S. 2(47) : Transfer – Since all rights in the property, including constructive possession was handed over by the Assessee to purchaser the transaction has rightly been treated as sale or transfer u/s 2(47) of the Act by lower authorities, giving rise to capital gains.

Allowing Revenue’s appeal, the High Court observed that the relevant clauses of power of attorney suggested that the Assessee has handed over all the rights in the property including constructive possession of property; hence impugned transaction is to be treated as sale / transfer for the purposes of Section 2(47) of the Act giving rise to capital gains. (ITA No. 249 of 2015, dt.19-01-2021) (AY 2006-07)

CIT v. Mr. Abdul Wahab, (2021) 320 CTR 874 (Karn)(HC)

S. 4 : Charge of income-tax – Crabon credits – Capital receipts – Not taxable.

Dismissing the appeal of the revenue the Court held that a receipt on sale of carbon emission reduction is a capital receipt. Followed S.P. Spinning Mills Pvt Ltd v. ACIT (2021) 433 ITR 61 (Mad) (HC) ( AY. 2010-11)

PCIT v. Lanco Tanjore Power Co. Ltd. (2021)434 ITR 671 (Mad)(HC)

S. 9(1)(i): Income deemed to accrue or arise in India – Business connection – Income will be assessed in the hands of PQR and STU and benefit of article 13 of the India – Netherlands Double Taxation Avoidance Agreement is not admissible to these funds will be assessed in the hands of PQR and STU and benefit of article 13 of the India – Netherlands Double Taxation Avoidance Agreement is not admissible to these funds-DTAA-India-Netherlands. [S. 2(17), 5, 60, 61, 62, 63(a), 160(1)(iv) Art 13]

The issues raised in five applications being common the matters were heard together and common orders were passed. The main issue involved for consideration was “Whether the Income arising to PQR and STU investment made in India out of the contributions made by ABC. DEF or GHI will be assessed in the hands of ABC, DEF or GHL , as the contributions made by it to PQR and STU will be considered as, revocable transfer under section 61 of the Act ?

After analyzing the various provisions of the Act and DTAA, the AAR held that (Questions 1 to 5) No, it will be assessed in the hands of PQR and STU and benefit of article 13 of the India – Netherlands Double Taxation Avoidance Agreement is not admissible to these funds. Other queries raised. i.e. Whether the contribution made by participants to the fund will be considered as revocable transfer under section 61 or whether the funds are assessable under section 161 are in the nature of alternative pleas have become infructuous in view of the specific finding that the income is assessable in the hands of the funds.(AAR. Nos. 1358 to1362 dt 21-1-2020)

ABC, In re (2021)434 ITR 441 (AAR)

S. 9(1)(vii):Income deemed to accrue or arise in India – Fees for technical services – Majority of services technical in nature – Services were ancillary and subsidiary to application or enjoyment of right, property or information for which royalty paid- Chargeable to tax in India – Liable to withhold tax – DTAA-India-USA-Netherlands [S.90, 92 to 92F, 195, Art 12(5)(a)]

After analyzing the agreements and provisions the AAR held that, The payment to be made by Perfetti India for the cost to be allotted by the applicant is taxable under article 12 (5) (a) of the DTAC between India and Netherlands. Though some of the services are also taxable article 12 (5) of the DTAC, such services are not segregated as they are already taxable under article 12 (5) (a). Accordingly the payment made by the Indian company would be chargeable to tax in India.That the Indian company was liable to withhold taxes under section 195 of the Act on the payments to be made towards the costs to be allocated by the assessee. That as the applicant was liable to tax in India, it was required to file a tax return under the provisions of the Act and the transfer pricing provisions of section 92 to section 92F would be applicable in respect of the payment to be made by the Indian company. (AAR No. 869 of 2010 dt 21-6-2019)

Perfetti Van Melle Holding B.V., In Re (2021) 434 ITR 101 (AAR)

S. 10A : Free trade zone – Foreign exchange – Deductible from both export turnover and total turnover.

Dismissing the appeal of the revenue the Court held that the Tribunal was right in holding that the expenditure in foreign exchange was to be excluded from both the export turnover and the total turnover while computing the deduction under section 10A . Followed CIT v. SRA Systems Ltd (2021) 434 ITR 656 (Mad) (HC) (AY. 2006-07)

PCIT v. Mizpah Publishing Services Pvt. Ltd. (2021) 434 ITR 663 (Mad) (HC)

S. 10A : Free trade zone – Interest charges attributable to delivery of computer software – Excluded from export turnover – Deducted from total turnover – New unit – Entitle to deduction – Brought forward losses and unabsorbed depreciation – Deduction to be allowed before adjusting brought forward losses and unabsorbed depreciation. [S. 10A(2)(i), 10A(2)(ii)]

Dismissing the appeal of the revenue the Court held that the Tribunal was right in holding that the internet expenses incurred in foreign exchange having been excluded from the export turnover should be reduced from the total turnover for the purpose of computing deduction under section 10A . That the Tribunal was right in holding that the assessee was entitled to deduction under section 10A in respect of the new unit. That the Tribunal was right in holding that the assessee’s claim for deduction under section 10A was to be allowed before adjusting the brought forward losses and unabsorbed depreciation. (AY.2005-06)

CIT v. SRA Systems Ltd. (2021)434 ITR 656 (Mad) (HC)

S. 10B: Export oriented undertakings – Manufacture of article – Processing of iron ore amounts to manufacture – Entitle to exemption – Determination of market value required verification by the Revenue – The order of remand was justified. [S.10B(7), 80IA(8), 80IA(10)]

Dismissing the appeal of the revenue the Court held that the Tribunal was right in holding that the assessee was entitled to the benefit under section 10B. Applied CIT v. Sesa Goa Ltd (2004) 271 ITR 331 (SC). Court also held that the assessee had also purchased crude ore, run of mines, from outside parties, that is from the mines belonging to other parties. The price paid by the assessee to these outside parties, according to the Tribunal, could be regarded as the best evidence for determining the market value of the crude ore the assessee extracted from its own mine and used. The Tribunal felt that the determination of market value required verification by the Revenue. The order of remand was justified.

CIT v. Sesa Goa Ltd. (2021)436 ITR 17 / 203 DTR 97 (Bom) (HC)

S. 10(10D) : Life insurance policy – Keyman insurance policy – Character of Keyman Insurance Policy would not get converted into ordinary Life Insurance Policy despite its assignment by employer company – Amount taxable in hands of employee as ‘perquisite’.

On appeal the High Court held that basis the provisions of Section 10(10D) of the Act with its Explanation 1 it can be concluded that employee not having paid any premium on keyman insurance policy from his own resources, the character of policy would not get converted into ordinary Life Insurance Policy despite its assignment and therefore, any benefit accruing to the employee upon its surrender or encashment will be taxable in the hands of the Assessee (employee) as “perquisite”. (ITA No.522 of 2017, dt. 04-12-2020) (AY 2007-08)

Allu Arvind Babu v. ACIT (2020) 320 CTR 444 / 122 taxmann.com 66 (Mad) (HC)

S. 11 : Property held for charitable purposes – Depreciation – Entitle to set off excess application of income of earlier assessment year – Precedent – Commissioner (Appeals and Tribunal must follow the decision of High Court. [S.(2(24), 11(1)(d)), 12(1), 32]

Allowing the appeal the Court held that a charitable institution is entitled to depreciation. Once assessee was allowed depreciation, it would be entitled to carry forward the depreciation. Court held that the charitable trust is entitled to set off excess application of income of earlier assessment years against income of current assessment year. Court also held that if the judgments and orders of the High Courts are applicable to the facts and circumstances of a case pending before the Commissioner (Appeals), he must follow them without any deviation. Similarly the Tribunal must also follow the judgments and orders of the High Courts. (AY. 2009-10)

Anjuman-E-Himayat-E-Islam v. ADIT (2021) 436 ITR 139 / 201 DTR 337 (Mad) (HC)

S. 11: Property held for charitable purposes – Donation made for other charitable purposes – Entitle to exemption [S. 2(15)]

Dismissing the appeal of the revenue the Court held that a cursory glance at the list of beneficiaries would show that there had been donations to charitable and religious institutions only and that philanthropy had been the essence of all the donations. The assessee-trust was entitled to exemption under section 11.(AY.2007-08)

DIT (E) v. Shanmuga Arts, Science, Technology and Research Academy (Sastra) (2021) 436 ITR 633 (Mad) (HC)

S. 12A : Registration – Trust or institution – Assessee-trust formed with main object of running hospitals for philanthropic purposes having incidental / ancillary object, of running Chitties / Kuries and the income from the business of Chitty/Kuries was fully utilized for the purpose of main object of Assessee-trust ie ‘medical relief’ – Assessee-trust entitled to exemption

Allowing the appeal, the High Court held that assessee-trust, carrying on the business, was entitled to exemption with respect to income from the business of Chitty / Kuries as such income was fully utilized for the purpose of ‘medical relief’, which is the main object of the assessee-trust, falling under the definition of ‘charitable purpose. (W.P.(C) No.1199 of 2015, dt. 13-11-2020)(AY.2012-13)

Bharathakshemam v. PCIT (2021) 320 CTR 198 / 199 DTR 113 (Ker) (HC)

S. 12AA: Procedure for registration – Trust or institution – Cancellation of registration – The Principal Commissioner or Commissioner has the power to cancel the registration and has assigned reasons for such cancellation. [S. 11, 12, 12A, Art. 226]

The Assessee under the writ challenged the cancellation of the registration made under Section 12AA(3). Hon’ble HC opines that the scope of Sections 11, 12, 12A and 12AA of sub-clause (3) empowers the Principal Commissioner or Commissioner even prior to 01.06.2010 to cancel the registration made u/s 12A of the Act, if the Commissioner is satisfied that the activities of such Trust or Institution are not genuine or are not being carried out in accordance with the objects of the Trust or Institution, as the case may be, and he shall pass an order in writing for cancellation of the registration of such Trust or Institution. Herein, the Commissioner of Income Tax has considered the merits and demerits of the case and assigned reasons for cancellation of registration. HC held that the reasons assigned for the purpose of cancellation are undoubtedly in consonance with the powers conferred on the Commissioner under sub-clause (3) to Section 12AA of the Act and therefore, the order of cancellation cannot at any stretch of time be stated as infirm or perverse. (WP No. 7110 of 2008 dt. 26-4-2021)

Vellore Institute of Technology v. CIT (2021) 436 ITR 483 / 201 DTR 385 / 320 CTR 799 / 280 Taxman 402 (Mad.)(HC)

S. 12AA : Procedure for registration – Trust or institution – Bogus donations – Misuse of registered status – Cancellation of registration is held to be justified [S. 12AA(3), 80G]

Allowing the appeal of the revenue the Court held that the answers given to the questionnaire by the managing trustee of the assessee-trust showed the extent of misuse of the status enjoyed by the assessee by virtue of registration under section 12AA of the Act. These answers also showed that donations were received by cheque out of which substantial money was ploughed back or returned to the donors in cash. The facts thus clearly showed that those were bogus donations and that the registration conferred upon it under sections 12AA and 80G of the Act was completely being misused by the assessee. An entity which is misusing the status conferred upon it by section 12AA of the Act is not entitled to retain and enjoy such a status. The authorities were therefore, right and justified in cancelling the registration under sections 12AA and 80G of the Act.

CIT (E) v. Batanagar Education and Research Trust (2021)436 ITR 501/ 204 DTR 217/ 321 CTR 633 (SC)

Editorial : Order of High Court ITA NO 116 of 2018 dt 8-10-2018 is reversed, Order in Batanagar Education and Research Trust v CIT (E) (2017) 59 ITR 81 (SN) (Kol) (Trib) is affirmed.

S. 14A : Disallowance of expenditure – Exempt income – No exempt income received – Provision is not applicable [R.8D]

Dismissing the appeal of the revenue the Court held that that since no exempt income had accrued to the assessee the provisions of section 14A did not apply. (AY.2010-11)

PCIT v. Novell Software Development (India) Pvt. Ltd. (2021) 434 ITR 154 / 202 DTR 370 / 278 Taxman 390 (Karn) (HC)

S. 14A: Disallowance of expenditure – Exempt income – Onus on revenue to prove that disallowance was erroneous – Without examining the accounts disallowance is not justified [R.8D]

Court held that the onus on revenue to prove that disallowance was erroneous and without examining the accounts disallowance is not justified (AY.2007-08, 2008-09)

Coforge Limited v. ACIT (2021) 436 ITR 546 / 204 DTR 273 / 322 CTR 10 (Delhi) (HC)

S. 14A : Disallowance of expenditure – Exempt income – Enhancement of disallowance is held to be not valid [R.8D]

Dismissing the appeal of the revenue the Court held that the Assessing Officer had accepted that the assessee had not borrowed funds. The assessee had deducted certain proportionate expenditure, which the Assessing Officer had not disbelieved or disputed. Volume of investment, the assessee was said to have received charge-free services from banks and other financial institutions with whom it had invested. The Tribunal had correctly deleted the disallowance of Rs.12.29 crores under section 14A of the Act in accordance with rule 8D of the Income-tax Rules.

CIT v. Sesa Goa Ltd (2021) 436 ITR 17 / 203 DTR 97 (Bom) (HC)

S. 14A : Disallowance of expenditure – Exempt income – No exempt income – Disallowance cannot be made [R.8D]

When there is no exempt income, no disallowance can be made. (AY. 2007-08 to 2010-11, 2012-13 and 2013-14)

CIT v. Tamilnadu Road Development Company Ltd. (2021) 436 ITR 323 (Mad) (HC)

S. 14A: Disallowance of expenditure – Exempt income – No dividend income earned – Disallowance cannot be made [R.8D]

Allowing the appeal the Court held that when there is no dividend income earned, disallowance cannot be made. (AY. 2014-15)

Tamilnadu Road Development Co. Ltd. v. Dy. CIT (2021) 436 ITR 298 (Mad) (HC)

S. 28(iv) : Business income – Value of any benefit or perquisites – Converted in to money or not – Amalgamation –Excess of net consideration over value of companies taken over – Not assessable as income. [S. 4]

Dismissing the appeal of the revenue the Court held that the provisions of section 28(iv) of the Act make it clear that the amount reflected in the balance sheet of the assessee under the head reserves and surplus cannot be treated as a benefit or perquisite arising from business or exercise of profession. The difference in amount post amalgamation was the amalgamation reserve and it cannot be said that it was out of normal transaction of the business being capital in nature, which arose on account of amalgamation of four companies, it cannot be treated as falling under section 28(iv). Followed CIT v. Stads Ltd. (2015) 373 ITR 313 (Mad) (HC).(AY.2006-07)

CIT(LTU) v. Areva T & D India Ltd. (2021) 434 ITR 604 (Mad) (HC)

S. 32: Depreciation – Property acquired in exchange of extinguishment of tenancy rights – Depreciation allowable – Non – Compete fee – Depreciation allowable on principle of consistency.

Dismissing the appeal of the revenue the Court held that depreciation is allowable in respect of property acquired in exchange of relinquishment of tenancy rights in another property. Court also held that depreciation on non-compete fees is held to be allowable. Followed CIT v. Areva T & D India Ltd. (2012) 26 taxmann.com 266 (Mad) (HC). (AY.2006-07)

CIT(LTU) v. Areva T & D India Ltd. (2021) 434 ITR 604 (Mad) (HC)

S. 32 : Depreciation – Carry forward and set off – Unabsorbed depreciation on 1-4-2002 can be carried forward and set off without taking into account number of years of such carry forward. [S.32 (2)]

Dismissing the appeal of the revenue the Court held that unabsorbed depreciation relating to the assessment year 1997-98 to 2000-01 was eligible for set off against income for the assessment year 2005-06. Circular No. 14 of 2001 dated November 9, 2001 ([2001] 252 ITR (St.) 65, 90).(AY.2007-08)

CIT v. KMC Speciality Hospitals India Ltd. (2021) 436 ITR 534 (Mad) (HC)

S. 32: Depreciation – Building – Road – Entitle to depreciation at 10% – Depreciation on property held on lease – Depends on terms of lease – Matter remanded. [S. 32 (1)(ii)]

Tribunal is justified in allowing the depreciation at 10% in roads. Court also held that the land on which the facility had been developed by the assessee, was owned by the SIPCOT and the development consisted of providing roads inside the IT Park, establishment of a multi-level car parking, etc. Under the agreement, the assessee had to develop these facilities and maintain them and the period was stated to be 99 years, which is virtually perpetual. Therefore, a deeper examination of the factual issue was warranted. The matter had to be readjudicated by the Assessing Officer, for which purpose, the Assessing Officer had to analyse the agreement dated September 21, 2005 entered into between the assessee and the SIPCOT and not go merely by the nomenclature.(AY. 2007-08 to 2010-11, 2012-13 and 2013-14)

CIT v. Tamilnadu Road Development Company Ltd. (2021) 436 ITR 323 (Mad) (HC)

S. 35D: Amortisation of preliminary expenses – Demerger – Spin Off – Entitled to amortisation of expenses on demerger.

The Legislature has used the word assessee having regard to the various ways in which the schemes are structured. Secondly, having regard to the fact that the deduction claimed by the assessee under the provisions of section 35DD of the Act was allowed in the assessment years 2004-05 to 2006-07, it should not have been disallowed in the assessment years 2007-08 and 2008-09. The amounts were deductible. (AY.2007-08, 2008-09)

Coforge Limited v. ACIT (2021) 436 ITR 546 / 204 DTR 273 / 322 CTR 10 (Delhi) (HC)

S. 37 (1): Business expenditure – Capital or revenue – Commuted and discounted lease rent – Allowable as revenue expenditure.

Court held that the Tribunal was wrong in applying the matching principle and directing that one-time lease rent should be spread equally over the tenure of the lease. The matching principle, which is an accounting concept, requires entities to report expenses, at the same time, as revenue. The assessee chose to incur the liability of a crystallised amount in the period relevant to the assessment year 2007-08 and the amount allowable as deduction.(AY.2007-08, 2008-09)

Coforge Limited v. ACIT (2021) 436 ITR 546 / 204 DTR 273 / 322 CTR 10 (Delhi) (HC)

S. 37 (1) : Business Expenditure – Foreign travelling expenses of wife- disallowed.

Assessee-proprietor claimed expenditure incurred on foreign travel of his wife in capacity of Marketing Executive of proprietorship concern of assessee. It was held that since assessee had failed to prove with relevant documents that his wife was an employee of its proprietary concern and her visit was exclusively for business purpose, impugned expenditure could not be allowed. [AY: 2005-2006]

Amarnath Reddy v. ACIT (2021) 435 ITR 97 (Mad)(HC)

S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – Commission paid outside India for obtaining orders outside India – Not liable to deduct tax at source [S.5(2)(b), 9(1)(i)]

Dismissing the appeal of the revenue the Court held that the associated enterprises had rendered services outside India in the form of placing orders with the manufacturers who were already outside India. The commission was paid to the associated enterprises outside India. No taxing event had taken place within the territories of India and the Tribunal was justified in allowing the appeal of the assessee. Followed CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC) while dealing with non-resident commission agents has held that if no operations of business are carried out in the taxable territories, the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. (AY.2013-14)

PCIT v. Puma Sports India P. Ltd. (2021) 434 ITR 69 (Karn) (HC)

S. 40(a)(ia): Amounts not deductible – Deduction at source – Transport charges – Amendment inserted by the Finance Act, 2010 is applicable to earlier years – No disallowance can be made. [S.139 (1)]

Dismissing the appeal of the revenue the Court held that the Tribunal was right in deleting the disallowance made under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of tax at source on transport charges was to be allowed and in holding that the amendment to section 40(a)(ia) introduced in the year 2010 was applicable retrospectively to the assessment year 2005-06. Followed CIT v. Calcutta Export Co (2018) 404 ITR 654 (SC) (AY.2005-06)

CIT v. Western Agencies (Madras) Pvt. Ltd. (2021) 434 ITR 613 (Mad) (HC)

S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Payment genuine – Necessitated by circumstances – No disallowance can be made – Block assessment – Addition deleted on facts – No question of law [S. 260A]

Court held that disallowance under section 40A (3) for the assessment year 2007-08, the decision was made on the facts. Hence no question of law arose. As regards the relief granted to the assessee was on the facts and on the merits of the disallowances made and not on the ground that no incriminating material was available. In one of the cases, the correctness of this decision was tested by the Tribunal and the view taken by the Commissioner (Appeals) had been affirmed. Since the entire dispute revolved on the factual matrix, no question of law, much less a substantial question of law, arose from the order of the Tribunal. (AY.2007-08, 2008-09, 2011-12 to 2014-15)

CIT v. Jubilee Plot and Housing Pvt. Ltd. (2021) 436 ITR 424 (Mad)(HC)

S. 43B: Deductions on actual payment – Interest payable to Financial Institutions – Rehabilitation plan and accepting debentures in discharge of outstanding interest – Explanation 3C, cannot be invoked – Interest is allowable as deduction- Interpretation of taxing statutes – Retrospective provision for the removal of doubts Cannot be presumed to be retrospective if it alters or changes law as it stood – Ambiguity in language to be resolved in favour of assessee. [S.43D]

Allowing the appeal, that both the Commissioner (Appeals) and the Tribunal had found, as a matter of fact, that under the rehabilitation plan agreed to between the lender and the borrower, the debentures were accepted by the financial institution in discharge of the debt on account of outstanding interest. The issue of debentures by the assessee was, under a rehabilitation plan, to extinguish the liability of interest altogether. In the assessment of the bank, for the assessment year in question, the accounts of the bank reflected the amount received by way of debentures as its business income. It was clear that interest was “actually paid” by means of issuance of debentures, which extinguished the liability to pay interest. No misuse of the provisions of section 43B was found as a matter of fact by either the Commissioner (Appeals) or the Tribunal. Explanation 3C, which was meant to plug a loophole, could not therefore be invoked on the facts of this case. The High Court was in error in concluding that “interest”, on the facts of this case, had been converted into a loan. The interest was deductible. Court also held that retrospective provision for the removal of doubts cannot be presumed to be retrospective if it alters or changes law as it stood and Ambiguity in language to be resolved in favour of assessee. (AY. 1996-97)

M. Aqua Technologies Ltd. v. CIT (2021) 436 ITR 582/ 204 DTR 337/ 321 CTR 753/ 282 Taxman 281 (SC)

Editorial: Decision of the Delhi High Court in CIT v. M. M. Aqua Technologies Ltd (2015) 376 ITR 498 (Delhi)(HC) and CIT v. M. M. Aqua Technologies Ltd (2016) 386 ITR 441 (Delhi) (HC), reversed.

S. 44: Insurance business – Assessee, a third party administrator / agent (TPA) of insurance companies and insurance company are different entities under IRDA regulations – Assessee being a TPA did not fall within purview of business of insurance company

Held by the High Court, that the Assessee being a third party administrator / agent (TPA) of insurance companies is governed by the provisions of the Insurance Regulatory and Development Authority of India (‘IRDA’). IRDA regulations clearly distinguishes TPA and the insurance company and hence both are different entities under IRDA regulations. Hence, Assessee (TPA) does not fall within the purview of Insurance Company (ITA. No.593 of 2013, dt. 21-10-2020) (AY. 2009-10)

CIT v. Medi Assist (India) TPA (P.) Ltd. (2021) 320 CTR 868 / 125 taxmann.com 77 (Karn)(HC)

S. 45 : Capital gains – Transaction of sale of shares not liable to tax – Motive of tax avoidance not relevant so long as act within the frame work of law – Transaction not with intent to avid tax – DTAA-India-Mauritius [S. 245R(2), Art 13(4)]

The question admitted by the AAR was, “Whether on the facts stated facts and law, the capital gains on the proposed sale of shares of Betcon Dicknson India Private Limited by the applicant to Betcon Dickinson Holdings Pte. Ltd would be chargeable to income tax in India in the hands of the applicant, having regard to the provisions of article 13 of the India-Mauritius tax Treaty?

The application was admitted on 7-1-2015, The AAR held that having regard to the provisions of article 13 of the India -Mauritius tax Treaty. (AAR No. 1396 of 2012 dt 11-9-2019)

Becton Dickinson (Mauritius) Ltd., In Re (2021) 434 ITR 180 (AAR)

S. 45 : Capital gains Buy-back of shares by Indian subsidiary from German holding company – Liable to tax – Final liability would be lesser of that under normal provisions and under section 115JB – Subsidiary liable to deduct tax at source on payment on buy-back [S.46A, 47(iv), 47A, 49, 115JB, 195]

AAR held that on the facts of the case, the shares buy-back transaction is taxable under section 46A and exemption under section 46 (iv) is not applicable. As regards the minimum alternative tax liability under section 115JB, the Assessing Officer is required to compute the book profits of the supervisory permanent establishment and the minimum alternative tax liability would be restricted to the profit attributable to such supervisory permanent establishment for the relevant assessment year. The provisions of section 195 would be applicable and PQR India is liable to withhold taxes on the consideration payable for the buy back of shares. (AAR No. 1195 of 2011 dt. 3-10-2019)

PQR GMBH, IN RE (2021) 434 ITR 382/ 280 Taxman 205 (AAR)

S. 50 : Capital gains – Depreciable assets – Block of assets – Depreciation allowed for 21 years – Not used for business for two years – Asset shown as investment in balance sheet – Gains assessable as short term capital gains [S. 2(11), 2(29A, 2(29B), 45, 50A]

The High Court held that the depreciable asset forming a part of block of assets within the meaning section 2(11) of the Act would not cease to be a part of the block of assets, that the description of the asset by the assessee in the balance-sheet as an investment asset was meaningless, that so long as the assessee continued business, the building forming part of the block of assets would retain its character as such, no matter that one or two of the assets were not used for the business purposes in one or two years, and that the assessment of the profits on sale of the flat as short-term capital gains was to be confirmed. On appeal Supreme Court affirmed the view of the High Court. (AY.1998-99)

Sakthi Metal Depot v. CIT (2021)436 ITR 1/ 204 DTR 440/ 322 CTR 9/ 282 Taxman 384 (SC)

Editorial: Decision in CIT v. Sakthi Metal Depot (2011) 333 ITR 492 (Ker) (HC) affirmed. Refer, Sakthi Metal Depot v. ITO (2005) 3 SOT 368 (Cochin) (Trib.)

S. 50C: Capital gains – Full value of consideration – Stamp valuation – Assessee entered into an unregistered agreement for sale with one NE for purchase of land however later such land was sold through sale deeds to parties other than Assessee – Assessee being merely a consenting party and not a transferor / co-owner of the land, provisions of S/50C cannot be applied to the Assessee.

Allowing the appeal, the High Court held that where assessee entered into an unregistered agreement for sale with one NE for purchase of land, but later NE sold such land to other party through sale deeds, where assessee was merely a consenting witness, even though assessee had certain rights under agreement, Section 50C of the Act would not apply to assessee since assessee was not a transferor/co-owner of land sold and also because Section 50C does not apply to a case of rights in land. (ITA.No.70 of 2015, dt. 02-02-2021) (AY 2010-11).

V.S. Chandrashekar v. ACIT, (2021) 129 taxmann.com 273 / 320 CTR 339 (Karn) (HC)

S. 50D: Fair market value deemed to be full value of consideration in certain shares – Non-Resident – Capital gains – Sale of share – Not slump sale – Capital gains chargeable to taxable ten per cent [S.45, 55A, 56(2)(viia), 112(1)(c)(iii)

AAR held that the capital gains on transfer of equity shares in IEE would be taxable in the hands of the applicant at the rate of 10 per cent. in accordance with section 112(1)(c)(iii) of the Income-tax Act, 1961 (AY. 2013-14)

Psit Pty Ltd, in re. (2021) 436 ITR 474 (AAR)

S. 72 : Carry forward and set off of business losses – Head of income immaterial while setting off of loss.

While setting off a business loss carried forward from an earlier assessment year against an income of a subsequent year, what is relevant is that the income should have attributes of a business even if it is assessed under some other head as sub-section (1) of section 1 of 72 does not use the words income under the head “profits and gains of business or profession”. (A.Y. 2003-04)

Nandi Steels Ltd. v. ACIT (2021) 320 CTR 432 (Kar)(HC)

S. 80IA : Industrial undertakings – Infrastructure development – Scope of S/80IA(5) is limited to determine quantum of deduction under S/80IA(1) by treating ‘eligible business’ as ‘only source of income’ – However, S/80IA(5) cannot be read to limit the deduction only to business income.

Held by the High Court that the scope of Section 80IA(5) of the Act is limited to determination of quantum of deduction under Section 80IA(1) by treating ‘eligible business’ as the ‘only source of income’. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’. (CA Nos. 2537 of 2016, 1327 to 1329, 1408, 1508 & 1509 of 2021, dt. 28-04-2021) (AY 2002-03)

CIT v. Reliance Energy Ltd (2021) 127 taxmann.com 69 / 320 CTR 473 (SC)

S. 80IA: Industrial undertakings – Loss – Setting off of Loss of loss-making units against profits of profit-making units – entitle to benefit.

Court held that the Tribunal was correct in holding that the assessee was entitled to deduction under section 80IA without setting off of the loss of loss-making units against the profits of the profit-making units. Followed CIT v. Karnataka Power Corporation Ltd. (ITA No.778 of 2009 dt.11-9-2015 (AY. 2007-08)

CIT v. Karnataka Power Corporation Ltd. (No. 1) (2021) 436 ITR 285 (Karn) (HC)

S. 80IB : Industrial undertakings – If there is material available on record before Assessing Officer, even prior to assessment, to prove that there were more than 10 workers then deduction u/s. 80IB cannot be denied if Form No. 10CCB failed to provide details of number of workmen working in each of units

The High Court held that in case where the Assessee, even prior to the assessment, produced material before the AO, which evidences that each of the units of the Assessee employed more than 10 workers, then Assessee has fulfilled the conditions required for claiming deduction under Section 80IB of the Act and in these circumstances, even though there was an omission on the part of Assessee while filing Form 10CCB the grant of deduction under Section 80IB to the Assessee is justified.

CIT v. Borkar Packaging (P.) Ltd. (2020) 121 taxmann.com 167 / 320 CTR 792 (Bom) (HC)

S. 80IB(10) : Housing projects –Owner of land outsourcing the construction work – Entitled to deduction.

Dismissing the appeal of the revenue the Court held that a plain reading of section 8IB(10) of the Income-tax Act, 1961, makes it clear that deduction is available in a case where an undertaking develops and builds a housing project. The section clearly draws the distinction between “developing” and “building”. An assessee who is only an owner of the land and has outsourced the work of construction of the building and had realised the sale proceeds in the form of constructed area is entitled to deduction under section 80IB. Followed CIT v. Veena Developers (2018) 12 ITR-OL 487 (SC) (AY 2006-07 to 2009-10)

CIT v. Sri Lakshmi Brick Industries (2021) 434 ITR 213 (Mad) (HC)

S. 80-IC : Special category states – Special provisions in respect of certain undertakings – Assessing Officer not justified in denying deduction u/s 80IC of newly established unit merely on basis of consumption of electricity in various units of Assessee as several factors can contribute to the increased profits.

Held by the High Court that, there was no need to interfere with the findings of Appellate Authorities favoring Assessee, as several factors can contribute to the increased profits and upon consideration of such several factors which were not only pleaded, but made good by the Assessee to conclude that there was no good ground to deny the deduction under Section 80IC of the Act merely on the basis of consumption of electricity in various units of the Assessee. (TA No. 62 of 2014 and 13 of 2015 dt. 29-09-2020) (AY 2006-07 and AY 2007-08). CIT .v. Borkar Packaging (P.) Ltd. (2020) 121 taxmann.com 167 / 320 CTR 792 (Bom) (HC)

S. 90: Double taxation relief – Assessee – Company being a tax resident of Singapore is eligible to the benefits of India-Singapore tax treaty with respect to sale of shares in Indian subsidiary – LOB clause is not applicable as such sale was pursuant to genuine business restructuring and MNC’s activity of being an investment holding company is a bonafide business activity – Hence, no capital gains on sale of shares of Indian subsidiary by a Singapore holding investment company.

Held by the AAR that (i) there is no provision in the India-Singapore tax treaty which provides that the benefits of tax treaty will be denied if the Company is merely a holding investment company; (ii) holding companies are essential for management of MNCs’ worldwide business interest and such an activity of being a investment holding company is a bonafide business activity; (iii) the affairs of the applicant company were not arranged with the primary purpose of availing tax treaty benefits as the investment was made prior to introduction of protocol exempting tax on capital gains and the control and management was located in Singapore and the decision to sell the investments in Indian entity is pursuant to a genuine business restructuring as such decision is not only for Indian entity but also for other foreign entities. (AAR No.1376 & 1377 of 2012, dt. 25-02-2021)

BG Asia Pacific Holding Pte Ltd In re (AAR – NCR Bench) (2021) 125 taxmann.com 2 (Del)

S. 92C : Transfer pricing – Arm’s length price – Captive service provider – Depreciation –Transfer pricing officer to exclude depreciation from cost and Comparables [S.32, R. 10B(1)(e)]

Dismissing the appeal of the revenue the Court held that since the assessee had a policy of charging a higher rate of depreciation as compared to the companies selected by the Transfer Pricing Officer, there was a definite impact on the net margins of the assessee as compared to the comparable companies. There was a need for an adjustment to eliminate the differences in the accounting policies of the appellant and the comparable companies, in terms of rule 10B, especially given that in the benchmarked international transactions were sales by a captive service provider to its associated enterprises, on which depreciation would have no bearing and could be excluded altogether. The direction issued by the Tribunal to the Transfer Pricing Officer to exclude depreciation from the cost of the assessee and of the comparables and directing the Assessing Officer/Transfer Pricing Officer to rework the depreciation was not perverse.(AY.2010-11)

PCIT v. Novell Software Development (India) Pvt. Ltd. (2021) 434 ITR 154 / 202 DTR 370/ 278 Taxman 390 (Karn) (HC)

S. 115A: Foreign companies – Tax – Royalty – Different agreements – The assessee can opt to be either under statutory provisions or the Double taxation avoidance agreement – DTAA-India-USA [S.90]

Dismissing the appeal of the revenue the Court held that the Tribunal was right in holding that royalty income received under an agreement entered into before June 1, 2005 and royalty income received under an agreement entered into on or after that date was from the same source and as such the assessee could apply section 115A or the Double Taxation Avoidance Agreement separately for one source of income covered by different agreements. (AY.2007-08, 2008-09, 2013-14)

CIT (IT) v. IBM World Trade Corporation (NO. 2) (2021) 436 ITR 647 (Karn) (HC)

S. 115JB : Book profit – Amount disallowed u/s. 14A cannot be included [S.14A]

Allowing the appeal of the assessee the Court held that the disallowance under section 14A of the Act is a notional disallowance and therefore, by recourse to section 14A of the Act, the amount cannot be added back to the book profits under clause (f) of Explanation 1 to section 115JB.(AY:2008-09)

Sobha Developers Ltd. v. Dy CIT (LTU) (2021) 434 ITR 266 / 278 Taxman 338 (Karn) (HC)

S. 115JB : Book profit –Amendment in Law – Explanation 3 – Not Applicable.

Section 115JB was not applicable to the assessee in view of Explanation 3 to section 115JB. Followed CIT v. ING Vysaya Bank Ltd (2020) 422 ITR 116 (Karn) (HC) (AY. 2007-08)

CIT v. Karnataka Power Corporation Ltd. (No. 1) (2021) 436 ITR 285 (Karn) (HC)

S. 119 : Central Board of Direct Taxes – Power to condone the delay

The assessee, a charitable trust, inadvertently uploaded Form no. 10BB instead of Form no. 10B, owing to which its claim for exemption under sections 11 and 12 was denied. Its application for condonation of delay filed with the Commissioner was rejected in terms of Circular no. 2 of 2020 as the period of delay was more than 365 days. On filing a writ petition, held that the period of 365 days prescribed under the Circular could not be held to be arbitrary. However, the assessee was free to approach the CBDT under section 119(2)(b) to seek condonation of delay.

Little Angels Education Society v. Union of India (2021) 320 CTR 331 (Bom)(HC)

S. 131 : Power – Discovery –Production of evidence – Reason to suspect regarding concealment of income.

Before carrying out any action under section 131(1A), it is necessary that the competent authority must have a reason to suspect that any income has been concealed or is likely to be concealed, by any person or class of persons within his jurisdiction. Where no such reason exists, action under section 131(1A) cannot be taken. (A.Y. 2018-19)

Khem Chand Mukim v. Pr.CIT (2021) 320 CTR 781 (Del)

S. 132 : Search and seizure – Warrant of Authorisation – Search proceedings against company – Application of mind – Warrant of Authorisation is held to be valid [Art. 226]

Dismissing the petition the Court held that the satisfactions note was clearly concerned with tax evasion activities conducted by the various companies and persons mentioned therein and it had been relied upon by the authority to initiated the proceedings under section 132 . The petitioner’s assertion of having resigned from the company and having nothing to do with it, could not be accepted as a disputed fact in writ jurisdiction, more so when the records of the Registrar of Companies reflected the position to be otherwise. In any event, whether or not the petitioner was connected with the company ; or whether or not the documents reflecting huge amounts of cash transactions stood reflected in the books of account and did not represent undisclosed income was again a question of fact which could be easily taken before the authorities in the adjudicatory proceedings. The action was neither mala fide nor arbitrary or capricious. The note of satisfaction did record reasons calling for necessary authorisation to carry out search and seizure operation. The search and seizure operations carried out by and in terms of section 132 were valid.

Ajay Kumar Singh v. DGI (Inv) (2021) 434 ITR 352/ 320 CTR 858/ 277 Taxman 633 (Pat) (HC)

S. 132: Search and seizure – Writ Court cannot go into the sufficiency and adequacy of reasons recorded in note of satisfaction hence writ petition challenging warrant of authorization and consequential action of search and seizure has to be dismissed

Held by the High Court that the Writ Court cannot go into the sufficiency and adequacy of the reasons recorded in the note of satisfaction in terms of Section 132 of the Act since satisfaction note was clearly concerned with tax evasion activities conducted by various companies and persons mentioned therein and same had been relied upon by authority to initiate proceedings under Section 132 of the Act. (CW No. 3792 of 2009, dt. 2-12-2020).

Ajay Kumar Singh v. DGI (2021) 320 CTR 858 / 124 taxmann.com 518 (Pat) (HC)

S.143(2) : Assessment – Notice – Assessing Officer can issue more than one notices – Writ is not maintainable to quash third notice [Art. 226]

Dismissing the petition the Court held that Assessing Officer can issue more than one notices. Writ is not maintainable to quash third notice it was not the case of the assessee that no jurisdictional fact existed for the purpose of assuming jurisdiction to issue the show-cause notices. The notices were valid.(AY.2016-17, 2017-18)

Sumandeep Vidyapeeth v. ACIT (2021) 434 ITR 433/ 200 DTR 393/ 320 CTR 464 (Guj.)(HC)

S. 144B : Faceless Assessment – A notice-cum-draft assessment was to be issued and a personal hearing was to be accorded if there was variation in income – Notification issue by Central Board of Direct Taxes is binding on department – Order was set aside [143(3), Art 226]

Allowing the petition the Court held that according to the Central Board of Direct Taxes’ Notification dated March 31, 2021, after April 1, 2021, the assessment order could only be passed in consonance with the provisions of section 144B. Therefore, the order, dated April 15, 2021, passed under section 143(3) read with section 143(3A) and 143(3B), the notice of demand issued under section 156 and the notice issued under section 274 read with section 270A for initiating penalty proceedings were to be set aside. The Department should proceed with the assessment process by following the procedure prescribed under section 144B. A notice-cum-draft assessment was to be issued and a personal hearing was to be accorded if there was variation in income. Order was set aside. (AY. 2018-19)

Gurgaon Realtech Limited v. National Faceless Assessment Centre, Delhi (2021) 436 ITR 280/ 203 DTR 129/ 321 CTR 266 (Delhi) (HC)

S. 144B : Faceless Assessment – Natural justice – Final assessment order was passed before disposal of request for grant of time to file objections to draft assessment order – Order and notice was quashed [S.143(3), 156, 270A, 274, Art 226]

Allowing the petition the Court held that the final order was passed before disposal of request for grant of time to file objections to draft assessment order. Order and notice was quashed. The National Faceless Assessment Centre could pass a fresh order in terms of the provisions of clauses (vii) to (ix) of section 144B after giving an opportunity of hearing to the assessee, qua the show-cause notice-cum-draft assessment order.( AY.2018-19)

RKKR Foundation v. National Faceless Assessment Centre (2021) 436 ITR 49 / 282 Taxman 76 (Delhi) (HC)

S. 144C : Reference to dispute resolution panel – Arm’s length price – Remand by Tribunal – Order is valid – Entire procedure under section 144C need not be repeated [S. 254(1), Art 226]

Dismissing the petition the Court held that Tribunal in clear terms, directed the Assessing Officer to decide the issue regarding the application of method, i. e., whether comparable uncontrolled price method or the transactional net margin method as the most appropriate method. Thus, a specific issue was directed to be decided by the Assessing Officer. Once the procedure had been followed the Tribunal remitted the matter back to decide a particular issue with a specific finding. It was sufficient if the remitted issue was decided by the Assessing Officer/Transfer Pricing Officer and a final assessment order was passed. Repetition of the same procedure would become an empty formality, which was not intended under the provisions. The order passed by the Assessing Officer was valid.(AY. 2012-13)

Enfinity Solar Solutions Private Limited v. Dy. CIT (2021) 436 ITR 188/ 204 DTR 201/ 321 CTR 716/ 282 Taxman 210 (Mad) (HC)

S. 144C : Reference to dispute resolution panel – Draft assessment order – Tribunal remanding the matter – Assessing Officer passing final order – Passing of draft order is mandatory – Order quashed and remanded [S.92CA(4), 143(3), 254(1)), Art 226]

Allowing the petition the Court held that when the law mandated a particular thing to be done in a particular manner, it had to be done in that manner. The final assessment order under section 144C read with section 143(3) had been passed without jurisdiction. Once the case was remitted back to the Assistant Commissioner/Transfer Pricing Officer, it was incumbent on their part to have passed a draft assessment order under section 143(3) read with section 92CA(4) and section 144C(1). They could not bypass the statutory safeguards prescribed under the Act and deny the assessee the right to file an application before the Dispute Resolution Panel. The final order was quashed and the case was remitted back to the Assistant Commissioner to pass a draft assessment order.(AY. 2009-10 to 2011-12)

Durr India Private Limited v. ACIT (2021) 436 ITR 111/ 203 DTR 419 (Mad) (HC)

S. 144C: Reference to dispute resolution panel – Transfer Pricing – Arm’s length price –Draft Assessment order mandatory – Not curable defects – Order quashed [S.143(3), 271(1)(c)

Allowing the petition the court held that the assessment order had been passed inadvertently by choosing the wrong field in the Department software would not just be an over-simplification, but a wrong statement since the assessment had been styled consciously, as an order of regular assessment only. The section under which the assessment was made was stated to be section 143(3). The total income had been assessed and the order was accompanied by a computation sheet determining the demand payable by the assessee along with interest. Penalty proceedings had been initiated in terms of section 271(1)(c). It was clear that the Assessing Officer had consciously proceeded to pass an order of regular assessment, losing sight of the scheme of assessment in terms of section 144C, which he was statutorily mandated to follow and apply. The order was quashed. (AY.2016-17)

GE Oil and Gas India Private Ltd. v. CIT (2021) 436 ITR 168 (Mad.) (HC)

S. 144C : Reference to dispute resolution panel – Arm’s length price – Objection considered by the Dispute Resolution panel – Alternative remedy – Every error of an authority is not open to judicial review merely by terming it a “jurisdictional error”, although it may, at a later stage, be set aside for being erroneous- Writ is not maintainable [S.92C, 92CA, 144C(5), 253, Art. 14, 19(1)(g), 226, 265]

Dismissing the petition the Court held that since an effective alternative remedy was available the writ petition was not maintainable. The directions issued by the Dispute Resolution Panel were binding on the Assessing Officer but that in itself was not a sufficient ground to exercise jurisdiction under article 226. The assessee had the statutory remedy of filing an appeal under section 253 before the Tribunal against the order passed by the Assessing Officer giving effect to the directions issued by the Dispute Resolution Panel under sub-section (5) to section 144C. The reasons given by the Dispute Resolution Panel for upholding the action of the Transfer Pricing Officer could not be analysed in writ jurisdiction and such reasonings would have to be tested before the appropriate forum. The factual background would have to be necessarily evaluated by the Assessing Officer while framing the assessment order. Every error of an authority is not open to judicial review merely by terming it a “jurisdictional error”, although it may, at a later stage, be set aside for being erroneous. (AY.2016-17)

Sabic India Private Limited v. UOI (2021) 434 ITR 563 /280 Taxman 158 (Delhi) (HC)

S. 145: Method of accounting –Assessee has rightly adopted proportionate completion method as it is engaged in rendering services throughout the entire year.

Dismissing Revenue’s appeal, the High Court held that the change of method in recognizing revenue (earlier method being invoice to be raised irrespective of services rendered) and adoption of proportionate completion method by Assessee is correct as Assessee is engaged in rendering services in the entire year and in the instant case Assessee is also covered by AS-9 as Assessee does not fall under the category of insurance companies. Hence, Assessing Officer not justified in changing the method adopted by the Assessee and in determining the income on estimated basis. (ITA No.593 of 2013, dt.21-10-2020) (AY. 2009-10)

CIT v. Medi Assist (India) TPA (P.) Ltd. (2021) 320 CTR 868 / 125 taxmann.com 77 (Karn) (HC)

S. 147: Reassessment – After the expiry of four years – Report of investigation wing – Non application of mind by the Assessing Officer – Notice not valid [S.148, Art, 226]

Allowing the petition the Court held that the Assessing Officer had not applied his independent mind while recording the reasons that the income had escaped assessment. The original assessment record was with the Assessing Officer. The scrutiny assessment had been challenged by the assessee-company and the appeal was pending before the Appellate Tribunal. As the issue of alleged transaction of Rs. 7,50,055 was earlier added by the Assessing Officer under section 68 of the Act at the original assessment stage, the same amount could not be brought to tax once again in the reassessment proceedings. It was not the case of the Revenue that the transaction as reported by the Investigating Wing, Surat was distinct and had no relation with the earlier scrutiny assessment made under section 143(3) of the Act. Thus, as such there was no tangible material in the hands of the Assessing Officer for reopening of the proceedings. The notice of reassessment was not valid.( AY.2012-13)

Alliance Filaments Ltd. v. ACIT (2021) 434 ITR 537 (Guj.) (HC)

S. 147: Reassessment – After the expiry of four years – Accommodation entries – Facts disclosed in the original assessment proceedings were false – Notice is held to be valid [S.148, Art 226]

Dismissing the petition the Court held that the Assessing Officer had examined the information received from the Surat wing and based on the information made inquiries and after independent application of mind, and upon due satisfaction, had reached the conclusion that the alleged transaction with A Ltd. seemed to be a bogus purchase and it was accommodation entries provided at the instance of AM and their group. After the framing of the assessment made under section 143(3) of the Income-tax Act, 1961 tangible material came into the hands of the Assessing Officer through the Investigation Wing and upon perusal thereof, he made independent inquiries and applied his mind and upon due satisfaction, he formed an opinion that the income had escaped assessment. The notice of reassessment was valid.(AY.2012-13)

Keshav Diamonds Pvt. Ltd. v. ITO (2021) 434 ITR 700 (Guj) (HC)

S. 147: Reassessment – After the expiry of four years – Accommodation entries – Policed diamonds – Subsequent information – Transaction disclosed in the original assessment proceedings were not valid – Sanction obtained – Reassessment was held to be valid [S. 132, 148, 151, Art 226]

Dismissing the petition the Court held that the subsequent information that transaction disclosed in the original assessment proceedings were not valid and the Assessing Officer presented the reasons recorded for approval of the Principal Commissioner in the prescribed format through the Additional Commissioner. Both officers had perused the reasons recorded and opined that it was a fit case to issue notice under section 148. There was compliance with section 151. The notice was valid.(AY.2012-13)

Madhav Gems Private Limited v. ITO (2021) 434 ITR 684/ 200 DTR 297 (Guj) (HC)

S. 147: Reassessment – After the expiry of four years – No payment of interest or remuneration – Notice on ground that payments must have been made – Not valid [S.80(IB)(10), 148, Art 226]

Allowing the petition the Court held that there was no material on record to indicate that the assessee had actually received any interest on capital and remuneration from the firm. The record further indicated that for the assessment year 2010-11, deduction under section 80-IB(10) was claimed without paying any interest on capital and remuneration to partners and such claim was not disturbed by the Assessing Officer. In this view of the matter, the conclusion arrived at by the Assessing Officer that the assessee had claimed deduction without providing interest on capital and remuneration to partners as per clauses 6 and 7 of the deed, and hence income had escaped assessment on account of failure on the part of the assessee in filing of the return of income disclosing fully and truly all material facts, were contrary to law and without jurisdiction.(AY.2011-12 to 2013-14)

Myhome Developers v. ACIT (2021) 434 ITR 270 (Guj) (HC)

S. 147: Reassessment – After the expiry of four years – Failure to disclose true facts – Share capital – Kolkata based companies –Reassessment notice is held to be valid [S.143(1), 148, Art 226]

Dismissing the petition the Court held that the return filed by the assessee was accepted without scrutiny. Since there was no scrutiny assessment, the Assessing Officer had no occasion to form any opinion on any of the issues arising out of the return filed by the assessee. The concept of change of opinion would, therefore, have no application. This was not a case where the ITO sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the materials placed before him by the assessee as regards the receipt of the share capital and share premium from two Kolkata based companies which were subsequently discovered to be shell companies. The subsequent information, on the basis of which the ITO acquired reason to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts, was relevant, reliable and specific. It was not vague or non-specific. The notice of reassessment was valid.(AY.2011-12)

Navnidhi Dyeing and Printing Mills Pvt. Ltd. v. ACIT (2021) 434 ITR 334 / 201 DTR 265/ 320 CTR 737 (Guj) (HC)

S. 147: Reassessment – After the expiry of four years – Housing projects – No failure to disclose any material facts – Reassessment is not valid [S.80IB(10) 148, Art 226]

Allowing the petition the Court held that the order and the materials furnished by the assessee at the stage of original assessment showed that there was conscious application of mind to the issue of deduction under section 80-IB(10) by the Assessing Officer and after considering the evidence and materials, he had thought it not fit to disallow the deduction. Therefore, a mere change of opinion while pursuing the same material by the Assessing Officer while initiating the proceedings, could not be a reason to believe that income had escaped assessment. Once an opinion was formed on the issue of deduction and assessment on the issue was made under section 143 reopening the assessment on the same set of facts and material, without there being any tangible material would be nothing but a change of opinion. The condition precedent for reopening of the assessment beyond the period of four years having not been satisfied the notice issued under section 148 was quashed and set aside.(AY. 2012-13)

Sarthak Developers v. Dy CIT (2021) 434 ITR 648 (Guj)(HC)

S. 147: Reassessment – Information received from Investigation wing – Non application of mind – Sanction not obtained – Notice is held to be not valid [S.133A, 148, 151, Art 226]

Allowing the petition the Court held that the reasons recorded for assuming jurisdiction to issue notice under section 148 referred to clause (a) of Explanation 2 to section 147 of the Act, 1961. which applies to non-filing of the return of income but the assessee had filed the return of income, and hence it would not be applicable. Thus the Assessing Officer had recorded the reasons without proper application of mind. There was no reference to approval having been sought from the Addition Commissioner or CIT for issuance of notice under section 148 as provided in section 153. Accordingly In view of the facts and circumstances of the case, the notice dated March 29, 2018 issued under section 148 of the Act, could not be sustained.(AY.2011-12)

Bharatkumar Nihalchand Shah v. ACIT (2021) 434 ITR 621 (Guj) (HC)

S. 147 : Reassessment – After the expiry of four years – Change of opinion – Short term capital gains – Dividend- Reassessment is held to be not valid. [S. 10(38), 148]

Dismissing the appeal of the revenue the Court held that all the particulars relating to dividends and short-term capital gains and other particulars were available with the Assessing Officer during the assessment proceedings, which were concluded under section 143(3) of the Act. The Tribunal, on the facts, had recorded that the Department did not bring any material fact before it, which was not disclosed in the original return of income. The reopening of the assessment beyond four years was clearly a case of change of opinion. The reassessment was not valid.(AY. 2008-09)

PCIT v. M. R. Narayanan (2021) 436 ITR 520 (Mad) (HC)

S. 147: Reassessment – After the expiry of four years – Sale of land – Borrowed satisfaction – Non application of mind before issue of notice – Notice is held to be not valid [S.148, Art 226]

Allowing the petition the Court held having accepted the entire transaction on the basis of the scrutiny assessment under section 143(3) of the Act the reopening on the basis of some information was not valid in the eyes of law and was liable to be quashed for the reason that the Assessing Officer failed to apply his mind. The reasons were merely recorded by the Assessing Officer on borrowed satisfaction. The source for all the conclusions was the information received from the Deputy Commissioner and that too, based on a search and survey carried out at the residential and business premises in the case of K. Star Corporation. (AY.2011-12)

Kantibhai Dharamshibhai Narola v. ACIT (2021) 436 ITR 302 (Guj) (HC)

S. 147: Reassessment – After the expiry of four years – Failure to deduct tax at source – Issue not considered in the original assessment – Court cannot adjudicate disputed facts or go in to sufficiency of reasons for reopening – Reassessment notice is valid [S. 9(1)(i), 40(a)(ia), 148, Art 226]

Dismissing the petition the Court held that mere failure to quote the provision of law would not vitiate the entire reassessment proceedings, though the competent authorities are expected to quote the provisions of law. That certain facts placed by the assessee before the court could not be wholly relied upon. The Department without conducting an enquiry and scrutinizing the documents would not be in a position to place all the facts before the court. Therefore, the scope of interference in initiation of reassessment proceedings would be limited and, the court in such circumstances should refrain from preventing the competent authorities from conducting further enquiry by following the procedures as contemplated on initiation of proceedings under section 147. Reassessment notice is held to be valid. (AY.2007-08) (SJ)

Sutherland Global Services (P.) Ltd. v. CIT (2021) 436 ITR 122 (Mad) (HC)

S. 147 – Reassessment – Change of opinion – Amount already assessed – reopening is bad in law [S.68]

Reassessment was sought to be initiated based on information provided by Director (Inv.) that assessee-company had indulged in bogus transaction with one ‘S’ who was an entry provider and income had escaped assessment. It was found that case of assessee was taken up for scrutiny and after a detailed inquiry various additions were made including an addition under section 68 in respect of share capital and share premium received by assessee during year under consideration which included sum received from ‘S’ and, thus, alleged transaction was considered by Assessing Officer under section 68 at original assessment stage. It was held that assumption of jurisdiction on part of Assessing Officer under section 147 to reopen assessment by issuing impugned notice was without authority of law. [AY: 2012-13]

Alliance Fibres Ltd. v. ACIT (2021) 435 ITR 264 (Guj)(HC)

S. 147 : Reassessment – Non-disclosure of material facts fully and truly – Reopening is bad in law. [S.80IA]

S. 147 is wide enough to cover under-assessment. It was held that when on account of certain information provided by assessee, a wrong assessment had been made so as to cause loss to revenue, then, it is to be construed that assessee had not disclosed fully and truly all material facts. When prima facie case is made out by department to arrive a conclusion that there is a reason to believe, that income has escaped assessment, then revenue must be permitted to proceed with reopening proceedings and mere reopening would not cause any prejudice to assessee and during adjudication, assessee would get an opportunity to defend his case.(AYs : 2006-07, 2007-08 and 2009-10)

Aircel Cellular Limited v. DCIT (2021) 435 ITR 660 (Mad)(HC)

S. 147: Reassessment – After the expiry of four years – Objections not been disposed prior to issuance of SCN

Hon’ble High Court held that there is mandatory requirement that the assessee’s objections raised for reopening of the assessment should be disposed of by the Assessing Officer by a speaking order and the same was not complied with in the present case. The reassessment proceeding under section 147 was vitiated on this ground alone. Further remarks that the letter of approval u/s 151 of the Act for the issuance of notice u/s 148 issued by the Joint Commissioner to the ITO simply stated that “approval is hereby accorded under section 151(2) for initiation of proceeding under section 147”. There was no indication of any application of mind by the authority. The approval accorded under section 151 had to be granted by the Principal Chief Commissioner, or the Chief Commissioner, or the Principal Commissioner, or the Commissioner, if the reopening is beyond four years. Therefore, also the approval issued by the Joint Commissioner was not valid.

Viresh Hemani v. ITO (2021) 435 ITR 376 (Orissa)(HC) (W. P. (C) No. 15305 of 2014, dt. 23-04-2021)

S. 147: Reassessment – Sub-sequent information about accommodation entry – Reopening justified. (S.69C)

Assessing Officer received information from ITO of other person that assessee was beneficiary of accommodation entries, and after making independent inquiry and application of mind to relevant material issued reopening notice against assessee. It was held that since Assessing Officer had initiated proceedings not only on basis of information received from concerned department but based upon his independent satisfaction and other available materials and there was material to prima facie come to conclusion that assessee was beneficiary of accommodation entries, impugned notice for reopening of assessment was justified. [AY 2011 -2012]

Cemach Machineries Ltd. v. ITO (2021) 435 ITR 306 (Guj)(HC)

S. 147: Reassessment – Reassessment based on change of opinion – bad in law. [S. 36(1)(ii)]

AO issued a reopening notice on ground that assessee company had paid a sum of huge amount to it’s managing director apart from directors remuneration and same was to be disallowed under section 36(1)(ii). It was held that since assessee had made adequate disclosures during original assessment and based on same its assessment was completed and, further, reopening notice issued in case of assessee for subsequent assessment year on similar ground/issue was dropped on ground of change of opinion and same was accepted by revenue, following same view, impugned reopening was also to be set asid. [AY: 2007-2008]

CavinKare (P.) Ltd. v. DCIT (2021) 435 ITR 396 (Mad)(HC).

S. 147 : Reassessment – Non-application of mind on the part of the AO would vitiate the proceedings.

The assessee got constructed a residential building and filed a valuation report in the course of the assessment, which came to be accepted by the AO. Subsequently, the AO referred the matter to another valuation officer and obtained his report, the value as per which was marginally higher than that mentioned in the assessee’s valuation report. Held that apart from relying on the valuation report, there was no independent application of mind on the part of the AO which could justify the reassessment. (A.Y. 2003-04)

Mukul Kumar Singh v. CIT (2021) 320 CTR 237 (Pat)(HC)

S. 148 : Reassessment – Notice – Proper procedure to be adopted – Writ against the notice was dismissed [S.147, Art 226]

Dismissing the petition the Court held that a writ petition against a notice under section 148 was not to be entertained in a routine manner. The notice could be challenged if the issuing authority had no jurisdiction or if it was issued beyond the period of limitation. If the ground regarding limitation existed, the assessee could raise such issue before the competent authority and not before the court. (AY.2011-12)

Palaniammal Palaniappan v. ITO (2021) 434 ITR 668 (Mad) (HC)

S. 148 : Reassessment – Notice – Assessee has right to raise objections – Duty of Assessing Officer to consider objections – Failure to consider objections – Matter remanded [S. 147, Art 226]

Allowing the petition the Court held that although the Assessing Officer had an opportunity at the stage of dealing with the objections to verify the contention of the assessee, which went to the root of the matter, he ignored the issue taking a stance that the factual proposition would be examined at the time of reassessment proceedings after giving sufficient opportunity to the assessee. Therefore the Assessing Officer had no material to suggest that the assessee had made payment in cash to S and thereafter, received the same amount back through the real-time gross settlement mode. The notice of reassessment was not valid. Matter remanded to Assessing Officer.(AY. 2015-16)

Purshottambhai Bachubhai Pitroda v. Dy CIT (2021) 434 ITR 629 (Guj) (HC)

S. 148 : Reassessment – Notice – Amalgamation of companies – Amalgamating company and amalgamated company operating from same address after amalgamation – Provision of Section 170(2) applicable- Participated in the reassessment proceedings – Notice and reassessment proceedings valid [S. 147, 170(2), Art. 226]

Dismissing the petition the Court held that on the facts and circumstances established, the assessee had to participate in the reassessment proceedings under section 147 by submitting its documents and evidence to establish its case. After merger with effect from April 1, 2009 both the offices, HCLP and HCLC, were running in the same premises. Further, the acknowledgment of the notice issued by the Assistant Commissioner had not been disputed by the assessee. Therefore, section 170(2) would be applicable and sucsh ground could not be considered for the purpose of quashing the entire proceedings initiated under section 147. Even on the merits, the Assistant Commissioner had established that there was “reason to believe” in view of certain new materials found in the matter of purchased units of mutual funds. This could not establish any acceptable reason for the purpose of assailing the notice issued under section 148. (AY. 2005-06)

Vama Sundari Investments (Delhi) Private Limited v ACIT (2021) 434 ITR 1 74 (Mad) (HC)

S. 148 : Reassessment – Notice – Hindu Undivided Family – Partition – Sale consideration – Exemption – Reassessment notice to tax capital gains in the hands of Karta is held to be not valid [S.45, 54F, 148, 171, Art 226]

Allowing the petition the Court held that, where a Hindu family was never assessed as a Hindu undivided family, section 171 would not apply even when there was a division or partition of property which did not fall within the definition. The notice issued under section 148 to the estate of ARP (HUF) co-parceners and the consequential order issued in the name of the assessee as the karta were unsustainable.(AY. 2008-09)

A.P. Oree (Kartha) v. ITO (2021) 436 ITR 3/ 203 DTR 153/ 282 Taxman 57 (Mad) (HC)

S. 148 : Reassessment – Notice – Death of assessee – Notice issued to deceased assessee – Notice and order not valid [S. 144, 147, 271F, 271 (1) (c), Art 226]

Allowing the petition the Court held that the notice issued under section 148 having been issued in the name of a dead person, was null and void, and all consequent proceedings and orders, including the assessment order passed under section 144 / 147 and the penalty notices issued under section 274 read with section 271(1)(c) and section 274 read with section 271F, being equally tainted, were set aside.(AY. 2012-13)

Sripathi Subbaraya Manohara (Mrs.) v. PCIT (2021) 436 ITR 469 (Delhi) (HC)

S. 153A : Assessment – Search – Public Interest Litigation – Allegation of evasion of tax – Filing different petitions on same subject matter – Practice deprecated – Income-Tax Informants Reward Scheme, 2018.[Art 226]

Dismissing the appeal, that a second writ petition on the same subject matter was not maintainable. The issue of evasion of tax under the tax informant scheme (2018 Scheme) had already been raised in the public interest litigation and the court had already dismissed the identical writ appeal. The modus operandi adopted by the petitioner was that it had filed different writ petitions in respect of the same subject matter which was the subject matter of the public interest litigation. Such a practice deserved to be deprecated. There was no reason to interfere with the order passed by the single judge dismissing the second writ petition.

India Awake For Transparency v. Chairman, CCBDT (No. 2) (2021) 436 ITR 512 (Karn) (HC)

Editorial : Decision in Single judge in India Awake For Transparency v. Chairman, CCBDT (No. 1) (2021) 436 ITR 442 (Karn) (HC) affirmed.

S. 153A : Assessment – Search – Block assessment – Failure to hand over seized material by Investigation Officer to Assessing Officer within prescribed time-limit – Notice will not be invalid [S.132, 132 (9A), 153B, Art 226

The assessee filed writ petition challenging the validity of the section 153A notices dated November 1, 2019 for the assessment years 2013-14 to 2018-19, on the ground that the time frame set out in section 132(9A) , is mandatory and non-compliance therewith would render the notices issued initiating the process of assessment, invalid . Dismissing the petition the Court held that the undisputed position in this case was that the Deputy CIT(Inv) and Assessing Officer were not the same person. The last of the authorisations in this case was on September 4, 2018 and the seized materials ought to have been handed over, in terms of section 132(9A) on or before November 3, 2018. Admittedly, the handing over had been only on August 20, 2019, more than nine months beyond the stipulated date. Though this constituted a gross procedural irregularity, it did not vitiate the notices issued. Thus, the jurisdiction assumed could not be faulted on this score. The notice was valid.( AY.2013-14 to 2018-19)

Agni Estates and Foundations (P) Ltd v. Dy.CIT (2021) 434 ITR 79 (Mad) (HC)

S. 153A : Assessment – Search-Principle of natural justice must be followed – Notice u/s 143 (2) is not mandatory – Order quashed and set aside [S.143 (2), 158BC, Art 226]

Allowing the petition the Court held that principle of natural justice must be followed though notice u/s 143 (2) is not mandatory. Accordingly the order quashed and set aside. The Court also observed that that no explanation had been set forth in counter or at the time of hearing to explain why the assessment had been taken up for completion, at the very fag end of limitation and for this reason, the assessments could have been nullified, as a second innings was not to be granted to the Department, merely as a matter of rote. However, solely as a matter of prudence, the court set aside the assessments with a direction to the respondent to issue notices afresh, hear the petitioner and pass orders of assessments within a period of eight weeks with sufficient time being given to the assessee to put forth his submissions on the merits.(AY.2012-13 to 2017-18)

Kubendran v. Dy CIT (2021) 434 ITR 161 (Mad)(HC)

S. 153C : Assessment – Income of any other person – Search – Service of notice – Notice without recording satisfaction is held to be not valid – Subsequent notice after valid satisfaction is held to be valid – High court can find out whether proper satisfaction is recorded or not, however cannot consider sufficiency of reasons [S.132, 282, 282A, Rule 127, 127A, Art 226]

Court held that notice without recording satisfaction is held to be not valid however, subsequent notice after valid satisfaction is held to be valid. Court also held that High court can find out whether proper satisfaction is recorded or not, however cannot consider sufficiency of reasons. The provisions of section 282 deal with service of notice in general terms and section 282A with the authentication of notices for service by electronic means. In this case, it was not in dispute that the notice dated September 30, 2019 was a valid notice qua the provisions of sections 282 and 282A read with rules 127 and 127A. The issuance of notice dated June 14, 2019 did not vitiate the proceedings in any way. (AY. 2017-18)

6th Sense Infrastructure Pvt. Ltd. v. PDIT (2021) 436 ITR 90/ 203 DTR 177 (Mad) (HC)

S. 153C : Assessment – Income of any other person – Search –Satisfaction note issued by the Assessing Officer – Notice under section 153C is held to be valid [S.132, 147, 148, 153A, Art. 226]

Dismissing the petition the Court held that the progress made on account of certain facts, events and procedures, which were otherwise contemplated under the provisions of the Act, could not be construed as without jurisdiction nor to be termed as legal malice. No mala fides or lack of jurisdiction was identifiable nor established. The section 147 proceedings had been initiated for a particular assessment year and only after invoking section 153C, could the Assessing Officer prepare the “satisfaction note” and reopen proceedings for five assessment years. The assessee had to defend his case before the competent authority in the manner known to law. Such an adjudication with reference to the transactions, seizure and impounded materials could not be undertaken by the High Court under article 226 of the Constitution of India. The notice under section 153C was valid(AY.2014-15, 2015-16) (SJ )

Karti P. Chidambaram v. PDIT (Inv.) (2021)436 ITR 340/ 204 DTR 18/ 321 CTR 273 (Mad) (HC)

S. 154: Rectification of mistake –grant of refund and consequential interest under Section 244A [S.244A]

The principal grievance of the petitioner in all the writ petitions was the delay in the disposal of the applications filed by it under Section 154 of the Act, Hon’ble HC disposes the writ petitions are with the following directions: (i) The concerned officer will consider the pending applications filed by the petitioner under Section 154 of the Act. Furthermore, after according a personal hearing to the authorized representative of the petitioner, the concerned officer will dispose of the same, at the earliest, though, not later than four weeks from the date of receipt of a copy of the order.(ii) In case the concerned officer were to agree with the petitioner, he will take consequential steps, albeit, as per law.(iii) The concerned officer will also consider the petitioner’s prayer for grant of refund and consequential interest under Section 244A of the Act.(iv) Needless to add, the concerned officer will pass a speaking order. A copy of the same will be furnished to the petitioner. (W.P.(C) No. 5513/2021 W.P.(C) No. 5514/2021 W.P.(C) No.5515/2021 dt. 27-05-2021) (AY. 2012-13, 2015-16, 2016-17)

Travelport Global Distribution System BV v. CIT(IT) (2021) 435 ITR 684 (Delhi)(HC)

S. 192 : Deduction at source – Salary – Provision of residential accommodation by employer – Valuation of perquisite – Residential Accommodation provided to regular and contract employees on collection of licence fee according to area of quarters and commensurate with salary of employee – Perquisite – Liable to deduct tax at source [S. 15, 17(2), ITR, 1962, R. 3(1) Art 12, 226]

Petitioner is an educational institution. The petitioner challenged the provision relating to tax deduction at source, on the ground that the Institution is State within article 12 of the Constitution of India and therefore, in terms of section 17 and sub rule (1) of rule 3 of the said Rules, the value of the accommodation would be licence fees charged and there would be no question of providing any perquisite to the employees, hence not liable to deduct tax at source. Dismissing the petition the Court held that that even if the assessee was treated as State within the meaning of article 12 of the Constitution of India it could not escape the liability to deduct tax at source on the difference between the value of the rent as assessed under rule 3(1) of the 1962 Rules and that collected from the employee by way of licence fee. The ITO’s holding that the assessee was not State within the meaning of article 12 of the Constitution of India was not correct. Since the assessee did not provide rent-free accommodation to its employees, it did not fall under clause (i) of sub-section (2) of section 17. However, if there was any concession in the matter of rent respecting the accommodation provided by the assessee to its employees, it would be covered under clause (ii) of sub-section (2) of section 17. Even proceeding on the basis of the assertion of the assessee that it was “State” within the meaning of article 12 would not bring the assessee within the fold of entry 1 (which would be applicable only in a case where the employer was either the Central or the State Government) in the table below sub-rule (1) of rule 3 of the 1962 Rules. Accordingly residential Accommodation provided to regular and contract employees on collection of licence fee according to area of quarters and commensurate with salary of employee/ Perquisite which is Liable to deduct tax at source

National Institute Of Technology v. UOI (2021) 434 ITR 361/ 201 DTR 283/ 320 CTR 756 / 278 Taxman 117 (Tripura) (HC)

S. 195 : Deduction at source – Non-resident – Agreement with Indian Import of cars as completely built up units on principal to principal basis – Title and risk in goods transferred at port of delivery, payment made outside India and transaction complete outside India – No business connection – Not liable to deduct tax at source – DTAA – India-Japan [S.9 (1)(i), 195, Art, 5(1)(9)]

The issue before the AAR was “Whether on the facts and circumstances of the case and in law, whether the applicant. i.e. Honda Motor Co. Ltd would be considered to have a permanent establishment (“PE”) in India by reason of its business transaction and related activities with Honda Siel Cars India ltd (“HSCI”) under the provisions of India-Japan DTAA ?”

“On the facts and circumstances of the case whether the amount received / receivable by the applicant, i. e. Honda Motor Co Ltd from HSCI as consideration for offshore supply of raw material /components / capital goods and CR-V cars would be liable to tax in India under the provisions of the Act and India-Japan DTAA?”

“If the answer to question Nos. 1 and 2 above is negative, whether HSCI would be liable to withhold taxes under section 195 of the Act on the payments to be made by HSCI towards the off shore supplies made by the applicant, i.e. Honda Motor Co, Ltd ?”

The application was admitted on 5-5-2012,

The AAR held that

Q.No.1. The applicant , Honda Motor Co Ltd, would not be considered to have a permanent establishment (“PE”) in India by reason of its business transaction and related activities with Honda Siel Cars India Ltd (“HSCI”) under the provisions of India- Japan DTAA.

Q.No.2. The amounts received / receivable by the applicant from HSCI as a consideration for offshore supply of raw material /components / capital goods and CRV cars would not be liable to tax in India under the provisions of the Act and India-Japan DTAA subject to verifications as mentioned in para 37 of the ruling.

Q.No.3. Because of answer to question Nos. 1 and 2, the payment to be made by HSCI towards the offshore supplies of parts made by the applicant will not be subjected to withholding of tax under section 195 of the Act. AAR No. 1100 of 2011 dt 23-10-2019 (AR.2009-10)

Honda Motor Co. Ltd., In re. (2021) 434 ITR 229 (AAR)

S. 197 : Deduction at source –Certificate for lower rate – Double taxation Avoidance Agreement – Protocol – Common interpretation – Deduction of tax at source – Withholding rate tax in respect of dividend would be 5 percent – DTAA-India-Netherland [S.90, 195, Art 226]

In a writ petition filed by the assessee for lower deduction of tax the issue before the High Court was as to what should be the withholding rate of tax in respect of dividend. On an application made for lower deduction of tax at source, the Assessing Officer held that the tax deductible will be at 10%. On writ the Court held that the Protocol formed an integral part of the Convention. Therefore, plainly read, no separate notification was required, in so far as the applicability of provisions of the Protocol was concerned. The best interpretative tool that could be employed to glean the intent of the contracting States in framing clause IV(2) of the Protocol would be as to how the other contracting State (i.e., the Netherlands) has interpreted the provision. The decree issued by the Kingdom of the Netherlands on February 28, 2012 published on March 13, 2012 clearly showed that the Netherlands had interpreted clause IV(2) of the Protocol appended to the Double Taxation Avoidance Agreement in a manner, which was, that the lower rate of tax set forth in the Double Taxation Avoidance Agreement between India and Slovenia would be applicable on the date when Slovenia became a member of the OECD, i.e., from August 21, 2010, although, the Double Taxation Avoidance Agreement between India and Slovenia came into force on February 17, 2005. Therefore, participation dividend paid by companies resident in the Netherlands to a body resident in India would bear a lower withholding tax rate of 5 per cent. The other contracting State, i.e., the Netherlands had interpreted clause IV(2) in a particular way and therefore in the fitness of things, the principle of common interpretation should apply on all fours to ensure consistency and equal allocation of tax claims between the contracting States. The certificates were not valid. Directed too issue a fresh certificate under section 197 of the Act which would indicate that the rate of withholding tax, in the facts and circumstances of the case would be 5 percent.

Concentrix Services Netherlands B. V. v. ITO (TDS) 2021)434 ITR 516/ 201 DTR 17/ 320 CTR 361 (Delhi) (HC)

Optum Global Solutions International B. V. v Dy. CIT (2021)434 ITR 516 / 201 DTR 17/ 320 CTR 361 (Delhi) (HC)

S. 201 : Deduction at source – Failure to deduct or pay – Payment to Non-residents – Application of recipient admitted and pending before Authority for Advance Rulings – While adjudicating the issue, the Authority will adjudicate the jurisdictional issue of chargeability of tax [S. 201(1), 201(IA), 245R, Art 226]

On writ the Court held that while carrying out the adjudication, the Authority for Advance Rulings would first determine as to whether the remittances in issue were chargeable to tax and pass a speaking order, after giving a personal hearing, if the order passed was adverse to the interests of the assessee, it would not be given effect for four weeks, and if the authority was of the view that it was necessary to await the decision of the Authority for Advance Rulings in the matter concerning the recipient non-resident, it could take this aspect into account as well.(AY.2012-13, 2013-14)

BT (India) (P) Ltd v. ITO (2021) 434 ITR 279/ 200 DTR 260/ 320 CTR 178 (Delhi) (HC)

S. 201 : Deduction at source – Failure to deduct or pay – Mere entries in accounts – No accrual of income – Not liable to deduct tax at source [S. 40(a)(i), 40(a) (ia), 192, 194C, 201(IA)

The assessee made provision for general expenses, however not claimed as deduction while filing the return. The Assessing Officer initiate proceedings under section 201 and 201(IA) of the Act and treated the assessee as assessee -in default of the amount made provision. The order of the Assessing officer is affirmed by the CIT (A) and Tribunal. On appeal allowing the appeal the Court held that In the absence of any accrual of income, there is no obligation on the part of the assessee to deduct tax at source. Court also held that the provisions were created during the course of the year and reversal of entry was also made in the same accounting year. The Assessing Officer erred in law in holding that the assessee should have deducted tax at the rate applicable with interest. The Commissioner (Appeals) and the Tribunal were wrong to confirm the order of the Assessing Officer. The assessee was not liable to deduct tax at source.(AY.2012-13)

Toyota Kirloskar Motor (P.) Ltd. v. ITO (TDS)-LTU (2021) 434 ITR 719 (Karn) (HC)

S. 201(1) and 201(1A) : Deduction at source – Failure to deduct or pay – Proceedings under Section 201(1) and 201(1A) could not have been initiated without concerned officer determining the jurisdictional issue as to whether the remittances made were chargeable to tax.

Held by the High Court that if the statutory authority exercises the power without determining whether or not it has jurisdiction in the matter, that itself, may, in certain cases, call for interference at this stage by High Court. Also, since 85-90% of the remittances have been made to BT Plc whose application is pending before AAR since 2015, the proceedings have to be adjudicated in the manner that the concerned authority will in the first instance determine as to whether or not the jurisdictional facts obtained in the matter ie whether the remittances in issue are chargeable to tax.

Further, the High Court stated that in case, the concerned authority feels it is necessary to await the decision of the AAR in the matter concerning BT Plc, it will be free to take this aspect into account as well. (WP (C) No. 3470/2021 of 2016, dt. 19-03-2021)

BT (India) Private Limited v. ITO & Anr (2021) 320 CTR 178 (Del) (HC)

S. 205: Deduction of Tax at Source – Payee cannot be saddled with demand for the fault of payer of not depositing the TDS.

It was held that to the extent that tax was deducted by payer company and not remitted by it to Income Tax Department, recovery could be only directed against payer company as it was in default. [AYs. 2011-12, 2012-13 and 2013-14]

Ashok Kumar B. Chowatia v. DCIT (2021) 435 ITR 449 (Bom)(HC)

S. 220 : Collection and recovery – Assessee deemed in default – Restraints revenue from recovering the amount over and above, as prescribed under CBDT Instructions

The assessee has filed writ against the Revenue adjustment of Assessee-Individual’s outstanding demand with the refund despite appeal and stay application. HC observed that section 143(1A) of the Act provides that CBDT may make a scheme for centralised processing of returns with a view to expeditiously determining the tax payable by, or the refund due to, the Assessee and that section 143(1B) provides that for giving effect to the scheme pursuant to sub-section (1A), a notification with respect to application or non-application of any provisions relating to processing of return may be issued. Also, Clause 10 under the scheme is not intended to be read out of the context in isolation. Remarks that the scheme pursuant to section 143(1A) will have to be read in the context of the provisions in the Act governing refund and also orders, circulars, instructions issued from time to time by CBDT. Held that “Set off of refund under the clause is to be done by using details of income tax demand lying against the person uploaded on to the system. The exercise of power to have set off / adjustment of refund is regulated by legislative provisions and instructions. The details referred to in the clause would have to correspond to the provisions and instructions operating” Directs Revenue to refund excess amount collected over and above the amount required for stay along with interest. (WP No. 7231 of 2020, dt.25-3-2021) (AY. 2012-13 to 2019-20)

Vrinda Sharad Bal v. ITO (2021) 435 ITR 129 (Bom.)(HC)

S. 245C : Settlement Commission – Full and true disclosure of income – Not disclosing the income discovered during search – Acceptance of application is held to be not valid – Writ petition is held to be maintainable – Order is held to be perverse. [S.132, 153A, 245D, Art 226]

Allowing the writ petition of the revenue the Court held that in the instant case, the assessee having knowledge about the search and having received notice under section 153A of the Act, ought to have submitted all such particulars along with the application including the undisclosed income recovered by the Department in the application itself. The assessee had not filed any details regarding the undisclosed income recovered by the Department in her application under section 245C of the Act and therefore, the very application for settlement was certainly not entertainable and the Department had, prima facie, established that the assessee had not approached the Settlement Commission with clean hands. The assessee had not truly and fully disclosed her income and more specifically, the undisclosed income recovered during the search was not made available before the Settlement Commission along with the application. This would be sufficient to reject the application by the Settlement Commission. Contrarily, the Settlement Commission proceeded by adjudicating the issues on the merits on the presumption that the Settlement Commission can pass an assessment order, which is otherwise not permissible under the provisions of section 245C of the Act. Thus, the order passed by the Settlement Commission was perverse and not in consonance with the provisions of the Income-tax Act, 1961. The order was not valid.(AY.2007-08 to 2013-14) (SJ)

CIT v. ITSC (2021) 434 ITR 546 (Mad)(HC)

S. 245C : Settlement Commission – Settlement of cases – Conditions – Subsequent additional statements could not be relied upon in order to satisfy requirements of S/245C and ITSC has exceeded its jurisdiction in setting aside such issue as regular assessment has to be made in such case.

Held by the High Court that, (i) an application for settlement cannot be entertained when there are discrepancies and doubt arising as regards true and full disclosure of income by the Assessee approaching ITSC (ii) in order to satisfy requirements of Section 245C of the Act, Assessee has to disclose true and full income at the time of making application and if the Assessee revised its offer before ITSC by declaring additional undisclosed income and ITSC had considered said revised offer then such subsequent additional statements could not be relied upon in order to satisfy requirements of provisions u/s 245C and ITSC has exceeded its jurisdiction hence regular assessment was to be made (WP No.3297 of 2014, dt 11-08-2021) (AY. 2012-13)

CIT v. ITSC (2021) 127 taxmann.com 367 (Mad) (HC)

S. 245F r.w.s. 234B and 154 : Settlement Commission – Powers – Pursuant to subsequent Supreme Court’s judgment that ITSC cannot reopen its concluded proceedings u/s 154 directing levy of interest u/s 234B of the Act in view of section 245-I, the matter has to be remitted back to ITSC to decide issue afresh

Allowing the Writ appeal, the High Court held that if the ITSC had granted waiver of interest under sections 234A to 234C, but subsequently rectified its order directing that interest u/s 234B be charged up to the date of order u/s 245D(4) of the Act, then in view of subsequent Supreme Court’s judgment that ITSC cannot reopen its concluded proceedings by invoking Section 154 so as to levy interest u/s 234B of the Act in view of section 245-I, matter has to be remitted back to ITSC to decide issue afresh (WA No 456 of 2018, dt. 15-09-2020) (AY 1988-89 to 1992-93 and 1995-96)

CIT v. M.A. Jacob & Company (2020) 320 CTR 209 / 119 taxmann.com 232 (Mad)(HC)

S. 245R : Advance rulings – Applicant is not found to be real owner of the transactions – Transactions were designed prima facie for avoidance of tax – Application is rejected-DTAA- India-Israel [S. 9(1)(i), 9(1)(vi), 9(1)(vii), 245N(a)(ii), 245R(2)]

The question raised before the AAR was, “Whether the applicant is justified in its contention that amount due /received from Ranbaxy Laboratories Limited (‘Ranbaxy India’) is in the nature of ‘business profits’ and is not chargeable to tax in India under the provisions of the Act in the absence of business connection India under the provisions of the Act in the absence of business connection in India as per section 9 (1)(i) of the Act or under the provisions of article 7 read with article 5 of the India-Israel Double Taxation Avoidance agreement (‘DTAA’) in the absence of permanent establishment in India ?”

“Whether the applicant is justified in its contention that amount due/ received from Ranbaxy India is not taxable as ‘royalty’ or ‘fees for technical services ‘both under the Act or under the relevant provisions of India -Israel DTAA read with Protocol thereto ?”

The application was admitted on 6-7-2015, The AAR held that the applicant is not found to be real owner of the transactions and income did not accrue in its hand but it was only a case of application of income of BP USA to the applicant. Further, the basic condition of the transaction of the non-resident arising out of the transaction with a resident as stipulated under section 245N(a)(ii) was not fulfilled as the transactions of the applicant were not on account but towards application of income of BP USA. The transactions were also hit by the mischief of clause (iii) of the section 245R(2) of the Act, as they were designed prima facie for avoidance of tax. Accordingly the application is rejected. (AY.2016-17) (AAR.No. 1476 of 2013 dt 25-10-2019)

BP Israel, In re (2021) 434 ITR 283 (AAR)

S. 245R: Advance rulings – Procedure – Application – Dismisses application as issue pending before ITAT for earlier years

The Applicant is a non-resident company has entered into two agreements with an Indian company i.e. System Fund Support Services Agreement (SFS) to provide marketing, distribution, marketing and frequency marketing programs and Reservation System Facility Agreement (RSF) to provide reservation systems facility w.e.f. April 1, 2019. The Applicant seeks before AAR that, whether the amount received from Indian Co. for such services is taxable as royalty/FTS. Revenue contends that the issue is already pending before Income-tax Authorities/ITAT and thus, attracts the bar under clause (i) to first proviso to Sec. 245R(2) as the Applicant was already providing various services to Indian hotels relating to hotel management, marketing, and reservation, which were held as FTS/Royalty in earlier AYs where appeal was pending adjudication before ITAT. AAR concludes that the services have been provided by Applicant to the Indian hotels and we don’t find any change in the obligation of Appellant and therefore rejects the application on grounds of pendency of an issue before income-tax authorities applies bar u/s 245R(2) (AAR/NCR/10/2020, dt. 17-02-2021)

XYZ Inc. In re. (2021) 434 ITR 49 / 200 DTR 17 / 320 CTR 270 (AAR)

S. 245R: Advance rulings – Procedure – Application – Application filed after issuance of notice u/s 142(1), barred u/s 245R (2)

The Applicant is a company incorporated in UK, entered into project management consulting agreement with GSPC LNG Ltd. for preparation of proposal documents, assistance in bidding process, cost estimation service etc in relation to construction of marine, regas and tank facilities and set up India PO for rendering onshore services. Also, the applicant entered into project technical consulting services agreement with Reliance Industries Ltd. for providing technical review services from outside India in relation to construction of facilities. Before AAR, the question was whether sums received under the contracts for rendering services are not liable to tax as FTS under the applicable DTAA. AAR observes that the notice u/s 143(2) was issued on September 19, 2017 and notice u/s 142(1) was issued on October 23, 2017, whereas application before AAR was filed much later on May 15, 2018 and therefore following Delhi HC rulings in Hyosung Corp. where applications was held to be not maintainable due to as notice u/s 142(1) was issued before filing of application dismisses the application. (AAR No. 11&12 of 2018, dt. 25-01-2021)

Whessoe Engineering Limited In Re (2021) 433 ITR 124 / 199 DTR 99 / 320 CTR 150 / 279 Taxman 493 (AAR)

S. 245R : Advance rulings – Procedure – Application – Notice – Questions raised in application are not pending before Income-Tax Authority – Issue of notice is not bar to application for this year – Application was admitted [S. 142(1), 143(2)]

AAR held that the specific question in respect of the nature of services rendered under the agreement or about the taxability of receipts for the services did not form part of any of the questionnaire or notices. Therefore, such notices issued prior to the filing of the application could not be a bar in terms of clause (i) of the proviso to section 245R(2) of the Act, to admission of the application(AY. 2016-17)

Centrient Pharmaceuticals Netherlands, B. V., IN RE (2021) 436 ITR 54/ 319 CTR 672 (AAR)

S. 246A : Appeal – Commissioner (Appeals) – Pendency of appeal – Recovery of tax – Direction was issued to expedite the disposal of appeal and restraint against recovery of demand until disposal of appeal [S. 143(3), 144B, 156, 226, Art, 226]

Allowing the petition the Court held that the main issues for consideration in the appeal before the Commissioner (Appeals) under section 246A were limited largely to the inclusion of unsecured loans and share capital as part of the total income of the assessee, the court directed the expeditious disposal of the pending appeal after providing a reasonable opportunity to the assessee, including a personal hearing if so requested. Until such time, the Department was restrained from recovering the demand pursuant to the assessment order under section 143(3) read with section 144B.

Omkara Assets Reconstruction Private Limited v. ACIT (2021) 436 ITR 40 (Mad) (HC)

S. 246A: Appeal – Commissioner (Appeals) – Stay of demand – 20 % of demand was not paid – Court directed to defer the recovery of demand till disposal of the appeal. [S.80P, 226]

During the pendency of the appeal, the Assessing Officer rejected the assessee’s application for stay of the demand on the ground that the assessee did not pay the mandatory sum of 20 per cent. of demand before filing the application for stay of demand. On writ the court directed to stay of demand till disposal of the appeal by the Commissioner (Appeals)

Thaniyam Panchayath Service Co-Operative Bank Ltd. v. ITO (2021) 436 ITR 266 (Ker) (HC)

S. 254(1) : Appellate Tribunal – Duties- Provisions for transitional liability on leave fare concession/Home travel concession, silver jubilee awards to employees and on resettlement Expenses – Submissions not considered – Matter remanded to Tribunal [S. 36, 37(1), 253]

Allowing the appeal the Court held that the Tribunal had not adverted to the submissions of the assessee and the order passed by the Tribunal was liable to be quashed. The matter was remitted to the Tribunal to afford an opportunity of hearing to the parties and to consider the submissions made by them.(AY2008-09)

State Bank of India v. JCIT (2021) 436 ITR 653 (Karn) (HC)

S. 255: Appellate Tribunal – Powers of Tribunal – Tribunal cannot transfer case from Bench falling within jurisdiction of a particular High Court to Bench under jurisdiction of different High Court [S. 254(1), ITATR, 1963, R. 4. Art, 226]

An order dated August 20, 2020 passed by the President of the Tribunal under rule 4 of the Income-tax (Appellate Tribunal) Rules, 1963 directing that the appeals be transferred from the Bangalore Bench of the Tribunal to be heard and determined by the Mumbai Benches of the Tribunal at Mumbai. On a writ petition against the order, a preliminary objection was raised regarding maintainability of the petitions. The Court held that the writ petition was maintainable because the petitioner had no other statutory remedy. Having regard to the mandate of clause (2) of the article 226 of the Constitution, the Bombay High Court had jurisdiction to entertain the petitions. Court also held that the fact that the assessee may have expressed no objection to the transfer of the assessment jurisdiction from the Assessing Officer at Bangalore to the Assessing Officer at Mumbai after assessment for the assessment years covered by the search period, could not be used to non-suit the petitioner in his challenge to the transfer of the appeals from one Bench of the Tribunal to another Bench in a different State and in a different zone. The two were altogether different and had no nexus with each other. That the orders dated March 19, 2020 and August 20, 2020 were wholly unsustainable in law.(AY. 2005-06 to 2008-09)

MSPL Limited v. PCIT (2021) 436 ITR 199 / 202 DTR 117/ 321 CTR 1 (Bom) (HC)

S. 271(1)(c) : Penalty – Concealment – Furnishing inaccurate particulars of income – Deletion of penalty is held to be justified.

Dismissing the appeal of the revenue the court held that the observations of Supreme Court in Department’s Special Leave Petition that sum in question not income of assessee. Tribunal was right in upholding order of Commissioner (Appeals) deleting Penalty. (AY. 1991-92, 1992-93, 1993-94)

CIT v. T. Jayachandran (2021) 436 ITR 269 (Mad.) (HC)

S. 274 : Penalty – Procedure – Where the irrelevant limb in the penalty notice is not struck off, the proceedings are not sustainable.

An assessee must be made aware of the ground on which penalty is sought to be imposed on him. Where the statutory notice does not specify the limb under which the penal proceedings are being initiated, the subsequent order passed under section 271(1)(c) will be bad in law. (A.Y. 2007-08)

Mohd. Farhan A. Shaikh v. DCIT (2021) (320 CTR 26) (Bom) (Full Bench)

S. 281 : Certain transfers to be void – Recovery of tax – Family settlement – Pendency of proceedings – Transfer of property is void – Order of attachment is held to be valid [S.158BD, 226(3) Art 226]

Dismissing the petition the Court held on the facts of the case what was evident was that the so-called transfer of the undivided share in the land by the two brothers namely the paternal uncles of the petitioner in favour of the petitioner’s father had not been proved. In any case such transfer would be contrary to section 281 of the Act, inasmuch as notice under section 158BD had been initiated against the Hindu undivided family of Milapchand Dada as early as July 9, 2001. The family arrangement pursuant to which transfers
were allegedly affected had to be declared void. There was a recovery
certificate issued for the same property in favour of the bank. (AY. 1997-98,
1998-99, 2003-04)

Apoorva Dadha v. TRO (2021) 436 ITR 225 (Mad) (HC)

S. 281: Certain transfers to be void – Recovery of tax – Attachment of property – Death of seller before executing sale of house property – Attachment of property for recovery of due from firms in which legal heirs were partners for periods subsequent to sale agreement – Tax recovery officer cannot declare transfer void – Non -release of registered sale deed by sub-registrar is not valid [S. 226, Art 226]

Allowing the petition the Court held that the transfer of the property was on account of the final culmination of the litigation by the order of the Supreme Court. There was only a delay in the execution of the sale deed due to the pendency of the proceedings as the third and fourth respondent’s mother (since deceased) declined to execute the sale deed under the sale agreement dated June 30, 1994. The subsequent tax liability of the fourth respondent and her husband for the assessment years 2012-13 and 2013-14 could not be to the disadvantage of the petitioner, since the petitioner had been diligently litigating since 2004. Therefore, the benefit of the decree in a contested suit could not be denied merely because the seller or one of the persons had incurred subsequent tax liability. The benefit of a decree would date back to the date of the suit. Therefore, the communication dated July 6, 2018 which required the petitioner to obtain clearance could not be countenanced. The tax liability of the firms of which S and her husband were partners arose subsequent to the commitment in the sale agreement dated June 30, 1994. The Sub-Registrar was directed to release the sale deed dated June 29, 2018 and to cancel all the encumbrances recorded against the property in respect of the tax arrears of the firms of the fourth respondent S and her husband.

J. Manoharakumari v. TRO (2021) 436 ITR 42 (Mad) (HC)

S. 292B : Notice not to be invalid on certain grounds – Notice issued in the name of a dead person is a nullity.

A notice issued under section 153C of the Act in the name of a dead person is void and cannot be saved by section 292B. The fact that the AO did not have knowledge of the death at the time of issuing the notice is immaterial as even when subsequently the fact of the death was informed to the AO there was substantial period of time within which a fresh notice could have been issued in the name of the legal heir, but that exercise was not done. (A.Ys. 2011-12 to 2017-18)

Bhupendra Bhikhalal Desai v. ITO (2021) 320 CTR 289 (Guj)(HC)

Article 226 of the Constitution of India – Territorial jurisdiction – Cause of action

Where, both, the assessee and the assessing authority were outside the jurisdiction of the High Court, then a writ petition would not lie before such Court merely because the order under challenge was passed by a bench of the Settlement Commission of that State. (A.Ys. 1995-96 and 1996-97)

M/S. Mulberry Silks Limited v. Settlement Commission (2021) 320 CTR 611 and 320 CTR 604 (Mad)(HC)

S. 3 of DTVSV – Assessment Order not under provisions of Section 153A/153C – None search case.

As per section 3 of DTVSV Act where assessment is made on basis of search, amount payable by assessee would be 125 per cent of disputed tax declared by assessee and where declarant files a declaration in accordance with section 4 in respect of tax arrears, amount payable shall be 100 per cent of disputed tax declared. It was held that where assessee had filed declaration u/s 4 of DTVSV Act, and assessment order passed in case of assessee suggested that case of assessee was selected for scrutiny and notices were issued to it not in pursuant to any search under section 132 or requisition under section 132A, since assessment did not appear to be on basis of search initiated under section 132, order passed by designated authority determining tax payable by petitioner being 125 per cent of disputed tax would be unsustainable. [DTD 27/4/2021]

Bhupendra Harilal Mehta v. PCIT (2021) 435 ITR 220 (Bom)(HC)

S. 4 : DTVSV – Tribunal recalled its order and restored Revenue’s appeal and posted it for fresh hearing, hence Revenue’s appeal was pending on specified date, i.e., 31-1-2020 and Form Nos. 1 and 2, filed by Assessee were to be considered by the Revenue

Allowing the Writ petition, the High Court held that the Tribunal’s order (11.05.2020) recalling its earlier order dismissing Revenue’s appeal would have to be construed, metaphorically, as one breathing life into a dead appeal, in the light of the doctrine of ‘relation back’ and consequently the Revenue’s appeal being pending adjudication on specified date, i.e., 31-1-2020, Forms 1 and 2 filed by Assessee with designated authority, under DTVSV Act, 2020 could not have been rejected and hence were to be considered afresh. (W.P.(C) No.3921 of 2021, dt. 26-04-2021) (A.Y.2011-2012)

Bharat Bhushan Jindal v. PCIT (2021) 320 CTR 766 / 127 taxmann.com 698 (Del)(HC)

S. 4 : Direct Tax Vivad Se Vishwas Act, 2020 – Assessment did not appear to be on basis of search initiated under section 132, hence order passed by designated authority determining tax payable by petitioner being 125 per cent of disputed tax would be unsustainable

Allowing the Writ petition, the High Court observed that the Assessee had filed declaration under Section 4 of DTVSV Act, and assessment order passed in case of Assessee suggested that case of Assessee was selected for scrutiny and notices were issued to it not in pursuant to any search under section 132 or requisition under section 132A, since assessment did not appear to be on basis of search initiated under section 132, order passed by designated authority determining tax payable by petitioner being 125 per cent of disputed tax would be unsustainable. (WP No. 586 of 2021, dt. 27-04-2021)(AY 2015-16)

Bhupendra Harilal Mehta v. PCIT, (2021) 320 CTR 483 / 127 taxmann.com 109 (Bom)(HC)