ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 17-5-2010 Volume 3 : Part 3

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 17-5-2010

Volume 3 : Part 3

 

 

REPORTS

>> Disallowance for personal expenses on ad hoc basis without discussion , not proper : Dy. CIT v. Sophisticated Marbles and Granite Industries (Delhi) p. 220

>> Where borrowals transferred interest free to sister concern for purchase of land for business of company and brand name, interest on borrowed capital allowable u/s. 36(1)(iii) : Dy. CIT v. Sophisticated Marbles and Granite Industries (Delhi) p. 220

>> Where assessee supplying manpower to clients and received payments from clients, expenses incurred for business purposes allowable : Dy. CIT v. Ankur Mahalwala (Delhi) p. 229

>> Arrears of mobile phone allowance and expenses towards mobile phone connection provided to employees disallowable to extent of Rs.10,000 : Dy. CIT v. Ankur Mahalwala (Delhi) p. 229

>> Long-term capital loss with indexation can be set off against long-term gains without indexation after determining tax following proviso u/s.112 : Keshav S. Phansalkar v. ITO (Mumbai) p.236

>> Where goods imported without duty under exemption certificate in earlier year and customs duty paid capitalised, depreciation allowable u/s. 32 : Dy. CIT v. Orient Ceramics and Industries Ltd. (Delhi) p. 246

>> Expenses incurred for glow sign boards not capital expenditure : Dy. CIT v. Orient Ceramics and Industries Ltd. (Delhi) p. 246

>> Sixty per cent. deprecation allowable on UPS, an integral part of computer : Dy. CIT v. Orient Ceramics and Industries Ltd. (Delhi) p. 246

>> Notice of reassessment can be issued only after expiry of time-limit for initiating proceedings u/s. 143 : Super Spinning Mills Ltd. v. Asst. CIT (Chennai) p. 258

>> Where no inference that assessee not maintaining books of accounts, direction to grant renewal of recognition : N U Trust v. DIT (Exemptions) (Bangalore) p. 290

>> TDS : Fees collected for use of infrastructure facilities from members by stock exchanges not fees for technical services : Dy. CIT v. Angel Broking Ltd. (Mumbai) p. 294

>> Where order accepting sale price and allowing set off prejudicial to Revenue, revision of order valid : S. Manickavasagam v. ITO (Chennai) p. 304

>> Income from sub-lease not constituting business, assessable as income from other sources : Ocean City Trading (India) P. Ltd. v. ITO (Mumbai) p. 311

>> Where assessee failed to explain expenditure on staff training and salary for business purpose , expenditure not deductible : Ocean City Trading (India) P. Ltd. v. ITO (Mumbai) p. 311

NEWS-BRIEFS

>> Direct Taxes Code likely to offer good value for individual savings

The proposed Direct Taxes Code (DTC) is likely to retain the exempt-exempt-exempt (EEE) regime for taxation of individual savings, as the exempt-exempt-tax (EET) regime may not gain approval.

In the current EEE regime, savings are exempt from tax in all the three stages: contribution, accretion and withdrawal. The EET method, which is considered to be the best global practice for taxation of savings, allows exemption at the first two stages, but provides for a tax on withdrawals at the personal marginal rate.

Government sources said that the via-media option of exempting withdrawals up to a certain threshold and taxing higher amounts could make things complex and invite charges of discrimination. The idea is that the administered interest rate for small savings - which is a tad above the fixed term deposits of banks - causes distortions. Analysts feel it would be pre-mature to suggest a change in the method of taxation of savings at this juncture, as accretion to savings is linked to interest rates. Another factor that weighs on the mind of policymakers is that since the intended purpose of the DTC is to make tax laws simpler, making a distinction between low and high savings could go against its very purpose.

According to the proposed DTC, the permitted savings intermediaries that were proposed to come under the EET regime were approved provident funds, approved superannuation funds, life insurer and the New Pension System Trust. Though the draft code had clarified that only new contributions to the saving schemes after the introduction of the DTC would be subject to the EET method of taxation, tax experts feel that the EET regime of taxing the savings would not be appropriate for the country at this point of time, since social security systems are still not robust. [Source : www.financialexpress.com dated May 5, 2010]

 

>> Discretion of the Assessing Officer germane to the statute applied

In an order highly critical of the Income-tax Department, the Bombay High Court has pulled up the Department for its "cavalier" approach and on the way tax issues are decided by the Department "without application of mind". The order was pronounced last week by Justice DY Chandrachud and Justice JP Devadhar.

The Division Bench made these observations in an order on a writ petition filed by an engineering major, which had moved court after the Commissioner of Income-tax rejected its petition for a lower rate of tax-deducted-at-source (TDS). The Commissioner had reportedly said that even if excess tax was deducted at source, the taxpayer would come to no harm as he (the taxpayer) is bound to get his money back with interest.

The High Court found the Commissioner's reasoning unacceptable. "We are constrained to observe that the application filed by the assessee has been rejected in a rather cavalier manner and without application of mind to circumstances which are germane to the statute," said the court.

The case is related to a direction from the I-T Department for a lower rate of TDS, which was rejected by the Assessing Officer on the ground that the assessee had failed to furnish figures for the past three years. The company then filed a revision application with the Commissioner of Income-tax.

The High Court found it impossible to accept the view that rejection of an application under section 197 is not an order. Besides, the High Court also noted that the Assessing Officer did not furnish any valid reason for rejecting the application.

The court also made reference to a system that allows discretion of the Assessing Officer, even if the applicant fulfills all the stipulated conditions. [Source : www.economictimes.com dated May 8, 2010]

 

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MEDICAL FACILITIES FOR RETIRED EMPLOYEES

With the intention that any our retired member can be benefited.

MEDICAL FACILITIES FOR RETIRED EMPLOYEES

FACILITIES FOR RETIRED EMPLOYEES

'RETIRED EMPLOYEES CAN SUE GOVT FOR NEGLIGENCE UNDER CGHS'

The verdict, read with a ruling of the SC in 1995 that in-service Central Government employees are consumers under the Central Government Health Service Scheme, now catgorieses the entire working and retired work force as consumers, as far as health care is concerned under the scheme

Lakhs of retired central government employees can rejoice as the apex consumer forum has held them to be the consumers under the CGHS scheme, thus conferring a right on them to sue the Center for damage in case of deficiency in health care provided to them and their dependents.

This was unanimous decision of a full Bench of the National Consumer Disputes Redressal Commission (NCDRC) comprising its president Justice M.B.Shah, members Rajyalakshi Rao, B.K. Taimni, Justice K.S.Gupta, Justice S.N. Kapoor and P.D.Shenoy. This verdict, read with a ruling of the Supreme Court in 1995 that in-service central government employees are consumers under the Central Government Health Scheme (CGHS). now categorises the entire working and retired work force of the Central Government as consumers, as far as health are is concerned under the scheme.

The question before the NCDRC was "whether a pensioner and beneficiary of the CGHS would be a consumer under the provisions of Consumer Protection Act, 1986, for alleged deficiency in service by the CGHS Medical Officer".

Answering in the affirmative, NCDRC said medical treatment facilities extended to a retired under CGHS could not be termed as 'free service' as it was in consideration of service rendered by him to the government till the age of superannuation, which conferred a right on him to get pension as well as other benefits, including medical treatment prescribed by various rules or the schemes framed by the Center.

"Such employee would be a consumer as defined in Section 2(1)(d)(ii) of the Consumer Protection Act," said Justice Shah , writing for the Bench. Explaining the reason behind the conclusion that would make the retired employees feel less neglected, the NCDRC said service rendered by the government employees before retirement would be "consideration" for providing medical facilities to him or his family members.

"Hence, it cannot be said that the hospital which is subsidized by the government is rendering service free of charge," it said.

The NCDRC verdict came on a petition filed by retired employee Jagdish Kumar Bajpai, throgh advocate Nikhil Nayar, claiming that he was refused medicines for his wife by the CGHS dispensary in Kanpur. He also claimed damages to the tune of Rs. 4 lakh alleging that his wife died due to the negligence of the medical officer.

(The above news item appeared in Ahmedabad Edition of Times of India dated November 7, 2005 - Needless to say that this verdict is relevant to the working and retired employees of ONGC as the Central Government Medical Attendance Rules also apply on ONGC.)


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ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 19-4-2010 Volume 2 : Part 7

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
ISSUE DATED 19-4-2010
Volume 2 : Part 7  

 

 

REPORTS

> Where valid data supported by appropriated documentation furnished for the project regarding administrative expenses, deletion of addition justified : ITO v. B. Nagi Reddy (Chennai) p. 730

 

> Deduction of premium on secured premium notes allowable u/s. 36(1)(iii) : Jt. CIT v. Bombay Dyeing Mfg. Co. Ltd. (Mumbai) p. 733

 

> AO has no jurisdiction to reopen case for AY 1998-99 under proviso to s. 14A : Jt. CIT v. Bombay Dyeing Mfg. Co. Ltd. (Mumbai) p. 733

 

> Advances adjusted against professional fees, in absence of contract for any film, not assessable as income : R.S. Suriya v. Dy. CIT (Chennai) p. 746

 

> Where TDS prior to due date u/s. 139(1) deduction of payment by actor to organisation for managing call sheets allowable u/s. 40(a)(ia)(A) : R.S. Suriya v. Dy. CIT (Chennai) p. 746

 

> Higher rate of depreciation allowable on wind mill as requirement of second proviso to r. 5(1A) fulfilled : K. Ravi v. Asst. CIT (Chennai) p. 752

 

F Immovable property devolving on assessee and her children, children

relinquishing share in favour of assessee cannot be deemed gift for purposes of computing cost of acquisition : M. Suseela v. ITO (Vishakhapatnam) p. 760

 

> Loss on account of transactions in shares and transactions of future options is speculative loss : Renaissance Asset Management Co. P. Ltd. v. AO (Delhi) p.765

 

> Appeal filed after ten years without reasonable cause : delay cannot be condoned : Foramer France v. Dy. CIT (Delhi) p. 773

 

> Payment of incentive to Dock Labour Board workers disallowed u/s.37 : Sical Logistics Ltd. v. Dy. CIT (Chennai) p. 786

 

> Assessee claiming deduction u/s 80-O for interest income is liable to penalty u/s. 271(1)(c) : Asst. CIT v. Surinder Lal Chopra (Delhi) p. 790

 

NEWS-BRIEFS

> Finmin work in haste to give final shape to direct taxes code

The Finance Ministry has set up a task force to draft the Bill, by almost doubling the strength of its revenue officials working on the Direct Taxes Code, as it is running against time to present it in the monsoon session of Parliament. The Government has posted seven Commissioners and Joint Commissioners of income-tax as Officers on Special Duty (OSD) in Tax Policy Legislation (TPL), a division of the Central Board of Direct Taxes (CBDT).

With the addition of seven officials in two rounds (three in first round and four in the second), it has now 17 officials to finalise the architecture of the code. The newly deputed officials are busy giving shape to the Direct Tax Bill.

The Finance Minister has assured the industry that the Government is open to re-examining the proposals relating to the Minimum Alternate Tax (MAT), capital gains tax, Double Taxation Avoidance Agreement (DTAA), general anti-avoidance rule, taxation of charitable organisations and foreign companies in India, exempt-exempt-tax regime, deductions in case of retirement benefits and income from house property. Apart from the nine areas identified by the Finance Minister, the taskforce was looking at various parts of the draft code.

The Government is planning to implement the Direct Taxes Code in April 2011. It will replace the Income-tax Act, 1961. The Finance Ministry will have to get the Bill vetted by the Law Ministry before it takes it to Parliament. [Source : www.businessstandard.com dated April 9, 2010]

 

 

> Aayakar Sewa Kendra Pune receives ISO certification

The nodal agency for implementation of Sevottam scheme, and the Aayakar Sewa Kendra (ASK) unit at Pune has received certification under IS 15700 : 2005 from the Bureau of Indian Standards for excellence in public delivery system after audit of the Directorate of Organisation and Management Services (DOMS) along with the Central Board of Direct Taxes (CBDT) and the Income-tax Department.

ASK is a one stop computerized center for the taxpayers to obtain services promised by the Department in its Citizens' Charter in a time bound manner. ASK provides a front office backed by re-engineered processes and a new outlook of the officials to quickly redress grievances of taxpayers and also to prevent grievances. The first ASK was inaugurated in Pune on May 18, 2009, followed by two more ASKs at Kochi and Chandigarh.

IS 15700 : 2005 requires a public service organization to demonstrate its ability to consistently provide effective and efficient service that meets customer and applicable legal, statutory and regulatory requirements. It aims to enhance customer satisfaction and to continually improve its service and service delivery process. [Source : www.pib.nic.in dated April 6, 2010]

 

> CBDT move to early resolution of tax case disputes

The Central Board of Direct Taxes (CBDT) has brought all the dispute resolution panels (DRP) under the supervision of the Director-General of Income-tax (International Taxation).

Budget 2009-10 had introduced the concept of DRPs to provide an alternate dispute resolution mechanism to facilitate expeditious resolution of disputes on a fast track basis. This facility was made available only to foreign companies.

Official sources said that the latest move to "subordinate" the 10 DRPs (Delhi-2, Mumbai-2, one each in Pune, Hyderabad, Chennai, Kolkata, Bangalore and Ahmedabad) to the Director-General of Income-tax (International Taxation) should be seen as a step for administrative purposes only.

The larger objective of independence and functioning of the panel as a dispute resolution body need to be subserved. The day-to-day functioning of the panel should not be subordinated to a meticulous scrutiny of an administrative authority, said a partner in tax services. [Source : www.hindubusinessline.com dated April 8, 2010]

 

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Government introduce a new Medical Scheme for Central Government Employees and Pensioners

13 February 2010

Government introduce a new Medical Scheme for Central Government Employees and Pensioners

Government introduce a new Medical Scheme for Central Government Employees and Pensioners as in the name of Central Government Employees and Pensioners Health Insurance Scheme (CGEPHIS). In all over India, pensioners are getting meager amount of Rs.100 as Medical Allowance (except CGHS beneficiaries). It is estimated that approximately 17 lakh serving employees and 7 lakh pensioners shall be offered this Scheme and Government plan to enroll all serving employees and pensioners on compulsory / optional basis.

Some key points regarding the scheme:-

CENTRAL GOVERNMENT EMPLOYEES AND PENSIONERS HEALTH INSURANCE SCHEME (CGEPHIS)

BENEFICIARIES:
CGEPHIS shall be compulsory to new Central Government Employees who would be joining service after the introduction of the Health Insurance Scheme.

CGEPHIS shall be compulsory to new Central Government retirees who would be retiring from the service after the introduction of the Insurance Scheme.

CGEPHIS would be available on voluntary basis for the following:
Existing Central Government Employees and Pensioners who are already CGHS beneficiaries. In this case they have to opt out of CGHS scheme. They will also have the option of choosing both CGHS and Insurance policy. In such case the total insurance premium has to be borne by the member.

Existing Central Government Employees and Pensioners who are not CGHS beneficiaries but are covered under CS (MA)

INSURANCE COVERAGE:
In-patient benefits – The Insurance Scheme shall pay all expenses incurred in course of medical treatment availed of by the beneficiaries in an Empanelled Hospitals/ Nursing Homes (24 hours admission clause) within the country, arising out of either illness/disease/injury and or sickness.

NOTE: In case of organ transplant, the expenses incurred for the Donor are also payable under the scheme.

Pre & Post hospitalization benefit: Benefit up to 30 days Pre Hospitalization & up to 60 days Post Hospitalization respectively which would cover all expenses related to treatment of the sickness for which hospitalization was done.

FAMILY SIZE:
Serving/Retired Employees: Self, Spouse, Two dependent children and up to Two Dependent Parents. New born shall be considered insured from day one till the expiry of the current policy irrespective of the number of members covered subject to eligibility under maternity benefit.

Any additional dependent member in addition to above [Sr. No. 5 (1)] can be covered under the Scheme by paying the fixed amount of premium. This additional full premium shall be borne by the beneficiary.

IDENTIFICATION OF FAMILY:
Beneficiaries shall be identified by a "Photo Smart Card" issued by the insurer to all beneficiaries which would have all personal details, medical history, policy limits etc. of the CGEPHIS members. This card would be used across the country to accessHealth Insurance Benefits. The photograph embedded in the chip of the Smart Card will be taken as the proof for determining the eligibility of thebeneficiaries.

SUM INSURED AND BUFFER / CORPORATE SUM INSURED
SUM INSURED:
The Scheme shall provide coverage for meeting all expenses relating to hospitalization of beneficiary members up to Rs. 5, 00,000/- per family per year in any of the Empanelled Hospital/Nursing Home/Day Care Unit subject to stated limits on cashless basis through smart cards. The benefit shall be available to each and every member of the family on floater basis i.e. the total reimbursement of Rs. 5.00 lakh can be availed by one individual or collectively by all members of the family.

Entitlements for various types of wards: CGHS beneficiaries are entitled to facilities of private, semi-private or general ward depending on their pay drawn in pay band / pension. These entitlements are amended from time to time and the latest order in this regards needs to be followed. The entitlement is as follows:-

Pay drawn in pay band/Basic Pension - Entitlement
Rs. 13,950/-(up to)……………………………… General Ward
Rs. 13,960/- to 19,530/- …………………… Semi-Private Ward
Rs. 19,540/- and above ……………………… Private Ward

CASHLESS ACCESS SERVICE:
The Insurer has to ensure that all CGEPHIS members are provided with adequate facilities so that they do not have to pay any deposits at the commencement of the treatment or at the end of treatment to the extent as the Services are covered underthe Scheme . The service provided by the Insurer along with subject to responsibilities of the Insurer as detailed in this clause is collectively referred to as the "Cashless Access Service."

The services have to be provided by the Empanelled Hospitals/Nursing Homes/Day Care Clinics to the beneficiary based on Photo Smart Card authentication only without any delay. Thebeneficiaries shall be provided treatment free of cost for all such ailments covered under the Scheme within the limits/sub-limits of defined package rates and sum insured, i.e., not specifically excluded under the scheme.
ENROLMENT PROCESS
The process of enrolment shall be as under:
Serving Employees:
1. Departments and offices will call for options from employees to join voluntary CGEPHIS with or without existing CGHS/CS (MA) benefits.

2. Head of Department of the Administrative Ministry/Department would be the contact point for the Insurance Companies.

3. Enrolment forms giving details about self and family and authorization to the department for recovery of premium on a monthly basis would be consolidated by the Administrative Ministry / Department. The data of the beneficiary and dependent members to be covered along with 2 recent passport size photo and copy of enrolment form will be forwarded to Insurance Company on monthly basis.

4. Insurance Company will issue Smart Cards on the basis of information received of the beneficiaries for enrolment.

5. Such Smart Cards along with the enrollment kit shall be sent by the insurers directly to the insured persons at their respective mailing addresses at insurer's cost within 7 days.

Insurance Premium:-
The beneficiary will have to pay an annual premium which will be determined after the formal introduction of the Scheme. It will vary according to the grade pay of the officer. The estimated annual premium for a standard family size will be in the range of Rs.8000 to Rs.12000 p.a. It is however proposed to be subsidized by the Government to a considerable extent.

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Before due date simply refers and means that not after the expiry of due date

Before due date simply refers and means that not after the expiry of due date; if the requisite act is done before the last day expires then it will be simply said that before due date; when the time of filing the return is available to the assessee till the last moment of the due date then the whole of that day is available to the assessee and due date expires only when the last day is expired; as such the option exercised on the due date is nothing but before the due date as the same is not after the due date.

CASE LAWS DETAILS

DECIDED BY: ITAT, BENCH `D', CHENNAI, IN THE CASE OF: K. K. S. K. Leather Processors (P.) Ltd. v. ITO, APPEAL NO: ITA No. 826 & 827/Mds./2009,    DECIDED ON: November 20, 2009

RELEVANT PARAGRAPH

7. We have considered the rival contentions, relevant record and various decisions relied upon by both the parties. The undisputed factual position emerging out of the record is that in the case of first assessee in ITA Nos.826 & 827/09 the return of income for the assessment year 2003-04 was filed on due date but the return of income for 2005-06 was filed after the due date as prescribed under section 139(1) of Income-tax Act. Similarly in the case of the second assessee in ITA Nos.828 & 829/09 the return of income for the assessment year 2003-04 was filed on due date and for the assessment year 2005-06 was filed after due date. In the case of third assessee in ITA No.832/09 the return of income was filed on due date. In the case of the fourth assessee in ITA Nos.833 to 836/09 all the returns for the four assessment years were filed on due dates. As far as the entitlement of higher rate of depreciation on windmill as per Appendix I to Rule 5(1A) is concerned, there is no dispute that the assessee is entitled because the Revenue has not disputed the entitlement on merits. But the claim was disallowed by the Assessing Officer1 on the ground that the assessee did not exercise the option as prescribed under Second Proviso to Rule 5(1A). The two questions arising for consideration and determination in the facts of ihese cases are.

(i) whether the claim made in the return of income along with audit report showing the claim of the assessee regarding depreciation of windmill would amount to exercising option as required under Second Proviso to Rule 5(1 A) of Income-tax Rules?

(ii) whether the return filed on the due date of Tiling the return of income under section 139(1) would be considered as exercising of option before due date as prescribed in the Second Proviso of Rule 5(1 A)

Before discussing these two questions, it is appropriate to discuss the relevant provisions for depreciation provided under Section 32 of Income- • tax Act as well as Appendix (I) & Appendix (1A) to Rule 5(1A) of Income- tax Rules. For better understanding we quote sub-dause (i) & {it);..'$ftSection 32(1) which is as under:

32. (1) In respect of depreciation of-

(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may beprescribed;

(ii) – (in the case of- any block of assets, such percentage on the written down value thereof

as may be prescribed:

As per clause (i) of sub-section (1) of Section 32 the depreciation on the assets of an undertaking engaged in generation or generation and distribution of power is at a percentage as prescribed as per rates on the actual cost thereof. Thus sub-clause (i) of sub-section (1) of Section 32 provides the depreciation at a prescribed rate on the assets of specified undertaking on the actual cost instead of written down value. Explanation 5 to sub-section (1) ofSection 32 makes it clear that the provisions of sub-section (1) to section 32 of Income-tax Act shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. We quoit? Explanation 5 winch is as under:

"For the removal of doubts, it is hereby declared that the provisions of this subjection shall apply whether or not the assessee has claimed the deduction in respect ofdepreciation in computing his total income; "

From the provisions of sub-section (1) of Section 32 along with the Explanation 5, it is dear that "the Assessing Officer is duty beyond and under obligation to allow the deduction ofdepreciation as per the provisions of sub-section (1) of Section 32. Since two rates of depreciation are prescribed as per Appendix (1) as well as Appendix (1A) to Rule 5 of Income-tax Rules in respect of assets of the undertaking engaged for generation and distribution of power. Thus to make it dear and to facilitate the Assessing Officer has to see which of the rates provided

under two different Appendixes of ..depredation shall be allowed, second proviso to Rule 5(1A) requires the assessee to exercise its option thatdepreciation be allowed as per Appendix 1. Though the proviso of that if such option is exercised before the due date of furnishing the 'return of income under sub-section (1) of Section 139 of the Income-tax Act, in our view the second proviso to Rule 5(1A) is only to facilitate the Assessing Officer in discharging of its obligationas per Explanation 5 to sub-section (1) of Section 32 of Income-tax Act so that the depreciation shall be allowed as per the option of the assessee and not on the discretion of the Assessing Officer. The Assessing Officer is otherwise under obligation to allow thedepreciation but because the depreciation specified under two different Appendixes (1) & (1A) and the choice is given to the assessee in respect of the assets specified under clause (1) of sub-section (1) of

"Section 139 of the Act" Therefore the provisions contained in the Rules cannot override the provisions contained in the statute and the requirement of option under proviso to Rule 5(1A) cannot be held in the nature that on failure of the same would be so fatal that the very object c' the provision for providing higher rate ofdepreciation is defeated. When there is no specific form or method prescribed for exercising the said option then the claim made in the return of income as well as reflected from the books of account and audit report filed along with return of income is more than the exercise of the option as required under second proviso to Rule 5(1A).

8. In the case of CIT vs. Shivanand Electronics (209 1TR 63), the Hon'ble Bombay High Court has held at page 71 as under: "The requirement of filing theaudit report "along with the return of income" is directory and if the assesses complies with the same before completion of the assessment and offers a satisfactory explanation for his failure to submit the same in time, the Income Tax Officer may consider the same and examinethe claim of the assessee for deduction under section 80] on the basis of such report, We, however, do not subscribe to the view taken by the Tribunal-that it is the duty of the Income Tax Officer to the assessee that as, he had not submitted the report of audit required by sub-sect/on (6A), his claim would not be allowed and to give him an opportunity to file the same."

Therefore even if option is not exercised within the stipulated time as per second proviso to Rule 5(1A), the same cannot have a serious consequence of total denial of the claim of the assessee. There is ho doubt in our mind that when there is no prescribed procedure or mode of exercising option prescribed in the Rules then the option exercised by the assessee by way of making a claim in the return of income along with the audit report is definitely more than the requirement of the second proviso.

Even otherwise the question of exercising the option in the return of income is not seriously agitated by the Revenue, As per the order of the lower authorities the depreciation claimed has been rejected on the ground that option has not been exercised before the due date. Therefore the second question whether the filing of the return on due date is exercising of option before due date or not is of importance. In the case of CIT vs. G.R.Govindarajulu 'and Sons Charities (271 ITR 145), the Hon'ble Junsidictional High Court has held as under at page 152;

"The other 'contention raised by learned counsel for the appellant is that the assessee failed to exercise the option as contemplated under section 11(2) of the Act In a prescribed form, namely, Form No. 10. But the said contention was rightly rejected by both the Commissioner (Appeals) and the Tribunal There is no mandatory requirement under section 11(1) of the Act requiring the assessee to exercise the option when he seeks relief under section 11(1) of the Act, as It is enough for the assessee to submit a statement along with the return to exercise such option. "

Further in the case of CTT vs. Adar Tea Products Company (314 ITR 38), the Hon'ble Jurisdictional High Court has held at page 46 as under:

"The Supreme Court has held that if a provision is made in the context of a law providing for concessional rates of tax for the purpose of encouraging an industrial activity, a liberal construction should be put upon the language of the statute -vide CIT k Straw Board Manufacturing Co. Ltd. (1989) 5upp 2 SCC523.

The items in an exemption notification are to be strictly construed, but once the goods in question fall even narrowly in one of the exempted categories, then the exemption notification has to be construed broadly and widely – vide Bombay Chemical Pvt. Ltd. v. CCE, AIR 1995 SC1469.

The table includes energy saving device in the context and for the purpose of encouraging industries to adopt energy saving measures. While it was possible, in the context. of, encouraging industrial activity, to bring within' the net of exemption, manufacture of products which may even be remotely considered as "paper"; we cannot adopt the same reasoning here, since the table indicates its intention to afford depreciation at the rotes mentioned only to the specifically listed equipments. It is not even proved that a drier of the kind mentioned herein is an energy saving device. "

In our view, the requirement of second proviso to Rule 5(1A) is satisfied if the option is exercised before the expiry of due date of filing of return of income under -section 139(1) of the Income-tax Act. The meaning of the term before due date shall be understood as it is understood by a man of ordinary prudence. Before due date simply refers and means that not after the expiry of due date. If the requisite act is done before the last day expires then it will be simply said that before due date; when the time of filing the return is available to the assessee till the test moment of the due date then the whole of that day is available to the assessee and due date expires only when the last day is expired; as such the option exercised on the due date is nothing but before the due date as the same is not after the due date, In the case of CIT vs. Vijaya Hirasa Kalamkar (HUF), (229 ITR 772), the Hon'ble Bombay High Court has held at pages 774 & 775 as under:

"Having regard to the obtect of the Ordinance and the words used in section 3(1), it seems to as that the declaration received on January 1, 1976, was well within time. In the whole context, the word "before" will have to be construed as "upto" or as "not after". There are various provisions in the Income-tax Act. wherein the expression "before" has been used (sections 139(l)(a)(i) , section 139(l)(b); section 184, section 212). The expression has always been taken to mean "upto Section 3 spec/fi^d^ the period before which a declaration in respect of income has to be made for the purposes of getting a benefit under the Ordinance It provides a period of limitation within which certain benefits are available. In case of ambiguity the construction which preserves the right to the one which defeats it, has to be preferred. After alt, this is a taxing statute which m case of doubt should be interpreted in favour of a taxpayer. Had the legislative intention been to make December 31. 1975. the last day for making the declaration, it could have clearly-said so in the proviso. The very fact that the date January 1, 1&76. is in terms mentioned indicates that the time limit was up to that date. That in a given case the word "before" in the context of the time can be construed as "not after" is well settled ( R.v

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ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS, issue dt 12.04.2010 Vol2 Part 6

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS

ISSUE DATED 12-4-2010
Volume 2 : Part 6

F Credit for TDS must be given to assessee u/s 205 : Ahluwallia and Associates v. ITO (Ahd.) p.582

F Where expenses incurred by assessee for earning salary as well as share in profits of the firm, proportionate disallowance to be worked out u/r. 8D: Dharmasingh M. Popat v. Asst. CIT (Mumbai) p. 586

F Receipt declared as income from other sources but expenses claimed against income from profession not allowable : Dharmasingh M. Popat v. Asst. CIT (Mumbai) p. 586

F Assessee sold units within three months from record date : loss to be ignored u/s.94(7): Tube Investments of India Ltd. v. Jt. CIT (Chennai) p. 612

F Where capital borrowed for business purposes and TDS from interest payment and deposited with Govt., addition to be deleted : Dy. CIT v. J.H. Finvest P. Ltd. (Delhi) p. 620

F Where assessee providing evidence regarding identity of share applicants, deletion of addition justified : Dy. CIT v. J.H. Finvest P. Ltd. (Delhi) p. 620

F Stocks brought into account from year to year and forming part of current stock, assessee entitled to deduction of loss in relevant AY : Dy. CIT v. Indroyal Furniture Co. P. Ltd. (Cochin) p. 628

F Payment of royalty towards right to use technical know-how with no asset of enduring benefit transferred in favour of assessee is revenue expenditure : Modi Revlon P. Ltd. v. Asst./Dy. CIT (Delhi) p. 632

F Advertisement expenses incurred for promotion of brand in interest of business of company allowable u/s 37: Modi Revlon P. Ltd. v. Asst./Dy. CIT (Delhi) p. 632

F Web hosting, web development, telephone handsets expenses, as revenue expenditure : Radial Marketing P. Ltd. v. ITO (Mumbai) p. 641

F Software development charges, capital expenditure : Radial Marketing P. Ltd. v. ITO (Mumbai) p. 641

F Assessee entitled to credit for TDS on foreign income : Rectification to allow credit proper : Asst. CIT v. Ms. Aishwarya K. Rai (Mumbai) p. 644

F Where service of assessment notice on company not denied, notice valid : Amrac Automotive India P. Ltd. v. Asst. CIT (Delhi) p. 649

F Reassessment notice sent to correct address, not received back : Power of attorney issued to CA after date of notice and subsequent notices issued : notice validly served : Avneesh Kumar Singh v. ITO (Agra) p.663

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Fwd: Pre-Print Highlights of ITR from CLI

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 12-4-2010 Volume 322 : Part 3

SUPREME COURT	HIGH COURTS	ENGLISH CASES	AAR
TRIBUNAL	STATUTES	JOURNAL	NEWS BRIEF

HIGH COURT JUDGMENTS

F High Court has no power to condone delay beyond period prescribed under I. T. Act : Sukhvinder Singh v. CIT (P&H) p. 339

F Finance commission allowed as deduction in prior years : Deduction could not be denied in relevant assessment year : CIT v. Heeralal Kataria (Raj) p. 342

F Trucks entitled to depreciation at 30 per cent. : CIT v. Bimalchand Jain (Raj) p. 346

F Estimate based on comparable cases valid : Salem Steel Co. v. CIT (Mad) p. 349

F Son participating in income-tax proceedings not a ground to fasten liability for commission of any offence under I. T. Act : Roshan Lal v. Special Chief Judicial Magistrate (All) p. 353

F Estimation of profits based on facts justified : Sri Vaddanahal Rajanna (HUF) v. Asst. CIT (Karn) p. 356

F Tribunal can correct factual error in order : CIT v. ITAT (Bom) p. 359

F Failure to consider assessee's statement made subsequent to retracted statement documentary evidence on record : Matter remanded : CIT v. Omprakash K. Jain (Bom) p. 362

F Seed money received for commencement of business : Parting of part of profit by assessee instead of paying interest : Transaction not a colourable device : CIT v. V. G. Siddartha (Karn) p. 365

F Reassessment proceedings on same grounds not valid : Berger Paints India Ltd. v. Asst. CIT (Cal) p. 369

F Passport cannot be impounded under the I. T. Act : Avinash Bhosale v. UOI (Bom) p. 381

F Rectification to withdraw deduction on export incentive, duty drawback : Matter debatable : Rectification not permissible : CIT v. TTK Prestige Ltd. (Karn) p. 390

F Books of account available with AO would indicate capacity of party to advance loan : No need to prove on assessee to prove capacity : CIT v. Tania Investments P. Ltd. (Bom) p. 394

F Copies of seized material not provided to assessee nor assessee given opportunity to cross-examination of person on whose statement AO relied upon : Fatal to proceedings : CIT v. Ashwani Gupta (Delhi) p. 396

F Tribunal confirming deletion of addition made by AO without verifying whether creditor paid tax on amount added as cash credit : Matter remanded : CIT v. Vinod Swarupchandra Mehta (Guj) p. 399

F Amount paid by builder as regularisation fee for violating building by-laws not deductible u/s 37 : Millennia Developers P. Ltd. v. Deputy CIT (Karn) p. 401

F Interest on refund of income-tax entitled to deduction u/s 80P : CIT v. Haryana State Co-operative Apex Bank Ltd. (P&H) p. 404

F Assessee seeking proper opportunity to make effective submissions before Tribunal : Matter remanded : Anand Flori Farms India P. Ltd. v. ITO (Delhi) p. 406

F Provision for bad doubtful debts : CIT (Appeals) deleting addition and Tribunal upholding order : Finding of fact : CIT v. Mysore Paper Mills Ltd. (Karn) p. 428

F Gross amount of interest to be taken into account for computation of deduction u/s 80HHC : CIT v. Devraj Nensee and Co. (Mad) p. 430

F Estimate of income can be made on rational basis : Prakash Automobiles v. CIT (Ker) p. 435

F Trial court has power to decide whether particular SC decision is applicable : P. Kuknhappa Nair and Co. v. Deputy CIT (Ker) p. 437

F Interest not leviable while computing income u/s 115J : Deputy CIT (Assessment) v. Madhusudan Industries Ltd. (Guj) p. 438

F Conviction of women : Release under Probation of Offenders Act justified : Union of India v. Smt. Mamta Sethi (MP) p. 440

F ITNS 150 accompanying order of assessment specifying provision of law and amount of interest charged : Order valid : Hari Narain Soni v. ITO (Raj) p. 444

F Voluntary offer of income for taxation to avoid probe and assessment of such income u/s 68 valid : T. P. Indrakumar v. ITO (Karn) p. 454

F Voluntary offer of income for taxation to avoid probe : Interest not chargeable u/ss 234A and 234B : T. P. Indrakumar v. ITO (Karn) p. 454

F Higher rate of depreciation applicable to motor lorries used in transportation business : CIT v. S. C. Thakur and Bros. (Bom) p. 463

F Export inspection charges and interest on export packing credit loans not entitled to weighted deduction : KEC International Ltd. v. CIT (Bom) p. 465

F Revised rates of depreciation with effect from April 2, 1983, not applicable for AY 1980-81 : KEC International Ltd. v. CIT (Bom) p. 465

F Mere remark that prices were rising not sufficient for pre-emptive purchase : Cigeo Construction Co. P. Ltd. v. Appropriate Authority (Bom) p. 474

F Object of constructing dam and effect of expenditure is to facilitate assessee's trade operation and enable assessee to conduct business more efficiently : Revenue expenditure : CIT v. Hindustan Zinc Ltd. (Raj) p. 478

F Guest house expenditure not allowable : CIT v. Hindustan Zinc Ltd. (Raj) p. 478

AUTHORITY FOR ADVANCE RULINGS

F Off-shore contract for design, engineering, manufacture, etc., testing of supplier's works and dispatching to port of disembarkation in India : Amount received by non-resident not taxable in India : Joint Stock Company Foreign Economic Association "Technopromexport", In re p. 409

STATUTES

F Rules :

Income-tax (First Amendment) Rules, 2010 : Corrigendum p. 24

F Notifications :

Income-tax Act, 1961 : Notification under section 10(6C) : Exemption of income of Sinclair Knight Merz Pty Limited, Australia for providing services in or outside India in projects connected with the security of India p. 24

Income-tax Act, 1961 : Notification under section 35AC(1) Expln., clause (b) : Eligible projects or schemes p. 17

JOURNAL

F CIT v. Samsung Electronic Co. Ltd. 320 ITR 209 is not based on current law-V. Prabhakar, Advocate p. 11

F Whether preventive detention of a person under section 132 and seizure of explained cash with him is legal ?-Supreme Court's view-T. N. Pandey, Retd. Chairman, CBDT p. 29

NEWS-BRIEF

F I-T Department is acting perfunctorily

The Bombay High Court, in its March 25 order on an insurance company's petition, came down heavily on the Income-tax Department, saying the Department acted perfunctorily for recovering tax dues before the end of the fiscal.

A Division Bench comprising Justice DY Chandrachud and Justice JP Deodhar, quoting an earlier Bombay High Court order, observed : "In a large number of matters, this court has been observing that orders are passed perfunctorily by the department only with an idea of effecting recovery before March 31, though such orders could have been passed in detail and after recording proper reasons."

The complaint to the court was that the Commissioner (TDS) did not give any reason for not staying the demand for 2010-11, except saying that the plea of the assessee is not acceptable and the demands have to be realised for the current year.

The Division Bench believes the Commissioner should have given a proper reasoning before rejecting the petition for staying the I-T demand.

The High Court in an earlier decision had recommended to the I-T Department to give orders explaining in detail the reasons. Some of these parameters are: Order on stay applications should contain a summary of the assessee's case.

And if the taxpayer is not looking for unconditional stay, the I-T authorities can ask for part depositing the I-T demand for which reasons should be given in the order. Besides, the I-T authorities should also give an indication to the financial soundness of the taxpayer. [Source : www.economictimes.com dated April 1, 2010]

F Landmark ruling as infrastructure companies, seek only to execute a project

The Authority for Advance Ruling's (AAR) order, which many tax experts termed as landmark, would effectively mean that in most cases foreign entities in such partnerships would pay much less tax than what they would have paid as "association of persons", which is how a consortium is defined in the tax law. The firms bidding for contracts in India, depending on the character of income (royalty, fee from technical services and the like in addition to normal business income), as tax could now be levied at comparatively low rates of 10-20%.

The ruling came in the case of a consortium bidding for a Delhi Metro Rail Corporation (DMRC) project. The AAR said the firms in the consortium would be taxed as separate taxable entities. The tax rate could vary for each partner, depending on the character of its income. Certain kinds of income could even be exempt. So, effectively, getting taxed as an independent taxable entity would mean a lower tax liability in many cases, besides clarity on taxation for firms coming together to take up a project in India.

The AAR, while stating that companies would have to be taxed independently, pointed out, "the first and foremost thing is that the nature of work undertaken and capable of being executed by each party is very much different and the scope of work assigned to one party cannot be undertaken or relocated to another."

Earlier, taxed as an association of persons was a hassle for companies, especially when profit-sharing ratios were not determined. The authority said, "it is ruled that a Consortium cannot be treated as association of persons for the purposes of assessment under the Income-tax Act, 1961 and the applicants can only be subjected to taxation on the basis that they are separate taxable entities." [Source : www.financialexpress.com dated April 6, 2010]

F Litigation between I-T and insurers may prolong through the year

The year 2010 may well see the beginning of litigation between life insurance industry and the Income-tax Department. The I-T Department is raising demands on companies with large accumulated losses which the life insurance industry is determined to appeal.

The early disputes relate to the Department's decision to impose tax on funds transferred from shareholders' account to policyholders accounts. Secondly, insurers are also worried that the proposed Minimum Alternate Tax (MAT) would be much higher than the regular rate of taxation. The insurance industry also wants to be treated distinctly compared to other companies when it comes to income recognition.

Unlike other companies, life insurers bring out two sets of accounts. One is in respect of the policyholder's funds and the second is in respect of shareholders' funds. Even among the policyholder funds, there are two sets of accounting norms. One applies to the traditional life business and the second to the unit-linked business.

Funds collected under traditional business-the endowment policies where returns are in the form of bonus declared year after year-are all combined in a life fund. Every investor earns identical returns under the life fund. The surplus generated under the fund is distributed among shareholders and policyholders in the ratio of 10:90. Companies can declare a bonus only when the fund is in surplus. To ensure that early customers do not suffer, private life companies have been transferring funds from the shareholders' account to the policyholders' account in the hope that they can get back the funds when it turns into surplus. That they will be able to do so is now uncertain.

In case of unit-linked insurance plan, there is no such issue as any appreciation in the value of the investment is clearly assigned to the investor in the form of a higher net asset value. [Source : www.economictimes.com dated March 31, 2010]

F Sweeping Direct tax collections to exceed budget estimate

The Government said direct tax collection has surpassed the budget estimate of Rs 3.70 lakh crore for the 2010 fiscal.

Direct tax realisation, however, is likely to fall short of the enhanced target of Rs. 3.87 lakh crore, mentioned in the revised estimate for 2009-10. Direct taxes include, corporate tax, personal income-tax and wealth-tax.

During the 11-month period of the 2010 fiscal, direct tax collection was Rs. 2.78 lakh crore, nearly Rs. 1 lakh crore short of the budget estimate.

In February, direct tax collection grew by a robust 27.54 per cent. on a year-to-year basis. Tax collection stood at Rs. 14,675 crore against Rs. 11,506 crore in February 2009. This was against a negative growth of 19.84 per cent. in January.

In February, corporate tax collection grew by a healthy 16.87 per cent., while personal income-tax mop up jumped by a robust 37.58 per cent.

With more and more people investing in the stock markets, the securities transaction tax (STT) fetched a handsome Rs. 5,975 crore during the first 11 months of the just-concluded fiscal, which is a smart 17.65 per cent. over the year-ago period.

The Government, in the current fiscal (2010-11) expects to mop up Rs. 4.30 lakh crore from direct taxes, higher by over 10 per cent. from what it is likely to collect the 2010 fiscal. This is despite the widening of income tax slabs and reduction in surcharge on corporate taxes to 7.5 per cent. from 10 per cent. The minimum alternate tax (MAT) will, however, has been increased from 15 to 18 per cent. on book profit of companies which do not fall under the tax net due to various exemptions. [Source : www.economictimes.com dated April 2, 2010]

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