arising out of PMS transaction has to be assessed as Capital Gain and not business income. (A. Y. 2006-07)
ITO vs. Radha Birju Patel (Mum.)(Trib.) Source: www.itatonline.org
 

S. 28(i) : Business Income or Income from Other Sources – Interest
from Partnership Firm
When a specific provision has been enshrined in the Act and the income is taxable under the head “Profits & Gains of Business or Profession”, then there is no question of treating the same as income from other sources. (A. Y. 2003-04)
ACIT vs. Delite Enterprises P. Ltd. (2011) 135 TTJ 663 / 128 ITD 146 / 50 DTR 193 (Mum.)(Trib.)

S. 32 : Depreciation – Rate – Hardware – Computer
Assessee engaged in printing business, used certain hardware for execution of printing process, said hardware could not be categorized as ‘computer’ and would not be eligible for higher depreciation. It is only where machine is being used essentially and predominantly for computing capability and where it is not being harnessed for other specialized industrial uses, be it mechanical, electric or electronic (or a composite thereof) activity that it could be called as a computer. (A.Y. 2005-06)
S. T. Reddiar & Sons vs. Dy. CIT (2011) 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Cochin)(Trib.)

S. 32 : Depreciation – Approach Road – Inside Factory – Building
Approach road constructed by the assessee inside its factory premises should be treated as part of building as such, depreciation has to be allowed on the same.
CIT vs. Sunshine Glass Indus P. Ltd. (2011) 49 DTR 31 (Raj.)(High Court)
S. 32 : Depreciation – Fluctuation in Foreign Exchange – To be allowed on outstanding liability though no amount was paid during the year.
The Assessing Officer partly disallowed the claim for depreciation calculation on the basis of increased value of assets of the assessee on account of fluctuation of foreign exchange rates. The CIT(A) held that the assessee is following mercantile system of accounting and allowed the claim on the balance outstanding liability. The High Court and Tribunal affirmed the same and also referred to the judgments in the case of CIT vs. Woodward Governor India P. Ltd. 312 ITR 254 and ONGC vs. 322 ITR 180, wherein it was held that increase and decrease in liability in the repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account of fluctuation in rate of exchange. (A. Y. 1998-99)
CIT vs. National Hydroelectric Power Corpn. Ltd. (2011) 332 ITR 322 (P&H)(High Court)

S. 32 : Depreciation – Assets in the name of Managing Director
Depreciation under section 32 was allowable to the assessee company on the assets which were purchased in the name of the managing director of the assessee company and his wife but, used exclusively for the assessee’s business. (A. Y. 2004-05)
CIT vs. Metalman Auto P. Ltd. (2011) 52 DTR 385 (P&H)(High Court)

S. 32 : Depreciation – Actual Cost – Registered Valuation Report – Slump Sale  [S. 43(1)]
It was held by Hon’ble Mumbai Tribunal that where cost of fixed assets was adopted by assessee on basis of registered valuer’s report and there was no evidence of transaction a collusive one, or to reduce tax liability and there being no clause for payment of goodwill, the assessee was entitled to depreciation on actual cost shown in the books of accounts. (A. Y. 2000-01)
Dy. CIT vs. Lafarge India Ltd. (2011) 9 ITR 118 (Mum.)(Trib.)

S. 32(1)(ii) : Depreciation – Ownership – Hire Purchase
Hirer of an asset under hire purchase agreement is entitled to depreciation in view of the CBDT Circular No. 9 dt 23-3-1943 (C & P Vol. 10. P. 537 -538 4th Edition). (A. Y. 1995-96)
CIT vs. Kaveri Engineering Industries (2011) 53 DTR 102 (Mad.)(High Court)

S. 32(1)(ii) : Depreciation – Website.
In view of the amendment of Appendix I w.e.f. Asst. Year 2003-04 allowing depreciation @ 60 percent on software, depreciation is allowable on expenditure for development of website @ 60 percent. (A.Y. 2003-04 & 05)
Dy. CIT vs. C. M. Y. K. Printech Ltd. (2011) 53 DTR 59 (Delhi)(Trib.)

S. 36(1)(iii) : Business Expenditure – Interest
Where the assessee was having sufficient non-interest bearing fund by way of share capital and reserves and there was no nexus between the borrowings of the assessee and advances made by it, no disallowance under section 36(1)(iii) of the Act was called for. (A. Y. 2001-02, 2003-04, 2004-05)
CIT vs. Bharti Televenture Ltd. (2011) 51 DTR 98 (Del.)(High Court)

S. 37(1) : Business Expenditure – Part of larger machines.
Where parts of larger machines are purchased by the assessee, expenditure on such parts is allowable as ‘revenue expenditure. (A. Y. 2001-02 to 2004-05)
CIT vs. Modi Industries Ltd. (2011) 197 Taxman 76 (Del.)(High Court)

S. 37(1) : Business Expenditure – Warranty.
Provision for warranty claim made by the assessee based on a scientific method and worked on the average of earlier year’s warranty settlement claims was held to be allowable business expenditure. (A. Y. 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04, 2004-05)
CIT vs. Luk India P. Ltd. (2011) 52 DTR 117 (Mad.)(High Court)

S. 37(1) : Business Expenditure – Ad hoc Expenditure.
Ad hoc expenditure out of cartage, labour and sealing expenses cannot be made by the assessing authority when similar expenses are allowed in totality by Appellate Authority in earlier years. (A. Y. 1992-93)
Friends Clearing Agency P. Ltd. vs. CIT (2011) 49 DTR 297 / 237 CTR 464 (Del.)(High Court)

S. 37(1) : Business Expenditure – Contingent Liability – Suit filed by
Bank.
Interest payable to the bank on the loan with respect to which the bank had filed suit for recovery cannot be disallowed treating the same as contingent liability merely for the reason that the bank had not shown the accrued interest in its books. (A. Y. 1992-93)
Friends Clearing Agency P. Ltd. vs. CIT (2011) 49 DTR 297 / 237 CTR 464 (Del.)(High Court)

S. 37(1) : Business Expenditure – Real Estate Business – Income from House Property – Brokerage – Commission.
Where the assessee derived income from real estate business and also income from house property, the assessee is claim for deduction of brokerage and commission cannot be disallowed against the business income on the ground that the assessee is not entitled to any further deduction other than those provided under section 24 of the Act. (A. Y. 2003-04)
Mukti Properties P. Ltd. vs. CIT (2011) 50 DTR 273 / 238 CTR 174 (Cal.)(High Court)

S. 37(1) : Business Expenditure – Convertible Debentures – Capital or Revenue Expenditure.
Expenses incurred on the issue of convertible debentures has to be treated as Revenue expenditure. (A. Y. 1993-94)
CIT vs. ITC Hotels Ltd. (2011) 238 CTR 447 / 32 DTR 215 / 190 Taxman 430 (Kar.)(High Court)

S. 37(1) : Business Expenditure – Expenses towards retrenchment of
workers on closure of a unit – Allowable
The assessee carried manufacturing from various units and they were interdependent and unity of control between the units established by the existence of common management, a common business organization, administration and fund. The closure of one unit did not involve the closure of the business. Therefore, the expenses towards retrenchment of workers was therefore an allowable deduction within the meaning of section 37(1) since there was no closure of business. (Asst. Year 2001-02).
CIT vs. Pfizer Ltd. (2011) 330 ITR 62 (Bom.)(High Court)

S. 37(1) : Business Expenditure – Closure of one branch – Amortisation of expenses – Claim of unabsorbed expenditure claimed in the year the branch was closed – Allowable in the year the branch is closed
The assessee had incurred expenditure for opening branches, the cost of which were to be amortised by spreading it over 10 years in equal instalments. One branch was closed, the assessee claimed the unabsorbed expenditure of the closed branch. The High Court held that the business of the assessee continue after the closure of the branch, and the deduction of amortised expenditure need not wait after the closure of the branch. (A. Y. 2003-04)
Victoria Gold Gallery vs. CIT (2011) 330 ITR 330 (Ker.)(High Court)

S. 37(1) : Business Expenditure – Capital or Revenue – Feasibility Study – Study Abandoned – Revenue Expenditure
Feasibility studies conducted by the assessee for the existing business with a common administration and common fund and the studies were abandoned without creating any new asset, therefore, expenses were of revenue expenditure.
CIT vs. Priya Village Road Shows Ltd. (2011) 332 ITR 594 (Delhi)(High Court)   

S. 40(a)(i) : Amounts not Deductible – Business Expenditure – Payment of Commission – Disallowance.  (S. 195)
Tax is not deductible under section 195 with regard to payment of commission to foreign agent in view of Circular No. 23 of 1969 and Circular No. 786 of 2000. The payment cannot be disallowed under section 40(a)(i) as Circular No. 7 of 2009 had no retrospective effect. (A. Y. 2007-08)
Dy. CIT vs. Sanjiv Gupta (2011) 135 TTJ 641 / 50 DTR 225 (Luck.)(Trib.)

S. 40(a)(iii) : Amounts not Deductible – Salary payable outside India – DTAA – India-Netherlands.  (S. 5, 9)
Employees were non-residents who rendered services outside India and also received salaries outside India, salaries paid to them were not liable to tax in India hence provisions of section 40(a)(iii) were not applicable. (A. Y. 2002-03)
Mother Dairy Fruit, Vegetable (P) Ltd. vs. CIT (2011) 198 Taxman 33 / 240 CTR 40 (Delhi)(High Court)

S. 40(a)(ia) : Amounts not deductible – Payments by firm to partners – Sub-contract – Tax Deduction at Source.  (S. 194C)
Partners of the assessee firm having executed the transportation, contracts undertaken by the firm by using their own trucks and the assessee having acted as an agent in routing the payments to partners, it cannot be held that there was a separate contract between the firm and the partners and, therefore, such payments could not be disallowed under section 40(a)(ia) on the ground that tax was not deducted at source under section 194C. (A. Y. 2006-07)
CIT vs. Grewal Brothers (2011) 54 DTR 99 (P&H)(High Court)   

S. 40(a)(ia) : Amounts not Deductible – Deduction of Tax at Source – Contractor –Sub-contractor – Labour Charges. (S. 194C)
It was noted from records that a small friction of total expenditure was in form of labour charges, and as such, it was difficult to say that contract was for supply of labour or work and would rather be categorized as one for purchase of goods, though some labour work stood performed. As it was not a case of contract for service or labour, provision of section 194C cannot be applicable consequently disallowance was deleted. (A. Y. 2005-06)
S. T. Reddiar & Sons vs. Dy. CIT (2011) 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Coch.)(Trib.)

S. 40(a)(ia) : Amounts not Deductible – Business Expenditure – Payment for Goods & Labour Charges.
Disallowance cannot be made under section 40(a)(ia) on account of non-deduction of tax at source in respect of estimated labour charges which is a small fraction of the total expenditure in respect of goods purchased. (A. Y. 2005-06)
S. T. Reddiar & Sons vs. Dy. CIT (2011) 129 ITD 475 / 135 TTJ 480 / 49 DTR 326 (Coch.)(Trib.)

S. 40(a)(ia) : Amounts not Deductible – Disallowance – Tax deducted during the year but paid before due date of filing of return
Provision of section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f. 1st April, 2010 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the taxpayers it has to be treated as retrospective w.e.f. 1st April 2005, the date on which section 40(a)(ia) has been inserted and therefore, no disallowance under section 40(a)(ia) can be made where the assessee had paid before the due date of filing the return of income, the tax deducted during the previous year. (A. Y. 2005-06)
Kanubhai Ramjibhai vs. ITO (2011) 49 DTR 70 / 135 TTJ 364 (Ahd.)(Trib.)

S. 40A(2) : Expenses or Payments not deductible – Excessive or unreasonable – Same rate of tax – Disallowance not justified
Where assessee purchased from its subsidiary material at prices higher than the market rate for assured supply, there was no question of diversion of funds since both the assessee and the subsidiary were subjected to the same rate of tax, hence there was no warrant for addition by invoking section 40A(2). (A. Y. 1985-86)
CIT vs. V. S. Dempo & Co. P. Ltd. (2011) 196 Taxman 193 (Bom.)(High Court)
S. 40A(3) : Expenses or payments not Deductible – Disallowance – Cash payments for telephone cards, recharge coupons, etc. by distributor to cellular service provider.
Assessee distributor does not make any ‘purchasers’ either of goods or services on the acceptance of delivery of telephone cards, recharge coupons or other service products of the cellular service provider and, therefore, no disallowance can be made by applying section 40A(3) irrespective of the mode of payment. (A. Y. 2006-07)
S. Rahumathulla vs. ACIT (2011) 49 DTR 115 / 135 TTJ 720 / 127 ITD 440 (Coch.)(Trib.)

S. 41(1) : Profits Chargeable to Tax – Business Income – Liability  outstanding more than three years.
There is no rule that liability outstanding for more than three years need not be paid and the same becomes income of the assessee. In the absence of any specific information in the possession of the AO that the amounts outstanding for more than three years were no longer payable by the assessee, same could not be treated as deemed income under section 41(1). (A. Y. 2003-04 & 05)
Dy. CIT vs. C. M. Y. K. Printech Ltd. (2011) 53 DTR 59 (Delhi)(Trib.)

S. 41(1) : Profits Chargeable to Tax – Business Income – Remission or Cessation of Liability.
Where the amount ceased to be payable in the books by showing nil balance and the assessee had claimed the deduction of same amount in earlier year, the provisions of section 41(1) were rightly attracted. (A. Y. 2004-05 to 2006-07)
ITO vs. E. A. Infrastructure Operations P. Ltd. (2011) 135 TTJ 239  / 41 SOT 269 / 48 DTR 200 (Mum.)(Trib.)

S. 43B : Deductions – Actual Payment – Sales Tax – Extended filing of Return.  (S. 139)
Where time for filing of return is extended in terms of proviso to section 139(1) , it automatically means extension of due date for purpose of section 43B, thus, Sales Tax paid within extended time for filing return cannot be disallowed under section 43B. (A. Y. 1988-89)
CIT vs. Narendra Anand (2011) 198 Taxman 51 (Delhi)(High Court)

S. 44BB : Business of Exploration, etc. of Mineral Oils – Computation
of profits of foreign companies.
Applicant has entered into a contract with ONGC and Cairn Energy to conduct seismic survey and data acquisition activities. It has specialization for identifying the surface of the ocean for tapping gas and oil reserves – AAR observed that unless a seismic survey is taken, it is difficult to locate the ocean surface with oil and gas reserves. Drilling and other examinations are ancillary for this purpose and hence activities of the applicant fit into description of said section demanding computation of its income in accordance with this provision
Global Geophysical Services Ltd., Cayman Islands – AAR No 873/2010 dt. 15-3-2011 (AAR)

S. 44C : Non-residents – Head office expenditure.
Any expenditure to fall in consideration Zone of deductibility under the Act, whether under section 44C or under general, must have been incurred for purpose of business of Indian branch. If expenses are shared / allocated / apportioned / non-exclusive head office expenses, then they will find their residence in overall limit under section 44C, on the other hand exclusive expenses incurred by head office for Indian branch shall be distinctly considered under general provisions of Act. (A. Y. 2002-03)
Addl. Director of Income Tax vs. Bank of Bahrain & Kuwait (2011) 44 SOT 693 (Mum.)(Trib.)

S. 45 : Capital Gains – Transfer of Development Right (TDR) – TDR has no cost of acquisition, amount received not taxable.  (S. 48)
Transferable Development Rights (TDR) granted by the Development Control Regulations for Greater Mumbai, 1991, qualifying for equivalent Floor Space Index (FSI) have no cost of acquisition and so sale thereof does not give rise to taxable capital gains (Jethalal D. Mehta vs. DCIT 2 SOT 422 (Mum) followed). (A. Y. 1997-98)
ITO vs. Hemandas J. Pariyani (Mum.)(Trib.) Source: www.itatonline.org

S. 45 : Capital Gains – License – No Cost of Acquisition – Not liable to Capital Gain Tax.
In the absence of any cost of acquisition for acquiring the license, consideration received for transferring such license not liable to capital gain. (A. Y. 1996-97)
Shree Changdeo Sugar Mills Ltd. vs. Jt. CIT (2011) 44  SOT 479 (Mum.)(Trib.) 

S. 45 : Capital Gains Tax – India-Mauritius – DTAA  [Article 13(4)]
Applicant is a company incorporated in Mauritius and was issued a Tax Residence Certificate by the Mauritius Tax Authorities. It realized capital gains from sale of shares in Indian company – AAR observed that in the case of Azadi Bachao Andolan 263 ITR 706, the Honorable Supreme Court has held that the certificate of residence issued by Mauritius Revenue Authority constitutes a valid and sufficient evidence of residential status under DTAA. Also, CBDT in Circular No. 682 dated 30.03.1994 has further clarified that under the DTAA, a resident of Mauritius having income from alienation of shares of Indian company shall be liable to tax only in Mauritius. In the case of E*Trade Mauritius, AAR No. 862 of 2009, and, the Delhi ITAT in the case of Saraswati Holding Corporation, 2009-TIOL-529-ITAT-DEL, held the view that the gains arising out of alienation of shares of an Indian Company to a company who is a resident of Mauritius is liable to tax only in Mauritius in terms of Article 13(4) of the DTAA. Hence ruled that on the facts presented by the applicant and in the light of legal position discussed, the applicant is not liable to pay capital gains tax in India in respect of the transfer of shares.
D. B. Zwirn Mauritius Trading No. 3 Ltd., Mauritius – AAR No. 878/2010 dt. 28-3-2011 (AAR)

S. 45(4) : Capital Gains – Transfer – Retirement of Partner.
The assessee which was a partnership firm consisted of two partners. The business of the partnership firm was that of builders, developers, contractors and real estate consultants. The assessee firm commenced the business and development of the project and all the costs incurred in connection with the same were shown as work-in-progress. One of the partners of the firm died and his legal heirs decided to continue the business with the other partner. The legal heirs also retired from the firm and the existing partner took over the assets and liabilities of the firm. This transfer was held as a transfer under the provisions of section 45(4) of the Act and the matter was remanded back to the Assessing Officer for computation of capital gains in hands of the assessee. (A. Y. 2005-06)
ITO vs. Om Namah Shivay Builders & Developers (2011) 43 SOT 397 (Mum.)(Trib.)

S. 45(4) : Capital Gains – Transfer of asset to partner by book entry – Registration.  [S. 2(47)]
If a transaction falls within the ambit of the definition of transfer under the section 2(47) then irrespective of the fact as to whether the transaction is a transfer within the Transfer of Property Act, 1881 or not, the resultant income accrued is chargeable to tax under the provisions of section 45(4). (A. Y. 2001-02)
New Gujarat Tin Printing Works vs. ITO (2011) 128 ITD 182 / 136 TTJ 64 / 50 DTR 289 (Ahd.)(Trib.)

S. 45(5) : Capital Gains – Enhanced Compensation.
Enhanced compensation along with interest thereon is assessable entirely in the year in which it is received. (A. Y. 1999-2000 to 2002-03)
Dy. CIT vs. Ajay Sharma (2011) 135 TTJ 222 / 49 DTR 65 (Del.)(Trib.)

S. 49 : Cost with reference to certain mode of Acquisition – Capital Gains – Family Arrangement – Company Assets – HUF – Director – (S. 45)
Assessees are Directors in a company AG. By way of family arrangement half of the land owned by company came to the share of the present assessees and other half went to the share of another family group. Assessees sold their share of land for an amount of ` 2.9 crores. Assessees computed the capital gains by applying the provision of section 49(1). The Assessing Officer held that assets in question are not the property of HUF but it was owned by company AG and there was no distribution of its assets, because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by AG and did not became the property of the assessees and therefore section 49(1) would not apply. The Court directed the Assessing Officer to compute the capital gains in the said company and give credit of taxes paid by assessee.
CIT vs. Shashi Charla (2011) 51 DTR 232 (Delhi) / CIT vs. Atul Charla / Baldev Charla / Jyoti Charla (2011) 51 DTR 232 (Delhi) (High Court)

S. 50 : Capital Gains – Depreciable Assets – Block of Assets.             [S. 2(11)]
If any capital asset on which depreciation has been allowed under Income Tax Act 1961, or Indian Income Tax Act 1922, and which otherwise qualifies to form a part of block of assets as on 1-4-1988, special provisions contained in section 50 shall apply on transfer of such asset. Therefore, as regards plant and machinery assessee was allowed depreciation upto 1984, they constituted block of assets hence, provision of section 50 would be applicable. (A. Y. 1996-97)   
Shree Changdeo Sugar Mills Ltd. vs. Jt. CIT (2011) 44  SOT 479 (Mum.)(Trib.) 

S. 50 : Capital Gains – Depreciable Assets.
Provisions of section 50 are not attracted in a case whereon the asset transferred depreciation was neither claimed nor allowed.
Divine Construction Co. vs. ACIT, ITA No. 5396/Mum/2009, dt. 20-12-2010, ITAT Mumbai ‘D’ Bench, BCAJ p. 37, Vol. 42-B, Part 6, March 2011 (Trib.)

S. 50B : Capital Gains – Depreciable Assets – Slump Sale.  (S. 2(42C), 45, 50)
Sale of an industrial undertaking as a whole which includes land building, machinery, equipments, etc. as a going concern with all the assets and liabilities, was assessable under section 50B treating the transaction as a “slump sale” and not under section 50 as a sale of depreciable assets. (A. Y. 2003-04)
CIT vs. Accelerated Freeze Drying Co. Ltd. (2011) 53 DTR 44 / 198 Taxman 18 / 240 CTR 90 (Ker.)(High Court)

S. 50C : Capital Gains – Depreciable Assets – Stamp Valuation – Applies to Depreciable Assets.  (S. 2(11), 48, 50)
There are two deeming fictions created in section 50 and section 50C for computing capital gains on building. While section 50 modifies the “cost of acquisition” for purposes of section 48, section 50C modifies the term “full value of the consideration received or accruing as a result of transfer of the capital asset”. The two deeming fictions operate in different fields and there is no conflict between them. As section 50C was inserted to prevent assessee’s indulging in under-valuation, there is no logic why it should not be applied to a depreciable building.
ITO vs. United MarineAcademy (Mum.)(SB)(Trib.) Source: www.itatonline.org

S. 50C : Capital Gains – Stamp Duty Valuation – Does not apply to transfer of “leasehold rights” as it is not “land or building”
Section 50C is a deeming provision which extends only to a capital asset which is “land or building or both”. A deeming provision cannot be extended beyond the purpose for which it is enacted. If a capital asset cannot be described as “land or building or both”, section 50C cannot apply. A lease right in a plot of land is neither “land or building or both”. The distinction between a capital asset being “land or building or both” and any “right in land or building or both” is well recognized. “Land or building’ is distinct from “any right in land or building”. Consequently, section 50C does not apply to leasehold rights. (A. Y. 2006-07)
Atul G. Puranik vs. ITO (Mum.)(Trib.) Source: www.itatonline.org

S. 50C : Capital Gains – Stamp Valuation – Full value of Consideration – Transfer – Granting Development Rights for demolition and  reconstruction of building results in “transfer of land & building”. [S. 2 (47), (45)]
Where there is transfer of existing land & building which was demolished by builder for fresh construction and documents were registered in such cases there involves a “transfer of land / FSI in case of grant of development right. Thus, it does include cost of acquisition.
Chairanjeev Lal Khanna vs ITO (Mum.)(Trib.) Source: www.itatonline.org

S. 50C : Capital Gains – Full Value of Consideration – Stamp Valuation – Ownership of Land – (S. 45)
Assessee purchased certain land through her father in law who was her power of attorney holder. Subsequently, assessee sold said land again through her father in law. The assessing officer applied the provisions of section 50C. On appeal Commissioner (Appeals) held that since assessee’s own name did not appear in revenue records as owner of land, provisions of section 50C did not apply. On further appeal to Tribunal, the Tribunal held that in order to apply provisions of section 50C, it is not necessary that assessee should be direct owner of property. The Tribunal confirmed the view of Assessing Officer. (A. Y. 2003-04)
ITO vs. Sushma Gupta (Smt.) (2011) 44 SOT 568 (Delhi)(Trib.)

S. 54F : Capital Gains – Exemption in case of investment in Residential House – Deposit in Capital Gain Scheme.  [S. 45(3)]
Where assessee had earned capital gains by virtue of section 45(3) i.e. on account of introducing capital asset in a partnership firm by way of capital contribution, the assessee could not claim benefit of section 54F by constructing a new house if he had not deposited the sale proceeds in capital gains scheme account. Further since the assessee had utilized borrowed amount to construct new property he was debarred from claiming benefit under section 54F. (A. Y. 1995-96)
CIT vs. V. R. Desai (2011) 197 Taxman 52 (Ker.)(High Court)

S. 54F : Capital Gains – Exemption – Purchase of new house vis-à-vis
deposit under Capital Gains accounts scheme.
Assessee having deposited the sale proceeds of property in his bank account under the capital gains account scheme within the prescribed period and purchased a new property by availing of a loan which was paid out of the same bank account, he has complied with the provisions of Capital Gains Accounts Scheme and, therefore, assessee is entitled to exemption under section 54F. (A. Y. 2006-07)
P. Thirumoorthy vs. ITO (2011) 49 DTR 91 / 135 TTJ 75 (UOI)(Chennai)(Trib.)

S. 56(2)(v) : Income from Other Sources – Relative.  Minor – (S. 64)
Gift of ` 10 lakhs received by minor children of assessee from blood brother of assessee’s mother was eligible for exemption as in the instant case the relationship of donor & done could not fall in category of grandfather, neither donee was a lineal descendant of the donor. Thus, addition was upheld.
ACIT vs. Lucky Pamnani (2011) 129 ITD 489 (Mum.)(Trib.)   
S. 57(iii) : Income from Other Sources – Fixed Deposit in Banks.
Where the assessee borrowed funds from bank and invested the same in Fixed Deposits (‘F.D’) and earned more interest on the F.D. than the interest payable on the borrowed funds taking advantage of Export Import policy of the Government interest paid on the borrowing was held to be allowable as deduction under section 57(iii) of the Act from the interest earned on F.D as there was direct nexus between the interest earned and interest paid by the assessee. (A. Y. 2005-06 & 07)
CIT vs. Taj International Jewellers (2011) 50 DTR 348 (Del.)(High Court)

S. 68 : Cash Credits – Share Application Money.
Assessee had established identity of each of share holder, and also proved that each of them was income tax assessee and share application money credited to their accounts was duly reflected in their income tax returns and balance sheets, hence, the order of Commissioner (Appeals) deleting the  addition was confirmed. (A. Y. 2005-06)
Dy. CIT vs. Dolphine Marbles (P) Ltd. (2011) 129 ITD 163 (JB)(TM)(Trib.) 

S. 68 : Cash Credits- Gifts.
Assessee received gift of ` 1 lakh from ten individuals. It was noted from the records that donors had deposited monies in their bank account on same day or one day prior to making of gifts through account payee cheques. It was observed that , personal withdrawals of donors for their house hold expenses were petty and it  did not support status of donors to gift of ` 1 lakh, besides none of donors was relative of assessee,  in view of the facts gifts received by the assessee confirmed as cash credits. (A. Y.2001-02)
Arvind Kumar Mohani vs. ITO (2011) 129 ITD 117 / 54 DTR 33 (JB)(TM)(Trib.)      

S. 68 : Cash Credits – Gift – Failure to produce Donors.
No addition could be made simply rejecting explanation and evidences filed on record in support of the gift without any scrutiny about the confirmation and without bringing any conclusive evidence brought on record merely on the plea that the assessee failed to produce donors for examination. (A. Y. 2006-07)
P. R. Kulkarni & Sons (HUF) vs. Addl. CIT (2011) 135 TTJ 630 (Bang.)(Trib.)

S. 69B : Investment not disclosed in books of account – Undisclosed
Income.
Addition under section 69B of the Act alleging undisclosed investment cannot be made merely on the basis of District Valuation Officer’s (D.V.O.) report when the books of accounts of the assessee are not rejected nor any incriminating material was found during the search to
suggest that assessee had made any payment over and above the consideration mentioned in the return.
CIT vs. Bajrang Lal Bansal (2011) 51 DTR 287 (Del.)(High Court)

S. 73 : Losses in Speculation Business – Speculative Loss.
Where the Company amended its memorandum and articles of association so as to enable it to make money lending as its main business, the loss on account of sale and purchase of shares was allowed to be adjusted against other business income as the assessee’s case fell under exception clause of section 73 of the Act. (A. Y. 1997-98)
CIT vs. Front Line Securities Ltd. (2011) 50 DTR 337 (Del.)(High Court)

S. 80 : Loss – Carry Forward – Belated filing of return.  [S. 139(3)]
Assessee is not entitled to carry forward the business loss if the return is not filed within the prescribed time limit under section 139(1). Assessing the income by the Assessing Officer will not mandate to carry forward the loss. (A. Y. 1999-2000)
Joginder Paul (HUF) vs. CIT (2011) 239 CTR 566 (P&H)(High Court)

S. 80HH : Process of ship breaking activity, whether “production” of “newgoods” – Words and Phrases – “Manufacture” and “Production”, scope of.
In view of Explanation 2 added to section 10(15(iv)(c), usance interest paid for purchase of imported ship for ship breaking is exempt from payment of income tax. Distinct articles emerge in process of ship breaking. Process of ship breaking is akin to “production”. Assessee entitled to benefit of sections 80-HH and 80-I.
“Manufacture” and “Production” are distinct terms. Reiterated, “production” has a wider connotation than “manufacture”. “Production” takes in bringing into existence new goods by a process which may or may not amount to “manufacture”. It also includes bye-products, intermediate products and residual products which emerge in course of manufacture of goods.
Vijay Ship Breaking Corporation and Others vs. CIT (2010) 10 SCC 39(SC)
 
S. 80HHC : Deduction – Export –  Separate Books – Profits of all Business
For the purpose of 80HHC of the Act, even though the assessee had maintained separate books for each business, deduction under section 80HHC is to be computed on the basis of profit derived from all these business. (A. Y. 2003-04)
G. J. Fernandez vs. ACIT (2011) 52 DTR 345 (Kar.)(High Court)

S. 80HHC : Deduction – Export – Fluctuation in Foreign Exchange – Export turnover.
Surplus realization due to fluctuation in foreign exchange rates is part and parcel of the export turnover for the purpose of section 80HHC.
Raghunath Exports (P) Ltd. vs. CIT (2011) 240 CTR 79 (Cal.)(High Court)

80-IB : Deduction – Industrial Undertakings – Interest – Miscellaneous Income.
Interest on deposits would not be allowable towards the deduction under section 80-IB as the same is treated as miscellaneous income. (reversal of LD charges). The matter was remanded to the Tribunal for fresh consideration. (A. Y. 2003-04)
CIT vs. Dresser Rand India P. Ltd (2011) 330 ITR 453 (Bom.)(High Court)

S. 80-IB : Deduction – Manufacture or Production – Manufacture need not be final product – Rubber compound used in tyre manufacturing.
To avail benefit under section 80-IB, product manufactured need not be a final product, it could be saleable intermediate product, as in the present case a rubber compound used in the manufacture of tyres, which was manufactured by processing rubber with chemicals, oil, etc., and the same was inferred by the High Court as manufacture for the purposes of section 80-IB.
Midas Polymer Compounds P. Ltd. vs. ACIT (2011) 331 ITR 68 / 237 CTR 401 / 50 DTR 139 (Ker.)(FB)(High Court)

S. 80-IB : Deduction – Industrial Undertakings – Derived from –Rebate – Discounts – Labour job receipts.
Labour job receipts, miscellaneous income consisting of rebate and discounts and balance written off. etc., were held to be incomes ‘derived from’ industrial undertaking eligible for deduction under section 80-IB of the Act. (A. Y. 2004-05)
CIT vs. Metalman Auto P. Ltd. (2011) 52 DTR 385 (P&H)(High Court)

S. 80-IB : Deduction – Industrial Undertakings – Job Work.
Amount received on account of job work is not a result of manufacturing or producing article or thing and therefore, the assessee is not entitled to claim deduction under section 80-IA and 80-IB of the Act.(A. Y. 2000-2001)
Friends Castings P. Ltd. vs. CIT (2011) 50 DTR 61 (P&H)(High Court)

S. 80-IB : Deduction – Export – After Deduction under section
80-IA(S. 80HHC)
Deduction under section 80HHC of the Act is to be allowed after reducing the amount of deduction allowable under section 80-IA of the Act.
Friends Castings P. Ltd. vs. CIT (2011) 50 DTR 61 (P&H)(High Court)
Editorial:- Refer Bombay High Court in the case of CIT vs. Associated Capsules Pvt. Ltd, (2011) 332 ITR 42(Bom)

S. 80-IB : Deduction – Manufacture or Production – Job Work –Knitted Fabrics.
Where the assessee is engaged in the business of manufacture and sale of knitted fabrics and garments was held to be eligible for deduction under section 80-IB of the Act in respect of job work done by it for others. (A. Y. 2004-05)
CIT vs. Vallabh Yarns P. Ltd. (2011) 51 DTR 236 (P&H)(High Court)

S. 8OIB : Deductions – Industrial Undertakings – Excise Refund –Subsidy – Despite Liberty India, Excise Refund Eligible for section 80IB.
Following Delhi High Court decision in CIT vs. Dharampal Premchand (2009) 317 ITR 353, it was held that excise duty refund was eligible under section 80-IB on the ground that (a) there was a direct nexus between the refund of excise duty and the undertaking and (b) if the proper accounting methodology was followed for the payment and refund of excise duty, the net effect on the P&L A/c was nil. Also, the refund of excise duty is the assessee’s own money coming back and is not income at all. ( A. Y. 2007-08)
J. K. Aluminium Co. vs ITO (Delhi)(Trib.) Source: www.itatonline.org

S. 80IB(10) : Deduction – Housing Project – Development Agreement – Not Owner – Commencement Certificate.
Deduction under section 80IB(10) can not be denied on the ground that the assessee is not the owner of the property which he undertakes to develop, nor can it be denied on the ground that development agreement is not registered. Merely because the commencement was obtained prior to 1-10-1998, it does not mean that the assessee has commenced the development and construction of the project unless the assessee has taken some effective steps on the site. (A. Y. 2003-04 and 2004-2005)
Essem Capital Markets Ltd. vs. ITO (2011) TIOL 196 ITAT –Mum. 171-(2011) 43A – BCAJ (May . P 31) 

S. 80IB : Deduction – Processing of Seeds – Manufacture.
Processing of seeds by the assessee which is bought from the agriculturists, does not result in manufacturing of any new article or thing, therefore the assessee is not eligible to claim deduction under section 80-IB. (A. Y. 2002-03 to 2004-05)

ITO vs. Daftri Agro (2011) 135 TTJ 729 / 50 DTR 215 (Hyd.)(Trib.)

S. 80-IB(10) : Deduction – Housing Project – Date of Completion.
Tribunal held that what is crucial is not the date of issue of letter by local authority, but date mentioned in the letter certifying completion of the project. Therefore, it rejected the contention of the revenue to the effect that the date of completion shall be taken as the date on which the certificate is physically issued by the local authority.
D. K. Construction vs. ITO, ITA No. 243/Ind/2010, dt. 6-12-2010, ITAT Indore Bench, BCAJ p. 24, Vol. 42-B, Part 5, February 2011. (Trib.)

S. 80HHF : Deduction – Export – Export Turnover.
Claim of the assessee that the meaning of “total turnover” in clause (j) of Explanation to section 80 HHF should be restricted only to the export turnover of the business of exports and not the entire business is not sustainable. While computing deduction under section 80HHF by multiplying “export turnover” with the “profits of the business” as divided by the total turnover of the business. (A. Y. 2000-01)
SRI Adikari Brothers Television Networks Ltd. vs. ACIT (2011) 52 DTR 295 (Mum.)(Trib.)

S. 90 : Double Taxation Relief – Royalty – DTAA – India-Singapore – (Art. 12)
Assessee, a Singaporean company, which is engaged in providing international telecommunication connectivity services, the amount received by it from Indian customers is for use of “process” besides for use of or right to use industrial, commercial or scientific equipment and therefore, payments made by Indian customers to the assessee company are royalty with in the meaning of Art. 12(3) of the Indo–Singapore DTAA. (A. Y. 2002-03 & 2003-04).
Verizon Communications Singapore PTE Ltd. vs. ITO (2011) 54 DTR 65 (Chennai)(Trib.) 

S. 90 : Double Taxation Relief – DTAA – India-Australia – Interest on Tax Refund not “effectively connected” with PE.  [Art. 11(4)]
Under Article 11(4) of the DTAA, interest from indebtedness “effectively connected” with a PE of the recipient is taxable under Article 7 and not under Article 11. The payment of tax was the responsibility of the foreign company and the fact that it was discharged by way of TDS did not establish effective connection of the indebtedness with the PE. In order to be “effectively connected”, it is not necessary that the interest income has to be necessarily business income in nature. Even interest assessable under “other sources” can qualify. (Asst year 2003-04 )
ACIT vs. Clough Engineering Ltd. (Delhi)(SB)(Trib.) Source:  www.itatonline.org
           
S. 92C : Avoidance of Taxation – Transfer Pricing – Loss-making and super-profit companies are not comparable – International Taxation.
When loss making companies have been taken out from the list of comparables by the TPO, Zenith Infotech Ltd. which showed super profits should also be excluded. The fact that assessee has himself included in the list of comparables initially, cannot act as estoppel, particularly in light of the fact that the Assessing Officer had only chosen the companies which are showing profits and had rejected the other companies which showed loss (Quark System vs. Dy. CIT 38 SOT 307 (SB) followed). (A. Y. 2006-07)
Sapient Corporation Pvt. Ltd. vs. Dy. CIT (Delhi) (Trib.) Source: www.itatonline.org

S. 92C : Avoidance of Tax – Transfer Pricing – International Taxation.
Low T/O companies are not comparable. Only operational profits to be considered for comparison
(i) The assessee’s argument that comparables with a turnover less than 20% of the assessee’s turnover should be considered is not acceptable because it is a universal fact that there are lot of differences between large businesses and small businesses operating in the same field. In the case of small business, economies of scale are not available and they are generally less profitable. The fact that such companies were considered comparable in an earlier year is not conclusive for want of facts of that year and also because there is no res judicata;
(ii) The argument that segmental results of a company engaged in diverse activities should be considered is also not acceptable because it is a common experience that in many such results certain expenditures, particularly relating to interest and head office, are generally not allocated. When direct comparables are available, there is no need to consider segmented results;
(iii) In principle, should be only the operating profit of the comparables considered. Items like interest income, rent, dividend, penalty collected, rent deposits returned back, foreign exchange fluctuations and profit on sale of assets do not form part of the operational income because these items have nothing to do with the main operations of the assessee. Insurance charges would depend on the nature of insurance charges. If the insurance charges were on account of loss of some parcel or courier against which courier has made a payment of compensation then such charges would constitute operational income. (A. Y. 2006-07).
See Also Adobe Systems India (ITAT Delhi) (super-normal profit companies to be excluded) & Marubeni India (ITAT Delhi) (interest on surplus & abnormal costs to be excluded)
DHL Express (India) Pvt. Ltd. vs. ACIT (Mum.)(Trib.) Source: www.itatonline.org

S. 92CA : Transfer Pricing – Computation – Arm’s Length Price -International Taxation – Adjustment.
On a reference under section 92CA(1), TPO can suggest adjustment only in respect of the international transactions entered in to by the assessee with AEs which are referred to him for computation of ALP by the Assessing Officer. TPO cannot suo motu take cognizance of any other international transaction for suggesting adjustment in the ALP. (A. Y. 2006-07)
Amadeus India (P) Ltd. vs. ACIT (2011) 52 DTR 378 (Delhi)(Trib.)

S. 92CA : Transfer Pricing – Computation – Arm’s Length Price –Trader – Resale Method.
Assessee engaged in business of import of rough diamonds and selling same in local markets without value addition to goods, resale price method is most appropriate method for determining ALP with respect to AE transaction.
If comparables cited by assessee were not found appropriate, fresh comparables could be searched, but method adopted was not to be rejected. Matter was set aside to Assessing Officer for disposal afresh after finding appropriate comparable and adopting resale price method. (A. Y. 2004-05)
Star Diamond Group vs. Dy. CIT (2011) 44 SOT 532 (Mum.)(Trib.)

S. 92CA : Avoidance of Tax – Transfer Pricing – Collaboration Agreement – Capital or Revenue – International Taxation.
TPO is not concerned, nor is he competent to decide as to whether the payment under collaboration agreement was capital or revenue and on the facts and circumstances, reference to the TPO for determining ‘arm’s length price’ may not be necessary.
Honda Siel Cars India Ltd. vs. ACIT (2011) 129 ITD 200 (Delhi)(Trib.)

S. 115A : Capital Gains – Sale of Shares in Indian Company – DTAA – India-Mauritius – International Taxation  [S. 90, Art. 13(4)]
Article 13(4) of DTAA confers the power of taxation of capital gains derived by a resident of a contracting State from the alienation of specified property only in the State of residence, therefore, the applicant, a Mauritian company, is not liable to pay tax in India on the capital gains arising on transfer of shares of an Indian company to another Mauritius based company.
D. B. Zwirn Mauritius Trading No. 3 Ltd., In Re (2011) 240 CTR 1 (AAR)

S. 115A : Capital Gains – Transfer of Shares of Indian Company to Swiss Companies – DTAA – India-Netherland  [S. 90, 92, Art. 13(5)]
Capital Gains earned by a Dutch company, on transfer of shares of an Indian company to Swiss companies are covered by Art. 13(5) of the Indo-Netherlands DTAA and therefore, it is taxable only in Netherlands and not in India hence transfer pricing provisions are not attracted as the transaction of shares is between non resident companies.
Vnu International B. V. In Re (2011) 240 CTR 12 (AAR)

S. 115JB : Company – Book Profit – Provision for Gratuity.
Provision for approved gratuity is ascertained liability and cannot be added back while computing the book profit under section 115JB. (A. Y. 2004-05)
ITO vs. Jones Lang Lasalle Property Consultants (India) (P) Ltd. (2011) 135 TTJ 94 (Delhi)(Trib.)

S. 132 : Search and Seizure – Warrant of Authorisation – Common Search Warrant – Validity.
Common search warrant specifying names and addresses of persons residing at different places, held to be valid. (A. Y. 2005-06)
Embassy Classic P. Ltd. & Another vs. ACIT (2011) 7 ITR 287 (Bang.)(Trib.)

S. 133A : Survey – Statement – Disclosure – Retraction – Addition.
Addition cannot be made solely on the basis of statement recorded during survey in absence of any corroborative evidence and supporting material in case wherein it has been retracted.
ACIT vs. Prabhu Dayal Kanojia (2011) Tax World Vol. XLV Part-1 Page 23. (January, 11)(Trib.)

S. 139(1) : Return – Foreign Company – DTAA – India-Netherland
A foreign company, which is liable to be taxed in India by virtue of section 5(2) is required to file its return under section 139 notwithstanding that it is not liable to pay tax in India due to provisions of DTAA.
Vnu International B. V. In Re (2011) 240 CTR 12 (AAR)

S. 142(2A) : Assessment – Special Audit – No evidence that Assessing Officer had found accounts complex – Order for Special Audit not valid.
No record that the Assessing Officer had considered the accounts and found them to be complex, and in the absence of recording with regards to the complexities of accounts on which he had formed an opinion with regards to the complexities of accounts order passed under section 142(2A) for special audit was held to be not valid. (A. Y. 2005-06)
Farmsons Fashion Pvt. Ltd. vs. Dy. CIT (2011) 332 ITR 115 (Guj.)(High Court)

S. 143(2) : Assessment – Validity – Service of Notice.
In the absence of service of notice under section 143(2) or if the notice is served after the statutory time limit under section 143(2) then the assessment in such circumstances is invalid. (A. Y. 2004-05 to 2006-07)
CIT vs. Mayawati (Ms.) (2011) 135 TTJ 167 (Delhi)(Trib.)
Kiran Bansal (Mrs.) vs. ACIT (2011) 135 TTJ 676 (Delhi)(Trib.)

S. 143(3) : Assessment – Additions – Opportunity of Cross Examination – Natural Justice.
Where addition had been made on the basis of a statement of party, behind the assessee’s back and without providing any opportunity to cross-examine the party despite being asked for by the assessee, it was held that the matter was to be remanded back to the Assessing Officer for disposal afresh. (A. Y. 1998-99)
Ashok Lalwani vs. ITO (2011) 196 Taxman 82 (Delhi)(Mag.)(High Court)

S. 143(3) : Assessment – Notice by Affixture – Assessment held to be invalid.
Where notice for assessment had been given only a week prior to the expiry of the limitation period by way of affixture and neither was any other mode of service adopted nor was it shown that the assessee had refused to accept service, it was held that the notice was invalid and consequently the assessment was struck down. (A. Y. 1969-70)
CIT vs. Kishan Chand (2011) 196 Taxman 88 (P&H)(Mag.)(High Court)

S. 145 : Method of Accounting – Accounting Standard – Advance received in current year for service to be rendered is subsequent year – Income accrued in subsequent year.
Accounting standard provides that income accrues only if the corresponding service has to be rendered during the same relevant year. In an event where amount received in advance for a service is to be performed in subsequent year, the advance could not be taken as income in the year of receipt. (A. Y. 1992-98)
CIT vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Delhi)(High Court)

S. 147 : Reassessment – Change of Opinion – Investment – Business Income.
Where assessment was completed holding that the income from conversion of equity share from stock-in-trade to investment was business income. Reassessment proceedings initiated merely by taking view that income should taxed under the head short term capital gain amounted to a mere change of opinion as such liable to be quashed. (A. Y. 2005-06)
Ritu Investment P. Ltd. vs. CIT (2011) 51 DTR 162 (Del.)(High Court)

S. 147 : Reassessment – Search and Seizure – Same Material – Block Assessment held to be invalid.  (S. 158BC)
Once materials are gathered during the search proceedings under section 132 of the Act it is up to the Assessing Officer to make either block assessment under sections 158BC or assessment under section 147 of the Act whichever he finds appropriate. However, once the assessing officer proceeds to make assessment under section 158BC which is cancelled by the appellate authority. The Assessing Officer cannot proceed to make assessment under section 147 of the Act on the basis of the same material. (A. Y. 1992-93)
CIT vs. C. Sivanandan (2011) 52 DTR 428 (Ker.)(High Court)

S. 147 : Reassessment – Change of Opinion.
Change of opinion leading to ‘reason to believe’ – opinion formed on a claim at the time of framing original assessment cannot be changed subsequently on the same set of materials available in record. In the absence of any substantive additional materials, it will amount to change of opinion; therefore, re-opening of assessment is bad-in-law. (A. Y. 1995-96)
Gujarat Power Corporation Ltd. vs. Dy. CIT (2011) 238 CTR 91 (Guj.)(High Court)

S. 147 : Reassessment – Compensation on Acquisition of Land – Enhancement by Supreme Court.
Initiation of the reassessment proceedings in respect of escaped income due to acquisition of petitioner’s land was not vitiated as Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment. (1989-90 to 1994-95 & 1998-99)
Maya Rastogi (Smt) vs. CIT (2011) 52 DTR 237 (All)(High Court)

S. 147 : Reassessment – Change of Opinion – Income subject matter of block assessment.  (S. 158BC)
Once the Assessing Officer proceeds to make block assessment under section 158BC based on materials gathered during search under section 132, he cannot proceed to make reassessment under section 147 on the basis of the same material, after block assessment is cancelled by the first Appellate Authority. Assessing Officer has no jurisdiction to assess the very same amount, which was considered and given up while making block assessment. (A. Y. 1992-93)
CIT vs. C. Sivanandan (2011) 52 DTR 428 (Ker.)(High Court)

S. 147 : Reassessment – CBDT by Notification withdrew approval for deduction to the assessee with respect to the deduction of donation  under section 35(1)(ii) – assessment re-opened – Notification quashed – Reasons for reopening does not survive.  (S. 35, 148)
The assessee was granted deduction for donation to an institute which was approved under section 35(1)(ii). CBDT withdrew the approval to the institution, on the basis of which the assessee assessment was reopened. Subsequently the notification was quashed by the Allahabad High Court, the High Court held that reasons for reopening the assessment under section 147/148 does not survive.
Ultra Marine Air Aids (P) Ltd. vs. ACIT (2011) 332 ITR 273 (Delhi)(High Court)

S. 147 : Re opening of Assessment – Assessment under section 143(1) – Within four years – Reasons to believe – Not valid.           [S. 143(1)]
Original assessment order was made under section 143(1) and the re opening of the assessment was initiated within a period of 4 years, it was still necessary that there should be reasons to believe that income had escaped assessment and such reasons are subject to judicial scrutiny. There essentially have to be valid reasons to believe that income has escaped assessment and these reasons on standalone basis must be considered appropriate for arriving at the conclusion arrived at by the officer recording the reasons. In view of the above the initiation of reassessment proceedings in the instant case by the Assessing Officer was held bad in law and the proceedings were quashed. (A. Y. 2001-02)
Pirojsha Godrej Foundation vs. Asst. Director of Income-tax (2011) 44 SOT 24 (Mum.)(URO)(Trib.)

S. 151 : Reassessment – Sanction for issue of notice – Application of Mind.  (S. 148)
Merely affixing a ‘yes’ stamp and signing underneath suggested that the decision was taken by the Board in a mechanical manner as such, the same was not a sufficient compliance under section 151 of the Act. (A. Y. 1965-66)
Central India Electric Supply Co. Ltd. vs. ITO (2011) 51 DTR 51 (Del.)(High Court)

S. 153A : Assessment – Search and Seizure – Validity vis-à-vis absence of notice under section 143(2) – Service of notice prior to issue of notice for filing of return.  [S. 143(2)]
Compliance of the provisions of section 143(2) can happen only after the receipt of return or documents as specified under section 142(1)(ii), hence, issue of notice under section 143(2) prior to such stage does not serve any purpose, hence, redundant; as no notice under section 143(2) was served on the assessee after the filing of return, the assessment proceedings are quashed as null and void.
ACIT vs. G. M. Infrastructure (2011) 49 DTR 151 (Ind.)(Trib.)

S. 153A : Search and Seizure – Special Procedure for Assessment – On Money Payment – Company – Director.
Merely on the basis of entry in seized material not supported by corroborative evidence, and contradictions in statement of purchaser of property, additions made in the hands of company on substantive basis and addition in the hands of Director on protective basis was deleted. (A. Y. 2005-06)
Embassy Classic P. Ltd & Another vs. ACIT (2011) 7 ITR 287 (Bang.)(Trib.)

S. 153(2A) : Assessment – Limitation – Some of the additions set aside – Fresh Assessment.  [S. 153(3)(ii)]
When several additions have been made by the Assessing Officer and the appellate authority sets a side one or more of the issues to the file of the Assessing Officer, that situation would not give rise to a “fresh assessment” and in that cases section 153(3)(ii) would apply and not section 153(2A).
S. M. Dalvi vs. ACIT (2011) 53 DTR 105 (Mum.)(Trib.)  

S. 154 : Rectification of Mistake – Setting aside of Assessment.
Where assessment order passed under section 143(3)/147 has been set aside, consequential order under section 154 has also to be set aside (A.Y. 1997-98).
CIT vs. DCM Financial Services Ltd. (2011) 196 Taxman 439 (Delhi)(High Court)

S. 158BA : Block Assessment – Assessment of Undisclosed Income – Stock
It was noticed on verification that there was no noting or computation to show that there was deficit of physical stock at time of search when compared to book stock. It was also noted that basic variables of computing stock position themselves were estimates assumed by the Assessing Officer. Also the partner who had initially deposed before the revenue authorities against the assessee firm, did not turn up for cross examination and thus the evidentiary value built on statement of the said person collapsed. In view of the above facts, the impugned addition made by the authorities were held not sustainable. (A. Y. 1989-90 to 1998-99)
Sunrise Sales Corporation vs. Dy. CIT (2011) 43 SOT 16 (Bang.)(URO)(Trib.)

S. 158BD : Block Assessment – Search and Seizure – Notice –Jurisdiction.
Where the assessee had not raised the plea that the Assessing Officer had no jurisdiction over him within one month from the date on which he was served notice under section 158BD of the Act, the assessment proceedings cannot be held to be invalid for want of jurisdiction in view of section 124(3) of the Act. (A. Y. 1997-98 to 2003-04)
CIT vs. Kapil Jain (2011) 50 DTR 342 (Del.)(High Court)

S. 158BC : Block Assessment – Search and Seizure – Material not found.
Where no evidence/material was found in the course of search or any information relating to any undisclosed income earned by the assessee, block assessment framed by the Assessing Officer making addition of the undisclosed income merely on the basis of third party statement was held to be bad and set aside. (A. Y. 1986-87 to 1996-97)
CIT vs. T. Sivaprabhaskar (2011) 50 DTR 329 (Mad.)(High Court)

S. 158BD : Search and Seizure – Block Assessment – Judicious Satisfaction – Recorded in Block assessment of person searched.    (S. 158BC)
Satisfaction recorded under section 158BD before initiation of block assessment proceedings of the person searched does not satisfy the requirement of law; further, so called satisfaction recorded by the Assessing Officer in the order sheet without even stating that undisclosed income pertaining to the assessees  has been detected from the seized record of the persons searched was not in accordance with the provisions of section 158BD, therefore the block assessments  of the assessees under section 158BD are not valid.