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DATE: July 22, 2016 (Date of pronouncement)
DATE: August 3, 2016 (Date of publication)
AY: 1996-97
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S. 43B: Issue of debentures to fund the interest liability does not amount to “actual payment” of the interest so as to qualify for deduction under Explanation 3C to Section 43-B

The question which has to be decided is whether the decision of this court in CIT vs. M. M. Aqua Technologies Ltd, which held that because of Explanation 3C to Section 43-B, any adjustment other than actual payment does not qualify for deduction under Section 43-B. As is evident from the discussion, the assessee’s review is premised on two major arguments, i.e. that the judgments of the Supreme Court in Standard Chartered Bank v Andhra Bank, 2006 (6) SCC 94 and Sunrise Associates vs Govt. of NCT of Delhi & Ors. 2006 (5) SCC 603, have categorically held that debentures (issued in favour of the bank, in this case to discharge interest liability) amounted to payment and that such debentures, being actionable claims and securities, were to be deemed paid once issued

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DATE: February 29, 2016 (Date of pronouncement)
DATE: March 3, 2016 (Date of publication)
AY: 2003-04
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Transfer Pricing: Even if TNMM is found acceptable as regards all other transactions, it is open to the TPO to segregate a portion and subject it to an entirely different method i.e. CUP if the assessee does not provide satisfactory replies to his queries

The narrow controversy which this Court is called upon to decide is as to whether the adoption of the CUP method by the revenue authorities was justified. What the assessee urges essentially is that whereas the TP report furnished by it applied the TNMM method which was found acceptable as regards all other transactions/business activities, it was not open to the revenue to segregate a portion and subject it to an entirely different method, i.e. CUP. The assessee relies upon paras 3.6, 3.9 and 3.10 of the OECD guidelines in support of its contentions. It also relies upon certain rulings of different Benches of the ITAT to urge that such sequential segregation and setting portion of the TP exercise – so to say, to break with the integrity is unjustified and unsupported by the text of the law, i.e. Section 92C of the Income Tax Act. The assessee also relies upon Rule 10E of the Income Tax Rules, which guide the proper approach of the TPO in such matters

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DATE: February 8, 2016 (Date of pronouncement)
DATE: February 12, 2016 (Date of publication)
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S. 9(1)(vi) vs. Article 12 of DTAA: The retrospective amendment to s. 9(1)(vi) so as to supersede the law laid down in Asia Satellite 332 ITR 340 (Del) and assess transmission fees as “royalty” has no impact on assessees covered by DTAA because a corresponding amendment has not been made to the definition of “royalty” therein. Amendments to domestic law do not affect the DTAA

This Court is of the view that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, it is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this Court, indefensible

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DATE: February 12, 2015 (Date of pronouncement)
DATE: October 21, 2015 (Date of publication)
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Making allegations of fraud against Dept’s Counsel and claiming that they deliberately presented weak case seeks to prejudice and interfere with due course of judicial proceedings & prima facie constitutes criminal contempt of court

The Court is of the opinion that given the nature of the conduct displayed by Sh. Gupta, i.e. preferring an application for intervention which was rejected; thereafter engaging in e-mail communications with the Standing Counsel and leveling allegations against them; addressing e-mails directly to this Court and finally, placing on record an affidavit detailing the allegations even while stating that he would withdraw some of them vis-a-vis the Standing Counsel, but would nevertheless press those allegations against the same individuals elsewhere, prima facie amounts to criminal contempt punishable in accordance with law. This Court has been informed that two of the Standing Counsels – Sh. Balbir Singh and Sh. Rohit Madan, who had previously appeared, have already recused themselves from the matter. The behaviour outlined above amounts to seeking to prejudice and interfere or tending to interfere with the due course of proceedings in the present appeals

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DATE: July 15, 2015 (Date of pronouncement)
DATE: July 20, 2015 (Date of publication)
AY: 2008-09
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S. 40(a)(ia): The obligation to deduct TDS is only with respect to "income". As amounts paid as "reimbursement of expenses" do not have the character of income, there is no obligation to deduct TDS

Section 194C (TDS for “work”) and Section 194J (TDS of income from “professional services”- the latter expression defined expansively by Section 194J (3) Explanation (a)). Neither provision obliges the person making the payment to deduct anything from contractual payments such as those made for reimbursement of expenses, other than what is defined as “income”. The law thus obliges only amounts which fulfil the character of “income” to be subject to TDS in such cases; for other payments towards expenses, the deduction to those entitled (to be made by the payeee) the obligation to carry out TDS is upon the recipient or payee of the amounts

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DATE: May 29, 2015 (Date of pronouncement)
DATE: June 1, 2015 (Date of publication)
AY: 2004-05
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S. 9, Article 12: Meaning of expressions "consultancy services" and "independent personal services" in the context of a DTAA explained

It is evident that “consultancy services” would mean something akin to advisory services provided by the non-resident, pursuant to deliberation between parties. Ordinarily, it would not involve instances where the non-resident is acting as a link between the resident and another party, facilitating the transaction between them, or where the non-resident is directly soliciting business for the resident and generating income out of such solicitation

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DATE: May 27, 2015 (Date of pronouncement)
DATE: May 29, 2015 (Date of publication)
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S. 9: Retrospective amendments seeking to tax income of non-residents does not affect the “source rule”. The amendment makes no any difference to the non-taxability of payments made to foreign companies if the income accrues abroad

While no doubt, the explanation is deemed to be clarificatory and for a good measure retrospective at that, nevertheless there is nothing in its wording which overrides the exclusion of payments made under Section 9(1)(vii)(b). The Supreme Court clarified this in GVK Industries Ltd. v. ITO 371 ITR 453 Thus, it is evident that the “source” rule, i.e the purpose of the expenditure incurred, i.e for earning the income from a source in India, is applicable

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DATE: May 18, 2015 (Date of pronouncement)
DATE: May 27, 2015 (Date of publication)
AY: 1996-97
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S. 43B Expl 3C: Conversion of outstanding interest into a loan does not amount to an "actual payment" of the interest and so deduction for the interest cannot be claimed

In view of the Explanation 3C appended to Section 43B with retrospective effect from 01.04.1989, conversion of interest amount into loan would not be deemed to be regarded as actually paid amount within the meaning of Section 43B of the Act

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DATE: March 24, 2015 (Date of pronouncement)
DATE: April 8, 2015 (Date of publication)
AY: 2008-09
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S. 14A & Rule 8D(2)(iii): In computing the “average value of investment”, only the investments yielding non-taxable income have to be considered and not all investments

The first condition for application of Section 14A was fulfilled as the AO expressed the opinion that a disallowance was warranted. In such eventuality the AO is required by the mandate of Rule 8D to follow Rule 8D(2). Clauses 1, 2 and 3 detail the methodology to be adopted. The AO, instead of adopting the average value of investment of which income is not part of the total income i.e. the value of tax exempt investment, chose to factor in the total investment itself

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DATE: March 11, 2015 (Date of pronouncement)
DATE: March 26, 2015 (Date of publication)
AY: 2004-05
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S. 68: Assessment proceedings under the Income Tax Act are not a game of hide and seek. If AO does not conduct proper inquiry, the obligation to do so is on the CIT(A) & ITAT

The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question

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