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DATE: January 5, 2018 (Date of pronouncement)
DATE: January 20, 2018 (Date of publication)
AY: 2013-14
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CITATION:
S. 56(2)(vii) Taxability of gifts as income: Meaning of the term "relative" in the context of a Hindu Undivided Family (HUF), and whether if the donor is the mother of the Karta of the HUF, a gift by the mother to the HUF is a gift from a "relative" so as to avoid attracting tax liability explained. All judgements on the subject considered

As per explanation (d) in the definition of “property”, several types of assets are listed including shares and securities. It is not denied that assessee is an HUF, during the year it has received from mother of the Kaka of the assessee HUF a gift of 75,000 shares of a private limited company. Therefore, apparently the provisions of section 56 (2) applies in the case of the assessee. However, proviso to the above section provides that the above clause shall not apply to any sum of money or any property received from any “relative”. Therefore, if such sum or property is received from a “relative” it will not be chargeable to tax under that section. The explanation (e) defines “relatives” in case of a Hindu undivided family as any member thereof. Therefore, if the above assessee, HUF, receives any sum from any member of the HUF then such sum or property received by the HUF assessee will not be chargeable to tax. Therefore, the simple issue that arises to be examined that whether Mrs. Sneh Gupta is a member of the assessee HUF. If she is, then the gift of share is not chargeable to tax in the hands of assessee as income

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DATE: January 1, 2018 (Date of pronouncement)
DATE: January 9, 2018 (Date of publication)
AY: 2012-13
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S. 68 Bogus share capital: Share application money cannot be treated as unexplained credit if the AO does not make any investigation on the documentary evidences filed by the assessee or ask for the production of the investors for examination u/s 131 or if adverse material is found during search to prove that share application money is bogus or an arranged affair of the assessee

The A.O. however, did not make any further enquiry on the documents filed by the assessee-company. The A.O. thus, failed to conduct any enquiry and scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Company and assessee-company because the Investor Company was from Kolkata. The A.O. thus, did not perform his duties at the assessment stage so as to make addition against the assessee-company. No cash was found deposited in the account of the Investor. Therefore, the totality of the facts and circumstances clearly prove that assessee-company discharged initial onus to prove identity of the Investor Company, its creditworthiness and genuineness of the transaction in the matter

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DATE: July 14, 2017 (Date of pronouncement)
DATE: July 20, 2017 (Date of publication)
AY: 2009-10
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CITATION:
S. 69A: NDTV indulged in a clear cut case of "abuse of organization form/ legal form and without reasonable business purpose” and therefore, no fault can be found with the order of the AO in charging to tax Rs. 642 crores by re-characterizing the conditions according to its economic substance and imposing the tax on the actual controlling Indian entity. There is no doubt that the transaction used principally as a devise for the distribution/ diversion of sum to the Indian entity. The beneficial owner of the money is the assessee

It is a clear out case of “abuse of organization form/ legal form and without reasonable business purpose and therefore, no fault can be found with the order of the Id Assessing Officer/ Id DRP in charging to tax Rs. 642 crores by re-characterizing the conditions according to its economic substance and imposing the tax on the actual controlling Indian entity. In the present case we do not have any doubt that the transaction used principally as a devise for the distribution/ diversion of sum to the Indian entity on review of all the facts circumstances surrounding the present transaction. In the present case, the beneficial Owner of the money is the assessee. This money trail stares so glaringly on the various complex structures created by the assessee that without proving any substance one cannot reach to any other conclusion but to the conclusion that series of the transaction entered into by the assess were to transfer Rs. 642 crores from the investor-company or the owner of the investor company to the assessee

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DATE: March 9, 2017 (Date of pronouncement)
DATE: March 10, 2017 (Date of publication)
AY: 2007-08
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CITATION:
S. 9(1)(i): The capital gains arising on transfer by a foreign company of shares in another foreign company holding assets in India is liable to tax in India. The argument that the transfer is a mere re-organisation of assets within the group and that there is no “real income” is not acceptable. The argument that the India-UK DTAA should be given a “static” interpretation and that the retrospective amendment to s. 9 by the Finance Act 2012 should be ignored is also not acceptable. Where the DTAA provides that the income shall be chargeable to tax in accordance with the provision of the domestic law, the said domestic law has to be the amended law

Coming to the decision of the Hon’ble Delhi High Court in case of DIT Vs. New Skies Satellite BV wherein the Hon’ble High court has held that in relation to applicability of Article 3(2) of the relevant DTAAs, that it can apply only to terms not defined in the DTAA. Since the relevant DTAAs in the case before them defined ‘royalty’, Article 3(2) could not be applied. For terms which are defined under the DTAA, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA. Further, the court has held that neither act of parliament supply or alter the boundaries of DTAA or supply redundancy to any part of its. Similarly, according to us, the provisions of DTAA where it simply provides that particular income would be chargeable to tax in accordance with the provisions of domestic laws, such article in DTAA also cannot the limit the boundaries of domestic tax laws. In view of this, we do not find any force in the argument of the assessee and dismiss ground No. 3.12 of the appeal

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DATE: January 4, 2017 (Date of pronouncement)
DATE: January 18, 2017 (Date of publication)
AY: 2008-09
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S. 37(1): Stock Options (appreciation rights) are intended to motive employees and so the expenditure thereon is a deductible revenue expenditure. The discount (difference between market price and vesting price) is allowable upon vesting subject to reversal if the options lapse

The discount under ESOP is in the nature of employees cost and is hence deductible during the vesting period w.r.t. the market price of shares at the time of grant of options to the employees. The amount of discount claimed as deduction during the vesting period is required to be reversed in relation to the unvesting/lapsing options at the appropriate time. However, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option. No accounting principle can be determinative in the matter of computation of total income under the Act

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DATE: October 4, 2016 (Date of pronouncement)
DATE: October 18, 2016 (Date of publication)
AY: 2010-11
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CITATION:
Article 7: There is a difference between "effectively connected" with the permanent establishment and "legally connected" with it. Only those activities necessary for the functioning of the PE are "effectively connected" with the PE. Article 13: Concept of "make available" technical knowledge etc explained

In the present case certain activities are carried out by the appellant which are not even concerned with the functioning of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not “effectively connected” with the permanent establishment. We are also of the view that the term “effectively connected” should not be understood to mean the opposite of “legally connected” but rather something in the sense of “really connected”. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of Rs. 33 crores involved in the contract is “effectively connected” with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant.

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DATE: September 19, 2016 (Date of pronouncement)
DATE: October 8, 2016 (Date of publication)
AY: 2006-07 to 2010-11
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S. 271(1)(c): Penalty cannot be imposed if the AO does not specify whether the penalty is for "concealment of income" or for "furnishing inaccurate particulars". Penalty cannot be imposed in respect of income surrendered by the assessee if the AO does not link the income to incriminating documents

The income is offered by appellant on ad hoc basis without co-relating the amount of year wise disclosure without any corroborating evidence. The above disclosure has been accepted by assessing officer without referring to any incriminating material pertaining to respective years. The assessing officer as well as the 1st appellate authority has also not referred to any material based on which disclosure is made and assessed by the assessing officer. In view of this it is apparent that disclosure is without any material but merely on the statement of appellant. In our view, there may be several reasons for making surrender by an assessee and merely on this basis an inference beyond doubt cannot be drawn that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the surrendered income to attract penal provisions under sec. 271(1)(c) of the Act

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DATE: June 21, 2016 (Date of pronouncement)
DATE: September 8, 2016 (Date of publication)
AY: 2006-07
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As per CBDT Instruction No. 9/2013 dated 22.07.2013, appeals against imposition of penalty or levy of interest in which the aggregate of penalty imposed or interest levied by the AO is more than Rs. 3 crore in the cities of Mumbai and Delhi are to be argued by the CIT(DR) and matters other than this are to be argued by the Senior DR

As per CBDT Instruction No. 9/2013 dated 22.07.2013, appeals against imposition of penalty or levy of interest in which the aggregate of penalty imposed or interest levied by the AO is more than Rs. 3 crore in the cities of Mumbai and Delhi are to be argued by the CIT(DR) and matters other than this are to be argued by the Senior DR

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DATE: June 2, 2016 (Date of pronouncement)
DATE: June 28, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 30/ 37(1): Expenditure on repairs of rented premises, even if huge and accumulated, are allowable as revenue expenditure. Fact that CIT(A) admitted additional evidence is no justification for seeking a set aside to the AO if the CIT(A) called for a remand report from the AO: Savarana Spinning mills Limited 293 ITR 201 (SC) distinguished

The contention of the revenue that Hon’ble Supreme Court has held in CIT vs. M/s. Saravana Spinning Mills Pvt. Ltd. 293 ITR 201 pleading that the most of the expenditure are not in the nature of current repair expenditure but accumulated repairs so even though the expenditure is revenue in nature, same is not allowable. We find that the reliance on this decision by the revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building is also not owned by the assessee but is a rented premises. The expenditure would be dealt with by the provision of section 30. On reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current

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DATE: May 2, 2016 (Date of pronouncement)
DATE: May 7, 2016 (Date of publication)
AY: 2006-07, 2007-08, 2008-09
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CITATION:
S. 92(2): Important principles of law laid down with regard to the “Need Test”, “Evidence Test” or “Rendition Test” to evaluate the ALP of intra-group services rendered by an Associated Enterprise and whether the TPO has the right to determine the ALP at ‘Nil’

Rendering of services must be seen from the view point of the assessee and further assessee cannot be asked to keep and maintain evidences of services rendered by AE higher than which is expected from a businessman receiving services from an unrelated provider. Therefore, we reject the view point of Ld. TPO and Ld. DRP that assessee has not shown the receipt of the services. In view of above we are of the view that assessee has justified the receipt of services and satisfied the rendition test

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