As per Circular No.204 dated 24.7.1976 issued by the CBDT the expression “the sum for which the property might reasonably be expected to let from year to year” used in s. 23(1)(a) means the municipal valuation of the property. In Reclamation Reality, the Tribunal held, after considering the entire law on the subject, including the said Circular & M.V. Sonavala 177 ITR 246 (Bom) that the ALV had to be determined on the basis of either the Municipal rateable value (23(1)(a)) or the actual rent received (23(1)(b)), whichever is the higher. There is no scope for adding the notional interest on the security deposit to the ALV. Judicial propriety and judicial discipline require that this view be followed (CIT vs. Moni Kumar Subba 333 ITR 38 (Del) (FB) noted)

Once the assessee obtained Form No.15-I from the sub-contractors whose contents are not disputed or whose genuineness is not doubted then the assessee is not liable to deduct tax from the payments made to sub-contractors. Once assessee is not liable to deduct tax u/s 194C then disallowance u/s 40(a)(ia) cannot be made. The assessee’s breach of the requirement to furnish details to the income tax authority in the prescribed form within prescribed time may attract other consequences but cannot result in a s. 40(a)(ia) disallowance

Once the amount has been disallowed u/s 40(a)(i) for non-deduction of tax, it cannot be subject to TDS provisions again so as to make the assessee liable to pay the tax u/s 201 & interest u/s 201(1A). If the AO’s view was accepted that the assessee was liable to pay the TDS not deducted, then a disallowance u/s 40(a)(i) and 40(a)(ia) cannot be made and those provisions may become otiose

Transfer Pricing ALP: Application of “Aggregation”/ “Portfolio Approach” The Tribunal had to consider the following transfer pricing issues: (i) whether the principle of “aggregation” or “portfolio approach” could be adopted so as to adjust the under-charge of one international transaction …

Atul Limited vs. ACIT (ITAT Ahmedabad) Read More »

In Narang Overseas (P) Ltd vs. ACIT 114 TTJ 433 (SB), it was held by the Special Bench that if there is a cleavage of opinion amongst different High Courts and there is no decision of the jurisdictional High Court on the issue, then the view favourable to the assessee has to be followed. As the view of the Bombay High Court in Ronuk Industries 333 ITR 99 (Bom) & that of the Special Bench in Tata Communications Ltd vs. ACIT 138 TTJ (Mum) 257 is favourable to the assessee, that has to be followed and it has to be held that the assessee is entitled to a stay of the demand even after the expiry of the period of 365 days if the delay in disposal of the appeal is not exclusively attributable to it

Though in American Express Bank, the Tribunal followed Daga Capital Management 117 ITD 169 & distinguished Leena Ramachandran 339 ITR 296 (Ker) & held that s. 14A applies also to a trader in shares, the Karnataka High Court has held in CCL Ltd 250 CTR 291 that disallowance of expenses incurred on borrowings made for purchase of trading shares cannot be made u/s.14A. As this is a direct judgment of a High Court on the issue, the same has to be followed in preference to the decision of the Special Bench of the Tribunal in Daga Capital Management (or that in American Express Bank) & it has to be held that disallowance of interest in relation to the dividend received from trading shares cannot be made (Ganjam Trading Co (included in file) & Yatish Trading Co 129 ITD 237 followed)

However, though the contract was on a “turnkey” basis, it had to be regarded as an “umbrella contract” and as being a divisible contract because the consideration for various activities has been stated separately. Also, ONGC had the discretion to take only the platform erected by the assessee in Abu Dhabi without having installation thereof. The segregation of the contract revenues into offshore and onshore activities was made at the stage of awarding the contract. The total consideration was earmarked towards different activities and separate payment had to be made on the basis of work of design, engineering, procurement and fabrication. These operations had been carried out and completed outside India. The PE was in respect of the installation and commissioning work done in India and the activities carried outside India were not attributable to the said PE (Hyundai Heavy Industries 291 ITR 482 (SC), Ishikawajma-Harima Heavy Industries 288 ITR 408 (SC) & Roxon OY 103 TTJ 891 (Mum) followed)

S. 14A has within it implicit notion of apportionment in cases where expenditure is incurred for composite/indivisible activities in which taxable and non-taxable income is received. But when it is possible to determine the actual expenditure in relation to exempt income or when no expenditure has been incurred in relation to exempt income, then the principle of apportionment embedded in s. 14 A has no application. For s. 14A to apply, there should be a proximate relationship between the expenditure and the tax-free income. If the assessee claims that no expenditure has been incurred for earning the exempt income, it is for the AO to determine as to whether the assessee had incurred any expenditure in relation to the tax-free income and, if so, to quantify the extent of disallowance. In order to disallow the expenditure u/s 14A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the tax-free income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made u/s 14A merely because some tax exempt income is received by the assessee. On facts, from the details of the expenditure, it is clear that the expenditure incurred by the assessee has direct nexus with the professional income of the assessee. It is not the case of the revenue that the assessee has used his official machinery and establishment for earning the exempt income. The AO has not given any finding that any of the expenditure incurred and claimed by the assessee is attributable for earning the exempt income. Consequently, s. 14A disallowance is not permissible (Pawan Kumar Parmeshwarlal (ITAT Mumbai) & Auchtel Products (ITAT Mumbai) followed)

Whether s. 43B & s. 14A disallowance can be made under Article 7(3) of the India-Mauritius DTAA The Tribunal had to consider two issues: Whether in view of Article 7(3) of the India-Mauritius DTAA, a disallowance u/s 43B and s. …

State Bank of Mauritius Limited vs. DDIT (ITAT Mumbai) Read More »

The assessee’s act of getting its’ wholly owned subsidiary (‘WOS’) to distribute tax-free dividend, and thereby reduce the FMV of the shares of the WOS, just prior to the sale of those shares, did result in a tax advantage to the assessee because it paid lower tax on capital gains. However, the transaction of dividend distribution by the WOS cannot be regarded as a "colourable device" or as an "impermissible tax avoidance scheme". A transaction can be regarded as a "sham" where "the document is not bona fide nor intended to be acted upon, but is only used as a cloak to conceal a different transaction" or where "it is intended to give to third parties the appearance of creating between the parties legal rights and obligations which are different from the actual legal rights and obligations which the parties intend to create". On facts, the transaction cannot be regarded as a "sham" or a "colourable device" because (a) the WOS had sufficient reserves and cash surplus for the distribution of dividend & (b) the WOS paid dividend distribution tax which was duly accepted in its assessment