ITR Volume 329 : Part 3 dated 13-12-2010

ITR Volume 329 : Part 3 (Issue dated 13-12-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Advance tax --Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax--Income-tax Act, 1961, ss. 115J, 115JA, 207, 208, 234B, 234C-- Binani Industries Ltd. v. CIT

(Cal) . . . 323

Appeal to High Court --Powers of High Court--Finding of fact cannot normally be set aside--Income-tax Act, 1961, s. 260A-- CIT v. Forech India Ltd.

(Delhi) . . . 336

----Powers of High Court--Point not raised before lower authorities cannot be considered by High Court--Income-tax Act, 1961, s. 260A-- CIT v. Chand Ratan Bagri

(Delhi) . . . 356

Business expenditure --Capital or revenue expenditure--Lease rent paid to State Industrial Development Corporation for use of land for ninety-nine years--Registration of lease deed not relevant--Land not acquired by assessee--Payment made to carry on business--Lease rent deductible--Income-tax Act, 1961, s. 37-- Deputy CIT v. Sun Pharmaceuticals Ind. Ltd. (Guj) . . . 479

Capital gains --Computation of capital gains--Gains on transfer of intellectual property rights--Tribunal not justified in blindly applying B. C. Srinivasa Setty's case and concluding capital gains could not be computed--Matter remanded--Income-tax Act, 1961, ss. 45, 48-- CIT v. P. R. Seshadri (Karn) . . . 377

----Exemption--Investment of net consideration in residential house--Fact that land was owned by assessee's spouse and she had used construction for mortgage purposes--Not relevant--Finding that house had been constructed--Assessee entitled to benefit of section 54F--Income-tax Act, 1961, s. 54F-- CIT v. P. R. Seshadri

(Karn) . . . 377

Capital or revenue expenditure --Fees paid to foreign company for designs and drawings and expenses on foreign technicians for training assessee's personnel--Expenditure for facilitating process of manufacture--Expenses incurred are revenue expenditure--Income-tax Act, 1961-- CIT v. Munjal Showa Ltd.

(Delhi) . . . 449

Deduction of tax at source --Certificate for non-deduction--Assesssee claiming income was exempt under section 11--Amendment of section 2(15) w.e.f. 1-4-2009 not challenged--Union of India not impleaded as a party--Effect of amendment of section 2(15) could not be considered--Refusal to issue certificate for non-deduction of tax at source--Justified--Income-tax Act, 1961, ss. 2(15), 11, 197-- Infoparks Kerala v. Deputy CIT (Ker) . . . 404

Depreciation --Plant--Poultry sheds--Building specifically designed with a view to protecting birds from disease--Building designed proper and scientific feeding arrangement, proper water system, proper arrangement for collection of manure and droppings, proper arrangement for medication and vaccination--Building specifically designed to further the cause of manufacture or production--Is plant--Entitled to depreciation and investment allowance--Income-tax Act, 1961, s. 43(3)-- CIT v. Shivalik Hatcheries P. Ltd. (HP) . . . 432

----Poultry sheds, fencing, water and water tank--Entitled to extra shift allowance--Income-tax Act, 1961-- CIT v. Shivalik Hatcheries P. Ltd. (HP) . . . 432

Exemptions --Educational institution--Registered society running schools--Society granted exemption under section 10(23C) up to assessment year 2001-02--Law applicable--Effect of amendment of section 10(23C)--Condition regarding application of funds--Applicability of condition--Exemption already being granted could not be refused for assessment years 2002-03 to 2004-05--Income-tax Act, 1961, s. 10(23C)(vi)-- Digember Jain Society for Child Welfare v. Director General of Income-tax (Exemptions) (Delhi) . . . 459

Export --Special deduction under section 80HHC--Computation of export turnover--Freight and insurance not includible in export turnover--Income-tax Act, 1961, s. 80HHC-- CIT v. King Metal Works (Bom) . . . 426

----Special deduction under section 80HHC--Computation of special deduction--Meaning of profits of business--Entire sale consideration on transfer of DEPB credit assessable under section 28(iiid)--Income-tax Act, 1961, ss. 28, 80HHC-- CIT v. King Metal Works (Bom) . . . 426

Income from undisclosed sources --Additions to income on basis of admission by assessee and consideration of material on record--Deletion of addition without adequate consideration--Not valid--Matter remanded--Income-tax Act, 1961-- CIT v. Swastik India (Karn) . . . 473

Industrial undertaking --Special deduction under section 80-IA--Condition precedent--Manufacture of article--Meaning of "manufacture"--Conversion of limestone into limestone powder constitutes manufacture--Assessee entitled to special deduction under section 80-IA--Income-tax Act, 1961, s. 80-IA-- CIT v. Janak Raj Bansal

(HP) . . . 417

----Special deduction under section 80-IB--Condition precedent--Manufacture of article--Meaning of manufacture--Process of making transformer core from cold rolled coils amounts to "manufacture"--Assessee entitled to special deduction under section 80-IB--Income-tax Act, 1961, s. 80-IB-- CIT v. Alfa Lamination

(Guj) . . . 348

Industrial undertaking in backward area --Special deduction--Finding that industrial undertaking was situated in district notified as a backward area--Assessee entitled to special deduction under section 80HH--Notification No. S. O. 165(E), dated December 19, 1986--Income-tax Act, 1961, s. 80HH-- CIT v. Guffic Chem P. Ltd .

(Karn) . . . 470

Interpretation of taxing statutes --Literal interpretation-- CIT v. King Metal Works (Bom) . . . 426

Loss --Short-term capital loss--Forfeiture of amount paid towards convertible warrants--Loss deductible as short-term capital loss--Income-tax Act, 1961-- CIT v. Chand Ratan Bagri (Delhi) . . . 356

Non-resident --Income deemed to accrue or arise in India--Royalty--Agreement between Indian company and foreign company for supply of plant know-how and product know-how--Agreement concluded and data delivered abroad--Purchase of drawings and documents abroad--Transaction was one of sale--No income could be deemed to accrue or arise to non-resident--Income-tax Act, 1961, s. 9(1)(vi)-- CIT v. Maggronic Devices P. Ltd. (HP) . . . 442

Penalty --Concealment of income--Search and seizure--Additional income offered by assessee and assessed on estimate--Levy of penalty not permissible without detailed discussion of documents and explanation for offer of additional income--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Suresh Chand Bansal (Cal) . . . 330

Precedent --Effect of decision of Supreme Court in Lucky Minmat v. CIT [2000] 245 ITR 830-- CIT v. Janak Raj Bansal (HP) . . . 417

----Effect of decisions of Supreme Court in American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86 and Aditanar Educational Institution v. Additional CIT [1997] 224 ITR 310-- Digember Jain Society for Child Welfare v. Director General of Income-tax (Exemptions) (Delhi) . . . 459

----Ratio of case when applicable-- CIT v. P. R. Seshadri (Karn) . . . 377

----Supreme Court--One-line order of Supreme Court dismissing appeal after it is admitted and heard--Binding--Constitution of India, arts. 136, 141-- Binani Industries Ltd. v. CIT (Cal) . . . 323

Reassessment --Limitation--Law applicable--Effect of amendment of section 143 w.e.f. 1-4-1989--Return filed on 24-1-2003 in response to notice under section 148--No notice issued under section 143(2) but assessee having opportunity to be heard--Order of reassessment passed on 26-3-2004--Barred by limitation--Income-tax Act, 1961, ss. 143, 148--Circular No. 549 dated 31-10-1989-- CIT v. Deep Baruah

(Gauhati) . . . 362

----Notice--Notice beyond four years--Condition precedent--Failure to disclose material facts necessary for assessment--Facts relating to sale of shares disclosed and assessment after enquiry--Notice after four years on ground that transaction not genuine--Notice not valid--Income-tax Act, 1961, ss. 147, 148-- Smt. Raj Rani Gulati v. Union of India (All) . . . 370

----Notice--Oral direction not to proceed with enquiry--Enquiry without affording an opportunity to assessee--Assessment order set aside--Matter remanded--Income-tax Act, 1961, ss. 147, 148-- Vira Properties (Madras) Pvt. Ltd. v. Asst. CIT

(Mad) . . . 389

----Writ--Writ court cannot consider facts--Return submitted by assessee--Survey showing undisclosed income--Notice of reassessment was valid--Income-tax Act, 1961, ss. 147, 148--Constitution of India, art. 226-- Dr. Lata Chouhan v. ITO

(MP) . . . 400

Rectification of mistake --Mistake apparent from record--Search and seizure--Refund--Interest on refund--Assessee entitled to interest--Assessee to seek rectification --Income-tax Act, 1961, ss. 132, 154-- CIT v. Sri Krishna Saraf

(Mad) . . . 342

Search and seizure --Addition on account of documents found at premises of a relative of assessee--Investment in purchase of car and interest--Tribunal remanding the matter to Assessing Officer--Findings of fact--Income-tax Act, 1961, s. 158BFA(1)-- CIT v. Harjit Singh (P&H) . . . 422

----Penalty--No concealment of income--No failure to furnish inaccurate particulars of income--Assessing authority not justified in levying penalty--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Sri Krishna Saraf (Mad) . . . 342

----Search at premises of third person--Seizure and recovery from safe deposits belonging to assessee--Issue of notice under section 142(1) after search revealing search having nexus with assessee--Assessment under section 143(3)--Assessee entitled to seek necessary relief under section 132B(4)--Income-tax Act, 1961, ss. 132, 132B(4), 143-- CIT v. Sri Krishna Saraf (Mad) . . . 342

Undisclosed stock --Books of account incomplete at time of survey--Finding of Commissioner (Appeals) and Tribunal that stock related to import purchases verifiable from customs records--Accounts reconciled later--Finding of fact--Income-tax Act, 1961-- CIT v. Forech India Ltd. (Delhi) . . . 336

Unexplained investment --Assessee purchasing demand drafts and remitting to a party--No proof that sum represented bad debt or business loss--Addition as unexplained investment--Justified--Income-tax Act, 1961, s. 69-- Satish Kumar v. CIT

(P&H) . . . 396

Wealth-tax --Company--Exemption--Asset used for business--Land used for internal roads and playground--Not entitled to exemption--Wealth-tax Act, 1957--Finance Act, 1983, s. 40(3)(vi)-- Motwane Manufacturing Co. Pvt. Ltd . v. CWT

(Bom) . . . 413

Words and phrases --Meaning of "manufacture"-- CIT v. Alfa Lamination

(Guj) . . . 348

----Meaning of "manufacture"-- CIT v. Janak Raj Bansal (HP) . . . 417

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 136 --Precedent--Supreme Court--One-line order of Supreme Court dismissing appeal after it is admitted and heard--Binding-- Binani Industries Ltd. v. CIT

(Cal) . . . 323

Art. 141 --Precedent--Supreme Court--One-line order of Supreme Court dismissing appeal after it is admitted and heard--Binding-- Binani Industries Ltd. v. CIT

(Cal) . . . 323

Finance Act, 1983 :

S. 40(3)(vi) --Wealth-tax--Company--Exemption--Asset used for business--Land used for internal roads and playground--Not entitled to exemption-- Motwane Manufacturing Co. Pvt. Ltd . v. CWT (Bom) . . . 413

Income-tax Act, 1961 :

S. 2(15) --Deduction of tax at source--Certificate for non-deduction--Assesssee claiming income was exempt under section 11--Amendment of section 2(15) w.e.f. 1-4-2009 not challenged--Union of India not impleaded as a party--Effect of amendment of section 2(15) could not be considered--Refusal to issue certificate for non-deduction of tax at source--Justified-- Infoparks Kerala v. Deputy CIT (Ker) . . . 404

S. 9(1)(vi) --Non-resident--Income deemed to accrue or arise in India--Royalty--Agreement between Indian company and foreign company for supply of plant know-how and product know-how--Agreement concluded and data delivered abroad--Purchase of drawings and documents abroad--Transaction was one of sale--No income could be deemed to accrue or arise to non-resident-- CIT v. Maggronic Devices P. Ltd. (HP) . . . 442

S. 10(23C)(vi) --Exemptions--Educational institution--Registered society running schools--Society granted exemption under section 10(23C) up to assessment year 2001-02--Law applicable--Effect of amendment of section 10(23C)--Condition regarding application of funds--Applicability of condition--Exemption already being granted could not be refused for assessment years 2002-03 to 2004-05-- Digember Jain Society for Child Welfare v. Director General of Income-tax (Exemptions)

(Delhi) . . . 459

S. 11 --Deduction of tax at source--Certificate for non-deduction--Assesssee claiming income was exempt under section 11--Amendment of section 2(15) w.e.f. 1-4-2009 not challenged--Union of India not impleaded as a party--Effect of amendment of section 2(15) could not be considered--Refusal to issue certificate for non-deduction of tax at source--Justified-- Infoparks Kerala v. Deputy CIT (Ker) . . . 404

S. 28 --Export--Special deduction under section 80HHC--Computation of special deduction--Meaning of profits of business--Entire sale consideration on transfer of DEPB credit assessable under section 28(iiid)-- CIT v. King Metal Works

(Bom) . . . 426

S. 37 --Business expenditure--Capital or revenue expenditure--Lease rent paid to State Industrial Development Corporation for use of land for ninety nine years--Registration of lease deed not relevant--Land not acquired by assessee--Payment made to carry on business--Lease rent deductible-- Deputy CIT v. Sun Pharmaceuticals Ind. Ltd. (Guj) . . . 479

S. 43(3) --Depreciation--Plant--Poultry sheds--Building specifically designed with a view to protecting birds from disease--Building designed proper and scientific feeding arrangement, proper water system, proper arrangement for collection of manure and droppings, proper arrangement for medication and vaccination--Building specifically designed to further the cause of manufacture or production--Is plant--Entitled to depreciation and investment allowance-- CIT v. Shivalik Hatcheries P. Ltd.

(HP) . . . 432

S. 45 --Capital gains--Computation of capital gains--Gains on transfer of intellectual property rights--Tribunal not justified in blindly applying B. C. Srinivasa Setty's case and concluding capital gains could not be computed--Matter remanded-- CIT v. P. R. Seshadri (Karn) . . . 377

S. 48 --Capital gains--Computation of capital gains--Gains on transfer of intellectual property rights--Tribunal not justified in blindly applying B. C. Srinivasa Setty's case and concluding capital gains could not be computed--Matter remanded-- CIT v. P. R. Seshadri (Karn) . . . 377

S. 54F --Capital gains--Exemption--Investment of net consideration in residential house--Fact that land was owned by assessee's spouse and she had used construction for mortgage purposes--Not relevant--Finding that house had been constructed--Assessee entitled to benefit of section 54F-- CIT v. P. R. Seshadri (Karn) . . . 377

S. 69 --Unexplained investment--Assessee purchasing demand drafts and remitting to a party--No proof that sum represented bad debt or business loss--Addition as unexplained investment--Justified-- Satish Kumar v. CIT (P&H) . . . 396

S. 80HH --Industrial undertaking in backward area--Special deduction--Finding that industrial undertaking was situated in district notified as a backward area--Assessee entitled to special deduction under section 80HH--Notification No. S.O. 165(E), dated December 19, 1986-- CIT v. Guffic Chem P. Ltd . (Karn) . . . 470

S. 80HHC --Export--Special deduction under section 80HHC--Computation of export turnover--Freight and insurance not includible in export turnover-- CIT v. King Metal Works (Bom) . . . 426

----Export--Special deduction under section 80HHC--Computation of special deduction--Meaning of profits of business--Entire sale consideration on transfer of DEPB credit assessable under section 28(iiid)-- CIT v. King Metal Works

(Bom) . . . 426

S. 80-IA --Industrial undertaking--Special deduction under section 80-IA--Condition precedent--Manufacture of article--Meaning of "manufacture"--Conversion of limestone into limestone powder constitutes manufacture--Assessee entitled to special deduction under section 80-IA-- CIT v. Janak Raj Bansal (HP) . . . 417

S. 80-IB --Industrial undertaking--Special deduction under section 80-IB--Condition precedent--Manufacture of article--Meaning of manufacture--Process of making transformer core from cold rolled coils amounts to "manufacture"--Assessee entitled to special deduction under section 80-IB-- CIT v. Alfa Lamination (Guj) . . . 348

S. 115J --Advance tax--Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax-- Binani Industries Ltd. v. CIT (Cal) . . . 323

S. 115JA --Advance tax--Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax-- Binani Industries Ltd. v. CIT (Cal) . . . 323

S. 132 --Rectification of mistake--Mistake apparent from record--Search and seizure--Refund--Interest on refund--Assessee entitled to interest--Assessee to seek rectification-- CIT v. Sri Krishna Saraf (Mad) . . . 342

----Search and seizure--Search at premises of third person--Seizure and recovery from safe deposits belonging to assessee--Issue of notice under section 142(1) after search revealing search having nexus with assessee--Assessment under section 143(3)--Assessee entitled to seek necessary relief under section 132B(4)-- CIT v. Sri Krishna Saraf (Mad) . . . 342

S. 132B(4) --Search and seizure--Search at premises of third person--Seizure and recovery from safe deposits belonging to assessee--Issue of notice under section 142(1) after search revealing search having nexus with assessee--Assessment under section 143(3)--Assessee entitled to seek necessary relief under section 132B(4)-- CIT v. Sri Krishna Saraf (Mad) . . . 342

S. 143 --Reassessment--Limitation--Law applicable--Effect of amendment of section 143 w.e.f. 1-4-1989--Return filed on 24-1-2003 in response to notice under section 148--No notice issued under section 143(2) but assessee having opportunity to be heard--Order of reassessment passed on 26-3-2004--Barred by limitation--Circular No. 549 dated 31-10-1989-- CIT v. Deep Baruah (Gauhati) . . . 362

----Reassessment--Limitation--Law applicable--Effect of amendment of section 143 w.e.f. 1-4-1989--Return filed on 24-1-2003 in response to notice under section 148--No notice issued under section 143(2) but assessee having opportunity to be heard--Order of reassessment passed on 26-3-2004--Barred by limitation--Circular No. 549 dated 31-10-1989-- CIT v. Deep Baruah (Gauhati) . . . 362

----Search and seizure--Search at premises of third person--Seizure and recovery from safe deposits belonging to assessee--Issue of notice under section 142(1) after search revealing search having nexus with assessee--Assessment under section 143(3)--Assessee entitled to seek necessary relief under section 132B(4)-- CIT v. Sri Krishna Saraf (Mad) . . . 342

S. 147 --Constitution of India, art. 226--Reassessment--Writ--Writ court cannot consider facts--Return submitted by assessee--Survey showing undisclosed income--Notice of reassessment was valid-- Dr. Lata Chouhan v. ITO (MP) . . . 400

----Reassessment--Notice--Notice beyond four years--Condition precedent--Failure to disclose material facts necessary for assessment--Facts relating to sale of shares disclosed and assessment after enquiry--Notice after four years on ground that transaction not genuine--Notice not valid-- Smt. Raj Rani Gulati v. Union of India

(All) . . . 370

----Reassessment--Notice--Oral direction not to proceed with enquiry--Enquiry without affording an opportunity to assessee--Assessment order set aside--Matter remanded-- Vira Properties (Madras) Pvt. Ltd. v. Asst. CIT (Mad) . . . 389

S. 148 --Constitution of India, art. 226--Reassessment--Writ--Writ court cannot consider facts--Return submitted by assessee--Survey showing undisclosed income--Notice of reassessment was valid-- Dr. Lata Chouhan v. ITO (MP) . . . 400

----Reassessment--Notice--Notice beyond four years--Condition precedent--Failure to disclose material facts necessary for assessment--Facts relating to sale of shares disclosed and assessment after enquiry--Notice after four years on ground that transaction not genuine--Notice not valid-- Smt. Raj Rani Gulati v. Union of India

(All) . . . 370

----Reassessment--Notice--Oral direction not to proceed with enquiry--Enquiry without affording an opportunity to assessee--Assessment order set aside--Matter remanded-- Vira Properties (Madras) Pvt. Ltd. v. Asst. CIT (Mad) . . . 389

S. 154 --Rectification of mistake--Mistake apparent from record--Search and seizure--Refund--Interest on refund--Assessee entitled to interest--Assessee to seek rectification-- CIT v. Sri Krishna Saraf (Mad) . . . 342

S. 158BFA(1) --Search and seizure--Addition on account of documents found at premises of a relative of assessee--Investment in purchase of car and interest--Tribunal remanding the matter to Assessing Officer--Findings of fact-- CIT v. Harjit Singh

(P&H) . . . 422

S. 197 --Deduction of tax at source--Certificate for non-deduction--Assesssee claiming income was exempt under section 11--Amendment of section 2(15) w.e.f. 1-4-2009 not challenged--Union of India not impleaded as a party--Effect of amendment of section 2(15) could not be considered--Refusal to issue certificate for non-deduction of tax at source--Justified-- Infoparks Kerala v. Deputy CIT (Ker) . . . 404

S. 207 --Advance tax--Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax-- Binani Industries Ltd. v. CIT (Cal) . . . 323

S. 208 --Advance tax--Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax-- Binani Industries Ltd. v. CIT (Cal) . . . 323

S. 234B --Advance tax--Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax-- Binani Industries Ltd. v. CIT (Cal) . . . 323

S. 234C --Advance tax--Interest--Company--Assessment on book profits basis--No liability to pay advance tax--No interest leviable for default in payment of advance tax-- Binani Industries Ltd. v. CIT (Cal) . . . 323

S. 260A --Appeal to High Court--Powers of High Court--Finding of fact cannot normally be set aside-- CIT v. Forech India Ltd. (Delhi) . . . 336

----Appeal to High Court--Powers of High Court--Point not raised before lower authorities cannot be considered by High Court-- CIT v. Chand Ratan Bagri

(Delhi) . . . 356

S. 271(1)(c) --Penalty--Concealment of income--Search and seizure--Additional income offered by assessee and assessed on estimate--Levy of penalty not permissible without detailed discussion of documents and explanation for offer of additional income-- CIT v. Suresh Chand Bansal (Cal) . . . 330

----Search and seizure--Penalty--No concealment of income--No failure to furnish inaccurate particulars of income--Assessing authority not justified in levying penalty-- CIT v. Sri Krishna Saraf (Mad) . . . 342

ITR(Trib) Vol 8 Part 2 dated 14-03-2011

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
ISSUE DATED 14-3-2011 Volume 8 Part 2
       

    APPELLATE TRIBUNAL ORDERS

   >> Where Tribunal confirming addition finding explanation of assessee that cash seized belonged to company not bona fide, penalty leviable : Harish Dargan v. Dy. CIT (Delhi) p. 125

   >> Application for rectification of order on application for rectification not permissible u/s. 254(2) : Padam Prakash (HUF) v. ITO (Delhi) [SB] p. 135

   >> Bad debts written off not a factor to determine ALP of international transactions u/r. 10B : C. A. Computer Associates P. Ltd. v. Dy. CIT (Mumbai) p. 142

   >> Litigation expenses on criminal proceedings against actor in his individual capacity not deductible u/s. 37 : Dy. CIT v. Salman Khan (Mumbai) p. 150

   >> Stock broker : Sums receivable from clients allowable deduction u/s. 36(2) : Bhavik Rajesh Khandra Share and Stock Brokers P. Ltd. v. Dy. CIT (Mumbai) p. 155

   >> International transactions : Interest on outstandings to be calculated for overflow period after allowing interest-free period, proper : Logix Micro Systems Ltd. v. Asst. CIT (Bangalore) p. 159

   >> International transactions : Dispute Resolution Panel must consider submissions of assessee and pass speaking order : GAP International Sourcing India P. Ltd. v. Dy. CIT (Delhi) p. 177

   >> Lease income exploitation of property income from house property : Asst. CIT v. T & R Welding Products (India) Ltd. (Chennai) p. 181

   >> Carried forward business loss cannot be set off against lease income : Asst. CIT v. T & R Welding Products (India) Ltd. (Chennai) p. 181

   >> International transactions : TPO cannot take up other transactions suo motu for verification and suggest adjustments : Amadeus India P. Ltd. v. Asst. CIT (Delhi) p. 187

   >> Pre-weaving machines not covered under block III (6) of Appendix I , assessee entitled to depreciation at normal rate : Eagle Synthetics P. Ltd. v. ITO (Ahd) p. 211

   >> Search and seizure : Failure to mention section 158BD in notice not fatal, defect in notice curable u/s. 292B : Asst. CIT v. Dilip Kumar Balar (Bangalore) p. 229

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ITR(Trib) Vol 8 Part 1 dated 07-03-2011

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

    ISSUE DATED 7-3-2011    Volume 8 Part 1

APPELLATE TRIBUNAL ORDERS

 

  --> Where assessee availing of services for movement of containers by use of cranes liable to TDS u/s. 194C : Asst. CIT (TDS) v. Merchant Shipping Services P. Ltd. (Mumbai) p. 1

 

  --> Non-resident : Remittance from foreign country through banking channels cannot be taxed u/s. 5(2)(b) : Smt. Susila Ramasamy v. Asst. CIT (Chennai) p. 18

 

  --> Where no evidence relating to specific expenditure to tax free dividend , deletion of addition proper : Asst. CIT v. Sun Investments P. Ltd. (Delhi) p. 33

 

  --> Where assessment barred by time in absence of satisfaction of AO, notice invalid : Dy. CIT v. Rano Singh (Delhi) p. 36

 

  --> Assessee incurred loss on share trading and quantum of loss not disputed, levy of penalty not justified : SRJ Securities Ltd v. ITO (Delhi) p. 41

 

  --> Net profit rate subject to depreciation and interest more than restricted trading addition to be deleted : Asst. CIT v. Prabhu Dayal Kanojiya (Jaipur) p. 45

 

  --> No separate addition required to be made in respect of bank FDRs and NSC interest income : Asst. CIT v. Prabhu Dayal Kanojiya (Jaipur) p. 45

 

  --> Where loss occuring on account of purchase of capital asset and placing security deposit, penalty not leviable : Microsoft Corporation (India) P. Ltd. v. Dy. CIT (Delhi) p. 58

 

  --> Expenditure on payment of tax was appropriation of income, penalty leviable u/s. 271(1)(c) : Microsoft Corporation (India) P. Ltd. v. Dy. CIT (Delhi) p. 58

 

  --> Change of ownership of unit is not a reconstruction, deduction allowable u/s. 10B : ITO v. Veto Electropowers (Jaipur) p. 76

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Transfer Pricing: CUP method is preferable to TNMM

Clear Plus India Pvt Ltd vs. DCIT (ITAT Delhi)


The assessee sold automobile wipers to its associated enterprise and claimed that as per the "Comparable Uncontrolled Price" (CUP) method, the transactions were at arms' length basis. The TPO rejected the CUP method on the basis that the comparability of controlled and uncontrolled transactions was not established with certain degree of reasonableness and accuracy and that the conditions prevailing in the market were not established to be identical. The TPO adopted the TNMM and directed that an adjustment be made by adopting the mean profit of comparables. This was confirmed by the DRP. On appeal, HELD:


(i) U/s 92C read with Rule 10B, the most appropriate method has to be applied for determination of arm's length price. In principle, the CUP method (the traditional transaction method) is preferable to the other methods because all other things being equal, the CUP and traditional transactional methods lead to more reliable results vis-a-vis the results obtained by applying transaction profit method (UCB India 121 ITD 131 and Serdia Pharmaceuticals followed);


(ii) For the CUP method, the focus is on the market in which the products are sold by the assessee and any unique feature of the market in which assessee is situated is of no importance in relative terms. As the goods were sold by the assessee as well as the competitive Chinese manufacturers in the USA market, the market conditions in the territory of sale were the same. The buyer in the USA market will be more concerned with quality and price rather than economic conditions prevailing in China and India (SNF (Australia) Pty. Ltd. Vs. COT (2010) FCA 635 referred to);


(iii) As regards the comparability of the products the assessee has to provide the sale data of the AE in terms of sale price of Chinese and assessee's goods in the USA market and quantitative data of purchase of Chinese and Indian wipers by the AE and the terms of payment and the AO shall compute the arm's length price using this data on CUP method.


Note: For more on transfer pricing law, see Transfer Pricing Implications Of Business Restructuring by Multi Nationals


Related Judgements
Serdia Pharmaceuticals (I) Pvt Ltd vs. ACIT (ITAT Mumbai) On merits, the CUP method is the `most appropriate method' to determine the arm's length price in the cases of generic drug manufacturers so long as comparables are available. As the API imported by the assessee was a generic drug and not patent protected, the CUP method could be…


Philips Software vs. ACIT (ITAT Bangalore) (4 MB) The AO/TPO have to satisfy and communicate to the taxpayer which one of the four conditions prescribed in s. 92C (3) are satisfied before applying the transfer pricing provisions and the failure to demonstrate this to the assessee renders the transfer pricing order void


Intel Asia Electronics Inc vs. ADIT (ITAT Bangalore) The CUP method for determining the ALP is suitable when goods of a similar type are sold by independent enterprises. In an isolated transaction of sale of the PE as a `going concern' to the AE, there are no similar comparable independent transactions available for comparison. In order to…


Posted in All Judgements, Tribunal |

ITR : Volume 331 : Part 4 Issue dated 07-03-2011

INCOME TAX REPORTS (ITR) HIGHLIGHTS  ISSUE DATED 7-3-2011  Volume 331 Part 4

HIGH COURT JUDGMENTS

 

  -->> Appeal to High Court : Commissioner directed to move Board for instructions to withdraw appeals or references where tax effect less than prescribed : CIT v. Vitessee Trading Ltd. (Bom) p. 433

  -->> Reassessment beyond four year period on basis of SC ruling for disallowing section 80HHC deduction in toto not permissible : CIT v. Baer Shoes (India) P. Ltd. (Mad) p. 435

  -->> Financial institution writing off part of its loan to the company and claiming no deduction in respect of loan : Amount not assessable u/s 41 : CIT v. Tosha International Ltd. (Delhi) p. 440

  -->> Revised return after search not entitled to exclusion of income from block assessment : CIT v. K. P. Chandradasan (Ker) p. 443

STATUTES AND NOTIFICATIONS

  -->> Bill :

Budget Speech of Minister of Finance for 2011-12 :

    Part - A p. 21

    Part - B p. 46

    FINANCE BILL, 2011 p. 56

    Notes on Clauses p. 103

    Memorandum explaining the provisions in the Finance Bill, 2011 p. 131

  -->> Notifications :

    Income-tax Act, 1961 : Notification under section 10(23C)(vi) : Approved institutions p. 160

  -->> C. B. D. T. Circulars/Orders :

    Income-tax Act, 1961 : Order under section 119(2)(b) : Extension of time limit for filing ITR-V Forms p. 160

 HIGHLIGHTS OF FINANCE BILL 2011

  -->> Tax rates

    Basic exemption limit for a. y. 2011-12 raised to Rs. 1,80,000 : basic exemption limit for women, Rs. 1,90,000 : Basic exemption limit for senior citizens (above 60 years of age) Rs. 2,50,000 : basic exemption limit for very senior citizens (80 years and above) Rs. 5 lakhs

    Surcharge for domestic companies reduced to 5 % : for other companies to 2 %

    Slabs remain the same as for a. y. 2010-11

  -->> Exemptions

    Definition of "charitable purpose" : monetary limit in respect of receipts from activity in nature of trade, commerce or business, etc., raised from Rs. 10 lakhs to Rs. 25 lakhs, s 2(15) wef 1-4-2012

    Exemption for specific notified perquisites and allowances of serving and retired Chairmen and Members of the Union Public Service Commission, new cl (45) in s 10 wref 1-4-2008

    Exemption of specified income of notified body or authority or Trust or Board or Commission, new cl (46) in s 10 wef 1-6-2011

    Infrastructure Debt Fund : income of notified fund, exempt, new cl (47) in s 10 wef 1-6-2011 : interest received by non-resident fund taxable at 5 % on gross interest, s 115A wef 1-6-2011 : tax deductible at five per cent. by such notified infrastructure debt fund on interest paid to non-resident, new s 194LB wef 1-6-2011

  -->> Deductions

    Weighted deduction for contribution made for approved scientific research programme raised from 175 per cent. to 200 per cent. s 35(2AA) wef 1-4-2012

    Deduction in respect of specified businesses : new businesses specified : developing and building a housing project under a Government scheme for affordable housing and production of fertiliser in India commenced after 1-4-2011 : s 35AD(8)(c) wef 1-4-2012 : loss of "specified business" claiming deduction under section 35AD allowed to be set off against the profit of another "specified business" whether or not eligible, s 73A, wef 1-4-2011

    Contribution by Central Government or other employer to pension scheme under section 80CCD(2) excluded from limit of Rs. 1 lakh provided under section 80CCE, s 80CCE wef 1-4-2012 : contribution paid by employer towards a pension scheme up to ten per cent. of employee's salary allowed as deduction : s 36(1)(iva) wef 1-4-2012

    Deduction for investment in long-term infrastructure bonds extended for one year : s 80CCF wef 1-4-2012

    Extension of terminal date for power sector up to 31st March, 2012, s 80-IA(4)(iv) wef 1-4-2012

    No deduction for undertakings engaged in commercial production of mineral oil for blocks licensed under contract awarded after 31st March, 2011, s 80-IB(9) wef 1-4-2012

  -->> Transfer pricing

    Percentage variation below which no adjustment made to be notified by Government : s 92C wef 1-4-2012

    Jurisdiction of TPO to extend to international transactions other than those referred to him, noticed in the course of proceedings : s 92CA(2A) wef 1-6-2011

    TPO to exercise power of survey under section 133A : s 92CA(7) wef 1-6-2011

    Due date for filing of return of income with transfer pricing report by corporate assessees 30th November of assessment year : s 139 wef 1-4-2011

    Anti-avoidance measures to discourage transactions by resident with persons in jurisdictions which do not effectively exchange information with India, new s 94A wef 1-6-2011

  -->> Companies

    Dividends received from foreign subsidiary to be taxed at lower rate of 15 %, new s 115BBD wef 1-4-2012

    Higher rates of tax on income distributed by debt funds : 25 % where distributed by money market fund, etc. and 12.5 % in case of other fund to individual or HUF : 30 % in all other cases : s 115R(2) wef 1-6-2011

    Exemption for dividend distribution tax in case of SEZ to cease, ss 10(34), Expln. 115-O wef 1-4-2011

  -->> Minimum alternate tax

    Rate of MAT raised to 18½ % from 18% : section 115JB(1) wef 1-4-2012

    Alternate minimum tax regime for LLPs, new Chapter XII-BA wef 1-4-2012

    Exemption for MAT in case of SEZ to cease, s 115JB wef 1-4-2012

  -->> Income-tax authorities

    Power of discovery and inspection, enforcing attendance of any person and examining him on oath, compelling production of books of account and other documents and issuing commission for purpose of enquiry or investigation in relation to double taxation avoidance agreements, new sub-s (2) in s 131, s 133 wef 1-6-2011

  -->> Settlement of cases

    Assessee subject to search can file application for settlement if additional income-tax payable on income disclosed in application exceeds Rs. 50 lakhs : Entities related to such assessee subject to search also allowed to file application for settlement, if additional income-tax payable exceeds Rs. 10 lakh, s 245C(1) wef 1-6-2011

    Power to Settlement Commission to rectify orders within a period of six months, new sub-s (6B) in s 245D (s 22D of W. T. Act) wef 1-6-2011

  -->> Non-residents

    Non-residents to file annual information providing prescribed details as regards liaison offices in India, new s 285 wef 1-6-2011

  -->> Miscellaneous

  -->> Power to exempt persons from filing returns, new sub-section (1C) in s 139, s 296 wef 1-6-2011 [Proposal to exempt salaried persons having no other income under this provision]

  -->> Time taken in obtaining information from tax authorities in jurisdictions situated outside India to be excluded from time limit for assessment or reassessment : new cl. (viii) in Expln. 1 to s 153 wef 1-6-2011

  -->> SERVICE TAX

  -->> New services to be taxed

    Services provided by air-conditioned restaurants having licence to serve alcoholic beverages

    Short-term accommodation provided by hotel, inn, guesthouse, club or campsite for continuous period of less than three months

  -->> Existing services expanded

    Life insurance service to include re-insurance

    Club or association service to include service provided to non-members

    Authorized service station service to include services to all motor vehicles other than goods carriage and three-wheeler scooter auto-rickshaws and services of decoration and similar services in respect of vehicles

    Business support services to include operational or administrative assistance

    Legal consultancy services to included service to individuals in relation to advice, consultancy or assistance in any branch of law, representational service and service of arbitration provided by an arbitral tribunal to business entity

    Commercial training or coaching service to include unrecognized courses

    Health services to include diagnostic services, provided by a centrally air-conditioned (wholly or partially) clinical establishment having more than 25 beds for in-patient treatment and services provided by a clinical establishment with the aid of laboratory or other medical equipment and services provided by a doctor from the premises of such establishment

  -->> Services exempted

    Organizer of business exhibitions in relation to business exhibitions held outside India

    25% abatement from receipts for transport of goods through coastal and inland shipping

    Works contract for construction or finishing of new residential complex under Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana

    Services provided within port or airport specified purposes

    Rashtriya Swasthya Bima Yojana

    Air freight excluded from taxable value of transport of goods by air service

    Transportation of goods by road, rail or air when both origin and destination outside India

    Refund of service tax to SEZ units and developers

  -->> Rates of service tax on travel by air revised wef 1-4-2011

    Domestic travel (economy class) from Rs. 100 to Rs. 150

    International travel (economy class) from Rs. 500 to Rs. 750

    Domestic travel (other than economy class) 10% (standard rate)

  -->> Other amendments

    Exemption on membership fees under "club or association service" representing industry or commerce from 16-6-2005 to 31-3-2008

    Exemption on inter-State or intra-State transportation of passengers in a vehicle bearing contract carriage permit or a tourist vehicle permit from 1-4-2000 to 6-7-2009

    Monetary limit of Rs. 1 lakh for adjustment under rule 6(4B)(iii) of Rules raised to Rs. 2 lakh wef 1-4-2011

    Option to insurers to pay sum based on gross premium

    Sale and purchase of foreign exchange : composition rate reduced from 0.25% to 0.1% of the gross amount of currency exchanged towards discharge of service tax liability

    Service tax self-assessed and not paid recoverable with interest without recourse to section 73

    Value of money changing service defined

    Value of telecommunication services to be gross amount charged by telegraph authority from service receiver

Interest on Non Performing Assets which is doubtful of recovery, taxable on receipt basis

In a recent decision, in the case of CIT v. Vasisth Chay Vyapar Ltd. (Delhi High Court) [ITA 552/2005] dated 29 November, 2010 , the Delhi High Court in the context of loans given by a Non-Banking Financial Company ("NBFC") held that in a scenario where interest on Non Performing Assets ("NPA") was doubtful of recovery due to adverse financial circumstances of the borrower, it was legitimate move to infer that interest income had not accrued and was therefore not exigible to tax, irrespective of the fact that assessee followed mercantile system of accounting.

Facts

•           The assessee a NBFC had advanced Inter Corporate Deposits ("ICD") to M/s Shaw Wallace Company. The interest on such ICD was outstanding since assessment year 1996-97 and the position remained the same until assessment year 2006-07.

•           The assessee being an NBFC had classified the ICD as NPA in accordance with the provisions of the Reserve Bank of India Act, 1934 ("RBI Act") read with NBFCs Prudential Norms (Reserve Bank) Directions, 1998 ("Prudential Norms"). Accordingly, the interest accrued on such NPA was not recognised as income in the books of accounts of the assessee.

•           The Assessing Officer ("AO") made additions on account of the interest on such NPA holding that interest had accrued to the assesse even if it was not realised, since the assessee was following mercantile system of accounting.

•           The Commissioner of Income-tax (Appeals) (CIT(A)) affirmed the order of the AO.

•           The Income-tax Appellate Tribunal ("Tribunal") held that the provisions of section 45Q of the RBI Act override the provisions of the Income-tax Act, 1961 ("the Act"). The treatment of the interest income from the NPA was in accordance with the provisions of the RBI Act and the Prudential Norms issued thereunder and hence in accordance with law. Thus, no additions could be made under the provisions of section 145 of the Act, in the hands of the assessee in respect of the unrealised interest on the ICD

Assessee's contentions

•           The provisions of section 45Q of the RBI Act override the provisions of the Act. This is in view of the decision of the Supreme Court ("SC") in case of TRO v. Custodian, Special Court Act, 1934 [2007] 293 ITR 369 (SC), wherein it was held that, where a provision under any enactment begins with a non-obstante clause, it would override the provisions of all other enactments.

•           The assessee being an NBFC was bound to follow the provisions of the RBI Act and the Prudential Norms issued thereunder and hence the non-credit of interest income on NPA was in accordance with law.

•           The Madras High Court in the case of CIT v. Elgi Finance Ltd. [2007] 293 ITR 357 (Mad) in almost identical controversy held that no interest could be said to have accrued on loans which are doubtful of recovery and classified as NPA.

•           The SC, in the case of CIT v. KICM Investment Ltd. (Supreme Court order dated January 12, 2009 in CC No.29 of 2009) dismissed a Special Leave Petition filed by the tax department against the decision of the Calcutta High Court. In this case, the Calcutta High Court held that interest on NPA cannot be taxed on accrual basis even though mercantile system of accounting was followed.

•           The undisputed facts of the case clearly indicated the uncertainty of ultimate collection of interest, due to tight and precarious financial position of the borrower.

•           The Courts (See Note 1) have recognised the theory of 'real income' and irrespective of the method of accounting followed, the tax payer could only be taxed on real income and not any hypothetical income.

•           The assessee was required to comply with the provisions of section 145(1) of the Act and sections 209 and 211 of the Companies Act, 1956 which mandate observance of the accounting standards as prescribed in a consistent manner. In view of the uncertainty of the ultimate collection of interest due the accounting treatment followed by the assessee in respect of interest on ICD due from M/s Shaw Wallace Company was in conformity with the accounting standards. This was on the ground that M/s Shaw Wallace Company was passing through a financial crisis and winding-up petitions filed by many creditors were pending in courts against the company.

•           The Courts (Note-2) have held that even under the mercantile system of accounting it is

illusory to take credit for interest where recovery of the principal itself was doubtful.

Revenue's contentions

•           The revenue contended that under the provisions of section 5 of the Act, interest income had accrued to the assessee.

•           Provisions of the RBI Act and the Prudential Norms issued thereunder cannot override the provisions of the Act.

•           The SC in the case of Southern Technologies Ltd. v. JCIT [2010] 320 ITR 577 (SC) in the context of deductibility of provision for NPAs upheld the aforesaid principle and held that the RBI Act and the Act operate in different fields, and hence, the Prudential Norms are mere guidelines for accounting purposes and have nothing to do with the computation, or taxability, under the Act.

High Court ruling

The High Court observed and held that,

•           The assessee, being an NBFC, was bound by the provisions of the RBI Act and the Prudential Norms issued thereunder. The treatment to ICDs advanced to M/s Shaw Wallace Company as NPA was in accordance with the Prudential Norms issued by the RBI.

•           Accordingly, interest income could not be said to have accrued to the assessee since the ICD had become an NPA and interest on the NPA was not received by the assessee as the possibility of recovery was almost nil. This accounting practice was in line with the Accounting Standard issued by the Institute of Chartered Accountants of India (AS-9 on Revenue Recognition) which provides that in case of uncertainty, recognition of revenue is to be postponed.

•           Given the financial position of M/s Shaw Wallace Company, where the recovery of the principal amount itself was doubtful, the interest income thereupon could not be said to have accrued to the assessee.

•           The decision of the SC in the case of Southern Technologies Ltd. (above) heavily relied upon by the revenue was distinguishable on facts. The dispute before the SC in that case was with respect to deductibility of provision for NPA. Further, the SC in the context of income (interest) recognition had approved the 'real income' theory.

•           Further, the decision of the SC in the case of Southern Technologies Ltd. (above) relied upon by the revenue had to be read with the decision of the SC in the case of Custodian, Special Court Act, 1934 (above) dealing with situations where there is a provision in other enactment which contains a non-obstante clause, that would override the provisions of the Act.

• In view of the above, the High Court upheld the order of the Tribunal in favour of the assessee and against the revenue.

Conclusion

The decision of the High Court would bring some relief to NBFCs. However, given the fact that this is a debatable issue and unless affirmed by the SC, the tax authorities may continue to dispute the issue. This debate arises primarily due to the fact that under the Act, there is a specific provisions under Section 43D of the Income tax Act, 1961 dealing with interest on NPA with respect to specified financial institutions (including banks) which does not include NBFCs.

However, under the Direct Taxes Code Bill, 2010 proposed to be effective from April 2012, this should not be an issue as it has been proposed that interest on bad and doubtful debts, in cases of all financial institutions (including NBFCs), will be chargeable to tax in the financial year in which the interest is credited to the profit and loss account, or is actually received, whichever is earlier.

Note:-

   1. UCO Bank v. CIT [1999] 237 ITR 889 (SC), CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC), Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC)
   2. CIT v. Goya! M.G.Gases (P) Ltd. [2008] 303 ITR 159 (Del), CIT v. Eicher Ltd. (ITA No.431/2009 dt.15.7.2009), CIT v. Ferozepur Finance (P) Ltd. [1980] 124 ITR 619 (P&H), CIT v. Motor Credit Co. (P) Ltd. [1981] 127 ITR 572 (Mad)



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