S. 10 (23C): An institution which regularly makes more than 10% – 15% surplus is existing for profit & is not eligible for exemption

In our opinion, “Surplus” cannot be more than 10% – 15% so as to meet contingencies or unforeseen expenditure. If an University or an educational institution under the guise of “surplus” start making huge profit, in our opinion, it would cease to exist for net making profit and in that event would not be entitled for exemption under this provision. On facts, the University collects huge sums which are 3-4 times more than the requirement. Such “surplus” which is invested in fixed deposits and fetches huge interest cannot be stated to be “incidental”

S. 254: Tribunal is not required to consider pleadings, material etc to which its pointed attention is not drawn

It is true, as held by the Supreme Court in a long line of cases that the Tribunal is duty-bound to consider all the grounds, the evidence produced and consider the contentions of the parties before it and all other material brought to its
notice in a judicial spirit and should not feel incommoded by technicalities: The duty is limited to the points raised before it. It would be placing an impossible burden on the Tribunal if it is ordained to rule upon aspects and contentions which were not raised by the parties before it or to deal with pleadings, evidence or material to which its pointed attention was not drawn in the course of the proceedings and which lies buried in the forest of papers filed by the parties

S. 147: Assessee is not entitled to challenge validity of reopening on a ground not stated in objections to AO

Just as the revenue cannot improve upon its case for reopening before the Court and but must stand or fall by the reasons recorded for reopening the assessment, the same test would be applicable in case of an assessee i.e. it must stand or fall by its objection to the grounds for reopening of assessment. It is not open to the assessee to urge fresh objections before the Court which the AO had no occasion to deal with, unless of course the notice to reopen is ex-facie without jurisdiction not requiring consideration of any argument such as beyond limitation

Design & Engineering drawings are in the nature of “plant” and consideration thereof is not assessable as “fees for technical services” if delivered outside India

The assessee company provided design and engineering services, manufacture, delivery, technical assistance through supervision of erection and commissioning etc., to establish compressor house-I for RINL. The payments were made by RINL separately for each of the services/equipments provided/supplied by the assessee. It, inter alia, included payment made towards supply of design and engineering drawings. The assessee company claimed the said payment is not taxable under the Indian Income Tax Act as it was a transaction of sale of goods that has taken place outside India. In our view the decision of Delhi ITAT Bench in the case of Mannesman Demag Sack AG Vs.Add.CIT reported in (2008), 119 TTJ (Del) 543, on which reliance was placed by Ld DR, is not applicable to the facts of the instant case. In the case of Mannesman Demag Sack, supra, the decision was rendered on the basis of the terms of the contract which provided that technical services shall include supply of design and drawings. Hence on the facts of the case, the Tribunal held that design and drawing charges are in the nature of fee for technical services. However, it may be pertinent to note that the Tribunal in that case, accepted the alternative contention of the assessee that the said fee cannot be assessed in India, unless it is shown that some part of work has emanated from Indian territories. Hence on a conspectus of the matter, we are of the view that the amount received by the assessee for supply of design and engineering drawings is in the nature of plant and since the preparation and delivery has taken place outside Indian territories, the same can not be subjected to tax in India

Interest u/s 244A is not taxable in the year of grant of refund but has to be spread over the respective AYs to which it relates

The stand of the department that interest u/s 244(1A) accrues to the assessee only when it is granted to the assessee along with refund order issued u/s 240 is not correct. Interest accrues on a day to day basis on the excess amount paid by the assessee. The entitlement of interest is a right conferred by the statute and it does not depend on the order for the refund being made. An order for the refund is only consequential order which in law is required to be made more in the nature of complying with the procedural requirement, but the right to claim interest of the assessee is statutory right conferred by the Act. Accordingly, the interest has to be spread over and taxed in the respective years (K. Devayani Amma 328 ITR 10 (Ker) dissented from)

S. 41(1): Unclaimed liabilities (of earlier years), which are shown as payable in the accounts, are not taxable as income even if creditors untraceable & liabilities are non-genuine

S. 41(1) would apply in a case where there has been remission or cessation of liability during the year under consideration. In the present case, there was nothing on record to suggest there was remission or cessation of liability in the AY 2007-08. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The AO undertook the exercise to verify the records of the so-called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income u/s 41(1) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of s. 41(1) of the Act there is no cure for it

Entire law on taxability of Permanent Establishment under DTAA, impact of Mutual Agreement Procedure (MAP) and computation of profits attributable to PE explained

Re Whether a subsidiary can be a Permanent Establishment: While under Article 5(6), a holding or a subsidiary company by themselves would not become PE of each other, a subsidiary can become a PE of the holding company if it satisfies the requirements of Article 5. Accordingly, any premises belonging to the subsidiary that is at the disposal of the parent (the “right-to-use test”) and that constitutes a fixed place of business (the “location test” and the “duration test”) through which the parent carries on its own business (the “business activity test”), gives rise to a PE of the parent under Art. 5(1). In addition under Art. 5(5) of the OECD Model, a subsidiary constitutes an agency PE of its parent if the subsidiary has the authority to conclude contracts in the name of its parent and habitually exercises this authority, unless these activities are limited to those referred to in Art. 5(4) or unless the subsidiary does not act in the ordinary course of its business as an independent agent within the meaning of Art. 5(6)