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DATE: March 18, 2016 (Date of pronouncement)
DATE: April 18, 2016 (Date of publication)
AY: 2008-09
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CITATION:
In view of CBDT Circular No. 6/2016 dated 29.02.2016, if assessee has consistently shown shares as an “investment” and offered gains as capital gains, AO is not entitle to urge that the same constitutes “stock-in-trade” and assess gains as business profits on grounds that there were substantial and frequent transactions and motive was to earn profit and holding period of such shares was very short

Before us the moot question which is required to be decided is whether the income earned by the assessee on account of share is required to be treated as business income or required to be treated as short term capital gain. After the matter was heard on 11.02.2016, the CBDT came out with the Circular No. 6/2016 dated 29.02.2016 in the following manner. In view of the circular, we have clearly noticed that the issue raised in this appeal stands fully covered by the Circular issued by the CBDT. Since the assessee has treated the securities as investment and not as stock in trade in all the years, therefore, in view of the CBDT Circular, the revenue is not permitted to take a contrary view in the present year and claimed that the security is stock in trade and, therefore, the profit/gain caused to the assessee be treated as business income. In our view, there is no merit in the contention of the revenue and is deserves to be dismissed in view of the circular.

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Posted on by editor
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DATE: March 1, 2016 (Date of pronouncement)
DATE: April 18, 2016 (Date of publication)
AY: 2007-08
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CITATION:
S. 80-IB(7): Amounts by way of rent and other misc items, though shown as "other income" in the books, constitutes "key revenue category" as per ICAI Guidelines and are "derived" from the business of the hotel

Thus it can be seen from the above that, rent received by the assessee of Rs.180,000/- from Heritage Shop which represents rental income from Curio Shop and of Rs.120,000/- for the space and amenities given to Kumarakom Water Transport Pvt. Ltd. will fall within the key revenue generation category of ‘Space Rentals’ and ‘Arcade revenue’ and ‘Housekeeping bill’ for a hotel industry. Revenue from staff mess of Rs.7,139/- will also fall within the key revenue generation category of ‘Food and Beverages’ for a hotel industry. Revenue from staff telephone of R.90,048/- will fall within the key revenue category of ‘Communication revenue (both telephone & internet)’ as per ICAI guidelines

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DATE: March 31, 2016 (Date of pronouncement)
DATE: April 15, 2016 (Date of publication)
AY: 2009-10
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CITATION:
Transfer Pricing Of Corporate Guarantees: Explanation i(c) to S. 92 B, though stated to be clarificatory and stated to be effective from 01.04.2002, has to be necessarily treated as effective from at best AY 2013-14 as it is an "anti abuse" provision. Dept’s submission that Bharti Airtel 161 TTJ 428 is “per incuriam” is not acceptable. Law laid down in Micro Ink 176 TTJ 8 (Ahd) on transfer pricing implications of corporate guarantees reiterated

It is very important to bear in mind the fact that right now we are dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti abuse rule), and that every anti abuse legislation, whether SAAR (specific anti abuse rule) or GAAR (general anti abuse rule), is a legislation seeking the taxpayers to organize their affairs in a manner compliant with the norms set out in such anti abuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behavior is acceptable or what is not acceptable. What triggers levy of taxes is non-compliance with the manner in which the anti-abuse regulations require the taxpayers to conduct their affairs. In that sense, all anti abuse legislations seek a certain degree of compliance with the norms set out therein. It is, therefore, only elementary that amendments in the anti-abuse legislations can only be prospective. It does not make sense that someone tells you today as to how you should have behaved yesterday, and then goes on to levy a tax because you did not behave in that manner yesterday. It is for this reason that the Explanation to Section 92 B, though stated to be clarificatory and stated to be effective from 1st April 2002, has to be necessarily treated as effective from at best the assessment year 2013-14

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DATE: April 6, 2016 (Date of pronouncement)
DATE: April 15, 2016 (Date of publication)
AY: 2007-08
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CITATION:
Rule 46A of the Income Tax Rules which regulates the admission of additional evidence by the CIT(A) cannot override the principles of natural justice

The principle “Audi alteram partem”, i.e. no man should be condemned unheard is the basic canon principles of natural justice and accordingly we find merit in the contentions of the assessee that Rule 46A of the Income Tax Rules cannot be over ride the principles of natural justice. Hence we are of the view that the learned CIT(A) was not justified in refusing to admit the various additional evidences furnished by the assessee

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DATE: March 24, 2016 (Date of pronouncement)
DATE: April 15, 2016 (Date of publication)
AY: 2011-12
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CITATION:
S. 143(3): In an AIR scrutiny assessment, the AO is not entitled to widen the scope of scrutiny without approval of the CIT as per CBDT's Instruction. Such an assessment order is not sustainable

In fact, what the AO did was to widen the scrutiny. Now, para 2 of CBDT Instruction is specific when it states that where it is felt that apart from the AIR information, there is potential escapement of income more than Rs. 10 lakhs, the case may be taken up for wider scrutiny with the approval of the administrative Commissioner. So, the proper course for the AO before making these additional enquiries would have been to take approval from the administrative Commissioner to widen the scrutiny. This, however, was not done and therefore, the action of the AO is violative of the CBDT Instruction

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Posted on by editor
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DATE: April 5, 2016 (Date of pronouncement)
DATE: April 15, 2016 (Date of publication)
AY: 2003-04
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CITATION:
S. 147/ 148: Law laid down in Jet Airways India 331 ITR 236 and Ranbaxy 336 ITR 136 that if AO does not make any addition for the reason stated for reopening, he cannot add any other income holds good even for years when Explanation 3 to s. 147 is operative

The argument of the Ld. DR that the ratio propounded in Jet Airways India vs. CIT 331 ITR 236 and Ranbaxy Laboratories Ltd. vs. CIT(2011) 336 ITR 136 does not apply since those cases related to assessment years when Explanation 3 to section 147 was not on the statute, we find has not merit since in the above mentioned decisions the Court has interpreted the provision of section 147 on first principle to hold that only if addition are made on account of income which the AO had reason to believe had escaped assessment that any other addition can be made. It is not Explanation 3 which had been interpreted in favour of the assessee in these cases. In fact we find that Explanation 3 empowers AO’s to make assessment on any matter which comes to their notice during assessment proceedings. But the same alongwith section 147 has been interpreted as stated above. Therefore, the presence or absence of Explanation 3 to section 147 does not nullify the interpretation given by the courts in the above stated judgments

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Posted on by Dhaval Shah
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DATE: March 16, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2010-11
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CITATION:
S. 50C does not apply to transfer of leasehold rights in land

Section 50C of the Act provides that if the consideration received or accruing is less than the value adopted or assessed or assessable by the stamp valuation authority of the State Government for such transfer then the value so adopted or assessed or assessable shall be deemed to be the full value of consideration and the capital gains will be computed accordingly. The phraseology of section 50C of the Act clearly provides that it would apply only to “a capital asset, being land or building or both”. The moot question before us is as to whether such expression would cover the transfer of a capital asset being leasehold rights in land or building. There cannot be a dispute to the proposition that the expression land by itself cannot include within its fold leasehold right in land also. Of-course, leasehold right in land is also a capital asset and we find no fault with this stand of the Revenue. So however, every kind of a ‘capital asset’ is not covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of consideration. Infact, the heading of section itself provides that it is “Special provision for full value of consideration in certain cases”. Therefore, there is a significance to the expression “a capital asset, being land or building or both” contained in section 50C of the Act. The significance is that only capital asset being land or building or both are covered within the scope of section 50C of the Act, and not all kinds of capital assets

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Posted on by Dhaval Shah
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DATE: April 6, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 2(22)(d): Redemption of preference shares does not constitute "deemed dividend"

As can be seen by s. 2(22)(d), there should be a reduction of its capital and distribution to the shareholders out of the accumulated profits. Section 80(3) of the Companies Act states that the redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital. By virtue of section 80(3) redemption of preference shares cannot be considered as reduction of authorised share capital, therefore, treating them as deemed dividend does not arise, as the provisions of section 2(22)(d) can only be invoked only when there is distribution of accumulated profits by way of reduction of share capital. Therefore the question of invoking deemed dividend provision on this transaction does not arise, eventhough the redemption of shares are to be made out of the profits of the company by virtue of section 80(1) of the Companies Act. However, since it cannot be treated as reduction of authorised share capital by virtue of section 80(3) of the Companies Act, the amount received by assessee on redemption of preference shares cannot be treated as deemed dividend

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Posted on by itatbar
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DATE: March 18, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2012-2013
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CITATION:
S. 14A/ Rule 8D: No disallowance can be made on shares held as stock-in-trade

The Commissioner of Income Tax (Appeals) has erred in not following the order of Tribunal in asessee’s own case. The Co-ordinate Bench of the Tribunal had rejected the appeal of Department for assessment year 2010-11 on identical set of facts. The Commissioner of Income Tax (Appeals) should have maintained ‘Judicial Propriety’ in following the order of Appellate Authority. As of now we restrain ourselves from commenting on the judicial indiscipline committed by the Commissioner of Income Tax (Appeals) and expect that he shall be more careful in future in honouring the orders of the higher Appellate Authorities

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Posted on by itatbar
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DATE: February 19, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2010-11 & 2011-12
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CITATION:
S. 263: As issue of whether TDS should bee u/s 194C or 194H is subject to two views, revision is not possible

In the original assessment proceedings, the AO had analysed the payment in detail and then concluded that the provisions of sec. 194C are applicable. Also, not two but three views were possible viz. (i) TDS u/s 194H which was discussed by the AO in original order; (ii) TDS u/s 194C which was upheld by AO; and (iii) sec. 194A now sought to be taken by CIT. Since three views were possible, revision was not permissible. Furthermore, even on merits, it was held that view of the CIT was not correct because there was no money borrowed or debt incurred, and hence, payment made to NCL was not “income by way of interest”

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