{"id":3603,"date":"2011-08-30T23:41:10","date_gmt":"2011-08-30T18:11:10","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?page_id=3603"},"modified":"2011-08-30T23:41:10","modified_gmt":"2011-08-30T18:11:10","slug":"digest-of-important-case-law-july-2011","status":"publish","type":"page","link":"https:\/\/itatonline.org\/archives\/digest-of-important-case-law-july-2011\/","title":{"rendered":"Digest of important case law – July 2011"},"content":{"rendered":"
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\nNo time to read through voluminous case reports?<\/p>\n
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\nFret Not! The KSA Legal team will bring you up-to-speed with the choicest of case-law so you can focus your attention only on the important ones. This section is updated on a monthly basis so make sure you bookmark this page.\n<\/div>\n

Compiled By: Ajay R. Singh, Paras S. Savla, Rahul K. Hakani and Sujeet S. Karkal, Advocates<\/DIV><\/p>\n<\/div>\n

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Digest of important case law – July 2011 <\/strong><\/td>\n <\/td>\n<\/tr>\n
Download monthly<\/strong> (July 2011) digest in pdf format <\/td>\n Click here to download the judgement (digest_case_laws_july_2011.pdf) <\/strong> <\/a><\/p> <\/td>\n<\/tr>\n
Download Consolidated Digest<\/strong> (Jan 2011 to April 2011) in pdf format <\/td>\n <\/td>\n<\/tr>\n
Looking for the Previous Month’s digest? Click here.<\/a> <\/td>\n Click here to download the judgement (Consolidated_Digest_of_Case_Laws_Jan_2011_to_Apr_2011.pdf) <\/strong> <\/a><\/p> <\/td>\n<\/tr>\n<\/table>\n<\/div>\n
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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

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S. 2 (IA): Agricultural Income- Sale of Rubber scrap- Scrap generated in Industrial activity.<\/strong>
\n Sale of scrap rubber which is generated in course of extraction of rubber latex from trees can not be brought to Income tax by applying rule 7A   because scrap is generated in course of taking yield which is purely an agricultural operation. However, income from scrap generated in industrial activity of processing latex in to products referred to in rule 7A (1) has to be brought to income tax under rule 7.
\n CIT v State Farming Corporation Ltd (2011) 199 Taxman 371 ( Ker) (High Court).<\/strong>
\n S. 2 (15): Charitable Trust- Production of television and radio programmes- Registration ( s. 12A).<\/strong>
\n Production of television and radio programmes for purpose of telecasting and broad casting through assessee’s own network or through one hired by it would not constitute advancement of any object of general public utility with in the meaning of section 2 (15).Application for registration has to be considered with reference to objects of assessee available as on end of previous year during which registration is sought under section 12A.
\n CIT v A.Y. Broad Cast Foundation (2011) 199 Taxman 376 ( Ker) (High Court).<\/strong>
\n S.2 (22) (e): Deemed dividend-Security deposit-Date of deposit.<\/strong>
\n Since on the date on which the security deposit was given by the company to the assessee , the assessee held less than 10 percent  beneficial interest in the company , the amount of security deposit can not be treated as deemed dividend under section  2 (22) (e) , merely on the ground  that  share holding increased to 44% on issue of shares  by the company in lieu of security deposit.( A. Y. 1998-99)
\n CIT v Late C.R.Das (2011) 57 DTR 201 (<\/strong>Delhi<\/strong>) (High Court). <\/strong>
\n S. 2 (22) (e):  Deemed dividend- Loan to a concern in which share holder is a partner- Security deposit.<\/strong>
\n Partners of the assessee firm and  not the  assessee firm being a share holder of the  company AG ltd. Amount received by the assessee firm from the company as security deposit can not be regarded as deemed dividend . Even other wise ,the amount received from AG Ltd  being security deposits under an agreement between the parties coupled with  certain obligations , it can not be regarded  to be payment by the company by way of advance or loan and hence , it can not be assessed to tax under section 2 (22) (e).( Assst year 2006-07).
\n DY CIT v Atul Engineering Udyog ( 2011) 57 DTR 433 ( <\/strong>Agra<\/strong>) (Trib).<\/strong>
\n S. 2 (31) (V). Association of persons- Individual-Assessment- HUF- Capital gains. (S.4, 45).<\/strong>
\n After the death of sole male member of the family, the only person left in the family was the widow of the deceased and three daughters were already married. The property of the deceased would devolve on the window and three married daughters in equal shares, since the property of the deceased was sold without dividing the same among the assessee and her three married daughters, the capital gains on the sale of the property would be assessable in the hands of the BOI consisting of the assessee and her three married daughters (Asst Year 2005-06)..
\n ITO v Shanti Dubey (2011) 139 TTJ 502\/ 58 DTR 422 (Jab) (Trib).  <\/strong>
\n S.4. Income –Interest earned – Performance guarantee.<\/strong>
\n Interest income earned by the assessee on the fixed deposit for performance of guarantee of contract was held to be capital in nature and cannot be assessed as income from other sources.
\n CIT vs. Jaypee DSC Ventures Ltd. (2011) 53 DTR 305 (<\/strong>Del<\/strong>)( High Court).<\/strong>
\n S.5. Income – Accrual.<\/strong>
\n Hypothetical income credited by the assessee in the profit and loss account in respect of excise refund based on a Supreme Court decision in case of a third party cannot be said to have accrued to the assessee.( A. Y. 1988-89)
\n CIT vs. Nuchem Ltd. (2011) 55 DTR 14 (P&H)( High Court).<\/strong>
\n S. 5. Income- Accrual of Income- Earnest money- <\/strong>Sale<\/strong> of land.<\/strong>
\n Earnest money received for transfer of land . Transaction not taking place in year. Earnest money received not to be treated as income in year under consideration.( Asst year 2004-05).
\n DY  CIT v Shiv Sai Developers ( 2011) 10 ITR 80 (Mumbai ) (Trib).<\/strong>
\n S. 9 (i).– Income deemed to accrue or arise in <\/strong>India<\/strong> – <\/strong>India<\/strong> <\/strong>US<\/strong> DTAA. <\/u><\/strong>
\n On facts, Liaison office purchasing diamonds for export to HO does not constitute PE under India-US DTAA and it was covered under explanation 1(b) to section 9(1)(i) of Income Tax Act.
\n ADIT vs. M. Fabrikant & Sons Ltd., dt.28-01-2011, A.Y. 1999–2000 to 2002-03 & 2003 – 2004, BCAJ pg. 42, Vol. 43-A, Part 2, May 2011.<\/strong>
\n S.9(i).: Income deemed to accrue or arise in India-Sale of shares by Mauritius Co can be treated as sale by 100% <\/strong>USA<\/strong> parent. <\/strong>Sale<\/strong> of shares of foreign company taxable if object is to acquire the Indian assets ( S.148, 163 ,195.).<\/strong>
\n (i) The argument that s. 163 applies only with respect to income “deemed to accrue or arise” in India u\/s 9 and not to income “accruing or arising” is not acceptable. Pursuant to Eli Lily<\/strong> 312 ITR 225 (SC), the income accruing or arising in India to NCWS, USA on transfer of a capital asset situate in India, (shares of Idea Cellular) is deemed to accrue or arise in India<\/strong> to NCWS and can be assessed either in the hands of NCWS or in the hands of the payer as agent of the non-resident u\/s 163;
\n (ii) The argument that the AO having issued a NOC u\/s 195(2) permitting Aditya Birla Nuvo to remit the sale proceeds without TDS could not recover the tax from the payer by treating it as agent is not acceptable because the said order was obtained by “suppressing material facts<\/strong>”<\/strong> relating to the circumstances in which the shares of Idea Cellular were issued in the name of AT&T Mauritius. As the payer had obtained the s. 195(2) Certificate by making a representation which was incorrect to its knowledge, it could not claim that the s. 195(2) Certificate was validly issued<\/strong>.<\/strong> Further, the proceedings u\/s 163 & 195 operate in different fields;
\n (iii) The argument that once the AO exercises his option u\/s 166 to assess the non-resident NCWS USA directly by issuing notice u\/s 148, the proceedings initiated against the payer must come to an end is not acceptable because there is nothing in the Act to suggest that the option to assess either in the hands of the representative assessee or in the hands of the non-resident must be exercised at the threshold itself and not at the end of the assessment proceedings<\/strong>.<\/strong> While ordinarily, the AO must not proceed against the representative assessee once proceedings are initiated against the non-resident, in exceptional cases like the present one where complex issues<\/strong> are involved and the AO is unable to make up his mind on account of suppression of material facts<\/strong>,<\/strong> it is open to the AO to continue with the assessment proceedings against the representative assessee and the non-resident simultaneously till he decides to assess either of them;
\n (iv) NCWS’ argument that the s. 148 notice is without jurisdiction is not acceptable because the prima facie belief of the AO that the transaction was in fact a transaction for transfer of a capital asset situate in <\/strong>India<\/strong> (shares of Idea Cellular) was with substance<\/strong>.<\/strong> It is open to NCWS to prove to the contrary by placing all material facts in the assessment proceedings;
\n (v) Tata Industries’ argument that no gains are taxable in India as the subject matter of sale were shares of AT&T Mauritius and not the shares of Idea Cellular is not acceptable because prima facie it appears that the transaction for sale of shares of AT&T Mauritius was a “colourable transaction” and was in fact for sale of the shares of Idea Cellular<\/strong>. <\/strong>
\n Adiya Birla  Nuvo Limited vs DDIT ( 2011) 200 Taxman 437\/ 59 DTR 1( <\/strong>Bombay<\/strong>) ( High Court) www.itatonline.org.<\/strong>
\n S. 9 (i): Income deemed to accrue or arise in <\/strong>India-<\/strong> Business connection-Activities of  liaison office in India.( S. 5 (2) (b ))<\/strong>
\n Since the Indian Office of the non resident assessee –company practically carry out all operations of the  business of the commission agent  except the formation of the contract  between the vendors and the buyers , it can not be argued that no  income accrues or arise in India  from the commission , however  as the CIT (A)  has overstated the role of the Indian Offices in the overall conduct of business , instead of allocation of commission at 30 percent commission  income is allocated to the Indian operations at 50 percent.( Asst Years 1999-2000 to 2005-06).
\n Linmark International ( Hong Kong) Ltd v Dy CIT ( 2011) 57 DTR 340 ( <\/strong>Delhi<\/strong>)( Trib)<\/strong>
\n S. 9(i): Income deemed to accrue or arise in India- Non-Resident, with “business connection”, taxed only in respect of business operations carried out in India – canvassing agent – not `business connection’, fair fee extinguishes non-residents liability to tax.<\/strong> 
\n (i) The expression ‘business connection’ does not cover mere canvassing for business by an agent in India. It postulates a real and intimate relation between business activity carried on outside India and business activity within India, the relation between the two contributing to the earning of income by the non-resident in his business activity. The business operations carried out outside <\/strong>India<\/strong> and inside <\/strong>India<\/strong> must have such a relationship as to contribute to business operations as a whole<\/strong>. 
\n (ii) The scope of deeming fiction u\/s 9 (1)(i) which prima facie appears to be an extension of the classical source rule of taxation is in fact confined to the simpliciter taxability of an income earned in a tax jurisdiction because ‘while the main provision of the deeming fiction seems to be taking a rather aggressive view of the source rule, the Explanations to the deeming fiction considerably narrow down the scope of the same<\/em>’ and to that extent there is overlapping of s. 9(1)(i) and s.5(2)(b). Further, while s. 9(1)(i) provides that an income with ‘business connection’ in India is chargeable to tax no matter in which part of the world it accrues or arises, the income which can be subjected to tax in India can never exceed the income attributable to operations carried out in India – by the non-resident or by the agent<\/strong>.<\/strong> This is made clear by clause (a) of Explanation 1 to s. 9(1)(i) and Explanation 3. The result is that if the agent (“the business connection”) has been compensated with fair remuneration, there cannot be further income of the non- resident which can be brought to tax u\/s 9(1)(i) r.w.s. 5(2)(b)<\/strong>.<\/strong>
\n ADCIT vs Star Cruise <\/strong>India<\/strong> Travel Services ( Mumbai)( Trib). www.itatonline.org. <\/strong>
\n S. 9(1) (Vii).Income deemed to accrue or arise in <\/strong>India-<\/strong> Fees for technical  services.<\/strong>
\n Income received by a  US company , by way of fees for technical services  could not be deemed to have accrued or arisen in India as the services under the agreement were not rendered with in India even though services received from it  may have been utilized by the Indian company in India.( Asst year 1991-92).
\n Grasim Industries Ltd & Ors v CIT ( 2011) 58  DTR 47 \/ 242 CTR 166( Bom) (High Court). <\/strong>
\n S.9(1)(vii): Income deemed to accrue or arise in India- Deduction of tax at source- Payment to non resident- Training its personnel-Fees for technical service- Income deemed to accrue or arise in India. ( S, 40 (a) )(i),195. )<\/strong>
\n  Assessee company during relevant assessment year  made payment to non resident party for training its personnel or customers to explain proposed buyers salient features of products imported  by assessee in India and to impart training to customers to use equipment . The payment made could not be said to be fees for technical services and  not liable for deduction of tax at source. ( Asst Year 2007-08).
\n Asst CIT v PCI Ltd ( 2011) 46 SOT 183 ( <\/strong>Delhi<\/strong> ) (Trib).      <\/strong>
\n S. 10 (22):Educational Institution- Purpose of profit. ( S. 11 (1)(a) , 13( 1) (c ), 13 (3).<\/strong>
\n Exemption under section 10 (22) is available only if the assessee is running an educational institution solely for educational purposes and not for purposes of profit : Exemption under section 10 (22) is not allowable to the assessee as its objects include establishing small –scale industries of all kind and to aid and assist the poor , the grief –stricken ,the destitute , and persons and animals suffering from calamities.( Asst years 1983-84 to 1985-86).
\n CIT v Gurukul  Ghatkeswar Trust ( 2011) 58 DTR 122 ( AP) (High Court).   <\/strong>
\n S. 10 (23FB): Exemption-Venture  Capital fund-Income from other sources .<\/strong>
\n It was held that exemption claimed with respect of any income from any VCF prior to 1\/4\/2008 was exempt as the amendment to s. 10(23FB), which restricted to the exemption to income from investment by VCF, is with effect from 1\/4\/2008 and is prospective.
\n ITO v Kshitij Capital Fund ( 2011) 131 ITD 290 ( Mumbai ) (Trib).   <\/strong>
\n S. 10A: Exemption- Free  Trade Zone-Adjustment of loss against taxable profit of other unit.- Export turn over.<\/strong>
\n From  Assessment year 2001-02 section 10A is no longer an exemption provision and it allows only deduction  from total income , loss from 10A unit has to be adjusted against taxable profit of other unit after deduction under section 10A has been allowed in respect of eligible units. Assessee had incurred data line cost being telecommunication charges in respect  of its unit and same was included in export turnover for purpose of deduction under section 10A. Assessing Officer excluded the data line cost from export turnover. Since  expenses incurred on development of software in India could not be considered  as expenses attributable to delivery of computer soft ware out side India , such expenses could not be excluded from export turn over.( Asst Year 2006-07).
\n Capgemini India ( P) Ltd v Addl CIT ( 2011) 46 SOT 195 ( Mumbai) (Trib).    <\/strong>
\n S. 10B: Deduction-Splitting up or reconstruction of existing business – Lease of undertaking.<\/strong>
\n Assessee company claimed the deduction under section 10B  on the basis of the lease arrangement between the assessee company and the predecessor , the tribunal held that  such claim of benefit under section 10 B  for the balance unexpired period was not allowable  because the claim was not based on the establishment of new industrial  undertaking. ( Asst Years 2006-07 & 2007-08).
\n Synergies Casting Ltd v Dy CIT ( 2011) 57  DTR 503 ( Hyd) (Trib).     <\/strong>
\n S.10B: Deduction-Export of computer software- Back office operation-Computation- Transaction with related concerns. ( S. 80IA (10).  <\/strong>
\n Activities of software programming carried on by the assessee company to render quality and testing assurance services to foreign clients and transmitting the same through internet are in the nature of back office operations covered by CBDT Notification no 890 (E) dt 26 th September , 2000 issued for the purpose of Explanation  2 to section 10B and therefore , assessee company registered as a 100 percent EOU with STPI is entitled to deduction under section 10B. The assessee company had raised the bills for the services rendered by it in consonance  with the terms of agreement settled between it and its clients from time to time  and STPI  having certified that such services , it can not be said that profits shown by the assessee are on the higher side  and therefore , profits of the assessee company could not be reworked by applying the provisions of section 80IA (10)  for the purpose of allowing exemption under section 10B.( Asst years 2005-06 to 2007-08).
\n Bebo Techlogies (P) Ltd v JCIT ( 2011) 57 DTR 402 ( Chd) (Trib).<\/strong>
\n S. 11: Charitable trust- Property sub let.<\/strong>
\n In order to carry out the charitable activity of the trust in  effective manner if the property of the trust is sub – let and rental income is received thereon the exemption under section 11 cannot be denied by the assessing officer invoking provisions of section 11 (4A) of the Act.(A. Y. 1991-92)
\n Director of Income tax (Exemption) vs. Sahu Jain Trust (2011) 56 DTR 402 (<\/strong>Cal<\/strong>) (High Court).<\/strong>
\n S. 12A: Charitable purpose- Stock exchange- benefit to individual stock broker or members or employees – no exemption granted u\/s. 11.<\/strong>
\n When a stock exchange carries out any activity for sole benefit of its members or ex members or employees or ex employees or their dependents and not for benefit of general public which is distinguished from class or community  consisting of its members , ex members , employees or ex employees or their dependents and  connections , it would not be entitled for exemption under section 11.Members of exchange being integral  part of constitution of exchange who are interested persons as per provisions of section 13 (1) (c ), they are precluded from taking any undue advantages from  assessee exchange. Assessee being registered under section 12A, benefit of assessee –exchange would be for public at large and not for benefit of individual stock  brokers or members of Governing body of stock exchange . Since the  assessee incurred  expenditure for benefit of its members and subsidiary company only, provisions of section 13 (1) (C)  read with section 13 (2) (b) and 13 (3) (cc) was applicable to fact of case and consequently , assessee was not entitled for exemption under section 11.( Asst years 2001-02 to 2006-07).
\n Hyderabad  Stock Exchange  Ltd v Asst Director of Income Tax ( 2011) 46 SOT 1 (Hyd) (Trib).<\/strong>
\n S. 12A: Charitable Trust- Registration of Trust .( S. 80G)<\/strong>
\n Application for renewal of exemption certificate rejected for the reason that changes made in object clause of trust without following the required procedure, hence the trust became invalid. The Tribunal observed that only one addition was made in the object clause, and even that remained charitable and did not cause any detriment to original object. There was no statutory requirement of intimating the changes except the one mentioned in the Form 10A, and even there was no time limit. Held that revenue was not justified in refusing to renew exemption certificate.
\n Mehta Jivraj Makandas & Parekh Govindaji Kalyanji Modh Vanik Vidyarthi Public Trust vs. DIT(E), ITA No. 2212\/Mum\/2010, dt. <\/strong>11-03-2011<\/strong>, `G’ Bench, Mumbai ITAT, BCAJ pg. 32, Vol. 43-A, Part 1, April 2011.<\/strong>
\n S. 22: Income from House property- Business Income- Rental income ( S. 28 (i).<\/strong>
\n Assessee letting out flats in a multi  storeyed  complex . Assessee was nether in possession of the property nor doing any business there . Income was rightly taxes as income from house property.
\n CIT v Sran Holdings (P) Ltd ( 2011) 57 DTR 82 (Pat) (High Court).<\/strong>
\n S. 22: Income – Income from house property-Compensation.<\/strong>
\n Where the assessee was assessed to tax under the head income from house property with respect to notional income of rent deemed to have earned by the assessee after the expiry of lease period, year after year.  Thereafter, the compensation actually received by the assessee from the lessee under a settlement agreement, for the occupation of the leased premise after lease period cannot be taxed under a different head than income from house property. 
\n Jasmine Commercials Ltd. vs. CIT (2011) 56 DTR 159\/ 200 Taxman 338 (<\/strong>Cal<\/strong>)( High Court).<\/strong>
\n S. 22:Income from House Property – Ownership.<\/strong>
\n Where the builder had received full consideration against the sale of shops and flat the annual value of the property cannot be assessed in the hands of the builder even though the sale deed of the shops and flat were not registered.
\n CIT vs. Babu Khan Builders & Ors. (2011) 55 DTR 329 (AP)( High Court).<\/strong>
\n S. 22: Income  from House property- Business income- Business of construction and development of residential –Commercial unit. [ ( S. 28 (i). ]<\/strong>
\n In case where assessee who is engaged in constructions and development of residential\/commercial units and where there was no material on record to show that leasing of residential\/commercial units was one of the principal objects of the company and that lease rent received by it was from exploitation of property by way of complex activities, the rent income derived as owner of property will be assessed as `Income from House Property’.
\n Roma Builders (P) Ltd v JCIT ( 2011) 131  ITD  91 ( Mumbai) (Trib).<\/strong>
\n S. 23: Income from house property- Annual value- Property let out – Licencee- Sub let  Higher value-Tax Planning transaction not “Sham” if parties assessed- Double taxation.<\/strong>
\n The assessee let out its premises to Minicon pursuant to a leave and license agreement. Minicon thereafter let out the said premises to various third parties<\/em>. One director was common<\/em> between the assessee and Minicon. 
\n It was held that save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction<\/strong>. Accordingly, the decision of the Tribunal that the amounts received by Minicon on account of letting out the premises is liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon is a sham and bogus transaction<\/strong> cannot be accepted.
\n Akshay Textile Trading<\/strong> 304 ITR 401 (Bom) followed
\n Sahney Kirwood Pvt. Ltd vs ACIT ( <\/strong>Bombay<\/strong> ) (High Court) www.itatonline.org<\/strong>
\n S.24. Income from house property-Deduction-Brokerage.<\/strong>
\n Brokerage paid was not an admissible expenditure under sec. 24 (Asst Year 1997-98) 
\n Aravali Engineers P .lTD   v CIT ( 2011) 335 ITR 508 ( P& H).( High Court).<\/strong>
\n S. 24: Income from house property-Deduction-Interest on Loans  raised for repayment of original loan- Maintenance  charges-Lift- Lighting – Sweeping Charges. ( S. 22, 23 ).<\/strong>
\n Loan raised for repayment of original loan taken to purchase  house property partakes the character of original loan and therefore interest paid on such subsequent loan is deductible under section 24 from the rental income of property. Charges paid to the society for the facilities of generator, lift , lighting  etc were deductible from the gross rent received by the assessee.( Asst Year 2004-05).
\n CIT v Sunil Kumar Agrawal (2011) 139 TTJ 49 (Luck) (UO) (Trib).              <\/strong>
\n S. 24 (1) (iv).Income from house property- Deduction-Annual charge.<\/strong>
\n Remuneration payable to Shebaits by the assessee deity does not amount to annual charge on the property and thus, no deduction under section 24 (1) (iv) is permissible. (Asst year 1997-98).
\n Estate of Sree Sree Raddha Kishan Jew v CIT & Anr (2011) 58 DTR 131 ( <\/strong>Cal<\/strong>) (High Court).    <\/strong>
\n S. 32: Depreciation – Actual Cost. <\/strong>
\n Where the assessee paid custom duty under protest on imported machinery, the assessee would be entitle to add the same to the cost of the plant and machinery for computing depreciation thereon
\n  CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (<\/strong>Del<\/strong>)(High Court).<\/strong>
\n S. 32: Depreciation –UPS. 60%.<\/strong>
\n Depreciation is allowable at the rate of sixty percent (60 %) on U.P.S. 
\n CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (<\/strong>Del<\/strong>)(High Court).<\/strong>
\n S. 32: Depreciation – User of asset –Kept ready for production.<\/strong>
\n Where the plant and machinery were kept ready for production, the assessee would be entitle to claim depreciation under the provisions of section 32 of the Act even though such plant and machinery were not actually put to use by the assessee during the year. (A. Y. 1995-96)
\n CIT vs. Shahbad Co – operative Sugar Mill Ltd. (2011) 56 DTR 414 (P&H)(High Court). <\/strong>
\n S. 32: Depreciation – Poultry shed.<\/strong>
\n Poultry shed is a building and not a ‘plant’, as such not eligible for higher rate depreciation as applicable to plant and machinery.(A. Y. 1991-92 & 92-93)
\n Padmavathi Hatcheries (P) Ltd. & Ors. (2011) 55 DTR 105 (AP)( High Court)<\/strong>
\n S.32: Depreciation — intangible asset — goodwill — depreciation allowable . <\/strong>
\n The assessee had purchased a hospital with its land, building, equipment, staff, name, trademark and goodwill as a going concern. Under the sale deed the value of the goodwill included the name of the hospital, its logo and trademark was 2 crores. The AO disallowed the depreciation on the goodwill on the ground that it was not covered under section 32(1)(ii). The CIT(A) and tribunal held in favour of the Department.  On appeal to the High Court by the assessee, the High Court while allowing the appeal held that though goodwill is not specifically mentioned in section 32(1)(ii) of the Income-Tax Act, depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1), but also on the intangible assets specifically enumerated in clause (ii) and such other business or commercial rights similar to the items specifically covered there in.  The High Court held that, by transferring the right to use the name of the hospital itself, the previous owner had transferred the goodwill to the assessee and the benefit derived by the assessee was retention of continued trust of the patients who were patients of the previous owner. The amount paid for the goodwill for ensuring retention and continued business in the hospital, it was one acquiring a business and commercial rights and the same was comparable with trademark, franchise, copyright etc., the High Court held that goodwill was covered by the provisions of section 32(1)(ii) entitling the assessee for depreciation.( AY2004-05).<\/strong>
\n B. Raveendran Pillai v. CIT [2011] 332 ITR 531 (Ker)( High Court).<\/strong>
\n S. 32: Depreciation- Sale and lease back-.Despite Tax Avoidance, 100% Depreciation on Sale & Lease Back Allowable.<\/strong>
\n The assessee purchased<\/em> equipment from the Haryana State Electricity Board (“HSEB”) which was already installed<\/em> at the Board’s Thermal Power Station at Faridabad and immediately leased<\/em> the equipment back to the HSEB. The assessee claimed 100% depreciation<\/em> on the said equipment. The AO disallowed depreciation on the ground that the transaction was not one of purchase and lease but was a pure financial and loan transaction<\/em>.
\n The Hon’ble High Court held dismissing the dept. appeal that  
\n (i) The real intention<\/strong> <\/strong>of the parties in entering into the sale and lease agreement has to be gathered from the words in the agreement in a tangible and in an objective manner<\/strong> and not upon a hypothetical assessment<\/strong> <\/strong>of the supposed motive<\/strong> of the assessee to avoid tax. (<\/strong>Industrial Development Corporation of Orissa<\/strong> <\/strong>268 ITR 130 (Ori), Rajasthan State Electricity Board<\/strong> 204 CTR 415 (Raj) and Gujarat Gas Company<\/strong> <\/strong>308 ITR 243 (Guj) followed);
\n (ii) In order to deny the claim of depreciation, it would have to be held that the transaction was not genuine and that the same was a subterfuge. Merely because an assessee gets a commercial advantage because of the factoring in of a tax benefit, it cannot be said that the transaction is not genuine<\/strong>.<\/strong> There is no finding or evidence to indicate that the transaction was not genuine. The observations of Chinappa Reddy, J<\/strong> <\/strong>in <\/strong>McDowell<\/strong> <\/strong>is not good law<\/em> in view of <\/strong>UOI vs. Azadi Bachao Andolan<\/strong> 263 ITR 706 (SC) where it was held that “tax planning may be legitimate provided it is within the framework of law<\/em>”;
\n  (iii) The observations in Asea Brown Boveri Ltd<\/strong> with regard to the nature of a financial lease<\/strong> are not of much use to the revenue in view of the factual backdrop that the transaction has been found to be genuine. Once it is established that the ownership of the equipment is that of the assessee, it is clear that the assessee is entitled to claim depreciation<\/strong>.<\/strong>
\n CIT vs Cosmo Films Ltd. ( <\/strong>Delhi<\/strong>) ( High Court).www.itatonline.org.<\/strong>
\n S. 32 : Depreciation- Computer peripherals- Printers – Scanners- servers- UPS.<\/strong>
\n Computer peripherals   such as  printers scanners , servers , UPS  etc , form integral part of computer system on which  higher  depreciation of 60% is allowable.( Asst Year 2005-06).
\n ITO v Omni Globe Information Technologies  India  (P) Ltd ( 2011) 131 ITD 280  ( <\/strong>Delhi<\/strong>) (Trib).<\/strong>
\n S. 32 :   Depreciation- Trust – Cost of asset allowed as  Application of income. <\/strong>
\n Claim of <\/strong>depreciation by assessee trust  in respect of assets , cost of which had been claimed as an application of income towards its objects , would amount to double deduction which is prohibited by law. ( Asst year  2006-07).
\n Dy Director of  Income tax ( Exemption) v Adi Sankara Trust ( 2011) 46 SOT 230 ( Coch) (Trib).<\/strong>
\n S. 36 (1) (iii) : Business  expenditure-  Interest on borrowed  capital- Suit filed by creditor bank. <\/strong>
\n Interest payable on loans raised by assessee from bank can not be treated as a contingent liability and can not be disallowed  merely because the bank has instituted a suit and not shown the accrual of interest in its books of account , more so , when there is nothing to show that the bank has not claimed interest for all three years  period  .ie., pre suit pendent lite and future interest. ( Asst year 1992-93).
\n Friends Clearing Agency (P) Ltd v CIT ( 2011) 58 DTR 109 ( <\/strong>Delhi<\/strong>) ( High Court).<\/strong>
\n S. 36 (1) (Vii): Business expenditure- Bad debt- Non financial company- Bank Guarantee.<\/strong>
\n Assessee being a non banking financial company ,its activity of giving guarantee on behalf of another company was part of its money lending business and ,therefore the security amount adjusted by the bank against the dues of the said company following default on the part of the latter which has became irrecoverable is allowable as bad debt.( Asst Years 1998-99, 1999-2000 & 2003-04).
\n CIT v Tulpi Star Hotels Ltd ( 2011) 57 DTR 210 ( <\/strong>Delhi<\/strong>) (High Court).<\/strong>
\n S. 36 (1) (viii): Bad Debts – Write off in the books. <\/strong>
\n Where the assessee had written off certain debts as bad in its books of accounts, there is no further requirement to prove that the debts was a trade debt or the fact that it is irrecoverable.(A. Y. 1996-97 & 98-99)
\n CIT & Anr. vs. Krone Communication Ltd. (2011) 53 DTR 120 (Kar)( High Court).<\/strong>
\n S.36 (2) (i) Bad debt: Share broker- entire amount of debt need not be taken into account.<\/strong>
\n In the present case following the Special Bench decision in the case of Shreyas Morakhia { 40 SOT 432}, it was held that in order to satisfy the conditions stipulated in section 36(2)(i), it is not necessary that the entire amount of debt has to be taken into account in computing the income of the assessee and it will be sufficient even if part of such debt is taken into account in computing the income of the assessee. This principle applies to a share broker. The amount receivable on account of brokerage is a part of debt receivable by the share broker from his client against purchase of shares and once such brokerage is credited to the profit and loss account and taken into account in computing his income, the condition stipulated in section 36(2) (i) of the Act gets satisfied. The bad debt therefore claimed by the broker was allowed.( A.Y.2003-2004.)<\/strong>
\n DCIT v\/s  IIT Investrust Ltd  ( 2011)  45 SOT 1( Mumbai) (Trib).<\/strong>
\n S. 37 (1) Business expenditure- Key man insurance premium. ( S. 10 (10D).<\/strong>
\n Assessee is a Chartered Accountant  had debited an amount of Rs 50 Lakhs towards  Keyman Insurance Premium , which was taken in one of the  his employee   who was the head of the financial consultancy division  and  looking after the financial consultancy for corporate finance. The appeal of the assessee was allowed by the Tribunal. On appeal by the revenue the Court held that it is the prerogative of the businessman to consider and decide as to which of the employees is important for the business and it is for him to take life insurance policy for such an employee keeping in mind  various factors and circumstances.. The High Court confirmed the order of Tribunal.
\n CIT v Kamlesh M. Solanki – Tax appeal no 2421 of 2009 dt <\/strong>26-4-2011<\/strong> ( ACAJ Vol 35 part <\/strong>03 June 2011<\/strong> P. 165 ( Guj) (High Court).<\/strong>
\n S. 37 (1): Business expenditure—Foreign studies of person appointed as trainee in company- Son of president.<\/strong>
\n Fact that trainee happens to be son of President does not make the expenditure personal in nature. Since son of President was appointed by resolution and an agreement as been entered into,  that the trainee after completion of the education from abroad will be obliged to resume service in the company as a technical executive at least for ten years. Expenses incurred on foreign studies of person appointed as trainee in company are business expenditure.
\n Gournitye Tea & Industries Ltd v CIT  ( 2011) Tax LR 315 ( <\/strong>Cal<\/strong> ) (High Court).<\/strong>
\n S.37 (I). Business expenditure-Foreign Travelling expenditure of Managing Director and his wife- Authorised by resolution.<\/strong>
\n When the board  of directors of the assessee had thought it fit to spend on foreign tour of the accompanying wife of the managing director for commercial expediency for reasons reflected in its resolution , it was not with in the province of the income tax authority  to disallow such expenditure. There  was resolution of company authorizing foreign travel of managing director and his wife for business purposes.  The Court applied the ratio of CIT v Walchand and co P.Ltd ( 1967) 65 ITR 381 (SC). However , as there was no resolution authorizing the wife of the deputy managing director,  the  expenditure on such travel were rightly disallowed.(A. Y. 200-01)
\n J.K.Industries Ltd v CIT ( 2011) 335  ITR 170 ( <\/strong>Cal<\/strong>) (High Court). <\/strong>
\n S. 37 (1):Business Expenditure- Parties found non existence after three years- Expenditure can not be disallowed.<\/strong>
\n Where the assessee took care to purchase materials for his business by way of account payee cheque from third party and subsequently the parties do not appear before the assessing authorities as they had discontinued their business, the assessee’s claim of genuine business expenditure cannot be disallowed for their non existence after three years of transactions.( A. Y. 1998-99)
\n Diagnostics vs. CIT (2011) 56 DTR 317 (<\/strong>Cal<\/strong>)( High Court).<\/strong>
\n S. 37 (1): Business Expenditure – Capital or Revenue – Glow sign board.<\/strong>
\n Expenditure incurred by the assessee on glow signboard was held to be an allowable business expenditure.
\n CIT vs. Orient Ceramics & Industries Ltd. (2011) 56 DTR 397 (<\/strong>Del<\/strong>)( High Court).<\/strong>
\n S. 37(1): Business Expenditure –Company-Personal use. <\/strong>
\n In case of Company there cannot be disallowance of car expense for personal use of car.(A. Y. 1988-89)
\n CIT vs. Nuchem Ltd. (2011) 55 DTR 14 (P&H)( High Court)<\/strong>
\n S; 37(1). Business Loss-Abandoned project- Capital asset.<\/strong>
\n Amount paid as advance for acquisition of a capital asset for a project which was abandoned, did not qualify for deduction as a business loss since the amount spent was in relation to acquisition of a capital asset.
\n CIT V\/s. Southern Gas Ltd.  {2011} 198 Taxman 165 (Ker.) (Mag<\/strong>.)( High Court). <\/strong>
\n S. 37(1).<\/strong> Business Expenditure- Expenses prohibited on account of being illegal<\/strong>.
\n Where the assessee paid sums to local goons and the police for maintenance of law & order, it was held that such expenditure being prohibited by law, did not qualify for deduction.( A. Y. 1992-93)
\n CIT V\/s. Swaminathan {2011} 198 Taxman 140 (Kar.) (Mag<\/strong>.)( High Court).<\/strong>
\n S.37 (I ):  Business expenditure – assessee requesting AO to summon person – addition without summoning – not proper.<\/strong>
\n In the instant case the assessee had a paid a sum in cash and cheque, being tractor charges to D. During the assessment proceeding the assessee had made a mention of his inability to produce D for verification of the transaction, but had also requested the AO to issue summons to the D, so as to enable the AO to determine for himself the veracity of the assessee claim. The AO, however made the additions without issuing summons to D. The CIT(A) and ITAT both ruled in favour of the assessee. On appeal to the High Court, the High Court while deciding the issue in favour of the assessee held that the CIT(A) and ITAT had given a finding that the AO had made additions without any material whatsoever, and the AO could have enforced the presence of D especially since a substantial part of the payments were made by the assessee by banking channels.
\n CIT v. Grij Pal Sharma [2011] 333 ITR 229 (P&H)( High Court).<\/strong>
\n S. 37 (1). Business expenditure- capital or revenue- ERP Software Package Allowable As Revenue Expenditure.<\/strong>
\n The assessee, engaged in manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products, incurred expenditure of Rs. 23 lakhs on purchase of “Enterprises Resources Planning (ERP) package<\/em>”. The AO treated the expenditure as capital <\/em>in nature. The Tribunal applied the functional test<\/em> laid down by the Special Bench (presumably <\/em>Amway India Enterprise vs. CIT<\/strong> 111 ITD 112 (Del)) and held that the expenditure was allowable as a deduction on the basis that the software facilitated the assessee’s trading operations or enabling the management to conduct the assessee’s business more efficiently or more profitably but it is not in the nature of profit making apparatus<\/em>. The department filed an appeal before the High Court. HELD dismissing the appeal:
\n “In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure<\/strong>.<\/strong>”
\n CIT vs Raychem RPG LTd. (<\/strong>Bombay<\/strong>) ( High Court). www.itatonline.org.<\/strong>
\n S. 37 (1): Business expenditure- Secret Commission for providing contract<\/strong>
\n Secret commission paid by the assessee to directors of the company giving construction contract to the assessee can not be allowed as expenditure in view of Explanation 1 to section 37(1).( Asst years 1983-84 & 1984-85).
\n J.K.Panthaki & Co  v ITO ( 2011) 57  DTR 233\/ 139 TTJ 337 ( Bang) (Trib).<\/strong>
\n S.37(1):  Capital or Revenue Expenditure-Entrance fee to a club, for membership of its director.<\/strong>
\n The company had taken membership in the name of the director of the assessee company and none of the executives of the company appeared to have been made members of the club. The expenditure incurred for club membership was disallowed on the ground that the assessee failed to produce any evidence and prove that the benefit of membership was utilized wholly or exclusively for the purpose of business.
\n New <\/strong>India<\/strong> Exclusions (P) Ltd V\/s. Asst C.I.T. ( 2011) 46 SOT (Mum) URO) <\/strong>
\n S. 37(1) : Business Expenditure – Payment of Compensation.<\/strong>
\n Payment made by the assessee to close family members for getting vacant and peaceful possession of premises was held capital expenditure as there was no dispute going on between the parties to show that the payment was necessary for taking peaceful possession. ( A. Y. 2003-04)
\n ITO vs. Pritam Juice (2011) 138 TTJ 294 (Mum.( Trib).<\/strong>
\n S. 40(a) (ia): Amounts not deductible- Payments to Indian Agents of foreign shipping lines-Deduction of tax at source- ( S.194C.)<\/strong>
\n Transportation of goods by railways does not fall with in the ambit of “work”  with in the meaning of section 194C   and therefore , there was no obligation on the assessee to deduct tax at source under section 194C  from the payments made to Indian  agents of foreign shipping lines for inland haulage of goods by railways and accordingly , no disallowance can be made under section 40 (a) (ia)( Asst year 2006-07).
\n Airtech (P) L td v Dy CIT ( 2011) 57 DTR 169 (<\/strong>DelhI<\/strong>) (Trib).<\/strong>
\n S. 40 (a) (ia): Amounts not deductible –Payment to contractors-  Section is applicable in respect of amount  paid and payable.<\/strong>
\n Assessee contended that the section 40 (a) (ia) is not applicable in case where sum has been paid  as the section refers the “sums payable” . The Tribunal held that section is applicable in respect of amount paid also  hence the assessee  failed to deduct the tax under section 194 C ,  disallowance was justified.( Asst Year 2007-08)
\n Dy CIT v Ashika Stock Broking Ltd ( 2011) 139 TTJ 192 ( Kol) (Trib).<\/strong>
\n Editorial <\/strong>– Contrary View was taken by Jaipur Bench  in Jaipur Vidyut Vitran Nigam Ltd v Dy CIT ( 2009) 123 TTJ 88 8 (JP) (Trib).
\n S.40(a) (ia):Business disallowance-Payable to a contractor or sub contractor-Adjustment of Refund- Deduction of tax at source.<\/strong>
\n Irrespective of fact that an assessee is entitled to claim refund of excess tax paid or get adjusted against tax liability under provisions of Act, assessee can not with hold TDS deducted from payment made to a contractor so as to adjust same against excess taxes paid earlier and if an assessee does so then provisions of section 40(a) (ia) are attracted in respect of payment so made. ( Asst Year 2005-06).
\n HCC Pati Joint Venture v Asst CIT ( 2011) 46 SOT 263 ( Mumbai) (Trib).<\/strong>
\n S. 40(a) (ia): Amounts not deductible – Interest payment additional cost- Tax deduction at source. ( S 194A).<\/strong>
\n When the amount of interest paid has been considered  to be part of the purchase price and not interest  under section 194A, such payment cannot be disallowed under section 40a(ia). ( Asst year 2005-06) .
\n Parag Manshuklal shah v ITO – ITA no 2075 \/Ahd\/ 2008 CO no 120\/Ahd \/2008 Bench A  dt. 30-6-2011. ACAJ Vol 35 –Part 3. June 2011 P.166 <\/strong>
\n S. 40A (2) (b): Expenses or payments not deductible-Technical know –how –Parent Company.( S.92).<\/strong>
\n Once it is found that having n regard to the nature , quantum and quality assurance aspects of technical know how  and other services provided to the assessee by the parent\/ foreign company , compensation paid in the form of royalty \/ consideration can not be treated as excessive or unreasonable . Tribunal was justified in deleting the addition made by AO by relying upon section 40A (2) (b) and section 92. ( Asst Year 1997-98).
\n CIT v Nestle India Ltd ( 2011) 57 DTR 65 ( <\/strong>Del<\/strong>) (High Court).  <\/strong>
\n S. 41(1):Profits chargeable to tax- Business Income – Unclaimed insurance premium.<\/strong>
\n Unclaimed insurance premium credited to profit and loss account which was the amount collected by the assessee from the hirers as insurance premium as unclaimed balance becomes income of the assessee and liable to be tax as business income.( A. Y. 1997-98 & 2003-04)
\n Motor General Finance Ltd. vs. CIT (2011) 53 DTR 273\/ 199 Taxman 51 (<\/strong>Del<\/strong>)( High Court) <\/strong>
\n S.41 (1): Profits chargeable to tax-Income- Capital or revenue receipt – Waiver loan. s. 2 (24), 28(iv)<\/strong>
\n Principal amount of loan, which is taken for the purpose of business or trading activity, on its waiver by the creditor, would constitute income chargeable to tax; however, if the loan is utilized for the purpose of acquiring any capital asset, the same, on its waiver, would not constitute income chargeable to tax either under s. 41(1) or s. 28(iv) or s. 2(24).(A. Y. 2006-07)<\/u><\/strong>
\n Dy. CIT vs. Logitronics (P) Ltd.(2011) 53 DTR73 (<\/strong>Del<\/strong>) (Trib).<\/strong>
\n S. 41 (1):Profits Chargeable to tax-Remission or cessation of  trading liability-Outstanding Credit.<\/strong>
\n For treating amount of outstanding credit as taxable under section 41 (1) ,there has to be a positive act on part of creditor in current year which would provide benefit to assessee by way of remission; merely because certain amount is outstanding for number of years will not be a case for holding that there is a  cessation or remission.  The Tribunal dismissed the appeal of revenue.( Asst year 2007-08).
\n ITO v Bhavesh Prints ( P) Ltd ( 2011) 46 SOT 268 ( Ahd) (Trib).               <\/strong><\/p>\n

S. 43(5).: Speculative transaction- loss- Set off of loss –Property income. ( S.73._<\/h1>\n

Loss from speculative transaction can not be set off against income from property.( Asst year 1997-98).
\n Aravali Engineers P.Ltd  v CIT ( 2011) 335 ITR 508 ( P & H).( High Court).<\/strong>
\n S. 43 (5): Speculative transactions- Derivatives- Foreign institutional investors <\/strong>
\n (S. 115AD).<\/strong>
\n Transactions in derivatives , both  index based and individual share based , are to be considered as speculative transactions with in the meaning of section 43 (5) and they can not be treated as normal business or non speculative transactions. Section 43 (5) has no application to FIIs in respect of securities as defined in Explanation  to section 115AD, income from sale of securities to be considered as short term or long term gains. (Asst Year 2004-05).
\n LG Asian Plus Ltd v Asst CIT (2011) 46 SOT 159 (Mum) (Trib).  <\/strong>
\n S. 43 (5): Speculative Transactions- Derivatives.<\/strong>
\n Derivative transactions carried out form 1-4-2005 to 25-1-2006 through stock exchanges , which were  recognised by notification issued by CBDT on 25-1-2006 , would be eligible for being treated as non speculative transactions with in the meaning of clause ( d) of proviso to section 43 (5) . ( Asst year 2006-07).
\n Asst CIT v Hiren Jaswantrai Shah ( 2011) 46 SOT 276 ( Ahd ) (Trib).<\/strong>
\n S. 43B- Business Expenditure –Actual payment.-Licence fee.<\/strong>
\n License fees payable under the Abkari Act for grant of right\/ privilege to sell liquor if not paid within the period specified in section 43 B of the Act cannot be disallowed, as the same is consideration payable to the Government only for grant of right \/ privilege to sell liquor and not in the nature of any tax, duty, cess or fees as provided in section 43 B (a) of the Act.( 1999-2000)
\n CIT vs. G. Soman (2011) 53 DTR 220 (Ker)( High Court).<\/strong>
\n S. 44BB: Business of exploration, etc. of mineral oils<\/strong>
\n Applicant, incorporated in Norway provides geophysical services to oil and gas exploration industry and is awarded contract by Cairn Energy Pvt. Limited (Cairn), India to conduct seismic surveys and provide onshore seismic data acquisition and other associated services. Revenue contends that services extended by the applicant fall under Explanation 2 of section 9(1)(vii) and not under S.44BB as the applicant is not undertaking a mining or like project but is undertaken by someone else and certain technical services are rendered by the applicant to the business enterprise that takes up the project. AAR held that S. 44BB will apply relying on its ruling in Geofizyka Torun Sp.zo.o, in AAR\/813 of 2009 where it was held that if all the services that are in the nature of technical services within the meaning of Explanation 2 to section 9(1)(vii) are to be computed in accordance with 44DA, very little purpose will be served by incorporating special provision in 44BB for computing the profits in relation to the services connected with the exploration and extraction of mineral oils.
\n V<\/strong> Bergen Oilfield Services AS, <\/strong>Norway<\/strong> – <\/strong>AAR<\/strong> No 857\/2009 dt.16.05.2011(<\/strong>AAR<\/strong>).<\/strong>
\n S. 44BB: Business of exploration, etc. of mineral oils-Non resident- ( S.9(1)(vii) , 44DA ).<\/strong>
\n Applicant, incorporated in Singapore has entered into a time charter vessels hiring agreement for provision of its offshore service vessels to Transocean Offshore International Ventures Ltd. (TOIVL) in India who in turn is providing various offshore drilling and support services to ONGC. Being a time charter agreement, the entire operation, navigation and management of the vessel provided on hire is under the exclusive command and control of the applicant though the vessel is operated and services are rendered as requested by TOIVL. AAR observed that for the purposes of section 44BB of the Act, the vessels provided are covered under the definition of “plant”. The consideration received for supply of “plant” i.e. the vessels on hire when used in the prospecting for or extraction or production of oil and gas is covered under the special provision for computing profits and gains under said section. AAR further held that said section will apply relying on its ruling in Geofizyka Torun Sp.zo.o, in AAR\/813 of 2009 where it had held that if all the services that are in the nature of technical services within the meaning of Explanation 2 to section 9(1)(vii) are to be computed in accordance with 44DA, very little purpose will be served by incorporating special provision in 44BB for computing the profits in relation to the services connected with the exploration and extraction of mineral oils.
\n Bourbon Offshore <\/strong>Asia<\/strong> Pte. Ltd, <\/strong>Singapore<\/strong> ( 2011) 242 CTR 225 \/ 58 DTR 155\/ 200 Taxman 408( <\/strong>AAR<\/strong>).<\/strong>
\n S.45: Capital gains- Trade marks , brands , copyright and goodwill- Business income . (S. 28 (va), 55).<\/strong>
\n Trade marks brands, copyright and goodwill constitute of business and are profit earning apparatus. Assessee was owner of brand name of journals which were also registered \/indexed with Indian National Scientific Documentation Centre (INSDOC).  Assessee company entered in to a “specified Assets Transfer Agreement” with one CMP for sale of all its rights titles and interest in specified assets  of its health care journals and communication business. In consideration the assessee received certain  amount from CMP  which it showed as income from long term capital gains in its return. Assessing Officer , however held that amount  received by assessee taxable  as income from business under section 28(va). High  Court held that the  consideration received  would be  computed as capital gains.( Asst year 2006-07)
\n CIT v Mediworld Publications (P) Ltd ( 2011) 200 Taxman 1 ( <\/strong>Delhi<\/strong> )( High Court). <\/strong>
\n S. 45: Capital Gain –Compensation- Specific performance. <\/strong>
\n Compensation received by the assessee for giving up the right to specific performance of an agreement to sell was held to be a capital asset chargeable to capital gain tax.( A. Y. 1998-99)
\n CIT  & Anr. vs. H. Anil Kumar (2011) 56 DTR 384 (Kar)( High Court).<\/strong>
\n S. 45: Capital gains- Transfer-Part performance of contract-<\/strong>
\n Assessee company purchased a piece of agricultural land  on 20-11-1999 . It entered  in to an agreement for sale of said land with “K “ on 5-9-2002  and similarly executed a power of attorney in favour of “M”   a , representative of “K” .authorising him to cultivate said land and to sell agricultural produce grown on it . The said power of attorney was registered  before sub –registrar on 21-11-2002 . Sale consideration had been paid  to assessee through cheque   prior to 5-9-2002 . Assessee claimed that transfer of land got completed on 21-11-2002  and therefore , capital gains arising on sale of land was to be assessed as long term capital gains . However the assessing officer took date of execution of power of attorney and agreement to sell  . ie. 5-9-2002, to be date of transfer and assessed capital gains as short term capital gains .The Tribunal held that , once a document is registered  , its effective from date ,when it was executed, therefore ,power of attorney ,event though  registered on 21-11-2002 , could be effective with the effect from 5-9-2002  and as such ,it could be held that possession of land had been given  on 5-9-2002 when the power of attorney was executed, therefore , all ingredients  as are required to be complied with for applicability of section 53A  Of 1882 Act   were satisfied  in instant case on 5-9-2002  and accordingly  it was to be held that transfer of land had duly taken place  on  5-9-2002  ,itself  and , therefore  order of assessing Officer assessing the same as short term capital gain was up held.( Asst Year 2003-04).
\n V. Ram Chandra Construction ( P ) Ltd v Asst CIT ( 2011) 131 ITD 71 ( Agra) (TM ) (Trib).    <\/strong>
\n S. 45: Capital gains- Business income – Shares-Even gains on shares held for 30 days & less is STCG & not business profits. [ S. 28 (i) ]<\/strong>
\n To decide whether a capital gain is short term or long term, it was held that holding period is one of the criteria. The principles that have to be applied are (a) the intention<\/strong> of the assessee at the time of purchase, (b) whether borrowed funds<\/strong> were used, (c) the frequency<\/strong> <\/strong>of purchase and sales, (d) the treatment in the books<\/strong> <\/strong>etc. <\/strong>No single criteria is conclusive<\/strong> and an overall view has to be taken (Associated Industrial Development<\/strong> 82 ITR 586 (SC) & Holck Larsen<\/strong> 160 ITR 67 (SC) followed);
\n  Hitesh Satishcandra Doshi vs  JCIT (2011) 58 DTR 258\/ 140 TTJ 32\/ 46 SOT 336( Mumbai) (Trib). www.itatonline.org.<\/strong>
\n S. 48: Capital Gain – Rectifying the defect in title.<\/strong>
\n Amount incurred by the assessee for rectifying the defect in title to the property and removing encumbrance on the property were held to be amount spent in connection with the transfer of the property and allowable as deduction while computing capital gain.
\n V. Lakshmi Reddy vs. ITO (2011) 55 DTR 241 (Mad)( High Court).<\/strong>
\n S. 48: Capital gains-Computation- Fair market value.<\/strong>
\n Provision contained in section 48 regarding computation of capital gains contemplates ascertainment of full value of consideration received or accruing as a result of transfer capital asset , said provision does not contain words to effect “ fair market value” etc. Where there was no evidence on record that transferees were related to directors of assessee company and that assessee had received amount more than stated consideration , income was to be computed by Assessing Officer on basis of consideration actually received. ( Asst Year 2006-07).
\n Dy CIT v Jindal Equipment Leasing & Consultancy Services Ltd ( 2011) 131 ITD  263 ( <\/strong>Delhi<\/strong>) (  Trib).        <\/strong>
\n S. 50 – Capital gains – Depreciable asset – Long term<\/strong>
\n Capital gains arising on transfer of a capital asset (Flat) on which depreciation was allowed for two years but thereafter the assessee stopped claiming deprecation and also gave the flat on rent is chargeable as long term capital gains after allowing the benefit of indexation.
\n Prabodh Investment & Trading Company Pvt. Ltd., ITA No. 6557\/Mum\/2008, dt.28-02-2011, A.Y. 2004 – 2005, `C’ Bench, Mumbai ITAT, BCAJ pg. 24, Vol. 43-A, Part 1, April 2011.<\/strong>
\n S. 50: Capita gains- Capita loss- Set off of brought forward long term capital loss.( S. 74 ).<\/strong>
\n Prescriptions of section 50 are to be extended only up to the stage of computation of capital gains and therefore, capital gain resulting from transfer of depreciable assets which were held for a period of more than three years would retain the character of long term capital gain for all other provisions and consequently qualify for set off against brought forward loss from long term capital assets.(Asst year 2005-06).
\n Manali  Investments v Asst CIT ( 2011) 139  TTJ 411 ( Mumbai) ( Trib). <\/strong>
\n S. 50C: Capital gains- Stamp valuation- Reference to valuation.<\/strong>
\n Assessing Officer can refer for valuation of capital assets to valuation officer under section 50C   if he finds that consideration received is less than value adopted by stamp valuation authority for purpose of stamp duty.( Asst year 2006-07).
\n ITO v Chandrakant  R.  Patel (2011) 13 ITD 1 (Ahd)( Trib).<\/strong>
\n S.50C – Capital gains – special provision for full value consideration- Value adopted by AO.<\/strong>
\n The assessee pointed out strong reasons that sale consideration is less than value determined for stamp duty, such cases have to be referred to DVO and in such cases sale consideration which has been deemed to be value adopted for stamp duty purposes as per main provisions, would be value adopted by DVO. As such the matter when once referred to the DVO, the valuation given by the DVO had to be adopted as deemed consideration (A.Y. 2006-2007)<\/strong>
\n Nandita Khosla (Mrs)V\/s. I.T. O. (2011) 46 SOT 90 (Mumbai) (Trib).<\/strong><\/p>\n

S. 50C: Capital gains – Computation – valuation by stamp valuation authority vis-à-vis DVO.<\/strong>
\n            AO cannot disregard the value determined by the DVO under s. 50C(2) r.w.s 16A of WT Act, and proceed to compute long term capital gain in accordance with the value determined by stamp valuation authority.( A. Y. 2005-06)   <\/strong>
\nBharti Jayesh Sanghani (Smt) vs. ITO.(2011) 55 DTR212 (Mum) (Trib)<\/strong>
\nS.50C : Capital gains- special provision for full value consideration- May-Valuation by stamp <\/strong>authority.<\/strong>
\nIf stamp valuation adopted by stamp authority is disputed before Assessing Officer, then Assessing Officer is bound to refer matter to DVO for determining fair market value of property. The term “may” used in sub section (2) of section 50C is to be read as “shall”. (Asst year 2004-05).
\nManjula Singhal v ITO ( 2011) 46 SOT 149 ( Jodh) ( Trib). <\/strong>
\nS. 54EC: Capital Gains – Exemption – Date of payment – considered date of delivery\/investment. <\/strong> <\/strong>
\nThe Tribunal held that since the assessee had delivered the cheque to NABARD by 09-02-2006, the date of payment would be the date of delivery of the cheque. The date when the cheque was encashed by NABARD cannot be said to be the date of investment.
\nKumar Amrutlal Doshi vs. DCIT, ITA No. 1523\/Mum\/2010, dt. <\/strong>09-02-2011<\/strong>, A.Y. 2006 – 2007, `G’ Bench, <\/a>Mumbai ITAT,BCAJ pg. 31, Vol. 43-A, Part 1, April 2011.<\/a><\/strong>
\nS. 54F- Capital gains- Investment in house Property sale proceeds from out of transfer of an asset other than a residential house acquisition of property prior to transfer of asset – deduction allowed.<\/strong>
\nThe assessee purchased a residential house and within one year of such purchase, sold his insurance survey business and claimed deduction u\/s. 54F against the purchase of residential house. The Assessing Officer rejected the same on the ground that the property was not purchased out of sale consideration of the transferred asset. It was held that the assessee was entitled to the deduction u\/s. 54F since the section itself provides for acquisition of property prior to transfer of asset.
\nCIT V\/s. R. Srinivasan {2011} 198 Taxman 26 (<\/strong>Mad.<\/strong>) (Mag.<\/strong>)( High Court).<\/strong>
\nS. 55(2)(b) – Capital gains – Cost of acquisition – S.2(22B), 50C<\/strong>
\nCost of acquisition of the property u\/s 55(2)(b)(i) will be its fair market value as on 01-04-1981 as determined by the registered valuer and not the circle rate.
\nPyare Mohan Mathur HUF vs ITO, ITA No. 471\/Agra\/2009, dt.21-04-2011,  A.Y. 2005 – 2006, <\/strong>Agra<\/strong> ITAT, BCAJ pg. 28, Vol. 43-A, Part 3, June 2011.<\/strong>
\nS.55A: Capital gains- Reference to valuation Officer-Fair market value- (S.48)<\/strong>
\nSection 55A, is meant only to ascertain fair market value of a capital asset but not meant to determine full value of consideration received as result of transfer and therefore it has its own limitation for its operation. Since section 48 do not prescribe determination of capital gain  on fair market value it is out of ambit of reference prescribed under section 55A.( Asst Year 2006-07).
\nITO v Chandrakant R.Patel ( 2011) 131 ITD 1 (Ahd) (Trib).   <\/strong>
\nS. 56: Income from Other source-Fixed deposit placed with Bank as performance guarantee.<\/strong>
\nFixed deposit placed with Bank as performance guarantee as condition for being awarded contract work. Interest on fixed deposits not assessable as income from other sources.( Asst Year 2003-04).
\nCIT v Jaypee Dsc Ventures Ltd (2011) 335 ITR 132 ( <\/strong>Delhi<\/strong>) (High Court<\/strong>)
\nS. 56 (2)(v)- Income from other sources amount received and repaid as loan<\/strong>
\nAmount received and repaid as a loan cannot come within the ambit of section 56(2)(v).
\nCIT V\/s. Saranapal Singh (HUF) {2011} 198 Taxman 202 (P & H.) (Mag.)(High Court).<\/strong>
\nS. 68: Cash Credit- Work in progress.- Partners capital account.-Burden of proof<\/strong>..
\nWIP in a construction project transferred by a contractor firm to the Assessee firm and credited to the Capital Accounts of partner. Such credit could not be treated as Cash Credit since the transactions are genuine and identity of parties are established.
\n CIT vs. <\/strong>S.<\/strong> <\/strong>K.<\/strong> <\/strong>Banerjee<\/strong> <\/strong>J.V.<\/strong> <\/strong>Transport<\/strong> <\/strong>Plaza<\/strong> (2011) 241 CTR 152 \/ 335 ITR 563 (Bom) (High Court).   <\/strong>
\nS. 68: Cash Credit – Share application. <\/strong>
\nWhere the assesse had provided to the assessing authority the name, age, address, date of filing the share application and number of shares applied by each shareholder, addition under section 68 of the Act cannot be made.( 2000-01 & 2002-03)
\nCIT vs. STL Extrusion (P) Ltd. (2011) 53 DTR 97 (MP)( High Court)<\/strong>
\nS. 68: Cash Credits-Share Application money-<\/strong>
\nAssessee company having filed letters of the share applicant companies written to the Asstt CIT confirming that they had applied for shares in the assessee company giving details of drafts , copies of acknowledgment of returns , certificates of incorporation and balance sheets of the said companies where in investment made in the assessee company is shown , it has discharged the onus which lay upon it under section 68 establishing  the identity and credit worthiness of each share holder. The  Tribunal held that addition can not be made under section 68.( Asst year 2005-06).
\nDy CIT v Dolphine Marbles (P) LTD ( 2011) 57 DTR 58 ( Jab) (TM ) (Trib).<\/strong>
\nS. 68: Cash Credits – Confirmation – Satisfaction of AO – to be based on proper appreciation of materials and surrounding circumstances available on record.<\/strong>
\nAssessee had filed confirmation and copy of bank statement as well as cash book. It could be said that assessee had proved genuineness of loan and no addition could be made under section 68 of the Income Tax Act. Opinion of Assessing Officer for not accepting explanation offered by assessee under section 68 as not satisfactory. It must be based on proper appreciation of material and other surrounding circumstances available on record and Assessing Officer can not reject each and every explanation of assessee. (Asst Year 2000-01)
\nUmesh Electricals v Asst CIT ( 2011) 131 ITD 127 ( Agra ) (TM ) (Trib). <\/strong>
\nS. 69: Undisclosed investment- Search and seizure- Jewellery- CBDT Circular.<\/strong>
\nThe court held that the CBDT circular had been issued for the purpose of non seizure on the basis of recognized customs prevailing in Hindu Society , and unless the revenue showed anything to the contrary , it could safely be presumed that source to extent as stated in Circular no 1916  stands explained ,  accordingly the order of Tribunal deleting the addition was confirmed.
\nCIT v Ratanlal Vyaparilal Jain ( 2011) 199 Taxman 90 ( Guj) ( Mag) (High Court).<\/strong>
\nS.72: Hotel business – agreement with another company for running hotels — disputes — hotel business run by court receiver — no cessation of business — brought forward losses:<\/strong>
\nThe assessee was in the business of running hotels and for that purpose had entered into an agreement with another company to run the same.  Disputes arose between the assessee and the company, the court pending adjudication of dispute appointed a court receiver to run the hotel business of the assessee.  The dispute was decided by the court and the possession of the hotel was handed over to the assessee, the assessee ran the hotel business on its own.  The Hon’ble High Court held that there was no cessation of business by the assessee, as the business was managed by the court receiver, who was none other than its own directors, and the business and assets were also never divested with the receiver, and therefore the assessee was entitled to carry forward and set off losses and depreciation relating to earlier years( AY 1990-91)<\/p>\n\n\n
\n

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No time to read through voluminous case reports? Can\u2019t separate the wheat from the chaff? Fret Not! The KSA Legal team will bring you up-to-speed with the choicest of case-law so you can focus your attention only on the important …<\/p>\n

Digest of important case law – July 2011<\/span> Read More »<\/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-3603","page","type-page","status-publish","hentry"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/3603","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=3603"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/3603\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/media?parent=3603"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}