Whether expression 'full value of consideration' used in marginal notes

Whether expression 'full value of consideration' used in marginal notes of Sec 50C means that value adopted by stamp duty authority is sacrosanct, and if AO wants to substitute it with FMV of property, positive material is sine qua non - Yes, rules ITAT

NEW DELHI, SEPT 20, 2011: THE questions before the Bench are - Whehter expression "full value of consideration" used in marginal notes to section 50C, means that value adopted by stamp valuation authority is sacrosanct, and if the AO wants to replace that value with "fair market" value of the property then positive material is sine qua non; Whether without any positive material AO has power to refer the matter to the DVO under section 142A for ascertaining the actual capital gain and whether in case of investment AO has discretion to refer the matter under section 142A to DVO for determination of fair market value of property. And the verdict goes in favour of the assessee.

Facts of the case

Assessee purchased certain property in 1996 and sold the same in 2003 at the same price at which it was purchased. In order to ascertain the real value of the property inspector of the revenue conducted enquiries and found that value of sale reflected by the assessee is not correct, accordingly the AO made reference to the DVO for ascertaining two things number one the market value of properties sold and two the correct value of investments made in properties- DVO enhanced the figure of both the transactions- AO made addition - CIT(A) deleted the addition on the ground that without any positive material AO can not made any addition on the basis of DVO `s report - Matter reached to the ITAT wherein the ITAT inclined to accept the order of CIT(A) in respect of capital gains however could not agree with the view of CIT(A) in respect of the FMV of investments- ITAT observed that as far as investment in those properties, which are fetching higher rent is concerned the view of the AO is correct as the same was based on human probabilities.

After hearing the parties the ITAT observed that,

++ on combined reading of sub section (1) and (2) of section 50C it is clear that in the absence of any material to the effect that the assessee had received amount over and above the value on which stamp duty is payable, the full value of consideration will be the value adopted for the purpose of stamp valuation in respect of transfer of the asset;

++ under section 142A of the Act the AO is empowered to refer to the valuation cell for the purpose of making an assessment or reassessment where an estimate of the value of any investment referred to in section 69 or 69B or the value of any bullion, jewellery or other valuable article, referred to in section 69A or section 69B. Thus provisions of section 142A are applicable where the value of investment is to be determined. Provisions of section 142A are not applicable for the purpose of determination of full value of consideration. Therefore, in our considered opinion, in the absence of any contrary evidence, full value of consideration cannot be estimated under section 142A;

++ from the sale deed or from the assessment order or appellate order of the ld. CIT (A) it is not clear as to whether the flat at Plot No. B-28, Lajpat Nagar, was transferred at circle rate prescribed for the purpose of stamp valuation. We, therefore, feel it proper to set aside the matter to the file of the AO with the directions to examine whether the value of the property sold is at Rs.14, 40,000/- or the value was higher as per circle rates applicable as on the date of transfer, than this amount for the purpose of stamp valuation;

++ from plain reading of the Memorandum explaining the provisions in Finance Bill, 2010 the Legislative intention is clear. The amendment to section 142A (1) has been made with a view to value the immovable property which is received by the assessee being an individual or a HUF from person other than relatives without any consideration. The assessing officer can make reference to the valuation officer under section 142A for determination of fair market value of the property for the purpose of assessment in respect of properties received without consideration referred to in section 56(2) of the Act and that too when assessee when assessee claims that the value adopted or assessed or assessable by stamp valuation authority exceeds the fair market value of the property as on the date of transfer. Therefore, it is incorrect on the part of the ld. counsel for the assessee to say that with effect from 1st July, 2010 reference to valuation cell can only be made in respect of immovable properties. Accordingly we reject this contention of the assessee;

++ here we would like to mention that in case of capital gains the Legislature has enacted section 50C, according to which, full value of consideration would mean the stamp value for the purpose of stamp duty for transfer of such asset. However, for the purpose of determination of investment made by the assessee the Legislature in its wisdom has made provision under section 142A for reference to valuation cell for the purpose of determination of market value of the investment. The Legislature is aware of the fact that in the hands of seller for the purpose of capital gains the full value of the consideration will be as per circle rates fixed for the purpose of stamp duty. However in the case of purchaser the sale consideration mentioned in sale deeds cannot be treated as full value of investment;

++ the assessee had made investment in purchase of shops located in one of the costliest area of Delhi. The assessee had received gross annual rent in respect of shop No. 11 and 12 at the rate of Rs.65,000/- per month totaling to Rs.7,80,000/-. The rent for shop No. 12-A was received at the rate of Rs.32,500/- per month and the annual rent will be at Rs.3,90,000. The total gross annual rent from these properties was determined at Rs.11,70,000/-. Thus minimum annual return from these properties was 11,70,000/- which cannot be fetched from properties valuing at Rs 24,00,000/-. The receipt of extra ordinary high returns from these properties suggests that value of the impugned properties should be much higher than the value shown by the assessee in sale deeds;

++ it is also a settled law that the Revenue cannot be asked to prove the impossible particularly in the circumstance where actual information is in possession of the assessee. The difference in valuation as per registered valuer's report or sale deed vis a vis DVO's report is not small. It almost is almost six times. Therefore, the decision of ITAT Delhi Bench in the case of ITO Vs. Five Star Healthcare P. Ltd. (supra) will be applicable;

++ ITAT, Delhi in the case of ITO Vs. Five Star Healthcare P. Ltd. (supra) for AY 2006-07 has held that the AO was right in invoking provisions of section 69 read with section 142A of the Act. In this case the assessee company had purchased land for consideration of Rs.7 lakhs. The AO observing that the land was under-valued, referred the valuation of the land to the DVO, who valued the property at Rs.22 lakhs. The AO made addition of Rs.15 lakhs towards undisclosed investment under section 69B of the Act. There was huge difference in the amount shown to have expended by the assessee on purchase of land and the amount representing the average rate of similar property in the area and the difference was almost three-fold. The assessee did not disclose proper value of investment made by it in the books of accounts. It was held that where there was under-statement of investment by the assessee, the difference being more than three-fold, section 69B was clearly attracted and there was no infirmity in the action of the AO when he made reference to the DVO under section 142A of the Act. The burden will be on the assessee to prove that it had actually paid the amount, which is stated in the title deed;

++ in view of above and following the decision of the ITAT, Delhi Bench in the case of Income-tax Officer Vs. Five Star Healthcare Ltd. (supra) it is held that reference to the valuation cell under section 142-A of the Act is justified;

++ net maintainable rent for the purposes of Rule 3 in relation to an immovable property shall be the amount of gross maintainable rent, as reduced by amount of taxes levied by any local authority in respect of the property and a sum equal to 15 per cent of gross maintainable rent;

++ it is not known whether the soaps purchased by the assessee are free-hold or lease-hold. If it is a case of lease hold property, proviso to Rule 3 will come into operation, according to which where the unexpired period of lease of such land is 50 years or more, the figure 10 should be taken in place of 12.5 and in a case un-expired of lease of such land is less than 50 years, the figure 8 has to be substituted in place of figure 12.5 In view of above, we feel it proper to set aside the matter to the file of the assessing officer with the directions to compute the value of the property as per Rule 3 of Schedule III of the Wealth-tax Act, 1957.

Direct Tax Laws Oct 2011 07

Even in a case of composite amount payment, unless assessee approaches the Officer for a certificate under section 195(2) for applying doctrine of proportionality, entire amount has to suffer for deduction under section 195(1) - [2011] 14 taxmann 73 (Madras)

Where undertaking in STPI zone is maiden business of assessee, and it was not formed by splitting/reconstruction of any existing undertaking, section 10A exemption will be available - [2011] 14 taxmann 68 (Karnataka)

Pending Larger Bench decision of Supreme Court on surcharge to be levied in case of block assessment, matter should be remanded - [2011] 14 taxmann 67 (Karnataka)

An erroneous assessment order cannot be subject matter for rectification under section 154 - [2011] 14 taxmann.com 61 (Madras)

Where overdraft was used for investment in shares of sister concern to have control over it, interest paid to bank would be deductible - [2011] 14 taxmann 58 (Bombay)

Collecting jewellery of 906.900 gms by a woman in form of 'stree dhan' or on other occasions such as birth of a child, etc. in a married life of 25 years is not abnormal and cannot be treated as unexplained jewellery under section 69A - [2011] 14 taxmann 57 (Delhi)

Company purchasing mutual funds from accumulated profit, is not to subject to section 14A disallowance of interest on borrowed capital - [2011] 14 taxmann 71 (Mumbai - Trib.)

Explanation under section 54F qua combined adjacent flats where assessee failed to establish that such construction was legally permitted by Municipal Authorities - [2011] 14 taxmann.com 70 (Mumbai - Trib.)

Reimbursement of medical expenses to employees is not liable to FBT.Refreshment snacks provided to customers by bank is not liable to FBT - [2011] 14 taxmann 65 (Bangalore - Trib.)

Where AO of non-resident contractor company issued certificate for 'NIL' deduction of tax at source under section 194C(4) from payment to be made to it and accordingly, assessee did not deduct tax from payments made, no penalty could be levied on ground that certificate was required to be obtained under section 195 as contractor company was a non-resident - [2011] 14 taxmann 60 (Ahmedabad - Trib.)

Where assessee-charitable society having applied more than 85 per cent of its income in terms of section 11, claimed depreciation on its fixed assets, there was no question of double deduction and, thus, assessee's claim was to be allowed - [2011] 14 taxmann 59 (Indore - Trib.)

Delhi HC Applies Mischief Rule!

By Daksha Baxi, ED- Direct Taxation, Khaitan & Co
In a recent decision in case of National Travel Services, the Delhi High Court has ruled that a loan given to a partnership by a company, whose partners are the shareholders of the said company, is indeed deemed dividend under section 2(22)(e) of the Income Tax Act, 1961 (�IT Act�). National Travel Services (Assessee) was a partnership firm consisting of three partners: Naresh Goyal, Surinder Goyal and Jet Enterprises Private Limited. The Assessee had taken a loan of a certain amount from Jetair Private Limited (Jetair) in which it held 48.18% shares. Though the beneficial owner of the shares of Jetair was the Assessee they were held in the name of the Partners.
The Income Tax Authorities (Tax Authorities) assessed this loan as �deemed dividend� under section 2(22)(e)  of the IT Act and regarded it as taxable in the hands of the Assessee. The Commissioner of Income Tax Appeals (CIT (A)) upheld the order of the Tax Authorities.
The Assessee went in appeal before the Income Tax Appellate Tribunal which reversed the order of the CIT (A).
Being aggrieved by the order of the Tribunal, the Tax Authorities went in appeal before the High Court of Delhi (�HC�).
The HC was called upon to decide on the issue whether section 2(22)(e) applies to the Assessee even though the shares of Jetair were held in the name of the Partners.
The HC, inter alia, referred to the decision of the Supreme Court (�SC�) in the case of CP Sarathy Mudaliar wherein the SC observed that section 2(22)(e) consists of three limbs and explained the same as under:
"Any payment by a company, not being a company in which the public are substantially interested, of any sum � made after 31 May 1987 by way of advance or loan:
First limb:(a) to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than 10% of the voting power,
Second limb:
(b) or to any concern in which, such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)
Third limb:(c) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder to the extent to which the company in either case possesses accumulated profits."
The HC observed that for attracting the first limb, the requirement of the provision is that the loan is advance by a company �to a shareholder, being a person who is the beneficial owner of shares� i.e. it is necessary that both the conditions, that such a person to whom the advance is made should be a registered shareholder as well as a beneficial owner of the shares.
However, in the instant case, the HC noted that the shares of Jetair were in the name of the Partners though the beneficial owner was the partnership, i.e. the Assessee. This was because the Assessee, being a partnership firm, was unable to hold the shares in its own name due to the provisions contained in this regard in the Companies Act, 1956. Thus, it was due to a legal bar that the Assessee, though a beneficial owner of the shares, was not a shareholder. The HC opined that in essence the partnership was a shareholder as well as the beneficial holder of the shares, though the registered holders were the partners.
The HC rejected the argument that a partnership firm cannot be treated as a �shareholder� only because the shares are held in the name of its partners. It stated that if this contention is accepted, no partnership firm will ever come with within the mischief of section 2(22)(e).
The issue is that in case of a partnership, even the second limb would not bring the advance within the ambit of section 2(22)(e), since in that case the loan would need to be made to a partnership in which the shareholder � being legal and beneficial owner- has substantial interest. In the instant case, while the partners who held the shares legally in Jetair and had substantial interest in the Assessee, they did not have beneficial interest in the shares. The HC thus seems to have inserted and interpreted the provision by adding something to the provision to make it applicable. The two principles of interpretation involved here seem to be:
(i) Rule of Literal Interpretation - the intention of the legislature must be found in the words used by the legislature itself. The Supreme Court, in the case of Mohammad Ali Khan and Others v. CWT (224 ITR 672) has upheld this principle. The Court opined that �It is a cardinal principle of construction that the words of a statute are first understood in their natural, ordinary or popular sense and phrase and sentences are construed according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest the contrary. It has been often held that the intention of the Legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said, as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless, has to be avoided.�
(ii) Purposive Interpretation - the Courts adopt this rule where they go beyond the language of the statute so as to determine the real legislative intent behind the concerned provision.  If the literal interpretation of the taxing statute results in absurdity, meaninglessness or futility of the statute then the Court may apply the principle of purposive interpretation which takes two forms viz. Contextual Meaning and Mischief Rule. The Court seeks to determine the mischief that any statute was enacted to remedy and find the rationale for that remedy and then interpret the statute in such a manner that the remedy is implemented.
Clearly, the HC has favored the mischief rule of the second principle of interpretation in arriving at this ruling.  This is an interesting and important trend to note.
1. This provision creates a fiction providing certain circumstances under which certain kinds of payments made to the persons specified therein are to be treated as dividend income of the recipient.

Direct Tax Laws Oct 2011 06

Direct Tax  Laws

Where all relevant details had been made available by assessee before Assessing Officer who after detailed consideration of all details, made original assessment, reopening of assessment was unjustified - [2011] 14 taxmann.com 48 (Gujarat)

Rule 3(5) nowhere provides that while determining value of perquisite, wherever it exceeds Rs. 1,000 per month, amount of Rs. 1,000 per month has to be reduced from value of such perquisite - [2011] 14 taxmann.com 45 (Punjab and Haryana)

Where assessee was only a housewife and was not having any source of income, addition could not be made in assessee's hands on basis of her admission during survey in absence of any corroborative evidence - [2011] 14 taxmann.com 50 (Jaipur - Trib.)

A reference under section 142A is to be made for purpose of determination of fair market value of investment covered under section 69, 69A and 69B and not for purpose of computation of capital gains under section 48 - [2011] 14 taxmann.com 44 (Delhi - Trib.)

Any advance received and forfeited by assessee upon cancellation of sale of capital asset has to be reduced from cost of acquisition by applying section 51 - [2011] 14 taxmann.com 43 (Mumbai - Trib.)

Portfolio management fee is not allowable as deduction while computing short-term capital gain arising from sale of shares - [2011] 14 taxmann.com 42 (Mumbai - Trib.)

Profit or gain would arise only when transfer has been made at a price which is more than cost price and difference between cost price and amount at which transfer has taken place can be charged under section 45(3) - [2011] 14 taxmann.com 41 (Mumbai - Trib.)

Income from sale of bonsai plant grown by assessee in nursery/farm is agricultural income - [2011] 14 taxmann.com 40 (Cuttack - Trib.)

Order passed by DRP should be a speaking order - [2011] 14 taxmann.com 39 (Delhi - Trib.)

TDS u/s 192

(2010) 34 (II) ITCL 546 (Bang `A'-Trib)

TRO v. Sagar Apollo Hospital

ORDER

All these appeals pertain to same assessee on similar point of TDS under section 192, so these are being disposed of by a common order for the sake of convenience and brevity.

2. The facts of the case are that the assessee, a hospital in the name and style of M/s Sagar Apollo Hospitals, and is a division of the Trust M/s Mahatma Gandhi Vidya Peetha Trust. The TDS wing of the Income-tax department conducted verification on 21-8-2007 in the hospital to check the compliance with the TDS provisions. The hospital paid professional charges to various categories of doctors like duty doctors, visiting consultants and consultant doctors on retainership basis. For all the category of doctors tax has been deducted at source regularly as per the provisions of sec.194J applicable to professional payments and duly paid to the credit of the central government. However, the assessing officer while completing the assessment under section 201(1) held that there exists employee - employer relationship between the duty doctor and the assessee and hence the provisions of sec.192 should have been applied while deducting the tax at source from the doctor's payments. The assessing officer observed that as per the provisions of sec.17 of the Income Tax Act, salary is defined as ;

(1) Salary includes

(i) Wages

(ii) Any annuity or pension

(iii) Any gratuity

3. The assessing officer concluded that for few of the doctors under the category of duty doctors, tax should have been deducted at source as per the provisions of sec.192 which is applicable to salary payments. Accordingly, the assessing officer has made demands of Rs.131,398/- Rs.496,113/- and Rs.4,70,253/- being the shortfall in the tax deducted at source by the hospital. Further, levied interest of Rs.85,127/- Rs.247,474/- & Rs.1,83,705/- under section 201(1A) for the assessment years 2003-04, 2004-05 & 2005-06 respectively. The same was deleted by the Commissioner (Appeals), which has been opposed before us by the revenue. On the other hand, learned AR supported the order of the Commissioner (Appeals) on the issue.

4. After going through the rival submissions and material on record, we find that the question before us is whether the doctors are paid professional fees or salary by the assessee hospital. The question whether it is a contract of service or contract for services. This issue can be decided from the nature and extent of control to establish the relationship of employer and employee. The nature of relationship varies from business to business and it is difficult to define with precise nature of control required to establish the relationship of employer and employee. There are set of procedure and rules. Depending on case to case basis the doctors have to decide how to treat patient. Hence, there is no employer employee relationship. The doctors are discharging only professional services as and when the patients require particular specialized treatment. Taking over all view of the situation, the Commissioner (Appeals) was justified in holding that there exists no employer-employee relationship between duty doctors and assessee. The action of the assessing officer in treating only 20 doctors out of 288 doctors as employees and demanding TDS under section 192 was not based on cogent reasoning. The assessee has rightly treated the payments made to duty doctors as professional fees and deducted tax under section 194J which is upheld. Similar issues arise in other two appeals as well. Facts being same, so following the same reasoning, the order of Commissioner (Appeals) in al cases are upheld.

5. In the result, all these appeals filed by the revenue are dismissed.

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Direct Tax Laws Oct 2011 05

The right granted for use of a copyrighted article for a consideration would be royalty, though that right granted may be limited and does not take in a right to further transfer the right or its use - [2011] 14 taxmann.com 17 (AAR - New Delhi)

Excise duty paid need not be added in valuation of closing stock when items of stock continue to lay with assessee - [2011] 14 taxmann.com 21 (Karnataka)

Where Assessing Officer initiated reassessment proceedings taking a view that assessee had wrongly adjusted speculation loss on account of Futures & Options transactions against short-term capital gain arising from sale of shares, in view of fact that earlier Assessing Officer himself had accepted Futures & Options transactions to be non-speculative in nature being hedging transaction - [2011] 14 taxmann.com 37 (Mumbai - Trib.)

Where assessee had sold his proprietary concern as a going concern for a consideration to a company and received consideration by way of allotment of shares of company and retained more than 51 per cent of shareholding in company for a period of six years, sale transaction was a transfer within meaning of section 47(xiv) - [2011] 14 taxmann.com 27 (Chennai - Trib.)

Application of Article 7 of Indo-Korean DTAA - [2011] 14 taxmann.com 26 (Delhi - Trib.)

Where a specific order was passed by Joint Commissioner authorizing TRO to work as Assessing Officer by virtue of powers vested in her by section 120(5), assessment order passed by TRO - [2011] 14 taxmann.com 25 (Indore - Trib.)

Where Assessing Officer made adjustment to armā?Ts length price determined by assessee relying upon higher per man hour rate charged by its comparable, in view of fact that said comparable was a large industrial undertaking whereas assessee was a new entrant in field, impugned order was to be set aside - [2011] 14 taxmann.com 24 (Hyderabad - Trib.)

Where assessee had not shown annual value of property for which it might reasonably be let out from year to year but adopted rent received which was highly depressed due to receipt of huge interest-free security deposit, penalty under section 271(1)(c) was to be levied upon assessee - [2011] 14 taxmann.com 23 (Delhi - Trib.)

Where assessee had entered into a development agreement in terms of which he transferred his land and building to developer through a document, which had been registered by State Registration Authorities, it was a case of transfer of capital asset - [2011] 14 taxmann.com 20 (Mumbai - Trib.)

There is nothing in section 92CA to suggest that AO should hear assessee or record reasons before making a reference to TPO nor is there anything in section to suggest that AO should ask assessee whether he should himself proceed to determine arm's length price or should involve TPO for this purpose - [2011] 14 taxmann.com 19 (Bangalore - Trib.)

Direct Tax Laws

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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Where decision relied upon by Tribunal to dismiss appeal of department

Where decision relied upon by Tribunal to dismiss appeal of department had been set aside by High Court, such order passed by Tribunal was to be set aside - [2011] 10 taxmann 136 (Kar.)

No addition can be made , the unexplained investment on the basis of the DVO findings

CIT and Anr Vs. R Hanumaiah Associates [ITA Nos 3225, 3224 of 2005, dtd. 12.07.2011]

No addition can be made on account of the unexplained investment on the basis of the DVO findings when the assessee satisfactorily explains that the difference was on account of the construction expenditure incurred, which was not considered by the DVO.

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Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid

Honda Siel Power Products Ltd. Vs. Dy. Commissioner of Income Tax & Anr. [SLP No. 19085/2011, dtd. 29.07.2011]
Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid

For AY 2000-01, the assessee filed a return on 30.11.2000.

As s. 14A was inserted subsequently by FA 2001 (w.r.e.f 1.4.62) and was tabled in Parliament on 28.2.2001, the assessee did not make any disallowance u/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A.

The assessee challenged the reopening on the ground that (i) under the Proviso to s. 14A, a reopening u/s 147 for AY 2001-02 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court dismissed the Writ Petition inter alia on the ground that “the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospective amendment. Though the ROI was filed before s. 14A was enacted, the assessment order was passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality. On appeal by the assessee to the Supreme Court dismissing the SLP held that the re-opening of assessment is fully justified on the facts and circumstances of the case.
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INCOME TAX REPORTS (ITR) Volume 337 : Part 4 Issue dated 3-10-2011 :- SUBJECT INDEX

INCOME TAX REPORTS (ITR)

Volume 337 : Part 4 (Issue dated 3-10-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Advance tax :-- Failure to pay advance tax--Deferment of advance tax--Interest under sections 234B and 234C--Condition precedent--Liability to pay advance tax on last day of accounting year--Liability arising due to subsequent amendment of provision with retrospective effect--Interest could not be levied--Income-tax Act, 1961, ss. 234B, 234C-- Emami Ltd. v. CIT (Cal) . . . 470

Appeal to Appellate Tribunal: - Merger of order of Assessing Officer in appellate order--Issue not dealt with by Tribunal--No merger of order--Rectification of mistake with regard to such issue--Valid--Income-tax Act, 1961, ss. 154, 254-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Appeal to High Court: - Monetary limits for appeals by Department--Instructions of CBDT specifying limit--Exceptions--Substantial question of law likely to arise repeatedly--Assessability of wealth-tax on semi-constructed buildings on urban land--Exception clause (3) of Instruction No. 2 of 2005 applicable--Appeal maintainable--Wealth-tax Act, 1957, s. 27A-- CWT v. John L. Chackola (Ker) . . . 385

Business: - Income from other sources--Income from other sources or business income--Commission--Assessee carrying on business of distribution of computers--Transfer of business--Transferee paying commission to assessee--Commission allowed as business expenditure in hands of transferee--Commission assessable as business income of assessee--Income-tax Act, 1961 s. 28-- CIT v. FX Info Technologies P. Ltd . (Delhi) . . . 526

Business expenditure: - General principles--Resolution by company on account of pension--Liability worked out on actuarial basis--Not deductible--Income-tax Act, 1961, ss. 36, 37-- Brooke Bond India Ltd . v. Joint CIT (Cal) . . . 482

Capital gains: - Slump sale--Meaning of--Sale of undertaking as a going concern for a lump sum--Sale was a slump sale--Income-tax Act, 1961, s. 50B-- CIT v. Accelerated Freeze Drying Co. Ltd . (Ker) . . . 440

Deemed dividend: - Advance on salary and commission received by managing director--Advance on salary not assessable as deemed dividend--Advance on commission assessable as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- Shyama Charan Gupta v. CIT (All) . . . 511

Income from other sources: - Business income--Assessee establishing to set up power plant--Delay in remitting security deposit by investing company resulting rejection of bid of assessee--Disputes before arbitration tribunal and High Court--Deposit returned kept as fixed deposits--Interest on fixed deposits--Assessable as income from other sources--Income-tax Act, 1961, ss. 28, 56-- CIT v. Madhya Bharat Energy Corporation Ltd . (Delhi) . . . 389

Industrial undertaking: - Special deduction under sections 80HH and 80-I--Condition precedent--Income should be derived from industrial undertaking--Interest on fixed deposits--Not entitled to special deduction--Income-tax Act, 1961, ss. 80HH, 80-I-- CIT v. Navbharat Explosives Co. P. Ltd. (Chhattisgarh) . . . 515

Interpretation of taxing statutes: - Reasonable interpretation-- Rai Bahadur G. V. Swaika Estates P. Ltd . v. Chief CIT (Cal) . . . 425

Loss: - Speculation--Carry forward and set off--Loss on purchase and sale of shares--Effect of Explanation to section 73--Finding that principal business of assessee was granting of loans--Loss from share dealing could be carried forward and set off against business income--Income-tax Act, 1961, ss. 72, 73-- PCBL Industrial Ltd . v. CIT (Cal) . . . 536

Offences and prosecution: - Fabricating false evidence--Assessee a tax practitioner, submitted return and certificate of tax deduction at source on behalf of client--Refund granted on basis thereof--Certificate found bogus and consequential refund obtained by fraud--Prosecution of assessee--No evidence to show assessee fabricated bogus certificate--No investigation to show client was a fictitious person--Acquittal justified--Code of Criminal Procedure, 1973, ss. 193, 196, 420, 468, 471--Income-tax Act, 1961, s. 277-- ITO v. R. Soundararajan (Mad) . . . 531

Purchase of immovable property by Central Government: - Tendering of apparent consideration--Scope of section 269UG--Amount can be tendered through Appropriate Authority--Income-tax Act, 1961, ss. 269UF, 269UG-- Rai Bahadur G. V. Swaika Estates P. Ltd . v. Chief CIT (Cal) . . . 425

Reassessment: - Notice--Validity--Effect of Explanation 2(b) to section 147--Return submitted but no assessment made--Discovery of understatement of income--Notice under section 148--Valid--Income-tax Act, 1961, ss. 147, 148-- CIT v. Madhya Bharat Energy Corporation Ltd . (Delhi) . . . 389

Notice after four years--No Failure to disclose material facts necessary for assessment--Notice based on subsequent decision of High Court--Not valid--Income-tax Act, 1961 s. 148-- Gujarat State Co-op. Agri. and Rural Develop. Bank Ltd. v. Deputy CIT (Guj) . . . 447

Rectification of mistake: - Mistake apparent from record--Bad debts--Provision that after 1-4-1989 assessee need not establish that debt had become irrecoverable--Failure to apply correct law--Deduction under section 36(1)(vii) a debatable issue--Rectification not permissible--Income-tax Act, 1961, ss. 36(1)(vii), 154-- CIT v. Jindal Stainless Ltd . (Delhi) . . . 495

Mistake apparent from record: - Failure to treat tax paid by employer on behalf of employees as salary for purposes of rule 3--Mistake which could be corrected --Income-tax Act, 1961, ss. 15, 16, 17, 154--Income-tax Rules, 1962, r. 3-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Reference: - Appeal to High Court--Competency of appeal or reference--Monetary limits laid down in circulars--Competency to be decided on basis of circular in force on date of appeal or reference--Income-tax Act, 1961, ss. 256, 260A-- CIT v. Navbharat Explosives Co. P. Ltd. (Chhattisgarh) . . . 515

Salary: - Perquisites--Tax paid by employer on behalf of employee--Part of salary--Income-tax Act, 1961, ss. 15, 16, 17--Income-tax Rules, 1962, r. 3-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Search and seizure: - Assessment in search cases--Notice under section 153A and questionnaires calling for details sent--Whether further notice under section 143(2) should be sent--Not necessary--Income-tax Act, 1961, ss. 143(2), 153A-- Ashok Chaddha v. ITO (Delhi) . . . 399

Block assessment: - Undisclosed income--Additions made not based on material discovered during search--Not valid--Income-tax Act, 1961, s. 158BB-- CIT v. Templeton Asset Management (India) P. Ltd. (Bom) . . . 541

Block assessment: - Undisclosed income--Debentures shown in books of account--Interest on debentures whether includible on accrual--Question to be decided in regular assessment and not in block assessment--Income-tax Act, 1961, s. 158BB-- CIT v. Templeton Asset Management (India) P. Ltd . (Bom) . . . 541

Speculative transaction: - Law applicable--Effect of amendment of proviso to section 43(5) w.e.f. 1-4-2006--Amendment not retrospective--Derivative transaction carried on in accounting year relevant to assessment year 2003-04--Speculative transaction--Loss incurred not a business loss--Income-tax Act, 1961, s. 43(5)-- CIT v. Bharat R. Ruia (HUF) (Bom) . . . 452

AUTHORITY FOR ADVANCE RULINGS

Non-resident: - India liaison office engaged in purchase of goods and also carrying out vendor identification and recommendation, review of costing data, quality control and uploading of material prices into internal product data management system--Activities not confined to purchase of goods for export alone--Liaison office is permanent establishment and income attributable to it assessable in India--Income-tax Act, 1961, ss. 5(2), 9(1)(i), Explns. 1(b), 2--Double Taxation Avoidance Agreement between India and U. S. A., arts. 5, 7(1)-- Columbia Sportswear Company, In re . . . 407

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Code of Criminal Procedure, 1973 :

Ss. 193, 196, 420, 468, 471: - Offences and prosecution--Fabricating false evidence--Assessee a tax practitioner, submitted return and certificate of tax deduction at source on behalf of client--Refund granted on basis thereof--Certificate found bogus and consequential refund obtained by fraud--Prosecution of assessee--No evidence to show assessee fabricated bogus certificate--No investigation to show client was a fictitious person--Acquittal justified-- ITO v. R. Soundararajan (Mad) . . . 531

Double Taxation Avoidance Agreement between India and U. S. A. :

Arts. 5, 7(1): - Non-resident--India liaison office engaged in purchase of goods and also carrying out vendor identification and recommendation, review of costing data, quality control and uploading of material prices into internal product data management system--Activities not confined to purchase of goods for export alone--Liaison office is permanent establishment and income attributable to it assessable in India-- Columbia Sportswear Company, In re (AAR) . . . 407

Income-tax Act, 1961 :

S. 2(22)(e): - Deemed dividend--Advance on salary and commission received by managing director--Advance on salary not assessable as deemed dividend--Advance on commission assessable as deemed dividend-- Shyama Charan Gupta v. CIT (All) . . . 511

S. 5(2): - Non-resident--India liaison office engaged in purchase of goods and also carrying out vendor identification and recommendation, review of costing data, quality control and uploading of material prices into internal product data management system--Activities not confined to purchase of goods for export alone--Liaison office is permanent establishment and income attributable to it assessable in India-- Columbia Sportswear Company, In re (AAR) . . . 407

S. 9(1)(i), Explns. 1(b), 2: - Non-resident--India liaison office engaged in purchase of goods and also carrying out vendor identification and recommendation, review of costing data, quality control and uploading of material prices into internal product data management system--Activities not confined to purchase of goods for export alone--Liaison office is permanent establishment and income attributable to it assessable in India-- Columbia Sportswear Company, In re (AAR) . . . 407

S. 15: - Rectification of mistake--Mistake apparent from record--Failure to treat tax paid by employer on behalf of employees as salary for purposes of rule 3--Mistake which could be corrected -- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Salary :-- Perquisites--Tax paid by employer on behalf of employee--Part of salary-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

S. 16: - Rectification of mistake--Mistake apparent from record--Failure to treat tax paid by employer on behalf of employees as salary for purposes of rule 3--Mistake which could be corrected -- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Salary--Perquisites--Tax paid by employer on behalf of employee--Part of salary-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

S. 17: - Rectification of mistake--Mistake apparent from record--Failure to treat tax paid by employer on behalf of employees as salary for purposes of rule 3--Mistake which could be corrected -- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Salary: - Perquisites--Tax paid by employer on behalf of employee--Part of salary-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

S. 28: - Business--Income from other sources--Income from other sources or business income--Commission--Assessee carrying on business of distribution of computers--Transfer of business--Transferee paying commission to assessee--Commission allowed as business expenditure in hands of transferee--Commission assessable as business income of assessee-- CIT v. FX Info Technologies P. Ltd . (Delhi) . . . 526

Income from other sources: - Business income--Assessee establishing to set up power plant--Delay in remitting security deposit by investing company resulting rejection of bid of assessee--Disputes before arbitration tribunal and High Court--Deposit returned kept as fixed deposits--Interest on fixed deposits--Assessable as income from other sources-- CIT v. Madhya Bharat Energy Corporation Ltd . (Delhi) . . . 389

S. 36: - Business expenditure--General principles--Resolution by company on account of pension--Liability worked out on actuarial basis--Not deductible-- Brooke Bond India Ltd . v. Joint CIT (Cal) . . . 482

S. 36(1)(vii): - Rectification of mistake--Mistake apparent from record--Bad debts--Provision that after 1-4-1989 assessee need not establish that debt had become irrecoverable--Failure to apply correct law--Deduction under section 36(1)(vii) a debatable issue--Rectification not permissible-- CIT v. Jindal Stainless Ltd . (Delhi) . . . 495

S. 37: - Business expenditure--General principles--Resolution by company on account of pension--Liability worked out on actuarial basis--Not deductible-- Brooke Bond India Ltd . v. Joint CIT (Cal) . . . 482

S. 43(5): - Speculative transaction--Law applicable--Effect of amendment of proviso to section 43(5) w.e.f. 1-4-2006--Amendment not retrospective--Derivative transaction carried on in accounting year relevant to assessment year 2003-04--Speculative transaction--Loss incurred not a business loss-- CIT v. Bharat R. Ruia (HUF) (Bom) . . . 452

S. 50B: - Capital gains--Slump sale--Meaning of--Sale of undertaking as a going concern for a lump sum--Sale was a slump sale-- CIT v. Accelerated Freeze Drying Co. Ltd . (Ker) . . . 440

S. 56: - Income from other sources--Business income--Assessee establishing to set up power plant--Delay in remitting security deposit by investing company resulting rejection of bid of assessee--Disputes before arbitration tribunal and High Court--Deposit returned kept as fixed deposits--Interest on fixed deposits--Assessable as income from other sources-- CIT v. Madhya Bharat Energy Corporation Ltd . (Delhi) . . . 389

S. 72: - Loss--Speculation--Carry forward and set off--Loss on purchase and sale of shares--Effect of Explanation to section 73--Finding that principal business of assessee was granting of loans--Loss from share dealing could be carried forward and set off against business income-- PCBL Industrial Ltd . v. CIT (Cal) . . . 536

S. 73: - Loss--Speculation--Carry forward and set off--Loss on purchase and sale of shares--Effect of Explanation to section 73--Finding that principal business of assessee was granting of loans--Loss from share dealing could be carried forward and set off against business income-- PCBL Industrial Ltd . v. CIT (Cal) . . . 536

S. 80-I: - Industrial undertaking--Special deduction under sections 80HH and 80-I--Condition precedent--Income should be derived from industrial undertaking--Interest on fixed deposits--Not entitled to special deduction-- CIT v. Navbharat Explosives Co. P. Ltd. (Chhattisgarh) . . . 515

S. 80HH: - Industrial undertaking--Special deduction under sections 80HH and 80-I --Condition precedent--Income should be derived from industrial undertaking--Interest on fixed deposits--Not entitled to special deduction-- CIT v. Navbharat Explosives Co. P. Ltd. (Chhattisgarh) . . . 515

S. 143(2): - Search and seizure--Assessment in search cases--Notice under section 153A and questionnaires calling for details sent--Whether further notice under section 143(2) should be sent--Not necessary-- Ashok Chaddha v. ITO (Delhi) . . . 399

S. 147: - Reassessment--Notice--Validity--Effect of Explanation 2(b) to section 147--Return submitted but no assessment made--Discovery of understatement of income--Notice under section 148--Valid-- CIT v. Madhya Bharat Energy Corporation Ltd . (Delhi) . . . 389

S. 148: - Reassessment--Notice after four years--No Failure to disclose material facts necessary for assessment--Notice based on subsequent decision of High Court--Not valid-- Gujarat State Co-op. Agri. and Rural Develop. Bank Ltd. v. Deputy CIT (Guj) . . . 447

Reassessment: - Notice--Validity--Effect of Explanation 2(b) to section 147--Return submitted but no assessment made--Discovery of understatement of income--Notice under section 148--Valid-- CIT v. Madhya Bharat Energy Corporation Ltd . (Delhi) . . . 389

S. 153A: - Search and seizure--Assessment in search cases--Notice under section 153A and questionnaires calling for details sent--Whether further notice under section 143(2) should be sent--Not necessary-- Ashok Chaddha v. ITO (Delhi) . . . 399

S. 154: - Appeal to Appellate Tribunal--Merger of order of Assessing Officer in appellate order--Issue not dealt with by Tribunal--No merger of order--Rectification of mistake with regard to such issue--Valid-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Rectification of mistake: - Mistake apparent from record--Bad debts--Provision that after 1-4-1989 assessee need not establish that debt had become irrecoverable--Failure to apply correct law--Deduction under section 36(1)(vii) a debatable issue--Rectification not permissible-- CIT v. Jindal Stainless Ltd . (Delhi) . . . 495

Rectification of mistake: - Mistake apparent from record--Failure to treat tax paid by employer on behalf of employees as salary for purposes of rule 3--Mistake which could be corrected -- Mitsubishi Corporation v. CIT (Delhi) . . . 498

S. 158BB: - Search and seizure--Block assessment--Undisclosed income--Additions made not based on material discovered during search--Not valid-- CIT v. Templeton Asset Management (India) P. Ltd. (Bom) . . . 541

Search and seizure--Block assessment--Undisclosed income--Debentures shown in books of account--Interest on debentures whether includible on accrual--Question to be decided in regular assessment and not in block assessment-- CIT v. Templeton Asset Management (India) P. Ltd . (Bom) . . . 541

S. 234B: - Advance tax--Failure to pay advance tax--Deferment of advance tax--Interest under sections 234B and 234C--Condition precedent--Liability to pay advance tax on last day of accounting year--Liability arising due to subsequent amendment of provision with retrospective effect--Interest could not be levied-- Emami Ltd. v. CIT (Cal) . . . 470

S. 234C: - Advance tax--Failure to pay advance tax--Deferment of advance tax--Interest under sections 234B and 234C--Condition precedent--Liability to pay advance tax on last day of accounting year--Liability arising due to subsequent amendment of provision with retrospective effect--Interest could not be levied-- Emami Ltd. v. CIT (Cal) . . . 470

S. 254: - Appeal to Appellate Tribunal--Merger of order of Assessing Officer in appellate order--Issue not dealt with by Tribunal--No merger of order--Rectification of mistake with regard to such issue--Valid-- Mitsubishi Corporation v. CIT (Delhi) . . . 498

S. 256: - Reference--Appeal to High Court--Competency of appeal or reference--Monetary limits laid down in circulars--Competency to be decided on basis of circular in force on date of appeal or reference-- CIT v. Navbharat Explosives Co. P. Ltd. (Chhattisgarh) . . . 515

S. 260A: - Reference--Appeal to High Court--Competency of appeal or reference--Monetary limits laid down in circulars--Competency to be decided on basis of circular in force on date of appeal or reference-- CIT v. Navbharat Explosives Co. P. Ltd. (Chhattisgarh) . . . 515

S. 269UF: - Purchase of immovable property by Central Government--Tendering of apparent consideration--Scope of section 269UG--Amount can be tendered through Appropriate Authority-- Rai Bahadur G. V. Swaika Estates P. Ltd . v. Chief CIT (Cal) . . . 425

S. 269UG: - Purchase of immovable property by Central Government--Tendering of apparent consideration--Scope of section 269UG--Amount can be tendered through Appropriate Authority-- Rai Bahadur G. V. Swaika Estates P. Ltd . v. Chief CIT (Cal) . . . 425

S. 277: - Offences and prosecution--Fabricating false evidence--Assessee a tax practitioner, submitted return and certificate of tax deduction at source on behalf of client--Refund granted on basis thereof--Certificate found bogus and consequential refund obtained by fraud--Prosecution of assessee--No evidence to show assessee fabricated bogus certificate--No investigation to show client was a fictitious person--Acquittal justified-- ITO v. R. Soundararajan (Mad) . . . 531

Income-tax Rules, 1962 :

r. 3: - Rectification of mistake--Mistake apparent from record--Failure to treat tax paid by employer on behalf of employees as salary for purposes of rule 3--Mistake which could be corrected -- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Salary: - Perquisites--Tax paid by employer on behalf of employee--Part of salary -- Mitsubishi Corporation v. CIT (Delhi) . . . 498

Wealth-tax Act, 1957 :

S. 27A: - Appeal to High Court--Monetary limits for appeals by Department--Instructions of CBDT specifying limit--Exceptions--Substantial question of law likely to arise repeatedly--Assessability of wealth-tax on semi-constructed buildings on urban land--Exception clause (3) of Instruction No. 2 of 2005 applicable--Appeal maintainable-- CWT v. John L. Chackola (Ker) . . . 385