ITR (TRIB) Volume 25 : Part 3 (Issue dated : 29-7-2013)

ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Disallowance--Payments liable to deduction of tax at source--Payment to foreign company for advertising services rendered through search engine--Business profits--Foreign company having no permanent establishment in India--Payment not taxable in India and no tax deductible at source--Payment allowable--Income-tax Act, 1961, ss. 9(1)(vi), 40(a)(i)-- Pinstorm Technologies P. Ltd. v. ITO (Mumbai) . . . 146

Non-resident --Taxability in India--Permanent establishment--Assessee entering into three contracts in India--Duration of each contract less than 9 months--No permanent establishment of assessee in India--Assessee not taxable in India--Double Taxation Avoidance Agreement between India and Mauritius, arts. 5, 7 -- Deputy CIT v. J. Ray McDerrmott Eastern Hemisphere Ltd. (Mumbai) . . . 141

PRINT EDITION

Volume 25 : Part 3 (Issue dated : 29-7-2013)

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Assessee having arrangements with suppliers for purchasing a predetermined number of parts and components--Compensation paid to vendors for deficiency in lifting contracted quantum--Compensation related to purchase of raw material, which was to become a part of running stock of assessee--Revenue expenditure and allowable-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

----Fines and penalties--Penalty paid under Central excise and service tax law--Nothing to show payments were not for infringement of law--Payments to be disallowed--Income-tax Act, 1961, s. 37, Expln. -- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

Business loss --Provision towards doubtful advances written off as irrecoverable--Nothing to prove actual write-off--Mere provision in accounts not equivalent to write-off--Addition rightly made-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

Capital gains --Cost of acquisition--Cost of improvement--Small construction consisting of two rooms made of hollow bricks--No evidence of making any improvement after purchase--No mention of existing house in sale deed--No deduction for cost of improvement to be allowed--Income-tax Act, 1961, s. 48-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

----Long-term capital gains--Exemption--Purchase of residential house--House must be inhabitable--Unit should have had basic amenities like a place for cooking, toilet and bathroom, approach road within plot--No evidence of grant of electricity or telephone or water connection--Exemption cannot be granted--Income-tax Act, 1961, s. 54F-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

Capital or revenue expenditure --Software purchases--Disallowance as capital expenditure restricted pursuant to direction of Dispute Resolution Panel--Proper--Depreciation to be allowed-- Sandoz P. Ltd. v. Deputy CIT (Mumbai) . . . 347

----Subsidy received under scheme clearly mentioning that it was given as special incentive for boosting mega investments in State--Capital receipt-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

Cash credits --Burden of proof--Is on assessee to prove genuineness of transaction and capacity of creditor--Merely establishing their identities and creditworthiness to some extent--Not sufficient--Income-tax Act, 1961, s. 68-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

Deduction of tax at source --Failure to deduct tax--Lease premium paid in four instalments--Is capital expenditure not falling under section 194-I--No liability to deduct tax--Not a case of default by assessee--Income-tax Act, 1961, s. 194-I-- ITO v. Indian Newspapers Society (Delhi) . . . 377

----Failure to deduct tax--Notice under sections 201 and 201(1A) by Assessing Officer for not deducting tax at source on lease premium--Period of limitation under section 201(3)--Finding by Commissioner (Appeals) that order passed beyond period of limitation--Proper--Income-tax Act, 1961, ss. 194-I, 201(1A)-- ITO v. Indian Newspapers Society (Delhi) . . . 377

Exemption --Export of computer software--Loss incurred by one unit--Assessee entitled to deduction in respect of profits of eligible units and set-off of loss sustained by other unit against normal business income--Provisions of section 14A not attracted--Income-tax Act, 1961, ss. 10B, 14A-- Sandoz P. Ltd. v. Deputy CIT (Mumbai) . . . 347

International transaction --Arm's length price--Failure by assessee to report brand promotion exercise as international transaction--Transaction coming to notice of Transfer Pricing Officer only during proceedings before him--Transfer Pricing Officer can consider such transaction--Income-tax Act, 1961, ss. 92CA(2B), 92E-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

----Arm's length price--Determination--Assessee, wholly owned subsidiary of U.S.A. company licensed to manufacture motor vehicles using technical know-how supplied by it--Assessee to pay royalty in consideration of grant of licence--Licensed products, motor vehicles, to carry logo--Department not showing what normal sales if normal advertising and sales promotion expenditure alone was incurred would have been and additional sales on account of excess advertising and sales promotion expenditure expenses--Not entitled to say there was separate brand building arising out of normal sales and arising out of additional sales--Nothing to show assessee incurred advertising and sales promotion expenditure over and above that by similarly placed other companies having no associated enterprise dealings--U. S. A. company not charging assessee royalty for use of its logo--Artificial split on marketing intangible in nature of brand building unwarranted--Objective criteria of excess advertising and sales promotion expenditure incurred by assessee when compared to its competitors not having a foreign brand or logo--Addition considering one per cent. of sales as brand development fee justified--Discounts given under schemes of sales promotion, remuneration to sales consultants, expenses incurred for customer survey, to be excluded from advertising and sales promotion expenditure--Sales expenditure, which had no connection with building of logo but directly in connection with sales to be excluded--Comparable domestic cases not using foreign brand alone to be considered--Transfer Pricing Officer to identify set of comparables--Both assessee as well as the U. S. A. company benefitted from product development expenditure incurred--U.S.A. company and assessee separate legal entities having separate legal existence--50 per cent. of advantage derived on account of product development spending to be treated as enuring to assessee and balance 50 per cent. to U.S.A. company--Income-tax act, 1961, ss. 92C(1), (2), prov., (3), 92CA-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

----Arm's length price--Determination--Most appropriate method--Transfer Pricing Officer adopting cost plus method but not taking second and third steps in determination of gross profit mark-up and applying it to results--Order not void ab initio--"Bright line" test applied by Transfer Pricing Officer falls within method prescribed--Income-tax Act, 1961, s. 92C--Income-tax Rules, 1962, r. 10B(1)(c)-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

----Arm's length price--Determination--Selection of comparables--Transfer Pricing Officer selecting four comparables along with CRISIL--Dispute Resolution Panel selecting two comparables and computing new arithmetic mean--Exclusion of leading company as too large--One comparable company alone to be taken--Benefit of five per cent. variation not available where only one comparable chosen--Income-tax Act, 1961, s. 92C(2)-- IIML Asset Advisors Ltd. v. Assistant CIT (Mumbai) . . . 369

----Arm's length price--Determination--Transactional net margin method--Assessee operating in four different independent segments--Submitting segmental accounts for each operation--Each segment to be considered with corresponding comparables after proper functions, assets and risks analysis--Weighted average method of arriving at profit margin not proper--Adjustment on entire turnover of assessee including transactions with non-associated enterprises not proper--No discussion in Transfer Pricing Officer's order why comparables of assessee were rejected or why other comparables accepted--Adjustments on reimbursements of expenditure part of segments already considered--Double addition--Order of Transfer Pricing Officer with consequential orders of Assessing Officer and Dispute Resolution Panel set aside and matter remanded to Assessing Officer for fresh transfer pricing analysis-- Sandoz P. Ltd. v. Deputy CIT (Mumbai) . . . 347

----Arm's length price--Determination--Transfer Pricing Officer selecting eight comparables--Tribunal accepting only one of eight comparables for preceding year--For this year also, one comparable alone to be taken--Operating profit to cost ratio to be accordingly modified--Benefit of plus or minus five per cent. adjustment not available where only one comparable chosen--No facts brought by assessee for quantification of risk adjustment--No adjustment to be allowed--Income-tax Act, 1961, s. 92CA(3)-- General Atlantic P. Ltd. v. Assistant CIT (OSD) (Mumbai) . . . 389

----Definition--Assessee, wholly owned subsidiary of U.S.A. company licensed to manufacture motor vehicles using technical know-how supplied by it--assessee to pay royalty in consideration of grant of licence--Licensed products, motor vehicles, to carry logo--Total ownership and control exercised by U. S. A. company over assessee--Inference that advertising and sales promotion expenses incurred based on a corporate plan of U. S. A. company--International transaction for creating and improving marketing intangible comprised in logo by assessee for and on behalf of U.S.A. company--Transaction of brand building rightly treated as an international transaction--Income-tax Act, 1961, s. 92F(v)-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

Method of accounting --Valuation of closing stock--Increase on account of unutilised Modvat--Corresponding opening stock of that year to be increased-- Sandoz P. Ltd. v. Deputy CIT (Mumbai) . . . 347

Rectification of mistakes --Return of income--Omission to claim exemption not a case of incorrect claim--Assessing Officer has no power under section 154 to correct return--Rectification application not maintainable--Income-tax Act, 1961, ss. 143(1), 154-- Jhansi Development Authority v. Deputy CIT (Agra) . . .338

Words and phrases --“Residential house"-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 10B --Exemption--Export of computer software--Loss incurred by one unit--Assessee entitled to deduction in respect of profits of eligible units and set-off of loss sustained by other unit against normal business income--Provisions of section 14A not attracted-- Sandoz P. Ltd. v. Deputy CIT (Mumbai) . . . 347

S. 14A --Exemption--Export of computer software--Loss incurred by one unit--Assessee entitled to deduction in respect of profits of eligible units and set-off of loss sustained by other unit against normal business income--Provisions of section 14A not attracted-- Sandoz P. Ltd. v. Deputy CIT (Mumbai) . . . 347

S. 37, Expln. --Business expenditure--Fines and penalties--Penalty paid under Central excise and service tax law--Nothing to show payments were not for infringement of law--Payments to be disallowed-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 48 --Capital gains--Cost of acquisition--Cost of improvement--Small construction consisting of two rooms made of hollow bricks--No evidence of making any improvement after purchase--No mention of existing house in sale deed--No deduction for cost of improvement to be allowed-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

S. 54F --Capital gains--Long-term capital gains--Exemption--Purchase of residential house--House must be inhabitable--Unit should have had basic amenities like a place for cooking, toilet and bathroom, approach road within plot--No evidence of grant of electricity or telephone or water connection--Exemption cannot be granted-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

S. 68 --Cash credits--Burden of proof--Is on assessee to prove genuineness of transaction and capacity of creditor--Merely establishing their identities and creditworthiness to some extent--Not sufficient-- Smt. Usharani Kalidindi v. ITO (Hyderabad) . . . 409

S. 92C --International transactions--Arm's length price--Determination--Most appropriate method--Transfer Pricing Officer adopting cost plus method but not taking second and third steps in determination of gross profit mark-up and applying it to results--Order not void ab initio--"Bright line" test applied by Transfer Pricing Officer falls within method prescribed-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 92C(1), (2), prov., (3) --International transactions--Arm's length price--Determination--Assessee, wholly owned subsidiary of U.S.A. company licensed to manufacture motor vehicles using technical know-how supplied by it--Assessee to pay royalty in consideration of grant of licence--Licensed products, motor vehicles, to carry logo--Department not showing what normal sales if normal advertising and sales promotion expenditure alone was incurred would have been and additional sales on account of excess advertising and sales promotion expenditure expenses--Not entitled to say there was separate brand building arising out of normal sales and arising out of additional sales--Nothing to show assessee incurred advertising and sales promotion expenditure over and above that by similarly placed other companies having no associated enterprise dealings--U. S. A. company not charging assessee royalty for use of its logo--Artificial split on marketing intangible in nature of brand building unwarranted--Objective criteria of excess advertising and sales promotion expenditure incurred by assessee when compared to its competitors not having a foreign brand or logo--Addition considering one per cent. of sales as brand development fee justified--Discounts given under schemes of sales promotion, remuneration to sales consultants, expenses incurred for customer survey, to be excluded from advertising and sales promotion expenditure--Sales expenditure, which had no connection with building of logo but directly in connection with sales to be excluded--Comparable domestic cases not using foreign brand alone to be considered--Transfer Pricing Officer to identify set of comparables--Both assessee as well as the U. S. A. company benefitted from product development expenditure incurred--U.S.A. company and assessee separate legal entities having separate legal existence--50 per cent. of advantage derived on account of product development spending to be treated as enuring to assessee and balance 50 per cent. to U. S. A. company-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 92C(2) --International transactions--Arm's length price--Determination--Selection of comparables--Transfer Pricing Officer selecting four comparables along with CRISIL--Dispute Resolution Panel selecting two comparables and computing new arithmetic mean--Exclusion of leading company as too large--One comparable company alone to be taken--Benefit of five per cent. variation not available where only one comparable chosen-- IIML Asset Advisors Ltd. v. Assistant CIT (Mumbai) . . . 369

S. 92CA --International transactions--Arm's length price--Determination--Assessee, wholly owned subsidiary of U.S.A. company licensed to manufacture motor vehicles using technical know-how supplied by it--Assessee to pay royalty in consideration of grant of licence--Licensed products, motor vehicles, to carry logo--Department not showing what normal sales if normal advertising and sales promotion expenditure alone was incurred would have been and additional sales on account of excess advertising and sales promotion expenditure expenses--Not entitled to say there was separate brand building arising out of normal sales and arising out of additional sales--Nothing to show assessee incurred advertising and sales promotion expenditure over and above that by similarly placed other companies having no associated enterprise dealings--U. S. A. company not charging assessee royalty for use of its logo--Artificial split on marketing intangible in nature of brand building unwarranted--Objective criteria of excess advertising and sales promotion expenditure incurred by assessee when compared to its competitors not having a foreign brand or logo--Addition considering one per cent. of sales as brand development fee justified--Discounts given under schemes of sales promotion, remuneration to sales consultants, expenses incurred for customer survey, to be excluded from advertising and sales promotion expenditure--Sales expenditure, which had no connection with building of logo but directly in connection with sales to be excluded--Comparable domestic cases not using foreign brand alone to be considered--Transfer Pricing Officer to identify set of comparables--Both assessee as well as the U. S. A. company benefitted from product development expenditure incurred--U.S.A. company and assessee separate legal entities having separate legal existence--50 per cent. of advantage derived on account of product development spending to be treated as enuring to assessee and balance 50 per cent. to U. S. A. company-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 92CA(2B) --International transaction--Arm's length price--Failure by assessee to report brand promotion exercise as international transaction--Transaction coming to notice of Transfer Pricing Officer only during proceedings before him--Transfer Pricing Officer can consider such transaction--Income-tax Act, 1961, Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 92CA(3) --International transactions--Arm's length price--Determination--Transfer Pricing Officer selecting eight comparables--Tribunal accepting only one of eight comparables for preceding year--For this year also, one comparable alone to be taken--Operating profit to cost ratio to be accordingly modified--Benefit of plus or minus five per cent. adjustment not available where only one comparable chosen--No facts brought by assessee for quantification of risk adjustment--No adjustment to be allowed-- General Atlantic P. Ltd. v. Assistant CIT (OSD) (Mumbai) . . . 389

S. 92E --International transaction--Arm's length price--Failure by assessee to report brand promotion exercise as international transaction--Transaction coming to notice of Transfer Pricing Officer only during proceedings before him--Transfer Pricing Officer can consider such transaction-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 92F(v) --International transactions--Definition--Assessee, wholly owned subsidiary of U.S.A. company licensed to manufacture motor vehicles using technical know-how supplied by it--assessee to pay royalty in consideration of grant of licence--Licensed products, motor vehicles, to carry logo--Total ownership and control exercised by U. S. A. company over assessee--Inference that advertising and sales promotion expenses incurred based on a corporate plan of U. S. A. company--International transaction for creating and improving marketing intangible comprised in logo by assessee for and on behalf of U.S.A. company--Transaction of brand building rightly treated as an international transaction-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

S. 143(1) --Rectification of mistakes--Return of income--Omission to claim exemption not a case of incorrect claim--Assessing Officer has no power under section 154 to correct return--Rectification application not maintainable-- Jhansi Development Authority v. Deputy CIT (Agra) . . .338

S. 154 --Rectification of mistakes--Return of income--Omission to claim exemption not a case of incorrect claim--Assessing Officer has no power under section 154 to correct return--Rectification application not maintainable-- Jhansi Development Authority v. Deputy CIT (Agra) . . .338

S. 194-I --Deduction of tax at source--Failure to deduct tax--Lease premium paid in four instalments--Is capital expenditure not falling under section 194-I--No liability to deduct tax--Not a case of default by assessee-- ITO v. Indian Newspapers Society (Delhi) . . . 377

----Deduction of tax at source--Failure to deduct tax--Notice under sections 201 and 201(1A) by Assessing Officer for not deducting tax at source on lease premium--Period of limitation under section 201(3)--Finding by Commissioner (Appeals) that order passed beyond period of limitation--Proper-- ITO v. Indian Newspapers Society (Delhi) . . . 377

S. 201(1A) --Deduction of tax at source--Failure to deduct tax--Notice under sections 201 and 201(1A) by Assessing Officer for not deducting tax at source on lease premium--Period of limitation under section 201(3)--Finding by Commissioner (Appeals) that order passed beyond period of limitation--Proper-- ITO v. Indian Newspapers Society (Delhi) . . . 377

Income-tax Rules, 1962 :

R. 10B(1)(c) --International transactions--Arm's length price--Determination--Most appropriate method--Transfer Pricing Officer adopting cost plus method but not taking second and third steps in determination of gross profit mark-up and applying it to results--Order not void ab initio--"Bright line" test applied by Transfer Pricing Officer falls within method prescribed-- Ford India P. Ltd. v. Deputy CIT, Large Taxpayer Unit (Chennai) . . . 456

ITR Volume 355 : Part 4 (Issue dated : 29-7-2013)

INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

High Courts

Business expenditure --Deduction only on actual payment--Year in which expenditure is allowable--Effect of section 43B--Mercantile system of accounting--Liability incurred and amount actually paid in accounting year--Amount legally due in following year--Amount deductible--Income-tax Act, 1961, s. 43B-- Paharpur Cooling Towers Ltd. v. CIT (Cal) . . . 177

----Disallowance--Deduction only on actual payment--Tax, cess or duty actually not paid in year of account--Amounts deposited by assessee in Central excise personal ledger account in terms of Central Excise Rules to cover duty liability against clearances of goods--Assessee bound by Rules to keep account in respect of each excisable product--Amount remaining outstanding in personal ledger account at end of year--Part of duty liability--Not disallowable--Income-tax Act, 1961, s. 43B-- CIT v . Maruti Suzuki India Ltd . (Delhi) . . . 187

----Disallowance--Provision for warranties--No disallowance could be made--Income-tax Act, 1961, s. 37-- CIT v . Maruti Suzuki India Ltd . (Delhi) . . . 187

Refund --Interest on excess refund received by assessee--Law applicable--Effect of insertion of Explanation 2 to section 234D--Refund granted prior to 1-6-2003 but proceedings for assessment completed after 1-6-2003--Interest payable by assessee--Income-tax Act, 1961, s. 234D-- CIT v . Indian Oil Corporation Ltd .
(Bom) . . . 198

PRINT EDITION

ITR Volume 355 : Part 4 (Issue dated : 29-7-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to High Court --Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable--Income-tax Act, 1961, ss. 260A, 268A-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432

----Powers of High Court--Power to frame additional question of law--High Court has power to frame additional question of law during hearing--Income-tax Act, 1961, s. 260A-- CIT v . Indo Gulf Fertilizers Ltd. (All) . . . 437

Business expenditure --Disallowance--Excessive or unreasonable payments--Tribunal finding assessee did purchases at prevailing market rates and seller incurred certain expenditure in engaging personnel in office and other operations--Section 40A(2) had no application--Income-tax Act, 1961, s. 40A(2)-- CIT v . Vijay M. Mistry Construction Ltd . (Guj) . . . 498

----Excess provision under heads “consultancy charges and professional fees†--Allowable--Income-tax Act, 1961, s. 37-- CIT v . Armour Consultants P. Ltd .
(Mad) . . . 418

----Scientific research--Assessee requesting two companies to make payments on its behalf in view of shortage of funds--Revenue not disputing fact or disproving by them--Companies obtaining receipts in their name but claiming no deduction--Assessee paying amounts subsequently to those two companies--Assessee cannot be denied deduction--Income-tax Act, 1961, s. 35(1)(ii)-- CIT v . Armour Consultants P. Ltd.
(Mad) . . . 418

Capital gains --Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset--Income-tax Act, 1961, ss. 2(42A), Expln. 1(i)(b), 48-- CIT v . Manjula J. Shah (Bom) . . . 474

----Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable--Income-tax Act, 1961, ss. 2(14)(b), 45--General Clauses Act, 1897, s. 3(31)-- CIT v. Smt. Rani Tara Devi
(P&H) . . . 457

Capital or revenue expenditure --Expenses towards designing and lay out, temporary partition and construction for making leased business premises functional--Revenue expenditure--Income-tax Act, 1961-- CIT v. Armour Consultants P. Ltd .
(Mad) . . . 418

Charitable purpose --Charitable trust--Registration--Test of genuineness of activity not a ground for refusal of registration--Genuineness of objects to be tested--Registration not to be rejected on ground trust has not yet commenced charitable or religious activity--Commissioner satisfied with objects of trust for subsequent year--Refusal of registration for preceding year not justified--Exemption from application of income received by way of donation--To be decided when return is filed--Income-tax Act, 1961, s. 12AA-- Hardayal Charitable and Educational Trust v. CIT (All) . . . 534

Deduction of tax at source --Commission--Scope of section 194H--Difference between sale and agency--Sale of stamp paper to licensed vendors under U. P. Stamp Rules, 1942--Sale--Tax not deductible at source on discount on such sales--Income-tax Act, 1961, s. 194H-- Chief Treasury Officer v. Union of India (All) . . . 484

Housing project --Special deduction--Computation--Interest on delayed payment by purchasers--Balance due from contractors and suppliers--Part of income derived from development of housing project--Entitled to deduction--Income-tax Act, 1961, s. 80-IB(10)-- CIT v. Pratham Developers (Guj) . . . 507

Income from undisclosed sources --Assessee proving purchase and existence of crane--No claim of cost of crane in return and no debit in profit and loss account--No addition could be made in respect of purchase price--No material to show crane not in existence--Depreciation not disallowable--Income-tax Act, 1961-- CIT v . Vijay M. Mistry Construction Ltd. (Guj) . . . 498

----Disallowance on account of inflated purchases--Question of fact--Tribunal enhancing disallowance to twenty-five per cent. of cash withdrawals--No interference--Income-tax Act, 1961-- CIT v. Vijay M. Mistry Construction Ltd . (Guj) . . . 498

Interpretation of taxing statutes --Principle of ejusdem generis-- CIT v . Smt. Rani Tara Devi (P&H) . . . 457

----Proviso-- CIT v. Indo Gulf Fertilizers Ltd . (All) . . . 437

Offences and prosecution --Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint--Income-tax Act, 1961, ss. 276B, 278B-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528

Search and seizure --Block assessment--Powers of Assessing Officer and Appellate Tribunal--Assessing Officer or Tribunal cannot consider validity of search--Income-tax Act, 1961, s. 158BC-- CIT v. Dr. A. K. Bansal (Individual) (All) . . . 513

Words and phrases --Meaning of “deemed†and “satisfied†-- CIT v. Indo Gulf Fertilizers Ltd . (All) . . . 437

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

General Clauses Act, 1897 :

S. 3(31) --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457

Income-tax Act, 1961 :

S. 2(14)(b) --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457

S. 2(42A), Expln. 1(i)(b) --Capital gains--Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset-- CIT v . Manjula J. Shah (Bom) . . . 474

S. 12AA --Charitable purpose--Charitable trust--Registration--Test of genuineness of activity not a ground for refusal of registration--Genuineness of objects to be tested--Registration not to be rejected on ground trust has not yet commenced charitable or religious activity--Commissioner satisfied with objects of trust for subsequent year--Refusal of registration for preceding year not justified--Exemption from application of income received by way of donation--To be decided when return is filed-- Hardayal Charitable and Educational Trust v. CIT (All) . . . 534

S. 35(1)(ii) --Business expenditure--Scientific research--Assessee requesting two companies to make payments on its behalf in view of shortage of funds--Revenue not disputing fact or disproving by them--Companies obtaining receipts in their name but claiming no deduction--Assessee paying amounts subsequently to those two companies--Assessee cannot be denied deduction-- CIT v . Armour Consultants P. Ltd.
(Mad) . . . 418

S. 37 --Business expenditure--Excess provision under heads “consultancy charges and professional fees†--Allowable-- CIT v . Armour Consultants P. Ltd .
(Mad) . . . 418

S. 40A(2) --Business expenditure--Disallowance--Excessive or unreasonable payments--Tribunal finding assessee did purchases at prevailing market rates and seller incurred certain expenditure in engaging personnel in office and other operations--Section 40A(2) had no application-- CIT v . Vijay M. Mistry Construction Ltd .
(Guj) . . . 498

S. 45 --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457

S. 48 --Capital gains--Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset-- CIT v . Manjula J. Shah (Bom) . . . 474

S. 80-IB(10) --Housing project--Special deduction--Computation--Interest on delayed payment by purchasers--Balance due from contractors and suppliers--Part of income derived from development of housing project--Entitled to deduction-- CIT v. Pratham Developers (Guj) . . . 507

S. 158BC --Search and seizure--Block assessment--Powers of Assessing Officer and Appellate Tribunal--Assessing Officer or Tribunal cannot consider validity of search-- CIT v. Dr. A. K. Bansal (Individual) (All) . . . 513

S. 194H --Deduction of tax at source--Commission--Scope of section 194H--Difference between sale and agency--Sale of stamp paper to licensed vendors under U. P. Stamp Rules, 1942--Sale--Tax not deductible at source on discount on such sales-- Chief Treasury Officer v. Union of India (All) . . . 484

S. 260A --Appeal to High Court--Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432

----Appeal to High Court--Powers of High Court--Power to frame additional question of law--High Court has power to frame additional question of law during hearing-- CIT v . Indo Gulf Fertilizers Ltd. (All) . . . 437

S. 268A --Appeal to High Court--Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432

S. 276B --Offences and prosecution--Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528

S. 278B --Offences and prosecution--Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528

Reduction of waiver of loan granted to meet cost of assets from actual cost

Reduction of waiver of loan granted to meet cost of assets from actual cost is not required u/s 43(1) (Expln 10) for calculating depreciation since Explanation 10 covers subsidy or reimbursement and not waiver of loan; however, where assessee reduces loans waived from cost of assets for accounting purposes, same will be reduced from actual cost to calculate depreciation u/s 32 also as such accounting practice will show that assessee understood receipt of loans from Government as having been given towards meeting part of cost of assets and will bring assessee's case within mischief of main provision of section 43(1) itself and it will not even be necessary to invoke Explanation 10 to section 43(1)

• Manner in which entries are made in books of account is not conclusive of question, which has to be resolved on a true interpretation of provisions of law

• However, real nature of a transaction can be understood by reference to contemporaneous act of parties, which would throw considerable light on their true intention and their understanding of transaction; it is therefore not impermissible to look into entries made in books of account, in absence of any other evidence; they show that assessee understood receipt of loans from Government as having been given towards meeting a part of cost of assets

[2012] 20 taxmann.com 198 (Delhi)
HIGH COURT OF DELHI

Steel Authority of India Ltd. v. Commissioner of Income-tax

S.220(6): Demand be stayed if strong prima facie case made out.

HDFC Bank Limited vs. ACIT (Bombay High Court)

S. 220(6): Demand should be stayed if strong prima facie case made out. Demand on covered issues cannot be recovered by adjustment of refunds

The AO passed an assessment order u/s 143(3) and raised a demand of Rs. 1719 crores. In response to the assessee's stay application, the AO accepted that demand of Rs. 1370 crores had to be kept in abeyance as they were covered in favour of the assessee by appellate orders for earlier years. However, he still held that the said demand had to be adjusted against refunds of Rs. 560 crores determined for earlier years. He demanded that the balance demand of Rs. 377 crores on the other issues be paid by the assessee. The assessee filed a Writ Petition to challenge the adjustment of refunds against the demand on covered issues and the non-grant of stay on the other issues. HELD by the High Court:

The manner in which and the ground on which an adjustment of the refund was made is arbitrary and contrary to law. The stay order states that the assessee would not be treated as an assessee in default in respect of covered issues. Yet the department has proceeded to adjust the refund due and payable to the assessee merely on the ground that the department's appeal is pending. The adjustment of a refund is a mode of effecting recovery. Once an issue has been covered in favour of the assessee in respect of another assessment year on the same point, it was wholly arbitrary on the part of the department to proceed to make an adjustment of the refund. If the adjustment was not made, there can be no manner of doubt that the assessee would have been entitled to a stay on the recovery of the demand. The demand cannot be adjusted by the department in this manner merely because it is in possession of the funds belonging to the assessee to which the assessee is legitimately entitled to and has been granted a refund. The making of an adjustment in these facts is totally arbitrary and contrary to law. As regards the other issues, the assessee has made out a strong prima facie case for a stay of the recovery of the demand. As the action of the department in adjusting the refunds due to the assessee was contrary to law, the interests of justice would be served if the department is permitted to make an adjustment to an extent of Rs.60 crores and refund the balance with interest.

Sham transaction of buy-back of shares is dividend, attracts section 115-O

 

Sham transaction of buy-back of shares is dividend, attracts section 115-O

Only a genuine buyback is excluded from the definition of 'dividend' under section 2(22)(iv) and exempt from DDT under section 115-O. Where proposed transaction of buy-back of shares is a colourable transaction, the consideration received from such buy-back will satisfy the definition of dividend under the Act and consequently attract tax in India under section 115-O - A MAURITIUS, IN RE [2012] 20 taxmann.com 52 (AAR)

SOME CASE LAWS

 

2012-TIOL-236-HC-DEL-IT

CIT, New Delhi Vs Kamdhenu Steel & Alloys Ltd (Dated : December 23, 2011)

Income tax – Sections 68, 69, 148 – Whether when by providing adequate material prima facie the assessee discharged the burden of proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, Revenue is supposed to make thorough probe of nature of the transaction before it could nail the assessee and fasten it with a liability u/s 68 and 69 of the Act – Whether when the AO issues notice u/s 148 mechanically on the information supplied by the DIT (Inv.) without applying his own mind and even did not care for the apparent mistake in the details on the basis of which notice is issued, the notice is rightly quashed. - Revenue's appeal dismissed:DELHI HIGH COURT

2012-TIOL-174-ITAT-LKW

M/s Blue Star Limited Vs DCIT, Lucknow (Dated : February 8, 2012)

Income Tax - Sections 194C, 194J, 201(1), 201(1A) - Whether when the scope of work executed by the sub-contractors has not been examined, an order passed to treat the payment made u/s 194J and not 194C as applied by the assessee can still be sustained. - Case remanded : LUCKNOW ITAT




SERVICE TAX SECTION

2012-TIOL-393-CESTAT-DEL

M/s APK Identification Vs CCE, Noida (Dated : February 2, 2012)

Service Tax - Refund - Service Tax paid by Service Provider - Delay in refund claim - Power to condone - Applicability of notification - Notification No. 09/09 dt. 03-03-09 provides that the Deputy Commissioner has power to condone the delay. The delay involved is only 17 days and when a public authority is given any power, he is expected to exercise it unless there is a reason for not exercising such power. No reason has been recorded in the impugned order. Further, the time limit under Notification No.17/11-ST dated 1.3.11 is applicable to the claims filed before that date and pending on that date. The adjudicating authority should consider the claim as per the proviso of Notification 17/2011-ST dated 1.3.11 which was in force on the date when the order is issued. The claims are not time barred and the matter is remanded to the adjudicating authority to decide the case afresh, on the merits of the claim. (Para 4) - Matter remanded: DELHI CESTAT

CENTRAL EXCISE SECTION

2012-TIOL-394-CESTAT-BANG

CCE, Belgaum Vs M/s Hindustan Engineers (Dated : September 16, 2011)

Central Excise – Eligibility of CENVAT Credit on MS flats and MS angles used for manufacturing material handling equipments such as moulding tracks and bucket elevators – Essential facts pleaded before the adjudicating authority at variance with pleadings made in the reply to SCN – Respondent-assessee filed a declaration as to how flats and angles were used along with photographs in support of such declaration – Respondent-assessee not opposed to Proper Officer of Central Excise visiting their factory and inspecting material handling equipments to have been fabricated/manufactured out of MS Flats and MS Angles in question – Matter remanded to original authority to consider these materials in de novo proceedings – Based on alternative plea of respondent, if respondent found eligible for CENVAT Credit on MS flats and MS angles as inputs, they should be given that benefit in as much as department not opposed to such observations made by adjudicating authority in favour of respondent – Original dispute as to whether flats and angles could be considered as parts/components of capital goods for availing CENVAT credit still open for fresh adjudication – In case they are found to be ineligible as capital goods, alternative claim for availing credit on the same items as inputs to be considered – Impugned order set aside and matter remanded for de novo adjudication – Rule 2(a) read with Rule 2(k) of CENVAT Credit Rules, 2004 - Appeal allowed by way of remand : BANGALORE CESTAT

Some case laws of 2012

 

CIRCULAR

it12cir01

Issuance of TDS Certificates in Form No.16A downloaded from TIN website - Circular under section 119 of the Income- tax Act 1961.

CASE LAWS

2012-TIOL-245-HC-MUM-IT

CIT, Pune Vs Mr Purshottam B Khutale (Dated : March 16, 2012)

Income Tax - Section 45(5) - Whether when assessee is awarded enhanced compensation on compulsory acquisition of agricultural land, the same is to be taxed as capital gains of the previous year when the compensation was received even if the final appeal is pending before the High Court. - Revenue's appeal allowed: BOMBAY HIGH COURT

2012-TIOL-244-HC-MUM-IT

CIT, Pune Vs Finolex Cables Ltd (Dated : March 1, 2012)

Income Tax - Sections 80I, 80IB - Whether where substantial investment has been made and the new plant and machinery is installed in the newly constructed building it can be said that assessee has set-up a new industrial undertaking and it is not the expansion of earlier unit and hence the depreciation of such unit is not to be set-off with the income of that unit which enjoys deduction u/s 80I. - Revenue's appeal dismissed: BOMBAY HIGH COURT

2012-TIOL-243-HC-MUM-IT

CIT, Mumbai Vs Divine Holdings Pvt Ltd (Dated : March 7, 2012)

Income Tax - Sections 119(2)(a), 143(3), 234A, 234B & 234C - Whether a notified person under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 is not liable to pay interest u/s. 234A, 234B, & 234C of the IT Act, 1961. - Case remanded: BOMBAY HIGH COURT

2012-TIOL-242-HC-MUM-IT

CIT, Bombay Vs M/s Airlines Hotel Pvt Ltd (Dated : March 30, 2012)

Income Tax - Section 37 - Whether settlement charges paid for re-acquiring a part of running hotel business and legal expenses incurred in relation to the same are business expenditure as per Sec 37 of the Act.- Revenue's appeal dismissed: BOMBAY HIGH COURT

2012-TIOL-177-ITAT-MUM + Tara story

Tara Jewels Exports Pvt Ltd Vs JCIT, Mumbai (Dated : March 16, 2012)

Income Tax - Sections 10A, 80HHC - Whether when SEZ-based exporter outsources manufacturing to jobworkers outside the SEZ, which accounts for large proportion of total exporters, the Sec 10A benefits are to be reduced in the same proportion - Whether for the purpose of Sec 10A benefits it is necessary for the SEZ Unit to undetake some manufacturing within the SEZ. - Case remanded: MUMBAI ITAT




SERVICE TAX SECTION

CIRCULAR

sercir156

Service tax paid on taxable services used for export of goods at the post-manufacture stage - electronic refund through the Indian Customs EDI System -- Notification 52/2011-ST – review.

CASE LAWS

2012-TIOL-410-CESTAT-MAD

M/s Logos Constructions Private Limited Vs CST, Chennai (Dated : October 13, 2011)

Service Tax - Construction Service – Commercial or Industrial Construction Services – Works Contract - Demand – Stay / Dispensation of pre-deposit – The service provider is engaged in activities relating to construction of assembly shop, press shop, office buildings, utility building, canteen building, guest houses etc. Demand of service tax is made under the category of "Construction Services", "Commercial or Industrial Construction Services", and "Works Contract". The service provider challenges the demand on the ground that for the same activity service tax has been demanded under different heads for different periods. HELD - The case involves construction activities for constructing different types of buildings and structures. On the facts of the case and the findings of the Commissioner the service provider, prima facie , has not made out a case for unconditional waiver. The service provider has admitted that their activities are liable to service tax under Works Contract from 01.06.2007 but they have not taken registration for the said services till 01.04.2008. Pre-deposit ordered. (Para 6) - Pre-deposit ordered: CHENNAI CESTAT

2012-TIOL-407-CESTAT-AHM + Adani story

Adani Gas Ltd Vs CST, Ahmedabad (Dated : March 6, 2012)

Service Tax - Stay - Pre-deposit - Charges for pipes, measuring equipment etc, at the time of providing new gas connection - Prima facie liable to tax - Pre-deposit ordered: In the present case, the customer never has a right of possession since it would never become his own property at all. At any given point of time, the appellant can take re-possession and at no time, the customer would become the owner or can claim right of possession. In the case where an item is rented, the customer has right of possession so long as he keeps paying the rent. In the absence of any payment of rent for the meter and the equipment, there is no consideration in this case for right of possession by the customer and therefore the customer cannot even claim the right of possession also. Prima facie, the conclusion is that the appellants have provided the service and are liable to Service Tax, which has been demanded. No doubt that there is a need for going into the issues and elements of service in depth in terms of statutes, meaning of various statutes and the agreement between the customer and the appellant, which can be done only at the time of final hearing. Since the appellants have not been able to make prima facie case in their favour and no financial difficulty has been pleaded, it is appropriate that the appellant should deposit 25% of the Service Tax demanded in the impugned order within 8 (eight) weeks. - Pre-deposit ordered: AHMEDABAD CESTAT

2012-TIOL-406-CESTAT-MAD

M/s City Union Bank Vs CCE, Trichy (Dated : Decemder 20, 2011)

Service Tax – Penalty – Waiver under Section 80 – The jurisdictional Commissioner in his review order has given no satisfactory reason or any finding regarding any suppression, fraud etc to reverse the finding of the original authority in regard to extending the benefit under Section 80 to the appellants. Waiver of penalty upheld. (Para 2) - Appeal allowed: CHENNAI CESTAT

CENTRAL EXCISE SECTION

2012-TIOL-409-CESTAT-MAD

M/s Jino Systems India Pvt Ltd Vs CCE, Chennai (Dated : December 16, 2011)

Central Excise – Trading – Duty received from buyer – Section 11D - Penalty – In respect of some invoices the assessee has not recovered any excess excise duty and in respect of the one invoice they have already paid the duty amount along with interest. There is no specific provision either in the Act or in the Rules for imposition of penalty for a case under Section 11D of the Act. Penalty set aside. (Para 3 & 4) - Appeals allowed : CHENNAI CESTAT

2012-TIOL-405-CESTAT-MAD

Kwality Fun Foods & Restaurant P Ltd Vs CCE, Coimbatore (Dated : January 31, 2012)

Central Excise – Valuation – Related person – HLL entering into agreement with Kwality Fun Foods & Restaurant Pvt. Ltd for manufacture of Ice Creams under the Brand name acquired by HLL - HLL was concerned with KFRL in commercial terms and KFRL having facility of manufacture, such facility was availed by HLL to get its branded goods manufactured by the former - That does not make them related persons - If the manufacturer or buyer are one and the same person behind curtain in that circumstance, holding them "related person" applying section 4 of Central Excise Act, 1944 may be possible - Merely because ice cream was manufactured using brand name acquired by HLL and entire product was sold to BILIL/HLL, that did not make them "related person" - SCNs did not lift the corporate veil to find out any mysterious arrangement between the parties to cause subterfuge to Revenue - "Related person" does not mean mere holding of shares by a company - Obligations of parties were well defined by sourcing agreement and that also separated both entities with their defined individual objects. No evidence came to record to prove that Revenue was prejudiced and there were no cogent reasons or evidence depressing the assessable value – Impugned order set aside. - Appeals allowed: CHENNAI CESTAT

2012-TIOL-404-CESTAT-BANG

CCE, Belgaum Vs M/s India Sugar & Refineries Ltd (Dated : October 28, 2011)

Central Excise – Eligibility of CENVAT Credit on MS angles, plates, sheets, rods used for fabrication and maintenance of structures/capital goods – Original authority denied credit by holding that the impugned goods are not capital goods – Appellate authority held the same as inputs and allowed credit, resulting in Revenue appeal – Original authority did not have occasion to examine whether impugned goods qualified to be capital goods or alternatively as inputs – Impugned order set aside and matter remanded – Rules 2(a) and 2(k) of CENVAT Credit Rules, 2004 - Appeal allowed by remand: BANGALORE CESTAT

[GlobalIndianCAs] A One Rupee Karmic Lesson

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A One Rupee Karmic Lesson

By Dr G Sreekumar Menon, Commissioner (A), Goa

THIS incident happened about two and a half decades back, but, even the long passage of time, has not diminished its value.

A friend of mine had advised me to visit the temple of Srinivasamangapuram, while returning from Tirupathi. He promised me that it was pure bliss to visit that temple which nestled in a sleepy village, under the foothills of the Tirumala Mountains. So, one evening I went to Srinivasamangapuram, in search of bliss.

During those days, it was an enchanting place, a simple, remote village, very very quiet, and a small temple engulfed in silence. The luxurious silence was occasionally interrupted by a scampering monkey or a lone devotee ringing the temple bell. I simply soaked myself in the divine silence and aloneness of that evening hours. Sitting alone, on the footsteps of the temple, the radiant glow of the evening sunset, bathing the quiet village, it was a soothing and healing experience. (Today, the environment has totally changed. Serpentine queue of pilgrims everywhere, countless shops and vendors, paddy fields that have become car parks, serenity has fled to somewhere else.)

The last bus was scheduled to leave at 7 P.M., in the twilight darkness I made my way slowly to the deserted bus stop. While I was patiently waiting in the darkness for the bus to arrive, a young man accompanied by a very old lady approached me. The lady was shrivelled with age and should have been more than 75 years of age. The young man wanted to know if I was going to Tirupathi town, and if so, whether I could take this lady and drop her in Tirupathi bus stand? While I answered in the affirmative, the thought of this lady for company was mentally not liked by me. A disagreeable thought rushed through my mind, then. (Even now, when I recollect this incident, I am ashamed of that thought of irritation, that raced through my mind, then. Had it been a damsel, I would have gladly welcomed her, but, this old lady for company… oh no…), All my blissful moments at the temple were quickly forgotten. Perhaps, the young man wanted me to pay her bus fare, I thought.

The bus arrived and a few passengers got inside. The old lady boarded through the front entrance, while I opted for the rear entrance. As the bus proceeded, the Conductor came to collect the fare. I asked for two tickets, pointed to the old lady, in the front seat, as the other passenger. The fare, during those days, was one rupee, per passenger. I paid two rupees, and happily settled down, trying to enjoy the cool breeze that rushed into the moving bus. A few moments later, a commotion in the front, alerted all the passengers. The old lady was standing and having a loud argument with the conductor, who was pointing a finger at me. The conductor came to me gesticulating, that, the old lady was scolding him, for, accepting her bus fare, from me! I was shocked; it was as though somebody had slapped me. My egoistic vanity, had made me to conclude, that, the young man, wanted me to pay, the old lady's bus fare, but here she was, standing and demanding that she be allowed to pay her own bus fare! At that moment, I felt so small and petty.

The old lady was pleading to the conductor to return the one rupee back to me, and accept her money instead. I requested her not to be bothered about it; after all, it was just one rupee only. Her reply really upset me more. She entreated to me "son. It is not a matter of one rupee, I will have to take rebirth to repay this one rupee back to you. Why do you want me to take another birth to repay this debt of one rupee?" I was simply jolted and shocked by her plea. Oh God! What lesson is she teaching me? I just could not answer her. It was the other co-passengers, who shouted at her and asked her to keep quiet. But, she was constantly turning and pleading to me "why do you want me to be reborn for this one rupee". My false ego and shame prevented me from taking that one rupee.

It was a relief, when the bus stopped at the final stop. We parted ways in the darkness.

That night, in the hotel room, the mind was engrossed in an endless searching debate. Is Karma, the operating system of this world? Is there a gigantic Karmic Stock Exchange, monitoring our actions, deeds and thoughts? Are successive rebirths generated for settlement of Karmic debts? Are we observing fasts, vrats and performing Homas to secure a good Karmic loan to tide over difficulties created by bad Karma? Are those worthless individuals in enviable positions because of their +AAA Karmic credit rating? Will this old lady, really be reborn and come to me, in some future birth, to repay a debt of one rupee? How, when and where will our future lives intersect, to settle this one rupee debt?

Oh God! What a great Karmic lesson, she taught me, in those twilight hours, beneath the Tirumalahills? Can even a one-rupee coin trigger a chain of Karmic reactions? If so, how can we, who receive piles of unsolicited gifts on every festival day, repay such Karmic debts? Are those who suffer in an aggravated manner from incurable diseases and crisis in some kind of a Karmic recession? Will the Gods favour us with good Karmic loans or bonds to overcome problems?

Who knows the ways of the Gods? But, my eyes are always searching for her, when will she come to me, with a one-rupee coin in her hands?

(The views expressed are personal)



Sub: Law of Karma

If you had paid the bus fare without expecting anything in return, it can be termed as selfless service. You also ensured the safe arrival of the old lady at Tirupathi. It is the deed and not the money spent is important under the law of karma. Selfless service is service to God. Either it is good karma or bad karma, the dividends are always in multiples. P.A.PARAMESWARAN

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ITR (TRIB) Volume 17 : Part 5 (Issue dated : 06-08-2012)

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 17 : Part 5 (Issue dated : 06-08-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Advance tax --Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment--Income-tax Act, 1961, ss. 90, 234B-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

Bad debt --Change of law--After 1-4-1989 sufficient if assessee writes off debt in books--Sums shown as income of year and then written off--Claim allowable--Income-tax Act, 1961, s. 36(1)(vii), (2) (as amended w. e. f. 1-4-1989)-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

----Provision for bad debt at beginning of year-- Deductible--Income-tax Act, 1961, s. 36(1)(vii)-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

Business --Loss--Foreign currency received as deposit--Sale of foreign currency and forward contract for purchase of foreign currency--Loss in transaction--Not deductible--Income-tax Act, 1961-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

Business expenditure --Disallowance--Excessive or unreasonable payments--Burden of proof--Is on assessee in first instance--No enquiry by Assessing Officer--Ad hoc disallowance of ten per cent.--Not sustainable--Matter remanded--Income-tax Act, 1961, s. 40A(2)(b)-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

----Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction--Income-tax Act, 1961, s. 40(a)(ia)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

----Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made--Income-tax Act, 1961, ss. 14A, 115VP-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

----Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable--Income-tax Act, 1961, ss. 9(1)(vi), 10A, 40(a)(ia)-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533

Capital gains --Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F--Income-tax Act, 1961, ss. 54, 54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617

Deduction only on actual payment --Amendments brought in 2003--Curative--Applicable for earlier years--Employer’s contribution to employees provident fund paid before due date for filing return--Allowable--Income-tax Act, 1961, s. 43B-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

Income --Accrual of income--Time of accrual--Discounting of bills--Future discounts--Amounts had not accrued and were not assessable--Income-tax Act, 1961-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

Shipping company --Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible--Income-

tax Act, 1961, ss. 115JB, 115VI, 115V-O-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

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

Art. 12 --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

Income-tax Act, 1961 :

S. 9(1)(vi) --Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533

S. 10A --Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533

S. 14A --Business expenditure--Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

S. 36(1)(vii), (2) (as amended w. e. f. 1-4-1989) --Bad debt--Change of law--After 1-4-1989 sufficient if assessee writes off debt in books--Sums shown as income of year and then written off--Claim allowable-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

S. 36(1)(vii) --Bad debt--Provision for bad debt at beginning of year--Deductible-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

S. 40(a)(ia) --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

----Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533

S. 40A(2)(b) --Business expenditure--Disallowance--Excessive or unreasonable payments--Burden of proof--Is on assessee in first instance--No enquiry by Assessing Officer--Ad hoc disallowance of ten per cent.--Not sustainable--Matter remanded-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

S. 43B --Deduction only on actual payment--Amendments brought in 2003--Curative--Applicable for earlier years--Employer’s contribution to employees provident fund paid before due date for filing return--Allowable-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569

S. 54 --Capital gains--Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617

S. 54F --Capital gains--Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617

S. 90 --Advance tax--Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

S. 115JB --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

S. 115VI --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

S. 115V-O --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

S. 115VP --Business expenditure--Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587

S. 234B --Advance tax--Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599

Special audit can be directed without providing an opportunity of personal hearing to assessee

Proviso to section 142(2A) does not envisage any personal hearing to assessee before an passing of an order for special audit.

In the instant case the assessee-company was opposed to the proposal of special audit on the ground that there were no complexities in the accounts and contented that proviso to section 142(2A) provides an opportunity of personal hearing to assessee.

The HC held as under:

1) The requirement of personal hearing is normally not seen as necessary concomitant to a reasonable opportunity of being heard. The same depends on the statutory provisions from which such right flows, the nature of the proceedings and the consequences likely to follow from such proceedings;

2) The proviso to section 142(2A) does not envisage any personal hearing before an order under sub-section (2A) can be passed. The said proviso only requires giving a reasonable opportunity of being heard to the assessee. Such reasonable opportunity ordinarily would not include right of personal hearing;

3) It was strongly argued by assessee that the very fact that the AO believed that the accounts were complex, it meant that the issues were complex and the personal hearing was required. This contention was misconceived. Complexity of accounts and complexity of the question whether accounts were complex or not were two totally different things;

4) Thus, a clear distinction had to be drawn between the two. Whether the accounts were complex so as to call for special audit was one aspect. Another aspect was whether the question to ascertain if the accounts were complex was itself a complex question. This would have a bearing on whether personal hearing was necessary. Thus, assessee’s contention of personal hearing was rejected;

5) Coming to the question of validity of the order on the premise of complexity and the requirement of interest of revenue, it was noticed that the assessee had been given previous notice under section 142(1) with respect to its accounts. For a long time the assessee did not comply with such notices;

6) The authorities had highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report was obtained. The various points on which the AO desired that the auditor should make a report itself would demonstrate that the accounts were complex;

7) The AO had sufficient material at his command to form an opinion that the accounts were complex and that it was in the interest of the revenue to get them audited by the special auditor. Thus, there was no merit in instant petition and the same was to be dismissed. - NEESA LEISURE LTD. V. DY. CIT [2013] 35 taxmann.com 216 (Gujarat)

Whether when dividend income is incidental to business of sale of shares, which

 

Whether when dividend income is incidental to business of sale of shares, which remained unsold, it cannot be said that expenditure incurred in acquiring shares is to be apportioned to extent of dividend income and should be disallowed - NO: Karnataka HC

BANGALORE, APRIL 11, 2012: THE issues before the Bench are - Whether when dividend income is incidental to the business of sale of shares, which remained unsold with the assessee, it cannot be said that expenditure incurred in acquiring shares is to be apportioned to the extent of dividend income and should be disallowed and Whether when the assessee takes loan and purchases shares and earns dividend income on unsold shares, any notional interest expenditure is to be disallowed. And the answer goes in favour of the assessee.

Facts of the case

Assessee is a distributor of state lotteries and a dealer in shares and securities. The assessee earned dividend income of Rs.46,67,190/- from shares of certain companies and 93% of shares of M/s Kurlon Ltd., and further the assessee has purchased 24,000 fully paid shares from M/s.Kurlon Ltd., and converted its stock of partly paid shares into fully paid shares by paying the outstanding amount of Rs.8/- per share, which worked out to Rs.5,27,97,016/-. To pay for the conversion cost, the assessee had entered into agreement with M/s.Kitchen Appliances Pvt. Ltd., to avail interest free loan of Rs.14/-crores and had paid Rs.28/- lakhs to one Sri.A.S.Krishna Iyer for brokering this loan. The Assessing Officer held that this expenditure was directly attributable to the earning of the dividend income and disallowed the same. He further considered the business expenditure claimed by the assessee and estimated the expenditure incurred by the assessee on earning of the dividend income at Rs.27,24,330/- under Rule 8D of the Income Tax Rules and disallowed the same as relatable to earning of the exempt income.

The Commissioner of Income (Appeals) confirmed the said order. In appeal, the Tribunal was of the view that the assessee had taken interest free loan from M/s.Kitchen Appliances Pvt. Ltd,, and what was disallowed, was the expenditure relatable to the broking of this loan as the expenditure for earning of dividend income from these shares. It was not only the direct expenditure, which was disallowable under Section 14A in relation to exempt income, but even indirect expenditure was to be disallowed proportionately. The expenditure, which was relatable to earning of dividend income though incidental to the trading of shares, was also to be disallowed under Section 14A of the Income Tax Act. However, the Tribunal found that the Assessing Officer attributed the entire broking commission as relatable to earning of dividend income only, which was not correct. The loan had been utilized for the purchase of shares and the profit earned by sale of these shares was offered as business income. Hence, the broking expenditure had to be considered as business expenditure, as well and allowed the appeal accordingly. The Assessing Officer was directed to bifurcate all the expenditure proportionally and allow the expenditure in accordance with law.

On appeal to the HC, the Counsel for the assessee contended that the assessee had incurred expenditure for purchasing shares. 63% of the shares so purchased were sold and the income derived therefrom was offered to tax as business income. The remaining 37% of the shares remained unsold. Those shares yielded dividend. The assessee had not incurred any expenditure to. earn the said dividend income. Therefore, no expenditure could be attributed to the said dividend income and the said expenditure cannot be disallowed and the assessee was entitled to the benefit of deduction of the entire expenditure incurred in respect of purchase of shares.

Per contra, the Counsel for the Revenue pointed out that admittedly when shares retained by the assessee had yielded dividend, when the dividend income was exempted from payment of income tax proportionately, the expenditure incurred in acquiring that dividend also should be excluded from expenditure. In that view of the matter, the orders passed by the authorities are legal and valid.

Held that,

++ when no expenditure is incurred by the assessee, in earning the dividend income no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63% of the shares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37% of the shares are retained. It has remained unsold with the assessee. It is those unsold shares which have yielded dividend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions;

++ in that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside.

Case law oo1

text of case law 001

Though Expl. 10 to s. 43(1) does not apply to loan waiver, treatment in books of

 

Steel Authority of India Ltd vs. CIT (Delhi High Court)

Though Expl. 10 to s. 43(1) does not apply to loan waiver, treatment in books of reducing amount waived from asset cost means that WDV has to be reduced

The assessee received a loan of Rs. 5,277 crores from the Steel Development Fund in earlier years. In AY 2000-01, a substantial part of the loan was waived. In its books of account, the assessee reduced the cost of the assets by the amount of loan waived and claimed depreciation on the reduced figure. However, the assessee claimed that for income-tax purposes, the waiver did not impact the WDV of the assets and that depreciation had to be allowed on the original figure. The AO, CIT (A) & Tribunal (included in file) decided the issue against the assessee by relying on Explanation 10 to s. 43(1) inserted by the F (No. 2) Act 1998 w.e.f. 1.4.1999. On further appeal to the Tribunal, HELD reframing the question:

Explanation 10 to s. 43(1) does not cover the case of waiver of the loan. It covers only the grant of a subsidy or reimbursement by whatever name called. Though the assessee's case may not fall under Explanation 10, the waiver of the loan amounted to the meeting of a portion of the cost of the assets under the main provision of s. 43(1) because of the treatment given by the assessee in its books of account in reducing the cost/WDV of the assets by the amount of the loans waived. The real nature of a transaction can be understood by reference to the contemporaneous act of the parties, which throws considerable light on their true intention and their understanding of the transaction. The assessee understood the receipt of the loans as having been given towards meeting a part of the cost of the assets and the waiver cannot have a different effect on such intention. PJ Chemicals Ltd 210 ITR 830 (SC), which holds, (pre Explanation 10) that a subsidy given as an incentive for industrial growth cannot be reduced from the cost of the assets under s. 43(1), does not apply to the facts.

Note: In CIT vs. Tata Iron & Steel 231 ITR 285 (SC) it was held that even if a loan was taken for acquisition of an asset, its non-payment will not affect the cost of the asset

Related Judgements
Logitronics Pvt Ltd vs. CIT (Delhi High Court) The answer to the question whether the waiver of a loan is taxable as income or not depends on the purpose for which the loan was taken. If the loan was taken for acquiring a capital asset, the waiver thereof would not amount to any income exigible to tax…
Steel Authority vs. STO (Supreme Court) Where the Appellate Commissioner disposed of the appeal by a non-reasoned order, held that a statutory appeal could not be disposed of in that manner. Reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same it becomes lifeless. Failure to give reasons….

Airport Authority of India vs. CIT (Delhi High Court – Full Bench) The question that has to be considered is whether the expenditure is incurred for initiating the business or for removing an obstruction to facilitate an existing business. Expenditure incurred for running the business or working it, with a view to produce profits is in the nature of revenue expenditure….

HC presumes existence of culpable mind in not filing return within time; confirms prosecution

HC presumes existence of culpable mind in not filing return within time; confirms prosecution    

Where assessee had not filed return of income timely, it could be prosecuted under section 276CC on presumption that there existed a culpable mental state as onus to prove that delay was not willful was on assessee and not on department

In the instant case, the assessee had filed the return of income on 1-5-1995 for assessment year 1994-95. The revenue's case was that inspite of several notices issued to assessee, she had filed the return of income beyond the statutory period. Therefore, delay in filing return was willful and deliberate and, thus, she was liable to be prosecuted and punished under section 276CC. However, the trial Court and the Sessions Court discharged the assessee. The revenue then filed the petition seeking reversal of orders of both the Courts.

The High Court held as under:

1) It was not in dispute that the assessee had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the revenue had required her to do so. The assessee had not even responded to the communications sent by the revenue requiring her to file return of income or to show the proof of filing. So, the offence under Section 276CC stood committed by that time and for that offence, the department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court;

2) It was for the respondent to establish during the trial that her failure to file return was not willful. The Courts went wrong in going into the question as to whether the explanation offered by the assessee before the filing of the complaint in Court was rightly rejected or not;

3) Once the complaint stood filed, the trial Court was only required to examine whether cognizance was to be taken or not and if it was decided to take cognizance, thereafter, trail Court was required to examine whether in the pre-charge evidence the complainant had been able to show that the assessee had not filed her return for the relevant assessment year within the prescribed period, which fact in the present case was not even disputed by the assessee;

4) So, after raising the presumption under section 278E, the trial Court should have framed the charge against the assessee leaving it to her to show thereafter that there was no willful default on her part. Just because the assessee had applied for the compounding of the offence before the filing of the complaint against her in Court, and the same had not been decided before the filing of the complaint, it could not be said that the complaint was not maintainable;

5) The trial Court was not required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority for compounding, she would have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department;

6) The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trail Court and, therefore, its order also couldn’t be sustained. This petition, accordingly, was allowed. The impugned orders of the trial Court and the revisional Court were set aside – ACIT V. NILOFAR CURRIMBHOY [2013] 35 taxmann.com 99 (Delhi)