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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: January 11, 2016 (Date of pronouncement)
DATE: January 26, 2016 (Date of publication)
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Transfer of shares of an Indian Co by a Mauritius entity to a Singapore entity due to group reorganization is not a scheme for avoidance of tax. The capital gains are exempt under India-Mauritius DTAA. Treaty shopping is permissible. A ROI u/s 139(1) need not be filed if income is exempt from tax

Dow IMEA Group was dismantled in 2010 and that is how the need for realignment of the group arose whereby DAS entity was to be shifted from an entity which falls under Europe region to an entity which would fall in the Asia-Pacific region. This was to be done with a view to achieve better control. Singapore is one of the upcoming countries in Asia-Pacific region in the opinion of the applicant and therefore, the Dow group contemplated to shift the share holding of DAS India from Mauritius to Singapore. All this exercise is also more than 5 years old from the date of the last acquisition of the shares. Thus, it cannot be said that the proposed transfer of shares was amounting to a scheme to avoid payment of taxes in India. It was clearly for the business considerations. We, therefore, reject the contention of the Revenue that this amounting to a scheme to avoid payment of taxes in India. We accept the contention raised by the applicant about its not having a PE in India

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DATE: January 12, 2016 (Date of pronouncement)
DATE: January 26, 2016 (Date of publication)
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Managerial services rendered by a UK Co to an Indian Co, even if technical in nature, is not assessable as “fees for technical services” under Article 13 of India-UK DTAA if it does not “make available” any skill, technical know-how etc

To fit into the terminology ‘make available’, the technical knowledge, skills etc must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider

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DATE: January 19, 2016 (Date of pronouncement)
DATE: January 26, 2016 (Date of publication)
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Amount received by a FII under a settlement for giving up right to sue is not assessable as either capital gains or as business profits. In principle, a FII is an "investor" and not a "trader" in stocks. On facts, applying Circular No. 4 of 2007, Aberdeen is an investor in shares

The Circular No.4 of 2007 issued by the CBDT quotes three principles laid down by this Authority in the case of Fidelity Group 288 ITR 641 in order to determine whether shares held are investment or stock-in-trade. First principle is how the shares were valued in the books of accounts, i.e., whether they were valued as stock-in-trade or held as investment. In this case the books of accounts show that the shares were held as investment. The second principle is to verify whether there are substantial transactions, their magnitude etc, maintenance of books of accounts and finding the ratio between purchases and sales. In this case the shares of Satyam were purchased, held as investment and sold only after the fraud became public. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade; where the object of the investment in shares of companies is to derive income by way of dividends etc, the transactions of purchases and sales of share would yield capital gains and not business profits. This principle also suggests that in this case the object of the investment is not to have business profit because the shares of Satyam were not being purchased and sold at regular interval. In the light of this even CBDT Circular No.4 of 2007 does not support the stand of Revenue that Aberdeen investors were engaged in trading business

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DATE: November 30, 2015 (Date of pronouncement)
DATE: January 26, 2016 (Date of publication)
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An installation project which does not last more than 183 days in a fiscal year is not a "Permanent Establishment" and the business profits are taxable only in Singapore under Article 7(1) of the India-Singapore DTAA

Since the project executed by the applicant in India for Brahmaputra continued only for 178 days in a fiscal year and as the duration of the project is less than 183 days in a fiscal year, Permanent Establishment of the applicant cannot be constituted in India for the FY 2012-13 as per the provisions of Article 5.3 of the India-Singapore DTAA. Hence, the business profits accruing or arising to the applicant by way of the execution of the project under reference is taxable only in the country where the applicant is a resident, as per Article 7.1 of India-Singapore DTAA

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