Sunday, June 27, 2010

Case Law Digest

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S. 2(1A) : Agricultural income - Trees of spontaneous growth on waste land
In the absence of any evidence of any agricultural operations having been carried out on the waste lands, the enhanced compensation received by the assessee for compulsory acquisition of the said waste lands and trees by the State Government can not be treated as agricultural income.
Sajjansinh N. Chauhabvxs.ITO (2010) 38 DTR 155 (Guj.).

S. 4 : Income - Capital or revenue receipt - Surplus on cancellation of forward foreign exchange contract [S. 2(47), 28(iv)] Surplus received by the assessee upon cancellation of forward foreign exchange contract was a capital receipt not liable to tax, as the foreign exchange acquired under the contract is for the purpose of discharging an obligation on capital account. Mere cancellation of the contract does not result in any transfer of any asset, even if the extended definition under section 2(47) is made applicable.
Dy. CITvxs.Garden Silk Mills Ltd. (2010) 38 DTR 48 (Guj.)

S. 4 : Income - Reimbursement of expenses
Amount received by assessee towards reimbursement of traveling expenses of its technicians who were deputed to the establishment of a customer is not chargeable to tax.
Director ITvxs.Krup Udhe GmbH. (2010) 38 DTR 251 (Bom.)

S. 5 : Income – Accrual - Interest on enhanced compensation
Interest on enhanced compensation accrues from year to year and has to be spread over respective years.
Sajjansingh N. Chauhanvxs.ITO (2010) 38 DTR 155 (Guj.)

S. 9(1)(vii) – Income Deemed to accrue arise in India - fees for technical services – International Taxation
Income deemed to accrue or arise in India. Service rendered outside India. Fees for Technical Services, even if rendered outside India, are taxable.
Ashapura Minichemvxs.ADIT (ITAT Mumbai)
Monthly Digest of Case Laws (May 2010) 2

S. 10(23C)(vi) - Exempted income - charitable purpose
Surplus does not mean trust ceases to be "solely for educational purposes and not for profit".
Vanita Vishram Trustvxs.CCIT (Bombay High Court)

S. 10(23G) : Infrastructure capital company - change of name
Change in the name of the entity at the time when the shares of such undertaking are sold does not affect the claim of exemption under section 10(23G).
Jaykay fineholdings (India) (P) Ltd.vxs.Addl. CIT (2010) 38 DTR 302 (Mum.) (Trib.)

S. 14A : Expenditure incurred in relation to income not includible in total income -Insurance business.
Section 14A, is not applicable in the case of insurance business, which is governed by specific provisions of section 44.
Bajaj Alliance General insurance Co. Ltd.vxs.Addl. CIT (2010) 38 DTR 282 /130 TTJ 398 (Pune) (Trib.)

S. 17(1)(iv) : Salary - Profit in view of salary - restrictive covenant - Non compete fee - value of shares
Value of shares issued to the assessee-director by the employer company as consideration in terms of restrictive covenant whereby the assessee agreed to desist from participating in a similar or competitive business for a period of ten years after termination of his employment or association with the company assessable as "profit in lieu of salary". Receipt can not be construed as capital receipt.
Neville Tulivxs.ITO (2010) 38 DTR 325 (Mum.)

S. 22 : Income From House Property - Principle of Mutuality
Income of the association of flat owners is not taxable on the principle of mutuality, despite the fact that most of the flats are let out and tenants are paying the contribution. Interest earned from bank on surplus funds deposited in the bank is not taxable on the principle of mutuality.
Wellington Estate Condominiumvxs.ITO, ITAT `I' Bench Delhi, ITA No. 2846/Del./2007, dated on 16-10-2009 (BCAJ 42-A, June 2010 pg. 346)

S. 28 : Capital gains - Business income - sale of shares
Assessee dealer in shares can also hold certain shares as investment. When shares are sold from investment portfolio which were purchased two three years back the same is chargeable to tax as capital gains and not as business income.
Monthly Digest of Case Laws (May 2010) 3
Saranath Infrastructure (P) Ltd.vxs.ACIT (2010) 124 ITD 71 (Luck.)

S. 28 : Business loss - loans advanced to subsidiaries
Loans advanced to subsidiaries can not be allowed as bad debt or business loss. The loss is capital loss.
Jt. CITvxs.Rallies India Ltd. (2010) 3 ITR 1 (Mum.) (Trib.)

S. 37(1) : Business expenditure - premium on redemption on non convertible debenture
Assessee is entitled to the proportionate deduction, of premium on redemption of non-convertible debenture.
CITvxs.Indian Rayon & Industries Ltd. (2010) 38 DTR 313 (Bom.)

S. 37(1) : Capital or Revenue expenditure - Travelling and incidental expenses
Travelling and incidental expenditure in finalization of project for existing business allowable as revenue expenditure.
Jt. CITvxs.Rallies India Ltd. (2010) 3 ITR 1 (Mum.) (Trib.)

S. 37(1) : Business expenditure - Licence fee
Fees paid by assessee Telecom Company to department of telecommunication for use of licence was to be allowed as revenue expenditure.
ACITvxs.Vodafone Essar Gujarat Ltd. (2010) 38 SOT 51 (Ahd.)

S. 37(1) : Business expenditure - capital or revenue expenditure - year of allowability - cash system - spare parts.
Where assessee following cash system of accounting, the expenditure incurred for purchase of second hand machinery for using its spare parts is revenue expenditure and the same is deductible in the year in which the sale consideration was paid even though the machinery was received in India after the end of relevant year.
Aswath N. Rao (Dr)vxs.ACIT (2010) 38 DTR 205 (Kar.)

S. 37(1) : Business expenditure - extra payment of sugarcane price to cane growers
Matter is remanded to CIT(A) to decide whether the differential payment made by the assessee to cane growers after the close of the financial year / balance sheet date constitute an expenditure or distribution of profit, after taking in to account the resolution of the State Government modalities and the manner in which SAP and SMP are decided, the timing difference which will arise on account of the difference in the accounting years, etc.
Monthly Digest of Case Laws (May 2010) 4
Dy. CITvxs.Shri Satpuda Tapi Parisar SSK Ltd. (2010) 231 CTR 224 (SC)

S. 37(1) : Capital or Revenue Expenditure - Mobile Talktime and headset Charges
The amount paid for handsets and for talktime charges were not capital in nature.
Radical Marketing Pvt. Ltd.vxs.ITO, ITAT `SMC' Bench, Mumbai, ITA No. 3868/Mum/2008, decided on 19-5-2009 (BCAJ 42-A, May 2010 pg. 171)

S. 41(1) : Profit chargeable to tax - Business income
There is no remission or cessation of liability within the meaning of section 41(1), on unilateral entry of write back of the unclaimed credit balances by the assessee.
CITvxs.Indian Rayon & Industries Ltd. (2010) 38 DTR 313 (Bom.)

S. 44 : Insurance Business - sale of investments
Income from sale of investments by insurance company is not taxable after deletion of sub r(b) of r 5 of first schedule.
Bajaj Allianz General Insurance Co. Ltd.vxs.Addl. CIT (2010) 38 DTR 282 /130 TTJ 398 (Pune) (Trib.)

S. 44BBA : Aircraft - Presumptive Taxation - Non resident
When assessee incurred loss, income can not be computed under section 44BBA as the said section is machinery section.
Royal Jordanian Airlinesvxs.Dy. DIT (2010) 3 ITR 181 (Delhi)(Trib.)

S. 44BBB : Civil construction - Barge hire charges – DTAA - India – Mauritius – Royalty - Permanent establishment (S. 5(2)(i), 9(1)(vi), Arts 5, 7,12)
Barge hire charges amounts to `royalty' within the meaning of section 9(1)(vi) and under Art. 12 of DTAA, between India and Mauritius and is liable to tax in India under section 44BB. In terms of Art 5(2)(i), of DTAA between India and Mauritius each of the building site, construction project, assembly project or supervisory activities in connection therewith is to be viewed on stand alone basis and where the duration of work under each such separate contracts does not exceed the period of nine months, the assessee cannot be said to have a PE in India, even otherwise, none of the contracts were such that those could be viewed as interconnected or independent so as to call for aggregation of their duration.

Asst. Director of ITvxs.Valentine Maritime (Mauritius) Ltd. (2010) 38 DTR 117 /130 TTJ 417 (Mum.) (Trib.)
S. 44D : Royalties – Foreign Companies - Double Taxation relief - India & Australia - Art.7, Income

Tax Act (S. 5, 9(1)(vii), 115A)
Monthly Digest of Case Laws (May 2010) 5
Fees received by non-resident for performing services in India through a PE are taxable in accordance with Article 7 of DTAA. If Article 7 applies, S. 9(1)(vii), 44D and 115A would not apply.
Rio Tinto Technical Servicesvxs.Dy. CIT, ITA No. 3399/Del./2002, 5372/Del./2003, 4742/Del./2004, (BCAJ 42-A, June 2010 pg. 352)

S. 45 : Capital gains - slump sale - (S. 50)
Sale of industrial unit by the assessee firm as a "going concern", in its entirety on "as is where is" basis for a lump sum sale consideration which was arrived at by profit capitalization method and is not allocable to individual assets was a slump sale of the business and not a case of itemized sale.
J. B. Electronicsvxs.Jt. CIT (2010) 38 DTR 393 (Pune) (TM) (Trib.)

S. 45(4) : Capital gains - Distribution of assets on dissolution of firm [S. 50(1)]
Distribution of assets among the partners at the time of dissolution of the firm is to be assessed under section 45(4) and the same is not covered by section 50(1). Assessing Officer was free to refer the assets for valuation under section 55A, as the transfer value shown in the book value which can not be accepted as the fair market value of the assets i.e. Land and Building.
CITvxs.Kumazha Tourist Home (Dissolved) (2010) 38 DTR 166 (Ker.)

S. 45(5)(b) : Capital gains – Compensation - Compulsory acquisition
Enhanced compensation by the assessee for compulsory acquisition of waste lands and trees by the State Government under the Jagir Abolition Act is taxable as per the provisions of section 45(5)(b), therefore, the amount of enhanced compensation is chargeable to tax despite the fact that the cost of acquisition of the said capital asset is nil.
Sajjansinh N. Chauhanvxs.ITO (2010) 38 DTR 155 (Guj.)

S. 48 : Capital gains - Interest - Borrowed Funds - Acquisition of Shares
When interest bearing funds are utilized for making an application for allotment of shares and the number of shares allotted is less than the number of shares applied for, the entire interest is to be treated as cost of acquisition of shares allotted.
Neera Jain (Smt.)vxs.ACIT, ITAT `B' Bench, Mumbai, ITA No. 1861/Mum./2009, decided on 22-2-2010 (BCAJ 42-A, June 2010 pg. 347)

S. 50 : Capital gains - Depreciable assets - short term capital gains [S. 2 (11)]
Monthly Digest of Case Laws (May 2010) 6
When assessee had been allowed depreciation on flat in question as a business asset up to asst year 1995-96, flat continued to be business asset, not allowing the depreciation for two years prior to date of sale, profit arising on sale of said flat would be assessable as short term capital gain.
CITvxs.Shakti Metal Depot (2010) 189 Taxman 329 (Ker.)

S. 50(2) : Capital gains - Depreciable assets [S. 2 (11)]
Set off of the sale proceeds was available to the assessee against the purchase cost of new property falling under the same block of assets.
CITvxs.Scindia Investment (P) Ltd. (2010) 39 DTR 12 (Bom.)

S. 54EC : Capital gains - Investment in bonds - date of investment
For the purpose of calculation of period of six months the date to be calculated from the date of receipt issued by the national housing bank and not from the date of issue of certificate.
Hindustan Unilever Ltd.vxs.Dy. CIT (2010) 38 DTR 91 (Bom.)

S. 69B : Unexplained investment - Discrepancy in stock
Stock shown more to bank, additions deleted by the Tribunal was confirmed.
ITOvxs.Bhagwati Prasad Raika (2010) 39 DTR 45 (Chhattisgarh)

S. 73 : Speculation - Loss
For the purpose of deciding weather the case of assessee is covered by exception provided in explanation to S. 73, speculation loss is to be excluded while computing business income and arriving at the gross total income.
Paramount Information Systems Pvt. Ltd.vxs.ITO ITAT `K' Bench, Mumbai, ITA No. 921/Mum/2008, decided on 24-2-2010 (BCAJ 42-A, May 2010 pg. 169)

S. 80HH : Deduction - New industrial undertaking - expansion of production capacity (S. 80I)
Expansion of production capacity of the existing unit by merely adding some equipments when raw material finished products, employees electric connection, maintenance of books of account etc. are all common and cannot be identified with new or old plant, did not constitute setting up of new industrial undertaking eligible for deduction under section 80HH and 80I.
Jt. CITvxs.Thirani Chemicals Ltd. (2010) 38 DTR 137 (Del.) (SB) (Trib.)

S. 80HHF : Deduction - Export of film soft ware
Monthly Digest of Case Laws (May 2010) 7
Assessee not being the owner of the software that came to be developed as a result of the services provided by it in connection with the production of a film produced by the foreign company, there was no export or transfer of film software by the assessee and therefore, it is not entitled to deduction under section 80HHF in respect of the fixed fee received for the services rendered by it.
Kas Movie Makers (P) Ltd.vxs.CIT (2010) 38 DTR 121 (Del.)

S. 80HHF : Deduction – Export - Service income and income from music
Service income, income from music were operational income hence entitled to deduction under section 80HHF.
ACITvxs.Set India Pvt. Ltd. (2010) 3 ITR 454 (Mum.) (Trib.)

S. 80IA : Deduction - Profits and gain from infrastructure undertakings
Assessee carrying on the business of container handling Cranes at Jawaharlal Nehru Port Trust can be considered as developing, maintaining and operating an infrastructural facility is entitled to deduction under section 80IA.
CITvxs.ABG Heavy Industries Ltd. (2010) 189 Taxman 54 (Bom.)

S. 80IA : Deduction - Income from Power Plant - Valuation
Deduction in respect of profit of power generating undertaking generate by eligible unit captively consumed valuation at market price. Rates charged by the state electricity board, including the electricity tax levied thereon, adopted as a benchmark to arrive at the market value and CIT was not right in excluding the electricity tax to arrive at the market value.
DCWvxs.ACIT, ITAT `D' Bench Mumbai, ITA No. 126/Mum./2008, decided on 29-1-2010 (BCAJ 42-A, May 2010 pg. 170)

S. 80M : Deduction - inter-corporate dividend - gross or net
Where the various activities carried out by assessee constituted one single indivisible business of promoting industries in State and dividend income earned in that process assumed character of its business income earned, in such a situation .deduction under section 80M could be allowed on gross amount of dividend income.
Dy. CITvxs.Tamil Nadu Industrial Development Corpn. Ltd. (2010) 124 ITD 117 (Chennai)(TM)

S. 80P(2)(e) : Deduction - Co-operative society - Income from letting of godowns
Department is directed to examine the total income of the assessee society and determine the amount allocable as rental income in the composite charge received by it towards ginning and
Monthly Digest of Case Laws (May 2010) 8
passing charges and godown rent by applying the principle of proportionally instead of adopting an ad hoc measure of attributing 50 percent of the charges as rental income.
CITvxs.Baba Saheb Kedar Ginning & Pressing Co-operative Society Ltd. (2010) 38 DTR 153 (SC)

S. 90 : Double taxation relief - International Taxation - India-Mauritius - Permanent establishment – Construction - Assembly project (Art. 5 &7)
For the purpose of determining the applicability of the threshold time-limit under Art. 5(2)(i), of the Indo-Mauritius DTAA, what is to be taken in to account is the duration of the activities of the foreign enterprise on a particular site or a particular project or supervisory activity connected therewith, on a standalone basis and not all the activities in a tax jurisdiction as a whole.
JRAY McDermott Eastern Hemisphere Ltd.vxs.Jt. CIT (2010) 38 DTR 161 (Mum.) (Trib.)

S. 90 : Double taxation relief - International Taxation - Indo-US treaty - charter of air craft - FDR interest (Art. 8)
Activity which is directly related to transportation of passengers by assessee as owners / lessee / charter of aircraft would alone fall within the ambit of para. 2(b) of Article 8 of Indo-US Treaty. Deposit of amount in FDR could not be said to be connected with operation of aircrafts para. 5 of Article 8 would not apply.
Asst. DITvxs.Delata Airlines Inc. (2010) 124 ITD 114 (Mum.)

S. 90 : Double Taxation relief - International Taxation – India-Singapore - Permanent establishment (Art. 7, 8)
Income of assessee, a tax resident of Singapore having been taxed in India, denying the benefits of Art. 8,without examining the issue whether the assessee had a PE in India within the meaning of Art. 7, matter remanded for examining the issue of PE and assessment accordingly.
J. M. Baxi & Co.vxs.Dy. Director of IT (2010) 39 DTR 1 (Mum.) (Trib.)

S. 90 : Double Taxation Relief - International Taxation
Despite cessation of PE, gains on transfer of PE asset taxable under Act and DTAA
Cartier Shippingvxs.DDIT (ITAT Mumbai)

S. 90 : Double Taxation Relief – International Taxation – INDIA - Permanent Establishment
No PE under DTAA if three criteria are not fulfilled.
Airlines Rotablesvxs.JDIT (ITAT Mumbai)

Monthly Digest of Case Laws (May 2010) 9

S. 90 : Double Taxation Relief – International Taxation - India & USA - Art. S. 5(2) & 7, Income Tax Act
No income arises to the foreign company in India in the course of deputing personnel to an Indian company, who work under the control and supervision of the Indian company and thus become employee of the Indian company. Amount of salary of deputed employees reimbursed to the foreign company is not taxable in India.
DDITvxs.Tekmark Global Soutions LLC, ITAT Mumbai, ITA No. 671/2007, decided on 23-2-2010, (BCAJ 42-A, May 2010 pg. 171)

S. 92C : Transfer pricing – International Taxation - Arm's length price - bad debt written off - (Rule 10B)
In view of parameters prescribed in Rule 10B, bad debt written off can not be a factor to determine arm's length price of any international transaction.
CA Computer Associates (P) Ltd.vxs.Dy. CIT (2010) 37 SOT 306 (Mum.)

S. 92C : Transfer pricing – International Taxation - Arm's length price - Scope of adjustment
Economic and market conditions of Thailand and Vietnam being totally different, adjustments for volume off take, credit period and credit risk though material are not sufficient to make the sale price to AE in Thailand comparable with the sale price to unrelated party in Vietnam, unless suitable adjustments are made for disparity between the two transactions and therefore, matter is set aside to the CIT (A) for deciding the same afresh.
Intervet India (P) Ltd.vxs.ACIT (2010) 38 DTR 422 (Mum.) (Trib.)

S. 92C : Transfer pricing - International Taxation - Arm's length price - service fee from principal
Assessee earned service fees from principal at 12.5% of net advertisement revenue receipt. In the case of principal the same has been accepted at arm's length price. Computation at 15% of gross revenue receipt not justified.
ACITvxs.Set India Pvt. Ltd. (2010) 3 ITR 454 (Mum.) (Trib.)

S. 92C : Transfer Pricing - International Taxation - Comparables
Assessee's TP study cannot be rejected lightly, "comparables" have to be comparable on all parameters, no incentive to shift profits offshore if tax rates there are higher.
Dy. CITvxs.Indo American Jewellery (ITAT Mumbai)
Monthly Digest of Case Laws (May 2010) 1 0

S. 133A : Survey - Loose slips found during survey
Assessee explain the loose slips pad found during survey, as wages paid in earlier. High court held that as there was no iota of evidence in the form of sale bills, bank account, money or property additions cannot be made.
CITvxs.Atma Valves (P) Ltd. (2010) 216 Taxation 241 (P & H)
S.115JA : Book profit - unabsorbed depreciation
Brought forward unabsorbed depreciation has to be set off while computing the book profit under section 115JA.
CITvxs.Gokudas Appearels (P) Ltd. (2010) 38 DTR 199 (Kar.)

S. 115JB : Book Profit - Club registered (S. 25)
A company registered under section 25 of the companies Act, whose income is exempt under principles of mutuality can not be brought with in the purview of section 115JB.
Delhi Gymkhana Club Ltd.vxs.Dy. CIT (2010) 39 DTR 48 (Del.) (Trib.)

S. 127 : Power to transfer case - opportunity of hearing
Assessee must be given an opportunity of being heard before transferring the case, further "administrative convenience and for co-ordinating effective investigation" cannot be said to be the reasons as envisaged in section 127(1).The order was quashed.
Anil Kumar Koharivxs.UOI (2010) 39 DTR 19 (Gau.)

S. 143(2) : Assessment – Notice - beyond twelve months - Block assessment - (S. 158BC)
Assessing officer had issued notice under section 143(2), after expiry of twelve months from the end of month in which return was filed, notice issued was barred by limitation and therefore, assessment made in pursuance of said notice was quashed.
Dy. CITvxs.National Refinery (P) Ltd. (2010) 38 SOT 36 (Mum.)

S. 148 : Reassessment – Jurisdiction
Reassessment completed by an Assessing Officer on the basis of a notice under section 148 issued by another Assessing Officer who had no jurisdiction over the assessee is not valid.
K. B. Kumar ( Dr. Mrs.)vxs.ITO, ITAT `D' Bench, Delhi, ITA No. 4436/Del./2009, decided on 20-1-2010 (BCAJ 42-A, June 2010 pg. 348)

S. 153A : Search and Seizure – Assessment - Joint warrant (S. 132)
Monthly Digest of Case Laws (May 2010) 1 1
Joint warrant in name of assessee and another party is permissible. Search in purulent of search is valid.
Rajat Tradecom India Pvt. Ltd.vxs.Dy. CIT (2010) 3 ITR 321 (Indore) (Trib.)

S. 153A : Search and seizure – Retraction – warrant - (S. 132)
S. 153A order void if search warrant in improper status. Assessee can retract admission of undisclosed income.
Mansukh Kanjibhai Shah (Dr).vxs.ACIT (ITAT Ahmedabad)

S. 153C : Search and seizure - assessment of income of any other person - loose papers
Notice under section 153C, can be issued only where the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned actually belong to assessee. Notice issued on the basis of loose papers which bear the name of assessee actually not belong to assessee was without jurisdiction.
Vijaybhai N. Chandranivxs.ACIT (2010) 38 DTR 225 / 231 CTR 474 (Guj.)

S. 158BD : Block assessment of third person - Satisfaction
Assessing officer of searched person should record his satisfaction that undisclosed income found during search belonged to such person. If no satisfaction recorded block assessment was invalid.
Dy. CITvxs.Flair Builders P. Ltd. (2010) 3 ITR 158 (Delhi) (Trib.)

S. 158BFA(2) : Search and Seizure - Penalty - Block assessment - filing an appeal
Assessee by filing an appeal against the order of block assessment disputing the rate of tax payable on long term capital gains fails to comply with cl (iv) of the first proviso to section 158BFA(2), and hence is not entitled to the benefit of the proviso regarding non levy of penalty.
CITvxs.Anju R.Innani (Smt.) (2010) 38 DTR 75/ 231 CTR 417 (Bom.)

S. 194C : Deduction of tax at source – Sub-contractor - lorry owners - amount not deductible – [S. 40)(a)(ia)]
The payment made to lorry owners at par with payments made towards salaries, rents etc, therefore, payment made to hired vehicles would not be considered as towards sub-contractor with lorry owners. As the provisions of section 194C is not applicable payment made can not be disallowed by applying the provision of section 40(a)(ia).
Mythri Transport Corporationvxs.ACIT (2010) 124 ITD 40 (Visakhapatnam)
Monthly Digest of Case Laws (May 2010) 1 2

S. 194C : Deduction of tax at source – Financing - Payments to contractors and sub-contractors (S. 194J)
Finance agreement of assessee with producer /director of films is not a contract with in the meaning of section 194C, but only a financing arrangement therefore neither section 194C nor section 194J is applicable for composite contracts for financing film project.
Entertainment One India Ltd.vxs.ITO (2010) 39 DTR 26 (Mum.) (Trib.)
S. 194LA : Deduction of tax at source - Acquisition of property - Compensation
Mere issuance of notification under section 4 of the land Acquisition Act, provision of section 194LA was not attracted.
Infopark Keralavxs.ACIT (2010) 38 DTR 180 (Ker.)

S. 195 : Deduction of Tax at Source – Non-resident - agent
Despite TDS under section 195, payer is liable as "agent" under section 163. However, if payee is assessed, payer cannot be assessed as "representative assessee".
Hindalco Industriesvxs.Dy. CIT (ITAT Mumbai)
S. 195(1) : Deduction of tax at source – Non-resident - Purchase of software
Remittances made by the assessee to the non-resident for purchase of software were in the nature of trading receipt and price of goods purchased by it bear the character of income receipt in the hands of non-resident and therefore, assessee is liable to deduct tax at source under section 195(1).
CITvxs.Sonata Information Technology Ltd. (2010) 38 DTR 350 (Kar.)

S. 195(3) : Deduction of tax at source – Non – Resident - Double Taxation relief - India-USA – Certificate – Writ (Art. 226, Art. 27, Rule 29B)
Certificate under section 195(3), could not be declined on the ground that when the matter is pending before the Dispute Resolution Panel. As no appeal is available against order under section 195(3), writ is maintainable.
Mckinsey & Company Incvxs.UOI (2010) 38 DTR 34 / 323 ITR 544 / 231 CTR 430 (Bom.)

S. 195 : Deduction of tax at source – Non-resident - Double Taxation relief - India & Switzerland - Art. 5 & 7, Income Tax Act
Payments made towards the share of the cost incurred in respect of research and development activities pursuant to cost contribution arrangement is not the payment towards fees for technical
Monthly Digest of Case Laws (May 2010) 1 3
services or royalty. Such contribution is not liable to tax in the hands of the co-ordinating agencies.
ABB Limited, (2010) TIOL 94 ARA-IT dated 15-3-2010

S. 195 : Deduction of tax at source – Non-resident - Double Taxation relief - India & US - Art. 12, Income Tax Act
Basic design services provided by US entity which includes preparation of plan, concept design, design development and other related consultancy services during construction phase are part of architectural services provided by the US entity. Payment received for such services are fees for included services as it involved development and transfer of technical plan and design. The agreement needs to be read having regard to the predominant features of the contract and by taking into account crux and substance of the contract.
Remittance made to the US entity for making payment to consultants directly to the taxpayer represents reimbursement of actual expenses and does not represent income chargeable to tax.
HMS Real Estate (2010) TIOL 17 ARA-IT dated 18-3-2010

S. 195 : Deduction of tax at source – Non-resident - Double Taxation relief– India & USA – Art. 7, Income Tax Act
Consideration paid by Indian company to American company under assignment agreement was not capital gains but business profits. Since American company did not have PE in India, consideration not chargeable to tax in India. Payer not required to withhold tax under section 195.
Laired Technologies India Pvt. Ltd. (2010) 323 ITR 598 (AAR)

S. 234B : Interest - Advance Tax - Retrospective Amendment
Assessee is not liable to pay interest under section 234B when by retrospective amendment made later the amount becomes taxable. Administrative relief can be obtained by the assessee cannot erode the powers of the tribunal while dealing with the valid appeal laid before it.
Sun Petrochemicals Pvt. Ltd.vxs.ITO, ITAT `D' Bench, Ahmedabad ITA No. 1010/Ahd./2009, decided on 5-6-2009 (BCAJ 42-A, May 2010 pg. 168)

S. 234B : Interest - Advance tax - MAT Credit (S. 115JAA)
MAT credit available under section 115JAA, represents tax paid by the assessee before determination of total income under section 143(1) or completion of regular assessment within the meaning of sub section (2) of section 234B and therefore credit for MAT under the provisions of section 115JAA has to be reckoned in computing interest payable under section 234B .Amendment made by Finance Act, 2006, by substituting Expln 1 to section 234B was clarificatory or curative in nature and consequently , even prior to the amendment, the credit
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under section 115JAA could not be ignored in determining the liability to pay interest under section 234B.
CITvxs.Apar Industries Ltd. (2010) 38 DTR 128 / 323 ITR 411 / 231 CTR 313 (Bom.).

S. 234B : Interest – Tax Deduction at Source
Interest under section 234B is not chargeable where the income of the assessee is subject to Tax deduction at source.
Director ITvxs.Krupp Udge GmbH (2010) 38 DTR 251 (Bom.)

S. 244A : Interest on refunds - MAT- (S. 115JAA)
Interest under section 244A, is allowable on the refundable taxes arrived after giving credit of brought forward MAT under section 115JAA.
CITvxs.Apar Industries Ltd. (2010) 38 DTR 128 (Bom.)

S. 248 : Appeal - Denial of liability to deduct tax
Dispute relating to the chargeability of income of the non-resident recipient can alone be the subject matter of an appeal under section 248 and not the possibility of assessing of the income of the non resident in the hands of the resident payer as no procedure of assessment of the income of the non-resident in the hands of the resident payer is contemplated in sub section 1 of section 195.
CITvxs.Sonata Information Technology Ltd. (2010) 38 DTR 350 (Kar.)

S. 251 : Powers of the Commissioner (Appeals) - Finding - Direction
An appellate authority can not give direction or finding in respect of other years, direction or finding can be given only in respect of year or period which is before the authority.
Sun Metal Factory (I) (P) Ltd.vxs.ACIT (2010) 124 ITD 14 (Chennai)

S. 253(4) : Appellate Tribunal - Cross objection
Cross objection at assessee's instance in its own appeal is not maintainable.
Vidya Institutevxs.CIT (2010) 3 ITR 491 (Delhi) (Trib.)

S. 253(6) : Appellate Tribunal - Appeal fees - Penalty
An appeal against levy of penalty under section 271 is covered by cl. (d) of section 253(6), and the fee payable is Rs. 500 only.
Dabwali Transport Companyvxs.ACIT (2010) 38 DTR 434 (Chd.) (Trib.)
Monthly Digest of Case Laws (May 2010) 1 5
Editorial Note:- Refer Ajit Kumar Pandey (Dr.) (2009) 310 ITR 195 (Patna)

S. 254(1) : Appellate Tribunal – Power - Deduction under an alternative section
Assessee having claimed deduction under section 36(1)(vii), Tribunal was empowered to deal with the issue of allowability of the impugned amount as an expenditure under section 37(1).
CITvxs.Khaitan Chemicals & Fertilizers Ltd. (2010) 38 DTR 86 (Del.)

S. 254(1) : Appellate Tribunal – Duty - Reasoned order
While deciding the appeal, Tribunal should del with issues both on facts and law with reference to submissions urged and then return its own reasoning, quoting the finding of CIT (A) and simply upholding the same without its own reasoning is not proper.
K. D. Wires (P) Ltd.vxs.CIT (2010) 38 DTR 210 (MP)
Editorial Note:- Refer Jt. CITvxs.Saheli leasing & Industries (2010) 324 ITR 170 (SC)

S. 254(2) : Appellate Tribunal - Rectification of mistake
Second application for rectification is not maintainable.

S. Panneerselvam (Dr.)vxs.ACIT (2010) Tax. L.R. 326 (Mad.) (Vol. 40 May 2010)

S. 254(2) : Appellate Tribunal - Rectification of Mistake – Book Profit – Retrospective Amendment (S. 115JB)
Retrospective amendment after passing order does not lead to "apparent mistake".
ACITvxs.GTL Ltd. (ITAT Mumbai)

S. 260A : Appeal - High Court - Condonation of delay - Amendment
In view of the amendment of the Act, giving power to the High Court to condone the delay in filing appeals, liberty is given to the department to move the High court by way of review of the impugned order dismissing department's belated appeal on the ground that it has no power to condone the delay.
CITvxs.ICICI Bank Ltd. (2010) 38 DTR 319 / 231 CTR 439 (SC)

S. 263 : Revision - erroneous and prejudicial order - merger
Where the Assessing Officer has applied his mind to the issue of applicability of section 40A(3), vis-à-vis block assessment and taken a possible view, the CIT is not justified in exercising powers of revision under section 263. Once the issue was considered and decided by the CIT(A) revision under section 263 cannot be done.
Ranka Jewellersvxs.Addl. CIT (2010) 38 DTR 293 (Bom.)
Monthly Digest of Case Laws (May 2010) 1 6

S. 263 : Revision - non compete fee - possible view
The view taken by the Assessing Officer on the date of passing of order being a possible view as per legal position, it cannot be said to be erroneous or prejudicial to the interest of revenue.
Double Dot Finance Ltd.vxs.ACIT (2010) 38 DTR 220 (Mum.) (Trib.)

S. 271(1)(c) : Penalty – concealment - false claim of depreciation
Assessee having entered in to an artificial arrangement of purchase and lease back transaction to evade tax liability and the transaction having found to be bogus penalty under section 271(1)(c) is leviable.
Ultramarine & Pigments Ltd.vxs.ACIT (2010) 38 DTR 42 (Mum.) (Trib.)

S. 271(1)(c) : Penalty – concealment - advice of the tax consultant
Where the claim of deduction was made on the basis of advice of the tax consultant supported by tax audit report, there was no concealment or furnishing of inaccurate particulars on the part of the assessee penalty can not be made merely because the claim of deduction was disallowed in assessment proceedings.
Yogesh R. Desaivxs.ACIT (2010) 38 DTR 101 (Mum.) (Trib.)

S. 271(1)(c) : Penalty – concealment - disallowance on estimate basis
Assessing Officer having disallowed assessee's claim for expenses on estimation basis and the Tribunal has sustained the addition partly, it cannot be said that there was conscious act of concealment of income or furnishing of inaccurate particulars of income and therefore levy of penalty under section 271(1)(c) is not justified.
Dabwali Transport Companyvxs.ACIT (2010) 38 DTR 434 (Chd.) (Trib.)

S. 271(1)(c) : Penalty – concealment - duty draw back – DEPB - debatable claim
Assessee having included duty drawback / DEPB in the amount eligible for deduction under section 80IB at the time when there was a debatable regarding allowability or otherwise of such claim, hence the issue being debatable penalty under section 271(1)(c) is not justified.
Baldev Wollen Internationalvxs.ITO (2010) 39 DTR 12 (Del.) (Trib.)
WEALTH TAX

S. 2(ea) : Assets – stock-in-trade
Building was held as stock in trade it could not be included in definition of "asset" as per section 2(ea) even though pending completion of sale transaction and it was given on rent to purchasing party.
Dy. CWTvxs.Brilliant Estate Ltd. (Indore) (2010) 124 ITD 8 (Indor

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Saturday, June 26, 2010

ITAT subject to RTI though case details cannot be disclosed without applicant showing public interest.

ITAT subject to RTI though case details cannot be disclosed without applicant showing public interest

The Applicant sought from the CPIO, ITAT, inspection of records relating to appeals of Escorts Limited & another and information on how third parties can become interveners and inspection of records relating to s. 4 RTI compliance. Information on the procedure to make vigilance complaints was also sought. The application was rejected by the CPIO on the ground that 'larger public interest' had not been established. The appeal was rejected by the appellate authority on the ground that the Applicant was "misusing the provisions of the RTI Act to create unnecessary proceedings before the authorities who are expected to do the important government work". It was held that the Applicant was "harassing the authorities under the said Act in the name of doing certain public good work, which is known only to his imaginations". It was also alleged that the Applicant was not a 'whistle-blower' but a 'nuisance maker' and that he may be using the RTI Act as a 'black-mailing or arms twisting tactics'. It was also held that judicial records were not liable for disclosure. On second appeal, HELD by the CIC:

(i) The argument that because the information held by ITAT is in the form of only judicial record, such record is outside the purview of the RTI Act is not acceptable. Even the Supreme Court and High Courts have rules for disclosure of judicial information. The only requirement is that applicant must adhere to the particular rules in making an application under the RTI Act.

(ii) On the question whether the information sought by the Applicant can be regarded as "information, the disclosure of which would amount to invasion of privacy" and exempt from disclosure u/s 8(1) (j), in Rakesh Kumar Gupta vs. PIO it was held that s. 8(1)(j) would not apply. However, as that order has been stated by the Delhi High Court, the earlier order of the CIC in Raj Kumari vs. CCIT would apply where it was held that personal information given to a public authority was not liable for disclosure. Disclosure of personal information will amount to invasion of privacy unless public interest is disclosed. Accordingly, inspection of the case files of third parties cannot be granted. However, the ITAT is liable to disclose the other information sought.

(iii) The decision of the Appellate Authority seems moved more by animosity than in reliance upon the law. The Applicant represents a class of persons created by the ITAT itself to generate information regarding delinquent activities of tax payers. In doing this, it cannot treat such a resource as a mere pest but must accept responsibility for this requirement. It may be kept in mind that this resource is sustained only by financial returns promised by disclosure about delinquent tax payers to the Department. While encouraging such an activity, the Income Tax Department cannot then seek to keep itself aloof from the consequences.

Tuesday, June 22, 2010

[2010] 5 taxman 105 (Hyd. - ITAT) (sec 263) : Every loss of revenue as a consequence of an order of Assessing Officer, cannot be treated as prejudicial to the interests of the revenue

Every loss of revenue as a consequence of an order of Assessing Officer, cannot be treated as prejudicial to the interests of the revenue

When an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law.

[2010] 5 taxmann.com 105 (Hyd. - ITAT)

ITAT, HYDERABAD BENCH 'A', HYDERABAD

Inventaa Chemical Ltd.

ACIT

ITA No. 328/Hyd/2006

May 26, 2010

FACTS

the assessee herein is a Public Limited Company in which the public are not substantially interested, carrying on business of manufacture and sale of Chemicals. For the assessment years 2002-03, the assessee company filed return of income on 31.10.2002 admitting total income of Rs. NIL. The book profit for the purpose of Sec.115JB was admitted at Rs. NIL. The assessment was completed u/s 143(3) on 29.3.2004 and the total income was determined at Rs. Nil. after adjustments of the brought forward loss. The book profit was also determined at Rs. Nil. For the purpose of arriving at the book profit, the assessee deducted unabsorbed depreciation as per the books at Rs.1,86,11,743/-. After the assessment was completed, the CIT, Hyderabad-II issued a notice u/s 263 of the Act requiring the assessee to explain as to why the assessment should not be revised by withdrawing deduction towards unabsorbed depreciation. The assessee filed a detailed reply before the CIT-II, Hyderabad. It was explained that there was loss as per the books of account and such loss is allowable as a deduction for the purpose of arriving at the book profit. The CIT, rejected the contention of the assessee and passed an order u/s 263 on 16.2.2006. According to CIT, the unabsorbed depreciation of Rs.1,86,11,743/- for the assessment year 2001-02 should not be allowed as a deduction for the purpose of arriving at the book profit for the assessment year 2002-03. Accordingly passed order u/s 263.

HELD

A bare reading of Sec. 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) the order of the assessing officer sought to be revised is erroneous and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the ITO is erroneous but is not prejudicial to the Revenue of if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to sec. 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial in the interests of the Revenue unless the view taken by the ITO is unsustainable in law. This view of ours fortified by the judgement of Hon'ble Supreme Court in the case of Malabar Industries Company Ltd. (243 ITR 83).

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

11.1 A bare reading of Sec. 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely (i) the order of the assessing officer sought to be revised is erroneous and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the ITO is erroneous but is not prejudicial to the Revenue of if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to sec. 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial in the interests of the Revenue unless the view taken by the ITO is unsustainable in law. This view of ours fortified by the judgement of Hon'ble Supreme Court in the case of Malabar Industries Company Ltd. (243 ITR 83).

12. In the present case, as seen from the arguments of the assessee's counsel, there are various decisions available at the time of completing assessment which are in favour of the assessee on the impugned issues. In the case of Starchik Specialties Ltd. Vs. DCIT (2004) (90 ITD 34 (Hyd), DCIT Vs. Govind Rubber (P) Ltd. (2004) (89 ITD 457) (Mum), Tushako Pumps Ltd. Vs. ACIT (2005) 2SOT 556 (Mum) and in the case of CIT Vs. Syncome Formulations (I) Ltd. (106 ITD 193) (Mumbai Special Bench) wherein it was held that the deduction u/s 80HHC deserves to be computed by taking into consideration book profit and cannot be restricted to the profits of the business as computed under the normal provisions of the IT Act. Similar view has been taken by Co-ordinate Bench in the case of DCIT Vs. M/s Glenmark Laboratories Ltd. in ITA No.4155/Mum/07 vide order dated 9.11.2007 for the assessment year 2004-05 and also by Hon'ble Madras High Court in the case of CIT Vs. K.G. Denim Ltd. (180 Taxman 590).

12. 1 In this circumstance, we are of the opinion, that the assessing officer's decisions are based on various judicial pronouncements though decision of the assessing officer is prejudicial to the Revenue, it cannot be treated as erroneous. In view of this, in our opinion, the CIT cannot invoke the provisions of Sec. 263 to set right the errors committed by the assessing officer.

Monday, June 21, 2010

HC (MUM):In order to attract provisions of section 41(1)(a), there must be a remission or cessation of the trading liability and consequently a benefit must enure to assessee.

In order to attract provisions of section 41(1)(a), there must be a remission or cessation of the trading liability and consequently a benefit must enure to assessee

· In order that the provisions of sub section (1) should be attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee.

[2010] 5 taxmann.com 90 (Bom.)

HIGH COURT OF BOMBAY

SI Group India Ltd.

ITAT

ITA No. 1511 & 1512

June 10, 2010

FACTS

The Petitioner has an industrial unit in the district of Raigad which is a notified backward area. The Government of Maharashtra issued a package scheme of incentives in 1993 by which a scheme for the deferral of sales tax dues was announced. The Petitioner had during the period 1 May 1999 and 31 March 2000 collected an amount of Rs.1,79,68,846/ towards sales tax. Under the scheme the amount was payable in five annual installments commencing from April 2010 and the liability was treated as an unsecured loan in the books of account of the assessee. The State Industrial and Investment Corporation of Maharashtra Limited (SICOM) offered to the assessee an option for the settlement of the deferred sales tax liability by an immediate one time payment. The assessee paid an amount of Rs.50,44,280/ to SICOM which according to the assessee represented the net present value as determined by SICOM. Payment was made by the assessee to SICOM on 26 June 2000. The difference between the deferred sales tax and its present value amounting to Rs.1.29 Crores was treated as a capital receipt and was credited in the books of the assessee to the capital reserve account.

The Assistant Commissioner of Income Tax, Range 3(3), in the assessment order for Assessment Year 200001 brought the aforesaid difference of Rs.1.29 Crores to tax under Section 41(1) of the Income Tax Act 1961. The appeal filed by the assessee before the Commissioner (Appeals) for 2000-01 as well as the appeal for 2001-02 came to be dismissed by the appellate authority. The Tribunal dismissed the appeals filed by the assessee for these two Assessment Years by a common order dated 6 January 2009. The assessee then moved the Tribunal in a miscellaneous application under Section 254 which was dismissed on 10 September 2009.

HELD

In order that the provisions of sub section (1) should be attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee. The liability of the assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under clause (a) of sub section (1) it is inter alia required that the assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee. In the present case, the dispute between the assessee and the Revenue is as to whether there was a remission or cessation of the liability on account of sales tax.

The assessee had collected an amount of Rs.1.79 Crores towards sales tax dues during the period 1 May 1999 and 31 March 2000. Under the package scheme of incentives announced by the Government of Maharashtra in 1993 the sales tax dues had to be paid in five installments commencing from April 2010. SICOM as the implementing agency quantified, according to the assessee, the net present value of the deferred liability of the assessee at Rs.50.44 lacs which was paid by the assessee to SICOM. However, the sales tax officer while passing the assessment order on 18 March 2004 did not consider the amount paid to SICOM as repayment of the deferred liability of the assessee to the extent of Rs.1.79 Crores under the Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. The appeals filed by the assessee before the Deputy Commissioner of Sales Tax were dismissed upon which the assessee filed a second appeal before the Maharashtra Sales Tax Tribunal. The Tribunal, by its judgment dated 8 February 2008 upheld the order of the lower authorities of not giving credit of the payment made by the assessee to SICOM. In these proceedings, neither the validity of the order passed by the Sales Tax Tribunal nor for that matter the correctness of the reasons that weighed with the Tribunal can be called into question. The Tribunal observed that though the assessee had made a premature payment of the deferred tax in accordance with the scheme issued by the Department of Industries of the State Government under the package scheme of incentives of 1993, the payment of the net present value was to be made in the challan prescribed under the Sales Tax Act which constituted the lawful mode of making payment and the payment which was made to SICOM would nonetheless have to follow the procedure prescribed under the Act. The Tribunal was of the view that the decision of the assessing authority and of the Deputy Commissioner of Sales Tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be "considered for relevant period for relevant deferred amount".

The net result of the order of the Sales Tax Tribunal dated 8 February 2008 is to uphold the decision of the assessing authority declining to grant credit of the payment made by the assessee to SICOM towards discharge of the deferred sales tax liability. As a matter of fact, on 22 July 2008 a notice of demand was issued under Section 38 of the Bombay Sales Tax Act of 1959 to the assessee by the Deputy Commissioner of Sales Tax, Navi Mumbai in the total amount of Rs.1,33,13,555/. Having regard both to the order passed by the Sales Tax Tribunal on 8 February 2008 and the notice of demand issued on 22 July 2008, it is not possible for the Court to accept the contention that there was a remission or cessation of liability. Since the record before the Court does not disclose that there was a remission or cessation of liability, one of the requirements spelt out for the applicability of Section 41(1)(a) has not been fulfilled in the facts of the present case.

______JUDGMENT________

(Per Dr. D.Y.CHANDRACHUD, J.) :

1. This judgment will govern two appeals instituted by the assessee under Section 260A of the Income Tax Act, 1961 and two petitions under Article 226 of the Constitution. Although several questions are raised in the appeals, for the purposes of these proceedings it would be sufficient to deal with the following question of law on which the appeals are admitted:

"Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in completely disregarding the contention of the Appellant that there was no remission or cessation of the sales tax liability on account of payment of the present value thereof being made to SICOM since the sales tax authorities had not given credit of the said payment against the sales tax liability;"

2. The Petitioner has an industrial unit in the district of Raigad which is a notified backward area. The Government of Maharashtra issued a package scheme of incentives in 1993 by which a scheme for the deferral of sales tax dues was announced. The Petitioner had during the period 1 May 1999 and 31 March 2000 collected an amount of Rs.1,79,68,846/ towards sales tax. Under the scheme the amount was payable in five annual installments commencing from April 2010 and the liability was treated as an unsecured loan in the books of account of the assessee. The State Industrial and Investment Corporation of Maharashtra Limited (SICOM) offered to the assessee an option for the settlement of the deferred sales tax liability by an immediate one time payment. The assessee paid an amount of Rs.50,44,280/ to SICOM which according to the assessee represented the net present value as determined by SICOM. Payment was made by the assessee to SICOM on 26 June 2000. The difference between the deferred sales tax and its present value amounting to Rs.1.29 Crores was treated as a capital receipt and was credited in the books of the assessee to the capital reserve account.

3. The Assistant Commissioner of Income Tax, Range 3(3), in the assessment order for Assessment Year 200001 brought the aforesaid difference of Rs.1.29 Crores to tax under Section 41(1) of the Income Tax Act 1961. The appeal filed by the assessee before the Commissioner (Appeals) for 2000-01 as well as the appeal for 2001-02 came to be dismissed by the appellate authority. The Tribunal dismissed the appeals filed by the assessee for these two Assessment Years by a common order dated 6 January 2009. The assessee then moved the Tribunal in a miscellaneous application under Section 254 which was dismissed on 10 September 2009.

4. Accordingly the assessee has filed two appeals before this Court under Section 260A to challenge the principal order of the Tribunal dismissing the appeals for Assessment Years 2000-01 and 2001-02. The Petitions under Article 226 questioned the correctness of the order passed by the Tribunal dismissing the applications under Section 254. During the course of the proceedings, we have heard submissions on behalf of counsel appearing on behalf of the assessee and counsel appearing on behalf of the Revenue on the merits of the appeals filed before this Court under Section 260A and which as noted earlier have been admitted. In the view which we are inclined to take on the appeals, the Petitions under Article 226, challenging the order of the Tribunal under Section 254 would be rendered redundant.

5. On behalf of the assessee, learned senior counsel submitted that the principal requirement for the applicability of Section 41 is that the assessee must obtain a benefit in respect of a trading liability by way of a remission or cessation thereof. The two submissions which have been urged on behalf of the assessee are that (i) there was no cessation of the liability of the assessee in the present case in respect of the payment of the sale tax dues; and (ii) assuming that there was a cessation, no benefit was obtained by the assessee. The submission which has been urged on behalf of the assessee is that as a matter of fact the issue pertaining to the sales tax liability was decided by the Sales Tax Tribunal by its judgment dated 8 February 2008 and the Tribunal specifically upheld the order passed by the lower authorities declining to give credit to the assessee of the payment which was made to SICOM. The matter, the court is informed, is pending in reference and consequently at this stage, so long as the order of the Tribunal continues to hold the field, it cannot be inferred that there was a remission or cessation of liability. Insofar as the second submission is concerned, the argument before the Court is that the assessee in paying the net present value of the deferred liability to pay the sales tax dues of Rs.1.29 Crores has not obtained any benefit as such within the meaning of Section 41(1) since the payment of Rs.50.44 lacs represents only the present value of the liability to make a deferred payment of Rs.1.79 Crores in future.

6. On the other hand, it was urged on behalf of the Revenue that the order of the Sales Tax Tribunal upon which reliance has been placed by the assessee would in fact indicate that the payments which were made by the assessee were regarded as having a nexus towards payments of the sales tax dues and liberty was granted to the assessee upon obtaining a valid document under the package scheme of incentives to be considered for the relevant period towards payment of the deferred amount.

7. Section 41(1)(a) of the Act provides as follows :

"41.(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year ( a) the first mentioned person has obtained, whether in cash or in an other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not;"

8. In order that the provisions of sub section (1) should be attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee. The liability of the assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under Section 43B. However, under clause (a) of sub section (1) it is inter alia required that the assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee. In the present case, the dispute between the assessee and the Revenue is as to whether there was a remission or cessation of the liability on account of sales tax.

9. The assessee had collected an amount of Rs.1.79 Crores towards sales tax dues during the period 1 May 1999 and 31 March 2000. Under the package scheme of incentives announced by the Government of Maharashtra in 1993 the sales tax dues had to be paid in five installments commencing from April 2010. SICOM as the implementing agency quantified, according to the assessee, the net present value of the deferred liability of the assessee at Rs.50.44 lacs which was paid by the assessee to SICOM. However, the sales tax officer while passing the assessment order on 18 March 2004 did not consider the amount paid to SICOM as repayment of the deferred liability of the assessee to the extent of Rs.1.79 Crores under the Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. The appeals filed by the assessee before the Deputy Commissioner of Sales Tax were dismissed upon which the assessee filed a second appeal before the Maharashtra Sales Tax Tribunal. The Tribunal, by its judgment dated 8 February 2008 upheld the order of the lower authorities of not giving credit of the payment made by the assessee to SICOM. In these proceedings, neither the validity of the order passed by the Sales Tax Tribunal nor for that matter the correctness of the reasons that weighed with the Tribunal can be called into question. The Tribunal observed that though the assessee had made a premature payment of the deferred tax in accordance with the scheme issued by the Department of Industries of the State Government under the package scheme of incentives of 1993, the payment of the net present value was to be made in the challan prescribed under the Sales Tax Act which constituted the lawful mode of making payment and the payment which was made to SICOM would nonetheless have to follow the procedure prescribed under the Act. The Tribunal was of the view that the decision of the assessing authority and of the Deputy Commissioner of Sales Tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be "considered for relevant period for relevant deferred amount".

10. The net result of the order of the Sales Tax Tribunal dated 8 February 2008 is to uphold the decision of the assessing authority declining to grant credit of the payment made by the assessee to SICOM towards discharge of the deferred sales tax liability. As a matter of fact, on 22 July 2008 a notice of demand was issued under Section 38 of the Bombay Sales Tax Act of 1959 to the assessee by the Deputy Commissioner of Sales Tax, Navi Mumbai in the total amount of Rs.1,33,13,555/. Having regard both to the order passed by the Sales Tax Tribunal on 8 February 2008 and the notice of demand issued on 22 July 2008, it is not possible for the Court to accept the contention that there was a remission or cessation of liability. Since the record before the Court does not disclose that there was a remission or cessation of liability, one of the requirements spelt out for the applicability of Section 41(1)(a) has not been fulfilled in the facts of the present case.

11. In the view that we have taken it is not necessary for the Court to address itself to the wider issue as to whether the assessee, in paying the net present value of the deferred sales tax liability should be regarded as having obtained any benefit within the meaning of Clause (a) of sub section (1) of Section 41. The aforesaid issue is kept open to be adjudicated upon at the appropriate stage in appropriate proceedings.

12. The Tribunal, in our view, was in error in proceeding on the basis that there was a remission or cessation of liability. The attention of the Tribunal was drawn to the order passed by the Sales Tax Tribunal. The fact that the order of the Sales Tax Tribunal was placed for consideration before the Income Tax Appellate Tribunal emerges from the order of the Tribunal itself. Consistent with the order passed by the Sales Tax Tribunal which continues to hold the field, the ITAT could not have come to the conclusion that there had occurred a remission or cessation of liability during the Assessment Years in question.

13. For the aforesaid reasons, the appeals filed by the assessee are allowed and the question of law as framed is answered in favour of the assessee and against the Revenue. In the view which we have taken it is not necessary for the Court to enquire into the correctness of the order passed by the Tribunal on the application under Section 254. Both the petitions shall accordingly stand disposed of. In the circumstances of the case, there shall be no order as to costs.

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Saturday, June 19, 2010

ITR Volume 324 : Part 3

INCOME TAX REPORTS (ITR) HIGHLIGHTS ISSUE DATED 21-6-2010

Volume 324 : Part 3

SUPREME COURT JUDGMENTS

>>Mandatory condition of payment of admitted tax cannot be read into provision relating to Appellate Tribunal : CIT v. Pawan Kumar Laddha p. 324

>>Doctrine of incorporation has to be clearly spelt out : CIT v. Pawan Kumar Laddha p. 324

>>Amount on which interest for period during which tax not refunded will include amount of tax deducted at source : CIT v. H. E. G. Ltd. p. 331

HIGH COURT JUDGMENTS

>>Charging of Modvat to profit and loss account not a ground for reassessment : Jay Bharat Maruti Ltd. v. CIT (Delhi) p. 289

>>Notice on basis of escape of an item of income : Other items of income cannot be assessed : Jay Bharat Maruti Ltd. v. CIT (Delhi) 289

>>Lifting goods to be delivered to purchaser but not delivering : Assessee owner of goods liable to tax on them : D. N. Singh v. CIT (Patna) p. 304

>>Finding of user for purpose of business entitled to depreciation : CIT v. Panacea Biotech Ltd. (Delhi) p. 311

>>Invoice issued and purchase consideration accounted in assessee's books : Assessee entitled to claim in relevant assessment year : CIT v. Panacea Biotech Ltd. (Delhi) p. 311

>>Tribunal allowing expenditure on research and development on basis of survey report explaining expenditure : Proper : CIT v. Panacea Biotech Ltd. (Delhi) p. 311

>>Borrowed capital advanced to sister concern without charging interest : Interest paid by assessee not deductible : CIT v. Accelerated Freeze Drying Co. Ltd. (Ker) p. 316

>>Duty of Tribunal to decide case on the basis of facts : CIT v. Accelerated Freeze Drying Co. Ltd. (Ker) p. 316

>>Assessee to be given an opportunity to deal with distinguishable features of case relied on : Inventure Growth and Securities Ltd. v. ITAT (Bom) p. 319

>>Interest from short-term deposits to be treated under head "Business income" : CIT v. J. J. Exporters Ltd. (Cal) p. 329

>>Company unable to reach target on account of change in law for a public limited company and suffering losses and selling all its assets : Addition made by AO deleted : AGM Protection Devices Ltd. v. Deputy CIT (Delhi) p. 334

STATUTES

>>Rules :

Income-tax (Fourth Amendment) Rules, 2010 (Contd.)

JOURNAL

>>A non-resident is not under an obligation to apply for PAN, for TDS purposes, as per section 206AA (S. K. Tyagi, Advocate) p. 1

F Revised Discussion Paper on the Direct Taxes Code p. 15

>>Whether amalgamation/merger can only be of companies carrying on similar businesses ? (T. N. Pandey, Retd. Chairman, CBDT) p. 11

NEWS-BRIEF

>>Speech of the hon'ble Finance Minister during the 26th of Annual Conference of Chief Commissioners and Director Generals of Income-tax at New Delhi on 9th June, 2010

Tax collection

Direct Taxes, now the major resource provider to the Central Government, have grown at an average annual rate of 24 per cent. in the last five years and have nearly trebled from Rs. 1,32,771 crores in the financial year 2004-05 to about Rs. 3,78,000 crores in financial year 2009-10, increasing its share from 4.1 per cent. to 6.1 per cent. of the gross domestic product (GDP). This tremendous growth has been made possible not only due to rationalisation of tax structure and improvement in tax administration leading to better tax compliance, but also persistent and unrelenting efforts of employees of the Income-tax Department.

Tax reforms

2. To improve the compliance further, tax laws need to be simple, stable and robust; tax rates should remain moderate; and multiplicity of tax exemptions and deductions should be gradually phased out in order to widen and deepen the tax base. The tax administration needs to be further toned up by appropriate use of technology on the one hand, and improving professional competence and responsiveness of the employees on the other.
3. A major tax reform initiative has already been announced in the proposed "Direct Taxes Code 2009" to simplify, rationalise and consolidate the laws and procedure, relating to direct taxes. Its draft is under revision, taking into consideration the areas of concern expressed by various stakeholders, and the discussion paper will be shortly in the public domain before introduction in Parliament in the forthcoming monsoon session. It will indeed be legislation for the 21st century, which will witness the emergence of an economically strong and vibrant India. I anticipate that the new Code will usher in major changes in procedures and practices of direct tax. The Department, therefore, needs to draw a roadmap for administratively meeting the challenges and the changes that will be introduced by the new Code. The Human Resource Directorate of the Department should draw up plans for training in co-operation with tax training institutes for capacity building for implementation of the Direct Taxes Code. The transition from existing law to DTC would require completion of delegated legislation in a time bound manner. The CBDT should ensure smooth transition by planning the activities schedule well in advance.

International taxation

4. Growth in international trade and commerce driven by globalisation is throwing up new and complex challenges. Globalisation offers a global market for product and services but at the same time it also poses challenges. The recent financial crisis has shown how an economic difficulty of one country can get exported to other countries. Similarly, the development of tax shelter products and use of tax havens is another challenge, which emanates from globalization. In our response to global challenges we have set up two Income-tax Overseas Units (ITOUs) within Indian Missions in Singapore and Mauritius to facilitate exchange of information. Eight more such units in USA, UK, Netherlands, Japan, Cyprus, Germany, France and UAE are also being created on similar lines. I am hopeful that these measures would result in seamless flow of tax-related information from foreign tax jurisdictions and would strengthen our fight against menace of tax evasion using cross border transactions.

Taxpayer services

5. The Department needs to improve its infrastructure to match global standards of delivery of taxpayer services. The effective roll out of Sevottam and Aayakar Sewa Kendra (ASK) would require adequate infrastructure. It is necessary to make the infrastructure state-of-the art to improve the working environment and to make a visit to the tax office a pleasant experience. Processing of tax returns, now done on the National Computer Network, has to be made more efficient. Towards this, two more Centralized Processing Centres (CPCs) at Pune and Manesar should be set up expeditiously. Efforts should be made to further popularise and increase electronic filing of tax returns and electronic payment of taxes to reduce paper-work and make taxpayer services environmentally friendly. The scope of Large Taxpayer Units (LTUs), presently operational in four metropolitan cities, needs to be expanded for deepening of tax base as well as for centralized services to large taxpayers.

6. While taxpayer services have improved there are still large numbers of taxpayer grievances, including grievances relating to tax refunds and credit of TDS, which need to be attended on urgent basis. At the systemic level CBDT should ensure that Directorate of Systems take immediate steps to streamline the issue of credit of TDS. Apart from systemic changes, the grievance redressal mechanism including Ombudsman need to be integrated and streamlined. A holistic approach needs to be developed to cater to the rising expectations of taxpayers. The CBDT should immediately come up with a comprehensive and net-based grievance redressal mechanism in line with the best global practices.

7. A number of services offered by the Department have become technology driven. It may not be possible to deliver the services of desired quality in the existing structure of tax administration. The CBDT may come out with a new structure, which leads to faster adoption of technology and innovation. The CBDT may, therefore, consider hiving off its technology driven taxpayer services to a special purpose vehicle (SPV), which can better deliver such services in the public-private-partnership mode. This will lead to innovation in delivery of services to taxpayers and also involvement of public in delivering the services.

Strategies for meeting tax collection target

8. For the current financial year, the direct tax collection target has been fixed in the Budget Estimates at Rs. 4,30,000 crores at a growth of 13.7 per cent. over the actual collection last year. We have deliberately called this conference in the beginning of the financial year to deliberate strategies and draw action plan to achieve this target. Apart from concentrating on big cities and towns, the Department should also look to smaller towns and cities for widening of tax base. The smaller towns and centres have emerged as centres of growth due to inclusive growth agenda of Government. The Department may also develop special strategies to monitor TDS compliance at the District level, State level and at Central level.

9. The GDP is poised to grow at 8.5 per cent. during 2010-11. Sectors of the economy performing well should be monitored for tax compliance and we should get our due taxes. The Department should also make attempts to widen and deepen the tax-base further. It should improve utilization of information relating to high value transactions available through Annual Information Returns (AIR), Central Information Branches (CIB) and other sources. Using multisource data, the Department should refine risk profiling of taxpayers and assessments and investigations should be carried out accordingly. Using this intelligence data the Department should develop credible deterrence for taxpayers, who are habitual tax evaders.

Strengthening manpower and improving employee welfare

10. Skills of the personnel working in the Department need constant upgradation in view of changing tax regulations, technology and global economic environment. Though I find that the CBDT has taken some steps in this direction through knowledge management by yearly publication of the book titled "Let us Share", containing the best orders and practices, yet further steps need to be expeditiously taken in its training and skill upgradation programmes adopting the best global practices. I understand that CBDT is already providing exposure to probationers at NADT about international practices through international attachments. This has to be taken forward by suitably designing mid-career training programmes for officers at regular intervals. This will equip officers to face challenges of dealing with complex international transactions and menace of tax avoidance schemes using tax havens and low tax jurisdictions. This will also help us in getting our due share of taxes especially from cross border transactions. I am happy to announce that Advanced Mid-Career Training Programme (AMCTP) for IRS officers would be started during the current year.

11. A satisfied work force is the backbone and strength of an organisation. We have modified the transfer policy for the Indian Revenue Service (IRS) officers to improve satisfaction levels and minimise unwarranted service litigation with our own employees. The Standing Committee on Finance, in its report for 2009-10, has expressed concern about shortages of manpower in the Department. This needs to be addressed urgently, especially in the face of the exponentially increasing workload, and the challenges of maximising revenue generation along with efficient taxpayer service. I am told that cadre restructuring of the CBDT is pending for quite some time, which has adversely affected the implementation of core areas of work in the Income-tax Department. The tax laws can be implemented effectively by aligning the tax administration with the intent of tax policy. If there is a mismatch, then it may be difficult to implement a tax policy, however good it may be. The CBDT should ensure that deployment of human resources is in consonance with requirement of the tax laws and this should be ensured by completing the timely exercise of cadre restructuring and by holding regular Departmental Promotional Committee (DPC) as per the Department of Personnel and Training (DoPT) calendar. In the long-term, we should aim for human resource policy, which is conducive for specialisation, promotes administrative innovation, provides equal opportunity and keeps employees in high state of motivation.

12. In the last year's conference, I had emphasised the need for expediting vigilance matters. I find that though there is improvement, the progress is not at the desired levels. More focussed approach with proper adherence to prescribed time-lines is needed to expedite vigilance matters. I want to see that no charge sheets are filed against our own employees at the last day of retirement after more than 30 years of service to Government. We should ensure that guilty is punished but at the same time ensuring that those who have performed their duties and victims of frivolous complaints should be adequately protected. The Department need to focus on preventive vigilance and adopt a strategy for zero tolerance for corruption. The CBDT should set up a committee to examine the vigilance practices and procedures in few select countries. The experience of other countries can be used to streamline and strengthen the vigilance administration in Income-tax Department.

Alternate dispute resolution mechanism

13. The rising litigation with the taxpayers and the quantum of revenue locked in appeals is a matter of serious concern. The strengthening of Settlement Commission, setting up Dispute Resolution Panel (DRP) may address the litigation issues with the taxpayers to some extent. I am told that under mutual agreement procedure (MAP) negotiations under the Indo-USA DTAA a tax demand of Rs. 800 crores in 48 cases has been confirmed. This is a good development and taxpayers should be encouraged to invoke MAP, which has emerged as a preferred alternate dispute resolution mechanism. In spite of these efforts, we need to develop more strategies to reduce the litigation with the taxpayers. I would like the CBDT to come out with a comprehensive proposal to address the issue of unwanted litigation with taxpayers and also to realise locked up revenue in appeals.

Income-tax welfare fund

14. Before I close, I am happy to announce the operationalisation of the Income-tax Welfare Fund, which was pending since 1998. The Fund has a corpus of Rs. 100 crores kept in interest-bearing deposit. The interest earned annually on this deposit, and other annual accruals to the Fund, will be available for welfare activities of employees of the Income-tax Department. I am sure that the CBDT will come out with innovative welfare measures, which will further motivate employees of the Department to excel in their area of work.

SC: Interest earned by a co-operative society , not falls within ambit of 80 P

[2010] 1 taxmann 71 (SC)

Interest earned by a co-operative credit society on surplus funds invested in short-term deposits with banks and in govt. securities cannot fall within meaning of ex-pression "profits and gains of business" mentioned in section 80P(2)

The words "the whole of the amount of profits and gains of business" in section 80P(2)(a) emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society.

SUPREME COURT OF INDIA

The Totgars' Cooperative Sale Society Ltd.
v.
Income tax officer

CIVIL APPEAL NO. 1622 OF 2010

FEBRUARY 8, 2010

RELEVANT EXTRACTS :

** ** ** ** ** **

At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under Section 28 of the Act? In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze Section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain Incomes". The Headnote to Section 80P indicates that the said section deals with deductions in respect of income of Cooperative Societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in Section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the ex-pression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or in Section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by Section 56 of the Act, even then, the assessee-Society is entitled to the benefit of Section 80P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to Section 80HHC, Section 80HHD(3) and Section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject-matter. For example, Section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of Section 80HHC is, therefore, different from the scope of Section 80P of the Act, which deals with deduction in respect of income of cooperative Societies. Even Explanation (baa) to Section 80HHC was added to restrict the deduction in respect of profits retained for export business. The words used in Explanation (baa) to Section 80HHC, therefore, cannot be compared with the words used in Section 80P of the Act which grants deduction in respect of "the whole of the amount of profits and gains of business". A number of judgements were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of Section 80P of the Act. We find no merit because all the judgements cited were cases relating to Cooperative Banks and assessee-Society is not carrying on Banking business. We are confining this judgement to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of Section 80P of the Act would not be correct because we need to give weightage to the words "the whole of the amount of profits and gains of business" attributable to one of the activities specified in Section 80P(2)(a) of the Act. An important point needs to be mentioned. The words "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. In this particular case, the evidence shows that the assessee- Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income" which has been rightly taxed by the Department

under Section 56 of the Act.

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