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

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Appeal to Commissioner (Appeals) --Recovery of tax--Application for stay of recovery during pendency of appeal--Case on merits--Assessee having already paid substantial portion of total tax liability--Stay of recovery of outstanding demand--Income-tax Act, 1961, s. 40(a)(ia)-- S. S. Warad v. Additional CIT (Bangalore) . . . 290

Business expenditure --Interest on borrowed capital--Proportionate interest paid by assessee worked out based on average cost of funds against interest income to be allowed-- Essar Power Ltd. v. Additional CIT (Mumbai) . . . 264

Business income or income from other sources --Infrastructure undertaking--Special deduction--Eligible profits--Interest on employees loan and advances, interest on margin money and interest income dues towards income-tax refund adjustment from purchaser of power--Not eligible for deduction--But to be assessed as business income for limited purpose of determining head of income--Income-tax Act, 1961, s. 80-IA. -- Essar Power Ltd. v. Additional CIT(Mumbai) . . . 264

Capital or revenue receipt --Supply of power by assessee to State Electricity Board--Under power purchase agreement Board to reimburse income-tax payable by assessee--Provision for tax recoverable--Income-tax calculated and paid by Board part of tariff charged by assessee on sale of electricity and not reimbursement of expenses--Amount is income in assessee’s hands--Income-tax Act, 1961, ss. 2(24), 40(a)(ii), 198-- Essar Power Ltd. v. Additional CIT(Mumbai) . . . 264

Company --Book profits--Computation--Amendment with retrospective effect--Exclusion of provision for income-tax recoverable--Matter remanded for reconsideration in light of amendment--Income-tax Act, 1961, s. 115JB, Expln. --Essar Power Ltd. v. Additional CIT (Mumbai) . . . 264

----Book profits--Computation--Change of law in 2009 with retrospective effect from April 1, 2001--Provision for unascertained liability--Matter remanded for reconsideration in light of amendment--Income-tax Act, 1961, s. 115JB,Expln. -- Essar Power Ltd. v. Additional CIT (Mumbai) . . . 264

PRINT EDITION

Volume 26 : Part 2 (Issue dated : 2-9-2013)

SUBJECT INDEX TO CASES REPORTED

Amalgamation of companies --Loss--Depreciation--Set off of brought forward loss and unabsorbed depreciation of amalgamating company--Certificate of chartered accountant--Not admitted by Dispute Resolution Panel observing that certificate appeared to be back dated--Assessee claiming to have evidence to rebut observation--Direction to Assessing Officer to readjudicate and decide under law--Matter remanded--Income-tax Act, 1961-- Alstom Projects India Ltd. v. Additional CIT (Mumbai) . . . 322

Bad debts --Assessee debiting accounts with aggregate of amounts irrecoverable--No infirmity--Income-tax Act, 1961, s. 36(1)(vii)-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

Business expenditure --Conversion of assessee, a co-operative bank to public limited company--Suits by erstwhile shareholders--Expenditure by way of legal and professional fees to protect title--Allowable-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

----Deduction only on actual payment--Provident fund contribution made before due date of filing return--Allowable--Matter remanded to verify that payments made before due date of filing return--Income-tax Act, 1961, s. 43B--Alstom Projects India Ltd. v. Additional CIT (Mumbai) . . . 322

----Disallowance--Payments in cash exceeding specified limit--Exception where payment made by agent of assessee--Payment of lorry hire charges to lorry drivers--Assessee neither owner of vehicle nor owner of goods carried--Lorry drivers cannot be considered as agents of assessee--Failure to show payments covered by any exception--Disallowance proper--Income-tax Act, 1961, s. 40A(3)--Income-tax Rules, 1962, r. 6DD(k)-- MRS Roadways v. Deputy CIT (Cochin) . . . 317

----Disallowance--Payments in cash exceeding specified limit--Payments made to agents--Never claimed as expenditure--Not liable to tax deduction at source--Payments of reimbursement--Are purely for business expenses--Income-tax Act, 1961, ss. 40A(3), 194C-- Deputy CIT v. Maruti Freight Movers Ltd. (Kolkata) . . . 305

----Stamp duty paid on lease agreement--Added back in computation--Not to be disallowed-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

Capital or revenue expenditure --Corporate membership of club--Meant for benefit of assessee and not for any particular employee--Expenditure wholly and exclusively for purposes of business--Allowable--Income-tax Act, 1961, s. 37-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

----Payment for re-acquiring premises given on rent--For betterment of title to capital asset--Expenses capital in nature-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

----Payments to banks association for participating in shared payment network system--Facility of connectivity of automated teller machine of one bank to another bank--Advantage of enduring nature--Expenditure capital--Assessee entitled to depreciation-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

Charitable purposes --Exemption--Income from property--Assessee paying advance for purchase of land from Government grant--To be treated as application of income--No violation of section 11(5)--Grant on capital account not income or corpus of trust--Interest on fixed deposits from unutilised funds on which Government had overriding title--At par with grant and not to be treated as income--Income-tax Act, 1961, ss. 11(5), 13(1)(d)-- Additional Director of Income-tax (Exemption) v. Natrip Implementation Society (Delhi) . . . 333

----Registration of trust--Factors to be considered--Commissioner and not any other authority to dispose of application for registration--Powers cannot be delegated unless permitted by statute--Communication or order signed by Income-tax Officer cannot be treated as disposal of application--Failure by Commissioner to pass such order within time limit specified in section 12A--Application deemed to be allowed--Income-tax Act, 1961, ss. 12A, 12AA-- Pravat v. CIT(Kolkata) . . . 294

----Registration of trusts--Director (Exemptions) entitled to enquire into activities of trust before granting registration--Disqualification even where small portion of income enures to benefit of person mentioned in section 13(3)--Assessee conducting eye operations with funds received under licence from Canadian organisation to whom it was bound to pay licence fee of $1.00 yearly--Assessee not independent entity--Not entitled to registration--Income-tax Act, 1961, ss. 11, 12AA, 13(3)-- Operation Eyesight Universal v. Director of Income-tax (Exemptions) (Hyderabad) . . . 268

Deduction of tax at source --Commission--Mobile telephone service--Discount given by assessee to distributors on sale of SIM cards and recharge coupons--Constitutes commission--Assessee liable to deduct tax at source on such commission--Income-tax Act, 1961, s. 194H-- Bharati Airtel Ltd. v. Deputy CIT (TDS) (Cochin) . . . 263

----Failure to deposit tax deducted at source with Central Government--Interim order of High Court in writ petition challenging validity of rule 3 directing assessee to place tax deducted at source in separate account till further orders--Assessee placing tax deducted at source amount in a separate account--Commissioner (Appeals) justified in directing Assessing Officer to wait till final order of High Court for recovery of tax deducted at source--Income-tax Rules, 1962, r. 3.--Income-tax Act, 1961, s. 201(1), (1A)-- Deputy CIT (TDS) v. Power Grid Corporation of India Ltd. (Nagpur) . . . 203

----Professional services--Third party administrator providing services to holders of health insurance policies--Payments to hospitals or nursing homes--Are payments for professional services--Tax deductible at source--Income-tax Act, 1961, s. 194J-- Health India TPA Services P. Ltd. v. ITO (OSD) (TDS) (Mumbai) . . . 298

Depreciation --Ownership of asset--Sale and lease back--Normal lease--Civil dispute between lessor and lessee--Transaction genuine--Assessee entitled to depreciation--Income-tax Act, 1961, s. 32-- Development Credit Bank Ltd.v. Deputy CIT (Mumbai) . . . 209

----Rate of depreciation--Goodwill and furniture and fittings--To be bifurcated--Depreciation allowable at 25 per cent. on goodwill and 10 per cent. on furniture and fittings--Income-tax Act, 1961, s. 32(1)(ii)-- Tirumala Music Centre P. Ltd. v. Assistant CIT (Hyderabad) . . . 309

----Rate of depreciation--Payment towards leasehold rights--Goodwill--Matter remanded to allow depreciation on intangible asset--Income-tax Act, 1961, s. 32(1)(ii)-- Tirumala Music Centre P. Ltd. v. Assistant CIT (Hyderabad) . . . 309

Export --Exemption--Export oriented unit--Telecommunication and internet charges--Incurred for export business--To be excluded from export turnover as well as total turnover--Belated payment of employees’ provident fund contributions--Payment made before date of filing of returns--Allowable--Income-tax Act, 1961, s. 10B-- Assistant CITv. SCM Microsystems (India) P. Ltd. (Chennai) . . . 178

Income --Expenditure relating to income not includible in total income--Disallowance--Commissioner (Appeals) can disallow in first instance--Disallowance at 10 per cent. of exempt income would suffice--Assessing Officer cannot simply brush aside disallowance calculated suo motu by assessee--Must give cogent reasons for not being satisfied with correctness of claim--No reasoned finding against disallowance computed and shown by assessee--Disallowance to be computed after affording reasonable opportunity to assessee--Income-tax Act, 1961, s. 14A--Income-tax Rules, 1962, r. 8D-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

Industrial undertaking --Special deduction--Unit manufacturing perfumery compound--Licence from Directorate of Industries, registration for value added tax purposes, order of Commercial Tax Department establishing that factory was in existence and assessee was engaged in manufacturing of perfumery oils--Certificate from chartered engineers in respect of production of finished goods in short period--Factory closed in 2010--Inspection in 2012 by Income-tax Inspector not sufficient to dislodge evidence--Assessee enjoying benefit of special deduction in immediate preceding year--Rule of consistency--Not to be denied benefit--Income-tax Act, 1961, s. 80-IC-- Shree Veer Aromatics Herbs Products v. ITO (Delhi) . . . 282

Interest-tax --Issue of interest itself deleted--No question of levy of interest-tax--Interest-tax not be leviable on interest collected by the assessee--Interest-tax Act, 1974-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

International transaction --Determination of arm’s length price--Agreement between parties not to exclude other approved method of determining arm’s length price--Assessee can adopt any method specified in section 92C if able to show it to be most appropriate method--Failure by Transfer Pricing Officer to conduct pricing study and independently determine arm’s length price by taking candid transactions of unrelated parties--Matter remanded--Income-tax Act, 1961, s. 92C-- Assistant CIT v. SCM Microsystems (India) P. Ltd. (Chennai) . . . 178

----Transfer pricing--Determination of arm’s length price--Transfer pricing adjustment can be made only on transactions with associated enterprises--Proportionate adjustment falling within plus or minus 5 per cent.--No transfer pricing adjustment required--Income-tax Act, 1961-- Alstom Projects India Ltd. v. Additional CIT (Mumbai) . . . 322

Loss --Revaluation of outstanding contracts on net basis--Allowable-- Development Credit Bank Ltd. v. Deputy CIT(Mumbai) . . . 209

----Revaluation of securities at market rate--Resulting loss allowable-- Development Credit Bank Ltd. v. Deputy CIT(Mumbai) . . . 209

Return of income --Delay in filing--Interest--Return filed in time but signed by general manager and chief manager and not by managing director--Merely defective not invalid--Interest not leviable--Income-tax Act, 1961, s. 234A--Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

Revision --Commissioner--Bad debts--Provision for--Working out of deduction--Change of opinion--Revision not permissible--Income-tax Act, 1961, ss. 36(1)(vii), 263-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

----Commissioner--Housing project--Special deduction--Return filed after expiry of time specified in section 139(4)--Deduction allowed in assessment made under section 143(3)--Not erroneous and prejudicial to interests of Revenue--Revision to withdraw deduction not permissible--Income-tax Act, 1961, ss. 80-IB(10), 139(4), 143(3), 147, 263--Vanshree Builders and Developers P. Ltd. v. CIT (Bangalore) . . . 188

Wealth-tax --Valuation of asset--Motor cars--80 per cent. of insurance value to be taken--Not written down value--Wealth-tax Act, 1957-- Zee Entertainment Enterprises Ltd. v. Assistant CWT (Mumbai) . . . 314

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 10B --Export--Exemption--Export oriented unit--Telecommunication and internet charges--Incurred for export business--To be excluded from export turnover as well as total turnover--Belated payment of employees’ provident fund contributions--Payment made before date of filing of returns--Allowable-- Assistant CIT v. SCM Microsystems (India) P. Ltd. (Chennai) . . . 178

S. 11 --Charitable purpose--Registration of trusts--Director (Exemptions) entitled to enquire into activities of trust before granting registration--Disqualification even where small portion of income enures to benefit of person mentioned in section 13(3)--Assessee conducting eye operations with funds received under licence from Canadian organisation to whom it was bound to pay licence fee of $1.00 yearly--Assessee not independent entity--Not entitled to registration-- Operation Eyesight Universal v. Director of Income-tax (Exemptions) (Hyderabad) . . . 268

S. 11(5) --Charitable purposes--Exemption--Income from property--Assessee paying advance for purchase of land from Government grant--To be treated as application of income--No violation of section 11(5)--Grant on capital account not income or corpus of trust--Interest on fixed deposits from unutilised funds on which Government had overriding title--At par with grant and not to be treated as income-- Additional Director of Income-tax (Exemption) v.Natrip Implementation Society (Delhi) . . . 333

S. 12A --Charitable purpose--Registration of trust--Factors to be considered--Commissioner and not any other authority to dispose of application for registration--Powers cannot be delegated unless permitted by statute--Communication or order signed by Income-tax Officer cannot be treated as disposal of application--Failure by Commissioner to pass such order within time limit specified in section 12A--Application deemed to be allowed-- Pravatv. CIT (Kolkata) . . . 294

S. 12AA --Charitable purpose--Registration of trusts--Director (Exemptions) entitled to enquire into activities of trust before granting registration--Disqualification even where small portion of income enures to benefit of person mentioned in section 13(3)--Assessee conducting eye operations with funds received under licence from Canadian organisation to whom it was bound to pay licence fee of $1.00 yearly--Assessee not independent entity--Not entitled to registration-- Operation Eyesight Universal v. Director of Income-tax (Exemptions) (Hyderabad) . . . 268

----Charitable purpose--Registration of trust--Factors to be considered--Commissioner and not any other authority to dispose of application for registration--Powers cannot be delegated unless permitted by statute--Communication or order signed by Income-tax Officer cannot be treated as disposal of application--Failure by Commissioner to pass such order within time limit specified in section 12A--Application deemed to be allowed-- Pravat v. CIT (Kolkata) . . . 294

S. 13(1)(d) --Charitable purposes--Exemption--Income from property--Assessee paying advance for purchase of land from Government grant--To be treated as application of income--No violation of section 11(5)--Grant on capital account not income or corpus of trust--Interest on fixed deposits from unutilised funds on which Government had overriding title--At par with grant and not to be treated as income-- Additional Director of Income-tax (Exemption) v.Natrip Implementation Society (Delhi) . . . 333

S. 13(3) --Charitable purpose--Registration of trusts--Director (Exemptions) entitled to enquire into activities of trust before granting registration--Disqualification even where small portion of income enures to benefit of person mentioned in section 13(3)--Assessee conducting eye operations with funds received under licence from Canadian organisation to whom it was bound to pay licence fee of $1.00 yearly--Assessee not independent entity--Not entitled to registration-- Operation Eyesight Universal v. Director of Income-tax (Exemptions) (Hyderabad) . . . 268

S. 14A --Income--Expenditure relating to income not includible in total income--Disallowance--Commissioner (Appeals) can disallow in first instance--Disallowance at 10 per cent. of exempt income would suffice--Assessing Officer cannot simply brush aside disallowance calculated suo motu by assessee--Must give cogent reasons for not being satisfied with correctness of claim--No reasoned finding against disallowance computed and shown by assessee--Disallowance to be computed after affording reasonable opportunity to assessee-- Development Credit Bank Ltd. v. Deputy CIT(Mumbai) . . . 209

S. 32 --Depreciation--Ownership of asset--Sale and lease back--Normal lease--Civil dispute between lessor and lessee--Transaction genuine--Assessee entitled to depreciation-- Development Credit Bank Ltd. v. Deputy CIT(Mumbai) . . . 209

S. 32(1)(ii) --Depreciation--Rate of depreciation--Goodwill and furniture and fittings--To be bifurcated--Depreciation allowable at 25 per cent. on goodwill and 10 per cent. on furniture and fittings-- Tirumala Music Centre P. Ltd. v.Assistant CIT (Hyderabad) . . . 309

----Depreciation--Rate of depreciation--Payment towards leasehold rights--Goodwill--Matter remanded to allow depreciation on intangible asset-- Tirumala Music Centre P. Ltd. v. Assistant CIT (Hyderabad) . . . 309

S. 36(1)(vii) --Bad debts--Assessee debiting accounts with aggregate of amounts irrecoverable--No infirmity--Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

----Revision--Commissioner--Bad debts--Provision for--Working out of deduction--Change of opinion--Revision not permissible-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

S. 37 --Capital or revenue expenditure--Corporate membership of club--Meant for benefit of assessee and not for any particular employee--Expenditure wholly and exclusively for purposes of business--Allowable-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

S. 40A(3) --Business expenditure--Disallowance--Payments in cash exceeding specified limit--Exception where payment made by agent of assessee--Payment of lorry hire charges to lorry drivers--Assessee neither owner of vehicle nor owner of goods carried--Lorry drivers cannot be considered as agents of assessee--Failure to show payments covered by any exception--Disallowance proper-- MRS Roadways v. Deputy CIT (Cochin) . . . 317

----Business expenditure--Disallowance--Payments in cash exceeding specified limit--Payments made to agents--Never claimed as expenditure--Not liable to tax deduction at source--Payments of reimbursement--Are purely for business expenses-- Deputy CIT v. Maruti Freight Movers Ltd. (Kolkata) . . . 305

S. 43B --Business expenditure--Deduction only on actual payment--Provident fund contribution made before due date of filing return--Allowable--Matter remanded to verify that payments made before due date of filing return-- Alstom Projects India Ltd. v. Additional CIT (Mumbai) . . . 322

S. 80-IB(10) --Revision--Commissioner--Housing project--Special deduction--Return filed after expiry of time specified in section 139(4)--Deduction allowed in assessment made under section 143(3)--Not erroneous and prejudicial to interests of Revenue--Revision to withdraw deduction not permissible-- Vanshree Builders and Developers P. Ltd. v.CIT (Bangalore) . . . 188

S. 80-IC --Industrial undertaking--Special deduction--Unit manufacturing perfumery compound--Licence from Directorate of Industries, registration for value added tax purposes, order of Commercial Tax Department establishing that factory was in existence and assessee was engaged in manufacturing of perfumery oils--Certificate from chartered engineers in respect of production of finished goods in short period--Factory closed in 2010--Inspection in 2012 by Income-tax Inspector not sufficient to dislodge evidence--Assessee enjoying benefit of special deduction in immediate preceding year--Rule of consistency--Not to be denied benefit-- Shree Veer Aromatics Herbs Products v.ITO (Delhi) . . . 282

S. 92C --International transaction--Determination of arm’s length price--Agreement between parties not to exclude other approved method of determining arm’s length price--Assessee can adopt any method specified in section 92C if able to show it to be most appropriate method--Failure by Transfer Pricing Officer to conduct pricing study and independently determine arm’s length price by taking candid transactions of unrelated parties--Matter remanded-- Assistant CIT v. SCM Microsystems (India) P. Ltd. (Chennai) . . . 178

S. 139(4) --Revision--Commissioner--Housing project--Special deduction--Return filed after expiry of time specified in section 139(4)--Deduction allowed in assessment made under section 143(3)--Not erroneous and prejudicial to interests of Revenue--Revision to withdraw deduction not permissible-- Vanshree Builders and Developers P. Ltd. v.CIT (Bangalore) . . . 188

S. 143(3) --Revision--Commissioner--Housing project--Special deduction--Return filed after expiry of time specified in section 139(4)--Deduction allowed in assessment made under section 143(3)--Not erroneous and prejudicial to interests of Revenue--Revision to withdraw deduction not permissible-- Vanshree Builders and Developers P. Ltd. v.CIT (Bangalore) . . . 188

S. 147 --Revision--Commissioner--Housing project--Special deduction--Return filed after expiry of time specified in section 139(4)--Deduction allowed in assessment made under section 143(3)--Not erroneous and prejudicial to interests of Revenue--Revision to withdraw deduction not permissible-- Vanshree Builders and Developers P. Ltd. v.CIT (Bangalore) . . . 188

S. 194C --Business expenditure--Disallowance--Payments in cash exceeding specified limit--Payments made to agents--Never claimed as expenditure--Not liable to tax deduction at source--Payments of reimbursement--Are purely for business expenses-- Deputy CIT v. Maruti Freight Movers Ltd. (Kolkata) . . . 305

S. 194H --Deduction of tax at source--Commission--Mobile telephone service--Discount given by assessee to distributors on sale of SIM cards and recharge coupons--Constitutes commission--Assessee liable to deduct tax at source on such commission-- Bharati Airtel Ltd. v. Deputy CIT (TDS) (Cochin) . . . 263

S. 194J --Deduction of tax at source--Professional services--Third party administrator providing services to holders of health insurance policies--Payments to hospitals or nursing homes--Are payments for professional services--Tax deductible at source-- Health India TPA Services P. Ltd. v. ITO (OSD) (TDS) (Mumbai) . . . 298

S. 201(1), (1A) --Deduction of tax at source--Failure to deposit tax deducted at source with Central Government--Interim order of High Court in writ petition challenging validity of rule 3 directing assessee to place tax deducted at source in separate account till further orders--Assessee placing tax deducted at source amount in a separate account--Commissioner (Appeals) justified in directing Assessing Officer to wait till final order of High Court for recovery of tax deducted at source-- Deputy CIT (TDS) v. Power Grid Corporation of India Ltd. (Nagpur) . . . 203

S. 234A --Return of income--Delay in filing--Interest--Return filed in time but signed by general manager and chief manager and not by managing director--Merely defective not invalid--Interest not leviable-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

S. 263 --Revision--Commissioner--Bad debts--Provision for--Working out of deduction--Change of opinion--Revision not permissible-- Development Credit Bank Ltd. v. Deputy CIT (Mumbai) . . . 209

----Revision--Commissioner--Housing project--Special deduction--Return filed after expiry of time specified in section 139(4)--Deduction allowed in assessment made under section 143(3)--Not erroneous and prejudicial to interests of Revenue--Revision to withdraw deduction not permissible-- Vanshree Builders and Developers P. Ltd. v. CIT(Bangalore) . . . 188

Income-tax Rules, 1962 :

R. 3 --Deduction of tax at source--Failure to deposit tax deducted at source with Central Government--Interim order of High Court in writ petition challenging validity of rule 3 directing assessee to place tax deducted at source in separate account till further orders--Assessee placing tax deducted at source amount in a separate account--Commissioner (Appeals) justified in directing Assessing Officer to wait till final order of High Court for recovery of tax deducted at source-- Deputy CIT (TDS) v. Power Grid Corporation of India Ltd. (Nagpur) . . . 203

R. 6DD(k) --Business expenditure--Disallowance--Payments in cash exceeding specified limit--Exception where payment made by agent of assessee--Payment of lorry hire charges to lorry drivers--Assessee neither owner of vehicle nor owner of goods carried--Lorry drivers cannot be considered as agents of assessee--Failure to show payments covered by any exception--Disallowance proper-- MRS Roadways v. Deputy CIT (Cochin) . . . 317

R. 8D --Income--Expenditure relating to income not includible in total income--Disallowance--Commissioner (Appeals) can disallow in first instance--Disallowance at 10 per cent. of exempt income would suffice--Assessing Officer cannot simply brush aside disallowance calculated suo motu by assessee--Must give cogent reasons for not being satisfied with correctness of claim--No reasoned finding against disallowance computed and shown by assessee--Disallowance to be computed after affording reasonable opportunity to assessee-- Development Credit Bank Ltd. v. Deputy CIT(Mumbai) . . . 209

ITR Digest

S.2(14): Capital asset–Agricultural land-Municipality–Local authority Hyderabad

Airport Development Authority- Sale of land beyond 8 Kms of Municipality limits is not liable to capital gain tax. [S.10 (20), Constitution of India –Art 243 P(e), 243R, General Clauses Act. S.3(21)g]
The assessee sold the agricultural land. The assessee claimed that the capital gain tax is not leviable. The Assessing Officer held that the land is within the limits of HADA which is Government notified local authority and was a municipality within the meaning of section 2(14)(iii)(a),therefore ,the land sold by the assessee was non-agricultural land. The Government of Andhra Pradesh issued a land acquisition notification dated 16-5-2007   for the acquisition of the above land of the assessee to develop in to an integrated township. On appeal the Tribunal held that the Hyderabad Airport Development Authority had been constituted under provisions of Andhra Pradesh Urban Areas (Development) Act, 1975 as a Special Area Development Authority by State Government, it cannot be treated as a municipality for purposes of provisions of  section 2(14) of the Act. In the revenue records the land is classified as agricultural land and has not been changed from agricultural land to non agricultural land at the time when the land was sold by the assessee. The land in question is brought in special Zone cannot be a determining factor by itself to say that the land was converted in to use for non-agricultural purposes.  As the agricultural land of assessee is outside the municipality and also 8 kms away from the outer limits of the Municipality,  assessee’s  land does not come within the purview of section 2 (14)(iii) either under clause (a) or (b) , hence cannot be considered as ‘capital asset’ within the meaning section , hence capital gain tax cannot be charged on sale of the said land. (A.Y. 2008-09)
 T. Urmila(Smt) v. ITO (2013) 57 SOT 90(URO) (Hyd.)(Trib.)

S.2(15): Charitable purpose–Object of general public utility–Control of game of cricket is business activities –Cancellation of registration was justified. [S. 12AA]
Since the assessee was carrying on revenue earning exercise by arranging international matches, IPL matches, etc. in such a way that maximum advertisement revenue was derived from any type of match, its activities did not come within conceptual framework of charity vis-à-vis activity of general public utility envisaged in s. 2(15).Cancellation of registration was justified. (A.Y.2009-10)
Tamil Nadu Cricket Association v. DIT (2013) 57 SOT 439 (Chennai)(Trib.)

S.2(22)(e): Dividend-Deemed dividend-Advance to Director for purchase of land on behalf of company-Provision does not attract.
Advance granted to the director to purchase land in the name of the director but in which the company would be having beneficial interest does not attract section 2(22)(e).(A.Y.2006-07) (ITA no 447 dt.26-12-2012)
ACIT v. C.V. Reddy (2013) –TIOL-168 (Bang.)(Trib.)

S.4: Charge of income-tax-Income-Subsidy-Deferred sales tax scheme-Capital receipt.[S.2(24)]
To determine the character of subsidy in hands of recipient, whether revenue or capital, the purpose of the subsidy is to be considered and the source of fund and mechanism of giving subsidy are immaterial. Incentive, in form of sales tax waiver/deferment was not meant to give any benefit on day-to-day functioning of business or to make it more profitable; but was principally aimed to cover capital outlay of assessee for undertaking modernization of existing industry, it was capital in nature, and thus, not taxable. (A.Y.1992-93)
CIT v. Birla VXL Ltd. (2013) 215 Taxman 117 (Guj.)(HC)

S.5: Scope of total income–Retention money–Accrual.
In view of decision of Gujarat High Court in case of Anup Engineering Ltd. v. CIT [2001] 247 ITR 457/114 Taxman 584 retention money could not be said to have accrued to assessee and therefore, this amount did not represent assessee’s accrued income. (A.Y. 2002-03)
DIT v. Ballast Nedam International (2013) 215 Taxman 254 (Guj) (HC)

S.9(1)(i): Income deemed to accrue or arise in India–Set off of branch losses – Taxability-DTAA-India-Sweden .[ Art.7]
The assessee set off its loss from Sweden branch against its other business income taxable in India. Revenue’s case was that as per Article 7, profits attributable to Sweden branch was taxable in Sweden and, therefore, losses incurred by Sweden branch could not be set off against other income. Following its decision rendered in earlier assessment years with respect to India-Japan DTAA, the Tribunal allowed the claim of the assessee. Since nothing had been brought on record to show that clauses of DTAA between India-Sweden were different from that in DTAA between India-Japan in respect of present issue, the Tribunal’s order was justified. (A.Y. 2002-03)
CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.) (HC)
Editorial: Arising out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD 398(Pune)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India-Short term capital gain-Forward exchange contract/hedging mechanism-DTAA- India-Spain-Additional evidence-Matter set aside. [Art. 14, 23]
The assessee-company was a resident of Spain and registered as FII with SEBI. It claimed the profit on foreign exchange transactions as short-term capital gain and hence exempt under India-Spain DTAA. Since the assessee filed additional evidence before the Tribunal, the matter was to be restored to the Assessing Officer for fresh decision. (A.Y. 2005-06)
Merrill Lynch Capital Markets Espana SA v. DCIT (2013) 57 SOT 435 (Mum.)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India–Capital gains–DTAA-India-UAE. [Art.4, 13]
The assessee is held to be not entitled to the benefit of India-UAE DTAA and income from capital gains was charged to tax, on the ground that individuals are not taxable in UAE. The Tribunal in assessee’s own case in immediately preceding year held that assessee was entitled to benefits of DTAA thereby granting exemption from capital gain. Since the facts of the instant appeal were similar to those of immediately preceding year, the benefit of the DTAA was to be granted.(A.Y. 2008-09)
ITO v. Chandersen Jatwani (2013) 57 SOT 437 (Mum.)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India–Interest– Income-tax refund-DTAA-India-Denmark [Art.9(4), 12(6)]
Interest on income-tax refund was taxable in India as per Article 12(6) of DTAA between India and Denmark. Interest cannot be considered as business income. (A.Y. 2005-06)
A.P. Moller Maersk v. DCIT (2013) 57 SOT 267 (Mum.)(Trib.)

S.9(1)(vi): Income deemed to accrue or arise in India–Royalty-Fees for technical services-Shipping business-DTAA-India-Denmark. [S.9(1)(vii), Art. 9, 13 ]
Amounts received by shipping company on account of shared cost of global tracking system was linked to shipping income as per Article 9(1) of DTAA between India and Denmark and was not taxable in India. (A.Y. 2005-06)
A.P. Moller Maersk v. DCIT (2013) 57 SOT 267 (Mum)( Trib.)

S.10(38): Exempt income – Long term capital gains from equities - Scheme of sale of land through sale of shares of shell company is valid.
The assessee held 98.73% shares in Bhoruka Financial Services Limited (BFSL). In AY 2005-06 BFSL purchased a plot of land from a group sick company called Bhoruka Steels Ltd for Rs.3.75 crores which was accepted to be the prevailing market price u/s 50C. BFSL was a shell company with no assets other than the said land. In AY 2006-07 the assessee sold its shareholding in BFSL to DLF Commercial Developers Ltd for a net consideration of Rs. 20 crore. As the sale of shares was executed through the Magadh Stock Exchange and STT was paid, the assessee claimed that the gain on sale of shares was exempt u/s 10 (38). The AO, CIT(A) and Tribunal rejected the assessee’s claim on the basis that the assessee, BFSL and Bhoruka Steels were all controlled by common shareholders and that the scheme to first sell the land to BFSL and then to sell the shares of BFSL was devised with the sole purpose of avoiding tax on the capital gains which would have arisen if the land had been sold directly. It was held that the formalities of the transaction and the legal nature of the corporate bodies had to be ignored by lifting the corporate veil and the transaction had to be taxed as a sale of the land. On appeal by the assessee to the High Court, HELD allowing the appeal:
Though BFSL was a shell company with no asset other than the land and by buying the shares of BFSL, DLF in effect purchased the land, the transaction cannot be said to a sham or an unreal one. In coming to the conclusion that the transaction is a colourable device, the authorities have been carried away by the fact that the assessee was able to avoid payment of income tax. The assessee did resort to tax planning and took advantage of the law/ loopholes in the law. After seeing how the loophole was exploited within the four corners of the law, it is open to Parliament to amend the law plugging the loophole. However it cannot be done by judicial interpretation. S.10(38) of the Act is unambiguous. If the share holder chooses to transfer the lands through a transfer of the shares of the company owning the land, it would be a valid legal transaction in law and cannot be said to be a colourable devise or a sham merely because tax is avoided thereby (McDowell & Co. v. CIT (1985) 154 ITR 148 (SC), UOI & Anr. v Azadi Bachao Andolan & Anr. (2003) 263 ITR 706 (SC) & Vodafone International Holding B.V. v. UOI& Anr. (2012) 341 ITR 1 (SC) referred)( ITA No. 120 of 2011, dt. 09/04/2013)
Bhoruka Engineering Inds. Ltd. v. Dy. CIT (Karn.)(HC) www.itatonline.org

S.10A: Free trade zone–Software developed transmitted to foreign countries through internet cannot treated as bogus transaction.
The assessee started new venture of software development and claimed profit of software division under section 10A. The Assessing Officer was not convinced from contemporaneous record that software was developed by assessee or that same was transmitted to foreign countries through internet and rejected the claim of the assessee treating the said transaction as bogus and sham. The Commissioner (Appeals) and the Tribunal, taking into consideration report of audit, agreement with STPI, certificate in respect of custom, boarding arrangement of assessee and payment received from various parties through channel of banks, concluded that transaction was genuine, allowed the assessee’s claim. Held, since the order passed by the appellate authorities was based on appreciation of material on record, no substantial question of law arose there from.(A.Y. 2003-04)
CIT v. Nova Petrochemicals Ltd. (2013) 215 Taxman 82(Mag.)  (Guj.)(HC)

S.10A: Free trade zone-New unit- Approval letter issued by authority of Software Technology Park.
The assessee established three units and claimed deduction u/s 10A. The Revenue denied the deduction on basis of approval letter issued by authority of Software Technology Park stating that, these units were to be considered as part of existing units. On other hand, Tribunal found that all three units had fulfilled conditions u/s.10A, and therefore, allowed deduction holding those units as separate and independent production units, and not as mere expansion of existing unit. Since the decision of the Tribunal was based on finding of fact, no interference was required. (A.Y. 2002-03)
CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.)(HC)
Editorial: Arising out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD 398(Pune)(Trib.)

S.10A: Free trade zone-Consistency-Computation-Export turnover-Expenditure do not pertain to delivery of goods out of India are not deductible from export turnover.
Where the assessee followed head count method of accounting for computing deduction u/s 10A, which had been accepted by revenue in earlier years, it could not be disallowed in relevant assessment year. The expenditure towards insurance, freight and communication incurred in foreign exchange, which do not pertain to delivery of goods out of India and satellite link charges and technical service fee are not deductible from export turnover. (A.Y. 2007-08)
Willis Processing Services (I) (P) Ltd. DY. CIT (2013) 57 SOT 339 (Mum.)(Trib.)

S.10A: Free trade zone-Newly established undertakings-Deemed export is not eligible for exemption. 
The assessee software company carried out deemed exports by raising bills on local parties and received sale proceeds in convertible foreign exchange thereby claimed deduction on same under section 10A. On ground that deemed exports are exports as per EXIM policy. On appeal Tribunal held that that deduction under section 10A is to be allowed only when foreign exchange is received on export of software and EXIM policy cannot overrule Income-tax Act which is a separate code in itself. In view of same claim of assessee could not be allowed. (A.Y. 2005-06)
Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.)

S.10A: Free Trade Zone-Newly established undertakings-Export turnover-Total turnover-Foreign tax (VAT/GST) collected from customers is to be excluded.
Assessing Officer excluded foreign tax (VAT/GST) collected from customers from export turnover as well as from total turnover, thereby, granting lower deduction under section 10A to assessee a STP unit, on ground that tax collected was subsequently remitted to government. the Tribunal held that once this sum is not included in export turnover then the same cannot be included in the total turnover. (A.Y.2005 -06)
Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.)

S.10A: Free trade zone-Computation-Export turnover-Total turnover- Parity between numerator and denominator.
Expenses reduced from export turnover were also to be reduced from total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A. (A.Y. 2007-08)
Bearing Point Business Consulting (P.) Ltd. v. DCIT (2013) 57 SOT 244 (Bang.)(Trib.)

S.10B: Exempt income-Export oriented undertaking-Initial year- Assessee has to prove its eligibility in initial year of production only and not in every year of claim.
The Assessing Officer rejected the assessee’s claim holding that the assessee had employed used machinery value of which exceeded 20% of total value of machinery employed by assessee. It was noted from records that the claim u/s 10B was allowed in the past and the year under consideration was found to be 5th year of claim. There was no evidence on record establishing that assessee had purchased used machinery during relevant assessment year. Held in order to claim exemption u/s 10B, assessee has to prove its eligibility in initial year of production only and not in every year of claim. (A.Y. 2003-04 to 2004-05)
DCIT v. Tyco Valves & Control India (P.) Ltd. (2013) 57 SOT 138(URO)(Ahd.)(Trib.)

S.12AA: Procedure for registration–Period of six months–Directory.
There is no automatic or deemed registration if the application filed under section 12AA is not disposed of within the stipulated period of six months as the time frame fixed under the provision is only directory. Matter remitted to the Commissioner for consideration of the matter a fresh.
CIT v. Sheela Christian Charitable Trust (2013) 354 ITR 478 (Mad.)(HC)

S.12AA: Procedure for registration–Order lodging the application–Not sustainable-Deemed registration-Time to be reckoned from the end of month in which the application was filed-Matter remanded to Commissioner.
The assessee filed an application before the Commissioner on 28th January, 2009 for seeking registration under section 12AA and for grant of approval under section 80G. The Commissioner held that the activities of the assessee could not be called charitable. Accordingly he lodged the application of assessee. On appeal Tribunal held that since the application was filed by the assessee on 28th January, 2009 and the Commissioner passed the order on July 31, 2009, by virtue of section 12AA, the six month period has expired and therefore application should be deemed to have been granted recognizing the  status of assessee as ‘Charitable Trust’. Tribunal also held that sale of books, hiring of utensils and rental income would not make the activities of the assessee a commercial venture. On appeal the court held that the application was dated January 28, 2009 and calculating the six months’ period from the end of the said month, it could not be said that the six months’ period would expire by July 31, 2009. Therefore, the order passed by the Commissioner   on July 31, 2009, could not be held to have been passed in violation of section 12AA. The conclusion of the Tribunal that the registration was deemed to have been granted, could not be sustained, inasmuch it was found that the order of the Director of Income-tax was passed within a period of six months stipulated in section 12AA(2). However, it was held that the Commissioner   should have either granted or rejected the application and was not expected to merely lodge the application, which would only leave the assessee in a suspended animation. There could not be any order in between like lodging the application. Thus, the matter was remitted to the Commissioner for fresh disposal on the merits.
DIT (Exemption) v. Anjuman-e-Khyrkhah-e-Aam (2013) 354 ITR 474 (Mad.)(HC)

S.12AA: Procedure for registration-Religious purpose-Denial of exemption was held to be not justified. [S.13(1)(b)]
The Commissioner rejected assessee’s application on the ground that the object clause of trust deed included an object of religious nature. The only prohibition in this regard was contained in S.13(1)(b), which excludes a trust or institution created or established for benefit of any particular religious community or caste. Since the aforesaid prohibition did not apply to assessee’s case, impugned order denying registration to assessee-trust was to be set aside.
Radhika Seva Sansthan v. CIT (2013) 57 SOT 121(URO) (Jaipur) (Trib.)

S.12AA: Procedure for registration-Trust or institution-Promotion of sports- Charitable purpose-Registration is entitled. [S.2(15)]
The Assessee-society is registered under the Society Registration Act, 1860. The founder-members of the society were professional golfers. The assessee filed an application seeking registration under section 12AA. The Commissioner   rejected  the application of registration. The Tribunal held that Society’s Object are charitable in nature, all the object and aims of the assessee are contained in clause (3) of its Memorandum of Association, Promotion of sports and games has to be considered as ‘charitable purpose’ within meaning of section 2(15). Assessee society formed to promote interest in game of   golf in general and  professional  golfers in particular was entitled to registration under section 12AA of the Act. 
Professional Golf Tour of India v. CIT (2013) 143 ITD 165/155 TTJ 17(UO)(Chandigarh)(Trib.)

S.14A: Disallowance of expenditure–Exempt income-Sufficient interest free funds–Presumption.
Where the assessee had sufficient interest free funds to meet its tax free investments yielding exempt income, it could be presumed that such investments were made from interest free funds and not loaned funds and, thus no disallowance u/s.14A being warranted. Ratio in case of CIT v. Reliance Utilities & Power Ltd (2009) 313 ITR 340 (Bom.)(HC) is followed. (A.Y. 2003-04)
CIT v. UTI Bank Ltd. (2013) 215 Taxman 8(Mag.) (Guj.)(HC)

S.14A: Disallowance of expenditure–Exempt income- Dividend from foreign subsidiaries–Interest free funds.
Where investment was made by the assessee in foreign subsidiaries, disallowance of interest expenditure under section 14A was not justified since dividend income from foreign subsidiaries, is taxable in India. Also, where the assessee had own interest free funds many times over the investment made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made under section 14A.
CIT v. Suzlon Energy Ltd. (2013) 215 Taxman 272 (Guj.) (HC)

S.14A: Disallowance of expenditure-Exempt income-Disallowance under section 14A cannot be made if satisfaction not recorded with reference to A/cs. Under Rule 8D(2)(ii) loans for specific business purposes cannot be included. Under Rule 8D(2)(ii) & (iii) investments which have not yielded income cannot be included. [Income–tax Rules, 1962, Rule 8D]
In AY 2008-09, the assessee invested Rs.103 crores in shares on which it earned tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds like capital and profits. It claimed that no expenditure had been incurred to earn the dividends and no disallowance u/s 14A could be made. The Assessing Officer  applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the Commissioner (Appeals) reduced the disallowance to Rs. 26 lakh. On cross appeals, HELD by the Tribunal:

(i) When the Assessing Officer does not accept the assessee’s claim regarding the non-applicability/ quantum of disallowance u/s 14A, he has to record satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It has is to be done with regard to the accounts of the assessee. On facts, as there is no satisfaction by the Assessing Officer, no disallowance u/s 14A can be made [Balarampur Chini Mills Ltd. v. Dy. CIT (2011)  140 TTJ 73(Kol.)(Trib.)] followed;

(ii) Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by way of interest which is not directly attributable to any particular income or receipt. This clearly means that interest expenditure which is directly relatable to any particular income or receipt is not to be considered under rule 8D(2)(ii). The AO has to show that the interest is not directly attributable to any particular income or receipt. In the assessee’s case, the interest has been paid on loans taken from banks for business purpose. There is no allegation that the loan funds have been diverted for making investment in shares or for non-business purposes. The loans are for specific business purposes and no bank would permit the loan given for one purpose to be used for making any investment in shares. Also, the assessee has substantial capital & reserves. Accordingly, the interest on the loans cannot be included in Rule 8D(2)(ii);

(iii) Further, in Rule 8D(2)(ii), the words used in numerator B are “the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year“. The Assessing Officer was wrong in taking taken into consideration the investment of Rs.103 crores made during the year which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term “average of the value of investment” is used to take care of cases where there is the issue of dividend striping;

(iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in rule 8D(2)(ii). Thus, not all investments become the subject-matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. (A. Y. 2008-09) ( ITA No. 1331/Kol/2011, dt. 29/07/2011)
REI Agro Ltd v. DCIT (Kol.)(Trib.).www.itatonline.org

S.14A: Disallowance of expenditure–Exempt income-Reasonable basis.
For periods prior to AY 2008-09, disallowance of expenses relating to exempt income, u/s 14A, is to be computed on a reasonable basis and not as per rule 8D.(A.Y. 2004-05)
Forever Diamonds (P.) Ltd. v. DCIT (2013) 57 SOT 113 (URO)(Mum.)(Trib.)

S.14A: Disallowance of expenditure-Exempt income-Rule 8D does not apply to short-term investments, gains from which is taxable. [Income-tax Rules,1962-Rule 8D]
Some of the investments made by the assessee are short term. Since assessee is paying capital gains tax on short term investments, Rule 8D will not apply on them and the Assessing Officer  is directed to re compute disallowance u/s 14A read with Rule 8D after excluding short term investments ( A. Y. 2008-09, ITA No. 1774/Mds/2012, dt.19 July,2013)
Sundaram Asset Management Co. Ltd v. DCIT (Chennai)(Trib.) www.itatonline.org

S.14A: Disallowance of expenditure – Exempt income-Interest on loans for specified purposes to be excluded [Income-tax Rules, 1962-Rule 8D]
The assessee contended that in computing the disallowance to be made under section 14A and rule 8D(2)(ii) ,the interest on bank loans taken for specific taxable purposes had to be excluded .The Assessing Officer rejected the claim. On appeal Commissioner (Appeals) accepted the claim of assessee. On appeal by revenue the Tribunal held that rule 8D(2)(ii) refers to expenditure by way of interest which is not attributable to any particular income or receipt. If loans have been sanctioned for specified projects /expansion and have been utilized towards the same ,then obvious they could not have been utilized for making any investments having tax-free incomes and have to excluded from the calculation to determine the disallowance under Rule 8D(2)(ii).(Champion Commercial Co. Ltd.) (Kol)(Trib.)(ITA no 644 /Kol/2012 dt 21-09-2012) is followed.(A.Y.2009-10)(ITA No.1603/Mds/2012 dt.16-07-2012)
ACIT v. Best & Cromton Engineering Ltd. (Chennai)(Trib.) www.itatonline.org. 

S.14A: Disallowance of expenditure-Exempt income-Onus on assessee to prove that he had not incurred any expenses relating to income not forming part of total income.  [Income-tax Rules, 1962, Rule 8D]
Assessing Officer had disallowed a sum of Rs.3,05,423/- by applying provisions of section 14A read with rule 8D. On Appeal the Commissioner (Appeals) reduced the disallowance to Rs 1 lakh  on the ground that there is no precise finding given by the Assessing Officer .On appeal Tribunal held that onus lay on assessee to prove that he had not incurred any expenses relating to income not forming part of total income. Since assessee did not file any details of expenditure incurred by him, the order of Commissioner (Appeals) was set aside and that of Assessing Officer restored. (A.Y.2009-10)
ACIT v. Joe Marcelinho Mathias(2013) 143 ITD 132 (Panji)(Trib.)

S.22: Income from house property-Business income-Un sold flat-Rental income from unsold flat is assessable as income from house property. [S.28(i)]
The Court held that rental income from unsold flats in the hands of builder/developer, which are shown as ‘business assets’ should be assessed under the head Income from house property and not as business income. (ITA Nos. 238, 238 & 240 of 2013 dt.17-05-2013)
New Delhi Hotels Ltd. v. ACIT (2013) The Chamber’s Journal –July-P.114 (Delhi)(HC)

S.28(i): Business income–Grant in aid for research activities is capital receipt. [S.41, 263]
The grant in aid for a specific purpose of conducting research in the field of telecommunications, so that the benefit thereof would benefit the Nation and for carrying on day to day business of the assessee was a capital receipt. Order under section 263 was held to be bad in law. The question referred to High Court was on merit. High Court confirmed the order of Tribunal. (A.Y. 1989-90)
CIT v. India Telephone Industries Ltd. (2013) 215 Taxman 82 (Karn.)(HC)

S.28(i): Business loss–In the name of firm-Foreign currency transactions-Not allowable in the assessment of partner. [Partnership Act, 1932 S.13]
The Appellant entered into foreign currency transactions on behalf of firm from its account. Both the assessee–partner and firm claimed such loss as deduction in their respective income. The Tribunal disallowed the claim on the both. On separate order High Court admitted appeal of the partnership firm. In appeal it was contended that the transactions were entered in to without the knowledge of other partners and therefore should be treated as his personal loss. The Court held that section 13 of the Partnership Act provides, inter alia, that subject to the contract between, partnership firm shall indemnify the partner in respect of the payment made and liabilities incurred by firm in the ordinary and proper conduct of business and in doing such act, in an emergency for the purpose of protecting the firm from loss  as, would be done by a person of ordinary prudence,  in his own case ,under similar circumstances .In the result these transactions resulted in loss and could not be allowed as deduction in individual capacity of assessee-partner, when the same claim is made by firm under examination.(A.Y. 2007-08)
Pravinbhai Mohanbhai Kheni v. ACIT (2013) 215 Taxman 83(Mag.) (Guj.)(HC)

S.28(i): Business income–Share dealings–Capital gains-Purchase and sale on regular basis assessable as business income. [S.45 ]
Board’s resolution authorized the assessee-company to set apart a corpus of Rs.100 crores for trading in shares which represented intention to carry out activities of purchase and sale of shares on business lines. Further, the purchase and sale transactions in shares were entered into on regular and systematic basis with profit motive which only constituted business. The long-term capital gain was a small amount as against short-term capital gain which was a strong indicator as to shares being not intended to be held by way of investments. Held, the income had to be taxed as business income. (A.Y. 2007-08)
Mafatlal Fabrics (P.) Ltd. v. Add.CIT (2013) 57 SOT 425 (Mum.)(Trib.)

S.28(va): Business income–Non-compete fees–Taxability-DTAA- India-France [Art.7]
Compensation received from foreign company in lieu of an undertaking by the assessee for not competing with Foreign company in India and for not using trade mark, designs, logo of said foreign collaborator, post settlement would be taxable in India. (A.Y. 2004-05)
Control & Switchgear Contractors Ltd. v. DCIT (2013) 57 SOT 127(URO) (Delhi)(Trib.)

S.31: Repairs and insurance of machinery, plant and furniture–Replacement of crucial components of a machine  could not be considered as current repairs. [S. 37(1)]
Replacement of crucial components of a machine which resulted in a new or fresh advantage or obtaining of enduring benefit could not be considered as current repairs expenditure and would not be allowable as deduction u/s 31(1) or u/s 37(1). (A.Y.1999-2000)
DCIT v. Printers (Mysore) (P.) Ltd. (2013) 57 SOT 117(URO) (Bang.)(Trib.)

S.32: Depreciation–Set off –Unabsorbed depreciation-Carry forward and set off permitted till final set off- Reassessment was held to be not valid. [S.147, 148]

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

Karnataka High Court has laid down the following Principles for levy of penalty Under section 271(1)(c) of the Income Tax Act, 1961 :-

In the case of  CIT Vs. Manjunatha Cotton and Ginning Factory, Karnataka High Court has laid down the following Principles for levy of penalty Under section 271(1)(c) of the Income Tax Act, 1961 :-

(a) Penalty under Section 271(l)(c) is a civil liability.

(b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.

(c) Wilful concealment is not an essential ingredient for attracting civil liability.

(d) Existence of conditions stipulated in Section 271(l)(c) is a sine qua non for initiation of penalty proceedings under Section 271.

(e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.

(f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.

(g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).

(h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.

(i) The imposition of penalty is not automatic.

(j) Imposition of penalty even if the tax liability is admitted is not automatic.

(k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order.

(l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed.

(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.

(n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.

(o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.

(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income

(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

(r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.

(s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.

(t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.

(u) The findings recorded in the assessment proceedings insofar as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.

Source- Download  – CIT Vs. Manjunatha Cotton and Ginning Factory, ITA No. 2564 of 2005, Date: 13.12.2012, Karnataka High Court