Month: May

Facts:
The assessee entered
into a development agreement with M/s. Jay Jay Construction Co. on
12-10-1998. This development agreement, which was not registered, was in
respect of development right to construct a building ‘C’ on a plot of
land on which two buildings were already constructed (not by the
assessee). For the assessment years under consideration, the assessee
claimed deduction u/s.80IB(10) of the Act in respect of profits derived
from developing and building a housing project viz. ‘Building C’, which
claim was not accepted by the Assessing Officer (AO) on the ground that
the commencement certificate issued by the local authority was not in
the name of the assessee; development agreement was not registered;
commencement certificate was obtained prior to 1-10-1998 and building
‘C’ is not a separate project.

Aggrieved the assessee preferred
an appeal to the CIT(A) who confirmed the order of the AO and also had
an additional objection viz. that the condition regarding the area of
the plot is not fulfilled.

Aggrieved the assessee preferred an appeal to the Tribunal. 

Held:
The
Tribunal noted that subsequent to the two buildings being constructed
on the said plot, the plan of building ‘C,’ in respect of which the
assessee acquired the development right, was approved by the local
authority. The original plan was approved in 1995, but final approval
was given to the modified plan 10-9-1998 and permission for construction
of the building was finally given on 9-10-1998. The Tribunal also noted
that in the original approved plan/layout building ‘C’ was not shown.
Having observed that the commencement certificate (CC) was in the name
of the original owner since the title of the property was not in the
name of the assessee, the Tribunal held that:

(a) merely because
the commencement certificate is issued in the name of the original
landowner, the assessee cannot be deprived of deduction u/s.80IB(10) as
nowhere it is a mandate of the said provision that the assessee must be
the owner of the property which he undertakes to develop;

(b)
merely because the agreement is not registered, the assessee cannot be
deprived of the deduction u/s.80IB(10) as the assessee has developed
building ‘C’;

(c) merely because the CC was obtained prior to
1-10-1998, that does not mean that the assessee has commenced the
development and commencement of the building ‘C’;

(d) CC was
granted for the first time on 24-2-1995 and hence, building ‘C’ was not
part of the original project. It observed that on the said plot the
owner had constructed building ‘A’ consisting of 95 flats and tenements
and also building ‘B’. Just because the plot of land remained the same,
it cannot be construed that building ‘C’ is a part of the original
housing project;

As regards the objection of the CIT(A) on the
area of plot of land on which the project was constructed, the Tribunal
on facts found that there was no clearcut finding by the AO and CIT(A)
hence it restored the issue to the file of the AO to verify whether the
area of the plot on which the building ‘C’ is constructed is one acre or
not.

The appeal filed by the assessee was allowed.

Facts:
The assessee had paid Rs.1.25 crores as rent for parking slots. These slots were used for parking cars of employees of the assessee. The FBT assessment was completed without considering this rent as fringe benefit. The CIT u/s.263 set aside the assessment relying upon the CBDT Circular No. 8 of 2005, dated 29th August, 2005.

Held:
In the present case, even though the rent pertaining to the car parking slots was mentioned distinctly and separately in the lease deed, the assessee was paying the sum as part of the overall rent paid to the landlord. The essential facilities attached to a rented building have to be treated as part of the building itself and therefore the rent or licence fee paid for such facilities should be treated as forming part of rent.

Further, the head of expenditure relied on by the CIT to hold the assessee liable for FBT in respect of rent relating to car parking area is ‘running, maintenance and repair expenses of cars’. The running expenses of a motor car usually include fuel oil and other incidental expenses. It may include the driver’s wages as well. It may even include the taxes. But it is very difficult to argue that car parking expenses are in the nature of running expenses. It is not possible to treat parking slot expenses as analogous to repair and maintenance. Hence, they cannot be included within the fringe benefits.

Facts:
The Assessing Officer had made two additions to the returned income under normal provisions of the Act which were upheld by the Tribunal. However the addition made to book profits on account of diminution in the value of investments for the purpose of computation u/s.115JB was deleted by the Tribunal. While passing the consequential order the tax payable was determined u/s.115JB since tax payable under normal provisions of the Act was nil.

The AO imposed penalty u/s.271(1)(c) in respect of disallowances made under normal provisions of the Act.

Held:
The additions which constitute the foundation for imposition of penalty u/s.271(1)(c), were made while computing income under the regular provisions of the Act. However, tax u/s.115JB was determined by making an addition on account of diminution in the value of investment, which finally stands deleted by the Tribunal. Thus the basis of assessment under the regular provisions of the Act is no more relevant because of the AO finally computed income u/s.115JB pursuant to the order passed by the Tribunal. Thus the additions which were made in the original assessment as per the regular provisions of the Act, have become academic inasmuch as they have not entered the final computation of total income made by the AO. Neither the total income has increased with such additions, nor has the loss scaled down.

The assessment under regular provisions of the Act, in which such additions were made, has been substituted with that u/s. 115JB, and in the latter case, such additions were either not made or finally deleted by the Tribunal. As such there cannot be any question of imposing or confirming the penalty u/s.271(1)(c) qua these additions.

The argument of the Revenue that penalty should be sustained since the assessee was granted credit in respect of tax paid on deemed income u/s.115JAA was not accepted as the tax credit was not available for tax paid u/s.115JB till A.Y. 2005-06.

Facts:
The assessee had income from long-term capital gains of Rs.25,47,670 during the year which accrued to the assessee in the months of May, 1995 and July, 1995. The assessee paid advance tax instalments as per section 234C (as amended by Finance Act, 1996). However, the Assessing Officer charged interest u/s. 234C from the first instalment consequently holding that the amendment u/s. 234C is prospective.

Held:
(1) The amendment (by the Finance Act, 1996) was enacted to remove the hardship to the assessee as the entire tax had to be paid at short notice as per the original provision even before the sale proceeds were received.

(2) The amendment to proviso to section 234C is clarificatory in nature and has to be applied retrospectively.

(3) The assessee had paid taxes as a part of the instalments due after the date of sale of the asset and hence, was not in default as stipulated u/s. 234C. Thus, no interest was chargeable from it u/s. 234C.

Facts:
The assessee had explained the source of investment made of Rs.4,50,000 as cash received from his mother under a will which was found to be genuine by the AO to the extent of Rs.4,00,000 and Rs.50,000 was added. However on appeal, the CIT(A) deleted the addition and the Revenue went for further appeal.

However during the pendency of the appeal, the CIT invoked the provisions of section 263 for revision of order stating the reasons that the AO had failed to examine whether the will had been probated or not, whether bequest of cash and jewellery was as per Hindu Succession Act.

The contention of the assessee was that since the matter has already been considered in the appeal, then the order of the AO got merged with the order of the CIT(A) and the CIT has no right to invoke the provisions of section 263 as per explanation (c) to section 263(1).

Held:
Once a particular matter of appeal has been considered and decided in the appeal, only because a particular point relating to the same remains unconsidered by the CIT(A), does not render the matter as unconsidered. Therefore the order of the AO merged with that of the CIT A and the CIT loses his right to invoke the provisions of section 263 as per the explanation (c) to section 263.

The assessee, a partnership firm, was engaged in the business of construction. For the relevant assessment years, the assessee valued its closing WIP at historical cost as per its past policy. Such historical cost was the average rate realised for all the years including current year. The Assessing Officer valued the WIP at the current year’s rate of realisation and made addition to the profit. The CIT(A) held that the Assessing Officer was not justified in making the additions.

Since there was a difference of opinion between the Members of the Tribunal the matter was referred to the Third Member u/s.255(4).

The Third Member, holding in favour of the assessee, noted as under:

(1) It is not in dispute that the assessee has followed percentage completion method consistently since inception and has been declaring income/loss from year to year and the same was accepted in earlier years.

(2) Despite the AO’s stand for the A.Ys. 1998-99 and 1999-2000, with regard to correctness of the method of accounting followed by the assessee, in the year 2000-01, when the assessee declared profit of more than Rs.5 crores on completion of the project, the AO appears to have accepted the same method to accept the income declared therein, which in itself is an indication that the method of accounting followed by the assessee is an approved method of accounting.

(3) Categorical finding of the learned CIT(A) to highlight that assessee has not deviated from guidelines issued by the ICAI (under AS-7), was not challenged before the Tribunal by learned Departmental Representative by producing any evidence thereof. The learned CIT(A) has discussed the issue elaborately and met each point of dispute raised by the Assessing Officer to highlight that there is no merit in the conclusion reached by the Assessing Officer.

Facts:
The assessee was running a school popularly known as ‘American School of Bombay’. In the course of survey u/s.133A of the Act, conducted on 24-1-2006 it was found that the assessee had failed to deduct tax at source from the salaries paid to expatriate teachers by South Asia International Educations Services (SAIESF) outside India. The Assessing Officer, upon issuing show-cause notice and considering the explanations offered by the assessee, in an order passed an order u/s.201(1) and 201(1A) held the assessee to be in default for not deducting tax at source u/s.194C. He also levied interest u/s.201(1A) and initiated penalty proceedings, after obtaining approval from the Add. CIT(TDS), by issuing notice to the assessee. Not being satisfied with the explanation offered by the assessee, the AO levied penalty u/s.271C of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who noted that the Tribunal has quashed the order passed by the DCIT(TDS) u/s.201(1) and 201(1A) on the ground that initiation of proceedings was beyond a period of six years and hence was barred by limitation. He deleted the penalty levied u/s.271C.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that in the case of the assessee for the A.Y. 1997-98 to 1999-2000, the Tribunal has held that — a bare perusal of section 271C(1) indicates that penalty u/s.271C can be imposed only when there is a failure on the part of the assessee to deduct or pay the whole or any part of tax and, then, the quantum of penalty is equal to the amount of tax which such person failed to deduct or pay. From here, it emerges that there must be some sum which such person failed to deduct or pay. Such amount constitutes the basis for imposition of penalty u/s.271C. In other words, the liability of the assessee u/s.201(1) is a pre-condition for imposition of penalty u/s 271C. If the very order passed u/s.201(1) creating liability has been set aside on account of limitation and there is no possibility of any fresh order being likely to be passed u/s.201(1), there remains no question of the assessee being deemed to be an assessee in default in respect of such tax. The natural corollary which, therefore, follows is that if the order u/s.201(1) ceases to be operative, it will have the effect of the assessee not being in default. Once the assessee is not in default for failure to deduct or pay tax at source, naturally, there cannot be any question of imposing penalty u/s.271C for the reason that the very basis of such penalty is the amount of tax which such person failed to deduct or pay as per law and when there is no such amount in existence, the possibility of imposing penalty will automatically be ruled out.

The Tribunal noted that the effect of the Tribunal’s order quashing the order passed u/s.201(1) and 201(1A) on account of limitation is that the assessee is not deemed to be in default in respect of any failure to deduct or pay tax at source. It held that in such circumstances the question of penalty u/s.271C cannot arise.

The appeal filed by the Revenue was dismissed.

Facts:
During the previous year relevant to the assessment year under consideration, the assessee, pursuant to a Court-approved scheme of arrangement u/s.391 r.w.s 394 of the Companies Act, 1956, transferred its Lift Field Operations Undertaking (‘the undertaking’), as a going concern, to Tiger Elevators Pvt. Ltd. As consideration for transfer the assessee was entitled to receive preference shares and bonds. The price for transfer was a lump sum consideration without assigning any value to any of the individual items. In the return of income filed the assessee did not return any capital gains on the ground that since the cost of undertaking is not ascertainable the machinery for computing capital gains fails. It was also pointed out that the transfer was an exchange and not a sale and therefore did not fall within the purview of the definition of slump sale u/s.2(42C) of the Act.

The Assessing Officer (AO) held the transaction of transfer of the undertaking to be a transaction of slump sale, taxable as per provisions of section 50B of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal having considered the definition of ‘slump sale’ u/s.2(42C) of the Act, held that it is only a transfer as a result of sale that can be construed as a slump sale. Therefore, any transfer of an undertaking otherwise than as a result of sale will not qualify as a slump sale. On perusal of the clauses of the scheme the Tribunal noted that the scheme of arrangement did not mention monetary consideration for the transfer. The parties were ad idem that the scheme of arrangement was that the assessee was to transfer the undertaking and take bonds/preference shares as consideration. Thus, it was held to be a case of exchange and not sale and consequently the provisions of section 2(42C) were held to be not applicable. Therefore, the provisions of section 50B were also held to be not applicable to the facts and circumstances of the assessee’s case.

Since individual items of capital assets were not being transferred and aggregate of individual assets in the form of an undertaking was a capital asset which was transferred, the transfer being one of going concern, it was held that it is not possible to ascertain the profit or gain from transfer of undertaking, since cost of acquisition and the cost of improvement of the undertaking cannot be ascertained and consequently, computation provisions cannot be applied and the charge of capital gain fails.

This ground of appeal filed by the assessee was allowed.

Income cannot be said to have deemed to accrue or arise in India when the assessee pays commission to non-resident for the services rendered outside India and the non-resident does not have a permanent establishment in India. Consequently, section 195 is not attracted and so the assessee is not liable to deduct TDS from the said payment.

FACTS
The assessee exported granite to USA and paid commission on export sales made to a US company but it did not deduct tax u/s. 195.

The Assessing Officer held that the sales commission was the income of the payee which accrued or arose in India on the ground that such remittances were covered under the expression fee for technical services’ as defined u/s. 9(1)(vii)(b). He thus held that the assessee was liable deduct tax u/s. 195 and he was in default u/s. 201(1) for tax and interest.

On Appeal, CIT (Appeals) held that commission does not fall under managerial, technical or consultation services and therefore, no income could be deemed to have accrued or arisen to the non-resident so as to attract provisions of withholding tax u/s. 195.

On Appeal-

HELD THAT
The order of CIT(A) was to be upheld as the non-resident recipients of commission rendered services outside India and claimed it as business income and had no permanent establishment in India. Thus, provisions of section 9 and section 195 were not attracted.

    A.Ys. : 2003-04 & 2004-05 Dated : 30.05.2008

    Payments made by assessee, a co-operative society running sugar mills, to Zone Samitis formed by the cane growers, for spending the same on harvesting, cutting and transporting sugarcane to assessee’s factories on behalf of cane growers, which were debited to cane growers’ advance account and ultimately adjusted against the cost of cane — Whether provisions of Section 194C applicable ? Held : No.

    The assessee is a co-operative society running sugar mills. Farmers, who are members of the assessee society, form committees every season known as Zone Samitis for the purpose of undertaking the collective work of harvesting, cutting and transportation of sugarcane to the factory sites. The assessee made advance payments at a fixed rate to the Samitis for spending the same on harvesting, cutting and transporting sugarcane to its factories which was the liability of the cane growers. The Assessing Officer held that the assessee was liable to deduct tax at source u/s. 194C from these payments and accordingly he raised demands u/s. 201 against the assessee with interest. These orders were also upheld by the CIT(A).

    On second appeal to the ITAT, the Tribunal observed that there were conflicting judgments in case of Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd. vs. ITO, 104 TTJ 654 (AHD) and Shree Mahuva Pradesh Sahakari Khand Udyog Mandli Ltd. Because of these two orders, the President constituted a Special Bench to decide the controversy.

    The Special Bench held as follows :

    1. Section 194C applies when payments are made for carrying out any work including supply of labour for carrying out any such work in pursuance of a contract between the contractor and the persons stated therein. By sub-Section (1) of S.194C a liability to deduct tax at source is cast upon the person responsible for paying any such sum. Here, the responsibility of paying the sum for harvesting, cutting and transporting is of the cane growers. This is clearly established by the fact that the payments, though made in instalments, were debited to the individual accounts of the cane growers, maintained by the assessee and adjusted ultimately against the cost of the cane.

    2. The payments are, no doubt, made to the labour hired for this purpose but these payments were made by the Samiti or by the assessee as alleged by the Revenue, not on its own account; they were for and on behalf of the cane growers.

    3. The assessee was required to pay the fixed price and make the payment to the cane growers for the cost of the cane; The payments, though in instalments, were debited to the cane growers’ advance account and adjusted ultimately as cost of the cane.

    4. The assessee had given and Samitis have taken the amount from the assessee for and on behalf of the cane growers and on their behalf; Samitis have also paid that amount to the labourers on account of the cane growers.

    5. Surplus and deficit is ultimately adjusted in the cane growers’ account through the Samitis who have paid and received that amount from the assessee-company.

    Thus assessee is not liable to deduct tax at source under S.194C from these payments.

    Cases Relied upon :

    · Associated Cement Company Ltd. vs. CIT, (1993) 201 ITR 435 (SC)

    · CIT vs. Dabur India Ltd., (2006) 283 ITR 197 (Del)

    A.Y. : 2002-03 Dated : 18.01.2008

    Whether fee received from clients in advance by advocate following a cash method is income of the year in which it is received, Held : No. Whether a mistake in one assessment year should be carried over to the assessment proceedings of the next assessment year, Held : No i.e., it is not compulsory for the A.O. to carry forward the interpretations and findings of the earlier orders without application of mind.

    The assessee, an Advocate, recovered fees from his clients in advance. The proportionate fees relating to the work performed and the balance of fees is shown as advance received from clients. The Assessing Officer made an addition of the advance fees to the income of the year in which it was received in view of Section 145 of Income-tax Act, 1961, stating that there are only two methods of accounting viz., Cash and Accrual. As per cash system of accounting, the amount of fess received should be liable to tax in the year of receipt itself. Also the CIT(A) was of the opinion that since the assessee was a professional, the method of accounting followed should be in consortium with other professionals i.e., cash basis.

    On further appeal to the Tribunal, it was held as follows :

    1. Income only to the extent of the amount pertaining to services rendered vested in the assessee. The rest of the amount was taken as liability to be vested in subsequent years as and when the services were rendered.

    2. The excess amount would have to be returned in case the service was not performed in subsequent years and therefore, in respect of such amount, no debt came into existence in favour of the assessee.

    3. The levy of Income-tax is a levy on income. The Act takes into account two points of time at which the liability to tax is attracted, namely, the accrual of income and its receipt. However the substance of the matter is ‘Income’.

    4. The findings of the CIT(A) that the assessee was following a hybrid system of accounting on the ground that the whole of the amount received from clients as retainer fees was not declared as income in the year of receipt of the amount was not correct.

    5. A wrong decision rendered by the Assessing Officer in one year or in number of years would not bind the Assessing Officer in the assessment of a subsequent year as there could not be any estoppel against law. The principle of res judicata does not apply to Income-tax proceeding as each assessment year is a separate unit.

    On the above reasoning, the ITAT deleted the addition made by the Assessing Officer.

    Cases Relied upon :

    1. CIT vs. M/s. Shoorji Vallabhdas & Co., [1962] 46 ITR 144(SC)

    2. Radhasoami Satsang vs. CIT, [1992] 193 ITR 321 (SC).

    A.Y. : 2004-05. Dated 15.01.2009

    Section 271(1)(c) — When Assessing Officer recalculates total income in accordance with law and such total income is different from that calculated by the assessee, there is no concealment of particulars of income or furnishing of inaccurate particulars of income or deemed concealment in accordance with Explanation 1 to Section 271(1).

    
    For the relevant assessment year, the Assessing Officer made some addition on a pro rata basis in terms of Section 14A. Thereafter, the Assessing Officer levied penalty u/s.271(1)(c) on ground that the assessee had not furnished full particulars for purpose of computation of its income. The CIT(A) confirmed the penalty by observing that the assessee had concealed its income and had furnished inaccurate particulars of its income.

    The Tribunal deleted the penalty. The Tribunal noted as under :

    1. There cannot be a straitjacket formula for detection of defaults of concealment or of furnishing inaccurate particulars of income. Concealment of particulars of income and furnishing of inaccurate particulars of income may at times overlap. It depends upon the facts of each case.

    2. On consideration of facts of the instant case it was not found that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. The assessee had furnished a note along with the return of income stating, “the interest expenditure was not considered as disallowed u/s.14A as the investments had not been made for the purpose of earning dividend income but for business consideration including capital appreciation. However, without prejudice to the above contentions, if any interest was to be considered as being in relation to dividends earned, the disallowance would amount to Rs.41.18 lacs as per the relevant annexure”, which was also enclosed by the assessee.

    3. Hence, the assessee had disclosed all the relevant material facts for the purpose of computation of total income. The assessee had also offered explanation in this regard, which was not found to be false by the Assessing Officer. The explanation of the assessee regarding claim of interest expenditure was bona fide. The assessee had substantiated his explanation.

    4. When the assessee had furnished all the material facts for the purpose of computation of total income, the Assessing Officer was duty-bound to calculate correct total income in accordance with law, which might have been different than the total income calculated by the assessee.

    5. Mere fact that the Assessing Officer while discharging his duty was recalculating the total income in accordance with law and such income was not the same as calculated by the assessee, it could not be held that the assessee had concealed particulars of his income or had furnished inaccurate particulars of such income or there was a deemed concealment in accordance with Explanation 1 to Section 271(1)(c).

    Therefore, penalty u/s.271(1) read with Explanation 1 could not be invoked. The penalty levied by the Assessing Officer was deleted.

        b. Since commission paid by assessee to insurance companies was in nature of compensation towards cost of procurement incurred by insurance companies for originally accepting insurance business from agents, provisions of Section 194D would not be attracted.

        The assessee public sector undertaking, engaged in the business of re-insurance, accepted re-insurance contracts from other insurance companies and paid commission on the re-insurance premium earned without deducting tax at source on such commission. The Assessing Officer treated the assessee to be in default for non-deduction of tax u/s.194D. The CIT (A) upheld the order of the Assessing officer.

        The Tribunal held that Section 194D was not attracted on the facts of the instant case. The Tribunal noted as under :

        1. In terms of Section 194D, tax deduction is to be made from income which is in the nature of remuneration or reward (whether it is called commission or otherwise) for soliciting or procuring insurance business. Section 194D does not apply to each and every payment made by any person by way of commission or otherwise; it applies only to remuneration or reward paid for soliciting or procuring insurance business. The language of Section 194D makes it abundantly clear that if the commission or other payments are made by any assessee not by way of remuneration or reward for soliciting or procuring insurance business, then Section 194D would not apply.

        2. In the instant case, the insurance companies did not procure business for the assessee-company nor did the assessee-company pay any commission or other payment for soliciting the business from the insurance companies.

        3. Such commission was allowed by the assessee-company in order to compensate the insurance companies for the brokerage and other costs incurred in procuring the business by the ceding company. Considering the nature of the payment made by the assessee-company to the insurance companies by way of commission, it could be said that the same did not fall within the category of payments by way of remuneration or reward for soliciting or procuring insurance business from the insurance companies.

    2. As held in the case of Gujarat Gas Financial Services Ltd. vs. Asst.CIT (2008) 115 ITD 218 (Ahd.)(SB), deposits cannot be equated with loans or advances. The Special Bench had held that the two expressions ‘loans’ and ‘deposits’ are different and the distinction can be summed up by stating that in the case of loan, the needy person approaches the lender for obtaining the loan therefrom. The loan is clearly lent at the terms stated by the lender. In case of deposits, however, the depositor goes to the depositee for investing his money primarily with the intention of earning interest.

    3. Section 2(22)(e) enacts a deeming fiction whereby the scope and ambit of the word ‘dividend’ has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the said Section.

    4. Such a deeming fiction could not be given a wider meaning than what it purports to be. The provision would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits.

    5. The requisite condition for invoking Section 2(22)(e) is that payment must be made by way of loan or advance. Since there is a clear distinction between inter-corporate deposits vis-à-vis loans / advances, the lower authorities were not right in treating the same as deemed dividend u/s.2(22)(e).