S.2(1A) : Agricultural income –Tilling of land, weeding, watering etc. – Sale proceeds from said business of nursery carried on by assessee constitute income from agriculture
Assessee HUF had carried out operations such as tilling of land, weeding, watering, etc. upon land owned by it and when plants were established in soil they were shifted in suitable containers for sale . Sale proceeds from said business of nursery carried on by assessee constitute income from agriculture. (AYs. 1986-87 & 1991-92)
Puransingh M. Verma v. CIT (2015) 230 Taxman 470 (Guj.)(HC)
S.2(14)(iii)(b) : Capital asset – Agricultural land – Land situated within prescribed distance from municipal limit – Measurement of distance for purpose of agricultural land – Amendment in 2014 providing that distance should be measured aerially-Prospective and not to apply to earlier years
Held, dismissing the appeals, (1) that the amendments in the taxing statute, unless a different legislative intention is clearly expressed, shall operate prospectively. If the assessee has earned business income and not the agricultural income, section 11 of the General Clauses Act, 1897, will prevail unless a different intention appears to the contrary. The relevant amendment prescribing that the distance to be counted must be aerial came into force with effect from April 1, 2014. The need for the amendment itself showed that in order to avoid any confusion, the exercise became necessary. This exercise to clear the confusion, therefore, showed that the benefit thereof must be given to the assessee. In such matters, when there is any doubt or confusion, the view in favour of the assessee needs to be adopted. Circular No. 3 of 2014, dated January 24, 2014, (2014) 361 ITR 1 (St.) dealing with applicability expressly stipulates that it takes effect from April 1, 2014, and, therefore, prospectively applies in relation to the assessment year 2014-15 and subsequent assessment years. Hence, the question whether prior to the assessment year 2014-15 the authorities erred in computing the distance by road did not arise at all.
(ii) That the capital gains arising from the transaction in respect of agricultural land could not be considered as business income. (AY. 2009-10)
CIT v. Nitish Rameshchandra Chordia (2015) 374 ITR 531 (Bom.) (HC)
S.2(22)(e) : Deemed dividend –Advance in the course of business – Business expediency – Not assessable as deemed dividend
Assessee was a substantial shareholder in a company. Company received certain export orders but was not in a position to execute these orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. Company, therefore, entered into an agreement with assessee to install plant and machinery at premises of assessee to enable assessee to do job work for company. Assessee also received certain sum as advance from said company to do job work at interest rate below prevailing market rate. Tribunal found that advances were received by assessee in normal course of business as a matter of business expediency and, hence, said advance was not covered by section 2(22)(e). On appeal by revenue the Court held that finding of facts recorded by Tribunal could not be interfered with.
CIT v. Amrik Singh (2015) 231 Taxman 731 (P&H)(HC)
S.2(22)(e) : Deemed dividend –Trade advance – Cannot be assessed as deemed dividend
Where an advance is given to a shareholder holding 10% or more voting power or to a concern in which such shareholder has substantial interest which is in the nature of a trade advance to give effect to commercial transactions, such an advance would not fall within the ambit of provisions of S. 2(22)(e). (AY 2002-03 to 2007-08)
Bagmane Constructions (P.) Ltd. v. CIT (2015) 119 DTR 49 / 231 Taxman 260 / 277 CTR 338 (Karn.)(HC)
S.2(24) : Income – Editor of magazine – Award received from third person for excellence in journalism – Not assessable as income
Held, the amount of Rs. 1 lakh received by the assessee as an award from B. D. Goenka Trust for excellence in journalism being purely in the nature of a testimonial would be a capital receipt. The causa causans in the present case was not directly relatable to the carrying on of vocation as a journalist or as a publisher. It was directly connected and linked with the personal achievements and personality of the person, i.e. the assessee. Further, the payment in this case was not of a periodical or repetitive nature. The payment was also not made by an employer; or by a person associated with the “vocation” being carried on by the assessee; or by a client of his. The prize money had been paid by a third person, who was not concerned with the activities or associated with the “vocation” of the assessee. It being a payment of a personal nature, it should be treated as capital payment, being akin to or like a gift, which did not have any element of quid pro quo. The prize money was paid to the assessee on a voluntary basis and was purely gratis. The amount would be a capital receipt and, hence, not income taxable. (AY. 1991-92)
Aroon Purie v. CIT (2015) 375 ITR 188 / 231 Taxman 349 / 277 CTR 1 / 118 DTR 105 (Delhi)(HC)
S.4 : Charge of income-tax – Non-resident – Indian permanent establishment of foreign bank – Interest received from head office and other overseas branches – Not chargeable to tax – DTAA – India -Netherland
Tribunal restored the matter the issue of rate at which interest to be charged to tax on income –tax refund received in the light of the Indo –France DTAA and the decision of the Special Bench in Asst. CIT v. Clough Engineering Ltd. (2011) 9 Trib 618/ 130 ITD 137 (SB) (Delhi) (Trib.) The grievance of the revenue is with the impugned order following the decision of the Special Bench in Clough Engineering Ltd. (supra). The Court observed that the decision of special Bench had been followed in ITA No. 183/Mum/2010, DHL Operations B.V. Netherlands v. Dy. CIT. The issue before the Tribunal was the rate of tax on which income tax refund is to be taxed i.e. on the basis of article of the DTAA in the above case concluded that interest on income tax refund is not effectively connected with the permanent establishment either on asset test or activity test. Therefore taxable under Article 11(2) of the Indo–Netherlands tax treaty . The revenue carried the afore said decision of DHL Operations (supra) in appeal to this court, being Income-tax Appeal No. 431 of 2002. This Court by order dated July 17, 2014, refused to entertain the appeal. In the circumstances no fault can be found with the impugned order of the Tribunal in restoring the issue to the Assessing Officer to determine/adopt the rate of tax on refund in the light of the relevant clauses of the Indo-France DTAA and the decision of the Special Bench in Clough Engineering (supra). Accordingly Question No. 4 does not raise any substantial question of law so as to be entertained. (AY. 1997-98)
DIT v. Credit Agricole Indosuez (No. 1) (2015) 377 ITR 102 (Bom.)(HC)
S.4 : Charge of income-tax –Mutuality – Club – Guest charge – Guest charge received by assessee club from its members would not be liable to tax
Assessee-club received ‘guest charge’ from its members and utilised it for benefit and development of club members. Since principal of mutuality would apply to transaction with member; guest charge received by assessee club from its members would not be liable to tax.
Junagadh Gymkhana v. ITO (2015) 230 Taxman 460 (Guj.)(HC)
S.5 : Scope of total income –Membership fee was for 10 years – Non-refundable deposits – Fee was to be spread over a period of 10 years and whole amount could not be taxed in year of receipt
Assessee-club collected non-refundable deposits from its members which was operational for a period of 10 years with a rider that liability attached to pay membership fee was for 10 years. Fee was to be spread over a period of 10 years and whole amount could not be taxed in year of receipt. (AY. 2003-04)
CIT v. Sportsfield Amusement (2015) 231 Taxman 252 (Bom.)(HC)
S.5 : Scope of total income –Method of accounting – Cash system – Interest on fixed deposit – Interest earned on fixed deposit which was not received during relevant A.Y. would not be added as income of relevant year
Assessee had not shown interest earned on fixed deposit in relevant year on plea that same would be paid to it in near future along with original sum. On reference the Court held that since assessee consistently followed cash system of accounting, interest on fixed deposit would not be added to its income in relevant assessment year. (AY. 1989-90)
CIT v. Adamsons Inc. (2015) 230 Taxman 72 (Bom.)(HC)
S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Telecasting of TV channels such as B4U Music, MCM etc. – Advertisement –Amount received from advertisers was not liable to tax in India- DTAA – India-Mauritius
Assessee, a Mauritius based company, was engaged in business of telecasting of TV channels such as B4U Music, MCM etc. Assessee’s income from India consisted of collections from time slots given to advertisers through its affiliates. Assessing Officer held that affiliated entities of assessee constituted permanent establishment of assessee within meaning of Article 5 of India-Mauritius DTAA. Accordingly, amount received from advertisers was brought to tax in India. Tribunal held that the assessee carried out entire activities from Mauritius and all contracts were concluded in Mauritius. It was also undisputed that activity carried out in India was incidental or auxiliary/preparatory in nature which was carried out in a routine manner. On facts, affiliates/agents of assessee in India did not constitute its PE in India in terms of paragraph 5 of Article 5 of India-Mauritius DTAA and, thus, amount in question received from advertisers was not liable to tax in India. Appeal of revenue was dismissed by High Court.
DIT v. B4U International Holdings Ltd. (2015) 231 Taxman 858 (Bom.)(HC)
S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Non-resident – Income from purchase of goods for export – Liaison office in India – Income of liaison office not deemed to accrue or arise in India
Income from purchase of goods for export. Income of liaison office not deemed to accrue or arise in India. Appeal of revenue was dismissed. (AYs. 2003-04 to 2007-08 )
DIT(IT) v. Tesco International Sourcing Ltd. (2015) 373 ITR 421 (Karn.)(HC)
S.10(15) : Exemption – Interest on foreign currency loans – Allowable on gross basis and not on net basis.
Interest on foreign currency loans is allowable on gross basis and not on net basis. (AY 1997-98)
DIT v. Credit Agricole Indosuez (2015) 377 ITR 102 (Bom.)(HC)
S.10(17A) : Awards and rewards in cash or kind – Amount received as an award is a capital receipt and hence not taxable
The assessee was an editor of an English magazine claiming exemption of amounts received as awards for excellence in journalism. The AO disallowed the same on the ground that the award did not satisfy conditions of section 10(17A). The CIT(A) reversed the order of the AO holding that the award received was not income as per section 2(24) and thus there was no question of its taxability. The Tribunal upheld the order of the AO.
The High Court following the decision of the Karnataka High Court in the case of International Instruments (P.) Ltd. v. CIT (1982) 133 ITR 283 observed that a receipt may not be ‘income’ at all within the proper connotation of that term and yet may come within the express exemption under section 10, due to the over-anxiety of the draftsman to make the fact of non-taxability clear beyond doubt and hence held that an award would be a capital receipt and hence not taxable. (AY. 1991-92)
Aroon Purie v. CIT (2015) 375 ITR 188/ 231 Taxman 349 / 277 CTR 1 / 118 DTR 105 (Delhi)(HC)
S.10(26) : Member of scheduled tribe should reside in specified area – Residence refers to stay in area for a long time for purposes of livelihood – Member of scheduled tribe in one area residing in another specified area – Entitled to exemption – Certificate of exemption to be obtained under section 197 –Certificate valid for one year
Any income derived by a member of a scheduled tribe from any source in the specified area is not to be included in his total income u/s. 10(26). Such a person should satisfy the following three conditions: (i) the person claiming exemption should be a member of a scheduled tribe as defined in Article 366(25) of the Constitution; (ii) he should be residing in the specified areas ; and (iii) the income in respect of which exemption is claimed must be an income which accrues or which arises to him (a) from any source in the specified area; or (b) by way of dividend or interest.
A member of a scheduled tribe would be entitled to the benefit of section 10(26) only when he is posted in the specified areas. Once he is posted outside the specified areas then he ceases to reside in the specified area and the income does not accrue to him in the specified area. The scope and ambit of the word “residing” has to be given its natural meaning that a person has an abode and is living in a particular area for his work and livelihood for a reasonably long length of time. However, whether a person is actually residing or not is a question of fact to be decided on the facts of each case. Any member of a scheduled tribe declared to be so under Article 342 of the Constitution, even though he does not belong to the specified area, would be entitled to the benefit of Section 10(26) when posted to a station in the specified area and residing therein in connection with his employment. A member of scheduled tribe is bound to obtain a certificate of exemption in terms of section 197. The validity of the certificate will be for one assessment year only.
Chandra Mohan Sinku v. UOI (2015) 372 ITR 627 / 230 Taxman 118 / 276 CTR 385 / 118 DTR 65(FB) (Tripura) (HC)
S.10A : Free Trade Zone – Export Oriented Undertakings – Appellate Tribunal – Alternative claim must be allowed though not raised before lower authorities [S. 254(1)]
If Tribunal upholds Revenue’s plea that assessee is not entitled to S. 10B, it must consider the assessee’s alternate plea for S. 10A deduction even if such alternate plea has not been raised before the lower authorities
Fast Booking (I) Pvt. Ltd. v. DCIT (Delhi)(HC); www.itatonline.org
S.10A : Free Trade Zone – Claiming deduction u/s 80HHE for one year does not debar the assessee from claiming deduction u/s. 10A for another year – Fact that claim is not made via a revised return is no bar on the right of the appellate authority to consider it [S. 80HHE, 139(5)]
(i) While an AO may not be entitled to grant a deduction or an exemption on the basis of a revised computation of income, there was no such fetter on the appellate authorities. This was recently reiterated by this Court in a decision dated 25th August, 2015 in ITA No. 644/2015 (Pr. Commissioner of Income Tax-09 v. Western India Shipyard Limited). In Commissioner of Income Tax v. Sam Global Securities Ltd. (2014) 360 ITR 682 (Del.), this Court pointed out that the power of the Tribunal in dealing with appeals was expressed in the widest possible terms and the purpose of assessment proceedings was to assess the correct tax liability. The Court noted that “Courts have taken a pragmatic view and not a technical view as what is required to be determined is the taxable income of the Assessee in accordance with law.” In M/s. Influence v. Commissioner of Income Tax 2014-TIOL-1741-HC-DEL-IT a similar approach was adopted when the AO in that case refused to accept the revised computation submitted beyond the time limit for filing the revised return under Section 139(5) of the Act. This Court noted that the decision in Goetze (India) Ltd. v. Commissioner of Income-tax [2006] 284 ITR 323 (SC) “would not apply if the Assessee had not made a new claim but had asked for re-computation of the deduction.”
(ii) Making of a claim under Section 80HHE of the Act in one assessment year will not preclude an Assessee from claiming the benefit under Section 10A of the Act in respect of the same unit in a succeeding assessment year. The purpose of the Section 80HHE(5) of the Act was to avoid double benefit but that would not mean that if for a particular assessment year the Assessee wants to claim a benefit only under Section 10A of the Act and not Section 80HHE, that would be denied to the Assessee. (ITA No. 607/2015, dt. 6-10-2015) (AY.2002-03)
CIT v. E-Funds international India Pvt. Ltd. (Delhi)(HC); www.itatonline.org
S.11 : Property held for charitable purposes – A charity is not entitled to exemption if it carries out activities not as per the objects. The fact that such ultra vires objects are also charitable is not relevant. Fact that CIT has granted registration u/s 12A does not preclude AO from examining compliance with S. 11. Incidental objects to attain the main object, even if significant in value, are permissible. Under principles of consistency, AO is not permitted to change view in the absence of a change in facts. [S. 2(15), 12A]
The Assessee contended that it was a charitable institution engaged in running a hospital (both Allopathic and Ayurvedic) and the same constituted a charitable purpose within the meaning of Section 2(15) of the Act. It was urged that as the Assessee had applied its income for charitable purposes, the same was exempt under Sections 11 and 12 of the Act. The Assessee further contended that it had been granted registration under Section 12A of the Act after considering the nature of its activities and, therefore, it was not open for the AO to deny the exemption under Section 11 of the Act. The CIT(A) accepted the contentions. However, the Tribunal held that the Assessee’s activities relating to Allopathic system of medicine had more or less supplanted the activities relating to Ayurvedic system of medicine and concluded that pre-dominant part of the Assessee’s activities exceeded the powers conferred on the trustees and the objects of the Assessee Trust were not being followed. The Tribunal held that whilst the activities of the Assessee relating to providing medical relief by the Ayurvedic system of medicine were intra vires its objects, the activities of providing medical reliefs through Allopathic system of medicine was ultra vires its objects. Consequently, the Assessee was not entitled to exemption under Section 11 of the Act in respect of income from the hospital run by the Assessee, which offered medical relief through Allopathic system of medicine. Accordingly, the Tribunal directed that the income and expenditure of the Assessee from the activities relating to the two disciplines of medicine, namely Ayurveda and Allopathy, be segregated. On appeal by the Assessee to the High Court HELD: that charity is not entitled to exemption if it carries out activities not as per the objects. The fact that such ultra vires objects are also charitable is not relevant. Fact that CIT has granted registration u/s. 12A does not preclude AO from examining compliance with S. 11. Incidental objects to attain the main object, even if significant in value, are permissible. In the circumstances, it would not be apposite to permit the Revenue to challenge a position that has been sustained over several decades without there being any material change. Order of Tribunal is set aside. (AY 2006-07)
Mool Chand Khairati Ram Trust v. DIT(E)(2015) 377 ITR 650/ 280 CTR 121 (Delhi)(HC)
S.12AA : Procedure for registration – Trust or institution – Charitable purpose – Activities of trust such as providing education, developing natural talents of women and charging fees for the same does not amount to carrying on trade commerce or business
The High Court observed that the motive of the assessee is not the generation of profit but to provide training to needy women for their development. It further observed that the nature of activities carried on by the trust was to provide education and the occasional sales made by the assessee for the trust’s fund generation and furthering of objects were not indicative of trade, commerce or business. The High Court held that the proviso to section 2(15) would not apply and hence would not be liable to cancellation of registration.
DIT v. Women’s India Trust (2015) 233 Taxman 196 / 277 CTR 180 / 118 DTR 173 (Bom.)(HC)
S.13 : Denial of exemption – Services of trustees – Payment to trustees – Denial of exemption was held to be not justified
Assessee Trust was availing services of Trustees and on account of such services there was substantial growth in Trust activities. Assessing Officer denied the exemption under section 11 on the ground that the assessee had violated the provisions of section 13(1)(c) by making payments to Trustees. CIT(A) set aside the order of Assessing Officer. Tribunal affirmed the order of CIT(A). On appeal by revenue, dismissing the appeal of revenue the Court held that; where assessee Trust was availing services of Trustees and on account of such services there was substantial growth in Trust and its activities, payments for such services could not be said in contravention of section 13(1)(c ) and benefit under section 11 could not be denied to assessee.
CIT v. CMR Jnanadhara Trust (2015) 230 Taxman 238 (Karn.)(HC)
S.14A : Disallowance of expenditure – Exempt income – Satisfaction – Rule 8D cannot be automatically invoked. It cannot be invoked if the AO does not record satisfaction as to why the assessee’s voluntary disallowance is not proper
The Assessee had dividend income of Rs. 2,38,13,275. The Assessee was asked to furnish an explanation as to why the expenses relevant to the earning of dividend should not be disallowed under Section 14A of the Act. The Assessee’s representative submitted that as no expenses have been incurred for earning of dividend income, this was not a case for making any disallowance. The AO, inter alia, observed that “the invocation of Section 14A is automatic and comes into operation, without any exception, as soon as the dividend income is claimed as an exemption. The AO proceeded to disallow the amount of Rs. 33,35,986/- under Section 14A read with Rule 8D of Income Tax Rules, 1962 and added the said amount to the total income of the Assessee. The CIT(A) allowed the appeal filed by the Assessee after recording a finding that the AO had failed to examine the contention of the Assessee that it had sufficient funds of Rs. 83.13 crores and “no borrowing, for whatever purposes, was resorted to (no interest expenditure was incurred) and investments generating tax exempt income were done by using administrative machinery of PMS, who did not charge any fees.” It was further found by the CIT(A) that the AO had failed to record the AO’s satisfaction after examining the accounts which was requirement for invoking Section 14A of the Act. The ITAT dismissed the Revenue’s appeal. On appeal by the department to the High Court HELD dismissing the appeal:
(i) The AO has proceeded on the erroneous premise that the invocation of Section 14A is automatic and comes into operation as soon as the dividend income is claimed exempt. The Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure .
(ii) Also, the Court disapproves of the AO invoking Section 14A read with Rule 8D (2) of the Rules without recording his satisfaction. The recording of satisfaction as to why “the voluntary disallowance made by the assessee was unreasonable and unsatisfactory” is a mandatory requirement of the law. (ITA no. 283/2014, dt. 24-9-2015) (AY.2009-10 )
CIT v. I. P. Support Service India (P) Ltd. (Delhi)(HC) ; www.itatonline.org
S.14A : Disallowance of expenditure – Exempt income –Recording of satisfaction – Interest bearing funds – Since there was no tangible material that could have enabled Assessing Officer to record satisfaction, disallowance made was unjustified [R.8D]
Assessing Officer disallowed an amount by holding that interest bearing funds had been used to earn tax free dividend, etc. Dismissing the appeal of revenue the Court held that; Section 14A requires Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income based upon credible and relevant evidence. Since there was no tangible material that could have enabled Assessing Officer to record satisfaction in terms of section 14A, disallowance made was unjustified.
CIT v. Abhishek Industries Ltd. (2015) 231 Taxman 85 (P&H)(HC)
S.14A : Disallowance of expenditure – Exempt income – No disallowance can be made in a year in which no exempt income has been earned or received by the assessee – Provision also does not apply to shares bought for strategic purposes
The High Court had to consider the following substantial question of law:
“Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?” HELD by the High Court:
(i) The expression “does not form part of the total income” in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The decision of the Supreme Court in CIT v. Rajendra Prasad Moody (1978) 115 ITR 519(SC) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is “for the purpose of making or earning such income”. Section 14A of the Act on the other hand contains the expression “in relation to income which does not form part of the total income”. The decision in Rajendra Prasad Moody cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act.
(ii) The investment by the Assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the Assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the Assessee is in relation to such investments which gives rise to income which does not form part of total income. (AY.2004-05)
Cheminvest Ltd. v. CIT( 2015) 378 ITR 33 (Delhi)(HC)
S.14A : Disallowance of expenditure – Exempt income – In the absence of any tax free income earned by assessee, disallowance could not be made
In the absence of any tax free income earned by assessee, disallowance could not be made. (AY. 2008-09)
CIT v. Shivam Motors (P) Ltd. (2015) 230 Taxman 63 / 272 CTR 277 (All.) (HC)
S.22 : Income from house property – Business income – Construction business – Earning money by selling property and letting it out – Enjoying property by giving use of it to another on rent rather than enjoying it by itself – To be treated as income from house property
Allowing the appeal of assessee the court held that; Income in the case of the assessee could not be treated otherwise than as arising out of house property because the assessee was enjoying the property by giving the use of it to another on rent rather than enjoying it by itself.
The contention that the main object of the assessee was dealing in property, that the object was business and, therefore, the rental income should be treated as business income, was not tenable because the object was both to earn money by selling the property as also by letting it out. It could not be said that the assessee was not authorised by the memorandum to earn profit by letting the property out.
Azimganj Estates P. Ltd. v. CIT (2015) 372 ITR 243 / 232 Taxman 625 (Cal.)(HC)
S.22 : Income from house property – Letting out of commercial complex – Assessable as income from house property not as business income
Assessee company constructed a hotel on land taken on lease from Airport Authority. It also constructed some offices and shops in said commercial complex. During relevant year, assessee let out those shops and offices and derived rental income which was offered to tax as ‘income from house property’. Assessing Officer found no difference between letting out of hotel rooms and renting out of shops in hotel premises especially when hotel premises, inter alia, includes commercial complex also, therefore, Assessing Officer brought to tax income from renting commercial premises under head “Profit and gains of business and profession”. Commissioner (Appeals) upheld Assessing Officer’s order. On appeal Tribunal held that since letting out of commercial space, i.e., offices and shops, was not accompanied by incidental services, in such case mere physical proximity of hotel and commercial complex did not really matter as long as character of arrangement had distinct nature therefore, income derived from property in question, was to be assessed as ‘Income from House Property’. (AYs. 2009-10, 2010-11)
A.B. Hotels Ltd. v. ACIT (2015) 68 SOT 255 (URO) (Delhi)(Trib.)
A.B. Hotels Ltd. v. ACIT (2015) 68 SOT 334 (URO) (Delhi)(Trib.)
S.28(iv) : Business income – Value of any benefit or perquisites – Converted into money or not – Loan for capital asset – One time settlement – Waiver of loan was held to be not assessable as business income
The assessee was engaged in business of manufacturing cloth and textile. It was declared a sick company by BIFR. In course of assessment, the Assessing Officer found that ICICI bank had waived principal amount of loan recoverable from assessee in one time settlement. The Assessing Officer took a view that loan waived off constituted assessee’s taxable income under section 28(iv). The Tribunal, however, held that the cessation of liability to repay bank loan taken to purchase a capital asset did not result in a revenue receipt and it was not taxable under section 28(iv). On revenue’s appeal Court dismissed the appeal following the ratio in Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom)(HC) and Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417 (Bom.)(HC). The Court also observed that issue specifically came up for consideration in the matter of Mahindra and Mahindra and it was held that the said provision would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. Following this decision in the case of CIT v. Xylon Holdings (P.) Ltd. [2012] 211 Taxman 108/26 taxmann.com 333 this Court held that the waiver would not come within the purview of section 28(iv). Accordingly the Court held that the view taken by the Tribunal is rational and judicious. (AY. 2007-08)
CIT v. Santogen Silk Mills Ltd. (2015) 231 Taxman 525 (Bom.)(HC)
S.32 : Depreciation – Customs duty paid in a later year can be capitalised in the year the obligation to pay the duty arose – Question whether it can be capitalised in year of import of the goods left open
The assessee imported hospital equipment valued at Rs. 2,75,11,988 during the years 1988-89 and 1992-93, without payment of custom duty, on the basis of a customs duty exemption certificate (‘CDEC’) issued by the Director General of Health Services (‘DGHS’). The equipment thus imported was capitalised by the Assessee on the actual value of the equipment paid by it. Depreciation was being claimed on the said equipment from year to year at the prescribed rate as per the Act. Subsequently, the DGHS noted that the assessee had failed to fulfil the essential condition stipulated in the relevant notification of the Customs Department dated 1st March, 1968 for retaining CDECs for import of hospital equipments. Accordingly, the CDEC granted to the Assessee stood withdrawn. In AY 2005-06, upon such withdrawal, the Customs authorities raised a demand of Rs. 1,10,04,795 (reduced from Rs. 3,78,66,864) as custom duty on the Assessee for the import of equipment in the aforementioned years. In AY 2009-10, the assessee treated the said payment as ‘new’ plant and machinery and claimed 100% depreciation on it. The Tribunal allowed the claim. On appeal by the department to the High Court HELD dismissing the appeal:
The central question is whether the obligation to pay customs duty related back to the actual date of payment of customs duty or the date of import of the equipment and whether the said customs duty paid in the previous year relevant to the AY in question can be capitalised with reference to an earlier year. In Funskool (India) Limited (2007) 294 ITR 642 (Mad.) the question was whether depreciation could be claimed on the additional customs duty paid in the previous year relevant to the AY in question although such customs duty was in respect of machinery that was imported and installed in an earlier year. That question was answered in the affirmative by the Madras High Court by following the judgment of the Gujarat High Court in Atlas Radio and Electronics P. Limited v. Commissioner of Income Tax (1994) 207 ITR 329 (Guj.) in which it was held that even though the sales tax was paid in a subsequent year, the liability to pay sales tax arose in the accounting period relevant to the assessment year in which the machinery was purchased. It was held on the facts of that case that the development rebate had to be claimed in the AY in which the machinery was purchased. Following the above decision of the Madras High Court in Funskool (India) Limited (supra), we are of the view that in the instant case, the AO erred in disallowing the capitalisation of the additional customs duty in the manner claimed by the Assessee and adding the entire customs duty paid in the relevant AY to the income of the Assessee. The impugned order of the ITAT affirming the decision of the CIT(A) that the enhanced cost of equipment should be taken into consideration from AY 2005-06 onwards and that the WDV should be reworked for the AY in question does not call for interference. However, as the assessee has not preferred an appeal against the rejection of its cross-objection by the ITAT, the question whether the assessee would be entitled to claim deprecation on the customs duty paid from the year of actual import of equipment is not considered but left open for decision in an appropriate case. (ITA No. 529/2014, dt. 4-8-2015)(AY. 2009-10)
CIT v. Noida Medicare Centre Ltd. (Delhi)(HC); www.itatonline.org
S.36(1)(iii) : Interest on borrowed capital – Actual cost – Interest expenditure incurred after the asset is put to use was allowable as revenue expenditure
Assessee borrowed money to purchase assets and paid interest thereon – Whether while interest attributable till asset was put to use for first time was required to be included in actual cost as per section 43(1) while interest expenditure incurred thereafter was allowable as revenue expenditure. (AY 1995-96, 2002-03, 2003-04)
Jt. CIT v. Bell Ceramics Ltd. (2015) 231 Taxman 82 (Guj.)(HC)
S.37(1) : Business expenditure – Hospital – Daughter of managing director working in hospital as doctor – Expenditure on higher studies of doctor – Doctor coming back to work in hospital – Expenditure had nexus with business of assessee
Held, before the expenditure was incurred, the daughter had acquired a degree in medicine. She was employed. Apart from the fact that she was the daughter of the managing director and the chief executive, she was an employee of the assessee. She was sent outside the country for acquiring higher educational qualification, which would improve the services, which the assessee was giving to its patients. It was in this context, that the sum of Rs. 5 lakhs was spent. That was not in dispute. After acquiring the degree, she had come back and she was working with the assessee. Therefore, there was a direct nexus between the expenses incurred towards her education, with the business, which the assessee was carrying on. In that view of the matter, the expenditure was deductible. (AY 2005-06)
Mallige Medical Centre P. Ltd. v. JCIT (2015) 375 ITR 522 (Karn.)(HC)
S.37(1) : Business expenditure – Matching concept –Ascertained liability was allowable expenditure when the corresponding income was already offered to tax
Assessee made a provision for supplies at the rate of 6.5% of the supplies for possible loss due to deduction by the Government for not keeping the supplies to the satisfaction of the Department. The AO disallowed the same stating that it was contingent in nature. It was held that the provision was an allowable expenditure since the liability was ascertained and the Government had in fact deducted at the rate of 10%. Once the entire receipt was shown as income, the corresponding expenditure ought to be allowed. (AY. 1977-78)
CIT v. Om Metals & Mineral (P) Ltd. (2015) 373 ITR 406 / 116 DTR 407 (Raj.)(HC)
S.40(b)(v) : Amounts not deductible – Working partner – Remuneration – Provision in partnership deed for payment of salary at percentage share of profits multiplied by “allocable profits” is valid and entitles claim for deduction
The Assessee firm was initially constituted with Smt. Manju Vaish, Smt. Kali Vohra and Mr. Vinay Vaish and was carrying on the profession of law in New Delhi and Mumbai. With effect from 1st April, 2006, Smt. Manju Vaish and Smt. Kali Vohra retired from the partnership and Mr. Ajay Vohra and Mr. Bomi F. Daruwala joined the partnership. A fresh retirement-cum-partnership deed was executed on 22nd June, 2008 and made effective from 1st April, 2006. 4. Clause 6(a) of the said deed provided that each Partner shall be entitled to an annual salary equivalent to his percentage share of profits multiplied by “Allocable Profits”. It was stated that “Allocable Profits shall be calculated as per the provisions of Section 40(b)(v)(1) of the Income-tax Act, 1961. The monthly salary of a Partner shall be equivalent to annual salary divided by 12. Such salary shall be deemed to accrue from day-to-day and may be drawn out in arrears and the salary so paid shall be treated as working expenses of the partnership before the profits thereof are ascertained.” Subsequently on 1st August, 2009 a supplementary deed of partnership was executed between Mr. Ajay Vohra, Mr. Vinay Vaish and Mr. Bomi F. Daruwala whereby Clause 6 was substituted as follows: “Mr. Ajay Vohra, Mr. Vinay Vaish and Mr. Bomi F. Daruwala shall be paid with effect from 1st April, 2009 a monthly salary of Rs. 26,50,000, Rs. 10,00,000 and Rs. 13,50,000 respectively. Such salary shall be deemed to accrue from day-to-day and may be drawn out in arrears and the salary so paid shall be treated as working expenses of the partnership before the profits thereof are ascertained.” The AO held that since the partnership deed “neither specified the amount of salary to be paid to each of the working partners nor has laid down a specific method of computation thereof” and has only mentioned “allocable profit” which has not been defined in the partnership deed, Section 40(b)(v) of the Act would not apply and the remuneration to the partners, not being in terms of Section 40(b)(v) of the Act, was disallowed. This was upheld by the CIT(A) but reversed by the ITAT. The ITAT came to the conclusion that the term “allocable profit” should be understood by applying the common meaning which would be “profits available for allocation”. Explanation 3 to Section 40(b)(v) of the Act defines the term “book profit” as the “net profit before remuneration”. The ITAT, therefore, concluded that “a plain reading of Clause 6(a) leads us to a conclusion that the term ‘allocable profits’ was used to mean ‘book profits’ as used in Section 40(b)(v) of the Act or otherwise the reference to the section in the Clause has no meaning. When the partners have understood and meant that the word “allocable profits” to mean surplus/book profits, prior to calculation of partners’ remuneration, and when such an understanding is manifest in its actions, we do not see any reason why the Revenue authorities should not understand this term in the same sense.”
On appeal by the department to the High Court HELD dismissing the appeal:
(1) Clause 6(a) of the partnership deed dated 20th June, 2008 clearly indicates the methodology and the manner of computing the remuneration of partners. The remuneration of the partners has been computed in terms thereof. Under Section 28(v) of the Act, any salary or remuneration by whatever name called received by partners of a firm would be chargeable to tax under the head Profits and gains of business or profession. The proviso to Section 28(v) states that where such salary has been allowed to be deducted under Section 40(b)(v), the income shall be adjusted to the extent of the amount not so allowed to be deducted. Further Section 155 (1A) of the Act states that where in respect of a completed assessment of a partner in a firm, it is found on the assessment or reassessment of the firm that any remuneration to any partner is not deductible under Section 40(b), the AO may amend the order of the assessment of the partner with a view to adjusting the income of the partner to the extent of the amount not so deductible.(AY.2009-10)
CIT v. Vaish Associates ( 2015) 126 DTR 102(Delhi) (HC)
S.43B : Deductions on actual payment – Service tax – Not received from parties – No disallowance can be made
Where it was found that, before end of the year, the amount on which service tax was payable had not been received from parties to whom services were rendered, no disallowance can be made for such unpaid service tax amount. (ITA No. 1023 of 2013 dt. 17-4-2015) (AY 2007-08)
CIT v. Ovira Logistics (P) Ltd. (2015)232 Taxman 240 / 119 DTR 269 (Bom.)(HC)
S.45 : Capital gains – Leasehold rights is a capital asset – Lease of less than 10 years there is no transfer – Not liable to capital gains tax
Allowing the appeal of assessee the Court held that leasehold right is a capital asset. However, in the present case, where the question arises in the context of the next question whether the lease deed results in a transfer of a ‘capital asset’, the answer will have to be found from a careful reading of the causes of the lease agreement itself. While de hors the context, it might be possible in theory for a leasehold right to be construed as a capital asset since the words used in Section 2(14)(a) are indeed of a wide amplitude, in the context of the present case, where under the lease agreement dated 24th February, 1994 what is given to SGL is a limited right to hold and possess the facilities leased to it for a limited period of ten years, with further restriction on sub-letting it or transferring any right or interest therein to anyone without the permission of the lessor and with the lease agreement making it explicit that at the end of the lease period the facilities leased it SGL would revert to the Assessee, it is difficult to hold that the leasehold rights given to the Assessee under the lease agreement is a ‘capital asset’. Consequently, question is answered by holding that the leasehold right, given to SGL for a period of ten years, of the plant and machinery along with land and building, is not a ‘capital asset’ within the meaning of Section 2(14)(a) of the Act. As the period of lease being less than 12 years there is no transfer. The mere fact that the Assessee may have applied under Section 230A of the Act to seek permission of the Department cannot be held against it as far as the correct legal position is concerned. In other words the fact that certain columns in the concerned form were filled by the Assessee to imply that there was a transfer of leasehold/ownership rights cannot be read to constitute a waiver by the Assessee of the legal defences that flow from a correct interpretation of the clauses of the lease agreement and from a correct reading of Section 2(47) with Section 45 of the Act. The Court is also unable to agree with the contention of the learned counsel for the Revenue that the lease of the plant and machinery can be separated from the lease of the land and buildings and the former transaction held to be valid and the latter a sham transaction. The last question that requires to be addressed whether there could be said to be any capital gains under Section 45 of the Act? In light of the above discussion, the question will have to be answered in favour of the Assessee and against the Revenue. The Court is of the view that the transaction in question was nothing more than a transaction of lease and has been acted upon by the parties as such. This was not a device adopted by the Assessee for tax avoidance. (ITA No. 38/2002, dt. 24-9-2015) (AY.1994-95)
Teletube Electronics v. CIT (Delhi)(HC); www.itatonline.org
S.45 : Capital gains – Business income – Investment in shares – Gains from sale of shares assessable as short-term capital gains and not as business profits explained
Judgment of CIT(A) and Tribunal that assessee is an investor and not a trader on the basis of the following facts cannot be faulted:
(a) Assessee has been an investor in shares and has consistently treated its entire investment in shares as “investment in shares” & not “stock-in-trade”;
(b) The income earned on sale of shares was offered as short term capital gains even when losses were suffered in a particular year;
(c) Dealing in 35 scrips, involving 59 transactions for the entire year could not be considered for high volume so as to be classified as trading income;
(d) The assessee earned 75% of the income as short term capital gains by holding shares for more than nine months;
(e) No transfer in shares was done by the assessee for over 75% of working days during the year;
(f) 56% of the short term capital gains during the year resulted from shares held during the earlier assessment year as a part of the opening investment on 1st April 2007.
(g) The assessee had not resorted to churning of shares or repetitive transactions in shares of the same company.
(h) For the earlier Assessment Years i.e. AY 2005-06 and AY 2006-07, the Assessing Officer had, in the proceedings under Section 143(3) of the Act, accepted the stand of the respondent assessee and taxed the profit earned on purchase and sale of shares as short term capital gains;
(i) Dividend income earned was over Rs. 8.50 lakhs;
(j) The assessee had not borrowed any funds but has used her own funds for the purpose of investment in shares;
(k) All transactions were delivery based transactions; and
(l) The speculation loss to which the Assessing Officer has made reference was in fact not so, but happened as a result of punching error
On consideration of the above facts, the CIT(A) and Tribunal rightly concluded that compliance on the part of the assessee in terms of Instruction No.1827 dated 31st August, 1989 issued by the Central Board of Direct Taxes laying down the tests for distinguishing the shares held in stock-in-trade and shares held as an investment, the shares held by the assessee was investment and held the income to be treated as short term capital gains. (ITA No. 1601 of 2013, dt. 9-9-2015) (AY. 2008-09)
CIT v. Datta Mahendra Shah (Bom.)(HC); www.itatonline.org
S.45 : Capital gains – Business income – Share investment – Principle of consistency – No borrowings – Value and frequency of transactions is not conclusive –Assessable as capital gains
Dismissing the appeal of revenue, the Court held that; Share scrips traded only amounts held by assessee and no borrowings. Dividend amounting to 4 per cent of value of investment earned by assessee. Value and frequency of transactions is not conclusive. Similar income for past and subsequent periods accepted as short-term capital gains. No distinctive material to differentiate assessee’s activities for assessment year in question. Principle of consistency. Investment in shares assessable as short-term capital gains and not business income. AY 2006-07)]
CIT v. Amit Jain (2015) 374 ITR 550 (Delhi) (HC)
S.45(2) : Capital gains – Conversion of a capital asset in to stock-in-trade – On the basis of the evidence before lower authorities, it was clear that land was originally a capital asset and tax would be payable only in the year in which the Assessee ultimately sold the stock-in-trade
The Assessee, engaged in the business of developing property and following project completion method, claimed that no sale was made during the year. The AO found that premises were sold. However, portion of such premises was originally a capital asset which was later on converted into stock-in-trade. The HC upheld the order of the Tribunal holding that land was originally a capital asset of the Assessee, and setting aside the matter to the AO to decide the year of conversion of land into stock-in-trade since income would be chargeable only at the time when the Assessee ultimately sells the stock-in-trade. (AY. 2003-04)
CIT v. Saffire Hotels (P) Ltd. (2015) 276 CTR 219 / 116 DTR 385 (Bom)(HC)
S.49 : Capital gains – Amount paid to sisters as per family arrangement for permitting transfer of property is deductible
In view of the Will of late mother Smt. Moghe and thereafter Will of P.M. Moghe, three sisters had a right in property and without extinguishing it or without providing for its adjustment, the assessee could not have sold property. As such, the amount of Rs. 45 lakh paid to three sisters is correctly found to be an expenditure incurred in connection with transfer of property. The arrangement worked out by three sisters and brothers as also three daughters of the deceased Shri P.M. Moghe, is bona fide one. The assessee and his three daughters were faced in a peculiar position. They resolved the situation and a family settlement was reduced into writing. It was agreed that at the time of sale, each sister shall be given Rs. 15 lakh and each niece shall be given Rs. five lakh. Accordingly, when the property was sold on 7-7-2006, this family settlement has been given effect to. It is, therefore, obvious that in the absence of such family settlement and payment, the sale of property on 7-7-2006 by the assessee could not have materialised. The sisters had a title in property and without their co-operation there could not have been any sale. As such, the amount of Rs. 45 lakh paid to his sisters has been rightly accepted as expenditure in connection with transfer of property. (ITA No. 104 of 2013, dt. 4-9-2015)
ACIT v. Kamlakar Moghe (Bom.)(HC); www.itatonline.org
S.49 : Capital gains – Indexed cost of acquisition – HUF – Partition in the year 1998 – Property acquired by HUF prior to 1-4-1981– Capital gains is to be computed by taking cost inflation index for financial year 1981-82
The bigger HUF of the assessee owned the property before 1-4-1981.The full partition was made on 20-2-1995 which was accepted by the Assessing Officer on 19-2-1998. However, the assessee also got it by way of court decree on 19-5-1988. The Assessing Officer had himself accepted the claim of the assessee under section 49(1)(i) taking the cost of the previous owner as on 1-4-1981. However, the Assessing Officer had applied the Cost of Inflation Index for the year 1998-99 instead of 1981-82 and the assessment was completed. On appeal, the Commissioner (Appeals) deleted the additions made by the Assessing Officer on account of difference in Long Term Capital Gain. On Second Appeal, the Tribunal decided against the revenue. On appeal
Dismissing the appeal; the Court held that; where capital asset was property of HUF prior to 1-4-1981 and assessee acquired absolute ownership on 19-5-1998 after partition of said HUF property, in such circumstances, date of acquisition of property by HUF being prior to 1-4-1981 would entitle assessee to calculate capital gains tax by taking cost inflation index for financial year 1981-82, and not 1998-99. (AY. 2009-10)
Dy. CIT v. Sushil Kumar (2015) 231 Taxman 788 (P&H)(HC)
S.54 : Capital gains – Profit on sale of property used for residence – To constitute purchase of new house, a registered sale deed is not necessary. Suspicion, howsoever strong, cannot partake the character of evidence
In the present case, as pointed out by the CIT (A), the sale deed does show that what was purchased by the Appellant is an agricultural land. Khasra Girdawri also clarifies that while there is a kothi, i.e., house on Khasra No. 76 (purchased by the Assessee’s father), the land in Khasra Nos. 75 and 90 purchased by the Assessee was used only for agricultural purpose. The explanation by the Assessee that only the rental income from letting out the constructed portion property was being shared between him and the father in the ratio of 15%: 85% appears to be a plausible one. Unless there is document to show that the Assessee was a co-owner of the said building to the extent of even 15%, there cannot be an inference in that regard. As explained by Umacharan Shaw & Bros v. CIT (1959) 37 ITR 271 (SC) suspicion howsoever strong cannot partake the character of evidence. The evidence produced by the Assessee showed that the house was purchased by him on 10th April, 2007 within the time allowed under Section 54F of the Act, after making payment and by obtaining the possession thereof. A substantial part of the consideration of Rs. 2 crores was paid on the date of the agreement to sell itself. The balance payment of Rs. 22 lakhs was made on 17th April, 2007 when the possession was handed over. The conclusion that the house was in fact purchased on 10th April, 2007 within the time allowed under Section 54F of the Act stands supported by the documents placed on record by the Assessee. The Court is satisfied that the prior to 10th April, 2007 the Assessee was not the owner of another residential house and therefore the exemption under Section 54 read with Section 54F of the Act could not be denied to him. (ITA No. 609/2014, dt. 11-9-2015)
CIT v. Kapil Nagpal (Delhi)(HC); www.itatonline.org
S.54F : Capital gains – Investment in a residential house – Section does not require that the construction of the new residential house has to be completed, and the house be habitable, within 3 years of the transfer of the old asset – It is sufficient if the funds are invested in the new house property within the time limit – Beneficial provisions must be interpreted liberally
Immediately after sale of the property on 6-10-2008, the assessee purchased another residential plot on 13-10-2008 and on 2-6-2010 she obtained approval of the building plan from the local authority and commenced the construction. However, it was not completed within 3 years i.e., on or before 5-10-2011. The Assessing Officer rejected the claim of the assessee for deduction u/s. 54F towards the benefit of long-term capital gain only on the ground that the construction has not been completed. The assessee produced photographs of the residential building which was under construction to demonstrate and establish that the consideration received on transfer has been invested by her in purchasing the residential plot and it is under construction. The CIT(A) and Tribunal followed the principles enunciated while interpreting Section 54F of the Act in Commissioner of Income Tax v. Sambandam Udaykumar reported in (2012) 81 CCH 0151 whereunder it came to be held that said provision has to be construed liberally for achieving the purpose for which it was incorporated, allowed the appeal of assessee. On appeal by the department to the High Court HELD dismissing the appeal:
Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his long- term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respects “that by itself would not disentitle the assessee to the benefit flowing from Section 54F”. (ITA No. 165 of 2014, dt. 13-7-2015) (AY. 2009-10)
CIT v. B. S. Shantakumari (Karn.)(HC); www.itatonline.org
S.54F : Capital gains – Investment in a residential house – Entire sale consideration in construction of a residential house within three years from date of transfer, he could not be denied exemption under section 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed under section 139(1)
The assessee sold certain converted lands to a trust for a consideration of Rs. 2.87 crore. In the returns filed under section 153A, the assessee computed Long Term Capital Gains of Rs. 2.87 crore before claiming exemption under sections 54B and 54F. During assessment proceedings the assessing authority disallowed assessee’s claim for exemption under section 54F. On appeal, the Commissioner (Appeals) held that the assessee’s investment in construction subsequent to the date of sale and investment in the eligible project even after the project of the house is started beyond one year will be eligible for exemption under section 54F. However, investment made prior to more than one year before the date of transfer was not eligible for exemption. Accordingly, he granted exemption. On revenue’s appeal, the Tribunal affirmed the said order. On appeal by revenue, dismissing the appeal the Court held that; in terms of section 54F(1), all investments made in construction of residential house on said vacant site within a period of one year prior to sale of original asset would be eligible for exemption under section 54F(1). Further, assessee having invested entire sale consideration in construction of a residential house within three years from date of transfer, he could not be denied exemption under section 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed under section 139(1).
CIT v. K Ramachandra Rao (2015) 277 CTR 522 / 230 Taxman 334/ 120 DTR 72 (Karn.)(HC)
S. 68 : Cash credits – Peak credit – Benefit of peak credit would be available unless otherwise established by the Revenue that it was invested elsewhere
The Assessee accounted for certain purchases in the cash book on later dates than the date of bills. An addition u/s. 69 was made by the AO on the same. On appeal, the HC held that items purchased were at short intervals, hence funds rotated and benefit of peak credit can be invoked and entire addition could not be made. If the AO comes to a finding that withdrawn amount was used or spent by assessee for any other investment or expenditure then the benefit of peak of such credit, in such circumstances, may not be available. (AY. 1994-95)
Sind Medical Stores v. CIT (2015) 117 DTR 78 (Raj.)(HC)
S.69A : Unexplained money –Addition on the basis of e-mail and seized documents was held to be not justified
A search was carried out at assessee’s premises in course of which Assessing Officer seized certain letters/e-mail. On basis of said documents, Assessing Officer made addition to assessee’s income on account of undisclosed salary.Commissioner (Appeals) as well as Tribunal deleted addition holding that in absence of any corroborative material to link such e-mail letter or its contents with assessee, inference that some additional income was earned by him by way of salary, was incorrectly drawn. Dismissing the appeal of revenue the Court held that; since document seized was both undated and unsigned and even taken at face value did not lead to further enquiry on behalf of Assessing Officer, impugned order of Tribunal deleting addition was to be confirmed. (AYs. 2001-02 to 2007-08)
CIT v. Vivek Aggarwal (2015) 231 Taxman 392 (Delhi)(HC)
S.69A : Unexplained money –Survey – Retraction – After thought – Addition confirmed by the Tribunal was upheld
The assessee was engaged in real estate and constructions activities. During the course of survey, the statement of one of its directors was recorded, wherein he disclosed that a sum of Rs. 15 crores was an additional income outside the regular books of account and furnished details in this regard. Assessee did not disclose this income in his returns but declared it at time of survey. However, before Assessing Officer, assessee alleged that surrendered amounts were not voluntary and bona fide and in absence of any evidence or material in relation to surrender, surrender made during survey was also retracted. However the AO made addition on the basis of survey statement. On appeal, the Commissioner (Appeals) gave partial relief by taking into account the debit entries from the gross receipts, thus, reducing the total taxable income. On cross appeals the assessee’s appeal was rejected. On appeal dismissing the appeal the Court held that:
Instant Court opined that in the circumstances of the case, the approach of the Commissioner as affirmed by the Tribunal cannot be faulted. The discretion vested in the revenue authorities in content and character is not radically different in the case of a survey or in the case of search and seizure operations as is evident from a plain reading of sections 133A(3) and 132(4). Whereas the latter uses the expression ‘may examine on oath’, the former says that the authority ‘may record statement which may be useful for, or relevant to’ in proceedings under the Act. This provision, section 133A(3) had undergone further amendment inasmuch as the revenue is precluded from taking any action under section 133A(3)(ia) or section 133A(3)(ii), i.e., from impounding and taking into custody any books of account, etc. or making an inventory of any cash, stock or other valuable item verified by him while acting under section 133(2A) by the Finance Act 2 of 2014. The obvious inference, therefore, is that in respect of statement which fall in section 133A(3)(iii), the discretion to use it as a relevant material continues.
All that section 133A(3)(iii) enables to the authority concerned to do is to draw an adverse inference by relying upon materials which are seized, or dealt with in the course of the survey.
In the instant case, the admitted facts are that during the survey, a Director of the assessee – who was duly authorised to make a statement about the materials and the undisclosed income, did so on 20-11-2007. The company did not retract it immediately or any time before the show cause was issued to it. For the first time, in reply to the show cause notice it faintly urged that the statement was not voluntary and sought to retract it. The reply, a copy of which has been placed on record, undoubtedly makes reference to some previous letter retracting the statement. The assessee urged that letter was written on 21-12-2007. However, the actual reply to the show cause notice is silent as to the date. This itself casts doubt as to whether the retraction was in fact made or was claimed as an afterthought.
Furthermore, this Court is of the opinion that in the circumstances of the case both the Commissioner (Appeals) and Tribunal were correct in adding back the amount of Rs. 63.33 lakhs after adjusting the expenditure indicated. The explanation given by the assessee, in the course of the appellate proceedings, that the surrender was in respect of a certain portion of the receipt which had remained undisclosed or that some parts of it were supported by the books, is nowhere borne out as a matter of fact, in any of the contentions raised by it before the lower authorities. For these reasons, this Court is of the opinion that no substantial question of law arises.
Raj Hans Towers (P.) Ltd. v. CIT (2015) 373 ITR 9 / 230 Taxman 567 (Delhi)(HC)
S.80-IB(10) : Housing projects – Plot must have minimum area of one acre – Composite housing scheme consisting of six blocks in area exceeding one acre – Separate plan permits obtained for six blocks – Not ground for denial of deduction – Entitled to deduction
The Assessing Officer disallowed the deduction granted earlier to the assessee in pursuance of order passed u/s. 263. The Commissioner (Appeals) upheld the findings of the Assessing Officer. The Tribunal held that the assessee had developed a project in a land measuring 1 acre and 6.5 cents and allotted 1.022 sq. ft. of undivided share of land to each of the 48 allottees and, hence, the assessee was entitled to the benefit of section 80-IB(10) as a composite scheme. On appeal :
Held, dismissing the appeal, that there was no dispute in the approval granted by the CMDA in respect of the composite housing scheme. When the Legislature introduced 100 per cent deduction it was known that the local authorities could approve a housing project to the extent permitted under the Development Control Rules. When the project fulfilled the criteria for being approved as a housing project, the deduction could not be denied under section 80-IB(10) merely because the assessee had obtained a separate plan permits for the six blocks. If the conditions specified under section 80-IB are satisfied, then deduction is allowable on the entire project. Since the project was approved in accordance with the Development Control Rules, the assessee would be entitled to 100 per cent deduction on the entire project approved by the local authority. The assessee constructed six blocks in a land measuring one acre and 6.5 cents which admittedly exceeded the required area specified in clause (a) sub-section (10) of section 80-IB, viz., one acre. Therefore, the assessee was entitled to deduction. (AY. 2007-08)
CIT v. Voora Property Developers P. Ltd. (2015) 373 ITR 317 (Mad.) (HC)
S.92B : Transfer pricing – Issue of shares at premium – Does not give rise to any income from international transaction and, thus, there is no occasion to apply Chapter X in such a case
Where assessee-company had issued shares at a premium to its non-resident holding company, it does not give rise to any income from international transaction and, thus, there is no occasion to apply Chapter X in such a case. (AY. 2009-10)
SKR BPO Services (P.) Ltd. v. ITO (2015) 230 Taxman 192 (Bom.)(HC)
S.92C : Transfer pricing – Arm’s length price – Guarantee commission – No comparison can be made between guarantees issued by commercial banks as against a corporate guarantee issued by a holding company for benefit of its AE, for computing ALP of guarantee commission
The assessee provided a corporate guarantee for repayment of borrowings made by its AE from the bank for purchase of assets and inventories, for working capital and as a term loan. The assessee had charged guarantee commission at the rate of 0.5% from its AE. The TPO found that the guarantee fee charged was at a lower rate. He came to the conclusion that the banks and companies were charging at least 3% for providing guarantees and, therefore, the arm’s length price for the guarantee given by the assessee to bank for the benefit of the AE was at 3% of the amount of guarantee. Accordingly, he made an adjustment for the differential 2.5%.
On appeal, the CIT(A) upheld the order of the TPO on the basis that the bank rate and guarantee of the relevant period was 6% whereas PLR was 10.5%, which showed that the return for bearing received was 4.5%. Therefore, the CIT(A) found that the return of 3% arrived at by the TPO was justified. Against the dismissal of appeal by the CIT(A), the assessee approached the Tribunal. The Tribunal reversed the order of the CIT(A) and deleted the adjustment.
On appeal by the Department before the High Court, the High Court upheld the order of the Tribunal on the basis that the considerations which apply for issuance of a corporate guarantee are distinct and separate from that of a bank guarantee and, accordingly, comparison cannot be made between guarantees issued by commercial banks as against corporate guarantees issued by holding companies for the benefit of its AE, a subsidiary company. (AY. 2007-08)
CIT v. Everest Kento Cylinders Ltd. (2015) 119 DTR 394/ 232 Taxman 307 (Bom.)(HC)
S.92CA : Transfer pricing – Reference to TPO – Jurisdiction of AO to allow expenses u/s. 37 and TPO u/s 92CA is distinct and, therefore, a referral made by AO to TPO for determining ALP does not take away the power of AO to determine whether payment to AE for services received is an allowable u/s. 37(1) of the Act. Authority of TPO is to conduct a TP analysis to determine ALP and not to determine whether there is a service or not from which the assessee benefits
The assessee, an Indian company, was engaged in the business of rendering services connected to acquisition, sales and lease of real estate. During the relevant year, the assessee entered into international transactions relating to payment of referral fees and reimbursement of certain co-ordination and liaison costs to the AEs. The TPO disallowed the deduction of expenditure with respect to reimbursement of expenses on the ground that no services were provided, however, did not draw an adverse inference with respect to payment of referral fees. The AO, based on the TPO order, made a draft assessment order disallowing the reimbursement. The AO also disallowed the referral fees as deductible expenditure stating that no benefit was derived by the assessee from the referral fees paid to the AEs. The DRP concurred with the AO. On appeal, the Tribunal reversed the order of the AO in respect of both the issues.
On revenue’s appeal with respect to reimbursement of costs, the High Court observed that, in the case of reimbursement made to AE, whether the cost itself is inflated or not (irrespective of the markup charged) is a matter to be tested under transfer pricing analysis. The High Court held that the TPO’s authority is limited to determining the ALP of international transactions referred to him by the AO, rather than determining whether such services exist or benefit has accrued. The TPO can determine the ALP of a transaction at ‘NIL’ based on the consideration that an independent entity in a comparable transaction would not have paid any amount. However, the TPO cannot arrive at a ‘NIL’ ALP on the basis that the assessee did not benefit from such services. Furthermore, in reaching this conclusion neither the Revenue nor the Court must question the commercial wisdomof the assessee.
With respect to payment of referral fees, the Tribunal had reversed the finding on two grounds:
(i) AO, after having referred that matter to the TPO, could not reopen or re-examine the transaction (ii) On merits, the Tribunal held that the assessee had submitted ample evidence to support the expenditure. However, the High Court held that the jurisdiction of the AO u/s. 37 and the TPO u/s. 92CA were distinct; the TPO determines whether the stated transaction value represents the ALP or not (including whether the ALP is Nil), while the AO makes the decision as to the validity of the deduction u/s. 37. This means that the decision as to whether the expenditure was laid down ‘wholly and exclusively for the purpose of business’ is a fact to be determined or verified by the AO. Accordingly, the AO cannot reassess or draw adverse inference as to the quantum of payment; however, the AO may determine whether services were actually rendered.(AY 2006-07)
CIT v. Cushman and Wakefield (India) (P.) Ltd. (2015) 233 Taxman 250 / 277 CTR 368 / 119 DTR 261 (Delhi)(HC)
S.115E : Non-residents – Capital gains – Benefit of concessional rate of tax would not be available on short term capital gains arising from sale of shares
Assessee, a non-resident, earned short-term capital gain on sale of bonus shares. He paid tax at the concessional rate of 20%, claiming benefit of s. 115E, on the basis that the original shares were purchased in convertible foreign exchange. The AO held that concessional rate of tax was not available for short term capital gains. The HC held that if the phrase “investment income” is interpreted to include all kinds of income defined in S. 2(24), then the phrase “income by way of long term capital gain” would become redundant. Income derived from shares would normally include dividend income and not income from sale of shares, since in the case of latter rights over the shares are extinguished. Thus, income arising on sale of assets leading to short term capital gains would not be investment income derived from foreign exchange asset and thus benefit of section 115E would not be available to short term capital gains. (AY. 1992-93)
CIT v. Sham L. Chellaram (2015) 373 ITR 292 / 116 DTR 118 / 275 CTR 245 (Bom.)(HC)
S. 115JB : Book profits – Sale of rights directly taken to balance sheet – Adjustment to book profit cannot be made, if auditors and ROC have not found fault with accounts
The assessee earned gross profit of Rs. 1,68,95,500/- from sale of its rights in immovable property. This amount was not shown in the P&L account but was taken directly to the balance sheet. The AO held that under sub-clause (xi) of clause 3 of Part II of Schedule-VI, the assessee is required to show the amount of income earned from investment in the P&L account, distinguishing between trade investments and other investments. He held that it was mandatory for the company to show profit/loss on sale of assets in the P&L Account and that the P/L account had not been prepared in accordance with Part-II and Part–III of Schedule VI of the Companies Act. Assessing Officer on CIT vs. Veekaylal Investment Co. P. Ltd. (249 ITR 597 ( Bom)(HC)) and made an adjustment to the “book profits” u/s. 115JB. However, the Tribunal deleted the addition. On appeal by the department to the High Court HELD dismissing the appeal:
The observations of the Apex Court in Apollo Tyres Ltd. v. CIT 255 ITR 273 concludes the issue by holding that the Assessing Officer does not have power to embark upon the fresh enquiry with regard to the entries made in the books of account of the company when the accounts of an assessee company is prepared in terms of Part II Schedule VI of the Companies Act scrutinised and certified by the statutory auditors, approved by the company in general meeting and thereafter filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. If the grievance of the revenue is to be accepted, then the conclusiveness of accounts prepared and audited in terms of Section 115JB of the Companies Act would be set at naught. This without successfully impeaching the Auditor’s certificate or without the Registrar of Companies holding that the accounts have not been prepared in accordance with the provisions of the Companies Act. There is no distinction between ss. 115JA and 115JB and the principles laid down in Apollo Tyres applies to s. 115JB as well. (AY. 2004-05)
CIT v. Forver Diamonds Pvt. Ltd. (Bom.)(HC); www.itatonline.org
S.132(4A) : Search and seizure – Presumption – Seized paper did not reflect the name of assessee – Deletion of addition was held to be justified
Tribunal found that though materials were seized in search, said materials did not reflect name of assessee. Most of cheques were stale and some other cheques were either blank or were in name of third parties, therefore, Tribunal held that revenue was not justified in drawing presumption under section 132(4A). Dismissing the appeal of revenue the Court held that since finding recorded by Tribunal could not be found fault with, same was to be upheld. (AYs. 1998-99 and 2000-01 to 2003-04)
CIT v. Blue Lines (2015) 231 Taxman 49 (Karn.)(HC)
S.133A : Survey – Income from undisclosed source – Retraction of statement – No other evidence of suppression of income – Addition of income not justified
Dismissing the appeal of revenue, the Court held that; while making the additions in the hands of the partner as well as in the hands of the firm, the Assessing Officer solely relied upon the statement of the partner recorded at the time of search, which subsequently came to be retracted or explained within the period of 19 days. Except the statement recorded at the time of search which was subsequently retracted, there was no other material or corroborative material with the Assessing Officer, on which, the addition of Rs. 6 lakhs in the hands of the partner and Rs. 7,00,500 cash in hand and Rs. 25,50,320 as unexplained investment in stock in the hands of the firm could be justified. Under the circumstances, the deletion of the additions was justified. (AY. 2007-08)
CIT v. M.P. Scrap Traders (2015) 372 ITR 507 (Guj.) (HC)
S.147 : Reassessment – After the expiry of four years – Reasons not showing any failure on part of assessee to disclose fully and truly all material facts – Notice based on assessment made in subsequent years – Reviewing earlier decision is not permissible – Notices and the orders were quashed
Held, the reasons for reopening the assessments which had already been concluded did not show that there was any failure on the part of the assessee to disclose fully and truly all the material facts and thus, it was merely a change of opinion and in view of the settled position of law, the assessee would be entitled to setting aside of the notices issued. The additional factor regarding the change of opinion by the Assessing Officer, would also be a valid ground for setting aside the notice issued. Further, the reason for reopening was merely a change of opinion on account of the assessment being made for the subsequent years would not give the Assessing Officer the jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Thus, the notices and the orders were accordingly, quashed. (AYs. 2005-06 to 2007-08 )
State Bank of Patiala v. CIT (2015) 375 ITR 109 (P & H) (HC)
S.147 : Reassessment – After the expiry of four years – Share premium amount – No lack of disclosure or suppression of any material facts – No tangible reasons in notice – Notice not valid
Notices under section 148, were issued to the assessee on the ground that the assessee was in receipt of huge share premium amounting to Rs. 14,10,01,300 during the financial year 2007-08 relevant to the assessment year 2008-09. As scrutiny assessment under section 143(3) had not been done in this case for this year, the share premium received by the assessee had not been examined. The assessee was an unlisted company and the nature of the share application money received was not substantiated by any cogent evidence. Subsequently, an order of reassessment was passed rejecting the objections of the assessee challenging the validity of reassessment. On writ petitions:
Held, allowing the petitions, (i) that the transactions seemed to be entirely arm’s length transactions. The subscribers were limited companies who were reportedly stated to be public limited companies. The assessee was a company in the hospitality sector and it could not be seen how the premium charged from the subscribers could be questioned without the Revenue providing valid reasons. Apart from being public limited companies, the subscribers included other infrastructure hospitality companies. There was no justification for the issuing of notices under section 148 on the facts of the case. There was no lack of disclosure or suppression of any material facts. All queries of the Assessing Officer had been answered by the assessee or the subscribers in question and all questionnaires addressed to subscribers were duly answered by the subscribers. The notice did not contain any tangible reasons for reopening the assessment. In fact, the very same Assessing Officer who had completed the assessment and issued an assessment order on March 22, 2014 had proceeded to issue the notice under section 148 within seven days of the assessment order. Therefore, the notices were not valid.
(ii) That although the assessee had relied upon the decision of the court and the Department had accepted the decision and decided not to challenging it by issuing a circular, all cases of share premium could not be equated as being covered by the judgment and circular. In a given case and the given fact situation, assessees may be required to be probed for valid reasons. (AYs. 2008-09, 2009-10)
Alliance Space P. Ltd. .v. ITO (2015) 375 ITR 473 (Bom.)(HC)
S.147 : Reassessment – After the expiry of four years – Satisfaction of Chief Commissioner or Commissioner – No such permission was obtained before issuing notice – Change of opinion – Reassessment notice was held to be not valid
The assessment for the AY. 2006-07 was reopened. The reasons accompanied a letter dated November 25, 2013, of the Department and stated that the assessee had claimed excess cost of acquisition and income from capital gains had been underassessed. The reasons were dated February 5, 2013. On a writ petition:
Held, allowing the petition, that there could be no formation of an opinion by the Commissioner to issue such a notice under section 148 on January 30, 2013, in the absence of cogent reasons, which were recorded later on February 5, 2013. The notice under section 148 was also dated February 5, 2013. A specific declaration in the notice that it was being issued after obtaining the necessary satisfaction of the Commissioner and the Chief Commissioner was scored out. Therefore, in the absence of reasons on January 30, 2013, the Commissioner could not have recorded satisfaction under section 151.
(ii) That the assessment was sought to be reopened on a mere change of opinion, the change of opinion being with regard to estimation of the indexed cost of acquisition on April 1, 1981. It had been declared in the formal reasons that the justification for reassessment was to be found the view of the Income-tax Officer, Chennai. On the face of the records the Department was acting on a change of opinion. The reasons dated February 5, 2013, had been sought to be improved in the affidavit-in-opposition which was not permissible. Therefore, the reassessment was not valid. (AY. 2006-07)
Asiatic Oxygen Ltd. v. Dy. CIT (2015) 372 ITR 421 (Cal.) (HC)
S.147 : Reassessment – Recorded reasons must be furnished to the assessee – If Department behaves in an irresponsible manner and does not furnish the recorded reasons on the basis that the assessee was already aware of them, the assessment has to be quashed
(i) It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment.
(ii) These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. We also do not appreciate the stand of the revenue, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to justify non-furnishing of reasons. We expect the state to act more responsibly. (ITA No. 1867 of 2013, dt. 16-9-2015) (AY. 2008-09 )
CIT v. Trend Electronics (Bom.)(HC); www.itatonline.org
S.147 : Reassessment – Failure by AO to comply with the law in G. K. N. Driveshafts (India) Ltd. v. ITO ( 2003) 259 ITR 19 (SC), and pass order on objections renders assessment order void; Even assessment u/s. 143(1) assessment cannot be reopened in the absence of new/ tangible material
(i) The Court is of the considered view that after having correctly understood the decision of the Supreme Court in G.K.N. Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment;
(ii) Though only an assessment u/s. 143(1) and not 143(3) was made, the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have “reasons to believe that the income had escaped assessment”.
(iii) The department’s contention that the judgment in CIT v. Orient Craft Ltd. (2013) 354 ITR 536 (Del) is contrary to the Full Bench verdict in CIT-VI v. Usha International Ltd. (2012) 348 ITR 485 and the issue should be referred to a larger Bench is not acceptable because the Central issue examined in the decision of the Full Bench in Usha International Ltd. was as to what constituted a “change of opinion”. The Court, therefore, does not consider the decision in Orient Craft Ltd. as being contrary to the decision in Usha International Ltd. In other words, there is no occasion for the Court to refer to a larger bench the question of the correctness of the decision in Orient Craft Ltd. which decision squarely applies to the facts of the present case. (ITA No. 415/2015, dt. 10-8-2015) (AY.2003-04)
Pr. CIT .v. Tupperware India Pvt. Ltd. (Delhi)(HC); www.itatonline.org
S.147 : Reassessment – Survey report and other materials not indicating any income chargeable to tax has escaped assessment – Nothing before Assessing Officer to record belief that escapement has taken place – Reasons recorded prior and subsequent to survey not satisfying requirement of law – Notice is not valid
There was an allegation that there was a group of assessees engaged in wholesale trading of potato on commission basis. The authorities conducted a survey on the basis of the allegation that the group of assessees were resorting to hoarding of potatoes and making huge profits by fluctuating the day-to-day price of potatoes in the market. The authorities physically verified the assessee’s manual books of account, cash balance, stock, etc. and prepared inventory. The authorities impounded the back up of the books of account maintained on computer for further verification. The details of the group’s bank accounts were obtained. Notices under section 148 were issued to the assessee for the assessment years 2009-10 to 2011-12. On writ petitions contending that there were no reasons much less leading to a belief that income chargeable to tax has escaped assessment, that the survey report was made in the basis for reopening the assessment and for the assessment years 2009-10, 2010-11 and 2011-12, that the survey was stated to be of January 7, 2011, that in the circumstances, there was no satisfaction recorded that any income chargeable to tax had escaped assessment and as pointed out in the survey report or from such other relevant material and that, therefore, the notices were ex facie bad in law and the proceedings in pursuance thereof were totally without jurisdiction:
Held, allowing the petitions, that neither the survey report nor any other material indicated that any income chargeable to tax for the relevant assessment years had escaped assessment. The Assessing Officer, therefore, had nothing before him which would enable him to record his belief that any such escapement had taken place. Notice was held not valid. (AYs. 2009-10 to 2011-12)
Hemant Traders v. ITO (2015) 375 ITR 167 (Bom.)(HC)
S.151 : Reassessment – Sanction for issue of notice – Recording of satisfaction in mechanical manner – Reassessment was held to be invalid
Where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind, in order to accord sanction for issuing notice under section 148, assumption of jurisdiction to reopen block assessment was invalid.
CIT v. S. Goyanka Lime & Chemicals Ltd. (2015) 231 Taxman 73 (MP)(HC)
S.151 : Reassessment – Sanction for issue of notice – Order passed without following mandatory of sanction of Chief CIT or CIT under the proviso is inherent lacuna which is not curable hence bad in law
The assessee objected to the reassessment on the ground that required sanction of CIT was not taken. AO rejected the objection of the assesse on the ground that required sanction was not taken due to oversight. On writ allowing the petition the Court held that; order passed without following mandatory of sanction of Chief CIT or CIT under the proviso is inherent lacuna which is not curable hence bad in law. (AY. 2007-08)
Dhadda Exports v. ITO ( 2015) 278 CTR 258 / 232 Taxman 407 (Raj.)(HC)
S.153C : Assessment – Income of any other person – Search and seizure – General satisfaction recorded in the note is not enough – As there was no co-relation document wise – Order of Tribunal quashing the validity of order was held to be justified
The assessee is an education institution. Before the Tribunal the assessee raised an additional ground stating that the satisfaction recorded by the AO was in general nature hence concluded assessment could not be disturbed. Tribunal allowed the appeal of the assessee. On appeal by revenue, dismissing the appeal the Court held that; Tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document–wise with the assessment years in question and in the circumstances, the general satisfaction as recorded in the note is not enough; hence no substantial question of law arises out of Tribunal’s order quashing notice under section 153C. (AYs. 2001-02 to 2003-04)
CIT v. Sinhgad Technical Education Society (2015) 278 CTR 144 (Bom.)(HC)
S. 194C : Deduction at source – Contractors and sub-contractors Providing buses for giving pick-up and drop facilities – Rightly deducted tax at souce as contractor – Payment cannot be termed as rent hence provisions of section 194I cannot be applicable
Assessee-company entered into contract with transporters for providing buses for giving pick-up and drop facilities to its employees. In terms of contract, possession of buses remained with transporters. Further, transporters were contractually obliged to maintain buses in proper condition and drivers and conductors were also to be provided by them. Assessee deducted tax at source under section 194C whereas revenue authorities opined that tax was to be deducted under section 194-I while making payments to transporters. On facts, agreement between assessee and transporters was not akin to taking of any ‘plant’ or ‘machinery’ on lease or any other similar arrangement and, therefore, assessee had correctly deducted tax at source under section 194C. (AYs. 2008-09, 2009-10)
CIT v. Bharat Electronics Ltd. (2015) 230 Taxman 651 (All.)(HC)
S.201 : Deduction at source – Limitation – Proceedings initiated after four years from end of financial year – Barred by limitation
Initiation of the proceedings under section 201 after four years from the end of the financial year was barred by limitation. (AYs. 1999-2000 to 2001-02)
CIT (TDS) v. C. J. International Hotels P. Ltd. (2015) 372 ITR 684 / 231 Taxman 818 (Delhi) (HC)
S.220 : Collection and recovery – Assessee deemed in default – Interest – Settlement Commission – Interest for default in payment of tax – Application for settlement of case – Interest payable from date of default till date of admission of application for settlement of case
Interest under section 220(2) of the Act, is legally leviable from the date of default in payment of the demand by the assessee till the date of admission of the application of the assessee by the Settlement Commission under section 245D(1) and not till the final order of the Settlement Commission under section 245D(4).
CIT v. Leonie M. Almeida (Smt.) (2015) 374 ITR 304 (Bom.)(HC)
S.220 : Collection and recovery –Assessee deemed in default – Stay – Prima facie case – Unconditioanl stay must be granted by the CIT(A)
Assessee was statutory authority set up inter alia for purpose of planning, co-ordinating and supervising development of Mumbai Metropolitan Region and it was appointed as a special planning authority in place of CIDCO for notified areas. It claimed exemption under section 11 and alternatively claimed that it was an agent of State Government and, thus, was not chargeable to tax in view of decision of Tribunal in City & Industrial Development Corpn. of Maharashtra Ltd. v. Asstt. CIT [2012] 138 ITD 381 (Mum.m –- Assessing Officer did not accept said claim and charged its income to tax. Pending disposal of appeal before Commissioner (Appeals), assessee sought for stay of demand but same was rejected on ground that above decision was inapplicable as in that case exemption under section 11 was not claimed . Court held that submission of being an agent of State was not based on any claim for exemption under any provision of Act but under Article 289 of Constitution of India, therefore, decision of Tribunal in above case would prima facie apply to facts of assessee’s case and, unconditional stay would be granted pending disposal of appeal before Commissioner (Appeals). (AY. 2011-12)
Mumbai Metropolitan Region Development Authority v. Dy. CIT (2015) 273 CTR 317 / 230 Taxman 178 (Bom.)(HC)
S.220 : Collection and recovery – Stay – Appeal pending before CIT(A) – CIT(A) is directed to dispose of appeals expeditiously
Commissioner rejected the application to stay the demand. Assessees bank accounts including cash credit accounts were attached by the income-tax authorities. Assessee filed the writ petition , allowing the petition the Court directed that the attachment with regard to cash credit account was discharged and the CIT(A) was directed to dispose the appeals within three months. As regards other bank accounts of the assessee were continued to remain attached with a rider that the Department will not be able to appropriate any sum therefrom till the disposal of the appeal before the CIT(A). The continuation of attachment and operation of the bank accounts will abide by the order to be passed by Commissioner (Appeals). (AY 2011-2012)
P.C. Chandra and Sons (India) P. Ltd. v. Dy.CIT (2015) 373 ITR 223 (Cal.)(HC)
S. 234A : Interest – Method of accounting – Project completion method – Parking charges received is liable to tax and no relevance to project completion method – Liable to pay interest
Assessee was engaged in business as builder and developer and was following project completion method for payment of taxes. Assessee received parking charges collected on vacant land belonged to him. However, he did not file return on ground that income earned on parking charges would be taxed when project would be complete. On appeal the Court held that since parking charges had nothing to do with assessee’s project and was assessable to tax, assessee was obliged to pay advance tax, therefore, non-payment of same would levy interest under sections 234A and 234B. (AY. 2000-01)
Sudhir G. Borgaonkar v. ACIT (2015) 375 ITR 322 / 230 Taxman 327/ 121 DTR 333 (Bom.)(HC)
S. 244 : Refund – Return of income – Deduction at source – Credit for refunds – Interest on refund – Department is directed to follow directions of Delhi High Court in Court on its own motion v. CIT(2013) 352 ITR 273 (Delhi)(HC) and to be vigilant and ensure that such mistakes do not occur. Department is also directed to set up a self-auditing vigilance cell to redress taxpayers’ grievances
The Petitioner filed a PIL to bring out the irregularities committed by the Income Tax Department. It was submitted that the Delhi High Court has also passed the strictures against the Income Tax Department in a similar Petition, which was filed in the Delhi High Court and which was disposed of by the order dated 14th March, 2013 (Court on Its Own Motion v. CIT (2013) 352 ITR 273). The Petitioner has invited attention to the said Judgment and Order passed by the Delhi High Court and took the Court through the various alleged mistakes committed by the Income Tax Department in issuing incorrect notices under Sections 244 and 245 of the Income tax Act, thereby seeking recovery from number of income tax assessees. He brought to the Court’s notice the immense hardships caused to all these income tax assessees as a result of the alleged mistakes committed by the Income Tax Department. It is submitted that the initial returns, which were taken by the Income Tax Department, were due to a technical error, which is rectified. It was alleged that there was a bug in the computer system. According to the Petitioner, this has been done deliberately. In reply, the department submitted that the directions given by the Delhi High Court have been followed in letter and spirit. HELD by the High Court:
The Income Tax authorities shall follow the directions given by the Delhi High Court in case of Court On Its Own Motion v. CIT (2013) 352 ITR 273 in other cities, including the city of Mumbai, in Maharashtra State. We hope and trust that the Income Tax Department will be more vigilant and ensure that such mistakes will not occur in future. We also direct the Income Tax Department to form a Vigilance Cell to ensure that there is a monitoring authority, which would monitor various policy decisions which are taken and a self auditing mechanism is required to be formulated to ensure that the income tax assessees are not made to run from pillar to post for the purpose of redressal of their grievances. (PIL No. 27 of 2014, dt. 28-8-2015)
Arun Ganesh Jodgeo v. UOI (Bom.)(HC); www.itatonline.org
S.251 : Appeal – Commissioner (Appeals) – Powers – Stay – Financial hardship is irrelevant – Prima facie case to be considered
While disposing of stay application, authority, before considering financial situation of an applicant, has to first consider prima facie case pleaded by applicant and if same is covered against revenue in view of a decision of a superior forum, then question of considering issue of financial hardship is irrelevant. Stay application cannot be rejected on ground that issues raised in appeal and stay have already been dealt with in assessment order. (AY. 2011-12)
Mumbai Metropolitan Region Development Authority v. Dy. CIT (2015) 273 CTR 317 / 230 Taxman 178 (Bom.)(HC)
S.254(1) : Appellate Tribunal – Orders – Action of the ITAT in disregarding its own order without reason and remanding matter to AO for fresh consideration is “arbitrary” and “failure to perform basic judicial function” and a “lapse” which should not occur again – Order of Tribunal was set aside
The issue before the Tribunal was regarding disallowance made on account of claim for deduction under Section 10A of the Act. This very issue was covered in favour of the Petitioner by the decision of the Tribunal for A.Y. 2005-06 in the Petitioner’s own case. The departmental representative before the Tribunal also accepted the position. In spite of the agreed position between the parties, the Tribunal by the impugned order yet remands this very issue to the Assessing Officer for fresh examination/determination. This is without in any manner even attempting to indicate why and how its earlier decision will not apply to the facts for the subsequent Assessment Year. The Tribunal should not completely disregard its earlier order without some reason. This is the minimum expected of any quasi-judicial / judicial authority. If the Tribunal has failed to perform it’s basic judicial functions in such arbitrary manner, the approach of the Tribunal must be corrected, so as to ensure that such lapses do not occur again. (AY. 2009-10)
Hinduja Global Solution Ltd. v. UOI (Bom.)(HC); www.itatonline.org
S. 254(1) : Appellate Tribunal –Additional ground – Grounds not raised before the CIT(A) can also be raised before the Tribunal
Assessee has right to raise additional ground before Tribunal and if same is beneficial to assessee, same should be considered by Tribunal even though said issue was not adjudicated before Commissioner (Appeals). (AY. 2002-03)
CIT v. Indian Bank (2015) 55 taxmann.com 372 / 230 Taxman 635 (Mad.)(HC)
S.254(2) : Appellate Tribunal –Rectification of mistake – while recalling its order and placing it before a regular bench to adjudicate/decide merits of appeal, Tribunal is not entitled to observe on merits of adjudication
Tribunal by order, dated 29-12-2010 set aside assessment made under section 158BD in case of assessee on ground that no satisfaction under section 158BD was recorded by Assessing Officer of searched person in respect of assessee. While doing so Tribunal did not consider letter of Assessing Officer of searched person recording satisfaction of undisclosed income in case of assessee. On revenue’s rectification application, Tribunal recalled order dated 29-12-2010 and placed matter before regular bench for consideration by making observation that jurisdictional requirement to proceed against assessee was satisfied. The assessee challenged the said order by filing Writ Petition, the Court held that; since there was an error apparent on record in Tribunal’s order, dated 29-12-2010 as it did not consider communication recording satisfaction under section 158BD, Tribunal rightly recalled its order; however, while recalling its order it was impermissible for Tribunal to make observation on issue of jurisdiction and, therefore, such observation could not be upheld. Court also held that once an order is recalled and appeal is to be placed before regular Bench for fresh consideration, it restores status quo ante. therefore, while recalling its order and placing it before a regular bench to adjudicate/decide merits of appeal, Tribunal is not entitled to observe on merits of adjudication.
Gyan Construction Co. v. ITAT (2015) 231 Taxman 68 (Bom.)(HC)
S.254(2) : Appellate Tribunal –Power to rectify mistake – Second application on same grounds not maintainable – Tribunal not justified in considering second application and rectifying its order
Held, when the first Rectification Application was rejected by the Tribunal, the second Rectification Application on the same issue was not maintainable at all. Under the circumstances, the Tribunal had materially erred in entertaining the second Rectification Application and passing the order recalling its earlier order in exercise of powers under section 254(2).
Also, the Tribunal had tried to consider the issue on the merits which had already been considered by the Tribunal earlier while deciding the appeal. Under the circumstances, even on the merits the Tribunal had materially erred in exercise of the powers under section 254(2) by passing the order. Questions referred is answered in favour of revenue. (AY. 1984-85)
CIT v. Vasantben H. Sheth (2014) 226 Taxman 83 (Mag.) / (2015) 372 ITR 536 / 273 CTR 48 (Guj.) (HC)
S.254(2A) : Appellate Tribunal – Stay – Extension
Third proviso cannot be interpreted to mean that extension of stay of demand should be denied beyond 365 days even when the assesseee is not at fault. ITAT should make efforts to decide stay granted appeals expeditiously. (AYs. 2008-09, 2009-10)
DIT v. Vodafone Essar Gujarat Ltd. (2015) 376 ITR 23/ 279 CTR 482 (Guj.)(HC)
S.255 : Appellate Tribunal – Powers of President – Special Bench – CBDT for seeking to constitute Special Bench
Allowing the petition the Court held that; The CBDT for seeking to constitute Special Bench for non-judicial reasons and on grounds of “political sensitivity”. The collection of tax and the adjudication must move unconcerned with political identity. It is also necessary to send a strong signal to all the litigants, including the State, to make no attempts to influence a judicial body by non judicial methods-Constitution of Special Bench on the recommendation of CBDT in other State was strongly condemned by the Court.
Jagati Publication Ltd. v. President, ITAT (2015) 279 CTR 271/377 ITR 31 (Bom.)(HC)
S.260A : Appeal – High Court – Competency of appeal – Rule of consistency
Dismissing the appeal of revenue the Court held that; Decision of Tribunal on identical issues relating to section 92B – No appeal from decisions – Presumption that decisions had been accepted – Appeal on similar issues to High Court – Not maintainable. (AY. 2007-08)
CIT v. Tata Auto Comp Systems Ltd. (2015) 374 ITR 516 / 276 CTR 481 (Bom.)(HC)
S.260A : Appeal – High Court – Rectification of order by Tribunal – Not an order passed in appeal – Not appealable [S. 254(2)]
The Tribunal while passing an order in an appeal did not notice the decision of the Supreme Court. Hence, it corrected a mistake and recorded that the applicability of the decision could not be adjudicated under the provisions of section 254(2) of the Income-tax Act, 1961, as the issue was covered under section 254(1). The assessee agreed that as and when an order was ultimately passed under section 254(1) in accordance with the order under section 254(2), the order would be appealable under section 260A. The Revenue filed an appeal against the order under section 254(2) which was dismissed. On appeal :
Held, dismissing the appeal, that the Revenue was not without a remedy in the event of the order under section 254(1) being adverse to it. An appeal under section 260A was not maintainable against the order passed by the Tribunal under section 254(2).
CIT v. Saroop Tanneries Ltd. (2015) 374 ITR 20 (P & H) (HC)
S. 260A : Appeal – High Court – Lack of proper assistance to Court
Court held that it would be proper that the Revenue brief counsel in their panel across the board so as to ensure that the counsel have time to properly prepare themselves to render proper assistance to the court.
Rallis India Ltd. v. CIT (2015) 374 ITR 462 / 276 CTR 351/ 230 Taxman 483 (Bom.)(HC)
S. 260A : Appeal – High Court – Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the department authorise filing of appeals
Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the department authorise filing of appeals. Strictures also passed against counsel for acting as a “mouthpiece” of the Department in persisting with unmeritorious appeals. CBDT directed to take appropriate action – Question decided by Tribunal based on concession by Department or on agreed position that questions covered by decision of Court – Appeals not to be filed in such matters. Registry is directed to forward the copy of the judgment to CBDT for necessary action and to provide an in-house committee of senior Officers of the revenue to review decisions taken in respect of appeals already filed and pending. (AY.1997-98)
DIT v. Credit Agricole Indosuez (No. 1) (2015) 377 ITR 102 (Bom.)(HC)
S.263 : Commissioner – Revision of orders prejudicial to the interest of revenue – Merger – CIT(A) – Revision was held to be not valid
CIT(A)’s order merges with AO’s order and thereafter revisional jurisdiction of the CIT u/s. 263 cannot be invoked on the issue decided in appeal by the CIT(A). (AY. 2009-10)
CIT v. K. Sera Sera Productions Ltd. (2015) 374 ITR 503 / 119 DTR 153 (Bom.)(HC)
S.263 : Commissioner – Revision of orders prejudicial to revenue – Assessing Officer raising certain queries and assessee responding – Failure to discuss or mention this in assessment order – Revision on the ground Assessing Officer did not apply his mind or that he had not made inquiry on the subject was held to be not justified
Once inquiry was made, a mere non-discussion or non-mention thereof in the assessment order could not lead to the assumption that the Assessing Officer did not apply his mind or that he had not made inquiry on the subject and this would not justify interference by the Commissioner by issuing notice under section 263. Revision was held to be not justified. (AY. 2008-09)
CIT v. Krishna Capbox (P) Ltd. (2015) 372 ITR 310 (All) (HC)
S.271(1)(c) : Penalty – Concealment – Incorrect claim – Levy of penalty was held to be not justified
Incorrect claim of expenditure would not amount to giving inaccurate particulars of income and merely because initially claim was made under incorrect head, it may not be termed as furnishing inaccurate particulars.
CIT v. Amol Dicalite Ltd. (2015) 231 Taxman 663 (Guj.)(HC)
S.271(1)(c) : Penalty – Concealment – The rigours of penalty provisions cannot be diluted only because a small number of cases are picked up for scrutiny. No penalty can be levied unless if assessee’s conduct is “dishonest, mala fide and amounting concealment of facts”. The AO must render the “conclusive finding” that there was “active concealment” or “deliberate furnishing of inaccurate particulars”
(i) Section 271(1)(c) of the Act lays down that the penalty can be imposed if the authority is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of such income. The Apex Court in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) applied the test of strict interpretation. It held that the plain language of the provision shows that, in order to be covered by this provision there has to be concealment and that the assessee must have furnished inaccurate particulars. The Apex Court held that by no stretch of imagination making an incorrect claim in law, would amount to furnishing inaccurate particulars.
(ii) Thus, conditions under Section 271(1)(c) must exist before the penalty can be imposed. Mr. Chhotaray tried to widen the scope of the appeal by submitting that the decision of the Apex Court should be interpreted in such a manner that there is no scope of misuse especially since minuscule number of cases are picked up for scrutiny. Because small number of cases are picked up for scrutiny does not mean that rigors of the provision are diluted. Whether a particular person has concealed income or has deliberately furnished inaccurate particulars, would depend on facts of each case. In the present case we are concerned only with the finding that there has been no concealment and furnishing of incorrect particulars by the present Assessee.
(iii) Though the Assessee had given interest free advances to its sister concerns and that it was disallowed by the Assessing Officer, the Assessee had challenged the same by instituting the proceedings which were taken up to the Tribunal. The Tribunal had set aside the order of the Assessing Officer and restored the same back to the Assessing Officer. Therefore, the interpretation placed by Assessee on the provisions of law, while taking the actions in question, cannot be considered to be dishonest, mala fide and amounting concealment of facts. Even the Assessing Officer in the order imposing penalty has noted that commercial expediency was not proved beyond doubt. The Assessing Officer while imposing penalty has not rendered a conclusive finding that there was an active concealment or deliberate furnishing of inaccurate particulars. These parameters had to be fulfilled before imposing penalty on the Assessee.
(iv) The case of Commissioner of Income Tax v. Zoom Communications P. Ltd. [ 2010] 327 ITR 510 (Delhi) is clearly distinguishable on facts. In that case the Assessee had conceded before Assessing Officer that its action of claiming revenue deductions was not correct at all. It was not the case of the Assessee therein, throughout the proceedings, that the deductions carried out by the Assessee was a debatable issue. The Delhi High Court noted that even before it the Assessee could not explain the circumstances and its conduct. Appeal of revenue was dismissed. (AY. 2003-04)
CIT v. Dalmia Dyechem Industries Ltd (2015) 377 ITR 133 (Bom.)(HC)
S.271(1)(c) : Penalty – Concealment – Addition on estimate basis – Levy of penalty was not justified [S.145]
During search excess stock was found on physical verification as against book stock worked out as on date of search. Assessee did not file return of income for relevant year in which search had been conducted. Assessing Officer completed assessment for relevant assessment year on basis of materials available with him. Penalty proceedings were initiated for concealing particulars of income. Dismissing the appeal of revenue the Court held that; since no income had been filed by assessee and income was assessed on estimate basis by revenue, no penalty under section 271(1)(c) could be levied for concealment of income.
ITO v. Bombaywala Readymade Stores (2015) 230 Taxman 313 (Guj.)(HC)
S.271D : Penalty – Accepts any loan or deposit – Making book adjustment of funds will not amount to violation or contravention of section 269SS and 269T – Levy of penalty was not justified. [Ss. 269SS, 269T, 271E]
A notice was issued to assessee-firm proposing to levy penalty on ground that certain receipts/payments exceeding ceiling limit were made in cash to/from sister concern and to one ‘S’ . Assessee submitted that there were only book adjustments of funds with sister concern and no cash was paid . As regard payment to ‘S’, it was stated that same was paid to ‘S’ on death of her husband who was legal advisor of company. Allowing the appeal the Court held that; there was no violation or contravention of section 269SS and section 269T. (AYs. 1992-93, 1993-94)
Gururaj Mini Roller Flour Mills v. Addl. CIT (2015) 231 Taxman 662 (AP & T) (HC)
S.271G : Penalty – Documents – International transaction – Transfer Pricing – No mandate or affirmative direction in the order of TPO that penalty shall be imposed by AO – Levy of penalty was not justified
In the absence of mandate or affirmative direction that penalty shall be imposed by the Assessing Officer for failure of particulars to be furnished within a stipulated period of issuing notice. Penalty is not sustainable. (AY. 2005-06)
CIT v. Bumi Hiway (I) (P) Ltd. (2015) 273 CTR 11 (Delhi)(HC)
S.277A : Offences and prosecutions – Falsification of books – False TDS certificate – Tax practitioner – Refund on the basis of TDS certificates – Respondent had no role in preparing TDS certificates – ITO could not initiate criminal proceedings for commission of offences punishable under IPC
Respondent-accused, an advocate, was a tax practitioner. Main assessee, a Railway contractor, had engaged him for purpose of submission of his returns and supplied him requisite documents, including TDS certificates.Respondent filed return on behalf of main assessee and claimed a refund on basis of TDS certificates. Complainant-ITO opined that TDS certificates were not genuine and refund was wrongly claimed. He thus filed complaint against respondent-accused for commission of offences punishable under sections 418, 465, 468 and 471 of IPC. Trial Court dismissed said complaint. On appeal to High Court dismissing the appeal of revenue the Court held that; since complainant ITO had miserably failed to point out that respondent was liable for preparing false documents which were rather supplied to him by main assessee, Trial court was justified in dismissing complaint filed against him. (AY. 1988-89)
T.D. Gandhi, ITO v. Sudesh Sharma (2015) 230 Taxman 572 (P&H)(HC)
RESEARCH TEAM
