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Changes relating to Company Law for the period 15th October,
2010 to 15th November, 2010.
Additional fees payable as per S. 611(2).
The Ministry of Corporate Affairs has decided to revise the
additional fees payable as per S. 611(2) of the Companies Act, 1956 (except Form
5) as per details in the Table 1 with effect from 5-12-2010 :
Table 1
Period of delay
Fixed rate of additional fee
Up to 30 days
Two times of normal filing fee
More than 30 days and up to 60 days
Four times of normal
filing fee
More than 60 days and up to 90 days
Six times of normal
filing fee
More than 90 days
Nine times of normal filing fee
In order to avoid payment of additional fees, please file
within stipulated time.
A comparative between old rates and new rates of additional
fees is given below in
When the assessee converted
his immovable property into stock-in-trade and entered into development
agreement, the said transaction cannot be said to be a sale of immovable
property.
Facts :
The assessee converted his
land from capital asset to stock-in-trade and thereafter entered into a
development agreement dated 1-9-2003 along with a supplementary development
agreement dated 23-12-2003 with a developer, whereby the assessee provided his
land measuring 44,090 sq.ft. to the developer and in return the developer was to
give the assessee a built-up area of 25,285 sq.ft.
The assessee offered capital
gains accrued on conversion of land to stock-in-trade proportionate to the
built-up area sold in different years.
The Assessing Officer was of
the view that the long-term capital gain on transfer of land was assessable in
the year in which the assessee handed over the possession of the land to the
developer itself, pursuant to the agreement.
Held :
S. 53A of the Transfer of
Property Act does not provide the conditions for transfer, but it provides
protection to the transferee of any immovable property by a written contract.
S. 53A of the Transfer of
Property Act is borrowed only with respect to the transfer of capital asset as
provided u/s.2(47) of the Income-tax Act, 1961 and the same is not applicable in
other cases which do not fall u/s.2(47).
The sale/transfer of
stock-in-trade cannot be equated with transfer of capital asset u/s.2(47). The
decisions relied upon by the learned Departmental representative as well as the
lower authorities are with respect to the transfer of capital asset u/s.2(47)
and not in respect to stock-in-trade.
The assessee handed over the
possession of the property for construction of residential apartments by the
developer. The assessee did not receive any consideration for handing over the
possession of the property to the developer, but to get the built-up area of
25,130 sq.ft.
In the absence of the
transfer of the title of the property and any consideration at the time of
development agreement, the handing over of the possession was merely a temporary
measure for carrying out the construction work by the developer and the
exclusive possession of the property in legal sense remains with the assessee.
The nature of the transaction between the
parties by way of development agreement cannot be said to be a sale of immovable
property which is stock-in-trade.
Income-tax Act, 1961 — S. 45
— The gain arising on transfer of FSI/TDR is chargeable to tax under the head
‘capital gain’ and not under the head ‘Other Sources’ — However, as there is no
cost of acquisition of the asset transferred, there will be no liability to
capital gains.
Facts :
The assessee, in the year
1977, acquired the property under the registered lease and became co-owner of
the property and was holding 5t shares of the society. The assessee entered into
a development agreement with M/s. P. R. Investsment for the development of the
said property (bungalow) to construct 7-storied building as per approved plans.
The assessee retained proportionate FSI in the said plot for his own residential
accommodation to be constructed by the developer for a consideration of
Rs.21,00,000. The balance FSI was to be utilised by the developer for
construction of the building. The developer was authorised to use the TDR as per
applicable law. Thus, the assessee gave development rights to the developer for
construction of the property. The assessee regarded income arising from transfer
of development rights to be chargeable to tax as capital gains.
The Assessing Officer taxed
the proceeds as Income from other sources on the ground that the assessee had
not extinguished his right, title and interest in the property in any manner and
continued to hold leasehold rights in the property jointly with Shri Anil Kumar
Malhotra. The arrangement under the development agreement, according to the AO,
was to enable the developer to bring in marketable TDR on the plot and construct
and develop the same and sell the constructed area to outside people of his
choice who will have no right, title and interest in the plot of land.
Aggrieved, the assessee
preferred an appeal to the CIT(A) who directed the AO to tax the gain arising on
transfer of FSI/TDR as capital gain and to make necessary calculation of sale
consideration and cost of acquisition and/or improvement and also allow
exemption u/s.54 and u/s.54EC to the extent of investments made, after due
verification.
Aggrieved, the Revenue
preferred an appeal to the Tribunal.
Held :
The Tribunal following the
ratio of the decisions of the Tribunal in the case of New Shailaja Co-operative
Housing Society Ltd. v. ITO, (2009 TIOL 58 ITAT-Mum.), ITO v. Lotia Court Co-op.
Hsg. Soc. Ltd., (2008 TIOL 404 ITAT-Mum.), Jethalal D. Mehta v. Dy. CIT, (2 SOT
422) (Mum.) and Maheshwar Prakash 2 CHS v. ITO, 20 DTR 269 (Mum.) held that the
CIT(A) was right in holding that the gain arising on transfer of FSI/TDR is
chargeable to tax under the head ‘capital gain’ and not under the head ‘other
sources’. However, as there is no cost of acquisition of the asset transferred,
there will be no liability to capital gains.
Income-tax Act, 1961 — S. 32
— Router and switches when used along with a computer and when their functions
are integrated with a ‘computer’ would be included in the block of ‘computer’
entitled to depreciation at the rate of 60%.
Facts :
The assessee-company was
engaged in data communication, design, development, purchase and sale of
networking products, etc. The assessee claimed depreciation amounting to
Rs.3,27,67,150 at the rate of 60% under the head ‘Computers’. The assessee had
included routers and switches in the block of computers. The Assessing Officer
(AO) held that routers and switches were entitled to depreciation at the general
rate of 25% as applicable to plant and not as claimed by the assessee at 60%.
Aggrieved, the assessee
preferred an appeal to the CIT(A) who held that the routers and switches fall
under the block of ‘computers’. He allowed the assessee’s appeal.
Aggrieved the Revenue
preferred an appeal to the Tribunal. The President referred the following
question to the Special Bench (SB) for its consideration :
“Whether routers and
switches can be classified as computer entitled to depreciation at 60% or have
to be classified as general plant and machine entitled to depreciation only at
25%.”
Held :
The SB noted that the term
‘computers’ is not defined in the Act. Even the General Clauses Act does not
define the term ‘computers’. The term ‘computer systems’ has been defined in S.
36(1)(xi) but considering the fact that the object of S. 36(1)(xi) is quite
distinct from that of S. 32 the SB was of the opinion that the definition of the
term ‘computer system’ given in the Explanation to S. 36(1)(xi) cannot be
applied as such (for giving meaning to ‘computer’) in the context of S. 32.
Considering the scheme of the Information Technology Act, 2000 and also the
objects of the said Act, the SB noted that the rationale behind the Information
Technology Act, 2000 is quite distinct from that of the Income-tax Act and since
both these acts are not pari materia the definition of ‘computer’ as given in
the Information Technology Act, 2000 cannot be applied in the context of S. 32
of the Act. Considering the general parlance meaning of the term ‘computer’ and
also that of ‘routers’ and ‘switches’ the SB held that router and switches can
be classified as computer hardware when they are used along with a computer and
when their functions are integrated with a ‘computer’. It held that when a
device is used as part of the computer in its functions, then it would be termed
as a computer to be included in the block of ‘computer’ entitled to depreciation
at the rate of 60%.
Income-tax Act, 1961 —
Principle of mutuality — Principle of mutuality is applicable to the assessee
even though it is an incorporated company —Interest earned by the mutual
association
from banks, bonds, etc. on surplus funds is not liable to tax.
Facts :
The assessee-company
constructed a building, flats in which were allotted to shareholders. The
assessee in its return of income claimed the amounts collected towards share
transfer fees : Rs.62,20,000; nominee occupancy charges and repairs :
Rs.3,00,000; security deposits (non-refundable) : Rs.5,85,000 and interest and
dividend: Rs.11,95,577 to be not chargeable to tax on the ground of mutuality.
The assessee received nominee occupancy charges in respect of flats which were
given on rent by the members. Non-refundable security deposits were received by
the assessee from shareholders who carried out repairs to their flats. The
Assessing Officer (AO) in an order passed u/s.147 of the Act taxed all these
amounts on the ground that the principle of mutuality applies only to
co-operative bodies and as regards transfer fees he held that since the transfer
fees were received from incoming members, in view of the ratio of the Special
Bench decision of the ITAT in the case of Walkeshwar Triveni CHS Ltd. the same
are taxable. Aggrieved the assessee preferred an appeal to the CIT(A).
The CIT(A) held that the
principle of mutuality applies. He held that the share transfer fees, nominee
occupancy charges and security deposits (non-refundable) to be not chargeable to
tax. He, however, held that interest and dividend is chargeable to tax since in
case of interest and dividend contributors to the common fund are non-members of
the
assessee-company, who are not entitled to participate in the surplus.
Aggrieved the assessee and
the Department preferred an appeal to the Tribunal.
Held :
The Tribunal noted that in
earlier years, in the as-sessee’s own case, the Tribunal has accepted that the
principle of mutuality is applicable even in the case of an assessee being a
company. The Tribunal following the orders of the Tribunal in the as-sessee’s
own case and the ruling of the Supreme Court in the case of Bankipur Club Ltd.
(226 ITR 97) (SC) confirmed the decision of the CIT(A) that principle of
mutuality is applicable to the assessee even though it is an incorporated
company.
The Tribunal following the
judgment of the Bombay High Court in the case of Sind Co-operative Housing
Society Ltd., held the share transfer fees to be not chargeable to tax because
of the principle of mutuality.
The Tribunal having noted
that non-refundable security deposits were received by the assessee from its
members who wanted to carry out some repairs in their flats and the identity of
the contributors and the participants in the surplus was preserved, held the
same to be not chargeable to tax.
Non-occupancy charges were
held to be not liable to tax by following the decision of the Bombay High Court
in the case of Mittal Court Premises Co-operative Society Ltd. (2009 TIOL 548 HC
Mum.-IT).
Interest earned from banks
on surplus funds was held to be not liable to tax by following the order of the
Tribunal in the assessee’s own case for A.Y. 2004-05 and also the order of the
Tribunal in the case of Bombay Gymkhana Ltd. (ITA No. 7624/Mum./2007 dated
20-4-2009).
The appeal filed by the
assessee was allowed and the appeal of the Department was dismissed.
(a) S. 254(1) of the
Income-tax Act, 1961 — Principle of consistency qua judicial forums is not
unexceptionable; if the subsequent Bench finds it difficult to follow the
earlier view due to any convincing reason, the earlier view cannot be thrust
upon it; when a matter is referred to the Larger Bench, the appeal needs to be
decided on merits rather than following the earlier view taken by the Tribunal
in assessee’s own case.
(b) S. 80P(2)(a)(i) of the
Income-tax Act, 1961 — Interest u/s.244A received by assessee, a co-operative
bank, on refund of income-tax paid by it in relation to the banking business
carried on by it is covered within the expression ‘profits and gains of
business’ occurring in S. 80P(2)(a) and the assessee is entitled to deduction
u/s.80P(2)(a)(i).
S. 254(1) :
The principle of consistency
qua the judicial forums is not unexceptionable. It is true that ordinarily the
order passed by the earlier Bench on the same point should be respected and
followed. But if the subsequent Bench finds it difficult to follow the earlier
view due to any convincing reason, such as change in the factual or legal
position or non-raising or non-consideration of an important argument by the
earlier Bench having bearing on the issue, then the earlier view cannot be
thrust upon it. So when a matter is referred to the Larger Bench, the view
earlier taken by the Division Bench ceases to be binding on the Special Bench
though it retains the persuasive value. In view of the above-discussed legal
position, the action of the Division Bench in referring the matter for
consideration by a Special Bench is perfectly in order since it found itself
unable to agree with the earlier view taken by another Division Bench of the
Tribunal in the assessee’s own case. Therefore, there is no infirmity in the
action of the Division Bench in making reference for the constitution of the
Special Bench when it found it difficult to accept the earlier view taken in the
assessee’s own case. Under these circumstances the exception to the application
of principle of consistency gets attracted and the appeal needs to be decided on
merits rather than following the earlier view taken by the Tribunal in its own
case.
The Tribunal relied on the
decisions in the following cases :
(a) Union of India &
Anr. v. Paras Laminates (P) Ltd., (1990) 87 CTR (SC) 180/(1990) 49 ELT 322
(SC)
The Assessing Officer,
during the reassessment proceedings, opined that the interest received by the
assessee on income tax refund was on account of non-banking activity. The CIT(A)
also accepted the Assessing Officer’s order.
The Special Bench, relying
on the decisions in the following cases, ruled in favour of the assessee :
(a) ITO (ITA No.
4252/Mumbai/2000) and Punjab State Co-op. Bank v. Dy. CIT, (2000) 113
Taxman 128 (CHD) (Mag.)
(b) Cambay Electric
Supply Industrial Co. Ltd. v. CIT, 1978 CTR (SC) 50/(1978) 113 ITR 84 (SC)
The Special Bench noted as
under :
(1) The assessee was
carrying on banking business over the years and tax was collected by the
Revenue in relation to such banking business. Thus, there is a nexus between
the payment of income-tax, its refund and interest on such refund with the
business of banking. But for the carrying on of the banking business, the
assessee would not have paid the income-tax which was refunded to it. Since
income-tax was paid in relation to the banking business, the interest on
income-tax refund will be considered as ‘gain’ (not ‘profit’) of banking
business covered within the expression ‘profits and gains’ of banking
business. Therefore, interest on refund of income-tax would be covered within
the expression ‘profits and gains of business’, notwithstanding the
fact that it falls under the head ‘income from other sources’.
(2) The direct nexus of
interest on income-tax refund is with the payment of income-tax but when the
relation between income-tax and the income on which it was paid is traced, it
comes to light that the same was for the business of banking. Thus, there
exists a commercial and casual connection between the interest on income-tax
refund and the banking business.
(3) Therefore, the
assessee is entitled to deduction u/s.80P(2)(a)(i) on the amount of interest
received u/s.244A on the refund of tax.
Penalty proceedings being
separate and independent, the assessee can show that finding recorded in the
quantum proceedings is not reliable and sufficient to impose penalty.
Facts :
During the scrutiny
assessment the Assessing Officer found that the assessee had paid a sum of
Rs.4,68,305 to some SJT as transport charges. The Assessing Officer held that
the payment was not a genuine one and disallowed the same. On appeal, the CIT(A)
confirmed the disallowance and so did the Tribunal. The Assessing Officer
initiated the penalty proceedings.
In reply to the show-cause
notice, the assessee contended that he had produced all the evidences, including
copies of account payee cheques, in respect of the impugned payment. He further
contended that the Assessing Officer was not able to appreciate the facts of the
case and merely levied penalty only on the basis that the bills produced were
unsigned. On appeal, the CIT(A) confirmed the levy of penalty.
On further appeal to the
Tribunal, the Members differed. The Accountant Member held that there was no
evidence that the payment was made through account payee cheque. He further
observed that the findings of the ITAT in quantum appeal that the assessee has
not discharged the onus has become final. Further, relying on the decision of
Dharmendra Textiles 306 ITR 227 (SC) and other decisions, he upheld the levy of
penalty.
The Judicial Member on the
other hand, observed that the assessee had furnished all the evidences and
details. The bank statement also confirmed the payment made to SJT. He concluded
that the explanations offered by the assessee was not false.
On matter being referred to
the third Member, the following was observed and held :
Held :
It is a settled law that
finding recorded in assessment proceedings is not conclusive, although it is
entitled to great weight. The penalty proceedings being separate and independent
proceedings, the assessee can always show that the finding recorded in the
quantum proceedings is not reliable and sufficient to impose penalty. The
assessee had produced all the evidences along with the bank statements. The
payment was made through account payee cheque. In this background there is no
justification to term the explanation of the assessee as false and levy penalty.
6. On facts, payments made
to Singapore company for certain services were, neither FTS nor royalty. As it
did not have PE in India they were not taxable as business profits.
Facts :
The applicant was an Indian
company (‘IndCo’) engaged in general insurance business. IndCo entered into
agreement with a Singaporean company (‘SingCo’) for receiving assistance such as
business support, marketing information technology support services and strategy
support, etc. Although services were to be provided on continuous basis, no
employee of SingCo was to visit India for providing the services. SingCo did not
have any business establishment in India. SingCo was to be paid a fee equivalent
to the actual cost incurred by it and a markup of 5% thereon.
The applicant sought ruling
of AAR on the following questions :
(i) Whether the payments
for providing services were FTS in terms of Article 12 of India-Singapore DTAA
?
(ii) Whether payments for
providing access to hardware and software hosted in Singapore, and related
support services, were ‘royalty’ in terms of Article 12 of India-Singapore
DTAA ?
(iii) As SingCo did not
have PE in India in terms of Article 5 of India-Singapore DTAA, whether its
receipts were chargeable to tax in India ?
Held :
The AAR concluded as follows
:
(i) Neither clause (a) nor
clause (c) of Article 12(4) of India-Singapore DTAA, which defines FTS, was
attracted. Although some service could be categorised as technical services,
for treating them as FTS, the DTAA required these to be ‘made available’.
Relying on the clarification of ‘make available’ in MOU to India-USA DTAA and
AAR’s ruling in Intertek Testing Services India P Ltd, In re (2008) 307 ITR
418 (AAR) and in Ernst & Young P Ltd, In re (2010) 323 ITR 184 (AAR), the
services fell short of the requirement of ‘make available’. Hence, the
payments for those services were not FTS under Article 12(4) of
India-Singapore DTAA.
(ii) Provision of access
to hardware and software did not result in ‘use of’, or ‘right to use’,
copyright of literary/scientific work. Hence, payments for those services were
not ‘royalty’ under Article 12(3) of India-Singapore DTAA.
(iii) On facts, as SingCo did not have PE
in India, its receipts cannot be taxed as ‘business profits’ under DTAA.
5. On facts, Indian branch
of American company carrying on research and development activity in India was a
PE. Consequently, profit attributable to it was to be computed following
arm’s-length principle.
Facts :
The assessee was an American
company. The assessee had a branch in India for carrying out the following two
distinct activities :
(i) Conducting agri-genetic
research, the results of which to be made available to Indian companies; and
(ii) Production of
parent seeds and its sales to joint venture company under an arrangement.
The assessee also had a
joint venture company in India. The branch developed and produced hybrid breeder
seeds which were used for producing and multiplying parent seeds. The branch
sold the parent seeds to the joint venture company.
The data collected by the
assessee while developing breeder seeds formed part of the reach pool of the
head office. This data was used by the head office and other branches of the
assessee globally.
Held :
The Tribunal held as follows
:
(i) Both the activities
of the branch were interwoven, inter-related, co-ordinated, interlinked and
interdependent. Thus, the activities of Indian branch directly or indirectly
contributed to the income of the head office. Consequently, the Indian
branch was not covered under the exclusion in Article 5(3)(e) of India-USA
DTAA. Therefore, the branch constituted PE in India of the assessee.
(ii) The income of the
PE to the extent of its contribution would be taxable in India. In the light
of Article 7(1) and (2) of India-USA DTAA, the PE should be treated as
separate profit centre and profit attributable to it should be computed on
an arm’s-length principle.
4. Capital gains arising
from sale of movable property of a PE are chargeable to tax u/s.9(1)(i) of
Income-tax Act as well as under Article 13(2) of India-Mauritius DTAA. Mere
deferral of either receipt of sale consideration or even the sale transaction
itself would have no bearing on the taxability of the transaction.
Facts :
The assessee was a Cypriot
company, which was registered in Mauritius. The Mauritius tax authority had
issued a tax residency certificate to the assessee, based on which the assessee
claimed benefits under India-Mauritius DTAA.
The assesse owned a rig used
for offshore oil exploration, which it had chartered to an Indian company. While
computing its income, the assessee had claimed depreciation on the rig.
On 24th April 1997, the
assessee executed agreement to sell the rig. The assessee issued sale bill dated
19th September 1997 and finally delivered the rig to the buyer on 6th October
1997. The agreement was executed outside India and the rig was also delivered
outside India.
The assessee intimated to
the Tax Authority that its charter agreement was terminated on 3rd October 1997
and it had moved its rig from Indian waters to international waters and it would
continue doing business in international waters.
However, the fact of sale of
rig was not disclosed by the assessee to the Tax Authority. Upon the Tax
Authority reopening the assessment u/s.147 of Income-tax Act for charging to tax
the capital gains arising from the sale, the assessee challenged the reopening.
Apart from the issue of
reopening, the Tribunal also considered the issue : the assessee being a
non-resident; the operations of PE having come to an end; sale having been
effected outside Indian territory (beyond 200 nautical miles), whether the
capital gain arising from the sale was chargeable to tax in India ?
Held :
On the issue of
chargeability of capital gains arising from sale of assets of a PE, the Tribunal
held as follows :
(i) The rig was owned by
the assessee. It was used for business of the assesee in India. The assessee
had claimed depreciation thereon. Therefore, gains on sale of rig were also
deemed to have accrued or arisen in India u/s.9(1)(i) of the Income-tax Act.
(ii) In terms of Article
13(2) of India-Mauritius DTAA, gains from alienation of movable property of PE
are taxable in the country in which PE is situated. Hence, gains on the sale
of rig were taxable in India in terms of Article 13(2).
(iii) Mere deferral of
either receipt of sale consideration or even the sale transaction itself would
have no bearing on the taxability of the transaction. Further, on facts, the
contract was terminated as a result of the sale and not otherwise as claimed
by the assessee.
3. Payment by PE to head
office towards reimburse-ment of technical expenses, being not on account of any
specific technical services which were ‘made available’, it was not covered
under Article 13. Also, on facts, the payment was not attributable to PE.
Facts :
The assessee was a French
company. The assessee had a PE in India. The PE had, broadly, two kinds of
activities — marine services and certification services. Marine services
included inspection, testing and survey of ships. The certification services
included ISO certification and occupational, heath and safety certification.
The PE had made provision in
respect of technical fees payable to the head office. The assessee had claimed
that the amount provided was towards reimbursement of actual expenses incurred
by the head office. The Tax Authority contended that the amount represented FTS
earned by head office from PE and since tax was not deducted by PE at the time
of credit of the amount, it should be disallowed u/s.40(a)(i) of the Income-tax
Act and added back to the income.
Held :
The Tribunal held as follows
:
(i) Having regard to the
Protocol to India-France DTAA, the scope of FTS is restricted to payments
which ‘made available’ technical knowledge, experience, etc. As the amount
represented allocation of technical and administrative expenses, it was not
for any specific technical services, which were ‘made available’. Hence, it
would not be covered under Article 13 of India-France DTAA.
(ii) The amount was also
not income ‘attributable to PE’. It was also not taxable under any other
provision of India-France DTAA.
Krung Thai Bank PCL v. Joint
Director of Income Tax — International Taxation
ITAT ‘G’ Bench, Mumbai
Before Pramod Kumar (AM) and
Asha Vijayraghavan (JM)
ITA No. 3390/Mum./2009
A.Y. : 2004-05. Decided on :
30-9-2010
Counsel for assessee/revenue
:
Gajendra Golchha/A. K. Nayak
6. S. 115JB of the
Income-tax Act, 1961 — Liability to pay income tax based on book profit —
Whether banking company liable to pay tax u/s.115JB —
Held, No.
Per Pramod Kumar :
Facts :
The assessee was a foreign
bank operating in India through a branch office. During the year under appeal,
it had shown a profit of Rs.78,32,594 as per profit and loss account. After
making necessary adjustments as per normal provisions of the Act, including the
setting off of brought forward loss of A.Y. 2003-04, the assessee had returned
nil income. The original assessment u/s.143(3) was completed on 19th September
2006, without making any adjustments to the income returned by the assessee.
According to the AO, the income of the assessee had escaped assessment as it had
not computed book profit u/s.115JB. Accordingly, the notice u/s.147 was issued.
The assessee objected to the reassessment proceedings on the ground that the
provisions of S. 115JB were not applicable to the assessee. However, the CIT(A)
upheld the action of the AO.
Before the Tribunal the
Revenue contended that there was no specific exclusion clause for the banking
companies, and in the absence thereof, it was not open to infer the same. It
further added that the submission of the assessee was clearly contrary to the
legislative intent and plain wordings of the statute.
Held :
The Tribunal agreed with the
contention of the assessee that the provisions of S. 115JB were not applicable
to the case of the assessee. According to it, the provisions of S. 115JB can
only come into play when the assessee was required to prepare its profit and
loss account in accordance with the provisions of Part II and III of Schedule VI
to the Companies Act. In the case of the assessee being a banking company,
however, the provisions of Schedule VI are not applicable in view of the
exemption given under proviso to S. 211(2) of the Companies Act. The final
accounts of the banking companies are required to be prepared in accordance with
the provisions of the Banking Regulation Act. Further, relying on the Mumbai
Tribunal decision in the case of Maharashtra State Electricity Board v. JCIT,
(82 ITD 422), it held that the provisions of S. 115JB do not apply to the
assessee, and, therefore, the Assessing Officer was in error in concluding that
income had escaped assessment in the hands of the assessee.
5. S. 45. According to
Circular No. 9, the legal ownership in flats vests in individual members and not
in the co-operative society – Flat owners have proportionate interest in the
land and building – Amount received for permitting developer to construct
additional area – Held not income of the society.
Per Asha Vijayaraghavan :
Facts :
Vide development agreement
dated 15-2-2004 entered into between the assessee society, its members and the
developer, the assessee society allowed the developer to construct an additional
area aggregating to 30,000 sq.ft for a consideration of Rs. 10.41 crores. Of
this sum of Rs. 10.41 crores an amount of Rs. 15 lakhs was retained by the
assessee and the balance amount was distributed amongst its members in
proportion to area of the flat. The assessee in its revised return of income
declared amount received from developers as ‘Income from Other Sources’.
The Assessing Officer (AO)
was of the view that the assessee was the rightful owner of the land and the
legal ownership vested with it. Since the assessee was held to be the legal
owner, the capital gain was assessed as income of the assessee. The AO
considered the consideration of Rs. 10.26 crores received by flat owners to be
income of the assessee.
Aggrieved the assessee
preferred an appeal to the Commissioner of Income-tax (Appeals) who upheld the
assessment done by the AO.
Aggrieved the assessee
preferred an appeal to the Tribunal.
Held :
The Tribunal noted that the
assessee, co-operative housing society, was registered under the Maharashtra
Co-operative Societies Act, 1960 as a Tenant Co-partnership Hsg. Society under
Rule 10(1) Clause 5(b). It also noted that the flat owner members have
transferred their individual entitlement/right to TDR/FSI in favour of the
developers and were entitled to receive directly from the developers aggregate
compensation of Rs. 10.26 crores. All the individual flat owners offered for
taxation their share of compensation, in their respective return of income. The
Tribunal held as under :
“According to CBDT Circular
No. 9, dated 25-3-1969, the legal ownership in flats is vested in individual
members and not in the co-operative society. Further, the flat owners have
proportionate interest in the land and building. The society is only ostensible
owner and in reality and truth, the flat owners own the land and building for
which they have paid full consideration and amount received from the developer
by the flat owner in their individual capacity is the income of the individual
flat owner. The flat owners have relinquished their interest in the property.
The society has no right or control over such income of the individual owners.”
The Tribunal observed that
the benefit of additional TDR was derived and enjoyed by the members of the
assessee-society and no income has accrued to the society. Following the
decision of the Mumbai Bench of ITAT in the case of Jethalal D. Mehta v. DCIT,
which held that such rights do not have any cost of acquisition, the Tribunal
held that there is no merit in computing any capital gains on the sale of the
said TDR in the hands of the assessee society.
4. S. 154 read with S. 115JA
of the Income-tax Act, 1961 — Rectification of mistake apparent from record —
Provision for doubtful debts debited to Profit and Loss account — Book profit as
per S. 115JA assessed without making any adjustment qua the said provisions per
Tribunal order — By retrospective amendment such provision made liable for
inclusion in book profit — Whether AO justified in claiming that there was
mistake apparent from record and accordingly, rectifying the order — Held, No.
Per P. Madhavi Devi :
Facts :
The assessee had filed a
return of income for the A.Y. 1998-99 declaring the total income at Rs.11.62
crore u/s.115JA of the Act. The AO assessed the total income at Rs.34.63 crore.
Later on, it was noticed by the AO that the provision of doubtful debts of
Rs.18.99 lacs was not added back to the profit & loss account while computing
income u/s.115JA of the Act. Therefore, the AO passed an order u/s.154 of the
Act on 30-12-2004 adding back the provision for doubtful debts u/s.115JA of the
Act. On appeal the CIT(A) allowed the same relying upon the decision of the
Bombay High Court in the case of CIT v. Echjay Forgins (P) Ltd., (251 ITR 15).
The Tribunal vide order dated 17-3-2009 confirmed the order of the CIT(A).
Thereafter, by the Finance
Act, 2009 clause (g) was inserted in Explanation to S. 115JA(2) of the Act w.e.f.
A.Y. 1998-99 providing that provisions for doubtful debts and advances are
disallowable while calculating book profit u/s.115JA of the Act. Relying on the
decision of the Karnataka High Court reported in the case of M. Srinivasalu v.
UOI, (239 ITR 282), the Revenue contended that an order which is not in
accordance with the retrospective law can be rectified u/s.154 of the Act.
Held :
The Tribunal noted that in
respect of the year under appeal the Tribunal had already decided the case in
favour of the assessee by its order dated 17th March, 2009, whereas the
retrospective amendment of the provisions received the assent of the President
of India on 19-8-2009 i.e., after the order of the Tribunal was passed. Further
relying on the Bombay High Court decision in the case of Sudha S. Mehta, it held
that the assessment proceedings got concluded before the Tribunal under the then
existing law and, therefore, there was no mistake apparent from record in the
order of the Tribunal. Accordingly, the Revenue’s miscellaneous application was
dismissed.
3. S 40(a)(ia). Provisions
of S. 40(a)(ia) are not applicable to expenditure which has accrued prior to
10-9-2004 when the Finance Act, (No. 2) 2004 got the presidential approval —
Amendment to S. 40(a)(ia) by the Finance Act, 2010 which extends the time limit
for all TDS payable throughout the year has been introduced as a curative
measure and therefore would apply to earlier years also.
Per Asha Vijayaraghavan :
Facts :
The Assessing Officer (AO)
disallowed amounts aggregating to `29,52,389 u/s.40(a)(ia) on the ground that
assessee had deposited TDS late in the Government Account. Aggrieved the
assessee preferred an appeal to the CIT(A).
The CIT(A) rejected the
contention made on behalf of the assessee that S. 40(a)(ia) as amended with
retrospective effect by the Finance Act, 2008 and Explanatory Notes to the
Finance Bill, 2004 issued by the CBDT vide Circular No. 5/2005, dated 15-7-2005
were brought in to existence after the end of the financial year 2004-05. He
also rejected the contention that the assessee had complied with the very
intention of introduction of S. 40(a)(ia) i.e., compliance of TDS provisions in
case of residents and curbing bogus payments.
Aggrieved the assessee
preferred an appeal to the Tribunal.
Held :
The Tribunal noted that the
CBDT has in its Circular No. 1 of 2009, dated 27-3-2009 clarified the amendment
made to S. 40(a)(ia) by the Finance Act, 2008 with retrospective effect from
1-4-2005 was to mitigate hardship caused by the above provisions of S. 40(a)(ia)
while maintaining TDS discipline. The Tribunal also noted that there has been a
further amendment to this Section by the Finance Act, 2010 whereby time limit
for payment of TDS deducted/deductible during the year has been extended till
the due date of filing return of income. The Tribunal observed that this is
similar to provisions of S. 43B. The Supreme Court has in the case of CIT v.
Alom Extrusions Ltd., (319 ITR 306) held the amendment to S. 43B to be
retrospective in operation. The amendment made by the Finance Act, 2008 to the
provisions of S. 40(a)(ia) being with retrospective effect shows that it was
curative in nature and was brought in to ameliorate the hardship caused on
account of nominal delay in payment of TDS. Applying the ratio of the decision
of the Apex Court, the Tribunal held the amendment brought in by Finance Act,
2010 to be curative in nature and therefore applicable to all earlier years
also. The Tribunal directed the AO not to disallow the expenditure (i) which has
accrued prior to 10-9-2004 when the Finance Act (No. 2) 2004 got the
presidential approval, up to which date the provisions of S. 40(a)(ia) will not
be applicable and (ii) expenditure in respect of which TDS has been paid by the
assessee before the due date of filing of the return.
The ground of appeal filed
by the assessee was allowed.
15. Reassessment —
Non-supply of reasons recorded by AO — AO having failed to follow the procedure
laid down by the Apex Court, the matter is restored back to the AO with a
direction to follow the procedure laid down by the Apex Court.
Facts :
The AO has issued notice
u/s.147, in response to which, the assessee informed by way of letter that the
return already filed may be treated as return in response to notice u/s.148. He
also requested for providing the reasons for reopening of the assessment.
However, the reasons for reopening of assessment were not supplied to the
assessee. During continuation of assessment proceedings, again the assessee
pointed out that the reason recorded for reopening of assessment has not been
intimated to him which may be provided at the earliest. However, the AO, without
supplying the copy of the reasons recorded, completed the assessment
u/s.143(3)/147 of the Income-tax Act. In response to which, the assessee filed
the appeal before the learned CIT(A), in which ground was taken against the
validity of reopening of assessment u/s.147. However, the learned CIT(A) upheld
the validity of reopening of assessment. Against which, the assessee filed the
appeal before the Tribunal.
The learned Judicial Member,
following the decision of Apex Court in the case of GKN Driveshafts (India) Ltd.
v. ITO, set aside the matter and restored the same back to the file of the AO
with a direction to follow the procedure as laid down by the Apex Court.
However, the learned Accountant Member differed with the learned Judicial Member
as he was of the opinion that on the facts of the assessee’s case, the decision
of the Apex Court was not applicable for the following reasons :
(i) In the case of GKN
Driveshafts (India) Ltd., the assessee did not furnish a return of income,
while in the case of the assessee, not only the return of income is furnished,
but also the assessment was completed.
(ii) Before the CIT(A),
the assessee did not take the ground that the assessment was wrongly made as
the AO did not supply the reasons recorded for reopening the assessment.
(iii) In the case of GKN
Driveshafts (India) Ltd., the notices u/s.148 and u/s.143(2) were challenged
in a writ.
Upon such difference of
opinion between the Members, the matter was referred to the Third Member.
Held :
The Apex Court has laid down
a general procedure which is to be followed by the assessee as well as the AO in
each and every case wherever notice u/s.148 is issued. The view of the learned
Accountant Member as well as the Departmental Representative that the above
decision of the Apex Court would be applicable only when the assessee files the
writ petition challenging the notice u/s.148, before the High Court or Supreme
Court is not acceptable.
As per the procedure laid
down by the Apex Court, filing of return by the assessee is a necessary
condition for getting the copy of reasons recorded. Therefore, the argument that
since the assessee has filed the return of income, the above decision of the
Apex Court would not be applicable, is not acceptable.
The assessee has challenged the reopening of
assessment u/s.147 before CIT(A). Once the assessee challenges the validity of
reopening an assessment, he may advance several arguments to support his
contention that assessment is not validly reopened. Non-supplying of the reasons
recorded is one of such arguments.
14. Tribunal has power to
direct the Assessing Officer to consider the allowance of the expenditure under
altogether different Section.
Facts :
The facts in brief leading
to the controversy were that unaccounted commission earned by the assessee was
unearthed during the search. In his return of income, the assessee claimed
expenditure incurred to earn the said income which the AO disallowed u/s.69C of
the Act. The CIT(A) deleted this disallowance by observing that S. 69C along
with the proviso thereto cannot be made applicable to the facts of the case for
the reason that the expenditure stands explained insofar as the same was
incurred from the unaccounted commission earned by the assessee. Both the
Members who heard the matter have also concurred with the view of the CIT(A)
that S. 69C is not applicable. However, in the course of hearing before the
Tribunal, the learned Departmental Representative raised a fresh plea to the
effect that the AO should have invoked the provisions of S. 37(1) and requested
the Bench to remit the matter to the file of the AO to consider the allowability
or otherwise of the expenditure u/s. 37(1) of the Act. The learned Accountant
Member rejected the request of the learned Departmental Representative by
observing that the jurisdiction of the Tribunal is restricted to the
subject-matter of the appeal and the fresh plea taken by the learned
Departmental Representative being out of the subject-matter, it cannot be
accepted. In arriving at the conclusion that it is out of the subject-matter of
the appeal, the learned Accountant Member tried to draw distinction between the
words ‘aggrieved’ and ‘objects’ appearing in S. 253(1) and S. 253(2)
respectively. On the other hand, the learned Judicial Member held that the
Tribunal has the jurisdiction to entertain a fresh plea on the subject-matter
of the appeal and has the power to pass necessary direction for ascertainment of
relevant facts
and deciding the issue by applying correct
provisions of law.
Held :
The use of different words
in the two sub-sections i.e., ‘aggrieved’ and ‘objects’ appearing in S. 253(1)
and S. 253(2), respectively, has no bearing on the scope of the appeal to be
filed by the assessee and the Department. Relying upon the decision of
Hukumchand Mills Ltd. v. CIT, 63 ITR 232 (SC), it was held that there is no
reason as to why the plea of the learned Departmental Representative cannot be
accepted. In the present case, of course, the Department is the appellant unlike
in the case of Hukumchand Mills (supra). But, it makes no difference. The
Department is aggrieved by the deletion of disallowance of expenditure which
disallowance was made under one particular provision. The subject-matter of the
appeal was whether the expenditure claimed by the assessee was allowable or not.
If it was not disallowable under one particular provision, but is disallowable
under any other provision, the subject-matter, viz., the allowability of
expenditure remains the same. It is not precluded from considering a point which
arises out of the appeal merely because such point had not been raised or urged
by either party at the earlier stage of the proceedings. The matter was remanded
to the AO for considering the claim of the assessee for claiming deduction of
unaccounted expenditure u/s.37(1)ofthe Act.
13.
S. 234B — Amounts paid in foreign countries under DTAA would be treated as
advance tax and not self-assessment tax even for the period before Explanation 1
to S. 234B was introduced.
Facts :
For the relevant assessment
years, the assessee paid certain sums as tax in the USA. The same were claimed
as advance tax in India for availing credit under DTAA. The AO treated the same
as advance tax in the order passed u/s.143(3). Subsequently, as the AO was of
the opinion that the tax paid in the USA should be treated as self-assessment
tax, he issued notices u/s.154 and order u/s.154 was passed considering the
amounts as self-assessment tax. The demand payable and interest amounts were
thus modified. The AO was of the view that the DTAA nowhere mentions that the
tax so paid should be treated as advance tax.
Held :
(i) The assessee has not
delayed in making payment of tax even though made in the USA. When there is no
default in paying tax, no interest u/s.234B is chargeable.
(ii) Explanation 1 to S.
234B introduced by the Finance Act, 2006 w.e.f. 1-4-2007 covers relief of tax
allowed u/s.90 on account of tax paid in country outside India.
(iii) Relying on decision of the Supreme
Court in the case of Dilip N. Shroff v. JCIT, (2007) 291 ITR 519, the Tribunal
observed that the object of Explanation is to explain the meaning and clarify
any vagueness of main enactment. It cannot, in any way, interfere with or
change the enactment or take away a
statutory right.
Hence the said Explanation
is applicable to assessee and the tax paid in the USA has to be treated as
advance tax.
DCIT, Business Circle X, Chennai v. Udhava Das
Fomra
A.Y. : 2001-02. Dated : 27-3-2009
Provisions of S. 45(5) relating to compulsory acquisition do
not apply to compulsory requisition of land and building, and the compensation
received is also not taxable as rent, as there was no element of income.
Facts :
The assessees were the co-owners of land and building. The
State Government exercising powers u/s. 3(1) of the West Bengal (Requisition and
Acquisition) Act, 1948 requisitioned the said land and building on 23-4-1976.
The said property was later on acquired by the Government by issuing
Notification on 7-4-1990. Compensation was paid for requisition of property from
23-4-1976 to 7-4-1990. The assessee filed appeal for enhanced compensation which
was allowed on 20-4-2000. As the jurisdictional High Court by its order held
that interim compensation could not be taxed till the High Court reached
finality on the issue of enhanced compensation, the assessment proceedings for
A.Y. 2000-01 were reopened. The Assessing Officer taxed the entire compensation
u/s.45(5)(a) and S. 45(5)(b). The CIT(A) directed to delete requisition
compensation as the same amounted to capital receipt. The Department filed
appeal against the order of the CIT(A).
Held :
The Tribunal held that requisition of land was not a transfer
within the meaning of the West Bengal (Requisition and Acquisition) Act, 1948 as
it was only taking of possession of the land by the State and owners of the land
were only deprived from use and enjoyment of the land. The compensation was
received for the period from 23-4-1976 to 7-4-1990 for requisition of land. The
provisions of S. 45(5) could not be attracted as there was no transfer of
capital asset. Moreover, the compensation was also not an income of the
owner/assessee, because it was neither a rent nor a receipt in lieu of loss of
income or transfer of any right by the
assessee. Therefore, the compensation received for requisition could not be
taxed as an income of the assessee.
In view of the above, it was held that the said compensation
did not have any element of income, and hence, was not liable to tax either
under the head ‘capital gains’ or under other heads.
(Full text of the following Tribunal decisions are available at the Society’s
office on written request. For members desiring that the Society mails a copy to
them, Rs.30 per decision will be charged for photocopying and postage.)
Part B : Unreported Decisions
15 Pirojsha Godrej Foundation v.
ADIT (Exemptions)
ITAT ‘C’ Bench, Mumbai
Before D. K. Agarwal (JM) and
Pramod Kumar (AM)
ITA No. 1976/Mum./2008
A.Y. : 2001-02. Decided on : 31-5-2010
Counsel for assessee/revenue : P. J. Pardiwala/K. K. Mahajan
Income-tax Act, 1961 — S. 143(1)(a), S. 147. Even when the
original assessment is u/s.143(1) and even when reassessment proceedings are
initiated within a period of four years, it is still necessary that there should
be reasons to believe that income had escaped assessment and such reasons are
subject to judicial scrutiny.
Per Pramod Kumar :
Facts :
The assessee was a charitable trust, registered u/s.12A of
the Act, notified, for the relevant period, u/s.10(23C)(iv) of the Act. The
assessee in its return of income filed on 29th October, 2001 declared exemption
u/s.10(23C) and declared nil taxable income. This return was processed u/s.
143(1)(a). On 26th May, 2004, the assessee was served a notice u/s.148 and
income of the assessee was proposed to be reassessed. The Assessing Officer (AO)
had, in the reasons recorded, stated that since the assessee has not invested a
sum of Rs.1.02 crores in accordance with the provisions of S. 11(5), the said
sum of Rs.1.02 crores is chargeable to tax and has escaped assessment.
Aggrieved the assessee preferred an appeal to the CIT(A) and
challenged the validity of the jurisdiction assumed u/s.147 of the Act on the
ground that the AO had resorted to reassessment proceedings without having a
valid reason to believe that the income had escaped assessment. The CIT(A)
upheld the action of the AO.
Aggrieved the assessee preferred an appeal to the Tribunal.
Held :
(1) The
recorded reasons that the violation of S. 11(5) r.w. S. 13(1)(d) by the assessee
leads to the amount of Rs.1.02 crores to be included in the assessee’s total
income are clearly contrary to the legal position which is that while the
assessee may lose exemption u/s.10(23)(c) for not adhering to the conditions of
S. 11(5), this does not result in the said amount being chargeable to tax in the
hands of the assessee. The Tribunal held that the reasons for reopening of
assessment have been recorded without application of mind and without
considering the applicable legal position, as expected of an AO while exercising
his powers u/s.147.
(2) The Tribunal after examining the reasons recorded in the
light of the observations of the Bombay High Court in the case of Hindustan
Lever Ltd. (268 ITR 332) and of the Supreme Court in the case of Kelvinator of
India Ltd. (320 ITR 561) concluded that there was no material before the AO that
any income, leave aside the income of Rs.1.02 crores has escaped assessment. The
Tribunal observed that no reasonable person, with basic understanding of the
scheme of income-tax law, can come to the conclusion that the AO has arrived at.
It held that there was no cause and effect relationship between what the AO has
noticed in the attachments to the income-tax return and the conclusion he has
arrived at.
(3) Even when the original assessment is u/s. 143(1) and even
when reassessment proceedings are initiated within a period of four years, it is
still necessary that there should be reasons to believe that income had escaped
assessment and such reasons are subject to judicial scrutiny. No doubt that at
the stage of reassessment proceedings, it is not necessary to establish that
there has been an escapement of income, but essentially there have to be valid
reasons to believe that the income has escaped assessment and these reasons, on
a stand-alone basis, must be considered appropriate for arriving at the
conclusion arrived at by the Officer recording the reasons.
The Tribunal held the very initiation of the reassessment
proceedings, on the facts of this case and on the basis of the reasons recorded
by the AO to be bad in law and quashed the reassessment proceedings. The
Tribunal allowed the appeal filed by the assessee.
Cases referred :
(1) CIT v. Kelvinator of India Ltd., (320 ITR 561) (SC)
(2) Prashant S. Joshi v. ITO, (Writ Petition No. 2287 of
2009, judgment dated 22-2-2010)
(3) Hindustan Lever Ltd. v. R. B. Wadkar, (268 ITR 332) (Bom.)
12. Amount of liability in
dispute when fixed by the Court in the concerned assessment year is an
ascertained liability even though not provided in the books of account.
S. 115JB — AO cannot reopen
the accounts of company which have been audited and certified by the auditors.
Facts :
The assessee had taken a
loan from P. Ltd. for which there was some dispute pending in the Court. This
dispute came to an end in the assessment year under consideration. Accordingly
the assessee had an interest payable of Rs. 2.10 crore. There was one more item
of interest receivable of Rs. 1.19 crore.
The auditor’s report
mentioned that interest expenditure of Rs. 2.10 crore and interest income of Rs.
1.19 crore for the period 1-4-2000 to 31-3-2001 were not provided in the books
of account. Further it mentioned that P. Ltd. had filed a suit against the
assessee which was pending in the Court. The amount of liability was yet to be
fixed by the Court and so the same cannot be said to be an ascertained
liability.
The assessee however claimed
deduction of interest payable to P. Ltd. in its return of income. Similarly the
interest receivable was also offered to tax.
Considering the statement of
accounts filed and remarks of the auditor, the AO held that the assessee adopted
the policy of not providing for the liability of interest and therefore, the
liability was not allowed.
As regards, the interest
income, the AO, however, taxed the same.
Held I :
(i) The dispute came to an
end in the concerned financial year. The Court directed the assessee to pay
certain interest at the rate of 21% till the date of order of the Court and at
the rate of 10% thereafter. Thus it is not an unascertained liability.
(ii) It is a trite law now
to say that entries in the books of account are not conclusive about
determination of income and that if a liability has now been incurred but not
entered in the books, the same has to be allowed.
(iii) The AO has taxed the
interest income although not provided, but not allowed interest expenses.
Therefore the action was contradictory in nature in this behalf.
Facts :
While computing profits
u/s.115JB, the AO added a sum of Rs. 1.19 crore being interest income not
credited to the profit and loss A/c. However he did not allow any deduction for
interest liability of Rs. 2.10 crore not provided for in the books of account.
Held :
Considering the decision of
the Supreme Court in the case of Apollo Tyres Ltd. v. CIT, (2002) 255 ITR 273,
the Tribunal held that the AO cannot reopen the accounts of company which have
been audited and certified by the auditors. The impugned amount was not entered
in the books. The auditor had made certain remarks in this regard. No objection
was taken by the Registrar. Therefore, the book profit as per the profit & loss
account has to be taken.
Hence no adjustment needs to
be made for interest income not credited and interest liability not provided in
books.
S. 36(1)(vii) read with S. 263 — Bad debts written off —
Assessing Officer allowed it after due verification of all facts and evidence —
CIT invoked S. 263. Held : CIT has no power to rectify assessment order u/s.263
when Assessing Officer has duly verified all facts and evidence.
Facts :
The assessee is a limited company engaged in providing
technical and management services. Other ancillary objects of the assessee
included carrying out financing and investment and trading in shares and
securities.
For the relevant assessment year, the assessee filed return
of income, which was processed u/s.143(1) of the Income-tax Act, 1961 (‘the
Act’). The Assessing Officer later on reopened the assessment u/s.147 of the Act
to verify the claim of bad debts written off in the return. The assessee
furnished all details and evidences to support its claim of bad debts. The bad
debts were in relation to loan advanced to some R during the financial years
1996-97 to 1998-99. Interest earned on this loan was offered to tax. The
Assessing Officer noted the fact that the loan was given in the normal course of
business of financing of the assessee in view of resolution passed by the Board
of Directors on 15-3-1999. After due verification and examination, the Assessing
Officer allowed the bad debts, stating that the conditions of S. 36(i)(vii) read
with S. 36(2) of the Act are fulfilled.
The CIT invoked S. 263 of the Act on the grounds that the
assessee is not engaged in the business of banking and money lending, changes in
the memorandum have been effected in violation of certain provisions of the
Companies Act and that provisions of S. 36(1)(vii) and S. 36(2) of the Act are
not satisfied.
Held :
The Ahmedabad Tribunal held as follows :
(1) The CIT has no jurisdiction to set aside the assessment
order merely to conduct another inquiry and reach the same result. The
Assessing Officer had considered all the facts and had taken a view which is a
possible view.
(2) There is no default committed by the assessee under the
Companies Act. Even if there was any irregularity committed under the
Companies Act, it will not affect the chargeability and computation under the
Income-tax Act.
(3) Since the assessee company had been lending money to
various parties right from its inception, it can be seen that it was carrying
on the business of money lending in its ordinary course though it may not be
the main business of the company. The income earned out of the monies lent was
offered as business income from time to time.
Even the treatment in the books of account were done
accordingly.
Accordingly the revision order passed u/s.263 was quashed.
S. 54F — Long-term capital gains invested by purchasing a row
house — Subsequently, agreement to purchase row house cancelled — Another
agreement entered with S company to purchase shares of S company engaged in
building — Through this agreement assessee was entitled to block no. 5 of one
Abhijit building — Whether this transaction would qualify for benefit of S. 54F
— Held, Yes.
The assessee HUF sold shares during the period from May 1995
to January 1996 and earned long- term capital gains of Rs.27,01,204. It then
entered into an agreement to purchase a row house with one Mr. H and paid
Rs.30.50 lakhs. The agreement was dated 26-8-1996. However, the above agreement
was cancelled due to a demolition drive by the Thane District Authorities. Mr. H
paid back the money on 15-5-1997 and 7-6-1997.
Subsequently, the assessee entered into an agreement with S
company engaged in construction of a building known as Abhijit. The said
building was under construction. The assessee paid Rs.30.50 lakhs on 28-3-1996
and purchased a ‘Block of Shares’ of S company. Through this, he became entitled
to flat no. 5 of the under-construction building. The assessee got occupancy
certificate on 5-12-1998. The Assessing Officer held that :
(a) the assessee’s investment in the row house is a
purchase of ‘new asset’ within the meaning of S. 54F.
(b) the cancellation of transaction with Mr. H is to be
treated as transfer of ‘new asset’. Since this ‘new asset’ is transferred
before completion of 3 years, the condition of S. 54F(3) is violated. The
Assessing Officer ignored the investment in Abhijit building and denied
exemption u/s.54F.
On appeal the CIT(A) held that :
(a) in view of cancellation of agreement for purchase of
row house, there was neither purchase nor any construction within the
stipulated time limit of S. 54F.
(b) considering January 1996 i.e., the last date on which
capital gains arose, the last date for purchase of new asset is March 1998.
(c) The assessee’s case is that of purchase of
asset and not construction of asset.
(d) The assessee has not utilised the capital gains before
filing of return and has also not deposited in capital gains scheme.
On appeal, the Mumbai Tribunal held from the sequence of
events :
(a) The assessee’s intention to invest the capital gains
was a bona fide one. The Assessing Officer has not brought any mala fide
intention. The assessee cannot buy a defective house i.e., row house just to
qualify for exemption under the Income-tax Act. Therefore the contention of
the lower authorities in treating the row house is misplaced.
(b) As regards, the capital gains scheme, the assessee had
already parted with capital gains by paying for acquisition of row house.
There is no way it would have complied with the condition of depositing in
bank for capital gains scheme.
(c) The assessee purchased certain shares of S company.
This entitled him to block no. 5 of Abhijit building. Hence the transactions
are interlinked. So the purchase of shares in S company is nothing but
investment in residential house.
(d) As regards, the time limitation of two years, a
combined reading of Board Circulars Nos. 471 and 672 show that the assessee’s
case has to be treated as that of ‘construction’.
S. 28(i) — Letting out of property used to run business
centre — Whether rent income or business income.
Facts :
The assessee was running two business centres. One of the
properties in which a business centre was functioning was owned by the assesee,
while the other was taken on lease. The spaces in the property were given to
various customers on short-term basis and customers kept on changing from time
to time.
Additionally, other common services/facilities like receptionist, telephone
operator, house-keeping staff, common waiting rooms, etc. were also provided.
The receipts and expenditure incurred in running the business
centres were routed through profit & loss account. The assessee declared income
as business income. The Assessing Officer treated the receipts from business
centre situated in the property owned by the assessee as income from house
property. According to him, the assessee was the owner of the said property and
this property was let out by the assessee. Hence the receipt out of it shall be
treated as income from house property. In the case of business centre situated
in property taken on lease by the assessee, the receipt from the same was
treated as ‘income from other sources’. As far as the service charges are
concerned, the same were treated as ‘income from other sources’.
On appeal to the CIT(A), the CIT(A) confirmed the assessment
order.
Held :
Relying on the decision of the Apex Court in the case of
Shambhu Investment (P.) Ltd. (2003) (263 ITR 143), the Tribunal held that the
fact whether a receipt is a business receipt or a receipt from mere letting out
of property, depends on the facts of the case and intention of the assessee.
Further in the present case, various facilities like
receptionist, telephone operator, common waiting rooms, etc. are also provided.
The ultimate control over the premises is with the assessee. There is
no intention of mere letting out the property and earn the rental income.
Business centres have
peculiar characteristics wherein space is provided for temporary period along
with other business-like facilities.
The intention of the assessee is thus to run the
business centre by exploiting the property and not mere letting out the
property. Hence the receipts are business receipts.
S. 54F — Assessees sold shares and earned long-term capital
gains — The said gains were invested in purchasing land and building — The
building was demolished and a new building was constructed — Whether the cost of
construction of new building was eligible u/s.54F — Held, Yes.
The assessees, husband and wife, sold shares and purchased
property, land and building in joint name. They demolished the building and
constructed a new building. They claimed benefit of S. 54F in respect of cost of
construction of house property. The Assessing Officer denied the benefit
thereby, holding that once the capital gains are invested in purchase of house
property, the application of S. 54F ends. The CIT(A) seconded the AO’s opinion.
On appeal, the Bangalore ITAT held in favour of the assessee
relying on the case of Union Co. (Motors) Ltd. and CBDT Circular No. 667, which
clarified that for exemption meant construction of a residential house after
demolishing the existing structure. It held that the existing structure was
demolished so as to make way for the new asset. The intention of the assessee
was to create and stay in a residential property. Hence the cost of construction
of new property is allowed as deduction u/s.54F.
S. 17(2) – Employer’s contribution towards social security
scheme, made under a statutory provision, is not a perquisite —Even in ex-parte
cases the CIT(A) is required to decide appeal on merit after considering
material on record — For computing tax effect interest is not to be taken into
account.
Facts :
The assessee, not an ordinary resident in India, worked as a
General Manager with M/s. Mitsui & Co. India Pvt. Ltd. in the period relevant to
the assessment year under consideration. While assessing the total income of the
assessee the Assessing Officer (AO) made an addition of Rs.5,00,629 representing
contribution made by the assessee’s employer in Japan towards social security,
health insurance, etc. The assessee’s contention that the contribution was under
a statutory provision and only a contingent benefit which did not give any
vested right to the assessee, as the assessee may or may not get any benefit
depending upon happening or non-happening of an event which is beyond the
control of the appellant, was not accepted. Aggrieved, the assessee preferred an
appeal to the CIT(A).
The CIT(A) examined the scheme under which the payment was
made and following the decision of the Tribunal in the case of ACIT v. Eric
Matthew Gottesman, 15 SOT 301 (Del.) deleted the addition.
Aggrieved the Revenue preferred an appeal to the Tribunal.
Held :
The Tribunal noted that in the following cases, which are
binding on it, similar contribution to social security made by the employer in
the home country of the foreign national was held to be not taxable as a
perquisite :
1. ACIT v. Eric Matthew Gottesman, (2007) 15 SOT 301
(Del.)
2. ACIT, Circle 47(1) v. Hideki Ishihara in ITA No.
1906/Del./2008 dated 31-12-2008
3. ITO v. Lukas Fole, (2009) 124 TTJ 965 (Pune)
4. Gallotti Raoul v. ACIT, 61 ITD 453 (Bom.)
The objection on behalf of the Revenue that since none
appeared on behalf of the assessee before the CIT(A), the CIT(A) should have
decided the issue against the assessee the Tribunal held that even in ex-parte
cases the CIT(A) is required to decide appeal on merit after considering
material on record.
The Tribunal held that interest for computing tax
effect is not to be taken into account, but since how much interest has been
charged was not available on record, the contention on behalf of the
assessee that the tax effect is less than Rs.2 lakhs was rejected.
The Tribunal dismissed the appeal filed by the
Revenue.
ADIT v. GE Asset Mgt. Inc A/c General Electric Pension Trust
A.Ys. : 1999-2000 & 2003-04. Dated : 5-2-2010
S. 244A – Interest is payable even on refund arising out of
self-assessment tax paid from the date of payment of self-assessment tax.
Facts :
Pursuant to the order passed by the Assessing Officer (AO) on 3rd October, 2008 the assessee was entitled to refund of
Rs.1,99,47,368. This refund comprised tax paid on regular assessment and also
part of self-assessment tax paid on 13-2-2006. The AO granted interest on refund
arising on the amount of tax paid on regular assessment, but did not grant
interest on refund arising on amount of tax paid as self-assessment tax. He did
not assign any reason for not granting interest on refund of self-assessment tax
paid on 13-2-2006.
Aggrieved, the assessee preferred an appeal to the CIT(A) who
held that the provisions of S. 244A(1)(b) include all situations of refund other
than those covered by S. 244A(1)(a) i.e., refunds arising out of advance tax or
TDS. He held that interest u/s. 244A(1)(b) is payable even if refund arises on
account of self-assessment tax paid by the assessee. The CIT(A) allowed the
appeal and held that the assessee is entitled to additional interest u/s.244A on
the amount of self-assessment tax paid from the date of payment till the date of
granting
of refund.
Aggrieved by the order of the CIT(A) the Revenue preferred an
appeal to the Tribunal.
Held :
The Tribunal noted that while allowing the claim of the
assessee the CIT(A) has followed the decision of the Co-ordinate Bench of the
Tribunal in the case of DCIT v. BSES Ltd., (113 TTJ 227) (Mum).
The Tribunal also noted that the AO had not assigned any reasons for not
granting interest on refund arising on account of payment of self-assessment
tax. The Tribunal dismissed the appeal filed by the Revenue.
ACIT v. Meridian Enterprises Computing
Solutions P. Ltd.
A.Ys. : 2002-03 to 2004-05. Dated : 8-3-2010
S. 10A/S. 10B – Deduction u/s.10A/10B cannot be denied to
software developer exporting software merely on the ground that it hires IT
professionals on man-hour basis whenever it has assignments and does not have
many employees on payroll.
Facts :
The assessee company was having an office located in STP and
was carrying on the business of on-site software development. It had claimed
exemption u/s.10A/10B of the Act. There was no dispute about satisfaction of any
of the conditions prescribed for claiming exemption. The Assessing Officer (AO)
observed that the assessee company hired IT professionals on a man-hour basis;
its Managing Director and other directors were old people and their son was the
only employee on the payroll of the assessee; the assessee did not have
infrastructure facilities in India except four walls in STP. He examined the
agreement entered into by the assessee with M/s. Alpharma, its customer, and
noted that the assessee was to get remuneration on an hourly basis and that the
assessee was referred to in the agreement as ‘supplier’. For all these reasons
he came to the conclusion that the assessee was supplying man-power and was not
engaged in software development. He, denied exemption u/s.10A/10B.
Aggrieved the assessee preferred an appeal to the CIT(A) who
examined the matter in detail and observed that the agreement entered into by
the assessee was for provision of information technology consulting services and
procuring of services of individual consultants was incidental to rendering this
service and was not service in itself; the description on the invoice was ‘technical service’; the remittance advice to the
bank corroborated this fact; since the assessee had only one employee, he held
that it would be improper to conclude that the assessee is engaged in supply of
manpower; the overseas company paid the assessee amount based on invoices raised
from time to time. He also held that since it was an on-site assignment, there
was no need to have infrastructure in India to render such services. He also
noted that the assessee was liable for damages in case of non-performance or
lapses of their employee. The fact that by taking the contract from Alpharma the
assessee had put itself to stake of USD 50,000 in terms of warranted encumbrance
which was independent of earnings from the said company was held to be very
vital to decide the issue since if it was a transaction of merely manpower
supply then taking such a risk was unwarranted. The CIT(A) held that thecontract of the assessee with M/s. Alpharma was not for manpower supply. The CIT(A) allowed the appeal.
Aggrieved the Revenue preferred an appeal to the Tribunal.
Held :
The Tribunal did not find any infirmity in the findings of
the CIT(A). It upheld the order of the CIT(A) and dismissed the appeal filed by
the Revenue.
101 Age restriction in the
Service Tax Return Preparer Scheme, 2009 omitted — Notification No.
44/2010-Service Tax, dated 20-7- 2010.
By this Notification
restriction regarding age limit of 35 years for the purpose of enrolment,
training and certification to act as Service Tax Return Preparer has been
omitted.
100 Processing of returns of
A.Y. 2009-10 — Steps to clear backlog —Instruction No. 7/2010 dated 16-8-2010.
In supersession and
modification of Instruction No. 5/2010 dated 21-7-2010, CBDT has taken the
following decisions :
(i) In all the returns
filed in ITR-1 and ITR-2, for the Asst. Year 2009-10, where the aggregate TDS
claim does not exceed Rs. Three lakh (3 lacs) and where the refund computed
does not exceed Rs.25,000; the TDS claim of the tax payer shall be accepted at
the time of processing of the return provided that the TDS payment reported in
AS-26 is more than Rs. Zero.
(ii) In all the returns
filed in forms other than ITR-1 and ITR-2, for the Asst. Year 2009-10, where
the aggregate TDS claim does not exceed Rs. Three lakh (3 lacs) and the refund
computed does not exceed Rs.25,000 and there is at least 10% matching of TDS
amount claimed, the TDS claim shall be accepted at the time of processing of
the return.
(iii) In all remaining
cases, TDS credit shall be given after due verification.
F. No.225/25/2010-ITA.II (Ajay
Goyal)
Director (ITA.II)
As per proviso to Ss.(a) &
(b) of S. 80IB(10), Slum Rehabilitation Scheme needs to be notified to be
eligible to the benefits of the deduction as stipulated therein. The CBDT issued
this long pending notification under the said Proviso wherein any scheme of Slum
Rehabilitation as contained in Regulation 33(10) of Development Control
Regulation for Greater Mumbai 1991 read with the relevant notifications under
these regulations and stipulated conditions would be eligible for claiming
deductions u/s.80IB of the Act provided all the other conditions are fulfilled.
98 Press Release for
extension of due date of filing the tax returns of individual taxpayers.
The Central Board of Direct
Taxes has extended the due date of filing of income tax return from 31st July,
2010 to 4th August, 2010 in view of technical snags in the e-filing computer
systems and inclement weather at various locations causing difficulties in
filing or uploading income tax returns.
97 Issue of certificate of
lower collection of income-tax at source u/s.206C(9) — regarding — Instruction
No. 4/2010, dated 21-7-2010.
I am directed to state that
Instruction No. 8/2006, dated 13-10-2006 was issued by the Board making it
mandatory to get prior administrative approval of the Additional Commissioner of
Income-tax/Joint Commissioner of Income-tax before issue of any certificate of
lower deduction of tax at source u/s.197 of the Income-tax Act, 1961. Further,
Instruction No. 7/2009, dated 23-12-2009 was issued communicating prior
administrative approval of the Commissioner of Income-tax (TDS) in the cases
where the cumulative amount of tax foregone by non-deduction/lesser rate of
deduction of tax arising out of certificate u/s.197 during the financial year
for a particular assessee exceeds Rupees fifty lakh in major stations and Rupees
ten lakh for other stations.
2. For effective monitoring
and control of tax foregone through certificate of lower tax collection at
source (TCS), I am directed to communicate that for issue of certificate of
lower collection for tax at source u/s.206C(9), prior administrative approval of
the Additional Commissioner of Income-tax/Joint Commissioner of Income-tax shall
be obtained in each case. Further, prior administrative approval of the
Commissioner of Income-tax (TDS) shall be taken where cumulative amount of tax
foregone by lesser rate of tax collection at source during the financial year
for a particular buyer or licensee or lessee, as the case may be, exceeds Rupees
fifty lakh in Delhi, Mumbai, Chennai, Kolkata, Bangaluru, Hyderabad, Ahmedabad
and Pune Stations and Rupees ten lakh for other stations. Once the Addl. CIT/JCIT
or the CIT(TDS), as the case may be, gives administrative approval of the above,
a copy of it has to be endorsed to the jurisdictional CIT also.
3. In relation to TCS
matters of a buyer or licensee or lessee falling within the jurisdiction of
Directorate of Income-tax (International Taxation), the powers indicated above
shall be vested in the officers concerned i.e., Range Additional DIT/JDIT
(International Taxation) or Director of Income-tax (International Taxation), as
the case may be.
4. ‘Tax foregone’ in case of
a buyer or licensee or lessee, as the case may be, should ordinarily mean
difference between taxes computed at the relevant rate of collection stipulated
and the tax computed on the basis of rate at which the certificate u/s.206C(9)
is sought to be issued.
5. The content of this
instruction may be brought to the notice of all officers working in your charge
for strict compliance.
6. Hindi version will
follow.
F. No. 275/23/2007-IT(B) (Ajay
Kumar)
Director (Budget)
S. 43B — The assessee issued Deep Discount Bonds in 2000 —
During the relevant assessment year, it claimed deduction of interest accrued on
above bonds — AO was of the view that since no interest was paid in the period
and eventually, the interest will be paid after maturity of the bonds, no
deduction is permissible — Held, the interest would be still allowable in view
of mercantile system of accounting followed by the assesse.
Facts :
The assessee, an infrastructure company, issued Deep Discount
Bonds worth Rs.30 crore in 2000 to Mutual Funds, Public Financial Institutions
and Scheduled Banks. The assessee claimed deduction of Rs.6,08,03,230 in the A.Y.
2003-04 on account of interest paid. However, the AO was of the view that since
the total interest will be paid at the maturity of the Deep Discount Bonds,
deduction was to be allowed only on actual payment. On appeal, the Commissioner
(Appeals) affirmed the view of the AO on a different ground, i.e., since
interest was to be paid on maturity, there was no question of accrual of
interest for the period.
Held :
As per the mercantile system of accounting employed by the
assessee, though the payment was to be made only at the maturity, it was not
wrong to provide for interest in a pro rata manner as the liability has accrued.
This view was seconded by the Circular No. 2 of 2002, dated 16-2-2002 of the
CBDT.
Thus, the interest which had accrued during the period,
though not paid was still allowable to the assessee. Moreover, it was affirmed
that S. 43B(e) was not applicable to payment of interest to Mutual Funds. Also,
in case of Public Financial Institutions, S. 43B(d) is attracted only on payment
of interest to its loans/borrower. In the given case, interest was paid on Deep
Discount Bonds which are like deposits. So, provisions regarding payment of
interest on loans/by a borrower as per S. 43B(d) and S. 43B(e) were not
applicable. Therefore, the disallowance made for interest in respect of Deep
Discount Bonds was to be deleted.
Income-tax Act, 1961 — S. 10A — Free trade zone — An assessee
need not set off unabsorbed depreciation and brought forward losses of non-STPI
unit against profit of STPI unit as there is no deduction u/s.10A for non-STPI
unit.
Facts I :
In A.Y. 2004-05, the Assessing Officer on scrutiny of the
assessee’s case was of the view that unabsorbed depreciation and brought forward
losses of non-STPI unit should be adjusted against the profits of STPI unit
before claiming deduction u/s.10A. The aggrieved assessee appealed to the CIT(A),
who upheld the order of the Assessing Officer.
Facts II :
The AO obtained the details of export of incurred in foreign
exchange. The details as given by the assessee included an item ‘allowance paid
to engineers on overseas contract’. The Assessing Officer held that the said
expenditure is for technical services and accordingly excluded the same from
export turnover.
Held I :
The Tribunal relied on the decisions of ACIT v. Yokogawa
India Ltd., (2007) (13 SOT 470) (Bang.) and Huawei Technologies (Ind.) P. Ltd. [ITA
No. 9(B) of 2007, Order dated 8-11-2007] and held that the business loss or
unabsorbed depreciation of non-STPI should not be set off with the STPI unit.
The following observations were also made :
1. The words total income used in S. 10A means total
income as computed under the provisions of the Act. The substituted S. 10A
does not mean that profits as mentioned u/s.10A should not be included in
the total income.
2. The Legislature has used the words ‘profits and gains
as derived by an undertaking’. The assessee may have more than one
undertaking and in that case one has to consider the profits and gains of
that undertaking which qualifies for deduction u/s.10A.
3. S. 10A nowhere mentions that the deduction has to be
restricted to the total income of the assessee as computed as per the
provisions of the Act. The only interpretation which is possible in respect
of S. 10A is that deduction of the unit qualifying for exemption is to be
given to the extent of income computed in respect of that unit as per the
provisions of the Act.
Held II :
1. Payments made to the engineers employed on site are
for the development of software. By such development, the assesse has not
rendered any technical services.
2. The CBDT Circular No. 694, dated 23-11-1994, stated
that computer programs are not physical goods, but are developed as a result
of intellectual analysis of the system. It is often prepared on site with
the software personnel going to the client’s premises.
Hence the expenditure incurred for payments on site
development cannot be excluded from the export turnover by holding it as
technical services.
S. 43(6), S. 45(1A) and S. 50 — Insurance claim received on
damaged tanks and terminals — S. 43(6) does not include the word ‘damage’ —
Hence the same should not be reduced from the WDV.
Facts :
The assessee’s tanks and terminals were damaged due to an
earthquake during the relevant financial year. The assessee incurred an
expenditure of Rs.3,83,04,364 for repair, reconstruction and refurbishment of
the said tanks and terminals. As against this, the assessee received a total sum
of Rs.1,57,28,124 from the insurance company in two instalments. During the
relevant financial year, the assessee deducted the amount of first instalment
(i.e., Rs.1,25,00,000) received from the insurance company from total
expenditure incurred (i.e., Rs.3,83,04,364). The balance amount was shown as WIP
in the balance sheet. In the next year, the assessee deducted the second
instalment received from the said WIP and included certain other expenses
incurred. The final amount was then capitalised and depreciation u/s.32 was
claimed on the said amount.
The AO pointed out that the provisions of S. 45(1A) r.w. S.
50 should be applied to the assessee’s case. Thus the insurance receipt of
Rs.1,57,28,124 should be deducted from the WDV of the block of plant and
machinery.
Held :
1. S. 50 of the Act deals with transfer of assets or
cessation of existence of the block of assets. In the instant case, there is
neither a transfer, nor has the block ceased to exist. It is a case of
damaged tank and terminals and damage does not involve transfer or cessation
of existence.
2. Further, the words used in S. 45(1A) are ‘profit or
gains’, which imply the excess of the insurance receipts over the
expenditure incurred by the assessee in respect of damaged tanks and
terminals. The total insurance receipts in the present case is much less
than the total expenditure incurred by the assessee. Therefore the
provisions of S. 45(1A) are inapplicable in the present case.
3. S. 43(6)(c)(i)(B) excludes the word ‘damage’.
Therefore the moneys payable in respect of damaged tanks and terminals is
outside the purview of the said Section.
4. There is no provision in the Act to authorise the
Assessing Officer to decrease the WDV involving damaged depreciable assets
as in the case of the assessee. The AO has thus erroneously equated the
insurance receipts in the assessee’s case with ‘moneys payable in respect of
any asset falling in that block which is sold or discarded or demolished or
destroyed’.
5. The AO has erroneously assumed that every insurance
receipt is taxable, ignoring the provisions of the S. 45(1A) which use the
words ‘any profits or gains’ on such insurance receipts.
S. 10(16) — Scholarship/stipend paid to assessee — Whether
can be termed as salary — Held, No. The same is exempt u/s.10(16).
Facts :
The assessee completed his MBBS degree and joined a medical
college as a junior resident for post graduation. He received a sum of
Rs.2,65,955 from the college as a scholarship/stipend for higher education. The
assessee claimed the said amount as exempt u/s.10(16) of the Act. The AO
disallowed the claim on the ground that the said amount forms salary income in
the hands of the assessee.
Held :
1. The terms and conditions mentioned in the bond signed
between the assessee and the college clearly use the words ‘scholarship’ and
‘scholarship holder’.
2. The assessee had made an application to the principal
of the medical college. The letter of the Principal clearly states that the
amount is a ‘stipend’ to the post-graduate student.
3. S. 10(16) of the Act speaks about the scholarship
granted to meet the cost of education, therefore, it can be said that even
if it is an income in the hands of recipient, it cannot be taxed, because it
is a scholarship to meet the cost of education.
Credit for TDS to be allowed even when the income is
capitalised and not directly offered to tax.
Facts :
The assessee was a domestic company engaged in the business
of co-generation of power. It had earned interest income of Rs. 51,21,287 on
which tax was deducted at source. The said interest income arose out of a
statutory deposit made by the assessee. The said interest income was deducted
from expenditure incurred for the installation of machinery. The Assessing
Officer, however, did not give credit of tax deducted on this interest income on
the ground that the same was not offered to tax but was capitalised.
Held :
Relying on the decisions of Karnal Co-operative Sugar Mills
Ltd. (243 ITR 2) (SC) and Toyo Engg. India Ltd. v. JCIT, (5 SOT 616), the ITAT
held that :
(1) When deposit is linked with the installation of
machinery, income earned on such deposit is incidental to the installation.
Accordingly, the interest is a capital receipt and would go to reduce the
cost of asset. The assessee had rightly deducted the interest income from
the cost of asset and while doing so it has indirectly offered the income to
tax.
(2) When a particular income is received after deduction
of tax, the TDS has been duly deposited with the bank and the assessee has
received the requisite certificate to this effect, then on production of the
said certificate the assessee becomes entitled to the credit of
TDS even if the income is not directly offered for tax.
(3) The assessee should be rightly allowed the credit of
tax deducted. The Government cannot benefit by taking advantage of legal
technicalities.
S. 271(1)(c) — Deduction u/s.80HHC — Assessee included
miscellaneous income without reducing 90% — Penalty cannot be levied simply
because assessee had not reduced 90% of other incomes
S. 271(1)(c) — Last year for claiming deduction u/s.80I was
A.Y. 1996-97 — Inspite of this, assessee claimed deduction u/s.80I — No
explanation offered by assessee in this regard — Explanation I to S. 271(1)(c)
applicable — Penalty to be levied.
Facts :
The assessee claimed deduction u/s.80HHC of Rs. 1,52,63,904.
While doing so, the assessee included interest income, miscellaneous income and
excess provision written back in the profit without reducing 90% thereof. The
AO, by applying the Explanation (baa) to S. 80HHC, excluded 90% of aforesaid
amounts and worked out deduction u/s.80HHC. He also initiated penalty
proceedings u/s.271(1)(c).
The Assessing Officer further noticed that the assessee had
also claimed deduction u/s.80I. The AO noted that the assessee was entitled to
deduction only up to A.Y. 1996-97. The AO thereafter asked the assessee to give
reasons as to why the claim of deduction u/s.80I should not be disallowed. No
reply in this regard was furnished by the assessee. The AO, therefore, held that
the claim of deduction u/s.80I was incorrect. He also initiated penalty
proceedings u/s.271(1)(c).
The CIT(A) confirmed the above additions. Thereafter, the AO
proceeded with penalty proceedings.
The CIT(A) confirmed that penalty u/s.271(1)(c) is leviable
in the assessee’s case.
Held :
(1) The question of excluding interest income and
miscellaneous income is dependent upon the nature of incomes — Whether they
are directly connected to operations of the assessee’s business. Simply
because the assessee had claimed deduction without reducing 90% of aforesaid
incomes, it cannot be said that the assessee has concealed income or has
made incorrect claim. The assessee’s claim was a bona fide one and assessee
has disclosed all material facts. Hence, no penalty u/s.271(1)(c) is to be
levied.
(2) As far as deduction u/s.80I is concerned, penalty
u/s.271(1)(c) has been correctly levied. No reason or explanation was given
by the assessee as to why it made a claim for deduction u/s.80I when it was
known to the assessee that the deduction is available only up to the A.Y.
1996-97.
The Assessing Officer started making enquiry and on enquiry,
the assessee informed the AO that the first year of deduction was A.Y. 1989-90.
Even, thereafter the assessee did not withdraw the claim made u/s.80I.
Hence the Explanation I to S. 271(1)(c) is squarely
applicable to assessee’s case inasmuch as the assessee failed to offer any
explanation.
S. 40A(9) — Where the contribution made to any fund is a bona
fide one, the same should not be hit by the disallowance of S. 40A(9).
Facts :
The assessee had contributed Rs.50 lakhs to Retired Employees
Medical Benefit Scheme. This was pursuant to the Associate Bank Officers’
Association’s (‘union’) demands from the management of the State Bank of India
and its subsidiaries. After negotiations between the management and the union,
it was agreed to formulate a medical scheme for retired officers. As per terms
of agreement between the management and the union, the assessee paid Rs.50 lakhs
as its contribution towards formulation of the scheme.
On perusal of the tax audit report, the AO disallowed the
said contribution on the ground that the said contribution is subject to the
provisions of S. 40A(9). The CIT(A) held in favour of the assessee.
Held :
The Tribunal held in favour of the assessee on the following
grounds :
(1) The basic intention for inserting Ss.(9) to S. 40A was
to discourage the practice of creating camouflage trust funds, etc. ostensibly
for the welfare of employees and transferring huge funds to such trust as
contribution.
(2) In the given case, there was an agreement signed by the
management and the union and contribution made by the assessee was in
pursuance to this agreement. Hence, it was a contractual obligation of the
assessee and the contribution was a bona fide one. Further, in the case of
assessee the fund is not in the control of the assessee.
The assessee would not be hit by the provisions of S. 40A(9).
51 (2010) 124 ITD 353 (Delhi)
Model Footwear (P.) Ltd. v. ITO
A.Y. : 1998-99. Dated : 22-5-2009
S. 271(1)(c) — Deduction u/s.80HHC — Assessee included
miscellaneous income without reducing 90% — Penalty cannot be levied simply
because assessee had not reduced 90% of other incomes
S. 271(1)(c) — Last year for claiming deduction u/s.80I was
A.Y. 1996-97 — Inspite of this, assessee claimed deduction u/s.80I — No
explanation offered by assessee in this regard — Explanation I to S. 271(1)(c)
applicable — Penalty to be levied.
Facts :
The assessee claimed deduction u/s.80HHC of Rs. 1,52,63,904.
While doing so, the assessee included interest income, miscellaneous income and
excess provision written back in the profit without reducing 90% thereof. The
AO, by applying the Explanation (baa) to S. 80HHC, excluded 90% of aforesaid
amounts and worked out deduction u/s.80HHC. He also initiated penalty
proceedings u/s.271(1)(c).
The Assessing Officer further noticed that the assessee had
also claimed deduction u/s.80I. The AO noted that the assessee was entitled to
deduction only up to A.Y. 1996-97. The AO thereafter asked the assessee to give
reasons as to why the claim of deduction u/s.80I should not be disallowed. No
reply in this regard was furnished by the assessee. The AO, therefore, held that
the claim of deduction u/s.80I was incorrect. He also initiated penalty
proceedings u/s.271(1)(c).
The CIT(A) confirmed the above additions. Thereafter, the AO
proceeded with penalty proceedings.
The CIT(A) confirmed that penalty u/s.271(1)(c) is leviable
in the assessee’s case.
Held :
(1) The question of excluding interest income and
miscellaneous income is dependent upon the nature of incomes — Whether they
are directly connected to operations of the assessee’s business. Simply
because the assessee had claimed deduction without reducing 90% of aforesaid
incomes, it cannot be said that the assessee has concealed income or has made
incorrect claim. The assessee’s claim was a bona fide one and assessee has
disclosed all material facts. Hence, no penalty u/s.271(1)(c) is to be levied.
(2) As far as deduction u/s.80I is concerned, penalty
u/s.271(1)(c) has been correctly levied. No reason or explanation was given by
the assessee as to why it made a claim for deduction u/s.80I when it was known
to the assessee that the deduction is available only up to the A.Y. 1996-97.
The Assessing Officer started making enquiry and on enquiry,
the assessee informed the AO that the first year of deduction was A.Y. 1989-90.
Even, thereafter the assessee did not withdraw the claim made u/s.80I.
Hence the Explanation I to S. 271(1)(c) is squarely applicable to assessee’s
case inasmuch as the assessee failed to offer any explanation.
S. 10B — For claiming deduction the assessee need not own the
plant and machinery by itself.
Facts :
The assessee is a private limited company. In its return of
income it claimed a deduction u/s.10B of the Income-tax Act, 1961 (‘the Act’) in
respect of export of computer software. During the scrutiny assessment, the AO
found that the assessee did not have any plant and machinery to develop any
computer software on its own. The computer software developing was done in the
premises of Seacom, the subsidiary of the assessee for which the assessee paid
‘software development charges’. According to the AO, one of the basic conditions
for claiming deduction u/s.10B is that the assessee company should have its own
infrastructure. He denied deduction u/s.10B of the Act.
The CIT(A) held that the assessee was entitled to exemption
u/s.10B.
Held :
On appeal, the ITAT allowed deduction u/s.10B on the
following grounds :
(1) Relying on various judgments, the ITAT held that it is
not required that the assessee company should itself own plant and machinery.
Even if the assessee gets the articles manufactured from some other person but
under the control and supervision of the assessee, it must be taken as if the
assessee is the manufacturer.
(2) Further the development of computer software is a very
specialised field which requires specialised education, skills, etc. It is not
a mechanical job and more than machines, it is human skills that count.
(3) Further, Circular 694, dated 23-11-1994 also supports
the assessee’s case. The Circular accepts that computer programmes are not
physical goods but are developed through a process of intellectual analysis.
It also recognizes that in some cases it is possible for the assessee to
produce software at the client’s premises. In such case, the software
personnel sent by the assessee would obviously use the client’s equipment
only.
S. 271(1)(c) — Deduction u/s.80HHC — Assessee included
miscellaneous income without reducing 90% — Penalty cannot be levied simply
because assessee had not reduced 90% of other incomes.
The assessee claimed deduction u/s.80HHC of Rs. 1,52,63,904.
While doing so, the assessee included interest income, miscellaneous income and
excess provision written back in the profit without reducing 90% thereof. The
AO, by applying the Explanation (baa) to S. 80HHC, excluded 90% of aforesaid
amounts and worked out deduction u/s.80HHC. He also initiated penalty
proceedings u/s.271(1)(c).
The CIT(A) confirmed the above additions. Thereafter, the AO
proceeded with penalty proceedings.
The CIT(A) confirmed that penalty u/s.271(1)(c) is leviable
in the assessee’s case.
Held :
The question of excluding interest income and miscellaneous
income is dependent upon the nature of incomes — whether they are directly
connected to operations of the assessee’s business. Simply because the assessee
had claimed deduction without reducing 90% of aforesaid incomes, it cannot be
said that the assessee has concealed income or has made incorrect claim. The
assessee’s claim was a bona fide one and the assessee has disclosed all material
facts. Hence, no penalty u/s.271(1)(c) is to be levied.
Note : The above issue was the main issue involved in the case.
The other issues being minor issues have not been reported.
S. 271(1)(c) — The constitution of Special Bench itself
suggests that there was some force in the claim of the assessee — If there is a
debatable issue and action of the assessee is bona fide being based on adoption
of one of the possible views, the penalty is not leviable.
Facts :
The assessee was an AOP and during the relevant assessment
years it filed return of income at nil and it was claimed that it had
distributed the profit amongst its members as per their respective shares which
are determined and defined in the joint venture agreement and all of them have
shown their share as income u/s.67A and, therefore, S. 167B(2) was not
applicable. The assessee supported its claim by relying on the decision of the
Supreme Court in the case of CIT v. Murlidhar Jhawar & Purna Ginning & Pressing
Factory, 60 ITR 95 and also by Board’s Circular No. 75/19/191/62-ITJ, dated 24th
August, 1966.
The contention of the assessee was not accepted by the AO and
income was taxed in the hands of the AOP at maximum marginal rate as per S.
167B(2). The matter went up to the Tribunal and Special Bench was constituted.
The Special Bench held that the assessment made on the AOP is valid as reliance
could not be placed on the Circular as the same had lost its validity in the
light of the decision of the Supreme Court in the case of ITO v. Ch. Atchaiah,
218 ITR 239 and also there was amendment in the provisions of the Act by virtue
of which the AO had lost option to the assessee either AOP or its members under
the provisions of the Income-tax Act, 1961 as compared to the provisions of the
1922 Act.
The penalty was levied on the ground that the assessee has
not come clean on the issue of taxing the income received by AOP u/s.167B(2) and
tried to mislead the Department.
Held :
It has to be kept in mind that quantum proceedings are
different and distinct from the penalty proceedings. In penalty proceedings,
mere confirmation of addition in quantum proceedings cannot be said to be
conclusive factor to hold that penalty is leviable. According to the facts of
the present case, right from the beginning it has been the case of the assessee
that its claim of filing substantial income in the hands of the members of the
AOP was supported by the decision of the Supreme Court, which was even
interpreted by the CBDT in its Circular to be applicable to the provisions of
the Income-tax Act, 1961. It is also the case of the assessee that even if the
legal position had been settled by the decision of the Supreme Court in the case
of Ch. Atchaiah (supra), then also the Circular being a benevolent one could not
be refused to be applied by the Department unless the same is withdrawn. The
constitution of the Special Bench itself suggests that there was some force in
the claim of the assessee or at least the view taken by the assessee could not
be said to be totally devoid of merit. The reference of issue to the Special
Bench is indicative of the fact that there was a lot of debate on the issue
whether the benevolent Circular will prevail even after the decision of the
Supreme Court in the case of Ch. Atchaiah (supra). Thus, it is certainly a case
where two views of the matter were possible. Where there is a debatable issue
and action of the assessee is bona fide being based on adoption of one of the
possible views, the penalty is not leviable even if in the quantum proceedings
it was not finally accepted by the Tribunal.
S. 80-IA — The eligibility for the claim of deduction
u/s.80-IA by applying the restraints of S. 80-IA(3) cannot be considered for
every year of the claim of deduction u/s.80-IA, but can be considered only in
the year of formation of the business.
Facts :
The company was in the business of providing fax mail
services. The company started two new services being Internet services and
Internet telephony services as per the licence issued from the Department of
Telecommunication (DOT). The assessee claimed that as per the provisions of
S. 80-IA(4), the assessee was entitled to the deduction right from the A.Y.
2001-02 as the first invoice was made on 17th October, 2000. The assessee did
not claim deduction u/s.80-IA(4) for the A.Ys. 2001-02, 2002-03 and 2003-04 and
the first year of claim u/s.80-IA(4) was for A.Y. 2004-05 and for the
A.Ys. 2004-05 and 2005-06 the assessee had been granted the deduction where the
assessment orders were passed u/s.143(3) of the Act.
The AO denied the deduction u/s.80-IA(4) for A.Y. 2006-07 on
the ground that this was a new business in which the assessee had used the plant
and machinery previously used in its business of fax mail services.
Held :
The bar as provided in S. 80-IA(3) is to be considered only
for the first year of claim of deduction
u/s.80-IA. Once the assessee has been shown to have used new plant and machinery
which was not previously used for any purpose and it is established that the
undertaking is not formed by splitting up or reconstruction of a business
already in existence the assessee becomes entitled to the deduction u/s.80-IA.
In the subsequent years, the assessee may acquire fresh machinery and plant
whether new or previously used for any purpose. As the deduction is available on
the income of the undertaking and the bar provided u/s.80-IA(3) is in relation
to the formation of undertaking, once the formation is complete the development
of undertaking cannot be put under restraints of S. 80-IA(3) of the Act. The
eligibility for the claim of deduction u/s.80-IA by applying the restraints of
S. 80-IA(3) cannot be considered for every year of the claim of deduction
u/s.80-IA, but can be considered only in the year of formation of the
undertaking.
Even otherwise in the present case, the clause (ii) of S.
80-IA(4) having been inserted in S. 80-IA(3) w.e.f. 1st April, 2005 and the
business of the assessee has been formed and commenced much before 1st April,
2005, the restrictions placed by S. 80-IA(3) to the provisions of S.
80-IA(4)(ii) would not bar that assessee for continuing with its claim of
deduction u/s.80-IA.
Income-tax Act, 1961 — S. 70(1), S. 80IA(5). An assessee
running two separate undertakings can set off depreciation of the undertaking
whose income is eligible for deduction u/s.80IA against business income of the
other undertaking whose income is not eligible for deduction u/s.80IA.
Facts :
The assessee had two undertakings — one carrying on the
business of manufacturing of super-enameled copper winding wires and the other
carrying on the business of generation of power through windmills. The profits
of the undertaking generating power through windmills qualified for deduction
u/s.80IA, whereas the profits of the other business of manufacturing
super-enameled copper winding wires did not qualify for deduction u/s.80IA.
During the year under consideration, the assessee filed a revised computation of
income, claimed business income of Rs.60,00,829 from which it deducted
Rs.73,20,339 being loss/depreciation of undertaking generating power. The
Assessing Officer (AO) held that since the profits of the undertaking generating
power through windmill qualify for deduction u/s.80IA the loss/depreciation of
this undertaking cannot be set off against the income of the undertaking whose
profits do not qualify for deduction u/s.80IA. He, accordingly, denied the
set-off claimed by the assessee, but allowed it to carry forward the
loss/depreciation of undertaking generating power to the subsequent assessment
year.
Aggrieved the assessee preferred an appeal to the CIT(A) who
rejected the appeal of the assessee.
Aggrieved the assessee preferred an appeal to the Tribunal.
Held :
(1) For the purpose of determining the quantum of deduction
as referred in Ss.(1) to S. 80IA in respect of an eligible business, the
computation will have to be done as if such eligible business was the only
source of income to the assessee in all the relevant years of claim commencing
from the initial assessment year.
(2) S. 80IA is a beneficial Section permitting certain
deductions in respect of certain income under Chapter VIA of the Act. A
provision granting incentive for promotion of economic growth and development in
taxing statutes should be liberally construed and restriction placed on it by
way of exception, should be construed in a reasonable and purposive manner so as
to advance the objects of the provision. It is a generally accepted principle
that the deeming provision of a particular Section cannot be breathed into
another Section. Therefore, the deeming provision contained in S. 80IA(5) cannot
override the S. 70(1) of the Act. The CIT(A)’s observation on this regard that
the specific provision of S. 80IA(5) have overriding effect is not acceptable.
(3) The assessee was entitled, as per provisions of the Act,
to claim depreciation on windmill at Rs.78,72,094 and had generated income from
windmill power generation business of Rs.5,51,755. Thus, the loss on account of
business eligible for deduction u/s.80IA was Rs.73,20,339. Since there was a
loss for the previous year, the question of deduction u/s.80IA did not arise.
The Tribunal held that as per S. 70(1), the assessee is eligible to set off this
loss of Rs.73,20,339 from another source under the same head of income. However,
during the subsequent assessment year, this loss has to be notionally carried
forward under the same source and set off before claiming deduction u/s. 80IA of
the Act.
The Tribunal directed the AO to set off the loss of the
assessee on windmill operations from the other source under the same head of
income. The appeal of the assessee was allowed.
Income-tax Act, 1961 — S. 147, S. 148, S. 263. When CIT has
after considering the explanations offered by the assessee dropped the proposed
proceedings u/s.263, the AO has no locus standi to issue notice u/s.148 on the
same set of facts.
Facts :
The total income of the assessee was originally assessed
u/s.143(3) of the Act. The CIT proposed a revision u/s.263, but later on dropped
the same accepting the explanations offered by the assessee-company. The reasons
which prompted the CIT to issue notice u/s.263 were regarding technical know-how
fees, cash assistance and duty draw-back, consideration of doubtful debts for
the deduction u/s.32AB and matter regarding deduction u/s.80I. The reasons
recorded by the Assessing Officer (AO) for issuing notice u/s.148 and the
reasons reflected in the notice u/s.148 were nothing else but the very same
issues considered by the CIT for the purpose of S. 263 proceedings. The AO
having issued notice u/s.148 completed the assessment u/s.143(3) r.w. S. 147 of
the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A)
challenging the validity of reassessment proceedings and contending that the
reassessment is bad in law and void ab initio. The CIT(A) upheld the order
passed by the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal
where it contended that when the CIT has dropped the proposed proceedings
u/s.263 on arriving at the satisfaction of the explanations offered by the
assessee-company, the AO has no locus standi to issue notice u/s.148 on the same
set of issues and thereafter to frame an assessment u/s147.
Held :
The Tribunal noted that in A.Y. 1987-88 on similar facts and
circumstances, a similar issue had arisen in the case of the assessee and the
Tribunal had in that case found that the Madras High Court has in the case of
CIT v. Ramachandra Hatcheries, (305 ITR 117) (Mad.) considered the same legal
issue i.e., whether S. 147 action is permissible in a case where proceedings
u/s.263 had already been dropped. The Madras High Court has in the said case
held that the AO has no jurisdiction to reopen an assessment u/s.147 so as to
circumvent the order of the CIT passed u/s.263, which had become final unless
and until the order was set aside by any process known to law.
The Tribunal also noted that when a Co-ordinate Bench has
already passed an order on an issue it has to follow the said order of the
Co-ordinate Bench unless the facts are different or new questions of law have
been raised or new materials have been placed. If the facts and circumstances
are the same and the law considered the same and the materials placed before the
Tribunal are also the same, the Tribunal has to follow the earlier decision of
the Co-ordinate Bench as that is the mandate of rule of judicial precedence and
that of judicial discipline. If the Tribunal does not follow the earlier
decision of the Co-ordinate Bench without valid reasons, it would be an
onslaught of the Rule of Law. Not to follow the order of the Co-ordinate Bench
would be ridiculed as a pompous show of self-righteousness. That is why the
Supreme Court has in the case of Union of India v. Raghubir Singh, (178 ITR 548)
(SC) has held that the Tribunal has to follow its own decision and should not
differ from its earlier view simply because a contrary view is possible.
The Tribunal following the order for A.Y. 1987-88 held the
reopening of assessment made by AO to be bad in law and set aside the order
passed by the AO u/s.143(3) r.w. S. 147 of the Act.
Income-tax Act, 1961 — S. 32(2) — Effect of substitution of
S. 32(2) w.e.f. A.Y. 2002-03 is that unabsorbed depreciation of the earlier
period is allowable under the new provision, but has to be dealt with in
accordance with the old provision and is subject to the limitation of being
eligible for set-off only against business income and for 8 years. Unabsorbed
depreciation relating to A.Ys. 1997-98 to 2001-02 cannot be set off against
non-business income of A.Y. 2003-04.
Facts :
During the assessment years under consideration the assessee
continued to derive income from the business of merchant banking activity. For
the assessment years under consideration the assessee claimed to set off
unabsorbed depreciation determined in A.Y. 1997-98 and A.Y. 1998-99 against
income under the head ‘Income from Other Sources’. The assessing officer did not
allow the claim.
Aggrieved, the assessee preferred an appeal to the CIT(A) who
relying on the decision of the Supreme Court in the case of CIT v. Virmani
Industries Private Limited, (216 ITR 607) held that unabsorbed depreciation was
available to an assessee perpetually for set-off against the gross total income.
Aggrieved, the Department preferred an appeal to the
Tribunal. The President constituted a Special Bench to consider the following
question :
“On the facts and circumstances of the case, whether the
unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 is to be dealt
with in accordance with the provisions of
S. 32(2) as applicable for A.Ys. 1997-98 to 1999-2000 as claimed by the
Revenue or the same has to be dealt with in accordance with the provisions as
applicable to A.Ys. 2003-04 and 2004-05 as claimed by the assessee.”
Held :
(1) The amendment to S. 32(2), by the Finance Act, 2001
w.e.f. 1-4-2002 is a substantive amendment. Amendment to a substantive provision
is normally prospective unless expressly stated otherwise or it appears so by
necessary implication. The substantive provision contained in S. 32(2) as
substituted by the Finance Act, 2001 w.e.f. 1-4-2002 is prospectively applicable
to A.Y. 2002-03 onwards.
(2) S. 32(2) is a deeming provision. A deeming provision
cannot be extended beyond the purpose for which it is intended. By a legal
fiction, the amount of depreciation allowance u/s.32(1) which is not fully
absorbed against income for that year is deemed to be the part of depreciation
allowance for the succeeding year(s).
(3) S. 32(1) deals with depreciation allowance for the
current year and S. 32(2) uses the present tense to refer to allowance to which
effect ‘cannot be’ and ‘has not been’ given. This indicates that S. 32(2) speaks
of depreciation allowance u/s.32(1) for the current year starting from A.Y.
2002-03. Brought forward unabsorbed depreciation of earlier years cannot be
included within the scope of S. 32(2). If the intention of the Legislature had
been to allow such b/fd unabsorbed depreciation of earlier years at par with
current depreciation for the year u/s.32(1), u/s.32(2) would have used past or
past perfect tense and not the present tense. Further, the unabsorbed
depreciation for the period from A.Y. 1997-98 to A.Y. 1999-2000 has been
referred to as ‘unabsorbed depreciation allowance’ and given a special name and
cannot fall within S. 32(1) in A.Y. 2002-03.
(4) The effect of the amendment to S. 32(2) is that
unabsorbed depreciation of the earlier period is allowable under the new
provision, but has to be dealt with in accordance with the restrictions
contained in the old provision and is subject to the limitation of being
eligible for set-off only against business income. It can be carried forward
after a period of eight years.
(5) The legal position of current and brought forward
unadjusted/unabsorbed depreciation allowance in the three periods is summarised
as under :
A. In the first period (i.e., up to A.Y. 1996-97)
(i) Current depreciation, that is the amount of allowance
for the year u/s.32(1), can be set off against income under any head within
the same year.
(ii) Amount of such current depreciation which cannot be so
set off within the same year as per (i) above shall be deemed as depreciation
u/s.32(1), that is depreciation for the current year in the following year(s)
to be set off against income under any head, like current depreciation.
B. In the second period (i.e., A.Y. 1997-98 to 2001-02)
(i) Brought forward unadjusted depreciation allowance for
and up to A.Y. 1996-97 (hereinafter called the ‘First unadjusted depreciation
allowance’), which could not be set off up to A.Y. 1996-97, shall be carried
forward for set-off against income under any head for a maximum period of
eight A.Ys. starting from A.Y. 1997-98.
(ii) Current depreciation for the year u/s.32(1) (for each
year separately starting from A.Y. 1997-98 up to A.Y. 2001-02) can be set off
firstly against business income and then against income under any other head.
(iii) Amount of current depreciation for A.Ys. 1997-98 to
2001-02 which cannot be so set off as per (ii). above, hereinafter called the
‘Second unabsorbed depreciation allowance’ shall be carried forward for a
maximum of eight assessment years from the A.Y. immediately succeeding the
A.Y. for which it was first computed, to be set off only against the income
under head ‘Profit and gains of business or profession’.
C. In the third period (i.e., A.Y. 2002-03 onwards)
(i) ‘First unadjusted depreciation allowance’ can be set off up to A.Y. 2004-05, that is, the remaining period out of the maximum period of eight A.Ys. [as per (Bi) above] against income under any head. (ii) ‘Second unabsorbed depreciation allowance’ can be set off only against the income under the head ‘Profit and gains of business or profession’ within the period of eight A.Ys. succeeding the
A.Y. for which it was first computed. (iii) Current depreciation for the year u/s. 32(1), for each year separately, starting from A.Y. 2002-03 can be set off against income under any head. Amount of depreciation allowance not so set off (hereinafter called the ‘Third unadjusted depreciation allowance’) shall be carried forward to the following year. (iv) The ‘Third unadjusted depreciation allowance’ shall be deemed as depreciation u/s.32(1), that is depreciation for the current year in the following year(s) to be set off against income under any head, like current depreciation, in perpetuity. (6) The argument that the Department having taken a stand in Jai Ushin Ltd. [ITA No. 3412/ (Delhi)/2006] cannot argue to the contrary is not acceptable. Such limitation if placed on the Revenue will also have to apply to the assessee. Further, as a Special Bench is constituted to resolve conflict of opinion amongst different Benches, it will be too harsh to stop the assessee or the Revenue from arguing the case in the way they like.
(7) The principle that if two interpretations are possible, then the view in favour of the assessee should be adopted cannot be applied in a loose manner so as to debar a superior authority from examining the legal validity of conflicting views expressed by lower authorities. This rule is applicable where the provision in question is such which is capable of two equally convincing interpretations and not otherwise.
I. The Core Group constituted by the Ministry of Corporate
Affairs has approved the roadmap recommended by Sub-group I in respect of
convergence of Indian Accounting Standards with International Financial
Reporting Standards (IFRS) for Insurance companies, Banking companies and
non-banking finance companies as under : (http://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPRGOV0604010.pdf)
1. Insurance companies :
(i) All insurance companies will convert their opening
balance sheet as at 1st April, 2012 in compliance with the converged Indian
Accounting Standards.
2. Banking companies :
(i) All scheduled commercial banks and those urban
co-operative banks (UCBs) which have a net worth in excess of Rs.300 crores
will convert their opening balance sheet as at 1st April, 2013 in compliance
with the first set of Accounting Standards (i.e., the converged Indian
Accounting Standards).
(ii) Urban co-operative banks which have a net worth in
excess of Rs.200 crores but not exceeding Rs.300 crores will convert their
opening balance sheets as at 1st April, 2014 in compliance with the first
set of Accounting Standards (i.e., the converged Indian Accounting
Standards).
(iii) Urban co-operative banks which have a net worth not
exceeding Rs.200 crores and Regional Rural banks (RRBs) will not be required
to apply the first set of Accounting Standards i.e., the converged Indian
Accounting Standards (though they may voluntarily opt to do so) and need to
follow only the existing notified Indian Accounting Standards which are not
converged with IFRSs.
3. Non-banking
financial companies :
(i) The following categories of non-banking financial
companies (NBFCs) will convert their opening balance sheet as at 1st April,
2013 if the financial year commences on 1st April (or if the financial year
commences on any other date, then on the date immediately following 1st
April, 2013) in compliance with the first set of Accounting Standards (i.e.,
the converged Indian Accounting Standards). These NBFCs are :
(a) Companies which are part of NSE — Nifty 50
(b) Companies which are part of BSE — Sensex 30
(c) Companies, whether listed or not, which have a net
worth in excess of Rs.1,000 crores.
(ii) All listed NBFCs and those unlisted NBFCs which do
not fall in the above categories and which have a net worth in excess of
Rs.500 crores will convert their opening balance sheet as at 1st April 2014
if the financial year commences on 1st April (or if the financial year
commences on any other date, then on that date following 1st April 2014) in
compliance with the first set of Accounting standards (i.e., converged
Indian Accounting Standards).
Unlisted NBFCs which have a net worth of Rs.500 crores or
less will not be required to follow the first set of accounting standards
(i.e., the converged Indian accounting standards), though they may voluntarily
opt to do so, but need to follow only the notified Indian Accounting Standards
which are not converged with the IFRSs.
II. The Securities and Exchange Board of India (SEBI)
has, vide Circular No. CIR/CFD/DIL/1/2010 dated 5th April, 2010, reviewed
and amended the Equity Listing Agreement with respect to the following in
exercise of its powers under Section 11 and S. 11A of the Securities and
Exchange Board of India Act, 1992 :
(i) Requirement of Auditors’ Certificate for accounting
treatment under schemes of arrangement
(ii) Timelines for submission and publication of
financial results by listed entities
(iii) Voluntary adoption of International Financial
Reporting Standards by listed entities having subsidiaries.
(iv) Requirement of a valid peer review certificate for
statutory auditors
(v) Interim disclosure of balance sheet items by listed entities
30 Adjustment of Refund of F.Y. 2009-10 in F.Y. 2010-11 —
Trade Circular No. 15T of 2010, dated 15-3-2010.
Dealers who have excess credit less than rupees 1 lac in the
return for the period ending on 31st March, 2010 can adjust their refund in the
return to be filed for F.Y 2010-11. But dealers who have already filed the claim
of refund would not be allowed to carry forward to the next financial year. This
facility is provided only for current year, that is, for 31st March, 2010 only.
29 Change in rate of tax — Trade Circular No. 14T of 2010,
dated 31-3-2010.
Commodities under MVAT Schedule Entry A-9A & A-51 currently
being tax-free, the same would continue to be tax-free.
Concessional tax rate for raisins and currants under Schedule
Entry No. C-108(1)(a), tea in leaf and powder form (including instant tea) under
Schedule Entry No. C-108 (1) (b) would continue but with increased MVAT rate
from 4% to 5% w.e.f. 1-4-2010 with the result that rates for these commodities
would be 5% from 1-4-2010.
For aviation turbine fuel (duty paid) covered by Schedule
Entry D-11, when sold within Maharashtra, excluding the geographical limit of
Brihan Mumbai Corporation & Pune District, concessional rate of tax 4% would
continue. It is clarified that this exemption would continue up to 31st March,
2011 or till the Goods & Service Tax Law is implemented in the State, whichever
is earlier.
No extension of concession to timber and dry fruits (other
than raisins and currants) which were taxable 4% up to 31st March, 2010. So
w.e.f. 1-4-2010 they would be taxable @12.5%.
28 Extension of due date for submission of MVAT Audit Report
— Trade Circular No. 13T of 2010, dated 31-3-2010.
Due date for submission of MVAT audit report in Form 704 for
the period 2008-09 is extended from 31st March, 2010 to 30th April, 2010 and the
statement of submission of such report along with required documents can be
submitted on or before 10th May, 2010.
By this Notification, Notification No. 09/2010-Service Tax,
dated the 27th February, 2010 and Notification No. 1/2006-Service Tax, dated the
1st March, 2006 regarding abatement of 70% in case of transport of goods by rail
are amended for a further period of 3 months i.e., the substitution of the word
‘Transportation of Goods in Containers by Rail’ by the words ‘Transportation of
Goods by Rail’ will be effective from 1st July, 2010.
By this Notification, earlier Notification No.
08/2010-Service Tax, dated the 27th February, 2010 is amended to defer exemption
from levy of service tax on services provided in relation to transport of goods
by rails for specified goods for a further period of 3 months i.e., exemption
shall be effective from 1st July, 2010.
By this Notification, earlier Notification No.
07/2010-Service Tax, dated the 27th February, 2010 is amended to defer
rescinding of exemption from levy of service tax on services provided by
transportation of goods in container by railway for further period of 3 months
i.e., up to 30th June, 2010.
24 Declaration to be submitted by specified assessees who
were registered before the launch of ACES — Trade Notice No. 1/ ST/ 2010, dated
8-3-2010.
All assesses, who are compulsorily covered for e-returns and
e-payment as aforesaid, who were registered before the launch of ACES and who
yet do not have their login and password, need to apply in the ‘Declaration Form
for ACES’ to the concerned Division/Range officer. The Form can be downloaded
from the website http://www.servicetaxdelhi.gov.in.
23 Procedure for electronic filing of service tax returns and
e-payment of Service Tax — Circular No. 919/09/2010-CX, dated 23-3-2010.
By this Circular a detailed procedure has been provided for
electronic filing of service tax return and electronic payment of service tax,
which has been earlier made mandatory w.e.f. 1-4-2010 vide Notification No.
01/2010-ST, dated 19th February, 2010 for the assessee who has paid total
service tax of Rs.10 lacs or more (including amount paid by way of utilisation
of CENVAT Credit) in preceding financial year. The detailed procedure is
available at the website http://www.cbec.gov.in.
22 Notification No. 24 vide F. No.164/02/-2008-ITA.I, dated
8-4-2010. — REC Bonds.
The Central Government has notified ten-year Deep Discount
Bond to be issued by Rural Electrification Corporation Limited (REC) by 31st
March 2011 as Zero Coupon Bonds for the purpose of S. 2(48) of the Income-tax
Act, 1961.
The Double Tax Avoidance Treaty and protocol signed between
Mexico and India on 10th September 2007 has been notified to be entered into
force on 1st February, 2010. The Treaty shall apply from 1st January, 2011 for
Mexico and from 1st April, 2011 for India.
21 Notification No. 22 of 2010; F.No.142/5/2010-SO (TPL),
dated 13-4-2010. — Specified Territories for S.90
The Central Government has approved notification of (i)
Bermuda, (ii) British Virgin Islands, (iii) Cayman Islands, (iv) Gibraltar, (all
British Overseas Territories); (v) Guernsey, (vi) Isle of Man, (vii) Jersey,
(all British Crown Dependencies); (viii) Netherlands Antilles (an Autonomous
Part of the Kingdom of Netherlands); and (ix) Macau (a Special Administrative
Region of the People’s Republic of China) as ‘specified territory’ for the
purpose of Explanation 2 to S. 90 of the Income-tax Act, 1961. S. 90 of the
Income-tax Act was amended by the Finance Act, 2009 to enable the Central
Government to enter into an agreement with any specified territory outside
India, in addition to the already existing provision of agreement with the
government of any country. Now the Central Government can initiate and negotiate
agreements for exchange of information for the prevention of evasion or
avoidance of income tax and assistance in collection of income tax with these
nine specified territories.
Rules 11U and 11UA have been inserted, which provide for
determination of fair market value of the property other than immovable property
for the purpose of valuation u/s.56 of the Act. The said rules shall come into
force from 1st October, 2009. These Rules define the valuation of jewelery,
artistic work, quoted shares and securities as well as unquoted instruments for
the purpose of computation of income u/s.56(vii) of the Act.
Dynavision Ltd. vs ACIT, Central Circle – II (1), Chennai
A. Ys.: 1990-91 to 1992-93. Date of order: 26.05.2009
When neither any deduction is claimed nor any charge is made
to the profit and loss account of any tax or duty, there is no question of
disallowing the amount u/s 43B.
Facts:
The assessee showed gross receipts of Rs. 46.10 crore in its
profit and loss account. Against this, the
assessee claimed deduction of Rs. 31.30 crore towards raw material consumed. Out
of the total amount of customs duty of Rs. 15.82 crore, Rs. 4.59 crores
represented the provision made for customs duty in respect of goods lying in a
bonded warehouse. This amount was provided to the raw material purchases
account. Since the imported goods were not released from the bonded warehouse,
they were shown as closing stock in hand and the customs duty payable was
included in this closing stock. The AO made addition on the basis that the
customs duty was not paid but was charged to profit and loss account. On appeal
to Tribunal, the Accountant Member upheld the order of AO while the Judicial
Member held otherwise. Hence, the matter was referred to Third Member.
Held:
The Third Member upheld the order of the Judicial Member. It
was held that section 43B can be invoked only when the assessee claims any tax
or duty. There was no dispute regarding accrual of liability. Even the assessee
accepted that the liability to pay customs duty had accrued. However, the fact
that the element of customs duty was made a part of closing stock had to be
considered. Since the customs duty was included in closing stock, it could not
be said that the assessee claimed the deduction of customs duty. Hence,
provisions of section. 43B could not be invoked and no disallowance u/s 43B was
warranted.
DCIT, Hoshiarpur Range, Hoshiarpur vs Satish Aggarwal & Co.
A. Y.: 2005-06. Date of order: 28.11. 2008
Payments for hiring of trucks does not come within the
purview of “works contract”—Hence, provisions of section 194C are not
applicable.
Facts:
The assessee made payments worth Rs. 17,40,000/- towards
hiring charges of trucks. No tax was
deducted on the said payments. The AO disallowed the expenditure u/s 40(a)(ia)
of the Income-tax Act, 1961 on the ground that the tax was deductible u/s 194C,
as the payments were having the character of “work” as defined in Explanation
III to s. 194C. The contention of the assessee was that there was no contract
between the appellant and the truck owners for carrying goods or passengers;
hence tax was not deductible u/s 194C and no disallowance was warranted.
Held:
Following the decision of Poompuhar Shipping Corpn. Ltd., the
Tribunal held that there was no contract between the assessee and the owners of
the trucks for carrying out any work. The assessee simply hired the trucks and
they were utilised in his business of civil construction. For carrying out any
work, manpower is the sine qua non, and without manpower, it cannot be said that
work has been carried out. Merely providing trucks without any manpower cannot
be termed as carrying out work by the truck owners, for which payment was made
by the assessee. Section 194I was also not attracted as its provisions became
applicable on payments made for the use of capital assets with effect from
1.6.2007. Hence, entering into a contract for carrying out work is not
equivalent to contract for hiring trucks. Consequently, there was no need to
deduct tax u/s 194C, and disallowance
u/s 40(a)(ia) was deleted.
Block of assets, s. 32, 38(2) — Under the scheme of block of
assets, (i) Depreciation cannot be disallowed on the ground that some of the
assets contained in the block have not been used for the purpose of the
business; (ii) the user of an individual asset for the purpose of business needs
to be examined only in the first year when the asset is purchased; (iii)
existence of individual assets in the block itself amounts to use for the
purpose of business. However, proportionate disallowance of depreciation can be
made if an individual asset contained in the block has been used for purposes
other than business.
Facts:
The assessee was carrying on two businesses with one division
at Dombivli and the other in Surat. Though the Surat division had closed down,
the assessee continued to claim depreciation on its assets. The Assessing
Officer (AO) disallowed the proportionate amount of depreciation attributable to
the assets of the Surat division, on the ground that the assets of the Surat
division were not used for the purpose of business. Aggrieved, the assessee
preferred an appeal to the CIT(A), who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal discussed in detail the meaning of the term
`depreciation’, considered various statutory provisions which have been amended
consequent to the insertion of the concept of block of assets and also Circular
No. 469, dated 23rd September, 1986 issued by CBDT. It also considered various
judicial pronouncements, examined the principle of commercial expediency and
also examined in detail how the scheme of depreciation on block of assets works,
and held as follows:
(i) Depreciation allowance u/s 32 is a statutory allowance
not confined expressly to diminution in value of the asset by reason of wear
and tear;
(ii) Main objective of introducing the block of assets
concept was only to reduce time and effort spent in detailed record
maintenance;
(iii) If the asset has neither been used for business nor
for non-business purposes, but remained in block of assets, the provisions of
S. 38(2) are not applicable;
(iv) The ratio of the decision of the SB of the Chandigarh
Tribunal in the case of Gulati Saree Centre vs ACIT 71 ITD 73 (Chd)(SB) does
not apply to the present case, since in the case before the SB, the cars owned
by the assessee firm were being used for personal purposes by the partners,
whereas in the present case, assets remained in block of assets and were not
used for non-business purposes like personal use, etc.;
(v) The condition/requirement `used for the purpose of
business’, as provided in s. 32(1) for the concept of depreciation on block of
assets can be summarized as: (a) Use of individual asset for the purpose of
business can be examined only in the first year when the asset is purchased;
(b) In subsequent years, use of block of assets is to be examined. Existence
of individual assets in the block of asset itself amounts to use for the
purpose of business;
(vi) The judgment of the Bombay High Court in the case of
Dineshkumar Gulabchand Agarwal vs CIT & Anr 267 ITR 768 (Bom) is not
applicable to the facts of the present case, since the issue in the case under
consideration is whether under the facts and circumstances of the case, the
assessee is entitled to depreciation on the assets of the closed unit. The
decision of the Bombay High Court has been distinguished by the ITAT in the
case of G R Shipping Ltd (ITA No. 822/Mum/05 order, dated
17.7.2008)(2008-TIOL-729-ITAT-Mum) by observing that in that case, the asset
in question was not at all put to use.
Scientific Atlanta India Technology Pvt. Ltd. vs ACIT
A.Y.: 2003-04 & 2004-05. Date of order: 05.02.2010
Section 10A — Section 10A grants a deduction and not an
exemption, and section 80AB is not applicable to s. 10A—Deduction u/s 10A is to
be allowed while computing income under the head `Profits and gains of business
or profession’ and not under `Gross total income’. Deduction u/s 10A is to be
computed without setting off the losses of non-eligible units against profits of
an eligible unit.
Facts :
During the previous year which was relevant to A.Y. 2003-04,
the assessee had two units: one in Chennai and one in Delhi. The unit in Chennai
was engaged in development of software and its profits were eligible for
deduction u/s 10A. The unit in Delhi was engaged in the business of trading.
During the year under consideration, the unit in Delhi had suffered a loss and
the unit in Chennai had earned profits. The assessee claimed deduction u/s 10A
in respect of its entire profits from the unit in Chennai, without setting off
the loss suffered by the unit in Delhi.
The Assessing Officer (AO) did not accept the computation of
the assessee on the ground that after the amendment of s. 10A, w.e.f. 1.4.2001,
a deduction was to be allowed from the “total income”, and consequently, the
loss suffered by the Delhi unit had to be taken into account.
Aggrieved, the assessee preferred an appeal to CIT(A) who
upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
A special bench was constituted to dispose of the appeal as well as to
adjudicate upon the following question of law:
“Should the business losses of a non eligible unit, whose
income is not eligible for deduction under section 10A of the Act, have to be
set off against the profits of the undertaking eligible for deduction under
section 10A, for the purposes of determining the allowable deduction under
section 10A of the Act?”
Held:
(i) Even though s. 10A falls under Chapter III, it has been
mentioned in the section itself that what is to be given is only a deduction
and not exemption. A deduction in respect of profits eligible under s. 10A is
required to be made at the stage of computing the income under the head
“Profits and gains of business and profession” and not from the gross total
income;
(ii) Section 80AB applies to deductions mentioned in
Chapter VI-A. Section 10A does not fall in Chapter VI-A, and hence, s. 80AB
cannot be applied to s. 10A;
(iii) It can be noticed from the language of s. 10A (1)
that a deduction of such profits and gains that are derived by “an”
undertaking, qualify u/s 10A for deduction from the total income. In case the
assessee has more than one undertaking, one has to consider the profits and
gains of that “particular undertaking” which qualifies for deduction u/s 10A.
Again,
s. 10A (4) uses the words “profits and gains of the business of the
undertaking” and not total profits of the business of the assessee. The
distinction between the “undertaking” and the “assessee” is well-known and has
also been noted by the CBDT in Circular F. No. 15/563, dated 13.12.1963. The
deduction u/s 10A attaches to the undertaking and not to the assessee;
(iv) The losses of a unit which is not eligible for
deduction u/s 10A cannot be set off against the profits of the unit which is
eligible for deduction u/s 10A. The loss of the non-eligible unit can be set
off against other incomes or may be carried forward;
(v) If there is more than one undertaking which is eligible
for deduction u/s 10A, and if some of the units have profit and other units
have loss, it would be an entirely different case from the present one. The
decision rendered in this case would not be applicable to such cases.
The Special Bench decided the appeal in favour of the
assessee.
Section 54EC and Circular No. 142/9/2006 TPL, dated 30.6.2006
— Non-availability of bonds qualifying for deduction u/s 54EC is a reasonable
cause for not purchasing the bonds within the time specified in s. 54EC—Since
the assessee purchased the bonds as soon as the same were available, it was
eligible to claim deduction u/s 54EC.
Facts:
During the year, the assessee sold its factory building which
formed a part of its block of assets. The capital gain of Rs. 49,36,293 arising
from the sale of the factory building was claimed to be deductible u/s 54EC. The
bonds qualifying for deduction u/s 54EC were not available and as a result of
various representations, the CBDT had extended the time period for subscribing
the bonds upto 31.12.2006, vide its Circular No. 142/9/2006 TPL, dated
30.6.2006. Before filing the return of income, the assessee had deposited Rs. 50
lakh through a fixed deposit with the State Bank of India and had in a letter
intimated to the banker that the fixed deposit would be encashed as soon as the
bonds were available. Along with the return of income, the assessee had appended
a note explaining the factual position and stating that it will subscribe to the
bonds as soon as the same were available. The bonds were available on 22.1.2007
and the assessee applied for them on 27.1.2007, whereupon the bonds were
allotted to him on 31.1.2007.
The Assessing Officer held that since the capital asset
transferred formed a part of the block of assets,
s. 50 deems the gain arising on transfer thereof to be a short-term capital gain
arising from the transfer of a short term capital asset. He also held that
though the circular extended the time period up to 31.12.2006, the bonds had
been purchased on 31.1.2007 which was beyond the due date specified. He,
therefore, disallowed the claim of the assessee.
Aggrieved, the assessee preferred an appeal to the CIT(A),
who held that following the ratio of the decision of the Bombay High Court in
the case of Ace Builders P. Ltd. 281 ITR 210 (Bom), the assessee was entitled to
deduction u/s 54EC, subject to satisfaction of conditions stated therein. Since
the bonds were not subscribed to by the due date extended by the CBDT circular,
the assessee was held not to be entitled to deduction u/s 54EC.
Held :
On the basis of facts, the Tribunal held that it was an
impossible task for the assessee to comply with the time period laid down u/s
54EC. The delay in purchase due to non-availability of the bonds was held to be
a reasonable cause, and the assessee was held to be entitled to exemption u/s
54EC. The Tribunal also noted that in the case of Ram Agarwal 81 ITD 163, on
similar facts, it had been held by the Tribunal that the assessee was entitled
to claim deduction u/s 54EC. The Tribunal allowed the appeal of the assessee.
Block period 01.04.1987 to 15.12.1997. Date of order:
12.10.2009.
Section 254 of the Income-tax Act, 1961 — If an order passed
by the Tribunal is not in conformity with the judgment of the Supreme Court or
that of the jurisdictional High Court rendered prior to or subsequent to the
impugned order, the same constitutes a mistake as apparent from records and
capable of rectification u/s 254(2).
Certain additions made by the Assessing Officer were
confirmed by the Tribunal. One miscellaneous application filed by the assessee
u/s 254(2), seeking rectification of the Tribunal’s order was dismissed by the
Tribunal. The assessee once again moved another miscellaneous application u/s
254(2) seeking rectification of the Tribunal’s order.
Facts:
The Judicial Member of the Tribunal, in light of the judgment
of the Supreme Court rendered in the case of P.R.Metrani vs CIT [2006] 287 ITR
209 / 157 Taxman 325, recalled the order of the Tribunal on merits. However, the
Accountant Member did not agree with the Judicial Member and dismissed the
miscellaneous application on the ground that successive miscellaneous
applications were not permissible and, further, the judgment of the Supreme
Court in the case of P.R.Metrani (supra) was not applicable. In view of the
difference of opinion between the members of the Tribunal, the matter was
referred to the Third Member.
Held:
The Third Member held as follows:
1. It is evident that the scope of sub-section (2) is
restricted to rectifying any mistake in the order which is apparent from
records and does not extend to reviewing of the earlier order.
2. It is well-settled that the scope of proceedings u/s
254(2) is confined to rectifying any mistake which is apparent on the very
face of it. If the point needs to be proved on the strength of different
facets of reasoning, the same would become debatable. Once a particular point
falls in the realm of “debatable issue”, it automatically goes out of the
domain of sub-section (2) of section 254.
3. If two views are possible on a particular point and the
Tribunal has preferred one view over the other, no rectification application
lies for impressing upon the Tribunal to choose the other possible view in
preference over the one already adopted by it.
4. If, however, the order passed by the Tribunal is not in
conformity with the judgment of the Supreme Court or that of the
jurisdictional High Court, rendered prior to or subsequent to the impugned
order, the same constitutes a mistake apparent from records and capable of
rectification u/s 254(2).
5. Similarly, it will be an error apparent from records, if
the order is not in conformity with the retrospective amendment carried out to
the statutory provision covering the period and point in dispute, subject to
the fulfilment of other conditions prescribed in the Act such as limitation
period, etc.
Section 40(b) — Since section 40(b) uses the term “authorise”
and not “quantify”, salary to partners cannot be disallowed merely because
amount of salary is not quantified in partnership deed.
Section 119 — CBDT has no jurisdiction to substitute the term
“authorise” occurring in section 40(b) by the term “quantify” in its Circular
No.739, dated 25.03.1996.
Facts:
The salary paid to partners by the assessee firm for A.Ys.
1999-2000 and 2000-2001 was disallowed by the Assessing Officer on the ground
that in the partnership deed filed along with the return of income for
A.Y.1998-99, neither the salary payable to the partners was quantified nor the
manner in which such quantification had to be done was prescribed. By referring
to the CBDT Circular No.739, dated 25.03.1996 [1996] 131 CTR (St.) 53, the
Assessing Officer was of the view that since there was no specified
quantification, the assessee was not entitled to deduction u/s.40(b) in respect
of the salary.
The CIT(A) held that the assessee was entitled to claim the
deduction for remuneration paid to the partners since the payment of salary to
the four partners was authorised by the partnership deed.
Held:
The Tribunal, upholding the CIT(A)’s order, noted as follows:
1. On reading this section it becomes clear that it does
not make it mandatory to quantify the amount of salary in one of the clauses
of the partnership deed, mainly because of the reason that the monetary limit
or ceiling is otherwise prescribed in the statute itself. The statute has used
the term “authorise” and not the term “quantify”.
2. In respect of the CBDT Circular No.739
(supra) relied upon by the Assessing Officer, the Tribunal clarified that the
CBDT cannot issue a circular u/s 119 which tantamounts to detracting from the
provisions of the Act. While interpreting the clause of a statute, there is no
scope for importing into the statute some other words which are not there or
to exclude words which are there.
3. It was also not a case that the impugned taxing
provisions were ambiguous and, therefore, capable of more than one
interpretation. Since there was no ambiguity, there was no question of a
beneficial interpretation to either side. Therefore, the words contained in
the provision must be given a natural meaning as commonly understood in the
legal parlance.
Section 40(a)(i), read with section 2(28A) — Discounting
charges paid, cannot be treated as interest in terms of section 2(28A) and,
therefore, such amount is not liable for TDS u/s.195.– Also, the same cannot be
disallowed u/s 40(a)(i).
Facts:
The assessee company discounted its export sales bills with a
company in Singapore. The discounting charges were disallowed by the Assessing
Officer u/s 40(a)(i) on the ground that the assessee did not deduct tax at
source u/s 195 on the discounting charges which were in the nature of interest
in terms of section 2(28A). The CIT(A) held that the discounting charges paid by
the assessee were not interest, as neither any money was borrowed nor any debt
was incurred. Therefore, no tax was required to be deducted at source from such
payments. He, accordingly, deleted the disallowance.
Held:
The Tribunal, upholding the CIT(A)’s order, noted as
hereunder:
1. As per section 2(28A), interest means sum payable in
respect of any money borrowed or debt incurred. In the instant case, there was
no debt incurred or money borrowed. In fact, it was a case where the assessee
had merely discounted sale consideration receivable on sale of goods.
2. The word `interest’ defined u/s 2(28A) does not include
the discounting charges on discounting of bill of exchange.
3. Though Circular No.65 was issued in relation to
deduction of tax u/s 194A, yet in respect of payment to a resident, the same
would be relevant even for the purpose of considering whether the discount
should be treated as interest or not. The CBDT had opined that where the
supplier of goods makes over the usance bill / hundi to his bank which
discounts the same and credits the net amount to the supplier’s account
straightaway, without waiting for realisation of the bill on due date, the net
payment made by the bank to the supplier is in the nature of price paid for
the bill. Such payment cannot technically be held as including any interest
and, therefore, no tax need be deducted at source from such payment by the
bank.
4. Hence, the assessee was not under obligation to deduct
tax at source u/s 195. Accordingly, the same amount could not be disallowed by
invoking section 40(a)(i).
39 (2010) 38 DTR (Mumbai) (Trib.) 101
Yogesh R. Desai v. ACIT
A.Y. : 2003-04. Dated : 1-2-2010
S. 271(1)(c) — Deduction claimed on the basis of advise of
the tax consultant supported by tax audit report — Penalty cannot be levied on
the disallowance of the same.
Facts :
Deduction u/s.80-O was claimed by the assessee which could
not be justified during the assessment proceedings. Finally, the assessee
accepted before the AO that the deduction was claimed erroneously and
inadvertently, as guided by his tax consultant.
Upon disallowance of the same, the penalty u/s. 271(1)(c) was
levied by the AO which was confirmed by the CIT(A).
Held :
It is settled law that penalty u/s.271(1)(c) is a civil
liability and the Revenue is not required to prove willful concealment as held
by the Supreme Court in the case of UOI v. Dharamendra Textile Processors &
Ors., 306 ITR 277. However, each and every addition made in the assessment
cannot automatically lead to levy of penalty for concealment of income.
Even if some deduction or benefit is claimed by the assessee
wrongly but bona fidely and no mala fide can be attributed, the penalty would
not be levied. The claim of deduction u/s.80-O was claimed on the basis of
advise of the tax consultant supported by tax audit report. Therefore there is
no concealment or furnishing of inaccurate particulars on the part of the
assessee and hence the penalty was deleted.
S. 147 — Reassessment proceedings cannot be initiated if time
limit for issue of notice u/s.143(2) has not expired.
Facts :
Notice u/s.148 was issued to the assessee before the expiry
of the time limit for issue of notice u/s.143(2). The assessee preferred an
appeal before the CIT(A) and challenged the validity of reassessment
proceedings. The CIT(A) rejected the plea of the assessee.
Upon further appeal to the Tribunal, the learned Accountant
Member took a view that the decision in the case of Trustees of H.E.H. The
Nizam’s Supplemental Family Trust v. CIT, 242 ITR 381 (SC) pertains to A.Y.
1962-63 which was prior to the amendment to S. 147 w.e.f. 1st April, 1989. Prior
to the amendment of S. 147, there was no provision equivalent to cl. (b) of
Expln. 2 in the amended S. 147. In a subsequent decision of the Supreme Court in
the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., 291 ITR 500 (SC) it
has been held that so long as the ingredients of S. 147 are fulfilled, the AO is
free to initiate proceeding u/s.147 and failure to take steps u/s.143(3) will
not render the AO powerless to initiate reassessment proceedings even when
intimation u/s.143(1) had been issued. Applying the jurisdictional High Court’s
decision in the case of ITO v. K. M. Pachiappan, 311 ITR 31, the validity of
reassessment proceedings was upheld.
The learned Judicial Member distinguished the decision of
Rajesh Jhaveri Stock Brokers (P) Ltd. on the ground that the notice u/s.148 was
issued after the expiry of the time available for issuing notice u/s.143(2) in
that case. Following the latest decision of the jurisdictional High Court in the
case of CIT v. Qatalys Software Technologies Ltd., 308 ITR 249, the notice
issued by the AO u/s.148 was quashed.
Upon difference of opinion between the members, the matter
was referred to the Third Member.
Held :
The Department wants to interpret the expression ‘no
assessment has been made’ in the clause (b) of Expln. 2 in the amended S. 147 to
mean that it also includes situation where assessment u/s. 143(3) is still
possible but not yet made. If this interpretation is to be accepted, it will set
at naught the fundamental principles underlying S. 147.
As per the principles laid down by the Supreme Court in
several cases :
(a) the proceedings are said to have commenced once the
return is filed, and
(b) the proceedings terminate when,
(i) the return is processed u/s.143(1) and the time to
issue notice u/s.143(2) is over,
(ii) assessment is made u/s.143(3) or,
(iii) assessment is no longer possible u/s. 143(3).
Proceedings u/s.147 can be initiated only after the earlier
proceedings have terminated as mentioned in (b) above.
Observation of the Supreme Court in the case of Rajesh
Jhaveri Stock Brokers (P) Ltd. has to be understood in the right perspective. It
is mentioned that failure to take steps u/s.143(3) will not render the AO
powerless to initiate reassessment proceedings even when intimation u/s.143(1)
had been issued. The failure of the AO which the Court is talking about will be
deemed to have occurred only when the hands of the AO are tied down by law and
he is unable to initiate the proceedings u/s.143(3). Hence order passed
u/s.143(3) read with S. 147 was quashed.
30 (2010) 37 DTR (Ahd.) (Trib) 345
Sugamchand C. Shah v. ACIT
A.Ys. : 2005-06 & 2006-07. Dated : 29-1-2010
Capital gains vis-à-vis business income — If shares are held
for more than a month, they should be treated as investment and profit on the
sale should be charged as short-term capital gain — When shares are held for
less than a month, gain on them should be treated as profit from business.
Facts :
The assessee is engaged in the business of weaving job work
and grey cloth. He declared profits from sale of shares as short-term capital
gains and long-term capital gains. The AO treated the entire sum as business
income on the basis of frequency of transactions and holding periods.
The CIT(A) partly confirmed the order of the AO and
short-term capital gains were treated as business income. However, long-term
capital gains were not allowed to be treated as business income.
Held :
The assessee has shown the transactions in shares as
investment and not as stock-in-trade. It has been shown consistently for several
years in the past and the Department has not challenged the book-keeping or
accounting of shares as investment. No contrary materials or facts have been
pointed out by the Revenue to show that facts in the current year are different
than the facts in earlier years. The entire portfolio has been valued at cost as
at the end of the accounting year. If in the past, the Department has accepted
the sale of shares of holding of more than a year as investment and profits
thereon has been assessed under the head ‘Capital Gains’, then there is no
reason to hold differently this year.
In respect of short-term capital gains, the assessee has
discharged the onus of showing that it is making investment, but the Revenue is
able to show that there are high frequencies and low holdings in many
transactions of shares indicating that the assessee has some intention of
purchasing and selling shares as a trader. Considering the totality and
peculiarity of the facts of the case, it was held that the assessee is neither
fully acting as a trader nor as investor. Therefore, a criterion was fixed for
determining as to when he is acting as trader and when as investor. Accordingly,
if shares are not held even, say, for a month, then the intention is clearly to
reap profit by acting as a trader and he did not intend to hold them in
investment portfolio. If a person intends to hold his purchases of shares as
investment, he would watch the fluctuation of rates in the market for which a
minimum time is necessary, which was estimated at one month. Where shares are
held for more than a month, they should be treated as investment and on their
sale short-term capital gains should be charged. When shares are held for less
than a month, gain on them should be treated as profit from business.
29 Srei International Finance Ltd. v. ACIT
123 ITD 480 (Del. ITAT)
A.Y. : 2001-02. Dated : 4-4-2008
S. 115JB—provision made for premium payable on mezzanine
capital is an ascertained liability.
Facts :
The assessee had debited a sum of Rs.88 lakhs in the profit &
loss account as provision for mezzanine capital. On enquiry, the assessee
provided a detailed explanation of the nature of this provision, that this
provision was made for redemption of unsecured bonds in the nature of mezzanine
capital (Tier II) and was provided over the tenure of bond. The assessee also
submitted that the amount of provision is ascertained at the time of issue of
bonds and therefore the liability is ascertained liability, thus allowable
u/s.115JB. However, the AO disallowed the same holding it as unascertained
liability. The CIT(A) allowed the same on the reasoning that the bonds issued by
the company would earn annual interest for the bond holder. The bond holder was
also required to be paid premium and face value. The premium was to be paid in
equal instalments spread over the tenure of bonds. The provision of Rs.88 lakhs
related to premium payable in respect of previous year under consideration. The
CIT(A) further observed that the face value of the bond is known and amount of
premium and tenure of bond is also fixed. Therefore, it cannot be said the
premium payable on bonds is incapable of being computed in a scientific manner.
Accordingly addition was deleted.
Held :
The Tribunal held that there was a scientific method of
calculation of liability on account of premium on mezzanine capital. Therefore,
it cannot be said that the liability was not an ascertained liability.
86 Notification No. 42/2010 — Service Tax, dated 28-6-2010.
W.e.f. 1-7-2010, by this Notification the Central Government
has exempted taxable services of commercial or industrial construction when
provided wholly within the airport.
85 Notification No. 41/2010 — Service Tax, dated 28-6-2010.
W.e.f. 1-7-2010, by this Notification taxable services as
enlisted in the Notification have been exempted when provided wholly within the
port or other port or airport.
84 Notification No. 39/2010 — Service Tax, dated 28-6-2010.
W.e.f. 1-7-2010, by this Notification Service Tax Rules, 1994
have been amended to provide in respect of services of transportation of
passengers by air, an invoice or bill or challan shall include ticket in any
form.
83 Notification No. 38/2010 — Service Tax, dated 28-6-2010.
W.e.f. 1-7-2010, by this Notification commercial or
industrial construction services provided wholly within the port or other port
for construction, repair, alteration and renovation of wharves, quays, docks,
stages, jetties, piers and railways have been exempted.
82 Notification No. 37/2010 — Service Tax, dated 28-6-2010.
This Notification has amended the principal Notification
17/2009 — Service Tax, dated 7th July, 2009 (as lastly amended by Notification
No. 40/2009 — Service Tax, dated 30th September, 2009) by inserting the new
entry No. 18 to grant exemption to service provided by airport authority or any
other person in any airport in respect of the export of the goods.
81 Notification No. 36/2010 — Service Tax, dated 28-6-2010.
Finance Act, 2010 has brought in the net of service tax eight
new services and has modified the scope of nine existing services. Since these
changes become effective from 1-7-2010, activities that are covered under
taxable service categories due to such additions or modifications, would attract
service tax from this date. This Notification exempts service tax on the partial
or full amount received in advance by the service provider before 1-7-2010 in
respect of services that have become taxable from that date if in respect of
such advances such taxable services are provided after that date. However this
exemption would not apply to commercial training or coaching services and
renting of immovable property service.
80 Notification No. 35/2010 — Service Tax, dated 22-6-2010.
By this Notification Central Government has amended the
Notification 9/2010 dated 27th February, 2010 to defer the levy of service tax
on taxable services provided by Government Railways to any person in relation to
transport of goods by rail to 1st January, 2011.
77 Exemption to electricity distribution services —
Notification No. 32/2010 — Service Tax, dated 22-6-2010.
From the date of this Notification exemption has been granted
to taxable services provided to any person, by a distribution licencee, a
distribution franchisee, or any other person by whatever name called, authorised
to distribute power under the Electricity Act, 2003, for distribution of
electricity.
75 Exemption in respect of specified sponsorship services —
Notification No. 30/2010 — Service Tax, dated 22-6-2010.
W.e.f. 1-7-2010, by this Notification exemption has been
provided to tournaments and championships organised by specified sports
authorities and organisations listed in the Notification.
74 Marginal relief to buyers of residential, commercial or
industrial properties under construction — Notification No. 29/2010 — Service
Tax, dated 22-6-2010
W.e.f. 1-7-2010, this Notification has amended Notification
No. 1/2006-Service Tax dated 1st March, 2006, so as to grant enhanced exemption
from so much of the service tax leviable as is in excess of the 25% (in place of
earlier 33%) of the value of gross amount charged for the services provided in
relation to commercial or industrial construction or construction of complex.
However, this exemption shall not apply where the cost of land has been
recovered separately from the buyer by the builder or his representative.
73 Exemption to construction of complex services to JNNURM &
RAY — Notification No. 28/2010 — Service Tax, dated 22-6-2010.
W.e.f. 1-7-2010, by this Notification Central Government has
exempted the taxable services of Construction of Complex as defined in Section
65(105)(zzzh) of the Act, provided to Jawaharlal Nehru National Urban Renewal
Mission & Rajiv Awaas Yojana from whole of the Service tax.
72 Exeption in respect of air travel from and to specified
places — Notification No. 27/2010 — Service Tax, dated 22-6-2010.
W.e.f. 1-7-2010, by this Notification the Central Government
has exempted the taxable service of air transport of passengers from whole of
service tax in respect of passengers embarking on a journey originating or
terminating in an airport located in Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or at Baghdogra of West Bengal.
71 Exemption in respect of transport of passengers by air
service — Notification No. 26/2010 — Service Tax, dated 22-6-2010.
W.e.f. 1-7-2010 by this Notification services provided by
aircraft operator to any passenger in relation to scheduled or non-scheduled air
transport in India for domestic or international journey have been exempted,
subject to conditions, from so much of service tax as is in excess of :
(a) ten percent of the gross value of the ticket or Rs.100
per journey, whichever is less, for passengers travelling in any class, within
India;
(b) ten percent of the gross value of the ticket or rupees
five hundred per journey, whichever is less, for passengers embarking in India
for an international journey in economy class. The expression economy class
has been explained in the Notification.
70 Architects, chartered engineers & licensed surveyors
authorised to issue completion certificate in construction services — Service
Tax (Removal of difficulty) Order, 2010 No. M.F. (D.R.) Order No. 1/2010, dated
22-6-2010.
W.e.f. 1-7-2010, by this Order architects, chartered
engineers and local licensed surveyors are authorised as competent authorities,
apart from government authorities, to issue completion certificate in relation
to commercial or industrial construction or construction of complex services.
18 (2010) 36 DTR (Ahd.) (Trib.) 187
Meghmani Organics Ltd. v. DCIT
A.Ys. : 2000-01 to 2004-05. Dated : 16-1-2009
S. 153C read with S. 153A — Documents found during search at
the premises of another person which were in his own handwriting though may
refer to the works proposed on behalf of the assessee, the same cannot be
considered as ‘documents belonging to the assessee’ which is a prerequisite for
initiating action u/s.153C — Re-agitating the concluded issues in S. 153C
proceedings without any documents relating thereto belonging to the assessee
cannot be considered in such assessment u/s.153C — In assessments u/s. 153C the
unconnected issue can be considered only if the pending assessment is abated and
not otherwise.
Facts :
Some handwritten documents were found and seized from the
residential premises of other persons. These documents showed estimate for the
purpose of land, building and machinery works for the assessee and statements of
steel and cement issued and deduction thereof for the purpose of computing the
amount payable to the contractor for the work carried out on behalf of the
assessee.
The Assessing Officer noted that although the seized
documents do not reveal any specific undisclosed income on verification, but the
proceedings validly initiated have to be completed in the manner prescribed
u/s.143(2) and u/s.143(3) of the Act. The Assessing Officer completed assessment
whereby the claim of deduction u/s.80HHC and u/s.80-IA of the Act was reduced.
No addition was either proposed or made in respect of so-called papers found
during the course of search and seized from the premises of other persons.
The original assessments were completed prior to initiation
of action u/s.153C of the Act and the issues regarding deductions u/s.80HHC and
u/s.80-IA were subject matter of earlier proceedings in original assessment and
were in further litigation before the CIT(A) and Tribunal.
Held :
Though these documents may refer to the work proposed on
behalf of the assessee, the same cannot be considered as ‘documents belonging to
the assessee’, which is a prerequisite for initiating action u/s.153C. If the
assessee has engaged the services of a professional and if the professional
maintains his own record for the purpose of rendering his services, the
documents cannot be said to be belonging to such assessee. Therefore, the
assessments were set aside.
Further, since the original assessments have been completed
before the initiation of action u/s.153C, these assessments have not abated. The
Assessing Officer was not competent to assume jurisdiction u/s.153C of the Act
(in relation to addition pertaining to deduction u/s.80HHC and u/s.80-IA) since
the original assessments have not abated. What were pending were only the
appeals. Since the appeals do not abate, the original assessments survive and
hence cannot be reopened u/s.153C proceedings. The Assessing Officer is
precluded from re-agitating the assessments that have attained finality in
original assessment proceedings, though pending in for the appeals. So far as
the Assessing Officer is concerned, his jurisdiction is ousted and is a ‘functus
officio’ so far as the original assessments are concerned. Therefore,
re-agitating the concluded issues in S. 153C proceedings without any documents
relating thereto belonging to the assessee cannot be considered in such
assessment u/s.153C of the Act.
S. 40(a)(ia) — If the assessee has paid the impugned amount
and the amount is not payable at the end of the year on the date of balance
sheet, then the provisions of S. 40(a)(ia) are not applicable.
Facts :
Since the assessee was not maintaining proper books of
account and also failed to produce vouchers for verification, the Assessing
Officer rejected the books of account and estimated the income at certain
percentage of the gross receipts. Further, he disallowed certain payments made
to sub-contractors without deducting the TDS by invoking provisions of S.
40(a)(ia) of the Act.
Held :
It was held that the books of account of the assessee were
not relied, they were rejected by the Assessing Officer and the same was
confirmed. Now, based on the reliance on the same books, for the purpose of
invoking the provisions of S. 40(a)(ia) is improper. The estimation of income
takes care of the irregularities committed by the assessee. Further addition by
invoking S. 40(a)(ia) amounts to punishing the assessee for a same offence on
double occasions, which is not permitted by law.
Further, it was held that the bare provision of S. 40(a)(ia)
provides for non-deduction of amount which remains payable to a resident in
respect of fees for technical services, etc. It is not applicable where
expenditure is paid. It is applicable only in cases where the payments are due
and outstanding. S. 40(a)(ia) otherwise being a legal fiction needs to be
construed strictly in view of the decision of the Supreme Court in CIT v. Mother
India Refrigeration Industries (P) Ltd., (155 ITR 711). If the assessee has paid
the impugned amount and it is not payable at the end of the year on the date of
balance sheet, then the provisions of S. 40(a)(ia) are not applicable. It is
only applicable in respect of ‘payable amount’ shown in the balance sheet as
outstanding expenses on which TDS has not been made. There is a difference
between the words ‘paid’ and ‘payable’. The Legislature used the word very
carefully in S. 40(a)(ia) and in all its wisdom. The language used in the S.
40(a)(ia) is very simple, clear and unambiguous. Literal rule of interpretation
has to be applied.
S. 36(1)(iii) — Issue of secured premium notes — Premium
payable on the same — Allowable as it was very much in the nature of interest
payable on the borrowings made.
The assessee-company raised funds by issue of Secured Premium
Notes. In respect of the same, it paid certain premium. The entire amount of
premium was payable before the date of final settlement. The premium was claimed
on proportionate basis in the form of provision made in the books of accounts.
Further, the liability to pay the premium arose in the fourth year, though the
assessee had utilised the funds from the first year itself. The deduction in
respect of the premium was claimed by the assessee u/s.36(1)(iii) of the Act.
The Assessing Officer disallowed the deduction on the ground that the funds
raised were for the purpose of expansion of business and therefore were capital
in nature.
On appeal to the Tribunal, it was held, that case was covered
in favour of the assessee in its own case for A.Y. 1996-97. In the order passed
earlier, the Tribunal held that the premium payable was nothing but in the
nature of interest for the borrowings made by the assessee. The assessee has
been following mercantile system of accounting and so provision has been made on
accrual basis towards the liability arising. The liability provided by the
assessee was an ascertained liability and not a contingent liability. The
Tribunal also relied on the decision of Madras Industrial Investment Corporation
Ltd. v. CIT, (225 ITR 892) (SC).
Further, it was held that though the liability to pay starts
from the fourth year, this does not mean that the funds for the first three
years were interest free. It was only in view of terms and conditions that
premium was payable from the fourth year. Hence the liability for the premium
was very much eligible for deduction.
15 (2010) 122 ITD 486 (Mum.)
Mindteck (India) Ltd. v. ITO
A.Y. : 1999-2000. Dated : 15-7-2008
S. 41(1) — Loan taken by the assessee from a group company —
Waiver of the loan by the group company — Whether the same should be taxable
u/s.41(1) — Held, No.
The assessee-company incurred huge losses and ran into
financial difficulties. It invited a new group to infuse capital into it. As per
the agreement entered into with this group, the assessee has to fulfil certain
conditions. One of these was to fulfil all existing liabilities so as to hand
over a clean balance sheet to the new management. For this, the assesee borrowed
certain amounts of money from a group company for four months. However, this
loan was later on waived off by the group company. The same was so written off
in the books of the assessee also.
The Assessing Officer held that the above loan was taxable
u/s.41(1) of the Act since the amount was received to recoup the losses. These
losses were incurred by the assessee over a period of time. The CIT(A) upheld
the assessment order. He held that even if the amount was a loan, it changes its
character at the time of forfeiture. Hence the same was taxable.
On appeal, the Tribunal held that, in the instant case, the
amount of loan received has no connection with the deduction or allowance
referred to in S. 41(1) of the Act. Although the assessee has received certain
benefits on remission or cessation of liability, the same in no way relates to
any trading liability. The said amount was given by the group company to make
the assessee company fit for the takeover. Provisions of S. 41(1) can be applied
only when a benefit is received in respect of a loss, expenditure or trading
liability, which was allowed as deduction or allowance in earlier years.
Further, it was also observed by the Hon’ble Tribunal that it
is a settled law that ‘a debt waived by the creditor cannot be the income of the
debtor’. [Relying on British Mexican Petroleum Co. Ltd. v. Jackson (1932) 16 TC
570 (HL) affirmed in the case of CIT v. P. Ganesa Chettair (1982) 133 ITR 103
(Mad.)]
The Core Group constituted by MCA for convergence of Indian
Accounting Standards with the International Financial Reporting Standards (IFRS)
had announced the approach and timelines for achieving convergence with IFRS on
22nd January 2010 and a separate approach on 31st March 2010 for the convergence
of Indian Accounting Standards by the banking companies, Insurance companies and
non-banking finance companies. Both the Press Releases are available on the
Ministry’s website at www.mca.gov.in.
In response to the requests, MCA has published a
‘Consolidated statement on clarifications on the roadmap for application of
converged Indian Accounting Standards by companies’ on 4th May 2010. This
statement provides clarity to the earlier announcements, which in turn should
facilitate a smoother transition to IFRS in India.
This statement can be accessed on www.mca.gov.in under Press Releases for
2010 under Information & Reports (Press Note 04/05/2010)
50 Revised versions of
Form 10, Form 17, Form 18, Form 19, Form 1A, Form 1B, Form 2, Form 20, Form 21,
Form 3, Form 35A, Form 37, Form 39, Form 5, Form 8, Form 62, Form 68, Form 25A,
Form 1 (statement of amounts credited to investor education and protection
fund), Form of annual return of a foreign company having a share capital are
required to be used from 9-5-2010 as the older versions have been discontinued.
49 SEBI has issued Circular No. CFD/DCR/5/2010, dated
7-5-2010 for making Annual Reports of listed companies easily accessible
Pursuant to the decision to discontinue the EDIFAR site,
SEBI, vide its Circular No. CIR/CFD/DCR/3/2010, dated April 16, 2010, has
advised all Stock Exchanges to carry out amendments to the Equity Listing
Agreement viz. omission of Clause 51 from the Listing Agreement.
Prior to its omission, Clause 51 of the Equity Listing
Agreement required listed companies to inter alia upload full version of Annual
Report on EDIFAR website. However with discontinuation of EDIFAR site, it has
become necessary to ensure that Annual Reports of listed companies are
available/easily accessible to investors on alternative sites. Accordingly all
Stock Exchanges are advised to make the Annual Reports for the financial year
2009-10 onwards, submitted to Stock Exchange as per Clause 31 of Equity Listing
Agreement, available on their respective websites.
This Circular states that the Government of India has omitted
item number 8 of Schedule II to the Foreign Exchange Management (Current Account
Transaction) Rules, 2000. As a result, foreign exchange can be withdrawn for
payment of royalty and lump sum payment under technical collaboration agreements
without prior approval of the Ministry of Commerce and Industries, Government of
India, irrespective of the amount involved.
Presently, Infrastructure Finance Companies (IFC) are
permitted to avail of ECB for on-lending to infrastructure sector, subject to
certain conditions, under the Approval Route.
This Circular now permits, subject to certain conditions IFC
to avail ECB (including outstanding ECB) up to 50% of their owned funds under
the Automatic Route. ECB exceeding the above limit can be availed under the
Approval Route.
45 A.P. (DIR Series) Circular No. 50, dated 4-5-2010 —
Release of foreign exchange for visits abroad — Currency component.
Presently, travellers proceeding to countries other than
Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of
Commonwealth of Independent States are permitted to carry foreign exchange in
the form of foreign currency notes and coins, up to US $ 2,000 or its
equivalent.
This Circular has increased this limit from US $ US $ 2,000
or its equivalent to US $ 3,000 or its equivalent with immediate effect, without
the prior permission from the Reserve Bank. Accordingly, travellers proceeding
to countries other than Iraq, Libya, Islamic Republic of Iran, Russian
Federation and other Republics of Commonwealth of Independent States are
permitted to carry foreign exchange in the form of foreign currency notes and
coins, up to US $ 3,000 or its equivalent. However, travellers proceeding to
Iraq or Libya are permitted to carry US $ 5,000 or its equivalent, out of the
overall foreign exchange released and travellers proceeding to the Islamic
Republic of Iran, Russian Federation and other Republics of Commonwealth of
Independent States can carry the full entitlement of foreign exchange in the
form of foreign currency notes and coins.
44 A.P. (DIR Series) Circular No. 49, dated 4-5-2010 —
Notification No. FEMA 205/2010-RB dated 7-4-2010 — Foreign Direct Investment
(FDI) in India — Transfer of shares/Preference shares/Convertible debentures by
way of sale — Revised pricing guidelines.
This Circular contains the revised the guidelines for
transfer of equity shares from a resident to a non-resident and from a
non-resident to a resident. The guidelines are applicable to transfer of shares
of an Indian company in all sectors. The said guidelines are as under :
(a) Where shares of an Indian company are listed on a
recognised stock exchange in India — The price of shares transferred by way of
sale shall not be less than the price at which a preferential allotment of
shares can be made under the SEBI Guidelines, as applicable, provided that the
same is determined for such duration as specified therein, preceding the
relevant date, which shall be the date of purchase or sale of shares.
(b) Where the shares of an Indian company are not listed on a
recognised stock exchange in India — The transfer of shares shall be at a price
not less than the fair value to be determined by a SEBI registered Category-I
Merchant Banker or a Chartered Accountant as per the discounted free cash flow
method.
The price per share arrived at should be certified by a SEBI
registered Category-I Merchant Banker /Chartered Accountant. Also, when the
transfer is from a non-resident to a resident, the price of shares transferred
by way of sale, must not be more than the minimum price at which the transfer of
shares can be made from a resident to a non-resident.
