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DATE: September 18, 2017 (Date of pronouncement)
DATE: November 4, 2017 (Date of publication)
AY: 2005-06
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CITATION:
Bogus capital gains from penny stocks: If the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income u/s 68. The fact that the broker was tainted and violated SEBI regulations would not make assessee’s transactions bogus

The AO has treated the share transaction as bogus on the plea that SEBI has initiated investigation in respect of Ramkrishna Fincap Pvt. Ltd. The AO further stated that investigation revealed that transaction through M/s Periwal and Co. on the floor of stock exchange was more than 83%. We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT(A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same

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DATE: October 12, 2017 (Date of pronouncement)
DATE: November 1, 2017 (Date of publication)
AY: -
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CITATION:
Low Tax Effect Circular: The CBDT cannot issue any circular having retrospective operation. Consequently, instruction/circular issued on 9.2.2011 directing withdrawal of low tax effect appeals applies only to appeals filed after that date and not to pending appeals. The fact that the CBDT itself vide Circular dated 10.12.2015 directed that the instruction to withdraw low tax effect appeals will apply retrospectively to pending appeals has no bearing

The question raised in this batch of Appeals is as to whether the instructions/circular issued by the Central Board of Direct Taxes on 9.2.2011 will have retrospective operation or not. This Court in Commissioner of Income Tax-VIII, New Delhi v. Suman Dhamija (Civil Appeal Nos.4919-4920/2015) has held that instructions/circular dated 9.2.11 is not retrospective in nature and they shall not govern cases which have been filed before 2011, and that, the same will govern only such cases which are filed after the issuance of the aforesaid instructions dated 9.2.2011. Learned counsel for the respondents relied upon circular dated 10th December, 2015 and specifically relied upon paragraph 10. We are of the considered opinion that the central board of direct taxes cannot issue any circular having retrospective operation. Respectfully following the above decision, we allow the instant Appeals

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DATE: October 30, 2017 (Date of pronouncement)
DATE: November 1, 2017 (Date of publication)
AY: -
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CITATION:
S. 44BB: Amounts received as “mobilisation fee” on account of provision of services and facilities in connection with the extraction etc. of mineral oil in India attracts s. 44BB and have to be assessed as business profits. S. 44BB has to be read in conjunction with ss. 5 and 9 of the Act. Ss. 5 and 9 cannot be read in isolation. The argument that the mobilisation fee is “reimbursement of expenses” and so not assessable as income is not acceptable because it is a fixed amount paid which may be less or more than the expenses incurred. Incurring of expenses, therefore, would be immaterial. Also, the contract was indivisible

Section 44BB starts with non-obstante clause, and the formula contained therein for computation of income is to be applied irrespective of the provisions of Sections 28 to 41 and Sections 43 and 43A of the Act. It is not in dispute that assessees were assessed under the said provision which is applicable in the instant case. For assessment under this provision, a sum equal to 10% of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head ‘profits and gains of the business or profession’. Sub-section (2) mentions two kinds of amounts which shall be deemed as profits and gains of the business chargeable to tax in India. Sub-clause (a) thereof relates to amount paid or payable to the assessee or any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used in the prospecting for, or extraction or production of, mineral oils in India. Thus, all amounts pertaining to the aforesaid activity which are received on account of provisions of services and facilities in connection with the said facility are treated as profits and gains of the business.

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DATE: October 30, 2017 (Date of pronouncement)
DATE: November 1, 2017 (Date of publication)
AY: -
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CITATION:
S. 10A/ 10B: Entire law on the concept of "derived from" the undertaking and "purposive interpretation" of statutes explained. The incidental activity of parking surplus funds with banks or advancing of staff loans by assessees covered u/s 10-A or 10-B is an integral part of their export business activity and a business decision taken in view of the commercial expediency. Such incidental income cannot be delinked from the profits and gains derived by the undertaking engaged from the export of specified goods and cannot be taxed separately u/s 56 of the Act

Sections 10-A and 10-B of the Act are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units (EOUs.) situated in Special Economic Zones (SEZs), STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100% deduction of profit and gains of such export business and therefore incidental income of such undertaking by way of interest on the temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special Undertakings and these cases cannot be compared with deductions under Sections 80-HH or 80-IB in Chapter VI-A of the Act where an assessee dealing with several activities or commodities may inter alia earn profits and gains from the specified activity and therefore in those cases, the Hon’ble Supreme Court has held that the interest income would not be the income “derived from” such Undertakings doing such special business activity

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DATE: October 23, 2017 (Date of pronouncement)
DATE: October 28, 2017 (Date of publication)
AY: 2007-08 to 2012-13
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CITATION:
Royalty u/s 9(1)(vi) & Article 12: The Google Adwords advertisement module is not merely an agreement to provide advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer using Google's patented algorithm, tools and software. Google Adwords uses data regarding the age, gender, region, language, taste habits, food habits, etc of the customer so as to maximize the impression and conversion to the ads of the advertisers. Consequently, the payments to Google Ireland are taxable as "royalty" and the assessee ought to have deducted TDS thereon u/s 195

If we look into the advertisement module of Adword program stated herein above, then we will come to an irresistible conclusion that it is not merely an agreement to provide the advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer. If we look into the submission made by the learned AR, it is clear that the advertiser, selects some key words and on the basis of key words, the advertisement is displayed on the website or along with the search result as and when the customer selects the key words relatable to the advertisement. The module as suggested does not merely work by providing the space in the Google search engine, but it works only with the help of various patented tools and software. As we have analyzed detailed functioning of Adword program, it is clear that with the help of the search tool/software / data base, the Google is able to identify the targeted consumer/person as per the requirement of the advertiser

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DATE: October 9, 2017 (Date of pronouncement)
DATE: October 28, 2017 (Date of publication)
AY: 2003-04
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CITATION:
S. 254(2) Limitation period: The amendment to s. 254(2) to curtail the limitation period for filing rectification applications to six months from four years is prospective and applicable to appeal orders passed after 01/06/2016 and not the orders passed prior to 01/06/2016. The contrary view in Lavanya Land (Mum ITAT) is not good law in view of K. Ravindranathan Nair (SC)

We found that Tribunal in the case of Lavanya Land Private Limited vide order dated 25/04/2017 have held that since miscellaneous application was filed beyond a period of six months from the date of the order of the Tribunal which was sought to be rectified, the miscellaneous application was barred by limitation. We observe that while rendering the decision, the Co-ordinate Bench has not considered the decision of Hon’ble Supreme Court in the case of K. Ravindranathan Nair (Supra) where Hon’ble Supreme Court observed that right to appeal is vested in the litigant at the commencement of Lis and therefore, such vested right cannot be taken away and cannot be impaired or made more stringent by any subsequent legislation unless the subsequent legislation said so either expressly or by necessary intendment. An intention in interfere or impair a vested right cannot be presumed unless such intention be clearly manifested by the express words or by necessary implication

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DATE: September 1, 2017 (Date of pronouncement)
DATE: October 28, 2017 (Date of publication)
AY: 2005-06, 2006-07
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CITATION:
S. 271(1)(c)/ 292BB: "concealment of particulars of income" and "furnishing of inaccurate particulars of income" referred to in s. 271(1)(c) denote two different connotations. It is imperative for the AO to make the assessee aware in the notice issued u/s 274 r.w.s. 271(1)(c) as to which of the two limbs are being put-up against him. The failure to do so is fatal to the penalty proceedings. The argument that the assessee was made aware of the specific charge during the proceedings is of no avail. S. 292BB does not save the penalty proceedings from being declared void

Notably, Sec. 292BB of the Act has been inserted w.e.f. 01.04.2008 and is understood basically as a rule of evidence. The implication of Sec. 292BB of the Act is that once the assessee appears in any proceedings or has co-operated in any inquiry relating to assessment or reassessment, it shall be deemed that any notice under any provisions of the Act that is required to be served has been duly served upon him in accordance with the provisions of the Act and under these circumstances, assessee would be precluded from objecting that a notice that was required to be served under the Act was either not served upon him or was not served in time or was served in an improper manner. In our considered opinion, the provisions of Sec. 292BB of the Act have no relevance in the context of the impugned examination of the efficacy of the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act. Notably, the issue before us is not about the service of notice but as to whether the contents of the notice issued meets with the requirements of law. Therefore, the said argument of the ld. CIT-DR is also rejected

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DATE: October 24, 2017 (Date of pronouncement)
DATE: October 25, 2017 (Date of publication)
AY: -
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CITATION:
Permanent Establishment (PE) under Article 5 of DTAA: Entire law on concept of “fixed place of business”, “service PE” and “agency PE” explained. The fact that there is close association and dependence between the US company and the Indian companies is irrelevant. The functions performed, assets used and risk assumed, is not a proper and appropriate test to determine whether there is a location PE

The Income Tax Act, in particular Section 90 thereof, does not speak of the concept of a PE. This is a creation only of the DTAA. By virtue of Article 7(1) of the DTAA, the business income of companies which are incorporated in the US will be taxable only in the US, unless it is found that they were PEs in India, in which event their business income, to the extent to which it is attributable to such PEs, would be taxable in India. Article 5 of the DTAA set out hereinabove provides for three distinct types of PEs with which we are concerned in the present case: fixed place of business PE under Articles 5(1) and 5(2)(a) to 5(2)(k); service PE under Article 5(2)(l) and agency PE under Article 5(4). Specific and detailed criteria are set out in the aforesaid provisions in order to fulfill the conditions of these PEs existing in India. The burden of proving the fact that a foreign assessee has a PE in India and must, therefore, suffer tax from the business generated from such PE is initially on the Revenue

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DATE: October 5, 2017 (Date of pronouncement)
DATE: October 20, 2017 (Date of publication)
AY: -
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CITATION:
S. 2(22)(e): Any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a “shareholder”

U/s 2(22)(e), any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The legal fiction in s. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of, a “shareholder”. As the assessee was not a shareholder of the paying company, the “dividend” was not assessable in its hands

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DATE: October 13, 2017 (Date of pronouncement)
DATE: October 20, 2017 (Date of publication)
AY: 1970-71, 1971-72, 1972-73, 1973-74, 1974-75
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CITATION:
Entire law on the valuation of immovable properties under the 'rent capitalisation' method versus the 'land and building' method explained in the context of s. 7(2) of the Wealth-tax Act, 1957. Also, law on taking the view in favour of the assessee if two reasonable constructions of a statute are possible explained

It is true that subsection (2) of Section 7 begins with non obstante clause which enables the Wealth Tax Officer to determine the net value of the assets of the business as a whole instead of determining separately the value of each asset held by the assessee in such business. The language of subsection (2) which provides overriding power to the Wealth Tax Officer to adopt and determining the net value of the business having regard to the balance sheet of such business. The enabling power has been given to Wealth Tax Officer to override the normal rule of valuation of the properties that is the value which it may fetch in open market, Wealth Tax Officer can adopt in a case where he may think it fit to adopt such methodology. The appellants’ submission is that the provision of Section 7(2)(a) is a stand alone provision and is to be applied in all cases where assessee is carrying on a business. We do not agree with the above submission

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