DIRECT TAXES – Supreme Court

Research Team

 

  1. S. 12AA : Procedure for registration – Trust or institution-: Application for registration u/s. 12AA denied as the society collected capitation fees at the time of admission to the college run by it

Appeals were filed before the Supreme Court by two assessees – Karnataka Chamber of Commerce and Industry and by Travancore Education Society.

Karnataka Chamber withdrew its appeal filed in the Supreme Court as it had opted to resolve its dispute under Vivad Se Vishwas Scheme, 2020. Travancore Education Society’s appeal before the Supreme Court challenged the High Court decision which had upheld the CIT’s order denying the assessee’s application for registration u/s. 12AA on the basis that the object of the society was not charitable as it collected capitation fee at the time of admission of students to its engineering college. Supreme Court dismissed Travancore Education Society’s appeal observing that there was no ground to interfere with the order passed by the High Court. [CA Nos 7664 of 2009 / 1955 of 2015 dt. 21st January 2021]

Karnataka Chamber of Commerce and Industry v. CIT (2021) 431 ITR 50/ 319 CTR 651 /199 DTR 305 (SC)

  1. S. 28(i) : Business Loss – Foreign exchange fluctuation loss – Mark to Market basis – SLP of revenue is dismissed. [S.37(1)]

SLP of revenue is dismissed, foreign exchange fluctuation loss. Mark to Market basis. From the Judgement of Gujarat High Court (ITA No. 1000 of 2017 dt. 27-6-2018 (AY. 2009-10)

PCIT v. Suzlon Energy Ltd. (2021) 276 Taxman 85 (SC)

Editorial: Followed, PCIT v. Suzlon Energy Ltd (SLPNo. 1422 of 2019 dt. 17-1-2020 ( SC)

  1. S. 40(a)(iib):Amounts not deductible -: Payment by a State Government undertaking to State Government – Matter remanded to the High Court to decide the constitutional validity of section 40(a)(iib)

Assessee had filed a writ petition before the High Court challenging the constitutional validity of section 40(a)(iib) of the Act urging that the said provision was discriminatory and violative of article 14 of the Constitution of India. High Court dismissed the writ petition without deciding the validity of section 40(a)(iib) holding that such a challenge need not be entertained at this stage as the AO in the pending assessment proceeding had issued a show cause notice as to why VAT expenditure need not be disallowed u/s. 40(a)(iib). High Court held that the challenge to the vires of the provision could be raised at an appropriate moment. Supreme Court held that the High Court ought to have decided the challenge to the vires of section 40(a)(iib) as the vires of a provision goes to the root of the matter. Supreme Court observed that as show cause notice was issued by the AO the assessee had approached the Court at the right moment and it need not have waited till the assessment was finalized. Supreme Court remanded the matter back to the High Court to decide the vires of section 40(a)(iib). [CA No. 3821 of 2020 dt. 25.11.2020]

Tamil Nadu State Marketing Corporation Ltd. v. UOI (2020) 429 ITR 327 317 CTR 961 / 196 DTR 289 (SC)

  1. S. 80P: Co-operative societies – Section 80P must be read liberally and reasonably and in case of ambiguity, in favour of the assessee – once a co-operative society provides credit facilities to its members, the fact that it also provides credit facilities to non-members does not disentitle it from availing of the deduction u/s. 80P(2)(a)(i) – s. 80P(2)(a)(i) does not require that the society has to give agricultural credit only – s. 80P(4) is to be read as a proviso which excludes co- operative banks which are co- operative societies engaged in banking business and not primary agricultural credit societies

Assessee provided credit facilities to its members for agricultural and allied purposes and was classified as primary agricultural credit society by the Registrar of Co-operative Societies under the Kerala Co-operative Societies Act, 1969. It claimed deduction under s. 80P(2)(a)(i) of the Income-tax Act. Post insertion of
S. 80P(4) which denied deduction to co-operative bank other than primary agricultural credit society, etc. AO denied the claim for deduction holding the agricultural credits given by the assessee to its members were negligible and that the credits given to such members were for purposes other than agricultural credit. Supreme Court held that section 80P being a benevolent provision must be read liberally and reasonably and in case of any ambiguity it must be interpreted in favour of the assessee. Supreme Court observed that section 80P(2) (a)(i) which covers a co-operative society engaged in the business of banking or providing credit facilities to its members does not require that the assessee has to be a primary agricultural credit society. Supreme Court noted that section 80P(2)(a)(i) does not require that the society has to give agricultural credit only. It further observed that once the co-operative society provides credit facility to its members, the fact that it also provides credit facility to non-members does not disentitle the society from availing of deduction. However, profits attributable to loans given to non-members cannot be deducted. Supreme Court observed that the object of section 80P(4) was to exclude co-operative banks that function at par with other commercial banks and noted that as primary agricultural credit societies are not entitled for obtaining a banking license would not be hit by this provision. [CA Nos. 7343-7350 and 8315 of 2019 dt. 12.01.2021) (AY. 2007 – 08 to 2010 – 11 and 2012 – 13]

Mavilayi Service Co-Operative Bank Ltd. v. CIT (2021) 431 ITR 1/ 318 CTR 609 / 197 DTR 361 (SC)

  1. S. 127: Power to transfer cases – Search and Seizure – Show cause notice had clearly spelt out reasons for proposed transfer of case of assesse – Dismissal of petition by High Court is affirmed. [S. 132 Art. 226]

A search under section 132 was conducted upon assessee company and its directors during which incriminating materials tending to show huge tax evasions were recovered . PCIT Madurai transferred case of assessee from Tiruneveli to Madurai for reason that detailed, coordinated and centralized investigation was necessary. Assessee contended that there was no clear reasons provided for transfer of its case. It further contended that its Chartered Accountant was stationed at Tirunelveli and that he was 85 years old and it would cause hardship for assessee if its case would be transferred to Madurai. Dismissing the petition High Court held that show cause notice had clearly spelt out reasons for proposed transfer of case of assesse. Further, grievance of assessee that its Chartered Accountant was an elderly person was also imaginary because Income-tax returns were now filed online. High Court by impugned order held that, on facts, order of transfer of case was to be upheld. SLP of the assessee is dismissed .

V.V. Minerals v. PCIT (2021) 276 Taxman 279 (SC)

Editorial: Affirmed the Judgment in V.V. Minerals v. PCIT (Mad) (HC) (WAMD No. 417/2020 dt 30 -6 -2020)

  1. S. 195 :DEDUCTION AT SOURCE – NON-RESIDENT – OTHER SUMS – AMOUNT RECEIVED FOR SUPPLY OF SOFTWARE – NOT LIABLE TO DEDUCT TAX AT SOURCE DTAA -INDIA [ ART, 12 , 9 (1)(VI), ART, 12 ]

Court Held That Given The Definition Of Royalties Contained In Article 12 Of The Dtaas Mentioned In Paragraph 41 Of This Judgment, It Is Clear That There Is No Obligation On The Persons Mentioned In Section 195 Of The Income Tax Act To Deduct Tax At Source, As The Distribution Agreements/Eulas In The Facts Of These Cases Do Not Create Any Interest Or Right In Such Distributors/End-Users, Which Would Amount To The Use Of Or Right To Use Any Copyright. The Provisions Contained In The Income -Tax Act (Section 9(1)(Vi), Along With Explanations 2 And 4 Thereof), Which Deal With Royalty, Not Being More Beneficial To The Assessees, Have No Application In The Facts Of These Cases. Our Answer To The Question Posed Before Us, Is That The Amounts Paid By Resident Indian End- Users/Distributors To Non-Resident Computer Software Manufacturers/Suppliers, As Consideration For The Resale/Use Of The Computer Software Through Eulas/Distribution Agreements, Is Not The Payment Of Royalty For The Use Of Copyright In The Computer Software, And That The Same Does Not Give Rise To Any Income Taxable In India, As A Result Of Which The Persons Referred To In Section 195 Of The Income -Tax Act Were Not Liable To Deduct Any Tds Under Section 195 Of The Income Tax Act. The Answer To This Question Will Apply To All Four Categories Of Cases Enumerated By Us In Paragraph 4 Of This Judgment. (Canos . 8733-8734 Of 2018 Dt. 2-3-2021)

Engineering Analysis Centre Of Excellence P. Ltd. v. Cit (2021) 125 Taxmann.com 42 ( Sc) Www.itatonline .Org

  1. S. 254(2A): Appellate Tribunal –Stay- Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee. [Art. 14]

Dismissing the appeal of the revenue the Court held that ,since the object of the 3rd proviso to S. 254(2A) is the automatic vacation of a stay that has been granted on the completion of 365 days, whether or not the assessee is responsible for the delay caused in hearing the appeal, such object being itself discriminatory, is liable to be struck down as violating Article 14 of the Constitution of India. Also, the said proviso would result in the automatic vacation of a stay upon the expiry of 365 days even if the Appellate Tribunal could not take up the appeal in time for no fault of the assessee. Further, vacation of stay in favour of the revenue would ensue even if the revenue is itself responsible for the delay in hearing the appeal. In this sense, the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned. Consequently, the third proviso to s. 254(2A) will now be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal”. Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee. (CA No. 1127 of 2021 dt. 6-4-2021)

Dy. CIT v. Pepsi Foods Ltd. (Now Pepsico India Holdings Pvt. Ltd.) (SC)
www.itatonline.org

  1. S. 261 : Appeal – Supreme Court – Decision of Jurisdictional High Court is binding though the SLP is pending before Supreme Court – Low tax effect – SLP filed by the revenue is dismissed as withdrawn due to low tax effect. [S.14A, R.8D]

In appellate proceedings, Tribunal restricted disallowance under section 14A, read with rule 8D by relying on decision of Jurisdictional High Court . Revenue filed appeal against said order by raising a plea that they had filed an SLP before Supreme Court against decision relied upon by Tribunal – High Court took a view that mere filing of an SLP by revenue to Apex Court, in absence of any stay, would not in any manner impact binding nature of orders of Jurisdictional High Court on all authorities functioning within State – High Court, thus, dismissed revenue’s appeal – Revenue sought to withdraw SLP filed against order of High Court due to low tax effect – Whether, on facts, SLP filed by revenue was to be dismissed as withdrawn. (AY. 2006-07)

CIT v. Enercon India Ltd. (2021) 276 Taxman 88 (SC)

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