Friday, August 27, 2010

ITR HIGHLIGHTS ISSUE DATED 30-8-2010 Volume 326 : Part 3


Volume 326 : Part 3




--> State owned corporation incurring expenditure at instance of State on model villages deductible : CIT v. Karnataka Financial Corporation (Karn) p. 355

--> Export : Amount received by sale of scrap in domestic market includible :CIT v. Motor Industries Co. Ltd. (Karn) p. 358

--> Excise duty paid on goods manufactured but not sold and lying in closing stock cannot be disallowed : CIT v. Motor Industries Co. Ltd. (Karn) p. 358

--> Consideration of material filed in response to notices u/ss 143(2) and 142(1) in reassessment proceedings : Not a case of change of opinion : CIT v. Ravindran Prabhakar (Mad) p. 363

--> Purchase of immovable properties by individual and his wife and sale thereof by individual deeds : Prosecution u/s 276AB not valid : Banumathi v. ITO (Mad) p. 368

--> Sales tax and provident fund contribution paid within permissible time entitled to deduction : CIT v. Vijay Foundary and Engg. Works (MP) p. 378

--> Educational institution : Surplus funds must be used for objects of institution within five years for claiming exemption : Dr. Maharaj Krishana Kapur Educational Charitable Trust and Management Society v. UOI ( P&H) p. 385

--> Amount relating to transactions of earlier years not deductible trading loss : Matter remanded to permit assessee to prove claim of bad debt : CIT v. Popular Vehicles and Services Ltd. (Ker) p. 387

--> Professor developing educational material in form of CDs and in book form and exporting to students abroad not entitled to deduction u/s 80-O : P. C. Thomas v. Asst. CIT (Ker) p. 388

--> Interest earned on refinancing operation excludible from chargeable interest : CIT v. Punjab State Industrial Development Corporation (P&H) p. 390

--> Charitable purpose : Amount advanced only form of investment or deposit not entitled to exemption : CIT v. Shree P. Subramoniam Religious Trust (Ker) p. 393

--> Tax on undistributed profits : Assessment made at positive income in previous year : Invocation of s 104 justified : Thakur Devi Investments P. Ltd. v. CIT ( P&H) p. 396

--> Tribunal finding that investment cannot be treated as income and commission alone to be treated as income earned from sale : Finding of fact :CIT v. Dhani Ram (P&H) p. 399

--> Revision petition filed beyond time not rejected : Application under KVSS valid : Sheela Ashokkumar Goenka v. Designated authority under KVSS (Guj) p. 402

--> Sales tax paid within due time but after close of accounting year cannot be disallowed : CIT v. Paliwal Glass Works (All) p. 407

--> Depreciation : Generator : General rate applicable : CIT v. Paliwal Glass Works (All) p. 407

--> CIT (Appeals) and Tribunal finding only suppression of sale consideration : Addition only in respect of profit : CIT v. Samir Synthetics Mills (Guj) p. 410

--> Registration and stamp duty on lease deed for taking plant on lease revenue expenditure : CIT v. Gopal Associates (HP) p. 413

--> Tribunal finding expenditure was of recurring nature and no asset of enduring nature obtained : Expenditure deductible : CIT v. Lakhani Rubber Works (P&H) p. 415

--> Affidavit by assessee that notice not received within limitation : Onus on Revenue to prove that notice served in time : CIT v. Silver Streak Trading P. Ltd. (Delhi) p. 418

--> Agricultural income : Whether additional income already part of undisclosed income : Matter remanded : CIT v. Shrimati Ram Devi (Delhi) p. 421

--> Corporate membership fee to club deductible : CIT v. Samtel Color Ltd. (Delhi) p. 425

--> Law later settled by subsequent ruling of High Court and Supreme Court : No concealment of income or furnishing inaccurate particulars : CIT v. Arisudana Spg. Mills Ltd. (P&H) p. 429

--> Increased liability on account of foreign exchange rate fluctuation revenue expenditure : CIT v. Indian Toners and Developers Ltd. (Delhi) p. 435

--> Tribunal mechanically following decision of High Court which was not applicable to the facts : Matter remanded to Commissioner : CIT v. Damodar Magalji Mining Co. (Bom) p. 437

--> Dispute between parties and arbitration proceedings pending : No accrual of income : FGP Ltd. v. CIT (Bom) p. 444

--> Transfer not registered in books of society : Value of flat includible in net wealth of assessee : Bennett Coleman and Co. Ltd. v. Asst. CWT (Bom) p. 447

--> Right to purchase property at a fixed rate not an asset for purposes of wealth-tax : Ardeshir Behram Dubash v. WTO (Bom) p. 451

--> Export : Receipt on account of exchange fluctuation includible in total turnover : CIT v. Amber Exports (India) (Bom) p. 455

--> Payments towards PF and ESI made after due date specified inExplanation to s 36(1)(va) not entitled to deduction : B. S. Patel v. Deputy CIT (Assessment) (MP) p. 457

--> Amalgamation : Cost of shares to be taken at proportion of total price paid by assessee for takeover of assets : CIT v. Mahindra and Co. Ltd. (Raj) p. 465

--> Take over of business : Amount paid to transfer for deprivation of business revenue expenditure : CIT v. Hindustan Zinc Ltd. (Raj) p. 474

--> Export : Sales tax and excise duty not to be included in total turnover :CIT v. Standard Fireworks P. Ltd. (Mad) p. 498

--> Subsidy received from Central Government not to be deducted from cost of assets for allowing depreciation : CIT v. Standard Fireworks P. Ltd. (Mad) p. 498

--> Interest on enhanced compensation for agricultural land : Tax deductible at source on interest : Karnail Singh v. State of Haryana (P&H) p. 501

--> Payment of bonus to irrevocable trust before omission of proviso to s 43B(c) could not be disallowed : CIT v. Sri Venkatesa Mills Ltd. (Mad) p. 508

--> Dismissal of appeal by Tribunal justified where tax liability less than revised monetary limits : CIT v. Hospital Superintendent, Government Head Quarters, Mettur Dam (Mad) p. 511


--> Payments made to non-resident as a mark up of expenses not taxable in India : Bharati Axa General Insurance Co. Ltd., In re p. 477

--> Non-resident providing accreditation to conformity assessment bodies : Fees received by non-resident from bodies in India not taxable : Joint Accreditation System of Australia and New Zealand, In re p. 487

--> Notification :

Income-tax Act, 1961 : Notifications under section 35AC(1)
 Expln., clause (b): Eligible projects or schemes p. 29

Right to Information Act, 2005-Applicability to income-tax proceedings-T. N. Pandey, Retd. Chairman, CBDT
 p. 1

--> Non-compete fees on acquisition, taxable 

The Special Bench of ITAT, Delhi gave the ruling on July 30, 2010, on an appeal filed by Tecumseh India that non-compete fees are capital expenditure and therefore liable to tax. The transaction in question was the acquisition of Whirlpool assets at Faridabad and Ballabgarh. The assets were purchased on July 2, 1997 but the agreement for non-compete fees of Rs. 2.65 crore was signed on July 10, 1997.

The Income-tax Department did not agree with the taxpayer's contention and held that the payment of non-compete fee was capital expenditure and therefore tax has to be paid. The Assessing Officer, therefore added the expenditure back into the income computed for the purpose of levying tax.

The company had cited an earlier decision in which the Delhi High Court had held that the non-compete fees are mainly for protecting the profitability and business interest of the company. Further, since no profit-making apparatus was created through the payment of non-compete fees, such expenditures could be classified as revenue expenditure, and therefore tax was not payable on this count. The taxpayer company had also argued that the acquisition of the assets and the agreement for the non-compete fee were made on different dates and therefore the latter could not be construed as part of the acquisition.

The Income-tax Department cited section 6 of the Indian Evidence Act which stipulates that courts should take note of facts which formed part of the same transaction though they may have occurred at different places and time. It said the non-compete clause was part of the same transaction.
[Source : dated August 17, 2010]

--> Pardon the delay in filing tax returns if found genuine

In an order that will help companies and individuals who face penalty proceedings on account of the delay in filing returns, a Delhi Bench of the Income-tax Appellate Tribunal (ITAT) has ruled that penalty cannot be levied if there is a genuine reason for the delay.

The ITAT, while waiving the penalty observed that penalty proceedings are quasi criminal proceedings and should not be levied unless there is reason to believe that the taxpayer had acted deliberately in defiance of law or acted in conscious disregard of its obligation. This was not the case here, ITAT ruled.

The judgment however has not considered an earlier circular issued by the CBDT wherein it was mentioned that the Accountant's Report has to be furnished to the tax authorities within the due date.
 [Source dated August 21, 2010]

--> DTC bill likely to be tax-friendly

Taxpayers can look forward to a substantial reduction in their tax liability when the Direct Taxes Code, which will replace the archaic I-T Act comes into effect from April 1, 2011. "We are in the process of reducing the rate of tax and the Direct Taxes Code (DTC) will be a good example in that direction," the Central Board of Direct Taxes (CBDT) chairman said at an ASSOCHAM tax conference.

The first draft of the Direct Taxes Code had proposed substantial widening of the income-tax slabs, but they were only illustrative.

In fact, the Finance Ministry did not mention these slabs or suggest new ones in the revised draft as it did not want to give the impression of the suggested rates being a firm proposal. At present, annual income of Rs. 1.6 lakh- Rs. 5 lakh attracts 10 % income-tax, Rs. 5 lakh- Rs. 8 lakh attracts 20% and over Rs. 8 lakh faces 30% tax. The CBDT Chairman said rates in India will be almost in line with international standards, and that the Government would take measures so that the flight of revenue from India can be checked.
[Source : dated August 21, 2010]

--> SEBI, Fund houses want tax benefit to continue for ELSS units

Market regulator SEBI and mutual fund houses have asked the Finance Ministry to continue with the tax benefits on equity linked schemes in the Direct Taxes Code, which will replace the existing Income-tax Act.

The revised DTC draft, based on which the Government is finalising the bill, has proposed to do away with the tax benefits available to people investing in the equity-linked savings schemes (ELSS).

Under the IT Act, investments up to Rs. one lakh in the ELSS and dividends accrued on them are exempted from tax. Besides, there is no long-term capital gain tax on withdrawal of the funds after the three-year lock-in period.

Sources said SEBI and the mutual fund industry have written to the Finance Ministry to continue with the current exemption, as the industry is witnessing redemption pressure post the entry-load ban, a type of agent commission that was charged from investors.

The sources said retail investors benefit from investment in ELSS and SEBI wants that ELSS schemes continue to enjoy tax deduction.

Currently, ELSS comes under a method of taxation called EEE- wherein it is exempted at the points of investment, in the entire tenure of the investment and as well at the time of withdrawal.
 [Source : www.economictimes.comdated August 20, 2010]

--> Full disclosure of income a must for case settlement

In a significant judgment, the Supreme Court has said that the full and true disclosure of undisclosed income and their manner of acquisitions is mandatory for the settlement of the cases and grant of immunity from criminal prosecution.

The Income-tax Settlement Commission, even after commencing the proceedings, is empowered to examine the authenticity of such full and true disclosure of the unaccounted return of the assessees, said the apex court dismissing the plea of a real estate major.

The court said, "disclosure of 'full and true' particulars of undisclosed income and 'the manner' in which such income had been derived are the pre-requisites for a valid application under section 245C(1) of the Act. Additionally, the amount of income-tax payable on such undisclosed income is to be computed and mentioned in the application".

Section 245C(1) of the Act mandates "full and true" disclosure of the particulars of undisclosed income and "the manner" in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the matter covered by the application, court pointed out.

It said, "in the scheme of Chapter XIX-A (IT Act), there is no stipulation for revision of an application filed under section 245C(1) of the Act and thus the natural corollary is that determination of income by the Settlement Commission has necessarily to be with reference to the income disclosed in the application filed under the said section in the prescribed form".

The Chapter envisages settlement of complex tax disputes and grant of immunity from criminal proceedings by a Settlement Commission.
 [Source dated August 23, 2010]

--> Tax authorities to decide issues on factual foundations

The Supreme Court has asked the Central Board of Direct Taxes (CBDT) and other tax authorities to get the help of technical experts while deciding income-tax liability of cellular service providers.

The question was whether manual intervention was involved in the technical operations by which cellular service providers were given the facility by BSNL/MTNL for interconnection. A related question was whether TDS was to be deducted by service providers when they paid interconnect charges/access/port charges to BSNL.

"The problem which arises in these cases is that there is no expert evidence from the side of the department to show how human intervention takes place, particularly, during the process when calls take place," the order passed by a Bench headed by Chief Justice S H Kapadia said.

The Supreme Court underlined "with the emergence of our country as one of the BRIC countries and with the technological advancement, matters like the present one will keep on recurring and, hence, the time has come when the Department should examine technical experts so that the matters could be disposed of expeditiously and further it would enable the appellate forums, including this court, to decide legal issues based on factual foundation."

The court further clarified, in this batch of cases, the companies were not at fault as the question of human intervention was never raised by the Department before the Tribunal. Therefore, the Assessing Officer (TDS) was asked to re-examine the issue, "keeping in mind the larger interest and the ramification of the issues, which is likely to recur, particularly, in matters of contracts between Indian companies and multinational corporations."
 [Source : dated August 23, 2010] 



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