ITR reports Issue dated 20.06.2011 Volume 334 part 4

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 20-6-2011

Volume 334 Part 4

HIGH COURT JUDGMENTS

--> Reassessment during pendency of proceedings before High Court on ground that a larger amount than that disclosed had been received : Direction by Tribunal for assessment of additional amount similar to original amount valid : Debaprasad Paul v. CIT (Cal) p. 274

--> Waiver of interest before end of accounting year : Interest did not accrue to assessee : Bagoria Udyog v. CIT (Cal) p. 280

--> Tribunal recording admission by counsel for assessee : Application by assessee denying admission should be considered on merits : Bagoria Udyog v. CIT (Cal) p. 280

--> Tribunal finding assessee could not prove gift : Assessment u/s 68 valid : Balbir Singh v. CIT (P&H) p. 287

--> Acquisition of company and subsequent sale : No evidence that transaction was not genuine : Loss deductible : CIT v. Oberoi Hotels P. Ltd. (Cal) p. 293

--> Publication of papers and holding of seminars ancillary objects : Institution cannot be denied exemption : New Noble Educational Society v. Chief CIT (AP) p. 303

--> Amount paid for parking autorickshaws deductible : CIT v. Gautam Motors (Delhi) p. 326

--> Provision for pension payable on retirement/resignation of eligible employees entitled to deduction :CIT v. Ranbaxy Laboratories Ltd. (Delhi) p. 341

--> Duty drawback benefits do not form part of net profit : CIT v. Ranbaxy Laboratories Ltd. (Delhi) p. 341

--> No discovery in search : S. 69A not applicable : CIT v. Concorde Capital Management Co. Ltd. (Delhi) p. 346

--> Joint Director of I. T. (Investigation) cannot issue warrant unless authorised specifically by notification of CBDT : CIT v. Capital Power Systems Ltd. (Delhi) p. 349

--> Search taking place after close of financial year : Assessee liable to pay interest u/ss. 234B and 234C and entitled to benefit of payment out of seized cash from date of making application for adjustment of seized cash towards tax liability : CIT v. Arun Kapoor (P&H) p. 351

--> Assessee requesting prior to due date for payment of instalment of advance tax to adjust advance tax payable out of cash seized : Assessee entitled to adjustment : CIT v. Ashok Kumar ( P&H) p. 355

--> Arrears of rent received taxable in year of receipt : CIT v. R. J. Wood P. Ltd. (Delhi) p. 358

--> Tribunal finding expenditure actually incurred : Finding of fact : CIT v. H. B. Leasing and Finance Co. Ltd. (Delhi) p. 367

--> Letter by developer showing receipt of a sum as advance from assessee : AO before discarding evidence ought to have summoned developer to find out fact : Faiz Murtuza Ali v. CIT (Delhi) p. 370

--> Interest on borrowed capital : No disallowance in terms of s. 14A : Tribunal not justified in directing consideration of disallowance u/s 14A : Topstar Mercantile P. Ltd. v. Asst. CIT (Bom) p. 374

--> Tribunal finding no nexus between borrowed funds and amount advanced : Assessee entitled to deduction : CIT v. Century Flour Mills Ltd. (Mad) p. 377

--> Suppression of sales : AO to consider set off of amount which has been legalised by payment of tax : Balaram Saha v. CIT (Cal) p. 383

--> Liquor license in individual name of partner but business carried on by firm : Firm not legal : CIT v. Swarna Bar Restaurant (AP) p. 387

--> Purchase of assets from franchisee companies : No defects in valuation reports : Depreciation allowable : CIT v. Pepsico India Holdings P. Ltd. (Delhi) p. 404

--> Units purchased cum-dividend : Sales ex-dividend : Loss allowable : Eveready Industries India Ltd. v. CIT (Cal) p. 413

--> Reassessment on ground computation of deduction u/s 80HHC not correct not valid : Cadila Healthcare Ltd. v. Deputy CIT (Guj) p. 420

--> Assessee entitled to benefit under VDIS where no prosecution initiated or pending when she applied for certificate under VDIS : CIT v. Smt. Meena Goyal (Uttarakhand) p. 428STATUTES AND NOTIFICATIONS

The Supreme Court :

--> Advance tax : Interest whether leviable where tax deducted at source and deductor paying tax with interest p. 306

--> Appeal to High Court : Substantial question of law p. 306

--> Book profits : Computation : Deduction under section 80HHC p. 306

--> Business expenditure : Deferred revenue expenditure : Allowability p. 307

--> Business expenditure : Professional fees, consultancy charges p. 307

--> Business income or capital gains : Profit from sale and purchase of shares p. 307

--> Business or investment : Two separate portfolios p. 308

--> Capital gains : Short-term capital loss p. 308

--> Capital or revenue expenditure : Expenditure on new project p. 308

--> Cash credit : Genuineness of transaction p. 309

--> Charitable purpose : Foreign exhibition expenses whether application of income under section 11(1)(a)p. 309

--> Co-operative bank : Interest from non-SLR funds whether attributable to banking business p. 309

--> Deduction of tax at source : Hotel charges, navigational facility and landing charges paid by airline company whether "rent" p. 310

--> Deduction of tax at source : Revenue sharing under franchisee agreement, whether payment of rent for premises p. 310

--> Depreciation : Lessor whether owner of assets p. 310

--> Depreciation : Plant and machinery received as grant p. 311

--> Exemption : Compliance with section 11(5) p. 311

--> Heads of income : Letting of premises with fittings : Apportionment of income as between two heads p. 311

--> Industrial undertaking : Core lamination whether manufacture of article or thing p. 312

--> Penalty : Wrong claim to deduction whether furnishing inaccurate particulars p. 312

--> Search and seizure : Retention of seized assets p. 312

Rules :

--> Income-tax (Third Amendment) Rules, 2011 : Gazette reference p. 328

Notifications :

--> Income-tax Act, 1961 : Notifications under section 10(23C)(iv)/(vi) : Approved institutions p. 327

--> Income-tax Act, 1961 : Notifications under section 35(1)(ii)/(iii) : Scientific research associations notified by the Central Government for the purpose of section 35(1)(ii)/(iii) p. 323

--> Income-tax Act, 1961 : Notification under section 90 : Agreement between the Government of the Republic of India and the Government of the Isle of Man for the Exchange of Information with respect to taxes p. 313

NEWS-BRIEF

F Double Taxation Avoidance Agreement between India and Mozambique notified

The Government of India notified the Double Taxation Avoidance Agreement (DTAA) with the Government of Mozambique for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income on May 31, 2011.

The DTAA provides that business profits will be taxable in the source State if the activities of an enterprise constitute a permanent establishment in the source State. Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest and royalties income will be taxed both in the country of residence and in the country of source. Capital gains from the sale of shares will be taxable in the country of source. The DTAA further incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including exchange of banking information and incorporates anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.

The DTAA will provide tax stability to the residents of India and Mozambique and facilitate mutual economic co-operation as well as stimulate the flow of investment, technology and services between India and Mozambique. [Source : www.pib.nic.in dated June 2, 2011]

F Black money : CBDT plans global information hub

The Central Board of Direct Taxes (CBDT) is coming up with an information hub with a view to fast-tracking money laundering and tax evasion cases and make exchange of tax-related information easier and faster between India and other countries. The exchange of information unit (EoIU) in New Delhi, a part of the Income-tax Department, will provide and exchange information on issues related to direct taxes-suspicious transactions, tax evasion, money laundering, income generated through business activities by companies in India and abroad, and issues covered under the existing Double Taxation Avoidance Agreement (DTAA).

India currently has amended DTAAs with 40 nations for sharing bank and tax-related transactions.

"Information will be provided and exchanged between the competent authorities of the two countries, which will be helpful for the newly-created Directorate of Income-tax (Criminal Investigation) in probing cases both in India and abroad," a Finance Ministry official said.

The unit will act as a nodal point, where all information coming to India from other countries including tax havens shall be processed, classified and disseminated to tax authorities across the country. "It is a two-way process and similar information will be provided to tax authorities abroad," the official said.

The implementation is in the final stage and the board is looking out for a location outside the North Block to set up the unit. "The software required to operate this unit is ready and once a location is finalised, the unit will be operational," the official said.

However, according to a section of tax officials, the shortage of manpower may affect the functioning of the new unit. [Source : www.hindustantimes.com dated June 7, 2011]

F Tax evasion may be a criminal offence

In a throwback to the past, the committee on black money is considering making tax evasion a criminal offence.

But given the pressure on the Government to crack down on black money, the proposal is back on the table though it might require amendment to the law. The move would create a strong deterrent as evaders simply pay tax and penalty.

In the past, Government had provisions under laws such as FERA to put offenders behind bars even for minor offences. Given the misuse and economic liberalization that led to several controls on foreign capital vanish, the Government repealed it and replaced it with Foreign Exchange Management Act (FEMA). The review is being initiated along with a fresh look at FEMA, Prevention of Money Laundering Act and those dealing with indirect taxes, the official who was present in the committee's meeting said.

Members of the committee were also of the opinion that instead of enacting a fresh law to deal with black money, a better option would be to plug the gaps.

Given the pressure on the Government to act on black money and corruption, the committee headed by the CBDT chairman has decided that Government agencies would exchange notes in around 10 days and work out the basic structure by the end of June so that the six-month deadline is met.

Over the last few weeks, the Finance Ministry has been moving at full speed and has set up at least three committees related to generation of illicit wealth besides roping in experts to estimate the extent of black money in the economy. [Source : www.economictimes.com dated June 10, 2011]

F Committee to examine recovery of income-tax demand organised at centre 

In order to examine certain suggestions on income-tax demand classified under the categories "Assessees not traceable" and "No assets/inadequate assets for Recovery", a Committee has been constituted by the Central Board of Direct Taxes (CBDT) with DGIT (Admn.) as Chairperson.

The modified terms and conditions of the Committee will be as follows :-

(i) To suggest modalities for utilization of the information available with FIU-IND and the Directorate of income-tax (Systems) for the recovery of outstanding demand in such cases.

(ii) To examine the possibilities of engaging the outside agencies to locate the whereabouts of non-traceable assessees or their assets and also unknown/undisclosed assets owned by the assessees with inadequate assets vis-a-vis the outstanding demand.

(iii) To propose a reward scheme for informants who supply information about such tax defaulters and which results into collection of the outstanding demand.

(iv) To propose a scheme regulating such outsourcing to outside agencies for its administration by the field formation.

(v) To examine the feasibility and methodology of putting the names of chronic tax defaulters in public domain.

The Committee shall submit its report within two months of its constitution.

Earlier, it was noticed that there is a huge outstanding demand which is not recoverable due to the following reasons :

(i) Demand difficult to recover due to reason that assessee is not traceable.

(ii) Demand difficult to recover due to reason that no assets are available for recovery.

Attempts are being made from time to time to recover this outstanding demand by using the asset and bank information available with the Finance Intelligence Unit (FIU) and Annual Information Report Data of System Directorate of Income Tax Department. To further achieve this objective, synergy in the functioning of Directorate of Recovery, Directorate of Systems, CBDT and Financial Intelligence Unit is also created. [Source : www.pib.nic.in dated June 8, 2011]

F Low income category absolved from filing income-tax return

As many as 85 lakh salaried taxpayers whose taxable income, including salary and interest income, is up to Rs. 5 lakh, are not required to file income-tax return from now onwards.

"No income-tax returns is required for salaried persons whose annual taxable income including salary and interest is up to Rs. 5 lakh. We would shortly notify this," a Central Board of Direct Taxes official said.

However, he said this would not cover income from other sources like house property, capital gains and gains from profession and business.

The scheme would be applicable from assessment year 2011-12 onwards. This means that the salaried persons eligible under the scheme would not have to file returns for the financial year 2010-11 in 2011-12 (assessment year).

Under the scheme, those salaried persons who want to claim tax refund, would have to file income-tax return.

As per the Memorandum to the Finance Bill, 2011, the Government will be issuing a notification exempting "classes of persons" from the requirement of furnishing income-tax returns.

Under the scheme, the salaried person who wants exemption from filing IT return, has to disclose about the incomes like dividend and interest to his employer for tax deduction.

In the scenario, the Form 16 issued to salaried employees will be treated as income-tax return. At present, it is obligatory for all salaried persons to file income-tax return under the Income-tax Act, 1961.

The idea behind the move is that in cases where there are no other sources of income, filing of a return is a duplication of existing information. [Source : www.economictimes.com dated June 6, 2011].

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