218. S. 2(22)(e) : Deemed dividend – Lease for its director – Released some other company in which directors had substantial interest – Cannot be assessed as deemed dividend

Where assessee company having taken a property on lease from its directors, released same to another company in which those directors had substantial interest, security deposits received by assessee from said company in terms of release agreement being an amount received in normal course of its business activity, could not be brought to tax as deemed dividend under section 2(22)(e). (A.Ys. 2002-03, 2005-06 and 2006-2007)

ACIT v. Madras Madurai Properties (P.) Ltd. (2014) 64 SOT 159 (URO) / (2011) 9 taxmann.com 93 (Chennai)(Trib.)

219. S. 4 : Charge of Income-tax – Capital or revenue – Damages – Capital receipt

Assessee, a non-resident, received certain amount of compensation from his power of attorney holder towards damages for breach of trust in respect of sale of shares of Indian companies, said amount being in nature of capital receipt, could not be brought to tax. (A.Y. 2005-06) (ITA No 2551(Mum) of 2008 dated 12-9-2014)

ITO v. Vinay P. Karve (2014) 52 taxmann.com 24 / (2015) 152 ITD 58 / (Mum)(Trib)

220. S. 4 : Income chargeable to tax – Diversion of income by overriding title – Application of income [S. 37(1)]

Contribution of 1% of net profit to the Cooperative Education Fund maintained by National Co-operative Union is an application of income, hence cannot be allowed as deduction. (A.Y. 2010-2011)

A.P. Mahesh Co-op. Urban Bank Ltd. v. DCIT (Hyd.)(Trib.); www.itatonline.org

221. S. 5 : Scope of total income – Method of accounting – TDS credit – Real income has materialised, has to be examined in context of commercial and business realities of situation in which assessee is placed and not with reference to system of accounting. [S. 145, 199]

Assessee-individual was working as consulting engineer and commission agent/dealer in air-conditioning sector. During assessment proceeding, AO observed that in balance sheet certain amount was shown under heading ‘contingent Income’. AO further observed that credit for TDS for said income had been claimed though receipt was not offered for taxation and, therefore, he treated said amount as income for current assessment year. It was found that commission earned from dealer had been offered for taxation on basis of completion of service and installation contract in respective year and this method had been consistently followed yearto- year by assessee. This method was also seen in consonance with accounting method AS-9 in respect of service contract and installation fee which states that revenue be recognised only when equipment is installed and accepted by customer. Since work related to installation and erection of equipment had been completed in subsequent assessment years, accrual of income happened only in subsequent years and, when assessee got an enforceable right to receive same. In view of above, addition made by AO was rightly deleted by CIT(A).(A.Y. 2009-10)

Addl.CIT v. Vinay V. Kulkarni (2014) 64 SOT 131 / 46 taxmann.com 370 (Pune)(Trib.)

222. S. 6(1) : Residence in India – Individual – Forced stay – force majeure –Reading down – Impossibility of performance – Due to untenable impounding of passport were to be excluded while computing days of his stay in India

According to assessee, his stay in India during the years under consideration had exceeded 182 days because of reasons beyond his control as his passport was illegally impounded by the Govt. agencies and he was unable to travel from India. The CIT(A), however, confirmed the order of AO on this issue and held him to be a resident as per literal meaning of the provisions. He, however, partly deleted the additions made by the AO on merits.

The Tribunal held that the assessee’s overstay in India was neither attributable to his volition nor free will and was a result of untenable actions of impounding his passport by executive orders which were quashed by the highest Court. In these circumstances, the literal meaning of the provisions leads to a manifest absurdity in as much as by untenable actions of executive, a taxpayer is exposed to the peril of loosing his valuable right under taxation law, i.e., retaining his NRI status.

In the entire episode no fault can be attributed to assessee who has shown active diligence in defending his legal rights. The legislature cannot have enacted this provision with an intention to forfeit the NRI status by unlawfully compelling the assessee not to leave India even if he has found not to have violated the alleged law. In the given facts and circumstances, the strict and literal interpretation applied by lower authorities to the provisions leads to manifest absurdity resulting in a meaning which cannot be intended by the legislature. The legislature in its wisdom might not have envisaged such a situation wherein a person is forced to become a resident due to wrongful restraint of subject in absence of eligibility to travel outside India. Therefore, assessee’s case becomes fit where doctrine of force majeure may be applicable as it was impossible for the assessee to move out of country and therefore doctrine of impossibility of performance is also applicable. This is a fit case where strict legal reading of the provisions regarding residence in India should not be applied. An interpretation or construction should be applied which results in harmonious meaning, equity rather than injustice. Thus, application of rule of interpretation of ‘reading down’ and ‘harmonious construction’ automatically take care of assessee’s arguments on doctrines of impossibility of performance and ‘force majeure’. In view of the above facts and circumstances it is held that for calculation of stay in India for these years the same should be calculated after exclusion of days of wrongful impounding of passport which constitutes forced stay in India. Consequently assessee’s residential status is held to be as ‘non resident’. In view of above, impugned addition is set aside and matter is remanded back to AO to examine the taxability of amount in question keeping the NRI status in mind and after affording a reasonable opportunity. (A.Ys. 2007-08, 2008-09)

Suresh Nanda v. ACIT (2014) 64 SOT 121 (URO)/ 31 ITR 620 / 45 taxmann.com 269 (Delhi)(Trib.)

223. S. 6(1) : Residence in India – Individual – Not-resident in India –Professional – Self employment like business or profession stays in India less than 182 days considered as non-resident – Receipts from outside India is not taxable [OECD Model tax convention, Article 17]

Assessee, a world known professional golfer, pursued vocation of sportsman. During current and earlier years, he participated in gold tournament in various countries and remained outside India for considerable period in these years. Assessee being a professional golfer is a self-employed professional, and requirement for being treated as resident of India his stay of 182 days in India in previous year as per Explanation (a) to section 6(1)(c). Since assessee had stayed in India less than 182 days, he was not resident of India for assessment purpose hence receipts from his outside employment was held to be not taxable. (A.Y. 2009-10)

ACIT v. Jyotinder Singh Randhawa (2014) 64 SOT 323 / 46 taxmann.com 10 (Delhi)(Trib.)

224. S. 9(1)(i) : Income deemed to accrue or arise in India – Sale of shares – Cannot be assessed as capital gains – DTAA-India-France [S. 45,90, Art, 14(6)]

Income earned by assessee, a French resident, from sale of shares of Indian companies, could not be taxed under head ‘capital gain’ due to benefit conferred in terms of Article 14(6) of India-France DTAA. (AY. 2005-06) (ITA No 2551 (Mum) of 2008 dated 12-9-2014)

ITO v. Vinay P. Karve (2014) 52 taxmann.com 24 / (2015) 152 ITD 58 (Mum.)(Trib.)

225. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Profit – Technical fees – Cost recovered directly connected with shipping business – Receipts are not taxable in India- DTAA-India-Denmark [S.9(1) (vii), Article 9, 13]

Assessee, a Danish company, was mainly engaged in business of operation of ships, chartering and other related activities of shipping in international traffic. Assessee’s shipping operations were carried out in India by an agent namely MIPL Denmark DTAA, has to be construed broadly so as to include not only activities directly connected with shipping operations but also to include income from activities which facilitate or support such operation as well as any ancillary activities of assessee. AO held that amount so received was taxable as royalty and fee for technical services under Article 13 of India. Tribunal held that cost recovered by assessee from its various agents including MIPL towards usage of software was directly connected with its shipping operations and same had to be treated as covered under Article 9(1) of India-Denmark DTAA and, thus, receipt in question could not be taxed in India. (A.Y. 2008-09)

Dy. CIT v. A. P. Moller Maersk (2014) 64 SOT 50 / 39 taxmann.com 39 (2013)(Mum.)(Trib.)

226. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Support services – Not taxable in India-DTAA-India- German [Article 7]

Assessee German company was engaged in business of designing, manufacturing and marketing of passive electronic components. It had two subsidiaries in India. Assessee provided support services to these subsidiaries to which assessee was providing support services in field of product marketing, sales and information. Reasoning given by Tribunal in assessee’s own case in Asstt. CIT v. EPCOS AG, Germany [2009] 28 SOT 412 (Pune), it was held that, where assessee did not have any PE in India, much less a PE to which subject royalties and fees for technical services could be attributed; and that in terms of India-German DTAA, India did not have right to tax these receipts as business profit under Article 7. In light of finding, that no revenue earned by assessee could be said to be attributable to PE, even if one was to come to conclusion that a PE existed, no taxability could arise under Article 7. (A.Y. 2008-09)

EPCOS AG v. Dy. DIT (2014) 64 SOT 257 / 43 taxmann.com 65 (Pune)(Trib.)

227. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection-Shipping business – Merely managing affairs of said companies on remuneration basis – Cannot be held to be shipping income – Not taxable – DTAAIndia- Denmark [Article 9]

Assessee was a partnership firm existing under laws of Denmark. Assessee was appointed as managing agent by two Danish companies. Activities of those companies were shipping operations in international traffic at global level and effective place of management was in Denmark. Assessee firm had been filing return of income on behalf of Danish companies wherein benefit of non-taxation was claimed in respect of shipping income under Article 9 of India- Denmark-DTAA. AO held that shipping income was liable to tax in India in hands of assessee. Tribunal held that the entire infrastructure including vessels deployed in international traffic belonged to two Danish companies, and assessee-firm was merely managing affairs of said companies on remuneration basis. Even otherwise, assessee firm was separate and distinct from two Danish companies and any income accruing on account of shipping operations did not belong to assessee, but to those two companies only. In view of above, AO was not justified in holding that shipping income in question was taxable in hands of assesseefirm. (A.Ys. 1997-98 to 2003-04)

Dy. DIT v. A. P. Moller (2014) 64 SOT 147 (URO) / (2013) 158 TTJ 537 / 39 taxmann.com 27 (Mum.) (Trib.)

228. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Charge of fees – Shared contract – Not taxable as fees for technical services or royalty. [Ss.9(1)(v), 9(1)(vi)]

Assessee-firm, a resident of Denmark, was managing shipping business of two Danish companies in international traffic at global level. For rendering said services, assessee-firm was entitled to charge fee which was calculated on basis of Gross Registered Tonnage (GRT) of ships per annum. In course of assessment, AO held that management fees received/receivable by assessee from two Danish companies was chargeable to tax in India. Since payment had been made from one non-resident to another non-resident in connection with entire global business in Denmark, such a payment could not be taxed in India either as fees for technical services or as royalty, addition was deleted. Similarly where assessee-firm shared cost of Global Online System and software developed by Danish companies to be used in their international shipping business, payment so made to non-resident companies could not be taxed in India as fees for technical services or royalty (A.Ys. 1997-98 to 2003-04)

Dy. DIT v. A. P. Moller (2014) 64 SOT 147 (URO) / (2013) 158 TTJ 537 / 39 taxmann.com 27 (Mum.) (Trib.)

229. S. 9(i) : Income deemed to accrue or arise in India – Business connection – Cost for setting up global telecommunication facility – Not assessable as royalty or fees for technical services – DTAAIndia- Denmark [S.9(1)( vi), 9(1) (vii), Article 13]

Assessee maintained a global telecommunication facility capable of supporting communication facility between itself and its agents in various countries on a combination of mainframe and non-mainframe servers located at Denmark. Cost for setting up global telecommunication facility was shared between assessee and its agents. AO made addition treating the amount received by assessee towards shared IT Global Portfolio Tracking System from its agents by treating same as fees for technical services. Tribunal had deleted a similar addition made by AO in earlier year and following earlier year addition of the same was deleted. (A.Y. 2003-04)

ADIT v. Aktieselskabet Dampskibsselskabet Svendborg (2014) 64 SOT 181 (URO) / 47 taxmann. com 187 (Mum.)(Trib.)

230. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Royalty – Fees for technical services – Benefit of lower rate of tax under Article 13(2) of India-UK DTAA was available because beneficial owner of royalty being JCBE, was also a resident of UK – DTAA – India- UK. [S.9(1)(vi), 9(1)(vii), 90(2), 115A(1)(b), 195A, Article 5(2)(K), 7, 13]

Assessee company was incorporated and was tax resident of UK. There was another group company namely JCBE, which was also incorporated under laws of UK. JCBE entered into an agreement with Indian group company, namely JCBI, to licence know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market Excavator Loader in territory of India. In terms of agreement, JCBE seconded its employees to JCBI on assignment basis. Subsequently, JCBE entered into sublicence agreement with assessee whereby licence was to be commercially exploited by JCBI as was done earlier, but royalty for such user was to be paid by JCBI to assessee, who in turn was to pass on 99.5 per cent of same to JCBE. AO opined that employees of JCBE as seconded to JCBI constituted a service PE of assessee as they were covered under expression ‘or other personnel’ in Article 5(2)(k) of India-UK DTAA. Since seconded employees furnished services including managerial services for a period of more than 90 days during relevant assessment year, AO rightly concluded that service PE of assessee was established in India, in such a situation, amount paid to employees of JCBE sent to India on deputation on assignment basis was covered within para 6 of Article 13 of India-UK DTAA and, thus, same was chargeable to tax under Article 7 of India-UK DTAA, however, fees for services rendered by employees of JCBE falling in second category doing stewardship activities and inspection and testing only, did not fall in para 6 of Article 13 and, was, thus, chargeable to tax as per para 2 of Article 13 of India-UK DTAA. Finally, even though while accepting revenue’s stand that assessee, a resident of UK was not a beneficial owner, still benefit of lower rate of tax under Article 13(2) of India-UK DTAA was available to it because beneficial owner of royalty being JCBE, was also a resident of UK. Partly in favour of assessee. (A.Y. 2008-09)

JC Bamford Investments Rocester v. DDIT (2014) 64 SOT 311 / 33 ITR 493 / 150 ITD 209/164 TTJ 433 / 47 taxmann.com 283 (Delhi)(Trib.)

231. S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – construction, installation and assembly activities are de facto in the nature of technical services, the consideration thereof will not be assessable under Article 12 but will only be assessable under Article 7 if an “Installation PE” is created under Article 5. As Article 5 is a specific provision for installation etc., it has to prevail over Article 12 [S. 5, Article 5, 7, 12]

The Tribunal had to consider whether consideration attributable to the installation, commissioning or assembly of the plant and equipment & supervisory activities thereof is assessable to tax in India under section 5(2)(b) & 9(1)(vii) of the Act and Articles 5 & 7 and Article 12 of the DTAA. HELD by the Tribunal.

(i) Under s. 5(2)(b) of the Act, the consideration attributable to the installation, commissioning or assembly of the plant and equipment & supervisory activities thereof is assessable to tax in India as the said income accrues in India. S. 9(1)(vii) does not apply because the definition of ‘fees for technical services’ in Explanation 2 to s. 9 (1)(vii) specifically excludes “consideration for any construction, assembly, mining or like project undertaken by the recipient”. Even though the exclusion clause does not make a categorical mention about ‘installation, commissioning or erection’ of plant and equipment, these expression, belonging to the same genus as the expression ‘assembly’ used in the exclusion clause and the exclusion clause definition being illustrative, rather than exhaustive, covers installation, commissioning and erection of plant and equipment;

(ii) However, the said receipt is not assessable as business profits under Article 7(1) of the DTAA if the recipient does not have an “installation PE” in India. Under the DTAA, an installation or assembly project or supervisory activities in connection therewith can be regarded as an “Installation PE” only if the activities cross the specified threshold time limit (or in the case of Belgium & UK, where the charges payable for these services exceeds 10% of the sale value of the related machinery or equipment). The onus is on the revenue authorities to show that the conditions for permanent establishment coming into existence are satisfied. That onus has not been discharged on facts;

(iii) On the question as to whether the said receipt for installation, commissioning or assembly etc. activity can be assessed as “fees for technical services”, it is seen that the DTAA has a general provision in Article 12 for rendering of technical services and a specific provision in Article 5 for rendering of technical services in the nature of construction, installation or project or supervisory services in connection therewith. As there is an overlap between Article 5 and Article 12, the special provision (Article 5) has to prevail over the general provision (Article 12). What is the point of having a PE threshold time limit for construction, installation and assembly projects if such activities, whether cross the threshold time limit or not, are taxable in the source state anyway. If we are to proceed on the basis that the provisions of PE clause as also FTS clause must apply on the same activity, and even when the project fails PE test, the taxability must be held as FTS at least, not only the PE provisions will be rendered meaningless, but for gross versus net basis of taxation, it will also be contrary to the spirit of the UN Model Convention Commentary. Accordingly, though construction, installation and assembly activities are de facto in the nature of technical services, the consideration thereof will not be assessable under Article 12 but will only be assessable under Article 7 if an “Installation PE” is created;

(iv) In any event, the said consideration cannot be assessed as “fees for technical/ included services” as the “make available” test is not satisfied. The said installation or assembly activities do not involve transfer of technology in the sense that the recipient of these services can perform such services on his own without recourse to the service provider (this is relevant only for the DTAAs that have the “make available” condition). (ITA No. 251 and 252/Jab/2013, dated 24-12-2014). (A Ys. 2010-11 and 2011-12)

Birla Corporation Ltd. v. ACIT (Jab.)(Trib.); www. itatonline.org

232. S. 11 : Property held for charitable or religious purposes – Educational society – Exemption cannot be denied on the ground that requisite approval under section 10(23C) was not obtained – Revenue cannot be thrust upon assessee for particular deduction [Ss. 10(23C(vi), 12A]

Assessee, an educational society, was registered under section 12A. It claimed exemption under section 11. AO denied exemption on ground that it was eligible for exemption under section 10(23C)(vi) and not under section 11. A.O. held that exemption could not be claimed since assessee had not obtained requisite approval under section 10(23C)(vi) provision. ITAT held that, since assessee was registered under section 12A, and was entitled for exemption under section 11, if conditions required under this section was complied with and it was not required to obtain approval under section 10 (23C). AO could not deny exemption on reason that assessee’s case was not covered under section 10(23C) and could not thrust upon assessee for particular deduction. (A.Y. 2010-11)

Dy. DIT v. Vidyananda Educational Society (2014) 64 SOT 176 (URO) / 47 taxmann.com 242 (Hyd.) (Trib.)

233. S. 12 : Voluntary contributions – Trusts or institutions – Corpus fund –Specific funds could not be treated as voluntary contribution in the nature of income [S.12AA]

Assessee-society of practicing anesthesiologists’ received contribution towards life membership fee, award fund and two other funds specifically created for procuring journals, books and other professional. Since these funds were used only for fulfilling specific objectives for which they were constituted, such specific funds always remained as capital. Said funds could not be treated as voluntary contribution in nature of income. (A.Y. 2007-08)

Indian Society of Anaesthesiologists v. ITO (2014) 64 SOT 178 (URO)/32 ITR 152 / 47 taxmann.com 183 (Chennai)(Trib.)

234. S. 12AA : Procedure for registration – Trust or institution – Charitable purpose – Cancellation of registration was held to be not valid. [Ss. 2(15, 11, 12]

Where assessee-association, formed with object of promotion and development of game of cricket, was granted registration under section 12A, Commissioner in exercise of power under section 12AA(3) could not cancel said registration taking a view that assessee was promoting sports activity on commercial basis by holding various tournaments of BCCI and, therefore, its case was hit by amendment to section 2(15) by Finance Act, 2008 with effect from assessment year 2009-10. (A.Y. 2009-10) (ITA Nos. 1855 & 1856/PN) of 2012 dt. 28-8- 2014)

Maharashtra Cricket Association v. CIT (2014) 51 taxmann.com 511 / (2015) 152 ITD 1 (Pune)(Trib.)

235. S. 12AA : Procedure for registration –Trusts or institutions – Rejection of application on the ground that trust had not started its activities was held to be not valid

The assessee-trust was established with objects to provide credit counselling services to persons for the purposes of, amongst others, facilitating efficient debt management and promoting and assisting better credit management. It filed application seeking registration under section 12AA. The DIT(E) rejected application of assessee-trust for registration under section 12AA on ground that trust had not started its activities and objects were mixed. Tribunal held that rejection of application on the ground that the Trust has not started its activities was held to be not valid. Matter remanded. (ITA No. 2087 (Mds) of 2012 dated 6-3-2014)

Disha Trust v. DIT (E) (2014) 31 ITR 154 /49 taxmann.com 396 / (2015) 152 ITD 42 (Chennai) (Trib.)

236. S. 12AA : Procedure for registration – Trusts or institutions – Commencement of activity is not a pre-condition for grant of registration

Commissioner refused registration of trust on ground that assessee was not carrying out any charitable activities and it was premature to register said trust. Tribunal held that commencement of activity is not a pre-condition for grant of registration under section 12AA, when objects of trust and genuineness of activities of trust are not questioned. Matter remanded.(ITA No. 262 (Mds) of 2014 dated 30-4-2014)

Maha Avatar Trust v. ITO (2014) 32 ITR 178 / 49 taxmann.com 358 (2015) 152 ITD 31 (Chennai) (Trib.)

237. S. 12AA : Procedure for registration – Trusts or institutions –Advance, promote, propagate and preach religion of Islam amongst Daowoodi Bohras in conformity with Quran, Shariat Mohammediyah and tenets of Dawat-e-Hadiyay to develop, expand, renovate and maintain masjids, Madrasas, etc- Denial of registration was not valid [S. 2(15), 11]

Object of assessee was to advance, promote, propagate and preach religion of Islam amongst Daowoodi Bohras in conformity with Quran, Shariat Mohammediyah and tenets of Dawate- Hadiyay to develop, expand, renovate and maintain masjids, Madrasas, etc. and to carry out charity to needy people. Where assessee was founded for development of Muslim religion, object was beneficial to section of public; registration under section 12AA could not denied as object beneficial to section of public would amount to an object of general public utility. To secure charitable purposes, it is not necessary that object should be beneficial to whole mankind or all persons in particular country or State. Even if a section of public is given benefit, it could not be said that it is not a trust for charitable purpose in interest of public. Denial of registration was not valid. (A.Y. 2012- 13).

Shia Dawoodi Bohra Jamaat Waqf v. DIT (2014) 64 SOT 173 / 45 taxmann.com 340 (Kol.)(Trib.)

238. S. 12AA : Procedure for registration – Trust or institution – Charitable purpose – Specified securities –Bonds – Savings certificates –Ancillary activities of business crosses prescribed limit of Rs. 10 lakhs, that by itself cannot be ground for cancellation of its registration [Ss. 2(15), 12A]

The assessee cotton textile promotion council was registered as a charitable trust. Its activities were falling in the category of ‘advancement of any other objects of general public utility’ as per definition of ‘charitable purpose’ given under section 2(15). The DIT(E ) held that the assessee was carrying out activities in the nature of trade, commerce or business, etc., and gross receipts therefrom were in excess of Rs. 10 lakhs. Taking resort to the newly added proviso with effect from 1-4-2009 to section 2(15), he cancelled the registration of the assessee. Tribunal held that, merely because income of a registered charitable trust from ancillary activities of business crosses the prescribed limit of Rs. 10 lakhs, that by itself cannot be ground for cancellation of its registration. However, assessee will not be entitled for exemption or other admissible benefits of its being charitable in nature for year during which gross receipts from business activities exceeds limit of Rs. 10 lakhs, despite its carrying out charitable activities. Order of DIT(E) was set aside and the registration to the assessee council granted under section 12A. (A.Y. 2009-10)

Cotton Textiles Exports Promotion Council v. DIT (E) (2014) 64 SOT 167 (URO) / 44 taxmann.com 168 (Mum.)(Trib.)

239. S. 12AA : Procedure for registration – Trusts or institutions – Rejection of registration was not justified when activities of the institution was not doubted [S. 11]

Assessee-trust moved an application for grant of registration under section 12AA along with all information as requisitioned including objectives of trust. Though assessee did not own land and school building, it had duly furnished complete details and document/evidences in support of ownership and source of investment therein by owner. CIT rejected application on ground that Additional Commissioner and AO had not testified such source of investment. Tribunal held that CIT did indeed err in rejecting application particularly as there were no adverse findings on fundamental issue regarding objectives of trust. With regard to investments, unless there was a categorical finding about lack of bona fides in activities, these aspects would not affect registration and same could be addressed at time of assessment.

Shanta Education Academy v. CIT (2014) 64 SOT 168 (URO) / 33 ITR 154 / 47 taxmann.com 231 (Agra)(Trib.)

240. S. 13 : Denial of exemption – Trusts or institutions – Investment restrictions – Interest free loan other institutions with similar objects – No violation [S. 11(5) 12]

Advancement of interest free loan by a charitable institution to other charitable institutions registered under section 12A having similar objects is not in violation of provisions of section 13(1)(d), read with section 11(5) (A.Y. 2009-10) (ITA Nos. 1796 & 1819 (Mds) of 2012 dated 20-12-2013)

Jt. CIT (OSD) (E) v. Bhaktavatsalam Memorial Trust (2014) 30 ITR 264 / 51 taxmann.com 248 / (2015) 152 ITD 48 (Chennai)(Trib.)

241. S. 12AA : Registration – Nature of activities – CIT, while granting registration or renewal, can only look at the nature of activities and is not concerned with violation of s. 11(5) or s. 13 – Rejection of registration was held to be not justified [Ss. 11, 13, 80G(5)]

While granting the exemption or renewal of exemption under section 80G(5) of the Act, the role of CIT is limited to look into the nature of activities being carried on by the institution or fund and the violation if any, of the provisions of section 13 of the Act and its various subsections are to be looked into by the Assessing Officer while deciding the issue of grant of deduction under sections 11 and 12 of the Act. The CIT while issuing the extension of exemption under section 80G(5) of the Act has a limited role to play i.e., to see whether the activities of the assessee trust were charitable in nature. Even if the ground about contravention of section 11(5) of the Act was validly taken by the CIT, that would have bearing only at the point of the assessment and would not be a material consideration in so far as the granting approval under section 80G(5) of the Act was concerned (ITA No. 549 & 1294/PN/2009, dated 31-12-2014. ’A’)

Ashoka Education Foundation v. CIT (Pune)(Trib.); www.itatonline.org

242. S. 15 : Salaries – Employees stock option (ESOP) – Capital Gains – Assessable as salaries. [S. 45]

Assessee software engineer initially served a US company SIRF-USA as an independent consultant and thereafter, as an employee . After returning to India, he became an employee of SIRF-India. SIRF-USA granted stock option to assessee, which gave right to him to acquire 35,000 shares of common stock of SIRF-USA. Assessee acquired 7,000 shares of SIRF-USA. He sold said shares on same day and earned income. The Tribunal held that the assessee was not in employment of SIRF-USA would be immaterial, as consideration for payment in question was services rendered by assessee in past and, therefore, assessee was to be regarded as employee for purpose of impugned plan and benefits arising under this plan as well as any other benefit received had to be treated as income under head ‘salaries’. Further, by exercising option to acquire shares at a particular price, there was no transfer of any capital asset and, therefore, there was no question of any income being assessed under head ‘capital gain’; such income had to be treated as income from salary. (A.Y. 2006-07).

ACIT v. Chittaranjan A. Dasannacharya (2014) 64 SOT 226 / 45 taxmann.com 338 (Bang.)(Trib.)

243. S. 17 : Salary – Perquisite – Family pension – Income deemed to accrue or arise in India – Family pension received by husband cannot be once again taxed in India – DTAA – India-UK. [Ss.9(1) ((ii), 15, 17(1)(ii), (57(iia), 90, Articles 19(2), 20(1), 23(3) ]

The assessees wife was working in UK with Royal Bank of Scotland/County Nat West Limited (RBS). She died on 22-4-1989 while she was in service. On her death, her employer decided to pay family pension to the husband i.e., the assessee under the family pension scheme run by the company. As per commitment of the UK employer of the deceased wife, they would continue to paying her husband, i.e., assessee family pension until his death. The AO had taxed family pension received by the assessee in UK.

On appeal, the CIT(A) granted relief for the assessee holding that the family pension received by the assessee was covered under Article 23(3) of the DTAA between India and UK and could not be taxed in India when source country i.e. UK had already taxed these amounts.

Tribunal held that Article 20 is related to pension, means the payment received by the employee in consideration of past employment. Section 57(iia) read with Explanation defines ‘Family Pension’ and section 17(1)(ii) which provides that the salary includes ‘pension’ received by the employee in consideration of past employment. Therefore, Article 20 has no relevance to the family pension which is generally received by the spouse or family members or legal dependent of the deceased employee from the employer of deceased family member. Article 23(1) stipulates about the items of income beneficially owned by the residents of a contracting state wherever arising, other than the income paid out of trust or estates of the deceased person in the course of administration which are not dealt within the foregoing articles to the article 23 of this Convention shall be taxable only in that contracting State. Article 23(2) is neither related to pension nor related to family pension. Article 23(3) starts with a word ‘notwithstanding the provisions of paragraphs 1 and 2 of this article’ meaning thereby items of income of a resident of a contracting state not dealt with in the foregoing articles of Convention arising in the other contracting state may be taxed in that other state. Therefore Article 23(3) is related to the items of income which are not included in the foregoing articles to article 23(3) of this Convention, then notwithstanding the provisions of paragraphs (1) and (2) of article 23, the same arising in the other contracting state may be taxed in that other state. Meaning thereby that ‘family pension’ which was not within the ambit of foregoing articles to the article 23(3) of Indo-UK Treaty and arose in the other contracting State, may be taxed in other State and the said receipt of the family pension is beyond the purview of Article 23 of Indo-UK DTAA and the same is covered by the residuary Article 23(3) of this Convention and, therefore, it was rightly taxed in U.K. i.e. source country. Accordingly, the Commissioner (Appeals) rightly held that the family pension received by the assessee from the employer of deceased wife of the assessee was rightly taxed at source in UK and no amount of family pension is thus taxable in India. The expression ‘may be taxed in that other State mentioned in Article 23(3) authorizes only the contracting State of source to tax such income and by necessary implication, the contracting State of resident is precluded from taxing such income, specially when the tax has been deducted by the contracting state of source and contracting state of the residence cannot tax it again in the hands of resident assessee. If analogy advanced by the revenue and the AO is accepted and the country of source as well as country of receipt, both are allowed to tax the same income twice, then an object of double tax avoidance agreement would become infructuous and the provisions stipulated in the Indo-UK DTAA would be otiose. Accordingly, interpretation adopted by the AO was perverse and wrong which was rightly corrected by the CIT(A) by holding that the income received by the assessee from employer of deceased wife of the assessee and country of source has deducted tax and assessee received amount after deduction of tax, then the same income cannot be taxed second time in the other contracting State i.e. India. (A.Y. 2001-01, 2002-03, 2003-04, 2006-07, 2009-10)

ACIT v. Karan Thapar (2014) 64 SOT 334 / 163 TTJ 405 / 46 taxmann.com 46 (Delhi)(Trib.)

244. S. 24 : Income from house property – Interest paid on loan borrowed at Australia for purchase of House at Australia which was let out held to be allowable – Income deemed to accrue or arise in India – DTAA – India- Australia. [S. 4, 5, 9(1)(v)(b), 22, 25, 90(2)

Assessee purchased a house property in Australia and let it out on rent. Assessee had also obtained a loan from ‘A’ bank Australia for construction of said property. Since amount of interest paid on loan amount was higher than rental income, assessee incurred loss under head ‘income from house property’. Assessee filed its return declaring income which included loss from house property. Revenue authorities held that as far as rental income from Australia was concerned, assessee was required to file return in Australia and such negative income could not be included in Indian income. In terms of section 5 in case of assessee, a resident, income accruing or arising outside India had to be assessed in India. Even otherwise, when assessee in terms of section 90(2), exercised option of filing return under Indian law, same could not have been refused merely because DTAA was applicable to assessee’s case. Order of lower authorities was set aside. (A.Y. 2008-09)

Sumit Aggarwal v. DCIT (2014) 64 SOT 265 / 163 TTJ 509 / 45 taxmann.com 345 (Chd.)(Trib.)

245. S. 28(i) : Business loss – Foreign currency loan – acquiring a capital asset for expansion of profit earning apparatus, it was to be treated as capital loss

Assessee-company advanced foreign currency loan in Indian rupees to its wholly subsidiary company, ‘A’, Mauritius, for acquiring entire share capital of a South Africa based company. Subsequently, ‘A’, Mauritius converted loan advanced by assessee into preference shares. However, at time of conversion of loan into cumulative redeemable preferential shares, due to decline in value of Rands, loan amount declined. Assessee claimed that loss was incurred due to difference in foreign exchange conversion rate, and, thus, it was to be allowed as business loss. Revenue authorities rejected assessee’s claim. Since loss in question was suffered in course of acquiring a capital asset for expansion of profit earning apparatus, it was to be treated as capital loss which could not be allowed as deduction (A.Y. 2007-08).

Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203 / 45 taxmann.com 337 (Cochin)(Trib.)

246. S. 32 : Depreciation – Statutory licences – Intangible asset – Co-operative bank – Eligible depreciation

Where assessee, a co-operative bank, by acquiring four banks has acquired existing running banking businesses complete with required statutory licences, operational bank branches, customers base as also employees, besides other assets, then consideration paid on account of excess of liabilities over realisable values of assets taken over is liable to be considered as an intangible asset, being ‘business or commercial rights of similar nature’ contemplated under section 32(1)(ii). (A.Ys. 2007- 08 and 2008-09)

Cosmos Co-op. Bank Ltd. v. Dy. CIT (2014) 64 SOT 90 / 45 taxmann.com 13 (Pune)(Trib.)

247. S. 32 : Depreciation – Light motor vehicle – Honda car eligible depreciation at 50%

Assessee claimed depreciation at 50% in respect of Honda motor car. AO allowed the depreciation at 15%. On appeal the Tribunal held that the motor car being light motor vehicle eligible depreciation at 50%. (ITA No. 598/ PN/2013, dated 31-12-2014 ‘A’) ( AY. 2009-10)

Gera Developments Pvt. Ltd. v. JCIT (Pune)(Trib.); www.itatonline.org

248. S. 32 : Depreciation – Additional depreciation – Cary forward – Can be claimed in subsequent year

There is no restriction on assessee to carry forward additional depreciation and, thus, where only 50 per cent of additional depreciation is allowed in year of purchase of machinery as it was put to use for less than 180 days during said year, balance 50 per cent of additional depreciation can be claimed in subsequent assessment year (AY. 2007-08)

Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203 / 45 taxmann.com 337 (Cochin)(Trib.)

249. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Payable – Merilyn Shipping 146 TTJ 1 (Vizag.) has binding effect in view of the SLP dismissal & the clarification in Janapriya Engineers (AP) (HC) and so amounts already paid during the year cannot be disallowed

The Tribunal had to consider whether in view of the Special Bench verdict in Merilyn Shipping & Transport 146 TTJ 1 (Vizag.), a disallowance u/s 40(a)(ia) could be made in respect of the amounts that have already been paid during the year and are not “payable” as of 31st March.

In the light of the decision rendered by Hon’ble Supreme Court in the form of dismissal of Revenue’s SLP in the case of Vector Shipping Services (P) Ltd. Section 40(a)(ia) is not applicable with reference to payments already made since the expression ‘payable’ has to be satisfied for invoking provisions of section 40(a)(ia). The fact that the order of the Special Bench delivered in the case of Merilyn Shipping & Transport has been kept in abeyance by the Andhra Pradesh High Court and that the Gujarat High Court has taken a different view is not relevant. In Janapriya Engineers Syndicate (I.T.A. No. 352 of 2014 dated 24-6-2014) the Andhra Pradesh High Court has clarified the issue of interim stay granted by it in the case of Merilyn Shipping & Transport and held that until and unless the decision of the Special Bench is upset by the High Court, it binds smaller Bench and co-ordinate Bench of the Tribunal. From the clarification issued by the High Court, it is clear that until and unless the decision of Marilyn Shipping & Transport is reversed by the Court, it is binding on all the benches of the Tribunal. We find that the Hon’ble Court has held that judicial discipline mandates that the decision of the Special Bench has to be followed by other benches. As on today, the stay order granted by the Hon’ble Court has been vacated and the order of the special bench is binding on other benches of the Tribunal. Therefore, respectfully following the same, we hold that no disallowance u/s. 40(a)(ia) can be made for amounts already paid during the year and which are not payable as of 31st March (ITA No. 1871/ Mum/2013, dated. 22-12-2014.) (A. Y. 2006-07).

Arcadia share & Stock Brokers Pvt. Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

250. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Hire charges – Payment was made before due date of filing of return – Amendment by Finance Act, 2008 is retrospective effect from 1-4-2005

Assessee, engaged in transportation of goods, made payment of hire charges on 31-3-2007 after deducting tax at source, however, tax so deducted was remitted to Government Exchequer on 7-7-2007, i.e., beyond due date of remitting tax deducted at source but before due date of filing of return of income. AO disallowed payment of hire charges under section 40(a)(ia). In view of amendment made in section 40(a)(ia) by Finance Act, 2008 with retrospective effect from 1-4-2005 and CBDT Circular No. 1/2009, dated 27-3-2009, it was to be concluded that impugned disallowance made under section 40(a)(ia) by Assessing Officer was not sustainable and, thus, same was to be deleted (A.Y. 2007-08)

ACIT v. Shanthi Logistics (P.) Ltd. (2014) 64 SOT 141 (URO) / 43 taxmann.com 126 (Chennai)(Trib.)

251. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Income deemed to accrue or arise in India – Royalty – Pay channel charges – No disallowance can be made for failure to deduct tax at source in view of judgment of Delhi High Court, though the explanation is clarificatory in nature [Ss.9(I)(vi), 195]

Assessee company was engaged in the business of distributing cable signals. It received satellite signals from various channel companies in capacity of Multi System Operator. Assessee made payments to channel companies for receiving said signals without deducting tax at source. AO taking a view that payments in question were in nature of royalties, disallowed the same on account of non-deduction of tax at source. In view of insertion of Explanation 6 below clause (vi) of section 9(1) by Finance Act, 2012, payments made by assessee as ‘Pay Channel Charges’ would fall in category of ‘royalty’ as defined in clause (i) of Explanation 2 to section 9(1), however, even though Explanation 6 to section 9(1)(vi) inserted by Finance Act, 2012 is clarificatory in nature, yet in view of fact that at time of making payment, assessee’s case was covered by decision of Delhi High Court in case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 (Delhi)(HC) assessee could not be held liable to deduct tax at source from pay channel charges. Therefore, AO was not justified in disallowing claim of pay channel charges by invoking provisions of section 40(a)(ia). (A.Y. 2009-10)

Kerala Vision Ltd. v. ACIT (2014) 64 SOT 328 / 35 ITR 81 / 46 taxmann.com 50 (Cochin)(Trib.)

252. S. 40(a)(ia) : Amounts not deductible – Housing project – Disallowance cannot be made if the assessee has not claimed a deduction

Payment has not been claimed as a revenue expenditure while computing the income chargeable under the head ‘Profits and Gains of Business or Profession’ in this year and therefore the same would not fall for consideration in section 40(a)(i) of the Act. (ITA No. 598/ PN/2013, dt. 31-12-2014.)(A.Y. 2009-10)

Gera Developments Pvt. Ltd. v. JCIT (Pune)(Trib.); www.itatonline.org

253. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Dealers – Amendment is substantive – Each bill less than Rs. 20,000, no disallowance can be made [R. 6DD(k)]

Purchase of agricultural produce by making payment in cash would not be covered by exception provided in Rule 6DD(e), if it is purchased from dealers and not from cultivators or growers.

Where purchases by making payment in cash were effected from registered traders/ commission agents who were independent businessmen acting in their own capacity and not as an agent of assessee, purchases were not covered by exception given in Rule 6DD(k).

Amendment in section 40A(3) by Finance Act, 2008 with effect from 1-4-2009 can only be considered as substantive in nature and shall have prospective operation only. If purchase is effected from a single person by way of several bills/invoices and if value of each bill/invoice is less than Rs. 20,000 then payments made to settle each bill/invoice would not be hit by provisions of section 40A(3), as each bill/invoice has to be considered as a separate contract. (A.Y. 2007-08)

Raja & Co. v. Dy. CIT (2014) 64 SOT 12 (URO) / (2013) 37 taxmann.com 268 (Cochin)(Trib.)

254. S. 43(6) : Written down value – Block of assets – Depreciation actually allowed – WDV as per books at beginning of impugned assessment year 2003-04 became WDV for purpose of section 43(6) and entire exercise of re-determining WDV from year of inception till assessment year 2002-03 could not be upheld [Ss. 2(11)10(20), 32]

Assessee was constituted under Hyderabad Metro Water Supply & Sewerage Act, 1989. Being a local authority, its income was exempt from tax under section 10(20) up to assessment year 2002-03. With insertion of Explanation to section 10(20) by Finance Act, 2002 effective from 1-4-2003, assessee became taxable entity from assessment year 2003-04. AO was of opinion that as per provisions of section 43(6), block of assets were to be re-determined from time of inception and accordingly, referred matter to special audit for purpose of adjusting capital grants-in-aid to assets acquired/capitalised by assessee in all years up to assessment year 2002-03. Based on report of special audit, AO not only re-determined total income but also restricted depreciation. In terms of Explanation 6 to section 43(6), amount of depreciation provided in books of account up to previous year relevant to assessment year has to be considered as depreciation ‘actually allowed’ under Act, therefore, WDV as per books at beginning of impugned assessment year 2003-04 became WDV for purpose of section 43(6) and entire exercise of redetermining WDV from year of inception till assessment year 2002-03 could not be upheld. (A.Ys. 2003-04 and 2004-05)

Hyderabad Metropolitan Water Supply & Sewerage Board v. ACIT (2014) 64 SOT 96 (URO) / 46 taxmann.com 123 (Hyd.)(Trib.)

255. S. 45 : Capital gains – Business income – Investment in shares – Merely because assessee liquidates its investment within a short span of time, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investor in equity shares – Assessable as short term capital gains and not as business income. [Ss. 2(42B), 28(i), 115A, 115AD]

Assessee had been consistently investing in shares, though there was large volume of transactions in trading of shares within a short period, assessee had invested in equity shares of Indian companies and all along treated same as capital asset, i.e., assessee had not valued shares as stock but valued same as investment. Two separate accounts were maintained in respect of shares so purchased, i.e., ‘trading account’ and ‘investment account’. Analysis of balance sheet of assessee also fortified that equity shares were treated as investment. Merely because assessee liquidates its investment within a short span of time, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investor in equity shares, but was actually intended to trade in shares. Gains earned on sale of such investment was capital gains and AO’s action of treating it as business income was not justified. (A.Y. 2005-06)

Dy. CIT v. E-Cap Partners (2014) 64 SOT 192 / 45 taxmann.com 342 (Mum.)(Trib.)

256. S. 50B : Capital gains – Slump sale – Depreciable assets – Block of assets – Sale of business as going concern assessable as slump sale [Ss. 2(11), 45]

The assessee was engaged in manufacture of dyestuffs and chemicals, pharmaceuticals and pesticides, and also manufacture of additives, polymers, pigments and composites. During relevant year, the assessee sold its oral hygiene business (OHB) to another concern namely CPL. Assessee claimed that since it was a case of slump sale, capital gain arising from said transaction was not liable to tax. Revenue authorities rejected assessee’s claim. Since it was apparent from sale agreement that business was transferred as a going concern and sale consideration was not itemised, transaction in question amounted to slump sale and, thus, assessee’s claim was allowed. (A.Y. 1995-96)

Novartis India Ltd. v. DCIT (2014) 64 SOT 182 (URO) / 45 taxmann.com 341 (Mum.)(Trib.)

257. S. 54F : Capital gains – Investment in a residential house – Amount paid to builder – Amount paid to builder for house is equivalent to amount spent by assessee for construction. Fact that only advance is given and construction is delayed beyond 3 years does not deprive assessee of exemption

The Tribunal held that the flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Even if only advance is given the benefit still will be available for exemption u/s. 54F, though the construction is delayed beyond 3 years does not deprive assessee of exemption. (ITA No. 1520/Hyd/2013, dt. 31-12-2014.) (A.Y. 2009-10)

Pradeep Kumar Chowdhry v. DCIT (Hyd.)(Trib.); www.itatonline.org

258. S. 56(2)(vi) : Income from other sources – Amounts received under a Power of Attorney for making investments cannot be treated as income in the hands of the recipient

Section 56 of the Act deals with income from other sources. Sub-clause (vi) to section 56(2) was inserted by taxation laws (amendment) Act, 2006, with effect from 1-4-2007. The plain reading of the aforementioned statutory provisions reveals that it is intended to tax a receipt of money without consideration. The impugned amount was received by the assessee for making the investment on behalf of Ustad Zakir Hussain, on the basis of Power of Attorney. If the provisions of the Act and the content of the Power of Attorney are kept in juxtaposition and analysed then it can be concluded that the mutual funds, purchase and sold by the assessee were made on behalf of Shri Zakir Hussain and there is no evidence to establish that the investment made by the assessee is from the funds of Shri Zakir Hussain as is evident from return of income, balance sheet filed in the case of Ustad Zakir Hussain and the explanation of the assessee there is no doubt about the genuineness of the transaction. The assessee never became the beneficiary of the impugned amount i.e. Rs. 25 lakh, thus there is no question of making the addition u/s. 56(2) (vi) of the Act. Even otherwise, the amount after liquidating the mutual fund was returned back meaning thereby, the amount was returned back along with profit, consequently, the provision of section 56(2)(vi) is not applicable (CIT vs. Saran Pal Singh (HUF) 237 CTR (P & H) 50 followed) (ITA No. 6232/Mum/2011, dt. 17-12-2014.) (A.Y. 2008-09).

Sannidhi C. Patel v. ITO (Mum)(Trib)www. itatonline.org

259. S. 69A : Unexplained money – Survey – computer printout sheet – Assessee has not explained satisfactorily – Addition was held to be justified. [Ss.68, 69, 133A, 292C]

A computer printout sheet was found during course of survey proceedings at assessee-firm’s business premises, which reflected Rs. 18.44 lakhs received from one of its partners ‘P’ for being used by a number of persons, including assessee. AO made addition under S.68 for amount noted to have been given to assessee-firm as assessee did not fulfil its obligation to explain document. However, assessee claimed it to be explained in as much as document itself reflected ‘P’ to be source of funds. CIT(A) held that as sums were not admittedly reflected in books and no money was actually found, S. 69 was applicable. Tribunal held that section 69A would apply as section 69 applies in respect of an unexplained investment. Tribunal held that question of applicability of any particular section was never an issue as it was inconsequential in view of assessee’s obligation to explain transaction, failing which amount reflected as received would be deemed as its income. Addition was justified.(A.Y. 2006-07)

Alliance Hotels v. ACIT (2014) 64 SOT 163 (URO) / 41 taxmann.com 123 (Mum.)(Trib.)

260. S. 80IA : Industrial undertakings –Windmills – Set-off of notional losses – Prior to initial year was held to be not justified. [S. 32(2)]

Assessee was engaged in manufacturing and sale of metal powders It was captively consuming electricity generated by its own wind mill power plant. AO held that assessee could not claim deduction under section 80IA on windmills as he has adjusted set-off of notional losses of prior to initial year. In appeal, CIT (A) allowed deduction for windmills treating same as separate undertaking and directed not to adjust notional losses of years prior to initial year of such claim. Tribunal held that question of set-off notional losses prior to initial year of claim did not arise in view of High Court’s decision in case of Velayudhaswamy Spinning Mills (P.) Ltd. v. ACIT [2012] 340 ITR 477(Mad.) (HC). (A.Ys. 2002-03, 2003-04, 2005-06, 2006-07, 2007-08 & 2008-09)(ITA Nos .782 to 787 & 869 to 874 (Mds) of 2012 dated 21-2-2013).

Metal Powder Co. Ltd. v. ACIT (2014) 26 ITR 759/ 51 taxmann.com 304 / (2015) 152 ITD 144 (Chennai) (Trib.)

261. S. 80-IAB : Undertaking – Development of Special Economic Zone – Since BOA had granted approval for transfer of bare-shell to co-developer in accordance with relevant provisions of SEZ Act and SEZ Rules, profits arising to assessee from such an authorised transaction were eligible for deduction

Assessee was engaged in business of developing, operating and maintaining real estate projects which inter alia included development of SEZs. Assessee company entered into a memorandum of understanding with DAPL as a co-developer for developing, operating and maintaining SEZ. Board of Approval (BOA) granted approval to said agreement. Assessee claimed deduction under section 80-IAB of Act against development income earned during year in respect of its SEZ project. AO rejected assessee’s claim holding that assessee sold bare-shell buildings to co-developer DAPL which was not a permitted activity. Since BOA had granted approval for transfer of bareshell to co-developer in accordance with relevant provisions of SEZ Act and SEZ Rules, profits arising to assessee from such an authorised transaction were eligible for deduction. (A.Y. 2008-09)

DLF Info City Developers (Chennai) Ltd. v. Addl. CIT (2014) 64 SOT 94 (URO) / 46 taxmann.com 124 (Delhi)(Trib.)

262. S. 80IB(10) : Housing project – Floor plan showing less than 1,000 sq.ft-Constructed duplex as per the need of the buyers – Brouchres to merge flats in to duplex for boosting sales – Denial of exemption was held to be not justified. [S.133A]

The assessee was an AOP of three members. The AOP was formed for developing a property and the assessee constructed two wings and each wing was to have 96 flats. All the flats were approved to be with the built-up area of less than 1000 sq. ft. as prescribed in clause (c) to Explanation to section 80-IB(10). The project was approved in the assessment year 2005- 06 and completed before March 2009 relevant to the assessment year 2009-10. There was a survey action under section 133A and during the survey, the officers noted that flats were constructed in such a way that the said flats could be conveniently combined with the lower 1-BHK flats vertically in order to generate spacious duplex flats. Revenue Officers interpreted these findings by stating that the assessee intended to sell 1 BHK flats as duplex flats. Further, the Assessing Officer relied on a colour brochure of ‘Duplex Floor Plan’ showing the drawing how two 1-BHK flats (located one above other) could be joined. It was found at the site and the same was impounded too. When combined, obviously, the built-up area of each of the said duplex flat exceeded the stipulated area limit of 1,000 sq. ft. built up area. Considering the discrepancies and the intention for generating duplex flat, the Assessing Officer interpreted the same against the assessee and opined that the assessee violated the condition relating to the area of the flat provided clause (c) of the Explanation to section 80-IB(10). Therefore, assessee was not found eligible for claim of deduction under such section. On appeal Tribunal held that, where construction provision and supply of design through brochure to merge flats into a duplex constituted only a marketing strategy to boost sale of flats and otherwise assessee constructed flats in accordance with approved plan and sold them as such to buyers, assessee was entitled for deduction under section 80IB. (A.Y. 2009-10)(ITA No 2443, 3704/ Mum/2012 dt 30-9-2014).

Poddar & Ashish Developers v. ITO (2014) 51 taxmann.com 505 / (2015) 152 ITD 117 (Mum.)(Trib.)

263. S. 80-IB(10) : Housing project – Income disclosed in the course of search and seizure – Deduction is eligible for additional income disclosed [S.132, 132(4), 153A, 153C]

The assessee, a partnership firm engaged, in construction business was subject to a search action under section 132(1). In the course of search, partner of the assessee-firm in a statement deposed under section 132(4), declared certain additional income pertaining to the housing project undertaken by the firm. The additional income declared was on account of on-money received from the customers to whom flats were sold in the said project. The assessee duly reflected such additional income in the returns of income filed in response to notice issued under section 153A(1)(a) for the captioned assessment years as the profits from its housing project, and since the said housing project was eligible for deduction under section 80-IB(10), it claimed deduction under section 80-IB(10) in relation to such additional income. The AO did not allow the claim of the assessee for deduction section 80-IB(10). CIT(A) affirmed the action of the AO. The Tribunal held that, where in response to notice issued under section 153A(1)(a) after search, assessee-firm declared certain additional income pertaining to a housing project undertaken by it, nature of income has to be treated as ‘business income’ albeit same was not accounted for in books of account. Benefits of Chapter VI-A, which inter alia includes section 80-IB(10) are applicable to an assessment made sections 153A to 153C. Assessee is eligible for deduction section 80-IB(10) in relation to additional income pertaining to a housing project which was offered in a statement under section 132(4) in course of a search and subsequently declared in return filed in response to notice under section 153A(1)(a). (A.Y. 2008-09 to 2010- 11).

Malpani Estates v. ACIT (2014) 64 SOT 105 (URO) / 164 TTJ 803 / 44 taxmann.com 242 (Pune)(Trib.)

264. S. 80-IB(10) : Housing project – Completion certificate – Deduction cannot be denied on the ground that the completion certificate has not been issued by the municipality if the assessee has completed construction before the due date [S. 133(6)]

Explanation (ii) to section 80IB(10)(a) of the Act prescribes that the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority. In the present case, the local authority, i.e. Pune Municipal Corporation has not issued the requisite completion certificate (to be understood as occupancy certificate in the context of the PMC) before the stipulated date. However, the assessee has countered the aforesaid objection by pointing out that in fact it has completed the construction of the project on 4-12-2007 i.e., much before the stipulated date of completion contained in section 80IB(10)(a) of the Act, it had applied to the PMC for obtaining of the occupancy certificate based on the certificate of the architect and the other NOCs required for the said purpose. The CIT(A) has also called for information u/s. 133(6) of the Act from the PMC and its response did not reveal any objection on the part of the PMC that the construction was not complete with respect to the sanctioned plans. Therefore, there is no controversion to the assertions of the assessee that its project was otherwise complete as per the sanctioned plans within the stipulated date. Deduction is eligible. (ITA No. 598/PN/2013, dated 31-12-2014 ‘A’.) (A.Y. 2009-10)

Gera Developments Pvt. Ltd. v. JCIT (Pune)(Trib.); www.itatonline.org

265. S. 80IC : Special category states –Manufacture – Cutting and polishing of diamond – Eligible deduction

Cutting and polishing of diamond amounts to manufacturing or production of article or thing and, therefore, an assessee, engaged in said activity, is entitled to claim deduction. (A.Y. 2008- 09 and 2009-10).

Flawless Diamond (India) Ltd. v. Addl. CIT (2014) 64 SOT 135 (URO) / 45 taxmann.com 67 (Mum.)(Trib.)

266. S. 80M : Intercorporate dividend – Tax on distributed profits – Domestic companies – Dividend was received by assessee-company by 31-3-2003, i.e., before, 1-4-2003 – Exemption is available. [S.115-O]

Assessee-company claimed deduction under section 80M in respect of proposed final dividend during financial year 2002-03. AO disallowed assessee’s claim on ground that such dividend distribution was hit by section 115-O, so that no deduction under section 80M was eligible for assessment year 2003-04. Tribunal held that deduction under section 80M was in respect of dividend received by assesseecompany which had, by itself, nothing to do with dividend declared, distributed or paid by assessee-company, which alone could be a subject matter of tax under section 115-O(1). There was no overlap between deduction under section 80M and tax under section 115-O(1) in instant case, so that a deduction under former could not be withdrawn with reference to latter. Even otherwise since impugned dividend was received by assessee-company by 31-3-2003, i.e., before, 1-4-2003, there was no question of applicability of section 115-O. (A.Y. 2003-04).

New India Assurance Company Ltd. v. CIT (2014) 64 SOT 156 (URO) /(2013) 33 taxmann.com 304 (Mum.)(Trib.)

267. S. 80M : Inter-corporate dividends – Once deduction is allowable under specific section, which is on an altogether different footing, same cannot be withdrawn by any other section unless conditions mentioned under any overriding section have been infringed [S. 115-O]

Assessee, engaged in business of sale of shares and investments in mutual funds, received dividend on which tax was deducted. It had distributed same before due date of filing of return to its shareholders and claimed exemption under section 80M. AO noticed that section 115- O had been brought in statute book with effect from assessment year 2003-04 which clearly provides that dividend distributed will be subject to additional tax and no deduction would be allowed under any other provisions of Act and, accordingly, he held that no deduction under section 80M was allowable to assesse. Tribunal held that purpose and intent of section 115-O is entirely different from section 80M deduction in as much as it sought to tax dividend at time of declaration/distribution/ payment and such payment of tax cannot be claimed as deduction under any section or any other provision, and, thus, in instant case deduction allowable under section 80M to assessee was not overridden by section 115-O and provisions of section 115-O would not negate assessee’s claim for deduction under section 80M. Once deduction is allowable under specific section, which is on an altogether different footing, same cannot be withdrawn by any other section unless conditions mentioned under any overriding section have been infringed. (A.Y. 2003-04).

Shah Investments Financials Developments & Consultants Ltd. v. ITO (2014) 64 SOT 270 / 46 taxmann.com 107(Mum.)(Trib.)

268. S. 90 : Double taxation relief – Once resident State has a right to tax income of partnership firm irrespective of fact that same is being taxed from partners of firm, then it has to be treated as fiscal domicile of that State – DTAAIndia- Denmark [Article 4]

The assessee firm was a partnership firm existing under the laws of Denmark and was also the resident of Denmark. The assessee had been appointed as the managing owner of the two Danish companies. The main activities of these two companies were shipping operations in the international traffic at the global level and the effective place of management was in Denmark. Tribunal held that, once resident State has a right to tax income of partnership firm irrespective of fact that same is being taxed from partners of firm, then it has to be treated as fiscal domicile of that State within Article 4 and, therefore, benefit of India-Denmark DTAA has to be allowed to said firm. (A.Ys. 1997-98 to 2003-04)

Dy. DIT v. A. P. Moller (2014) 64 SOT 147 (URO) /(2013) 158 TTJ 537 / 39 taxmann.com 27 (Mum.) (Trib.)

269. S. 92C : Transfer pricing – Arms’ length price – Royalty – sitting in judgment on business and commercial expediency of assessee was erroneous – TNMMDisallowance of royalty was held to be not justified. [S.37(1)]

Company was engaged in undertaking design, manufacturing, marketing and sale of air and gas separation equipments/plants. During relevant year assessee paid royalty to AE on account of sale made to unrelated party through AE. TPO opined that since sale was made by AE to other AEs of same group, there was no necessity for payment of royalty. He thus held that royalty paid by assessee to its own AE could not be allowed, same being unreasonable and purely a cosmetic transaction. Accordingly, addition was made to assessee’s ALP taking value of royalty paid to AE as nil. In view of order passed in case of CIT v. EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi), impugned order of TPO sitting in judgment on business and commercial expediency of assessee was erroneous, even otherwise, once TNMM had been applied to assessee company’s transaction, it covered under its ambit royalty transactions in question also and, thus, a separate analysis and consequent deletion of royalty payment was unwarranted. (A.Y. 2005-06 and 2006-07) (ITA Nos. 1408 of 2010, 1040 & 1159 (Hyd) of 2011 dt 13-02-2014).

Dy. CIT v. Air Liquide Engineering India (P.) Ltd. (2014) 31 ITR 205 / 43 taxmann.com 299 / (2015) 152 ITD 157 (Hyd.)(Trib.)

270. S. 92C : Transfer pricing – Arm’s length price – Advertisement expenses paid to AE – Ad hoc addition was held to be not justified

Assessee entered into international transactions and benchmarked these transactions at entity level on basis of TNM method. It was case of assessee that its operating margin on its export activity was 47.17 per cent as against similar margin of comparables of 8.08 per cent. TPO accepted operating margin of assessee on export activity to be at arm’s length. However, transactions relating to advertising expenses paid to AEs was not considered to be at arm’s length price and entire amount was added as T.P. Adjustment. CIT (A) held that TPO had made this addition in ad hoc manner without adopting any method prescribed to determine ALP of a transaction and, consequently, deleted additions so made. Expenses of advertisement reimbursed by assessee to its AE belonged to export activity of assesse. Total expenditure made by assessee on sharing of advertisement expenses was reduced from operating margin of exports then also operating margin of assessee would be much more than operating margin of comparables. Thus, CIT (A) was right in deleting adjustment as though transaction of sharing advertisement expenditure might be an independent transaction but it related to activity of export. (A.Y. 2003-04 to 2005-06)

Lever India Exports Ltd. v. ACIT (2014) 64 SOT 45 (URO) / 43 taxmann.com 427 (Mum.)(Trib.)

271. S. 92C : Transfer pricing – Arm’s length price – CUP – Geographical location of market is of no consequence – Foreign exchange borrowings – Rupee loan cannot be compared with dollars or Pounds – Higher rate for lack of security was not justified

Assessee company was engaged in business of providing telecommunication services in India. In course of business, assessee provided its customers facilities for making calls to, and receiving calls from, overseas subscribers. However, assessee’s network was used only to extent of domestic segment of those calls. Assessee entered into a bilateral arrangement with its AE located in Singapore. Assessee claimed that said transaction was entered into within tolerance range of +/- 5% of arm’s length price computed on basis of Internal Comparable Uncontrolled Prices. TPO rejected said plea on ground that for purpose of valid CUP analysis, rate charged to AE should be compared with non-AE in same market or geographically nearest market. TPO thus relying upon rate charged from a Malaysian company, made certain adjustment to assessee’s ALP. Since assessee provided services to international telecommunication companies only with respect to activity performed in India irrespective of area from where such international calls originated, impugned addition made on basis of geographical location of market was not sustainable.

When parent company is able to raise foreign exchange borrowings at a certain rate, such rate can constitute a valid comparable for similarly placed borrowings by subsidiary as well particularly in a case where subsidiary is under management and control of lender parent company and business risk is much lower.

Inflationary pressure on strong currency remains lower and, therefore, while determining ALP of interest charged by assessee-company on loans given to its non-resident subsidiaries in foreign currencies like British Pounds, US Dollars etc., TPO could not compare interest rate on rupee loans with interest rate on aforesaid strong currencies.

Where assessee had advanced monies to its subsidiaries which were under its management and control, TPO was not justified in making addition to assessee’s ALP in respect of interest charged by adding higher points to LIBOR as balancing figure towards lack of security. (A.Y. 2007-08).

Bharti Airtel Ltd. v. Addl. CIT (2014) 64 SOT 50 (URO) / 161 TTJ 283 / 43 taxmann.com 50 (Delhi) (Trib.)

272. S. 92C : Transfer Pricing – ALP of interest on funds advanced to AEs has to computed on LIBOR and not as per domestic Prime Lending Rate (PLR)

While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable. The assessee has further explained that it had raised the loan from Citi Bank on international rates for the purpose of investment in the share application money of its associated enterprises, which in turn was partly converted from capital into loan. Where the assessee had a comparable of borrowing loan on international rates and advancing to its associated enterprises, then the said comparable was to be applied for benchmarking the transaction of advancing the loan on interest to its associated enterprises. The assessee had charged interest rate of 4.75% on the loan advanced to the associated enterprises. The assessee on the other hand, claims that it had borrowed the money on LIBOR+ rates i.e. international rates, which were Japanese based LIBOR+ rates which were lower than the US based LIBOR+ rates. The plea of the assessee before us was that it had advanced the loan to its associated enterprises on LIBOR+ rates i.e. 4.75%. Where the assessee has the internal CUP of operating at international rates available and since the said loan raised by the assessee at international rates was advanced to its associated enterprises, we find no merit in the order of the TPO in applying the domestic loan rates i.e. BPLR rates for benchmarking transaction of charging of interest on the loans advanced to the associated enterprises by the assessee. Where the assessee had made the borrowings on LIBOR+ rates and advanced the same at LIBOR+ rates, then the said transaction is at arm’s length price and there is no merit in any adjustment to be made on this account. (ITA No. 2482/PN/2012, dt. 30-12-2014.’B’) (A.Y. 2008-09).

Varroc Engineering Pvt Ltd. v. ACIT (Pune)(Trib.); www.itatonline.org

273. S. 92C : Transfer Pricing – Turnover filter – Comparables have to be excluded by the turnover filter without a FAR analysis being required to be conducted. The AO cannot rely on information obtained u/s. 133(6) which was not available in public domain [S. 133(6)]

In view of the turnover being higher than Rs. 200 crores in the case of the above companies, which was elected by TPO Tribunal directed the AO to exclude these companies from the list of comparables.

Tribunal also held that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO. (ITA no. 1129/Bang/2010, dated 31-12-2014.’B’) (A.Y. 2006-07).

Yahoo Software Development India P. Ltd. v. DCIT (Bang.) (Trib.)

274. S. 92C : Transfer pricing – Arm’s length price – Cost Plus Method (CPM) – Contract manufacturers

The assessee manufactured components of medical devices and sold it to its AE. The assessee claimed that it performed functions and undertook risks that were normally performed by a contract manufacturer. It chose Cost Plus Method (CPM) as the Most Appropriate Method (MAM) for determination of ALP. The assessee identified 19 comparable companies. Tribunal held that Cost Plus Method (CPM) is most appropriate method in case of contract manufacturers but that would be subject to satisfaction of parameters laid down in rules 10C(1) and 2(2). [Matter remanded].

Tribunal also held that where assessee entered into international transactions of contract manufacturing only with its AE, TPO in course of transfer pricing proceedings was required to give adjustments of additional functions performed by comparables in nature of selling and marketing as assessee being a contract manufacturer, was not required to perform said functions. (A.Y. 2004-05).

Dy. CIT v. GE BE (P.) Ltd. (2014) 64 SOT 129 (URO) / 42 taxmann.com 554 (Bang.)(Trib.)

275. S. 92C : Transfer pricing – Arm’s length price – Loan – LIBOR method of rate

During relevant year, assessee advanced loan to its AE located in Mauritius carrying interest at rate of 7.5 per cent per annum. In transfer pricing study, assessee benchmarked international transaction using LIBOR. Six months average US $ LIBOR rate for period April, 2006 to March, 2007 came to 5.39% per annum. Since, assessee actually charged 7.5 per cent which was higher than comparable uncontrolled price of six months US $ LIBOR, transaction of advancement of loan was claimed to be at arm’s length price. TPO by adopting interest rate taken earlier for advancing similar loans to associate enterprises, made certain adjustment. DRP confirmed said adjustment. Tribunal following the order passed in Siva Industries & Holdings Ltd. v. ACIT [2011] 46 SOT 112 (URO)(Chennai) and Mumbai Bench in Tata Autocomp Systems Ltd. v. ACIT [2012] 52 SOT 48 (Mum.), order of lower authorities was set aside and AO was to be directed to consider LIBOR method of rate of interest for purpose of determining arm’s length price of transaction in question. (A.Y. 2007-08).

Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203 / 45 taxmann.com 337 (Cochin)(Trib.)

276. S. 92C : Transfer pricing – Arm’s length price – CUP method – Future data cannot be contemplated –Valuation of goods accepted by custom authority cannot be considered appropriate for purpose of arriving at ALP

Where assessee purchases raw material from its AE located abroad as well as from uncontrolled enterprises operating in domestic market and, there is high degree of product comparability, in such a case CUP method is most appropriate method to determine ALP in respect of such transactions. Transfer pricing regulations do not contemplate taking into account future data for purpose of benchmarking international transactions. Valuation of goods accepted by custom authority cannot be considered appropriate for purpose of arriving at ALP. Matter remanded. (A.Y. 2003-04).

ACIT v. Denso India Ltd. (2014) 64 SOT 191 (URO) /(2013) 33 taxmann.com 89 (Delhi)(Trib.)

277. S. 94(8) : Transaction in securities –Units – Bonus stripping – Portfolio Management System (PMS) – Claim for set off of loss could not be rejected

In course of assessment proceedings, AO found that shares of two companies were purchased in quick succession, at time when bonus shares were due to be allotted i.e. assessee bought these shares cum-bonus and immediately after allotment of bonus shares, original shares whose value had reduced to almost 50 per cent due to allotment of bonus shares were sold at reduced market price – As a result thereof, assessee incurred a loss even though his wealth remained intact. AO treated said transactions as trading activities and, thus, loss incurred in respect of those transactions was rejected to be set off against long-term capital gain on sale of other shares. CIT(A) held that these share transactions to be ‘bonus stripping’ in investors’ parlance and held them to be covered under section 94(8) CIT(A) further opined that since section 94(8) covered only ‘units’ and not ‘securities’, assessee’s claim for set-off of loss could not be rejected. Tribunal affirmed the order of CIT(A). (A.Y. 2007-08).

Dy. CIT v. B.G. Mahesh (2014) 64 SOT 39 (URO) / 43 taxmann.com 158 (Bang.)(Trib.)

278. S. 139 : Return of income – Revised return – Rejection of revised return was held to be not justified [Ss. 40(a)(ia), 139(5), 139(9)]

In the revised return, the assessee disallowed advertisement charges under section 40(a)(ia) for non-deduction of tax at source and also made a fresh claim for deduction of ‘loss on clearance sale’.

The AO taking a view that the filing of revised return itself was an afterthought, did not consider the revised return. However, he disallowed the advertisement expenses under section 40(a)(ia). Where assessee filed a revised return in accordance with provisions of section 139(5), revenue authorities were not justified in rejecting said return without following procedure prescribed under section 139(9) by merely taking a view that revised return was an afterthought and it was filed only to reduce assessee’s tax liability. (A.Y. 2006-07).

K. Kasi Vishwanathan & Bros. v. ACIT (2014) 64 SOT 154 (URO) / 42 taxmann.com 176 (Cochin) (Trib.)

279. S. 143(3) : Assessment – Bogus purchases – Merely because a party has admitted to indulging in sham/accommodation transactions does not mean that all his transactions with the assessee should be treated as sham. [S.69]

It is not in dispute that the survey action was conducted on a third party. It is also not in dispute that the assessee had business relation with Moxdiam Group, like so many other parties. It is also a fact that there is not even an iota of evidence with the AO, to prove that the assessee did not have straight dealings with the Moxdiam Group. It is also a fact that the assessee entered each of its transaction in its primary books, comprising of ledger and stock register. From the order of the AO, the DR could not establish before us that the transaction as recorded in the books was sham. We cannot accept a bald statement made by the AO that any transaction/business done with a party would be sham, simply because the opposite party besides doing regular business was also indulging in providing accommodation entries. Simply on the basis of statement given by the third party, that they were also providing accommodation entries as well, the conduct of the assessee cannot be doubted and held to be sham.(ITA No. 2239/Mum/2012, dt. 5-12-2014) (A.Y. 2007-08).

ACIT v. G. V. Sons (Mum)(Trib.)www.itatonline.org

280. S. 143(3) : Assessment – AIR information – Additions made solely on the basis of AIR information are not sustainable in law. The AO has to prove that assessee has received income from a particular source. The assessee cannot be expected to prove the negative

It has been held time and again by this Tribunal that the additions made solely on the basis of AIR information are not sustainable in the eyes of the law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative. Reliance can be placed in this respect on the decision of the Tribunal in the case of “DCIT v. Shree G. Selva Kumar” in ITA No.868/ Bang/2009 decided on 22-10-2010 and another case in the case of “Aarti Raman vs. DCIT” in ITA No.245/Bang/2012 decided on 5-10-2012. (5181/M/2012, dt. 5-12-2014) (A.Y. 2008-09)

ANS Law Associates v. ACIT (Mum) (Trib.) www. iatonline.org

281. S. 144C : Reference to transfer pricing officer – Draft assessment order – Order passed without passing draft order was held to be illegal [Ss. 92CA, 92C]

Where AO did not furnish to assessee a draft assessment order, before passing a final assessment order, assessee was deprived of an opportunity of approaching DRP under section 144C(15) and hence assessment order passed by AO illegal and liable to be quashed. Where show cause notice issued by AO before making ALP adjustment cannot be treated as a draft assessment order, nor assessee could have approached DRP against same. (A.Y. 2007-08) (ITA Nos. 1356 & 1371 Delhi) of 2012 dt 30-9- 2014)

Capsugel Healthcare Ltd. v. ACIT (2014) 50 taxmann.com 324 / (2015) 152 ITD 142 (Delhi) (Trib.)

282. S. 145 : Method of accounting – Cash system – Hire purchase agreement – Instalment received was to be included as income [S.4]

Where assessee, following cash system of accounting, sold certain flats under ‘hire purchase agreement’, amount of instalments received during relevant year was to be included in its income after allowing corresponding expenditure expended by assessee in cash or Cheque. (A.Y. 2003-04 to 2008-09).

ACIT v. Punjab Urban Development Authority, Mohali (2014) 64 SOT 65 (URO) / 32 ITR 481 / 161 TTJ 553 / 42 taxmann.com 160 (Chd.)(Trib.)

283. S. 192 : Deduction at source – Salary – Medical expenditure – Reimbursement made prior to incurrence of expenditure would be perquisite – Honest and bona fide estimate was made – No penalty could be imposed. [S. 17(2), 201, 201(IA)]

Assessee made payment to employee which included a component towards medical expenditure; accordingly, employees were paid a sum every month. Payment of medical reimbursement made prior to incurrence of expenditure up to Rs. 15,000 p.a. satisfied all conditions prescribed in proviso (v) to section 17(2) and, therefore, same would be treated as perquisite. Whether, since honest and bona fide estimate of salary taxable was made by employer, no penalty under section 201 and 201(1A) could be levied. (A.Y. 2008-09 and 2009- 10)

ACIT v. Cisco Systems Asia Services (2014) 64 SOT 32 (URO) / 38 taxmann.com 381 (2013)(Bang.) (Trib.)

284. S. 192 : Deduction at source – Salary – Meal coupons – Not perquisite – Not liable to deduct tax at source [Ss.17(2), 201(1)]

AO disallowed claim of expenditure incurred on food coupons disbursed by assessee-employer to its employees on ground that there was scope for misuse of these coupon as identity of users could not be verified. He held value of food coupons as part of salary liable to TDS under section 192 and raised demand under section 201(1) for nondeduction of TDS . On appeal, CIT(A) reversed order of AO. Tribunal following case of Cadila Healthcare Ltd. v. Addl. CIT [2013] 56 SOT 89 (URO)/29 taxmann.com 229 (Ahd.), order of CIT (A) was affirmed. (A.Y. 2008-09 and 2009-10).

ACIT v. Cisco Systems Asia Services (2014) 64 SOT 32 (URO) / 38 taxmann.com 381(2013)(Bang.)(Trib.)

285. S. 192 : Deduction at source – Salary – Leave Travel Concession [LTC] – Reimbursement of medical expenses – Not liable to deduct tax at source [Ss.10(5), 17(2)]

Assessee paid to its employee every month certain amount in advance towards leave travel concession [LTC]. Once employee completed his travel, he had to submit evidence for having incurred expenditure and it was on basis of such evidence, exemption was worked out by assessee in accordance with provisions of section 10(5) read with Rule 2B. Similarly assessee paid to its employee every month an amount of Rs. 1250 [Rs. 15,000 per annum] in advance towards medical reimbursement. Said amount was treated as exempt only if supported by bills and whenever bills were not submitted amount was treated as taxable salary. Assessee as employer deducted tax at source under section 192 at end of financial year. In peculiar facts of case assessee was not obliged to deduct tax at source on amount paid in advance towards LTC and medical reimbursement at time of making payment. (A.Y. 2007-08 to 2010-11)

ITO v. Goodrich Aerospace Services (P.) Ltd. (2014) 64 SOT 27 (URO) /(2013) 38 taxmann.com 37 (Bang.)(Trib.)

286. S. 192 : Deduction of tax at source – Salary – Perquisite – Meal vouchers – Not liable to deduct tax at source [Ss. 10(5), 17 (2), 201(1A]

Assessee as part of its plan provided to its employees meal vouchers/coupons, which were usable at centres within campus and also at certain eating joints. Disbursement of meal coupons by assessee to employees did not require tax to be deducted thereon under section 192. (A.Ys. 2007-08 to 2010-11)

ITO v. Goodrich Aerospace Services (P.) Ltd. (2014) 64 SOT 27 (URO) / (2013) 38 taxmann.com 37 (Bang.)(Trib.)

287. S. 194C : Deduction at source – Contractors – Sub-contractors – Machinery taken on monthly charges could not be covered by term ‘Work contract” – No disallowance could be made S.40(a)(ia)]

The assessee made payment to LDS Engineers towards ‘Excavation charges’. The AO held that the tax at source was required to be deducted on the payment made to LDS Engineers and the failure to do so attracted the provisions of section 40(a)(ia). He, therefore, made disallowance of the said sum. On appeal, the CIT(A) upheld the order of the AO and treated the amount paid to LDS Engineers as covered under section 194C. On appeal to the Tribunal held that it was found that said payment was made for hiring of machinery for excavation on fixed monthly rent. Machinery taken on monthly rental could not be covered by term ‘work contract. Therefore, no disallowance could be made under section 40(a)(ia) (AY. 2006-07) ( ITA Nos. 2082 and 2258 (Delhi) of 2010 dt. 12- 9-2014).

LDS Engineers (P.) Ltd. v. ITO (2014) 35 ITR 262 / 52 taxmann.com 163/ (2015) 152 ITD 140 (Delhi)(Trib.)

288. S. 194C : Deduction at source – Contractors and sub-contractors – Reimbursement of expenses – C&F agents on behalf of assessee – Not liable to deduct tax at source [Ss.40(a)(ia), 194J]

Where expenses were incurred by C&F agents on behalf of assessee and claims were made on actual basis, assessee while making reimbursement of said expenses was not liable to deduct tax at source under section 194C. (A.Y. 2005-06)

Dy. CIT v. Dhaanya Seeds (P.) Ltd. (2014) 64 SOT 15 / 42 taxmann.com 277 (Bang.)(Trib.)

289. S. 194C : Deduction at source – Contractors and sub-contractors – Responsibility to deduct tax at source on freight payments would depend upon terms of agreement entered/available between assessee and suppliers – Matter remanded

Where supplier takes responsibility to deliver goods to doorsteps of assessee, then it can be inferred that contract exists between lorry owners and supplier and in that case, even if assessee makes payment of freight charges, it would be considered as payment made to concerned supplier. On the other hand, if assessee is responsible to take delivery from doorsteps of supplier, then it can be inferred that contract exists between assessee and lorry owners and in that kind of situation, even if, supplier engages lorry, it has to be construed that supplier is acting as agent of assessee in process of booking of lorry for purpose of transportation of goods to assessee. Where AO took a view that assessee was liable to deduct tax at source on lorry freight payments without examining terms of agreement between assessee and suppliers, matter was to be remanded to AO to consider same afresh. Matter remanded. (A.Y. 2007-08).

Raja & Co. v. Dy. CIT (2014) 64 SOT 12 (URO) / (2013) 37 taxmann.com 268 (Cochin)(Trib.)

290. S. 194C : Deduction at source – Contractors and sub-contractors – Specific provision would prevail over general one – Maintenance work – Provisions of section 194C is applicable and not section 194J [Ss.194J, 201(IA), 207(1)]

Assessee-company had entered into contracts with various parties for maintenance work of its various equipments, installations, viz., airconditioners, lifts, etc. Same being contractual maintenance work, assessee deducted tax at source under section 194C. Revenue claimed that above work was of technical nature and same would be covered under section 194J and, thus, raised demand for shortfall in tax deducted as well as for interest thereon under section 207(1) and 201(1A). Since word ‘work’ is defined under section 194C in an inclusive manner to include certain specified services, viz., advertising, catering, broadcasting and telecasting, etc. present type of maintenance work would also clearly fall within ambit of ‘work’. Where it was clarified from bills issued by contractors that work like maintenance of equipment, cleaning and checking of parts, etc. was of routine nature and required less technical skills, assessee had correctly deducted tax at source under section 194C. Where there are two provisions, i.e., section 194C and section 194J, first one is general and other is specific covering a particular transaction, specific provision would prevail over general one. (A.Ys. 2007-08 to 2009-10)

ITO v. Bharat Sanchar Nigam Ltd. (2014) 64 SOT 138 / 45 taxmann.com 124 (Mum.)(Trib.)

291. S. 194C : Deduction at source – Contractors and sub-contractors – Hiring of truck would be an independent contract – Hire of trucks was in course of back to back hiring arrangements, it would be a sub-contract. [Ss.40(a)(ia), 194(2)]

Assessee was engaged in business of transport, hiring trucks and warehousing. He made payments of truck hire charges without deducting tax at source. AO disallowed payments under section 40(a)(ia). In case assessee used hired truck in course of carrying out his business of transportation of goods, it would be an independent contract and, thus, payments for truck hire could not be treated as payments to sub-contractor, in such a situation, provisions of section 194C(2) would not come into play, however, in case hire of trucks was in course of back-to-back hiring arrangements, it would clearly be a case of sub-contracting and provisions of section 194C(2) would come into play. Since there was no finding on aforesaid aspect, impugned disallowance was to be deleted and matter was to be remanded back for disposal afresh (A.Y. 2007-08).

Laxmandas Tolaram Gurnani v. ITO (2014) 64 SOT 143 (URO) / (2013) 35 taxmann.com 234 (Ahd.) (Trib.)

292. S. 194H : Deduction at source – Commission or brokerage – IATA approved agent – Discount – Commission paid to small time agent – Held not liable to deduct tax at source [Ss. 201, 201(IA)]

Assessee was an IATA approved agent and was engaged in business of booking air travel tickets for various airline companies. AO held that the assessee had been paying commission without deducting tax at source as required under section 194H raised demand. CIT(A) grouped payments in three categories viz., payments made to retail customers, group passengers and small time travel agents and held that only discounts/commission paid to small time agents were liable for TDS under section 194H. Since retail customers or group customers were not providing any service to assessee and were only getting flight tickets at a concession from assessee, such customers could not be considered as ‘agent’ of assessee and hence amount of commission ceded by assessee partook character of ‘discount’ only. Commission income ceded by assessee in respect of tickets purchased by small time travel agents on behalf of their respective customers, would partake character of ‘discount’ only, therefore, such discount payments would not be covered by provisions of section 194H. (A.Ys. 2006-07 to 2009-10)

ACIT v. Al Hind Tours & Travels (P.) Ltd. (2014) 64 SOT 1 / 29 taxmann.com 294 (Cochin)(Trib.)

293. S. 194-I : Deduction at source – Rent – Hired vehicle – Vehicle or motor car would stand to be included within purview of words ‘plant’ or ‘machinery’ under section 194-I – Making available services of a chauffeur as well as meeting fuel cost of transportation, same could not be considered towards car rental, and, thus, payment towards such contractual services would be covered by S. 194C. [S. 194C]

Assessee-company made payment towards hired vehicle and, accordingly, deducted tax at source under section 194C. According to revenue same was to be covered under section 194-I. Vehicle or motor car would stand to be included within purview of words ‘plant’ or ‘machinery’ under section 194-I. Arrangement for providing vehicle/cars to assessee’s personnel for their work would stand to be covered under section 194-I. Since arrangement also included making available services of a chauffeur as well as meeting fuel cost of transportation, same could not be considered towards car rental, and, thus, payment towards such contractual services would be covered by section 194C and balance amount would be governed by section 194-I. (A.Ys. 2007-08 to 2009-10).

ITO v. Bharat Sanchar Nigam Ltd. (2014) 64 SOT 138 / 45 taxmann.com 124 (Mum.)(Trib.)

294. S. 194J : Deduction at source – Fees for professional or technical services – Fixed salary and guarantee money to consultants cannot be termed as salary – AO was not justified in holding that there was not justified in holding that the assessee was liable to deduct tax as salary [Ss.192, 201].

Assessee-hospital engaged both employee doctors and consultant doctors. While employee doctors were entitled to salary, leave and medical benefit, consultant doctors were entitled only to lump sum monthly payment of guarantee money without above benefit. Along with guarantee money, they were entitled to share of amount collected by hospital. Impugned ‘Fixed salary and Guarantee Money to Consultants (FGC’s) contract’ between consultant doctors and assessee. A survey was carried out in the assessee-hospital and it was found that TDS was not correctly deducted by the assesseehospital. Thus, an order under section 201 was passed in which tax was imposed alleged to be on account of default under section 192 by the assessee-hospital in respect of engagement of consultant doctors.

The assessee-hospital claimed that there was no short deduction of tax as TDS was deducted as per provision of section 194J. The AO held that there was employer and employee relationship between said doctors and assessee-hospital, hence the deduction should have been done as per the provision of section 192. On appeal, the Commissioner (Appeals) accepted assessee’s claim by holding that payment made to doctors are professional fee for which the assesseehospital has rightly deducted tax under section 194J. On second appeal Tribunal held that the contract between consultant doctors and assessee hospital could not be said to be in nature of a ‘service contract’, it would merely be a contract for medical service. Fee for professional service paid to consultant doctors by assessee-hospital under contract was covered by section 194J. Therefore, the AO was not justified to impute or implicate such a default on the part of the assessee for failure to deduct an adequate tax. [para 8] (S. 194J dated 23rd December, 2010) (A.Y. 2007-08).

ITO v. Apollo Hospitals Internationals Ltd. (2014) 64 SOT 302 / 9 taxmann.com 95 (2011)(Ahd.)(Trib.)

295. S. 195 : Deduction at source – Non-resident – Commission – Foreign agent – Not liable to deduct tax at source. [S. 9(1)(i)]

Commission made by assessee to its foreign agents for rendering services abroad was not taxable in India and, thus, assessee was not required to deduct tax at source while making said payments (A.Y. 2009-10).

ACIT v. Model Exims (2014) 64 SOT 4 (URO) / 45 taxmann.com 140 (Luck.)(Trib.)

296. S. 195 : Deduction at source – Non-resident – Fees for technical services – Marketing agent- Payment made to foreign party was taxable in India – Liable to deduct tax at source [S.9(1)(vii)].

Assessee engaged company SR as marketing agent for South East Asian countries. Work of company SR was to identify potential customer and file a report regarding market strategy and developmental studies. Agreement did not enable company SR to market product of assessee in South East Asian countries. Company SR only had to do survey and file a report so that assessee could market their product after considering report filed by foreign party. Marketing survey and identifying potential customers for assessee’s product were only consultancy services and, therefore, payment made to foreign party was taxable in India and, hence, assessee was bound to deduct tax under section 195. (A.Ys. 2004-05 to 2006-07)

English Indian Clays Ltd. v. ACIT (2014) 64 SOT 25 (URO) / 39 taxmann.com 50 (2013) (Cochin)(Trib.)

297. S. 195 : Deduction at source – Non-resident – Co-owners – sale consideration was paid to nonresident co-owner, assessee was required to deduct tax at source while making said payment [Ss. 54 F, 195(2), 201(1)]

Assessee purchased a property owned by two co-owners. One of co-owner was a non-resident who had executed a General Power of Attorney in favour of other co-owner to execute sale agreement. In course of assessment, Assessing Officer opined that since one of co-owner was a non-resident, assessee was required to deduct tax at source under section 195 while making payment of sale consideration. In view of provisions of section 195, to extent sale consideration was paid to non-resident co-owner, assessee was required to deduct tax at source while making said payment. Therefore, it is held that the assessee can be considered as an ‘assessee in default’ only to the extent of Rs. 60 lakhs paid to the non-resident. (A.Y. 2009-10).

R. Prakash v. ITO (2014) 64 SOT 10 /(2013) 38 taxmann.com 123 (Bang.)(Trib.)

298. S. 195 : Deduction at source – Reimbursement of expenses – Not liable to deduct tax at source. [S. 40(a)(ia)]

AO held that payments made by assessee to UK based company were not in nature of reimbursement of expenses and, hence, liable for deduction of tax under section 195. CIT(A) upheld order of AO. Therefore, reimbursement made by assessee to UK Company was not liable for TDS. (A.Y. 2008-09)

ITO v. AON Specialist Services (P.) Ltd. (2014) 64 SOT 78 / 43 taxmann.com 286 (Bang.)(Trib.)

299. S. 195 : Deduction at source – Non-resident – Income deemed to accrue or arise in India – Business connection – Animation films – Outsourcing Facilities Agreement – Payment was not fees for technical services – Not liable to deduct tax at sources. [Ss.5(2)(b), 9(1)(vii), 195, 201]

Assessee company was in business of production of 2D and 3D animation films. Assessee got orders from various companies for production of animation films. During relevant years, assessee outsourced a part of project received from some clients. In that process, assessee made payment to foreign companies as per agreement named as ‘Outsourcing Facilities Agreement’. AO opined that payments made to foreign companies fell under ‘fees for technical services’ and thus said payments were taxable in India. Since there was no element of any technical services in production of animation films nor in production of a part or certain episodes of an animation film, provisions of section 9(1)(vii), read with section 5(2)(b) did not apply. Order of AO was set aside. (A.Ys. 2006-07 to 2008-09)

ADIT v. DQ Entertainment (International) (P.) Ltd. (2014) 64 SOT 152 / 164 TTJ 84 / 45 taxmann.com 17 (Hyd.)(Trib.)

300. S. 195 : Deduction at source – Nonresident – Hire charges – Credit entry attracts the provision – Disallowance of expenses was held to be justified. [S. 9(1)(i)

Assessee, a tax resident of Thailand, was engaged in execution of hydroelectric-power project of NTPC as a sub-contractor of another Thailand based company ITDL. ITDL provided certain machinery on hire to assessee-company. Assessee’s case was that since it did not pay hire charges by cash or cheque and ITDL had merely adjusted hire charges from dues to assessee on account of contract work done for ITDL, there was no obligation to deduct tax at source on account of said expenses. Revenue authorities rejected assessee’s claim. Method of settlement of accounts is of no consequence as even a credit entry attracts provisions of section 195. Therefore, impugned disallowance of hire charges on account of non-deduction of tax at source was to be confirmed. (A.Ys. 2005-06 to 2008-09).

Right Tunnelling Co. Ltd. v. ADIT (2014) 64 SOT 109 (URO) /45 taxmann.com 196 (Delhi)(Trib.)

301. S. 195 : Deduction at source – Nonresident – Business connection – Legal charges – Arbitration proceedings at Thailand – Not liable to deduct tax at source – Article 22 of Model OECD Convention [S. 9(1)(i)]

Payment of legal expenses made by assessee to a law firm in Thailand in relation to arbitration proceedings conducted in said country, was not chargeable to tax in India and, thus, assessee was not required to deduct tax at source while making said payments (A.Y. 2005-06 to 2008-09).

Right Tunnelling Co. Ltd. v. ADIT (2014) 64 SOT 109 (URO) /45 taxmann.com 196 (Delhi)(Trib.)

302. S. 201 : Deduction at source – Failure to deduct or pay – Limitation – order passed by AO was prior to 31-3-2011 would not be a case of retrospective operation of provision of section 201(3)

Legislature introduced limitation for passing order under section 201 by Finance Act, 2009 with effect from 1-4-2010. In respect of financial year before 1-4-2007 a period was prescribed saying that order may be passed on or before 31-3-2011. For relevant assessment years, order passed by AO was prior to 31-3-2011 would not be a case of retrospective operation of provision of section 201(3); it was only a regular operation of law. (A.Ys. 2004-05 to 2006-07).

English Indian Clays Ltd. v. ACIT (2014) 64 SOT 25 (URO) / 39 taxmann.com 50 (2013) (Cochin)(Trib.)

303. S. 246A : Appeal – Commissioner (Appeals) – Appealable orders – Tribunal – Levy of penalty – Appealable to CIT(A) and not Tribunal [Ss.253, 272A(2)(c)]

JDIT levied penalty under section 272A(2)(c) upon assessee. Against penalty order, assessee directly filed appeal before Tribunal. Tribunal held that penalty order passed by JCIT, who was lower in rank than CIT (A), was appealable before CIT(A) section 246A(1)(q), therefore, assessee had to file appeal before CIT(A) instead of directly filing before Tribunal. (A.Y. 2011-12).

Branch Manager, Punjab National Bank v. ITO (2014) 64 SOT 24 (URO) / (2013) 37 taxmann.com 385 (Cochin)(Trib.)

304. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Non mentioning in the assessment order cannot be held to be erroneous. [Ss. 43A, 80IA, 115JB, 143(3)]

The assessee was a company engaged in generation of power. After verifying the books of account and information submitted by the assessee, the AO completed the assessment under section 143(3) after allowing deduction under section 80-IA while accepting the book profit under section 115JB.

AO in course of scrutiny proceeding conducted detailed enquiry assessee also submitted its explanation explaining why it should not be treated as income. Since in view of decision of Supreme Court view taken by AO was possible view, only because view taken by AO did not appear to be correct to Commissioner, it could not be said that such view was erroneous and prejudicial to interests of revenue. Assessee treated gain derived from sale of Carbon Emission Reduction Certificates (CERCs) as revenue receipt and claimed deduction under section 80-IA which was allowed by AO. Commissioner, in order passed under section 263, held that gain from sale of CERCs having no direct nexus with eligible business of assessee, it could not be part of business profit so as to allow deduction under section 80-IA. Whether amount received on sale of CERCs was capital in nature and, therefore, even if AO had allowed deduction on that amount under section 80-IA treating it as revenue income, no prejudice was caused to revenue which is one of conditions for invoking jurisdiction under section 263.

Where reimbursement of advance tax by parties was not treated as income in assessee’s books of account, same also cannot be considered under provisions of section 115JB, which is to be computed based on profit and loss account of assessee-company.

Non-mentioning of all issues on which enquiry was made by AO in body of assessment order does not indicate lack of enquiry or non-application of mind; non-mentioning of such facts in assessment order would not make it erroneous and prejudicial to interests of revenue (A.Y. 2008-09)(ITA No. 897 (Hyd) of 2013 dated 26-6-2014)

Lanco Kondapalli Power Ltd. v. JCIT (2014) 33 ITR 142 / 50 taxmann.com 442 / (2015) 152 ITD 132 (Hyd.) (Trib.)

305. S. 271(1)(c) : Penalty – Concealment – Even if section 50C is applicable, computing capital gain de hors it does not amount to furnishing inaccurate particulars of income or concealment of income for levy of penalty u/s 271(1)(c) [S.50C]

The assessee sold office premises to its sister concern for a sale consideration of Rs. 1.55 crores. The Assessing Officer considered the full sale consideration as per stamp duty authority valuation at Rs. 2,00,08,000 in accordance with section 50C of Income-tax Act. Accordingly, the Assessing Officer made an addition to the Short term Capital Gain. Subsequently, the Assessing Officer initiated penalty proceedings u/s. 271(1) (c) for levy of penalty against the addition made to the short term Capital Gain and levied penalty. The CIT(A) has deleted the penalty. On appeal by the department to the Tribunal HELD dismissing the appeal:

The Assessing Officer has not given any finding that the sale consideration disclosed by the assessee is not actual amount received as per the agreement of sale. The addition was made by invoking the deeming provisions of section 50C whereby the full value of consideration was adopted as per the valuation of the stamp duty authority for levy of stamp duty. The assessee has disclosed all relevant details as well as documents in support of its computation of Short term capital gain by taking into consideration the actual sale consideration received by the assessee. Consequently penalty u/s. 271(1)(c) cannot be levied.(ITA No. 6454/ Mum/2011, dt. 10.12.2014.) (A.Y. 2008-09).

ACIT v. Sunland Metal Recycling (Mum)(Trib.) www. itatonline.org

306. S. 271(1)(c) : Penalty – Concealment –Reducing the sale proceeds of trial production from work in progress – Not liable penalty. [S.28(i)

Assessee company was engaged in business of scientific research and informatics services for drug discovery units. Assessee filed its return declaring certain taxable income. During assessment proceedings, AO noticed that certain amount representing trial run receipts was reduced from total sales and credited to work-in-progress capitalised in balance sheet. Assessee had not offered said amount to tax contending that project in respect of such trial run receipts were incomplete. AO treated amount received during trial run period as a regular activity and included it in total sales. He also levied penalty. It was noted that entire working of computation of work-inprogress by reducing amount of trial run receipts was properly disclosed in balance sheet which was a part of books of account produced before AO. Moreover, stand of assessee in reducing trial run receipts from work-in-progress for capitalisation was consistent with one taken in preceding year. On facts, there was no concealment of particulars of income and, therefore, impugned penalty order was to be set aside. (A.Y. 2004-05).

Jubilant Biosys Ltd. v. ITO (2014) 64 SOT 99 (URO) / 46 taxmann.com 289 (Delhi)(Trib.)

307. S. 271(1)(c) : Penalty – Concealment – Appeal admitted by High Court on substantial question of law – If the High Court admits the appeal u/s. 260A, it means that the issue is debatable and penalty cannot survive. [S.260A]

When the Hon’ble jurisdictional High Court has admitted substantial question of law on the addition, it becomes apparent that the addition so made has become debatable. The penalty was imposed on the basis of addition so made, therefore, when the addition on the basis of which the penalty was imposed has become doubtful/ debatable, therefore, penalty imposed u/s. 271(1)(c) of the Act cannot survive. Following the Hon’ble jurisdictional High Court, in CIT v. Nayan Builders and Developers (ITA No. 415/2012 dated 8-7-2014), the appeal of the assessee is allowed. However, it is made clear that if at any stage, the order of the Tribunal on quantum addition is upheld by the Hon’ble High Court, the Department is free to proceed in accordance with law on penalty proceedings. (ITA No. 8223/Mum/2010, dated 1-1-2015 ‘ E’.) (A.Y. 2004-05).

Schrader Duncan limited v. ACIT (Mum.)(Trib.); www. itatonline.org

308. S. 271(1)(c) : Penalty – Concealment –ESOP – Assessable as salary – Not liable to penalty. [Ss. 45, 54F]

Assessee contended that benefit arising from employees stock option is assessable as long term capital gains and benefit of section 54F is entitled. Revenue contended that the same is chargeable to tax under head ‘salaries’ and consequently, denied benefit of section 54F. Tribunal held that as bona fides of assessee could not be doubted and assessee was entitled to benefit of Explanation 1 to section 271(1)(c) (AY. 2006-07).

ACIT v. Chittaranjan A. Dasannacharya (2014) 64 SOT 226 / 45 taxmann.com 338 (Bang.)(Trib.)

309. S. 271FA : Penalty – Annual information return – Failure to furnish – Appeal is not maintainable to Tribunal – Appeal is maintainable to CIT(A). [Ss. 246A, 253]

DIT(I) levied penalty. In demand notice it was mentioned that an appeal could be filed under Part B of Chapter XX to Tribunal in Form No. 36. Against order of DIT(I) levying penalty the assessee filed appeal before Tribunal. Nowhere in section 253 it was mentioned that order passed by DIT(I) or any other officer of Income-tax department levying penalty under section 271FA was appealable before Tribunal, therefore, instant appeal was not maintainable before Tribunal. (A.Y. 2010-11)

SRO, Meppayur-Kozhikode v. DIT (2014) 64 SOT 10 (URO) / (2013) 26 ITR 341 /37 taxmann.com 36) (Cochin)(Trib.)

310. S. 272A(2)(c) : Penalty – Appeal – CIT(A) – Tribunal – Appealable orders – Levy of penalty – Appealable to CIT (A) and not Tribunal. [Ss. 246A, 253]

JDIT levied penalty under section 272A(2)(c) upon assessee. Against penalty order, assessee directly filed appeal before Tribunal. Tribunal held that penalty order passed by JCIT, who was lower in rank than CIT(A), was appealable before CIT(A) section 246A(1)(q), therefore, assessee had to file appeal before CIT(A) instead of directly filing before Tribunal (A.Y. 2011-12).

Branch Manager, Punjab National Bank v. ITO (2014) 64 SOT 24 (URO) / (2013) 37 taxmann.com 385 (Cochin)(Trib.)

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