DEPRECIATION – ALLOWABLE AMOUNT AND ACTUAL ALLOWANCE AGAINST CHARGEABLE PROFITS

 

DEPRECIATION – ALLOWABLE AMOUNT AND ACTUAL ALLOWANCE AGAINST CHARGEABLE PROFITS OR GAINS two important concepts in section 32 on the Income-tax Act, 1961.

References and links:

Section 32 of Income-tax act, 1961.

Article by author titled "Chargeable profits and gains in the context of depreciation allowance" published in (1996) 86 Taxman 184 (Mag.).

Depreciation:

Readers are well aware about concept of depreciation of assets in commercial world and also about depreciation allowable under the provisions of the income-tax act, 1961.Therefore, a detailed discussion is not considered necessary.

Scope of this write-up:

Scope of this write-up is limited to two aspects:

Amount of depreciation allowable, and amount which can be allowed in any year and balance un-allowed deprecation which is carried forward under the provisions of Income-tax Act to form part of current depreciation of subsequent year.

Depreciation allowable:

On reading of section 32(1) along with the relevant rules and the appendix to the income Tax Rules which prescribes rate of depreciation we find that the allowance for depreciation of various eligible assets is to be worked out at prescribed rates on SLM or WDV basis as may be applicable in case of an assessee. The allowance for deprecation of assets is calculated from year to year and it can be called a regular and continuing allowance. Whereas, some other allowances like initial allowance or additional allowance are allowed in the initial year as an incentive. Terminal deprecation may be allowed in the year when asset ceases to be in use or when block of asset ceases to be block of asset etc. Those deductions cannot properly be called as allowance for depreciation of assets because initial or additional allowance is allowed as an incentive and terminal allowance is in nature of obsolescence allowance.

What is allowable, and what can be allowed?:

We find that what is allowable as allowance for deprecation is to be computed in terms of sub-section (1) of the section 32.

We also find that what can be allowed in a given year is to be computed in accordance with sub-section (2) of section 32 and what remains un-allowed due to inadequate chargeable income is to be carried forward.

Relevant portion of these sub-sections are reproduced below with highlights in context of the scope of this write-up:

Depreciation.

32. (1) [In respect of depreciation of—

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998,

owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—]

[(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;]

(ii) 3[in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:]

xxxx

(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.]

Quantification is in sub-section (1):

We find that the quantification of depreciation allowable is to be made in accordance with sub-section (1) whereas actual allowance will be made under sub-section (2).

As per sub-section (2) deprecation is to be actually allowed in the assessment of assessee. And that deprecation is to be allowed to the extent of chargeable profits or gains.

The amount which can be allowed is thus restricted to the amount of profit or gains which are chargeable to tax.

Chargeable profit or gain or income:

In a detailed article the author has expressed his views that Chargeable income in the context of Section 32 of the Income-tax Act, 1961 means `total income', computed after allowing deductions under chapter VIA in an article published at (1996) 86 Taxman 184 (Mag.) entitled "Chargeable profits and gains in the context of depreciation allowance". In that article, detailed discussions have been made on related provisions. It is also pointed out that under the provisions of the Income-tax act, 1922 the scheme was different. Under old provisions it was mandatory to deduct depreciation while computing business income. Whereas in the 1961 Act the scheme is different, and amount of allowable deprecation is to be deducted from `chargeable income'.

In context of computation provisions allowable amount of depreciation can be computed when section 32 or section 57 is applicable that is when a business or profession is carried or when certain types of income are earned which may fall under the head `income from other sources'.

However, depreciation can actually be allowed only against chargeable profits or gains that means against `total income' which is worked out after deductions under chapter VIA are deducted from the gross total income. Deprecation is therefore, allowable against `total income', irrespective of heads of income under which different computations are made.

The amount of allowable deprecation or any part of it which cannot be allowed due to absence or inadequacy of chargeable profit or gains becomes part of deprecation of subsequent year.

Depreciation which is carried forward is considered as actually allowed for the purpose of computing written down value (WDV). However, in view of author the concept of year wise `unabsorbed deprecation' was applicable only during assessment years 1997-98 to 2001-02 when a limit of eight years was applicable for carry forward and set off of deprecation also.

For a detailed discussions readers are advised to read the earlier article published as (1996) 86 Taxman 184 (Mag.) entitled "Chargeable profits and gains in the context of depreciation allowance".

Readers are also requested to send their views on the subject matter.

DEPRECIATION – ALLOWABLE AMOUNT AND ACTUAL ALLOWANCE AGAINST CHARGEABLE PROFITS OR GAINS two important concepts in section 32 on the Income-tax Act, 1961.
By: C.A. DEV KUMAR KOTHARI : View Profile

References and links:

Section 32 of Income-tax act, 1961.

Article by author titled "Chargeable profits and gains in the context of depreciation allowance" published in (1996) 86 Taxman 184 (Mag.).

Depreciation:

Readers are well aware about concept of depreciation of assets in commercial world and also about depreciation allowable under the provisions of the income-tax act, 1961.Therefore, a detailed discussion is not considered necessary.

Scope of this write-up:

Scope of this write-up is limited to two aspects:

Amount of depreciation allowable, and amount which can be allowed in any year and balance un-allowed deprecation which is carried forward under the provisions of Income-tax Act to form part of current depreciation of subsequent year.

Depreciation allowable:

On reading of section 32(1) along with the relevant rules and the appendix to the income Tax Rules which prescribes rate of depreciation we find that the allowance for depreciation of various eligible assets is to be worked out at prescribed rates on SLM or WDV basis as may be applicable in case of an assessee. The allowance for deprecation of assets is calculated from year to year and it can be called a regular and continuing allowance. Whereas, some other allowances like initial allowance or additional allowance are allowed in the initial year as an incentive. Terminal deprecation may be allowed in the year when asset ceases to be in use or when block of asset ceases to be block of asset etc. Those deductions cannot properly be called as allowance for depreciation of assets because initial or additional allowance is allowed as an incentive and terminal allowance is in nature of obsolescence allowance.

What is allowable, and what can be allowed?:

We find that what is allowable as allowance for deprecation is to be computed in terms of sub-section (1) of the section 32.

We also find that what can be allowed in a given year is to be computed in accordance with sub-section (2) of section 32 and what remains un-allowed due to inadequate chargeable income is to be carried forward.

Relevant portion of these sub-sections are reproduced below with highlights in context of the scope of this write-up:

Depreciation.

32. (1) [In respect of depreciation of—

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998,

owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—]

[(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;]

(ii) 3[in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:]

xxxx

(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.]

Quantification is in sub-section (1):

We find that the quantification of depreciation allowable is to be made in accordance with sub-section (1) whereas actual allowance will be made under sub-section (2).

As per sub-section (2) deprecation is to be actually allowed in the assessment of assessee. And that deprecation is to be allowed to the extent of chargeable profits or gains.

The amount which can be allowed is thus restricted to the amount of profit or gains which are chargeable to tax.

Chargeable profit or gain or income:

In a detailed article the author has expressed his views that Chargeable income in the context of Section 32 of the Income-tax Act, 1961 means `total income', computed after allowing deductions under chapter VIA in an article published at (1996) 86 Taxman 184 (Mag.) entitled "Chargeable profits and gains in the context of depreciation allowance". In that article, detailed discussions have been made on related provisions. It is also pointed out that under the provisions of the Income-tax act, 1922 the scheme was different. Under old provisions it was mandatory to deduct depreciation while computing business income. Whereas in the 1961 Act the scheme is different, and amount of allowable deprecation is to be deducted from `chargeable income'.

In context of computation provisions allowable amount of depreciation can be computed when section 32 or section 57 is applicable that is when a business or profession is carried or when certain types of income are earned which may fall under the head `income from other sources'.

However, depreciation can actually be allowed only against chargeable profits or gains that means against `total income' which is worked out after deductions under chapter VIA are deducted from the gross total income. Deprecation is therefore, allowable against `total income', irrespective of heads of income under which different computations are made.

The amount of allowable deprecation or any part of it which cannot be allowed due to absence or inadequacy of chargeable profit or gains becomes part of deprecation of subsequent year.

Depreciation which is carried forward is considered as actually allowed for the purpose of computing written down value (WDV). However, in view of author the concept of year wise `unabsorbed deprecation' was applicable only during assessment years 1997-98 to 2001-02 when a limit of eight years was applicable for carry forward and set off of deprecation also.

For a detailed discussions readers are advised to read the earlier article published as (1996) 86 Taxman 184 (Mag.) entitled "Chargeable profits and gains in the context of depreciation allowance".

Readers are also requested to send their views on the subject matter.

Dated: - January 7, 2012

S. 147: Full & true disclosure of material facts means “specific” disclosure o

 

The Indian Hume Pipe Co Ltd vs. ACIT (Bombay High Court)
S. 147: "Full & true disclosure of material facts" means "specific" disclosure of "each" fact
The assessee entered into an agreement in July 2001 for sale of development rights for Rs.39 crores. The transfer was in December 2003. The assessee computed LTCG of Rs. 23.19 crores. The assessee invested in eligible bonds between Feb & June 2002 (after the agreement to sell but before the transfer) and claimed exemption u/s 54EC. During the assessment proceedings, the AO asked for a copy of the agreements with the purchaser and other details which the assessee furnished. A copy each of the s. 54EC bonds (which gave the dates of investments) was also furnished. The AO allowed the deduction as claimed. After the expiry of 4 years from the end of the assessment year, the AO issued a notice u/s 148 claiming that as the investments were made prior to the date of transfer (Dec 2003), s. 54EC deduction was not admissible. The assessee filed a Writ Petition to challenge the reopening on the ground that there was no failure on its part to make a full and true disclosure of material facts. HELD dismissing the Petition:

(i) "Full and true disclosure of material facts" means that the disclosure should not be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the AO. The assessee must act with candor. A full disclosure is a disclosure of all material facts which does not contain any hidden material or suppression of fact. It must be truthful in all respects;

(ii) On facts, though the AO enquired into the matter and the assessee furnished a copy of the s. 54EC bonds (from which the dates of allotment/ investment were evident), there was no (specific) reference by the assessee to the dates on which the amounts were invested in the s. 54EC bonds. Also, it was it was evident that the AO had not applied his mind to the issue of s. 54EC exemption. Accordingly, the AO was justified in reopening the assessment.

Note: The ground that s. 54EC exemption is allowable even to investments made pre-transfer as per Circular No. 359 dated 10.5.1983 and so there can be no "reason to believe" was not argued. Contrast with Kelvinator 256 ITR 1 (Del)(FB) (affirmed in 320 ITR 561 (SC)) where it was held that a s. 143(3) assessment meant that the AO was "deemed to have applied his mind to all aspects" and that a reopening based on "reappraisal of existing material" was not permissible.

Related Judgements
Titanor Components Limited vs. ACIT (Bombay High Court At Goa) There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts. It is only in the latter case that the AO is entitled to proceed…
Atma Ram Properties Pvt Ltd vs. DCIT (Delhi High Court) S. 147: AO must specify what facts are failed to be disclosed. Lapse by AO no ground for reopening if primary facts disclosed In AY 2001-02, the AO assessed advances of Rs. 1.56 crores received from a group concern as "deemed dividend" u/s 2(22)(e). In appeal, the CIT…
Hasan Ali Khan vs. ITSC (Bombay High Court) (i) The Chairman of the Settlement Commission has the power to constitute a Special Bench and he is not required to give reasons or produce the material in support thereof. (ii) It is not as if the moment an application is made and there is compliance of the…

Whether when Revenue searches several persons, a combined satisfaction rec

 

Whether when Revenue searches several persons, a combined satisfaction recorded can be said to be legally valid for initiating action under Sec 158BD - YES, rules ITAT

NEW DELHI, JAN 06, 2012: THE issues before the Bench are - Whether ground relating to assumption of jurisdiction under section 158BD can, for the first time, be taken in the second round of litigation; whether completion of assessment proceedings in the case of searched person is sine qua non for initiating action under section 158BD; Whether for judging the correct date of notice of 158BD typographical errors should be ignored; Whether combined satisfaction, when the searched persons are more than one, can be recorded for initiating action under section 158BD and Whether undisclosed income unearthed during search can only be added under chapter- XIV-B. And the verdict partly goes in favour the assessee.

Facts of the case

Assessee, a partnership firm, is engaged in the business of civil construction assessed under section 158BD of the Act. Since certain incriminating material was found against it in a Search and seizure action under section 132 of the Act, conducted at the residence of the partners. During the course of search, several incriminating materials, along with some books of accounts pertaining to M/s. Jeet Construction Company, were seized from all the business premises. On the basis of these documents the AO made additions. Assessee challenged these additions before the CIT(A) and ITAT - ITAT restored the matter to the AO for considering afresh - In the second round of appellate proceedings before CIT(A) assessee challenged the jurisdiction of the AO under section 158BD on the ground that no satisfaction was recorded by the AO of the searched person and the alleged satisfaction was a consolidated satisfaction vis-a-vis material seized from different persons, which was not permissible. Besides assessee also challenged that action under section 158BD ought to have been taken after the culmination of assessment of searched person. Assessee also challenged the addition on merits. CIT(A) dismissed the legal contentions of the assessee and also sustains the addition on merits. Before ITAT the AR of the assessee pointed out that expenses shown by the assessee in the books and assessed under section 143(3) were more than the expenses estimated by the AO and hence no addition on estimated basis was permissible.

After hearing the parties the ITAT held that,

++ in view of decision of Gujarat High Court in the case of P V Doshi Vs CIT, it is clear that jurisdiction point being a pure question of law can be agitated in the remand proceedings as it goes to the root of the matter. In the case before us the assessing officer had not provided the copy of satisfaction note recorded by the assessing officer while initiating proceedings under section 158BD of the Act. The satisfaction note was provided on interference of the CIT (Appeals) in the second round of appellate proceedings. At this stage only the assessee came to know the reasons as to why proceedings against it were initiated under section 158BD as no search under section 132 of the Act was conducted in the case of the assessee. Therefore, in our considered opinion, the assessee is justified in taking the ground agitating the jurisdiction under section 158BD in the second round of assessment proceedings;

++ nowhere in the section it is provided that proceedings under section 158BD will be initiated only in a case where assessment under section 158BC is made. Initiation of 158BD proceedings is independent of the action taken in the case of searched person. It is the satisfaction of the assessing officer having jurisdiction over searched person to convey the books of accounts or assets to the assessing officer having jurisdiction on the person in respect of whom the books of account, other documents or assets seized or requisitioned are found in the possession of searched person. The books of accounts or documents or assets can be conveyed at any stage i.e. during the course of assessment proceedings in case of searched person or before initiation of proceedings under section 158BC of searched person or after completion of assessment in the case of searched person. Therefore, completion of assessment under section 158BC in the case of searched person is not condition precedent for recording of the satisfaction under section 158BD of the Act;

++ as per original assessment order the notice was served on the assessee on 20/09/2004. Therefore, the date written on hand at the bottom as 20/09/2004 represents the date of service. The date of issue of notice on 16/11/2003, in our considered opinion, appears to be typing mistake as the assessing officer in the assessment order has stated the date of notice under section 158BD as 16/09/2004. The date of notice mentioned in the assessment order 16/09/2004 was not challenged in the first assessment proceedings. Therefore, the date mentioned on the notice under section 158BC 16/11/2003 is a typographic mistake. The assessee had not filed any other evidence to prove that notice dated 16/11/2003 was served on the assessee in November, 2003. In the absence of any such material, we are unable to hold that the notice under section 158BD read with s. 158BC was issued on 16/11/2003. Therefore, this contention of the assessee is rejected;

++ the contention of the assessee that the combined satisfaction note recorded in respect of three different searched persons is bad in law. The assessing officer should have recorded separate satisfaction notes in the case of each searched party. As already mentioned that the assessing officer is same for all the searched persons, because of this reason, a combined satisfaction note has been prepared. When the assessing officer is the same for all the searched persons, making a satisfaction note based on material found from the premises of different persons, which was conveyed by the authorized officer to the assessing officer, preparation of combined satisfaction note will not be detrimental to the interest of the Revenue. At the best it could be treated as an irregularity and not illegality. What is to be seen is whether before issue of notice u/s 158BD satisfaction should be recorded by the assessing officer which has been done in the case of the assessee. Therefore, assessment cannot be annulled on the basis of combined satisfaction note, recorded by the same assessing officer, having jurisdiction on all the searched persons including the assessee under appeal;

++ Section 158B(b) defines term `undisclosed income' and means to include any money, bullion, jewellery or other valuable article or things or any income based on any entry in the books of accounts and other documents or transaction, where such money, bullion, jewellery, valuable article, things, entry in the books of accounts or other document or transaction represent wholly or partly income or property, which has not been or would have been disclosed for the purpose of this Act or any expense, deduction or allowance claimed under this Act, which is found to be false. From the definition of expression `undisclosed income' it is clear that income which has not been disclosed or would not have been disclosed would be undisclosed income. Section 158BB(1) provides the mode of computation of undisclosed income. The undisclosed income for the block period shall be the aggregate of total income of the previous years falling within the block period computed, in accordance with provisions of this Act, on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other material or information as are available with the assessing officer and relatable to such evidence, as reduced by the aggregate of total income or as the case may be, as increased by aggregate of losses of such previous years determined, - as specified in clause (a) to (f). Therefore, where income has been already assessed or return of income has been filed that income cannot be taken as undisclosed income;

++ no evidence during the course of search was found that the assessee had earned any undisclosed income. Similarly, there is nothing on record to suggest that the assessee had booked bogus expenditure in various assessment years. The assessing officer had also not determined the undisclosed income assessment year-wise. In fact on the basis of entries found recorded in the seized material, income cannot be determined on year to year basis. Had it been so, the earlier assessing officer would have not recorded a finding of fact that there was no clinching evidence of concealment of income. Merely because the ITAT had set aside the issue to the file of the assessing officer, the totals of all the entries whether recorded in the regular books of accounts or without any date would constitute income of the assessee that too undisclosed income. Moreover, it is a settled law that the assessee cannot be put to a more adverse situation than what he was in.

Adjustment of short-term capital loss post 1-10-2004 against short-term capital

 

Adjustment of short-term capital loss post 1-10-2004 against short-term capital gain pre 1-10-2004
There is no bar in section 70 that short-term capital loss post 1-10-2004 cannot be set-off against short-term capital gain earned prior to that date. – Vide ITO v. Sonia Pankaj Razdan (2011) 42(II) ITCL 412(Mum-Trib)

WHAT is Res Judicata

 

By Vinayak Y Thakur

WHAT is Res Judicata

A matter adjudged, a thing judicially acted upon or decided, a thing or matter settled by judgment, a thing definitely settled by judicial decision, the thing adjudged – Law Lexicon

As per Black's law Dictionary – 7th Edition, there are three elements in the above principle.

They are -

(1) an earlier decision on the issue,

(2) a final judgment on the merits, and

(3) the involvement of the same parties, or parties in privity with the original parties.

The above principle operates as a bar to try the same issue once over. The Apex Court in the case of Sulochana Amma vs. Narayanan Nair - (2002-TIOL-292-SC-MISC) held that this principle aims to prevent multiplicity of proceedings and accords finality to an issue, which directly and substantially had arisen in the former suit between the same parties or their privies, decided and became final, so that parties are not vexed twice over; vexatious litigation would be put to an end and the valuable time of the Court is saved. It is based on public policy as well as private justice. The principle would apply, therefore, to all judicial proceedings of the tribunals other than the civil courts.

Basis and Scope of

The principles of Res Judicata are of universal application as it is based on two age old principles, namely , interest reipublicae ut sit fins litium which means that it is in the interest ofthe State that there should be an end to litigation and the other principle is nemo debet his veari, si constet curiae quod sit pro un aet eademn cause meaning thereby that no one oughtto be vexed twice in a litigation if it appears to the Court that it is for one and the same cause. This doctrine is common to all civilized system of jurisprudence to the extent that a judgment after a proper trial by a Court of competent jurisdiction should be regarded as final and conclusive determination of the questions litigated and should forever set the controversy at rest.

That principle of finality of litigation is based on high principle of public policy . In the absence of such a principle great oppression might result under the colour and pretence of law in as much as there will be no end of litigation and a rich and malicious litigant will succeed in infinitely vexing his opponent by repetitive suits and actions. This may compel the weaker party to relinquish his right. The doctrine of Res Judicata has been evolved to prevent such an anarchy.

Recently, Hon. Supreme Court in the case of M. Nagabhushana vs. State of Karnataka 2011 (271) ELT 481 dealt with this doctrine. It held that the application of this doctrine should not be hampered by any technical rules of interpretation. Plea of res judicata is not mere technicality, but a fundamental principle sustaining rule of law, ensuring finality in litigation.

Constructive res judicata

`Constructive' means `implied', "that which has not the character assigned to it in its own essential nature, but acquires such character in consequence of the way in which it is regarded by a rule or policy of law (Black)

Whether doctrine is applicable in taxation matters

The principle of res judicata or estoppel is not applicable to tax matters , thus the view taken by the assesse or appellate, revisional authority or even the High Court in respect of any one assessment period will not be final and conclusive for subsequent assessment period but such earlier decisions should be a cogent factor in the determination of the same point in subsequent assessment period.

In the case of Bramec Surie (P) Ltd . 1986 (25) ELT 79, the Tribunal had held that issues already concluded in earlier proceedings could be reopened in subsequent proceedings for another period of time if emerging fresh materials give a new dimension to the matter.

While dealing with the issue whether Appellate Tribunal is bound by its earlier decision, the Hon. Supreme Court in the case of Swaraj Mazda Ltd 1995 (77) ELT 505 held that the Tribunal is not precluded from deciding the question on merits because of earlier decision of the Tribunal regarding an earlier period.

The non-application of the doctrine of res judicata in tax matters is based on the fact that assessment for each year is distinct and separate since the Finance Act which alone supports the assessment is sanctioned only for a particular year by the legislature. When happening of some subsequent event was not existent at the time of passing the first order, one cannot plead res judicata.

Case laws relied on for the above discussion

++ J.K. Synthetics Ltd. 1981 (8) ELT 328 Tribunal

++ Birla Jute Mfg. Co. Ltd. 1985 (21) ELT 930 Tribunal

++ Jain Exports - (2003-TIOL-164-HC-DEL-EXIM-LB)

++ Peico Electronics & Electricals Ltd. 1994(71) ELT 1053 (Tribunal) upheld in 2000 (116) ELT A72 SC.

++ Swaraj Mazda Ltd. 1995 (77) ELT 505 SC

++ Sulochana Amma vs. Narayanan Nair - (2002-TIOL-292-SC-MISC)

++ UOI vs. R.C.Fabrics (P) Ltd. - (2002-TIOL-533-SC-CUS-LB)

++ M. Nagabhushana 2011 (271) ELT 481 SC.

Avoiding litigation under Section 11 of the Arbitration Act

 

January 4, 2012
Avoiding litigation under Section 11 of the Arbitration Act

There is much litigation in courts under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter, "A&C Act"), on appointment of arbitrators. Often, the party resisting the arbitration exploits all its might to stall the appointment of arbitrator, which can easily last a few years. A real threat of rising litigation costs is used to politely arm-twist a weaker party into a settlement, even if the latter has a genuine claim.

This post is aimed at attempting to propose a solution, in order to expedite the actual arbitration proceedings. The solution is Section 11 of the A&C Act, which is the cause of the entire problem as well.

Section 11(2) of the A&C Act provides that the parties are free to agree to the procedure for appointment of arbitrators. It is only in the absence of an agreement between the parties over a procedure, or failure to act according to the agreed procedure, that one of the parties can approach the court for appointment of the arbitrator.

Therefore, the parties are free to agree that if upon expiry of a definite time period, from receiving a request for appointment of an arbitrator, the other party does not appoint its own arbitrator, the former's arbitrator shall act as a sole arbitrator. This procedure obviates a situation where one party will have to approach the court for appointment of arbitrator. It is a very practical provision, which seems to have been completely ignored in India.

A similar provision, although more clear and elaborate, exists in Section 17 of the English Arbitration Act, 1996.

Relevant portion of the model arbitration clause under London Maritime Arbitrators Association Terms, incorporating the essence of this provision, reads as follows:

"The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that ithas done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement."

This is a useful provision, which could be used while drafting an arbitration clause, in order to avoid a situation where a genuine arbitration claim is stalled under Section 11 of A&C Act.

I am uncertain whether this provision for default appointment of arbitrator has ever been tested in courts in India (I would be grateful if someone could bring to my attention a decision where it has been tested). It would be interesting to see whether our courts adopt a non-interventionist approach or indulge in some ingenuous attempts to exercise jurisdiction.

143[2]

 

[2012] 17 taxmann.com 37 (JP. - ITAT)
IT : Where Assessing Officer has not issued notice under section 143(2) within time available, he cannot issue notice under section 142(1)(ii) and (iii) after time limit of issuance of notice under section 143(2) has expired 

Business of real estate

 

[2012] 17 taxmann.com 36 (DELHI - ITAT)
IT : Participation by assessee in tender for sale of land demonstrats that its business of real estate development is set up during relevant year.

__,_._,___

Income Tax Arrear Letter from CPC Bangalore just a communication of demand not a

 

Income Tax Arrear Letter from CPC Bangalore just a communication of demand not a demand notice, No need to respond to tax notices for below Rs 100

It has been reported in some sections of the press that the Central Processing Centre , Bangalore is sending notices for payment of taxes which are as small as Rs. 1/- , 4/- , 6/-, causing unnecessary hardship to assesses .

It has been stated that when the refunds for amounts less than Rs. 100/- are not issued by the Income Tax Department, then the demand for less than Rs. 100/- should also not be collected .

Clarification in this regard is as follows:

Arrear Demand Communication

The Income Tax Department has created a central repository of all demands for better demand management as required by Standing Committee of Parliament and C&AG. To achieve this, all officers were asked to collate demand lying at various places viz. IRLA, TMS and manual registers and upload onto CPC portal. This was also part of the annual action plan. Consequently AOs have uploaded the same. During a meeting with Bangalore Chartered Accountants association, it was suggested that taxpayers should also be informed about the same so as to enable them to take necessary action if the outstanding demands were incorrect. This measure was aimed at providing greater transparency. Therefore, a communication has been sent to taxpayers informing them about existing arrears. It may be clarified that this communication is not a demand notice. This measure is, in fact, an assessee -friendly exercise. The Department has also written to all chief commissioners to amend such entries, if found incorrect, when approached by taxpayers. This would correct the database if a taxpayer has proof of payment etc. As per extant procedure, demand of less than Rs. 100 is not enforced but is liable for adjustment against future refunds.

How to Draft Appeal and Procedure in Appeals before CIT (Appeals) a

 

How to Draft Appeal and Procedure in Income Tax Appeals before CIT (Appeals) and ITAT
How to Draft Appeal and Procedure in Income Tax Appeals before CIT (Appeals) and ITAT

Drafting Appeal and Procedure in Income Tax Appeals before CIT (Appeals) and ITAT

Drafting of Appeal

1. Drafting of Statement of Facts and Grounds of appeal before Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal.

The Income-tax Rules, 1962 ( the Rules) only provides that an appeal to the Commissioner (Appeals) shall be made in Form No. 35 and that the form of verification shall be signed and verified by the person who is authorised to sign the return of income under section 140 of the Income-tax Act, 1961 (the Act) (Rule 45) . However, Income-tax (Appellate Tribunal ) Rules, 1963 ( the Tribunal Rules) specifies as to the contents of the memorandum of appeal. Rule 8 mandates that every memorandum of appeal shall be written in English and shall set forth, concisely and under distinct heads the grounds of appeal without any argument or narrative and such grounds shall be numbered consecutively. Rule 47 of the Rules prescribes Form No. 36 for an appeal to the Income-tax Appellate Tribunal (the Tribunal) and Form No. 36A for filing memorandum of cross-objections. Both the memorandum of appeal and memorandum of cross-objections are to be verified by the person specified in Rule 45 as narrated above. Form No. 35 requires to set out a statement of facts along with the ground of appeal. No statement of fact is required to be filed with the memorandum of appeal to be filed with the Tribunal. This is for the reason that the annexures to the memorandum of appeal to be filed before the Tribunal includes Form No. 35 in which statement of facts are narrated. Therefore, it is necessary to present the statement of facts in such a manner so as to clearly bring out the issues in the assessment/penalty proceedings leading to the order under challenge. Rule 22 of the Tribunal Rules provides that memorandum of cross-objection shall be numbered as an appeal and all the rules so far as may be, shall apply to such appeal.

A specimen draft of grounds of appeal is as under:

"On the facts and in the circumstances of the case and in law the Assessing Officer (or ` the Commissioner of Income–tax (Appeals)' where an appeal is filed before the Tribunal against the order of Commissioner (Appeals)) erred in …….without appreciating …………".

A prayer should be made for deletion or addition/disallowance after taking relevant ground as under :

"The Appellant prays that the addition/ disallowance of Rs. _________ made in respect of/out of ……………. be deleted."

And at the end the Appellant should crave leave for variation or withdrawal of grounds of appeal as under:

"The Appellant craves leave to add, amend , alter vary and / or withdraw any or all the above grounds of Appeal."

If the statement of facts /grounds of appeal are separately annexed then the same should be signed by the Appellant.

Procedure in appeal
1. As stated hereinabove, an appeal to the Commissioner (Appeals) is to be filed in Form No. 35 and to the Tribunal in Form No. 36. Cross-objections are to be filed in Form No. 36A.

As per notes to the Form No. 35 the memorandum of appeal, statement of facts and the grounds of appeal must be in duplicate and should be accompanied by a copy of the order appealed against and the notice of demand in original, if any. However, it is advisable that an assessee prepares three identical sets of appeal papers which would include the order for the sake of convenience so that he can file two sets with the Commissioner (Appeals) and take the acknowledgment on the third. The memorandum of appeal should be accompanied by the prescribed fee. The schedule of fee is given hereinafter. Further, where the appeal is filed against an order imposing penalty under section 271(1)(c) of the Act , a copy of assessment order must also be attached.

Rule 9 of the Tribunal Rules provides that every memorandum of appeal to be filed before the Tribunal shall be in triplicate and shall be accompanied by two copies (at least one of which is a certified copy) of the order appealed against, two copies of the order of the assessing officer, two copies of the grounds of appeal, before the first Appellate authority and two copies of statement of facts, if any, filed before the said Appellate Authority. In a case of appeal against the order of penalty, the memorandum of appeal shall also be accompanied by two copies of the assessment order. Where an assessment order is passed under section 143(3) rws 144B or under section 143(3) rws 144A or under section 143(3) rws 147, the memorandum of appeal shall also be accompanied by the two copies of the draft assessment order under section 144B or directions under section 144A or the original assessment order as the case may be. The memorandum of appeal before the Tribunal shall also be accompanied by the prescribed fees. However, it is advisable that four identical sets consisting of memorandum of appeal in Form No. 36, order of Commissioner (Appeals), Form No. 35 with annexures and the assessment/penalty order from which the appeal arises are prepared for the sake of convenience so that three sets could be filed before the Tribunal and an acknowledgment can be taken on the fourth. It may be noted that, explanation to Rule 9 clarifies that "certified copy " will include the copy which was originally supplied to the assessee as well as photostat copy thereof duly authenticated by the assessee or his authorised representative as a true copy.

The Supreme Court in CIT vs. Calcutta Discount Co. Ltd., (1973) 91 ITR 8 (SC) observed that in considering an appeal the Appellate Authority should deal with the substance of the matter at issue and not be unduly influenced by mere procedural technicalities, for example, whether the memo of appeal was or was not in proper form etc.

2. Appeal fees
A fees payable for filing the appeal are given hereunder as Annexure to the chart regarding filing of appeals under the Income-tax Act. However, it may be noted that the Hyderabad Bench of the Tribunal in Andhra Pradesh State Electricity Board vs. ITO (1994) 49 ITD 552 (Hyd) have held that even where total income is computed at a loss and such loss exceeds Rs.1 lakh, the fees payable would be as per the slab prescribed for the income more than Rs. 1 lakh and therefore fees are to be determined on the basis as if loss determined is income. The Mumbai Bench of the Tribunal in Chiranjilal S. Goenka vs. WTO (2000) 66 TTJ (Mum) 728 have held that the stay application for more than one year or for more than one order for the same assessment year can be made on payment of fees of Rs. 500/- only. Further, the Mumbai Bench of Tribunal in Amruta Enterprises vs. Dy. CIT (2003) 84 ITD 172 (Mum) have held that the quantum of penalty under section 271(1)(c) cannot be linked with the assessed income and therefore the fees payable is as per the provisions of section 253 (6)(d). Also, in Narendra Valji Shah vs. ACIT (ITA/3545/M/99 dated 24-5-2000).

The Tribunal (Mumbai Bench C) held that the levy of penalty u/s. 271B is not in any way related to the total income and hence fees would be Rs. 500/- as contemplated in section 253(6)(d). A similar view was taken in Chromatte India Ltd. vs. ITO (ITA/3486-87/M/02 dated 12-2-2002) where the Tribunal held that in an appeal against an order u/s 263 the fees are to be paid as per section 253(6)(d). Also, in Mrs. Nimu R. Thodani vs. Jt. CIT (ITA/5437/M/97 dated 1-2-2000) the Tribunal held that in cases filed with respect to interest under sections 234A, 234B, 234C or any other interest appeal fee would be Rs. 500/- as per section 253(6)(d) because interest is in no way related to the assessed income but is linked with tax payable. The ratio of the said decisions will also apply to the appeals to be filed before Commissioner (Appeals).

3. Who can sign the appeal memo
As stated hereinabove, the form of appeal is to be signed and verified by the person who is authorised to sign the return of income under section 140 of the Act. As such the appeal to be filed by an individual must be signed and verified (i) by the individual himself, (ii) where he is absent from India, by the individual himself or by some person duly authorised by him in this behalf (a valid Power of Attorney should be attached with the appeal) (iii) where he is mentally incapacitated from attending to his affairs, by his guardian or any other person competent to act on his behalf., and where, for any other reason, it is not possible for the individual to sign the appeal, by any person duly authorised by him in this behalf (a valid Power of Attorney should be attached with the appeal). Therefore, unless any of such exceptional circumstances be present, an appeal in order to be valid, has to be signed by the individual himself. In case of the Hindu undivided family, the appeal is to be signed by the Karta and where the Karta is absent from India or he is mentally incapacitiated from attending to his affairs, the appeal is to be signed and verified by any other adult member of such family. If the Hindu undivided family has no major member as Karta, appeal may be validly signed by any male adult member of the family who is in receipt of the income. [pl. see Shridhar Uday Narayan vs. CIT (1962) 45 ITR 577(All)]. "Adult "is a person who has attained the age of discretion which in India is 16 years. A person attains majority at the age of 18 years. In a case of a company an appeal is to be signed and verified by the Managing Director thereof or where for any unavoidable reason, such Managing Director is not able to sign, by any Directors thereof or where there is no Managing Director by any Director thereof. The Calcutta High Court in National Insurance Co. Ltd vs. CIT (1995) 213 ITR 862 (Cal) held that the return signed by a Director and not by the Managing Director was invalid in absence of any explanation. A company which is being wound up or for whose assets any person has been appointed as a receiver, the appeal is to be signed and verified by the liquidator referred to in section 178(1). In case of a firm the appeal is to be signed by the Managing Partner thereof or where for any unavoidable reason, such Managing Partner is not able to sign, by any partner thereof not being a minor or where there is no Managing Partner as such, by any partner thereof not being a minor. In other cases, it is the principal officer who has to sign the appeal. The Bombay Bench of the Tribunal in Mrs. Leezo Salidan vs. CIT 16 TTJ 243 (Bom) , Pyrkashim Stores vs. CIT 9 ITD 93(Bom) and Hariledge vs. ITO 29 Taxman 122 (Bom) as also the Gujarat High Court in Rajendrakumar Maneklal Sheth( HUF) vs. CIT (1995) 213 ITR 715 (Guj) have held that the appeal signed by an advocate / Chartered Accountant is valid. The correctness of this decisions is however not free from doubt. However, there are divergent views on the issue as to whether the defect in signature would render the appeal a nullity. The Allahabad High Court in Court of Wards, Naraindas Narsinghdas vs. CIT in (1950)18 ITR 204 (All) has held the appeal to be invalid whereas a Calcutta High Court in Sheonath Singh vs. CIT (1958) 33 ITR 591 (Cal) has held it to be an irregularity which can be rectified. Please also refer to Gouri vs. CIT (1959) 37 ITR 220 (Pat), Gianchand Virbhan vs. CIT (1960) 39 ITR 414 (Pat), and V.K. Padmalochan Sahu (1974) 95 ITR 113 (Ori) whose views are those in line with that of Calcutta High Court. The Madras High Court in Arunachalam Chettiar vs. CIT (1962) 45 ITR 407 (Mad) and Andhra Pradesh High Court in Chelamala Setti Adeyya vs. CGT (1964) 54 ITR 339 (AP) held that failure to attach notice of demand to memorandum of appeal is mere irregularity which can be subsequently rectified. [Also see Gyan Manjari Kuari vs. CIT (1944) 12 ITR 59 (Pat); Ag IT v. Keshab Chandra Madanlal (1950) 18 ITR 569, 573(SC)]. The Bombay High Court in Malani Trading Co. vs. CIT (2001) 252 ITR 670 (Bom) have held that merely because there is defect in the memo of appeal, dismissal of appeal without giving opportunity to cure said defect will be improper. Where revenue filed appeal without including therein grounds of appeal and statement of facts as required and Tribunal did not issue defect memo, the Gauhati Bench of the Tribunal in Asst. CIT vs. Rayang Timber Products (P) Ltd. (2002) 82 ITD 73 (Gau)(TM) held that appeal was to be deemed to have been accepted and it had to be further presumed that Tribunal had already exercised its discretion under sub-rule (3) of rule 9 of ITAT rules in favour of appellant.

4. Presentation of appeal
A memorandum of appeal to the Commissioner (Appeals) must be presented to the office of the Commissioner in person or by an agent or sent by Registered Post addressed to the Office of the Commissioner (Appeals). A memorandum of appeal to the Tribunal must be presented by the Appellant in person or by an agent to the Registrar at the Head Quarters of the Tribunal at Bombay or to an Officer authorised in this behalf by the Registrar or sent by Registered Post addressed to the Registrar or to such officer. Vide order No. 1 of 1973 dated 1.10.1973, the Registrar of the Tribunal has authorised Asst. Registrars of the Appellate Tribunal situated at different places to be the authorised Officer to receive the appeals or applications as per Rule 7 of the Tribunal Rules. In the case the applicant apprehends that it is last day of the limitation for presentation of his appeal and application, he may present it to the Assistant Registrar at his residence or any other place wherever he may be or to Member of the Tribunal at his residence or wherever he may be. If an appeal is send by post it shall be deemed to have been presented on that day on which it is received by the office of the Commissioner (Appeals) or the Tribunal (pl.see Rule 6(2) of the Tribunal Rules and F.N.Roy vs. Collector of Customs AIR 1957 (SC) 648 – postal authorities are not considered as a agents of the addressee but are the agents of the sender).

5. Time for filing an appeal
An appeal to the Commissioner (Appeals) should be filed within a period of 30 days of the service of the order against which the appeal is preferred. The Calcutta High Court in Charki Mica Mining Co. Ltd. vs. CIT (1978) 111 ITR 193 (Cal) has held that the period of limitation for filing an appeal to the Commissioner (Appeals) is to be computed from the date of the receipt of demand by the assessee and not from the date of receipt of assessment order by the assessee. An appeal to the Tribunal should be filed within a period of 60 days from the date on which the order sought to be appealed against is communicated.

Where the assessment order was served on the person who was not an authorised agent of the assessee, and later on, the assessee applied for and obtained a copy of the assessment order for purpose of filing an appeal, it was held that the time limit for filing the appeal should be reckoned from the date on which the assessee obtained the copy of the assessment order and notice of demand and not from the earlier date of service of the assessment order – CIT vs. Prem Kumar Rastogi (1980) 124 ITR 381 (All). Also see, Jayalakshmi Cloth Stores vs ITO (1981) 132 ITR 764 (AP), Rasipuram vs. CIT (1956) 30 ITR 687 (Mad) and Malayalam Plantations Ltd vs. CIT (1959) 36 ITR 205 (Ker). Where postal acknowledgment in file of Assessing Officer did not bear signature of any person and so also it did not bear any date of service, it was reasonable to believe that the assessee was not served with the order of assessment and the demand notice and in such case appeal filed by the assessee on 10-8-1980 against the order of assessment for the assessment year 1981-82 could not be said to be barred by limitation. (Badri Singh Thakur vs. ITO (1995) 78 Taxman 206(Jab).

6. Delay in filing an appeal
Section 249 (3) gives a power to the Commissioner (Appeals) to condone the delay in filing the appeal to the Commissioner (Appeals). Similarly, section 253(5) empowers the Tribunal to admit an appeal or permit the filing of memorandum of cross-objection after the expiry of the relevant period if it is satisfied that there was sufficient cause for not presenting it within that period. When an application for condonation of delay in filing an appeal is preferred, it is statutory obligation of the appellate authority to consider whether sufficient cause for not presenting the appeal in time was shown by the appellant – Shrimant Govindrao Narayanrao Ghorpade vs. CIT (1963) 48 ITR 54(Bom). An assessee has a statutory right to present an appeal within prescribed period without any order being required from the Appellate Authority for admission of the appeal. But after the expiry of the prescribed period, an appeal can be entertained only if it is admitted by the appellate authority after condoning the delay [CIT vs. Mysore Iron & Steel Ltd. (1949) 17 ITR 478, 480 (Bom)]. But the power to condone the delay is discretionary and the discretion must be judicially exercised. (J & K Small Scale Industries Development Corpn Ltd., v. Dy. CIT (1949) 71 ITD 367 (Asr). The Supreme Court in Collector of Land Acquisition vs. Mrs. Katiji & Others (1987)167 ITR 471(SC), held that Court should have pragmatic and liberal approach. [Also see Raja Jagadambika Pratap Narain Singh vs. CBDT 100 ITR 698 (SC)] The Supreme Court in N. Balkrishnan vs. M. Krishnamurthy (1998) 7 SCC 123 had condoned a delay of 833 days. It was observed that condonation of delay is a matter of discretion of the Court and the only criterion is the acceptability of explanation irrespective of the length of delay. A subsequent decision of the Supreme Court/High Court was considered as sufficient cause for condoning delay in filing the appeal. State of Andhra Pradesh vs. Venkataramana Chudava & Muramura Merchant (1986) 159 ITR 59 (AP). The Courts have also held that the mistake of an Advocate or Chartered Accountant is a reasonable cause for delay in filing an appeal. (pl. see Rafiq C. Munshilal AIR 1981 SC 1400 (1401), Mahavir Prasad Jain vs. CIT (1988) 172 ITR 331 (MP), Concord of India Insurance Co. Ltd. vs. Smt. Nirmaladevi & Sons (1979) 118 ITR 507 (SC). Punam Singh vs. ITO (2002) 257 ITR 38 (Chennai) ( Trib). Shakti Clearing Agency P. Ltd. vs. ITO (127 Taxman 49 (Mag) (Raj.). For other reasons, please see Vijayeshwari Textiles Ltd. vs. CIT (2002) 256 ITR 560 (Mad), Meenakshy Lucky Centre vs. Jt. CIT (2002) 122 Taxman 266 (Coch) (Mag). Revenues petition for condonation of delay was dismissed in Asst. CIT vs. Taggas Industries Development Ltd. (2002) 80 ITD 21 (Cal); Asst. CIT vs. Punna Textiles Industries P. Ltd., (2002) 122 Taxman 264 (Cal) (Mag), Asst. CIT vs. Mahadeo Agarwalla (2002) 125 Taxman 229 (Cal) (Mad).

7. Payment of admitted tax
As far as appeal before the Commissioner (Appeals) is concerned, section 249 (4) provides that no appeal shall be entertained under chapter XX unless at the time of filing the appeal the assessee has paid (a) the taxes due on the returned income or (b) where no return is filed, an amount equal to the amount of advance tax which was payable by him. The Commissioner (Appeals) is empowered, for any good and sufficient reason, to exempt the assessee from operation of this provision in case of (b). Prior to amendment from 1-4-1989 the Commissioner (Appeals) had power to exercise his power to exempt in case (a) also. Order refusing to exercise such discretion is an appealable order – CIT vs. Smt. Nanhibai Jaiswal (1988) 171 ITR 646 (M.P.). Filing of appeal before Tribunal also falls under chapter XX , hence provisions of section 249(4) are applicable to an appeal filed before the Tribunal. (V. Baskaran vs. Asst. CIT (1998) 62 TTJ (Chennai) 698). But the Indore Bench of the Tribunal in Pawan Kumar Lodha vs. ACIT (2003) 78 TTJ (Ind) 983 held that prepayment of tax does not apply to appeal filed before the Tribunal. However, it does not apply to appeals filed to the Tribunal from assessment framed under Chapter XIV B. [V.S.N. Sudhakaran vs. Asst. CIT (2002) 83 ITD 159 (Chennai); Anil Sanghi vs. ACIT (85 ITD 73 (Del) (SB)]. The Madras High Court in CIT vs. Smt. G.A. Somanth Kamani (2002) 125 Taxman 424 (Mad) held that section 249 (4) cannot be read down so as to restrict it to appeal against assessment only it will be applicable in case of appeal against penalty also.

8. Appeal is not maintainable where tax is not deducted at source from payment made to non-resident and is not paid to the Govt. prior to filing of appeal (ITO vs. Tata Iron & Steel Co. Ltd. (2001) 71 TTJ (Cal) 323. Crucial date for deciding the applicability of amended provisions to section 249(4) was the date of issue of notice under section 143(2) and not date of filing return. (Satyendra Pal Chaudhary vs. Asst. CIT (2002) 74 TTJ (Mum) 741) . Where despite adjustment of seized amount full amount of tax due from assessee was not paid before filing appeal, assessee's appeal was not maintainable (Bharatkumar Sekhsaria vs. Dy. CIT (2002) 82 ITD 512 (Mum) . Also see CIT vs. Smt. G.A. Samonthakamani (2002) 125 Taxman 424 (Mad).

In Shri Parasram G. Purohit vs. ACIT, ITA No. 2689/Bom/93 Bench `B' Assessment year 1989-90, the Hon'ble Bombay Tribunal, held that once the tax required to be paid u/s. 249(4) has been paid before the final date of hearing, it is incumbent to consider the appeal having been filed on the date of payment. (Decision of Supreme Court in CIT vs. Filmistan 42 ITR 163 referred to). Where appellant was `notified entity under the Special Court (Trial of offences relating to Transactions in Securities) Act, 1992 and all properties had been attached, in view of this fact that the Appellant had requested the Assessing Officer to approach special Court to release amount of self assessment tax payable and such request had been made by Assessing Officer, assessee could be said to have made implied compliance with the provisions of section 249(4). (Divine Holdings (P) Ltd vs. Dy. CIT (2001) 119 Taxman 27 (Mum) (Mag) (Also see, Ashwin S. Mehta (HUF) vs. Asst CIT (2002) 75 TTJ (Mum) 960). Where assessee filed appeal on 2.4.1976 and 4.11.1997 was last date on which AAC heard appeal by which time assessee had paid entire tax due, the Delhi High Court in CIT vs. Rama Body Builders (2001) 250 ITR 825 (Del), AAC was not justified in refusing to entertain appeal on the ground that tax due had not been paid by 2.4.1976, the date on which the appeal was filed, [also see S. Venkatesh vs. Asst. CIT (2000) 112 Taxman 31 (Chennai) (Mag)].

9. Death of an assessee
Where an assessee to an appeal dies or is adjudicated insolvent or in the case of the company wound up, the appeal will not abate and will continue against the executor, administrator or other legal representatives of the assessee or by or against the assignee, receiver or liquidator as the case may be. In case of a death of assessee, the legal heirs of the assessee must file copy of death certificate and an affidavit of they being the legal heirs. A fresh memorandum of appeal signed by the legal heirs must be filed before the Commissioner (Appeals) or the Tribunal as the case may be where the assessee is the appellant so that the legal heirs are brought on record.

CHART REGARDING FILING OF APPEALS UNDER THE INCOME-TAX ACT, 1961

Particulars CIT I.T.A.T
Relevant provisions Sections 246A to 251 Sections 252 to 255
Appealable Orders Specified in section 246A 253
Time limit 30 days 60 days
Prescribed Form Form No. 35 (Rule 45) Form No. 36 (Rule 47(1)
Cross objection — Form No. 36A
(Rule 47(1) Time Limit 30 days)
Fees payable As prescribed – As per Annexure
Documents accompanying the Memo of Appeal Statement of Facts, Ground of Appeal. Notice of Demand and copy of order against which appeal is preferred (In case of appeal against penalty order assessment order also to be annexed). Grounds of Appeal order of CIT (A) and Form No. 35 with entire set filed along with it
No. of copies to be filed Duplicate Triplicate
Filed with CIT(A) mentioned in Notice of Demand The Asst. Registrar, Income-tax Appellate Tribunal
SCHEDULE OF FEES FOR FILING APPEALS TO THE COMMISSIONER OF
INCOME-TAX (APPEALS) AND INCOME-TAX APPELLATE TRIBUNAL

Particulars Fees for filing appeal before CIT (A) Fees for filing appeal before I.T.A.T
Under Income-tax Act, 1961
Assessed total income Rs. 1 lakh or less Rs. 250 Rs. 500
Assessed total income more than Rs. 1 lakh but not more than Rs. 2 lakhs Rs. 500 Rs. 1,500
Assessed total income more than Rs. 2 lakhs Rs. 1000 1% of assessed income subject to a maximum of Rs. 10,000
Where subject matter is not covered under any of above Rs. 250 Rs. 500
Under other Direct taxes (Wealth Tax Act/Gift Tax Act etc) In an appeal under Wealth Tax Act, in the case an appeal is not relatable to net wealth as computed by A.O — Rs. 500
Miscellaneous application u/s. 254(2) — Rs. 50
Stay Petition — Rs. 500

GENERAL AMNESTY FOR RETROSPECTIVE RESTORATION OF NAMES

 

ANNOUNCEMENT
GENERAL AMNESTY FOR RETROSPECTIVE RESTORATION OF NAMES
FROM REGISTER OF MEMBERS AND CERTIFICATE OF PRACTICE
DATE: 03.01.2012
With a view to mitigating the hardships being faced by such members whose names stand removed
as on date due to non-payment of membership fee, the Council has decided to give them an
opportunity by way of General Amnesty for restoration of their names retrospectively.
Continuation of membership entitles to designate as `CA' and benefits alike monthly Journal of the
Institute , newsletters of Regional Councils & Branches of the Institute, participation in the
conferences, seminars and other programmes organized by the Institute, Regional Councils and/or
Branches at concessional rates; regular update of programs being organized and initiatives taken for
the benefit of the profession and members; emerging professional opportunities, practice area
development, publications of the Institute.
This is an excellent opportunity to get your name restored with retrospective effect by submitting
your application in Form 9 on or before 31
st
March, 2012 alongwith the outstanding fee for the
intervening period of nam e removal and restoration fee submitted. Details of General Amnesty
Scheme are given below:-
(i) Retrospective restoration of membership under General Amnesty Scheme:
Category I: The names of the members whose name is removed prior to 31
st
March 2011 on account
of non payment of fees and not restored as on date may apply for retrospective restoration of their
names under General Amnesty Scheme by filling Form 9 along with the membership fees for the year
during which the name was removed and for the current year together with the fee(s) for the
intervening years and the additional fee of Rs.1200/- towards restoration. To avail benefits of General
Amnesty Scheme, members should submit the requisite fees and Form upto 31
st
March 2012.
The scale of membership fee as applicable from time to time is as given below:
Effective from Associate Fellow
1
st
April, 2011 *Rs.800 *Rs.2200
1
st
April, 2008 *Rs.600 **Rs.1,800
1
st
April, 2000 Rs.300 Rs.900
1
st
April, 1996 Rs.225 Rs.700
1
st
April, 1991 Rs.150 Rs.400
1
st
April, 1986 Rs.100 Rs.275
1
st
April, 1982 Rs.80 Rs.200
1
st
April, 1976 Rs.60 Rs.125
1
st
April, 1975 Rs.45 Rs.110
1
st
April, 1964 Rs.28 Rs.83
1
st
April 1949 Rs.25 Rs.25
*Rs.450/- and Rs.*Rs.600/- where an Associate
member has attained the age of 65 years as on
1
st
April,

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Co-accused's statement not enough for conviction: HC

 

Co-accused's statement not enough for conviction: HC

January, 04th 2012
The Nagpur bench of Bombay high court has ruled that an accused can't be convicted just on the basis of a co-accused's statement. "The statement of co-accused can always be used if the accused is being tried primarily on other evidence. But his statement cannot be foundation to convict the accused when that is only the sole material," the court said.

A single judge bench of justice Ambadas Joshi then acquitted an accused for offences of theft, cheating and forgery. "Allowing the trial to proceed would mean nothing but waste of time of the court, the prosecution, and would burden the state exchequer. Apart from that it tends to disrepute the criminal law administrative system," a justice Joshi observed before disposing of the plea.

"Permitting trial on such unsustainable material would be vexing the accused and burdening the courts with prosecution which cannot be reasonably expected to fructify or at least could be worthy of trial," the court said before absolving accused Pravin Kalmegh who filed the petition through his counsel Akash Moon and PS Mohgaonkar of all charges.

Kalmegh (co-accused) along with Vijay Kene, the prime accused, were charged under sections 420, 34 and 379 of the Indian Penal Code (IPC). On First Information Report (FIR) of July 16, 2009, the Imambada police station arrested the duo and subsequently filed a chargesheet on September 20 in same year.

The petitioner filed four separate petitions contending he was prosecuted in four crimes only on the basis of Kene's version and there is no other evidence available against him. He further argued that Kene named him just to satisfy his personal grudge and enmity and falsely implicated him in the crime.

The HC found there indeed was no other proof on record against petitioner. The court citing many Supreme Court and HC judgments quashed and set aside the criminal proceedings in all four cases.

Whether profit from sale of shares intended as investment in books & treated as STCG

 

I-T - Whether profit from sale of shares intended as investment in books and treated as short-term capital gains, can be construed as business income on basis of frequency and magnitude of transactions - ruled in favour of Revenue by ITAT

MUMBAI, DEC 15, 2011: THE issues before the Tribunal are - Whether profit from sale of shares intended as an investment in the books of the assessee and supported by the resolution of its board of directors, and treated as short term capital gains, can be treated as business income on the basis of frequency and magnitude of the transactions and whether assessee's intention at the time of making the share purchase and the treatment given by the assessee to these transactions in its books of account, would overrule the facts of frequency and volume of the transaction to determine the nature of the transaction as investment or trade. And the answer partly goes in favour of Revenue.

Facts of the case

The assessee is a Private Limited Company engaged in the business of dealing in shares and securities. The Assessee was doing trading, speculation, investment and also had transactions from the derivative market. The assessee had switched from trading to the investment based business following a resolution passed by its Board of Directors in March 2005, stating that all transactions related to delivery based shares were to be carried out only on investment account. Accordingly, during the year, the assessee had not made any fresh purchases of shares in respect of trading. Through a software used by the assessee, all the trading transactions were automatically bifurcated on a day to day basis, as an investment or a speculative activity depending on when the contract for share purchase was squared up, whether on the same day without taking delivery or in a few days after taking delivery. Thus the assessee had a scrip wise analysis for every listed company share on a day to day basis.

During the year, the assessee had made an application for the initial public offers by M/s Shoppers Stop and YES Bank for which it had utilized the financial facilities from L&T Ltd and Kotak Mahindra Investment Ltd and paid interest on such borrowings. The shares acquired through these IPOs were sold as short term investment and the interest paid was reduced from the working of such gain. The assessee also maintained a running ledger with the share broker through whom such investments were arranged, which reflected the loans from and advances made to various associates and group concerns. This ledger showed huge loans taken and repaid for the activity of investment without any interest having been paid. The accounts were generally squared up at the end of the year and thus showed nil balance.

In its return of income, the assessee had shown its sale and purchase transactions and reported a net profit. After reducing miscellaneous expenses and the interest paid on two IPOs, the assessee had shown short term capital gains which were adjusted against the brought forward unabsorbed depreciation loss short term capital loss for earlier assessment years which resulted in short term capital gain on which the assessee had applied the tax rate of 10 per cent. The assessee had also shown long term capital gain which was claimed as exempt under section 10(38).

According to the assessee, the assessee was an investor. This was because the intention at the time of making an investment had to be seen, to determine whether the assessee was an investor or a trader. There was no trading transaction during the year and the trading profit had arisen only out of sale made from the opening stock of earlier year. Also, at the end of the year, the assessee company had sufficient funds and investment in shares had been made out of own funds.

While the AO accepted the long term capital gains and the short term capital losses posted by the assessee, he rejected the assessee's explanation of being an investor and objected to the short term capital gains on which the assessee had applied the lower tax rate of 10 per cent.

The AO noted that only in a few cases the assessee had squared up the contract of purchase and sale after more than one month. The AO thus held that the frequency and the amount of borrowing showed that the assessee's intention was business in the trading of shares and securities on a day to day basis. The scrip wise list showing stock in trade during the year, had shares of various listed companies which were also there in the huge list shown as investment. Even the purchases in the same scrip on the same day were divided into speculation and investment. Thus, the assessee had smartly but intentionally switched over its trading business to the investment business to have undue advantage of lower tax rate provided for short term capital gain. The assessee had utilised borrowed money for these huge investments made during the year. The assessee's IPO application for a huge amount had incurred a huge interest cost, which could not be treated as a short term investment by any prudent businessman and clearly showed the assessee's intention of doing business was a camouflage of showing the same as investment activity. Its accounts were also squared up at the end of the year to avoid the reflection in the balance sheet as borrowed loans. This view was also supported by the fact that the assessee was also trading in the derivative market with a huge volume on almost day to day basis. Thus the AO treated the short term capital gain as business income on which the higher tax rate of 30 per cent was applicable.

In appeal, the CIT(A) treated the short term capital gain on shares allotted in the IPO as business income but otherwise reversed the AO's order. The CIT(A) held that, there were no outstanding loans against the assessee; the net worth of the assessee company was substantial enough to cover the entire investment in shares, which proved that the assessee had made the entire investment out of its own funds without any borrowing. Also, considering the resolution passed by the assessee company's board of directors, the intention of the assessee at the time of purchase was accepted as that of investment. The CIT(A) held that it was immaterial whether the assessee held the shares for 90 days or 380 days and it could not alter the nature of transaction. Thus, the CIT(A) held that the short term capital gain earned on shares could not be taxed as business income. The CIT(A) then directed the AO to tax the income from short term capital gains at the lower rate of 10 per cent under section 111A.

In appeal before the Tribunal, the Revenue side submitted that the activity of frequent buying and selling of shares over a short span of period had to be treated as business being adventure in nature of trade. This was the first year where the volume and frequency were more and the holding period was less. Also, the frequency and amount of borrowings for investment in shares and the magnitude of the transaction justified the income as "business income" as against "short term capital gain" treated by the assessee. Thus, the profit from purchase and sale of shares had to be considered as business income and not capital gain as claimed by the assessee. The assessee's intention was to pay less tax that is at the rate of 10 per cent as against 30 per cent.

The assessee did not appeal against treating the short term capital gain on IPO shares as business income. The assessee submitted that in the earlier assessment years, the AO had accepted the short term capital gain and the long term capital gain without making any disallowance. Also, no borrowed funds had been utilized as its own funds and free reserves were higher than the value of investments. Also, as per CBDT circular, the assessee could have two portfolios of securities, one for investments and the other for stock in trade and the valuation of shares in the books of account had an important bearing in the matter.

Having heard the parties, the Tribunal held that,

++ the Board had accepted that an assessee could have two portfolios simultaneously – one, an investment portfolio comprising of securities which were to be treated as capital asset and two, a trading portfolio comprising of stock in trade which were to be treated as trading asset and the assessee could have income under both heads that is, capital gains and business income;

++ the AAR had culled out various principles from the decision of the Apex Court, following which the CBDT had issued guidelines for AOs to determine whether the shares held by the assessee were investment or stock-in-trade. Accordingly, it was possible for an assessee to be both an investor as well as dealer in shares. Following various legal precedents, whether a transaction of sale and purchase of shares was a trading or investment transaction was a mixed question of law and fact. Purchase with intention to resell could constitute capital gain or business profit depending on circumstances like quantity of purchase and nature of activity. A company that purchased and sold shares had to show that they were held as stock-in-trade and the existence of its power to purchase and sell shares in the memorandum of association was not decisive of the nature of transaction. The Board had also advised that no single principle was decisive and the total effect of all the principles had to be considered;

++ in this case, the shares were held for a few days or in few cases for a few weeks or months. Purchase of shares during the year and selling them frequently in a short period indicated that the assessee had purchased the shares with a motive to earn profit in a short period. Therefore, the frequency and volume of the transactions gave an impression that the assessee did not intend to acquire the shares with an investment motive. In the case of investment, the earning of dividend and the appreciation of the shares was the primary consideration. Only a trader looked for short term gains from purchase and sale of shares. Therefore, the treatment given by the assessee to these transactions in the books of account, could not be the only determinative factor about the nature of the transactions. The fact that the shares were disclosed as investment in the balance sheet had to be reckoned with but when other factors or circumstances threw some doubt on the motive of the assessee in acquiring the shares, as in this case, then the entries in the books of account or balance sheet would not override them and be taken as decisive of the intention of the assessee.

++ although in the preceding two years, the short term capital gain had been accepted by the Revenue in scrutiny/summary assessment, the assessee's argument that the same had to be followed this year too was without force as it was the settled proposition of law that principles of res judicata did not apply to income tax proceedings and every assessment was independent and separate;

++ in the preceding assessment year, the assessee traded in shares and the resolution to treat delivery based shares as investment was passed only towards the end of the financial year. The entire exercise was done by the assessee with a motive to reduce the tax liability which was 10 per cent for short term capital gains and 30 per cent for business income. Therefore notwithstanding the fact that the shares were shown as investment in the balance sheet of March 2005, which were earlier a part of stock in trade, sale of the same, could not be considered as sale of investment and consequently the profit had to be treated as business income. Also, it was the computer which decided whether the share was delivery based or non-delivery based and whether it was for trading or investment. Therefore the Board's resolution had lost its significance;

++ the assessee's argument that no borrowed funds had been utilized for making the investment was also without force as the AO had given a categorical finding that the assessee had used borrowed money from group concerns and associates and only towards the end of the year, the same was squared up so as to give an impression that no borrowed funds had been utilized for the purpose of investment in shares;

++ the assessee could have two portfolios; one for investment and one for trading. Mere volume of transaction did not mean that the assessee was a trader and the intention with which the purchase was made had to be seen. However, in this case, the intention of the assessee appeared to be whimsical. Purchases in the same scrip on the same day had been divided into speculation and investment whereby the intention of the assessee was just to reduce the tax liability by treating a part of the profit as short term capital gain. Therefore, the profit on account of purchase and sale of shares by the assessee had to be treated as income from business. The order of the CIT(A) was therefore set aside and the AO's order was restored. The grounds raised by the Revenue were accordingly allowed.