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Zia Mody paid advance tax of Rs. 3 crores in the September 2012 quarter implying an income of Rs. 27 crores for FY 2013-14. Fali Nariman paid Rs. 1.80 crores, implying an income of Rs. 16 crores. Cyril Shroff paid Rs. 1 crore as advance tax implying an income of Rs. 9 crores.

Harish Salve's advance-tax payments are not available. If anyone has the info, please share it as a means of inspiration (and envy!).

Carlton Hotel (P) Ltd. v. Asstt. CIT (2009) 122 TTJ 515 does take the view that s. 50C will prevail over s. 43(5):

Section 45(3) is a general provision and section 50C is a special provision which would override section 45(3) if the sale deed is sought to be registered by paying stamp duty. But where such registration does not takes place by paying stamp duty that case would only be covered under section 45(3) and therefore, value recorded by the firm in its books would only be the full value of consideration for the purposes of computing capital gains

However, the finding that s. 45(3) is a "general" provision is inconsistent with their own finding in the preceding paragraphs that s. 45(3) is a "fiction":

Section 45(3) is a deeming fiction and it treats a particular type of transaction as transfer and the capital gains is directed to be charged by treating book entry in the books of the firm as sale consideration, being the value of the asset transferred from individual partner to the firm without getting it registered under Registration Act.....

20. It clearly creates a fiction by deeming the value of a capital asset recorded in the books of the firm being a transfer by the individual partner/member to the firm/AOP by way of capital contribution or otherwise as full value of consideration received or accruing as a result of the transfer."

So, Carlton may not be the last word on the subject.

Your point on black money is well taken. We cannot underestimate the ability of our brothers to generate black money from every transaction. This consideration may well push the Court to come to the conclusion that s. 50C applies to *every* transaction of transfer of land & building, even if it is only by way of introduction into a firm.

S. 45[(3) reads as follows:

The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

S. 50C reads as follows:

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed 11[or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed 11[or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

The notable aspect is that s. 50C does not contain any "non obstante" clause. Both provisions provide for what is to be the "deemed consideration".

S. 50C was inserted with a specific object i.e. to prevent the sale of property at an undervaluation and receiving the difference in cash. In an introduction into partnership, there is no question of the partner getting anything in cash (unless the partnership itself is bogus).

So, having to the object of s. 50C, it should not apply to another deeming provision in s. 45(3).

(i) A foreign branch of an Indian bank will continue to be a domestic company. The branch is not a separate entity (see the 5 member Special Bench judgement in Sumitomo Bank);

(ii) S. 194A(3) (iii) confers an exemption to income credited or paid to any banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies. The foreign branch of an Indian bank will qualify for this exemption.

These are three separate deductions/ exemptions. Claiming one does not disbar the other. All three can be claimed simultaneously.

Theoretically, you can. But that will not stop the AO. He may issue a s. 133(6) notice. Alternatively, he may issue a s. 147 notice based on the audit objection.

In practice, it is better to co-operate with the AO and help him draft a reply to the audit objection. Generally speaking, the AO is anxious to show that he is right and that the audit is wrong.  So, it is better to strengthen his hand by giving him the material and case laws to support your stand.

If the AO still issues a s. 148 notice, then apply under RTI for a copy of the AO's response to the audit objection. If, in that, the AO has supported the assessee's stand and opposed the audit's stand, you can argue that he had no "reason to believe" that income has escaped assessment. 

(i) 43B is quite clear in the language that the deduction shall be allowed in the year of payment irrespective of the method of accounting;

(ii) For the point that if the employer has a right to recover the amount from the employees, then there is no "expenditure", see Indian Molasses Co. (P) Ltd. v. Commissioner of    Income-tax, West Bengal, 37 I.T.R. 66 where it was held that "Expenditure' is thus what is 'paid out or away' and is some- thing which is gone irretrievably".

(iii) On the point of commercial expediency to support payments in respect of employees, one can rely on Commissioner Of Income-Tax, ... vs M/S. Walchand & Co. (Pvt.) Ltd 65 ITR 381 (SC), J.K. Woollen Manufacturers vs Commissioner Of Income-Tax, U.P 

The principles of law are nicely summed up here: http://www.incometaxindiapr.gov.in/incometaxindiacr/contents/DTL2011/casesec37(1).htm

Here is my answer:

(i) I assume you are following the mercantile system of accounting;

(ii) As regards the employer's contribution, S. 43B allows a deduction for "any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees" on payment basis. Though the amounts accrued in the earlier years, they are allowable this year on payment basis;

(iii) As regards the employee's contribution, the assessee is required to collect it from the employees and pay it over. If the amount has been paid from the assessee's pocket, then does it have a right to recover it from the employees? If yes, then the amount paid may not be an "expenditure" as it has not gone "out and away" from the assessee's pocket. Assuming, the assessee has decided to bear the entire contribution itself, then it is not really "employees contribution" and so the bar in s. 36(1)(v) will not apply. The expenditure is allowable on grounds of "commercial expediency".

Which clarification is this? Is it a hypothetical situation or a real life clarification?

Anyway, the jurisdictional condition that has to be satisfied is that there must be a "failure on the part of the assessee to make a full and true disclosure of material facts". If that is not the case, reopening is not permissible. This has been emphasized even in cases where there was a retrospective amendment.

A somewhat narrow/ strict view has been taken here:

IN THE INCOME TAX APPELLATE TRIBUNAL

'D' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL
MEMBER

ITA No.2147(Mds)/2011

Assessment Year : 1995-96

Smt.Seshu Jaggaiah,
C/o CNGSN & Associates,
20-Raja St., T.Nagar,
Chennai-600 017.
PAN AAKPK5993J.
Vs.

The Income-tax Officer,
Business Ward XIV(2),
Chennai.
(Appellant) (Respondent)

Appellant by : Shri B.Ramakrishnan, FCA
Respondent by : Shri KEB Rengarajan, Jr.Standing Counsel

Date of Hearing : 20th March, 2012
Date of Pronouncement : 20th March, 2012

O R D E R
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:


Dr. O.K. Narayanan, Vice-President – This appeal filed by the assessee relates to the assessment year 1995-96. The appeal is directed against the order of the Commissioner of Income-tax(Appeals)-XII at Chennai, dated 21-10-2011. The appeal arises out of the order passed under section 143(3), read with section 254 of the Income-tax Act, 1961.

2. The assessee in the present case, had sold a property in Chennai on 27-2-1995 for a consideration of Rs. 95 lakhs. In filing her return of income, the assessee claimed exemption under section 54 and returned a total income of Rs. 4,56,710/-. The claim of deduction under section 54 was rejected by the assessing authority and the income was determined at Rs. 81,60,000/-. The matter was taken up before the Income-tax Appellate Tribunal. The Tribunal remitted back the file to the Assessing Officer to consider the issue of disallowance under section 54 after giving a finding on the genuineness of the claim of the assessee that she had given advances towards purchase of a property to construct a residential house. The Tribunal also directed to re-examine the question of setting off of short-term capital loss arising on sale of shares.

3. In the consequential assessment done by the Assessing Officer, the deduction under section 54 was again negatived and also the short-term capital loss was held to be speculative in nature.

4. In first appeal, the Commissioner of Income-tax(Appeals) allowed the issue of short-term capital loss, but confirmed the disallowance of deduction under section 54. It is on that issue of section 54 that the assessee has come in second appeal before us, which is for the second time.

5. The only ground raised by the assessee in the present appeal is that the Commissioner of Income-tax(Appeals) has erred in confirming the denial of deduction under section 54 of the Income-tax Act, 1961.

6. We heard Shri B.Ramakrishnan, the learned chartered accountant appearing for the assessee, and Shri KEB Rengarajan, the learned standing counsel appearing for the Revenue.

7. In the first round of second appeal, the Income-tax Appellate Tribunal has directed to adopt the fair market value of the property at Rs. 2 lakhs per ground. On that basis the Assessing Officer has worked out capital gains at Rs. 72,49,400/-. The claim of the assessee is that she has purchased a vacant plot at Akshaya Colony for a consideration of Rs. 8,92,136/-, admeasuring 2400 sft.. The plot was purchased for constructing a residential property therein. The further contention of the assessee towards deduction under section 54 is that the assessee has given advances to three parties for acquiring the new property and that the same was not complete because the property was neither constructed by those persons nor the advances were returned in time. Ultimately, the Assessing Officer found that the construction of the property was completed only during 2001-02 and as such the assessee had not purchased any residential house either one year prior or two years after the date of transfer and also no residential property was constructed within three years from the date of transfer. The deduction was denied.

8. The case of the assessee is that the assessee was prevented from depositing the sale proceeds in the capital gains account, as she had advanced the money with an intention to purchase a property. The advances were made to Shri K.Rajaneenath, Shri K.Madhuvan Prasad and M/s.Natco Organics Ltd. The total of the advances comes to Rs. 50 lakhs. It is her case that the said amount was advanced for purchase of a residential house. Those parties did not hand over the house, nor did they return the advance in time. So the assessee could not either construct a house herself or acquire a property herself or deposit the proceeds in the designated account. Therefore, it is the case of the assessee that the assessee could not perform what was not possible of performance. She relied on the concept of lex non cogit ad impossibilia.

9. The assessee also relied on the decision of the Jodhpur Bench of the Income-tax Appellate Tribunal in the case of Jagan Nath Singh Lodha v. ITO, [2005] 148 Taxman 1 (Jodh).

10. We considered the issue in detail. The case of the assessee is that the assessee could not comply with the provisions of section 54 within the time prescribed for reasons beyond her control, inasmuch as the money, which was blocked by her by paying advances to procure the property, was not realized within the time and, therefore, she could not make any alternative investment within the prescribed time. It is the case of the assessee that the acquisition of the property has been completed in 2001-02 and, therefore, deduction under section 54 may be granted, condoning the period of delay caused in complying with the time limit prescribed under section 54.

11. There are instances of decisions rendered by various Benches of the Tribunal in extending the benefit of deduction available under section 54 even when the conditions were complied with by the assessee beyond the prescribed period. But, in such cases the assessees could not have satisfied the conditions by performance, as the assessees were prevented by sufficient reasons. The assessees were prevented from performing the conditions by virtue of supervening impossibilities, either by way of judicial restraint or by any other cogent reasons beyond the control of the assessee.

12. In the present case, the constraint stated by the assessee is that the advances given by her to acquire the property were not returned to her in time, nor property was acquired. As pointed out by the Assessing Officer, the payment of advances for the purpose of acquiring the property itself has not been proved by the assessee. In addition to that, it is to be seen that the advances were given on the basis of an agreement between the parties and the assessee. Those advances are stated to have not been received back within the time. That cannot be a supervening impossibility by operation of any uncontrollable events. Payment of advance and return of the same are all matters of normal commercial agreements. Such things as such cannot act as supervening impossibilities.

13. In the present case, similar arguments of the assessee are nothing but naive, as two out of the three persons to whom advances were made by the assessee, are her own sons. When the assessee got the money on sale of the property, she handed over the money to her sons and they enjoyed the money for quite a long time and thereafter returned the money to the assessee and again thereafter she constructed the residential property beyond three years of the prescribed time limit and now seeking deduction under section 54 on the ground of supervening impossibilities in performing the conditions under section 54. These events lead us to a reasonable belief that the contentions of the assessee are not sustainable in law.

14. In result, this appeal filed by the assessee is dismissed.

Order pronounced in the open court at the time of hearing
on Tuesday, the 20th of March, 2012 at Chennai.
Sd/- Sd/-
(Challa Nagendra Prasad) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated the 20th March, 2012.
V.A.P.
Copy to: (1) Appellant
(2) Respondent
(3) CIT
(4) CIT(A)
(5) D.R.
(6) G.F.

What are the nature of the fittings. Are they embedded to the wall and non-removable or can they be simply carted away on termination of the lease. This may decide whether the advantage is "enduring" or not.

I would strongly advice you to be content with the depreciation that the law gives you. If you argue that it is a revenue expenditure, there will be litigation with the income-tax department and you will spend a lot of money and time on CAs and Lawyers rather than on your business.

There has to be an objective basis for making the apportionment. I suggest that you get a FAR (Functions, Assets & Risks) Analysis done of the activities in India to determine what a third party would have charged for the same services.

This will be a scientific approach towards attributing profits to the Indian operations.

One of my client has started business if tour and travel. He makes payment to foreign companies for booking of Hotel Accommodation on behalf of his clients. He asks me to provide certificate u/s 15CB. Those foreign companies have no permanent establishment in India. Is there any TDS liability on my client ? Please advise me the correct position of law.


CA. Rajeev Jain

camanojgupta is right in principle but I would request for more information:

(i) In which country is the recipient situate? Is there a AADT with the Govt of that Country?

(ii) Does the AADT provide for the taxation of "management" or "consultancy" services like s. 9(1)(vii)?

(iii) Are the recipients the hotels or agents acting for them?

(iv) Is there an agreement with the recipient? Does the agreement provide for the rendering of any "management" or "consultancy" services by the recipient? What are the other relevant terms of the agreement?

(v) Does the recipient have any office or tie-up with parties in India? Does he have transactions with other parties like your client? What have the other parties done at the time of remittance?

On the Q of a PE, you should obtain a sworn statement or affidavit from the recipient that he has no PE in India.

sir please clarify one thing should i pay tax on entering into agreement with builder for 59% of land....i.e.., when we enter into agreement for JDA then on giving Power of Attorney should i pay tax on 59% ?

The JDA & the POA are really the same taxing event - i.e. the allowing of possession/ enabling the enjoyment of property. So, you can execute both together (as they are meant to be) and pay tax on the resultant capital gains.

.... if i pay capital gains now then my liability ceases/completed

No, because when you sell the flats, the difference between the FMV of the land (which will be the cost of the flats) and the sale consideration of the flats will be assessable to tax in the year of transfer of the flats.

So, at the EOD, you do pay tax on the entire gain. The only advantage is that the difficulty of estimating the gains is done away with.