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Category: Direct Taxes

Section 48 — Actual value of sale consideration cannot be substituted by fair market value without any evidence.

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40 (2010) 127 ITD 127 (Delhi)

Moral Trading & Investment Ltd. v. DCIT

A.Y.: 2006-2007. Dated: 30-4-2010

Section 48 — Actual value of sale consideration cannot be
substituted by fair market value without any evidence.

Facts:

The assessee acquired 8,91,181 shares of Hotel HQR in 2002
for a consideration of Rs.12.82 crore (i.e., for Rs.143. 85 per share).
Subsequently, a further subscription of shares was made by the assessee in 2004
and 2005 for Rs.10 per share. All the shares were then transferred to Shri R. P.
Mittal (a majority shareholder in the assessee company) at the rate of Rs.20 per
share. The AO held that transfer of shares was a colourable device to mitigate
tax. He further worked out fair market value of the shares at Rs.185.68 per
share. Capital gains was worked out on the basis of this amount as sale
consideration.

Held:

The hotel was not functional and was under repairs since
quite a long time. As per the valuation done by authorised valuer, the value per
share was coming to Rs.3.19. The Department has not brought any evidence to
rebut the valuation by the authorised valuer. Further, for the shares acquired
in 2004 and 2005 at Rs.10 per share, the assessee had earned profit. Hence, sale
of shares by the assessee to its majority shareholder is not a colourable device
to avoid tax. Hence, the actual value of sale consideration cannot be
substituted by some presumed fair market value.

Note : The other issues, being minor ones, have been ignored
while reporting the above decision.

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Medical reimbursement does not constitute fringe benefit as defined in section 115WB

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39 (2011) 49 DTR (Mum.) (Trib) 202

Godrej Properties Ltd. v. Additional CIT

A.Y. : 2006-2007. Dated : 3-12-2010

Medical reimbursement does not constitute fringe benefit as defined in
section 115WB.

Facts :

The assessee-company filed its return of fringe benefit
declaring the value of fringe benefit at Rs. 14,48,890. The Assessing Officer,
however, assessed the value of fringe benefit by holding that salary paid to
employee in form of medical reimbursement was liable to Fringe Benefit Tax
(FBT). The CIT(A) held the same to be a perquisite liable to FBT on the ground
that in the given case the amounts of expenditure reimbursed to the employee
were not part of salary package and were in the nature of reimbursement.

Held:

The proviso clause (v) of section 17(2) treats expenditure
actually incurred by the employee on medical treatment for himself or his family
and which is paid by the employer in excess of Rs.15,000 as perquisite taxable
as salary. Thus, reimbursement of medical expense is not taxable as perquisite
if amount does not exceed Rs.15,000 per annum. section 115WB(3) explicitly
excludes perquisites in respect of which tax is paid or payable by the employee.
In the Memorandum explaining the Provisions to the Finance bill it was stated
that perquisites directly attributed to the employees will continue to be taxed
in their hands in accordance with provisions of section 17(2). Also, the Budget
Speech (Paragraph 160 — 194 Taxman 1) categorically stated that ‘At present
where the benefits are fully attributable to the employee, they are taxed in the
hands of the employee; that position will continue’.

From the above, it was held that where benefits which are
fully attributable to employee and are taxed in their hands, would be continued
to be taxed u/s.17(2). Only in case where the benefits are enjoyed collectively
by employees and cannot be attributed individually shall be taxed in employers
hands.

In the case on hand, only where bills have been produced by
the employee to the employer it was a case of reimbursement and to the extent of
the benefit given in section 17(2) proviso (v) the employee need not pay tax.
This is not a case where the attribution of personal benefits directly to an
employee poses problem or a case where it is not feasible to tax the benefit in
question in the hands of the employee. It is only a case where a benefit above a
certain specified amount only is liable to be taxed in the hands of employee.
Such case does not constitute fringe benefit as defined in section 115WB of the
Act.

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Exemption u/s.10B — Expenses incurred on on-site development of computer software outside India cannot be excluded from the export turnover for computing deduction u/s.10B — Export proceeds retained abroad in accordance with RBI guidelines is to be includ

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38 (2011) 49 DTR (Chennai) (SB) (Trib.) 1

Zylog Systems Ltd. v. ITO

A.Y.: 2003-2004. Dated: 2-11-2010

 

Exemption u/s.10B — Expenses incurred on on-site development
of computer software outside India cannot be excluded from the export turnover
for computing deduction u/s.10B — Export proceeds retained abroad in accordance
with RBI guidelines is to be included while computing deduction u/s.10B.

Facts:

The assessee was a company engaged in the business of
development of software both by way of on-site development and offshore
development and it has a branch in the USA. It being 100% EOU, had claimed
deduction u/s.10B in respect of the exports of software made. During the
assessment proceedings, the AO had observed that the assessee had total export
turnover of Rs.28.61 crores and out of this amount, the assessee had utilised
the export proceeds to the tune of Rs.15.14 crores in the USA for the purpose of
carrying on export activities. The AO was of the view that since the said amount
had not been received in convertible foreign exchange in India within the
prescribed time u/s.10B(3), the said amount utilised in the USA cannot be
treated as a part of export turnover for computing deduction u/s.10B.

Further, the assessee had incurred expenses of Rs.3.33 crores
in foreign currency on account of payroll, etc., which were claimed to have been
incurred in connection with staff of the foreign branch in foreign country. The
AO also excluded Rs.3.33 crores incurred by the assessee outside India in
foreign exchange considering it as expenses in providing technical services,
while computing deduction u/s.10B. The AO placed reliance on the definition of
‘export turnover’ given in
Explanation 2(iii) to section 10B which excludes expenses incurred in foreign
exchange in providing technical services outside India from export turnover.

The first Appellate Authority allowed the asses-see’s appeal
in respect of inclusion of Rs.15.14 crores in export turnover for computing
deduction u/s.10B, whereas he rejected the claim of the assessee in respect of
inclusion of Rs.3.33 crores incurred by the assessee outside India in providing
technical services.

Held:

The Department had not brought anything on record to show
during the hearing, that the assessee-company was involved in rendering any
managerial consultancy services at foreign country. Also it was not brought on
record that the company was involved in providing the technical services to
other personnel or any outside agency. All the services rendered by the company
were to its staff located at New Jersy for the fulfilment of objects, namely,
development of software. A person cannot provide services to self. Whatever
expenditure has been incurred on foreign soil in a sum of Rs.3.33 crores was
incurred in connection with development of software by the employees of the
assessee-company at foreign branch and nothing has been incurred on managerial
or technical services rendered to outsider in foreign soil and therefore, the
same cannot be excluded from the export turnover.

Regarding the export proceeds of Rs.15.14 crores retained
abroad, the decision of the Supreme Court in the case of J. B. Boda & Co. (P)
Ltd. 223 ITR 271 would apply to this case also, even though the said
decision was on section 80-O wherein it was held that “two-way traffic of
receiving foreign exchange here and sending it back is a ritual which is
unnecessary”.

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Section 41(1) of the Income-tax Act, 1961 — Deferred sales tax liability being difference between payment of net present value and future liability credited by assessee to capital reserve account in its books of account would be a capital receipt and cann

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37 (2010) 42 SOT 457 (Mum.) (SB)

Sulzer India Ltd. v. Jt. CIT

ITA Nos. 2944 & 2871 (Mum.) of 2007 &

1317 (Pn.) of 2007

A.Ys.: 2003-2004 & 2004-05. Dated: 10-11-2010

 

Section 41(1) of the Income-tax Act, 1961 — Deferred sales
tax liability being difference between payment of net present value and future
liability credited by assessee to capital reserve account in its books of
account would be a capital receipt and cannot be termed as remission/cessation
of liability and, consequently, no benefit would arise to assessee in terms of
section 41(1)(a).

The assessee obtained incentive by way of sales tax deferral
scheme under the package scheme of incentive 1983 (the 1983 scheme) and the
package scheme of incentive 1988 (the 1988 scheme) notified by the Government of
Maharashtra. The aggregate deferral amount under 1983 and 1988 schemes was
Rs.752.01 lakh. The total amount of sales tax collected by the assessee for 7
years from 1-11-1989 to 31-10-1996 was to be paid after 12 years in 6 annual
instalments. However, by an amendment to the Bombay Sales Tax Act in 2002, if
the Net Present Value (NPV) of deferred tax as prescribed was paid, then the
deferred tax was deemed, in public interest, to have been fully paid. The
assessee, following the aforesaid amendment, made repayment of Rs.337.13 lakh on
30-12-2002 as per NPV of the deferred tax as prescribed under Circular No. 39T
of 2002 of Trade Circular dated 12-12-2002. The assessee claimed Rs.414.87 lakh,
being the difference between the deferred sales tax Rs.752.01 lakh and its net
present value amounting to Rs.337.13 lakh, as capital receipt and credited it in
the books of account of the assessee to the capital reserve account. However,
the Assessing Officer, keeping in view that the assessee had obtained the
benefit of payment of whole amount of Rs.752.01 lakh as deduction u/s.43B (in
view of CBDT’s Circular No. 496, dated 25-9-1987) brought the difference of
Rs.414.87 lakh to tax u/s.41(1). The CIT(A) upheld the addition made by the
Assessing Officer.

The Special Bench deleted the addition. The Special Bench
noted as under :


    (1) The aggregate deferral amount under 1983 and 1988 schemes of Rs.752.01 lakh was to be paid by the assessee after 12 years in six equal annual instalments.

    (2) As per the amendment of 2002 to the Bombay Sales Tax Act, 1959, the assessee was allowed to prematurely pay the entire amount of the deferred sales tax at the Net Present Value (NPV) as prescribed and, on making such payment, the deferred tax shall be deemed to have been fully paid.

    (3) The amount paid by the assessee was determined and prescribed by SICOM (which was the implementing agency of the State Government.).

    (4) The amount paid by the assessee represented the NPV of the future sum and there had been no remission or cessation of liability by the State Government.

    (5) Had the State Government accepted a lesser amount after 12 years or reduced the number or amount of the annual instalments, then it could have been a case of remission or cessation.

    (6) Therefore, such payment of net present value of a future liability could not be classified as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) since no benefit arose to the assessee in terms of section 41(1)(a).

Section 234B of the Income-tax Act, 1961 — Once assessee’s bank account was put under attachment, the amount therein is to be considered to be lying with the Department which would indicate constructive payment of advance tax and, therefore, interest u/s.

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36 (2010) 134 TTJ 457 (Del.)

S. M. Wahi v. Asst. DIT

(International Taxation)

ITA No. 2779 (Delhi) of 2008

A.Y.: 2007-2008. Dated: 30-4-2009

 

Section 234B of the Income-tax Act, 1961 — Once assessee’s
bank account was put under attachment, the amount therein is to be considered to
be lying with the Department which would indicate constructive payment of
advance tax and, therefore, interest u/s.234B is not chargeable.

For the relevant assessment year, the Assessing Officer
charged interest u/s.234B. The assessee submitted that a sum of Rs.4 crores was
received by the assessee on 3rd January 2007. His bank account was attached on
12th January 2007. The amount was lying with the Department. In such
circumstances, the assessee cannot make the payment of advance tax and interest
u/s.234B cannot be imposed upon him. He relied upon the judgment of the Delhi
High Court in the case of CIT v. K K Marketing, (2005) 196 CTR (Del.)
611/(2005) 278 ITR 596 (Del). The CIT(A) held that charging of interest u/s.234B
is mandatory. The Assessing Officer has no discretion to charge or not to charge
the interest. He further observed that the assessee did not apply to the
Assessing Officer for permitting him to limited operation of bank account for
payment of advance tax.

The Tribunal, following the Delhi High Court’s decision in
the above-referred case, held that in the present case, for all practical
purposes the amount of Rs.4 crores was considered to be lying with the
Department which would indicate constructive payment of advance tax. Therefore,
interest u/s.234B cannot be imposed.

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Section 271(1)(c) of the Income-tax Act, 1961 — Penalty u/s.271(1)(c) would arise only when return of income is scrutinised by the Assessing Officer and he finds some more items of income or additional income over and above what is declared in return.

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35 (2010) 42 SOT 48 (Ahd.)

Dy. CIT v. Dr. Satish B. Gupta

ITA No. 1482 (Ahd.) of 2010

A.Y.: 2006-2007. Dated: 6-8-2010

 

Section 271(1)(c) of the Income-tax Act, 1961 — Penalty
u/s.271(1)(c) would arise only when return of income is scrutinised by the
Assessing Officer and he finds some more items of income or additional income
over and above what is declared in return.

A survey u/s.133A was carried out at the premises of the
assessee who was a practising doctor. During the course of the search he
declared unaccounted income of Rs.32.84 lakh. Thereafter, he filed a return of
income declaring income of Rs.37.57 lakh wherein, apparently, the assessee
disclosed unaccounted income of Rs.32.84 lakh which was declared by him during
the course of survey. The assessment was finally completed on an income of
Rs.38.12 lakh after making minor additions. The Assessing Officer also levied
penalty u/s.271(1)(c) in respect of the sum of Rs.32.84 lakh declared during the
course of survey. On appeal, the CIT(A) set aside the penalty order.

The Tribunal, following the decision of the Allahabad High
Court in the case of Smt. Govinda Devi v. CIT, (2008) 304 ITR 340/173
Taxman 370, upheld the CIT(A)’s order deleting the penalty. The Tribunal noted
as under:


    (1) As per clause (c) of the Explanation 4 to section 271(1)(c), tax sought to be evaded means the difference between tax on the total income assessed and tax that would have been chargeable on such total income reduced by the amount added.

    (2) Since, in the instant case, the Assessing Officer had not made any addition to the returned income, the question of working out any tax sought to be evaded would not arise.

    (3) In general, where a case does not fall within clause (a) or clause (b) of Explanation 4 to section 271(1)(c) there cannot be any ‘tax sought to be evaded’ if there is no addition to the returned income.

    (4) The assessee would be liable for an action u/s.271(1)(c) in respect of such items only which are discovered by the Assessing Officer on the scrutiny of return of income or after carrying out an investigation and discovering some more items of income not found declared or mentioned in the return of income. Prior to the filing of return of income there is no concept of concealment or furnishing inaccurate particulars of income.

    (5) ‘Proceedings’ as used in section 271(1)(c) are statutory proceedings initiated against the assessee either by the issuance of a statutory notice or after filing of return of income. Survey u/s.133A or a search u/s.132 or issuance of a notice u/s.133(6), for example, are only means of collecting evidence against the assessee and are not equivalent to statutory proceedings. Another criterion for finding out whether a particular action is a statutory proceeding or not is to see whether it can be brought to a legal conclusion against the assessee by determining his right to liability.

    (6) Merely carrying out a survey u/s.133A does not create any liability against the assessee which is created only through assessment proceedings or through penalty proceedings. Therefore, the Revenue was not correct in its submission that the survey was a ‘proceeding’ and the Assessing Officer having discovered concealment during survey, the assessee would be liable for penalty u/s.271(1)(c).

    (7) The act of concealment or furnishing of inaccurate particulars should be viewed by the Assessing Officer as done with respect to return of income. The omission or commission or contumacious conduct has to be viewed from the return of income and if certain thing has not been disclosed or has not been furnished therein, only then it can be said that the assessee has concealed the particulars of his income or furnished inaccurate particulars of his income. Prior to this the assessee cannot be said to have done any contumacious conduct on which penalty could be levied.

    (8) Merely because certain receipts were not recorded in the books of account or receipts were not issued to the patients, but income therefrom was finally declared in the return of income, there would be no contumacious conduct. For not maintaining books of account or not issuing receipts to the patients for the amount received by the assessee, at best, the books can be rejected by invoking provisions of section 145(3) and income can be estimated in accordance with section 144. Where, however, the Assessing Officer had accepted the income declared in the return of income, then the assessee could not be charged for any contumacious conduct.

When neither any deduction is claimed nor any charge is made to the profit and loss account of any tax or duty, there is no question of disallowing the amount u/s 43B.

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60 [2009] 121 ITD 461 (Chennai) (TM)

Dynavision Ltd. vs ACIT, Central Circle – II (1), Chennai

A. Ys.: 1990-91 to 1992-93. Date of order: 26.05.2009

 

When neither any deduction is claimed nor any charge is made
to the profit and loss account of any tax or duty, there is no question of
disallowing the amount u/s 43B.

Facts:


The assessee showed gross receipts of Rs. 46.10 crore in its
profit and loss account. Against this, the
assessee claimed deduction of Rs. 31.30 crore towards raw material consumed. Out
of the total amount of customs duty of Rs. 15.82 crore, Rs. 4.59 crores
represented the provision made for customs duty in respect of goods lying in a
bonded warehouse. This amount was provided to the raw material purchases
account. Since the imported goods were not released from the bonded warehouse,
they were shown as closing stock in hand and the customs duty payable was
included in this closing stock. The AO made addition on the basis that the
customs duty was not paid but was charged to profit and loss account. On appeal
to Tribunal, the Accountant Member upheld the order of AO while the Judicial
Member held otherwise. Hence, the matter was referred to Third Member.


Held:


The Third Member upheld the order of the Judicial Member. It
was held that section 43B can be invoked only when the assessee claims any tax
or duty. There was no dispute regarding accrual of liability. Even the assessee
accepted that the liability to pay customs duty had accrued. However, the fact
that the element of customs duty was made a part of closing stock had to be
considered. Since the customs duty was included in closing stock, it could not
be said that the assessee claimed the deduction of customs duty. Hence,
provisions of section. 43B could not be invoked and no disallowance u/s 43B was
warranted.

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Payments for hiring of trucks does not come within the purview of “works contract”—Hence, provisions of section 194C are not applicable.

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59 (2010) 122 ITD 35 (Asr.)

DCIT, Hoshiarpur Range, Hoshiarpur vs Satish Aggarwal & Co.

A. Y.: 2005-06. Date of order: 28.11. 2008

 

Payments for hiring of trucks does not come within the
purview of “works contract”—Hence, provisions of section 194C are not
applicable.

Facts:

The assessee made payments worth Rs. 17,40,000/- towards
hiring charges of trucks. No tax was
deducted on the said payments. The AO disallowed the expenditure u/s 40(a)(ia)
of the Income-tax Act, 1961 on the ground that the tax was deductible u/s 194C,
as the payments were having the character of “work” as defined in Explanation
III to s. 194C. The contention of the assessee was that there was no contract
between the appellant and the truck owners for carrying goods or passengers;
hence tax was not deductible u/s 194C and no disallowance was warranted.

Held:

Following the decision of Poompuhar Shipping Corpn. Ltd., the
Tribunal held that there was no contract between the assessee and the owners of
the trucks for carrying out any work. The assessee simply hired the trucks and
they were utilised in his business of civil construction. For carrying out any
work, manpower is the sine qua non, and without manpower, it cannot be said that
work has been carried out. Merely providing trucks without any manpower cannot
be termed as carrying out work by the truck owners, for which payment was made
by the assessee. Section 194I was also not attracted as its provisions became
applicable on payments made for the use of capital assets with effect from
1.6.2007. Hence, entering into a contract for carrying out work is not
equivalent to contract for hiring trucks. Consequently, there was no need to
deduct tax u/s 194C, and disallowance
u/s 40(a)(ia) was deleted.

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Block of assets, s. 32, 38(2) — Under the scheme of block of assets, (i) Depreciation cannot be disallowed on the ground that some of the assets contained in the block have not been used for the purpose of the business; (ii) the user of an individual asse

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58 2010 TIOL 78 ITAT MUM

Swati Synthetics Ltd. vs ITO

A.Y.: 2001-02. Date of order: 17.12.2009


 



Block of assets, s. 32, 38(2) — Under the scheme of block of
assets, (i) Depreciation cannot be disallowed on the ground that some of the
assets contained in the block have not been used for the purpose of the
business; (ii) the user of an individual asset for the purpose of business needs
to be examined only in the first year when the asset is purchased; (iii)
existence of individual assets in the block itself amounts to use for the
purpose of business. However, proportionate disallowance of depreciation can be
made if an individual asset contained in the block has been used for purposes
other than business.



Facts:

The assessee was carrying on two businesses with one division
at Dombivli and the other in Surat. Though the Surat division had closed down,
the assessee continued to claim depreciation on its assets. The Assessing
Officer (AO) disallowed the proportionate amount of depreciation attributable to
the assets of the Surat division, on the ground that the assets of the Surat
division were not used for the purpose of business. Aggrieved, the assessee
preferred an appeal to the CIT(A), who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

The Tribunal discussed in detail the meaning of the term
`depreciation’, considered various statutory provisions which have been amended
consequent to the insertion of the concept of block of assets and also Circular
No. 469, dated 23rd September, 1986 issued by CBDT. It also considered various
judicial pronouncements, examined the principle of commercial expediency and
also examined in detail how the scheme of depreciation on block of assets works,
and held as follows:

(i) Depreciation allowance u/s 32 is a statutory allowance
not confined expressly to diminution in value of the asset by reason of wear
and tear;

(ii) Main objective of introducing the block of assets
concept was only to reduce time and effort spent in detailed record
maintenance;

(iii) If the asset has neither been used for business nor
for non-business purposes, but remained in block of assets, the provisions of
S. 38(2) are not applicable;

(iv) The ratio of the decision of the SB of the Chandigarh
Tribunal in the case of Gulati Saree Centre vs ACIT 71 ITD 73 (Chd)(SB) does
not apply to the present case, since in the case before the SB, the cars owned
by the assessee firm were being used for personal purposes by the partners,
whereas in the present case, assets remained in block of assets and were not
used for non-business purposes like personal use, etc.;

(v) The condition/requirement `used for the purpose of
business’, as provided in s. 32(1) for the concept of depreciation on block of
assets can be summarized as: (a) Use of individual asset for the purpose of
business can be examined only in the first year when the asset is purchased;
(b) In subsequent years, use of block of assets is to be examined. Existence
of individual assets in the block of asset itself amounts to use for the
purpose of business;

(vi) The judgment of the Bombay High Court in the case of
Dineshkumar Gulabchand Agarwal vs CIT & Anr 267 ITR 768 (Bom) is not
applicable to the facts of the present case, since the issue in the case under
consideration is whether under the facts and circumstances of the case, the
assessee is entitled to depreciation on the assets of the closed unit. The
decision of the Bombay High Court has been distinguished by the ITAT in the
case of G R Shipping Ltd (ITA No. 822/Mum/05 order, dated
17.7.2008)(2008-TIOL-729-ITAT-Mum) by observing that in that case, the asset
in question was not at all put to use.


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Section 10A — Section 10A grants a deduction and not an exemption, and section 80AB is not applicable to s. 10A—Deduction u/s 10A is to be allowed while computing income under the head `Profits and gains of business or profession’ and not under `Gross tot

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57 2010 TIOL 69 ITAT MAD SB

Scientific Atlanta India Technology Pvt. Ltd. vs ACIT

A.Y.: 2003-04 & 2004-05. Date of order: 05.02.2010

Section 10A — Section 10A grants a deduction and not an
exemption, and section 80AB is not applicable to s. 10A—Deduction u/s 10A is to
be allowed while computing income under the head `Profits and gains of business
or profession’ and not under `Gross total income’. Deduction u/s 10A is to be
computed without setting off the losses of non-eligible units against profits of
an eligible unit.

Facts :

During the previous year which was relevant to A.Y. 2003-04,
the assessee had two units: one in Chennai and one in Delhi. The unit in Chennai
was engaged in development of software and its profits were eligible for
deduction u/s 10A. The unit in Delhi was engaged in the business of trading.
During the year under consideration, the unit in Delhi had suffered a loss and
the unit in Chennai had earned profits. The assessee claimed deduction u/s 10A
in respect of its entire profits from the unit in Chennai, without setting off
the loss suffered by the unit in Delhi.

The Assessing Officer (AO) did not accept the computation of
the assessee on the ground that after the amendment of s. 10A, w.e.f. 1.4.2001,
a deduction was to be allowed from the “total income”, and consequently, the
loss suffered by the Delhi unit had to be taken into account.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.
A special bench was constituted to dispose of the appeal as well as to
adjudicate upon the following question of law:

“Should the business losses of a non eligible unit, whose
income is not eligible for deduction under section 10A of the Act, have to be
set off against the profits of the undertaking eligible for deduction under
section 10A, for the purposes of determining the allowable deduction under
section 10A of the Act?”

Held:



(i) Even though s. 10A falls under Chapter III, it has been
mentioned in the section itself that what is to be given is only a deduction
and not exemption. A deduction in respect of profits eligible under s. 10A is
required to be made at the stage of computing the income under the head
“Profits and gains of business and profession” and not from the gross total
income;

(ii) Section 80AB applies to deductions mentioned in
Chapter VI-A. Section 10A does not fall in Chapter VI-A, and hence, s. 80AB
cannot be applied to s. 10A;

(iii) It can be noticed from the language of s. 10A (1)
that a deduction of such profits and gains that are derived by “an”
undertaking, qualify u/s 10A for deduction from the total income. In case the
assessee has more than one undertaking, one has to consider the profits and
gains of that “particular undertaking” which qualifies for deduction u/s 10A.
Again,
s. 10A (4) uses the words “profits and gains of the business of the
undertaking” and not total profits of the business of the assessee. The
distinction between the “undertaking” and the “assessee” is well-known and has
also been noted by the CBDT in Circular F. No. 15/563, dated 13.12.1963. The
deduction u/s 10A attaches to the undertaking and not to the assessee;

(iv) The losses of a unit which is not eligible for
deduction u/s 10A cannot be set off against the profits of the unit which is
eligible for deduction u/s 10A. The loss of the non-eligible unit can be set
off against other incomes or may be carried forward;

(v) If there is more than one undertaking which is eligible
for deduction u/s 10A, and if some of the units have profit and other units
have loss, it would be an entirely different case from the present one. The
decision rendered in this case would not be applicable to such cases.

The Special Bench decided the appeal in favour of the
assessee.

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Section 54EC and Circular No. 142/9/2006 TPL, dated 30.6.2006 — Non-availability of bonds qualifying for deduction u/s 54EC is a reasonable cause for not purchasing the bonds within the time specified in s. 54EC—Since the assessee purchased the bonds as s

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56 2010 TIOL 60 ITAT (Mum)

Cello Plast vs DCIT

A. Y.: 2006-07. Date of order: 19.01.2010

 

Section 54EC and Circular No. 142/9/2006 TPL, dated 30.6.2006
— Non-availability of bonds qualifying for deduction u/s 54EC is a reasonable
cause for not purchasing the bonds within the time specified in s. 54EC—Since
the assessee purchased the bonds as soon as the same were available, it was
eligible to claim deduction u/s 54EC.

Facts:

During the year, the assessee sold its factory building which
formed a part of its block of assets. The capital gain of Rs. 49,36,293 arising
from the sale of the factory building was claimed to be deductible u/s 54EC. The
bonds qualifying for deduction u/s 54EC were not available and as a result of
various representations, the CBDT had extended the time period for subscribing
the bonds upto 31.12.2006, vide its Circular No. 142/9/2006 TPL, dated
30.6.2006. Before filing the return of income, the assessee had deposited Rs. 50
lakh through a fixed deposit with the State Bank of India and had in a letter
intimated to the banker that the fixed deposit would be encashed as soon as the
bonds were available. Along with the return of income, the assessee had appended
a note explaining the factual position and stating that it will subscribe to the
bonds as soon as the same were available. The bonds were available on 22.1.2007
and the assessee applied for them on 27.1.2007, whereupon the bonds were
allotted to him on 31.1.2007.

The Assessing Officer held that since the capital asset
transferred formed a part of the block of assets,
s. 50 deems the gain arising on transfer thereof to be a short-term capital gain
arising from the transfer of a short term capital asset. He also held that
though the circular extended the time period up to 31.12.2006, the bonds had
been purchased on 31.1.2007 which was beyond the due date specified. He,
therefore, disallowed the claim of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A),
who held that following the ratio of the decision of the Bombay High Court in
the case of Ace Builders P. Ltd. 281 ITR 210 (Bom), the assessee was entitled to
deduction u/s 54EC, subject to satisfaction of conditions stated therein. Since
the bonds were not subscribed to by the due date extended by the CBDT circular,
the assessee was held not to be entitled to deduction u/s 54EC.

Held :

On the basis of facts, the Tribunal held that it was an
impossible task for the assessee to comply with the time period laid down u/s
54EC. The delay in purchase due to non-availability of the bonds was held to be
a reasonable cause, and the assessee was held to be entitled to exemption u/s
54EC. The Tribunal also noted that in the case of Ram Agarwal 81 ITD 163, on
similar facts, it had been held by the Tribunal that the assessee was entitled
to claim deduction u/s 54EC. The Tribunal allowed the appeal of the assessee.

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Section 254 of the Income-tax Act, 1961 — If an order passed by the Tribunal is not in conformity with the judgment of the Supreme Court or that of the jurisdictional High Court rendered prior to or subsequent to the impugned order, the same constitutes a

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55 (2009) 34 SOT 541 (Mum.)(TM)

Kailashnath Malhotra vs Jt.CIT

Block period 01.04.1987 to 15.12.1997. Date of order:
12.10.2009.

 

Section 254 of the Income-tax Act, 1961 — If an order passed
by the Tribunal is not in conformity with the judgment of the Supreme Court or
that of the jurisdictional High Court rendered prior to or subsequent to the
impugned order, the same constitutes a mistake as apparent from records and
capable of rectification u/s 254(2).

Certain additions made by the Assessing Officer were
confirmed by the Tribunal. One miscellaneous application filed by the assessee
u/s 254(2), seeking rectification of the Tribunal’s order was dismissed by the
Tribunal. The assessee once again moved another miscellaneous application u/s
254(2) seeking rectification of the Tribunal’s order.

Facts:

The Judicial Member of the Tribunal, in light of the judgment
of the Supreme Court rendered in the case of P.R.Metrani vs CIT [2006] 287 ITR
209 / 157 Taxman 325, recalled the order of the Tribunal on merits. However, the
Accountant Member did not agree with the Judicial Member and dismissed the
miscellaneous application on the ground that successive miscellaneous
applications were not permissible and, further, the judgment of the Supreme
Court in the case of P.R.Metrani (supra) was not applicable. In view of the
difference of opinion between the members of the Tribunal, the matter was
referred to the Third Member.

Held:


The Third Member held as follows:

1. It is evident that the scope of sub-section (2) is
restricted to rectifying any mistake in the order which is apparent from
records and does not extend to reviewing of the earlier order.

2. It is well-settled that the scope of proceedings u/s
254(2) is confined to rectifying any mistake which is apparent on the very
face of it. If the point needs to be proved on the strength of different
facets of reasoning, the same would become debatable. Once a particular point
falls in the realm of “debatable issue”, it automatically goes out of the
domain of sub-section (2) of section 254.

3. If two views are possible on a particular point and the
Tribunal has preferred one view over the other, no rectification application
lies for impressing upon the Tribunal to choose the other possible view in
preference over the one already adopted by it.

4. If, however, the order passed by the Tribunal is not in
conformity with the judgment of the Supreme Court or that of the
jurisdictional High Court, rendered prior to or subsequent to the impugned
order, the same constitutes a mistake apparent from records and capable of
rectification u/s 254(2).

5. Similarly, it will be an error apparent from records, if
the order is not in conformity with the retrospective amendment carried out to
the statutory provision covering the period and point in dispute, subject to
the fulfilment of other conditions prescribed in the Act such as limitation
period, etc.

 


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Section 40(b) — Since section 40(b) uses the term “authorise” and not “quantify”, salary to partners cannot be disallowed merely because amount of salary is not quantified in partnership deed.

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54 (2009) 34 SOT 495 (Pune)

Asst.CIT vs Suman Construction

A.Ys.:1999-2000 and 2000-01.

Date of order: 31.12.2008.

 

Section 40(b) — Since section 40(b) uses the term “authorise”
and not “quantify”, salary to partners cannot be disallowed merely because
amount of salary is not quantified in partnership deed.

Section 119 — CBDT has no jurisdiction to substitute the term
“authorise” occurring in section 40(b) by the term “quantify” in its Circular
No.739, dated 25.03.1996.

Facts:

The salary paid to partners by the assessee firm for A.Ys.
1999-2000 and 2000-2001 was disallowed by the Assessing Officer on the ground
that in the partnership deed filed along with the return of income for
A.Y.1998-99, neither the salary payable to the partners was quantified nor the
manner in which such quantification had to be done was prescribed. By referring
to the CBDT Circular No.739, dated 25.03.1996 [1996] 131 CTR (St.) 53, the
Assessing Officer was of the view that since there was no specified
quantification, the assessee was not entitled to deduction u/s.40(b) in respect
of the salary.

The CIT(A) held that the assessee was entitled to claim the
deduction for remuneration paid to the partners since the payment of salary to
the four partners was authorised by the partnership deed.

Held:

The Tribunal, upholding the CIT(A)’s order, noted as follows:

1. On reading this section it becomes clear that it does
not make it mandatory to quantify the amount of salary in one of the clauses
of the partnership deed, mainly because of the reason that the monetary limit
or ceiling is otherwise prescribed in the statute itself. The statute has used
the term “authorise” and not the term “quantify”.

 

2. In respect of the CBDT Circular No.739
(supra) relied upon by the Assessing Officer, the Tribunal clarified that the
CBDT cannot issue a circular u/s 119 which tantamounts to detracting from the
provisions of the Act. While interpreting the clause of a statute, there is no
scope for importing into the statute some other words which are not there or
to exclude words which are there.

 

3. It was also not a case that the impugned taxing
provisions were ambiguous and, therefore, capable of more than one
interpretation. Since there was no ambiguity, there was no question of a
beneficial interpretation to either side. Therefore, the words contained in
the provision must be given a natural meaning as commonly understood in the
legal parlance.

 


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A.P. (DIR Series) Circular No. 37, dated 16-4-2008 — Direct receipt of Import Bills/Documents for Import of Rough Precious & Semi-Precious Stones — Liberalisation.

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Given below are the highlights of RBI Circulars.


 

30 A.P. (DIR Series) Circular No. 37, dated
16-4-2008 — Direct receipt of Import Bills/Documents for Import of Rough
Precious & Semi-Precious Stones — Liberalisation.

Presently, remittances for imports up to US $ 100,000 can be
made even when the import bills/ documents are directly received by the importer
from the overseas supplier.

This Circular has increased this limit to US $ 300,000 in
case of import of rough precious and semi-precious stones by non-status holder
exporters. Hence, non-status holder exporters of rough precious and
semi-precious stones can now make remittances for imports up to US $ 300,000
even when the import bills/documents are directly received by them from the
overseas supplier. Thus, they have been brought on par with non-status holder
exporters who import rough diamonds.

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S. 271B : If income of a partner, excluding the income from the firm, less than Rs.10 lacs, not liable to audit u/s.44AB — Penalty deleted.

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1) Hitesh D. Gajaria v. ACIT


ITAT ‘K’ Bench, Mumbai

Before J. Sudhakar Reddy (AM) and

P. Madhavi Devi (JM)

ITA No. 992/Mum./2007

A.Y. : 2003-04. Decided on : 22-2-2008

Counsel for assessee/revenue : Deepak Shah/

Manvendra Goyal

S. 271B r.w. S. 44AB of the Income-tax Act, 1961 — Penalty
for failure to get accounts audited — Assessee, a chartered accountant by
profession, being proprietor and also a partner in a firm — Gross receipts
excluding his share of income from the firm was less than Rs.10 lacs — Penalty
imposed for failure to get the accounts audited — Whether AO justified — Held,
No.

Per P. Madhavi Devi :

Facts :

The assessee was a chartered accountant by profession. He had
a proprietory concern besides being a partner in Bharat S. Raut & Co. During the
year, he received share of profit and remuneration from the said firm, each of
which was more than Rs.10 lacs. However, the gross receipts earned by his
proprietary concern were less than Rs.10 lacs. According to the AO, the
provisions of S. 44AB were applicable. However, the assessee relying on the
opinion of the senior counsel contended that partner’s allocated amounts were
not gross receipts as contemplated in S. 44AB and accordingly, he was not
required to get the accounts audited. However, the AO did not agree and levied a
penalty u/s.271B r.w. S. 274 of the Act. On appeal, the CIT(A) confirmed the
AO’s order.

Held :

The Tribunal noted that assessee’s major income was not from
profession, but from the share of his profit from the professional firm.
According to it, share of profit cannot be equated with income from profession.
Further, it noted that the assessee had relied on the opinion of the senior
counsel, where-in it was opined that it was not necessary to get the accounts
audited. Therefore, relying on the Jodhpur Bench decision in the case of Dr.
Sunderlal Surana, the Tribunal held that the assessee had reasonable cause for
the failure to get his accounts audited as required u/s.44AB of the Act.
Accordingly, the penalty imposed by the lower authorities was deleted.

Case referred to :


Dr. Sunderlal Surana v. ITO, (2006) 105 TTJ (Jd) 907

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Section 40(a)(i), read with section 2(28A) — Discounting charges paid, cannot be treated as interest in terms of section 2(28A) and, therefore, such amount is not liable for TDS u/s.195.– Also, the same cannot be disallowed u/s 40(a)(i).

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53 (2009) 34 SOT 424 (Delhi)

Asst. CIT vs Cargill Global
Trading (I) (P.) Ltd.

A.Y.: 2004-05. Date of order: 09.10.2009

 

Section 40(a)(i), read with section 2(28A) — Discounting
charges paid, cannot be treated as interest in terms of section 2(28A) and,
therefore, such amount is not liable for TDS u/s.195.– Also, the same cannot be
disallowed u/s 40(a)(i).

Facts:

The assessee company discounted its export sales bills with a
company in Singapore. The discounting charges were disallowed by the Assessing
Officer u/s 40(a)(i) on the ground that the assessee did not deduct tax at
source u/s 195 on the discounting charges which were in the nature of interest
in terms of section 2(28A). The CIT(A) held that the discounting charges paid by
the assessee were not interest, as neither any money was borrowed nor any debt
was incurred. Therefore, no tax was required to be deducted at source from such
payments. He, accordingly, deleted the disallowance.

Held:

The Tribunal, upholding the CIT(A)’s order, noted as
hereunder:

1. As per section 2(28A), interest means sum payable in
respect of any money borrowed or debt incurred. In the instant case, there was
no debt incurred or money borrowed. In fact, it was a case where the assessee
had merely discounted sale consideration receivable on sale of goods.

2. The word `interest’ defined u/s 2(28A) does not include
the discounting charges on discounting of bill of exchange.

3. Though Circular No.65 was issued in relation to
deduction of tax u/s 194A, yet in respect of payment to a resident, the same
would be relevant even for the purpose of considering whether the discount
should be treated as interest or not. The CBDT had opined that where the
supplier of goods makes over the usance bill / hundi to his bank which
discounts the same and credits the net amount to the supplier’s account
straightaway, without waiting for realisation of the bill on due date, the net
payment made by the bank to the supplier is in the nature of price paid for
the bill. Such payment cannot technically be held as including any interest
and, therefore, no tax need be deducted at source from such payment by the
bank.

4. Hence, the assessee was not under obligation to deduct
tax at source u/s 195. Accordingly, the same amount could not be disallowed by
invoking section 40(a)(i).

 


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S. 271(1)(c) — Deduction claimed on the basis of advise of the tax consultant supported by tax audit report — Penalty cannot be levied on the disallowance of the same.

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39 (2010) 38 DTR (Mumbai) (Trib.) 101
Yogesh R. Desai v. ACIT
A.Y. : 2003-04. Dated : 1-2-2010

 

S. 271(1)(c) — Deduction claimed on the basis of advise of
the tax consultant supported by tax audit report — Penalty cannot be levied on
the disallowance of the same.

Facts :

Deduction u/s.80-O was claimed by the assessee which could
not be justified during the assessment proceedings. Finally, the assessee
accepted before the AO that the deduction was claimed erroneously and
inadvertently, as guided by his tax consultant.

Upon disallowance of the same, the penalty u/s. 271(1)(c) was
levied by the AO which was confirmed by the CIT(A).

Held :

It is settled law that penalty u/s.271(1)(c) is a civil
liability and the Revenue is not required to prove willful concealment as held
by the Supreme Court in the case of UOI v. Dharamendra Textile Processors &
Ors., 306 ITR 277. However, each and every addition made in the assessment
cannot automatically lead to levy of penalty for concealment of income.

Even if some deduction or benefit is claimed by the assessee
wrongly but bona fidely and no mala fide can be attributed, the penalty would
not be levied. The claim of deduction u/s.80-O was claimed on the basis of
advise of the tax consultant supported by tax audit report. Therefore there is
no concealment or furnishing of inaccurate particulars on the part of the
assessee and hence the penalty was deleted.

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Amendment in Service Tax Return ST-3 to capture details of Service Tax Return Preparer. Notification No. 10/2009 — Service Tax, dated 17-3-2009

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11 Amendment in Service Tax Return ST-3 to capture
details of Service Tax Return Preparer. Notification No. 10/2009 — Service
Tax, dated 17-3-2009 :


ST-3 form has been amended by this Notification by adding entries for
Identification No. and name of Service Tax Return Preparer.

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Exemption on services provided in relation to the authorised operations in a Special Economic Zone, and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone

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10 Exemption on services provided in relation to the
authorised operations in a Special Economic Zone, and received by a
developer or units of a Special Economic Zone, whether or not the said
taxable services are provided inside the Special Economic Zone

Notification No. 09/2009-Service Tax, dated 3-3-2009 :

By this Notification the taxable services specified in
clause (105) of S. 65 of the Finance Act, 1994 which are provided in
relation to the authorised operations in a Special Economic Zone, and
received by a developer or units of a Special Economic Zone, whether or not
the said taxable services are provided inside the Special Economic Zone, are
exempt from the whole of the Service Tax leviable thereon u/s.66 of the said
Finance Act, subject to conditions specified in this Notification.

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Reduction in Service Tax rate to 10% plus education cess. Notification No. 08/2009-Service Tax, dated 24-2-2009

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9 Reduction in Service Tax rate to 10% plus education
cess. Notification No. 08/2009-Service Tax, dated 24-2-2009 :

Service Tax rate has been reduced from 12% to 10%

w.e.f. 24-2-2009, so that the effective rate will be
10.3%. There is no change in works contract composition rate.

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Export of Services Rules, 2005 applicable when benefits accrue outside India Circular No. 111/2009, dated 24-2-2009

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8 Export of Services Rules, 2005 applicable when
benefits accrue outside India Circular No. 111/2009, dated 24-2-2009 :


In terms of Rule 3(2)(a) of the Export of Services Rules
2005, a taxable service shall be treated as export of service if “such
service is provided from India and used outside India”. By this
Circular, it has been clarified that export of service may take place even
when all the relevant activities take place in India so long as the benefits
of these services accrue outside India.

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Reference from Commissioner, Nashik, seeking clarification in respect of levy of Service Tax on repair/renovation/widening of roads. Circular No. 110/2009, dated 23-2-2009

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7 Reference from Commissioner, Nashik, seeking
clarification in respect of levy of Service Tax on
repair/renovation/widening of roads. Circular No. 110/2009, dated 23-2-2009
:

It has been clarified that management, maintenance or
repair of roads are in the nature of taxable services and attracting Service
Tax u/s.65(105) (zzg) of the Finance Act, 1994. In this Circular, activities
called as ‘construction of road’ and ‘maintenance or repair of roads’ have
been categorised as follows :

(A) Maintenance or repair activities :

I. Resurfacing

II. Renovation

III. Strengthening

IV. Relaying
 
V. Filling of potholes

(B) Construction activities :

I. Laying of a new road

II. Widening of narrow road to broader road (such as
conversion of a two-lane road to a four-lane road)

III. Changing road surface (gravelled road to metalled
road/metalled road to black-topped/ black-topped to concrete, etc.)

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Filing of claim for refund of Service Tax paid under Notification No. 41/2007-ST, dated 6-10-2007. Circular No. 112/2009, dated 12-3-2009 :

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6 Filing of claim for refund of Service Tax paid under
Notification No. 41/2007-ST, dated 6-10-2007. Circular No. 112/2009, dated
12-3-2009 :


In this Circular procedural clarifications have been
given in relation to claiming refund of Service Tax paid under Notification
No. 41/2007-ST, dated 6-102007. which provides exemption by way of refund on
account of specified taxable services used for export of goods.
Clarification under this Circular are in addition to Circulars issued
earlier No. 101/4/ 2008-ST, dated 12-5-2008 and No. 106/9/2008-ST, dated
11-12-2008.

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Service Tax on movie theatres.

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5 Service Tax on movie theatres.

Circular No. 109/2009, dated 23-2-2009 :

It has been clarified that screening of a movie is
not a taxable service except where the distributor leases out the
theatre and the theatre owner get a fixed rent. In such case, the
service provided by the theatre owner would be categorised as ‘Renting
of immovable property for furtherance of business or commerce’ and the
theatre owner would be liable to pay tax on the rent received from the
distributor. All pending cases to be disposed of accordingly.

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S. 115JA(3), CBDT Circular No. 763, dated 18-2-1998 — Credit for MAT can be carried forward for a total of six years and not ‘five assessment years’ mentioned in sub-para 2 of para 45.4 of CBDT Circular No.763 — Statutory provisions prevail over a Circula

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  1. 2009 TIOL 404 ITAT (Mad.)


ITO v.
Data Software Research Company (International) Pvt. Ltd.

ITA No. 1602/Mds./2008

A.Y. : 2003-2004. Dated : 16-4-2009

 

Facts :

While assessing the total income of the assessee, a private
limited company, u/s.143(3) the AO had allowed credit for Rs.14,69,706 being
MAT paid in A.Y. 1997-98. Subsequently, the AO issued notice proposing to
withdraw MAT credit of Rs.14,69,706 by passing an order u/s.154. In response
to the show-cause notice the assessee contended that u/s.115JAA(3) MAT credit
can be set off for a period of 5 years immediately succeeding the assessment
year in which the credit became available. The AO did not accept this
contention and passed an order u/s.154 of the Act withdrawing tax credit of
A.Y. 1997-98 on the ground that u/s.115JAA the tax credit of A.Y. 1997-98 was
available for set-off only up to A.Y. 2002-03 and after that it cannot be set
off.


The CIT(A) allowed the assessee’s appeal.


Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

The Tribunal held that there is no ambiguity in the
language of S. 115JAA(3). The carry forward is available for a total of six
(1+5) years. The Tribunal observed that the confusion has arisen because of
the language used in CBDT Circular No. 763, dated 18-2-1998. The Tribunal held
that the period of ‘five assessment years’ mentioned in sub-paragraph (2) of
paragraph 45.3 of the said Circular contradicts what is stated in Ss.(3) of S.
115JAA. The Tribunal stated that it is trite law that statutory provisions
prevail over a Circular in case of a contradiction between the two. The
Tribunal stated that this position has been reiterated by the Apex Court in
CCE v. Ratan Melting & Wire Industries Ltd., 220 CTR 98 (SC). The Tribunal
upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue.


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S. 2(42A), S. 48, S. 49(1)(e), Explanation III to S. 48 — Where assessee transferred the shares held by it to its 100% subsidiary which shares were retransferred by the subsidiary to the assessee and thereafter were sold by the assessee, the assessee was

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  1. 2009 TIOL 383 ITAT (Mum.)


ACIT v.
Kotak Mahindra Bank Ltd.

ITA No. 2672/Mum./2006

A.Y. : 2000-01. Dated : 2-2-2009

 

Facts :

The assessee company had purchased 2,06,000 equity shares
of M/s. Trumac Engineering Company Ltd. on 7-11-1994. In the financial year
1995-96, the entire lot of 2,06,000 shares were transferred by the assessee to
its 100% wholly-owned subsidiary, M/s. Hamko Financial Services Ltd., (‘the
subsidiary’). In the financial year 1998-99, the subsidiary transferred back
the said shares to the assessee. During the financial year 1999-2000, the
assessee sold 1,56,000 shares out of the said 2,06,000 shares for a
consideration of Rs.70,20,000. The assessee in its return of income for A.Y.
2000-01 claimed loss on sale of these shares at Rs.14,55,72,296 by adopting
the indexation from 1994-95 i.e., the initial date of acquisition by
the assessee. The AO while passing order u/s.143(3) r.w.s. 147 of the Act held
that the assessee was entitled to indexation from the date the shares were
retransferred by the subsidiary to the assessee i.e., financial year
1998-99. Accordingly, the AO computed the indexed cost of acquisition of
shares sold by the assessee to be Rs.11,25,96,594 as against Rs.15,25,92,296
computed by the assessee.


The CIT(A) relying on the decision of the Mumbai Bench of
the Tribunal in the case of DCIT v. Meera Khera in ITA No. 5258/M/1998
of A.Y. 1995-96 and the decision of the Chandigarh Bench of the Tribunal in
the case of Mrs. Pushpa Sofat v. ITO, 81 ITD 1 (Chd.) upheld the
contention of the assessee.


Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

The Tribunal after referring to S. 48, S. 49(1)(e),
Explanation to S. 2(42A) and second proviso to S. 48 held that on a conjoint
reading of these provisions it is evident that in calculating long-term
capital gain on sale of shares of Trumac Engineering Company Ltd., the indexed
cost has to be calculated with reference to the cost, holding period and
indexation factor of the first owner i.e., from 1994-95. It held that
the cost has to be indexed from the date the shares were originally acquired
by the assessee company. It stated that the transfer from the assessee to its
subsidiary and retransfer from the said company has got to be ignored, as
provided in the above provisions of the Act. The Tribunal held that there was
no mistake in the capital gain disclosed by the assessee. Accordingly, it held
that the AO was not justified in denying the benefit of indexation from the
initial date of acquisition. It, accordingly, dismissed the appeal of the
Revenue.


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S. 139A, S. 272B — Penalty u/s.272B cannot be levied on the deductor for not quoting PAN of deductee in the quarterly statements filed in Form No. 26Q.

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  1. 2009 TIOL 370 ITAT (Bang.)


D. V. Steel Corporation v.
ITO (TDS)

ITA No. 907/Bang/2008

A.Y. : 2007-08. Date of Order : 27-2-2009

 

Facts :

The assessee firm filed quarterly statement in Form No. 26Q
for the 4th quarter of financial year 2006-07 without quoting therein PAN of
the deductees. The Assessing Officer was of the view that not quoting PAN of
deductees was contrary to the provisions of S. 139A(5B) of the Act. The AO
issued notice to the assessee asking it to show cause why penalty u/s.272B(1)
should not be levied for not quoting the PAN of the deductees in the
statement. The assessee submitted non-availability of the same to be the
reason for non-furnishing of PAN in the quarterly statement. The AO did not
find this to be a reasonable cause. He levied a penalty of Rs.10,000.


The CIT(A) confirmed the action of the AO.


Aggrieved, the assessee preferred an appeal to the Tribunal
where it was contended that not quoting the PAN was for a reasonable cause
since the asses-see was being asked to do something which was im-possible; it
had no statutory right or power to compel the deductee to furnish the PAN; not
quoting PAN was for no fault on the part of the assessee.

Held :

The Tribunal noted that there is no mechanism at the end of
the assessee to compel the deductee to give its PAN. The Tribunal was of the
view that the facts of the present case are identical to those before the
Ahmedabad Bench of Tribunal in the case of Financial Co-operative Bank Ltd.
where it has been held that since the rules and the provisions of the Act did
not cast an obligation on the manager of a bank to ensure that Form No. 60
filed by the customer was duly filled in, the failure to comply with the
provisions of S. 139A was on the part of the customer of the bank and not on
the part of the bank. The Tribunal following the reasoning of the said
decision of the Ahmedabad Bench directed the AO to delete the penalty.


          The
appeal filed by the assessee was allowed.

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S. 201(1A) — When no tax is payable by payee, no interest can be charged from payer

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47 (2008) 304 ITR (AT) 338 (Jodhpur)

ITO v. Emrald Construction Co. P. Ltd.

ITA No. 357 and 370/Jdpr./2002

A.Y. : 1996-97. Dated : 31-8-2007

S. 201(1A) — In case no tax is payable by the payee, no
interest u/s.201(1A) can be charged from the payer.

 

The assessee-company had made payment to three companies in
the nature of interest and contractor’s payment, but without TDS on the same.
The Assessing Officer levied interest u/s.201(1A) till the date of assessment
order. Before the CIT(A), the assessee contested that no tax was payable qua
contract or interest payments (incomes) or qua any other incomes of the
recipients, so the question of loss to the Revenue does not arise. Hence, no
interest was leviable u/s.201(1A). The CIT(A) upheld the levy of interest, but
restricted it till the date of assessment order of the recipients. On cross
appeals by the assessee and the Revenue, the ITAT held that

1. The interest to be charged u/s.201(1A) is not a penalty,
but a compensation of revenue loss for the delay in the payments of tax. The
rigours of S. 201 are flexible and not rigid as would not admit any sort of
explanation with regard to non-deduction at source.

2. The charging of interest u/s.201(1A) is definitely
mandatory, but this ‘mandatory’ nature has to take colour from the main charge
of the deduction of tax at source u/s.201. So to say, when the ‘tax’ which was
to be deducted u/s.201 was not payable at all, it would be unjust to conclude
that, in all eventualities, come what may, interest u/s.201(1A) is to be
charged from the deductor.

3. It is certain that the interest is chargeable from the
date on which the tax is due for deduction. The starting point has been
envisaged in the Act but not the end point. The ‘benchmark’ of the end point
is to be decided after taking into consideration various factors. The question
of charging interest up to framing of assessment orders in the hands of the
recipients would not arise, because ‘no tax dues’ are found against them and
as such there was no loss of revenue. Interest cannot be charged for the sake
of charging of interest only, it has to be charged in accordance with a
provision.

4. The interest is chargeable on the amount of tax to be
deducted. In case the chargeable tax at source increases or decreases, the
interest amount varies accordingly. But, in a case where the tax was not
payable at all, then in that case no interest can be charged. The word
‘compensatory’ clearly suggests this conclusion.

 


Cases relied upon :



(i) Vikrant Tyres Ltd. v. ITO, (1993) 202 ITR 454
(Kar.)

(ii) CIT v. Rishikesh Apartments Co-operative Housing
Society Ltd., (2002) 253 ITR 310 (Guj.)

(iii) Bennet Coleman & Co. Ltd. v. Mrs. V. P. Damle,
(1986) 157 ITR 812 (Bom.)

(iv) Karimtharuvi Tea Estate Ltd. v. State of Kerala, (1966) 60 ITR
262 (SC)

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S. 115JA — AO has no power to scrutinise accounts except as per Explanation — No addition can be made due to reduction in value of inventory and obsolescence loss.

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46 (2008) 304 ITR (AT) 123 (Ahmedabad)

Deepak Nitrate v. Dy. CIT

ITA No. 1646 and 1748/Ahd./2004

A.Y. : 1998-99. Dated : 9-4-2007

S. 115JA — Assessing officer has no power to scrutinise the
accounts except as provided in Explanation to S. 115JA and hence no addition can
be made by him on account of reduction in value of inventory and obsolescence
loss for computation of book profit in terms of S. 115JA of the Act.

 

According to the Assessing Officer the two amounts viz.
(i) provision made for obsolescence loss, and (ii) reduction due to change in
method of inventory valuation should be added back in computation of the book
profits as per S. 115JA. He therefore added the said amounts to the income of
the assessee invoking the provisions of S. 154. The CIT(A) upheld the addition
no. (i) and deleted the addition no. (ii).

 

On cross appeals by the assessee and Revenue, the Tribunal
observed as under :

(1) Diminution in value of asset is not a provision for any
liability and consequently it would not be a case of reserve.

(2) As per the relevant provisions of the Companies Act, an
amount set apart to become a provision has to be either (i) provision for
depreciation, renewals, or diminution in value of asset, or (ii) provision for
any known liability of which the amount cannot be determined with substantial
accuracy. However, the Income-tax Act has included only one part of this
definition for increasing the net profit to determine the book profits and
that is provision for meeting liability other than ascertained liability.
Hence provision for diminution in the value of asset cannot be added back
u/s.115JA.

(3) The change in method of valuation of inventory was
adopted by the assessee being more scientific and was consistently followed.
Even otherwise, it would be a diminution in value of inventories and since
these items had not been found to be wrong by any authorities under the
Companies Act, the Assessing Officer did not have the jurisdiction under the
provisions of the Act to add back such items for calculating book profits.

 


Case relied upon :



(i) Apollo Tyres Ltd. v. CIT, (2002) 255 ITR 273
(SC)



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I. By holding shares, assessee entitled to exercise rights of owner of flat — Whether entitled to depreciation — Held, Yes. II. Forfeiture of application money on non-payment of call money on issue of debentures —Held, Capital receipt

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45 (2008) 304 ITR (AT) 167 (Mumbai)

Deepak Fertilizers and Petrochemicals Corporation Ltd.
v. DCIT

A.Ys. : 1997-98 to 2001-2002. Dated : 21-9-2007



I. By virtue of holding the shares, assessee entitled
to exercise the rights of owner in respect of a flat — Whether entitled to
depreciation on flats — Held, Yes.



S. 32 — The assessee purchased the shares of YIL on the
basis of which it got an exclusive right to use and occupy certain flats and
claimed depreciation on the same which was disallowed by the Assessing
Officer, but the same was allowed by the CIT(A) relying on the provisions of
S. 2(47)(vi), S. 27(iii), S. 269UA(d)(ii) and also relevant Supreme Court
judgments.

 

The Tribunal observed as under :

1. The articles of association of a company engaged in
the business of real estate may provide that a shareholder of particular
shares would be entitled to exercise the rights of owner in respect of
properties owned by the company. Such mode of transfer is duly recognised by
the Legislature in provisions of S. 2(47)(vi), S. 27(iii), and S.
269UA(d)(ii)


2. The meaning of the term ‘owner’ for the purpose of S.
32 although not defined in the Income-tax Act, a reference to Supreme
Court’s decision in various cases can be construed so as to include a person
who can exercise the rights of the owner not on behalf of the owner but in
his own right. The term ‘owned’ as occurring in S. 32(1) should be assigned
a wider meaning. The provisions of this Section are for the benefit of the
assessee and the intention of the Legislature should be interpreted
accordingly.


 


The Tribunal accordingly allowed the assessee’s claim :

 

Cases relied upon :



(a) CIT v. Podar Cement P. Ltd., (1997) 226 ITR
625 (SC)

(b) Mysore Minerals Ltd. v. CIT, (1999) 239 ITR
775 (SC)

(c) R. B. Jodha Mal Kuthiala (1971) 82 ITR 570 (SC)

 

II. Forfeiture of application money on non-payment of
call money on issue of debentures —Held, Capital receipt.

The assessee issued partly convertible debentures and
received application money. On non-payment of call money, certain amount was
forfeited by the assessee. The assessee claimed it to be capital receipt not
liable to tax, which was rejected by the Assessing Officer. The CIT(A) deleted
the addition made by the Assessing Officer.

 

On Revenue’s appeal, the ITAT held that :

1. The decision of the Supreme Court in the case of T. V.
Sundaram Iyengar & Sons Ltd., 222 ITR 344 relied upon by the assessee, is
not relevant because the amount received is not a trading receipt of the
assessee.

2. Since the amount received was in respect of debentures
issued, it is a capital receipt not chargeable to rax.

 


Cases relied upon :



(1) CIT v. Mahindra & Mahindra Ltd., (2003) 261
ITR 501 (Bom.)

(2) Prism Cement v. Joint CIT, (2006) 285 ITR (AT)
43 (Mumbai)

 




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Set-up date of business is question of fact and depends upon circumstances involved.

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44 302 ITR (AT) 1 Pune


Styler India Pvt. Ltd. v. JCIT 2008

SS ITA 1961 S. 28, S. 37

A.Y. : 1998-99. Dated : 8-4-2008

When business can be said to be set up is a question of fact
and would depend upon the circumstances involved in a particular case.

The assessee-company was set up as a 100% sub-sidiary of S of
Austria with the aim to make available technical expertise to the Indian
industry in three main areas — technical design and con-sultancy services,
systems supplier with respect to vehicle components and parts, sourcing of
vehicle components and parts from India for the global market.

 

The assessee filed a return for the A.Y. 1998-99 showing a
receipt of Rs.3,91,780 as interest on fixed deposit with the banks and claiming
expenses of Rs.49,27,336 as administrative and selling expenses as against the
receipt. The Assessing Officer was of the opinion that expenses of Rs.17,92,600
were capital in nature and that exhibition and launch expenses of Rs.15,65,239
should be disallowed as preliminary expenses.

 

The assessee explained that repairs, improvement and
innovation expenses were incurred for carrying on the business which was done by
obtaining long lease and in regards to exhibition and launch expense of
Rs.15,65,239, these were incurred after the company was formed on September 15,
1997.

 

For substantiating its claim, the assessee stated that it had
attended an exhibition in January 1998 at Expo ’98 at Delhi and it had taken a
stall and participated in the exhibition to promote the business interest of the
company and to increase its visibility in the eyes of Indian automotive
industry. The Assessing Officer held that interest income was liable to be
assessed under the head ‘Other Sources’ and expenses claimed amounting to
Rs.49,27,336 were not admissible and were to be disallowed.

 

The Commissioner (Appeals) held that there was no sufficient
proof to hold that the business had commenced, that all expenses were incurred
by the assessee before setting up of the business and
were not permissible. He upheld assessment of interest income under the head
‘Other Sources’ and did not allow any expenses against the above receipt.

 

On appeal to the Appellate Tribunal :

 

Held :



1. That there were details of various activities handled by
the Managing Director during his stay in India and the corporate offices he
visited to carry on discussion with different persons. Even the names of the
persons he met were given. The assessee had also furnished the detailed
qualification of the general manager, marketing, who had met various
prospective clients and given a summary of various activities carried on by
the employee. The assessee had placed on record correspondence exchanged with
various manufacturers of automobiles.

2. The expenditure clearly showed that the assessee had a
building on which rent of Rs.3,10,400 was incurred. It further carried on an
advertisement related to the business it had set up and other miscellaneous
expenses connected with the consultative services the assessee intended to
provide.

3. The assessee participated and took a stall in ‘Auto
Fair’ held in Delhi with the objective of advancing the assessee’s business of
consultancy. The assessee had a place of business; it had qualified people who
could give advice on automobile industry. There was material to show that the
assessee contacted various clients who entered into agreement with the
assessee in the subsequent years and paid fees for consultation to the
assessee.

4. Merely because actual receipts were not shown, it could
not be said that the assessee did not set up its business. When the assessee
was ready to offer advice on matters and problems indicated in the
correspondence with the clients, it was im-material that no fees for the
consultancy were received in the year under consideration. The assessee had an
office from which advice could be given in the automobile industry. All the
correspondence was addressed to a particular address in Pune. The assessee had
machinery to render advice in the technical field. On the above facts, it
could not be held that the assessee did not set up business in the relevant
period.

 


Cases referred to :



(i) CIT v. Sarabhai Management Corporation Ltd.,
(1991) 192 ITR 151 (SC) (para 84)

(ii) Neil Automation Technology Ltd. v. Deputy CIT,
(2002) 120 Taxman 205 (Mum.) (Tribunal) (paras 4,18, 31, 57, 59, 62)

(iii) Western India Vegetable Products Ltd. v. CIT,
(1954) 26 ITR 151 (Bom.) (paras 4, 10, 13, 17, 29, 35, 52, 59, 60, 61, 75, 77,
81, 85, 92) and many more.

 


S. 10B, as amended w.e.f. 1-4-2001 — Deduction to be computed w.r.t. profits of EOU unit after reducing losses of non-EOU units — Held, No

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43 2009 TIOL 53 ITAT Bang.

DCIT v. M/s Medreich Ltd.

ITA No. 632/Bang./2008

A.Y. : 2004-2005. Dated : 21-11-2008

Whether in view of the provisions of S. 10B, as amended
w.e.f. 1-4-2001, the deduction u/s.10B is to be computed with reference to
profits of EOU unit after reducing the losses of non-EOU units — Held, No.

 

Facts :

The assessee company, a 100% EOU, was engaged in the business
of manufacture of pharmaceutical products. The assessee company claimed
exemption u/s.10B of the Act in respect of export profits in the EOU Unit and
also the domestic profits thereon. The assessee had not claimed set-off of
business losses incurred in other units but carried them forward. The AO while
assessing the total income first set off the loss of non-EOU unit against the
entire profit of the EOU unit (domestic as well as export) and then allowed
deduction u/s.10B on the residue. As a result, the carried forward benefit
claimed by the assessee was not allowed. Aggrieved, the assessee preferred an
appeal to the CIT(A) who allowed the claim of the assessee by relying on the
decision of the Bangalore Tribunal in the case of M/s. Webspectrum Software Pvt.
Ltd. in which the Tribunal held that the deduction u/s.10A is to be allowed
without setting off brought forward and current year loss of non-10A unit.
Aggrieved, the Revenue preferred an appeal to the Tribunal.


 

Held :

The Tribunal did not find any infirmity in the order of the
CIT(A). It dismissed the appeal of the Revenue.


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S. 10A — Assessee owned two STP units — Whether deduction to be computed w.r.t. profits of one unit without setting off loss of other unit — Held, Yes. Whether deduction to be allowed w.r.t. profits and gains derived — Held, Yes. Whether order of CIT u/s.

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42 2009 TIOL 41 ITAT Bang.


Tata Consultancy Service Ltd. v. ACIT

ITA No. 590/Bang./2008

A.Y. : 2003-2004. Dated : 14-11-2008

S. 10A of the Income-tax Act, 1961 — A.Y. 2003-04 — Assessee
owned two STP units — During the assessment year STP Unit 1 earned profit and
STP Unit 2 suffered loss — Assessee computed deduction u/s.10A in respect of STP
Unit 1 with reference to its profits and without setting off the loss suffered
by STP Unit 2 — AO accepted the manner of computation adopted by the assessee —
CIT invoked S. 263 and directed AO to compute deduction u/s.10A in respect of
Unit 1 on the profits of Unit 1 after setting off loss of Unit 2 — Whether
deduction u/s.10A is to be computed with reference to profits of an undertaking
without setting off loss incurred by another eligible undertaking — Held, Yes.
Whether deduction u/s.10A is to be allowed with reference to profits and gains
derived by an undertaking — Held, Yes. Whether order of CIT u/s.263 needs to be
set aside — Held, Yes.

Facts :

The assessee company owned two STP units for export of
software. During the A.Y. 2003-04, STP Unit 1 earned profit, whereas STP Unit 2
suffered a loss. The assessee in its return of income claimed deduction u/s.10A
of the Act in respect of Unit 1. This deduction was computed with reference to
profits of Unit 1 without setting off the loss of STP Unit 2. No deduction
u/s.10A was claimed in respect of STP Unit 2.

 

The Assessing Officer (AO) while assessing the total income
of the assessee, accepted the manner of computation of deduction u/s.10A.

 

The CIT was of the opinion that deduction allowed u/s.10A in
respect of STP Unit 1 without setting off the loss of STP Unit 2 against income
of STP Unit 1 was not in accordance with law and that the order is prejudicial
to the interest of the Revenue. He accordingly directed the AO to modify the
order and allow deduction u/s.10A after setting off the loss from STP Unit 2
against the profit of STP Unit 1.

 

Aggrieved with the order of CIT u/s.263, the assessee
preferred an appeal to the Tribunal.

 

Held :

The Tribunal after considering various judicial precedents
and also the provisions of S. 10A(1), 10A(4), notes on clauses while introducing
amendment to S. 10A(4) by Finance Bill, 2001 held as under :

(1) In S. 10A(1), the word ‘an’ has been used before the
undertaking. Deduction is to be allowed on such profit and gains as are
derived from the undertaking. Hence, to apply the provisions of S. 10A, one
has to consider the profit and gains as derived by an undertaking. It does not
refer to profits and gains as are derived by the assessee. The assessee may be
having more than one undertaking.

(2) Deduction u/s.10A is to be computed on the basis of
profits and gains derived by an undertaking. In the instant case, STP Unit 2
was having a loss and therefore, its loss cannot be set off while ascertaining
the deduction u/s.10A for STP Unit 1.

(3) When the AO has taken one of the possible views, then
the order of the AO cannot be termed as erroneous and the CIT was having no
power to cancel that order u/s.263 of the Act.

 


The Tribunal cancelled the order passed by the CIT u/s.263 of
the Act. The assessee’s appeal was allowed.

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S. 143(2), S. 158BC, S. 292BB — For period prior to 1-4-2008 where notice not issued, whether block assessment order without jurisdiction — Held, Yes. Whether S. 292BB applicable to A.Y. 2008-09 and subsequent years — Held, Yes

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41 2009 TIOL 38 ITAT Del. SB

Kuber Tobacco Products (P) Ltd. v. DCIT

IT(SS)A No. 261/Del./2001

A.Ys. : 1-4-1988 to 25-1-1999. Dated : 14-1-2009

Income-tax Act, 1961 — S. 143(2), S. 158BC, S. 292BB — For a
period prior to 1-4-2008 where a notice u/s.143(2) of the Act is not issued, the
block assessment proceedings and consequential block assessment order can be
said to be without jurisdiction — Held, Yes. Whether S. 292BB is applicable to
A.Y. 2008-09 and subsequent years — Held, Yes.

 

Facts :

Search action u/s.132 of the Act was carried out in
the case of the assessee on 21-1-1999. The assessment order dated 29-1-2001
passed u/s.158BC of the Act was silent on the issue of notice u/s.143(2).
Neither before the Assessing Officer, nor before the CIT(A) did the assessee
contend that the assessment framed without issuance of notice u/s.143(2) was
invalid. The assessee in an additional ground before the Tribunal contended that
in the absence of issuance of mandatory legal notice u/s.143(2) of the Act the
block assessment proceedings and consequential block assessment order be held to
be without jurisdiction.

 

The Revenue raised a plea that in view of insertion of S.
292BB which is inserted by Finance Act, 2008 w.e.f. 1-4-2008, 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 and the assessee is barred from
taking this plea.

 

In these circumstances, the question referred to the Special
Bench was whether the assessee who has participated in 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 :

The Special Bench of the Tribunal held as follows :

(1) The scope of S. 292BB is that where any assessee has
appeared in any proceedings or has co-operated in any inquiry relating to
assessment or reassessment, then the consequences ensued will be that it will
be deemed that any notice under any provisions of the Act, which is required
to be served on an assessee has been duly served on him and it will further be
deemed to be served in time and in accordance with the provisions of the Act.
The assessee is debarred from taking the defence or raise any objection in any
proceedings or inquiry that the notice was :


(a) Not served upon him;


(b) Not served upon him in time; and


(c) Served upon him in any improper manner.

 


(2) The assessee has a right of being served with the
notice in case proceedings are taken against him and in case of invalid notice
the whole proceedings taken pursuant to that notice would be void ab initio
(subject to provisions of S. 292B) and will have no legal consequences. To
overcome some of the situations, S. 292BB has been brought on the statute as
explained in the Memorandum explaining the provisions as well as notes on
clauses.


(3) Applicability of S. 292BB is not strictly restricted to
issue of notice u/s.143(2), but it is in respect of other notices relating to
any provisions of the Act, which include notice to initiate re-assessment
proceedings and other proceedings also.


(4) Where the statute u/s.292BB deems service of notice, it
will always include issue of notice as service cannot be effected without
issuance thereof.


(5) Where procedural statute creates a new disability or
obligation and imposes new duties in respect of transactions already
accomplished, then the statute cannot be construed to have retrospective
effect. S. 292BB cannot be construed to have retrospective operation and it
has to be applied prospectively.


(6) S. 292BB is applicable to A.Y. 2008-09 and subsequent
years. The assessee is precluded from taking such objection for and from A.Y.
2008-09. Prior to 1-4-2008 i.e., up to 31-3-2008, as per S. 292BB, the
assessee is not precluded from taking any objection regarding invalidity of
assessment/reassessment on the ground of improper/invalid issuance/service of
a notice.



 



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Whether while computing book profit u/s. 115JB, lower of unabsorbed loss or depreciation as per profit and loss account of amalgamated company can be set off against profits of amalgamating company — Held, Yes.

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40 2009 TIOL 26 ITAT Bang.


VST Tillers & Tractors Ltd.
v. CIT

ITA No. 588/Bang./2008

A.Y. : 2003-2004. Dated : 21-11-2008

S. 115JB of the Income-tax Act, 1961 — A.Y. 2003-04 — Whether
while computing book profit u/s. 115JB of the Act lower of unabsorbed loss or
depreciation as per profit and loss account of the amalgamated company can be
set off against profits of an amalgamating company — Held, Yes.

 

Facts :

During the year ended 31-3-2003, V.S.T. Precision Components
Ltd. (‘VPCL’), a company which was subsidiary of the assessee company was
amalgamated with the assessee company. The amalgamation, approved by the
Karnataka High Court by its order dated 18th July 2003, was to be effective from
1-4-2002. The terms of amalgamation, as mentioned in paragraph 11 of the order
of the Court, inter alia stated that accumulated loss and depreciation of
VPCL shall be deemed to be the loss and depreciation of the assessee company as
provided u/s.72 of the Act.

 

The assessee returned an income of Rs. Nil after setting off
business loss and unabsorbed depreciation of VPCL. The assessee computed book
profit u/s.115JB by reducing from profit as per its profit & loss account the
brought forward loss as per profit & loss account of VPCL.

 

The book profit computed by the assessee was accepted by the
AO in the assessment u/s.143(3).

 

Subsequently, the CIT was of the opinion that since the
unabsorbed loss was not as per the books of account of the assessee company but
of VPCL, the same cannot be permitted to be reduced from the book profit for
purposes of S. 115JB. He, accordingly, directed the AO to modify the assessment
order by re-computing the tax liability u/s.115JB.

 

Aggrieved, the assessee preferred an appeal to the Tribunal.

 

Held :

The Tribunal noted that the effective date of amalgamation
was 1-4-2002. The Tribunal held that in view of the statutory provisions of S.
72A(1) and also the order of the High Court sanctioning the scheme, the
unabsorbed business loss and also unabsorbed depreciation of VPCL were deemed to
be loss and depreciation of the assessee company. U/s.115JB(2) lower of
unabsorbed loss or unabsorbed depreciation is to be set off against the book
profit. Since the unabsorbed loss of VPCL was lower than unabsorbed
depreciation, the assessee had rightly set off the unabsorbed loss against book
profit. The Tribunal held that the CIT was not correct in directing the AO to
compute book profit without setting off the unabsorbed loss of VPCL. The
Tribunal set aside the order of the CIT passed u/s.263 of the Act.

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Whether grant of excessive credit of TDS amounts to escapement of income — Held, No. Whether it can be construed as grant of excessive relief under sub-clause (iii) of Explanation 2(e) to S. 147 — Held, No

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39 2009 TIOL 01 ITAT Hyd.

GMR Projects Pvt. Ltd. v. ACIT

ITA No. 1014/Hyd./2007

A.Y. : 2000-2001. Dated : 26-9-2008

S. 147 of the Income-tax Act, 1961 — A.Y. 2000-01 — Whether
grant of excessive credit of TDS amounts to escapement of income — Held, No.
Whether grant of excessive credit of TDS can be construed as grant of excessive
relief under sub-clause (iii) of clause (c) of Explanation 2 to S. 147 of the
Act — Held, No.

 

Facts :

For A.Y. 2000-01 the assessee company filed its return of
income declaring total income of Rs.11,20,190. During the year under
consideration the assessee had in its profit & loss account admitted receipts of
Rs.3,33,87,112, but had claimed credit for TDS, amounting to Rs.56,30,970, in
respect of entire gross receipts of Rs.25,70,53,996. The Assessing Officer
completed the assessment u/s.143(3) of the Act assessing the total income to be
the same as returned income and granted credit of TDS amounting to Rs.56,27,970.


 


Subsequently, the AO initiated reassessment proceedings since
he was of the view that as per provisions of S. 199 of the Act credit should be
restricted to the extent of income admitted during the year. In the order passed
u/s.143(3) r.w. S. 147 of the Act, the AO restricted credit of TDS to
Rs.7,34,516.


 


In an appeal to the CIT(A) the assessee challenged the
reopening of assessment on the ground that grant of excessive credit of TDS
cannot be construed as escapement of income. The CIT(A) upheld the reopening and
held that grant of excess credit of TDS is a case of income being subjected to
excessive relief.


 



Aggrieved, the assessee preferred an appeal to the Tribunal,
wherein it challenged the reopening of the assessment.

 

Held :

The Tribunal noted that the words ‘income’ and ‘tax’ have
different connotations and are separately defined in the Act. The tax on income
is on the basis of charge prescribed in Chapter II of the Act. It further
observed that what needs to be assessed under the Act is the income earned by
the assessee. Chapter XIV of the Act prescribes the procedure for assessment.
Once the income is earned, returned and assessed, the collection and recovery of
tax start simultaneously at each stage as prescribed in Chapter XVII of the Act.
The Tribunal observed that as per the scheme of the Act, each stage is a
distinct stage, and each stage culminates into the next. In the present case,
the Tribunal noted that it was dealing with assessment stage.

 

The Tribunal observed that S. 147 is contained in Chapter XIV
of the Act and deals with income which has escaped assessment. It stated that
when one says that income has escaped assessment, it only means that such income
has escaped the tax net though it was taxable. According to the Tribunal,
granting of excess credit cannot be equated with income escaping assessment. By
granting excess credit everything revolves around correct collection and
recovery of tax. Nowhere income is in picture and if income is not in picture,
where is the question of its escapement ? The Tribunal held that the AO assumed
the jurisdiction wrongly when no income had escaped assessment.

 

As regards the provision of clause (c)(iii) of Explanation 2
to S. 147 of the Act, the Tribunal noted that the issue is squarely covered in
favour of the assessee by the decision of the Bombay High Court in the case of
Bombay Gas Co. Ltd.

 

The Tribunal quashed the order of reassessment.


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(a) Ss.(2) and (3) of S. 14A are procedural in nature and, hence, retrospective. (b) All direct and indirect expenses are disallowable u/s.14A, which have relation with income not chargeable to tax. (c) S. 14A applicable to dividend earned by assessee

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38 (2008) 26 SOT 603 (Mum.) (SB)

ITO v. Daga Capital Management (P.) Ltd.

ITA Nos. 8057 (Mum.) of 2003 and 183, 1372 and 2048 (Mum.)
of 2005

A.Ys. : 2001-02 and 2002-03. Dated : 20-10-2008

S. 14A of the Income-tax Act, 1961 :



(a) Expenses falling under any head or Section which
are otherwise deductible as business expenditure or under other respective
heads, would call for disallowance to the extent to which those expenses
have been incurred in relation to income exempt from tax.


(b) Ss.(2) and (3) of S. 14A are procedural in nature
and, hence, retrospective.


(c) For purpose of S. 14A what is relevant is to work
out expenditure in relation to exempt income and not to examine whether
expenditure incurred by assessee has resulted into exempt income or taxable
income.


(d) All direct and indirect expenses are disallowable
u/s.14A, which have any relation with income not chargeable to tax under the
Act.


(e) S. 14A would be applicable where shares are held
as stock-in-trade.


(f) Provisions of S. 14A would be applicable with
respect to dividend income earned by assessee engaged in business of dealing
in shares and securities on shares held as stock-in-trade when earning of
such dividend income was incidental to trading in shares.


 


The assessee-company was engaged in the business of dealing
in shares. For the relevant assessment year, the assessee had exempt dividend
income and, therefore, the Assessing Officer disallowed certain expenses in
terms of S. 14A. The CIT(A) upheld the disallowance.

 

The Special Bench also held in favour of the Revenue on all
the matters. The Special Bench observed as under :


1. S. 14A has an overriding effect over all other
Sections allowing deductions :

(a) The residence of this Section in the first
sub-chapter, viz., ‘Heads of income’, clearly demonstrates that it
has been made applicable to all the heads of income. If the intention of the
Legislature had been to restrict its application to the expenditure under
heads other than ‘business income’, then it would have been placed under the
relevant sub-chapter instead of the first sub-chapter, which, in turn,
refers to all the heads of income. Therefore, the expenses deductible under
the head ‘Business income’ are not immune from S. 14A.

(b) S. 14A is a special provision which deals with
disallowances of expenditure incurred by the assessee in relation to income
which does not form part of the total income under the Act. The expenses
falling under any head or Section which are otherwise deductible as business
expenditure or under other respective heads, would call for disallowance, in
view of the specific provision of S. 14A, to the extent to which those have
been incurred in relation to the income exempt from tax.

 

2. Ss.(2) and (3) of S. 14A are retrospective :

(a) In case of substantive provisions, the general rule
is that a provision is normally prospective in nature, unless it is given
retrospective operation expressly or can be so inferred by necessary
implication.

(b) However, in respect of
clarificatory/explanatory/procedural provisions, the date of insertion loses
its significance.

(c) S. 14A was inserted with a view to clarify the
intention of making disallowance in respect of ‘expenditure incurred by the
assessee in relation to income which does not form part of the total income
under this Act’. This Section declared the intention of the Act ‘since
inception’.

(d) When Ss.(1) itself is clarificatory and then
resultantly retrospective, it is beyond comprehension as to how Ss.(2) and
(3), providing the mechanism to do what is provided for in Ss.(1), can be
construed as substantive and, hence, prospective.

(e) A proviso has also been inserted in S. 14A for
reducing its rigor, which stipulates that no reassessment u/s.147 or
rectification u/s.154 shall be carried out by the Assessing Officer so as to
give effect to the newly inserted provision. That has been done so as not to
disturb the proceedings which have already attained finality in the period
prior to this insertion. However, assessments which are pending at any
stage, either before the Assessing Officer or the CIT(A) or the Tribunal or
the Higher Courts, would be governed by the mandate of that Section as it is
retroactive. From the above discussion, it is clear that Ss.(2) and (3) are
procedural in nature and, hence, retrospective.

 

3. Expenditure in relation to exempt income :

(a) The language of Ss.(1) of S. 14A clearly provides
that no deduction shall be allowed ‘in respect of expenditure incurred by
the assessee in relation to income which does not form part of the tot

(a) S. 48 — Option to avail benefit of indexation or not is with assessee. (b) S. 70 — Capital gain computed with indexation can be set off against capital gain computed without indexation.

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37 (2008) 26 SOT 380 (Mum.)

Mohanlal N. Shah HUF v. ACIT

ITA No. 789 (Mum.) of 2004

A.Y. : 2002-03. Dated : 24-9-2008



(a) S. 48 of the Income-tax Act, 1961 — Option to avail
or not to avail benefit of indexation is with the assessee.


(b) S. 70 of the Income-tax Act, 1961 — Capital loss
computed with indexation can be set off against capital gain computed without
indexation.




During the relevant assessment year, the assessee had sold
shares and units of mutual funds. In respect of shares sold, the assessee did
not claim benefit of indexation, but in respect of units sold of one mutual fund
the assessee opted for indexation. The resultant loss from the units was set off
against the gain from shares.

The Assessing Officer held that though the benefit of
indexation is a privilege allowed to the assessee as S. 48, the same could not
be availed of on a pick-and-choose basis; and that the option to offer capital
gain at the rate of 20% with indexation and at the rate of 10% without
indexation lies with the assessee as S. 112, but before that S. 70 comes into
appraisal and for setting off of any income under the same head it is but
natural that capital gain is to be calculated on the same footing. Therefore, he
disallowed the method adopted by the assessee. The CIT(A) also held against the
assessee.

The Tribunal, following the decision in the case of
Devinder Prakash Kalra v. ACIT, (2006) 151 Taxman 17 (Delhi), held in favour
of the assessee. The Tribunal noted as under :

(1) The computation of income from capital gains is
governed by S. 48. A plain reading of the said provision reveals that a
capital gain from each asset which is transferred has to be computed.
Indexation is allowable while computing the ‘capital gain’ from the transfer
of each long-term capital asset.


(2) As provided in S. 48, option is with the assessee to or
not to avail of benefit of indexation for computation of capital gains on
transfer of each of long-term capital assets.


(3) It is only after computing the capital gains as per S.
48, can it be aggregated by setting off the loss u/s.70 and it is then that
the rate of tax as provided u/s.112 is to be applied.


(4) The Delhi Bench of the Tribunal in the case of
Devinder Prakash Kalra v. ACIT, (2006) 151 Taxman 17 (Mag.), has held that
S. 112 is not only a beneficial provision, but is also mandatory provision and
if several transactions have taken place by way of sale of shares, the
assessee can avail of the benefit of indexation in a few transactions and
avail of 10% tax rate in the remaining transactions.



 


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S. 145A — If a change per se is forced upon assessee in valuation of closing stock, corresponding adjustment in opening stock to be carried out for consistency

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36 (2008) 26 SOT 141 (Mum.)

Dy. CIT v. Beck India Ltd.

ITA Nos. 383 and 483 (Mum.) of 2005

A.Y. : 2001-02. Dated : 11-9-2008

S. 145A of the Income-tax Act, 1961 — If on account of
application of S. 145A, a change per se is forced upon assessee in valuation of
its closing stock, a corresponding adjustment in opening stock has to be carried
out for consistency.

 

For the relevant assessment year, the Assessing Officer held
that the assessee was bound to follow the decision of the High Court in
Melmould Corpn. v. CIT, (1993) 202 ITR 789/71 Taxman 47 (Bom.) and that if a
change in method of accounting results in change in value of closing stock, no
corresponding adjustment would be required in opening stock, since such a change
would have the effect of disturbing the accounts leading to a chain reaction,
and, therefore, he added back MODVAT credit balance to closing stock of the
assessee. The CIT(A) directed the Assessing Officer to make corresponding
adjustments in the opening stock.

 

The Tribunal, relying on the decision in the case of CIT
v. Mahavir Aluminium Ltd., (2008) 297 ITR 77/ 168 Taxman 27 (Delhi), upheld
the CIT(A)’s order. The Tribunal noted as under :

1. S. 145A mentions ‘inventory’ and limiting it only to
‘closing inventory’, disregarding the opening inventory, would be not in
accordance with the plain meaning of the term ‘inventory’ used in the Section.
Inventory will necessarily include within its fold both opening as well as
closing.

2. In Melmould Corpn.’s case (supra), the assessee
had made a change in the method of valuation, which was not thrust upon the
assessee, but voluntarily selected by it. Such a change suo motu done
would definitely be different from one, which is statutory inflicted, where an
assessee per se is forced to make an adjustment to value of its
inventory.

3. However, when on account of application of S. 145A a
change per se is forced upon the assessee in the valuation of its
closing stock, a corresponding adjustment in opening stock has to be carried
out for consistency.

 


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S. 2(22)(e) — Amount given by company to director to purchase business premises, returned since deal could not materialise — Could not be treated as deemed dividend.

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35 (2008) 26 SOT 95 (Delhi)

Sunil Sethi v. Dy. CIT

ITA No. 2131 (Delhi) of 2007

A.Y. : 2004-05. Dated : 12-9-2008

S. 2(22)(e) of the Income-tax Act, 1961 — When amount was
given by company to its director for business purposes of company i.e., to
purchase business premises, and said amount was returned since the deal could
not materialise, such amount could not be treated as deemed dividend.

 

During the relevant year, the assessee, who was a director in
a company and was holding 50% of the share capital of the Company, had received
Rs.30 lacs from the Company by way of an imprest to enable him to make the
payment for a proposed office complex and as the deal could not materialise, the
same was returned to the company. The Assessing Officer and the CIT(A) held such
amount as deemed dividend.

 

The Tribunal, following the decision in the case of Dy.
CIT v. Lakra Bros., (2007) 162 Taxman 170 (Chd.)(Mag.), held that provisions
of S. 2(22)(e) were not applicable in the assessee’s case. The Tribunal noted as
under :

1. A sum of Rs.30 lacs was given to him for the purpose of
making advance with respect to certain land dealings which were proposed to be
entered into by the company through the assessee. The assessee was a director
in the company and could lawfully execute certain agreements on behalf of the
company. Such payment was made in pursuance of a resolution passed by the
company.


2. It was not the case of the Revenue that such resolution
did not happen or it was an afterthought story. No material had been brought
on record to suggest that what was explained by the assessee was incorrect.
The sum had been treated as deemed dividend simply for the reason that it was
given to the assessee.


3. The transaction was in the ordinary course of the
business of the company, and there was no intention on the part of the company
to give a loan or advance to the assessee for his individual benefit.


4. It had been demonstrated that in the bank account of the
assessee, in which the said amount of Rs.30 lacs was credited, was always
having balance of more than Rs.30 lacs. So even for a short period the
assessee had not derived any benefit or it could not be said that the said
amount was given to the assessee by the company for his individual benefit.
The amount was lying in the bank account of the assessee, which was not
utilised at all for any purpose.


5. The amount was paid for a very short period for a
specific purpose and there was documentary evidence on record to substantiate
the explanation of the assessee that the amount was given for the business
purposes of the company.


 


Thus, the said amount could not be treated as deemed dividend
in the hands of the assessee.

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S. 254(1) — Oral pronouncement during hearing not order; Tribunal has power to refix cases to prevent miscarriage of justice — Only condition is aggrieved party must get opportunity of hearing.

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34 (2008) 119 TTJ 501 (Mumbai)


Mafatlal Securities Ltd. v. Jt. CIT

ITA No. 1127 (Mum.) of 2001

A.Y. : 1996-97. Dated : 10-8-2007

S. 254(1) of the Income-tax Act, 1961 — Oral pronouncement
during the course of hearing is not an order at all; even otherwise, Tribunal
has inherent power to refix the cases to prevent miscarriage of justice or to
grant substantial justice, and the only condition which is required to be
satisfied is that the aggrieved party must be given an opportunity of hearing.

 

In the course of original hearing, the learned counsel for
the assessee stated that the facts of this case were identical to the facts of
another case decided by this Tribunal, wherein the Tribunal had decided in
favour of the assessee. Hence, the case was heard mainly as a covered case and
the result was pronounced during the course of the hearing itself.

 

Thereafter, during the course of further study of the files,
the Bench thought that certain observations in the decisions in two cases of
Mumbai Benches were relevant. Hence, the case was released for fresh hearing as
a part heard case so as to confront these two decisions to the assessee. The
learned counsel took a preliminary objection that the Tribunal had pronounced
the order, hence, if any decision was taken contrary to the decision pronounced,
it would amount to review of order and which was beyond its powers. The learned
Departmental Representative supported the approach of the Tribunal where an
adequate opportunity of hearing was given to the assessee before taking any
other view in the matter.

 

The Tribunal, relying on the decision of the Supreme Court in
the case of ITAT v. V. K. Agarwal, (1998) 150 CTR 513 (SC)/(1998) 101
Taxman 382 (SC), held that unless the order of the Bench was signed by all the
members of the Bench and was dated, it was not an order of the Tribunal. The
Tribunal noted as under :

1. Legally speaking, oral pronouncement during the course
of hearing is not an order at all. It is only an intimation of likely result
or prima facie conclusion expressed on the basis of the contentions
made by the parties. It is only a procedural aspect and it does not create any
statutory embargo or limitation.

2. No party can proceed further unless it receives an order
in writing and in the case of orders passed by the Tribunal, the limitation
also starts from the date when the order is served. Hence, oral pronouncement
does not give any inherent right or create any limitation with regard to
statutory rights of the parties to the disputes.

3. Even an entry to this effect, in the order sheet signed
by the Members of the Bench would not constitute an order within the meaning
of r. 34 of the ITAT Rules.

4. Even if it is presumed that oral pronouncement during
the course of hearing is an order, then the Tribunal being a Court of plenary
jurisdiction is well within its powers within the meaning of S. 254(1) to
refix it for clarifications before passing an order in writing. The Tribunal
has inherent power to refix the cases in such type of situations to prevent
miscarriage of justice or to grant substantial justice. The only condition
which is required to be satisfied is that the aggrieved party must be given an
opportunity of hearing which has been done in this case.

5. Similarly, the Tribunal before passing a written order
can refix the case suo motu for clarifications so as to appraise the
issue afresh in the light of other facts or material. There is nothing wrong
in it because principles of natural justice are equally applicable to judicial
authorities as these are applicable to the parties to the disputes.

6. Though the Tribunal is not akin to a Court but the
functions discharged by it are similar to a Court, hence, in addition to its
expressed statutory powers, it has got inherent power to pass such orders as
may be necessary for the ends of justice.

 


The following cases were also relied on by the Tribunal :

1. Oriental Building & Furnishing Co. v. CIT, (1952)
21 ITR 105 (Punj.)

2. Singar Singh & Sons v. CIT, (1965) 58 ITR 626
(All.)

3. CIT v. Dr. T. K. Jairaj, (2002) 172 CTR (Ker.)
584; (2002) 256 ITR 252 (Ker.)

4. Khushalchand B. Daga v. T. K. Surendran, ITO
(1972) 85 ITR 48 (Bom.)

 



Note : Similar decision was taken by the Pune Tribunal in
the case of CIT v. Jinendra Smelting & Rolling Mills, Misc. Application
No. 65/Pn/2007 in ITA No. 539 (Pn) 2006 reported in 119 TTJ 519.

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S. 254(1) — If decision not relied upon by parties at hearing and Bench desires to apply ratio of such decision, natural justice demands that Bench should confront parties with decision and should give opportunity to make submissions w.r.t. such decisio

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33 (2008) 119 TTJ 433 (Jab.) (TM)

Vindhya Telelink Ltd. v. Jt. CIT

ITA No. 295 (Jab.) of 2000 and

C.O. No. 19 (Jab.) of 2002

A.Ys. : 1997-98 and 1998-99. Dated : 22-8-2008

S. 254(1) of the Income-tax Act, 1961 — If any decision is
not relied upon by the parties at the time of hearing and the Bench desires to
apply the ratio of such decision, natural justice demands that the Bench should
confront the parties with such decision and should give an opportunity to them
so that they can make their submissions with reference to such decision.

 


For the relevant assessment years, the Assessing Officer
disallowed 50% of the expenditure claimed by the assessee assuming that
expenditure towards foreign travel was attributable to the wife of the managing
director, who accompanied him during such visits. The CIT(A) allowed the relief
following the decision of the Kerala High Court in the case of Appollo Tyres
Ltd. [CIT v. Appollo Tyres Ltd., (1998) 149 CTR 538 (Ker.)/(1999) 237 ITR
706 (Ker.)]. The learned AM upheld the order of the CIT(A) following the same
decision of the Kerala High Court. However, the learned JM reversed the order of
the CIT(A) following various other decisions. It was contended by the assessee’s
learned counsel before the TM that the learned JM has referred to such decisions
which were not relied upon or argued on behalf of the Department.

 


The Third Member noted as under :

1. If any decision is not relied upon by the parties at the
time of hearing and the Bench desires to apply the ratio of such decision,
natural justice demands that the Bench should confront the parties with such
decision and should give an opportunity to them so that they can make their
submissions with reference to such decision. Admittedly, in this case this has
not been done by the Bench.


2. Therefore, since the decisions were not referred to by
any of the parties at the time of hearing, the learned JM was not justified in
relying upon the same while deciding the issue under consideration.

 


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Service tax levy on goods transport by road services — Circular No. 104/07/2008-ST, dated 6-8-2008.

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Part B : INDIRECT
TAXES


Service tax

68 Service tax levy on goods transport by
road services — Circular No. 104/07/2008-ST, dated 6-8-2008.

Certain clarifications have been provided by this Circular as
under :


  • Abatement of 75% would be available to the consolidated amount mentioned in
    the invoice which includes various intermediary and auxiliary services
    provided by GTA and included in the invoice, since these services are not
    provided as independent activities but are the means for successful provision
    of the principal service, namely, the transportation of goods by road.


  • Where service is provided by a person who is registered as GTA service
    provider and issues consignment note for transportation of goods by road in a
    goods carriage and the amount charged for the service provided is inclusive of
    packing, then the service shall be treated as GTA service and not cargo
    handling service.


  • In case of time-sensitive transportation of goods by road carriage, if the
    entire transportation is done by road and the person transporting the goods
    issues a consignment note, then the service would be GTA service and not
    courier services.



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Certain services in connection with sports activities notified u/s.194J : Notification No. 88/2008, dated 21-8-2008 being rendered by the following persons.

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Part A : DIRECT TAXES


67 Certain services in connection with
sports activities notified u/s.194J : Notification No. 88/2008, dated 21-8-2008
being rendered by the following persons.

The CBDT has notified the following services in relation to
sports activities as ‘Professional Services’ for deduction of tax at source
u/s.194J of the Act  :



  • Sports persons,



  • Umpires and referees,



  • Coaches and trainers,



  • Team physicians and physiotherapists,



  • Event managers,



  • Commentators,



  • Anchors, and

  • Sports columnists.


 


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Certain clarifications have been issued by RBI to all the banks in connection with TDS on 8% Savings (Taxable) Bonds, 2003 : RBI/2008-2009/121 — Ref. DGBA.CDD. No. H — 1311/13.01.299/2008-09, dated 5-8-2008.

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Part A : DIRECT TAXES


66 Certain clarifications have been issued
by RBI to all the banks in connection with TDS on 8% Savings (Taxable) Bonds,
2003 : RBI/2008-2009/121 — Ref. DGBA.CDD. No. H — 1311/13.01.299/2008-09, dated
5-8-2008.

While referring to the earlier Circular issued by RBI —
DGBA.CDD No. H-3024/13.01.299/2007-08, dated September 19, 2007, RBI has issued
further clarifications on deduction of tax at source on the subject matter based
on clarifications received from the CBDT. The important clarifications in this
matter are as under :



  • The date from which TDS needs to be deducted is 1-6-2007. Accordingly,
    irrespective of the date of investment, if interest is credited to the account
    of any investor after 1-6-2007, TDS needs to be deducted.



  • Forms 15H and 15G (exemption from TDS) need to be accepted if the conditions
    mentioned for the said forms are satisfied.



  • In case of cumulative schemes of investment of bonds, TDS would be deducted as
    and when the interest is credited, irrespective of the fact that the payment
    is made at the end of the tenure of the bonds.



  • Lower deduction/NIL deduction certificate from the tax authorities is required
    in case of charitable institutions, for exemption from deduction of tax at
    source from interest eligible by such institutions.


 


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Clarification issued by CBDT in connection with TDS on service tax u/s.194J of the Act : Letter F.No./275/3/2007-IT(B), dated 30-6-2008.

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Part A : DIRECT TAXES


65 Clarification issued by CBDT in
connection with TDS on service tax u/s.194J of the Act : Letter F.No./275/3/2007-IT(B),
dated 30-6-2008.

The Board had earlier clarified vide Dir.Tax/761, dated
5-5-2008 that TDS would not be applicable on Service tax element of rental
income u/s.194I of the Act. In this Notification it has been clarified that
u/s.194I, what has been covered is rental income, whereas u/s.194J, what is
covered is any sum paid as professional or technical fees. Hence, for the
purpose of S. 194J, TDS needs to be deducted on the total amount including
Service tax element.

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Relaxation in the rules for mention of PAN in the TDS returns : Internal instructions.

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Part A : DIRECT TAXES


64 Relaxation in the rules for mention of
PAN in the TDS returns : Internal instructions.

As per the recent Circulars of CBDT, threshold limits were
laid for mentioning of PAN of deductees in the TDS return. However, due to
practical difficulties faced by the assessees, these norms have been relaxed.
Now, if the payment has been made for the total amount of TDS and the
information is available of few deductees, then return can be filed with the PAN
of those deductees. Consequently, the cor-rection return can be filed after
obtaining the PAN of the remaining deductees. Care needs to be taken that the
amount paid as TDS needs to tie up with the total amount mentioned in both the
TDS returns.

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Scrutiny of Tax Audit Report during assessment proceedings : Instruction No. 9/2008, dated 31-7-2008 (reproduced below)

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Part A : DIRECT TAXES


63 Scrutiny of Tax Audit Report during
assessment proceedings : Instruction No. 9/2008, dated 31-7-2008 (reproduced
below)

Kindly refer to the above.

 

2. C&AG and carried out a systems review of Third Party
certification under the Income-tax Act. This has brought out that in many cases
the information available in the tax audit reports is not being properly
analysed during assessment proceedings, thereby defeating the very purpose of
providing for audit of accounts in the Income-tax Act i.e., to ensure
that correct deductions are claimed by the assessee. It is, therefore,
reiterated that the tax audit reports as well as other statutory audit reports
should be critically examined along with connected records and other available
evidence, and the information as available in these reports should be
effectively utilised while finalising the assessment of cases selected under
scrutiny. In case of e-filed returns as well as annexure-less returns, tax audit
reports and other statutory audit reports should be requisitioned and thoroughly
examined during the assessment proceedings in cases under scrutiny.

 

3. With effect from 10th August 2006, the ‘Accountants’ are
required to indicate in Form 3CD as to whether a certificate has been obtained
from the respective assessees regarding payment relating to any
expenditure/taking or accepting of loans or deposits or repayment of the same
through account-payee cheque/bank draft (refer points 17(h) and 24(c) of Form
No. 3CD).

 

4. Instead of simply relying on the said certificates given
by the assessees, the assessing officers should undertake a test-check of such
transactions while completing the assessments under scrutiny. Results of such
test-check should also be kept on record. In case, any violation is noticed,
follow-up action as per the Income-tax Act including invoking of penal
provisions should be taken.

 

5. In cases where any factual misrepresentation by the
Accountants is observed, suitable action should be taken against them as
provided u/s.288 of the Income-tax Act, 1961.

 

This may be brought to the notice of all concerned for strict
compliance.

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Norms relaxed for the corporate tax returns : Internal instructions.

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Part A : DIRECT TAXES


62 Norms relaxed for the corporate tax
returns : Internal instructions.




  •  Scrutiny not to be undertaken for top 1000 companies, provided no disputes are
    pending against them.



  • If the Tax Department has not raised a demand for more than 10 lakhs over and
    above the taxes paid by the companies, then those companies’ cases would not
    be picked up for scrutiny.



  • In case the capital infused in the company is more than 50 lakhs, then the
    case may be picked up for scrutiny.



  • In case the company has filed for any tax exemption viz. S. 10A, S.
    80IC etc., then the return may be picked up for scrutiny.


 


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Income limits for assigning cases to Deputy Commissioners/Assistant Commissioners, Income-tax officers increased, applicable with effect from 1-4-2011 — Instruction No. 1/2011, dated 31-1-2011.

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Full texts of
relevant Notifications, Circulars and Forms are available on the BCAS website :
www.bcasonline.org

68 Income limits for assigning cases to Deputy
Commissioners/Assistant Commissioners, Income-tax officers increased, applicable
with effect from 1-4-2011 — Instruction No. 1/2011, dated 31-1-2011.

Metros charges for the
above purpose would be Ahmedabad, Bangalore, Chennai, Delhi, Kolkata,
Hyderabad, Mumbai and Pune.


S. 147 — Reassessment proceedings cannot be initiated if time limit for issue of notice u/s.143(2) has not expired.

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Part
A: Reported Decisions

31 (2010) 37 DTR (Chennai) (TM) (Trib) 1
Super Spinning Mills Ltd. v. Addl. CIT
A.Y. : 2002-03. Dated : 12-3-2010

 

S. 147 — Reassessment proceedings cannot be initiated if time
limit for issue of notice u/s.143(2) has not expired.

Facts :

Notice u/s.148 was issued to the assessee before the expiry
of the time limit for issue of notice u/s.143(2). The assessee preferred an
appeal before the CIT(A) and challenged the validity of reassessment
proceedings. The CIT(A) rejected the plea of the assessee.

Upon further appeal to the Tribunal, the learned Accountant
Member took a view that the decision in the case of Trustees of H.E.H. The
Nizam’s Supplemental Family Trust v. CIT, 242 ITR 381 (SC) pertains to A.Y.
1962-63 which was prior to the amendment to S. 147 w.e.f. 1st April, 1989. Prior
to the amendment of S. 147, there was no provision equivalent to cl. (b) of
Expln. 2 in the amended S. 147. In a subsequent decision of the Supreme Court in
the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., 291 ITR 500 (SC) it
has been held that so long as the ingredients of S. 147 are fulfilled, the AO is
free to initiate proceeding u/s.147 and failure to take steps u/s.143(3) will
not render the AO powerless to initiate reassessment proceedings even when
intimation u/s.143(1) had been issued. Applying the jurisdictional High Court’s
decision in the case of ITO v. K. M. Pachiappan, 311 ITR 31, the validity of
reassessment proceedings was upheld.

The learned Judicial Member distinguished the decision of
Rajesh Jhaveri Stock Brokers (P) Ltd. on the ground that the notice u/s.148 was
issued after the expiry of the time available for issuing notice u/s.143(2) in
that case. Following the latest decision of the jurisdictional High Court in the
case of CIT v. Qatalys Software Technologies Ltd., 308 ITR 249, the notice
issued by the AO u/s.148 was quashed.

Upon difference of opinion between the members, the matter
was referred to the Third Member.

Held :

The Department wants to interpret the expression ‘no
assessment has been made’ in the clause (b) of Expln. 2 in the amended S. 147 to
mean that it also includes situation where assessment u/s. 143(3) is still
possible but not yet made. If this interpretation is to be accepted, it will set
at naught the fundamental principles underlying S. 147.

As per the principles laid down by the Supreme Court in
several cases :

(a) the proceedings are said to have commenced once the
return is filed, and

(b) the proceedings terminate when,

(i) the return is processed u/s.143(1) and the time to
issue notice u/s.143(2) is over,

(ii) assessment is made u/s.143(3) or,

(iii) assessment is no longer possible u/s. 143(3).

Proceedings u/s.147 can be initiated only after the earlier
proceedings have terminated as mentioned in (b) above.

Observation of the Supreme Court in the case of Rajesh
Jhaveri Stock Brokers (P) Ltd. has to be understood in the right perspective. It
is mentioned that failure to take steps u/s.143(3) will not render the AO
powerless to initiate reassessment proceedings even when intimation u/s.143(1)
had been issued. The failure of the AO which the Court is talking about will be
deemed to have occurred only when the hands of the AO are tied down by law and
he is unable to initiate the proceedings u/s.143(3). Hence order passed
u/s.143(3) read with S. 147 was quashed.

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Capital gains vis-à-vis business income — If shares are held for more than a month, they should be treated as investment and profit on the sale should be charged as short-term capital gain — When shares are held for less than a month, gain on them should

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Part
A: Reported Decisions

30 (2010) 37 DTR (Ahd.) (Trib) 345
Sugamchand C. Shah v. ACIT
A.Ys. : 2005-06 & 2006-07. Dated : 29-1-2010

 

Capital gains vis-à-vis business income — If shares are held
for more than a month, they should be treated as investment and profit on the
sale should be charged as short-term capital gain — When shares are held for
less than a month, gain on them should be treated as profit from business.

Facts :

The assessee is engaged in the business of weaving job work
and grey cloth. He declared profits from sale of shares as short-term capital
gains and long-term capital gains. The AO treated the entire sum as business
income on the basis of frequency of transactions and holding periods.

The CIT(A) partly confirmed the order of the AO and
short-term capital gains were treated as business income. However, long-term
capital gains were not allowed to be treated as business income.

Held :

The assessee has shown the transactions in shares as
investment and not as stock-in-trade. It has been shown consistently for several
years in the past and the Department has not challenged the book-keeping or
accounting of shares as investment. No contrary materials or facts have been
pointed out by the Revenue to show that facts in the current year are different
than the facts in earlier years. The entire portfolio has been valued at cost as
at the end of the accounting year. If in the past, the Department has accepted
the sale of shares of holding of more than a year as investment and profits
thereon has been assessed under the head ‘Capital Gains’, then there is no
reason to hold differently this year.

In respect of short-term capital gains, the assessee has
discharged the onus of showing that it is making investment, but the Revenue is
able to show that there are high frequencies and low holdings in many
transactions of shares indicating that the assessee has some intention of
purchasing and selling shares as a trader. Considering the totality and
peculiarity of the facts of the case, it was held that the assessee is neither
fully acting as a trader nor as investor. Therefore, a criterion was fixed for
determining as to when he is acting as trader and when as investor. Accordingly,
if shares are not held even, say, for a month, then the intention is clearly to
reap profit by acting as a trader and he did not intend to hold them in
investment portfolio. If a person intends to hold his purchases of shares as
investment, he would watch the fluctuation of rates in the market for which a
minimum time is necessary, which was estimated at one month. Where shares are
held for more than a month, they should be treated as investment and on their
sale short-term capital gains should be charged. When shares are held for less
than a month, gain on them should be treated as profit from business.

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S. 115JB—provision made for premium payable on mezzanine capital is an ascertained liability.

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Part
A: Reported Decisions

29 Srei International Finance Ltd. v. ACIT
123 ITD 480 (Del. ITAT)
A.Y. : 2001-02. Dated : 4-4-2008

 

S. 115JB—provision made for premium payable on mezzanine
capital is an ascertained liability.

Facts :

The assessee had debited a sum of Rs.88 lakhs in the profit &
loss account as provision for mezzanine capital. On enquiry, the assessee
provided a detailed explanation of the nature of this provision, that this
provision was made for redemption of unsecured bonds in the nature of mezzanine
capital (Tier II) and was provided over the tenure of bond. The assessee also
submitted that the amount of provision is ascertained at the time of issue of
bonds and therefore the liability is ascertained liability, thus allowable
u/s.115JB. However, the AO disallowed the same holding it as unascertained
liability. The CIT(A) allowed the same on the reasoning that the bonds issued by
the company would earn annual interest for the bond holder. The bond holder was
also required to be paid premium and face value. The premium was to be paid in
equal instalments spread over the tenure of bonds. The provision of Rs.88 lakhs
related to premium payable in respect of previous year under consideration. The
CIT(A) further observed that the face value of the bond is known and amount of
premium and tenure of bond is also fixed. Therefore, it cannot be said the
premium payable on bonds is incapable of being computed in a scientific manner.
Accordingly addition was deleted.

Held :

The Tribunal held that there was a scientific method of
calculation of liability on account of premium on mezzanine capital. Therefore,
it cannot be said that the liability was not an ascertained liability.

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Notification No. 42/2010 — Service Tax, dated 28-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

86 Notification No. 42/2010 — Service Tax, dated 28-6-2010.

W.e.f. 1-7-2010, by this Notification the Central Government
has exempted taxable services of commercial or industrial construction when
provided wholly within the airport.

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Notification No. 41/2010 — Service Tax, dated 28-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

85 Notification No. 41/2010 — Service Tax, dated 28-6-2010.

W.e.f. 1-7-2010, by this Notification taxable services as
enlisted in the Notification have been exempted when provided wholly within the
port or other port or airport.

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Notification No. 39/2010 — Service Tax, dated 28-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

84 Notification No. 39/2010 — Service Tax, dated 28-6-2010.

W.e.f. 1-7-2010, by this Notification Service Tax Rules, 1994
have been amended to provide in respect of services of transportation of
passengers by air, an invoice or bill or challan shall include ticket in any
form.

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Notification No. 38/2010 — Service Tax, dated 28-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

83 Notification No. 38/2010 — Service Tax, dated 28-6-2010.

W.e.f. 1-7-2010, by this Notification commercial or
industrial construction services provided wholly within the port or other port
for construction, repair, alteration and renovation of wharves, quays, docks,
stages, jetties, piers and railways have been exempted.

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Notification No. 37/2010 — Service Tax, dated 28-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

82 Notification No. 37/2010 — Service Tax, dated 28-6-2010.

This Notification has amended the principal Notification
17/2009 — Service Tax, dated 7th July, 2009 (as lastly amended by Notification
No. 40/2009 — Service Tax, dated 30th September, 2009) by inserting the new
entry No. 18 to grant exemption to service provided by airport authority or any
other person in any airport in respect of the export of the goods.

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Notification No. 36/2010 — Service Tax, dated 28-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

81 Notification No. 36/2010 — Service Tax, dated 28-6-2010.

Finance Act, 2010 has brought in the net of service tax eight
new services and has modified the scope of nine existing services. Since these
changes become effective from 1-7-2010, activities that are covered under
taxable service categories due to such additions or modifications, would attract
service tax from this date. This Notification exempts service tax on the partial
or full amount received in advance by the service provider before 1-7-2010 in
respect of services that have become taxable from that date if in respect of
such advances such taxable services are provided after that date. However this
exemption would not apply to commercial training or coaching services and
renting of immovable property service.

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S. 48 r.w. S. 147 — Capital gain to be taxed on basis of provisions of S. 48 and not on basis of fair market value as determined by valuation officer — assessment on the basis of DVO report not permissible.

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 Part A — Reported Decisions



 


46 (2008) 22 SOT 156 (Delhi)

Tej Pratap Singh v. ACIT

ITA No. 4601 (Del.) of 2004

A.Y. 1999-2000. Dated : 31-12-2007

S. 48 read with S. 147 of the Income-tax Act, 1961 — Capital
gain is to be computed and taxed on the basis of provisions contained u/s.48 and
it cannot be computed on the basis of fair market value of asset as determined
by Valuation Officer. Therefore, assessment cannot be reopened for taxing
capital gain in respect of an asset on basis of market value of asset as
estimated by DVO.

 

The return filed by the assessee was processed u/s.143(1)(a)
by the Assessing Officer. Subsequently, the Assessing Officer reopened the said
assessment of the assessee for the reason that the valuation of the land was
estimated by the DVO at Rs.2,73,281 as against Rs.50,000 shown by the assessee
and, thus, the income chargeable to tax had escaped assessment for the A.Y.
1999-2000.

 

The Assessing Officer completed the reassessment proceedings
by calculating capital gains based on the fair market value as determined by the
DVO. The CIT(A) confirmed the computation done by the Assessing Officer.

 

The Tribunal ruled in the assessee’s favour. The Tribunal
noted as under :

(a) A perusal of the reasons recorded for the reopening
indicates that the belief of the Assessing Officer regarding escapement of the
income of the assessee is based only on the opinion of
the Valuation Officer. It is also found that before making reference no
material was examined by him. He did not see any other material except the
valuation report. Thus, it is clear that the Assessing Officer has not made
any judicial application of mind for reopening the assessment. He made no
enquiry from the assessee or from any other source, nor examined the books of
account of the assessee before doing so.

(b) In view of the above facts, the reference made to the
Valuation Officer was itself illegal and consequently non est. When the
reference itself is illegal and non est in law, the report submitted in such
reference, consequently, cannot be relied upon to initiate reassessment
proceedings. It was so held by the Rajasthan High Court in the case of
Brig. B. Lall v. ITO, (1981) 127 ITR 308. In the case of Bhagwandas
Jain v. Dy. CIT, (2000) 246 ITR 632, the M.P. High Court, after following
the decision of the Rajasthan High Court in the case of Brig. B. Lall (supra),
held that reopening of the assessment on the basis of valuation report is not
valid.

(c) On examination of S. 48, it is clear that the capital
gain is to be computed by deducting from the ‘full value’ of the consideration
received or accruing as a result of the transfer of the capital asset the cost
of acquisition and expenditure incurred in connection with the transfer. The
expression ‘full value of the consideration’ does not mean ‘market value’ or
‘fair market value’ of the asset transferred. Hence, capital gain tax cannot
be computed and levied with reference to the market value determined on the
basis of valuation report.

(d) The Delhi Bench of the ITAT in the case of Ashok
Soni v. ITO, (2006) 10 SOT 39 (URO), after following the decisions of the
Supreme Court in the cases of K. P. Verghese v. ITO, (1981) 131 ITR 597
and CIT v. George Henderson & Co. Ltd., (1967) 66 ITR 622 (SC) and
various other authorities, has observed as under :

“In the absence of any material with the Assessing Officer
to show that the assessee has received more amount than the consideration
shown in the concerned document, the action of the Assessing Officer in
substituting the full value of consideration by the fair market value as
stated by the Departmental Valuation Officer in his report for computation of
capital gains was not valid.”

(e) The valuation report is an expert opinion at the most.
In relation to the transaction of transfer such report cannot be treated to be
proof of the fact that there is some underhand dealing and consideration has
passed more than what is disclosed.

 

 

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S. 54 — Where several flats in same building and contiguous with each other, treated as one house for purposes of S. 54.

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 Part A — Reported Decisions



45 (2008) 22 SOT 58 (Hyd.)

Prabhandam Prakash v. ITO

ITA No. 147 (Hyd.) of 2007

A.Y. 2001-02. Dated : 25-1-2008

S. 54 of the Income-tax Act, 1961 — Where several flats are
purchased in same building and are contiguous with each other, they would be
treated as one house and not several houses for purposes of S. 54.

 

For the relevant A.Y., the assessee claimed exemption
u/s.54/54F in respect of investment in 3 adjoining flats on the same floor and
one flat on another floor. Two of these flats were occupied by the assessee and
the other two flats were let out.

 

The Assessing Officer denied the exemption on the ground that
all the flats were independent, having separate kitchens and with no
inter-connection. The CIT(A) upheld the disallowance.

 

The Tribunal allowed the exemption to the assessee in respect
of the 2 flats occupied by him after considering the decisions in the following
cases :

(a) Shiv Narain Chaudhari v. CWT, (1977) 108 ITR 104
(All.)

(b) B. B. Sarkar v. CIT, (1981) 132 ITR 150 (Cal.)/7
Taxman 239

(c) K. G. Vyas v. Seventh ITO, (1986) 16 ITD 195 (Bom.)

(d) CIT v. Kodandas Chanchlomal, (1985) 155 ITR
273/23 Taxman 579

(e) D. Anand Basappa v. ITO, (2004) 91 ITD 53
(Bang.)

(f) Smt. Hansa Bai Sanghi v. ITO, (2004) 89 ITD 239
(Bang.)

 


The Tribunal noted as under :

1. Where several flats are purchased in the same building
and are contiguous to each other, they would be treated as one house and not
as several houses. Whether one or more municipal numbers are given is of no
consequence. The purpose is to see whether the assessee and his family are
using those several dwelling units for their residence or not.

2. However, where the assessee, after acquiring the new
property has not put it to use for his own residence but has let it out, it
means that it was not meant for immediate residence. In the present case, out
of the four flats acquired, two flats on the first floor were occupied by the
assessee and the remaining two were let out. Therefore, respectfully following
the judgment of the Gujarat High Court in the case of Kodandas Chanchlomal (supra),
we hold that the assessee be given pro rata exemption in respect of the
two flats occupied by him.


 

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S. 195 — Interest payable for failure to deduct tax at source only on sum not paid and not on sum deductible

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 Part A — Reported Decisions



44 (2008) 300 ITR (AT) 317 (Bang.)

Mrs. Meena S. Patil v. ACIT (Intl. Taxation)

ITA No. 224 (Bang.) of 2006

A.Y. 2002-03. Dated : 29-3-2007

S. 195, S. 201(1A) — Assessee purchased immovable property
from a non-resident — Failure to deduct tax u/s.195 — Sum deductible calculated
at rates in force much higher than tax actually payable by seller according to
assessment order — Interest payable for failure to deduct tax at source only on
sum not paid and not on sum deductible.

 

Facts :

The assessee purchased immovable property in Bangalore,
paying a sum of Rs.25,00,000 on March 05, 2001 and the balance sale
consideration of Rs.75,00,000 at the time of registration of the sale deed,
i.e., October 23, 2001, but failed to deduct TDS on such payments made. The
seller paid an advance tax of Rs.4,25,126 and filed a return on July 18, 2002,
in which long-term capital gains of Rs.16,80,782 were disclosed in respect of
the property purchased by the assessee. The seller filed a revised return on
March 23, 2003, declaring an income of Rs.62,28,370 and also paid interest
u/s.234B and u/s.234C of the Income-tax Act, 1961. The total amount paid was
Rs.10,30,674. The assessee received an order S. 201(1A), by which liability of
interest of Rs.75,560 was imposed. The assessee filed an appeal and the
Commissioner (Appeals) by order dated March 31, 2004, cancelled the order
u/s.201(1A). The Assessing Officer passed a fresh order u/s.201(1A) on October
20, 2004, by which a demand of Rs.4,78,640 of interest up to October 31, 2004
was raised. The assessee filed an appeal against this order which was dismissed
by the Commissioner (Appeals).

 

On appeal to the ITAT, the Tribunal held the following on
various grounds of appeal :

Ground no. 1 :

As per the assessee, the AO was not competent to pass an
order u/s.201(1A) in October, 2004, especially when the earlier order was
cancelled by CIT(A) vide order in March, 2004.

 

While placing reliance on Ashok & Co. v. CIT, (1992)
195 ITR 786 (Karn.) and VLS Finance Ltd. v. CIT, (2007) 289 ITR 286
(Del.), it was held that CIT(A), by order dated 31st March 2004, cancelled the
order as according to him the principles of natural justice were not followed
and it was unnecessary to mention that the order may be remanded. Thus, the AO
was competent to pass a fresh order.

 

Ground no. 2 :

The applicability of S. 195 — Held that the agreement of sale
of the property clearly mentioned that the sellers were non-resident as the
address mentioned in the agreement showed that they were residing abroad. There
was no evidence to suggest that the assessee was in a belief that the sellers
were residents. Hence, the assessee was liable to deduct tax u/s.195.

 

Ground no. 3 :

Period for which interest u/s.201(1A) is to be levied and the
amount on which it has to be levied — Held that interest u/s.201(1A) can be
charged only up to the date of payment of tax by payee. Further, the total tax
payable by seller was Rs.12,74,629 of which Rs.4,25,126 was paid in advance, and
hence the tax payable was only 8,49,503. However, the total tax deductible at
the rates in force was 19,38,000.

 

Held that when the Revenue was not paying any interest to the
deductee on the amount so deductible by charging interest from the deductor,
then it was not justifiable to charge interest from the deductor. Interest was
chargeable on the amount of tax actually paid. The wording in S. 201(1A) is that
interest to be charged on such tax which was not paid. Accordingly interest
u/s.201(1A) was chargeable on the sum of Rs.8,49,503 from the date on which the
tax was deductible.

 

Cases referred to :



(i) CIT v. Adidas India Marketing Pvt. Ltd., (2007)
288 ITR 379 (Delhi) and many others.


 

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II. Travelling expenses incurred by non-employees allowable if for business. 691 IV. Sponsorship, prize money revenue expenditure for business purposes. 691 VI. Repairs of building owned by assessee used by directors for residence, allowable expenditu

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 Part A — Reported Decisions


43 (2008) 112 ITD 57 (Kol.) (SB)

JCIT, Special Range 16 Kolkata v. ITC Ltd.

A.Y. 1997-98. Dated : 7-9-2007

 

In the reported case the Tribunal has considered various
grounds which have been described in the case as fact-I, fact-II and so on. Out
of XI grounds, the following grounds appear to be more relevant and important.

 

Fact-II :

Travelling expenses incurred even by non-employees is
allowable if it is for the business.

 

The assessee-company claimed deduction of Rs.40.91 crores
towards travelling expenditure, out of which Rs.58.30 lakhs was incurred in
connection with travelling of auditors, retainers, consultants, etc. The company
disallowed on its own Rs.8.92 lakhs under Rule 6D. The AO disallowed balance
Rs.49.38 lakhs, as it had not been incurred by the employees or executives of
the company. He further disallowed 1% of the claim of Rs.33.72 lakhs over and
above the said disallowance on account of possibility of personal and pleasure
trips. The CIT(A) deleted the addition. On Revenue’s appeal, the ITAT upheld the
order of CIT(A) on the following grounds :

(1) The assessee had various factories, godowns, stock
points apart from branches and offices at various locations.

(2) The travelling expenditure was very much incurred for
the business.

(3) It is immaterial whether it is incurred by the employee
or non-employee.

(4) The AO had nowhere brought on record that the
expenditure was not incurred for the business.

 


Cases referred to :



(i) ACIT v. Perfect Project Ltd., (2002) 253 ITR 16
(AT) Calcutta Bench

(ii) Sayaji Iron & Engg. Co. v. CIT, (2002) 253 ITR
749 (Guj.)

(iii) Dinesh Mills Ltd. v. CIT, (2002) 254 ITR 673
and a few more.

 


Fact-IV :

Expenditure for sponsorship, prize money, etc. is revenue
expenditure for the purposes of business.

 

Payments made to clubs by the assessee included expenditure
for sponsorship, prize money, etc. The AO disallowed the same, observing that
the same was not incidental to the business. The CIT(A) deleted the addition by
following the earlier appellate order for A.Y. 1994-95. On Departmental appeal,
the ITAT upheld the order of CIT(A) and allowed the expenditure on the following
grounds :

(1) The assessee submitted proper details in respect of the
expenditure which was incurred by it for sponsorship of events.

(2) Nowadays it is very common to sponsor some sports or
events to advertise the products of the company or for the company’s corporate
image.

(3) The AO has not given any congent reason for disallowing
the expenditure.

(4) The said expenditure is very much revenue expenditure
for the purposes of business.

 


Case referred to :



(i) CIT v. Delhi Cloth & General Mills Co., (1999)
240 ITR 9 (Delhi).

 


Fact-VI :

Repairs to the building owned by the assessee-company used by
its directors for residence is an allowable expenditure. Secondly, expenditure
on reinstallation of machinery from one factory to another factory is not
capital expenditure.

 


(A) The assessee-company incurred expenditure on repairs to
buildings, which included repairs to company flats. The said flats were
exclusively used by the directors and the higher executives of the company.
The AO disallowed 25% of such claim on the ground that the personal element in
the expenditure could not be ruled out.

(B) The assessee-company also incurred expenditure on
repairs to machinery, which included expenditure on reinstallation of Loga
machine at Bangalore factory. The said machine was brought from company’s
Saharanpur factory. The AO disallowed the same as it was a capital
expenditure. The CIT(A) deleted both the additions. On Revenue’s appeal, the
ITAT upheld the CIT(A)’s order and referred to the following :


(A) (1) The flats were owned by the assessee company
and were utilised by the assessee-company’s directors and executives.

(2) Hence, the expenditure incurred on maintenance
cannot be said to be personal nature just because the flats are occupied
by the directors for their residence.

(3) The expenditure incurred by the company for
personal benefit of directors cannot be considered as personal expenditure
of assessee company, since the assessee and the employees are two
different entities.

 




Regarding the installation expenditure of machinery it held
that :



(B) (1) The machinery from Saharanpur has been shifted
to Bangalore unit for its effective utilisation.

(2) This has not resulted into any addition to the
assets of the assessee-company and hence it cannot be considered as
capital expenditure.

 




Cases referred to :



(i) Sitapur Sugar Works Ltd. v. CIT, (1963) 49 ITR
160

(ii) Otis Elavators Co. (India) Ltd. v. CIT, (1992)
195 ITR 682

 


Fact-IX :

S. 36(1)(iii) – The interest on borrowed funds is an allowable expenditure if the assessee has sufficient own funds to justify interest-free advances to sister concerns.

The assessee borrowed money and claimed deduction of interest paid thereon. The assessee had also made interest-free advances to its subsidiaries. The AO disallowed the interest by calculating notional interest @ 18% p.a. on loans to subsidiaries, observing that interest-free advances were made to subsidiaries out of borrowed funds. The CIT(A) deleted the addition. On Departmental appeal, the ITAT upheld the order of CIT(A) and allowed the interest on the following grounds:

  • The AO has not made a case that these advances were not made in the course of business for commercial expediency and for the purpose of business.
  • The assessee is making such interest-free advances to its sister concerns since long, during the regular course of business.
  • The assessee has shown substantial profit to justify the claim of the assessee to have made advances out of own fund.


Cases referred to:
CIT v. Britannia Industries Ltd., (2006) 280 ITR 525 and a few more.

S. 54EC — Exemption is allowable even though investment of gains in specified bonds is done in joint names

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5 (2008) 300 ITR (AT) 410 (Delhi)


ITO v. Smt. Saraswati Ramanathan

A.Y. : 2004-05. Dated : 19-7-2007

S. 54EC — Exemption is allowable even though investment of
gains in specified bonds is done in joint names.

 

Facts :

The assessee invested proceeds of sale of shares in Rural
Electrification Bonds. The investment was in joint names of herself and her son.
The son did not contribute anything to the investment. The AO denied the
exemption, on the ground that the investment was made in joint names which was
not permitted by the Section. On appeal, the CIT(A) held that there is no such
requirement in the section. Investment in joint names is just a matter of
convenience and hence allowed the exemption. On departmental appeal, the ITAT
dismissed the appeal of the Department and allowed the exemption on the
following grounds :

1. There is no such requirement in the Section that the
investment should be in the name of the assessee.

2. The main object of investment in such corporations is
the development of infrastructure.

3. Once the investment is made in these corporations for
infrastructural development, it would hardly matter whether the investment is
made by the assessee exclusively or in the joint names of the assessee and
somebody else.

4. In the above case, the name of the son was included for
convenience in future since the assessee was 69 years old. Further, the son
also did not contribute anything to the investment.

5. The ITAT also relied on the decision of ITAT, Mumbai
Bench in the case of Joint CIT v. Smt. Armeda K. Bhaya, (2005) 95 ITD
313 wherein the exemption u/s.54 was allowed even though the assessee
purchased the flat in the names of himself, his father and mother.

 


Cases referred to :



(i) CGT v. N. S. Getti Chettiar, (1971) 82 ITR 599
(SC) (para 4)

(ii) CIT (Joint) v. Armeda K. Bhaya (Smt.), (2005)
95 ITD 313 (Mumbai) (para 5)

(iii) R. B. Jodha Mal Kuthiala v. CIT, (1971) 82 ITR 570 (SC) (para
4)

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S. 69 — On-money received on surrender of leasehold rights in agricultural land is capital receipt and cannot be brought to tax u/s.69 as income from undisclosed sources & S. 45 r/w S. 55 — The gain on surrender of tenancy right could not be taxed u/s.45

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 4 (2008) 114 ITD 127 (Ahd.)


ITO v. Heena Agriculture (P) Ltd.

A.Y. 1992-93. Dated : 8-9-2006

S. 69 — On-money received on surrender of leasehold rights in
agricultural land cannot be brought to tax u/s.69 as income from undisclosed
sources —It is a capital receipt.

 

S. 45 r/w S. 55 — The gain on surrender of tenancy right
could not be taxed u/s.45, for the period prior to the amendment brought into
statute with effect from 1-4-1995, in the provisions of S. 55(2).

 

Facts :

The assessee had acquired leasehold rights for a period of 98
years in an agricultural land. In the relevant assessment year, it surrendered
the said rights in favour of the original owner allegedly without any
consideration. However, during the course of search, the director of the
assessee company had given a statement on oath that he had received a sum of
Rs.30 lakhs as on-money on behalf of the assessee on surrendering the leasehold
rights in a land. The sum of Rs.30 lakhs had been brought to tax under these
circumstances, under the provisions of S. 69.

 

On appeal, the CIT(A) deleted the addition.

 

On Revenue’s appeal, the Tribunal held the following :

1. The amount had been taxed on the basis of statement of
the director recorded u/s.132(4) and there was no evidence on record to show
that the said amount related to any other source. Therefore, the amount had
been rightly treated by the CIT(A) as being related to the surrender of
leasehold rights of subject agricultural land. Therefore, addition could not
be made u/s.69 because subject sum was not an un explained investment as
rightly held by the CIT(A).

2. There cannot be any dispute on the argument that
leasehold rights constitute capital asset. However, there was no material on
record to suggest that the assessee had incurred any cost for acquiring the
said tenancy right. The contention of the assessee in this regard was that
there being no cost of acquisition of tenancy right, the gain arising
therefrom cannot be taxed as capital gain as per decision of SC in the case of
CIT v. B. C. Srinivasa Shetty. Following the said case, the Special
Bench in the case of Cadell Weaving Mill Co. (P) Ltd. has held that the amount
received for surrender of tenancy right is not liable for capital gains tax
prior to the amendment brought into the statute in the provisions of S. 55(2)
w.e.f. 1-4-1995.

3. In view of the said legal and factual aspects, the
Commissioner (Appeals) was right in holding that the amount of Rs.30 lakhs
could not be brought to tax, his order is upheld and the appeal of the
Department is dismissed.

 


Cases referred to :



(i) Cadell Weaving Mill Co. (P.) Ltd v. ACIT, (1955)
55 ITD 137 (Bom.) (SB),

(ii) Rajendra Mining Syndicate v. CIT, (1961) 43 ITR
460 (AP),

(iii) CIT v. Sandu Bros. Chembur (P.) Ltd., (2005)
273 ITR 1,

(iv) CIT v. B. C. Srinivasa Shetty, (1981) 128 ITR
294.

 

 

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S. 253 — Faulty internal working in a department not sufficient cause for condoning delay in filing appeal — Department’s contention of communication gap could not be accepted and the appeal being time barred by limitation was to be dismissed

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 3 (2008) 114 ITD 121 (Chd.)


ACIT v. Ranbir Chemicals Industries (P) Ltd.

A.Y. : 1994-95. Dated : 25-2-2007

S. 253 — Faulty internal working in a department cannot be
considered as a sufficient cause for condoning delay in filing appeal — Against
the order of the CIT(A), Revenue filed appeal after 8 years and 47 days, and it
was submitted that the delay was on account of communication gap between the
officers of the Department, and hence should be condoned — Based on the facts,
the Department’s contention could not be accepted and the appeal being time
barred by limitation was to be dismissed in limine.

 

Facts :

For the A.Y. 1994-95, the Commissioner (Appeals) vide an
order dated 8th January 1998, allowed the assessee’s claim for depreciation.
Against this order, the Revenue filed an appeal before the Tribunal after a
delay of 8 years and 47 days, along with an application for condonation of
delay, on the ground that the instant appeal was not filed in time, possibly due
to communication gap between the office of the Commissioner (Appeals) and the
Assessing Officer.

 

Based on the facts of the case, the Tribunal made the
following observations :

1. No reasonable cause had been explained by the Department
for filing the appeal belatedly. Even when the Commissioner (Appeals) in her
order dated 28th July 1998, and the Tribunal in its order dated 23rd September
2003, for the A.Y. 1995-96 pointed out that no appeal had been filed by the
Department against the order of the Commissioner (Appeals) for the A.Y.
1994-95, no action was taken by the Department.

2. It could, therefore, not be believed that there was a
communication gap in the Department which had been claimed as main reason for
filing the appeal belatedly, since the fact was in the notice of the
Department in the year 1998 itself when the order of the Commissioner
(Appeals) was received by the Department. This contention of the Department
could not be accepted and faulty internal working in the Department cannot be
considered to be a sufficient cause for condoning the delay.

3. The appeal was therefore, barred by limitation and
accordingly was to be dismissed in limine.

 


Cases relied on :



(i) J. B Advani & Co. (P.) Ltd. v. R. D. Shah, CIT
(1969) 72 ITR 395 (SC),

(ii) CIT v. Grindlays Bank Ltd., (1994) 208 ITR 700
(Cal.).

(iii) CIT v. Ram Mohan Kabra, (2002) 257 ITR 773
(P&H)

(iv) Soorjamull Nagarmal v. Golden Fibre & Products,
AIR 1969 (Cal.) 381

 

 

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S. 69 — Unexplained investments — Seizure of silver bullion in search explained as inherited by the assessee’s two sons from assessee’s mother — wnership affirmed by the assessee’s sons — Held, the addition in the hands of the assessee was not justified,

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 2 (2008) 114 ITD 1 (Agra) (TM)


Kanhaiyalal Agarwal v. ACIT

A.Y. : Block period 1-4-1996 to 3-11-1996

Dated : 7-11-2007

S. 69 — Unexplained investments — In a search operation
conducted at assessee’s business premises, silver bullion weighing 265.9 kgs was
seized —Assessee explained that 240 kgs of the same was inherited by the
assessee’s two sons from assessee’s mother — Ownership of the bullion was
affirmed by the assessee’s sons — Held, the addition on this account in the
hands of the assessee was not justified, and same had to be considered in the
hands of his sons who were assessees in their own right.


 

Facts :

During the course of a search operation u/s.132(1) conducted
at the business premises of the assessee, silver bullion weighing 265.9 kgs was
seized. The assessee explained that 240 kgs of the silver bullion originally
belonged to his father, who was carrying on silver bullion business, and he gave
the same to his wife prior to his death. The same then continued to remain in
the possession of the assessee’s mother as her property. The silver bullion was
further inherited by the assessee’s sons from their grandmother, and was found
at their residence. The Assistant Commissioner did not accept the explanation
and made the addition as unexplained investment in the hands of the assessee.

 

On assessee’s appeal before the Tribunal, the judicial member
accepted the assessee’s explanation, and deleted the addition. However, the
accountant member opined that the AO was correct in making the addition. Owing
to the difference in opinion, the matter was referred to Third Member.

 

The Third Member observed that :

1. On consideration of the rival submissions made, and the
material brought on record, it was clear that the silver bullion was seized
from the house belonging to the two sons of the assessee, who claimed
ownership of the same. Though there was no direct evidence to prove the factum
of gift of the silver bullion of 240 kgs by the assessee’s mother to her
grandsons, as no Will was executed by her, but that could, however, be the
situation because of the common features prevailing in the Indian families.

2. Based on the circumstantial evidence and material on
record, i.e., the fact that the assessee’s father was carrying on
silver business, and before his death, 240 kgs of silver bullion was handed
over to his wife, the claim of the assessee needs to be accepted.

3. The suspicion entertained by the AO that the assessee’s
mother had handed over the said bullion received from her husband to the
assessee to be distributed equally among his two sons stood explained by the
affidavit stating that she resided with the assessee and his family, who had
taken care of her in old age.

4. The ownership of the bullion was affirmed by the
assessee’s sons. Non-disclosure of the silver bullion by the two sons in their
wealth tax returns was stated to be not liable to tax under the Wealth Tax
Act.

5. On these facts and circumstances, the addition on
account of the silver bullion made in the hands of the assessee to the extent
of 240 kgs of silver might not be justified, and the same had to be considered
in the hands of his sons who were assessees in their own rights.

 


Cases referred to :



(i) CIT v. Smt. Jayalaxmi Devrajan, (2006) 286 ITR
412 (Ker.),

(ii) CIT v. Durga Prasad More, (1971) 82 ITR 540
(SC),

(iii) Mehta Parikh & Co. v. CIT, (1956) 30 ITR 181
(SC).

 

 

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‘Provision for expenses’ on project claimed by estimating liability, substantial part of which incurred within six months from the end of previous year — Balance amount offered for taxation u/s.41(1) — Held, the estimation of liability was reasonable, an

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 1 (2008) 114 ITD 1 (Delhi)


Dy. CIT v. Lurgi India Co. Ltd.

A.Ys. : 2000-01 & 2001-02. Dated : 24-8-2007

Assessee debited certain amount to project expenses as
‘provision for expenses’ and claimed the same u/s.37(1) — Assessing Officer
disallowed the said amount on the grounds that provision was made to meet
certain anticipated expenditure which had not accrued till last date of relevant
previous year. It was found that assessee had estimated its liability in respect
of two projects at certain amount, a substantial part of which was incurred
within six months from the end of previous year — Further the assessee submitted
that the balance amount has been offered for taxation u/s.41(1) — Held, based on
the facts, the estimation of liability by the assessee was a reasonable one, and
the liability was an accrued liability.

 

The assessee had claimed Rs.13,26,724 as ‘provision for
expenses’ in respect of two projects. The Assessing Officer disallowed the
amount, holding that the provision was made to meet certain anticipated
expenditure which had not accrued till the last day of the previous year. Before
the CIT(A), the assessee pointed out that out of the said amount, a sum of
Rs.11,67,210 had actually been utilised or paid before 30-9-2000, and the
balance was offered to tax in the subsequent assessment year. The Commissioner
(Appeals) accepted the above submissions of the assessee, and accordingly
deleted the additions.

 

On Revenue’s appeal, the Tribunal held that :

1. Any liability which is fastened on the assessee in the
case of a completed project, accrues or arises on the date when the project is
completed.

2. It might be difficult at that point to exactly determine
the amount of liability. However, if such amount of liability can be estimated
on a reasonable basis, then such a liability would be an accrued liability and
not a contingent or expected liability. The assessee had estimated its
liability in respect of the two projects at Rs.13,24,724, against which an
expenditure of Rs.11,67,210 had been incurred within six months from the end
of the previous year. Based on the above facts, the estimation of liability by
the assessee could be termed as reasonable, and therefore subject to
verification of the balance amount being offered for taxation, the liability
was an accrued liability.

3. In case the balance amount had been offered for tax in
the subsequent year, then the expenditure represented deductible expenditure.
However, if it was found that the balance amount had not been offered for tax
in the subsequent year, the allowance would be restricted to the expenditure
actually incurred, i.e., Rs.11,67,210.

 


Cases referred to :



(i) Handicrafts & Handloom Exports Corporation of India
v. CIT, (1983) 140 ITR 532,

(ii) K. L. Agarwal v. CIT, (1991) 190 ITR 303,

(iii) CIT v. Indian Textile Engineers (P.) Ltd.,
(1983) 141 ITR 69,

(iv) CIT v. Girharram Hariram Bhagat, (1985) 154 ITR
10.

 

 

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New returns of income notified for A.Y. 2008-09 : Income-tax (Sixth Amendment) Rules, 2008 dated 28-3-2008.

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22 New returns of income notified for A.Y.
2008-09 : Income-tax (Sixth Amendment) Rules, 2008 dated 28-3-2008.


The CBDT has notified new forms of return of income for A.Y.
2008-09 along with the instructions for filling these forms.

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S. 11 r.w. S. 2(15) and S. 13 — Objects for benefit to a section of public are charitable

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19 (2008) 111 ITD 238 (Rajkot) (SMC)


Rajkot Visha Shrimali Jain Samaj v. ITO

A.Y. 2002-2003. Dated : 1-6-2006

S. 11 r.w. S. 2(15) and S. 13 — In order to serve a
charitable purpose, it is not necessary that the object of the assessee trust
should be to benefit the whole of mankind or all persons in a country. It is
sufficient if the intention is to provide benefit to a section of the public as
distinguished from specified individual.

Facts :

The assessee-trust was incorporated on 11-8-1960. The
charitable nature of the activities of the trust was limited to Vishwa Shrimali
Jains, which was a small community. For A.Y. 2002-03, it claimed deduction of
expenditure incurred by it towards earthquake relief. The AO as well as the
CIT(A) disallowed the claim u/s.13(1)(b) on the ground that :

(1) the assessee’s charitable nature of activities was
limited to the benefit of a small religious community;

(2) the CIT(A) also declined to accept the assessee’s
contention that the trust is incorporated before the commencement of the Act,
on the ground that this was an additional ground and this plea was not before
the AO. It is pertinent to note that the documentary evidence with regard to
incorporation was very much on record. On further appeal, the ITAT allowed the
exemption by referring to the following :

(a) An object which is beneficial to a section of public is
an object of general public utility.

(b) The section of the community sought to be benefited
must be sufficiently definite and/or identifiable by some common quality of
public or impersonal nature.

(c) The additional ground which raises a purely legal plea
and which goes to the very root of the matter, the same deserves to be
admitted.


Cases referred to :



(i) National Thermal Power Co. Ltd. v. CIT, (1998)
229 ITR 383 (SC)

(ii) CIT v. Maheshwari Agarwal Marwari Panchayat, (1982) 136 ITR 556
10 Taxman 183 (MP)





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S. 115JB — Extra-ordinary items in profit and loss a/c to be deducted for MAT

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18 (2008) 111 ITD 124 (Hyd.)


Gulf Oil Corporation Ltd. v. ACIT,

Circle-1(4), Hyderabad

A.Y. 2002-2003. Dated : 21-9-2006

S. 115 JB — Extra-ordinary items appearing in profit and loss
a/c to be deducted in computing MAT liability.

The assessee company returned a loss of Rs.34.27 crores.
Provisions of S. 115JB were attracted. The as-sessee had shown two
extra-ordinary items — credit of write-offs/provisions : Rs.3.06 lacs and debit
of Advisory fee for sale of investments : Rs.109.96 lacs — in the P & L A/c. It
was contended by the Revenue that these items are generally classified as part
of P & L Appropriation A/c and hence should be ignored while computing MAT
liability. The assessee computed MAT liability on Rs.978.55 lacs, whereas the
Revenue contended that it should be on Rs.1085.45 lacs. (Ignoring the two referred above).

The learned CIT(A) confirmed the addition, on the ground that
the above items pertain to previous year. The Tribunal allowed the appeal and
referred to the following :

(a) Part-II and Part-III of Schedule VI does not make any
distinction between P & L A/c and P & L Appropriation A/c. It is a manner of
presentation.

(b) Generally, P & L Appropriation A/c includes items of
extra-ordinary nature, dividend, etc. However, as per schedule VI to Companies
Act, 1956, all these items form part of P & L A/c.

(c) The starting point for computing book profits should be
Profit & Loss A/c carried to balance sheet. From this amount, the various
adjustments (additions and deductions) as stated in S. 115 JB should be made.
Explanation to S. 115 JB does not provide for increase/decrease of
extra-ordinary items.

(d) AS-5 merely states that prior period expenses and
extra-ordinary items should be shown separately to know their impact on
operating results. It does not say that these items do not form part of P & L
A/c.


Cases referred :



(i) Apollo Tyres Ltd. v. CIT, (2002) 255 ITR 273

(ii) Bastar Wood Products Ltd. v. Dy. CIT, (1995) 78
Taxman 126

(iii) NSC Estates (P) Ltd. v. Dy. CIT, (2002) 125
Taxman 220







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Instruction No. 3/2011 (F. No. 279/MISC. 142/2007-ITJ) dated 9-2-2011 — Appeals and Revision of monetary limits for filing of appeals by the Department before Income-tax Appellate Tribunal, High Courts and Supreme Court — Section 268A of the Income-tax Ac

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Full texts of
relevant Notifications, Circulars and Forms are available on the BCAS website :
www.bcasonline.org

67 Instruction No. 3/2011 (F. No. 279/MISC. 142/2007-ITJ)
dated 9-2-2011 — Appeals and Revision of monetary limits for filing of appeals
by the Department before Income-tax Appellate Tribunal, High Courts and Supreme
Court — Section 268A of the Income-tax Act, 1961 — Measures for reducing
litigation (reproduced)

Reference is Invited to Board’s instruction No. 5/2008, dated
15-5-2008 wherein monetary limits and other conditions for filing Departmental
appeals (in income-tax matters) before the Appellate Tribunal, High Courts and
Supreme Court were specified.

2. In supersession of the above instruction, it has been
decided by the Board that Departmental appeals may be filed on merits before the
Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary
limits and conditions specified below.

3. Henceforth appeals shall not be filed in cases where the
tax effect does not exceed the monetary limits given hereunder :

Sr. No. Appeals in income-tax matters Monetary  limit
(in Rs.)
1. Appeal before Appellate
Tribunal 		3,00,000
2. Appeal u/s.260A before High
Court 		10,00,000
3. Appeal before Supreme Court
 25,00,000

It is clarified that an appeal should not be filed merely
because the tax effect in a case exceeds the monetary limits prescribed above.
Filing of appeal in such cases is to be decided on merits of the case.

4. For this purpose, ‘tax effect’ means the difference
between the tax on the total income assessed and the tax that would have been
chargeable had such total income been reduced by the amount of income in respect
of the issues against which appeal is intended to be filed (hereinafter referred
to as ‘disputed issues’). However, the tax will not include any interest
thereon, except where chargeability of interest itself is in dispute. In case
the chargeability of interest is the issue under dispute, the amount of interest
shall be the tax effect. In cases where returned loss is reduced or assessed as
income, the tax effect would include notional tax on disputed additions. In case
of penalty orders, the tax effect will mean quantum of penalty deleted or
reduced in the order to be appealed against.

5. The Assessing Officer shall calculate the tax effect
separately for every assessment year in respect of the disputed issues in the
case of every assessee. If, in the case of an assessee, the disputed issues
arise in more than one assessment year, appeal can be filed in respect of such
assessment year or years in which the tax effect in respect of the disputed
issues exceeds the monetary limit specified in paragraph 3. No appeal shall be
filed in respect of an assessment year or years in which the tax effect is less
than the monetary limit specified in paragraph 3. In other words, henceforth,
appeals can be filed only with reference to the tax effect in the relevant
assessment year. However, in case of a composite order of any High Court or
Appellate Authority, which involves more than one assessment year and common
issues in more than one assessment year, appeal shall be filed in respect of all
such assessment years even if the ‘tax effect’ is less than the prescribed
monetary limits in any of the year(s), if it is decided to file appeal in
respect of the year(s) in which ‘tax effect’ exceeds the monetary limit
prescribed. In case where a composite order/judgment involves more than one
assessee, each assessee shall be dealt with separately.

6. In a case where an appeal before a Tribunal or a Court is
not filed only on account of the tax effect being less than the monetary limit
specified above, the Commissioner of the Income Tax shall specifically record
that “even though the decision is not acceptable, appeal is not being filed only
on the consideration that the tax effect is less than the monetary limit
specified in this instruction”. Further, in such cases, there will be no
presumption that the Income Tax Department has acquiesced in the decision on the
disputed issues. The Income Tax Department shall not be precluded from filing an
appeal against the disputed issues in the case of the same assessee for any
other assessment year, or in the case of any other assessee for the same or any
other assessment year, if the tax effect exceeds the specified monetary limits.

7. In the past, a number of instances have come to the notice
of the Board, whereby an assessee has claimed relief from the Tribunal or the
Court only on the ground that the Department has implicitly accepted the
decision of the Tribunal or Court in the case of the assessee for any other
assessment year or in the case of any other assessee for the same or any other
assessment year, by not filing an appeal on the same disputed issues. The
Departmental representatives/counsels must make every effort to bring to the
notice of the Tribunal or the Court that the appeal in such cases was not filed
or not admitted only for the reason of the tax effect being less than the
specified monetary limit and, therefore, no inference should be drawn that the
decisions rendered therein were acceptable to the Department. Accordingly, they
should impress upon the Tribunal or the Court that such cases do not have any
precedent value. As the evidence of not filing appeal due to this instruction
may have to be produced in Courts, the judicial folders in the office of CsIT
must be maintained in a systemic manner for easy retrieval.

8. Adverse judgments relating to the following issues should
be contested on merits notwithstanding that the tax effect entailed is less than
the monetary limits specified in paragraph 3 above or there is no tax effect:


    a) Where the Constitutional validity of the provi-sions of an Act or Rule are under challenge, or

   b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
   c) Where Revenue Audit objection in the case has been accepted by the Department.

   9. The proposal for filing Special Leave Petition under Article 136 of the Constitution before the Supreme Court should, in all cases, be sent to the Directorate of Income-tax (Legal & Research), New Delhi and the decision to file Special Leave Petition shall be in consultation with the Ministry of Law and Justice.

10. The monetary limits specified in paragraph 3 above shall not apply to writ matters and direct tax matters other than Income-tax, filing of appeals in other direct tax matters shall continue to be governed by relevant provisions of the statute and rules. Further, filing of appeal in cases of Income-tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions u/s.12A of the Income-tax Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.

    This instruction will apply to appeals filed on or after?………?2011*. However, the cases where appeals have been filed before?…….?2011* will be governed by the instructions on this subject, operative at the time when such appeal was filed.

    This issues u/s.268A(1) of the Income-tax Act,1961.

*As clarified subsequently, these instructions will apply to appeals filed on or after 9th February, 2011.

Notification No. 35/2010 — Service Tax, dated 22-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

80 Notification No. 35/2010 — Service Tax, dated 22-6-2010.

By this Notification Central Government has amended the
Notification 9/2010 dated 27th February, 2010 to defer the levy of service tax
on taxable services provided by Government Railways to any person in relation to
transport of goods by rail to 1st January, 2011.

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S. 37 r.w. S. 43B — Interest on account of default in repaying interest-free sales tax loan is compensatory in nature and allowable — S. 43B are not applicable

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17 (2008) 111 ITD 1 (Hyd.)


Southern Electrodes Ltd. v. ACIT

A.Y. 2002-2003. Dated : 31-8-2006

S. 37 r.w. S. 43B of the Income-tax Act, 1961 — Interest
arising on account of default on part of the assessee in repaying interest-free
sales tax loan was compensatory in nature and was to be allowed u/s.37 and also
provisions of S. 43B are not applicable.

Facts :

The Govt. of Andhra Pradesh had given an interest-free sales
tax loan to the assessee company. When the loan was not repaid, interest was
charged to the assessee. The AO as well as the CIT(A) disallowed the said
interest on the following grounds :

(i) The assessee defaulted in repayment of loan and
interest is charged for non-payment of sales tax within the time allowed.

(ii) Interest charged is also in the nature of sales tax;
is penal and covered by S. 43B and hence not allowable.

On further appeal, the ITAT deleted the disallowance
referring to the following :


(a) The charging of interest in case of default is
automatic.

(b) The charging of interest is not within the discretion
of any authority.

(c) Interest payable is not an act of penal nature but it
is only compensatory in nature.



Cases referred to :



(i) Mewar Motors v. CIT, (2003) 260 ITR 218 (Raj.)

(ii) Swadeshi Cotton Mills Co. Ltd. v. CIT, (1998)
233 ITR 199 (SC)

(iii) Padmavati Raje Cotton Mills Ltd. (1999) 239
ITR 355 (Cal.)

(iv) Western Indian State Motors (1987) 167 ITR
395/31 Taxman 412 (Raj.) CIT v. Pheros & Co. (P.) Ltd., (1989) 178 ITR
472/44 Taxman 43 (Gauhati) and a few more.







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S. 147, S. 148 : (a) Notice not valid if issued on basis of transaction not made by assessee. 144 (b) Notice invalid if issued in status of individual while assessment in status of HUF

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16 (2007) 110 TTJ 834 (Del.) (TM)


Suraj Mal HUF v.
ITO

ITA No.1125 (Del.) of 2005

A.Y. 1996-97. Dated : 17-8-2007

S. 147 & 148 of the Income-tax Act, 1961 —




(a) Notice u/s.148 issued to the assessee on the
basis of a transaction which was made by some other person and not by the
assessee was not valid.


(b) Notice issued to the assessee in the status of
individual while the assessment was eventually made in the status of HUF.
Notice was invalid.


(c) After having issued notice u/s.148 to the
assessee as an individual, ITO had no jurisdiction to assess the HUF of the
assessee, even though the assessee had consented to assessment in the status
of HUF.



For A.Y. 1996-97, a notice u/s.147 was issued to Suraj Mal in
respect of land sold by him, in respect of which income from capital gains had
escaped assessment. The ITO, based on submissions made by Suraj Mal, passed
order u/s.148 in the name of Suraj Mal HUF. Before the CIT(A), the assessee
raised the issue that assessment was bad in law, as notice was issued in the
status of individual, whereas the assessment was made in the status of HUF. The
CIT(A), however, held that the Assessing Officer was fully justified in holding
the status of the assessee as that of HUF as against the claim of the status of
an individual.

The Tribunal held that the assessment was without
jurisdiction and could not be sustained. The Tribunal relied on the decisions in
the following cases :

(a) CIT v. K. Adinarayana Murty, (1967) 65 ITR 607
(SC)

(b) AAC v. Late B. Appaiah Naidu, 1974 CTR 147
(SC)/(1972) 84 ITR 259 (SC)


The Tribunal noted as under :

(a) The Impugned notice suffers from several legal
infirmities. In the first place, the transaction noticed related to sale of
some agricultural land sold to KS Ltd. not by the assessee. This is not the
transaction with which the assessee was connected. So, notice was issued in
respect of some other transaction carried out by some other person. Secondly,
the notice is admittedly issued to the assessee as individual. No notice was
issued to the HUF in which status the assessment was subsequently made. The
assessee has vehemently contended throughout that no notice u/s.148 was served
on the assessee. There is neither any finding, nor is there any material to
refute the claim of the assessee.

(b) Notices were issued without application of mind. It is
a settled law that there must be valid reasons, material and circumstances
leading to the belief that income had escaped assessment. Any good or bad
reason is not sufficient to sustain initiation of proceedings u/s.147/148 as
valid. Therefore, no valid proceedings were initiated u/s.147/148.

(c) The Income-tax Act recognises status of HUF different
from individual status of Karta of the HUF. The two are treated as different
legal entities. Therefore, it is necessary that notice u/s.148 should be sent
in a correct status, because jurisdiction to make assessment is assumed by
issuing valid notice.

(d) It is also settled law that assessment under the
Income-tax Act has to be made in accordance with statutory provisions and not
on agreement or consent of the assessee. Therefore, after having issued notice
u/s.148 to the individual, the ITO had no jurisdiction to assess HUF of the
assessee. He could assume jurisdiction by issuing valid notice u/s.148 after
satisfying conditions laid down u/s.147. This was not done and, therefore,
entire proceedings have to be held to be illegal and without jurisdiction.

(e) The Department cannot be permitted to change the status
from individual to HUF. In the first place, the Assessing Officer had no
jurisdiction to assess HUF, as he did not issue any notice u/s.147/148 in the
case of the HUF. This defect of jurisdiction could not be cured by obtaining
consent from the assessee.







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Instructions No. 2/2011 (F.No. 225/25/2010/ITA-II), dated 9-2-2011 — Processing of returns of A.Y. 2010-11 — Section 143 of the Income-tax Act, 1961 — Steps to —(reproduced)

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Full texts of
relevant Notifications, Circulars and Forms are available on the BCAS website :
www.bcasonline.org

66 Instructions No. 2/2011 (F.No. 225/25/2010/ITA-II), dated
9-2-2011 — Processing of returns of A.Y. 2010-11 — Section 143 of the Income-tax
Act, 1961 — Steps to —
(reproduced)

The issue of processing of returns for A.Y. 2010-11 and
giving credit for TDS has been considered by the Board. In order to clear the
backlog of returns, the following decisions have been taken :

(i) In all returns (ITR-1 to ITR-6), where the difference
between the TDS claim and matching TDS amount reported in AS-26 data does not
exceed Rs.1 lakh, the TDS claim may be accepted without verification.

(ii) Where there is zero TDS matching, TDS credit shall be
allowed only after due verification. However, in case of returns of ITR-1 and
ITR-2, credit may be allowed in full, even if there is zero matching, if the
total TDS claimed is Rs. five thousand or lower.

(iii) Where there are TDS claims with invalid TAN, TDS
credit for such claims is not to be allowed.

(iv) In all other cases TDS credit shall be allowed after
due verification.

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Press Release : Central Board of Direct Taxes — No. 402/92/2006-MC (04 of 2011), dated 12-2-2011.

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Full texts of
relevant Notifications, Circulars and Forms are available on the BCAS website :
www.bcasonline.org

65 Press Release : Central Board of Direct Taxes — No.
402/92/2006-MC (04 of 2011), dated 12-2-2011.

India has entered into a Tax Information Exchange Agreement
(TIEA) with the Bahamas for sharing information, including exchange of banking
and ownership information. The Agreement was signed on 11th February 2011.

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CBDT Instructions No. F. No. 225/25/2010/ITA.II, dated 10-2-2010 regarding extension of time limit for filing ITR-V forms

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Full texts of
relevant Notifications, Circulars and Forms are available on the BCAS website :
www.bcasonline.org

64 CBDT Instructions No. F. No. 225/25/2010/ITA.II, dated
10-2-2010 regarding extension of time limit for filing ITR-V forms.

CBDT has extended the time limit for filing ITR-V forms
relating to income-tax returns for A.Y. 2010-11 filed electronically (without
digital signature) on or after 1st April, 2010. These ITR-V forms can now be
filed up to 31st July, 2011 or within a period of 120 days from the date of
uploading of the electronic return data, whichever is later.

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Clarification regarding period of validity of approvals issued u/s.10(23C)(vi) or (via) and u/s.80G(5) of the Act — Circular No. 7/2010, dated 3-10-2010.

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Clarification regarding period of validity of approvals issued u/s.10(23C)(vi) or (via) and u/s.80G(5) of the Act — Circular No. 7/2010, dated 3-10-2010.

Clarification from RBI for deduction of tax at source on remittance of foreign exchange for import purposes : No. FE.CO.FID.5759/22.20.001/2007-08, dated 11-9-2007.

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24. Clarification from RBI for deduction of
tax at source on remittance of foreign exchange for import purposes : No.
FE.CO.FID.5759/22.20.001/2007-08, dated 11-9-2007.


As per the provisions of S. 195 of the Act, while remitting
any sum chargeable under the Act to a non-resident, tax needs to be deducted at
source. There was some confusion regarding tax to be deducted from remittances
for import of articles or things or computer software, etc. As per A.P. (DIR
Series) Circular No. 3, dated 19 July 2007, RBI clarified that remittance for
such imports also would need CA certification and the procedures prescribed in
CBDT Circular No. 10/2002 (F.No. 500/152/96-FTD) need to be followed. Since
various trade bodies and banks have approached RBI expressing their
apprehensions and difficulties in this matter, RBI has once again taken up the
matter with CBDT. Pending any clarification from the Board, it has been
clarified that the procedure prescribed by CBDT needs to be followed and in case
there are any doubts, the taxpayer needs to approach the Board directly.

 

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Clarification regarding approvals of 100% EOUs for the purpose of deduction u/ s.10B of the Act — Instruction No. 2/2009, dated 9-3-2009 (reproduced).

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4 Clarification regarding approvals of 100% EOUs for
the purpose of deduction u/ s.10B of the Act — Instruction No. 2/2009, dated
9-3-2009 (reproduced).

S. 10B of the Income-tax Act provides for exemption of
income in case of hundred percent export-oriented undertakings subject to
prescribed conditions. Explanation 2(iv) below to the said Section defines a
‘hundred percent export-oriented undertaking’ as an undertaking so approved
by the Board appointed in this behalf by the Central Government u/s.14 of
the Industries Development and Regulation Act, 1951. Subsequent to the
delegation of this power by the Ministry of Commerce and Industries to the
Development Commissioners, such approvals to 100% EOU’s are now being
granted by the Development Commissioners, which are later ratified by the
Board of Approvals.

The matter regarding validity of approvals given by
Development Commissioners has been examined in the Board. It has been
decided that an approval granted by the Development Commissioner in the case
of an export-oriented unit set up in an Export Processing Zone will be
considered valid, once such approval is ratified by the Board of Approval
for EOU scheme.

F.No.178/19/2008-ITA-1

(Padam Singh)

Under Secretary (ITA-I)

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S. 48 capital gains — Tax on capital gains would arise in respect of only those capital assets in acquisition of which an element of cost is actually present or is capable of being reckoned — Since rulers of yester years did not acquire their kingdoms by

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  1. (2009) 118 ITD 190 (Mum.)

HUF of H.H. late Sir J. M. Scindia v. ACIT

A.Y. : 1997-98. Dated : 22-8-2007

 

The assessee HUF was issued a notice requiring to show
cause as to why for the purpose of computation of capital gains, value for the
purpose of wealth tax was taken as the value of the plot of land, instead of
the value determined by the Government- approved valuer.

The Scindia Family had acquired the land on the occasion of
marriage of one of the forefathers of J. M. Scindia to one ‘Chimanibai’,
daughter of the then ruler of Deccan, i.e., the Peshwa. The said
property was given to Chimanibai as ‘choli bangdi’ according to the
custom prevailing in those days amongst the royal families.

It was further submitted that neither of the then rulers,
the Peshwas, nor the Scindias incurred any cost for acquiring this property.
In view of this, it was evident that the said plot did not have any cost of
acquisition and therefore it fell outside the purview of capital gains. The
claim of the assessee was rejected by the AO who computed the capital gains
taking Rs.1,50,404 as the cost of acquisition of the land. It was also
contended that the said land was recorded in the old Revenue records as ‘Inam’
land.

On appeal, the CIT(A) did not accept the assessee’s
contention and confirmed the action of the AO. On appeal before the Tribunal,
it was held :

(1) The CIT(A) has recorded the fact that the land was
received in gift by the forebears and inherited by their progeny and its
cost was nil. In support of this proposition, the assessee produced old
Revenue records obtained from Government Archives, which showed that the
said plot of land was recorded as ‘Inam’ land. The extracts furnished stated
that ‘Inam’ documents in respect of the said land were not available, and
the assessee’s stand was rejected by the CIT(A) on that count alone.
Further, in absence of any evidence to show that the land was purchased by
paying cash, the assessee’s contention which was based on factual and
historical background was to be accepted.

(2) It is also settled principle that in order to make
this transaction liable for capital gains tax, it is for the Revenue to show
that the assessee had incurred a cost in acquiring the said plot of land.

(3) As per the decision of the Madhya Pradesh High Court
in the case of CIT v. H.H. Maharaja Sahib Shri Lokendra Singhji,
(1986) 162 ITR 93, it was clearly held that the liability to pay tax on
capital gains would arise only in case of those capital assets in the
acquisition of which an element of cost is actually present or is capable of
being reckoned and not in case of those assets where the element of cost is
altogether inconceivable.

In the light of the above discussion, the ITAT held that
the capital gain on the transfer of said land was not exigible to tax.


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Method prescribed for determining the amount of expenditure relating to exempt income : Income-tax (Fifth Amendment) Rules, 2008, dated 24-3-2008.

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23 Method prescribed for determining the
amount of expenditure relating to exempt income : Income-tax (Fifth Amendment)
Rules, 2008, dated 24-3-2008.


Pursuant to an amendment in S. 14A of the Act, the Board has
prescribed a method to determine an amount of expenditure which can be
attributed to exempt income in cases when either the AO is not satisfied with
the correctness of the claim of the assessee for such expenditure or when the assessee has
claimed that no expenditure is incurred in relation to exempt income. As per the
said method the expenditure in relation to exempt income shall be aggregate of
the following 3 amounts :



  •  Expenses directly relating to exempt income



  •  Interest not directly relating to exempt income * Average of the amount of
    investment, on the first and the last days of the year, which generates exempt
    income/average of total assets as appearing on the balance sheet on the first
    day and the last day of the year.



  •  One-half percent of the average value of investment, on the first and the last
    days of the year, which generates exempt income.


 


For the purpose of this Rule, total assets shall mean, total
assets as appearing in the balance sheet excluding the increase on account of
revaluation of assets but including the decrease on account of revaluation of
assets.

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Exemption to electricity distribution services — Notification No. 32/2010 — Service Tax, dated 22-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

77 Exemption to electricity distribution services —
Notification No. 32/2010 — Service Tax, dated 22-6-2010.

From the date of this Notification exemption has been granted
to taxable services provided to any person, by a distribution licencee, a
distribution franchisee, or any other person by whatever name called, authorised
to distribute power under the Electricity Act, 2003, for distribution of
electricity.

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Exemption to specified services provided within a port or airport — Notification No. 31/2010 — Service Tax, dated 22-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

76 Exemption to specified services provided within a port or
airport — Notification No. 31/2010 — Service Tax, dated 22-6-2010.

W.e.f. 1-7-2010, by this Notification services listed in the
Notification when provided within a port or an airport have been exempted.

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Exemption in respect of specified sponsorship services — Notification No. 30/2010 — Service Tax, dated 22-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

75 Exemption in respect of specified sponsorship services —
Notification No. 30/2010 — Service Tax, dated 22-6-2010.

W.e.f. 1-7-2010, by this Notification exemption has been
provided to tournaments and championships organised by specified sports
authorities and organisations listed in the Notification.

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Marginal relief to buyers of residential, commercial or industrial properties under construction — Notification No. 29/2010 — Service Tax, dated 22-6-2010

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

74 Marginal relief to buyers of residential, commercial or
industrial properties under construction — Notification No. 29/2010 — Service
Tax, dated  22-6-2010

W.e.f. 1-7-2010, this Notification has amended Notification
No. 1/2006-Service Tax dated 1st March, 2006, so as to grant enhanced exemption
from so much of the service tax leviable as is in excess of the 25% (in place of
earlier 33%) of the value of gross amount charged for the services provided in
relation to commercial or industrial construction or construction of complex.
However, this exemption shall not apply where the cost of land has been
recovered separately from the buyer by the builder or his representative.

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Exemption to construction of complex services to JNNURM & RAY — Notification No. 28/2010 — Service Tax, dated 22-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

73 Exemption to construction of complex services to JNNURM &
RAY — Notification No. 28/2010 — Service Tax, dated 22-6-2010.

W.e.f. 1-7-2010, by this Notification Central Government has
exempted the taxable services of Construction of Complex as defined in Section
65(105)(zzzh) of the Act, provided to Jawaharlal Nehru National Urban Renewal
Mission & Rajiv Awaas Yojana from whole of the Service tax.

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Exeption in respect of air travel from and to specified places — Notification No. 27/2010 — Service Tax, dated 22-6-2010.

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Part B : INDIRECT TAXES

SERVICE TAX UPDATE

Notifications :

72 Exeption in respect of air travel from and to specified
places — Notification No. 27/2010 — Service Tax, dated 22-6-2010.

W.e.f. 1-7-2010, by this Notification the Central Government
has exempted the taxable service of air transport of passengers from whole of
service tax in respect of passengers embarking on a journey originating or
terminating in an airport located in Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or at Baghdogra of West Bengal.

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Exemption in respect of transport of passengers by air service — Notification No. 26/2010 — Service Tax, dated 22-6-2010.

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71 Exemption in respect of transport of passengers by air
service — Notification No. 26/2010 — Service Tax, dated 22-6-2010.

W.e.f. 1-7-2010 by this Notification services provided by
aircraft operator to any passenger in relation to scheduled or non-scheduled air
transport in India for domestic or international journey have been exempted,
subject to conditions, from so much of service tax as is in excess of :

(a) ten percent of the gross value of the ticket or Rs.100
per journey, whichever is less, for passengers travelling in any class, within
India;

(b) ten percent of the gross value of the ticket or rupees
five hundred per journey, whichever is less, for passengers embarking in India
for an international journey in economy class. The expression economy class
has been explained in the Notification.

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Architects, chartered engineers & licensed surveyors authorised to issue completion certificate in construction services — Service Tax (Removal of difficulty) Order, 2010 No. M.F. (D.R.) Order No. 1/2010, dated 22-6-2010.

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Part B : INDIRECT TAXES


SERVICE TAX UPDATE

Notifications :

70 Architects, chartered engineers & licensed surveyors
authorised to issue completion certificate in construction services — Service
Tax (Removal of difficulty) Order, 2010 No. M.F. (D.R.) Order No. 1/2010, dated
22-6-2010.

W.e.f. 1-7-2010, by this Order architects, chartered
engineers and local licensed surveyors are authorised as competent authorities,
apart from government authorities, to issue completion certificate in relation
to commercial or industrial construction or construction of complex services.

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The Income-tax (Fifth Amendment) Rules, 2009 — Notification No. 24/2009, dated 12-3-2009.

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3 The Income-tax (Fifth Amendment) Rules, 2009 —
Notification No. 24/2009, dated 12-3-2009.


Rule 67 regulates the manner of investment of Recognised
Provident Funds. This rule has been amended and now these funds can invest
up to 55% in Government securities and units of mutual funds which invest in
Government securities, 40% in prescribed debt securities and time deposit
receipts, 5% in money market instruments and 15% in derivatives of companies
available on BSE/NSE and equity-linked schemes of regulated mutual funds.
There are certain restrictions and conditions prescribed for each individual
limit aforementioned.

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Insertion of Rules 37BA and 37I — Income-tax (Sixth Amendment) Rules, 2009, — Notification No. 28/2009, dated 16-3-2009.

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2 Insertion of Rules 37BA and 37I — Income-tax (Sixth
Amendment) Rules, 2009, — Notification No. 28/2009, dated 16-3-2009.

Rule 37BA has been inserted wherein the CBDT has
clarified certain issues relating to credit available u/s.199 of the Act on
TDS and TCS. Important clarifications issued are as under :

  • Credit shall be available based on the information
    provided by the tax deductor to the tax authorities in the E-TDS returns
    filed by them.

     

    • Credit
      shall be available to persons other than the deductee in case :

       


      • clubbing provisions are attracted, or

         


      • income is taxed in the hands of beneficiaries of a trust or an AOP,

         


      • partner of a firm or karta of an HUF,

         

      • cases of joint ownership when the income is
        clubbed with
        the other person’s income, and the deductee provides details of name,
        address and PAN of such other person to the deductor by way of a
        declaration. In such cases the deductor needs to issue the certificate
        in the name of the other person mentioned in the declaration.

  •  Credit for TDS would be given in the year in which the
    income is assessable to tax. In case the taxability of the income is
    deferred, then the credit for tax would be allowed over the said period of
    years in proportion to the income charged for each year.


Rule 37I has also been inserted with similar provisions
relating to tax collection at source.

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CBDT has started issuing Annual Tax Statement to assessees

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1 CBDT has started issuing Annual Tax Statement to
assessees

The CBDT has started issuing Annual Tax Statement to
assessees, a consolidated statement in Form 26AS which gives details for a
particular tax year of details of tax deducted by the employer/others and
the taxes by way of advance tax/self-assessment tax during the said tax
year. The intention is verification of these details by the taxpayer for
getting suitable tax credit. The Department would rely on this while
processing the returns of assessees. In case there is some discrepancy
noticed by the tax payer, they should contact the tax deductor/relevant bank
to sort the same. Also the Tax Department should be intimated about the
errors.

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Press Note No. 6 (2008), dated 12-3-2008. —FDI Policy for mining of titanium bearing minerals and ores.

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Part C : RBI/FEMA

Given below are the highlights of 6 Press Notes issued by the
Ministry of Commerce & Industry.

 

21 Press Note No. 6 (2008), dated 12-3-2008.
—FDI Policy for mining of titanium bearing minerals and ores.

The guidelines for mining of titanium bearing minerals and
ores are :

 

FDI up to 100% is allowed after obtaining prior approval of
FIPB in mining and mineral separation of titanium bearing minerals and ores, its
value addition and integrated activities, subject to sectoral regulations and
the Mines and Minerals (Development and Regulation) Act, 1957.

 

In case of separation of titanium bearing minerals and ores,
the following additional conditions will apply :



(a) Value addition facilities are set up in India along
with transfer of technology.

(b) Disposal of tailing during mineral separation will be
carried out in accordance with regulations framed by the Atomic Energy
Regulatory Board.

 


FDI will not be allowed in mining of ‘prescribed substances’
listed in the Government of India Notification No. S.O. 61(E), dated 18-1-2006
issued by the Department of Atomic Energy.

 

FDI policy Annexed to Press Note No. 4 (2006), dated 10-2-2006 stands
modified to the extent stated above.

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Press Note No. 5 (2008), dated 12-3-2008. — Rationalisation of FDI Policy for the Petroleum & Natural Gas Sector.

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New Page 1

Part C : RBI/FEMA

Given below are the highlights of 6 Press Notes issued by the
Ministry of Commerce & Industry.

 

20 Press Note No. 5 (2008), dated 12-3-2008.
— Rationalisation of FDI Policy for the Petroleum & Natural Gas Sector.

FDI policy in the Petroleum & Natural Gas sector has been
rationalised as under :



(a) The condition of compulsory divestment of up to 26%
equity within 5 years, in case of 100% foreign ownership in companies engaged
in actual trading and marketing of petroleum products, stands deleted.

(b) FDI up to 49% is allowed after obtaining prior approval
of FIPB in petroleum refining by Public Sector Undertakings (PSU) without
involving any divestment or dilution of equity in existing PSU.

 


FDI policy Annexed to Press Note No. 4 (2006), dated
10-2-2006 stands modified to the extent stated above.

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Press Note No. 4 (2008), dated 12-3-2008. — FDI Policy for the Civil Aviation Sector.

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Part C : RBI/FEMA

Given below are the highlights of 6 Press Notes issued by the
Ministry of Commerce & Industry.

 

19 Press Note No. 4 (2008), dated 12-3-2008.
— FDI Policy for the Civil Aviation Sector.

The guidelines for Foreign Direct Investment (FDI) in Civil
Aviation sector are :

Airports :



(a) Greenfield projects — FDI up to 100% is permitted under
the automatic route.

(b) Existing projects — FDI up to 100% is allowed. However,
investment beyond 74% will require FIPB approval.

 


Air Transport Services :



(a) Scheduled Air Transport Service/Domestic Scheduled
Passenger Airline — FDI up to 49% and investments by Non-Resident Indians (NRI)
up to 100% under the automatic route. However, foreign airlines cannot make
any investment, direct or indirect.

(b) Non-Scheduled Air Transport Service/Non-Scheduled
Airlines & Chartered Airlines — FDI up to 74% and investments by NRI up to
100% under the automatic route. However, foreign airlines cannot make any
investment, direct or indirect.

(c) Cargo Airlines — FDI up to 74% and investments by NRI
up to 100% under the automatic route.

(d) Helicopter Services/Seaplane Services requiring DGCA
approval — FDI up to 100% allowed under the automatic route.

 


Civil Aviation Sector :



(a) Ground Handling Services — FDI up to 74% and
investments by NRI up to 100% under the automatic route. This is subject to
sectoral regulations and security clearances.

(b) Maintenance and Repair organisations, flying training
institutes and technical training institutions — FDI up to 100% allowed under
the automatic route.

 


FDI policy Annexed to Press Note No. 4 (2006), dated
10-2-2006 stands modified to the extent stated above.

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Press Note No. 3 (2008), dated 12-3-2008. — Guidelines for Foreign Direct Investment (FDI) in Credit Industrial Parks.

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Part C : RBI/FEMA

Given below are the highlights of 6 Press Notes issued by the
Ministry of Commerce & Industry.


 


18 Press Note No. 3 (2008), dated 12-3-2008.
— Guidelines for Foreign Direct Investment (FDI) in Credit Industrial Parks.

This press note clarifies that FDI up to 100% under the
automatic route will be allowed in established Industrial Parks as well as for
setting new Industrial Parks and the conditions mentioned in Press Note 2 (2005)
would not be applicable, provided :

1. The Industrial Park comprises of 10 units and no single
unit occupies more than 50% of the allocable area.

2. The minimum area allocated for industrial activity is
not less than 66% of the total allocable area of the Industrial Park.


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Press Note No. 2 (2008), dated 12-3-2008 — Guidelines for foreign Investment in Commodity Exchanges.

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Part C : RBI/FEMA

Given below are the highlights of 6 Press Notes issued by the
Ministry of Commerce & Industry.


17 Press Note No. 2 (2008), dated 12-3-2008
— Guidelines for foreign Investment in Commodity Exchanges.

The guidelines for foreign investment in Commodity Exchanges
are :



1. Foreign investment i.e., Foreign Direct
Investment (FDI) and Portfolio Investment Scheme (PIS) is allowed up to 49%
after obtaining prior approval from FIPB.

2. Investment by FII under PIS will be limited to 23% and
they can buy only in the secondary market.

3. Investment under FDI will be limited to 26%.

4. No foreign investor/entity, including persons acting in
concert, can hold more than 5% of the equity in these companies.



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Press Note No. 1 (2008), dated 12-3-2008. — Guidelines for Foreign Investment in Credit Information Companies.

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Part C : RBI/FEMA

Given below are the highlights of 6 Press Notes issued by the
Ministry of Commerce & Industry.

 

16 Press Note No. 1 (2008), dated 12-3-2008.
— Guidelines for Foreign Investment in Credit Information Companies.

The guidelines for foreign investment in Credit Information
Companies (CIC) are :



1. Foreign investment in CIC is subject to the Credit
Information Companies (Regulation) Act, 2005.

2. Foreign investment i.e., Foreign Direct
Investment (FDI) and Portfolio Investment Scheme (PIS) is allowed up to 49%
after obtaining prior approval from Foreign Investment Promotion Board (FIPB)
and regulatory clearance from RBI.

3. Foreign Institutional Investors (FII) can invest up to
24% in CIC listed on Stock Exchanges, provided :



(a) No single FII can directly or indirectly hold more
than 10% of the equity.

(b) Any acquisition in excess of 1% will have to be
reported to RBI.

(c) FII cannot seek representation on the Board of
Directors based on their shareholding.

 




In Annex to Press Note No. 4 (2006), dated 10-2-2006 ‘Credit
Reference Agencies’ is deleted from list of NBFC activities.

 

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