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DATE: January 13, 2021 (Date of pronouncement)
DATE: January 14, 2021 (Date of publication)
AY: AY 2019-20
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Extension of due date for filing ROI: (i) The CBDT has vide order dated 11.01.2021 decided not to grant further extension of time. The Court cannot go into the issues which weighed with the CBDT in taking the decision and substitute the same with its own view. Interference by the Court, at this point of time, in matters relating to the Revenue may have far reaching implications. It may upset the entire functioning of the Government and may lead to undesirable results. (ii) However, the CBDT may consider issuing an appropriate circular taking a lenient view as regards the consequences of late filing of the Tax Audit Reports as provided u/s 271B of the Act. We leave it to the better discretion of the CBDT.

It is the case of the CBDT that it has declined to exercise its power under Section 119 of the Act as the conditions for exercise of such power do not exist. It is the case of the Revenue that the issue of hardship was dealt with considerably at the relevant point of time and that is the reason why three times the time limit came to be extended. The Board has now thought fit in the interest of the Revenue not to extend the time period any further. There are so many vital issues which the Revenue needs to keep in mind before taking such decision. The question is whether this Court should go into all such issues which weighed with the CBDT in taking a particular decision one way or the other and substitute the same with that of this Court on the ground that if the time limit is not extended, then the people at large would be put immense hardships? Interference at the end of this Court, at this point of time, in the matters relating to the Revenue may have far reaching implications. This Court may find it very easy to issue a writ of mandamus, as prayed for, saying that if the time limit has been extended in the past on three occasions, then why not for one last time upto 31st March 2021. However, such a line of reasoning or approach may upset the entire functioning of the Government and may lead to undesirable results.

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DATE: January 8, 2021 (Date of pronouncement)
DATE: January 9, 2021 (Date of publication)
AY: -
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CITATION:
Though the CBDT has extended the due dates for filing the ITR & TAR to 10.01.2021 & 15.02.2021 due to the Covid-19 pandemic situation, it should look into the question of further extension bearing in mind that the time period for the officials of the tax department has been extended upto 31.03.2021. Some extension deserves to be considered in accordance with law.

We are of the view that the respondent No.1 – Union of India, Ministry of Finance should immediately look into the issue, more particularly, the representation dated 12th October 2020 at Annexure : I of the paper book (page 108) and take an appropriate decision at the earliest in accordance with law. We, accordingly, direct the respondent No.1 to do so. While taking an appropriate decision, the Union shall bear in mind the observations made by this High Court in the two above noted judgements, more particularly, the observations of the Supreme Court in the case of Vaghjibhai S. Bishnoi (supra) that the powers given to the CBDT are beneficial in nature to be exercised for proper administration of fiscal law so that undue hardship may not be caused to the taxpayers. The purpose is of just, proper and efficient management of the work of assessment and the public interest. One additional aspect needs to be kept in mind before taking any appropriate decision that the time period for the officials of the tax department has been extended upto 31st March 2021 having regard to the current covid19 pandemic situation. If that be so, then some extension deserves to be considered in accordance with law. Let an appropriate decision be taken by 12th January 2021.

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DATE: December 18, 2020 (Date of pronouncement)
DATE: December 23, 2020 (Date of publication)
AY: 2014-15
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CITATION:
The AO's refusal to grant foreign tax credit under article 23(2) of India Japan DTAA on the ground that the assessee's income (legal fees) was not taxable in Japan under Article 14 (Independent Personal Services) & that the taxes were wrongly withheld in Japan is not justified. The income could have been taxed under Article 12 (Fees for Technical Services). Even otherwise, one has to take a judicious call as to whether the view adopted by the source jurisdiction of taxing the income is a reasonable and bonafide view, which may or may not be the same as the legal position in the residence jurisdiction. The view of the treaty partner should be adopted unless it is wholly unreasonable or manifestly erroneous

So far as determination of question as to whether or not the taxation has been done in the source country “in accordance with the provisions of this Convention, may be taxed in … (the source jurisdiction)”, one has to take a judicious call as to whether the view so adopted by the source jurisdiction is a reasonable and bonafide view, which may or may not be the same as the legal position in the residence jurisdiction. While it is indeed desirable that there should be uniformity in tax treaty interpretation in the treaty partner jurisdictions, it may not always be possible to do so in view of a large variety of variations, such as the sovereignty of judicial systems, domestic law overrides on the treaty provisions, the legal framework in which the treaties are to be interpreted, and the judge-made law in the respective jurisdictions etc. In a situation in which a transaction by resident of one of the contracting states is to be examined in both the treaty partner jurisdictions, from the point of view of taxability of income arising therefrom, different treatments being given by the treaty partner jurisdictions will result in incongruity and undue hardship to the assessee.

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DATE: December 11, 2020 (Date of pronouncement)
DATE: December 23, 2020 (Date of publication)
AY: 2015-16
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CITATION:
(i) The fact that profits of foreign branches of a resident are taxed outside India under tax treaties does not imply that the said income is not taxable in India. The entire global income has to be taxed in India. The assesseee is entitled to credit for taxes paid abroad, as admissible under the treaty or the domestic law. (ii) S. 115JB applies to banking companies after the 2012 amendment. Even profits of foreign branches which are taxed under the tax treaties are also liable for MAT. (iii) The argument that S. 90 overrides S. 115JB and so the incomes taxed abroad should be excluded from taxation of book profits u/s 115 JB is not correct. Treaty protection come normally into play for taxation of a non-resident in India, i.e. source country taxation, and not for taxation of a resident in whose hands global income is to be taxed anyway. All that one gets in the residence jurisdiction, by the virtue of tax treaties, is tax credits for the taxes paid abroad.

The effect of Hon’ble Supreme Court’s judgment in Kulandagan Chettiar (267 ITR 654) that income taxable in the source jurisdiction under the treaty provisions cannot be included in total income of the assessee is clearly overruled by the legislative developments. It is specifically legislated that the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that “such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement”. A coordinate bench of this Tribunal, in the case of Essar Oil Ltd (supra) also proceeded to hold that this notification was retrospective in effect inasmuch as it applied with effect from 1st April 2004 i.e. the date on which sub-section 3 was introduced in Section 90.

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DATE: December 4, 2020 (Date of pronouncement)
DATE: December 18, 2020 (Date of publication)
AY: 2014-15
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CITATION:
(i) A representative office of a foreign enterprise is not a taxable unit. The foreign enterprise is the taxable unit. A return of income filed in the name of the representative office, with the PAN of the enterprise, offering only the income of the representative office & excluding the other Indian income of the enterprise is not proper. However, as the error is inadvertent and without any consequences in terms of loss of revenue, a pragmatic approach must be adopted and the assessee should not be subjected to avoidable inconvenience (ii) As regards the taxability of interest income under the India-Germany DTAA, as the debt claim in question was not "effectively connected" to the alleged PE, the exclusion article 11(5) was not triggered and the taxability under article 7 does not come into play (Entire law discussed in detail)

It is an undisputed fact that the entire related interest income has been brought to tax in the hands of the foreign enterprise, even though on gross basis under article 11. In case any income is brought to tax on account of ALP adjustment, and bearing in mind the fact that such an income will also be relatable to earning the same interest income, it will indeed result in a situation that for revenue of ‘x’ amount earned from India, what will become taxable in India will be an amount more than ‘x’ amount- something which is clearly incongruous. The taxable amount in a tax jurisdiction cannot, under any circumstances, be more than the entire revenue itself in that jurisdiction. In this view of the matter, even an income on account of ALP adjustment for free rendition of services by the Indian representative office to the foreign enterprise itself- even if that be treated as an associated enterprise and a hypothetically independent entity, in the cases of banks where entire interest revenues are taxed on gross basis, is ruled out.

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DATE: December 1, 2020 (Date of pronouncement)
DATE: December 18, 2020 (Date of publication)
AY: 2015-16
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CITATION:
Section 40(a)(i) is a restriction on deductibility of expenses u/s 30 to 38. If the related expenditure is not claimed as a deduction u/s 30 to 38, this disallowance cannot be pressed into service at all. As the assessee is an advertisement agency and advertisements are placed by the assessee on behalf of its clients, there is ordinarily no occasion to claim the costs of advertisements as deduction in computation of its business income. The revenues, in the case of advertisement agencies, consist of only the commission received in respect of the advertisements so placed

Unless a claim for deduction in respect of payments made to Facebook Ireland Limited is made in the computation of business income, there cannot be any occasion for invoking section 40(a)(i) for its disallowance in computation of business income. As we have analyzed earlier also in this order, section 40(a)(i) acts as a restriction on the deductibility of expenses under section 30 to 38, and, as a corollary to this legal position, when the related expenditure is not claimed as deduction under section 30 to 38, this disallowance cannot be pressed into service at all

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DATE: October 16, 2020 (Date of pronouncement)
DATE: November 21, 2020 (Date of publication)
AY: -
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CITATION:
The principles of natural justice have undergone a sea change. The earlier view that even a small violation would result in the order being rendered a nullity is not correct. Some real prejudice must be caused to the complainant by the refusal to follow natural justice. The prejudice must not merely be the apprehension of a litigant. No prejudice is caused to the person complaining of the breach of natural justice where such person does not dispute the case against him or it. There is a clear distinction between cases where there was no hearing at all and the cases where there was mere technical infringement of the principle (All imp judgements referred)

Natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more, lead to the conclusion that prejudice is thereby caused. Where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest, but also in public interest.

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DATE: September 15, 2020 (Date of pronouncement)
DATE: November 7, 2020 (Date of publication)
AY: 2006-07
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CITATION:
Interpretation of statutes & DTAAs: The substitution of a provision results in repeal of earlier provision and its replacement by new provision. When a new rule in place of an old rule is substituted, the old one is never intended to keep alive and the substitution has the effect of deleting the old rule and making the new rule operative. Though Notification dated 18.07.2005 (which substitutes paragraph 12 of Article 12 of the DTAA to provide for levy of tax on the royalties or fees for technical services at a rate not exceeding 10%) issued u/s 90 came into force with effect from 01.08.2005, it applies to the entire fiscal year

Before proceeding further, we may advert to well settled rules of Interpretation with regard to taxing statutes. The substitution of a provision results in repeal of earlier provision and its replacement by new provision. [See: U.P.SUGAR MILLS ASSN. VS. STATE OF U.P.’, (2002) 2 SCC 645]. The aforesaid principle of law was reiterated by the Supreme Court in WEST UP SUGAR MILS ASSOCIATION V. STATE OF UP (2012) 2 SCC 773 and by this Court in GOVARDHAN M V. STATE OF KARNATAKA (2013) 1 KarLJ 497. When a new rule in place of an old rule is substituted, the old one is never intended to keep alive and the substitution has the effect of deleting the old rule and making the new rule operative.

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DATE: October 14, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 2006-07
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CITATION:
S. 68 Bogus Cash Credits: The Revenue can examine the source of the source. Merely pointing out to a source and the source admitting that it has made the payments is not sufficient to discharge the burden placed on the assessees by s. 68. Otherwise, it would be sufficient for assessees to simply persuade some credit-less person to own up having made such huge payments and thereby evade payment of tax on the specious plea that the Revenue can always recover the tax from such credit-less source. The explanation has to be plausible and backed by reliable evidence. 'Fantastic or unacceptable' explanations are not acceptable (All imp verdicts on s. 68 referred)

If the ITAT were to have considered the aforesaid circumstances, which, according to us, the ITAT was duty-bound to, we are quite sure that the ITAT would not have, nevertheless, found the so-called explanation of the assessees acceptable or in compliance with the provisions of Section 68 of the said Act. Rather we are inclined to believe, that the ITAT too, would have found the so-called explanation of the assessees too fantastic to deserve any acceptance. In Mussadilal Ram Bharose 1987(2) SCC 39, the Hon’ble Supreme Court has cautioned against acceptance of any ‘fantastic’ or ‘unacceptable’ explanations in tax matters

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DATE: September 10, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 1999-2000 to 2002-03
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S. 69/69A HSBC Bank Black Money: The AO has to prove that the money belongs to the assessee. If the assessee files necessary evidences to prove that the unexplained money does not belongs to him, the onus shift to the revenue to prove that the unexplained money in fact belongs to the assessee. Unless the AO proves that unexplained money is belongs to the person, he cannot make any addition in the hands of the assessee. The fact that the assessee is a joint holder of the bank account does not mean that the money belongs to him if the evidence suggests that the money belongs to the other holder

It is the case of the Ld. AO that account with HSBC bank , Geneva is opened by resident Indian and black money earned by such resident Indian has been stashed abroad without paying taxes/disclosing income in India. But, fact remains that in the instant case, the account was opened in 1998, when the assessee himself and Mr. Dipak Galani permanently resided in outside India for 30 years and had no intention to come to India at that time. Further, both of them have no source of income in India, during the course of their residence abroad. Therefore, we are of the view that entire motive as presented by the Ld. AO defines all logic of opening of a secret bank account in Geneva, by NRI to stash unaccounted income taxable in India fails. The ld. AO mechanically disregarding all explanations furnished by the assessee as to the ownership of the account along with the corroborative materials is contrary to the settled position of law, because, once assessee has provided a reasonable explanation about ownership, then the onus was on the Ld. AO to establish that account belongs to the assessee.