1. Accounting Standard 22

The Supreme Court held that section 642 of the Companies Act, 1956, gives power to the Central Government to make rules in addition to the power to alter the schedules, and, therefore, the rules framed under section 642 adapting section AS 22 is not ultra vires. AS 22 requires companies to make provision for deferred tax. This is a means to give effect to the concept of true and fair contemplated under section 211(1) and therefore, it is not inconsistent with the provisions of the Companies Act, including Schedule VI.

J. K. Industries Ltd. vs. UOI & Others [2007] 213 CTR 301 (SC)

2. Appellate Tribunal – Power – Mistake apparent from the record – S. 254(2)

The Tribunal was right in rectifying the mistake on record is not considering the decision of a co-ordinate bench of the Tribunal cited before them would constitute a mistake rectifiable under section 254(2). The rule of precedent was an important aspect of certainty in the rule of law, and prejudice has resulted to the assessee since the precedent has not been considered by the Tribunal.

The Supreme Court further held that atonement to the wronged party by the court or the Tribunal for the wrong committed by it has nothing to do with the concept of inherent power of review.

Honda Siel Power Products Ltd vs. CIT [2007] 295 ITR 466 (SC)

3. Business – Transaction in the nature of business or adventure in the nature of trade – Dividend stripping – Ss. 2(13), 28

The Supreme Court held that one of the relevant factors for determining whether the transaction was "profits and gains from business" or "adventure in the nature of trade" is whether the assessee has carried on similar transaction. In view of the aforesaid finding the matter was remanded back to the Tribunal to decide the issue afresh.

Anil Jain vs. CIT [2007] 294 ITR 435 (SC), 9 RC 581

4. Capital vs. Revenue Expenditure – S. 37

From the decision of the Madras High Court in CIT vs. Janakiram Mills Ltd. (275 ITR 403) appeals were taken to the Supreme Court and it was contended by the assessee that replacement of assets without increasing the production capacity would amount to revenue expenditure and by the department that expenditure for replacing an old machine by a new machine constituted an advantage of an enduring nature and would be capital in nature. Without expressing any opinion on the merits the Supreme Court remanded the matters to the Commissioner (Appeals) to decide them uninfluenced by the decision of the Madras High Court.

CIT vs. Ramaraju Surgical Cotton Mills 2007 (9) RC 584

5. Charitable purpose – S. 2(15)

The assessee was constituted for the purpose of development and maintenance of minor ports in the State of Gujarat. The Supreme Court affirmed the decision of the Tribunal which held that the object of the assessee was an object of general public utility and therefore entitled to registration under section 12A.

The Supreme Court held that the expression "any other object of general public utility" is of a wide connotation. The expression would prima facie include all objects which promote welfare of the general public. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be a charitable purpose.

CIT vs. Gujarat Maritime Board [2007] 295 ITR 561 (SC)

6. Deduction of Tax at Source – Penalty – Ss. 194A, 201

Directors of the Assessee-Company took loans from the creditors in their individual capacities through Assessee-Company, repayment of the same via the Assessee-Company. Neither borrowing nor repayment nor payment of interest on the borrowing were reflected as transactions of the assessee in its books of account. Assessing Officer under section 201(1) of the Act declared the Assessee-Company as Assessee-in-default and imposed interest for not deducting TDS at source. Assessee contended that the loan and interest were not reflected in the books of the Assessee-Company therefore it was not liable to deduct TDS at source under section 194A. Tribunal accepted the contention of the Assessee-Company, which was upheld by the High Court. Hence the appeal, question being whether Tribunal was right in holding that there was no obligation on the part of the Assessee-Company to comply with the statutory requirement of section 194A. Held, there was no resolution of the Assessee-Company placed before the A.O. whereby the company agreed to act as a medium for routing the borrowings and repayments. In the circumstances it could not be said that the Assessee-Company was in charge of disbursing the repayments made by directors in their individual capacities. Consequently, Department was right in invoking the provisions of sections 201 and 201(1A) of the Act. Appeal allowed

CIT vs. Century Building Industries Pvt. Ltd. (2007) 7 SCC 262

7. Deductions – Actual payment – Provident Fund – S. 43B

The Supreme Court held that the contribution made to the provident fund before filing of the return could not be disallowed under 43B as it stood prior to the amendment w.e.f. April 1, 2004.

CIT vs. Vinay Cements Ltd. [2007] 213 CTR 268 (SC)

8. Depreciation – S. 32(1)(iv)

The legislature intended to have different scope for "business" and "profession" in various clauses of section 32(1). Therefore, when in erstwhile clause (iv) the legislature has used only "business" then the clause would not apply to "profession".

G. C. Chokshi vs. CIT [2007] 295 ITR 376(SC)

9. Export – Meaning of profit – S. 80HHC

The word profit in sections 80HHC(1) and (3) means a positive profit. Deduction can be permitted only if there is positive profit in the exports of both self manufactured goods as well as trading goods. If there is a loss in either of the two then the loss has to be taken into account for the purpose of computation of profits.

Section 80AB is overriding section with respect to Chapter VIA. Section 80HHC does not provide that its provisions are to prevail over section 80AB or any other provisions of the Act. Section 80HHC would thus be governed by section 80AB.

A. M. Moosa vs. CIT [2007] 294 ITR 1 (SC), 212 CTR 89

10. Export – Processing charges whether part of total turnover – S. 80HHC

Processing charges, which are part of gross total income, forms an item of independent income like rent, commission, etc. and, therefore, 90% of the processing charges have to be reduced from the gross total income to arrive at the business profit, and therefore, they have also to be included in the total turnover to arrive at the business profit in terms of clause (baa) of the Explanation to section 80HHC(3).

CIT vs. K. Ravindranathan Nair [2007] 295 ITR 228 (SC), 213 CTR (SC) 227

11. Penalty Concealment – Mens rea – S. 271(1)(c)

The question whether section 11AC of the Central Excise Act, 1944, which was inserted with the intention of providing mandatory penalty on the person who evades payment of tax, should be read to contain mens rea as an essential requirement, is referred to a larger bench in view of conflict of view between the judgments of Dilip N Shroff vs. JCIT 291 ITR 519 and Chairman, SEBI vs. Shriram Mutual Fund 131 Comp Cas 591.

UOI & Others vs. Dharmendra Textile Processors [2007] 295 ITR 244 (SC), 212 CTR 432

12. Revision – S. 263

The phrase "prejudicial to the interest of revenue" in section 263 has to be read in conjunction with the expression "erroneous". When the Assessing Officer takes one of the two views permissible in law and which the Commissioner does not agree with and which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken by the Assessing Officer is completely unsustainable in law.

CIT vs. Max India Ltd. [2007] 295 ITR 282 (SC), 213 CTR 266

13. Undisclosed Income – Loose sheets – S. 28

The Supreme Court held that the fact of the actual sale price of the property, implication of the contradictory statement made by the seller of the property or whether reliance can be placed on the loose sheet recovered in the course of raid are all questions of fact and no therefore, no substantial question of law arises.

The Supreme Court further held that quoting from an order of some authority, particularly a specialized one, cannot per se be faulted as this procedure can often help in making for brevity and precision. But to the extent that any borrowed words are used in a judgment, they must be acknowledged as such in the appropriate manner as a courtesy to the true authors.

CIT vs. P. V. Kalyanasundaram (SC) [2007] 294 ITR 49 (SC), 212 CTR 97, 9 RC 577

14. Valuation of the closing stock – S. 145

The Supreme Court dismissed the review petition against the order in the case of CIT vs Hindustan Zinc Ltd. 291 ITR 391, wherein it had held that the closing stock is to be valued at the cost or the market price, whichever is lower. And, that the assessee was not right in taking the value of the closing stock as per the London Metal Exchange price and not as per the domestic net realizable price.

Hindustan Zinc Ltd. vs. CIT [2007] 295 ITR 453 (SC)