ITR ISSUE DATED 26-09-2011 Volume 337 Part 3, SUBJECT INDEX TO CASES REPORTED IN THIS PART

INCOME TAX REPORTS (ITR)

Volume 337 : Part 3 (Issue dated 26-9-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

->> Advance tax --Interest payable by assessee--Default in payment of advance tax--Withdrawal of investment allowance--Fiction under section 32A(5) applicable to levy of interest --Income-tax Act, 1961, ss. 32A(5), 234B-- I. C. I. India Ltd . v. CIT (Cal) . . . 327

->> Assessing Officer --Powers of Assessing Officer--Remand by Commissioner (Appeals) in respect of specific issues--Assessing Officer has no power to consider a new issue--Income-tax Act, 1961, ss. 32A, 43(3), 250-- Deputy CIT (Asstt.) v. Surat Electricity Co. Ltd. (Guj) . . . 271

->> Bad debt --Condition precedent for allowance--Effect of amendment of section 36 w.e.f. 1-4-1989--Writing off amount is sufficient--Assessee need not prove that debt had been bad--Income-tax Act, 1961, s. 36(1)(vii), (2)(iii)-- Asst. CIT v. Pullen Pump Industries (Guj) . . . 294

->> Capital gains --Business income--Purchase of shares and sale within a short time--Finding that shares had been purchased as investment--Gains assessable as capital gains--Income-tax Act, 1961, ss. 28, 45-- CIT v. Consolidated Finvest and Holding Ltd . (Delhi) . . . 264

->> Current repairs --Business expenditure--Meaning of current repairs--Capital or revenue expenditure--Breakdown of machinery after long use--Expenditure on overhauling and reconditioning machinery--Not deductible as current repairs or revenue expenditure--Expenditure on minor repairs of many machines--Deductible--Income-tax Act, 1961, ss. 31, 37-- Bharat Gears Ltd. v. CIT (Delhi) . . . 368

->> Depreciation --Rate of depreciation--Motor vehicle--Difference between lease and hire--Assessee leasing motor vehicles to clients--Not engaged in business of hire--Not entitled to higher rate of depreciation--Income-tax Act, 1961, s. 32--Income-tax Rules, 1962, Appendix I-- Bhagwati Appliance v. ITO (Guj) . . . 286

->> Exemption --Difference between sections 10 and 11--Agricultural marketing committee--Law applicable--Effect of insertion of clause (26AAB) in section 10 w.e.f. 1-4-2009--Provision not retrospective--Committee entitled to exemption under section 10(26AAB) from 1-4-2009--Income-tax Act, 1961, ss. 10, 11-- CIT v. Agriculture Market Committee (AP) . . . 299

->> Interpretation of taxing statutes --Rule against retrospectivity--Declaratory legislation-- CIT v. Agriculture Market Committee (AP) . . . 299

->> Investment allowance --Withdrawal of allowance--Conditions precedent--Transfer of entire division in slump sale within eight years--No price separately indicated for plant and machinery--Section 32A(5) applicable--Withdrawal of investment allowance--Justified--Income-tax Act, 1961, s. 32A(5)-- I. C. I. India Ltd . v. CIT (Cal) . . . 327

->> Penalty --Concealment of income--Failure to furnish return of income when amounts to concealment--Effect of Explanation 3 to section 271(1)--Conditions enumerated in the Explanation are cumulative--Notice under section 148 within period stipulated in section 153(1)--Explanation not applicable--Penalty could not be levied--Income-tax Act, 1961, s. 271-- Chhaganlal S Uteriya v. ITO (Guj) . . . 350

->> Precedent --Effect of decision of Supreme Court in CIT v. Gupta Global Exim P. Ltd. [2008] 305 ITR 132 (SC)-- Bhagwati Appliance v. ITO (Guj) . . . 286

->> Residence --Requirement of stay in India for specified period in previous year--Effect of Explanation (a) to section 6(1)(c)--Employment includes self-employment--Indian citizen doing business in foreign country and staying in India for one hundred and seventy-seven days in the previous year--To be treated as non-resident--Income-tax Act, 1961, s. 6(1)(c)-- CIT v. O. Abdul Razak (Ker) . . . 267

->> Revision --Application for revision--Rejection of application without considering merits--Levy of penalty not valid--Rejection of application not justified--Income-tax Act, 1961, s. 264-- Chhaganlal S Uteriya v. ITO (Guj) . . . 350

->> Search and seizure --Assessment of third person--Condition precedent--Satisfaction of Assessing Officer that undisclosed income found during search belonged to third person--Cash belonging to third person seized from his employee in premises of searched person--No evidence to indicate satisfaction of Assessing Officer that cash seized belonged to third person--Notice under section 158BD to third person--Not valid--Income-tax Act, 1961, s. 158BD-- Chandrakantbhai Amratlal Thakkar v. Deputy CIT (Guj) . . . 258

->> ----Block assessment--Penalty--Scope of section 158BFA--Substantial addition to income returned under section 158BC--Tax not paid--Penalty to be levied--Commissioner allowing payment of tax in instalments--Not relevant--Income-tax Act, 1961, s. 158BFA-- CIT v. Heera Construction Co. P. Ltd. (Ker) . . . 359

AUTHORITY FOR ADVANCE RULINGS

->> Non-resident --Transfer to non-resident subsidiary of shares in Indian company without consideration--Not taxable in India--Transfer pricing provisions not applicable--No requirement of deduction of tax at source--But liable to file return--Income-tax Act, 1961, ss. 45, 47(iii), 92 to 92F, 139, 195-- Deere and Company, In re. . . 277

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

->> S. 6(1)(c) --Residence--Requirement of stay in India for specified period in previous year--Effect of Explanation (a) to section 6(1)(c)--Employment includes self-employment--Indian citizen doing business in foreign country and staying in India for one hundred and seventy-seven days in the previous year--To be treated as non-resident-- CIT v. O. Abdul Razak (Ker) . . . 267

->> S. 10 --Exemption--Difference between sections 10 and 11--Agricultural marketing committee--Law applicable--Effect of insertion of clause (26AAB) in section 10 w.e.f. 1-4-2009--Provision not retrospective--Committee entitled to exemption under section 10(26AAB) from 1-4-2009-- CIT v. Agriculture Market Committee (AP) . . . 299

->> S. 11 --Exemption--Difference between sections 10 and 11--Agricultural marketing committee--Law applicable--Effect of insertion of clause (26AAB) in section 10 w.e.f. 1-4-2009--Provision not retrospective--Committee entitled to exemption under section 10(26AAB) from 1-4-2009-- CIT v. Agriculture Market Committee (AP) . . . 299

->> S. 28 --Capital gains--Business income--Purchase of shares and sale within a short time--Finding that shares had been purchased as investment--Gains assessable as capital gains-- CIT v. Consolidated Finvest and Holding Ltd .(Delhi) . . . 264

->> S. 31 --Current repairs--Business expenditure--Meaning of current repairs--Capital or revenue expenditure--Breakdown of machinery after long use--Expenditure on overhauling and reconditioning machinery--Not deductible as current repairs or revenue expenditure--Expenditure on minor repairs of many machines--Deductible-- Bharat Gears Ltd. v. CIT (Delhi) . . . 368

->> S. 32 --Depreciation--Rate of depreciation--Motor vehicle--Difference between lease and hire--Assessee leasing motor vehicles to clients--Not engaged in business of hire--Not entitled to higher rate of depreciation-- Bhagwati Appliance v. ITO (Guj) . . . 286

->> S. 32A --Assessing Officer--Powers of Assessing Officer--Remand by Commissioner (Appeals) in respect of specific issues--Assessing Officer has no power to consider a new issue-- Deputy CIT (Asstt.) v. Surat Electricity Co. Ltd. (Guj) . . . 271

->> S. 32A(5) --Advance tax--Interest payable by assessee--Default in payment of advance tax--Withdrawal of investment allowance--Fiction under section 32A(5) applicable to levy of interest-- I. C. I. India Ltd . v. CIT (Cal) . . . 327

->> ----Investment allowance--Withdrawal of allowance--Conditions precedent--Transfer of entire division in slump sale within eight years--No price separately indicated for plant and machinery--Section 32A(5) applicable--Withdrawal of investment allowance--Justified-- I. C. I. India Ltd . v. CIT (Cal) . . . 327

->> S. 36(1)(vii) --Bad debt--Condition precedent for allowance--Effect of amendment of section 36 w.e.f. 1-4-1989--Writing off amount is sufficient--Assessee need not prove that debt had been bad-- Asst. CIT v. Pullen Pump Industries (Guj) . . . 294

->> S. 36(2)(iii) --Bad debt--Condition precedent for allowance--Effect of amendment of section 36 w.e.f. 1-4-1989--Writing off amount is sufficient--Assessee need not prove that debt had been bad-- Asst. CIT v. Pullen Pump Industries (Guj) . . . 294

->> S. 37 --Current repairs--Business expenditure--Meaning of current repairs--Capital or revenue expenditure--Breakdown of machinery after long use--Expenditure on overhauling and reconditioning machinery--Not deductible as current repairs or revenue expenditure--Expenditure on minor repairs of many machines--Deductible-- Bharat Gears Ltd. v. CIT (Delhi) . . . 368

->> S. 43(3) --Assessing Officer--Powers of Assessing Officer--Remand by Commissioner (Appeals) in respect of specific issues--Assessing Officer has no power to consider a new issue-- Deputy CIT (Asstt.) v. Surat Electricity Co. Ltd. (Guj) . . . 271

->> S. 45 --Capital gains--Business income--Purchase of shares and sale within a short time--Finding that shares had been purchased as investment--Gains assessable as capital gains-- CIT v. Consolidated Finvest and Holding Ltd .(Delhi) . . . 264

->> ----Non-resident--Transfer to non-resident subsidiary of shares in Indian company without consideration--Not taxable in India--Transfer pricing provisions not applicable--No requirement of deduction of tax at source--But liable to file return-- Deere and Company, In re (AAR) . . . 277

->> S. 47(iii) --Non-resident--Transfer to non-resident subsidiary of shares in Indian company without consideration--Not taxable in India--Transfer pricing provisions not applicable--No requirement of deduction of tax at source--But liable to file return-- Deere and Company, In re (AAR) . . . 277

->> Ss. 92 to 92F --Non-resident--Transfer to non-resident subsidiary of shares in Indian company without consideration--Not taxable in India--Transfer pricing provisions not applicable--No requirement of deduction of tax at source--But liable to file return-- Deere and Company, In re (AAR) . . . 277

->> S. 139 --Non-resident--Transfer to non-resident subsidiary of shares in Indian company without consideration--Not taxable in India--Transfer pricing provisions not applicable--No requirement of deduction of tax at source--But liable to file return-- Deere and Company, In re (AAR) . . . 277

->> S. 158BD --Search and seizure--Assessment of third person--Condition precedent--Satisfaction of Assessing Officer that undisclosed income found during search belonged to third person--Cash belonging to third person seized from his employee in premises of searched person--No evidence to indicate satisfaction of Assessing Officer that cash seized belonged to third person--Notice under section 158BD to third person--Not valid-- Chandrakantbhai Amratlal Thakkar v. Deputy CIT (Guj) . . . 258

->> S. 158BFA --Search and seizure--Block assessment--Penalty--Scope of section 158BFA--Substantial addition to income returned under section 158BC--Tax not paid--Penalty to be levied--Commissioner allowing payment of tax in instalments--Not relevant-- CIT v. Heera Construction Co. P. Ltd. (Ker) . . . 359

->> S. 195 --Non-resident--Transfer to non-resident subsidiary of shares in Indian company without consideration--Not taxable in India--Transfer pricing provisions not applicable--No requirement of deduction of tax at source--But liable to file return-- Deere and Company, In re (AAR) . . . 277

->> S. 234B --Advance tax--Interest payable by assessee--Default in payment of advance tax--Withdrawal of investment allowance--Fiction under section 32A(5) applicable to levy of interest-- I. C. I. India Ltd . v. CIT (Cal) . . . 327

->> S. 250 --Assessing Officer--Powers of Assessing Officer--Remand by Commissioner (Appeals) in respect of specific issues--Assessing Officer has no power to consider a new issue-- Deputy CIT (Asstt.) v. Surat Electricity Co. Ltd. (Guj) . . . 271

->> S. 264 --Revision--Application for revision--Rejection of application without considering merits--Levy of penalty not valid--Rejection of application not justified-- Chhaganlal S Uteriya v. ITO (Guj) . . . 350

->> S. 271 --Penalty--Concealment of income--Failure to furnish return of income when amounts to concealment--Effect of Explanation 3 to section 271(1)--Conditions enumerated in the Explanation are cumulative--Notice under section 148 within period stipulated in section 153(1)--Explanation not applicable--Penalty could not be levied-- Chhaganlal S Uteriya v. ITO (Guj) . . . 350

Income-tax Rules, 1962 :

->> Appendix I --Depreciation--Rate of depreciation--Motor vehicle--Difference between lease and hire--Assessee leasing motor vehicles to clients--Not engaged in business of hire--Not entitled to higher rate of depreciation-- Bhagwati Appliance v. ITO (Guj) . . . 286

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Direct Tax Laws Sept 2011

Where assessees filed an application for restoration of a writ petition after a delay of more than 30 years without providing satisfactory explanation for said delay writ petition could not be restored - [2011] 13 taxmann 135 (Calcutta)

Having regard section 158BB(1) as amended with effect from 1-7-2002, addition made on basis of statement of manager of assessee-firm recorded prior to date of search, was to be upheld - [2011] 13 taxmann 134 (Madras)

Where in return of income, assessee had not declared any additional amount of income surrendered during course of survey and later agreed to pay income-tax thereon along with interest under section 234B, Assessing Officer was justified in levying penalty under section 271(1)(c) - [2011] 13 taxmann 133 (Punjab & Haryana)

Reassessment is not justified where AO just changes& his opinion regarding assessee's system of accounting appropriate, it was a case of mere change of opinion on basis of which reassessment could not be made - [2011] 13 taxmann 132 (Rajasthan)

Once assessee had explained source of investment in shares and debentures by stating that they belonged to some other person and his explanation had been accepted, then if further investigation was required in case of said other person, that aspect could not be considered while considering assessment of assessee - [2011] 13 taxmann 131 (Delhi)

Designated authority under provisions of Kar Vivad Samadhan Scheme has no power to condone delay in making payment of amount of tax as required under section 90(2) - [2011] 13 taxmann 130 (Madhya Pradesh)

Payment made outside India for services rendered outside India is not taxable in India and, consequently, no disallowance could be made invoking section 40(a)(i) - [2011] 13 taxmann 137 (Mumbai - Trib.)

To treat a person as an agent of non-resident, it is to be proved that such person has business connection with non-resident and from or through such a person, non-resident is in receipt of income, whether directly or indirectly - [2011] 13 taxmann 136 (Mumbai - Trib.)

Depletion claimed by assessee on account of reduction in value of capital expenditure incurred on account of exploration and development of oil and gas is to be treated as depreciation for purpose of computation of book profits under section 115JB - [2011] 13 taxmann 129 (Chennai - Trib.)

An order can be revised only if twin conditions of 'error in order' and, 'prejudice caused to revenue' co-exist - [2011] 13 taxmann 127 (Chennai - Trib.)

There could be a cold chain facility for storage only without involving transportation of agricultural produce; various attendant facilities provided along with storage complete cold chain facility insofar as storage is concerned - [2011] 13 taxmann 126 (Agra - Trib.)

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Whether when someone else deducts tax at source from payments made on beha

I-T - Whether when someone else deducts tax at source from payments made on behalf of assessee, it can be said that assessee has discharged its liability u/s 194C - NO, rules ITAT

THE issues before the Tribunal are - Whether, for attracting the provisions of Sec 194C, the presence of an express agreement vis-à-vis transportation charges, is a condition precedent; Whether liability of section 194C can be said to have been discharged if someone else deducts tax at source from payments made on behalf of the assessee and whether when assessee has diverted interest bearing funds to its sister concerns without charging any interest, disallowance of interest after allocation of interest bearing funds to tax free unit and non tax free unit is tenable, particularly for the period when the commercial production has not commenced. And the verdict goes against the assessee.

Facts of the case

Assessee company is engaged in the business of manufacturing pharmaceuticals products - filed its ROI, claiming deduction of certain expenses - it also paid interest on interest bearing funds and at the same time advanced interest free funds to its sister concerns – A.O. disallowed both these expenses on the grounds that expenses were incurred without deducting TDS and the interest bearing funds were diverted to sister concern without charging any interest. In respect of second issue it was observed by the AO that the assessee was having two units one was tax free and other was not - accordingly, the AO allocated the interest bearing funds among the units and disallowed the interest pertaining to that period during which commercial production was not commenced – CIT (A) affirmed the order of the A.O. – Before the ITAT, the AR of the assessee pleaded that the payments to the transporters were made on behalf of distributor and there was no written agreement between those transporters and the assessee.

After hearing the parties ITAT held that,

++ the distributors were acting merely as agents of the assessee and making the payment of freight charges on behalf of the assessee. Besides, the very fact that the assessee had claimed the impugned expenses as deduction shows that the assessee-company was not only liable to meet the same but had also actually met the same. It cannot therefore be accepted that the assessee was not required to pay freight charges or that it had not paid them. The mere fact that the payment was made by the distributors on behalf of the assessee will not alter the true nature, character and substance of the transaction. All the requirements of section 194C are fulfilled. Therefore it was the statutory responsibility of the assessee to deduct tax at source out of such payments and pay the same to the Government. In this view of the matter, the submission made on behalf of the assessee that the distributors were required to deduct tax at source out of impugned payments is rejected;

++ the submission made on behalf of the assessee that the distributors had deducted tax at source out of such payments and therefore the AO was not justified in making the impugned disallowance does not carry any force for several reasons. One, section 40(a)((ia) fixes the responsibility on the assessee (and none else) claiming deduction of expenses to deduct tax at source and deposit the same with the Government. The aforesaid statutory condition is not satisfied in the present case and therefore the assessee is not entitled to claim deduction of the impugned expenses. Two, as held by the CIT(A), distributors have not deducted tax at source. Three, the judgment in Transmission Corporation of AP Ltd. v. CIT (2002-TII-01-SC-INTL) referred to by the ld. authorized representative is inapplicable to the facts of the case and also for the reason that it has not been rendered in the context of section 40(a)(ia);

++ in CIT v. Abhishek Industries (2006-TIOL-314-HC-P&H-IT), the jurisdictional High Court has held that entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc. do not have any different colour. Whatever are the receipts in the business; they have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. Though the aforesaid judgment has been rendered in the context of section 36(1)(iii), the observations of the Hon'ble High Court as referred to above are quite apposite on the facts and in the circumstances of the case before us. Baddi unit and Dera Bassi unit are sister units of the same assessee. Dera Bassi unit has diverted part of its funds including interest-bearing funds to Baddi unit. The funds so transferred have cost. If the funds diverted are borrowed funds, then the cost is interest paid by the unit diverting its funds. If it is its own money (e.g., internal accruals, etc.), the cost is the amount of interest foregone by the unit diverting its funds. Quite obviously, not only the funds so transferred by Dera Bassi unit to Baddi unit but also interest thereon would need to be allocated to Baddi unit otherwise the profits of Baddi unit, which are exempt from tax, would stand inflated while the profits of taxable unit being Dera Bassi unit would stand artificially suppressed. In this view of the matter, the action of the AO/CIT(A) in allocating the impugned funds and interest thereon to Baddi unit and thereby capitalizing the same in terms of the proviso to u/s 36(1)(iii) is held to be in order. Ground No. 4 taken by the assessee is dismissed.

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Merely because surplus from educational activity, does not mean it is NOT from Educational Activity

 Merely because surplus has arisen to assessee during its educational activity does not mean that assessee is not existing solely for education purpose

Income-tax : If main object of an assessee is imparting of education and during course of imparting education, if some surplus has arisen to assessee, it cannot be said that assessees institution is not engaged for charitable purpose as defined under section 2(15) [Section 10(23C) Income-tax Act, 1961 - Charitable/religious institutions] - [2011] 10 taxmann.com 156 (Agra - ITAT)

If two views are possible than A.O. should take the one favourable to the Assessee

CIT Vs Mahavir Irrigation Pvt Ltd

[ITA No.1266/2009, dtd. 03.08.2011]

If two views are possible than Assessing Officers should take the one favourable to the Assessee and penalty for concealment cannot be levied

Where there is no finding that any details supplied by the assessee in its Return is incorrect or erroneous or false, there would be no question of inviting the penalty under Section 271 (1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.

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Capital gains earned by a Dutch company on transfer of shares held in an In

Capital gains earned by a Dutch company on transfer of shares held in an Indian company to a foreign company is taxable only in Netherlands

Income-tax : Capital gains earned by the applicant on transfer of shares would be covered by Article 13(5) of the Tax Treaty and shall be taxable only in the Netherlands, the State in which the transferor is a resident [Section 90 of the Income-tax Act, 1961 read with Article 13(5) of the India-Netherlands DTAA - Double Taxation Relief - Where agreement exists (Capital gains)]

l The applicant is required to file return of income under section 139 even if the capital gain is not taxable in India because instead of causing inconvenience to the applicant, the process of filing of return would facilitate the applicant in all future interactions with the Income-tax department - [2011] 10 taxmann.com 157 (AAR - New Delhi

Direct Tax Laws Sept 2011

Whether services rendered by assessee is a technical service or not, require scrutiny by Court; no final assessment order should be passed till scrutiny is over - [2011] 13 taxmann 123 (Uttarakhand)

Before order of TPO determining transfer price is passed, opportunity of hearing is to be given to assessee - [2011] 13 taxmann 122 (Bombay)

Where assessee did not disclose salary of 8 months received from former employer and showed salary of only 4 months received from new employer, provisions of section 271(1)(c) were attracted - [2011] 13 taxmann 115 (Calcutta)

Addition under section 68 could not be made where assessee had explained receipt of loan by cheques with help of bank statements and income-tax returns of creditors - [2011] 13 taxmann 114 (Delhi)

Where assessee branch office of German company received order from Indian client and negotiations and conclusion of contract were done in Germany by head office, allocation of income at 40 per cent for role played by head office was justified - [2011] 13 taxmann 124 (Delhi - Trib.)

Where difference between sale consideration in transactions with AE and ALP determined by TPO is less than 5 per cent, no addition is required - [2011] 13 taxmann 121 (Mumbai - Trib.)

Reserve created under section 80HHC can be distributed amongst partners - [2011] 13 taxmann 113 (Ahmedabad - Trib.)
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INTEREST-FREE LOANS TO LOSE TAX BURDEN

INTEREST-FREE LOANS TO LOSE TAX BURDEN

ITAT Ruling On Loans From Non-Relatives

Ram Narsinghdev Sahgal MUMBAI

IN A first-of-its- kind judgement, the Income-Tax Appellate Tribunal (ITAT) recently ruled that a recipient of an interest-free loan from a non-relative is not liable to pay tax. The judgement will come as a major relief for people who borrow money from friends and colleagues and latter grapple with notices from tax authorities.
Section 56 (2)(v) of the Income Tax Act provides for taxing any sum of money in excess of Rs 25,000 received without consideration by an individual or a Hindu Undivided Family (HUF) from any source other than a relative. Occasions where the recipient is exempted from tax are during a marriage, or in cases where the amount is received under a will, or by way of inheritance or in contemplation of death of the payer.
Applying this section, an income-tax assessing officer treated interest-free loans amounting to Rs 54.7 lakh received by one Chandrakant Shah from nonrelatives as a sum without consideration and taxed it.

New section came into force in 2004

THE assessee approached the Commissioner of I-T (Appeals), but was not granted relief. He then appealed before the Mumbai ITAT, where his legal counsel said that the lower authorities had "misinterpreted" the new section, which came into effect on September 1, 2004. Furthermore, Mr Shah's counsel said the sum of interest-free loans taken by him even before that date (September 1, 2004) did not fall within the ambit of the amended section.
Bhupendra Shah, Mr Shah's counsel, argued before a division bench comprising Madhavi Devi and VK Gupta that an interest-free loan could not be taxed under Section 56 (2)(v), as the repayment of a loan itself is treated as consideration between two parties and not a sum without consideration. The counsel said the amounts were shown in the balance sheet by the assessee as unsecured loan liabilities, and, hence, could not be treated as an addition to capital as in the case of a gift.
The counsel contended that the term "loan" meant delivery by one party to and receipt by another party of a sum of money upon agreement expressed or implied condition, to repay it with or without interest.
He maintained that it was inessential for an interest component to make a transaction of lending of money a loan transaction, by referring to a decision of the Court of Appeal of State of California. The US court had observed that a loan of money was a contract by which one delivered a sum of money to another, and the latter agreed to return at a future time without interest that sum which he borrowed.
The bench upheld the counsel's argument, saying: "We hold that a transaction of loan can be without interest and a transaction of loan implies an agreement to repay the money that is borrowed, which also gives reply to the revenue's query regarding the existence of the obligation to repay the money at the time of taking such loan." Section 56 (2)(v) was introduced to fill up the vacuum created by the abolition of the Gift Tax Act in 1997, which was donor-based, meaning the giver of a gift was taxed.

Section 115-O(5) did not, in any way, restrict allowability of claim u/s 80 M

Section 115-O(5) did not, in any way, restrict allowability of claim under section 80M - [2011] 10 taxmann 135 (Bom.)

An income already taxed under one head cannot, at subsequent period, be tax

An income already taxed under one head cannot, at subsequent period, be taxed under a different head - [2011] 10 taxmann.com 139 (Cal.)

Society , trading activity can not be claimed benefit u/s 12A & 80 G

Society for The Small & Medium Exporters Vs DIT [ITA No.3182 & 3183/Del/2008, dtd. 29.04.2011]
Benefits of Sec. 12A and 80G cannot be allowed if there is no charitable activity and assessee undertakes only commercial activity

ITAT Delhi bench held that in a case where the objects of the society may be charitable, but, in the absence of carrying on those activities despite the fact that the activities which were carried on were for the purpose of generating income, the society is not entitled for registration for benefits of Sec. 12A and 80G for that year. It has been held that for assessment years in which the assessee does not carry out charitable activity, the assessee has been rightly refused to get benefit of registration as charitable institution. The only activity which has been carried out is for the purpose of generating income, which is not a charitable activity in itself........

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Losses in non-delivery based share transactions can be set off against speculation profit

Losses in non-delivery based share transactions can be set off against profits of speculation business under deeming fiction of Explanation to section 73 - [2011] 11 taxmann.com 385 (Mum. - ITAT)

Interest received by public financial institution

 

Interest received by public financial institution on loans and advances made under bills re discounting scheme from different banking companies to which Banking Regulation Act, 1949 applies, does not form part of chargeable interest - [2011] 11 taxmann 412 (Cal.)

ITR (TRIB) Volume 11 : Part 4 (Issue dated : 19-09-2011)

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

Volume 11 : Part 4 (Issue dated : 19-09-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

 

->> Bad debt --Deduction--Condition precedent--Writing off in accounting year--Resolution for writing off in subsequent year not relevant--Amount deductible as bad debt--Income-tax Act, 1961, s. 36-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> Business income --Remission or cessation of trading liability--Transfer of loan from sister-concern--No trading transaction--Creditor not acknowledging debt--Amount not assessable under section 41--Outstanding liability due to trading transaction becoming subsequently non-payable--Section 41 applicable--Amount to be added to business income of assessee--Income-tax Act, 1961, s. 41-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> Capital gains --Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C--Income-tax Act, 1961, ss. 48, 50C, 142A-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> Charitable purpose --Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration--Income-tax Act, 1961, ss. 12A, 12AA-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

->> Co-operative society --Special deduction--Interest received from credit facilities to members--Assessee not a credit society-- Not entitled to deduction--Income-tax Act, 1961, s. 80P(2)(a)(i)-- ITO v. Modern Engineers Construction Co-op. Society (Chennai) . . . 393

 

->> Penalty --Concealment of income--Additions made by Assessing Officer on account of disallowance of expenditure--No material to show concealment by assessee--Penalty not imposable--Income-tax Act, 1961, s. 271(1)(c)-- Deputy CIT v. Eagle Iron and Metal Industries Ltd. (Mumbai) . . . 384

 

->>Production of cinematograph films--Statement to be filed in Form 52A--Failure to file by due dates--Explanation that assessee under bona fide belief that form to be filed with return--Commissioner (Appeals) finding reasonable cause for delay and reducing penalty--Order attaining finality--Order of Commissioner (Appeals) confirmed--Income-tax Act, 1961, s. 272A(2)(c)-- Deputy CIT v. Dasari Narayana Rao (Chennai) . . . 403

 

->> Search and seizure --Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal--Income-tax Act, 1961, ss. 132(4), 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Block assessment--Income-tax authorities--Jurisdiction--Central Board of Direct Taxes--Powers--Joint Director substituting Deputy Commissioner--Only case of redesignation--Board has power to authorise Deputy Commissioner to carry out necessary searches--No fresh notification required--Income-tax Act, 1961, s. 132--General Clauses Act, 1897, s. 24-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->>Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation--Income-tax Act, 1961, ss. 132, 158BC, 158BE-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->>Block assessment--Search prior to June 1, 2002--Surcharge in addition to income-tax leviable on undisclosed income--Proviso to section 113 clarificatory--Income-tax Act, 1961, ss. 113, 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Block assessment--Undisclosed income--Addition on unaccounted investment --No evidence found during search indicating assessee made investments--Addition to be deleted--Income-tax Act, 1961, s. 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Block assessment--Undisclosed income--Addition on unaccounted receivable and investment in computer--Matter remanded--Income-tax Act, 1961, s. 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> Trust --Creation of trust--Committee empowered to create trust to manage affairs of charitable institutions--Delhi Sikh Gurudwaras Act, 1971, s. 24(iv)-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

->> Delhi Sikh Gurudwaras Act, 1971 :

 

S. 24(iv) --Trust--Creation of trust--Committee empowered to create trust to manage affairs of charitable institutions-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

 General Clauses Act, 1897 :

 

->> S. 24 --Search and seizure--Block assessment--Income-tax authorities--Jurisdiction--Central Board of Direct Taxes--Powers--Joint Director substituting Deputy Commissioner--Only case of redesignation--Board has power to authorise Deputy Commissioner to carry out necessary searches--No fresh notification required-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

Income-tax Act, 1961 :

->> S. 12A --Charitable purpose--Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

->> S. 12AA --Charitable purpose--Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

 

->> S. 36 --Bad debt--Deduction--Condition precedent--Writing off in accounting year --Resolution for writing off in subsequent year not relevant--Amount deductible as bad debt-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> S. 41 --Business income--Remission or cessation of trading liability--Transfer of loan from sister-concern--No trading transaction--Creditor not acknowledging debt--Amount not assessable under section 41--Outstanding liability due to trading transaction becoming subsequently non-payable--Section 41 applicable--Amount to be added to business income of assessee-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

 

->> S. 48 --Capital gains--Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> S. 50C --Capital gains--Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed --No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> S. 80P(2)(a)(i) --Co-operative society--Special deduction--Interest received from credit facilities to members--Assessee not a credit society--Not entitled to deduction-- ITO v. Modern Engineers Construction Co-op. Society (Chennai) . . . 393

 

->> S. 113 --Search and seizure--Block assessment--Search prior to June 1, 2002--Surcharge in addition to income-tax leviable on undisclosed income--Proviso to section 113 clarificatory-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> S. 132 --Search and seizure--Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->> S. 132(4) --Search and seizure--Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> S. 142A --Capital gains--Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C-- Sumit Khurana v. Asst. CIT (Delhi) . . . 377

 

->> S. 158BC --Search and seizure--Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Search and seizure--Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->>Search and seizure--Block assessment--Search prior to June 1, 2002--Surcharge in addition to income-tax leviable on undisclosed income--Proviso to section 113 clarificatory-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Search and seizure--Block assessment--Undisclosed income--Addition on unaccounted investment--No evidence found during search indicating assessee made investments--Addition to be deleted-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->>Search and seizure--Block assessment--Undisclosed income--Addition on unaccounted receivable and investment in computer--Matter remanded-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

 

->> S. 158BE --Search and seizure--Block assessment--Last warrant of authorisation executed on 7-9-1999--Assessment order passed within limitation-- Addl. CIT v. Dr. D. P. Agarwal (Lucknow) . . . 341

 

->> S. 271(1)(c) --Penalty--Concealment of income--Additions made by Assessing Officer on account of disallowance of expenditure--No material to show concealment by assessee--Penalty not imposable-- Deputy CIT v. Eagle Iron and Metal Industries Ltd. (Mumbai) . . . 384

 

->> S. 272A(2)(c)--Penalty--Production of cinematograph films--Statement to be filed in Form 52A--Failure to file by due dates--Explanation that assessee under bona fide belief that form to be filed with return--Commissioner (Appeals) finding reasonable cause for delay and reducing penalty--Order attaining finality--Order of Commissioner (Appeals) confirmed--Deputy CIT v. Dasari Narayana Rao (Chennai) . . . 403

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Project also has commercial shops, it is entitled to Sec 80IB(10) benefits

 

Income tax - Whether when project also has commercial shops, it is entitled to Sec 80IB(10) benefits if it was commenced prior to amendment in Sec 80IB from April 1, 2005 - Yes, rules ITAT

PUNE, JULY 15, 2011: THE question before the Tribunal is - Whether when the project has also commercial shops, it is entitled to deduction u/s 80IB(10) if it was commenced prior to the amendment brought into section 80IB(10) w.e.f. 1st April, 2005. Yes is the Tribunal's answer.

Facts of the case

AO denied deduction claimed u/s. 80 IB(10) on the basis that section 80IB was not applicable to a project which contained shop/commercial establishment and it did not remain a `Housing Project' - the assessee had constructed 66 shops being commercial premises included in the project admeasuring 9404 sq. ft. which was as per the assessee was about 11.88% but as AO about 12.41%.

CIT (A) confirmed the disallowance observing that the commercial construction was more than 5% or 2000 sq.ft. as per the amended provisions of Sec. 80IB (10) w.e.f. 1.4.2005. In A.Y. 2005-06, the amended provision was very much in operation.

Assessee contended that prior to the amendment in Section 80 IB(10) w.e.f. 1.4.2005, there was no restriction on the area for commercial purpses. By Finance Act 2004, the Legislature provided a ceiling of 2000 sq.ft. or 5% of the total area whichever is less. Hence, if a project was commenced prior to A.Y. 2005-06, there was no limit prescribed and accordingly, the assessee's project had satisfied all the conditions laid down in Sec. 80 IB (10). Sec. 80IB(10) states that the profit derived from the "housing project" is entitled to deduction. However, the words "housing project" is not defined in the Section. Therefore, the definition had to be considered in its general meaning and as understood in common parlance.

Further contended that CBDT vide its clarifications dt. 4th May 2001, clarified that in "housing project" certain shopping or commercial area would be mandatory – any project which was approved as a housing project by local authority would be eligible. When the assesees started the project, the old provisions of Section 80 IB(10) were on the Statute in which there was no ceiling on the portion of the commercial area – the housing project could include the commercial portion along with the residential portion. Hence, in view of the decision of the Special Bench in the case of Bramha Associates (2009-TIOL-218-ITAT-PUNE-SB), the assessees were entitled to deduction u/s. 80 IB (10).

Regarding applicability of amended provision to those projects where the project was started and completed before 1.4.2005, the assessee contended that the issue was directly covered by the decision of Mumbai Bench of the Tribunal in the case of Hiranandani Akruti J.V. v/s. DCIT, ITA No. 5416/Mum/2009 (A.Y. 2006-07) wherein it was held that the amended Section would apply to the projects started after 1.4.2005. If the project was commenced earlier, the assessee had not known that the Legislature would put such a restriction in future – the assessees were given an assurance by the Legislature that the profits from the project would be eligible for deduction even if, the project contained commercial portion and the approval was obtained before 1.4.2005 – the deduction had to be given on the basis of promissory estoppal also – it was further contended that if the assessee had followed the WIP method, the income from the project would had been taxable in the earlier years as the project was completed earlier to the amendment and in that case, as per the old provision, the assessee would had been eligible for the deduction. But, just because the assessee has followed the "Project Completion Method "in these cases, the deduction is being denied because it falls in A.Y. 2005-06.

Without prejudice it was contended that on the portion of commercial area exceeding limit under Clause (d), the deduction u/s. 80 IB(10) might not be granted but on the balance project, the deduction should be allowed.

Revenue contended that the amended provisions refer to all projects approved before 31.3.2007 and does not differentiate between Housing Project approved before 2004 or 2003. Had the Legislature wanted to make a distinction between projects commenced prior to 1.4.2005 and completed after the amendment by introducing clause (d) to Sec. 80IB(10) then the Legislature would have said so in clear terms.

In rejoinder the assessee contended that the deduction was continued and extended to the new project by extending the time limit for approval of the projects itself indicates that there was no intention to withdraw or cancel the deduction u/s. 80 IB(10).

After hearing both the parties, the ITAT held that,

++ by applying the principle of harmonious construction to interpret the provisions under Sub-section (10) to Section 80IB as amended w.e.f. 1.4.2005 the legislature always intended that the project must be approved by the local authority, thus in those approved projects where construction has been started much earlier than 1.4.2005, the assessees are required to complete the plan as it has been approved. As putting such assessees to complete the plan meeting out condition under clause (d) of the subsection would lead into absurdity and impossibility for the assessee and in contradiction to the provisions u/s. 80 IB(10) as prevailed at the time of approval and commencement of the construction of the project well before 1.4.2005;

++ in the case of Hiranandani Akruti J.V V/s. DCIT, the Mumbai Bench held that the law as existed when the assessee submitted its proposal and permission for carrying out the development was accorded and when the assessee commenced development is to be applied. In the present cases, in the case of Opel Shelter the project was commenced on 23.2.2001 and even completed on 14.5.2004, similarly in the case of D.S. Kulkarni and Associates, the project was commenced on 12.4.2001 and completed in the month of November 2003. Thus, the assessees were supposed to complete the projects as per the law as existed in the A.Y. 2001-02 in the case of Opel Shelters and in the A.Y. 2002-03 in the case of D.S. Kulkarni and Associates. Thus following the decision in the case of Hiranandani Akruti JV V/s. DCIT it is held that amended provisions under Section 80 IB(10) w.e.f. 1.4.2005 are not applicable in the present case, hence assessees are eligible for the claimed deduction u/s. 80 IB (10) of the Act.

growing of plant in lab by applying scientific method is an agriculture income

Whether growing of plant in lab by applying scientific method of tissue culture can be claimed as agricultural activity, exempt under I-T Act - NO, rules ITAT

BANGALORE, JULY 19, 2011: THE issues before the Tribunal are - Whether growing of plant in lab by applying scientific method of tissue culture can be termed as agricultural activity - Whether, to qualify as agricultural income, it is necessary for an operation to be carried on soil. Tribunal's answer for the first question is NO and YES for the latter one.

Facts of the case

Assessee is a company engaged in the business of growing and exporting of ornamental plants. It filed its return of income for the assessment year 2005-06 claiming the entire income as agricultural income and also exempt from Income-tax. The AO after visiting the premises of the assessee company and discussing the matter with Director of the company came to the conclusion that the assessee was carrying on tissue culture methodology and by this process, some of the activities carried on by the assessee are non-agriculture and, therefore, the entire income from the sale of plants cannot be termed as agricultural income. He, therefore, bifurcated the income into agricultural income and business income in the ratio of 70:30. The CIT(A) partly allowed the appeal of the assessee by restricting the business income to the tune of 10% only.

On appeal, the Tribunal held that,

++ it can be seen that the plant tissue culture is used to reproduce clones of a plant to get multiple plants with the same traits by placing various tissues of the mother plant in containers and required medium, which is definitely not consisting of land or soil. Such multiple plants which are generated or produced in the laboratories are then transferred to soil and after their adaptation to the natural conditions, they are allowed to be grown into mature plants to be sold to the customers;

++ thus, it can be seen that the subsequent argument of the assessee that the laboratories are only meant to keep the demonstration plants under controlled condition is not entirely correct. Where any operation is not carried out on land, such an operation cannot be called as agricultural operation. When the assessee is not carrying on the cultivation of land or plants in the soil in pots, the operations cannot be called as agricultural operations. The medium is not the soil or basic operations of agriculture such as tilling of the land, sowing of the seeds etc. are not carried out. Of course, once the sampling has been planted in the soil and is let to grow into a mature plant, this operation is definitely agricultural operation and income there-from has to be treated as agricultural income;

++ thus, we are in agreement with the finding of the assessing authority that the entire operation of the assessee is not agricultural income and, therefore, the entire income cannot be treated as agricultural income. AO had held that 30% of the income is non-agricultural income but he has not given any basis for such bifurcation. The criteria to bifurcate the income into agricultural and non agricultural income would be to take into account the expenditure incurred by the assessee on the micro propagation i.e tissue culture operation carried out by it and the expenditure incurred by it on growing of the plants after they are planted in the soil and in this proportion of expenditure only income can also be bifurcated into agricultural and non agriculture income. It is further observed that the assessee has filed an affidavit stating that no operations are carried on in the laboratories. This fact also needs verification by the AO. Therefore, the AO is directed to make a field inspection of the assessee's laboratory to see and observe the activities carried on by the assessee.

Notice u/s 148 issued within time , but served after limitation is valid !

Notice u/s 148 issued within time , but served after limitation is valid !

In previous posting , readers attention was brought on the invalidity of assessment if it was based on a notice u/s 143(2) which was issued in time , but served after time limitation . Contrary to the said  position is the issue of notice  u/s 148 of the I T Act. The notice u/s 148 is issued by A.O when he records reasons for reopening an assessment u/s 147 of the I .T.Act. Section 149 of the I T Act prescribes time limit within which notice us/ 148 can be issued.

Notice u/s 148

The question on validity of issue of notice us/ 148 which was issued in time , but served after the time limitation  recently came up before ITAT , Agra bench in ITO vs Sikandar Lal Jain reported in  45 SOT 113 [2011] . The tribunal held the service of notice even after the limitation date as valid if it was issued within time.
The decision of Tribunal was based on the decision of Hon'ble Supreme Court in the case of R.K. Upadhyaya v. Shanabhai P. Patel, 166 ITR 163 (SC) in which it was held that -

"The scheme of the 1961 Act so far as notice for reassessment is concerned is quite different. What used to be contained in section 34 of the 1922 Act has been spread out into three sections, being sections 147, 148 and 149, in the 1961 Act. A clear distinction has been made out between "issue of notice" and "service of notice" under the 1961 Act. Section 149 prescribes the period of limitation. It categorically prescribes that no notice under section 148 shall be issued after the prescribed limitation has lapsed. Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. The mandate of section 148(1) is that reassessment shall not be made until there has been service. The requirement of issue of notice is satisfied when a notice is actually issued. In this case, admittedly the notice was issued within the prescribed period of limitation as March 31, 1970, was the last day of that period. Service under the new Act is not a condition precedent to conferment of jurisdiction on the Income-tax Officer to deal with the matter but it is a condition precedent to the making of the order of assessment. The High Court, in our opinion, lost sight of the distinction and under a wrong basis felt bound by the judgment in Banarsi Debi v. ITO [1964] 53 ITR 100. As the Income-tax Officer had issued notice within limitation, the appeal is allowed and the order of the High Court is vacated. The Income-tax Officer shall now proceed to complete the assessment after complying with the requirements of law."

Settled Position on issue of notice u/s 148

If the notice u/s 148 is issued within time , the notice is valid despite the fact that the said notice is served after the end of time for issue of notice.