Friday, August 20, 2010

SC: CIT vs. Walfort Share & Stock Brokers S. 94(7) dividend stripping loss cannot be disallowed.

CIT vs. Walfort Share & Stock Brokers (Supreme Court)

Tuesday, July 6th, 2010

(180.3 KiB, 893 DLs)

Download: wallfort_dividend_stripping_tax_planning.pdf

Pre S. 94(7) dividend stripping loss cannot be disallowed. Transaction cannot be ignored on ground that it is for tax-planning

 

The copy now available (15.7.2010 @ 14.30 hrs) is a better copy. Please re-download if you downloaded earlier)

 

In respect of AY 2000-01, the assessee bought units of a mutual fund on 24.3.2000 (the record date) for Rs. 17.23 each and immediately became entitled to receive dividend of Rs. 4 per unit. After the dividend payout, the NAV of the unit fell by Rs. 4 to Rs. 13.23. The assessee redeemed the units on 27.3.2000 at Rs. 13.23 per unit and claimed a loss of Rs. 4. The dividend of Rs. 4 was claimed exempt u/s 10(33). The AO & CIT (A) rejected the claim of loss on the ground that the loss was "artificial" and could not be allowed. On appeal by the assessee, a Five Member Special Bench of the Tribunal 96 ITD 1 (Mum) (SB) upheld the claim and this was confirmed by the Bombay High Court 310 ITR 421 (Bom). On appeal to the Supreme Court, HELD, dismissing the appeal:

 

(i) The argument of the department that the loss (the difference between the purchase and sale price of the units) constitutes "expenditure incurred" for earning tax-free income and was liable to be disallowed u/s 14A is not acceptable. The difference arose as a result of the dividend payout. The said "pay-out" is not "expenditure" to fall within s. 14A. For attracting s. 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income, which is absent in the present case.

 

(ii) The argument of the department that the transaction was entered into in a pre-meditated manner and that the loss is not genuine is not acceptable because the transaction was a "sale", the sale-price and dividend was received by the assessee. The assessee made use of the provisions of s. 10(33), which cannot be called an "abuse of law". Even assuming that the transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. With regard to McDowell & Co 154 ITR 148(SC), in the later decision in Azadi Bachao Andolan 263 ITR 706(SC) it has been held that a citizen is free to carry on its business within the four corners of the law. Mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even in McDowell & Co. Accordingly, the losses pertaining to exempted income cannot be disallowed prior to s. 94(7).

 

(iii) S. 94(7) was inserted w.e.f. 1.4.2002 to curb claim of such loss. However, the effect of s. 94(7) is that only losses to extent of dividend have to be ignored by the AO and not the entire loss. Losses over and above the dividend are still allowable even after s. 94(7). This shows that Parliament has not treated the dividend stripping transaction as sham or bogus or the entire loss as a fictitious or fiscal loss. If the argument of the Department is to be accepted, it would mean that before 1.4.2002 the entire loss would be disallowed as not genuine but, after 1.4.2002, a part of it would be allowable u/s 94(7) which can never be the object of s. 94(7).

 

(iv) As regards the reconciliation of ss. 14A and 94(7), the two operate in different fields. S. 14A deals with disallowance of expenditure incurred in earning tax-free income while S. 94(7) refers to disallowance of loss on acquisition of an asset. S. 14A applies to cases where an assessee incurs expenditure to earn tax free income but where there is no acquisition of an asset. In cases falling u/s 94(7), there is acquisition of an asset and existence of the loss which arises at a point of time subsequent to the purchase of units and receipt of exempt income. It occurs only when the sale takes place. S. 14A comes in when there is claim for deduction of an expenditure whereas s. 94(7) comes in when there is claim for allowance for the business loss. One must keep in mind the conceptual difference between loss, expenditure, cost of acquisition, etc. while interpreting the scheme of the Act. Also, though ss. 14A and 94(7) were inserted by the Finance Act, 2001, s. 14A was inserted w.r.e.f. 1.4.1962 while s. 94(7) was inserted w.e.f. 1.4.2002.

 

(v) The argument of the department that by virtue of Para 12 of AS 13, the dividend should be regarded as a "return of investment" and go to reduce the cost of the unit is not acceptable. As 13 provides that interest/ dividends received on investments are generally regarded as return on investment and not return of investment and it is only in certain circumstances where the purchase price includes the right to receive crystallized and accrued dividends/ interest, that have already accrued and become due for payment before the date of purchase of the units, that the same has got to be reduced from the purchase cost of the investment. A mere receipt of dividend subsequent to purchase of units, on the basis of a person holding units at the time of declaration of dividend on the record date, cannot go to offset the cost of acquisition of the units. (Reference made to Vijaya Bank 187 ITR 541 (SC) where it was held that where the assessee buys securities at a price determined with reference to their actual value as well as interest accrued thereon till the date of purchase the entire price paid would be in the nature of capital outlay and no part of it can be set off as expenditure against income accruing on those securities).

 





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Wednesday, August 18, 2010

ITR :- Volume 326 : Part 2 (Issue dated 23-8-2010)

NCOME TAX REPORTS (ITR)

Volume 326 : Part 2 (Issue dated 23-8-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Accounting --Rejection of accounts giving several reasons--Commissioner (Appeals) holding that accounts could not be rejected--Tribunal not justified in confirming the order of Commissioner (Appeals) without considering material on record--Matter remanded--Income-tax Act, 1961-- CIT v. T. M. Kuruvilla (Ker) . . . 210

Appeal to Appellate Tribunal --Judicial discipline--Decision made on identical factual situation--Coordinate Bench cannot take a contrary view--Remedy is to make a reference to President of Tribunal under section 255(3)--Income-tax Act, 1961, s. 255(3)--Affection Investments Ltd . v. Asst. CIT (Guj) . . . 255

Appeal to High Court --Competency of appeal--Tax less than prescribed monetary limit and issue involved not falling within exception under CBDT circular--Appeal by Department dismissed--Income-tax Act, 1961, s. 260A--CBDT circular F. No. 279/126/98-IT dated 27-3-2000-- CIT v. G. Chandra (Mad) . . . 336

----Export--Special deduction--Net loss from export of goods--Assessee not entitled to deduction--Settled law--Assessee raising a question of law in appeal before Tribunal--Not entitled to raise question before court--Income-tax Act, 1961, ss. 80HHC, 260A--Asvini Fisheries P. Ltd. v. Deputy CIT (Mad) . . . 344

Assessment --Reference to valuation officer--Change of law with retrospective effect--Effect--Investment in construction of building--Commissioner (Appeals) remanding matter for examination of genuineness of cash credits--Reference to Departmental valuation officer--Reassessment proceedings initiated after receipt of valuation report--Assessing Officer entitled to refer valuation after completion of assessment--Impact of amendment with retrospective effect not considered--Matter remanded--Income-tax Act, 1961, ss. 142A, 147, 260A-- CIT v. Mrs. Achamma Chacko (Ker) . . . 258

Bad debts --Assessee writing off interest on money advanced to subsidiary company--Finding that advances irrecoverable bad debts and interest not charged due to commercial expediency--Findings of fact--Income-tax Act, 1961, s. 36(1)(vii)-- CIT v. V. Ramakrishna and Sons Ltd . (Mad) . . . 315

Business expenditure --Condition precedent for allowance--Company--Expenditure on performing puja--Not deductible--Income-tax Act, 1961, s. 37-- Hira Ferro Alloys Ltd. v. Deputy CIT (Assessment) (Chhattisgarh) . . . 261

----Expenditure on technical know-how--In-house research and development facility--Weighted deduction--Expenditure incurred on establishment of facility--Section not mentioning any cut-off date or particular date for eligibility to claim deduction--Tribunal granting weighted deduction for entire expenditure incurred--Proper--Income-tax Act, 1961, s. 35AB(2)-- CIT v. Claris Lifesciences Ltd . (Guj) . . . 251

Capital gains --Computation of capital gains--Sale of property to a Government concern--Valuation by stamp duty authorities higher than consideration received by assessee--Application for reference to valuation cell under section 50C--Assessment order adopting valuation of stamp duty authorities without waiting for valuation of valuation cell--Not valid--Indian Stamp Act, 1899, s. 47A--Income-tax Act, 1961, ss. 45, 50C, 153(3)(ii)-- N. Meenakshi v. Asst. CIT (Mad) . . . 229

----Loss--Long-term capital loss--Reduction in loss on account of increase in deemed sale consideration of properties by adopting stamp duty value--Assessee not availing of opportunity provided under sub-sections (2) and (3) of section 50C--Reduction in capital loss justified--Income-tax Act, 1961, s. 50C-- Ambattur Clothing Co. Ltd . v. Asst. CIT (Mad) . . . 245

Capital or revenue expenditure --Expenditure on allotment of shares to assessee in subsidiary company--No difference between share capital raised for capital expansion of company and for acquiring shares of a subsidiary company--In either case expenditure is for raising capital--Not entitled to deduction--Income-tax Act, 1961, s. 37-- G. T. N. Textiles Ltd . v. Deputy CIT(Ker) . . . 352

Charitable purposes --Registration--Exemption--Conditions precedent--Rejection on ground amended deed not produced--Amended deed not a pre-requisite condition--Matter remanded --Income-tax Act, 1961, s. 12A-- CIT v. R. M. S. Trust (Mad) . . . 310

Depreciation --Effect of third proviso to section 32(1)(ii)--Rate of deprecation restricted to 75 per cent.--Applies only to companies and only for assessment year 1991-92--Income-tax Act, 1961, s. 32(1)(ii), third proviso-- CIT v. Lotus Roofings P. Ltd. (Mad) . . . 307

Export --Special deduction--Computation--Interest--90 per cent. of gross interest received to be reduced for purposes of section 80HHC--Income-tax Act, 1961, s. 80HHC-- Ambattur Clothing Co. Ltd. v. Asst. CIT (Mad) . . . 245

----Special deduction--Computation--Law applicable--Explanation (baa) to section 80HHC(4) inserted with effect from 1-4-1992 not retrospective--Cash compensatory support whether to be excluded from business profits in assessment year 1991-92--Matter remanded--Income-tax Act, 1961, s. 80HHC(4C), Expln. (baa)-- CIT v. Tractors and Farm Equipment Ltd . (Mad) . . . 313

Income from other sources --Interest--Share application money placed in deposit--Interest thereon is income from other sources--Income-tax Act, 1961, s. 56-- G. T. N. Textiles Ltd . v. Deputy CIT (Ker) . . . 352

Income or capital --Transfer of business--Receipt of amount for not competing with transferee--Assessee carrying on various businesses--Sale of one of businesses did not affect its entire profit making structure--Amount constituted revenue receipt--Income-tax Act, 1961-- CIT v. Tata Coffee Ltd. (Karn) . . . 214

Industrial undertaking --Depreciation--Trial run--Plant and machinery put to use for purposes of business during relevant accounting year--Assessee entitled to depreciation--Income-tax Act, 1961, ss. 71, 80AB, 80HHA-- CIT v. Mentha and Allied Products (All) . . . 297

----Special deduction--Loss from non-industrial unit in terms of section 80AB and section 71 to be adjusted first--Income-tax Act, 1961, ss. 71, 80AB, 80HHA-- CIT v. Mentha and Allied Products (All) . . . 297

Interest on borrowed capital --Amount borrowed at 16 per cent. interest and invested in purchase of 4 per cent. non-cumulative preference shares--No evidence that transaction not genuine--No part of interest could be disallowed--Income-tax Act, 1961, s. 36(1)(iii)-- CIT v. Pankaj Munjal Family Trust (P&H) . . . 286

----Assessee borrowing money from sister concern at a higher rate of interest and investing in sister concern giving lower income--Tribunal failing to apply test of commercial expediency--Matter referred to a larger Bench--Income-tax Act, 1961-- CITv. Rockman Cycle Industries Private Limited (P&H) . . . 291

Penalty --Advance tax--Finding that assessee having bona fide belief that sales tax liability not includible in total income and on that bona fide belief not including sales tax liability in advance tax estimate--Penalty order set aside based on evidence and material on record--No interference--Income-tax Act, 1961, ss. 43B, 273(2)(aa)-- CIT v. Amrit Banaspati Company Limited (All) . . . 303

Precedent --Effect of Supreme Court decision in CIT v. Sun Engg. Works P. Ltd. [1992] 198 ITR 297-- CIT v. Sangeetha Granites Ltd.  (Karn) . . . 324

Reassessment --Notice on grounds that fixed deposits revealed unaccounted investments--Fixed deposits considered in earlier assessment years--Interest on fixed deposits assessed in prior years--Reassessment for recomputing agricultural income--Not valid--Remand to consider recomputation of agricultural income--Order of remand not valid--Income-tax Act, 1961, ss. 147, 148--CIT v. Rama-krishna Hegde (Karn) . . . 347

----Scope of reassessment--Reassessment proceedings pertaining to particular income--Assessee cannot claim in reassessment proceedings that entire income was exempt--Reassessment proceedings to disallow part of claim under section 80HHC--Assessee cannot claim that its entire income was exempt under section 10B--Income-tax Act, 1961, ss. 10B, 80HHC, 147-- CIT v.Sangeetha Granites Ltd. (Karn) . . . 324

Rectification of mistakes --Mistake must be obvious--Issue regarding computation of income of company under section 115J--Issue settled subsequently by Supreme Court--Rectification based on such decision--Not valid--Income-tax Act, 1961, ss. 143, 154-- CIT v. Palani Andavar Cotton and Synthetic Spinners Ltd. (Mad) . . . 339

Rejection of accounts --Fall in gross profit--No defects found in accounts--Absence of stock register alone not a ground to infer that accounts inaccurate or incorrect--Commissioner (Appeals) as well as Tribunal accepting explanation of assessee for fall in gross profit--Findings of fact--Income-tax Act, 1961, s. 145(3)-- CIT v. Smt. Poonam Rani (Delhi) . . . 223

Return --Delay in filing returns--Interest--Waiver of interest--Effect of CBDT order dated 26-6-2006--Prior refusal of waiver--Limited waiver granted to rival group belonging to same organisation--Waiver application must be reconsidered--Income-tax Act, 1961, ss. 234A, 234B and 234C--CBDT order dated 26-6-2006-- S. Pankajam v. Chief CIT (Mad) . . . 331

Search and seizure --Block assessment--Undisclosed income--Commissioner (Appeals) confirming addition of undisclosed income--Tribunal not justified in cancelling assessment without considering facts--Matter remanded--Income-tax Act, 1961-- CITv. Smt. M. Thankamma (Ker) . . . 249

----Block assessment--Unexplained investment--Amounts not accounted for and on which no advance tax paid--Additions valid--Income-tax Act, 1961, s. 158B(b)-- M. A. Anto v. CIT (Ker) . . . 212

Writ --Existence of alternate remedy--Not a bar to issue of writ where fundamental right is breached or there is violation of statutory provision--Constitution of India, art. 226-- N. Meenakshi v. Asst. CIT (Mad) . . . 229

AUTHORITY FOR ADVANCE RULINGS

Business expenditure --Financial corporation--Long-term finance for industrial or agricultural development--Profits "derived from" eligible business --Scope of--Bonds given by guarantor--Interest paid by assessee--Eligible for deduction--Loan--Rescheduled--Premium paid--Allowable as deduction--Income-tax Act, 1961, s. 36(1)(viii)-- Rural Electrification Corporation Ltd. , In re . . . 267

Capital gains --Transfer--Income-tax Act, 1961, ss. 45, 47(iv)-- Praxair Pacific Ltd. , In re . . . 276

Deduction of tax at source --Income-tax Act, 1961, s. 195-- Praxair Pacific Ltd. , In re . . . 276

Foreign company --Minimum alternate tax-- Timken Company, In re. . . 193|

Minimum alternate tax --Provisions not applicable to non-resident company having no presence in India--Income-tax Act, 1961, s. 115JB-- Praxair Pacific Ltd., In re . . . 276

----Special provision--Company whose total income less than 10 per cent. of book profits--Minimum alternate tax--Not applicable to foreign company having no physical presence or permanent establishment in India--Income-tax Act, 1961, ss. 10(38), 115JB-- Timken Company , In re . . . 193|

Non-resident --Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India--Income-tax Act, 1961, ss. 2(14), 45, 47(iv), 90, 92 to 92F, 115JB--Agreement for the Avoidance of Double Taxation between India and Mauritius-- Praxair Pacific Ltd. , In re. . . 276

Transfer pricing --Income-tax Act, 1961, ss. 92 to 92F-- Praxair Pacific Ltd. , In re . . . 276

Words and phrases --"Derived from", meaning of-- Rural Electrification Corporation Ltd ., In re . . . 267

----"Transfer", meaning of-- Praxair Pacific Ltd. , In re . . . 276

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Writ--Existence of alternate remedy--Not a bar to issue of writ where fundamental right is breached or there is violation of statutory provision-- N. Meenakshi v. Asst. CIT (Mad) . . . 229

Income-tax Act, 1961 :

S. 2(14) --Non-resident--Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India-- Praxair Pacific Ltd. , In re (AAR) . . . 276

S. 10(38) --Minimum alternate tax--Special provision--Company whose total income less than 10 per cent. of book profits--Minimum alternate tax--Not applicable to foreign company having no physical presence or permanent establishment in India--Timken Company , In re (AAR) . . . 193

S. 10B --Reassessment--Scope of reassessment--Reassessment proceedings pertaining to particular income--Assessee cannot claim in reassessment proceedings that entire income was exempt--Reassessment proceedings to disallow part of claim under section 80HHC--Assessee cannot claim that its entire income was exempt under section 10B-- CIT v. Sangeetha Granites Ltd.(Karn) . . . 324

S. 12A --Charitable purposes--Registration--Exemption--Conditions precedent--Rejection on ground amended deed not produced--Amended deed not a pre-requisite condition--Matter remanded -- CIT v. R. M. S. Trust (Mad) . . . 310

S. 32(1)(ii), third proviso --Depreciation--Effect of third proviso to section 32(1)(ii)--Rate of deprecation restricted to 75 per cent.--Applies only to companies and only for assessment year 1991-92-- CIT v. Lotus Roofings P. Ltd. (Mad) . . . 307

S. 35AB(2) --Business expenditure--Expenditure on technical know-how--In-house research and development facility--Weighted deduction--Expenditure incurred on establishment of facility--Section not mentioning any cut-off date or particular date for eligibility to claim deduction--Tribunal granting weighted deduction for entire expenditure incurred--Proper-- CIT v. Claris Lifesciences Ltd . (Guj) . . . 251

S. 36(1)(iii) --Interest on borrowed capital--Amount borrowed at 16 per cent. interest and invested in purchase of 4 per cent. non-cumulative preference shares--No evidence that transaction not genuine--No part of interest could be disallowed-- CIT v.Pankaj Munjal Family Trust (P&H) . . . 286

S. 36(1)(vii) --Bad debts--Assessee writing off interest on money advanced to subsidiary company--Finding that advances irrecoverable bad debts and interest not charged due to commercial expediency--Findings of fact-- CIT v. V. Rama-krishna and Sons Ltd . (Mad) . . . 315

S. 36(1)(viii) --Business expenditure--Financial corporation--Long-term finance for industrial or agricultural development--Profits "derived from" eligible business --Scope of--Bonds given by guarantor--Interest paid by assessee--Eligible for deduction--Loan--Rescheduled--Premium paid--Allowable as deduction-- Rural Electrification Corporation Ltd. , In re (AAR) . . . 267

S. 37 --Business expenditure--Condition precedent for allowance--Company--Expenditure on performing puja--Not deductible--Hira Ferro Alloys Ltd. v. Deputy CIT (Assessment) (Chhattisgarh) . . . 261

----Capital or revenue expenditure--Expenditure on allotment of shares to assessee in subsidiary company--No difference between share capital raised for capital expansion of company and for acquiring shares of a subsidiary company--In either case expenditure is for raising capital--Not entitled to deduction-- G. T. N. Textiles Ltd . v. Deputy CIT (Ker) . . . 352

S. 43B --Penalty--Advance tax--Finding that assessee having bona fide belief that sales tax liability not includible in total income and on that bona fide belief not including sales tax liability in advance tax estimate--Penalty order set aside based on evidence and material on record--No interference-- CIT v. Amrit Banaspati Company Limited (All) . . . 303

S. 45 --Capital gains--Computation of capital gains--Sale of property to a Government concern--Valuation by stamp duty authorities higher than consideration received by assessee--Application for reference to valuation cell under section 50C--Assessment order adopting valuation of stamp duty authorities without waiting for valuation of valuation cell--Not valid-- N. Meenakshi v. Asst. CIT (Mad) . . . 229

----Capital gains--Transfer-- Praxair Pacific Ltd. , In re(AAR) . . . 276

----Non-resident--Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India-- Praxair Pacific Ltd. , In re (AAR) . . . 276

S. 47(iv) --Capital gains--Transfer-- Praxair Pacific Ltd. , In re (AAR) . . . 276

----Non-resident--Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India-- Praxair Pacific Ltd. , In re (AAR) . . . 276

S. 50C --Capital gains--Computation of capital gains--Sale of property to a Government concern--Valuation by stamp duty authorities higher than consideration received by assessee--Application for reference to valuation cell under section 50C--Assessment order adopting valuation of stamp duty authorities without waiting for valuation of valuation cell--Not valid-- N. Meenakshi v. Asst. CIT (Mad) . . . 229

----Capital gains--Loss--Long-term capital loss--Reduction in loss on account of increase in deemed sale consideration of properties by adopting stamp duty value--Assessee not availing of opportunity provided under sub-sections (2) and (3) of section 50C--Reduction in capital loss justified-- Ambattur Clothing Co. Ltd . v. Asst. CIT (Mad) . . . 245

S. 56 --Income from other sources--Interest--Share application money placed in deposit--Interest thereon is income from other sources-- G. T. N. Textiles Ltd . v. Deputy CIT (Ker) . . . 352

S. 71 --Industrial undertaking--Depreciation--Trial run--Plant and machinery put to use for purposes of business during relevant accounting year--Assessee entitled to depreciation-- CIT v. Mentha and Allied Products (All) . . . 297

----Industrial undertaking--Special deduction--Loss from non-industrial unit in terms of section 80AB and section 71 to be adjusted first-- CIT v. Mentha and Allied Products (All) . . . 297

S. 80AB --Industrial undertaking--Depreciation--Trial run--Plant and machinery put to use for purposes of business during relevant accounting year--Assessee entitled to depreciation-- CIT v. Mentha and Allied Products (All) . . . 297

----Industrial undertaking--Special deduction--Loss from non-industrial unit in terms of section 80AB and section 71 to be adjusted first-- CIT v. Mentha and Allied Products (All) . . . 297

S. 80HHA --Industrial undertaking--Depreciation--Trial run--Plant and machinery put to use for purposes of business during relevant accounting year--Assessee entitled to depreciation-- CIT v. Mentha and Allied Products (All) . . . 297

----Industrial undertaking--Special deduction--Loss from non-industrial unit in terms of section 80AB and section 71 to be adjusted first-- CIT v. Mentha and Allied Products (All) . . . 297

S. 80HHC --Appeal to High Court--Export--Special deduction--Net loss from export of goods--Assessee not entitled to deduction--Settled law--Assessee raising a question of law in appeal before Tribunal--Not entitled to raise question before court-- Asvini Fisheries P. Ltd. v. Deputy CIT (Mad) . . . 344

----Export--Special deduction--Computation--Interest--90 per cent. of gross interest received to be reduced for purposes of section 80HHC-- Ambattur Clothing Co. Ltd. v. Asst. CIT (Mad) . . . 245

----Reassessment--Scope of reassessment--Reassessment proceedings pertaining to particular income--Assessee cannot claim in reassessment proceedings that entire income was exempt--Reassessment proceedings to disallow part of claim under section 80HHC--Assessee cannot claim that its entire income was exempt under section 10B-- CIT v. Sangeetha Granites Ltd. (Karn) . . . 324

S. 80HHC(4C), Expln. (baa) --Export--Special deduction--Computation--Law applicable--Explanation (baa) to section 80HHC(4) inserted with effect from 1-4-1992 not retrospective--Cash compensatory support whether to be excluded from business profits in assessment year 1991-92--Matter remanded-- CIT v. Tractors and Farm Equipment Ltd . (Mad) . . . 313

S. 90 --Non-resident--Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India-- Praxair Pacific Ltd. , In re (AAR) . . . 276

S. 92 to 92F --Non-resident--Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India-- Praxair Pacific Ltd. , In re (AAR) . . . 276 ----Transfer pricing-- Praxair Pacific Ltd. , In re (AAR) . . . 276

S. 115JB --Minimum alternate tax--Provisions not applicable to non-resident company having no presence in India-- Praxair Pacific Ltd., In r (AAR) . . . 276

----Minimum alternate tax--Special provision--Company whose total income less than 10 per cent. of book profits--Minimum alternate tax--Not applicable to foreign company having no physical presence or permanent establishment in India-- Timken Company , In re (AAR) . . . 193|

----Non-resident--Non-resident company having a wholly owned Indian subsidiary--Transfer by non-resident of shares held in another private company to subsidiary--Non-resident company not taxable in India-- Praxair Pacific Ltd. , In re (AAR ). . . 276

S. 142A --Assessment--Reference to valuation officer--Change of law with retrospective effect--Effect--Investment in construction of building--Commissioner (Appeals) remanding matter for examination of genuineness of cash credits--Reference to Departmental valuation officer--Reassessment proceedings initiated after receipt of valuation report--Assessing Officer entitled to refer valuation after completion of assessment--Impact of amendment with retrospective effect not considered--Matter remanded-- CIT v. Mrs. Achamma Chacko (Ker) . . . 258

S. 143 --Rectification of mistakes--Mistake must be obvious--Issue regarding computation of income of company under section 115J--Issue settled subsequently by Supreme Court--Rectification based on such decision--Not valid-- CIT v. Palani Andavar Cotton and Synthetic Spinners Ltd. (Mad) . . . 339

S. 145(3) --Rejection of accounts--Fall in gross profit--No defects found in accounts--Absence of stock register alone not a ground to infer that accounts inaccurate or incorrect--Commissioner (Appeals) as well as Tribunal accepting explanation of assessee for fall in gross profit--Findings of fact-- CIT v. Smt. Poonam Rani (Delhi) . . . 223

S. 147 --Assessment--Reference to valuation officer--Change of law with retrospective effect--Effect--Investment in construction of building--Commissioner (Appeals) remanding matter for examination of genuineness of cash credits--Reference to Departmental valuation officer--Reassessment proceedings initiated after receipt of valuation report--Assessing Officer entitled to refer valuation after completion of assessment--Impact of amendment with retrospective effect not considered--Matter remanded-- CIT v. Mrs. Achamma Chacko (Ker) . . . 258

----Reassessment--Notice on grounds that fixed deposits revealed unaccounted investments--Fixed deposits considered in earlier assessment years--Interest on fixed deposits assessed in prior years--Reassessment for recomputing agricultural income--Not valid--Remand to consider recomputation of agricultural income--Order of remand not valid-- CIT v. Ramakrishna Hegde(Karn) . . . 347

----Reassessment--Scope of reassessment--Reassessment proceedings pertaining to particular income--Assessee cannot claim in reassessment proceedings that entire income was exempt--Reassessment proceedings to disallow part of claim under section 80HHC--Assessee cannot claim that its entire income was exempt under section 10B-- CIT v. Sangeetha Granites Ltd. (Karn) . . . 324

S. 148 --Reassessment--Notice on grounds that fixed deposits revealed unaccounted investments--Fixed deposits considered in earlier assessment years--Interest on fixed deposits assessed in prior years--Reassessment for recomputing agricultural income--Not valid--Remand to consider recomputation of agricultural income--Order of remand not valid-- CIT v. Ramakrishna Hegde(Karn) . . . 347

S. 153(3)(ii) --Capital gains--Computation of capital gains--Sale of property to a Government concern--Valuation by stamp duty authorities higher than conside-ration received by assessee--Application for reference to valuation cell under section 50C--Assessment order adopting valuation of stamp duty authorities without waiting for valuation of valuation cell--Not valid-- N. Meenakshi v. Asst. CIT (Mad) . . . 229

S. 154 --Rectification of mistakes--Mistake must be obvious--Issue regarding computation of income of company under section 115J--Issue settled subsequently by Supreme Court--Rectification based on such decision--Not valid-- CIT v. Palani Andavar Cotton and Synthetic Spinners Ltd. (Mad) . . . 339

S. 158B(b) --Search and seizure--Block assessment--Unexplained investment--Amounts not accounted for and on which no advance tax paid--Additions valid-- M. A. Anto v. CIT (Ker) . . . 212

S. 195 --Deduction of tax at source-- Praxair Pacific Ltd. , In re(AAR) . . . 276

S. 234A --Return--Delay in filing returns--Interest--Waiver of interest--Effect of CBDT order dated 26-6-2006--Prior refusal of waiver--Limited waiver granted to rival group belonging to same organisation--Waiver application must be reconsidered--CBDT order dated 26-6-2006-- S. Pankajam v. Chief CIT (Mad) . . . 331

S. 234B --Return--Delay in filing returns--Interest--Waiver of interest--Effect of CBDT order dated 26-6-2006--Prior refusal of waiver--Limited waiver granted to rival group belonging to same organisation--Waiver application must be reconsidered--CBDT order dated 26-6-2006-- S. Pankajam v. Chief CIT (Mad) . . . 331

S. 234C --Return--Delay in filing returns--Interest--Waiver of interest--Effect of CBDT order dated 26-6-2006--Prior refusal of waiver--Limited waiver granted to rival group belonging to same organisation--Waiver application must be reconsidered--CBDT order dated 26-6-2006-- S. Pankajam v. Chief CIT (Mad) . . . 331

S. 255(3) --Appeal to Appellate Tribunal--Judicial discipline--Decision made on identical factual situation--Coordinate Bench cannot take a contrary view--Remedy is to make a reference to President of Tribunal under section 255(3)-- Affection Investments Ltd . v. Asst. CIT (Guj) . . . 255

S. 260A --Appeal to High Court--Competency of appeal--Tax less than pres-cribed monetary limit and issue involved not falling within exception under CBDT circular--Appeal by Department dismissed--CBDT circular F. No. 279/126/98-IT dated 27-3-2000--CIT v. G. Chandra (Mad) . . . 336

----Appeal to High Court--Export--Special deduction--Net loss from export of goods--Assessee not entitled to deduction--Settled law--Assessee raising a question of law in appeal before Tribunal--Not entitled to raise question before court-- Asvini Fisheries P. Ltd. v. Deputy CIT (Mad) . . . 344

----Assessment--Reference to valuation officer--Change of law with retrospective effect--Effect--Investment in construction of building--Commissioner (Appeals) remanding matter for examination of genuineness of cash credits--Reference to Departmental valuation officer--Reassessment proceedings initiated after receipt of valuation report--Assessing Officer entitled to refer valuation after completion of assessment--Impact of amendment with retrospective effect not considered--Matter remanded-- CIT v. Mrs. Achamma Chacko  (Ker) . . . 258

S. 273(2)(aa) --Penalty--Advance tax--Finding that assessee having bona fide belief that sales tax liability not includible in total income and on that bona fide belief not including sales tax liability in advance tax estimate--Penalty order set aside based on evidence and material on record--No interference-- CIT v. Amrit Banaspati Company Limited (All) . . . 303

Indian Stamp Act, 1899 :

S. 47A --Capital gains--Computation of capital gains--Sale of property to a Government concern--Valuation by stamp duty authorities higher than consideration received by assessee--Application for reference to valuation cell under section 50C--Assessment order adopting valuation of stamp duty authorities without waiting for valuation of valuation cell--Not valid-- N. Meenakshi v. Asst. CIT  (Mad) . . . 229


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Tuesday, August 17, 2010

Re: [aaykarbhavan:3854] Delay Must Be Condoned: Supreme Court

I have came across in my own cases by many  Justices without going to the technical details Just Dismissed starting from Delay Condoning???!!
This is some what ..................Justice.
C A Shah D J
USA


From: राजकुमार Makwana <r.r.makwana@gmail.com>
To: r.r.makwana.itexnet@blogger.com; Case law Reporter <it_law_reported@yahoogroups.com>; Income Tax Gazatted Officers' Association <itgoa@yahoogroups.com>
Sent: Mon, 16 August, 2010 8:55:16 PM
Subject: [aaykarbhavan:3854] Delay Must Be Condoned: Supreme Court

Improvement Trust
vs.
Ujagar Singh
(Supreme Court)


Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities

The Appellant, a local authority, acquired land belonging to one of the Respondents for a development scheme in 1988. As the Appellant did not pay the compensation amount despite notice, the property was auctioned and sale confirmed in favour of the highest bidder in 1992. The bidder deposited the sale proceeds. The Appellant then "woke up from its slumber" and filed objections before the Single Judge for setting aside the auction sale. Even in these proceedings, the Appellant did not appear and the same were dismissed for non-appearance. The sale deed was executed in favour of the highest bidder. The Appellant then filed an appeal before the District Judge which was barred by limitation by a couple of months. This appeal was dismissed on the ground that there was not sufficient ground for condonation of delay. On mistaken advice, the Appellant filed a second appeal to the High Court which was thereafter treated by the Court as a revision application. This was also dismissed. The Appellant then filed a review petition which was also dismissed. Against that the Appellant filed a SLP which was also delayed. The delay in filing the SLP was condoned and the question before the Supreme Court was whether the District Judge was justified in dismissing the first appeal on the ground of delay. HELD allowing the appeal:

(i) While considering an application for condonation of delay no strait-jacket formula is prescribed to come to the conclusion if sufficient and good grounds have been made out or not. Each case has to be weighed from its facts and the circumstances in which the party acts and behaves. From the conduct, behaviour and attitude of the appellant it cannot be said that it had been absolutely callous and negligent in prosecuting the matter;

(ii) Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold;

(iii) Unless malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned. In the legal arena, an attempt should always be made to allow the matter to be contested on merits rather than to throw it on such technicalities. Apart from the above, the appellant would not have gained in any manner whatsoever, by not filing the appeal within the period of limitation. It is also worth noticing that delay was also not that huge, which could not have been condoned, without putting the respondents to harm or prejudice. It is the duty of the Court to see to it that justice should be done between the parties;

(iv) Also observed that as the auction purchaser had been put to "inconvenience and harassment" and had not got any fruits for the sale proceeds paid in 1992, it should be paid costs of Rs. 50,000.

Note: In All India Primary Teachers vs. DIT 93 TTJ 155 (Del), delay of 43 years in making a s. 12A application was condoned on the ground that school teachers could not be expected to know the nuances of income-tax law!





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Delay Must Be Condoned: Supreme Court

Improvement Trust
vs.
Ujagar Singh
(Supreme Court)


Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities

The Appellant, a local authority, acquired land belonging to one of the Respondents for a development scheme in 1988. As the Appellant did not pay the compensation amount despite notice, the property was auctioned and sale confirmed in favour of the highest bidder in 1992. The bidder deposited the sale proceeds. The Appellant then "woke up from its slumber" and filed objections before the Single Judge for setting aside the auction sale. Even in these proceedings, the Appellant did not appear and the same were dismissed for non-appearance. The sale deed was executed in favour of the highest bidder. The Appellant then filed an appeal before the District Judge which was barred by limitation by a couple of months. This appeal was dismissed on the ground that there was not sufficient ground for condonation of delay. On mistaken advice, the Appellant filed a second appeal to the High Court which was thereafter treated by the Court as a revision application. This was also dismissed. The Appellant then filed a review petition which was also dismissed. Against that the Appellant filed a SLP which was also delayed. The delay in filing the SLP was condoned and the question before the Supreme Court was whether the District Judge was justified in dismissing the first appeal on the ground of delay. HELD allowing the appeal:

(i) While considering an application for condonation of delay no strait-jacket formula is prescribed to come to the conclusion if sufficient and good grounds have been made out or not. Each case has to be weighed from its facts and the circumstances in which the party acts and behaves. From the conduct, behaviour and attitude of the appellant it cannot be said that it had been absolutely callous and negligent in prosecuting the matter;

(ii) Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold;

(iii) Unless malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned. In the legal arena, an attempt should always be made to allow the matter to be contested on merits rather than to throw it on such technicalities. Apart from the above, the appellant would not have gained in any manner whatsoever, by not filing the appeal within the period of limitation. It is also worth noticing that delay was also not that huge, which could not have been condoned, without putting the respondents to harm or prejudice. It is the duty of the Court to see to it that justice should be done between the parties;

(iv) Also observed that as the auction purchaser had been put to "inconvenience and harassment" and had not got any fruits for the sale proceeds paid in 1992, it should be paid costs of Rs. 50,000.

Note: In All India Primary Teachers vs. DIT 93 TTJ 155 (Del), delay of 43 years in making a s. 12A application was condoned on the ground that school teachers could not be expected to know the nuances of income-tax law!





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Saturday, August 14, 2010

HC(KER):- interest on funds for purchase of shares. CIT vs. Leena Ramachandran

CIT vs. Leena Ramachandran (Kerala High Court)

(24.4 KiB, 319 DLs)

Download: leena_ramachandran_14A.pdf

S. 14A applies where shares are held as investment and the only benefit derived is dividend. S. 36(1)(iii) deduction allowable if shares held as stock-in-trade

 

The assessee borrowed funds to acquire controlling interest shares in a company with which she claimed to have business dealings. The interest on the borrowings was claimed as a deduction u/s 36(1)(iii). The AO rejected the claim on the ground that the only benefit derived from the investment in shares was dividend and that the interest had to be disallowed u/s 14A. This was confirmed by the CIT (A). The Tribunal held that the deduction of interest was allowable u/s 36(1)(iii) in principle though a portion of the interest paid had to be regarded as attributable to the dividend and was disallowable u/s 14A. On appeal by the Revenue, HELD reversing the order of the Tribunal:

 

(i) The only benefit derived by the assessee from the investment in shares was the dividend income and no other benefit was derived from the company for the business carried on by it. As dividend is exempt u/s 10(33), the disallowance u/s 14A would apply. The Tribunal was not correct in estimating the s. 14A disallowance to a lesser figure than the interest paid on the borrowing when the whole of the borrowed funds were utilized by the assessee for purchase of shares;

 

(ii) Deduction of interest u/s 36(1)(iii) on borrowed funds utilized for the acquisition of shares is admissible only if shares are held as stock in trade and the assessee is engaged in trading in shares. So far as acquisition of shares in the form of investment is concerned and where the only benefit derived is dividend income which is not assessable under the Act, disallowance u/s 14A is squarely attracted.





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HC (BOM):- 14A Rule 8 d , defined. Godrej & Boyce vs. DCIT

Godrej & Boyce vs. DCIT (Bombay High Court)

(435.0 KiB, 806 DLs)

Download: godrej_daga_capital_14A_rule_8D.pdf

Rule 8D r.w. S. 14A (2) is not arbitrary or unreasonable but can be applied only if assessee's method not satisfactory. Rule 8D is not retrospective and applies from AY 2008-09. For earlier years, disallowance has to be worked out on "reasonable basis" u/s 14A (1)

 

In AY 2002-03, the assessee claimed that no disallowance u/s 14A in respect of the tax-free dividend earned by it could be made as it had not incurred any expenditure to earn the dividend. The AO rejected the claim and made a disallowance u/s 14A. This was deleted by the CIT (A). On appeal by the department, the Tribunal followed the judgement of the Special Bench in Daga Capital 117 ITD 169 (Mum) (where it had been held that s. 14A(2) & (3) & Rule 8D are procedural in nature and have retrospective effect) and remanded the matter to the AO for re-computing the disallowance. The assessee challenged the decision of the Tribunal. HELD:

 

(1) The argument that dividend on shares / units is not tax-free in view of the dividend-distribution tax paid by the payer u/s 115-O is not acceptable because such tax is not paid on behalf of the shareholder but is paid in respect of the payer's own liability;

 

(2) S. 14A supersedes the principle of law that in the case of a composite business expenditure incurred towards tax-free income could not be disallowed and incorporates an implicit theory of apportionment of expenditure between taxable and non-taxable income. Once a proximate cause for disallowance is established – which is the relationship of the expenditure with income which does not form part of the total income – a disallowance u/s 14A has to be effected;

 

(3) The argument that a literal interpretation of s. 14A leads to absurd consequences is not acceptable. S 14A is founded on a valid rationale that the basic principle of taxation is to tax net income i.e gross income minus expenditure;

 

(4) The argument that the method in Rule 8D r.w.s 14A (2) for determining expenditure relating to the tax-free income is arbitrary and violative of Article 14 is not acceptable because there is an adequate safeguard before Rule 8D can be invoked. The AO cannot ipso facto apply Rule 8D but can do so only where he records satisfaction on an objective basis that the assessee is unable to establish the correctness of its claim. Also a uniform method prescribed to resolve disputes between assessees and the department cannot be said to be arbitrary or oppressive. There is a rationale in Rule 8D and its method is "fair & reasonable". It cannot be said that there is "madness" in the method of Rule 8D so as to render it unconstitutional;

 

(5) Rule 8D, inserted w.e.f 24.3.2008 cannot be regarded as retrospective because it enacts an artificial method of estimating expenditure relatable to tax-free income. It applies w.e.f AY 2008-09;

 

(6) For the AYs where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having regard to all facts and circumstances;

 

(7) On facts, though in the earlier years, the Tribunal had held that the tax-free investments had been made out of the assessee's own funds, this did not mean that there was no expenditure incurred to earn tax-free income. Even though Rule 8D did not apply to AY 02-03, the AO had to consider whether disallowance could be made u/s 14A (1). Also, the principle of consistency would not apply as s. 14A had introduced a material change in the law.





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