{"id":10036,"date":"2015-04-09T15:08:49","date_gmt":"2015-04-09T09:38:49","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?page_id=10036"},"modified":"2015-04-09T15:08:49","modified_gmt":"2015-04-09T09:38:49","slug":"digest-of-important-case-laws-december-2014","status":"publish","type":"page","link":"https:\/\/itatonline.org\/archives\/digest-of-important-case-laws-december-2014\/","title":{"rendered":"Digest Of Important Case Laws &#8211; December 2014"},"content":{"rendered":"<div class=\"clock\">\n<table border=\"0\">\n<tr>\n<td colspan=\"2\"><strong>Digest of important case law &#8211; December 2014 (Compiled by KSA Legal &#038; AIFTP)<\/strong><\/td>\n<\/tr>\n<tr>\n<td width=\"264\" rowspan=\"2\" valign=\"top\">\n<script type=\"text\/javascript\"><!--\ngoogle_ad_client = \"ca-pub-6440093791992877\";\n\/* DLCenter_336x280 *\/\ngoogle_ad_slot = \"7705834990\";\ngoogle_ad_width = 336;\ngoogle_ad_height = 280;\n\/\/-->\n<\/script><br \/>\n<script type=\"text\/javascript\"\nsrc=\"http:\/\/pagead2.googlesyndication.com\/pagead\/show_ads.js\">\n<\/script><\/p>\n<\/td>\n<td width=\"271\" valign=\"top\">\n<script type=\"text\/javascript\"><!--\ngoogle_ad_client = \"ca-pub-6440093791992877\";\n\/* DLCenter_336x280 *\/\ngoogle_ad_slot = \"7705834990\";\ngoogle_ad_width = 336;\ngoogle_ad_height = 280;\n\/\/-->\n<\/script><br \/>\n<script type=\"text\/javascript\"\nsrc=\"http:\/\/pagead2.googlesyndication.com\/pagead\/show_ads.js\">\n<\/script><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td valign=\"top\"><\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">\n<div class=\"journal2\"><a href=\"http:\/\/itatonline.org\/archives\/?dl_id=1370\" target=\"_blank\">Download <strong>Monthly<\/strong> December 2014 Digest in pdf format <\/a><\/div>\n<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">\n<div class=\"journal2\"><a href=\"http:\/\/itatonline.org\/archives\/?dl_id=1371\" target=\"_blank\">Download <strong>Consolidated Digest<\/strong> (Jan 2014 to December 2014) in pdf format<\/a><\/a> <\/div>\n<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">\n<div class=\"journal2\"><a href=\"http:\/\/itatonline.org\/archives\/?dl_id=1357\" target=\"_blank\">Download <strong>Consolidated Digest<\/strong> (Jan 2013 to December 2013) in pdf format<\/a><\/div>\n<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">\n<div class=\"journal2\"><a href=\"http:\/\/itatonline.org\/archives\/?dl_id=1087\" target=\"_blank\">Download <strong>Consolidated Digest<\/strong> (Jan 2012 to December 2012) in pdf format<\/a> <\/div>\n<\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\">\n<div class=\"journal2\"><a href=\"http:\/\/itatonline.org\/archives\/digest-of-important-case-laws-november-2014\/\">Looking for the Previous Month&#8217;s digest? Click here.<\/a><\/div>\n<\/td>\n<\/tr>\n<\/table>\n<\/div>\n<p><script type=\"text\/javascript\"><!--\ngoogle_ad_client = \"ca-pub-6440093791992877\";\n\/* DLCenter_728x90 *\/\ngoogle_ad_slot = \"3275635396\";\ngoogle_ad_width = 728;\ngoogle_ad_height = 90;\n\/\/-->\n<\/script><br \/>\n<script type=\"text\/javascript\"\nsrc=\"http:\/\/pagead2.googlesyndication.com\/pagead\/show_ads.js\">\n<\/script><\/p>\n<div class=\"journal\">\n<p><strong>Journals Referred <\/strong>: BCAJ, CTR, DTR, ITD, ITR, ITR (Trib),  Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ,  www.itatonline.org\n <\/div>\n<div>\n<div style='float:left; margin-top:5px ; margin-left:5px ; margin-right:10px ; margin-bottom:5px ;'>\n<\/div>\n<p><strong>S. 2(13)&nbsp; :&nbsp;  Business &ndash;<\/strong><strong> Solitary transaction of  selling a property &ndash;Not in the nature of trade or adventure.[S.28(i)]<\/strong><br \/>\n  The assessee and others entered into an  agreement to purchase the property from its owners. Thereafter, the very same  property, the possession of which was taken by them along with others after  paying the entire sale consideration to the owner, was sold. The transaction in  question being a solitary transaction entered into by the assessees and in the  absence of any material to show that they were in the same business and they  have entered into such agreement and that they have sold such properties, it is  not possible to accept the contention of the revenue that the transaction in  question is in the nature of trade or adventure and therefore, the said  contention was rejected. (AY. 2001-02)<br \/>\n  <strong>CIT .v. Irfan  Razack Director of Prestige Estate Projects (P.) Ltd.(2014) 227 Taxman 121  (Mag.) \/ 51  taxmann.com 45 (Kar.)(HC)<\/strong><\/p>\n<p><strong>S. 2(14)((iii)(b)&nbsp; :&nbsp;  Capital gains-Agricultural land-Classification of lands in revenue  records as agricultural lands-Adangal and letter of tahsildar satisfying other  conditions of section 2(14)-Adjacent lands divided into plots for sale not a  reason that lands sold by assessee were for purposes of development of  plots-Record showing lands are agricultural lands classified as dry lands for  which kist has been paid-Entitled to exemption.[S.2(29B, 45, 50C]<\/strong><br \/>\n  Held, the assessees had also  produced a copy of the adangal and the letter from the tahsildar, which showed  that the lands were agricultural in nature and the Revenue had also accepted  that the lands were falling within the restricted zone in terms of section  2(14) . The assessees have qualified under clause 11(1) since as per the  adangal records, these lands were classified as agricultural lands and the  assessees have also paid revenue kist, namely, revenue payment. The tests laid  down by the Gujarat High Court relied on by the Tribunal clearly stated that  any one of the factors can be present in a case to qualify for the benefit of  classification as agricultural lands. The reason given by the Tribunal was that  the adjacent lands were put to commercial use by way of plots and, therefore,  the very character of the lands of the assessees was doubted as agricultural in  nature. The manner in which the adjacent lands were used by the owner therein  was not a ground for the Tribunal to come to a conclusion that the assessees`  lands were not agricultural in nature. The reason given by the Tribunal that  the adjacent lands have been divided into plots for sale would not mean that  the lands sold by the assessees were for the purpose of development of plots.  Also the reasoning given by the Tribunal &quot;No agriculturists would have  purchased the land sold by the assessee for pursuing any agricultural  activity&quot; was based on mere conjectures and surmises. Therefore, the  assessees were entitled to exemption.<br \/>\n  <strong>Sakunthala Vedachalam  (Mrs.) v. ACIT (2014) 369 ITR 558 \/(2015) 53 taxmann.com 62(Mad.) (HC)<\/strong><br \/>\n  <strong>Vanitha  Manickavasagam(Mrs)&nbsp; v.ACIT (2014)369 ITR  558 \/(2015) 53 taxmann.com 62(Mad.)(HC)<\/strong><\/p>\n<p><strong>S. 2(22)(e)&nbsp; :&nbsp;  Deemed dividend &ndash;Subsidiary company-Advance to purchase of raw materials-Could  not be considered as deemed dividend.<\/strong><br \/>\n  Where  subsidiary company was advancing money to assessee company for purchase of raw material  and to make payments to a company to meet their business liabilities, said  amount could not be considered as deemed dividend income of assessee company  within purview of section 2(22)(e). (AY. 1993-94)<br \/>\n  <strong>CIT .v.  India Fruits Ltd. (2014) 274 CTR 67 \/ (2015) 53 taxmann.com 307 \/ 228 Taxman  243 (Mag.)(AP)(HC)<\/strong><\/p>\n<p><strong>S. 2(22)(e)&nbsp; :&nbsp;  Deemed dividend-Loan to shareholder-Company having running account with  shareholder-No evidence of intent to evade tax-Loan could not be treated as  dividend.<\/strong><br \/>\n  Dismissing the appeal of  revenue the&nbsp; Court held that&nbsp; from the material on record it was clear that  the CIT(A)&nbsp; and&nbsp; the Tribunal had concurrently recorded that  the assessee had a running account with Dada Motors Pvt Ltd and had been  advancing money to it. The assessee had in fact advanced money to the company  and there was credit for only 55 days for which the provisions of section  2(22)(e) of the Act could not be invoked. Provision could not be invoked&nbsp; when there isa genuine business transaction  between the two entities and the&nbsp; funds  of the&nbsp; director were in fact lying with  the company for most of the time.( AY. 2008-2009)<br \/>\n  <strong>CIT v. Suraj  Dev Dada (2014) 367 ITR 78\/224 Taxman 189 (Mag) (P&amp;H)(HC)<\/strong><\/p>\n<p><strong>S. 2(29B)&nbsp; :&nbsp;  Long-term capital gain&ndash;Expiry of tenancy thereafter month to month basis-Capital  asset-Amount received on surrender of tenancy assessable as long term capital  gains.[S.2(14), 2(42A) 45, Transfer of Property Act, 1882 S.106, 116]<\/strong><br \/>\n  The assessee-company had acquired  tenancy right in a building, on the basis of an agreement of lease deed for  occupation of that property for a period of 3 years, during the financial year  1972-73. After the end of the said term of 3 years, the assessee continued to  occupy the premises as a tenant, but no fresh written document was executed.  Pursuant to a Memorandum with the third party, the assessee vacated the  tenanted area and surrendered the tenancy rights to the owner during the  financial year 1996-97 and in return received some amount from the third party  which was offered to be taxed as long-term capital gain. The Assessing Officer  treated it as short-term capital gain on ground that after initial period of 3  years i.e. after expiry of lease, tenancy turned into one on &#8216;month to month&#8217;  basis. Thus, tenancy rights extinguished on the last day of each month and a  fresh or new tenancy was created. The Court held that, in the present case, the  assessee had acquired tenancy rights on 15th March, 1973 and since then they  had held the said tenancy rights till the surrender was made on 18th February, 1997.  The transfer of tenancy had taken place on 18th February, 1977 and not before.  The period of holding, therefore, was from 15th March, 1973 till 18th February,  1997. No third person, who had come into possession of the property during the  period and it is not a case of the revenue that assessee did not hold the  property during the entire period of over 14 years. The word, &#8216;held&#8217; as used in  section 2(42A) is with reference to a capital asset and the term, &#8216;capital  asset&#8217; is not confined and restricted to ownership of a property or an asset.  Capital assets can consist of rights other than ownership right in an asset,  like leasehold rights, allotment rights, etc. The <em>sequitur, <\/em>therefore,  it was held that the word &#8216;held&#8217; or &#8216;hold&#8217; is not synonymous with right over  the asset as an owner and had to be given a broader and wider meaning. Amount  received on surrender of tenancy was held to be assessable as long term capital  gains .<br \/>\n  <strong>CIT .v. Frick  India Ltd. (2014) 227 Taxman 128 (Mag.) \/ 51 taxmann.com 58 \/ 369 ITR 328 (Delhi)(HC)<\/strong><\/p>\n<p><strong>S. 2(31)&nbsp; :&nbsp;  Association of persons-Essential features-Association amongst members  must be real and substantial-Ruling of AAR&nbsp;  was set aside.[S.9(1)(i), 90]<\/strong><br \/>\n  Court held that before an  association can be considered as a separate homogenous taxable entity (i.e.,an  association of persons), it must exhibit the following essential features  :&nbsp; (i) must be constituted by two or more  persons; (ii) the constituent members must have come together for a common  purpose; (iii) the association must move by common action and there must be  some scheme of common management; and (iv) the co-operation and association  amongst the constituent members must not be perfunctory or merely in form. The  association amongst members must be real and substantial. Accordingly, that the  question as to whether the petitioner and CINDA constituted an association of  persons would have to be examined on the basis of the legal principles. <br \/>\n  <strong>CTCI Overseas  Corporation Ltd. .v. DIT(IT) (2014) 366 ITR 33 (Delhi.)(HC)<\/strong><br \/>\n  <strong>Editorial : <\/strong>Ruling of AAR in CTCI  Overseas Corporation Ltd., In re [2012] 342 ITR 217 (AAR) set aside.<\/p>\n<p><strong>S. 4&nbsp; :&nbsp; <\/strong><strong>Charge of income-tax-Sikkim-Application  of Actwith effect from 1-4-1990-Effect-Repeal of Sikkim State Tax Manual by  necessary implication-Assessments made under Sikkim Tax Manual for assessment  years 1997-98 to 2005-06 not valid-State directed to refund amount.  [Constitution of India, art. 371F(n),Sikkim State Income-tax Manual, 1948,]<\/strong><br \/>\n  Held, the 1961 Act was  already in force, and was extended to the State of Sikkim on April 1, 1990.  Thus, it was not an instance of enacting a new taxation law for the State of  Sikkim after it became a part of India. Therefore, the principle that the Legislature,  while enacting a law, has complete knowledge of the existing laws on the same  subject-matter and the possible consequence thereof would not be applicable. In  such a situation, merely because it does not provide a repealing provision, it  could not be held that the intention was not to repeal the existing  legislation. The provisions of the two enactments are quite different and the  enactments cannot stand together. The 1961 Act is more exhaustive than the 1948  Sikkim Manual and they occupy the same field relating to levy of income-tax and  its recovery. If both the statutes are held to be operating in the same field,  there would be a situation of existing two laws relating to income-tax and in  the absence of any protection coming forward, the assessees may be subjected to  double taxation. It is, thus, clear that on account of the inconsistencies, the  two enactments could not stand together and on extension of the 1961 Act, the  1948 Sikkim Manual was repealed by necessary implication. The assessee claimed  its rights as an assessee under the 1961 Act. Therefore, any adverse plea like  it was not an assessee under the 1961 Act or that the 1961 Act was not  applicable to the assessee, being a plea relating to the statute would not  operate as estoppel against it. After extension of the 1961 Act to the State of  Sikkim with effect from April 1, 1990, the 1948 Sikkim Manual stood repealed  and the assessments made thereunder for the assessment years 1997-98 to 2005-06  were without authority of law, nonest and nullity. Consequently, the order of  assessment, the demand notice and the other consequential orders were quashed.  The State was directed to refund a sum of Rs. 76,53,655 to the assessee within  a period of 90 days from today, failing which the amount shall carry interest  at 6 per cent. per annum from the date commencing after completion of 90 days  till realisation.(AY. 1997-1998 to2005-2006)<br \/>\n  <strong>Sikkim Manipal  University v. State of Sikkim (2014) 369 ITR 567 (Sikkim) (HC)<\/strong><\/p>\n<p><strong>S. 4&nbsp; :&nbsp; <\/strong><strong>Charge of income-tax-Accrual  of income-Ten per cent. of cost of conductor to be paid only upon certification  of quality conforming to specifications-No accrual of income till such  stage.[S.145]<\/strong><br \/>\n  The assessee was a  manufacturer of electrical conductors. It supplied an item of conductor to a purchaser.  Under the agreement, 10 per cent. of the cost of the goods was to be paid only  after final certification of the conductor after erection and charging. For the  assessment year 1998-99, the AO added a sum of Rs. 64,58,606, representing 10  per cent. of the cost of the conductor sold by the assessee on the ground that  though the amount would be paid at a later stage, the assessee had acquired the  right to receive the amount. The Tribunal set aside the order of assessment  made by the AO. On appeal&nbsp; High Court  also affirmed the view of Tribunal .Followed the ratio in, CIT v. Excel  Industries Ltd. [2013] 358 ITR 295 (SC) applied.(AY. 1998-1999)<br \/>\n  <strong>CIT .v. India  Fruits Ltd. (2014) 369 ITR 586 (T &amp; AP)(HC)<\/strong><\/p>\n<p><strong>&nbsp;<\/strong><\/p>\n<p><strong>S. 4&nbsp; :&nbsp; <\/strong><strong>Charge of income-tax  &ndash;Mutuality-<strong>Transfer Fees  received&nbsp; by Co-op Hsg Soc from incoming  &amp; outgoing members (even in excess of limits) is exempt on the ground of  mutuality-Contribution to building repair fund is not transfer  fee.[Constitution of India , Art 43A]<\/strong><\/strong><br \/>\n  The assessee, a  Co-operative Housing Society, received a sum of Rs.39,68,000 on account of  transfer of flat and garage and credited it to &lsquo;general amenities fund&rsquo; as well  as &lsquo;repair fund&rsquo;. The assessee claimed that the said receipt is exempted from  tax on the ground of mutuality. However, the AO held that the principles of  mutuality will not apply. However, the CIT(A) and Tribunal allowed the  assessee&rsquo;s claim by relying on&nbsp;<a href=\"http:\/\/itatonline.org\/archives\/sind-co-op-housing-society-vs-ito-bombay-high-court\/\">Sind  Co-operative Housing Society vs. ITO<\/a>&nbsp;(  2009) 317 ITR 47. On  appeal by the department to the High Court HELD dismissing the appeal : <br \/>\n  The very issue and  the very question was raised repeatedly in the case of the assessee society.  Repeatedly the Revenue has failed in convincing the Tribunal that Sind  Co-operative Housing Society will not cover the Society&rsquo;s case. The  contribution is made to the repair fund or to the general fund and credited as  such. While it may be true that it is occasioned by transfer of a flat and  garage, yet, we do not see how merely because there was cap or restriction  placed on the transfer fees or the quantum thereof, in this case the principle  of mutuality cannot be applied. The underlying principle and of a co-operative  movement has been completely overlooked by the Revenue. The Revenue seems to be  of the view that a Co-operative Housing Society makes profit, if it receives  something beyond this amount of Rs.25,000. There has to be material brought and  which will have a definite bearing on this issue. If the amount is received on  account of transfer of a flat and which is not restricted to Rs.25,000\/- but  much more, then different consideration may apply. However, in the present  case, what has been argued and vehemently is the amount was received by the  Society when the flat and the garage were transferred. Therefore, it must be  presumed to be nothing but transfer fees. It may have been credited to the fund  and with a view to demonstrate that it is nothing but a voluntarily  contribution or donation to the Society, but still it constitutes its income.  However, for rendering such a conclusive finding there has to be material  brought by the Revenue on record. Beyond urging that it has been received at  the time of a transfer of the flat and credited to such a fund will not be  enough to displace the principle laid down in the decision of Sind Cooperative  Housing Society. The attempt of the Revenue therefore is nothing but overcoming  the binding judgment of this Court. In the present case, the Commissioner and  the Tribunal both have held that the receipt may have been occasioned by the  transfer but the principle of mutuality will still apply. It is a typical  relationship between the member of the Co-operative Society and particularly a  Housing Society and the Society which is a body Corporate and a legal entity by  itself that is forming the basis of the principle laid down by the Division  Bench. Co-operative movement is a socio economic and a moral movement. It has  now been recognized by Article 43A of the Constitution of India. It is to  foster and encourage the spirit of brotherhood and co-operation that the  Government encourages formation of Co-operative Societies. The members may be  owning individually the flats or immovable properties but enjoying, in common,  the amenities, advantages and benefits. The Society as a legal entity owns the  building but the amenities are provided and that is how the terms &ldquo;flat&rdquo; and  the &ldquo;housing society&rdquo; are defined in the statute in question. We do not  therefore find any reason to deviate from the principle laid down in Sind  Co-operative Housing Society&rsquo;s case and which followed a Supreme Court  judgment.( ITA No. 1472 of 2012, dt. 18\/12\/2014 ) (AY. 2005-06)<br \/>\n  <strong>CIT .v. Darbhanga Mansion CHS Ltd.( 2015) 370 ITR 443  (Bom.)(HC) www.itatonline.org<\/strong><\/p>\n<p><strong>S. 4&nbsp; : Charge of income-tax-Capital or  revenue-Termination of lease of business asset-Compensation towards loss of  revenue and non-compete fee under agreement in March 1993&#8211;Capital receipt.  [S.28(va),28(ii),55].<\/strong><br \/>\n  Dismissing the appeal of  revenue the Court held that the amount in question being compensation towards  the loss of source of income and also towards non-competition fee to prevent  the assessee from carrying on the similar business using the know-how possessed  by the assessee as a competitor, the amount of Rs. 5.31 crores paid was capital  in nature. There being no cost of acquisition, the capital gains were not  computable. In view of the amendment to the Finance Act, 2002, with effect from  April 1, 2003, the capital receipt was made taxable under section 28(va) of the  Income-tax Act, 1961. The amendment was not applicable to the case of the  assessee. (Ay.1999-2000)<br \/>\n  <strong>CIT .v.  Sapthagiri Distilleries Ltd. (2014) 366 ITR 270\/224 Taxman 229  (Mag.)(Karn.)(HC)<\/strong><\/p>\n<p><strong>S.  5&nbsp; :&nbsp; <\/strong><strong>Scope of total income  &ndash;Method of accounting-Incentives-After expiry of accounting period- Cannot be  brought to tax. [S.145]&nbsp; <\/strong><br \/>\n  The assessee-firm was engaged in the business of reselling of  the electrical goods.Tribunal held that sales performance based  incentives received by assessee from its suppliers after expiry of relevant  accounting year could not be brought to tax in assessment year in question even  though assessee was following mercantile system of accounting .(ITA Nos. 1301 (Mum.) of  2011 &amp; 1896 &amp; 7266 (Mum.) of 2012 dt. 30-06-2014)(AYs. 2007-08, 2008-09  &amp; 2009-10)<br \/>\n  <strong>Dy.CIT .v. Vijay Sales (2014) 33 ITR 546 \/ 52 taxmann.com 310  \/ (2015) 67 SOT 99 (Mum.)(Trib.)<\/strong> <\/p>\n<p><strong>S.9(1)(i)  :&nbsp; Income deemed to accrue or arise in  India- Permanent establishment-DTAA-India-USA;[S. 90, Art. 5]<\/strong><br \/>\n  High court held that&nbsp; word &lsquo;used&rsquo; as specified in article 5 of Indo  &ndash;USA DTAA clarifies usage&nbsp; of an  installation or structure for exploration of natural resources and if it was so  used for aperiod of 120 days in 12 months , only then it could be considered as  PE in India and not merely on being ready for use .<br \/>\n  <strong>DIT(IT) v.  R&amp; B&nbsp; Offshore Ltd. (2014) 223 Taxman  266\/ 271 CTR 111 (Uttarakhand)(HC)<\/strong><br \/>\n  <strong>Editorial  :&nbsp; <\/strong>Revenue sought leave to withdraw special leave  petition&nbsp;&nbsp; to file review petition before  High Court.Permission to withdraw the Special Leave petition was granted . SLP  nos 14430 , 14702&amp;14861 of 2014 dt 12-09-2014 ( 2014) 227 Taxman 367 (SC)<\/p>\n<p><strong>S. 9(1)(i)&nbsp; :&nbsp;  Income deemed to accrue or arise in India-Business  connection-Determination of quantum of income attributable to India in case of  assessee followed by High Court in earlier years-In absence of new data and  facts on issue of profits attributable to India operations-Tribunal not  justified in remitting matter to Assessing Officer by adopting globalisation  and commercial test. <\/strong><br \/>\n  The assessee, a company  incorporated in the Netherlands, was engaged in the business of providing  electronic distribution services to the travel industry through computerised  reservation system. It appointed an exclusive distributor in India under an  agreement. For determination of quantum  of income attributable to India in case of assessee followed by High Court in  earlier years. Tribunal set aside the matter to the AO&nbsp;&nbsp; to determine the income&nbsp; by adopting globalisation and commercial test.  On appeal the&nbsp; Court held that in absence  of new data and facts on issue of profits attributable to India  operations-,Tribunal was&nbsp; not justified  in remitting matter to AO by adopting globalisation and commercial test.  (AYs. 2003-2004 to 2006-2007)<br \/>\n  <strong>Galileo  Nederland BV .v. ADIT (IT) (2014) 367 ITR 319\/271 CTR 568\/ 51 taxmann.com 419\/  (2015) 228 Taxman 81 (Delhi)(HC)<\/strong><\/p>\n<p><strong>S. 9(1)(i)&nbsp; :&nbsp; <\/strong><strong>Income deemed to accrue or arise in India-Business  connection-Liaison office-Promoting sales-Taxable in India on business  income-DTAA-India-USA-Matter remanded.[Art.5(3)(e), 7] <\/strong><br \/>\n  The assessee, a company incorporated  in the USA, the assessee claimed that it was maintaining a liaison office and  the receipts were on account of a remittance of expenses incurred. The assessee  stated that the expenses included the salary of its consultants and the chief  representative officer. The assessee disclosed that besides the fixed  remuneration, it had a sales incentive plan under which the employees were  entitled to receive up to 25 per cent. of their annual remuneration as an  incentive. When called upon to disclose the details of the targets which were  fixed and the payments under the sales incentive plan, the assessee submitted  that during the assessment year no incentive had been paid. The AO recorded the  statement of the chief representative officer of the assessee and came to the  conclusion that the activities of the assessee were not restricted only to  providing a channel of communication between the buyers of the products sold by  the parent company but the activities were extended to searching for  prospective buyers, providing required information and persuading them of the  worth of the brand of the assessee in the US, which was, in turn, a subsidiary  of a Swedish company. The Assessing Officer held that the activities of the  assessee involved marketing activities in India and that the assessee was, in  fact, carrying on business activities. On this basis, the income of the  assessee was computed at Rs. 24.86 lakhs, comprising the receipts of Rs. 63.72  lakhs less the expenses of Rs. 38.86 lakhs, which was taken as the profit from  business activities carried on in India. CIT(A)&nbsp;  and Tribunal confirmed the order of AO. On appeal the Court held that; Liaison office&nbsp; maintained by the assesse was for&nbsp; promoting sales of goods of assessee through  its employees. Sales incentive for achieving sales target. Performance of  employees judged by orders secured hence the Liaison office&#8217;s activity not of a  preliminary or preparatory nature therefore exclusionary clause in Agreement  not applicable Income is taxable in India on business income. The&nbsp; AO did not apply his mind to the crucial  requirement which defines the extent of taxability. The AO was directed&nbsp; fora fresh determination of the extent of the  taxable income having regard to the provisions of article 7 of the DTAA.  (AY. 2003-2004)<br \/>\n  <strong>Brown and  Sharpe Inc. .v. CIT (2014) 369 ITR 704\/51 taxman.com 327 (All.)(HC)<\/strong><\/p>\n<p><strong>S. 10(2A)&nbsp; :&nbsp;  Exemption-Firm-Partner-Share of partner from firm not liable to  tax-Concept of &quot;total income&quot; in section 10(2A) different from  concept in section 2(45)-.Total income of firm does not include incomes which  are exempt from tax&#8211;Partner entitled to exemption in respect of exempted  income allotted to him.[S.2(45), 10(34),10(35), 10(36)]<\/strong><br \/>\n  The petitioner challenged the  assessment order by filing the Writ petition ,&nbsp;  for not granting exemption under section 10(2A), in respect of share of  profit of the firm income which is exempted from tax under clause&nbsp; 34, of section 10, and clause 35 of the  section 10 of the Act. In substance, a declaration is sought to the effect that  the total income referred in clause (2A)&nbsp;  of&nbsp; section 10 of the Act&nbsp; does not include income of the partnership  firm which is exempted from tax .Allowing the petition the Court held that  :&nbsp; Explanation to clause (2A) of sec tion  10 with respect to its placement in Chapter III, does not envisage taxation of  the shares of profits of the firm at the hands of the partners. The expression  &quot;total income&quot; as defined in clause (45) of section 2 of the Act is  distinct from the expression &quot;total income&quot; used in section 10 of the  Act. A perusal of section 10 would make it clear that Parliament intended that  certain incomes should not be included in the total income of a person, i.e.,  gross total income. What section 10 read with the Explanation thereto envisages  is the amount to be determined as not includible in the total income of the  partner. For this, three factors have to be considered&nbsp; :&nbsp; (a)  the total income of the firm ; (b) the share of partners&#8217; profit in the firm;  (c) the business share profits of the firm. In this context, the total income  of the firm is not the taxable income of the firm. The object of clause (2A) of  section 10 is to avoid double taxation vis-a-vis the profits of the firm, which  are distributed in the hands of the partners. It does not mean that income  which is taxed in the hands of the firm is taxable in the hands of the partners  and on the same principle, when the income is not taxed in the hands of the  firm, it becomes taxable in the hands of the partner. The share of the partner  in the profits of the firm which is after taxation of the firm, would also  include that portion of the income on which the firm would not have paid any  tax on account of the firm also having the benefit of certain provisions of  Chapter III but which would nevertheless be part of the profits of the firm.  Hence, a partner would be entitled to exemption under clause (2A) of section 10  of the Act, on the share of profit of the firm, inclusive of the income, which  is exempted under clauses (34), (35) and (38) of section 10 of the Act, as the  total income referred to in clause (2A) of section 10 of the Act, includes  exempted income of the firm.(AY 2010-2011)<br \/>\n  <strong>Vidya  Investment and Trading Co. P. Ltd. .v. UOI (2014) 367 ITR 33\/223 Taxman 199  (Karn.)(HC)<\/strong><\/p>\n<p><strong>S. 10(14)&nbsp; :&nbsp; Exemption-Special  allowance to meet expenses of office-Conveyance and additional conveyance  allowance for Development Officers fixed by formula-Exempt from tax.<\/strong><br \/>\n  Court  held that special allowance to meet expenses of office,-Conveyance and  additional conveyance allowance for Development Officers fixed by formula is  held to be exempt from tax.(AY 1998-1999 -2000-01)<br \/>\n  <strong>CIT .v. Madan  Gopal Bansal (2014) 366 ITR 319\/223 taxman 169(Mag) (Raj.)(HC)<\/strong><\/p>\n<p><strong>S. 10(23C)(vi)&nbsp; :&nbsp;  Educational institution-Delay in filing application&#8211;Condonation of  delay-Chief Commissioner is not a court-Order of Principal Chief Commissioner  rejecting application did not suffer from any error.[Limitation Act, 1963, S.  5.]<\/strong><br \/>\n  The assessee filed an  application under section 10(23C)(vi) of the Income-tax Act, 1961, for the  assessment year 2013-14 on March 19, 2014. The Principal Chief Commissioner by  his order dated April 25, 2014, declined to entertain the application on the  ground that it was filed beyond the stipulated date. On a writ petition&nbsp; : <br \/>\n  Held, dismissing the  petition, that there was no basis or foundation in the submission that the  delay in filing the application for an exemption under section 10(23C)(vi)  beyond the statutory date of September 30, 2013, should have been condoned.  Thus, order of the Principal Chief Commissioner did not suffer from any  error.Applied the ratio in<br \/>\n  Commissioner of Customs and Central Excise v. Hongo India P. Ltd. [2009] 315  ITR 449 (SC) (AY. 2013-2014)<br \/>\n  <strong>I.D. Education  Society .v. Principal CCIT (2014) 369 ITR 307 (All.)(HC)<\/strong><\/p>\n<p><strong>S. 10(23C)(vi)&nbsp; :&nbsp;  Educational institution-Other objects-Does not mean institution not  existing solely for educational purposes-Order refusing approval of exemption  not sustainable.<\/strong><br \/>\n  Held, that the  assessee-society was running an educational institution. Merely because there  were other objects of the society that did not mean that the educational  institution was not existing solely for educational purpose. The emphasis of  the word &quot;solely&quot; is in relation to the educational institution,  which is running not for the purpose of making profit and is not in relation to  the objects of the society. The prescribed authority had misdirected itself in  not considering the stipulated conditions mentioned under section 10(23C)(vi)  and had digressed from the main issue in considering the irrelevant  considerations. He had considered the expenditure depicted by the  assessee-society in the previous assessment years. He also considered the  findings of the Assessing Officer, which findings had been set aside in appeal  by the appellate authority. Consequently, the order refusing approval for  exemption could not be sustained, the authority was to consider it and pass  appropriate orders.((AY. 2003-2004&nbsp; to  2010-2011).<br \/>\n  <strong>Simpkins School  v. DIT (Inv.) (2014) 367 ITR 335\/ 226 Taxman 160(Mag.) (All.)(HC)<\/strong><\/p>\n<p><strong>S. 10(23C(vi)&nbsp; :Educational institution-Defect in Trust deed  was rectified-Rejection of application was held to be not justified.&nbsp; <\/strong><br \/>\n  Application  under section 10(23C)(vi)&nbsp; was rejected  on ground trust deed did not provide for distribution of funds on dissolution.  Defect in trust deed rectified. Rejection of application not justified.(AY.2012-2013)<br \/>\n  <strong>St. Kabir  Educational Society .v. CBDT (2014) 366 ITR 378 (P&amp;H)(HC)<\/strong><\/p>\n<p><strong>S. 10(23C)(vi)&nbsp; :&nbsp;  Educational institution-Education-Training-Matter remanded.<\/strong><br \/>\n  Allowing  the petition the Court held that prescribed authority to consider whether some  form of information or training regarding a subject imparted by institution,  whether such information resulted in intellectual, moral or social benefit in  keeping with education,Whether educational process being carried on in a  systematic way by its arrangement into courses, classes, a specific number and  length of classes in a day, system of promotion, gradation, granting of diploma  certificates also to be gone into. As the Commissioner has not considered all  the above facts, matter was remanded for fresh consideration. <br \/>\n  <strong>Swar Sangam v.  CCIT (2014) 368 ITR 395 (Cal.)(HC)<\/strong><\/p>\n<p><strong>S. 10A&nbsp; : <\/strong><strong>&nbsp;Free trade zone-Development of computer software-Customs bonding not a condition  precedent-Assessee fulfilling conditions laid down in section 10A-Entitled to  exemption..<\/strong><br \/>\n  The assessee was in the  business of computer software development and established in a software  technology park. The assessee claimed deduction under section 10A of the Act.  The particulars furnished showed the date of commencement of production and the  date of initial registration with the Software Technology Parks of India (STPI)  were on the same day. While granting permission for setting up of the units,  the STPI authorities had laid down some conditions. Condition No. 5 was that  the units should be customs bonded. The licence for private bonded warehouse  obviously would be a date after the permission granted by the STPI authorities  to set up the STPI units. The assessing authority was of the view that the  assessee would be entitled to the benefit under section 10 only if production  commenced in the customs bonded area after such permission and that as the  assessee had commenced production before that date the assessee was not  entitled to the benefit. Accordingly, the claim for exemption was denied to the  assessee. The CIT(A) and the Tribunal held that the assessee was entitled to  the exemption. On appeal to the High Court : <\/p>\n<p>Held, dismissing the appeals,  that the assessee commenced production prior to the customs bonding. However,  invoices were raised after the customs bonding. The conditions stipulated in  the permission granted by the STPI was that the units shall be customs bonded.  The benefit of such customs bonding is that the assessee would be entitled to  the benefit of customs duty and excise duty. It had nothing to do with the  grant of exemption under section 10A of the Act. The assessee was entitled to  the exemption.<br \/>\n    <strong>CIT v. Caritor  (India) P. Ltd. (2014) 369 ITR 463 (Karn.)(HC)<\/strong><\/p>\n<p><strong>S. 10A&nbsp; :&nbsp; Free  trade zone &ndash;Human resources services-IT enabled services-Entitled to benefit.<\/strong><br \/>\n  The assessee was a hundred per cent export oriented unit  registered under STPI and was engaged in hiring overseas information technology  consultants for a US based company. The services rendered by them to their  client included sourcing, screening and interviewing prospective candidates  having information technology skills for recruitment for their overseas  customers. It claimed deduction under section 10A and, accordingly, declared&nbsp;nil&nbsp;income.<\/p>\n<p>On second appeal, the Tribunal allowed the assessee&#8217;s claim  holding that the assessee-company provides recruitment services by extensively  using information technology skills. It was held that the services provided by  the assessee were covered by section 10A, read with&nbsp;Notification  bearing No. SO 890(E), dated 26-9-2000.<\/p>\n<p>On appeal by the revenue dismissing the appeal of revenue the  Court held that,It was found that assesseecompany provide recruitment services by  extensively using information technology. It was using information technology  in scanning data, processing it, conducting online tests for short-listed  candidate, and analysing their results. Even list of selected candidate also  took place using CATS application software. These activities were covered  under&nbsp;Notification bearing No. SO 890(E), dated 26-9-2000, i.e., human  resource service. Therefore assessee would be entitled to benefit under section  10A. (ITA  No. 1255 of 2011 dt. 03-09-2014)(AY. 2007-08)<br \/>\n    <strong>CIT .v. ML  Outsourcing Services (P.) Ltd. (2014) 271 CTR 553 \/ 51 taxmann.com 453 \/ (2015)  228 Taxman 54 (Mag.)(Delhi)(HC)<\/strong><\/p>\n<p><strong>S.10A<\/strong><strong>&nbsp; :&nbsp; Free trade zone&ndash;Certificate was not filed  before AO-Quoting wrong provision&nbsp;  exemption cannot be denied.[S.10B,Form No. 56G] <\/strong><br \/>\n  The assessee-company was engaged in the business of medical  transcription and it claimed deduction under section 10B by claiming that it  was a 100 per cent export-oriented unit. AO rejected claim on ground that  assessee failed to obtain required certificate and other evidence to establish  claim of deduction. Before CIT (A) assessee claimed exemption under section 10A  on ground that all requisite conditions were fulfilled. CIT(A) granted  deduction by recording that merely because assessee had quoted a wrong  provision of law before AO, same was not good reason to deny relief when  otherwise assessee was entitled to deduction. On appeal by&nbsp;&nbsp; revenue the Tribunal held that finding of  fact recorded by CIT(A) needed no interference<strong>.<\/strong>(ITA No. 1871 (Mum.) of  2011 dt. 08-05-2014) (AY. 2007-08)<br \/>\n  <strong>ITO .v. Accentia Technologies Ltd. (2014) 34 ITR 505 \/ 52  taxmann.com 89 \/ (2015) 67 SOT 165 (Mum.)(Trib.)<\/strong><strong> <\/strong><\/p>\n<p><strong>S. 10B&nbsp; :&nbsp;  Export oriented unit-Profits derived from export-Interest earned on  deposits for opening letters of credit-Attributable to activity of  export&#8211;Entitled to exemption-Public issue of shares by assessee-Interest on  share application moneys deposited by applicants for shares not income derived  from export activity-Not entitled to exemption-Interest on deposits made from  share application moneys pending issue of shares-Not entitled to exemption.<\/strong><br \/>\n  Obtaining of letters of  credit is an essential activity for undertaking exports and the deposit of  amounts for that purpose is a condition precedent. The interest yielded on the  deposits was attributable to or could be said to be derived from the activity  of export. Therefore, the interest earned in respect of the bank deposits kept  for opening letters of credit was entitled to exemption. <br \/>\n  The interest given by banks  in respect of moneys received by them, on behalf of the assessee, against  public issue of shares was not entitled to exemption as it was not part of  scheme of export. <br \/>\n  <strong>CIT .v. Indo  Aquatics Ltd. (2014) 369 ITR 589 (T &amp; AP)(HC)<\/strong><\/p>\n<p><strong>S. 10B&nbsp; : Export Oriented undertaking &ndash;Unabsorbed  depreciation-Cannot adjust unabsorbed depreciation against other income.[S.56] <\/strong><br \/>\n  Court  held that since section 10B provides 100 per cent exemption for export income  and not for other income, unabsorbed depreciation should be adjusted against  income of export oriented business only, assessee cannot adjust unabsorbed  depreciation against other income so as to take exemption from payment of tax  even for other income. (ITA No. 1501 of 2008 dt. 19-09-2013)(AY.1994-95)<br \/>\n  <strong>Himatsingka  Seide Ltd. .v. CIT (2014) 266 CTR 141 \/ 48 taxmann.com 357 \/ (2015) 228 Taxman  63(Mag.)(SC)<\/strong><br \/>\n  <strong>Editorial :&nbsp; <\/strong>Decision in CIT v. Himatasingike Seide  Ltd ( 2006)286 ITR 255\/ 156 Taxman 151\/206&nbsp;  CTR 106 (Karn)(HC) is affirmed.,<\/p>\n<p><strong>S.10B : Export oriented  undertaking-Assessee&#8217;s sister undertaking fulfilling requirements of section  10B(2)(ii) and (iii) at time of formation&#8211;Transfer of entire business to  assessee-Entitled to exemption-<\/strong><br \/>\n  The assessee was engaged in  export of digitised medical transcription. It acquired the entire business  relating to medical transcription of its sister concern in relation to the AY  2002-03 and claimed exemption under section 10B for the AY.2004-05. The AO  disallowed the claim on the grounds that (i) the assessee did not satisfy the  requirement of sub-section (2) of section 10B,The CIT(A) held that the  undertaking had not been set up by the assessee but was set up earlier by its  sister concern and was transferred to the assessee and, hence, there was no  violation of section 10B(2)(ii) or section 10(2)(iii) as the assessee had  entered into a business transfer agreement with its sister concern. There was  no finding that the sister concern had acquired or previously used machinery or  equipment. The Tribunal allowed the appeals of the Revenue in respect of the  assessment years 2002-03 and 2003-04 relying upon sub-section (9) of section  10B but dismissed the appeal for the assessment year 2004-05 observing that  sub-section (9) of section 10B was omitted and was not applicable for the assessment  year 2004-05. On appeal&nbsp;&nbsp; by revenue the  dismissing the appeal the Could held that the assessee, could not be denied the  benefit under S.10B. (AY 2004-2005)<br \/>\n  <strong>CIT .v.  Heartland Delhi Transcription Services P. Ltd. (2014) 366 ITR 523\/270 CTR&nbsp;&nbsp; 373 \/ (2015) 228 Taxman 326(Mag)(Delhi)(HC)<\/strong><\/p>\n<p><strong>S.10B :Export oriented  undertaking-Requisite approval from Board constituted under Industries  (Development and Regulation) Act, 1951 not possessed by assessee-Tribunal not  entitled to rewrite law or accept anything in lieu of what was required by  statute&#8211;Matter remanded to AO,with directions.[S. 254(1).<\/strong> <br \/>\n  Tribunal, following an  earlier decision, allowed the claim of the assessee for exemption under S.10B  of the Act,on the basis of a letter of the General Manager, District Industries  Centre, Directorate of Cottage and Small Scale Industries. On appeal by  revenue, allowing the appeal partly, held (i) that since the assessee did not  possess the requisite approval as 100 per cent. export oriented undertaking by  the Board appointed by the Central Government in exercise of powers by section  14 of the Industries (Development and Regulation) Act, 1951 and the Rules made  thereunder, the Tribunal could not have rewritten the law nor could have  accepted anything in lieu of what was required by the statute. Therefore, the  view of the Tribunal was wrong and was, therefore, set aside and the AO&nbsp; was directed to consider whether the assessee  was entitled to any other benefit under the Act on the basis that hundred per  cent. profits were earned from exports.<br \/>\n  <strong>CIT .v. J.E.  Enterprises P. Ltd. (2014) 366 ITR 571\/272&nbsp;  CTR 102\/(2015) 228&nbsp; Taxman  171(Mag) (Cal.)(HC)<\/strong><\/p>\n<p><strong>S.10B : Export oriented  undertaking -Subsidiary merging with assessee-Assessee eligible for benefit of  exemption-. <\/strong><br \/>\n  Rejecting  the appeal of revenue the Court held that the subsidiary of assessee, a 100 per  cent. export oriented unit, merging with assessee by order of court is not a  case of business formed by splitting up or reconstruction of a business already  in existence. Assessee&#8217;s status as 100 per cent. export oriented unit approved  by Government of India. Assessee eligible for benefit of exemption.Referred to the Central Board  of Direct Taxes Circular No. 378, dated March 3, 1984(1984) 149 ITR (St.)1, and  held that the benefit was attached to the undertaking and not to the ownership,  thus, allowed the claim.(AY.1994-1995)<br \/>\n  <strong>CIT .v. Shri  Renuga Textiles Mills Ltd.(2012) 254 CTR 423 \/ (2014) 366 ITR 649 (Mad.)(HC)<\/strong><\/p>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"5\">\n<tr>\n<td width=\"90%\" valign=\"top\">The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org. <\/td>\n<\/tr>\n<\/table>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Digest of important case law &#8211; December 2014 (Compiled by KSA Legal &#038; AIFTP) Download Monthly December 2014 Digest in pdf format Download Consolidated Digest (Jan 2014 to December 2014) in pdf format Download Consolidated Digest (Jan 2013 to December &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/itatonline.org\/archives\/digest-of-important-case-laws-december-2014\/\"> <span class=\"screen-reader-text\">Digest Of Important Case Laws &#8211; December 2014<\/span> Read More &raquo;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-10036","page","type-page","status-publish","hentry"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/10036","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/comments?post=10036"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/10036\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/media?parent=10036"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}