Year: 2010

On appeal to the Tribunal, the assessee filed some additional
evidence in support of its claim. Although the Accountant Member accepted the
additional evidence, the Judicial Member objected that there was no formal
application u/r.29 of the ITAT Rules for admission of additional evidence.

The Third Member held that on going through the rule, no
requirement was found therein that there should be a formal written application
before the Tribunal for admission of the additional evidence.

The Tribunal noted as under :

(1) These are rules of procedure and in a fit case and
depending on the circumstances it would be open to the Tribunal to admit
additional evidence when it is produced in the Court and an oral application
is made.

(2) Rule 29 permits the Tribunal to admit the additional
evidence for any substantial cause. The intention behind the rule is that
substantial justice should be done and the interest of justice should be the
overriding consideration.

(3) Therefore, there was no error in the Accountant Member admitting the
additional evidence.

The assessee, a non-resident, had made substantial deposits
in non-resident accounts in Indian Bank. She filed her return of income showing
total income as NIL. The Assessing Officer passed assessment order and assessed
the aforesaid deposits as the income of the assessee u/s.69. On appeal, the
CIT(A) confirmed the Assessing Officer’s action.

The Tribunal held that since the assessee had brought the
money into India through banking channel, the onus on the assessee u/s.69 stood
discharged, and, therefore, it was not taxable in India u/s.5(2)(b). The CBDT
Circular No. 5 in F.No.73A/2(69)-IT(A-II), dated 20-2-1969 squarely supports the
case of the assessee.

The Tribunal noted as under :

(1) It is seen from Ss.(2) of S. 5 that a person, who is
a non-resident, has to pay tax only on that income which is either received
by him in India or is deemed to be received by him in India or accrues to
him in India or arises to him in India or is deemed to accrue to him in
India or is deemed to arise to him in India during the year. The words ‘in
India’ appearing in Ss.(2) of S. 5 are crucial. The principle underlying S.
5 makes the chargeability of income depend upon the ‘locality’ of accrual or
receipt.

(2) A non-resident person, having money in a foreign
country, could not be called upon to pay income-tax on that money in India
because in respect of that money it will not be possible for the Assessing
Officer to say that it was either received by him in India or it was deemed
to be received by him in India or it accrued to him in India or it arose to

him in India or it was deemed to accrue to him in India or it was deemed to
arise to him in India.

(3) If a non-resident person, having money in a foreign
country, brings that money to India, through a banking channel, he cannot be
called upon to pay income-tax on that money in India, firstly for the
reasons stated above and secondly because the remittance of money into India
through banking channel will make the onus on the assessee u/s.69
discharged.

(4) If certain income, profits or gains was ‘received’ by
the assessee outside India, it does not become chargeable to income-tax in
India by reason of that money having been brought into India. This is
because what is chargeable is the first ‘receipt’ of the money and not a
subsequent dealing by the assessee with the said money. In that event, the
money is brought by the assessee as his own money which he had already
‘received’ and had control over it and it does not take the character of
income, profits and gains after being brought in India.

The assessee was importing gold bars from Union Bank of
Switzerland (UBS). In one consignment shipped by UBS there was excess supply of
some gold bars. The customs authorities seized the excess quantity and also took
legal action against the assessee-company. UBS accepted its mistake and admitted
the human error at their end. The appellate customs authority absolved and
acquitted the company. The company filed a suit against UBS in the High Court of
London. Finally, an out-of-court settlement was reached between UBS and the
company and UBS paid Rs.41.58 lacs as compensation against loss of reputation
and goodwill and Rs.14.46 lacs towards legal expenses, etc. The assessee offered
the sum of Rs.14.46 lacs for taxation voluntarily by including it in the
miscellaneous income and claimed the amount of Rs.41.58 lacs as capital receipt
not chargeable to tax in the computation of income. The Assessing Officer held
that the amount of Rs.41.58 lacs representing compensation received by the
assessee was a revenue receipt chargeable to tax. On appeal, the CIT(A) upheld
the action of the Assessing Officer.

The Tribunal, relying on the decisions in the following
cases, ruled in favour of the assessee :

(1) CIT v. A.R.J. Security Printers, (2003) 264 ITR
206/131 Taxman 297 (Delhi)

(2) Oberoi Hotel (P.) Ltd. v. CIT, (1999) 236 ITR 903/103
Taxman 236 (SC)

(3) CIT v. Bombay Burmah Trading Corpn. Ltd., (1986) 161
ITR 386/27 Taxman 314 (SC)

(4) Rohitasava Chand v. CIT, (2008) 306 ITR 242/ 171
Taxman 147 (Delhi)

(5) Serum Institute of India v. Dy. CIT, (2008) 111 ITD
259 (Pune)

While treating the amount of Rs.41.58 lacs as a capital
receipt, the Tribunal noted as under :

(1) The word ‘income’ has to be understood in the generic
sense. If a receipt bears the traits of income as per the plain and natural
meaning, the same will still be included within the scope of S. 2(24) even
if there is no specific mention of such item in the definition clause.

(2) It is trite law that any receipt in the nature of
compensation, costs, damage, etc., by whatever name called, towards loss of
income is a revenue receipt. However, any receipt to compensate for the loss
of source of income is a capital receipt.

(3) Loss of source of income does not necessarily mean
that the source must be absolutely extinguished. If the source of income has
been severely beaten, thereby causing serious damage to the income-earning
apparatus itself, it will also be construed as the loss of source of income.

(4) As in this case, if goodwill of the business is
damaged and later on some compensation is awarded in lieu of that, it will
also fall in the same category of loss to the source of income and,
consequently, such a receipt will also qualify to be characterised as a
capital receipt.

The assessee obtained a contract from Indian Oil Corporation
Ltd. (IOC) for transportation of LPG cylinders and in turn, such transportation
was being done through another contractor. The balance sheet filed alongwith the
return of income showed amount receivable from IOC and also showed the amount
payable to transport contractor. No profit and loss account was prepared. Fixed
percentage of gross receipts was considered by the assessee to be its income.
The assessee used to retain a percentage of amounts received by IOC and the
balance was paid to truck owners with whom the assessee was having agreements.
The payments were made without deduction of income-tax at source. Credit was
claimed in respect of income-tax deducted at source by IOC. Before the Assessing
Officer (AO), it was contended that the provisions of S. 44AE are applicable and
therefore the provisions of S. 40(a)(ia) do not apply. The AO held that the
transport business of the assessee was a contract with IOC and a sub-contract
with the truck owners and therefore, in view of the proviso to S. 194C(2), the
assessee was required to deduct tax at source in respect of payments made to
sub-contractors. Since no tax was deducted at source, he disallowed the
expenditure of Rs.11,26,500 u/s. 40(a)(ia).

Aggrieved the assessee preferred an appeal to the CIT(A)
where it contended that it merely acted on behalf of the truck owners and had
not entered into any sub-contract with the truck owners and also that it had not
debited the amount to profit and loss account and therefore the same cannot be
treated as expenditure to be disallowed u/s. 40(a)(ia). The CIT(A) noted that
the assessee had entered into a contract with IOC and had entered into agreement
with truck owners wherein he was described as transporter and truck owner was
treated as contractors. He held that the payments made to truck owners
constituted sub-contract payments and hence the provisions of S. 194C(2) were
applicable. He also held that the assessee did not own trucks and therefore the
provisions of
S. 44AE are not applicable. He confirmed the action of the AO.

Aggrieved the assessee preferred an appeal to the Tribunal.

The Tribunal on perusal of the agreement entered into by the
assessee with IOC noted that it mentioned that the contractor (the assessee) was
owner and operator of new/old capacity trucks and had undertaken to maintain the
trucks in good working order for the period of the contract, the agreement inter
alia provided that the contractor had to pay the entire operation cost of the
trucks which include and be deemed always to include the expenses enumerated in
the agreement and the agreement also provided that the contractor shall not be
entitled to assign, subrogate, subject or part with his right under the contract
or change the ownership of the trucks. The contractor (assessee) was also
prohibited from changing constitution of its firm without obtaining prior
written consent of the Corporation.

The Tribunal also noted that in order to comply with the
clauses of the agreement entered into by the assessee with IOC, the assessee had
entered into an MOU with a truck owner wherein the truck owner agreed to act as
a manager of the transport business of the assessee. This MOU also provided that
upon the expiry of the contract the truck will be resold by the assessee to Shri
Athaulla Khan (the truck owner). The assessee under this agreement was entitled
to retain 3% of the commission.

As regards the contention on behalf of the assessee that the
assessee was registered with IOC and the truck owner was not registered with IOC
and therefore the contract was taken for the benefit of the person owning the
truck, the Tribunal observed that this may be de facto relationship. However,
one has to consider the legal agreements between the assessee and the IOC and
also considering the MOU between the assessee and the truck owner and from such
agreements, one has to draw a conclusion that de jure relationship of the
assessee with IOC was in the form of a person who has been awarded the contract.
The assessee was required to abide by the conditions mentioned in the agreement.

The Tribunal held that as per the agreement with the truck
owner, the assessee became the owner of two trucks for the period of contract.
The original truck owner became a manager for the transport business of the
assessee. In respect of contract with IOC, the assessee was owner of two trucks.
Since there was no tax audit report in respect of transport contract business,
therefore the income was to be ascertained as per S. 44AE of the Act. Once
income has been ascertained as per provisions of S. 44AE of the Act, then
provisions of S. 40(a)(ia) will not be applicable.

The Tribunal also upheld the alternative contention on behalf
of the assessee viz. that the AO should have restricted the disallowance to
Rs.5,14,725 being the amount paid by the assessee to the truck owner. From the
gross amount due to the assessee from IOC, deductions were made by IOC towards
diesel and TDS. IOC made deduction towards diesel made available for plying the
truck. The amount deducted by IOC was not paid to the truck owner, but only the
net amount received from IOC was paid to the truck owner and hence the amount on
which tax was deductible at source was the net amount of Rs.5,14,725.

Income-tax Act, 1961 — S. 251, S. 254. While the powers of
CIT(A) are co-terminus with the powers of Assessing Officer, AO has no power to
admit fresh claim otherwise than by way of revised return but Appellate
Authorities including CIT(A) and ITAT have power to admit such claim. The Apex
Court in the case of Goetze (India) Ltd. has itself clarified that their finding
does not impinge on the power of ITAT u/s.254 of the Act, CIT(A) has similar
power u/s.251(1)(c).

The assessee in its return of income did not make any claim
of Rs.98.36 lakhs on account of prior period adjustments. In the course of
assessment proceedings, it pressed such claim. The Assessing Officer (AO) did
not entertain the claim.

Aggrieved the assessee preferred an appeal to the CIT(A) who
relying on the decision of the Supreme Court in Goetze (India) Ltd. (284 ITR
323) (SC) held that the claim for deduction can be made only in the return of
income filed and that a claim which is not made in the return of income cannot
be subsequently made. He upheld the action of the AO.

Aggrieved the assessee preferred an appeal to the Tribunal.

The Tribunal having considered the observations of the
Supreme Court in the case of Goetze (India) Ltd. (supra) and also the powers of
the first Appellate Authority as examined by the Supreme Court in CIT v.
Nirbheram Deluram, (224 ITR 610) (SC) held as under :

(1) The Apex Court clarified in Goetze (India) Ltd.
(supra) itself that their finding does not impinge on the power of the
Income-tax Appellate Tribunal u/s.254 of the Act. We find that the CIT(A)
has also similar power u/s.251(1)(c) of the Act.

(2) The AO has no power to admit fresh claim otherwise
than revised return but Appellate Authorities including the CIT(A) and ITAT
have power to admit such claim.

The Tribunal held that without prejudice to its above finding
the claim of the assessee is in accordance with the judgment of the Apex Court
in the case of Goetze (India) Ltd. The Tribunal in the interest of natural
justice and keeping in view the ratio laid down by the Apex Court in the case of
Goetze (India) Ltd. remitted the matter back to the file of the CIT(A) with a
direction to decide the issue on merit in accordance with law and after
providing reasonable opportunity of hearing to both the sides.

The assessee credited an amount of Rs.149.77 crores as profit
on transfer of assets to its wholly-owned subsidiary to its profit & loss
account. It claimed the exemption u/s.47(iv) of the Act. While working out the
book profits for the purpose of S. 115JB, the assessee reduced this profit and
claimed that it cannot form part of the book profits. A Special Bench was
constituted to adjudicate the matter.

The AO has power to alter the net profits as shown in the P &
L A/c only in two cases; (1) if it is discovered that P & L A/c is not drawn up
in accordance with Part II and Part III of Schedule VI of the Companies Act, (2)
if accounting policies, accounting standards are not adopted for preparing such
accounts and methods, rates of depreciation which have been incorrectly adopted
for preparation of P & L A/c laid before the annual general meeting.

Part II & Part III of Schedule VI of the Companies Act
require the P & L A/c of a company to disclose every material feature including
credits or receipts and debits or expenses in respect of non-recurring
transactions or transactions of an exceptional nature. As held by the Bombay
High Court in the case of CIT v. Veekaylal Investment Co. (P) Ltd., 249 ITR 597,
the capital gain should be included for the purposes of computing book profits
under MAT provisions.

It is an undisputed fact that the long-term capital gain
earned by the assessee is included in the net profit determined as per P & L A/c
prepared as per Part II and Part III of Schedule VI of the Companies Act. It is
not the case of the assessee that the capital gain earned by the assessee was
not included in the net profit determined as per P & L A/c of the assessee
prepared under the Companies Act. The taxability of capital gain is relevant
only for the purpose of computation of income under the normal provisions of the
Income-tax Act, and has nothing to do with the preparation of P & L A/c in
accordance with the provisions of Part II and Part III of Schedule VI of the
Companies Act. Under these circumstances, as long as long-term capital gain is
part of profit included in the P & L A/c prepared in accordance with the
provisions contained in Parts II and III of Schedule VI of the Companies Act, it
cannot be excluded from the net profit unless so provided under Explanation to
S. 115JB for the purpose of computing book profit. In the absence of any
provision for exclusion of capital gains in the computation of book profit under
the above provision, the assessee is not entitled to the exclusion claimed. The
decision of the Calcutta Special Bench of the Tribunal in the case of Sutlej
Cotton Mills Ltd. v. ACIT, 45 ITD 22 held to be reversed by the decision of the
Bombay High Court in the case of Veekaylal Investment Co. (P) Ltd. (supra).

The Ss.(5) of S. 115JB provides that “save as otherwise
provided in this Section, all other provisions of this Act shall apply to every
assessee, being a company, mentioned in this Section”. The contention of the
assessee that since all other provisions of this Act shall also apply, it is
entitled to reduce the long-term capital gain exempted u/s.47(iv) is not
accepted. All other provisions of the Act shall apply, but subject to the
provisions otherwise provided in S. 115JB. The provision for computing book
profit by increasing or reducing the net profit as shown in the P & L A/c
prepared in accordance with the provisions of Part II and Part III of Schedule
VI of the Companies Act are specifically provided in S. 115J or S. 115JA or S.
115JB itself, as the case may be, and consequently all other provisions of the
Act providing the manner of computation of total income under normal provisions
of the Act cannot be applied while computing book profit u/s.115J or u/s.115JA
or u/s.115JB, as the case may be. The decision of ITO v. Frigsales (India) Ltd.,
4 SOT 376 (Mum.) is overruled.

The assessee company is engaged in the management
consultancy, investment advisory and equity research services and also dealing
in investments. It filed return of income declaring profits of Rs.1.03 crores
earned by it on sale of shares as long-term and short-term capital gains. The AO
noted that the assessee was regularly dealing in the shares throughout the year
and held that the profit/gain earned from dealing in the shares is a business
income. Upon further appeal, the CIT(A) also confirmed the assessment order on
this issue.

The balance sheet filed by the assessee and as per the books
of account, the assessee has treated the entire investment in the shares as an
investment only and not as a stock-in-trade. Another important aspect to be
considered here is that the assessee is not a share-broker, nor is he having a
registration with any stock exchange. Moreover, some scrips are held for more
than five years and it is not the case of the AO that there were any derivative
transactions by the assessee, nor is it a case of the AO that there were
transactions without delivery. In the present case, both the authorities have
not disputed that the transactions are complete with delivery. The assessee has
not borrowed any money for investing in shares and used his own surplus funds
and these facts have not been disputed by the AO. In the case of the assessee,
in the preceding years, the assessee is consistently declaring the gain/profit
on the sale of the shares under the head ‘capital gains’ either
long-term or short-term and the same has been accepted by the AO. It is true
that the rule of res judicata is not applicable to the income-tax proceedings,
but at the same time, it is also well-settled principle that if there is no
change in the facts, then there should be consistency in the approach of the
Revenue authorities while deciding the tax liability of the assessee. Another
aspect to be considered here is that the assessee has received substantial
dividend and that is also disclosed. After considering the totality of the
facts, it was held that the transactions of sale and purchase of the shares by
the assessee cannot be treated in the line of trading in the shares, nor can it
be treated as an adventure in the nature of the trade.

As a member of BSE and NSE, the assessee company had paid
various charges like VSAT charges, lease line charges, BOLT charges, Demat
charges, etc. to the stock exchange. According to the AO, the aforesaid sum paid
by the assessee to the stock exchange was a fee for technical services and,
therefore, the assessee ought to have deducted tax at source on such payment.
Since, the assessee had not deducted tax at source on such payment, the
aforesaid sum claimed as deduction was disallowed by the AO.

Following the decision of Skycell Communications Ltd. v. DCIT,
251 ITR 53 (Mad.) it was held that stock exchanges do not provide any technical
services by installing VSAT network. It is the facility provided to its members
and hence such payment cannot be said to be fees for any technical services
rendered. The AO in coming to the conclusion that the payment was for fees for
technical services has relied on the fact that the screen-based trading is a
sophisticated method of trading. This by itself will not be sufficient to hold
that technical services are rendered. The AO has held that services are not
available to the public at large but only to registered members, again this by
itself will not make the services in question as technical services. Another
reason given by the AO is the speed at which transactions were completed. This
again is not a relevant criteria for holding that the services rendered were
technical services. All the above features present in screen-based trading saves
time. This is the result of improved technology. That does not mean that stock
exchange is providing technical services. Stock exchanges are not the owner of
this technology to provide them for a fee to prospective users. They are
themselves consumers of the technology. Therefore the payment in question is not
fee for technical services.