S. 32: Depreciation – Sale and lease back transaction – On facts the depreciation was held to be not allowable – No question of law
Assessee is said to have purchased a machinery from APSEB and leased the same to the latter itself. All the authorities below have found as a fact that there was no such purchase of machinery and the transaction in question is sham and hence disallowed the depreciation. On appeal dismissing the appeal of assessee the Court held that finding recorded by the authorities being pure finding of fact no question of law arises. (AY. 1996-97)
Avasarala Technologies Ltd v. JCIT ( 2015) 278 CTR 111/ 120 DTR 309 (SC)
S. 32 : Depreciation – Gas cylinders – Manufacturing business-Lease – Lease income is assessed as business income – Entitle depreciation
The assessee purchased Cylinders. Since the manufacturing unit had not started functioning, assessee leased out the gas cylinders to two parties to through income. The income was assessed as business income. The AO disallowed the depreciation on the ground that the Gas cylinders were not purchased for leasing business. Disallowance was confirmed by High Court. On appeal allowing the depreciation the Court held that the assessee has proved ownership of gas cylinders and use of gas cylinders for business purposes. Once these ingredients are proved, the assessee was entitled to depreciation.
K.M. Sugar Mills Ltd. v. CIT ( 2015) 278 CTR 100 (SC)
S. 37(1) : Business expenditure – Commission – Commission disallowed in the absence of sufficient proof of its payment and when agents could not have been appointed by the assessee
The assessee, a manufacturer of alcoholic beverages, claimed that it had paid commission to agents to co-ordinate with retailers and State Corporations for ensuring continuous supply of alcohol to the ultimate consumer. The HC after looking into Government circulars which prohibited liaisoning by manufacturers to obtain supply order and affidavits filed by Government agencies to the effect that no liaisoning activity was conducted by the said agent appointed by the assessee, held that commission expense incurred by the Assessee was to be disallowed. The SC upheld the order of the HC in disallowing the claim by the Assessee since sufficient documents were not filed by it to prove its claim.
McDowell & Co. Ltd. v. Dy. CIT (2015) 116 DTR 233 (SC)
S. 80HHC : Export business- Conditions under third and fourth provisos to S. 80HHC inserted by Taxation Laws (Second Amendment) Act, 2005 would not operate retrospectively and, for the period prior to that, cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crore would be treated similarly
Amendment to S. 80HHC(3) was made by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect i.e. with effect from 1st April 1998 (AY 1998-99 onwards). By this amendment, benefit of deduction u/s. 80HHC was also extended to income taxable u/s. 28(iiid) and 28(iiie). Such benefit under the amendment was carved out for two categories of exporters, namely:
Those whose export turnover was less than Rs. 10 crores during the previous year and
those whose export turnover was more than Rs. 10 crores during the previous year. In so far as entitlement of these benefits to exporters having turnover of more than Rs. 10 crores was concerned, the amendment provided that deduction would be available only if the exporter had satisfied two conditions stipulated in the third and fourth proviso to the said amendment, i.e., the assessee has necessary and sufficient evidence to prove that:
He had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and
The rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme.
The assessee, being an exporter falling under the second category (i.e. whose exports were greater than Rs. 10 crore), filed a writ petition challenging the conditions mentioned in the third and fourth proviso to S. 80HHC(3) contending that these conditions are severable and therefore these two conditions should be declared ultra vires. The High Court decided the issue in favour of the Petitioner by concluding that the operation of the above stated conditions under third and fourth proviso to S. 80HHC could be given effect from the date of amendment and not in respect of earlier assessment years on the basis that, the retrospective amendment should not be detrimental to any of the assessees having an export turnover of more than Rs. 10 crore and whose assessments were still pending. On a Special Leave Petition filed by the Department, the Supreme Court concurred with the judgment given by the High Court, and gave a direction that conditions stipulated in the third and fourth proviso to S. 80HHC would not operate retrospectively and cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crore would be treated similarly during the period prior to the amendment (i.e. 1st April 2005).
CIT v. Avani Export (2015) 119 DTR 352 (SC)
S. 194I: Deduction at source – Rent – In deciding whether a payment is for “use of land”, the substance of the transaction has to be seen. If the payment is for a variety of services and the use of land is minor, the payment cannot be treated as “rent ” [S.194C, 201(1))
The Supreme Court had to consider the conflict of judicial opinion between the Delhi High Court in
CIT v. Japan Airlines Co (2010) 325 ITR 298 (Del.) and that of the Madras High Court in CIT v. Singapore Airlines Ltd. (2013) 358 ITR 237 (Mad.)
on the question whether landing/ parking charges paid by an airline company to the AAI were payments for a contract of work under Section 194-C and not in the nature of ‘rent’ as defined in Section 194-I. The Delhi High Court decided the issue in favour of the department following its earlier decision in the case of United Airlines v. CIT (2006) 287 ITR 281. It took the view that the term ‘rent’ as defined in Section 194-I had a wider meaning than ‘rent’ in the common parlance as it included any agreement or arrangement for use of land. The High Court further observed that the use of land began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport. However, the Madras High Court dissented from the view of the Delhi High Court. HELD by the Supreme Court reversing the Delhi High Court and affirming the Madras High Court:
From the reading of section 194-I, it becomes clear that TDS is to be made on the ‘rent’. The expression ‘rent’ is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as ‘rent’. In the second place, such a payment made even under any other ‘agreement or arrangement for the use of any land or any building’ would also be treated as ‘rent’. Whether or not such building is owned by the payee is not relevant. The expressions ‘any payment’, by whatever name called and ‘any other agreement or arrangement’ have the widest import. Likewise, payment made for the ‘use of any land or any building’ widens the scope of the proviso;
The charges which are fixed by the AAI for landing and take-off services as well as for parking of aircrafts are not for the ‘use of the land’. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilites offered in connection with the aircraft operation at the airport. There are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers’ safety as well as on safe landing and parking of the aircrafts. Therefore, it is not mere ‘use of the land’. On the contrary, it is the facilities, that are to be compulsorily offered by the AAI in tune with the requirements of the Protocol, which is the primary focus;
When the airlines pay for these charges, treating such charges as charges for ‘use of
land’ would be adopting a totally naïve and simplistic approach which is far away from the reality. The substance behind such charges must be kept in mind. When matter is looked into from this angle, keeping in view the full and larger picture in mind, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as ‘rent’ within the meaning of Section 194-I of the Act;
However, the reason given by the Madras High Court that the words ‘any other agreement or arrangement for the use of any land or any building’ have to be read ejusdem generis and it should take its colour from the earlier portion of the definition namely “lease, sub-lease and tenancy” and to thereby, limit the ambit of words ‘any other agreement or arrangement’ is clearly fallacious. A bare reading of the definition of ‘rent’ contained in explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy which is to be treated as ‘rent’. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term ‘rent’. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as ‘rent’. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent a very wide connotation. To that extent, High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance. It is a different matter that the High Court of Delhi did not apply this definition correctly to the present case as it failed to notice that in substance the charges paid by these airlines are not for ‘use of land’ but for other facilities and services wherein use of the land was only minor and insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, becomes incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. (AY. 1997-98 to 1999-2000 )
Japan Airlines Co. Ltd. v. CIT (SC) ; www.itatonline.org
S. 260A : Appeal – High Court – Small tax effect – Matter has a cascading effect – Circular dated 9th February 2011, should not be applied ipso facto – Liberty is given the department to move High Court
Allowing the appeal of Revenue the Court held that; where the matter has a cascading effect, there are cases in which common principle may be involved in subsequent group matters or large number of matters, in such cases attention of High Court has to be drawn. Circular dated 9th Feb, 2011, should not be applied ipso facto. Liberty is given the department to move High Court.
CIT v. Century Park (2015) 278 CTR 110/120 DTR 308 (SC)
S. 261: Appeal – Supreme Court – Small tax effect – Appeal was dismissed solely on the ground that the tax effect thereof is Rs. 4,22,830/- [S. 260A, 268A]
Appeal filed by the assessee was not entertained and is dismissed solely on the ground that the tax effect is Rs. 422, 830/ only.
Alexander George v. CIT (2015) 278 CTR 112/ 120 DTR 310 (SC)
Levy of service tax on Advocates – Constitutional validity – Operation and implementation of Bombay High Court Judgement is stayed
Bombay High Court in P.C. Joshi and Others v. UOI (2015) 273 CTR 113/113 DTR 41 (Bom) (HC) has held that levy of Service tax on Lawyers is Constitutionally valid. In SLP against the said order, Supreme Court in its Interim order stayed the operation and implementation of the said order by observing.”
“Until further orders, there shall be interim stay of the operation and implementation of the impugned final order and judgment passed by the High Court of Judicature at Bombay in WP (L) No. 1764 of 2011, dated 15-12-2014.”
Bombay Bar Association v. UOI – SLP No. 13944 of 2015, dt. 10/8/2015 (SC)