Friday, August 9, 2013

ITR Digest

S.2(14): Capital asset–Agricultural land-Municipality–Local authority Hyderabad

Airport Development Authority- Sale of land beyond 8 Kms of Municipality limits is not liable to capital gain tax. [S.10 (20), Constitution of India –Art 243 P(e), 243R, General Clauses Act. S.3(21)g]
The assessee sold the agricultural land. The assessee claimed that the capital gain tax is not leviable. The Assessing Officer held that the land is within the limits of HADA which is Government notified local authority and was a municipality within the meaning of section 2(14)(iii)(a),therefore ,the land sold by the assessee was non-agricultural land. The Government of Andhra Pradesh issued a land acquisition notification dated 16-5-2007   for the acquisition of the above land of the assessee to develop in to an integrated township. On appeal the Tribunal held that the Hyderabad Airport Development Authority had been constituted under provisions of Andhra Pradesh Urban Areas (Development) Act, 1975 as a Special Area Development Authority by State Government, it cannot be treated as a municipality for purposes of provisions of  section 2(14) of the Act. In the revenue records the land is classified as agricultural land and has not been changed from agricultural land to non agricultural land at the time when the land was sold by the assessee. The land in question is brought in special Zone cannot be a determining factor by itself to say that the land was converted in to use for non-agricultural purposes.  As the agricultural land of assessee is outside the municipality and also 8 kms away from the outer limits of the Municipality,  assessee’s  land does not come within the purview of section 2 (14)(iii) either under clause (a) or (b) , hence cannot be considered as ‘capital asset’ within the meaning section , hence capital gain tax cannot be charged on sale of the said land. (A.Y. 2008-09)
 T. Urmila(Smt) v. ITO (2013) 57 SOT 90(URO) (Hyd.)(Trib.)

S.2(15): Charitable purpose–Object of general public utility–Control of game of cricket is business activities –Cancellation of registration was justified. [S. 12AA]
Since the assessee was carrying on revenue earning exercise by arranging international matches, IPL matches, etc. in such a way that maximum advertisement revenue was derived from any type of match, its activities did not come within conceptual framework of charity vis-à-vis activity of general public utility envisaged in s. 2(15).Cancellation of registration was justified. (A.Y.2009-10)
Tamil Nadu Cricket Association v. DIT (2013) 57 SOT 439 (Chennai)(Trib.)

S.2(22)(e): Dividend-Deemed dividend-Advance to Director for purchase of land on behalf of company-Provision does not attract.
Advance granted to the director to purchase land in the name of the director but in which the company would be having beneficial interest does not attract section 2(22)(e).(A.Y.2006-07) (ITA no 447 dt.26-12-2012)
ACIT v. C.V. Reddy (2013) –TIOL-168 (Bang.)(Trib.)

S.4: Charge of income-tax-Income-Subsidy-Deferred sales tax scheme-Capital receipt.[S.2(24)]
To determine the character of subsidy in hands of recipient, whether revenue or capital, the purpose of the subsidy is to be considered and the source of fund and mechanism of giving subsidy are immaterial. Incentive, in form of sales tax waiver/deferment was not meant to give any benefit on day-to-day functioning of business or to make it more profitable; but was principally aimed to cover capital outlay of assessee for undertaking modernization of existing industry, it was capital in nature, and thus, not taxable. (A.Y.1992-93)
CIT v. Birla VXL Ltd. (2013) 215 Taxman 117 (Guj.)(HC)

S.5: Scope of total income–Retention money–Accrual.
In view of decision of Gujarat High Court in case of Anup Engineering Ltd. v. CIT [2001] 247 ITR 457/114 Taxman 584 retention money could not be said to have accrued to assessee and therefore, this amount did not represent assessee’s accrued income. (A.Y. 2002-03)
DIT v. Ballast Nedam International (2013) 215 Taxman 254 (Guj) (HC)

S.9(1)(i): Income deemed to accrue or arise in India–Set off of branch losses – Taxability-DTAA-India-Sweden .[ Art.7]
The assessee set off its loss from Sweden branch against its other business income taxable in India. Revenue’s case was that as per Article 7, profits attributable to Sweden branch was taxable in Sweden and, therefore, losses incurred by Sweden branch could not be set off against other income. Following its decision rendered in earlier assessment years with respect to India-Japan DTAA, the Tribunal allowed the claim of the assessee. Since nothing had been brought on record to show that clauses of DTAA between India-Sweden were different from that in DTAA between India-Japan in respect of present issue, the Tribunal’s order was justified. (A.Y. 2002-03)
CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.) (HC)
Editorial: Arising out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD 398(Pune)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India-Short term capital gain-Forward exchange contract/hedging mechanism-DTAA- India-Spain-Additional evidence-Matter set aside. [Art. 14, 23]
The assessee-company was a resident of Spain and registered as FII with SEBI. It claimed the profit on foreign exchange transactions as short-term capital gain and hence exempt under India-Spain DTAA. Since the assessee filed additional evidence before the Tribunal, the matter was to be restored to the Assessing Officer for fresh decision. (A.Y. 2005-06)
Merrill Lynch Capital Markets Espana SA v. DCIT (2013) 57 SOT 435 (Mum.)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India–Capital gains–DTAA-India-UAE. [Art.4, 13]
The assessee is held to be not entitled to the benefit of India-UAE DTAA and income from capital gains was charged to tax, on the ground that individuals are not taxable in UAE. The Tribunal in assessee’s own case in immediately preceding year held that assessee was entitled to benefits of DTAA thereby granting exemption from capital gain. Since the facts of the instant appeal were similar to those of immediately preceding year, the benefit of the DTAA was to be granted.(A.Y. 2008-09)
ITO v. Chandersen Jatwani (2013) 57 SOT 437 (Mum.)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India–Interest– Income-tax refund-DTAA-India-Denmark [Art.9(4), 12(6)]
Interest on income-tax refund was taxable in India as per Article 12(6) of DTAA between India and Denmark. Interest cannot be considered as business income. (A.Y. 2005-06)
A.P. Moller Maersk v. DCIT (2013) 57 SOT 267 (Mum.)(Trib.)

S.9(1)(vi): Income deemed to accrue or arise in India–Royalty-Fees for technical services-Shipping business-DTAA-India-Denmark. [S.9(1)(vii), Art. 9, 13 ]
Amounts received by shipping company on account of shared cost of global tracking system was linked to shipping income as per Article 9(1) of DTAA between India and Denmark and was not taxable in India. (A.Y. 2005-06)
A.P. Moller Maersk v. DCIT (2013) 57 SOT 267 (Mum)( Trib.)

S.10(38): Exempt income – Long term capital gains from equities - Scheme of sale of land through sale of shares of shell company is valid.
The assessee held 98.73% shares in Bhoruka Financial Services Limited (BFSL). In AY 2005-06 BFSL purchased a plot of land from a group sick company called Bhoruka Steels Ltd for Rs.3.75 crores which was accepted to be the prevailing market price u/s 50C. BFSL was a shell company with no assets other than the said land. In AY 2006-07 the assessee sold its shareholding in BFSL to DLF Commercial Developers Ltd for a net consideration of Rs. 20 crore. As the sale of shares was executed through the Magadh Stock Exchange and STT was paid, the assessee claimed that the gain on sale of shares was exempt u/s 10 (38). The AO, CIT(A) and Tribunal rejected the assessee’s claim on the basis that the assessee, BFSL and Bhoruka Steels were all controlled by common shareholders and that the scheme to first sell the land to BFSL and then to sell the shares of BFSL was devised with the sole purpose of avoiding tax on the capital gains which would have arisen if the land had been sold directly. It was held that the formalities of the transaction and the legal nature of the corporate bodies had to be ignored by lifting the corporate veil and the transaction had to be taxed as a sale of the land. On appeal by the assessee to the High Court, HELD allowing the appeal:
Though BFSL was a shell company with no asset other than the land and by buying the shares of BFSL, DLF in effect purchased the land, the transaction cannot be said to a sham or an unreal one. In coming to the conclusion that the transaction is a colourable device, the authorities have been carried away by the fact that the assessee was able to avoid payment of income tax. The assessee did resort to tax planning and took advantage of the law/ loopholes in the law. After seeing how the loophole was exploited within the four corners of the law, it is open to Parliament to amend the law plugging the loophole. However it cannot be done by judicial interpretation. S.10(38) of the Act is unambiguous. If the share holder chooses to transfer the lands through a transfer of the shares of the company owning the land, it would be a valid legal transaction in law and cannot be said to be a colourable devise or a sham merely because tax is avoided thereby (McDowell & Co. v. CIT (1985) 154 ITR 148 (SC), UOI & Anr. v Azadi Bachao Andolan & Anr. (2003) 263 ITR 706 (SC) & Vodafone International Holding B.V. v. UOI& Anr. (2012) 341 ITR 1 (SC) referred)( ITA No. 120 of 2011, dt. 09/04/2013)
Bhoruka Engineering Inds. Ltd. v. Dy. CIT (Karn.)(HC)

S.10A: Free trade zone–Software developed transmitted to foreign countries through internet cannot treated as bogus transaction.
The assessee started new venture of software development and claimed profit of software division under section 10A. The Assessing Officer was not convinced from contemporaneous record that software was developed by assessee or that same was transmitted to foreign countries through internet and rejected the claim of the assessee treating the said transaction as bogus and sham. The Commissioner (Appeals) and the Tribunal, taking into consideration report of audit, agreement with STPI, certificate in respect of custom, boarding arrangement of assessee and payment received from various parties through channel of banks, concluded that transaction was genuine, allowed the assessee’s claim. Held, since the order passed by the appellate authorities was based on appreciation of material on record, no substantial question of law arose there from.(A.Y. 2003-04)
CIT v. Nova Petrochemicals Ltd. (2013) 215 Taxman 82(Mag.)  (Guj.)(HC)

S.10A: Free trade zone-New unit- Approval letter issued by authority of Software Technology Park.
The assessee established three units and claimed deduction u/s 10A. The Revenue denied the deduction on basis of approval letter issued by authority of Software Technology Park stating that, these units were to be considered as part of existing units. On other hand, Tribunal found that all three units had fulfilled conditions u/s.10A, and therefore, allowed deduction holding those units as separate and independent production units, and not as mere expansion of existing unit. Since the decision of the Tribunal was based on finding of fact, no interference was required. (A.Y. 2002-03)
CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.)(HC)
Editorial: Arising out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD 398(Pune)(Trib.)

S.10A: Free trade zone-Consistency-Computation-Export turnover-Expenditure do not pertain to delivery of goods out of India are not deductible from export turnover.
Where the assessee followed head count method of accounting for computing deduction u/s 10A, which had been accepted by revenue in earlier years, it could not be disallowed in relevant assessment year. The expenditure towards insurance, freight and communication incurred in foreign exchange, which do not pertain to delivery of goods out of India and satellite link charges and technical service fee are not deductible from export turnover. (A.Y. 2007-08)
Willis Processing Services (I) (P) Ltd. DY. CIT (2013) 57 SOT 339 (Mum.)(Trib.)

S.10A: Free trade zone-Newly established undertakings-Deemed export is not eligible for exemption. 
The assessee software company carried out deemed exports by raising bills on local parties and received sale proceeds in convertible foreign exchange thereby claimed deduction on same under section 10A. On ground that deemed exports are exports as per EXIM policy. On appeal Tribunal held that that deduction under section 10A is to be allowed only when foreign exchange is received on export of software and EXIM policy cannot overrule Income-tax Act which is a separate code in itself. In view of same claim of assessee could not be allowed. (A.Y. 2005-06)
Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.)

S.10A: Free Trade Zone-Newly established undertakings-Export turnover-Total turnover-Foreign tax (VAT/GST) collected from customers is to be excluded.
Assessing Officer excluded foreign tax (VAT/GST) collected from customers from export turnover as well as from total turnover, thereby, granting lower deduction under section 10A to assessee a STP unit, on ground that tax collected was subsequently remitted to government. the Tribunal held that once this sum is not included in export turnover then the same cannot be included in the total turnover. (A.Y.2005 -06)
Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.)

S.10A: Free trade zone-Computation-Export turnover-Total turnover- Parity between numerator and denominator.
Expenses reduced from export turnover were also to be reduced from total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A. (A.Y. 2007-08)
Bearing Point Business Consulting (P.) Ltd. v. DCIT (2013) 57 SOT 244 (Bang.)(Trib.)

S.10B: Exempt income-Export oriented undertaking-Initial year- Assessee has to prove its eligibility in initial year of production only and not in every year of claim.
The Assessing Officer rejected the assessee’s claim holding that the assessee had employed used machinery value of which exceeded 20% of total value of machinery employed by assessee. It was noted from records that the claim u/s 10B was allowed in the past and the year under consideration was found to be 5th year of claim. There was no evidence on record establishing that assessee had purchased used machinery during relevant assessment year. Held in order to claim exemption u/s 10B, assessee has to prove its eligibility in initial year of production only and not in every year of claim. (A.Y. 2003-04 to 2004-05)
DCIT v. Tyco Valves & Control India (P.) Ltd. (2013) 57 SOT 138(URO)(Ahd.)(Trib.)

S.12AA: Procedure for registration–Period of six months–Directory.
There is no automatic or deemed registration if the application filed under section 12AA is not disposed of within the stipulated period of six months as the time frame fixed under the provision is only directory. Matter remitted to the Commissioner for consideration of the matter a fresh.
CIT v. Sheela Christian Charitable Trust (2013) 354 ITR 478 (Mad.)(HC)

S.12AA: Procedure for registration–Order lodging the application–Not sustainable-Deemed registration-Time to be reckoned from the end of month in which the application was filed-Matter remanded to Commissioner.
The assessee filed an application before the Commissioner on 28th January, 2009 for seeking registration under section 12AA and for grant of approval under section 80G. The Commissioner held that the activities of the assessee could not be called charitable. Accordingly he lodged the application of assessee. On appeal Tribunal held that since the application was filed by the assessee on 28th January, 2009 and the Commissioner passed the order on July 31, 2009, by virtue of section 12AA, the six month period has expired and therefore application should be deemed to have been granted recognizing the  status of assessee as ‘Charitable Trust’. Tribunal also held that sale of books, hiring of utensils and rental income would not make the activities of the assessee a commercial venture. On appeal the court held that the application was dated January 28, 2009 and calculating the six months’ period from the end of the said month, it could not be said that the six months’ period would expire by July 31, 2009. Therefore, the order passed by the Commissioner   on July 31, 2009, could not be held to have been passed in violation of section 12AA. The conclusion of the Tribunal that the registration was deemed to have been granted, could not be sustained, inasmuch it was found that the order of the Director of Income-tax was passed within a period of six months stipulated in section 12AA(2). However, it was held that the Commissioner   should have either granted or rejected the application and was not expected to merely lodge the application, which would only leave the assessee in a suspended animation. There could not be any order in between like lodging the application. Thus, the matter was remitted to the Commissioner for fresh disposal on the merits.
DIT (Exemption) v. Anjuman-e-Khyrkhah-e-Aam (2013) 354 ITR 474 (Mad.)(HC)

S.12AA: Procedure for registration-Religious purpose-Denial of exemption was held to be not justified. [S.13(1)(b)]
The Commissioner rejected assessee’s application on the ground that the object clause of trust deed included an object of religious nature. The only prohibition in this regard was contained in S.13(1)(b), which excludes a trust or institution created or established for benefit of any particular religious community or caste. Since the aforesaid prohibition did not apply to assessee’s case, impugned order denying registration to assessee-trust was to be set aside.
Radhika Seva Sansthan v. CIT (2013) 57 SOT 121(URO) (Jaipur) (Trib.)

S.12AA: Procedure for registration-Trust or institution-Promotion of sports- Charitable purpose-Registration is entitled. [S.2(15)]
The Assessee-society is registered under the Society Registration Act, 1860. The founder-members of the society were professional golfers. The assessee filed an application seeking registration under section 12AA. The Commissioner   rejected  the application of registration. The Tribunal held that Society’s Object are charitable in nature, all the object and aims of the assessee are contained in clause (3) of its Memorandum of Association, Promotion of sports and games has to be considered as ‘charitable purpose’ within meaning of section 2(15). Assessee society formed to promote interest in game of   golf in general and  professional  golfers in particular was entitled to registration under section 12AA of the Act. 
Professional Golf Tour of India v. CIT (2013) 143 ITD 165/155 TTJ 17(UO)(Chandigarh)(Trib.)

S.14A: Disallowance of expenditure–Exempt income-Sufficient interest free funds–Presumption.
Where the assessee had sufficient interest free funds to meet its tax free investments yielding exempt income, it could be presumed that such investments were made from interest free funds and not loaned funds and, thus no disallowance u/s.14A being warranted. Ratio in case of CIT v. Reliance Utilities & Power Ltd (2009) 313 ITR 340 (Bom.)(HC) is followed. (A.Y. 2003-04)
CIT v. UTI Bank Ltd. (2013) 215 Taxman 8(Mag.) (Guj.)(HC)

S.14A: Disallowance of expenditure–Exempt income- Dividend from foreign subsidiaries–Interest free funds.
Where investment was made by the assessee in foreign subsidiaries, disallowance of interest expenditure under section 14A was not justified since dividend income from foreign subsidiaries, is taxable in India. Also, where the assessee had own interest free funds many times over the investment made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made under section 14A.
CIT v. Suzlon Energy Ltd. (2013) 215 Taxman 272 (Guj.) (HC)

S.14A: Disallowance of expenditure-Exempt income-Disallowance under section 14A cannot be made if satisfaction not recorded with reference to A/cs. Under Rule 8D(2)(ii) loans for specific business purposes cannot be included. Under Rule 8D(2)(ii) & (iii) investments which have not yielded income cannot be included. [Income–tax Rules, 1962, Rule 8D]
In AY 2008-09, the assessee invested Rs.103 crores in shares on which it earned tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds like capital and profits. It claimed that no expenditure had been incurred to earn the dividends and no disallowance u/s 14A could be made. The Assessing Officer  applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the Commissioner (Appeals) reduced the disallowance to Rs. 26 lakh. On cross appeals, HELD by the Tribunal:

(i) When the Assessing Officer does not accept the assessee’s claim regarding the non-applicability/ quantum of disallowance u/s 14A, he has to record satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It has is to be done with regard to the accounts of the assessee. On facts, as there is no satisfaction by the Assessing Officer, no disallowance u/s 14A can be made [Balarampur Chini Mills Ltd. v. Dy. CIT (2011)  140 TTJ 73(Kol.)(Trib.)] followed;

(ii) Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by way of interest which is not directly attributable to any particular income or receipt. This clearly means that interest expenditure which is directly relatable to any particular income or receipt is not to be considered under rule 8D(2)(ii). The AO has to show that the interest is not directly attributable to any particular income or receipt. In the assessee’s case, the interest has been paid on loans taken from banks for business purpose. There is no allegation that the loan funds have been diverted for making investment in shares or for non-business purposes. The loans are for specific business purposes and no bank would permit the loan given for one purpose to be used for making any investment in shares. Also, the assessee has substantial capital & reserves. Accordingly, the interest on the loans cannot be included in Rule 8D(2)(ii);

(iii) Further, in Rule 8D(2)(ii), the words used in numerator B are “the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year“. The Assessing Officer was wrong in taking taken into consideration the investment of Rs.103 crores made during the year which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term “average of the value of investment” is used to take care of cases where there is the issue of dividend striping;

(iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in rule 8D(2)(ii). Thus, not all investments become the subject-matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. (A. Y. 2008-09) ( ITA No. 1331/Kol/2011, dt. 29/07/2011)
REI Agro Ltd v. DCIT (Kol.)(Trib.)

S.14A: Disallowance of expenditure–Exempt income-Reasonable basis.
For periods prior to AY 2008-09, disallowance of expenses relating to exempt income, u/s 14A, is to be computed on a reasonable basis and not as per rule 8D.(A.Y. 2004-05)
Forever Diamonds (P.) Ltd. v. DCIT (2013) 57 SOT 113 (URO)(Mum.)(Trib.)

S.14A: Disallowance of expenditure-Exempt income-Rule 8D does not apply to short-term investments, gains from which is taxable. [Income-tax Rules,1962-Rule 8D]
Some of the investments made by the assessee are short term. Since assessee is paying capital gains tax on short term investments, Rule 8D will not apply on them and the Assessing Officer  is directed to re compute disallowance u/s 14A read with Rule 8D after excluding short term investments ( A. Y. 2008-09, ITA No. 1774/Mds/2012, dt.19 July,2013)
Sundaram Asset Management Co. Ltd v. DCIT (Chennai)(Trib.)

S.14A: Disallowance of expenditure – Exempt income-Interest on loans for specified purposes to be excluded [Income-tax Rules, 1962-Rule 8D]
The assessee contended that in computing the disallowance to be made under section 14A and rule 8D(2)(ii) ,the interest on bank loans taken for specific taxable purposes had to be excluded .The Assessing Officer rejected the claim. On appeal Commissioner (Appeals) accepted the claim of assessee. On appeal by revenue the Tribunal held that rule 8D(2)(ii) refers to expenditure by way of interest which is not attributable to any particular income or receipt. If loans have been sanctioned for specified projects /expansion and have been utilized towards the same ,then obvious they could not have been utilized for making any investments having tax-free incomes and have to excluded from the calculation to determine the disallowance under Rule 8D(2)(ii).(Champion Commercial Co. Ltd.) (Kol)(Trib.)(ITA no 644 /Kol/2012 dt 21-09-2012) is followed.(A.Y.2009-10)(ITA No.1603/Mds/2012 dt.16-07-2012)
ACIT v. Best & Cromton Engineering Ltd. (Chennai)(Trib.) 

S.14A: Disallowance of expenditure-Exempt income-Onus on assessee to prove that he had not incurred any expenses relating to income not forming part of total income.  [Income-tax Rules, 1962, Rule 8D]
Assessing Officer had disallowed a sum of Rs.3,05,423/- by applying provisions of section 14A read with rule 8D. On Appeal the Commissioner (Appeals) reduced the disallowance to Rs 1 lakh  on the ground that there is no precise finding given by the Assessing Officer .On appeal Tribunal held that onus lay on assessee to prove that he had not incurred any expenses relating to income not forming part of total income. Since assessee did not file any details of expenditure incurred by him, the order of Commissioner (Appeals) was set aside and that of Assessing Officer restored. (A.Y.2009-10)
ACIT v. Joe Marcelinho Mathias(2013) 143 ITD 132 (Panji)(Trib.)

S.22: Income from house property-Business income-Un sold flat-Rental income from unsold flat is assessable as income from house property. [S.28(i)]
The Court held that rental income from unsold flats in the hands of builder/developer, which are shown as ‘business assets’ should be assessed under the head Income from house property and not as business income. (ITA Nos. 238, 238 & 240 of 2013 dt.17-05-2013)
New Delhi Hotels Ltd. v. ACIT (2013) The Chamber’s Journal –July-P.114 (Delhi)(HC)

S.28(i): Business income–Grant in aid for research activities is capital receipt. [S.41, 263]
The grant in aid for a specific purpose of conducting research in the field of telecommunications, so that the benefit thereof would benefit the Nation and for carrying on day to day business of the assessee was a capital receipt. Order under section 263 was held to be bad in law. The question referred to High Court was on merit. High Court confirmed the order of Tribunal. (A.Y. 1989-90)
CIT v. India Telephone Industries Ltd. (2013) 215 Taxman 82 (Karn.)(HC)

S.28(i): Business loss–In the name of firm-Foreign currency transactions-Not allowable in the assessment of partner. [Partnership Act, 1932 S.13]
The Appellant entered into foreign currency transactions on behalf of firm from its account. Both the assessee–partner and firm claimed such loss as deduction in their respective income. The Tribunal disallowed the claim on the both. On separate order High Court admitted appeal of the partnership firm. In appeal it was contended that the transactions were entered in to without the knowledge of other partners and therefore should be treated as his personal loss. The Court held that section 13 of the Partnership Act provides, inter alia, that subject to the contract between, partnership firm shall indemnify the partner in respect of the payment made and liabilities incurred by firm in the ordinary and proper conduct of business and in doing such act, in an emergency for the purpose of protecting the firm from loss  as, would be done by a person of ordinary prudence,  in his own case ,under similar circumstances .In the result these transactions resulted in loss and could not be allowed as deduction in individual capacity of assessee-partner, when the same claim is made by firm under examination.(A.Y. 2007-08)
Pravinbhai Mohanbhai Kheni v. ACIT (2013) 215 Taxman 83(Mag.) (Guj.)(HC)

S.28(i): Business income–Share dealings–Capital gains-Purchase and sale on regular basis assessable as business income. [S.45 ]
Board’s resolution authorized the assessee-company to set apart a corpus of Rs.100 crores for trading in shares which represented intention to carry out activities of purchase and sale of shares on business lines. Further, the purchase and sale transactions in shares were entered into on regular and systematic basis with profit motive which only constituted business. The long-term capital gain was a small amount as against short-term capital gain which was a strong indicator as to shares being not intended to be held by way of investments. Held, the income had to be taxed as business income. (A.Y. 2007-08)
Mafatlal Fabrics (P.) Ltd. v. Add.CIT (2013) 57 SOT 425 (Mum.)(Trib.)

S.28(va): Business income–Non-compete fees–Taxability-DTAA- India-France [Art.7]
Compensation received from foreign company in lieu of an undertaking by the assessee for not competing with Foreign company in India and for not using trade mark, designs, logo of said foreign collaborator, post settlement would be taxable in India. (A.Y. 2004-05)
Control & Switchgear Contractors Ltd. v. DCIT (2013) 57 SOT 127(URO) (Delhi)(Trib.)

S.31: Repairs and insurance of machinery, plant and furniture–Replacement of crucial components of a machine  could not be considered as current repairs. [S. 37(1)]
Replacement of crucial components of a machine which resulted in a new or fresh advantage or obtaining of enduring benefit could not be considered as current repairs expenditure and would not be allowable as deduction u/s 31(1) or u/s 37(1). (A.Y.1999-2000)
DCIT v. Printers (Mysore) (P.) Ltd. (2013) 57 SOT 117(URO) (Bang.)(Trib.)

S.32: Depreciation–Set off –Unabsorbed depreciation-Carry forward and set off permitted till final set off- Reassessment was held to be not valid. [S.147, 148]

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