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DATE: August 12, 2008 (Date of pronouncement)
DATE: July 6, 2016 (Date of publication)
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Interest paid for broken period should not be considered as part of the purchase price, but should be allowed as revenue expenditure in the year of purchase of securities. American Express vs. CIT 258 ITR 601 (Bom) affirmed, Vijaya Bank 187 ITR 541 (SC) distinguished

It was argued on behalf of the Revenue, that in view of the judgment in Vijaya Bank Ltd.’s case [1991] 187 ITR 541 (SC), even if the securities were treated as part of the trading assets, the income therefrom had to be assessed under section 18 of the Act and not under section 28 of the Act as income from securities can only come within section 18 and not under section 28. We do not find any merit in this argument. Firstly, as stated above, Vijaya Bank Ltd.’s case [1991] 187 ITR 541 (SC) has no application to the facts of this case. Secondly, in the present case, the Tribunal has found that the securities were held as trading assets. Thirdly, it has been held by the Supreme Court in the subsequent decision reported in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306, that income from securities can also come under section 28 as income from business. This judgment is very important. It analyses the judgment of the Supreme Court in United Commercial Bank Ltd.’s case [1957] 32 ITR 688, which has been followed by the Supreme Court in Vijaya Bank Ltd.’s case [1991] 187 ITR 541. It is true that once an income falls under section 18, it cannot come under section 28. However, as laid down by the Supreme Court in Cocanada Radhaswami Bank Ltd.’s case [1965] 57 ITR 306, income from securities treated as trading assets can come under section 28. In the present case, the Department has treated income from securities under section 28.

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DATE: July 5, 2016 (Date of pronouncement)
DATE: July 6, 2016 (Date of publication)
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Entire law on assessment of shipping companies under the "Tonnage Tax" Scheme in Chapter XIIG of the Income-tax Act, 1961 in the context of "slot charters" explained

When the scheme of the aforesaid special provision for computation of income under TTS is exempted, we find the balance tilted in favour of the assessee as that was the precise purpose in introducing TTS in India. It may be stated in brief that in view of the stiff competition faced by the Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by rationalising its tax cost. For the reason that it is impossible to cater to all shipping routes on owned ships, it is an accepted and widely prevalent practice globally and in India that shipping companies engage in slot charter operations. If such slot charter arrangements are not entered into, then Indian shipping companies will not be able to take up contract of affreightments and these contracts would have fallen to only foreign shipping lines thereby making Indian shipping industry uncompetitive. Such slot charter arrangements being with a shipping company but not in relation to or for a particular ship, it is impossible for the Indian shipping company to identify the cargo ship, which carried the goods

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DATE: April 28, 2016 (Date of pronouncement)
DATE: May 25, 2016 (Date of publication)
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S. 158BC: A stay on the conduct of a "special audit" u/s 142(2A) amounts to a "stay of the assessment proceedings" and extends limitation u/s 158BE. One warrant of authorisation can be used for multiple visits and searches and limitation commences only after the panchnama records the conclusion of the search

As a general rule, therefore, when there is no stay of the assessment proceedings passed by the Court, Explanation 1 to Section 158BE of the Act may not be attracted. However, this general statement of legal principle has to be read subject to an exception in order to interpret it rationally and practically. In those cases where stay of some other nature is granted than the stay of the assessment proceedings but the effect of such stay is to prevent the assessing officer from effectively passing assessment order, even that kind of stay order may be treated as stay of the assessment proceedings because of the reason that such stay order becomes an obstacle for the assessing officer to pass an assessment order thereby preventing the assessing officer to proceed with the assessment proceedings and carry out appropriate assessment

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DATE: May 2, 2016 (Date of pronouncement)
DATE: May 25, 2016 (Date of publication)
AY: 1981-82
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S. 153: In a case of conferment of “concurrent” jurisdiction upon the ITO & IAC, the ITO does not stand denuded of powers to make an assessment. It is open to the ITO to assume jurisdiction and pass the assessment order in case the IAC does not exercise those powers. What is important is the actual exercise of powers and not merely conferment of the powers. S. 144B applies only if the IAC exercises powers or performs the functions of an ITO

It is not the IAC who exercises the powers or performs the functions of the ITO, even when such a power was conferred upon him, concurrently with the ITO. The significant feature of Section 125A of the Act is that even when the IAC is given the same powers and functions which are to be performed by the ITO in relation to any area or classes or person or income or classes of income or cases or classes of cases, on the conferment of such powers, the ITO does not stand denuded of those powers. With conferment of such powers on the IAC gives him “concurrent” jurisdiction which means that both, ITO as well as the IAC, are empowered to exercise those functions including passing assessment order. It is still open to the ITO to assume the jurisdiction and pass the order in case the IAC does not exercise those powers in respect of the assessment year. Provisions of Section 144B would not apply only if the IAC exercises powers or performs the functions of an ITO. What is important is the actual exercise of powers and not merely conferment of the powers that are borne out from the bare reading of sub-Section (4) of Section 125B

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DATE: May 11, 2016 (Date of pronouncement)
DATE: May 16, 2016 (Date of publication)
AY: 2001-02
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S. 263: Even if AO applies mind and decides not to assess expenditure as unexplained u/s 69C because the assessee withdrew the claim for deduction, the CIT is entitled to revise the assessment on the ground that the matter needed further investigation

There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue

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DATE: April 19, 2016 (Date of pronouncement)
DATE: May 7, 2016 (Date of publication)
AY: 1989-90
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S. 5/ 147: Even if income by way of rent is enhanced with retrospective effect, it accrues only when a right to receive the income is vested in the assessee. A notice u/s 148 seeking to assessee the income prior to its accrual is without jurisdiction

A reading of the decision of this Court in E.D. Sassoon (supra) would go to show that the income to be chargeable to tax must accrue or arise at any point of time during the previous year. This Court in E.D. Sassoon (supra) has held in categorical terms that income can be said to have accrued or arisen only when a right to receive the amount in question is vested in the assessee. Viewed from the aforesaid perspective, it is clear that no such right to receive the rent accrued to the assessee at any point of time during the assessment year in question, inasmuch as such enhancement though with retrospective effect, was made only in the year 1994. The contention of the Revenue that the enhancement was with retrospective effect, in our considered view, does not alter the situation as retrospectivity is with regard to the right to receive rent with effect from an anterior date. The right, however, came to be vested only in the year 1994

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DATE: April 26, 2016 (Date of pronouncement)
DATE: April 27, 2016 (Date of publication)
AY: -
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S. 15, 17, 192: Concept of "salary" explained. Held that as "tips" are paid to employees of the assessee from an outsider on a voluntary basis and the employees have no vested right to receive the same, the same is not "salary" and the assessee has no obligation to deduct TDS

It can be seen, on an analysis of Section 15, that for the said Section to apply, there should be a vested right in an employee to claim any salary from an employer or former employer, whether due or not if paid; or paid or allowed, though not due. In CIT v. L.W. Russel reported in 53 ITR 91 (SC), this Court dealt with the provisions of Section 7(1) of the 1922 Act, which preceded Sections 15 and 17 of the present Act and held that it is necessary for the employee to have a vested right to receive an amount from his employer before he could be brought to tax under the head “salaries”; Tips being purely voluntary amounts that may or may not be paid by customers for services rendered to them would not, therefore, fall within Section 15(b) at all. Also, it is clear that salary must be paid or allowed to an employee in the previous year “by or on behalf of” an employer. Even assuming that the expression “allowed” is an expression of width, the salary must be paid by or on behalf of an employer. It must first be noticed that the expression “employer” is different from the expression “person”. An “employer” is a person who employs another person under a contract of employment, express or implied, to perform work for the employer. Therefore, Section 15(b) necessarily has reference to the contract of employment between employer and employee, and salary paid or allowed must therefore have reference to such contract of employment.

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DATE: April 22, 2016 (Date of pronouncement)
DATE: April 25, 2016 (Date of publication)
AY: 2004-05 to 2009-10
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S. 10(23C): Meaning of expression "existing solely for the purpose of education and without any profit motive" explained. Mere fact that there is huge surplus (in excess of 6 to 15%) and minimal expenditure does not imply profit motive if the surplus is ploughed back into educational activities. Fees collected from students, though as per statute, is not a funding by the Government

In the present case, we find that during a short period of a decade i.e. from the year 1999 to 2010 the University had generated a surplus of about Rs.500 crores. There is no doubt that the huge surplus has been collected/accumulated by realizing fees under different heads in consonance with the powers vested in the University under Section 23 of the VTU Act. The difference between the fees collected and the actual expenditure incurred for the purposes for which fees were collected is significant. In fact the expenditure incurred represents only a minuscule part of the fees collected. No remission, rebate or concession in the amount of fees charged under the different heads for the next Academic Year(s) had been granted to the students. The surplus generated is far in excess of what has been held by this Court to be permissible (6 to 15%)

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DATE: March 2, 2016 (Date of pronouncement)
DATE: April 18, 2016 (Date of publication)
AY: -
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Important law on concept of "ancestral property" under the Hindu Succession Act, 1956 and the formation of a HUF by the surviving members of the deceased explained

On a conjoint reading of Sections 4, 8 and 19 of the Act, after joint family property has been distributed in accordance with section 8 on principles of intestacy, the joint family property ceases to be joint family property in the hands of the various persons who have succeeded to it as they hold the property as tenants in common and not as joint tenants

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DATE: March 29, 2016 (Date of pronouncement)
DATE: March 31, 2016 (Date of publication)
AY: 2005-06
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S. 9(1)(vii)/ 40(a)(ia)/ 194J: “Technical services” & “Managerial and Consultancy service” denotes services that cater to special & exclusive needs of the consumer/user. A "facility", even if termed as a service, which is available to all users, does not come within the ambit of “technical services” in Explanation 2 of s. 9(1)(vii)

“Technical services” like “Managerial and Consultancy service” would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression “technical services” appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act

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