In Alom Extrusion Ltd 319 ITR 306 the Supreme Court held that the omission of the second proviso to s. 43B by the Finance Act 2003 operated retrospectively w.e.f. 1.4.1988. The Court held that the contribution payable by the employer to the P.F/Superannuation Fund or any other Fund of welfare of the employees was allowable if paid before the due date of filing the return. Consequently, the issue is covered in favour of the assessee and the deduction is allowable u/s 43B.

S. 10(38) was inserted with the object to grant exemption to LTCG as tax has already been levied on a different footing (STT). The revenue’s contention that long term capital loss should be adjusted against exempt LTCG will be contrary to the intention, object and purpose of enacting s. 10 (38). Further, the revenue’s view will result in absurdity if the facts are reversed because then LTCG earned before 1.10.2004 (which is taxable) will be eligible for set off against (exempt) long term capital loss suffered after 1.10.2004. This will result in a loss from an exempt source being set off against taxable gain which is contrary to law.

S. 10A allows a deduction of the “profits and gains derived by the undertaking from the export of computer software” “from the total income of the assessee”. The effect is that the deduction has to be made at the stage of computing the income under head “Profits & gains” and not at the stage of computing the gross total income. Consequently, the losses of a non-eligible unit cannot be set off against the profits of an eligible unit and are eligible to be set-off against other income or to be carried forward.

In Circular No. 23 of 1969 dated 23rd July 1969 the CBDT has held that if a non resident’s sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent’s services provided that non-resident’s business activities in India are wholly channeled through its agent, the contracts to sell are made outside India and sales are made on a principle-to-principle basis. It has been held that in the assessment of the amount of profits, a deduction will be given for the expenses incurred, including the agent’s commission. Accordingly, if the agent’s commission fully represents the value of the profit attributable to his service, nothing further can be assessed in the hands of the non-resident

The argument that notional interest income cannot be assessed is not acceptable in the context of transfer pricing. S 92(1) provides that any income arising from an international transaction has to be computed having regard to the arm’s length price. S. 92B (1) defines an “international transaction” to mean “a transaction between two or more associated enterprises … in the nature of … lending or borrowing money …” In considering the “arms length” price of a loan, the rate of interest has to be considered and income on account of interest can be attributed

S. 153A does not authorize the making of a de novo assessment. While under the 1st Proviso, the AO is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate. The effect is that completed assessments do not abate. There can be two assessments for the same assessment year. Assessments which are not pending on the date of search but are pending before an appellate authority will survive.

Applying the principle in Govinddas 103 ITR 123 (SC), the amended s. 74 is applicable to computation of loss under the head “Capital Gains” for AY 2003-04 and onwards. As regards loss of earlier years, the law as it then stood gave a vested right of set off the loss against all capital gains. There is nothing in the amendment which withdraws the said vested right. Consequently, the loss can be set off against short-term capital gains despite the amendment.

The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. Delivery based transactions were rightly treated as being in the nature of investment transactions giving rise to capital gains. The Tribunal correctly accepted the position that though the principle of res judicata is not attracted, there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. The Tribunal has noted that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year in all the years and there is no justification for a different view being taken by the AO.

S. 45 (3) applies when a capital asset is introduced into a firm as capital contribution. This provision applies also when stock-in-trade is introduced into a firm because the transaction is on the capital account and stock-in-trade does not retain its character as stock-in-trade at the point of time of introduction. This is also shown by the fact that the assessee revalued the stock-in-trade to its market value prior to the introduction into the firm. Consequently, the gains on such transfer is taxable u/s 45(3).

The “use” of an individual asset can be examined only in the first year when the asset is purchased. In subsequent years the use of block of assets is to be examined. The existence of an individual asset in block of asset itself amounts to use for the purpose of business. This is supported by the proviso to s. 32 which provides half depreciation for assets acquired in the year and held for less than 180 days. Once an asset is included in the block of assets it remains there and can only be removed when it is sold, discarded etc u/s 43(6)(c)(i)(B) or used for non-business purposes u/s 38 (2) or where the entire block ceases to exist. On facts, though the entire division was closed, the assets were a part of the block of assets and depreciation was allowable thereon.