DIRECT TAXES Tribunal Aarti sathe, Deepak R. Shah, Haresh P. Shah, Paras S. Savla, Prem Chandra Tripathi, Rahul Hakani & renu chodhary 501 S. 2(24) : Income – Non-occupancy Charges - Transfer Fee - Voluntary Contribution The receipt of non-occupancy charges, transfer fee and voluntary contribution from its members by the Co-operative Housing Society is not taxable. ITO vs. Grand Pradi CHS Ltd. (Mum.)(2011) BCAJ Jan., 2011. P. 20 (Vol. 42B. Part 4. 436) 502 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 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 under section 2(24)(iv). Jt. CIT vs. Mukesh D. Ambani (Mum.) Source: www.itatonline.org 503 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 not taxable where cost of acquisition not determined. BASF India Ltd. vs. Addl. CIT (2010) 6 ITR 156 (Mum.)(Trib.) 504 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 some compensation 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.) 505 S. 4 : AOP – Rent Income - Joint Purchase of Land Assessee jointly with other 17 persons purchased land, and Income was generated from plinth constructed on said land. Held, that entire Rent cannot be assessed in status of
Transcript
DIRECT TAXES
Tribunal
Aarti sathe, Deepak R. Shah, Haresh P. Shah, Paras S. Savla,
501 S. 2(24) : Income – Non-occupancy Charges - Transfer Fee - Voluntary Contribution
The receipt of non-occupancy charges, transfer fee and voluntary contribution from itsmembers by the Co-operative Housing Society is not taxable.
ITO vs. Grand Pradi CHS Ltd. (Mum.)(2011) BCAJ Jan., 2011. P. 20 (Vol. 42B. Part 4.
436)
502 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 themanner of creating a pledge, this is not the only method. Dematerialized shares continueto be "goods" and the law laid down in the Companies Act and the Sale of Goods Act fordeciding 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 depositoryparticipant, this is not conclusive and he can show that he is not the beneficial owner ofshares but only holds the shares as a Pawnee and as security for repayment of debtsdue by the real beneficial owner;
As a Pawnee / pledgee, the assessee does not have absolute rights over the shares. Hecould sell the security in a manner contemplated by law. In case the proceeds weregreater 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 (Mum.) Source: www.itatonline.org
503 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 ofsource of income is a capital receipt. Amount received as non-compete fee is a capitalreceipt. Capital gains not taxable where cost of acquisition not determined.
BASF India Ltd. vs. Addl. CIT (2010) 6 ITR 156 (Mum.)(Trib.)
504 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 andlater on some compensation is awarded in lieu of that, it will fall in the same category ofloss to the source of income and consequently such a receipt will qualify to becharacterized as a capital receipt.
Inter Gold (India) (P) Ltd. vs. Jt. CIT (2010) 47 DTR 150 (Mum.)(Trib.)
505 S. 4 : AOP – Rent Income - Joint Purchase of Land
Assessee jointly with other 17 persons purchased land, and Income was generated fromplinth constructed on said land. Held, that entire Rent cannot be assessed in status of
AOP, when Investments were from Individual sources, and the shares were definite andascertainable. Also as Assessee was merely authorized to collect Rent cheques, andwhich were issued separately and in individual names, Rent Income cannot be taxed inAssessee’s hands as AOP.
Daljit Singh vs. ITO (2010) 194 Taxman 16 (Chandigarh)(SMC)
506 S. 4 : Income – Compensation on Termination of Licence Agreement
Compensation received on premature termination of leave & license agreement onaccount of loss of rent is chargeable to tax as revenue receipt.
ACIT vs. Das & Co. (2010) 133 TTJ 542 (Mum.)
507 S. 4 : Income – Forfeiture Of Security Deposit
Forfeiture of security deposit is not chargeable as revenue receipt as the deposit was inthe nature of loan and in the capital field.
ACIT vs. Das & Co. (2010) 133 TTJ 542 (Mum.)
508 S. 5 : Income – Accrual - Interest on RBI Bonds - Cash Basis
Assessees were entitled to recognize the interest income attributable to 8 % RBI Bondson cash basis to be reckoned at the time of redemption of the bonds. Assessing Officerwas not justified in making addition on yearly accrual basis.
K. Nagendrasa & Ors. vs. Dy. CIT (2010) 48 DTR 492 (Bang.)(Trib.)
509 S. 9(1)(i) : Income deemed to accrue or arise in India - Business Connection - Services
rendered through Indian subsidiary
Assessee a US company, providing IT enabled services to its clients by assigning or subcontracting execution of the contracts to its wholly owned Indian subsidiary EFI andsupplying the relevant software and data base to the later, free of charge, has businessconnection in India within the meaning of section 9(1)(i) as well as a PE in the form ofEFI as per Art. 5 of the Indo-US DTAA. Profits attributable to the PE are to be workedout by applying the proportion of Indian assets, including EFI’s assets, to the aggregateof global profits and reducing resultant figure by the assessed profits of EFI.
EFunds Corporation vs. Asst. DIT (2010) 45 DTR 345 (Delhi)(Trib.)
510 S. 9(1)(i) : Income deemed to accrue or arise in India – Compensation - Arbitration
Award - International Taxation – DTAA – India-UK - (S. 90, Articles 5 & 7)
The Assessing Officer was of the view that compensation received under an award ofArbitration was taxable in India under section 9(1)(i) of the Act, since it was an incomedeemed to accrue or arise in India. Commissioner (A) upheld order of Assessing Officer. Itwas held by the Tribunal that the compensation in question was not taxable as therewas no PE in India in terms of Articles 5 of Indo-UK DTAA and the compensation awardedunder arbitration award was not taxable in India.
Gold Crest Exports vs. ITO (2010) 42 SOT 1 (Mum.)
511 S. 9(1)(vi) : Income from supply of ‘shrink-wrapped’ software assessable as ‘royalty’ - A
tax-treaty can be unilaterally overridden
Payment made for grant of licence in respect of Copy right by end user is taxable as
royalty as per section 9(1)(vi). Domestic tax legislation to override treaty provisions incase of irreconcilable conflict.
Microsoft Corporation vs. ITAT (2010) 47 DTR 65 / 134 TTJ 257 (Del)
512 S. 28(i) : Business Income - Services of Operating and Maintenance of power station -
Permanent Establishment – DTAA - India-UK - (S. 9, 44AD, Articles 5, 7 and 13)
Assessee entered into a contract with Spectrum Ltd., for rendering services of operatingand maintenance of power station owned by it. Activity of operating of power stationwas treated by assessee as its business activity carried on through a project office inIndia, which in turn, constituted its permanent establishment in India in terms of Article 5of Indo–UK DTAA. According to assessee, income arising to it from said business activitywas its business profit and was liable to tax on net basis. Income received by assesseefor executing works contract did not fall within definition of "fees for technical services"(FTS) under explanation 2 to section 9(1)(vii) nor as defined in Art. 13(4) of DTAAbetween India and UK. Moreover, since assessee had not made available any technicalknowledge, skill, etc., to spectrum within meaning assigned to FTS under Art. 13(4)(c) ofDTAA, it could not be taxed on gross basis and section 44AD had no application to factsof instant case, further more Article 13(4)(c) read with Article 26 of DTAA would notpermit revenue authorities to discriminate against, a UK registered company and accord itless favourable treatment than a domestic company and therefore section 44AD couldnot be invoked in assessee’s case.
Rollys Roycee Industrial Power Ltd. vs. ACIT (2010) 42 SOT 264 / 6 ITR 722 (Trib.)(Delhi)
513 S. 10A : Free Trade Zone - Two Units
Assessee having 3 STP units, suffered loss in 1 unit and had profit in other 2 units.Assessing Officer adjusted the loss against profit of other 2 units. Assessee contendedthat loss incurred in 1 unit be disregarded, and deduction under section 10A be grantedin respect of profits of other 2 units.
Held, if the loss making unit is independent, and activities were not associated with other2 units, then loss from such unit was to be independently calculated, and can not beadjusted against profit of other two units.
T Gate Global Solutions Ltd. vs. ACIT (2010) 194 Taxman 83 (Bang.)
In order to avail deduction under section 10B, sale proceeds must be received inconvertible foreign exchange. Sale proceeds received in convertible foreign exchangemeans "actual receipt" and not deemed receipt. Amount received by an assessee in formof investment in equity shares of a foreign company cannot be considered to be receivedin form of convertible foreign exchange.
ACIT vs. Bodhtree Consulting Ltd. (2010) 41 SOT 230 (Hyd.)
515 S. 10B : Exemption - Machinery previously used - Takeover of undertaking
Assessee having used the machinery which was previously used by another companyprior to its transfer and takeover by the assessee, section 10B(9) is attracted to thefacts of the case and therefore, assessee is not entitled to exemption under section 10Bfor the asst year 2002-03 and 2003-04. However, assessee is entitled to exemption forAsst. Year 2004-05 as the provision contained in section 10B(9) did not exist on thestatute book in that year.
ITO vs. Heartland Delhi Transportation & Services (P) Ltd. (2010) 45 DTR 239 / 133 TTJ
682 (Del.)(Trib.)
516 S. 10B : Exemption - Delay in filing return – [S. 139 (1)]
Fourth proviso to section 10B(1), which prohibits deduction if the return is not furnishedon or before the due date specified under section 139(1), is directory and not mandatorytherefore, relief can be granted by the appellate authority in case, there was genuineand valid reason for the marginal delay in filing of return.
ACIT vs. Dhir Global Industrial (P) Ltd. (2010) 45 DTR 290 / 133 TTJ 580 (Delhi)(Trib.)
517 S. 10B : Exemption - Export Turnover - Foreign Expenditure for self purpose - Turnover
retained abroad
The assessee was engaged in the business of development of software by way of on siteand off shore development and had a branch in USA for which separate accounts weremaintained. The assessee claimed deduction under section 10B in respect of the exportsof software made. In computing the export turnover, the Assessing Officer held that theamount of ` 3.33 crores incurred by the USA branch constituted "expenses incurred inforeign exchange in providing technical services outside India" and had to be deductedfrom the export turnover as provided under section 10B. He also held that the turnoverof the USA branch to the extent of ` 15.14 crores had to be reduced from the exportprofits as it had not been received in convertible foreign exchange in India within theperiod specified in section 10B(3). On appeal CIT(A) upheld the claim of assessee withregard to ` 15.14 crores while rejected the claim with regard to ` 3.33 crores. The crossappeals of the parties were referred to Special Bench. The Special Bench referrings thecircular No. 621 dated 19-12-1991 and 694 dated 23-11-1994 held that expenditureincurred on site abroad is eligible for deduction under section 10B. As regards theturnover of ` 15.14 retained abroad, one limb of the Government cannot be allowed todefeat the operation of other limb. While section 10B requires the foreign exchange to bebrought to India within the prescribed period, the RBI permits the assessee to retain thesaid foreign exchange abroad for specific purpose. RBI is the competent authority forsection 10B as well. The result is that reinvestment of export earning is deemed to havebeen received in India and thereafter to have been repatriated abroad. (Principle in J. B.Boda & Co. (1998) 233 ITR 271 (SC) followed).
Zylog Systems Ltd. vs. ITO (2011) 49 DTR 1 (Chennai)(Trib.)(SB) 7 STR (Trib) 348 / 128
Claim for exemption under section 10(10C), cannot be denied on the ground that thescheme of voluntary retirement framed by the employer is not in accordance with Rule2BA.
Pandya Vinodchandra Bhogilal vs. ITO (2010) 45 DTR 105 / 133 TTJ 253 (Ahd.)(Trib.)
519 S. 10(14) : Exemption - Special Allowance or Benefit – MLA – MP - Conveyance
Only those allowances are exempt which are specified in section 10(14), or section10(17), or in Rule 2BB. Conveyance allowance or clerical allowance received by an MLAare exempt under section 10(14) r.w. Rule 2BB, subject to proof that the same wereincurred in the performance of duties of the office. Telephone allowance andconstituency 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 expenditureexemption 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.)
520 S. 10(17A) : Exemption - Reward by Government
Amount received as reward by the informer from the Customs department is exemptunder section 10(17A).
ITO vs. Mariam Beevi & Ors. (2010) 46 DTR 229 (Chennai)(Trib.)
521 S. 11 : Charitable Trust – Exemption – Debenture - Bond – [S. 13(1)(d)]
Bond is covered by the expression "debenture" and therefore, investment in bonds ofcertain companies by the assessee, a Charitable Trust did not amount to infringement ofthe provision of section 13(1)(d) and therefore, exemption under section 11 could not bedenied on that ground.
DIT vs. Shree Visheswar Nath Memorial Public Charitable Trust (2010) 46 DTR 49 (Del.)
(Trib.)
522 S. 11 : Charitable Trust - Donations collected in a donation box - Corpus
Donations collected by the assessee, in a donation box in the face of its appeal that theamounts so collected would be used for the construction of a building can be consideredas carrying specific directions for being used for construction of building and therefore, itis to be treated as donations toward corpus as such amount did not constitute incomefor the purpose of section 11/12.
Shree Mahadevi Tirath Sharda Ma Seva Sangh vs. ITO (2010) 133 TTJ 57 (Chd.)
523 S. 11 : Charitable Trust – Bar of Section 13(1)(d)
Exemption under section 11 could not be denied as there was no violation of provisionscontained in section 13(1)(d).
Dy. CIT (Exemptions) vs. Help Age India (2010) 133 TTJ 590 (Del.)
524 S. 12AA : Charitable Trust – Registration - Effective Date
CIT having initially granted registration under section 12AA to the assessee w.e.f. 1stApril 2007, later passed an order on an application under section 154, grantingregistration w.e.f. 28th Feb., 2002, assessee was eligible to claim benefits under section11/12 for the year under consideration i.e. Asst. Year 2006-07.
Shree Mahadevi Tirath Sharada Ma Seva Sangh vs. ITO (2010) 133 TTJ 57 (Chd.)(UO)
525 S. 12AA : Charitable Purpose – University - Artificial Juristic Person – [Ss. 2 (15), 2(31)]
University, incorporated under Haryana Private Universities Act, 2006, is an artificialjuristic person within the meaning of term "person" under section 2(31)(vii), hence, it isentitled to make an application for registration under section 12AA. The objects of theuniversity were granting fellowship, freeship, scholarship, etc. to students belonging toweaker sections of society, it could be concluded that assessee was a charitableinstitution.
O. P. Jindal Global University vs. CIT (2010) 127 ITD 164 (Delhi)
526 S. 12AA : Charitable or Religious Trust – Registration - Mixed Objects
The objects of the society were of religious and charitable nature, it was still entitled toregistration under section 12AA read with section 13(1)(b) of the Income Tax Act, 1961.
Rehoboth Mission vs. DIT (Exemption) (2010) 42 SOT 149 (Hyd.)
527 S. 12AA(3) : Charitable or Religious Trust – Registration - Power to cancel Registration –
Prospective - (S. 12A)
Insertion of new clause in section 12AA(3) with effect from 1-6-2010, by whichCommissioner has got power to cancel registration granted earlier to assessee–trustunder section 12A, is not applicable retrospectively and its operation has to be effectivefrom date it was introduced and onwards.
Merely by granting a registration under section 12A/12AA, a trust ipso facto is notentitled to exemption prescribed under section 11 and 12.
Ajit Education Trust vs. CIT (2010) 42 SOT 415 (Ahd.)
Editorial Note: Also see Bharati Vidyapeeth vs. ITO (2008) 119 TTJ 261 / 14 DTR 454 and
Oxford Academy for Career Development vs. CCIT (2009) 315 ITR 382 (All)
528 S. 12AA : Charitable Trust - Registration – Cancellation
As per section 12AA(3), registration granted to any trust or society under section12AA(1)(b) can be cancelled only if the CIT is satisfied that the activities of such trustor institution are not genuine or are not being carried out in accordance with the objectsthereof; registration could not be cancelled under section 12AA(3) by merely re-examining the objects of the trust or society.
Chaturvedi Har Prasad Education Society vs. CIT (2010) 134 TTJ 781 (Luck.)
529 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 ad hoc estimate basis
Rule 8D does not apply to A.Y. 2006-07. The assessee has urged that no expenditurehas been identified to have been incurred to exempt income. Neither the AssessingOfficer 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 ofVegetable Products 88 ITR 192 where it was held that if two constructions are possible,one favouring the assessee should be adopted, the precedent laid down in Hero Cyclesshould be followed.
Minda Investments vs. Dy. CIT (ITAT Delhi) Source: www.itatonline.org
530 S. 14A : Business Expenditure - Exempted Income - Expenditure incurred in relation to
income not 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 not
sustainable
In view of Godrej Boyce Mfg. Co. 328 ITR 81 (Bom.) Rule 8D is applicable onlyprospectively i.e. from A.Y. 2008-09 and not for earlier years. The facts showed that theassessee had made the investment in shares out of its own funds and the borrowed
funds were entirely utilized for the purpose of its business. The investment in shares inthe current year was made from a separate bank account where the surplus fundsgenerated in that year were deposited. The argument that the assessee could haveutilized 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 toearn dividend income is not acceptable in view of CIT vs. Hero Cycles Ltd 323 ITR 518where it was held, distinguishing Abhishek Industries 286 ITR 1 (P&H), that if investmentin 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 ofinterest on borrowed funds was deleted.
Godrej Agrovet Ltd. vs. ACIT (ITAT Mumbai) Source: www.itatonline.org
531 S. 14A : Business Expenditure – Matters remanded back to Assessing Officer in light of
later judgments
In the light of Godrej & Boyce Mfg. Co. Ltd. (2010) 328 ITR 81 (Bom.) it was held thatthe plea of the assessee based on Minda Investments Ltd. that the disallowance shouldbe deleted cannot be accepted as in the later decisions similar matters have beenrestored to the file of the Assessing Officer and according to rule of precedence, laterdecision passed by similar strength of the Bench has to be followed in preference to theearlier decision.
532 S. 14A : Business Expenditure - No Disallowance of Interest on borrowed funds if
Assessing Officer does not show nexus between borrowed funds & tax-free investment
No disallowance can be made under section 14A of interest on borrowed funds where incase of mixed funds, it is not possible to ascertain whether the investment in tax freebonds is out of the assessee’s own funds, the source of investment in the tax free bondsis identified, and the Assessing Officer failed to establish any nexus between theborrowed funds and the investments in the tax free bonds. As also the cash flow of theassessee was not seen.
Therefore, the apportionment on a pro rata basis was improper in the absence ofanything brought by the Assessing Officer to rebut the assessee’s stand that theinvestment in the tax free bonds had been made out of own funds (Minda Investments,Hero Cycles 323 ITR 518 (P&H) and Winsome Textile Industries 319 ITR 204 (P&H)followed).
533 S. 14A : Business Expenditure - Onus on Assessing Officer to show nexus between
expenditure & tax-free income for disallowance Rule 8D
It was held that Rule 8D r.w.s. 14A(2) can be invoked only if the Assessing Officer"having regard to the accounts of the assessee, is not satisfied with the correctness ofthe claim of the assessee in respect of expenditure incurred" in relation to tax-freeincome. The burden is on the Assessing Officer to establish nexus of expenses incurredwith the earning of exempt income, before making any disallowance under section 14A.There cannot be any presumption that the assessee must have incurred expenditure toearn tax free income.
534 S. 14A : Business Expenditure - Exempted Income - Personal Tax Free Investments
The assessee a stock broker & Member of BSE earned tax–free income by way ofdividend, interest on RBI bonds and PPF interest. The assessee claimed that nodisallowance under section 14A could be made as no expenditure was incurred by him toearn tax free income as shares were in the Demat account for long time and dividendwas automatically credited to bank account. The Assessing Officer disallowed ` 20,000/-under section 14A. In appeal CIT(A) instead of examining the issue on factual basisdirected the Assessing Officer to apply Rule 8D. On appeal to the Tribunal, allowing theappeal held that disallowance under section 14A cannot be made on investment being forpersonal purposes.
Pawan Kumar Parmeshwarlal vs. ACIT Source: www.itatonline.org
535 S. 14A : Business Expenditure - Exempted Income
Section 14A has no application when the Investment is made, not for purpose of earningtax free income, but for meeting its statutory obligation of maintaining required SLR. Theexpenses incurred in investing in tax free bonds were held to be expenses for thepurpose of business.
State Bank of Travancore vs. ACIT (2010) 195 Taxman 47 (Cochin)
536 S. 15 : Salary – MLA – MP - Income from Other Sources - (S. 56)
Remunerations received by the MLAs and MPs cannot be taxed under the head incomefrom salary but can only be taxed under the head income from other sources.
M. Venkata Subbaiah vs. ITO (2010) 47 DTR 403 (Visakha)(Trib.)
537 S. 23 : Income from House Property - Annual Value - Notional Interest -Interest free
security deposit : Referred to Full Bench
Whether notional interest on interest free security deposit is to be taken in toconsideration to arrive at the notional value of the property in all cases or only in someglaring cases where the security deposit is completely disproportionate to the actualcontractual rent or whether even a huge interest free security deposit can be totallyignored while determining the "fair rent" of the property is recommended to be referred toa Full Bench.
CIT vs. Moni Kumar Subba (2010) 45 DTR 25 / 235 CTR 132 (Delhi)
Editorial Note: Matter which was pending before special bench of Mumbai Tribunal in the
matter of Trivoli has been withdrawn as the issue is subject of appeal before Bombay
High Court. Source: www.itatonline.org
538 S. 23(1)(a) : Income from House Property – Notional Interest on Deposit not included in
Annual Value
In view of Circular 204 dated 24.7.1976, the CBDT has accepted that under section23(1)(a) the "sum for which the property might reasonably be expected to let from yearto year" is the municipal valuation of the property. Thus notional interest on deposit notincludible in Annual Value under section 23(1)(a) & 23(1)(b). The same view that the hasbeen taken in CIT vs. Prabhabati Bansali 141 ITR 419 (Cal.) & M. V. Sonavala vs. CIT 177ITR 246 (Bom.)
ITR 246 (Bom.)
Dy. CIT vs. Reclamation Reality India Pvt. Ltd. (ITAT - Mumbai) Source :
www.itatonline.org
539 S. 24(b) : Income from House Property – Interest - Construction of House
Where the assessee filed returns of income for two consecutive years, each categoricallystating that the construction of the assessee’s residential house was yet to becompleted, interest on house loan under section 24(b), could not be allowed.
Ashok Kumar Modi vs. ITO (2010) 45 DTR 158 (Ctk.)(Trib.)
540 S. 28 : Business Income - Capital Gains - Sale of Shares - Large volume of purchase &
sale of shares does not per se mean activity is business - (S. 45)
While volume of transactions is an important indicator of the intention of the assesseewhether to deal in shares as trading asset or to hold the shares as investor, it iscertainly not the sole criterion. The Assessing Officer’s conclusion that since sale andpurchase had been determined by the volatility in the market, the same is against thebasic feature of investor is not based on sound rational reasoning. A prudent investoralways keeps a watch on the market trends and, therefore, is not barred under law fromliquidating his investments in shares. The law itself has recognized this fact by taxingthese transactions under the head "Short Term Capital Gains". If the Assessing Officer’sreasoning 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 acceptedas being on investment account. As the modus operandi of the assessee remained thesame in regard to other shares purchased during the year, the assessee’s claim could notbe negated only on the basis of frequency of the transaction
393 & Jayshree Pradip Shah ITA No. 3608/M/07, Asst. Year 2004-05, Bench ‘J’ dt. 24-2-
2010 (Mum.) considered.
541 S. 28 : Business Income – Commission – Addition as Undisclosed Income
In cases of suspicious transactions, despite lack of direct evidence, tax evasion can beassumed on the basis of the material available on record, surrounding circumstances,human conduct and preponderance of probabilities. There is no presumption in law thatthe Assessing Officer is supposed to discharge an impossible burden to assess the taxliability by direct evidence only and to establish the evasion beyond doubt as in criminalproceedings.
Hersh Win Chadha vs. Dy. DIT (ITAT – Delhi) Source: www.itatonline.org
542 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. Ifshares are purchased from own funds, with a view to keep the funds in equity shares toearn considerable return on account of enhancement in the value of share over a periodthen merely because the assessee liquidates its investment within six months or eightmonths would not lead to the conclusion that the assessee had no intention to keep thefunds as invested in equity shares but was actually intended to trade in shares. Mereintention to liquidate the investment at higher value does not imply that the intentionwas only to trade in security. However, it cannot be held that in all circumstances ifassessee has used its own funds for share activity then it would only lead to inference of
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 transactionswill have to be considered to arrive at proper conclusion regarding the true intention ofthe assessee. However, if the assessee, on the other hand, borrows funds for makinginvestment in shares then definitely it is a very important indicator of its intention totrade in shares;
On facts, the Assessing Officer proceeded on the assumption that borrowed funds hadbeen utilized for buying shares on the ground that funds were common and could not besegregated. However, it was categorically pointed out before the CIT(A) that no part ofthe borrowed funds was utilized for acquisition of shares on investment account. Nothingwas brought on record by the department to controvert this fact;
ACIT vs. Vinod K. Nevatia (ITAT) (Mumbai) Source: www.itatonline.org
543 S. 28(i) : Business Income - Capital Gains - Transactions in Shares - (S. 45)
Where the assessee had dealt in more than 300 scripts during the year and turnover ofdelivery based transactions is about ` 3,500 crores and the assessee had regularly dealtin purchase and sales of shares with high frequency and volume with repetitivepurchases and sales in the same script, with no shares being held for more than oneyear, considering the entirety of facts and circumstances, profit earned from deliverybased transactions in shares was rightly treated as business income as declared earlieras against short term capital gains claimed by the assessee.
Wall Fort Financial Services Ltd. vs. Addl. CIT (2010) 134 TTJ 656 (Mum.) / 48 DTR 138
(Trib.)(Mum.)
544 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 becausesometimes a single transaction is split by the computers trading of the stock exchangesinto many smaller transactions but that does not mean that assessee has carried somany transactions. If someone places an order for purchase of 1000 shares and thesame is executed by the electronic trading system of stock exchange into 100 smallertransactions, it does not mean that 100 transactions have been entered into. Theassessee had carried out only 31 purchase and 25 sale transactions which cannot besaid to be a great volume of transactions.
At the end of the year, the assessee was holding shares worth ` 11.56 crores with amarket value of `17.69 crores. If assessee was a trader, he would have definitelyrealized the huge profit of almost ` 6 crores immediately and not carried out the stock tothe next year.
The transactions in which no delivery was taken and it was settled in the same dayappear to be cases where the particulars were wrongly carried out on behalf of theassessee 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 businessof garments.
Mehal V. Shah vs. ACIT (Mumbai) (ITAT) Source: www.itatonline.org
545 S. 28(i) : Business – Profession - Vocational Receipt – [S. 56(2)(v)]
Gift received from various donors by a prominent political figure cannot be taxed asamount received as profession or occasion. As the CIT(A) held that the gift above `25000 was taxable under section 56(2)(v), gift below ` 25000 cannot be taxed as
income from profession or occasion.
Dy. CIT vs. Mayawati (2010) 42 SOT 59 (Delhi)
546 S. 28(i) : Business Loss - Deduction – Cost of Construction - (S. 142A)
Disallowance of expenditure as excess cost, by adopting cost of construction estimatedby DVO was held to be not justified, as there are no powers under section 142A(1) toestimate an amount of expenditure claimed as revenue expenditure.
547 S. 28(i) : Business Loss - Deduction – Deposit – Stock Broker
Deposit paid by Assessee stock broker, to acquire membership card from Calcutta StockExchange, to carry on business of Trading, which was w/off as Business Loss, was heldto be allowed on the ground that said deposit was a part of the business, and it’s abusiness loss.
Parlight Securities Ltd. vs. ACIT (2010) 195 Taxman 15 (Ahd.)
548 S. 28(i) : Business Loss – Diminution in the value of the Investment
Assessee bank adopted NIL value in respect of Investment in UTI, as per the requirementof the Banking Regulations Act, the resultant diminution in the value of the Investmentwas held to be a business loss.
State Bank of Travancore vs. ACIT (2010) 195 Taxman 47 (Cochin)
549 S. 30 : Repairs - Lease Premises - Rent, Rates, Taxes Repair and Insurance for buildings
Expenses incurred in connection with renovation of lease hold premises allowed asrevenue expenditure.
Dy. CIT vs. Lazard India (P) Ltd. (2010) 41 SOT 72 (Mum.)
550 S. 32 : Depreciation – Plinth - Plant
Plinth is entitled to Depreciation as plant and not as a building.
Daljit Singh vs. ITO (2010) 194 Taxman 16 (Chandigarh)(SMC)
551 S. 32 : Depreciation – Registration - User of Boring Machine
Depreciation claim in respect of new boring machine with supporting truck was denied asvehicle was registered with RTO on 28-3-2003 and permits for using it were issued on31-3-2003, as observed that the vehicle was not ready for use.
On facts Depreciation was allowed, as Assessee brought on record that machine wasassembled on 24-3-2009, and corresponding hiring income received from 25-3-2003 To31-3-2003 were duly supported by bills, and amounts were received by cheques.
Premkumari Bathla (Smt.) vs. ACIT (2010) 195 Taxman 37 (Jaipur)
552 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 RMCmachinery.
553 S. 36(1)(vii) : Bad Debts - Money advanced to subsidiary - Business Expenditure – [S.
36(2), 37(1)]
Money advanced to the subsidiary was not a trading debt emerging from trading activityof assessee hence could not be allowed as deduction either under sec tion 36(2) or undersection 37(1).
VST Industries Ltd. vs. ACIT (2010) 41 SOT 415 (Hyd.)
554 S. 37(1) : Business Expenditure - Capital or Revenue - Design and Drawing Fee
Expenditure incurred by the assessee on account of design and drawing fees paid toforeign technician for imparting training to Indian technicians, relates to the process ofmanufacturing and for a tenure and the documents, designs and specifications whichhave been supplied by the licensor are only for facilitating the said purpose ofmanufacturing and therefore constitute revenue expenditure.
CIT vs. Manjal Showa Ltd. (2010) 46 DTR 1 (Del.)
555 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
in addition 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 inrespect of the foreign taxes as well as a deduction under section 37(1) is not justifiedand results in a double unintended benefit.
The argument that if deduction under section 37(1) is not granted, credit for foreigntaxes should be granted under section 90 even in respect of income eligible for deductionunder section 80HHE is not acceptable because this would be contrary to the languageof the DTAA and result in an assessee getting refund of US taxes if he had no tax liabilityin India.
The argument that sections 90 & 91 are confined to USA Federal taxes and not to USAState taxes and that therefore the bar in section 40(a)(ii) does not apply to USA Statetaxes is not acceptable because any payment of Income-tax is an application of incomeas held in Inder Singh Gill 47 ITR 284. Further, the scheme of sections 90 & 91 does notdiscriminate between Federal taxes and State taxes and though the India-USA DTAAconfines the credit only to Federal taxes, the assessee will be entitled to relief undersection 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 inrespect of USA State taxes.
Dy. CIT vs. Tata Sons (2010) 48 DTR 321 / (2011) 43 SOT 27 / 135 TTJ (Trib) (Mum)
556 S. 37(1) : Capital or Revenue Expenditure - Termination of Agreement
Assessee entered into an agreement for purchase of property for infrastructural facilitiesfor business, assessee terminated the agreement and paid compensation, payment to betreated as capital in nature and not allowable as revenue expenditure.
Sap Labs India Pvt. Ltd. vs. ACIT (2010) 6 ITR 81 (Bang.)(Trib.)
Sap Labs India Pvt. Ltd. vs. ACIT (2010) 6 ITR 81 (Bang.)(Trib.)
557 S. 37(1) : Business Expenditure - Capital or Revenue Expenditure - Expenditure onsite
development
Expenses incurred onsite development of portal is revenue expenditure.
558 S. 37(1) : Business Expenditure – Penalty - Fine – Payment for Settlement of Dispute for
alleged infringement of patent - Explanation
Payment made by the assessee on settlement of dispute with a company of USA beingneither a fine or a penalty for a proved offence nor an amount paid for compounding ofan offence but is merely a sum paid on settlement, where charge against the assesseewas denied and not proved, the same cannot be held to be an inadmissible deductionwhile determining the assessee’s income from business.
Desiccant Rotors International (P) Ltd. vs. Dy. CIT (2010) 47 DTR 193 (Delhi)(Trib.)
559 S. 37(1) : Business Expenditure - Capital or Revenue - Purchase of Anti–virus software
Expenditure incurred on purchase of anti–virus software is of revenue expenditure.
Chambal Fertilisers & Chemicals Ltd. vs. ACIT (2010) Tax World. December Vol. XLIV.
Part 6. P. 195
560 S. 37(1) : Business Expenditure - Payment to Trust for Opening and Running a school in
the assessee company premises
Payment made to a trust for opening a school in the assessee company’s premises wasallowable as deduction since the amount was paid with the object of providing educationto the children of employees of assessee company within the company premises itselfand was necessitated for business purpose.
Chambal Fertilisers & Chemicals Ltd. vs. ACIT (2010) Tax World. December Vol. XLIV.
Part 6. P. 195
561 S. 37(1) : Business Expenditure - Capital or Revenue – Non-compete Fees
Non-compete fee paid by the assessee on acquisition of pharmaceutical business whichconstituted a new line of products for the assessee is not allowable as a revenueexpenditure in one go. The out go is to be treated as a deferred revenue expenditure andis allowable over a period of four years prorata starting from the relevant assessmentyear.
562 S. 37(1) : Business Expenditure - Licence to operate Telecommunication services - (S.
35AB)
Payment made by the assessee for obtaining licence for providing telecommunicationservices though for a period of 10 years, the licence fee was payable on yearly basiswith right to licensor to terminate the licence and the licence is non-exclusive, non-transferrable and it is open to the Government of India to grant similar licenses to otherpersons as well and therefore, the benefit of licence fee paid during the year enduresonly till the end of relevant financial year and does not extend to the subsequent yearand hence, the licence fee is not in the nature of capital expenditure falling undersection 35ABB, but the same is revenue in nature allowable under section 37(1).
Bharati Airtel Ltd. vs. ACIT (2010) 48 DTR 416 (Trib.)(Mum.)
563 S. 37(1) : Business Expenditure - Administrative Charges for obtaining loan
Administrative charges paid for obtaining loan are allowable as revenue expenditure in theyear of payment, notwithstanding the fact that the assessee has treated thisexpenditure as deferred revenue expenditure in its books of account and benefit of loanwould accrue over a long period.
ACIT vs. Tata Housing Development Co. Ltd. (2010) 48 DTR 452 (Trib.)(Mum.)
564 S. 37(1) : Business Expenditure - Contingent Expenditure
A liability dependant on fulfillment of a condition can not be allowed as deduction unlessthe dependent condition is fulfilled during the relevant previous year.
(i) On the facts of the case a mandatory provision for expenses, like foroverhauling and hot section inspection charges for engine of aircraft inaccordance with the provision of Aircraft Act, 1934 and Aircraft Rules, 1937after the aircraft flew the required number of hours, was made and claimedas deduction under section 37(1) but the Assessing Officer disallowed on theground that it was contingent. On offered, the Hon’ble bench held that thesaid expenses were allowable as the liability in praesnti though it had to bedischarged at a future date. It was further held that even if the date onwhich it was to be discharged was not certain that would not have anybearing.
Asia Aviation Ltd. vs. ACIT (2010) 126 ITD 406 (Del.)
565 S. 40A(2) : Business Disallowance - Excessive Interest
In the absence of any material to show that the payment of interest made by theassessee is in excess of fair market value, and keeping in view the case relied on by theAssessing Officer, 18 percent rate of interest was considered as reasonable, interest paidby the assessee at 7 to 18 percent to its sister concerns was wholly and exclusively laidout for the purpose of the business and hence, the disallowance of interest undersection 40A(2) is deleted.
Bharati Airtel Ltd. vs. ACIT (2010) 48 DTR 416 (Trib.)(Mum.)
566 S. 40A(2)(b) : Business Disallowance – Interest
Assessing Officer disallowed the Interest paid to relatives @ 24% on the ground thatinterest paid to others was only @ 12%. The disallowance made under section 40A(2)(b)as excessive or unreasonable, was deleted on following grounds :
a) Assessee has recovered interest from Debtors @ 24%, and there was noloss of revenue to Assessee.
b) The net interest was a credit figure, which was declared as income.
c) In the past interest was paid @ 24% and no disallowances were made.
Ram Avtar Garg vs. ITO (2010) 195 Taxman 61 (Jaipur)
567 S. 40A(3) : Business Disallowance - Cash Payments - Distributor for BSNL in its card
division
During the year under consideration assessee made total purchases of India Telephonecards at ` 270.64 lakhs, of which ` 187.73 lakhs were by way of cash purchases.Assessing Officer invoked provisions of section 40A(3) and disallowed 20% of impugnedexpenditure. CIT(A) upheld the disallowance. The Tribunal held that on facts, it wasapparent that relationship between service provider i.e. BSNL and assessee–distributorwas of principal and agent and income arising to assessee was in nature of commission orremuneration against services rendered, hence, disallowance under section 40A(3) is notapplicable.
S. Rahumathulla vs. ACIT (2010) 127 ITD 440 (Kochin)
568 S. 40(a)(i) : Business Disallowance - Under Article 26(3) of India-USA DTAA payments to
Non-Residents are equated with payments to Residents & so S. 40(a)(i) disallowance not
valid
Article 26(3) of India–US DTAA protects interest of non-resident vis-à-vis residents.Thus payment to residents are equated with payment to non-residents .Thus in light ofArt 26(3), no disallowance under section 40(a)(i) can be made even in case of paymentto non resident. Herbal Life International (2006) 101 ITD 450 (Delhi) followed.
Central Bank of India vs. Dy. CIT (ITAT) (Mum.) Source : www.itatonline.org
569 S. 40(a)(i) : Business Disallowance - Reimbursement of Expenses - Interest payable
outside India
Where the assessee made payment to its parent company in UK which was merelyreimbursement of expenses and not in nature of interest–royalty, fees for technicalservices or other sums chargeable under Act, no disallowance of said payment could bemade while computing income under head "profits and gains of business or profession" onthe ground that no tax at source had been deducted.
Dy. CIT vs. Lazard India (P) Ltd. (2010) 41 SOT 72 (Mum.)
570 S. 40(a)(ia) : Business Expenditure - Disallowance - Tax Deducted at Source - Truck
Owners - (S. 194C)
Considering the legal and factual findings recorded by the CIT(A) regarding there beingno liability of the assessee to deduct tax under section 194C from the payments made byit to different truck owners on the ground that each job undertaken by a truck ownerwas a separate job for the same person, at different rates and terms, hence thedifferent jobs will not turn into single contract and thus there being no contract betweenthe assessee and truck owners, there was no infirmity in the order of CIT(A) deleting thedisallowance under section 40(a)(ia).
ITO vs. Indian Road Lines (2010) 45 DTR 49 (Asr.)(Trib.)
571 S. 40(a)(ia) : Business Expenditure – Disallowance - Tax Deducted at Source -
Transportation of Goods - (S. 194C)
Assessee a transport contractor herself having executed whole of the contract fortransportation of goods by hiring trucks from various truck owners, it cannot be said thatthe payments made for hiring of vehicles fall in the category of payment to sub–contractor and therefore, the assessee was not liable to deduct tax at source as per theprovision of section 194C for the payments made to the truck owners and the samecould not be disallowed under section 40(a)(ia).
Kavita Chug (Mrs) vs. ITO (2010) 45 DTR 146 (Kol.)(Trib.)
572 S. 40(a)(ia) : Business Expenditure – Disallowance - Payment of tax deduction at source
in next year
Assessee having made all payments of TDS in respect of contract payments, interest,professional fees and commission for the Asst. Year 2005-06 after due date and in thefinancial year 2005-06, corresponding amounts are deductible in computing the income ofasst year 2006-07, in view of section 40(a)(ia). Payment of rent has been inserted insection 40(a)(ia) w.e.f. 1st April 2006 and therefore, assessee is entitled to deduct therental expenditure in computing the income of the relevant Asst. Year i.e. 2005-06,itself, even though payment of TDS was delayed.
573 S. 40(a)(ia) : Business Expenditure - Reimbursement of Expenses
When there is no element of income and the payment is only as a reimbursement ofexpenses incurred by the payee, then no disallowance can be made under section 40(a)(ia).
Utility Powertech Ltd. vs. ACIT (2010) TIOL 545 ITAT (Mum.) (BCAJ) (Nov., 2010) P. 22
[150 (2010) 42 B. BCAJ]
574 S. 40(a)(ia) : Business Expenditure - Accrued Prior to 10-9-2004 -Amendment to section
40(a)(ia) by Finance Act, 2010
Amendment to section 40(a)(ia) by the Finance Act, 2010 which extends the time limitfor all TDS payable throughout the year has been introduced as curative measure andtherefore, would apply to earlier years also.
Golden Stables Life Style Centre Pvt. Ltd. ITA Nos. 5145/Mum/2009 Bench ‘G’ dt. 30-9-
2010. (2010) BCAJ Nov., 26 [155 (2010) 42-B.BCAJ]
575 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 wasdeducted was sustainable, as merely filing of Form No. 13 by payee to their respectiveAssessing Officers cannot be construed as an authorization to the assessee not todeduct tax for the interest due to them. No copies of Form No. 15G were forthcoming tojustify the assessee’s stand.
Rajendra Kumar vs. Dy. CIT (2010) 46 DTR 363 (Bang.)(Trib.)
576 S. 40(a)(ia) : Business Expenditure - Fess for Technical Services - Transaction Charges
paid to Stock Exchange - Tax deduction at Source
Transaction charges paid by the brokers to the stock exchange were not for anyservices provided by the stock exchange, hence, the provisions of section 40(a)(ia) werenot attracted as no tax was required to be deducted.
Wall Fort Financial Services Ltd. vs. Addl. CIT (2010) 134 TTJ 656 (Mum.) / 48 DTR 138
(Trib.)(Mum.)
577 S. 40(a)(ia) : Disallowance - Amendment by Finance Act, 2010 -Retrospective effect
from the Asst. Year 2005-06 - TDS paid before due date of filing of return
Amendment section 40(a)(ia) by Finance Act, 2010 is retrospective and applies from theday said section was brought in to the statute book i.e. w.e.f. 1-4-2005, meaning
day said section was brought in to the statute book i.e. w.e.f. 1-4-2005, meaning
thereby, that even if the TDS was paid by due date for filing return of income, nodisallowance under section 40(a)(ia) could be made for any of the assessment yearsstarting from assessment year 2005-06.
Kanubhai Ramjibhai vs. ITO (2010) Chartered Accountants Association Ahmedabad,
December, 2010 P. 411 (2011) 49 DTR 70 (Trib) (Mum)
578 S. 40(a)(ii) : Business Expenditure - Interest on delayed payment of withholding taxes
to US Government - (S. 43B)
Allowability of interest payable on delayed remittances of withholding taxes to USGovernment, which the assessee had deducted from the payments made to itsemployees in USA remanded to CIT for fresh consideration.
Mascon Global Ltd. vs. ACIT (2010) 45 DTR 20 (Chennai)(Trib.)(TM)
579 S. 40(b)(v) : Business Disallowance - Interest salary paid to partner –Partnership -
Resolution
It was found from the records that there was indication as to when increase was agreedupon by partners in terms of partnership deed and further shares of each of the twopartners after increase were not defined and same was not documented, whereas all therequirements were of vital importance for purpose of section 40(b)(v) and more overthere was no evidence of any such resolution made by partners. Disallowance undersection 40(b) was upheld.
Dy. CIT vs. Raja & Co. (2010) 42 SOT 136 (Cochin)
580 S. 41(1) : Future Sales-tax Liability is paid, there is no "remission" – Sales tax deferral
Scheme
There is no remission in case of payment of future sales tax liability. Two basicingredients necessary for application of s.41 are, First, the assessee should haveobtained an allowance or deduction in respect of any loss, expenditure or trading liabilityand second, the assessee should have subsequently (i) obtained any amount in respectof such loss or expenditure or (ii) obtained any benefit in respect of such trading liabilityby way of remission or cessation thereof;
Sulzer India Ltd. vs. Jt. CIT (2010) 42 SOT 457 / 47 DTR 329 (Mum.)(Trib.)(SB) Source:
www.itatonline.org
581 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 iswaived by other party, principal amount of loan waived by other party cannot be broughtto tax under section 28(iv) or under section 41(1).
582 S. 43(1) : Depreciation - Actual Cost - Foreign Exchange forward contract - (S. 43A)
Where the foreign exchange contracts were made by the assessee for the purpose ofacquiring capital assets and the forward contracts were settled during previous yearrelevant to the assessment year under appeal, the claim of the assessee to adjust theloss on settlement being legitimate, the said loss needs to be added to the cost of theconcerned capital assets as per section 43A, and consequently, depreciation is to beallowed on the enhanced value of the capital assets.
583 S. 43(5) : Speculation Loss - Derivatives Trading - (S. 73)
Trading in derivatives cannot be considered as a speculative transaction and thereforeset off of loss of derivative trading against the profits of the share trading business waspermissible.
584 S. 43(5)(d) : Loss - Speculation Business - Transaction in Derivatives
Exchanges notified on 25-1-2006, transactions carried out in previous year relevant toassessment year 2006-07, eligible for benefit of section 43(5)(d), loss on derivativetransactions to be set off against profit earned in purchase and sale of shares onderivative basis. No expenditure can be allocated towards speculative business.
Seema Jain (Smt) vs. ACIT (2010) 6 ITR 488 (Delhi)(Trib.)
585 S. 43B : Business Expenditure – Disallowance - Interest on arrear of SEBI Turnover
Interest on SEBI turnover charges is of the same nature as tax, duty, cess or fees andaccordingly will be allowed in accordance with section 43B when paid in current year.
Wall Fort Financial Services Ltd. vs. Addl. CIT (2010) 134 TTJ 656 (Mum.) / 48 DTR 138
(Trib.)(Mum.)
586 S. 44AB : Audit Reports - Corporate Entity
Corporate entity is single entity, assessee is not bound to file tax audit reports for eachseparate business.
Rolls Royce Industrial Power Ltd. vs. ACIT (2010) 6 ITR 722 (Trib.) / 42 SOT 264 (Trib.)
(Delhi)
587 S. 44BB : Business of Exploration of Mineral Oils - (S. 9(1)(vii), 44D)
Feasibility study on implementation of cyclic steam stimulation carried out by the non-resident assessee in pursuance of a contract with ONGC was a study substantially anddirectly connected with the extraction of mineral oil, and therefore, receipt for suchservices are taxable under section 44BB and not under section 9(1)(vii) r.w.s. 44D.
ONGC as representative assessee of Alberta Research Council vs. Jt. CIT (2010) 46 DTR
21 / 133 TTJ 663 (Del.)(Trib.)
588 S. 45 : Capital Gains – Business Income - Portfolio Management Scheme – [S. 28(i)]
The Tribunal has found that the lower authorities have taken into consideration only onefactor i.e. Volume of transactions and not other factors hence, the matter was set asideto decide a fresh.
Sar Investment (P) Ltd. vs. Dy. CIT (2010) 40 SOT 566 (Ahd.)
589 S. 45 : Capital Gains - Cost of Acquisition - Tenancy Right – [S. 55(2)]
Assessee was in lawful possession of flat till issue of notice of eviction and statutorytenant after termination of tenancy right. Cost of acquisition of tenancy to be taken atnil.
nil.
Praful Chandra R. Shah (Late) vs. ACIT (2010) 5 ITR 598 (Mum.)(Trib.)
590 S. 45 : Capital Gains - Cost of Acquisition - Surrender of Tenancy Right - Market value of
tenancy right
There is an important distinction between asset not having cost of acquisition and assetwhose cost of acquisition cannot be determined. Asset sold by the assessee was theproperty which was given to him on surrender of tenancy right. Cost of this asset is themarket value of the tenancy right as on the point of time when it was surrendered.
Balmukund P. Acharya vs. ITO (2010) 45 DTR 281 / 133 TTJ 640 (Mum.)(Trib.)
591 S. 45 : Capital Gains - Undisclosed Income - Sale of Shares - (S. 69)
Assessee having submitted copies of the contract notes, sales bills statement of accountand confirmation from the broker to substantiate the sale of shares sold by him, and theAssessing Officer having failed to establish that the assessee has introduced his ownunaccounted money, in the shape of the sale proceeds of shares, the impugned incomedisclosed by the assessee is chargeable to tax as capital gains and can not be treatedas income from undisclosed sources.
Baijnath Agrwal vs. ACIT (2010) 133 TTJ 129 (Agra)(TM)
592 S. 45 : Capital Gains - Sale of land with trees and plants
The assessee, a Chartered Accountant by profession, sold land with trees and claimed `14.92 lakhs as expenses from the sale consideration of ` 10 lakhs as exempt agriculturalincome. The Assessee contented that the vendee had paid a sum of ` 10 lacs towardsthe total reimbursements of sale proceeds of the trees, plants and other existing cropsand horticulture and it was included in the total value. The Assessing Officer held that itwas a composite sale along with the land. Hence, it could not be treated separately asagricultural income. He made addition of ` 10,03,814/-. CIT(A) confirmed the assessmentorder. The Tribunal held that, although this amount was part of sale deed under whichthe land was sold, the part of sale proceeds was not agricultural income. Deduction wasallowed on entire indexed cost of acquisition.
Abhinav Ajmera vs. ACIT (2010) 6 ITR 482 (Delhi)(Trib.)
593 S. 45 : Capital Gains – Society - Income
According to Circular 9, dt.25-03-1969, the legal ownership in flats vests in individualmembers and not in the co-operative society. Flat owners have proportionate interest inland and building. Amount received for permitting developer to construct additional areacannot be treated as income of the society.
Auro Ville Co-op Hsg. Soc. Ltd. vs. ACIT, ITA No.570/Mum/2008, dt.31-03-2010, Mumbai
‘H’ Bench, BCAJ pg. 28, Vol. 42-B, Part 2, November 2010.
594 S. 45 : Capital Gains - Beneficial Ownership – TDR - FSI
Beneficial ownership of the balance FSI and right to use TDR was that of the members ofthe society. The members transferred the rights and received consideration for suchtransfer
ITO vs. Ashok Hindu Co-op Hsg. Soc. Ltd., ITA No.630/M/2006, dt.29-09-2008, Mumbai
‘D’ Bench, BCAJ pg. 29, Vol. 42-B, Part 3, December 2010.
595 S. 45(2) : Capital Gains - Business Income - Sale of shares after conversion of
595 S. 45(2) : Capital Gains - Business Income - Sale of shares after conversion of
investment into stock-in-trade
Assessing Officer having accepted the genuineness of the transaction in the year ofpurchase of shares or in the year of conversion of the same from investment into stock-in-trade, he was not correct in examining the genuineness of the transaction in thesubsequent year in which the shares were sold and assessing the surplus as businessincome. As per section 45(2), surplus is assessable as capital gains.
ACIT vs. Tata Housing Development Co. Ltd. (2010) 48 DTR 452 (Trib.)(Mum.)
596 S. 45(4) : Capital Gains - Assets taken over by Partner - Expression "Otherwise"
Assets taken over by a partner on dissolution of firm. Expression "otherwise" appearing insub–section(4) of section 45 has not to be read "ejusdem generies" with the expression"dissolution of a firm or other AOP". It has to be read with the words "transfer of acapital asset by way of distribution of capital asset". Therefore capital gain is chargeableto tax on takeover of a capital asset by a partner on dissolution of firm.
ITO vs. International Rubber & Plastics (2010) 48 DTR 219 (Trib.)(Chennai)
597 S. 48 : Capital Gains – Computation - Market Value - Cost of Construction
Assessee had sold land to the builder–developer. Only the cost of construction ofproposed building allotted to the assessee in the ultimately constructed area and not themarket value of such share of constructed area, has to be reckoned as consideration forthe purpose of computation of capital gains.
Dy. Director of IT vs. G. Rahguram (2010) 46 DTR 136 (Hyd.)
598 S. 48 : Capital Gains – Computation - Fair Market Value - Full Value of Consideration -
(Ss. 45, 50C, 55A)
Under section 48 the full value of consideration is to be adopted for computing thecapital gains. Under section 50C, fair market value estimated by the registering authorityis deemed to be full value of consideration, however, there is no provision in the Actunder which the fair value market value assessed by the DVO is to be taken as full valueof consideration, hence the Assessing Officer was not justified in adopting the fair valuedetermined by the DVO as the full value of consideration for computing the income fromcapital gains.
ITO vs. Mohinder Nath Sehgal & Sons (2010) 46 DTR 238 (Chd.)(Trib.)
599 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 performancedid not attract capital gains as no cost of acquisition was determinable.
B. Ramakrishnaiah vs. ITO (2010) 46 DTR 406 (Hyd.)(Trib.)
600 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, ofthe land as well as the construction thereon since as on 1st April 1981, building wasexisting over the plot . Assessing Officer was not justified in taking the fair market valueof land only.
of land only.
Subash Chand Kapoor vs. ITO (2010) 46 DTR 314 (Agra)(Trib.)
601 S. 50 : Capital Gains - Depreciable Assets - Block of Assets
If after crediting sale proceeds the written down value of block is reduced, it cannot betaxed separately where sale proceeds exceeded the written down value of block, profitto be taxed as short term capital gains.
Rolls Royce Industrial Power Ltd. vs. ACIT (2010) 6 ITR 722 (Trib.) / 42 SOT 264 (Trib.)
(Delhi)
602 S. 50B : Capital Gains - Slump Sale - Cost of Acquisition
Assessee had sold entire undertaking with all its assets and liabilities together withlicences, permits, approvals, registration, contracts employees and other contingentliabilities for a slump price, provisions of section 50B were applicable.
VSAT Industries Ltd. vs. ACIT (2010) 41 SOT 415 (Hyd.)
603 S. 50B : Capital Gains - Slump Sale - Transfer of Business as going Concern - (Ss.
2(19AA), 2(42C), 50)
Where a business as a going concern is transferred including inventory, contract, licenseagreements, accounts receivables, vendor lists etc., same would fall within the definitionof slump sale and is to be considered for computation of capital gains in accordance withsection 50B.
604 S. 50C : Capital Gains - Stamp Valuation - Development Rights
The assessee was co–owner of inherited property. He entered into an agreement withthe developer for development of the property for a consideration of ` 63 lakhs andoffered his share of the consideration to capital gains. The Stamp valuing authorityvalued the property at ` 4.73 crores though the DVO valued it for ` 1.81 crores. TheAssessing Officer invoked the provision of section 50C and adopted the DVO’s valuationfor consideration. This was confirmed by the CIT(A). Before the Tribunal the assesseeargued that there was a distinction between "rights in land and building" and "land andbuilding" and the section 50C did not apply to "rights" in land and building such asdevelopment rights. The Tribunal held that the argument that transfer of developmentrights does not amount to transfer of land or building and therefore, section 50C is notapplicable is not acceptable because under section 2(47)(v) the giving possession in partperformance of a contract as per section 53A of the Transfer of Property Act is deemedto be a "transfer". When the assessee received the sale consideration and handed overpossession of the property vide the development agreement, the condition prescribed insection 53A of the Transfer of Property Act is satisfied and under section 2(47)(v) thetransaction of transfer was completed. The fact that the assessee’s name stands in themunicipal records does not change the nature of transaction.
Arif Akhatar Hussain vs. ITO (ITAT - Mumbai) Source: www.itatonline.org
605 S. 50C : Capital Gains - Stamp Valuation - Transaction of Sale of Property – Prior to 1-4-
2003 - Reference to DVO
Provisions of section 50C of the Act shall not be applicable in respect of transaction ofsale of property entered into on or before 1-4-2003, considering the theory of naturaljustice and impossibility. Assessee has a right to challenge the valuation of property
justice and impossibility. Assessee has a right to challenge the valuation of propertyunder section 50C(2), adopted by SVA and in that case Assessing Officer should refer
the matter to DVO.
Ashutosh Bhargava, Gudda Godji (Jhunjhunu) vs. Dy. CIT (2010) Tax World Nov., 10 Vol.
XlV Part-5 Page 173 (JAI.)
606 S. 50C : Capital Gains – Stamp Valuation – Reassessment - (S. 147)
Addition made in re-assessment proceedings on the basis of valuation made by StampDuty Authorities on the purchaser, was deleted, as section 50C was applicable in case ofseller of asset, following the decision in case of Rekhaben Rajendra Shah vs. ACIT [ITAppeal No. 3069 (Ahd.) of 2008 dt. 9-4-2010]
ITO vs. Venu Proteins Industries (2010) 195 Taxman 14 (Ahd.)
607 S. 50C(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 ishigher, the assessee can request the Assessing Officer to refer the matter to theDepartmental valuation officer. The Tribunal held that the Assessing Officer is bound torefer the matter to the valuation officer. The matter was set aside to Assessing Officerto refer the matter to Departmental valuation officer.
B. N. Properties Holdings P. Ltd. vs. ACIT (2010) 6 ITR 1 (Chennai)(Trib.)
608 S. 54 : Capital Gains - Long term Capital Gains - Profit on sale of property used for
purchase of residence house - Interest free deposit
Premises taken on licence under agreement for a period of two terms of eleven monthsagainst interest–free deposits, cannot be considered as purchase of residential house,hence, exemption under section 54 is not eligible.
Praful Chandra R. Shah (Late) vs. ACIT (2010) 5 ITR 598 (Mum.)(Trib.)
609 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 ofthe land appurtenant to the building. If such land is sold separately, after dismantling theexisting building, what is sold is only land and hence, exemption under section 54 will notbe allowable.
Subhash Chand Kapoor vs. ITO (2010) 46 DTR 314 (Agra)(Trib.)
610 S. 54F : Capital Gains - Investment in Residential House - Full value of consideration - (S.
50C)
For the purpose of deduction under section 54F full value of consideration shall be thevalue as specified in the sale deed for the purpose of computation of capital gains.Provision of section 50C can not be applicable as it contains only deeming provision. Fullvalue of sale consideration as mentioned in other provisions of the Act is not governedby the meaning of full value of consideration as contained in section 50C of the Act.
Gyan Chand Batra vs. ITO (2010) 45 DTR 41 / 133 TTJ 482 (JP)(Trib.) / (Tax World) Vol.
XLIV P 89 (August, 2010)
611 S. 54F : Capital Gains – Exemption - Purchase of Flat
Assessee had purchased a flat, prior to sale of land after demolition of building on theland and therefore neither proviso to section 54F(1) nor section 54F(2) attracted andthe assessee was entitled to exemption under section 54F.
Subhash Chand Kapoor vs. ITO (2010) 46 DTR 314 (Agra)(Trib.)
612 S. 55A : Capital Gains - Reference to DVO – Fair Market Value as on 1-4-1981
Fair market value of the property as on 1st April 1981, declared by the assessee as perGovernment registered valuer’s report being more than the fair market value as estimatedby the DVO on reference by the Assessing Officer, the reference to the DVO is not validand consequently, estimation of fair market value of property as made by the assessee isto be accepted.
Sarala N. Sakraney vs. ITO (2010) 46 DTR 208 (Mum.)(Trib.)
613 S. 56 : Income from Other Sources - Business Income - Gift received by Politicians - (S.
28)
Gifts received by assessee, a politician, from numerous donors as a token of appreciationof her reformative work for upliftment of Dalits without any perceptible or intended quidpro qua as evident from the affidavits of the donors are to be treated as personal giftsand not vocational or professional gifts and therefore all such gifts including those upto `25,000 are to be considered under section 56(2)(v) and not under section 28 and thusgifts up to ` 25,000 were not taxable.
Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 233 (Trib.)(Delhi)
614 S. 56 : Income from Other Sources - Interest Income - During Precommencement Period
– [S. 28(i), 37(1), 57 (iii)]
Interest earned by the assessee company by investing its surplus funds in deposits withbanks and other companies at the time when it was constructing the building of theinstitute for conducting its main business activity is taxable as "income from othersources". Since the business was yet to set up. The expenditure incurred on revenueaccount cannot be allowed as business expenditure, however expenditure. But expensesif any incurred for earning interest income can be allowed.
Whistling Woods International Ltd. vs. ITO (2010) 48 DTR 371 / (2011) 135 TTJ 28
(Trib.)(Mum.)
615 S. 68 : Cash Credits – Gifts – No relation – No occasion – Gift not genuine
To prove the genuineness of gift, mere identification of gift amount through bankingchannels is not sufficient, onus lies on the assessee to prove not only to establishidentity of donor, but his capacity to make gift and also the occasion to make the gift.As the Donor refused to attend before the Assessing Officer, addition was justified undersection 68.
Asha M. Agarwal vs. ITO (2010) 41 SOT 30 (Mum.)
616 S. 68 : Cash Credits – Gifts - Donor appeared in person
Donor appeared in person before the Assessing Officer and confirmed making of gift andreason which persuaded him to make gift, he being friend of assessee’s father whohelped him in past. Donor also proved the source of gift. Addition under section 68 wasdeleted.
deleted.
Avnish Kumar Singh vs. ITO (2010) 126 ITD 145 (Agra)(TM)
617 S. 68 : Cash Credits - Gift
In order to establish that the money received by assessee to be a gift, it should beproved to be voluntary and at the instance of the donor out of love and affection. Giftbeing 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.)
618 S. 69 : Unexplained Investments - Remanding the matter back to Assessing Officer
In the course of assessment proceedings the Assessing Officer asked for the source ofinvestment of ` 8,64,670 in connection with supply of coal of 1408 MT on road permit. Inreply assessee filed the affidavit of "H" (Coal lifting agent) and the copy of agreementexecuted between assessee and "H", who had deposited money with CCL on behalf ofassessee. Not satisfied with the explanation, the Assessing Officer made addition undersection 69. On Appeal CIT(A) deleted the addition. On appeal by the Department theJudicial member remanded the matter back to Assessing Officer, whereas the AccountantMember confirmed the order of Assessing Officer. On reference to third member it washeld that the Judicial member was right in restoring the matter back to Assessing Officerfor disposal afresh.
ACIT vs. Kaycee Glass Works (2010) 127 ITD 109 (Agra )(TM)
619 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 theassessee merely due to non filing of confirmation from suppliers especially when assesseehas filed certificate from the bank indicating the facts that cheques issued by it werecleared and no defects in the books of account was pointed out.
620 S. 69 : Income from Undisclosed Source - Benefit of VDIS, 1997 – Other than Declarant -
Gift from Declarant - (S. 68)
Benefit of declarations made by ladies and minors under VDIS, 1997, is also available to aperson other than the declarant to the extent of amount declared unlike the earlierschemes and therefore, gifts received by the assessee from three ladies by way ofaccount payee cheques out of the amounts declared by them under VDIS, 1997 whichare supported by valid and subsisting certificates issued by the competent authority(CIT) have to be accepted as genuine and cannot be treated as undisclosed income ofthe assessee.
Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 65 (Trib.)(Delhi)
621 S. 69C : Unexplained Expenditure – Third Party Records - Purchases
Additions under section 69C for unaccounted purchases and for unexplained expenditure,cannot be made on basis of third parties records, when Assessee has not claimed saidamounts as expenditure in its books.
Held, section 69C can be invoked only when Assessee has incurred expenditure for whichhe has no explanation or the explanation is not satisfactory.
he has no explanation or the explanation is not satisfactory.
ACIT vs. Abhishek Exports (2010) 195 Taxman 59 (Ahd.)
622 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 shouldcarry on business in year under appeal and it is only against profits of such business thatbrought forward loss can be set off. Where assessee’s profits were assessed undersection 41(1) as business income, said profits did not represent profits and gains of anybusiness carried on by assessee and therefore, brought forward business loss was notallowable against profits assessed under section 41(1).
623 S. 73 : Speculation Loss - Investment Co-Purchase and sale of Shares
Loss arising on account of purchase and sale of shares in another company is to betreated 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.)
624 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, acompany, tax resident of Mauritius, could not be rejected by the Assessing Officer whilemaking assessment of subsequent year on the ground that since the assessee companywas not liable to tax on the capital gains under Art. 13 of DTAA between India andMauritius, such capital loss was also exempt.
Flagship Indian Investment Co. (Mauritius) Ltd. vs. ADIT (2010) 133 TTJ 792 / 46 DTR
166 (Mum.)(Trib.)
625 S. 80-IA : Deductions - Profits and Gains from Industrial Undertakings - Infrastructure
Undertakings - Payment received for notional treatment
Since the entire receipts whether of actual treatment or notional treatment of BMW (BioMedical Waste treatment) by Municipal corporation of Greater Mumbai (MCGM), wereflowing from contract entered into by assessee with MCGM and where hare direct relationwith eligible enterprise it could be said that payment in respect of notional treatment ofBMW was derived from eligible undertaking and was eligible for deduction.
ITO vs. E. A. Infrastructure Operations (P) Ltd. (2010) 41 SOT 268 (Mum.)
626 S. 80-IB : Deduction – Manufacture - Potato Chips - Initial Year
Conditions precedent for allowability of deduction under section 80IB are to be examinedin the initial year of the claim and if they are found to be satisfied the Assessing Officercannot ignore that finding in the assessment of a subsequent year and take a differentview. The Tribunal held that the CIT(A), was not justified in disallowing deduction undersection 80IB on the ground that the manufacture and sale of dehydrated onion flakersand potato chips is not manufacture or production of article or thing to be eligible todeduction under section 80IB.
627 S. 80-IB : Deductions - Profits and Gains from Industrial Undertakings –Manufacturing -
627 S. 80-IB : Deductions - Profits and Gains from Industrial Undertakings –Manufacturing -
Types of Sheets and Pre-engineering Building Material
Assessee had employed high–tech sophisticated machinery, e.g., for marking roof tops, itbought plain sheets and gave them curved and desired shape on cold rolled mill andthereafter, different engineering operations were carried on and thus, ultimately assesseegave technical inputs in respect of tensile strength, long durable service life andstructural quality keeping factors like heat resistance operational requirement, energyconsumption and environmental factors in mind. Similarly, for beams columns and rafters,assessee had used high duty shearing machine as against simple fabrication toolsemployed by others. It had auto–welding machines which gave uniform welding and madeall parts uniformly joining and becoming one static body and ultimately improved itstensile strength. In view of above process, there was sea change from raw materials tofinished products, hence, the assessee could be said to be engaged in production ormanufacture of an article or thing and entitled to deduction under section 80-IB.
Steel Fab Building Systems vs. ITO (2010) 127 ITD 419 (Mum.)
628 S. 80-IB(10) : Deductions – Profit derived from an Industrial Undertaking and building
housing projects - Approval and completion of the project
Stipulation for obtaining completion certificate should not be so interpreted to mean thatan assessee can claim exemption under section 80-IB(10) only in the year of completionof the whole of the housing project but the exemption could be claimed, particularly,where the project stretches over a number of years and the assessee returns its incomebased on percentage completion method.
Editorial Note : B. T. Patte Enterprises, 28 (Pune) DTR 451 (Pune) Sr. No. 4/2009 dt. 30-
6-2009
629 S. 80-IB(10)(b) : Deductions - Housing Projects - Area set apart for amenities
In order to allow assessee’s claim for deduction under section 80IB(10)(b), area of oneacre available for development of housing project includes area required to be set apartfor amenities as per norms of corporation.
Bunty Builders vs. ITO (2010) 127 ITD 286 (Pune)
630 S. 80P : Co-op. Societies - Deduction – Rental Income
Held, that once the Assessee society’s claim u/s 80P in respect of primary activity wasdenied, Assessee is not eligible for deduction under section 80P(2)(e) on its incidentalTransport and Rental Income.
Muzaffar Nagar District Co-op. Development Federation Ltd. vs. ACIT (2010) 195
Taxman 46 (Delhi)
631 S. 88E : Rebate - No Tax Payable - Income set off against brought forward losses – [S.
87(2)]
Both the conditions of chargeability of income to tax and liability to pay tax ontransactions should co-exist so as to become eligible for relief under section 88E. STTpaid by the assessee was not eligible for rebate under section 88E where the incomefrom speculation business was fully set off against brought forward speculation lossesand no income tax was payable in respect of such transactions.
632 S. 90 : Double Taxation Relief – DTAA - India-UK - Dividend Income -International
Taxation
If an assessee i.e. Resident of India, desires to get the tax credit in respect of dividendincome from a UK company available as per UK law, then he will be treated at par withresident of UK and amount received by assessee would then be deemed to increase by1/9th of dividend received from UK company for purpose of taxation under Indian IncomeTax Act and tax credit can only be adjusted against his tax liability in India but hecannot claim refund, if any, in case his credit is more than his tax liability.
- India-Netherlands - (S. 9(1)(i), 195, Art. 5, 6)
Assessee hired a dipper dredger under an agreement from a Dutch company andexecuted a dredging contract on its own utlising the said dipper dredger, the paymentmade by the assessee to the Dutch company was nothing but hire charges, and thedipper dredger which was leased to the assessee to be used under its direction, controland supervision can not be construed as PE of the Dutch company and therefore,payment of hire charges made by the assessee to the foreign company is not liable to betaxed in India and assessee was not required to deduct tax at source under section 195.
Dy. DIT vs. Dharti Dredging & Infrastructural Ltd. (2010) 46 DTR 1 / 133 TTJ 692 (Hyd.)
(Trib.)
634 S. 90 : Double Taxation Relief - Permanent Establishment - Income deemed to accrue or
arise in India - Business Connection - Services rendered through Indian Subsidiary – DTAA -
India-USA - (S. 5(2), 9(1)(i), Art. 5, 7, 27)
Assessee a US company, providing IT enabled services to its clients by assigning or subcontracting execution of the contracts to its wholly owned Indian subsidiary EFI andsupplying the relevant software and database to the latter free of charge has businessconnection in India within the meaning of section 9(1)(i) as well as a PE in the form ofEFI as per Art. 5 of the Indo-US DTAA, profits attributable to the PE are to be workedout by applying the proportion of Indian assets, including EFI’s assets, to the aggregateof global profits and reducing resultant figure by the assessed profits of EFI.
EFunds Corporation vs. Asst. DIT (2010) 45 DTR 345 (Delhi)(Trib.)
635 S. 90 : Double Taxation Relief - In absence of "thin capitalization rules", interest paid to
shareholders for loans cannot be disallowed despite capital -Structure tax - Planning – [S.
36(1)(iii)]
In absence of "thin capitalization Rule", interest cannot be disallowed by characterizingdebt equity .Imposing of such rule on assessee in case where domestic companies arenot subject to such rule will violate "non-discrimination" provisions under art 24 (5).
Bexis Kier Dabhaol SA vs. DDIT (Mum.)(Trib.) Source: www.itatonline.org
636 S. 92 : Transfer Pricing – International Transaction - Arm’s Length Price
If commercial transaction is at arm’s length, no transfer pricing addition for non-chargingof interest on overdue debt. A continuing debit balance is not an "internationaltransaction" per se but is a "result" of the international transaction. Unlike a loan orborrowing, it is not an independent transaction which can be viewed on standalone basis.What has to be examined is whether the commercial transaction is at arms length. Asalso, when an ALP is made in respect excessive credit period allowed under the CUP
also, when an ALP is made in respect excessive credit period allowed under the CUPmethod, the comparable has to be dues recoverable from a debtor and not a borrower.
Nimbus Communication Ltd. vs ACIT (ITAT - Mumbai) Source : www.itatonline.org
637 S. 92B : Transfer Pricing – Adjustments – Enterprise Level Profits -International Taxation
TNMM does not permit the assessee or the Assessing Officer to compare enterprise levelprofits and make adjustments; TPO’s order is set aside and the matter is restored to theAssessing Officer for fresh adjudication.
638 S. 92C : Transfer Pricing – Computation - Arm’s Length Price - International Taxation
For determining the ALP of international transactions with AEs, the TPO should work outthe profit disclosed by the assessee on those receipts and compare the result with thecomparables of independent cases, and in that exercise the domestic receipts are to beexcluded for working out profit level indicator shown by the assessee in respect of theinternational transactions.
Dy. CIT vs. Startex Net Works (India) (2010) 45 DTR 1 (Del.)(Trib.)
639 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. Foreignexchange fluctuations cannot be excluded. Income tax refund cannot be included.Donations to be included. Compensation for termination of agreement to purchaseproperty to be excluded. Shifting from one process to another in selection processpermissible.
Sap Labs India Pvt. Ltd. vs. ACIT (2010) 6 ITR 81 (Bang.)(Trib.)
640 S. 92C : Transfer Pricing - Arm’s Length Price - International Taxation - Custom Valuation
- Chapter X
Data for comparison to be data relating to year in which international transaction enteredinto. Exclusion of reimbursement of advertisement expenditure for determining profit levelindicator not proper. Advertisement expenditure of comparables operating profits to beadjusted to bring it at par with tested party.
Panasonic India Pvt. Ltd. vs. ITO (2010) 6 ITR 502 / 46 DTR 433 (Delhi)(Trib.)
641 S. 92C : Transfer Pricing - Associated Enterprise - Arm’s Length Price
Proprietor of the foreign concern being a relative of the two brothers who are controllingthe assessee firm, cl. (j) of section 92A(2) is applicable to the facts of the case and thesaid foreign concern constituted an AE of the assessee. Since the word "or" is appearingbetween each sub clause of section 92A(2), the requirement of deeming provision issatisfied even if one of the sub clauses is applicable. Items sold by the assessee to theAE not being comparable with the items sold to other enterprises, the GP rate of thesales made to other concerns cannot be applied for computation of ALP.
ITO vs. V. Rajendra Exports (2010) 46 DTR 193 (JP)(Trib.)
642 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
As there was no reason for the TPO to hold that expenditure on the deputation oftechnical 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, transactions were at ALP hence no addition wascalled for. On the facts, the CIT(A) has rightly deleted the addition of ` 43,68,838 madeby the Assessing Officer, being the difference in the ALP on account of royalty andpayments to personnel deputed by AE.
ACIT vs. Sona Okegawa Precision Forgings Ltd. (2010) 47 DTR 187 (Delhi)(Trib.)
643 S. 92C : Transfer Pricing – Arm’s Length Price – TNMM
It is not acceptable that for purpose of computation of ALP, the assessee has theunfettered discretion to adopt the TNMM and the TPO is not entitled to reject thatmethod without showing deficiencies / defects. Section 92C r.w. Rule 10C requires the"most appropriate" method to be chosen from amongst those specified. The exercise ofselecting the "most appropriate" method implies that the appropriateness of method is tobe ranked in some order. Accordingly, it is open to the TPO to reject the TNMM andadopt the CUP method on the basis that the latter is "most appropriate" on the facts ofthe case.
644 S. 92C : Transfer Pricing - Computation of Arm’s Length Price - Adjustment on cess on
royalty - Comparison
Assessee having made payments of royalty to its foreign collaborator for importing thetechnology, research and development cess is payable by the assessee in terms ofsection 3(2) of Research and Development Cess Act, 1986 and therefore, no adjustmentcan be made for the same in the computation of ALP on the basis that such cess ispayable by the foreign collaborator. When the terms and the basis of payment of royaltyare materially different, the rate at which royalty is paid by the assessee to its foreigncollaborator cannot be compared with the rates of royalty paid by other companies andno adjustment is to be made.
645. S. 92C : Transfer Pricing – Computation – Comparables - TNMM
The Tribunal held that in absence of allegation that the agreement approved byregulatory authority is a sham, the tax authority cannot disregard the same. For transferpricing analysis internal comparables are preferable over external comparables. Whileapplying TNMM, only profits related to the transaction with AEs should be compared andnot profits of the company as a whole.
Abhishek Auto Industries Ltd. vs. Dy. CIT (2010) TII 54 ITAT–Del-TP (2011) BCAJ Jan 21(437) (2011 42B –BCAJ)
646 S. 92C : Transfer Pricing -/+ 5% variation from ALP not available if only one price is
determined
The assessee undertook international transactions with associated enterprises for exportpulses. The Assessing Officer made a reference to TPO for determination of the ALP andconcluded by adopting "CUP" method, that in six instances the price paid by theassessee was in excess of quotation in "Agriwatch" database. In appeal the CIT(A)accepted that in respect of the transaction where the variation between the price paidand the price given in "Agriwatch" was less than 5%, no adjustment could be madethough he confirmed other additions. On cross appeal before the Tribunal it was held that
though he confirmed other additions. On cross appeal before the Tribunal it was held thattransfer pricing benefit under section 92C +5 % variation is not available if only one price
determined.
ACIT vs. UE Trade Corporation (India) Source: www.itatonline.org
647 S. 92CA : Transfer Pricing - Computation of Arm’s Length Price - Outstanding more than
six months
Assessee company having an AE in USA, entered into a product development servicesagreement and a professional services agreement, both separately, with its said AE.Assessing Officer made reference under section 92C to TPO. TPO has accepted prices inrespect of transaction entered into between assessee and its AE as ALP compatible.However, TPO noticed that an amount of ` 5.52 crores belonging to assessee wasoutstanding for more than six months. She opined that by parking this huge amount atdisposal of its AE, assessee was depriving funds otherwise available in its hands andadversely affecting its profitability. TPO has calculated interest on aforesaid amount andrecommended Assessing Officer to add interest in assesses’s taxable income. AssessingOfficer made additions. Tribunal upheld the addition made by the Assessing Officer.
Logix Micro Systems Ltd. vs. ACIT (2010) 42 SOT 525 (Bang) / Source:
www.itatonline.org
648 S. 92C(2) : Transfer Pricing - Computation of Arm’s Length Price - Applicability of Proviso
- Difference up to 5 per cent
Differential rate sales made to associated concern RG and other concerns is below 5percent and therefore, the Proviso of section 92C(2), is not applicable.
Ravi Kumar Rawat vs. ITO (2010) 47 DTR 470 (Trib.)(JP)
649 S. 92C : Transfer Pricing - Computation of Arm’s Length Price - Method of Computing
Profit - Total Cost Margin under TNMM
Assessee being engaged in rendering advertising services to its customers/AEs incapacity of an agent receiving remuneration on the basis of fixed commission/chargesbased on the expenses or cost incurred by it and recovering the payments made to thirdparties for rendering of advertisement space from the respective customers/AE. Fordetermining the ALP, mark-up is to be applied to the cost incurred by the Assessee inperforming its agency function and not to the cost of rendering advertising space to theAEs.
Dy. CIT vs. Cheil Communications India (P) Ltd. (2010) 48 DTR 289 (Trib.)(Delhi)
650 S. 115JB : Company - Book Profit – Interest - Retrospective Amendment - (S 234B)
Assessee was not liable to pay interest under section 234B on the incremental amount oftax computed under section 115JB which arose due to retrospective amendment insection 115JB requiring book profit to be increased by the provision for deferred tax.
JSB Steel Ltd. vs. ACIT (2010) 46 DTR 41 (Bang.)(Trib.)
651 S. 115W : Fringe Benefits - Operation of Air transport service - Free and Concessional
Tickets - Jurisdiction of Officer to conduct enquiry
Assessee, who was engaged in operation of air transport services was liable to pay fringebenefit tax in respect amount paid to hotels to provide layover to its crew members.Assessee is liable to pay fringe benefit tax in respect of per diem allowances paid topilots. Assessee is also liable to pay fringe benefit tax in respect of free and concessional
pilots. Assessee is also liable to pay fringe benefit tax in respect of free and concessionaltickets provided to its staff.
King Fisher Training & Aviation Services Ltd. vs. ACIT (2010) 41 SOT 279 (Bang.)
652 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 theexpenses on running of car within the meaning of the provision of section 115WB(2)(H),however, the expenditure on payment of interest on loan taken for purchase of motorcars cannot be included to compute fringe benefits.
653 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 wassubmitted after two months from the date of survey in the light of various documentsand papers found at the time of survey. In the return of income the said amount was notdisclosed. The Assessing Officer rejected the book results and made addition of ` 25lakhs. The Tribunal also confirmed the addition on the ground that it was not a case ofthe 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 notdischarged the burden, addition was justified.
654 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 notsustainable, further there was no substantive evidence on record except statement ofassessee and third party in support of addition of ` 25 lakhs and ` 2.55 crores made byAssessing Officer for the Asst. Year 2007-08 and 2008-09 respectively. Non providing ofcross examination of witness clearly constitutes infraction of the right conferred on theassessee and that vitiated the order of the assessment made against the assessee.
B. Ramakrishnaiah vs. ITO (2010) 46 DTR 406 (Hyd.)(Trib.)
655 S. 133A : Survey – Disclosure - Statement
Confession made during survey cannot be the sole basis for making an addition, withoutconsidering the explanation of assessee.
Babulal Gangwal vs. Addl. CIT (2010) Tax World December, 10 Vol. XLIV, Part-6, P. No.
222 (Jaipur)
656 S. 142A : Estimation by Valuation Officer - Rejection of Books of Account - (S. 145)
When books of account are found to be correct and complete in all respects and nodefects is pointed out therein, then addition on account of difference in cost ofconstruction of a building cannot be made even if a report from DVO is obtained with inthe meaning of section 142A.
Rajhans Builders vs. Dy. CIT (2010) 41 SOT 331 (Ahd.)
657 S. 143(2) : Assessment - Notice
In absence of any reference of the alleged first notice under section 143(2) in the order
sheet and other abnormal circumstances indicating absence of such notice, it cannot beaccepted that the said notice was issued and received by the assessee, and the laternotice having been received by her only after the statutory time-limit under section143(2), the assessment was invalid.
Order sheet is a very important record. As the Assessing Officer not recorded in theorder 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 undersection 143(2) and was clearly time barred.
Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 233 (Trib.)(Delhi)
658 S. 143(3) : Assessment - Denovo Assessment - (S. 252)
De-novo assessment pursuant to order of the Tribunal. The Assessing Officer enhancedthe income. The Tribunal noted that it did not have power to enhance the assessment.In such situation, the order of the Tribunal restoring the matter to Assessing Officercannot be construed to grant power to include a totally new issue, which has effect ofenhancing the income. What cannot be done directly, cannot be done indirectly also.
ITO vs. Jabbal Woodcrafts India, ITA No. 803/D/2009, dt.24-09-2010, Mumbai ‘D’ Bench,
BCAJ pg 28, Vol. 42-B, Part 3, December 2010.
659 S. 144C : Reference to Dispute Resolution Panel – Reasoned Order
DRP while issuing directions under section 144C must not pass "laconic" orders but mustdeal with assessee’s objections. It was held in Sahara India (Farms) vs. CIT 300 ITR 403(SC) that even "an administrative order has to be consistent with the rules of naturaljustice".
GAP International Sourcing India Pvt. Ltd. vs. Dy. CIT (ITAT–Delhi) Source:
www.itatonline.org
660 S. 145 : Method of Accounting – Rejection of Books
The rejection of books of Assessee firm engaged in business of builder - realtors, onground that Assessee had not furnished quantitative particulars, no proper voucherswere available for expenses and labour payments were not supported by verifiabledetails, was held to be justified.
It was observed that even when all payments were made by cheque and TDS wasdeducted on every payment to labourer, same can not substitute the necessity ofmaintaining records and evidences in a proper manner. Also the primary condition to besatisfied was that the working results reflected in the books must be verifiable andbeyond dispute, even though the method of accounting and method of recognition ofincome were acceptable.
ACIT vs. Skyline Builders (2010) 194 Taxman 61 (Cochin)
661 S. 145(3) : Accounts – Rejection - Absence of Discrepancy - Accounts Audited
Where the Assessing Officer has not pointed out any specific defect or discrepancy inthe account books maintained by the assessee which are duly audited by an independentChartered Accountant, there was no justification in rejecting the books of accounts andmaking the addition to the declared income.
CIT vs. Paradise Holidays (2010) 48 DTR 349 (Delhi)
CIT vs. Paradise Holidays (2010) 48 DTR 349 (Delhi)
662 S. 147 : Reassessment – Jurisdiction - Second round of litigation before the Tribunal - (S.
253)
The assessee in the first round of litigation did not raise the issue of reassessment,before the Tribunal although it was in appeal before the Tribunal on merits. The Tribunalheld that, it is now well established that the issue of jurisdiction of the authorities isfundamental and is like the root of the proceedings or matter. The matter had notreached the finality and the dispute or defect as regards the jurisdiction got inbuilt in tothe order and should, therefore always be subject matter for legal scrutiny, whenquestioned. After all the jurisdiction to authorities cannot be conferred by acceptance ornegligence of the parties to the dispute. It can always be agitated or questioned whenthe assessee gets some opportunity over the issue. In a way that issue is always opento challenge even if the round is second or third. As long as the issue has not reachedthe finality, it is always open to question or challenge in judicial proceedings.
663 S. 147 : Reassessment - Reason to Believe - Within four years
Reassessment could be initiated within four years from the end of the relevantassessment year if the Assessing Officer has ‘reason to believe’ that the income hasescaped assessment notwithstanding the fact that there was full disclosure of materialfacts on record. The assessee, in such cases, cannot defend the initiation of action onthe ground that the material facts were disclosed on record and that the AssessingOfficer must have or ought to have considered them during the original assessment. Thepowers to make assessment or reassessment, where the initiation has been made withinfour years from the end of the relevant assessment year, would be attracted even incases where there has been complete disclosure of material facts upon which a correctassessment might have been based in the first instance, and whether it is an error offact or law that has been discovered or found out justifying the belief required to initiatethe proceedings
Lakshmi Machine Works Ltd. vs. ACIT ( 2010) 126 ITD 343 (Chennai)
664 S. 148 : Reassessment - Not furnishing the recorded reasons before passing of the order
– Order held to be illegal - Set aside
When a notice is issued under section 148, first the assessee has to file the return ofincome and then ask for reasons recorded for issue of such notice. Once assesseerequests for supply of reasons recorded, the assessing officer bound to supply the samewith in reasonable time. On the facts the assessing officer completed the assessmentunder section 143(3) / 147 without supplying the recorded reasons. As the assessingOfficer has not followed the guidelines of the Apex court in GKN Driveshafts (India) Ltd.vs. ITO (2003) 259 ITR 19 (SC), the assessment order said to be invalid and the matteris set aside.
Bhabesh Chandra Panja vs. ITO (2010) 41 SOT 390 (Kol.)(TM)
665 S. 148 : Reassessment - Notice – Mandatory - (S. 144)
Where the Assessing Officer is not satisfied with the return filed by the assessee,assessment cannot be made validly unless notice under section 143(2) is issued.Assessing Officer having tinkered with the return filed by the assessee without issuingnotice under section 143(2), the assessment is invalid and void ab-initio, more so whenthe Assessing Officer had sufficient time to adhere to the mandatory requirement ofservice of notice under section 143(2) as well as for completing the assessment after
service of notice under section 143(2) as well as for completing the assessment afterdismissal of the writ petition filed by the assessee.
Dy. CIT vs. Mayawati (Ms.) (2010) 48 DTR 65 (Delhi)(Trib.)
666 S. 148 : Reassessment - Recording of Reasons – Jurisdiction - (S. 292B)
Reassessment made on the basis of notice under section 148 issued by an ITO who didnot have jurisdiction over the assessee and non recording of reason by the JurisdictionalITO and fresh notice from the latter is not valid. Provision of section 292B cannot beresorted to for curing such a jurisdictional defect.
ITO vs. Rajendra Prasad Gupta (2010) 48 DTR 489 (Trib.)(Jd.)
667 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.
668 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 ofaccount or documents seized belonged to assessee. Assessing Officer does not assumejurisdiction for framing assessment under section 153C.
ACIT vs. Gambhir Silk Mills (2010) 6 ITR 376 (Ahd.)(Trib.)
669 S. 158B(b) : Block Assessment - Undisclosed Income - (S. 158BB)
Search having not yielded any incriminating material in respect of accommodation entrybusiness allegedly carried on by the assessee, no undisclosed income could be computedfrom this business merely on the basis of information received from the Sales TaxDepartment about turnover.
Kulwant Singh vs. Dy. CIT (2010) 134 TTJ 129 (Del.)(UO)
670 S. 158BC : Search and Seizure – Block Assessment – Notice –Limitation - (Ss. 143(2),
282)
Issuance of notice under section 143(2),is an essential requirement for making blockassessment and such notice has necessarily to be issued within the time prescribedunder proviso to section 143(2), since there is no conclusive evidence that allegednotice under section 143(2), on 16th May 2000, pursuant to the block return filed on15th May 2000, as claimed by the revenue only notice was served on the assessee on24th Dec., 2001 which was time barred, the block assessment is quashed.
Dy. CIT vs. National Refinery (P) Ltd. (2010) 134 TTJ 109 (Mum.)(Trib.)
671 S. 194A : Tax Deduction at Source - Interest other than interest on Securities - Business
Expenditure – Disallowance - Application in Form No. 13, 15G – [S. 40(a)(ia)]
Disallowance under section 40(a)(ia) of interest payments on which no TDS wasdeducted was sustainable, as merely filing of Form No. 13 by payee to their respectiveAssessing Officers cannot be construed as an authorization to the assessee not todeduct tax for the interest due to them. No copies of Form No. 15G were forthcoming tojustify the assessee’s stand.
Rajendra Kumar vs. Dy. CIT (2010) 46 DTR 363 (Bang.)(Trib)
672 S. 194A : Deduction of Tax at Source – Bank – Interest - Notional Provision for half yearly
interest of Cumulative deposit - (S. 201)
Bank making notional provision for half yearly interest on account of cumulative depositshown in general ledger reversed on next working day. Interest credited to provisioningaccount for macro–monitoring. Interest not due and payable on that day. Deduction oftax not obligatory.
Bank of Maharashtra vs. ITO (2010) 6 ITR 824 (Trib.)(Ahd.)
673 S. 194C : Deduction of Tax at Source - Event Management - Contractual Service -
Professional Service – Photography - (S. 194J)
Job awarded by the assessee to other parties in performance of duty as event managerhas to be treated as a contractor and not sub–contractor and provisions of section194(C)(1) is applicable. Art work and photography will also be covered under section194C(1), same will not be treated as professional service.
EMC vs. ITO (2010) 45 DTR 275 / 134 TTJ 198 (Mum.)(Trib.)
674 S. 194C : Deduction of Tax at Source - Payments to Contractors - Hiring of Vehicles - (S.
194-I)
The assessee entered into agreements with various transport service providers. Underthe agreements entered into, the service provider was to provide transport service atparticular locations for transportation of assessee’s employees to different destinationsand locations mentioned in the agreement. The transport service provider had to providevehicles along with the requisite staff and relevant facilities, full maintenance and repairsof vehicles, etc. The assessee deducted the tax at source under section 194C, theAssessing 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 fortransportation of its employees qualifies for TDS under section 194C and not undersection 194-I.
ACIT vs. Accenture Services P. Ltd. (2010) TIOL 618 ITAT–Mum. 295 / (2010) 42-B BCAJ
(December 2010 P. 23)
675 S. 194C : Tax Deduction at Source – Labour Charges
Assessee paid labour charges for loading, unloading, sorting, cleaning, transportationcharges on daily basis to representative of labourers. Held, that as the individualpayments were not exceeding prescribed limit, Assessee was not liable to deduct TDSunder section 194C.
Dy. CIT vs. Laxmi Protein (Products) Pvt. Ltd. (2010) 195 Taxman 32 (Ahd.)
676 S. 194J : Deduction of Tax at Source - Professional Charges – Salary - Payment to
Doctors - (S. 192)
Assessee hospital having engaged the services of doctors on the basis of agreementswhereby the doctors are free to treat the patients at the hospital at their own discretionand time, without any supervision and control of the assessee and they are not on thepay roll of PF payments, there is no element of employer and employee relationship andtherefore, the doctors are to be treated as consultants and tax has to be deductedunder section 194J from payments made to them and not under section 192.
Dy. CIT vs. Yashoda Super Speciality Hospital (2010) 133 TTJ 17 (Hyd.)(UO)
Dy. CIT vs. Yashoda Super Speciality Hospital (2010) 133 TTJ 17 (Hyd.)(UO)
677 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 borrowedto influence definition of agricultural land contained in Explanation to section 194LA. Forthe 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 landor not. Land Acquisition Officer took prima facie view that land acquired by him was anagricultural land on the basis of entries in land revenue record, hence, he was justified innot deducting tax on compensation paid on acquisition of said land, trees, and housesstanding thereon.
Special Land Acquisition Officer vs. ITO (2010) 42 SOT 9 (Ahd.)
678 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 theDTAA but was covered by Article 7 and as the services were rendered outside India andthere was no PE, the same was not assessable to tax in India. Even under the Act, byvirtue of Carborandum Co. 108 ITR 335 (SC), Circular No. 17 of 1953 dated 17-7-1953 &Circular No. 786 dated 7-2-2000, commission paid to agents for services renderedoutside India is not chargeable to tax in India and there is no obligation to deduct taxunder section 195;
As regards payment made towards reimbursement of expenses, the law is well settled byvirtue of Krupp UDHE Gmb-H 38 DTR 251 (Bom.) & Siemens AG 220 CTR 425 (Bom.) thatthe same is not chargeable to tax and there was no obligation to deduct tax at source.
ADIT vs. Wizcraft International Entertainment (ITAT Mumbai) (2011) 50 DTR 1 (Trib)
(Mumbai)
679 S. 195 : Tax Deduction at Source - Payment to Non-resident - Purchase of Software –
Article 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 softwarecannot be treated as royalty in India under Article 12 of DTAA between India andSingapore 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.)
680 S. 214(IA) : Advance Tax – Refund - (S. 143(3))
Assessee entitled to receive interest under section 214(IA), on difference betweenadvance tax and assessed tax from the first day of assessment year till day of passingregular assessment under section 143(3).
681 S. 226 : Recovery - Ability to pay demand is no bar for grant on recovery
The assessee filed a stay application before the Tribunal. The department opposed thestay by relying on the Supreme Court decision in the case of ACCE vs. Dunlop India(1985) 154 ITR 172 (SC), and contended that as paucity of funds had not beensufficiently demonstrated, for this reason alone stay should not be granted. The Tribunal
sufficiently demonstrated, for this reason alone stay should not be granted. The Tribunalrejected the contention of Departmental representative following B. N. Co. vs. Jt. CIT
(2001) 71 TTJ 153 (Kol.) and further held that Supreme Court’s observation in Dunlopcannot be interpreted to mean that the Tribunal is denuded of the powers to grant stayuntil case for financial stringency is successfully made out by the applicant. Accordinglystay was granted till the disposal of appeal.
KEC International Ltd. vs. ACIT (ITAT - Mumbai) Source: www.itatonline.org
682 S. 234A : Interest - Assessable as Permanent Establishment (PE) - (S. 234B)
Income of the assessee who are non residents being assessable in the hands of PEs thesame cannot be held liable to TDS under section 195 and therefore, assessees are notliable to pay interest under section 234A and 234B.
EFunds Corporation vs. ADIT (2010) 45 DTR 345 (Del.)(Trib.)
683 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 April1997, is clarificatory in nature and the same is to be applied retrospectively. Where theassessee has paid taxes arising out of income from long term capital gain as part ofinstallments due after the date of sale of capital asset, he could not be in default asstipulated under section 234C and therefore, levy of interest was not valid.
Torrential Investments (P) Ltd. vs. ITO (2010) 133 TTJ 787 / 46 DTR 172 (Mum.)(Trib.)
684 S. 253(1) : Appellate Tribunal - Fixing the fees payable to Auditor – [S. 142(2A)]
In the absence of any specific provision empowering the Tribunal to hear appeal againstfixation of audit fees payable to special auditors appointed under section 142(2A), appealfiled by the assessee against the order under section 142(2D), is not maintainable.
Sony Mony Electronics Ltd. vs. Dy. CIT (2010) 45 DTR 431 / 121 TTJ 660 (Mum.)(Trib.)
685 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 berejected outright since the assessee has not moved any petition before the RevenueAuthorities seeking stay of the demand. Seeking stay before the lower authorities isdirectory and not mandatory.
DHL Express (India) P. Ltd. vs. ACIT (ITAT Mumbai) Source: www.itatonline.org
686 S. 253(6) : Appellate Tribunal - Appeal Fees
Benefit of "pauper provisions" under 33 of CPC is confined to the underprivileged class ofpublic which does not have means to pay the costs of litigation. Assessee a lawyer, whois practicing before High Court, Debt recovery Tribunal and lower Courts does not fit inthe criterion of an indigent person in Expl. 1 to Rule 1 of order 33 and therefore, she isnot entitled to protection of order 33. Appeals are dismissed for want of payment ofappeal fees.
Additional claim for deduction of Bad Debt made by the Assessee at time of Assessment
Additional claim for deduction of Bad Debt made by the Assessee at time of Assessmentproceedings on ground of arithmetical error while filing the Return, was rejected, by
observing that Assessee has to file a separate Revised Return of Income to make such aclaim, relying on Supreme Court’s decision in case of Goetze India Ltd.
Assessee made a fresh claim before the Tribunal for a deduction of Bad Debt, and samewas admitted, as all facts were on record before Assessing Officer.
Further, observed that decision in case of Goetze (India) Ltd. did not in any way affectthe powers of Tribunal to admit additional claim / ground.
Franco Indian Pharmaceuticals (P) Ltd. vs. ITO (2010) 195 Taxman 30 (Mum.)
688 S. 254(1) : Appellate Tribunal - Additional Grounds - Departmental Appeal - Contrary to
finding of Assessing Officer (Income Tax Appellate Tribunal Rule 11)
Department is not entitled to raise additional grounds contrary to finding of AssessingOfficer. The duty of the learned Departmental representative is always confined tosupport the assessment order. He has widest power to argue on the matter involved inthe appeal, but with the limitation that he cannot set up a new case contrary to thefinding of the Assessing Officer. If such course is allowed, then it will amount to thelearned departmental representative revising the assessment order under the grab of hisarguments by usurping the power under section 263, which incidentally lies only in thedomain of the commissioner, hence, additional oral ground was refused.
ITO vs. M. M. Textiles (2010) 5 ITR 547 (Mum.)(Trib.)
689 S. 254(1) : Appellate Tribunal - Additional Evidence
There is no need to make a formal application under rule 29 of the ITAT Rules foradmission of the additional evidence. There is no error in the order of Accountantmember admitting the additional evidence and sending it to the CIT for examination anddecision.
Mascon Global Ltd. vs. ACIT (2010) 45 DTR 20 / 133 TTJ 257 (Chennai)(Trib.)(TM)
690 S. 254(1) : Appellate Tribunal - Additional Ground - Alternative Ground
Alternative contentions raised by the assessee in the additional grounds of appeal beforethe Tribunal claiming deduction of the impugned payment of non-compete fee as adeferred revenue expenditure over the period of agreement or depreciation thereon incase the said fee is to be considered as giving rise to acquisition of an intangible assetare pure questions of law not requiring investigation of fresh facts and therefore, theadditional grounds are admitted for adjudication.
691 S. 254(2) : Appellate Tribunal - Rectification of Mistakes - Direction is expunged - Cost of
Trademark
Direction given to the Assessing Officer to assess the Capital Gain on transfer oftrademark in question as short term capital gain if the same was registered with in sixmonths being an unworkable direction in as much as the cost thereof has nowhere beendetermined nor it is determinable, an error has crept in the order of the Tribunal andconsequently the said direction is expunged.
692 S. 254(2) : Appellate Tribunal - Rectification of Mistakes - Retrospective basis on the
retrospective amendment
Provision for doubtful debts was claimed as expenses while computing book profits undersection 115JA. Assessing Officer passed order under section 154 to include the saidamount. The Tribunal decided in favour of the Assessee relying on the Supreme Courtdecision of CIT vs. Echjay Forgins (P) Ltd. 251 ITR 15. Thereafter, Finance Act, 2009made a retrospective amendment in section 115JA for including provision for doubtfuldebts. The Department filed miscellaneous application u/s 254 to rectify the defectbased on retrospective amendment. The Tribunal dismissed the miscellaneous application,holding that there was no mistake on the date of passing the order.
ACIT vs. GTL Ltd., MA No. 746/Mum/2009, dt. 10-3-2010, Mumbai ‘G’ Bench, BCAJ pg 27,
Vol. 42-B, Part 2, November 2010.
693 S. 263 : Revision – Non-examination of issue
Non–Examination of issue by Assessing Officer does not per se make assessment orderprejudicial to interest of revenue for revision under section 263. On merits Tribunal heldthat discharge of statutory function by ICAI does not amount to commercial or businessactivity and eligible for exemption under section 10 (23C) (iv) as also section 11 aseducational institute.
Institute of Chartered Accountants of India vs. DIT (Delhi)(Trib.) Source:
www.itatonline.org
694 S. 263 : Revision – Assessing Officer taking possible view - Housing Project - Commercial
Construction – [S. 80-IB(10)]
The view that an element of commercial construction per se would not vitiate the claimof deduction under the pre-amended section 80IB(10), is not only a possible view of thematter, 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) onresidential–cum-commercial project cannot be said to be erroneous and prejudicial orderand cannot be revised under section 263.
Anik Development Corporation vs. ACIT (2010) 134 TTJ 17 (Mum.)(UO)
695 S. 263 : Revision - Erroneous and Prejudicial Order - Lack of proper enquiry
Order under section 263 passed by the CIT setting aside the assessment order on theground that the Assessing Officer has not made enquiries in respect of certain issues,without stating as to how the order of the Assessing Officer is erroneous and prejudicialto the interests of revenue cannot be sustained, more so when the issues pointed out bythe CIT do not in fact, merit further investigation.
Assessment Order was set aside by Commissioner on ground, that Assessing Officer hadmade Assessment without making proper enquiry.
Held, that when Assessing Officer has specifically mentioned in the order that books ofaccounts alongwith Purchase / Sales, Invoices, ledgers, Bank Accounts were examined,verified and test checked, setting aside by Commissioner, in absence of any finding that
verified and test checked, setting aside by Commissioner, in absence of any finding thatAssessing Officer’s order is factually incorrect, and not justified.
Vijay Kumar Mehta vs. CIT (2010) 195 Taxman 63 (Patna)(SMC)
697 S. 271(1)(c) : Penalty – Concealment - Search and Seizure - Revised Return –
Explanation 5 to section 271(1)(c) - (Ss. 132, 153A)
As the assessee has filed the revised return subsequent to search and not disclosed thespeculative profit in original return, assessee is not eligible for immunity as perexplanation 5 to section 271(1)(c) of the Income tax Act.
Ajit B. Zota vs. ACIT (2010) 40 SOT 543 (Mum.)
698 S. 271(1)(c) : Penalty – Concealment - Making of a claim which is not sustainable in law -
Deduction under section 80HHC - Short Term Capital Loss
A mere making of a claim, which is not sustainable in law, by itself, will not amount tofurnishing of inaccurate particulars regarding income of assessee. When assessee hadfurnished full details and particulars of its income and it was under bonafide beliefregarding allowability of claim penalty could not be levied.
Hindalco Industries Ltd. vs. ACIT (2010) 41 SOT 245 (Mum.)
699 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 ` 32.84 lakhs,thereupon assessee filed his return of income wherein amount declared in survey wasincluded. Assessing Officer completed assessment on basis of return of income. He alsolevied the penalty under section 271(1)(c). The Tribunal held that since the AssessingOfficer had accepted income declared in return of income, in view of aforesaid legalposition, assessee could not be charged for any contumacious conduct, therefore, theimpugned penalty order was set aside.
Dy. CIT vs. Satish B. Gupta (Dr.) (2010) 42 SOT 48 (Hyd.)
700 S. 271(1)(c) : Penalty – Concealment - Search and Seizure - Return filed amount
disclosed in the course of Search -
(Ss. 132(4), 153A)
Assessee had made disclosure with reference to all the items of jewellery in a statementunder section 132(4) of the Act, and any variation in the value could be accepted as acontinuation of statement under section 132(4). As two view is possible. Penalty leviedby the Assessing Officer was cancelled.
701 S. 271(1)(c) : Penalty – Concealment – Depreciation - Finance Transaction - Not a
genuine leasing transaction
When a legal claim is a made by an assessee it is obviously open to Assessing Officer toaccept or reject interpretation canvassed by assessee but then it does not follow thatwhen claim is rejected, it would imply that there has been a concealment of income onpart of assessee so as to levy penalty under section 271(1)(c). Penalty levied ondisallowance of claim of depreciation on leasing of assets were deleted by the Tribunal.
Industrial Development Bank of India Ltd. vs. Dy. CIT (2010) 42 SOT 325 (Mum.)
702 S. 271(1)(c) : Penalty – Concealment - Recording of Satisfaction - Wrong Depreciation
Due to bona fide mistake depreciation was claimed in reverse manner i.e., 50% on `6,35,492 and 100% on ` 4,25,79,639. Levy of penalty cannot be justified as there wasno mala fide intention. On the facts as the Assessing Officer did not record hissatisfaction and did not initiate penalty at the time of assessment, levy of penalty wasnot justified.
ACIT vs. Chambal Fertilizer & Chemicals Kota (2010) Tax World (November, 10) Vol.
XLIV, Part-5. Page 188
703 S. 271D : Penalty - Cash Deposit - Money Lender - Reasonable Cause - (S. 269SS)
Assessee money lender accepting cash deposits in violation of provision of section269SS, has been deleted considering the nature of business, status of the depositorsand necessity from the point of view of the assessee.
P. Mallikharjuna Rao vs. Addl CIT (2010) 45 DTR 8 (Visakha)(Trib.)
WEALTH TAX
704 S. 2(m) : Net Wealth - Debt Owned - Loans for Working Capital
Loans obtained for working capital against security of lands, is not debt incurred inrelation to lands, hence can not be deducted while computing net wealth. There ismarked difference between the two expressions "debt secured on property" and "debtincurred in relation to such property" used in the pre amended provisions of section 2(m)(ii) of the Wealth Tax Act, 1957. It is not necessary that every debt secured on aproperty is a debt incurred in relation to such property.
Phoenix International Ltd. vs. Dy. CWT (2010) 5 ITR 787 (Delhi)(Trib.)
Property in question being subject to Rent Control Act, and the "standard rent" thereofnot being higher than the actual rent received which has been assessed by the ITauthorities, valuation of property for wealth tax purpose is to be determined only on thebasis of the actual rent received.
Jt. CIT vs. Prayasvin B. Patel (2010) 46 DTR 52 (Ahd.)(Trib.)
GENERAL LAW
706 Income Tax Appellate Tribunal - Appointment of Vice President of the ITAT is by merit-
based selection and not seniority. No reservation for OBC
Appointment to post of vice-President has to be made on basis of merit from amongstmembers by method of selection and not on basis of seniority. No reservation to beapplied in case of appointment not by way of direct recruitment.
Sunil Kumar Yadav vs. UOI & B. R. Mittal vs. UOI (CAT) Source: www.itatonline.org
