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DATE: July 22, 2020 (Date of pronouncement)
DATE: July 29, 2020 (Date of publication)
AY: 2012-13
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CITATION:
The disallowance under the Explanation to 37(1) of "freebies" to doctors by relying on CBDT Circular No. 5 dated 01.08.2012 & the IMC (Professional Conduct, Etiquettes & Ethics) Regulation, 2002 is not justified. The code of conduct prescribed by the Medical Council is applicable only to medical practitioners/ doctors registered with the MCI and does not apply to pharmaceutical companies & the healthcare sector in any manner. The CBDT has no power to extend the scope of the MCI regulation to pharmaceutical companies without any enabling provision either under the Income tax Act or the Indian Medical Regulations (Imp judgements referred/ distinguished)

We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee.

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DATE: June 11, 2019 (Date of pronouncement)
DATE: February 15, 2020 (Date of publication)
AY: 2014-15
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Transfer Pricing: (i) If the "arms length‟ principle is satisfied qua the relevant transaction between the assessee and its Indian subsidiary, no further profits can be attributed to the assessee in India even if it was to be held that the latter had a PE in India (ii) If the subsidiary has subsequently entered into an "APA‟ with the CBDT & the FAR analysis and overall functions remain unchanged, the "APA‟ would have a bearing on the ALP of the earlier years

The Indian subsidiary of the assessee had for A.Y. 2015-16 to A.Y 2019-20 entered into an “APA‟ with the CBDT. As is discernible from the “APA‟, the functions of the subsidiary company inter alia included “marketing and sale of various software solutions” of the assessee company. As per the “APA‟ the operating profit margin up to its revenue of Rs. 50 crore was to be taken at 7% of its “Operating revenue‟. Admittedly, the FAR analysis and overall functions of the subsidiary company had remained the same during the period covered by the “APA‟ and that for the year under consideration i.e A.Y 2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y. 2015- 16 to A.Y 2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT (ITA No. 581/Mum/2015, dated 16.09.2016), a subsequent “APA‟ would also have a bearing on the earlier years

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DATE: January 20, 2020 (Date of pronouncement)
DATE: January 25, 2020 (Date of publication)
AY: 2013-14
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CITATION:
S. 226(3): Undue haste in recovery of disputed demands by issue of s. 226(3) garnishee notices, in respect of which the hearing of appeal as also the stay petition is already concluded, is indeed inappropriate. The revenue authorities should have at least waited the disposal of the stay petition. Interim stay granted and garnishee proceedings placed under suspension till the disposal of the stay petition

We have noted that the hearing of stay petition was concluded, as per information available to us, on 17th January 2020, but the order thereon has not been passed as yet since one of the Members constituting coram of the bench has gone on tour to Delhi benches due to unavoidable official exigencies. In the meantime, however, the revenue authorities have already issued garnishee notices, under section 226(3) of the Income Tax Act, 1961, to the bankers of the assessee on 17th January 2020 itself. Such an undue haste in recovery of the disputed demands, in respect of which the hearing of appeal as also the stay petition is already concluded, is indeed inappropriate. The revenue authorities should have at least waited for the disposal of the stay petition.

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DATE: November 15, 2019 (Date of pronouncement)
DATE: November 30, 2019 (Date of publication)
AY: 2018-19
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CITATION:
Static vs. Ambulatory interpretation of DTAAs: Entire law on whether the retrospective amendments to the definition of "royalty" in s. 9(1)(vi) of the Act can have bearing on the interpretation of the same term in the DTAAs explained with reference to the doctrine of "treaty override" and the Vienna Convention (Siemens AG 310 ITR 320 (Bom) explained)

That is a classic case of a subtle unilateral treaty override. While, in India, the expression ‘treaty override’ is often loosely used for the situations where the provisions of tax treaty prevails over any inconsistent provisions of domestic law, this approach seems to be at variance with the international practices wherein connotations of ‘treaty override’ refer to a situation in which domestic legislation of a treaty partner jurisdiction overrules the provisions of a single treaty or all treaties hitherto having had effect in that jurisdiction. That will be the end result of a domestic law amendment of an undefined treaty term, in departure from the current position, and import such amended meaning of that term, under article 3(2), in the treaty situations as well. Such an approach, on the first principles, is unsound inasmuch as it is well settled in law that the treaty partners ought to observe their treaties, including their tax treaties, in good faith. Article 26 of Vienna Convention on Law of Treaties provides that, “Pacta sunt servanda: Every treaty in force is binding on the parties to it and must be performed by them in good faith”. What it implies is that whatever be the provisions of the treaties, these provisions are to be given effect in good faith. Therefore, no matter how desirable or expedient it may be from the perspective of the tax administration, when a tax jurisdiction is allowed to amend the settled position with respect to a treaty provision, by an amendment in the domestic law and admittedly to nullify the judicial rulings, it cannot be treated as performance of treaties in good faith. That is, in effect, a unilateral treaty over-ride which is contrary to the scheme of Article 26 of Vienna Convention on Law of Treaties

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DATE: June 11, 2019 (Date of pronouncement)
DATE: October 21, 2019 (Date of publication)
AY: 2012-13
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S. 68 Bogus Share Capital: As the share applicant companies were controlled by an infamous accommodation entry provider, it was incumbent on the part of the authorities to have carried out an in-depth verification of the genuineness of the transaction of receipt of share application money by the assessee from the said parties. However, the authorities have not done even the bare minimum for verifying the genuineness of the transaction. Such a casual approach cannot be subscribed on our part (NRA Iron & Steel 412 ITR 161 (SC) followed)

As held by the Hon’ble Apex Court in the case of NRA Iron Traders 412 ITR 161 (SC), the A.O is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and also ascertain whether the transaction is genuine or was backed by merely bogus entries of name-lenders. In the totality of the facts of the case before us, we are of the considered view, that neither the assessee had discharged the obligation that was cast upon it to substantiate the identity of the subscribers, their credit-worthiness, and also the genuineness of the transaction of receipt of share application money from the aforesaid six share applicants, as per the mandate of law, nor the lower authorities had in discharge of their statutory obligation carried out the necessary verifications

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DATE: August 20, 2019 (Date of pronouncement)
DATE: September 6, 2019 (Date of publication)
AY: 2003-04
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S. 254(2): (i) Delay of 420 days in filing appeal due to subsequent decision of the Supreme Court is a valid ground for condonation of delay (ii) An order can be said to suffer from a "mistake apparent from the record" if it contrary to a subsequent judgement of the Supreme Court. Courts do not make any new law; they only clarify the legal position which was earlier not correctly understood. Such legal position clarified by Courts has retrospective effect as the law was always the same

It is also well – settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a ‘new rule’ but to maintain and expound the ‘old one’. In other words, the Judges do not make law; they only discover or find the correct law.The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make a new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite sometime, the decision rendered later on would have retrospective effect, clarifying the legal position which was earlier not correctly understood

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DATE: April 10, 2019 (Date of pronouncement)
DATE: September 6, 2019 (Date of publication)
AY: 2007-08
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Bogus purchases in s. 153D search assessment: There is serious suspicion about the conduct of the assessee in taking additional ground challenging the issue of approval u/s 153D for the first time before the Tribunal. The assessee is making an attempt is derail the issue on merits and to escape on technical ground. The affidavits filed by the AOs coupled with circumstantial evidences available in the assessment folders clearly establish the fact of obtaining necessary approval u/s 153D though copy of approval letter is not available in the assessment record. Argument that only profit can be assessed is not correct. 100% addition u/s 69C towards bogus purchases confirmed (NK Proteins 292 CTR 354 (SC) followed)

When assessee goes to question the administrative procedure, rather contending its case on merits, that too, after a lapse of 4 to 5 years, then obviously, a doubt arises about intend of the assessee in taking this ground and such an attempt is derail the issue on merits and to escape on technical ground. Therefore, we are of the considered view that there is no merit in the additional ground taken by the assessee challenging validity of assessment order passed by the AO u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961.

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DATE: May 10, 2019 (Date of pronouncement)
DATE: June 8, 2019 (Date of publication)
AY: 2016-17
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S. 9(1)(vi) Royalty: Payment for 'bandwith services' is not assessable as 'royalty' if the assessee only has access to services and not to any equipment. The assessee also did not have any access to any process which helped in providing of such bandwith services. All infrastructure & process required for provision of bandwith services was always used and under the control of the service provider and was never given either to the assessee or to any other person availing the said services

The assessee pursuant to the terms of the “agreement‟ had only received standard facilities i.e bandwith services from RJIPL. In fact, as observed by the CIT(A), the assessee only had an access to services and did not have any access to any equipment deployed by RJIPL for providing the bandwith services. Apart there from, the assessee also did not have any access to any process which helped in providing of such bandwith services by RJIPL. As a matter of fact, all infrastructure and process required for provision of bandwith services was always used and under the control of RJIPL, and the same was never given either to the assessee or to any other person availing the said services

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DATE: November 16, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 47(xiiib) r.w.s 47A(4): The conversion of a company into a LLP constitutes a "transfer". If the conditions of s. 47(xiiib) are not satisfied, the transaction is chargeable to 'capital gains‘ u/s 45 (Texspin Engg 263 ITR 345 (Bom) distinguished). If the assets and liabilities of the company are vested in the LLP at 'book values‘ (cost), there is in fact no capital gain. The argument that u/s 58(4) of the LLP Act, the LLP is entitled to carry forward the accumulated losses & unabsorbed depreciation of the company, notwithstanding non-compliance with s. 47(xiiib) is not acceptable

We find from a perusal of the ‘memorandum‘ explaining the purpose and intent behind the enactment of sub-section (xiiiib) to Sec. 47, that prior to its insertion, the ‘transfer‘ of assets on conversion of a company into a LLP attracted levy of “capital gains” tax. The legislature in all its wisdom had vide the Finance Act, 2010 made Sec. 47(xiiib) available on the statute, with the purpose that the transfer of assets on conversion of a company into a LLP in accordance with the Limited Liability Partnership Act, 2008, subject to fulfilment of the conditions contemplated therein, shall not be regarded as a ‘transfer‘ for the purposes of Sec. 45 of the Act. In so far, the reliance placed by the ld. A.R on the judgment of the Hon‘ble High Court of Bombay in the case of CIT Vs. Texspin Engg. & Mfg. Works (2003) 263 ITR 345 (Bom) is concerned, the same in our considered view is distinguishable on facts.

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DATE: October 24, 2018 (Date of pronouncement)
DATE: October 31, 2018 (Date of publication)
AY: 2012-13
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S. 68 Bogus share premium: The AO cannot assess the share premium as income on the ground that it is "excessive". The share premium worked out in the Valuation Certificate is the minimum amount that can be collected by the assessee under RBI regulations. There is no bar on collecting higher amount as share premium. There are several factors that are taken into consideration while issuing the equity shares to shareholders/investors, such as Venture capital funds and Private Equity funds. The premium is determined between the parties on the basis of commercial considerations and cannot be questioned by the tax authorities. The AO is not entitled to sit on the arm chair of a businessman and regulate the manner of conducting business (All judgements considered)

Once the AO was satisfied with the identity and credit worthiness of the investor and genuineness of transactions, the assessee can be said to have proved the “nature and source” of the cash credits. The amounts received as Share premium are in the nature of capital receipts as per the decision rendered by Hon’ble Bombay High Court in the case of Vodafone India Services P Ltd (supra) and the assessee has also discharged the onus placed upon it u/s 68 of the Act. In fact, the AO himself accepted the share premium to the extent of Rs.672/- per share as Capital receipt. Hence the “nature” of alleged excess share premium amount cannot be considered as receipt of income nature

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