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DATE: November 27, 2015 (Date of pronouncement)
DATE: January 13, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 50C: The stamp duty value on the date of agreement & not date of sale deed has to be taken. The nature of the property on the date of agreement has to be considered. Q whether proviso to s. 56(2)(vii)(b) is curative and retrospective left open

The issue is as to whether the date of agreement or the date of execution of sale deed has to be considered for the purpose of adopting the SRO value under S.50C of the Act. We find that this issue is now settled in favour of the assessee by the decisions of the Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shantilal Motilal V/s. CIT(365 ITR 389) as well as decisions of the coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters Visakhapatnam V/s. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22.6.2010) and Moole Rami Reddy V/s. ITO (ITA No.311/Vizag/2010 dated 10.12.2010). It is therefore, now settled that the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains

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DATE: December 10, 2015 (Date of pronouncement)
DATE: January 1, 2016 (Date of publication)
AY: 2007-08
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CITATION:
CUP method can be applied by a comparing a pricing formulae, rather than the pricing quantification in amount. Rule 10AB inserted w.e.f. 01.04.2012 is beneficial in nature and so retrospective w.e.f. 01.04.2002

Rule 10B(1)(f) inserted vide notification dated 23rd May 2012 is not a residual method in the sense that it is not a condition precedent for the application of this method that all other methods set out in s. 92C (1)(a) to 92C(1)(e) and as elaborated under rule 10B(1)(a) to (e), must fail and only then this method can be applied. This method is at par with all other methods of determining the arm’s length price as set out in sections 92C(1)(a) to (f), and, in terms of Section 92C(2), the most appropriate method, referred to in Section 92C(1), “shall be applied, for determination of arm’s length price, in the manner prescribed”. Therefore, as long as the method covered by rule 10AB, which is duly covered by Section 92C(1) satisfies the test of being the ‘most appropriate method’, it can be applied to a fact situation. The expression ‘ price which….would have been charged on paid” is used in rule 10BA, dealing with this method, in this method the place of “price charged or paid”, as is used in rule 10B(1)(a), dealing with CUP method, such an expression not only covers the actual price but also the price as would have been, hypothetically speaking, paid if the same transaction was entered into with an independent enterprise. This hypothetical price may not only cover bonafide quotations, but it also takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm’s length price. In this view of the matter, the business model said to have been adopted by the assessee, in principle, meets the test of arm’s length price determination under rule 10BA as well

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DATE: December 22, 2015 (Date of pronouncement)
DATE: January 1, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Transfer pricing of AMP Expenditure: the onus is on the Revenue to demonstrate by tangible material that there is an international transaction involving AMP expenses between the Indian Co and the AE. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In the absence of a machinery provision it is hazardous for any TPO to proceed to determine the ALP of such a transaction since Bright Line Test has been negatived as a valid method of determining the existence of an international transaction and thereafter its ALP

The provisions under Chapter X do envisage a ‘separate entity concept’. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses

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DATE: December 17, 2015 (Date of pronouncement)
DATE: December 26, 2015 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A & Rule 8D(2)(ii): Interest incurred on taxable income has also to be excluded while computing the disallowance to avoid incongruity & in view of Department’s stand before High Court

Rule 8D (2) states that the expenditure in relation to income which is exempt shall be the aggregate of (i) the expenditure attributable to tax exempt income, (ii) and where there is common expenditure which cannot be attributed to either tax exempt income or taxable income then a sum arrived at by applying the formula set out thereunder. What the formula does is basically to “allocate” some part of the common expenditure for disallowance by the proportion that average value of the investment from which the tax exempt income is earned bears to the average of the total assets. It acknowledges that funds are fungible and therefore it would otherwise be difficult to allocate the sum constituting borrowed funds used for making tax-free investments. Given that Rule 8 D (2) (ii) is concerned with only ‘common interest expenditure’ i.e. expenditure which cannot be attributable to earning either tax exempt income or taxable income, it is indeed incongruous that variable A in the formula will not also exclude interest relatable to taxable income. This is precisely what the ITAT has pointed out in Champion Commercial (supra). There the ITAT said that by not excluding expenditure directly relatable to taxable income, Rule 8D (2) (ii) ends up allocating “expenditure by way of interest, which is not directly attributable to any particular income or receipt, plus interest which is directly attributable to taxable income.” This is contrary to the intention behind Rule 8D (2) (ii) read with Section 14A of (1) and (2) of the Act

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DATE: December 18, 2015 (Date of pronouncement)
DATE: December 26, 2015 (Date of publication)
AY: 2007-08
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S. 10A: Even undisclosed income surrendered by assessee is eligible for s. 10A exemption if dept does not show that the assessee has any other source

The decision of the Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son (2008) 300 ITR 157 is of no help to the assessee because the assessee agreed during the course of survey for the addition only when discrepancies in the loose papers were found. The assessee surrendered Rs.11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to the assessee being 100% Export Oriented Unit established in SEZ on this income also. In view of the above we uphold the addition made by the AO and sustained by the CIT(A), however, the AO is directed to allow the deduction u/s 10A of the Act

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DATE: December 2, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 2007-08
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CITATION:
Transfer Pricing: An adjustment with respect to transfer pricing has to be confined to transactions with Associated Enterprises and cannot be made with respect to transactions with unrelated third parties

In terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act

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DATE: December 8, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 2007-08, 2008-09
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CITATION:
Commission earned by a non-resident agent who carried on business of selling Indian goods outside India cannot be said have deemed to be income which has accrued and/or arisen in India. Circular No. 23 of 1969 & Circular No.786 of 2000 were withdrawn on 22.10.2009. The withdrawal of a Circular cannot have retrospective operation

in CIT v/s. Toshoku Ltd. 125 ITR 525 the Apex Court held that the commission earned by the non-resident agent who carried on the business of selling Indian goods outside India, cannot be said have deemed to be income which has accrued and/or arisen in India. Circular No. 23 of 1969 and its reiteration in Circular No.786 of 2000 were in force during the Assessment Years. It was only subsequently i.e. on 22nd October, 2009 that the earlier Circular of 1969 were withdrawn. However, such subsequent withdrawal of an earlier Circular cannot have retrospective operation as held in UTI v. P. K. Unny 249 ITR 612

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DATE: December 18, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 1998-89
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CITATION:
Thought there is a difference between leasehold right and ownership right as per the Transfer of Property Act, a leasehold land in the possession of the assessee for a term of 95 years is "belonging" to the assessee and is liable for wealth-tax

We find that the word ‘belonging to the company’ has advisedly been used by the Parliament in Section 40 (2) of the Act. In case the Parliament sought to equate the word ‘belonging to’ mean ownership then in such a case, there would be no reason to use the word ‘belonging to’ and in stead use the word ‘owner of”. The intent in using the word ‘belonging to’ is to include within the provisions of the Act, assets in possession of the Company without full ownership, but sufficient domain over it, to exercise the powers which would otherwise normally vest in the owner on the valuation date. Therefore, the concept of less than full ownership is sought to be introduced by the use of the word ‘belonging to’

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DATE: August 20, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 2009-10
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CITATION:
S. 195/ 40(a)(ia): In view of retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India, commission to non-resident agents for services rendered outside India is liable for TDS u/s 195 and has to suffer disallowance u/s 40(a)(ia)

In respect of the issue as to whether the Assessee was liable to deduct TDS u/s 195 and whether the disallowance was liable to be made u/s 40(a)(ia) of the Act, it is noticed that the provisions of s. 195 has been amended by the introduction of the Explanation-II to the said section by the Finance Act, 2012, with retrospective effect from 1.4.1962, whereby it is clarified that ‘the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has (i) a residence or place of business or business connection in India…’ In view of the introduction of Explanation II to s. 195… the disallowance… would have to be restored

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DATE: December 15, 2015 (Date of pronouncement)
DATE: December 16, 2015 (Date of publication)
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S. 268A: In view of CBDT's Circular no. 21/ 2015 dated 10.12.2015 appeals of the department where the monetary limit does not exceed Rs. 10 lakh have to be dismissed as a legal nullity. CBDT's decision termed as "paradigm shift", "unprecedented" and "possibly a game changing initiative heralding a new era in thoughtful litigation management"

We need to take note of a very pragmatic initiative, taken by the Central Board of Direct Taxes last week, for reducing litigation in direct taxes. Vide circular no. 21/ 2015 dated 10th December 2015, the Central Board of Direct Taxes has, inter alia, announced that, subject to certain exceptions- which are not relevant in the present context, henceforth, no departmental appeals will be filed against relief given by the CIT(A), before this Tribunal, unless the tax effect, excluding interest, exceeds Rs 10,00,000. What is even more important is that not only that such a taxpayer friendly measure will be implemented in all future tax litigation, even the pending appeals, wherever the tax involved in the appeals does not exceed Rs 10,00,000, shall not be pressed or withdrawn. In effect thus, irrespective of the year to which the departmental appeal before the Tribunal pertains, as long as such an appeal is pending before the Tribunal, this will be a legal nullity

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