No order u/s 201(l) or (1A) holding the payer to be in default can be passed where the Revenue has not taken any action against the payee and the time limit for taking action against the payee u/s 147 has expired. On facts, the admitted position is that no assessment has been made in the hands of the payee in respect of the sums received from the assessee in respect of GDR issues. Similarly no proceedings have been taken against it till date for assessing such income. The time limit for issuing notice u/s 148 has also come to an end. As the time limit for taking action against the payee u/s 147 is not available, and there is no course left to the Revenue for making the assessment of the non-resident, exconsequenti, no lawful order can be passed against the assessee either u/s 201(1) or (1A) (Mahindra & Mahindra 313 ITR 263 (Mum) (SB) (AT) followed)

In a case where the consideration for the transfer was received several months after the date of transfer, the period of 6 months for making deposit u/s 54EC should be reckoned from the date of actual receipt of the consideration. If the period is reckoned from the date of agreement and receipt of part payment at the first instance, it would lead to an impossible situation by asking assessee to invest money in specified asset before actual receipt of the same. Also, s. 54EC requires the “consideration” to be invested. If the consideration is not received, there is no question of investing it (S. Gopal Reddy 181 ITR 378 (AP), Janardhan Dass 299 ITR 210 (All) Darapaneni Chenna Krishnayya 291 ITR 98 (AP) (compulsory acquisition cases) followed)

On the issue as to the “full value of consideration“, the department’s argument that since the transferor’s liabilities have been taken over by the transferee, it would have to be treated as consideration received by the transferor is not acceptable. In the case of a slump sale, one lump sum value of the undertaking derived by adding all assets and reducing all the liabilities is arrived at. This is the “full value of the consideration”. If one adds the liabilities to this value, one is arriving at the consideration for the “assets” but not the consideration for the “undertaking“. Accordingly, the “consideration” is Rs. 143 crores and not Rs. 300 crores as calculated by the AO. Also, once the sale consideration has been approved by the High Court, it is unrealistic for the Revenue to contend that the consideration of Rs. 143 crore does not represent the full value of consideration of the undertaking (George Henderson 66 ITR 622 (SC), Gillanders Arbuthnot 87 ITR 407 (SC) & Attili N. Rao 252 ITR 880 (SC) distinguished)

The object of the proviso to s. 54EC is to provide a ceiling of Rs. 50 lakhs on investment by an assessee in the long term specified assets. If the assessee’s interpretation is accepted then, because the transfer took place of assets has taken place from 1st Oct to 31st March, the assessee is able to invest Rs. 50 lakhs in the financial year in which the transfer took place and Rs. 50 lakhs in the subsequent financial year. However, assessees who have made a transfer of assets from 1st April to 30th Sept will not be entitled to do so. Accordingly, the investment has to be linked to the financial year in which transfer has taken place and the claim for deduction cannot exceed Rs. 50 lakhs

S. 201(3) inserted by the FA 2009 w.e.f. 1.4.2010 imposes a time limit for the passing of s. 201 orders. The Proviso to s. 201(3) provides that an order for a financial year commencing on or before 1.4.2007 may be passed at any time on or before 31.3.2011. In the present case, the proceedings were initiated after the search on 16.11.2009. On this date, the amended provisions of s. 201 (3) had not come into force. Accordingly, the law prevailing as on that date as per NHK & Hutchison applied where it was held that an order u/s 201 could not be passed after the expiry of 4 years from the end of the FY. The s. 201 order was consequently beyond limitation. (H.M.T. Ltd. (P&H) & Bhura Exports 202 TM 88 (Cal) not followed)

There is a distinction between a receipt for transfer of ownership rights in property and a receipt for transfer of tenancy rights in respect of a property because though both are assessable as capital gains, in the case of tenancy rights, the “cost of acquisition” is deemed to be Nil u/s 55(2)(a) unless if it is purchased for a cost. The fact that the assessee assigned his rights, together with the owner, pursuant to the tripartite agreement did not mean that the assessee’s had ownership rights in the property. S. 50 C applies “where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government …… for the purpose of payment of stamp duty in respect of such transfer”. The sine qua non for application of s. 50 C is that the transfer must be of a “capital asset, being land or building or both”. A “leasehold right in land or building” cannot be equated with the “land or building”. Accordingly, s. 50C has no application to the assignment of leasehold/ tenancy rights

The documentation indicates an unsavoury and uneasy situation prevalent at the Chandigarh Bench of the ITAT and the litigating parties are found to be engaged in an unenviable endeavour to wash the proverbial dirty linen in public. The prevalence of the factual scenario, indicating almost complete want of trust and faith inter-se, ought to be foreign to each segment of dispensation of justice which (system), for optimum and unbiased delivery requires an ambience based upon balanced and conscientious approach. For reasons of propriety, we are not noticing any part of the mutual acrimony as between the personnel who are a part of the dispensation at the local Bench of ITAT. We express our deep sense of exasperation at the prevalent scenario and hope and trust that the sentiments expressed by the President of the ITAT in the course of his letter dated 4.1.2012 for ensuring bonhomie at the local Bench of the ITAT, would be pursued to its logical conclusion

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