1. India is perhaps the first country to statutory require companies to undertake corporate Social Responsibility (CSR). The provisions in Section 135 are to be read with Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules).

2. Section 135(1) of Companies Act, 2013 and Rule 3(1) and Rule 3(2) of the Companies (CSR) Rule, 2014

The Section applies to every Company including its holding or subsidiary and a foreign company defined under section 2(42) of the Act having its branch office or project office in India, which fulfils any one of the following criteria set in section 135(1), if such company in any financial year has:

  1. Networth of rupees five hundred crores or more, or
  2. Turnover of rupees one hundred crores or more; or
  3. A net profit of rupees five crores or

The requirement applies irrespective of the nature of activities carried on by the Company.

The company meeting the above financial criteria to constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

3. Meaning of Net Worth, Turnover and Net Profit

‘Networth” is defined in Section 2(57) and means the aggregate value of the paid up share capital and all reserves created out of profits and securities premium account, after deducting the aggregate value of accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet but does not include reserves created out revaluation of assets, write back of depreciation such amalgamation.

“Turnover” is defined under section 2(91) means the aggregate value of realization of amount made from the sale, supply or distribution of goods or on account of services rendered or both, by the company during a financial year.

“Net Profit”: It shall be calculated as per the provisions of Section 198 of the Companies Act, 2013 for the purposes of section 135.

“Net Profit” has been defined in Rule 2(b) of the Companies Corporate Social Responsibility Policy, Rules, 2014 to mean the net profit of the Company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following namely,

  1. Any profit arising from any overseas branch or branches of the company whether operated as a separate company or otherwise; and
  2. Any dividend received from other Companies in India, which are covers under and complying with the provisions of Section 135 of 2013

However, the net profit  in respect  of a financial year to which the relevant statements were prepared in accordance with the provisions of the companies Act, 1956 shall not be required to be recalculated in accordance with the provisions of the Act;

Further, in case of a foreign company covered under these Rules, net profit means the net profit of such company as per profit and loss account prepared in terms of Section 381(1)(a) read with Section 198 of the Act.

Section 198: Calculation of profits requires making adjustments to the profit or loss as derived from the profit and loss account of the financial statement.

4. Interpretation of Rule 3(2) of Companies (CSR) Rules 2014:

Sub-section (1) requires any of the three financial criterions to be determined during the financial year. However, General Circular No.21/2014,  MCA has clarified that “Any Financial Year” referred to in sub-section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies “any of the three preceding financial years” Rule 3(2) of Companies (CSR) Rules, 2014 specifies that every company, which ceases to be a company covered under Section 135(1) of the Act for three consecutive financial years shall not be required to:

  • Constitute a CSR committee;
  • Comply with provisions contained in sub-section (2) to (5) of the said section, till such time that it meets with criteria as set in sub-section (1) of section

In order to determine the applicability, the company would need to ascertain fulfilment of any of the three financial criterion in following manner:

Any of the financial criterion fulfilled in either of the three years CSR provisions applicable for
2011-12, 2012-13, 2013-14 2014-15
2012-13, 2013-14, 2014-15 2015-16

5.  Role of Corporate Social Responsibility Committee Section 135(3):

Corporate Social Responsibility Committee shall formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company, recommend the amount of expenditure to be incurred on the Corporate Social Responsibility activities and monitor the Corporate Social Responsibility activities and monitor the Corporate Social Responsibility Policy of the Company from time to time.

The activities to be undertaken by the company are as under:

  1. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up of public libraries, promotion and development of traditional arts and handicrafts.
  2. Ensuing environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and
  3. Promoting gender quality and empowering women and hostels for women and orphans, setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward
  4. Promoting Education including special education and employment, enhancing vacation skills among children, women elderly and differently abled and livelihood enhancement projects;
  5. Eradicating hunger and poverty and malnutrition, promoting health care including preventing healthcare and sanitation and making available safe drinking
  6. Measures for the benefit of armed forces veterans’ war evidence and their
  7. Training to promote rural sports, nationally recognized sports and para-Olympic sports and Olympic
  8. Contribution to Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for Socioeconomic development and relief and funds for the welfare of the Scheduled castes, the Scheduled tribes, other backward classes, minorities and women, and,
  9. Contributions or funds provided to technology incubators located within academic institution which are approved by the central
  10. Rural development
  11. Slum area development

Explanation: For the purpose of this item, the term “slum area” shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

6. Board of Directors and Corporate Social Responsibility Policy:

The Board of Directors of every company shall approve the Corporate Social Responsibility Policy as recommended by Corporate Social Responsibility Committee. The Board shall also disclose contents of such policy in its report and also place it on the company’s website  and ensure that the activities as are included in the CSR policy of the Company are undertaken by the Company.

Thus onus is placed on the Board of Directors of a Company to approve the policy, place it on the website of the Company and ensure that the activities mentioned therein are undertaken by the Company.

7. Contribution towards corporate Social Responsibility activities: The Board of every Company shall ensure that in every financial year, the Company spends at least 2 percent of the average profits of the Company made during the three immediately preceding financial years towards Corporate Social Responsibility “Average” net profit shall be calculated in accordance with the provisions of Section 198. Whilst the net profit to ascertain applicability is net profit as per the financial statements.

The Company should give preference to local area and areas around it where it operates for spending the amount one corporate social Responsibility activities.

The Board shall specify in its report the reasons for not spending the amount, if the company fails to spend such amount.

8. Expenditure on CSR is at mandatory

The expression used in the section is “shall ensure”. It suggests that there is a mandate to spend 2% of average net profits of last three years on CSR activity. Proviso to Section 135(5) repairs the Board to specify the reasons for not spending the amount, where the company has failed to do so.

CSR expenses is an item of expenses for the company which needs to be charged to the statement of profit and loss amount.

9. Availability of CSR expenditure for tax deduction:

Expenditure on CSR activities is non- deductible for tax purposes unless falling within sections 30 to 36 of the Income-tax Act, 1961.

Tax collection has ever been the basis of many a diplomatic or administrative or military battle over the past two centuries. The basis of determination of tax has been invariably linked to the residence and source concepts of many fiscal regimes. For corporates, especially MNE’s the primary taxing jurisdiction has always been the seat of incorporation of the MNE, although complex arrangements like POEM and source based taxation are steadily taking root. And for individuals barring a few cases, taxation has almost always been linked to residence of the individual. The importance of the term “resident” can be gauged from the fact that the term itself has a reference to in about 45+ times in both the OECD and UN Model Conventions.

Even the Indian treaty network comprising of about 90 countries, most of them, are structured around the framework of the OECD/UN model treaty, thus references are more or less congruent quantitatively. Thus, the importance of the term cannot be underscored enough.

The existing tax treaty network all through the world has about 3000 treaties in existence, comprising of both bilateral and multilateral tax treaties. A discussion on conflicts of residence factors of all the treaties would require a treatise on its own. For the sake of simplification this study will deal with residence aspects of non- individuals of only bilateral tax treaties of Germany, France, Netherlands, United States, United Kingdom and India. The reason for choosing the above jurisdictions is manifold

  • All the jurisdictions have well defined network of tax treaties
  • All the jurisdictions have a well developed domestic tax jurisprudence.
  • All are in some way connected to both the OECD and the United nations

As for the approach this paper is divided into two parts. Firstly we shall deal with the background and theoretical framework behind the interplay, with a particular reference to the renvoi clause of the OECD and the United Nations Frameworks. For the second part of the study, the residence issues along with domestic law excerpts and possible conflicts of all the states as per domestic law and treaty with India is discussed.

THEORETICAL FRAMEWORK

The term “resident” is of prime importance with respect to tax liability determination with respect to the international tax treaty network. It is very important in any taxing framework to determine who is liable or what is liable for tax and in the event of any conflict the true determination thereof. In fact, the EATLP (European Association of Tax Law Professors) had at the 2017 congress dedicated an entire feature on Corporate Tax Residency.

Article 4 of the OECD and UN frameworks’ address as to what a resident should be defined as, as a guideline in tax treaties.

An important exception is provided in Article 4(1) wherein there is a leeway provided for any person who by way of residence is liable to tax under that state only.

By way of the renvoi clause of the Model Treaties1, both the Model treaties, have provided for primacy for the domestic laws to override in matters of residence2. Having said that, the interpretation should be gauged with reference to Article 31 and 32 of the Vienna Convention, inter alia, implying that

  1. In case domestic law meaning is assigned to residence in primacy, then such application must in good faith be considered in consonance with treaty Ideally speaking, the domestic law (which can be unilaterally amended) should not render the treaty meaning as absurd.
  2. In case the domestic law is inconclusive with respect to residence, then recourse should be had to the treaty provisions, and supplementary  means of interpretation in accordance with the provisions of the VCLT. Even the OECD model commentary would serve as a supplementary means of But, having said that, it would be a fallacy to treat the OECD model commentary as a blanket landmark, without having regards to the facts and circumstances of each case under consideration.
  3. Resort to MAP although is suggested and is a part of all the treaties under consideration but having said that, it seems a better option that solutions might be arrived at with interpretation. As it is highly unlikely that the case of resolution by an assessee would not go into domestic litigation after MAP. In fact, approaching the judiciary in matters of interpretation not clearly defined seems to be a good As is prevalent in all common law jurisdictions, guidance from judiciary generally trumps over guidance from administration.

Although the materials that are to be considered for such a study are exhaustive, but considering the efficacy limits, the author has tried to adhere to the restrictions, which could not happen without cutting down on the content.

FRANCE

DOMESTIC TAX CODE

Article 209 of the French Tax code allocates taxing powers of the companies mentioned in Article 206. Under Article 206, non-individual entities like

  • Public limited companies  (sociétés anonymes, SA),
  • Partnerships limited by shares (sociétés en commandite par actions, SCA)
  • Simplified limited companies (sociétés par actions simplifiées, SAS)
  • Private limited companies (sociétés à responsabilité limitée, SARL)
  • Private limited companies with a single shareholder (entreprises unipersonnellesà responsabilité limitée)
  • Professional corporations (sociétés d’exercice libéral),
  • Civil Law Entities,
  • Partnerships and partners, and Banking Institutions are liable to tax under the territoriality

Since France uses a territorial taxing system therefore it follows that in normal jurisdictional parlance, there is no distinction between resident

  1. OECD Model Convention on Income and On Capital 2017/ UN Model Double Taxation Convention 2017
  2. Article 3(2) of both the OECD and UN Model conventions

and non-resident taxpayers. Furthermore, since it’s a territorial taxation system, all income within the territorial jurisdiction of the country are subject to tax. It also implies that all companies having their seat of incorporation in France are subject to French tax. However, if there are profits from foreign activities and those are attributable to a PE which is taxed in a foreign country, then the profits as are attributable to the PE are not liable to tax in France. POEM provisions are also applicable in France3 and this is an important distinction with the territorial system. Any profits in entities who are although incorporated in France but have their POEM outside France are not liable to tax in France.

However, the above are defined in accordance with administrative notifications and not a part of the domestic law in France itself as defined in the French Tax Code. Interestingly, the French Tax Code also doesn’t have reference to the expression Liable to Tax.

TREATY LAW

The India France Tax treaty has a renvoi clause in article 4(3),and refers to the POEM of the corporate entity, and thus is in congruence with the administrative notification earlier. Article 4(1) of the treaty however, refers, to a person “liable to tax”, which concept although is well defined in Indian jurisprudence, it doesn’t carry any value in the Civil Law of France. Furthermore, the treaty has been updated under the BEPS MLI to deny treaty benefits for abusive tax practices.

CONFLICTS

This could essentially lead to a situation wherein the term “liable to tax” might lead to confusions or essential disagreements in the application of the MAP, in case of any dispute resolution.

Also it could also mean that resort to the non- discrimination clause under the treaty would be open to wide interpretation.

Also to be borne in mind that tax being an exact law in both the states, India has detailed POEM rules quantifying on what and how an entity can be subject to POEM rules, however, the same detailed scope is not available in the case of its French counterparts. This could again lead to some issues of application as the tax treaty explicitly uses the nondiscrimination clause in details.

GERMANY

DOMESTIC TAX CODE

Under the domestic tax code in Germany the definition of residence is defined as an entity who either has their Registered Office or Place of Effective Management in Germany. Non- individual entities are liable to tax on their worldwide income, if the criteria set out in either section 10 or section 11 are satisfied.

The Tax code of Germany in section 10 describes a Registered office as “Business management” shall mean the centre of commercial executive management.”4

Section 11 describes  Place  of Mangement as “Corporations, associations or pools of assets shall have their registered office at the place which is determined by law, articles of partnership, statutes, acts of foundation or similar provisions.”5

The term business management is defined under common law of Germany as well as codified under fiscal code. However, the terms “liable to tax” and “residence” and “domicile” are still not clearly defined in the German Tax Code.

  1. BOI-IS-CHAMP-60-10-20
  2. Translated from German
  3. Translated from German

The following are the non-individual types in Germany

  • Partnerships
  • Simple Partnership
  • Un-Incorporated  Association; Non- Commercial/Idealistic Purposes Only
  • General Partnership
  • Limited Partnership
  • Partnership Company; Only For Professional Services
  • Incorporated Association; Non- Commercial/Idealistic Purposes Only
  • Publicly Traded Partnership
  • Company With Limited Liability (Minimum Equity 25000 Euros)
  • Entrepreneurship Company (With Limited Liability)
  • Corporation (Minimum Equity 50000 Euros)
  • Public  Law Corporation With No Commercial Objectives
  • Trusts Under Public Law
  • Foundations Under Public Law

Since Germany uses a worldwide taxation system, it follows that all companies having either their POEM in Germany, or their seat of residence in Germany would be taxed on their worldwide Income.

TREATY LAW

The treaty law on residence almost functionally mirrors the position as stated in Article 4(1) of the OECD model convention, barring political and statutory bodies. Article 4(1) also carries reference to “liable to tax” and “domicile” and “residence”, terms which have not been defined in the German Fiscal Code. Article 4(1) also makes reference to income from capital explicitly. The treaty does not make the explicit definition of capital, despite making an explicit definition of “immoveable property”.

CONFLICTS

Since the term “capital” is not defined in the German Tax Code, therefore, the general meaning of the term would be ascribed to as per VCLT. Furthermore, as with the French case, the lack of definitions  and common law on the terms “liable to tax”, “domicile”, “resident” would be an issue in case things come to MAP. Although, resort to the VCLT and supplementary aid in terms of the Commentary to the OECD model is a viable way. It could also pave way to resort to Non-Discrimination enshrined in Article 24 of the Double Tax Treaty, since the terms “liable to tax” and “resident” and “domicile” are well enshrined in the Indian law by way of jurisprudence as well as codification. Furthermore, the German Supreme Court had held the case of preference to later legislation, either treaty or domestic law, in the matters of tax conflict.

In case a legislation is enacted subsequent to entering into a treaty, the later legislation will have legal supremacy6.

NETHERLANDS DOMESTIC TAX CODE

Netherlands operates a worldwide taxation system. So effectively, if the entity is a resident in the Netherlands the it will be taxed on it’s worldwide income. The corporate tax code is enshrined in the CITA7 (Wet op de

6. German Federal Constitution Court Order of 15 December 2015 – 2 BvL 1/12

7. Corporate Income Tax Act

vennootschapsbelasting  1969).  Under Article 2 of the CITA the following types of entities are  explicitly  considered  to  be  resident in Netherlands if, they are “established” in Netherlands

  • Public Limited Liability Companies, Private Limited Liability Companies, Open Limited Partnerships and other companies whose capital is wholly or partly divided into shares
  • Cooperatives And Associations on a cooperative basis
  • Mutual Insurance Associations And Associations acting on a mutual basis as an insurer or bank
  • Associations And Foundations that are admitted by Royal Decree under the Housing Act as institutions that operate in the interest of public housing
  • Associations And Foundations not mentioned above, as well as legal entities other than public law, if and insofar as they conduct a business
  • Mutual Funds
  • Legal Entities Under Public Law, not being the State, that are not already liable for tax under subparagraphs a, b, c, d and e, insofar as they conduct an

Reverse hybrid entities are defined under the CITA Article 2(12). An important clause under 2(11) of the CITA which is more of a clarificatory nature states that “ For the purposes of this Act, a legal person under public law is understood to mean a Dutch legal entity under public law as well as a comparable foreign legal entity.”8 It is important to note that reverse hybrid entities are not recognized in India. Permanent establishment is defined under article 3(4) of the CITA.

What could constitute the POEM for a company has been defined to have a multitude of positions to be considered, before arriving on9

  • Where the principal management of the company performs it tasks.
  • The principal management is generally equated to be the Board of Directors or its
  • The determination shall be company specific, having regard to its
  • Characteristics like type of business, geographical spread, organization of business, nature and size, et
  • Also to consider whether, the company’s main tasks are actually carried by people other than the board, and also to consider other relevant

TREATY LAW:

The India-Netherlands treaty as modified by the Multilateral Instrument, defines a resident under article 4(1) as a person who is “liable to tax” in either one of the contracting states, by virtue of “residence” or “domicile”. Article 4(3) of the India- Netherlands tax convention, has been modified by the MLI to specify the application of MAP in case of any conflict in determination of Residential Status. An in case of no agreement between the competent officials of the two jurisdictions, tax benefits would be denied to the entity claiming such.

There is no explicit mention of immoveable property, or capital in either the definitions or the Resident clause 4(1).

CONFLICTS

Again, the expressions “liable to tax”, “residence” “domicile” are not defined in the Dutch Corporate tax code, this thus presents a

8. Translated from Dutch, Article 2(11) of the CITA

9. 23 September 1992, BNB 1993/193, Hoge Raad

point of contention. However, the same has been attended to by the common law interpretation by the Adjudicating Courts in Netherlands. However, it might be take into consideration that the Netherlands uses the VCLT, and OECD model and commentary as a significant tool for interpretation on Tax treaties. POEM has also been defined and detailed under common law in Netherlands and that provides specific guidance as discussed supra. However, as has been witnessed, Netherlands, has been the home to a lot of hybrid and reverse hybrid corporate entities and that has been a bone of contention amongst its treaty partners. Although Netherlands has gone to a long extent to address the issues of residence and thus allocation of taxing rights for the income streams associated with the hybrids, the issue of also having tax havens as its dependent colonies (Dutch Antilles), has been a vexed issue with its treaty partners. India has on its part in the first quarter of 2017, issued a number of circulars and notifications regarding determination of POEM, which are more or less congruent with the guidelines as provided by the Supreme Court of Netherlands (Hoge Raad). The issue of denial of benefits in case of non- allocation of taxing rights on the case of jurisdiction by residence has more or less been dealt with by the amendments brought by the Multilateral Instruments (MLI). In this context it is to be noted that the issue of hybrids and reverse hybrids is a contentious issue which has been dealt exhaustively by the Hoge Raad, and there are multiple judgements issued which might be of interest to the reader.10

UNITED KINGDOM 

DOMESTIC LAW

The United Kingdom has an exhaustive domestic common and civil law centred around the concept of residence for corporations and treaty purposes11. In fact it was as early as later part of the 19th century that the Court of the Exchequer had decided on the Central Management and Control aspect of residence of corporate seat12. It was held that the seat of residence of a company for tax purpose where the CMC was situated. Pursuant to the enactment of the Corporation Tax Act, as a general rule companies whose seat of incorporation is in the United Kingdom are treated as tax resident companies in the United Kingdom.

The exception being if the company, in accordance with the DTAA, is treated as a tax resident in the other jurisdiction. This concept flows probably from the concept of Central Management and Control, as discussed supra. The United Kingdom, taxes Permanent Establishments as a corporation by general rules. The PE rules are based largely on Article 5 of the OECD model convention. However, there are exceptions again, being, if the profits are generated from dealing and construction and rental from land and immoveable properties. In any of those cases, the profits of the corporation are taxable in the United Kingdom.

However, having said the above, the United Kingdom domestic corporate law again lacks the

10. Hoge Raad 15 October 2005, BNB 2006/79 , Hoge Raad 17 December 2004, BNB 2005/105 and 106

11. De Beers Consolidated Mines, Limited v Howe, Court of Appeal, 6 June 1905, Unit Construction Co Ltd v. Bullock [1960] AC 351 (HL), Laerstate BV v. HMRC [2009] UKFTT 209 (TC) , Untelrab v. McGregor [1996] STC (SCD) 1., Wood v Holden , [2004] STC (SCD) 416

12. Calcutta Jute Mills Company Nicholson 1 TC83, (1876)

definitions of the terms “domicile”, “residence” and POEM. Although at this juncture, it might be noted that due to the exhaustive, common law commentary, and decisions of higher courts at the United Kingdom, the concept of POEM is more or less concrete in the United Kingdom.

There are various other adjustments allowed under the Corporation tax Act like, Group Relief, A separate condensed set of requirements for application by Small Companies, which are available separately.

TREATY LAW

The treaty law for residence under the India UK DTAA is more or less centered around the OECD model Article 4, subject to the renvoi clause in Article 3(2). This treaty was amended by the MLI protocol pursuant to the OECD BEPS project, for particularly abusive practices, and hybrid and reverse hybrid mismatches. Furthermore there is a distinction under Article 4(1)(b) of the treaty whereby non corporate non individual entities are to be subject to tax by way of residence of their ultimate beneficiaries. This was also possibly done as to a conflicting judgement by the Calcutta High Court13.

Article 4(3) as amended by the MLI in the synthesised text seeks to counter tax abuse and aggressive tax planning practices, and denies tax treaty benefits to entities whose residence cannot be established in either jurisdiction even after application of MAP under Article 25.

CONFLICTS

The United Kingdom treats partnerships as transparent entities under tax law. As was held by the Calcutta High Court in the case above supra, the assessee escaped tax liability, since the partnership was entitled to tax treaty definitions under the renvoi clause under 3(2). This was a possible source of conflict, however, post the development of Article 4(1)(b) it seems that the same has been resolved. It also seems that post the MLI anti abuse measures for hybrid mismatches the same has been effectively countered, since if the corporation has no clear residence even after MAP under Article 25, treaty benefits would be denied.

UNITED STATES OF AMERICA

The United States stands on a different footing as it uses neither the UN or the OECD models as bases for negotiating tax treaties. It has its own United States model which it uses while negotiating treaties. And lets face the facts, the United States can rule by brute force when it comes to matters including tax treaties. It might be put forward that the United States has not ratified the Vienna Convention also.

DOMESTIC LAW

The United States corporation tax laws operated on a worldwide income basis, before the Tax Cuts and Jobs Act 2017, whereby then thereafter it moved to a territorial system. The TCJA itself moved into radical changes into the IRS Code.

The residence of a corporation in the United States is defined under IRS Code 7701. It defines domestic companies as any company which is created or organized in the United States, and any foreign company as not being incorporated in the United States. Therefore, all companies which are not created or organized in the United States are regarded as foreign.

Again, there is no definition of liable to tax, residence and domicile in the IRS Code for corporations.

13. P&O Nedlloyd & Others vs ADIT WP 457 of 2005

However, there is the concept of Effectively Connected Income 864(c) in the IRS code which effectively taxes income which is generated on American soil by way of trade or services or manufacturing activities.

This tax is available for setoff till the extent it has been paid in the United States.

Witholding tax rules apply.

Income from real estate situated in the United States is taxed in the United States, and the United States also imposes a branch profits tax of 30% in order to counter hybrid mismatches. The Dividends Article or the Interest Articles under the DTAA might be available to reduce withholding taxes to 5% or Nil%.

There are also specific anti abuse rules with relation to US Trusts and Partnerships, whereby any Trust being transferred to foreign lands would have to pay taxes on the appreciation value of the property inherent in the taxes (IRC 721(c)).

TREATY LAW

The United States India DTAA has a comprehensive arrangement, when it comes to determination of residence, and anti-abuse measure regarding determination of residence, it also has a specific clause with regards to non-availability of credit on account of any penalties or the like under Article 2(1). The treaty uses the terms “place of management” in consonance with the Indian Law and “place of incorporation” in consonance with the US law in Article 4(1).

Article 4(3) of the DTAA stands on a different footing from others in that it states that in case of corporations who have a dual residency in accordance with Treaty laws (either in terms of the renvoi clause Article 3(2) or otherwise), then the entire treaty won’t be applicable except for certain exceptions like Dividends, MAP, Non- Discrimination,

Information Exchange, or Administrative Assistance provided in the Treaty.

CONFLICTS

As might be visible the domestic tax law requirement of the United States is neither used in and “or” concept or an “and” concept in article 4(1). Whether that would constitute a conflict to be allocated to the MAP is possibly an open question. Then also treaty override of the United States is a common phenomenon. IRS code 7852 (d) specifically provides for primacy of neither treaty law or domestic law, thereby leaving the question of treaty override open for discussion.

Furthermore, Tax courts in the United States have been generally inclined to follow the later legislation in question14, thereby providing fuel to the fire of treaty override. Thus any reference to residency in the domestic laws of the United States, if the assessee at all decides to approach the courts, if changed subsequently, leaves open the question of interpretation of the Courts, who in general have had a superior hand in dealing with matters related to subjects than the administration.

14. Watt Alaska Radzanower v. Touche,Ross & Co., 426 U.S. 148 (1976);United States v. United Cont’l Tuna Corp, 451 U.S. 259 (1981);., 425 U.S. 164

Arm’s Length Price (‘ALP’)?

As per the Organisation for Economic Co- operation and Development (‘OECD’) Transfer Pricing Guidelines Arms’ Length Price means a price, at which transactions between persons other than associated enterprises are carried out in uncontrolled circumstances.

As defined by section 92F of the Income Tax act, 1961 (“the Act”), an Arm’s-length price is a price that is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. Section 92C of the Act prescribes various methods for the determination of the arm’s-length price  and provides  that such a price will be calculated using the most appropriate method.

  1. Comparable Uncontrolled Price Method (CUP)
  2. Resale Price Method (RPM)
  3. Cost Plus Method (CPM)
  4. Profit Split Method (PSM)
  5. Transactional Net Margin Method (TNMM)
  6. Such other methods as may be prescribed by the

This article deals with the subject of anomalies / issues in determining Arms’ Length Price (ALP).

The Most Appropriate Method

Under the Income Tax Act, 1961 [“the Act” for short] no particular method has been accorded a greater or lesser priority. The most appropriate method for a particular transaction shall be determined by the assessee on the bases of the nature of the transaction, class of transaction, associated persons and functions performed by such persons, as well as various other relevant factors. The Assessee has to identify and understand the intra-group transactions, identify the characteristics that would make a particular transaction or function, make appropriate adjustments to the comparables, etc. while selecting the most appropriate method.

On this it has been held that the onus to select and justify the most appropriate method for calculation of ALP lies on the assessee, by the Hon’ble Income Tax Appellate Tribunal [“the ITAT], Mumbai in the case of Kodak Polychrome Graphics (I) P. Ltd [ITA No.1577 / Mum / 2009]. If the Revenue authorities are of the opinion that the ALP was not applied to the transaction or that the assessee did not maintain / produce adequate and correct documents / information / data, the total taxable income of the assessee may be recomputed after a hearing opportunity is granted to the assessee. While the revenue can challenge the selection of the most appropriate method, the method could not be discarded in preference over other methods, unless the revenue authorities could demonstrate the fallacies in the application of standard methods. (MSS India [ITA NO.393/MUM/2007].

On change of a method already adopted / followed by the assessee recently, in case of Aquity Solutions India Pvt Ltd [ITA NO.1161/ MUM/2019, ITA NO.1351/BANG/2011 and ITA

NO.1644/BANG/2012] ITAT, Mumbai held “there was no bar under the Act or Rules restricting assessee to change method of determining ALP but also elucidated that change of method should be for bonafide reasons and not in an arbitrary manner just to circumvent adjustment proposed by the TPO”

The various methods prescribed under the Act, have their own specific application and consequently have issues specific to their application. In this section we have tried to identify certain issues / anomalies each method wise while determining the ALP. They are as follows:

1. Comparable Uncontrolled Price Method (CUP)

Under this method to determine ALP the price charged for property or services transferred in a controlled transaction is compared to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. The CUP method may be based on either “internal” comparable transactions or on “external” comparable transactions. However, while applying CUP method for determining the ALP it is required to be compared with actual sales and purchases with unassociated enterprises or transactions between unassociated enterprises. The Hon’ble ITAT Mumbai in the case of Redington India Ltd [ITA No.808 / Mds / 2011] held that CUP analysis should not necessarily be done on the basis of list price especially when the prices charged by Assessee are lower than the list price for both associated as well as non-associated enterprises. Further, in the case of Arvind Mills Ltd [ITA 1304 / Ahd /2006] Hon’ble ITAT, Ahmedabad observed that the product comparability cannot be the sole basis for application of CUP method. Even minor differences in contractual terms or economic conditions, geographical areas, risks assumed, functions assumed, etc. could  affect the amount charged in an uncontrolled transaction. As such, while applying CUP, it is essential to note that its not just the similarity of the product but also all other factors which could affect the price.

In an interesting judgement, it was observed by the ITAT, Mumbai that for benchmarking royalty, CUP is the Most Appropriate Method since in that case royalty was not linked to profit [Ref. Syngenta India Limited [ITA 2977 / Mum /2006]. However, in another case, the ITAT, Mumbai has held that CUP method is not applicable in benchmarking royalty in the absence of data relating to uncontrolled transactions [Ref: Cabot India Ltd. vs. Dy. Commissioner of Income-tax I.T.A. No. 6622/ Mum/2009] 

2. Resale Price Method (RPM)

Rule 10B (b) lays down that RPM may be applied for transactions of purchase of goods or services from AE which are then resold to unrelated parties. The ITAT observed that in the case of an assessee performing pure distribution functions without any value addition on sale of traded goods it is appropriate to apply the RPM method [Ref: Textron India Pvt Ltd vs Dy. Commissioner of Income Tax [IT(TP)A No.2972/Bang/2018]. Also, the ITAT, Delhi in the case of Burberry India Pvt Ltd v/s ACIT [I.T.A. No. 758/Del/2017] has held that incurring high advertising and marketing expenses by the assessee does not in any manner affect the determination of ALP under the RPM. Further in the case of Celio Future Fashion P. Ltd [I.T.A. No. 1928/Mum/2016 it has been held in the case of an Assessee who is a distributor of Men’s wear imported from the AE, that RPM is the Most Appropriate Method and merely because high advertising / marketing expenses were incurred by it did not lead to any value addition justifying application of another method. The ITAT, Mumbai has in the case of Mattel Toys (I) Pvt. Ltd vs DCIT [I.T.A. No. 2476/Mum/2008] observed that product similarity is not a vital aspect for RPM, but operational comparability has to be seen.

3. Cost Plus Method

Cost Plus Method is prescribed under clause (c) of Rule 10B. Under this method, the Arm’s Length Price is determined by applying normal gross profit mark- up arising from similar uncontrolled transactions, after adjustment for functional and other differences, to the direct and indirect costs of production incurred by the assessee on its transaction. It is mostly applied to manufacturing or assembling activities and relatively simple service providers. It has been observed that CPM is the most appropriate method where the transactions involve commodity-type products, but the differences between the products are minor [Ref: DCIT vs GE BE Pvt. Ltd.- ITA No.815/Bang/2010].

However, the CUP method is not suitable in the case of the manufacturer who owns valuable intangibles, performs R&D activities, and generally has operations that are more complex than those of the sales company

4. Profit split method (PSM)

The Profit Split Method is applicable when the transfer of unique intangibles is involved or in multiple international transactions which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm’s length price of any one transaction. This method can be applied to the cases where both sides of the controlled transaction contribute valuable intangible property to the transaction and cases involving highly interrelated transactions that cannot be analyzed on a separate basis. It is to be noted that it has been held by the ITAT that this method of ALP determination cannot be applied for Royalty benchmarking as there was an absence of an associated enterprise’s role in the assessee’s profit-making [Ref: Toyota Kirloskar Auto Parts Pvt Ltd [IT(TP) A No.1915/Bang/2017]. In the case of Infogain India Pvt Ltd [ITA No. 6134/Del/2012], the ITAT Held that PSM cannot be rejected as a method merely on the basis that it may be difficult to identify external benchmarks for allocation of profits amongst entities.

5. Transactional Net Margin Method (TNMM)

Transactional Net Margin Method (TNMM) is provided in Rule 10B(1) (e). Under this method, the net margins of companies are compared to analyze if the related party transactions have been undertaken on arm’s length basis. Transactional Net Margin Method is most commonly used by assessees for practical reasons as the method often provides a useful check on the accuracy and reasonableness of the traditional transaction methods or is used to supplement these methods. It is also easier to find comparable in applying this method. The TNMM is used to analyse transfer pricing issues involving tangible property, intangible property or services. It may be applied when one of the associated enterprises employs intangible assets, the appropriate return to which cannot be determined directly.

The Hon’ble ITAT Bangalore in the case of ITO v/s Simulation  Technologies Pvt Ltd [IT(TP)A No.100/Bang/2014] observed that broad functional similarity is sufficient for determining ALP under the TNMM method. Opined that the functions performed need not be identical. Remarked, “A broad similarity, in our view, would suffice for the purpose of picking up a comparable”. Further, the Hon’ble ITAT Mumbai in the case of Golawala Diamonds [I.T.A. No. 2346/ Mum/2006] observed that the entity level margins need not be considered for ALP computation under the TNMM method. In yet another judgment, the ITAT, Mumbai reversed the action of the TPO in determining Nil ALP for Royalty payments observing that receipt of technical assistance by the Assessee from the AE justified royalty and it could not be said that the same is not payable [Ref: Dow Agro Sciences ITA No.1051/ Mum/2015]. This issue of jurisdiction of the TPO to determine ALP at Nil is also discussed in subsequent paragraphs.

6. Such other methods as may be prescribed by the board.

Section 92C of the Act provides that CBDT may prescribe any other method for the determination of ALP. Accordingly, Rule 10AB was introduced w.e.f. 01.04.2012 as per which, such other method for determination of the arm’s  length price in relation to an international transaction shall be any method that takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts. In Toll Global Forwarding India Pvt Ltd [I.T.A. No. 5025/Del/10] the Hon’ble ITAT observed that ‘the methods of determination of arm’s length prices have to be essentially implemented in a reasonable and pragmatic  manner so as to achieve its laudable objectives without any collateral damage. Further, in Global One India Private Limited [ITA No. 5571/Del/2012] it was ruled that if the PSM, as applied by the Taxpayer, did not fall within the strict definition of PSM provided in Rule 10B(1)(d), then the same could be considered as “The Other Method”. In the case of Tally Solutions Private Ltd [ITA No. 1235/Bang/2010] use of the ‘Excess Earning Method’ for determining arm’s length price using ‘discounted cash flow’ for the sale of ‘intellectual property rights’ was upheld by the ITAT.

Other issues in the determination of ALP:

  1. If the variation does not exceed 1% of the wholesale price and 3% in other cases of international or specified domestic transactions, then the actual transaction price shall be taken as ALP as notification CBDT Income Tax Notification 124/2021 29/10/2021: Transfer Pricing (ALP) Variation Tolerance Limits AY 2021-22.
  2. The Hon’ble ITAT Delhi in the case of McCain Foods India Pvt Ltd [ITA No. 5597/ Del/2018] has held that disallowance u/s 40(a)(ia) and 92CA(3) cannot operate simultaneously as this would lead to double taxation. It was observed that liability u/s 40(a)(ia) to deduct the requisite tax at source and such deduction was liable to be added to the assessee’s total income. It was further observed that if ALP was determined by TPO as NIL, it also amounted to an addition to the assessee’s total income again.
  1. In another case, it was observed that overruling the  wrong  application of a method doesn’t mean ruling out the selection  of that method  as If the wrong application of a method is corrected then the same could be selected again as the most appropriate method. However, at the same time, the Hon’ble ITAT rejected the Miscellaneous Application (MA) seeking directions to the TPO to adopt only a specific method [Ref: Carraro India Private Limited vs DCIT M.A. No.01/PUN/2020].
  2. No adjustment can be made by the TPO on the presumption of international transaction without any tangible evidence to prove so [Ref: Whirlpool of India Ltd [ITA 610/2014, Hon’ble Delhi High Court following Maruti Suzuki – ITA 110 of 2014 ]
  3. It has also been held that recharacterization or non-recognition of a transaction fully or partially, is not permissible for the Revenue Authorities. Recharacterizing the transaction of Share Application Money as a loan transaction was rejected by Hon’ble Delhi High Court in CIT vs Alpex Exports – (2014) 361 ITR 29. In the case of DIT v/s Besix Kier Dabhol – (2012) 210 Taxman 151 (Bombay) Hon’ble Bombay High Court rejected the re-characterization of debt as equity. In Aegis Limited [ITXA 1248 OF 2016] re-characterization of investment in preference shares as to loan was not accepted by the Hon’ble Bombay High Court
  4. Hon’ble Bombay High Court CIT vs Lever India Exports Ltd. – ITXA 1306 of 2014 has held that expenses cannot be rejected by the It was remarked that, “… It is not part of the TPO’s jurisdiction to consider whether or not the expenditure which has been incurred by the respondent- assessee passed the test of Section 37 of the Act and/or genuineness of the expenditure… The jurisdiction of the TPO is specific and limited i.e. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules.. Therefore, the adhoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained.”. Hon’ble Karnataka High Court in the case of Luwa India Pvt. Ltd. [ITXA No. 296/Mum/2017] has taken the same view following the ruling of the Hon’ble Bombay High Court.
  1. Further, ad-Hoc determination of ALP by TPO is not sustainable in Law as ruled in CLSA India Private Limited vs DCIT [ITA No.6748/Mum/2017].
  2. In the case of Indo-American Jewellery [I.T.A. 6194/Mum/2008] ITAT, Mumbai held that the external comparables selected by the assessee were from the public database and the assessee had complied with all the necessary rules and had followed a detailed search process while making an analysis therefore the transfer pricing study of the assessee and ALP of international transactions determined on the basis of study simply cannot be rejected without any cogent reasons by the TPO.
  3. It has been held that a comparable should not be rejected simply on the ground that its margin is extremely high (or low) in relative comparison to the data pertaining to its [Ref: JCIT vs Amway India Enterprises Pvt. Ltd. I.T.A. No. 2833/ DEL/2018].
  4. Foreign Associate Enterprises as comparable has been accepted in Ranbaxy Laboratories Ltd [IT(TP)A 1782/Del/2014]. Recently Madras High Court in the case of Virtusa Consulting Services Private Limited [T.C.A.No.996 of 2018] held that “the findings rendered by the TPO, DRP and the Tribunal foreclosing the assessee’s claim to refer to the foreign AEs as the tested party is legally not sustainable.” However, for selection of the comparable, in the case of Intervet India P. Ltd [39 SOT 93 (Mum)],  the ITAT has made an observation that the geographical contiguity of two countries need not mean similar economic and market conditions.
  1. In the case of Galaxy E Solutions India Pvt Ltd [IT(TP)A No.389/Bang/2021] ITAT, Bangalore made an observation that “… there is no principle of estoppel that applies in determining tax ”
  2. The TPO cannot question the assessee’s business decision. It was also held that it was not within TPO’s purview to question the benefit from royalty payment as held by the Hon’ble Bombay High Court in SI GroupIndia Limited [ITXA 965 of 2017]
  3. Hon’ble Bombay High Court in the case of WIKA Instruments India Pvt Ltd [ITXA 1141 of 2016] has ruled that there is no bar against the assessee rejecting its own comparables.
  1. The Hon’ble Delhi High Court on mere disagreement on the application of one or other methods for determining ALP between the assessee and the revenue authorities opined “…the mere circumstance of a disagreement either between the assessee and the Revenue authorities or amongst the Revenue authorities in the application of one or other methods for determining ALP ipso facto does not constitute question of law. This, however, not to say that if in a given case the aggrieved party is able to show that the rule applied has led to distortion or prejudice as the case may be, the question of law does not arise” in the case of McCain Foods India Pvt Ltd [ITXA 965 of 2017] 

Conclusion

Despite Transfer Pricing Law being there for more than 20 years, the primary aspect of determining ALP keeps evolving day in and day out. It is, therefore, felt that the entire process be streamlined. Further, it is preferable that just as it is done in service tax, a specific method/ rate/margin be prescribed for certain common transactions which are industry-specific / transaction-specific.

“Take up one idea, make that one idea your life. Think of it, dream of it, Live on that idea let the brain, muscles, nerves, every part of your body be full of that idea, and just leave every other idea alone. This is the way to success.”

— Swami Vivekananda

Introduction

The existing section 37 of the Income Tax Act, 1961 provides that any expenditure which has been incurred for the purpose of business or profession shall be allowed as expenditure. To claim the deduction under section 37 following ingredients should be present

  1. The expenditure should not be a capital expenditure
  2. The expenditure should not be covered under any heads in section 30 to 36
  3. The expenditure should be incurred for the purpose of business or in the course of business
  4. The expenditure should not be a personal expenditure
  5. The expenditure incurred should not be in nature mentioned under sub section 2A of section 37 i.e. advertisement expenses supporting any political
  6. The Expenditure incurred should not be for any purpose which is an offence or which is prohibited by

This section serves as a residuary section for claiming of the expenses which do not fall under section 30 to 36 and thus the Objective of Section 37 of the Act is to claim business expenditure incurred by assessee.

This article deals with only the last limb of the above i.e Expenditure incurred should not be for any purpose which is an offence or which is prohibited by law alongwith the Hon’ble Supreme court decision in the case of M/s. Apex Laboratories Pvt. Ltd. vs. DCIT [2022] S.L.P. (Civil) No. 23207 of 2019. 

Background of amendment in section 37(1)

The Finance [No. 2] act, 1998 introduced an explanation 1 to section 37(1) w.r.e.f 01-04-1962 which reads as follows

“Explanation 1 – For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence of which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and no deduction or allowance shall be made in respect of such expenditure.”

The CBDT also issued a circular No. 05/2012 dated 01-08-2012 and stated that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 imposes a prohibition on the medical practitioner and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries.

Accordingly, the CBDT clarified that claim of any expenses incurred in providing abovementioned or similar beliefs benefits are in violation of the regulations of the Indian Medical Council (Professional Conduct, Etiquette And Ethics)

Regulations, 2002 shall be inadmissible under section 37(1) being expenses prohibited by law.

This circular was challenged in Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry vs. CBDT (2013) 335 ITR 388 (HP), in which the High Court rejected the petition and the validity of the CBDT circular was upheld by holding.

“The regulation of the Medical Council prohibiting medical practitioners from unveiling a freebies is a very salutary regulation which is in the interest of patients and the public. This court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, section 37(1) comes into play. The petitioners contention that they circular goes beyond the section is not acceptable. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file an appeal but the circular which is totally in line with section 37 (1) cannot be said to be illegal to satisfy the AO that the expense is not in violation of the Medical Council regulations.”

The very Genesis of this Circular was also challenged in Delhi High court in the case of Max hospital vs. Medical Council of India in WP no. 1334 of 2013 in which it was held that the provisions of Medical Council of India only mind the medical professionals and not others, such as hospitals and pharmaceutical companies. In this given case a complaint was filed with the Ethics Committee of Medical Council of India alleging that the death of the patient was caused due to medical negligence of the doctor. The Ethics Committee passed an order punishing the erring doctors but this order had certain adverse remarks against the Max hospital as well.

Aggrieved by the adverse remarks, Max hospital filed writ petition contending that the Medical Council of India (Professional Conduct, Etiquette And Ethics) Regulations, have been framed in exercise of the power confirmed under section 20-A read with section 33(m) of the Indian Medical Council Act, 1956 and these regulations do not govern or have any concern with the facilities, infrastructure or running of the hospitals and secondly, that the Ethics Committee of the MCI acting under the regulations had no jurisdiction to pass any direction of judgment on the infrastructure of any hospital which power rests solely with the concerned state government. While dealing with this grievances, Hon’ble Delhi High Court noted and held that the respondent i.e the Ethics Committee had no jurisdiction to pass any order against the petitioner hospital under the 2002 Regulations.

Based on the aforesaid  judgments,  there have been various Decision’s of the Income Tax Appellate Tribunals and in some of these decisions have held that these expenses to be not allowable under section 37 (1) the Act, while in some it has been held it to be allowable.

Analysis and comments by the Hon’ble Supreme Court in Apex Laboratory’ Case

The Hon’ble Supreme Court Observed the following

  1. Section 37 of the act is the residuary provision and any business or professional expenditure it does not ordinarily fall under section 30 to 36 of the IGT act which are not in the nature of capital expenditure or personal expenses can claim the benefit of this exemption. However, the same is not
  2. The explanation one which has been inserted in 1998 r.e.f 1st April, 1962, Restricts the application of such exemption for, “any purpose which is an offence or which is prohibited by law.”

However they Income Tax Act does not provide the definition of these terms and therefore one has to look the following

  1. The General Clauses Act, 1897, which interalia defines “offence” as “any act or omission made punishable by any law for the time being in ”; &
  2. The Indian Penal code, section 40 defines it as “a thing punishable by this code”, read with section 43 which defines “illegal” as being applicable to “everything which is an offence or which is prohibited by law or which furnishes ground for civil action”
  1. Thus, the Hon’ble court held that Explanation 1 contains within its ambits all such activities which are illegal prohibited by law and/or
  2. It further held that the circular 05/2012 dated 01-08-2012 issued by CBDT is clarificatory in nature, was in effect from the date of implementation of regulation 6.8 of 2002 regulations which inter alia were published in the Official Gazette on 14th December 2009 Shall become effective from the date of it’s publication in the Official Gazette.
  1. It further held that though the Memorandum of Finance Bill, 1998 elucidated within its ambit of Explanation 1 to include “Protection money extortion, hafta, bribes, ”, yet ipso facto by no means is the embargo envisaged restricted to those examples. Such a narrow interpretation of explanation 1 to section 37(1) of the act defeats the purpose for which it was inserted, i.e. to disallow a taxpayer from claiming a tax benefit for its participation in an illegal activity and thus held that It is logical that when acceptance of freebies is punishable by the Medical Council of India (The range of penalties and sanctions extending to ban imposed on the medical practitioner), pharmaceutical companies cannot be granted the tax benefit for providing such freebies and thereby (actively and with full knowledge) enabling the Commission of the act which attracts such opprobrium.
  1. Howsoever, the Hon’ble Supreme Court accepted the contention that the petitioner did not indulge in any illegal activity by committing an offence, as there was no corresponding penal provisions in the 2002, Regulations applicable to it, but it held that there is no doubt that the action of the petitioner fell within the purview of “prohibited by law” by observing as under:-

“27. It is also a settled principle of law that no court will lend its aid to a party that roots it’s cause of action in an immoral or illegal act (ex dolo malo non ortitur action) meaning that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating. Doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations. Therefore, denial of tax benefits cannot be construed as penalising the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, preclude the assessee from claiming it is deductible expenditure.”

  1. The Hon’ble SC further held that that one arm of the law cannot be utilised to defeat the other arm of law and doing so would be opposed to public policy and bring the law into ridicule and further fortified the views taken in judgements of the High Court in CIT vs. Kap Scan and Diagnostic Center Pvt. Ltd. (2012) 344 ITR 476 (P & H) and Confederation of Indian Pharmaceutical Industry (SSI) CBDT (2013) 353 ITR 388( HP) where in it was held that it will be against public policy to allow the benefit of deduction under one statue, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statue.
  1. The Hon’ble court further observed the following from its own judgment in the case of T. Girish vs. Y. Subba Raju (D) by
  2. Rs. & Ors. (2022) SCC Online SC 60

“79. The illegality goes to the root of the matter. the illegality is not trivial or venial. …The illegality cannot be skirted nor got around. the plant if is confronted with it and he must face its consequence. the matter is clear. we do not require to rely upon any parliamentary debate or search for the purpose beyond the plain meaning of the law. the object of the law is set out in unambiguous terms….”

  1. In coming to the conclusion that the pharmaceutical companies gifting freebies to doctors etc is clearly “prohibited by law” and not allowed to be claimed as a deduction under section 37(1) of the act.

Comments

  1. There have been numerous Judgments wherein it has been held that the CBDT cannot provide “casus omissus”, i.e for a situation omitted from or not provided for by statute or regulation and therefore governed by the common law, to a statute or notification or any regulation which has not been expressly provided therein . The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like “contemporaneous expositio” in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However, the CBDT in its power cannot create a new impairment adverse to and assessee or to a class of assessee without any sanction of law. the circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of different regulation issued under a different act so as to impose any kind of hardship or liability to assessee. It is a trite law that the CBDT circular which creates a burden or a liability or imposes a new kind of imparity, the same cannot be reckoned retrospectively. the beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only.
  1. It appears that to overcome the above, an Explanation 3 has been inserted by Finance Act, 2022 w.e.f 01-04-2022 which inter alia is for the removal of doubts, & thus it is clarified that the expression “expenditure incurred by and assessee for any purpose which is an offence or which is prohibited by law” under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee –
    1. For any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or
    2. to provide any benefit or perquisite, in whatever form to a person, whether or not carrying on a business or exercising a profession and acceptance of such benefit or perquisite by such person is in violation off any law or rule or regulation or guideline, as the case may be for the time being in force,governing the conduct of such person; or
    3. to compound offence under any law for the time being in force, in India or outside (emphasis provided)
  1. At the same time, The Finance Act 2022, has also inserted a new section 194R, which requires any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall before providing such benefit or perquisite, as the case may be, 2 such resident ensure that tax has been deducted in respect of such benefit or perquisite…..
  2. Further, clause (iv) of section 28 requires any person in receipt of such benefit or perquisite, whether convertible into money or not, arising from the business or the exercise of the profession to be included as income in that person’s
  3. The government has blown hot and cold at the same time by inserting an explanation for disallowance of expenditure incurred by way of providing any benefit or perquisite which is in violation of any law or rule or regulation or guideline governing the conduct of such person and at the same time the person providing such benefit or perquisite also has to ensure a tax has to be deducted before providing such benefit or benefit which was always taxable in the hands of the recipient. Thus now such benefits will not only be taxed in the Hands of the recipient but also be disallowed in the hands of the provides of such benefits, leading to double
  4. Further, many of the issue’s, which were more or less settled, the illustrative list of which is as under
    1. Payment of Ransom money.
    2. Payment of money for settlement upon infringements of extra territorial laws.
    3. Payments for Fines and penalties which are compensatory in Nature.
    4. Expenses incurred on goods which have been imported without valid licences.
    5. Payment of Secret commission.
    6. Payment for Regularisation/ Violation of Procedures.
    7. Legal Expenses incurred to for defending any issues which is an offence or which is prohibited by

Conclusion

  1. With due respect to the Judgment of the Hon’ble SC, the Question now arises, has this judgment given a legal sanctity that circulars or notification issued by the CBDT will have a legal binding precedent more particularly when there was no law in respect of the same e. whether the circulars or notifications issued when there is no law, can override the Act?
  2. In view of this new development and find an answer, in my opinion the same will have to be tested before the Hon’ble courts, when there have been numerous judgements on the point that CBDT cannot provide “casus omissus” i.e. it cannot provide a supplement to a statute or notification or any regulation which has not been expressly provided therein prior to the enactment of the law.

The Finance Act 2020 and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 have made certain amendments in Sections 6(1) and 6(6) of the Income tax Act (Act) and has inserted Section 6(1A) in the Act.

Section 6(1) of the Act

Sub-section (1) of section 6 of the Act provides for situations in which an individual shall be resident in India in a previous year. Clause (c) thereof provides that the individual shall be Indian resident in a year, if he,-

  1. has been in India for an overall period of 365 days or more within four years preceding that year, and
  2. is in India for an overall period of 60 days or more in that

Clause (b) of Explanation 1 of said sub-section provides that an Indian citizen or a person of Indian origin (PIO) shall be Indian resident if he is in India for 182 days instead of 60 days in that year (Type I category). This provision provides relaxation to an Indian citizen or a PIO allowing them to visit India for longer duration without becoming resident of India.

An additional category of individuals (Type II category) has been added in Clause (b) of Explanation 1 of the said sub-section with effect from assessment year 2021-22. Under this amendment, the requirement of 60 days mentioned in condition (b) above has been substituted by 120 days, if an individual satisfies the following conditions:

  • the individual is a citizen of India or PIO; and
  • his total income (other than income from foreign sources) exceeds INR 15 lac during the previous

For the above purposes, “income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or profession set up in India).

Thus, an individual satisfying the aforesaid conditions will become a resident in India only if his stay in India is 120 days or more and has been in India in the four preceding years for 365 days or more.

An individual who becomes a resident of India upon applying the above additional criteria would become a “resident but not ordinarily resident” under Section 6(6) of the Act.

As per memorandum explaining the provisions of the Finance Act, 2020 instances have come to notice where period of 182 days specified in respect of an Indian citizen or PIO visiting India during the year, was misused. Individuals, who are actually carrying out substantial economic activities from India, manage their period of stay in India, so as to remain a non-resident in perpetuity and not be required to declare their global income in India. In order to discourage this Type II category of persons added in Clause (b) of Explanation 1 the said sub-section.

For Type II category persons, the relaxation of 120 days applies only if the total income (excluding income from foreign sources) exceeds INR 15 lac during the previous year.

The above amendment can give rise to treaty conflict as the individual can be a resident of another state and claim treaty benefit.

Section 6(1A) of the Act

A new sub-section (1A) to Section has been inserted with effect assessment year 2021-22 to provide that notwithstanding anything contained in sub-section (1), an individual, shall be deemed to be resident in India in any previous year if the following conditions are satisfied:

  1. The individual is a citizen of India;
  2. His total income (excluding income from foreign sources) exceeds INR 15 lac during the previous year;
  3. He is not liable to tax in any other country or territory; and
  4. He is not so liable by reasons of-
    1. his domicile; or
    2. residence;
    3. any other criteria of similar

For the removal of doubts, it is clarified that the sub-section (1A) shall not apply in case of an individual who is said to be resident in India in previous year under sub-section (1) to Section 6.

As per memorandum explaining the provisions of Finance Act, 2020 the issue of stateless persons has been bothering the tax world for quite some time. It is entirely possible for an individual to arrange his affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year. This arrangement is typically employed by high net worth individuals (HNWI) to avoid paying taxes to any country/ jurisdiction on income they earn. Tax laws should not encourage a situation where a person is not liable to tax in any country. The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizen not to be liable for tax anywhere in the in the world. Such a circumstance is certainly not desirable; particularly in the light of current development in the global tax environment where avenues for double non-taxation are being systematically closed.

This amendment is an anti-abuse provision to tax “stateless persons”. The individual who satisfies the aforesaid conditions would be deemed to be a resident even if has not stayed in India for a single day in the relevant previous year.

The individual covered by Section 6(1A) will be deemed to be “resident but not ordinarily resident” under Section 6(6) of the Act.

If a person, who was a citizen of India, becomes a citizen of other country, he will not be covered by Section 6(1A) even if he is not liable to tax in that country. Further, this provision will not apply to a PIO.

Section 6(1A) applies only if an individual is not liable to tax in any other country. Most of the countries in the Middle East do not levy any tax on individuals. As a result, Indian citizens employed in these countries may become deemed resident under the above criteria since they would not be liable to tax in middle eastern countries. However, as a relief to millions of Indians employed in middle eastern countries, the Central Board of Direct Taxes (CBDT) has issued a press release on 2 February 2020 clarifying that the above provision is an anti-abuse provision and is not intended to tax bonafide workers in foreign countries.

The phrase ‘liable to tax’ is subject matter of interpretation. Does the individual have to actually pay tax in that country for being regarded a liable to tax? The Supreme Court in the case of UOI v. Azadi Bachao Andolan (132 Taxman 373) has held that merely because exemption has been granted to respect of taxability of particular source of income, it cannot be postulated that the entity is not liable to tax. Liability to taxation is not the same as payment of tax. Liability to taxation is a legal situation; payment of tax is a fiscal fact. Although the above observations were made by the Supreme Court in the context of a Double Tax Avoidance Agreement (DTAA), they would equally apply to Section 6(1A) of the Act. Therefore, the expression ‘liable to tax’ does not necessarily imply that the person should actually be liable to tax in the other country and that it is enough if other country has right to tax such person, whether or not such a right is exercised.

Section 6(1A) provides relaxation for Indian citizens who do not earn substantial income in India (i.e. total income (excluding income from foreign sources) upto INR 15 lac. In the above presee release the CBDT has further clarified that in case of an Indian citizen who becomes deemed resident of India under this proposed provision, income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.

Model Conventions (OECD and UN) give the definition of resident in positive manner inasmuch as a person who is liable to tax in a State by reason of his domicile, residence or any other criteria of similar nature is a resident of that State; whereas Section 6(1A) defines a ‘resident’ in a negative manner, that is, a person who is not liable to tax in any other country by reason of his domicile or residence or any other criteria of similar nature.

Significantly, any individual who is treated as a “deemed resident” may not be eligible to avail benefits under any tax treaty entered into by India, as he/she may not qualify as tax resident of any other country. However, he/she may still be able to avail the benefit of foreign tax credit (FTC) in India of some of the taxes paid in other countries on income, which is also getting taxed in India.

Typically, countries have followed residence based tax system and/ or source based tax system or a balanced mixture of both. Presently, only two countries in the world levy tax based on citizenship – the US and Eritrea. As a departure from the normal rule, the Section 6(1A) seeks to treat an individual as an Indian tax resident based on citizenship rather than on residence or period of stay in India. The element of nationality or citizenship is now relevant for the purposes of determining the residential status of an individual taxpayer. Interestingly, such a provision, if applied to all Indian citizens (who do not pay taxes in their respective country of residence) can be characterized as a tax on citizenship.

The effects of the above amendments will now to be examined in various other provisions under the Act, which are discussed in following paras.

Scope of Total Income

As per Section 5(1) of the Act the total income of an individual who is resident and ordinarily resident includes all income form whatever source derived which-

  1. is received or is deemed to be received in India in such year by or on behalf of such person; or
  2. accrues or arises or is deemed to accrue or arise to him in India during such year; or
  3. accrues or arises to him outside India during such year

In the case of a person not ordinarily resident in India, the income which accrues or arises to him outside India shall be so included only if it is derived from a business controlled in or a profession set up in India.

Section 5(2) provides that the total income of any previous year of a non-resident individual includes all income from whatever source derived which-

  1. is received or is deemed to be received in India in such year by or on behalf of such person; or
  2. accrues or arises or is deemed to accrue or arise to him in India during such

Thus, before the amendment, an individual who is now a deemed resident would have been regarded as non-resident and would have been taxed only on his Indian income. Now in view of the above amendments such an individual will now be taxed on Indian income plus income which accrues or arises to him outside India if it is derived from a business controlled in or a profession set up in India. Therefore, the distinction between an ‘ordinarily resident’ and a ‘resident but not ordinarily resident’ is important since in the case of former, global income is taxable in India and in later case, Indian income plus income which accrues or arises to him outside India if it is derived from a business controlled in or a profession set up in India will only be taxed in India.

Disclosure of the Assets outside India Section 139(1) provides that every individual shall furnish his return of income if his total income exceeds the maximum amount not chargeable to income tax. As per fourth proviso to Section 139(1) a person, being a resident other than not ordinarily resident in India within the meaning of Section 6(6), who is not required to furnish a return under this sub-section and who at any time during the previous year holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India or is a beneficiary of any asset (including any financial interest in any entity) located outside India is required to furnish his return of income in India alongwith the disclosure of the assets outside India.

As the fourth proviso to Section 139(1) applies to a resident and ordinarily resident not to a resident but not ordinarily resident, a deemed resident will not have to disclose the details of foreign assets as required under the said proviso.

Similarly, the provisions of Sections 49 and 50 (rigorous imprisonment and fine for non- disclosure of foreign assets) of the Black Money (Undisclosed Foreign Income and Asset) and Imposition of Tax Act, 2015 would not be applicable to deemed resident.

Provisions related to tax deduction at source (TDS)

Certain TDS provisions are applicable to a payee, who is a resident, viz, Section 193 (interest on securities), Section 194 (dividend), Section 194A (interest  other  than interest on securities), Section 194C (payment to contractors), Section 194DA (payment in respect of life insurance policy), Section 194I (rent), Section 194IA (payment on transfer of immovable property), Section 194J (fees for professional or technical services), etc. All these provisions would now be applicable if the payment is made to a deemed resident. The provisions of Section 195 would not be applicable if the payment is made to a deemed resident.

Transfer Pricing Regulations

The transfer pricing provisions apply to an international transaction between two or more associated enterprises out of which atleast one is a non-resident. Prior to the insertion of Section 6(1A), an individual now regarded as deemed resident was regarded as a non-resident and hence, any transaction undertaken by him with a resident in India was an international transaction which was subject to the transfer pricing regulations. Now post amendment such non-resident person will become a deemed resident and therefore, the transfer pricing provision would not apply to an international transaction undertaken by such deemed resident. The transaction between the deemed resident and another non-resident will continue to be subject to transfer pricing provision.

Concessional Tax Regime – Chapter XII-A

Chapter XII-A provides special concessional provisions relating to certain income of non- residents. A ‘non-resident Indian’ being an individual, being citizen of India or PIO, who is not a resident of India is entitled for concessional rate of tax under Chapter XII-A. Now, since the individual covered by Section 6(1A) is deemed to be a resident, he will be able to claim concessional provision in Chapter XII-A only if he opts for a declaration under Section 115H; the said section provides that where a non-resident Indian in any previous year becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the assessing officer a declaration in writing alongwith his return of income under Section 139 for the assessment year for which he is so assessable, to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to the income specified in Chapter XII-A and if he does so, the provisions of the Chapter shall continue to apply to him in respect of such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets.

Conclusion

Globally, consensus have reached against taxpayers who manage to avoid or substantially reduce their global tax burden by spreading their stay or businesses across different tax jurisdictions. This highlights the intention of tax departments across the world in this regard. The new residency rule is an anti-abuse provision planned to plug loopholes in the system and not intended to tax income earned by those working bonafide overseas. If a genuine non-resident Indian is earning something in a jurisdiction where there is no tax, the government is not interested in including such income into Indian income that has been generated there. The recent law relating to “deemed resident” is a significant step taken by India to address the challenges faced in bringing “stateless” persons to tax. However, it will be interesting to see how the Indian tax department implements and enforces this law against non-resident individuals.

The new residency rule is an anti-abuse provision planned to plug loopholes in the system and not intended to tax income earned by those working overseas. If a genuine non-resident Indian is earning something in a jurisdiction where there is no tax, the government is not interested in including such income into Indian income that has been generated there.

  • THE INDIAN LEGAL SYSTEM
  1. The Indian legal system is the product of It is rooted in our soil; nurtured and nourished by our culture, languages and traditions; fostered and sharpened by our genius and quest for social justice; reinforced by history and heritage inspired and strengthened by English Law guided and enriched by concepts and precepts of justice, equity and good conscience which are indeed the hallmarks of the common law.
  • DOCTRINE OF BINDING PRECEDENT :
  1. The doctrine of binding precedent has merit of promoting certainty and consistency in judicial decisions and enables an organic development of law ‘besides providing assurance to an individual as to the consequence of transaction, forming part of his daily UOI v. Raghubir Sing 178 ITR 548 (SC)
  2. As per the doctrine of precedent, all lower Courts, Tribunals and authorities exercising judicial or quasi-judicial functions are bound by the decisions of the High Court within whose territorial jurisdiction these Courts, Tribunals & authorities functions. CIT v. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom).

Consolidated Pneumatic Tool Co. (India) Ltd. v. CIT (1994) 209 ITR 277 (Bom).

In the case of Shah Faesal (Dr.) v. UOI (2020) 4 SCC 727 (5-Judge Bench) the Hon Court held that the doctrine of precedents and stare decisis are the core values of our legal system. They form the tools which further the goal of certainty, stability and continuity in our legal system. Arguably, Judges owe a duty to the concept of certainty of law, therefore they justify their holdings by relying upon the established tenets of law. Court also held that the decision rendered by a coordinate Bench is binding on the subsequent Benches of equal or lesser strength. Followed National Insurance Co. Ltd v. Pranay Sethi (2017) 16 SCC 680. 

  • Doctrine OF STARE DECISIS
  1. ‘Stare decisis’ is a Latin phrase which means ‘to stand by decided cases’ or ‘to uphold precedents’. Doctrine of stare decisis is a general maxim which states that when a point of law has been decided, it takes the form of a precedent which is to be followed subsequently and should not normally be departed

By virtue of Article 141 of the Constitution of India, the judgments pronounced by the Supreme Court have the force of law and are binding on all the Courts in India. However, the Supreme Court itself is free to review its earlier decision and depart from it if the situation so warrants.

  1. The Madras High Court in Peirce Leslie & v. CIT [1995] 216 ITR 176 (Mad.) observed that the doctrine of stare decisis is one of the policy grounded on the theory that security and certainty require that accepted and established legal principles, under which rights may accrue, be recognised and followed, though later found to be not legally sound, but whether a previous holding of the Court shall be adhered to or modified, or over-ruled, is within the Court’s discretion under the circumstances of a case before it.

Income Tax Act, being a Central Act of Parliament, uniformity of construction by the various High Courts should be followed unless there are overriding reasons for taking a divergent view.

  1. If the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee then it is not open to the Revenue to challenge its correctness in the case of other assessee without just
    • UOI Satish Panalal 249 ITR 221 (SC);
    • UOI Kaumudini N. Dalal 249 ITR 219 (SC)
    • CIT J. K. Charitable trust (2008) 308 ITR 161 (SC)
    • Difference between “Res Judicata” and “Consistency Principle”

While “res judicate” does not apply to income-tax matters, the principles of consistency does. If the Revenue has accepted a practice and consistently applied and followed it, the Revenue is bound by it. The Revenue can change the practice only if there is a change in law or change in facts and not otherwise PCIT v. Quest Investment Advisors Pvt. Ltd, ITA no. 280 of 2016, dtd: 28/06/2018 (Bombay High Court)

Recently the Mumbai ITAT in case of The Municipal Co-op Bank Ltd., v. DCIT-1(3) (2) [ITA No.6512/Mum/2019 dt 23/5/2022] applied the principle of consistency and observed that “the principle of consistency is required to be maintained by the Revenue. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang reported in 193 ITR 321(SC). The facts prevailing in earlier years and subsequent years are exactly identical to the facts in the year under consideration. Hence, we have no hesitation to hold that the receipts from members in the sum of Rs.2,09,32,478/- being amount received from members towards SGF as capital receipts not chargeable to tax.”

  1. The Supreme Court in Sakhi Union of India AIR 2004 SC 3566 at 3577 observed : “Stare decisis is a well known doctrine in legal jurisprudence. The doctrine of stare decisis, meaning to stand by decided cases, rests upon the principle that law by which men are governed should be fixed, definite and known, and that, when the law is declared by Court of competent jurisdiction authorized to construe it, such declaration is absence of palpable mistake or error, is itself evidence of the law until changed by competent authority. It requires that rules of law when clearly announced and established by a Court of last resort should not be disregarded and set aside but should be adhered to and followed. What it precludes is that where a principle of law has become established by a series of decisions, it is binding on the Courts and should be followed in similar cases. It is a whole-some doctrine which gives certainty to law and guides the people to mould their affairs in future”.

In case of Bajaj Auto Finance Ltd. v. CIT (2018) 404 ITR 564 (Bom.)(HC)

Interpretations given by High Courts and Tribunals cannot be ignored by the Assessing Officers.

  • RATIO DECIDENDI
  1. Ratio decidendi is a Latin phrase meaning “the reason” or “the rationale for the decision”. The ratio decidendi is “the point in a case which determines the judgment” or “the principle which the case establishes”. In other words, ratio decidendi is a legal rule derived from, and consistent with, those parts of legal reasoning within a judgment on which the outcome of the case
  2. The substance of the above expression means the reasons given by the court or tribunal for deciding the issue and not every The judicial view on this subject is as under:

“The underlying principle of a judicial decision which forms its authoritative element for the future, is termed ratio decidendi. It is contrasted with an obiter dictum or that part of a judgment which consists of the expression of the Judges’s opinion on a point of law which is not directly raised by the issue between the litigants.” [Stephen Commentaries (Vol. I P. 11)]—referred to in CWT v. Dr. Karan Singh (1993) 200 ITR 614 (SC)

The expression ‘ratio decidendi’ means the reasons given by the court for deciding the issue before it. Where two reasons are given for arriving at a particular decision then, both reasons would form the ratio decidendi for the said decision and both reasons would be binding. Fibre Boards (P.) Ltd v. CIT( 2015) 376 ITR 596 ( SC)

  1. It is well settled that a decision as an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made therein… It would, therefore, be not profitable to extract a sentence here and there from the judgment and to build upon it because the essence of the decision is its ratio and not every observation found therein…. The enunciation of the reason or principle on which a question before a court has been decided is alone binding between the parties to it, but it, is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law [UOI v. Dhanwanti Devi (1996) 6 SCC 44]

At this juncture, would like to refer the decision of the Hon’ble apex court in CIT Sun Engineering Works (1992) 198 ITR (SC) wherein the court observed “while applying the decision to a later cases, the court must carefully try to ascertain the true principal laid down by the decision of the Supreme Court and not to pickout words or sentences from the Judgment divorced from the context of question under consideration by the court to support their reasoning.”

Thus, it is clear that it is the ratio of the decision which must be ascertained by the court/tribunal before applying the same.

  1. In case of Iskrareco Regent v. CIT (2011) 313 ITR 317 (Mad.)(High Court) it was held that Judgment cannot be read like a statute. Courts should not place reliance on decision without discussing factual situation involved in the said decision and how it would apply to the facts involved in the subsequent case. A ratio laid down by a higher forum should not be taken out context and construed like a statute.
  1. It is also well settled that the judgment of the Hon’ble Supreme Court or the High Court must be read as a whole and the observations from the judgment have to be considered in the light of the question, context and the facts of that It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Hon’ble apex Court, divorced from the context of the question under consideration and treat it to be the complete law laid down by the Hon’ble Court. It is also equally well settled that a decision is to be followed for what it actually decides and not necessarily for what logically follows from it.

ACIT v. Affection Investments Ltd. (2003) 80 TTJ 278 / (2004) 2 SOT 165 (Ahd.)(Trib.) 

JUDICIAL HIERARCHY

  • BINDING NATURE OF ORDER OF ONE BENCH OF TRIBUNAL ON ANOTHER
  1. A decision of a Division Bench and Third Member Bench is binding on the Single Member A decision of a Special Bench is binding on all the Benches of the Tribunal. A decision of the Special Bench can be distinguished or disregarded if there is any contrary view of the jurisdictional High Court or of the Supreme Court. A co-ordinate Bench should follow the view of another co-ordinate Bench or else refer the matter to a larger Bench through the President.
  2. For the sake of uniformity, one Bench of the Tribunal is bound to follow the view expressed by another Bench of the Tribunal unless the earlier view is per incurious – CIT L.G. Ramamurthi 110 ITR 453 (Mad) ; CIT v. S. Devaraj 73 ITR 1 (Mad).
  3. Tribunal should not come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal. Where a Bench differs from an earlier Bench, the matter should be referred to a larger Bench – CIT v. Goodlass Nerolac Paints Ltd. 188 ITR 1 (Bom). UOI v. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC) ; Pradip Chandra Parija v. Pramod Chandra Patniak (2002) 254 ITR 99 (SC)
  1. One bench cannot differ from the view of another Co-ordinate Bench. Mercedes Benz India Pvt. Ltd. v. UOI (2010) 252 ELT 168 (Bom) ITO vs Baker Technical Services Pvt. Ltd. (2010) 125 ITD 1 (Mum)(TM)
  1. In case of Hatkesh Co-op Housing Society v. ACIT (Bom.)(HC); [2016] 243 Taxman 213 (Bombay) the court observed that that when an identical issue, which had earlier arisen before the Coordinate Bench of the Tribunal on identical facts and a view has been taken on the issue then judicial discipline would demand that a subsequent bench of the Tribunal hearing the same issue should follow the view taken by its earlier Coordinate Bench. No doubt this discipline is subject to the well settled exceptions of the earlier order being passed per incurim or sub silentio or in the meantime, there has been any change in law, either statutory or by virtue of judicial pronouncement. If the earlier order does not fall within the exception which affects its binding character before a coordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different then the view taken by its Coordinate Bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue, which could only be on one of the well settled exceptions which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier order of Coordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it chooses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co. Op. Hsg. Society (Bom High court), and take a view contrary to that taken by its earlier Coordinate Bench. It is made clear that in case a subsequent bench of the Tribunal does not agree with the reasons indicated in a binding decision of a coordinate bench, then for reason to be recorded, it must request the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue.

Non Consideration of decision citied of the Co-ordinate Bench amounts to mistake apparent on record as held in Honda Siel Power Products Ltd. v. CIT (2007) 295 ITR 466 (SC)

  1. Special Bench decision of three members should have precedence over Third Member

Oman International Bank 286 ITR 8 (AT) (SB). Third Member decision is like the decision of Special Bench should be followed in same manner.

BINDING NATURE OF ORDERS OF TRIBUNAL:

  1. The First Appellate Authority or the Assessing Officer are bound by the orders of the Even where the assessee or the department has pursued the matter in reference proceedings, it does not act as a kind of stay of operation of the order of the Tribunal.
  2. The Assessing Officer cannot ignore the decision taken by the Tribunal in favour of the assessee and take a contrary view – ITO v. Siemens India & another 156 ITR 11 (Bom). Bank of Baroda v. H.C. Shrivastava (2002) 256 ITR 385 (Bom).
  1. The Assessing Officer cannot refuse to follow the order passed by the Commissioner against the application u/s.132(11) on the ground that the Commissioner had no jurisdiction over the matter – Union of India Pradip Kumar Saraf & Others 207 ITR 679 (Cal), Sree Rajindra Mills Ltd. v. CIT (1970) 28 STC 483, Union of India v. Kamlakshi Finance Corpn. Ltd. 1992 AIR SC 711 (712).Sub-Inspector Rooplal & Anr. v. Ltd. Governor & Ors. (2000) 1 SCC 644.; Gammon India Ltd v. Commissioner of Customs (2011) 10 GSTR 134 (SC); Nirma Ltd
  2. Commissioner of Central Excise, Ahmedabad 2012 (276) ELT 283 (Trib.) (Ahd.)
  3. It is neither permissible nor legal for any Court and Tribunal to comment upon the decision of the Supreme Court/High Similarly, it is also not permissible for the Tribunal to comment upon the manner in which a particular decision was rendered by the Supreme Court/High Court. It is also not permissible for the Tribunal to sidetrack or/and ignore the decision of the High Court on the ground that it did not take into consideration a particular provision of law. If such an approach is resorted to by subordinate Courts/Tribunals, then it is held to be not in conformity with the law laid down by the Supreme Court. It was deprecated by the Supreme Court as being improper.

National Textile Corporation Ltd., v. CIT (2008) 338 ITR 371 / 5 DTR 117 (MP)(High Court)

  1. The Hon’ble Bombay High Court in CIT Thana Electricity Supply 206 ITR 727 (738-739) after considering various judgements of Supreme Court laid down the following propositions with regard to binding precedent :
  1. The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found
  2. The decision of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises It does not extend beyond its territorial jurisdiction.
  3. The position in regard to the binding nature of the decision of High court on different Benches of the same court may be summed up as follows:
    1. A Single judge of High Court is bound by  the  decision of another single judge or a Division Bench of the same High It would be judicial impropriety to ignore that decision. Judicial comity demand that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is to direct the papers to be placed before the Chief Justice to enable him to constitute a larger bench to examine the question (see, Food Corporation of India v. Yadav Engineering & Contractor, AIR 1982 SC 1302).
    2. A Division Bench of High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High If one division bench differs from another division bench of the same High Court, it has to refer and transfer the case to a large Bench.
    3. Where there are conflicting decision of courts of coordinate  jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier
  4.  The decision of the High Court is binding precedent neither for another High Court nor for courts or Tribunal outside its own territorial It is well settled that the decision of a High Court will have the force of binding precedent only in the State or territories over which the Court has jurisdiction. In other States outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect. By no amount of stretching of the doctrine of stare decisis, can judgments of one High Court be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there in only one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant of that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all court s in the country by virtue of article 141 of the Constitution.

[CIT v. Thana Electricity Supply Ltd., (1994) 206 ITR 727, 7380-39 (Bom). Also see, Consolidated Pneumatic Tool Co. (India) Ltd. v. CIT. (1994) 209 ITR 277, 282 (Bom)]. 

  • BINDING NATURE OF HIGH COURT DECISION :
  1. A High Court must not brush aside the binding precedent or the judgment of a co-ordinate Bench simply because some of the arguments were either not canvassed or if canvassed were not considered. The binding precedent can be ignored only if it is per incurium

CIT v. Impact Containers Pvt. Ltd. (2014) 367 ITR 346 (Bom.) (HC)

  1. It is clear that when there are conflicting judgements of the jurisdictional High Court, normally the latter judgement would prevail provided it has referred to the earlier decision and distinguished the However, if the earlier judgement is not referred to at all, and there are two conflicting judgements, it is open to the Tribunal to follow that judgement, the reasoning of which appeals to the Tribunal. Since both the jurisdictional High Court judgement are binding the Tribunal has to prefer one or the other judgment and in such a case it can prefer either of the two judgments. Amarsingh Yadav v. Santi Devi AIR (1987) Patna 191 and CIT v. Madhukant M. Mehta (1981) 132 ITR 159 (Guj).
  1. Tribunal has to follow the decision of the jurisdictional High Court without making any comment upon the said decision, it is not permissible for the Tribunal to sidetrack and / or ignore the decision of the jurisdictional High Court on the ground that it did not take into consideration a particular provision of Dy. CIT v. Gujarat Ambuja Cements Ltd. (2011) 57 DTR 179 (Mum.)(Trib.)

Department cannot reargue settled/ concluded issues :

In the case of PCIT v. JWC Logistics Park Pvt. Ltd (2018) 404 ITR 310 (Bom.)(HC) the Court has passed, strictures against Department’s Advocate for “most unreasonable attitude” of seeking to reargue settled concluded issues and not following the judicial discipline and law of precedents.

Also see CIT v. Dedicated Healthcare Services (TPA) India Pvt. Ltd. (2018) 408 ITR 36 (Bom.) (HC) 

  • FAILURE TO FOLLOW HIGH COURT ORDER – PRIMA FACIE AMOUNTS TO CONTEMPT OF:
  1. The Sales Tax Officer passed an order refusing to follow the judgment of Bombay High Court in CST v. Pee Textiles 26 VST 281 on the ground that the said judgment “is not accepted by the sales tax department and the department has appealed against the same”. On a writ petition filed by the assessee, the High Court has taken the view that as the said judgment in Pee Vee Textiles is not stayed “the refusal to follow and implement the judgment of this Court by the Sales Tax officer in our considered view prima facie amounts to contempt of this Court” Garware Polyester v. State of Maharashtra and Ors. Source : www.itatonline.org
  1. Not following Binding  decision of High Court will amount to “Judicial Indiscipline”:

The ITAT passed an order in HDFC Bank Limited v. DCIT (2015) 155 ITD 765 (Mum)

(Trib) in which it held that the presumption laid down in CIT v. HDFC Bank Ltd (2014) 366 ITR 505 (Bom.) and CIT v. Reliance Utilities and Power Ltd (2009) 313 ITR 340 (Bom) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in CIT v. India Advantage Securities Ltd ( 2016) 380 ITR 471 (Bom) that s. 14A and Rule 8D does not apply to securities held as stock- in-trade cannot be applied as both (2015) propositions are contrary to Godrej & Boyce Mfg. Co Ltd v. Dy. CIT ( 2010) 328 ITR

81 (Bom). On a Writ Petition filed by the assesse the court held reversed the ITAT’s order on the ground that it is “Judicial Indiscipline” leading to complete chaos and anarchy in the administration of law. The court also held that, Tribunal to decide it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously follow the decisions rendered by this Court wherein a view a has been taken on identical issues arising before it. It is not open to the Tribunal to disregard the binding decisions of this Court, the grounds indicated in the impugned order which are not at all sustainable. Unless the Tribunal follows this discipline, it would result in uncertainty of the law and confusion among the tax paying public as to what are their obligations under the Act. Besides opening the gates for arbitrary action in the administration of law, as each authority would then decide disregarding the binding precedents leading to complete chaos and anarchy in the administration of law. When the assessee have more interest free funds than interest bearing funds, presumption is that investment in tax free securities has been made from interest free funds hence no disallowance is permissible. (AY.2008-09)

HDFC Bank Ltd. v. DCIT (2016) 383 ITR 529 (Bom.)(HC) Editorial: Order of Tribunal in HDFC Bank v. Dy CIT (2015) 155 ITD 765/ 173 TTJ 810/ 130 DTR 21 (Mum)(Trib) is set aside.

  1. The law laid down by the High Court must be followed by all authorities and subordinate Tribunals and they cannot ignore it either in initiating proceedings or deciding the rights involved in such a If in spite of the earlier exposition of law by the High Court having been pointed out and attention being pointedly drawn to that legal position, proceedings are initiated, it must be held to be a wilful disregard of the law laid down by the High Court and would amount to civil contempt as defined in section 2(b) of the Contempt of Courts Act, 1971.

Kaira District Co-op. Milk Producers Union Ltd v. Dy. CIT (2016) 386 ITR 633 (Guj)(HC)

30. Binding order – Larger Bench – On Division Bench :

Similarly a Division bench of a High Court is fully bound by the view taken by a larger Bench of the Court, regardless of the fact that another High Court prefers a different view. (A.Ys. 2002-03 & 2003-04)

KLM Royal Dutch Airlines v. ADIT (2007) 292 ITR 49 (Delhi)(High Court)

  1. BINDING NATURE OF HIGH COURT DECISION ON OTHER HIGH COURT Although the judgments given by a High Court is not binding on another High Court(s), they hold persuasive A High Court when not following another High Court should record its dissent along with the reasons therefore. Pradip J. Mehta v. CIT (2008) 300 ITR 231 (SC)
  1. The decision of one High Court is not a binding precedent upon another High Court and at best can only have persuasive Humayun Suleman Merchant v. CCIT (2016) 387 ITR 421/ 242 Taxman 189/140 DTR 209 (Bom)(HC)
  1. The law laid down by the High Court is binding on all the State CIT v. Raghuvir Synthetics Ltd( 2017) 394 ITR 1 (SC) 
  • BINDING NATURE OF NON JURISDICTIONAL HIGH COURT ON TRIBUNAL
  1. In the absence of any contrary view, decisions of non jurisdictional High Court have to be followed by the

The Mumbai ITAT in case of ACIT v. Dish TV India Ltd. (2018) 194 TTJ 897 / 169 DTR

253 (Mum.)(Trib.) held that in Absence of any decision by jurisdictional High Court, decision of non-jurisdictional High Court which is favorable to the assessee has to be accepted

MERELY FILING OF APPEAL WILL NOT AFFECT BINDING PRECEDENT :

  1. It is not permissible for the authorities below to ignore the decision of the higher forum on pretext that an appeal is filed in the Supreme Court, which is pending or that steps are to be taken to file an appeal.

Addl. CIT v. Royal Bank of Scotland N. V. (2011) 130 ITD 305 (Kol.)(Trib.) Similarly in case of MSD Pharmaceuticals (P) Ltd. v. Add.CIT (2018) 162 DTR 149 / 191 TTJ 702 (Delhi) (Trib.) it was held that merely because a binding judicial precedent from jurisdictional High Court had been challenged by revenue authorities before Supreme Court—Binding nature of a judicial precedent, as long as it hold field i.e. was not overturned, remained unaffected Similarly in case of PCIT v. Associated Cable Pvt. Ltd. (Bom.)(HC), (ITXA. No. 293 of 2016 dt. 03.08.2018) it was held that merely filing of an SLP would not make the order of this Court bad in law or give a license to the Revenue to proceed on the basis that the order is stayed and/or in abeyance.

Also Assessing Officer is bound by decision of Tribunal-Pendency of an appeal would not amount to an order of stay. LIC Employees Co-Operative Bank Ltd. v. ACIT (2018) 408 ITR 287 (Mad) (HC)

  1. Judgement of a non-jurisdictional High Court has to be preferred over the judgement of a Special Bench of the ITAT . Nanubahi D. Desai v. ACIT (2014) 149 ITD 16 (SB)(Ahd)(Trib) Minda Sai Ltd. v. ITO (Delhi)(Trib.); www.itatonline.org 
  • BINDING NATURE OF SUPREME COURTS’ JUDGMENT OTHER PARTIES [ART. 141, 226]
  1. In matters arising under public law, when the validity of a particular provision or levy is challenged, the legal position is that when the Supreme Court declares the law and holds either a particular levy to be valid or invalid it is wrong to contend that the law laid down by the Supreme Court in that judgment would bind only those parties who were before the court and not others in respect of whom appeal had not been To do so would be to ignore the binding nature of a judgement of the Supreme Court under article 141 of the Constitution of India. To contend that the conclusion reached by the Supreme Court in a case relating to the validity of a levy would apply only to the parties before the court is to destroy the efficacy and integrity of the judgement and to make the mandate of Article 141 illusory. U P. Pollution Control Board & Others v. Kanoria Industries Ltd. & Anr. (2003) 259 ITR 321 (SC) 
  • Decision of Supreme Court interpreting Excise Act – Not binding in interpreting provisions of Income-tax Act – Object of legislation.
  1. While it is true that any law declared by the Supreme Court is one to be followed and applied by all courts in the country in view of the mandate under article 141 of the Constitution of India, it is only such law that is declared in a particular context and in respect of the particular statutory provisions and not in general. An interpretation placed on a particular enactment cannot be just engrafted to the provisions of another

CIT v. Ecom Gill Coffee Trading P.Ltd. (2014) 362 ITR 204 (Karn.)(HC) CIT v. B. Fouress P. Ltd. (2014) 362 ITR 204 (Karn.)(HC)

In the case of UOI v. M. V. Mohan Nair (2020) 5 SCC 421 the Supreme court observed that the pronouncement of the law on point shall operate as a binding precedent on all courts within India. Law declared by the Supreme Court has to be essentially understood as a principle laid down by the Court and it is this principle which has the effect of a precedent. A principle as understood from the word itself, is a proposition which can only be delivered after examination of the matter on merits. It can never be a summary manner, much less be rendered in a decision delivered on technical grounds, without entering in to merits at all. A decision unaccompanied by reasons can never be said to be a law declared by the Supreme Court, though it will bind the parties inter se in drawing the curtain on the litigation. (CA No. 2016 of 2020 dt 5-3-2020)

  • PRECEDENT – ADVANCE RULINGS
  1. Decision of Advance rulings Authority on similar facts in respect of same subject matter can be followed DIT v. Dun and Brand Street Information Services India P. Ltd. (2011) 338 ITR 95 (Bom.)(High Court)
  1. Similarly the Andhra Pradesh High Court held that the Advance Ruling Authorities order under section 67(4)(11) was binding not only on the applicant but also similar situated other dealers.

Tirupati Chemicals, Vijaywada & Anr. v. Dy. Commercial Tax Officer (2011) 52 APSTJ P. 48 (AP)(High Court)

 DOCTRINE OF “PROSPECTIVE OVERRULING” :

  1. A judicial decision acts According to Blackstonian theory, it is not the function of the Court to pronounce a “new rule” but to maintain and expound the “old one”. In other words, judges do not make law they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.
  1. It is no doubt true that the Court has accepted the doctrine of “prospective overruling”. It is based on the philosophy; “the past cannot always be erased by new judicial declaration”. It may, however, be stated that this is an exception to the general rule of doctrine of (A.Y. 1996-97) ACIT v. Saurashtra Kutch Stock Exchange Ltd. (2008) 305 ITR 227 SC
  1. Normally, a decision of the Supreme Court enunciating a principle of law is applicable to all cases irrespective of the stage of pendency, because it is assumed that what is enunciated by the Supreme Court is in fact, law from inception. It is for the Supreme Court to indicate whether the decision in question will operate In other words, there shall be no prospective overruling unless it is so indicated in the particular decision. Murthy M.A. v. State of Karnataka & Others (2003) 264 ITR 1 (SC)
  1. It is axiomatic that a decision of the Supreme Court does not make the law but it only declares the law as always existing since its inception .

Mark (India) Ltd v. CIT (2017) 393 ITR 91 (Bom)(HC) 

  • RULE OF PRECEDENT – AND RULE OF PER INCURIAM
  1. The discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law consistency of rulings and comity of Courts would become a costly casualty. A decision or judgment can be per incuriam if any provision in a statute, rule or regulation, which was not brought to the notice of the Court. A decision or judgement can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgement of a Co-equal or Larger Bench; or if the decision of a High Court is not in consonance with the views of Supreme Court. The per incuriam rule is strictly and correctly applicable to the ratio decidendi and not to obiter dicta. Sundeep Kumar Bafna v. State of Maharashtra & Anr. AIR 2014 SC 1745 
  • WHEN A PRECEDENT CEASES TO BE BINDING
  1. The Andhra Pradesh High Court in CIT B.R. Constructions [1993] 202 ITR 222 states that a precedent ceases to have a binding force in the following situations –
    1. if it is reversed or over-ruled by a higher court;
    2. when it is affirmed or reversed on a different ground;
    3. when it is inconsistent with the earlier decisions of the same rank;
    4. when it is sub silentio (non- speaking judgment)
    5. when it is rendered per incuriam (decision decided without referring to a statutory provision or a precedent).
  • PRECEDENT – POWER OF SUPREME COURT TO DEPART FROM EARLIER DECISIONS: CONSTITUTION OF INDIA ART 141 AND 145 :
  1. If a  principle laid down by SC is demonstrably inconsistent with the scheme of the Constitution, it becomes the duty of court to correct the wrong principle laid down. It is also the duty of SC to correct itself as early as possible in the matters of the interpretation of constitution “as perpetuation of mistake will be harmful to public interest”.

Desiya Murpokko Dravida Kazhagam & Anr v. Election Commission of India (2012) AIR Supreme Court 2191

  •  BINDING – SUBSEQUENT DECISION OF SMALLER BENCH OF SUPREME COURT – ARTICLE 149 OF THE CONSTITUTION OF INDIA
  1. If subsequent decision of smaller Bench of Supreme Court interpreting decision of larger Bench of Supreme Court is placed before a High Court, latter is bound to follow subsequent decision by smaller Bench which interprets decision of Larger Bench because that is interpretation of larger Bench of Supreme Court and High Court cannot make a different interpretation than one made by subsequent decision of Supreme Court which is binding upon CIT v. Oberoi Hotels (P) Ltd. (2011) 334 ITR 293 (Cal.)(High Court) 
  • OBITER dicta ARE NOT BINDING:
  1. Word ‘Obiter’ means ‘by the way’, ‘in passing’, ‘incidentally’. Obiter  dictum is the expression of opinion stated in the judgment by a Judge on a question immaterial to the ratio However, these are of persuasive value. They are unnecessary for the decision of a particular case.
  2. In Mohandas Issardas Santhanam (A.N.) AIR 1955 Bom. 113 it was held that it would be incorrect to say that every opinion of the Supreme Court would be binding on the High Courts. Only the opinion expressed on a question that arose for the determination of a case is binding

RES  JUICATA  v.  RULE  OF CONSISTENCY:

INTRODUCTION:

  1. Finality to assessment facilitates the assessee to plan his affairs and to decide the business planning for long term However tax authorities feel that there is no finality to any assessment as the principle of Res Judicata is not applicable to tax proceedings.
  2. The word ‘Res Judicata’ is derived from the Latin language. It means a case or suit already The principles of Res Judicata, in the eye of law, is that if on any facts and/or law, a particular decision is made than subsequently if any lis on similar facts and/or law is to be decided between the same parties, it should be same as made earlier.
  3. As per The Law Lexicon “Res adjudicata” means “A matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment; a thing definitely settled by judicial decision, the thing adjudged”.
  4. Section 11 of The Code of Civil Procedure, 1908, defines “Res Judicata” as under:- “No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court.”
  5. The doctrine of Res Judicata is based on three maxims:
    1. Nemo debet lis vaxari pro eadem causa (no man should be vexed twice for the same cause);
    2. Interest republicae ut sit finis litium (it is in the interest of the state that there should be an end to a litigation); and
    3. Re judicata pro veritate occipitur (a judicial decision must be accepted as correct).
  1. The Bombay High Court, in A. Shah and Co. v. CIT (1956) 30 ITR 618 (Bom.) has held that “the principle of estoppel or res judicata does not strictly apply to the Income Tax authorities” and yet declaring that:

“An earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence.”

  1. The courts have cautioned that the doctrine of Res Judicata should not be stretched too far under direct tax laws. A Tribunal should extremely be slow to depart from its earlier
  2. In Radhasoami Satsang CIT (1992) 193 ITR 321 (SC) the Hon’ble Apex Court observed as under:

“16. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year”.

  1. In the case of Municipal Corporation of City of Thane Vidyut Metallics Ltd & Anr. (2007) 8 SCC 688, wherein the facts were that in earlier litigation, the court had considered the evidence of Quality control Manager who was described as “expert” on the point and accepting his evidence, the court held that the goods imported by the company were ferrous in nature and not non ferrous and the company was right in paying octroi under item 71. It was thus a “fundamental factor” and the nature of goods imported by the company was directly and substantially in issue, on the basis of which the decision was taken. The Hon’ble Supreme Court observed that in taxation matters, the strict rule of res judicata as envisaged by section 11, CPC 1908 has no application. As a general rule, each year’s assessment is final only for that year and does not govern later years, because it determines the tax for a particular period.

The Hon’ble Supreme Court further observed that in facts of present case it was not possible to hold that the earlier decision would not continue to operate in subsequent years unless it is shown that there are changed circumstances or the goods imported by the company in subsequent years was different than the one which was imported earlier and in respect of which decision had been arrived at by the court. Therefore, it was held that the Revisional Court as well as the High Court were right in giving benefit of the decision in the earlier litigation to the respondent company. The Hon’ble Supreme Court upheld the observation of Supreme Court in case of Radhaswami Satsang (Supra).

  1. Further principles of res judicata not applicable in cases where order is passed without jurisdiction. Hence would not be binding on other party even if no appeal filed against the UOI & Anr v. Association of Unified Telecom Service Providers of India & Ors AIR 2012 SC 1693
  1. On going through the various judicial pronouncement following principles emerge:
    1. As a general rule principle of res judicata or estoppel is not applicable to income-tax An assessment of particular year is final and binding in relation to the assessment year in which the decision is given.
    2. In income-tax proceedings though the principle of res judicata does not apply, yet rule of consistency does apply e., if no fresh facts come to light on investigation, the Assessing Officer is not entitled to reopen the same question on mere ground of suspicion or change of opinion. This is based on principle of natural justice and expediency. The principle of comity lends weight to this preposition.
    3. A finding arrived at in a subsequent year ignoring, without material, the conclusion arrived at earlier would be vitiated in law. There should be no deviation/variation from earlier year’s decision unless there are fresh circumstances to warrant a deviation from such previous decision unless it otherwise emerges that the previous decision is wrong.
    4. Principle of res judicata or estoppel and principle of consistency or expediency apply with equal force to both Income-tax authorities on one hand and the Tribunal/High Courts on the other.
    5. This principle broadly safeguards the interests of the assessees against arbitrary actions arising out of prerogative interpretations and biased action.
  1. Principle of res judicata does not apply in matters pertaining to tax of different assessment The reason for following the earlier year decision is not because of principle of res judicata but because of theory of precedent. This is subject only to the gateways of distinguishing the earlier decisions and where the earlier decision is per incuriam. Bharat Sanchar Nigam Ltd. & Anr. v. UOI & Ors. (2006) 282 ITR 273 (SC) 

EFFECT OF DISMISSAL OF SPECIAL LEAVE PETITION :

  1. A mere dismissal of SLP does not mean that High Court decisions is approved on merits so as to be a judicial precedent. In Tej Kumari v. CIT (2001) 247 ITR 210 Full Bench of the Patna High Court held that when a SLP is summarily rejected or dismissed under Art 136 of the Constitution such dismissal does not lay down any law. The decision of the High Court against which the SLP is dismissed in limine would not operate as res-judicata.

Dismissal of SLP in limine at threshold without giving any detailed reasons , does not constitute declaration of law or binding precedent . State of Orissa v. Dhirendra Sundar Das (2019) AIR SC 2331

However, when Supreme court dismisses an SLP with reason it might be taken as the affirmation of the High Court views on merits of the case, thus there is no reason to dilute the binding nature of precedents in such cases.

The fact that the Special leave petition against the decision of the High Court was dismissed by the Supreme Court would not amount to a confirmation of the view of the High Court. Palam Gas Service v. CIT (2017) 394 ITR 300 (SC)

In case of Khoday Distilleries Ltd. v. Sri Mahadeshware Sahakara Sakkare Kharkhane Ltd (LB) ( 2019) 262 Taxman 279/ 308 CTR 1 104 (SC) it was held that Special leave petition was dismissed against High Court order in limine without giving any reasons, review petition filed by appellant, in High Court would be maintainable.

[Followed in Dhiraj Manoharro Chore v. State of Maharashtra AIR 2020 Bom 65 (FB)] / Zahedabi Abdul Razaque Shete and Ors. v. Maharashtra State Board of Waqf Pan Chakki Aurangabad AIR 2020 Bom. 100]

  1. Under Article 136 of the Constitution the Supreme Court may reverse, Modify or affirm the judgement-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing the petition for special leave to
  2. The Hon’ble Bombay High Court in the case of CIT M/s. Pamwi Tissues Ltd. (2008) 3 DTR 66 (Bom) / 215 CTR 150 (Bom) while considering the issue of interpretation of Sec. 43B, 2(24)(x) r/w sec. 36(1)(va) as to the claim of deductions in respect of PF, ESIC Contribution held that the Hon’ble Supreme Court in CIT v. M/s. Vinay Cement Ltd. had dismissed the SLP, [(2007) 213 CTR 268] as it was not a fit case for grant of a SLP therefore cannot be said to be the law decided on the subject and it was not a binding precedent as per Article 141 of the Constitution of India.
  1. In State of Orissa & v. M.D. Illyas, (2006) 1 S.C.C.275 the Supreme Court has held that a decision is a precedent on its own facts and that for a judgment to be a precedent it must contain the three basic postulates. A finding of material facts, direct and inferential. An inferential finding of fact is the inference which the Judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) Judgment based on the individual effect of the above.
  2. In Delhi Administration Madan Lal Nangia AIR 2003 SC 4672 it was held that if a SLP is summarily dismissed, this cannot prevent other parties from filing a SLP against the same judgement.
  3. The Supreme Court in Indian Oil Corporation v. State of Bihar & Ors. (1987) 167 ITR 897 (SC) has clarified that the dismissal of a special leave petition by the Supreme Court by a non-speaking order would not operate as res judicata by observing that- “When the order passed by this Court was not a speaking one, it is not correct to assume that this Court had necessarily decided implicitly all the questions in relation to the merits of the award, which was under challenge before this Court in the special leave petition. A writ proceeding is a wholly different and distinct proceeding. Questions which can be said to have been decided by this Court expressly, implicitly or even constructively while dismissing the special leave petition cannot, of course, be reopened in a subsequent writ proceeding before the High Court. But neither on the principle of res judicata nor on any principle of public policy analogous thereto, would the order of this Court dismissing the special leave petition operate to bar the trial of identical issues in a separate proceeding, namely, the writ proceeding before the High Court merely on the basis of an uncertain assumption that the issues must have been decided by this Court at least by implication. It is not correct or safe to extend the principles of res judicata or constructive res judicata to such an extent so as to found it on mere guesswork”.
  1. In all cases of admission of the SLP the further decision on merits follows whereas in every case of dismissal there is no question of further decision or proceedings from the Supreme Court and effectively the order of the lower Court/authority which is challenged before the apex Court is affirmed and becomes In such a situation the question whether the person/s aggrieved by the order of the lower Court could agitate his grievance by way of an application for review or rectification of mistakes apparent from record so as to pursuade the lower authority to modify its final order in the light of the application for rectification or review, to the extent and in the manner found appropriate is still open for consideration. The respondent often pleads that the order of the lower Court having been affirmed by the Supreme Court it is no more open to the lower authority, after the dismissal of the SLP to entertain any application and/or decide the same for the purpose of review, revision or modification of the order which has been upheld by the Supreme Court. The controversy is not free from doubt. The effect of dismissal of SLP by the Supreme Court is that the order of the Supreme Court does not constitute res judicata to deny the petitioner the right to agitate matters on merits before the competent Court / Tribunal.
  1. Before the Delhi Tribunal Special Bench in the case of CIT Circle II Meerut v. Padam Prakash (HUF) [2009] 117 ITD 129 (Del.) (SB) the assessee had filed a Miscellaneous Application against the decision of the Special Bench alleging certain mistake in the decision. On the date of hearing it was noticed that the decision of Special Bench was challenged in appeal before High Court u/s. 260A of the Act and the Hon’ble High Court held that the order of Spl. Bench was not sustainable. In view of the above the Tribunal held that as the Special Bench decision was merged with the order of High Court there was no question of rectification.
  2. Similarly where a question has been decided in favour of the assessee or the Department, as the case may be by the High Court, the mere fact that a SLP from the judgment of the High Court is pending before the Supreme Court will not be a ground for allowing an application u/s. 256(2) of the Act, for directing the Tribunal to state the case and refer a question of law to the High Court because, until the question is finally decided by the Supreme Court, the High Court would be bound by its own earlier decision. [See CIT v. Desai Brothers Ltd. (1991) 189 ITR 88 (Bom) and CIT v. Godavari Sugar Mills Ltd. (1992) 198 ITR 196 (Bom)]
  • EFFECT OF DISMISSAL OF APPEAL BY HIGH COURT HOLDING THAT NO SUBSTANTIAL QUESTION OF LAW AROSE:
  1. Before the Delhi Special Bench in the case of Medicare Investments v. Jt. CIT Sp.
  2. 20 (2008) 114 ITD 34 the issue arose for consideration was, whether the decision of Hon’ble Delhi High Court dismissing the appeal filed by the Revenue against the order of the Tribunal passed in the case of Abhinandan Investment Ltd. & Ors. [2002] 254 ITR 538 (Del.) holding that no substantial question of law arose, is a decision on merits and constitutes a binding precedent which this Special Bench is bound to follow.
  1. The Delhi Bench relied on the judgement Hon’ble Gujarat High Court (2006) 283 ITR 402 (Guj), wherein it had been held that dismissal of tax appeal by the High Court holding that no substantial question of law arises implies that the order of the Tribunal on the issue stands merged in the order of the High Court and for all intents and purposes, it is the decision of the High Court which is operative and which is capable of being given effect to. The Hon’ble Gujarat High Court, observed that a plain reading of
  2. 260A inclusive of sub-sections of the said section makes it clear that the only jurisdictional powers that the High Court can exercise are to hear an appeal and the High Court does not have any powers under the statute to grant any leave as such for filing an appeal. Explaining further, it was observed by their Lordships that the person filing the appeal is not required to seek any leave from any authority much less the High Court prior to filing of the appeal and it is, therefore, not possible to bifurcate the jurisdiction or powers available to the High Court while dealing with an appeal under s. 260A of the Act.
  3. It was held that in all eventualities, what merges is the operative part of the order under appeal after its confirmation, reversal or modification and there would be a merger even in a case where the reasoning of the subordinate forum is not expressly It was held that if the merger is issue-specific, there is fusion of order only to that limited extent but it cannot be successfully contended that where the appellate Court merely accords approval to the reasoning of the lower Court or forum, there is no decision of the appellate Court or forum. It was also clarified by the Hon’ble Gujarat High Court that where the appeal is dismissed on account of being barred by limitation, being defective in nature or the appellant having no locus standi to prefer the appeal, the theory of merger of the order of the subordinate forum in the order of the superior forum cannot be applied because there is no “order” made by the superior forum on merits and the controversy between the parties has not been gone into by the appellate forum. It was also held that it is thus not open to any person to contend that there is no decision of the High Court and the subordinate forum is entitled to take a contrary view than the one adopted in the earlier proceedings which has been affirmed by the High Court by a process of dismissal of appeal simpliciter.
  1. In view of the above Gujarat High Court decision the Spl. Bench held that Hon’ble Delhi High Court in the case of Abhinandan Investment & Ors. (supra), upholding the order of the Tribunal and dismissing the appeal filed by the Revenue on a similar issue holding that no substantial question of law arose, is a decision on merits and since the issue involved in the present case as well as all the material facts relevant thereto, as discussed above, are similar to that of Abhinandan Investment Ltd. & Ors. (supra), the said decision is binding on the subordinate forums within the jurisdiction of Hon’ble Delhi High Court including this Special Bench.
  • DOCTRINE OF MERGER: SPEAKING & NON-SPEAKING ORDER:
  1. The term merger means to sink or disappear in something else, to become absorbed or extinguished to be combined or be swallowed Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist. The doctrine is neither a doctrine of Constitutional law nor a doctrine statutorily recognized. It is a common law doctrine founded on the principles of propriety in the hierarchy of justice delivery system.
  2. It is a settled law that when the SLP is dismissed, whether by a speaking or non-speaking order whether in limine or on contest, second SLP would not lie. However the statement cannot be stretched and applied to hold that such an order attracts applicability of doctrine of merger and excluded jurisdiction of the court or authority passing the order to review the
  3. It may be that inspite of having granted leave to appeal , the Court may dismiss the appeal on such grounds as may have provided foundation for refusing the grant at the earlier But that will be a dismissal of appeal. The decision of the Supreme Court would result in superseding the decision under appeal attract doctrine of merger. But if same reason has prevailed with the Court for refusing leave to appeal, the order would not have been an appellate order but only an order refusing to grant the leave to appeal.
  4. The Supreme Court considered the scope of Article 136 in a case Kunhayammed v. State of Kerala (2000) 245 ITR 360 (SC) where the main issue related to the doctrine of merger and the effect of dismissing a special leave petition by either a speaking or non speaking order. After a brief discussion of the earlier case law on the subject, the court summarized its conclusions as under:-
    1. Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of
    2. When the leave to appeal is granted the special leave petition is converted into an
    3. An order refusing special  leave to appeal may be a non speaking order or a speaking one. In either case it does not attract the doctrine of If the Petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the Court that a case for invoking appellate jurisdiction of the Court was not made out. Therefore, neither the doctrine of merger nor Article 141 of the Constitution will apply to such a case.
    4. If the order refusing leave to appeal is a speaking order e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country.
    5. Once leave to appeal has been granted and appellate jurisdiction of supreme court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely
    6. On an appeal having been referred or a petition seeking leave to appeal having been converted into an appeal before Supreme Court the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub rule(1) of Rule (1) of order 47 of the
    7. Inspite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for continues to be final, effective and binding as between the Once leave to appeal has been granted, the finality of the judgement, decree or order appealed against is put in jeopardy though it continues to be binding and effective between the parties unless it is a nullity or unless the court may pass a specific order staying or suspending the operation or execution of the judgment, decree or order under challenge.
  1. The Hon’ble Apex Court in case of M. Salgaocar & Bros. P. Ltd. (2000) 243 ITR 384 (SC) held that when an appeal is dismissed by the Supreme Court by a non speaking order the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of Article 133 of the Constitution.

Foreign Judgement: Execution and enforcement : Civil Procedure Code, 1908 sec. 44A, Order 21 Rule 22 :

  1. The CPC provides specific provisions for execution of the decree passed by the court in reciprocating The reciprocating territory means the territory as is defined under section 44-A of the CPC. It is clear even from the specific provision that any foreign judgment or decree cannot be put for execution unless there is reciprocating agreement or treaty as contemplated. The national or international treaties and or conventions and or agreements have their own value for the purposes of inter-border transactions and various such jurisdictional aspects. Everything is under control of the respective provisions of the respective States and the countries. Nothing is free and or no one can take any steps in any country without the sanction/permission and or the filtrations so contemplated under the respective acts of the country. Section 13 contemplates when a foreign judgment shall be conclusive so that appropriate suits and or proceedings can be initiated by the concerned court/ parties in India. It provides the procedure to be followed before accepting the foreign judgment’s conclusiveness. It also means the merits of such judgments. Section 14 contemplates presumption so far as the foreign judgments are concerned. Section 114 of the Evidence Act deals with the presumptive value, even of the foreign judgment. The concept presumption itself means that it is always rebuttable if a case is made out. Therefore, merely because it is a foreign judgment and or decree, that itself is not conclusive judgment for the purpose of final execution in India. Both required pre testing or pre filtrations as provided under the CPC and other relevant laws and rules. There are no provisions whereby any party/person can directly invoke the insolvency Act, based upon such foreign ex-parte judgment/ decree. Even the foreign award cannot be executed in such fashion in India. It is also subject to the procedural filtration and the challenge.

Abraaj Investment Management Ltd v. Neville Tuli & Ors. AIR 2013 (NOC) 91 (Bom.)

Foreign judgement is enforceable before court in India. Foreign judgement passed after considering evidence on merits, hence enforceable.

Masterbaker Marketing Ltd. v. Noshir Mohsin Chinwalla. AIR 2015 (NOC) 771 (Bom.)

  1. On bare reading of Order 21, Rule 22, it is clear that where an application is made for execution of a decree filed under the provisions of 44-A, the Court executing the decree has to issue a notice to the person against whom execution is applied for requiring him to show cause as to why the decree should not be executed against him. On conjoint reading of sec. 44A with order 21, Rule 22, it is clear that unless execution application for enforcement of cost certificates issued by foreign Court was filed in the court having jurisdiction and unless notice under Order 21, Rule 22 of Code of Civil Procedure 1908 is filed by the decree holder for enforcement of such decree and/or order passed by foreign court and unless show cause notice is issued by court having jurisdiction, such foreign decree and/or order cannot be executed. Filing notice under Order 21, Rule 22 and issuance of show cause notice by court is mandatory and till such notice is allowed, such decree and/or order passed by foreign court cannot be enforced.

Cost imposed by English Court and Execution in India. The relevant date for determining rate of conversion of Sterling Pounds into Indian Rupees would be date on which decree became executable and not the date of issuance of cost certificate by foreign court. Janardhan Mohandas Rajan Pillai v. Madhubhai Z. Patel & Ors AIR 2014 (NOC) 374 (Bom.)

  1. In Coal India Ltd v. Canadian Commercial Corporation AIR 2013 (NOC) 265 (Cal.) the parties had agreed, that the arbitration would be held at Geneva, Hence, the Swiss law could be the curial law. The parties agreed, rules framed by ICC, Paris would be the appropriate procedure. In any event, Indian law would have no role to play when the parties expressly agreed that they would have sitting of arbitration abroad where Indian law would have no force. When there was no express designated venue the law applicable to the seat of arbitration would be the curial law

If a contracting party feels, his counter part in contract committed any breach, place of committing of breach would be ordinarily place where he should ventilate his grievance. Similarly, when arbitration is held in a particular place and losing party feels, the Tribunal did not decide issue in way it ought to have, he has to approach Court where arbitration was held and/ or award was published unless parties mutually agreed to be guided by another law or law of place where contract was performed.

  1. Similarly in case of Alcon Electronics Ltd v. Celem S A AIR 2013 Bom 108. The Defendant-Judgment Debtor challenged the order dated 15th April, 2011 passed by the learned District Judge-2, Nashik, rejecting the Petitioner’s Application for declaration that the recovery proceeding filed by the Respondents-original Plaintiffs be disposed off/dismissed for lack of jurisdiction or even otherwise on facts and holding that the execution proceeding filed by Respondents being maintainable and the judgment and order dated 19th October, 2006 passed by High Court of Justice, Chancery Division, Patents Court is executable before District Court at Nashik.

The Respondents-original Plaintiffs filed a Suit against the Petitioner-original Defendant in the High Court of Justice, Chancery Division, Patents Court in the England. In the said Suit, the Petitioner preferred Application dated 11th May, 2006 for declaration that the High Court of Justice, Chancery Division, Patents Court, U.K. have no jurisdiction to entertain the Claim. The said Application was rejected by the Hon’ble High Court of Justice, Chancery Division, by an order dated 19th October, 2006 and imposed a costs in the sum of £ 12,429.75 equivalent to Rs. 10,16,753.55 paise with interest at the rate of 8% per annum. Thereafter, the Respondents-original Plaintiffs filed Special (Civil) Darkhast in the Court of District Judge -2, Nashik for execution of the order passed by the Foreign Court, for recovery of sum of Rs. 10,16,753.55 towards decretal amount under Order dated  19th October, 2006 (costs)  and

Rs. 67,786/- towards interest at the rate of 8% per annum on the principal amount from the date of the order date i.e. 19th October, 2006 to 14th August, 2007 and further interest till the recovery of the amount. In the said Execution Petition, the Petitioner preferred on 1st March, 2008 for declaration that the Execution Application filed by the Respondents is not maintainable as the same is in respect of the costs imposed by the foreign Court at the time of dismissing the Petitioner’s Interim Application, whereas, the main matter is still pending for hearing and final disposal on its own merits. The said Application is rejected by the District Judge-2, Nashik by impugned order dated 15th April, 2011 and hence, the Civil Revision Application was filed before the Hon’ble Court.

The Hon’ble Court observed that the explanation in section 44A of Code of Civil Procedure shows that legislation intentionally has included even judgment within the meaning of the term decree for purpose of section 44A of CPC. The intention was to expand or enlarge the scope of term decree for the purpose of this section. Therefore, an order which may not amount to a decree but may amount to judgment would be a judgment for the purpose of Section 44A of CPC. Thus, awarding costs would amount to decree within the meaning of section 44A and can be recovered by executing order under section 44A of CPC.

The issue of jurisdiction of the Court to execute order/decree of a country having reciprocal arrangement with our country was decided by the Division Bench of the Court in the matter of Janardhan Mohandas Rajan Pillai (deceased through Lrs.) & Anr. (2010) 4 AIR Bom R. 230.

Therefore, the Execution Petition filed by the Respondents for execution of the order dated 19th October, 2006 passed by the English Court was maintainable in law.

Reliance on foreign Judgement as precedent not related to a parties :The courts in independent India have repeatedly relied on decisions from other common law jurisdictions, mostly of the United Kingdom, United States of America, Canada and Australia. The opinions of foreign courts have been readily cited and relied on in landmark constitutional cases dealing with questions such as –

  1. Ambit of the right to privacy (Kharak Singh v. State of Uttar Pradesh) AIR 1963 SC 1295
  2. Freedom of press (Bennett & Coleman v. Union of India) AIR 1973 SC 106
  3. Restraints on foreign travel (Maneka Gandhi v. Union of India) AIR 1978 SC 597
  4. Constitutionality of the death penalty (Bachan Singh v. Union of India) AIR 1980 SC 898

In M.H. Hoskot v. State of Maharashtra AIR 1978 SC 802 the Supreme Court explicitly relied on American decisions to hold that indigent persons were entitled to receive free legal services. The idea of ‘substantive due process’ was interpreted so as to imply that free legal services are an ‘imperative processual piece of criminal justice’ implicit in Art. 21. A few years later, the Court reinforced this entitlement in Khatri v. State of Bihar AIR 1981 SC 928 wherein it held that the state cannot plead lack of financial resources as a ground for not extending legal services to indigent persons.

With regard to the extent of ‘freedom of speech and expression’, the Indian Courts have repeatedly cited decisions related to the First Amendment to the

U.S. Constitution. In Indian Express Newspapers v. Union of India AIR 1986 SC 515 the Supreme Court held that the imposition of a tax on the publication of newspapers violated the constitutional right to freedom of expression, which also incorporates freedom of the press. In Rangarajan v. Jagjivan Ram and Union of India (1989) 2 SCC 574 the Court ruled that the censorship of a film which criticized the policy of caste-based reservations in public employment is inconsistent with the principle of freedom of expression. In this case reliance was placed on the ‘clear and present danger’ test for placing restraints on speech that was developed in Schenck v. United States. 247 U.S. 4 (1919)

In this era of globalization of legal standards, there is no reason to suppress the judicial dialogue between different legal systems which build on similar values and principles. But, undoubtedly, none of these foreign decisions are binding upon the Indian Supreme Court but they are authorities of high persuasive value to which Courts may legitimately turn for assistance.

  1. Execution of power of attorney authenticated by foreign notary – Recognition of notarial act : Notaries Act sec 14 Acceptance of notarial attestation and notarial certificates of Notary public of India by reciprocal country. Mutual reciprocity being established, notification in official gazette to declare notrial acts as legal, not required. Notarial attestation on power of attorney, proper.

Jaldhi Overseas PTE. Ltd. v. Bhushan Power & Steel Ltd. : AIR 2017(NOC) 1111 (CAL)

Thus Doctrine of precedent has various facets, and one needs to understand each such principle in harmonious manner. The doctrine of binding precedent promotes certainty and consistency in judicial decisions.

Dear Friends,

I am immensely glad to connect with you for the sixth month with the summer season ending and the onset of the monsoon.

The members would be busy now with the filing of returns and Advance Tax Payments apart from the regular GST filings.

During the previous month we had seminars across all zones imparting education to the members.

During the Month of May, we had very successful One Day Tax Conclave in Jaipur having more than 400 delegates which was full of Zeal, Enthusiasm and after the Jaipur, it was again Eastern Zone who organized a very good One Day Conference at Jamshedpur TATA NAGAR. CONGRATULATIONS TO Central Zone and Eastern Zone RESPECTIVELY.

Unfortunately, the NTC organized in Srinagar had to be cancelled for conditions beyond the control of the organizers and I wish to place my gratitude to the Conference and the Northern Zone Team for putting in their best efforts to make it successful, but as they say, destiny had it otherwise. I would be failing if I don’t personally thank the Chairman of the Northern Zone, Shri H. L. Madanjee for agreeing to refund the whole delegate fees and the Hotel charges paid by the delegates.

The Southern Zone has planned a RRC on 25th and 26th June, 2022 at Thanjavur, members are requested to enroll for the same.

We have planned an International Study Tour to Dubai from the 28th August, 2022 to 2nd September, 2022, This will be the first International Tour of the Federation post COVID, so all the members are requested to enroll in large numbers with family. Response is very good and we are expecting to form another group of delegates for this international Tour.

The Srinagar NTC has been converted to NTC at Delhi TO BE ORGANISED on 6th to 7th August at INDIA HABITAT CENTRE, NEW DELHI.

Another NEC with NTC at JAMNAGAR (Gujarat) has also been approved to be organized by Western Zone on 1st to 2nd OCTOBER COUPLED with Dwarka Darshan.

Foundation Day Celebration of AIFTP coupled with Amrit Mahotsav shall also be celebrated and details of Programme shall be shared soon with you.

The National Convention at Jaipur from 16th to 18th December, 2022 has also been announced, members are requested to enroll for the same.

Therefore, arrange your diary to participate to best of your availability through this year of 2022.

We are also in the process of finalizing some new publications and the publications team is working on it, the details would be announced soon.

Friends the Corona cases have started growing again, so I would like to request the members to travel safe and stay masked and take very good care of yourself and your family members. HAPPY MANSOON.

Thanking you Yours faithfully,

D. K. Gandhi

National President, A.I.F.T.P.

Dear Friends,

Tribunalisation and the service conditions of the Members of Tribunals has taken the centre stage since the Central Government embarked upon its exercise of reforming the functioning of the various Tribunals across the country. Given that these Tribunals have opened up areas of practice for various professionals that were traditionally in the exclusive purview of Advocates, as an association we have a keen interest in their smooth functioning. Though a lot of observations have been made by the Supreme Court in various petitions with regards to various Tribunals, I plan to address today the recent development with regard to the Income Tax Appellate Tribunal.

Perhaps the most significant update regarding the Income Tax Appellate Tribunal is with regard to the order of the Supreme Court in the case of Advocate Association Bengaluru v. Anoop Kumar Mendiratta Contempt Petition (Civil) No 708 of 2021 in Writ Petition (Civil) No 502 of 2021 dated 17th of May, 2022. The contempt proceedings related to the appointment of Members to the Income Tax Appellate Tribunal. While discussing the issue of the appointment of the Members, the Supreme Court was pleased to hold that it would not be expedient in the interest of justice to pursue proceedings under the contempt jurisdiction and directed that the Contempt Petition be renumbered as an Interlocutory Application. Perhaps what is of more academic interest is that the affidavit of the secretary to the Department of legal affairs contain the tabular update about the vacancies before the tribunal. The table suggests that the pendency before the tribunal has fallen sharply from the year 2017-18 to 2021-22. While for the year 2017-18 the pendency at the end of the year was at 92,817 the pendency at the end of 2021-22 is reflected to be 50,426. It has been argued that the drop could be due to the amnesty scheme and the withdrawal of appeals due to the enhancement of the tax threshold. It is also brought out that nearly 5.5 lakh appeals are pending before the Commissioner of Income Tax (Appeals). It is noted in the order that the Union Government has not taken any decision on the appropriate strength of the Tribunal. The positions taken by the Learned Attorney General suggest that we may yet see changes to the strength and the service conditions of the Members.

In the field of The Goods and Service Tax, the Judgement of the Supreme Court in Union of India and Another v. Mohit Minerals Pvt. Ltd. Civil Appeal No. 1390 of 2022 dated 19th Of May 2022, seems to have elicited much debate wherein the Supreme Court has concluded that the recommendations of the GST Council are neither binding on the Union government nor the State government. The court held that the recommendations of the Council are a product of a collaborative dialogue and are recommendatory in nature. It was held that to hold them as binding would disrupt fiscal federalism where both the Union and the States are given equal powers to legislate on GST and that it was not imperative that one of the federal units must always possess a higher share in the power for federal units to make decisions. Notably it was held that “Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation”. Given the overarching discussions regarding the federalism in our country, it is yet to be seen how this judgement will affect the relationship between the Centre and states in tax administration.

Needless to say, we live in interesting times in as far as both taxation and tax administration are concerned. The re-emergence of taxation to the forefront of the national debate is a resounding affirmation of it being an important instrumentation of policy execution.

In this issue of the AIFTP Journal there are articles on very important topics. I thank all the professionals for taking out their valuable time to contribute to this issue of the journal.

K. Gopal,

Editor

  1. S. 2(1A) : Agricultural income – Income derived from sale of saplings and seedling grown in a nursery alone shall deemed to be agricultural income – subsequent operation, i.e., supply of fertilizer, supply of soil, engaging horticulturists, insuring the plant, making pits and other related activities carried out in assessee’s nursery but in client’s site cannot be termed as secondary operation and hence not agricultural income. [S. 10(1)]

    The Tribunal observed that the primary operation done in assessee’s nursery confine only with regard to growing of plants and saplings. The subsequent operation, i.e., supply of fertilizer, supply of soil, engaging Horticulturists, insuring the plant, making pits and other related activities even assuming it is secondary operation was never carried out in assessee’s nursery but in client’s site. Plants and saplings are planted in the client’s site and became the property of the client. Thereafter the assessee’s role is only to tend these plants and saplings. The services so performed are in the nature of maintenance and cannot be termed as secondary operation in the strict sense of the term. The Tribunal held that income derived by the assessee by activities other than sale of plants raised in its own nursery is not in the nature of agricultural income falling within the definition of section 2(1A) of the I.T. Act. (AY. 2016-17)

    Jayanti Botanical Gardens v. ITO (2021) 61 CCH 342/ 211 TTJ 15 (UO) (SMC) (Bang) (Trib.)

  2. S. 9(1)(i): Income deemed to accrue or arise in India – Business connection – If an Indian agent has been paid an arm’s length remuneration, nothing further could be taxed in hands of Assessee – DTAA- India – Mauritius [Art, 5(4)]

    The Assessee being a foreign telecasting company incorporated in Mauritius sold advertising time and collected subscription revenues through its Indian affiliates Zee Telefilms and El Zee. It is the claim of the Assessee that it did not have any permanent establishment in India, and so, no part of its income was taxable in India. Further on without prejudice basis the Assessee contended that if that Assessee was held to have a dependent agent permanent establishment, no further profits could be attributed in the hands of the Assessee as the agent had been paid arm’s length remuneration services rendered. Upon appeal by the revenue, the Hon’ble Tribunal observed that the case of the revenue is clearly confined to the existence of DAPE on the facts of this case. The existence of dependent agency permanent establishment is wholly tax-neutral, unless it is shown that the agent has not been paid an arm’s length remuneration, and when it is not the case of the AO, that the agents have not been paid an arm’s length remuneration, the question regarding the existence of dependent agency permanent establishment, i.e., under article 5(4), is a wholly academic question. (AY. 02-03,04-05,05-06)

    ADIT v. Asia Today Ltd (2021) 210 TTJ 8 (Mum) (Trib.)

  3. S. 10B: Export oriented undertakings – Production and Export of pasteurized crab meat – procurement of non-living dead crab and then process into chemical mixed pasteurized crab meat in a series of manufacturing process – Fall under the new definition of manufacture -Deduction allowable [S. 2(29BA)]

    The AO disallow deduction claimed u/s.10B stating that, the activities carried out by the assessee for production and export of pasteurized crab meat is not a manufacturing activity because the term ‘manufacture’ has been defined by insertion of new definition by the Finance Act, 2009 u/s.2(29BA) of the Act. Tribunal held that, the assessee is a newly established 100% export oriented undertaking, set-up a new manufacturing facility at Madras Export Processing Zone. The EOU set up by the assessee for manufacture and export of pasteurized crab meat was approved by the Development Commissioner, Govt. of India as a 100% export oriented unit for manufacture and export of goods or things. The assessee is also registered under the Central Excise Act, 1944 as a manufacturer and the goods manufactured by the assessee are treated as distinct commodities under Customs and GST laws. Activities carried out by the assessee as a manufacturing or production of goods or article or thing, which qualifies for deduction u/s.10B and there is no change in activities carried out by the assessee in the year 2004-05 when the deduction was first allowed and in the year 2009-10 when the deduction was rejected by the AO by virtue of new word ‘manufacture’ inserted under clause 2.(29BA) of section 2 of the Act. As per activities undertaken by the assessee, said activity was considered as manufacture or production for the purpose of deduction u/s.10B of the Act. There is no change in physical activities carried out by the assessee. The purpose of S.10B is to give effect to EXIM policy. Therefore, the statute has provided deduction all units established as 100% EOU as per EXIM Policy u/s 10B of the IT Act. (AY. 2010 – 2011)

    Handy Waterbase India Pvt. Ltd. v. Dy. CIT (2021) 211 TTJ 950 (Chennai)(Trib.)

  4. S. 11: Property held for charitable purposes- Amount spent on construction of buildings for its medical college would be treated as application of income for objects of trust and, hence, would qualify for exemption under section 11- factum of incurring such expenses by way of cash alone could not be a ground to hold that those expenses were related to non-specified purpose- Denial of exemption was held to be not justified – No violation. Section. 13 of the Act [S. 2(15), 12A, 13 69C, 132(4)]

    The assessee is a charitable trust registered under Section 12A of the Act. A search was carried out at the premises of the assessee on 18th July, 2013. It was held that:

    1. Amounts paid to contractors in cash or for other non-specified purposes cannot be added as unexplained expenditure under Section 69C of the Act simply because they have been paid in cash, and without any material to sustain the addition and merely if the assessee has not produced evidence in addition to the books of account, if the assessee has accounted for the expenditure in its books of account, and the same has been audited as genuine and the Assessing Officer has not rejected the books of account, the addition is to be deleted. Even if the expenditure is deemed to be for non-specified purposes, the assessee must have the benefit of the Explanation to Sections 11(1) and 11(2) of the Act.

    2. Information found during the course of search pertaining to amounts given as unsecured loans cannot be added to the income of the assessee since the CIT(A) has given a clear finding that the amounts do not belong to the assessee. Also, the matter was remanded to the Assessing Officer for the limited purpose of verifying the bank statement showing payments of the amounts not from the assessee but from an account of a third party viz. Hotel Solitaire.

    3. Amounts withdrawn by the assessee from the bank and alleged to have been made to three parties cannot form the basis of addition since additions cannot be made on surmises and conjectures. The amounts were recorded in the books of account and there was nothing to show that payments had been made to the three parties mentioned. Also, the break-up of payments were not provided the Assessing Officer. The Assessing Officer ought to have made an enquiry pursuant to the books of account but none was made and hence the addition is deleted.

    4. Amounts received as development fee over and above that prescribed by the government cannot be termed as capitation fee is the Assessing Officer has no material to show that the amounts received were not in the nature of voluntary donations. Reliance placed on statements of persons that the assessee collected capitation fee cannot be accepted since no opportunity of cross examination was provided to the assessee. Also, there was no evidence to show that payments were made de hors the books of account. Hence, the additions on account of capitation fee are to be deleted and exemption under Section 11 to be given.

    5. A statement made during course of search under Section 132(4) of the Act cannot form basis of addition even if the same is not retracted since neither the assessee nor the AO could justify the addition and in fact the assessee has produced evidence through books of account that the payment was made towards construction. It is the duty of the Assessing Officer to prove the same with corroborative documentary evidence and failure to do so would warrant deletion of addition. Also, the assessee had made the statement under a wrong notion of law and to buy peace with the department . (AY. 2010-2011,2011-20122012-2013 2013-2014, 2014-2015)

    Sri Srinivasa Educational & Charitable Trust v. ACIT (2021) 211 TTJ 663 / 182 ITD 554/ 204 DTR 265 (Bang) (Trib.)

  5. S. 32 : Depreciation -Biometric system’ is a ‘Computer’ and depreciation is to be allowed @60%

    The Hon’ble Tribunal held that, if the biometric system is detached from the computer, the same does not serve the purpose for which it is intended. Therefore, held that biometric system is a computer and the depreciation required to be allowed is at higher rate. (AY. 13-14)

    Instrument Technologies v. ACIT (2021) 209 TTJ 675 (Vishakha) (Trib.)

  6. S. 32 :Depreciation -Goodwill – Capitalized goodwill on account of excess consideration – Commercial rights – Eligible depreciation. [S. 32 (1)(ii)]

    The Hon’ble Tribunal relying on the SC decision of CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) and Hyderabad Tribunal in case of M/s SKS Micro Finance Ltd held that depreciation could not be denied to the Assessee merely because the assets were classified as ‘goodwill’ in the books of account without appreciating the true nature of the assets if they can fall under the scope of ‘any other business or commercial rights of similar nature’. It was further held that the specified intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature” specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section. (AY. 2015-16)

    JX Nippon Two lubricant India Pvt Ltd v. DCIT (2021) 210 TTJ 722 /202 DTR 59 (Delhi)(Trib)

  7. S. 32 : Depreciation – Westland Helicopters – Block of asset User of asset – The concept of user of assets has to apply upon block of asset as a whole instead individual assets – Denial of depreciation is held to be not valid . [ S. 2(11) ]

    Held that when a particular asset is part of block of assets even when that particular asset is not used in the relevant assessment year, the depreciation is allowable. Followed Sony India (P) Ltd v. CIT ( 2017) 88 taxmann.com 580 ( Delhi)( HC),CIT v. Oswal Agro Mills Ltd (2011 ) 341 ITR 467 ( Delhi)( HC) ( AY. 1995 -96)

    Pawan Hans Helicopters Ltd. v. DCIT (2021) 212 TTJ 1010 / 204 DTR 347 / (2022) 192 ITD 142 (Delhi) ( Trib)

  8. S. 36(1)(va) : Any sum received from employees – Where assessee deposited employee’s contribution to ESI after the due date under the respective Act but before the due date of filing the return of income under the Act, the same would not warrant any disallowance.[ S. 2(24)(x), 139(1)]

    During the year, the assessee deposited employee’s contribution to ESI amounting to Rs. 5,540 after the due date under the respective Act but before the due date of filing the return of income under the Act. The AO disallowed the same and the Ld. CIT(A), on further appeal, remanded the issue back to the AO to verify the claim and allow the same in case the payment was made before the due date of filing the return of income for the year. On appeal by the Department, the action of the Ld. CIT(A) was confirmed by the Hon’ble Tribunal. (AY. 2015-16)

    DCIT v. Saileela Synthetics Pvt. Ltd. (2021) 199 DTR 201/ 210 TTJ 763 (Jodhpur) (Trib)

  9. S. 37(1):Business expenditure – The expenditure necessary to maintain Assessee’s corporate personality would be an allowable expenditure even when no business was undertaken.

    Tribunal held that the expenditure which was quite necessary to maintain Assessee’s corporate personality would be an allowable expenditure since without incurring the same, the Assessee could not have remained into existence. Therefore, directed the learned AO to identify such expenditure and allow the same to that extent. (AY. 08-09 to 14-15)

    Sir Pratap Heritage Hotels (P) Ltd v. ACIT (2021) 209 TTJ 1 (UO) (Jodhpur) (Trib.)

  10. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Disallowance section is not warranted where the payee furnishes the return of income taking into account the sum(s) received from the payer, tax due on the return income has been paid and certificate of a Chartered Accountant to that effect has been furnished.[ S. 194C]

    Tribunal held that Pfizer Ltd. had taken into account the sum received from the assessee and has appropriately discharged it tax liability on its returned income. Further, it had also furnished a certificate from a Chartered Account to this effect. Accordingly, the Hon’ble Tribunal following the order of Assessee’s own case for AY 2009-10 and deleted the disallowance made by the AO by holding that the disallowance section 40(a)(ia) is not warranted in view of the second proviso read with the first proviso to section 201(1) inserted vide Finance Act, 2012 and which has been held to be retrospective by the Hon’ble Delhi High Court in CIT v. Ansal Land Mark Township (P.) Ltd ,ITA No. 160/ 2015 dt. 26 -8 -2015 . (AY. 2006-07)

    DCIT v. Pfizer Products (India) Pvt. Ltd. (2021) 198 DTR 273 / 210 TTJ 908 (Mum) (Trib)

  11. S. 43B : Certain deductions only on actual payment – Interest payable to Government of India is crystalized based on facts, even though not accounted in books due to comments of statutory auditor, and hence is allowed as expense on accrual basis even not accounted for in books.[S. 145]

    The Tribunal held that the liability to pay the interest amount payable to the Government of India is crystalized as evident from the waiver request of Aviation Ministry has been rejected by the Ministry of Finance and hence the deduction for the same cannot be disallowed on the grounds that it has not been accounted in the books of accounts when the same interest expenditure is allowed in the previous years. (AY. 1990-91)

    Pawan Hans Helicopters Ltd. v. DCIT (2021) 212 TTJ 1010/ 204 DTR 347/ (2022) 192 ITD 142 (Delhi) (Trib.)

  12. S. 45 : Capital gains – Amalgamation – sale of shares prior to transfer of business by way of slump sale and amalgamation – scheme of amalgamation approved by High Court and shareholders – allegation of scheme of amalgamation as an afterthought without any basis – capital gains already offered for tax by the amalgamating company – same cannot be taxed again in the hands of amalgamated company.

    In this case the Tribunal held that scheme of amalgamation was duly approved by two High Courts and shareholders, creditors and bankers of both the companies, Registrar of Companies, etc. at two places, after giving due notice by publication in newspapers and, therefore, it could not be said that the scheme of amalgamation was a colourable device and an afterthought. Therefore, consideration received on sale of share of another company by the amalgamating company prior to the scheme of amalgamation can be taxed in hands of amalgamating company only. (AY. 2003-04 to 2005-06).

    ACIT v. Investment trust of India Ltd. (2021) 211 TTJ 777 (Chennai) (Trib)

  13. S. 56: Income from other sources – Money kept in capital reserve account was invested in shares – Entire transactions were only in capital field no incidence of tax.[S. 2(47, 45(3) , 45(4), 56(2)(viia), 186]

    The Assessee was a partnership firm belonging to Shriram Group and held 100% shares in a group company Novus. Piramal Enterprises Ltd decided to acquire 20% stake in group company Shriram Capital Ltd (‘SCL’). However, since SCL could not allot shares to outsider directly due to restrictions from private equity investors, it decided to do so by joining assessee as a partner and infusing capital which was partly kept in capital reserve. The said money was utilized to make investment in the shares of Novus who inturn invested in shares of SCL and later got merged with SCL. As a result, SCL allotted shares to assessee.

    The AO held that Shriram group as a whole should have paid tax on the consideration received and the entire transaction was devised in order to avoid the tax liability and the same should be taxable under section 56(1) or section 56(2)(viia) of the Act.

    On assesses appeal the Ld. CIT(A) deleted the addition by holding that the capital reserves are created from capital receipts meant for capital investments and/or large anticipated expenses. As there was no income, section 56(1) is not applicable. The process adopted in assesses case was strategic and systematic investment by one industrial group in another group to synergise their mutual strengths and no colourable devise/tax planning was done.

    The Hon’ble Tribunal held that assessee firm even though had acted as an intermediate entity, it could not be construed as a conduit between the group companies and the whole transactions were to be understood in a holistic manner and could not be construed as a colorable device or a sham transaction. Accordingly, Hon’ble Tribunal held that the transaction was capital in nature and no addition under section 56(1) can be made. Further, since it is not the case of the AO that the money received is without any consideration or inadequate consideration, addition under section 56(2)(viia) could not be made. (AY. 2014 -15, 2015 -16)

    ITO v. Shrilekha Business Consultancy Pvt. Ltd (2021) 210 TTJ 34 / 202 DTR 361 (Hyd)(Trib)

  14. S. 56: Income from other sources – Not applicable where the sum has been received from non -resident -Addition was deleted. [S. 56(2)(viib), 68, Companies Act, 2013, S. 102]

    The Hon’ble Tribunal held that looking at the provisions u/s. 56 (2) (viib), it clearly applies to the resident and not to a sum received from a non-resident. Further looking at the various evidence produced by the Assessee, evidence obtained by the learned AO in terms of article 26 of the DTAA, the Tribunal held to not have found an iota of doubt about the creditworthiness and genuineness of the about transaction of allotment of compulsorily convertible redeemable shares resulting into allotment of shares from K start LLC of Mauritius. (AY. 16-17)

    Usekiwi Infolabs (P.) Limited v. ITO (2021) 209 TTJ 59/ 197 DTR 66 (Delhi) (Trib.)

  15. S. 56 : Income from other source – When the Assessee has adopted DCF method, one of the methods prescribed by the Act to determine fair value, then the AO cannot discard the same and adopt other method- The matter was restored back to the file of AO for afresh decision. [S. 56 (2)(vii)(b), R. 11UA]

    The Hon’ble Tribunal held that the AO could scrutinize the valuation report and if the AO is not satisfied with the explanation of the Assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the Assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to the Assessee. But the basis has to be DCF method, and he cannot change the method of valuation which has been opted by the Assessee. For scrutinizing the valuation report, the facts, and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. The primary onus to prove the correctness of the valuation Report is on the Assessee as he has special knowledge, and he is privy to the facts of the company and only he has opted for this method. The matter is thus restored back to the file of the AO for a fresh decision with directions as above stated. (AY. 2014-15 )

    TSI Yatra (P.) Ltd v. ACIT (2021) 209 TTJ 596 (Delhi)(Trib.)

  16. S. 68 : Cash Credit – Addition not sustainable when the assessee has discharged its onus by filing necessary documentary evidences to prove genuineness of the transaction – no evidence brought on by AO to prove that the assessee has introduced its undisclosed income in the form of share application money.

    Assessee was asked to prove the genuineness and creditworthiness of the share applicants for which its inter-alia submitted complete details of share allotment including PAN of the applicants and relevant financial statements. However, the AO observed that some of the share applicants shared the same address while opining that neither of the share applicants carried out significant business activities and their profits as well as reserves were low. Further, notices under section 133(6) of the Act were issued to confirm the transaction but they did not elicit any satisfactory response. Even when the assessee filed affidavits of all share applicants and their latest communication address, the AO still made additions under section 68 of the Act. The Hon’ble Tribunal, ongoing through the facts and relying on the decision of the Hon’ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (216 CTR 195), concluded that the assessee had sufficiently proved the identity, genuineness, and creditworthiness of the share applicants while the Revenue failed to bring on record any evidence indicate malice on part of the assessee. The Hon’ble Tribunal, therefore, quashed the addition made under section 68 of the Act. (AY. 2015-16)

    DCIT v. M/s. Saileela Synthetics Pvt. Ltd. (2021) 199 DTR 0201(Jd) / (2021) 210 TTJ 0763 (Jd)

    Editorial: Due to divergence in approach adopted by coordinate benches, the Hon’ble Mumbai Tribunal in the case of Lotus Logistics & Developers Ltd (ITA Nos. 4057/Mum/2019) has proposed to constitute and refer the matter to the larger bench to adjudicate on the validity of the addition of share premium under section 68 of the Act where the identity, genuineness and creditworthiness of the party and the transaction has been established by the Assessee.

  17. S. 72: Carry forward and set off of business losses – Set off of loss returned by Assessee in subsequent assessment years could not be declined only for the reason that assessment for assessment year in which the losses arose, was in progress and pending. [S. 240]

    The Hon’ble Tribunal held that bearing in mind entirety of the case, the plea of the Assessee is upheld so far as set-off of loss returned by the Assessee cannot be declined by the AO in subsequent assessment years, only for the reason that the assessment for the assessment year 2014-15 is in progress. The AO is to be directed to allow, for the time being, the claim for set-off of loss brought forward, in the light of the above observations. The above direction, however, should not be construed as a direction for the grant of refund, if any is found admissible as a result of income computed as above, for the simple reason that a call will have to be taken by the AO as to whether, in the light of the discussions above, refund of taxes is permissible in such a situation in the light of first proviso to section 240. (AY. 16-17)

    Shelf Drilling Ron Tappmeyer Ltd. v. DCIT (2021) 209 TTJ 587/ 197 DTR 265 (Mum) (Trib.)

  18. S. 73 : Losses in speculation business – Share broker – Purchase and sale of shares – Loss incurred from error trades – Not speculative – Allowable as business loss [S. 28(i)]

    Hon’ble Tribunal held that assessee had carried out the transactions of purchase and sale of shares on account of a business exigency and not with an intention to earn profit, therefore, the same would not come within the purview of “Explanation” to section 73 of the Act. The loss on account of transaction in shares cannot be held to be speculation loss hence deleted the disallowance. (AY. 2003-04)

    CLSA India Private Limited v. ACIT (2021) 210 TTJ 484 (Mum) (Trib.)

  19. S. 92B : Transfer pricing – The term international transaction includes capital financing, which, in turn, also includes guarantee – effects of furnishing corporate guarantee directly percolated to the principal debtor, namely, AE for whom the assessee stood surety – thus, the department contention that the act of furnishing guarantee be treated as shareholder’s activity, is devoid of any merit. [S. 92C, 92CA]

    In the present case, the Appellate Tribunal held that on going through the ambit of “shareholder activity” as given in the OECD Guidelines on a general perspective, it becomes imminent that such activities are certain acts performed by a company solely because of its shareholding in other group companies, which is obviously not the case here. Au contraire, the effect of furnishing corporate guarantee directly percolated to the principal debtor, namely, the AEs for whom the assessee stood surety. Thus, the ground urging that the act of furnishing guarantee be treated as shareholder’s activity, is devoid of merits. Moreover, now with the statutory amendment specifically treating ‘guarantee’ as an international transaction, there remains no doubt whatsoever that the furnishing of corporate guarantee by an assessee is an international transaction. This ground is thus dismissed. (AY. 2014-15)

    Bilcare Ltd. v. ACIT (2021) 211 TTJ 429/ 207 DTR 257 (Pune) (Trib.)

  20. S. 92C: Transfer pricing – Arm’s length price – Depreciation adjustment can be allowed for computation of operating profit, only if there is variance in the depreciation rates applied with the comparable.[S. 32]

    The Tribunal held that, an adjustment in terms of sub-clause (iii) of rule 10B(1)(e) may be warranted when there is a difference in recording certain expenses on principle i.e., in the instant case, depreciation adjustment in the computation of Operating Profit can be allowed only when the rates at which the Assessee charged depreciation on fixed assets are at variance with rates at which the chosen comparables charged depreciation. It was for the verification of this, that the Tribunal had restored the matter earlier, and not to adjudicate the proposition already rejected. Further heeding to the plea of the Assessee for providing another opportunity to furnish this data, the Tribunal restored to the file of AO/TPO for deciding this issue afresh in the light of new calculation sheet(s). (AY. 07-08, 08-09)

    Vishay Components India (P.) Ltd v. ACIT (2021) 209 TTJ 664 / 198 DTR 102 (Pune) (Trib.)

  21. S. 92C : Transfer pricing – Arm’s length price – Transfer Pricing adjustment cannot extend to non-AE transactions and to that extent a proportionate adjustment is warranted.

    The Tribunal held that the transfer pricing adjustment cannot extend to non-AE transactions. The matter is remitted to the file of AO/TPO for restricting the transfer pricing adjustment only in respect of the AE transactions. (AY. 2015-16)

    Knorr Bremse Systems for Commercial Vehicles India (P.) Ltd v. DCIT (2021) 209 TTJ 1035 (Pune) (Trib.)

  22. S. 92C : Transfer pricing – Arms’ length price – safe harbour rules are optional for an eligible assessee – assessee has not exercised option for the safe harbour rules – entire set of rules from 10TA to 10TG cannot be operationalised. (ITR, 10B(1)€ & 10 TA)

    In this case the Appellate Tribunal held that if an assessee has not exercised option for the safe harbour rules, the entire set of rules from 10TA to 10TG cannot be operationalized in determining the Arm’s Length Price under the TNMM, or for that matter any other method under rule 10B, rule 10TA is not relevant. As such the TPO is not justified in applying the definition of ‘operating profit’ and ‘operating expense’ given under rule 10TA for the purposes of determining the Arm’s Length Price of the international transactions in the ‘manufacturing activity’ under the TNMM as enshrined in rule 10B((1)(e) of the Income Tax Rules, 1962. (AY.203-14)

    Dana India (P) Ltd v. DCIT (2021) 211 TTJ 271 (Pune) (Trib.)

  23. S. 115BB : Winning from lotteries – Irrespective of the head of the income, the winnings from lotteries shall be taxed at a special rate-The business loss incurred by the assesse after exclusion of prize money earned from the unsold lottery tickets is eligible for set off against such winnings from lotteries. [S. 2(24) (ix) 28(i), 56(2)(ib), 58(4), 71]

    The Tribunal held that the loss incurred by the area distributor from the unsold lottery tickets shall be eligible for set off against winnings from lotteries under Section 71 of the Act and the lottery winnings from lotteries shall be taxed under Section 115BB irrespective of the head to be taxed i.e., business income or income from other sources. (AY. 2014-15)

    Pooja Marketing v. PCIT (2021) 212 TTJ 306/ 204 DTR 1 (Mum) (Trib)

  24. S. 115BB : Winning from lotteries – Irrespective of the head of the income, the winnings from lotteries shall be taxed at a special rate-The business loss incurred by the assesse after exclusion of prize money earned from the unsold lottery tickets is eligible for set off against such winnings from lotteries.[S. 2(24) (ix) 28(i), 56(2)(ib), 58(4), 71]

    The Tribunal held that the loss incurred by the area distributor from the unsold lottery tickets shall be eligible for set off against winnings from lotteries under Section 71 of the Act and the lottery winnings from lotteries shall be taxed under Section 115BB irrespective of the head to be taxed i.e., business income or income from other sources. (AY. 2014-15)

    Pooja Marketing v. PCIT (2021) 212 TTJ 306/ 204 DTR 1 (Mum) (Trib)

  25. S. 147: Reassessment – After the expiry of four years – No allegation in the reasons recorded of any omission or failure on the part of the assessee in disclosing fully and truly all material facts necessary of assessment – Notice is void-ab-initio.[S. 148]

    It has been held by the appellate tribunal that the impugned notice is issued under section 148 of the Act after the expiry of four years from the end of the relevant assessment year and the AO nowhere stated in the reasons recorded that there was any omission or failure on the part of the assessee in disclosing fully and truly all material facts necessary for assessment under section 143(3) of the Act, impugned notice under section 148 as well as subsequent proceedings under section 147 of the Act is invalid. (AY. 2004-05)

    Bharti Cellular Ltd. v. DCIT (20221) 211 TTJ 760 (Delhi) (Trib.)

  26. S. 147: Reassessment- Initial year was AY 2010-11 wherein AO after detailed verification allowed the deduction – Subsequent year i.e. AY 2013-14 also deduction was allowed – Reopening is nothing but change of opinion and hence quashed. S.80IB(11C), 148]

    The Tribunal held that reopening of assessment was on the basis of information that was already available on record and no fresh information was received by the AO. Revisiting the same issue which was already considered in original assessment and taken the decision amounts to difference of opinion and on difference of opinion the reopening of assessment is not permissible. The Tribunal held that the reopening of assessment is bad in law and accordingly, quashed the notice issued u/s 148 and annul the assessment. (AY .2012-13)

    Ramya Hospitals v. ITO (2021) 62 CCH 29 / 211 TTJ 36 (UO)(Vishakha) (Trib.)

  27. S. 147: Reassessment – Value of sub-registrar on spot verification or value as returned by assessee to be taken into consideration. [S.50C, 148]

    The Assessing Officer must have some material and the material must be reliable before reopening the assessment. The valuation of the sub-registrar on spot verification showing an increase in the value of property for the purpose of addition under Section 50C of the Act is not supported by any revaluation order and no reference is made by the Director of Stamps to the sub-registrar and therefore no addition can be made.(AY. 2009-2010)

    Dhoot Stono Crafts Private Ltd. v. ACIT (2021) 212 TTJ 409 (Jaipur) (Trib.)

  28. S. 147: Reassessment – Reopening by issuing notice under Section 148 but no notice under Section 143(2)- Reassessment is bad in law. [S.143(2), 292BB]

    The reopening of an assessment cannot take place if only the notice under Section 148 of the Act is issued and no notice under Section 143(2) of the Act is issued prior to passing the reassessment order under Section 143 r.w.s 147 of the Act. The defect is not curable under Section 292BB of the Act.(AY. 2008-2009 )

    DCIT v. Board of Cricket Control in India (2021) 212 TTJ 937 (Mum) (Trib)

  29. S. 153A: Assessment – Search or requisition-No additions can be made in case of completed Assessments under search, without any incriminating evidence. [S. 132, 143(1), 143(3)]

    The Hon’ble Tribunal held that no assessment proceedings were pending against Assessee on the date of search, and it was not a case of abated assessment. Upon perusal of the assessment, it is evident that learned AO has not referred to any incriminating material against the Assessee and the additions made therein are also not based on any incriminating material. The business expenditure claimed that is sought to be disallowed was already claimed in the original return of income. Hence the additions are set aside. (AY. 08-09 to 14-15)

    Sir Pratap Heritage Hotels (P) Ltd v. ACIT (2021) 209 TTJ 1 (UO) (Jodhpur) (Trib)

  30. S. 153C : Assessment – Income of any other person – Search and seizure – loose paper in question was found from the possession of searched party – affidavit of searched person filed by the assessee to show that cash payment were made to landowners – deponent was not examined by the AO – No adverse inference can be drawn against the assessee.[S. 132]

    It has been held by the appellate tribunal that addition on account of on-money allegedly received by the assessee on sale of land could not be made in the assessment under s. 153C simply on the basis of some vague noting on a nondescript loose paper seized from the possession of the searched person (purchaser) and the statement of the said third party, without cross-examination, more so when the purchaser has filed an affidavit whereby he has affirmed on oath that the cash payments were not made to the assessee but to some old landowners/ Banakhat owners and others who were claiming ownership in the said land and the contents of the affidavit remain uncontroverted. (AY.2013-14)

    Kantibhai P. Patel v. DCIT (2021) 211 TTJ 187/ 208 DTR 54 (Ahd) (Trib)

  31. S. 154: Rectification of mistake apparent from record- No merger of order passed under Section 143(3) r.w.s 144C(1) with the reassessment order passed under section 147 if issues forming subject matter of assessment order not part of reassessment order which is quashed and assessment order can be rectified by AO with respect to those issues-Rectification cannot be made after CIT(A) has quashed assessment order [S. 115JB, 143(3)]

    If the addition was made under Section 115JB inadvertently, the same can be rectified under Section 154 by the AO and added under Section 143(3) instead of Section 115JB, the mistake being one apparent from the face of the record. It is settled law that there is no merger of the order of assessment with respect to issues not forming part of the reassessment order. Hence, the rectification of the assessment order to that extent is permissible .The rectification of the assessment order cannot be made after the appellate authority namely the Commissioner(Appeals) has quashed the assessment order in appeal. This would amount to acting contrary to the provisions of law and not rectifying but enhancing the assessment.(AY. 2009-2010)

    Intelenet Global Services (P) Ltd. v. ACIT (2021) 212 TTJ 182/ 202 DTR 169 (Mum) (Trib.)

  32. S. 195: Deduction of tax at source-Other sums- Tax at source(TAS) not liable to be deducted and no interest payable for failure to deduct TAS[S. 201(IA)]

    Where a transaction takes place between two foreign companies such that the shares of a third company being held by one the companies are purchased from that company and such that the third company is a parent of companies holding assets located in India, no deduction of tax at source ought to be made by the purchaser of the shares since the provision providing for deduction of tax was not in existence when the transaction took place making the deduction at source impossible. The transaction was effected on 11th July, 2008 and Explanation 2 to Section 195 was introduced w.r.e.f from 1st April, 1962 by the Finance Act, 2012. The deduction of tax at source was therefore held to be impossible. Consequentially no interest under Section 201(1A) is payable.(AY. 2009-2010)

    DCIT v. WNS Capital Investment Ltd (2021) 211 TTJ 641 (Mum) (Trib.)

  33. S. 240 : Refund –Refund due to the assessee as per the order passed by settlement commission – AO is bound to issue refund. [S. 199, 245C, 245D(4)]

    In this case the Hon’ble Appellate Tribunal held that order passed by the Income Tax Settlement Commission under S.245D(4) of the Act even de hors the filing of return under s. 139 is an order passed under ‘other proceedings un this A

    td (2021) 211 TTJ 907 (SMC) (Pune) (Trib.)

  34. S. 251 : Appeal – Commissioner (Appeals) – Powers – Additional evidence -Where the AO has not been provided adequate opportunity to go through the additional evidence, the admission and examination of the additional evidence by Ld. CIT(A) is completely inadequate. [S. 254(1), Rule 46A of Income-Tax Rules, 1962]

    During the year under consideration, the assessee issued shares at a premium by way of preferential and equity allotment which the AO held as unjustifiable due to the assessee’s negative earnings per share. Consequently, the AO made additions of the capital raised under section 68 of the Act. On appeal to the Ld. CIT(A), the assessee argued that it was not given a proper opportunity of being heard and submitted certain evidence which he could not before the AO. The Ld. CIT(A) accepted the additional evidence noting that the AO did not provide his comments despite the matter being remanded to him. The appellant proceedings were concluded with the Ld. CIT(A) deleted the additions relying on the additional evidence.

    On further appeal, the Hon’ble Tribunal observed that the AO was not provided with adequate time to provide his comments on the additional evidence. Further, the additional evidence provided to the AO for his comments consisted of bank statement along with the annual report and confirmation of the share subscribers but the Ld. CIT(A)’s order also mentioned of a share subscription agreement between the subscribers, the assessee company and its promoters being filed which was not provided to AO. This agreement was one of the basis of the Ld. CIT(A)’s favourable order and it was not provided to the AO for his comments. Accordingly, the Hon’ble Tribunal held that the admission of the share subscription agreement was in violation of Rule 46A of the Income-Tax Rules, 1962. The Hon’ble Tribunal further went on to hold that the rule of natural justice applies equally to Assessees and the Revenue and that the Ld. CIT(A) has committed an error by not affording the AO an opportunity of being heard and provide his comments. Finally, the Hon’ble Tribunal observed that the Ld. CIT(A) has neither effectively assessed the reasonability of the premium charged by the Assessee nor established the genuineness of the transaction. Accordingly, the matter was remanded back to AO for verification of the Assessee’s claim considering the additional evidence. ( (AY. 2009-10)

    DCIT v. Pipal Tree Ventures Pvt. Ltd. (2021) 210 TTJ 258 (Mum) (Trib.)

  35. S. 253 : Appellate Tribunal – Order of CIT(A) quashing the reassessment proceedings in the absence of valid sanction under section 151 not challenged before Appellate Tribunal – Appeal not maintainable on merits of the case. [S. 143(2), 147, 151, 253(2)]

    In this case the department did not challenge the order of the first appellate authority in quashing of reassessment proceedings in the absence of fresh tangible material and sanction under section 151 of the Act is invalid. Thus, the order of the Ld. CIT(A) on these questions becomes final and any result of department appeal cannot change the fate of departmental appeal. The revenue appeal would not be maintainable and is liable to be dismissed on this ground alone. (AY.2007-08 to 2010-11)

    ACIT v. SG Portfolio (P) Ltd (2021) 211 TTJ 970(Delhi)(Trib.)

  36. S. 254(1): Appeal to Appellate Tribunal-Powers – Request for adjournments of six months on account of COVID-19 pandemic was rejected – Lat opportunity was granted.

    Adjournments cannot be granted routinely but in view of the prevailing situation and the impact of COVID-19, a last chance/adjournment was granted to the Revenue. Adjournment of six months to be granted to the Revenue was rejected.(AY. 2014-2015)

    DCIT v. Saroj Kumar Poddar (2021) 212 TTJ 250 / 90 ITR 223 (Kol) (Trib.)

  37. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Order of the Tribunal, accepting the withdrawal of the appeals, passed on incorrect facts which were mistakenly represented and admitted by assessee’s counsel has resulted in an error in such Order and is liable for rectification [S. 263]

    The Tribunal held that the Order of the Tribunal having passed the Order accepting the request for withdrawal of appeals on the basis of mistaken representation made by the assessee’s counsel that the appeals did not survive under a wrong impression that the related assessment has been set aside by the CIT for de novo assessment in his order under Section 263, whereas the CIT had directed to examine specific issues, same has resulted in an error in the Order which is liable for rectification under Section 254(2) of the Act. Therefore, the Order of accepting the withdrawal has been recalled and the appeal needs to be adjudicated on merits. (AY. 2006-07 & 2008-09)

    Motia Construction Ltd. v. DCIT (2021) 212 TTJ 398 (Chd) (Trib.)

  38. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Depreciation – Lease hold rights- Revision is held to be valid [S. 32 (1)(ii)]

    The Hon’ble Tribunal held that in order to fall within the realm of ‘any other business or commercial rights of similar nature’ as contemplated in S. . 32(1)(ii) of the Act, and therein to be construed as an “intangible asset” eligible for depreciation under the said statutory provision, the ‘right’ under consideration would require to cumulatively satisfy a twofold test viz. (i). the right should be a business or commercial right; and (ii) the right though need not answer the description of the six specified intangible assets viz knowhow, patents, copyrights, trademarks, licenses, or franchises, but must be of a similar nature. The claim of the Assessee is thus rejected.. (AY. 12-13)

    Goldmohar Design and Apparel Park Ltd v . PCIT (2021) 209 TTJ 863 (Mum) (Trib.)

  39. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Limited scrutiny -The Revisional jurisdiction u/s 263 cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O for limited scrutiny while framing the assessment and enlarging his scope of limited enquiry.[S. 143(3), 147]

    Held that the PCIT cannot invoke the jurisdiction under section 263 when there is no adverse finding in the limited scrutiny and in the absence of following the instructions No. 5/ 2016 dated 14-07-2016 issued by the CBDT, revisional jurisdiction under section 263 cannot be exercised. ((AY. 2015-16)

    Mahendra Singh Dhankar HUF v. ACIT (2021) 212 TTJ 902 / 204 DTR 377 (Jaipur)(Trib.)

  40. S. 263: Revision of orders prejudicial to Revenue- Twin conditions to be satisfied-Assessment order cannot be said to be erroneous in law- Revision was quashed.[S. 54F]

    Where the assessee, an individual, sold one property and purchased two properties, the disallowance with respect to 50% of the investment by the Assessing Officer cannot be said to be an erroneous decision. There must be some material with the Commissioner to revise the assessment order. Also, if the Assessing Officer has made all enquiries it cannot be said that there has been a lack of enquiry. Also, the proviso to Section 54F is not violated- the date of purchase vide registered sale deed and consequent possession is to be taken into consideration which is well beyond the period of one year, and not the agreement of sale.(AY. 2015-16)

    Virendra Singh Bhadauriya v. PCIT (2021) 211 TTJ 452/ 204 DTR 400 (Jaipur) (Trib.)

  41. S. 271(1)(c): Penalty for furnishing inaccurate particulars of income-Assessee intimated Assessing Officer well in advance of inadvertence of including receipt-Assessing Officer did not specify in notice whether notice is issued for concealing income or furnishing inaccurate particulars. [S. 143(2)]

    The Assessing Officer must clearly specify whether he is imposing penalty proceedings for inaccurate particulars of income or concealment of income. Also, when the assessee wrote to the Assessing Officer well in advance before the Section 143(2) notice was issued that the interest income was inadvertently not included then the Assessing Officer cannot initiate penalty proceedings against the assessee. (AY. 2009-2010)

    FCI Asia Pte Ltd. v. DCIT (2021) 212 TTJ 9 (UO) (Delhi)(Trib)

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

  1. S. (11): Asset located outside India – Beneficial interest – Notice issued to assessee and order passed making addition on account of amount received in bank account where assessee is allegedly beneficial owner – Assessee not liable to be taxed. [S. 5, 10(3) Companies Act, 2013, S. 89(10), 90 (1)]

    The assessee cannot be held to be beneficial owner of the amounts lying in the bank account merely because its name appears as beneficial owner in the account opening form along with passport for identification. In the absence of corroborative evidence addition under the Act cannot be sustained. The money does not belong to the assessee but the son of the assessee on account of voluminous evidence produced in that regard. (AY. 2016-2017)

    ACIT v. Jatinder Mehra (2021) 212 TTJ 681 (Delhi) (Trib.)

Wealth-tax Act, 1957.

  1. S. 2(ea) : Asset- Lack of evidence to support the land being vacant as of the cut-off date and evidence to the contrary, issue set aside to the file of AO for verification, whether the particular asset can be brought to tax under the Wealth Tax Act [S. 16(3)]

The Assessee held immovable asset, the value of which during the relevant AY 2008-09 was more than Rs. 15 lakhs. The Assessee had not filed return of wealth for the AY 2008-09. Therefore, the assessment has been reopened under s. 16(3) of the WT Act, 1957 (hereinafter ‘the Act’).

The AO noticed that the Assessee is the owner of an asset on which a residential house originally existed. In the relevant AY, the Assessee entered into a joint development agreement (hereinafter JDA) and as a consequence, the building was demolished, and the asset became a vacant land as on 31st March 2008 and 31st March 2009.

The Assessee contended that there was a building on the land as on the valuation date i.e., on 31st March 2008 and 31st March 2009 and only after the JDA, the building was demolished between April 2009 to March 2010. Therefore, there was a building on the land as on 31st March 2008 and 31st March 2009 and hence, land cannot be included in the definition of asset as defined under s. 2(ea) of the Act. Upon further appeal to the CWT(A), the CWT(A)upheld the findings of the AO.

The Hon’ble Tribunal after much scrutiny observed that, for the impugned AY 2007-08 and 2008-09, the land was not a vacant urban land and the existing building was demolished, is not supported by any evidence. It restored the matter to the AO for his verification on whether building is used for own residential purpose or business purpose or the same has been let out during the relevant previous year. Further also held that simply on the ground that there was a building in the impugned land, the same cannot be excluded from the ambit of wealth-tax, & that the AO needs to verify above facts before concluding whether a particular asset comes under the definition of asset as defined under S. 2(ea) of the Act or not. (AY. 08-09; 09-10)

Giridhari Govindas (HUF) v. ACIT (2021) 209 TTJ 953 (Chennai) (Trib.)

  1. S. 2(14)(iii) : Capital asset – Agricultural land – Land continued to be agricultural land in the revenue records – located 20 kms. away from municipal corporation limits – Cutting and carrying away of rubber trees did not change classification of land from agricultural to non-agricultural land – User by buyer is not relevant for assessing the gain in the hands of the assesse – Not liable to be assessed as capital gains [S. 45]

    The assessee sold the agricultural land. As per the condition of MOA the assessee agreed to cut and carry away all rubber trees on said land at his own expenses before sale. Land continued to be agricultural land in the revenue records and the land is located 20 kms. away from municipal corporation limits. The Assessing Officer held that with cutting and carrying away of rubber trees land became barren land and a barren land could not be treated as agricultural land and, further, KSIDC, in due course of time, upon purchase from assessee, converted said land into an industrial Estate. The Assessing Officer assessed the gain on sale of said land as liable to capital gains tax. The Tribunal held that the sale of agricultural land cannot be assessed as capital gains. On appeal by the revenue land the Court held that the land in question was located 20 kms. away from municipal corporation limits. Assessee had demonstrated that classification of land continued to be an agricultural land in revenue records even as on date of sale. Land was put to use only for agricultural purposes by assessee. The assessee could not be expected to have control over activities of buyer once transfer was completed. Cutting and carrying away of rubber trees did not change classification of land from agricultural to non-agricultural land. Order of Tribunal was affirmed. (AY. 1996-97)

    CIT v. Cochin Malabar Estates & Industries Ltd. (2021) 208 DTR 119 / (2022) 440 ITR 121 / 324 CTR 246 / 134 taxmann.com 162 (Ker)(HC)

  2. S. 2(22)(e) : Deemed dividend – Advance against sale of commercial space – Addition cannot be made as deemed dividend.

    Dismissing the appeal of the revenue the Court held that Tribunal had given findings of fact that advance received by assessee from company was not in nature of loan or advances as contemplated in section 2(22)(e), but was trade advance against booking of commercial place being built by assessee. Deletion of addition was affirmed.

    PCIT v. Anumod Sharma (2021) 283 Taxman 564 (Delhi) (HC)

  3. S. 4 : Charge of income-tax-Capital or revenue-Non-compete fee-Sharing customer database and sharing of trained employees-Fee received is not taxable. [S. 28(i)]

    Held the non-compete fee was received for sharing the customer database and sharing of trained employees. The receipt towards the transfer was not attributable to transfer of any assets or right and from the mere fact that the receipt was not attributable to the non-compete covenant, it could not be automatically concluded that the receipt was either from business or income of an activity recurring in nature. The amount was not assessable. (AY.1997-98)

    CIT v. ABB Ltd. (2021)439 ITR 554 (Karn.)(HC)

  4. S. 4 : Charge of income-tax – Capital or revenue – Sale of emission reduction credit – Capital receipt [S. 28(i)]

    Dismissing the appeal of the revenue the Court held the sale of certified emission reduction credit, which the assessee had earned on the clean development mechanism in its wind energy operations, is a capital receipt and not taxable. (AY. 2009-10)

    CIT v. Wescare (India) Ltd. (2021) 439 ITR 657 (Mad.)(HC)

  5. S. 4 : Charge of income-tax – Capital or revenue – Sale of Certified Emission Reduction Credit – Not assessable as business income [S. 28(i)]

    Dismissing the appeal of the revenue the Court held that the proceeds realized by assessee engaged in wind power project on sale of Certified Emission Reduction Credit, which assessee had earned on Clean Development Mechanism in its wind energy operations was not an off-shoot of business, but an offshoot of environmental concerns and hence being a capital receipt would not be taxable. (AY. 2009-10)

    CIT v. Prabhu Spinning Mills (P) Ltd. (2021) 283 Taxman 89 (Mad.) (HC)

  6. S. 10(23C) : Educational institution – Computation of income -Receipt from education institution was less than 1 Crore – Entitle to exemption – Receipts of educational institution cannot be clubbed with other income of the society for the purpose of computing exemption u/s 10(23C)(iiiad) of the Act. [S. 10(23C)(iiiad), 12AA, IT Rules, 1962, 2BC]

    Assessee-society established an educational institution. Assessing Officer disallowed the exemption on ground that excess income over expenditure of said institution run by assessee was carried to account of society for taxation and other purpose and since aggregate of fee receipts of institution and receipts of society exceeded prescribed upper limit of Rs. 1 crore. The order of the Assessing was affirmed by the Tribunal. On appeal the Court held that the receipts of Institution were below Rs. 1 crore. In the computation of income Assessing Officer himself recognized and acknowledged difference between receipts of institution and receipts of society. Allowing the appeal the Court held that the receipts of institution could not be clubbed with other income of assessee-society for purpose of considering benefit of section 10(23C)(iiiad) of the Act.. The Court also observed that the Tribunal was erred in looking at the provisions of section 12AA of the Act. Exemption was allowed. (AY. 2007-08)

    Manas Sewa Samiti v. Add. CIT (2021) 323 CTR 737 / 208 DTR 41 (2022) 284 taxman 418 (All)(HC)

  7. S. 10(26B): Income of Body Corporation established or wholly financed by Central or State Government for promoting interests of Scheduled castes or Scheduled Tribes – Engaged in work of development of National Safai Karamcharis who were involved in upliftment of Safai Karamcharis and Manual Scavengers who belong to Scheduled Caste, Scheduled Tribe or Other Backward Classes and also in inhumane practice of scavenging and other sanitation activities-Entitle to exemption.

    Held that the assessee company was fully owned by Government of India and engaged in work of development of National Safai Karamcharis who were involved in upliftment of Safai Karamcharis and Manual Scavengers who belong to Scheduled Caste, Scheduled Tribe or Other Backward Classes and also in inhumane practice of scavenging and other sanitation activities, it would be entitled to claim benefit of section 10(26B) of the Act. (AY. 2017-18)

    CIT(E) v. National Safai Karamcharis Finance and Development Corporation (2021) 283 Taxman 576/ 323 CTR 816/ 208 DTR 57 (Delhi) (HC

  8. S. 10B : Export oriented undertakings-Manufacture-Blending of Tea does not constitute manufacture-Not entitled to exemption-Interpretation of taxing statute-Provision for exemption-In case of ambiguity in an exemption provision the benefit has to go to the revenue.

    The term “manufacture” was not defined in the substituted provisions as was available before its substitution to include even processing. Explanations to this section define certain terms used. Explanation 3 was added in the section which begins with the words “for the removal of doubts”. It is to treat the profits and gains derived from onsite development of computer software outside India as income deemed to be derived from export of computer. Explanation 4 was added by the Finance Act, 2003, with effect from April 1, 2004 to define “manufacture or produce” to include cutting and polishing of precious and semi precious stones. The insertion of Explanation 4 clearly establishes the fact that wherever the benefit was to be extended, the needful was done. It had been authoritatively held by the Supreme Court in CIT v. Tara Agencies (2007) 292 ITR 444 (SC) that mixing of different kinds of tea does not fall within the ambit of manufacturing. Court held that blending of tea does not amount to manufacture and the assessee was not entitled to the benefit of section 10B. Court also held that while interpreting the provision for exemption, in case of ambiguity in an exemption provision the benefit has to go to the revenue. Followed Commissioner Customs v. Dilip Kumar and Co. (2018) 6GSTR-OL-46 (SC). (AY.2002-03 to 2005-06)

    PCIT v. V. N. Enterprises Limited (2021) 439 ITR 624 (Cal.)(HC)

    CIT v. Tea Promoters (India) Pvt. Ltd. (2021) 439 ITR 624 (Cal.)(HC)

  9. S. 11 : Property held for charitable purposes-Improve public transport system in the country and the road safety standards-Revenue from laboratory testing and consultancy-Not to earn profit for share holders-Entitle to exemption-Proviso to section 2(15) is not applicable-No substantial question of law. [S. 2(15)]

    Dismissing the appeal of the revenue the Court held the association has not been earning any profit as the main object of the assessee-association is to improve the public transport system in the country and the road safety standards. Undoubtedly, the activities of laboratory testing and consultancy are bringing revenue to the assessee-association but the intent of such activities is not to earn profit for its shareholders/owners.. No question of law Followed Ram Kumar Aggarwal & Anr. vs. Thawar Das (through LRs), (1999) 7 SCC 303 has reiterated that under Section 100 of the Code of Civil Procedure the jurisdiction of the High Court to interfere with the orders passed by the Courts below is confined to hearing on substantial question of law and interference with finding of the fact is not warranted if it involves re-appreciation of evidence. there is no perversity in the findings of the ITAT. Referred State of Hryana & Ors v. Khalsa Motor Ltd (1990) 4 SCC 659, Hero Vinoth (Minor)) v. Thawar Das Through LRs (1999) 7 SCC 303.

    CIT (E) v. Association of State Road Transport Undertakings (2021) 208 DTR 313 /324 DTR 165 (Delhi) (HC)

  10. S. 11 : Property held for charitable purposes-Running a printing press and publishing a news paper-Profit generated was ploughed back to charitable activities-Entitle to exemption [S. 2(15) 10(23C)(vi), 12A, 80G]

    Dismissing the appeal of the revenue the Court held that object of the society is charitable in nature and the profit earned from running a printing press and publishing a news paper was ploughed back to charitable activities. The assessee is entitle to exemption. Proviso to section 2(15) is not applicable.

    PCIT v. Servants of People Society (2021) 208 DTR 409 (2022) 324 CTR 167 /133 taxmann.com 244 (Delhi) (HC)

  11. S. 11 : Property held for charitable purposes – Charitable purpose – Objects of general public utility – Improve public transport system – Revenue from testing automobile parts and consultancy charges – Entitle to exemption [S. 2(15)]

    Assessee is an apex co-ordinating body of all nationalized State Road Transport Corporation working under aegis of Ministry of Road Transport and Highways, Government of India.Its main object was to improve public transport system in country. It also earned revenue from laboratory testing of automobiles and consultancy services. Dismissing the appeal of the revenue the Court held that merely because the had receipts under head revenue from testing laboratory and consultancy receipts which were of commercial nature, it could not be said that activities of assessee did not fall under categories of education, medical relief, relief to poor, preservation of environment and, hence, assessee-association was charitable in nature.

    CIT (E) v. Association of State Road Transport Undertakings (2021) 283 Taxman 555 (Delhi) (HC)

  12. S. 11 : Property held for charitable purposes-Engaged in promotion of rapid and orderly establishment, growth and development of industries in State and provided for industrial infrastructural facilities-Object of general public utility, proviso to section 2(15) was not applicable-Entitle for exemption [S. 2(15, 12AA]

    Dismissing the appeal of the revenue the Court held that the asseessee which is engaged in promotion of rapid and orderly establishment, growth and development of industries in State and provided for industrial infrastructural facilities. Object of general public utility, proviso to section 2(15) was not applicable. Entitle for exemption. Followed Karnataka Industrial Areas Development Board v. ADDIT(E) (2020) 277 Taxman 36 (Karn)(HC) (AY. 2013-14)

    PCIT(E) v. Karnataka Industrial Areas Development Board (2021) 130 taxmann.com 407 (Karn) (HC)

    Editorial : SLP is granted to the revenue, PCIT(E) v. Karnataka Industrial Areas Development Board (2021) 283 Taxman 10(SC)

  13. S. 11 : Property held for charitable purposes-Construction of building for Government-Commission from Government-Involves carrying on of activity in the nature of trade commerce or business-Denial of exemption is held to be justified [S. 2(15), 12A]

    One of the objects of the assessee is to take up construction work of any nature to establish a chain of retail outlets. In the relevant financial year the assessee completed 34 building projects. The Assessing Officer denied the exemption which was affirmed by the Tribunal. On appeal the Court held that purpose of construction of building for Government cannot be accepted as an activity coming within the meaning of advancement of any other object of general public utility. Denial of exemption was held to be justified. (AY. 2019 10, 2013-14)

    Nirmithi Kendra v. Dy. CIT (E) (2021) 323 CTR 865 (Ker) / 208 DTR 249 (Ker) (HC)

  14. S. 11 : Property held for charitable purposes-Construction of building for Government-Commission from Government-Involves carrying on of activity in the nature of trade commerce or business-Denial of exemption is held to be justified [S. 2(15), 12A]

    One of the objects of the assessee is to take up construction work of any nature to establish a chain of retail outlets. In the relevant financial year the assessee completed 34 building projects. The Assessing Officer denied the exemption which was affirmed by the Tribunal. On appeal the Court held that purpose of construction of building for Government cannot be accepted as an activity coming within the meaning of advancement of any other object of general public utility. Denial of exemption was held to be justified.(AY. 2019 10,, 2013-14)

    Nirmithi Kendra v. Dy. CIT (E) (2021) 323 CTR 865 (Ker) / 208 DTR 249 (Ker) (HC)

  15. S. 17(2) : Perquisite-Permission for providing COVID treatment-Show cause notice-Revocation of permission was lifted-Order was set aside [S. 15, 17(ii)(b),ITATR, 1962, R. 3A, Art, 226]

    Petitioner-hospital filed application seeking renewal of approval under clause (ii)(b) of proviso to section 17(2)(viii) of the Act. Revenue issued show cause notice and rejected the application on ground that State Government had cancelled permission granted to petitioner for providing COVID treatment. On writ allowing the petition the Court held that since revocation of permission was later lifted by the State Government and petitioner was permitted to provide treatment, very basis of show cause notice stood removed order was to be set aside.

    Park Health System (P) Ltd v. P CIT (2021) 323 CTR 628 / 208 DTR 12 (Telangana) (HC)

  16. S. 28(i) : Business income-Sale of technical know how – Cost was claimed as revenue expenditure-Receipt assessable as business income. [S. 56]

    Court held that in the first round of litigation, after rejecting the claim of the assessee that the transaction was a slump sale, the Tribunal held that if the assessee treated the cost and expenses relating to acquisition and improvement and development of intangible non-depreciable assets in the revenue field the gains arising as a result of sale thereof would have to be necessarily treated in the revenue field either under section 28 or section 56. The order passed by the Tribunal at the first instance had reached finality. Hence the amount was assessable. (AY.1997-98)

    CIT v. ABB Ltd. (2021) 439 ITR 554 (Karn.)(HC)

  17. S. 28(i) : Business income-lease rent-Scheme sanctioned by BIFR-Assessable as business income. [S. 14]

    Dismissing the appeal of the revenue the Court held that the assessee was obligated to work under a statutory approved scheme; the lease of eight years was to ATL, which was in the same business and the lease was for utilising the plant, machinery, etc. for manufacturing tyres; the actuals were reimbursed to assessee by ATL; the work force of the assessee had been deployed for manufacturing tyres; the total production from the assessee unit was taken over by ATL; over all affairs of assessee company were made viable by entering into settlement; coupled with all other primary circumstances, the assessee employed commercial assets to earn income. The scheme was for providing a solution to the business problem of the assessee. The claim of lease rental receipt as income of business was justifiable for the assessment years. (AY.1996-97 to 2003-04)

    CIT v. Premier Tyres Ltd. (2021) 439 ITR 346 (Ker.)(HC)

    CIT v. PTL Enterprises Ltd. (2021) 439 ITR 346 (Ker.)(HC)

  18. S. 28(i) : Business income-Income from lease-Exploitation of property and not exploitation of business assets-Assessable as income from other sources-Quality loss-No business carried on-Not allowable as deduction. [S. 2(14), 56]

    Assessee continuing lease agreement and renewing it every year. The assessee claimed the income from lease as business income. the assessing Officer treated the income from other sources. Appellate Tribunal affirmed the view of the Assessing Officer. On appeal the High Court affirmed the order of the Tribunal and held that lease rental was rightly assessed as income from other sources. The court observed that the assessee exploited the property and not exploitation of business assets. Relied on Universal Plast Ltd v. CIT (1999) 237 ITR 454 (SC). Claim of quality loss was not allowed as there was no business was carried on during the relevant years. (AY.2004-05 to 2009-10)

    PTL Enterprises Ltd. v. Dy. CIT (2021) 439 ITR 365 (Ker.)(HC)

  19. S. 28(i) : Business loss-Recording notional loss or profit – Method of accounting – Current assets – Loss on revaluation and sale of bonds-Consistent method-Allowable as business loss. [S. 37(1), 145]

    Dismissing the appeal of the revenue the Court held that the assessee had got cash only upon sale of the bonds. Till such time the bonds could not be treated as capital asset and not even as stock-in-trade. The assessee had recorded notional loss or profit on revaluation of the earlier years and had followed such procedure in the subject assessment year 1996-97 also. There was consistency in the pattern followed by the assessee and considering the nature of business it was doing the bonds were rightly treated as current assets. The findings of facts recorded by the Tribunal were proper and correct. The option of treating the receivables converted as bonds realisable at a future point of time was tenable and running out of cash reserves the decision to treat the bonds also as receivables had been taken. On the facts, the treatment of an entry in a particular method needed to be appreciated. (AY.1996-97)

    CIT v. Bhageeratha Engineering Ltd. (No. 1) (2021) 439 ITR 704 283 Taxman 110 (Ker.)(HC)

  20. S. 32 : Depreciation-Roads-Improvement and development of State Highways-Entitle was entitled depreciation prescribed to building.

    Dismissing the appeal of the revenue the Court held that the Tribunal is justified in holding that although road is certainly not a plant or machinery, it can still be eligible for depreciation as a building, as per Appendix prescribing rate of depreciation which says building includes roads. Followed whether following CIT v. Tamil Nadu Road Development Co Ltd (2021) 279 Taxman 125 (Mad) (HC) (AY. 2002-03 to 2005-06)

    CIT v. Tamil Nadu Road Development Co. Ltd. (2021) 283 Taxman 168 (Mad.)

    Editorial: Tamil Nadu Road Development Co. Ltd. v. ACIT (2009) 120 ITD 20 (Chennai) (Trib) is affirmed.

  21. S. 32 : Depreciation-Plant and machinery-Ponds and reservoirs-Pollution control equipments-Depreciation allowable at 25% as against 100% claimed by the assessee-Approach road, drainage, borewells, reservoirs etc-Depreciation allowable at 10 % as against 25% claimed by the assessee.

    The assessee is in the business of prawn cultivation. The assessee claimed depreciation on ponds and reservoirs at 100% treating the same as pollution control equipments. Tribunal affirmed the order of Assessing Officer who allowed the depreciation at 25%. High Court affirmed the order of Tribunal. The assessee also claimed depreciation at 25% on approach road, drainage, borewells, reservoirs etc. The Assessing Officer allowed the depreciation at 10%. The Tribunal affirmed the order of the Assessing Officer. On appeal High Court affirmed the order of Tribunal. (AY. 1994-95, 1995-96)

    Industrial Incubators (P) Ltd v. Dy. CIT (2021) 323 CTR 1001 / (2022) 209 DTR 277 (Orissa)(HC)

  22. S. 37(1): Business expenditure-Interest-Prepayment premium-Corporate debt restructuring-Allowable as deduction.

    Held that one time payment made by assessee towards pre-payment premium and interest compense to banks for agreeing to reduce rate of interest on loan pursuant to Corporate Debt Restructuring was business expenditure to be allowed deduction as revenue expenditure. (AY. 2007-08)

    CIT v. Thiru Arooran Sugar Ltd. (2021) 283 Taxman 156 (Mad.)(HC)

  23. S. 37(1): Business expenditure-Discount on issue of ESOP-Allowable as deduction.

    Held that discount on issue of ESOP was not a contingent liability but an ascertained liability hence the discount on issue of ESOP was an allowable deduction under section 37(1) as same was to be treated as remuneration to employees for their continuity of service. (AY. 2003-04)

    CIT(LTU) v. Biocon Ltd. (2021) 131 taxmann.com 187 (Karn) (HC) Editorial : Notice is issued in SLP filed by the revenue, CIT(LTU) v. Biocon Ltd. (2021) 283 Taxman 290 (SC)

  24. S. 35D : Amortisation of preliminary expenses-Share premium expenses-Not part of capital employed-Cost of acquisition does not constitute cost of project-cost of acquisition of companies could not be treated as asset for allowing deduction under section 35D.

    Dismissing the appeal the Court held that the Tribunal was right in holding that the share premium collected on the issue of share capital by the assessee could not be taken as part of the capital employed for allowing deduction under section 35D. Followed Berger Paints India Ltd. v. CIT (2017) 393 ITR 113 (SC). Court also held that there is a vast difference between expansion and extension. The Tribunal was right in law in holding that the cost of acquisition of companies could not be treated as asset for allowing deduction under section 35D. (AY.2008-09)

    Subex Ltd. v. CIT (2021) 439 ITR 495 (Karn.)(HC)

  25. S. 37(1) : Business expenditure –Capital or revenue – Expenditure for raising floor height of Godown – Expenditure incurred to run the business profitably is revenue expenditure.

    Where the assessee had incurred expenditure to conduct its business more efficiently and to increase its profits, while no new asset was brought into existence, it would be a revenue expenditure. (AY. 1991 -92)

    Jetha Properties Pvt. Ltd. v. CIT (2022) 440 ITR 524 / 209 DTR 201/ 324 CTR 326 (Bom) ( HC)

  26. S. 37(1) : Business expenditure-Penalty-Not compensatory in nature-Not allowable as deduction. [Kerala General Sales tax Act, 1963, S. 45A]

    Dismissing the appeal of the assessee the Court held that in the absence of any material to show that any element of compensation was involved in the penalty imposed under section 45A of the Kerala Act the amount of Rs. 52 lakhs could not be termed as an expenditure for the year 2004-05. (AY. 2004-05)

    PTL Enterprises Ltd. v. Dy. CIT (2021) 439 ITR 365 (Ker.)(HC)

  27. S. 37(1): Business expenditure-Statutory obligation-Contribution to common good fund-Special assistance fund-Allowable as deduction.

    Dismissing the appeal of the revenue the Court held that the amounts had been spent only out of statutory obligation, amount expended on funds will be allowable as deduction while computing income of assessee co-operative bank, even when said expenditure did not come under section 37(1) of the Act. (AY. 2007-08)

    PCIT v. Karnataka State Co-op. Apex Bank Ltd. (2021) 283 Taxman 106 (Karn) (HC)

  28. S. 40(a)(i) : Amounts not deductible-Deduction at source-Non-resident-Commission charges to overseas agents-Service rendered outside India-Cannot be considered as fes for technical services-Not liable to deduct tax at source-Art, 12-OECD Model convention [S.9(1)(vii)), 195]

    Dismissing the appeal of the revenue the Court held that the assessee had paid commission charges to overseas agents for services rendered outside India and not any lump sum consideration for rendering managerial, technical or consultancy services, such payments could not be considered as fees for technical services under section 9(1)(vii) of the Act. Not liable to deduct tax at source. (AY.2013-14, 2014-15)

    PCIT v. Gopakumaran Nair (2021) 283 Taxman 173 (Mad.) (HC)

  29. S. 40(a)(ia): Amounts not deductible-Deduction at source-Payment of freight and carriage charges for previous year 2006-07 (1-4-2006 to 31-3-2007)-Disallowance is held to be not valid-Commission payment disallowance is held to be justified. [S.194C]

    Assessing Officer had disallowed the payment of freight and carriage charges for failure to deduct tax at source. The Order was affirmed by the Tribunal. on appeal the Court held that since liability for deducting tax at source for payments made to individual contractors above monetary limits arose only with effect from 1-6-2007, for failure to deduct tax at source for previous year 2006-07, (i.e. 1-4-2006 to 31-3-2007), assessee should not be made liable to deduct TDS and, consequently, disallowance made under section 40(a)(ia) for non-payment of TDS under section 194C was to be deleted. As regards commission and brokerage and claimed deduction for same but failed to furnish record or material to show that commission or brokerage was paid to different individuals and each one of such payment was less than monetary limit of Rs. 20,000, said sum was to be disallowed for non-deduction of TDS under section 194H of the Act. (AY. 2007-08)

    Sudarsanan P.S. v. CIT (2021) 283 Taxman 84 (Ker.)(HC)

  30. S. 43B: Deductions on actual payment-Tax paid under Kerala Agricultural Income-tax Act-Not allowable as deduction [S. 10(1), 37(1), Kerala Agricultural Income-tax Act, 1991]

    Dismissing the appeal of the assessee the Court held that Agricultural income is excluded from the scope of s. 10(1) of Cent Act. Agricultural income does not form part of computation under Section 14 of the IT Act. Tribunal was justified is holding that agricultural income being exempt from taxation under the Central IT Act, the agricultural income tax paid by the assessee under Kerala Agricultural income Tax Act cannot be allowed as a deduction under the Income tax Act. (AY. 2007-08 to 2010-11, 2012-13)

    Oil Palm India Ltd v. Dy. CIT (2021) 208 DTR 345 (Ker.)(HC)

  31. S. 48 : Capital gains-Computation-Full value of consideration-Retention of money in Escrow account-Possession was handed over-Amount of money in Escrow account has to be considered while computing the capital gain for the purpose of full consideration. [S. 45]

    Assessing Officer held that amount which was kept in escrow account would only constitute an application of its income and whole consideration had to be deemed to accrue to assessee on execution of agreement for sale. Accordingly, capital gain was recomputed. Order of the Assessing Officer was affirmed by the Tribunal. On appeal the Court affirmed the order of Tribunal. (AY. 2003-04)

    Caborandum Universal Ltd v. ACIT (2021) 283 Taxman 312 (Mad.) (HC)

  32. S. 54F : Capital gains – Investment in a residential house – Relevant is date of acquisition of property and not on date of payment – It is not necessary that same sale consideration should be used for construction of a new house property – Allowed exemption . [ S.45 ]

    Assessee transferred shares held by him in two companies on 21-8-2008 and claimed exemption under section 54F on account of purchase of new residential house property for which sale deed was executed on 28-3-2011. Tribunal held that the payment were made prior to one year before date of transfer of shares and, therefore, assessee was not entitled to claim exemption. On appeal the Court held that since sale deed was executed in favour of assessee within a period of three years from date of transfer of shares, finding recorded by Tribunal that payments were made prior to one year before date of transfer of shares was not entitled to claim exemption under section 54F was perverse .Court also observed that for claiming exemption under section 54 of the Act is dependent on date of acquisition of property and not on the date of payment and it is not necessary that same sale consideration should be used for construction of a new house property . (AY. 2009-10)

    M. George Joseph v. Dy. CIT (2021) 282 Taxman 386/ 206 DTR 51/ 322 CTR 563/ ( 2022 ) 440 ITR 589 (Karn)(HC)

  33. S. 68 : Cash credits-Share application money-Shell companies-Share holders could not explain their source-Addition is held to be justified.

    Allowing the appeal of the revenue the Court held that the Assessing Officer clearly brought out as to how so-called investors, who were either shell companies or without any financial capacity, had brought in such monies for purpose of investment. Assessee had not established creditworthiness and genuineness of transaction and thus, failed to discharge primany onus cast upon it. Assessing Officer was justified in making addition under section 68 of the Act. (AY. 2003-04)

    CIT v. Midas Golden Distilleries (p) Ltd. (2021) 283 Taxman 395 (Mad) (HC)

  34. S. 69C : Unexplained expenditure-Failure to explain the source-Justified in confirming the disallowance.

    Dismissing the appeal the court held that the assessee had failed to furnish relevant details to prove source in respect of claim for deduction, Assessing Officer was justified in holding that amount was incurred out of undisclosed sources and making addition. (AY. 2007-08)

    Sudarsanan P.S. v. CIT (2021) 283 Taxman 84 (Ker.)(HC)

  35. S. 80HHB : Projects outside India-Gross total income-Additional deduction to be computed on the basis of recomputed gross total income.

    Allowing the appeal of the revenue the Court held that by virtue of the decision of the Tribunal the claim of the assessee for loss on revaluation and sale of Government bonds had been accepted. In accounting parlance, these items were to be deleted from the gross total income of the assessee. The quantification under section 80HHB should have been done correspondingly. The deduction under section 80HHB under the quantifying order dated July 28, 2003 was correct. (AY.1996-97)

    CIT v. Bhageeratha Engineering Ltd. (No. 2) (2021) 439 ITR 713 (Ker.)(HC)

  36. S. 80HHC : Export business-Deduction granted under section 80IB must be excluded. [S. 8IA(9), 80IB]

    Dismissing the appeal of the assessee the Court held that, the provisions are explicit that if any deduction is claimed and allowed under section 80-IA as an eligible business, the assessee cannot claim deduction to the extent of such profits and gains coming under other heads of deduction of Chapter VI-A of the Act. Section 80HHC which relates to deductions in respect of the profits and gains from export business falls under the heading “C” of Chapter VI-A. There is no ambiguity in section 80-IA(9) of the Act. The intention of the Legislature is clear that there cannot be a simultaneous deduction under section 80-IA and under section 80HHC. The profits and gains allowed as deduction under section 80-IA have to be excluded while computing the deduction under section 80HHC.(AY.2000-01, 2002-03, 2003-04, 2004-05)

    Kanam Latex Industries Pvt. Ltd. v. CIT (2021) 439 ITR 218 (Ker.)(HC)

  37. S. 80P : Co-operative societies – Society formed for enabling financial and social welfare of toddy tappers and workers for tapping and selling toddy — Could not be considered co-operative society engaged in collective disposal of labour of its members — Eligibility of assessee for deduction as society engaged in marketing of agricultural produce grown by its members — Matter remitted to Tribunal.[S.80P(2)(a)(vi)]

    The assessee, a registered co-operative society formed in the year 2001 for enabling financial and social welfare of toddy tappers and workers for tapping and selling toddy within the Hosdurg jurisdiction, claimed exemption under section 80P(2)(a)(vi) of the Income-tax Act, 1961. The AO denied the said exemption on ground that assessee-society was granted registration as a miscellaneous society and, thus, could not be treated as a society engaged in collective disposal of labour of its member. On appeal, the assessee contended that toddy vending by members of assessee-society was for marketing agricultural produce grown by its members which was dealt in sub-clause (iii) of section 80P(2)(a), therefore, its claim for deduction of income earned by society under section 80P(2)(a) was legitimate. The Tribunal merely upheld the decision of the AO. On appeal to the High Court:

    HELD:

    (i) that the Tribunal was right in holding that the assessee-society could not be considered a co-operative society engaged in the collective disposal of labour of its 2016 members as contemplated under section 80P(2)(a)(vi) of the Act and therefore was not eligible for deduction under section 80P of the Act. Decision in Peravoor Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT (2016) 380 ITR 34 (Ker) was followed.

    (ii) That on the issue of eligibility of the assessee for deduction under section 80P(2)(a)(iii) of the Act the matter was to be remitted to the Tribunal for consideration and disposal, in accordance with law. (AY. 2009 -10, 2010 -11, 2011 -12)

    Hosdurg Range Kallu Chethu Thozhilali Vyavasaya Sahakarana Sangham v. CIT (2022) 440 ITR 65 (Ker) (HC)

  38. S. 92C : Transfer pricing-Arm’s length price-TNM method-Transaction of buying services for sourcing garments in India-Addition made to ALP by applying cost plus 5 per cent mark-up on FOB value of exports among third parties was not supported under rule 10B(1)(e) and was liable to be deleted. [R. 10B(1)(e)]

    Assessee, a subsidiary of a Mauritius based company, had entered into an international transaction of buying services for sourcing garments, leather etc. in India for its AE and computed ALP of said transaction by adopting TNM method.Assessing Officer accepted application of TNMM by assessee as most appropriate method however addition made by TPO in assessee’s ALP by applying cost plus 5 per cent mark-up on FOB value of exports among third parties. Tribunal deleted the addition which was affirmed by the High Court. (AY. 2011-12)

    PCIT v. Li & Fung (India) P. Ltd. (2021) 130 taxmann.com 438 (Delhi) (HC)

    Editorial : SLP is granted to the revenue ; PCIT v. Li & Fung (India) P. Ltd. (2021) 283 Taxman 4 (SC)

  39. S. 92C : Transfer pricing-Arm’s length price-Functionally different-Justified in directing for exclusion of ABCL from the list of comparables-Interest receivable-Notional interest for relating to alleged delayed in collecting receivable-No substantial question of law-Question as to whether in a given case transfer pricing adjustment on delayed receivable could apply even to a debt-free company or not. does not arise on facts and is left open [S. 260A]

    Dismissing the appeal of the revenue the Court held that the Tribunal is justified in directing for exclusion of ABCL from the list of comparables. Court also held that there can be no notional computation of delayed receivables’ only ignoring the receivables received in advance. Appeal was dismissed. Question as to whether in a given case transfer pricing adjustment on delayed receivable could apply even to a debt-free company or not. does not arise on facts and is left open.(AY. 2014-15)

    PCIT v. Mckinsey Knowledge Centre India (P) Ltd. (2021) 323 CTR 360/ 207 DTR 60 (Delhi) (HC)

  40. S. 115JB : Book profit-Provision for bad and doubtful debts-Corresponding amount reduced from loans and advances on assets side of balance sheet-Net provision is shown-Provision not to be added in computing book profit. [S. 36(1)(vii)]

    The Tribunal held that since the assessee had simultaneously obliterated the provision from its accounts by reducing the corresponding amount from the loans and advances on the assets side of the balance-sheet and consequently, at the end of the year shown the loans and advances on the assets side of the balance sheet as net of the provision for bad debts, it would amount to a write-off and such actual write-off would not be hit by clause (i) of the Explanation to section 115JB. On appeal dismissing the appeal the Court held that the Tribunal was right in deleting the addition on account of the provision for bad and doubtful debts in the computation of the book profits for computation of minimum alternate tax liability in the light of clause (i) of the Explanation to section 115JB.(AY.2004-05)

    PCIT v. Narmada Chematur Petrochemicals Ltd. (2021) 439 ITR 761 (Guj.)(HC)

  41. S. 127 : Power to transfer cases – Assigning of reasons in notice — Search proceedings showing that assessee residing in Nagaland and had financial interests in Kerala — Transfer for purposes of co-ordinated investigation — Cogent and credible reasons assigned in notice — notice sent to registered office in Kerala and received by Assessee — Order for transfer valid [Rule 127 of the Income-tax Rules]

    The S group of companies was promoted by the assessee, MKRP and the other assessees were his wife, sons and daughter. The entities of the S group were located in Nagaland and in Kerala. Subsequent to a search and seizure conducted under section 132 in their business and residential premises, assessment and reassessments were made. Thereafter, notices were issued and the cases were transferred under section 127 from Dimapur, Nagaland to Kollam, Kerala. Writ petitions were filed by all the assessees before the High Court. The assessees alleged that the transfer had been done without proper notice and without assigning any reasons as to why such transfer was being made, thus in violation of section 127. Further, it was argued that since the notice itself was not served upon the assessee as was liable to have been done under the provisions contained in the Income-tax Act and the rules framed therein, it was also violative of section 282 as well as rule 127 of the Income-tax Rules.

    The single judge allowed the petitions and gave an opportunity to the Revenue to proceed afresh against the assessees by giving fresh notices under section 127 and accordingly fresh notices were issued. The notice issued to the assessee, MKRP stated that the assessees were either partners or directors in the various firms and companies of the S group which were all based in Kerala, that over several years he had directed the transfer of sums of money from several bank accounts in Nagaland to his family businesses and family members who were all based in Kerala, that it was manifest from the modus operandi followed by him that although the source of funds lay in Nagaland, its ultimate destination was in assets in Kerala belonging to him or his family members and to the businesses controlled and managed by him or his family members in Kerala, that his financial interests were centered largely in Kerala, and the undisclosed investments admitted by the assessee were also in Kerala and that therefore, the cases were transferred to Assistant Commissioner, Kollam, Kerala so as to facilitate the assessments. The order further stated that when nobody made representation before the concerned authority which had passed the transfer order, another notice was sent which was returned with a remark “Addressee unclaimed – return to sender” and thereafter, the order of transfer of cases were passed. The single judge dismissed the writ petitions filed against the fresh transfer orders. On appeals:

    Held, dismissing the appeals, that cogent and credible reasons were assigned in the notices issued by the authorities as required under section 127 for transfer of the cases. Such transfer of cases had to be made on administrative exigencies and for better assessment by the Revenue and the authorities were the best judge in such matters. As far as the service of the notices was concerned, the single judge had examined in detail in his order wherein he had held that notices were sent twice. It was admitted that the first notice was served at the assessees’ address in Kerala. It was not the case that the notices were sent to the wrong address. The notices were sent at the registered address of the company in Kerala which had also been received by the assessees, a fact which had been reiterated over and again by the Revenue and had not been negated by the assessees. It was therefore sufficient compliance under rule 127 of the Income-tax Rules, 1962 as the notices were sent at the registered office of the assessees’ company. Since no response was filed, notices were sent again. Unlike the first time, the second time it came with an endorsement of the postal authority that it was “unclaimed”. A presumption could be drawn that when the first time notices were received at the same address, the second notices could not remain “unclaimed” and therefore, the plea of the assessees that the second time notices were never received by them had been rightly rejected by the single judge. The only requirement of the law was that while passing an order of transfer, the reasons must be assigned. The orders of transfer of cases need not be interfered with.

    Varun Raj Pillai v. PCIT (2022) 440 ITR 47 (Gau)( HC)

  42. S. 127 : Power to transfer cases – Assigning of reasons in notice — Search proceedings showing that assessee residing in Nagaland and had financial interests in Kerala — Transfer for purposes of co-ordinated investigation — Cogent and credible reasons assigned in notice — Notice sent to registered office in Kerala and received by Assessee — Order for transfer valid [S. 132 ITR Rule 127, Art. 226]

    Held, dismissing the appeals against the order of single judge the Court held that cogent and credible reasons were assigned in the notices issued by the authorities as required under section 127 for transfer of the cases. Such transfer of cases had to be made on administrative exigencies and for better assessment by the Revenue and the authorities were the best judge in such matters. As far as the service of the notices was concerned, the single judge had examined in detail in his order wherein he had held that notices were sent twice. It was admitted that the first notice was served at the assessees’ address in Kerala. It was not the case that the notices were sent to the wrong address. The notices were sent at the registered address of the company in Kerala which had also been received by the assessees, a fact which had been reiterated over and again by the Revenue and had not been negated by the assessees. It was therefore sufficient compliance under rule 127 of the Income-tax Rules, 1962 as the notices were sent at the registered office of the assessees’ company. Since no response was filed, notices were sent again. Unlike the first time, the second time it came with an endorsement of the postal authority that it was “unclaimed”. A presumption could be drawn that when the first time notices were received at the same address, the second notices could not remain “unclaimed” and therefore, the plea of the assessees that the second time notices were never received by them had been rightly rejected by the single judge. The only requirement of the law was that while passing an order of transfer, the reasons must be assigned. The orders of transfer of cases need not be interfered with.

    Varun Raj Pillai v. PCIT (2022) 440 ITR 47 (Gauhati)( HC)

  43. S. 132(4) : Search and seizure-Statement on oath-Undisclosed income-Retraction-Failure to produce any evidence contrary to the statement-Order of Tribunal is affirmed [S. 132]

    On the basis of statement recorded in the course of search and seizure action addition was made in the assessment. The addition was affirmed by the Tribunal. On appeal the High Court set aside the order of the Tribunal and directed to decide in accordance with law. The Tribunal once again passed the order confirming the addition on the ground that the assesee has not produced any evidence contrary to the material placed before the Tribunal. On appeal the High Court affirmed the order of the Tribunal. (BP. 1989-90 to 22nd June 1998.)

    Nayaar Patel v. ACIT (2021) 323 CTR 1005 (Ker)(HC)

  44. S. 132B : Application of seized or requisitioned assets-Jewellery seized-Failure to pass an order within period of 120 days on which last authorisation of search was executed-Entire jewellery seized was directed to be released [S. 132, Art, 226]

    In the course of search jewellery and cash of certain amount was seized. The Assessee filed an application under section 132B for release of seized jewellery.No action was taken by revenue on said application filed by assessee within stipulated period of 120 days from date on which last authorisation for search was executed under section 132 of the Act.On writ the Court held that provisions of section 132B got triggered, once period of 120 days from date of last of authorisation for search under section 132 expired,therefore, entire seized jewellery was to be released to assessee. (AY.2015-16, 2018-19)

    Kamlesh Gupta v. UOI (2021) 283 Taxman 237 (Delhi) (HC)

  45. S. 139 : Return of income-Voluntary retirement scheme-Bank employee-Claimed exemption after by filing the letter after passing of assessment order-Filing the revised return-Delay was not condoned by CBDT-High Court directed the CBDT to condone the delay and grant refund without interest. [S. 10(10C), 89(1), 119(2)(b), 139(5), 143(1), Art. 226]

    The assessee did not claim exemption under section 10(10C) of the Act the on the superannuation benefit amount. An assessment order was passed/s 143(1) of the Act, wherein the Assessing Officer stated that no exemption under section 10(10CC) was claimed but only relief under section 89(1) was claimed. The assessee filed rectification application to the Assessing Officer by a letter dated March 18, 2008 stating that the amount of superannuation benefit was not taken into consideration for tax exemption. As no response was received the assessee filed a revised return and filed an application seeking condonation of delay under section 119(2)(b)of the Act. The application was rejected as time barred on the ground that Circular No. 9 of 2015 dated June 9, 2015 ([2015] 374 ITR (St.) 25) of the Central Board of Direct Taxes did not permit condoning the delay beyond the period of six years. On writ the Court held that the assessee’s entitlement to exemption under section 10C) was noticed by the Assessing Officer. The Assessing Officer’s observation in his assessment order regarding exemption under section 10(10C) indicated that he was aware of non-claiming of the exemption by the assessee. Prima facie an order considering the letter of the assessee, dated March 18, 2008, as a rectification application and passing an order would be a legally justifiable order. As no order was passed, the assessee had decided to explore the possibility of filing a revised return. In view of Circular No. 014 (XL-35) dated 11-4-1955 and the peculiar facts of the case, including that letter that could be construed to be a rectification application was not decided, on the merits of the claim for exemption, the revised return could be considered. The reasons assigned while seeking condonation of delay were satisfactory. The order rejecting the condonation of delay under section 119(2)(b) was set aside and the delay was condoned. As regards the grant of refund, eventually on account of the delay, there would be exclusion of interest on the amount of refund. The court made it clear that the order had been passed in view of the peculiar facts and circumstances of the case and accordingly, could not be considered to have laid down the law as regards the aspect of condonation of delay under section 119(2)(b) or on other issues dealt with. (AY.2004-05)

    Devendra Pai v. ACIT (2021) 439 ITR 532 (Karn.)(HC)

  46. S. 143(3) : Assessment –Show cause notice granting time of only four days – Assessment order passed in violation of principles of natural justice to be set aside. [Art , 226]

    Where the show cause notice issued by the Assessing Officer only granted a period of four days for filing the details and the assessee requested for an accommodation of fifteen days. As the limitation for passing the assessment order was not expiring for another two months, and yet, the Assessing Officer passed the assessment order without granting an adjournment and without even referring to the request for adjournment, the order was to be set aside. (AY. 2018-19)

    Deepak Garg v. UOI [2022] 440 ITR 575 (Delhi) (HC)

  47. S. 143(3): Assessment-Cash credits-Natural justice-COVID-19-Failure to grant reasonable opportunity for furnishing details-Assessment order was set aside [S. 68, 132 Art, 226]

    In notice, several details were asked from assessee which were to be produced within two or three days which was not complied within such short possible time during COVID-19 pandemic period. The Assessment was completed by making huge additions. On writ allowing the petition the Court held that it could not be reasonably expected that assessee would be able to collect all documents and produce before revenue within 2 to 3 days. The order was set aside with the direction to grant some more opportunity produce those documents. Matter was remanded. (SJ)

    Manickam Subramanian v. ACIT (2021) 283 Taxman 32 (Mad.) (HC)

  48. S. 144B : Faceless Assessment-Principle of Natural justice is violated-Cash credits-Order was passed without giving an opportunity of hearing-Order was set aside [S. 68, 142(1), 143(3), Art, 226]

    The assessment order was passed making addition u/s 68 of the Act, without issuing the show cause notice. On writ the Court held that the issuance of show cause notice is the preliminary step is required to be understanding. The purpose of show cause notice is to enable a party effectively deal with the case made out by the respondent. On the facts the addition was made without issue of show cause notice, the order was quashed and set aside. Followed Om shri Jigar Association v.UOI,1994 SCC Online.Guj 77.

    Shreji Investment & Advisory Services v. NFSC (2021) 207 DTR 357/ 323 CTR 505 (Bom)(HC)

  49. S. 144B : Faceless Assessment-Principle of Natural justice is violated-Cash credits-Order was passed without giving an opportunity of hearing-Order was set aside [S. 68, 142(1), 143(3), Art, 226]

    The assessment order was passed making addition u/s 68 of the Act, without issuing the show cause notice. On writ the Court held that the issuance of show cause notice is the preliminary step is required to be understanding. The purpose of show cause notice is to enable a party effectively deal with the case made out by the respondent. On the facts the addition was made without issue of show cause notice, the order was quashed and set aside. Followed Om shri Jigar Association v. UOI, 1994 SCC Online.Guj 77.

    Shreji Investment & Advisory Services v. NFSC (2021) 207 DTR 357/ 323 CTR 505 (Bom)(HC)

  50. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without giving a reasonable opportunity-Order was quashed and directed to pass appropriate orders on merits in accordance with law [S. 143(3), Art, 226]

    Allowing the petition the Court held that the order has been passed without following the principles of natural justice is liable to be quashed. The respondents are directed to pass appropriate orders on merits and in accordance with law within a period of 45 days from the date of receipt of a copy of this order. The assessee is also directed to file reply within a period of 30 days from the date of receipt of a copy of this order. (SJ)

    Sathya Jyothi Films v. NFAC (2021) 208 DTR 102 (Mad) (HC)

  51. S. 144B : Faceless Assessment-Violation of principle of natural justice-Issue of show cause notice and draft assessment order is mandatory-Assessment order, notice of demand and penalty notice was quashed-Matter was remanded back to Assessing Officer, who shall issue a draft assessment order and thereafter pass a reasoned order in accordance with law [S.143(3), 144B(7) 156, 271AAC, Art, 226]

    Assessment order was passed without issue of show cause notice and draft assessment order. On writ the Court held that there was a blatant violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme. The assessment order, notice of demand and notice of penalty were set aside and matter was remanded back to Assessing Officer who shall issue a draft assessment order and thereafter pass a reasoned order in accordance with law. (AY. 2018-19)

    Akashganga Infraventures India Ltd. v. NFAC (2021) 283 Taxman 37 (Delhi) (HC)

  52. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing a mandatory draft assessment order-Assessment order, notice of demand and penalty notice was quashed-Revenue was given an opportunity to pass a fresh assessment order in accordance with law. [143(3), 156, 270A,271AAC, Art, 226]

    Assessment order was passed without issuing a mandatory draft assessment order or a show cause notice to assessee. On writ the Court held that order passed without issuing a mandatory draft assessment order and show cause notice being contrary to statutory scheme, as provided in section 144B of the Act, the assessment order issued under section 144, read with section 144B as well as demand notice issued under section 156 and notice for initiating penalty proceedings issued under sections 270A and 271AAC(I) were set aside. Revenue was given an opportunity to pass a fresh assessment order in accordance with law. (AY. 2018-19)

    Anju Jalaj Batra v. NEAC (2021) 283 Taxman 81 (Delhi) (HC)

  53. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order was set aside-Liberty to Assessing Officer to continue assessment proceedings from stage at which they were positioned when show cause notice was issued [S. 143(3), Art, 226]

    Allowing the petition the court held that the assessment order having been passed without providing adequate opportunity to submit reply in response to notice to show cause-cum-draft assessment order as time frame set out in show cause notice was extremely narrow and e-filing portal was allegedly dysfunctional, impugned assessment order was to be set aside with liberty to Assessing Officer to continue assessment proceedings from stage at which they were positioned when show cause notice was issued.

    Centum Finance Ltd v. NFAC(2021) 283 Taxman 232 (Delhi) (HC)

  54. S. 144B : Faceless Assessment-Violation of principles of natural justice-Reply filed to show cause notice was not considered-Order was quashed-Assessing Officer was directed to re do the assessment afresh [Art, 226]

    Against the order passed u/s 144B of the Act, the assessee filed writ before the High Court. Allowing the petition the Court held that the order was bad on account of violation of principles of natural justice and, consequently, assessment order was to be quashed and Assessing Officer was directed to re-do assessment afresh. (AY. 2018-19)

    Ezhome Service Co-op. Bank Ltd. v. ITO (2021) 283 Taxman 567 (Ker) (HC)

  55. S. 144B : Faceless Assessment-Violation of principle of natural justice-Portal was not working-Failure to file reply-Order was passed without giving reasons-Order was set aside [Art, 226]

    A notice-cum-draft assessment order was served upon the assessee proposing an addition of huge amount against return income. Assessee failed to file its reply to said notice-cum-draft assessment order as portal of assessee was not working between 1-6-2021 and 17-6-2021 i.e. last date for filing reply to said notice-cum-draft assessment order. Assessing Officer passed a final assessment order copying such proposed additions to income of assessee without giving any reason. On writ the Court held that the assessment order passed by Assessing Officer was in violation of principal of natural justice inasmuch as assessee did not have a reasonable opportunity to file a reply to notice-cum-draft assessment order and, thus, same was to be set aside. (AY. 2018-19)

    Faqir Chand v. NEAC(2021) 283 Taxman 51 (Delhi) (HC)

  56. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing show cause notice and draft assessment order-Order set aside [S. 144B(9), Art, 226]

    Allowing the petition the court held that the final assessment order had been passed without issuing a show-cause notice and draft assessment order, department’s action was violative of principles of natural justice and provisions of section 144B of the Act. The assessment order was set aside and matter was remanded back to Assessing Officer. (AY. 2018-19)

    Floral Realcon (P) Ltd. v. National Faceless Assessment Centre (2021) 283 Taxman 488 (Delhi) (HC)

  57. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing show cause notice and draft assessment order-Order was set aside and remanded with the direction too pass a reasoned order in accordance with law [S. 143(3), 144B(7), Art, 226]

    Allowing the petition the Court held that section 144B (7) mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing final assessment order. When there was no prior show cause notice as well as draft assessment order had been issued before passing assessment order in faceless manner, there was a violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme’ and stipulated in section 144B of the Act. The order was set aside and directed the Assessing Officer to pass a reasoned order in accordance with law. (AY 2018-19)

    Globe Capital Foundation v. National E-assessment Centre. (2021) 283 Taxman 411 (Delhi) (HC)

  58. S. 144B : Faceless Assessment-Violation of principle of natural justice-No draft assessment order was passed-Order was set aside [S. 143(3), Art, 226]

    Allowing the petition the Court held that the assessment proceeding had been completed in violation of principle of natural justice and no draft assessment order was passed. Assessment order was set aside. along with notice of demand arising therefrom were to be set aside. (AY. 2017-18)

    International Management v. NFAC (2021) 283 Taxman 78 (Delhi) (HC)

  59. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing show cause notice and draft assessment order-Order was set aside and remanded [Art, 226]

    Allowing the petition the Court held that the Assessing Officer passed a final assessment order without issuing a show cause notice and passing a draft assessment order, the assessment order was to be set aside and matter remanded. (AY. 2014-15)

    Javin Construction (P) Ltd v. NFAC(2021) 283 Taxman 42 (Delhi) (HC)

  60. S. 144B : Faceless Assessment-Violation of principle of natural justice-No show cause notice and draft assessment order was issued-Assessment order was set aside and remanded back to Assessing Officer [Art, 226]

    Allowing the petition the Court held that the order passed without issue of show cause notice and draft assessment order is violation of principles of natural justice as well as mandatory procedure prescribed under Faceless Assessment Scheme. The assessment order was set aside and matter was remanded back to Assessing Officer. (AY. 2018-19)

    Novelty Merchants (P) Ltd v. NFAC (2021) 283 Taxman 385 (Delhi) (HC)

    Pooja Singla Builders and Engineers (P) Ltd v. NAFC (2021) 440 ITR 413/ 283 Taxman 491 (Delhi) (HC)

    Religare Enterprises Ltd. v. NFAC (2021) 283 Taxman 408 (Delhi) (HC)

  61. S.144B : Faceless Assessment-Violation of principle of natural justice-Without affording personal hearing-COVID-19-Order was set aside and remanded back for adjudication a fresh [S. 143(3), Art, 226]

    Assessment order was passed without granting an opportunity of filing objections against notices-cum-draft assessment orders as State of Delhi was under lockdown due to second wave of Covid-19 Pandemic between date of notices and date by which replies had to be filed. On writ High Court set aside the matter and remanded back to Assessing Officer for taking appropriate steps in accordance with law. (AY. 2018-19)

    Ramprastha Buildwell (P) Ltd v. NEAC (2021) 283 Taxman 235 (Delhi) (HC)

  62. S. 144B : Faceless Assessment-Violation of principle of natural justice-Opportunity of personal hearing was not granted-Order was set aside-Directed the Assessing Officer to pass a reasonable order in accordance with law [S. 143(3), 144B(7) Art, 226]

    Assessing order was passed without granting opportunity of personal hearing. On writ the High Court held that there was no hearing had been granted to assessee before passing impugned assessment order passed under section 143(3) read with section 144B, there was a violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme, assessment order as well as demand notice and all proceedings initiated pursuant thereto were to be set aside and matter was to be remanded back to Assessing Officer for adjudication afresh. (AY. 2018-19)

    Umkal Healthcare (P) Ltd. v. NFAC (2021) 283 Taxman 504 (Delhi) (HC)

  63. S. 144B : Faceless Assessment-Cash credits-Violation of principle of natural justice-Two days time was not granted-Draft assessment order was not provided-Assessment order was set aside [Art, 226]

    The assessment order was passed making addition of Rs 29, 51, 28, 460 under section 68 of the Act, without giving a reasonable opportunity of hearing also not providing the draft assessment order. The assessee filed the writ petition. High Court set a side the order of the Assessing Officer for violation of natural justice and not providing draft assessment order. (AY. 2018-19)

    Setu Securities (P) Ltd v. NFAC (2021) 323 CTR 646 / 207 DTR 425 (Bom) (HC)

  64. S. 144C : Reference to dispute resolution panel-Power of enhancement-Any matter relating to assessment-Writ was dismissed. [S.92C, 144C(8), Art, 226]

    Dismissing the petition the Court held that DRP being a specialised Panel is provided with power to propose variations relating to any matter arising out of assessment proceedings and Explanation to sub-section (8) of section 144C stipulates that enhancement is to be made with reference to matter arising out of assessment proceedings relating to draft assessment order. Court also held that there is no impediment as such for DRP to consider any matter arising out of assessment proceedings relating to draft assessment order and no matter, such an issue was discussed in draft assessment order or not, but it should not be totally unconnected with assessment proceedings or draft assessment order. (AY. 2013-14) (SJ)

    Delphi-TVS Diesel Systems Ltd. v. ITO (2021) 323 CTR 508 /207 DTR 329 (Mad) (HC)

  65. S. 144B : Faceless Assessment-Principle of natural justice-Cash credits-Order was set aside. [S. 68, 143(3), Art. 226]

    The assessment order was passed making addition of cash credits of more than 40 Crores. On writ the assessee contended that no reasonable opportunity of hearing was given. Allowing the petition the Court observed that before going into the merits of the issue whether the income of the assessee was taxable under section 68 or not, though the assessee had not sought a personal hearing, it became incumbent on his part to seek a personal hearing to explain with the documents already submitted to the Department to establish the genuineness of the transaction under which the assessee had accepted the sum from the lender through the bank. The order was set aside and the matter was remitted back to the assessing authority with directions to give one day personal hearing to the assessee. (AY.2018-19)

    Nagalinga Nadar M. M. v. Add. CIT (2021) 439 ITR 147 / 207 DTR 241 / (2022) 284 Taxman 244 / 324 CTR 195 (Mad.)(HC)

  66. S. 144B: Faceless Assessment –Assessment order without complying with the procedure- Assessing Officer was directed to pass a fresh order, after complying with requirement of section 144B.[S. 143 (3), Art , 226]

    Where the assessment order was passed without first issuing a show cause notice on the assessee as provided for in section 144B, such an assessment order was bad in law and was to be set aside. However, opportunity was to be given to the Assessing Officer to pass a fresh order after complying with the requirements of section 144B. (AY. 2017-18)

    Sribasta Kumar Swain v .UOI [2022] 440 ITR 545 (Orissa) (HC)

  67. S. 144B : Faceless Assessment – Contention of denial of opportunity of personal hearing requested by Assessee — Assessment order stayed.[Art , 226]

    On a writ petition contending that the assessment made under section 144B of the Income-tax Act, 1961 could be examined by the High Court without insisting upon filing of an appeal and no personal hearing was provided. The High Court directed issue notice of the writ petition and stay application and stayed the effect and operation of the assessment order in the meanwhile.

    Inder Prasad Mathura Lal v. NEAC (2022) 440 ITR 73 (Raj) ( HC)

  68. S. 147: Reassessment-After the expiry of four years-Seeking clarification-Retention money-No failure to disclose material facts-Reassessment is bad in law [S. 148, Art, 226]

    The assessment was completed u/s 143(3) of the Act. The notice for reassessment was issued after the expiry of four years for seeking clarifications. The assessee filed writ challenging the issue of notice u/s 148 of the Act. Single judge dismissed the writ petition. On appeal allowing the petition the Court held that there appears to be no power vested with the AO to seek such clarifications-Nevertheless, the assessee has furnished the reply and the reply specifically stated that the retention money has already been offered to tax in the subsequent period. There is no allegation against the assessee of any failure on his part to disclose full particulars at the time of original assessment, nor there is any fresh tangible material brought out by the AO on record justifying his exercise of power under section 147 read with section 148 of the Act. Notice was quashed. (AY. 2011-12)

    Subrahmanyan Constructions Co. (P) Ltd v. A CIT (2021) 207 DTR 289 (Mad) (HC)

  69. S. 147: Reassessment-After the expiry of four years-Interest expenses-No failure to disclose material facts-Reassessment notice was quashed [S. 57, 148, Art, 226]

    The assessment was completed u/s 143(3) of the Act. The Reassessment notice was issued on the ground that the interest paid to HDFC bank was not allowable as deduction u/s 57 of the Act. The assessee filed the writ petition to quash the reassessment notice, allowing the petition the Court held that there is no failure on the part of the assessee to truly and fully disclose all primary facts necessary for the purpose of assessment. Accordingly the reassessment notice was quashed. Followed Calcutta Discount Co Ltd v. ITO (1961) 41 ITR 191 (SC), Ananta Land Mark Pvt. Ltd v. Dy.CIT (2021) 439 ITR 168 (Bom) (HC). (AY. 2012-13)

    Kalpataru Plus Shrayans v. Dy. CIT (2021) 207 DTR 138 /323 CTR 747 (Bom) (HC)

  70. S. 147 : Reassessment-After the expiry of four years-Objections to notice-Order disposing the objections must be passed by passing speaking order-Order disposing the objection was set aside. [S. 148, Art. 226]

    The assessee challenged the issue of notice u/s 148 of the Act and order disposing the objection. Allowing the petition the Court held that the Assessing Officer had to pass a speaking order taking into consideration the objections raised by the assessee. The cryptic manner of dealing without any semblance of reasons necessitated a remand. (AY.2013-14)

    Shilp Realty Pvt. Ltd. v. ITO (2021) 439 ITR 478 (Guj.)(HC)

  71. S. 147 : Reassessment-Arithmetical mistake-Issue subject matter of appeal before CIT(A)-Reassessment invalid-Electricity duty short provision of interest on Government loan-Deletion of addition is held to be justified. [S. 43B, 148]

    Dismissing the appeal of the revenue the Court held that the reassessment proceedings had been initiated contrary to the second proviso to section 147(1). What was pending before the Commissioner (Appeals) was the very same subject matter for which notice under section 148 was issued. Court also held that the Tribunal was right in confirming the decision of the Commissioner (Appeals) and quashing the order thereby deleting the additions made on account of electricity duty and short provision of interest on Government loan, made under section 43B, relying on the court’s decision in the assessee’s own case for earlier assessment years. Followed Kerala State Electricity Board v. Dy CIT (2010) 329 ITR 91 (Ker.)(HC) (AY. 2005-06)

    PCIT v. Kerala State Electricity Board (2021)439 ITR 323 (Ker.) (HC)

  72. S. 147: Reassessment – After the expiry of four years –Shipping Reserve — Amendment in law with effect from 1.4.1996 restricting deduction to 50% of income derived from operation of ships — Amendment not applicable in respect of earlier AY — Failure to furnish reasons recorded as requested by assessee — No failure on part of assessee to disclose all material facts fully and truly – Reassessment was quashed. [S. 33AC , 148, Art , 226 ]

    For the AY 1994-95, the assessee’s income was revised at nil after allowing deduction under section 33AC. After a period of four years, the assessee received a notice under section 148 to reopen the assessment under section 147. On a writ petition:

    Held, allowing the petition, that the Finance Act, 1995 amended the provisions of section 33AC with effect from April 1, 1996 and restricted the deduction to be allowed at 50% of the profits derived from the business of operation of ships (computed under the head “profits and gains of business or profession” before making a deduction under the section). The deduction under section 33AC as it stood in the AY 1994-95 was to be allowed on the basis of the total income. The period of limitation of four years had expired and the reasons for reopening of the assessment did not disclose any finding that the assessee had failed to disclose fully and truly all material facts necessary for assessment. The reasons for re-opening showed that the conclusion had been drawn from the case record of the assessee itself. The entire reasons proceeded on the basis of “perusal of details” and on “perusal of records” and stated that the assessee had wrongly claimed certain deductions which had been accepted by the Assessing Officer. Therefore, the fact that the assessee had been allowed a deduction under section 33AC in respect of income from dividends, long-term capital gains and interest was no ground for issuing notice under section 148 to initiate reassessment proceedings. (AY. 1994-95)

    Great Eastern Shipping Company Limited v. K. C. Naredi, Addl. CIT (2022) 440 ITR 59 (Bom) ( HC )

  73. S. 147: Reassessment – After the expiry of four years – Condition Precedent — Notice not specifying failure to disclose any material facts truly and fully by assessee — Notice and subsequent order invalid [S. 148, Art. 226]

    For the AY 1998-99, the assessee filed a second revised return declaring a loss as a result of demerger of its bottling division. The AO issued notices under sections 143(2) and 142(1) along with a questionnaire. The assessee furnished the reasons for filing the revised returns of income and provided clarifications in response to the various queries raised and the balance sheet and the profit and loss account. Thereafter, the AO passed an order under section 143(3) computing the total income of the assessee at Nil after making certain disallowances and after setting off earlier years’ losses. Aggrieved, the assessee filed an appeal before the Commissioner (Appeals).

    The Commissioner by an order under section 263 directed the AO to pass a fresh assessment order after considering the issues identified in his order. Thereafter, an order under section 143(3) read with section 263 was passed.

    After the expiry of four years the AO issued a notice under section 148 to reopen the assessment under section 147. On a writ petition:

    Held, allowing the petition, that the reasons recorded for reopening of the assessment did not state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the AY 1998-99. The notice issued under section 148 after a period of four years for reopening the assessment under section 147 and the consequential order passed were quashed and set aside. (AY. 1998-99)

    Coca-Cola India P. Ltd. v. DCIT (2022) 440 ITR 20 (Bom) ( HC)

  74. S. 147: Reassessment – Two assessment years reopened – One with in four years – One after the expiry of four years – Condition Precedent — Primary facts necessary for assessment fully and truly disclosed — AO had applied his mind – Not open for the AO to reopen assessment based on very same material and to take a different view – Notices for reopening on change of opinion – Invalid [S. 148, Art , 226 ]

    The assessee sold beauty care products and provided consultancy services. It declared income from sale of products and income from provision of services. The AO issued a notice under section 142(1) and the assessee furnished the details of advertisement expenses as sought for. Thereafter, an order under section 143(3) was passed accepting the return of income. After a period of four years, a notice under section 148 was issued to reopen the assessment under section 147 for the AY 2012-13 and within period of four years for AY 2013-14, on the ground that the advertisement and marketing expenditure incurred by the assessee was not deductible under section 37 since the assessee was prohibited from advertising under the provisions of the Indian Medical Council Act, 1956 , read with Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The objections raised by the assessee were rejected. On writ petitions :

    Held, allowing the petitions, that in the original assessment the AO was aware of the issue of expenses incurred on advertisement and marketing by the assessee. Once he had applied his mind in the regular assessment proceedings of the assessee having incurred advertisement and marketing expenditure, it was not open for him to reopen the assessment under section 147. In the original assessment the assessee was called upon to differentiate between the nature of expenses shown under the head depreciation and amortization vis-a-vis advertisement and marketing expenses shown in the profit and loss account. The requisite details, including a copy of agreement, actual advertising invoices, were filed and the issue was discussed with the Assessing Officer at length before he passed the order under section 143(3). The notices under section 148 for reopening the assessment under section 147 were issued merely on change of opinion and therefore, set aside. Followed Aroni Commercial Ltd v. Dy CIT (2014) 362 ITR 403 (Bom) (HC), Marico Ltd v. ACIT (2019) 111 taxmann.com 53 ( Bom) (HC) (AY. 2012-13, 2013-14)

    Rich Feel Health and Beauty Private Limited v. ITO (2022) 440 ITR 41/ 284 Taxman 286 (Bom) ( HC)

  75. S. 147 : Reassessment – Reason to believe – Sanction for issue of notice – Recording of separate reasons not necessary – Reassessment notice is held to be valid. [S. 148 , 151 Art , 226]

    The sanctioning authority is not required to separately record his reasons for granting a sanction if he approves the reasons recorded by the AO. In such a case, it cannot be said that the sanction has been granted in a mechanical manner and, therefore, the proceedings are bad in law. Further, since in this case, no questions were asked on the issue in which reassessment was sought to be done, it would not constitute a case of change of opinion. (AY. 2014-15)

    Premlata Soni ( Smt.) v. NEAC (2022) 440 ITR 578 (MP) (HC)

  76. S. 147 : Reassessment – With in four years- Where the necessary details were disclosed, reopening is not valid. [S. 54, 148, Art. 226]

    The Assessing Officer initiated reassessment proceedings on the ground that the assessee had failed to file several details pertaining to its claim of deduction under section 54 of the Act such as proof of cost of improvement etc. Held that the assessee’s computation of capital gains after considering the deduction claimed under section 54 of the Act was on record. Further, the details regarding the cost were also filed. Therefore, the Assessing Officer proceeded on a wrong presumption that the details were not on record. Accordingly, he could not have recorded a reason to believe that income chargeable to tax had escaped assessment and the proceedings were to be quashed. (AY. 2012-13)

    Bankim Bhagwanji Chaauhan v. ITO (2022) 440 ITR 485 (Guj) ( HC)

  77. S. 147 : Reassessment –With in four years- Where the necessary details were disclosed, reopening is not valid. [S. 148, Art. 226]

    The Assessing Officer sought to reopen an assessment on the ground that due to delay in submission of TP study, the arm’s length price of the transaction could not be examined. Quashing the proceedings, the High Court held that Form 3CEB as well as the TP study were filed in time and that it was apparent from the record that the Assessing Officer had decided to neither refer the matter to the Transfer Pricing Officer nor did he himself examine the transactions. Having done so, he could not change his opinion and reopen a concluded assessment. (AY .2013-14)

    JRS Pharma and Gujarat Microwax Pvt. Ltd. v. Dy.CIT (2022) 440 ITR 557 (Guj) ( HC)

  78. S. 153A : Assessment-Search or requisition-Warrant of Authorisation-Effect of amendment of Section 132(1) by Finance (No. 2) Act, 2009-Amendment has retrospective effect from June 1, 1994 and is clarificatory-Additional Director of Income-Tax had Authority to issue warrant of authorisation-Without incriminating material proceedings u/s 153A is not valid. [S. 132]

    Court held that Section 132(1) of the Income-tax Act, 1961, was amended by the Finance (No. 2) Act, 2009 authorizing the Additional Director or the Additional Commissioner or the Joint Director or the Joint Commissioner to issue a search warrant. This provision was given retrospective effect from June 1, 1994. In terms of the clarification issued by the Central Board of Direct Taxes the amendment is clarificatory. Warrant of Authorisation issued by the Additional Director of Income-tax was held to be valid. Court also held that there being absolutely no incriminating materials found or seized at the time of search, there was no justification for the initiation of assessment proceedings under section 153A. The assessment proceedings were not valid. (AY.2002-03 to 2008-09)

    Smrutisudha Nayak (Smt.) v. UOI (2021) 439 ITR 193 / 208 DTR 1 / 323 CTR 617 (Orissa)(HC)

  79. S. 154 : Rectification of mistake-Loss return-One day delay in filling of return-Mistake must be obvious-Assessment order passed without considering the delay in filing of return-Mistake which could be rectified-Liberty given to the assessee to file an application before CBDT. [S. 80, 119(2)(b), 139(3)]

    Dismissing the appeal the Court held that the return claiming loss had been submitted with a delay of just one day and even that was caused by a bona fide error. The mistake could be rectified. Court gave liberty to the assessee to file an application under section 119(2)(b) of the Act before the competent authority seeking condonation of delay in filing returns and thereafter carry forward of loss to the subsequent assessment year which were incurred during the assessment year 2004-05.(AY.2006-07)

    Kolar and Chickballapur District Co-Op. Bank Ltd. v. A CIT (2021) 439 ITR 678 (Karn.)(HC)

  80. S. 154 : Rectification of mistake-Expenditure on account of stores and spares-Omission to make addition in the assessment order-Income assessed as income from other sources and not as business income-Rectification is held to be valid. [S. 28(1), 37(1), 56]

    Affirming the order of the Tribunal the Court held that the assessee had not been carrying on any manufacturing activity for the assessment year 2004-05, and the rental income received by the assessee for that year could not be treated as business income. In view of the finding, the disallowance of the expenditure on stores and spares by the Assessing Officer was correct. The omission of the Assessing Officer to make the addition while computing the total income was liable to be rectified. The order of rectification was valid. (AY.2004-05)

    PTL Enterprises Ltd. v. Dy.CIT (2021) 439 ITR 365 (Ker.)(HC)

  81. S. 226 : Collection and recovery-Modes of recovery-Stay of recovery-Pendency of appeal before CIT(A)-Alternative remedy-Directed to approach the Assessing Officer for stay-Writ is not maintainable. [S. 220(6), 246, 246A, Art. 226]

    The assessee filed an appeal before the CIT(A) which was pending for final disposal. For stay of recovery the assesee filed writ before the High Court. Dismissing the petition the Court held that the assessee could approach the Assessing Officer under section 220(6) of the Act. Merely because of some apprehensions in the minds of the assessee, it cannot be stated that the Assessing Officer would not decide the issue in the proper perspective. The Assessee directed to file application under section 220(6) of the Act. (AY.2018-19)

    Aiman Education and Welfare Society v. NFAC (2021) 439 ITR 651 (Mad.)(HC)

  82. S. 226 : Collection and recovery-Garnishee proceedings-Criminal proceedings against assessee with reference to particular amount-Money in excess in Bank can be adjusted towards tax dues of assessee. [S. 226(4), Code of Criminal Procedure code, 1973, S. 451, 457, Indian Penal Code 1860, S 120B, 420, Art. 226]

    The petition was filed before the Court to transfer money in excess in Bank which can be adjusted towards tax due of the assessee. Court held that according to the status report filed by the Bureau, the amounts transferred by the Russian company to the assessee in the London account, in relation to the transaction totalled to a sum of USD 2,15,71,843.90. However, the amount which was frozen and received in India was beyond the amount in relation to transaction with the Russian company. The amount received in excess of the amount received from the Russian company by the assessee qua the transaction could not be prima facie termed as case property or the proceeds of the crime liable to be confiscated or for compensation in case the assessee were charged and convicted. Consequently the Special Judge was to retain the amount received in lieu of the frozen amount of USD 2,15,71,843.90 along with the interest accrued thereon from the date of receipt till date and transfer the balance amount along with the interest accrued thereon received in the account to the Income-tax Department.

    Ravina and Associates Pvt. Ltd. v. Central Bureau of Investigation (2021) 439 ITR 667 / 208 DTR 25 / 323 CTR 908 (Delhi)(HC)

  83. S. 192 : Deduction at source-Salary-Credit for tax deducted-Collection and recovery of tax-Bar against direct demand on assessee-Failure to deposit the tax in Government treasury by the employer-Credit cannot be denied to the employee-Directed to give credit [S.199, 201, 205, Art, 226]

    Assessee was an employee of Kingfisher Airlines. Airlines deducted TDS on salary made to assessee but did not deposit same in Government treasury.The credit was not given by revenue and demand has been raised with interest. On writ the Court held that TDS having been deducted by employer of assessee, it will always been open for department to recover same from said employer and credit of same could not have been denied to assessee. Court also held that if tax had been recovered the assessee is entitle to refund with the interest.Followed Devarsh Pravinbhai Patel v. ACIT (SCA Nos. 12965 /12966 of 2018 dt. 24-9 2028, ACIT v. Om Prakash Gattani (2000) 242 ITR 638 (Delhi)(HC) (AY. 2009-10, 2011-12)

    Kartik Vijaysingh Sonavane v. Dy. CIT (2021) 208 DTR 441 / 324 CTR 111/ 132 taxmann.com 293 / (2022)) 440 ITR 11/ 284 Taxman 278 (Guj.) (HC)

  84. S. 194H : Deduction at source-Commission or brokerage-Sale of prepaid SIM cards to distributors-Discounts given by assessee-telecommunication company on sale of prepaid SIM cards to distributors-Not liable to deduct tax at source

    Dismissing the appeal of the revenue the Court held that that no TDS provisions under section 194H were attracted on discounts given by assessee-telecommunication company on sale of prepaid SIM cards to distributors.

    CIT(TDS) v. Vodafone Cellular Ltd. (2021)131 taxmann.com 191 (Bom) (HC)

    Editorial : Notice is issued in SLP filed by the revenue, CIT(TDS) v. Vodafone Cellular Ltd. (2021) 283 Taxman 292 (SC)

  85. S. 201 : Deduction at source-Survey-Failure deduct tax at source-Payment to non-residents-Appeal pending before two earlier assessment years-Writ was dismissed-Directed to pursue alternative remedy of appeal. [S. 133A, 201 (1), 201(IA) Art, 226)

    Dismissing the petition the Court held that the assessee has already availed of its remedies of appeal in relation to two assessment years hence the writ was dismissed and directed to avail the appeal proceedings in accordance with law.

    BT (India) (P) Ltd v. ITO 323 CTR 661/ 207 DTR 377 (Delhi) (HC)

  86. S. 234B : Interest-Advance tax-Tax deducted at source-Non-resident-Payer deducted tax at source-Levy of interest is held to be not justified.

    Dismissing the appeal of the revenue the Court payer, who was required to make payments to assessee-non-resident, had deducted tax at source, question of payment of advance tax by assessee (payee) would not arise and, therefore, it would not be permissible for revenue to levy interest under section 234B upon assessee. Followed DIT (IT) v. Texas Instruments Incorporated (2020) 275 Taxman 614 (Ker)(HC) AY. 2011-12)

    CIT v. IBM Singapore (P) Ltd. (2021) 131 taxmann.com 189 (Karn) (HC)

    Editorial : Notice issued in SLP filed by the revenue against High Court order, CIT v. IBM Singapore (P) Ltd. (2021) 283 Taxman 288 (SC)

  87. S. 234E : Fee – Default in furnishing the statements – Provision for levy of late fee for delay in filing — Valid — Intimation calling for payment of late fee for delaying filing of return — Not sustainable for periods prior to June 1, 2015 [S. 200A, Art, 226]

    During FY 2012-13 and 2013-14, TDS was timely deducted and deposited by Petitioner companies, however, there was delay in filing quarterly returns. Revenue processed belated quarterly returns under section 200A and issued intimation that Petitioner was under statutory obligation under section 234E to pay late fee for delayed filing of TDS return. On writ petitions against the said intimations, a single judge declared the intimations illegal. On appeal before the Division Bench:

    Since provisions of section 200A were amended to enable computation of fee payable under section 234E at time of processing of return and said amendment came into effect from 1-6-2015 (in view of CBDT Circular No. 19 of 2015 dtd. 17-11-2015), intimations issued under section 200A dealing with fee for belated filing of TDS returns for period prior to 1-6-2015 were invalid and were to be set aside.

    Olari Little Flower Kuries (P.) Ltd. v. UOI (2022) 440 ITR 26 (Ker) (HC)

  88. S. 234E : Fee – Default in furnishing the statements – Provision for levy of late fee for delay in filing — Valid — Intimation calling for payment of late fee for delaying filing of return — Not sustainable for periods prior to June 1, 2015 [S. 200A, Art, 226]

    During FY 2012-13 and 2013-14, TDS was timely deducted and deposited by Petitioner companies, however, there was delay in filing quarterly returns. Revenue processed belated quarterly returns under section 200A and issued intimation that Petitioner was under statutory obligation under section 234E to pay late fee for delayed filing of TDS return. On writ petitions against the said intimations, a single judge declared the intimations illegal. On appeal before the Division Bench:

    Since provisions of section 200A were amended to enable computation of fee payable under section 234E at time of processing of return and said amendment came into effect from 1-6-2015 (in view of CBDT Circular No. 19 of 2015 dtd. 17-11-2015), intimations issued under section 200A dealing with fee for belated filing of TDS returns for period prior to 1-6-2015 were invalid and were to be set aside.

    Olari Little Flower Kuries (P.) Ltd. v. UOI (2022) 440 ITR 26 (Ker) (HC)

  89. S. 244A : Refund-Interest on refunds-Interest granted earlier-Directed not to charge the interest. [S. 220(2)]

    Held that the interest under section 244A of the Act was paid by the Department for the delay caused in giving refund due to the assessee. Interest on the interest paid under section 244A of the Act not being provided under the statute, the Tribunal rightly held that the Assessing Officer shall recompute the interest chargeable under section 220(2) of the Act by reducing only the principal amount of tax from the refund granted earlier and not charge interest on the interest granted earlier under section 244A. (AY.1997-98)

    CIT v. ABB Ltd. (2021) 439 ITR 554 (Karn.)(HC)

  90. S. 245D : Settlement Commission-No procedural error committed by Settlement Commission-Order of single judge allowing the writ petition of the revenue was set aside-Order of settlement commission was affirmed. [S. 245D(4), Art. 226]

    Single judge allowed the writ petition of the revenue. On appeal allowing the appeal the Court held that the findings rendered by the Settlement Commission was not a concession extended by the Commissioner (Departmental representative), but in fact, accepting the verification report which was submitted. Therefore, the Department, on a wrong premise that the Settlement Commission had recorded that a concession was given, had filed a writ petition which was unnecessary, as the Commission had not recorded any concession, but taken up the matter, considered the case of the assessee as well as the Department, and settled the case based upon the increased offer made by the assessee. On a cumulative reading of the order, it was clear that one of the disputes which was subject matter of the settlement proceedings was unaccounted excess stock. On account of the stand taken by the Department as well as the assessee the Commission had directed verification of the data from the impounded computer server. There was no procedural error committed by the Settlement Commission, warranting interference by the court. The order of the Settlement Commission was not to be construed as a concession given by the Commissioner (Departmental representative), but a finding rendered by the Commission with regard to the verification of the data from the impounded computer server. Therefore, when there was no procedural irregularity the order of the Settlement Commission, which had attained finality and given effect, it need not be interfered with. The order allowing the writ petition filed by the Department was set aside.

    G. Rajam Chetty and Sons v. CIT (2021) 439 ITR 687 (Mad.)(HC)

    Editorial : Decision of single judge in CIT v. ITSC (2021) 439 ITR 684 (Mad)(HC) set aside.

  91. S. 246A : Appeal – Commissioner (Appeals) – Writ against assessment order – Non-interference of court in view of the availability of the alternate remedy.[S. 143(3), 248, Art, 226]

    Where the assessee challenged an assessment order by way of a writ petition, the assessee was to be relegated to the alternate remedy of appeal since the exceptions to the alternate remedy, i.e., (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation were not present. Writ petition was dismissed. (AY. 2014 -15 )

    Sree Krumariamman Granites v. ACIT (2022) 440 ITR 537/ 209 DTR 283/ 324 CTR 418 (Mad) (HC)

  92. S. 254(1) : Appellate Tribunal-Powers-Remand of case-Power to be used only in exceptional cases-Order of remand was set aside.

    Allowing the appeal of the revenue the Court held that on the facts of the case, the Tribunal was not right in setting aside the well reasoned order passed by the Assessing Officer for re-examination, especially when the Assessing Officer had duly examined all the material placed while passing the assessment order which was affirmed by the Commissioner (Appeals). Order of Commissioner (Appeals) is restored. (AY.2015-16)

    PCIT v. Prabha Jain (2021) 439 ITR 304 (Mad.)(HC)

  93. S. 254(2) : Appellate Tribunal-Rectification of mistake apparent from the record-Additional grounds-Order can be rectified on account of mistake of the counsel for the parties. [S. 253, Art. 226]

    At the time of hearing the counsel for the assessee inadvertently, failed to bring to the notice of the Tribunal that issue raised inn ground no Nos. 6 and 7 of the grounds of appeal. The assessee filed the miscellaneous application which was rejected on the ground that there was no mistake in the order of the Tribunal. On writ allowing the petition the Court held that, the amendment to the order of the Tribunal under section 254(2) could also be made, if it was triggered on account of a mistake of the counsel for the parties. This power would also extend to a situation where the assessee’s counsel withdrew the appeal, for the reason that, the issue concerning the transfer pricing adjustment in respect of the assessment year 2011-12 stood resolved. The order passed by the Tribunal in the miscellaneous application was to be set aside. The Tribunal was directed to adjudicate the issues pertaining to the additional grounds raised by the assessee. Relied on CIT (Asst) v. Saurashtra Kutch Stock Exchange Ltd (2003) 305 ITR 227 (SC), S.Nagaraj v. State of Karnataka (1993 Suppl. 4SCC 595 (AY.2011-12)

    Federal Mogul Goetze (India) Ltd. v. ACIT (2021) 439 ITR 204 (Delhi)(HC)

  94. S. 254(2): Appellate Tribunal-Rectification of mistake apparent from the record-lease rent-Tribunal followed order of earlier year and not followed the Judgement of Supreme Court-Miscellaneous application was dismissed-Order rejecting miscellaneous application was set aside-Non-consideration of judgement of Supreme Court is a mistake apparent on record-Matter remanded to Tribunal to decide on merits in accordance with law [S. 37 (1)), 200A]

    The assessee claimed deduction of lease rental paid on cars taken on financial lease as revenue expenditure. The AO disallowed the expenditure. CIT (A) allowed the appeal. On appeal by the revenue the assessee relied on the decision of Supreme Court in I.C.D.S Ltd v. CIT (2013) 350 ITR 527 (SC). The Tribunal allowed the appeal of the revenue following the earlier order of the Tribunal in assesse’s own case for the Assessment year 2013-14. The assessee filed miscellaneous application and relied on the judgment of Supreme Court in CIT v. Saurashtra Kutch Stock Exchange Ltd (2008) 305 DTR 227 (SC) for the proposition that non-consideration of a decision of the Jurisdictional High Court or the Honourable Supreme Court is a mistake apparent from records. Tribunal dismissed the miscellaneous application. On appeal High Court held that The Tribunal can take a stand that the issue is debatable and for doing so the Tribunal should record the reasons as to what are the other decisions on the very same point which may not support the case of the assessee. Accordingly the order rejecting the miscellaneous application filed by the assessee was held to be not justified. Order of Tribunal was set aside and Directed the Tribunal to decide on merit in accordance with law. (AY. 2004-05)

    Philips India Ltd v. PCIT (2021) 323 CTR 992 / 208 DTR 211 (Cal) (HC))

  95. S. 254(2): Appellate Tribunal-Rectification of mistake apparent from the record – Delay of 1924 days (Eight years) – Condonation of delay was dismissed. [S. 260A]

    Where there was a delay of around eight years in filing a miscellaneous application before the Tribunal and the reason for the delay was mentioned to be the reason that the concerned officers of the assessee and its tax consultants had retired/changed, the Tribunal was right in concluding that the same was not a sufficient reason to entertain the appeal and condone the delay. Accordingly, dismissal of the miscellaneous application by the Tribunal was correct and does not call for interference. (AY. 2007-08)

    South Eastern Coalfields Ltd. v. PCIT (2022) 440 ITR 568 (Chhattisgarh) (HC)

  96. S. 260A : Appeal-High Court-Central Board of Direct Taxes Circulars-Question was not argued before Tribunal-Appeal is not maintainable. [S. 80IC, 268A]

    Dismissing the appeal the Court held that once the Department had not raised the plea of applicability of clause 10(c) of the Board’s Circular No. 3 of 2018, dated July 11, 2018 it could not be allowed to raise such plea in the appeal before the court. No such ground was raised by the Department before the Tribunal requiring it to decide the matter on the merits in view of clause 10(c) of Circular No. 3 of 2018, July 11, 2018. The Tribunal had correctly held that the appeal was not maintainable in view of the mandate of Circular No. 17 of 2019, dated August 8, 2019. No question of law arose. (AY. 2012-13)

    PCIT v. Surya Textech (2021) 439 ITR 215 (HP)(HC)

  97. S. 260A : Appeal-High Court-Territorial jurisdiction of High Court-Transfer of case-Pendency of proceedings-Ahmadabad Tribunal decided the appeal-Appeal was filed at Allahabad High Court-Jurisdiction vest with Gujarat High court-Appeal was dismissed. [S. 120, 127(2)]

    The case of the assessee was transferred from Ahmadabad to Noida by order dated 29 th December 2020. The appeal of the assessee for the assessment year 2012-13 was decided by the Appellate Tribunal on 12 th November, 2020 Assessment order was passed on 28th Dec. 2017 CIT (A) decided the appeal on 31st Jan., 2019. Appellate Tribunal decided the appeal on by the Tribunal on 12th Nov., 2020. On the dt. 29th Dec, 2020, the assessment case of the assessee for asst. yr. 2012 13 was not pending Even if one were to apply the principle of appeal being continuation of the assessment, the fact that the Revenue has chosen to file the instant appeal in June, 2021, it cannot be relied to contend that proceeding was pending on 29th Dec, 2020. Therefore jurisdiction to hear the appeal would continue to vest with the Gujarat High Court and not before the Allahabad High Court. The appeal has been wrongly instituted before Allahabad High Court. Accordingly the appeal was dismissed (AY. 2012-13)

    PCIT v. Dileep Kumar (2021) 323 CTR 998 / 208 DTR 110 (All)(HC)

  98. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Order passed without providing adequate opportunity to the assessee was held to be not valid-Revision order which was affirmed by the Tribunal was set aside-directed the Commissioner to pass the order in conformity with the provisions of the Act. [S. 254(1)]

    Allowing the appeal of the assessee the Court held that the Commissioner is duty bound to give an opportunity of being heard, while exercising the revisionary jurisdiction, to the assessee while enhancing or modifying the assessment or cancelling the assessment or directing for fresh assessment in conformity with the provisions contained under section 263. Accordingly the order passed by the Commissioner, without giving reasonable opportunity to the assessee which was affirmed by the Tribunal was set aside. Directed the Commissioner to pass the order in conformity with the provisions of the Act in conformity with the provisions of the Act. (AY.2014-15)

    Ashoka Ispat Udyog v. PCIT (2021) 439 ITR 391 (Orissa)(HC)

  99. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Violation of principles of Natural justice-Matter remanded to PCIT [S. 143(3), Art. 226]

    Allowing the petition the Court held that when the law specifically requires the giving of an opportunity of being heard, that must be followed lest such failure render the order legally fragile on the anvil of breach of principles of natural justice. The procedure followed by the Principal Commissioner in passing the order without giving an opportunity of hearing to the assessee was in violation of section 263 and in breach of principles of natural justice. The order was set aside and the matter was remitted to the Principal Commissioner.

    Narayanachetty Roja v. PCIT (2021) 439 ITR 104 / 323 CTR 861 (AP)(HC)

  100. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Amortisation of preliminary expenses-Granted in initial year of expenditure-Deduction cannot be withdrawn in subsequent year. [S. 35D]

    Allowing the appeal the Court held that Amortisation of preliminary expenses granted in initial year of expenditure cannot be withdrawn in subsequent year without disturbing the decision in the initial year. Followed, Dy. CIT v. Gujarat Narmada Valley Fertilizers co. ltd (2013) 356 ITR 460 (Guj.)(HC). (AY.2008-09)

    Subex Ltd. v. CIT (2021) 439 ITR 495 (Karn.)(HC)

  101. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Limitation-Reassessment-Issue which was not subject matter of reassessment limitation has to be computed from the original assessment-Revision was held to be barred by limitation [143(3), 147, 263 (2)]

    The assessment was completed u/s 143(3) of the Act on 28 th December 2006. The reassessment was completed on 30 the December 2011. The revision order was passed on 26 th March 2014. The Tribunal held that the issue which was not subject matter of reassessment while computing the limitation the issue which was was not subject matter of reassessment limitation has to be computed from the original assessment-Revision was held to be barred by limitation. Relied on CIT v. Alagendran Finance Ltd (2007)) 293 ITR 1(SC), Asoka Buildcon Ltd v. ACIT (2010) 325 ITR 574 (Bom) (HC), CIT v. ICICI Bank Ltd (2012) 252 CTR 85 (Bom)(HC) (AY. 2004-05)

    CIT v. Indian Overseas Bank (2021) 207 DTR 202 (Mad) (HC)

  102. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Merger-Subject matter of appeal-Investments written off-Book profit-Issue was not subject matter of appeal-Revision was quashed [S.115JB]

    Dismissing the appeal of the revenue the Court held that the revision was held to be bad in law though the issue of investments written off whether allowable deduction or not was not subject matter of appeal. Revision order was quashed. Followed ITA No. 18/2004 dt 16-1-2020 and ITA No. 142 / 2016 dt.22-1.2020 (AY. 2006-07)

    CIT, LTU v. Vijaya Bank (2021) 131 taxmann.com 136 (Karn) (HC)

    Editorial : SLP is granted to the revenue, CIT, LTU v. Vijaya Bank (2021) 283 Taxman 295 (SC)

  103. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Dispute resolution panel-Draft assessment order-No notice of demand attached-Order cannot be revised-No loss to revenue [S.144C]

    Dismissing the appeal of the revenue the Court held that the draft assessment order is only a proposed assessment order and there is no demand notice attached to draft assessment order and draft assessment order by itself cannot levy tax on assessee. Revision of draft assessment order is bad in law. (AY. 2010-11)

    PCIT v. Apollo Tyres Ltd. (2021) 283 Taxman 388 (Ker.)(HC)

  104. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Prima facie satisfaction was not arrived by the Commissioner-Interim order-Matter was adjourned to 26-8 2021. [Art, 226]

    Writ petition was filed against the revision order Whether where there was no prima facie satisfaction recorded by Principal Commissioner on basis of materials available on record that order of Assessing Officer which was sought to be reviewed under section 263 was an erroneous order as Principal Commissioner was yet to arrive at his prima facie conclusion and wanted matter to be examined further in-depth, no action could have been taken against assessee pursuant to proceeding initiated under section 263. Interim order was passed. The matter was adjourned to 26-8-2021 (SJ)

    CMJ Breweries (P) Ltd v. UOI (2021) 283 Taxman 226 (Gauhati) (HC)

  105. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Matter to be remanded to Commissioner where evidence was not considered by him.[ S.153A, 254(1), 260A]

    Where the Commissioner revised an assessment and the Tribunal accepted the assessee’s contention that the Commissioner had not examined the submissions and evidence, the Tribunal should have either examined the matter itself or remanded the matter back to the Commissioner. Since the Tribunal accepted the assessee’s contentions without following either of the two options, the matter was to be remanded to the Commissioner to consider the issue afresh. ( AY. 2008 -09,to 2011-12, 2013 -14)

    PCIT v. Shalimar Pellet Feeds Ltd. (2022) 440 ITR 530 (Cal) (HC)

  106. S. 271(1)(c) : Penalty-Concealment-Non striking off of irrelevant portion-Order of Tribunal confirming the penalty notice was set aside [S. 274]

    Allowing the appeal the Tribunal held that validity of the order of penalty must be determined on the basis of the initiation of penalty proceedings. Notice was issued in the printed format without non-striking off irrelevant portion. Defects being ex facie apparent in the notices issued, the ignition of proceedings being vitiated, the order of the Tribunal confirming the order of the authorities was set aside. (AY.2003-2004-05)

    P.M. Abdulla v. ITO (2021) 323 CTR 1077 / 208 DTR 93 (Karn)(HC)

  107. S. 271(1)(c) : Penalty – Concealment – On money – Survey – Income voluntarily offered- Deletion of penalty is held to be justified [S. 131(IA), 133A]

    Where pursuant to survey proceedings, the assessee had voluntarily offered certain income to tax, the same would not be liable to penalty. These facts are different from a case where income is offered in a revised return of income after the addition is discovered by the Assessing Officer. (AY. 2012-13)

    PCIT v. Shreedhar Associates (2022) 440 ITR 547 (Guj) ( HC)

  108. S. 279 : Offences and prosecutions-Sanction-Chief Commissioner-Failure to file return within stipulated time-Issue of summons was only for one year-Reasons Remanded to the Commissioner for fresh consideration. [S. 139(1), 279(2), Art. 226]

    The commissioner proposed for launching prosecution for delay in filing of return. The assessee moved application for compounding which was rejected. On writ allowing the petition the court held that the reason stated by the assessee for failure in filing the return of income under section 139(1) in time by the assessee for the assessment year 2013-14 had not been considered in the proper perspective by analysing before rejecting the reasons.. The reason cited by the assessee, after giving him an opportunity, could once again be considered in the proper perspective and accordingly, a fresh order could be passed by the Chief Commissioner. The order was set aside and the matter was remanded back to the Chief Commissioner for reconsideration. (AY.2013-14)

    Mahalingam Chandrasekar v. CCIT (2021) 439 ITR 698 (Mad.)(HC)

  109. S. 281B : Provisional attachment-Mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient-Attachment of fixed deposit was quashed. [S.153A, Art, 226]

    The fixed deposits of petitioner was attached invoking section 281B of the income-tax Act. On the ground that huge tax demands are likely to be raised. The assessee challenged the order by filing writ petition. Allowing the petition the Court held that mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional order of attachment. Exercise of power for order of provisional attachment must necessarily be preceded by formation of an opinion by the authorities that it is necessary to do so for the purpose of protecting the interest of Revenue. Before the order of provisional attachment, the CIT must form an opinion on the basis of the tangible material available for attachment that the assessee is not likely to fulfill the demand payment of tax and it is therefore necessary to do so for the purpose of protecting the interest of the Revenue-Radha Krishan Industries vs State of Himachal Pradesh & Ors (2021) SCC Online SC 334 followed. Order passed by the respondent was quashed.

    Indian Minerals & Granite Co. v. Dy. CIT (2021) 323 CTR 352 / 207 DTR 164(Karn) (HC)

Direct Tax Vivad Se Vishwas Act, 2020

  1. S. 2(1)(a)(i): Appellant-Pending appeal-Appeal was filed on 29th March 2013 and numbered-High court condoned the delay-The Rejection of application was quashed-Entitle to file Form No-4 in response to Form No 3 [S. 260A, Art, 226]

    The appeal before the High court was filed on 29 th March 2013. The application of the petitioner was rejected referring to FAQ No. 59 of the CBDT Circular No 21 of 2020, dt. 4th Dec, in respect of the taxpayer in whose case, the time limit for sing an appeal has expired before 31st Jan., 2020, but an application for condonation of delay has been filed and whether such an assessee is eligible to avail DTVSV Scheme. First of all, the question No. 59 cannot be applied to the assessee’s case, since while condoning the delay in representation, the Court has held that the appeals were filed before this Court on 29th March, 2013 and the crucial date shall be reckoned as 29th March, 2013 for all purposes Therefore, the assessee’s case cannot be brought under the ambit of the case dealt with in question No. 59. Therefore, the order of cancellation of Form 3 dt. 17th Sept, 2021, is not sustainable in law. This order was passed when the miscellaneous petitions were pending before this Court and the matter was adjourned to 15th Sept, 2021 at the instance of the Revenue by order dt. 1st Sept 2021 Thereafter, on earlier occasion, i.e., on 15th Sept, 2021, once again, at the instance of the Revenue, it was adjourned to 21st Sept., 2021 Thus, the order dt. 17th Sept, 2021 rejecting assessee’s declaration having been issued when the matter was pending before this Court, that too, without seeking leave of this Court, the order dt. 17th Sept, 2021 is quashed. As a consequence, the assessee would be entitled to file Form 4 in response to Form 3. Delay in filing the appeal was condoned by the High Court.

    Precot Meridian Ltd v. Dy. CIT (2021) 323 CTR 272 / 207 DTR 173(Mad)(HC)

    Precot Meridian Ltd v. Dy. CIT (2021) 323 CTR 279/ 207 DTR 179 (Mad)(HC)

Securities Transaction Tax-Finance (No. 2) Act, 2004

  1. S. 98 : Securities Transaction tax-Short collection of tax-Interest and penalty-Purchase or sold through a broker registered with the stock exchange-Stock exchange was not liable to any interest and penalty. [S. 15, 99, 104, Securities Transaction Tax Rules, 2004, R. 3]

    The Tribunal held that the STT is collected through a member broker under a particular client code. The client code is provided by the brokers and not by the stock exchange. Responsibility of the stock exchange is to ensure firstly that STT is collected as per s. 98, secondly, it has been determined in accordance with s. 99 read with r. 3 and Explanation thereto, and lastly, such STT collected from the purchaser or seller is credited to the Central Government as provided under s 100 Tribunal further held that the stock exchange can only ensure determination of the value of taxable securities transaction purchased and provided sold through a client code at the prescribed rate. However, there is no mechanism provided enabling the stock exchange to collect STT beyond the client code. If a broker had not taken any separate client code then the stock exchange cannot be held responsible. Such failure could not be ascribed to the stock exchange because the client codes were not provided by the stock exchange but by the member brokers. Dismissing the appeal of the revenue the Court held that under the statute stock exchange was not liable for any alleged short deduction of STT and therefore, no fault can be prescribed to the stock exchange and to hold the stock exchange to be in default for short collection of STT. (FY. 2005-06)

    PCIT v. National Stock Exchange (2021) 323 CTR 1025 (Bom.) (HC)