Research Team

  1. S. 36(1)(va) : Contribution collected towards employees PF – deposited in recognised account after the statutory due date, the taxpayer permanently forfeits the deduction for the same. (r.w.s.2 (24)(x) and 43B)

    Here in this case the issue before the Supreme Court was with respect to the interpretation of s. 36(1)(va) and s.43B. Whether deposit of employee’s contribution towards the EPF and ESI after the expiry of the due date under the relevant acts eligible for the deduction.

    The honourable Supreme Court while settling issue observed that, Parliament treated contributions under section 36(1) (va) differently from those under section 36(1)(iv). The latter is described as “sum paid by the assessee as an employer by way of contribution towards a recognized provident fund” and “any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) apply if such sum is credited by the employer to the employee’s account in the relevant fund or funds on or before the due date.”

    The essential character of an employee’s contribution, i.e., that it is part of the employee’s income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. Since there is a marked distinction between the nature and character of the two amounts – the employer ‘s liability is to be paid out of its income whereas the second is deemed an income, this marked distinction has to be borne while interpreting the obligation of every employer under Section 43B. Accordingly, the benefit of section 43B cannot be made available for the employee’s contribution deposited before the filing of the Income-tax Return.

    Checkmate Services P. Ltd. vs. CIT (Civil Appeal No. 2833 of 2016 dt.12/10/2022, (2022) 448 ITR 518 (SC)

  2. S. 36(1)(vii) :Bad debt – existence of a bad-debt and being written-off as irrecoverable – necessary to claim deduction- Explanation-1- bad-debt shall not include provision for bad and doubtful debt – S. 28(i), 36(2), 37(1)

    Amount paid by Assessee, carrying on business of real estate development, to a builder for acquiring certain commercial premises were written-off as bad debt by its Board of Directors, after 2 years, in the present AY 2009-10 and claimed it as deduction u/s 36(1)(vii).

    The Court analysed the provisions of the S. 36 along with the insertion of Explanation-1 under S. 36(1)(vii) effective from 1.4.1989 and observed that in the present case, the Assessee was not able to satisfy the prescribed conditions that the money advanced was given in its ordinary course of business, that it was in fact a loan given to a builder, or that such bad-debt was written-off as irrecoverable in their books of accounts. Further the court observed that the money advanced to the builder was for acquiring immovable property i.e. capital expenditure and therefore it could not be treated as a business expenditure. Therefore, the Assessee’s claim for deduction u/s 36(1)(vii) of Rs. 10 crores as bad and doubtful debts was not allowed by the Court. Court also held that on the facts of the case the advance written off is not allowable as business expenditure u/s 37(1) of the Act. Southern Technologies vs. JCIT [(2010) 2 SCR 380] relied. (CA No. 5804/ 2022; Date- 25.08.2022) (AY 2009-10)

    PCIT vs. Khyati Realtors Pvt. Ltd. ( 2022 ) 447 ITR 0167 (SC)

  3. S. 245D : Settlement Commission
    • order passed by Settlement Commission without following due procedure- quashed by High Court – irrespective of its compliance made by Assessee
    • upheld by Supreme Court- matter remitted for fresh decision.

      The Supreme Court upheld the order of the Allahabad High Court quashing the order of the Settlement Commission, which was passed without following the due procedure of law, thereby granting immunity to the Assessee from prosecution and penalty under the Act and directing payment of tax along with interest, even though the order of Settlement Commission was complied with by the Assessee. The Allahabad High Court followed the principle that wrong order should not be perpetuated by keeping it alive. However, the matter has been remitted by the Supreme Court to the Interim Board constituted under

      S. 245AA in place of Settlement Commission, as in its opinion the matter requires fresh decision. (CA No.   /2022 arising out of SLP(C) No. 786 of 2016; CA No.   /2022 arising out of SLP(C) No. 3783 OF 2016; CA No.   /2022 arising out of SLP(C) No. 769 OF 2016; Date- 29.08.2022)

      Nand Lal Srivastava & Ors. vs. CIT & Ors. (2022) 447 ITR 0 769 (SC)

  4. S. 260A: Appeal – High Court
    • territorial jurisdiction of a High Court- dependent upon sites of the AO who passed the assessment order- irrespective of transfer of cases u/s 127

      The question before the Supreme Court was with respect to the appellate jurisdiction of High Courts u/s 260A of the Act and whether jurisdiction of a High Court would also change following an order of transfer of ‘cases’ under S. 127.

      The Supreme Court observed that S. 260A of the Act is open textual and does not specify the High Court before which an appeal u/s 260A of the Act would lie. The Supreme Court held that the present issues are covered by the decision of Delhi High Court in case of Seth Banarsi Dass Gupta vs. CIT wherein it was held that the “most appropriate” High Court for filing an appeal would be the one where the Assessing Officer is located. This decision has been followed in various subsequent decisions by various courts.

      It further observed that the power of transfer exercisable under S. 127 is relatable only to the jurisdiction of the Income Tax Authorities under S. 116 not on the ITAT and a High Court. Otherwise, it would imply that the executive has the power to determine the jurisdiction of a High Court, which can never be the intention of the Parliament.

      The Supreme Court therefore concluded that even if the case or cases of an Assessee are transferred in exercise of power under S. 127 of the Act, the High Court within whose jurisdiction the Assessing Officer has passed the original order, shall continue to exercise the jurisdiction of appeal, which is applicable even if the transfer is under S. 127 for the same assessment year(s). Banarsi Dass Gupta v. Commissioner of Income Tax, (1978) 113 ITR 817 (Del) relied. [CA No. 4252/ 2022 & CA No. 4253 OF 2022 with CA No. 3480 OF 2022; Date: 18.08.2022] (AY 2008-09).

      Principal Commissioner of Income Tax vs. ABC Papers Ltd. [2022] 447 ITR 1 (SC)

  5. S.2(9)(a) of Benami Transactions ( Prohibition) Act, 1988: – No procedure for declaring property Benami under Act of 1988 — Amendment Act not made retrospective — Prosecution in respect of a transaction In 2011 is held to be not valid [Benami Transactions (Prohibition) Act, 1988- 3 , 5 , 8; General Clauses Act, 1897- S.6 (c)]

    The Supreme Court has held that the amendments carried out by the Benami Transaction (Prohibition) Amendment Act of 2016 (“Amendment Act of 2016”) in Benami Transactions (Prohibition) Act, 1988 (“Benami Act”) are prospective. The primary issue in the present petition was whether the Amendment Act of 2016 shall have effect to cover transactions entered prior to 2016. The Amendment Act of 2016 sought to rectify the lacunae in the Benami Act through significant amendments. The Amendment Act of 2016 substituted and widened the definition of ‘ benami property’, ‘ benami transaction’ etc. as well as increased the punishment duration from 3 years to 7 years. The Calcutta High Court quashed the proceedings on the ground that provisions of the Amendment Act of 2016 were applicable prospectively and especially those pertaining to criminal proceedings. The Supreme Court held that the vagueness in the charging section i.e.

    S. 3 of Benami Act made it unconstitutional for being manifestly arbitrary and also S. 3(2) of the Amendment Act of 2016 was by also unconstitutional as it was violative of Article 20(1) of the Constitution of India, which requires that criminal punishment / liability cannot be imposed retrospectively. Thus, S. 5 of the Benami Act was declared unconstitutional for being manifestly arbitrary. Or a ‘half-baked provision’. (CA No. 5783 of 2022 from SLP (C ) 2784/2020; Date 23.08.2022)

    Union of India & Anr. vs. Ganpati Dealcom Pvt. Ltd. ( 2022 ) 447 ITR 0108 (SC)

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