{"id":6775,"date":"2013-05-09T23:21:13","date_gmt":"2013-05-09T17:51:13","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?page_id=6775"},"modified":"2013-08-05T22:58:35","modified_gmt":"2013-08-05T17:28:35","slug":"digest-of-important-case-law-january-to-march-2013","status":"publish","type":"page","link":"https:\/\/itatonline.org\/archives\/digest-of-important-case-law-january-to-march-2013\/","title":{"rendered":"Digest of important case law &#8211; January To March 2013"},"content":{"rendered":"<div id=AddressingEnvelope>\n<a href=\"https:\/\/i0.wp.com\/itatonline.org\/archives\/wp-content\/uploads\/2008\/10\/ksalegal.gif\"><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/i0.wp.com\/itatonline.org\/archives\/wp-content\/uploads\/2008\/10\/ksalegal.gif?resize=157%2C133\" alt=\"\" title=\"ksalegal\" width=\"157\" height=\"133\" class=\"alignleft size-full wp-image-183\" \/><\/a><\/p>\n<div id=MainEnvelope>\nNo time to read through voluminous case reports?<\/p>\n<div id=RSVP>\nCan\u2019t separate the wheat from the chaff?\n<\/div>\n<div id=Invite>\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<p><DIV class=team>Compiled By: Ajay R. Singh, Paras S. Savla, Rahul K. Hakani and Sujeet S. Karkal, Advocates<\/DIV><\/p>\n<\/div>\n<p><DIV class=clear-simple><\/DIV>\n<\/div>\n<div class=\"clock\">\n<table border=\"0\">\n<tr>\n<td colspan=\"2\"><strong>Digest of important case law &#8211; January 2013 to March 2013 <\/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<p><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>Download <strong>January to March 2013<\/strong> Digest in pdf format<\/td>\n<td align=\"right\">Download <strong>Consolidated Digest<\/strong> (Jan 2012 to Sept 2012) in pdf format<\/td>\n<\/tr>\n<tr>\n<td align=\"left\" valign=\"top\"><a href=\"https:\/\/itatonline.org\/archives\/?dl_id=1009\" onclick=\"if (event.button==0) \r\n     setTimeout(function () { window.location = 'http:\/\/itatonline.org\/downloads.php?varname=dl_id=1009&varname2=consolidated_digest_of_case_laws_jan_2013_march_2013.pdf'; }, 100)\" ><strong>Click here to download the judgement (consolidated_digest_of_case_laws_jan_2013_march_2013.pdf) <\/strong> <\/a><\/p> <\/td>\n<td align=\"right\" valign=\"top\"><a href=\"https:\/\/itatonline.org\/archives\/?dl_id=901\" onclick=\"if (event.button==0) \r\n     setTimeout(function () { window.location = 'http:\/\/itatonline.org\/downloads.php?varname=dl_id=901&varname2=consolidated_digest_of_case_laws_jan_2012_sept_2012.pdf'; }, 100)\" ><strong>Click here to download the judgement (consolidated_digest_of_case_laws_jan_2012_sept_2012.pdf) <\/strong> <\/a><\/p> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\"><a href=\"http:\/\/itatonline.org\/archives\/index.php\/digest-of-important-case-law-january-2013\/\">Looking for the Previous Month&#8217;s digest? Click here.<\/a> <\/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(15):Charitable purpose-Trade business or  commerce-Public utility-Activity of evolving, prescribing, standards Activities  cannot be termed as business activity-Exemption was granted. (S.10) (23C).<\/strong><br \/>\n  The Bureau of Indian Standards (BIS), a  sovereign entity created under the Bureau of Indian Standards Act, 1986, had  been granted exemption under section 10(23C).<br \/>\n  The Director of Income-tax  (Exemption) withdrew the said exemption on the ground that activities of BIS  were in the nature of business and hence, covered by the proviso to section  2(15). The assessee challenged the said order by way of Writ to the High Court,  wherein it was held that, activities of Bureau of Indian Standards (BIS) in  prescribing of standards of goods\/articles and enforcing those standards  through accreditation and continuing supervision through inspection, etc.,  cannot be considered as trade, business or commercial activity merely because  testing procedures involves charging of fees. Accordingly allowing the Petition  the DIG was directed to issue the exemption certificate under section 10(23C)  of the Act. <br \/>\n  <strong>Bureau of Indian Standards v DGIT (Exemptions)  (2013) 212 Taxman 210 (<\/strong><strong>Delhi<\/strong><strong>) (High  Court)<\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend- Deemed dividend-Share  application money &#8211; Colour device &#8211; Not &ldquo;loan or advance&rdquo;, cannot be assessed  as deemed dividend.<\/strong><br \/>\n  &nbsp;The assessee was a beneficial shareholder  of three companies named Kingston Properties P Ltd. (KPPL), New Dimensions  Consultants P Ltd (NDCPL) &amp; R. S. Estate Developers P Ltd (RSEDPL). NDCPL  &amp; RESEDPL advanced various sums of money to KPPL towards &ldquo;share application  money&rdquo;. However, some of the advances were returned by KPPL while some were  adjusted towards allotment of shares. The AO held that the transaction was a  &ldquo;colourable device&rdquo; and a &ldquo;loan and advance&rdquo; which fell within the ambit of s.  2(22) (e). The said &ldquo;loan and advance&rdquo; was assessed as &ldquo;deemed dividend&rdquo; in the  hands of the assessee &ndash; beneficial shareholder &ndash; following Universal Medicare  Pvt. Ltd. (2010) 324 ITR 263 (Bom). The CIT (A) reversed the AO. On appeal by  the department to the Tribunal HELD dismissing the appeal:<br \/>\n  Share application money or share application  advance is distinct from &lsquo;loan or advance&rsquo;. Although share application money is  one kind of advance given with the intention to obtain the allotment of  shares\/equity\/preference shares etc., such advances are innately different form  the normal loan or advances specified both in section 269SS or 2(22) (e) of the  Act. Unless the mala fide is demonstrated by the AO with evidence, the book  entries or resolution of the Board of the assessee become relevant and credible,  which should not be dismissed without bringing any adverse material to  demonstrate the contrary. It is also evident that share application money when  partly returned without any allotment of shares, such refunds should not be  classified as &lsquo;loan or advance&rsquo; merely because share application advance is  returned without allotment of share. In the instant case, the refund of the  amount was done for commercial reasons and also in the best interest of the  prospective share applicant. Further, it is self-explanatory that the assessee  being a &lsquo;beneficial share holder&rsquo;, derives no benefit whatsoever, when the  impugned &lsquo;share application money\/advance&rsquo; is finally returned without any  allotment of shares for commercial reasons. In this kind of situations, the books  entries become really relevant as they show the initial intentions of the  parties into the transactions. It is undisputed that the books entries suggest  clearly the &lsquo;share application&rsquo; nature of the advance and not the &lsquo;loan or  advance&rsquo;. As such the revenue has merely suspected the transactions without  containing any material to support the suspicion. Therefore, the share  application money may be an advance but they are not advances which are  referred to in section 2(22) (e) of the Act. Such advances, when returned  without any allotment or part allotment of shares to the applicant\/subscriber,  will not take a nature of the loan merely because the same is repaid or  returned or refunded in the same year or later years after keeping the money  for some time with the company. So long as the original intention of payment of  share application money is towards the allotment of shares of any kind, the  same cannot be deemed as &lsquo;loan or advance&rsquo; unless the mala fide intentions are  exposed by the AO with evidence. (A. Y. 2002-03 to 2007-08)<br \/>\n  <strong>DCIT v. Vikas Oberoi (Mum.) (Trib.)  www.itatonline,org. <\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend-Deemed dividend-Loans and  advances-Legal fiction does not extend to broaden the concept of shareholderto  make tax loans or advances as deemed dividend in the hands of deemed share  holder. (Companies Act, S.153, 187C)<\/strong><br \/>\n  Duringsearch various papers relatingshare  holding pattern of Amod Stampings Pvt Ltd were seized. It was found that said  company had granted loans to various companies wherein share holdings and  voting power exceeded 10 percent.It was explained that on creation of Trust a  part of said company were settled in favour of Trust and after excluding of  shares the assessee did not have more than 10 percent voting power and the  assessee had no beneficial interest in the said Trust. The Assessing Officer  held that creation of Trust was an afterthoughtand taxed theamount as deemed  dividend.Before Commissioner (Appeals) it was contended that as per section 153  of the Companies Acta company is not permitted to include the name of the trust  in the register of members. It was also contended that the provision of section  187C have been madeineffective w.e.f.13th December, 2000 and therefore there is  no requirement at present to declare beneficial interest etc., therefore  suchbeneficial interest was is not declared in the register of the Company or  the Registrar of the Companies. However Commissioner (Appeals) up held the  addition.On appeal the Tribunal held that since the said Company was not  permitted to include name of Trust in its register, name which was earlier  noted as shareholders remainedsame, howeverthrougha Board meeting it was  resolved to acknowledge change in vesting of shares, hence in view of the facts  deemed dividendcould not be taxed in hands of assessee.Legal fiction created  under section 2(22) (e) does not extend further for broadening concept of  shareholder so as to tax loans or advances as &#8216;deemed dividend&#8217; in hands of a  &#8216;deeming shareholder&#8217;. (.AY. 2006-07)<br \/>\n  <strong>Krupeshbhai N. Patel v. Dy. CIT (2013) 140 ITD  176 (Ahd.) (Trib.)<\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend- Deemed dividend &ndash; Credit  balance in Capital account &ndash; Non-encashment of cheque the amount is credited  back to company&rsquo;s account cannot be assessed asdeemed dividend. <\/strong><br \/>\n  The assessee is running a proprietorship concern  which was converted into private limited company. There was credit balance in  capital account of the assessee in proprietorship concern against which payment  was made by proprietorship concern to the assessee. However, because of  conversion, cheque could not be encashed and same was returned to company which  was credited to the assessee&rsquo;s account by company. Subsequently money was  withdrawn by the assessee. It was held that the said amount could not be treated  as deemed dividend. (A.Y. 2008-09)<br \/>\n  <strong>Dy. CIT v. Radhe Shyam Jain (2013) 140 ITR 244 (<\/strong><strong>Chandigarh<\/strong><strong>) (Trib.)<\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend-Deemed dividend &ndash;  Accumulated profits &ndash; Share premium account does not partake nature of  commercial profit hence not be treated as accumulated profit. <\/strong><br \/>\n  Share premium account would not partake nature  of commercial profits and thus cannot be treated as accumulated profit. (A.Y.  2008-09)<br \/>\n  <strong>Dy. CIT v. Radhe Shyam Jain (2013) 140 ITR 244 (<\/strong><strong>Chandigarh<\/strong><strong>) (Trib.)<\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend-Deemed dividend &ndash; Advance  given to company in which assessee holds substantial stake is held to be deemed  dividend.<\/strong><br \/>\n  AO treated advance taken by assessee from a  company in which having substantial stake as deemed dividend. It was case of the  assessee that since they had mortgages their properties with bank to enable  company to avail finance facilities from bank, advance by company was not a  gratuitous loan or advance but in return for an advantage which company had  already availed on account of mortgaging of properties done by assessee.  However, it was a fact on record that assessee had not produced any documents  to prove fact that personal properties of assessee were actually mortgaged with  the bank for sake of availing loans by company. Assessee had also not produced  any correspondence made either with bank or with company towards release of  properties mortgaged. Thus, revenue rightly considered advances given by  company to assessee as deemed dividend. (A.Y. 2002-03, 2003-04 &amp; 2006-07)<br \/>\n  <strong>Dy. CIT v. B. DhanunjayaRao (2013) 140 ITD 443  (Hyd.) (Trib.) <\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend-Deemed dividend&mdash;Advance  towards <\/strong><strong>Sale<\/strong><strong> of  Property -Matter remanded.<\/strong><br \/>\n  The assessee is engaged in real estate  development. The assessee received advance towards sale of property. The  Assessing Officer treated the said amount as deemed dividend. Commissioner  (Appeals) deleted the addition. On appeal by department the Tribunal seta-side  the order of Commissioner(Appeals) as he failed to pass as speaking order.  Matter remanded. (A.Y. 2006-07, 2007-08)<br \/>\n  <strong>ITO v. <\/strong><strong>Nam<\/strong><strong> Estates P.Ltd (2013)141 ITD 659\/ 21 ITR 109 (Bang.) (Trib.)<\/strong><\/p>\n<p><strong>S.2(22) (e):Dividend- Deemed dividend-Loans and advances-Business of  finance-Loans would not be regarded as deemed dividend.<\/strong> <br \/>\n  &nbsp;The company from whom the  assessee had obtained loan was engaged in the business of finance and hence it  was contended that the loan transaction from the company fell in the  exclusionary clause and the amount of loan was out of the purview of section  2(22) (e). The Department&rsquo;s contention was that financing was not a &lsquo;major&rsquo;  part of the business of the company and hence the assessee could not take  shelter under the exclusionary clause. Before the Tribunal the assessee relied  upon the decision of the Hon&rsquo;ble Bombay High Court in CITv<em>.<\/em>Parle<em> Plastics Ltd (2<\/em>011) 332  ITR 63 (Bom.) (High Court) wherein it was held that the said expression  &ldquo;substantial part of the business&rdquo; in s.2(22) (e), clause (ii), does not  connote an idea of being the &quot;major part&quot; or the part that  constitutes majority of the whole.It was further explained by the Hon&#8217;ble  Bombay High Court that any business of a company which the company does not  regard as small, trivial or inconsequential as compared to the whole of the  business is substantial business and various factors and circumstances would be  required to be looked into while considering whether a part of the business of  a company is its substantial business. It was held that sometimes a portion  which contributes a substantial part of the turnover, though it contributes  relatively small portion of the profit, would be a substantial part of the  business. Similarly, a portion which is relatively small as compared to the  total turnover, but generates a large portion, say more than 50% of the total  profit of the company would also be a substantial part of his business. In view  of the said decision of the Hon&rsquo;ble Bombay High Court, it was held that the  assessee&rsquo;s case fell in the exclusionary clause and hence section 2(22) (e) was  not applicable. (A.Y. 2006-07)<br \/>\n  <strong>Jayant H. Modi (2013)56 SOT 84 (Mum<\/strong>.) (<strong>Trib.)<\/strong><\/p>\n<p><strong>S.2(28A): Interest <\/strong>&#8211;<strong> Discount charges-Deduction at source-Business income hence not liable to deduct  tax at source. [S. 40(a) (i)]<\/strong><br \/>\n  The Court held that discount charges earned by  assessee-financial service provider by way of discounting bill of exchange and  promissory notes in favour of Indian companies is to be treated as business  income, and not as interest income In favour of assessee. (A.Y.2005-06 to  2007-08)<br \/>\n  <strong>DIT ( IT) v.Cargil TSF PTE  Ltd. (2013) 212 Taxman 16 (<\/strong><strong>Delhi<\/strong><strong>) (High  Court)<\/strong><\/p>\n<p><strong>S:2(29B):Capital gains &ndash; Short-term or long-term &ndash; Purchase of  property by tenantwas held to be long term. (S. (2 (42A),45)<\/strong><br \/>\n  Assessee bought the property of which she was one of the tenants. All  the tenants entered into an agreement on 10th June 1999 and formed a  co-operative society. The old building was demolished and a new building was  constructed thereon. The tenants got possession in A.Y. 2002-03. Assessee sold  her property on 17th   September 2004. Held that the agreement dated 10th June 1999  itself gave interest and right in the impugned property to the assessee along  with other tenants, the transaction clearly involved long-term capital gains.  (A.Y. 2005-06)<br \/>\n  <strong>Nila V. Shah(Mrs) v. ITO (2013) 83 DTR 218(Mum.) (Trib.)<\/strong><\/p>\n<p><strong>S.2(47): Transfer- Shares pledged with  groupcompany-A transaction in respect of transfer of share pledged with a bank  to a group company can be regarded as &ldquo;Transfer&rdquo; for income-tax purpose so far  as requirement of s.2(47) are complied with-Loss suffered is allowable.<\/strong><br \/>\n  A transaction in respect of sale of shares  pledged with a bank to a group company cannot be said to be a colorable device  merely on the grounds thatsuch a transaction resulted into loss to the assessee  and that the requirements of section 108 of The Companies Act, 1956 regarding registration  of transfer of shares have not been complied with since the share were in  possession of a bank owing to which such shares could not have been said to be  transferred. So far as the requirements of section 2(47) of the Act are  complied with the transaction is to be regarded as &ldquo;Transfer&rdquo; for the  income-tax purposes. There is no restriction that such a transaction cannot be  effected with a group company. Also it is not open for the revenue to doubt the  loss suffered by the assessee unless it doubts the sale prices of the shares.  (T.A. No. 260 of 2000, dated 07\/08\/2012)]<br \/>\n  <strong>&nbsp;Biraj  Investment Pvt. Ltd. (2012) BCAJ &ndash;November &#8211; Pg. 402 (Guj.) (High Court)<\/strong> <\/p>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"5\">\n<tr>\n<td width=\"90%\" valign=\"top\">\n<p>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. <\/p>\n<\/td>\n<\/tr>\n<\/table>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>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 &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/itatonline.org\/archives\/digest-of-important-case-law-january-to-march-2013\/\"> <span class=\"screen-reader-text\">Digest of important case law &#8211; January To March 2013<\/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-6775","page","type-page","status-publish","hentry"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/6775","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=6775"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/6775\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/media?parent=6775"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}