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S. 2(22)(e) of the Income-tax Act, 1961 r.w. S. 78 of the
Companies Act, 1956 — Payment made by a company out of its Share Premium a/c.
cannot be taxed in hands of receiver as deemed dividend.
During the A.Y. 1996-97, an amount of Rs.25.43 lacs was
advanced to the assessee-company by another company ‘G’ Ltd., in which the
assessee held 40% of shares. The amount was advanced in the nature of loans and
advances. Towards the end of the year, the assessee repaid Rs.14.31 lacs and the
AO included the balance amount of Rs.11.12 lacs as deemed dividend in the hands
of the assessee u/s. 2(22)(e). The case of the assessee was that entire reserve
and surplus amount appearing in the books of ‘G’ Ltd. consisted of share premium
which was a capital receipt and could not have been distributed as dividend. The
AO, however, treated the amount as deemed dividend u/s.2(22)(e). The CIT(A)
accepted the assessee’s contention.
The Tribunal also ruled in favour of the assessee. The
Tribunal noted as under :
(a) S. 78(2) of the Companies Act, 1956 states the five
purposes for which the Share Premium a/c. may be used. The Share Premium a/c.
cannot be used otherwise than for the specified purposes.
(b) When there is a statutory bar on the Share Premium a/c.
being used for distribution of dividend, the deeming provisions of S. 2(22)(e)
cannot apply.
(c) Not only is there a prohibition on the distribution of
the Share Premium a/c. as dividend under the 1956 Act, but the same is obliged
to be treated as a part of the share capital of the company and this is made
clear in S. 78(1) of the 1956 Act, which says that any payment out of the
Share Premium a/c., except for purposes authorised by Ss.(2), will be treated
as reduction of share capital attracting the provisions of the 1956 Act in
relation thereto.
(d) This provision of the 1956 Act takes care of the
argument of the Revenue that S. 2(22)(e) does not use the expression ‘whether
capitalised or not’. These words can have application only where the profits
are capable of being capitalised. They are not applicable where the receipt in
question forms part of the share capital of the company under the provisions
of the 1956 Act.
Whether the mere inclusion of land in industrial zone could
convert agricultural land into non-agricultural land, given that there had been
no infrastructure development on the same, and the fact that it had been used
for non-agricultural purposes had also not been established — Held, No.
Therefore, whether the gain arising on sale of such agricultural land by the
assessee was exempted from tax — Held, Yes.
Facts :
The assessee sold certain agricultural land in the relevant
A.Y., and thus claimed exemption of the long-term capital gains arising
therefrom. The AO accepted the assessee’s claim in the assessment completed
u/s.143(3). Subsequently, the Commissioner noted the fact that the land was
located in industrial zone, the fact which the AO had failed to take note of,
and therefore, under powers assigned to him u/s.263, he set aside the order and
directed the AO to reconsider the exemption granted to the assessee from the
capital gains tax.
Accordingly, the AO after issue of notice u/s.143(2) and
after considering the assessee’s submission, concluded that the land was not
used for agricultural purposes, and hence was not an agricultural land, and the
exemption allowed earlier was withdrawn. On appeal, the Commissioner (Appeals)
upheld the AO’s decision.
On second appeal before the Tribunal, it was observed as
under :
1. The question as to whether a land is agricultural
or not is a question of fact to be answered having regard to the facts and
circumstances of each case. In the instant case, the said land had been
classified in the Revenue records as agricultural land. The assessee had not
given any evidence of incurring any expenditure on agricultural operations on
the said land, as also he had not established that any agricultural produce in
the nature of rice, jowar, etc. was produced from the land.
2. On the other hand, the Revenue has also not produced any
evidence to show that the land was used for other than agricultural purposes.
No permission for non-agricultural use had been obtained by the assessee, and
no evidence of such use was brought on record.
3. Merely the fact that the land in question was brought in
an industrial zone could not be a determining factor by itself to say that the
land was converted into use for agricultural purposes.
4. Further, the profit motive of the assessee in selling
the land, without anything more than itself, could never be decisive to say
that the assessee had used the land for non-agricultural purposes. Therefore,
the land in question sold by the assessee was an agricultural land in nature
at the relevant point of time when the land was sold, and any gain arising
from such sale was exempted from tax.
Cases referred to :
(i) CIT v. Raja Benoy Kumar Sahas Roy, (1957) 32 ITR
566 (SC)
(ii) ACIT v. Tarachand Jain, (1980) 123 ITR 567
(Patna)
(iii) CWT v. Officer-in-charge (Court of Wards) Paigah,
(1976) 105 ITR 133 (SC)
Whether in view of the fact that the assessee had advanced
certain amounts to its sister concerns from the monies available to it, because
it had been prevented by Government regulations from prepaying its External
Commercial Borrowings, interest income on the same could be considered to have
close nexus with the business of the assessee, and would be assessable under the
head ‘business income’ — Yes. Post-amendment to S. 10B, as entire profits
derived from business of an undertaking are to be considered for calculation of
eligible deduction, whether the assessee would be entitled to deduction of such
interest income, and expenses incurred in relation to such income were allowable
— Yes.
Facts :
The assessee-company earned certain interest income from
deposits lying in the EEFC account and from advancing of intercorporate loans
out of the funds of the undertaking. The assessee had certain External
Commercial Borrowings (ECB’s) obtained in the earlier years, which could be
repaid only in accordance with the repayment schedule, and thus it could repay
only a small portion of its outstanding loans, even though it had the liquidity
to pay more. The assessee took a business decision to place these funds with
various sister concerns as inter- corporate deposits. The assessee claimed that
both these types of interest income were a part of ‘income from business’.
Further, from A.Y. 2001-02, S. 10B has been substituted and
as per the new provisions, the interest income so derived would be entitled to
deduction u/s.10B.
According to the AO, only those profits derived from an
eligible undertaking from export of article or thing were entitled for deduction
for A.Y. 2001-02. On appeal, the CIT(A) upheld the order of the AO. On second
appeal, the Tribunal held that :
1. The interest income arose on deposits in the EEFC
account from export profits. The Government had stipulated the maximum amount
that could be held as deposits in the EEFC account, and as per the relevant
regulations, the assessee had also been prevented from pre-paying the External
Commercial Borrowings. Therefore, the assessee advanced the monies to its
sister concerns. The interest income on the same could be considered as having
close nexus with the business activity of the assessee and was assessable
under ‘business income’.
2. For the A.Ys 1997-98 and 1998-99, the assessee was not
eligible for grant of relief on interest income while computing deduction
u/s.10A and 10B. From A.Y 2001-02, S. 10B was substituted. Earlier, it was an
exemption Section, and income from these undertakings did not form part of
total income. However from that particular year, even though the Section
appears in Chapter 3, a deduction from business income from the undertaking is
to be granted by applying the substituted provision. For the A.Y in
discussion, the AO was directed to recompute the deduction u/s.10A and
u/s.10B, such that entire profits derived from the business of the undertaking
would be taken into consideration.
3. Regarding the allowability of expenditure relatable to
the interest income, as it had already been held that interest income was
assessable as business income, all related expenditures had to be allowed in
computing the interest income.
S. 36(1)(vii) r/w S. 36(2) — Money-lending activity is a part
of non-banking finance business — Providing funds to entities where assessee was
a promoter was a part of fund-based activities carried on by the company —
Whether where assessee had provided funds to one such assessee, and the said
amount had become irrecoverable, the same could be claimed as bad debts — Also,
where the assessee had given certain amount to an entity for allotment of
preference shares — The entity refused to allot the same, and further the said
amount advanced by the assessee to this entity also became irrecoverable — Held,
the same could be claimed as bad debts.
Facts :
The assessee, a non-banking finance company, was incorporated
in the year 1987, and was mainly engaged in providing fund- and non-fund-based
financial services. In the relevant assessment years,
the assessee had paid certain amount to some villagers as advance for purchase
of land for business of development activities. Further, the assessee had also
advanced money to two companies, ‘F’ and ‘P’. The assessee had promoted ‘F’ and
had deposited certain amount with a bank and stood guarantor for money given to
‘F’ by the bank. On the guarantee money, the assessee earned interest from bank
as well as from ‘F’ and offered the same for taxation. Business of ‘F’ was
abandoned and despite all efforts, the assessee was not able to recover the
amount from ‘F’ and claimed the same as bad debts u/s.36(1)(vii). Further, the
assessee had given certain amount to ‘P’ for allotment of preference shares, but
‘P’ refused to allot the same. The assessee, therefore, asked ‘P’ to refund the
amount with interest and on P’s failure, claimed the said amount as bad debts.
The assessee’s claim was disallowed on the ground that it was
not carrying on any money-lending business.
On appeal before the Tribunal, the Tribunal held the
following :
1. The contention of the lower authorities that the
assessee was not carrying on any money-lending business was incorrect. This
was because; carrying on money-lending activities was a part of doing
non-banking financial business. Huge amounts earned as interest were offered
for taxation, and the same had been taxed in the earlier years as well as the
year under consideration. The objects clause of the assessee-company clearly
stated that the object of the assessee was to run non-banking business and
advance money as intercorporate deposits.
2. The Delhi Bench of the Tribunal has held that there is
no qualification in S. 36(2) that the business of money lending should be
understood only in traditional sense.
3. Further, the guarantee stood by the assessee has to be
taken as an activity of money lending. The assessee has earned interest on the
guarantee amount from the bank as well as from ‘F’. As the business of ‘F’
company was abandoned, whatever amount was recoverable from it by the assessee
was treated as bad debts by the assessee. All the conditions of S. 36(1)(vii)
r/w S. 36(2) being satisfied in this case, amount recoverable from ‘F’ was
allowable as bad debts.
4. With regard to the amount advanced to ‘P’, for allotment
of preference shares, the Tribunal observed that since ‘P’ had refused to
allot the shares, the assessee had asked it to refund the amount. ‘P’ in turn
had instructed its debtor M to pay the said amount to the assessee on its
behalf. The assessee had shown this amount as intercorporate deposit with M,
and interest had also been shown. Therefore, it cannot be said that the said
amount had the character of share application money, as it was in the nature
of intercorporate deposit, on which the assessee was to receive interest. The
conditions of S. 36(2) were satisfied in this case, and the amount recoverable
from ‘P’ was allowable as bad debts u/s.36(1)(vii).
Case referred to :
DCIT v. SREI International Finance Ltd., 10 SOT 722
(2006) (Delhi) (para 11)
68 Mandatory digitally signed e-return for companies —
Notification No. 49/2010, dated 9-7-2010.
The CBDT vide Income-tax (Seventh Amendment) Rules, 2010 has
amended Rule 12 which prescribes the manner of filing the income-tax return for
A.Y. 2010-2011. It is now provided that companies need to file their income-tax
e-return digitally signed and hence the process of filing an e-return without
digital signature and sending the acknow-ledgement in Form ITR V has been done
away with. Further individuals and HUFs liable to tax audit u/s.44AB of the Act
are now mandatorily required to need to file the returns electronically with or
without digital signature. The Rule does not change for the firms subjected to
tax audit.
18. Points for Company Law for the period 15th September 2010
to 15th October 2010.
1. Computer-generated show-cause notices have been issued to
a number of defaulting companies that were not filing their documents in the
MCA21 system as a part of the drive to cleanse the MCA Registry by the Ministry
of Corporate Affairs. The Ministry notes that while migrating data from manual
registry into electronic registry under MCA21, certain inaccuracies might have
crept in; and as such computer-generated notices may contain some errors, like
wrong addresses/wrong names of companies, etc. Some directors who have already
resigned, or some companies which may have been merged or liquidated, might not
have been recorded in the electronic registry. In case any discrepancy is found
in such show-cause notice issued, the same may kindly be intimated to the
respective ROC, so that the electronic registry data is made up-to-date.
2. MCA is planning to introduce SMS alert facility for the
Annual Filing eForms. Stakeholders can register for this service using the ‘Register
for SMS alerts’ link after logging on to the portal. Presently, this
facility is applicable only for Annual Filing eForms i.e., 20B, 23AC, 23ACA, 66
and 21A.
3. The MCA can be contacted in case of any technical difficulty, at the
following numbers : North (011-64506000), East (033-23675242/033-64506000),
South (044-28152455/044-64506000), West (022-65161996/ 022-64506000) or an email
can be sent to appl.helpdesk@mca.gov.in. Details of the Certified Filing Centres
(CFC’s) and the ROC Facilitation Centre in major cities can be seen on the MCA
website.
Full texts of relevant Notifications, Circulars and Forms are
available on the BCAS website : www.bcasonline.org
Part D : Miscellaneous
24 The Government has signed an agreement
with Permanent Court of Arbitration (PCA), the Hague, to open its regional
facility in India — Information provided by Shri H. R. Bhardwaj, Minister of Law
and Justice, in the Lok Sabha.
This would provide more frequent recourse to international
arbitration as a means of settling disputes since the cost would reduce
considerably. This would apply to disputes between two states as well as foreign
companies having some concern in India or vice versa. It would also open
newer avenues of practice for legal fraternity.
This circular clarifies that all categories of
foreign exchange earners, including SEZ developers, are allowed to credit up to
100% of their foreign exchange earnings to their EEFC Accounts.
Given below are the highlights of certain RBI
circulars, press notes and notifications
31 A. P. (DIR Series) Circular No. 21, dated
December 29, 2009
Advance Remittance for Import of Rough Diamonds
Presently, advance remittances without any limit
and without a bank guarantee or standby letter of credit for import of rough
diamonds into India, can be made to eight mining companies by eligible
importers.
Average
Maturity Period
All-in-cost ceilings over six month Libor for the respective currency of
borrowing or applicable benchmark
3 years
and up to 5 years
300
basis points
More
than 5 years
500
basis points
Now, advance remittances can be made by eligible
importers without any limit and without a bank guarantee or standby letter of
credit for import of rough diamonds into India to Namibia Diamond Trading
Company (PTY) Limited (NDTC).
The names of the nine mining companies to whom
advance remittance as above can be made are: –
1. De Beers UK Limited
2. RIO TINTO, UK
3. BHP Billiton, Australia
4. ENDIAMA, E. P. Angola
5. ALROSA, Russia
6. GOKHARAN, Russia
7. RIO TINTO, Belgium
8. BHP Billiton, Belgium
9. Namibia Diamond Trading Company (PTY) Limited
(NDTC).
Given below are the highlights of certain RBI
circulars, press notes and notifications
30 A. P. (DIR Series) Circular No. 19, dated
December 9, 2009
External Commercial Borrowings (ECB) Policy
This circular has carried out the following changes
to some aspects of the ECB Policy: –
1.
All-in-cost ceilings
All-in-cost ceilings, applicable with effect from
January 1, 2010 under the approval route, will be as under: –
2.
Integrated township
Presently, companies engaged in the development of
integrated townships are permitted to avail ECB under the approval route only up
to December 31, 2009. This facility for availing ECB under the approval route is
being extended up to December 31, 2010.
3.
Buyback of Foreign Currency Convertible Bonds (FCCBs)
Presently, Indian companies are allowed to buy-back
their FCCB both under the automatic route as well as the approval route. This
facility will be available only up to December 31, 2009 and will be discontinued
on and from January 1, 2010.
4.
ECB for NBFC Sector
Presently, NBFCs, exclusively engaged in the
financing of infrastructure sector, are permitted to avail of ECB under the
approval route only from multilateral / regional financial institutions and
government-owned development financial institutions for on-lending to borrowers
in the infrastructure sector. These NBFCs have, with immediate effect, been
permitted to avail of ECB from any recognized lender under the approval route.
5.
ECB for Spectrum in the Telecommunication Sector
Eligible borrowers in the telecommunications sector
are now permitted to avail of ECB for the purpose of payment for ‘Spectrum’
allocation’.
Know Your Customer (KYC) norms / Anti-Money
Laundering (AML) standards / Combating of Financing of Terrorism (CFT) /
Obligation of Authorized Persons under Prevention of Money-Laundering Act, (PMLA)
2002, as amended by Prevention of Money Laundering Act, 2009 – Money changing
activities – Suspicious Transaction Reporting Format
This circular states that the Prevention of Money
Laundering (Amendment) Act, 2009 has brought
authorised persons within the definition of “Financial Institutions” under
Section 2(1) of the Prevention of Money-Laundering Act, 2002. As a result,
authorised persons are required to furnish information to the Financial
Intelligence Unit – India (FIU-IND) in the prescribed format. The procedure and
manner of maintaining records, etc., as notified by the Government of India, are
annexed to this circular.
Authorised persons / franchisees of authorised
persons are required to furnish Suspicious Transaction Report (STR) to FIU-IND
in respect of money changing activities within 7 days of arriving at a
conclusion that a transaction / attempted transaction, whether made in cash or
otherwise, or a series of transactions integrally connected are of a suspicious
nature. The formats of STR can be downloaded from the website of FIU-IND –
http://fiuindia.gov.in.
27 Clarification F. No. 404/10/2009-ITCC issued by
CBDT dated 1.12.2009
Subject :
Clarification on Instructions
on Stay of Demand
Many queries have been received regarding the
applicability of Instruction number 95 dated 21.8.1969 vis-à-vis Instruction
number 1914 dated 2.12.1993. Many assessees are taking the plea that Instruction
No.1914 does not supersede Instruction No.95 dated 21.8.1969.
1. Instruction No.95 dated 22.8.1969 was an
assurance given by the then Deputy Prime Minister during the 8th Meeting of the
Informal Consultative Committee held on 13th May, 1969. The observations made by
the Deputy Prime Minister were as under :-
“Where the income determined on assessment was
substantially higher than the returned income, say twice the latter amount or
more, the collection of the tax in dispute should be held in abeyance till the
decision on the appeal provided there were no lapses on the part of the assessee”.
The above observations were circulated to the field
officers by the Board as Instruction number 95 dated 21.8.1969.
2. The matter has been considered by the Board and
the decision of the Board has been approved by the Finance Minister. It is
hereby clarified that subsequent to Instruction No.95, following
instructions/clarifications on the stay of demand were issued till 15th October,
1980 :
(i) Clarification to Instruction number 95 was
issued on 14/09/1970 stating that it relates to disputed demands only,
(ii) Instruction number 635 was issued on
12/11/1973 stating that stay should be granted only in those cases where
demands are attributable to substantial points of dispute.
(iii) Clarification to Instruction number 95
dated 13/07/1976 held that the Instruction becomes operative only in cases
where there are no lapses on the part of the assessee.
(iv) Instruction number 1067 dated 21/06/1977
held that the ITO can pass the necessary orders u/s.220(6) in all cases except
cases under section 144A or 144B where the approval of IAC is required.
(v) Instruction number 1158 dated 27th March,
1978 held that in suitable cases the assessee may be allowed to furnish
security.
(vi) Instruction number 1282 dated 4th October,
1979 held that requests should be made to CIT(A) and ITAT for early disposal
of appeals and constant watch should be kept on progress of appeals.
(vii) Instruction number 1362 was issued on
15/10/1980 in supersession of all the earlier Instructions. It was an
Instruction covering the issue in detail and in para 4 of the same there was a
clear reference to the proposition laid down in Instruction number 95 which is
as follows :-
In exercising this
discretion, the Income-tax Officer should take into account factors such as;
whether the points in dispute relate to facts; whether they arise from
different interpretations of law; whether the additions have been made as a
result of detailed investigation; whether the additions are based on materials
gathered through enquiry/survey/search and seizure operations; whether the
disputed addition to income has been assessed elsewhere by way of protective
assessment and the tax thereon has been paid by such person etc. The magnitude
of addition to income returned cannot be the sole determinant in this regard.
Each disputed addition will need to be considered to arrive at the quantum of
tax that may need to be stayed.
3. It is clear that the substance of the assurance
as laid down in Instruction number 95 dated 21.8.1969 was submerged in the
Instruction number 1362 dated 15/10/1980 which was issued in supersession of all
earlier Instructions on the subject. Instruction No.1914 dated 2.12.1993 was
issued subsequently in supersession of all the earlier Instructions on the
subject and the said instruction also covers unreasonably high pitched
assessment orders and genuine hardship cases.
4. It is therefore clarified that there is no
separate existence of the Instruction number 95 dated 21.8.1969. Instruction
number 95 and all subsequent Instructions on the issue ceased to exist from the
date Instruction No.1362 came into operation. In turn Instruction number 1362
and all subsequent Instructions on the issue also ceased to exist the day
Instruction number 1914 came into operation i.e. 2/12/1993. The Instruction
number 1914 holds the field currently and a copy of Instruction number 1914 is
enclosed for reference.
(Mona Singh)
Director (ITCC)
Annexure – Instruction No : 1914
The Board has felt the need for a comprehensive
Instruction on the subject of recovery of tax demand in order to streamline
recovery procedures. This Instruction is accordingly being issued in
supersession of all earlier Instructions on the subject and reiterates the
existing Circulars on the subject.
2. The Board is of the view that as a matter of
principle, every demand should be recovered as soon as it becomes due. Demand
may be kept in abeyance for valid reasons only in accordance with the guidelines
given below :
A. Responsibility
(i) It shall be the responsibility of the
Assessing Officers and the TRO to collect every demand that has been raised,
except the following :
(a) Demand which has not fallen due;
(b) Demand which has been stayed by a Court or
ITAT or Settlement Commission;
c) Demand for which a proper proposal for write off has been submitted;
d) Demand stayed in accordance with para B & C below.
ii) Where demand in respect of which a Recovery Certificate has been issued or a statement has been drawn, the primary responsibility for the collection of tax shall rest with the TRO.
iii) It would be the responsibility of the supervisory authorities to ensure that the Assessing Officers and the TROs take all such measures as are necessary to collect the demand. It must be understood that mere issue of a show cause notice with no follow up is not to be regarded as adequate effort to recover taxes.
B. Stay petitions :
i) Stay petitions filed with the Assessing Officers must be disposed of within two weeks of the filing of petition by the tax payer. The asses-see must be intimated of the decision without delay.
ii) Where stay petitions are made to the authori-ties higher than the Assessing Officer (DC/ CIT/CC), it is the responsibility of the higher authorities to dispose of the petitions without any delay, and in any event within two weeks of the receipt of the petition. Such a decision should be communicated to the assessee and the Assessing Officer immediately.
iii) The decision in the matter of stay of demand should normally be taken by Assessing Officer/TRO and his immediate superior. A higher superior authority should interfere with the decision of the AO/TRO only in exceptional circumstances e.g. where the assessment order appears to be unreasonably high pitched or where genuine hardship is likely to be caused to the assessee. The higher authorities should discourage the assessee from filing review petitions before them as a matter of routine or in a frivolous manner to gain time for withholding payment of taxes.
C. Guidelines for staying demand
i) A demand will be stayed only if there are valid reasons for doing so. Mere filing an appeal against the assessment order will not be sufficient reason to stay the recovery of demand. A few illustrative situations where stay could be granted are –
a) If the demand in dispute relates to issues that have been decided in assessee’s favour by an appellate authority or court earlier; or
If the demand in dispute has arisen because the Assessing Officer had adopted an interpretation of law in respect of which there ex-ist conflicting decisions of one or more High Courts (not of the High Court under whose jurisdiction the Assessing Officer is working); or
b) If the High Court having jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment.
c) It is clarified that in these situations also, stay may be granted only in respect of the amount attributable to such disputed points. Further, where it is subsequently found that the assessee has not cooperated in the early disposal of appeal or where a subsequent pronouncement by a higher appellate authority or court alters the above situation, the stay order may be reviewed and modified. The above illustrations are, of course, not exhaustive.
ii) In granting stay, the Assessing Officer may impose such conditions as he may think fit. Thus he may.
a) require the assessee to offer suitable security to safeguard the interest of revenue;
b) require the assessee to pay towards the dis-puted taxes a reasonable amount in lumpsum or in instalments;
c) require an undertaking from the assessee that he will co-operate in the early disposal of appeal failing which the stay order will be cancelled;
d) reserve the right to review the order passed after expiry of reasonable period, say upto 6 months, or if the assessee has not co-operated in the early disposal of appeal, or where a subsequent pronouncement by a higher appellate authority or court alters the above situations;
e) reserve a right to adjust refunds arising, if any against the damand;
iii) Payment by installments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 10 months.
iv) Since the phrase ‘stay of demand’ does not occur in Section 220(6) of the Income-tax Act, the Assessing Officer should always use in any order passed under section 220(6) [or under section 220(3) of section 220(7)], the expression that occurs in the section viz, that the agrees to treat the assessee as not being in default in respect of amount specified, subject to such conditions as he deems fit to impose.
v) While, considering an application under Section 220(6), the Assessing Officer should consider all relevant factors having a bearing on the demand raised and communicate his decision in the form of a speaking order.
D. Miscellaneous :
i) Even where recovery of demand has been stayed, the Assessing Officer will continue to review the situation to ensure that the condi-tions imposed are fulfilled by the assessee failing which the stay order would need to be withdrawn.
ii) Where the assessee seeks stay of demand from the Tribunal, it should be strongly opposed. If the assessee presses his application, the CIT should direct the departmental representative to request that the appeal be posted within a month so that Tribunal’s order on the appeal can be known within two months.
iii) Appeal effects will have to be given within 2 weeks from the receipt of the appellate order. Similarly, rectification application should be decided within 2 weeks of the receipt thereof. Instances where there is undue delay in giving effect to appellate orders, or in deciding rectification applications, should be dealt with very strictly by the CCITs /CITs.
4. The Board desires that appropriate action is taken in the matter of recovery in accordance with the above procedure. The Assessing Officer or the TRO, as the case may be, and his immediate superior officer shall be held responsible for ensuring compliance with these instructions.
5. This procedure would apply mutatis mutandis to demands created under other Direct Taxes enact-ments also.
25 Certificate of lower
deduction or non-deduction of tax at source u/s 197 of the Act- matter reg. –
Instruction No. 7/2009 F. No. 275/23/2007-IT(B)], dated 22nd / 23rd December,
2009 – Copy
available for down load on the website – www.bcasonline.org
CBDT vide the above Instructions have notified that prior
administrative approval of the CIT (TDS) is required before issuing certificate
u/s 197, where the cumulative amount of tax forgone by non-deduction/lower
deduction during the financial year for a particular assessee exceeds Rs. 50
lakh in Delhi, Mumbai, Chennai, Kolkata, Banglore, Hydrabad, Ahmadabad and Pune
and Rs. 10 lakh in other cities.
24 CBDT F. NO. 275/70/2009-IT(B)], dated 22nd December, 2009
regarding tax deduction at source u/s 194 on commission/supplementary commission
CBDT has clarified that tax should be deducted at source by
airlines under section 194H from the commission and supplementary commission
paid to their travel agents.
The new perquisite valuation rules – amendments to Rule 3
were recently notified by the CBDT vide Notification no. 94/2009 dated 18th
December, 2009. CBDT has issued Notification no 2/2010 dated 12th January, 2010
as a corrigendum to notification no. 94/2009 to rectify the drafting errors in
perquisite valuation rules notified earlier.
New Page 122 Annual Detailed Circular
on TDS on Salaries for the FY 2009-10 – Circular No. 1/2010 [F.No.
275/192/2009IT(B)], dated 11th January, 2010 – Copy available
for down load on the website – www.bcasonline.org
37 Exemption to specific services provided
to GTA —Notification No. 1/2009 — Service Tax, dated 5-1-2009.
This Notification supersedes earlier Notification No.
29/2008-Service Tax, dated 29-6-2008, exempting taxable services provided by
following persons :
Clearing and forwarding agent
Manpower recruitment or supply agency
Cargo handling agency
Storage or warehouse keeper
In relation to :
business auxiliary service
packaging activity
support services of business or commerce
supply of tangible goods.
To a goods transport agency, in relation to transport of
goods by road, subject to the condition that the invoice issued by such service
provider, for providing services should mention the name and address of the
goods transport agency and also the name and date of the consignment note, by
whatever name called.
36 E-filing of Returns — Notification No.
VAT/AMD-1007/IB/Adm-6, dated 20-12-2008.
E-filing of MVAT returns made applicable to dealers required
to file half-yearly returns under sub-clause (i) of clause (a), clauses (b), (c)
and (d) of sub-rule (4) of Rule 17 in respect of the period starting on or after
1st October 2008 and deemed dealers required to file annual return under
sub-clause (ii) of clause (a) of sub-rule (4) of Rule 17 in respect of the
period starting on or after 1st April 2008.
35 More items added to medical devices —
Notification No. VAT.1508/CR-5/Taxation-1 dated 27-11-2008.
This Notification amends the Notification for medical devices
No. VAT-1505/CR-233/Taxation-1 issued on 23-11-2005 by adding some more items to
the list of medical devices under sub-entry (8) of entry 107 of Schedule ‘C’.
34 Composition rate for a drug retailer
—Notification No. VAT/1507/CR-55/Taxation-1, dated 27-11-2008.
Composition rate of 6% is notified for drug retailers. This
rate is applicable for retailers whose at least ¾th of the turnover of sales of
goods is of drugs covered under Entries 29 and 29A of Schedule C appended to the
MVAT Act, 2002.
It has been decided to extend the provisions of filing of
electronic returns to all the registered dealers in Maharashtra under MVAT and
CST Acts from the 1st October, 2008 onwards. Thus, now the filing of e-return
becomes mandatory for all the dealers for the period ending March, 2009 onwards.
32 Change in procedure for payments in the
absence of TIN.
Trade Circular 42T of 2008, dated 26-12-2008 :
To avoid hardships in the absence of TINs, w.e.f. 1st January
2009 applicants seeking registration, voluntary or non-voluntary, would pay fees
and deposit by separate DDs. Fee of Rs.25 for registration under the C.S.T. Act
is to be paid in the form of court fee stamps.
Unregistered employers deducting tax at source, on payments
made to contractors, who are required to file returns in Form No. 405 shall pay
the TDS amount by DDs only.
31 VAT Audit Report for the year 2007-08 can
be in Old Form or New Form.
Trade Circular 41T of 2008 dated 18-12-2008 :
Dealers have been allowed the option to file Form-704 in Old
Form or in New Form in respect of the (financial) year 2007-08. It has been
further clarified that even after 10th November, 2008 the Old Form No. 704 can
be filed in respect of the said year and that option is only for the year
2007-08. The Circular emphasises that the due date for filing Form 704 for the
year 2007-08, which is 31st January, 2009 will not be extended in any
circumstances. The Circular mentions that in the context of several important
issues raised by the WIRC of ICAI and other professional organisations regarding
the New Form 704 seeking clarifications, the required clarifications will be
issued separately.
30 TDS time limit under Rule 37A revised —
Income-tax (Fourth Amendment) Rules, 2009 dated 21-1-2009.
The CBDT has amended Rule 37A pertaining to TDS returns for
non-residents. The TDS return, in case of tax deducted at source from payments
to non-residents, shall now be furnished on or before the 15th July, the 15th
October, the 15th January in respect of the first three quarters of the
financial year, and, on or before the 15th June, for the last quarter of the
financial year instead of the existing time-limit of fourteen days from the end
of each quarter.
29 Depreciation on new commercial vehicles @
50% : Income-tax (Third Amendment) Rules, 2009, dated 19-1-2009.
The CBDT has provided accelerated depreciation @ 50% to new
commercial vehicles which are acquired on or after 1-1-2009, but before
1-4-2009, and put to use before 1-4-2009.
Extension of time limit to file ITR V in case E-return
filed without digital signature — Press Release, dated 13-8-2009.
In case an E-return has been filed which has not been
digitally signed, the ITR V needs to be sent via Ordinary Post to Bangalore
office within 30 days from the date of uploading such return. This time limit
of 30 days has been extended till 30 September 2009 or within 60 days from the
date of uploading, whichever is later.
38 Dr. A. Naresh Babu v.
ITO
(2010) 124 ITD 28 (Hyd.)
A.Ys. : 1996-97 to 2003-04. Dated : 5-9-2008
S. 264 and S. 246A — Appeal against assessment made
consequent to order passed u/s.264 is maintainable u/s.246A, but only to the
extent of issues which have not attained finality in order passed u/s.264.
Facts :
The assessee’s case was scrutinised and the Assessing Officer
passed the assessment order. The assessee filed an appeal before the CIT(A).
Later on the appeal filed before the CIT(A) was withdrawn. Thereafter the
assessee filed petition before the CIT seeking revision u/s.264. The CIT set
aside the assessments and restored the matter with certain directions on various
issues to the Assessing Officer to re-do the assessments afresh. The Assessing
Officer completed the assessment afresh.
Being aggrieved by the additions made by the Assessing
Officer in the fresh assessment, the assessee preferred appeal before the
CIT(A). The CIT(A) held that the assessments made in consequence to the order
passed by the CIT, particularly when the assessee’s case has been decided
u/s.264 on merits, cannot be subject matter of appeal before the CIT(A).
Held :
Appeal from fresh order passed by the Assessing Officer to
give effect to the revisional order passed u/s.264 is maintainable, but only
such issues can be taken in appeal which have not attained the finality in the
order passed u/s.264 of the Act.
Persons appointed or authorised by the lottery organising
State for marketing lottery tickets, would be exempted from service tax if the
distributor or selling agent avails of optional composition scheme notified vide
Notification No. 49/2010-ST, dated 8-10-2010 in respect of such lottery during
the financial year.
22. Optional Composition Scheme for Distributor/Selling Agent
of Lottery Notification No. 49/2010-ST, dated 8-10-2010.
Under the lottery or lottery scheme, where the guaranteed
prize payout is more than 80%, a distributor or selling agent can opt to pay
flat service tax of Rs.6000 and where the guaranteed prize payout is less than
80%, he can opt to pay flat service tax of Rs.9000, on every Rs.10 lakh of
aggregate face value of lottery tickets printed by the organising State for a
draw.
Such option will have to be exercised within one month of the
beginning of each financial year (for F.Y. 2010-11 by 7-11-2010) for the entire
financial year. A new service provider can exercise such option within one month
of providing such service.
Procedure and instructions for E-Services
Enrolment/Registration for Profession Tax RC holders (PTRC) displayed on sales
tax website.
Trade Circular has not yet been issued.
The Department through this instruction has specified the
procedure and has required all the employers paying profession tax, to register/enrol
for PTRC e-services immediately and latest by 31st December, 2010. This
enrolment process is not meant for PTEC holders.
Facility of e-return filing would be extended to PTRC holders
and thereafter e-payment facility.
55 Press Release by the Press Information Bureau,
Government of India, dated February 11, 2010
Review of cases requiring prior approval of the
Foreign Investment Promotion Board
The Cabinet Committee on Economic Affairs (CCEA)
has taken the following decisions with regard to cases of foreign investment
requiring prior government approval.
Presently, proposals with total project cost of up
to Rs. 600 crores require approval from the Finance Ministry, and proposals with
total project cost of up to Rs. 1,200 crores require approval from the CCEA.
Henceforth, only proposals involving total foreign equity inflow of more than Rs.
1,200 crores will require CCEA approval. And the Finance Ministry, based on the
recommendations of the FIPB, will consider proposals with total foreign equity
inflow of up to Rs. 1,200 crores.
In the following cases where prior approval of FIPB / CCEA
for making the initial foreign investment was taken, fresh approval will not be
required to be obtained from the FIPB / CCEA:
1. Cases of entities whose activities had earlier required
prior approval of FIPB / CCFI / CCEA, and who had, accordingly, earlier obtained
prior approval of FIPB / CCFI / CCEA for their initial foreign investment but
subsequently where such activities/sectors have been placed under the automatic
route.
2. Cases of entities whose activities had sectoral caps
earlier and who had, accordingly, earlier obtained prior approval of FIPB / CCFI
/ CCEA for their initial foreign investment, but subsequently where such caps
were removed or increased and the activity placed under the automatic route.
3. Cases where prior approval of FIPB / CCFI / CCEA had been
obtained with reference to activities / sectors requiring prior approval and
also from the angle of provisions of Press Note 18/1998 or Press Note 1 of 2005.
Presently, any change in the terms and conditions
of ECB after obtaining Loan Registration Number (LRN) requires prior permission
from the RBI.
This circular has delegated powers to authorized
banks, with immediate effect, to approve requests for changes in the following
cases, subject to specified conditions:
a) Changes / modifications in the drawdown /
repayment schedule
Changes / modifications in the drawdown / repayment
schedule of the ECB already availed, both under the approval and the automatic
routes, may be permitted subject to the condition that the average maturity
period, as declared while obtaining the LRN, is maintained. The changes in the
drawdown / repayment schedule should be promptly reported to the DSIM, Reserve
Bank through Form 83. However, any elongation / rollover in the repayment on
expiry of the original maturity of the ECB would require the prior approval of
the Reserve Bank.
b) Changes in the currency of borrowing
Change in the currency of borrowing, if so desired,
by the borrower company, in respect of ECB availed of both under the automatic
and the approval routes, may be permitted subject to all other terms and
conditions of the ECB remaining unchanged. Designated AD banks should, however,
ensure that the proposed currency of borrowing is freely convertible.
c) Change of the AD bank
Change of the existing designated AD bank by the
borrower company for effecting its transactions pertaining to the ECB may be
permitted subject to a No-Objection Certificate (NOC) from the existing
designated AD bank, and after due diligence.
d) Changes in the name of the borrower company
Changes in the name of the borrower company may be
permitted subject to production of supporting documents evidencing the change in
the name from the Registrar of Companies.
53 A. P. (DIR Series) Circular No. 30, dated
February 01, 2010
Export and Import of Currency
Notification No. FEMA 195 / 2009-RB, dated July 7,
2009
Presently, a resident individual who is going on a
temporary visit outside India (other than to and from Nepal and Bhutan) is
permitted to take or bring back Indian currency notes issued by the Government
of India or RBI not exceeding Rs. 5,000.
This circular has raised this limit to Rs. 7,500.
Accordingly, a resident individual who is going on a temporary visit outside
India (other than to and from Nepal and Bhutan) is permitted to take or bring
back Indian currency notes issued by the Government of India or RBI not
exceeding Rs. 7,500.
52 A. P. (DIR Series) Circular No. 28, dated
January 25, 2010
External Commercial Borrowings (ECB) Policy
Presently, eligible borrowers in the
telecommunications sector can avail of ECB for the purpose of payment for
spectrum allocation, under the automatic route.
This circular has made a one-time relaxation in the
end-use conditions of the ECB policy. As a result, successful bidders can
initially pay for spectrum allocation out of Rupee funds and can subsequently
avail ECB under the approval route to refinance the Rupee payments. This is
subject to the following conditions:
1. The ECB should be raised within 12 months from
the date of payment of the final instalment to the government.
2. The designated AD – Category I bank must
monitor the end-use of funds.
3. Banks in India cannot provide any form of
guarantees.
4. All other conditions of ECB, such as eligible
borrower, recognized lender, all-in-cost, average maturity, etc., will have to
be complied with.
51 Procedure for allowing refund of excess credit to
exporters made friendly :
Circular No. 120/01/2010-ST dated the 19th January, 2010
By this Circular, procedure for granting refund of excess
credit has been made easy and the Department has been instructed to dispose all
pending claims in accordance with instructions contained in this Circular.
In the background, this Circular gives details of feedback
and representations received at meetings held with the refund sanctioning
authorities about the causes of delays in granting refund of excess credit to
exporters and the manner in which existing Notification No. 5/2006-CE(NT) dated
14.03.2006 is implemented by the Department and thereafter on consideration of
such feedback by this Circular instructions have been issued as follows :
(1) There cannot be different yardsticks for establishing
the nexus for taking of credit and for refund of credit. Even if different
phrases are used under different rules of CENVAT Credit Rules, they have to be
construed in a harmonious manner. The phrase “used in” mentioned in the
Notification to show nexus should be interpreted in a harmonious manner. The
test to be applied to check whether nexus exists or not is that in case the
absence of input/input service adversely impacts quality and efficiency of
provision of service exported, it should be considered as eligible input or
input service for taking credit.
(2) To address similar problems of co-relation and scrutiny
of a large number of documents faced in another scheme, Finance Act, 2009
(Notification No. 17/2009-ST) had provided for the procedure of
self-certification of invoices about the co-relation and nexus between
inputs/input services and exports by the exporter or by the Chartered
Accountant. To follow similar procedure here also, the exporters are also
advised to provide a duly certified list of invoices and the departmental
officers are only required to make a basic scrutiny of the documents and, if
found in order, sanction the refund within one month.
The exporter should, along with the refund claim, file a
declaration in the prescribed manner as notified in this Circular.
(3) Sometimes, it is possible that during certain quarters,
there may not be any exports and therefore the exporter does not file any
claim though he receives inputs/input services during this period. In this
regard, the Board has clarified that since no bar is provided in the
notification, there should not be any objection in allowing refund of credit
of the past period in subsequent quarters.
(4) In case of incomplete invoices, the Department should
take a liberal view in view of various judicial pronouncements by Courts i.e.
invoices are incomplete but are complying with Rule 5 which provides, (i) so
far as the nature of the service which has been received by the exporter can
be ascertained; (ii) tax paid therein is clearly mentioned; and (iii) other
details as required under rule 4(a) are mentioned, the refund should be
allowed if the input service has a nexus with the services/goods exported as
discussed earlier.
49 vii. Clarification regarding Schedule Entry C-70 – Paper:
Circular No.7T of 2010. Dated 03/02/2010
Scope of Schedule Entry C-70 was earlier clarified by
Circular No.35-T of 2005 and Circular No. 1-T of 2006 but in consideration of
representations now, the said Circulars are withdrawn and from the date of
issuance of this Circular, the Scope of the said Schedule Entry C-70 covering
various types of papers has been clarified.
48 vi. Penalty w.r.t. Revised Return under MVAT Act :
Circular No.6T of 2010. Dated 02/02/2010
Since as per the periodicity determined by the Department,
date of filing of revised return has been extended from 31st January, 2010 to
15th March, 2010. Therefore, if the revised return is filed by 15th March, 2010,
penalty u/s.sec 29 (8) of MVAT Act, 2002 will not be levied.
47 v. Extension of date for Submission of Audit Report for
the year 2008-09:
Trade Circular No.5T of 2010 Dated 28/01/2010
The last date for submission of Audit Report in Form-704 for
the period 2008-09 has been extended from 31st January, 2010 to 31st March, 2010
and statement of submission along with requisite documents would have to be
submitted by 10th April 2010.
46 iv. Filing of Audit Report in Form-704 for the periods
2005-06, 2006-07 and 2007-08:
Trade Circular No.4T of 2010. Dated 18/01/2010
Earlier by Circular No. 27T of 2009 filing of MVAT Audit
Report after 01/10/2009 for any period was to be by E-Form and in new Form No.
704 only. By this Circular, it has been clarified that the dealer will have an
option to file Audit Report in Form – 704 in old format physically for the
periods 2005-06, 2006-07, 2007-08.
44 ii. Tax Treatment of Goods sent to other States:
Trade Circular No.2T of 2010, Dated 11/01/2010
Referred Trade Circulars issued explaining scope of section
6A of CST Act, 1956
In view of the Hon’ble Supreme Court judgment in case of M/s
Ambica Steels Ltd. vs. State of Uttar Pradesh (24 VST 356) upholding
applicability of mandatory F Forms to non-sale transactions like job work even
in respect of transactions from principal to principal basis, it is now
clarified by this Circular that F forms are mandatory for all transactions of
inter-state transfers (not by way of sale), including job work and goods return.
Consequently, Trade Circular 16T of 2007 dated 20th February 2007 and Trade
Circular 5T of 2009 dated 29th January 2009 are withdrawn.
The Reserve Bank of India has issued 3 Circulars. The DIPP
has issued 1 Press Note.
61 Press Note 7 (2008) No. 5(10)/2006-FC,
dated 16-6-2008 — Consolidated Policy on Foreign Direct Investment.
This Press Note contains a summary of the FDI policy and regulations
applicable to various sectors and activities. The Press Note has incorporated
policy changes up to March 31, 2008.
Presently, RBI permission is required for creation of charge
on immovable assets, financial securities and issue of corporate or personal
guarantees, on behalf of the borrower in favour of the overseas lender, to
secure the ECB under automatic/approval route.
Through this circular RBI has delegated, subject to certain
terms and conditions, the power to grant ‘no objection’ under FEMA for creation
of charge on immovable assets, financial securities and issue of corporate or
personal guarantees, in favour of the overseas lender security trustee, to
secure the ECB to be raised by the borrower.
The Reserve Bank of India has issued 3 Circulars. The DIPP
has issued 1 Press Note.
59 A.P. (DIR Series) Circular No. 53, dated
27-6-2008 — Overseas Direct Investment by Registered Trust/Society.
This Circular permits registered trusts and societies engaged
in manufacturing/educational sector to make investment in the same sector(s),
after obtaining prior approval of RBI, by way of joint venture or wholly-owned
subsidiary outside India. Application for permission has to be made in Form ODI.
The Reserve Bank of India has issued 3 Circulars. The DIPP
has issued 1 Press Note.
58 A.P. (DIR Series) Circular No. 52, dated
11-6-2008 — Deferred Payment Protocols dated April 30, 1981 and December 23,
1985 between Government of India and the erstwhile USSR.
The Rupee value of the special currency basket has been fixed
at Rs.62.5198 with effect from May 23, 2008 as against the earlier value of
Rs.60.5828.
57 Suspension of collection of taxes during
Mutual Agreement Procedure under the India-Danish Double Taxation Avoidance
Convention (DTAC) — Instruction No. 7/2008, dated 24-6-2008.
Competent authorities of India and Denmark have entered into
a Memorandum of Understanding to avoid the unintended hardship to the taxpayers,
as well as for efficient management of collection of revenue for the captioned
subject.
Summary of amendments made to the Finance Bill, at the time of
enactment.
The following are the important additional amendments which
were made to the Finance Bill, which have been passed by the Parliament and
enacted in the Finance Act, 2008 :
Exemption available u/s.10A and u/s.10B has been extended by one more year
Relief is given u/s.40(a)(ia) for TDS on amounts provided/payments in March
and paid after the due date of payment of TDS, but before the due date of
filing the return of income would be allowable as a deduction in that previous
year itself. It is in line with the deduction available u/s.43B of the Act.
This amendment is retrospective with effect from A.Y. 2005-06
Due date for obtaining the tax audit report has been pre-poned to 30 September
For eligibility of deduction u/s.80-IB, if an undertaking begins refining of
mineral oil on or after April 1, 2009, deduction will be allowed to such
undertaking only if the following conditions are satisfied :
It is wholly owned by a public sector company or any other company in which
a public sector company or companies hold at least 49% of the voting rights
It is notified by the Central Government before June 1, 2008
It begins refining during April 1, 2009 and March 31, 2012
Since an amendment is made in S. 115JB for addition of deferred tax liability,
similar adjustment has been provided for a credit in the deferred tax asset
created during the previous year
Notice for scrutiny assessment for Fringe Benefit Tax u/s.115WE shall be
served on the assessee within a period of 6 months from the end of the
financial year in which return is furnished. This amendment is applicable from
April 1, 2008
AOP/BOI have been made liable to TDS provisions u/s.194-C if they are subject
to tax audit
Certain powers have been given to the Commissioner of Income-tax (Appeals) in
case of an appeal filed against the assessment order in respect of which the
proceeding before the Settlement Commission abates u/s.245HA. Similar
amendment has been provided under the Wealth-tax Act also.
S. 292BB has been inserted, wherein if the assessee appears for proceedings, it
would be deemed that the Notice has been duly served on him as per the provision
of the Act. Consequently, claims of objection for the notice not served or
served late, etc., would be precluded. However, in case the assessee has filed
such an objection and then appeared for the proceedings, the provisions of S.
292BB would not apply.
56 Clarifications from CBDT regarding filing
of returns of income for the assessment year 2008-09 — Circular No. 6/2008,
dated 18-7-2008.
It has been reiterated by the Board that no annexures need to
be filed with the return of income for the captioned assessment year. It has
been emphasised that the CCIT needs to look into strict compliance of this rule.
TDS/TCS, Advance Tax and Self-Assessment Tax credit would be given on the basis
of the details filed in the return of income, subject to relevant instructions
on verification of TDS claims. However, the assessees are advised to retain all
the annexures, which otherwise would have been filed with the return of income.
55 Clarifications from CBDT regarding
e-payment of taxes — Circular No. 5/2008, dated 14-7-2008.
It has been clarified by the Board that in instances where
the taxpayer does not have a bank account, taxes can be paid from some other
person’s bank account. However, the challan should clearly reflect the PAN of
the person whose tax has been paid. Further, it has been clarified that the
rules for e-payment would apply to tax deducted at source and tax collected at
source.
40 Implications of non-availability of PAN of the payee with
effect from 1 April 2010 – Press Release No.402/92/2006-MC (04 of 2010) dated 20
January 2010
CBDT re-iterates the amendment with effect from 1 April 2010
pertaining to TDS at higher rate in absence of PAN of the payee. Further, the
certificate for lower / non deduction of tax at source would not be given
without PAN mentioned in the application. The law will apply to all including
non-resident assessees. PAN needs to be quoted in all the correspondences,
bills, vouchers and other documents sent to each other by deductor and deductee.
39 Advance Fringe Benefit Tax paid to be treated as advance
income tax for the FY 2009-2010 – Press Release No. 402/92/2006-MC (07 of 2010)
dated 29 January 2010
The CBDT has clarified vide the aforementioned Press Release
that advance tax paid in respect of fringe benefits would be treated as advance
income tax and accordingly, can be adjusted against the advance income tax
liability. The additional FBT advance tax if paid, can be claimed as a refund
while filing the tax return.
51 Sanction and disbursement of Industrial
Promotion Subsidy (IPS) to Mega Projects and Non-Mega Projects under PSI-2001 &
PSI-2007, Reconciliation of IPS by Sales Tax Department & Procedure to be
followed by the Department.
Trade Circular 8T of 2009, dated 7-2-2009 :
In this Circular detailed procedure has been laid down for sanction and
disbursement of the IPS as per two Government Resolutions No.
PSI-2108/CR-36/Ind-8, dated the 3rd December 2008 and No.
PSI-2108/CR-s278/Ind-8, dated the 4th December 2008.
50 Take evidences to the bank while making
payments.
Trade Circular 7T of 2009, dated 5-2-2009 :
Dealers should carry photocopies of TIN Certificate/TIN
Allotment Letter/E-services Enrolment Acknowledgment/Certificate of Registration
/Certificate of Enrolment/Courtesy Letter/Any Order issued by the Department
along with the returns/challans henceforth for verifying the relevant details
before recording entries.
It has been now made mandatory for all dealers to file VAT
returns electronically. The Commissioner has advised dealers to file fresh,
revised returns for the previous defaulting period in the electronic form.
It appears that the question whether S. 6A deals only with transactions
between agent and principal or whether it deals with transactions which are on
a principal-to-principal basis was not raised before the decision dated 17th
August 2007 in the case of M/s. Ambica Steels Ltd. v. the State of Uttar
Pradesh (All.) It is, therefore, decided that in such cases, declaration
in Form F will be issued as per normal procedure.
There is no change in the views expressed in Trade Cir. 16T of 2007, dated
20th February 2007 that S. 6A will have no application as regards transactions
on principal-to-principal basis.
In the aforesaid Trade Circular dated 20th February 2007, a view has been
taken that when goods are sent to another State for job work or for
manufacturing, etc., the transaction will normally be on a principal to
principal basis with an independent operator and not on a principal to agent
basis.
46 Submission of Audit Report — Form No. 704
for the year 2007-08 extended up to 2-3-2009.
Trade Circular 3T of 2009, dated 23-1-2009 :
Extension is given for submission of Audit Report in respect of the period
2007-08 up to 2nd March 2009 with a condition that the dealer will have to
submit copy of an acknowledgement of e-enrolment along with Audit Report.
45 Procedure for online submissions for the
statutory Forms C/F/H/E I/E II under the CST Act, 1956 : Trade Circular 2T of
2009, dated 23-1-2009 :
Online applications for CST Declarations C/F/H/E I/E II made applicable
to all locations of Central Repository Offices in the State from 2nd February
2009.
The new procedure provides time-bound programme for decisions of approval,
rejection, etc. via e-mail or sms within 7 working days and thereafter the
dealer should get declaration in another 10 days by post or courier. The new
procedure is available for the declarations pertaining to period from 1-4-2008
onward.
Applications for prior periods would be administered as per the existing
manual system and such application shall be made prior to 31-3-2009.
Declarations for prior periods shall not be issued after 31-3-2009.
No change in the procedure for cancellation, rectification and issuance of
duplicate declarations.
44 Adjudication of cases by Chief
Commissioners Central Excise — Notification No. 6/2009 — Service Tax, dated
30-1-2009.
The powers exercisable by the Central Board of Excise and
Customs under the provisions of S. 83A read with the Notification of the
Government of India in the Ministry of Finance (Department of Revenue) No.
16/2007-ST, dated 19th April 2007 [G.S.R. No. 303(E) dated the 19th April 2007],
shall also be exercised by the Chief Commissioner of Central Excise for the
purpose of assigning the adjudication of cases, under the provisions of the said
Finance Act or rules made thereunder, within his jurisdiction.
43 Service Tax Return Preparer Scheme
—Notification No. 7/2009 — Service Tax dated 3-2-2009.
Service Tax Preparer Scheme has been launched by this Notification.
An individual who has successfully completed education up to senior secondary
level, under 10+2 education system and above the age of 35 years on the 1st
October immediately preceding the day on which applications are invited and
Income Tax Return Preparer shall be eligible to become a Service Tax Return
Preparer.
The age restriction shall not apply to any person who has
superannuated/retired from the Department of Customs and Central Excise. This
Notification also gives the Scheme details.
A developer/builder/promoter selling a dwelling unit in a
residential complex at any stage of construction or even prior to that and
providing services in connection with construction of residential complex till
the execution of sale deed would be in the nature of ‘self-service’ and
consequently would not attract service tax. All pending cases to be disposed of
accordingly with the exception for decision by the Advance Ruling Authority in a
specific case.
41 Manner of utilisation of the information
collated by the Department from AIR — Instruction No. 1/ 2009, dated 12-2-2009.
Brief summary of instructions for utilisation of AIR
information for financial year 2007-08 (assessment year 2008-09) and subsequent
years :
Sr. No.
Category
Method of selection
Remarks
1.
AIR
Transactions
with PAN where
returns are filed
(i) Running of CASS by the respective RCCs
(ii) Depending upon feedback on scrutiny assessment in a case for a
particular assessment year, the AOs may resort to proceedings u/s.148 for
earlier assessment years
Action as prescribed
2.
AIR
Transaction with PAN where there is no information of return filed
(i)
CIT(CO) to generate list of non-filers
(ii) Jurisdictional Assessing Officers to issue query letters to all
non-Government non-filers
(a)
If the letter is returned unserved, Assessing Officers to refer the cases to
CIT(CIB)
(b) If return has been filed before the date of issue of letter, then deal
as at SI. No. 1
(c) If return is filed after issue of letter/notice, compulsory scrutiny by
the Assessing Officer having jurisdiction. (for details refer to para 3)
(d) If return is not filed or there is no response to the served query
letter, notice to be issued u/s. 142(1)/148 and the case to be assessed
u/s.143(3)/144/147.
3
AIR
Transactions without PAN
Designated Assessing Officers to issue query letters in non-Government cases
(a)
If return has been filed before the issue of letter, then refer to
jurisdictional Assessing Officer for action as at Sl. no. 1
(b) If return is filed after the issue of letter, the case shall be taken up
for compulsory scrutiny by the designated or the jurisdictional Assessing
Officer as the case may be.
(c) If there is no response to the served query letter, notice to be issued
u/s.142(1)/148 and the case to be assessed u/s.144/147/143(3) as per due
process of law.
(d) If the letter is returned unserved, designated Assessing Officer to
refer the case to CIT(CIB)
(e) The designated Assessing Officer shall intimate PAN to CIT(CIB) on the
basis of replies received.
Rule 3A of the Wealth Tax Rules has been amended. This rule
decides the jurisdiction of valuation officers, which is based on the asset
value declared by the assessee in the wealth tax return. There are three levels
of Valuation Officers as prescribed in the aforementioned Rule. The new
jurisdiction based on the valuation is as under :
Prescribed value
of the asset either declared in the return of net wealth or not declared,
but believed by the AO to be of such value
Jurisdictional
Valuation officer
If the asset value exceeds Rs.300 lakhs
District Valuation officer
If the asset value exceeds Rs.40 lakhs, but not exceed Rs.300 lakhs
The CBDT has substituted Rule 8C of the Wealth Tax Rules,
1957 which prescribe the scale of fees to be charged by a valuer for valuation
of any asset for wealth tax purposes with effect from 1st April 2009. The
changes are summarised in the table below :
Pre-amended version
On the first Rs.50,000 of the
asset as valued
2 % of the value
On the next
Rs.1 lakh of the asset as valued
3 % of the
value
On the balance
of the asset as valued
c % of the
value
On the first Rs.5,00,000 of
the asset as valued
2 % of the value
On the next
Rs.10 lakhs of the asset as valued
2 % of the
value
On the next
Rs.40 lakhs of the asset as valued
2 % of the
value
On the balance
of the asset as valued
2 % of the
value
Further when two or more assets of an assessee are to be
valued by the valuer, then they would constitute single asset for calculating
the aforementioned fees. The minimum fees prescribed are Rs.500.
80 Exemption to certain companies u/s.211(3) for
Public Financial Institutions.
MCA vide Notification No. S.O. 300(E), dated
8th February 2011 has u/s.211(3) exempted Public Financial Institutions as
specified u/s.4A of the Companies Act, 1956 from disclosing Investments as
required under paragraph (1) of Note (1) of Part-I of Schedule VI in their
balance sheet, subject to fulfilment of the following conditions, namely :
(i) the Public Financial Institutions shall make
the complete disclosures about investments in the balance sheet in respect of
the following, namely :
(a) immovable property;
(b) capital of Partnership firms;
(c) all unquoted investments, and;
(d) investments in subsidiary companies.
(ii) the Public Financial Institutions shall
disclose the total value of quoted investments in each of the following
respective categories, namely :
Government and trusts
securities;
shares
debentures;
bonds; and
other securities.
(iii) in each of the above categories referred to
in sub-paragraphs (i) and (ii), investments where value exceeds two percent of
total value in each category or one crore rupees, whichever is lower, shall be
disclosed fully, provided that where disclosures do not result in disclosure
of at least fifty percent of total value of investment in a particular
category, additional disclosure of investments in descending order of value
shall be made so that specific disclosures account for at least fifty percent
of the total value of investments in that category;
(iv) the Public Financial Institutions shall also
give an undertaking to the effect that as and when any of the shareholders ask
for specific particulars, the same shall be provided;
(v) all unquoted investments shall be separately
shown;
(vi) the company shall undertake to file with any
other authorities, whenever necessary, all the relevant particulars as may be
required by the Government or other regulatory bodies;
(vii) the investments in subsidiary companies or
in any company such that it becomes a subsidiary, shall be fully disclosed.
2. This Notification shall be applicable in respect
of balance sheet and profit and loss accounts prepared in respect of the
financial year ending on or after the 31st March, 2011.
MCA vide Notification No. S 301, dated 8th February
2011 has in public interest, exempted the following classes of companies from
disclosing in their profit and loss account the information mentioned under
column (3), against each class of companies mentioned under column (2) of the
table given below subject to fulfilment of the conditions stipulated in
paragraph 2 of this Notification, namely :
SI.
No.
Class of companies
Exemptions from paragraphs of Part-II of Schedule VI
1
Companies producing
defence equipments including space research;
paragraphs 3(i)(a),
3(ii)(a), 3(ii)(d), 4-C, 4-D(a) to (e) except (d).
2
Export-oriented
company (whose export is more than 20% of the turnover);
1. MCA vide General Circular No.
2/2011No.:51/12/2007-CL-III issued on 8th February 2011, has given general
exemption u/s.212(8) of the Companies Act provided certain conditions as follows
are fulfilled.
The Central Government hereby directs that
provisions of section 212 shall not apply in relation to subsidiaries of those
companies which fulfil the following conditions :
(i) The Board of Directors of the company has by
resolution given consent for not attaching the balance sheet of the subsidiary
concerned;
(ii) The company shall present in the annual
report, the consolidated financial statements of holding company and all
subsidiaries duly audited by its statutory auditors;
(iii) The consolidated financial statement shall
be prepared in strict compliance with applicable Accounting Standards and,
where applicable, Listing Agreement as prescribed by the Security and Exchange
Board of India;
(iv) The company shall disclose in the
consolidated balance sheet the following information in aggregate for each
subsidiary including subsidiaries of subsidiaries : (a) capital (b) reserves
(c) total assets (d) total liabilities (e) details of investment (except in
case of investment in the subsidiaries) (f) turnover (g) profit before
taxation (h) provision for taxation (i) profit after taxation (j) proposed
dividend;
(v) The holding company shall undertake in its
annual report that annual accounts of the subsidiary companies and the related
detailed information shall be made available to shareholders of the holding
and subsidiary companies, seeking such information at any point of time. The
annual accounts of the subsidiary companies shall also be kept for inspection
by any shareholders in the head office of the holding company and of the
subsidiary companies concerned and a note to the above effect will be included
in the annual report of the holding company. The holding company shall furnish
a hard copy of details of accounts of subsidiaries to any shareholder on
demand;
(vi) The holding as well as subsidiary companies
in question shall regularly file such data to the various regulatory and
Government authorities as may be required by them;
(vii) The company shall give Indian rupee
equivalent of the figures given in foreign currency appearing in the accounts
of the subsidiary companies along with exchange rate as on the closing day of
the financial year;
MCA vide Circular dated 8th February 2011, have
made the following amendments in Schedule XIII to Companies Act, 1956 :
In the Schedule XIII, in Part II, in S. II :
(i) in sub-para (C), in third proviso, after the
word, ‘scale’ occurring at the end, the following words shall be inserted,
namely :
“if the company is a listed company or a
subsidiary of a listed company”;
(ii) for Explanation IV, to the S. II, the
following Explanation shall be substituted, namely : For the purposes of this
Section, ‘Remuneration Committee’ means :
(i) ‘in respect of a listed company, a committee
which consists of at least three non-executive independent directors including
nominee director or nominee directors, if any; and
(ii) in respect of any other company, a
Remuneration Committee of Directors’;
MCA vide General Circular No. 1/2011, F. No.
2/7/2010-CL V, dated the 3rd February 2011 in continuation to its Circular No.
6/2010, dated 3-12-2010 thereon decided to extend the Scheme for another three
months i.e., up to 30th April, 2011. Further all the terms of Circular
No. 6/2010, dated 3-12-2010 remain the same.
75 Managerial remuneration in unlisted companies
having no profits/inadequate profits.
MCA vide Press Release No. 4/2011, dated 8-2-2011
has exempted public limited companies (listed and unlisted) with no
profits/inadequate profits, so long as the conditions specified in Schedule
XIII, including special resolution of shareholders and absence of default on
payment to creditors, from the requirement of approaching the Ministry for
approval in those cases where the remuneration of directors/equivalent
managerial personnel exceeds certain limits. The matter has been re-examined in
the light of the evolving economic and regulatory environment.
Accordingly, Schedule XIII of the Companies Act,
1956 is being amended to provide that unlisted companies (which are not
subsidiaries of listed companies) shall not require Government approval for
managerial remuneration in cases where they have no profits/inadequate profits,
provided they meet the other conditions stipulated in the Schedule.
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
A.P. (DIR Series) Circular No. 6, dated August 3, 2009 —
Memorandum of Instructions governing money-changing activities
Presently, Authorised Dealers/FFMC are required to obtain
certain documents, including a conduct certificate from the local police
authorities, while conducting the due diligence of their agents/franchisees.
However, they have been experiencing difficulties in obtaining conduct
certificate from local police authorities in respect of agents/franchisees,
which are incorporated entities.
This Circular has done away with the requirement of
obtaining conduct certificate from local police authorities in respect of
agents/franchisees, which are incorporated entities. Henceforth, Authorised
Dealers/FFMC have been permitted to accept certified copy of the Memorandum
and Articles of Association and Certificate of Incorporation in lieu of
conduct certificate from the local police authorities, in respect of
agents/franchisees, which are incorporated entities.
(Full texts 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.)
Counsel for assessee/revenue : Prakash K. Jotwani/ Niraj
Bansal
S. 43(5) of the Income-tax Act, 1961 — Speculation loss —
Whether the loss suffered in F&O transactions could be considered as speculation
loss — Held, No.
Per G. C. Gupta :
Issue :
Whether the losses suffered in F&O transactions could be
considered as speculation loss.
Held :
Relying on the Mumbai Tribunal decision in the case of SSKI
Investors Services Pvt. Ltd., it was held that dealings in derivatives was a
separate kind of transaction which did not involve any purchase & sale of shares
and therefore loss on account of derivative trading cannot be treated as
speculative loss. Further, the Tribunal also referred to the Bangalore Tribunal
decision in the case of C. Bharath Kumar, where the constructive or implied
delivery was held to be as good as actual delivery. Based on the same, the
Tribunal held that the loss claimed by the assessee on F&O transaction was a
business loss and not speculation loss as contended by the Revenue.
(Full texts 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.)
Assessee society was registered under Rajasthan Societies
Registration Act on 1-9-2005 — Assessee applied to CIT for registration
u/s.12A(a) of Income-tax Act, 1961 — CIT vide his order dated 7-11-2007 granted
registration w.e.f. 1-4-2007 — Whether once CIT is satisfied about objects of
the trust and genuineness of activities, he is required to grant registration
w.e.f. 1-9-2005 — Held, Yes.
Per B. P. Jain :
Facts :
The assessee is a Society registered under Rajasthan
Societies Registration Act on 1-9-2005. The assessee applied for registration on
10-4-2007 before the CIT. The CIT granted registration u/s.12A(a) of the Act
vide its order dated 7-11-2007 w.e.f. 1-4-2007. The assessee made application to
make the said registration effective from 1-9-2005.
Held :
At the outset, the Tribunal noted that the CIT has committed
an error by observing that the application has been made on 10-4-2007, whereas
the same was made on 2-8-2006. A reminder letter dated 10-4-2007 was made to the
CIT, which was wrongly taken as the date of application. Having noted this
error, the Tribunal held as under :
As per the Act, the assessee is required to make the
application in Form 10A before 1-1-1973 or before the expiry of the period of
one year from the date of creation of the trust. In the instant case, the Trust
was created on 1-9-2005 and the assessee has submitted the application on
2-8-2006, which is in time. The CIT is required to grant registration w.e.f.
1-9-2005, if he is satisfied about the objects of the trust and genuineness of
the activities. In the present case, the learned CIT is satisfied about the
objects and genuineness of the activities of the trust and so he has granted
registration, though from a wrong date on a wrong interpretation of the facts of
the case.
The learned CIT is required to pass an order for granting or
refusing the registration u/s.12AA(1)(b) of the Act before 6 months from the end
of the month in which the application is received. The language of the provision
makes it mandatory for the learned CIT either to grant or refuse the
registration within the stipulated period, failing which the assessee is
entitled to assume that its application has been accepted and the registration
granted.
Accordingly, the learned CIT was directed to grant
registration w.e.f. 1-9-2005.
Editor’s note : S. 12AA has been amended w.e.f. 1-6-2007,
whereby the exemption is now available from the financial year in which the
application is made.
(Full texts 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.)
S. 145 of the Income-tax Act, 1961 — In terms of MOU the
assessee was liable to refund of the earnest money received by it along with
interest, on cancellation of the MOU in the events mentioned in the MOU — During
the previous year the assessee cancelled the MOU and refunded the amounts
received under MOU along with interest — Whether interest paid for the period
covering earlier years could be disallowed on the ground that it was prior
period expense — Held, No.
Per C. L. Sethi :
Facts :
The assessee-company is engaged in the business of developing
land. It debited to its profit & loss account a sum of Rs.15,66,172 towards
interest on earnest money. On 13th June 1997, the assessee had entered into a
memorandum of understanding (‘MOU’) with certain educational societies for
construction of school buildings and had accepted certain amounts as earnest
monies. The MOU provided that in the event that the permission for construction
from the concerned authority was not received, the assessee shall refund the
entire amount with interest. During the previous year relevant to the assessment
year under consideration, the Board of Directors of the assessee company passed
a resolution to refund the said earnest money together with interest. Since the
amount of interest paid pertained to the period from the date of receipt of the
amounts of earnest deposit, the Assessing Officer disallowed the sum of
Rs.15,66,172 as prior period expenses. The AO justified his action by making a
reference to the Madras High Court decision in the case of K. Sankaranarayana
Iyer & Sons. On an appeal, the CIT(A) upheld the action of the AO. The CIT(A)
observed that merely by passing a resolution by the Board of Directors of the
company, the assessee cannot create a liability in the year under consideration
when it was maintaining the books of account on mercantile system. Aggrieved by
the order of the CIT(A), the assessee preferred an appeal to the Tribunal.
Held :
The Tribunal held that the liability to pay interest had
accrued in the year under consideration when the resolution was passed and not
prior to that. The liability under consideration was a contractual liability and
was crystallised and ascertained only when the decision to refund the earnest
money along with interest was taken. Accordingly, the Tribunal set aside the
order of the authorities below and held that the assessee’s claim of deduction
of interest amounting to Rs.15,66,172 had actually accrued or crystallised or
ascertained in the present year under consideration and was therefore allowable
as a deduction.
Case referred to :
K. Sankaranarayana Iyer & Sons v. CIT, 110 ITR 571
(Mad.).
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.
(Full texts 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.)
S. 80IB(10) of the Income-tax Act, 1961 — In respect of
Lonavala Project of the assessee for which deduction was claimed u/s.80IB(10),
land was purchased in 1996 — Wall was constructed — WIP of this project on
31-3-1998 was stated to be Rs.10,17,615 — Original plan expired after validity
period of one year — Revised plan was approved and commencement certificate
issued on 30-9-2000 — User of land for non-agricultural purposes was permitted
on 28-6-2001 — Whether AO justified in denying deduction u/s.80IB(10) on the
ground that the condition u/s.80IB(10)(a) viz. commencement of the
construction after 1-10-1998 was not satisfied — Held, No.
Per V. K. Gupta :
Facts :
The assessee was engaged in the business of textiles and
construction. In A.Y. 2002-03, in respect of construction business, the assessee
claimed deduction u/s.80IB(10) at Rs.62,21,131 in respect of his projects at
Virar and Lonavala. In respect of Lonavala project, land was purchased in 1996
for Rs.5.50 lakhs and work-in-progress as on 31-3-1998 was shown at
Rs.10,17,615. The AO disallowed the claim for deduction u/s.80IB(10) of
Rs.3,32,369 in respect of Lonavala project, on the ground that the project had
commenced prior to 1st October 1998, since land for Lonavala project was
purchased in 1996 and as on 31st March 1998, certain expenses were shown as
work-in-progress and also a wall was constructed. According to the AO, the
project did not satisfy the condition stated in S. 80IB(10)(a). Before the CIT(A)
the assessee contended that :
(a) no construction work actually took place before 1st
October 1998;
(b) the wall was constructed merely to prevent the entry of
trespassers;
(c) the plan, originally submitted, expired after the
validity period of one year, hence revised plan was submitted, which was
approved by the concerned statutory authorities and, thereafter construction
work started after 1-10-1998;
(d) the land was an agricultural land and conversion of
land use was permitted only on 28-6-2001;
(e) the expenses shown in the balance sheet were of
administrative nature and not of construction activity. The CIT(A) found force
in the arguments of the assessee that the expenses incurred on architect fees,
landscape and elevation on filling the plot are the expenses which were
necessary for submitting the plan for the project and that incurring of these
expenses cannot be taken as commencement of the project. The fact that
permission for conversion of land from agricultural use to non-agricultural
use was issued on 28-6-2001 and also the commencement certificates were issued
by the relevant authority only on 30-9-2000 also weighed with the CIT(A). The
CIT(A) also stated that before getting the order for conversion and
commencement certificate, the construction activity cannot be started. He,
therefore, agreed with the assessee and directed the AO to grant deduction to
the assessee as claimed by it. The Revenue preferred an appeal to the
Tribunal.
Held :
The expenses incurred for change of land use and other
administrative/other land development expenses incurred prior to statutory
approvals, which approvals have been received after 1st October 1998 cannot
result into commencement of the project before 1st October 1998. The Tribunal
observed that the CIT(A) has examined the issue in detail and found itself to be
in agreement with the findings of the learned CIT(A), hence the Tribunal
confirmed the order passed by CIT(A). Accordingly, appeal filed by the Revenue
was dismissed.
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 texts 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.)
S. 143(2) read with S. 292 BB of the Income-tax Act, 1961 —
Whether the assessee who has participated in the block assessment proceedings is
precluded from taking any objection that notice u/s.143(2) was not served upon
him or was not served upon him in time in view of the provisions of S. 292BB
inserted by the Finance Act, 2008 w.e.f. 1-4-2008 and if so, since when he can
be said to be so precluded — Held that S. 292BB is applicable to the A.Y.
2008-09 and subsequent assessment years.
Per I. P. Bansal :
Facts :
The issue before the Bench was regarding the validity of the
assessment made u/s.158BC in the absence of issuance of a notice u/s.143(2) of
the Act.
According to the Revenue in view of insertion of S. 292BB,
which is inserted by the Finance Act, 2008 w.e.f. 1st April, 2008, the assessee
cannot take the plea that assessment should be held invalid merely for the
reason that no notice u/s.143(2) was issued. Further, relying on the Madras High
Court decision in the case of Areva T & D India Ltd., it was contended that the
non-issuance/service of notice cannot render the assessment/re-assessment
invalid, but at best it can be a case of irregularity which can be removed. It
was also submitted that presumption against retrospective construction has no
application to enactment, which affects only the procedure, and the practice of
the Courts as held by the Rajasthan High Court in the case of Man Bahadur Singh.
Held :
The Tribunal referred to two of the Supreme Court decisions viz., the case of H. V. Thakur and the case of Maharaj Chintamani Saran
Nath Shahdeo to examine the present issue. According to it,
‘First and foremost rule of
construction of interpretation is that in the absence of anything in the
enactment to show that it is to have retrospective operation, the said enactment
cannot be construed to have retrospective operation and when amendment relates
to a procedural provision resulting into creating a new disability or obligation
and which imposes new duty in respect of transactions already completed, then,
the said procedural provision also cannot be applied retrospectively. Similar is
the position where a statute which not only changes the procedure, but also
creates new rights and liabilities which shall be construed to be prospective in
operation, unless otherwise provided either expressly or by necessary
implication.”
Applying the above principle, it noted that S. 292BB has been
made effective by the Legislature from 1st April 2008 and there is nothing in
the enactment to show that S. 292BB has retrospective operation. If it is so,
according to Rule of Interpretation described above, S. 292BB cannot be
construed retrospectively. Further, it noted that if the principles laid down by
the Supreme Court in the above two cases were applied, it would mean that every
litigant has a vested right in substantive law, but no litigant has such right
in procedural law. It further added that though the provisions in question
related to procedural law, since the said procedural statute created a new
disability or obligation, and imposed new duties in respect of transactions
already accomplished, the statute cannot be construed to have retrospective
effect. Therefore, it was held that S. 292BB cannot be construed to have
retrospective operation and it has to be applied prospectively.
Cases referred to :
1. H. V. Thakur v. State of Maharashtra, AIR 1994 SC
2623
2. Maharaj Chintamani Saran Nath Shahdeo v. State of
Bihar, AIR 1999 SC 3609
3. Areva T & D India Ltd. v. ACIT, 294 ITR 233
(Mad.)
(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.)
