Tuesday, July 13, 2010

Supreme Court again reiterates that income- tax assessments cannot be reopened on mere change of opinion!

[Note , this mailer's comment: The latest amendment, seems not discussed in the folowing article, though the article is useful in many sence to understand the re-opening in its own. So, emailed to you. ]


By T.N. Pandey  Ex-chairman, CBDT 

The author, in this article, has examined the latest deci-sion of the Supreme Court concerning `reopening' of com-pleted assessment. According to the Apex Court, the assess-ments cannot be reopened merely because by re-evalua-tion of the situation existing at the time of making the original assessment, the Assessing Officer feels that, for example, what he did not tax earlier can be taxed because of another view which should have been followed. Doing so would tantamount to `reviewing' the earlier decision which is not permitted. According to the Apex Court, re-opening cannot be done unless there is `tangible material' justifying such action. 

 

 

1.       Introduction Every tax legislation has to have provisions to bring to tax incomes that have escaped assessments. Section 147 and other regulatory sections following the main provision in the Income-tax Act, 1961 (Act) have been enacted to rope in incomes that have escaped assessment. The provisions in the Act in this regard can be examined under two heads, namely:—  (i) Law as was before the amendments made by the Direct Tax Laws (Amendment) Act, 1987 (1987 Act) as subsequently amended by the Direct Tax Law (Amendment) Act, 1989 (1989 Act).  (ii) The law as it exists presently after the amendments by the two Acts (supra). 

2.       Law before April 1, 1989   Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. These are as follows :  (i) Clause (a) empowered the Income-tax Officer to assess or re-assess the income escaping assessment, if he had reason to believe that income had escaped assessment on account of omission or failure on the part of the assessee to file a return of income for an assessment year or to disclose fully and truly all material facts necessary for assessment for that year.  (ii) Clause (b) empowered the Income-tax Officer to reopen an assessment, notwithstanding the fact that there had been no omission or failure, as mentioned in clause (a), on the part of the assessee if the Income-tax Officer, on the basis of information in his possession, had reason to believe that income had escaped assessment for the relevant assessment year. 

3.       Need for change  A new scheme for income-tax assessment was introduced by the 1987 Act because of urgent need to reduce the Income-tax Department's workload by greater reliance on voluntary compliance. The 1981 Act, therefore, substituted a new section 143 in the Act to introduce the new scheme of assessment after the filing of the return. The new scheme envisaged that passing of assessment orders will not be necessary in each and every case meaning thereby that application of mind by the Assessing Officers in all cases will not be necessary except in the cases which are picked up for scrutiny and where regular order of assessment is passed under section 143(3). This scheme required rationalization of law and procedure in regard to provisions for reopening of assessments to tax escaped incomes especially in non-scrutiny cases in sections 147, 148 and other connected sections. 

4.       Changes made by the two amendments Acts  (a) Separate provisions contained in clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so.  (b) The requirement in the old provisions that the Income-tax Officer should have `reason to believe' or `information' in possession before taking action to assess or reassess the income escaping assessment, was dispensed with. Thus, virtually completed assessments could be reopened if in the opinion of the Assessing Officer income has escaped assessment. A number of representations were received against the omission of the words `reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well-settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989 again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'.  Other aspects of changes, namely, time - limitations, etc., for reopening the cases made by the 1987 and 1989 Acts not being relevant in the present context are not being discussed.  Controversies concerning re-opening of cases as per the changed law 

5.       Considerable controversies arose in regard to the interpretation of new law concerning re-opening of completed assessments. One objection which led to considerable litigation related to the issue as to whether a completed assessment can be reopened merely on the ground of change of opinion by the Assessing Officer. The views expressed by the Courts pre and post April 1, 1989 have been that the assessments cannot be reopened merely on the changed views of the Assessing Officers `without anything more'. In CIT v. Bhanji Lavji [1971] 79 ITR 582, the Apex Court decided that an assessment cannot be reopened only because of change of opinion on the part of the Assessing Officer. Similar views have been expressed by various High Courts also. In Sirpur Paper Mills Ltd. v. ITO [1978] 114 ITR 404 (AP), the High Court has held that re-assessment cannot be made on fresh opinion on the same facts. In Kamalchand v. ITO [1981] 128 ITR 290/[1980] 4 Taxman 216 (MP), an assessment was sought to be reopened by the Assessing Officer on the ground that his predecessor-in-office had committed an error in allowing certain deductions. The Madhya Pradesh High Court held that since no fresh information had come into possession of the Assessing Officer, the assessment could not be reopened. The Court held that it amounts only to change of opinion without anything else.  The Allahabad High Court in J.P. Bajpai (HUF) v. CIT [2004] 140 Taxman 34 held that the responsibility of the assessee is limited to the disclosure of all primary facts and nothing beyond. Once the assessee has disclosed all the primary facts that is the end of his duty. It is then for the assessing authority to draw the proper conclusions from those facts. If the conclusions drawn by the Assessing Officer from the primary facts disclosed by the assessee are erroneous, the assessing authority cannot reopen the assessment merely on the basis of a change in opinion. A mere change in opinion would not confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147.  Latest decision of the Supreme Court in the case of CIT v. Kelvinator (India) Ltd. 

6.       The latest decision on the issue being discussed is from the Supreme Court in the above mentioned case dated January 18, 2010 reported in [2010] 1 taxmann.com 27 where the Court has affirmed the two decisions of the Delhi High Court - CIT v. Kelvinator of India Ltd. [2002] 123 Taxman 433 (FB) and CIT v. Eicher Ltd. [2007] 163 Taxman 259 saying that assessment cannot be reopened merely on change of opinion. The important observations of the Apex Court in its decision are mentioned in later discussion. 

 

(a) "...post April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words `reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of `mere change of opinion' which cannot be per se reason to reopen." 

 

(b) There is conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of `change of opinion' is removed, then in the garb of reopening the assessment, review would take place. 

 

(c) On and after April 1, 1989, the concept of `change of opinion' has as an inbuilt test to check abuse of power by the Assessing Officer. Hence, from April 1, 1989, the Assessing Officer has power to reopen, provided there is `tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This view gets support from the changes made to section 147. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words `reason to believe' but also inserted the word `opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words `reason to believe', the Parliament re-introduced the said expression and deleted the word `opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. 

 

(d) The Court has said that its view also get supports from the CBDT's Circular No. 549, dated October 31, 1989 wherein the position in this regard has been explained thus :  "7.2 Amendment made by the Amending Act, 1989, to re-introduce the expression `reason to believe' in section 147. A number of representations were received against the omission of the words `reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well-settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is, of the opinion.' Other provisions of the new section 147, however, remain the same." 

7.       Summing up  The legal position now is that a completed assessment cannot be reopened merely on the basis of change of opinion unless there is `tangible material' to justify re-opening.



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Monday, July 12, 2010

HC(GUJ):- Sec 68 stand on different footing in case of share application money

SHARE application money is generally taken with a pinch of salt by our texmen. The Revenue often tends to believe that this is one of the sure shot routes to channelise own fund into the company or to convert black into white money. Anyway, the issue in the instant case is - Whether provision of section 68 stands on different footing in the case of share application money, and the burden of the assessee stood discharged on the submission of names and addresses of the share applicants, without proving their creditworthiness. And the High Court decision is YES.

Facts of the case       


Assessee received share application money from share applicants via banking channel. Before the AO assessee filed confirmation of all the share holders along with their full address details, PAN numbers etc. Summons issued by the AO returned unserved. Accordingly the AO treated the share application money as bogus and added the same to the income of assessee as un-explained cash credit. CIT (A) affirmed the order of the AO. ITAT allowed the appeal of the assessee.

On appeal, and after hearing the parties the High Court held that,

++ the Tribunal has recorded that the respondent-assessee had filed confirmations from all share applicants with details of share capital paid which contained details such as full addresses, permanent account numbers and tax jurisdiction of the depositors. The Tribunal further recorded that all payments were received by cheques and were credited in the bank account of the respondent; the share application forms contained all details of the depositors; their confirmations were clear with all addresses; and that they were on the departmental records as tax-payers. In the aforesaid factual background, the Tribunal was of the view that the respondent had sufficiently discharged its burden of explaining the same.

++ The Tribunal further observed that the department has not brought any material on record to show that the depositors were bogus. According to the Tribunal none of the decisions relied upon by the revenue had held that the assessee was required to establish the credit worthiness of the share applicants strictly in the manner understood in the context of cash credits under section 68 of the Act. The Tribunal was of the view that the assessee had given the names and addresses of the share applicants, it was within the knowledge of the revenue that the said share applicants were assessed to income tax, hence the burden was on the revenue to make further inquiry. The Tribunal placed reliance upon the decision of the Apex Court in the case of C.I.T. Vs. Divine Leasing Finance Co. wherein it has been held that when the assessee company had given the name of the share holders, the department was free to reopen their individual assessment in accordance with law.

Appeal of the revenue is dismissed

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Friday, July 9, 2010

Even exempt income is taxable under MAT / s.115JB

Even exempt income is taxable under MAT / s.115JB

Rain Commodities vs. DCIT (ITAT Hyderabad Special Bench)

 

The assessee credited its P&L A/c with an amount of Rs. 149.77 crores being the profit on sale of assets to its wholly owned subsidiary. As the said profits were not chargeable to tax u/s 47(iv), the assessee took the view that the same had also to be reduced from the "book profits" u/s 115JB. The Special Bench had to consider whether exempt income could be excluded from the computation of "book profits" u/s 115JB. HELD deciding against the assessee:

 

(i) The AO can alter the "book profit" only in two circumstances (a) if the P&L A/c is not drawn up in accordance with Parts II & III of Schedule VI to the Companies Act or (b) If accounting policies & standards, method & rate of depreciation have been incorrectly adopted for preparation of the P & L A/c. Except for the said two cases, the AO has no power to alter the net profit shown in the P&L A/c. Under (a), the AO cannot disturb the Net Profit shown by the assessee where there are no allegations of fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the P&L A/c or Balance sheet;

 

(ii) Parts II & III of Schedule VI to the Companies Act do not permit the exclusion of capital gain from the P & L A/c. The P & L A/c is required to disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature including capital profits (Veekaylal Investments 249 ITR 597 (Bom) followed). Items referred to in the Notes are a part of the P&L A/c (Sain Processing221 CTR 493 (Del) followed;

 

(iii) The assessee had included the said capital gains in the P & L A/c and it was not its' case that same was not includible. The fact that the capital gains was exempt u/s 47(iv) does not mean it can be excluded from the "book profit" because no such exclusion was permitted under the Explanation to s. 115JB. The taxability of capital gain is relevant only for the purpose of computation of income under the normal provisions and has nothing to do with the computation of "book profits". {N.J. Jose & Co 217 CTR 479 (Ker) (capital gains exempt u/s 54E) followed};

 

(iv) The argument that as s. 115JB (4) provides that "save as otherwise provided in this section all other provisions of the Act shall apply" does not mean that the exemption provisions of s. 47(iv) can be read into s. 115JB. This only means that while the computation has to be as per s. 115JB, anything over and above that will be subject to other provisions of the Act. Frig Sales4 SOT 376 (Mum) overruled);

 

(v) Accordingly, in the absence of any provision for exclusion of exempted capital gain in the computation of book profit u/s 115JB, the assessee is not entitled to the exclusion claimed.

 

Note: Though the SB observed that it was not necessary for it to dwell upon a situation where the assessee has directly credited the profit on sale of asset to a reserve Account, it referred with approval to Bombay Diamond Co 33 DTR 59 where even profits not credited to the P&L A/c were held includible in Book Profits. Growth Avenue approved. Sutlej Cotton Mills 45 ITD 22 (Cal) (SB) which held that exempt capital gains had to be reduced from book profits was held not to be good law.

 


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Wednesday, July 7, 2010

INCOME TAX REPORTS (ITR) Volume 325 : Part 1 (Issue dated 12-7-2010)

INCOME TAX REPORTS (ITR)

Volume 325 : Part 1 (Issue dated 12-7-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Accounting --Rejection of accounts--Onus on Revenue to show accounts incorrect or incomplete--Assessing Officer rejecting book results on low net profit--Finding that accounts maintained by assessee neither defective nor incomplete--Findings of fact--Income-tax Act, 1961, s. 145(3)-- CIT v. Paradise Holidays (Delhi) . . . 13

Appeal to High Court --Amount received on dissolution of partnership--Question regarding assessability considered by High Court--Question regarding quantum not raised before Tribunal--High Court could not consider question--Income-tax Act, 1961, s. 260A-- Davangere Maganur Bassappa and Sons v. ITO (Karn) . . . 139

----Power of court to admit new ground--Tribunal holding sum in question not taxable under section 28(i)--Appeal by Department seeking to tax sum under section 28(iv)--Facts before court and not disputed--Pure question of law--Can be raised--Income-tax Act, 1961, ss. 28(i), (iv), 260A-- CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. (Delhi) . . . 87

Assessment --Orders under section 143(1)(a)--Claim for investment allowance beyond period of limitation--Claim for prior period expenses without specifying provision under which claim was made--Assessing Officer justified in disallowing amounts--Income-tax Act, 1961, s. 143(1)(a)-- CIT v. Vanaja Textiles Ltd. (Ker) . . . 132

Association of persons --No provision for assessing member independently--Income-tax Act, 1961, s. 3(1)(b), (f)-- Pradeep Trust v. CIT (Cal) . . . 1

Bad debts --Classification of debts as bad--Change of law--Assessee writing off debts as bad debts in books was in compliance with requirement of section 36(1)(vii)--Income-tax Act, 1961, s. 36(1)(vii)-- CIT v. Omprakas B. Salecha (Bom) . . . 24

Business --Business income--Business expenditure--Steel plant not commencing production--Income from deposits--Tribunal assessing as business income and allowing expenditure thereagainst--Relief granted without considering all points--Matter remanded--Income-tax Act, 1961, s. 2(13)-- CIT v. Jindal Vijaya-nagar Steel Ltd . (Karn) . . . 144

Business income --Benefit or perquisite arising in course of business of nature other than cash or money--Assessee an investment company--Loan taken from another company partially written off by creditor--Sum written off--Not income having regard to nature of assessee's business--Not taxable--Income-tax Act, 1961, ss. 28(i), (iv), 41(1)-- CIT v. Jindal Equipments Leasing and Consultancy Services Ltd . (Delhi) . . . 87

----Deemed income--Remission of liability--Liability still outstanding--Addition under section 41(1) not valid--Income-tax Act, 1961, s. 41(1)-- CIT v. GP International Ltd. (P&H) . . . 25

Capital gains --Computation of capital gains--Deductions--Cost of acquisition of asset--Interest on amount borrowed for purchase of property--Part of cost of acquisition of property--Deductible--Income-tax Act, 1961-- CIT v. Sri Hariram Hotels P. Ltd . (Karn) . . . 136

----Exemption--Investment in specified security within six months of transfer--Date of investment would be date of payment and receipt by National Housing Bank--Income-tax Act, 1961, s. 54EC-- Hindustan Unilever Ltd . v. Deputy CIT (Bom) . . . 102

----Firm--Assets taken over by assessee on dissolution of firm--Sale within three days of dissolution--Short-term capital gains--Income-tax Act, 1961, ss. 2(42A), 45(4), 49(1)(iii)(b)--Partnership Act, 1932, s. 14-- P. P. Menon v. CIT (Ker) . . . 122

----Transfer--Distribution of capital assets on dissolution of firm--Amounts to transfer--Gains assessable--Income-tax Act, 1961, s. 45-- Davangere Maganur Bassappa and Sons v. ITO (Karn) . . . 139

Capital or revenue expenditure --Amount deposited for acquisition of distribution rights of products of a company--Failure of company to produce article--Part of deposit written off--Not deductible as revenue expenditure--Income-tax Act, 1961, s. 37-- Cochin Malabar Estates and Industries Ltd . v. CIT (Ker) . . . 129

----Theatre--Change of sound system--Change not resulting in increased income--Expenditure incurred thereon revenue expenditure--Income-tax Act, 1961, s. 37-- CIT v. Sagar Talkies (Karn) . . . 133

Deduction of tax at source --Business expenditure--Disallowance--For failure to deposit tax deduction at source--Provision valid--Constitutional validity--Income-tax Act, 1961, ss. 40(a)(ia), 200(1)--Constitution of India, art. 14-- Rakesh Kumar and Co. v. Union of India (P&H) . . . 35

----Commission--Meaning of commission--Assessee providing cellular telephone network--Appointing distributors for selling pre-paid SIM cards--Discount allowed by assessee to distributor constituted commission--Assessee liable to deduct tax at source on such commission--Income-tax Act, 1961, s. 194H-- CIT v. Idea Cellular Ltd. (Delhi) . . . 148

----Salary--Perquisite--Reimbursement of club membership fees and allowance on soft furnishings--Assessee obtaining corporate membership for its benefit--Failure by Assessing Officer to take note of materials produced by assessee and treating sums as perquisites liable to deduction of tax at source--Matter remanded--Income-tax Act, 1961, ss. 17(2), 201(1A)-- Asst. CIT v. Brooke Bond Lipton India Ltd. (Karn) . . . 141

Depreciation --Leasing of trucks and buses--Depreciation allowable at higher rate--Income-tax Act, 1961--Income-tax Rules, 1962, Appendix I, Part A, item III, entries (2), (3)(ii)-- CIT v. Punjab Leasing (P.) Ltd. (P&H) . . . 29

Export --Deduction under section 10B--Law applicable--Effect of amendment by Finance Act, 2000--Provision now for deduction--Loss in eligible unit could be set off against profits of business--Income-tax Act, 1961, s. 10B-- Hindustan Unilever Ltd. v. Deputy CIT (Bom) . . . 102

----Special deduction--Interest--Interest on FDRs--To be included in total turnover--Income-tax Act, 1961, s. 80HHC-- CIT v. Shriram Pistons and Rings Ltd. (Delhi) . . . 46

Gift-tax --Deemed gift--Assessee purchasing non-cumulative preference shares above market value--Assessee acquiring no interest in property at that stage as no transfer is involved--Company cannot issue shares under discount under company law--No evidence that assessee purchased shares as colourable device to reduce tax liability--Gift-tax cannot be imposed--Companies Act, 1956, s. 69--Gift-tax Act, 1958, s. 4(1)(a), proviso-- CGT v. Rockman Cycle Industries P. Ltd. (P&H) . . . 18

Income --Income from tea--Computation of income--Effect of rule 8--Forty per cent. of income liable to tax--Expenditure and losses to be taken into account in calculating that income--Income-tax Act, 1961--Income-tax Rules, 1962, r. 8-- Hindustan Unilever Ltd . v. Deputy CIT (Bom) . . . 102

Income from undisclosed sources --Company--Share application money--Identity of contributors established--Failure by some of them to respond to notice under section 133--Not relevant--Amount not assessable as income of assessee--Income-tax Act, 1961-- CIT v. GP International Ltd. (P&H) . . . 25

Income-tax --General principles--Liability crystallizes on last day of previous year-- Pradeep Trust v. CIT (Cal) . . . 1

Intercorporate dividend --Special deduction--Assessee incurring expenditure for earning dividend income--Tribunal finding no basis for estimating expenditure and reducing it from dividend income--Amount of dividend and disallowance negligible--Not to be interfered with--Income-tax Act, 1961, s. 80M-- CIT v. Federal Bank Ltd. (Ker) . . . 128

International treaties --Government--Writ--Public interest litigation--Requirement to place before Parliament--Matter to be left to Government and Parliament--Court cannot adjudicate upon--Treaty to be in conformity with constitutional provisions--Constitution of India, art. 226--Income-tax Act, 1961, s. 90-- Shiva Kant Jha v. Union of India (Delhi) . . . 51

Offences and prosecution --Wilful attempt to evade tax--Firm--Partner conducting business of firm--Discrepancy in stocks of firm not explained--Conviction of partner--Valid--Income-tax Act, 1961, s. 276C-- Puran Chand v. R. K. Suman, ITO (P&H) . . . 38

Penalty --Concealment of income--Assessee director and shareholder with substantial interest in company--Assessee also partner in firm--Loan by firm to company and by company to assessee--Loan treated as deemed dividend--Consequent levy of penalty--Tribunal not justified in cancelling penalty without considering facts relied on by Assessing Officer--Matter remanded--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Alkesh K. Patel (Bom) . . . 118

----Interest--Advance tax--Delay in filing returns--Waiver of penalty and interest--Discretion to be used judiciously and fairly--Belated return filed voluntarily and taxes paid--Rejection of application for waiver--Not valid--Matter remanded--Income-tax Act, 1961, s. 273A-- Vasantbhai Jethalal Lathiwala v. CIT (Bom) . . . 41

Precedent --Effect of order of Supreme Court in Malabar Industrial Co. v. CIT [2000] 243 ITR 83-- Jewel of India v. Asst. CIT (Bom) . . . 92

Previous year --Separate previous years for separate sources of income permissible-- Pradeep Trust v. CIT (Cal) . . . 1

Reassessment --Agricultural income--Assessee having possession of certain lands--Entering into agreement to earmark lands in its possession for scheme of growing teak trees--Under agreement shifting responsibility of growing and maintaining trees to another concern--Resultant surplus not income derived from agriculture or agricultural operations--But from not encroaching upon use of land for a specific purpose--Assessee returning income earned is agricultural income--Reassessment valid--Income-tax Act, 1961, ss. 2(1A)(a), (b), 147-- Papaya Farms Pvt. Ltd. v. Deputy CIT (Mad) . . . 60

----Previous year--Joint venture business carried on by assessee with another person as association of persons--Assessee taking over business as sole proprietor on January 1, 1982--Previous year for business ending on December 31, 1981, but that of branch ending on March 31, 1982--Association of persons not including business of branch for period ending March 31, 1982 in return for 1982-83--Assessee including it in return for 1983-84--Commissioner (Appeals) approving of this and order becoming final--No justification for reopening assessment--Income-tax Act, 1961, ss. 3(1)(b), (f), 147, 148-- Pradeep Trust v. CIT (Cal) . . . 1

----Rectification of mistake--Simple computational error by Assessing Officer--Error should be rectified--Reassessment proceedings to correct error--Not valid--Income-tax Act, 1961, ss. 147, 154--H industan Unilever Ltd. v. Deputy CIT (Bom) . . . 102

----Reopening on ground suppression detected during search and seizure operations--Income disclosed in return filed prior to search--Reassessment not justified--Income-tax Act, 1961, s. 147-- Pradeep Trust v. CIT (Cal) . . . 1

Revision --Condition precedent--Order of Assessing Officer should be erroneous and also prejudicial to Revenue--Order found to be erroneous but no finding that it was prejudicial to Revenue--Order could not be revised--Income-tax Act, 1961, s. 263-- Jewel of India v. Asst. CIT (Bom) . . . 92

----Conditions precedent--Order should be erroneous and prejudicial to Revenue--Assessing Officer allowing set off of speculation loss against speculation profits in first instance--Order in accordance with CBDT circular and applying decision of High Court--Order not erroneous--Order could not be revised--CBDT Circular No. 23 (XXXIX-4)D of 1960, dated September 12, 1960--Income-tax Act, 1961, s. 263-- CIT v. Pradeep Kumar Todi (Cal) . . . 96

----Powers of Commissioner--Change in law by Finance Act, 1989, with retrospective effect from 1-6-1988--Commissioner can invoke power under section 263 even if order of assessment subject-matter of appeal--Income-tax Act, 1961, s. 263-- CIT v. Ganesh Steel Indus. (P&H) . . . . 99

Search and seizure --Block assessment--Undisclosed income--Finding that assessee had suppressed sales--Additions justified--Income-tax Act, 1961-- CIT v. Kallada Wines (Ker) . . . 125

----Seizure of jewellery from locker--Explanation given by assessee not considered--Matter remanded--Income-tax Act, 1961-- Smt. Urmila Gambhir v. CIT (Delhi) . . . 171

----Undisclosed income--Addition on account of loose sheet of paper found during search--Assessee failing to discharge onus to prove contents of paper--Concurrent findings that amount mentioned undisclosed income--Proper--Income-tax Act, 1961, ss. 132, 158BC-- Smt. Urmila Gambhir v. CIT (Delhi) . . . 171

Valuation of closing stock --Additions on account of discrepancies in record--No proof of perversity in not appreciating evidence in form of comparative results of other mill owners--Tribunal finding additions made due to absence of proper and complete record--Finding of fact--Income-tax Act, 1961-- Amba Rice Mills v. CIT (P&H) . . . 33

AUTHORITY FOR ADVANCE RULINGS

Deduction of tax at source --Reimbursement of expenses--No deduction of tax at source--Income-tax Act, 1961, s. 195-- HMS Real Estate P. Ltd., In re. . . 71

Non-resident --Not having permanent establishment in India--Agreement for provision of architectural designs--Fees for "included services"--Payment to be treated as for "included services" under article 12 of DTAA--Taxable in India--Rate of tax--Lesser rate of ten per cent.--Income-tax Act, 1961, s. 115A(1)(b)(BB)--Agreement for Avoidance of Double Taxation between India and the USA, art. 12(4)(b)-- HMS Real Estate P. Ltd. , In re . . . 71

Rate of tax --Lesser rate of ten per cent.--Income-tax Act, 1961, s. 115A(1)(b)(BB)-- HMS Real Estate P. Ltd. , In re . . . 71

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Agreement for Avoidance of Double Taxation between India and the USA :

Art. 12(4)(b) --Non-resident--Not having permanent establishment in India--Agreement for provision of architectural designs--Fees for "included services"--Payment to be treated as for "included services" under article 12 of DTAA--Taxable in India--Rate of tax--Lesser rate of ten per cent.-- HMS Real Estate P. Ltd. , In re (AAR) . . . 71

Companies Act, 1956 :

S. 69 --Gift-tax--Deemed gift--Assessee purchasing non-cumulative preference shares above market value--Assessee acquiring no interest in property at that stage as no transfer is involved--Company cannot issue shares under discount under company law--No evidence that assessee purchased shares as colourable device to reduce tax liability--Gift-tax cannot be imposed-- CGT v. Rockman Cycle Industries P. Ltd. (P&H) . . . 18

Constitution of India :

Art. 14 --Deduction of tax at source--Business expenditure--Disallowance--For failure to deposit tax deduction at source--Provision valid--Constitutional validity-- Rakesh Kumar and Co. v. Union of India (P&H) . . . 35

Art. 226 --International treaties--Government--Writ--Public interest litigation--Requirement to place before Parliament--Matter to be left to Government and Parliament--Court cannot adjudicate upon--Treaty to be in conformity with constitutional provisions-- Shiva Kant Jha v. Union of India (Delhi) . . . 51

Gift-tax Act, 1958 :

S. 4(1)(a), proviso --Gift-tax--Deemed gift--Assessee purchasing non-cumulative preference shares above market value--Assessee acquiring no interest in property at that stage as no transfer is involved--Company cannot issue shares under discount under company law--No evidence that assessee purchased shares as colourable device to reduce tax liability--Gift-tax cannot be imposed-- CGT v. Rockman Cycle Industries P. Ltd. (P&H) . . . 18

Income-tax Act, 1961 :

S. 2(1A)(a), (b) --Reassessment--Agricultural income--Assessee having possession of certain lands--Entering into agreement to earmark lands in its possession for scheme of growing teak trees--Under agreement shifting responsibility of growing and maintaining trees to another concern--Resultant surplus not income derived from agriculture or agricultural operations--But from not encroaching upon use of land for a specific purpose--Assessee returning income earned is agricultural income--Reassessment valid-- Papaya Farms Pvt. Ltd. v. Deputy CIT (Mad) . . . 60

S. 2(13) --Business--Business income--Business expenditure--Steel plant not commencing production--Income from deposits--Tribunal assessing as business income and allowing expenditure thereagainst--Relief granted without considering all points--Matter remanded-- CIT v. Jindal Vijayanagar Steel Ltd .(Karn) . . . 144

S. 2(42A) --Capital gains--Firm--Assets taken over by assessee on dissolution of firm--Sale within three days of dissolution--Short-term capital gains-- P. P. Menon v. CIT (Ker) . . . 122

S. 3(1)(b), (f) --Association of persons--No provision for assessing member independently-- Pradeep Trust v. CIT (Cal) . . . 1

----Reassessment--Previous year--Joint venture business carried on by assessee with another person as association of persons--Assessee taking over business as sole proprietor on January 1, 1982--Previous year for business ending on December 31, 1981, but that of branch ending on March 31, 1982--Association of persons not including business of branch for period ending March 31, 1982 in return for 1982-83--Assessee including it in return for 1983-84--Commissioner (Appeals) approving of this and order becoming final--No justification for reopening assessment-- Pradeep Trust v. CIT (Cal) . . . 1

S. 10B --Export--Deduction under section 10B--Law applicable--Effect of amendment by Finance Act, 2000--Provision now for deduction--Loss in eligible unit could be set off against profits of business-- Hindustan Unilever Ltd. v. Deputy CIT (Bom) . . . 102

S. 17(2) --Deduction of tax at source--Salary--Perquisite--Reimbursement of club membership fees and allowance on soft furnishings--Assessee obtaining corporate membership for its benefit--Failure by Assessing Officer to take note of materials produced by assessee and treating sums as perquisites liable to deduction of tax at source--Matter remanded-- Asst. CIT v. Brooke Bond Lipton India Ltd. (Karn) . . . 141

S. 28(i), (iv) --Appeal to High Court--Power of court to admit new ground--Tribunal holding sum in question not taxable under section 28(i)--Appeal by Department seeking to tax sum under section 28(iv)--Facts before court and not disputed--Pure question of law--Can be raised-- CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. (Delhi) . . . 87

----Business income--Benefit or perquisite arising in course of business of nature other than cash or money--Assessee an investment company--Loan taken from another company partially written off by creditor--Sum written off--Not income having regard to nature of assessee's business--Not taxable-- CIT v. Jindal Equipments Leasing and Consultancy Services Ltd .(Delhi) . . . 87

S. 36(1)(vii) --Bad debts--Classification of debts as bad--Change of law--Assessee writing off debts as bad debts in books was in compliance with requirement of section 36(1)(vii)-- CIT v. Omprakas B. Salecha (Bom) . . . 24

S. 37 --Capital or revenue expenditure--Amount deposited for acquisition of distribution rights of products of a company--Failure of company to produce article--Part of deposit written off--Not deductible as revenue expenditure-- Cochin Malabar Estates and Industries Ltd . v. CIT (Ker) . . . 129

----Capital or revenue expenditure--Theatre--Change of sound system--Change not resulting in increased income--Expenditure incurred thereon revenue expenditure-- CIT v. Sagar Talkies (Karn) . . . 133

S. 40(a)(ia) --Deduction of tax at source--Business expenditure--Disallowance--For failure to deposit tax deduction at source--Provision valid--Constitutional validity-- Rakesh Kumar and Co. v. Union of India (P&H) . . . 35

S. 41(1) --Business income--Benefit or perquisite arising in course of business of nature other than cash or money--Assessee an investment company--Loan taken from another company partially written off by creditor--Sum written off--Not income having regard to nature of assessee's business--Not taxable-- CIT v. Jindal Equipments Leasing and Consultancy Services Ltd . (Delhi) . . . 87

----Business income--Deemed income--Remission of liability--Liability still outstanding--Addition under section 41(1) not valid-- CIT v. GP International Ltd. (P&H) . . . 25

S. 45 --Capital gains--Transfer--Distribution of capital assets on dissolution of firm--Amounts to transfer--Gains assessable-- Davangere Maganur Bassappa and Sons v. ITO (Karn) . . . 139

S. 45(4) --Capital gains--Firm--Assets taken over by assessee on dissolution of firm--Sale within three days of dissolution--Short-term capital gains-- P. P. Menon v. CIT (Ker) . . . 122

S. 49(1)(iii)(b) --Capital gains--Firm--Assets taken over by assessee on dissolution of firm--Sale within three days of dissolution--Short-term capital gains-- P. P. Menon v. CIT (Ker) . . . 122

S. 54EC --Capital gains--Exemption--Investment in specified security within six months of transfer--Date of investment would be date of payment and receipt by National Housing Bank-- Hindustan Unilever Ltd . v. Deputy CIT (Bom) . . . 102

S. 80HHC --Export--Special deduction--Interest--Interest on FDRs--To be included in total turnover-- CIT v. Shriram Pistons and Rings Ltd. (Delhi) . . . 46

S. 80M --Intercorporate dividend--Special deduction--Assessee incurring expenditure for earning dividend income--Tribunal finding no basis for estimating expenditure and reducing it from dividend income--Amount of dividend and disallowance negligible--Not to be interfered with-- CIT v. Federal Bank Ltd. (Ker) . . . 128

S. 90 --International treaties--Government--Writ--Public interest litigation--Requirement to place before Parliament--Matter to be left to Government and Parliament--Court cannot adjudicate upon--Treaty to be in conformity with constitutional provisions-- Shiva Kant Jha v. Union of India (Delhi) . . . 51

S. 115A(1)(b)(BB) --Non-resident--Not having permanent establishment in India--Agreement for provision of architectural designs--Fees for "included services"--Payment to be treated as for "included services" under article 12 of DTAA--Taxable in India--Rate of tax--Lesser rate of ten per cent.-- HMS Real Estate P. Ltd. , In re (AAR) . . . 71

----Rate of tax--Lesser rate of ten per cent.-- HMS Real Estate P. Ltd. , In re (AAR) . . . 71

S. 132 --Search and seizure--Undisclosed income--Addition on account of loose sheet of paper found during search--Assessee failing to discharge onus to prove contents of paper--Concurrent findings that amount mentioned undisclosed income--Proper-- Smt. Urmila Gambhir v. CIT (Delhi) . . . 171

S. 143(1)(a) --Assessment--Orders under section 143(1)(a)--Claim for investment allowance beyond period of limitation--Claim for prior period expenses without specifying provision under which claim was made--Assessing Officer justified in disallowing amounts-- CIT v. Vanaja Textiles Ltd. (Ker) . . . 132

S. 145(3) --Accounting--Rejection of accounts--Onus on Revenue to show accounts incorrect or incomplete--Assessing Officer rejecting book results on low net profit--Finding that accounts maintained by assessee neither defective nor incomplete--Findings of fact-- CIT v. Paradise Holidays (Delhi) . . . 13

S. 147 --Reassessment--Agricultural income--Assessee having possession of certain lands--Entering into agreement to earmark lands in its possession for scheme of growing teak trees--Under agreement shifting responsibility of growing and maintaining trees to another concern--Resultant surplus not income derived from agriculture or agricultural operations--But from not encroaching upon use of land for a specific purpose--Assessee returning income earned is agricultural income--Reassessment valid-- Papaya Farms Pvt. Ltd. v. Deputy CIT (Mad) . . . 60

----Reassessment--Previous year--Joint venture business carried on by assessee with another person as association of persons--Assessee taking over business as sole proprietor on January 1, 1982--Previous year for business ending on December 31, 1981, but that of branch ending on March 31, 1982--Association of persons not including business of branch for period ending March 31, 1982 in return for 1982-83--Assessee including it in return for 1983-84--Commissioner (Appeals) approving of this and order becoming final--No justification for reopening assessment-- Pradeep Trust v. CIT (Cal) . . . 1

----Reassessment--Rectification of mistake--Simple computational error by Assessing Officer--Error should be rectified--Reassessment proceedings to correct error--Not valid--H industan Unilever Ltd. v. Deputy CIT (Bom) . . . 102

----Reassessment--Reopening on ground suppression detected during search and seizure operations--Income disclosed in return filed prior to search--Reassessment not justified-- Pradeep Trust v. CIT (Cal) . . . 1

S. 148 --Reassessment--Previous year--Joint venture business carried on by assessee with another person as association of persons--Assessee taking over business as sole proprietor on January 1, 1982--Previous year for business ending on December 31, 1981, but that of branch ending on March 31, 1982--Association of persons not including business of branch for period ending March 31, 1982 in return for 1982-83--Assessee including it in return for 1983-84--Commissioner (Appeals) approving of this and order becoming final--No justification for reopening assessment-- Pradeep Trust v. CIT (Cal) . . . 1

S. 154 --Reassessment--Rectification of mistake--Simple computational error by Assessing Officer--Error should be rectified--Reassessment proceedings to correct error--Not valid--H industan Unilever Ltd. v. Deputy CIT (Bom) . . . 102

S. 158BC --Search and seizure--Undisclosed income--Addition on account of loose sheet of paper found during search--Assessee failing to discharge onus to prove contents of paper--Concurrent findings that amount mentioned undisclosed income--Proper-- Smt. Urmila Gambhir v. CIT (Delhi) . . . 171

S. 194H --Deduction of tax at source--Commission--Meaning of commission--Assessee providing cellular telephone network--Appointing distributors for selling pre-paid SIM cards--Discount allowed by assessee to distributor constituted commission--Assessee liable to deduct tax at source on such commission-- CIT v. Idea Cellular Ltd. (Delhi) . . . 148

S. 195 --Deduction of tax at source--Reimbursement of expenses--No deduction of tax at source-- HMS Real Estate P. Ltd., In re (AAR) . . . 71

S. 200(1) --Deduction of tax at source--Business expenditure--Disallowance--For failure to deposit tax deduction at source--Provision valid--Constitutional validity-- Rakesh Kumar and Co. v. Union of India (P&H) . . . 35

S. 201(1A) --Deduction of tax at source--Salary--Perquisite--Reimbursement of club membership fees and allowance on soft furnishings--Assessee obtaining corporate membership for its benefit--Failure by Assessing Officer to take note of materials produced by assessee and treating sums as perquisites liable to deduction of tax at source--Matter remanded-- Asst. CIT v. Brooke Bond Lipton India Ltd. (Karn) . . . 141

S. 260A --Appeal to High Court--Amount received on dissolution of partnership--Question regarding assessability considered by High Court--Question regarding quantum not raised before Tribunal--High Court could not consider question-- Davangere Maganur Bassappa and Sons v. ITO (Karn) . . . 139

----Appeal to High Court--Power of court to admit new ground--Tribunal holding sum in question not taxable under section 28(i)--Appeal by Department seeking to tax sum under section 28(iv)--Facts before court and not disputed--Pure question of law--Can be raised-- CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. (Delhi) . . . 87

S. 263 --Revision--Condition precedent--Order of Assessing Officer should be erroneous and also prejudicial to Revenue--Order found to be erroneous but no finding that it was prejudicial to Revenue--Order could not be revised-- Jewel of India v. Asst. CIT (Bom) . . . 92

----Revision--Conditions precedent--Order should be erroneous and prejudicial to Revenue--Assessing Officer allowing set off of speculation loss against speculation profits in first instance--Order in accordance with CBDT circular and applying decision of High Court--Order not erroneous--Order could not be revised--CBDT Circular No. 23 (XXXIX-4)D of 1960, dated September 12, 1960-- CIT v. Pradeep Kumar Todi (Cal) . . . 96

----Revision--Powers of Commissioner--Change in law by Finance Act, 1989, with retrospective effect from 1-6-1988--Commissioner can invoke power under section 263 even if order of assessment subject-matter of appeal-- CIT v. Ganesh Steel Indus. (P&H) . . . 99

S. 271(1)(c) --Penalty--Concealment of income--Assessee director and shareholder with substantial interest in company--Assessee also partner in firm--Loan by firm to company and by company to assessee--Loan treated as deemed dividend--Consequent levy of penalty--Tribunal not justified in cancelling penalty without considering facts relied on by Assessing Officer--Matter remanded-- CIT v. Alkesh K. Patel (Bom) . . . 118

S. 273A --Penalty--Interest--Advance tax--Delay in filing returns--Waiver of penalty and interest--Discretion to be used judiciously and fairly--Belated return filed voluntarily and taxes paid--Rejection of application for waiver--Not valid--Matter remanded-- Vasantbhai Jethalal Lathiwala v. CIT (Bom) . . . 41

S. 276C --Offences and prosecution--Wilful attempt to evade tax--Firm--Partner conducting business of firm--Discrepancy in stocks of firm not explained--Conviction of partner--Valid-- Puran Chand v. R. K. Suman, ITO (P&H) . . . 38

Income-tax Rules, 1962 :

R. 8 --Income--Income from tea--Computation of income--Effect of rule 8--Forty per cent. of income liable to tax--Expenditure and losses to be taken into account in calculating that income-- Hindustan Unilever Ltd . v. Deputy CIT (Bom) . . . 102

Appendix I, Part A, item III, entries (2), (3)(ii) --Depreciation--Leasing of trucks and buses--Depreciation allowable at higher rate-- CIT v. Punjab Leasing (P.) Ltd. (P&H) . . . 29

Partnership Act, 1932 :

S. 14 --Capital gains--Firm--Assets taken over by assessee on dissolution of firm--Sale within three days of dissolution--Short-term capital gains-- P. P. Menon v. CIT (Ker) . . . 122

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