Month: March

58. CIT(TDS) vs. Indian Oil Corporation
Ltd.; 410 ITR 106 (Uttarakhand) Date of order: 6^th March, 2018

Section 194C and 194-I – TDS – Works
contract/rent – Assessee refining crude oil and selling petroleum products –
Agreement with another company for transportation of goods – Agreement
stipulating proper maintenance of trucks – Not conclusive – Payment covered by
section 194C and not section 194-I

The assessee-company was engaged in refining
crude oil and storing, distributing and selling the petroleum products and for
this purpose required tank trucks for road transportation of bulk petroleum
products from its various storage points to customers or other storage points.
For this purpose, it entered in to an agreement with another company which was
operating trucks. The assesse deducted tax at source u/s. 194C of the Act in
respect of payments to the said company.

The Commissioner (Appeals) held that the tax
was deductible u/s. 194C and not u/s. 194-I. The Tribunal upheld this. On
appeal by the Revenue, the Uttarakhand High Court upheld the decision of the
Tribunal and held as under:

“i)   Modern transportation contracts are fairly
complex having regard to various requirements, which fall to be fulfilled by
the contracting parties. Conditions like maintaining the tank trucks in sound
mechanical condition and having all the fittings up to the standards laid down
by the company from time to time would not make it a contract for use.

ii)   The tenor of the contract showed that the
parties to the contract understood the agreement as one where the carrier would
be paid transport charges and that too for the shortest route travelled by it
in the course of transporting the goods of the assessee from one point to
another. It unambiguously ruled out payment of idle charges. It also made it
clear that there was no entitlement in the carrier to any payment dehors the
actual transporting of the goods.

iii)   The carrier under the contract was
undoubtedly obliged to maintain the requisite number of trucks of a particular
type subject to various restrictions and conditions, but it was under the
obligation to operate the trucks for the purpose of transporting the goods
belonging to the assesse. Therefore, use of the words “exclusive right to use
the truck” found in clause 1 and also in clause 6(e) would not by itself be
decisive of the matter. Even after the amendment to the Explanation u/s. 194-I,
the case would not fall within its scope as it was a case of a contract for
transport of goods and, therefore, a contract of work within the meaning of
section 194C and not one which fell within the Explanation to section 194-I,
namely use of plant by the assessee.”

57. HSBC Bank (Mauritius) Ltd. vs. Dy. CIT;
[2019] 101 taxmann.com 206 (Bom) Date of order: 14^th January, 2019 A. Y. 2011-12

Sections 9, 147 and 148 of ITA 1961 and
Article 11 of DTAA between India and Mauritius – Reassessment – Income – Deemed
to accrue or arise in India (Interest) – Where Assessing Officer, during
assessment had accepted claim of assessee that it was entitled to benefit of
India Mauritius DTAA, assessment could not have been reopened on ground that
assessee did not carry out bona fide banking activities in Mauritius

The assessee was a Banking Company
registered under the laws of Mauritius. For the A. Y. 2011-12, the assessee
filed its return of income declaring nil income. In the return, the assessee
had shown interest income of Rs. 238.01 crores and claimed the same to be
exempt from tax in India. This amount comprised of income on securities of Rs.
94.57 crore and interest income on External Commercial Borrowings (ECB) of Rs.
143.43 crore. According to the assessee, such income was not taxable in India
by virtue of DTAA between India and Mauritius. The Assessing Officer on
scrutiny, passed order u/s. 143(3) in which he added a sum of Rs.94.57 crore to
the total income of the assessee by rejecting the assessee’s claim of such
income on securities not being taxable in India. He however did not disturb the
assessee’s claim of interest income on ECB being not taxable. After four years,
the Assessing Officer issued notice to reopen assessment in case of assessee on
ground that banking activities carried out by assessee locally in Mauritius
were for namesake and assessee had failed to make true and full disclosure
regarding its beneficial ownership status. The assessee on being supplied
reasons for reopening assessment raised objections to the notice of reopening
of assessment. The Assessing Officer, however, rejected said objections.

The assessee filed writ petition and
challenged the validity of reopening. The Bombay High Court allowed the writ
petition filed by the assessee and held as under:

“i)   The perusal of the reasons recorded by the
Assessing Officer would show that the only ground on which the notice of
reopening of assessment is issued was the assessee’s claim of exemption of
interest income which in turn was based on DTAA between India and Mauritius.
According to the Assessing Officer, the assessee had attempted to misuse the
DTAA since according to him, the assessee did not carry out banking business in
the said country.

ii)    In this context, it is noted that the entire
claim had come up for consideration before the Assessing Officer during the
original scrutiny assessment. During such assessment, the Assessing Officer had
noted the assessee’s claim of exemption of interest on ECB made in the return
filed. In written query dated 21/10/2013, the Assessing Officer had asked the
assessee to explain several issues and called for documents.

iii)   It was after detailed examination that the
Assessing Officer passed the order of assessment on 28/01/2016 in which he
disallowed the assessee’s claim of exempt interest of Rs. 94.57 crore which
related to interest on securities. He, however, did not tamper with the
assessee’s claim of exempt interest of Rs. 143.43 crore which was interest on ECB.
Thus, the entire issue was minutely examined by the Assessing Officer during
the original scrutiny assessment. To the extent, the Assessing Officer was not
satisfied with the assessee’s claim of exempt interest, the same was
disallowed. However, in the context of assessee’s claim of exempt interest of
Rs. 143.43 crore, by virtue of DTAA between India and Mauritius, the Assessing
Officer accepted the same.

iv)   This very issue now the Assessing Officer
wants to re-examine during the process of reassessment. For multiple reasons,
same would be wholly impermissible. Firstly, as noted, the entire issue is a
scrutinised issue. This would be based on mere change of opinion and would be
impressible as held by series of judgments of the various Courts.

v)   Quite apart, the impugned notice has been
issued beyond the period of four years from the end of relevant assessment
year. There is nothing in the reasons recorded to suggest that there was any
failure on the part of the assessee to disclose truly and fully all material
facts which led to the income chargeable to tax escaping assessment. In fact,
the perusal of the reasons would show that the Assessing Officer was merely
proceeding on the material already on record. Even on this ground, the impugned
notice should be set aside.

vi)   In the result, the impugned notice is set
aside. Petition is allowed and disposed of accordingly.”

56. Veena Devi Karnani vs. ITO; 410 ITR 23
(Del) Date of order: 14^th September,
2018 A. Y. 2010-11

Section 144, 147 and 148 – Reassessment –
Service of notice u/s. 148 – Notice sent to old address – Assessee’s returns
for earlier years already on file and reflecting new address – Issue of notice
at old address mechanically – Notice and order of reassessment and
consequential attachment of bank accounts – Liable to be quashed

In the F. Y. 2010-11, the assessee shifted
her residence and filed returns of income under the same permanent account
number and e-mail ID. The returns disclosed the changed address. For the A. Y.
2010-11, the Assessing Officer sent a series of notices u/s. 148 of the Act for
reopening the assessment to the assessee’s old address. As there was no
response, the reassessment was completed on best judgment basis and an ex-parte
order was passed u/s. 144 read with 147. Upon issuance of an attachment order
to satisfy the demand raised in the reassessment order, the assessee filed a
writ petition contending that the reassessment proceedings were a nullity
because the notice was never served upon her and that the Assessing Officer did
not comply with the provisions of Rule 127 of the Income-tax Rules, 1962 which
stipulated examining the permanent account number database or the subsequent
years returns to ascertain the correct address of the assessee.

The Delhi High Court allowed the writ
petition and held as under:

“i)    Rule 127(2) states that the addresses to
which a notice or summons or requisition or order or any other communication
may be delivered or transmitted shall be either available in the permanent
account number database of the assesse or the address available in the
income-tax return to which the communication relates or the address available
in the last income-tax return filed by the assesse. All these options have to
be resorted to by the concerned authority, in this case the Assessing Officer.

ii)    When the Assessing Officer issued the
reassessment notice on December 13, 2013, he was under a duty to access the
available permanent account number database of the addressee or the address
available in the income-tax return to which the communication related or the
address available in the last return filed by the addressee. The return for the
A. Ys. 2011-12 and 2012-13 had already been filed on 22/02/2012 and 13/12/2012
respectively, reflecting the changed address but with the same permanent
account number and before the same Assessing Officer.

iii)    The Assessing Officer had omitted to access
the changed permanent account number database and had mechanically sent notices
to the old address of the assessee. The subsequent notices u/s. 142(1) were
also sent to the old address and the reassessment proceedings were completed on
best judgment basis. The Assessing Officer had mechanically proceeded on the
information supplied to him by the bank without following the correct procedure
in law and had failed to ensure that the reassessment notice was issued
properly and served at the correct address in the manner known to law.

iv)   The reassessment notice issued u/s. 148, the
subsequent order u/s. 144 r.w.s. 147 and the consequential action of attachment
of the assessee’s bank accounts were quashed.”

55. CIT vs. Shyam Telelink Ltd.; 410 ITR 31
(Del) Date of order: 15^th November,
2018 A. Ys. 2003-04, 20004-05 and 2009-10

Section 5 – Income – Accrual of income –
Telecommunication service provider – Payments received on prepaid cards –
Liability to be discharged at future date – To the extent of unutilised talk
time payment did not accrue as income in year of sale – Unutilised amount is
revenue receipt when talk time is actually used or in case of cards that lapsed
on date when cards lapsed

The assessee provides basic
telecommunication services and had both prepaid and post paid subscribers. The
prepaid subscribers were billed on the basis of actual talk time. According to
the Department, in respect of the prepaid cards, the assessee was to account
for and include the entire amount paid on the date of purchase of the prepaid
cards by the subscribers and the date of purchase of the prepaid card was the
date when the income accrued to the assessee.

However, the assesse recognised the revenue
on prepaid cards on the basis of the actual usage and carried forward the
unutilised amount outstanding on the prepaid cards, if any, at the end of the
financial year to the next year. The unutilised amount was treated as advance
in the balance sheet and recognised as revenue in the subsequent year, when the
talk time was actually used or was exhausted when the cards lapsed on expiry of
stipulated time.

The Tribunal held that the amount received
on the sale of prepaid cards to the extent of unutilised talk time did not
accrue as income in the year of sale. On appeal by the Revenue, the Delhi High
Court upheld the decision of the Tribunal and held as under:

“i)   The payments made on account of the prepaid
cards by the subscribers was an advance subject to the assesse providing basic
telecommunication services as promised, failing which the unutilised amount was
required to be refunded to the prepaid subscribers. The apportionment of the
prepaid amount was contingent upon the assessee performing its obligation and
rendering services to the prepaid customers as per the terms. If the assesse
failed to perform the services as promised, it was under an obligation to
refund the advance payment received under the ordinary law of contract or
special enactments, such as Consumer Protection Act, 1986.

ii)    The Tribunal was right in
holding that the amount received on the sale of prepaid cards to the extent of
unutilised talk time did not accrue as income in the year of sale. In the case
of prepaid cards that lapsed, the unutilised amount had to be treated as income
or receipt of the assessee on the date when the cards had lapsed. The Assessing
Officer was to compute the assessees income accordingly while he gave effect to
the order of the Tribunal.”

54. Kodumudi Growers Co-operative Bank Ltd.
vs. ITO; 410 ITR 218 (Mad) Date of order: 31^st October, 2018 A. Y. 2005-06: Ss. 80P(1), (2)(a)(i) of ITA 1961:

Section
80P(1), (2)(a)(i) – Co-operative
society – Co-operative bank – Deduction u/s. 80P(1), (2)(a)(i) – Income from
sale of goods for public distribution system of State Government – Ancillary
activity of credit society – Entitled to deduction

The assessee-society was in the business of
banking and provided credit facilities to its members. For the A. Y. 2005-06 it
filed Nil return. The Assessing Officer computed the assessee’s income at Rs.
22,16,211/- of which a sum of Rs. 2,55,118/- represented income on account of sale
of goods for the public distribution system of the Government of Tamil Nadu.
The Assessing Officer was of the view that such activity was not related to the
assessee’s banking activity and held that the income that arise therefrom was
not allowable as deduction u/s. 80P(2)(a) of the Income-tax Act, 1961
(hereinafter for the sake of brevity referred to as the “Act”) but
included such income for consideration in the overall deduction allowable u/s.
80P(2)(c)(ii) which amounted to Rs. 50,000/-.

The Commissioner (Appeals) and the Tribunal
upheld the decision of the Assessing Officer.

The Madras High Court allowed the appeal
filed by the assessee and held as under:

“i)   The activity undertaken by the assesse was
not one which it was not authorized to do. The assessee was entitled to
distribute the items under the public distribution system. The bye-laws
themselves provided for such an activity as an ancillary activity by the
assesse. Furthermore, the assesse was bound by the directives issued by the
Government as well as the Registrar of Co-operative Societies. The fair price
shops were opened based on the directions opened by the Government as
communicated by the Registrar of Co-operative Societies and the District
Collector. Therefore, the activity done by the assesse could not be truncated
from the activity as a credit society and the authorities below had committed
an error in denying the special deduction.

ii)    The assessee was entitled to the benefit of
deduction u/s. 80P(1) r.w.s. 80P(2)(a)(i).

iii)   The tax appeal is allowed. The orders passed
by the authorities below are set aside and the substantial question of law is
answered in favour of the assessee. The Assessing Officer is directed to extend
the benefit of deduction u/s. 80P(1) r.w.s. 80P(2)(a)(i) to the
appellant/assessee.”

53. Principal CIT vs. Hardik Bharat Patel;
410 ITR 202 (Bom): Date of order: 19^th November,
2018 A. Y. 2008-09

Business income or long-term capital gain –
Income from shares and securities held for period beyond 12 months –
Investments whether made from borrowed funds or own funds of assessee – No
distinction made in circular issued by CBDT – Department bound by circular –
Profit is long term capital gain

For the A. Y. 2008-09, the Tribunal directed
the Assessing Officer to treat the profit of the assessee that arose out of the
frequent and voluminous transactions initiated with borrowed funds in shares as
“long term capital gains” instead of as business income following its order for
the earlier assessment year. The Department filed appeal before the High Court
and contended that the amount invested in shares by the assessee was out of
borrowed funds and therefore, the profit was to be treated as business income
and not as long-term capital gains. The Bombay High Court upheld the decision
of the Tribunal and held as under:

“i)   According to Circular No. 6 of 2016 dated
February 29, 2016, issued by the CBDT, with regard to the taxability of surplus
on sale of shares and securities, whether as capital gains or business income
in the case of long term holding of shares and securities beyond 12 months, the
assessee has an option to treat the income from sale of listed shares and
securities as income arising under the head “Long-term capital gains”. However,
the stand once taken by the assessee would not be subject to change and
consistently the income on the sale of securities which are held as investment
would continue to be taxed as long-term capital gains or business income as
opted by the assessee. The circular makes no distinction whether the
investments made in shares were out of borrowed funds or out of its own funds.

ii)    The Department was bound by Circular No. 6
of 2016 dated February 29, 2016 issued by the CBDT and the distinction which
had been sought to be made by the Department could not override the circular
which made no distinction whether the investments made in shares were out of
borrowed funds or out of the assessee’s own funds. No substantial question of
law. Hence not entertained.”

52. CIT-LTU vs. Reliance Industries Ltd.;
[2019] 102 taxmann.com 142 (Bom) Date of order: 15^th January, 2019

Section 37 (1) and 41 (1) – A.  Business expenditure – Allowability of
(Illegal payment) – Where assessee had purchased oil from Iraq and payments
were made by an agent, there being no evidence to suggest that assessee had
made any illegal commission payment to Oil Market Organisation of Iraqi
Government as alleged in Volckar Committee Report, Tribunal’s order allowing
payment for purchase of oil was to be upheld

The assessee claimed deduction towards the
payment for purchase of oil. The Assessing Officer’s case was that assessee had
paid illegal commission for purchase of such oil to State Oil Marketing
Organisation and therefore, such expenditure was not allowable.

The Commissioner (Appeals), while reversing
the disallowance made by the Assessing Officer, observed that there was no
evidence that the assessee had paid any such illegal commission. He noted that
except for the Volcker Committee Report, there was no other evidence for making
such addition. He noted that even in the said report, there was no finding that
the assessee had made illegal payment and it appeared that the payments were
made by an agent and there was no evidence to suggest that the assessee had
made any illegal commission payment to Iraq Government. The Tribunal confirmed
the view of Commissioner (Appeals).

On appeal by the Revenue, the Bombay High
Court upheld the decision of the Tribunal and held as under:

“The entire issue is based on appreciation
of materials on record and is a factual issue. No question of law arises.”

B. Deemed income u/s. 41(1) – Remission or
cessation of trading liability (Claim for deduction) – Where on account of
attack on World Trade Centre, financial market, collapsed and market value of
bonds issued by assessee was brought down below their face value and, hence,
assessee purchased its own bonds and extinguished them, profit gained in
buy-back process could not be taxable u/s. 41(1) as assessee had not claimed
deduction of trading liability in any earlier year

The assessee had issued foreign currency
bonds in the years 1996 and 1997. On account of the attack on World Trade
Centre at USA on 11/09/2001, financial market collapsed and the investors of
debentures and bonds started selling them which in turn brought down the market
price of such bonds and debentures which were traded in the market at a value
less than the face value. The assessee purchased such bonds and extinguished
them. In the process of buy back, the assessee gained a sum of Rs. 38.80 crore.
The Assessing Officer treated such amount assessable to tax in terms of section
41(1).

The Commissioner (Appeals) and the Tribunal,
however, deleted the same. The Tribunal in its detail discussion came to the
conclusion that the liability arising out of the issuance of bonds was not a
trading liability and therefore, section 41(1) would have no applicability.

On appeal by the Revenue, the Bombay High
Court upheld the decision of the Tribunal and held as under:

“i)         There
is no error in the view taken by the Tribunal. Sub-section (1) of section 41 provides
that where an allowance or deduction has been made in the assessment for any
year in respect of loss, expenditure or trading liability incurred by the
assessee and subsequently, during any previous year, such liability ceases, the
same would be treated as the assessee’s income chargeable to tax as income for
previous year under which subject extinguishment took place. The foremost
requirement for applicability of sub-section (1) of section 41, therefore, is
that the assessee has claimed any allowance or deduction which has been granted
in any year in respect of any loss, expenditure or trading liability. In the
present case, the revenue has not established these basic facts. In other
words, it is not even the case of the revenue that in the process of issuing
the bonds, the assessee had claimed deduction of any trading liability in any
year. Any extinguishment of such liability would not give rise to applicability
of sub-section (1) to section 41.

ii)          For
applicability of section 41(1), it is a sine qua non that there should
be an allowance or deduction claimed by the assessee in any assessment year in
respect of loss, expenditure or trading liability incurred by the assessee.
Then, subsequently, during any previous year, if the creditor remits or waives
any such liability, then the assessee is liable to pay tax under section 41.
This question, therefore, does not require any consideration.”

It
started in January, 1971 as “High Court News”. Dinesh Vyas, Advocate, started
it and it contained unreported decisions of Bombay High Court only. Between
January, 1976 and April, 1984, it was contributed by V H Patil, Advocate as “In
the Courts”. The baton was passed to Keshav B Bhujle in May, 1984 and he
carries it even today – and that’s 35 years of month on month contribution.
Ajay Singh joined in 2016-17 by penning Part B – Unreported Decisions.

51.  Principal CIT vs. Quest Investment Advisors
Pvt. Ltd.; 409 ITR 545 (Bom) Date of order: 28^th
June, 2018 A. Y. 2008-10

Section
37 (1) – Business expenditure – Rule of consistency – Expenditure claimed and
allowed against professional income in earlier years and subsequent years –
Allocation of expenditure between capital gains and professional business
income in year in question – Not proper

For
the A. Y. 2008-09, the assesse filed return of income declaring professional
income of Rs. 1.31 crore and short term capital gains of Rs. 6 crore. As was
the practice for the earlier years and accepted by the Department, all the
expenses were set off against the professional business income. However, for
the relevant year, the Assessing Officer allocated the expenditure between
earnings of capital gains and professional income and disallowed an expenditure
of Rs. 88.05 lakh claimed by the assesse against professional income. The
Tribunal found that the authorities had consistently over the years for 10
years prior to the A. Ys. 2007-08 and 2008-09 and for the four subsequent
years, accepted the principle that all the expenses which had been incurred
were attributable entirely to earning professional income without allocation of
any amount to capital gains, and applying the principle of consistency the
Tribunal allowed the appeal filed by the assessee.

On
appeal by the Revenue, the Bombay High Court upheld the decision of the
Tribunal and held as under:

“i)        For the earlier 10 years and 4
subsequent years the entire expenditure had been allowed against the business
income and no expenditure was allocated to capital gains. Once the principle
was accepted and consistently applied and followed, the Department was bound by
it. The basis for the change in practice should have been mentioned by the
Department, if it had wanted to change the practice without any change in law
or facts therein, either in its order or pointed out when the Tribunal passed
the order.

ii)         Therefore, the Tribunal’s allowing the
assessee’s appeal on the principle of consistency could not be faulted as it
was in accord with the Supreme Court decision.”

The assessee was a society registered at the instance of the Reserve Bank of India (RBI) for the purpose of assisting banks and financial institutions, for the improvement of their performance. The assessee also offered M. Tech courses and Ph. D degrees in banking. It claimed exemption u/s. 11 of the Act, for the A. Ys. 2010-11 and 2011-12. The Assessing Officer rejected the claim. The Tribunal found that the assesee was carrying out an object of general public utility. It held that the assessee was not carrying on an activity in the nature of any trade, commerce or business. The Tribunal also pointed out that the charging of a fee by the assessee was not with profit motive and that therefore, merely because the assessee derived income it could not be held to be carrying on an activity in the nature of trade, commerce or business. It granted the exemption to the assessee. On appeal by the Revenue, the Telangana and Andhra Pradesh High Court upheld the decision of the Tribunal and held as under:

“i)    The assessee was created by the Reserve Bank of India for the improvement of the performance of banks and the financial sector of the country, ultimately to have a bearing upon the economy of the country. Hence it was an institution established for an object of public utility.

ii)    The Tribunal had found that it was not carrying on any activity in the nature of trade. It was therefore entitled to exemption u/s. 11 for the A. Ys. 2010-11 and 2011-12.”

Assessee is an individual. For the A. Y. an addition of Rs. 11,77,000 was made which according to the assessee was long term capital gain on sale of 11,000 share of a company. The Assessing Officer disbelieved the long term capital gain and made a corresponding addition of Rs. 11,77,000 u/s. 68 of the Income-tax Act, 1961(hereinafter for the sake of brevity referred to as the “Act”). On appeal, the assessee adduced evidence in the shape of contract notes/bill receipt, payments made through banking channels, contract notes and copies of pass book of its demat account in support of its claim and asserted its claim of long term capital gain as genuine and correct. The Commissioner (Appeals) after a detailed examination of the case of the assessee and evidence adduced by the assessee including the entries in the demat account passbook, the evidence of the broker firms through whom the transactions were made, and the contract note dated November 10, 2003, allowed the appeal. The Tribunal restored the addition on the sole ground of purchase of shares having been recorded late in the demat account of the assessee.

On appeal by the assessee, the Allahabad High Court reversed the decision of the Tribunal and held as under:

“i)    An order recorded on a review of only a part of the evidence and ignoring the remaining evidence cannot be regarded as conclusively determining the question of fact raised before the Tribunal.

ii)    Although the fact of the purchase transaction being recorded late in the demat passbook raised a doubt as to its genuineness and this evidence was relevant to the issue, there existed other evidence, adduced by the assessee in this case, in the shape of contract notes, bank transactions pertaining to payment for purchase and sale of shares and other material relied on by the Commissioner (Appeals). The Tribunal had also not specifically dealt with the findings recorded by the Commissioner (Appeals).

iii)    In view of this, the finding of the Tribunal and the consequential order could not be sustained. The addition could not be made.”

The assessee, the H. P. Bus Stand Management and Development Authority, an entity established for development and management of bus stands within the State of Himachal Pradesh, was established w.e.f. April 1, 2000. Prior thereto, such work was being carried out by the State Road Transport Corporation itself. Since the assesee had no independent establishment and infrastructure of its own to carry out the objects, a decision was taken to have the same executed through the employees of the Corporation. This arrangement was to continue till such time as the assessee developed its own infrastructure. Since ongoing projects were required to be executed, which was so done in public interest, as per the arrangement arrived at, certain payments were released by the assessee in favour of the Corporation. The expenditure was to be shared by way of reimbursement. Since the assesee did not deduct any amount in terms of section 194J of the Act, with respect to the amount paid to the Corporation, the Assessing Officer disallowed the deduction of the amount paid to the Corporation for failure to deduct tax at source. The Commissioner (Appeal) and the Tribunal deleted the addition.

On appeal by the
Revenue, the Himachal Pradesh High Court upheld the decision of the Tribunal
and held as under:

“i) The
arrangement arrived at between the two entities could not be said to be that of
rendering professional services. No legal, medical, engineering, architectural
consultancy, technical consultancy, accountancy, nature of interior decoration
or development was to be rendered by the Corporation. Similarly, no service,
which could be termed to be technical service, was provided by the corporation
to the Development Authority, so also no managerial, technical or consultancy
services were provided.

ii) The arrangement was
simple. The staff of the corporation was to carry out the work of development and management of the
Development Authority till such time as, the assessee developed its
infrastructure and the expenditure so incurred by the Corporation was to be
apportioned on agreed terms. It was only pursuant to such arrangement, that the
assessee disbursed the payment to the Corporation and no amount of tax was
required to be deducted at source on the payment.” _

The assessee took over the going concern, a tea estate with all its incidental business. A power distribution system with a network of transmission lines was part of that acquisition. The assessee maintained that in 2007-08, it renovated and modernised the transmission lines by investing huge amounts. So for the A. Y. 2008-09, it claimed tax benefits u/s. 80-IA of the Income-tax Act, 1961. The Assessing Officer disallowed the claim for deduction u/s. 80-IA of the Act. Commissioner (Appeals) and the Tribunal upheld the disallowance.

On appeal by the assessee, the Kerala High Court reversed the decision of the Tribunal and held as under:

“i)    Section 80-IA applies to an “undertaking” referred to clause (ii) or clause (iv) or clause (vi) of sub-section (4) if it fulfills the enumerated conditions. The assessee’s undertaking fell in clause (iv) of sub-section (4). In accordance with the conditions stipulated, the assessee ought not to have formed the undertaking by splitting up or reconstructing an existing business. Here there was neither splitting up nor reconstructing the existing business. The assessee had produced an audited certificate that the written down value of the plant and machinery as on April 1, 2004 was Rs. 89,39,340. It claimed that it spent for the A. Y. 2008-09 Rs. 50.31 lakhs to renovate and modernise its transmission network. So, the amount spent was over 50% of the then existing establishment book value. The undertaking squarely fell u/s. 80-IA(4)(iv)(c) of the Act.

ii)    The renovation or modernisation, admittedly took place between April 1, 2004 and March 31, 2011. In the circumstances the Assessing Officer’s disallowing Rs. 58,91,000 u/s. 80-IA of the Act, as affirmed by the appellate authority and the Tribunal, could not be sustained. So we answer the question of law in the assessee’s favour. As a corollary, we set aside the Tribunal’s impugned order and allow the appeal.”

For the A. Y. 2008-09, the assessment of the assessee company was reopened on the ground that the shareholders of the assessee – company were fictitious persons. The Commissioner (Appeals) and the Tribunal held that the reopening was not valid.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:
“i)    The notice of reassessment had been issued on the ground that the shareholders of the assessee-company were fictitious persons. The shareholders were other companies. The documents which had been produced were basically from public offices, which maintain records of companies. The documents also included the assessment orders of such companies for the three preceding years. Besides the documents also included the registration of the companies which disclosed their registered addresses.

ii)    The Commissioner (Appeals) as well as the Tribunal on the basis of the appreciation of the evidence on record, concurrently came to the conclusion that the existence of the companies was based on documents produced from public records.

iii)    The Revenue was seeking to rely upon the statements recorded of two persons who had admittedly not been subjected to cross-examination. Hence the question of remanding the matter for re-examination of such persons would not at all be justified. The notice was not valid and had to be quashed. The appeal stands rejected.”

On appeal by the Revenue, the Jammu and Kashmir High Court upheld the decision of the Tribunal and held as under:

“i)    There had been disallowance by interpreting the word “payable” in section 40(a)(ia) to include payments made during the year. Some High Courts had taken the view that the expression “payable” did not include amounts paid, while others had taken the view that the expression “payable” included amounts paid during the year. The Supreme Court finally resolved the controversy in Palam Gas Services vs. CIT; 394 ITR 300 (SC) holding that the expression “payable” included not only the amounts which remained payable at the end of the year, but also the amounts paid during the year.

ii)    When the assessee made the claim, this issue was debatable and, therefore, in so far as the deduction of tax at source on amounts paid was concerned, the position was that, while it could be made the subject of disallowance, it could not form the basis for imposing a penalty. The deletion of penalty by the Tribunal was justified.”

The assessee filed Nil return for A. Y. 2005-06, after setting off loss of the earlier year to the extent of profit. The Assessing Officer computed the total income at Rs. 2,17,46,490, treating the share trading business as speculative profit to an amount of Rs. 3,84,09,932. The Commissioner (Appeals) enhanced the income and held that the amount of Rs. 3,84,09,932 was to be taxed and the business loss of Rs. 1,66,63,443 was to be carried forward after verification by the assessing authority. The Tribunal allowed the assessee’s appeal and directed the Assessing Officer to allow the set off of loss from non-speculative business against profit from speculative business.

On appeal by the Revenue, the Department contended that section 72(1) provided that the non-speculative business loss could be set off against “profit and gains, if any, of any business or profession” carried on by the assessee and was assessable in that assessment year, and when it could not be so set off, it should be carried forward to the following assessment year.

The Allahabad High Court upheld the decision of the Tribunal and held as under:

“The order of the Tribunal, based on material facts and supported by the decisions of Supreme Court and the High Court, need not be interfered with. The appeal filed by the Department is accordingly dismissed.”

The assessee was a director of private limited company. The Assessing Officer passed an order u/s. 179(1) against her for recovery of the tax dues of the company from her. She filed a writ petition challenging the validity of the said order u/s. 179(1). According to the assessee, in terms of section 179(1) the revenue was clothed with jurisdiction to proceed against directors of a private limited company to recover its dues only where the tax dues of the Private Limited Company could not be recovered from it. It was the case of the assessee that no effort was made to recover the tax dues from the defaulting private limited company.

The Bombay High Court allowed the writ petition and held as under:

“i)    The revenue would acquire/get jurisdiction to proceed against the directors of the delinquent Private Limited Company only after it has failed to recover its dues from the Private Limited Company, in which the assessee is a director. This is a condition precedent for the Assessing Officer to exercise jurisdiction u/s. 179 (1) against the director of the delinquent company. The jurisdictional requirement cannot be said to be satisfied by a mere statement in the impugned order that the recovery proceedings had been conducted against the defaulting Private Limited Company but it had failed to recover its dues. The above statement should be supported by mentioning briefly the types of efforts made and its results.

ii)    Therefore, appropriately, the notice to show cause issued u/s. 179 (1) to the directors of the delinquent Private Limited Company must indicate albeit, briefly, the steps taken to recover the tax dues and its failure. In cases where the notice does not indicate the same and the assessee raises the objection of jurisdiction on the above account, then the assessee must be informed of the basis of the Assessing Officer exercising jurisdiction and the notice’/directors response, if any, should be considered in the order passed u/s. 179 (1) of the Act.

iii)    In this case the show-cause notice u/s. 179 (1) did not indicate or give any particulars in respect of the steps taken by the department to recover the tax dues of the defaulting Private Limited Company and its failure. The assessee in response to the above notice, questioned the jurisdiction of the revenue to issue the notice u/s. 179 (1) and sought details of the steps taken by the department to recover tax dues from the defaulting Private Limited Company. In fact, in its reply, the assessee pointed out that the defaulting company had assets of over Rs.100 crore.

iv)    Admittedly, in this case no particulars of steps taken to recover the dues from the defaulting company were communicated to the assessee nor indicated in the impugned order. In this case except a statement that recovery proceedings against the defaulting assessee had failed, no particulars of the same are indicated, so as to enable the assessee to object to it on facts. In the above view, the impugned order is set aside.”

The assessee, a company owned by the Government of India, manufactured and marketed three wheelers. The assessee was a sick unit and was implementing revival or rehabilitation approved by the Board for Industrial and Financial Reconstruction. The Government of India remitted a grant out of the national renewal fund for implementation of a voluntary retirement scheme. Payment was made by the assessee to the employees towards the voluntary retirement scheme out of the grant. For the A. Y. 2002-03, the assessee furnished the return showing income at Rs. 2,51,25,472 for the current year and setting off part of brought forward losses against the income. The Assessing Officer treated the grant as income of the assessee and disallowed the expenditure incurred by it on voluntary retirement scheme and also disallowed gratuity. The Commissioner (Appeals) and the Tribunal confirmed this.  

On appeal by the assessee, the Allahabad High Court reversed the decision of the Tribunal and held as under:

“i)    The grant or subsidy was forwarded by the Government of India to help the assessee in its revival by making payment to employees towards voluntary retirement scheme. It was a voluntary remittance fund by the Government of India to the assessee. The Department failed to show anything so as to bring “grant” or “subsidy” it within any particular clause of section 2(24) of the Act. The amount of grant received by the assessee from the Government of India could not be treated as income.

ii)    The payment to employees towards voluntary retirement scheme was to be allowed. The narrow interpretation straining language of section 36(1)(v) of the Act so as to deny deduction to the assessee should not be followed since the objective of the fund was achieved. The payment of gratuity was to be allowed.”

For the A. Y. 2008-09, the Assessing Officer disallowed the deduction u/s. 10B of the Act, on profits arising due to the foreign exchange rate fluctuation on the ground that it was not income derived from the Industrial undertaking. The Commissioner (Appeals) deleted the disallowance and the deletion was confirmed by the Tribunal.

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“i)    The income or loss due to fluctuation in the exchange rate of foreign currency that arose out of the export business of the assessee did not lose the character of income from assessee’s export business. Deduction u/s. 10B was permissible if profit and gains were derived from export. The exact remittance in connection with such export depended on the precise exchange rate at the time when the amount was remitted.

ii)    The receipt was on account of the export made, and therefore, the fluctuation thereof must also be said to have arisen out of the export business. Merely because of fluctuation in the international currencies, the income did not get divested of the character of income from export business.
iii)    Therefore, the Tribunal did not commit any error in deleting the addition made on account of fluctuation in foreign exchange rates from the deduction u/s. 10B. No question of law arose.”