Messages

Sir,

Gifts from husband to wife is exempt u/s 56(2). It includes both cash and kind such as immovable property. Now , When a husband gifts the property to his wife, income tax is not levied in the hands of the receiver for this transaction.
But Section 64, Taxes the income that is derived out of such property as it is without adequate purchase consideration.

Now the question is
1)When a person transfer the property, he also transfers the income from such property, in such cases Can  64 still have any bearing with recent amendment?.
2) Can clubbing provision over rule the benefit of other section?.

sathya

Sir
I am of the opinion that the income shall be exempt based on the following
1) Income tax exemption obtained
2) Based on the principal of mutuality
Regards
sathya

sir
Do You in a want to say that depreciation or unabsorbed depreciation cannot be set off against any income including salaries?
sathya

Yes, The depreciation under section 32 (2) is clearly defined.
The question or discussion point is that, is such depreciation can be set off against salary income?
Section 32 talks about how the depreciation to be treated and not on set off and it refers to Section 72 (2).
So Explicit clarity is not provided as to whether depreciation or unabsorbed dep could be set off against salary income.
In my opinion it is possible, I seek the other members opinion on this?
Any contrary view enhances the scope of discusison :)
sathya
vyakul@gmail.com

Can unabsorbed depreciation be set off against salary income?.
Section 71(2A) restricts loss under the head business or profession to be set off against salary income.
The question is, Does this loss includes unabsorbed depreciation?
I also like to bring few section that provides a preferential treatment for unabsorbed depreciation
Section 79 - Unabsorbed depreciation to be carried forward whereas the business loss is prohibited to be carried forward
Section 80 - In case of belated return, the limitation to file on due date relates only to business loss and not for unabsorb depreciation.
can the similar benefit also be provided for setting off the unabsorbed depreciation against salary income?

I also append the extract of section 72 and  71(2A) .
The wording in section 72
(1) Where for any assessment year, the net result of the computation under the head "Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71,
is similar to
The wording in section 71(2A)
(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head "Profits and gains of business or profession" is a loss and the assessee has income assessable under the head "Salaries", the assessee shall not be entitled to have such loss set off against such income

Both provide for " Under the head Profits and gains of business or profession".
Hence to conclude
If the benefit is given u/s 79 and also for 80, Why cannot the same benefit be extended for this section 71 (2A)
Pls respond with your views. :)
Regards
Sathya
vyakul@gmail.com

Sir

We are providing the case law in full :) Hope you find this useful
sathya
vyakul@gmail.com
---
HIGH COURT OF PUNJAB AND HARYANA

Pawan Goel

v.

KMG Milk Food Ltd.

PERMOD KOHLI, J.

C.M.A. NO. 114 OF 2007

AND C.A. NO. 21 OF 2007

IN C.P. NO. 114 OF 2006

FEBRUARY 22, 2008

Section 10F of the Companies Act, 1956, read with sections 14 and 5, of the Limitation Act, 1963 - Company Law Board - Appeal against orders of - Appellant had sought for interim directions for restraining directors of respondent-company from acting as directors during pendency of company petition under sections 397 and 398 before CLB, but same was disallowed by CLB vide its order dated 24-11-2006 - Against said order of CLB, appellant filed an appeal under section 10F along with an application for condonation of delay before Delhi High Court on 17-2-2007 - Respondent raised an objection regarding jurisdiction of Delhi High Court and, therefore, appellant withdrew appeal as well as said application - Appellant filed appeal and application for condonation of delay before instant Court on 16-5-2007 and sought for exclusion of period spent in pursuing proceeding before Delhi High Court - Whether period spent in a wrong forum does constitute a sufficient cause and can form valid basis for condoning delay under section 5 of 1963 Act, subject to satisfaction of Court - Held, yes - Whether even if period spent before Delhi High Court constituted sufficient cause for extension of period under section 5, read with section 14 of 1963 Act, those sections could not be applied de hors proviso to section 10F to extend limitation beyond sixty days (total 120 days), for filing an appeal as proviso to section 10F does not permit such extension - Held, yes - Whether, therefore, instant appeal having been filed beyond 120 days period was barred by time - Held, yes - Whether even otherwise, since no question of law had arisen from interim order of CLB, appeal filed under section 10F was to be dismissed - Held, yes

Words and phrases : Expression 'not exceeding' as occurring in section 10F of the Companies Act, 1956

FACTS

The appellant had filed an application seeking interim direction for restraining directors of respondent-company from acting as directors during pendency of company petition under sections 397 and 398 before CLB, but same was disallowed by the CLB by its interim order dated 24-11-2006. Against said order of CLB, the appellant filed an appeal under section 10F along with an application for condonation of delay before the Delhi High Court on 17-2-2007. The respondent raised an objection regarding jurisdiction of the said Court and, therefore, the appellant withdrew the appeal as also the accompanying application on 16-4-2007. In the instant appeal filed on 16-5-2007 against the impugned order of the CLB, the appellant also filed an application seeking exclusion of the 58 days period spent in pursuing the proceedings before the Delhi High Court. The respondent opposed the application on two counts viz., (i) section 14 of the 1963 Act had no application in appeal, and (ii) the Court had no jurisdiction to condone the delay beyond sixty days over and above the period of sixty days prescribed for filing the appeal under section 10F.

HELD

The period of limitation prescribed under section 10F for preferring an appeal is 60 days. The period, however, can be extended for a further period of 60 days in view of the proviso to section 10F. The language of section prohibits the extension of period beyond 60 days as is evident from the expression "further period not exceeding sixty days". [Para 9]

It was an admitted case of the parties that when the appeal was initially filed before the Delhi High Court, it was filed beyond an initial period of sixty days which expired on 23-1-2007 and the appeal was, thus, delayed by 25 days. Even when the appeal was withdrawn from the Delhi High Court on 16-4-2007, another period of 30 days had been consumed in filing the appeal before the instant High Court. There was nothing on record or in the instant application to explain the period between the date of withdrawal and filing of the appeal before the instant High Court. [Para 10]

The first question that needed consideration was whether the period spent in pursuing the appeal before the Delhi High Court could be excluded in terms of section 14 of the 1963 Act. [Para 11]

Even if it is presumed that section 14 of the 1963 Act is not attracted in the appeal for the purposes of exclusion of period in pursuing the remedy in a wrong forum/Court, the plea can validly constitute a sufficient cause for condoning the delay under section 5 of the 1963 Act, if the Court accepts the same. Thus, the period spent in a wrong forum does constitute a sufficient cause and can form valid basis for condoning the delay under section 5 of the 1963 Act, subject to satisfaction of the Court. Then a related question arose in the instant appeal whether section 5, read with section 14, of the 1963 Act can be invoked to condone the delay in view of the specific provision of section 10F read with proviso which itself provides a period of limitation different than the period provided under Schedule to the 1963 Act. The question of sufficient cause has been taken care of under the proviso to section 10F. Therefore, the period spent by the appellant in pursuing the appeal before the Delhi High Court between 17-2-2007 to 16-4-2007, could be considered for exclusion from the total period of limitation prescribed under law, if it was found, that it constituted sufficient cause in the facts and circumstances of the instant case. [Para 20]

As a matter of fact, the appellant seemed to have pursued his remedy before the Delhi High Court in a callous and negligent manner. It was not that the question of jurisdiction was raised in routine, the objection of jurisdiction of the Delhi High Court was based upon a judgment of the Apex Court in a similar matter and the judgment in the case of Stridewell Leathers (P.) Ltd. [1994] 79 Comp. Cas. 139, was also noticed by the Delhi High Court in its interlocutory order, even then the appellant chose to continue with the appeal. That conduct of the appellant was sufficient to deny him the benefit of section 14 of the 1963 Act, as he had not pursued the remedy with due diligence but in a callous and negligent manner, even if it was presumed that his initial approach was due to ignorance of law. Even otherwise, the appellant could not claim the benefit of section 14 of the 1963 Act, he having filed the appeal before the Delhi High Court beyond limitation. There was no affidavit of counsel who filed an appeal before the Delhi High Court to show the bona fide mistake regarding the period of limitation as stated in the application under section 5 of the 1963 Act, filed before the Delhi High Court. [Para 22]

The next question was as to whether the appellant was entitled to seek condonation of delay under section 5, read with section 14, of the 1963 Act or the period of limitation can be extended beyond sixty days over and above initial period of sixty days as prescribed under section 10F. [Para 23]

The condonation of delay under section 5 of the 1963 Act is permissible without any limit, provided the applicant is able to establish a sufficient cause. It is a settled law that once the Court is convinced or satisfied regarding the existence of a sufficient cause, the length of a period becomes irrelevant. However, this proposition is attracted only if section 5 is applicable. [Para 24]

The Companies Act is a special law. Under the normal circumstances, the provisions of the Limitation Act will have application to all appeals and applications under the Companies Act, unless a different period of limitation is prescribed. The Company Law itself has prescribed a period of limitation for filing the appeal and also for condonation of delay. Hence, condonation of delay for filing the appeal beyond the prescribed period of limitation is by virtue of the proviso to section 10F. This proviso can be considered to be akin to section 5 of the 1963 Act. However, the proviso imposes limitation for extension of time in filing the appeal beyond the prescribed period of limitation, the expression used in section 10F being 'further period not exceeding sixty days'. [Para 25]

Exclusion of the application of section 5 of the 1963 Act can be implicit or explicit. It depends upon the language used in a particular statute. The intention can only be gathered from the expression contained in the statute. The proviso to section 10F has created an absolute bar for extension of period of limitation beyond sixty days apart from the period of limitation of sixty days prescribed under section 10F. The expression 'not exceeding' does not permit any further extension and it seems that the true import, purport and construction of the proviso is to restrict the total period of limitation to 120 days, i.e., sixty days principal and sixty days by extension, subject to existence of sufficient cause in a given case. Any other interpretation would amount to committing violence to the statute itself which is impermissible under law. [Para 26]

Where a particular statute does not apply to section 5 of the 1963 Act expressly or even impliedly in a special or local law itself, it shall be presumed that the exclusion is express. Section 29(2) of the 1963 Act not only excludes the application of section 5 of the 1963 Act but also other sections from sections 4 to 24 of the 1963 Act. Thus, section 14 of the 1963 Act also stands excluded from its application for purposes of either condoning the delay or exclusion of the period on the ground envisaged therein notwithstanding existence of sufficient cause. Thus, even if the period spent before the Delhi High Court constituted sufficient cause for extension of period under section 5, read with section 14 of the 1963 Act, those sections could not be applied de hors proviso to section 10F to extend the limitation beyond sixty days in addition to the original period of sixty days (total 120 days), for filing an appeal as proviso to section 10F does not permit such extension. Applying this principle, the maximum period available to the appellant for preferring the appeal was 120 days upto 24-3-2007, subject to the condition that the appellant had shown sufficient cause for condonation up to sixty days beyond the prescribed period of sixty days. The initial period of 60 days in filing the appeal under section 10F expired on 23-1-2007 and the extended period under the proviso to section 10F expired on 24-3-2007. Hence, even if the contention of the appellant was accepted of that he calculated the initial period of filing the appeal as 90 days and the part of the period spent in the Delhi High Court was also considered to be the sufficient cause, it could not be extended beyond 120 days, i.e., 24-3-2007. The instant appeal having been filed on 16-5-2007 was barred by time. [Para 30]

Even though, the application for condonation of delay/exclusion of period under section 5, read with section 14, of the 1963 Act had been dismissed, the impugned order was considered. The CLB had simply refused to grant ad interim order restraining the directors of the respondent-company from acting as directors during the pendency of the company petition before the CLB. Existence of question of law is sine qua non for filing an appeal under section 10F. No such question of law had arisen in refusing the ad interim injunction. The appeal was otherwise also behalf of any merit. [Para 31]

Resultantly, the application under section 14 of the 1963 Act and, consequently, the appeal were to be dismissed. [Para 32]

Cases referred to

Sudama Rai v. Bisheshar Prasad AIR 1935 All. 92 (para 12), Munshi v. Punna Ram AIR 1974 Punj. & Har. 229 (para 13), Vijay Bros. v. Union of India [1990] 76 STC 375 (Punj. & Har.) (para 14), Khilloni v. Municipal Committee [1995] 1 Punj. LR 643 (para 15), Somnath Banerjee v. Vivek Salvi AIR 1988 Cal. 366 (para 16), M.P. State Co-operative Marketing Federation Ltd. v. Union of India [2001] 3 RCR (Civil) 330 (para 17), Badlu v. Shiv Charan [1980] 4 SCC 401 (para 18), Stridewell Leathers (P.) Ltd. v. Bhankerpur Simbhaoli Beverages (P.) Ltd. [1994] 79 Comp. Cas. 139 (SC) (para 21), Classic Ispat (P.) Ltd. v. Janak Steel Tubes Ltd. [1998] 93 Comp. Cas. 165 (Punj. & Har.) (para 22), Union of India v. Popular Construction Co. [2002] 37 SCL 622 (para 28) and Gopal Sardar v. Karuna Sardar [2004] 4 SCC 252 (para 29).

Amit Rawal for the Appellant. Arun Kathpalia and Rohit Khanna for the Respondent.

All trusts are required to carry out the IT obligations as usual.

They may seek exemption of tax on income of these trusts.

You may pls go through latest amendment that is effected from FY 2008-2009. And a recent circular issued.
The circular is appended for immediate reference.

In my opinion, The concept of principal mutuality could be used and one could claim exemption :)

Regards
sathya
vyakul@gmail.com

---
Exemption under section 11 in case of assessee claiming both to be charitable institutions as well as mutual organisations
Circular No. 11/2008, dated 19-12-2008



Definition of Charitable purpose under section 2(15) of the Income-tax Act, 1961

Section 2(15) of the Income Tax Act, 1961 (Act) defines charitable purpose to include the following:-

(i) Relief of the poor

(ii) Education

(iii) Medical relief, and

(iv) the advancement of any other object of general public utility.

An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of charitable purpose. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of

(a) any activity in the nature of trade, commerce or business; or

(b) any activity of rendering any service in relation to any trade, commerce or business;

for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity.

2. The following implications arise from this amendment

2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities.

2.2. Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that

(i) the business should be incidental to the attainment of the objectives of the entity,and

(ii) separate books of account should be maintained in respect of such business.

Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.

3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants.

Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15).

3.2. In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.

I like to address this two parts
1Making more profits and related Transactions, how to do it?
2) When Books of accounts maintained, what is IT view point?

It is expected that a person carry business to make profits.  in case of business as stipulated under section 44AF, the assessee is not required to maintain books of accounts. And stipulates that the assessee compute income @ 5% on the gross turnover.
The section doesnot bar
i) making more profits
ii) any transaction that is effected because of more profits.
Hence, An assessee if he could prove that he made such investments only from the turnover would not be required to pay tax for such additional income.
One may ask, how to go about doing it.
Suppose one is maintaining bank account and all sales / purchases are carried through that bank account and turnover is acheived through that. He couldnot prepare profit and loss or balance sheet. When he uses this bank account for all his investments, It means that his investments are genuine.
It is just that he is unable to maintain books of accounts.
I am sure this argument would hold good.
there could be a similar mechanism for cash transactions as well.

2) When books of account prepared and when the Profit is more than 5%

The assessee himself computed the income and it may be right on the part of ITO asking for more tax. :|
The assessee shall not file these statements to the IT :).

regards
sathya
vyakul@gmail.com

[the length of a period becomes irrelevant]

I have been trying to understand the possibility of condonation of delay during the appeal proceedings.
I am sharing the collection of information for this wider audience. :)

The assessee didnot file the petition for appeal within time limit. it got delayed by more than 2 years. Question arose, whether such petition could be admitted after condoning this inordinate delay.

The input is as follows.
IT provsion
1) Time limit for filing appeals . (Provided clearly in the IT Act and limitation is there)
2) Time limit for condoning the delay. (Not provided  and hence not limited)
3) For condonation. Show cause for such delay is important
Two possibilities
1) When a legislation provides for time limit for filing appeals and for condonation. In that case, that particular legislation will prevail and section 5 of the Limitation Act 1963, may not have a jurisdiction.
2) When a legislation dont provide for time limit for condonation of delay. In that case, Sec 5 of the limiation act 1963 is applicable.
In our case, We need to opt for the second one, as the IT Act dont have any limiation for condonation of delay. Means Section 5 of the limiation act is applicable for condoning the delays for the IT Act.

Now
When it come to the question? Delay of about 2 years. Can this be condoned. ?
The following extract from the decided case law
HIGH COURT OF PUNJAB AND HARYANA,Pawan Goel, v.KMG Milk Food Ltd.PERMOD KOHLI, J
is helpful

"The condonation of delay under section 5 of the 1963 Act is permissible without any limit, provided the applicant is able to establish a sufficient cause. It is a settled law that once the Court is convinced or satisfied regarding the existence of a sufficient cause, the length of a period becomes irrelevant. However, this proposition is attracted only if section 5 is applicable. [Para 24]"

From the above it is clear that, The delay of 2 years could be condoned if there is a sufficient cause.

Hope one finds it useful
Regards
Sathya
vyakul@gmail.com

Many thanks for all the responses so far.
I will divide the question components  as two part
1) Good will.
The company values all the tangible and provide a value for it. Over and about the tangibles, The company also tries to value all their intangibles such as their existence, Brand loyalty, trademarks,franchisee, the employees technical know how etc. All these are internally self generated and hence not accounted. At the time of sale, They also want to provide a value.  In such cases, they create a business transfer agreement and  pay over and above the tangible value of asset . For the intangible they provide a  common term called "Goodwill" and create that as accounting head. This goodwill includes all  the terms such as franchisee, technical know how, trademarks.
2) No compete fee.
Because the purchaser wants to continue the business and avoid the competition from the vendor,He pays a specific sum from prohibiting him to carry on the business.  No body wants to buy all assets from the vendor and see him doing the same business. Technically this is a commercial right which he buys that prevents the vendor to carry on the business with the same name and trade. This is a commercial right that is bought.
Our question is
Suppose  The  purchaser  purchases a brand as an individual item and values them, the depreciation is provided.
Then why cannot the depreciation be provided if he buys this brand and along with other things like loyalty, employee technical know how, Their franchisees trademarks etc.
sathya
vyakul@gmail.com

The asset forms part of block of asset and grouped under "intangble" and eligible to claim 25%. It is just that the term Goodwill / no compete fee dont find place in that definition.
sathya

More number of cases were taken up for scrutiny and re assessments were also being made for the companies that claimed depreciation on intangible. I.e. Goodwill. No compete fees.

The vendor decides to sells his business / unit for a consideration that includes the commercial right to carry on the business as an ongoing basis. The agreement also provides scope for the vendor after selling shall not enter into this business for a period of time usually called as "No compete fees". The purchaser pays consideration for these intangible and usually names it as "Goodwill" and accordingly use that as head of accounting.

As per IT, The term intangible asset is a one that is ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998,

Apparently the term "goodwill or no compete fee "dont appear in the said list but means only that.

The AO is of the opinion that goodwill / no compete fee is not an intangible asset  and depreciation could not be provided.

Is this view is acceptable? Is there any decided case on this issue? Can you pls help us out

sathya
vyakul@gmail.com

Sir
You may pls note that there is an amendment this year to provide no disallowance if the tax is paid before filing the return of income. This is a retrospective amendment effective from AY 2005-2006.
We also posted a similar one on last week of sep in the same website with the similar head.
thanks
sathya
vyakul@gmail.com

The assessee has his property that got competed by Feb 2006. There remains interest on borrowed capital of Rs. 2.6 lacs. The property was not self occupied nor was it let out. It could not be let out in that short time for the FY 2005-2006.
Section 24 stipulates the condition that the property be completed / constructed.  In such a case, Can he claim the entire interest accrued on such property in full (without this limit of 150000).

Is there any decided case law on this subject?

Sathya
vyakul@gmail.com

Dear Mr.Probal and Siviah
Thanks for the citation and the doubts got clarified. :)
sathya