Digest Of Important Case Laws – September 2014

S. 2(1A) : Agricultural income –Income from other sources-Onus on assesse to prove the receipt as agricultural income- Restricting the income was held to be justified.
The assessee an individual, had shown an agricultural income. Since the assessee did not disclose any evidence to prove the receipt of the income as agricultural income and the nature of the operations done therein to earn the income, the said income was assessed under the head of ‘income from other sources’. CIT (A) after getting the remand report accepted the claim of assesse. On appeal by revenue the Tribunal partly accepted as agricultural income restricting the income on estimate basis. On appeal High Court also affirmed the view of Tribunal. (AY. 2001-02)
B. Ramachandhiran .v. CIT (2014) 43 taxmann.com 430 / 225 Taxman 22 (Mag.)(Mad.)(HC)

S. 2(14) : Capital asset – Agricultural land –Beyond 8 kms of local limits of the Municipality- land sold to non-agriculturalist-It would not loose its character as agricultural land –Not liable to be taxed as short term capital gains.[S.45]
The Assessing Officer made addition of Rs. 4,56,83,750 on account of short-term capital gain on the ground that assessee had sold agricultural land to one SICC which was non-agriculturist and as per the existing State law, the assessee could not sell the agricultural land in favour of a non-agriculturist. Therefore, the land which was sold was a capital asset and its transfer was chargeable to tax under capital gain. The High Court held that, it was not in dispute that what was sold by the assessee was an agricultural land which was situated beyond 8 Kms. of local limits of the Municipality. Merely because the said land came to be sold to a non-agriculturist, may be in breach of law prevailing in the State, character of the land would not be changed and the land still would continue as an agricultural land. At the most the sale in favour of non-agriculturist can be declared as illegal and/or invalid. There was no provision that if the agricultural land is sold in favour of non-agriculturist in breach of law prevailing in the State, it would not lose its character as agricultural land and would be treated as non-agricultural land. Considering the aforesaid facts and circumstances of the case, it could not be said that the Tribunal had committed any error in holding the land in question not as capital asset and not liable to be taxed. (AY. 2006 – 2007)
CIT .v. Rajshibhai Meramanbhai Odedra (2014)222 Taxman 72/ 42 taxmann.com 497 (Guj.)(HC)

S. 2(14) : Capital asset –Agricultural land -Land within 5 Kms of local municipality-Assessable as capital gains.
During relevant year assessee sold certain land situated in village ‘M’. In course of assessment, AO taking a view that land sold by assessee fell within definition of capital asset as provided under section 2(14), assessed profit arising from sale of land as short-term capital gain . Tribunal held that land in question was not a capital asset and, thus set aside addition made by AO. On appeal by revenue the Court held that since there was no denial of fact that land in question fell within 5 Kms. of limits of local Municipal Committee, there was no occasion for Tribunal to hold that it would not constitute a capital asset within meaning of section 2(14).Accordingly the order of Tribunal was to be set aside and that of AO was restored. (AY. 2002 – 03)
CIT .v. Khazan Singh (2014) 46 taxmann.com 238 / 225 Taxman 22(Mag.)(P&H)(HC)

S. 2(22)( e ) :Deemed dividend-Unsecured loan-Not a shareholder-Unsecured loan could not be treated as deemed dividend in hands of assesse.
The Assessing Officer noticed that assessee-company had taken unsecured loan from a company. Treating said loan as deemed dividend under section 2(22)(e) in hands of assessee, he made addition to assessee’s income. The Commissioner (Appeals) upheld the order of the Assessing Officer on the ground that the loans taken would not be covered by the exclusion/exception provided in section 2(22)(e)(iii) and accordingly, were deemed dividend. It was held that the tribunal had examined all the facts relevant to the case and had correctly reached the conclusion that none of the shareholders of assessee or the assessee itself was a shareholder of said similarly company shareholders are not holding any shares in the assessee. Further, section 2(22)(e) does not provide that having a common director in two companies would make section 2(22)(e) applicable. Consequently, section 2(22)(e) was not applicable in respect of the loan advanced to the assessee. In view of the above, no substantial question of law arose. (AY. 2002–03).
CIT .v. Bombay Oil Industries Ltd.(2014)222 taxman 38(Mag.)/ 42 taxmann.com 440 (Bom.)(HC)

S.2(22)(e):Deemed dividend-Loan to shareholder-Whether lending of money substantial part of business of company not established on facts-Matter remanded.
Tribunal finding since lender companies did not carry on money-lending business, advances to assessee not in ordinary course of business. Court held that the test laid down by the Tribunal was not proper test. Whether lending of money substantial part of business of company not established on facts. Matter remanded.(AY.2007-2008)
Kishori Lal Agrawal .v. CIT (2014) 364 ITR 158 (All.)(HC)

S. 2(29B) : Long-term capital gains-Allotment of flat-Delivery of possession are consequential acts and relate back to and arise from the rights conferred by the allotment letter-Assessable as long term capital gains. [S. 45]
A flat was allotted to assessee on 7-6-1986. She paid first instalment on 4-7-1986.Possession of flat was delivered on a later date. Thereafter she sold flat on 5-7-1989.In return of income for assessment year 1990-91, she disclosed capital gain arising from sale of flat as long-term capital gain. Lower authorities treated capital gain as short-term capital gain. The mere fact that possession was delivered later does not detract from the fact that the allottee was conferred a right to hold property on issuance of an allotment letter. The payment of balance instalments, identification of a particular flat and delivery of possession are consequential acts and relate back to and arise from the rights conferred by the allotment letter. The Court held that capital gain arising from sale of flat was a long-term capital gain.  Circular No. 471, dated 15-10-1986.(AY. 1990-91)
Madhu Kaul (Ms.) .v. CIT (2014) 43 taxmann.com 417 /363 ITR 54 / 271 CTR 107 / 225 Taxman 86 (P&H)(HC)

S. 2(47) :Transfer –Capital gains- Registration of sale deed alone of completes transfer–Capital gains taxable in that year only.[S.45, 54EC]
Assessee entered into an agreement of sale on 7-12-1999 with a company for sale of his property and received full sale consideration on 21-12-2002. Thereafter, 16 sale deeds were registered in favour of nominees of company on various dates between 27-2-2003 and 23-3-2004. Possession of the above property was handed over to nominees on 25-3-2004. In return of income filed for assessment year 2004-05, the assessee disclosed capital gains arising out of sale of above property. The entire sale consideration was invested in notified bonds on various dates between 13-5-2004 and 10-9-2004 and exemption under section 54EC was claimed. The AO held that the sale transactions, which took place between 27-2-2003 and 7-3-2003, would be liable to capital gains tax for the assessment year 2003-04. The sale transactions, which took place between 27-2-2003 and 7-3-2004, would be liable to capital gains tax during the assessment year 2004-05. The CIT(A), however, revered the order of the AO and held that the entire capital gains tax would be chargeable in assessment year 2004-05. On second appeal, the Tribunal held that the transfer as contemplated under section 2(47)(v) took place as early as on 21-12-2002 and accordingly directed the Assessing Officer to tax the entire capital gain in the assessment year 2003-04. The High Court held that, registration of sale deed alone completes transfer, capital gain arising on sale transactions, which took place between 27-2-2003 and 7-3-2003, would be considered for taxation only in assessment year 2003-04 and as regards sale deeds executed between 11-4-2003 and 23-3-2004 liability would be assessed in assessment year 2004-05. (AYs. 2003-04 & 2004-05)
R. Krishnaswamy .v. CIT (2014) 222 Taxman 270/43 taxmann.com 177 (Mad.)(HC)

S. 2(47) :Transfer- Capital gains-Family arrangement-Court decree-Amount received held to be not liable to capital gains.[S. 45] 
Amount received by assessee pursuant to a Court decree in lieu of her share in self-acquired property of father who died intestate, could not be said to result in ‘transfer’ attracting provisions of s. 2(47)(i) or (ii), hence not  liable to capital gains tax. (AY. 2009-10)
T. Gayathri (Smt.) .v. ITO (2014) 150 ITD 48 (Bang.)(Trib.)

S.3: Previous year-Assessing authority according permission to change previous year to year ending June 30 instead of calendar year-No ambiguity in adopting the period of assessment from 1-1-1987 to 31-3-1989.[S.154]
The assessee adopted the calendar year as its previous year and accordingly the assessment for the year 1987-88 was completed. The assessee was accorded permission to change the previous year from the calendar year to the previous year ending on June 30 of every year. However, in view of the amendment, instead of ending the previous year on June 30, 1988, relevant to the assessment year 1989-90, the assessee had to adopt the previous year ending on March 31, 1989, relevant to the assessment year 1989-90 and, accordingly, the assessee filed the return for the period January 1, 1987, to March 31, 1989. The assessing authority cancelled the permission granted to the assessee for adopting the previous year ending on June 30 every year under section 154. The Commissioner (Appeals) set aside the order under section 154 and that order attained finality  Tribunal confirmed the order of CIT (A). On appeal be revenue  dismissing the appeal the Court held that passing two assessment orders did not survive, there was no error in the order of the Tribunal. The result was that the order of the assessing authority, granting permission to adopt the previous year, ending on June 30 every year, was valid. The assessment made for the assessment year 1989-90 for the period, namely, January 1, 1987, to March 31, 1989, was in consonance with the amended section 3. The amendment was applicable to the assessment year 1989-90. Therefore, there was no ambiguity in adopting the period of assessment from January 1, 1987, to March 31, 1989.(AYs.1988-1989, 1989-1990]
CIT .v. Rampur Distillery and Chemical Co. Ltd. (2014) 364 ITR 551 (All)(HC)

S. 4 : Charge of income-tax – subsidy – As per the scheme the subsidy  being in nature of capital receipt, was not liable to tax.
The assessee firm was running a cinema hall. It had shown certain receipts, which included entertainment tax. In the profit and loss account, the assessee had transferred a part of receipts to entertainment subsidy account and claimed same to be exempt from tax being in the nature of capital receipts. The assessee explained that there was a scheme of the Government of Rajasthan to encourage construction of new cinema halls by providing such a subsidy in the form of entertainment tax for a particular period. The AO did not agree with the assessee and treated said amount as its income. The CIT (A) however, accepted the plea of the assessee. The Tribunal upheld the order of the CIT(A). The HC observed that the State Government proceeded to exempt entertainment tax for a period of 5 years payable by a "new" cinema hall constructed, subject to the condition that commercial exhibition of films in such cinema hall was required to be started by 31-3-2000. The State Government had exempted such proprietor of new cinema hall from payment of entertainment tax on the given conditions, the object was clearly to promote the construction of new cinema halls. Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be considered to be other than that of promoting construction of new cinema hall. In the totality of the circumstances; and particularly looking to the scheme of the Act of 1957 as also the object and purport of the exemption notification, the assistance in question cannot be said to be an operational subsidy so as to be taken as a revenue receipt. HC also observed that remission by the Government had been to the proprietor of the entertainment and not to the person admitted to the entertainment. The remission had been the methodology adopted by the State Government to provide assistance to the new cinema hall; and had been essentially in the nature of a subsidy, i.e., the assistance from the Government to the new cinema hall. Accordingly, it was held that the Tribunal was justified in affirming the deletion of addition, being the amount of entertainment tax capitalized as subsidy.
CIT.v. Samta Chavigarh (2014)222 Taxman 205 (Mag.)/44 taxmann.com 337/268 CTR 199 (Raj.)(HC)

S. 4: Charge of income-tax – Dharmada collections are not taxable as income
Dharmarth receipts are not taxable.(ITA No. 437/Asr/2012 Dt. 5.09.2014) (AY. 2009-10)
Nitco logistics Pvt. Ltd. .v. JCIT (Amritsar)(Trib.); www.itatonline.org

S. 5 : Scope of total income–Real income–Notional interest-Yardstick will have to applied from the businessman’s point of view and certainly not according to the AO-Deletion of addition by Tribunal was affirmed.
In terms of MOU, the assessee had not charged interest from its collection agent Sahara India where delay in transmission of fund did not exceed two months. The AO observed that the assessee had given a loan to Sahara India in the form of working capital on which no interest was charged. Accordingly, the AO disallowed interest on the borrowings to the extent of interest not charged on the interest-free loan given to Sahara India. On appeal, the CIT(A) as well as the Tribunal deleted the addition made by the AO. On appeal, the HC observed that Sahara India was the collecting agent not only for the assessee but also for various other companies. As per MOU, the assessee charged interest from Sahara India where delay in transmission of funds exceeded two months.  When the parties had agreed not to charge the interest, as per the condition laid down in the MOU i.e. ‘if the remittance is within the less than two months’, then the AO could not compel it to do so. The HC held that yardstick will have to applied from the businessman’s point of view and certainly not according to the AO.Hence upheld the order of tribunal. (AYs. 1992-93 & 1994 – 95)
CIT.v. Sahara India Mutual Benefit Co. Ltd. (2013)222 Taxman 217(Mag.)/ 40 taxmann.com 69 (All.)(HC)

S. 9(1)(vii) : Income deemed to accrue or arise in India–Fees for technical services-Business connection-Management service agreement-Liable to deduct tax at source–DTAA-India–France [S.195, Art.13]
Applicant an Indian company entered into a Management Services Agreement with a partnership firm, incorporated in France for various management services. It was submitted that ‘make available’ clause was not satisfied in this case and, hence, services would not fall under technical services as per India-France Treaty. Revenue on other hand submitted that fees for technical services includes fees for managerial, technical or consultancy nature and services rendered by  partnership firm fell under broad definition of technical services as per provision of Act and India-France DTAA and hence there was no requirement of ‘make available’ under article 13 of DTAA between India and France. Protocol or Memorandum of Association could be made use for interpreting provision of Treaty, however, it would not be correct/proper to import words, phrases or clause that were not available into Treaties between two Sovereign nations, on basis of Treaties with other countries. In absence of ‘make available’ clause in India-France DTAA payments made by applicant for services rendered came under definition of fees for technical services both under Act and Treaty and were liable to tax in India, thus, applicant would be liable to withhold tax as per provision of section 195 from payments made/to be made to partnership firmdt. 2 May, 2014)
Steria (India) Ltd. In re (2014) 45 taxmann.com 281 / 364 ITR 381 / 268 CTR 399 / 225 Taxman 90(AAR) 

S. 10(14) : Exempt income-Special allowance or benefit– Development Officer in LIC, received incentive bonus in order to reimburse expenses required to be incurred for procuring business – bonus claimed as exempt under section 10(14)-Matter remanded to CIT to decide afresh.[S. 264]
The assessee, a Development Officer in LIC, received an incentive bonus in order to reimburse the expenditure required to be incurred for procuring business. For the first time in the assessment year 1982-83, he claimed that part of the incentive bonus was required to be exempted under the provisions of the Act. The Assessing Officer accepted the claim by holding that the assessee was entitled to deduction of 40 per cent of the incentive bonus as expense. Since the assessee had not claimed the said relief in the original returns for the assessment years 1975-76 to 1981-82, he approached the Commissioner by way of a revision application under section 264. The Commissioner rejected the revision application as time barred. On writ petition filed by the assessee, the High Court directed the Commissioner to rehear the assessee’s revision application by taking into consideration the decision of the Gujarat High Court rendered in the case of CIT v. Kiranbhai H. Shelat [1999] 235 ITR 635. The Commissioner in remand proceedings held that the aforesaid decision of the Gujarat High Court was in contradiction to the decision of the Supreme Court in case of Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 as well as the decision of the Karnataka High Court in the case of CIT v. M.D. Patil [1998] 229 ITR 71. He accordingly declined to follow the decision of the Gujarat High Court and rejected the application under section 264. On writ, the High Court held that once the jurisdictional High Court had, after taking into consideration the decision of the Supreme Court in the case of Gestetner Duplicators (P.) Ltd. (supra), held that the assessee is entitled to expenses of 30 per cent against incentive bonus, the Commissioner could not have refused to follow the same. The matter was remanded to the Commissioner for deciding afresh, keeping in view the binding decision of the Gujarat High Court. (AY. 1975-76 to 1981-82)
P.V. Ashar Development Officer .v. B.C. Goel (2014) 222 Taxman 219(Mag.) (Guj.)(HC)

S.10(15):Exemption-Interest on money borrowed by industrial undertaking in India from foreign country-Interest entitled to exemption.
The assessee had purchased or acquired capital equipment in the form of workover rigs and for this purpose had obtained loans from State Bank of India, Singapore in foreign currency and Indian rupees. Money borrowed for purchasing workover rigs for drilling for ONGC. Contract stipulating that work included preparation of well for production. Interest income was held to be entitled to exemption.
Dewan Chand Ram Chandra Industries P. Ltd.  .v. UOI (2014) 364 ITR 70 (Delhi)(HC)

S. 10(23C): Exempt Income–CBDT accorded approval to claim exemption u/s.10(23C)–Denial of exemption by the Assessing Officer in the course of assessment proceedings was held to be not justified. [S. 143(3)]
Assessee, a charitable society, made an application for grant of approval for exemption of income under section 10(23C)(vi). CBDT by an order accorded approval to the assessee for the purpose of section 10(23C)(vi). In the returns of income filed for the assessment years 1999-2000 and 2001-02, the assessee claimed exemption under section 10(23C)(vi). AO denied the exemption on account that it had not complied with the conditions imposed by CBDT. CIT(A) upheld the order of AO. Tribunal allowed the exemption under section 10 (23C)(vi). On appeal by revenue, High Court held that the first proviso to section 143(3) was inserted by the Finance Act, 2002, w.e.f. 1-4-2003. The provision of first proviso to section 143(3) makes it clear that no order making an assessment shall be made by the Assessing Officer without giving effect to the provisions of section 10(23C)(vi) unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of section 10(23C)(vi). Only after such approval granted has been withdrawn, he can proceed to pass an order denying the benefit of exemption on the ground of contravention. Having regard to the language employed, the said provision is mandatory. Without complying with the requirement of the said provision, the Assessing Officer gets no jurisdiction to deny the exemption. That is what the Tribunal has held. In the absence of a specific provision, section 21 of the General Clauses Act, 1897 is attracted, which provides that where by any Central Act or Regulations a power to issue notifications, orders, rules, or bye-laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction and conditions, if any, to add to, amend, vary or rescind any notifications, orders, rules or bye-laws so issued. Therefore, the argument of the revenue that prior to 1-4-2003 when there was no express provision for recession of the approval granted once, the Assessing Authority was vested with the power to deny the exemption without seeking for recession of the approval granted is without any substance. Therefore, the said finding is in accordance with law and do not suffer from any legal infirmity. (AYs. 1999-00 & 2001-02)
CIT .v. Peoples Education Society (2014)222 Taxman 98/42 taxmann.com 353 (Karn.)(HC)

S.10(23C): Exempt income-Educational institutions–Exemption granted by CBDT is binding on department.[S.119]
The assessee is a registered society running various educational institutions. The Assessing officer has denied the exemption under Section 10(23C)(vi). Held that, in view of above order passed by the Central Board of Direct Taxes, binding on the department, the assessee/respondent is held entitled for exemption under Section 10(23C)(vi) of the Income Tax Act. (A.Y.2000-01)
CIT .v. Arvind Bhartiya Vidhyala Samiti (2014)222 Taxman 37(Mag.)/ 42 taxmann.com 437 (Raj.)(HC)

S.10(23C):Educational institution- Nature of activity carried on by organisation would be predominant factor-Surplus generated was utilized for the purpose of education purpose-Entitled exemption. 
The assessee society was engaged in ensuring high standards of education imparted through the medium of schools. It had 1750 schools which were affiliated to it and provide education from nursery to twelfth standard. It was reorganized and listed as a body conducting public examinations under the Delhi School Education Act 1973.The Council was registered as a society under the Society Registration Act, 1860) (Punjab Amendment)Act, 1957 as extended to the Union Territory of Delhi. Approval was denied by the prescribed authority on the ground that activities of the assesse were in the nature of business and for the purpose of profit and activities of the assesse was not genuine . On writ allowing the petition the court held that; Nature of activity carried on by organisation would be predominant factor. Surpluses generated for purposes of modernising activities and building of necessary infrastructure to serve object of assessee. Assessee existing solely for educational purposes there was no evidence to show assessee carried on any activity other than for educational purpose. Reasonableness of amount spent and quality of decisions of management of assesse. The expression used in section 37 of the Income-tax Act, 1961, "wholly or exclusively for the purposes of business and profession" is similar in its import to the expression "applied wholly and exclusively to the object for which it is established" as occurring in section 10(23C)(vi). Entitled to exemption.. Writ petition of assesse was allowed.((AY .2008-2009)
Council for the Indian School Certificate Examination .v. DGIT (2014) 364 ITR 508 (Delhi)(HC)

S. 10B :Export  oriented undertakings-Export of granites-Matter remanded to Assessing Officer where the Tribunal failed to look into documents and rejected claim under section 10B & 80HHC. [S.80HHC]
The assessee-company was engaged in the business of export of granites. The assessing authority denied the benefit of exemption under section 10B to the assessee. The Commissioner (Appeals), however, granted relief under section 80HHC. After failing before the Tribunal, the Revenue preferred an appeal before the High Court and the matter was remitted to the Commissioner (Appeals). The Commissioner rejected the claim under section 10B as well as section 80HHC. The Tribunal held that the issue was squarely covered by the judgment of the High Court in assessee’s own case for AY 1994-95 wherein the assessee was not entitled to exemption under section 10B and 80HHC as well.
On appeal, the High Court held that the judgment rendered by High Court for assessment year 1994-95 was an ex parte order and further, in absence of certificate under section 14 of Industries (Development and Regulation) Act, 1951, it was held that assessee was not entitled for exemption under section 10B. Similarly benefit under section 80HHC was declined for non-filing of audit report. However, subsequently assessee had produced the said documents claiming exemption but authorities declined its claim. Therefore, in view thereof, entire matter was sent to the assessing authority, who would look into all materials produced by assessee in respect of its claim and decide the matter afresh. (AYs. 1995-96 & 1996-97)
Natural Stones Exports Ltd. .v. ACIT (2014) 222 Taxman 35(Mag)/42 Taxmann.com 467 (Karn.)(HC)