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. [S. 10(1)]

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. (AY. 1986-87 & 1991-92)

Puransingh M. Verma v. CIT (2015) 230 Taxman 470 (Guj.)(HC)

S. 4 : Charge of Income-tax – Words “discontinued business” Professional fees received by assessee after elevation to post of Judge would not be taxable as income. [S. 176(4)]

Assessee was a sitting Judge of High Court. Prior to this he was practicing as an advocate in High Court. After being elevated to post of judge he discontinued his legal profession as an advocate. Assessee received certain outstanding dues from his past clients. Professional fees received by assessee after elevation to post of Judge would not be taxable as income. (AY. 1996-97 & 1998-99)

CIT v. Anil R. Dave (2015) 230 Taxman 395 (Guj.)(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 – Method of accounting – Cash system – Interest on fixed deposit – Interest earned on fixed deposit which was not received during the year would not be added as income of relevant year. [S. 145]

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)(vi) : Income deemed to accrue or arise in India – Income from supply of software embedded in hardware equipment or otherwise to customers in India – Does not amount to royalty –DTAA – India-France. [Article 13(3)]

Held, dismissing the appeals, that the income of the assessee from supply of software embedded in the hardware equipment or otherwise to customers in India did not amount to royalty under section 9(1)(vi).)

CIT v. Alcatel Lucent Canada (2015) 372 ITR 476/231 CTR 87/56 taxmann.com 413 (Delhi) (HC)

S. 10(17A) : Awards and rewards in cash or kind – Amount received as an award is a capital receipt and hence not taxable. [Ss.2(24), 4]

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) 231 Taxman 349 / 277 CTR 1 / 118 DTR 105 (Delhi)(HC)

S. 10(26) : Exemption – 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. [S.197, Constitution of India Article 366(25)]

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 at 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 : New industrial undertaking – Computer software – Carrying on business both in unit within Software Technology Park and another unit –Maintaining separate accounts for two units – Software Technology Park unit not formed splitting up or reconstruction or transfer of used assets of an existing unit –Entitled to exemption

The assessee was engaged in the business of computer software development and business process outsourcing. During the financial year 2005-06, the assessee ran its business from a unit not registered with the Software Technology Parks of India in rented premises. In this period the assessee applied for permission to set up a unit registered with the Software Technology Parks of India at the ground floor of the same premises for development of computer service/information technology enabled services. The assessee started the business in the newly set up unit during the financial year 2006-07. The assessee continued to carry on its business from the other unit also. Separate books of account were maintained by the assessee for the two units. In respect of the unit registered with the Software Technology Parks of India the claim for deduction under section 10A, made by the assessee was rejected on the ground that it was formed by splitting of the existing unit. The Commissioner (Appeals) extended the benefit under section 10A to the unit registered with the Software Technology Parks of India for the three assessment years 2007-08, 2008-09 and 2009-10. This was confirmed by the Tribunal. On appeals:

Held, dismissing the appeals, that the unit established by the assessee for which section 10A exemption was claimed was not formed by splitting up or reconstruction or transfer of the used assets of an existing unit and, hence, the assessee was entitled to exemption under section 10A. (AY. 2007-08, 2008-09, 2009-10)

CIT v. Quest Informatics P. Ltd. (2015) 372 ITR 526 (Karn) (HC)

S. 10B : Export Oriented Undertakings – Part activities out sourced – Deduction cannot be denied

Deduction cannot be disallowed if part of the activities are outsourced to third parties by the assessee which are to be performed under the direct control and supervision of the assessee. (AY. 2007-08 to 2009-10)

MKU (Armours) (P) Ltd. v. CIT (2015) 119 DTR 169 (All)(HC)

S. 10B : Export Oriented Undertaking – Manufacture – Preparation of data for printing amounted to manufacture

Held, dismissing the appeal, that the work which ultimately resulted as the culmination of the assessee’s efforts of compiling, editing, digital designing, etc. was “transmitted or exported from India to any place outside India by any means”. It was, therefore, computer software that are produced or manufactured, to qualify for benefit under section 10B. (AY. 2003-04 to 2006-07)

CIT v. Kiran Kapoor (Ms.) (2015) 372 ITR 321/231 Taxman 474/274 CTR 343 (Delhi) (HC)

S. 11 : Property held for charitable or religious purposes – Investment contravening the provisions –Exemption on entire income cannot be denied. [S.13]

Exemption under section 11 can be denied only to extent of investment contravening provisions of section 11(5) read with section 13(1)(d) and not on entire income. (AY. 1997-98 to 2001-02)

CIT v. Orpat Charitable Trust (2015) 55 taxmann.com 211 / 230 Taxman 66 (Guj.)(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. [S. 2(15)]

The High Court observed that the motive of the assessee is not the generation of profit but to provide training to the 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) 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. [Ss. 11, 12A]

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 – Disallowance of expenditure on earning non-taxable income –Disallowance only to extent of expenditure incurred by assessee in relation to tax exempt income – No reason for disallowance of sum volunteered – No scrutiny of accounts – Entire tax exempt income lower than disallowance

Allowing the appeal of assessee the Court held that ; the entire exempt income was Rs. 48,90,000, whereas the disallowance ultimately directed worked out to nearly 110 per cent. of that sum, i. e., Rs. 52,56,197. Section 14A or rule 8D cannot be interpreted so as to mean that the entire exempt income is to be disallowed. The window for disallowance was indicated in section 14A and was only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the exempt income surely cannot swallow the entire amount. (AY. 2009-10)

Joint Investments P. Ltd. v. CIT (2015) 372 ITR 694 (Delhi)(HC)

S. 14A : Disllownce of expenditure – Exempt income – In the absence of any tax free income earned by assessee, disallowance could not be made. [R.8D]

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 ( All) (HC)

S. 28(i) : Business income – Income from house property – Primary source of income of assessee letting out godowns and warehouses to manufacturers, traders and companies carrying on warehousing business – Income assessable as business income [S. 22]

The assessee was engaged in the business of warehousing, handling and transport business. Held, dismissing the appeals, that the Commissioner (Appeals) as well as the Tribunal had not only gone into the object clauses of the memorandum of association of the assessee but also into individual aspects of the business to come to the conclusion that it was a case of warehousing business and, therefore, the income would fall under the head “Business income”. Thus, the income of the assessee from letting out its warehouse was chargeable under the head “Income from business” and not under the head “Income from house property”. (AY. 2004-2005 to 2009-2010 )

CIT v. NDR Warehousing P. Ltd. (2015) 372 ITR 690 (Mad.) (HC)

S. 28(i) : Business income – Income from house property – Business of establishing facilities as are available in an information technology park – Assessable as business income. [S. 22]

Assessee was engaged in business of establishing facilities as available in IT Park and in letting out hotels, commercial complexes in an integrated manner with fully operational infrastructure facilities. Rental income derived from tenants was claimed as ‘business income’. Revenue authorities treated 60 per cent of income as ‘income from business’ and 40 per cent as ‘income from house property’. Which was affirmed by Tribunal. On appeal by assessee allowing the appeal the Court held that since facilities given by assessee along with buildings/commercial establishments were inseparable, and entire construction and interiors of buildings was done with sole intention of carrying on business, assessee was entitled to treat entire income as ‘business income’. (AY. 2004-05)

Mysore Intercontinental Hotels Ltd. v. ACIT (2015) 230 Taxman 418 (Karn.)(HC)

S. 28(i) : Business loss – Application money forgone by assessee for subscribing to right issue as a matter of commercial expediency in order to make said issue successful is allowed as business loss

The assessee was a promoter and shareholder of a company, which declared a rights issue of secured redeemable non-convertible debentures. The company further entered into an agreement with the UTI wherein the allottees of debentures could surrender all their debentures to UTI after the application was made and UTI would pay balance allotment money and secure the debenture registered in its name. The assessee opted for the arrangement and claimed before the AO that the loss incurred on account of such arrangement was a business loss. The AO held that the assessee merely acted as a conduit in the transaction and that the assessee was not acting in his own capacity and hence the loss was not allowable as business loss. The Tribunal however held that the same was a business loss.

The High Court observed that both the UTI as well as the assessee stood to benefit – UTI picked up the debentures at a discounted rate, i.e., Rs. 389 whereas its face value was Rs. 500 each (that amount being the redeemable value at the end of the maturity period) and the assessee was entitled to one dividend warrant which enabled them to an equity share of Rs. 200. The purpose of issue was commercial and they were not issued only to attract subscriptions to the dividend warrants attached thereto. Therefore the High Court held that assessee company suffered loss on their sale and such loss was business loss that constituted allowable deduction.

CIT v. Abhinandan Investment Ltd. (2015) 118 DTR 145 / 230 Taxman 558 / 277 CTR 86 (Delhi) (HC)

S. 32 : Depreciation – Gas cylinder – 100% depreciation – Block of asset – Each cylinder is less than Rs. 5,000 – Less than 180 days –Depreciation is allowable at 100% [S. 2(11)]

The assessee-agency was involved in the supply of gas cylinders and allied activity. The assessee filed its return claiming 100 per cent depreciation on value of cylinders. The assessee claimed that the value of each cylinder was less than Rs. 5000 and in terms of first proviso to section 32 it was entitled to claim depreciation. The revenue authorities however, applied third proviso to section 32 and finding that the cylinders were kept to use for less than 180 days, only 50 per cent depreciation was allowed. The Tribunal, however, allowed the assessee’s claim. On revenue’s appeal, the Court held that once an asset is covered by first proviso to section 32, it cannot be subjected to any other test including one stipulated under third proviso to section 32, therefore, where an article i.e. gas cylinder, whose cost was less than Rs. 5,000, it could not form part of block of assets and depreciation thereon could not be subjected to any test as to extent of use as specified in third proviso to section 32. The appeals are dismissed. (AY. 1993-94 & 1994-95)

CIT v. PKL Ltd. (2015) 230 Taxman 80 (AP)(HC)

S. 37(1) : Business expenditure – Capital or revenue – Technical collaboration agreement – The very nature of a licence agreement is that it is not of a permanent nature. The fact that the payment is spread over a period of 10 years does not make the assessee the owner of the technical knowhow. The payment is not of an enduring nature.

The department argued before the High Court that the reliance placed by the ITAT on the decisions in
Premier Automobiles Ltd. vs. CIT, (1984) 150 ITR 28 (Bom.) and
Travancore Sugars and Chemicals Ltd. vs. CIT (1966) 62 ITR 566 (SC), to hold that the payment of technical knowhow fees is revenue in nature is misplaced because in those cases the assessees were manufacturing units and therefore different considerations would apply. It was urged that inasmuch as the essential business of the assessee was entirely dependent on the technical knowhow provided by SMCL, the benefit to the assessee was of an enduring nature and the expenditure incurred should be treated as capital expenditure. HELD by the High Court dismissing the appeal:

A perusal of the TCA shows that the payment by the assessee to SMCL is for the technical knowhow given to the assessee as a licensee. Although the payment is spread over a period of 10 years, it does not make the assessee the owner of the technical knowhow. The very nature of the licence agreement is that it is not of a permanent nature. The view taken by the CIT(Appeals), and concurred with by the ITAT, cannot in the circumstances be said to be improbable or contrary to the settled legal position. The Court, therefore, concurs with the view of the CIT(A) and the ITAT that the benefit to the assessee as a result of payment of royalty for technical knowhow was not of an enduring nature, and therefore cannot be construed to be a capital expenditure.(AY. 2008-09 to 2010-11)

CIT v. SMCC Construction India Ltd. (Delhi) (HC); www.itatonline.org

S. 37(1) : Business expenditure – Expenditure on construction/ acquisition of new facility subsequently abandoned is allowable in the year of write-off

The High Court allowing the assessee’s appeal relied on the decision of the Supreme Court in the case of
CIT v. Indian Mica Supply Co. Pvt. Ltd. (1970) 77 ITR 20 and held that the decision of the assessee to abandon the project was the cause for claiming deduction and further the decision was made in the relevant year and hence it could be said that the expenditure, allowable for a deduction, arose in the relevant year. (AY. 2002-03)

Binani Cement Ltd. v. CIT (2015) 118 DTR 61 (Cal.)(HC)

S. 37(1) : Business expenditure – Commercial expediency – In order to avoid execution of said decree against it by way of attachment, arrest and to protect name of assessee, said amount was paid by assessee held to be allowable

Assessee, along with others, secured loan taken by company ‘E’ by executing bills of exchange which were accepted on behalf of assessee by its managing director. When default was committed, creditors moved High Court for repayment of loans against ‘E’ and, thus, co-acceptors of bills of exchange. Suit was decreed against assessee and three others and in order to avoid execution of said decree against it by way of attachment, arrest and to protect name of assessee, said amount was paid by assessee. Dismissing the appeal of revenue the Court held that there was commercial expediency in payment of such amount and, therefore, it was allowable as expenditure. (AY. 2004-05)

CIT v. Hitachi Koki India Ltd. (2015) 230 Taxman 643 (Karn.)(HC)

S. 37(1) : Business expenditure – Capital or revenue – Premium paid for leasehold land is allowable as revenue expenditure

Premium paid for leasehold land is allowable as revenue expenditure. (AY. 1997-98)

United Phosphorus Ltd. v. Addl. CIT (2015) 56 taxmann.com 354 / 230 Taxman 596 (Guj.)(HC)

S. 40(a)(ia) : Amounts not deductible – Deduction at source – Deduction u/s. 194C instead of u/s 194J renders the shortfall liable for disallowance u/s. 40(a)(ia). [S. 194C, 194J, 201]

The assessee, a hospital, entered into an agreement with M/s. Lakeshore Hospital and Research Centre Limited by which, the latter had undertaken to perform various professional services in the assessee’s hospital. On the payments made, the assessee deducted tax at the rate of 2% under Section 194C. However, assessment was completed on the basis that tax deductible was at 5% as prescribed under Section 194J and the entire tax in this regard was disallowed under Section 40(a)(ia)of Act. The CIT(A) confirmed the assessment and the Tribunal also rejected the appeal filed by the assessee concerning the assessment year 2005-06. However, in 2006-07, the Tribunal followed the Calcutta High Court judgment in
Commissioner of Income Tax v. S. K. Tekriwal [2014] 361 ITR 432 (Cal.)
and held that where tax is deducted by the assessee, even if it is under a wrong provision of law, as in this case, the provisions of Section 40(a)(ia) of the Act cannot be invoked. On appeal to the High Court HELD dissenting from Commissioner of
Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal.):

1. As per these provisions of the agreement, M/s. Lakeshore Hospital and Research Centre had undertaken to render professional services to the assessee and this was not a case where they were undertaking a contract work. If that be so, tax was deductible under Section 194J and not under Section 194C as done by the assessee.

2. Section 40(a)(ia) (supra) is not a charging Section but a machinery section and such a provision should be understood in such a manner that the provision is workable. The expression “tax deductible at source under Chapter XVII-B” occurring in the section has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax is deductible under Section 194J but is deducted under Section 194C, such a deduction would not satisfy the requirements of Section 40(a)(ia). The latter part of this Section that such tax has not been deducted, again refers to the tax deducted under the appropriate provision of Chapter XVII-B. Thus, a cumulative reading of this provision, therefore, shows that deduction under a wrong provision of law will not save an assessee from Section 40(a)(ia).

3. In so far as the judgment of the Calcutta High Court in
   Commissioner of Income Tax v. S. K.Tekriwal [2014] 361 ITR 432 (Cal.), which was relied on by the Tribunal is concerned, with great respect, for the aforesaid reasons, we are unable to agree with the views that if tax is deducted even under a wrong provision of law, Section 40(a)(ia) cannot be invoked.( ITA No. 16 of 2014, dated 20-7-2015) (AYs. 2005-06, 2006-07)

CIT v. PVS Memorial Hospital Ltd. (Ker.)(HC); www.itatonline.org

S. 40(a)(ia) : Amounts not deductible – Disallowance can be made even if the payment has already been made by the assessee to the payee/contracting party [S. 194C]

The assessee made certain payment to the contracting party without deducting tax at source u/s. 194C. The AO disallowed the payment made u/s. 40(a)(ia). The assessee argued that the disallowance u/s. 40(a)(ia) cannot be made if the payment had already been made by the assessee to the payee/contracting party. The CIT(A) and Tribunal rejected the contention of the assessee and upheld the order of the AO. On an appeal by the assessee, the High Court held that the term “payable” used in the section is descriptive of the payments which attract the liability to deduct tax at source. It does not categorise defaults on the basis of when the payments are made to the payees of such amounts which attract the liability to deduct tax at source and, hence, disallowance u/s. 40(a)(ia) can be made even if payment has already been made by the assessee to the payee/contracting party (ITA No. 716 of 2009 dated 29-4-2015). (AY. 2005-06)

P. M. S. Diesels v. CIT(2015) 119 DTR 212 (P&H)(HC)

S. 43B: Deduction 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 dated 17-4-2015) (AY. 2007-08)

CIT v. Ovira Logistics (P) Ltd. (2015) 119 DTR 269 (Bom.)(HC)

S.45 : Capital gains – Transfer – Joint development agreement – Accrual – Entering into a joint development agreement with an irrevocable power of attorney in favour of the developer does not result in a “transfer” for purposes of capital gains – Not liable to pay capital gains tax – For the purposes of taxability, the income is not hypothetical and it has really accrued to the assessee [Ss. 2(47)(v), 2(47)(vi), 48, Transfer of Property Act, 1882, S. 53A]

Tribunal has held that the joint development with an irrevocable power of attorney in favour of the developer results in a transfer and liable to pay capital gains tax. Against the judgment of the ITAT Chandigarh Bench in
Charanjit Singh Atwal v. Income-tax Officer/[2013] 144 ITD 528, the High Court had to consider the following issues relating to the taxability of capital gains pursuant to a Joint Development Assessment (JDA) with a developer coupled with an irrevocable general power of attorney:

1. The scope and legislative intent of Section 2(47)(ii), (v) and (vi) of the Act;

2. The essential ingredients for applicability of Section 53A of 1882 Act;

3. The meaning to be assigned to the term “possession”?

4. Whether in the facts and circumstances, any taxable capital gains arises from the transaction entered by the assessee?

HELD by the High Court revering the Tribunal:

1. Clause (vi) of Section 2(47) of the Act, as explained by CBDT in its circular No. 495 dated 23-9-1987, makes it clear that it was intended to cover those cases of transfer of ownership where the prospective buyer becomes owner of the property by becoming a member of a company, co-operative society etc. In the present case, JDA was executed between the society and the developers and there was no transaction involving the developer becoming member of a co-operative society/company etc. in terms of Section 2(47)(vi) of the Act. The surrender of right to obtain plot by the members was for facilitating the society to enter into the JDA with the developers. There was no change in the membership of the society as contemplated under Section 2(47)(vi) of the Act. Equally Clause (ii) of Section 2(47) of the Act has no applicability in as much as there was no extinguishment of any rights of the assessee in the capital asset at the time of execution of JDA in the absence of any registered conveyance deed in favour of the transferee in view of judgments in
   Alapati Venkataramiah vs. CIT, (1965) 57 ITR 185 (SC) and Additional CIT v. Mercury General Corporation (P) Limited, (1982) 133 ITR 525 (Delhi);

2. Section 53A of 1882 Act has been bodily transposed into section 2(47)(v) of the Act and the effect of it would be that section 53A of 1882 Act shall be taken to be an integral part of section 2 (47)(v) of the Act. In other words, the legal requirements of section 53A of 1882 Act are required to be fulfilled so as to attract the provisions of section 2(47)(v) of the Act. Section 53-A of Act is clear to the effect that the person claiming benefit under it, must have “taken possession of the property”. This can happen, if the transferee was delivered physical possession of the property. It can also happen when a symbolical delivery of possession was effected, such as by attornment of the existing lease over such property. Where the contemplated transfer relates to an undivided share, section 53-A takes a different colour. The reason is that, there cannot be delivery of possession of property by a co-owner, of an undivided property, or the corresponding taking possession of such property by the transferee;

3. The concept of possession to be defined is an enormous task to be precisely elaborated. “Possession” is a word of open texture. It is an abstract notion. It implies a right to enjoy which is attached to the right to property. It is not purely a legal concept but is a matter of fact. The issue of ownership depends on rule of law whereas possession is a question dependent upon fact without reference to law. To put it differently, ownership is strictly a legal concept and possession is both a legal and a non-legal or pre-legal concept. The test for determining whether any person is in possession of anything is to see whether it is under his general control. He should be actually holding, using and enjoying it, without interference on the part of others. It would have to be ascertained in each case independently whether a transferee has been delivered possession in furtherance of the contract in order to fall under section 53A of the 1882 Act and thus amenable to tax by virtue of section 2(47)(v) read with section 45 of the Act;

4. On facts, perusal of the JDA dated 25-2-2007 read with sale deeds dated 2-3-2007 and 25-4-2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25-2-2007 so as to fall within the domain of section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Further section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25-2-2007 having been executed after24-9-2001, the agreement does not fall under section 53A of 1882 Act and consequently section 2(47)(v) of the Act does not apply;

5. Viewed from another angle, it cannot be said that any income chargeable to capital gains tax in respect of remaining land had accrued or arisen to the assessee in the facts of the case. In
   Commissioner of Income Tax, Bombay City v. Messrs Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) it was observed that income tax is a levy on income and where no income results either under accrual system or on the basis of receipt, no income tax is exigible. In
   CIT v. Excel Industries Limited (2013) 358 ITR 295 (SC) held that income tax cannot be levied on hypothetical income. Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability, the income is not hypothetical and it has really accrued to the assessee. (ITA No. 200 of 2013, dated 22-7-2015) (AY. 2007-08)

C. S. Atwal v. CIT (P & H) (HC); www.itatonline.org

S. 45 : Capital gains – Conversion of firm into company – Transfer of assets means a physical transfer or intangible transfer of rights to property – Conversion of shares of partners to shares in company.[S. 45(4)]

The assessee-firm transformed into a private limited company. The entire assets and liabilities of the firm were made over to the company. The respective partners were issued shares by the company corresponding to the value of their share in the firm. The Assessing Officer took the view that there was transfer of assets from the firm to the private limited company and thereby the capital gains tax under section 45 became payable. The Commissioner (Appeals) and the Tribunal held that section 45 was not applicable. On appeal to the High Court:

Held, dismissing the appeal, that the shares of the respective shareholders in the assessee-company were defined under the partnership deed. The only change that had taken place on the assessee being transformed into a company was that the shares of the partners were reflected in the form of share certificates. Beyond that, there was no physical distribution of assets in the form of dividing them into parts, or allocation of assets to the respective partners or even distributing the monetary value thereof. Section 45 was not applicable. From a perusal of section 45(4), it becomes clear that two aspects become important, viz., the dissolution of the firm and the distribution of assets as a consequence thereof. The distribution must result in some tangible act of physical transfer of properties or intangible act of conferring exclusive rights vis-a-vis an item of property on the erstwhile shareholder. Unless these or other legal correlatives take place, it cannot be inferred that there was any distribution of assets. Appeal of revenue is dismissed. (AY. 1993-94)

CIT v. United Fish Nets (2015) 372 ITR 67/ 228 Taxman 302 (T & AP) (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. [S. 45]

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) 116 DTR 385 (Bom.)(HC)

S. 54 : Capital gains – Capital asset – Even booking rights or rights to purchase or rights to obtain title of property is also capital asset – Profit on sale of property used for residence – Expenses incurred to acquire another property – Amount spent towards cost of improvement – Provisional booking of property – Amounts to acquisition of a new capital asset – Entitled to exemption. [Ss. 2(14) 2(47), 45]

The assessee sold his half share in two residential properties. He claimed that he used a sum of Rs. 73,27,000 to acquire another property within the period stipulated in section 54 of the Act, that he had spent a sum of Rs. 25,14,700 towards the cost of improvement. The Assessing Officer held that in the absence of an agreement to sell, the rights acquired by the provisional booking of the property did not meet the requirements spelt out under section 54, i.e., acquisition of the new capital asset. He also held that the cost of improvement was not deductible. The appellate authorities allowed the claim of the assessee. On appeal:

Held, dismissing the appeal, (i) that the question was not whether the assessee sold the booking rights and was, therefore, entitled to the benefit of capital gains. It was, rather, whether entering into the transaction and acquiring a property for Rs. 73,27,000 (cost of acquisition) amounted to acquiring a capital asset. In the light of the definitions of “capital asset” under section 2(14) and “transfer” under section 2(47) there was no doubt that the assessee’s contentions were acceptable.

(ii) That the Revenue did not dispute the acquisition of the second property, it had to necessarily follow that the cost of improvement was deductible. Even booking rights or rights to purchase or rights to obtain title of property is also capital asset. (AY. 2009-10)

CIT v. Ram Gopal (2015) 372 ITR 498/ 230 Taxman 205 (Delhi) (HC)

S. 54F : Capital gains – Investment in a residential house – Amount spent on construction of house –Entitled exemption. [S. 45, 263]

Assessee sold agricultural land and long-term capital gain arose to him. Amount was spent towards construction of house. The assessee filed his return of income which included capital gain. The Assessing Authority allowed the benefit under section 54F to the assessee.

The Commissioner invoked his powers under section 263 and reviewed the order. The Tribunal held that the benefit extended to the assessee was strictly in conformity with section 54F. There is no scope for the different interpretation as sought to be made out by the Revisional Authority and therefore, he allowed the appeal setting aside the order passed by the Revisional Authority. On appeal by revenue dismissing the appeal of revenue; the Court held that even before sale of agricultural land, assessee, with help of borrowed housing loan, had started construction on site belonging to him after sale of agricultural land amount spent towards said construction of house was more than consideration received by sale of agricultural land. Assessee was entitled to benefit of section 54F. (ITA No. 193 of 2009 dated 25-11-2014) (AY. 2004-05)

CIT v. Anandraj (2015) 230 Taxman 534 (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. [S. 69]

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 than 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. 68: Cash credits – Failure by creditors to participate in inquiry and furnish accounts – Does not mean that creditors lacked identity – No material to show that amounts advanced by creditors in reality represented money belonging to assessee – Sums cannot be treated as cash credits

Dismissing the appeal of revenue the Court held that; omission on the part of the creditors to subject themselves to the enquiry initiated by the Revenue or their failure to furnish accounts would not lead to the conclusion that the creditors lacked identity, without any other contradiction of facts and particulars of the transactions between them furnished by the assessee being uncontroverted. The Tribunal while deleting the addition had held in substance with regard to each of those loan transactions, that the Revenue had failed to bring any other material on record to show that the amounts advanced by the creditors were not in reality and in fact, money belonging to the assessee. (AY. 1994-95 )

CIT v. Chandela Trading Co. P. Ltd. (2015) 372 ITR 232/58 taxmann.com 45 (Cal.)(HC)

S. 68: Cash credits – Confirmation and balance sheet was filed – Deletion of addition was held to be justified.

Dismissing the appeal of revenue the Court held that; Appellate authorities after considering balance sheet of lender as well as confirmatory certificates in respect of advances given to assessee, deleted addition made by Assessing Officer, order so passed did not give rise to any substantial question of law. (AY. 2009-10)

CIT v. Avant Garde Carpets Ltd. (2015) 54 taxmann.com 216 / 230 Taxman 165 (All.)(HC)

S. 79 : Carry forward and set off losses – Change in share holdings – Companies in which public are not substantial interested –Amalgamation – Where there was no change in shareholding pattern on date of allotment of shares, set off of business loss would be allowed

Assessee-company claimed business loss pursuant to an amalgamation. However, Assessing Officer disallowed same by holding that there was a change in shareholding pattern of assessee-company. Dismissing the appeal of revenue the Court held that; where there was no change in shareholding pattern on date of allotment of shares, set off of business loss would be allowed. (AY. 1990-91)

Dy. CIT v. Chemstar Organics (India) (P.) Ltd. (2015) 230 Taxman 197 (Guj.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – For approval of Information Technology Park an assessee can obtain occupation certificate phase wise or stage wise, based on completion of construction of industrial area

The assessee executed a declaration with a view to develop land for constructing an Information and Technology Park. The assessee preferred an application under section 80-IA(4)(iii) for approval of the Information Technology Park under the Industrial Park Scheme, 2008 but the same was rejected on the ground that assessee failed to obtain occupation certificate for the entire building from the competent authority.

The High Court observed that there was no legal position which prohibited grant of certificate phase wise or stage wise based on the completion of construction of areas. The High Court held that there was no other requirement which remained to be complied with and it was not for the Board to probe by whom the industrial park was going to be used, etc. and hence sent the matter back for fresh application of facts and details provided by the assessee.

Techniplex v. CBDT (2015) 118 DTR 185 (Bom.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – Losses of assessment years before the initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business

The High Court following the decision of
Velayudhaswamy Spinning Mills Pvt. Ltd. v. ACIT (2010) 231 CTR 368 dismissed the appeal of the revenue and held that since the assessee had claimed the benefit of deduction u/s. 80-IA and their losses were set off already against other income of the business enterprise, the assessee fell within the parameters of section 80-IA and losses could not be notionally brought forward for set off against eligible business income.

CIT v. Sri Ranganathar Industries (P) Ltd. (2015) 118 DTR 285 (Mad.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – Joint venture or special private venture – Entitled to deduction

Where total income of assessee includes any profit and gains from enterprises, i.e., Joint venture or special private venture, carrying on defined business of developing or operating or maintaining any infrastructure, it would be entitled to deduction under section 80-IA(4). (AY. 2005-06)

CIT v. PNC Construction Co. Ltd. (2015) 55 taxmann.com 21 / 230 Taxman 193 (All.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – Container Freight Station (CFS) is part of inland port – Eligible for deduction

Container Freight Station (CFS) is part of inland port and, therefore, is an infrastructure facility as defined in Explanation to section 80-IA(4)(i). (AY. 2009-10)

CIT v. A. L. Logistics (P.) Ltd. (2015) 230 Taxman 194 (Mad.)(HC)

S. 80-IB : Industrial undertakings – Other than Infrastructure development – Term “employs ten or more workers in a manufacturing process” – Works Manager and supervisor who were also counted as worker

Where assessee was engaged in manufacturing of certain items and employed 10 workers including Works Manager and supervisor who were also counted as worker under section 80IB(2)(iv) in said manufacturing process, she was eligible for 80-IB deduction.(AY. 1999-2000 to 2005-06)

CIT v. Bimla Rani (Smt.) (2015)230 Taxman 629 (P&H)(HC)

S.80P : Co-operative societies – Amounts invested in banks – Interest so earned was attributable to carrying on business of banking and, therefore, it was entitled to be deducted

Assessee a co-operative society was engaged in activity of carrying on business of providing credit facilities to its members. Amount not immediately required to be lent to members was invested in banks to earn interest. This amount was in nature of profits and gains and interest so earned was attributable to carrying on business of banking and, therefore, it was entitled to be deducted in terms of section 80P(1). (AY. 2009-10)

Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 Taxman 309 (Karn.)(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 (Bom) (HC)

S. 94(7) : Loss in purchase and sale of shares – No proximate cause for disallowance – Allowable as business loss – Dividend stripping – Provision against not applicable for assessment years prior to 2002-03. [S.94(7)]

The assessee was engaged in the business of trading in stocks and shares. The Assessing Officer, for the assessment year 2001-02, disallowed the claim to deduction of expenditure/loss in the purchase and sale of units. The appellate authorities confirmed the disallowance. On appeals contending that buying and selling of units resulting in inflow of dividends but at the same time business loss on sale of the units after the record date could not be equated to the transaction in terms of section 94(7), which came into effect only from April 1, 2002:

Held, allowing the appeals, that in the case of the assessee, the assessment year was 2001-02. Therefore, section 94(7) would not be applicable, as the section had come into force only on April 1, 2002, i.e., and was not enforceable for the previous assessment year, viz., 2001-02. Thus, the assessee was entitled to claim the amount as business loss during the assessment year. Followed,
CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC) (AY. 2001-2002)

Patco Investment and Consultancy Services P. Ltd. v. ACIT (2015) 372 ITR 195 (Mad.) (HC)

S. 133 A: Survey – Income from undisclosed source – Retraction of statement – No other evidence of suppression of income – Addition of income not justified. [S.69]

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. 143 : Assessment – Joint venture – Project work done by one of assessee’s constituents – Receipts for project work reflected in books of account and in return of constituent – Return accepted and assessment completed – Income cannot be taxed in hands of assessee. [S. 3]

The assessee was a joint venture. Tribunal found that the assessee did not execute the contract work and the work was done by one of its constituents, namely, SMS. The receipts for the project work were reflected in the books of account of SMS and in the return, SMS had disclosed that income. The return was accepted by the Assessing Officer in the assessment made under section 153A read with section 143(3). The Tribunal held that the same income could not have been taxed again in the hands of the assessee. On appeal:

Held, dismissing the appeal, that the assessee had filed the return of income of and claimed credit of the tax deduction at source. When a query was raised by the Assessing Officer about the receipts for the project work represented by the certificates of tax deduction at source certificate and the absence of any mention thereof in the profit and loss account of the assessee, it submitted that due to oversight and inadvertently the credit of the tax deduction at source was shown by it. It requested and sought leave to withdraw the claim of the tax deduction at source. If the tax deduction at source claim was not erroneous, the income could have been shown in the account of the assessee. If leave to withdraw was being sought with some ulterior motive, the income would have been reflected in the account of the assessee. The consideration either by the Assessing Officer or the appellate authorities did not show this position. On the other hand, the Assessing Officer had worked out income-tax at 3% of the contract value at the hands of the assessee. Such guess work would not have been essential, had the assessee actually received the amounts and those amounts would have been reflected in the books of account. The Department would have procured some material to show receipts by the assessee towards contract. There was no finding of receipt of any income by the assessee on account of the contract.

CIT v. SMSL UANRCL (JV) (2015) 372 ITR 429 (Bom.) (HC)

S. 143 : Assessment – Additions to income – Benami transactions – Statement on oath – Retraction – Addition merely on the basis of statement was held to be not justified. [Ss. 132, 132(4)]

During search conducted at assessee’s business premises, his statement was recorded under section 132(4) wherein he admitted that few benami concerns were being run by assessee in name of his employees, thereafter, during assessment proceeding, he retracted from said admission contending that it was made at mid night under pressure and coercion. Assessing Officer, however, made addition on basis of disclosure made by assessee in statement recorded under section 132(4). Tribunal deleted the addition . On appeal by revenue, dismissing the appeal the Court held that; merely on basis of admission that few benami concerns were being run by assessee could not be subjected to such addition when despite retraction revenue could not furnish any corroborative evidence in support of such admission. (AY. 1989-90 to 1991-92)

CIT v. Chandrakumar Jethmal Kochar (2015) 230 Taxman 78 (Guj.)(HC)

S. 144 : Best judgment assessment – Taxable income from business would be computed on net profit rate and not on the basis of gross profit rate

While making best judgment assessment under section 144, assessee’s taxable income from business would be computed on basis of net profit rate shown by assessee in immediate preceding year and not based on gross profit rate of said year

ITO v. Om Silk Mills (2015)230 Taxman 189 (Guj.)(HC)

S. 145 : Method of accounting – Rejection of accounts – Normal deductions allowable – Denial of deduction of salaries to partners and interest on financial charges – Not justified. [Ss. 44AD 144]

Once a provision of the nature of sub-section (2) of section 44AD was not incorporated under sections 144 and 145 the contention of the Department that once the assessment was shown under section 145, it was deemed to be comprehensive and no other deductions were permissible could not be accepted. Once it was held that even where the assessment is done under section 145 normal deductions are to be allowed, the Assessing Officer could not have denied deduction of the salaries to the partners and interest on financial charges. It was not even mentioned that the claims are not factually correct. (AY. 1994-95)

CIT v. Inter Continental Constructions (2015) 372 ITR 141 (T & AP) (HC)

S. 147 : Reassessment – Additional details sought or verification proposed to be done cannot be a substitute to reasons for re-opening. [Ss. 143(1), 148]

The assessee is a private limited company and while filing its return of income, added back an amount being book value of shares transferred as gift to its business income. The AO accepted the returned income and losses carried forward u/s. 143(1). However subsequently it issued notice u/s. 147 and provided reasons recorded for reopening but did not give an opportunity to the assessee to file its objections. The assessee produced its objections which were rejected.

The High Court observed that the revenue did not state that any income had escaped assessment and all the revenue wanted to do was verify certain details pertaining to a gift. The High Court held that merely for verification of the value of shares and whether the computation was made at market rate, etc. the revenue could not resort to section 147. (AY. 2010-11)

Nivi Trading Ltd. v. UOI (2015) 118 DTR 339 (Bom.)(HC)

S.147 : Reassessment – Transfer – Reassessment on the basis of amendment was held to be invalid. [S. 2(47)(v)]

Amendment with effect from 1-4-1988 by Finance Act, 1987 enlarging scope of word ‘transfer’ used in section 2(47)(v) was not retrospective in nature and, therefore, re-opening of assessment for assessment year 1977-78 on basis of said amendment was invalid.

Narayan Construction Co. v. ACIT (2015) 230 Taxman 316 (Guj.)(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. [Ss. 148, 151]

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:

1. 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.

2. 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 – Change of opinion – Notice can be sustained only on grounds mentioned in recorded reasons – Bad debts allowed in original assessment after considering material on record – Reassessment proceedings to disallow the claim as capital loss – Held to be not valid. [Ss. 36(2), 148]

Dismissing the appeal of revenue the court held that; during the original assessment proceedings itself the issue of bad debts was investigated by the Assessing Officer by raising a specific query with regard to the bad debts of Rs. 1.35 crores. Reassessment proceedings to consider the amount as a capital loss were not valid, as they were based on a mere change of opinion of the Assessing Officer. The power of reassessment is not a power to review an assessment order. At the time of passing the assessment order, it is expected of the Assessing Officer that he will apply his mind and pass an order. If the Assessing Officer had considered and formed an opinion on the material in the original assessment itself he would be powerless to start the proceedings for reassessment. (AY. 2005-06)

CIT v. Jet Speed Audio P. Ltd. (2015) 372 ITR 762 /230 Taxman 430 (Bom.) (HC)

Ss. 147 : Reassessment – Change of opinion – Depreciation – Non- compete fees – Intangible assets – Good will – Reassessment was held to be not valid. [Ss. 32, 148 ]

Where assessee’s claim of depreciation on non-compete fees was accepted by Assessing Officer in regular assessment after considering details furnished by assessee in response to queries raised by Assessing Officer, notice issued for reassessment on change of opinion was not sustainable. (AY. 2002-03)

Godrej Agrovet Ltd. v. CIT (2015) 230 Taxman 633 (Bom.)(HC)

S. 147 : Reassessment – Income from other sources Sworn statement was not furnished to the assessee before reassessment – Reassessment proceeding was quashed. [Ss. 56, 148]

Assessing Officer initiated reassessment proceedings on ground that assessee purchased certain shares out of income that escaped assessment and same was liable to tax under head ‘Income from other sources’ . However, reassessment was initiated on basis of sworn statement given by a person regarding said transaction and copy of same was not furnished to assessee before reassessment. On writ the Court held that reassessment was held to be not justified. (AY. 2009-10)

Devichand Kothari (HUF) v. ITO (2015) 230 Taxman 301 (Karn.)(HC)

S. 147 : Reassessment – Export business – Assessee supporting manufacturer – As the reassessment proceedings against manufacturer was quashed, reassessment proceedings against the assessee was also quashed. [Ss. 80HHC, 148]

Assessees were supporting manufacturer who supplied goods to ‘A’ for purpose of export. Benefits under section 80HHC was allowed to ‘A’ and also to assessees on basis of disclaimer certificate issued by ‘A’. Notice under section 148 was issued to ‘A’ for denying benefit under section 80HHC on certain ground. Reopening notice was also issued in case of assessees on ground that in absence of benefit of section 80HHC being available to ‘A’ it was not in position to issue a disclaimer certificate. However, notice issued in case of ‘A’ was set aside as being without jurisdiction. Allowing the petition the Court held that view of this fact, notices issued in case of assessees also did not survive. (AY. 2000-01)

Frigorifico Allana Ltd. v. ITO (2015) 230 Taxman 435 (Bom.)(HC)

S. 147 : Reassessment – Export business – Merger – Reassessment proceeding was quashed. [S. 80HHC]

Assessee, engaged in export of diverse commodities, claimed deduction of Rs. 5 crores under section 80HHC. Assessing Officer restricted benefit to Rs. 3.98 crores. On appeal, Commissioner (Appeals) granted certain relief which resulted in making available deduction of Rs. 4.83 crores under section 80HHC to assessee – Thereafter Assessing Officer without giving effect to order of Commissioner (Appeals) issued notice under section 148 to recompute deduction under section 80HHC on certain ground. On a writ, allowing the petition the Court held that; as assessment order would stand merged/modified in/by order passed by Commissioner (Appeals), Assessing Officer ought to have considered modified figures of deduction while applying his mind to reach prima facie view that income chargeable to tax had escaped assessment. Even otherwise since very issue which formed reason for issuing notice was a subject-matter of consideration in assessment order, impugned notice was not sustainable. (AY. 1999-2000)

Allanasons Ltd. v. ACIT (2015) 230 Taxman 436 (Bom.)(HC)

S. 158BC : Block assessment – Search and seizure –Amalgamation – Assessee-company dissolved on amalgamation – Block assessment framed thereafter in assessee’s name – Not valid – Assessment framed in name of non-existing company – Not a procedural irregularity to be cured [S. 292B, Companies Act, 391, 394]

Assessment on a company which had been dissolved by amalgamation under sections 391 and 394 of the Companies Act, 1956, was invalid. Once the assessment was framed in the name of the non-existing entity, it was not a procedural irregularity of the nature which could be cured by invoking the provisions of section 292B. (AY. 2003-04 to 2008-09)

CIT v. Micron Steels P. Ltd. (2015) 372 ITR 386 (Delhi) (HC), 117 DTR 89

S. 194C : Deduction at source – Contractors and sub-contractors Providing buses for giving pick-up and drop facilities – Rightly deducted tax at source as contractor – Payment cannot be termed as rent hence provisions of section 194-I cannot be applicable.[S. 194-I]

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. (ITA Nos. 642 & 643 of 2012 dated 11-8-2014) (AY. 2008-09 & 2009-10)

CIT v. Bharat Electronics Ltd. (2015) 230 Taxman 651 (All.)(HC)

S. 194J : Deduction at source –Fees for professional or technical services – Doctors receiving fixed or variable remuneration, with or without written contracts, are professionals and cannot be treated as employees as per their terms and conditions

Payments were made by the assessee, a charitable trust managing a hospital, to doctors. The payments were either fixed or variable, with or without written contract. The AO alleged that such doctors were employees of the assessee and tax ought to be deducted u/s. 192 and not u/s. 194J. It was held by the HC that the terms and conditions of the doctors would be crucial and material. The doctors drawing fixed or variable remuneration could not be treated as regular employees since benefits like provident fund, retirement benefit, etc. were not paid to them. They could not be considered to be employees merely because they were required to spend a fixed time at hospital, treat fixed number of patients or attend them as indoor patients and out patients. The doctors were free to carry on their private practice but beyond hospital timings. (AY. 2008-09)

CIT v. Grant Medical Foundation (2015) 116 DTR 45 (Bom)(HC)

S.194J : Deduction at source – Fees for professional or technical services – Stockists – Assessee received amount of sale price at rate fixed under agreement but had neither paid nor credited any amount to stockist, question of invoking section 194J against assessee did not arise

Assessee-company was engaged in manufacture and distribution of drugs. It appointed one ‘Z’ as its superstockist. In terms of agreement, assessee sold its manufactured drugs to ‘Z’ for its onward distribution in open market. Assessing Officer concluded that ‘Z’ was manager of assessee and, therefore, assessee was liable to deduct tax under section 194J. Dismissing the appeal of revenue the Court held that; since assessee had received amount of sale price at rate fixed under agreement but had neither paid nor credited any amount to stockist, question of invoking section 194J against assessee did not arise. (AY. 2007-08 to 2011-12)

CIT v. Piramal Healthcare Ltd. (2015) 230 Taxman 505 (Bom.)(HC)

S. 201 : Deduction at source – Failure to deduct – 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. (AY. 1999-2000 to 2001-02)

CIT (TDS) v. C. J. International Hotels P. Ltd. (2015) 372 ITR 684/56 taxmann.com 458 (Delhi) (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. [S. 10A]

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 its 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 –Natural justice – Right to cross examine is a part of the audi alteram principle – Order of Tribunal was set aside

The AO disallowed the expenses on the basis of statement of the parties who have stated that they have provided hawala bills. The assessee requested for copy of statement and opportunity for cross examination. The assessee also filed affidavit of party stating that they have rendered the services and the transaction with the assessee was genuine. AO disallowed the payment without providing an opportunity for cross examination. Order of the AO was confirmed by the CIT(A) as well as Tribunal. On appeal to High Court allowing the appeal the Court held that without providing an opportunity of cross examination to the assessee resulted into a breach of principles of natural justice hence the order of the Tribunal was set aside to the AO with the direction to provide an opportunity of cross examination and pass the order in accordance with law. (AY. 2007-08)

R. W. Promotions P. Ltd. v. ACIT (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. [S. 253, Tribunal Rule, 11]

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(2A) : Appellate Tribunal – Stay

Third proviso cannot be interpreted to mean that extension of stay of demand should be denied beyond 365 days even when the assessee is not at fault. ITAT should make efforts to decide stay granted appeals expeditiously.

DIT v. Vodafone Essar Gujarat Limited (Guj.); www.itatonline.org

S. 260A : Appeal – High Court – Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the dept authorise filing of appeals

Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the dept. authorise filing of appeals. Strictures also passed against counsel for acting as a “mouthpiece” of the Dept. in persisting with unmeritorious appeals. CBDT directed to take appropriate action. (AY.1997-98)

DIT v. Credit Agricole Indosuez (No. 1) (Bom)(HC) ; www.itatonline.org

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 ground Assessing Officer did not apply his mind or that he had not made inquiry on the subject– 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 – The rigors 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”

1. 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.

2. 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.

3. 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.

4. 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 (Bom)(HC); www.itatonline.org

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 return 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. T. A. No. 152 of 2005 dated 3-11-2014)

ITO v. Bombaywala Readymade Stores (2015) 230 Taxman 313 (Guj.)(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. [IPC, Ss. 378(4), 418, 465, 471]

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)

S. 279 : Offences and prosecutions – Sanction – Chief Commissioner – Commissioner – Where the assessee had already furnished all relevant details in reply to show cause notice u/s. 142(1), revenue cannot initiate criminal prosecution u/s. 279 against the assessee for non-compliance of said notice. [S. 142(1)]

The assessee had a foreign bank account which existed with the HSBC Private Bank, Geneva, Switzerland. The peak amount lying in the account during the relevant year was around US $ 1.3 million. The account was closed in the year 2007. The notice u/s. 142(1) was issued to the assessee to furnish details of its bank accounts, in reply to which the assessee furnished the same. The Revenue authorities, however, rejected details submitted by the assessee. Thereupon, on the basis of sanction issued by the Commissioner on account of non-compliance of S. 142(1), the respondent launched criminal prosecution u/s. 279.

On a writ filed by the assessee, the High Court quashed the order passed in Criminal prosecution and remanded back the matter for disposal afresh after considering the assessee’s reply to the notice u/s. 142(1).)

Shravan Gupta v. ACIT (2015) 119 DTR 80 (Delhi) (HC)

Research Team