Compilations of case law: IT Act related Topics : LOSS FROM SPECULATION

LOSS FROM SPECULATION

Speculative transaction – if actual delivery of share scrips does not take place both for purchases as well as sales – Sec.43(5) – delivery recalled by brothers – No actual delivery – speculative transaction. – Loss can't be set off against business income.
ACIT Vs Claytone Commercial Co. Ltd. (ITAT, Delhi) 67 ITD 118
Ram Lal & Sons Vs ITO (ITAT, Asr) 71 ITD 256

Purchase of shares and sales back to them at a loss – No evidence about effective delivery of shares and payment of purchase consideration – transaction not genuine
CIT Vs Shekhawati Rajputana Trg. Co. (P) Ltd. ( Cal ) 236 ITR 950

Transaction of purchase and sale of units & Government securities by Banking Company through Banker's Receipt without actual delivery – speculative transaction
ANZ Grindlays Bank Vs DCIT ( ITAT, Del) 88 ITD 53

Shares purchased from broker on principal to principal basis and resold without taking physical delivery of shares – Loss by paying difference between purchase and sale value of shares – Speculation loss
Bhikamchand Betala and Sons Vs ITO (Gau) 294 ITR 10

Applicability of Sec. 73 - Set off of Speculation Loss - No need to prove tax avoidance
DCIT Vs Front Line Capital Services Ltd. ( ITAT, Del ) 96 TTJ 201 overruled SMC
decision in Aman Portfolio (P) Ltd. Vs DCIT

Sec. 73 and 43(5) operate in different fields - Sec. 73 applies even to shares transferred with delivery
Rohini Capital Services Ltd. Vs DCIT ( ITAT, Del ) 92 ITD 317
Paharpur Cooling Towers Ltd. Vs DCIT ( ITAT, Kol ) 85 ITD 745
AMP Spg. & Wvg. Mills (P) Ltd. Vs ITO ( ITAT, Ahd-SB ) 100 ITD 142

Provisions of sec. 73 explained in detail
Melville Finvest Ltd. Vs JCIT ( ITAT, Hyd ) 89 ITD 528
DCIT Vs Aakrosh Investment & Leasing (P) Ltd. ( ITAT, Mum ) 90 ITD 287
Yucca Finvest (P) Ltd Vs DCIT ( ITAT, Mum ) 101 ITD 403

Investment companies are not exempted under sec. 73
JCIT Vs Haldia Investment Co. Ltd. ( ITAT, Kol ) 85 ITD 212
RPG Industries Ltd. Vs ACIT ( ITAT, Kol – TM ) 85 ITD 105

Forward transaction – Raw materials in which transaction made must have a direct connection with goods manufactured or items sold.
Delhi Flour Mills Co. Ltd,. Vs CIT (Del) 95 ITR 151

Explanation to section 73 – Physical delivery of shares not relevant – Gross Total income does not consist mainly of income chargeable under the heads "Interest on securities", "Income from House property", "Capital gains" and "Income from other Sources" OR assessee's principle business is not banking or granting loans and advances – Exemptions will not apply
CIT Vs Intermetal Trade Ltd. (MP) 285 ITR 536

Can the notional interest on interest free deposit received by the assessee in r

Can the notional interest on interest free deposit received by the assessee in respect of a shop let out on rent be brought to tax as "Business income" or "Income from house property"?

CIT v. Asian Hotels Ltd. (2010) 323 ITR 0490 (Del.)

The assessee had received interest free deposit in respect of shops given on rent. The Assessing Officer added to the assessee's income notional interest on the interest free deposit at the rate of 18 per cent simple interest per annum on the ground that by accepting the interest free deposit, a benefit had accrued to the assessee which was chargeable to tax under section 28(iv).
The High Court held that Section 28(iv) is concerned with business income and brings to tax the value of any benefit on perquisite, whether convertible into money or not arising from the business or exercise of the profession. Section 28(iv) can be invoked only where the benefit or amenity or perquisite is other than cash. In the instant case, the Assessing Officer has determined the monetary value of the benefit stated to have accrued to the assessee by adding a sum that constituted 18 per cent simple interest on the deposit. Hence, section 28(iv) is not applicable.

Section 23(1 )(a) deals with the determination of the annual letting value of such property for computing the income from house property. It provides that the annual letting value is deemed to be the sum for which the property might reasonably be expected to be let from year to year. This contemplates the possible rent that the property might fetch and not certainly the interest in fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property.

Thus, the notional interest is not assessable as business income or as income from house property.

I-T- Whether assessee is liable to deduct tax at source on payments to be made t

 

I-T- Whether assessee is liable to deduct tax at source on payments to be made to stock exchange as fees for rendering managerial services - YES, rules Bombay HC

MUMBAI, NOV 09, 2011: THE issue before the Bench is - Whether the assessee is liable to deduct tax at source on the payments to be made to stock exchanges as fees for rendering managerial service. And the verdict goes in favour of the Revenue.

Facts of the case

Assessee is a company engaged in the business of share broking, depositories, mobilization of deposits and marketing of public issues. Trading was carried out through various Stock Exchanges. Trading in securities were carried out under the open outcry system where the member brokers used to assemble in a trading ring for doing transaction in securities. To facilitate smooth trading, the open outcry system had been replaced by the BSE by introducing the BSE On-line Trading (BOLT) system and NSE introduced National Exchange for Automated Trading (NEAT) System. This automated screen based trading in securities, facilitates the member brokers to trade in securities from the Trader Work Stations installed in their offices instead of assembling in the trading ring. Identify of the counter-party is not revealed on the screen based BOLT system to ensure the transactions are carried out in a free and fair manner. Thus, the buyers and sellers of securities do not know the names of each other and the same is revealed only after the deal is finally settled. Trading and settlement activities of the member brokers are monitored through On-line Real Time System known as BSE on-line Surveillance system ('BOSS').

As per the bye laws framed by the BSE duly approved by SEBI, the BSE is entitled to charge its members various fees, such as, listing fees, admission fees, arbitration fees, transaction charges, etc. These charges are levied on the members who enter into transactions in securities / derivatives through the BOLT system. BOLT system is connected though VSAT and lease line connections. Under the BOLT system, members can proactively enter orders in the system which is displayed in the system till the full quantity is matched by one or more of counter orders and result into a transaction.

Assessee paid BSE Rs. 5.18 crores towards transaction charges without deducting tax at source. AO held that the transaction charges paid by the assessee were in the nature of 'fees for technical services' covered under Section 194J and since the assessee failed to deduct tax at source, in view of Section 40(a)(ia), the entire expenditure of Rs.5.17 crores was disallowed.
CIT(A) upheld the order of the AO stating that the stock exchange is not merely a mute spectator providing only physical infrastructure to the members but the stock exchange was a supervisor, overseer, manager controller, settlor and arbitrator over the security trading done through the stock exchange and provides managerial services. Thus, section 194J was applicable.

ITAT held that the stock exchange does not render any managerial service or render any technical consultancy service and, therefore, transaction charges were not covered under Section 194J and deleted the disallowance made u/s 40(a)(ia).

After hearing both the parties, the High Court held that,

++ there is direct linkage between the managerial services rendered and the transaction charges levied by the stock exchange. The BOLT system provided by the Bombay Stock Exchange is a complete platform containing the entire spectrum of trading in securities. The BOLT system not merely provides the live connection between prospective purchasers and prospective sellers of the respective securities / derivatives together with the rates at which they are willing to buy or sell the securities, but also provides a mechanism for concluding the transaction between the two parties. The BOLT system withholds the identity of the two contracting parties, namely, the buyer and the seller of the respective securities / derivatives. Under the screen based BOLT system the entire trading system is managed and monitored right from the stage of providing the platform for the prospective buyers / sellers of the securities / derivatives till the date the deal struck between the two parties are finally settled in all respects. The very object of establishing the stock exchanges is to regulate the transactions in securities and to prevent undesirable speculation in the transactions. To achieve this goal, the stock exchange continuously upgrades its BOLT system so that the transactions carried on through that system inspire confidence in the general public and that the transactions are settled smoothly and expeditiously. Thus, the entire trading in securities is managed by the Bombay Stock Exchange through the BOLT system provided by the stock exchange;

++ in the case of BOLT system, the user of the system is restricted to the trading in securities and the same is completely regulated by the stock exchange. If during the course of trading, it is found that a member is indulging in malpractices the stock exchange is empowered to suspend the member broker apart from making him liable for various other consequences;

++ if a member of the stock exchange does not enter into any transaction under the BOLT system he is not required to pay the transaction charges. It is only if the member trades through the BOLT system the member is required to pay transaction charges depending upon the volume of trading because, once the trading through the BOLT system takes place the member is assured that the other contracting party is a genuine buyer or seller as the case may be and that the price offered by the opposite party would be in consonance with the norm laid down by the stock exchange and that the transaction would be settled efficiently and expeditiously. The fact that the stock exchange levies or collects lesser transaction charges where the value of the transaction is higher, cannot be a ground to hold that no managerial services are rendered by the stock exchange, because, what should be the criteria for levying the transaction charges is left to the discretion of the stock exchange;

++ with a view to regulate the trading in securities, the stock exchange provides risk management and surveillance to the stock brokers to ensure the safety of the market. The surveillance function involves price monitoring, exposure of the members, rumour verification on a daily basis and take remedial actions like reduction of filters, imposition of special margin, transferring scrips on a trade to trade settlement basis, suspension of scrips / members, etc. These are some of the identified managerial services rendered by the stock exchange for which transaction charges are levied;

++ the in-built mechanism in the BOLT system itself is a part of the managerial service rendered by the stock exchange and even the in-built mechanism provided in the system is varied or altered by the stock exchange depending upon the circumstances encountered during the course of rendering managerial services. Therefore, the Tribunal was in error in holding that no technical or managerial services are rendered by the stock exchange by providing the BOLT system of trading in securities and the assessee was liable to deduct tax at source before crediting the transaction charges to the account of the stock exchange;

++ though Section 194J was inserted with effect from 1/7/1995, till the assessment year in question both the revenue and the assessee proceeded on the footing that Section 194J was not applicable to the payment of transaction charges and accordingly, during the period from 1995 to 2005 neither the assessee has deducted tax at source while crediting the transaction charges to the account of the stock exchange nor the revenue has raised any objection or initiated any proceedings for not deducting the tax at source. Thus, no fault can be found with the assessee in not deducting the tax at source under Section 194J of the Act and consequently, no action could be taken under Section 40 (a)(ia) of the Act. It is not the case of the revenue that on account of the failure on the part of the assessee to deduct tax at source, the revenue has suffered presumably because, the stock exchange has discharged its tax liability for the assessment year in question.

Assessee's appeal partly allowed

Compilations of case law: IT Act related Topics : LOSS / DEPRECIATION – CARRY FORWARD & SET-OFF

LOSS / DEPRECIATION – CARRY FORWARD & SET-OFF

Since income from a certain activity is not taxable, loss incurred in such activity cannot be set off against income from other heads
CIT Vs S.S. Thiagarajan (Mad) 129 ITR 115

Loss return filed after due date disclosing 115 J income – since RI filed late, no carry forward of loss to subsequent year.
ACIT Vs Dynavision Ltd (ITAT, Chennai) 88 ITD 213

Carry forward and set off of unabsorbed depreciation and losses – Specific and clear finding in prior assessment years, is necessary.
Sri Rajarathinam Transports P. Ltd. Vs CIT (Mad) 199 ITR 203
S.K.V. Selvaraj Vs CIT (Mad) 240 ITR 217

No appeal filed in the year in which loss occurred for which return filed late and Assessing Officer did not allow carry forward of loss – Appeal in subsequent year in which profit was earned to get this loss set off – Not maintainable.
CIT Vs Dalmia Cement (Bharat) Ltd. (SC) 216 ITR 79
Poddar Tyres Limited Vs DCIT (ITAT, Mum) 59 ITD 548

Brought forward unabsorbed depreciation of one amalgamating firm cannot be set off against profit of amalgamated firm.
Anand & Co. Vs ACIT (ITAT, Kol) 89 ITD 125

Carry forward of loss – Assessee receiving share of loss from firm – Assessee not filed return – Loss not allowed to carried forward.
K.V.K. Raju (HUF) Vs CIT (AP) 252 ITR 724

A Member of AOP cannot claim in his personal assessment, set off of his share of loss in AOP.
CIT Vs Lalitha M. Bhatt (Bom) 234 ITR 319

Loss of AOP can be set off only against its own profits and not against profits of its members.
CIT Vs Lalita M. Bhat (Bom) 234 ITR 319

Merger of Co-operative Societies and formation of a new co-operative society – carry forward losses of merged co-operative society cannot be set off against profits of new co-operative society.
Rajasthan Rajya Sahakari Spinning & Ginning Mills Fed. Ltd. Vs ITAT & Anr. (Raj) 260 ITR 167

Share of loss from Trust – No need to adjust this against individual income of beneficiaries as done in partner's cases.
M. Manoj Shenoy Vs ITO (ITAT, Bang) 35 TTJ 333

Machinery and Plant sold – No manufacturing activity carried on – Receiving interest income on outstanding dues on sale of plant & machinery – No actual sale of stocks – No continuation of business – Interest income not from business – Brought forward loss cannot be set off against interest income – claim of bad debts cannot be allowed.
Good earth Engines (P) Ltd. Vs ACIT (ITAT, Del) 62 TTJ 740

Loss in jute business – Discontinuance of business – Income from letting out godown used in jute business held assessable as House Property income – Loss in earlier year cannot be set off.
CIT Vs Bengal Jute Mills Co. Ltd (Cal) 165 ITR 631

Carry forward loss and unabsorbed depreciation – set off of – Business should be carried on.
Nakavar Agricultural Co. Ltd. Vs CIT (Ker) 229 ITR 548

Two proprietary business – Separate accounts – Separate premises – separate entities – one business stopped – Loss of that business cannot be set off against income from the other business.
C.L. Mehra Vs ITO (ITAT, Del) 59 ITD 99

Unabsorbed depreciation to be set off before unabsorbed Investment Allowance.
Seshasayee Paper & Boards Ltd. Vs DCIT (Mad) 272 ITR 165

Return of loss filed in response to notice u/s.148 – No carry forward and set off.
Koppino Pvt. Ltd. Vs CIT ( Cal) 207 ITR 228

Cost of prints cannot be included in cost of acquisition of exhibition right in film which can be carried forward – Rule 9B
ITO Vs Honey Enterprises (ITAT, Del) 89 ITD 301

Assessee never admitted the Trust as his benami – ITO rejected set off of loss in the case of Trust against income of assessee – upheld in spite of the fact that income from said Trust was included in the hands of assessee in earlier years.
ITO Vs B.N. Mathur (ITAT, Del) 30 ITD 9

Claim of loss from share transaction – some brokers not identifiable – some brokers could not file details – No details of distinctive number of share scrips purchased / sold, given – Loss not proved
ACIT Vs Rameshchandra R. Patel (ITAT, Ahd-TM) 89 ITD 203

A.Y. 1999-00 - Brought forward depreciation of earlier years cannot be set off against capital gains
Southern Travels Vs ACIT (ITAT, Chennai-SB) 103 ITD 198

Transport business - Not maintaining books - Income computed u/s 44AE - Assessee not entitled to set off unabsorbed depreciation.
DCIT Vs Sunil M. Kankariya (ITAT, Pune) 298 ITR (AT) 205

Provisions of section 71(2) and 72(1) to be read in harmony – Word 'may' used in section 71(2) is only to give flexibility to the assessee which may choose to adjust the losses against other income including capital gains.
Ashok Leyland Ltd. Vs ACIT 2008-TIOL-15-ITAT-MAD

HC UPHOLDS I-T DEPTS VIEW ON TAXING INFOSYS FOR ONSITE SERVICES

 

HC UPHOLDS I-T DEPTS VIEW ON TAXING INFOSYS FOR ONSITE SERVICES

An old tax case has come back to haunt Infosys, the countrys second-largest software company. In a ruling that backs the Income-Tax Departments claim of. 100 crore, the Karnataka High Court has upheld the view of tax authorities that the work carried out by Infosys for clients overseas, from 1992-93 to 1996-97, is in the nature of technical services. The judgement could have implications for the subsequent years as well and lead to substantial tax claims on Infosys, with similar ramifications for some of the other software exporters. Indian software exporters such as Infosys send their employees overseas to work on client projects. In most cases, the employees work out of the clients premises. For a majority of Indian service providers, including Infosys, nearly half the revenue comes from work it does overseas, better known as onsite locations. The I-T department contended that gross export earnings from providing technical services were not eligible for tax exemption but only the net export earnings after deduction of expenses incurred in foreign exchange, such as salaries paid to these employees, under Section 80HHE. Under such arrangements while the client company abroad pays for every professional deputed, the Indian firm pays a regular salary and a daily allowance to each of them for all days spent abroad at the premises of the overseas client. This issue of 80HHE has earlier been decided in our favour by ITAT. However, it appears that the Honble Karnataka High court has allowed the revenue appeal on this specific issue. Once we get a copy of the order, we will study and decide on future course of action, Infosys said in response to an ET query. Infosys had contested the tax authorities claim that it was in the business of providing technical services in the appellate tribunal. All along the company maintained that it is in the business of software development. The appellate tribunal ruled in favour of Infosys, following which the I-T department challenged the order in the Karnataka High Court. Under Section 80HHE, which has now been phased out, export income from software development and technical services are eligible for tax exemption. While no tax was payable on earnings from software development, in the case of technical services, only the net export income arrived after reducing the expenditures abroad is exempt, and the firm has to pay taxes on the rest of its income. For example, consider a software company with a total turnover of. 1, 000 crore and a profit of. 100 crore. If its export turnover from software development is. 900 crore, then an income of. 90 crore is tax exempt and it has to pay tax only on. 10 crore of income. However, if the same company has an export turnover of. 900 crore from technical services, it has to deduct the salary and other expenses incurred in foreign exchange and compute the net export turnover to arrive at the tax exempt income. For example, if the expenses incurred in foreign exchange is. 300 crore, then the net export income is. 600 crore and only. 60 crore is tax exempt.

ITR (TRIB) Volume 12 : Part 2 (Issue dated : 7-11-2011)

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 12 : Part 2 (Issue dated : 7-11-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Business expenditure --Obsolete materials written off--Valuation of cassettes at Re. 1 after some time--Proper--Loss allowable--Income-tax Act, 1961-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

Capital gains --Loss--Assessee holding shares in company--Value of shares reduced as result of reduction of share capital of company--No transfer involved--No consideration flowing from company--Provisions of section 45 not applicable--No loss to shareholder--Notional loss not allowable--Income-tax Act, 1961, ss. 2(47), 45, 55(2)(b)(v)-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

Industrial undertaking --Special deduction--Publishing of newspaper--Is industrial activity--Special deduction allowable--Income-tax Act, 1961, s. 80-IB-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

Revision --Conditions precedent--General principles--Non-resident--Opting to be taxed in terms of DTAA--Deduction of expenses to be allowed--Assessing Officer after verification of TDS returns allowing deductions for payments to contractors outside India and applying 10 per cent. tax rate to balance--Assessee taxed similarly for preceding years--Revision proposed without showing how facts different in current year--Not a case where Assessing Officer did not apply mind or made no enquiry--Order not erroneous or prejudicial to Revenue--No material to show nexus of permanent establishment with income from operations outside India--Revision not permissible--Income-tax Act, 1961, ss. 44BB, 90, 263--Double Taxation Avoidance Agreement between India and Korea, art. 7-- Hyundai Heavy Industries Co. Ltd. v. Director of Income-tax (International Taxation) (Delhi) . . . 168

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Korea :

Art. 7 -- Revision--Conditions precedent--General principles--Non-resident--Opting to be taxed in terms of DTAA--Deduction of expenses to be allowed--Assessing Officer after verification of TDS returns allowing deductions for payments to contractors outside India and applying 10 per cent. tax rate to balance--Assessee taxed similarly for preceding years--Revision proposed without showing how facts different in current year--Not a case where Assessing Officer did not apply mind or made no enquiry--Order not erroneous or prejudicial to Revenue--No material to show nexus of permanent establishment with income from operations outside India--Revision not permissible-- Hyundai Heavy Industries Co. Ltd. v. Director of Income-tax (International Taxation) (Delhi) . . . 168

Income-tax Act, 1961 :

S. 2(47) -- Capital gains--Loss--Assessee holding shares in company--Value of shares reduced as result of reduction of share capital of company--No transfer involved--No consideration flowing from company--Provisions of section 45 not applicable--No loss to shareholder--Notional loss not allowable-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

S. 44BB -- Revision--Conditions precedent--General principles--Non-resident--Opting to be taxed in terms of DTAA--Deduction of expenses to be allowed--Assessing Officer after verification of TDS returns allowing deductions for payments to contractors outside India and applying 10 per cent. tax rate to balance--Assessee taxed similarly for preceding years--Revision proposed without showing how facts different in current year--Not a case where Assessing Officer did not apply mind or made no enquiry--Order not erroneous or prejudicial to Revenue--No material to show nexus of permanent establishment with income from operations outside India--Revision not permissible -- Hyundai Heavy Industries Co. Ltd. v. Director of Income-tax (International Taxation) (Delhi) . . . 168

S. 45 -- Capital gains--Loss--Assessee holding shares in company--Value of shares reduced as result of reduction of share capital of company--No transfer involved--No consideration flowing from company--Provisions of section 45 not applicable--No loss to shareholder--Notional loss not allowable-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

S. 55(2)(b)(v) -- Capital gains--Loss--Assessee holding shares in company--Value of shares reduced as result of reduction of share capital of company--No transfer involved--No consideration flowing from company--Provisions of section 45 not applicable--No loss to shareholder--Notional loss not allowable-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

S. 80-IB -- Industrial undertaking--Special deduction--Publishing of newspaper--Is industrial activity--Special deduction allowable-- Bennett Coleman and Co. Ltd. v. Addl. CIT [SB] (Mumbai) . . . 97

S. 90 -- Revision--Conditions precedent--General principles--Non-resident--Opting to be taxed in terms of DTAA--Deduction of expenses to be allowed--Assessing Officer after verification of TDS returns allowing deductions for payments to contractors outside India and applying 10 per cent. tax rate to balance--Assessee taxed similarly for preceding years--Revision proposed without showing how facts different in current year--Not a case where Assessing Officer did not apply mind or made no enquiry--Order not erroneous or prejudicial to Revenue--No material to show nexus of permanent establishment with income from operations outside India--Revision not permissible -- Hyundai Heavy Industries Co. Ltd. v. Director of Income-tax (International Taxation) (Delhi) . . . 168

S. 263 -- Revision--Conditions precedent--General principles--Non-resident--Opting to be taxed in terms of DTAA--Deduction of expenses to be allowed--Assessing Officer after verification of TDS returns allowing deductions for payments to contractors outside India and applying 10 per cent. tax rate to balance--Assessee taxed similarly for preceding years--Revision proposed without showing how facts different in current year--Not a case where Assessing Officer did not apply mind or made no enquiry--Order not erroneous or prejudicial to Revenue--No material to show nexus of permanent establishment with income from operations outside India--Revision not permissible -- Hyundai Heavy Industries Co. Ltd. v. Director of Income-tax (International Taxation) (Delhi) . . . 168

Compilations of case law: IT Act related Topics : GENERAL ISSUES

Additional Commissioner is also Joint Commissioner
Arun Kumar Maheshwari Vs ITO (All) 285 ITR 179

Instruction that cases where international transactions exceed Rs. 5 crore to be taken up for scrutiny – No discrimination – Instruction valid
Sony India P. Ltd. Vs CBDT (Del) 288 ITR 52

Reduction of loss – Not a case of NIL tax effect – Instruction of CBDT fixing monetary limit for filing of appeal does not affect maintainability of appeal in such cases
CIT Vs Abhishek Industries Ltd. (P&H) 286 ITR 1

FD in Bank attached by Dept – Can foreclose such FD
Vysya Bank Ltd. Vs JCIT & Anr. (Kar) 241 ITR 178

Bank statement is not books of accounts maintained by assessee.
ITO Vs Samyeshi Majhi (ITAT, Calcutta) 13 ITD 61.

IT proceedings – strict rules of evidence do not apply – conclusive proof is not necessary to arrive at a conclusion / to establish a fact.
Mriganka Mohan Sur Vs CIT (Cal) 120 ITR 529

Claim that substantial amounts have been won in horse racing in two consecutive accounting years – claim is not justified considering the test of human probabilities.
Sumati Dayal Vs CIT (SC) 214 ITR 801

Protective assessment permissible but appellate authorities cannot make protective order
CIT Vs Durgawati Singh (All) 234 ITR 249
Jagannath Bawri & Ors. Vs CIT & Ors. (Gau) 234 ITR 464

Units of UTI are not shares
CIT Vs Apollo Tyres Ltd. (Ker) 237 ITR 706
Shree Synthetics Ltd. Vs DCIT (ITAT, Indore) 61 ITD 253

Manufacturing beedis –no patent / copyright / know-how involved
CIT Vs Mangalore Ganesh Beedi Works (Kar) 264 ITR 142

Assessing Officer cannot entertain claim for deduction otherwise than by filing a revised return
Goetze (India) Ltd. Vs CIT (SC) 284 ITR 323

Controlling interest in the company is an incidence of shareholding and has no independent existence – It is by reason of control over the shares that the shareholder is able to exercise control over the management
Venkatesh & Ors. Vs CIT (Mad) 243 ITR 367

The word "business" is one of wide import and it means an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earning an income
Barendra Prasad Ray Vs ITO (SC) 129 ITR 295 pp. 296
Works Contract – defined
State of Gujarat ( Commissioner of Sales Tax), Ahmedabad Vs Variety Body Builders (1976) CTR (SC) 228
Venguard Rolling Shutters & Steel Works Vs Commissioner of Sales Tax (1977) CTR (SC) 190
The Assistant Sales Tax Officer Vs B.C. Kame (1977) CTR (SC) 67
Crompton Engineering Co. Ltd. Vs The State of Tamil Nadu (1976) CTR (Mad) 428
CIT Vs Kumudam Publications P. Ltd. (Mad) 188 ITR 84

Diaries are not books of accounts
Sheraton Apparels Vs ACIT (Bom) 256 ITR 20

Composite business – Tests – Single books of accounts, carried on business in the same premises, no bifurcation in the bank accounts, common administration, common funds, common management, unity of control etc.
CIT Vs Kothari & Sons ( Agencies ) P. Ltd. ( Mad ) 211 ITR 928
Veecumsees Vs CIT ( SC ) 220 ITR 185
B.R. Ltd. Vs V.P. Gupta ( SC ) 113 ITR 647
Produce Exchange Corpn. Ltd. Vs CIT ( SC ) 77 ITR 739
CIT Vs Late T.S. Srinivasa Iyer ( Mad ) 192 ITR 50

Firm of Chartered Accountants – Carries on "Profession" and not "Business"
G.K. Choksi and Co. Vs CIT (SC) 295 ITR 376

Limitation – Assessment of income to be completed within the time period provided in the statute – However the order of assessment need not be communicated within that period.
RM. P.R. Viswanathan Chettiar Vs CIT (Mad) 25 ITR 79

Some cases

Where Assessing Officer failed to consider and analyse an issue but same was noticed by Commissioner as being erroneous and prejudicial to interest of revenue, Tribunal could not allow appeal in assessee's favour without examining matter - [2011] 15 taxmann 40 (Punjab and Haryana)


Addition made in respect of investment in property on basis of uncontroverted evidence of seller, is just - [2011] 15 taxmann 35 (Kerala)


If no surrender/disclosure is made at time of search and seizure, but thereafter by making statement during assessment proceedings, benefit of Explanation 5 to section 271(1)(c) will not be available to assessee - [2011] 15 taxmann 34 (Punjab and Haryana)


Transfer Pricing : Most important step when resale method is adopted for determining arm's length price of purchases from associated enterprises is reduction of gross profit margin from resale price - [2011] 15 taxmann 37 (Chennai - Trib.)


Residential status of assessee where assessee was employed for 158 days in ship in foreign water - [2011] 15 taxmann 36 (Pune - Trib.)

Compilations of case law: General Topics: INTERPRETATION OF STATUTES

INTERPRETATION OF STATUTES

Words to be given plain grammatical meaning
Orissa State Warehousing Corpn. Vs CIT (SC) 237 ITR 589
CIT Vs Gautam Sarabhai Trust (Guj) 173 ITR 216
CBDT Vs Cochin Goods Transport Associate (Ker) 236 ITR 993
G. Rao Electrodes Ltd. Vs CIT (Ker) 173 ITR 351
CIT Vs Casino (P) Ltd. (Ker) 91 ITR 289
M.P. Poddar (HUF) & Anr. Vs Appropriate Authority & Anr. (Del) 240 ITR 372

Word of analogous meaning coupled together – General word to be construed in the restricted sense in which the analogous less general word is used.
G. Claridge and company Ltd. (SC)(1991) 2 Supreme Court cases 229
Dr. Devendra M. Surti (SC) AIR 1969 Supreme Court 63

Definition of expression in one statute cannot automatically be applied to another statute.
CIT Vs Vasan Publications P. Ltd. (Mad) 159 ITR 381
CIT Vs Buhari Sons P. Ltd. (Mad) 144 ITR 12

Provision of another statute does not apply ipso facto but guidelines under such provision may be applied.
CGT Vs Prithvi Nath Sharma (Guj) 239 ITR 809

"Income" – meaning – should be the same as that of word occurring in legislature list –is of widest amplitude and must be given natural and grammatical meaning
CIT Vs G.R. Karthikeyan (SC) 201 ITR 866

When the meaning of words is clear and unambiguous, the Court has to give effect to it whatever be the consequences, as the Court has no jurisdiction to mitigate harsh consequences of the statute, if any.
Patil Vijayakumar & Ors. Vs Union of India & Anr. (Kar) 151 ITR 48

Words take colour from context in which they are used.
CIT Vs Venkateswara Hatcheries (P) Ltd. (SC) 237 ITR 174

Dictionary meaning of words not to be adopted where context conveys different shades of meaning.
CIT Vs Anand Theatres (SC) 244 ITR 192

'Etc.' means things of same character or those things "ejusdem generis"
CIT Vs Maulana Tea Co. (Ker) 244 ITR 589

No retrospectivity unless expressly stated or clearly implied
Virtual Soft Systems Ltd. Vs CIT (SC) 289 ITR 83
Gem Granites Vs CIT (SC) 271 ITR 322

It is necessary to spell out the degree of retrospectivity of a statutory provision from the language of the provision itself.
Union of India & Anr. Vs Raghubir Singh (SC) 178 ITR 548

An explanation brought in the statute Book is ordinarily clarificatory in nature and has retrospective effect.
Laxmi Industries Ltd. Co. & Ors Vs ITO & Anr. (Raj) 231 ITR 514
Beneficial provision does not necessarily imply that the amendment is to be given retrospective effect, unless specifically made it as retrospective in operation.
CIT Vs Pooshya Exports (P) Ltd. (Mad) 262 ITR 417
CWT Vs Reliance Motor Co. Ltd. (Mad) 260 ITR 571
CWT Vs B.R. Theatres & Industrial Concerns (P) Ltd. (Mad) 272 ITR 177

When a particular enactment or amendment is the result of the recommendation of the Law Commission, it is permissible to refer to the relevant report of the Commission.
It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed.
When an Act is declaratory in nature, the presumption against its retrospectivity is not applicable.
Mithilesh Kumari & Anr. Vs Prem Behari Khare (SC) 177 ITR 97

Effect of substitution of one provision by another – substituted provision deemed to be part of act from very inception.
K.T. Venkatappa & Ors. Vs K.N. Krishnappa & Ors. (Kar) 173 ITR 678

Prospective over ruling – Declaration of invalidity by SC to take effect from date of judgement.
Somaiya Organics (India) Ltd. & Anr. Vs State of Uttar Pradesh & Anr. (SC) 251 ITR 20

No prospective overruling unless so specified by SC.
M.A. Murthy Vs State of Karnataka & Ors. (SC) 264 ITR 1

When a statutory provision is interpreted by the Supreme Court in a manner different from the interpretations made in the earlier decisions by a smaller Bench, the law laid down by the larger Bench would constitute the law of the land and is to be regarded as law as it always was unless declared by the Court itself to be prospective in operation
Southern Industrial Corpn. Ltd. Vs CIT (Mad) 258 ITR 481

Interpretation in conformity with object of provision
American Hotel and Lodging Association Educational Institute Vs CBDT (Del) 289 ITR 46

Marginal note or heading – can be taken into account to arrive at reasonable construction.
Shree Sajjan Mills Ltd. Vs CIT & Anr. (SC) 156 ITR 585

The preamble of a statute is apart of the Act. And is an admissible guide to construction. Preamble is to express the scope, object and purpose of the Act.
Secretary, Regional Transport Authority Vs D.P. Sharma AIR 1989 SC 509 pp. 511

Speech of Finance Minister can be referred to ascertain object of legislation.
Soorajmull Nagarmull Vs CIT (Cal) 190 ITR 418

Legislative history and Circulars of CBDT can be used as aids for interpretation of provisions.
CIT Vs M.K. Vaidya (Kar) 224 ITR 186

Press note issued by Finance Ministry – Does not have force of law
Tarak Nath Paul Vs CWT (Cal) 142 ITR 468
Result of interpretation should not give rise to absurdity.
ITO Vs. H.P. Vishweswaraiah (Kar) 250 ITR 863
Chartered Housing v. Appropriate Authority (Kar) 250 ITR 1

If a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to be sub served by the object of the legislation ascertained from the scheme of legislation, then, if another construction is possible, apart from the strict literal construction, that construction should be preferred to the strict literal construction.
CIT Vs Gotla J.H. (SC) 156 ITR 323
K.P. Verghese Vs ITO & Anr. (SC) 131 ITR 597
CIT Vs Malayala Manorama & Co. Ltd. (Ker) 143 ITR 29
Ansal Properties & Industries Ltd. Vs Appropriate Authority & Ors. (Del) 236 ITR 793
ITO Vs Bharthi Trust (ITAT, Ahd) 60 ITD 261
CIT Vs P.K. Noorjahan (SC) 237 ITR 570
Nayantara G. Agrawal Vs CIT (Bom) 207 ITR 639
CWT Vs K.S. Vaidyanathan (Mad) 153 ITR 11
C.W.S. (India) Limited etc. Vs CIT (SC) 208 ITR 649
CIT Vs Laxmi Metal Industries (All) 236 ITR 130
V. Guruviah Naidu & Sons Vs CIT (Mad) 216 ITR 156
Shree Sajjan Mills Ltd. Vs CIT & Anr. (SC) 156 ITR 585

Sometimes one finds two or more enactments operating in the same field and each containing a non obstante clause stating that its provision will have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The conflict in such case is resolved on consideration of purpose and policy underlying the enactments and the language used in them
Sarvan singh Vs Kasturilal AIR 1977 SC 265 pp. 274-275
Ashoka Marketing Ltd. Vs Punjab National Bank AIR 1991 SC 855 pp. 878-879

Legal fictions are limited to the purpose for which they are created and should be taken to their logical end in application of the fiction to the facts the Court has to consider.
Chidambaram Mulraj & Co. Pvt. Ltd,. Vs CIT (Bom) 58 ITR 206

When language is vague and is capable of different interpretations, Court may derive some guidance from speech of Minister – Views expressed in reports need not be considered.
Delhi Flour Mills Co. Ltd. Vs CIT (Del) 95 ITR 151

The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature, which is to make a charge levied effective.
Sardar Harvindar Singh Sehgal & Ors. Vs ACIT & Ors. (Gau) 227 ITR 512
Gursahai Saigal Vs CIT (SC) 48 ITR 1
Jayalakshmi Leasing Co. Vs ACIT (ITSC-SB) 228 ITR (AT)1

Principle of beneficial interpretation would apply only in a case where the Court is in doubt about the true scope and ambit of the provision or finds two equally reasonable interpretations and not where the words of the statute are plain, precise and unambiguous.
Indian Rayon Corporation Limited Vs CIT (Bom) 231 ITR 26

Specific provision over-rides general provisions
South India Corporation Vs Secretary, Board of Revenue, Trivandrum AIR 1964 SC 207 pp. 215
Provision granting exemption – Strict construction.
Kota Co-operative Marketing Society Ltd. Vs CIT (Raj) 207 ITR 608
CIT Vs Orissa State Warehousing Corporation (Ori) 201 ITR 729
Renuka Datla Vs CIT & Anr. (AP) 240 ITR 463
Novopan India Ltd. Vs Commissioner of Central Excise 1994 (73) E.L.T. 769 (SC)

No ambiguity in the provisions of the statute – Provisions cannot be interpreted to confer benefit on assessee
Seshasayee Paper & Boards Limited Vs DCIT (Mad) 272 ITR 165
IPCA Laboratory Ltd. Vs DCIT (SC) 266 ITR 521

"Casus omissus" – Matters which should have been provided but not provided for in a statute – cannot be supplied by Courts.
Laxmandas Pranchand & Ors. Vs Union of India & Ors. (MP) 234 ITR 261
CIT Vs R.J. Trivedi & Sons (MP) 183 ITR 420

Executive instruction can only supplement statute – cannot curtail the statute or whittle down its effect.
State of M.P. & another Vs G.S. Dall and Flour Mills (SC) 187 ITR 478

Decision is an authority for what it actually decided and not for what follows from observations made while deciding case.
Nav Nirman P. Ltd. Vs CIT (MP) 174 ITR 574
CIT Vs Sun Engineering Works (P) Ltd. (SC) 198 ITR 297

Interpretation of orders of Courts & Tribunals must be in context of actual findings.
Thanthi Trust Vs ACIT (Mad) 238 ITR 117

Subsidiary and integral transactions have to take colour from Principal transactions.
Hindalco Industries Ltd. Vs ACIT (ITAT, Mum) 94 ITD 242

A party cannot escape the consequences of law merely by describing an agreement in a particular form though in essence and in substance, it may be a different transaction.
CIT Vs Panipat Woollen & General Mills Co. Ltd. (SC) 103 ITR 66

Compulsive provision will control a discretionary provision
Life Insurance Corporation of India Ltd. Vs S.V. Oak AIR 1965 SC 975 pp. 980

If a provision is mandatory, an act done in breach thereof will be invalid, but if directory, the act will be valid although non-compliance may give rise to some other penalty if provided by the statute
C. Drigraj Kuer Vs Amar Krishna Narain singh AIR 1960 SC 234 pp. 449, 451
Union of India Vs Tulsiram Patel AIR 1985 SC 1416

Once it is shown that the case of the assessee comes within the letter of law, he must be taxed, however greater the hardship may appear to the judicial mind, to be.
Tarulata Shayam & ors. Vs CIT (SC) 108 ITR 345
CWT Vs K.S. Vaidyanathan (Mad) 153 ITR 11
Padmasundara Rao (Deceased) & Ors. Vs State of Tamil Nadu & Ors. (SC) 255 ITR 147
ACIT & Ors. Vs Velliappa Textiles Ltd. & Ors. (SC) 263 ITR 550
Prakash Nath Khanna & Anr. Vs CIT & Anr. (SC) 266 ITR 1

Compilations of case law: General Topics: JUDICIAL DISCIPLINE

JUDICIAL DISCIPLINE

IT Proceedings – Res judicata not applicable.
CIT Vs Syed Saddique Imam & Others (Patna) 111 ITR 475
Tamilnadu Chlorates Vs JCIT ( ITAT, Chennai ) 98 ITD 1
New Jehangir Vakil Mills Co. Ltd. Vs CIT (SC) 49 ITR 137
Kotak Mahindra Finance Ltd. Vs DCIT (Bom) 265 ITR 114

Decision of Courts of co-ordinate jurisdiction binds each other – An established position should not be easily distorted
CIT Vs Meat Products of India Ltd (Ker) 224 ITR 1
CIT Vs L.G. Ramamurthy & ors. (Mad) 110 ITR 453
CIT Vs Sterling Foods (SC) 153 CTR 439/237 ITR 579
Lakshmi Vilas bank Ltd. Vs CIT (Mad) 284 ITR 93

Difference of opinion before co-ordinate Benches of a Court – Matter referred to larger Bench.
Aditya Minerals Pvt. Ltd,. Vs CIT (SC) 236 ITR 39
ITO Vs Ramkrishna Bajaj (ITAT,Bombay SB) 198 ITR (AT) 1

Reconsidering facts for a later year and recording different finding – Finding for earlier year not conclusive.
Ace Investments (P) Ltd. Vs CIT (Mad) 244 ITR 166

If the previous decision is plainly erroneous, there is a duty of the Court to review it and not perpetuate the mistake ie. a vital point was not considered OR when an earlier relevant statutory provision had not been brought to the notice of Court.
Union of India & Anr. Vs Raghubir Singh (SC) 178 ITR 548
Sri Agasthyar Trust Vs CIT (SC) 236 ITR 23
Sriram Transport Finance Co. Ltd. Vs ACIT (ITAT, Mad) 70 ITD 406

If there is conflict between the two decisions of Supreme Court the one decided by a larger Bench is binding – If both decisions are rendered by Bench consisting of equal number of judges, the later decision is binding.
Govindanaik Vs West Patent Press Co. Ltd. AIR 1980 Kar 92 (FB)
Bhika Ram & Ors. Vs Union of India & Ors.(Del) 238 ITR 113

Later judgement explaining earlier judgement – cannot be disregarded.
CGT Vs Arunbhai Hargovandas Patel (Guj) 264 ITR 586

Cases which are over ruled should not be quoted.
CIT Vs Dugdh Utpadak Sahkari Sangh Ltd. (All) 277 ITR 35

Third Member decision and Special bench decision of ITAT are of the same nature
DCIT Vs Oman International Bank SAOG ( ITAT, Mumbai – SB ) 100 ITD 285

Where contrary views are held by Third member and Special bench, view of Special bench takes precedence
DCIT Vs Padam Prakash (HUF) (ITAT, Del-SB) 104 ITD 1

Rejection of SLP does not mean that decision of HC has been approved.
CIT Vs Quality (Pat) 224 ITR 77
CIT Vs Shree Manjunatheswara Packing Products & Camphor Works (SC) 231 ITR 53
J.K Charitable Trust Vs WTO & Ors. (All) 222 ITR 523

Dismissal of appeal simpliciter – Not a declaration of law – No binding precedent
CIT Vs Geetha Ramakrishna Mills P. Ltd. (Mad) 288 ITR 489
S. Shanmughavel Nadar Vs State of Tamil Nadu & Anr. (SC) 263 ITR 658
Kunhayammed & Ors. Vs State of Kerala & Anr. (SC) 245 ITR 360
Saurashtra Oil Mills Assn., Gujarat Vs State of Gujarat & Anr. 2002 AIR 1130 SC

Special Leave petition dismissed with speaking order – Declaration of law by Supreme Court
After rejection of SLP, lower Courts can review its order
Once SLP is admitted, lower Courts have no jurisdiction to review the order
Kunhayammed & Ors. Vs State of Kerala & Anr. (SC) 245 ITR 360

Lower authority bound by order passed by higher authority
CIT Vs Ralson Industries Ltd. (SC) 288 ITR 322
Nokia Corporation Vs DIT (Int. Taxation) (Del) 292 ITR 22

Obiter dictum is expression of opinion on a point which is not necessary for the decision of a case. Obiter dictum of Supreme Court binding on all the High Courts
Tata Iron & Steel co. Ltd. Vs D.V. Bapat, ITO & Anr. (Bom) 101 ITR 292

Essence of a decision is its ratio decedendi and not every observation found therein – the concrete decision alone is binding – Obiter dictum not binding
Union of India Vs Dhanwanti Devi (1996) 6 SCC 44 pp. 96
CIT Vs Sun Engineering Works Pvt. Ltd. (SC) 198 ITR 297

Impact of ITAT order extends to only its jurisdiction
Saipem S.P.A. Vs DCIT (ITAT, Delhi) 86 ITD 572

Decision of High Court binding on Income Tax authorities
Om Prakash Trivedi Vs Union of India (All) 287 ITR 11

Single Judge cannot give a decision contrary to earlier judgement by a
Division Bench
Mehta Vegetables P. Ltd Vs Union of India & Anr.(Raj) 235 ITR 425

Decision of one High Court not binding on another High Court – Not binding on Tribunal in other States.
Patil Vijayakumar and Ors. Vs Union of India & Anr.(Kar) 151 ITR 48

Decision of High Court binding on Tribunal within its territorial jurisdiction.
Taylor Instrument Co.(India) Ltd Vs CIT (Del) 232 ITR 771
CIT Vs Mohan Lal Kansal (P & H) 114 ITR 583
Jorehaut Group Ltd. Vs ACIT (Gau) 289 ITR 422

Decision of High Court not binding on Tribunals outside its territorial jurisdiction.
Geoffrey Manners & Co. Ltd. Vs CIT (Bom) 221 ITR 695

Where there is only one decision of a H.C. on a particular point and there is no decision of any other H.C. contrary to that decision, Tribunal has to follow that view, not withstanding fact that its earlier Bench had taken a view contrary to that of H.C. on that point.
CIT Vs Godavridevi Saraf (Bom) 113 ITR 589
ITO Vs P.M. Suthar (ITAT, Ahd-TM), 53 ITD 1
Lakshmi Precison screws Ltd Vs DCIT (ITAT, Del) 59 ITD 295

Law declared by Supreme Court is binding on all courts including ITAT & CIT(A) and not Board's Circular contrary to it.
American Expresss Bank Ltd. Vs DCIT (ITAT, Mum) 65 ITD 67

Against similar decision of High Court, no appeal was preferred – Does not affect the appeal preferred in other cases, if public interest is involved
State, CBI Vs Sashi Balasubramanian (SC) 289 ITR 8

" Per incurium " defined – When an order is passed ignoring the provisions of the statute or binding precedents
CIT Vs B.R. Constructions (AP) 202 ITR 222