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DATE: April 24, 2018 (Date of pronouncement)
DATE: May 2, 2018 (Date of publication)
AY: -
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S. 80-IA(4): Inland Container Depots (ICDs) are Inland Ports and income earned out of these Depots are eligible for deduction. However, the actual computation is to be made in accordance with the different Notifications issued by the Customs department with regard to different ICDs located at different places

Though both the Notification and communication are not binding on CBDT to decide whether ICDs can be termed as Inland Ports within the meaning of Section 80-IA of the IT Act, the appellant herein is unable to put forward any reasonable explanation as to why these notifications and communication should not be relied to hold ICDs as Inland Ports. Unless shown otherwise, it cannot be held that the term ‘Inland Ports’ is used differently under Section 80-IA of the IT Act. All these facts taken together clear the position beyond any doubt that the ICDs are Inland Ports and subject to the provisions of the Section and deduction can be claimed for the income earned out of these Depots. However, the actual computation is to be made in accordance with the different Notifications issued by the Customs department with regard to different ICDs located at different places.

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DATE: April 27, 2018 (Date of pronouncement)
DATE: April 30, 2018 (Date of publication)
AY: 2001-02
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CITATION:
S. 80HHC: Law laid down in Baby Marine Exports 290 ITR 323 & Sushil Kumar Gupta 210 TM 251 (SC) is not correct. Question whether supporting manufacturer who receives export incentives in the form of duty draw back (DDB), Duty Entitlement Pass Book (DEPB) etc. is entitled for deduction u/s 80HHC is referred to the larger Bench

we are not in the agreement with the decisions in Baby Marine Exports 290 ITR 323 & Sushil Kumar Gupta 210 TM 251 (SC) and as Explanation (baa) of Section 80HHC specifically reduces deduction of 90% of the amount referable to Section 28 (iiia) to (iiie) of the IT Act, hence, we are of the view that these decisions require re-consideration by a larger Bench since this issue has larger implication in terms of monetary benefits for both the parties

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: -
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S. 56: Interest accrued on account of deposit of share application money is not taxable income. Such interest is inextricably linked with the requirement to raise share capital and is thus adjustable towards the expenditures involved for the share issue. The fact that part of the share application money would normally have to be returned to unsuccessful applicants, and therefore, the entire share application money would not ultimately be appropriated by the Company, make no significant difference. The Interest earned from share application money has statutorily required to be kept in separate account and was being adjusted towards the cost of raising share capital

The common rationale that is followed in Bokaro Steel Ltd (1999) 236 ITR 315 (SC) and Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 (SC) is that if there is any surplus money which is lying idle and it has been deposited in the bank for the purpose of earning interest then it is liable to be taxed as income from other sources but if the income accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some additional income then the income is not liable to be assessed and is eligible to be claimed as deduction. Putting the above rationale in terms of the present case, if the share application money that is received is deposited in the bank in light of the statutory mandatory requirement then the accrued interest is not liable to be taxed and is eligible for deduction against the public issue expenses.

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1998-99
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Law on whether amount received by an employee from redemption of Stock Appreciation Rights (SARs) can be assessed as "perquisite" u/s 17(2) (iii) or as "profits of business" u/s 28 (iv) or as "capital gains" (despite no "cost of acquisition") u/s 45 explained. CBDT Circular No. 710 dated 24.07.1995 considered

The word “Perquisite” in common parlance may be defined as any perk or benefit attached to an employee or position besides salary or remuneration. Broadly speaking, these are usually noncash benefits given by an employer to an employee in addition to entitled salary or remuneration. It may be said that these benefits are generally provided by the employers in order to retain the talented employees in the organization. There are various instances of perquisite such as concessional rent accommodation provided by the employer, any sum paid by an employer in respect of an obligation which was actually payable by the employee etc. Section 17(2) of the IT Act was enacted by the legislature to give the broad view of term perquisite

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: -
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CITATION:
Diversion of income by overriding title: Only income that has actually accrued to the assessee is taxable. What income has really occurred to be decided, not by reference to physical receipt of income, but by the receipt of income in reality. The fact that there is no written agreement to show that the assessee was acting as a broker is not relevant. The relationship of the assessee vis-a-vis others can be inferred from the conduct of the parties

The income that has actually accrued to the Respondent is taxable. What income has really occurred to be decided, not by reference to physical receipt of income, but by the receipt of income in reality. Given the fact that the Respondent had acted only as a broker and could not claim any ownership on the sum of Rs. 14,73,91,000/- and that the receipt of money was only for the purpose of taking demand drafts for the payment of the differential interest payable by Indian Bank and that the Respondent had actually handed over the said money to the Bank itself, we have no hesitation in holding that the Respondent held the said amount in trust to be paid to the public sector units on behalf of the Indian Bank based on prior understanding reached with the bank at the time of sale of securities and, hence, the said sum of Rs. 14,73,91,000/- cannot be termed as the income of the Respondent

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1999-00
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CITATION:
Bifurcation of lease rentals into interest and loan recovery: An assessee can only be taxed on "real income". The bifurcation of lease rental is not an artificial calculation. Lease equalization is an essential step in the accounting process to ensure that real income from the transaction in the form of revenue receipts only is captured for the purposes of income tax. The Guidance Note issued by the ICAI carries great weight. The method of accounting prescribed in such a Guidance Note, in order to compute real income and offering the same for taxation, cannot be disregarded by the AO unless such action falls within the scope and ambit of S. 145(3) of the IT Act

The method of accounting followed, as derived from the ICAI’s Guidance Note, is a valid method of capturing real income based on the substance of finance lease transaction. The rule of substance over form is a fundamental principle of accounting, and is in fact, incorporated in the ICAI’s Accounting Standards on Disclosure of Accounting Policies being accounting standards which is a kind of guidelines for accounting periods starting from 01.04.1991. It is a cardinal principle of law that the difference between capital recovery and interest or finance income is essential for accounting for such a transaction with reference to its substance. If the same was not carried out, the Respondent would be assessed for income tax not merely on revenue receipts but also on non-revenue items which is completely contrary to the principles of the IT Act and to its Scheme and spirit

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1989-90 to 1999-2000
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S. 158BD Block Assessment: Although s. 158BD does not speak of ‘recording of reasons’ as postulated in s. 148, but since proceedings u/s 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the AO in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings u/s 158BD. Notice u/s 158BC issued on the same date to the searched person and the other person is not valid as no reasonable or prudent man can come to the satisfaction that any undisclosed income belongs to the other person unless the seized books of accounts etc are verified. The AO is empowered to issue a second notice u/s 158BD to the other person

The very object of the Section 158BD is to give jurisdiction to the Assessing Officer to proceed against any person other than the person against whom a search warrant is issued. Although Section 158BD does not speak of ‘recording of reasons’ as postulated in Section 148, but since proceedings under Section 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the Assessing Officer in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings under Section 158BD

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DATE: April 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1997-98
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CITATION:
S. 80-O: Law on meaning of "technical assistance" and when services can be said to have made available "information concerning industrial, commercial or scientific knowledge, experience or skill" explained

The wider meaning of the word “technical” would defeat the object of Section 80-O by enabling the remuneration for management or running of a foreign company to be eligible for deduction under Section 80-O. On the other hand, the narrower meaning of the word “technical” seems to be more in keeping with the object of the section. It has to be remembered that the word “technology” which has affinity with the word “technical” is concerned with the control of material environment by man. This is done by two means

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DATE: April 3, 2018 (Date of pronouncement)
DATE: April 4, 2018 (Date of publication)
AY: -
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CITATION:
S. 194-H/201 TDS Liability: Law on whether relationship is that of "principal and agent" and whether payment is of the nature of "commission" explained. Non-compliance of s. 194H attracts the rigor of s. 201 which provides for consequences of failure to deduct or pay the tax. Jagran Prakashan vs. DCIT 345 ITR 288 (All) distinguished on facts

The Explanation appended to Section 194H defines the expression “commission or brokerage”. It is an inclusive definition and includes therein any payment received or receivable, directly or indirectly by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to assets, valuable article or thing not being securities. Clause (ii) defines professional services; clause (iii) defines securities; and clause (iv) provides a deeming fiction for treating any income so as to attract the rigor of the Section for ensuring its compliance

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DATE: February 12, 2018 (Date of pronouncement)
DATE: March 16, 2018 (Date of publication)
AY: -
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S. 14A/ Rule 8D - Applicability to shares held for controlling interest or as stock-in-trade: The argument that S. 14A & Rule 8D will not apply if the "dominant intention" of the assessee was not to earn dividends but to gain control of the company or to hold as stock-in-trade is not acceptable. S. 14A applies irrespective of whether the shares are held to gain control or as stock-in-trade. However, where the shares are held as stock-in-trade, the expenditure incurred for earning business profits will have to be apportioned and allowed as a deduction. Only that expenditure which is "in relation to" earning dividends can be disallowed u/s 14A & Rule 8D. The AO has to record proper satisfaction on why the claim of the assessee as to the quantum of suo moto disallowance is not correct

The first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act

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