ITR (TRIB) Volume 10 : Part 3 Issue dated : 18-07-2011

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

Volume 10 : Part 3 (Issue dated : 18-07-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Accounting --Rejection of accounts--Book profits--Accrual basis followed under Companies Act and cash basis under Income-tax Act--Rejection of accounts and additions to income--Not justified--Income-tax Act, 1961, s. 115JB-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

Bad debt --Non-banking financial company--Bona fide writing off of debt in conformity with Reserve Bank directions--To be allowed--Income-tax Act, 1961, s. 36(1)(vii) -- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

Business expenditure --Provision for warranty made on scientific basis--Allowable --Income-tax Act, 1961, s. 37-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

Business income --Assessee carrying on business of distribution of computer products--Taking business decision to transfer distribution to another company and earn commission--Memorandum of association of assessee permitting assessee to make arrangement with any company to achieve its objects--Income from commission is business income, not income from other sources--Income-tax Act, 1961, ss. 28, 56-- Deputy CIT v. FX Info Technologies P. Ltd. (Delhi) . . . 250

Capital gains --Capital loss--Loss on divestment of shares in sister concern--Commercial transaction between two separate legal entities though belonging to same group--Disallowance not based on valid grounds--To be allowed--Income-tax Act, 1961-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

Capital or revenue expenditure --Assessee running tannery business--Assessee to make necessary provisions for disposal of effluents to prevent pollution under Government regulations--Compliance with Pollution Control Board to run unit--Amount paid to agent and other boards for treating effluents--Expenditure on account of business exigency--Revenue expenditure--Income-tax Act, 1961, s. 37-- Asst. CIT v. T. M. Abdul Rahman and Sons (Chennai) . . . 272

----Expenditure on designing charges of telecom equipment--Technical improvement a recurring necessity in the line of manufacturing of telecom equipment--Is revenue expenditure--Income-tax Act, 1961-- Matrix Telecom P. Ltd. v. Asst. CIT (Ahmedabad) . . . 258

Charitable trust --Charitable purpose--Definition--Donation for charitable purposes--Special deduction under section 80G--Approval of institution--Trust for construction and maintenance of Brij Chaurasi Kos Parikrama way and construction and maintenance of dharamshala, tents, etc. for tourists coming to have parikrama--Object of general public utility--No evidence that object was religious--Trust entitled to approval for purposes of section 80G--Income-tax Act, 1961, ss. 2(15), 80G(5)-- Brij Vikas Trust v. CIT (Agra) . . . 310

Income from house property --Deduction--Assessee's father mortgaging property for business purposes--Assessee inheriting property with subsisting mortgage--Assessee offering same property as collateral security and taking loan for investment in shares and in firms--Assessee taking second loan to pay off all previous loans--Original loans taken by father and assessee not for purpose of construction or acquisition of house property--Interest paid on loan--Not deductible--Income-tax Act, 1961, s. 24(1)(vi)-- K. S. Kamalakannan v. Asst. CIT (Chennai) . . . 321

Income-tax --General principles--Rule of consistency-- ITO v. Anjani Synthetics Ltd. (Ahmedabad) . . . 291

Interest on borrowed capital --No nexus between borrowed funds and investments made for non-business purpose--Interest allowed in earlier years--Rule of consistency--Interest to be allowed--Income-tax Act, 1961, s. 36(1)(iii)-- ITO v. Anjani Synthetics Ltd. (Ahmedabad) . . . 291

Non-resident --Agent--French company entering into agreement with Indian company--French company obtaining services of associate company--Employees of associate company working in India--French company cannot be treated as agent of such employees--Income-tax Act, 1961, s. 163-- Pride Foramer S. A. S. v. Asst. CIT (Delhi) . . . 340

Penalty --Concealment of income--Cash credits--Amounts shown as loans assessed as income--Assessee not able to prove genuineness of loans--Imposition of penalty--Valid--Income-tax Act, 1961, s. 271(1)(c)-- STS Chemicals Ltd. v. Asst. CIT (Mumbai) . . . 303

----Concealment of income--Claim to set off carried forward business loss of earlier years of firm in which assessee a partner--Claim untenable and not bona fide--Penalty leviable--Income-tax Act, 1961, s. 271(1)(c)-- Asst. CIT v. Dinesh Goel (Delhi) . . . 330

----Concealment of income--Order of Supreme Court holding interest on price realised from levy sugar payable--Claim to deduction of provision made for interest--No mala fide intention to evade payment of tax--Assessee establishing claim bona fide--Penalty not leviable--Income-tax Act, 1961, s. 271(1)(c)-- Mawana Sugars Ltd. v. Deputy CIT (Delhi) . . . 266

Reassessment --Notice--Reassessment after four years--Assessee disclosing facts truly and fully--Reassessment proceedings after four years on change of opinion--Not valid--Income-tax Act, 1961, ss. 147, 148-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

Revision --Condition precedent--Order of Assessing Officer should be erroneous and prejudicial to Revenue--Assessing Officer allowing deduction after considering facts--Order not erroneous--Order cannot be revised because Commissioner has different opinion--Income-tax Act, 1961, s. 263-- Aditi Developers v. Asst. CIT (Mumbai) . . . 241

Search and seizure --Block assessment--Undisclosed income--Penalty--Assessee filing belated voluntary return after search and offering capital gains--Assessing Officer charging tax at 60 per cent. and imposing penalty--Penalty cannot be imposed--Income-tax Act, 1961, s. 158BFA(2)-- K. Ramakrishnan (HUF) v. Deputy CIT (Chennai) . . . 269

Words and phrases --"Religion","Religious community"-- Brij Vikas Trust v. CIT (Agra) . . . 310

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(15) --Charitable trust--Charitable purpose--Definition--Donation for charitable purposes--Special deduction under section 80G--Approval of institution--Trust for construction and maintenance of Brij Chaurasi Kos Parikrama way and construction and maintenance of dharamshala, tents, etc. for tourists coming to have parikrama--Object of general public utility--No evidence that object was religious--Trust entitled to approval for purposes of section 80G-- Brij Vikas Trust v. CIT (Agra) . . . 310

S. 24(1)(vi) --Income from house property--Deduction--Assessee's father mortgaging property for business purposes--Assessee inheriting property with subsisting mortgage--Assessee offering same property as collateral security and taking loan for investment in shares and in firms--Assessee taking second loan to pay off all previous loans--Original loans taken by father and assessee not for purpose of construction or acquisition of house property--Interest paid on loan--Not deductible-- K. S. Kamalakannan v. Asst. CIT (Chennai) . . . 321

S. 28 --Business income--Assessee carrying on business of distribution of computer products--Taking business decision to transfer distribution to another company and earn commission--Memorandum of association of assessee permitting assessee to make arrangement with any company to achieve its objects--Income from commission is business income, not income from other sources-- Deputy CIT v. FX Info Technologies P. Ltd. (Delhi) . . . 250

S. 36(1)(iii) --Interest on borrowed capital--No nexus between borrowed funds and investments made for non-business purpose--Interest allowed in earlier years--Rule of consistency--Interest to be allowed-- ITO v. Anjani Synthetics Ltd. (Ahmedabad) . . . 291

S. 36(1)(vii) --Bad debt--Non-banking financial company--Bona fide writing off of debt in conformity with Reserve Bank directions--To be allowed-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

S. 37 --Business expenditure--Provision for warranty made on scientific basis--Allowable-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

----Capital or revenue expenditure--Assessee running tannery business--Assessee to make necessary provisions for disposal of effluents to prevent pollution under Government regulations--Compliance with Pollution Control Board to run unit--Amount paid to agent and other boards for treating effluents--Expenditure on account of business exigency--Revenue expenditure-- Asst. CIT v. T. M. Abdul Rahman and Sons (Chennai) . . . 272

S. 56 --Business income--Assessee carrying on business of distribution of computer products--Taking business decision to transfer distribution to another company and earn commission--Memorandum of association of assessee permitting assessee to make arrangement with any company to achieve its objects--Income from commission is business income, not income from other sources-- Deputy CIT v. FX Info Technologies P. Ltd. (Delhi) . . . 250

S. 80G(5) --Charitable trust--Charitable purpose--Definition--Donation for charitable purposes--Special deduction under section 80G--Approval of institution--Trust for construction and maintenance of Brij Chaurasi Kos Parikrama way and construction and maintenance of dharamshala, tents, etc. for tourists coming to have parikrama--Object of general public utility--No evidence that object was religious--Trust entitled to approval for purposes of section 80G-- Brij Vikas Trust v. CIT (Agra) . . . 310

S. 115JB --Accounting--Rejection of accounts--Book profits--Accrual basis followed under Companies Act and cash basis under Income-tax Act--Rejection of accounts and additions to income--Not justified-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

S. 147 --Reassessment--Notice--Reassessment after four years--Assessee disclosing facts truly and fully--Reassessment proceedings after four years on change of opinion--Not valid-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

S. 148 --Reassessment--Notice--Reassessment after four years--Assessee disclosing facts truly and fully--Reassessment proceedings after four years on change of opinion--Not valid-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

S. 158BFA(2) --Search and seizure--Block assessment--Undisclosed income--Penalty--Assessee filing belated voluntary return after search and offering capital gains --Assessing Officer charging tax at 60 per cent. and imposing penalty--Penalty cannot be imposed-- K. Ramakrishnan (HUF) v. Deputy CIT (Chennai) . . . 269

S. 163 --Non-resident--Agent--French company entering into agreement with Indian company--French company obtaining services of associate company--Employees of associate company working in India--French company cannot be treated as agent of such employees-- Pride Foramer S. A. S. v. Asst. CIT (Delhi) . . . 340

S. 263 --Revision--Condition precedent--Order of Assessing Officer should be erroneous and prejudicial to Revenue--Assessing Officer allowing deduction after considering facts--Order not erroneous--Order cannot be revised because Commissioner has different opinion-- Aditi Developers v. Asst. CIT (Mumbai) . . . 241

S. 271(1)(c) --Penalty--Concealment of income--Cash credits--Amounts shown as loans assessed as income--Assessee not able to prove genuineness of loans--Imposition of penalty--Valid-- STS Chemicals Ltd. v. Asst. CIT (Mumbai) . . . 303

----Penalty--Concealment of income--Claim to set off carried forward business loss of earlier years of firm in which assessee a partner--Claim untenable and not bona fide--Penalty leviable-- Asst. CIT v. Dinesh Goel (Delhi) . . . 330

----Penalty--Concealment of income--Order of Supreme Court holding interest on price realised from levy sugar payable--Claim to deduction of provision made for interest--No mala fide intention to evade payment of tax--Assessee establishing claim bona fide--Penalty not leviable-- Mawana Sugars Ltd. v. Deputy CIT (Delhi) . . . 266

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Income of a recreation club from FDRs, dividend, etc., would be exempt from

Income of a recreation club from FDRs, dividend, etc., would be exempt from income-tax on principle of mutuality - [2011] 10 taxmann.com 114 (Delhi)

Guj HC : Waiver of interest & Penalty. in favor of revenue.

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION No. 5993 of 2001

SHAYAMA SANJAY SHAH Versus COMMISSIONER OF INCOME TAX

Date : 25/03/2011

ORAL JUDGMENT

(Per : HONOURABLE MS.JUSTICE HARSHA DEVANI)

1. By this petition under Article 226 of the Constitution of India, the petitioner has challenged order dated 28.3.2001 passed by the Commissioner of Income Tax, Surat, under section 273A of the Income Tax Act, 1961 (the Act), whereby, he has rejected the petitioner's application for waiver of interest and penalty.

2. The facts of the case stated briefly are that in respect of the assessment year 1987-88, the petitioner was charged interest under section 139 as also under section 215 of the Act and penalty was also levied under sections 271(1)(a) and 273(1)(b) of the Act. The petitioner made an application under section 273 of the Act on 30.11.1992, inter alia, stating that the petitioner had fulfilled all the conditions mentioned in section 273A of the Act for total waiver of the interest and penalties. It was also stated in the application that the petitioner had voluntarily and in good faith made full and true disclosure of her income prior to the issue of notice under section 139(2) of the Act and had cooperated in the inquiry relating to the assessment of income and had also paid the tax and interest payable in consequence of the assessment order. After a period of about eight years the Commissioner of Income Tax Surat the respondent herein rejected the said application by the impugned order dated 28.03.2001. Being aggrieved, the petitioner has filed the present petition challenging the said order.

3. Mr. J. P. Shah, learned advocate appearing on behalf of the petitioner invited attention to the provisions of section 273A of the Act to submit that while considering an application for waiver under the said section, the Commissioner is required to record satisfaction in respect of the matters provided under the said section. Inviting attention to the impugned order, it was submitted that the Commissioner has rejected the application on the ground that the reasons advanced by the petitioner for not filing the return in time were not reasonable and that the petitioner had already made payment of entire penalties and interest demanded by the said order and, therefore, there was nothing to waive. It was submitted that the Commissioner has failed to take into consideration the relevant factors as contemplated under section 273A of the Act and has rejected the application on extraneous grounds which are not relevant insofar as the provisions of section 273A of the Act are concerned. Referring to the provisions of section 273A of the Act, it was submitted that while making the order under section 273A of the Act the Commissioner was required to consider the relevant factors as envisaged thereunder even in case where the assessee had paid the tax and interest payable in consequence of the order in respect of which the application under section 273A had been filed. It was, accordingly, submitted that the second ground for rejecting the application, viz., the payment of entire interest and penalty demanded under the order in respect of which the application had been filed had already made, and therefore, there was nothing to waive, is contrary to the provisions of the section 273A of the Act under which the Commissioner has exercised powers. It was submitted that under the circumstances, the impugned order being inconsistent with the provisions of section 273A of the Act, is required to be quashed and set aside. In support of his submission, the learned advocate placed reliance upon a decision of this High Court in the case of Vinodchandra C. Patel Vs. Commissioner of Income Tax, (1995) 211 ITR 232.

4. On the other hand, Mrs. Mauna Bhatt, learned Senior Standing Counsel appearing on behalf of the respondent submitted that powers exercised by the Commissioner under section 273A of the Act are in the nature of discretionary powers, hence, this Court in exercise of powers under Article 226 of the Constitution of India would ordinarily not interfere with the same and substitute its own opinion in place of that of the Commissioner. It was, accordingly, urged that the petition being devoid of merit deserves to be dismissed.

5. Section 273A makes provision for "Power to reduce or waive penalty, etc., in certain cases" and as it stood at the relevant time, insofar as the same is relevant for the present purpose, reads thus:

273A.-.(1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise,-

reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139; or

reduce or waiver the amount of penalty imposed or imposable on a person under clause (iii) of sub-section (1) of section 271; or

reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273, if he is satisfied that such person-

(a) in the case referred to clause (i), has, prior to the issue of a notice to him under sub-section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income;

(b) in the case referred to in clause (ii), has, prior to the detection by the Income-tax officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;

(c) in the cases referred to in clause (iii), has, prior to the issue of a notice to him under sub-section (2) of section 139, or where no such notice, has been issued and the period for the issue of such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed.

and also has, in all the cases referred to in clauses (a), (b) and (c), co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act, in respect of the relevant assessment year.

Explanation: For the purpose of this sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of clause (c) of sub-section (1) of section 271."

On plain reading of the aforesaid provision, it is apparent that the same empowers the Commissioner in his discretion, whether on his own motion or otherwise, to reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139. Thus, the question of waiver would arise in a case where there is failure without reasonable cause to furnish return of total income as required under sub section (1) of section 139 of the Act. In the circumstances, the question as to whether there was a reasonable cause for failure in furnishing return of total income under section 139(1) would have been considered at the time of levying penalty under clause(i) of sub-section (1) of section 271 of the Act and it is only when the adjudicating authority finds that there is no reasonable cause for such failure that penalty would have been levied. In view of the provisions of section 273B of Act, in case, the assessee were in a position to make out a case that there was reasonable cause for such failure, no penalty could have been imposed under sec 271(1)(i) of the Act. Therefore, the very fact that penalty has been imposed under the said section indicates that no reasonable cause had been made out. Also the opening portion of section 273A makes it amply clear that such power has to be exercised where penalty has been levied for failure to show reasonable cause. Hence, when the question of waiver of penalty already imposed arises, there would be no reason for the Commissioner to go into the question as to whether the return has been filed belatedly without reasonable cause. While deciding an application under section 273A of the Act in a case where penalty is imposed or imposable on a person under clause (i) of sub-section (1) of section 271, the Commissioner is required to be satisfied that the assessee had prior to issue notice to him under sub-section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income. In case, where reduction or waiver of interest is sought for, the Commissioner has to record satisfaction to the effect that prior to the issue of notice under section (2) of section 139, or where no such notice, has been issued and the period for the issue of such notice has expired, prior to the issue of notice under section 148, the assessee has voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed. The Commissioner is also required to be satisfied that such person has co-operated in any enquiry relating to the assessment of his income. He is also required to be satisfied that such person has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment year. Thus, while considering the application under section 273A, the Commissioner is required to be satisfied as aforesaid.

A perusal of the impugned order shows that two factors have weighed with the Commissioner while rejecting the said application. Firstly that the reasons advanced by the petitioner for failure to file return within time cannot be said to be reasonable; and secondly that the petitioner had made payment of entire penalty and interest, therefore, there was nothing to waive. Insofar as the first factor is concerned, as discussed hereinabove, no question arises of going into that issue while considering an application under section 273A of the Act. Insofar as the second factor is concerned, as is apparent on a plain reading of section 273A, for granting relief under the said provision the Commissioner is required to record satisfaction that such person has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment year. Thus, the very reason why the Commissioner should have recorded satisfaction in favour of the petitioner has been considered to be a ground for non-consideration of the application by the Commissioner. Thus, instead of recording satisfaction or otherwise, in respect of the grounds prescribed under section 273A of the Act, the Commissioner had totally misdirected himself and decided the application on grounds that were not germane for the purpose of deciding the application under section 273A of the Act.

8.Though it is true that powers under section 273A of the Act are discretionary powers, it is equally true that powers conferred under a statute are required to be exercised in consonance with the provisions of the said statute. In the present case, as discussed hereinabove, the Commissioner instead of recording satisfaction or otherwise in respect of the grounds prescribed under section 273A of the Act, has rejected the petition on irrelevant grounds, firstly, on the ground that there was no reasonable cause for failure in filing the return of income belatedly, and secondly, on the ground that the petitioner had already paid the tax payable in consequence of the order of penalty, which ground in view of the provisions of section 273A of the Act should have, in fact, weighed in favour of the petitioner. Thus, the Commissioner has not exercised discretion as required under section 273A of the Act and as such the impugned order suffers from the vice of non application of mind to the relevant factors and as such cannot be sustained.

9. For the foregoing reasons, petition succeeds and is accordingly allowed. The impugned order dated 28.3.2001 passed by the Commissioner of Income Tax, Surat (Exhibit "B" to the petition), is hereby quashed and set aside. The application made by the petitioner under section 273A of the Act shall stand restored to the file of the Commissioner who shall decided the same afresh in accordance with law keeping in mind the provisions of section 273A of the Act. Considering the fact that this is a matter pertaining to Assessment Year 1987-88 and the present petition has been pending before this Court for a period of about ten years, it would be in the interests of justice that the matter be decided at the earliest. The respondent Commissioner, therefore, shall decide the application as expeditiously as possible, and not later than three months from the date of receipt of a copy of this order. Rule is made absolute accordingly with no order as to costs.

(HARSHA DEVANI, J.)

(BELA TRIVEDI, J. )

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TPO cannot suo moto take cognizance of any international transaction for su

TPO cannot suo moto take cognizance of any international transaction for suggesting adjustment in arm's length price

Income-tax : Section 92CA - Transfer Pricing - As per section 92CA(1), TPO can suggest adjustment on international transaction entered into by an assessee with its associate enterprises which were sent to him for computation of arm's length price by Assessing Officer, suo moto, he cannot take cognizance of any international transaction for suggesting adjustment in arm's length price

l Section 92CA nowhere reveals that TPO can take any transaction suo moto for verification and then suggest necessary adjustment. - [2011] 10 taxmann.com 88 (Delhi - ITAT)

Delay in filing appeal beyond period of 120 days prescribed under section 2

Delay in filing appeal beyond period of 120 days prescribed under section 260A(2)(a) cannot be condoned by entertaining an application under section 5 of Limitation Act - [2011] 10 taxmann.com 113 (Punj. & Har.)

There is no obligation on part of a foreign bank's Indian branch to deduct

There is no obligation on part of a foreign bank's Indian branch to deduct tax at source while making interest remittance to its head office abroad

Income-tax : Section 195 - Deduction of tax at source - Payment to Non-resident : In making payment of interest by an Indian branch of a foreign bank to its head office abroad, no tax has to be deducted by it under section 195(1).

l By virtue of the Indo-Netherlands convention, the head office of the foreign bank is not liable to pay any tax under the Income-tax Act; therefore, there was and still is no obligation on the part of the foreign bank's said branch to deduct tax while making interest remittance to its head office or any other foreign branch

l Therefore, there is no scope for any argument that for the purpose of computation of expenditure the branch and the head office are to be taken as separate entities but for the purpose of payment of tax to be deducted at source on interest payment, it is to be taken as one bank and no deduction is to be made as sought to be made by the foreign bank. - [2011] 10 taxmann.com 89 (Cal.)

Transfer of shares by a foreign company to its wholly owned Indian subsidiary no

Transfer of shares by a foreign company to its wholly owned Indian subsidiary not taxable in India

Praxair Pacific Limited (PPL ), a company incorporated in Mauritius, proposes to transfer its 74% equity stake in Jindal Praxair Oxygen Company Private Limited (JPOCPL) to its wholly owned subsidiary in India, Praxair India Private Limited (Praxair India). The consideration for the proposed transfer is stated to be determined on the basis of cost, unless a higher consideration is required under the pricing guidelines prescribed by the Reserve Bank of India as applicable for transfer of shares.
Issues before the AAR

» Whether the investment held by PPL in equity shares of JPOCPL would be considered as "capital asset" under section 2(14) of the Income-tax Act, 1961 ("ITA")?
» Whether transfer of JPOCPL from PPL to its wholly owned subsidiary Praxair India would be liable to tax in India in view of the exemption under section 47(iv) of the ITA?
Exemption under section 47(iv) of the ITA is available if the capital asset is transferred by a holding company to its wholly owned Indian subsidiary.

» Whether PPL would be entitled to the benefits of the India – Mauritius Tax Treaty ("Treaty") and whether the gain arising to PPL would be liable to tax in India having regard to the provisions of Article 13 of the Treaty?
» Whether the gains arising to PPL from the sale of equity shares of JPOCPL would be taxable in India in the absence of Permanent Establishment ("PE") of PPL in India in light of the provisions of Article 7 read with Article 5 of the Treaty?
» Whether PPL would be liable to Minimum Alternate tax under the ITA?
» Where the gains arising to PPL on account of the proposed transfer is not taxable in India under the Act or the Treaty, whether Praxair India, the transferee company, is required to withhold tax in accordance with the provisions of section 195 of the ITA?
» If the gains are not taxable in India, whether PPL is required to file any return of income of income under section 139 of the ITA? This question was not pressed by PPL.
» Whether the proposed transfer of equity shares by PPL to Praxair India attracts the transfer pricing provisions of section 92 to 92F of the ITA?
Contention of the applicant

» The shares held by PPL in JPOCPL are not held as stock-in-trade but represent investments and thus should be classified as a capital asset.
» As PPL proposes to transfer its equity shareholding in JPOCPL to Praxair India, its wholly owned subsidiary in India, the provisions of section 47(iv) of the ITA are fulfilled. Gains, if any, on the transfer of equity shares in JPOCPL would not be taxable in India.
» PPL would not be liable to tax book profits or Minimum Alternate tax under the ITA as the provisions of section 11 5JB would be applicable only to domestic companies and not to foreign companies.
» The gains from the proposed transfer of shares in JPOCPL by the Applicant would not be taxable in India as capital gains or business income in the light of the treaty.
» In case the proposed gains are not considered as capital gains but as business income, such business income will not be taxable in India since PPL does not have a PE in India.
Observations / Rulings of the AAR

» The shares in JPOCPL have been held as "Non-current assets – investment in subsidiaries" since 1995 and were never a subject matter of any transaction till date. As the shares were not held as stock in trade, the nature of the investment in these shares is held to be a "capital asset" as defined in section 2(14) of the ITA.
» As PPL proposes to transfer its equity share holding in JPOCPL to Praxair India which is its wholly owned subsidiary in India, the conditions under section 47(iv) of the ITA are fulfilled and hence the gains if any arising on transfer would not be taxable in India.
» As PPL is tax resident of Mauritius and has been issued Tax Residency Certificate by the Mauritius Revenue Authority, it would not be subjected to tax in India on the capital gains arising from the proposed transaction in India under the Treaty.
» The annual accounts of the applicant cannot be prepared in accordance with Schedule VI of the Companies Act 1956. The provision under the ITA relating to Book Profits Tax is not designed to be applicable to a foreign company which has no presence or PE in India. The AAR relied on its ruling in the case of Timken USA (AAR 836 of 2009) where it was held that under the Companies Act 1956 only such foreign companies who have established a place of business within India are required to make out a Balance Sheet and Profit and Loss account as required under the said Act.
» Sections 11 5JB of the ITA is not attracted in the case of PPL.
» The transfer pricing provisions of section 92 to 92F of the ITA would not be attracted in the absence of liability to pay tax on the capital gain.

Conclusion:-Gains from the transfer of shares by a Mauritius company to its wholly owned subsidiary in India would not be taxable in India either under the ITA. The AAR has also reiterated the benefit of the India- Mauritius tax treaty would be available to PPL as it had adequate tax residency certificate issued by the Mauritius Revenue Authority. Further, the gains from such transfer would not be subject to Minimum Alternate Tax as the provisions under the ITA governing such tax do not apply to a foreign company that has no presence or PE in India

Source: M/s. Praxair Pacific Limited (A.A.R. No. 855/2009 dated 23 July 2010)

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Teach pupils why paying tax is important

I-T to teach pupils why paying tax is important

New Delhi: The income-tax department (I-T) will soon depute its "dynamic officers" to address school students during morning assemblies to make them aware of the benefits of paying tax.

A power point presentation, recounting the history on the concept of taxation and its relevance in this day and age, will be used to disseminate information. Batches of students, particularly from convent and public schools, would be brought to the I-T offices across the country for a closer interaction. Every I-T commissioner has been asked to look for one such young and dynamic officer under his charge who will be responsible to visit the schools to talk to children during morning assemblies. This is part of the central action plan as envisaged for 2011-12.

"Visits to I-T offices should be organized with batches of 20 to 25 students in the age group of 16-18 years," according to the proposal by the Central Board of Direct Taxes. TNN

Prior to 1-4-2003 payment under a negative covenant agreement for not to co

Prior to 1-4-2003 payment under a negative covenant agreement for not to compete was a capital receipt

Income-tax : There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant; the compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt [Section 4 of the Income-tax Act, 1961 - Income-Chargeable as]

l Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04; it is only vide Finance Act, 2002 with effect from 1.4.2003 that the said capital receipt is now made taxable - [2011] 10 taxmann.com 105 (SC)

Where DIT (Exemptions) rejected assessee's application under section 12A on

Where DIT (Exemptions) rejected assessee's application under section 12A on ground of certain discrepancies in assessee's accounts, Tribunal was not justified in allowing assessee's appeal without noticing discrepancies pointed out by DIT (Exemption) - [2011] 10 taxmann.com 83 (Kar.)

A declaration filed under Voluntary Disclosure of Income Scheme, 1997, whic

A declaration filed under Voluntary Disclosure of Income Scheme, 1997, which is not valid for purposes of scheme, can constitute material for reassessment under section 148 - [2011] 10 taxmann.com 110 (Punj. & Har.)

CASE LAWS

Applications for the posts of Director/DS/Under Secretary in the CBDT;

2011-TIOL-400-HC-AHM-IT

Manharbhai Muljibhai Kakadia Vs UoI (Dated: May 4, 2011)

Income tax – Sections 119(2)(a), 234A, 234B, 234C, Circular dated 23.5.1996 and 26.06.2006 – Whether the assessee is entitled to waiver of interest u/s 234B & 234C relying on the circular dated 23.05.2006 in which waiver is given on account of non-adjustment of seized cash by the department against the tax liability though at the time of making of application of waiver such circular was superseded by circular dated 26.06.2006 in which no such waiver was permitted. - Assessee's appeal dismissed : GUJARAT HIGH COURT;

2011-TIOL-391-ITAT-AHM + venture story

ITO, Ahmedabad Vs Gujarat Information Technology Fund (Dated: May 27, 2011)

Income Tax - Section 10(23FB) - SEBI Regulations - 8, 12, 30 - Whether an assessee, which is registered as trust and fulfills all the requirements of section 10(23FB) and also satisfies the pre and post condition of SEBI Regulations 8 and 12 and has not received any notice under regulation 30 can be termed as venture capital fund - Whether conditions specified in SEBI regulation and section 10(23FB) are pari-materia and hence compliance of one establishes the compliance of other. - Revenue's appeal dismissed : AHMEDABAD ITAT;

2011-TIOL-390-ITAT-MUM

M/s Gujrat Organics Ltd Vs ACIT, Mumbai (Dated: February 9, 2011)

Income tax – Sections 14A, 145A - Capital or Revenue Expenditure – Whether, if assessee fails to include excise element in the value of closing stock, it calls for disallowance - Whether the disallowance is rightly made u/s 14A by applying rule 8D prior to the amendment – Whether the expenses incurred on repair and maintenance of assets which results in no new asset are revenue expenditure. - Assessee's appeal partly allowed : MUMBAI ITAT;

2011-TIOL-389-ITAT-MUM

ACIT, Mumbai Vs M/s JPS Associates (Dated: February 25, 2011)

Income Tax - Section14 - Whether income earned from letting of office premises is taxable under the head "income from house property' - Whether higher charges received on account of exploitation of computers and office premises are taxable under the head business income on the basis of principle of consistency - Revenue's appeal dismissed : MUMBAI ITAT;

2011-TIOL-388-ITAT-MUM

M/s P A Chacko Muthalaly Vs ACIT, Mumbai (Dated: March 4, 2011)

Income Tax - Sections 80(O), 80RRA, 80RRA(2)(ii) - Whether, to avail Sec 80RRA benefits, it is necessary for the assessee to undertake a foreign travel - Whether assessee is eligible for benefits even if the technical services provided by the assessee are not approved by the Govt. - Assessee's appeal dismissed : MUMBAI ITAT;

Assessee is required to disclose primary facts and not inference which is t

Assessee is required to disclose primary facts and not inference which is to be drawn from such primary facts

Income earned from sale of agricultural land converted into residential plo

Income earned from sale of agricultural land converted into residential plots without any development is assessable as capital gain - [2011] 10 taxmann.com 90 (Hyd. - ITAT)

Income derived by applicant under contracts with ONGC & Cairn Energy for pr

Income derived by applicant under contracts with ONGC & Cairn Energy for processing & interpretation of seismic data is to be computed by applying s. 44BB

Income-tax : Activities of the applicant fit into description of section 44BB demanding computation of its income in accordance with this provision [Section 44BB of the Income-tax Act, 1961 - Non-residents - Mineral oil, business for prospecting/exploration, etc., in case of] - [2011] 10 taxmann.com 103 (AAR - New Delhi)

148 notice, even if unserved, is valid & second s. 148 notice issued to meet a

Sanjay Kumar Garg vs. ACIT (ITAT Delhi)

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

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

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

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

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

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

See Also Mayawati vs. CIT 321 ITR 349 (Del) where the distinction between "issue" & "service" in s. 148 was considered. But also see Balwant Rai Wadhwa vs. ITO (ITAT Delhi) where it was held that apart from the notice, even the recorded reasons had to be served on the assessee within the limitation period

Related Judgements

Mayawati vs. CIT (Delhi High Court) S. 149, which imposes the limitation period, requires the notice to be "issued" but not "served" within the limitation period. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the AO to proceed to reassess. Service is not a condition precedent to conferment of…

Ashoka Buildcon vs. ACIT (Bombay High Court) In CIT vs. Alagendran Finance 293 ITR. 1 (SC) it was held that the doctrine of merger does not apply where the subject matter of reassessment and original assessment is not one and the same. Where the assessment is reopened on a specific ground and the reassessment is…

Balwant Rai Wadhwa vs. ITO (ITAT Delhi) U/s 149(1)(b) a notice u/s 148 cannot be issued after the issue of 6 years from the end of the AY. In Haryana Acrylic vs. CIT 308 ITR 38 it was held that a notice u/s 148 without the communication of the reasons there for is meaningless inasmuch as…

Salary received by partner in a firm even though as a karta of HUF is allow

Salary received by partner in a firm even though as a karta of HUF is allowable as deductions while computing income of firm - [2011] 10 taxmann.com 82 (All.)

In case assessee fails to explain source & nature of cash credits, AO would

In case assessee fails to explain source & nature of cash credits, AO would be justified in invoking provisions of section 68 - [2011] 10 taxmann.com 98 (Coch. - ITAT)

LEGALLY SPEAKING [Real property]

LEGALLY SPEAKING

GAJANAN KHERGAMKER

CHECK FOR ENCUMBRANCES AND SNAGS, WHILE OPTING FOR A RESALE HOME

I am a first-time buyer, opting for a resale home. However, I am unclear about the documents that need to be in place. I do not want to be caught up in a legal tangle. Is there any checklist of documents, to ensure that no issues arise later?

Aparna Mohite

The prerequisites, vis-à-vis legal documents, for a resale home are more or less similar to that of a new home. Nevertheless, the buyer needs to verify a few more issues. The buyer needs to check whether the property has been mortgaged, to any financial institution or body and if all previous arrears are settled, in full.

Very often, home owners opt for larger homes, in locations other than their prevailing home. Although a resale home may not have the kind of amenities available in newer housing projects, the price that the potential home buyer pays for the resale home is a lot lesser than a new property. However, the buyer needs to be cautious and check whether the amenities that the seller has mentioned actually exist. For example, the seller may offer parking space, which may turn out to be an encroachment on public area.

While opting for a resale home, buyers also need to check the home's condition, right from the walls, to the flooring. Preferably, seek the help of an architect, who should draw out an estimate of repair costs, which could be considered before making any final payments to the seller. Also, there have been numerous cases where home owners have sold properties to unassuming buyers, who are left squabbling over ownership rights with contesting family members. Hence, prospective buyers should thoroughly check whether the present owner has a legal right to sell the house and whether all previous dues have been settled and that the title is clear of any issue that may arise later.

In case, the house is part of a housing society, it is important for the resale to be reflected in the records of the housing society, with appropriate changes in ownership name, to register a valid resale. The resale is said to be completely endorsed, when the maintenance bills begin arriving in the name of the buyer. Once the issues relating to title and condition of the home are properly settled, the purchase of a resale home could well be a worthwhile transaction, considering that the price could be substantially lower, as compared to a new property.

Transfer of shares by a foreign company to its wholly owned Indian subsidiary no

Transfer of shares by a foreign company to its wholly owned Indian subsidiary not taxable in India

Praxair Pacific Limited (PPL ), a company incorporated in Mauritius, proposes to transfer its 74% equity stake in Jindal Praxair Oxygen Company Private Limited (JPOCPL) to its wholly owned subsidiary in India, Praxair India Private Limited (Praxair India). The consideration for the proposed transfer is stated to be determined on the basis of cost, unless a higher consideration is required under the pricing guidelines prescribed by the Reserve Bank of India as applicable for transfer of shares.
Issues before the AAR

» Whether the investment held by PPL in equity shares of JPOCPL would be considered as "capital asset" under section 2(14) of the Income-tax Act, 1961 ("ITA")?
» Whether transfer of JPOCPL from PPL to its wholly owned subsidiary Praxair India would be liable to tax in India in view of the exemption under section 47(iv) of the ITA?
Exemption under section 47(iv) of the ITA is available if the capital asset is transferred by a holding company to its wholly owned Indian subsidiary.

» Whether PPL would be entitled to the benefits of the India – Mauritius Tax Treaty ("Treaty") and whether the gain arising to PPL would be liable to tax in India having regard to the provisions of Article 13 of the Treaty?
» Whether the gains arising to PPL from the sale of equity shares of JPOCPL would be taxable in India in the absence of Permanent Establishment ("PE") of PPL in India in light of the provisions of Article 7 read with Article 5 of the Treaty?
» Whether PPL would be liable to Minimum Alternate tax under the ITA?
» Where the gains arising to PPL on account of the proposed transfer is not taxable in India under the Act or the Treaty, whether Praxair India, the transferee company, is required to withhold tax in accordance with the provisions of section 195 of the ITA?
» If the gains are not taxable in India, whether PPL is required to file any return of income of income under section 139 of the ITA? This question was not pressed by PPL.
» Whether the proposed transfer of equity shares by PPL to Praxair India attracts the transfer pricing provisions of section 92 to 92F of the ITA?
Contention of the applicant

» The shares held by PPL in JPOCPL are not held as stock-in-trade but represent investments and thus should be classified as a capital asset.
» As PPL proposes to transfer its equity shareholding in JPOCPL to Praxair India, its wholly owned subsidiary in India, the provisions of section 47(iv) of the ITA are fulfilled. Gains, if any, on the transfer of equity shares in JPOCPL would not be taxable in India.
» PPL would not be liable to tax book profits or Minimum Alternate tax under the ITA as the provisions of section 11 5JB would be applicable only to domestic companies and not to foreign companies.
» The gains from the proposed transfer of shares in JPOCPL by the Applicant would not be taxable in India as capital gains or business income in the light of the treaty.
» In case the proposed gains are not considered as capital gains but as business income, such business income will not be taxable in India since PPL does not have a PE in India.
Observations / Rulings of the AAR

» The shares in JPOCPL have been held as "Non-current assets – investment in subsidiaries" since 1995 and were never a subject matter of any transaction till date. As the shares were not held as stock in trade, the nature of the investment in these shares is held to be a "capital asset" as defined in section 2(14) of the ITA.
» As PPL proposes to transfer its equity share holding in JPOCPL to Praxair India which is its wholly owned subsidiary in India, the conditions under section 47(iv) of the ITA are fulfilled and hence the gains if any arising on transfer would not be taxable in India.
» As PPL is tax resident of Mauritius and has been issued Tax Residency Certificate by the Mauritius Revenue Authority, it would not be subjected to tax in India on the capital gains arising from the proposed transaction in India under the Treaty.
» The annual accounts of the applicant cannot be prepared in accordance with Schedule VI of the Companies Act 1956. The provision under the ITA relating to Book Profits Tax is not designed to be applicable to a foreign company which has no presence or PE in India. The AAR relied on its ruling in the case of Timken USA (AAR 836 of 2009) where it was held that under the Companies Act 1956 only such foreign companies who have established a place of business within India are required to make out a Balance Sheet and Profit and Loss account as required under the said Act.
» Sections 11 5JB of the ITA is not attracted in the case of PPL.
» The transfer pricing provisions of section 92 to 92F of the ITA would not be attracted in the absence of liability to pay tax on the capital gain.

Conclusion:-Gains from the transfer of shares by a Mauritius company to its wholly owned subsidiary in India would not be taxable in India either under the ITA. The AAR has also reiterated the benefit of the India- Mauritius tax treaty would be available to PPL as it had adequate tax residency certificate issued by the Mauritius Revenue Authority. Further, the gains from such transfer would not be subject to Minimum Alternate Tax as the provisions under the ITA governing such tax do not apply to a foreign company that has no presence or PE in India

Source: M/s. Praxair Pacific Limited (A.A.R. No. 855/2009 dated 23 July 2010)

Doctrine of unjust enrichment - recovery of entertainment tax from cinema goers

Doctrine of unjust enrichment - recovery of entertainment tax from cinema goers during availment of exemption is recoverable; when law is not clear, superior courts not to interpret law in such a way as to confer unjust benefit to any party: SC

NEW DELHI, AUGUST 08, 2009: THE Supreme Court had recently delivered a landmark Judgment on the doctrine of unjust enrichment. In instances where an assessee recovers tax from taxpayers in spite of an exemption (absolute or partial) from levy of tax and retains the same without depositing the same with the State, by following the ratio laid down by the Apex Court in Mafatlal Industries Ltd vs. Union of India 2002-TIOL-54-SC-CX , the Court held that it amounts to unjust enrichment; but at the same time it was held that if the provisions for recovery are not clear in the Statute then the Superior Courts cannot interpret the statute in such a way so as to confer an unjust benefit to any of the parties, i.e. the taxpayer or tax collector or the State. The brief facts of the case are as follows:

A multiplex theatre in Brihan Mumbai Municipal Corporation limits was enjoying the exemption from levy of entertainment tax conferred by the State Government as per the scheme of exemption applicable to multiplex theatre complexes. In the first three years of operation, the exemption will be absolute i.e. no entertainment tax is payable and in the subsequent two years, the exemption will be to the extent of 75% of the entertainment tax payable and from the sixth year they are subject to a levy of applicable entertainment tax without any exemption. The respondent in this case availed the exemption from levy of entertainment tax conferred by the State but recovered the tax from the cinema goers. The State of Maharashtra initiated recovery proceedings for recovery of the tax collected by the multiplex theatre from the cinema goers. The respondents succeeded in the High Court of Mumbai wherein the High Court held that the State was not entitled to claim more than what could be levied as entertainment duty during the period of dispute irrespective of the fact that the exhibitors have shown on admission tickets issued to patrons 45% of the duty though they were liable to pay only 25% of 45% during the incentive period of 2 years.

The State of Maharashtra appealed to the Supreme Court against this judgment of the High Court and contended that the multiplex theatre complex is liable to pay back the tax collected from the cinema goers in terms of the provisions of Bombay Entertainments Duty Act, 1923 read with Section 72 of the Indian Contract Act, 1872 and Article 296 of the Constitution of India. It was contended that the respondent had collected the tax over and above the exemption provided by the State Government and the tax so collected is liable to be paid back to the State Government. The respondents i.e. the multiplex theatre among other things contended that the admission charges collected by the respondent being a matter of contract by and between them and the cinema goers and the Act having not provided for any forfeiture clause, the question of the respondents being unjustly enriched does not arise, more so when it is not a case where the amount of tax had been deposited which the State was entitled to keep with it having regard to the statutory provisions in this behalf.

The Apex Court after analyzing the relevant provisions of the statute and relying on the decisions of the Court in Mafatlal Industries Ltd vs. Union of India 2002-TIOL-54-SC-CX, Union of India vs. Solar Pesticide Pvt Ltd 2002-TIOL-57-SC-CX , Sahakari Khand Udyog Mandal vs. Commissioner of Customs & Central Excise 2005-TIOL-48-SC-CX-LB and Indian Banks' Association, Bombay and Others v. Devkala Consultancy Service and Others observed as follows:

++ Respondent has shown the net rate of tickets which they charged by way of admission charges & entertainment duty separately. Respondent had indisputably been collecting 45% of the amount of admission fee by way of entertainment duty, i.e. the full duty payable in terms of the provisions of the said Act and the Rules.

++ Whether a statute expressly confers power on an assessee to realize the amount of tax payable to the State from its customers or not is not material. An assessee has to collect such taxes which are required to be levied and collected from the consumers. Once the taxes are levied, Section 3 of the Bombay Entertainments Duty Act entitles the State to collect the same from the owner of the multiplex theatre complex, subject to the concession given to them.

++ The terms "concession" and "exemption" are a form of privilege. When a statute confers a privilege, the same must be confined only to the extent provided for therein.

++ Once it is held that the amount realizable from the cinema goers by way of entertainment duty comes within the purview of the definition of `tax', there is no reason to justify the conclusion of the High Court that the State Government for all intent and purport conferred the retention benefit on the multiplex theatre. If the State intended to provide for a grant, the same should have expressly been stated in the statute. The respondents cannot be granted a huge amount by a welfare State indirectly which it cannot do directly.

++ State has a power to grant exemption or concession in respect of payment of tax and no power under the provisions of the Constitution or otherwise to allow an assessee to collect tax and retain the same.

++ When the provisions are not very clear Superior Courts will not interpret the statute in such a way as to confer an unjust benefit to any of the parties, i.e., the taxpayer or tax collector or the State.

++ When a person collects tax illegally, it has to be refunded to the taxpayers and if taxpayers cannot be found, the court would direct the same to be paid and/or appropriated by the State.

Pursuant to these observations, the Supreme Court concluded that the State has to realize the amount unjustly enriched by respondent and pay the same to a reputed voluntary or a charitable organization, which had been rendering good services to any sections of the disadvantaged people and in particular women and children. The Court put the onus on the Chief Minister of Maharashtra to take up the responsibility of ensuring full, proper and effective utilization of the said amount so given to the charity.

ITR (TRIB) Volume 10 : Part 2 Issue dated : 11-07-2011

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

Volume 10 : Part 2 (Issue dated : 11-07-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal to Commissioner (Appeals) --Income from house property--Annual letting value--Municipal taxes--Subletting of property--Sub-tenants directly depositing municipal taxes--Assessee admitting annual letting value without explaining facts--Additional ground raising annual letting value--Commissioner (Appeals) dismissing additional ground--Not proper--Matter remanded--Income-tax Act, 1961-- Urmila and Co. Ltd. v . Deputy CIT (Mumbai) . . . 217

Assessment --Limitation--Report of special auditors received on 20-6-2005--Assessing Officer has no power to extend period of limitation--Assessment order passed on 29-8-2005 barred by limitation--Income-tax Act, 1961, s. 142-- Deputy CIT v. Ramachandra Dashrath Hande and Co. (Mumbai) . . . 117

Business expenditure --Disallowance--Excessive and unreasonable payments--Tug charges paid to sister concern--Tug not used for any transportation during relevant period--No case for commercial expediency of payment to sister concern--Disallowance justified--Income-tax Act, 1961, s. 40A(2)(b)-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Disallowance--Expenditure on Diwali gift--Claim not substantiated by evidence --Disallowance of fifty per cent.--Proper--Income-tax Act, 1961, s. 37-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Disallowance--Expenses relating to civil work--No evidence to show amount not encashed by department--Disallowance justified--Income-tax Act, 1961, s. 37-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Disallowance--Motor car expenses and current repairs--Disallowance modified to 10 per cent.--Income-tax Act, 1961, s. 37-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Fee for utilisation of club facilities by executive officer of assessee--Allowable--Sum towards receivables--Not allowable--Income-tax Act, 1961, s. 37-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Reimbursement of telephone expenses by assessee to its executives--Perquisites in hands of executives--No addition could be made--Income-tax Act, 1961, s. 37-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Tug hire charges--Period of contract more than thirteen months--Accrual of hire charges--Hire charges for months and part thereof allowable--Claim of hire charges for tug for thirteen months--Proper--Hire charges for demobilisation period--Assessee not entitled to hire charges--Income-tax Act, 1961-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Capital gains --Computation of capital gains--Deductions--Cost of improvement--No evidence that sums had been spent on improvement of property--Expenditure on general maintenance--Amounts not deductible--Income-tax Act, 1961-- Mrs. Kiran Bansal v. Asst. CIT (Delhi) . . . 180

Computation--Understatement of sale consideration--Burden of proof--No proof of understatement of sale consideration--Assessing Officer to adopt sale consideration of shares as disclosed by assessee--Income-tax Act, 1961, s. 48-- Deputy CIT v. Jindal Equipment Leasing and Consultancy Services Ltd. (Delhi) . . . 128

Long-term capital gains--Exemption--Sale of shares--Assessee's primary business, dealing in shares--Assessee holding controlling shares in particular company promoted by assessee and treating shares as investment and not in nature of stock-in-trade--Transfer of shares give rise to long-term capital gains--Assessee entitled to exemption--Income-tax Act, 1961, s. 10(38)-- Asst. CIT v. Stargate Investments P. Ltd. (Chennai) . . . 211

Charitable trust --Exemption--Assessee engaged in imparting education and training in traditional art forms--Assessee entitled to exemption--Income-tax Act, 1961, ss. 10(23C)(iiiad), 11-- Vempati Chinna Satyam Kuchipudi Art Foundation v. Deputy CIT (Chennai) . . . 201

Exemption--Money utilised by trustee to meet his medical emergency--Trustee not beneficiary and trust entitled to exemption--Income-tax Act, 1961, ss. 11, 13(3)-- Vempati Chinna Satyam Kuchipudi Art Foundation v. Deputy CIT (Chennai) . . . 201

Commissioner -Revision-Capital gains-Cost of acquisition--Tiles laying, white washing, electrical rewiring and wood work expenses--Are post-acquisition expenses--To be excluded--Brokerage and legal fees--Part of acquisition cost--To be allowed--Income-tax Act, 1961, ss. 54, 263-- Smt. S. Sudha v. Asst. CIT (Chennai) . . . 206

Revision-Penalty--Commissioner can interfere only in case of failure by assessing authority to levy penalty where it is imperative--Assessee claiming expenses as part of acquisition cost on a bona fide belief--Penalty cannot be imposed--Income-tax Act, 1961, ss. 271(1)(c), 274-- Smt. S. Sudha v. Asst. CIT (Chennai) . . . 206

Company – Dividend- Deemed dividend --Company in which public was not substantially interested--Loan to shareholder holding more than 10 per cent. voting rights--Loan out of accumulated profits--No evidence that loan was for purposes of business of company--Loan assessable as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- Mrs. Kiran Bansal v. Asst. CIT (Delhi) . . . 180

Deduction of tax at source - Payments to non-residents--Commission paid outside India for services rendered outside India--Tax not deductible at source--Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Income-tax Act, 1961, ss. 9(1)(i), (vii), 40(a)(ia), 195--Double Taxation Avoidance Agreement between India and the U. K., arts. 7, 13--Double Taxation Avoidance Agreement between India and the U. A. E., art. 7--Double Taxation Avoidance Agreement between India and Russia, arts. 7, 12--Double Taxation Avoidance Agreement with South Africa, art. 7--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

Depreciation - Higher rate of depreciation--Tractors and trailers--Assessee in business of transportation of goods on hire basis--Entitled to higher rate of depreciation--Circular No. 652 dated June 14, 1993--Income-tax Act, 1961, s. 32-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Exemption - Venture capital fund--Interest on temporary investments and profit on sale of units of mutual fund--Assessee entitled to exemption--Amendment with effect from April 1, 2008 restricting exemption to income from investment in venture capital undertaking--Not applicable to earlier years--Income-tax Act, 1961, s. 10(23FB)-- ITO v. Kshitij Venture Capital Fund (Mumbai) . . . 136

Export - Special deduction- Computation--Interest received treated as business income by Assessing Officer--Only 90 per cent. of net interest received to be excluded from business profit --Net interest computation--Gross interest less expenditure incurred for earning interest income--Matter remanded to examine nexus between interest received and interest payment--Income-tax Act, 1961, s. 80HHC-- Nancy Krafts P. Ltd. v. Asst. CIT (Delhi) . . . 193

Property - Annual letting value- Rent Control Act--Prohibition on charging more than standard rent permissible under Act--Assessing Officer directed to compute annual letting value in terms of standard rent payable under Act--Bombay Rent Control Act--Income-tax Act, 1961, s. 23-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Reassessment - Cost of construction- Reference to Valuation Officer--No proceedings pending before Assessing Officer--Assessing Officer has no jurisdiction to refer property for valuation to Valuation Officer--Reassessment notice issued on basis of valuation--Not permissible--Income-tax Act, 1961, s. 148-- ITO v. Nisarg Co-op. Housing Society Ltd. (Ahmedabad) . . . 174

Validity of notice - Notice issued after four years--No inquiry in original assessment by Assessing Officer nor disclosure by assessee as to nexus between interest received and interest payment--Non-application of mind by Assessing Officer during original assessment--Reassessment valid--Income-tax Act, 1961, ss. 147, 148-- Nancy Krafts P. Ltd. v. Asst. CIT (Delhi) . . . 193

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

for services rendered outside India - Tax not deductible at source--Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

services rendered outside India - Tax not deductible at source--Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

services rendered outside India - Tax not deductible at source - Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

for services rendered outside India - Tax not deductible at source - Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

interested- Loan to shareholder holding more than 10 per cent. voting rights--Loan out of accumulated profits--No evidence that loan was for purposes of business of company--Loan assessable as deemed dividend-- Mrs. Kiran Bansal v. Asst. CIT (Delhi) . . . 180

services rendered outside India- Tax not deductible at source - Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

in traditional art forms- Assessee entitled to exemption-- Vempati Chinna Satyam Kuchipudi Art Foundation v. Deputy CIT (Chennai) . . . 201

of units of mutual fund--Assessee entitled to exemption--Amendment with effect from April 1, 2008 restricting exemption to income from investment in venture capital undertaking--Not applicable to earlier years-- ITO v. Kshitij Venture Capital Fund (Mumbai) . . . 136

business, dealing in shares--Assessee holding controlling shares in particular company promoted by assessee and treating shares as investment and not in nature of stock-in-trade--Transfer of shares give rise to long-term capital gains--Assessee entitled to exemption-- Asst. CIT v. Stargate Investments P. Ltd. (Chennai) . . . 211

beneficiary and trust entitled to exemption-- Vempati Chinna Satyam Kuchipudi Art Foundation v. Deputy CIT (Chennai) . . . 201

Trustee not beneficiary and trust entitled to exemption-- Vempati Chinna Satyam Kuchipudi Art Foundation v. Deputy CIT (Chennai) . . . 201

rent permissible under Act--Assessing Officer directed to compute annual letting value in terms of standard rent payable under Act--Bombay Rent Control Act-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

transportation of goods on hire basis- Entitled to higher rate of depreciation--Circular No. 652 dated June 14, 1993-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

evidence- Disallowance of fifty per cent. -Proper-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

not encashed by department--Disallowance justified-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Allowable--Sum towards receivables--Not allowable-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

Perquisites in hands of executives--No addition could be made-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

for services rendered outside India--Tax not deductible at source--Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

charges paid to sister concern--Tug not used for any transportation during relevant period--No case for commercial expediency of payment to sister concern--Disallowance justified-- Urmila and Co. Ltd. v. Deputy CIT (Mumbai) . . . 217

of understatement of sale consideration--Assessing Officer to adopt sale consideration of shares as disclosed by assessee-- Deputy CIT v. Jindal Equipment Leasing and Consultancy Services Ltd. (Delhi) . . . 128

electrical rewiring and wood work expenses--Are post-acquisition expenses--To be excluded--Brokerage and legal fees--Part of acquisition cost--To be allowed-- Smt. S. Sudha v. Asst. CIT (Chennai) . . . 206

Assessing Officer--Only 90 per cent. of net interest received to be excluded from business profit--Net interest computation--Gross interest less expenditure incurred for earning interest income--Matter remanded to examine nexus between interest received and interest payment-- Nancy Krafts P. Ltd. v. Asst. CIT (Delhi) . . . 193

Officer has no power to extend period of limitation--Assessment order passed on 29-8-2005 barred by limitation-- Deputy CIT v. Ramachandra Dashrath Hande and Co. (Mumbai) . . . 117

assessment by AO nor disclosure by assessee as to nexus between interest received and interest payment--Non-application of mind by Assessing Officer during original assessment--Reassessment valid-- Nancy Krafts P. Ltd. v. Asst. CIT (Delhi) . . . 193

pending before Assessing Officer--Assessing Officer has no jurisdiction to refer property for valuation to Valuation Officer--Reassessment notice issued on basis of valuation--Not permissible-- ITO v. Nisarg Co-op. Housing Society Ltd. (Ahmedabad) . . . 174

by Assessing Officer nor disclosure by assessee as to nexus between interest received and interest payment--Non-application of mind by Assessing Officer during original assessment--Reassessment valid-- Nancy Krafts P. Ltd. v. Asst. CIT (Delhi) . . . 193

services rendered outside India--Tax not deductible at source--Fees for technical services--Insulator testing, advertising, etc.--Not technical services--Tax not deductible at source--Circular No. 786, dated February 7, 2000--Circular No. 7, dated 22-10-2009-- Asst. CIT v. Modern Insulator Ltd. (Jaipur) . . . 147

electrical rewiring and wood work expenses--Are post-acquisition expenses--To be excluded--Brokerage and legal fees--Part of acquisition cost--To be allowed-- Smt. S. Sudha v. Asst. CIT (Chennai) . . . 206

assessing authority to levy penalty where it is imperative--Assessee claiming expenses as part of acquisition cost on a bona fide belief--Penalty cannot be imposed-- Smt. S. Sudha v. Asst. CIT (Chennai) . . . 206

acquisition cost on a bona fide belief--Penalty cannot be imposed--Smt. S. Sudha v. Asst. CIT (Chennai) . . . 206

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