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DATE: September 11, 2020 (Date of pronouncement)
DATE: September 12, 2020 (Date of publication)
AY: 1976-77
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CITATION:
(i) To decide whether a particular source is business income, one has to look to the notions of what is the business activity. The activity must have a set purpose. The fact that the assessee does not carry on business activity for profit motive is not material as profit making is not an essential ingredient (ii) The Act requires determination of ‘real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, permissible expenses are required to be set off. Every application of income towards business objective of the assessee is a business expenditure and nothing else (iii) Mediation inter se the Government authorities or Government departments is an efficacious remedy. A Committee of legal experts presided by a retired Judge can give its imprimatur to the settlement (iv) A vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is true even of disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity.

In the case of a business, the profits must be arrived at on ordinary commercial principles. The scheme of the IT Act requires the determination of ‘real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, permissible expenses are required to be set off. There is, thus, a clear distinction between deductions made for ascertaining real profits and thereafter distributions made out of profits.The distribution would be application of income. There is also a distinction between real profits ascertained on commercial principles and profits fixed by a statute for a specific purpose. Income tax is a tax on real income.

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DATE: April 9, 2019 (Date of pronouncement)
DATE: April 10, 2019 (Date of publication)
AY: -
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CITATION:
If an amount (Dharmada, Charity) is paid at the time of the sale transaction for a purpose other than the price of the goods, it cannot form part of the transaction value. Such payment is not for the transaction of sale and cannot be treated as consideration for the goods. The fact that the payment is compulsory upon purchase does not mean that it is involuntary because the purchaser purchases the goods out of his own volition (All imp judgements referred)

When an amount is paid as Dharmada along with the sale price of goods, such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller. If such amounts are meant to be credited to charity and do not form part of the income of the assessee they cannot be included in the transaction value or assessable value of the goods

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DATE: April 2, 2019 (Date of pronouncement)
DATE: April 9, 2019 (Date of publication)
AY: 2009-10
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CITATION:
S. 43D Interest on NPAs: Even though the special provision in s. 43D for taxing interest income on NPAs on receipt basis does not apply to NBFCs, it does not mean that NBFCs have to offer interest on bad or doubtful debts to tax on accrual basis. Such interest is not taxable on the real income theory

Learned counsel for the Revenue submitted that the assessee had to offer the interest income to tax on accrual basis. The special provision for taxing interest income on NPAs on the basis of receipt has been made under Section 43D of the Income Tax Act, 1961 (“the Act” for short) which does not apply to NBFC. By necessary implication, therefore, the legislature desired that such benefit would be restricted only to such of the entities as are referred to in Section 43D of the Act

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DATE: November 19, 2019 (Date of pronouncement)
DATE: February 9, 2019 (Date of publication)
AY: 2008-09
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CITATION:
Capital Gains vs. Business Profits: As per CBDT Circular No. 6 of 2016 dated 29.2.2016 gains on shares held for more than 12 months are treated as long-term capital gains and not as business profits. The fact that the amount invested in shares were out of borrowed funds and there were frequent and voluminous transactions is irrelevant

our attention is drawn to Circular No. 6 of 2016 dated 29.2.2016 issued by the Central Board of Direct Taxes (CBDT). This circular issued with regard to the issue of taxability of surplus on sale of shares and securities, – whether as capital gain or business income in case of long term holdings of shares and securities i.e in excess of 12 months. It has clarified therein that with a view to reduce litigation and uncertainty in the matter of taxibility, as long term capital gains or business income – the assess has an option to treat the income from sale of listed shares and securities as income arising under the head ‘Long Term Capital Gains’, them the same shall be accepted by the assessing officer

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DATE: November 26, 2018 (Date of pronouncement)
DATE: January 5, 2019 (Date of publication)
AY: 2008-09
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CITATION:
Capital Gains vs. Business Profits: Merely holding shares for a short period will not convert capital gain into business income. This would be contrary to be legislative mandate which itself provides that investment held for less than 12 months is to be termed as short term capital gain. If the assessee has two portfolios, one for "Investment" and other for "Trading" and if the investments are out of own funds and not borrowed funds, the gains have to be assessed as STCG

Thus two port-folios one for “Investment” and other for “Trading”. Besides for the earlier years the Revenue accepted the claim of short term capital gain. Thus the income has to be taxed as short term capital gain. We are of the view that respondent holding the shares for a short period, will not convert the capital gain into business income. This would be contrary to be legislative mandate which itself provides that when the investment is held for less than 12 months, it is to be termed as short term capital gain

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DATE: December 12, 2018 (Date of pronouncement)
DATE: December 22, 2018 (Date of publication)
AY: 2011-12
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CITATION:
Bogus Purchases: The fact that the vendors are not available at the given address is not sufficient to treat the purchases as bogus if the assessee has discharged primary onus and substantiated the purchases through documentary evidence and payment is made through banking channels. None of these documents have been proved to be false or untrue and thus the initial burden cast on the assessee was duly discharged

It is an admitted fact that during the course of search nothing adverse was found from the premises of the assessee regarding the purchases made from the four parties concerned. Only during post search enquiry it was found that those four parties are not available at the given address. However, it is a fact that the payments have been made through banking channel and the assessee had substantiated the purchases by providing documents such as purchase invoices, copy of the ledger accounts, evidences for having made payments through banking channels, C Form issued to the suppliers, copy of VAT return duly reflecting the said purchases, etc

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DATE: October 23, 2018 (Date of pronouncement)
DATE: November 13, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 4: Law on whether compensation received on closure/ termination of business activity resulting in loss of source of income, impairing its profit making structure or sterilization of profit making apparatus can be assessed as a revenue receipt or it is a capital receipt which is not chargeable to tax explained after referring to important judgements on the subject

Where, on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue : where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee’s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt.

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DATE: September 17, 2018 (Date of pronouncement)
DATE: September 19, 2018 (Date of publication)
AY: 2002-03, 2003-04
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CITATION:
Gain arising to the assessee on account of securitization of lease receivables and credited to the Profit & Loss Account is a taxable receipt in the year of securitisation as per T. V. Sunderam Iyengar 222 ITR 344 (SC). Argument that the entry represents hypothetical income and not real income and that the amount is assessable in subsequent years on receivable basis is not correct. Question of whether income can also be deferred to subsequent years under the "Matching concept" as per Taparia Tools 260 ITR 102 (Bom)/ 372 ITR 605 (SC) left open

Thus, if the assessee claims the expenditure in that year, the Department cannot deny it. However, in a case where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of the “matching concept” is satisfied, which up to now has been restricted only to cases of debentures. Whether the ‘matching concept’ would also apply to “income” is wholly a different matter and which would be considered in an appropriate case, as and when it so arises, provided the factual foundation is laid for the same.

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DATE: August 31, 2018 (Date of pronouncement)
DATE: September 7, 2018 (Date of publication)
AY: -
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CITATION:
A co-operative housing Society is not expected to indulge into profiteering business from its members. Transfer fees cannot be charged under the pretext of "voluntary donation". Amount which is accepted above permissible limits towards transfer fee is illegal and taxable as income in the hands of the society

The Society is not expected to indulge into profiteering business from the members and if such amount is earned, then it is taxable under the law. There is no bar for any member to pay donation to the Society, however, it should be voluntary without any compulsion and coercion. No manner the transfer fees can be charged under the pretext of donation

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DATE: August 20, 2018 (Date of pronouncement)
DATE: August 29, 2018 (Date of publication)
AY: 2007-08
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CITATION:
Gains from sale of shares whether capital gains or business profits: Short period of holding shows that intention of assessee is to earn profit at earliest possible occasion. Assessee is moving as per stock market trend and selling shares at first available opportunity. This type of activity of sale and purchase is rightly termed, not as investment, but as trading

In fact, trend is that majority transactions have feature in holding of shares from one day to seven days. assessee sold shares within period of one week from date of purchase in more than eighty per cent of cases. It is this trend which resulted in concurrent finding against assessee. Intention of assessee in indulging in these transactions is to earn profit at earliest possible occasion and when there is rise in price. assessee is moving as per stock market trend

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