Sunday, March 21, 2010



ISSUE DATED 22-3-2010

Volume 2 : Part 3



F In absence of vouchers AO justified in estimating 10 per cent. of total expenditure as not relatable to business : Addi Industries Ltd. v. ITO (Delhi) p. 236
F Interest on fixed deposits not business income : Addi Industries Ltd. v. ITO (Delhi) p. 236
F Deduction for export not allowable prior to adjustment of brought forward losses : Addi Industries Ltd. v. ITO (Delhi) p. 236
F Addition of 5 per cent. for sum normally said to be spent for sham transactions, proper : Dy. CIT v. Pawan Kumar Malhotra (Delhi) p. 250
F Commissioner (Appeals) restricting disallowance of expenses incurred on telephone and vehicle on estimate justified : Dy. CIT v. Pawan Kumar Malhotra (Delhi) p. 250
F Where assessee claiming deduction wrongly under bona fide belief based on advice of tax consultant, penalty to be deleted : Yogesh R. Desai v. Asst. CIT (Mumbai) p. 267
F Documents relating to undisclosed sales found during search : Expln. 1 u/s. 271(1)(c) applicable : Dy. CIT v. K.Natarajan (Bangalore) p. 273
F Where assessee provided adequate opportunity to rebut charge in search cases, penalty valid : Dy. CIT v. K.Natarajan (Bangalore) p. 273
F Penalty leviable on difference between income declared in return filed u/s. 153A and that in original return : Dy. CIT v. K.Natarajan (Bangalore) p. 273
F Assessment or reassessment relating to year falling in six year period prior to search abates : Original return filed does not abate : Dy. CIT v. K.Natarajan (Bangalore) p. 273
F Surplus earned on sale of investments is capital gains : Paresh D. Shah v. Joint CIT (Mumbai) p. 311
F Deduction u/s 80HHC cannot be granted to non-residents : Mustaq Ahmed v. Asst. DIT (Chennai) p. 315
F Deduction u/s 80HHC to domestic companies and residents not affected by non-discrimination clause of para (4)(a) under art. 26 of DTAA (Singapore) : Mustaq Ahmed v. Asst. DIT (Chennai) p. 315
F Plant kept ready for use but not actually used due to lack of raw material : Entitled to depreciation : Asst. CIT v. Chennai Petroleum Corporation (Chennai) p. 325


F Long-term capital gains remain still a hard nut to crack
The Government is likely to maintain the distinction between short-term and long-term capital gains to encourage long-term savings, as it deliberates the Draft Direct Taxes Code.
The Finance Minister said in his Budget speech that the new direct taxes law could be rolled out from April 1, 2011.
Long-term capital gains are taxed at concessional rates while short-term gains are taxed at the marginal rate of the taxpayer and could be as high as 30 per cent. for those in the highest slab.
The tax treatment of shares is different from other assets. Currently, any stock market asset held for more 12 months is considered long-term capital assets but for all other assets have to be held for more than 36 months to be considered a long-term asset. Moreover, shares held for the long-term attract only the securities transactions tax while others assets are levied a long-term capital gains tax of 10 per cent.
The Draft Direct Taxes Code has proposed to tax capital assets irrespective of the period of holding. The entire capital gains of the assessee is proposed to be added to his income and taxed at the marginal rate.
The Finance Minister has asked the CBDT to rework the Draft Code based on the feedback received from stakeholders before it is introduced in the Monsoon Session, as different factors including market conditions, requirement of funds, future expected realisations have an impact on financial decision.
However, in case of stock market transactions, concessional rate of tax has been in place for some time now and long-term gains could be completely tax free except for small amount on securities transaction tax (STT). Even industry chambers have advocated continuing the existing regime for taxation of capital gains. [Source : dated March 10, 2010]
F Government clears cloud over NGO tax breaks
The Income-tax Department has got the power to cancel any charitable organisation's registration that accords it the benefit of tax exemption, if the organisation is found to violate the norms for registration, according to Budget 2010-11. By this move, the Government has made its intent to prevail over a series of court judgments, which held that the Income-tax Department did not have the right to cancel registration of organisations with it.
However, the Budget proposal has said, "The power of cancellation of registration is inherent and flows from the authority of granting exemption".
Many organisations that are registered under the section of the income-tax law have had a tiff with the Department that sought to cancel their registration on alleged violations of the rules.
Such organisations have to maintain books of account for any commercial activity undertaken by them and if they fail to do so, the taxman enjoys the authority to question the concerned entity on the issue. The Budget proposal now gives the taxman the additional power to cancel the registration.
There were instances where the exemptions were being misused by the organisations, official sources said, adding that the object of the organisation stated in the registration was often changed without any knowledge of the Tax Department.
The Budget proposal has pointed out that judicial rulings in some cases have held that Commissioner does not have the power to cancel the registration obtained by a trust or institution as it is not specifically mentioned in section 12AA.
"It is therefore, proposed to amend section 12AA so as to provide that the Commissioner can also cancel the registration obtained under section 12AA", the Finance Bill, 2010-11 has said.
Charitable organisations would, however, be given a chance to be heard by the tax Commissioner before he decides to cancel the registration. [Source : dated March 8, 2010]

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