Some Case laws

1 2009 TMI - 33333 - UTTARAKHAND HIGH COURT
Commissioner of Income-tax, Dehradun Versus R & B Falcon Drilling Co.
Dated: 24-04-2009
Assessee, a non-resident company received mobilization/ demobilization fee – such payment is not the actual reimbursement, rather, it includes the expenditure incurred by the company - it makes no difference whether the amount was paid or payable in or outside India - section does not exclude the mobilization/demobilization charges paid for transportation of the plant and machinery from the place out of India to the locations in India or its territorial waters - amount received are liable to be included in the `gross receipts and form part of the amount mentioned in s.s. (2) of Section 44BB


2 2009 TMI - 33332 - UTTARAKHAND HIGH COURT
Commissioner of Income-tax, Dehradun. Versus Ensco Maritime Ltd.
Dated: 24-04-2009
Reimbursement of the catering charges to assessee-non-resident company - AO took the view that the aforesaid amount received by the assessee as catering charges is part of the amount on which ten per cent deemed profit is to be calculated u/s 44BB - ITAT and CIT(A) have erred in law in holding that the catering charges are liable to be excluded - held that catering charges cannot be excluded from the `amount' defined in sub-section (2) of Section 44BB - order of Assessing Officer is restored


3 2009 TMI - 33331 - BOMBAY HIGH COURT
Commissioner of Income Tax Versus Kotak Mahindra Finance Ltd.
Dated: 25-03-2009
Depreciation - Business of leasing – Leased equipment - contention of the assessee that the breakers were given on lease before the end of previous year and therefore, the same should be considered as "used" for the purpose of business - Assessee, admittedly had supplied the machinery before the end of the financial year and the assessee had received the lease rentals for the same. The fact whether the lessee had put to use the leased equipment would be irrelevant – revenue's appeal dismissed – Tribunal is right in allowing the assesses claim of deprecation


4 2009 TMI - 33330 - BOMBAY HIGH COURT
Titanor Components Ltd. Versus Commissioner of Income Tax
Dated: 29-04-2009
Depreciation - Tribunal holding that the appellant was entitled to depreciation on the assets acquired based on the value placed in the surveyors report and not on the actual cost incurred for acquisition(as contended by assessee) – no reason given by tribunal - it appropriate to remand the matter to the ITAT, before whom declaration u/s 158A was filed by the appellant with direction to admit the claim of assessee in the said declaration and to proceed further as per section 158A(5) after the Hon'ble Delhi HC adjudicates the appeals pending before it - orders of ITAT are quashed


5 2009 TMI - 33297 - HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX Versus M/S.KERALA STATE FINANCIAL ENTERPRISES
Dated: 04-03-2009
The demand of interest tax paid on finance charges was allowed in I.T. assessment by way of rectification of original assessment, when the assessee in fact paid the interest tax on finance charges. However, the assessee successfully contested the interest tax assessment on finance charges and got it deleted. Thereafter income tax assessment was again rectified by the assessing officer withdrawing the deduction granted on interest tax on finance charges which the assessee ceased to be entitled by virtue of the order of the Tribunal in the interest tax appeals filed by the assessee. - ITAT held that the provisions of section 154 is not applicable to this case - honorable HC upheld the decision of ITAT on technical ground of double taxation (without going into merits)


6 2009 TMI - 33295 - MADRAS HIGH COURT
Commissioner of Income Tax, Chennai Versus Chemplast Sanmar Limited
Dated: 09-04-2009
Q. 1. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that the carry forward MAT credit available to the assessee was to be adjusted first before charging interest under Sections 234B and 234C? - "Held Yes" - Q. 2. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that Rule 12(1)(a) which lays down that every company has to furnish a return of income in Form No.1 and schedule G to the said form clearly lays down the manner of computation of the total income and also the order in which TDS, Advance Tax and Tax credit under Section 115JAA should be given effect to, is against the intention of the legislation and hence not applicable? - "Held Yes" - Q. 3. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the fact that Form 1 had been substituted by the Income Tax (19th amendment) Rules 2001 with effect from 17.08.2001 and as such interest chargeable under Section 234B or 234C should be first deducted and thereafter tax credit under Section 115JAA should be given? - "Held Yes"


7 2009 TMI - 33292 - CALCUTTA HIGH COURT
MINTRI TEA CO. PRIVATE LIMITED Versus COMMISSIONER OF INCOME TAX, JALPAIGURI
Dated: 17-03-2009
Jurisdiction of AO to pass an order u/s 154 amending the intimation u/s 143(1)(a) and to make a prima facie adjustment in an intimation issued – held that Tribunal was not justified in holding that disallowance u/s 43B in respect of provident fund contribution, could be made as a prima facie adjustment u/s 143 (1) (a) – Tribunal was not justified in law in not deciding the contention of assessee that the order under Section 154 and revised intimation both were barred by limitation - assessee's appeal allowed


8 2009 TMI - 33291 - CALCUTTA HIGH COURT
BANGODAYA COTTON MILLS LTD. Versus COMMISSIONER OF INCOME TAX, KOLKATA – IV
Dated: 17-03-2009
Additions on basis of materials seized from third party - genuineness and veracity of the materials (letters) seized from a third party - On the basis of the said three letters, AO held that in the assessment order, the consideration for the sale of the moveable assets were raised from Rs.1 crore to Rs.1.50 crore by the parties – CIT (A) rightly accepted the assessee's alternative contention that even assuming the money had changed hands but, neither the assessee nor the Special Officer appointed by HC have received the same - Therefore, addition on that account was required to be considered in the hands of the beneficial owner but it appears that without any reason the Tribunal dismissed the said contention - assessee must get a chance to prove the facts - matter remanded to AO


9 2009 TMI - 33289 - BOMBAY HIGH COURT
Shri Sandeep M. Shah and M/s. Sun and Deep Jewellers Versus V.D. Wakharkar & Anr.
Dated: 20-04-2009
Whether the CIT was justified in refusing waiver of interest under Section 139(8) and Section 217 of the Income-tax Act, while for the same reasons the penalty was waived - held that if the reasons given by the petitioners for delay in filing the income tax returns were sufficient for waiver of penalty, the said reasons should also be sufficient for waiver of interest under Sections 217 and 139(8) of the I.T.Act. Therefore, we hold that the Income-tax Commissioner was not justified in refusing the waiver of interest


10 2009 TMI - 33277 - KERALA HIGH COURT
NOORUL ISLAM EDUCATIONAL TRUST Versus DEPUTY COMMISSIONER OF INCOME TAX
Dated: 21-04-2009
Coercive proceedings for recovery of the disputed tax, during pendency of the stay petition -– dispute regarding assessment of income tax (of assessee- Charitable Trust) under Section 158 BC for the block period – held that , it is unjust to recover the disputed tax coercively from the petitioner before at least the stay petition is considered by the Appellate Authority


11 2009 TMI - 33275 - KERALA HIGH COURT
K.S. NMANDAKUMAR Versus INCOME TAX OFFICER
Dated: 07-04-2009
During appeal before tribunal against assessment order, penalty proceedings u/s 271 (1)(C) has been initiated – notice for imposing penalty is on the same date as the date on which the assessment order is passed - in the interest of justice, held that the penalty appeal (statutory appeal preferred before the CIT (A)) is disposed of after the disposal of the appeal filed before the Income Tax Appellate Tribunal – Commissioner (A) is directed to dispose of the same only after a decision is taken by the Income Tax Appellate Tribunal in assessment appeal


12 2009 TMI - 33274 - KERALA HIGH COURT
COCHIN INTERNATIONAL AIRPORT LIMITED Versus DEPUTY COMMISSIONER OF INCOME
Dated: 01-04-2009
Withdrawal of Certificate issued under section 197 retrospectively i.e. from date of issue of certificate – jurisdiction to issue/withdraw the certificate - jurisdiction for issuance of certificate u/s 197(1) is rest with the CIT (TDS) whereas the certificates were issued by the Deputy CIT - petitioner points out that he has filed an application before the assessing officer and under the Act, the Deputy Commissioner is the assessing officer – held that, when the notification is issued by the CBDT conferring the power on the CIT (TDS), Deputy CIT did not have power to issue certificate - since the order was issued initially without the authority of law, CIT (TDS) has power to withdraw it – but it is not fair to allow the retrospective cancellation of the certificates - Writ petition is partially allowed


13 2009 TMI - 33273 - MADRAS HIGH COURT
Commissioner of Income Tax I Chennai Versus M/s. Five Star Marine Exports (P) Limited
Dated: 20-04-2009
Whether tribunal can decide appeal on merits against order of Commissioner (A)( who rejected the condonation application) - held that refusal to condone delay would tantamount to confirming the order of assessment, therefore appeal against it lies to the Appellate Tribunal and the Tribunal can well go into the merits of the case – amendment in Section 80HHC has been challenged before various High Courts which are pending – therefore, Tribunal was right in remitting the matter to AO to await the outcome of the writ petition, without deciding whether the delay in filing the first appeal was condonable


14 2009 TMI - 33272 - MADRAS HIGH COURT
Commissioner of Income Tax Chennai Versus M/s. Three Bags India (P) Ltd.
Dated: 17-04-2009
Basis for computation of deduction u/s 80HHC – Section 80HHC is clear about this aspect that profit only is to be taken into account but not income and sub-section (3) of Section 115JA itself took care of the provisions relating to the adjustment of loss or depreciation and carry forward of the income – therefore, Tribunal rightly held that the computation of deduction u/s 80HHC is to be worked out on the basis of the adjusted book profits u/s 115JA only, and not in the profit arrived at in regular basis


15 2009 TMI - 33271 - MADRAS HIGH COURT
Commissioner of Income Tax Chennai Versus M/s Aban Llyod Chiles Offshore Ltd.
Dated: 21-04-2009
Whether MAT credit is to be set off against from the tax payable before setting off the TDS and advance tax paid - Whether MAT Credit can be given priority of set off against tax payable - Whether the interest u/s 234B and 234C had to be calculated after giving the MAT credit against the tax payable on the basis of normal computation – held that Form-I cannot lay down the order of priority of adjustment of TDS, advance Tax, MAT credit under Section 115JAA which is contrary to the provisions of the Act - held that the credit u/s 115JAA should be given effect to before charging of interest u/s 234A, 234B and 234C - held that revenue cannot rely on the Form-I to say that the MAT credit should be given only after tax and interest


16 2009 TMI - 33270 - MADRAS HIGH COURT
Commissioner of Income Tax, Central III, Madras Versus Shri. P.N. Mallikarjuna Rao
Dated: 21-04-2009
Levy of surcharge under Section 113 in respect of the block assessment prior to 01.06.2002 - one has to read section 158BB with section 4 - Once section 158BB is to be read with section 4 then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter XIV-B - Section 158BB looks to section 113 - proviso inserted in section 113 w.e.f. June 1, 2002 indicate that the Finance Act of the year in which the search was initiated would apply – this proviso is only clarificatory in nature not retrospective – revenue is justified in levying surcharge


17 2009 TMI - 33269 - MADRAS HIGH COURT
The Commissioner of Income Tax Chennai Versus Rane Brake Linings Ltd.
Dated: 21-04-2009
Whether Tribunal was right in allowing a deduction of the amounts spent n replacement of machinery as revenue expenditure- Whether replacement of independent complete machinery can be treated as revenue expenditure - Whether Tribunal was right in deciding the issue without going into the concept of Block of asset – there are a number of tests which are required to be considered while deciding whether the expenditure was revenue or capital in nature. In the absence of the requisite details regarding the production capacity remaining constant even after replacement, the matter could not be decided on merits and require to be remitted back to the Commissioner (Appeals)


18 2009 TMI - 33268 - MADRAS HIGH COURT
Commissioner of Income Tax Coimbatore Versus Rajashree Sugars & Chemicals Ltd.
Dated: 20-04-2009
Whether Tribunal was right in law in holding that MAT credit has to be considered on payment of advance tax, therefore, such a payment or credit has to be taken into account while computing the interest under Section 234-B and 234-C – intention of the legislature is to give tax credit to tax and not to the tax and interest – Form-I cannot lay down the order of priority of adjustment of TDS, advance Tax, MAT credit under Section 115JAA which is contrary to the provisions of the Act – revenue appeal dismissed


19 2009 TMI - 33243 - DELHI HIGH COURT
COMMISSIONER OF INCOME TAX Versus PAWAN GUPTA and others
Dated: 15-04-2009
Procedure for making a block assessment – held that where the AO is not inclined to accept the return of undisclosed assessment filed by the assessee issuance of a notice u/s 143(2) is a prerequisite for framing the block assessment order under chapter XIV B of the Income Tax Act, 1961 - completion of the block assessment u/s 158 BC without allowing any opportunity u/s 143 (2) is in violation of the principles of natural justice and is therefore null and void ab initio - section 143 (2) has been specifically incorporated in the scheme of block assessment proceedings and that cannot be ignored – revenue's appeal dismissed


20 2009 TMI - 33242 - ALLAHABAD HIGH COURT
Smita Agrawal (Ind) .Versus Commissioner of Income Tax, Kanpur & others
Dated: 08-04-2009
Failure of appellant authority in disposing the stay applications expeditiously in reasonable time - callousness on the part of the revenue authorities in sitting tight over the stay application compelling the assessee to run to the High Court by filing writ petition simply to get an order for expeditious disposal of the application for interim order - assessing authority, if it has received the information that the assessee has approached the appellate authority by filing appeal along with the stay application which is pending, must await the recovery till the decision is taken by the appellate authority on such stay application - Let a copy of this order be supplied to the Chairman, Central Board of Direct Taxes, New Delhi for information and necessary action.


21 2009 TMI - 33235 - MADRAS HIGH COURT
Commissioner of Income Tax Versus M/s Panasonic Home Appliances
Dated: 23-03-2009
Provision for doubtful debts and the provision for leave encashment – revenue contend that the liability was only a contingent liability and not an ascertained/determined liability, so it is not allowable - issue involved in this appeal is squarely covered by the judgment of the Supreme Court in the case of BHARAT EARTH MOVERS VS. CIT, which is decided in favour of the assessee. Therefore, we are of the view that the Tribunal is correct in following the judgment of the Supreme Court and allowing the assessee's appeal


22 2009 TMI - 33233 - MADRAS HIGH COURT
The Commissioner of Income Tax VIII Chennai Versus International Clearing and Shipping Agency
Dated: 16-04-2009
Assessing Officer held that clearing and forwarding activities is not a profession, but a business, and brought the assessee's income to tax accordingly - Division Bench in identical case, held that "The assistance rendered by the clearing and shipping agent to those who import or export by attending to the documentation and ensuring the clearance of goods, cannot be regarded as profession" – action of AO is justified - In view of the Judgment of the SC in the case of Cochin Shipping Co. vs. ESI Corporation and the Division Bench Judgement of this Court in the case of "International Clearing and Shipping Agency" question of law framed has to be answered in favour of the revenue


23 2009 TMI - 33222 - MADRAS HIGH COURT
Commissioner of Income Tax Chennai Versus East Coast Constructions Limited
Dated: 16-04-2009
MAT credit - Whether the interest under Section 234 B and 234 C had to be calculated after giving the MAT credit against the tax payable on the basis of normal computation – held that assessee is entitled to adjust the MAT credit before charging interest u/s 234B and 234C – Whether the MAT credit can be given priority of set off against tax payable, contrary to the scheme of Schedule G of Form 1 AND Whether Tribunal was right in holding that MAT credit is to be set off from the tax payable before setting off the Tax deducted at Source and Advance tax paid – held that Rule 12(1)(a) and Form-I cannot go beyond the provisions of the Act. Form-I cannot lay down the order of priority of adjustment of TDS, advance Tax, MAT credit under Section 115JAA which is contrary to the provisions of the Act – appeal of revenue is dismissed


24 2009 TMI - 33221 - MADRAS HIGH COURT
The Commissioner of Income Tax Versus M/s Magna Electro Castings Ltd.
Dated: 15-04-2009
Assessing Officer is not entitled to touch the profit and loss account prepared by the assessee as per the provisions contained in the Companies Act, while arriving at the book profit u/s 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation u/s 80HHC should be limited to the case of profits of eligible category only – therefore, Tribunal was right in law in holding that deduction u/s 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted books profits u/s 115JA – revenue appeal dismissed


25 2009 TMI - 33220 - MADRAS HIGH COURT
Commissioner of Income Tax Chennai Versus M/s Vanavil Dyes and Chemicals Ltd.
Dated: 16-04-2009
MAT credit - Whether the interest under Section 234 B and 234 C had to be calculated after giving the MAT credit against the tax payable on the basis of normal computation – by applying ratio of decision of Division Bench in the case of M/S. CHEMPLAST SANMAR LIMITED, held that assessee is entitled to adjust the MAT credit before charging interest u/s 234B and 234C – Whether the MAT credit can be given priority of set off against tax payable, contrary to the scheme of Schedule G of Form 1 AND Whether Tribunal was right in holding that MAT credit is to be set off from the tax payable before setting off the Tax deducted at Source and Advance tax paid – held that Rule 12(1)(a) and Form-I cannot go beyond the provisions of the Act. Form-I cannot lay down the order of priority of adjustment of TDS, advance Tax, MAT credit under Section 115JAA which is contrary to the provisions of the Act – appeal of revenue is dismissed


26 2009 TMI - 33219 - MADRAS HIGH COURT
Commissioner of Income Tax Chennai Versus M/s Rane TRW Steering Systems Ltd.
Dated: 16-04-2009
Whether the Tribunal was right in holding that MAT credit is to be set off from the tax payable before setting off the Tax deducted at Source and Advance tax paid - Whether the MAT credit can be given priority of set off against tax payable, contrary to the scheme of Schedule G of Form 1 - Whether the interest under Section 234 B and 234 C had to be calculated after giving the MAT credit against the tax payable on the basis of normal computation – held that all the questions are answered against the revenue and in favour of assessee


27 2009 TMI - 33218 - MADRAS HIGH COURT
CIT Versus M/s Futura Polyester Limited (Formerly known as M/s Futura Polymers)
Dated: 16-04-2009
Assessing Officer held that the assessee is not entitled to any deduction under section 80HHC while determining the taxable income on the basis of the book profit under Section 115JA since the computation of business income under the regular provisions resulted in nil figure for each of the assessment years – held that, AO is not entitled to touch the profit and loss account prepared by the assessee as per the provisions contained in the Companies Act, while arriving at the book profit under Section 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation under Section 80HHC should be limited to the case of profits of eligible category only


28 2009 TMI - 33217 - MADRAS HIGH COURT
M/s Indbank Merchant Banking Services Ltd. Versus The Assistant Commissioner of Income Tax
Dated: 16-04-2009
While completing the re-assessment, the Assessing Officer disallowed the provisions made for bad debts and Non-Performing Assets and preliminary expenses of under Section 35(D) - Following the Judgments by High Court in the case of T.N.Power Finance, held that Tribunal is right in law in holding that the appellant is not entitled to deduction of the provision made in respect of bad debts and Non Performing Assets which are considered irrecoverable – Following the Judgments by a Division Bench of this Court in the case of Commissioner of Income Tax vs. Sakthi Finance Ltd,, held that, Tribunal was right in holding that the appellant is not entitled to amortisation of preliminary expenses u/s 35D towards share issue expenses


29 2009 TMI - 33216 - MADRAS HIGH COURT
Commissioner of Income-tax-I Chennai Versus M/s. Chakiat Agencies Pvt. Ltd.
Dated: 24-03-2009
Rendering of the commercial service and receiving commission in foreign exchange – during reassessment, claim for benefit u/s 80O was denied by AO - Tribunal allowed the appeal of the assessee for A.Y. 1994-95 and 1995-96 on the ground that the re-assessment was not in accordance with Section 147 and was made on change of opinion - In respect of the other two assessment years also, the Tribunal allowed the assessee's appeal on the ground that the activity of the assessee comes within the purview of Section 80-O as decided by the Delhi Bench in CAPTAIN K.C.SAIGAL and the receipt of commission in foreign exchange in India itself cannot deny the benefit to the assessee in view of the judgment of SC in the case of J.B.BODA AND CO. PVT. LTD. – held that there is no infirmity in order of tribunal


30 2009 TMI - 33214 - MADRAS HIGH COURT
Commissioner of Income Tax, Coimbatore Versus M/s. P.Sekar Trust and M/s. Peegee Trust
Dated: 15-04-2009
Whether Tribunal was right in holding that in the case of the assessee-Trust, the beneficiaries and their shares are determinate and, therefore, the trustees could not be assessed for tax and the provisions of section 164 of the Income Tax Act are not attracted – Having regard to the terms contained in the trust deed that shares of the beneficiaries in a given particular accounting year are specific and determinable in the ratio, as provided, it could not be said that the beneficiaries are not identifiable on the date of the Trust deed and the share of the beneficiaries were unknown, there is no infirmity in decision of Tribunal – above question of law has necessarily to be answered in favour of the assessee and against the revenue


31 2009 TMI - 33213 - PUNJAB AND HARYANA HIGH COURT
Ludhiana Improvement Trust Versus Commissioner of Income tax-III, Ludhiana
Dated: 26-03-2009
SCN issued proposing to hold special audit u/s 142(2A) – petitioner- trust has approached this Court under Article 226 of the Constitution with a prayer for quashing SCN - petitioner-Trust has also challenged the order referring the matter to Special Auditor, being totally arbitrary and contrary to Article 14 of the Constitution – records reveals that there are discrepancies in book of account of petitioner – neither petitioner appeared before AO nor any information was sent despite the fact that it was duly informed that time barring assessment is involved - argument of petitioner that special audit has been ordered to gain more time, is not impressive - writ petition is wholly misconceived and the same is dismissed


32 2009 TMI - 33212 - MADRAS HIGH COURT
M/s Universal Cold Storage Limited Versus The Deputy Commissioner of Income Tax
Dated: 06-04-2009
Eligibility for deduction u/s 80HHC in case of export of both self manufactured goods and trading goods - A plain reading of section 80HHC makes it clear that, in such casesthe profits and losses in both trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under Section 80HHC(1). If there is a loss the assessee would not be entitled to deduction


33 2009 TMI - 33211 - MADRAS HIGH COURT
The Chairman Central Board of Direct Taxes Versus Umayal Ramanathan
Dated: 06-04-2009
Compounding of offence – plea of the respondent for compounding u/s 279 (2) rejected by CBDT without any valid reasons – in similar case CBDT accepted the plea of the said assessee and ultimately compounded the offence - while so, adopting a different yardstick in the case of the respondent and refusing to compound the offence on the sole ground that she was convicted by the trial court, is discriminatory - single Judge considered the above said facts and rightly set aside the order passed by the third appellant(CBDT) - Court is of the considered view that pending appeal, the appellants can very well compound the offence sought for by the respondent


34 2009 TMI - 33210 - MADRAS HIGH COURT
The Commissioner of Income Tax III Coimbatore Versus M/s K.G. Denim Ltd.
Dated: 16-04-2009
Assessing Officer is not entitled to touch the profit and loss account prepared by the assessee as per the provisions contained in the Companies Act, while arriving at the book profit u/s 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation u/s 80HHC should be limited to the case of profits of eligible category only – therefore, Tribunal was right in law in holding that deduction u/s 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted books profits u/s 115JA – revenue appeal dismissed


35 2009 TMI - 33209 - MADRAS HIGH COURT
The Commissioner of Income Tax Madurai Versus M/s Ramco Industries Ltd.
Dated: 16-04-2009
Whether Tribunal was right in holding that expenditure on renting and maintaining a guest house is allowable as business expenditure – in view of decision of Supreme Court in the case of Britannai Industries Ltd., this question is answered in favour of the revenue - Whether Tribunal was right in excluding sales tax and excise duty from the "total turnover" for the purpose of calculation of benefit u/s 80HHC – Held, yes - Whether Tribunal was right in allowing a deduction of the amounts spent on replacement of machinery and purchase of templates as revenue expenditure – replacement of assets without increasing the production capacity would amount to revenue expenditure – but as there is no material regarding the production capacity remaining constant even after replacement, matter require to be remitted back to the Commissioner of Appeals


36 2009 TMI - 33208 - MADRAS HIGH COURT
The Commissioner of Income Tax-I Chennai Versus M/s Tagros Chemicals of India Ltd.
Dated: 13-04-2009
Whether Tribunal was right in holding that, Sales tax and Excise Duty do not form part of "turnover" for the purpose of calculation of deduction u/s 80HHC - Whether Tribunal was right in holding that MAT credit is to be set off from the tax payable before levying interest under section 234B and 234C - first question of law is covered against the revenue by the decision of the SC in the case of CIT vs. Lakshmi Machine, wherein it has been held that excise duty and sales tax cannot form part of the 'total turnover' under section 80HHC(3) - With regard to the second question of law, held that intention of the legislature is to give tax credit to tax and not to the tax and interest, Once the intention is clear, the revenue cannot rely on the Form-I to say that the MAT credit under Section 115JAA should be given only after tax and interest – both the questions of law has to be necessarily answered in affirmative in favour of the assessee


37 2009 TMI - 33206 - MADRAS HIGH COURT
Commissioner of Income Tax Madurai Versus M/s Raju Spinning Mills P. Ltd.
Dated: 15-04-2009
MAT credit - Assessing Officer has calculated the interest payable u/s 234B and 234C without considering the MAT credit u/s 115JAA paid in the earlier years - held that assessee is entitled to adjust the MAT credit before charging interest u/s 234B and 234C - Whether the MAT credit can be given priority of set off against tax payable, contrary to the scheme of Schedule G of Form 1 – held that Rule 12(1)(a) and Form-I cannot go beyond the provisions of the Act. Form-I cannot lay down the order of priority of adjustment of TDS, advance Tax, MAT credit under Section 115JAA which is contrary to the provisions of the Act – appeal of revenue is dismissed


38 2009 TMI - 33201 - MADRAS HIGH COURT
CIT Versus SPEL Semiconductor Limited, Irbaz Leather P.Ltd. & M/s. Rane Brake Linings Limited
Dated: 13-04-2009
Whether Tribunal was right in law in holding that the deduction u/s 80HHC in a case of MAT assessment is to be worked out on the basis of the profit computed under the regular provision of law applicable to the computation of profits and gains of the business or profession - held that the assessing officer was not entitled to alter the profit and loss account prepared by the assessee under the provisions contained in the Companies Act while arriving at the book profit under Section 115JA and the book profit so arrived at should be the basis for taxation and, therefore, the computation under section 80HHC should be limited to the case of profits of eligible category only


39 2009 TMI - 33200 - MADRAS HIGH COURT
Commissioner of Income Tax Madurai Versus Mrs. Kulandai Theresa
Dated: 15-04-2009
Tribunal upheld the order of the CIT (Appeals) on the ground that the assessee had suppressed not only his non-agricultural income, but also his agricultural income. Therefore, when the undisclosed part of the non-agricultural income is worked out, it is incumbent upon the Commissioner of Income Tax (Appeals) to give credit for the undisclosed part of the agricultural income and dismissed the appeal filed by the revenue - Whether Tribunal was right in confirming the CIT(A) order – Held, yes

40 2009 TMI - 33198 - BOMBAY HIGH COURT
Molly Trading Company Pvt. Ltd. Versus Union of India
Dated: 09-04-2009
Tax Recovery Officer in his order noted that Shri Subhash Arora as a Director of M/s.Subhash Arora Investment P. Ltd., has taken the loan of Rs.1.25 crores from Amit Jhaveri. Shri Subhash Arora is also a Director of the petitioner company – Petitioner company stood as a guarantor of Amit Jhaveri and M/s Subhash Arora Investment Pvt. Ltd. – Recovery of tax from petitioner company upheld


Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. regards. R R Makwana

For transfer pricing adjustment, assessee should take same class of transa

For transfer pricing adjustment, assessee should take same class of transactions for comparing profit with comparables

Income-tax : When the comparables are not licensee manufacturers of the similar commodity then it would not satisfy the requirement of the law as well as the rules prescribed under the Statute for comparing profit with comparables [Section 92C of the Income-tax Act, 1961 - Transfer Pricing] - [2011] 10 taxmann.com 125 (Mum. - ITAT)

Section 194H is not applicable where agreements between assessee-manufactur

Section 194H is not applicable where agreements between assessee-manufacturer and distributors was on principal to principal basis - [2011] 10 taxmann.com 115 (Delhi).

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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on various dates and time fixed. Instead of sending it on one day it is spread on various dates. 

regards. R R Makwana

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263, Revision by Commissioner of Income Tax

Whether when assessee lends colour of business income to dividend declared as 'income from other sources' in previous year, and AO allows set-off of brought forward losses, it is a fit case for CIT to invoke revisionary powers - YES: Delhi HC

NEW DELHI, MAY 20, 2011: THE issue before the High Court is - Whether when assessee lends colour of business income to dividend income declared as 'income from other sources' in the previous year and AO allows set off of brought forward losses against such income, it is a fit ground for CIT to invoke revisionary powers u/s 263. YES is the HC's answer.

Facts of the case

CIT rightly initiated proceedings u/s 263 for setting off of brought forward business loss against the income from other sources by the AO, without giving the reason by the AO in the assessment order as to how the dividend income was given the character of business income for the purpose of set off under Section 72 of the Act though the dividend income was assessed as income from other sources, as it was prejudicial to the interest of revenue and erroneous.

Assessee is a non-banking company registered with the Reserve Bank of India, and is engaged in the business of investment in shares, securities, other debt instruments and financing loans and providing guarantees. Assessee claimed dividend income received as business income and set off the brought forward business losses. AO treated the dividend income as income from other sources as was itself shown by the assessee in the preceding years and allowed set off of losses. CIT observed that the AO had wrongly allowed the set off of business losses of preceding years against the income from other sources which was not permissible under section 72(1). Accordingly CIT initiated proceedings u/s 263 stating that the AO did not bestow any consideration or applied his mind leading to escapement of income as setting off of brought forward business losses had resulted in the assessment which was erroneous and prejudicial to the interest of revenue. In reply to the show cause notice issued by CIT, the assessee contended that assessee was engaged in the business of investment and was holding the shares of other companies of the same group. Investment was meant for control and management of investee companies. The shares constituted the business asset of the company and dividend earned from such investment was in nature of `business income' and this income was eligible for set off against the brought forward business losses. CIT set aside the order of the AO for fresh consideration stating that the investments were held as long-term investment and no part of the investment was considered stock-in-trade by the assessee. Therefore, the AO failed to conduct the required enquiry and also failed in application of the provisions of S. 72(1). ITAT allowed the appeal of the assessee and set aside the order of CIT observing that the said income could be treated as business income as dividend was earned from the shares and securities held in the other companies in the same group – the view of the AO was a plausible view and it could not be said that the AO had not applied his mind.

After hearing both the parties, the High Court held:

++ that it would be immaterial as to under what head specified under Section 14 of the Act that the income is computed. Even when it is not computed under the head 'income from profession and business', the commercial character of that income could still be taken into account. If it is found that the particular income was derived from the business of the assessee, for the purposes of set off, it can be taken as business income;

++ that in the assessment order, the AO recorded that even a dividend income in question was shown as business income by the assessee. The AO did not agree with the same, as in the previous years this income was shown as dividend income. After saying so, the AO straightaway allowed the set off of this income against the carry forward losses. The assessment order is totally silent and there is no discussion as to how this dividend income was to be given the character of business income for the purpose of set off under Section 72 of the Act. It was for this reason that the CIT held that the AO had not conducted any inquiry. ITAT did not appreciate that the AO had not even taken any view on this issue, it could not be said that the AO had not applied his mind;

++ that the Tribunal failed to appreciate the limited scope of appeal before it, viz., the validity of the order passed by the CIT exercising his revisionary power under Section 263 of the Act. The CIT recorded that the Assessing Officer had failed to conduct the required enquiry and also had failed in application of the provisions of Section 72 (1) of the I.T. Act. This rendered order passed by the AO erroneous and prejudicial to the interest of Revenue to that extent. The Tribunal was, thus, supposed to adjudge the validity of such an order and not to go beyond when the challenge before it was limited to the said order passed by CIT in exercising the powers under Section 263 of the Act.

Revenue's appeal allowed.

ASPECT THEORY & INTERPRETATION OF TAX

ASPECT THEORY ; INTERPRETATION OF TAX
By: Dr. Sanjiv Agarwal :

Any subject which is one aspect and one purpose fall within particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping, but that should be in law. Same transaction may involve two or more taxable events in its different aspects, but the fact that there is overlapping does not detract from the distinctiveness of aspects [Shilpa Color Lab v. CCE, Calicut 2006 -TMI - 1022 – (CESTAT,BANGALORE)].

Entry 60 of list II states that "taxes as professions, trade, callings and employment." Entry 60 is a taxing entry. It is not a general entry. Tax on professions etc. has to be read as a levy on professions, trade, callings, etc, as such. Therefore, entry 60 which refers to professions cannot be extended to include services. This is what is called as an "aspect theory" [All India Federation of Tax Practitioners v. Union of India 2007 -TMI - 1556 – (Supreme Court)]

In Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes 2008 -TMI - 2576 – (Supreme Court of India) it was held that while interpretating tax statutes involving applicability of Article 246 of Constitution of India read with Seventh Schedule thereof, court should take various theories including `aspect theory' while interpreting such statutes.

Extracts from judgment in Subh Timb Steels Ltd v Union of India (2010) 20 STR 737; (2010) 29 STT 479 ( P & H)

15. Aspect theory has been subject-matter of several decisions. In Federation of Hotel & Restaurant Assn. of India v. Union of India 1989 -TMI - 40104 – (SUPREME Court), the levy considered was expenditure tax under Central law with reference to the conten­tion that the same was in substance tax on luxury under Entry 62 of List II. Stand of the Central Government was that expenditure aspect was different from luxury aspect and expenditure aspect could be held to be excluded from the luxury aspect. The plea was upheld. It was observed :­-

"26.... Wherever legislative powers are distributed between theUnionand the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and, where necessary modified by that of the other.

27. The Judicial Committee in Prafulla Kumar Mukherjee v. Bank of Commerce AIR 1947 PC 60, referred to with approval the following observations of Sir Maurice Gwyer 'C.J.' in Subrahmanyan Chettiar case:

"It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its 'pith and substance', or its 'true nature and character', for the purpose of determining whether it is legislation with respect to matters in this list or in that."

28. This necessitates as an "essential of federal Government the role of an impartial body, independent of general and regional Governments", to decide upon the meaning of division of powers. The court is this body.

29. The position in the present case assumes a slightly different complexion. It is not any part of the petitioners' case that expenditure tax is one of the taxes within the States' power or that it is a forbidden field for the Union Parliament. On the contrary, it is not disputed that a law imposing "expenditure tax" is well within the legislative competence of Union Parliament under Article 248 read with Entry 97 of List I. But the specific contention is that the particular impost under the impugned law, having regard to its nature and incidents, is really not an "expenditure tax". at all as it does not accord with the economists' notion of such a tax. That is one limb of the argument. The other is that the law is, in pith and substance, really one imposing a tax on luxuries or on the price paid for the sale of goods. The crucial questions, therefore, are whether the economists' concept of such a tax qualifies and conditions the legislative power and, more importantly, whether "expenditure" laid out on what may be assumed to be "luxuries. or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation.

30. In Lefroy's Canada's Federal System the learned Author referring to the "aspects of legislation" under sections 91 and 92 of the Canadian Constitution ie. British North America Act, 1867 observes that "one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose fall within another legislative power". Learned Author says:

"... that by 'aspect' must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon."

In Union Colliery Co. ot British Columbia v. Bryden 1899 AC 580, Lord Haldane said:

"It is remarkable the way this Board has reconciled the provisions of section 91 and section 92, by recognizing that the subjects which fall within section 91 in one aspect, may, under another aspect, fall under section 92."

31. Indeed, the law "with respect to" a subject might incidentally "affect" another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Govemor-General-in-Council v. Province otl Madras AIR 1945 PC 98 in the context of concepts of Duties of Excise and Tax on Sale of Goods said:

"... The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of, his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale…"

32. Referring to the "aspect" doctrine Laskin's Canadian Constitutional Law states:

"The 'aspect' doctrine bears some resemblance to those just noted but, unlike I them, deals not with what the 'matter' is but with what it 'comes within',... (p. 115)

"….it applies where some of the constitutive elements about whose combination \ the statute is concerned (that is, they are its 'matter'), are a kind most often met with in connection with one class of subjects and others are of a kind mostly dealt with in connection with another. As in the case of a pocket gadget compactly assembling knife blade, screwdriver, fishscaler, nailfile, etc., a description of it must mention everything but in characterizing it the particular use proposed to be made of it detenpines what it is. (p. 116)

I pause to comment on certain correlations of operative incompatibility and the 'aspect' doctrine. Both grapple with the issues arising from the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a 'matter' bring it within a class of subjects………" (p. 117).

16. By way of instance of different aspects of the same matter, illustration was also given of tax on property under the State law and tax on income under the Central law.

.38. Indeed, as an instance of different aspects of the same matter, being the topic of legislation under different legislative powers, reference may be made to the annual letting value of a property in the occupation of a person for his own residence being, in one aspect, the measure for levy of property tax under State law and in another aspect constitute the notional or presumed income for the purpose of income tax".

[(Also see Tata Sky Ltd v State of Punjab (CWP No 10992 of 2010 dated 25.10.2010)].

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Closing stock of an erstwhile firm converted into stock-in-trade by a propr

IT : Closing stock of an erstwhile firm converted into stock-in-trade by a proprietorship concern will have to be valued at the market value

Income-tax : On dissolution of a firm closing stock has to be valued on the basis of real value i.e., market value, which is independent of the fact whether or not the erstwhile partners of a dissolved firm continue to do business with assets received on dissolution [Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock] - [2011] 10 taxmann.com 126 (Delhi)

Inclusion of non-operating income and non-exclusion of the non-operating ex

IT : Inclusion of non-operating income and non-exclusion of the non-operating expenses would definitely affect net margin of operating profits of comparable company

Income-tax : The comparison has to be between likes and on the equitable grounds of indicators of comparison and therefore, only income derived from operation of relevant business activity are to be considered for making adjustments in transfer pricing [Section 92C of the Income-tax Act, 1961 - Transfer Pricing] - [2011] 10 taxmann.com 161 (Bang. - ITAT)

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Loan given by an educational society to another educational society

Loan given by an educational society to another educational society does not violate section 13(1)(d) read with section 11(5)

Income-tax : Benefit of section 11 cannot be denied to an educational society on ground that it has given loan to another society in violation of section 13(1)(d) read with section 11(5) as the same is neither an investment nor a deposit for purpose of invoking said provisions [Section 13 of the income-tax Act, 1961 - Charitable or religious trust - Denial of exemption] - [2011] 10 taxmann.com 100 (Luck. - ITAT)

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Payment made to a New Zealand company for rendering liaison & coordinating

Payment made to a New Zealand company for rendering liaison ; coordinating services qua DNA testing at USA does not fall within ambit of royalty ; FTS

Income-tax : Nature of payment made by assessee to New Zealand company is of liaisoning and coordinating to ensure that blood samples collected by assessee is properly received at US and reports are received in time and as per terms fixed by US Embassy; neither of these services can be termed as services in nature of managerial, technical or consultancy nature; it is also not providing services of technical or other personnel; therefore, it also cannot be said that such services fall within term `fee for technical services.' as contemplated by Article 12 [Section 195 of the Income-tax Act, 1961 - Deduction of tax at source - Payment to non-resident - Indo - New Zealand DTAA - Article 12 (Royalties ; Fees for Technical Services)] - [2011] 10 taxmann.com 123 (Delhi - ITAT)

Transfer Pricing principles on use of multi-year data, adjustment to operating

Transfer Pricing principles on use of multi-year data, adjustment to operating p

Haworth (India) Pvt Ltd vs. DCIT (ITAT Delhi)

Transfer Pricing principles on use of multi-year data, adjustment to operating profits +/- 5% adjustment

The assessee adopted the TNMM and claimed that (i) as its operations were for a part of the year, an adjustment to the margins on account of `capacity utilisation' should be made, (ii) the pre-operative expenditure should be excluded, (iii) multi-year data should be used to determine comparables, (iv) if only one comparable is left, the entire exercise should be carried out afresh and (v) even if there was only one comparable, the +/- 5% adjustment should be made. The AO & DRP rejected the claim. On appeal to the Tribunal, HELD:

(i) The rejection of comparables on the ground of non-availability of current year's financial data is proper because under Rule 10B(4), only the current year's financial data is relevant for determination of ALP except where it is shown that the data of the earlier two years reveals facts which could have an influence on the determination of the transfer price;

(ii) A selected comparable should be functionally comparable. A company which is majorly dealing in other segments cannot be accepted as functionally comparable;

(iii) The argument of the assessee that if there is only one comparable, the ALP cannot be determined and a fresh search of comparables should be conducted is not acceptable. There is no principle of law that if only one comparable remains, the entire exercise would fail;

(iv) The argument that expenses incurred prior to the commencement of manufacturing activity hence should be excluded from operating expenses under Rule 10B(1)(e)(i) is not acceptable because operational expenses is that which is incurred to earn that income. Expenses with nexus with revenue have to be considered as operational expenses and cannot be excluded only on the ground that the date of occurrence of the revenue is later and expenses have been incurred prior to that;

(v) The assessee's argument that the margins have to be recomputed after claiming adjustment of capacity utilization is not acceptable. Under the TNMM, the net profit margin actually realized has to be considered and there is no room for any assumption for taking the profit margin. It is not permissible to deviate from the book results on the ground of capacity utilization. Under Rule 10B(3)(ii), there cannot be any deviation in the net profit shown in the books of account and the adjustment, if any, can be made to the same to eliminate the material affects to such differences to the extent of these adjustments are reasonably accurate. As no credible and accurate information with regard to capacity utilization was furnished, adjustment was not allowable;

(vi) The Proviso to s. 92C which gives the assessee the option to adjust the ALP by +/- 5% is applicable only where more than one price is determined by the most appropriate method. In a case where only one price is determined by the most appropriate method, the benefit of +/- 5% is not available to the assessee.

Related Judgements
1.TNT India Private Limited vs. ACIT (ITAT Bangalore) In respect of FY 2001-02, the assessee used data pertaining to AYs 1999-2000 & 2000-01. While the argument that at the time of TP study, the data relating to relevant comparable for FY 2001-02 is acceptable, the assessee has to adopt the data available for the TP study at…

2.Marubeni India Private Ltd vs. ACIT (ITAT Delhi) Even if interest on surplus funds is assessed as "business income", it has to be excluded in computing the `operating profits' because if it is included, one is computing the "return on investment" which is an inappropriate profit level indicator for a service provider. As the PLI is the…

3.ACIT vs. UE Trade Corporation (India) (ITAT Delhi) Under the Proviso to s. 92C(2) (pre-amendment w.e.f. 1.10.09) the option to the assessee to choose a price which may vary from the arithmetical mean by an amount not exceeding five per cent is available only where more than one price is determined and not where there is only…

Sec 260A - Can assessee raise a new question of law, not framed ear

Income tax - Sec 260A - Can assessee raise a new question of law, not framed earlier, at time of final hearing - YES, says HC

SHIMLA, AUG 11, 2010: THE issue before the High Court is - Whether as per the provisions of section 260A which are pari materia to section 100 of the Civil Procedure Code it is permissible to raise a new question of law, not framed earlier, at the time of final hearing. And the answer is YES.

Facts of the case

Assessee filed appeal against the decision of ITAT. At the time of admission, a question of law in relation to conversion of stock in trade into capital asset and nature of income thereof was framed. However at the time of final hearing the counsel for the assessee raised a new question of law in which he challenged the action of the AO apropos section 148. The Counsel for the revenue objected to this.

However the High Court after referring to the decision of Apex Court in the case of Kondiba Dagadu Kadam vs. Savitribai Sopan Gujar and others, held that,

++ the law is very well settled that the onus is on the assessee to show that his investment is a long term investment. Whether a particular holding of shares is by way of long term investment or is a stock in trade is a matter solely within the knowledge of the assessee who holds the shares. Normally, it is the assessee alone who would be in a position to produce evidence whether he has maintained any distinction between those shares, which are stock in trade, and those shares, which are long-term investment. Another important principle of law is that the initial intention of the assessee as to whether he holds the shares as stock in trade or his investment is relevant and has to be taken into consideration while deciding the nature of holding of the assessee.

++ it is apparent that due to issuance of bonus shares and splitting of shares the value of the shares of Information Technology rose sharply and realizing that the company would be liable to pay 30% tax, the assessee started claiming the profits realized from sale of these shares as long term capital gains. After going through the entire record the revenue authorities have come to the conclusion that the shares of Information Technology was purchased by the assessee not by way of assessment but by way of trading. This is a pure finding of fact and not of law. It is true that the principles of law have to be applied and the question as to whether certain shares had been purchased by way of trade or by way of investment may be a mixed question of fact and law but if the authorities have properly considered the legal position then the resultant finding is basically a finding of fact. In the present cases, we find no error in the orders of the revenue. Therefore, we answer the second question against the assessee and in favour of the revenue.

Assessee's appeal dismissed.

An order rejecting application under section 254(2) is not appealable under

IT : An order rejecting application under section 254(2) is not appealable under section 260A - [2011] 10 taxmann. com 193 (All.)

Bank cannot be compelled to give loan: consumer court

..Bank cannot be compelled to give loan: consumer court
A bank cannot be compelled to provide loan "under any law or procedure" to a consumer and the latter cannot demand compensation for expenses incurred in applying for the process, the Delhi State Consumer Forum has ruled.

"Under no law and procedure, a bank can be compelled to give loan, and that is what the complainant wants. If in the process of furnishing documents, some expenses have been incurred by him, as argued, he can not be entitled to the compensation," Justice Barkat Ali Zaidi said.

The State Consumer Commission gave the order while dismissing an appeal by three Delhi residents against ING Vysya Bank at the admission stage in an ex-parte order.

Applicants Muni Lala Goel, Veenu Mangla and Suresh Mangla had approached the state consumer commission to appeal against a Delhi district consumer forum ruling, which had dismissed their pleas for compensation from the bank for rejecting their loan applications.

Alternatively, they had sought consumer forum''s direction to the bank to advance loan to them.

However, the Delhi State Consumer Commission dismissed their appeal saying that neither a bank can be compelled to give loan nor the consumer can demand compensation incurred in the process.

Earlier, the matter was also adjudicated by the Banking Ombudsman under the Banking Ombudsman Scheme and then by its appellate authority.

The state consumer forum also observed that it cannot reopen the same proceedings now.

"The State Consumer Forum cannot reopen the proceedings and pass another judgment on the dispute. There is no question of deficiency in service involved," it said.
...

Closing stock of an erstwhile firm converted into stock-in-trade

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Closing stock of an erstwhile firm converted into stock-in-trade by a proprietorship concern will have to be valued at the market value.


Income-tax : On dissolution of a firm closing stock has to be valued on the basis of real value i.e., market value, which is independent of the fact whether or not the erstwhile partners of a dissolved firm continue to do business with assets received on dissolution [Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock] - [2011] 10 taxmann.com 126 (Delhi)

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ITAT (PUNE) : -AO directed to pay costs for “Recovery Harassment"

Shramjivi Nagari Sahakari Pat Sanstha vs. ACIT (ITAT Pune)

*AO directed to pay costs for “recovery harassment”

The assessee, a credit co-operative society, contravened s. 269SS & 269T because of which penalty u/s 271E was levied. The CIT(A) confirmed the levy of penalty. *Before service of the CIT(A)’s order, the assessee’s bank account was attached u/s 226(3)*. The assessee filed a stay application and claimed that as the assessee had to bear costs owing to the illegal action of the AO, costs had to be awarded to it. HELD upholding the assessee’s plea:

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 13-6-2011

Volume 334 Part 3

SUPREME COURT JUDGMENTS

-->  Business loss : Loss allowed for earlier and subsequent years : Matter remanded : Perfetti Van Melle India P. Ltd. v. CIT p. 259

-->  Assessment order passed without granting opportunity to cross-examine : High Court ought only to direct AO to grant cross-examine : ITO v. M. Pirai Choodi p. 262

-->  Huge stakes involved : Delay of department in appealing : High Court to decide case on merits and not to dismiss appeal on ground of delay : CIT v. West Bengal Infrastructure Development Finance Corporation Ltd. p. 269

HIGH COURT JUDGMENTS

-->  Tribunal finding no error in unabsorbed depreciation allowed to be set of in assessment year in question while passing original assessment order : S. 154 cannot be invoked : CIT v. Eli Lilly and Co. India P. Ltd. (Delhi) p. 186

-->  Income from sale of shares held as investment : Assessable as capital gains : CIT v. Amit Modi (P&H) p. 192

-->  Construction business : Assessee regularly following completed contract method and not giving scope for any complaint in any earlier year : Unnecessary for AO to invoke s. 145(3) : CIT v. SAS Hotels and Enterprises Ltd. (Mad) p. 194

-->  Unexplained investment : No evidence that admission by assessee was untrue : Assessment based on admission valid : Hukum Chand Jain v. ITO (Raj) p. 197

-->  Power of Commissioner (Appeals) to admit additional evidence : Commissioner (Appeals) justified in obtaining revised report of DVO and deleting additions : CIT v. Om Overseas (P&H) p. 202

-->  Settlement of cases : Notice u/s. 245D alleging fraud could not be quashed : Chandragiri Construction Co. v. ITSC (Mad) p. 211

-->  Tribunal disallowing expenses on foreign travel on ground no evidence that visit was for business purpose : No question of law : Vithal Overseas v. CIT (P&H) p. 229

-->  Transfer of cases : Reasons recorded in a separate sheet and not communicated to assessee : Requirement u/s 127 not satisfied : Deep Malhotra v. Chief CIT ( P&H) p. 232

-->  Interest earned from fixed deposits taxable : Madras Cricket Club v. ITO (Mad) p. 238

-->  Additional Director (Investigation) does not have power to issue warrant : CIT v. Pawan Kumar Garg (Delhi) p. 240

-->  Assessment : Co-owners : Assessment to be made on co-owners as individuals and not in the status of AOP : CIT v. Smt. Sunita Rani Aggarwal (All) p. 252

-->  Gas supplied to assessee by ONGC : Dispute regarding price settled subsequently : Liability to pay accrued during the years in which gas was received : CIT v. Mahendra Mills Ltd. (Guj) p. 254

-->  Effect of s. 36 wef 1-4-1989 : Writing of debt as irrecoverable sufficient : CIT v. Sirpur Paper Mills Ltd. (AP) p. 256

-->  Tribunal finding interest earned on unutilised portion of amount borrowed for business purposes : Interest constituted business income : CIT v. Varun Shipping Co. Ltd. (Bom) p. 263

-->  Conviction and sentence of detention : Subsequent application for compounding of offence not maintainable : Anil Tools and Forgings v. Chief CIT ( P&H) p. 265

-->  Provision for non-performing assets : Assessee not entitled to deduction : Indbank Merchant Banking Services Ltd. v. Asst. CIT (Mad) p. 271

-->  No new industrial unit established nor existing industrial undertaking expanded : Disallowance of preliminary expenses justified : Indbank Merchant Banking Services Ltd. v. Asst. CIT (Mad) p. 271

STATUTES AND NOTIFICATIONS

-->  Rules :

Income-tax (Third Amendment) Rules, 2011 (Contd.)

-->  Notifications :

Income-tax Act, 1961 : Notification under rule 6(b) of Part A of the Fourth Schedule : Recognised provided fund : Rate of interest notified p. 295

Income-tax Act, 1961 : Notification under section 90 : Agreement between the Government of the Republic of India and the Government of the Commonwealth of the Bahamas for the Exchange of Information with respect to taxes p. 296

NEWS-BRIEF

-->  India and Ethiopia sign Double Taxation Avoidance Agreement

India signed a Double Taxation Avoidance Agreement (DTAA) with the Federal Democratic Republic of Ethiopia for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income on May 25, 2011 at Addis Ababa.

The DTAA provides that business profits will be taxable in the source State if the activities of an enterprise constitute a permanent establishment in the source State. Examples of permanent establishment include a branch, factory, etc. Profits of a construction, assembly or installation projects will be taxed in the State of source if the project continues in that State for more than 183 days.

Profits derived by an enterprise from the operation of ships or aircrafts in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest, royalties and fees for technical services income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 7.5% in the case of dividends and 10% in the case of interest, royalties and fees for technical services. Capital gains from the sale of shares will be taxable in the country of source.

The Agreement further incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including exchange of banking information and incorporates anti-abuse provisions to ensure that the benefits of the Agreement are availed only by the genuine residents of the two countries.

The Agreement will provide tax stability to the residents of India and Ethiopia and facilitate mutual economic co-operation as well as stimulate the flow of investment, technology and services between India and Ethiopia. [Source : www.pib.nic.in dated May 27, 2011]

Failure To Ask For S. 147 Reasons Fatal: Delhi High Court

CIT vs. Safetag International India Pvt Ltd (Delhi High Court)

If assessee does not ask for s. 147 reasons & object to reopening, ITAT cannot remand to AO & give assessee another opportunity


The assessee’s assessment was reopened u/s 147. *The assessee did not ask for the recorded reasons*. Even before the CIT(A), though the assessee challenged the reopening as being without jurisdiction, *it did not ask for the reasons*. Before the Tribunal, the assessee claimed that *it was not aware that it could demand the reasons and object thereto*. Pursuant thereto the Tribunal *remitted the case to the AO with direction that the reasons & opportunity to object be provided* and denovo assessment be framed if objections were rejected. On appeal by the department, HELD allowing the appeal:

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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. regards. R R Makwana

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IT : Decision regarding territorial jurisdiction of High Court in New India Assu

IT : Decision regarding territorial jurisdiction of High Court in New India Assurance Co. Ltd. v. UOI [AIR 2010 Delhi 43 (FB)] referred to a Larger Bench



Income-tax : Statement of law with regard to `cause of action', `sole cause of action', `forum conveniens' and `the imposition of limitation for exercise of jurisdiction under Article 226 and discretionary exercise of power' have been too broadly stated in all encompassing manner by Full Bench of High Court of Delhi in said case (supra) and, therefore, said decision requires to be reconsidered by a Larger Bench [Article 26 of the Constitution of India - Writ - Maintainability of] - [2011] 10 taxmann.com 120 (Delhi)

Sale of contract NOT covered u/s 194C

Contract for sale of goods will not be covered within ambit of section 194C of IT Act

Simply because the assessee monitors the manufacturing process it does not change the character of the transaction.


ITAT, MUMBAI BENCHES `G' MUMBAI

Glenmark Pharmaceuticals Ltd. v. ITO (TDS)

ITA NO. 935/Mum./2007

March 5, 2009

RELEVANT EXTRACTS:

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23. After careful consideration of the above circular it is clear that the contract for the sale of goods will not be covered within the ambit of sec. 194 C. In the present case we find that the assessee placed orders with the manufacturers for manufacturing of the medicines strictly according to its specifications but the property in such goods passed to the assessee only after these were delivered to him. When the manufacturers were purchasing the raw material at their own cost under incurring other expenses subsequently the product is delivered to the assessee. If it is manufactured according lo the specifications made by the assessee and delivered to it that property in goods can be set to have passed to the assessee. In the present case the assessee has simply placed the orders for the manufacture of medicines according to its own specifications and nil other relevant decisions for the manufacturing have been left to the wisdom of the manufacturer. The assessee only interested in the output coming of to its standard. How that output is achieved is the job of the manufacturer. Simply because the assessee monitor the manufacturing process it does not change the character-of the transaction.; When the manufacturers have their own establishment and their labour force, the raw material purchased by themselves, even the excise duty is also paid by them directly. Further when such manufacturers make the sale of such goods to the assessee the sales tax is also paid by them. Ultimately the manufacturers manufacturing the product by their own subjected to assessee's specifications supervision , control and later on sold such goods to the assessee. The property in goods passes over to the assessee only when such goods are manufactured and delivered to it. Hence, these arc only contract for sale of goods and not works contracts.

24. The Hon'ble Bombay court in case of BDA Ltd. Vs ITO [2006 ]281 ITR 99 (BOM). In this case M/s BDA Ltd. had distillary at Aurangabad and it purchased materials required for bottling and marketing the foreign made Indian liquor including the printing and packing material. M/s.Mudranika, another establishment was supplying the printed labels to be rapped on the bottles to the assessee. The ITO has held that the payment made to M/s.Mudranika. the supplier of the printed material from whom the printed labels were purchased, executed the contract liable for of tax at source u/s 194 C of the Act. The Hon'ble High Court observes M/s.Mudranika was an independent establishment in the business of supplying packing material to various establishments and the assessee had issued a order in favour of M/s.Mudranika for supply of printed labels as per the specification; provided by it but the raw material was not supplied by the assessee. It was noted that when the printing work was being carried in the premises of M/s. Mudranika though as per the specifications of the assessee the supply was limited to the quantity specified in the purchase order. There was nothing on record to show that all other ancillary cost were not incurred by M/s. Mudranika. In this background of the facts of the case, the Hon'ble Bombay High Court has held that the supply of printed labels by M/s. Mudranika to the assessee was "contract for sale" it could not be deemed as "works contract". Similar view has been taken by Delhi Bench of the Tribunal in DCIT Vs. Reebok India Company [2006] 100 TTJ 976(Del) which now stands approved by Hon'ble Delhi High Court in CIT Vs. Reebok India Company [2009] 221 CTR 508(Del). In another case Whirl Pool India Ltd Vs JCIT 16 SOT 435 Delhi Tribunal has held that where vendor purchases raw material on his own manufactured goods as per specifications of the assessee and the property in the goods passes to the assessee at the point of time goods are sold, it is a case of sale of goods not a job work.

25. Coining to instant case we find that there is a complete identity of facts with those considered by Hon'ble Jurisdictional High Court in as much as that the goods were manufactured by the manufacturers in their own establishments in accordance with the specifications given by the assessee. The raw material cost and other expenses incurred by their own. Even the excise duty was paid by them when the goods arc sold the sales tax also paid by the manufacturers. When the goods are sold to the assessee the property in them passed over to the assessee. Under these circumstances, we arc of the considered opinion that the agreements of the assessee with the manufacturers can not be termed as 'works contract'. "Die impugned order is therefore set aside and the application of section 194 C is ruled out. That being the position there can not be any question of treating the assessee as in default u/s 201(1) or charging any interest u/s 201(1A).
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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. regards. R R Makwana

ITR(Trib) Issue Vol 9 part 7 dated 13-06-2011

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

ISSUE DATED 13-06-2011

Volume 9 Part 7

APPELLATE TRIBUNAL ORDERS

    --> Assessee engaged in business of development of software, premises and equipment including computers of temporarily let, lease income to be treated as business income : WNS Global Services P. Ltd. v. Addl. CIT (Mumbai) p. 662

    --> Where assessee not claiming exemption u/s. 10A provisions of s. 14A not applicable : WNS Global Services P. Ltd. v. Addl. CIT (Mumbai) p. 662

    --> Where object of assessee to promote and develop hockey in country and source of income is grant of income from Government, penalty u/s. 271B not applicable : ITO v. Indian Hockey Federation (Delhi) p. 692

    --> Where assessee not able to ascertain profits from new plant and machinery, assessee not entitled to special deduction u/ss. 80HH and 80-I : Joint CIT v. Thirani Chemicals Ltd. (Delhi) [SB] p. 696

    --> Routers and switches integrated with computers to be treated as computers entitled to higher rate of depreciation : Deputy CIT v. Datacraft India Ltd. (Mumbai) [SB] p. 712

    --> Expenditure incurred on commission paid to selling agents can be brought to tax in reassessment proceedings : Nuware India Ltd. v. Deputy CIT (Delhi) p. 728

    --> Expenditure incurred on telephone, maintenance and vehicles cannot amount to other income brought to notice of AO in reassessment proceedings : Nuware India Ltd. v. Deputy CIT (Delhi) p. 728

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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. regards. R R Makwana

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Corporat Loans/advances, can't be treated as deemed dividend

Loans/advances given by a company to another company, which is not a shareholder of lender company, can't be treated as deemed dividend

Income-tax : Deeming fiction of s. 2(22)(e) can be applied only in the hands of the shareholder and not the non-shareholder [Section 2(22) of the Income-tax Act, 1961 - Deemed dividend] - [2011] 10 taxmann.com 122 (Indore - ITAT)