A declaration filed under Voluntary Disclosure of Income Scheme, 1997, whic

A declaration filed under Voluntary Disclosure of Income Scheme, 1997, which is not valid for purposes of scheme, can constitute material for reassessment under section 148 - [2011] 10 taxmann.com 110 (Punj. & Har.)

CASE LAWS

Applications for the posts of Director/DS/Under Secretary in the CBDT;

2011-TIOL-400-HC-AHM-IT

Manharbhai Muljibhai Kakadia Vs UoI (Dated: May 4, 2011)

Income tax – Sections 119(2)(a), 234A, 234B, 234C, Circular dated 23.5.1996 and 26.06.2006 – Whether the assessee is entitled to waiver of interest u/s 234B & 234C relying on the circular dated 23.05.2006 in which waiver is given on account of non-adjustment of seized cash by the department against the tax liability though at the time of making of application of waiver such circular was superseded by circular dated 26.06.2006 in which no such waiver was permitted. - Assessee's appeal dismissed : GUJARAT HIGH COURT;

2011-TIOL-391-ITAT-AHM + venture story

ITO, Ahmedabad Vs Gujarat Information Technology Fund (Dated: May 27, 2011)

Income Tax - Section 10(23FB) - SEBI Regulations - 8, 12, 30 - Whether an assessee, which is registered as trust and fulfills all the requirements of section 10(23FB) and also satisfies the pre and post condition of SEBI Regulations 8 and 12 and has not received any notice under regulation 30 can be termed as venture capital fund - Whether conditions specified in SEBI regulation and section 10(23FB) are pari-materia and hence compliance of one establishes the compliance of other. - Revenue's appeal dismissed : AHMEDABAD ITAT;

2011-TIOL-390-ITAT-MUM

M/s Gujrat Organics Ltd Vs ACIT, Mumbai (Dated: February 9, 2011)

Income tax – Sections 14A, 145A - Capital or Revenue Expenditure – Whether, if assessee fails to include excise element in the value of closing stock, it calls for disallowance - Whether the disallowance is rightly made u/s 14A by applying rule 8D prior to the amendment – Whether the expenses incurred on repair and maintenance of assets which results in no new asset are revenue expenditure. - Assessee's appeal partly allowed : MUMBAI ITAT;

2011-TIOL-389-ITAT-MUM

ACIT, Mumbai Vs M/s JPS Associates (Dated: February 25, 2011)

Income Tax - Section14 - Whether income earned from letting of office premises is taxable under the head "income from house property' - Whether higher charges received on account of exploitation of computers and office premises are taxable under the head business income on the basis of principle of consistency - Revenue's appeal dismissed : MUMBAI ITAT;

2011-TIOL-388-ITAT-MUM

M/s P A Chacko Muthalaly Vs ACIT, Mumbai (Dated: March 4, 2011)

Income Tax - Sections 80(O), 80RRA, 80RRA(2)(ii) - Whether, to avail Sec 80RRA benefits, it is necessary for the assessee to undertake a foreign travel - Whether assessee is eligible for benefits even if the technical services provided by the assessee are not approved by the Govt. - Assessee's appeal dismissed : MUMBAI ITAT;

Assessee is required to disclose primary facts and not inference which is t

Assessee is required to disclose primary facts and not inference which is to be drawn from such primary facts

Income earned from sale of agricultural land converted into residential plo

Income earned from sale of agricultural land converted into residential plots without any development is assessable as capital gain - [2011] 10 taxmann.com 90 (Hyd. - ITAT)

Income derived by applicant under contracts with ONGC & Cairn Energy for pr

Income derived by applicant under contracts with ONGC & Cairn Energy for processing & interpretation of seismic data is to be computed by applying s. 44BB

Income-tax : Activities of the applicant fit into description of section 44BB demanding computation of its income in accordance with this provision [Section 44BB of the Income-tax Act, 1961 - Non-residents - Mineral oil, business for prospecting/exploration, etc., in case of] - [2011] 10 taxmann.com 103 (AAR - New Delhi)

148 notice, even if unserved, is valid & second s. 148 notice issued to meet a

Sanjay Kumar Garg vs. ACIT (ITAT Delhi)

S. 148 notice, even if unserved, is valid & second s. 148 notice issued to meet assessee's claim of non-service, is invalid & renders assessment void

For AY 2001-02 (and other years), the AO recorded reasons for reopening of assessment on 22.9.05 and issued s. 148 notice on 23.9.05. The notice was sent through speed post and was not returned undelivered. Though the assessee appeared before the AO on several occasions and wrote letters, he claimed vide Affidavit that the s. 148 notice was not received by him. Pursuant to the assessee's claim, the AO issued another notice dated 25.9.06 u/s 148 and an assessment order u/s 143(3)/147 was passed on 24.12.2007. The assessee challenged the reassessment on the ground that (i) with respect to the s. 148 notice dated 23.9.05, the assessment order passed on 24.12.07 was time-barred and (ii) with respect to the s. 148 notice dated 25.9.06 that it could not have been issued during the pendency of the first notice. The department argued that as the assessee had claimed that he had not received the first notice dated 23.9.05, only the second notice could be considered and if so, the assessment was valid. HELD allowing the appeal:

(i) Though the assessee claimed by affidavit that he had not received the first s. 148 notice (and that formed the basis of the second 148 notice), as the first notice was sent by speed post as permitted by s. 282, it is presumed to have been duly served upon the assessee and was valid;

(ii) There is a difference between "issue" and "service". To obtain jurisdiction to assess/reassess the escaped income, the s. 148 notice has to be "issued" but need not be "served". Service is not a condition precedent to conferment of jurisdiction on the AO but a condition precedent only to the making of the order of assessment. The word "issue" means that the notice must leave the custody of the AO and as the Post Office is not the department's agent, sending it by post completes "issue". Accordingly, though the first notice was not (according to the assessee & department) served on the assessee, the AO was vested with power to assess/reassess the escaped income (R. K. Upadhyaya 166 ITR 163 (SC) & Sheo Kumari Debi 157 ITR 13 (Pat) (FB) followed);

(iii) With regard to the second notice, as the first s. 148 notice was valid and reassessment proceedings were pending, the second s. 148 notice is a `nullity'. Unless the reassessment proceedings initiated u/s 147 are concluded & brought to a logical end, the AO cannot issue fresh notice u/s 148. This is not an "irregularity" but a "nullity" (Ranchhoddas Karsandas 26 ITR 105 (SC) & Jai Dev Jain 227 ITR 301 (Raj) followed);

(iv) The result is that the limitation period has to be reckoned with reference to the first notice dated 23.09.05 as per which the assessment order dated 24.11.07 is beyond time.

See Also Mayawati vs. CIT 321 ITR 349 (Del) where the distinction between "issue" & "service" in s. 148 was considered. But also see Balwant Rai Wadhwa vs. ITO (ITAT Delhi) where it was held that apart from the notice, even the recorded reasons had to be served on the assessee within the limitation period

Related Judgements

Mayawati vs. CIT (Delhi High Court) S. 149, which imposes the limitation period, requires the notice to be "issued" but not "served" within the limitation period. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the AO to proceed to reassess. Service is not a condition precedent to conferment of…

Ashoka Buildcon vs. ACIT (Bombay High Court) In CIT vs. Alagendran Finance 293 ITR. 1 (SC) it was held that the doctrine of merger does not apply where the subject matter of reassessment and original assessment is not one and the same. Where the assessment is reopened on a specific ground and the reassessment is…

Balwant Rai Wadhwa vs. ITO (ITAT Delhi) U/s 149(1)(b) a notice u/s 148 cannot be issued after the issue of 6 years from the end of the AY. In Haryana Acrylic vs. CIT 308 ITR 38 it was held that a notice u/s 148 without the communication of the reasons there for is meaningless inasmuch as…

Salary received by partner in a firm even though as a karta of HUF is allow

Salary received by partner in a firm even though as a karta of HUF is allowable as deductions while computing income of firm - [2011] 10 taxmann.com 82 (All.)

In case assessee fails to explain source & nature of cash credits, AO would

In case assessee fails to explain source & nature of cash credits, AO would be justified in invoking provisions of section 68 - [2011] 10 taxmann.com 98 (Coch. - ITAT)

LEGALLY SPEAKING [Real property]

LEGALLY SPEAKING

GAJANAN KHERGAMKER

CHECK FOR ENCUMBRANCES AND SNAGS, WHILE OPTING FOR A RESALE HOME

I am a first-time buyer, opting for a resale home. However, I am unclear about the documents that need to be in place. I do not want to be caught up in a legal tangle. Is there any checklist of documents, to ensure that no issues arise later?

Aparna Mohite

The prerequisites, vis-à-vis legal documents, for a resale home are more or less similar to that of a new home. Nevertheless, the buyer needs to verify a few more issues. The buyer needs to check whether the property has been mortgaged, to any financial institution or body and if all previous arrears are settled, in full.

Very often, home owners opt for larger homes, in locations other than their prevailing home. Although a resale home may not have the kind of amenities available in newer housing projects, the price that the potential home buyer pays for the resale home is a lot lesser than a new property. However, the buyer needs to be cautious and check whether the amenities that the seller has mentioned actually exist. For example, the seller may offer parking space, which may turn out to be an encroachment on public area.

While opting for a resale home, buyers also need to check the home's condition, right from the walls, to the flooring. Preferably, seek the help of an architect, who should draw out an estimate of repair costs, which could be considered before making any final payments to the seller. Also, there have been numerous cases where home owners have sold properties to unassuming buyers, who are left squabbling over ownership rights with contesting family members. Hence, prospective buyers should thoroughly check whether the present owner has a legal right to sell the house and whether all previous dues have been settled and that the title is clear of any issue that may arise later.

In case, the house is part of a housing society, it is important for the resale to be reflected in the records of the housing society, with appropriate changes in ownership name, to register a valid resale. The resale is said to be completely endorsed, when the maintenance bills begin arriving in the name of the buyer. Once the issues relating to title and condition of the home are properly settled, the purchase of a resale home could well be a worthwhile transaction, considering that the price could be substantially lower, as compared to a new property.

Transfer of shares by a foreign company to its wholly owned Indian subsidiary no

Transfer of shares by a foreign company to its wholly owned Indian subsidiary not taxable in India

Praxair Pacific Limited (PPL ), a company incorporated in Mauritius, proposes to transfer its 74% equity stake in Jindal Praxair Oxygen Company Private Limited (JPOCPL) to its wholly owned subsidiary in India, Praxair India Private Limited (Praxair India). The consideration for the proposed transfer is stated to be determined on the basis of cost, unless a higher consideration is required under the pricing guidelines prescribed by the Reserve Bank of India as applicable for transfer of shares.
Issues before the AAR

» Whether the investment held by PPL in equity shares of JPOCPL would be considered as "capital asset" under section 2(14) of the Income-tax Act, 1961 ("ITA")?
» Whether transfer of JPOCPL from PPL to its wholly owned subsidiary Praxair India would be liable to tax in India in view of the exemption under section 47(iv) of the ITA?
Exemption under section 47(iv) of the ITA is available if the capital asset is transferred by a holding company to its wholly owned Indian subsidiary.

» Whether PPL would be entitled to the benefits of the India – Mauritius Tax Treaty ("Treaty") and whether the gain arising to PPL would be liable to tax in India having regard to the provisions of Article 13 of the Treaty?
» Whether the gains arising to PPL from the sale of equity shares of JPOCPL would be taxable in India in the absence of Permanent Establishment ("PE") of PPL in India in light of the provisions of Article 7 read with Article 5 of the Treaty?
» Whether PPL would be liable to Minimum Alternate tax under the ITA?
» Where the gains arising to PPL on account of the proposed transfer is not taxable in India under the Act or the Treaty, whether Praxair India, the transferee company, is required to withhold tax in accordance with the provisions of section 195 of the ITA?
» If the gains are not taxable in India, whether PPL is required to file any return of income of income under section 139 of the ITA? This question was not pressed by PPL.
» Whether the proposed transfer of equity shares by PPL to Praxair India attracts the transfer pricing provisions of section 92 to 92F of the ITA?
Contention of the applicant

» The shares held by PPL in JPOCPL are not held as stock-in-trade but represent investments and thus should be classified as a capital asset.
» As PPL proposes to transfer its equity shareholding in JPOCPL to Praxair India, its wholly owned subsidiary in India, the provisions of section 47(iv) of the ITA are fulfilled. Gains, if any, on the transfer of equity shares in JPOCPL would not be taxable in India.
» PPL would not be liable to tax book profits or Minimum Alternate tax under the ITA as the provisions of section 11 5JB would be applicable only to domestic companies and not to foreign companies.
» The gains from the proposed transfer of shares in JPOCPL by the Applicant would not be taxable in India as capital gains or business income in the light of the treaty.
» In case the proposed gains are not considered as capital gains but as business income, such business income will not be taxable in India since PPL does not have a PE in India.
Observations / Rulings of the AAR

» The shares in JPOCPL have been held as "Non-current assets – investment in subsidiaries" since 1995 and were never a subject matter of any transaction till date. As the shares were not held as stock in trade, the nature of the investment in these shares is held to be a "capital asset" as defined in section 2(14) of the ITA.
» As PPL proposes to transfer its equity share holding in JPOCPL to Praxair India which is its wholly owned subsidiary in India, the conditions under section 47(iv) of the ITA are fulfilled and hence the gains if any arising on transfer would not be taxable in India.
» As PPL is tax resident of Mauritius and has been issued Tax Residency Certificate by the Mauritius Revenue Authority, it would not be subjected to tax in India on the capital gains arising from the proposed transaction in India under the Treaty.
» The annual accounts of the applicant cannot be prepared in accordance with Schedule VI of the Companies Act 1956. The provision under the ITA relating to Book Profits Tax is not designed to be applicable to a foreign company which has no presence or PE in India. The AAR relied on its ruling in the case of Timken USA (AAR 836 of 2009) where it was held that under the Companies Act 1956 only such foreign companies who have established a place of business within India are required to make out a Balance Sheet and Profit and Loss account as required under the said Act.
» Sections 11 5JB of the ITA is not attracted in the case of PPL.
» The transfer pricing provisions of section 92 to 92F of the ITA would not be attracted in the absence of liability to pay tax on the capital gain.

Conclusion:-Gains from the transfer of shares by a Mauritius company to its wholly owned subsidiary in India would not be taxable in India either under the ITA. The AAR has also reiterated the benefit of the India- Mauritius tax treaty would be available to PPL as it had adequate tax residency certificate issued by the Mauritius Revenue Authority. Further, the gains from such transfer would not be subject to Minimum Alternate Tax as the provisions under the ITA governing such tax do not apply to a foreign company that has no presence or PE in India

Source: M/s. Praxair Pacific Limited (A.A.R. No. 855/2009 dated 23 July 2010)