Digest of important case law

October 2008

SUPREME COURT

Penalty – Concealment – S. 271(1)(c) – Loss – Explanation 4

Explanation 4 is retrospective in nature and applicable retrospectively. When final assessed income is also loss penalty under section 271(1)(c) can be lived.

CIT vs. Gold Coin Health Food (P.) Ltd. (2008) 11 DTR 185 (SC).

Provision for bad and doubtful debts- Cannot be added to the “book profits” for purposes – S. 115JA

CIT vs. HCL Comnet Source: www.itatonline.org

SLP against ruling of AAR- Not maintable

Foster’s Australia vs. CIT Source: www.itatonline.org

Subsidy to encourage the setting up of sugar factories- Capital in nature

CIT vs. Ponni Sugars Source: www.itatonline.org

HIGH COURTS

Appeal – Tribunal – Duty

Tribunal should independently examine the issues and ground in appeal and give its independent judgment and order thereon instead of recording that the order under appeal is well reasoned order. If the Tribunal does not give its independent opinion the High Court will be deprived of a considered view which would be of immense value.

CIT vs. Jadeja Consultants (P.) Ltd. (2008) 10 DTR 205 (Delhi).

Bad Debt – S. 36(1)(viii) & 36(2)(iii).

After the amendment to S. 36(1)(vii) deduction on account of bad debt is allowable once the same is written off in the books of accounts and there is no requirement to establish that the debt had became irrecoverable.

Suresh Gaggal vs. ITO (2008) 11 DTR 345 (HP)

Block Assessment – Jewellery – Instruction of Board – S. 158B(b)

In the absence of any material found during Search having nexus with undisclosed income. No addition could be made in block assessment under Chapter X1V-B hence justified in deleting addition on account of jewellery having regard to CBDT instruction no 1916 dt. 11th May 2004.
CIT vs. M. S. Agarwal (HUF) (2008) 11 DTR 169 (MP).

Business Expenditure – Disallowance – Contribution to Provident Fund – S. 43B

Contribution made to employees contribution to provident fund before filing of return could not be disallowed under section 43B as it stood prior to the amendment, w.e.f. 1st April 2004. Deletion of second proviso to section 43B, by Finance Act, 2003, w.e.f. 1st April 2004, being curative in nature, is impliedly retrospective in operation.

CIT vs. Desh Rakshak Aushadhalaya Ltd. (2008) 10 DTR 125 (Uttarakhand).

Business Expenditure – Exchange Loss – S. 37

Exchange loss incurred by the assessee on refund of advance received from a foreign customer for supply of goods following cancellation of contract was a payment made on account of commercial expediency and wholly and exclusively for the purpose of business and, therefore, same is allowable.

Loksons (P.) Ltd. vs. CIT (2008) 11 DTR 206 (Bom.).

Capital Gains – Deductions – S. 48(2), 54 E

While computing long term capital gains, deduction under section 48 (2) is required to be allowed before exemption under section 54 E.

Sercon (P.) Ltd. vs. ACIT (2008) 11 DTR 193 (Guj.)

Capital or Revenue Expenditure – Stamp Duty and Registration – S. 37

Expenditure incurred on stamp duty and registration charges at the time of execution of lease agreement for taking on lease the fruit processing plant was allowable as revenue expenditure.
CIT vs. Global Associates (2008) 12 DTR 20 (HP).

Collection and Recovery of Tax – S. 222

Power of tax Recovery officer under Rule 11 of second schedule relate only to properties ostensibly and apparently owned by assessee in default. If property is ostensibly and apparently in the name of third party, then if income tax authorities claim that said property is actually possessed or owned by assessee in default, they shall have to establish their claim in a Civil Court.

Smt. Darshana Aggareal vs. Tax Recovery Officer (2008) 173 Taxmann 90 (HP).

Deduction – S. 80 IA & 80 HHC
Deduction under section 80 IA is not to be deducted from profits and gains of business before computing relief under section 80 HHC.

SCM Creations vs. ACIT (2008) DTR 247 (Mad.).

Dividend Stripping

Where the assessee bought units of a mutual fund, received tax-free dividend thereon and immediately thereafter redeemed the units and claimed the difference between the cost price and redemption value as a loss and the same had been upheld by a Five Member Special Bench of the Tribunal as a genuine loss High Court affirmed the order of the special bench.

CIT vs. Wallfort Shares & Stocks Source: www.itatonline.org

Depreciation Mandatory – S. 80IB, 80 HHC

Dabur India Ltd vs. CIT Source: www.itatonline.org

Double Taxation Avoidance Agreement – India and Singapore – S. 90, Article 5&7

Assessee a Singapore Telecasting Company deriving advertisement revenue from India through its dependent agent PE in India by way of contracts made outside India on principal to principal basis and paying fee to its agent on arms’s length price basis would not be liable to tax in India in respect of advertisement revenue received by assessee in view CBDT circular no 742 dt. 2nd May ,1996 r.w. Art. 7 (1) of DTAA between India and Singapore nor would be advertisement revenue be taxable in India by virtue of CBDT Circular No 23 dt. 23 rd July 1969.

Set Satellite (Singapore) PTE Ltd. vs. Dy. CIT (2008) 11 DTR 313 (Bom.)

Grant of right of development – No transfer of capital asset

CIT vs. Atam Prakash & Sons (2008) 12 DTR 1 (Del.)

Principle of mutuality – Not applicable to Interest on Bank Deposit.

Devi Ahilya new Cloth Market Co. Ltd. vs. CIT (2008) 12 DTR 33

Search and Seizure – Protective Assessment – S. 143(3), 158BA

Income which was assessed as undisclosed income for the block period can not be assessed on protective basis in regular assessment under section 143 (3).

CIT vs. Wipro Finance Ltd. (2008) 10 DTR 281 (Kar.)