Monthly Digest of Case Laws (November 2010) http://www.itatonline.org 1 Monthly Digest of Case laws (November 2010) Compiled by: Ajay Singh, Paras Savla, Rahul Hakani, Sujeeth Karkal, Rangesh Banka and Ms. Renu Choudari, Advocates, KSA Legal (Journals Referred: BCAJ, BLR, ITD, ITR (Trib), ITR, Income Tax Review, SOT, DTR, Taxman, CTR, Taxation & itatonline.org) S. 2(1A): Agricultural Income - Income Derived Income derived by the assessee under a scheme where a land earmarked for assessee was given to another company for growing and maintaining the trees, was not the income derived from agriculture or agricultural operation. Papaya Farms (P) Ltd. vs. Dy. CIT (2010) 46 DTR 367 (Mad.) S. 2(14): Agricultural Land - Capital Gains - No Agricultural Income Land which was shown as agricultural land i n the revenue records and never sought to be used for non agricultural purposes by the assessee till it was sold has to be treated as agricultural land, even though no agricultural income was shown by the assessee from this land, and therefore, no capital gain was taxable on the sale of the said land. CIT vs. Debbile Alemao (Smt.) (2010) 46 DTR 341 (Bom.) S. 2(22)(e) : Deemed Dividend - Applicable only to loans given in the year. Section 2(22)(e) not applicable if lending is not “trivial” part of business S. 2(22)(e) covers only the amount received during the previous year by way of loans / advances andnot amounts received in an earlier year. The second condition, the expression “substantial part” does not connote an idea of being the “major part” or the part that constitutes majority of the whole. Any business which the company does not regard as small, trivial, or inconsequential as compared to the whole of the business is substantial business. CIT vs. Parle Plastics Ltd. (2010) 236 CTR 382 (Bom.) S. 2(24)(iv) : Income – Benefit – Shares - Though assessee shown as “owner” of Demat shares in depository’s books, if he shows to be mere “pledgee”, there is no “benefit” under section 2(24)(iv) With respect to dematerialized shares, though section 12 of the DP Act provides for the manner ofcreating a pledge, this is not the only method. Dematerialized shares continue to be “goods” and the law laid down in the Companies Act and the Sale of Goods Act for deciding whether a sale of shares has taken place or not will continue to govern; Though a person is shown as the beneficial owner in the register of a depository participant, this is not conclusive and he can show that he is not the beneficial owner of shares but only holds the shares as a Pawnee and as security for repayment of debts due by the real beneficial owner; As a Pawnee / pledgee, the assessee does not have absolute rights over the shares. He could sell the security in a manner contemplated by law. In case the proceeds were greater than the amount due to him, he had to pay the surplus to the pawnor. Consequently, there was no “benefit” assessable undersection 2(24)(iv). Jt. CIT vs. Mukesh D. Ambani (ITAT Mumbai) Source: www.itatonlin e.org S. 2(42A) : Capital Gains - Long Term or Short Term - Flat allotted under self finance scheme – DDA – Reinvestment - (S. 2(29A), 45, 54) Under section 2(29A), long term capital asset is one which is not a short term capital asset. According to section 2(42A) short term capital asset at the relevant time means a capit al asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. A conjoint reading of these provisions leads to one conclusion that a capital asset which is held by the assessee for 36
S. 2(14): Agricultural Land - Capital Gains - No Agricultural Income
Land which was shown as agricultural land in the revenue records and never sought to be used for non
agricultural purposes by the assessee till it was sold has to be treated as agricultural land, even though
no agricultural income was shown by the assessee from this land, and therefore, no capital gain was
taxable on the sale of the said land.CIT vs. Debbile Alemao (Smt.) (2010) 46 DTR 341 (Bom.)
S. 2(22)(e) : Deemed Dividend - Applicable only to loans given in the year. Section 2(22)(e) not
applicable if lending is not “trivial” part of business
S. 2(22)(e) covers only the amount received during the previous year by way of loans / advances and not amounts received in an earlier year. The second condition, the expression “substantial part” does
not connote an idea of being the “major part” or the part that constitutes majority of the whole. Any business which the company does not regard as small, trivial, or inconsequential as compared to the
whole of the business is substantial business.
CIT vs. Parle Plastics Ltd. (2010) 236 CTR 382 (Bom.)
S. 2(24)(iv) : Income – Benefit – Shares - Though assessee shown as “owner” of Demat shares in
depository’s books, if he shows to be mere “pledgee”, there is no “benefit” under section
2(24)(iv)
With respect to dematerialized shares, though section 12 of the DP Act provides for the manner of
creating a pledge, this is not the only method. Dematerialized shares continue to be “goods” and the
law laid down in the Companies Act and the Sale of Goods Act for deciding whether a sale of shareshas taken place or not will continue to govern;
Though a person is shown as the beneficial owner in the register of a depository participant, this is not
conclusive and he can show that he is not the beneficial owner of shares but only holds the shares as a
Pawnee and as security for repayment of debts due by the real beneficial owner;As a Pawnee / pledgee, the assessee does not have absolute rights over the shares. He could sell the
security in a manner contemplated by law. In case the proceeds were greater than the amount due to
him, he had to pay the surplus to the pawnor. Consequently, there was no “benefit” assessable under section 2(24)(iv).
Jt. CIT vs. Mukesh D. Ambani (ITAT Mumbai) Source: www.itatonline.org
S. 2(42A) : Capital Gains - Long Term or Short Term - Flat allotted under self finance scheme –
DDA – Reinvestment - (S. 2(29A), 45, 54)
Under section 2(29A), long term capital asset is one which is not a short term capital asset. Accordingto section 2(42A) short term capital asset at the relevant time means a capital asset held by an assessee
for not more than thirty six months immediately preceding the date of its transfer. A conjoint reading
of these provisions leads to one conclusion that a capital asset which is held by the assessee for 36
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months would be termed as a long term capital asset and any gain arising on account of sale thereof
would constitute long term capital gain.
Vinod Kumar Jain vs. CIT (2010) 46 DTR 185 (P&H)
S. 2(42A) : Capital Gains - Land – Building - Short term – Long termIf the land is held by Assessee for a period of more than the period prescribed under section 2(42A),
of the Income-tax Act i.e. 36 months then it is not possible to say that by construction of a buildingthereon, the land which is to say that by construction of a building thereon, the land which is a long
term capital asset ceased to be such long term capital asset. In case of lease hold land, the lease hold right would be a capital asset under section 2(14), of the Income Tax Act, in the hands of lessee.
Therefore, capital gain arising out of sale of land and building can and would be required to be
bifurcated, a gain arising out of the sale of land and gain arising out of super structure whether the
building is complete or not.CIT vs. Hindustan Hotels Ltd. (2010) Vol. 112(10) Bom.L.R. 4664
S. 4 : Capital or Revenue Receipt - Transfer or Assignment of Marketing Rights – Non-compete
Fee
Amount received on account of transfer or assignment of marketing rights in exchange of source of
income is a capital receipt. Amount received as non-compete fee is a capital receipt. Capital gains nottaxable where cost of acquisition not determined.
BASF India Ltd. vs. Addl. CIT (2010) 6 ITR 156 (Mum.)(Trib.) S. 4 : Income - Gift by devotees on birthday of assessee –Vocation – Profession – [S. 2(36),
28(i)]
Where the devotees out of natural love and affection and veneration used in large numbers on the
birthdays of the assessee and voluntarily made gifts, it cannot be said that the amount received by theassessee by way of gift would amount to vocation or profession since it is not the case of the
Department that the devotees were compelled to make gifts on the occasion of the birthday of the
assessee and therefore the same were not taxable as income in the hands of the assessee.
CIT vs. Gopala Naicker Bangaru (2010) 46 DTR 280 (Mad.)
S. 4 : Income - Capital Receipt - Affirmative Voting Rights – [S. 2(14)]
Amount received by assessee for affirmative voting on a resolution was not a business receipt, but
received as bounty or wind fall for voting affirmatively and supporting a resolution and was a capital
receipt. Amount received by Assessee as casual receipt in the nature of windfall and not repetitive in
character would not amount to income and therefore, not liable to tax.CIT vs. David Lopes Menezes (2010) 195 Taxman 131 / (2010) Vol. 112 (10) Bom. L. R. 4655
S. 4 : Income - Capital Receipt - Receipt for damage of Goodwill – [S. 28(i)]
If good will of the business is damaged on account of action of supplier of goods and later on somecompensation is awarded in lieu of that, it will fall in the same category of loss to the source of
income and consequently such a receipt will qualify to be characterized as a capital receipt.
Inter Gold (India) (P) Ltd. vs. Jt. CIT (2010) 47 DTR 150 (Mum.)(Trib.)
S. 5 : Accrual of Income – Interest - Interest on NPA not assessable on “accrual” basis
Under section 45Q of the RBI Act read with the NBFCs Prudential Norms (Reserve Bank) Directions
1998, it was mandatory on the part of the assessee not to recognize the interest on the ICD as it had become a NPA. The assessee was bound to compute income having regard to the recognized
accounting principles set out in Accounting Standard AS-9. AS-9 provides that if there areuncertainties as to recognition of revenue, the revenue should not be recognized. Accordingly, the
argument of the revenue that the interest on the NPA can be said to have accrued despite it being a
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CIT vs. Vasisth Chay Vyapar (Delhi High Court) Source: www.itatonline.org
S. 5 : Income – Accrual - Interest on enhanced compensation of land - Cash system of
Accounting
Where the assessee is following cash system of accounting interest received on enhanced compensation under land Acquisition Act, is taxable on receipt basis irrespective of pendency of
appeal in higher Courts in respect of such compensation.CIT vs. Burfi (Smt.) (2010) 46 DTR 354 (P&H)
S. 6(6) : Residential Status - Resident but not ordinarily Resident -Amendment by Finance Act
2003, w.e.f. 1st
April 2004 - Circular No. 7 of 2003 – Substantive in nature
Amendment of section 6(6) by Finance Act 2003, w.e.f. 1st
April 2004, is substantive in nature and
cannot be given retrospective effect, since assessee was not a resident in three out of ten previousyears preceding the Asst. Years 1998-99 and 1999-2000, he has to be treated as “resident but not
ordinarily resident” in the said years as per the pre-amended section 6(6). Though Circular No. 7 of 2003 dt. 5th Sept., 2003, states that the amendment of section 6(6) by Finance Act, 2004 is
clarificatory in nature, it cannot be held clarificatory, as residential status of an assessee determines
his tax burden, said amendment has been made effective from 1st April, 2004 and can be held only as
substantive in nature and cannot be given retrospective effect.CIT vs. Karan Bihari Thapar (2010) 46 DTR 265 (Delhi)
S. 10(14) : Exemption - Special Allowance or Benefit – MLA – MP - Conveyance Allowance -
Only those allowances are exempt which are specified in section 10(14), or section 10(17), or in Rule
2BB. Conveyance allowance or clerical allowance received by an MLA are exempt under section10(14) r.w. Rule 2BB, subject to proof that the same were incurred in the performance of duties of the
office. Telephone allowance and constituency allowance are not exempt under section 10(14), in the
absence of specific clause in Rule 2BB(1). If the medical allowance is reimbursement of medical
expenditure exemption can be allowed and not otherwise, as it does not find place in Rule 2BB(1). M. Venkata Subbaiah vs. ITO (2010) 47 DTR 403 (Visakha)(Trib.)
S. 10(17A) : Exemption - Reward by Government
Amount received as reward by the informer from the customs department is exempt under section
10(17A).
ITO vs. Mariam Beevi & Ors. (2010) 46 DTR 229 (Chennai)(Trib.)
S. 12AA : Charitable Purpose – University - Artificial Juristic Person – [S. 2 (15), 2(31)]
University, incorporated under Haryana private Universities Act, 2006, is an artificial juristic person
within the meaning of term “person” under section 2(31)(vii), hence, it is entitled to make anapplication for registration under section 12AA. The object of the university were granting
fellowship, freeship, scholarship, etc. to students belonging to weaker sections of society, it could be
concluded that assessee was a charitable institution.O. P. Jindal Global University vs. CIT (2010) 127 ITD 164 (Delhi)
S. 14A : Business Expenditure – Exempted Income – Expenditure -incurred in relation to
income not includible in total income - A disallowance has to be on the basis of nexus between
income & expenditure & not on adhoc estimate basis
Rule 8D does not apply to A.Y. 2006-07. The assessee has urged that no expenditure has beenidentified to have been incurred to exempt income. Neither the Assessing Officer nor the CIT(A) has
rebutted this submission. The Assessing Officer made an adhoc estimate which is not sustainable in
the light of Hero Cycles. Accordingly, in view of Vegetable Products 88 ITR 192 where it was held
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that if two constructions are possible, one favouring the assessee should be adopted, the precedent laid
down in Hero Cycles should be followed.
Minda Investments vs. Dy. CIT (ITAT Delhi) Source: www.itatonline.org S. 14A : Business Expenditure - Exempted Income - Expenditure incurred in relation to incomenot includible in total income - A disallowance of interest on borrowed funds on basis that
assessee ought to have used own funds to repay loans & not invest in shares
In view of Godrej Boyce Mfg. Co. 328 ITR 81 (Bom.) Rule 8D is applicable only prospectively i.e.
from A.Y. 2008-09 and not for earlier years. The facts showed that the assessee had made theinvestment in shares out of its own funds and the borrowed funds were entirely utilized for the
purpose of its business. The investment in shares in the current year was made from a separate bank
account where the surplus funds generated in that year were deposited. The argument that the assessee
could have utilized its surplus funds in repaying the borrowings instead of investing in shares and bynot doing so, there was diversion of borrowed funds towards investment in shares to earn dividend
income is not acceptable in view of CIT vs. Hero Cycles Ltd 323 ITR 518 where it was held,distinguishing Abhishek Industries 286 ITR 1 (P&H), that if investment in shares is made by an
assessee out of own funds and not out of borrowed funds, disallowance under section 14A is not
sustainable. Accordingly, the disallowance of interest on borrowed funds was deleted.
Godrej Agrovet Ltd. vs. ACIT (ITAT Mumbai) Source: www.itatonline.org
S. 15 : Salary – MLA – MP - Income from Other Sources - (S. 56)
Remunerations received by the MLAs and MPs cannot be taxed under the head income from salary
but can only be taxed under the head income from other sources.
M. Venkata Subbaiah vs. ITO (2010) 47 DTR 403 (Visakha)(Trib.)
S. 17(3) : Salary - Profits in lieu of Salary – Ex-gratia payment on resignation from service - (S.
15)
Ex-gratia payment received by assessee–employee on his resignation, at the discretion of his
employer being a voluntary payment, cannot be termed as payment by way “compensation” and
therefore, it is not covered by cl. (i) of section (3) of section 17 and is not exigible to tax as “profits”in lieu of salary.
S. 28 : Business Income - Capital Gains - Sale of Shares - Large volume of purchase & sale of
shares does not per se mean activity is business
While volume of transactions is an important indicator of the intention of the assessee whether to dealin shares as trading asset or to hold the shares as investor, it is certainly not the sole criterion. The
Assessing Officer’s conclusion that since sale and purchase had been determined by the volatility in
the market, the same is against the basic feature of investor is not based on sound rational reasoning.
A prudent investor always keeps a watch on the market trends and, therefore, is not barred under lawfrom liquidating his investments in shares. The law itself has recognized this fact by taxing these
transactions under the head “Short Term Capital Gains”. If the Assessing Officer’s reasoning is
accepted, then it would be against the legislative intent itself;Some part of the STCG had arisen out the earlier investment which had been accepted as being on
investment account. As the modus operandi of the assessee remained the same in regard to other
shares purchased during the year, the assessee’s claim could not be negated only on the basis of
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S. 28(i) : Business Income - Capital Gains - Sale of Shares - (S. 45)
Assessee carrying on jewellery business invested in shares and treated shares as investment in the
books. The Tribunal on the basis of facts found viz. that the investment is out of own fund and not borrowed fund, that investment is not rotated frequently, that the total number of transactions are very
few, that all the shares purchased are not sold and rather held for quite number of days, held that thetransactions are to be treated as giving rise to the capital gain and cannot be held as trading in shares.
High Court in appeal confirmed the decision of Tribunal.CIT vs. Rohit Anand (2010) 46 DTR 236 (Delhi)
Editorial Note: ITO vs. Rohit Anand (2010) 127 TTJ 122 (Del.)(UO) / 34 DTR 89 (Delhi)(Trib.)Affirmed
S. 28(i) : Business Income - Capital Gains - Transaction in Shares
Assessee company having not engaged itself in the business of buying and selling shares after 1st
April 1997, though entitled to deal in shares as per the object incorporated in its memorandum of
association, income earned by assessee from the sale of shares held by it as an investment for sevenyears was assessable as capital gains and not as business income.
S. 28(i) : Business Income – Capital Gains – Shares - Short Period of holding shares does not per
se suggest business activity - Share Broker - (S. 45)
The intention with which an assessee starts his activity is the most important factor. If shares are
purchased from own funds, with a view to keep the funds in equity shares to earn considerable return
on account of enhancement in the value of share over a period then merely because the assessee
liquidates its investment within six months or eight months would not lead to the conclusion that theassessee had no intention to keep the funds as invested in equity shares but was actually intended to
trade in shares. Mere intention to liquidate the investment at higher value does not imply that theintention was only to trade in security. However, it cannot be held that in all circumstances if assessee
has used its own funds for share activity then it would only lead to inference of investment being the
sole intention. In such circumstances, frequency of transactions will have to be considered to arrive at
proper conclusion regarding the true intention of the assessee. However, if the assessee, on the other hand, borrows funds for making investment in shares then definitely it is a very important indicator of
its intention to trade in shares;On facts, the Assessing Officer proceeded on the assumption that borrowed funds had been utilized
for buying shares on the ground that funds were common and could not be segregated. However, it
was categorically pointed out before the CIT(A) that no part of the borrowed funds was utilized for
acquisition of shares on investment account. Nothing was brought on record by the department tocontrovert this fact;
ACIT vs. Vinod K. Nevatia (ITAT) (Mumbai) Source: www.itatonline.org
S. 28(1) : Business Income - Capital Gains - Sale of Shares - Multiple orders for purchase/sale of
shares may constitute one transaction - (S. 45)
The Assessing Officer had not correctly calculated the number of transactions because sometimes a
single transaction is split by the computers trading of the stock exchanges into many smaller transactions but that does not mean that assessee has carried so many transactions. If someone places
an order for purchase of 1000 shares and the same is executed by the electronic trading system of
stock exchange into 100 smaller transactions, it does not mean that 100 transactions have been entered
into. The assessee had carried out only 31 purchase and 25 sale transactions which cannot be said to be a great volume of transactions.
At the end of the year, the assessee was holding shares worth Rs. 11.56 crores with a market value of Rs.17.69 crores. If assessee was a trader, he would have definitely realized the huge profit of almost
Rs. 6 crores immediately and not carried out the stock to the next year.
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The transactions in which no delivery was taken and it was settled in the same day appear to be cases
where the particulars were wrongly carried out on behalf of the assessee by the broker & that’s why
assessee got them settled on the same day.The assessee has not borrowed any money and he was occupied full time in the business of garments.
Mehal V. Shah vs. ACIT (Mumbai) (ITAT) Source: www.itatonline.org
S. 28(i) : Business – Profession - Vocational Receipt – [S. 56(2)(v)]
Gift received by various donors by a prominent political figure cannot be taxed as amount received as
profession or occasion. As the CIT (A) held that the gift above was taxable under section 56(2)(v),gift below Rs. 25000 cannot be taxed as income from profession or occasion.
Dy. CIT vs. Mayawati (2010) 42 SOT 59 (Delhi)
S. 30 : Rent, Rates Taxes, Repairs and Insurance for Buildings : (S. 38)
Assessee was a tenant of a small portion of buildings. As building was old considerable leakage was
taking place from roof. During the relevant Asst. Year, assessee incurred expenditure on repairs of roof and claimed deduction of same. The Hon’ble Court held that considering the section 38, assessee
would be entitle to deduction on prorate basis, i.e. qua premises occupied by assessee and not entire
expenditure.
Danesh A. Irani of Mumbai Indian Inhabitant vs. CIT (2010) 195 Taxman 97 (Bom.)
S. 32(1)(ii) : Depreciation - Financing of Vehicles - User in Business
If the assessee have merely financed the vehicles and borrowers are registered owners of such
vehicles it would be a loan transaction and in such case the assessee will not be entitled to
depreciation on such vehicles, on the other hand, if the vehicles are purchased by the assessee and retained their ownership with registration in their name and the vehicles were either given on lease or
given under hire purchase agreement giving an option to the hirer to purchase if after the payment of lease rentals or hire charges during the agreed period, then the assessee will be entitled to
depreciation, matter remanded for reconsideration.
CIT vs. Manappuram Central Finance & Leasing Ltd. (2010) 46 DTR 323 (Ker.)
S. 32(1)(ii) : Depreciation - Goodwill
Payment made towards goodwill for ensuring retention and continued business in the hospitalacquired by assessee on going concern basis in comparable with trade mark, franchise, copyright, etc.,
referred in sub cl. (ii) of section 32(i) hence, depreciation is allowable.
B. Ravendran Pillai vs. CIT (2010) 47 DTR 81 (Ker.)
S. 32(1)(iia) : Depreciation - Additional Depreciation - Production of ready mixed concrete
Production of ready mixed concrete amounts to manufacture or production of goods and the assessee
is entitled to claim additional depreciation under section 32 (1)(iia) on RMC machinery.
S. 37(1) : Business Expenditure - Foreign Income - Taxes not eligible for Deduction under
section 37(1). Despite bar in DTAA, credit for State taxes to be given under section 91 inaddition to Federal Taxes – DTAA - India-USA – [S. 40a(ii)]
The claim of the assessee that it is entitled to tax credit under section 90 & 91 in respect of the foreign
taxes as well as a deduction under section 37(1) is not justified and results in a double unintended
benefit.The argument that if deduction under section 37(1) is not granted, credit for foreign taxes should be
granted under section 90 even in respect of income eligible for deduction under section 80HHE is notacceptable because this would be contrary to the language of the DTAA and result in an assessee
getting refund of US taxes if he had no tax liability in India.
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The argument that sections 90 & 91 are confined to USA Federal taxes and not to USA State taxes
and that therefore the bar in section 40(a)(ii) does not apply to USA State taxes is not acceptable
because any payment of Income-tax is an application of income as held in Inder Singh Gill 47 ITR 284. Further, the scheme of sections 90 & 91 does not discriminate between Federal taxes and State
taxes and though the India-USA DTAA confines the credit only to Federal taxes, the assessee will beentitled to relief under section 91 in respect of both taxes as that will be more beneficial to the
assessee vis-à-vis tax credit under DTAA. Consequently, the bar against deduction in section 40(a)(ii)will apply to USA State taxes as well though the assessee will be entitled to credit in respect of USA
State taxes. Dy. CIT vs. Tata Sons (ITAT Mumbai) Source: www.itatonline.org
S. 37(1) : Capital or Revenue Expenditure - Termination of Agreement
Assessee entered into an agreement for purchase of property for infrastructural facilities for business,assessee terminated the agreement and paid compensation, payment to be treated as capital in nature
and not allowable as revenue expenditure.Sap Labs India Pvt. Ltd. vs. ACIT (2010) 6 ITR 81 (Bang.)(Trib.)
S. 37(1) : Business Expenditure - Capital or Revenue Expenditure - Expenditure onsite
development Expenses incurred onsite development of portal is revenue expenditure.
S. 37(1) : Business Expenditure - Lease Rental for Dozers
As long as an expenditure is incurred bona fide in pursuit of business and not by way of diversions of funds, it has to be allowed as a deduction. Entire lease rent paid by the assessee for hiring the dozers
for using them in its business was allowable as a business expenditure even though assessee did notactually use 3 out of the hired dozers.
S. 37(1) : Business Expenditure – Penalty - Fine – Payment for Settlement of Dispute for allegedinfringement of patent - Explanation
Payment made by the assessee on settlement of dispute with a company of USA being neither a fineor a penalty for a proved offence nor an amount of compensation of an offence but is merely a sum in
settlement of an action charging the assessee was denied and not proved the same cannot be rendered
to be inadmissible deduction while determining the assessee’s income from business.
Desiccant Rotors International (P) Ltd. vs. Dy. CIT (2010) 47 DTR 193 (Delhi)(Trib.)
S. 40(a)(ia) : Business Expenditure – Disallowance - Tax Deduction at Source – Interest -
Application in Form No. 13., 15G - (S . 194A)
Disallowance under section 40(a)(ia) of interest payments on which no TDS was deducted wassustainable, as merely filing of Form No. 13 by payee to their respective Assessing Officers cannot be
construed as an authorization to the assessee not to deduct tax for the interest due to them. No copies
of Form No. 15G were forthcoming to justify the assessee’s stand. Rajendra Kumar vs. Dy. CIT (2010) 46 DTR 363 (Bang.)(Trib.)
S. 40(a)(ia) : Business Expenditure - Payment to Goods – Freight Charges - (S. 194C)
Where the Tribunal has recorded a categorical finding fact that there was no material on record to prove any written or oral agreement between the assessee and recipients of goods for transportation
and that such payment of freight had not been shown to have been made in pursuance to a contract of transportation of goods for a specific period, quality or price and further, none of the individual
payment exceeded Rs. 20,000/-, there was no liability to deduct tax under section 194C and
disallowance under section 40(a)(ia) was rightly deleted.
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CIT vs. Bhagwati Steels (2010) 47 DTR 75 (P&H)
S. 40A(3) : Business Expenditure - Disallowance
Payment through Banker’s cheques, pay orders and CDRs are bills of exchange and therefore
payments made through these instruments cannot be disallowed under section 40A(3), r.w.r.6DD(d)(iv).
CIT vs. Vijay Kumar Goel (2010) 46 DTR 146 (Chhattisgarh)
S. 41(1) : Remission or Cession of Trading Liability - Loan waived – [S. 28(iv)]Where capital assets are acquired by obtaining a loan and subsequently, loan amount is waived by
other party, principal amount of loan waived by other party cannot be brought to tax under section
S. 43(5)(d) : Loss - Speculation Business - Transaction in Derivatives
Exchanges notified on 25-1-2006, transactions carried out in previous year relevant to assessment
year 2006-07, eligible for benefit of section 43(5)(d), loss on derivative transactions to be set off
against profit earned in purchase and sale of shares on derivative basis. No expenditure can be
allocated towards speculative business.Seema Jain (Smt) vs. ACIT (2010) 6 ITR 488 (Delhi)(Trib.)
S. 43B : Business Expenditure - Deduction only on Actual Payment
Electricity Board collecting duty from customers as agent of State. Section 43B is not applicable.
Kerala State Electricity Board vs. Dy. CIT (2010) 329 ITR 91 (Ker.)
S. 44BB : Business of Exploration of Mineral Oil – DTAA – PE -Reimbursement of Expenses -
(S. 90)
Assessee, affiliates of EOGIL, rendered service on cost–to–cost basis to EOGIL in terms of the PSC
entered in to EOGIL with Indian concerns dully approved by the Government of India and payment
received through debit notes are only reimbursement of actual expenses and in view of section 42,assessees is not taxable in India in view of Art. 7 of the DTAA with USA as they had no PE in India.
S. 45 : Capital Gains - Sale of land with trees and plants
The assessee, a Chartered Accountant by profession, sold land with trees and claimed Rs. 14.92 lakhs
as expenses from the sale consideration of Rs. 10 lakhs as exempt agricultural income. The Assesseecontented that the vendee had paid a sum of Rs. 10 lacs towards the total reimbursements of sale
proceeds of the trees, plants and other existing crops and horticulture and it was included in the total
value. The Assessing Officer held that it was a composite sale along with the land. Hence, it could not
be treated separately as agricultural income. He made addition of Rs. 10,03,814/-. CIT(A) confirmed the assessment order. The Tribunal held that, although this amount was part of sale deed under which
the land was sold, the part of sale proceeds was not agricultural income. Deduction was allowed on
entire indexed cost of acquisition. Abhinav Ajmera vs. ACIT (2010) 6 ITR 482 (Delhi)(Trib.)
S. 45(4) : Capital Gains - Conversion of firm in to company - Part IX
Provisions of section 45(4) is not attracted to conversion of partnership firm in to company under the provisions of part IX of Companies Act.
CIT vs. Rita Mechanical Works (2010) 46 DTR 133 (P&H)
S. 45 : Capital Gains - Tax Avoidance - Colourable Device
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Assessee transferring the shares to another group of companies at prevailing market rate, to reduce its
taxable income, cannot be dubbed as colourable device to evade taxes.
CIT vs. Pivet Finance Ltd. (2010) 46 DTR 339 (P&H)
S. 48 : Capital Gains – Computation - Market Value - Cost of ConstructionAssessee had sold land to the builder–developer. Only the cost of construction of proposed building
allotted to the assessee in the ultimately constructed area and not the market value of such share of constructed area, has to be reckoned as consideration for the purpose of computation of capital gains.
Dy. Director of IT vs. G. Rahguram (2010) 46 DTR 136 (Hyd.)
S. 48 : Capital Gains – Computation - Fair Market Value - Full Value of Consideration - (S. 45,
50C, 55A)
Under section 45 the full value of consideration is to be adopted for computing the capital gains.Under section 50C, fair market value estimated by the registering authority is deemed to be full value
of consideration, however, there is no provision in the Act under which the fair value market valueassessed by the DVO is to be taken as full value of consideration, hence the Assessing Officer was not
justified in adopting the fair value determined by the DVO as the full value of consideration for
computing the income from capital gains.
ITO vs. Mohinder Nath Sehgal & Sons (2010) 46 DTR 238 (Chd.)(Trib.)
S. 48 : Capital Gains – Chargeability - Transfer of right to acquire property - Nil cost of
acquisition - (S. 45)
Transfer of right to acquire property i.e. for giving up right to claim specific performance did not
attract capital gains as no cost of acquisition was determinable. B. Ramakrishnaiah vs. ITO (2010) 46 DTR 406 (Hyd.)(Trib.)
S. 49(1)(iii) : Capital Gains – Cost of Acquisition - Fair Market Value as on 1st
April, 1981 - Sale
of Land - Dismantling the Building – [S. 48, 55(2)(b)]
Though the assessee had sold land by second sale deed after dismantling the building, the fair market
value for the purpose of computation of capital gain should be taken, of the land as well as theconstruction thereon since as on 1st
April 1981, building was existing over the plot . Assessing Officer
was not justified in taking the fair market value of land only.Subash Chand Kapoor vs. ITO (2010) 46 DTR 314 (Agra)(Trib.)
S. 50(C)(2) : Capital Gains - Full Value of Consideration - Reference to Departmental Valuation
Officer
If the assessee is of the opinion that the valuation fixed by the registering authority is higher, the
assessee can request the Assessing Officer to refer the matter to the Departmental valuation officer.
The Tribunal held that the Assessing Officer is bound to refer the matter to the valuation officer. The
matter was set aside to Assessing Officer to refer the matter to Departmental valuation officer. B. N. Properties Holdings P. Ltd. vs. ACIT (2010) 6 ITR 1 (Chennai)(Trib.)
S. 54 : Capital Gains – Investment – DDA - Allotment Letter - Long Term Capital Gains - (S.2(29A), 2(42A), 45)
Allottee of a flat under self–financing scheme of DDA gets title to the property on issuance of
allotment letter, as clarified vide Circular No. 471 dt. 15-10-1986, and therefore, Capital Gain arising
on sale of flat by the assessee on 6th
Jan., 1989, which was allotted to him on 27th
Feb., 1982, byissuance of an allotment letter was long term capital gain, irrespective of the date of allotment of
specific flat number and delivery of possession on 15th
May 1986, assessee was entitled to exemptionunder section 54 on reinvestment of sale proceeds in another house.
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S. 54 : Capital Gains – Exemption - Sale of house or land - Land appurtenant to the building :
(S. 54)
Assessee is entitled to exemption under section 54 in respect of capital gains on sale of the land appurtenant to the building. Such land is sold separately, after dismantling the existing building. What
is sold is only land and hence, exemption under section 54 will not be allowable.Subhash Chand Kapoor vs. ITO (2010) 46 DTR 314 (Agra)(Trib.)
S. 54F : Capital Gains – Exemption - Purchase of Flat
Assessee had purchased a flat, prior to sale of land after demolition of building on the land and therefore neither proviso to section 54F(1) nor section 54F(2) attracted and the assessee was entitled
to exemption under section 54F.
Subhash Chand Kapoor vs. ITO (2010) 46 DTR 314 (Agra)(Trib.)
S. 55A : Capital Gains - Reference to DVO - Fair Market Value as on 1-4-81
Fair market value of the property as on 1st
April 1981, declared by the assessee as per Governmentregistered valuer’s report being more than the fair market value as estimated by the DVO on reference
by the Assessing Officer, the reference to the DVO is not valid and consequently, estimation of fair
market value of property as made by the assessee is to be accepted.
Sarala N. Sakraney vs. ITO (2010) 46 DTR 208 (Mum.)(Trib.)
S. 56(2)(v) : Income from Other Sources – Business – Profession - Vocational Receipt – [S. 28(i)]
Gift received by the assessee in excess of Rs. 25,000 each were offered by the assessee as “Income
from other sources” in the return of income. The assessing officer taxed the gift of below Rs. 25,000,
each as income from profession and occasion. The Tribunal held that gift received by various donors by a prominent political figure cannot be taxed as amount received as profession or occasion. As the
CIT(A) held that the gift above was taxable under section 56(2)(v), gift below Rs. 25,000 cannot betaxed as income from profession or occasion.
Dy. CIT vs. Mayawati (2010) 42 SOT 59 (Delhi)
S. 68 : Cash Credits - GiftIn order to establish that the money received by assessee to be a gift, it should be proved to be
voluntary and at the instance of the donor out of love and affection. Gift being as per advice of donor’s brother-in-law and not voluntary out of love and affection, addition under section 68 was
sustainable.
Vimaladevi S. Garg (Smt) vs. ITO (2010) 46 DTR 294 (Mum.)(Trib.)
S. 68 : Cash Credit - Share Transactions - Capital Gains – (S. 45)
Assessee having established the genuineness of purchase and sale of shares by producing
documentary evidence and declaring the purchase and sale price of shares in conformity with market
rates prevailing on the respective dates, the finding of the Tribunal that transactions were genuine is afinding of fact based on documentary evidence on record and therefore no substantial question of law
arises from the order of the Tribunal deleting the addition under section 68. Statement of broker that
the transaction was bogus was not relevant, transaction being off market the assessee produced relevant documents.
CIT vs. Jamnadevi Agrwal & Sons (2010) 46 DTR 271 (Bom.)
S. 69 : Unexplained Investments - Remanding the matter back to Assessing Officer
In the course of assessment proceedings the Assessing Officer asked for the source of investment of
Rs 8,64,670 in connection with supply of coal of 1408 MT on road permit. In reply assessee filed theaffidavit of “H” (Coal lifting agent) and the copy of agreement executed between assessee and “H”,
who had deposited money with CCL on behalf of assessee. Not satisfied with the explanation, the
Assessing Officer made addition under section 69. On Appeal CIT(A) deleted the addition. On appeal
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by the Department the Judicial member remanded the matter back to Assessing Officer, whereas the
Accountant Member confirmed the order of Assessing Officer. On reference to third member it was
held that the Judicial member was right in restoring the matter back to Assessing Officer for disposalafresh.
ACIT vs. Kaycee Glass Works (2010) 127 ITD 109 (Agra )(TM)
S. 69 : Income from Undisclosed Source – Addition – Alleged bogus purchase - Non filing of
confirmation - Certificate from Bank - (S. 145)
Assessing Officer was not justified in making the disallowance of purchases made by the assesseemerely due to non filing of confirmation from suppliers especially when assessee has filed certificate
from the bank indicating the facts that cheques issued by it were cleared and no defects in the books
Stock stored in State warehousing corporation was destroyed by fire in the year 1978. Suit was filed
to reimbursement of loss. Suit was dismissed in the year 1982. Loss was allowable in the year 1983-
84.
New Diwan Oil Mills vs. CIT (2010) 328 ITR 432 (P&H)
S. 72(1) : Losses - Carry forward and set off of business losses - Remission or Cessation of
Trading Liability – [S. 41(1)]
In order to allow business loss under section 72(1)(i) condition is that assessee should carry on
business in year under appeal and it is only against profits of such business that brought forward losscan be set off. Where assessee’s profits were assessed under section 41(1) as business income, said
profits did not represent profits and gains of any business carried on by assessee and therefore, brought forward business loss was not allowable against profits assessed under section 41(1).
S. 73 : Speculation Loss - Investment Co-Purchase and sale of SharesLoss arising on account of purchase and sale of shares in another company is to be treated as
speculative loss in view of the clear provisions of Explanation to section 73.Centurion Investment & International Trading Co. (P) Ltd. vs. ITO (2010) 133 TTJ 803 / 46 DTR
177 (Del.)
S. 74 : Capital Gains - Capital Loss - Carried Forward and set off-Non-resident
Claim of carry forward of capital loss brought from earlier years by the assessee, a company, tax
resident of Mauritius, could not be rejected by the Assessing Officer while making assessment of
subsequent year on the ground that since the assessee company was not liable to tax on the capital
gains under Art. 13 of DTAA between India and Mauritius, such capital loss was also exempt. Flagship Indian Investment Co. (Mauritius) Ltd. vs. ADIT (2010) 133 TTJ 792 / 46 DTR 166
(Mum.)(Trib.)
S. 80HHC : Deduction – Export - New Industrial Undertaking – S. 80IA(9) - S. 80-IA deduction
to be reduced for S. 80HHC deduction – [S. 80IA(9)]
The expression “deduction to the extent of such profits” signifies that if an assessee is claiming
benefit of deduction of a particular amount of profits and gains Under section 80IA, to that extent profits and gains are to be reduced while calculating the deduction under Chapter VI A (C). The word
“and” is disjunctive and means that the other provision is independent. The provision aims atachieving two independent objectives and cannot be limited to second objective alone thereby
annihilating the first altogether and making it otiose. Even under the purposive interpretation, the
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purpose behind introducing section 80IA(9) is to ensure that an assessee does not get deduction on the
amount of profits and gains accorded in one provision.
The argument that where the Legislature intended to deduct the amount out of some other deduction adifferent phraseology was used is also not acceptable. Merely because section 80-IB is not worded in
a similar fashion does not mean that one has to do violence with the plain language of the provision,which is capable of only one meaning
Great Eastern Exports vs. CIT (Delhi High Court) Source: www.itatonline.org
S. 80HHC : Export – Deductions - Calcined Petroleum Coke - (CPC) - Mineral OilAssessee Company manufacturing and exporting CPC, would be entitled to deduction under section
80HHC in respect of profits arising out of export of CPC. Calcined Petroleum Coke (CPC), produced
from raw petroleum coke by subjecting same to a manufacturing process called as “calcining process”
cannot be called “Mineral Oil”.Goa Carbon Ltd. vs. CIT (2010) 195 Taxman 1 (Bom.) / (2010) Vol. 112 (10) Bom. L. R. 4477
S. 80IB : Deduction – Manufacture - Potato Chips - Initial Year
Conditions precedent for allowability of deduction under section 80IB are to be examined in the initial
year of the claim and if they are found to be satisfied the Assessing Officer cannot ignore that finding
in the assessment of a subsequent year and take a different view. The Tribunal held that the CIT(A),was not justified in disallowing deduction under section 80IB on the ground that the manufacture and
sale of dehydrated onion flakers and potato chips is not manufacture or production of article or thing
S. 80-O : Deduction – Royalties - Foreign Enterprises
Amount allowable under section 80–O of the Income Tax Act, is restricted to the total income and notto the income computed under the head business.
CIT vs. J. B. Boda & Co. Ltd. (Bombay High Court) ITA No. 3224 of 18-10-2010 [307 (2010) 42-B-
BCAJ (December 2010 P. 35]
S. 90 : Double Taxation Relief - India-USA – DTAA - Income deemed to accrue or arise in India
- Business Connection - Service rendered through Indian subsidiary- (S. 5(2), 9(1)(i), Art. 5, 7,
27)
Assessee a US company, providing IT enabled services to its clients by assigning or sub-contracting
execution of the contracts to its wholly owned subsidiary EFI and supplying the relevant software and
database to the later, free of charges, has business connection in India within the meaning of section9(1)(i), as well as a PE in the form of EFI, as per Art 5 of the Indo–USA DTAA. Profits attributable
to the PE are to be worked out by applying the proportion of Indian assets to global assets including
EFI’s assets, to the aggregate of global profits and reducing the resultant figure by the assessed profit
of EFI.eFunds Corporation vs. Asst. Director IT (2010) 134 TTJ 1 (Delhi)
S. 92C : Transfer Pricing - Arm’s Length Price - International Taxation - Operational Cost -Comparable
Comparables of extreme cases both on higher side and lower side to be avoided. Foreign exchange
fluctuations cannot be excluded. Income tax refund cannot be included. Donations to be included.
Compensation for termination of agreement to purchase property to be excluded. Shifting from one process to another in selection process permissible.
Sap Labs India Pvt. Ltd. vs. ACIT (2010) 6 ITR 81 (Bang.)(Trib.)
S. 92C : Transfer Pricing - Arm’s Length Price - International Taxation - Custom Valuation -
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Data for comparison to be data relating to year in which international transaction entered into.
Exclusion of reimbursement of advertisement expenditure for determining profit level indicator not
proper. Advertisement expenditure of comparables operating profits to be adjusted to bring it at par with tested party.
Panasonic India Pvt. Ltd. vs. ITO (2010) 6 ITR 502 / 46 DTR 433 (Delhi)(Trib.)
S. 92C : Transfer Pricing - Associated Enterprise - Arm’s Length Price
Proprietor of the foreign concern being a relative of the two brothers who are controlling the assessee
firm, cl. (j) of section 92A(2) is applicable to the facts of the case and the said foreign concernconstituted an AE of the assessee. Since the word “or” is appearing between each sub clause of
section 92A(2), the requirement of deeming provision is satisfied even if one of the sub clauses is
applicable. Items sold by the assessee to the AE not being comparable with the items sold to other
enterprises, the GP rate of the sales made to other concerns cannot be applied for computation of ALP.
ITO vs. V. Rajendra Exports (2010) 46 DTR 193 (JP)(Trib.)
S. 92C : Transfer Pricing – Computation - Arm’s Length Price -Payments to personnel deputed
by AE and Royalty
As there was no reason for the TPO to hold that expenditure on the deputation of technical adviser ought to be incurred by AE and not by the assessee, and the fees paid for technology agreement was
recovered by assessee from the AE, as part of sale price, such fee paid became revenue neutral,
transaction were at ALP hence no addition was called for. On the facts the CIT(A) has rightly deleted
the addition of Rs 43,68,838 made by the Assessing Officer, being the difference in the ALP on
account of royalty and payments to personnel deputed by AE. ACIT vs. Sona Okegawa Precision Forgings Ltd. (2010) 47 DTR 187 (Delhi)(Trib.)
S. 115JA : Book Profit – Company – Interest - (S. 234B, 234C)
Assessment of company under section 115JA, interest under section 234B and 234C is not leviable.
S. 115JAA : Book Profit - MAT Credit to be set off before computing Advance Tax shortfall
and liability for section 234B, 234C - Interest
The scheme of section 115JA(1) and 115JAA shows that right to set-off the tax credit follows as a
matter of course once the conditions of section 115JAA are fulfilled. The grant of credit is not
dependent upon determination by the Assessing Officer except that the ultimate amount of tax credit
to be allowed depends upon the determination of total income for the first assessment year.Accordingly, the assessee is entitled to take into account the set off while estimating its liability to pay
advance tax. If this interpretation is not given, there will be absurdity.
The amendment to Explanation 1 to section 234B by FA 2006 w.e.f. 1.4.2007 to provide that MATcredit under section 115JAA shall be excluded while calculating advance-tax liability is to remove the
immense hardship that would result if this was not done.
CIT vs. Tulsyan NEC (Supreme Court) Source: www. itatonline.org
S. 115JB : Book Profit - State Electricity Board
State Electricity Board is not company bound by the provisions of Companies Act, as to manner of
drawing up profit and loss account or obligation to lay before company in general meeting. Provision
of section 115JB is not applicable. Kerala State Electricity Board vs. Dy. CIT (2010) 329 ITR 91 (Ker.)
S. 115WB(2)(H) : Fringe Benefits - Repairs, Running, etc., of Motor Cars - Interest on loan
Expenditure incurred on payment of salary to driver is to be included in computing the expenses on
running of car within the meaning of the provision of section 115WB(2)(H), however, the expenditure
Instruction No. F. No. 286/2/2003 - IT(Inv) dt. 10-3-2003 (April 2003 AIFTP JOURNAL P. 25)
S. 133A: Assessment – Addition - Disclosure in the course of Survey – Retraction – Assessment -
(S. 143)
Assessee disclosed an amount of Rs 25 lakhs vide letter dated 11-2-2005, which was submitted after
two months from the date of survey in the light of various documents and papers found at the time of
survey. In the return of income the said amount was not disclosed. The Assessing Officer rejected the
book results and made addition of Rs. 25 lakhs. The Tribunal also confirmed the addition on theground that it was not a case of the assessee that the assessee has wrongly understood the contents of
the documents, burden on assessee to explain the contents of the documents as the assessee has not
S. 133A: Survey - Addition on the basis of Statement was deleted - Discrepancy in Stock and
Cash
Statement made under section 133A is not conclusive proof. Assessee was able to explain discrepancy
in stock by production of relevant record. Addition was deleted.
CIT vs. Dhingra Metal Works (2010) 328 ITR 384 (Delhi)
S. 133A : Survey - Addition on the basis of Statement - Cross Examination - (S. 131)
Addition on the basis of admission during the survey without any supportive material not sustainable,further there was no substantive evidence on record except statement of assessee and third party in
support of addition of Rs. 25 lakhs and Rs. 2.55 crores made by Assessing Officer for the Asst. Year
2007-08 and 2008-09 respectively. Non providing of cross examination of witness clearly constitutes
infraction of the right conferred on the assessee and that vitiated the order of the assessment madeagainst the assessee.
B. Ramakrishnaiah vs. ITO (2010) 46 DTR 406 (Hyd.)(Trib.)
S. 143(3): Assessment - Order Sheet - Notice received after statutory time limit - Limitation
Order sheet is a very important record. As the Assessing Officer not recorded in the order sheet and
the Assessing Officer is not able to show that the notice dt. 08-06-2006, was issued and served, it was
to be held received after statutory time limit under section 143(2) and was clearly time barred. Dy. CIT vs. Mayawati (2010) 42 SOT 59 (Delhi)
S. 147 : Reassessment - Full and True Disclosure - Notice after expiry of four years - (S. 148)
There is no mention in recoded reasons that the escapement of chargeable income was due toomission or failure on the part of the assessee to disclose fully and truly all material facts necessary
for the assessment and therefore notices under section 148 are wholly without jurisdiction and theyare liable to be quashed.
Sri Sakthi Textles Ltd. vs. Jt. CIT (2010) 46 DTR 191 (Mad.)
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S. 153A : Search and Seizure - Assessment of any other person -(S. 153C)
Seized documents not belonging to assessee, assessment not pending on date of search, original
assessments not abated. Assessment under section 153A was set aside. Meghmani Orgaics Ltd. vs. Dy. CIT (2010) 6 ITR 360 (Ahd.)(Trib)
S. 153A : Search and Seizure - Assessment of Third Party - Neither books of account nor
documents belonging to assessee was seized - (S. 153C)
No amount of money, bullion, jewellery or other valuable article or thing or books of account or
documents seized belonged to assessee. Assessing Officer does not assume jurisdiction for framingassessment under section 153C.
ACIT vs. Gambhir Silk Mills (2010) 6 ITR 376 (Ahd.)(Trib.)
S. 158B(b) : Block Assessment - Undisclosed Income - (S. 158BB)
Search having not yielded any incriminating material in respect of accommodation entry business
allegedly carried on by the assessee, no undisclosed income could be computed from this businessmerely on the basis of information received from the Sales Tax Department about turnover.
Kulwant Singh vs. Dy. CIT (2010) 134 TTJ 129 (Del.)(UO)
S. 158BB : Block Assessment - Undisclosed Income – [S. 41(1)]
Addition in terms of section 41(1), cannot be made in block assessment where no material was found
during search to show that the liability was either bogus or had ceased to exist.
CIT vs. Radhika Creation (2010) 47 DTR 60 (Del.)
S. 158BC : Search and Seizure – Block Assessment – Notice –Limitation - (S. 143(2), 282)
Issuance of notice under section 143(2),is an essential requirement for making block assessment and
such notice has necessarily to be issued within the time prescribed under proviso to section 143(2),since there is no conclusive evidence that alleged notice under section 143(2), on 16 th May 2000,
pursuant to the block return filed on 15th May 2000, as claimed by the revenue only notice was
served on the assessee on 24th
Dec., 2001 was served on the assessee on 24th
Dec., 2001, which was
time barred, the block assessment is quashed. Dy. CIT vs. National Refinery (P) Ltd. (2010) 134 TTJ 109 (Mum.)(Trib.)
S. 158BC : Search and Seizure - Block Assessment - Undisclosed Income - (S. 132, 69C)
Sums found entered in regular books, enquiry in regular assessment permissible, however, in block
assessment not permissible.
Dy. CIT vs. Radhe Developers India Ltd. and Another (2010) 329 ITR 1 (Guj.)
S. 158BD : Block Assessment - Recording of Satisfaction in writing
Statement recorded in search cannot form sole basis for initiation under section 158BD, addition made
without recording the satisfaction is held to be bad in law.CIT vs. Raj Pal Bhatia (Delhi High Court) Source: www.itatonline.org
S. 194A : Tax Deduction at Source - Interest other than interest on Securities - BusinessExpenditure – Disallowance - Application in Form No. 13., 15G – [S. 40(a)(ia)]
Disallowance under section 40(a)(ia) of interest payments on which no TDS was deducted was
sustainable, as merely filing of Form No. 13 by payee to their respective Assessing Officers cannot be
construed as an authorization to the assessee not to deduct tax for the interest due to them. No copiesof Form No. 15G were forthcoming to justify the assessee’s stand.
Rajendra Kumar vs. Dy. CIT (2010) 46 DTR 363 (Bang.)(Trib)
S. 194C : Payments to Contractors and Sub-contractors - Payment to Goods – Freight Charges
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Where the Tribunal has recorded a categorical finding that there was no material on record to prove
any written or oral agreement between the assessee and recipients of goods for transportation and that
such payment of freight had not been shown to have been made in pursuance to a contract of transportation of goods for a specific period, quality or price and further, none of the individual
payment exceeded Rs. 20,000, there was no liability to deduct tax under section 194 C and disallowance under section 40(a)(ia) was rightly deleted.
CIT vs. Bhagwati Steels (2010) 47 DTR 75 (P&H)
S. 194C : Deduction of Tax at Source - Payments to Contractors - Hiring of Vehicles - (S. 194I)The assessee entered into agreements with various transport service providers. Under the agreements
entered into, the service provider was to provide transport service at particular locations for
transportation of assessee’s employees to different destinations and locations mentioned in the
agreement. The transport service provider had to provide vehicles along with the requisite staff and relevant facilities, full maintenance and repairs of vehicles, etc. The assessee deducted the tax at
source under section 194C, the Assessing Officer was of the view that the payments were covered under section 194I, The Tribunal held that the payment made by the assessee for hiring vehicles for
transportation of its employees qualifies for TDS under section 194C and not under section 194I.
ACIT vs. Accenture Services P. Ltd. (2010) TIOL 618 ITAT–Mum. 295 / (2010) 42-B BCAJ
(December 2010 P. 23)
S. 194LA : Deduction of Tax at Source - Capital Gains - Capital Asset - Agricultural Land – [S.
2(14)]
Definition of agricultural land contained in section 2(14)(iii)(a) & (b) cannot be borrowed to influence
definition of agricultural land contained in Explanation to section 194LA. For the purpose of deducting tax at source under section 194LA, it is Land Acquisition Officer (LAO) who has to prima
facie determine as to whether land acquired is agricultural land or not. Land Acquisition Officer took prima facie view that land acquired by him was an agricultural land on the basis of entries in land
revenue record, hence, he was justified in not deducting tax on compensation paid on acquisition of
said land, trees, and houses standing thereon.
Special Land Acquisition Officer vs. ITO (2010) 42 SOT 9 (Ahd.)
S. 195 : Other Sums - Payments to Non-Resident - Foreign Artists - Reimbursement of Expenses
- Though Foreign Artistes are chargeable to tax in India, their agents are not in the absence of a
PE – DTAA - India-UK
As Colin Davie was not a performer, his income was not covered under Article 18 of the DTAA but
was covered by Article 7 and as the services were rendered outside India and there was no PE, thesame was not assessable to tax in India. Even under the Act, by virtue of Carborandum Co. 108 ITR
paid to agents for services rendered outside India is not chargeable to tax in India and there is no
obligation to deduct tax under section 195;As regards payment made towards reimbursement of expenses, the law is well settled by virtue of
Krupp UDHE Gmbh 38 DTR 251 (Bom.) & Siemens AG 220 CTR 425 (Bom.) that the same is not
chargeable to tax and there was no obligation to deduct tax at source. ADIT vs. Wizcraft International Entertainment (ITAT Mumbai) Source: www.itatonline.org
S. 195 : Tax deduction at Source - Payment to Non-resident - Purchase of Software – Art. 12 of
DTAA - India-Singapore
A computer software when put in to a media and sold becomes goods and, therefore, amount paid by
the assessee to a Singapore company towards purchase of software cannot be treated as royalty tablein India under Art. 12 of DTAA between India and Singapore and assessee is not liable to deduct tax
at source under section 195.
Kansai Nerolac Paints Ltd. vs. Addl. Director of IT (2010) 134 TTJ 342 (Mum.)
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S. 214(IA) : Advance Tax – Refund - (S. 143(3), 251)
Assessee entitled to receive interest under section 214(IA), on difference between advance tax and assessed under section 251 from the first day of assessment year till day of passing regular assessment
under section 143(3). Dy. CIT vs. Simbholi Sugar Mills Ltd. (2010) 6 ITR 247 (Delhi)(Trib.)
S. 234B : Book Profit – Company – Interest - (S. 115J, 234C)
Assessment of company under section 115JA, interest under section 234B and 234C is not leviable.CIT vs. Cortalim Shipyard & Engineers (P) Ltd. (2010) 46 DTR 263 (Bom.)
S. 234B : Interest – Company - Book Profit - (S. 234C)
In view of the specific provision of sub section (5) of section 115JB, which makes all other provisionsof the Act, applicable to companies mentioned in the said section, and the clarification issued by the
CBDT vide Circular No. 14 of 2001 dt. 22-Nov 2001, companies covered by the provisions of section115JB are liable to pay advance tax and consequently, interest under section 234B and 234C is
S. 234C : Interest - Capital Gains – Accrual – Amendment - Proviso
Amendment of proviso to section 234C by the Finance (No. 2) Act, 1996 w.e.f. 1st April 1997, is
clarificatory in nature and the same is to be applied retrospectively. Where the assessee has paid taxes
arising out of income from long term capital gain as part of installments due after the date of sale of
capital asset, he could not be in default as stipulated under section 234C and therefore, levy of interestwas not valid.
Torrential Investments (P) Ltd. vs. ITO (2010) 133 TTJ 787 / 46 DTR 172 (Mum.)(Trib.)
S. 253(1) : Appellate Tribunal - Special Auditor - Audit Fees – [S. 142(2A)]
In the absence of any specific provision empowering the Tribunal to hear appeal against fixation of
audit fees payable to special auditors appointed under section 142(2A), appeal filed by the assessee isnot maintainable.
Sony Mony Electronics Ltd. vs. Dy. CIT (2010) 121 TTJ 660 (Mum.)(Trib.)
S. 253(1) : Appellate Tribunal - Stay Application in Tribunal maintainable despite non-filing of
stay petition before lower authorities - Dispute Resolution Tribunal
There is no merit in the argument of the department that the stay application should be rejected outright since the assessee has not moved any petition before the Revenue Authorities seeking stay of
the demand. Seeking stay before the lower authorities is directory and not mandatory.
DHL Express (India) P. Ltd. vs. ACIT (ITAT Mumbai) Source: www.itatonline.org
S. 260A : Appeal – High Court - Circular Fixing Monetary Limit -Pending Cases - Larger
Bench
Whether Circular issued in the year 2008 will have retrospective effect for pending appeals and references matter referred to larger bench.
CIT vs. Varindra Construction Co. (2010) 328 ITR 446 (P&H)
S. 263 : Revision – Assessing Officer taking possible view - Housing Project - Commercial
Construction – [S. 80IB(10)]
The view that an element of commercial construction per se would not vitiate the claim of deductionunder the pre-amended section 80IB(10), is not only a possible view of the matter, it is a view adopted
by the Special Bench of the Tribunal and therefore, assessment order allowing assesee’s claim for
deduction under section 80-IB(10) on residential–cum-commercial project cannot be said to be
erroneous and prejudicial order and cannot be revised under section 263.
Anik Development Corporation vs. ACIT (2010) 134 TTJ 17 (Mum.)(UO)
S. 263 : Revision - Erroneous and Prejudicial Order - Lack of proper enquiryOrder under section 263 passed by the CIT setting aside the assessment order on the ground that the
Assessing Officer has not made enquiries in respect of certain issues, without stating as to how theorder of the Assessing Officer is erroneous and prejudicial to the interests of revenue cannot be
sustained, more so when the issues pointed out by the CIT do not in fact, merit further investigation.CIT vs. Leisure Wear Exports Ltd. (2010) 46 DTR 97 (Delhi)
S. 263 : Revision - Lack of proper enquiry
Tribunal having found that the Assessing Officer had made reasonably detailed enquiries, collected relevant material including the seized documents, and discussed various facts of the case with the
assessee’s Chartered Accountants before making the assessments, there was no valid basis for the CITto exercise jurisdiction under section 263 and to direct the Assessing Officer to make fresh
S. 271(1)(c) : Penalty – Concealment – Survey - Amount disclosed in the course of Survey - (S.
133A)
In the course of survey, assessee declared unaccounted income of Rs. 32.84 lakhs, thereupon assessee
filed his return of income wherein amount declared in survey was included. Assessing Officer
completed assessment on basis of return of income. He also levied the penalty under section271(1)(c). The Tribunal held that since the Assessing Officer had accepted income declared in return
of income, in view of aforesaid legal position, assessee could not be charged for any contumaciousconduct, therefore, the impugned penalty order was set aside.
Dy. CIT vs. Satish B. Gupta (Dr.) (2010) 42 SOT 48 (Hyd.)
S. 271(1)(c) : Penalty – Concealment - Search and Seizure - Return filed amount disclosed inthe course of Search - (S. 132(4), 153A)
Assessee had made disclosure with reference to all the items of jewellery in a statement under section132(4) of the Act, and any variation in the value could be accepted as a continuation of statement
under section 132(4). As two views are possible. Penalty levied by the Assessing Officer was
General - High Court – Appeal by Department - Revenue Secretary & CBDT Chairman
summoned for turning “deaf ear” to inefficiencies redressal
The department filed an appeal in the High Court and claimed that as the Tribunal’s order wasreceived on a particular date, the appeal was on time. However, the assessee obtained information
from the Tribunal under the Right to Information Act and pointed out that the order was served on an
earlier date and that the appeal was belated. The Court taking a serious view of the matter summoned the Revenue Secretary and Chairman CBDT to be present before the court on 01-12-2010.
CIT vs. Preeti N. Aggarwala (Delhi High Court) Source: www.itatonline.org
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