Digest of important case law – October 2011
Journals Referred : BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ, www.itatonline.org
S. 4 : Income- Capital receipt-Business income- Capital gains.(S. 28(i), 45 ).
Assessee, administrator of the estate of deceased, having purchased the right to receive the sale proceeds of the estate by entering into an indenture with the legatee on account of close personal relations with her and not for overriding commercial considerations. The transaction cannot be construed as an adventure in the nature of trade. The said receipt cannot be taxed even as capital gains as the estate continued to be the owner of the properties and as such payment did not result in extinguishment of assessee's right hence there was no transfer of any capital asset.(A.Y.2004-05).
Dy CIT v Nusli Neville Wadia (2011) 61 DTR 218/ 141 TTJ 521(Mum) (Trib).
S. 4 : Income – Method of Accounting-NPAs.
Income from non-performing assets should be assessed on cash basis and not on mercantile basis despite of the assessee maintaining accounts on mercantile basis.
CIT v. Canfin Homes Ltd. (2011) 201 Taxman 273 (Kar.) (High Court).
S. 5 : Income- Accrual – Advance from customers towards booking of cruise tickets.
Assessee being engaged in the business of travel agency as a representative of RCCL bookings tickets for the latter's cruise and entitled to base commission of 25 % on all bookings as per the terms of the agreement between the parties, the commission accrues to the assessee with the booking of tickets against full payment as per the mercantile system of accounting followed by him; however, assessee is entitled to credit of 10% on account of travel agents commission which is payable by him.
CIT v. Gautam R. Chadha (2011) 62 DTR 58 (Delhi) (High court)
S. 5 : Income – Accrual – Fixed deposits in banks – Interest
Assessee society held fixed deposits in banks for a term exceeding more than one year. It had not shown any interest income from said FDs during previous year on ground that income from FDs would be offered to tax on its receipt on maturity on basis of TDS certificate issued by bank. It was held that the assessee was not liable to declare interest income accrued but not due in the relevant assessment year as the said sum was not acknowledged by bank or by the assessee. (A.Y. 2007-08).
Puri District Co-op. Milk Producers' Union Ltd. v. ITO (2011) 132 ITD 127 (Cuttack) (Trib).
S. 9 (1) : Income deemed to accrue or arise in India – Permanent Establishment – DTAA – India – UK. [Art. 5]
Assessee was British Company. It supplied certain parts and equipments to Indian customers. RRIL was assessee's 100 % subsidiary set up in India through which it carried out marketing and selling of goods to Indian customers. A.O. after holding RRIL as PE of the assessee, attributed 100% of profits earned from sale of goods to Indian customers to activities carried on in India. The Tribunal restricted such attribution to 35 % holdings that profits attributed to manufacturing activity and research and development activities, i.e. 50 % and 15%, respectively had to be excluded. Assessee filed appeal before the High Court contending that net research and development expenses should also be reduced while computing operating profits; and that Tribunal had not considered objections and documents filed by it on aspect of PE properly and, therefore, matter should be remanded for reconsideration. Held that expenses on research and development were already taken care of when remuneration at rate of 35% was attributed to marketing activities in India on which global profits was apportioned. From the order of the Tribunal it was clear that while holding that RRIL constituted PE of assessee, it had undertaken critical analysis of material on record including objections and documents filed by the assessee and therefore there was no reason to remand the case back to the Tribunal.
Rolls Royce Plc v. DIT (International taxation) (2011) 202 Taxman 309 (Delhi) (High Court)
S. 9 (1) (i) : Income deemed to accrue or arise in India – Fact of "Office PE" under Article 5(2) irrelevant if there is no "Construction Site PE" under Article 5(3) – DTAA – India – Netherlands. [Art. 5(3), 5 (2)]
The assessee had a "site" or "project" in India. Under Article 5 (3) of the treaty, such a "site" or "project" is a PE only if it continues for a period of more than six months. As the assessee's contract was completed in two months, there was no PE under Article 5(3). The argument that the Mumbai office was a PE under Article 5(2) is not acceptable because while Article 5(2) is a general provision, Article 5 (3) is a specific provision which prevails over Article 5(2).
CIT v BKI/HAM v.o.f. (Uttarakhand) (High Court) (www.itatonline.org)
S. 9(1) (vi) : Income deemed to accrue or arise in India – Royalty -Software.
Consideration received by the applicant, a Sri Lankan Company, from ICEL for giving it the right to use its copyrighted software and use it for latter's own purposes whenever and wherever needed by it is taxable in India as royalty under cl. (v) of Expln. 2 of S.9(1)(vi) as well as under Art.12.2 of the Indo-Sri Lanka DTAA and consequently, provision of withholding tax u/s 195 is applicable.
Millennium IT Software Ltd., In Re (2011) 62 DTR 1 / 338 ITR 391(AAR)
S. 9(1) : Income deemed to accrue or arise in India – Permanent establishment – Royalty and fees for technical services –DTAA- India- USA.( S. 9(1) (vii) & 90).
In the contract of the kind undertaken by the assessee, if there is a composite consideration, the same can be conveniently segregated in different components. If the profits from supply contract are held to be taxable separately, as the supply is a milestone in the whole contract, then the treatment meted out to profits on sale of equipment and consideration received for supply of software will have to be different, as the two assets are of different nature involving different profitabilities. The A.O. bifurcated in the ratio of 30 : 70. As the assessee was unwilling to give the details the bifurcation made by the A.O. was justified.
Raytheon Company v. DCIT (2011) 62 DTR 1 (Del) (Trib)
S. 9 (1) (vii) : Income deemed to accrue or arise in India-Installation project-Permanent establishment-DTAA-India-Singapore. (Art 5.3)
Four installation projects undertaken by the applicant, a Singaporean company, in India requires setting up, fitting, placing and positioning projects covered under Art 5.3 of the Indo –Singapore DTAA, and all these projects being independent projects with no interconnection and interdependence amongst them. It cannot be said that the applicant has a Permanent establishment in terms of art 5.2 of the DTAA provided that the duration of each of the projects does not exceed 183 days in one financial year and therefore, income earned by the applicant form its activities of execution of the installation project is not liable to tax in India.
Tiong Woon Project & Contacting Pte Ltd (2011) 61 DTR 337 (AAR) / 338 ITR 386 (AAR)
S. 10(23C) (via) : Exempt incomes – Hospital – Application-Beyond time.
Application u/s 10(23C)(via) filed beyond time. Accounts not maintained properly. No evidence regarding activities. Registration u/s 80G and exemption u/s 12A in prior years not conclusive. Rejection of application was justified.
All India J. D. Educational Society v. Director General of income tax(exemptions) (2011) 338 ITR 218 (Delhi) (High Court).
S. 10A : Exempt incomes- Free trade zone – Competent authority – FEMA – RBI.
The assessee made an application to the RBI on 7-10-2004 seeking extension of time for realisation of the export proceeds. The RBI granted approval in realisation of exports proceeds but said approval was issued in the context of the provisions of the FEMA and there was no formal approval was granted by the RBI under section 10A. The Tribunal held that once the assessee had applied for extension and had completed all the formalities and in response the RBI had taken the remittances on record, then non issuance of formal letter of approval by the RBI could not be held against the assessee, it must be held that the extension had been granted in substance and therefore the benefit of section 10A had to be allowed. The court upheld the order of the Tribunal. (A. Y. 2004-05).
CIT v Morgan Stanley Advantage Services (P) Ltd (2011) 202 Taxman 40 (Bom) (High Court).
S. 10A : Exempt incomes – Free trade Zone – Convertible foreign exchange – Local sales.
Section 10A provides for exemption only on profits derived on export proceeds received in convertible foreign exchange. Benefit cannot be extended to local sales made by units in special Economic Zone, whether as part of domestic tariff area sales or as inter unit sales within zone or units in other Zones. ( A.Y. 2004-05).
CIT v Electronic Controls & Discharge Systems (P) Ltd (2011) 202 Taxman 33 ( Ker) (High Court).
S. 10A : Exempt incomes – Free Trade Zone- Export Oriented Undertaking-Exemptions under sections 10A,10B continue to "exempt" profits & so loss of other units (eligible & non-eligible, including B/f loss) not liable for set-off against sections 10A,10B profits.
Two issues where before the High Court for AY 2001-02 & onwards, (i) Whether the loss incurred by a non-eligible unit & (ii) whether the brought forward unabsorbed loss & unabsorbed depreciation of the eligible unit has to be set-off against the profits of the eligible unit before allowing deduction u/s 10A/ 10B.
Held that (a) S. 10A allows deduction "from the total income". The phrase "total income" in s. 10A means "the total income of the STP unit" and not "total income of the assessee". Consequently, s. 10A deduction has to be given before computing the "profits & gains of business" under Chapter IV. Though s. 10A was amended to make it a "deduction" provision, it continues to remain in Chapter III and was not moved to Chapter VI-A. The result is that even now s. 10A is in the nature of an "exemption" provision and the profits of the eligible unit have to be deducted at source level and do not enter into the computation of income.
(b) S. 10A(6) as amended by the FA 2003 w.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to the AY 2001-02 & onwards is eligible for set-off & carry forward for set-off against income post tax holiday. This amendment does not militate against the proposition that the benefit of relief u/s 10A is in the nature of exemption with reference to commercial profits. However, to give effect to the legislative intention of allowing the carry forward of depreciation and loss suffered in respect of any year during the tax holiday for being set off against income post tax holiday, it is necessary that a notional computation of business income and the depreciation should be made for each year of the tax holiday period. Such loss is eligible to be carried forward. But, as the income of the 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year's or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise.
CIT v Yokogawa India Ltd. (Karn) (High Court) (www.itatonline.org)
S. 10B : Exempt incomes –Export Oriented Undertaking - Outsourcing Job.
Some work done on job basis by sister concern is not relevant. Assessee is entitled to exemption.
CIT v. Continental Engines Ltd. (2011) 338 ITR 290 (Delhi) (High Court)
S. 12A : Exempt incomes- Charitable Trust – Commercial Activities.
Registration under section 12A was rightly refused to the trust where the trust has carried out commercial activity and did not apply the income to fulfil the object of the trust.
Society for the Small & Medium Exporters v. Director of IT (Exemptions) (2011) 139 TTJ 218 (Delhi.) (Trib)
S. 12A : Exempt incomes- Charitable Trust – Registration.( S. 11(4A)
Assessee engaging manufacturing and trading activities. Assessee converting incidental objects as main objects. Assessee not satisfying first condition of section 11(4A) – Cancellation of registration valid.
Aurolab Trust v. CIT (2011) 12 ITR 74 (Chennai) (Trib)
S. 22 : Income from house property – Business income – Partnership firm.
Exemption u/s 22 in respect of a property now owned by the partnership firm cannot be availed of by an individual co-owner merely because he happens to be a partner of a firm in occupation of a part of the property; therefore, the assessee cannot pray for exclusion of income of the impugned portion in occupation of a partnership firm.
Prodip Kumar Bothra vs. CIT (2011) 62 DTR 47 (Cal) (High Court)
S. 22 : Income from House Property – Business of Construction and development of residential – Commercial Unit. [S. 28(i)]
Where principal object of the assessee company being to develop and sell the premises constructed and there is no material on record to show that the said principal object of the company includes leasing of the stock i.e. property for a temporary period to persons/companies interested in temporary use, rent is not received from exploitation of the property by way of complex commercial activities but the rental income is derived by the assessee as an owner of the property and it is liable to be assessed under the head `income from house property'. Lease rent received from exploitation of property by way of complex activities, the rent income derived as owner of property be assessed as `Income from House Property'.
Roma Builders (P) Ltd. v. Jt. CIT (2011) 131 ITD 91/ 60 DTR 231 (Mum) (Trib.)
S. 28(1) : Business income-Gifts from devotees on birth day-Vocation-Profession-Capital receipt.
Assessee as religious head was not performing any religious rituals for his devotees for consideration. He was doing charitable work and spiritualisation for benefit of mankind. Gift received by assessee from devotees out of natural love and affection. Receipt cannot be taxed as income from any vocation or profession.
CIT v Gopala Naicker Bangarue (2011) Tax .L.R. 686 (Mad) (High Court).
S. 32 : Depreciation – Rate- Printers-UPS.
Printers and UPS fall within the class of computer peripherals and therefore, eligible for depreciation at the rate of 60%.
Haworth (India) (P) Ltd. v. Dy. CIT (2011) 140 TTJ 446 (Delhi.) (Trib).
S. 32 : Depreciation – Computer Peripherals – Integral Parts
Computer peripherals like printers scanners, servers, UPS, etc., form integral part of computer system on which higher depreciation of 60% is allowable. [A. Y. 2005-06]
ITO v. Omni Globe Information Technologies India (P) Ltd (2011) 131 ITD 280 (Delhi) (Trib).
S. 35E : Deduction for expenditure on prospecting etc, for minerals.
Where the assessee incurred a loss, the deduction under section 35E is not available. (A.Ys 1997,98 & 2000-01 to 2004-05).
Singareni Colliweries Company Ltd v Asst CIT (2011) 141 TTJ 593 (Hyd) (Trib)
S. 36(1) (ii) : Business expenditure- Bonus or Commission – Commission-in-lieu of Dividend.
Payment of commission to directors owning entire capital were paid commission for their hard work not allowed as it was paid in lieu of profit or dividend as it was revealed that the profit earned was due to improved market conditions and not because of any extra services were rendered for improving the performance of the company.
Dalal Broacha Stock Broking (P.) Ltd v. Addl. CIT 131 ITD 36 (Mum.) (SB) (Trib)
S. 36(1) (iii) : Business expenditure- Interest payable on loans.
The assessee was in the business of trading in shares and had claimed interest on loans obtained for business. The shares had been shown under `Investments' in its' books and hence the Assessing Officer disallowed interest on borrowings. It was held that treatment in books was not conclusive and given the nature, volume of the assessee's business, it was clear that the assessee was trading in shares and hence interest could not be disallowed.
CIT v. Aravind Prakash Malpani (2011) 200 Taxman 41 (Kar.) (Mag.) (High Court)
S. 37(1) : Business Expenditure – Expenditure to procure raw Material.
Expenditure incurred for the purpose of procuring the raw material in thermal power station is allowable expenditure.
ACIT v. Chettinad Cement Corporation Ltd. (2011) 140 TTJ 100 (Chennai) (Trib)
S. 37(1) : Business Expenditure – Broken period interest.
Broken period interest has to be allowed if the securities were held as current assets.
Jt. CIT v. Dena Bank (2011) 139 TTJ 81 (Mum.) (Trib)
S. 37(1) : Business expenditure – Capital or revenue – Lease rent of 99 years.
Lease rent of Rs.48,02,616/- paid to G.I.D.C for period of 99 years held to be revenue in nature. Registration of lease deed is not relevant for deciding the issue of capital or revenue. High Court confirmed the order of tribunal.
DY. CIT v Sun Pharmaceuticals Ind Ltd (2011) 224 Taxation 456 (Guj) (High Court).
S. 37(1) : Business expenditure – Capital or revenue – Software usage.
Software usage and product development expenses incurred by the assessee company engaged in internet related services are allowable as revenue expenditure to the extent the same are routine and periodic expenses not resulting in creation of new assets. (A.Y.2005-06).
Dy CIT v Rediff Com India Ltd (2011) 61 DTR 426/47 SOT 310( Mum) (Trib).
S. 37 (1) : Business expenditure- Foreign tour expenses.
Foreign travel expenses of doctor partner for obtaining the latest information on the technological advancements, concerning dental implants are allowable as business expenditure. (A.Y 2004-05)
Dy CIT v B2C Implants (2011) 141 TTJ 638 (Mum) (Trib).
S. 37 (1) : Business expenditure – Expenditure on foreign education of director being son of the major shareholder.
Where the assessee company was not able to substantiate that sending of the director for training abroad was for the benefit of the business of the assessee, the expenses incurred for foreign training were not allowable in the hands of assessee company.
Vishesh Entertainment Ltd vs. ACIT (2011) 60 DTR 284 (Mum) (Trib.)
S. 37(1) : Business Expenditure – Capital or Revenue Expenditure – Expenditure on `Application Software' – revenue in nature
The expenditure incurred for the purpose of installation of "Oracle" software for financial accounting, inventory and purchase held to be revenue in nature as it did not result in creation of new asset or a new source of income. The test of enduring benefit is not a certain or a conclusive test. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. Expenditure incurred which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched is expense in the nature of revenue expenditure. Test of enduring benefit or advantage collapses in such like cases especially in cases which deal with technology and software application which do not in any manner supplant the source of income or added to the fixed capital of the assessee
Followed : Alembic Chemical Works Co Ltd v CIT ( 1989) 177 ITR 377(SC).
CIT v Asahi India Safety Class Ltd. (Delhi) (High Court) (www.itatonline.org)
S. 37(1) : Business Expenditure – Benefit to other person – No written agreement.
If the expenditure is incurred for the purpose of assessee's business then no part of the same can be disallowed merely because some other person has benefited out of the same, and there is no written agreement with the payee/recipient.
CIT v. Agra Beverages Corp Pvt. Ltd. (2011) 200 Taxman 43 (Delhi) (Mag.) (High Court)
S. 37(1) : Business Expenditure – Glow sign boards.
Expenditure incurred on glow sign boards for purpose of advertisement by the assessee is revenue expenditure.
CIT v. Orient Ceramics & Industries Ltd. (2011) 200 Taxman 64 (Delhi) (Mag.) (High Court).
S. 37(1) : Business Expenditure – Foreign Tours-Expansion of existing project.
Expenditure incurred by the assessee on foreign tours of its personnel, in connection with expansion of existing project is eligible for deduction as revenue expenditure.
CIT v. J. K. Synthetics Ltd. (2011) 200 Taxman 101 (Delhi) (Mag.) (High Court)
S. 40(a) (i) : Amounts not deductible – Non–Resident – Certificate by a Chartered Accountant-Deduction of tax at source.(S. 195 ).
A certificate issued by a chartered accountant cannot be a conclusive determination of taxability of income in the hands of the recipient. Question of taxability in the hands of the recipient remains open and the assessee continues to have obligation to file all the relevant details, enabling determination of such liability, before the revenue authorities. Matter was remitted to the Assessing Officer to examine the taxability of the payments in the hands of recipients, on merits.(A.Y.2005-06).
Dy CIT v Rediff Com India Ltd (2011) 61 DTR 426/47 SOT 310( Mum) (Trib).
S. 40(a) (ia) : Amount not deductible – Short Deduction of Tax at source – No disallowance for short-deduction TDS default.
Where it is a case of short deduction of payment as against non-deduction of TDS, disallowance u/s 40(a)(ia) could not be made. Though S. 40(a)(ia) provides for a disallowance if amounts towards rent, etc have been paid without deducting tax at source. It does not apply to a case of short-deduction of tax at source. As the assessee had deducted u/s 194C, it was not a case of "non-deduction" of TDS. If there is a shortfall due to difference of opinion as to which TDS provision would apply, the assessee may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40(a)(ia). [Chandabhoy & Jassobhoy (ITAT Mumbai) followed]
DCIT v S. K. Tekriwal (Kolkata) (ITAT) ( www.itatonline.org)
S. 40(a) (ia) : Amounts not deductible – Deduction of tax at source – Retrospective Amendment .
Where the assessee acted bona fide in conformity with the provision of Act and the legal position in not deducting tax at source, retrospective amendment could not make him liable and therefore no disallowance under s. 40(a)(ia) was called for.
Sterling Abraive Ltd v. ACIT (2011) 57 DTR 361 (Mum) (Trib)
S. 40(b) : Amounts not deductible-Firm-Partner-Interest-Salary.(S. 28(i), 29, 32 145 ).
Assessee partnership firm paid interest to partners on their capital account and claimed the deduction. Assessing officer held that as the assessee has not claimed depreciation in books of account however claimed depreciation in the computation, he reworked the capital balances of partners by reducing the cumulative amount of depreciation therefrom and allowed the interest computed on such reduced capital balances. The Tribunal held that in terms of section 40(b) , read with section 28(i) and 29 Assessing Officer is not entitled to disallow payment of interest to partners by re working capital account balances of partners. (A.Ys 1999-2000 & 2002-03).
Swaraj Enterprises v ITO (2011) 132 ITD 488 (Visakhapatanam) (Trib).
S. 40(b) (v) : Amount not deductible –Partnership Deed must quantify or lay down the manner of quantifying remuneration to partners
S. 40(b) (i) to (v) which prescribe the conditions for deduction of remuneration paid to a partner requires that the payment should be authorized by, and be "in accordance with the terms of the partnership deed". This mandates that the quantum of remuneration or the manner of computing the quantum of remuneration should be stipulated in the partnership deed and should not be left undetermined, undecided or to be determined or decided on a future date;
Sood Brij & Associates v CIT (Delhi) (High Court) (www.itatonline.org )
S. 40(b) (v) : Amounts not deductible- Interest, Salary, etc. paid by firm to partner.
Section 40(b)(v) does not lay down that remuneration payable to partner should be fixed or method of remuneration should be provided for in the partnership deed. All that the said section provides is that if the remuneration paid to partner is in accordance with the partnership deed and does not exceed the aggregate amount laid down in the said section, then the same shall be eligible for deduction. Circular no.739 which states that amount of remuneration should be provided for in the deed, cannot override the statutory provisions and must yield to the substantive provisions.
Durga Dass Devki Nandan v. ITO (2011) 200 Taxman 318 (HP) (High Court).
S. 40A(2) : Amounts not deductible- Purchase transaction from associate concerns.
Assessing Officer did not call upon the assessee to furnish any evidence regarding purchase transaction from associate concern, no disallowance could be made applying provisions of section 40A(2) (b) , when there were no comments upon the material placed before him during the course of remand proceedings. (A.Y 2004-05)
Dy CIT v B2C Implants (2011) 141 TTJ 638 (Mum) (Trib).
S. 40A(2) : Amounts not deductible – Payment of interest to associated concern.
Obtaining the unsecured loan @ 11% from associated concern was commercially expedient as assessee could earn more income from such borrowed funds and secured loans were neither available easily nor they were enough to cater the business needs of the assessee as it did not have enough security and/or provision of guarantee for obtaining such loan and therefore no disallowance u/s 40A(2) was called for.
Addl. CIT v Religare Finvest Ltd. (2011) 62 DTR 46 (Delhi) (Trib).
S. 41(1) : Profits chargeable to tax- Business income- Remission of liability- Unclaimed balances.
The assessee was a shipping agent providing services to ships and acted as off shore representative. During the course of its business, the assessee was required to make deposits on behalf of its customers on various accounts with the Mumbai Port Trust. After recovering the charges, Mumbai Port Trust used to refund the amounts which in turn, were admittedly returned by the assessee to its principal as and when demanded. The refund of amount lying with the assessee for more than three years were considered by the assessee as income and offered to tax. The Assessing Officer rejected the method of accounting followed by the assessee and brought to tax entire refund amount lying with the assessee to tax under section 41(1). The Tribunal deleted the addition. On appeal the High Court up held the view of Tribunal.
CIT v Modest Maritime Services P Ltd (2011) 338 ITR 64 (Bom) (High Court)
S. 43(5) : Speculative transaction – Derivative – loss.
Notification issued on 25th Jan, 2006 cannot curtail the applicability of cl.(d) of proviso to S.43(5) so as to make investments in derivatives done prior to 25th Jan, 2006 as speculative; transactions carried out through stock exchanges from 1st April, 2005 to 25th Jan, 2006 which are recognized by notification issued by CBDT on 25th Jan, 2006 would be eligible for being treated as non-speculative within the meaning of cl(d) of proviso to s.43(5).
ACIT v. Hiren Jaswantrai Shah (2011) 62 DTR 95 (Ahd) (Trib)
S. 45 : Capital gains – Business income – Transfer of trade mark – Copy rights. ( S. 28(va))
Sale of brand names, trade mark, copy right and good will in the journals were sold by the assessee to the transferee, it would be liable to capital gain and not as business profits under section 28(va).(A.Y.2006-07).
CIT v Medi world Publications (P) Ltd (2011) 61 DTR 391(Delhi) (High Court).
S. 45 : Capital gains – Amount paid to bank by purchaser on behalf of assessee.
Where the assessee had transferred plant and machinery, stores, spares, licenses, etc. alongwith certain specified liabilities under an agreement for a consideration and the purchaser had undertaken to pay a sum due by the assessee to a bank, such payment to the bank is only application of income and not charge on income and hence not deductible from total consideration.
Shree Changdeo Sugar Mills Ltd v. JCIT. (2011) 58 DTR340 (Mum.) (Trib)
S. 45 : Capital gains – Amount received by the assessee on retirement from firm after revaluation of assets.
Where the retiring partner received lump sum payment in consideration of his assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners and partners capital accounts had been artificially increased by revaluing assets just to ensure that the retiring partner is paid consideration standing to the credit of his capital account, there was a transfer of interest of the retiring partner over the assets of the firm giving rise to capital gains.
Sudhakar M. Shetty v. ACIT (2011) 139 TTJ 687 (Mum.) (Trib)/ 58 DTR 289
S. 68 : Cash Credits - Assessee's AO cannot question Creditor's I. T. Return
If the creditor discloses his PAN and claims to be an assessee, the AO cannot himself examine the return and P&L A/c of the creditor and brand the same as unworthy of credence. Instead, he should enquire from the creditor's AO as to the genuineness of the transaction and whether such transaction has been accepted by the creditor's AO. So long it is not established that the return submitted by the creditor has been rejected by the creditor's AO, the assessee's AO is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established.
CIT v Dataware Pvt. Ltd. (Calcutta) (High Court) (www.itatonline.org)
S. 72 : Carry forward and set off- Speculation business-Derivatives- Same business. ( S. 43(5), 73, 263).
Loss from trading in derivatives treated as speculation loss in earlier years carried forward. The said loss can be set off against the profit from same business. i.e. allowable against the profit from trading in derivatives after amendment. Revision order of commissioner under section 263 was quashed on merit. ( A.Y 2006-07).
Gajendra Kumar T.Agrwal v ITO(2011) 11 ITR 640 (Mum) (Trib).
S. 73 : Loss in speculation business – Bills rediscounting business – Sale and purchase of shares.
Assessee was mainly doing business of bill discounting /rediscounting, under contractual obligation between the assessee and parties to the bills. Bills were re discounted and placed only as collateral security. The Tribunal held that activity of bills rediscounting would amount to granting of loans and advances and accordingly, Explanation to section 73 would not be applicable, hence loss on account of sale and purchase of shares could not be treated as speculation losses, though the object clause of memorandum of Association showed that advancing the money was only ancillary object.(A.Y.1996-97).
Momaya Investments (P) Ltd v ITO (132 ITD 604 (Mum) (Trib).
S. 80 HHC : Deduction – Export – Profit of Business – For purpose of S. 115JA/JB – deduction to be computed as per P & L profit and not normal provisions.
The deduction u/s 80HHC is to be worked out not on the basis of regular income tax profits but it has to be worked out on the basis of the adjusted book profits in a case where s. 115JA is applicable. Accordingly, the deduction claimed by the assessee u/s 80HHC & 80HHE has to be worked out on the basis of adjusted book profit u/s 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business.
View of Special Bench in DCIT v Syncome Formulations 106 ITD 193 upheld.
CIT v. Bhari Information Tech Systems (Supreme Court) (www.itatonline.org)
S. 80IA : Deduction- Industrial undertaking- Set off of Carry forward losses.
After set off of carried forward losses, the income of the assessee for the A.Y was Rs.14,57,200/- while the profit from industrial undertaking were Rs 98.43 lacs . The Tribunal restricted the deduction to Rs 14,57,200. The High court up held the order of Tribunal ( A.Y. 1996-97).
CIT v Tridoss Laboratories Ltd (2011) 224 Taxation 382 (Bom) (High Court).
S. 80-IB : Deduction- Profits & Gains from Industrial Undertakings `Production'
The word `production' is wider in scope than `manufacture' and would include by-products and other residual products resulting during the course of manufacture. Hence the activity of converting boulder into grits/stone chips/powder may not be `manufacturing' but would amount to `production' and therefore the assessee would be entitled to deduction u/s. 80-IB on the said activity.
CIT v. Mallikarjun Georesources Associates (2011) 201 Taxman 86 (Uttarakhand) (Mag.) (High court)
S. 80-IB : Deduction- Profits & Gains from Industrial Undertakings – Refund of Excise Duty – Transport subsidy.
Refund of Excise Duty has a direct nexus to the manufacturing activity of the assessee and hence the same qualifies for deduction under section 80-IB.
Transport subsidy & Interest Subsidy- Transport & Interest Subsidies received by the assessee, cannot be said to be derived from the industrial activity and the same would not qualify for deduction under section 80-IB.
CIT v. Meghalaya Steels Ltd. (2011) 201 Taxman 135 (Gau.) (Mag) (High Court)
S. 80IB(10) : Deduction –Housing projects- Ownership of Land.
When the assessee has taken possession of land after the payment of full consideration and developed it, the assessee has fulfilled all the conditions laid down in section 80IB(10), therefore entitled to deduction under section 80IB.
ACIT v. C. Rajini (Smt) (2011) 140 TTJ 218 (Chennai) (Trib)
S. 92C : Avoidance of tax-Transfer pricing-Computation of Arms Length Price.
The High Court made certain observations on merits, while remanding the matter to the TPO, virtually concluding the matter. The TPO was directed to proceed with the matter uninfluenced by the observations/directions given by the High Court.
Maruti Suzuki India Ltd. v. Addl. CIT [2011] 335 ITR 121 (SC)
S. 115AD : Foreign Institutional Investors – Short term capital loss from exchange traded derivative transactions .(S. 43 (5)
Sec. 43(5) has no application to FIIs in respect of `securities' as defined in Explanation to S. 115AD, income from whose transfer is considered as short term or long term capital gain. In the facts of the case, Income from derivative transactions resulting into loss of Rs.12.27 crores was to be considered as short term capital loss on the sale of securities which is eligible for adjustment against short term capital gains arising from the sale of shares and not speculation loss.
LG Asian Plus Ltd v. ACIT (2011) 60 DTR 159 (Mum) (Trib.)
S. 115J : Company-Book Profits–Unabsorbed depreciation- Brought forward losses. (Companies Act S. 205).
Assessee has shown loss of Rs 16,48,74,073/- in the preceding year and claimed depreciation of Rs 13,85,66,473/- for the said preceding year. Once the brought forward is arrived at after taking into account the depreciation, it is the amount of depreciation which is less than the loss, is to be set off in terms of clause (iv) of explanation to section 115J for computing the book profit. (A.Y.1990-91 )
Peico Electronics & Electricals Ltd v CIT (2011) 61 DTR 401 (Cal) (High Court).
S. 115JA : Company-Book profits- Company- Prior period expenses-Provision for bad and doubtful debt.(S. 115JB).
Prior period expenditure and any provision for bad and doubtful debt, cannot be deducted while computing book profit under sections 115JA, 115JB. (A.ys 1997,98 & 2000-01 to 2004-05).
Singareni Colliweries Company Ltd v Asst CIT (2011) 141 TTJ 593 (Hyd ) (Trib).
S. 115JA : Company- Book Profits- Provision for Bad Debt.
While working out book profit, provision for bad debt has to be added back to the net profit under section 115JA Expl. (g).
ACIT v. Chettinad Cement Corporation Ltd. (2011) 140 TTJ 100 (Chennai) (Trib)
S. 115JB : Company-Book Profits-Power of Assessing Officer.
Once the accounts including the profit and loss account are certified by the authorities under the Companies Act ,1956, it is not open to the Assessing Officer to contend that the profit and loss account has not been prepared in accordance with the provisions of Companies Act ,1956. Hence the Tribunal was right in deleting the addition of 1.98 Crores made by the Assessing Officer while computing the book profits under section 115JB.
CIT v Adbhut Trading Co Pvt Ltd (2011) 338 ITR 94 (Bom) (High Court).
S. 132 : Search and Seizure – Authorisation u/s 132(1) – Notice u/s 131(1A) after warrant u/s 132(1)
Section 131(1A) is only an enabling section and it does not in any manner effect the search and seizure operation carried on under 132. For the purpose of judging the action of the concerned authority with respect to search and seizure, S.132 alone has to be considered. S. 132 is an independent code itself. Materials collected before search showed that officer concerned could have reason to believe that the petitioner were in possession of money, bullion etc., wholly or partly undisclosed income or asset and therefore there was reason to believe within meaning of S.132(1). Further, after search and seizure operation, the power u/s 131(1A) cannot possibly be invoked in view of its plain language and if the power is invoked, it will not in any manner affect the validity of the search and seizure operation. S. 131(1A) and 132 should be interpreted harmoniously.
V. S. Chaudan (Dr)& Anr. v DIT (Inv) (2011) 62 DTR 67 (All) (High Court).
S. 132 : Search and Seizure – Warrant of Authorisation
The opinion or the belief so recorded must clearly show whether the belief falls under clause (a) or (b) or (c) of section 132(1) of the Act. The satisfaction note should itself show the application of mind and the formation of opinion by the officer ordering the search. In order to justify the action the authority must have relevant materials on the basis of which he can form an opinion that he has reason to believe that action against a person u/s 132 of the Act is needed. The belief should not be based on some suspicion or doubt.
Visa Comtrade Ltd. v UOI (2011) 338 ITR 343 (Orissa) (High Court)
S. 144C : Dispute Resolution Panel – Power to "enhance"- Confined to issues raised in draft assessment order – "Future losses" allowable as deduction
U/s 144C (5), the DRP can issue directions only in respect of the objections raised by the assessee and the objections are to be in terms of the variation proposed in the draft order. S. 144C (8) restricts the powers of the DRP to "confirm, reduce or enhance the variations proposed in the draft assessment order". Hence, the DRP's directions have to be with reference to the objections to the variations proposed in the draft order. (GE India Technology Centre vs. DRP (Kar) followed);
As regards the deduction for "future losses", Accounting Standard AS-7 requires "expected loss" (difference between probable contract costs and contract revenues) to be "recognised as an expense immediately" irrespective of whether work has commenced and the stage of completion of activity. Accordingly, estimated or foreseeable losses are allowable as a deduction. (Jacobs Engineering Private Ltd (ITAT Mumbai) & Mazagaon Dock 29 SOT 356 followed).
Dredging International NV v ADIT (Mumbai) (ITAT) (www.itatonline.org)
S. 147 : Reassessment – Notice u/s 142(2)
There is no requirement of notice u/s 143(2) in the case of reassessment u/s 147
CIT v. Madhya Bharat Energy Corpn. Ltd. (2011) 62 DTR 37 (Delhi) (High Court)
S. 147 : Reassessment – Beyond four years – Retrospective amendment – S. 80HHC
During the course of assessment proceedings for A.Y. 2001 – 02 & 2002 – 03, assessee's claim for deduction u/s 80HHC was allowed. After the expiry of four years from the end of relevant assessment year an amendment to S. 80HHC was brought with retrospective effect from 01-04-1998. It was admitted position that the conditions were not therein at the time of filing of return nor at the time of original assessments. A.O. issued notice u/s 148. The Tribunal, on examination of material on record, concluded that all the relevant facts were available on record and that it cannot be said that assessee had failed to disclose fully and truly all material facts, and thus no reopening could be done. Held that, the Tribunal rightly concluded that proviso to section 147 could not be invoked merely because there was an amendment in future which was introduced retrospectively and covered period in question, and thus Tribunal order has to be confirmed.
CIT v. Ganesh Rice Mills (2011) 202 Taxman 96 (All) (High Court) (Mag)
S. 147 : Reassessment – Income escaping assessment.
During the search no books of account or documents or money or bullion or jewellery or any other valuable articles or things were found. It was a solitary statement of the assessee, which too was retracted immediately thereafter. Furthermore, apart from the statement there were no particulars coming forward namely who were the dummy subscribers, whether shares from the so-called dummy subscribers were transferred in the name of the assessee or assessee remained the benami owner thereof and was in the control and possessions of those shares, etc. No such questions were even put by the A.O. to the assessee after recording the statement. Thus the only material for issuance of notice u/s 148 was the statement recorded u/s 132(4). Even if the statement was to be believed, that would have been the basis for issuing the notice for A.Y. 1995 – 1996 and not A.Y. 1994 – 1995. It was merely a figment of imagination on the part of the CIT(A) that statement should not be believed to the extent that that cash was paid in the current financial year i.e. 1994 – 1995 as normally such cash is paid at the time of purchase of shares by the so called dummy subscribers. It was not even recorded in the `reasons to believe' by the A.O. Therefore the order of the CIT(A) on that aspect was clearly erroneous and justifiably set aside by the Tribunal.
CIT v. Bela Jain (Smt) (2011) 202 Taxman 90 (Delhi) (High Court) (Mag)
S. 158BC : Block of assessment–Search and Seizure – Validity -Joint warrant .
Warrant of authorization issued in the names of three companies including assessee, separated only by a comma without the word "and" between companies is not a warrant in the joint names of three companies and, therefore, the block assessment order framed in the individual name of the assessee company was not invalid.
Radan Multimedia Ltd vs. DCIT(2011) 58 DTR 129(Mum) (Trib).
S. 168 : Executors – Income – Administrator (S. 4.)
Amount received by the administrator (Assessee) on distribution out of the accumulated funds of the estate of the deceased in his capacity as a transferee of the legatee's interest was not taxable in his hands, since the assessee had only acquired the rights to sale proceeds of the properties and the estate was continuing and was being administered by the assessee, he could not be treated as the residue legatee.(A.Y.2004-05).
Dy CIT v Nusli Neville Wadia (2011) 61 DTR 218(Mum) (Trib) / 141 TTJ 521(Mum).
S. 194A : Deduction of tax at source- Interest other than interest on securities- Reimbursement- Commission- Interest( S. 28A).
Assessee company utilized unspent credit limit of other company for importing goods for which bank charged interest, which was paid by said company on behalf of assessee. Assessee reimbursed such amount of interest to said company. It claimed that in reality it paid commission to that company for utilising its unspent credit limit and therefore, provisions of section 194A were not applicable. The court held that amount paid by the assessee would clearly come within the definition of `interest' under section 2 (28A) and assessee was liable to deduct TDS from the said amount in terms of section 194A.(A.Y. 2002-03)
Bhura Exports Ltd v ITO (2011) 202 Taxman 88 ( Cal) (High Court).
S. 194H : Deduction of tax at source- Commission- Discount-Franchisee.
Franchisee acts on behalf of the assessee for selling start up pack and prepaid recharge coupons to the customers of assessee and all the trappings of liability as agent, of the franchisee towards assessee subsist and therefore discount given to the franchisee was in fact commission, subject to TDS under section 194H.(A.Y. 2003-04 and 2004-05).
Bharati Cellular Ltd v Asst CIT (2011) 61 DTR 225 (Cal) (High Court).
S. 194J : Deduction of Tax Source – "Transaction charges" paid to BSE – "fees for technical services"
In the instant case, there is direct linkage between the managerial services rendered and the transaction charges levied by the stock exchange. The BOLT system provided by the BSE is a complete platform for trading in securities. A stock exchange manages the entire trading activity carried on by its members and accordingly renders "managerial services". Consequently, the transaction charges constituted "fees for technical services" u/s 194-J and the assessee ought to have deducted TDS. However, on facts, because from 1995 to 2005 no tax was deducted and no objection was raised by the AO and because from AY 2006-07 onwards the assessee had deducted TDS, there was a bonafide belief that no TDS had to be deducted, hence no disallowance u/s 40(a)(i) can be made for AY 2005-06.
CIT v Kotak Securities Limited (Bombay) (High Court) (www.itatonline.org)
S. 195 : Deduction of tax at source-Other sums-Non resident-Income deemed to accrue or arise in India-Business information. (S. 201).
The assessee had imported business information reports from Dun and Brand street, USA and made remittances in respect thereof without deducting tax at source. The Assessing Officer held that the assessee was liable to deduct tax at source. Tribunal set aside the order of Assessing Officer. The Court held that the Authority for Advance Rulings had held that the sale of business information reports by the subsidiaries of Dun and Brand Street, USA in Spain, Europe and the U.K. to the assessee did not attract the provisions of section 195. Though the decision of the Authority was not binding in the present case, since the decision of Authority related to the same business information reports imported by the assessee and no fault in the decision of the Authority was pointed out, the decision of the Tribunal was affirmed.
Director of Income Tax v Dun and Brand Street Information Services India P. Ltd (2011) 338 ITR 95 (Bom) (High Court).
S. 201 : Consequence of failure to deduct or pay – Assessee in default- Deduction of tax at source – Limitation.
When there was no period of limitation fixed for exercising power under section 201 at relevant point of time, there is no question of invoking a reasonable period of limitation for applying the provision of section 201. ( A.Y. 2002-03).
Bhura Exports Ltd v ITO (2011) 202 Taxman 88 (Cal) (High Court).
S. 220 : When tax payable and when assessee deemed to be in default- Collection and recovery of tax-Waiver of interest.
Petition for waiver of interest under section 220(2) can be filed even after interest has been paid by the assessee.(A.Y.1993-94).
Jewellers Om Prakash v Chief CIT (2011) 202 Taxman 71 ( Delhi) (High Court).
S. 234B : Interest- Book profit- Company. ( S. 234C ).
Interest is chargeable under sections 234B, 234C on failure to pay advance tax in respect of tax payable under sections 115JA/115JB. (A.Ys 1997-98 & 2000-01 to 2004-05).
Singareni Colliweries Company Ltd v Asst CIT (2011) 141 TTJ 593 (Hyd ) .
S. 244A : Interest on refunds – Adjustment of amount seized.
After a search conducted at assessee's premises, it filed its return of income. However, it failed to pay self-assessment tax due as per return and requested authorities to adjust amount of tax due out of amount seized from its office and its chairman. Subsequently, assessment order came to be passed making assessment at a lesser amount and, consequently, assessee became entitled to refund. Held that, clause (b) of S.244A was attracted and assessee was entitled to refund with interest.
CIT v. Islamic Academy Education (2011) 202 Taxman 276 (Kar) (High Court).
S. 245R : Procedure on receipt of application- Advance Rulings- Pendency of proceedings-Notice under sections. 143(2) and 147.
Notices under section 143 (2) and 147 having been issued to the applicant by the time it filed the application under section 245Q seeking ruling on the question as to whether the amounts received by the applicant are liable to tax in India under the provisions of the Income Tax Act, the question raised is the very question pending adjudication before the Assessing Officer so far as that particular income is concerned and therefore, application is liable to be rejected under proviso to section 245R (2).
Sepco III Electric Power Construction Corporation (2011) 243 CTR 529/61 DTR 49/202 Taxman 149 (AAR).
S. 246A : Appealable Orders-Commissioner (Appeals) – Tax determined as per section 246(1) (a) – Relief in respect of under section 90 or section 91
Section 246A(1)(a) covers issue of not allowing relief in respect of withholding tax under section 90 or section 91.
Capgemini Business Services (India) Ltd. v. Dy. CIT (2011) 131 ITD 396 (Mum.)
S. 251 : Powers of Commissioner (Appeals) – New claim -Non filing of revised return.
When the assessee, during the course of assessment claimed the cost of acquisition of the capital asset as per the valuation report stating the fair market value as on 1st April 1981, the AO should have entertained the said claim and CIT(A) also erred in not considering the claim, which is a legally permissible claim.
Gopi S. Shivnani (Mrs) v. ITO(2011) 57 DTR 18 /139 TTJ 308(Mum) (Trib)
S. 251 : Powers of the Commissioner ( Appeals) – Omission to claim in the return.
Where the assessee had not claimed deduction u/s 80IB in the return of income and facts relating to that deduction have also not been shown to be existing on record, CIT was not justified in directing the A.O. to consider the claim in accordance with law.
ACIT v. Parabolic Drugs Ltd. (2011) 62 DTR 73 (Delhi) (Trib)
S. 254(1) : Orders of Appellate Tribunal – Duty of Tribunal.
It is the duty of the Tribunal to follow decision of jurisdictional High Court. Tribunal cannot hold High Court decision erroneous because it did not consider relevant provision.
National Textile Corporation Ltd. (M.P.) v. CIT (2011) 338 ITR 371 (MP) (High Court)
S. 254(1) : Orders of Appellate Tribunal-Powers- Power of Enhancement.
The arrears of rent & damages received by the assessee were claimed as `not taxable' by the assessee, being capital receipts whereas the Department contended that the same were taxable, being on revenue account. The Tribunal remanded the matter back to consider whether the same could amount to `Capital Gains', being received for surrender of tenancy. It was not even the case of the Department that these were `capital gains'. It was held that the Tribunal cannot enhance the scope of the appeal by adjudicating on grounds not raised by the Appellant.
Jasmine Commercials Ltd. v. CIT (2011) 200 Taxman 338 (Cal.) (High Court)
S. 254(2) : Orders of Appellate Tribunal-Rectification of mistakes-Powers- Jurisdiction of Income tax Appellate Tribunal, which originally heard matter, to recall its order
The Tribunal omitted to consider an issue. A Miscellaneous application was moved seeking to recall the order. The tribunal recalled the order and registry was directed to fix the appeal as far as ground regarding rent receipt was concerned. Assessee moved instant application seeking admission of additional ground that reopening was bad in law. Held that the statute permits bench, which originally heard the matter, to recall its order in its entirety or to recall in a limited way or to pass a corrigendum or correct certain mistakes apparent from record and bench has no jurisdiction to go into other issues other than one which was recalled. Hence, Assessee was not entitled to raise any additional ground. (A.Y.1999-2000).
Tokhem Enterprises v ITO (2011) 132 ITD 375 (Mum) (Trib).
S. 254(2) : Orders of Appellate Tribunal – Rectification of mistakes– Review or Recall of the order.
Tribunal cannot recall its previous order unless there are manifest errors which are obvious, clear and self-evident.
Sudhakar M. Shetty v. ACIT (2011) 139 TTJ 687 (Mum.) (Trib)/ 58 DTR 289
S. 260A : Appeal- High Court-Tax effect less than 4 Lakhs-Reference returned un answered.
In view of Instruction no 2/2005 dated 24-10-2005 , issued by CBDT, it has to be directed that wherever tax effect is less than 4 lakhs , department should not file appeal under section 260A, unless question of law involved or raised in appeal is of recurring nature which is to be settled by High Court .
CIT v Vitessee Trading Ltd (2011) 202 Taxman 242 (Bom ) (High Court).
S. 260A : Appeal-High Court-Condonation of Delay – Huge Stakes.
When huge stakes are involved, the High Court should not dispose of the appeals fled by the Department merely on the ground of delay. High Court may consider imposing costs on the Department for the delay and decide the appeal on merit.
CIT v. West Bengal Infrastructure Development Finance Corpn. Ltd. (2011) 56 DTR 351 (SC)
S. 263 : Revision of orders prejudicial to revenue-Two views-One of the possible view.
Where the Assessing Officer has taken one of the possible views which resulted in loss of revenue, the order cannot be treated as `erroneous' and the Commissioner cannot invoke jurisdiction under section 263.
CIT v. Kelvinator of India Ltd. (2011) 201 Taxman 88 (Delhi) (Mag.) (High Court).
S. 271D : Penalty- Loan or deposit- Income offered by Director- Entry in books of account of Company by journal entry. ( S. 269SS).
The premises of K, a director of the assessee company were searched by the Income Tax Authorities. During the course of search, incriminating documents regarding unaccounted expenditure incurred by K were seized. In the proceedings initiated under section 153C, K offered for tax the undisclosed expenditure incurred by him for and on behalf of the company for construction activities. Accordingly journal entries were passed in the books of the company. Assessing Officer was of the opinion that the assessee has violated section 269SS and accordingly levied the penalty but the Tribunal deleted. High Court confirmed the order of Tribunal.
CIT v Motta Construction P.Ltd (2011) 338 ITR66 (Bom) (High Court).
S. 271G : Penalty – Transfer Pricing – No Penalty for failure to respond to "omnibus" notice
S. 271G authorizes the levy of penalty if the information/ documents prescribed by s. 92D (3) are not furnished. Rule 10D prescribes a voluminous list of information and documents required to be maintained and it is only in rare cases that all clauses would be attracted. Some of the documents may not be necessary in case of some assessees. Before issuing a notice u/s 92D(3), the AO has to apply his mind to what information and documents are relevant and necessary for determining ALP. A notice u/s 92D(3) is not routine and cannot be casually issued but requires application of mind to consider the material on record and what further information on specific points is required. The notice cannot be vague or call for un-prescribed information.
DCIT v Leroy Somer & Controls(India) (P)Ltd. (Delhi) (ITAT) (www.itatonline.org)
S. 281 : Certain transfers to be void- Recovery of tax-Sale and attachment of property of assessee in default.
Property transferred by assessee during pendency of recovery proceedings, can be attached and sold without filing suit, as section 281 statutorily declaring such transfer as void provides for such mode. Notice to transferee is invariably not necessary before taking such action.
Karnail Singh v UOI (2011) Tax.L.R. 648 (P& H).(High Court).
Interpretations.
Precedent – Decision of jurisdictional High Court – Binding nature
Tribunal has to follow the decision of the jurisdictional High Court without making any comment upon the said decision, it is not permissible for the Tribunal to sidetrack and/or ignore the decision of the jurisdictional high court on the ground that it did not take into consideration a particular provision of law.
Deputy Commissioner of Income Tax v. Gujarat Ambuja Cements Ltd (2011) 57 DTR 179 (Mum.) (Trib.)
Precedent- Advance Rulings.
Decision of Authority on similar facts in respect of same subject matter can be followed.
Director of Income Tax v Dun and Brand Street Information Services India P. Ltd (2011) 338 ITR 95 ( Bom) (High Court).
Gift Tax.
S. 4 : Deemed gift-Transfer of assets without consideration-Transfer of shares of company from one group to another.(S. 5(1) (xiv).
The assessee company was managed by two groups of share holders, K and P. Disputes cropped up regarding the entitlement to the sum of Rs 80 Lakhs receivable from S for the sale of surplus FSI. According to the decree of court, the K group transferred all its shares in the assessee to the P group. In the annual accounts, the value of the properties alienated to the K group was shown at Rs 35 Lakhs. The Assessing Officer held that the assessee had gifted Rs 35 lakhs without any consideration and such amount was exigible to gift tax. The order was confirmed by CIT(A) and Tribunal. On reference the Court held that the K group had relinquished and waived its right, title and interest in the property and also the consideration which the assessee was to receive out of the land transaction and in lieu thereof it got properties free from all liabilities on ownership basis. The consideration was the transfer of property in favour of K group. The consideration for the transaction could be spelt out from the award of the arbitrator. There was no gift exigible to tax.
Pananlal Silk Mills P Ltd v CGT (2011) 338 ITR 1( Bom) (High Court).
Editorial. Judgement of Mumbai Tribuanl Panalal Silk Mills Pvt. Ltd v DCIT (1993) 44 ITD (458) reversed.
Writ Petitions :
Writ-Maintainability -Foundational Facts to be Established.(Article 226)
Where the foundational facts had to be established, the assessee ought not to have filed a writ petition.
Coca Cola India Inc. v. Addl. CIT & Ors. [2011] 336 ITR 1 (SC)
Service Tax – Activation of SIM
The amount received by the cellular company from its subscribers towards SIM cards forms part of the taxable value for levy of service tax, as SIM cards are never sold as goods independent of the services provided and therefore, the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers.
Idea Mobile Communications Ltd. v. CCEC (2011) 59 DTR209 (SC).
Journals Referred : BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ, www.itatonline.org
S. 4 : Income- Capital receipt-Business income- Capital gains.(S. 28(i), 45 ).
Assessee, administrator of the estate of deceased, having purchased the right to receive the sale proceeds of the estate by entering into an indenture with the legatee on account of close personal relations with her and not for overriding commercial considerations. The transaction cannot be construed as an adventure in the nature of trade. The said receipt cannot be taxed even as capital gains as the estate continued to be the owner of the properties and as such payment did not result in extinguishment of assessee's right hence there was no transfer of any capital asset.(A.Y.2004-05).
Dy CIT v Nusli Neville Wadia (2011) 61 DTR 218/ 141 TTJ 521(Mum) (Trib).
S. 4 : Income – Method of Accounting-NPAs.
Income from non-performing assets should be assessed on cash basis and not on mercantile basis despite of the assessee maintaining accounts on mercantile basis.
CIT v. Canfin Homes Ltd. (2011) 201 Taxman 273 (Kar.) (High Court).
S. 5 : Income- Accrual – Advance from customers towards booking of cruise tickets.
Assessee being engaged in the business of travel agency as a representative of RCCL bookings tickets for the latter's cruise and entitled to base commission of 25 % on all bookings as per the terms of the agreement between the parties, the commission accrues to the assessee with the booking of tickets against full payment as per the mercantile system of accounting followed by him; however, assessee is entitled to credit of 10% on account of travel agents commission which is payable by him.
CIT v. Gautam R. Chadha (2011) 62 DTR 58 (Delhi) (High court)
S. 5 : Income – Accrual – Fixed deposits in banks – Interest
Assessee society held fixed deposits in banks for a term exceeding more than one year. It had not shown any interest income from said FDs during previous year on ground that income from FDs would be offered to tax on its receipt on maturity on basis of TDS certificate issued by bank. It was held that the assessee was not liable to declare interest income accrued but not due in the relevant assessment year as the said sum was not acknowledged by bank or by the assessee. (A.Y. 2007-08).
Puri District Co-op. Milk Producers' Union Ltd. v. ITO (2011) 132 ITD 127 (Cuttack) (Trib).
S. 9 (1) : Income deemed to accrue or arise in India – Permanent Establishment – DTAA – India – UK. [Art. 5]
Assessee was British Company. It supplied certain parts and equipments to Indian customers. RRIL was assessee's 100 % subsidiary set up in India through which it carried out marketing and selling of goods to Indian customers. A.O. after holding RRIL as PE of the assessee, attributed 100% of profits earned from sale of goods to Indian customers to activities carried on in India. The Tribunal restricted such attribution to 35 % holdings that profits attributed to manufacturing activity and research and development activities, i.e. 50 % and 15%, respectively had to be excluded. Assessee filed appeal before the High Court contending that net research and development expenses should also be reduced while computing operating profits; and that Tribunal had not considered objections and documents filed by it on aspect of PE properly and, therefore, matter should be remanded for reconsideration. Held that expenses on research and development were already taken care of when remuneration at rate of 35% was attributed to marketing activities in India on which global profits was apportioned. From the order of the Tribunal it was clear that while holding that RRIL constituted PE of assessee, it had undertaken critical analysis of material on record including objections and documents filed by the assessee and therefore there was no reason to remand the case back to the Tribunal.
Rolls Royce Plc v. DIT (International taxation) (2011) 202 Taxman 309 (Delhi) (High Court)
S. 9 (1) (i) : Income deemed to accrue or arise in India – Fact of "Office PE" under Article 5(2) irrelevant if there is no "Construction Site PE" under Article 5(3) – DTAA – India – Netherlands. [Art. 5(3), 5 (2)]
The assessee had a "site" or "project" in India. Under Article 5 (3) of the treaty, such a "site" or "project" is a PE only if it continues for a period of more than six months. As the assessee's contract was completed in two months, there was no PE under Article 5(3). The argument that the Mumbai office was a PE under Article 5(2) is not acceptable because while Article 5(2) is a general provision, Article 5 (3) is a specific provision which prevails over Article 5(2).
CIT v BKI/HAM v.o.f. (Uttarakhand) (High Court) (www.itatonline.org)
S. 9(1) (vi) : Income deemed to accrue or arise in India – Royalty -Software.
Consideration received by the applicant, a Sri Lankan Company, from ICEL for giving it the right to use its copyrighted software and use it for latter's own purposes whenever and wherever needed by it is taxable in India as royalty under cl. (v) of Expln. 2 of S.9(1)(vi) as well as under Art.12.2 of the Indo-Sri Lanka DTAA and consequently, provision of withholding tax u/s 195 is applicable.
Millennium IT Software Ltd., In Re (2011) 62 DTR 1 / 338 ITR 391(AAR)
S. 9(1) : Income deemed to accrue or arise in India – Permanent establishment – Royalty and fees for technical services –DTAA- India- USA.( S. 9(1) (vii) & 90).
In the contract of the kind undertaken by the assessee, if there is a composite consideration, the same can be conveniently segregated in different components. If the profits from supply contract are held to be taxable separately, as the supply is a milestone in the whole contract, then the treatment meted out to profits on sale of equipment and consideration received for supply of software will have to be different, as the two assets are of different nature involving different profitabilities. The A.O. bifurcated in the ratio of 30 : 70. As the assessee was unwilling to give the details the bifurcation made by the A.O. was justified.
Raytheon Company v. DCIT (2011) 62 DTR 1 (Del) (Trib)
S. 9 (1) (vii) : Income deemed to accrue or arise in India-Installation project-Permanent establishment-DTAA-India-Singapore. (Art 5.3)
Four installation projects undertaken by the applicant, a Singaporean company, in India requires setting up, fitting, placing and positioning projects covered under Art 5.3 of the Indo –Singapore DTAA, and all these projects being independent projects with no interconnection and interdependence amongst them. It cannot be said that the applicant has a Permanent establishment in terms of art 5.2 of the DTAA provided that the duration of each of the projects does not exceed 183 days in one financial year and therefore, income earned by the applicant form its activities of execution of the installation project is not liable to tax in India.
Tiong Woon Project & Contacting Pte Ltd (2011) 61 DTR 337 (AAR) / 338 ITR 386 (AAR)
S. 10(23C) (via) : Exempt incomes – Hospital – Application-Beyond time.
Application u/s 10(23C)(via) filed beyond time. Accounts not maintained properly. No evidence regarding activities. Registration u/s 80G and exemption u/s 12A in prior years not conclusive. Rejection of application was justified.
All India J. D. Educational Society v. Director General of income tax(exemptions) (2011) 338 ITR 218 (Delhi) (High Court).
S. 10A : Exempt incomes- Free trade zone – Competent authority – FEMA – RBI.
The assessee made an application to the RBI on 7-10-2004 seeking extension of time for realisation of the export proceeds. The RBI granted approval in realisation of exports proceeds but said approval was issued in the context of the provisions of the FEMA and there was no formal approval was granted by the RBI under section 10A. The Tribunal held that once the assessee had applied for extension and had completed all the formalities and in response the RBI had taken the remittances on record, then non issuance of formal letter of approval by the RBI could not be held against the assessee, it must be held that the extension had been granted in substance and therefore the benefit of section 10A had to be allowed. The court upheld the order of the Tribunal. (A. Y. 2004-05).
CIT v Morgan Stanley Advantage Services (P) Ltd (2011) 202 Taxman 40 (Bom) (High Court).
S. 10A : Exempt incomes – Free trade Zone – Convertible foreign exchange – Local sales.
Section 10A provides for exemption only on profits derived on export proceeds received in convertible foreign exchange. Benefit cannot be extended to local sales made by units in special Economic Zone, whether as part of domestic tariff area sales or as inter unit sales within zone or units in other Zones. ( A.Y. 2004-05).
CIT v Electronic Controls & Discharge Systems (P) Ltd (2011) 202 Taxman 33 ( Ker) (High Court).
S. 10A : Exempt incomes – Free Trade Zone- Export Oriented Undertaking-Exemptions under sections 10A,10B continue to "exempt" profits & so loss of other units (eligible & non-eligible, including B/f loss) not liable for set-off against sections 10A,10B profits.
Two issues where before the High Court for AY 2001-02 & onwards, (i) Whether the loss incurred by a non-eligible unit & (ii) whether the brought forward unabsorbed loss & unabsorbed depreciation of the eligible unit has to be set-off against the profits of the eligible unit before allowing deduction u/s 10A/ 10B.
Held that (a) S. 10A allows deduction "from the total income". The phrase "total income" in s. 10A means "the total income of the STP unit" and not "total income of the assessee". Consequently, s. 10A deduction has to be given before computing the "profits & gains of business" under Chapter IV. Though s. 10A was amended to make it a "deduction" provision, it continues to remain in Chapter III and was not moved to Chapter VI-A. The result is that even now s. 10A is in the nature of an "exemption" provision and the profits of the eligible unit have to be deducted at source level and do not enter into the computation of income.
(b) S. 10A(6) as amended by the FA 2003 w.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to the AY 2001-02 & onwards is eligible for set-off & carry forward for set-off against income post tax holiday. This amendment does not militate against the proposition that the benefit of relief u/s 10A is in the nature of exemption with reference to commercial profits. However, to give effect to the legislative intention of allowing the carry forward of depreciation and loss suffered in respect of any year during the tax holiday for being set off against income post tax holiday, it is necessary that a notional computation of business income and the depreciation should be made for each year of the tax holiday period. Such loss is eligible to be carried forward. But, as the income of the 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year's or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise.
CIT v Yokogawa India Ltd. (Karn) (High Court) (www.itatonline.org)
S. 10B : Exempt incomes –Export Oriented Undertaking - Outsourcing Job.
Some work done on job basis by sister concern is not relevant. Assessee is entitled to exemption.
CIT v. Continental Engines Ltd. (2011) 338 ITR 290 (Delhi) (High Court)
S. 12A : Exempt incomes- Charitable Trust – Commercial Activities.
Registration under section 12A was rightly refused to the trust where the trust has carried out commercial activity and did not apply the income to fulfil the object of the trust.
Society for the Small & Medium Exporters v. Director of IT (Exemptions) (2011) 139 TTJ 218 (Delhi.) (Trib)
S. 12A : Exempt incomes- Charitable Trust – Registration.( S. 11(4A)
Assessee engaging manufacturing and trading activities. Assessee converting incidental objects as main objects. Assessee not satisfying first condition of section 11(4A) – Cancellation of registration valid.
Aurolab Trust v. CIT (2011) 12 ITR 74 (Chennai) (Trib)
S. 22 : Income from house property – Business income – Partnership firm.
Exemption u/s 22 in respect of a property now owned by the partnership firm cannot be availed of by an individual co-owner merely because he happens to be a partner of a firm in occupation of a part of the property; therefore, the assessee cannot pray for exclusion of income of the impugned portion in occupation of a partnership firm.
Prodip Kumar Bothra vs. CIT (2011) 62 DTR 47 (Cal) (High Court)
S. 22 : Income from House Property – Business of Construction and development of residential – Commercial Unit. [S. 28(i)]
Where principal object of the assessee company being to develop and sell the premises constructed and there is no material on record to show that the said principal object of the company includes leasing of the stock i.e. property for a temporary period to persons/companies interested in temporary use, rent is not received from exploitation of the property by way of complex commercial activities but the rental income is derived by the assessee as an owner of the property and it is liable to be assessed under the head `income from house property'. Lease rent received from exploitation of property by way of complex activities, the rent income derived as owner of property be assessed as `Income from House Property'.
Roma Builders (P) Ltd. v. Jt. CIT (2011) 131 ITD 91/ 60 DTR 231 (Mum) (Trib.)
S. 28(1) : Business income-Gifts from devotees on birth day-Vocation-Profession-Capital receipt.
Assessee as religious head was not performing any religious rituals for his devotees for consideration. He was doing charitable work and spiritualisation for benefit of mankind. Gift received by assessee from devotees out of natural love and affection. Receipt cannot be taxed as income from any vocation or profession.
CIT v Gopala Naicker Bangarue (2011) Tax .L.R. 686 (Mad) (High Court).
S. 32 : Depreciation – Rate- Printers-UPS.
Printers and UPS fall within the class of computer peripherals and therefore, eligible for depreciation at the rate of 60%.
Haworth (India) (P) Ltd. v. Dy. CIT (2011) 140 TTJ 446 (Delhi.) (Trib).
S. 32 : Depreciation – Computer Peripherals – Integral Parts
Computer peripherals like printers scanners, servers, UPS, etc., form integral part of computer system on which higher depreciation of 60% is allowable. [A. Y. 2005-06]
ITO v. Omni Globe Information Technologies India (P) Ltd (2011) 131 ITD 280 (Delhi) (Trib).
S. 35E : Deduction for expenditure on prospecting etc, for minerals.
Where the assessee incurred a loss, the deduction under section 35E is not available. (A.Ys 1997,98 & 2000-01 to 2004-05).
Singareni Colliweries Company Ltd v Asst CIT (2011) 141 TTJ 593 (Hyd) (Trib)
S. 36(1) (ii) : Business expenditure- Bonus or Commission – Commission-in-lieu of Dividend.
Payment of commission to directors owning entire capital were paid commission for their hard work not allowed as it was paid in lieu of profit or dividend as it was revealed that the profit earned was due to improved market conditions and not because of any extra services were rendered for improving the performance of the company.
Dalal Broacha Stock Broking (P.) Ltd v. Addl. CIT 131 ITD 36 (Mum.) (SB) (Trib)
S. 36(1) (iii) : Business expenditure- Interest payable on loans.
The assessee was in the business of trading in shares and had claimed interest on loans obtained for business. The shares had been shown under `Investments' in its' books and hence the Assessing Officer disallowed interest on borrowings. It was held that treatment in books was not conclusive and given the nature, volume of the assessee's business, it was clear that the assessee was trading in shares and hence interest could not be disallowed.
CIT v. Aravind Prakash Malpani (2011) 200 Taxman 41 (Kar.) (Mag.) (High Court)
S. 37(1) : Business Expenditure – Expenditure to procure raw Material.
Expenditure incurred for the purpose of procuring the raw material in thermal power station is allowable expenditure.
ACIT v. Chettinad Cement Corporation Ltd. (2011) 140 TTJ 100 (Chennai) (Trib)
S. 37(1) : Business Expenditure – Broken period interest.
Broken period interest has to be allowed if the securities were held as current assets.
Jt. CIT v. Dena Bank (2011) 139 TTJ 81 (Mum.) (Trib)
S. 37(1) : Business expenditure – Capital or revenue – Lease rent of 99 years.
Lease rent of Rs.48,02,616/- paid to G.I.D.C for period of 99 years held to be revenue in nature. Registration of lease deed is not relevant for deciding the issue of capital or revenue. High Court confirmed the order of tribunal.
DY. CIT v Sun Pharmaceuticals Ind Ltd (2011) 224 Taxation 456 (Guj) (High Court).
S. 37(1) : Business expenditure – Capital or revenue – Software usage.
Software usage and product development expenses incurred by the assessee company engaged in internet related services are allowable as revenue expenditure to the extent the same are routine and periodic expenses not resulting in creation of new assets. (A.Y.2005-06).
Dy CIT v Rediff Com India Ltd (2011) 61 DTR 426/47 SOT 310( Mum) (Trib).
S. 37 (1) : Business expenditure- Foreign tour expenses.
Foreign travel expenses of doctor partner for obtaining the latest information on the technological advancements, concerning dental implants are allowable as business expenditure. (A.Y 2004-05)
Dy CIT v B2C Implants (2011) 141 TTJ 638 (Mum) (Trib).
S. 37 (1) : Business expenditure – Expenditure on foreign education of director being son of the major shareholder.
Where the assessee company was not able to substantiate that sending of the director for training abroad was for the benefit of the business of the assessee, the expenses incurred for foreign training were not allowable in the hands of assessee company.
Vishesh Entertainment Ltd vs. ACIT (2011) 60 DTR 284 (Mum) (Trib.)
S. 37(1) : Business Expenditure – Capital or Revenue Expenditure – Expenditure on `Application Software' – revenue in nature
The expenditure incurred for the purpose of installation of "Oracle" software for financial accounting, inventory and purchase held to be revenue in nature as it did not result in creation of new asset or a new source of income. The test of enduring benefit is not a certain or a conclusive test. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. Expenditure incurred which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched is expense in the nature of revenue expenditure. Test of enduring benefit or advantage collapses in such like cases especially in cases which deal with technology and software application which do not in any manner supplant the source of income or added to the fixed capital of the assessee
Followed : Alembic Chemical Works Co Ltd v CIT ( 1989) 177 ITR 377(SC).
CIT v Asahi India Safety Class Ltd. (Delhi) (High Court) (www.itatonline.org)
S. 37(1) : Business Expenditure – Benefit to other person – No written agreement.
If the expenditure is incurred for the purpose of assessee's business then no part of the same can be disallowed merely because some other person has benefited out of the same, and there is no written agreement with the payee/recipient.
CIT v. Agra Beverages Corp Pvt. Ltd. (2011) 200 Taxman 43 (Delhi) (Mag.) (High Court)
S. 37(1) : Business Expenditure – Glow sign boards.
Expenditure incurred on glow sign boards for purpose of advertisement by the assessee is revenue expenditure.
CIT v. Orient Ceramics & Industries Ltd. (2011) 200 Taxman 64 (Delhi) (Mag.) (High Court).
S. 37(1) : Business Expenditure – Foreign Tours-Expansion of existing project.
Expenditure incurred by the assessee on foreign tours of its personnel, in connection with expansion of existing project is eligible for deduction as revenue expenditure.
CIT v. J. K. Synthetics Ltd. (2011) 200 Taxman 101 (Delhi) (Mag.) (High Court)
S. 40(a) (i) : Amounts not deductible – Non–Resident – Certificate by a Chartered Accountant-Deduction of tax at source.(S. 195 ).
A certificate issued by a chartered accountant cannot be a conclusive determination of taxability of income in the hands of the recipient. Question of taxability in the hands of the recipient remains open and the assessee continues to have obligation to file all the relevant details, enabling determination of such liability, before the revenue authorities. Matter was remitted to the Assessing Officer to examine the taxability of the payments in the hands of recipients, on merits.(A.Y.2005-06).
Dy CIT v Rediff Com India Ltd (2011) 61 DTR 426/47 SOT 310( Mum) (Trib).
S. 40(a) (ia) : Amount not deductible – Short Deduction of Tax at source – No disallowance for short-deduction TDS default.
Where it is a case of short deduction of payment as against non-deduction of TDS, disallowance u/s 40(a)(ia) could not be made. Though S. 40(a)(ia) provides for a disallowance if amounts towards rent, etc have been paid without deducting tax at source. It does not apply to a case of short-deduction of tax at source. As the assessee had deducted u/s 194C, it was not a case of "non-deduction" of TDS. If there is a shortfall due to difference of opinion as to which TDS provision would apply, the assessee may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40(a)(ia). [Chandabhoy & Jassobhoy (ITAT Mumbai) followed]
DCIT v S. K. Tekriwal (Kolkata) (ITAT) ( www.itatonline.org)
S. 40(a) (ia) : Amounts not deductible – Deduction of tax at source – Retrospective Amendment .
Where the assessee acted bona fide in conformity with the provision of Act and the legal position in not deducting tax at source, retrospective amendment could not make him liable and therefore no disallowance under s. 40(a)(ia) was called for.
Sterling Abraive Ltd v. ACIT (2011) 57 DTR 361 (Mum) (Trib)
S. 40(b) : Amounts not deductible-Firm-Partner-Interest-Salary.(S. 28(i), 29, 32 145 ).
Assessee partnership firm paid interest to partners on their capital account and claimed the deduction. Assessing officer held that as the assessee has not claimed depreciation in books of account however claimed depreciation in the computation, he reworked the capital balances of partners by reducing the cumulative amount of depreciation therefrom and allowed the interest computed on such reduced capital balances. The Tribunal held that in terms of section 40(b) , read with section 28(i) and 29 Assessing Officer is not entitled to disallow payment of interest to partners by re working capital account balances of partners. (A.Ys 1999-2000 & 2002-03).
Swaraj Enterprises v ITO (2011) 132 ITD 488 (Visakhapatanam) (Trib).
S. 40(b) (v) : Amount not deductible –Partnership Deed must quantify or lay down the manner of quantifying remuneration to partners
S. 40(b) (i) to (v) which prescribe the conditions for deduction of remuneration paid to a partner requires that the payment should be authorized by, and be "in accordance with the terms of the partnership deed". This mandates that the quantum of remuneration or the manner of computing the quantum of remuneration should be stipulated in the partnership deed and should not be left undetermined, undecided or to be determined or decided on a future date;
Sood Brij & Associates v CIT (Delhi) (High Court) (www.itatonline.org )
S. 40(b) (v) : Amounts not deductible- Interest, Salary, etc. paid by firm to partner.
Section 40(b)(v) does not lay down that remuneration payable to partner should be fixed or method of remuneration should be provided for in the partnership deed. All that the said section provides is that if the remuneration paid to partner is in accordance with the partnership deed and does not exceed the aggregate amount laid down in the said section, then the same shall be eligible for deduction. Circular no.739 which states that amount of remuneration should be provided for in the deed, cannot override the statutory provisions and must yield to the substantive provisions.
Durga Dass Devki Nandan v. ITO (2011) 200 Taxman 318 (HP) (High Court).
S. 40A(2) : Amounts not deductible- Purchase transaction from associate concerns.
Assessing Officer did not call upon the assessee to furnish any evidence regarding purchase transaction from associate concern, no disallowance could be made applying provisions of section 40A(2) (b) , when there were no comments upon the material placed before him during the course of remand proceedings. (A.Y 2004-05)
Dy CIT v B2C Implants (2011) 141 TTJ 638 (Mum) (Trib).
S. 40A(2) : Amounts not deductible – Payment of interest to associated concern.
Obtaining the unsecured loan @ 11% from associated concern was commercially expedient as assessee could earn more income from such borrowed funds and secured loans were neither available easily nor they were enough to cater the business needs of the assessee as it did not have enough security and/or provision of guarantee for obtaining such loan and therefore no disallowance u/s 40A(2) was called for.
Addl. CIT v Religare Finvest Ltd. (2011) 62 DTR 46 (Delhi) (Trib).
S. 41(1) : Profits chargeable to tax- Business income- Remission of liability- Unclaimed balances.
The assessee was a shipping agent providing services to ships and acted as off shore representative. During the course of its business, the assessee was required to make deposits on behalf of its customers on various accounts with the Mumbai Port Trust. After recovering the charges, Mumbai Port Trust used to refund the amounts which in turn, were admittedly returned by the assessee to its principal as and when demanded. The refund of amount lying with the assessee for more than three years were considered by the assessee as income and offered to tax. The Assessing Officer rejected the method of accounting followed by the assessee and brought to tax entire refund amount lying with the assessee to tax under section 41(1). The Tribunal deleted the addition. On appeal the High Court up held the view of Tribunal.
CIT v Modest Maritime Services P Ltd (2011) 338 ITR 64 (Bom) (High Court)
S. 43(5) : Speculative transaction – Derivative – loss.
Notification issued on 25th Jan, 2006 cannot curtail the applicability of cl.(d) of proviso to S.43(5) so as to make investments in derivatives done prior to 25th Jan, 2006 as speculative; transactions carried out through stock exchanges from 1st April, 2005 to 25th Jan, 2006 which are recognized by notification issued by CBDT on 25th Jan, 2006 would be eligible for being treated as non-speculative within the meaning of cl(d) of proviso to s.43(5).
ACIT v. Hiren Jaswantrai Shah (2011) 62 DTR 95 (Ahd) (Trib)
S. 45 : Capital gains – Business income – Transfer of trade mark – Copy rights. ( S. 28(va))
Sale of brand names, trade mark, copy right and good will in the journals were sold by the assessee to the transferee, it would be liable to capital gain and not as business profits under section 28(va).(A.Y.2006-07).
CIT v Medi world Publications (P) Ltd (2011) 61 DTR 391(Delhi) (High Court).
S. 45 : Capital gains – Amount paid to bank by purchaser on behalf of assessee.
Where the assessee had transferred plant and machinery, stores, spares, licenses, etc. alongwith certain specified liabilities under an agreement for a consideration and the purchaser had undertaken to pay a sum due by the assessee to a bank, such payment to the bank is only application of income and not charge on income and hence not deductible from total consideration.
Shree Changdeo Sugar Mills Ltd v. JCIT. (2011) 58 DTR340 (Mum.) (Trib)
S. 45 : Capital gains – Amount received by the assessee on retirement from firm after revaluation of assets.
Where the retiring partner received lump sum payment in consideration of his assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners and partners capital accounts had been artificially increased by revaluing assets just to ensure that the retiring partner is paid consideration standing to the credit of his capital account, there was a transfer of interest of the retiring partner over the assets of the firm giving rise to capital gains.
Sudhakar M. Shetty v. ACIT (2011) 139 TTJ 687 (Mum.) (Trib)/ 58 DTR 289
S. 68 : Cash Credits - Assessee's AO cannot question Creditor's I. T. Return
If the creditor discloses his PAN and claims to be an assessee, the AO cannot himself examine the return and P&L A/c of the creditor and brand the same as unworthy of credence. Instead, he should enquire from the creditor's AO as to the genuineness of the transaction and whether such transaction has been accepted by the creditor's AO. So long it is not established that the return submitted by the creditor has been rejected by the creditor's AO, the assessee's AO is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established.
CIT v Dataware Pvt. Ltd. (Calcutta) (High Court) (www.itatonline.org)
S. 72 : Carry forward and set off- Speculation business-Derivatives- Same business. ( S. 43(5), 73, 263).
Loss from trading in derivatives treated as speculation loss in earlier years carried forward. The said loss can be set off against the profit from same business. i.e. allowable against the profit from trading in derivatives after amendment. Revision order of commissioner under section 263 was quashed on merit. ( A.Y 2006-07).
Gajendra Kumar T.Agrwal v ITO(2011) 11 ITR 640 (Mum) (Trib).
S. 73 : Loss in speculation business – Bills rediscounting business – Sale and purchase of shares.
Assessee was mainly doing business of bill discounting /rediscounting, under contractual obligation between the assessee and parties to the bills. Bills were re discounted and placed only as collateral security. The Tribunal held that activity of bills rediscounting would amount to granting of loans and advances and accordingly, Explanation to section 73 would not be applicable, hence loss on account of sale and purchase of shares could not be treated as speculation losses, though the object clause of memorandum of Association showed that advancing the money was only ancillary object.(A.Y.1996-97).
Momaya Investments (P) Ltd v ITO (132 ITD 604 (Mum) (Trib).
S. 80 HHC : Deduction – Export – Profit of Business – For purpose of S. 115JA/JB – deduction to be computed as per P & L profit and not normal provisions.
The deduction u/s 80HHC is to be worked out not on the basis of regular income tax profits but it has to be worked out on the basis of the adjusted book profits in a case where s. 115JA is applicable. Accordingly, the deduction claimed by the assessee u/s 80HHC & 80HHE has to be worked out on the basis of adjusted book profit u/s 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business.
View of Special Bench in DCIT v Syncome Formulations 106 ITD 193 upheld.
CIT v. Bhari Information Tech Systems (Supreme Court) (www.itatonline.org)
S. 80IA : Deduction- Industrial undertaking- Set off of Carry forward losses.
After set off of carried forward losses, the income of the assessee for the A.Y was Rs.14,57,200/- while the profit from industrial undertaking were Rs 98.43 lacs . The Tribunal restricted the deduction to Rs 14,57,200. The High court up held the order of Tribunal ( A.Y. 1996-97).
CIT v Tridoss Laboratories Ltd (2011) 224 Taxation 382 (Bom) (High Court).
S. 80-IB : Deduction- Profits & Gains from Industrial Undertakings `Production'
The word `production' is wider in scope than `manufacture' and would include by-products and other residual products resulting during the course of manufacture. Hence the activity of converting boulder into grits/stone chips/powder may not be `manufacturing' but would amount to `production' and therefore the assessee would be entitled to deduction u/s. 80-IB on the said activity.
CIT v. Mallikarjun Georesources Associates (2011) 201 Taxman 86 (Uttarakhand) (Mag.) (High court)
S. 80-IB : Deduction- Profits & Gains from Industrial Undertakings – Refund of Excise Duty – Transport subsidy.
Refund of Excise Duty has a direct nexus to the manufacturing activity of the assessee and hence the same qualifies for deduction under section 80-IB.
Transport subsidy & Interest Subsidy- Transport & Interest Subsidies received by the assessee, cannot be said to be derived from the industrial activity and the same would not qualify for deduction under section 80-IB.
CIT v. Meghalaya Steels Ltd. (2011) 201 Taxman 135 (Gau.) (Mag) (High Court)
S. 80IB(10) : Deduction –Housing projects- Ownership of Land.
When the assessee has taken possession of land after the payment of full consideration and developed it, the assessee has fulfilled all the conditions laid down in section 80IB(10), therefore entitled to deduction under section 80IB.
ACIT v. C. Rajini (Smt) (2011) 140 TTJ 218 (Chennai) (Trib)
S. 92C : Avoidance of tax-Transfer pricing-Computation of Arms Length Price.
The High Court made certain observations on merits, while remanding the matter to the TPO, virtually concluding the matter. The TPO was directed to proceed with the matter uninfluenced by the observations/directions given by the High Court.
Maruti Suzuki India Ltd. v. Addl. CIT [2011] 335 ITR 121 (SC)
S. 115AD : Foreign Institutional Investors – Short term capital loss from exchange traded derivative transactions .(S. 43 (5)
Sec. 43(5) has no application to FIIs in respect of `securities' as defined in Explanation to S. 115AD, income from whose transfer is considered as short term or long term capital gain. In the facts of the case, Income from derivative transactions resulting into loss of Rs.12.27 crores was to be considered as short term capital loss on the sale of securities which is eligible for adjustment against short term capital gains arising from the sale of shares and not speculation loss.
LG Asian Plus Ltd v. ACIT (2011) 60 DTR 159 (Mum) (Trib.)
S. 115J : Company-Book Profits–Unabsorbed depreciation- Brought forward losses. (Companies Act S. 205).
Assessee has shown loss of Rs 16,48,74,073/- in the preceding year and claimed depreciation of Rs 13,85,66,473/- for the said preceding year. Once the brought forward is arrived at after taking into account the depreciation, it is the amount of depreciation which is less than the loss, is to be set off in terms of clause (iv) of explanation to section 115J for computing the book profit. (A.Y.1990-91 )
Peico Electronics & Electricals Ltd v CIT (2011) 61 DTR 401 (Cal) (High Court).
S. 115JA : Company-Book profits- Company- Prior period expenses-Provision for bad and doubtful debt.(S. 115JB).
Prior period expenditure and any provision for bad and doubtful debt, cannot be deducted while computing book profit under sections 115JA, 115JB. (A.ys 1997,98 & 2000-01 to 2004-05).
Singareni Colliweries Company Ltd v Asst CIT (2011) 141 TTJ 593 (Hyd ) (Trib).
S. 115JA : Company- Book Profits- Provision for Bad Debt.
While working out book profit, provision for bad debt has to be added back to the net profit under section 115JA Expl. (g).
ACIT v. Chettinad Cement Corporation Ltd. (2011) 140 TTJ 100 (Chennai) (Trib)
S. 115JB : Company-Book Profits-Power of Assessing Officer.
Once the accounts including the profit and loss account are certified by the authorities under the Companies Act ,1956, it is not open to the Assessing Officer to contend that the profit and loss account has not been prepared in accordance with the provisions of Companies Act ,1956. Hence the Tribunal was right in deleting the addition of 1.98 Crores made by the Assessing Officer while computing the book profits under section 115JB.
CIT v Adbhut Trading Co Pvt Ltd (2011) 338 ITR 94 (Bom) (High Court).
S. 132 : Search and Seizure – Authorisation u/s 132(1) – Notice u/s 131(1A) after warrant u/s 132(1)
Section 131(1A) is only an enabling section and it does not in any manner effect the search and seizure operation carried on under 132. For the purpose of judging the action of the concerned authority with respect to search and seizure, S.132 alone has to be considered. S. 132 is an independent code itself. Materials collected before search showed that officer concerned could have reason to believe that the petitioner were in possession of money, bullion etc., wholly or partly undisclosed income or asset and therefore there was reason to believe within meaning of S.132(1). Further, after search and seizure operation, the power u/s 131(1A) cannot possibly be invoked in view of its plain language and if the power is invoked, it will not in any manner affect the validity of the search and seizure operation. S. 131(1A) and 132 should be interpreted harmoniously.
V. S. Chaudan (Dr)& Anr. v DIT (Inv) (2011) 62 DTR 67 (All) (High Court).
S. 132 : Search and Seizure – Warrant of Authorisation
The opinion or the belief so recorded must clearly show whether the belief falls under clause (a) or (b) or (c) of section 132(1) of the Act. The satisfaction note should itself show the application of mind and the formation of opinion by the officer ordering the search. In order to justify the action the authority must have relevant materials on the basis of which he can form an opinion that he has reason to believe that action against a person u/s 132 of the Act is needed. The belief should not be based on some suspicion or doubt.
Visa Comtrade Ltd. v UOI (2011) 338 ITR 343 (Orissa) (High Court)
S. 144C : Dispute Resolution Panel – Power to "enhance"- Confined to issues raised in draft assessment order – "Future losses" allowable as deduction
U/s 144C (5), the DRP can issue directions only in respect of the objections raised by the assessee and the objections are to be in terms of the variation proposed in the draft order. S. 144C (8) restricts the powers of the DRP to "confirm, reduce or enhance the variations proposed in the draft assessment order". Hence, the DRP's directions have to be with reference to the objections to the variations proposed in the draft order. (GE India Technology Centre vs. DRP (Kar) followed);
As regards the deduction for "future losses", Accounting Standard AS-7 requires "expected loss" (difference between probable contract costs and contract revenues) to be "recognised as an expense immediately" irrespective of whether work has commenced and the stage of completion of activity. Accordingly, estimated or foreseeable losses are allowable as a deduction. (Jacobs Engineering Private Ltd (ITAT Mumbai) & Mazagaon Dock 29 SOT 356 followed).
Dredging International NV v ADIT (Mumbai) (ITAT) (www.itatonline.org)
S. 147 : Reassessment – Notice u/s 142(2)
There is no requirement of notice u/s 143(2) in the case of reassessment u/s 147
CIT v. Madhya Bharat Energy Corpn. Ltd. (2011) 62 DTR 37 (Delhi) (High Court)
S. 147 : Reassessment – Beyond four years – Retrospective amendment – S. 80HHC
During the course of assessment proceedings for A.Y. 2001 – 02 & 2002 – 03, assessee's claim for deduction u/s 80HHC was allowed. After the expiry of four years from the end of relevant assessment year an amendment to S. 80HHC was brought with retrospective effect from 01-04-1998. It was admitted position that the conditions were not therein at the time of filing of return nor at the time of original assessments. A.O. issued notice u/s 148. The Tribunal, on examination of material on record, concluded that all the relevant facts were available on record and that it cannot be said that assessee had failed to disclose fully and truly all material facts, and thus no reopening could be done. Held that, the Tribunal rightly concluded that proviso to section 147 could not be invoked merely because there was an amendment in future which was introduced retrospectively and covered period in question, and thus Tribunal order has to be confirmed.
CIT v. Ganesh Rice Mills (2011) 202 Taxman 96 (All) (High Court) (Mag)
S. 147 : Reassessment – Income escaping assessment.
During the search no books of account or documents or money or bullion or jewellery or any other valuable articles or things were found. It was a solitary statement of the assessee, which too was retracted immediately thereafter. Furthermore, apart from the statement there were no particulars coming forward namely who were the dummy subscribers, whether shares from the so-called dummy subscribers were transferred in the name of the assessee or assessee remained the benami owner thereof and was in the control and possessions of those shares, etc. No such questions were even put by the A.O. to the assessee after recording the statement. Thus the only material for issuance of notice u/s 148 was the statement recorded u/s 132(4). Even if the statement was to be believed, that would have been the basis for issuing the notice for A.Y. 1995 – 1996 and not A.Y. 1994 – 1995. It was merely a figment of imagination on the part of the CIT(A) that statement should not be believed to the extent that that cash was paid in the current financial year i.e. 1994 – 1995 as normally such cash is paid at the time of purchase of shares by the so called dummy subscribers. It was not even recorded in the `reasons to believe' by the A.O. Therefore the order of the CIT(A) on that aspect was clearly erroneous and justifiably set aside by the Tribunal.
CIT v. Bela Jain (Smt) (2011) 202 Taxman 90 (Delhi) (High Court) (Mag)
S. 158BC : Block of assessment–Search and Seizure – Validity -Joint warrant .
Warrant of authorization issued in the names of three companies including assessee, separated only by a comma without the word "and" between companies is not a warrant in the joint names of three companies and, therefore, the block assessment order framed in the individual name of the assessee company was not invalid.
Radan Multimedia Ltd vs. DCIT(2011) 58 DTR 129(Mum) (Trib).
S. 168 : Executors – Income – Administrator (S. 4.)
Amount received by the administrator (Assessee) on distribution out of the accumulated funds of the estate of the deceased in his capacity as a transferee of the legatee's interest was not taxable in his hands, since the assessee had only acquired the rights to sale proceeds of the properties and the estate was continuing and was being administered by the assessee, he could not be treated as the residue legatee.(A.Y.2004-05).
Dy CIT v Nusli Neville Wadia (2011) 61 DTR 218(Mum) (Trib) / 141 TTJ 521(Mum).
S. 194A : Deduction of tax at source- Interest other than interest on securities- Reimbursement- Commission- Interest( S. 28A).
Assessee company utilized unspent credit limit of other company for importing goods for which bank charged interest, which was paid by said company on behalf of assessee. Assessee reimbursed such amount of interest to said company. It claimed that in reality it paid commission to that company for utilising its unspent credit limit and therefore, provisions of section 194A were not applicable. The court held that amount paid by the assessee would clearly come within the definition of `interest' under section 2 (28A) and assessee was liable to deduct TDS from the said amount in terms of section 194A.(A.Y. 2002-03)
Bhura Exports Ltd v ITO (2011) 202 Taxman 88 ( Cal) (High Court).
S. 194H : Deduction of tax at source- Commission- Discount-Franchisee.
Franchisee acts on behalf of the assessee for selling start up pack and prepaid recharge coupons to the customers of assessee and all the trappings of liability as agent, of the franchisee towards assessee subsist and therefore discount given to the franchisee was in fact commission, subject to TDS under section 194H.(A.Y. 2003-04 and 2004-05).
Bharati Cellular Ltd v Asst CIT (2011) 61 DTR 225 (Cal) (High Court).
S. 194J : Deduction of Tax Source – "Transaction charges" paid to BSE – "fees for technical services"
In the instant case, there is direct linkage between the managerial services rendered and the transaction charges levied by the stock exchange. The BOLT system provided by the BSE is a complete platform for trading in securities. A stock exchange manages the entire trading activity carried on by its members and accordingly renders "managerial services". Consequently, the transaction charges constituted "fees for technical services" u/s 194-J and the assessee ought to have deducted TDS. However, on facts, because from 1995 to 2005 no tax was deducted and no objection was raised by the AO and because from AY 2006-07 onwards the assessee had deducted TDS, there was a bonafide belief that no TDS had to be deducted, hence no disallowance u/s 40(a)(i) can be made for AY 2005-06.
CIT v Kotak Securities Limited (Bombay) (High Court) (www.itatonline.org)
S. 195 : Deduction of tax at source-Other sums-Non resident-Income deemed to accrue or arise in India-Business information. (S. 201).
The assessee had imported business information reports from Dun and Brand street, USA and made remittances in respect thereof without deducting tax at source. The Assessing Officer held that the assessee was liable to deduct tax at source. Tribunal set aside the order of Assessing Officer. The Court held that the Authority for Advance Rulings had held that the sale of business information reports by the subsidiaries of Dun and Brand Street, USA in Spain, Europe and the U.K. to the assessee did not attract the provisions of section 195. Though the decision of the Authority was not binding in the present case, since the decision of Authority related to the same business information reports imported by the assessee and no fault in the decision of the Authority was pointed out, the decision of the Tribunal was affirmed.
Director of Income Tax v Dun and Brand Street Information Services India P. Ltd (2011) 338 ITR 95 (Bom) (High Court).
S. 201 : Consequence of failure to deduct or pay – Assessee in default- Deduction of tax at source – Limitation.
When there was no period of limitation fixed for exercising power under section 201 at relevant point of time, there is no question of invoking a reasonable period of limitation for applying the provision of section 201. ( A.Y. 2002-03).
Bhura Exports Ltd v ITO (2011) 202 Taxman 88 (Cal) (High Court).
S. 220 : When tax payable and when assessee deemed to be in default- Collection and recovery of tax-Waiver of interest.
Petition for waiver of interest under section 220(2) can be filed even after interest has been paid by the assessee.(A.Y.1993-94).
Jewellers Om Prakash v Chief CIT (2011) 202 Taxman 71 ( Delhi) (High Court).
S. 234B : Interest- Book profit- Company. ( S. 234C ).
Interest is chargeable under sections 234B, 234C on failure to pay advance tax in respect of tax payable under sections 115JA/115JB. (A.Ys 1997-98 & 2000-01 to 2004-05).
Singareni Colliweries Company Ltd v Asst CIT (2011) 141 TTJ 593 (Hyd ) .
S. 244A : Interest on refunds – Adjustment of amount seized.
After a search conducted at assessee's premises, it filed its return of income. However, it failed to pay self-assessment tax due as per return and requested authorities to adjust amount of tax due out of amount seized from its office and its chairman. Subsequently, assessment order came to be passed making assessment at a lesser amount and, consequently, assessee became entitled to refund. Held that, clause (b) of S.244A was attracted and assessee was entitled to refund with interest.
CIT v. Islamic Academy Education (2011) 202 Taxman 276 (Kar) (High Court).
S. 245R : Procedure on receipt of application- Advance Rulings- Pendency of proceedings-Notice under sections. 143(2) and 147.
Notices under section 143 (2) and 147 having been issued to the applicant by the time it filed the application under section 245Q seeking ruling on the question as to whether the amounts received by the applicant are liable to tax in India under the provisions of the Income Tax Act, the question raised is the very question pending adjudication before the Assessing Officer so far as that particular income is concerned and therefore, application is liable to be rejected under proviso to section 245R (2).
Sepco III Electric Power Construction Corporation (2011) 243 CTR 529/61 DTR 49/202 Taxman 149 (AAR).
S. 246A : Appealable Orders-Commissioner (Appeals) – Tax determined as per section 246(1) (a) – Relief in respect of under section 90 or section 91
Section 246A(1)(a) covers issue of not allowing relief in respect of withholding tax under section 90 or section 91.
Capgemini Business Services (India) Ltd. v. Dy. CIT (2011) 131 ITD 396 (Mum.)
S. 251 : Powers of Commissioner (Appeals) – New claim -Non filing of revised return.
When the assessee, during the course of assessment claimed the cost of acquisition of the capital asset as per the valuation report stating the fair market value as on 1st April 1981, the AO should have entertained the said claim and CIT(A) also erred in not considering the claim, which is a legally permissible claim.
Gopi S. Shivnani (Mrs) v. ITO(2011) 57 DTR 18 /139 TTJ 308(Mum) (Trib)
S. 251 : Powers of the Commissioner ( Appeals) – Omission to claim in the return.
Where the assessee had not claimed deduction u/s 80IB in the return of income and facts relating to that deduction have also not been shown to be existing on record, CIT was not justified in directing the A.O. to consider the claim in accordance with law.
ACIT v. Parabolic Drugs Ltd. (2011) 62 DTR 73 (Delhi) (Trib)
S. 254(1) : Orders of Appellate Tribunal – Duty of Tribunal.
It is the duty of the Tribunal to follow decision of jurisdictional High Court. Tribunal cannot hold High Court decision erroneous because it did not consider relevant provision.
National Textile Corporation Ltd. (M.P.) v. CIT (2011) 338 ITR 371 (MP) (High Court)
S. 254(1) : Orders of Appellate Tribunal-Powers- Power of Enhancement.
The arrears of rent & damages received by the assessee were claimed as `not taxable' by the assessee, being capital receipts whereas the Department contended that the same were taxable, being on revenue account. The Tribunal remanded the matter back to consider whether the same could amount to `Capital Gains', being received for surrender of tenancy. It was not even the case of the Department that these were `capital gains'. It was held that the Tribunal cannot enhance the scope of the appeal by adjudicating on grounds not raised by the Appellant.
Jasmine Commercials Ltd. v. CIT (2011) 200 Taxman 338 (Cal.) (High Court)
S. 254(2) : Orders of Appellate Tribunal-Rectification of mistakes-Powers- Jurisdiction of Income tax Appellate Tribunal, which originally heard matter, to recall its order
The Tribunal omitted to consider an issue. A Miscellaneous application was moved seeking to recall the order. The tribunal recalled the order and registry was directed to fix the appeal as far as ground regarding rent receipt was concerned. Assessee moved instant application seeking admission of additional ground that reopening was bad in law. Held that the statute permits bench, which originally heard the matter, to recall its order in its entirety or to recall in a limited way or to pass a corrigendum or correct certain mistakes apparent from record and bench has no jurisdiction to go into other issues other than one which was recalled. Hence, Assessee was not entitled to raise any additional ground. (A.Y.1999-2000).
Tokhem Enterprises v ITO (2011) 132 ITD 375 (Mum) (Trib).
S. 254(2) : Orders of Appellate Tribunal – Rectification of mistakes– Review or Recall of the order.
Tribunal cannot recall its previous order unless there are manifest errors which are obvious, clear and self-evident.
Sudhakar M. Shetty v. ACIT (2011) 139 TTJ 687 (Mum.) (Trib)/ 58 DTR 289
S. 260A : Appeal- High Court-Tax effect less than 4 Lakhs-Reference returned un answered.
In view of Instruction no 2/2005 dated 24-10-2005 , issued by CBDT, it has to be directed that wherever tax effect is less than 4 lakhs , department should not file appeal under section 260A, unless question of law involved or raised in appeal is of recurring nature which is to be settled by High Court .
CIT v Vitessee Trading Ltd (2011) 202 Taxman 242 (Bom ) (High Court).
S. 260A : Appeal-High Court-Condonation of Delay – Huge Stakes.
When huge stakes are involved, the High Court should not dispose of the appeals fled by the Department merely on the ground of delay. High Court may consider imposing costs on the Department for the delay and decide the appeal on merit.
CIT v. West Bengal Infrastructure Development Finance Corpn. Ltd. (2011) 56 DTR 351 (SC)
S. 263 : Revision of orders prejudicial to revenue-Two views-One of the possible view.
Where the Assessing Officer has taken one of the possible views which resulted in loss of revenue, the order cannot be treated as `erroneous' and the Commissioner cannot invoke jurisdiction under section 263.
CIT v. Kelvinator of India Ltd. (2011) 201 Taxman 88 (Delhi) (Mag.) (High Court).
S. 271D : Penalty- Loan or deposit- Income offered by Director- Entry in books of account of Company by journal entry. ( S. 269SS).
The premises of K, a director of the assessee company were searched by the Income Tax Authorities. During the course of search, incriminating documents regarding unaccounted expenditure incurred by K were seized. In the proceedings initiated under section 153C, K offered for tax the undisclosed expenditure incurred by him for and on behalf of the company for construction activities. Accordingly journal entries were passed in the books of the company. Assessing Officer was of the opinion that the assessee has violated section 269SS and accordingly levied the penalty but the Tribunal deleted. High Court confirmed the order of Tribunal.
CIT v Motta Construction P.Ltd (2011) 338 ITR66 (Bom) (High Court).
S. 271G : Penalty – Transfer Pricing – No Penalty for failure to respond to "omnibus" notice
S. 271G authorizes the levy of penalty if the information/ documents prescribed by s. 92D (3) are not furnished. Rule 10D prescribes a voluminous list of information and documents required to be maintained and it is only in rare cases that all clauses would be attracted. Some of the documents may not be necessary in case of some assessees. Before issuing a notice u/s 92D(3), the AO has to apply his mind to what information and documents are relevant and necessary for determining ALP. A notice u/s 92D(3) is not routine and cannot be casually issued but requires application of mind to consider the material on record and what further information on specific points is required. The notice cannot be vague or call for un-prescribed information.
DCIT v Leroy Somer & Controls(India) (P)Ltd. (Delhi) (ITAT) (www.itatonline.org)
S. 281 : Certain transfers to be void- Recovery of tax-Sale and attachment of property of assessee in default.
Property transferred by assessee during pendency of recovery proceedings, can be attached and sold without filing suit, as section 281 statutorily declaring such transfer as void provides for such mode. Notice to transferee is invariably not necessary before taking such action.
Karnail Singh v UOI (2011) Tax.L.R. 648 (P& H).(High Court).
Interpretations.
Precedent – Decision of jurisdictional High Court – Binding nature
Tribunal has to follow the decision of the jurisdictional High Court without making any comment upon the said decision, it is not permissible for the Tribunal to sidetrack and/or ignore the decision of the jurisdictional high court on the ground that it did not take into consideration a particular provision of law.
Deputy Commissioner of Income Tax v. Gujarat Ambuja Cements Ltd (2011) 57 DTR 179 (Mum.) (Trib.)
Precedent- Advance Rulings.
Decision of Authority on similar facts in respect of same subject matter can be followed.
Director of Income Tax v Dun and Brand Street Information Services India P. Ltd (2011) 338 ITR 95 ( Bom) (High Court).
Gift Tax.
S. 4 : Deemed gift-Transfer of assets without consideration-Transfer of shares of company from one group to another.(S. 5(1) (xiv).
The assessee company was managed by two groups of share holders, K and P. Disputes cropped up regarding the entitlement to the sum of Rs 80 Lakhs receivable from S for the sale of surplus FSI. According to the decree of court, the K group transferred all its shares in the assessee to the P group. In the annual accounts, the value of the properties alienated to the K group was shown at Rs 35 Lakhs. The Assessing Officer held that the assessee had gifted Rs 35 lakhs without any consideration and such amount was exigible to gift tax. The order was confirmed by CIT(A) and Tribunal. On reference the Court held that the K group had relinquished and waived its right, title and interest in the property and also the consideration which the assessee was to receive out of the land transaction and in lieu thereof it got properties free from all liabilities on ownership basis. The consideration was the transfer of property in favour of K group. The consideration for the transaction could be spelt out from the award of the arbitrator. There was no gift exigible to tax.
Pananlal Silk Mills P Ltd v CGT (2011) 338 ITR 1( Bom) (High Court).
Editorial. Judgement of Mumbai Tribuanl Panalal Silk Mills Pvt. Ltd v DCIT (1993) 44 ITD (458) reversed.
Writ Petitions :
Writ-Maintainability -Foundational Facts to be Established.(Article 226)
Where the foundational facts had to be established, the assessee ought not to have filed a writ petition.
Coca Cola India Inc. v. Addl. CIT & Ors. [2011] 336 ITR 1 (SC)
Service Tax – Activation of SIM
The amount received by the cellular company from its subscribers towards SIM cards forms part of the taxable value for levy of service tax, as SIM cards are never sold as goods independent of the services provided and therefore, the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers.
Idea Mobile Communications Ltd. v. CCEC (2011) 59 DTR209 (SC).
