ITR

Saturday, July 31, 2010

ITR VOL 325 PART 4 / ITR (TRIB) VOL 4 PART 5

INCOME TAX REPORTS (ITR)

Volume 325 : Part 4 (Issue dated 2-8-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Deduction of tax at source --Indian company engaged in sale and export of sea food--Entering into agreement with non-resident for chartering fishing vessels--Indian company bringing catch at high seas to Indian port where value of catch was assessed and local taxes paid--Indian company carrying fish to destination chosen by non-resident--Income of non-resident chargeable in India--Indian company liable to deduct tax at source--Income-tax Act, 1961, ss. 5(2), 195, 201(1)-- Kanchanganga Sea Foods Ltd. v. CIT . . . 540

HIGH COURTS

Advance tax --Interest payable by assessee on shortfall--Scope of section 234B--Interest can be levied for first time in reassessment proceedings--Loss shown and accepted in original return--Reassessment resulting in positive income--Interest not levied under section 234B(3)--Revision of reassessment--Interest could be levied on such revision--Income-tax Act, 1961, s. 234B(3)-- South Indian Bank Ltd. v. CIT (Ker) . . . 517

Appeal to Appellate Tribunal --Income or capital--Non-competing fees--Commissioner (Appeals) directing Assessing Officer to determine year of receipt and confirming assessment--Assessing Officer in meantime passing an order pursuant to direction of Commissioner (Appeals) assessing amount as capital gains--Commissioner (Appeals) deleting addition relying on order of Tribunal--Tribunal dismissing appeal from order of Commissioner (Appeals)--Chargeability of amount not properly analysed and considered--Matter remanded--Income-tax Act, 1961-- CIT v. United Breweries Ltd . (Karn) . . . 485

Assessment --Reference to Valuation Officer--Addition on basis of valuation by District Valuation Officer--Addition deleted on ground report not reliable--Finding of fact not challenged before Tribunal--No interference--Income-tax Act, 1961, s. 142A-- CIT v. N. S. Bakshi (P&H) . . . 607

----Trust--Trust deed providing for operation of trust till beneficiary attains 21 years--Beneficiary on attaining majority revoking trust and carrying on business as proprietor--No assessment on trust permissible thereafter--Department cannot insist trust will operate till beneficiary attains 21 years--Indian Trusts Act, 1882, s. 78(a)-- CIT v. Nelson Trust (Ker) . . . 456

Business expenditure --Deduction only on actual payment--Gratuity--Contribution to gratuity fund--Deductible if made before filing of return--Matter remanded--Income-tax Act, 1961, s. 43B(b)-- CIT v. Popular Vehicles and Services Ltd. (Ker) . . . 523

----Disallowance--Deduction of tax at source--Amount paid to non-resident without deducting tax at source--Demurrage paid by Indian company to foreign company--Section 172 not applicable--Demurrage paid without deducting tax at source--Disallowance under section 40(a)(i) justified--Income-tax Act, 1961, ss. 40(a)(i), 172-- CIT v. Orient (Goa) P. Ltd . (Bom) . . . 554

----Gratuity--Effect of section 40A(7)--Insurance against liability under Payment of Gratuity Act--Conditions laid down in section 40A(7)(a) not fulfilled--Amount not deductible--Income-tax Act, 1961, s. 40A(7)(a)-- CIT v. Pradeshiya Industrial and Investment Corpn. of U. P. Ltd. (All) . . . 583

Business income --Remission or cessation of trading liability--Credits outstanding for six years and acknowledged by creditors--No evidence of deduction in earlier years--Credits not assessable under section 41--Income-tax Act, 1961, s. 41(1)-- CIT v. Smt. Sita Devi Juneja (P&H) . . . 593

Capital gains --Capital asset--Definition--Agricultural land --Report of Tehsildar that land was beyond eight kilometres from municipal limit--Gains arising from transfer not assessable--Income-tax Act, 1961, ss. 45, 54B-- CIT v. Lal Singh (P&H) . . . 588

----Short-term capital loss--Renunciation of right to subscribe to rights shares--Renunciation in favour of general public--Transaction did not amount to transfer--Loss notional--Not deductible--Income-tax Act, 1961-- CIT v. United Breweries Ltd. (Karn) . . . 485

Capital loss --Dividends--Transactions in securities--Dividend stripping--Loss on sale of units set off against profits on sale of units--Sale beyond statutory period of three months--Section 94(7) not attracted--Income-tax Act, 1961, s. 94(7)-- CIT v. Shambhu Mercantile Ltd . (Delhi) . . . 535

----Sale of units--Sale taking place after expiry of three months from record date--Section 94(7) does not apply--Income-tax Act, 1961, s. 94(7)-- CIT v. Smt. Alka Bhosle (Bom) . . . 550

Company --Book profit--Computation--Depreciation not charged to profit and loss account but disclosed in note to accounts--Deductible--Income-tax Act, 1961, s. 115J--Companies Act, 1956, Sch. VI, Parts II, III-- CIT v. Sain Processing and Weaving Mills P. Ltd. (Delhi) . . . 565

Deduction of tax at source --Salary--Employees of Japanese company working for assessee--Assessee not liable to deduct tax at source on salary received by employees from their Japanese employer--Penalty cannot be levied on assessee for non-deduction of tax on such salary--Income-tax Act, 1961, ss. 192, 271(1)(c)-- CIT v. Indo Nissin Foods Ltd. (Karn) . . . 451

Doctrine of merger --Reassessment--Merger of original order in reassessment order only to extent of issues considered in original order--Income-tax Act, 1961, s. 147-- Ashoka Buildcon Ltd . v. Asst. CIT (Bom) . . . 574

Donation for charitable purposes --Special deduction--Assessee carrying on charitable works--Entitled to benefit under section 80G--Income-tax Act, 1961, s. 80G(5)(vi)-- CIT v. Sewa Bharti Haryana Pradesh (P&H) . . . 599

Gift-tax --Gift--Revocable gift not void for purposes of gift-tax--Bonus shares after revocation continue to be property of donee--Gift-tax Act, 1958, s. 6(2)-- CGT v. Sh. Om Parkash Munjal (P&H) . . . 605

Income --Business income--Bottle deposits received from customers--Finding that deposits not sale proceeds--Amount not assessable--Income-tax Act, 1961-- CIT v. United Breweries Ltd . (Karn) . . . 485

----Sale of beer--Bottle deposit shown as liability--Addition on ground that liability not proved--Addition justified--Income-tax Act, 1961-- CIT v. United Breweries Ltd . (Karn) . . . 485

Intercorporate dividends --Special deduction--Computation--Financial institution--Deduction allowable on gross amount of dividend without deducting proportionate deduction available under section 36(1)(viii)--Income-tax Act, 1961, ss. 36(1)(viii), 80M-- Deputy CIT v. G.I.I.C. Limited (Guj) . . . 597

Interest on borrowed capital --Expenditure in relation to income not forming part of total income--Funds diverted to sister concern of which assessee was a partner--Share income from firm not taxable--Interest not deductible--Income-tax Act, 1961 ss. 10(2A), 14A(1), 36(1)(iii)-- CIT v. Popular Vehicles and Services Ltd. (Ker) . . . 523

Precedent --Effect of decisions in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC) and Kumson Motor Owners Union Ltd. v. CIT [1993] 201 ITR 601 (All)-- CIT v. Pradeshiya Industrial and Investment Corpn. of U. P. Ltd . (All) . . . 583

Reassessment --Condition precedent--Reason to believe that income had escaped assessment--Assessee carrying on life insurance business--Method of accounting accepted in original assessment--Subsequent reassessment proceedings on ground that method of accounting was incorrect--Not valid--Income-tax Act, 1961, ss. 147, 148-- ICICI Prudential Life Insurance Co. Ltd . v. Asst. CIT (Bom) . . . 471

----Condition precedent--Reason to believe that income has escaped assessment--Information available with Assessing Officer at time of original assessment--Cannot be a ground for reopening assessment--Audit objection--Not a "reason to believe income escaped assessment"--Income-tax Act, 1961, ss. 80-IB, 148-- Purity Techtextile Private Limited v. Asst. CIT (Bom) . . . 459

----Industrial undertaking--Special deduction--Eligibility--Assessee running unit on licence from purchaser of unit from MFSC--Unit not formed by splitting up or reconstruction of existing business--Deed of conveyance executed by MSFC only in respect of land and building--Plant and machinery installed by assessee not used in another business--That factory plan approved twelve years ago not material--Reassessment to withdraw deduction--Not permissible--Income-tax Act, 1961, ss. 80-IB, 148-- Purity Techtextile Private Limited v. Asst. CIT (Bom) . . . 459

----Notice--Notice in the name of dead person--Notice not served on legal representatives--Notice not valid--Income-tax Act, 1961, s. 148-- CIT v. Suresh Chandra Jaiswal (All) . . . 563

----Reassessment after four years--Industrial undertaking--Special deduction--That factory plan approved twelve years ago disclosed at time of assessment in audit report--No failure to disclose material facts--Reassessment after four years not permissible--Income-tax Act, 1961, ss. 80-IB, 148-- Purity Techtextile Private Limited v. Asst. CIT (Bom) . . . 459

----Reassessment beyond four years--Condition precedent--Failure to disclose material facts necessary for assessment--Assessee carrying on life insurance business--Accounts maintained in accordance with statutory provisions--Change in statutory provisions and consequent change in accounting method--Facts disclosed to Assessing Officer--Reassessment proceedings after four years on ground that accounting procedure was incorrect--Not valid--Income-tax Act, 1961, ss. 147, 148-- ICICI Prudential Life Insurance Co. Ltd . v. Asst. CIT (Bom) . . . 471

Reference --Question not raised earlier--Oral prayer for question--Question could not be referred--Gift-tax Act, 1958-- CGT v. Sh. Om Parkash Munjal (P&H) . . . 605

Refund --Self-assessment--Tax paid on self-assessment cannot be refunded--Voluntary returns and tax paid for assessment years 1979-80 to 1984-85--Reassessments annulled--Self-assessments not annulled--Assessee not entitled to any refund--Income-tax Act, 1961, s. 240, prov. (b)-- Varkey Jacob v. Deputy CIT (Asstt.) (Ker) . . . 507

Revision --Assessment order set aside by Commissioner--Tribunal setting aside order of Commissioner--No occasion for Assessing Officer to pass fresh assessment--Order setting aside order of Assessing Officer pursuant to revision--Justified--Income-tax Act, 1961, s. 263-- CIT v. Sir Shadi Lal Enterprises Ltd .(All) . . . 561

----Commissioner--Limitation--Assessment under section 143(3)--Reassessment--Notice issued on issues unrelated to grounds on which original assessment reopened and reassessed--Limitation starts from original assessment--Income-tax Act, 1961, s. 263-- Ashoka Buildcon Ltd . v. Asst. CIT (Bom) . . . 574

Search and seizure --Block assessment--Undisclosed income--Document seized considered in assessment of third person--Notice could not be issued on assessee under section 158BD--Income-tax Act, 1961, s. 158BD-- Superhouse Overseas Ltd. v. Deputy CIT (All) . . . 448

Wealth-tax --Asset--Definition--Law applicable--Effect of amendment w.e.f. 1-4-1995--Exclusion--Urban land on which commercial building constructed within two years of acquisition--Commencement of construction within two years and completion of construction subsequent to two years--Wealth-tax could not be charged on such land--Wealth-tax Act, 1957, s. 2(ea)(vi), Expln. 1(b)-- Apollo Tyres Ltd. v. Asst. CIT (Ker) . . . 528

----Net wealth--Asset--Urban land--Exclusion--Land on which construction not permitted--Not urban land--Value of land not includible in net wealth--Wealth-tax Act, 1957, s. 2(ea), Expln. 1(b)-- CWT v. Lt. Genl. (Retd.) R. K. Mehra (P&H) . . . 601

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Companies Act, 1956 :

Sch. VI, Parts II, III --Company--Book profit--Computation--Depreciation not charged to profit and loss account but disclosed in note to accounts--Deductible-- CIT v. Sain Processing and Weaving Mills P. Ltd.

(Delhi) . . . 565

Gift-tax Act, 1958 :

S. 6(2) --Gift-tax--Gift--Revocable gift not void for purposes of gift-tax--Bonus shares after revocation continue to be property of donee-- CGT v. Sh. Om Parkash Munjal (P&H) . . . 605

Income-tax Act, 1961 :

S. 5(2) --Deduction of tax at source--Indian company engaged in sale and export of sea food--Entering into agreement with non-resident for chartering fishing vessels--Indian company bringing catch at high seas to Indian port where value of catch was assessed and local taxes paid--Indian company carrying fish to destination chosen by non-resident--Income of non-resident chargeable in India--Indian company liable to deduct tax at source-- Kanchanganga Sea Foods Ltd. v. CIT (SC) . . . 540

S. 10(2A) --Interest on borrowed capital--Expenditure in relation to income not forming part of total income--Funds diverted to sister concern of which assessee was a partner--Share income from firm not taxable--Interest not deductible-- CIT v. Popular Vehicles and Services Ltd. (Ker) . . . 523

S. 14A(1) --Interest on borrowed capital--Expenditure in relation to income not forming part of total income--Funds diverted to sister concern of which assessee was a partner--Share income from firm not taxable--Interest not deductible-- CIT v. Popular Vehicles and Services Ltd. (Ker) . . . 523

S. 36(1)(iii) --Interest on borrowed capital--Expenditure in relation to income not forming part of total income--Funds diverted to sister concern of which assessee was a partner--Share income from firm not taxable--Interest not deductible-- CIT v. Popular Vehicles and Services Ltd. (Ker) . . . 523

S. 36(1)(viii) --Intercorporate dividends--Special deduction--Computation--Financial institution--Deduction allowable on gross amount of dividend without deducting proportionate deduction available under section 36(1)(viii)-- Deputy CIT v. G.I.I.C. Limited (Guj) . . . 597

S. 40(a)(i) --Business expenditure--Disallowance--Deduction of tax at source--Amount paid to non-resident without deducting tax at source--Demurrage paid by Indian company to foreign company--Section 172 not applicable--Demurrage paid without deducting tax at source--Disallowance under section 40(a)(i) justified-- CIT v. Orient (Goa) P. Ltd . (Bom) . . . 554

S. 40A(7)(a) --Business expenditure--Gratuity--Effect of section 40A(7)--Insurance against liability under Payment of Gratuity Act--Conditions laid down in section 40A(7)(a) not fulfilled--Amount not deductible-- CIT v. Pradeshiya Industrial and Investment Corpn. of U. P. Ltd. (All) . . . 583

S. 41(1) --Business income--Remission or cessation of trading liability--Credits outstanding for six years and acknowledged by creditors--No evidence of deduction in earlier years--Credits not assessable under section 41-- CIT v. Smt. Sita Devi Juneja (P&H) . . . 593

S. 43B(b) --Business expenditure--Deduction only on actual payment--Gratuity--Contribution to gratuity fund--Deductible if made before filing of return--Matter remanded-- CIT v. Popular Vehicles and Services Ltd. (Ker) . . . 523

S. 45 --Capital gains--Capital asset--Definition--Agricultural land--Report of Tehsildar that land was beyond eight kilometres from municipal limit--Gains arising from transfer not assessable-- CIT v. Lal Singh (P&H) . . . 588

S. 54B --Capital gains--Capital asset--Definition--Agricultural land --Report of Tehsildar that land was beyond eight kilometres from municipal limit--Gains arising from transfer not assessable-- CIT v. Lal Singh (P&H) . . . 588

S. 80G(5)(vi) --Donation for charitable purposes--Special deduction--Assessee carrying on charitable works--Entitled to benefit under section 80G-- CIT v. Sewa Bharti Haryana Pradesh (P&H) . . . 599

S. 80-IB --Reassessment--Condition precedent--Reason to believe that income has escaped assessment--Information available with Assessing Officer at time of original assessment--Cannot be a ground for reopening assessment--Audit objection--Not a "reason to believe income escaped assessment"-- Purity Techtextile Private Limited v. Asst. CIT (Bom) . . . 459

S. 80-IB --Reassessment--Industrial undertaking--Special deduction--Eligibility--Assessee running unit on licence from purchaser of unit from MFSC--Unit not formed by splitting up or reconstruction of existing business--Deed of conveyance executed by MSFC only in respect of land and building--Plant and machinery installed by assessee not used in another business--That factory plan approved twelve years ago not material--Reassessment to withdraw deduction--Not permissible-- Purity Techtextile Private Limited v. Asst. CIT (Bom) . . . 459

----Reassessment--Reassessment after four years--Industrial undertaking--Special deduction--That factory plan approved twelve years ago disclosed at time of assessment in audit report--No failure to disclose material facts--Reassessment after four years not permissible-- Purity Techtextile Private Limited v. Asst. CIT (Bom) . . . 459

S. 80M --Intercorporate dividends--Special deduction--Computation--Financial institution--Deduction allowable on gross amount of dividend without deducting proportionate deduction available under section 36(1)(viii)-- Deputy CIT v. G.I.I.C. Limited (Guj) . . . 597

S. 94(7) --Capital loss--Dividends--Transactions in securities--Dividend stripping--Loss on sale of units set off against profits on sale of units--Sale beyond statutory period of three months--Section 94(7) not attracted-- CIT v. Shambhu Mercantile Ltd . (Delhi) . . . 535

----Capital loss--Sale of units--Sale taking place after expiry of three months from record date--Section 94(7) does not apply-- CIT v. Smt. Alka Bhosle (Bom) . . . 550

S. 115J --Company--Book profit--Computation--Depreciation not charged to profit and loss account but disclosed in note to accounts--Deductible-- CIT v. Sain Processing and Weaving Mills P. Ltd. (Delhi) . . . 565

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 4 : Part 5 (Issue dated : 2-8-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal to Appellate Tribunal --Admission of additional grounds--Ground relating to validity of assessment order of non-existent company--Legal ground not requiring further investigation of facts--Considered--Confirmation of rectification order without providing opportunity of hearing to assessee--Violation of principles of natural justice--Matter remanded--Income-tax Act, 1961-- Asst. CIT v. Precot Meridian Ltd. (Chennai) . . . 495

Business expenditure --Disallowance--Conveyance expenses, telephone and postage expenses--Expenses recorded in books of account on day-to-day basis and assessee furnished complete details--Partial ad hoc disallowance not proper--Income-tax Act, 1961, s. 37-- Ayushakti Ayurved P. Ltd. v. Asst. CIT (Mumbai) . . . 537

----Disallowance--Foreign travel expenses incurred for business purposes--Not unreasonable--Brokerage expenses--Practice in business to pay 2 per cent. brokerage--No reasons specified for disallowance--Remuneration of director--Supported by resolution of board--Increase in turnover of company due to effort of director--Allowable--Income-tax Act, 1961, s. 37-- G. L. Gems Ltd. v. Asst. CIT (Jaipur) . . . 525

----Disallowance--Professional fees and contract payments--Deduction of tax at source made in last month of accounting year, paid before filing of return under section 139(1)--Not to be disallowed--Income-tax Act, 1961, s. 40(a)(ia)-- Ayushakti Ayurved P. Ltd. v. Asst. CIT (Mumbai) . . . 537

Business income --Engineering, procuring and commissioning contract between assessee and Dutch entity for development of wind farm and erection work to be done by joint venture--Project qualifying for grant of Dutch Government--Grant inalienable--Assessee surrendering rights under contract but continuing to be shown as owner of turbines--Disclosure of profit from surrender of rights--No cogent material to substantiate that assessee received extra consideration--No document on record indicating receipt of offset credits--Electricity charges paid for consumption of electricity for business purposes--Income-tax Act, 1961, s. 28(iv)-- Asst. CIT v. Tube Investments of India Ltd . (Chennai) . . . 477

----Sale of power to sister concern at concessional rate--Instant payment by sister concern without credit period--Sale at concessional rate not disputed and in business interest--Assessing Officer cannot adopt rate contrary to actual rate agreed between parties--Income-tax Act, 1961, s. 143(3)-- Asst. CIT v. Precot Meridian Ltd. (Chennai) . . . 495

Business Loss --Bad debts--Share broking business--Sums owed to assessee by clients on whose behalf transactions undertaken--Amount written off not shown as income in earlier year--Can be allowed as business loss--Income-tax Act, 1961, ss. 28, 36(1)(vii)-- Jalpradeep Securities Ltd . v. Deputy CIT (Delhi) . . . 491

Capital gains --Capital loss--Long-term capital loss--Loss on sale of shares of unlisted company--No primary evidence as regards genuineness of transaction, identity of purchasers, basis of valuation of shares and fixation of sale price--No capital loss--Income-tax Act, 1961-- Asst. CIT v. Precot Meridian Ltd. (Chennai) . . . 495

Charitable purposes --Registration of trust--Donation to charitable institution--Special deduction--No charitable activity carried out in first year of creation of trust--No doubt regarding charitable nature of trust--No opportunity granted to trust--Direction to grant registration and verify application for approval on fulfilment of conditions--Income-tax Act, 1961, ss. 12AA, 80G(5)(vi)-- Jasoda Devi Charitable Trust v. CIT (Jaipur) . . . 547

Co-operative society --Special deduction--Co-operative society providing credit facilities to members for housing projects--Interest on fixed deposits and savings accounts with commercial banks--Proximate connection between interest earned and business--Interest on funds attributable to business of society--Co-operative society entitled to deduction thereon--Income-tax Act, 1961, s. 80P(2)(a)(i)-- Punjab State Co-operative Federation of Housing Building Societies Ltd. v. Asst. CIT (Chandigarh) . . . 507

Depreciation --Intangible assets--Renewal of leave and licence agreement--Payment for continuous use of premises for official purposes--Is deposit for acquiring use of leasehold property--Payments not for acquiring intangible asset--Premises having no nexus with know-how, patents, copyrights, trade marks, etc.--Payments refundable on termination of leave and licence agreement--Assessee not entitled to depreciation--Income-tax Act, 1961, s. 32(1)(ii), Expln. 3-- Asst. CIT v. Malayala Manorama Co. Ltd. (Cochin) . . . 513

Interpretation of taxing statutes --Principle of ejusdem generis-- Asst. CIT v. Malayala Manorama Co. Ltd. (Cochin) . . . 513

Minimum alternate tax --Book profits--Computation--Exclusions--Only items enumerated in section--Long-term capital gains on sale of shares to hundred per cent. subsidiary--Included in computing profits presented before shareholders--To be included in computing book profits under section 115JB--Exemption under normal provisions not applicable--Income-tax Act, 1961, ss. 47(iv), 115JB--Companies Act, 1956, Sch. VI, Parts II, III-- Rain Commodities Ltd. v. Deputy CIT [SB] (Hyderabad) . . . 551

Penalty --Concealment of income--Assessee offering additional income during survey and in return--Penalty proceedings drop on ground co-operation extended by assessee--Co-operation extended by assessee apparent--Revision of order dropping penalty proceedings--Not justified--Income-tax Act, 1961, ss. 263, 271(1)(c)-- C. N. Narasimha Reddy v. CIT (Bangalore) . . . 530

----Concealment of income--Penalty where loss merely reduced--Treatment of business loss as speculative loss--Not concealment of income--Penalty cancelled--Income-tax Act, 1961, s. 271(1)(c), Expln. 4-- Asst. CIT v. Sudarshan Fiscal Services P. Ltd. (Mumbai) . . . 532

Scientific research expenditure --Expenditure related to research and development--To be allowed--Income-tax Act, 1961-- Ayushakti Ayurved P. Ltd. v. Asst. CIT (Mumbai) . . . 537

Words and phrases --"Attributable to"--"Derived from"-- Punjab State Co-operative Federation of Housing Building Societies Ltd. v. Asst. CIT (Chandigarh) . . . 507

----"Licences, business or commercial rights"-- Asst. CIT v. Malayala Manorama Co. Ltd. (Cochin) . . . 513

----"Subsidy"-- Asst. CIT v. Tube Investments of India Ltd. (Chennai) . . . 477

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Companies Act, 1956 :

Sch. VI, Parts II, III --Minimum alternate tax--Book profits--Computation--Exclusions--Only items enumerated in section--Long-term capital gains on sale of shares to hundred per cent. subsidiary--Included in computing profits presented before shareholders--To be included in computing book profits under section 115JB--Exemption under normal provisions not applicable-- Rain Commodities Ltd. v. Deputy CIT [SB] (Hyderabad) . . . 551

Income-tax Act, 1961 :

S. 12AA --Charitable purposes--Registration of trust--Donation to charitable institution--Special deduction--No charitable activity carried out in first year of creation of trust--No doubt regarding charitable nature of trust--No opportunity granted to trust--Direction to grant registration and verify application for approval on fulfilment of conditions-- Jasoda Devi Charitable Trust v. CIT (Jaipur) . . . 547

S. 28 --Business Loss--Bad debts--Share broking business--Sums owed to assessee by clients on whose behalf transactions undertaken--Amount written off not shown as income in earlier year--Can be allowed as business loss-- Jalpradeep Securities Ltd . v. Deputy CIT (Delhi) . . . 491

S. 28(iv) --Business income--Engineering, procuring and commissioning contract between assessee and Dutch entity for development of wind farm and erection work to be done by joint venture--Project qualifying for grant of Dutch Government--Grant inalienable--Assessee surrendering rights under contract but continuing to be shown as owner of turbines--Disclosure of profit from surrender of rights--No cogent material to substantiate that assessee received extra consideration--No document on record indicating receipt of offset credits--Electricity charges paid for consumption of electricity for business purposes-- Asst. CIT v. Tube Investments of India Ltd . (Chennai) . . . 477

S. 32(1)(ii), Expln. 3 --Depreciation--Intangible assets--Renewal of leave and licence agreement--Payment for continuous use of premises for official purposes--Is deposit for acquiring use of leasehold property--Payments not for acquiring intangible asset--Premises having no nexus with know-how, patents, copyrights, trade marks, etc.--Payments refundable on termination of leave and licence agreement--Assessee not entitled to depreciation-- Asst. CIT v. Malayala Manorama Co. Ltd. (Cochin) . . . 513

S. 36(1)(vii) --Business Loss--Bad debts--Share broking business--Sums owed to assessee by clients on whose behalf transactions undertaken--Amount written off not shown as income in earlier year--Can be allowed as business loss-- Jalpradeep Securities Ltd . v. Deputy CIT (Delhi) . . . 491

S. 37 --Business expenditure--Disallowance--Conveyance expenses, telephone and postage expenses--Expenses recorded in books of account on day-to-day basis and assessee furnished complete details--Partial ad hoc disallowance not proper-- Ayushakti Ayurved P. Ltd. v. Asst. CIT (Mumbai) . . . 537

----Business expenditure--Disallowance--Foreign travel expenses incurred for business purposes--Not unreasonable--Brokerage expenses--Practice in business to pay 2 per cent. brokerage--No reasons specified for disallowance--Remuneration of director--Supported by resolution of board--Increase in turnover of company due to effort of director--Allowable-- G. L. Gems Ltd. v. Asst. CIT (Jaipur) . . . 525

S. 40(a)(ia) --Business expenditure--Disallowance--Professional fees and contract payments--Deduction of tax at source made in last month of accounting year, paid before filing of return under section 139(1)--Not to be disallowed-- Ayushakti Ayurved P. Ltd. v. Asst. CIT (Mumbai) . . . 537

S. 47(iv) --Minimum alternate tax--Book profits--Computation--Exclusions--Only items enumerated in section--Long-term capital gains on sale of shares to hundred per cent. subsidiary--Included in computing profits presented before shareholders--To be included in computing book profits under section 115JB--Exemption under normal provisions not applicable-- Rain Commodities Ltd. v. Deputy CIT [SB] (Hyderabad) . . . 551

S. 80G(5)(vi) --Charitable purposes--Registration of trust--Donation to charitable institution--Special deduction--No charitable activity carried out in first year of creation of trust--No doubt regarding charitable nature of trust--No opportunity granted to trust--Direction to grant registration and verify application for approval on fulfilment of conditions-- Jasoda Devi Charitable Trust v. CIT (Jaipur) . . . 547

S. 80P(2)(a)(i) --Co-operative society--Special deduction--Co-operative society providing credit facilities to members for housing projects--Interest on fixed deposits and savings accounts with commercial banks--Proximate connection between interest earned and business--Interest on funds attributable to business of society--Co-operative society entitled to deduction thereon-- Punjab State Co-operative Federation of Housing Building Societies Ltd. v. Asst. CIT (Chandigarh) . . . 507

S. 115JB --Minimum alternate tax--Book profits--Computation--Exclusions--Only items enumerated in section--Long-term capital gains on sale of shares to hundred per cent. subsidiary--Included in computing profits presented before shareholders--To be included in computing book profits under section 115JB--Exemption under normal provisions not applicable-- Rain Commodities Ltd. v. Deputy CIT [SB] (Hyderabad) . . . 551

S. 143(3) --Business income--Sale of power to sister concern at concessional rate--Instant payment by sister concern without credit period--Sale at concessional rate not disputed and in business interest--Assessing Officer cannot adopt rate contrary to actual rate agreed between parties-- Asst. CIT v. Precot Meridian Ltd. (Chennai) . . . 495

S. 263 --Penalty--Concealment of income--Assessee offering additional income during survey and in return--Penalty proceedings drop on ground co-operation extended by assessee--Co-operation extended by assessee apparent--Revision of order dropping penalty proceedings--Not justified-- C. N. Narasimha Reddy v. CIT (Bangalore) . . . 530

S. 271(1)(c) --Penalty--Concealment of income--Assessee offering additional income during survey and in return--Penalty proceedings drop on ground co-operation extended by assessee--Co-operation extended by assessee apparent--Revision of order dropping penalty proceedings--Not justified-- C. N. Narasimha Reddy v. CIT (Bangalore) . . . 530

S. 271(1)(c), Expln. 4 --Penalty--Concealment of income--Penalty where loss merely reduced--Treatment of business loss as speculative loss--Not concealment of income--Penalty cancelled-- Asst. CIT v. Sudarshan Fiscal Services P. Ltd. (Mumbai) . . . 532

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Tuesday, July 27, 2010

HC (MUM):- ‘Overdraft facility can’t be attached for tax recovery’

The taxman does not have claim over the bank overdraft facility of a defaulter since the lender does not owe money, but has promised a loan for business, the Bombay High Court has ruled. By taking an overdraft facility, a taxpayer becomes a debtor to the bank and hence, no authority has the right to attach overdraft facility for recovering tax dues, the court said in an order dated July 8.

The court ruling came in a case between Navi Mumbai Municipal Corporation and Sargam Foods over outstanding municipal cess. The court said that Navi Mumbai Municipal Corporation did not have the right to attach the overdraft account of the Thane-based Sargam Foods to recover dues from the company. The overdraft facility was from the Dombivli Nagari Sahakari Bank.

To recover dues from defaulters, authorities issue notices to those who owe money to the defaulter, like in bankruptcy proceedings. While the assets of the defaulter could be sold to recover dues, contracted loans could not be treated as assets. There were precedents to such rulings.

"Where the banker lends money on an overdraft and the customer is always in debit, there is no stage at which the banker is debtor to the customer nor at any point of time he holds any money of the customer or the latter's account," the Madras High court had held. A similar judgement was delivered by the Karnataka High Court in 1999 in a case between Karnataka Bank and the Commissioner of Commercial Tax.

Sargam lawyer Jitendra Jain said such notices for recovery could be sent to "any person from whom money is due or may become due to the assessee or any person who holds or subsequently holds money for or on account of the assessee."

The division bench comprising justice RG Ketkar and justice PB Majmudar agreed with the verdict of Madras and Karnataka High Courts and set aside the order of NMMC. This does not stop the municipal corporation from recovering the money in any other manner.

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Monday, July 26, 2010

RTI case : - Dr.Lal Bahadur vs Supreme Court Of India on 12 July, 2010

Dr.Lal Bahadur vs Supreme Court Of India on 12 July, 2010

The Right To Information Act, 2005

Section 19 in The Right To Information Act, 2005

Section 20 in The Right To Information Act, 2005

CENTRAL INFORMATION COMMISSION

Appeal No. CIC/WB/A/2009/000378 dated 26.3.2009 Right to Information Act 2005 Section 19

Appellant - Dr. Lal Bahadur

Respondent - Supreme Court of India Heard & Decision announced: 12.7.2010

Facts:

By an application of 6.5.08 Dr. Lal Bahadur of Khajuri, Malipur Distt. Ambedkar Nagar (UP) applied to the Chief Justice of India with an application with the following heading:

"RTI Application under Sec. 6(1) of the Right to Information Act 2005 seeking detail information from the Hon'ble Supreme Court of India with reference to the Assets acquired Return / filed by the Hon'ble the Chief Justice of India and 25 Associate Justices of the Hon'ble Supreme Court of India."

However, in the footnote of this application, Dr. Lal Bahadur listed the information sought, as below:

"Give a certified copies of a return (Income Tax) filed by the all 26 (1+25) the Hon'ble Judges of Hon'ble Supreme Court of India in following manner-

a) Date and amount of returns filed by the Hon'ble Judges at the time of elevation as High Court Judge.

b) Date and amount of returns filed by the Hon'ble Judge at the time elevation as a Supreme Court Judge."

This application was, by an order of 15.8.08, transferred by CPIO Shri Ashok Kumar, Additional Registrar, Supreme Court of India to the CPIO Shri K. Gurtu, Director (Justice), Department of Justice, Ministry of Law & Justice. By his letter of 29.5.08, however, CPIO Shri K. Gurtu declined to accept the transfer of the RTI application pleading that, "Perhaps Supreme Court of India could be in a better position to furnish the information, as sought for by the RTI application. As such the Original application is enclosed herewith for your further necessary action."

Upon this, the CPIO has informed Dr. Lal Bahadur on the very day i.e. 29.5.08, as follows:

"With reference to your application dated 6.5.08, I write to inform you that the information on the subject cited above is neither maintained nor available in the Registry. Your request under the Right to Information Act, 2005 cannot be acceded to."

In his first appeal of 7.7.'08 before Shri M. P. Bhadran, Registrar, Supreme Court of India, appellant Dr. Lal Bahadur has prayed as follows: "a) Issue a direction for furnishing of all relevant information sought by RTI application dated 6.5.08 as well as make available the information from a public Authority i.e. Supreme Court of India.

c) Decide the First Appeal in accordance with a law laid down in Section 19 & 20 of RTI Act, 2005."

Upon this, Shri M. P. Bhadran, Registrar SCI has found as follows: "The appellant has got a case that the impugned order dated 29.5.08 was received by him only on 7.6.08. The appellant submitted that it was dispatched from the Supreme Court of India only on 4.6.2008. Shri Gurtu sent a letter dated 29.5.08 to CPIO Supreme Court of India wherein he has declined to accept the transfer of RTI application and the original application was returned to the CPIO for further necessary action. The appellant has furnished a copy of the above letter along with the appeal memorandum.

The appellant made a request to furnish the information as stated in his application dated 6.5.2008. Now the question to be considered is whether the request of the appellant can be accepted. I find no reason to disagree with the stand taken by the CPIO that the information sought by the appellant is not held by the CPIO. I find that there is no information held by the CPIO to be supplied to the appellant as requested by him."

Dr. Lal Bahadur has then moved his second appeal before us with the following prayer:

"a) Issue order or direction for furnishing of all relevant information sought by RTI application dated 6.5.08 as

well as make available the information from a public Authority i.e. Supreme Court of India.

b) Decide the second appeal in accordance with law laid down in Sec. 19 & 20 of RTI Act, 2005."

This prayer is grounded on the following contention: "CPIO / Respondent as well as First Appellate Authority ought to have transferred the RTI application dated 6.5.08 till 11.5.08 to another Public Authority in accordance with law laid down in Sec. 6(3) of the RTI Act, wherein it has been mentioned that RTI application may be transferred to another Public Authority within 5 days from the date of RTI application. The delay erroneously transfer of RTI Application against the provision of law laid down in Sec. 6(3) of RTI Act, for which CPIO / Respondent is liable to be penalized as per provisions of Sec. 20 of RTI Act 2005."

The appeal was heard on 12.7.2010. The following are present: Respondents

Ms. Asha Ahuja, Br. Officer, SCI

Mr. Devadatt Kamat, Advocate for SCI

Mr. Nishanth Patil, Advocate

Although arrangement had been made to hear the appeal through video conference with NIC Studio, Ambedkar Nagar and appellant Dr. Lal Bahadur had been informed by Notice dated 17.6.2010 regarding the hearing, he has opted not to be present, even though attempts were made to contact him on all three Cell Numbers provided by him, which went unanswered.

DECISION NOTICE

In this case, the CPIO Supreme Court of India has made it clear that the Supreme Court does not hold the information sought by Dr. Lal Bahadur. In view of this, appellant's prayer before us that the Supreme Court be directed to provide "all relevant information sought by RTI application dated 6.5.08" can hardly be entertained. The only issue here is that when the information was not held by the Registry of the Supreme Court of India why the matter had not been transferred to the concerned Department u/s 6(3). Appellant's own application

has referred to sec. 6(1) in the very subject of his application, as quoted above. Sec. 6(1) is explicit in that it directs as follows: "Sec. 6

(1) A person, who desires to obtain any information under this Act, shall make a request in writing or through electronic means in English or Hindi or in the official language of the area in which the application is being made, accompanying such fee as may be prescribed, to

(a) The Central Public Information Officer or State Public Information Officer, as the case may be, of the concerned public authority;1

(b) the Central Assistant Public Information Officer or State Assistant Public Information Officer, as the case may be, specifying the particulars of the information sought by him or her:

Provided that where such request cannot be made in writing, the Central Public Information Officer or State Public Information Officer, as the case may be, shall render all reasonable assistance to the person making the request orally to reduce the same in writing."

It should be clear that it is not the Supreme Court that would hold information on the Income Tax returns of High Court Judges even at the time of their elevation as Supreme Court Judges, coming as they are, from different States in the country. Application will then have to be made to the Department of Revenue, Ministry of Finance, that administers Income Tax for all. For this purpose the Head Office of the Department can then transfer the applications u/s 6(3) to the Income Tax Departments located in the States where the income tax returns are filed. Insofar as the Supreme Court is concerned, its administrative Ministry is the Ministry of Law & Justice. The Ministry of Law & Justice has, therefore, erred in returning the application transferred to it by the Addl. Registrar, SCI to the CPIO, SCI and should have instead transferred this u/s 6(3) (1) to the Deptt. of Revenue. The Registry of SCI thus cannot be faulted for having transferred the application that seeks information held by Govt. to its own administrative Ministry in Government, since the SCI is not a Department /

Underlined by us for emphasis

Organization under the control of the Government and is not expected to hold the information on which Department of government deals with which subject. Besides, as clarified by Ld. Counsel for respondents Shri Devadatt Kamat, in the hearing, the RTI application of appellant Dr. Lal Bahadur dated 6.5.08 was received in the SCI on 10.5.08 and transferred on 15.5.08. Thus the transfer is within the time mandated by sec. 6(3) of the RTI Act. For the above reasons, the present appeal is without merit and is hereby dismissed.

Announced in the hearing. Notice of this decision be given free of cost to the parties, including the CPIO Ministry of Law, Justice & Company Affairs.

(Wajahat Habibullah)

Chief Information Commissioner

12.7.2010

Authenticated true copy. Additional copies of orders shall be supplied against application and payment of the charges, prescribed under the Act, to the CPIO of this Commission.

(Pankaj K.P. Shreyaskar)

Joint Registrar

12.7.2010

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Tuesday, July 13, 2010

SC: deduction can not claimed other way than revised return

Can deduction claimed other way than revised return?

The answer is in negative by Supreme Court in Goetze (India ) Ltd. vs. CIT [2006] 284 ITR 323 (SC) which held that if assessee did not claim the deduction or exemption in return, the claim can not be made to A.O without filing revised return. The decision of the Apex Court was as under

The question raised in this appeal relates to whether the appellant assessee could make a claim for deduction other than by filing a revised return. The assessment year in question was 1995-96. The return was filed on November 30, 1995, by the appellant for the assessment year in question. On January 12, 1998, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Income-tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return.

This appellant's appeal before the Commissioner of Income-tax (Appeals) was allowed. However, the order of the further appeal of the Department before the Income-tax Appellate Tribunal was allowed. The appellant has approached this court and has submitted that the Tribunal was wrong in upholding the Assessing Officer's order. He has relied upon the decision of this court in National Thermal Power Company Ltd. v. CIT [1998] 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal.

The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return.

In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs.

Supreme Court again reiterates that income- tax assessments cannot be reopened on mere change of opinion!

[Note , this mailer's comment: The latest amendment, seems not discussed in the folowing article, though the article is useful in many sence to understand the re-opening in its own. So, emailed to you. ]

By T.N. Pandey Ex-chairman, CBDT

The author, in this article, has examined the latest deci-sion of the Supreme Court concerning `reopening' of com-pleted assessment. According to the Apex Court, the assess-ments cannot be reopened merely because by re-evalua-tion of the situation existing at the time of making the original assessment, the Assessing Officer feels that, for example, what he did not tax earlier can be taxed because of another view which should have been followed. Doing so would tantamount to `reviewing' the earlier decision which is not permitted. According to the Apex Court, re-opening cannot be done unless there is `tangible material' justifying such action.

1. Introduction Every tax legislation has to have provisions to bring to tax incomes that have escaped assessments. Section 147 and other regulatory sections following the main provision in the Income-tax Act, 1961 (Act) have been enacted to rope in incomes that have escaped assessment. The provisions in the Act in this regard can be examined under two heads, namely:— (i) Law as was before the amendments made by the Direct Tax Laws (Amendment) Act, 1987 (1987 Act) as subsequently amended by the Direct Tax Law (Amendment) Act, 1989 (1989 Act). (ii) The law as it exists presently after the amendments by the two Acts (supra).

2. Law before April 1, 1989 Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. These are as follows : (i) Clause (a) empowered the Income-tax Officer to assess or re-assess the income escaping assessment, if he had reason to believe that income had escaped assessment on account of omission or failure on the part of the assessee to file a return of income for an assessment year or to disclose fully and truly all material facts necessary for assessment for that year. (ii) Clause (b) empowered the Income-tax Officer to reopen an assessment, notwithstanding the fact that there had been no omission or failure, as mentioned in clause (a), on the part of the assessee if the Income-tax Officer, on the basis of information in his possession, had reason to believe that income had escaped assessment for the relevant assessment year.

3. Need for change A new scheme for income-tax assessment was introduced by the 1987 Act because of urgent need to reduce the Income-tax Department's workload by greater reliance on voluntary compliance. The 1981 Act, therefore, substituted a new section 143 in the Act to introduce the new scheme of assessment after the filing of the return. The new scheme envisaged that passing of assessment orders will not be necessary in each and every case meaning thereby that application of mind by the Assessing Officers in all cases will not be necessary except in the cases which are picked up for scrutiny and where regular order of assessment is passed under section 143(3). This scheme required rationalization of law and procedure in regard to provisions for reopening of assessments to tax escaped incomes especially in non-scrutiny cases in sections 147, 148 and other connected sections.

4. Changes made by the two amendments Acts (a) Separate provisions contained in clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so. (b) The requirement in the old provisions that the Income-tax Officer should have `reason to believe' or `information' in possession before taking action to assess or reassess the income escaping assessment, was dispensed with. Thus, virtually completed assessments could be reopened if in the opinion of the Assessing Officer income has escaped assessment. A number of representations were received against the omission of the words `reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well-settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989 again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other aspects of changes, namely, time - limitations, etc., for reopening the cases made by the 1987 and 1989 Acts not being relevant in the present context are not being discussed. Controversies concerning re-opening of cases as per the changed law

5. Considerable controversies arose in regard to the interpretation of new law concerning re-opening of completed assessments. One objection which led to considerable litigation related to the issue as to whether a completed assessment can be reopened merely on the ground of change of opinion by the Assessing Officer. The views expressed by the Courts pre and post April 1, 1989 have been that the assessments cannot be reopened merely on the changed views of the Assessing Officers `without anything more'. In CIT v. Bhanji Lavji [1971] 79 ITR 582, the Apex Court decided that an assessment cannot be reopened only because of change of opinion on the part of the Assessing Officer. Similar views have been expressed by various High Courts also. In Sirpur Paper Mills Ltd. v. ITO [1978] 114 ITR 404 (AP), the High Court has held that re-assessment cannot be made on fresh opinion on the same facts. In Kamalchand v. ITO [1981] 128 ITR 290/[1980] 4 Taxman 216 (MP), an assessment was sought to be reopened by the Assessing Officer on the ground that his predecessor-in-office had committed an error in allowing certain deductions. The Madhya Pradesh High Court held that since no fresh information had come into possession of the Assessing Officer, the assessment could not be reopened. The Court held that it amounts only to change of opinion without anything else. The Allahabad High Court in J.P. Bajpai (HUF) v. CIT [2004] 140 Taxman 34 held that the responsibility of the assessee is limited to the disclosure of all primary facts and nothing beyond. Once the assessee has disclosed all the primary facts that is the end of his duty. It is then for the assessing authority to draw the proper conclusions from those facts. If the conclusions drawn by the Assessing Officer from the primary facts disclosed by the assessee are erroneous, the assessing authority cannot reopen the assessment merely on the basis of a change in opinion. A mere change in opinion would not confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147. Latest decision of the Supreme Court in the case of CIT v. Kelvinator (India) Ltd.

6. The latest decision on the issue being discussed is from the Supreme Court in the above mentioned case dated January 18, 2010 reported in [2010] 1 taxmann.com 27 where the Court has affirmed the two decisions of the Delhi High Court - CIT v. Kelvinator of India Ltd. [2002] 123 Taxman 433 (FB) and CIT v. Eicher Ltd. [2007] 163 Taxman 259 saying that assessment cannot be reopened merely on change of opinion. The important observations of the Apex Court in its decision are mentioned in later discussion.

(a) "...post April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words `reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of `mere change of opinion' which cannot be per se reason to reopen."

(b) There is conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of `change of opinion' is removed, then in the garb of reopening the assessment, review would take place.

(c) On and after April 1, 1989, the concept of `change of opinion' has as an inbuilt test to check abuse of power by the Assessing Officer. Hence, from April 1, 1989, the Assessing Officer has power to reopen, provided there is `tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This view gets support from the changes made to section 147. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words `reason to believe' but also inserted the word `opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words `reason to believe', the Parliament re-introduced the said expression and deleted the word `opinion' on the ground that it would vest arbitrary powers in the Assessing Officer.

(d) The Court has said that its view also get supports from the CBDT's Circular No. 549, dated October 31, 1989 wherein the position in this regard has been explained thus : "7.2 Amendment made by the Amending Act, 1989, to re-introduce the expression `reason to believe' in section 147. A number of representations were received against the omission of the words `reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well-settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is, of the opinion.' Other provisions of the new section 147, however, remain the same."

7. Summing up The legal position now is that a completed assessment cannot be reopened merely on the basis of change of opinion unless there is `tangible material' to justify re-opening.

Monday, July 12, 2010

HC(GUJ):- Sec 68 stand on different footing in case of share application money

SHARE application money is generally taken with a pinch of salt by our texmen. The Revenue often tends to believe that this is one of the sure shot routes to channelise own fund into the company or to convert black into white money. Anyway, the issue in the instant case is - Whether provision of section 68 stands on different footing in the case of share application money, and the burden of the assessee stood discharged on the submission of names and addresses of the share applicants, without proving their creditworthiness. And the High Court decision is YES.

Facts of the case

Assessee received share application money from share applicants via banking channel. Before the AO assessee filed confirmation of all the share holders along with their full address details, PAN numbers etc. Summons issued by the AO returned unserved. Accordingly the AO treated the share application money as bogus and added the same to the income of assessee as un-explained cash credit. CIT (A) affirmed the order of the AO. ITAT allowed the appeal of the assessee.

On appeal, and after hearing the parties the High Court held that,

++ the Tribunal has recorded that the respondent-assessee had filed confirmations from all share applicants with details of share capital paid which contained details such as full addresses, permanent account numbers and tax jurisdiction of the depositors. The Tribunal further recorded that all payments were received by cheques and were credited in the bank account of the respondent; the share application forms contained all details of the depositors; their confirmations were clear with all addresses; and that they were on the departmental records as tax-payers. In the aforesaid factual background, the Tribunal was of the view that the respondent had sufficiently discharged its burden of explaining the same.

++ The Tribunal further observed that the department has not brought any material on record to show that the depositors were bogus. According to the Tribunal none of the decisions relied upon by the revenue had held that the assessee was required to establish the credit worthiness of the share applicants strictly in the manner understood in the context of cash credits under section 68 of the Act. The Tribunal was of the view that the assessee had given the names and addresses of the share applicants, it was within the knowledge of the revenue that the said share applicants were assessed to income tax, hence the burden was on the revenue to make further inquiry. The Tribunal placed reliance upon the decision of the Apex Court in the case of C.I.T. Vs. Divine Leasing Finance Co. wherein it has been held that when the assessee company had given the name of the share holders, the department was free to reopen their individual assessment in accordance with law.

Appeal of the revenue is dismissed

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Friday, July 9, 2010

Even exempt income is taxable under MAT / s.115JB

Even exempt income is taxable under MAT / s.115JB

Rain Commodities vs. DCIT (ITAT Hyderabad Special Bench)

The assessee credited its P&L A/c with an amount of Rs. 149.77 crores being the profit on sale of assets to its wholly owned subsidiary. As the said profits were not chargeable to tax u/s 47(iv), the assessee took the view that the same had also to be reduced from the "book profits" u/s 115JB. The Special Bench had to consider whether exempt income could be excluded from the computation of "book profits" u/s 115JB. HELD deciding against the assessee:

(i) The AO can alter the "book profit" only in two circumstances (a) if the P&L A/c is not drawn up in accordance with Parts II & III of Schedule VI to the Companies Act or (b) If accounting policies & standards, method & rate of depreciation have been incorrectly adopted for preparation of the P & L A/c. Except for the said two cases, the AO has no power to alter the net profit shown in the P&L A/c. Under (a), the AO cannot disturb the Net Profit shown by the assessee where there are no allegations of fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the P&L A/c or Balance sheet;

(ii) Parts II & III of Schedule VI to the Companies Act do not permit the exclusion of capital gain from the P & L A/c. The P & L A/c is required to disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature including capital profits (Veekaylal Investments 249 ITR 597 (Bom) followed). Items referred to in the Notes are a part of the P&L A/c (Sain Processing221 CTR 493 (Del) followed;

(iii) The assessee had included the said capital gains in the P & L A/c and it was not its' case that same was not includible. The fact that the capital gains was exempt u/s 47(iv) does not mean it can be excluded from the "book profit" because no such exclusion was permitted under the Explanation to s. 115JB. The taxability of capital gain is relevant only for the purpose of computation of income under the normal provisions and has nothing to do with the computation of "book profits". {N.J. Jose & Co 217 CTR 479 (Ker) (capital gains exempt u/s 54E) followed};

(iv) The argument that as s. 115JB (4) provides that "save as otherwise provided in this section all other provisions of the Act shall apply" does not mean that the exemption provisions of s. 47(iv) can be read into s. 115JB. This only means that while the computation has to be as per s. 115JB, anything over and above that will be subject to other provisions of the Act. Frig Sales4 SOT 376 (Mum) overruled);

(v) Accordingly, in the absence of any provision for exclusion of exempted capital gain in the computation of book profit u/s 115JB, the assessee is not entitled to the exclusion claimed.

Note: Though the SB observed that it was not necessary for it to dwell upon a situation where the assessee has directly credited the profit on sale of asset to a reserve Account, it referred with approval to Bombay Diamond Co 33 DTR 59 where even profits not credited to the P&L A/c were held includible in Book Profits. Growth Avenue approved. Sutlej Cotton Mills 45 ITD 22 (Cal) (SB) which held that exempt capital gains had to be reduced from book profits was held not to be good law.

ITR

Pages

Saturday, July 31, 2010

ITR VOL 325 PART 4 / ITR (TRIB) VOL 4 PART 5

Tuesday, July 27, 2010

HC (MUM):- ‘Overdraft facility can’t be attached for tax recovery’

Monday, July 26, 2010

RTI case : - Dr.Lal Bahadur vs Supreme Court Of India on 12 July, 2010

Dr.Lal Bahadur vs Supreme Court Of India on 12 July, 2010

The Right To Information Act, 2005

Section 19 in The Right To Information Act, 2005

Section 20 in The Right To Information Act, 2005

Tuesday, July 13, 2010

SC: deduction can not claimed other way than revised return

Supreme Court again reiterates that income- tax assessments cannot be reopened on mere change of opinion!

Monday, July 12, 2010

HC(GUJ):- Sec 68 stand on different footing in case of share application money

Friday, July 9, 2010

Even exempt income is taxable under MAT / s.115JB

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