1. 12AA : Procedure for registration – Trust or institution – Proposed activities – Registration cannot be refused on the ground that no activities are carried out

Court held that registration can be applied for by a newly registered trust. There is no stipulation that the trust should have already been in existence and should have undertaken any activities before making the application for registration. The term ‘activities’ in s. 12AA includes ‘proposed activities’. The CIT must consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. However, he cannot refuse registration on the ground that no activities are carried out. (CA Nos. 5437-5438/2012, dt. 19-2-2020)

Ananada Social and Education Trust v. CIT (SC), www.itatonline.org

2. 43B : Certain deductions on actual payment – The credit of Excise Duty earned under MODVAT scheme is not sum payable by the assessee by way of tax, duty, cess – unutilised credit under MODVAT scheme does not qualify for deduction – Sales tax paid by the appellant was debited to a separate account titled ‘Sales Tax recoverable account’ and is liable for disallowance [S. 43B]

The scheme of S. 43B is to allow deduction when the sum is actually paid. (i) The credit of Excise Duty earned under MODVAT scheme is not sum payable by the assessee by way of tax, duty, cess. It is merely the incident of Excise Duty that has shifted from the manufacturer to the purchaser and not the liability to the same. Consequently, the unutilised credit under MODVAT scheme does not qualify for deduction u/s. 43B. (ii) The sales tax paid by the appellant was debited to a separate account titled ‘Sales Tax recoverable account’ and is liable for disallowance u/s. 43B. (CA No. 11923 of 2018, dt. 07-02-2020) (AY. 1999-2000)

Maruti Suzuki India India Ltd. v. CIT (2020) 114 taxmann.com 129 (SC), www.itatonline.org

Editorial: Order in Maruti Udyog Ltd. v. CIT (2017) 88 taxmann.com 98 /(2018) 253 Taxman 60/ 406 ITR 562 (Delhi) (HC) is affirmed.

3. 45 : Capital gains – Transfer – Permission to builder to start advertising, selling, construction on land – Licence to builder not amounting to possession of asset – Memorandum of compromise in 2003 under which agreement confirmed, and receipt by assessee of part of agreed sale consideration confirmed – Gains arose in previous year in which memorandum of compromise entered into, and taxable in that assessment year. [S. 2(47)(v), 2(47)(vi), Transfer of Property Act, 1882, S. 53A]

The assessee entered into an agreement to sell with Vijay Santhi Builders Ltd. on May 15, 1998 for a total sale consideration of ₹ 5.5 crore. The agreement provided, inter alia, that both parties were entitled to specific performance of the agreement. Under the agreement the assessee gave permission to the builder to start advertising, selling, and make construction on the land. Pursuant to the agreement, a power of attorney was executed on November 27, 1998, by which the assessee appointed a director of the builder-company to execute, and join in execution of, the necessary number of sale agreements or sale deeds in respect of the schedule mentioned property after developing it into flats. The power of attorney also enabled the builder to present before all the competent authorities such documents as were necessary to enable development on the property and sale thereof to persons. Subsequently, a memorandum of compromise dated July 19, 2003 was entered into between the parties, under which the agreement to sell and the power of attorney were confirmed, and a sum of ₹ 50 lakh was reduced from the total consideration of ₹ 6.10 crore. Clause 3 of the compromise deed confirmed that the assessee had received a sum of ₹ 4,68,25,644 out of the agreed sale consideration. Clause 4 recorded that the balance ₹ 1.05 crore towards full and final settlement in respect of the agreement entered into would be paid by seven post-dated cheques. Clause 5 stated that the last two cheques would be presented only upon due receipt of the discharge certificate from one Pioneer Homes. The assessee not having filed any return for the assessment year 2004-05 the assessment of the assessee for this year was reopened. Since the assessee did not respond to notices and limitation was running out the Assessing Officer passed an order of best judgment assessment treating the entire sale consideration as capital gains and bringing it to tax. The CIT(A) dismissed the assessee’s appeal therefrom. The Appellate Tribunal agreed with the CIT(A). High Court also affirmed the order of the Tribunal. On further appeal affirming the order of High Court the Court held that, agreement to sell, such licence could not be said to be “possession” within the meaning of section 53A of the Transfer of Property Act, 1882, which is a legal concept, and denotes control over the land and not actual physical occupation of the land. This being the case, section 53A of the 1882 Act could not possibly be attracted to the facts for this reason alone. As on the date of the agreement to sell, the owner’s rights were completely intact both as to ownership and to possession even de facto, so that section 2(47)(vi) of the 1961 Act equally, could not be said to be attracted. That the finding of the Tribunal was that all the cheques mentioned in the compromise deed had, in fact, been encashed. This being the case, the assessee’s rights in the immovable property were extinguished on the receipt of the last cheque and the compromise deed could be stated to be a transaction which had the effect of transferring the immovable property in question. The transaction fell under S. 2(47)(ii) and (vi) of the 1961 Act. (CA No 462 of 2011 dt 25-1-2012 (Mad) (HC) is affirmed) (AY. 2004-05)

Seshasayee Steels P. Ltd. v. ACIT (2020) 421 ITR 46 (SC)

4. 80HHC : Export business – Supporting manufacturer – Supporting manufacturer is at par with actual direct exporter of goods when it comes to deductions that are available – Remanded the matter back to Tribunal for fresh adjudication [S. 28(iiid)]

Allowing the appeal of the revenue the Court held that in CIT v. Baby Marine Exports (2007) 290 ITR 323 (SC) was dealing with an issue related to the eligibility of export house premium for inclusion in business profit for the purpose of deduction u/s. 80HHC of the Act, whereas in the present appeals the point for consideration is completely different, being as to whether the assessee being supporting manufacturer are to be treated on par with the direct exporter for the purpose of deduction of export incentives u/s. 80HHC of the Act. Accordingly the judgment of High Court is set aside and matter is remanded back to Appellate Tribunal for adjudication afresh.

CIT v. Carpet India. (2019) 267 Taxman 93 (SC)

Editorial: Order in CIT v Carpet India (2008) 174 Taxman 417 (P& H) (HC) is set aside.

5. 80IA : Industrial undertakings – Conversion of a partnership firm into a company – Part IX of Companies Act – As per S. 575 of the Companies Act, the conversion of a partnership firm into a company under Part IX causes a statutory vesting of all assets of the firm into the company without the need for a conveyance – The business of the firm is carried on by the company and the latter is eligible for the benefits of S. 80IA (4) of the Act. [S.80IA(4), Companies Act, S.575]

Dismissing the appeal of the revenue the Court held that As per S. 575 of the Companies Act, the conversion of a partnership firm into a company under Part IX causes a statutory vesting of all assets of the firm into the company without the need for a conveyance. The business of the firm is carried on by the company and the latter is eligible for the benefits of S. 80IA (4) of the Act. Order in Chetak Enterpeises v. ACIT (2005) 95 ITD 1 (Jodh) (Trib) is approved. (CA No. 1764 of 2010, dt. 05-03-2020) (AY. 2002-03).

CIT v. Chetak Enterprises Pvt. Ltd (2020) 115 taxmann.com 108 (SC), www.itatonline.org

6. 139 : Return of income – Delay in filing revised return – Amalgamation – Approval by NCLT – Revised return filed after due date of filing of return is irrelevant – Not required to seek condonation of delay by CBDT
   [S. 119(2) (b), 139 (5), 170]

Allowing the appeal of the assessee the Court held that. The consequence of amalgamation is that the amalgamating companies lose their separate identity and cease to exist. The successor is obliged u/s. 170 to file a revised return to reflect the effect of the amalgamation. The fact that the revised return is filed after the due date specified in S. 139(5) is irrelevant as the scheme approved by the NCLT provides for it. The assessee is also not required to seek condonation of delay u/s. 119(2)(b) (CA Nos. 949699 of 2019 (Arising out of SLP (C) Nos. 19678681 of 2019 dt. 18-12-2019) (AY. 2016-17)

Dalmia Power Ltd. v. ACIT (2019) 112 taxmann.com 252/(2020) 312 CTR 113/ 420 ITR 339/ 185 DTR 1 (SC), www.itatonline.org

Editorial: Order in ACIT v. Dalmia Power Ltd. (2019) 418 ITR 242 (Mad)(HC) is reversed.

7. 153C : Assessment – Income of any other person – Search and seizure – Compliance with the requirements of recording of satisfaction is mandatory – If the AO of the searched person and the other person is the same, it is sufficient for the AO to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, the requirement of s. 153C is fulfilled. [S. 132(1), 133A 158BD]

Court held that if the AO of the searched person is different from the AO of the other person, the AO of the searched person is required to transmit the satisfaction note & seized documents to the AO of the other person. He is also required to make a note in the file of the searched person that he has done so. However, the same is for administrative convenience and the failure by the AO of the searched person to make a note in the file of the searched person, will not vitiate the proceedings u/s. 153C. (ii) If the AO of the searched person and the other person is the same, it is sufficient for the AO to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, the requirement of s. 153C is fulfilled. In such case, there can be one satisfaction note prepared by the AO, as he himself is the AO of the searched person and also the AO of the other person. However, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the AO of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself. Remanding the matter to the Tribunal is held to be justified. (CA No. 2006-2007 of 2020, dt. 05-03-2020)

Super Malls Pvt. Ltd. v. PCIT (2020) 115 taxmann.com 105 (SC), www.itatonline.org

Editorial : Order in PCIT v. Super Malls Pvt. Ltd. (2016) 76 taxmann.com 267 (Delhi) (HC) is affirmed

8. 244A : Refund – Interest on refunds – Unauthorized retention of money by the Department – The Department is directed to pay interest as prescribed

Allowing the petition the Court held that the interest on refund is compensation for unauthorized retention of money by the Department. When the collection is illegal & amount is refunded, it should carry interest in the matter of course. There is no reason to deny payment of interest to the deductor who had deducted tax at source and deposited the same with the Treasury. The Department is directed to pay interest as prescribed u/s. 244A at the earliest (UOI v. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC) followed) (CA 3826 of 2012, dt. 12-12-2019)

Universal Cable Ltd. v. CIT (2020) 420 ITR 111/ 312 CTR 1/ 185 DTR 33 (SC), www.itatonline.org

9. 260A : Appeal – High Court – Monetary limits – Pendency of appeals – No cascading effect nor issue involved in group matters – Appeals of department dismissed – Question is kept open [S.268A]

The High Court held that where a substantial question of law is involved, the mere fact that a monetary limit had been prescribed for filing appeals by the Department would not be a bar to deciding the appeal, and that even otherwise, this was an exceptional case where the Department was justified in filing the appeal, and proceeded to decide the appeal on the merits, answering the questions of law in favour of the Department, on appeal to the Supreme Court. Allowing the appeal the Court held that instruction No. 5 of 2008 dt. 15-5-2008 is applicable to pending matters, subject to two caveats provided in CIT v. Surya Herbal Ltd. (2013) 350 ITR 300 (SC). Followed DIT v. S.R.M B. Dairy Farming (P) Ltd. (2018) 400 ITR 9 (SC) The judgment of the High Court was set aside and the Department’s appeals before the High Court treated as dismissed because of low tax effect, leaving the questions of law open.
(AY. 1991-92 to 2001-02)

1. C. Naregal. v. CIT (2019) 418 ITR 455/ 267 Taxman 563/ 311 CTR 849/ 184 DTR 247 (SC)

Editorial : Decision in CIT v. S. C. Naregal (2010) 329 ITR 615 (Karn) (HC) is set aside because of low tax effect, leaving the question of law open.

10. 269UD : Purchase by Central Government of immovable properties – Auction process is conducted bona fideand in public interest – Appellant given several opportunities to bid in fresh auction conducted but not doing so – Sale confirmed in favour of fresh buyer – No arbitrariness

Dismissing the appeal the Court held that several auctions were conducted from the year 1994, including an auction as recent as March 27, 2017 which failed to elicit a response from any buyer. Ultimately, the auction with the reserve price of  ₹  30 crore, on which the appellant’s bid was ₹ 30.21 crore, was kept in abeyance because in a report dated September 26, 2017 it was pointed out that this figure was considerably lower than the figure offered by the appellant itself at ₹ 32.11 crores and that, therefore, a fresh auction be held. This reason was not, in any manner, arbitrary. After all, it was in public interest to see that the highest possible price be fetched for such properties. Further, at every stage valuation reports were submitted by reputed valuers, first from Mumbai, and then from Chennai, and there was no reason to doubt what had been stated to be the fair market value in any of these reports. Though the appellant was given several opportunities to bid in the fresh auction conducted, ultimately, for reasons best known to it, it chose to refrain from participating therein. So long as the auction process was conducted bona fide and in public interest, a judicial hands-off was mandated. Ordinarily, reasons must inform all Governmental decisions including administrative decisions of the Government so that both the administration as well as challenges made to such orders, could be said to be fair and not arbitrary. The reasons disclosed both in the report dated September 26, 2017 and the letter dated April 6, 2018 from the Government of India, Ministry of Finance, to the Chief Commissioner of Income-tax, made it clear that there was no arbitrariness discernible in the entire auction process.

Court also held that respondent No. 4 to the offer made to the court. From the figure of ₹ 35 crore, which was to be paid within a period of 12 weeks directly to the Union Treasury, a sum equivalent to interest of 9 per cent on the amount of ₹ 7.78 crore, lying with the Union, calculated from the date on which it was deposited with the Union till date shall be subtracted, and the net figure handed over.

Sankalp Recreation Pvt. Ltd. v. UOI (2019) 418 ITR 673 / 267 Taxman 565 (SC)

Editorial: Order in Sankalp Recreation Pvt. Ltd v. UOI (2019) 411 ITR 671 (Bom) (HC) is affirmed

Interpretation of taxing statutes – Constitution of India

11. 141 : Precedent – SLP dismissal – Non-speaking order – It does not constitute a declaration of law under Article 141 of the Constitution, or attract the doctrine of merger. [Art, 136]

Court held that the dismissal of an SLP by the Supreme Court against an order or judgment of a lower forum is not an affirmation of the same. If such an order is non-speaking, it does not constitute a declaration of law under Article 141 of the Constitution, or attract the doctrine of merger. Followed Kunhayammed v. State of Kerala (2000) 245 ITR 360 (SC), (2000) 5 SCC 359, Khoday Distilleries v. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd. (2019) 4 SCC 376 (CAO(S). 9533-9537 of 2019, dt. 18-12-2019)

P. Singaravelan v. District Collector (SC), www.itatoline.org