ITR (Tribunal) Vol 6 Part 3 ISSUE DATED 15-11-2010

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

Volume 6 : Part 3 (Issue dated : 15-11-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

 

Advance tax --Refund--Interest--Assessee entitled to interest from date of regular assessment till date of grant of refund on amount of prepaid tax found in excess of tax assessed under section 251 and further interest from date of payment of regular tax till date of grant of refund--Income-tax Act, 1961, s. 244(1A)-- Deputy CIT v. Simbhaoli Sugar Mills Ltd. (Delhi) . . . 247

 

Refund--Interest--Assessee entitled to receive interest under section 214(1A) on difference between advance tax and tax assessed under section 251 from the first day of assessment year till day of passing regular assessment under section 143(3)--Income-tax Act, 1961, s. 214(1A)-- Deputy CIT v. Simbhaoli Sugar Mills Ltd. (Delhi) . . . 247

 

Appeal to Appellate Tribunal --Decision by Division Bench--Difference of opinion between members of Division Bench regarding admission of additional grounds of appeal--Additional ground considered by only one of members--No decision on merits by Division Bench--Matter remanded--Income-tax Act, 1961-- Everwin Export Corporation v. ITO (Chennai) . . . 287

 

`Procedure--Additional grounds of appeal--No specific procedure to be followed --Additional ground raised in petition--Space provided in petition form to mention additional ground left blank--Mistake in stating appeal number--Not relevant--Additional ground to be considered by Tribunal--Income-tax Act, 1961-- Everwin Export Corporation v. ITO (Chennai) . . . 287

 

Business expenditure --Capital or revenue expenditure--Expenses incurred on site development--Agreement between assessee and VGS for development of site and portal for VGS--Assessee already in software development business and development of portal--No asset acquired--Expenditure incurred in connection with business of assessee--Revenue expenditure--Income-tax Act, 1961, s. 37-- Asst. CIT v. Jupiter Corporate Services Ltd. (Ahmedabad) . . . 264

 

`Disallowance--Payments in cash exceeding specified limit--Payments made to truck drivers for hiring trucks--Payments made against vouchers signed by driver--Section 40A(3) prior to amendment applicable--Single payment not exceeding Rs. 20,000--Not to be disallowed--Income-tax Act, 1961, s. 40A(3)-- Leader Transport Co. v. ITO (Ahmedabad) . . . 229

 

`Interest on borrowed capital--Investment in property for business purposes in earlier year reclassified as "loans and advances"--Explanation that investment in property out of share capital of company prior to its amalgamation with assessee--No evidence as regards interest bearing funds of assessee invested in interest-free advances to director--Amalgamation of company with assessee a business transaction and outstanding amount against director related to business--Interest paid allowable--Income-tax Act, 1961, s. 37-- Asst. CIT v. Jupiter Corporate Services Ltd. (Ahmedabad) . . . 264

 

`Parking fees--Vehicles not owned by assessee--Payment made only in one branch--Claim of expenses on notional basis--To be disallowed--Income-tax Act, 1961 -- Leader Transport Co. v. ITO (Ahmedabad) . . . 229

 

Business income --Income earned from money lending business--Assessed as business income in preceding and subsequent years--No change in facts of present year--To be assessed as business income--Income-tax Act, 1961-- Asst. CIT v. Jitender Kumar Gupta (Delhi) . . . 256

 

`Profits chargeable to tax--Remission or cessation of trading liability--Conversion of sales tax collected into loan liability under deferral scheme--Entire sales tax deferral liability from loan liability discharged on payment of lesser amount--Difference amount is income of assessee for assessment year in which liability is discharged--Income-tax Act, 1961, s. 41(1)-- Schenectady Specialities Asia Pvt. Ltd. v. Asst. CIT (Mumbai) . . . 300

 

Capital gains --Capital asset--Definition--Exclusion--Agricultural land outside specified distance from municipality--Meaning of "municipality" in section 2(14)--Notification that land within two kilometres from local limits of Phagwara Municipality would be considered within its jurisdiction--Agricultural land outside specified limit--Transfer of such land did not give rise to capital gains--Income-tax Act, 1961, ss. 2(14), 45--Notification No. 9447/F. No. 164/3/87-ITA-I, dated 6-1-1992-- Deputy CIT v. Capital Local Area Bank Ltd. (Amritsar) . . . 314

 

Capital loss --Purchase and sale of shares--No record to justify purchase price and sale price--Matter remanded-- Asst. CIT v. Jitender Kumar Gupta (Delhi) . . . 256

 

Capital or revenue receipt --Foreign institutional investor--Compensation on non-pari passu shares--Is capital receipt--Not liable to tax--Income-tax Act, 1961-- Advantage Advisors Inc. v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 235

 

Deduction --Disallowance of expenditure in relation to income which does not form part of total income--Investment in shares yielding dividend income--Dividend income declared in earlier years and no disallowance made--Investment in shares by company which merged with assessee later on--Investments taken over by assessee--Disallowance not justified--Section 14A not applicable--Income-tax Act, 1961, s. 14A-- Asst. CIT v. Jupiter Corporate Services Ltd. (Ahmedabad) . . . 264

 

Depreciation --User of asset in business of assessee--Earning of income not sole criterion--Lease of hotel by assessee--Disputes between assessee and lessee referred to arbitration--Assessee not receiving licence fee for a particular year by virtue of arbitration award--Depreciation cannot be denied--Income-tax Act, 1961, s. 32-- ELEL Hotels and Investments Ltd. v. Deputy CIT (Delhi) . . . 272

 

Foreign institutional investor --Special provision for computation of capital gains from investment in securities--Capital loss on sale of securities--Eligibility to avail of benefit of indexation not sine qua non to apply for concessional rate of tax--Benefit of indexation not available--General provisions not applicable for computation of capital loss by foreign institutional investor--Income-tax Act, 1961, ss. 48, prov. 2, 112, prov., 115AD--Circular No. 657, dated 30-8-1993-- Advantage Advisors Inc. v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 235

 

Income --Accrual of income--Lease--Disputes with respect to responsibility for repair and maintenance of assets referred to arbitration--Award holding assessee not entitled to lease amounts for certain years--Income does not accrue-- ELEL Hotels and Investments Ltd. v. Deputy CIT (Delhi) . . . 272

 

Other sources --Deductions--Cost incurred by assessee to purchase bonds--Finding that assessee being intermediate purchaser expenses to be allowed from sale proceeds--Proper--Income-tax Act, 1961-- Asst. CIT v. Jitender Kumar Gupta (Delhi) . . . 256

 

`Deductions--Expenditure for earning income--Similar expenditure allowed in subsequent year--To be allowed--Income-tax Act, 1961, s. 57(iii)-- Asst. CIT v. Jitender Kumar Gupta (Delhi) . . . 256

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

 

S. 2(14) --Capital gains--Capital asset--Definition--Exclusion--Agricultural land outside specified distance from municipality--Meaning of "municipality" in section 2(14)--Notification that land within two kilometres from local limits of Phagwara Municipality would be considered within its jurisdiction--Agricultural land outside specified limit--Transfer of such land did not give rise to capital gains--Notification No. 9447/F. No. 164/3/87-ITA-I, dated 6-1-1992-- Deputy CIT v. Capital Local Area Bank Ltd. (Amritsar) . . . 314

 

S. 14A --Deduction--Disallowance of expenditure in relation to income which does not form part of total income--Investment in shares yielding dividend income--Dividend income declared in earlier years and no disallowance made--Investment in shares by company which merged with assessee later on--Investments taken over by assessee --Disallowance not justified--Section 14A not applicable-- Asst. CIT v. Jupiter Corporate Services Ltd. (Ahmedabad) . . . 264

 

S. 32 --Depreciation--User of asset in business of assessee--Earning of income not sole criterion--Lease of hotel by assessee--Disputes between assessee and lessee referred to arbitration--Assessee not receiving licence fee for a particular year by virtue of arbitration award--Depreciation cannot be denied-- ELEL Hotels and Investments Ltd. v. Deputy CIT (Delhi) . . . 272

 

S. 37 --Business expenditure--Capital or revenue expenditure--Expenses incurred on site development--Agreement between assessee and VGS for development of site and portal for VGS--Assessee already in software development business and development of portal--No asset acquired--Expenditure incurred in connection with business of assessee--Revenue expenditure-- Asst. CIT v. Jupiter Corporate Services Ltd. (Ahmedabad) . . . 264

 

`Business expenditure--Interest on borrowed capital--Investment in property for business purposes in earlier year reclassified as "loans and advances"--Explanation that investment in property out of share capital of company prior to its amalgamation with assessee--No evidence as regards interest bearing funds of assessee invested in interest-free advances to director --Amalgamation of company with assessee a business transaction and outstanding amount against director related to business--Interest paid allowable-- Asst. CIT v. Jupiter Corporate Services Ltd. (Ahmedabad) . . . 264

 

S. 40A(3) --Business expenditure--Disallowance--Payments in cash exceeding specified limit--Payments made to truck drivers for hiring trucks--Payments made against vouchers signed by driver--Section 40A(3) prior to amendment applicable--Single payment not exceeding Rs. 20,000--Not to be disallowed-- Leader Transport Co. v. ITO (Ahmedabad) . . . 229

 

S. 41(1) --Business expenditure--Profits chargeable to tax--Remission or cessation of trading liability--Conversion of sales tax collected into loan liability under deferral scheme--Entire sales tax deferral liability from loan liability discharged on payment of lesser amount--Difference amount is income of assessee for assessment year in which liability is discharged-- Schenectady Specialities Asia Pvt. Ltd. v. Asst. CIT (Mumbai) . . . 300

 

S. 45 --Capital gains--Capital asset--Definition--Exclusion--Agricultural land outside specified distance from municipality--Meaning of "municipality" in section 2(14)--Notification that land within two kilometres from local limits of Phagwara Municipality would be considered within its jurisdiction--Agricultural land outside specified limit--Transfer of such land did not give rise to capital gains--Notification No. 9447/F. No. 164/3/87-ITA-I, dated 6-1-1992-- Deputy CIT v. Capital Local Area Bank Ltd. (Amritsar) . . . 314

 

S. 48, prov. 2 --Foreign institutional investor--Special provision for computation of capital gains from investment in securities--Capital loss on sale of securities--Eligibility to avail of benefit of indexation not sine qua non to apply for concessional rate of tax--Benefit of indexation not available--General provisions not applicable for computation of capital loss by foreign institutional investor--Circular No. 657, dated 30-8-1993-- Advantage Advisors Inc. v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 235

 

S. 57(iii) --Other sources--Deductions--Expenditure for earning income--Similar expenditure allowed in subsequent year--To be allowed-- Asst. CIT v. Jitender Kumar Gupta (Delhi) . . . 256

 

S. 112, prov. --Foreign institutional investor--Special provision for computation of capital gains from investment in securities--Capital loss on sale of securities--Eligibility to avail of benefit of indexation not sine qua non to apply for concessional rate of tax--Benefit of indexation not available--General provisions not applicable for computation of capital loss by foreign institutional investor--Circular No. 657, dated 30-8-1993-- Advantage Advisors Inc. v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 235

 

S. 115AD --Foreign institutional investor--Special provision for computation of capital gains from investment in securities--Capital loss on sale of securities--Eligibility to avail of benefit of indexation not sine qua non to apply for concessional rate of tax--Benefit of indexation not available--General provisions not applicable for computation of capital loss by foreign institutional investor--Circular No. 657, dated 30-8-1993-- Advantage Advisors Inc. v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 235

 

S. 214(1A) --Advance tax--Refund--Interest--Assessee entitled to receive interest under section 214(1A) on difference between advance tax and tax assessed under section 251 from the first day of assessment year till day of passing regular assessment under section 143(3)-- Deputy CIT v. Simbhaoli Sugar Mills Ltd. (Delhi) . . . 247

 

S. 244(1A) --Advance tax--Refund--Interest--Assessee entitled to interest from date of regular assessment till date of grant of refund on amount of prepaid tax found in excess of tax assessed under section 251 and further interest from date of payment of regular tax till date of grant of refund-- Deputy CIT v. Simbhaoli Sugar Mills Ltd. (Delhi) . . . 247

 

 

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ITR : Volume 328 : Part 4 Issue dated 15-11-2010

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INCOME TAX REPORTS (ITR)

Volume 328 : Part 4 (Issue dated 15-11-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Assessment --Books of account of assessee not rejected--Assessing Officer cannot refer matter to Departmental Valuation Officer-- Sargam Cinema v. CIT . . . 513

Reassessment --Information--Opinion of District Valuation Officer--Cannot be basis for reopening assessment--Income-tax Act, 1961, s. 147-- Asst. CIT v. Dhariya Construction Co . . . . 515

HIGH COURTS

Advance tax --Interest payable by assessee--Compensation and interest on acquisition of land--Failure to pay advance tax--Interest can be levied under section 234B--Income-tax Act, 1961, s. 234B-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

Appellate Tribunal --Tribunal holding that assessee produced all relevant documents before Assessing Officer--Finding of fact--Income-tax Act, 1961-- CIT v. Sikka Overseas P. Ltd. (Delhi) . . . 641

Assessment --Reference to Valuation Officer--Opinion of Valuation Officer--Not sufficient basis without anything further to make addition--Income-tax Act, 1961-- CIT v. Naveen Gera (Delhi) . . . 516

----Valuation of property--Reference to Valuation Officer for valuation of investment--Not permissible where assessment made prior to September 30, 2004--Income-tax Act, 1961, s. 142A-- CIT v. Naveen Gera (Delhi) . . . 516

Business --Adventure in the nature of trade--Purchase of plots of land demarcated for acquisition by Government--Subsequent acquisition and receipt of compensation--Transaction adventure in the nature of trade--Gains assessable as business income--Income-tax Act, 1961, ss. 2(13), 28-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

----Business income--Cessation of liability--Interest on loans deducted in prior years--Credit entries transferred to capital accounts of partners of assessee-firm--Liability to pay interest ceased--Interest credited to accounts of creditors in assessment year assessable under section 41(1)--Income-tax Act, 1961, s. 41(1)-- Sree Hanuman Trading Co . v. ITO (Ker) . . . 662

----Other sources--Interest on compensation--Assessable as business income--Income-tax Act, 1961, s. 28-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

Business expenditure --Capital or revenue expenditure--Expenditure incurred in setting up new unit--Finding that new unit was separate and independent--Expenditure not deductible--Income-tax Act, 1961, s. 37-- CIT v. Vadilal Dairy International Ltd . (Guj) . . . 544

----Capital or revenue expenditure--Expenditure on foreign travel--Foreign travel for purposes of setting up new unit--Expenditure capitalised by assessee--Expenditure not deductible--Income-tax Act, 1961, s. 37-- CIT v. Vadilal Dairy International Ltd. (Guj) . . . 544

----Disallowance--Payments in cash exceeding specified limit--Distributor of lottery tickets--Explanation that Government insisted on payments in cash or demand drafts--Contention that Government agents were coming for collection of cash--Explanation contrary to contention--Commissioner (Appeals) and Tribunal not justified in setting aside disallowance--Matter remanded--Income-tax Act, 1961, s. 40A(3)-- ITO v. K. N. Pramod (Karn) . . . 669

Capital gains --Capital loss--Assessee in October 1992 acquiring convertible debentures for shares hold--Renunciation of right--Loss incurred--Deductible as short-term capital loss--Income-tax Act, 1961, s. 55-- Asst. CIT v. Acropolish Investments Ltd .(Guj) . . . 664

----Liability to tax--Land and building brought to firm as capital contribution by partners--Depreciation on land and buildings allowed to firm for a number of years--Dissolution of firm and assets distributed among partners--Transaction covered by section 45(4)--Gains assessable--Reference to valuer under section 55A justified--Income-tax Act, 1961, ss. 45(4), 55A--CIT v. Kumbazha Tourist Home (Dissolved) (Ker) . . . 600

Charitable purpose --Exemption--Money advanced for purchase of land--Peaceful and vacant possession of property handed over and irrevocable general power of attorney executed in assessee's favour--Assessee entitled to exemption--Income-tax Act, 1961, s. 11-- Director of Income-tax (Exemptions) v. Maharaja Agarsen Technical Education Society (Delhi) . . . 551

----Registration--Truck operators association--Welfare activities as in business organizations--Assessee not formed for advancement of general public utility--Assessee not entitled to benefit of registration--Income-tax Act, 1961, ss. 2(15), 12AA-- CIT v. Truck Operators Association (P&H) . . . 636

Deduction of tax at source --Writ--Works contract--Supply of eggs to Government in terms of specification contained in contract--Transaction whether works contract or sale is a question of fact--Assessee having alternative remedies under Income-tax Act--Writ would not issue to quash order for deduction of tax at source--Income-tax Act, 1961, s. 194C--Constitution of India, art. 226-- Mani Muthusamy v. Personal Assistant to Collector (Mad) . . . 588

Export --Special deduction under section 80HHC--Computation of turnover--Conversion charges not includible in turnover--Income-tax Act, 1961, s. 80HHC-- CIT v. Coimbatore Twisters Pvt. Ltd. (Mad) . . . 609

Income --Accrual of income--Time of accrual--Interest on compensation--Assessable in year of receipt--Income-tax Act, 1961-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

Income from undisclosed sources --Investment in property--Burden of proof to prove understatement is on Revenue--No evidence found at search to suggest payment over and above consideration mentioned in registered purchase deed--Addition solely on basis of report of Valuation Officer--Not justified--Income-tax Act, 1961-- CIT v. Smt. Suraj Devi (Delhi) . . . 604

----Long-term capital gains--Assessees belonging to a group purchasing and selling shares of similar companies--Assessing Officer holding transactions sham as sale through same broker and not at market rate--Tribunal finding transactions genuine--Finding of fact--Income-tax Act, 1961, s. 68-- CIT v. Jamnadevi Agrawal (Bom) . . . 656

Interest on borrowed capital --Capital used for setting up new business--Law applicable--Proviso to section 36(1)(iii) effective from 1-4-2004--Interest deductible in assessment year 1993-94--Income-tax Act, 1961, s. 36(1)(iii)-- CIT v. Vadilal Dairy International Ltd. (Guj) . . . 544

Loss --Business loss--Lease transaction found to be bogus--Claim for business loss arising from such transaction--Not allowable--Income-tax Act, 1961-- CIT v. English Indian Clays Ltd. (Ker) . . . 647

Offences and prosecution --Wilful attempt to evade tax--Penalty set aside by competent court--Prosecution based on same facts cannot continue--Income-tax Act, 1961, ss. 276C, 278B-- Harkawat and Company v. Union of India (MP) . . . 624

Penalty --Concealment of income--Additions on account of disallowance of certain expenses--Not a case of concealment of income or furnishing inaccurate particulars--Tribunal deleting penalty on finding disallowance on an estimate basis without pointing out any specific defect in explanation of assessee--Findings of fact--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. SSP Ltd. (P&H) . . . 643

----Concealment of income--Claim for deduction of loss--Details regarding claim furnished--Claim rejected--No furnishing of inaccurate particulars or concealment of income--Cancellation of penalty--Valid--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. IFCI Ltd. (Delhi) . . . 611

----Disallowance--Not a ground for levying penalty--Income-tax Act, 1961, s. 271(1)(c)--CIT v. SSP Ltd. (P&H) . . . 643

Precedent --Effect of decision of Supreme Court in Assistant CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500-- CIT v. Chandrasekhar Balagopal (Ker) . . . 619

----Effect of decision of Supreme Court in State of A. P. v. Kone Elevators [2005] 3 SCC 389-- Mani Muthusamy v. Personal Assistant to Collector (Mad) . . . 588

----Effect of Supreme Court decision in Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194-- CIT v. Vadilal Dairy International Ltd. (Guj) . . . 544

Professional income from foreign sources --Special deduction--Dress designer--Is an artist--Design fees received in convertible foreign exchange--Eligible for deduction under section 80RR--Income-tax Act, 1961, s. 80RR-- CIT v. Tarun R. Tahiliani (Bom) . . . 629

Purchase of immovable property by Central Government --Transactions cited by transferor and transferee not considered--No good reason for valuation fixed by Appropriate Authority--Order of pre-emptive purchase--Not valid--Income-tax Act, 1961, s. 268UD(1)-- Dattaram Bhikai Telge v. Appropriate Authority (Bom) . . . 580

Reassessment --Limitation--Exclusion from limitation--Reassessment consequent on finding in appellate order--Effect of sections 150(1) and 153(1)--Order of Commissioner (Appeals) in 1996 that capital gains was assessable in assessment year 1983-84 --Notice under section 148 based on order--Not barred by limitation--Income-tax Act, 1961, ss. 148, 150, 153-- Kalyan Ala Barot v. M. H. Rathod (Guj) . . . . 521

----Notice--Notice after four years on ground assessee not entitled to deduction claimed--Assessee disclosing fully and truly all material facts necessary for assessment and Assessing Officer applying mind thereto--No case for reopening assessment beyond four years--Income-tax Act, 1961, s. 148-- Hindustan Petroleum Corporation Ltd. v. Deputy CIT (Bom) . . . 534

----Notice--Returns filed between 1-10-1991 and 30-9-2005--Notice issued under section 143 after twelve months--Reassessment proceedings valid--Income-tax Act, 1961, ss. 143(2), 147, 148-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

----Notice--Validity of notice--Law applicable--Effect of amendment of sections 143 and 147 with effect from 1-4-1989--Failure to make assessment based on return--Notice of reassessment not barred--Notice valid--Income-tax Act, 1961, ss. 143, 147, 148-- CIT v. Chandrasekhar Balagopal (Ker) . . . 619

Reference --Finality of findings of fact--Income-tax Act, 1961, s. 256-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

Rejection of books of account --Assessing Officer rejecting books of account, making assessment by applying gross profit at a higher rate--Finding by appellate authorities that no justification for rejecting books of account since assessee given explanation for decrease in sale and no defect in valuation of stock and assessee following same method of valuation consistently for many years--Findings of fact--Income-tax Act, 1961-- CIT v. Patiala Distt. Co-op. Milk Producers' Union Ltd . (P&H) . . . 615

Undisclosed investment --Purchase of property disclosed in declaration under Voluntary Disclosure Scheme--No evidence found in course of search to show payment of any sum over that declared--No addition permissible--Voluntary Disclosure of Income Scheme, 1997-- CIT v. Naveen Gera (Delhi) . . . 516

Words and phrases --"Artist"--Meaning of-- CIT v. Tarun R. Tahiliani (Bom) . . . 629

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Deduction of tax at source--Writ--Works contract--Supply of eggs to Government in terms of specification contained in contract--Transaction whether works contract or sale is a question of fact--Assessee having alternative remedies under Income-tax Act--Writ would not issue to quash order for deduction of tax at source-- Mani Muthusamy v. Personal Assistant to Collector (Mad) . . . 588

Income-tax Act, 1961 :

S. 2(13) --Business--Adventure in the nature of trade--Purchase of plots of land demarcated for acquisition by Government--Subsequent acquisition and receipt of compensation--Transaction adventure in the nature of trade--Gains assessable as business income-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

S. 2(15) --Charitable purpose--Registration--Truck operators association--Welfare activities as in business organizations--Assessee not formed for advancement of general public utility--Assessee not entitled to benefit of registration-- CIT v. Truck Operators Association (P&H) . . . 636

S. 11 --Charitable purpose--Exemption--Money advanced for purchase of land--Peaceful and vacant possession of property handed over and irrevocable general power of attorney executed in assessee's favour--Assessee entitled to exemption-- Director of Income-tax (Exemptions) v. Maharaja Agarsen Technical Education Society (Delhi) . . . 551

S. 12AA --Charitable purpose--Registration--Truck operators association--Welfare activities as in business organizations--Assessee not formed for advancement of general public utility--Assessee not entitled to benefit of registration-- CIT v. Truck Operators Association (P&H) . . . 636

S. 28 --Business--Adventure in the nature of trade--Purchase of plots of land demarcated for acquisition by Government--Subsequent acquisition and receipt of compensation--Transaction adventure in the nature of trade--Gains assessable as business income-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

----Business--Other sources--Interest on compensation--Assessable as business income-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

S. 36(1)(iii) --Interest on borrowed capital--Capital used for setting up new business--Law applicable--Proviso to section 36(1)(iii) effective from 1-4-2004--Interest deductible in assessment year 1993-94-- CIT v. Vadilal Dairy International Ltd. (Guj) . . . 544

S. 37 --Business expenditure--Capital or revenue expenditure--Expenditure incurred in setting up new unit--Finding that new unit was separate and independent--Expendi-ture not deductible-- CIT v. Vadilal Dairy International Ltd . (Guj) . . . 544

----Business expenditure--Capital or revenue expenditure--Expenditure on foreign travel--Foreign travel for purposes of setting up new unit--Expenditure capitalised by assessee--Expenditure not deductible-- CIT v. Vadilal Dairy International Ltd. (Guj) . . . 544

S. 40A(3) --Business expenditure--Disallowance--Payments in cash exceeding speci-fied limit--Distributor of lottery tickets--Explanation that Government insisted on payments in cash or demand drafts--Contention that Government agents were coming for collection of cash--Explanation contrary to contention--Commissioner (Appeals) and Tribunal not justified in setting aside disallowance--Matter remanded-- ITO v. K. N. Pramod (Karn) . . . 669

S. 41(1) --Business--Business income--Cessation of liability--Interest on loans deducted in prior years--Credit entries transferred to capital accounts of partners of assessee-firm--Liability to pay interest ceased--Interest credited to accounts of creditors in assessment year assessable under section 41(1)-- Sree Hanuman Trading Co . v. ITO (Ker) . . . 662

S. 45(4) --Capital gains--Liability to tax--Land and building brought to firm as capital contribution by partners--Depreciation on land and buildings allowed to firm for a number of years--Dissolution of firm and assets distributed among partners--Transaction covered by section 45(4)--Gains assessable--Reference to valuer under section 55A justified--CIT v. Kumbazha Tourist Home (Dissolved) (Ker) . . . 600

S. 55 --Capital gains--Capital loss--Assessee in October 1992 acquiring convertible debentures for shares hold--Renunciation of right--Loss incurred--Deductible as short-term capital loss-- Asst. CIT v. Acropolish Investments Ltd . (Guj) . . . 664

S. 55A --Capital gains--Liability to tax--Land and building brought to firm as capital contribution by partners--Depreciation on land and buildings allowed to firm for a number of years--Dissolution of firm and assets distributed among partners--Transaction covered by section 45(4)--Gains assessable--Reference to valuer under section 55A justified--CIT v. Kumbazha Tourist Home (Dissolved) (Ker) . . . 600

S. 68 --Income from undisclosed sources--Long-term capital gains--Assessees belonging to a group purchasing and selling shares of similar companies--Assessing Officer holding transactions sham as sale through same broker and not at market rate--Tribunal finding transactions genuine--Finding of fact-- CIT v. Jamnadevi Agrawal (Bom) . . . 656

S. 80HHC --Export--Special deduction under section 80HHC--Computation of turnover--Conversion charges not includible in turnover-- CIT v. Coimbatore Twisters Pvt. Ltd. (Mad) . . . 609

S. 80RR --Professional income from foreign sources--Special deduction--Dress designer--Is an artist--Design fees received in convertible foreign exchange--Eligible for deduction under section 80RR-- CIT v. Tarun R. Tahiliani (Bom) . . . 629

S. 142A --Assessment--Valuation of property--Reference to Valuation Officer for valuation of investment--Not permissible where assessment made prior to September 30, 2004-- CIT v. Naveen Gera (Delhi) . . . 516

S. 143 --Reassessment--Notice--Validity of notice--Law applicable--Effect of amendment of sections 143 and 147 with effect from 1-4-1989--Failure to make assessment based on return--Notice of reassessment not barred--Notice valid-- CIT v. Chandrasekhar Balagopal (Ker) . . . 619

S. 143(2) --Reassessment--Notice--Returns filed between 1-10-1991 and 30-9-2005 --Notice issued under section 143 after twelve months--Reassessment proceedings valid-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

S. 147 --Reassessment--Information--Opinion of District Valuation Officer--Cannot be basis for reopening assessment-- Asst. CIT v. Dhariya Construction Co .(SC) . . . 515

----Reassessment--Notice--Returns filed between 1-10-1991 and 30-9-2005--Notice issued under section 143 after twelve months--Reassessment proceedings valid-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

----Reassessment--Notice--Validity of notice--Law applicable--Effect of amendment of sections 143 and 147 with effect from 1-4-1989--Failure to make assessment based on return--Notice of reassessment not barred--Notice valid-- CIT v. Chandrasekhar Balagopal (Ker) . . . 619

S. 148 --Reassessment--Limitation--Exclusion from limitation--Reassessment consequent on finding in appellate order--Effect of sections 150(1) and 153(1)--Order of Commissioner (Appeals) in 1996 that capital gains was assessable in assessment year 1983-84 --Notice under section 148 based on order--Not barred by limitation-- Kalyan Ala Barot v. M. H. Rathod (Guj) . . . 521

----Reassessment--Notice--Notice after four years on ground assessee not entitled to deduction claimed--Assessee disclosing fully and truly all material facts necessary for assessment and Assessing Officer applying mind thereto--No case for reopening assessment beyond four years-- Hindustan Petroleum Corporation Ltd. v. Deputy CIT (Bom) . . . 534

----Reassessment--Notice--Returns filed between 1-10-1991 and 30-9-2005--Notice issued under section 143 after twelve months--Reassessment proceedings valid-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

----Reassessment--Notice--Validity of notice--Law applicable--Effect of amendment of sections 143 and 147 with effect from 1-4-1989--Failure to make assessment based on return--Notice of reassessment not barred--Notice valid-- CIT v. Chandrasekhar Balagopal (Ker) . . . 619

S. 150 --Reassessment--Limitation--Exclusion from limitation--Reassessment consequent on finding in appellate order--Effect of sections 150(1) and 153(1)--Order of Commissioner (Appeals) in 1996 that capital gains was assessable in assessment year 1983-84 --Notice under section 148 based on order--Not barred by limitation-- Kalyan Ala Barot v. M. H. Rathod (Guj) . . . 521

S. 153 --Reassessment--Limitation--Exclusion from limitation--Reassessment consequent on finding in appellate order--Effect of sections 150(1) and 153(1)--Order of Commissioner (Appeals) in 1996 that capital gains was assessable in assessment year 1983-84 --Notice under section 148 based on order--Not barred by limitation-- Kalyan Ala Barot v. M. H. Rathod (Guj) . . . 521

S. 194C --Deduction of tax at source--Writ--Works contract--Supply of eggs to Government in terms of specification contained in contract--Transaction whether works contract or sale is a question of fact--Assessee having alternative remedies under Income-tax Act--Writ would not issue to quash order for deduction of tax at source-- Mani Muthusamy v. Personal Assistant to Collector (Mad) . . . 588

S. 234B --Advance tax--Interest payable by assessee--Compensation and interest on acquisition of land--Failure to pay advance tax--Interest can be levied under section 234B-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

S. 256 --Reference--Finality of findings of fact-- Deputy CIT v. Gopal Ramnarayan Kasat (Bom) . . . 556

S. 268UD(1) --Purchase of immovable property by Central Government--Transactions cited by transferor and transferee not considered--No good reason for valuation fixed by Appropriate Authority--Order of pre-emptive purchase--Not valid-- Dattaram Bhikai Telge v. Appropriate Authority (Bom) . . . 580

S. 271(1)(c) --Penalty--Concealment of income--Additions on account of disallowance of certain expenses--Not a case of concealment of income or furnishing inaccurate particulars--Tribunal deleting penalty on finding disallowance on an estimate basis without pointing out any specific defect in explanation of assessee--Findings of fact-- CIT v. SSP Ltd. (P&H) . . . 643

----Penalty--Concealment of income--Claim for deduction of loss--Details regarding claim furnished--Claim rejected--No furnishing of inaccurate particulars or concealment of income--Cancellation of penalty--Valid-- CIT v. IFCI Ltd. (Delhi) . . . 611

----Penalty--Disallowance--Not a ground for levying penalty--CIT v. SSP Ltd. (P&H) . . . 643

S. 276C --Offences and prosecution--Wilful attempt to evade tax--Penalty set aside by competent court--Prosecution based on same facts cannot continue-- Harkawat and Company v. Union of India (MP) . . . 624

S. 278B --Offences and prosecution--Wilful attempt to evade tax--Penalty set aside by competent court--Prosecution based on same facts cannot continue-- Harkawat and Company v. Union of India (MP) . . . 624

 

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ITR Volume 328 : Part 3 (Issue dated 8-11-2010) INCOME TAX REPORTS (ITR) Volume 328 : Part 3 (Issue dated 8-11-2010) SUBJECT INDEX TO CASES REPORTED IN THIS PART SUPREME COURT Advance tax --Nature of--Does not affect charge of tax or modify liability

INCOME TAX REPORTS (ITR)

Volume 328 : Part 3 (Issue dated 8-11-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Advance tax --Nature of--Does not affect charge of tax or modify liability to pay tax on assessment order--Income-tax Act, 1961, ss. 4(1), 190(1), 207-- Brij Lal v. CIT . . . 477

Settlement of cases --Settlement Commission--Interest under section 234B--Only up to the date of order under section 245D(1) and not up to date of order of settlement under section 245D(4)--Income-tax Act, 1961, ss. 234B, 245D(1), (4)-- Brij Lal v. CIT . . 477

Settlement Commission--Proceedings concluded--Thereafter interest under section 234B cannot be levied by way of rectification--Relevant date for determining quantum of interest under section 234B--Income-tax Act, 1961, ss. 2(40), (45), 140A, 143, 154, 207, 209, 210, 215, 234A, 234B, 234C, 245A, 245C, 245D, 245E, 245F, 245-I-- Brij Lal v. CIT . . . 477

Words and phrases --"Assessment", meaning of-- Brij Lal v. CIT . . . 477

HIGH COURTS

Accounting --Change of method of accounting from turnover base to capital investment base--Bona fides of assessee to adopt new method cannot be doubted merely because resulting in more benefits to assessee--Income-tax Act, 1961-- CIT v. Jindal Saw Pipes Ltd . (Delhi) . . . 338

Advance tax --Interest payable by assessee--Waiver of interest--Jurisdiction to grant waiver--Effect of circular-cum-notification dated 23-5-1996--Chief Commissioner and Director General of Income-tax (Exemptions) have jurisdiction only in cases covered by category 2(a) to (e) mentioned in circular--Income-tax Act, 1961, ss. 234B, 234C--Circular-cum-Notification dated 23-5-1996-- Director General of Income-tax (Exemptions) v. Jockeys Association of India (Karn) . . . 405

Appeal to Appellate Tribunal --Additional ground can be entertained--Income-tax Act, 1961, s. 250(5)-- CIT v. Jindal Saw Pipes Ltd. (Delhi) . . . 338

Appeal to High Court --Circular fixing monetary limit in case of appeal by Revenue --Whether monetary limit applicable to pending cases--To be decided by a larger Bench--Income-tax Act, 1961, ss. 260A, 268A-- CIT v. Varindra Construction Co. (P&H) . . . 446

Business expenditure --Deduction only on actual payment--Exclusion from disallowance--Law applicable--Amendment of section 43B with effect from 1-4-2004--Amendment retrospective--Payment of contribution to provident fund after due date but before filing of return--Payment deductible--Income-tax Act, 1961, s. 43B-- H. P. Tourism Development Corporation Ltd. v. CIT (HP) . . . 508

Cash credits --Share application money--Assessee proving identity of parties, genuineness of transaction and creditworthiness of share applicants--Tribunal deleting additions after appreciating evidence on record--Finding of fact--No substantial question of law--Income-tax Act, 1961, s. 68-- CIT v. Ujala Dyeing and Printing Mills P. Ltd. (Guj) . . . 437

Charitable purposes --Exemption--Educational institution--Assessee running schools--Entitled to exemption under section 11--Income-tax Act, 1961, s. 11-- CIT v. Manav Mangal Society (P&H) . . . 421

Deduction of tax at source --Interest--Chit fund--Chit agreement would not fall under "money lending"--No "debt incurred"--Bid amount disbursed is not interest payable on money borrowed--Payments disbursed not subject to deduction of tax at source--Income-tax Act, 1961, ss. 2(28A), 194A, 201-- CIT v. Sahib Chits (Delhi) (Pvt.) Ltd. (Delhi) . . . 342

Export --Special deduction--Computation--Meaning of "profits of business"--Law applicable--Effect of insertion of clause (iiid) in section 28 by Finance Act, 2005--Entire sale consideration on transfer of DEPB credit assessable on business profits--Income-tax Act, 1961, ss. 28(iiid), 80HHC-- CIT v. Kalpataru Colours and Chemicals (Bom) . . . 451

Special deduction--Computation--Tribunal allowing deduction under section 80HHC on basis of book profits under section 115JA and not on basis of eligible profits under section 80HHC as per normal computation--Justified--Income-tax Act, 1961, ss. 80HHC, 115JA-- CIT v. Bhari Information Technology Systems P. Ltd. (Mad) . . . 380

Income --Association--Principle of mutuality--Interest on surplus funds invested in fixed deposits with banks--Not income received from members of assessee but from third parties--Investing funds of association in bank fixed deposits a prudent commercial decision--Principle of mutuality does not apply--Matter remanded--Income-tax Act, 1961-- CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association (Bom) . . . 362

Association--Principle of mutuality--Surplus income over expenditure--Principle of mutuality applies--Not chargeable to tax--Income-tax Act, 1961-- CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association (Bom) . . . 362

Principle of mutuality--Club--Surplus funds deposited with institutional members--Interest on such deposits--Does not satisfy principle of mutuality--Chargeable to tax--Income-tax Act, 1961, s. 4-- Madras Gymkhana Club v. Deputy CIT (Mad) . . . 348

Time-barred unclaimed matured debentures transferred to general reserve account and utilised for business purposes--Amount assessable as trading receipt--Income-tax Act, 1961-- Hindustan Foods Ltd. v. Deputy CIT (Bom) . . . 392

Income from undisclosed sources --Additions to income on basis of statement given by assessee during survey--Assessee later contending that income was from agriculture--Assessee failing to produce books of account or any other authentic contemporaneous evidence of agricultural income--Some entries in a diary not sufficient and conclusive to hold that statement made earlier false--Addition proper--Income-tax Act, 1961, ss 132(4), 133A-- Bachittar Singh v. CIT (P&H) . . . 400

Amount realised on sale of gold jewellery and diamonds--Claim that gold jewellery and diamonds declared under Voluntary Disclosure of Income Scheme--No specific finding regarding claim--Addition to income not justified--Matter remanded--Finance Act, 1997, s. 68-- Smt. Kailashi Devi G. Agarwal v. ITO (Karn) . . . 425

Unaccounted sales--Unaccounted sales covered by income declared by assessee--No separate addition required--Income-tax Act, 1961-- CIT v. Sambhav Textiles Ltd. (P&H) . . . 444

Industrial undertaking --Deduction under section 80-IB--Sale of export incentive--Not income derived from industrial undertaking--Not entitled to deduction--Income-tax Act, 1961 s. 80-IB-- CIT v. Jaswand Sons (P&H) . . . 442

Special deduction under section 80-IA--Computation of gross total income for purposes of section 80-IA--Deduction granted after setting off losses from all other sources--Proper--Income-tax Act, 1961, s. 80-IA-- CIT v. Tridoss Laboratories Ltd .(Bom) . . . 448

Loss --Set off of loss--Year in which loss occurred--Destruction of stock stored in State warehousing corporation by fire in 1978--Suit filed for reimbursement of loss dismissed in May 1982--Loss allowable in assessment year 1983-84--Income-tax Act, 1961, s. 71-- New Diwan Oil Mills v. CIT (P&H) . . . 432

Precedent --Effect of decision of Supreme Court in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306-- H. P. Tourism Development Corporation Ltd . v. CIT (HP) . . . 508

Effect of decision of Supreme Court in CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1-- Director General of Income-tax (Exemptions) v. Jockeys Association of India (Karn) . . . 405

Principle of mutuality --Application of-- CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association (Bom) . . . 362

Reassessment --Limitation--No assessment made under section 143(3)--Time limit of four years not applicable--Income-tax Act, 1961, ss. 143(3), 147-- Madras Gymkhana Club v. Deputy CIT (Mad) . . . 348

Search and seizure --Undisclosed investment--Addition on basis of statement under section 132(4) by assessee recorded at midnight--Assessee later retracting and giving proper explanation for investment--Statement made at odd hours cannot be considered as voluntary statement--Addition not justified--Income-tax Act, 1961-- Kailashben Manharlal Chokshi v. CIT (Guj) . . . 411

Survey --Discrepancy in stock and cash--Addition on basis of statement made during survey--Assessee later contending that statement incorrect and that discrepancy reconciled as it was a mistake--Statement made under section 133A not conclusive proof--Assessee able to explain discrepancy in stock by production of relevant record--Addition to be deleted--Income-tax Act, 1961, s. 133A-- CIT v. Dhingra Metal Works (Delhi) . . . 384

Unexplained investments --Addition on basis of variation between stocks hypothecated with bank and stock shown in books of account--Tribunal finding addition based on bank statement and verification by Regional Officer that stock actually lying with assessee and assessee failed to give satisfactory explanation--Findings of fact--Income-tax Act, 1961 s. 69-- B. T. Steels Ltd. v. CIT (P&H) . . . 471

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Finance Act, 1997 :

S. 68 --Income from undisclosed sources--Amount realised on sale of gold jewellery and diamonds--Claim that gold jewellery and diamonds declared under Voluntary Disclosure of Income Scheme--No specific finding regarding claim--Addition to income not justified--Matter remanded-- Smt. Kailashi Devi G. Agarwal v. ITO (Karn) . . . 425

Income-tax Act, 1961 :

S. 2(28A) --Deduction of tax at source--Interest--Chit fund--Chit agreement would not fall under "money lending"--No "debt incurred"--Bid amount disbursed is not interest payable on money borrowed--Payments disbursed not subject to deduction of tax at source-- CIT v. Sahib Chits (Delhi) (Pvt.) Ltd. (Delhi) . . . 342

S. 2(40) --Settlement of cases--Settlement Commission--Proceedings concluded--Thereafter interest under section 234B cannot be levied by way of rectification--Relevant date for determining quantum of interest under section 234B-- Brij Lal v. CIT (SC) . . . 477

S. 2(45) --Settlement of cases--Settlement Commission--Proceedings concluded--Thereafter interest under section 234B cannot be levied by way of rectification--Relevant date for determining quantum of interest under section 234B-- Brij Lal v. CIT

(SC) . . . 477

S. 4 --Income--Principle of mutuality--Club--Surplus funds deposited with institutional members--Interest on such deposits--Does not satisfy principle of mutuality--Chargeable to tax-- Madras Gymkhana Club v. Deputy CIT (Mad) . . . 348

S. 4(1) --Advance tax--Nature of--Does not affect charge of tax or modify liability to pay tax on assessment order-- Brij Lal v. CIT (SC) . . . 477

S. 11 --Charitable purposes--Exemption--Educational institution--Assessee running schools--Entitled to exemption under section 11-- CIT v. Manav Mangal Society (P&H) . . . 421

S. 28(iiid) --Export--Special deduction--Computation--Meaning of "profits of business"--Law applicable--Effect of insertion of clause (iiid) in section 28 by Finance Act, 2005--Entire sale consideration on transfer of DEPB credit assessable on business profits-- CIT v. Kalpataru Colours and Chemicals (Bom) . . . 451

S. 43B --Business expenditure--Deduction only on actual payment--Exclusion from disallowance--Law applicable--Amendment of section 43B with effect from 1-4-2004--Amendment retrospective--Payment of contribution to provident fund after due date but before filing of return--Payment deductible-- H. P. Tourism Development Corporation Ltd. v. CIT (HP) . . . 508

S. 68 --Cash credits--Share application money--Assessee proving identity of parties, genuineness of transaction and creditworthiness of share applicants--Tribunal deleting additions after appreciating evidence on record--Finding of fact--No substantial question of law-- CIT v. Ujala Dyeing and Printing Mills P. Ltd. (Guj) . . . 437

S. 69 --Unexplained investments--Addition on basis of variation between stocks hypothecated with bank and stock shown in books of account--Tribunal finding addition based on bank statement and verification by Regional Officer that stock actually lying with assessee and assessee failed to give satisfactory explanation--Findings of fact-- B. T. Steels Ltd. v. CIT (P&H) . . . 471

S. 71 --Loss--Set off of loss--Year in which loss occurred--Destruction of stock stored in State warehousing corporation by fire in 1978--Suit filed for reimbursement of loss dismissed in May 1982--Loss allowable in assessment year 1983-84-- New Diwan Oil Mills v. CIT (P&H) . . . 432

S. 80HHC --Export--Special deduction--Computation--Meaning of "profits of business"--Law applicable--Effect of insertion of clause (iiid) in section 28 by Finance Act, 2005--Entire sale consideration on transfer of DEPB credit assessable on business profits-- CIT v. Kalpataru Colours and Chemicals (Bom) . . . 451

Export--Special deduction--Computation--Tribunal allowing deduction under section 80HHC on basis of book profits under section 115JA and not on basis of eligible profits under section 80HHC as per normal computation--Justified-- CIT v. Bhari Information Technology Systems P. Ltd. (Mad) . . . 380

S. 80-IA --Industrial undertaking--Special deduction under section 80-IA--Computation of gross total income for purposes of section 80-IA--Deduction granted after setting off losses from all other sources--Proper-- CIT v. Tridoss Laboratories Ltd . (Bom) . . . 448

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ITAT DEL: Software licensing payments are royalty and taxable,

Software licensing payments are royalty and taxable, rules Tribunal

Microsoft case verdict goes in favour of Revenue Department.

Software firm hit hard

End-user payments for licensing of software to be treated as 'royalty'

Microsoft says payments made towards licensing of software cannot be treated as royalty

Payments made to Microsoft prior to Jan 1, 1999, also taxable as royalty

K.R.Srivats

New Delhi, Oct. 30

The Delhi Income-Tax Appellate Tribunal (ITAT) has held that payments received by Microsoft Corporation from end users (in India) through distributors for sale of Microsoft software, are taxable as royalty. This would be applicable for all the payments made before January 1, 1999, the ITAT has said.

Until this date, Microsoft Corporation, a US company, had direct arrangements with various Indian distributors for sale of Microsoft software (off- the-shelf/shrink-wrapped), on a principal-to-principal basis.

From January 1, 1999, the business model was changed and Microsoft granted exclusive licence to Gracemac Corporation of the US to manufacture the Microsoft software and distribute it in terms of the licence agreement. Even under the changed business model, the ITAT has now held that payments for software licensing should be treated as royalty for tax purposes.

Disposing a batch of appeals relating to three different entities — Microsoft Corporation, Gracemac Corporation and Microsoft Regional Sales Corporation (MRSC) — relating to different assessment years, the ITAT bench upheld the ruling of CIT (appeals) that consideration received from licensing of computer software would be in the nature of royalty under the Indian Income Tax law and India-US DTAA.

Revenue Dept

This ITAT ruling comes in the Revenue Department's favour. Microsoft has been contending that payments made towards licensing of computer software cannot be treated as royalty, but should be considered as business profits. If considered as business profits, the software major would have had no tax liability here as it does not have a permanent establishment in India.

Meanwhile, in the case of Gracemac Corp, the ITAT has held that payments made in respect of copyright in Microsoft software are taxable as royalty in its hands.

Under Microsoft's changed business model from January 1, 1999, Gracemac had entered into a licence agreement with Microsoft Operations Pte Ltd, a Singapore-based wholly-owned subsidiary of Microsoft Corporation, for non-exclusive licence to reproduce Microsoft software in Singapore. Microsoft Operations sold all its Microsoft software copies to MRSC branch in Singapore. MRSC had delivered Microsoft software copies to Indian distributors, ex-warehouse in Singapore, who in turn sold them to re-sellers/end users in India.

Microsoft Operations paid royalty to Gracemac. The royalty was based on a percentage of net selling price received by MRSC from distributors in various countries, including India.

The Delhi ITAT has also ruled that MRSC cannot be taxed again on the same income, by way of royalty, for exploitation of same rights which had been taxed in the hands of Gracemac Corporation. Any such move would constitute double taxation and therefore the ITAT has deleted the additions in the hands of MRSC for all the three years.

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