S. 23 (1)(a) requires determination of the “fair rent” being “the sum for which the property might reasonably be expected to let from year to year”. The AO has to make an inquiry as to what would be the possible rent that the property might fetch. If he finds that the actual rent received is less than the “fair/market rent‟ because the assessee has received abnormally high interest free security deposit, he can undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor to arrive at the “fair rent‟. S. 23(1)(a) does not mandate this

The AO had issued a certificate u/s 195(2) authorizing the remittance without deduction of tax at source. As this certificate was not cancelled u/s 195(4), the assessee was not required to deduct tax at source and could not be treated as assessee in default. The issue whether the payments were taxable or not need not be gone into

When a partnership firm is dissolved and the erstwhile partner receives stock, it is a capital asset in his hands. When that asset is introduced into a business as stock, it gets converted into stock-in-trade. The value of this stock will have to be the market value on the date of introduction. The Tribunal’s reasoning that the assessee cannot value the stock introduced in the business at market value because that was not the price she paid for it is flawed because if the assessee on having received her distributed share of stock of jewellery from the dissolved firm had sold it, and thereafter commenced her proprietorship business of jewellery again; within short span; by buying the jewellery from the market from the proceeds of stock sold on dissolution of the erstwhile firms, the stock of the proprietorship concern would without doubt be valued at market value. The same principle would apply if the assessee used her share of the stock obtained from the dissolved firm in the new business

Though the provisions of block assessment are special, the argument that they are a complete Code and the other provisions cannot apply is not acceptable. S. 40A(3) applies to block proceedings Suresh Gupta 297 ITR 322 (SC) & M. G. Pictures 185 CTR (Mad)185 followed; Cargo Clearing Agency 218 CTR (Guj) 541 not followed

The AO held the transaction to be an “adventure in the nature of trade” and not normal investment on the basis that (a) assessee had borrowed funds at an exorbitant rate of 30% and (b) the shares were held by the lender till the entire loan was paid. However, this reasoning loses sight of the fact that merely because the shares had been purchased from borrowed funds obtained on high rate of interest would not change the nature of the transaction from investment to one in the nature of an “adventure in the nature of trade”. Moreover, as the shares were held for a long-period of 14 months, the intention of the assessee had always been that of making investment in shares and not dealing in shares. This is also apparent from the fact that the shares had not been treated as stock in trade by the assessee. The fact that the shares were in the physical possession of the lender was not relevant because the assessee was the owner thereof

As regards deductibility of the interest, though a branch and the HO are the “same person” in general law, Articles 5 & 7 of the DTAA provide that the PE shall be assessable as a separate entity. Under Article 7(3)(b) payment of interest by a bank’s PE to its HO is allowed as a deduction. The result is that the interest paid by the PE to the HO is deductible in computing the PE’s profits (Betts Hartley Huett 116 ITR 425 (Cal) distinguished)

In view of Pithwa Engineering 276 ITR 519 (Bom) & Ashok Patel 317 ITR 386 (MP) followed in CIT vs. P. S. Jain & Co (included in file) where it was held that the CBDT Circular imposing limits on the filing of appeals by the department applied to pending appeals, Instruction No. 3/2011 Dated 9-2-2011 also applied to pending appeals and as the tax effect was less than Rs. Rs. 10 lakhs, the appeal was not maintainable.

The answer to the question whether the waiver of a loan is taxable as income or not depends on the purpose for which the loan was taken. If the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax u/s 28(iv) or 41(1). On the other hand, if the loan was taken for a trading purpose and was treated as such from the very beginning in the books of account, its waiver would result in income more so when it was transferred to the P&L A/c in view of Sundaram Iyengar 222 ITR 344 (SC)

If an assessment happens to be an under-assessment or a mistaken order, the course open to the AO is either to rectify the mistake u/s 154 or to make a reassessment u/s 147. While, it is correct, as held in EID Parry 216 ITR 489 (Mad), that the AO has to choose between the two and cannot initiate both proceedings at the same time, the principle of constructive res judicata made applicable by the Madras High Court that the AO having initiated rectification proceedings u/s 154 should stick to the same only and cannot drop that and proceed u/s 147 is not acceptable. The fact that the AO invoked s. 154 and dropped it does not affect the validity of re-assessment u/s 147

Circular dated 15.5.2008 laying down monetary limit controls the filing of the appeals and not their hearing. Appeals filed as per applicable limit at the time of filing cannot be governed by circular applicable at the time of hearing. The object of the Circular u/s 268A is only to govern monetary limit for filing of the appeals. There is no scope for reading the circular as being applicable to pending appeals