{"id":7108,"date":"2013-08-08T13:52:09","date_gmt":"2013-08-08T08:22:09","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?page_id=7108"},"modified":"2013-08-12T18:35:12","modified_gmt":"2013-08-12T13:05:12","slug":"digest-of-important-case-law-january-to-june-2013","status":"publish","type":"page","link":"https:\/\/itatonline.org\/archives\/digest-of-important-case-law-january-to-june-2013\/","title":{"rendered":"Digest of important case law &#8211; January To June 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 Singh, Paras Savla, Rahul Hakani, Rahul Sarda &#038; Neelam Jadhav<\/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 June 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<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 Monthly <strong>June 2013<\/strong> Digest in pdf format<\/td>\n<td align=\"right\">Download <strong>Consolidated Digest<\/strong> (Jan 2013 to June 2013) in pdf format<\/td>\n<\/tr>\n<tr>\n<td align=\"left\" valign=\"top\"><a href=\"https:\/\/itatonline.org\/archives\/?dl_id=1056\" onclick=\"if (event.button==0) \r\n     setTimeout(function () { window.location = 'http:\/\/itatonline.org\/downloads.php?varname=dl_id=1056&varname2=Monthly_Digest_June_2013-2.pdf'; }, 100)\" ><strong>Click here to download the judgement (Monthly_Digest_June_2013-2.pdf) <\/strong> <\/a><\/p> <\/td>\n<td align=\"right\" valign=\"top\"><a href=\"https:\/\/itatonline.org\/archives\/?dl_id=1053\" onclick=\"if (event.button==0) \r\n     setTimeout(function () { window.location = 'http:\/\/itatonline.org\/downloads.php?varname=dl_id=1053&varname2=Consolidated_Digest_Jan_June_2013.pdf'; }, 100)\" ><strong>Click here to download the judgement (Consolidated_Digest_Jan_June_2013.pdf) <\/strong> <\/a><\/p> <\/td>\n<\/tr>\n<tr>\n<td colspan=\"2\"><a href=\"http:\/\/itatonline.org\/downloadcenter\/?nav=display&#038;file=11\">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(14): Capital asset&ndash;Agricultural  land-Municipality&ndash;Local authority <\/strong><strong>Hyderabad<\/strong><strong> <\/strong><br \/>\n<br \/>\n<strong>Airport<\/strong><strong> Development Authority- Sale of land beyond 8 Kms of Municipality limits is not  liable to capital gain tax. [S.10 (20), Constitution of <\/strong><strong>India<\/strong><strong> &ndash;Art 243  P(e), 243R, General Clauses Act. S.3(21)g]<\/strong><br \/>\n  The assessee sold the agricultural land. The  assessee claimed that the capital gain tax is not leviable. The Assessing  Officer held that the land is within the limits of HADA which is Government notified  local authority and was a municipality within the meaning of section  2(14)(iii)(a),therefore ,the land sold by the assessee was non-agricultural  land. The Government of Andhra Pradesh issued a land acquisition notification  dated 16-5-2007&nbsp;&nbsp; for the acquisition of  the above land of the assessee to develop in to an integrated township. On  appeal the Tribunal held that the Hyderabad Airport Development Authority had  been constituted under provisions of Andhra Pradesh Urban Areas (Development)  Act, 1975 as a Special Area Development Authority by State Government, it  cannot be treated as a municipality for purposes of provisions of&nbsp; section 2(14) of the Act. In the revenue  records the land is classified as agricultural land and has not been changed  from agricultural land to non agricultural land at the time when the land was  sold by the assessee. The land in question is brought in special Zone cannot be  a determining factor by itself to say that the land was converted in to use for  non-agricultural purposes.&nbsp; As the  agricultural land of assessee is outside the municipality and also 8 kms away  from the outer limits of the Municipality,&nbsp;  assessee&rsquo;s&nbsp; land does not come  within the purview of section 2 (14)(iii) either under clause (a) or (b) ,  hence cannot be considered as &lsquo;capital asset&rsquo; within the meaning section ,  hence capital gain tax cannot be charged on sale of the said land. (A.Y.  2008-09)<br \/>\n  <strong>&nbsp;T. Urmila(Smt) v. ITO (2013) 57 SOT 90(URO)  (Hyd.)(Trib.)<\/strong><\/p>\n<p><strong>S.2(15): Charitable purpose&ndash;Object of general public utility&ndash;Control  of game of cricket is business activities &ndash;Cancellation of registration was  justified. [S. 12AA]<\/strong><br \/>\n  Since the assessee was carrying on revenue earning  exercise by arranging international matches, IPL matches, etc. in such a way  that maximum advertisement revenue was derived from any type of match, its  activities did not come within conceptual framework of charity vis-&agrave;-vis  activity of general public utility envisaged in s. 2(15).Cancellation of  registration was justified. (A.Y.2009-10)<br \/>\n  <strong>Tamil Nadu Cricket Association v. DIT  (2013) 57 SOT 439 (Chennai)(Trib.)<\/strong><\/p>\n<p><strong>S.2(22)(e): Dividend-Deemed  dividend-Advance to Director for purchase of land on behalf of  company-Provision does not attract.<\/strong><br \/>\n  Advance granted to the director to purchase land in  the name of the director but in which the company would be having beneficial  interest does not attract section 2(22)(e).(A.Y.2006-07) (ITA no 447  dt.26-12-2012)<br \/>\n  <strong>ACIT v. C.V. Reddy (2013) &ndash;TIOL-168  (Bang.)(Trib.)<\/strong><\/p>\n<p><strong>S.4:  Charge of income-tax-Income-Subsidy-Deferred sales tax scheme-Capital  receipt.[S.2(24)]<\/strong><br \/>\n  To determine the  character of subsidy in hands of recipient, whether revenue or capital, the  purpose of the subsidy is to be considered and the source of fund and mechanism  of giving subsidy are immaterial. Incentive, in form of sales tax  waiver\/deferment was not meant to give any benefit on day-to-day functioning of  business or to make it more profitable; but was principally aimed to cover  capital outlay of assessee for undertaking modernization of existing industry,  it was capital in nature, and thus, not taxable. (A.Y.1992-93)<br \/>\n  <strong>CIT v.  Birla VXL Ltd. (2013) 215 Taxman 117 (Guj.)(HC)<\/strong><\/p>\n<p><strong>S.5: Scope  of total income&ndash;Retention money&ndash;Accrual.<\/strong><br \/>\n  In view of decision of  Gujarat High Court in case of Anup Engineering Ltd. v. CIT [2001] 247 ITR  457\/114 Taxman 584 retention money could not be said to have accrued to  assessee and therefore, this amount did not represent assessee&#8217;s accrued  income. (A.Y. 2002-03)<br \/>\n  <strong>DIT v.  Ballast Nedam International (2013) 215 Taxman 254 (Guj) (HC)<\/strong><\/p>\n<p><strong>S.9(1)(i):  Income deemed to accrue or arise in India&ndash;Set off of branch losses &ndash;  Taxability-DTAA-India-Sweden .[ Art.7]<\/strong><br \/>\n  The assessee set off its  loss from Sweden branch against its other business income taxable in India.  Revenue&#8217;s case was that as per Article 7, profits attributable to Sweden branch  was taxable in Sweden and, therefore, losses incurred by Sweden branch could  not be set off against other income. Following its decision rendered in earlier  assessment years with respect to India-Japan DTAA, the Tribunal allowed the  claim of the assessee. Since nothing had been brought on record to show that  clauses of DTAA between India-Sweden were different from that in DTAA between  India-Japan in respect of present issue, the Tribunal&#8217;s order was justified.  (A.Y. 2002-03)<br \/>\n  <strong>CIT v.  Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.) (HC)<\/strong><br \/>\n  <strong>Editorial: <\/strong>Arising  out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD  398(Pune)(Trib.)<strong> <\/strong><\/p>\n<p>  <strong>S.9(1)(i): Income deemed  to accrue or arise in India-Short term capital gain-Forward exchange contract\/hedging mechanism-DTAA- India-Spain-Additional evidence-Matter set aside.  [Art. 14, 23]<\/strong><br \/>\n  The assessee-company was a resident of  Spain and registered as FII with SEBI. It claimed the profit on foreign  exchange transactions as short-term capital gain and hence exempt under  India-Spain DTAA. Since the assessee filed additional evidence before the  Tribunal, the matter was to be restored to the Assessing Officer for fresh  decision. (A.Y. 2005-06)<br \/>\n  <strong>Merrill Lynch Capital  Markets Espana SA v. DCIT (2013) 57 SOT 435 (Mum.)(Trib.)<\/strong><\/p>\n<p><strong>S.9(1)(i): Income deemed to accrue or  arise in India&ndash;Capital gains&ndash;DTAA-India-UAE. [Art.4, 13]<\/strong><br \/>\n  The assessee is held to be not entitled to the  benefit of India-UAE DTAA and income from capital gains was charged to tax, on  the ground that individuals are not taxable in UAE. The Tribunal in assessee&#8217;s  own case in immediately preceding year held that assessee was entitled to  benefits of DTAA thereby granting exemption from capital gain. Since the facts  of the instant appeal were similar to those of immediately preceding year, the  benefit of the DTAA was to be granted.(A.Y. 2008-09)<br \/>\n  <strong>ITO v. Chandersen Jatwani (2013) 57  SOT 437 (Mum.)(Trib.)<\/strong><\/p>\n<p><strong>S.9(1)(i): Income deemed to accrue or  arise in India&ndash;Interest&ndash; Income-tax refund-DTAA-India-Denmark [Art.9(4), 12(6)] <\/strong> <br \/>\n  Interest on income-tax  refund was taxable in India as per Article 12(6) of DTAA between India and  Denmark. Interest cannot be considered as business income. (A.Y. 2005-06)<br \/>\n  <strong>A.P. Moller Maersk v. DCIT (2013) 57  SOT 267 (Mum.)(Trib.)<\/strong><\/p>\n<p><strong>S.9(1)(vi): Income deemed to accrue  or arise in India&ndash;Royalty-Fees for technical services-Shipping  business-DTAA-India-Denmark. [S.9(1)(vii), Art. 9, 13 ]<\/strong><br \/>\n  Amounts received by shipping company on account of  shared cost of global tracking system was linked to shipping income as per  Article 9(1) of DTAA between India and Denmark and was not taxable in India.  (A.Y. 2005-06)<br \/>\n  <strong>A.P. Moller Maersk v. DCIT (2013) 57  SOT 267 (Mum)( Trib.)<\/strong><\/p>\n<p><strong>S.10(38): <\/strong><strong>Exempt  income &#8211; Long term capital gains from equities &#8211;<\/strong><strong> Scheme of sale of land through sale of shares of  shell company is valid.<\/strong> <br \/>\n  The  assessee held 98.73% shares in Bhoruka Financial Services Limited (BFSL). In AY  2005-06 BFSL purchased a plot of land from a group sick company called Bhoruka  Steels Ltd for Rs.3.75 crores which was accepted to be the prevailing market  price u\/s 50C. BFSL was a shell company with no assets other than the said  land. In AY 2006-07 the assessee sold its shareholding in BFSL to DLF  Commercial Developers Ltd for a net consideration of Rs. 20 crore. As the sale  of shares was executed through the Magadh Stock Exchange and STT was paid, the  assessee claimed that the gain on sale of shares was exempt u\/s 10 (38). The  AO, CIT(A) and Tribunal rejected the assessee&rsquo;s claim on the basis that the assessee,  BFSL and Bhoruka Steels were all controlled by common shareholders and that the  scheme to first sell the land to BFSL and then to sell the shares of BFSL was  devised with the sole purpose of avoiding tax on the capital gains which would  have arisen if the land had been sold directly. It was held that the  formalities of the transaction and the legal nature of the corporate bodies had  to be ignored by lifting the corporate veil and the transaction had to be taxed  as a sale of the land. On appeal by the assessee to the High Court, HELD  allowing the appeal:<br \/>\n  Though BFSL  was a shell company with no asset other than the land and by buying the shares  of BFSL, DLF in effect purchased the land, the transaction cannot be said to a  sham or an unreal one. In coming to the conclusion that the transaction is a  colourable device, the authorities have been carried away by the fact that the  assessee was able to avoid payment of income tax. The assessee did resort to  tax planning and took advantage of the law\/ loopholes in the law. After seeing  how the loophole was exploited within the four corners of the law, it is open  to Parliament to amend the law plugging the loophole. However it cannot be done  by judicial interpretation. S.10(38) of the Act is unambiguous. If the share  holder chooses to transfer the lands through a transfer of the shares of the  company owning the land, it would be a valid legal transaction in law and  cannot be said to be a colourable devise or a sham merely because tax is  avoided thereby (<strong>McDowell<\/strong> &amp; Co. v. CIT (1985) 154  ITR 148 (SC), UOI &amp; Anr. v <strong>Azadi Bachao Andolan<\/strong> &amp; Anr. (2003) 263 ITR 706 (SC) &amp; <a href=\"http:\/\/itatonline.org\/archives\/index.php\/vodafone-international-holdings-b-v-vs-uoi-supreme-court-transfer-of-shares-of-foreign-company-by-non-resident-to-non-resident-does-not-attract-indian-tax-even-if-object-is-to-acquire-indian-assets-he\/\">Vodafone International<\/a> Holding B.V. v. UOI&amp; Anr. (2012) 341 ITR 1 (SC) referred)( ITA No. 120 of  2011, dt. 09\/04\/2013) <\/p>\n<h2>Bhoruka  Engineering Inds. Ltd. v. Dy. CIT (Karn.)(HC) www.itatonline.org<\/h2>\n<p><strong>S.10A:  Free trade zone&ndash;Software developed transmitted to foreign countries through  internet cannot treated as bogus transaction.<\/strong><br \/>\n  The assessee started new  venture of software development and claimed profit of software division under  section 10A. The Assessing Officer was not convinced from contemporaneous  record that software was developed by assessee or that same was transmitted to  foreign countries through internet and rejected the claim of the assessee  treating the said transaction as bogus and sham. The Commissioner (Appeals) and  the Tribunal, taking into consideration report of audit, agreement with STPI,  certificate in respect of custom, boarding arrangement of assessee and payment  received from various parties through channel of banks, concluded that  transaction was genuine, allowed the assessee&#8217;s claim. Held, since the order  passed by the appellate authorities was based on appreciation of material on  record, no substantial question of law arose there from.(A.Y. 2003-04)<br \/>\n  <strong>CIT v.  Nova Petrochemicals Ltd. (2013) 215 Taxman 82(Mag.)&nbsp; (Guj.)(HC)<\/strong><\/p>\n<p><strong>S.10A:  Free trade zone-New unit-<\/strong> <strong>Approval  letter issued by authority of Software Technology Park<\/strong>. <strong><\/strong><br \/>\n  The assessee established  three units and claimed deduction u\/s 10A. The Revenue denied the deduction on  basis of approval letter issued by authority of Software Technology Park  stating that, these units were to be considered as part of existing units. On  other hand, Tribunal found that all three units had fulfilled conditions u\/s.10A,  and therefore, allowed deduction holding those units as separate and  independent production units, and not as mere expansion of existing unit. Since  the decision of the Tribunal was based on finding of fact, no interference was  required. (A.Y. 2002-03)<br \/>\n  <strong>CIT v.  Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.)(HC)<\/strong><br \/>\n  <strong>Editorial: <\/strong>Arising  out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD  398(Pune)(Trib.)<strong> <\/strong><\/p>\n<p><strong>S.10A: Free trade  zone-Consistency-Computation-Export turnover-Expenditure do not pertain to  delivery of goods out of <\/strong><strong>India<\/strong><strong> are not  deductible from export turnover. <\/strong><br \/>\n  Where the assessee followed head count method of  accounting for computing deduction u\/s 10A, which had been accepted by revenue  in earlier years, it could not be disallowed in relevant assessment year. The  expenditure towards insurance, freight and communication incurred in foreign  exchange, which do not pertain to delivery of goods out of India and satellite  link charges and technical service fee are not deductible from export turnover.  (A.Y. 2007-08)<br \/>\n  <strong>Willis Processing Services (I) (P)  Ltd. DY. CIT (2013) 57 SOT 339 (Mum.)(Trib.)<\/strong><\/p>\n<p><strong>S.10A: Free trade zone-Newly established  undertakings-Deemed export is not  eligible for exemption.&nbsp;&nbsp; <\/strong><br \/>\n  The assessee software company carried out deemed exports by raising bills  on local parties and received sale proceeds in convertible foreign exchange  thereby claimed deduction on same under section 10A. On ground that deemed  exports are exports as per EXIM policy. On appeal Tribunal held that that  deduction under section 10A is to be allowed only when foreign exchange is  received on export of software and EXIM policy cannot overrule Income-tax Act  which is a separate code in itself. In view of same claim of assessee could not  be allowed. (A.Y. 2005-06)<br \/>\n  <strong>Wipro Ltd. v. Dy.CIT  (2013) 143 ITD 1 (Bang.)(Trib.)<\/strong><\/p>\n<p><strong>S.10A: Free Trade Zone-Newly established undertakings-Export turnover-Total turnover-Foreign tax (VAT\/GST) collected from  customers is to be excluded.<\/strong> <strong><\/strong><br \/>\n  Assessing Officer excluded foreign tax (VAT\/GST) collected from customers  from export turnover as well as from total turnover, thereby, granting lower  deduction under section 10A to assessee a STP unit, on ground that tax  collected was subsequently remitted to government. the Tribunal held that once  this sum is not included in export turnover then the same cannot be included in  the total turnover. (A.Y.2005 -06) <br \/>\n  <strong>Wipro Ltd. v. Dy.CIT  (2013) 143 ITD 1 (Bang.)(Trib.)<\/strong><br \/>\n  <strong>&nbsp; <\/strong><br \/>\n  <strong>S.10A: Free trade  zone-Computation-Export turnover-Total turnover- Parity between numerator and  denominator.<\/strong><br \/>\n  Expenses reduced from export turnover were also to  be reduced from total turnover to maintain parity between numerator and  denominator while calculating deduction u\/s 10A. (A.Y. 2007-08)<br \/>\n  <strong>Bearing Point Business Consulting  (P.) Ltd. v. DCIT (2013) 57 SOT 244 (Bang.)(Trib.)<\/strong><\/p>\n<p><strong>S.10B: Exempt income-Export oriented undertaking-Initial year-  Assessee has to prove its eligibility in initial year of production only and  not in every year of claim.<\/strong> <strong><\/strong><br \/>\n  The Assessing Officer rejected the assessee&#8217;s claim  holding that the assessee had employed used machinery value of which exceeded  20% of total value of machinery employed by assessee. It was noted from records  that the claim u\/s 10B was allowed in the past and the year under consideration  was found to be 5th year of claim. There was no evidence on record establishing  that assessee had purchased used machinery during relevant assessment year.  Held in order to claim exemption u\/s 10B, assessee has to prove its eligibility  in initial year of production only and not in every year of claim. (A.Y.  2003-04 to 2004-05)<br \/>\n  <strong>DCIT v. Tyco Valves &amp; Control <\/strong><strong>India<\/strong><strong> (P.)  Ltd. (2013) 57 SOT 138(URO)(Ahd.)(Trib.) <\/strong><\/p>\n<p><strong>S.12AA: Procedure for registration&ndash;Period of six  months&ndash;Directory.<\/strong><br \/>\n  There is no automatic or deemed registration if the  application filed under section 12AA is not disposed of within the stipulated  period of six months as the time frame fixed under the provision is only  directory. Matter remitted to the Commissioner for consideration of the matter  a fresh.<br \/>\n  <strong>CIT v. Sheela Christian Charitable Trust (2013) 354  ITR 478 (<\/strong><strong>Mad.<\/strong><strong>)(HC)<\/strong><br \/>\n  <strong><br \/>\n    S.12AA: Procedure for registration&ndash;Order lodging the application&ndash;Not  sustainable-Deemed registration-Time to be reckoned from the end of month in  which the application was filed-Matter remanded to Commissioner.<\/strong><br \/>\n  The assessee filed an  application before the Commissioner on 28th January, 2009 for  seeking registration under section 12AA and for grant of approval under section  80G. The Commissioner held that the activities of the assessee could not be  called charitable. Accordingly he lodged the application of assessee. On appeal  Tribunal held that since the application was filed by the assessee on 28th January, 2009 and the Commissioner passed the order on July 31, 2009, by virtue of section 12AA, the six month period  has expired and therefore application should be deemed to have been granted  recognizing the&nbsp; status of assessee as  &lsquo;Charitable Trust&rsquo;. Tribunal also held that sale of books, hiring of utensils and  rental income would not make the activities of the assessee a commercial  venture. On appeal the court held that the  application was dated January 28, 2009 and calculating the six months&#8217; period  from the end of the said month, it could not be said that the six months&#8217;  period would expire by July 31, 2009. Therefore, the order passed by the  Commissioner&nbsp;&nbsp; on July 31, 2009, could  not be held to have been passed in violation of section 12AA. The conclusion of  the Tribunal that the registration was deemed to have been granted, could not  be sustained, inasmuch it was found that the order of the Director of  Income-tax was passed within a period of six months stipulated in section  12AA(2). However, it was held that the Commissioner&nbsp;&nbsp; should have either granted or rejected the  application and was not expected to merely lodge the application, which would  only leave the assessee in a suspended animation. There could not be any order  in between like lodging the application. Thus, the matter was remitted to the  Commissioner for fresh disposal on the merits.<strong><\/strong><br \/>\n  <strong>DIT (Exemption) v. Anjuman-e-Khyrkhah-e-Aam (2013)  354 ITR 474 (<\/strong><strong>Mad.<\/strong><strong>)(HC)<\/strong><\/p>\n<p><strong>S.12AA: Procedure for  registration-Religious purpose-Denial of exemption was held to be not  justified. [S.13(1)(b)]<\/strong><br \/>\n  The Commissioner rejected assessee&#8217;s application on  the ground that the object clause of trust deed included an object of religious  nature. The only prohibition in this regard was contained in S.13(1)(b), which  excludes a trust or institution created or established for benefit of any  particular religious community or caste. Since the aforesaid prohibition did  not apply to assessee&#8217;s case, impugned order denying registration to  assessee-trust was to be set aside.<br \/>\n  <strong>Radhika Seva Sansthan v. CIT (2013)  57 SOT 121(URO) (Jaipur) (Trib.)<\/strong><\/p>\n<p><strong>S.12AA:  Procedure for registration-Trust or institution-Promotion of sports- Charitable purpose-Registration is entitled.  [S.2(15)]<\/strong><br \/>\n  The Assessee-society is registered under the  Society Registration Act, 1860. The founder-members of the society were  professional golfers. The assessee filed an application seeking registration  under section 12AA. The Commissioner&nbsp;&nbsp;  rejected&nbsp; the application of  registration. The Tribunal held that Society&rsquo;s Object are charitable in nature,  all the object and aims of the assessee are contained in clause (3) of its Memorandum  of Association, Promotion of sports and games has to be  considered as &#8216;charitable purpose&#8217; within meaning of section 2(15). Assessee  society formed to promote interest in game of&nbsp;&nbsp;  golf in general and&nbsp; professional&nbsp; golfers in particular was entitled to  registration under section 12AA of the Act. &nbsp;<br \/>\n  <strong>Professional Golf Tour  of <\/strong><strong>India<\/strong><strong> v. CIT (2013) 143 ITD  165\/155 TTJ 17(UO)(<\/strong><strong>Chandigarh<\/strong><strong>)(Trib.)<\/strong><\/p>\n<p><strong>S.14A:  Disallowance of expenditure&ndash;Exempt income-Sufficient interest free  funds&ndash;Presumption.<\/strong><br \/>\n  Where the assessee had  sufficient interest free funds to meet its tax free investments yielding exempt  income, it could be presumed that such investments were made from interest free  funds and not loaned funds and, thus no disallowance u\/s.14A being warranted.  Ratio in case of CIT v. Reliance Utilities &amp; Power Ltd (2009) 313 ITR 340  (Bom.)(HC) is followed. (A.Y. 2003-04)<br \/>\n  <strong>CIT v. UTI  Bank Ltd. (2013) 215 Taxman 8(Mag.) (Guj.)(HC)<\/strong><\/p>\n<p><strong>S.14A:  Disallowance of expenditure&ndash;Exempt income- Dividend from foreign  subsidiaries&ndash;Interest free funds.<\/strong><br \/>\n  Where investment was  made by the assessee in foreign subsidiaries, disallowance of interest  expenditure under section 14A was not justified since dividend income from  foreign subsidiaries, is taxable in India. Also, where the assessee had own interest  free funds many times over the investment made in Indian subsidiaries and  further, there was no direct nexus between interest bearing borrowed funds and  such investment, no disallowance of interest expenditure could be made under  section 14A.<br \/>\n  <strong>CIT v. Suzlon  Energy Ltd. (2013) 215 Taxman 272 (Guj.) (HC)<\/strong><\/p>\n<p><strong>S.14A:  Disallowance of expenditure-Exempt income-D<\/strong><strong>isallowance under section 14A cannot be  made if satisfaction not recorded with reference to A\/cs. Under Rule 8D(2)(ii)  loans for specific business purposes cannot be included. Under Rule 8D(2)(ii)  &amp; (iii) investments which have not yielded income cannot be included.  [Income&ndash;tax Rules, 1962, Rule 8D]<\/strong> <br \/>\n  In  AY 2008-09, the assessee invested Rs.103 crores in shares on which it earned  tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its  borrowings had increased by Rs. 122 crores, the said investments were funded  out of own funds like capital and profits. It claimed that no expenditure had  been incurred to earn the dividends and no disallowance u\/s 14A could be made.  The Assessing Officer&nbsp; applied Rule 8D  and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the  Commissioner (Appeals) reduced the disallowance to Rs. 26 lakh. On cross appeals,  HELD by the Tribunal:<\/p>\n<p>(i)  When the Assessing Officer does not accept the assessee&rsquo;s claim regarding the  non-applicability\/ quantum of disallowance u\/s 14A, he has to record  satisfaction on that issue. This satisfaction cannot be a plain satisfaction or  a simple note. It has is to be done with regard to the accounts of the  assessee. On facts, as there is no satisfaction by the Assessing Officer, no  disallowance u\/s 14A can be made [<strong>Balarampur Chini Mills Ltd. v.  Dy. CIT (2011) <\/strong>&nbsp;140 TTJ  73(Kol.)(Trib.)] followed;<\/p>\n<p>(ii)  Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by  way of interest which is not directly attributable to any particular income or  receipt. This clearly means that interest expenditure which is directly  relatable to any particular income or receipt is not to be considered under  rule 8D(2)(ii). The AO has to show that the interest is not directly  attributable to any particular income or receipt. In the assessee&rsquo;s case, the  interest has been paid on loans taken from banks for business purpose. There is  no allegation that the loan funds have been diverted for making investment in  shares or for non-business purposes. The loans are for specific business  purposes and no bank would permit the loan given for one purpose to be used for  making any investment in shares. Also, the assessee has substantial capital  &amp; reserves. Accordingly, the interest on the loans cannot be included in  Rule 8D(2)(ii);<\/p>\n<p>(iii)  Further, in Rule 8D(2)(ii), the words used in numerator B are &ldquo;<em>the average value of the investment, income from  which does not form or shall not form part of the total income as appearing in  the balance-sheet as on the first day and in the last day of the previous year<\/em>&ldquo;.  The Assessing Officer was wrong in taking taken into consideration the  investment of Rs.103 crores made during the year which has not earned any  dividend or exempt income. It is only the average of the value of the  investment from which the income has been earned which is not falling within  the part of the total income that is to be considered. Thus, it is not the  total investment at the beginning of the year and at the end of the year, which  is to be considered but it is the average of the value of investments which has  given rise to the income which does not form part of the total income which is  to be considered. The term &ldquo;<em>average of  the value of investment<\/em>&rdquo; is used to take care of cases where there  is the issue of dividend striping;<\/p>\n<p>(iv)  Under Rule 8D(2)(iii), what is disallowable is an amount equal to &frac12; percentage  of the average value of investment the income from which does not or shall not  form part of the total income. Thus, under sub-clause (iii), what is disallowed  is &frac12; percentage of the numerator B in rule 8D(2)(ii). This has to be calculated  on the same lines as mentioned earlier in respect of Numerator B in rule  8D(2)(ii). Thus, not all investments become the subject-matter of consideration  when computing disallowance u\/s 14A read with rule 8D. The disallowance u\/s 14A  read with rule 8D is to be in relation to the income which does not form part  of the total income and this can be done only by taking into consideration the  investment which has given rise to this income which does not form part of the  total income. (A. Y. 2008-09) ( ITA No. 1331\/Kol\/2011, dt. 29\/07\/2011) <\/p>\n<h2>REI  Agro Ltd v. DCIT (Kol.)(Trib.).www.itatonline.org<\/h2>\n<p><strong>S.14A: Disallowance of  expenditure&ndash;Exempt income-Reasonable basis.<\/strong><br \/>\n  For periods prior to AY 2008-09, disallowance of  expenses relating to exempt income, u\/s 14A, is to be computed on a reasonable  basis and not as per rule 8D.(A.Y. 2004-05)<br \/>\n  <strong>Forever Diamonds (P.) Ltd. v. DCIT  (2013) 57 SOT 113 (URO)(Mum.)(Trib<\/strong>.<strong>) <\/strong><\/p>\n<p><strong>S.14A:  Disallowance of expenditure-Exempt income-<\/strong><strong>Rule 8D does not apply to short-term investments,  gains from which is taxable. [Income-tax Rules,1962-Rule 8D]<\/strong> <br \/>\n  Some of the  investments made by the assessee are short term. Since assessee is paying  capital gains tax on short term investments, Rule 8D will not apply on them and  the Assessing Officer&nbsp; is directed to re  compute disallowance u\/s 14A read with Rule 8D after excluding short term  investments ( A. Y. 2008-09, ITA No. 1774\/Mds\/2012, dt.19 July,2013) <\/p>\n<h2><strong>Sundaram  Asset Management Co. Ltd v. DCIT (Chennai)(Trib.) <\/strong><a href=\"http:\/\/www.itatonline.org\/\">www.itatonline.org<\/a><\/h2>\n<p><strong>S.14A:  Disallowance of expenditure &#8211; Exempt income-Interest on loans for specified  purposes to be excluded <\/strong><strong>[Income-tax  Rules, 1962-Rule 8D]<\/strong> <br \/>\n  The assessee contended that in computing the  disallowance to be made under section 14A and rule 8D(2)(ii) ,the interest on  bank loans taken for specific taxable purposes had to be excluded .The  Assessing Officer rejected the claim. On appeal Commissioner (Appeals) accepted  the claim of assessee. On appeal by revenue the Tribunal held that rule  8D(2)(ii) refers to expenditure by way of interest which is not attributable to  any particular income or receipt. If loans have been sanctioned for specified  projects \/expansion and have been utilized towards the same ,then obvious they  could not have been utilized for making any investments having tax-free incomes  and have to excluded from the calculation to determine the disallowance under  Rule 8D(2)(ii).(Champion Commercial Co. Ltd.) (Kol)(Trib.)(ITA no 644 \/Kol\/2012  dt 21-09-2012) is  followed.(A.Y.2009-10)(ITA No.1603\/Mds\/2012 dt.16-07-2012)<br \/>\n  <strong>ACIT v.  Best &amp; Cromton Engineering Ltd. (Chennai)(Trib.) www.itatonline.org.&nbsp;&nbsp; <br \/>\n  <\/strong><strong> <\/strong><br \/>\n  <strong>S.14A: Disallowance of expenditure-Exempt income-Onus on assessee to prove that he had not  incurred any expenses relating to income not forming part of total income.&nbsp; [Income-tax Rules, 1962, Rule 8D] <\/strong><br \/>\n  Assessing Officer had disallowed a sum of Rs.3,05,423\/- by applying  provisions of section 14A read with rule 8D. On Appeal the Commissioner (Appeals) reduced the disallowance to Rs 1  lakh&nbsp; on the ground that there is no  precise finding given by the Assessing Officer .On appeal Tribunal held that onus lay on assessee to prove that he had not incurred any expenses  relating to income not forming part of total income. Since assessee did not  file any details of expenditure incurred by him, the order of Commissioner  (Appeals) was set aside and that of Assessing Officer restored. (A.Y.2009-10) <br \/>\n  <strong>ACIT v. Joe Marcelinho  Mathias(2013) 143 ITD 132 (Panji)(Trib.)<\/strong><\/p>\n<p><strong>S.22:  Income from house property-Business income-Un sold flat-Rental income from  unsold flat is assessable as income from house property. [S.28(i)]<\/strong><br \/>\n  The Court held that  rental income from unsold flats in the hands of builder\/developer, which are  shown as &lsquo;business assets&rsquo; should be assessed under the head Income from house  property and not as business income. (ITA Nos. 238, 238 &amp; 240 of 2013  dt.17-05-2013)<br \/>\n  <strong>New Delhi  Hotels Ltd. v. ACIT (2013) The Chamber&rsquo;s Journal &ndash;July-P.114 (<\/strong><strong>Delhi<\/strong><strong>)(HC) <\/strong><\/p>\n<p><strong>S.28(i):  Business income&ndash;Grant in aid for research activities is capital receipt. [S.41,  263]<\/strong><br \/>\n  The grant in aid for a  specific purpose of conducting research in the field of telecommunications, so  that the benefit thereof would benefit the Nation and for carrying on day to  day business of the assessee was a capital receipt. Order under section 263 was  held to be bad in law. The question referred to High Court was on merit. High  Court confirmed the order of Tribunal. (A.Y. 1989-90)<br \/>\n  <strong>CIT v.  India Telephone Industries Ltd. (2013) 215 Taxman 82 (Karn.)(HC)<\/strong><\/p>\n<p><strong>S.28(i):  Business loss&ndash;In the name of firm-Foreign currency transactions-Not allowable  in the assessment of partner. [Partnership Act, 1932 S.13]<\/strong><br \/>\n  The Appellant entered  into foreign currency transactions on behalf of firm from its account. Both the  assessee&ndash;partner and firm claimed such loss as deduction in their respective  income. The Tribunal disallowed the claim on the both. On separate order High  Court admitted appeal of the partnership firm. In appeal it was contended that  the transactions were entered in to without the knowledge of other partners and  therefore should be treated as his personal loss. The Court held that section  13 of the Partnership Act provides, inter alia, that subject to the contract  between, partnership firm shall indemnify the partner in respect of the payment  made and liabilities incurred by firm in the ordinary and proper conduct of  business and in doing such act, in an emergency for the purpose of protecting  the firm from loss&nbsp; as, would be done by  a person of ordinary prudence,&nbsp; in his  own case ,under similar circumstances .In the result these transactions  resulted in loss and could not be allowed as deduction in individual capacity  of assessee-partner, when the same claim is made by firm under  examination.(A.Y. 2007-08)<br \/>\n  <strong>Pravinbhai  Mohanbhai Kheni v. ACIT (2013) 215 Taxman 83(Mag.) (Guj.)(HC)<\/strong><\/p>\n<p><strong>S.28(i): Business income&ndash;Share  dealings&ndash;Capital gains-Purchase and sale on regular basis assessable as  business income. [S.45 ]<\/strong><br \/>\n  Board&#8217;s resolution authorized the assessee-company  to set apart a corpus of Rs.100 crores for trading in shares which represented  intention to carry out activities of purchase and sale of shares on business  lines. Further, the purchase and sale transactions in shares were entered into  on regular and systematic basis with profit motive which only constituted  business. The long-term capital gain was a small amount as against short-term  capital gain which was a strong indicator as to shares being not intended to be  held by way of investments. Held, the income had to be taxed as business  income. (A.Y. 2007-08)<br \/>\n  <strong>Mafatlal Fabrics (P.) Ltd. v. Add.CIT  (2013) 57 SOT 425 (Mum.)(Trib.)<\/strong><\/p>\n<p><strong>S.28(va): Business income&ndash;Non-compete  fees&ndash;Taxability-DTAA- India-France [Art.7]<\/strong><br \/>\n  Compensation received from foreign company in lieu  of an undertaking by the assessee for not competing with Foreign company in India and for not using trade mark, designs, logo of  said foreign collaborator, post settlement would be taxable in India. (A.Y. 2004-05)<br \/>\n  <strong>Control &amp; Switchgear Contractors  Ltd. v. DCIT (2013) 57 SOT 127(URO) (<\/strong><strong>Delhi<\/strong><strong>)(Trib.) <\/strong><\/p>\n<p><strong>S.31: Repairs and insurance of  machinery, plant and furniture&ndash;Replacement of crucial components of a  machine&nbsp; could not be considered as  current repairs. [S. 37(1)]<\/strong><br \/>\n  Replacement of crucial components of a machine  which resulted in a new or fresh advantage or obtaining of enduring benefit  could not be considered as current repairs expenditure and would not be  allowable as deduction u\/s 31(1) or u\/s 37(1). (A.Y.1999-2000)<br \/>\n  <strong>DCIT v. Printers (<\/strong><strong>Mysore<\/strong><strong>) (P.)  Ltd. (2013) 57 SOT 117(URO) (Bang.)(Trib.) <\/strong><\/p>\n<p><strong>S.32:  Depreciation&ndash;Set off &ndash;Unabsorbed depreciation-Carry forward and set off  permitted till final set off- Reassessment was held to be not valid. [S.147,  148]<\/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-june-2013\/\"> <span class=\"screen-reader-text\">Digest of important case law &#8211; January To June 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-7108","page","type-page","status-publish","hentry"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/7108","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=7108"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/pages\/7108\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/media?parent=7108"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}