DCIT vs M/s. S K Tekriwal S. 40(a)(ia) can not be invoked 4 non-deduction of tax but not for lesser deduction of tax. S. 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. In this provision it is provided that where in respect of any sum, as referred in this section, tax has not been deducted or after deduction has not been paid on or before the due date specified in sub-section (1) of section 139 of the Act, such sum shall be disallowed as a deduction while computing the income of the assessee for the previous year relevant to AY under consideration. But in the present case before us, the assessee has deducted tax, although u/s. 194C(2) of the Act and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40(a)(ia) of the Act. Even otherwise if it is considered that this particular sum falls under section 194I of the Act, it may be considered as tax deducted at a lower rate and it cannot be considered a case of non-deduction or no deduction.

DCIT vs M/s. S K Tekriwal 

S. 40(a)(ia) of the Act can be invoked only in the event of non-deduction of tax but not for lesser

deduction of tax.

S. 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.

In this provision it is provided that where in respect of any sum, as referred in this section, tax has not been deducted or after deduction has not been paid on or before the due date specified in sub-section (1) of section 139 of the Act, such sum shall be disallowed as a deduction while computing the income of the assessee for the previous year relevant to AY under consideration. But in the present case before us, the assessee has deducted tax, although u/s. 194C(2) of the Act and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40(a)(ia) of the Act. Even otherwise if it is considered that this particular sum falls under section 194I of the Act, it may be considered as tax deducted at a lower rate and it cannot be considered a case of non-deduction or no deduction.

Apex court's ruling on 'preponderance of probabilities' in Bhoormull case was re

 

Apex court's ruling on 'preponderance of probabilities' in Bhoormull case was rendered in context of sustaining demand – apart from making mistake in electricity consumption figures for computation of demand no evidence gathered from suppliers - Stay granted: CESTAT

MUMBAI, AUG 27, 2010: A duty demand of '74 lakhs and an equivalent penalty has been confirmed against the appellant on the ground of clandestine manufacture and clearance of M.S.Ingots. There is also a penalty of' 10 lakhs imposed on the Managing Director u/r 26 of the CER, 2002.

The aforesaid finding of clandestine clearance is based on consumption of electricity in excess of certain limit reported by Dr. N.K.Batra, Professor of IIT, Kanpur based on a technical study of the process of manufacture of M.S.Ingots from raw materials such as scrap, sponge iron etc. The Professor reported a range of energy units (555 - 1046) required for the production of one MT of M.S.Ingots depending upon various factors affecting the efficiency of the furnace, like use of capacitors, furnace capacity, nature of raw material etc.

Incidentally, the show-cause notice adopted the range of 555 - 1026 units as consumption of electricity for production of one MT of M.S. Ingots and attributed the same to the IIT Professor's "Technical opinion report on productivity of induction furnace" and thereby an inflated demand made its appearance. So, also, the extended period of limitation was invoked.

The appellant is before the CESTAT with applications seeking waiver of pre-deposit and stay of recovery of the adjudged amounts.

It is submitted that apart from the fact that the demand is an inflated one, it is solely based on `preponderance of probabilities' and there is no documentary evidence of production and removal of any unaccounted quantity of finished goods; no evidence of consumption of any specified quantity of raw material and moreover no evidence was gathered from any purported buyers.

The appellant also drew the attention of the Bench to the fact that the very same IIT Professor's technical opinion was not accepted by this Tribunal in the case of R.A.Castings Pvt. Ltd. vs. Commissioner of C.Ex, Meerut [2008-TIOL-2732-CESTAT-DEL] and since the demand of duty in the instant case is also based on the same report, it was liable to be set aside. An addendum to the show cause notice, which was issued to meet a contention raised by the assessee in their reply to the original show-cause notice viz. deriving cost of production on the turn-over element mentioned in the books of accounts was also adverted to. It was emphasized that the addendum did not materially change the complexion of the Revenue's case, which continued to be founded on "probabilities".

The Bench after considering the submissions observed -

"4. …, we are of the view that the appellant has made out prima facie case for waiver and stay. The impugned demand of duty is based on what was found to be excess consumption of electricity, which in turn, is based on a technical opinion given by the IIT Professor. It appears the adjudicating authority repeated a material mistake which was there in the show-cause notice. The show-cause notice relied on the said technical opinion which was to the effect that one MT of M.S. Ingots could be manufactured by consuming electric energy in the range of 555-1046 units. The show-cause notice, however, took the opinion in a materially different way (555-1026), which came to be repeated in the Commissioner's order. This apart, the ld. Commissioner chose to demand duty on the basis of what he considered as "preponderance of probabilities". … Apparently, the ld. Commissioner was following a ruling of the apex court on "preponderance of probabilities" rendered in the case of Collector of Customs, Madras vs. D.Bhoormull [2002-TIOL-253-SC-CUS]. The ld. JCDR also relied on this judgment of the apex court before us. However, it has not been shown to us that the apex court's ruling on "preponderance of probabilities" was rendered in the context of sustaining any demand of duty. We further note that this judgment of the Hon'ble Supreme Court was noted by the Tribunal in the case of R.A.Castings Pvt. Ltd. (supra) wherein the demand of duty raised on the basis of IIT Professor's report was set aside. The facts of the instant case, by and large, are similar to those of R.A.Castings Pvt. Ltd. and therefore, the view taken therein could be followed for the present purpose, in the absence of any stay of operation of the said decision of the Tribunal…."

In the result, the Bench granted waiver of pre-deposit and stayed recovery in respect of duty and penalty amounts and so also in respect of the penalty imposed on the Managing Director of the company.

__._,_.___

Compilations of case law: General Topics: LIFTING OF CORPORATE VEIL

LIFTING OF CORPORATE VEIL

Dealings involving funds transfer to near and dear ones need to be looked into with care and caution and necessary inferences drawn if there are abnormalities attaching to such transactions.
Siddho Mal & Sons Vs CIT (Del) 122 ITR 839
CIT Vs Shekhawai Rajputana Trading Co.(P) Ltd. (Cal) 236 ITR 950
Workmen, Associated Rubber Industry Ltd. Vs Associated Rubber Industry Ltd. (SC) 157 ITR 77
Union of India & Ors. Vs Playworld Electronics P. Ltd. & Anr. (SC) 184 ITR 308
CIT Vs Indian Express Newspapers (Madurai) P. Ltd. (Mad) 238 ITR 70

Colourable devices are not part of tax planning
McDowell and Co. Ltd. Vs Commercial Tax officer (SC) 154 ITR 148

Assessee having deposit with company – At the instance of assessee credit transferred to a firm constituted by assessee's children – Return of sum by firm to company – company again transfer it to assessee's children – Not general loan transaction – Interest on deposits taxable in assessee's hands
S.P. Jaiswal etc. Vs CIT (SC) 224 ITR 619

IT Authorities are not bound to recognise a firm merely because the firm has been registered under the Partnership Act. If ITO finds on investigation that number of firms carrying on business under different names really belong to one and the same group of persons, he can hold it as not a genuine firm.
Ladhu Ram Taparia Vs CIT (SC) 44 ITR 521

Whether Revenue can initiate reassessment proceedings merely on basis of i

I-T - Whether Revenue can initiate reassessment proceedings merely on basis of information obtained from Central Excise Department that assessee had suppressed sales of manufactured goods - YES, but all relied upon documents to be given to assessee: ITAT

MUMBAI, SEPT 28, 2011: THE Income Tax - Sections 115O, 147 - Whether at the time of initiation of Sec 147 proceedings it is not necessary for AO to confront that material to assessee on the basis of which reasonable belief is formed - Whether information received from Central Excise department revealing that the assessee was suppressing sales is sufficient to assume jurisdiction of 147 - Whether at the time of completion of proceedings it is incumbent on AO to supply the material to assessee so that principle of natural justice may be complied with.

The assessee is a company engaged in the business of manufacturing and dealing in lubricating oils. The assessee filed return of income on 28.11.2006 declaring total income of Re.1. The same was processed under section 143(1) of the Act on 6.12.2007. On 3.12.2005 & 6.12.2005, the factory premises of the assessee was searched by the central excise officers (Preventive). The office premise of the assessee was also searched by the central excise officers (Preventive) on 6.12.2005. The premises of M/s. Jay Enterprises and M/s. Krishna Marketing were also searched by the central excise officers (Preventive) on 14.12.2005. Statements of various persons were recorded and ultimately it was held by the central excise authorities that the assessee was clandestinely removing goods from the place of manufacturer without payment of excise duty. The Additional Commissioner of Central Excise raised a demand of Rs.48,49,843 and Central Excise Duty payable by the assessee on clandestine removal of goods. This order was passed on 31.3.2008.

The AO received information from the Central Excise Authorities about the above facts. The Assessing Officer issued a notice under sections 148 of the Act on 27.10.2008. Before issuing the said notice, the Assessing Officer recorded the following reasons for initiating proceedings under sections 147 of the Act. The CIT(A) affirmed the order of the AO. Before ITAT, it was contended that the AO has violated the principle of natural justice in as much as he had not supplied the material, collected from Excise department, to the assessee for it's rebuttal.

After hearing the parties the ITAT held that,

++ the claim of the Assessee was that since dividend was not distributed, the question of payment of dividend distribution tax does not arise at all;

++ the admitted facts are that the Amalgamation was sanctioned by the High Court on 18.10.2000. The appointed date was 1.4.2000. As on the date of sanction the dividend had already been paid by the Assessee. The incidence of tax u/s 115-O of the Act is on the distribution of dividend. Any subsequent act by which the dividend itself does not become taxable in the hands of the recipient of the dividend will not be relevant. In other words the payment of dividend distribution tax is not dependent on the ultimate chargeability to tax in the hands of the recipient of the dividend. Therefore the extension of the analogy laid down by the Bombay High Court in the case of Mafatlal Gagalbhai & co. (supra) to Sec.115-O of the Act, sought to be canvassed on behalf of the Assessee, in our view was rightly rejected by the revenue authorities. We therefore confirm the order of the Revenue authorities and dismiss ground No.2 raised by the Assessee;

++ it is not in dispute that the facts and the basis on which liability by way of provision for warrant claims was made in AY 92-93 and AY 00-01 and the basis of provision of warranty liability in the present A.Y. was made are identical. In such circumstances, we do not find any reason to take a different view;

++ the law is very clear that where profit or loss arises on account of appreciation or depreciation in the value of foreign currency, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss depending on the purpose for which the foreign exchange was to be used whether for incurring capital expenditure or for meeting revenue expenditure. Admittedly the Euro Notes were raised for capital purpose and the gain arose, not in the course of trading activities but merely due to conversion of the currency of one country into the currency of another country, the said gain is on capital account and not in the nature of income. Further, the gain has arisen at the point of time when the funds were repatriated to India. Admittedly the Euro Notes were issued for meeting capital expenditure and remained outside India. When they were repatriated to India at the point of time of repatriation, the purpose for which the funds were raised admittedly remained one for meeting capital expenditure. As rightly held by the CIT(A), the taxability has to be determined at the point of time when the profit arose. The subsequent utilisation, in our view was irrelevant, on the facts of the present case. With regard to allegation of the AO that there was a failure on the part of the Assessee to explain the utilisation of the funds repatriated for meeting capital expenditure, we are of the view that the fact that the repatriated funds went into a common pool from which both capital and revenue expenditure were met cannot lead to the conclusion that the utilization of funds was for revenue purposes and not capital expenses;

++ it is seen from the reasons recorded by the Assessing Officer that he has recorded reasons for escapement of income on the basis of information received from the excise authorities. In this regard, the fact that there was a search by the excise authorities on 3.12.2005 and 6.12.2005 in the premises of factory and office of the assessee are not in dispute. The assessee was well aware of these proceedings;

++ on 27.10.2008, notice under section 148 has been issued to the assessee. Before issue of such notice, the Assessing Officer recorded reasons for issue of notice under section 148 of the Act which we have already referred to in the earlier part of this order. All the above facts were well within the knowledge of the assessee. On the above facts which came to the knowledge of the Assessing Officer, it cannot be said that he could not have entertained belief regarding escapement of income. We are of the view that on the facts available before the Assessing Officer, he was justified in coming to the conclusion that income chargeable to tax has escaped assessment;

++ at the outset, we notice that while concluding the reassessment proceedings, the assessee was not given copies of the documents as well as the statements recorded by the central excise authorities;

++ it cannot be said that the assessee had proper opportunity to put forth his grievances in the reassessment proceedings before the Assessing Officer. In fact it was precisely for the same reason that the CESTAT set aside the orders of central excise authorities and directed them to make fresh assessment after providing all the material based on which assessments were made to the assessee. There was no right of cross examination of the persons who gave statement in the income tax proceedings. We are of the view that the assessment made in the income tax proceedings should also be set aside and the Assessing Officer should be directed to make assessment afresh in the light of the assessment that may be made by the central excise authority on remand by the CESTAT.

Income tax - Sec 36(1)(iii) - Share application money - Is it debt for assessee

Income tax - Sec 36(1)(iii) - Share application money - Is it debt for assessee till share allotment is done? - Can assessee claim deduction for interest paid on such debt? - YES, says ITAT

BANGALORE, AUG 26, 2010: THE issue is - Whether share application money is debt for the assessee company till the time the share allotment is done. Whether interest paid on such debt is allowable.

Facts of the case

Assessee received share application money (SAM) from subscribers. However, it failed to allot shares within the stipulated time and paid interest to the subscribers on their money. AO disallowed the same on the premise that the amount in question related to share capital and hence not allowable as deduction under section 36(1)(iii). CIT(A) allowed the appeal of the assessee observing that unless and until the shares are allotted, SAM is a debt and the relation of the company and of the subscriber is of debtor and creditor and hence the interest paid is allowable. Before the ITAT Revenue reiterated the stand of the AO.

After hearing the parties the ITAT held that,

++ the first appellate authority had analyzed the issue in depth and also with the reference to the various judicial pronouncements on which the respective parties have placed reliance. The Letter of offer clearly indicated that "Interest at 8% per annum (subject to TDS at the rate prevailing from time to time under the provisions of the Income-tax Act 1961) or under any other statutory modification or re-enactment thereof) will be paid on the application money from the date of realization of Cheques/demand drafts/ telegraphic transfer up-to the date of allotment. However, no interest shall be payable on applications withdrawn by the applicants." On the basis of the share applications for subscription of preference shares floated by the assessee, the assessee had received application money from GMR Investments to the extent of Rs.81.60 crores, out of which, the assessee made allotment of 10% Cumulative Redeemable Preference shares aggregating to Rs.27.50 crores on 23.3.2003 to GMR Investments and, however, no allotment with respect to the remaining Rs.54.10 crores during the year to GMR investments;

++ as the assessee had not allotted the preference shares within the specified period from the date of receipt of share application and as per the conditions laid down in the Letter of Offer, interest at the rate of 8% from the date of receipt of SAM till the date of allotment of preference shares was paid for the balance amount of Rs.54.10 crores to GMR Investments to the extent of Rs.395.87 lakhs after effecting TDS as per the provisions of the Act;

++ the bone of contention of the Revenue is that the "share application money is under capital field and is treated as share capital as per the provisions of Companies Act and, thus, the interest on share application money enters into capital field and, thus, could not be allowed as revenue expenditure."

++ when the assessee took up its grievance with the first appellate authority, the Ld.CIT (A), as highlighted earlier, analyzed the pros and cons of the issue elaborately backed with the legal precedents in favour and also against and finally came to a conclusion that the AO was not justified both in facts and law to deny the claim of interest on SAM as a deduction in computation of profits and gains of the business of the assessee. He drew strength - to come to such a conclusion - on the finding of the I.T.A.T., Bangalore Bench reported in (1997) 61 ITD 49.

++ in an overconsideration of the facts and circumstances of the issue deliberated upon in the fore-going paragraphs and also in conformity with the findings of (i) Delhi Tribunal's in the case of Winner Estates (P) Ltd. vs. DCIT, (ii) the Apex Court's in the case of Kerala Road Lines vs. CIT & (iii) the jurisdictional Tribunal's in the case of DCIT vs. Manipal Industries Ltd., the stand of the first appellate authority is justified.

Revenue's appeal dismissed.

HC (P&H): loan from sister concern to purchase share...

CIT vs. Rockman Cycle Industries (Punjab & Haryana High Court – Larger Bench)

(248.9 KiB, 379 DLs)

AO can lift veil & determine legal effect but cannot ignore legal effect on ground of "substance"


The assessee borrowed money from a sister concern and paid interest therein @ 18% per annum. The funds were used to purchase shares from a sister concern which carried dividend @ 4%. The AO & CIT (A) followed McDowell 154 ITR 148 (SC) & disallowed the claim for interest u/s 57(iii) on the ground that no prudent person would borrow funds at 18% to make an investment which yielded 4% and that the transaction was "clear cut colourable dubious device". This was reversed by the Tribunal on the ground that the transaction was bona fide and not sham. On appeal by the department, the High Court observed that while tax planning was permissible, the claim had to be supported on the principles of business expediency & referred the issue to the Larger Bench. HELD by the Larger Bench:

(i) U/s 57(iii), expenditure laid out or expended wholly or exclusively for the purpose of making or earning income is deductible. It is the purpose of the expenditure that is relevant but the purpose need not be fulfilled. Even if income is not earned, the expenditure will be deductible (R. P. Moody 115 ITR 519 (SC) followed);

(ii) The AO is entitled and bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction" (B. M. Kharwar 72 ITR 603 (SC) followed);

(iii) In considering whether the expenditure is deductible, the AO must not look at the matter from his own view point but from that of a prudent businessman (S. A. Builders 288 ITR 1 (SC) followed);

(iv) While it is not unfair to borrow money from one concern and invest it in another concern for the purpose of profit or income, the assessee must act bona fide & show nexus between the advancing of funds and his business interest. The test is whether a reasonable person stepping into the shoes of the assessee and working solely in the interest of the assessee would have extended such interest free advances. The dominant purpose for making the investment must be to earn income & to ascertain the purpose the AO may lift the veil (Swapna Roy 233 CTR 10 (All) & Punjab Stainless 324 ITR 396 (Del) followed);

(v) Accordingly, the authorities can determine the true legal relation resulting from a transaction and if some device has been used by the assessee to conceal true nature of the transaction, it is the duty of the authority to unravel the device and determine its true character. However, the legal effect of the transaction cannot be displaced by probing into the "substance of the transaction". The taxing authority must not look at the matter from its own view point but that of a prudent businessman. Each case will depend on its own facts. The exercise of jurisdiction cannot be stretched to hold a roving enquiry or deep probe.

The related Judgments on the subject

1. Rupee Finance vs. ACIT (ITAT Mumbai) Where the assessee purchased shares at a price below the market price and the question was whether the difference between the market price and the purchase price can be assessed as unexplained investment u/s 69 or as a benefit u/s 28(iv) of the Act, held:   (1) Where there…
   
2. In Re E*Trade Mauritius Ltd (AAR) The effect of Azadi Bachao Andolan is that there is no "legal taboo" against 'treaty shopping'. Treaty shopping and the underlying objective of tax avoidance/mitigation are not equated to a colourable device. If a resident of a third country, in order to take advantage of a tax treaty sets…
   
3. Indo Tech Electric Co vs. DCIT (Madras High Court) Both the Tribunal and the AO have held that what was done by the assessee is clearly an attempt to evade tax in order to get over s. 55(2). It is a well settled principle of law that what is permissible is avoidance but not evasion. When an attempt…

IT : For transfer pricing adjustment, assessee should take same class of transa

IT : For transfer pricing adjustment, assessee should take same class of transactions for comparing profit with comparables



Income-tax : When the comparables are not licensee manufacturers of the similar commodity then it would not satisfy the requirement of the law as well as the rules prescribed under the Statute for comparing profit with comparables [Section 92C of the Income-tax Act, 1961 - Transfer Pricing] - [2011] 10 taxmann.com 125 (Mum. - ITAT)

IT : Department is not precluded from taking a correct view of matter in subsequ

IT : Department is not precluded from taking a correct view of matter in subsequent years during reassessment proceedings



Income-tax : Merely on basis of wrong view taken by Assessing Officer in earlier assessment year it cannot be held that the Department is precluded from taking a correct view of matter in subsequent years [Section 148 of the Income-tax Act, 1961 - Income escaping assessment - Issue of notice for] - [2011] 10 taxmann.com 127 (Delhi - ITAT)

Compilations of case law: General Topics: OPPORTUNITY OF BEING HEARD

OPPORTUNITY OF BEING HEARD
ITO issuing notice u/s.271(1)(a) – No explanation furnished by assessee – change of ITO – assessee not asking for opportunity to be heard by successor ITO – Imposition of penalty by successor ITO without giving assessee opportunity to be heard – Penalty valid.
CIT Vs Laljidas Agarwalla (Patna) 190 ITR 429
CWT Vs Gilliaram Suggiram (Patna) 186 ITR 445
CWT Vs Azizunnisa Begum (SC) 243 ITR 852

Change of incumbent of office during pendency of assessment proceedings – As per Sec.129, re-hearing by new officer is not obligatory – it is required only when there is a demand from assessee.
K. Venkata Ramana & Budha Appa Rao Vs CIT (AP) 168 ITR 747
CWT Vs Umrao Lal (All) 136 ITR 49

Opportunity to be heard afforded to major partner of firm – Amounts to opportunity to be heard given to firm.
Manaklal Porwal Vs CIT (Raj) 155 ITR 648

Assessee not availing of opportunities given before completion of assessment – Not entitled to allege contravention of principles of natural justice.
P.N. Baslasubramanian Vs ITO & Ors. (AP) 112 ITR 512

The principle of "audi alteram partem" only means that the party affected should be given sufficient opportunity to meet the case against him. It is not necessary that assessee should be heard at each and every stage of proceedings – when an appeal was filed before AAC, ITO's orders merges with order of AAC and where there is no grievance that no opportunity was given by AAC, he cannot have a grievance that he was denied reasonable opportunity by ITO.
Kashmir Vastralaya Vs CIT (Pat) 112 ITR 630

ITO is not bound by any technical rules of the law of evidence – He can record statement from witnesses in the absence of assessee – But before using the same, assessee should be given opportunity to cross –examine.
C. Vasantal & Co. Vs CIT (SC) 45 ITR 206

Firm dissolved - Penalty notice issued to one of the partners – is sufficient notice – Individual notice on every partner is not necessary.
India Chemical Agency Vs CIT (Mad) 119 ITR 569

For every reason formulated by ITO in his order, no need to give opportunity to produce fresh evidence or fresh explanation.
Newton Chikli Collieries Ltd. Vs CIT (SC) 44 ITR 495
DCIT Vs Subhash Kumar Jain (ITAT, Chd) 69 ITD 313

Right to cross –examine witness who made adverse report, is not an invariable attribute of requirement of 'audi alteram parterm' - When statement of witness is only secondary evidence, there is no denial of natural justice if witnesses were not allowed to be cross-examined by assessee.
G.T,.C. Industries Limited Vs ACIT (ITAT, Bom) 65 ITD 380

Suit against Public Officer in respect of act done under warrant of authorization – opportunity to be granted to Public Officer before granting relief – notice mandatory
Union of India v. Natwarlal M. Bandari (Guj) 250 ITR 641

Simply because an opportunity of being heard was not given to the assessee, will not invalidate an assessment order – It is only a procedural lapse
Kailash Moudgil Vs DCIT (ITAT, Del-SB) 72 ITD 97

If assessee is aware of the contents of the statements recorded from witnesses, failure to provide copies of the same before cross-examination, is not fatal – Addition on account of inflation of purchase price upheld
H.M. Sarif and Sons Vs CIT (All) 296 ITR 523

Non-furnishing of copy of statement given by production-in-charge did not amount to denying opportunity of cross examination to assessee, especially when the addition was made solely on the basis of return filed, documents produced and submissions made by assessee.
DXN Herbal Mfg. (India)(P.) Ltd. Vs ITO (ITAT, Chennai) 110 ITD 99

ITR (TRIB) Volume 12 : Part 1 (Issue dated : 31-10-2011)

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 12 : Part 1 (Issue dated : 31-10-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Business expenditure --Disallowance on account of excessive consumption of raw material and other direct expenses disproportionate to production as compared to earlier years--Discontinuance of manufacturing activity and stocks held at end of year sold over succeeding years--Addition to be deleted--Income-tax Act, 1961-- Lakshmi Udyog Mandir P. Ltd. v. Deputy CIT (Chandigarh) . . . 36

Business income --Overdue interest from customers and interest on staff loans--Only net amount of interest income having nexus with interest bearing fund to be excluded--Matter remanded--Income-tax Act, 1961-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

Charitable trust --Registration--Cancellation of registration--Assessee engaging manufacturing and trading activities--Assessee converting incidental objects as main objects--Assessee not satisfying first condition of section 11(4A)--Cancellation of registration valid--Income-tax Act, 1961, ss. 11(4A), 12A-- Aurolab Trust v. CIT (Chennai) . . . 74

Export --Special deduction--Computation--Interest on fixed deposits for availing of credit facilities from bank--No immediate nexus with export business--To be treated as income from other sources--Income-tax Act, 1961, s. 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

----Special deduction--Computation--Profits on transfer of DEPB credits--Not profits of business includible in computing deduction under section 80HHC--Income-tax Act, 1961, ss. 28(iiib), 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

Industrial undertaking --Special deduction--Condition precedent for deduction--Profits must be derived from industrial undertaking--“Derived from”, meaning of--Repairs and maintenance not manufacturing activity--Profits therefrom not eligible for deduction--Income-tax Act, 1961, s. 80-IB-- Deputy CIT v. Rajesh Kr. Drolia [SB] (Kolkata) . . . 1

Non-resident --Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question--Income-tax Act, 1961, ss. 9(1)(vii), Expln. 2, 44DA, 115A(1)(b), (BB), 144C(1)--Double Taxation Avoidance Agreement between India and Russia, arts. 5, 7-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

Penalty --Failure to deduct tax at source--Interest--Assessee disclosing payment of interest in return--No concealment of facts--Recipients showing receipt of interest in their returns and paying tax thereon within time prescribed--No loss to Government--Penalty cannot be levied--Income-tax Act, 1961, s. 271C-- Muthoot Bankers v. Joint CIT (Cochin) . . . 40

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Russia :

Art. 5 --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement--Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

Art. 7 --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

Income-tax Act, 1961 :

S. 9(1)(vii), Expln. 2 --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 11(4A) --Charitable trust--Registration--Cancellation of registration--Assessee engaging manufacturing and trading activities--Assessee converting incidental objects as main objects--Assessee not satisfying first condition of section 11(4A)--Cancellation of registration valid-- Aurolab Trust v. CIT (Chennai) . . . 74

S. 12A --Charitable trust--Registration--Cancellation of registration--Assessee engaging manufacturing and trading activities--Assessee converting incidental objects as main objects--Assessee not satisfying first condition of section 11(4A)--Cancellation of registration valid-- Aurolab Trust v. CIT (Chennai) . . . 74

S. 28(iiib) --Export--Special deduction--Computation--Profits on transfer of DEPB credits--Not profits of business includible in computing deduction under section 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

S. 44DA-- Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement--Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 80-IB --Industrial undertaking--Special deduction--Condition precedent for deduction--Profits must be derived from industrial undertaking--“Derived from”, meaning of--Repairs and maintenance not manufacturing activity--Profits therefrom not eligible for deduction-- Deputy CIT v. Rajesh Kr. Drolia [SB] (Kolkata) . . . 1

S. 80HHC --Export--Special deduction--Computation--Interest on fixed deposits for availing of credit facilities from bank--No immediate nexus with export business--To be treated as income from other sources-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

----Export--Special deduction--Computation--Profits on transfer of DEPB credits--Not profits of business includible in computing deduction under section 80HHC-- Purolator India Ltd. v. Deputy CIT (Delhi) . . . 46

S. 115A(1)(b)(BB) --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 144C(1) --Non-resident--Fees for technical services--Assessee stated to be leader of consortium but co-operation agreement specifying share of assessee at only 3 per cent. of total consideration--Activities entailing rendering technical service only--Department accepting receipt of consideration at 3 per cent.--Bound to accept scope of activities outlined in co-operation agreement --Receipts taxable at 10 per cent. as fees for technical services, not as business profits--Permanent establishment of assessee in relation to another project not connected to income in question-- Joint Stock Company Zangas v. Addl. Director of Income-tax (International Taxation) (Ahmedabad) . . . 57

S. 271C --Penalty--Failure to deduct tax at source--Interest--Assessee disclosing payment of interest in return--No concealment of facts--Recipients showing receipt of interest in their returns and paying tax thereon within time prescribed--No loss to Government--Penalty cannot be levied-- Muthoot Bankers v. Joint CIT (Cochin) . . . 40