INCOME TAX REPORTS (ITR) HIGHLIGHTS
ISSUE DATED 28-2-2011 Volume 331 Part 3
->> Assessee occupying part of building for business as tenant : Deduction allowable pro rata for assessee's portion of building : Danesh A. Irani v. CIT (Bom) p. 291
->> Duty of Appellate Tribunal to pass speaking order : CIT v. Deepak M. Kothari (All) p. 301
->> Scheme of amalgamation sanctioned by BIFR wref 1-2-1992 : Revised return filed by assessee on 31-3-1994 claiming unabsorbed business losses of sick company valid : CIT v. J. K. Corporation Ltd. (Cal) p. 303
->> Decision of High Court not to be followed without discussion as to how applicable to facts : Iskraemeco Regent Ltd. v. CIT (Mad) p. 317
->> Duty of income-tax authorities to record reasons : Iskraemeco Regent Ltd. v. CIT (Mad) p. 317
->> Commercial complex constructed by assessee : Rent received assessed as business income for several years : Income cannot be assessed as income from house property : CIT v. Goel Builders (All) p. 344
->> Assessee borrowing funds and investing in financially fragile sister concerns : Deduction of interest paid on borrowings not allowable : CIT v. Smt. Swapna Roy (All) p. 367
->> Taxing authorities and court entitled to determine true legal relation resulting from transaction : CIT v. Rockman Cycle Industries P. Ltd. [FB] (P&H) p. 401
->> Set off of carried forward business loss and unabsorbed depreciation resulting in negative income : Assessee entitled to deduction in computation of book profits : CIT v. Packworth Udyog Ltd. [FB] (Ker) 416
->> Order rejecting application for release of seized articles not valid where no sufficient reason for retention of seized assets : Mitaben R. Shah v. Deputy CIT (Guj) p. 424
STATUTES AND NOTIFICATIONS
->> Notifications :
Income-tax Act, 1961 : Notification under section 35(1)(ii) : Scientific research associations p. 18
->> Contributions to promote education without profit motive, entitled to income-tax benefits
The Delhi High Court bench has ruled that section 10(22) of the Income-tax Act should not be given a restrictive meaning and so long as the income is used for fulfilling educational purpose, the exemption should be available. The court rejected the plea of the Revenue Department which had said that if the donations received by the educational institutes are not voluntary, then the dominant intent is to earn the profit.
Merely, non-distribution of such contributions to the members of the institutes or use of such amount for the educational activities would not be sufficient to claim exemption under section 10(22) of the Act of 1961, the Department had said.
The court, however, said: "It cannot be lost sight of that if an institution has to expand, additional infrastructure has to be created, quality education has to be imparted, all these activities require funds. There may be an original corpus of the society but thereafter the corpus for such activity can be created only through voluntary donations either from any philanthropist or through collection of funds in the process of admission."
The court said : "We are not concerned with the morality of the issue while deciding whether exemption has to be granted under section 10(22) of the Income-tax Act as all that is required is the absence of profit motive." The Department had denied the exemption claimed by the assessee, an educational society for assessment year of 1993-94.
It dismissed the appeal. The assessee then filed appeal before the Income-tax Appellate Tribunal (ITAT). There were difference of opinion among the two members of the quasi-judicial body. Then the matter was referred to the third member of the ITAT. The Tribunal then in its majority order had ruled in favour of the assessee. Aggrieved, the Revenue Department had came to the High Court. [Source : www.economictimes.com dated February 14, 2011]
->> Being set aside in the exemption list of DTC, dishearten religious trusts
All religious and charitable trusts set up for a particular religion or caste that are currently exempt from paying income-tax or wealth-tax will lose these benefits once the Direct Taxes Code (DTC) comes into effect from April next year.
This will adversely impact the activities of all such trusts, which run temples, mosques, etc. and provide free hospitalisation, education, shelters, etc., to those sections of the society lying outside the pale of the state's munificence. It may also disincentivise donors who will not be able to claim deduction of 50 per cent. of the donation from taxable income if the trusts are not non-profit organisations.
The problem lies in the definition of a non-profit organisation under the DTC, which has granted exemption to any such entity being a religious trust or institution from the levy of income-tax so long as it is not restricted to a particular religion or caste. There are several such trusts that serve the poor and destitute belonging to the Muslim, Jain, Catholic, Parsee and Hindu communities, among others.
"The provisions were drafted by tax officials without consulting any trustees. No justification has been given for withdrawing the exemptions . . . I think the IT Commissioners want to bring all this to tax."
The Income-tax Act, 1961, which has been in force for 50 years, has exempted all charitable trusts which were set up before April 1, 1962 for a particular religious community or caste. This provision does not exist in the new DTC and once the new law comes into force from April 1, 2012, all existing charitable trusts will have to pay income-tax at the flat rate of 30 per cent. and wealth-tax at 1 per cent.
Apart from being unable to claim income or wealth-tax exemption, the provision under the current Act that allows 100 per cent. accumulation of income by public charitable trusts for five years to build, say, a hospital or school, will not be included in DTC. Currently, a charitable trust is required to spend only 85 per cent. every year on the next year and the balance 15 per cent. can be accumulated for all times to come.
Under the DTC the amount can be accumulated only for three years. Various trusts have come together to form a federation of trusts that has already taken up the matter with the Parliamentary Standing Committee on Finance chaired by a former finance minister. A second meeting with the Standing Committee has been slated for February 25. [Source : www.economictimes.com dated February 14, 2011]
->> Industry seeks separate tax exemption limit for life and health insurance premiums
The insurance industry wants the Government to create a separate tax exemption limit of Rs. 50,000 for life insurance premium in the forthcoming budget to encourage more individuals to buy such policies.
Currently investment in saving instruments, like risk cover, pension products, PF contributions, National Savings Certificates and others, are eligible for aggregate deduction of Rs. 1 Lakh. Besides, investments in infrastructure bonds up to Rs. 20,000 also qualify for deduction.
"We recommend a separate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits on life and health insurance premium could be looked at," a private life insurance MD said.
Insurance sector needs capital on a periodic basis for expansion and experts hope that the budget session would also see passage of FDI bill in insurance sector to 49 per cent., from the current 26 per cent.
"There is a need for more proactive regulatory architecture for insurance. Foreign insurers could be allowed to set-up under a wholly owned subsidiary with 100 per cent. FDI. The life insurance industry is very capital intensive and companies need huge capital to fund growth," a consultancy firms's Executive Director said.
The life insurance companies currently pay tax of 12.5 per cent. and the Direct Taxes Code, which would replace the archaic IT Act from April 1, 2012, does not specify any specific limit for the same. This would mean being taxed at 30 per cent.
"A significant portion of funds of life insurance companies are invested in infrastructure projects. Also companies incur huge losses initially due to long gestation period. With higher tax rates, it will be unattractive proposal for new investors to invest in the sector," a private insurer said. [Source : www.economictimes.com dated February 16, 2011]
->> IT Department need to collect a bigger rise in unpaid taxes in a week
Racing to maximise its revenue before the end of this fiscal, the Government has asked all Chief Commissioners of Income-tax in the country to ensure collection of over Rs. 1150 crore of unpaid taxes in a week's time.
The orders to ensure collection of taxes under the self-assessment tax (SAT) category have been issued by the Finance Ministry on February 12 as an urgent and immediate measure to meet the budgetary target of Rs. 4.50 lakh crore of direct taxes for this financial year.
The Central Board of Direct Taxes (CBDT) has found that almost Rs. 1157 crore of taxes under the category of self-assessment tax is pending in various ranges of the country including large income regions like Mumbai, Kolkata and Delhi.
Under the SAT, the assessee is required to make a self-assessment and pay the tax on the basis of the returns furnished. Any tax paid by the taxpayer under this category is deemed to have been paid towards regular assessment.
The direct taxes kitty has swelled to Rs. 3.17 lakh crore in January last, against the revised budgetary target of Rs. 4.50 lakh crore. It is to be finalised by March 31.
The highest unpaid SAT is in Mumbai (Rs. 317 crore), Kolkata (Rs. 165 crore), Bangalore (Rs. 125 crore) and Pune (Rs. 96 crore).
Worried over the under-collection of this amount, the CBDT Chairman has issued instructions to 14 Chief Commissioners of Income-tax to ensure the collection by February 20. [Source : www.economictimes.com dated February 13, 2011]
->> Government are most confident at tighter international tax norms
The Government is considering tightening taxation norms for Indian companies having intermediary holding entities in overseas locations, as part of its efforts to increase its tax revenues.
"With very limited scope left on domestic front to widen tax collection due to inflationary pressure, the Finance Ministry is looking at ways to mop up additional revenues from international taxation front," a source told.
The Government may propose strict norms for disclosure by Indian companies and individuals to tax department about investments and interests in overseas entities, especially those with a holding company structure. The income from these investments and interests would be taxed accordingly, they added.
The Government is as such not in favour of increasing the tax burden on individuals due to inflation. Similarly there is unlikely to be any increase in corporate taxes on domestic businesses as high input expenses and increased borrowing costs are adversely affecting the companies' profitability.
Besides, a larger overhaul of tax structure is already lined up through the Direct Taxes Code, which is expected to come into effect from April 2012.
As per one of such proposals, a foreign company based in a country with lower tax rate, and where one or more Indian residents hold management control, would be treated as a Controlled Foreign Company (CFC) and taxed accordingly in India.
A consultancy major said that the new CFC regime might work against Indian companies with operations abroad, as their competitiveness would be hurt. [Source : www.economictimes.com dated February 14, 2011]
->> Impending budget may extend tax benefit on infrastructure bonds as a sound investment theme
The Union Budget for 2011-12 could extend the tax benefit on investments made in infrastructure bonds by a year while giving banks access to this special window in an effort to raise debt funds for building physical assets of the country. The last budget had allowed a deduction of an additional Rs. 20,000 for investment in long-term infrastructure bonds, over and above the Rs. 1 lakh limit prescribed for investments in tax saving schemes. Only dedicated infrastructure companies or lenders were allowed to raise funds through these tax savings bonds.
"Various options for infrastructure financing are being examined," said a Government official, adding "extending this window is one of them". The budget for 2009-10 had limited the tax benefit on infrastructure bonds for one year. This was because the Government was hoping to roll out of the Direct Taxes Code from April this year. But now that the new code is unlikely to be implemented before April 2012, the Government could extend the tax relief on these bonds.
"Keeping in view the infrastructure fund requirements of the country and also to make the tax deduction more meaningful, the Government should enhance the investment limit to Rs. 50,000," said an executive director of a consultancy firm. [Source : www.economictimes.com dated February 16, 2011]
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