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

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Charitable purposes --Definition--Amendment disqualifying assessee for exemption where commercial activity undertaken--Assessee entering into agreement with concessionaire for development of indoor cricket academy--Carrying on of commercial and profit motive activities for long duration--Not charitable or welfare activity--Effect of amendment of section 12AA(3 ) w. e. f. 1-6-2010--Cancellation of registration from 1-6-2010 not from date of signing of agreement--Income-tax Act, 1961 , s. 12AA(3) -- Mumbai Cricket Association v. Director of Income-tax (Exemption) (Mumbai) . . . 151

PRINT EDITION

Volume 25 : Part 4 (Issue dated : 5-8-2013)

SUBJECT INDEX TO CASES REPORTED

Appeal to Commissioner (Appeals) --Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted--Income-tax Rules, 1962, r. 46A-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Business expenditure --Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable--Income-tax Act, 1961, s. 37-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

----Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable--Income-tax Act, 1961, ss. 5(2), 9(1)(i), (vi), (vii), 40(a)(i), 195--Double Taxation Avoidance Agreement between India and Ireland, art. 12(2)(b)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

----Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option--Income-tax Act, 1961, ss. 17, 37, 43(2)-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

----Employees stock option scheme--Discount on issue of options allowable as deduction--Income-tax Act, 1961, s. 37-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

Capital or revenue expenditure --Artwork charges--Artwork having life of six months or less--No enduring advantage--Not capital expenditure--Income-tax Act, 1961-- Parle Agro P. Ltd. v. Assistant CIT (Mumbai) . . . 551

Cash credits --Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee--Income-tax Act, 1961, s. 68-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Costs --Department--Assessing Officer and Commissioner (Appeals) performing statutory functions--No case for imposition of costs on them-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Deduction of tax at source --Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability--Income-tax Act, 1961, s. 195-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

Depreciation --Rate of depreciation--Computer accessories and peripherals--Depreciation applicable at 60 per cent.-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556

Double taxation avoidance --Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 --Double Taxation Avoidance Agreement between India and the U. S. A., arts. 3(2), 12-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

----Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law--Income-tax Act, 1961, s. 90(2)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Exemption --Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, s. 10A-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

Income-tax authorities --Duties--Natural justice--If record available with Department and assessee points towards it--Authorities to verify that evidence and decide allowability-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Income-tax --General principles--Accounting--No accounting principle determinative in computation of total income under Act--Effect of Guidelines issued by other authority-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

International transactions --Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer--Income-tax Act, 1961, s. 92CA(3)-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556

----Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded--Income-tax Act, 1961, s. 92C-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

Interpretation of taxing statutes --Noscitur a sociis-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

Non-resident --Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C--Income-tax Act, 1961, ss. 234B, 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

----Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 , (vii)--Double Taxation Avoidance Agreement between India and the U. S. A. art. 12(4)(b)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Words and phrases --“Expenditure†--Means not only “paying out“ but also “incurring“-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

----“Technical service†-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Ireland :

Art. 12(2)(b) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

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

Arts. 3(2) --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Art. 12 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

----Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Art. 12(4)(b) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Income-tax Act, 1961 :

S. 5(2) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 9(1)(i), (vi), (vii) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 9(1)(vi), Expln. 5 --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 9(1)(vi), Expln. 5, (vii) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 10A --Exemption--Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

S. 17 --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

S. 37 --Business expenditure--Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

----Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

----Business expenditure--Employees stock option scheme--Discount on issue of options allowable as deduction-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 43(2) --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

S. 68 --Cash credits--Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

S. 90(2) --Double taxation avoidance--Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 92C --International transactions--Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

S. 92CA(3) --International transactions--Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556

S. 195 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

----Deduction of tax at source--Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 234B --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 234C --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Income-tax Rules, 1962 :

R. 46A --Appeal to Commissioner (Appeals)--Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Whether expression 'wholly and exclusively' appearing in Sec 37 does not mean necessarily - YES: HC

GUWAHATI, AUG 05, 2013: THE issues before the Bench are - Whether when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is a legal obligation to prove that the expenditure was necessary for promotion of his business; Whether for the allowability of an expenditure u/s 37, it is relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly; Whether the expression "wholly and exclusively", appearing in Section 37, does not mean necessarily; Whether expenditure incurred on foreign visits by directors and garden managers for promoting the sales of tea can be questioned, merely because the assessee has appointed a selling agent abroad and Whether expenditure incurred in connection with the travels of the wives of the tea estate managers can be allowed, when it is customary in the European countries for the wives to accompany their husbands. And the verdict goes against the Revenue.
Facts of the case

The assessee, M/s Williamson Tea (Assam) Limited, is a company registered under the Companies Act, 1956, and engaged in the business of growing, manufacturing and selling of tea. The assessee had claimed several deductions as business expenditure which were disallowed by the AO. This disallowance became the issue of dispute in this matter.

Foreign Travel Expenses

The directors and executives of the assessee had undertaken foreign travels for promoting the sales of the business. The AO observed that the assessee had appointed its selling agent, in London, for sale of tea in overseas market and used to pay commission, brokerage, etc, to its selling agent. Further, the three non-resident Directors of the assessee company were permanently residing in U. K. looking after the assessee company's overseas business. Therefore, as per the AO, these foreign tours were unnecessary and liable to disallowed as non trading expenditure. The AO also disallowed the expenditure incurred on the spouse travelling along with the employees of the company. The CIT(A) upheld this order and directed the AO to initiate penalty proceedings. On further appeal, the Tribunal reversed the finding of the CIT(A) and allowed the substantial part of this expenditure to be claimed as deduction. The Tribunal gave its reasoning that when for promoting export senior executives of the company undertook foreign travel then the expenditure could not be considered for non-business purposes. Further, it noted that the visits to UK and Kenya were undertaken by garden managers who were actively associated with growing and manufacture of tea and were competent to study the methods of competitors and effectively interact with foreign customers for export promotion. The Tribunal also terminated the penalty proceedings.

Erection of fencing

The assessee company had also claimed a sum of Rs. 46,54,687 as 100% depreciation on the expenditure incurred in connection with erection of fencing at their tea garden. The AO observed that the purpose of fencing was to protect tea bushes from being transgressed upon by cattle or stray animals and that the assessee company had acquired assets (tea bushes) with lasting value and, therefore, the respondent company was not entitled to 100% depreciation but to normal depreciation. The CIT(A) allowed the claim on this account. On appeal, the Tribunal allowed the claim of deduction.

Publicity expenditure

The assessee had claimed deduction on an amount of Rs 11,65,000 in connection with centenary celebrations of the clubs whose membership was held by the directors and the employees of the assessee. The assessee had claimed this expenditure on the head of publicity of the company and for promoting the interest of the company. The AO disallowed Rs 9,00,000 out of the total expenditure on the ground that the assessee company could not show any business connection with the business organizations to whom the concerned amount was shown to have been paid. The CIT(A) confirmed the disallowance to the extent of Rs 900,000 and allowed Rs 2,65,000 as publicity expenditure. On appeal, the Tribunal allowed the entire amount of Rs 11,65,000 as publicity expenditure.

Aggrieved on these grounds, the Revenue has filed this appeal before the High Court.

Contentions of the Revenue

The DR submitted that each and every expense, incurred in course of business, is not allowable u/s 37 and, in order to enjoy the benefit of exemption under the Act, the expenditure must be proved, by adducing substantial evidence, that it was laid out wholly and exclusively for business. In the instant case, the DR contended that the assessee had not produced evidence in support of its claim that the expenditure, claimed on account of foreign trips, was wholly and exclusively for business purpose, though it was incumbent, on the part of the respondent company, to give details as to what the representatives of the company did in the foreign countries for the business of the respondent company. Regarding the other claims of deduction, the DR supported the reasoning of the AO for disallowing the same.

Contentions of the Assessee

The AR contended that it is for an assessee, to decide, in the interest of promoting its business, whether any expenditure is to be incurred, in the course of business, and whether such expenses are to be incurred voluntarily. The counsel for the assessee submitted that the assessee can incur certain expenditure and claim deductions of the same u/s 37 even though there was no necessity to incur such expenditure. He further clarified that it is not necessary that the primary motive to incur the expenditure has to be directly earn income thereby. He strongly argued that while applying the test of commercial expediency for determining as to whether an expenditure is wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of businessman and not of the Income Tax Department

Having heard the parties, the High Court held that,

True test of business expenditure

+ the true test for an expenditure, laid out wholly and exclusively for the purpose of business, is that it is incurred by the assessee as incidental to its trade for the purpose of keeping its trade going on and that the expenditure must be incurred by the assessee as a trader and not in any other capacity. The word “wholly†refers to the quantum of expenditure and the word “exclusively†refers to the motive, objective and purpose of the expenditure. The expression “wholly and exclusively†, appearing in Section 37, does not mean necessarily. It is important to note, in this regard, that the word, “necessarily†, found place in the Income Tax Bill, 1961, but it was dropped at the Legislative anvil. It may be noted here that Viscount Cave L. C., in Atherton vs. British Insulated & Helsby Cables Ltd., observed â€œâ€¦ a sum of money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purpose of trade†. The same test was applied in Cooke vs. Quick Shoe Repair Service,.;

+ What necessarily follows from the above discussion is that when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product, the assessee is entitled, under Section 37(1) of the Act, to claim exemption from tax on such amount of expenditure. For the allowability of an expenditure under Section 37 of the Act, it is not relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly;

Foreign Travel Expenses

+ the Foreign Directors of the respondent company visited India in order to attend Board meetings and monitoring business operations. Besides representatives and consultants of the respondent company, representatives of holding company from U.K. also visited India for coordinating exports and monitoring functioning of the tea gardens. The garden managers visited U. K. and Kenya for business purposes. Visits to U. K. were necessary as the respondent company exported its tea to London for sale in the European market. The garden managers visited UK also to meet foreign customers and selling agents to promote the respondent company's exports. Visits to Kenya by the Directors/ Executives/Managers were necessary, because the said country is the largest exporter of tea in the world. The respondent company had sent its senior garden Manager for conducting study on Kenyan tea manufacturers so that the respondent company survives in the international competition in tea export. Under such circumstances, the finding of the Income Tax Appellate Tribunal that the expenditure, on the visits by the garden managers, was wholly and exclusively for business purposes cannot be said to be suffering from any illegality and infirmity;

+ as regards the question on the expenditure incurred in connection with the travels of the wives of the tea estate managers, we find force in the submission of Ms. Hawelia, Counsel for the respondent company, that since it is customary in the European countries for the wives to accompany their husbands, the travelling of the wives along with their husbands cannot be said to be personal visits of the wives, but such a visit has to be regarded as having been undertaken for the purpose of business of the respondent company. The Tribunal, as a fact finding authority, having come to the finding that the expenditure, on the visits by the representative of the company abroad and expenditure as well as the visits to India by the London based officials of the respondent company, in view of the respondent company's substantial exposure to overseas trade and large holdings of the respondent company with foreign promoters, were business expenditures, is a finding of fact and the same cannot be interfered with in an appeal under Section 260A of the Act;

Publicity expenditure

+ the expenditure, incurred in connection with sponsoring of the Centenary celebrations of Cotton College, at Guwahati, by Anand Bazar Patrika Ltd. and the sponsoring the State Level National Children Congress in Assam, were also allowable, because the respondent company's banners, as sponsors of the events, were displayed at the said functions. Therefore, the said expenditures were held by the Tribunal to be wholly and exclusively incurred in connection with business. While allowing the respondent company's claim, the learned Tribunal relied on a decision of the Calcutta High Court, in Assam Brooke Ltd. wherein a sum of Rs. 5,00,000/- was paid by the assessee to a club;

+ in view of the above propositions of law, we are of the considered view that it is for the assessee (respondent company in the present case) to decide where and in what manner publicity of its business is to be done and what benefit it will derive for its business by making such publicity. Consequently, we do not find any infirmity in the order of the Income Tax Appellate Tribunal, while deleting the disallowance on account of publicity expenses.

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