ITR : Volume 331 : Part 3 Issue dated 28-02-2011

INCOME TAX REPORTS (ITR) HIGHLIGHTS

    ISSUE DATED 28-2-2011    Volume 331 Part 3

 

   ->> Assessee occupying part of building for business as tenant : Deduction allowable pro rata for assessee's portion of building : Danesh A. Irani v. CIT (Bom) p. 291

 

   ->> Duty of Appellate Tribunal to pass speaking order : CIT v. Deepak M. Kothari (All) p. 301

 

   ->> Scheme of amalgamation sanctioned by BIFR wref 1-2-1992 : Revised return filed by assessee on 31-3-1994 claiming unabsorbed business losses of sick company valid : CIT v. J. K. Corporation Ltd. (Cal) p. 303

 

   ->> Decision of High Court not to be followed without discussion as to how applicable to facts : Iskraemeco Regent Ltd. v. CIT (Mad) p. 317

 

   ->> Duty of income-tax authorities to record reasons : Iskraemeco Regent Ltd. v. CIT (Mad) p. 317

 

   ->> Commercial complex constructed by assessee : Rent received assessed as business income for several years : Income cannot be assessed as income from house property : CIT v. Goel Builders (All) p. 344

 

   ->> Assessee borrowing funds and investing in financially fragile sister concerns : Deduction of interest paid on borrowings not allowable : CIT v. Smt. Swapna Roy (All) p. 367

 

   ->> Taxing authorities and court entitled to determine true legal relation resulting from transaction : CIT v. Rockman Cycle Industries P. Ltd. [FB] (P&H) p. 401

 

   ->> Set off of carried forward business loss and unabsorbed depreciation resulting in negative income : Assessee entitled to deduction in computation of book profits : CIT v. Packworth Udyog Ltd. [FB] (Ker) 416

 

   ->> Order rejecting application for release of seized articles not valid where no sufficient reason for retention of seized assets : Mitaben R. Shah v. Deputy CIT (Guj) p. 424

 

    STATUTES AND NOTIFICATIONS

 

   ->> Notifications :

 

    Income-tax Act, 1961 : Notification under section 35(1)(ii) : Scientific research associations p. 18

 

    NEWS-BRIEF

 

   ->> Contributions to promote education without profit motive, entitled to income-tax benefits

 

    The Delhi High Court bench has ruled that section 10(22) of the Income-tax Act should not be given a restrictive meaning and so long as the income is used for fulfilling educational purpose, the exemption should be available. The court rejected the plea of the Revenue Department which had said that if the donations received by the educational institutes are not voluntary, then the dominant intent is to earn the profit.

 

    Merely, non-distribution of such contributions to the members of the institutes or use of such amount for the educational activities would not be sufficient to claim exemption under section 10(22) of the Act of 1961, the Department had said.

 

    The court, however, said: "It cannot be lost sight of that if an institution has to expand, additional infrastructure has to be created, quality education has to be imparted, all these activities require funds. There may be an original corpus of the society but thereafter the corpus for such activity can be created only through voluntary donations either from any philanthropist or through collection of funds in the process of admission."

 

    The court said : "We are not concerned with the morality of the issue while deciding whether exemption has to be granted under section 10(22) of the Income-tax Act as all that is required is the absence of profit motive." The Department had denied the exemption claimed by the assessee, an educational society for assessment year of 1993-94.

 

    It dismissed the appeal. The assessee then filed appeal before the Income-tax Appellate Tribunal (ITAT). There were difference of opinion among the two members of the quasi-judicial body. Then the matter was referred to the third member of the ITAT. The Tribunal then in its majority order had ruled in favour of the assessee. Aggrieved, the Revenue Department had came to the High Court. [Source : www.economictimes.com dated February 14, 2011]

 

   ->> Being set aside in the exemption list of DTC, dishearten religious trusts

 

    All religious and charitable trusts set up for a particular religion or caste that are currently exempt from paying income-tax or wealth-tax will lose these benefits once the Direct Taxes Code (DTC) comes into effect from April next year.

 

    This will adversely impact the activities of all such trusts, which run temples, mosques, etc. and provide free hospitalisation, education, shelters, etc., to those sections of the society lying outside the pale of the state's munificence. It may also disincentivise donors who will not be able to claim deduction of 50 per cent. of the donation from taxable income if the trusts are not non-profit organisations.

 

    The problem lies in the definition of a non-profit organisation under the DTC, which has granted exemption to any such entity being a religious trust or institution from the levy of income-tax so long as it is not restricted to a particular religion or caste. There are several such trusts that serve the poor and destitute belonging to the Muslim, Jain, Catholic, Parsee and Hindu communities, among others.

 

    "The provisions were drafted by tax officials without consulting any trustees. No justification has been given for withdrawing the exemptions . . . I think the IT Commissioners want to bring all this to tax."

 

    The Income-tax Act, 1961, which has been in force for 50 years, has exempted all charitable trusts which were set up before April 1, 1962 for a particular religious community or caste. This provision does not exist in the new DTC and once the new law comes into force from April 1, 2012, all existing charitable trusts will have to pay income-tax at the flat rate of 30 per cent. and wealth-tax at 1 per cent.

 

    Apart from being unable to claim income or wealth-tax exemption, the provision under the current Act that allows 100 per cent. accumulation of income by public charitable trusts for five years to build, say, a hospital or school, will not be included in DTC. Currently, a charitable trust is required to spend only 85 per cent. every year on the next year and the balance 15 per cent. can be accumulated for all times to come.

 

    Under the DTC the amount can be accumulated only for three years. Various trusts have come together to form a federation of trusts that has already taken up the matter with the Parliamentary Standing Committee on Finance chaired by a former finance minister. A second meeting with the Standing Committee has been slated for February 25. [Source : www.economictimes.com dated February 14, 2011]

 

   ->> Industry seeks separate tax exemption limit for life and health insurance premiums

 

    The insurance industry wants the Government to create a separate tax exemption limit of Rs. 50,000 for life insurance premium in the forthcoming budget to encourage more individuals to buy such policies.

 

    Currently investment in saving instruments, like risk cover, pension products, PF contributions, National Savings Certificates and others, are eligible for aggregate deduction of Rs. 1 Lakh. Besides, investments in infrastructure bonds up to Rs. 20,000 also qualify for deduction.

 

    "We recommend a separate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits on life and health insurance premium could be looked at," a private life insurance MD said.

 

    Insurance sector needs capital on a periodic basis for expansion and experts hope that the budget session would also see passage of FDI bill in insurance sector to 49 per cent., from the current 26 per cent.

 

    "There is a need for more proactive regulatory architecture for insurance. Foreign insurers could be allowed to set-up under a wholly owned subsidiary with 100 per cent. FDI. The life insurance industry is very capital intensive and companies need huge capital to fund growth," a consultancy firms's Executive Director said.

 

    The life insurance companies currently pay tax of 12.5 per cent. and the Direct Taxes Code, which would replace the archaic IT Act from April 1, 2012, does not specify any specific limit for the same. This would mean being taxed at 30 per cent.

 

    "A significant portion of funds of life insurance companies are invested in infrastructure projects. Also companies incur huge losses initially due to long gestation period. With higher tax rates, it will be unattractive proposal for new investors to invest in the sector," a private insurer said. [Source : www.economictimes.com dated February 16, 2011]

 

   ->> IT Department need to collect a bigger rise in unpaid taxes in a week

 

    Racing to maximise its revenue before the end of this fiscal, the Government has asked all Chief Commissioners of Income-tax in the country to ensure collection of over Rs. 1150 crore of unpaid taxes in a week's time.

 

    The orders to ensure collection of taxes under the self-assessment tax (SAT) category have been issued by the Finance Ministry on February 12 as an urgent and immediate measure to meet the budgetary target of Rs. 4.50 lakh crore of direct taxes for this financial year.

 

    The Central Board of Direct Taxes (CBDT) has found that almost Rs. 1157 crore of taxes under the category of self-assessment tax is pending in various ranges of the country including large income regions like Mumbai, Kolkata and Delhi.

 

    Under the SAT, the assessee is required to make a self-assessment and pay the tax on the basis of the returns furnished. Any tax paid by the taxpayer under this category is deemed to have been paid towards regular assessment.

 

    The direct taxes kitty has swelled to Rs. 3.17 lakh crore in January last, against the revised budgetary target of Rs. 4.50 lakh crore. It is to be finalised by March 31.

 

    The highest unpaid SAT is in Mumbai (Rs. 317 crore), Kolkata (Rs. 165 crore), Bangalore (Rs. 125 crore) and Pune (Rs. 96 crore).

 

    Worried over the under-collection of this amount, the CBDT Chairman has issued instructions to 14 Chief Commissioners of Income-tax to ensure the collection by February 20. [Source : www.economictimes.com dated February 13, 2011]

 

   ->> Government are most confident at tighter international tax norms

 

    The Government is considering tightening taxation norms for Indian companies having intermediary holding entities in overseas locations, as part of its efforts to increase its tax revenues.

 

    "With very limited scope left on domestic front to widen tax collection due to inflationary pressure, the Finance Ministry is looking at ways to mop up additional revenues from international taxation front," a source told.

 

    The Government may propose strict norms for disclosure by Indian companies and individuals to tax department about investments and interests in overseas entities, especially those with a holding company structure. The income from these investments and interests would be taxed accordingly, they added.

 

    The Government is as such not in favour of increasing the tax burden on individuals due to inflation. Similarly there is unlikely to be any increase in corporate taxes on domestic businesses as high input expenses and increased borrowing costs are adversely affecting the companies' profitability.

 

    Besides, a larger overhaul of tax structure is already lined up through the Direct Taxes Code, which is expected to come into effect from April 2012.

 

    As per one of such proposals, a foreign company based in a country with lower tax rate, and where one or more Indian residents hold management control, would be treated as a Controlled Foreign Company (CFC) and taxed accordingly in India.

 

    A consultancy major said that the new CFC regime might work against Indian companies with operations abroad, as their competitiveness would be hurt. [Source : www.economictimes.com dated February 14, 2011]

 

   ->> Impending budget may extend tax benefit on infrastructure bonds as a sound investment theme

 

    The Union Budget for 2011-12 could extend the tax benefit on investments made in infrastructure bonds by a year while giving banks access to this special window in an effort to raise debt funds for building physical assets of the country. The last budget had allowed a deduction of an additional Rs. 20,000 for investment in long-term infrastructure bonds, over and above the Rs. 1 lakh limit prescribed for investments in tax saving schemes. Only dedicated infrastructure companies or lenders were allowed to raise funds through these tax savings bonds.

 

    "Various options for infrastructure financing are being examined," said a Government official, adding "extending this window is one of them". The budget for 2009-10 had limited the tax benefit on infrastructure bonds for one year. This was because the Government was hoping to roll out of the Direct Taxes Code from April this year. But now that the new code is unlikely to be implemented before April 2012, the Government could extend the tax relief on these bonds.

 

    "Keeping in view the infrastructure fund requirements of the country and also to make the tax deduction more meaningful, the Government should enhance the investment limit to Rs. 50,000," said an executive director of a consultancy firm. [Source : www.economictimes.com dated February 16, 2011]

 

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Whether sum paid as compensation for occupation of premises after

Income tax - Whether sum paid as compensation for occupation of premises after expiry of lease and for repair and damages can be treated as sum received as payment for transfer of tenancy rights - NO, rules Calcutta HC

KOLKATA, FEB 18, 2011: THE issue before the HC is - Whether sum paid as compensation for occupation of a premises after the expiry of the lease and for repair or damage to the premises by the tenant can be treated as an amount received by way of consideration for transfer of any tenancy right. And the HC's answer is NO.

Facts of the case

On December 14, 1957, the premises No. 31, Shakespeare Sarani, Kolkata, consisting of land and building was leased out by its the then owner to the Consulate General of USSR by a registered Deed of Lease for a period of 23 years commencing from January 15, 1958 at the monthly rental of Rs.8,000/- a month. The said premises was purchased by Dejoo Tea Company (India) Pvt. Ltd. on November 30, 1977 subject to the said lease dated December 14, 1957 and the lessee, namely, Consulate General of USSR, attorned the tenancy to DT and started paying rent to it.

On January 15, 1981, although the said lease granted in favour of the Consulate General of USSR expired, the lessee refused to vacate and handover possession of the said premises to the DT, as a result, DT approached the Central Government under Section 86 of the Code of Civil Procedure for permission to institute legal proceedings against the Consulate General. As no such permission was forthcoming, various proceedings in the writ jurisdiction of this Court were taken and thereafter, the matter went up to the Supreme Court for a direction upon the Central Government to grant permission under Section 86 of the Code of Civil Procedure alleging inaction of the Central Government.

On March 18, 1985, an assessment was made under Section 143(3) of the Income Tax Act, 1961 for the assessment year 1982-83 (Financial Year 1981-82) assessing Rs.96,000/- as income of the said premises under the head-House property although the lease had expired and no rent was received. It was held that the income under the Head House property was required to be assessed on the notional income that could be received and the fact that the lease had come to an end and that no rent was received from the lessee was irrelevant.

An appeal preferred by the assessee against the said order of assessment was dismissed by CIT (Appeal) holding that the assessment of income under the head-House property made on the basis of notional income at the rate of the rent payable under the lease was justified in law. Assessments were also made on similar basis for the subsequent assessment years 1983-84 to 1991-92 assessing the income under the Head House property notionally on the basis of rent payable under the expired lease in respect of the said premises.

On April 2, 1991, another agreement was entered into between Consulate General and DT for payment of Rs.100 lac for repair and renovation of the said premises after getting vacant possession. It was further provided that on payment of the said sum, DT would not have any claim as to the condition of the property in which the Consulate might leave while vacating and handing over the possession and it was further recorded that during the period of possession by Consulate the damage and injuries to the properties had been caused and repairs were required and the said sum was to be paid in twelve quarterly instalments commencing from 15th January, 1992 and was meant for providing compensation fund for meeting costs and expenses for repair of the property and its restoration to the original condition after it was vacated by the Consulate.

Pursuant to the said agreement, DT received from the Consulate a sum of Rs.99,95,929/- for occupation during 15th January, 1981 to 31st March, 1991 and a further sum of Rs.33,98,952/- was received on account of occupation of the said premises for the period from 1st April, 1991 till 31st March, 1992. A further sum of Rs.16 lac was received on account of quarterly instalment for damages.

On May 4, 1992, a scheme was sanctioned by this High Court for amalgamation of DT with the present appellant, namely, Jasmine Commercials Ltd., with effect from April 1, 1991 and all the assets and liabilities of DT vested in the appellant with effect from April 1, 1991.

On February 1, 1993 the appellant filed the return of income for assessment year 1992-93 disclosing the receipts of the aforesaid sum of Rs.99,95,929/-, Rs.33,98,952/- and Rs.16 lac, respectively from the Consulate.

On February 28, 1995, pursuant to the return filed on February 1, 1993, the assessment was made under Section 143(3) of the Income Tax Act and in such assessment, the sum of Rs.33,98,952/- for the period April, 1991 to March, 1992 was assessed as rental income under the Head House property for the said premises. The sum of Rs. 99,95,929/- on account of arrears of rent and Rs.16 lac for building repair were assessed as business income.

On an appeal being preferred by the assessee against such order passed, the CIT (Appeal) held that the sum of Rs.99,95,929/- which admittedly represented arrears of rent could not be assessed to tax in view of the various judicial decisions and it was held that the sum of Rs.16 lac also could not be assessed as it was for damage to the house property which was a capital asset and was a capital receipt.

The Tribunal disposed of the appeal of the Department by holding that sum of Rs.90 lac received for occupation by way of compensation from the Consulate was not arrears of rent but was compensation for the tenancy right during post-lease-period of 10 years. The Tribunal further held that the further sum of Rs.1 crore on account of damages to the property was also on account of further occupation of the property for a maximum period of five years and both the sum of Rs.90 lac and Rs.1 crore were for transfer of the right of tenancy which was a capital asset and was liable to be assessed as capital gains by taking the cost of acquisition as "nil". The Tribunal accordingly directed that the sum of Rs.90 lac should be assessed as capital gain and further directed that the sum of Rs.1 crore should also be assessed as capital gains even though only Rs.16 lac was assessed as business income and the matter was sent to the assessing officer for re-determination of such capital gains. It was further recorded that these two sums were not assessable under the Head Business income.

The assessee filed an appeal before the High Court contending that the Tribunal acted without jurisdiction in enhancing the scope of the appeal by directing the assessing officer to consider the entire amount of Rs.100 lac payable on account of repair or damages during the next five years in the assessment year in question when the dispute before the Tribunal was confined only for the quarterly instalments to the extent of Rs.16 lac and further whether the said sum could not at all be considered in the hands of the appellant.

The High Court held that –

++ taking into consideration the provision of Section 254 of the Act, an Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such order thereon as it thinks fit. The word "thereon", is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, the original grounds of appeal and such additional ground, as may by raised by the Appellant by the leave of the Tribunal, constitute the extent of jurisdiction of the Tribunal and it can adjudicate upon only those grounds and not beyond them. Even if a particular ground is not taken in the Memorandum of Appeal, an appellant may by taking leave of the appellate authority add grounds. In the instant case, however, neither in the Memorandum of Appeal any ground was taken in respect of the aforesaid Rs.100 lac nor was any amendment sought for including such ground and the learned Tribunal below even in its judgment itself while considering the questions before it, referred to only those two points excluding the question of involvement of Rs.100 lac;

++ therefore, the Tribunal below acted without jurisdiction in enhancing the scope of the appeal although the appellant did not raise any such point. On that ground alone, the portion of the order passed by the Tribunal below relating to the reassessment of Rs.100 lac should be set aside;

++ on merits - even after the expiry of the lease in the year 1981 when the property fetched no actual income, the assessing authority assessed Rs.96,000/- per annum as income from the said premises under the head-House property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises. Such being the position, there is substance in the contention of the assessee that there was no justification of treating the amount received from the erstwhile lessee by virtue of the said agreement as the income received by the assessee from the selfsame house property during the occupation of the erstwhile tenant. When the appellant received no income from the selfsame property from the year 1981 on the expiry of the lease, it went on paying income tax on the basis of notional income and as such, the actual income arising there from subsequently, even though higher than the notional income assessed as equivalent to the rate of rent, cannot be taken note of for the purpose of assessment;

++ in this case there was no justification of treating the income arising out of the selfsame house property under a different Head after the same has been taxed as income under the head-House property on the basis of notional rent payable by the selfsame occupant;

++ similarly, it is preposterous to describe the receipts as outcome of transfer of tenancy right as the assessee was not a tenant and as such no question of gaining anything by transferring the right of its tenancy arises;

++ in the instant case, we are unable to brand the agreement between the lessor and the former lessee as a device to avoid tax inasmuch as the said agreement was entered into at the intervention of the Central Government. Moreover, having regard to the consistent views of the Supreme Court that an income already taxed under one head cannot at the subsequent period be taxed under a different head, we are left with no other alternative but to set aside the views of the Tribunal. As already pointed out that when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head. Therefore, the Court set aside the order of the Tribunal below by affirming the order of the CIT (Appeal).

Assessee's appeal allowed

IFRS forms

February, 18th 2011
The government today said it will soon notify the format that companies will have to follow while preparing their account books as per the international accounting norm IFRS from next fiscal.

In an official statement, the Corporate Affairs Ministry also said that it is ready with the depreciation rates that companies will have to follow while compiling their financial statements.

"The revised Schedule VI(Format of Financial Statements), Schedule XIV (Depreciation Rate) and proposed converged accounting standards are ready and are proposed to be notified shortly," the statement said.

The Ministry also pointed out that companies will have to comply by the International Financial Reporting Standards from April 2011.

"To ensure this and to implement the G-20 commitment to achieve a single set of high quality global accounting standards, the government has taken a decision to achieve convergence of Indian Accounting Standards with IFRS in a phased manner beginning April, 2011," it said.

On industry's apprehensions about implementation of IFRS from the next fiscal, the MCA said that all the issues have been taken care of.

"The Industry has always expressed a feeling of readiness on the matter. The concerns expressed by them at various stages have been redressed through issue of suitable clarifications," it said.

According to the roadmap laid out by the Corporate Affairs Ministry, companies will have to prepare their accounts as per the new norm in a phased manner, beginning with companies that have a networth of over Rs 1,000 crore.

Further, while scheduled commercial banks and urban cooperative banks will adopt IFRS from April 1, 2013, all insurance companies will convert their opening balance sheets with IFRS from April 2012.

Large, listed non-banking finance companies (NBFCs), will converge their opening books of accounts with IFRS norms from April 1, 2013.__,_._,___

Supreme Court recalls law requiring PSUs to obtain COD approval

Electronics Corporation of India Ltd vs. UOI (Supreme Court – 5 Judge Bench)

Friday, February 18th, 2011

Supreme Court recalls law requiring PSUs to obtain COD approval

 

In ONGC vs. CCE 104 CTR (SC) 31, the Supreme Court directed the Central Government to set up a 'Committee on Disputes' to monitor disputes between the Government and Public Sector Enterprises and give clearance for litigation. It was held the no litigation could be proceeded with in the absence of COD approval. This was followed in ONGC vs. CIDCO (2007) 7 SCC 39 and it was held that even disputes between PSUs and State Governments would require COD approval.

 

In CCE vs. Bharat Petroleum Corporation, a 2 Judge Bench of the Supreme Court held that the working of the COD had failed and that the time has come to revisit the law. The matter was referred to a Larger Bench for reconsideration.

 

HELD by the Larger Bench recalling its orders in ONGC vs. CCE 104 CTR (SC) 31, (2004) 6 SCC 437 and ONGC vs. CIDCO (2007) 7 SCC 39:

 

The idea behind setting up of the … "Committee on Disputes" (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD … Whilst the principle and the object behind the aforestated Orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation …. on same set of facts, clearance is given in one case and refused in the other.

 

This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court

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HC Ruling-Merely because of the fact that the assessee had asserted that it is a

HC Ruling-Merely because of the fact that the assessee had asserted that it is a developer in the returns filed by him, it cannot be said that there is any failure on the part of the petitioner to disclose fully and truly all material facts. At best, the petitioner has made a claim along with supporting documents, namely, development agreements for construction of housing projects, etc. and based upon the said documents, the AO had formed an opinion and granted deduction under section 80-IB(10) of the Act. As to whether in a given set of facts, the assessee is a developer or a works contractor is a matter of inference. Hence, the assertion that the petitioner is a developer, without anything more cannot be said to be an incorrect disclosure of facts, as is sought to be contended on behalf of the revenue. In the circumstances, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act after the expiry of four years from the end of the relevant assessment year is illegal and invalid. The proceedings under section 147 of the Act which have been initiated by issuance of the impugned notice under section 148 of the Act, therefore, cannot be sustained-AIT-2011-92-HC

S. 148 notice, even if unserved, is valid & second s. 148 notice issued to meet assessee’s claim of non-service, is invalid & renders assessment void

Sanjay Kumar Garg vs. ACIT (ITAT Delhi)

S. 148 notice, even if unserved, is valid & second s. 148 notice issued to meet assessee's claim of non-service, is invalid & renders assessment void

 

For AY 2001-02 (and other years), the AO recorded reasons for reopening of assessment on 22.9.05 and issued s. 148 notice on 23.9.05. The notice was sent through speed post and was not returned undelivered. Though the assessee appeared before the AO on several occasions and wrote letters, he claimed vide Affidavit that the s. 148 notice was not received by him. Pursuant to the assessee's claim, the AO issued another notice dated 25.9.06 u/s 148 and an assessment order u/s 143(3)/147 was passed on 24.12.2007. The assessee challenged the reassessment on the ground that (i) with respect to the s. 148 notice dated 23.9.05, the assessment order passed on 24.12.07 was time-barred and (ii) with respect to the s. 148 notice dated 25.9.06 that it could not have been issued during the pendency of the first notice. The department argued that as the assessee had claimed that he had not received the first notice dated 23.9.05, only the second notice could be considered and if so, the assessment was valid. HELD allowing the appeal:

 

(i) Though the assessee claimed by affidavit that he had not received the first s. 148 notice (and that formed the basis of the second 148 notice), as the first notice was sent by speed post as permitted by s. 282, it is presumed to have been duly served upon the assessee and was valid;

 

(ii) There is a difference between "issue" and "service". To obtain jurisdiction to assess/reassess the escaped income, the s. 148 notice has to be "issued" but need not be "served". Service is not a condition precedent to conferment of jurisdiction on the AO but a condition precedent only to the making of the order of assessment. The word "issue" means that the notice must leave the custody of the AO and as the Post Office is not the department's agent, sending it by post completes "issue". Accordingly, though the first notice was not (according to the assessee & department) served on the assessee, the AO was vested with power to assess/reassess the escaped income (R. K. Upadhyaya 166 ITR 163 (SC) & Sheo Kumari Debi 157 ITR 13 (Pat) (FB) followed);

 

(iii) With regard to the second notice, as the first s. 148 notice was valid and reassessment proceedings were pending, the second s. 148 notice is a 'nullity'. Unless the reassessment proceedings initiated u/s 147 are concluded & brought to a logical end, the AO cannot issue fresh notice u/s 148. This is not an "irregularity" but a "nullity" (Ranchhoddas Karsandas 26 ITR 105 (SC) & Jai Dev Jain 227 ITR 301 (Raj) followed);

 

(iv) The result is that the limitation period has to be reckoned with reference to the first notice dated 23.09.05 as per which the assessment order dated 24.11.07 is beyond time.

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Reassessment [Section 147] : Decision of assessing officer may not be correct

Income-tax : Reassessment [Section 147] : Decision of assessing officer may not be correct in a case, but the same cannot be made subject matter of reopening of assessment under section 147/148 - [2011] 9 taxmann.com 272 (Delhi)

ITR 331[2]

From: GlobalIndianCAs@yahoogroups.com [mailto:GlobalIndianCAs@yahoogroups.com] On Behalf Of CABHUPENDRASHAH
Sent: Friday, February 18, 2011 5:40 PM
To: GlobalIndianCAs@yahoogroups.com
Subject: [GlobalIndianCAs] itr 331[2]

 

INCOME TAX REPORTS (ITR)

Volume 331 : Part 2 (Issue dated 21-2-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to High Court --Delay in filing appeal--High Court can condone delay--Income-tax Act, 1961, s. 260A-- CIT v. R. K. B. K. Ltd . (Cal) . . . 269

Capital gains --Exemption--Transfer of residential house and purchase or construction of a residential house within the prescribed time--Meaning of "a residential house" in section 54--Transfer of residential house and purchase of four flats in the same residential building--Assessee entitled to exemption under section 54--Income-tax Act, 1961, s. 54--General Clauses Act, 1897, s. 13-- CIT v. Smt. K. G. Rukminiamma

(Karn) . . . 211

Charitable purpose --Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration--Income-tax Act, 1961, ss. 2(15), 12A, 12AA-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer

(Raj) . . . 135

----Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration--Income-tax Act, 1961, ss. 2(15), 11, 12, 12A-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur

(Raj) . . . 174

----Registration of trust--Agricultural produce marketing committees--Delay in application for registration from assessment year 2003-04 due to bona fide belief that registration was not necessary and in getting approval and legal advice from Government authorities--Delay to be condoned--Income-tax Act, 1961, ss. 12A, 12AA-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration--Income-tax Act, 1961, ss. 2(15), 11, 12A, 12AA-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose--Income-tax Act, 1961, ss. 11, 12A, 12AA-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

Charitable trust --Registration--Application for registration--Delay in filing application--Assessee executing trust deed in 2000, started activities in 2005--Assessee as per advice of chartered accountant filing application belatedly--Delay to be condoned--Income-tax Act, 1961, s. 12AA-- CIT v. Indian Gospel Fellowship Trust

(Mad) . . . 283

Commissioner --Revision--Depreciation on goodwill--Revision on ground goodwill not an asset entitled to depreciation--Goodwill valuable commercial asset similar to other intangibles eligible to depreciation--Where two views are possible and Assessing Officer accepting one view which is a plausible one, not appropriate to exercise power under section 263--Income-tax Act, 1961, ss. 32, 263-- CIT v. Hindustan Coco Cola Beverages P. Ltd. (Delhi) . . . 192

Income --Accrual--Non-banking financial company--Method of accounting--Mercantile system of accounting--Interest accrued on non-performing assets not recognised as income--In conformity with notification issued by Reserve Bank of India--No question of accrual of income--Income-tax Act, 1961-- CIT v. Coimbatore Lakshmi Inv. and Finance Co. Ltd . (Mad) . . . 229

Income from other sources --Deduction--Interest on borrowed capital--Assessee manufacturing and exporting textiles--Funds transferred from cash credit/packing credit--Interest on such funds--Not entitled to deduction--Income-tax Act, 1961, s. 57(iii)-- CIT v. Dhanalakshmi Weaving Works (Ker) . . . 188

Industrial undertaking --Special deduction--Duty draw back --Does not form part of net profit--Income-tax Act, 1961, s. 80-IB-- Eastman Exports Global Clothing P. Ltd. v. Asst. CIT (Mad) . . . 232

Interpretation of taxing statutes --Effect of Explanation -- CIT v. Jet Airways (I) Ltd . (Bom) . . . 236

----Purposive interpretation--Casus omissus-- CIT v. R. K. B. K. Ltd.

(Cal) . . . 269

Reassessment --Notice--Deduction allowed under section 80-IA --Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed--Income-tax Act, 1961, ss. 80-IA, 147, 148-- Northern Strips Ltd . v. ITO

(Delhi) . . . 224

----Scope of power of Assessing Officer--Law applicable--Effect of amendment of section 147 w.e.f. 1-4-1989--Assessing Officer can also assess other incomes not referred to in notice of reassessment--Power to assess such other income only if income referred to in notice of reassessment has been assessed--Income-tax Act, 1961, s. 147-- CIT v. Jet Airways (I) Ltd. (Bom) . . . 236

Recovery of tax --Hindu undivided family--Firm--Hindu undivided family or individual property--Karta of Hindu undivided family becoming partner in firm--Finding that he had become a partner in his individual capacity--Hindu undivided family properties could not be attached in proceedings for recovery of tax due by firm--Income-tax Act, 1961-- ITO v. Tippala China Appa Rao (AP) . . . 248

----Provisional attachment--Limitation--Department to show whether time extended as required under law--Income-tax Act, 1961, s. 281B-- VLS Finance Ltd. v. Asst. CIT (Delhi) . . . 131

Revision --Commissioner--Assessing Officer allowing claim for depreciation without examining facts--False claim for depreciation in prior years--Order erroneous--Commissioner justified in setting aside order in revision--Income-tax Act, 1961, s. 263-- CIT v. English Indian Clays Ltd. (Ker) . . . 219

Search and seizure --Return of seized assets--Direction not to release seized assets till assessment completed--Assessment made treating as unexplained investment of assessee--Tribunal deleting addition on jewellery--Jewellery not released on ground it did not belong to assessee alone--No proof that jewellery belonging to a third person--Matter remanded--Income-tax Act, 1961, s. 69A-- Madhu Lalwani v. CIT

(Delhi) . . . 184

Unexplained investment --Cost of construction of property--Estimate based on relevant material--Justified--Income-tax Act, 1961-- CIT v. Smt. V. Gajalakshmi

(Mad) . . . 216

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

General Clauses Act, 1897 :

S. 13 --Capital gains--Exemption--Transfer of residential house and purchase or construction of a residential house within the prescribed time--Meaning of "a residential house" in section 54--Transfer of residential house and purchase of four flats in the same residential building--Assessee entitled to exemption under section 54-- CIT v. Smt. K. G. Rukminiamma (Karn) . . . 211

Income-tax Act, 1961 :

S. 2(15) --Charitable purpose--Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer (Raj) . . . 135

----Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur (Raj) . . . 174

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

S. 11 --Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur

(Raj) . . . 174

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

----Charitable purpose--Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

S. 12 --Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur

(Raj) . . . 174

S. 12A --Charitable purpose--Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer (Raj) . . . 135

----Charitable purpose--Charitable institution--Registration--Agricultural produce marketing committees set up by State Government--Charitable institution entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Shrimadhopur (Raj) . . . 174

----Charitable purpose--Registration of trust--Agricultural produce marketing committees--Delay in application for registration from assessment year 2003-04 due to bona fide belief that registration was not necessary and in getting approval and legal advice from Government authorities--Delay to be condoned-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

----Charitable purpose--Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

S. 12AA --Charitable purpose--Charitable institution--Registration--Agricultural produce market committee--Income received to be spent for purpose mentioned--Including object of general public utility--Samiti entitled to registration-- CIT v. Krishi Upaj Mandi Samiti, Jaisalmer (Raj) . . . 135

----Charitable purpose--Registration of trust--Agricultural produce marketing committees--Delay in application for registration from assessment year 2003-04 due to bona fide belief that registration was not necessary and in getting approval and legal advice from Government authorities--Delay to be condoned-- CIT v. Krishi Utpadan Mandi Samiti (All) . . . 154

----Charitable purpose--Registration of trust--"Charitable purposes", "property"--Meanings of--Samiti set up by State Government to regulate sale and purchase of agricultural produce and develop facilities for marketing of agricultural produce--Committees declared as local authorities exempted from tax till 2003--Dominant object of samitis was advancement of general public utility--Cess collected by samitis utilised for objects of samitis--Samitis entitled to registration-- CIT v. Krishi Utpadan Mandi Samiti

(All) . . . 154

----Charitable purpose--Registration of trust--Market committee constituted statutorily with object of helping agriculturists and consumers--Entitled to registration--Benefit of exemption depends upon whether income utilised for charitable purpose-- CIT v. Krishi Upaj Mandi Samiti (MP) . . . 140

----Charitable trust--Registration--Application for registration--Delay in filing application--Assessee executing trust deed in 2000, started activities in 2005--Assessee as per advice of chartered accountant filing application belatedly--Delay to be condoned-- CIT v. Indian Gospel Fellowship Trust (Mad) . . . 283

S. 32 --Commissioner--Revision--Depreciation on goodwill--Revision on ground goodwill not an asset entitled to depreciation--Goodwill valuable commercial asset similar to other intangibles eligible to depreciation--Where two views are possible and Assessing Officer accepting one view which is a plausible one, not appropriate to exercise power under section 263-- CIT v. Hindustan Coco Cola Beverages P. Ltd.

(Delhi) . . . 192

S. 54 --Capital gains--Exemption--Transfer of residential house and purchase or construction of a residential house within the prescribed time--Meaning of "a residential house" in section 54--Transfer of residential house and purchase of four flats in the same residential building--Assessee entitled to exemption under section 54-- CIT v. Smt. K. G. Rukminiamma (Karn) . . . 211

S. 57(iii) --Income from other sources--Deduction--Interest on borrowed capital--Assessee manufacturing and exporting textiles--Funds transferred from cash credit/packing credit--Interest on such funds--Not entitled to deduction-- CIT v. Dhanalakshmi Weaving Works (Ker) . . . 188

S. 69A --Search and seizure--Return of seized assets--Direction not to release seized assets till assessment completed--Assessment made treating as unexplained investment of assessee--Tribunal deleting addition on jewellery--Jewellery not released on ground it did not belong to assessee alone--No proof that jewellery belonging to a third person--Matter remanded-- Madhu Lalwani v. CIT (Delhi) . . . 184

S. 80-IA --Reassessment--Notice--Deduction allowed under section 80-IA--Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed-- Northern Strips Ltd . v. ITO (Delhi) . . . 224

S. 80-IB --Industrial undertaking--Special deduction--Duty draw back --Does not form part of net profit-- Eastman Exports Global Clothing P. Ltd. v. Asst. CIT

(Mad) . . . 232

S. 147 --Reassessment--Notice--Deduction allowed under section 80-IA --Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed-- Northern Strips Ltd . v. ITO (Delhi) . . . 224

----Reassessment--Scope of power of Assessing Officer--Law applicable--Effect of amendment of section 147 w.e.f. 1-4-1989--Assessing Officer can also assess other incomes not referred to in notice of reassessment--Power to assess such other income only if income referred to in notice of reassessment has been assessed-- CIT v. Jet Airways (I) Ltd. (Bom) . . . 236

S. 148 --Reassessment--Notice--Deduction allowed under section 80-IA --Initiation of proceedings on change of opinion on whether assessee engaged in manufacture--Not permissible--Assessee allowed deduction in preceding as well as subsequent years--Group company engaged in similar activity also allowed deduction--Proceedings to be quashed-- Northern Strips Ltd . v. ITO (Delhi) . . . 224

S. 260A --Appeal to High Court--Delay in filing appeal--High Court can condone delay-- CIT v. R. K. B. K. Ltd . (Cal) . . . 269

S. 263 --Commissioner--Revision--Depreciation on goodwill--Revision on ground goodwill not an asset entitled to depreciation--Goodwill valuable commercial asset similar to other intangibles eligible to depreciation--Where two views are possible and Assessing Officer accepting one view which is a plausible one, not appropriate to exercise power under section 263-- CIT v. Hindustan Coco Cola Beverages P. Ltd.

(Delhi) . . . 192

----Revision--Commissioner--Assessing Officer allowing claim for depreciation without examining facts--False claim for depreciation in prior years--Order erroneous--Commissioner justified in setting aside order in revision-- CIT v. English Indian Clays Ltd. (Ker) . . . 219

S. 281B --Recovery of tax--Provisional attachment--Limitation--Department to show whether time extended as required under law-- VLS Finance Ltd. v. Asst. CIT

(Delhi) . . . 131

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