Friday, March 12, 2010



ISSUE DATED 15-3-2010

Volume 321 : Part 4




>> No necessity for assessee to show precise identity of amount of written back to be relating to any particular year : CIT v. Hindustan Zinc Ltd. (Raj) p. 388

>> Matter remanded to Tribunal where lack of details in respect of agreement entered into by assessee and foreign collaborator : CIT v. Elgi Ultra Industries Ltd. (Mad) p. 390

>> Prima facie adjustments : Assessee does not have right to claim that uninformed about judgment : Marlborough Polychem Ltd. v. CIT (Raj) p. 395

>> In a case of rejection of accounts and estimation of net profit on best judgment basis, depreciation allowable : Shri Ram Jhanwar Lal v. ITO (Raj) p. 400

>> Liability for additional tax u/s 143(1B) not abrogated even in the case of revised return filed with audit report : CIT v. Kothari Impex (Raj) p. 404

>> S 35E not applicable where objects of assessee not including mining of ores or minerals or commercial production : CIT v. Acc Rio Tinto Exploration Ltd. (Delhi) p. 426

>> Tribunal finding reassessment on mere change of opinion and without jurisdiction : Finding of fact : CIT v. Goetze (India) Ltd. (Delhi) p. 431

>> Revision u/s 263 not proper where Tribunal finding loan liability never claimed or allowed as deduction by way of loss, expenditure or trading liability : CIT v. Goyal M G Gases Ltd. (Delhi) p. 437

>> Tribunal finding borrowed funds diverted to sister concern without commercial expediency for business exigencies : Finding of fact : Gautam Cable Industries v. Dy. CIT (Delhi) p. 440

>> Disallowance of deduction u/s 80HHC to be worked out on basis of adjusted book profit : CIT v. Ambika Cotton Mills Ltd. (Mad) p. 448

>> Sales commission to directors for purpose of securing orders as well for personal guarantee given by them revenue expenditure : CIT v. Premier Poly Sacks P. Ltd. (Mad) p. 450

>> Interest paid on borrowings allowable where no proof that borrowed amount diverted to investment : CIT v. Premier Poly Sacks P. Ltd. (Mad) p. 450

>> Payment made for title sponsorship and benefits in respect of cricket tournament : Payment does not amount to royalty : Director of Income-tax v. Sahara India Financial Corporation Ltd. (Delhi) p. 459

>> Undertaking entitled to deduction u/s 80-I to be treated as an independent unit : CIT v. Sona Koyo Steering Systems Ltd. (Delhi) p. 463

>> Tribunal finding amount available with assessee as undisclosed income : Finding of fact : Such Chain Chits P. Ltd. v. CIT (P&H) p. 471

>> Reassessment to withdraw deduction not a case of escapement of income but of change of opinion : CIT v. K. K. Palanisamy (Mad) p. 474

>> Tribunal need not blindly follow earlier decision if it did not reflect correct position of law : CIT v. Hi Tech Arai Ltd. (Mad) p. 477

>> Assessee engaged in manufacture of oil seeds, etc., setting up additional wind mill after 31-3-2002 increasing power generation entitled to additional depreciation : CIT v. Hi Tech Arai Ltd. (Mad) p. 477

>> Assessee engaged in production of agricultural motors and pump sets installed new wind mills entitled to additional depreciation : CIT v. Texmo Precision Castings (Mad) p. 481

>> AO having jurisdiction over person searched adding sum on substantive basis in his assessment on account of investment and no satisfaction recorded in case of assessee on investment : Assessment against assessee not justified : CIT v. Anupam Sweets (Delhi) p. 485

>> Service charges paid to mutual funds for undertaking to subscribed to fully convertible debentures of sister concern allowable : CIT v. RBG Investment and Finance Ltd. (Delhi) p. 488

>> Application for stay pending appeal : CIT (A) to pass order on application expeditiously : Smita Agrawal (Individual) v. CIT (All) p. 491

>> Approval of concerned authority before service of notice required : CIT v. Smt. Suman Waman Chaudhary (Bom) p. 495

>> Penalty cannot be imposed where assessment proceedings barred by limitation : CIT v. Pradeep Banker (All) p. 496

>> Interest deductible on borrowed capital where funds utilised for acquiring capital asset : CIT v. Srishti Securities P. Ltd. (Bom) p. 498

>> Employees of contractor not employees of assessee for claiming deductions u/ss 80HHC(2)(iv) and 80-I(2)(iv) : Venus Auto P. Ltd. v. CIT (All) p. 504

>> Provident fund and ESI contributions made before filing return allowable : CIT v. Aimil Ltd. (Delhi) p. 508

>> Sum received by assessee on retirement from firm of solicitors upon superannuation not a "benefit arising from profession" : Balkrishna Hiralal Wani v. ITO (Bom) p. 519

>> Reassessment invalid where Tribunal finding no material to believe agricultural land sold by assessee was a capita asset : CIT v. Batra Bhatta Co. (Delhi) p. 526


>> Team of architects and designers in Germany producing designs and drawings and delivering them to Government on internet : Receipt by non-resident amounts to "fees for technical services" : gmp International GmbH, In re p. 411

>> Discretion of AAR to admit second application of applicant on same points : Yongnam Engineering and Construction (Pte) Ltd., In re p. 442


From our Reporter at the Supreme Court :

>> Additional tax on undistributed profits : Whether assessee a company in which public are substantially interested p. 165

>> Appeal to High Court : Costs on Department for failure to file vakalatnama p. 165

>> Block assessment : Limitation from date of last panchnama p. 165

>> Business expenditure : Loss on fluctuation of foreign exchange rates p. 166

>> Business expenditure : Provision for estimated warranty expenses whether contingent liability p. 166

>> Business expenditure : Recovery of tax attachment and sale of property p. 166

>> Business expenditure : Service charges paid to mutual fund p. 166

>> Deduction of tax at source : Application for refund made in belated application p. 167

>> Deduction of tax at source : Whether employee bound to deduct tax at source on salary received by employee from another employer p. 167

>> Settlement of cases : Admission of writ petitions challenging validity of provisions and interim directions to Settlement Commission p. 167

>> Settlement of cases : Whether Settlement Commission had acted without jurisdiction in determining additional income p. 170

C. B. D. T. Circulars :

>> Circular No. 1 of 2010 : Clarification-Clarification regarding deduction in respect of contribution to pension scheme under section 80CCD of Income-tax Act p. 171

>> Circular No. 3 of 2010, dated 2nd March, 2010-Tax deduction at source on payment of interest on time deposits under section 194A of the Income-tax Act, 1961 by banks following Core-Branch Banking Solutions (CBS) software-Reg. p. p. 174

Rules :

>> I. T. (First Amendment) Rules, 2010 p. 137

Notifications :

>> Income-tax Act, 1961 : Notification under section 2(48) : Zero coupon bond p. 171

>> Income-tax Act, 1961 : Notification under section 10(15)(iv), item (h) : Exemption of interest payable on bonds issued by public sector companies p. 172

>> Income-tax Act, 1961 : Notifications under section 10(23C)(vi) : Institutions approved for purpose of section 10(23C)(vi) p. 173

>> Special Economic Zones Act, 2005 : Notification under section 1(3) : Commencement of sections 20, 21, 22 p. 175

>> Special Economic Zones Act, 2005 : Notification under section 11(1) : Rescission of previous notification p. 176

>> Special Economic Zones Act, 2005 : Notifications under section 21(2) : Notified offences p. 175


>> Direct Tax proposals : An overview (S. Rajaratnam) p. 1

>> Charitable nature of educational institutions : View of Uttarakhand High Court (S. K. Tyagi) p. 8


>> Accounting watch dog under tax-net likely

Accounting watchdog Institute of Chartered Accountants of India (ICAI), which regulates auditors, is currently facing the prospect of meeting an income-tax penalty of Rs. 16 crore, after the Income-tax Department withdrew tax exemptions on the institute.

ICAI's newly-elected president, confirmed the tax, but played down the issue saying that the institute is contesting the I-T Department's assessment. The move comes at a time when the Government is exploring the feasibility of having an independent regulator for auditors, a proposal that has been opposed by ICAI as it could significantly prune the current role of the institute.

Under section 10(23C) of the Income-tax Act of 1961, the ICAI, which was formed by an Act of Parliament, is exempted from paying income-tax as it had been established for the purpose of education and for advancement of projects of general public utility. A tax assessment panel is also understood to have said that the ICAI allegedly failed to get accounts signed by auditors and of allegedly providing loans to partners without guarantee and interest, said people connected with the development.

ICAI's President said since the matter is sub-judice, he cannot comment on the topic. The Director exemptions at the I-T Department, also declined to comment on the issue. The need for an independent regulator for auditors has been doing the rounds in the Government, especially in the Ministry of Corporate Affairs.
[Source : dated February 16, 2010]

>> Pay tax only when interest credited to fixed deposit account

No income-tax at source will be deducted if banks have only made a provision for interest on fixed deposits and not actually paid it to the depositor, the Finance Ministry has clarified.

Until now, tax was supposed to be deducted by banks even if only provisioning was made for interest payment.

The Indian Banks' Association in a representation to the Income-tax Department had said that for banks using the CBS software, interest payable on fixed deposits is calculated generally on a daily or a monthly basis but is parked in the provisioning account for monitoring only.

The interest is actually credited to the depositor's account either at the end of the financial year or at periodic intervals or on maturity of the deposits.

According to a Finance Ministry official, CBDT clarified that since no credit is given to the depositors while calculating interest on fixed deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning of interest.

"In such cases, tax shall be deducted at source on accrual of interest," the board clarified, according to a source. Income-tax is charged at the rate of 10 per cent. on interest income of more than Rs. 10,000 in a year.
[Source : dated March 7, 2010]

>> FICCI disappointed at MAT rate hike

Apex industry chamber FICCI decried a 3 per cent. hike in the Minimum Alternate Tax in Budget 2011, saying it over weighed the concessions in the corporate tax and the Government should look at reducing the peak rate to 25.6 per cent. from over 30 per cent. now.

" . . . as the rates come down, the revenue growth is much sharper . . the world around, the figure is 25.6 per cent. India should start considering to look at the same tax rate over a period of time . . . It would be more in line with international standards," FICCI President said.

On the hike in MAT rates, he said, "They (the government) have reduced the surcharge (on corporate tax) but increased MAT. It is a disappointment for the industry".

The Budget proposals announced last month, raised MAT to 18 per cent. from 15 per cent., and cut surcharge on corporate tax to 7.5 per cent. from 10 per cent.

He said the reduction was "not at all" beneficial as the Government had reduced surcharge, but hiked the MAT rate.

Pointing to several other areas that needed push for better economic growth, the new FICCI President said the Budget could have hiked the FDI limit in the insurance sector to 49 per cent. from 26 per cent. at present and opened up the multi-brand retail sector.

He added that the Government could have also extended more tax benefits for investments in sectors like agriculture, food processing and cold chains, for a more liberalised regime and better growth in 2010-11.
[Source : dated March 7, 2010]

>> Services rendered from outside India to be taxed

Services rendered from outside India for use within the country will now come under the tax net, following the recent amendment to the Income-tax Act.

The amendment in section 9 of Income-tax Act, proposed in the Budget, will now bring all services, including fees on technical service or royalty that are typically charged as consultation fees, under the tax net. This would also be irrespective of whether the service provider has business connection in India, or residence or place of business. The Government wanted to make it clear that it would levy tax on the payment to a non-resident, if the service is utilised in India, irrespective of whether the service is rendered in India or not.

According to people familiar with legal developments, if a non-resident architect is paid for consultation on a building situated in India, it means that his services have been utilised in India. Prior to the amendment, the architect's consultation fees would have been taxed had he been based in India. The Government will now tax the non-resident architect, even if he does not come to India and renders the service from outside India.

A chartered accountant firm, said: "The amendment has serious implications. It will certainly lead to litigations. Moreover, the amendment is not clear as regards its applicability on income by way of interest and royalty earned by a non-resident outside India."
[Source : dated March 3, 2010]

>> Direct Tax Code Bill to be presented as monsoon bonanza

Government will introduce the bill for a Direct Taxes Code in the monsoon session of Parliament, the Revenue Secretary said. Having altered the income-tax slabs in the Budget, the Finance Ministry said the next round of widening of the tax slabs is possible when the direct taxes code comes into effect, likely from 2011-12.

The Finance Ministry has already come out with the Draft Direct Taxes Code, but since there are a number of grievances on it, it will come out with a revised draft in the first quarter of next fiscal so that a bill to this effect can be tabled in the Monsoon session of Parliament.

"The period is going to be between April and June. That is when we have time for this process, if we were to get the legislative process commencing from around July during the Monsoon session," the Revenue Secretary said.

In a Rs. 21,000-crore bonanza, the Budget has widened the income-tax slabs for all. While there would be no tax for income up to Rs. 1.6 lakh, a tax of 10 per cent. would be levied for income up to Rs. 5 lakh, 20 per cent. for up to Rs. 8 lakh and 30 per cent. beyond that level.
[Source : dated March 5, 2010]

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