Saturday, October 8, 2011

ITR (TRIB) Volume 11 : Part 7 Issue dated : 10-10-2011 :- SUBJECT INDEX


ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 11 : Part 7 (Issue dated : 10-10-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Deemed dividend :- Circuitous transaction where money initially belonged to assessee returned to company on very same day--No net outflow, no intention to give money as loan or advance, no diversion of dividend or funds--Section 2(22)(e) not attracted--Income-tax Act, 1961, s. 2(22)(e)-- Pravin Bhimshi Chheda Shivsadan v. Deputy CIT (Mumbai)      . . . 705

Housing project: - Special deduction under section 80-IB(10)--Residential as well as commercial project approved by local authority--Assessee entitled to deduction--Income-tax Act, 1961, s. 80-IB(10)-- Bhumiraj Homes Ltd. v. Deputy CIT (Mumbai)            . . . 699

Income: - Keyman insurance policy--Assignment of policy to employee--Consequential treatment for taxation--Order not in accordance with ratio laid in assessee's own case--Matter remanded--Income-tax Act, 1961, s. 10(10D)-- Rajan Nanda v. Asst. CIT (Delhi)                . . . 689

Interpretation of taxing statutes: - Construction that negates intention of Legislature to be avoided-- Gajendra Kumar T. Agarwal v. ITO (Mumbai)         . . . 640

Loss: - Carry forward and set off--Speculation business--Definition--Change of law taking trading in derivatives out of definition--Effect--Loss from trading in derivatives treated as speculation loss in earlier years carried forward--Allowable against profits from trading in derivatives after amendment--Loss can be set off against profit from same business--Income-tax Act, 1961, ss. 43(5), 72, 73-- Gajendra Kumar T. Agarwal v. ITO (Mumbai)       . . . 640

Non-resident: - Income deemed to accrue or arise in India--Royalty--Company having data centre in Singapore providing data processing support to bank in India under agreement--Raw input bank transaction data sent by bank through telecommunication lines to Singapore for processing--Processing done at Singapore according to bank's requirement and processing output generated as reports according to bank's specifications transmitted to India through telecommunication lines--No use or right to use process involved--No right to use any equipment--Payment not royalty--Income-tax Act, 1961, ss. 9(1)(vi), Expln., 195--Double Taxation Avoidance Agreement between India and Singapore, arts. 5, 7, 12(3)(a)-- Standard Chartered Bank v. Deputy Director of Income-tax (Mumbai)       . . . 721

Reassessment: - Notice--No new materials found after completion of original assessment--Reassessment on change of opinion--Not valid--Notice to be quashed--Income-tax Act, 1961, ss. 143(3), 147, 148-- Deputy CIT v. Manak Shoes Co. P. Ltd. (Delhi)          . . . 673

Revision: - Erroneous and prejudicial to Revenue--To be judged on basis of law obtaining at time of assessment--Assessing Officer allowing set off in accordance with judicial pronouncements--Order not erroneous calling for revision--Income-tax Act, 1961, s. 263-- Gajendra Kumar T. Agarwal v. ITO (Mumbai)          . . . 640

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Singapore :

Art. 5: - Non-resident--Income deemed to accrue or arise in India--Royalty--Company having data centre in Singapore providing data processing support to bank in India under agreement--Raw input bank transaction data sent by bank through telecommunication lines to Singapore for processing--Processing done at Singapore according to bank's requirement and processing output generated as reports according to bank's specifications transmitted to India through telecommunication lines--No use or right to use process involved--No right to use any equipment--Payment not royalty-- Standard Chartered Bank v. Deputy Director of Income-tax (Mumbai)    . . . 721

Art. 7: - Non-resident--Income deemed to accrue or arise in India--Royalty--Company having data centre in Singapore providing data processing support to bank in India under agreement--Raw input bank transaction data sent by bank through telecommunication lines to Singapore for processing--Processing done at Singapore according to bank's requirement and processing output generated as reports according to bank's specifications transmitted to India through telecommunication lines--No use or right to use process involved--No right to use any equipment--Payment not royalty-- Standard Chartered Bank v. Deputy Director of Income-tax (Mumbai)    . . . 721

Art. 12(3)(a): - Non-resident--Income deemed to accrue or arise in India--Royalty--Company having data centre in Singapore providing data processing support to bank in India under agreement--Raw input bank transaction data sent by bank through telecommunication lines to Singapore for processing--Processing done at Singapore according to bank's requirement and processing output generated as reports according to bank's specifications transmitted to India through telecommunication lines--No use or right to use process involved--No right to use any equipment--Payment not royalty-- Standard Chartered Bank v. Deputy Director of Income-tax (Mumbai)    . . . 721

Income-tax Act, 1961 :

S. 2(22)(e): - Deemed dividend--Circuitous transaction where money initially belonged to assessee returned to company on very same day--No net outflow, no intention to give money as loan or advance, no diversion of dividend or funds--Section 2(22)(e) not attracted-- Pravin Bhimshi Chheda Shivsadan v. Deputy CIT (Mumbai)           . . . 705

S. 9(1)(vi), Expln.: - Non-resident--Income deemed to accrue or arise in India--Royalty--Company having data centre in Singapore providing data processing support to bank in India under agreement--Raw input bank transaction data sent by bank through telecommunication lines to Singapore for processing--Processing done at Singapore according to bank's requirement and processing output generated as reports according to bank's specifications transmitted to India through telecommunication lines--No use or right to use process involved--No right to use any equipment--Payment not royalty-- Standard Chartered Bank v. Deputy Director of Income-tax (Mumbai)    . . . 721

S. 10(10D): - Income--Keyman insurance policy--Assignment of policy to employee--Consequential treatment for taxation--Order not in accordance with ratio laid in assessee's own case--Matter remanded-- Rajan Nanda v. Asst. CIT (Delhi)  . . . 689

S. 43(5): - Loss--Carry forward and set off--Speculation business--Definition--Change of law taking trading in derivatives out of definition--Effect--Loss from trading in derivatives treated as speculation loss in earlier years carried forward--Allowable against profits from trading in derivatives after amendment--Loss can be set off against profit from same business-- Gajendra Kumar T. Agarwal v. ITO (Mumbai) . . . 640

S. 72: - Loss--Carry forward and set off--Speculation business--Definition--Change of law taking trading in derivatives out of definition--Effect--Loss from trading in derivatives treated as speculation loss in earlier years carried forward--Allowable against profits from trading in derivatives after amendment--Loss can be set off against profit from same business-- Gajendra Kumar T. Agarwal v. ITO (Mumbai)       . . . 640

S. 73: - Loss--Carry forward and set off--Speculation business--Definition--Change of law taking trading in derivatives out of definition--Effect--Loss from trading in derivatives treated as speculation loss in earlier years carried forward--Allowable against profits from trading in derivatives after amendment--Loss can be set off against profit from same business-- Gajendra Kumar T. Agarwal v. ITO (Mumbai)       . . . 640

S. 80-IB(10): - Housing project--Special deduction under section 80-IB(10)--Residential as well as commercial project approved by local authority--Assessee entitled to deduction-- Bhumiraj Homes Ltd. v. Deputy CIT (Mumbai)      . . . 699

S. 143(3): - Reassessment--Notice--No new materials found after completion of original assessment--Reassessment on change of opinion--Not valid--Notice to be quashed-- Deputy CIT v. Manak Shoes Co. P. Ltd. (Delhi)        . . . 673

S. 147: - Reassessment--Notice--No new materials found after completion of original assessment--Reassessment on change of opinion--Not valid--Notice to be quashed-- Deputy CIT v. Manak Shoes Co. P. Ltd. (Delhi)        . . . 673

S. 148: - Reassessment--Notice--No new materials found after completion of original assessment--Reassessment on change of opinion--Not valid--Notice to be quashed: -- Deputy CIT v. Manak Shoes Co. P. Ltd. (Delhi)     . . . 673

S. 195: - Non-resident--Income deemed to accrue or arise in India--Royalty--Company having data centre in Singapore providing data processing support to bank in India under agreement--Raw input bank transaction data sent by bank through telecommunication lines to Singapore for processing--Processing done at Singapore according to bank's requirement and processing output generated as reports according to bank's specifications transmitted to India through telecommunication lines--No use or right to use process involved--No right to use any equipment--Payment not royalty-- Standard Chartered Bank v. Deputy Director of Income-tax (Mumbai)    . . . 721

S. 263: - Revision--Erroneous and prejudicial to Revenue--To be judged on basis of law obtaining at time of assessment--Assessing Officer allowing set off in accordance with judicial pronouncements--Order not erroneous calling for revision-- Gajendra Kumar T. Agarwal v. ITO (M

Friday, October 7, 2011

CASE LAWS....

HIGH COURTS
• Capital gains or business income --Consideration received on transfer of rights of trade mark, brands, copyrights in journals and publications--Business given up distinct from business continued-- Consideration not arising out of business but is long-term capital gains--Section 28(va) does not apply-- Income-tax Act, 1961, s. 28(va)-- CIT v. Mediworld Publications Pvt. Ltd. (Delhi) . . . 178

• Income from other sources --Compulsory acquisition of agricultural land--Enhanced compensation-- Interest on delayed payment--Claim to spread over on accrual basis but interest for two years alone disclosed--Inference of cash system of accounting--Interest taxable in year of receipt--Land Acquisition Act, 1894, s. 34--Income-tax Act, 1961, s. 145-- CIT v. Karambir Singh (P&H) . . . 159

• Income from undisclosed sources --Assessee failing to prove capacity of creditor and genuineness of transaction--Finding that transaction bogus and sustaining addition--Disallowance of excess claim on account of loss of bardana--Findings of fact--Income-tax Act, 1961-- Papneja Traders v. CIT (P&H) 172

• Penalty --Concealment of income--Search and seizure--Assessee making disclosure statement under section 132(4)--Time for filing return not expired--Income included in return and tax paid--Not a case of concealment of particulars of income--Penalty cannot be imposed--Income-tax Act, 1961, s. 271(1) (c), Expln. 5-- CIT v. Bhandari Silk Store (P&H) . . . 153

• Reassessment --Notice after four years--No failure to disclose material facts necessary for assessment-- Deduction allowed in original assessment after considering facts--Reassessment proceedings after four years to disallow deduction on ground it was capital expenditure--Not valid--Income-tax Act, 1961, ss. 147, 148-- Parle Sales and Services P. Ltd. v. ITO (Guj) . . . 203

• Search and seizure --Block assessment--Assessment of third person--Condition precedent-- Satisfaction of Assessing Officer of person searched that undisclosed income discovered during search belonged to third person--Meaning of satisfaction--Letter by Assessing Officer of person searched that assessee acted as mediator in bogus accommodation transactions--No evidence that assessee had given cash to person searched or had received commission--Condition not fulfilled-- Block assessment of assessee--Not valid--Income-tax Act, 1961, ss. 158B, 158BD-- CIT v. Radhey Shyam Bansal (Delhi) . . . 217

• -Block assessment--Undisclosed income--Addition permissible only in respect of material discovered during search--Estimate of expenditure on house by Valuation Officer--No material recovered in search showing expenditure beyond that recorded in books--Addition solely on basis of estimate-- Not valid--Income-tax Act, 1961, s. 158BD-- CIT v. Kantilal B. Kansara (HUF) (Guj) . . . 187

• -Block assessment--Undisclosed income--Statement under section 132(4)--Admissibility--Addition based on confessional statement made by assessee and counter-signature by his sons--Failure by assessee to prove that confession was as a result of intimidation, duress and coercion--No evidence that confession made as a result of mistaken belief of law or facts--Addition justified--Income-tax Act, 1961, s. 132(4)-- Asst. CIT v. Hukum Chand Jain (Chhattisgarh) . . . 238

• Non-resident --Prospecting for or extraction of mineral oils--Services in connection therewith--Special provisions for computation of income--Tax resident of Norway providing sea logistics services for ONGC--Not technical services but transportation--Fall within purview of special provisions--But under DTAA notional income restricted to 7.5 per cent. of receipts and tax limited to 50 per cent. of tax imposed by India--No deduction for service tax--Income-tax Act, 1961, ss. 9(1)(vii), 44BB--Finance Act, 1994, s. 68--Double Taxation Avoidance Agreement between India and Norway, art. 23(4)-- Siem Offshore Inc ., In re . . . 207

• -Taxability in India--Deduction of tax at source--Employees of non-resident company deputed to Indian subsidiary for performing managerial functions--Salary and benefits paid to expatriate employees by non-resident employer and reimbursed by Indian company--Are fees for included services accruing to non-resident company--Requirement of "making available" technical know-how not applicable-- Tax deductible at source--Income-tax Act, 1961, ss. 9(1)(vii), Expln. 2, 195--Double Taxation Avoidance Agreement between India and the U.S.A., art. 12(4)(b)-- Verizon Data Services India Private Ltd ., In re .

• Bad debt --Deduction--Condition precedent--Writing off in accounting year--Resolution for writing off in subsequent year not relevant--Amount deductible as bad debt--Income-tax Act, 1961, s. 36-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

• Business income --Remission or cessation of trading liability--Transfer of loan from sister-concern--No trading transaction--Creditor not acknowledging debt--Amount not assessable under section 41-- Outstanding liability due to trading transaction becoming subsequently non-payable--Section 41 applicable-- Amount to be added to business income of assessee--Income-tax Act, 1961, s. 41-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335

• Capital gains --Computation--Full value of consideration--Reference to Valuation Officer under section 142A for valuation of market value--Not permissible--No material to show assessee had received any sum in excess of that shown in sale deed--No material to show whether value shown in sale deed was higher or lower than stamp value--Direction to adopt value in accordance with section 50C--Incometax Act, 1961, ss. 48, 50C, 142A-- Sumit Khurana v. Asst. CIT (Delhi) . . 377

• Charitable purpose --Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust-- Trust formed to run hospital earnings from which to be used for charitable purpose--Assessee entitled to registration--Income-tax Act, 1961, ss. 12A, 12AA-- Guru Harkishan Medical Trust v. Director of Income- tax (Exemptions) (Delhi) . . . 361

• Co-operative society --Special deduction--Interest received from credit facilities to members--Assessee not a credit society-- Not entitled to deduction--Income-tax Act, 1961, s. 80P(2)(a)(i)-- ITO v. Modern Engineers Construction Co-op. Society (Chennai) . . . 393

• Penalty --Concealment of income--Additions made by Assessing Officer on account of disallowance of expenditure--No material to show concealment by assessee--Penalty not imposable--Income-tax Act, 1961, s. 271(1)(c)-- Deputy CIT v. Eagle Iron and Metal Industries Ltd. (Mumbai) . . . 384

• -Production of cinematograph films--Statement to be filed in Form 52A--Failure to file by due dates-- Explanation that assessee under bona fide belief that form to be filed with return--Commissioner (Appeals) finding reasonable cause for delay and reducing penalty--Order attaining finality--Order of Commissioner (Appeals) confirmed--Income-tax Act, 1961, s. 272A(2)(c)-- Deputy CIT v. Dasari Narayana Rao (Chennai) . . . 403

• Search and seizure --Block assessment--Assessment set aside by Tribunal with direction to decide afresh on basis of evidence found during course of search--Commissioner (Appeals) to follow directions issued by Tribunal--Income-tax Act, 1961, ss. 132(4), 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

• -Block assessment--Undisclosed income--Addition on unaccounted investment --No evidence found during search indicating assessee made investments--Addition to be deleted--Income-tax Act, 1961, s. 158BC-- Krishna Terine P. Ltd. v. Asst. CIT (Ahmedabad) . . . 405

• S. 12AA --Charitable purpose--Charitable trust--Exemption--Registration of trust--Authorities to satisfy themselves about genuineness of activities of trust but not nature of activity by which income derived by trust--Trust formed to run hospital earnings from which to be used for charitable purpose-- Assessee entitled to registration-- Guru Harkishan Medical Trust v. Director of Income-tax (Exemptions) (Delhi) . . . 361

• S. 41 --Business income--Remission or cessation of trading liability--Transfer of loan from sister concern-- No trading transaction--Creditor not acknowledging debt--Amount not assessable under section 41--Outstanding liability due to trading transaction becoming subsequently non-payable-- Section 41 applicable--Amount to be added to business income of assessee-- Sashak Noble Metals Ltd. v. ITO (Mumbai) . . . 335 HIGH COURTS

• Company Law Board --Jurisdiction--Rectification of register--Transfer of shares--Only Company Law Board has jurisdiction to decide issues involving title to shares--Board can direct parties to approach civil court if dispute regarding civil rights or title involved--Civil court does not have jurisdiction otherwise-- Companies Act, 1956, ss. 10, 155-- Vishnu Manglani v. Reliance Industries (Delhi) . . . 524

Direct Tax Laws

Direct Tax  Laws

Extension of due/specified date of filing of returns/tax audit report for A.Y. 2011-12 in respect of assessees assessed at Sikkim - ORDER [F.NO.225/72/2010/ITA-II], DATED 30-09-2011

Council of Scientific & Industrial Research (CSIR), New Delhi notified for purpose of section 35(1)(ii) - NOTIFICATION NO. 53/2011 [F.NO. 203/73/2010/ITA-II], DATED 30-09-2011

Section 35AC, read with Explanation (b) thereto, of the Income-tax Act, 1961 - Eligible projects or schemes, expenditure on - Notified eligible projects or schemes - The Indian Minority & Other Communities Development Trust, West Bengal, etc. - NOTIFICATION NO. 81/2011[F.NO.V.27015/3/2011-SO(NAT.COM)/S.O. 1860(E), DATED 11-08-2011

TAX REFUND LETTERS TO REACH IT FIRMS SOONThe finance ministry is firming up a pl

 
TAX REFUND LETTERS TO REACH IT FIRMS SOON: The finance ministry is firming up a plan to expedite payment of thousands of crores of rupees it owes the software and BPO industry in tax refunds.The move promises to bring some joy to the $50 billion information technology sector haunted by the deepening economic woes of the western world.A plan is being finalised to ensure refunds are issued expeditiously, a finance ministry official told ET on condition of anonymity.Chairman of the Central Board of Excise and Customs S D Mazumdar said the plan will be taken up by the board this week.Software makers in India are facing a huge pressure on their margins as fears of a recession in the US and debt crisis in Europe cripple their main export markets.Industry watchers say a settlement of pending refund claims during such a distress will help shore up the dwindling bottom lines of these companies.The IT and BPO industry,which employs over two million workers,has been consistently raising the issue of refunds with the government.Infosys Chairman Emeritus N R Narayana Murthy had even voiced the concern at a recent meeting of industry leaders with Finance Minister Pranab Mukherjee.Experts say the problem arises because of a linkage between input services consumed by the industry and output services that are exported. Since no taxes can be levied on exports, taxes on inputs used in the process of carrying out the exports are neutralised through refunds.In the IT sector, however,there has been an issue over taxes paid on input services consumed in the process of providing a service overseas. Although some inputs have been specified by the CBEC,confusion persists.This leads to delays in refunds or denials altogether.The government has made several attempts in the past to ensure speedier refunds through simplification of procedures,but this has failed to satisfy the industry.The process (of refunds) is very cumbersome and tedious, said Som Mittal, president of IT industry body Nasscom.Requirement of documentation has led to unnecessary delay in issue of refunds. In its last attempt to simplify procedures,CBEC had issued a circular clearing the ambiguity over definition of services used as inputs by technology and BPO companies.Service tax paid on inputs,such as transportation of staff,telecom facilities,software maintenance and up-grades,hiring of recruitment agencies and other related services were made eligible for refunds.But the industry says the conditions specified in the circular,such as proof of consumption of services, made the refund process cumbersome.''If there is a single query involving just Rs 1lakh,a refund of Rs 10 crore may be put on hold,'' Mittal said,pointing out that refund claims worth Rs 3,000 crore made in 2010-11 remain locked up.The finance ministry official quoted earlier said the proposal for speeding up the refunds will go to the finance minister for approval after it is cleared by the CBEC.''The guidelines will be issued by next week,'' the official said,adding that they will cover both dues of current fiscal as well as those of the previous financial years.Experts,however,say that easing of the process on its own will not help.Liberalizing procedures for grant of refund of service tax is welcome,but they should be implemented in actual letter and spirit by the field formations, said Bipin Sapra,partner with audit firm Ernst & Young.The ministry is also working on a drawback scheme to refund service tax for goods exporters.This is expected to become operational soon. – www.economictimes.indiatimes.com

Thursday, October 6, 2011

Assessee was entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself

IT : Assessee was entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself

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[2011] 13 taxmann.com 139 (Madras)

HIGH COURT OF MADRAS

Tamilnadu Petro Products Ltd.

v.

Assistant Commissioner of Income-tax*

F.M. IBRAHIM KALIFULLA
AND N. KIRUBAKARAN, JJ.
TAX CASE (APPEAL) NOS. 896 TO 902 OF 2009

NOVEMBER 2, 2010

Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Whether assessee was entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself - Held, yes [In favour of assessee]

FACTS

The Tribunal held that the assessee was not entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself. Against the said order, the assessee filed instant appeal in the course of hearing of which, the revenue raised a contention that the expression 'derived from' should be given restricted meaning in which event the claim of the assessee could not be countenanced.

HELD

The revenue's contention had no application to the case on hand. Inasmuch the issue was to be dealt with in the light of section 80-IA and in particular sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' could have no application to the case where the provisions of section 80-IA got attracted. [Para 7]

In the result, the assessee's appeal was to be allowed.

CASES REFERRED TO

CIT v. Tanfac Industries Ltd. [SLP (C) No. 18537 of 2009] (para 5).

R. Vijayaragavan and Subbaraya Aiyar Padmanabhan for the Appellant. K. Subramanian for the Respondent.

JUDGMENT

F.M. Ibrahim Kalifulla, J. - The following substantial questions of law were raised in Tax Case (Appeal) Nos. 896, 899 and 900 of 2009 :

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived by the assessee from generation of electricity and sold to Tamilnadu Electricity Board is not entitled to relief under section 80-I of the Act?

2. Whether the Tribunal had valid material to hold that the assessee has not set up a separate undertaking for generation of electricity ignoring the fact that the lower authorities have not controverted that the wind electricity generation by separate undertaking is entitled to relief under section 80-IA only in respect of electricity sold to TNEB?

3. Whether the Tribunal was right in holding that deduction under section 80-IA is not allowable to the assessee as there is no positive income as recorded by the Assessing Officer and ignoring the findings of CIT(A)?

4. Whether on the facts and in the circumstances of the case, the Tribunal ought to have adverted to the findings of the lower authorities as well as decision of the Co-ordinate Bench regarding grant of relief in respect of electricity generated and captively consumed?"

2. The following substantial questions of law were raised in Tax Case (Appeal) Nos. 897, 898, 901 and 902 of 2009 :

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that income derived by the assessee from generation of electricity which was captively consumed is not entitled to relief under section 80-I of the Act?

2. Whether the Tribunal had valid material to hold that the assessee has not set up a separate undertaking for generation of electricity ignoring the fact that the lower authorities have not controverted that the wind electricity generation by separate undertaking is entitled to relief under section 80-IA only in respect of electricity sold to TNEB?

3. Whether the Tribunal was right in holding that deduction under section 80-IA is not allowable to the assessee as there is no positive income as recorded by the Assessing Officer and ignoring the findings of CIT(A)?

4. Whether on the facts and in the circumstances of the case, the Tribunal ought to have adverted to the findings of the lower authorities as well as decision of the Co-ordinate Bench regarding grant of relief in respect of electricity generated and captively consumed?"

3. The issue is directly covered by the decision of this Court dated 7-6-2010 in Tax Case (Appeal) Nos. 68 to 70 of 2010.

The substantial question of law raised in these appeals was :

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to deduction under section 80-IA of the Income-tax Act in respect of notional profits on account on power generated from its own captive power plant and utilised by itself ?"

4. After considering the issue, the statutory requirement as prescribed under section 80-IA(1) has been stated in paras 8 and 9 of the abovesaid judgment which reads thus :

"8. The contention that only whatever power generated from the sale to an outsider or the Electricity Board, and the profit or gain derived by such sale alone can be taken as profits or gains derived by the assessee as mentioned in section 80-IA(1) of the Income-tax Act, has been rejected by the Tribunal in the order impugned. In our considered view, the Tribunal was well justified in having rejected such a stand of the appellant. Having referred to section 80-IA(1) of the Income-tax Act, we are also convinced that what is all to be satisfied in order to be eligible for the deduction as provided under sub-section (1) of section 80-IA, the assessee should have set up an undertaking or an enterprise and from and out of such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-section covered by sub-section (4) of section 80-IA of the Income-tax Act, such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention that profit or gain can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in section 80-IA(1) can be interpreted. The expression 'derived' used in the said section 80-IA(1) in the beginning as well as in the last part of sub-section (4) makes it abundantly clear that such profit or gain could be obtained by one's own consumption of the outcome of any such undertaking or business enterprise as referred to in sub-section (4) of section 80-IA. The dictionary meaning of the expression 'derive' in the New Oxford Dictionary of English states 'obtaining something from a specified source'. In section 80-IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section.

9. Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derive profits and gains by working out the cost of such consumption of power inasmuch as the assessee is able to save to that extent which would certainly be covered by section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, we do not find any lack of merit in the claim of the respondent/assessee when it claimed by relying upon section 80-IA(1) of the Income-tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years."

5. The Division Bench also relied upon the decision of the Hon'ble Supreme Court in CIT v. Tanfac Industries Ltd. [SLP (C) No. 18537 of 2009] wherein while applying section 80-IA of the Income-tax Act, the Hon'ble Supreme Court took a view that the value of steam used for captive consumption by the assessee was entitled to be deducted under section 80-IA of the Act. On behalf of the Revenue, reliance was placed upon the circular of CBDT dated 3-10-2001 and contended that the assessee was not entitled for the deductions. After making a detailed reference to the contents of the said circular, the Division Bench has stated as under in para 13 of the judgment :

"13. A perusal of the abovesaid circular would clearly show that it is also in favour of the assessee. The said circular is very specific that in a case of captive power unit the provision of law is also the same as in the case of the undertaking which generates and distributes the power to any other concern. Further, it is a well-established principle of law that a circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence we are of the opinion that the circular relied upon by the learned counsel for the Revenue is in fact in favour of the assessee and therefore the said contention also cannot be accepted."

6. Mr. K. Subramanian, learned standing counsel for the respondent would however contend that the expression 'derived from' should be given restricted meaning in which event the claim of the appellant cannot be countenanced. According to the learned standing counsel since the business of the appellant is manufacture of petro products and generation of electricity is not its business, it cannot be held that whatever profit earned, even notional profit, by virtue of captive consumption, cannot be construed as profit earned from and out of the income derived from the business undertaking.

7. In our considered opinion, the said contention can have no application to the case on hand. Inasmuch as we dealt with the issue in the light of section 80-IA and in particular sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it will have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of section 80-IA get attracted.

8. Therefore, we do not find any scope to deviate from what was held by this Court in the decision dated 7-6-2010 in Tax Case (Appeal) Nos. 68 to 70 of 2010. The questions of law are therefore, answered in favour of the appellant. The appeals stand allowed and the impugned orders are set aside. Consequently, connected miscellaneous petitions are closed. No costs.

Wednesday, October 5, 2011

Any loss arising from share trading business can be set off against profits of other business run by assessee

IT : Any loss arising from share trading business can be set off against profits of other business run by assessee

[2011] 13 taxmann 138 (Delhi)

HIGH COURT OF DELHI

Commissioner of Income-tax

v.

Gautam R. Chadha*

A.K. SIKRI AND M.L. MEHTA, JJ.
IT APPEAL NOS. 310 OF 2009, 1115 OF 2010
AND 358 OF 2011

JULY 27, 2011

Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 2003-04 - Assessee was engaged in travel agency business under name and style of 'TTM' - It was representative of 'RCCL' and was responsible for marketing and selling its cruise all over world - As per agreement between assessee and 'RCCL', as and when ticket was booked and full payment was received, assessee was entitled to deduct its commission at 25 per cent and remit balance amount to 'RCCL' - In case of cancellation of trip, assessee was liable to return commission earned to RCCL and in that case, it could claim refund of tax from authorities - During relevant assessment year, assessee received certain amount in advance against booking of tickets by customers but did not consider same as income of year on ground that commission would be available to him only on qualified bookings, i.e., when cruise would depart - Whether, on facts, commission had accrued to assessee with booking of tickets and against full payment, notwithstanding that customer might not board cruise or cancel trip and, therefore, 25 per cent of booking advances should be treated as income of assessee for relevant assessment year - Held, yes [In favour of revenue]

Section 70 of the Income-tax Act, 1961 - Losses - Set off of from one source against income from another sources under same head of income - Assessment year 2003-04 - Whether where assessee was carrying on two business, i.e., travel agency business and share trading business, concurrently, he was entitled to set off loss in share trading business from profit of travel agency business - Held, yes [In favour of assessee]

FACTS

The assessee was engaged in business of travel agency under the name and style of TTM. TTM was the representative of 'RCCL' and responsible for marketing and selling its cruise all over the world. During assessment proceedings, the Assessing Officer noticed that the assessee had received money in advance against booking by customers in INR and USD during the relevant year but had not taken into account said amount as income of current year. The Assessing Officer observed that the assessee was receiving booking amount in nominal percentage and substantial money was being received before the sailing of cruise and upon receipt of full amount, the money was being remitted to RCCL after deducting commission at 25 per cent and if the customer cancelled the trip, the entire amount would get forfeited. Accordingly, the Assessing Officer added the whole amount of advance against booking into income of the assessee. During assessment proceedings, the Assessing Officer also noticed that some loss was incurred by the assessee on account of share transactions and same had been transferred to profit and loss account of 'TTM'. The Assessing Officer disallowed the claim of the assessee to set off said loss. On appeal, the Commissioner (Appeals) partly allowed the claim of the assessee by directing the Assessing Officer to treat 25 per cent of the booking advances as income of the assessee and give credit of 10 per cent on account of travel agents commission. He, however, confirmed the order of the Assessing Officer of not allowing the adjustment of losses in share transaction business to be set off against income from the business of travel agency. On second appeal, the Tribunal deleted the entire addition made by the Assessing Officer holding that the receipt by itself would not result into the income unless corresponding services had been performed. The Tribunal also allowed the assessee to adjust the loss from share transaction business against the profits of travel agency business holding that the assessee was carrying on two businesses concurrently as proprietor and, therefore, profits of one could be set off against loss of another in view of provisions of section 70.

On revenue's appeal :

HELD

Admittedly, the assessee was following mercantile system of accounting, wherunder whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realized, income embedded in the receipt is deemed to arise or accrue. [Para 10]

The question for consideration in the instant case was as to when the income could be said to have accrued to the assessee. It was when the ticket was booked by the assessee or when the customer boarded the cruise and it departed. There was force in the contention of the revenue, that it was RCCL and not the assessee who was responsible to render all post booking services to the customers. As per agreement executed between the assessee and RCCL, all bookings which became sailed were made in accordance with RCCL's applicable policy and procedures and the bookings for which full payment was received by RCCL in accordance with the agreement were termed as qualified bookings. It also provided that bookings that were made by the customers on the Curise Line's website would not be considered as qualified bookings. As per the agreement, the assessee was required to remit for each booking to RCCL (a) quoted price or (b) the quoted process minus the commission payable to the assessee. The agreement prescribed 25 per cent as applicable base commission on individual and group bookings. From all this, it was seen that where full payment was received, the assessee was to remit to RCCL the quoted booking price minus 25 per cent base commission. The agreement also provided for the payment to the travel agents. It stated that all commission and other payments due and owing to the travel agent would be the sole responsibility of the assessee and not of RCCL. It also provided that the assessee would deduct and pay any such payments from his commission. That being so, as per the scheme of agreement, 10 per cent commission payable by the assessee to the travel agent from 25 per cent commission to be charged from RCCL was the sole responsibility of the assessee. Thus, as and when the ticket was booked and full payment was received, the assessee became entitled to deduct the commission of 25 per cent and remit the balance to RCCL. The commission accrued to the assessee with the booking of tickets and against full payment. This was notwithstanding that the customer might not board the cruise or cancel the trip. [Para 13]

There was a procedure prescribed for cancellation of bookings. As per agreement, the assessee would be liable to RCCL for payment of cancellation charges in accordance with the applicable cancellation charges schedule as might be amended from time-to-time. Assuming that in some cases, the assessee, in case of cancellation of trip, was liable to return the commission earned, it would be open for the assessee to seek adjustment or claim a refund of tax from the authorities. Therefore, the stand taken by the Commissioner (Appeals) in that regard was correct and 25 per cent of the booking advances received would be treated as income of the assessee assuming that there were no cancellations. However, the assessee would be entitled to 10 per cent credit on account of travel agents' commission after ascertaining actual outgoings in that regard. [Paras 14 and 15]

So far as loss in share trading business was concerned, admittedly, the assessee was doing share trading business although in his own name and not in the name of 'TTM'. The assessee was dealing in shares not for the purpose of investment but for the purpose of business. It is settled position of law that where shares are traded for the purpose of business, any loss arising therefrom will be considered as 'Business loss'. Hence, the Tribunal was right in holding that the assessee was entitled to set off the loss in share trading business from that of travel agency business. The case of the assessee came within the purview of section 70. [Para 19]

CASES REFERRED TO

CIT v. Shri Goverdhan Ltd. [1968] 69 ITR 675 (SC) (para 8), Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) (para 8), Raja Mohan Raja Bahadur v. CIT AIR 1968 SC 114 (para 9), State Bank of Travancore v. CIT [1986] 24 Taxman 337 (SC) (para 9), Devsons (P.) Ltd. v. CIT [2010] 329 ITR 483/8 taxmann.com 87/[2011] 196 Taxman 21 (Delhi) (para 9), Amiantit International Holdings Ltd., In re [2010] 322 ITR 678/189 Taxman 149 (AAR - New Delhi) (para 9), CIT v. Dinesh Kumar Goel [2011] 331 ITR 10/197 Taxman 375/9 taxmann.com 188 (Delhi) (para 9), CIT v. P.M. Muthuraman Chettiar [1962] 44 ITR 710 (SC) (para 17) and CIT v. Ashoka Marketing Co. [1971] (III) UJ 895 (para 19).

Ms. Prem Lata Bansal and Deepak Anand for the Appellant. A.N. Hakser, Udyan Jain and Ashok Sikka for the Respondent.

JUDGMENT

M.L. Mehta, J. - These three appeals being ITA No. 310/09, 1115/10 and 358/11 are preferred against the orders passed by Income-tax Appellate Tribunal ('the Tribunal' for short) dated 22-8-2008, 17-6-2009 and 16-7-2010 relating to assessment years 2003-04, 2005-06 and 2007-08 respectively. Since the substantial questions of law in ITA 1115/10 and ITA 358/11 is also there in ITA 310/09, we propose to dispose of these three appeals through this common order, taking ITA 310/09 as the lead case.

2. Brief facts of the case are that the assessee was engaged in the business of travel agency under the name and style of M/s. Tirun Travel Marketing. It is the representative of M/s. Royal Caribbean Cruise Limited (hereinafter, 'RCCL' for short), responsible for marketing and selling Royal Caribbean and Celebrity Cruise all over the world. The respondent/assessee filed the return for assessment year 2003-04 declaring income at Rs. 79,59,400 on 20-11-2003.

3. On perusal of balance sheet as well as tax audit report, the Assessing Officer noticed that assessee had disclosed a sum of Rs. 1,44,76,873 as money received in advance against booking by customers in INR and USD. Though the said amount was received during the year, the same was not taken into account as income of the current year. The Assessing Officer observed that the assessee was receiving booking amount in nominal percentage, substantial money was being received before the sailing of cruise and upon receipt of full amount, the money was being remitted to RCCL after deducting commission at the rate of 25 per cent. He also observed that if the person did not want to sail and cancel the trip then the entire advance would get forfeited. Accordingly, Assessing Officer treated the entire amount of Rs. 1,44,76,873 as the income of the assessee.

4. During the assessment proceedings, the Assessing Officer further noticed that the assessee had incurred loss of Rs. 17,41,940 on account of share transaction and had transferred the loss to the Profit and Loss Account of M/s. Tirun Travel Marketing. On being asked to explain, the assessee filed details of trading of various shares in 18 different securities. No documentary evidence, however, was filed. Accordingly, the Assessing Officer treated the amount of Rs. 17,41,940 as capital loss and disallowed the claim.

5. Aggrieved by the order of Assessing Officer, the assessee went in appeal before the CIT(A) who partly allowed the appeal and held that the aggregate advances received by the assessee from the customers cannot be treated as profits in their entirety, however, it cannot be denied that the advances received may be inclusive of some element of profit which the appellant ultimately is entitled to receive. Accordingly, it directed the Assessing Officer to treat 25 per cent of the advances as income of the assessee and give credit of 10 per cent on account of travel agents commission after ascertaining actual outgoings in this regard. CIT(A) also confirmed the order of the Assessing Officer not allowing the adjustment of losses in share transaction business to be set off against income from the business of travel agency, holding that the accounts for each business have to be maintained separately and the loss from one activity cannot be set off against the income from the other.

6. Aggrieved by the order of CIT(A), the assessee again preferred appeal before the Tribunal. The Tribunal allowed the appeal and deleted the entire addition made by the Assessing Officer holding that the receipt by itself does not result into the income unless corresponding service have been performed. Either under cash system of accounting or mercantile system of accounting, the receipt becomes income only when the customer boards the cruise and it departs. The Tribunal also allowed the assessee to adjust the loss from share transaction business against the profits of travel agency business holding that the assessee was carrying on two businesses concurrently as Proprietor and therefore, profits of one can be set off against loss of another in view of provisions of section 70 of the Income-tax Act.

7. Against this order of the Tribunal, the revenue is in appeal before us. Following substantial questions of law arise in these appeals:

"(a) Whether the ITAT was correct in law in deleting the addition made by the Assessing Officer, which had been restricted by the CIT(A) to the extent of 15 per cent of the advances, treating the same as income of the assessee?

(b) Whether the receipts on account of booking of cruise tickets assumed character of income in the hands of the assessee when the amount was received from the customers or when the cruise departed?

(c) Whether the ITAT was correct in law in allowing the assessee to adjust the losses incurred on share transactions against the profit of commission agency business under the name and style of M/s. Tirun Travel Marketing?"

8. The learned counsel for the revenue contends that there was principal and agent relationship between RCCL and the assessee. It was RCCL who was liable to render the services and not the assessee. By booking the ticket, assessee created a legal relationship between RCCL and the customer who wanted to sail on cruise. As soon as the ticket was booked, agency came into existence and the assessee became entitled to commission. Assessee was liable to his principle only for booking of the tickets and to remit the entire amount of ticket. Even in case where the ticket was cancelled, assessee was entitled to commission thereon. Hence, the order of CIT(A) that the assessee was entitled to commission at the rate of 25 per cent was justified. In this regard, reliance is placed on the judgments of CIT v. Shri Goverdhan Ltd. [1968] 69 ITR 675 (SC) wherein it was held that, "It is well established that the income may accrue to an assessee without actual receipt of the same and if the assessee acquires a right to receive the same, the income can be said to have accrued to him though it may be received later on, on its being ascertained." and Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) wherein it was observed that, "…once the income accrued, the fact that payment was deferred till after the accounts had been passed in the meetings of the managed company, did not affect the accrual of the income. Income accrues when it becomes due".

9. On the other hand, learned counsel for the assessee heavily relies on section 5 Article 2 of the Agreement which defines the term "Qualified Bookings" and lays down that qualified bookings are all F.I.T. and group bookings which become sailed booking, which were made in accordance with RCCL's applicable policies and procedures, and for which full payment is received by RCCL. Learned counsel for the assessee contends that the commission for such bookings is available to the assessee only on qualified bookings. The assessee has no right to receive any commission on the advance amounts received for the bookings in case the cruise doesn't depart. The advance doesn't on its own become revenue for the assessee till the booking becomes a sailed booking and full payment is received by the RCCL. Once the sail takes place and commission accrues to the assessee, he offers his income for taxes. Taxing the advance received considering it as income will also lead to double taxation since the assessee offers the final income for taxation in the subsequent years. In this regard, he relies upon the judgments of Raja Mohan Raja Bahadur v. CIT AIR 1968 SC 114, State Bank of Travancore v. CIT [1986] 24 Taxman 337 (SC), Devsons (P.) Ltd. v. CIT [2010] 329 ITR 483/8 taxmann.com 87/[2011] 196 Taxman 21 (Delhi), Amiantit International Holdings Ltd., In re [2010] 322 ITR 678/189 Taxman 149 (AAR - New Delhi), CIT v. Dinesh Kumar Goel [2011] 331 ITR 10/197 Taxman 375/9 taxmann.com 188 (Delhi).

10. Admittedly, the assessee is following mercantile system of accounting, whereunder, whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realized, income embedded in the receipt is deemed to arise or accrue as held by the SC in Raja Mohan Raja Bahadur's case (supra). In State Bank of Travancore's case (supra) also, the SC has held that it is the income which has really accrued or arisen which is taxable. Similar view has been expressed by this court in Devsons (P.) Ltd.'s case (supra). It was observed as under:

"… Even in the mercantile system of accounting it is the real income which has accrued in a practical sense that is to be brought to tax. In CIT v. Shoorji Vallabhdas & Co. [1959] 36 ITR 25, the Bombay High Court held that the question whether the income accrued or not is not a mere matter of cogency of the entries made in the account books of the assessee, but is essentially one of substance and of the real nature of what happened. A mere book entry is not conclusive of the question whether the assessee had become entitled to the sums or not and whether the income is accessable"

11. In Amiantit International Holdings Ltd.'s case (supra), it was observed as under:

"We shall now look to the meaning of the expression "accrue or arise". The dicta of Mukherji, in Rogers Pyatt SI IIac and Co. v. Secretary of State for India [1925] 1 ITR 363 has been quoted with approval in a series of decisions of the Supreme Court (vide E.D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27 (page 50):

"Now what is income? The term is nowhere defined in the Act…. In the absence of a statutory definition we must take its ordinary dictionary meaning…. The word clearly implies the idea of receipt, actual or constructive. The Policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. 'Accrues', 'arises' and 'is received' are three distinct items. So far as receiving of income is concerned, there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning planner than the word 'receiving' itself. The words 'accrue' and 'arise' also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense springing as a natural growth or result. The three expressions 'accrues', 'arises' and 'is received' having been used in the section, strictly speaking, 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as a accession or advantage, while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable."

12. In Dinesh Kumar Goel's case (supra), it was observed as under:

"….It is important, therefore, that receipt of a particular amount in the relevant year should be an 'income' under the aforesaid provision. What is the relevant yardstick is the time of accrual or arisal for the purpose of its taxation, viz., in order to be chargeable, the income should accrue or arise to the assessee during the previous year. If income has accrued or arisen, even if actual receipt of the amount is not there, it would be chargeable to tax in the said year. Though the amount may be received later in the succeeding year, the income would be said to accrue or arise if there is a debt owned to the assessee by somebody at that moment. From this, it follows that there must be the "right to receive the income on a particular date". The court further explained that a right to receive a particular sum under the agreement would not be sufficient unless the right accrued by rendering of services and not by promoting for services and where the right to receive is anterior to rendering of service, the income, therefore, would accrue on rendering of services…. (para 13)"

13. The question for our consideration is as to when the income can be said to be accrued to the assessee. It is when the ticket is booked by the assessee or when the customer boarded the cruise and it departed? We find force in the contention of the learned counsel for the revenue, that it was RCCL and not the assessee who was responsible to render all post booking services to the customers. As per section 5 of Article (2) of 2002 International Representation Agreement as executed between the Assessee and RCCL, all bookings which become sailed which were made in accordance with RCCL's applicable policy and procedures and for which full payment is received by RCCL in accordance with this agreement are termed as qualified bookings. It also provides that bookings that are made by the customers on the Cruise Line's website shall not be considered qualified bookings. As per section 16 thereof, the assessee was required to remit for each booking to RCCL (a) quoted price or (b) the quoted prices minus the commission payable to the assessee pursuant to section 6. Section 6 prescribed base commission which is payable by RCCL to the assessee on the bookings. It prescribes 25 per cent as applicable base commission on individual and group bookings. From all this, it is seen that where full payment is received, the latter is to remit to RCCL the quoted booking price minus 25 per cent base commission. Section 12 provides the payment to the travel agents. It states that all commission and other payments due and owing the travel agent, shall be the sole responsibility of the assessee and not RCCL. It also provides that assessee shall deduct and pay any such commissions and payments from the commission. That being so, as per the scheme of agreement, 10 per cent commission payable by the assessee to the travel agent from 25 per cent commission to be charged from RCCL, was the sole responsibility of the assessee. Thus, as and when the ticket is booked and full payment is received, the assessee becomes entitled to deduct the commission of 25 per cent and remit the balance to RCCL. The commission accrues to the assessee with the booking of tickets and against full payment. This is notwithstanding that the customer may not board the cruise or cancel the trip.

14. There is a procedure prescribed for cancellation of bookings. Section 20 of the Agreement provides for cancellation charges. This section reads as under:

"20. Cancellation Charges.—IR acknowledges that RCCL suffers injury when (i) bookings are cancelled but RCCL does not receive proper notice, or (ii) bookings are cancelled close to the scheduled departure. IR shall be liable to RCCL for payment of cancellation charges in accordance with RCCL's applicable cancellation charge schedule as may be amended from time to time. The current cancellation charges for individual bookings are set forth in Exhibit B and for group bookings in Exhibit A. These cancellation charges are subject to the following rules:

(a) RCCL reserves the right to change cancellation charges and time frames upon written notice to IR.

(b) RCCL does not take responsibility for cancellations due to visa denials, incorrect documents, incorrect immigration forms, or absence of insurance.

15. As per this section, the assessee shall be liable to RCCL for payment of cancellation charges in accordance with the applicable cancellation charges schedule as may be amended from time to time. Assuming that in some cases, the assessee, in case of cancellation of trip, is liable to return the commission earned, it would be open for the assessee to seek adjustment or claim a refund of tax from the Authorities. We therefore, hold that the stand taken by the CIT(A) in this regard was correct and 25 per cent of the booking advances received should be treated as income of the assessee assuming that there are no cancellations. However, the assessee shall be entitled to 10 per cent credit on account of travel agents commission after ascertaining actual outgoings in this regard.

16. The learned counsel for the revenue further contends that the Assessing Officer had treated the loss from share trading business as "Capital Loss" since the assessee had not furnished any details i.e., contact notes, mode of payments, details of shares etc. No specific finding has been given by the CIT(A) as to whether loss incurred and claimed by the assessee was a business loss or a capital loss. ITAT could not have outrightly treated the loss as business loss, and the provisions of section 70 could not have been applied.

17. In this regard learned counsel for the assessee contends that the disallowance was on the basis that the entire account of share business is in the name of Gautam Chaddha and not in the name of M/s. Tirun Travel Marketing. The Assessing Officer while doing so disregarded the provision of section 70 of the Act and the fact that travel business is nothing but the proprietorship concern of Mr. Gautam Chadha. He further contends that the loss incurred from share transaction business was assessed under the head 'Business Income' by the Assessing Officer and confirmed by the CIT(A) as well as by the Tribunal. Once it is held to be business loss, provisions of section 70 of the Act will apply. In this regard, he relies upon the judgment of CIT v. P. M. Muthuraman Chettiar [1962] 44 ITR 710 (SC).

18. In P. M. Muthuraman Chettiar's case (supra), the Hon'ble SC has observed as under:

"……It is worthy of note that though the profits of each distinct business may have to be computed separately, the tax is chargeable under section 10, not on the separate income of every distinct business, but on the aggregate of the profits of all the businesses carried on by the assessee. It follows from this that where the assessee carried on several businesses, he is entitled under section 10, and not under section 24(1), to set off losses in one business against profits in another……."

19. Admittedly, the assessee was doing share trading business although in his own name and not in the name of M/s. Titun Travel Market. The assessee was dealing in shares not for the purpose of investment but for the purpose of business. It is settled position of law that where shares are traded for the purpose of business, any loss arising therefrom will be considered as "Business Loss". [CIT v. Ashoka Marketing Co. 1971 (III) UJ 895]. Hence, we are of the view that the Tribunal was right in holding that the assessee is entitled to set off the loss in share trading business from that of travel agency business. The case of the assessee comes within the purview of section 70 of the Act. Accordingly, this issue is decided in favour of assessee and against the revenue.

20. In view of our foregoing discussion, we answer the Question (a) in negative in favour of revenue and against the assessee and Question (b) in affirmative in favour of the revenue and against the assessee. The Question (c) stands answered in affirmative in favour of the assessee and against the revenue.

21. All the above appeals stand disposed of.


Inter Corporate Deposits, Bad Debt





Hindustan MI Swaco Ltd. vs. DCIT bearing ITA No.3774/A/2008
The assessee claimed bad debts of Rs.65,00,000/- on irrecoverability of Inter Corporate Deposits to VHEL Industries Ltd. Assessing Officer raised two objections i.e (a) debt has not become bad as the assessee has filed criminal suit against VHEL Industries Ltd. and (b) the assessee is not engaged into money lending business. CIT(A) confirmed the action of assessing officer. On appeal being filed by the assessee, Tribunal HELD :

(a) First objection is this that the debt has not become bad or doubtful. This aspect is now covered in favour of the assessee by the judgment of Hon'ble Apex Court that after the amendment in the provisions of Section 36(1) (vii) of the Income tax Act,1961 w.e.f. 01.04.1989 that in order to obtain a deduction in relation to bad debt, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough if the bad debt is written of as irrecoverable in the account of the assessee. Since in the present case, this is not disputed by the A.O. that the assessee has written off the amount in question in its account, this allegation of the A.O. that the debt has not become bad, is not valid and hence, rejected by respectfully following the judgment of Hon'ble Apex Court in the case of TRF Ltd. (supra).

(b)The 2nd allegation of the A.O. is that the assessee is not in money lending business and hence, the assessee is not eligible for deduction as bad debt for the principal amount of loan given by the assessee. This aspect is now covered in favour of the assessee by the decision of the Tribunal rendered in the case of Poysha Oxygen Pvt. Ltd. (Supra). In that case, the tribunal has decided on this basis that if the interest income for the money lent is being assessed as business income in any earlier year or even in the year in which the bad debt is written off, the requirement of Section 36(2)(i) is satisfied. While holding so, the tribunal has followed the judgment of Hon'ble High Court of Madras rendered in the case of CIT Vs City Motor Service Ltd. 61 ITR 418.


Tuesday, October 4, 2011

TDS u/s 194C is deductible on payment of hire charges by a transporter to a

TDS u/s 194C is deductible on payment of hire charges by a transporter to another transporter for carrying passengers from one place to another

Income-tax : Payments made by assessee-transporter to other vehicle owners in consideration of their providing vehicles with drivers to assessee for carrying passengers of its hirer from one place to another is deemed as `work' within meaning of section 194C and therefore, assessee was liable to deduct TDS therefrom under the provisions of section 194C [Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contracts, payments to] - [2011] 10 taxmann.com 143 (Ahd. - ITAT)

Monday, October 3, 2011

Whether when partner of assessee-firm fails to raise issue of not signing

Whether when partner of assessee-firm fails to raise issue of not signing revised return and assessee pays up penalty imposed, such acts impliedly amount to admission for purpose of prosecution - YES, rules Supreme Court

NEW DELHI, SEPT 06, 2011: THE issues before the Apex Court are - Whether, for the purpose of prosecution, it is statutorily required of the partner of the assessee-firm to sign the revised return showing higher income and leading to imposition of penalty and Whether when the partner fails to raise the issue of not signing the revised return and the assessee-firm pays up the penalty imposed, such acts impliedly amount to admission for the purpose of prosecution. And the verdict goes in favour of the Revenue.

Facts of the case

Assessee, M/s Mangat Ram Norata Ram, is a partnership firm carrying on the business of sale and purchase of machinery, iron pipes and spare parts. Hem Raj happened to be one of its partners. The Firm filed its income tax return for the assessment year 1988-89 on 14th July, 1988 through its counsel, which was signed and verified by Hem Raj. The income-tax return showed the income of the firm Rs.1,02,800/-. The assessment was completed by the then Income Tax Officer under Section 143(3) of the Income Tax Act for Rs.1,47,370/-.

Meanwhile, the books of the accounts of the firm were taken into possession by the Sales Tax Department, which were obtained by the Income Tax Department and on its perusal discrepancies relating to entries of income, sale and purchase, bank account etc. were noticed and accordingly a notice under Section 148 of the Income Tax Act was issued requiring the assessees to furnish a revised return within 30 days. The respondents did not comply with the notice but ultimately filed its income tax return declaring its income of Rs.1,47,870/-. The prosecution has alleged that this return was duly signed and furnished by accused Hem Raj, which was accompanied by revised statement of income, trading account and profit and loss account. All these documents, according to the Revenue, were also signed by accused Hem Raj. On consideration of the same, the Assistant Commissioner of Income Tax made addition of Rs.1,28,000/- with trading account, Rs.1,10,000/- in bank account and Rs.19,710/- as additional income and assessed the total income to Rs.3,68,200/- and directed for initiating penalty proceedings. Ultimately, the minimum penalty of Rs.1,24,950/- was imposed under Section 271(1)(c) of the Act and further a sum of Rs.7890/- and Rs.12,680/- under Section 271(1)(a) of the Act. The respondent firm filed appeal against the imposition of penalty which was dismissed by the Commissioner of Income Tax (Appeals). The respondents had paid the penalty inflicted on the firm.

A complaint was also lodged for prosecution of the assessees under Section 276C (i), 277 and 278 of the Act. The trial court on appraisal of the evidence held both the respondents guilty and awarded a fine of Rs.1000/- each under Section 276C(1), 277 and 278 of the Act to respondent no.1, the firm, whereas, respondent no.2 was sentenced to undergo rigorous imprisonment for one year and to pay a fine of Rs.1,000/- on each count and in default to suffer simple imprisonment for three months.

Respondents aggrieved by their conviction and sentence preferred appeal and the Appellate Court set aside the conviction and sentence on the ground that sanction for prosecution was not valid. The Appellate Court further held that the prosecution had not been able to prove the signature of respondent no.2 in the return filed, and hence, the conviction was bad on that ground also. The Income Tax Officer aggrieved by the acquittal of the respondents preferred appeal and the High Court by its impugned judgment upheld the order of the acquittal and while doing so observed that the sanction was valid but maintained the order of acquittal on the ground that the prosecution had not been able to prove that the return was signed/verified by respondent no.2.

Respondents aggrieved by their conviction and sentence preferred appeal and the Appellate Court set aside the conviction and sentence on the ground that sanction for prosecution was not valid. The Appellate Court further held that the prosecution has not been able to prove the signature of respondent no.2 in the return filed, and hence, the conviction is bad on that ground also. The Income Tax Officer aggrieved by the acquittal of the respondents preferred appeal and the High Court by its impugned judgment upheld the order of the acquittal and while doing so observed that the sanction is valid but maintained the order of acquittal on the ground that the prosecution has not been able to prove that the return was signed/verified by respondent no.2.

Having heard the parties, the Apex Court held that,

++ the Income Tax Officer, who made the final assessment, did not state in his evidence that the return was signed or verified by the accused Hem Raj in his presence. Further the witnesses namely Satish Kumar (PW1), J.K.Sahni (PW 3) and Satish Luthra (PW 4) have not proved the signatures of Hem Raj. But this would not be sufficient to throw out the case of the prosecution. The prosecution undoubtedly is to prove its case beyond all reasonable doubt to bring home the charge. The evidence for that purpose could be admission of the accused also;

++ in the present case, prosecution had led evidence to prove that revised return was filed by the firm under the name of accused Hem Raj and on that basis assessment was made by the assessing authority. There is further evidence to show that aggrieved by the order of asssessing authority, appeal was preferred before the appellate authority under the signature of the accused Hem Raj, which was dismissed and the penalty was paid. At no point of time accused Hem Raj made any objection that the return did not bear his signature and was not filed by him;

++ it is trite that admission is best evidence against the maker and it can be inferred from the conduct of the party. Admission implied by conduct is strong evidence against the maker but he is at liberty to prove that such admission was mistaken or untrue. By proving conduct of the accused Hem Raj in not raising any dispute at any point of time and paying the penalty, the prosecution has proved his admission of filing and signing the return. Once the prosecution has proved that, it was for the accused Hem Raj to demonstrate that he did not sign the return. There is no statutory requirement that signature on the return has to be made in presence of the Income-tax authority. Nothing has been brought in evidence by the accused Hem Raj that signature did not belong to him on the return and the penalty was paid mistakenly;

++ we are of the opinion that the appellate court misdirected itself in not considering the evidence in right perspective and acquitting the accused, so also the High Court which failed to correct the apparent error. This renders their judgments unsustainable. Any other view may induce the appellant to compel the assessee to file return in the presence of the authority so that the signature is proved by direct evidence by such authority in trial. This will lead to a difficult situation not contemplated under the Act;

++ accordingly, this appeal is allowed, impugned orders are set aside and the judgment of conviction passed by the Chief Judicial Magistrate is restored. However, we reduce the substantive sentence from one year to six months on each count and they are directed to run concurrently.

Sunday, October 2, 2011

Understanding Deemed Dividend with Latest Case Laws

See the artical at
http://www.caclubindia.com/articles/understanding-deemed-dividend-with-latest-case-laws-11385.asp?utm_source=newsletter&utm_content=article&utm_medium=email&utm_campaign=nl_02_10_2011#.ToiLJtQWCJI.gmail

Disallowance u/s 40(a)(iii) cannot be made in respect of salary paid to non

IT : Disallowance u/s 40(a)(iii) cannot be made in respect of salary paid to non-residents for services rendered abroad

Income-tax : Since the salary paid to non-residents for services rendered in Netherland is not chargeable to tax in India, provisions of section 40(a)(iii) will not be applicable and accordingly disallowance under section 40(a)(iii) cannot be made in respect of salary paid to non-residents for the services rendered abroad [Section 40(a)(iii) of the Income-tax Act, 1961 - Business disallowance - Salary payable outside India] - [2011] 10 taxmann 131 (Delhi - ITAT)

Saturday, October 1, 2011

S. 147: Despite specific & pointed queries in s. 143(3) assessment, AO cannot be said to have formed any opinion if explicit opinion not recorded

In the balance sheet enclosed with the ROI, the assessee disclosed sundry creditors of Rs. 1.66 crores. In the course of the s. 143 (3) assessment, the AO asked the assessee to submit the entire list of sundry creditors with their names and addresses etc. The assessee submitted confirmations to the extent of Rs. 1.13 crores and though it could not explain Rs. 33 lakhs, the AO assessed only Rs. 19.86 lakhs u/s 41(1) in respect of 7 creditors. The assessee filed an appeal on the issue. After the expiry of 4 years and pursuant to an audit objection, the AO issued a notice u/s 148 seeking to assess the balance of the creditors as well u/s 41(1). The assessee filed a Writ Petition challenging the reopening on the ground that (i) as the AO had consciously assessed only Rs. 19.86 lakhs though he was aware of the creditors' figure being Rs. 1.66 crores, it was a case of "change of opinion" and (ii) as 4 years from the end of the assessment year had elapsed, reopening was not permissible as there was no failure on the part of the assessee to make a full and true disclosure of the material facts. HELD dismissing the Petition:

(i) The argument that as the AO had called for the details of Rs. 1.66 crores and confined the addition only to Rs. 19.66 lakhs, the reopening is on a "change of opinion" is not acceptable. The question of change of opinion arises when the AO forms an opinion and decides not to make an addition and holds that the assessee is correct. Here, though the AO had asked specific and pointed queries with regard to the sundry creditors of Rs. 1.66 crores, he had made an addition of only Rs.19.86 lakhs and there was no discussion, ground or reason why addition of Rs. 32.97 lakhs was not made in-spite of the assessee's failure to furnish conformation and details to that extent. The argument that when the assessment order does not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the AO and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance (Consolidated Photo vs. ACIT 281 ITR 394 (Del) followed);

(ii) The argument that there was a full and true disclosure of material facts is not acceptable because though in the regular assessment proceedings, the assessee was asked to furnish details with regard to all creditors, this was not done. The term "failure" on the part of the assessee is not restricted only to the income-tax return but extends also to the assessment proceedings. If the assessee does not disclose or furnish to the AO complete and correct information and details it is required and under an obligation to disclose, there is a failure on its part (Honda Siel Power Products vs. DCIT followed).