On Direct Taxes

Neelam Jadhav, Advocate

1. S.2(14): Capital Assets – a loan given to a foreign company as a subsidiary company would be covered by the meaning of capital asset.

The Assessee has a subsidiary company by the name “Siemens Nixdorf Information Systems Limited” (SNISL), which had lent an amount under an Agreement. The SNISL ran into serious financial troubles and it was likely to be wound up. In this situation, Assessee sold this debt to one “Siemens AG”. This is on the basis of the valuation. The Assessee claimed the difference in the amount which was invested/ lent to SNISL and the consideration received when sold/assigned to Siemens AG as a short-term capital loss. However, the AO disallowed short- term capital loss stating this was not a capital asset u/s. 2(14) of the Act and also no transfer in terms of S. 2(47) of the Act took place on the assignment of a loss. CIT (A) confirmed the view of the Assessing officer. The Tribunal reveres the view of the AO & CIT(A) and held stating, the definition of capital assets u/s. 2(14), the term ‘capital asset is ‘property of any kind held by an assessee, whether or not connected with his business or profession’, except those which are specifically excluded in the said section. It further records the exclusion is only for stock in trade, consumables, or raw materials held for purposes of business and held that the transfer of the loan i.e. capital asset will be covered by s. 2(47) of the Act. The Honourable High Court held that, S. 2(14) has defined the word ‘capital asset’ very widely to mean property of any kind. However, it specifically excludes certain properties from the definition of ‘capital asset’. The Revenue has not been able to point out any of the exclusion clauses being applicable to the advancement of a loan and hence dismissed the appeal of the department. CIT v. Siemens Nixdorf Information Systemse GmbH, ITA No. 1366 of 2017, dt.26/08/2019 (Bom) (HC)

The Revenue filed SLP, and the Honourable Supreme Court dismissed the same stating that, the Tribunal has given strong reasons for holding that the concerned transaction would come in the meaning of section 2(14) of the Income-tax Act, and the said findings of the Tribunal has been found to be correct in law by the Division Bench of the High Court. Hence, the loan given to a foreign company as a subsidiary company would be covered by the meaning of capital asset under section 2(14).

CIT v. Siemens Nixdorf Information Systems GmbH [2023] 453 ITR 741 (SC)

2. S. 28(iv): Business income – Value of any benefit or perquisite, arising from the exercise of business or profession (Subsidy) not be taxed under section 28(iv)

The assessee entered into an Engineering, Procuring, and Commissioning Contract (for brevity, ‘EPC contract’) with M/s. Lagerway Wind Turbines BV, Netherlands, a Dutch entity (for brevity, ‘LW’), for the development of a wind farm of 20 MW capacity consisting of 80 Wind Turbine Generators (WTGs), to be built and delivered by LW. The total project and the erection work was to be carried out in India by M/s. Das Lagerway Wind Turbine Ltd (DLWL), an Indian joint venture company involving LW. As per the EPC contract, the assessee placed a purchase order with LW for the design, manufacture, supply, erection, testing, and commissioning of WTGs at its site, in and around Sankanapuram. Consequently, the assessee sent an application to the Dutch Government through LW seeking a grant under the Miliev Programme (subsidy scheme), as per which, a substantial part of the cost of windmills would be paid by the Dutch Government through NIO Bank as a grant for such purchase directly to the supplier of the windmill viz., LW, Netherlands and the balance cost would be paid to the LW by the assessee by opening letter of credit. Pursuant to the same, MOU was entered into among the assessee, WIPRO and DLWL, whereby WIPRO was to syndicate the lease finance of the project and open the letter of credits in favour of LW. Besides this, another MOU was signed among the assessee, WIPRO and Wind Energy System Care India Ltd (Wescare), in and by which, the assessee took lease operation of 20 MW wind farm at Sankanapuram from Wescare and WIPRO syndicated lease finance for the project. A grant agreement was entered into between the NIO Bank and the assessee, to disburse the Miliev grant to LW on behalf of the Dutch Government, as per which, the assessee shall not transfer or assign its rights under this agreement to a third party. The amount given under Miliev Grant was NLG. The total amount of benefit passed on to DLWL and DLWL paid per wind turbine for 80 WTGs to the assessee to acquire its right under the EPC contract. The Assessing Officer made additions with respect to the subsidy granted by the Dutch Government on the ground that it was paid on account of the benefit of the assessee and was to be taxed under section 28(iv). The CIT (A) & Tribunal deleted the addition made by the AO. Against the said revenue come up before the High Court. The Honourable High Court held that, the value of the grant given by the Dutch government as a subsidy for the purchase of a wind turbine generator, could not be brought to tax in the hands of the assessee under section 28(iv) as business income when the assessee did not purchase equipment and transferred the rights to DLWL. CIT v. Tube Investments of India Ltd. [2022] 446 ITR 676 (Mad)(HC)

The Revenue filed SLP, and the Honourable Supreme Court dismissed the same stating that, the grant was given by the Dutch government as a subsidy for the purchase of windmills since said grant had direct nexus with equipment and was directly transferred to the manufacturer and furthermore assessee transferred its rights under the contract to another company, said subsidy could not be taxed.

CIT v. Tube Investments of India (P.) Ltd. [2023] 292 Taxman 546 (SC)

3. S.119(2)(b): Central Board of Direct Taxes – Instructions to subordinate authorities – condonation application seeking a delay in filing income tax returns was rightly rejected as the assessee was well aware of the process of filing ITR.

The Assessee was NRI filed an application under section 119(2)(b) seeking condonation of delay in filing income tax returns on the specified due date for the relevant year which was rejected. Before the court, the contention of the Assessee was that he was a foreign citizen, he could not reasonably be expected to keep himself aware and updated about the due date for filing returns in India, especially when he did not have any income taxable in India since the financial year 2010-11. The Honourable High Court observed that, assessee had filed his ITR for the assessment year 2011-12 i.e. in the subsequent year, within the time limit which proved that he was well aware of the process of filing an ITR. Further, observed that ignorance of the law is not an excuse, hence there was no genuine hardship or reasonable cause for the late filing of returns. Puneet Rastogi v. Pr. CIT (International Taxation) [2023] 454 ITR 37 (Delhi)(HC)

The Assessee filed SLP, and the Honourable Supreme Court dismissed the same confirming the view of the High Court as there was no genuine hardship or reasonable cause for late filing of returns, the application for condonation of delay in filing return was rightly rejected.

Puneet Rastogi v. Pr. CIT (International Taxation) [2023] 454 ITR 39 (SC)

4. S. 255: Appellate Tribunal – Procedure of (Power to transfer cases) – an order on the administrative side cannot be passed by the President transferring a live appeal from one Bench to another Bench in a different State outside headquarters as no such power is noticeable in section 255. (r. w. rule 4 of the ITAT Rules, 1963)

A search and seizure operation under section 132 was carried out, and proceedings were initiated under section 153A. Assessee filed an appeal before the CIT(A) which was unsuccessful, and hence assessee travelled to further appeals before the Appellate Tribunal. During the Appellate proceedings, the revenue had filed an application for transferring the appeals pending before the Bangalore Bench of the Tribunal to the Mumbai Benches of the Tribunal stating that the jurisdiction of the Assessee was now with the Dy. Commissioner, Mumbai after the decentralization of the case from Commissioner, Karnataka (Central), to Mumbai, and the request was made that all the pending proceedings of appeal before the Tribunal, Bangalore Bench may be transferred to the Mumbai Benches. The President of the Tribunal under rule 4 of the ITAT Rules, 1963 directed 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. The Honourable High Court observed that, s. 255, more particularly sub-section (5) thereof, it is not discernible as to how the power of the President to transfer a pending appeal from one Bench to another Bench outside the headquarters in a different State can be said to be traceable to this provision. Sub-section (5) says that the Tribunal shall have the power to regular its own procedure and that of its various Benches while exercising its powers or in the discharge of its functions. This includes notifying the places at which the Benches shall hold their sittings e.g., a particular Bench at Mumbai may hold its sittings at, say, Thane for a particular period for administrative reasons. This provision cannot be interpreted in such a broad manner to clothe the President of the Tribunal the jurisdiction to transfer a pending appeal from one Bench to another Bench outside the headquarters in another State. Also observed that, sub-section (6) a proceeding before the Tribunal shall be deemed to a judicial proceeding within the meaning of sections 193, 196, and 228 of the Indian Penal Code and it shall also be deemed to be a civil court for the purpose of section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898. Therefore, there is no manner of doubt that a proceeding before the Tribunal is a judicial proceeding and for certain limited purposes it is deemed to be a civil court. No such power is discernible in section 255 of the Act, such a power would amount to interference in a judicial proceeding of the Tribunal. The High Court allowed the petition of the assessee and set aside the order passed by the President of the Tribunal, transferring appeals from Bangalore Bench to Mumbai Bench. MSPL Ltd.v. Pr. CIT [2021] 436 ITR 199 (Bombay)(HC)

The Revenue filed SLP, and the Honourable Supreme Court dismissed the same stating that, it cannot be said that the High Court has committed any error in setting aside the order passed by the President of the ITAT transferring the appeals from the Bangalore Bench to the Mumbai Bench. Complete agreement with the view taken by the High Court.

Pr. CIT v. MSPL Ltd. [2023] 454 ITR 280 (SC)

5. S. 276B: Criminal proceedings initiated for an offense under section 276B – failure to pay tax to the central govt. were liable to be quashed as the TDS deducted was not more than Rs.50,000 and TDS was deposited with interest. (r.w.s.278AA and 278B)

A complaint was lodged by ACIT for the Assessee had deducted the TDS amount for the financial year 2016-17 but failed to credit the same to the account of the Central Government of India. Therefore, the Assessee committed an offense punishable under section 276B. The assessee filed an instant petition with a prayer to quash the complaint. The assessee submitted that the TDS amount deducted by it was deposited with a certain delay, however, in terms of section 201(1A), the amount was deposited along with interest. The Honorable High Court observed that, the TDS amount were deposited with interest and the chart with respect to the same annexed with the counter affidavit of the Income-tax Department, wherein the date of deduction and date of depositing the said amount has been mentioned. However, some delay occurred in depositing the TDS. Apart from one or two cases, the deducted amount is not more than 50,000/-. While passing the sanction u/s. 279(1), the sanctioning authority has not considered the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.) dated 28-5-1980, issued in this regard by the CBDT. In CBDT instructions, it is mentioned that prosecution under section 276(B) shall not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of the Government. Moreover, after receiving the deducted amount with interest, the prosecution has been launched against the petitioners, which is not in accordance with the law. If the petitioners failed to deposit the amount in question within the stipulated time, i.e. by the 7th day of the subsequent month, it was required to launch the prosecution immediately, which has not been done in the cases in hand. Moreover, section 278(AA) of the Act clearly states that no person for any failure referred to under section 276(B) of the Act shall be punished under the said provisions if he proves that there was reasonable cause for such failure. The Honourable high court held that, the amount has already been deposited with interest and there is no reason why the criminal proceeding shall proceed and the criminal proceeding was launched after receiving the said amount with interest, had it been a case that the case was immediately instituted and thereafter the TDS amount has been deposited with interest, the matter would have been different. As such the continuation of the proceedings will amount to an abuse of the process of the Court. Accordingly, the entire criminal proceedings and the cognizance orders in their respective cases were passed, whereby cognizance has been taken against the petitioners for the offenses under sections 276(B) and 278(B) was quashed. Dev Multicom (P.) Ltd. v. State of Jharkhand. [2023] 454 ITR 48 (Jharkhand)(HC)

The Revenue filed SLP, and the Honourable Supreme Court dismissed the same stating that prosecution was launched under section 276B read with section 278B, held that since TDS amounts were deposited with interest prior to initiation of criminal proceedings and deducted amount was not more than Rs.50,000/- criminal proceedings were liable to be quashed. SLP (CRIMINAL) DIARY NO(S). 3073 of 2023 and SLP No.3681 of 2023 dt.20/023/2023.

ACIT v. At Dev Prabha (TV) [2023] 454 ITR 59 (SC)