Compilations of case law: STATUS OF ASSESSEE ; TRUST

TRUST
Amendment to Trust deed has no retrospective effect.
Bhriguraj Charitable Trust Vs CIT (Del) 228 ITR 50

For 80G registration, Trust should qualify for exemption u/s 11.
Mundakapadam Mandirams Society (Ker) 258 ITR 395

Assessee Trust not carrying out any charitable activity but using funds for construction of shopping complex – Renewal of 80G approval rejected by CIT.
Madani Musafir Khamar Welfare Society Vs CIT & Anr. (Patna) 264 ITR 481

Donation to charitable trust – Trust for religious purposes also – Trustees could spend the entire income of trust for religious purpose – Donation to such trust not entitled to 80G deduction.
Upper Ganges Sugar Mills Ltd Vs CIT (SC) 227 ITR 578
Arsha Vijnana Trust Vs D.P. Sharma, DIT(Exemptions ) (AP) 295 ITR 437

Charitable Trust – Income used for religious purpose, temple construction – CIT denies renewal of recognition.
KirtichandTarawati Charitable Trust Vs DIT (Exemption) & Ors. (Del) 232 ITR 11

Trust for propagation of a particular religion – Not a public charitable Trust.
M.P. Santhivarma Jain Vs State of Kerala & Anr. (Ker) 265 ITR 385

Trust created by members of family for upkeep of temples - Not public trust.
Kizhakke Kovilakam Trust Vs ACIT (Ker) 256 ITR 238

Sole beneficiary is minor – As per Trust deed, he is not entitled to any income when he is a minor – Assessment on Trust u/s 164(1) upheld.
ITO Vs Sheetal Sunder Trust (ITAT, Bang) 96 ITD 128

Trust not specifying shares of beneficiaries – Subsequent rectification deed specifying shares – Does not relate back – Prior to rectification, trust assessable as discretionary Trust
Ranga rao Lottery Agencies Vs CIT (MP) 287 ITR 542

Option to assess trust or beneficiary directly.
CIT Vs Bharti Devi Sarabhai (SC) 231 ITR 526
CIT Vs Dr. Anand Sarabhai Trust (SC) 231 ITR 524

When Assessing Officer assessed Trust, in fact, it was made on Trustees who were representing beneficiaries as representative assessees u/s 160(1)(iv) – Sec. 161(1A) overrides provisions of Sec. 166—It was the duty of Assessing Officer to tax the right person – Hence eventhough assessments were made on beneficiaries on the basis of return filed by Trustees on behalf of beneficiaries, Assessing Officer can assess the right person i.e., Trustees as representative assessee on whole of income consisting of profits & gains of business at maximum marginal rate.
DCIT Vs Manilal Bapalal Family Benefit Trust (ITAT, Mad) 66 ITD 179

Business carried on in terms of Trust deed – Tribunal correct in holding that trustees were not assessable as AOP.
CIT Vs K. Shyamaraju (Trustees) & Ors. (Kar) 189 ITR 392
As per Trust deed, Trustees had no discretion with regard to choice of beneficiary – all assets held by them were meant to be held solely for benefit of one solitary beneficiary – Maximum marginal rate applicable.
CIT Vs Saroja Raman & T.G. Ranjini Trust (Mad) 104 Taxman 163.

Trust deed named grand daughter of author of Trust as beneficiary entitled to Trust income on attaining majority – Not attained majority – Hence payment was left to absolute discretion of trustees, beneficiary is unknown and share indeterminate – Tax at maximum rate.
Anasuya Muthanna Vs CIT (Mad) 232 ITR 561

Since rights of beneficiaries to get corpus of trust fund come into existence only on a future date, interest of beneficiaries is indeterminate or unknown – contingent – Sec. 21(4) of WT Act attracted –Interest of beneficiaries to be assessed.
A.V. Reddy Trust & Ors. Vs CWT (SC) 240 ITR 409

Will comes into operation on the death of testator and not "in presenti" - Since the deed came into effect on the date of execution, it is not Will – Since only 10% income went to the benefit of relatives and balance went to charitable purposes, it cannot be said to be solely for the benefit of relatives.
Not covered by provisions (ii) & (iii) to 164(1)- To be taxed at 65%.
Chintamani Ghosh Trust Vs CIT (All) 222 ITR 578

Trust deriving income from business – assessment to be made in the hands of trustee.
CIT Vs Manoranjitham Thanga Maligai Trust (Mad) 260 ITR 143

Trust created by or on behalf of minor without prior sanction of Civil Court – Not a valid Trust.
T.A.V. Trust Vs CIT (SC) 236 ITR 788

Distribution received by beneficiary from various discretionary trust can be assessed in the hands of beneficiary.
CIT Vs Anand Sarabhai Trust (SC) 231 ITR 524

Amount collected in the name of God / deities, but utilized for benefit of family concerns – Trust to be assessed as AOP at maximum marginal rate.
ITO Vs Shri Radha Dharmarth Trust (ITAT, Del) 66 ITD 253

Not only objects of trust, but application of its income for charitable purposes, is also important.
Al Madeena Charitable Trust Vs ACIT (ITAT, Coch) 76 ITD 214

Even prior to amendment in 1972, under Sec. 12(1) voluntary contribution themselves were taxable if they were not applied solely for charitable or religious purposes.
R.B. Shreeram Religious & Charitable Trust Vs CIT (SC) 233 ITR 53

Local authority constituted for planned development of State – For carrying out its objects, assessee is acquiring lands at nominal rates and selling the same after developing it to general public at higher rates – Assessee is not allotting houses to poor masses free of cost – Objects not of charitable nature but more of commercialised nature involving profit motive
Punjab Urban Planning & Development Authority Vs CIT ( ITAT, Chd ) 103 TTJ 988
Income to be arrived at in a commercial manner without classification under various heads.
CIT Vs Rao Bahadur Calavala Cunnan Chetty Charities (Mad) 135 ITR 485

Amount credited to the account of beneficiaries cannot be treated as loan – Interest paid to such beneficiaries cannot be allowed as deduction.
Arun Family Trust Vs CIT (Guj) 165 Taxman 15

Some important cases

If the expenditure in question has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction even if it otherwise qualifies under the other provisions of the said Act.

Information on tax matters to be sought by field officers of the Income Tax Department from countries/jurisdictions with which India has Double Taxation Avoidance Agreement (DTAA) or Tax Information Exchange Agreement (TIEA) under the relevant “Exchange of Information” Article of DTAA/TIEA

Merely because the assessee made claim of deduction under a wrong head, would not mean that the claim was false for imposition of penalty under s 271(1)(c) — as held by DelHC in CIT v Sumangal Overseas Ltd — In favour of: The assessee.

No disallowance under s 14 or Rule can be made unless AO records a finding that the assessee’s calculation is wrong — as held by DelHC in Maxopp Investment Ltd v CIT — In favour of: Others.

Parties to the appeal shall not be entitled to produce additional evidence, either oral or documentary, before the Tribunal as a matter of right as — held by PHHC in CIT v Avinash Chander Ghai HUF and Others — In favour of: The assessee.

Powers under s 250(4) and Rule 46A — If the CIT(A) exercises his powers under s 250(4) to call for additional evidence, the AO need not be given an opportunity to show-cause; however, if the CIT(A) acts on an application under r 46A, then the requirement of giving the AO an opportunity as per r 46A(3) is mandatory — as held by DelHC in CIT v Manish Build Well Pvt Ltd — In favour of: Others.

Retail space rentals in India may go up as big global players try to expand rapidly in the country in the medium to long term following the government's decision to relax FDI norms in the sector further, according to realty consultants. "A lot of international brands will look at entering India and scout for retail spaces.

The government proposes to establish a National Financial Reporting Authority (NFRA) for better monitoring of corporate financial management, going by the revised Companies Bill, 2011. NFRA is, in fact, the renamed version of the earlier proposed National Advisory Committee on Accounting and Auditing Standards.

The government today said that it is concerned about frequent hike in prices of petroleum products but does not plan to reduce taxes on oil goods. "No, Sir. There is no such proposal (to reduce or withdraw taxes imposed on petroleum products) at this stage," Minister of State for Finance S S Palanimanickam told Lok Sabha. The Government, he added, was concerned about the frequent hike in prices

The omission to apply the judgment of the Supreme Court is a glaring and obvious mistake of law which can be corrected under s 154 — as held by DelHC in CIT v Satish Kumar Agarwal — In favour of: The revenue.

When the shareholding of the assessee in the company who has advanced the payments to the assessee is less than 10%, provisions of s 2(22)(e) is not attracted — as held by AhdTrib in ACIT v Medical Technologies Pvt Ltd — In favour of: The assessee.

Where AO has granted depreciation on aircraft owned by assessee at 40% in accordance with the provisions of the Rule, therefore, such grant of depreciation cannot be considered to be a claim not supported by law, as the department cannot straightaway show that such claim of depreciation was not in accordance with the law and, in such, circumstances, the powers under s 263 could not be invoked — as held by DelTrib in SRC Aviation (P) Ltd v DCIT — In favour of: The assessee.

Where the original assessment order dated 28 February 1997 was set aside by the ITAT, once the fresh assessment order is passed dated 24 December 2006, the demands arising therefrom would not relate back to the date of service of the original demand notice and interest under s 220(2) would be leviable after thirty days of the service of the demand notice dated 24 December 2006 — as held by MumHC in CIT v Chika Overseas Pvt Ltd — In favour of: The assessee.

Direct Tax Laws Oct 21

Where in addition to regular salaries and benefits in India, living allowance is given to employees of Indian company who are temporarily deployed in USA to work for Indian company, living allowance will be exempt from tax - [2011] 15 taxmann 328 (Kolkata - Trib.)

Printed material purchased by assessee for use in manufacture and trade of footwear was a transaction of purchase and sale and, thus, assessee was not liable to deduct tax at source under section 194C - [2011] 15 taxmann 327 (Delhi - Trib.)

Where assessment orders under section 143(3) were passed without issuing any notice to assessee under section 143(2), said orders were invalid and, thus, liable to be quashed - [2011] 15 taxmann 326 (Chennai - Trib.)

Where assessee, engaged in operation of air-transportation, did not purchase even a single aircraft till end of relevant previous year, it was to be concluded that it had not commenced its business - [2011] 15 taxmann 325 (Bangalore - Trib.)

Direct Tax Laws Oct 19 & 20

Assessability of rental income from plinths and godowns as business income - [2011] 15 taxmann 292 (Delhi - Trib.)

Conversion of aluminium sheets into bottle caps is manufacturing, eligible for deduction under section 80-IB - [2011] 15 taxmann 314 (Chennai - Trib.)

Co-ordinated investigation is valid ground for transfer of case under section 127 from one Assessing Officer to another.Writ petition is not maintainable against notice issued under section 153A - [2011] 15 taxmann 311 (Rajasthan)

Date of commencement of housing project is date when assessee actually started development and not date when project was first approved by local authoritymercial use of residential units by purchaser would not disentitle developer benefit of section 80-IB - [2011] 15 taxmann 287 (Mumbai - Trib.)

Entire amount received towards Duty Entitlement Pass Book (DEPB) and Duty Free Remission Scheme (DFRS) inclusive of face value premium would constitute profit chargeable under section 28(iiid) and section 28(iiie) - [2011] 15 taxmann 317 (Amritsar - Trib.)

Expenses incurred wholly and exclusively on prospecting of minerals are to be amortised and rest of unconnected expenses are eligible for deduction in normal course - [2011] 15 taxmann 288 (Mumbai - Trib.)

High Court has power to deal with substantial question of law not formulated at time when appeal was admitted - [2011] 15 taxmann 324 (Madras)

If sufficient reserve has been created on date of claiming deduction of investment allowance, deduction would be allowed to assessee - [2011] 15 taxmann 294 (Karnataka)

If tax is deducted at source but there is only some shortfall due to difference of opinion about provisions applicable, assessee can be declared to be an assessee-in-default under section 201 but no disallowance can be made invoking section 40(a)(ia) - [2011] 15 taxmann 289 (Kolkata - Trib.)

In course of appellate proceedings, Commissioner (Appeals) can appoint independent Government approved valuer so as to determine cost of construction incurred by assessee - [2011] 15 taxmann 304 (Jodhpur - Trib.)

In order to get benefit of section 54F, assessee should, inter alia, purchase a house and merely because he has included name of his wife and purchased property in joint names would not make any difference - [2011] 15 taxmann 307 (Delhi)

Interest expenditure incurred on loan taken for purchase of motor car cannot be included while working out fringe benefits under section 115WB - [2011] 15 taxmann 300 (Pune - Trib.)

Legal effect of transaction cannot be displaced by probing into 'substance of transaction' and taxing authority must not look at matter from their own viewpoint but that of a prudent businessman - [2011] 15 taxmann 306 (Punjab and Haryana) (FB)

Levy of penalty where certain addition was made to assessee's income only on account of divergent views taken by revenue authorities - [2011] 15 taxmann 302 (Delhi - Trib.)

Mere denial of assessee's claim of set off of business loss against capital gains would not be ground to levy penalty under section 271(1)(c) - [2011] 15 taxmann 303 (Delhi - Trib.)

No addition under section 68 was warranted where four companies had purchased shares of assessee-company and had issued confirmation letters regarding purchase of shares from assessee and had also quoted their PAN - [2011] 15 taxmann 316 (Jabalpur - Trib.)

Once Assessing Officer records a prima facie reason that certain income has escaped assessment, in such a case, mere fact that for earlier assessment years issue in dispute has been decided by Commissioner (Appeals) in assessee's favour cannot be a fetter to Assessing Officer in exercising his jurisdiction under section 147 - [2011] 15 taxmann 318 (Chennai - Trib.)(TM)

Premium paid by assessee-company on keyman's insurance policy of two of its director who were rendering their services in course of carrying on its business, was to be allowed as deduction - [2011] 15 taxmann 291 (Delhi - Trib.)

Rule 63 of Schedule II to Act does not contemplate order of confirmation of sale to be a conclusive order and, thus, an appeal lies against it under rule 86 of Schedule II to Act - [2011] 15 taxmann 310 (Allahabad)

Subsidy received from Government does not partake character of payment either directly or indirectly to meet actual cost of an asset under section 43(1) - [2011] 15 taxmann 320 (Allahabad)

Sufficiency of materials cannot be gone into by High Court in case of search proceedings and, thus, once there is a rational opinion and application of mind, High Court in its writ jurisdiction cannot interfere in said proceedings - [2011] 15 taxmann 305 (Madhya Pradesh)

Tribunal is duty bound to consider reasons given by appellate authority for its decision before upsetting order made by appellate authority - [2011] 15 taxmann 315 (Gujarat)

Where assessee had neglected opportunity provided by Assessing Officer to explain adverse documents, it was necessary for Commissioner (Appeals) to have strictly complied with rule 46A of Income-tax Rules, 1962 while accepting additional evidences in appeals - [2011] 15 taxmann 297 (Mumbai - Trib.)

Where assessee had produced loan confirmation certificates signed by creditors, disclosing their permanent account numbers and address, loans taken by assessee could not be held to be not genuine without giving further opportunity to assessee to explain information on basis of which such conclusion was arrived at - [2011] 15 taxmann 298 (Calcutta)

Where assessee having discontinued its business of manufacturing of containers, converted its factory land into stock in trade as to carry on new business of real estate development, it was entitled to benefit of section 45(2) in respect of aforesaid conversion - [2011] 15 taxmann 286 (Mumbai - Trib.)

Where assessee maintained suspense account, only those of liabilities, which had been found to have crystallised within previous year and paid out of suspense account should have been allowed - [2011] 15 taxmann 301 (Madras)

Where assessee transferred its distributorship of products of 'A' Ltd. to one 'S' along with its dealership network, list of clients, services of skilled employees, etc., commission income earned by assessee in terms of said agreement was to be brought to tax as 'business income' - [2011] 15 taxmann 296 (Delhi - Trib.)

Where assessee, a London based recognized insurance broker, acted as an intermediary in process of finalization of reinsurer, suggesting various options to Indian insurance company for their consideration and acceptance, it could not be said that assessee was providing any technical service to Indian company and, therefore, payment in respect of same could not be brought to tax in India - [2011] 15 taxmann 285 (Delhi - Trib.)

Where assessee-company engaged in business of software development and deployment, entered into an agreement with 'D' Ltd. to provide technical advisory services and assistance for designing and development of its software product, amount paid by assessee to 'D' Ltd. allowable as business expenditure - [2011] 15 taxmann 319 (Delhi - Trib.)

Where assessee-firm in course of search proceedings declared certain undisclosed income and, thereupon paid tax thereon by filing a revised return, it had complied with provisions to clause (2) of Explanation 5 to section 271(1)(c) - [2011] 15 taxmann 323 (Karnataka)

Where assessee-HUF who was a partner in a firm had been found to have made payments of Rs. 30 lakhs to partners of firm and assessee had accumulated said sum year after year in cash from agriculture, said sum could not be treated as unexplained investment under section 69 - [2011] 15 taxmann 322 (Karnataka)

Where Commissioner (Appeals) having accepted possession and sale of cattle, sheep and goats by assessee, deleted addition made under section 69A, Tribunal in appellate proceedings could go into question as to whether sale transactions were genuine or not, but not as to sale price - [2011] 15 taxmann 321 (Andhra Pradesh)

Where education trust exists solely for educational purpose and its annual receipt is less than Rs. 1 crore, it cannot be denied section 10(23C) exemption even if it has not obtained registration under section 12A - [2011] 15 taxmann 312 (Chandigarh - Trib.)

Where issue relating to bad debts was specifically raised in original assessment proceedings and on receiving explanation from assessee it was allowed it could be said that there was no failure on part of assessee to disclose fully and truly all material facts necessary for purpose of assessment and therefore, Assessing Officer could not reopen assessment on ground that bad debt was not correctly written off under section 36(1)(vii) by assessee - [2011] 15 taxmann 290 (Bombay)

Where object of assessee-trust was to establish a number of educational institutions in a brand name and run those institutions on commercial lines, it could not be regarded a charitable activity - [2011] 15 taxmann 313 (Chennai - Trib.)

Where stamp valuation authority has adopted higher valuation of a property for payment of stamp duty, same cannot be a basis to conclude escapement of income in hands of purchaser - [2011] 15 taxmann 293 (Jodhpur - Trib.)

Where Tribunal directed Assessing Officer to determine short-term capital gain on sale of a trade mark in respect of which cost of acquisition itself was indeterminable, said direction of Tribunal being unworkable, was to be expunged - [2011] 15 taxmann 299 (Delhi - Trib.)

Without affording an opportunity of hearing assessee's application seeking registration under section 12AA could not be rejected on ground that even though objects of assessee-trust were charitable in nature, yet it had not carried out any charitable activities during relevant period - [2011] 15 taxmann 295 (Jaipur - Trib.)

Compilations of case law: STATUS OF ASSESSEE ; PARTNERSHIP FIRM

PARTNERSHIP FIRM

Firm is not an independent entity – Partners are real owners of assets of firm.
N. Khadervali Saheb & Anr. v. N. Gudu Sahib (Decd) & Ors. (SC) 261 ITR 1

Dissolution of firm on death of one of the partners .
Dahi Laxmi Dal Factory Vs CIT & Anr. (All) 103 ITR 517
Narayanan Chettiar Vs Umayal Achi AIR 1959 Mad 283
CIT Vs Seth Govindram Sugar Mills (SC) 57 ITR 510
Mavukkarai (N) Estate Tea Factory Vs Addl. CIT (Mad) 112 ITR 715
CIT Vs Sukh Dayal Sobh Raj (All) 218 ITR 309
CIT Vs Sherally Meherally and Sons (Bom) 230 ITR 120
ITO Vs Kalyan Das Madan Mohan (All) 230 ITR 191
CIT Vs Madhavdas Lalchand (Mad) 230 ITR 877
Nandlal Sohanlal Vs CIT (P & H) 110 ITR 170
CIT Vs Surya Bhagavan Vastralayam (AP) 227 ITR 304

For transferring immovable property by a firm to its partners, registered document is necessary.
CIT Vs Dadha & Co. (Mad) 142 ITR 792
CIT Vs Palaniappa Enterprises (Mad) 234 ITR 635
Jansons Vs CIT (Kar) 154 ITR 432
Ram Narain & Brothers Vs CIT (All) 73 ITR 423
S.N. Syed Mohammed Saheb & Bros. Vs CIT (Ker) 68 ITR 791

For transferring immovable property by a firm to its partners, registered document is not necessary.
Sunil Siddharthbhai Vs CIT (SC) 156 ITR 509

When individual property is converted to partnership property, there is transfer of property.
Addl. CIT Vs M.A.J. Vasanaik (Kar) 116 ITR 110

Firm dissolved on death of a partner- two assessments to be made
CIT Vs Ayyanarappan & Co. & Anr. (SC) 236 ITR 410

A partner in a firm cannot be employee of that firm.
S. Magnas Vs CIT (Bom) 33 ITR 538

144 Order –Firm assessed as AOP – No interest / salary to partners allowed.
Rama Boiled Modern Rice Mill Vs ITO (ITAT, Hyd) 97 ITD 379

Interest paid to partners u/s.40(b) – calculate in Reducing Balance method.
Architectural Associates Vs ACIT (ITAT, Hyd) 92 ITD 479

Interest to partners disallowed u/s 40(b) eventhough firm purchased goods from proprietary concern of partner and interest pertains to outstanding balance in that account.
Shakuntala Industries Vs CIT (Raj) 216 ITR 507

Interest paid to partner – claim that transactions carried out through partner's bank account and that interest actually paid to bank – No material to support claim – disallowance justified.
CIT Vs Thulasidhar & Co. (Mad) 229 ITR 425

A deity cannot be a partner of a valid partnership firm
Ramakrishna Chit Fund Co. Vs ITO (ITAT, Hyd) 106 ITD 350
Gift entries made in books to circumvent 40(b) provisions and interest paid to family members of partners – Transaction not genuine – interest disallowed u/s 40(b)
Auto Sales Vs CIT (All) 227 ITR 790

Minors admitted as full partners – Partnership deed not signed by guardians of minors – No valid partnership.
Kumar Financing Corpn. Vs CIT (Cal) 122 ITR 192
Addl. CIT Vs Uttam Kumar Pramod Kumar (All) 115 ITR 796
CIT Vs Khetan & Co. (Cal) 45 ITR 170

Adult admitted to benefits of partnership – No valid partnership
CIT Vs B. Pandiah & Co. (AP) 143 ITR 464
CIT Vs Shankar Cottons (Mad) 222 ITR 445
CIT Vs J.B. Coal Traders (Patna) 164 ITR 450

Deed not specifying share of one partner – No valid partnership
K.S. Badrinarayana Rao Vs CIT (Kar) 152 ITR 159

On the date of execution of partnership deed, one of the partners, who was signatory to the deed, was a minor – No valid partnership
Udayalakshmi Hardware Stores Vs CIT (SC) 180 ITR(St)39
CIT Vs Oriental T. Maritime (AP) 227 ITR 244

Some partners held to be benamidars – Firm not genuine
S.P. Gramaphone Co. Vs CIT (SC) 158 ITR 313
CIT Vs Jayalakshmi Oil Farm (AP) 228 ITR 443

Duty of ITO to find whether firm was genuine – Failure to produce partners of firm on demand by ITO – firm held not genuine.
Frontier Construction Vs CIT (Gau) 221 ITR 878

One partner acting as consultant, not contributing capital, not taking interest in the business, not entitled to share in profits / losses, paid fixed commission and to be indemnified against claim for damage - No genuine firm
CIT Vs Ravi Constructions (AP) 169 ITR 662

The execution of a partnership deed is not by itself a talisman which can entitle a firm to be registered - There must be circumstances and facts to who that it had come into existence and that it had carried on business.
CIT Vs S.S.A.M. Shanmugha Nadar Financing Corpn. (Mad) 141 ITR 656

No business carried on – No partnership firm.
Sudarshan & Company Vs CIT (Mys) 89 ITR 85
CIT Vs Ferozepur Ice Manufacturers' Association (P&H) 84 ITR 607

Letting out building & collecting rent do not amount o carrying on of business, but are only incidental to ownership – No valid partnership – assessed as AOP.
CIT Vs Phabiomal & Sons (AP) 158 ITR 773
CIT Vs Veerabhadra Industries (AP) 240 ITR 5
Ramniklal Sunderlal Vs CIT (Bom) 36 ITR 464

Partnership formed with object of purchasing lottery tickets and sharing prize money – No business was carried on.
CIT Vs S. Mariappan (Mad) 238 ITR 826
State Abkari Act prohibiting licensee from selling or otherwise transferring his license – Licensee entering into partnership – Partnership not valid
CIT Vs Narayanan & Co.(Ker-FB) 223 ITR 209, 234 ITR 133
Biharilal Jaiswal etc. Vs CIT (SC) 217 ITR 746
Motilal Chunilal Vs CIT (SC) 234 ITR 472

Gold Control Act prohibits transfer of license – Dealing in Gold by firm on the basis of license obtained by partner – Partnership not valid.
CIT Vs Koonan's Jewellery (Ker) 226 ITR 588

Only salary actually paid or provided in accounts can be allowed as deduction and not the maximum limit worked out as per sec. 40(b)
Sri Balaji Agencies Vs ITO (ITAT, Chennai) 106 ITD 419

Direct Tax Laws Oct 18

In case of failure of assessee to file a return within prescribed time, Assessing Officer was to be directed to carry out penalty proceedings in accordance with section 13 of the Interest Tax Act and totally uninfluenced by provisions of section 271(1)(c) of Income-tax Act, 1961 - [2011] 15 taxmann 280 (HP)

Where movable and immovable properties of a hotel were transferred to assessee-trust for providing catering education therein and in hands of doner said transfer was not treated as gift on ground that it was only a permission granted for a college, said property could not be treated as assessee's wealth in its wealth tax assessment - [2011] 15 taxmann 279 (KAR.)

Sale of shares held by assessee as investment for ten years would result in long-term capital gains - [2011] 15 taxmann 278 (CHENNAI - ITAT)

In absence of pendency of any proceedings before Assessing Officer, he could not have referred case of assessee-housing society to District Valuation Officer in exercise of power under section 131 - [2011] 15 taxmann 277 (AHD. - ITAT)

While determining book profits under section 115JB profit eligible for deduction under section 80HHC is to be reduced and not amount of deduction under section 80HHC - [2011] 15 taxmann 276 (KAR.)

If there is tangible material before Assessing Officer on basis of which he has formed belief that income had escaped assessment, that would furnish jurisdiction to him to reopen assessment - [2011] 15 taxmann 275 (BOM.)

Interest Tax : Amount received by assessee-bank as export subsidy from RBI could not be treated as interest under section 2(7) - [2011] 15 taxmann 274 (DELHI)

Where assessee engaged in business of ginning and pressing of cotton, etc., had done ginning and processing job work on behalf of others, income derived from such activity would be eligible for deduction under section 80-IA - [2011] 15 taxmann 273 (GUJ.)

Section 271F is also applicable whenever there is a violation of section 153C, read with section 153A in respect of filing return of income - [2011] 15 taxmann 270 (DELHI - ITAT)

An authorized representative under section 288(2) is not required to get himself registered as an authorized income-tax practitioner under rules 54 and 55 of Income-tax Rules in order to appear before Tribunal on behalf of assessee - There is no provision in sections 11, 12 and 13 mentioning that a trust can not make changes of name and address of trust without getting prior clearance from department - [2011] 15 taxmann 269 (CHENNAI - ITAT)

Amount received by assessee from a company for providing that company easement right in private road situated on his land would be capital receipt - [2011] 15 taxmann 268 (CHENNAI - ITAT)

Merely because proceedings could not be initiated by creditor against assessee-sick company for enforcing decree for want of consent of BIFR, it would not mean that liability had not accrued, particularly where assessee was following mercantile system of accounting - [2011] 15 taxmann 267 (DELHI)

Transfer pricing - While computing ALP, adjustment of depreciation on administrative assets has to be made - Expenditure on sign boards have be treated as revenue expenditure - [2011] 15 taxmann 266 (PUNJ. & HAR.)

Compilations of case law: STATUS OF ASSESSEE ; DEVOLUTION OF PROPERTY

DEVOLUTION OF PROPERTY

Properties inherited by widow as sole heir on the death of her husband – Adoption by widow subsequently – Does not divest widow of properties – Properties do not become joint family properties – Female cannot throw property into family hotchpot.
R. Rajathy Ammal Vs CWT (Mad) 164 ITR 605
Punithavalli Ammal Vs Ramalingam AIR 1970 SC 1730

As per Sec.14(1) of Hindu Succession Act, a widow after death of her husband became absolute owner of properties left by her husband – on adoption of a son subsequently, such rights did not get divested – On death of such a widow, these rights passed on to the adopted son.
Asst. Controller of estate duty Vs Channamma P. Jabin (ITAT, Bang) 70 ITD 194

Widow inheriting limited right in property under will in lieu of her right to maintenance – Limited right was transferred into absolute right by Sec.14(1) of H.S.A.- Gift of property by widow valid.
Beni Bai Vs Raghubir Prasad (SC) 236 ITR 898

Partner dying intestate – wife of deceased admitted as partner – Property devolved on class I heirs in individual capacity – Declaration that shares held by new partner in partnership was on behalf of her HUF, not relevant – Share income is her individual income.
CIT Vs J.R. Lalwani (Bom) 240 ITR 750

Individual property of deceased person devolves on his son in his individual capacity and not on the HUF of son and his sons.
CWT etc. Vs Chander Sen etc. (SC) 161 ITR 370
CIT Vs C.G. Venkatasubban (Mad) 240 ITR 674

Property received on partition of HUF by a single coparcenor became the HUF property on his subsequent marriage – Assessment to be in HUF status.
H.P.A.R. Rajagopalan Vs CWT (Mad) 241 ITR 344
Dr. Prakash B. Sultane Vs CIT ( Bom ) 280 ITR 593

Hindu female inherited property from her father or mother – She has no children- Dying intestate – Property would devolve on heirs of her father.
Bhagar Ram v. Teja Singh (SC) 237 ITR 364

Karta of HUF cannot gift HUF properties to member / coparcener / stranger.
DCIT Vs A. Tenzing (ITAT, Mad) 62 ITD 76

Assessee beneficiary is a Trust – No absolute right in beneficial interest – He cannot impress his beneficial interest to HUF hotch-pot.
Maharaja Bahadursingh, Kasliwal Vs WTO (ITAT, Indore) 64 ITD 305

(ITR) Volume 339 : Part 1 (Issue dated 28-11-2011) SUBJECT INDEX TO CASES REPORTED IN THIS PART

INCOME TAX REPORTS (ITR)

Volume 339 : Part 1 (Issue dated 28-11-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Fundamental rights :- Double taxation avoidance:- Prohibition on disclosure of documents--Scope of--Information relating to unaccounted monies held in secret bank accounts outside India--How far to be divulged--Balance between fundamental right of citizen to seek information and fundamental right of privacy of account holder--Names of those where no presumption of wrongdoing not to be divulged--Constitution of India, arts. 19, 21, 32--Double Taxation Avoidance Agreement between India and Germany, art. 26-- Ram Jethmalani v. Union of India . . . 107

HIGH COURTS

Appeal to High Court :- Grounds not raised before Assessing Officer or Tribunal cannot be raised for first time before High Court:- Income-tax Act, 1961, s. 260A-- Alok Todi v. CIT (Cal) . . . 102

Bad debt :- Leasing and money-lending business:- Assessee standing guarantee for loan--Default by creditor--Amount written off--Deductible--Deposit for allotment of shares--Deposit earning interest--Shares not issued and deposit not returned--Amount deductible as bad debt--Income-tax Act, 1961, s. 36-- CIT v. Tulip Star Hotels Ltd . (Delhi) . . . 91

Business expenditure :- Amortisation of preliminary expenses:- Expenditure on issue of shares--Matter remanded to find whether assessee was an industrial undertaking--Income-tax Act, 1961, s. 35D-- CIT v. Tulip Star Hotels Ltd. (Delhi) . . . 91

Business income :- Remission or cessation of trading liability:- Waiver of loan taken for purchase of capital asset--Not in revenue field--Loan written off in cash credit account--Taxable income--Income-tax Act, 1961, s. 41(1)-- Rollatainers Ltd . v. CIT (Delhi) . . . 54

Depreciation :- Goodwill--Valuation of--Assessee purchasing a loss-making company--Assessing Officer holding 10 per cent. of purchase price represents goodwill on trade name--Finding of Assessing Officer without any basis--Assessing Officer not justified in deducting 10 per cent. towards estimated value on goodwill--Income-tax Act, 1961-- CIT v. India Cements Ltd . (Mad) . . . 31

Industrial undertaking :- Special deduction--Interest received from trade debtors--Entitled to deduction--Interest earned on fixed deposit receipts--Not entitled to deduction--Assessee not entitled to set off interest received against interest paid--Duty drawback and amount received on sale of DEPB and QBAL licences--Not entitled to deduction--Income-tax Act, 1961-- CIT v. Advance Detergents Ltd . (Delhi) . . . 81

Special deduction:- Interest--Interest received on overdue payments for goods supplied--Is income derived from business of industrial undertaking--Entitled to deduction--Income-tax Act, 1961, s. 80-IA-- CIT v. Advance Detergents Ltd . (Delhi) . . . 81

Interest-tax :- Charge of tax--Loan or advance--Tests--Intercorporate deposits--Not in nature of loan or advances--Not chargeable to tax--Interest-tax Act, 1974, ss. 2(7), 5-- CIT v. Visisth Chay Vypapar Ltd . (Delhi) . . . 157

Interpretation of taxing statutes :- Loan--Strict interpretation-- CIT v. Visisth Chay Vypapar Ltd. (Delhi) . . . 157

New industrial undertaking :- Special deduction under section 80HH--Unit located at backward area, independent unit and profit making--Receipts on job work done at unit qualify for deduction--Assessee entitled to special deduction--Income-tax Act, 1961, s. 80HH-- Sundaram Fasteners Ltd . v. CIT (Mad) . . . 40

Non-resident :- Concessional rate of tax--Foreign exchange asset--Definition--Interest earned on deposits of sums brought from abroad--Not a foreign exchange asset--Interest on redeposited interest--Not entitled to benefit under section 115H--Income-tax Act, 1961, ss. 115C, 115H-- Dr. M. Manohar v. Asst. CIT (Mad) . . . 49

Income deemed to accrue or arise in India:- No part of research and development activities carried out in India--Global profits attributed to activities in India--No further setting off for research and development activities--Income-tax Act, 1961-- Rolls Royce PLC v. Director of Income-tax, International Taxation (Delhi) . . . 147

Permanent establishment:- Office in India rendering services--Office in India a business connection--Finding that assessee's income chargeable to tax in India under section 5(2) and business connection in India according section 9(1)(i)--Assessee has permanent establishment in India--Double Taxation Avoidance Agreement between India and the United Kingdom--Income-tax Act, 1961, ss. 5(2), 9(1)(i)-- Rolls Royce PLC v. Director of Income-tax, International Taxation (Delhi) . . . 147

Reassessment :- Transfer of case--No order of transfer--Assessment in Kolkata--Notice for reassessment by Assessing Officer of Delhi--Not valid--Income-tax Act, 1961, ss. 127, 148-- Smt. Smriti Kedia v. Union of India (Cal) . . . 37

Rectification of mistakes :- Condition precedent--Mistake should be apparent on record--Failure to charge interest under sections 234B and 234C before allowing credit for minimum alternate tax--Debatable question--Interest could not be levied in rectification proceedings--Income-tax Act, 1961, ss. 154, 234B, 234C-- CIT v. Bilag Industries P. Ltd . (Guj) . . . 46

Revision :- Commissioner--Industrial undertaking--Special deduction under section 80-I--Small scale industrial undertaking--Notice of revision not taking into account certificate granted by State Government--Not valid--Income-tax Act, 1961, ss. 80-I, 263-- SJ and SP Family Trust, through Trustee Ashokkumar Prahladbhai v. CIT (Guj) . . . 34

Search and seizure :- Block assessment--Return not submitted in response to notice under section 158BC--Best judgment assessment valid--Income-tax Act, 1961, ss. 158BB, 158BC-- Alok Todi v. CIT (Cal) . . . 102

Block assessment:- Undisclosed income--Admission by assessee--Subsequent death of assessee--Legal representatives could not retract admission--Assessment based on admission--Justified--Income shown in return filed after search--Not undisclosed income--No evidence of benami purchase--Value of purchase not assessable--Material not found during search--Additions based on such material--Not valid--Capital gains on sale of shares--Not undisclosed income--Income-tax Act, 1961, ss. 158BC, 159-- CIT v. Late H. R. Basavaraj (Karn) . . . 63

Special deductions :- Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given--Income-tax Act, 1961, ss. 80A, 80B, 80HH, 80HHD, 80-I, 80-IA-- CIT v. Arif Industries Ltd . (All) . . . 6

Unexplained investment :- Difference between amount shown in sale deed and that in agreement for sale--No evidence to show reduction in consideration paid--Addition of difference justified--Findings of fact--Income-tax Act, 1961, s. 69-- Bela Juneja v. CIT (Delhi) . . . 144

Valuation of property :- Cost of construction--Undervaluation of closing stock of work-in-progress--Apportionment of cost not done by valid method--Matter remanded--Income-tax Act, 1961-- CIT v. Lord Buildcons P. Ltd . (Delhi) . . . 1

Words and phrases :- "Loan"--Meaning of-- CIT v. Visisth Chay Vypapar Ltd .(Delhi) . . . 157

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Arts. 19, 21, 32 :- Fundamental rights--Double taxation avoidance--Prohibition on disclosure of documents--Scope of--Information relating to unaccounted monies held in secret bank accounts outside India--How far to be divulged--Balance between fundamental right of citizen to seek information and fundamental right of privacy of account holder--Names of those where no presumption of wrongdoing not to be divulged-- Ram Jethmalani v. Union of India (SC) . . . 107

Double Taxation Avoidance Agreement between India and Germany :

Art. 26 :- Fundamental rights--Double taxation avoidance--Prohibition on disclosure of documents--Scope of--Information relating to unaccounted monies held in secret bank accounts outside India--How far to be divulged--Balance between fundamental right of citizen to seek information and fundamental right of privacy of account holder--Names of those where no presumption of wrongdoing not to be divulged-- Ram Jethmalani v. Union of India (SC) . . . 107

Income-tax Act, 1961 :

S. 5(2) :- Non-resident--Permanent establishment--Office in India rendering services--Office in India a business connection--Finding that assessee's income chargeable to tax in India under section 5(2) and business connection in India according section 9(1)(i)--Assessee has permanent establishment in India--Double Taxation Avoidance Agreement between India and the United Kingdom-- Rolls Royce PLC v. Director of Income-tax, International Taxation (Delhi) . . . 147

S. 9(1)(i) :- Non-resident--Permanent establishment--Office in India rendering services--Office in India a business connection--Finding that assessee's income chargeable to tax in India under section 5(2) and business connection in India according section 9(1)(i)--Assessee has permanent establishment in India--Double Taxation Avoidance Agreement between India and the United Kingdom-- Rolls Royce PLC v. Director of Income-tax, International Taxation (Delhi) . . . 147

S. 35D :- Business expenditure--Amortisation of preliminary expenses--Expenditure on issue of shares--Matter remanded to find whether assessee was an industrial undertaking-- CIT v. Tulip Star Hotels Ltd. (Delhi) . . . 91

S. 36 :- Bad debt--Leasing and money-lending business--Assessee standing guarantee for loan--Default by creditor--Amount written off--Deductible--Deposit for allotment of shares--Deposit earning interest--Shares not issued and deposit not returned--Amount deductible as bad debt-- CIT v. Tulip Star Hotels Ltd . (Delhi) . . . 91

S. 41(1) :- Business income--Remission or cessation of trading liability--Waiver of loan taken for purchase of capital asset--Not in revenue field--Loan written off in cash credit account--Taxable income-- Rollatainers Ltd . v. CIT (Delhi) . . . 54

S. 69 :- Unexplained investment--Difference between amount shown in sale deed and that in agreement for sale--No evidence to show reduction in consideration paid--Addition of difference justified--Findings of fact-- Bela Juneja v. CIT (Delhi) . . . 144

S. 80A :- Special deductions--Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given-- CIT v. Arif Industries Ltd . (All) . . . 6

S. 80B :- Special deductions--Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given-- CIT v. Arif Industries Ltd . (All) . . . 6

S. 80HH :- New industrial undertaking--Special deduction under section 80HH--Unit located at backward area, independent unit and profit making--Receipts on job work done at unit qualify for deduction--Assessee entitled to special deduction-- Sundaram Fasteners Ltd . v. CIT (Mad) . . . 40

Special deductions:- Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given-- CIT v. Arif Industries Ltd . (All) . . . 6

S. 80HHD :- Special deductions--Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given-- CIT v. Arif Industries Ltd . (All) . . . 6

S. 80-I :- Revision--Commissioner--Industrial undertaking--Special deduction under section 80-I--Small scale industrial undertaking--Notice of revision not taking into account certificate granted by State Government--Not valid-- SJ and SP Family Trust, through Trustee Ashokkumar Prahladbhai v. CIT (Guj) . . . 34

Special deductions:- Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given-- CIT v. Arif Industries Ltd . (All) . . . 6

S. 80-IA :- Industrial undertaking--Special deduction--Interest--Interest received on overdue payments for goods supplied--Is income derived from business of industrial undertaking--Entitled to deduction-- CIT v. Advance Detergents Ltd . (Delhi) . . . 81

Special deductions:- Computation of special deductions--Effect of section 80A--Nil total income after setting off unabsorbed business losses--Special deductions under sections 80-I, 80-IA, 80HH and 80HHD could not be given-- CIT v. Arif Industries Ltd . (All) . . . 6

S. 115C :- Non-resident--Concessional rate of tax--Foreign exchange asset--Definition--Interest earned on deposits of sums brought from abroad--Not a foreign exchange asset--Interest on redeposited interest--Not entitled to benefit under section 115H-- Dr. M. Manohar v. Asst. CIT (Mad) . . . 49

S. 115H :- Non-resident--Concessional rate of tax--Foreign exchange asset--Definition--Interest earned on deposits of sums brought from abroad--Not a foreign exchange asset--Interest on redeposited interest--Not entitled to benefit under section 115H-- Dr. M. Manohar v. Asst. CIT (Mad) . . . 49

S. 127 :- Reassessment--Transfer of case--No order of transfer--Assessment in Kolkata--Notice for reassessment by Assessing Officer of Delhi--Not valid-- Smt. Smriti Kedia v. Union of India (Cal) . . . 37

S. 148 :- Reassessment--Transfer of case--No order of transfer--Assessment in Kolkata--Notice for reassessment by Assessing Officer of Delhi--Not valid-- Smt. Smriti Kedia v. Union of India (Cal) . . . 37

S. 154 :- Rectification of mistakes--Condition precedent--Mistake should be apparent on record--Failure to charge interest under sections 234B and 234C before allowing credit for minimum alternate tax--Debatable question--Interest could not be levied in rectification proceedings-- CIT v. Bilag Industries P. Ltd . (Guj) . . . 46

S. 158BB :- Search and seizure--Block assessment--Return not submitted in response to notice under section 158BC--Best judgment assessment valid-- Alok Todi v. CIT (Cal) . . . 102

S. 158BC :- Search and seizure--Block assessment--Return not submitted in response to notice under section 158BC--Best judgment assessment valid-- Alok Todi v. CIT (Cal) . . . 102

Search and seizure:- Block assessment--Undisclosed income--Admission by assessee--Subsequent death of assessee--Legal representatives could not retract admission--Assessment based on admission--Justified--Income shown in return filed after search--Not undisclosed income--No evidence of benami purchase--Value of purchase not assessable--Material not found during search--Additions based on such material--Not valid--Capital gains on sale of shares--Not undisclosed income-- CIT v. Late H. R. Basavaraj (Karn) . . . 63

S. 159 :- Search and seizure--Block assessment--Undisclosed income--Admission by assessee--Subsequent death of assessee--Legal representatives could not retract admission--Assessment based on admission--Justified--Income shown in return filed after search--Not undisclosed income--No evidence of benami purchase--Value of purchase not assessable--Material not found during search--Additions based on such material--Not valid--Capital gains on sale of shares--Not undisclosed income-- CIT v. Late H. R. Basavaraj (Karn) . . . 63

S. 234B :- Rectification of mistakes--Condition precedent--Mistake should be apparent on record--Failure to charge interest under sections 234B and 234C before allowing credit for minimum alternate tax--Debatable question--Interest could not be levied in rectification proceedings-- CIT v. Bilag Industries P. Ltd . (Guj) . . . 46

S. 234C :- Rectification of mistakes--Condition precedent--Mistake should be apparent on record--Failure to charge interest under sections 234B and 234C before allowing credit for minimum alternate tax--Debatable question--Interest could not be levied in rectification proceedings-- CIT v. Bilag Industries P. Ltd . (Guj) . . . 46

S. 260A :- Appeal to High Court--Grounds not raised before Assessing Officer or Tribunal cannot be raised for first time before High Court-- Alok Todi v. CIT (Cal) . . . 102

S. 263 :- Revision--Commissioner--Industrial undertaking--Special deduction under section 80-I--Small scale industrial undertaking--Notice of revision not taking into account certificate granted by State Government--Not valid-- SJ and SP Family Trust, through Trustee Ashokkumar Prahladbhai v. CIT (Guj) . . . 34

Interest-tax Act, 1974 :

Ss. 2(7), 5 :- Interest-tax--Charge of tax--Loan or advance--Tests--Intercorporate deposits--Not in nature of loan or advances--Not chargeable to tax-- CIT v. Visisth Chay Vypapar Ltd . (Delhi) . . . 157