S. 271 AAA makes a paradigm shift on the imposition of penalty in respect of unaccounted income unearthed as a result of search operation. Unlike s. 271(1)(c), s. 271 AAA penalty is imposable on undisclosed income without “concealment” or “furnishing inaccurate particulars” having to be shown. S. 271AAA(2) grants immunity from penalty if (i) in the s. 132(4) statement, the undisclosed income is admitted and the manner of deriving it is specified; (ii) the manner in which the undisclosed income was derived is substantiated; and (iii) the tax & interest on the undisclosed income is paid. While payment of taxes & interest is a condition precedent for availing immunity u/s 271AAA(2), there is no time limit for such payment. In the absence of a time limit for payment of tax & interest in the statute, the AO’s stand that it ought to have been paid at the time of filing the ROI is not acceptable. Further, though in the context of Explanation 5 to s. 271(1)(c) it has been held in Mahendra Shah 299 ITR 305 (Guj) that the conclusion of the assessment proceedings is the outer limit for making payment of tax & interest, that was in the context of s. 271(1)(c) which required the AO to record his satisfaction in the course of the assessment proceedings itself. As there is no such requirement in s. 271 AAA, there is no outer limit for payment of the due tax & interest. On facts, as the assessee had paid the due tax & interest within the time specified in the s. 156 notice of demand, s. 271AAA penalty was not imposable

The taxability of a non-compete fee depends on the purpose for which it is paid. A non-compete fee can be divided into two categories: (a) consideration received by the transferor of a business for agreeing not to carry on the same business; (b) consideration received by other persons associated with the transferor to ensure that they do not indulge in competing business. For AY 2003-04 & onwards, non-compete fee received by the transferor of a business is taxable as a capital gains in view of s. 55(2)(a) which provides that the cost of a “right to carry on business” shall be Nil. Though s. 55(2)(a) as amended by the FA 1997 w.e.f. 1.4.1998 referred to a “right to manufacture, produce or process any article or thing“, that would not cover a non-compete covenant. For AY 2003-04 & onwards, a non-compete fee received by a person associated with the transferor is taxable as “business profits” u/s 28(va)(a) as being a payment for “not carrying out any activity in relation to any business“. A non-compete fee received in an earlier year is not chargeable to tax in view of Guffic Chem vs. CIT 320 ITR 602 (SC)

The department’s argument that Ericsson AB 204 TM 192 was confined to a case where the software was embedded to the equipment is not correct. The Court did hold that consideration paid merely for right to use cannot be held to be royalty and the ratio would also apply when “shrink wrap” software is sold. Where two views are possible, the view in favour of the assessee has to be preferred. This principle is applicable to non-resident assessees as well in view of Article 24(1) of the DTAA (non-discrimination) which provides that nationals of a Contracting State shall not be treated less favourably than the nationals of the other Contracting State

The Act makes a clear distinction between “issue of notice” and “service of notice”. S. 149 which prescribes the period of limitation provides that no notice u/s 148 shall be “issued” after the expiry of the limitation period. The “service” of the notice is necessary u/s 148 only to make the order of assessment. Once a notice is “issued” within the period of limitation, the AO has jurisdiction to make the assessment. A notice is considered to have been “issued” if it is placed in the hands of a person authorized to serve it, and with a bona fide intent to have it served. Service of the notice is not a condition precedent to conferment of jurisdiction on the AO but it is a condition precedent to the making of the order of assessment. On facts, as the AO had issued the notice within the period of limitation, he had jurisdiction to reopen the assessment (R.K.Upadhyay vs. Patel 166 ITR 163 (SC) followed)

The assessee transferred “Development Rights” being the FSI and the “right to load TDR” on the land. While the right to construct on the land by consuming FSI was a capital asset which was acquired at a cost, the right to load TDR arose pursuant to the DC Regulations, 1991 without payment of any cost. The said right to “load TDR” was an improvement to the “capital asset” held by the assessee. If the “cost of improvement” of an asset is not determinable, capital gains are not chargeable. The result was that even the consideration attributable to the FSI (which had a cost) was not assessable to tax. Principle laid down in Jethalal D. Mehta 2 SOT 422 (Mum) & Maheshwar Prakash CHS 24 SOT 366 (Mum) in the context of transfer of only TDR followed)

S.143(3) contemplates that the AO shall pass an order of assessment in writing. If the assessment order is signed then because the computation of tax is a ministerial act, ITNS-150 need not be signed by the AO. However, if the assessment order is not signed, then the fact that he has signed the tax computation form and the notice of demand is irrelevant. The omission to sign the assessment order cannot be explained by relying on s. 292B. If such a course is permitted to be followed than that would amount to delegation of powers conferred on the AO by the Act. Delegation of powers of the AO u/s 143(3) is not the intent and purpose of the Act. An unsigned assessment order is not in substance and effect in conformity with or according to the intent and purpose of the Act (Kilasho Devi Burman 219 ITR 214 (SC) followed; Kalyankumar Ray 191 ITR 634 (SC) explained)