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S.2(22)(e) : Deemed dividend –Any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a “shareholder”
Dismissing the appeal of the revenue, the Court held that; Any payment by a closely held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a “shareholder”. (CA. No. 3961 of 2013 dt. 5-10-2017)
CIT v. Madhur Housing and Development Co. (SC); www.itatonline.org
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S.9(1)(i) : Income deemed to accrue or arise in India – Permanent Establishment (PE) – “fixed place of business”, “service PE” and “agency PE” – The fact that there is close association and dependence between the US company and the Indian companies is irrelevant. The functions performed, assets used and risk assumed, is not a proper and appropriate test to determine whether there is a location PE – DTAA-India -USA [Article 5]
Dismissing the appeal of the revenue the Court held that the fact that there is close association and dependence between the US company and the Indian companies is irrelevant. The functions performed, assets used and risk assumed, is not a proper and appropriate test to determine whether there is a location PE. (CA No. 6082 of 2015, dt. 24-10-2017) (AY. 2001-02 to 2007-08)
ADIT v. E-Funds IT Solution Inc (SC), www.itatonline.org
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S.10(37) : Capital Gains –Agricultural land – payment of compensation on agreed terms in respect of the land acquired is entitled for exemption
The issue in this case was as to whether the payment of compensation on agreed terms in respect of the land acquired would be entitled for exemption u/s. 10(37). SC held in favour of the assessee relying on the decision of the SC in Balakrishnan v. Union of India (2017) 391 ITR 178 where it was held that even if the amount of compensation is paid on agreed terms it would not change the character of the acquisition from that of compulsory acquisition to the voluntary sale and the exemption provided under the Income-tax Act would be available.
UOI v. Infopark Kerala (2017) 154 DTR 99/ 247 Taxman 219/ 297 CTR 219 (SC)
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S.11 : Property held for charitable purposes – Cash credits – Donations as cash credits – Denial of exemption was not justified [S. 12A, 68 ]
Dismissing the appeal of the revenue the Court held that denial of exemption was not justified on the ground that donations was treated as cash credits. DIT v. Keshav Social and Charitable Foundation (2005) 278 ITR 152 (Delhi) (HC) (AY. 1998-99)
DIT v. Keshav Social and Charitable Foundation. (2017) 394 ITR 496 (SC)
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S.44BB : Mineral oils – Computation – Amounts received as “mobilisation fee” on account of provision of services and facilities in connection with the extraction etc., of mineral oil in India attracts S. 44BB and have to be assessed as business profits [Ss.5, 9(1)(i) ]
Dismissing the appeal of the assessee the Court held that the amounts received as “mobilisation fee” on account of provision of services and facilities in connection with the extraction etc., of mineral oil in India attracts S. 44BB and have to be assessed as business profits. S. 44BB has to be read in conjunction with ss. 5 and 9 of the Act. Ss. 5 and 9 cannot be read in isolation. The argument that the mobilisation fee is “reimbursement of expenses” and so not assessable as income is not acceptable because it is a fixed amount paid which may be less or more than the expenses incurred. Incurring of expenses, therefore, would be immaterial. Also, the contract was indivisible.
Therefore, the ultimate conclusion drawn by the AO, which is upheld by all other authorities is correct, though some of the observations of the High Court may not be entirely correct which have been straightened by us in the above discussion. For our aforesaid reasons, we uphold the conclusion. Resultantly, all the appeals of the assessees are dismissed. (CA. No. 4906 of 2010, dt. 30-10-2017).
Sedco Fores International Inc v. CIT (SC), www.itatonline.org
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S.32 : Depreciation – Cost of acquisition – For purpose of allowing depreciation in respect of acquisition of thermal power station, actual purchase price accepted by Central Electricity Regulatory Commission was to be regarded as basis and not value of tariff determined under Electricity Act
Assessee acquired a Thermal Power Station owned by State Government for a consideration of
₹ 1,000 crores. Central Electricity Regulatory Commission accepted transfer price of
₹ 607.00 crores but for purpose of depreciation, restricted computation to
₹ 431.09 crores which was the value of tariff under Electricity Act. Appellate Tribunal took a view that treatment for depreciation under Act and for determination of tariff under Electricity Act were different. Accordingly, Appellate Tribunal upheld order of Regulatory Commission. Supreme Court held that actual purchase value had to be basis for computing depreciation.N.T.P.C. Ltd. v. Central Electricity Regulatory Commission (2017) 247 Taxman 97 (SC)
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S.45 : Capital Gains – Joint development agreement – There was no transfer of land where development agreement entered into between developer and housing society for development of certain land owned by society was not registered [S 2(47)(v), 48 Transfer of Property Act, 1882, S. 53A, Indian Registration Act, 1908, Ss. 17, 49]
Dismissing the appeal of the revenue, the Court held that in the present case, the assessee did not acquire any right to receive income, in as much as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income-tax Act.
Footnote: The maxim “noscitur a sociis” has been repeatedly applied by this Court. A recent application of the maxim is contained in Coastal Paper Limited v. Commissioner of Central Excise, Visakhapatnam, (2015) 10 SCC 664 at 677, para 25. This maxim is best explained as Birds of a Feather Flocking Together. The maxim only means that a word is to be judged by the company it keeps. (CA No. 15619 of 2017, dt. 4-10-2017)(AY. 2007-08)
CIT v. Balbir Singh Maini (SC), www.itatonline.org
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S.45(5) : Capital gains –Compulsory acquisition – Enhanced compensation and interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter are liable to be assessed for income tax in the year in which it has been received [Ss. 45, 155(16)]
Allowing the appeal of the revenue; the Court held that; the enhanced compensation and interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter are liable to be assessed for income tax in the year in which it has been received. CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) followed. (CA.No 13053/2017, dt. 12-9-2017)
CIT v. Chet Ram (HUF) (SC) www.itatonline.org
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S.80IA : Industrial undertakings – Infrastructure development – Bottling of Liquefied Petroleum Gas (LPG) Cylinders amounted to ‘production’ and the same was eligible for the deduction. [Ss.80HH, 80I]
Assessees were engaged in the process of bottling Liquefied Petroleum Gas (LPG) Cylinders. They claimed benefit of Sections 80HH, 80-I and 80-IA. The issue before the SC was as to whether bottling of LPG amounted to ‘production’ or ‘manufacturing’. SC observed that LPG obtained from the refinery undergoes a complex technical process in the assessees’ plants and is clearly distinguishable from the LPG bottled in cylinders and cleared from these plants for domestic use by customers. SC held that the activity of the assessee amounted to ‘production’.
CIT v. BPCL (2017) 155 DTR 97 / 297 CTR 3/ 396 ITR 696/250 Taxman 1 (SC)
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S.80-IA : Industrial undertakings – Depreciation had to be reduced for computing the profits eligible for deduction, as section 80-IA is a complete code by itself. If the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided u/s. 80-IA of the Act which cannot be permitted [S.32]
Dismissing the appeal the Court held that ; main thrust of argument was predicated on the judgment of this Court in Mahendra Mills (2000) 243 ITR 56, which according to us, cannot be applied while interpreting Section 80-IA of the Act. It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted. (CA No. 238/2012, dt. 9-10-2017)(AY. 1997-98 to 2000-01)
Plastiblends India Limited v. ACIT (SC), www.itatonline.org
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S.80P : Co-operative societies – Mutuality – Nominal members – Depositors and borrowers are quite distinct – Activity of finance business cannot be termed as co-operative society – Benefit is not available
Dismissing the appeal of the assessee the Court held that an assessee cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members if it has carved out a category called ‘nominal members’. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and in fact, they are not members in the real sense. Most of the business of the assessee was with this category of persons who have been giving deposits which are kept in fixed deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc., to the members of the first category. It is found that the depositors and borrowers are quite distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. Therefore the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80-P of the Act. (CA No. 10245 of 2017, dt. 8-8-2017)
The Citizens Co-operative Society Ltd. v. ACIT (SC), www.itatonline.org
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S.115-O : Domestic companies – Tax on distributed profits –Constitutionally valid – Tea companies are liable for the tax on only 40% of the dividend shall be altering the provisions of section 115-O for which there is no warrant [Constitution of India, [Article 246 ]
Allowing the appeal of revenue and dismissing the appeal of assessee the Court held that the provisions of Section 115-O are well within the competence of Parliament. To put any limitation in the said provision as held by the Calcutta High Court that additional tax can be levied only on the 40% of the dividend income shall be altering the provision of Section 115-O for which there is no warrant. The Calcutta High Court having upheld the vires of Section 115-O no further order was necessary in that writ petition.(CA No. 9178 of 2012, dt. 20-9-2017)
UOI v. Tata Tea Co. Ltd. (SC), www.itatonline.org
George Williamson (Assam) Ltd. v. UOI www.itatonline.org
UOI v. Apeejay Surendra Corporate Service Ltd., www.itatonline.org
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S.119 : Central Board of Direct Taxes – Instructions – The CBDT has no jurisdiction to issue a Circular to amend the legislative provisions set out in the Act. Such action is ultra vires and liable to be quashed [R. 68B]
The Department filed an appeal to challenge the judgment of the Andhra Pradesh High Court in S. V. Gopala Rao v. Commissioner of Income-tax 270 ITR 433 (AP) where it was held that the CBDT had no jurisdiction under section 119 of the Act to issue a Notification [see [1996] 218 ITR (St.) 121] to amend Rule 68B of the Second Schedule to the Act. HELD by the Supreme Court dismissing the appeal:
The Central Board of Direct Taxes (CBDT) issued a Circular under Section 119 of the Income-tax Act, 1961. In fact, it amended the provisions contained in Rule 68B of the IInd Schedule to the Income-tax Act, 1961, which otherwise has statutory force. Such legislative provisions cannot be amended by CBDT in exercise of its power under Section 119 of the Act. The High Court has, therefore, rightly held the circular ultra vires and quashed the same. (CA No. 4901/2010, dt. 13-7-2017)
CIT v. S. V. Gopala Rao (SC); www.itatonline.org
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S.119 : Central Board of Direct Taxes – Instructions – Appeal –Low tax effect circular – The CBDT cannot issue any circular having retrospective operation – The fact that the CBDT itself vide Circular dated 10-12-2015 directed that the instruction to withdraw low tax effect appeals will apply retrospectively to pending appeals has no bearing [S. 260A, 268A]
The question raised in this batch of Appeals is as to whether the instructions/circular issued by the Central Board of Direct Taxes on 9-2-2011 will have retrospective operation or not.
This Court in CIT v. Suman Dhamija(CA.Nos.4919-4920/2015) has held that instructions/circular dated 9-2-2011 is not retrospective in nature and they shall not govern cases which have been filed before 2011, and that the same will govern only such cases which are filed after the issuance of the aforesaid instructions dated 9-2-2011.
Learned counsel for the respondents relied upon circular dated 10th December, 2015 and specifically relied upon paragraph 10. We are of the considered opinion that the Central Board of Direct Taxes cannot issue any circular having retrospective operation. Respectfully following the above decision, we allow the instant appeals. The impugned order passed by the High Court dated 2-11-2011 in ITA No. 887/2006 is set aside. The matter(s) is/are remitted back to the High Court for readjudication on merits and in accordance with law. (CA No. 6815/2017, dt. 12-10-2017)
CIT v. Gemini Distilleries (SC); www.itatonline.org
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S.132 : Search and seizure – Reason to believe – Not disclosing of the recording of reasons for search and seizure action, cannot be held to be invalid [S. 132A]
Dismissing the petition the Court held that ; the plea that the search proceedings initiated u/s. 132 are invalid and that the block assessment proceedings are without jurisdiction cannot be entertained because s. 132A provides that the ‘reason to believe’ or ‘reason to suspect’, as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal as recorded by Income Tax Authority u/s. 132 or 132A. (CA No. 5216/2008, dt. 13-9-2017.)
N. K. Jewellers v. CIT (SC), www.itatonline.org
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S.153A : Assessment – Search – stayed the operation of judgment of Delhi High Court in Dayawanti Gupta v. CIT
Supreme Court stays operation of the judgment of the Delhi High Court in Dayawanti Gupta v. CIT 390 ITR 496 (Delhi)(HC). The High Court dealt with the issue whether an assessment u/s. 153A can be made even if no incriminating material has been found during s. 132 search proceedings. Court held “Issue notice returnable within four weeks. There shall be stay of operation of the impugned order, in the meantime.” (SLP No. 20559/2017, dt. 3-10-2017)
Dayawanti v. CIT (SC), www.itatonline.org
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S.153A : Assessment – Search – Jurisdiction – Seized documents must have corelation, document wise, with assessment year and money bullion or jewellery or other valuable articles or things etc. requisitioned belong to other person – Assessment was held to be bad in law [S.153C]
Dismissing the appeal of the revenue, the Court held that the seized incriminating material have to pertain to the AY in question and have corelation, documentwise, with the AY. This requirement u/s. 153C is essential and becomes a jurisdictional fact. It is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of account or documents seized or requisitioned should belong to a person other than the person referred to in S. 153A. Kamleshbhai Dharamshibhai Patel 31 taxmann.com 50 (Guj.) approved. SSP Aviation (2012) 346 ITR 177 (Del.) distinguished. (CA. Nos. 11080 of 2017, dt. 29-8-2017)(AY. 2000-01 to 2003-04)
CIT v. Singad Technical Education Society (SC); www.itatonline.org
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S.254(1) : Appellate Tribunal – Powers – Additional grounds – Tribunal was justified in admitting the additional grounds which are raised for the first time before the Tribunal on the issue of jurisdiction [Ss.153A, 153C]
Dismissing the appeal of the revenue, the Court held that Tribunal was justified in admitting the additional grounds which are raised for the first time before the Tribunal on the issue of jurisdiction. (CA. No. 11080 of 2017, dt. 29-8-2017)
CIT v. Singad Technical Education Society (SC); www.itatonline.org
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S.254(1): Appellate Tribunal –Business expenditure – Matter remanded to Tribunal [S. 37(1)]
Allowing the appeal of the revenue, the Court held that
(i) The need to remand the case to the Tribunal, has occasioned because firstly, the question as to whether the fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under the Income-tax Act and, if so, in which year of assessment is a mixed question of law and fact. Secondly, it was neither decided by any of the authorities below and nor by the Tribunal and the High Court. It may be that since the Revenue itself did not raise it before the authorities below and raised it for the first time before this Court by simply placing reliance on the provisions of the Act and the two Rules mentioned above, this Court cannot decide the same in this appeal, for the first time for want of factual material and legal issues attached to it.
(ii) In our considered opinion, in order to decide the issue of deduction, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over the question. It is also clear that the respondent did not get any chance to meet this submission before the courts/authorities below. It is for these reasons, we are of the view that the matter needs to be remanded to the Tribunal for its proper adjudication.
(iii) The Tribunal being the last adjudicatory authority in hierarchy on facts would be in a better position to decide the issue after taking into account the documents filed by the parties in support of their respective contentions. Depending upon the decision of the Tribunal, the parties can carry the matter to the higher Courts. (CA No. 2015 of 2007, dt. 17-8-2017)(AY. 1992-93)
CIT v. Travancore Cochin Udyoga Mandal (SC); www.itatonline.org
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S.260A : Appeal – High Court – Right of appeal is not a matter of procedure. It is a substantive right. Court fee payable shall be the one which was payable on the date of such assessment order
Allowing the appeal the Court held that; in the present case when Section 260A of the IT Act was introduced by way of amendment with effect from October 1, 1998, it contained provision in the form of clause (2) of sub-section (2) thereof relating to payment of court fee as well. As per that provision, fixed court fee of
₹ 2,000/- was provided. This provision was, however, omitted with effect from June 1, 1999. The Court fee became payable as per Section 52 of the 1959 Act. The amendment in question in the 1959 Act, i.e. Section 52A, was made effective from March 6, 2003. This provision has not been made retrospective.Court accordingly held that wherever assessee is in appeal in the High Court which is filed under Section 260A of the IT Act, if the date of assessment is prior to March 6, 2003, Section 52A of the 1959 Act shall not apply and the Court fee payable shall be the one which was payable on the date of such assessment order. In those cases where the Department files appeal in the High Court under Section 260A of the IT Act, the date on which the Appellate Authority set aside the judgment of the Assessing Officer would be the relevant date for payment of Court fee. If that happens to be before March 6, 2003, then the Court fee shall not be payable as per Section 260A of the IT Act on such appeals. Court held that right of appeal gets vested in the litigants at the commencement of the lis and such a vested right cannot be taken away or cannot be impaired or imperilled or made more stringent or onerous by any subsequent legislation unless the subsequent legislation said so either expressly or by necessary intendment. An intention to interfere with or impair or imperil a vested right cannot be presumed unless such intention be clearly manifested by express words or by necessary implication. (CA. No. 3131 of 2006, dt 10-8-2017)
K. Raveendranathan Nair v. CIT (SC), www.itatonline.org
Wealth-tax Act, 1957
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S.27A : Appeal – High Court – “Substantial question of law” The High Court cannot proceed to hear a Second Appeal without formulating the substantial question of law involved in the appeal and if it does so it acts illegally and in abnegation or abdication of the duty case on Court [IT Act, S. 260A, Code of Civil Procedure, S. 100 ]
The Questions raised before the Court is whether the High Court was justified in allowing the appeals filed by the Revenue and thereby setting aside the orders passed by the Tribunal. Allowing the appeals the Court held that, The High Court cannot proceed to hear a Second Appeal without formulating the substantial question of law involved in the appeal and if it does so it acts illegally and in abnegation or abdication of the duty case on Court. The Hon’ble Court analysed the provision of section 100 of the Code of Civil Procedure and section 27A of the Wealth-tax Act, 1957. Referred Santosh Hazari v. Purushottam Tiwari (Deceased) by L.Rs., (2001) 3 SCC 179. Kshitish Chandra Purkait v. Santosh Kumar Purkait, (1997) 5 SCC 438 Panchugopal Barua v. Umesh Chandra Goswami, (1997) 4 SCC 413 and Kondiba Dagadu Kadam v. Savitribai Sopan Gujar, (1999) 3 SCC 722.). (CANo. 1349 of 2007, dt. 5-9-2017.) (AYs. 1981-82, 1982-83, 1983-84)
Maharaja Amrinder Singh v. CWT (SC); www.itatonline.org
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S.7 : Valuation of immovable properties under the ‘rent capitalisation’ method – ‘Land and building’ method – Valuation on the basis of land and building method was held to be justified. Interpretation that, when there are two methods of valuation the method of valuation which is favourable to the assessee may be adopted was accepted. [S.16A]
Dismissing the appeal of the assessee the Court held that High Court has expressed opinion that Wealth Tax Officer was justified in adopting the land and building method. One of the reasons given by the High Court is that if there is loss in the business or in other words there is negative income, it cannot be possible to say that the property in question has no marketable value. Learned counsel for the appellants has submitted that in the relevant year the income was earned. The proposition which was laid down by this Court was that if two reasonable constructions of taxing statute are possible, that construction which favours the assessee must be adopted. The above proposition cannot be read to mean that under two methods of valuation if the value which is favourable to assessee should be adopted. Here in the present case, the provisions of Section 7 are neither unambiguous nor lead to two constructions. The construction of Section 7 is clear as has already been elaborately considered by this Court in the judgment of this Court in Juggilal Kamlapat Bankers v. WTO (1984) 145 ITR 485 (SC). The Wealth Tax Officer having referred the Departmental Valuer to value the property, in consequent to which reference for valuation report having already been received on 26-7-1977 which has relied in the assessment. Objections to the valuation report were considered by the Appellate Authority and having been rejected, we do not find any fault with the assessment made by the Wealth Tax Officer. We are of the view that the High Court did not commit any error in interfering with the order of ITAT.Interpretation that, when there are two methods of valuation the method of valuation which is favourable to the a. 3836 of 2011, dt. 13-10-2017)(AYs. 1970-71 to 1974-75)
Bimal Kishor Paliwal v. CWT (SC), www.itatonline.org
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Hindu law – HUF – The burden lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property
It is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property. The plaintiffs failed to prove this material fact for want of any evidence.(CA. No. 11220 of 2017, dt. 6-9-2017)
Adveppa v. Bhimappa (SC); www.itatonline.org