ITR : Volume 331 : Part 3 Issue dated 28-02-2011

INCOME TAX REPORTS (ITR) HIGHLIGHTS

    ISSUE DATED 28-2-2011    Volume 331 Part 3

 

   ->> Assessee occupying part of building for business as tenant : Deduction allowable pro rata for assessee's portion of building : Danesh A. Irani v. CIT (Bom) p. 291

 

   ->> Duty of Appellate Tribunal to pass speaking order : CIT v. Deepak M. Kothari (All) p. 301

 

   ->> Scheme of amalgamation sanctioned by BIFR wref 1-2-1992 : Revised return filed by assessee on 31-3-1994 claiming unabsorbed business losses of sick company valid : CIT v. J. K. Corporation Ltd. (Cal) p. 303

 

   ->> Decision of High Court not to be followed without discussion as to how applicable to facts : Iskraemeco Regent Ltd. v. CIT (Mad) p. 317

 

   ->> Duty of income-tax authorities to record reasons : Iskraemeco Regent Ltd. v. CIT (Mad) p. 317

 

   ->> Commercial complex constructed by assessee : Rent received assessed as business income for several years : Income cannot be assessed as income from house property : CIT v. Goel Builders (All) p. 344

 

   ->> Assessee borrowing funds and investing in financially fragile sister concerns : Deduction of interest paid on borrowings not allowable : CIT v. Smt. Swapna Roy (All) p. 367

 

   ->> Taxing authorities and court entitled to determine true legal relation resulting from transaction : CIT v. Rockman Cycle Industries P. Ltd. [FB] (P&H) p. 401

 

   ->> Set off of carried forward business loss and unabsorbed depreciation resulting in negative income : Assessee entitled to deduction in computation of book profits : CIT v. Packworth Udyog Ltd. [FB] (Ker) 416

 

   ->> Order rejecting application for release of seized articles not valid where no sufficient reason for retention of seized assets : Mitaben R. Shah v. Deputy CIT (Guj) p. 424

 

    STATUTES AND NOTIFICATIONS

 

   ->> Notifications :

 

    Income-tax Act, 1961 : Notification under section 35(1)(ii) : Scientific research associations p. 18

 

    NEWS-BRIEF

 

   ->> Contributions to promote education without profit motive, entitled to income-tax benefits

 

    The Delhi High Court bench has ruled that section 10(22) of the Income-tax Act should not be given a restrictive meaning and so long as the income is used for fulfilling educational purpose, the exemption should be available. The court rejected the plea of the Revenue Department which had said that if the donations received by the educational institutes are not voluntary, then the dominant intent is to earn the profit.

 

    Merely, non-distribution of such contributions to the members of the institutes or use of such amount for the educational activities would not be sufficient to claim exemption under section 10(22) of the Act of 1961, the Department had said.

 

    The court, however, said: "It cannot be lost sight of that if an institution has to expand, additional infrastructure has to be created, quality education has to be imparted, all these activities require funds. There may be an original corpus of the society but thereafter the corpus for such activity can be created only through voluntary donations either from any philanthropist or through collection of funds in the process of admission."

 

    The court said : "We are not concerned with the morality of the issue while deciding whether exemption has to be granted under section 10(22) of the Income-tax Act as all that is required is the absence of profit motive." The Department had denied the exemption claimed by the assessee, an educational society for assessment year of 1993-94.

 

    It dismissed the appeal. The assessee then filed appeal before the Income-tax Appellate Tribunal (ITAT). There were difference of opinion among the two members of the quasi-judicial body. Then the matter was referred to the third member of the ITAT. The Tribunal then in its majority order had ruled in favour of the assessee. Aggrieved, the Revenue Department had came to the High Court. [Source : www.economictimes.com dated February 14, 2011]

 

   ->> Being set aside in the exemption list of DTC, dishearten religious trusts

 

    All religious and charitable trusts set up for a particular religion or caste that are currently exempt from paying income-tax or wealth-tax will lose these benefits once the Direct Taxes Code (DTC) comes into effect from April next year.

 

    This will adversely impact the activities of all such trusts, which run temples, mosques, etc. and provide free hospitalisation, education, shelters, etc., to those sections of the society lying outside the pale of the state's munificence. It may also disincentivise donors who will not be able to claim deduction of 50 per cent. of the donation from taxable income if the trusts are not non-profit organisations.

 

    The problem lies in the definition of a non-profit organisation under the DTC, which has granted exemption to any such entity being a religious trust or institution from the levy of income-tax so long as it is not restricted to a particular religion or caste. There are several such trusts that serve the poor and destitute belonging to the Muslim, Jain, Catholic, Parsee and Hindu communities, among others.

 

    "The provisions were drafted by tax officials without consulting any trustees. No justification has been given for withdrawing the exemptions . . . I think the IT Commissioners want to bring all this to tax."

 

    The Income-tax Act, 1961, which has been in force for 50 years, has exempted all charitable trusts which were set up before April 1, 1962 for a particular religious community or caste. This provision does not exist in the new DTC and once the new law comes into force from April 1, 2012, all existing charitable trusts will have to pay income-tax at the flat rate of 30 per cent. and wealth-tax at 1 per cent.

 

    Apart from being unable to claim income or wealth-tax exemption, the provision under the current Act that allows 100 per cent. accumulation of income by public charitable trusts for five years to build, say, a hospital or school, will not be included in DTC. Currently, a charitable trust is required to spend only 85 per cent. every year on the next year and the balance 15 per cent. can be accumulated for all times to come.

 

    Under the DTC the amount can be accumulated only for three years. Various trusts have come together to form a federation of trusts that has already taken up the matter with the Parliamentary Standing Committee on Finance chaired by a former finance minister. A second meeting with the Standing Committee has been slated for February 25. [Source : www.economictimes.com dated February 14, 2011]

 

   ->> Industry seeks separate tax exemption limit for life and health insurance premiums

 

    The insurance industry wants the Government to create a separate tax exemption limit of Rs. 50,000 for life insurance premium in the forthcoming budget to encourage more individuals to buy such policies.

 

    Currently investment in saving instruments, like risk cover, pension products, PF contributions, National Savings Certificates and others, are eligible for aggregate deduction of Rs. 1 Lakh. Besides, investments in infrastructure bonds up to Rs. 20,000 also qualify for deduction.

 

    "We recommend a separate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits on life and health insurance premium could be looked at," a private life insurance MD said.

 

    Insurance sector needs capital on a periodic basis for expansion and experts hope that the budget session would also see passage of FDI bill in insurance sector to 49 per cent., from the current 26 per cent.

 

    "There is a need for more proactive regulatory architecture for insurance. Foreign insurers could be allowed to set-up under a wholly owned subsidiary with 100 per cent. FDI. The life insurance industry is very capital intensive and companies need huge capital to fund growth," a consultancy firms's Executive Director said.

 

    The life insurance companies currently pay tax of 12.5 per cent. and the Direct Taxes Code, which would replace the archaic IT Act from April 1, 2012, does not specify any specific limit for the same. This would mean being taxed at 30 per cent.

 

    "A significant portion of funds of life insurance companies are invested in infrastructure projects. Also companies incur huge losses initially due to long gestation period. With higher tax rates, it will be unattractive proposal for new investors to invest in the sector," a private insurer said. [Source : www.economictimes.com dated February 16, 2011]

 

   ->> IT Department need to collect a bigger rise in unpaid taxes in a week

 

    Racing to maximise its revenue before the end of this fiscal, the Government has asked all Chief Commissioners of Income-tax in the country to ensure collection of over Rs. 1150 crore of unpaid taxes in a week's time.

 

    The orders to ensure collection of taxes under the self-assessment tax (SAT) category have been issued by the Finance Ministry on February 12 as an urgent and immediate measure to meet the budgetary target of Rs. 4.50 lakh crore of direct taxes for this financial year.

 

    The Central Board of Direct Taxes (CBDT) has found that almost Rs. 1157 crore of taxes under the category of self-assessment tax is pending in various ranges of the country including large income regions like Mumbai, Kolkata and Delhi.

 

    Under the SAT, the assessee is required to make a self-assessment and pay the tax on the basis of the returns furnished. Any tax paid by the taxpayer under this category is deemed to have been paid towards regular assessment.

 

    The direct taxes kitty has swelled to Rs. 3.17 lakh crore in January last, against the revised budgetary target of Rs. 4.50 lakh crore. It is to be finalised by March 31.

 

    The highest unpaid SAT is in Mumbai (Rs. 317 crore), Kolkata (Rs. 165 crore), Bangalore (Rs. 125 crore) and Pune (Rs. 96 crore).

 

    Worried over the under-collection of this amount, the CBDT Chairman has issued instructions to 14 Chief Commissioners of Income-tax to ensure the collection by February 20. [Source : www.economictimes.com dated February 13, 2011]

 

   ->> Government are most confident at tighter international tax norms

 

    The Government is considering tightening taxation norms for Indian companies having intermediary holding entities in overseas locations, as part of its efforts to increase its tax revenues.

 

    "With very limited scope left on domestic front to widen tax collection due to inflationary pressure, the Finance Ministry is looking at ways to mop up additional revenues from international taxation front," a source told.

 

    The Government may propose strict norms for disclosure by Indian companies and individuals to tax department about investments and interests in overseas entities, especially those with a holding company structure. The income from these investments and interests would be taxed accordingly, they added.

 

    The Government is as such not in favour of increasing the tax burden on individuals due to inflation. Similarly there is unlikely to be any increase in corporate taxes on domestic businesses as high input expenses and increased borrowing costs are adversely affecting the companies' profitability.

 

    Besides, a larger overhaul of tax structure is already lined up through the Direct Taxes Code, which is expected to come into effect from April 2012.

 

    As per one of such proposals, a foreign company based in a country with lower tax rate, and where one or more Indian residents hold management control, would be treated as a Controlled Foreign Company (CFC) and taxed accordingly in India.

 

    A consultancy major said that the new CFC regime might work against Indian companies with operations abroad, as their competitiveness would be hurt. [Source : www.economictimes.com dated February 14, 2011]

 

   ->> Impending budget may extend tax benefit on infrastructure bonds as a sound investment theme

 

    The Union Budget for 2011-12 could extend the tax benefit on investments made in infrastructure bonds by a year while giving banks access to this special window in an effort to raise debt funds for building physical assets of the country. The last budget had allowed a deduction of an additional Rs. 20,000 for investment in long-term infrastructure bonds, over and above the Rs. 1 lakh limit prescribed for investments in tax saving schemes. Only dedicated infrastructure companies or lenders were allowed to raise funds through these tax savings bonds.

 

    "Various options for infrastructure financing are being examined," said a Government official, adding "extending this window is one of them". The budget for 2009-10 had limited the tax benefit on infrastructure bonds for one year. This was because the Government was hoping to roll out of the Direct Taxes Code from April this year. But now that the new code is unlikely to be implemented before April 2012, the Government could extend the tax relief on these bonds.

 

    "Keeping in view the infrastructure fund requirements of the country and also to make the tax deduction more meaningful, the Government should enhance the investment limit to Rs. 50,000," said an executive director of a consultancy firm. [Source : www.economictimes.com dated February 16, 2011]

 

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Whether sum paid as compensation for occupation of premises after

Income tax - Whether sum paid as compensation for occupation of premises after expiry of lease and for repair and damages can be treated as sum received as payment for transfer of tenancy rights - NO, rules Calcutta HC

KOLKATA, FEB 18, 2011: THE issue before the HC is - Whether sum paid as compensation for occupation of a premises after the expiry of the lease and for repair or damage to the premises by the tenant can be treated as an amount received by way of consideration for transfer of any tenancy right. And the HC's answer is NO.

Facts of the case

On December 14, 1957, the premises No. 31, Shakespeare Sarani, Kolkata, consisting of land and building was leased out by its the then owner to the Consulate General of USSR by a registered Deed of Lease for a period of 23 years commencing from January 15, 1958 at the monthly rental of Rs.8,000/- a month. The said premises was purchased by Dejoo Tea Company (India) Pvt. Ltd. on November 30, 1977 subject to the said lease dated December 14, 1957 and the lessee, namely, Consulate General of USSR, attorned the tenancy to DT and started paying rent to it.

On January 15, 1981, although the said lease granted in favour of the Consulate General of USSR expired, the lessee refused to vacate and handover possession of the said premises to the DT, as a result, DT approached the Central Government under Section 86 of the Code of Civil Procedure for permission to institute legal proceedings against the Consulate General. As no such permission was forthcoming, various proceedings in the writ jurisdiction of this Court were taken and thereafter, the matter went up to the Supreme Court for a direction upon the Central Government to grant permission under Section 86 of the Code of Civil Procedure alleging inaction of the Central Government.

On March 18, 1985, an assessment was made under Section 143(3) of the Income Tax Act, 1961 for the assessment year 1982-83 (Financial Year 1981-82) assessing Rs.96,000/- as income of the said premises under the head-House property although the lease had expired and no rent was received. It was held that the income under the Head House property was required to be assessed on the notional income that could be received and the fact that the lease had come to an end and that no rent was received from the lessee was irrelevant.

An appeal preferred by the assessee against the said order of assessment was dismissed by CIT (Appeal) holding that the assessment of income under the head-House property made on the basis of notional income at the rate of the rent payable under the lease was justified in law. Assessments were also made on similar basis for the subsequent assessment years 1983-84 to 1991-92 assessing the income under the Head House property notionally on the basis of rent payable under the expired lease in respect of the said premises.

On April 2, 1991, another agreement was entered into between Consulate General and DT for payment of Rs.100 lac for repair and renovation of the said premises after getting vacant possession. It was further provided that on payment of the said sum, DT would not have any claim as to the condition of the property in which the Consulate might leave while vacating and handing over the possession and it was further recorded that during the period of possession by Consulate the damage and injuries to the properties had been caused and repairs were required and the said sum was to be paid in twelve quarterly instalments commencing from 15th January, 1992 and was meant for providing compensation fund for meeting costs and expenses for repair of the property and its restoration to the original condition after it was vacated by the Consulate.

Pursuant to the said agreement, DT received from the Consulate a sum of Rs.99,95,929/- for occupation during 15th January, 1981 to 31st March, 1991 and a further sum of Rs.33,98,952/- was received on account of occupation of the said premises for the period from 1st April, 1991 till 31st March, 1992. A further sum of Rs.16 lac was received on account of quarterly instalment for damages.

On May 4, 1992, a scheme was sanctioned by this High Court for amalgamation of DT with the present appellant, namely, Jasmine Commercials Ltd., with effect from April 1, 1991 and all the assets and liabilities of DT vested in the appellant with effect from April 1, 1991.

On February 1, 1993 the appellant filed the return of income for assessment year 1992-93 disclosing the receipts of the aforesaid sum of Rs.99,95,929/-, Rs.33,98,952/- and Rs.16 lac, respectively from the Consulate.

On February 28, 1995, pursuant to the return filed on February 1, 1993, the assessment was made under Section 143(3) of the Income Tax Act and in such assessment, the sum of Rs.33,98,952/- for the period April, 1991 to March, 1992 was assessed as rental income under the Head House property for the said premises. The sum of Rs. 99,95,929/- on account of arrears of rent and Rs.16 lac for building repair were assessed as business income.

On an appeal being preferred by the assessee against such order passed, the CIT (Appeal) held that the sum of Rs.99,95,929/- which admittedly represented arrears of rent could not be assessed to tax in view of the various judicial decisions and it was held that the sum of Rs.16 lac also could not be assessed as it was for damage to the house property which was a capital asset and was a capital receipt.

The Tribunal disposed of the appeal of the Department by holding that sum of Rs.90 lac received for occupation by way of compensation from the Consulate was not arrears of rent but was compensation for the tenancy right during post-lease-period of 10 years. The Tribunal further held that the further sum of Rs.1 crore on account of damages to the property was also on account of further occupation of the property for a maximum period of five years and both the sum of Rs.90 lac and Rs.1 crore were for transfer of the right of tenancy which was a capital asset and was liable to be assessed as capital gains by taking the cost of acquisition as "nil". The Tribunal accordingly directed that the sum of Rs.90 lac should be assessed as capital gain and further directed that the sum of Rs.1 crore should also be assessed as capital gains even though only Rs.16 lac was assessed as business income and the matter was sent to the assessing officer for re-determination of such capital gains. It was further recorded that these two sums were not assessable under the Head Business income.

The assessee filed an appeal before the High Court contending that the Tribunal acted without jurisdiction in enhancing the scope of the appeal by directing the assessing officer to consider the entire amount of Rs.100 lac payable on account of repair or damages during the next five years in the assessment year in question when the dispute before the Tribunal was confined only for the quarterly instalments to the extent of Rs.16 lac and further whether the said sum could not at all be considered in the hands of the appellant.

The High Court held that –

++ taking into consideration the provision of Section 254 of the Act, an Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such order thereon as it thinks fit. The word "thereon", is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, the original grounds of appeal and such additional ground, as may by raised by the Appellant by the leave of the Tribunal, constitute the extent of jurisdiction of the Tribunal and it can adjudicate upon only those grounds and not beyond them. Even if a particular ground is not taken in the Memorandum of Appeal, an appellant may by taking leave of the appellate authority add grounds. In the instant case, however, neither in the Memorandum of Appeal any ground was taken in respect of the aforesaid Rs.100 lac nor was any amendment sought for including such ground and the learned Tribunal below even in its judgment itself while considering the questions before it, referred to only those two points excluding the question of involvement of Rs.100 lac;

++ therefore, the Tribunal below acted without jurisdiction in enhancing the scope of the appeal although the appellant did not raise any such point. On that ground alone, the portion of the order passed by the Tribunal below relating to the reassessment of Rs.100 lac should be set aside;

++ on merits - even after the expiry of the lease in the year 1981 when the property fetched no actual income, the assessing authority assessed Rs.96,000/- per annum as income from the said premises under the head-House property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises. Such being the position, there is substance in the contention of the assessee that there was no justification of treating the amount received from the erstwhile lessee by virtue of the said agreement as the income received by the assessee from the selfsame house property during the occupation of the erstwhile tenant. When the appellant received no income from the selfsame property from the year 1981 on the expiry of the lease, it went on paying income tax on the basis of notional income and as such, the actual income arising there from subsequently, even though higher than the notional income assessed as equivalent to the rate of rent, cannot be taken note of for the purpose of assessment;

++ in this case there was no justification of treating the income arising out of the selfsame house property under a different Head after the same has been taxed as income under the head-House property on the basis of notional rent payable by the selfsame occupant;

++ similarly, it is preposterous to describe the receipts as outcome of transfer of tenancy right as the assessee was not a tenant and as such no question of gaining anything by transferring the right of its tenancy arises;

++ in the instant case, we are unable to brand the agreement between the lessor and the former lessee as a device to avoid tax inasmuch as the said agreement was entered into at the intervention of the Central Government. Moreover, having regard to the consistent views of the Supreme Court that an income already taxed under one head cannot at the subsequent period be taxed under a different head, we are left with no other alternative but to set aside the views of the Tribunal. As already pointed out that when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head. Therefore, the Court set aside the order of the Tribunal below by affirming the order of the CIT (Appeal).

Assessee's appeal allowed

IFRS forms

February, 18th 2011
The government today said it will soon notify the format that companies will have to follow while preparing their account books as per the international accounting norm IFRS from next fiscal.

In an official statement, the Corporate Affairs Ministry also said that it is ready with the depreciation rates that companies will have to follow while compiling their financial statements.

"The revised Schedule VI(Format of Financial Statements), Schedule XIV (Depreciation Rate) and proposed converged accounting standards are ready and are proposed to be notified shortly," the statement said.

The Ministry also pointed out that companies will have to comply by the International Financial Reporting Standards from April 2011.

"To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning April, 2011," it said.

On industry's apprehensions about implementation of IFRS from the next fiscal, the MCA said that all the issues have been taken care of.

"The Industry has always expressed a feeling of readiness on the matter. The concerns expressed by them at various stages have been redressed through issue of suitable clarifications," it said.

According to the roadmap laid out by the Corporate Affairs Ministry, companies will have to prepare their accounts as per the new norm in a phased manner, beginning with companies that have a networth of over Rs 1,000 crore.

Further, while scheduled commercial banks and urban cooperative banks will adopt IFRS from April 1, 2013, all insurance companies will convert their opening balance sheets with IFRS from April 2012.

Large, listed non-banking finance companies (NBFCs), will converge their opening books of accounts with IFRS norms from April 1, 2013.__,_._,___

Supreme Court recalls law requiring PSUs to obtain COD approval

Electronics Corporation of India Ltd vs. UOI (Supreme Court – 5 Judge Bench)

Friday, February 18th, 2011

Supreme Court recalls law requiring PSUs to obtain COD approval

 

In ONGC vs. CCE 104 CTR (SC) 31, the Supreme Court directed the Central Government to set up a 'Committee on Disputes' to monitor disputes between the Government and Public Sector Enterprises and give clearance for litigation. It was held the no litigation could be proceeded with in the absence of COD approval. This was followed in ONGC vs. CIDCO (2007) 7 SCC 39 and it was held that even disputes between PSUs and State Governments would require COD approval.

 

In CCE vs. Bharat Petroleum Corporation, a 2 Judge Bench of the Supreme Court held that the working of the COD had failed and that the time has come to revisit the law. The matter was referred to a Larger Bench for reconsideration.

 

HELD by the Larger Bench recalling its orders in ONGC vs. CCE 104 CTR (SC) 31, (2004) 6 SCC 437 and ONGC vs. CIDCO (2007) 7 SCC 39:

 

The idea behind setting up of the … "Committee on Disputes" (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD … Whilst the principle and the object behind the aforestated Orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation …. on same set of facts, clearance is given in one case and refused in the other.

 

This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court

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HC Ruling-Merely because of the fact that the assessee had asserted that it is a

HC Ruling-Merely because of the fact that the assessee had asserted that it is a developer in the returns filed by him, it cannot be said that there is any failure on the part of the petitioner to disclose fully and truly all material facts. At best, the petitioner has made a claim along with supporting documents, namely, development agreements for construction of housing projects, etc. and based upon the said documents, the AO had formed an opinion and granted deduction under section 80-IB(10) of the Act. As to whether in a given set of facts, the assessee is a developer or a works contractor is a matter of inference. Hence, the assertion that the petitioner is a developer, without anything more cannot be said to be an incorrect disclosure of facts, as is sought to be contended on behalf of the revenue. In the circumstances, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act after the expiry of four years from the end of the relevant assessment year is illegal and invalid. The proceedings under section 147 of the Act which have been initiated by issuance of the impugned notice under section 148 of the Act, therefore, cannot be sustained-AIT-2011-92-HC

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

Sanjay Kumar Garg vs. ACIT (ITAT Delhi)

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

 

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

 

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

 

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

 

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

 

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

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Reassessment [Section 147] : Decision of assessing officer may not be correct

Income-tax : Reassessment [Section 147] : Decision of assessing officer may not be correct in a case, but the same cannot be made subject matter of reopening of assessment under section 147/148 - [2011] 9 taxmann.com 272 (Delhi)

ITR 331[2]

From: GlobalIndianCAs@yahoogroups.com [mailto:GlobalIndianCAs@yahoogroups.com] On Behalf Of CABHUPENDRASHAH
Sent: Friday, February 18, 2011 5:40 PM
To: GlobalIndianCAs@yahoogroups.com
Subject: [GlobalIndianCAs] itr 331[2]

 

INCOME TAX REPORTS (ITR)

Volume 331 : Part 2 (Issue dated 21-2-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to High Court --Delay in filing appeal--High Court can condone delay--Income-tax Act, 1961, s. 260A-- CIT v. R. K. B. K. Ltd . (Cal) . . . 269

Capital gains --Exemption--Transfer of residential house and purchase or construction of a residential house within the prescribed time--Meaning of "a residential house" in section 54--Transfer of residential house and purchase of four flats in the same residential building--Assessee entitled to exemption under section 54--Income-tax Act, 1961, s. 54--General Clauses Act, 1897, s. 13-- CIT v. Smt. K. G. Rukminiamma

(Karn) . . . 211

Charitable purpose --Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration--Income-tax Act, 1961, ss. 2(15), 12A, 12AA-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer

(Raj) . . . 135

----Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration--Income-tax Act, 1961, ss. 2(15), 11, 12, 12A-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur

(Raj) . . . 174

----Registration of trust--Agricultural produce marketing committees--Delay in application for registration from assessment year 2003-04 due to bona fide belief that registration was not necessary and in getting approval and legal advice from Government authorities--Delay to be condoned--Income-tax Act, 1961, ss. 12A, 12AA-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration--Income-tax Act, 1961, ss. 2(15), 11, 12A, 12AA-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose--Income-tax Act, 1961, ss. 11, 12A, 12AA-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

Charitable trust --Registration--Application for registration--Delay in filing application--Assessee executing trust deed in 2000, started activities in 2005--Assessee as per advice of chartered accountant filing application belatedly--Delay to be condoned--Income-tax Act, 1961, s. 12AA-- CIT v. Indian Gospel Fellowship Trust

(Mad) . . . 283

Commissioner --Revision--Depreciation on goodwill--Revision on ground goodwill not an asset entitled to depreciation--Goodwill valuable commercial asset similar to other intangibles eligible to depreciation--Where two views are possible and Assessing Officer accepting one view which is a plausible one, not appropriate to exercise power under section 263--Income-tax Act, 1961, ss. 32, 263-- CIT v. Hindustan Coco Cola Beverages P. Ltd. (Delhi) . . . 192

Income --Accrual--Non-banking financial company--Method of accounting--Mercantile system of accounting--Interest accrued on non-performing assets not recognised as income--In conformity with notification issued by Reserve Bank of India--No question of accrual of income--Income-tax Act, 1961-- CIT v. Coimbatore Lakshmi Inv. and Finance Co. Ltd . (Mad) . . . 229

Income from other sources --Deduction--Interest on borrowed capital--Assessee manufacturing and exporting textiles--Funds transferred from cash credit/packing credit--Interest on such funds--Not entitled to deduction--Income-tax Act, 1961, s. 57(iii)-- CIT v. Dhanalakshmi Weaving Works (Ker) . . . 188

Industrial undertaking --Special deduction--Duty draw back --Does not form part of net profit--Income-tax Act, 1961, s. 80-IB-- Eastman Exports Global Clothing P. Ltd. v. Asst. CIT (Mad) . . . 232

Interpretation of taxing statutes --Effect of Explanation -- CIT v. Jet Airways (I) Ltd . (Bom) . . . 236

----Purposive interpretation--Casus omissus-- CIT v. R. K. B. K. Ltd.

(Cal) . . . 269

Reassessment --Notice--Deduction allowed under section 80-IA --Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed--Income-tax Act, 1961, ss. 80-IA, 147, 148-- Northern Strips Ltd . v. ITO

(Delhi) . . . 224

----Scope of power of Assessing Officer--Law applicable--Effect of amendment of section 147 w.e.f. 1-4-1989--Assessing Officer can also assess other incomes not referred to in notice of reassessment--Power to assess such other income only if income referred to in notice of reassessment has been assessed--Income-tax Act, 1961, s. 147-- CIT v. Jet Airways (I) Ltd. (Bom) . . . 236

Recovery of tax --Hindu undivided family--Firm--Hindu undivided family or individual property--Karta of Hindu undivided family becoming partner in firm--Finding that he had become a partner in his individual capacity--Hindu undivided family properties could not be attached in proceedings for recovery of tax due by firm--Income-tax Act, 1961-- ITO v. Tippala China Appa Rao (AP) . . . 248

----Provisional attachment--Limitation--Department to show whether time extended as required under law--Income-tax Act, 1961, s. 281B-- VLS Finance Ltd. v. Asst. CIT (Delhi) . . . 131

Revision --Commissioner--Assessing Officer allowing claim for depreciation without examining facts--False claim for depreciation in prior years--Order erroneous--Commissioner justified in setting aside order in revision--Income-tax Act, 1961, s. 263-- CIT v. English Indian Clays Ltd. (Ker) . . . 219

Search and seizure --Return of seized assets--Direction not to release seized assets till assessment completed--Assessment made treating as unexplained investment of assessee--Tribunal deleting addition on jewellery--Jewellery not released on ground it did not belong to assessee alone--No proof that jewellery belonging to a third person--Matter remanded--Income-tax Act, 1961, s. 69A-- Madhu Lalwani v. CIT

(Delhi) . . . 184

Unexplained investment --Cost of construction of property--Estimate based on relevant material--Justified--Income-tax Act, 1961-- CIT v. Smt. V. Gajalakshmi

(Mad) . . . 216

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

General Clauses Act, 1897 :

S. 13 --Capital gains--Exemption--Transfer of residential house and purchase or construction of a residential house within the prescribed time--Meaning of "a residential house" in section 54--Transfer of residential house and purchase of four flats in the same residential building--Assessee entitled to exemption under section 54-- CIT v. Smt. K. G. Rukminiamma (Karn) . . . 211

Income-tax Act, 1961 :

S. 2(15) --Charitable purpose--Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer (Raj) . . . 135

----Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur (Raj) . . . 174

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

S. 11 --Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur

(Raj) . . . 174

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

----Charitable purpose--Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

S. 12 --Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur

(Raj) . . . 174

S. 12A --Charitable purpose--Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer (Raj) . . . 135

----Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur (Raj) . . . 174

----Charitable purpose--Registration of trust--Agricultural produce marketing committees--Delay in application for registration from assessment year 2003-04 due to bona fide belief that registration was not necessary and in getting approval and legal advice from Government authorities--Delay to be condoned-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

----Charitable purpose--Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

S. 12AA --Charitable purpose--Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer (Raj) . . . 135

----Charitable purpose--Registration of trust--Agricultural produce marketing committees--Delay in application for registration from assessment year 2003-04 due to bona fide belief that registration was not necessary and in getting approval and legal advice from Government authorities--Delay to be condoned-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

----Charitable purpose--Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

----Charitable trust--Registration--Application for registration--Delay in filing application--Assessee executing trust deed in 2000, started activities in 2005--Assessee as per advice of chartered accountant filing application belatedly--Delay to be condoned-- CIT v. Indian Gospel Fellowship Trust (Mad) . . . 283

S. 32 --Commissioner--Revision--Depreciation on goodwill--Revision on ground goodwill not an asset entitled to depreciation--Goodwill valuable commercial asset similar to other intangibles eligible to depreciation--Where two views are possible and Assessing Officer accepting one view which is a plausible one, not appropriate to exercise power under section 263-- CIT v. Hindustan Coco Cola Beverages P. Ltd.

(Delhi) . . . 192

S. 54 --Capital gains--Exemption--Transfer of residential house and purchase or construction of a residential house within the prescribed time--Meaning of "a residential house" in section 54--Transfer of residential house and purchase of four flats in the same residential building--Assessee entitled to exemption under section 54-- CIT v. Smt. K. G. Rukminiamma (Karn) . . . 211

S. 57(iii) --Income from other sources--Deduction--Interest on borrowed capital--Assessee manufacturing and exporting textiles--Funds transferred from cash credit/packing credit--Interest on such funds--Not entitled to deduction-- CIT v. Dhanalakshmi Weaving Works (Ker) . . . 188

S. 69A --Search and seizure--Return of seized assets--Direction not to release seized assets till assessment completed--Assessment made treating as unexplained investment of assessee--Tribunal deleting addition on jewellery--Jewellery not released on ground it did not belong to assessee alone--No proof that jewellery belonging to a third person--Matter remanded-- Madhu Lalwani v. CIT (Delhi) . . . 184

S. 80-IA --Reassessment--Notice--Deduction allowed under section 80-IA--Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed-- Northern Strips Ltd . v. ITO (Delhi) . . . 224

S. 80-IB --Industrial undertaking--Special deduction--Duty draw back --Does not form part of net profit-- Eastman Exports Global Clothing P. Ltd. v. Asst. CIT

(Mad) . . . 232

S. 147 --Reassessment--Notice--Deduction allowed under section 80-IA --Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed-- Northern Strips Ltd . v. ITO (Delhi) . . . 224

----Reassessment--Scope of power of Assessing Officer--Law applicable--Effect of amendment of section 147 w.e.f. 1-4-1989--Assessing Officer can also assess other incomes not referred to in notice of reassessment--Power to assess such other income only if income referred to in notice of reassessment has been assessed-- CIT v. Jet Airways (I) Ltd. (Bom) . . . 236

S. 148 --Reassessment--Notice--Deduction allowed under section 80-IA --Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed-- Northern Strips Ltd . v. ITO (Delhi) . . . 224

S. 260A --Appeal to High Court--Delay in filing appeal--High Court can condone delay-- CIT v. R. K. B. K. Ltd . (Cal) . . . 269

S. 263 --Commissioner--Revision--Depreciation on goodwill--Revision on ground goodwill not an asset entitled to depreciation--Goodwill valuable commercial asset similar to other intangibles eligible to depreciation--Where two views are possible and Assessing Officer accepting one view which is a plausible one, not appropriate to exercise power under section 263-- CIT v. Hindustan Coco Cola Beverages P. Ltd.

(Delhi) . . . 192

----Revision--Commissioner--Assessing Officer allowing claim for depreciation without examining facts--False claim for depreciation in prior years--Order erroneous--Commissioner justified in setting aside order in revision-- CIT v. English Indian Clays Ltd. (Ker) . . . 219

S. 281B --Recovery of tax--Provisional attachment--Limitation--Department to show whether time extended as required under law-- VLS Finance Ltd. v. Asst. CIT

(Delhi) . . . 131

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Transfer Pricing (Section 92C) - Lack of segmental reporting for re

Income-tax : Transfer Pricing (Section 92C) - Lack of segmental reporting for reason that transactions with AEs and non-AEs belong to same item of software related services, cannot be made a basis for rejecting assessee's method of computing Arm's Length Price by way of internal comparison made between transaction with AEs and unrelated parties. - [2011] 9 taxmann.com 263 (Delhi - ITAT)

Profits & gains from industrial undertakings [Section 80-IB] - Acti

Income-tax : Profits & gains from industrial undertakings [Section 80-IB] - Activity of mixing rubber with chemicals, process oil, etc., for making compound rubber by an industrial unit is covered by section 80-IB

l Compound rubber produced by the assessee on job work for the tyre manufacturing companies is an intermediary from which tyre is manufactured; if processing of iron ore which is only raw material for producing iron therefrom, amounts to manufacture or production of any article or thing then there is no reason why compound rubber cannot be treated as an article produced by the assessee though for the tyre manufacturing company under contract meaning thereby that there is nothing in the section 80-IB to indicate that article or thing produced or manufactured should be final product in itself. - [2011] 9 taxmann.com 264 (Ker.)

Penalty [Section 271(1)(c)] : Where ITAT, hold assessee's explaination reasonable

Income-tax - Penalty [Section 271(1)(c)] : Where Tribunal, holding assessee's explanations to be reasonable, deleted penalty under section 271(1)(c) - [2011] 9 taxmann.com 268 (Delhi)

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ITR Volume 331 part 2 dated 21.02.2011

INCOME TAX REPORTS (ITR) HIGHLIGHTS  ISSUE DATED 21-2-2011  Volume 331 Part 2

    HIGH COURT JUDGMENTS

  --> Limitation for provisional attachment : Department to show whether time extended as required under law : VLS Finance Ltd. v. Asst. CIT (Delhi) p. 131

  --> Samiti set up by State Government entitled to registration u/s 12A : CIT v. Krishi Upaj Mandi Samiti, Jailsalmer (Raj) p. 135, CIT v. Krishi Utpadan Mandi Samiti (All) 154 and CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur (Raj) p. 174

  --> Market committee constituted statutorily with object of helping agriculturists and consumers entitled to registration u/s 12A : CIT v. Krishi Upaj Mandi Samiti (MP) p. 140

  --> Seizure of jewellery not released on ground it did not belong to assessee alone where no proof that jewellery belonging to a third person : Matter remanded : Madhu Lalwani v. CIT (Delhi) p. 184

  --> Interest on funds transferred from cash credit/packing credit not entitled to deduction : CIT v. Dhanalakshmi Weaving Works (Ker) p. 188

  --> Revision on ground goodwill not an asset entitled to depreciation not valid : CIT v. Hindustan Coco Cola Beverages P. Ltd. (Delhi) p. 192

  --> Assessee transferring residential house and purchasing four flats in the same residential building entitled to exemption u/s 54 : CIT v. Smt. K. G. Rukminiamma (Karn) p. 211

  --> Cost of construction of property : Estimate based on relevant material justified : CIT v. Smt. V. Gajalakshmi (Mad) 216

  --> AO allowing claim for depreciation without examining facts : Revision by Commissioner justified : CIT v. English Indian Clays Ltd. (Ker) 219

  --> Reassessment proceedings on change of opinion on whether assessee engaged in manufacture not permissible : Northern Strips Ltd. v. ITO (Delhi) p. 224

  --> Mercantile system of accounting : Interest accrued on non-performing assets not recognised as income : No accrual of income : CIT v. Coimbatore Lakshmi Inv. and Finance Co. Ltd. (Mad) p. 229

  --> Duty draw back does not form part of net profit : Eastman Exports Global Clothing P. Ltd. v. Asst. CIT (Mad) p. 232

  --> Power of AO to assess such other income only if income referred to in notice of reassessment has been assessed : CIT v. Jet Airways (I) Ltd. (Bom) p. 236

  --> Recovery of tax : Tribunal finding karta had become a partner in his individual capacity : HUF property could not be attached : ITO v. Tippala China Appa Rao (AP) p. 248

  --> High Court can condone delay in filing appeal : CIT v. R. K. B. K. Ltd. (Cal) p. 269

  --> Assessee executing trust deed in 2000 starting activities in 2005 : Application belatedly filed as per advice of chartered accountant : Delay to be condoned : CIT v. Indian Gospel Fellowship Trust (Mad) p. 283

    NEWS-BRIEF

  --> Plan to cure tax assessment limits of I-T officials'

    In a significant organisational revamp, the Central Board of Direct Taxes has raised the monetary limit of tax assessments handled by income-tax officers or ITOs.

    The move is designed to lighten the load on senior officers so that they can concentrate more on investigations, international taxation issues and transfer pricing. It also aims to ease the hardships of taxpayers in small towns and mofussil areas who have to travel to cities to attend to their tax matters.

    Under the revised monetary limits, revenue cadre officials in metros will handle non-corporate taxpayers with an annual income above 20 lakh and corporates with an income above 30 lakh. In case of non-metros, they will deal only with non-corporate taxpayers with an annual income above 15 lakh and corporates with income over 20 lakh.

    This is a big respite for taxpayers in small towns who until now had to travel to big centres where a Commissioner or an Assistant Commissioner usually has his office.

    The Central Board of Direct Taxes has also finalised a strategic plan that includes creation of dedicated directorates for criminal investigation and risk management.

    Resources freed up as part of this restructuring will be diverted to these specialised units. This will help in mounting an effective surveillance on fund flows into the country that have the potential to impact national security.

    The country's direct tax revenues have grown from 13,000 crore in 1991-92 to 3.87 lakh crore in 2009-10. The number of taxpayers has also grown nearly five times over the period to more than 3.2 crore. [Source : www.economictimes.com dated February 5, 2011]

  --> Tax cap ruling against evaders in line with litigation policy

    The IT Department is mulling over development of an increase in limits above which it files appeals against tax evaders in the tribunal or courts.

    "The Department is planning to change the tax limits for appeals. Now, for filing an appeal in Income-tax Appellate Tribunal (ITAT), the tax effect should be Rs. 3 lakh, for High Courts it has been increased to Rs. 10 lakh and for Supreme Court it is Rs. 25 lakh," the official said.

    With the move, the Income-tax Department expects to reduce up to 13 per cent. cases at ITAT level and 25-30 per cent. cases at High Court and Supreme Court level each, the source added.

    "Even if the case is strong enough to be taken to the Tribunal, the Department will not do so. This will cut down the wastage of resources in unnecessary litigation and reduce the burden of overburdened courts while at the same time assessee would also benefit from this policy," the official added.

    According to the National Litigation Policy, the Government should work towards reducing litigation in courts so that valuable court time would be spent in resolving other pending cases. This will help in achieving the goal in the National Legal Mission to reduce average pendency time from 15 years to 3 years.

    The initiative by the Income-tax Department comes in the backdrop of criticism by the Finance Minister that the I-T Department has emerged as the largest litigant in the country.

    Last year, the Comptroller and Auditor General of India (CAG) had stated in its report that the disputed tax amount "can wipe off the revenue deficit of the Government in 2008-09".

    The total amount of direct tax stuck at the Commissioner (Appeals) level is Rs. 2.2 lakh crore for 2008-09, the CAG had pointed out.

    Apart from that, Rs. 12,757.59 crore is stuck at Income-tax Appellate Tribunal, Supreme Court and High Court levels, the Finance Minister had told the Parliament last year.

    The move is to cut down wastage of resources in unnecessary litigation and reduce the burden of overburdened courts. [Source : www.financialexpress.com dated January 31, 2011]

  --> Survey says to raise IT exemption limit to rough ride over inflation fears

    The Government must increase the personal income tax exemption limit to at least Rs. 3 lakh from Rs. 1.6 lakh at present in the upcoming Budget for giving relief to taxpayers from high inflation, majority of CEOs surveyed by industry body ASSOCHAM has said.

    "In view of the unprecedented inflation particularly the food inflation, the Government must increase the personal income-tax exemption limit from the existing Rs. 1.6 lakh to at least Rs. 3 lakh to give adequate relief to the larger sections of the society, added the majority of the CEOs," the pre-Budget survey said.

    The Budget 2011-12 would be unveiled by the Finance Minister on February 28. At present, income up to Rs. 1.6 lakh is exempted from tax for individuals. For women and senior citizens, the limit is Rs. 1.9 lakh and Rs. 2.4 lakh, respectively.

    The survey further said that due to continuous elevated inflation and high commodity prices across globe, there is a strong case for continuation of stimulus package so that the growth momentum is not spiked.

    It was a pre-Budget expectations survey conducted under the Associated Chambers of Commerce and Industry of India (ASSOCHAM) with participation from its 1,000 CEOs. Inflation, particularly food inflation, has been a concern for both the Government and the common man. For the past few months, food prices are at high levels.

    The WPI inflation for December rose to 8.43 per cent., from 7.48 per cent. in the previous month. Food inflation, based on wholesale prices, rose to 17.05 per cent. for the week ended January 22, on account of escalating vegetable prices, particularly, onions. It was at 15.57 per cent. in the previous week.

    Around 84 per cent. of the CEOs belonging to large, micro, small and medium enterprises polled in the survey held that stimulus package for textiles, gems and jewellery, construction and real estate, cement and steel, among others, should continue for the next fiscal. [Source : www.economictimes.com dated February 6, 2011]

  --> ASSOCHAM offers a neat way to enhance deduction on health insurance premiums

    The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in its pre-budget memorandum recommended that the deduction (under section 80D) in respect of medical insurance premium of an individual or his family should be raised to Rs. 25,000 from Rs. 15,000.

    The rationale given by ASSOCHAM is "In the context of the sharply increasing medical expenses, medical insurance premiums are escalating every year. Also, there is need to increase the penetration ratio of insurance by providing encouragement through tax reliefs for opting for medical insurance." [Source : www.economictimes.com dated February 8, 2011]

  --> Amendment in DTC is the best hope for CARE

    Global agency CARE said the Government should amend the provisions of the Direct Taxes Code in the forthcoming Budget so that balances of non-profit organisation (NPOs) are not treated as income.

    ". . . retained balances of specific-purpose grants received by NPOs should not be treated as 'income' so long as it is applied for the specified purpose," CARE said in a statement.

    It asked the Government that NPOs should be allowed to retain 15 per cent. of general contributions or other incomes to provide a buffer for ongoing activities.

    "Considering that taxable income of the NPOs are computed largely on the same lines as commercial organisations, the DTC must also provide carry forward and set-off of deficit in any financial year against the surplus in subsequent years," the agency said. [Source : www.economictimes.com dated February 8, 2011]

  --> Indian Merchants' Chamber offers Pre-Budget proposals

    Indian Merchants' Chamber (IMC) has submitted its Pre-Budget Memorandum for the budget proposals for direct taxes and issues to the Prime Minister, the Finance Minister and the Chairman, C.B.D.T.

    IMC says, in light of the measures proposed in the revised Direct Taxes Code (DTC) Bill, 2010 it is necessary that none of the proposals contained in the DTC should be introduced through the Finance Bill.

    Some of the key recommendations explained in detail in the memorandum are listed below.

    Retrospective Amendment Should Be Avoided

    Definition of "Charitable Purpose" : Section 2(15)

    Year of Deductibility Of Legitimate Business Expenditure-Reduce Avoidable Litigation

    Exemption from T.D.S. for Regular Assessees

    Disallowance of expenses relating to exempt income : Section 14A

    Gifts etc. in kind to be treated as income : Section 56(2)

    Failure to make claim for certain deductions in the return of Income : Section 80A(5)

    Distribution of capital assets on dissolution of firm to partners : Section 45(4)

    Stay of demand until disposal of the appeal, no recovery proceedings

    Extension of the facility of advance ruling to domestic enterprises

    Dispute Resolution Panel (Section 144C of Income-tax Act) [Source : www.economictimes.com dated February 10, 2011]

  --> Constant agriculture sector incentives worrying the market

    Industry chamber CII called for the Government to provide tax incentives on agricultural activities in the forthcoming Budget to encourage private participation and adoption of new technologies in the sector.

    "CII has recommended encouraging private sector participation through various tax measures (in agriculture)," the industry chamber said in a statement. It said that additional tax incentives need to be given on expenses incurred on new technology and inputs.

    CII also said the Government should incentivise best crop raising practices, soil testing, residue analysis and diagnostics. According to the Government's advance estimates, the output of the agriculture and allied sectors is likely to grow by 5.4 per cent. in 2010-11, compared to just 0.4 per cent. in 2009-10.

    Experts said growth of the sector needs to be encouraged through calibrated Budget measures, as agriculture in India is primarily monsoon-dependent and any minor changes in rainfall patterns affect productivity and quality.

    With regard to the infrastructure sector, CII hopes that the Union Budget presented on February 28 will help reverse the declining investment trend by introducing certain innovative fiscal measures.

    "Emerging challenges such as rising input costs and interest rates amid still subdued global demand will have to be dealt with," CII's Director-General said.

    The industry chamber also asked the Government to reduce the tax liabilities of infrastructure companies to motivate them to make larger investments. India needs a whopping USD 1 trillion investment in the infrastructure sector in the 12th Five-Year Plan (2012-17), of which it expects 50 per cent. to come from the private sector. [Source : www.economictimes.com dated February 8, 2011]



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Indo-UK DTAA : Dividend received by a resident Indian from an English Company is

Indo-UK DTAA : Dividend received by a resident Indian from an English Company is to be increased by 1/9th of the same and on increased amount, which is a gross dividend, same is to be considered as dividend received by assessee for the purpose of Income-tax Act

If the resident of the Contracting State is given some benefit under the Treaty but with conditions then those conditions are also binding for availing the benefit


[2010] 6 taxmann.com 126 (Mum.)
ITAT, MUMBAI BENCH `L', MUMBAI
ACIT

v.

Homy N. J. Dady
ITA No. 470/Mum/2008
July 30, 2010

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Foreign Travel Tax - Penalty for delay in payment

Foreign Travel Tax - Penalty for delay in payment – Provisions of Act to take precedence over Rules; Delay in payment amounts to failure to pay; Higher Penalty on Remand?: Bombay HC

MUMBAI, AUG 28, 2010: ALL these petitions filed by the petitioners under Article 226 of the Constitution of India are challenging imposition of penalty under section 38(3) of the Finance Act, 1979 for delay in payment of Foreign Travel Tax ('FTT') to the Government. The facts involved in all these petitions are more or less common and issues involved are identical. Hence all these petitions were heard together and disposed of by this common judgment.

The Finance Act, 1979, which received assent of the President on 10 th May, 1979 contains Chapter V which provides for provisions of levy of FTT under section 35 of the Act on all passengers embarking on the international journey and created liability on the carriers to collect and pay it to the Central Government.

Section 35A thereof created liability on the carrier to pay interest for default in payment of FTT, whereas section 38 in general provides for penalty and subsection (3) thereof, in particular, provides for penalty on the carrier or other person who fails to pay FTT to the Central Government under subsection (2) of section 35. In addition to the payment of such tax and the interest leviable thereon, the carrier is also held liable to pay minimum penalty not less than one fifth, which may extend to three times of the amount of tax not so paid to the credit of the Central Government. Subsection (4) of section 38 provides that in case of breach of any rules by the carrier or other person, he shall be liable to pay penalty which shall not be less than five hundred rupees, which may extend to fifty thousand rupees, and where the breach is a continuing one, with further penalty which may extend to five hundred rupees for every day after the first during which such breach continues. Proviso to section 38 provides that no order for imposing a penalty shall be passed by such authority unless the carrier or other person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such authority.

That being the provisions of the Act, proviso to rule 11 provides that no officer of customs mentioned in Sec.3 of the Customs Act shall be competent to impose a penalty exceeding five thousand rupees in any such case.

All the advocates appearing for the petitioners in one voice urged that under proviso to rule 11 of the FTT Rules, no officer of Customs mentioned in section 3 of the Customs Act is competent to impose penalty under section 38(3) of the Act more than Rs.5,000/. According to them, rule 11 is a part of the statute and it provides for lesser penalty than provided in section 38(3) of the Act. Proviso to rule 11 of the FTT Rules being beneficial to the assessees, it should be given effect to rather than section 38(3) of the Act. In other words, no penalty in excess of Rs. 5,000/could be imposed by the respondents is the unequivocal submission advanced by the advocates appearing for the petitioners. In addition to this, it is further submitted that rule 11 of the FTT Rules existed on the statute right from 11th June, 1979, whereas subsections (3), (4) and (5) of section 38 were substituted for the original subsection (3) by the Finance Act (32 of 1994). At that time it was expected on the part of the legislature to amend rule 11 of the FTT Rules. Since there is omission to amend rule 11, a legislative casus omissus cannot be supplied by process of judicial interpretation. It is, thus, urged that subsection (3) of section 38 cannot be used against the petitioners to impose penalty for late payment of FTT.

The High Court after referring to several cases, noted, "it is clear that a delegated legislation would have to be read in the context of the primary statute under which it is made and, in case of any conflict, it is primary legislation that will prevail."

Keeping in mind the aforesaid well settled principles of rule of interpretation, if one turns to section 38(3) of the Act, in contrast to rule 11 of the FTT Rules, it is not difficult to notice that the said rule runs contrary to the provision of the Act. There is a clear conflict between the proviso to rule 11 and section 38(3), the substantive provision of the Act. Reconciliation thereof is not possible. Subsection (3) of section 38 of the Act is a leading provision which by no stretch of imagination can be said to be or treated as subordinate provision. The subordinate provision must give way to the leading provision of the Act. Rule being subordinate legislation cannot override the provision of primary legislation. In this view of the matter, the submission advanced on behalf of the petitioners that the penalty must be in consonance with proviso to rule 11 of the FTT Rules and not in line with section 38(3) of the Act is without any substance. The submission advanced by Mr.Sridharan (counsel) that legislative casus omissus cannot be supplied by the Court is misplaced since this court is only giving primacy to primary provision of the primary legislation while upholding minimum penalty imposed.

The High Court further observed,

The provision of Chapter V of the Act in general and section 38(3) in particular provides that every carrier or other person, who fails to pay the FTT to the credit of the Central Government under subsection (2) of section 35, in addition to payment of such tax and the interest leviable thereon, is made liable to pay penalty. The said provision shows the mandatory nature of payment of liability. The use of the word "shall" in the statute, ordinarily speaking, means the statutory provision is mandatory. It is construed as such, unless there is something in the context in which the word is used, which would justify departure from that meaning. There is nothing in the language of the provision of section 38(3) which would justify any departure. On the other hand, section 38(3) makes it abundantly clear that if the carrier or any other person fails to pay the FTT to the credit of the Central Government within fifteen days as specified, the penalty must follow, which shall not be less than one-fifth of the amount of FTT. It is well settled that when the consequences of the failure to comply with the prescribed requirement is provided by the statute itself, there can be no manner of doubt that such statutory requirement must be interpreted as mandatory.

If we turn to the statutory provisions and the scheme of the foreign travel tax and collection thereof, section 35 of the Act creates liability to collect tax and payment thereof to the credit of the Central Government. Section 35A provides for payment of interest for default in payment of FTT, whereas section 38 provides for penalty in case of nonpayment of FTT within a prescribed time frame, subject to compliance of the principles of natural justice. Both sections operate in different contingencies.

Further more, the question as to whether mens rea is essential ingredient or not depends upon the nature of the right of the parties and the purpose of penalty for which penalty is sought to be imposed. Section 38 of the Act nowhere fastens criminal liability. The default or failure to pay is nothing, but failure or default to comply with the statutory civil obligations provided under the Act and the rules made thereunder. The penalty leviable under ChapterV or under section 38 is penalty in case of default or failure of statutory obligation or in other words for breach of civil obligation. In the provisions engrafted under ChapterV of the Act, there is no element of any criminal aspect as is generally contemplated under criminal proceedings. Therefore, there is no need to establish proof of criminal motive or any mens rea on the part of the defaulter. It is not an essential element for imposing penalty under the Act and rules framed thereunder.

As already noticed, each petitioner was served with the show cause notice. They were given opportunity of hearing. The adverse circumstances were brought to their notice. They were heard and thereafter, by reasoned order imposing penalty is passed against on each of the petitioners. The petitioners have availed opportunity of appeal and revision before the competent authorities provided under the Act. All the three different authorities have passed reasoned orders in consonance with the provisions of the Act following principles of natural justice.

The sole question that arises for consideration in the present petitions, is: whether the authorities below were justified in imposing and sustaining penalty in consonance with subsection (3) of section 38 of the Act ignoring proviso to rule 11 of the FTT Rules. The breach of civil obligation against each petitioner has been established, which was sufficient to attract penalty in the nature of fine under the provisions of the Act irrespective of the fact whether or not the contravention made by the defaulter was with any guilty intention.

It is seen that the respondents, in all cases, have admitted violation of the provisions of the Act by making late deposits. Subsection (3) of section 38 of the Act provides that every carrier or other persons who fails to pay FTT to the Central Government under section 35(2) shall be in addition to payment of such tax and interest leviable thereon be liable to pay penalty which shall not be less than one-fifth but which may extend to three times of the amount of the tax not so paid to the credit of the Central Government. The factual matrix in the cases in hand demonstrate several instances of delayed payment, short or nonpayment of the FTT apart from the lapses committed by the carriers in filing returns. It is, thus, clear that the delayed payment or rather nonpayment of the part of the FTT within the prescribed period is an admitted fact in all these petitions.

One more submission advanced by the advocates appearing for the petitioners is that power to impose penalty under section 38(3) of the Act is exercisable only in case of "failure to pay the tax" and not where there is only a delay in the payment of tax. According to them, "failure to pay" arises only where no payment has at all been made prior to the issuance of the demand notice and does not arise where a payment has been made, albeit belatedly. In other words, mere delay in payment cannot be within the sweep of "failure to pay". Hence delayed payment does not attract penalty.

The High Court held that the said submission is devoid of any substance.

" Failure to pay" means nonpayment. The meaning of nonpayment, as given in the Black's Law Dictionary, is:

" Failure to deliver money or other valuables, esp. when due in discharge of an obligation.

The concept of failure to pay can be quoted with nonpayment. Nonpayment is nothing but failure to pay when due. As per the provisions of the Act, amount of FTT collected becomes due within fifteen days from the date of collection thereof. Failure to pay within this prescribed time frame would mean nonpayment or failure to pay. If any person fails to pay within the statutory period of fifteen days, then such person is well within the sweep of the words "failure to pay". Once the period of fifteen days is over and breach in payment of tax is committed, then it is immaterial when the defaulter in future is making the payment. Had there been no minimum penalty prescribed under subsection (3) of section 38 of the Act, it would have been open for the adjudicating authority to consider the conduct of the defaulter and the extent of delay taking into account the extenuating circumstances while imposing penalty. But once the statute prescribes the minimum penalty without giving any discretion in favour of the adjudicating authority, then one has to go by the provisions of the Act.

The High Court further held, "This Court while exercising writ jurisdiction has only to consider whether or not power to impose penalty has been exercised in accordance with the provisions of the Act and that the decision making process is in accordance with law. Once the Court comes to the conclusion that there is no fault on the part of the adjudicating authority either in complying with the provisions of the Act or in the decision making process, then this Court would be justified in refusing to interfere with the impugned orders. "

Higher Penalty on Remand? The petitioner has urged that it was not open for the adjudicating authority to enhance the quantum of penalty while considering the show cause notice after its remand by the appellate authority to the adjudicating authority. The High Court found the submission without any merit. If one goes through the order of remand, one would find that it was not a limited remand. The remand was to enable the adjudicating authority to consider all the issues after affording opportunity of personal hearing to the petitioner. The first orderinoriginal dated 14th June, 1999 was in breach of principles of natural justice. Consequently, it was set aside, that too, at the request of the petitioner. The show cause notices were restored to the file of the adjudicating authority for consideration afresh. It was not a limited remand. In that view of the matter, it was open for the adjudicating authority to enhance the amount of penalty in consonance with the provision of subsection (3) of section 38 of the Act. Thus, submission made in this behalf holds no water.

All the petitions are dismissed.

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Income tax - Sec 147 - Revenue cannot reopen assessment for second time merely o

 

Income tax - Sec 147 - Revenue cannot reopen assessment for second time merely on ground that subsequent judgement of Apex Court has gone in favour of Revenue: Madras HC

CHENNAI, AUG 27, 2010: REASSESSMENT is a very common action which is resorted by most AOs. But the interesting issue in this case is that whether an assessment can be reopened for the second time u/s 147. Can Revenue reopen an assessment which was already reassessed u/s 147, based on subsequent judgement of the Apex Court. Does it amount to change of opinion. And the answers to these questions go against the Revenue.

Facts of the case

The assessee was engaged in manufacturing, trading and exporting of leather goods. For the assessment year 1999-2000, the assessee filed return showing 'nil' income by claiming deduction under Section 80HHC of the Income-tax Act, 1961. The assessee's return was initially processed under Section 143(1) of the Act. The Assessing Officer reopened the assessment by invoking the provisions under Section 147 of the Act. The reopened assessment was completed on 18.03.2003. Accordingly, the deduction claimed by the assessee under Section 80HHC of the Act, was scaled down to Rs.73,42,876/-. In the said reassessment order, the loss from the export business was adjusted in accordance with the provisos to Section 80HHC(3)(c) of the Act. However, the Assessing Officer reopened the assessment, which was already reopened, by once again invoking the provisions of Section 147 of the Act. Accordingly, a notice under Section 148 of the Act, was issued to the assessee on 04.08.2005. The said proceedings have been initiated by the Assessing Officer on the ground that the assessee was wrongly allowed deduction under Section 80HHC of the Act, after netting the negative business profits with the export incentive. Thereafter, the Assessing Officer has passed an order rejecting the case of the assessee by disallowing the deduction under Section 80HHC.

CIT(A) disagreed with the assessee but Tribunal allowed the appeal.

Before the HC, the Revenue argued that the proceedings have been initiated for the second time under Section 147 of the Act, only based upon the judgment of the Apex Court, wherein the Hon'ble Supreme Court was pleased to hold that the deduction under Section 80HHC could be allowed only if there was positive profits from export operations.

The HC held that,

++ in the present case, the assessee at the time of filing return for the assessment year 1999-2000 has disclosed all the materials before the Assessing Officer and claimed deduction under Section 80HHC. Even before the earlier proceedings initiated under Section 147, it is not the case of the Revenue that the assessee has not disclosed the materials. Therefore, on a consideration of the materials available on record, the Assessing Officer passed an order on the earlier two occasions. Thereafter, the Assessing Officer has sought to reopen the assessment once again invoking the power under Section 147 of the Act, which, in is not permissible in law on the facts of the case;

++ the judgment rendered by the Supreme Court is an expression of opinion on the interpretation of statute. The power under Section 147 will have to be invoked by the Assessing Officer in accordance with the said provision. In other words, merely because a judgment has been rendered, the same cannot be a ground for reopening the assessment under Section 147 of the Act;

++ it is not in dispute that the first reassessment was done by the Assessing Officer under Section 147 of the Act on 18.03.2003. Thereafter, notice for reopening the assessment for the second time was issued to the assessee on 04.08.2005. The assessment in the present case on hand is for the assessment year 1999-2000. The four years period of limitation for invoking the power under Section 147 expired on 31.12.2004. As observed earlier, in the present case on hand, the assessee has disclosed all the material facts and he has also filed the return within the time. Therefore, the proceedings initiated by the Assessing Officer for the second time under Section 147 is barred by limitation. Therefore, even the proviso to Section 147 does not come into play on the facts of the case;

++ Explanation-1 to proviso to Section 147 also does not apply to the present case on hand. A perusal of the said explanation would show that a mere production of accounts books and other evidence could have been discovered by the Assessing Officer would not amount to disclosure within the meaning of the provision. Therefore, the said Explanation-1 should be considered in the context of the provision, inasmuch as the same is applicable only for the production of the records and other evidence. Hence, the same will not be applicable to the case of filing of a return with adequate particulars fully disclosing all the materials for the purpose of assessment.

Revenue's appeal dismissed.

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S. 147 reopening for rectifying s. 154 mistakes is invalid

 

Hindustan Unilever vs. DCIT (Bombay High Court)

S. 147 reopening for rectifying s. 154 mistakes is invalid

The AO issued a notice u/s 148 to reopen the assessment within 4 years from the end of the assessment year. There were four recorded reasons and one of them was that the AO had committed a computational error in the assessment order by deducting the wrong figure instead of the right figure. The assessee filed a Writ Petition to challenge the reopening inter alia on the ground that as the mistake could be rectified u/s 154, the reopening was bad. HELD upholding the challenge:

(i) While Explanation 2 to s. 147 deems income to have escaped assessment if excessive deduction is allowed, the reopening of an assessment u/s 147 has serious ramifications because the AO is empowered to reassess income even in respect of issues not set out in the notice. Therefore, if the power to rectify an order u/s 154(1) is adequate to meet a mistake or error in the order of assessment, the AO must take recourse to that power as opposed to the wider power to reopen the assessment. If the error can be rectified u/s 154, it would be arbitrary for the AO to reopen the entire assessment u/s 147. Further, the error in the order was not attributable to a fault or omission on the part of the assessee and the assessee cannot be penalized for a fault of the AO;

(ii) When one or more modes of assessment or remedies are available to the taxing Authority, the Authority must adopt that remedy which causes least prejudice to the assessee.

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