Saturday, September 24, 2011
Judicial Pronouncements - International Taxation
Friday, September 23, 2011
Direct Tax Laws Sept 2011
Where question raised in application is already pending before an Appellate Authority, though not at instance of applicant but at instance of a person who is immediately concerned with said question raised, the clause (i) of proviso to section 245R(2) is attracted and it would be appropriate for the Authority to decline jurisdiction to entertain application - [2011] 13 taxmann 157 (AAR - New Delhi)
In view of fact that section 28(va) was inserted by Finance Act, 2002 with effect from 1-4-2003, amount of non-compete fee received by assessee prior to that date was not taxable - [2011] 13 taxmann 156 (Karnataka)
For estimating assessee's income, GP rate should be fixed by taking into account GP rates of earlier years and subsequent years - [2011] 13 taxmann 152 (Delhi)
Where a partnership firm paid remuneration to assessee as a partner after deducting TDS and disclosed said payment in its return, remuneration income stood disclosed to department - [2011] 13 taxmann 147 (Karnataka)
Merely because advertisement/publicity expenditure benefited not only to assessee-company but also to its principals abroad, expenditure cannot be said to have been incurred for non-business purposes - [2011] 13 taxmann 160 (Mumbai - Trib.)(TM)
Lawful activities undertaken by an institution for overall prosperity of Tamilians should be treated as charitable activities for purpose of its registration under section 12AA - [2011] 13 taxmann 159 (Chennai - Trib.)
Where assessee challenged invocation of provisions of section 249(4)(b) on ground that since it had incurred loss in relevant year, it was not liable to pay tax of an amount equal to amount of advance tax, matter was to be remanded back to Commissioner (Appeals) - [2011] 13 taxmann 155 (Pune - Trib.)
Where assessee-company for setting up refinery had incurred expenditure on travelling, bidding for tenders, exploration activities, etc., same were to be allowed as revenue expenditure.Where assessee had been carrying on business through a permanent establishment in Oman and Qatar and was deriving income therefrom, it was only Oman and Qatar Government which was entitled to levy tax as per article 7 of DTAA between India and of aforesaid countries - [2011] 13 taxmann 151 (Mumbai - Trib.)
Where Assessing Officer has not rejected assessee's books of account under section 145(3), there is no justification for him to make a reference to DVO under section 142A - [2011] 13 taxmann 150 (Delhi - Trib.)
Where two companies merged in a comparable and, there was nothing on record to show that those two companies were also engaged in same business, assessee was justified in excluding apresaid comparable from list of comparables while determining ALP.Where assessee earned commission income in respect of direct sales by AEs, in view of fact that assessee was rendering warranty services for said sales, it could be concluded that commission income was operational income and, it was not to be excluded from assessee's profitability while determining ALP - [2011] 13 taxmann 149 (Mumbai - Trib.)
Where accreditation of a reputed foundation about quality of product is allowed to be used for sales promotion, payment of accreditation fee would not be 'royalty' as set out in article 13(3) of Indo-UK DTAA; it will be business income - [2011] 13 taxmann 148 (Mumbai - Trib.)
Income of a recreation club from FDRs, dividend, etc., would be exempt from
Thursday, September 22, 2011
ITR (TRIB) Volume 11 : Part 5 Issue dated : 26-09-2011, SUBJECT INDEX
ITR ISSUE DATED 26-09-2011 Volume 337 Part 3, SUBJECT INDEX TO CASES REPORTED IN THIS PART
Wednesday, September 21, 2011
Direct Tax Laws Sept 2011
Having regard section 158BB(1) as amended with effect from 1-7-2002, addition made on basis of statement of manager of assessee-firm recorded prior to date of search, was to be upheld - [2011] 13 taxmann 134 (Madras)
Where in return of income, assessee had not declared any additional amount of income surrendered during course of survey and later agreed to pay income-tax thereon along with interest under section 234B, Assessing Officer was justified in levying penalty under section 271(1)(c) - [2011] 13 taxmann 133 (Punjab & Haryana)
Reassessment is not justified where AO just changes& his opinion regarding assessee's system of accounting appropriate, it was a case of mere change of opinion on basis of which reassessment could not be made - [2011] 13 taxmann 132 (Rajasthan)
Once assessee had explained source of investment in shares and debentures by stating that they belonged to some other person and his explanation had been accepted, then if further investigation was required in case of said other person, that aspect could not be considered while considering assessment of assessee - [2011] 13 taxmann 131 (Delhi)
Designated authority under provisions of Kar Vivad Samadhan Scheme has no power to condone delay in making payment of amount of tax as required under section 90(2) - [2011] 13 taxmann 130 (Madhya Pradesh)
Payment made outside India for services rendered outside India is not taxable in India and, consequently, no disallowance could be made invoking section 40(a)(i) - [2011] 13 taxmann 137 (Mumbai - Trib.)
To treat a person as an agent of non-resident, it is to be proved that such person has business connection with non-resident and from or through such a person, non-resident is in receipt of income, whether directly or indirectly - [2011] 13 taxmann 136 (Mumbai - Trib.)
Depletion claimed by assessee on account of reduction in value of capital expenditure incurred on account of exploration and development of oil and gas is to be treated as depreciation for purpose of computation of book profits under section 115JB - [2011] 13 taxmann 129 (Chennai - Trib.)
An order can be revised only if twin conditions of 'error in order' and, 'prejudice caused to revenue' co-exist - [2011] 13 taxmann 127 (Chennai - Trib.)
There could be a cold chain facility for storage only without involving transportation of agricultural produce; various attendant facilities provided along with storage complete cold chain facility insofar as storage is concerned - [2011] 13 taxmann 126 (Agra - Trib.)
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Whether when someone else deducts tax at source from payments made on beha
I-T - Whether when someone else deducts tax at source from payments made on behalf of assessee, it can be said that assessee has discharged its liability u/s 194C - NO, rules ITAT
THE issues before the Tribunal are - Whether, for attracting the provisions of Sec 194C, the presence of an express agreement vis-Ã -vis transportation charges, is a condition precedent; Whether liability of section 194C can be said to have been discharged if someone else deducts tax at source from payments made on behalf of the assessee and whether when assessee has diverted interest bearing funds to its sister concerns without charging any interest, disallowance of interest after allocation of interest bearing funds to tax free unit and non tax free unit is tenable, particularly for the period when the commercial production has not commenced. And the verdict goes against the assessee.
Facts of the case
Assessee company is engaged in the business of manufacturing pharmaceuticals products - filed its ROI, claiming deduction of certain expenses - it also paid interest on interest bearing funds and at the same time advanced interest free funds to its sister concerns – A.O. disallowed both these expenses on the grounds that expenses were incurred without deducting TDS and the interest bearing funds were diverted to sister concern without charging any interest. In respect of second issue it was observed by the AO that the assessee was having two units one was tax free and other was not - accordingly, the AO allocated the interest bearing funds among the units and disallowed the interest pertaining to that period during which commercial production was not commenced – CIT (A) affirmed the order of the A.O. – Before the ITAT, the AR of the assessee pleaded that the payments to the transporters were made on behalf of distributor and there was no written agreement between those transporters and the assessee.
After hearing the parties ITAT held that,
++ the distributors were acting merely as agents of the assessee and making the payment of freight charges on behalf of the assessee. Besides, the very fact that the assessee had claimed the impugned expenses as deduction shows that the assessee-company was not only liable to meet the same but had also actually met the same. It cannot therefore be accepted that the assessee was not required to pay freight charges or that it had not paid them. The mere fact that the payment was made by the distributors on behalf of the assessee will not alter the true nature, character and substance of the transaction. All the requirements of section 194C are fulfilled. Therefore it was the statutory responsibility of the assessee to deduct tax at source out of such payments and pay the same to the Government. In this view of the matter, the submission made on behalf of the assessee that the distributors were required to deduct tax at source out of impugned payments is rejected;
++ the submission made on behalf of the assessee that the distributors had deducted tax at source out of such payments and therefore the AO was not justified in making the impugned disallowance does not carry any force for several reasons. One, section 40(a)((ia) fixes the responsibility on the assessee (and none else) claiming deduction of expenses to deduct tax at source and deposit the same with the Government. The aforesaid statutory condition is not satisfied in the present case and therefore the assessee is not entitled to claim deduction of the impugned expenses. Two, as held by the CIT(A), distributors have not deducted tax at source. Three, the judgment in Transmission Corporation of AP Ltd. v. CIT (2002-TII-01-SC-INTL) referred to by the ld. authorized representative is inapplicable to the facts of the case and also for the reason that it has not been rendered in the context of section 40(a)(ia);
++ in CIT v. Abhishek Industries (2006-TIOL-314-HC-P&H-IT), the jurisdictional High Court has held that entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc. do not have any different colour. Whatever are the receipts in the business; they have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. Though the aforesaid judgment has been rendered in the context of section 36(1)(iii), the observations of the Hon'ble High Court as referred to above are quite apposite on the facts and in the circumstances of the case before us. Baddi unit and Dera Bassi unit are sister units of the same assessee. Dera Bassi unit has diverted part of its funds including interest-bearing funds to Baddi unit. The funds so transferred have cost. If the funds diverted are borrowed funds, then the cost is interest paid by the unit diverting its funds. If it is its own money (e.g., internal accruals, etc.), the cost is the amount of interest foregone by the unit diverting its funds. Quite obviously, not only the funds so transferred by Dera Bassi unit to Baddi unit but also interest thereon would need to be allocated to Baddi unit otherwise the profits of Baddi unit, which are exempt from tax, would stand inflated while the profits of taxable unit being Dera Bassi unit would stand artificially suppressed. In this view of the matter, the action of the AO/CIT(A) in allocating the impugned funds and interest thereon to Baddi unit and thereby capitalizing the same in terms of the proviso to u/s 36(1)(iii) is held to be in order. Ground No. 4 taken by the assessee is dismissed.
Merely because surplus from educational activity, does not mean it is NOT from Educational Activity
Income-tax : If main object of an assessee is imparting of education and during course of imparting education, if some surplus has arisen to assessee, it cannot be said that assessees institution is not engaged for charitable purpose as defined under section 2(15) [Section 10(23C) Income-tax Act, 1961 - Charitable/religious institutions] - [2011] 10 taxmann.com 156 (Agra - ITAT)