Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

Category: Direct Taxes

S. 48 — Capital gains on sale of land — Land purchased out of borrowed funds — Whether registration charges and interest paid on borrowings eligible for deduction and indexation — Held, Yes.

fiogf49gjkf0d

New Page 1

 

 




  1. Ishtiaque Ahmad v. ACIT



ITAT Bench ‘C’, New Delhi

Before D. R. Singh (JM) and

K. G. Bansal (AM)

ITA No. 863/D/2009

A.Y. : 2002-03. Decided on : 28-8-2009

Counsel for assessee/revenue : J. J. Mehrotra/

D. N. Kar

S. 48 — Capital gains on sale of land — Land purchased out
of borrowed funds — Whether registration charges and interest paid on
borrowings eligible for deduction and indexation — Held, Yes.

Per K. G. Bansal :

Facts :

The assessee had purchased a piece of land in October 2006
out of borrowed funds. The land was sold in the year under appeal. While
returning income as long term capital gains — it claimed registration charges
of Rs.4.63 lacs and the interest paid by him during the years 1997-98 to
2001-02 aggregating to Rs.72 29 lacs, as the cost of improvement. The claim
was disallowed by the AO. On appeal the CIT(A) allowed the claim qua the
registration charges, however, the claim for indexation was denied. In respect
of interest paid, the CIT(A) agreed with the AO and held that the interest
payable on loan taken for acquisition of the land was not part of the cost of
acquisition/improvement.

Held :

The Tribunal noted that the registration charges paid was
treated as cost of improvement of the land and as such allowed as deduction by
the CIT(A). Referring to the provisions of second proviso to S. 48, it agreed
with the submission of the assessee that the provisions contained in clause
(ii) shall have the effect as if for the words ‘cost of acquisition’ and ‘cost
of any improvement’, the words ‘indexed cost of acquisition’ and ‘indexed cost
of any improvement’ had respectively been substituted. Therefore, it was held
that the assessee was entitled to indexation with reference to the
registration charges paid.

In respect of interest paid — the Tribunal agreed with the
assessee that as held by the Delhi High Court in case of CIT v. Mithlesh
Kumari, the actual cost of the asset need not be only those costs incurred
on the date of acquisition. Accordingly, relying on the decision of the Delhi
High Court (supra), it held that interest paid on borrowed funds for
purchase of land after its actual purchase constituted cost of the land. It
further held that in terms of second proviso to S. 48, the cost has to be
indexed for working out the capital gains.

Case referred to :


CIT v. Mithlesh Kumari, (1973) 92 ITR 9 (Del.)

 

levitra

S. 37(1) — Business expenditure — Reimbursement of expenditure incurred in running the school — Whether allowable — Held, Yes.

fiogf49gjkf0d

New Page 1



  1. Tata International Ltd. v. ACIT



ITAT ‘I’ Bench, Mumbai

Before A. L. Gehlot (AM) and

Sushma Chowla (JM)

ITA No. 5591/M/2005

A.Y. : 1999-2000. Decided on : 11-9-2009

Counsel for assessee/revenue : Dinesh Vyas/

R. P. Meena

S. 37(1) — Business expenditure — Reimbursement of
expenditure incurred in running the school — Whether allowable — Held, Yes.

Per A. L. Gehlot :

Facts :

The assessee was engaged in the business of export. One of
the issues before the Tribunal was regarding the allowability of expenditure
incurred on the maintenance of a school run by TATA at Dewas. The school was
situated at the place where the assessee’s factory was located and substantial
number of students of the school were children of the assessee’s employees.
During the year the assessee had paid the sum of Rs.1,88,540 by way of
reimbursement, part of the expenditure incurred in running the School. The
same was disallowed by the lower authorities.

Held :

According to the Tribunal, the case of the assessee was
covered by the Tribunal decision in the assessee’s own case for the A.Ys.
1992-93, 1993-94 and 1994-95 which was later affirmed in the
assessee’s own case for the A.Ys. 1996-97 to 1998-99. Noting the fact that the
school was situated at the same place where the assessee’s factory was located
and substantial number of students of the school were children of the
assessee’s employees, the expenditure claimed was allowed.

Case referred to :

Tata International Ltd. ITA No. 4823 to 4825/M/2005 dated
26-3-2009.

 

levitra

S. 28, S. 36(1)(vii), S. 37. Amount paid by the assessee under Performance Guarantee Bond is allowable as a business loss/expenditure. Mere fact that the assessee has claimed the amount written off in the course of business as ‘bad debt’ does not preclude

fiogf49gjkf0d

New Page 1

6. Anang Tradevest Pvt. Ltd. v. ITO

ITAT ‘A’ Bench,
Mumbai

Before D.
Manmohan (VP) and

Abraham George
(AM)

ITA No.
10/Mum./2008

A.Y. : 2003-04.
Decided on : 10-8-2009

Counsel for assessee/revenue :

Prakash Jhunjhunwala/R.
S. Srivastava

S. 28, S.
36(1)(vii), S. 37. Amount paid by the assessee under Performance Guarantee
Bond is allowable as a business loss/expenditure. Mere fact that the assessee
has claimed the amount written off in the course of business as ‘bad debt’
does not preclude him from claiming the same as business loss/expenditure.

Per Abraham P.
George :

Facts :

The assessee, as a
part of its business activity, was introducing certain clients to M/s. Joindre
Capital Services Ltd., who entered into share purchase and sale transactions
for such clients. As per the terms of the agreement entered into between the
assessee and M/s. Joindre Capital Services Pvt. Ltd., assessee had to
indemnify Joindre Capital Services Ltd., in case clients introduced by the
assessee failed to honor any of their commitments.

During the previous
year in respect of three parties, assessee had shown a sum of Rs.11,90,779 as
bad debts written off. The Assessing Officer (AO) held that such claim could
not be allowed since assessee was a sub-broker and the debt was never taken
into account for computing the income of the assessee for the relevant
previous year or any preceding previous years.

The CIT(A) held that
the bad debt written off was rightly disallowed by the AO.

Aggrieved, the
assessee preferred an appeal to the Tribunal where disallowance of bad debt of
Rs. 11,90,779 was taken as a ground. In the course of the hearing, the
assessee withdrew the original ground and by way of an additional ground
claimed that this sum of Rs.11,90,779 paid under a performance guarantee bond
be allowed either as business expenditure u/s.37(1) or as business loss. On
behalf of the assessee it was contended that the Tribunal has in the case of
India Infoline Securities (P) Ltd. v. ACIT, (25 SOT 123) (Mum.) held
that losses incurred by an assessee in the course of his business as a stock
broker, on account of default of his clients, could be claimed as a business
loss.

Held :


Neither the AO nor the CIT(A) had gone through the agreement entered into by
the assessee with Joindre Capital Services Ltd., for verifying whether such
claim could be allowed as business expense or loss. The fact that the assessee
had claimed the amount as bad debt would not preclude it from claiming the
amount as business loss or expenses, since the write off was done in the
course of business only.

With a view to
verify whether the claim of the as-sessee was in relation to clients
introduced by it to M/s. Joindre Capital Services Ltd., as also whether the
indemnity agreement with Joindre Capital Services Ltd. was applicable, in
relation to such write off effected by the assessee, the Tribunal set aside
the orders of the AO and the CIT(A) and restored the matter back to the AO for
considering the issue afresh in accordance with law after giving proper
opportunity to the assessee to represent its case.

S. 271(1)(c) — Penalty for concealment of income — Whether non bifurcation of short term capital loss from the overall business loss amounted to concealment of income and furnishing of inaccurate particulars of income — Held, No.

fiogf49gjkf0d

New Page 1


  1. Nera (India) Limited v. DCIT

ITAT ‘F’ Bench, New
Delhi

D. R. Singh (JM)
and K. G. Bansal (AM)

ITA No.
107/Del./2009

A.Y. : 2004-05.
Decided on : 4-8-2009

Counsel for assessee/revenue :
A. K. Mittal/

Sunita Singh

S. 271(1)(c) —
Penalty for concealment of income — Whether non bifurcation of short term
capital loss from the overall business loss amounted to concealment of income
and furnishing of inaccurate particulars of income — Held, No.

Per D. R.
Singh :

Facts :

The assessee had
filed return of income declaring business loss of Rs.1.37 crore. During the
course of assessment proceedings, it was noticed by the AO that the Auditors
in Form No. 3CD had reported that debit to the Profit & Loss account included
capital expenditure by way of fixed assets written off amounting to Rs.l0.17
lacs, which was not added back by the assessee. The same was added to the
income (reduced from the loss) of the assessee and the business loss was
assessed accordingly. According to the AO since the assessee accepted the
mistake only after the show cause was issued, he was of the view that the
assessee had concealed his income and furnished inaccurate particulars of
income. He therefore levied penalty of Rs.3.65 lacs u/s.271(1)(c) of the Act.
On appeal, the CIT(A) confirmed the same.

Before the Tribunal
the assessee explained that instead of classifying the sum of Rs.10.17 lacs as
short term capital loss, which was allowable to be carried forward u/s.70 of
the Act, the assessee in its return made a technical error of not bifurcating
short term capital loss from the overall business loss of the company. The
assessee claimed that the same cannot by any assumption be deemed to be
concealment of income or furnishing of inaccurate particulars of the income.

Held :

According to the
Tribunal, a mere omission or negligence would not constitute a deliberate act
of suppression. It agreed with the assessee that its explanation cannot be
treated as false and inaccurate simply because of its mistake in wrongly
classifying heads of loss. Accordingly, the penalty imposed was deleted.

S. 195, S. 244A. When tax which was deducted at source and deposited with the Government pursuant to an order passed u/s. 195(2) of the Act is refunded to the assessee, upon the CIT(A) deciding the appeal in favor of the assessee, the assessee is entitled

fiogf49gjkf0d

New Page 1

 


  1. 2009 TIOL 602 ITAT Mum.

Addl DIT
v. Reliance Infocomm Ltd.

ITA No. 6100 to
6110/M/2008

Dated : 9-9-2009

S. 195, S. 244A.
When tax which was deducted at source and deposited with the Government
pursuant to an order passed u/s. 195(2) of the Act is refunded to the assessee,
upon the CIT(A) deciding the appeal in favor of the assessee, the assessee is
entitled to refund of amount paid with interest u/s.244A.

Facts :

The assessee
approached the DDIT, International Taxation, with a request to issue a
certificate for making payment to M/s. ECI Telecom — NGTS Ltd., Israel, for
purchase of certain software for the purpose of operation of Wireless
Telecommunication Network, without deduction of tax at source. The DDIT passed
an order u/s.195(2) of the Act holding that the payment was in the nature of
‘Royalty’ and accordingly, tax was required to be deducted at source. The
assessee deducted the tax and made payment to the authorities as directed by
the aforesaid order passed by the DDIT.

The assessee
preferred an appeal against the said order u/s.195(2) of the Act, which was
allowed by CIT(A). Pursuant to the appeal order, the DDIT passed an order
giving effect to the order of CIT(A) and granted refund of amount paid by the
assessee but did not grant interest on the amount refunded on the ground that
refund has arisen not under the Income-tax Act as such.

Aggrieved, assessee
preferred an appeal to the CIT(A) who held that the assessee was entitled to
interest u/s.244A of the Act on the refund of TDS u/s.195.

Aggrieved by the
order of CIT(A) directing the DDIT to grant interest on refund of TDS, Revenue
preferred an appeal to the Tribunal.

Held :

The Tribunal found
the issue under consideration to be covered against the revenue by various
decisions including the decision of ITAT in the case of Tata Chemicals Ltd.;
16 SOT 418 and in the case of Star Cruises India Travel Services Pvt. Ltd. in
ITA No. 6498 & 6500/Mum./06 order dated 24th March, 2009 (2009 TIOL 351 ITAT
Mum). Since the facts were identical to the decisions mentioned above the
Tribunal confirmed the order passed by CIT(A) and held that the assessee is
entitled to interest on refund of amount paid pursuant to an order passed u/s.
195(2).

The appeal filed by
the department was dismissed.

S. 70(3), S. 111A, S. 115D. As per the provisions of S. 70(3) r.w. S. 111A and S. 115AD, the assessee has an option to set off the short term capital loss against the short term capital gains. Short term capital loss suffered after 1-10-2004 could be set

fiogf49gjkf0d

New Page 1

 


  1. 2009 TIOL 547 ITAT Mum.

First State
Investments (Hongkong) Ltd. v. Addl. DIT (International Tax)

ITA No.
2895/Mum./2008

A.Y. : 2005-06.
Dated : 23-7-2009

S. 70(3), S.
111A, S. 115D. As per the provisions of S. 70(3) r.w. S. 111A and S. 115AD,
the assessee has an option to set off the short term capital loss against the
short term capital gains. Short term capital loss suffered after 1-10-2004
could be set off against short term capital gains earned before 30-9-2004.

Facts :

For A.Y. 2005-06,
the assessee computed short term capital gain of Rs.331.33 lakhs. The amount
of short term capital gain and short term capital loss for the period upto
30-9-2004 and after 30-9-2004 was as under :

Particulars

upto 30-9-2004

after 30-9-2004

Total

 

Rupees in lakhs

Short term capital
gain

36.54

472.16

508.70

Short term capital
loss

8.14

169.23

177.37

Total

28.40

302.93

331.33

The assessee sought
to set off the short term capital loss suffered in the period after 30-9-2004
against short term capital gain for a period before 30-9-2004 and contended
that the short term capital gain upto 30-9-2004 was Rs.Nil and that the entire
short term capital gain was for a period after 30-9-2004 and therefore was
taxable @ 10%.

According to the
Assessing Officer, the assessee could not set off the short term capital loss
for a period after 30-9-2004 with the short term capital gain arising in a
period prior to 1-10-2004 since in the period prior to 1-10-2004 short term
capital gain was chargeable at normal rates whereas in the period after
30-9-2004 short term capital gain on which STT was paid was chargeable at
concessional rate of 10%. He, held that Rs.28.40 lakhs is capital gain for the
period upto 30-9-2004 and Rs.302.93 lakhs is capital gain arising during the
period after 30-9-2004.

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

S. 80, S. 139(3) and S. 139(5) — Loss return filed within time could be revised and loss carried forward.

fiogf49gjkf0d
New Page 1


  1. (2009) 119 ITD 119 (Delhi ITAT)

Escorts Mahle
Ltd. v. DCIT

A.Y. : 2001-02.
Dated : 21-3-2008

S. 80, S. 139(3)
and S. 139(5) — Loss return filed within time could be revised and loss
carried forward.

Facts :

The assessee company
filed a return of loss on 31-10-2001 which was accompanied by the unaudited
profit and loss account and balance sheet. Further the tax audit report was
also not filed. On 27-3-2003, the assessee company filed another return in
which a higher loss was claimed. The profit and loss account, balance sheet
and audit report were attached to subsequent return.

The assessing
officer took the view that since the return filed on 31-10-2001 was not
accompanied by audited accounts, the same was not a valid return. He,
therefore, considered the return filed on 27-3-2003 as the first valid return.
Further, he held that since the return filed on 27-3-2003 was filed beyond the
time limit prescribed u/s.139(1) of the Income-tax Act, 1961 (‘the Act’), the
loss declared therein could not be carried forward.

The CIT(Appeals)
held that the return filed on 27-3-2003 was revised return filed u/s.139(5) of
the Act and took the place of the original return filed on 31-10-2001. It
should, therefore, be taken to have been filed within the time limit
prescribed u/s.139(3) of the Act.

On Revenue’s appeal,
the Delhi ITAT observed that the assessing officer processed the return filed
on 31-10-2001 u/s.143(1) of the Act and also did not issue any defect notice
u/s.139(9) of the Act. Thus, the said return cannot be said to have been
considered as invalid return. This being the case, the return filed on
27-3-2003 was to be treated as valid revised return. The revised return took
the place of original return and the original return having been admittedly
filed within time allowed u/s.139(1) of the Act, the loss was to be carried
forward. The return of loss filed on 31-10-2001 was filed in accordance with
S. 139(3) of the Act and could be validly revised u/s.139(5) of the Act.

Even though assessee might have committed a serious economic offence, yet he could not be charged to income unless it was proved beyond doubt that said income was generated to him alone.

fiogf49gjkf0d

New Page 1

 

  1. (2009) 119 ITD
    71 (Bang.)

Ibrahim Vittal
v. ITO, Ward 2(3), Mangalore

A.Y. : 2003-04.
Dated : 25-4-2008

Even though
assessee might have committed a serious economic offence, yet he could not be
charged to income unless it was proved beyond doubt that said income was
generated to him alone.

Facts :

A search was made in
the residence of appellant u/s.37(3) of Foreign Exchange Management Act, 1999
(FEMA) on the basis of certain information by Directorate of Enforcement
(DOE). During search, some documents were seized which disclosed that assessee
had received a cash of Rs.23,15,000. The contention of assessee that it was
received from his brothers and brother-in-law working abroad for construction
of their houses was rejected by DOE and penalty was imposed on him. On this
basis, AO treated the said money as unexplained and taxed it u/s.69A. On
appeal to CIT(A), it confirmed the addition. On appeal to Tribunal, it held
that the AO did not make any independent enquiries. Rather he relied upon the
letter received from one of the brothers-in-law which was signed by him on
behalf of all the other persons and hence was not having any evidential value.
In a search conducted under FEMA, no other property was confiscated from
assessee. Hence, the assessee had received the amount on behalf of his
brothers and brothers-in-law.

It was not the case
of the AO that the assessee had made any investments or the assessee was found
to be the owner of any bullion, jewellery or other valuable articles. So, the
AO was not right, in law, in completing the assessment u/s.69A.

S. 147 — Reopening of the assessment for the second time to take a different view on the same matter is bad in law and liable to be quashed.

fiogf49gjkf0d

New Page 1


  1. (2009) 119 ITD 21 (Mum.)

Aum Chemicals
v.
ACIT, Palghar
Circle, Palghar

A.Y. : 1998-99.
Dated : 30-4-2008

Held 1 :

S. 147 —
Reopening of the assessment for the second time to take a different view on
the same matter is bad in law and liable to be quashed.

Held 2 :

S. 45 — A
partnership firm consisting of 2 partners was converted into company —
Partners were given shares of Company A to the extent of their credit balances
in Capital Account — It was held that since the condition of distribution of
capital assets on dissolution of firm is not fulfilled, S. 45(4) is not
applicable. Even otherwise after deducting cost of capital which was equal to
book value, capital gain would be nil.

Fact 1 :

The assessee firm
decided to sell its assets and liabilities to a private limited company.
Subsequently, the said consideration was distributed among partners and the
firm was dissolved. The Assessing Officer reopened the assessment and added
certain amount as Short Term Capital Gain u/s.45(4). The CIT(A) deleted the
addition. Afterwards AO again reopened the assessment on the ground that the
partners made an arrangement to avoid tax by not assigning values to
individual assets and added the value difference of assets to the income of
the assessee. On appeal to Tribunal, it held that there was nothing on record
to show that there was any failure on the part of assessee. It had disclosed
all material facts at the time of first reopening of assessment. Hence, it was
not permissible to reopen the assessment on the same reason to take different
view. Consequently, second time reopening of assessment was bad in law and
liable to be quashed.

Fact 2 :

On distribution of
assets and liabilities to the company, the company allotted shares to partners
in proportion to their capital contribution. The AO taxed short term capital
gain by invoking provisions of S. 45(4). It was held that for invoking S.
45(4) following two conditions are to be satisfied :

    1. Transfer by way
    of distribution of capital asset.

    2. Transfer should
    be on the dissolution of the firm or otherwise.

There is a
difference between vesting in private limited company and distribution of
capital assets. In case of vesting of property, the property vests in the
company as it exists. On the other hand, distribution on dissolution
presupposes processes of division, realisation, encashment of assets and
apportionment of the realised amount.

In the given case
there was no transfer of assets on dissolution of firm. Hence, first condition
is not satisfied. Further, even if S. 45(1) is applied, the full value of
consideration for the firm is book value of assets as allocation of shares had
no correlation of vesting of properties in company. Hence, capital gain would
be Nil.

Clarification regarding eligibility of expenditure pertaining to widening of roads eligible for deduction u/s.80-IA(4)(i) of the Act — Circular No. 4/2010, dated 18-5-2010.

fiogf49gjkf0d

New Page 2

Part A : Direct Taxes

34 Clarification regarding eligibility of expenditure
pertaining to widening of roads eligible for deduction u/s.80-IA(4)(i) of the
Act — Circular No. 4/2010, dated 18-5-2010.

It has been clarified by the Board that widening of an
existing road by constructing additional lanes as a part of a highway project by
an undertaking would be regarded as a new infrastructure facility for the
purpose of S. 80IA(4)(i). However, simply relaying of an existing road would not
be classifiable as a new infrastructure facility for this purpose.

levitra

Fresh Additional Relief Package — PIB Press Release No. BY/KP/GN-151/10, dated 29-4-2010.

fiogf49gjkf0d

New Page 2

Part A : Direct Taxes

33 Fresh Additional Relief Package — PIB Press Release No.
BY/KP/GN-151/10, dated 29-4-2010.

The following important amendments were made to the Finance
Bill 2010 :

  • Two items are included as
    ‘specified business for availing the benefit of investment linked deduction
    u/s.80-IB(11C) of the Act — business of a new hospital anywhere in India
    (unlike certain prescribed areas as proposed earlier), with at least 100 beds
    for patients, and business of developing and building a housing project under
    a scheme for slum redevelopment or rehabilitation framed by the Central
    Government or a State Government.

  • Transfer of shares by
    shareholders on conversion of a company into an LLP is proposed to be tax
    exempt.



levitra

The Finance Bill received the Presidential Assent on 8 May 2010 and hence got enacted with effect from 8-5-2010

fiogf49gjkf0d

New Page 2

Part A : Direct Taxes

32 The Finance Bill received the Presidential Assent on 8 May
2010 and hence got enacted with effect from 8-5-2010.

levitra

Notification No. FEMA. 174/2007-RB, dated 25-11-2007 — Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) Regulations, 2008.

fiogf49gjkf0d

New Page 2

Part C : RBI/FEMA


Given below are the highlights of RBI Circulars and
Notifications.


 

 

13 Notification No. FEMA. 174/2007-RB, dated
25-11-2007 — Foreign Exchange Management (Foreign Currency Account by a Person
Resident in India) Regulations, 2008.


This notification substitutes Regulation 6 of the Foreign
Exchange Management (Foreign Currency Account by a Person Resident in India)
Regulations, 2000 with effect from April 30, 2007.

 

It permits the opening, holding and maintaining of Foreign
Currency Account in India by :

1. Shipping or airline company incorporated outside India or
its agent in India for meeting local expenses in India of the shipping or
airline company out of freight or passage collected in India or out of inward
remittances through normal banking channels from office/principal outside India.

2. Ship-manning/crew managing agencies in India for undertaking transactions
in the ordinary course of their business.



levitra

Notification No. FEMA. 171/2007-RB, dated 10-12- 2007 — Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) (Second Amendment) Regulations, 2007.

fiogf49gjkf0d

New Page 2

Part C : RBI/FEMA


Given below are the highlights of RBI Circulars and
Notifications.



12 Notification No. FEMA. 171/2007-RB, dated
10-12- 2007 — Foreign Exchange Management (Foreign Currency Account by a Person
Resident in India) (Second Amendment) Regulations, 2007.

This notification amends the proviso to Regulation 9(1) of
the Foreign Exchange Management (Foreign Currency Account by a Person Resident
in India) Regulations, 2000 with effect from April 30, 2007 as under :

“The EEFC account referred to in Regulation 4, shall be
opened, held or maintained in the form of an account in terms of such
directions as may be issued by the RBI from time to time”.


levitra

A.P. (DIR Series) Circular No. 41, dated 28-4-2008 — Foreign investment in Commodity Exchanges — Amendment to the Foreign Direct Investment Scheme.

fiogf49gjkf0d

New Page 2

Part C : RBI/FEMA


Given below are the highlights of RBI Circulars and
Notifications.


11 A.P. (DIR Series) Circular No. 41, dated
28-4-2008 — Foreign investment in Commodity Exchanges — Amendment to the Foreign
Direct Investment Scheme.

Pursuant to Press Note No. 2 (2008) issued by Commerce
Ministry (see April 2008 BCAJ, page 97).

levitra

A.P. (DIR Series) Circular No. 40, dated 28-4-2008 — Foreign investment in Credit Information Companies — Amendment to the Foreign Direct Investment Scheme.

fiogf49gjkf0d

New Page 2

Part C : RBI/FEMA


Given below are the highlights of RBI Circulars and
Notifications.


 



10 A.P. (DIR Series) Circular No. 40, dated
28-4-2008 — Foreign investment in Credit Information Companies — Amendment to
the Foreign Direct Investment Scheme.

Pursuant to Press Note No. 1 (2008) issued by Commerce
Ministry (see April 2008 BCAJ, page 97).

levitra

A.P. (DIR Series) Circular No. 39, dated 28-4-2008 — Bids in foreign currency for projects to be executed in India.

fiogf49gjkf0d

New Page 2

Part C : RBI/FEMA


Given below are the highlights of RBI Circulars and
Notifications.


 

9 A.P. (DIR Series) Circular No. 39, dated
28-4-2008 — Bids in foreign currency for projects to be executed in India.

Presently, person resident in India can incur liability in
foreign exchange and to make or receive payments in foreign exchange in respect
of global bids only where the Central Government has authorised such projects to
be executed in India and approval of the concerned Administrative Ministry has
been obtained.

 

This circular has done away with the requirement of obtaining
prior permission of Administrative Ministry/Authorisation from Central Govt. may
not be necessary for International Competitive Bidding (ICB). Hence, persons
resident in India are now permitted to incur liability in foreign exchange and
to make or receive payments in foreign exchange in respect of global bids for
projects to be executed in India without insisting on prior approval of the
concerned Administrative Ministry for ICB.

 


levitra

Amendments in the Cenvat Credit Rules, 2004 w.e.f. 1-4-2008 — Clarification about Rule 6 : Circular No. 868/6/2008-CX dated 9-5-2008.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES Part
B : Indirect taxes


8 Amendments in the Cenvat Credit Rules, 2004
w.e.f. 1-4-2008 — Clarification about Rule 6 : Circular No. 868/6/2008-CX dated
9-5-2008.

In the Finance Act, 2008, certain amendments are made, among
others, to Rule 6 of Cenvat Credit Rules, 2004. The above circular clarifies
certain doubts relating to these amendments.

 

Others :

Employees’ State Insurance Corporation has amended the
Regulation 26 of the ESI (General) Regulations, 1950 and the Return of
Contributions in Form 5. The salient features of the amendments made in the Form
5 are as under :

Sr.
No. 		Category of dealers
 Eligibility criteria
 Period of
first return 		Due date of
submission of such first return
1 Dealers eligible to
file monthly returns		 (1) Taxes paid more
than Rs.10 lac or Refund was more than Rs.1 crore during the previous year		 April 2008 21-5-2008
2 Dealers eligible to
file quarterly returns

(1) Dealers under Package Scheme of Incentive. to
30-6-2008

(2) Taxes paid more than Rs.1 lac and less than Rs.10 lac
or Refund more than Rs.10 lac and less than Rs.1 crore during the previous
year

 1-4-2008 21-7-2008
3 Dealers eligible to
file six-monthly returns 		(1) Newly registered
dealers

(2) Retailers
opted for Composition

 (3)
Taxes paid less than Rs.1 lac or Refund less than Rs.10 lac during the
previous year

 1-4-2008 to 30-9-2008
Scheme		 21-10-2008




  • Self declaration by the employers, regarding maintenance of records and
    registers, submission of declaration forms, distribution of
    temporary/permanent identity cards, coverage of employees directly or through
    immediate employers and wages paid to workers.



  • All employers employing 40 or more employees, shall append a certificate duly
    certified by a Chartered Accountant, in the revised format of Return of
    Contributions.


All employers, employing less than 40 employees, will provide
self certification without any certification by a C.A.


levitra

Amendments to VAT rule for periodicity of filing of returns under Rule 17 of Maharashtra Value Added Tax Rules 2005 : Trade Circular No. 17T of 2008 dated 5-5-2008.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES Part
B : Indirect taxes




M-VAT

7 Amendments to VAT rule for periodicity of
filing of returns under Rule 17 of Maharashtra Value Added Tax Rules 2005 :
Trade Circular No. 17T of 2008 dated 5-5-2008.

The Government by Notification No. VAT/1507/CR 17/Taxation 1
dated 31-10-2007 and No. VAT/1507/CR 94/Taxation 1 dated 14-3-2008 has carried
out certain amendments to Rule 17 of Maharashtra Value Added Tax Rules, 2005
pertaining to the periodicity of filing of return.

 

As per the amendments the periodicity of filing of Returns
for the periods starting on or after 1st April 2008 will be as under :




  • The earlier return forms 221, 222, 223, 224 and 225 have been replaced with
    the new return forms 231,232, 233, 234 and 235, respectively.



  • The dealers whose tax liability in the previous year i.e. 2006-07 was
    equal to or above Rs.1 crore, have to file their return from February 2008
    onwards in electronic form.



  • The dealers whose tax liability in the previous year i.e. 2007-08 was
    equal to or above Rs.10 lakhs, have to file their return for the month of May
    2008 onwards in electronic form.



  • The dealers eligible to file electronic return under MVAT Act Rules should
    file their Central Sales Tax return in Form IIIE electronically.



levitra

Post Budget notifications to give effect to the provisions of Finance Act, 2008 (18 of 2008) dated 10-5-2008 (Press release reproduced).

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES Part
B : Indirect taxes


Service tax :

6 Post Budget notifications to give effect to
the provisions of Finance Act, 2008 (18 of 2008) dated 10-5-2008 (Press release
reproduced).

The Finance Bill, 2008 received the assent of the President
of India on the 10th May 2008 and consequently the Finance Act, 2008 is being
published in the Gazette of India dated 10th May 2008 as Act No. 18 of 2008.
Central Government has issued seven notifications relating to service tax so as
to give effect to various provisions of the Finance Act, 2008.


 

2. Transaction between associated enterprises :



2.1 In the Finance Act, 2008, S. 67 has been amended. As per
this amendment, service tax is required to be paid by the person liable to pay
service tax on the taxable services provided even if the consideration for the
taxable services provided is not actually received. In such cases, service tax
is required to be paid immediately after crediting/debiting of the amount in the
books of accounts or receipt of payment, whichever is earlier. However, this
provision is restricted to transaction between associated enterprises and shall
come into force w.e.f. 10th May 2008. Explanation to Rule 6(1) of the Service
Tax Rules, 1994 has been added as removal of doubts stating that any payment
received towards the value of taxable service shall include any amount credited
or debited, as the case may be, to any account, whether called ‘Suspense
account’ or by any other name, in the books of account of a person liable to pay
service tax (Refer Notification No. 19/2008-Service Tax dated 10-5-2008).


 

3. Certain provisions relating to the levy of service tax in
the Finance Act, 2008 shall come into force from a date to be notified. For this
purpose, Notifications No. 18/2008 to 24/2008-Service Tax, all dated 10th May,
2008 have been issued.

 

4. Following changes/amendments shall come into force w.e.f.
16-5-2008 :


à
Seven services which are specifically mentioned in the category of taxable
services and amendments made relating to existing taxable services.


à
Amendments made in S. 65 (defines taxable services and specified terms used in
relation to taxable services) and S. 66 (charging section) vide the Finance
Act, 2008.


à
Amendments made in Export of Services Rules, 2005 and the Taxation of Services
(Provided from Outside India and Received in India) Rules, 2006 so as to
categorise the newly specified taxable services under Rule 3 [Refer
Notification No. 20/2008-Service Tax dated 10-5-2008 and Notification No.
21/2008-Service Tax dated 10-5-2008].


à
Optional Scheme for payment of service tax on Purchase or Sale of foreign
currency : Service tax is leviable on purchase or sale of foreign currency,
including money changing, provided by an authorised dealer in foreign currency
or an authorised money changer, or a foreign exchange broker. Where the
consideration for the services provided in relation to purchase or sale of
foreign currency is not explicitly indicated, the person liable to pay service
tax has been given the option to pay service tax calculated at the rate of
0.25% of the gross amount of currency exchanged. The method is prescribed
under Rule 6(7B) of the Service Tax Rules, 1994. [Refer Notification No.
19/2008-Service Tax dated 10-5-2008].


5. Government of India has already notified, vide
Notifications No. 41/2007-Service Tax, dated 6-1-2007 and 43/2007-ST, dated
29-11-2007, sixteen taxable services attributable to export goods, whether or
not in the nature of input services, providing refund of service tax paid on the
said sixteen taxable services. Consequent upon the enactment of the Finance Act,
2008, Government has notified 16-5-2008 as the effective date for the
specifically included taxable services vide the Finance Act, 2008. Out of the
said taxable services, refund of service tax paid by exporters has been extended
to the following additional 3 services :


à
Purchase or sale of foreign currency under banking and other financial
service,


à
Purchase or sale of foreign currency under foreign exchange broking service,


à
Supply of tangible goods for use of service (refer Notification No.
24/2008-ST, dated 10-5-2008)


6. Notifications No. 18/2008 to 24/2008-Service Tax, all
dated 10th May 2008 are available on the CBEC website http://www.cbec.gov.in.
For details, relevant provisions of the law and notifications may be referred of
the Ministry of Finance, Department of Revenue, Tax Research Unit, Govt. of
India.


Revision of monetary limits for filing appeals by the Income-tax Department before ITAT, HC and SC : Instruction No. 5/2008, dated 15-5-2008.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES



5 Revision of monetary limits for filing
appeals by the Income-tax Department before ITAT, HC and SC : Instruction No.
5/2008, dated 15-5-2008.

Appeals shall be filed by the Department after 15th May,
2008, only if the cases where tax effect exceeds monetary limits given
hereunder :

Sr. No.
Appeals in Income tax matters
Monetary limit (In Rs.)
1
Appeal before Appellate Tribunal
2,00,000
2
Appeal u/s.260A before High Court
4,00,000
3
Appeal before Supreme Court
10,00,000

Tax effect has been defined to mean difference between tax
assessed and tax that would have been chargeable on disputed issues (to apply to
loss cases also). It is also clarified that ‘tax’ shall not include interest. In
the cases of penalty orders, the tax effect will mean quantum of penalty deleted
or reduced in the order to be appealed against. The instructions also specify
the cases, wherein appeal can be filed by Department irrespective of the
monetary limit and the mode of computation for consolidated appeals which cover
more than one assessment year. It has been clarified that non-filing of appeal
by department due to monetary limits as prescribed does not mean the decision as
taken by the appropriate authority is accepted. Also there are instances
specified when the appeal needs to be filed irrespective of the quantum
involved.

levitra

Clarification on deduction of tax at source on service tax component on rental income u/s.194-I.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES


4 Clarification on deduction of tax at source
on service tax component on rental income u/s.194-I.

CBDT has clarified that TDS provisions u/s.194-I would be
applicable only on the net rent paid/payable excluding the service tax
component.


levitra

India has signed a DTAA with Mexico. The said agreement shall enter into force on a date to be notified in due course.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES


3 India has signed a DTAA with Mexico. The
said agreement shall enter into force on a date to be notified in due course.

 

levitra

Benign Assessment procedure for assesses engaged in diamond manufacturing and/or trading : Instruction No. 2/2008 dated 22-2-2008.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES


2 Benign Assessment procedure for assesses
engaged in diamond manufacturing and/or trading : Instruction No. 2/2008 dated
22-2-2008.

In the last Budget, the Finance Minister had announced a
Benign Assessment procedure for assesses engaged in diamond manufacturing and/or
trading. The main features of the scheme are :



  •  If the assessee offers 6% or more of its total turnover as business income,
    the same should be accepted by AO



  •  Separate books of account need to be maintained



  •  6% would not be a precedent for that or any other assessee



  • This procedure would not apply when :



* assessment is pursuant to search, survey, requisition or seizure action


* 50% or more of such income is claimed as a deduction


* Where there is information of income being escaped




  •  The said procedure shall apply for assessments made during the financial year
    2008-09.




levitra

The Finance Bill, 2008 received the assent of the President of India on 10th May 2008, after certain amendments to clauses of Finance Bill, 2008.

fiogf49gjkf0d

New Page 2

Part A : DIRECT TAXES


1 The Finance Bill, 2008 received the assent
of the President of India on 10th May 2008, after certain amendments to clauses
of Finance Bill, 2008.

 

levitra

Powers of CIT(A) — Rule 24 of Appellate Tribunal Rules, 1963 — Whether CIT(A) can dismiss appeal for want of prosecution by assessee — Held, No. Whether CIT(A) is bound to dispose of appeal on merits, even when there is default of non-appearance — Held, Y

fiogf49gjkf0d

New Page 1

31 2008 TIOL 601 ITAT Mum.


British Pharmaceutical Laboratories v. ACIT

ITA No. 6263/Mum./2006

A.Y. : 1999-2000. Dated : 1-10-2008

Powers of CIT(A) — Rule 24 of Income-tax Appellate Tribunal
Rules, 1963 — Whether CIT(A) can dismiss the appeal for want of prosecution by
the assessee — Held, No. Whether CIT(A) is bound to dispose of the grounds of
appeal on merits, even when there is a default of non-appearance by the
appellant — Held, Yes.

 

Facts :

The assessee filed a return of income declaring a loss of
Rs.2,19,69,182. The Assessing Officer passed an order u/s.143(3) of the Act
assessing the total income of the assessee at Rs.19,75,603. Aggrieved, the
assessee preferred an appeal to the CIT(A), but failed to attend the
proceedings before the CIT(A). The CIT(A) did not record decision on merits on
the ground of assessee’s failure to attend the proceedings and by taking a
clue from the decision of the Delhi Tribunal in the case of Multiplan (India)
Ltd., he dismissed the appeal. Aggrieved, the assessee preferred an appeal to
the Tribunal.

 

Held :

The Tribunal noted that under Rule 24 of the Income Tax
Appellate Tribunal Rules, 1963 the Tribunal has the power to dismiss an appeal
for want of prosecution and it is also empowered to recall that order, if
satisfied about the existence of reasonable cause subsequently shown by the
appellant. The Tribunal held that since the CIT(A) does not have such a power
under the Income-tax Act, 1961, he is bound to dispose of the grounds of
appeal on merits, even when there is a default of non-appearance by the
appellant. Since the CIT(A) had not recorded decision on merits, the Tribunal
set aside his order and restored the appeal to the file of the CIT(A) for
fresh disposal in accordance with law, after giving reasonable opportunity of
being heard to the assessee.

 


levitra

S. 254(2) — The order pronounced at the conclusion of the hearing is an order of the Tribunal — It cannot be called a tentative order or a prima facie view — If there is mistake apparent on record, the order pronounced in the Court which is an oral order

fiogf49gjkf0d

New Page 1

 Part A: Reported Decisions

 

14 (2010) 36 DTR (Chennai) (TM) (Trib) 42
ITO v. M. Vijayan/ITO v. Smt. V. Meenakshi
A.Ys. : 1999-00 to 2004-05. Dated : 18-12-2009

 

S. 254(2) — The order pronounced at the conclusion of the
hearing is an order of the Tribunal — It cannot be called a tentative order or a
prima facie view — If there is mistake apparent on record, the order pronounced
in the Court which is an oral order can be recalled to rectify such mistake.

Facts :

In this case, a survey u/s.133A was conducted at the business
premises of the assessee (M. Vijayan). During the course of survey, certain
documents pertaining to income and investment were found. Sworn statements were
recorded from the assessee and his wife. On the basis of sworn statements
supplied during the course of the survey, the Assessing Officer inferred that
the income and investment shown in the name of the wife actually belonged to the
assessee and he therefore made the impugned addition in the hands of the
assessee on substantive basis and in thehands of the wife on protective basis.

Upon assessee’s appeal, the learned CIT (A) found that the
wife had independent sources of income. He also found that there is no finding
that the money was actually invested by the husband or that he enjoyed the
profits earned from the business and investment in the name of his wife. Hence,
he allowed the assessee’s appeal and deleted the addition in the hands of the
husband.

Upon further appeal by the Revenue, the Tribunal decided the
issue in favour of the assessee relying on the decision of the jurisdictional
High Court in the case of CIT v. S. Khader Khan Son, (300 ITR 157) (Mad.)
wherein it was held that the materials collected and the statements recorded
during the survey u/s.133A were not conclusive piece of evidence by itself. The
order was pronounced in the open Court as well as communicated orally to the
parties concerned.

The Judicial Member subsequently proposed to recall the order
on the ground of non-consideration of the judgment of the jurisdictional High
Court in the case of H. Shahul Hameed v. ACIT, (258 ITR 266) (Mad.). Difference
of opinion arose between the Members regarding refixing the matter for hearing
and also on merits of the issue and therefore the matter was referred to the
Third Member.

Held :

The order pronounced at the conclusion of the hearing is an
order of the Tribunal. It cannot be called a tentative order or a prima facie
view. In the present case, the order is pronounced as well as communicated
orally to the parties concerned and hence it is an order. De hors the facts of
the present case, if there is mistake apparent on record, the order pronounced
in the Court which is an oral order can be recalled to rectify such mistake.

In the present case, there was no search but only survey
u/s.133A. In the decision of S. Khader Khan Son (supra), the jurisdictional High
Court has distinguished the provisions of S. 132(4) with those of S. 133A and
held that the material collected and statements recorded during the survey
u/s.133A are not conclusive piece of evidence and that the same cannot be the
basis for making any addition. Therefore the judgment based upon which the
Judicial Member has proposed to recall the order is not applicable to the facts
of the case. Further, the fact that the Judicial Member had to devote nearly
twenty-five pages to point out the error and then to set it aside for
reconsideration, itself proves that the conclusion of the Judicial Member is the
result of a long drawn-out process of reasoning on points where there may
conceivably be two opinions and thus, there was no mistake apparent from record.

Further, instead of acting upon what had been conclusively
pronounced in the Court, the Judicial Member kept the matter pending with him
and expressed his opinion to reopen the case after three months as against the
long-standing convention of passing dissenting orders within fifteen days.
Therefore, the matter cannot be refixed for hearing on the ground that there is
a mistake apparent from record.

 

levitra

Extension of date for physical submission of acknowledgement of audit report in Form 704 — Trade Circular No. 16T of 2010, dated 10-5-2010.

fiogf49gjkf0d

New Page 2

Part B : Indirect Taxes


MVAT

37 Extension of date for physical submission of
acknowledgement of audit report in Form 704 — Trade Circular No. 16T of 2010,
dated 10-5-2010.

Date for physical submission of acknowledgement of Audit
Report in Form 704 along with required document is extended from 10-5-2010 to
15-5-2010.

levitra

Clarification on Instruction No. 49 on FTWZ issues — Instruction No. 71, dated 12 November 2010 (reproduced)

fiogf49gjkf0d

New Page 4

Part E : Miscellaneous


2. Clarification on Instruction No. 49 on FTWZ issues —
Instruction No. 71, dated 12 November 2010 (reproduced)


I am directed to refer to Instruction No. 49 dated 12 March
2010 of this Department and to amend the point no. (iv) of the above-mentioned
instruction to the extent that instrad of there being no limitation on units set
up in FTWZ located in sector specific SEZs to carry out trading and warehousing
activities in respect of any products, it has been decided that units in Free
Trade Warehousing Zones (FTWZ) in a Sector Specific SEZ can store goods required
for development of zone or setting up of units or for manufacturing and export/DTA
sale of goods and services or
finished products of the units in that particular sector-specific zone.

Yours faithfully

G. Muthuraja
Under Secretary to the Government of India


levitra

Revision of Form 32 pertaining to change in directors, manager, secretaries (vide Notification GSR 68(E), dated 10-2-2010), with effect from 14-3-2010.

fiogf49gjkf0d

New Page 1

Part D : Company Law updates





15 Revision
of Form 32 pertaining to change in directors, manager, secretaries (vide
Notification GSR 68(E), dated 10-2-2010), with effect from 14-3-2010.

Under the Notification :


1. Form 32 can be filed
for those directors who do not have a DIN and who have ceased to be
associated with the company on or before 31-10-2006.

2. Signatory to the form
has to verify that the director has given declaration to the company in
writing that he is not restrained/disqualified/removed of, for being
appointed as a director under the provisions of the Act including S. 203, S.
274 and S. 388E.



levitra

Circular No. 2 of 2010, dated 30-9-2010 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

fiogf49gjkf0d

Spotlight

Given below are the highlights of certain RBI/DIPP Circulars.


17. Circular No. 2 of 2010, dated 30-9-2010 issued by the
Department of Industrial Policy & Promotion, Ministry of Commerce & Industry,
Government of India.

This Circular has updated the FDI Policy by incorporating all
instructions and clarifications up to September 30, 2010.

The substantive issues clarified are :

(i) Incorporation of Press Note 2 of 2010, relating to the
prohibition on manufacture of cigarettes, etc.

(ii) Clarification on the coverage of ‘controlled
conditions’ for FDI in agriculture, animal
husbandry, etc.

(iii) Clarification on the concept of value addition in
case of mining and mineral separation of titanium bearing minerals.

(iv) Clarification that 100% foreign owned NBFCs, with a
minimum capitalisation of $ 50 million, can set up subsidiaries for specific
NBFC activities, without bringing additional capital towards minimum
capitalisation.

(v) Introduction of specific provision for
downstream investment through internal accruals.

(vi) Clarification of the terms ‘original investment’ and
‘lock-in period’ in case of minimum capitalisation of construction development
projects.

(vii) Removal of the condition that ‘wholesale trading made
to group companies should be for internal use only’ in the guidelines for Cash
& Carry Wholesale Trading.

(viii) Clarification that minimum capitalisation includes
share premium received along with face value of the shares only when it is
received by the company upon issue of the shares to the non-resident
investors.

(ix) Amendment of Note below the definition of ‘Capital’ to
allow for FDI in partly-paid shares and warrants through the Government route.

(x) Changes in the paragraphs relating to issue price of
shares and addition of a paragraph on share-swaps, consistent with extant
instructions.


levitra

Criteria for identification of a vanishing company — Clarification on MCA website

fiogf49gjkf0d

New Page 1

Part D : Company Law updates


18 Criteria
for identification of a vanishing company — Clarification on MCA website

A company would be deemed to
be a vanishing
company, if it is found to have :


(a) Failed to file
returns with Registrar of Companies (ROC) for a period of two years;

(b) Failed to file
returns with Stock Exchange (SE) for a period of two years (if it continues
to be a listed company);

(c) It is not
maintaining its registered office of the company at the address notified
with the Registrar of Companies/Stock Exchange; and

(d) None of its
directors are traceable.



Notes :




(i) All the conditions
mentioned above would have to be satisfied before a listed company is
declared as a vanishing company; and

(ii) The conditions
mentioned at (a), (c) and (d) would suffice to declare a company as
vanishing if such company has been de-listed from the Stock Exchange.




erala, Lakshadweep, Madhya
Pradesh, Maharashtra, Manipur, Meghalaya, Orissa, Punjab, Rajasthan, Tamil Nadu,
Uttar Pradesh, Uttarakhand and West Bengal with effect from 1st April 2010.

levitra

Updated list of S. 25 companies is available at the following : URL http://www.mca.gov.in/Ministry/pdf/S. 25 — Companies — 6nov2008.pdf

fiogf49gjkf0d

New Page 1

Part D : Company Law updates





 




17 Updated
list of S. 25 companies is available at the following : URL http://www.mca.gov.in/Ministry/pdf/S.
25 — Companies — 6nov2008.pdf

levitra

New Form 68 (vide Notification GSR 177(E), dated 5-3-2010) pertaining to application for rectification of mistakes apparent on record in e-Form 1A, e-Form 1 and Form 44 with effect from 14-3-2010.

fiogf49gjkf0d

New Page 1

Part D : Company Law updates


16 New Form
68 (vide Notification GSR 177(E), dated 5-3-2010) pertaining to application for
rectification of mistakes apparent on record in e-Form 1A, e-Form 1 and Form 44
with effect from 14-3-2010.

Under the Notification
u/s.20G(1), an application for rectification of mistakes made while filing Form
No. 1, Form No. 1A and Form No. 44 electroncially on the Ministry’s website,
shall be made to the Registrar of Companies in Form No. 68 and such application
shall be accompanied by fee of Rs.1000 for rectification of mistakes in Form No.
1 and Form No. 1A, and Rs.10,000 for rectification of mistakes in Form No. 44,
respectively. An application in Form 68 complete in all respects shall be made
to the Registrar within 365 days from the date of approval of Form No. 1, Form
No. 1A and Form No. 44, respectively by the Registrar.

This rectification of
mistakes is also applicable to Form 1, Form 1A and Form 44 approved by the
Ministry prior to 14th March, 2010 and the mistakes shall be examined, approved
and intimated to the applicant within 60 days of filing the Form. It is also
provided that the rectification of mistakes shall be allowed only once in
respect of one company.

levitra

S. 22 and S. 24 of the Income-tax Act, 1961 — Rent, being only a surrogate measure of annual value, has to be reduced by the expenses not connected with property but incurred by landlord for enjoyment of property by tenants, such as salary and bonus to sw

fiogf49gjkf0d

New Page 1

  1. (2009) 120 TTJ 1127 (Ahd.)


J. B. Patel & Co. (Co-owners) v. Dy. CIT

ITA No. 4033 (Ahd.) of 2004

A.Y. : 1993-94. Dated : 29-2-2008

S. 22 and S. 24 of the Income-tax Act, 1961 — Rent, being
only a surrogate measure of annual value, has to be reduced by the expenses
not connected with property but incurred by landlord for enjoyment of property
by tenants, such as salary and bonus to sweeper, pumpman and liftman and
electricity charges for pump motor and common passage.

For the relevant assessment year, the assessee computed
rental income under ‘Income from House Property’ after claiming deductions in
respect of the following expenses :

(a) Salary and bonus paid to sweepers/pumpman/liftman

(b) Electricity charges for pump motor and common
passage.

Since these expenses were not covered by S. 23 and S. 24,
the Assessing Officer denied the assessee’s claim. The disallowance was upheld
by the CIT(A).

The Tribunal, deciding in assessee’s favour, noted as
under :

(1) The rent being charged by the assessee is only a
surrogate measure of the said annual value. The expenditure on the aforesaid
items, i.e. the salary (including bonus) to the maintenance staff of
the facilities such as electric motors, lift, cleaning, etc., as well as
that on the electricity consumed in respect of any common area and the
electric motors, is not attributable directly to the house property as such,
but to its enjoyment by the tenants/users thereof.

(2) In a given case it may happen that the said
expenditure is incurred by the tenant or tenants (collectively), with the
landlord having no locus standi or role therein. Who incurs the expenditure
in the first instance is only a matter of mutual arrangement or convenience
and thus, of no consequence where the bona fides of such expenditure are, as
in the present case, not in doubt. The rent being charged by the assessee,
which represents the measure of its annual value, would, in such a case
stand correspondingly reduced.

(3) As such, although the assessee, being entitled only
to the deductions in respect of the said expenditure in the computation of
income under the said head of income only in terms of its provisions, would
not be entitled to the impugned deductions, we consider that the annual
value of its house property be assumed at the reduced value, i.e.
after deducting the impugned amounts (from the rental), being only in
relation to the expenditure required to be necessarily incurred for the
enjoyment/user of the relevant property and, therefore, can only be
considered as having been included at the said amount, i.e. at cost
by the two parties in the determining of the rental.

(4) The standard deduction admissible to the assessee on
account of repairs @ 1/6th of the annual value of its house property is in
relation to the repairs, whether actually incurred or not, by the assessee
during the relevant year. The impugned sums are not in relation to any
repairs to the house property, but for the maintenance of the facilities
enjoined therewith and necessary for its useful enjoyment.

levitra

S. 143(1) and S. 263 of the Income-tax Act, 1961 — Provisions of S. 263 are not applicable where only intimation u/s.143(1) has been issued.

fiogf49gjkf0d

New Page 1

  1. (2009) 120 TTJ 1009 (Agra) (TM)


Vinod Kumar Rai v. CIT

ITA No. 234 (Agra) of 2005

A.Y. : 2002-03. Dated : 21-11-2008

S. 143(1) and S. 263 of the Income-tax Act, 1961 —
Provisions of S. 263 are not applicable where only intimation u/s.143(1) has
been issued.

For the relevant assessment year, the CIT passed a revision
order u/s.263 in respect of the return of income processed u/s.143(1). Before
the Tribunal, the assessee contended that the processing u/s.143(1) is neither
an assessment nor an assessment order and the same cannot be subjected to
revision u/s.263 and the revision order made by the CIT may, therefore, be
declared as bad in law.

On account of difference of opinion between members of the
Bench, the matter was referred to the Third member u/s.255(4).

The Third Member held in favour of the assessee. The Third
Member noted as under :

(a) After an intimation u/s.143(1) is issued, the
Assessing Officer had full power to issue a notice u/s.143(2) and make a
regular assessment u/s.143(3). The Assessing Officer could also proceed
u/s.147/148, if applicable.

(b) There was no explanation as to why these provisions
were not applied in this case.

(c) Various High Courts in India are not unanimous
whether provisions of S. 263 are applicable where only intimation u/s.143(1)
has been issued, whether such intimation is an order or assessment to
attract provisions of S. 263. The Supreme Court, at an appropriate time,
will take up and settle the issue.

(d) It is clear from the record that two reasonable views
of the matter are possible. In such a situation, it has been laid down by
the Supreme Court in numerous cases that the view which is favoring the
assessee has to be taken.

Therefore, it was held that the intimation u/s.143(1)
cannot be sought to be revised u/s.263.

levitra

S. 32 of the Income-tax Act, 1961 — Commercial right comes into existence whenever the assessee makes payment of non-compete fee and such non compete right is an intangible asset eligible for depreciation.

fiogf49gjkf0d

New Page 1

  1. (2009) 120 TTJ 983 (Chennai)


ACIT v. Real Image Tech. (P) Ltd.

ITA No. 201 (Mad.) of 2007

A.Y. : 2001-02. Dated : 15-2-2008

S. 32 of the Income-tax Act, 1961 — Commercial right comes
into existence whenever the assessee makes payment of non-compete fee and such
non compete right is an intangible asset eligible for depreciation.

During the relevant assessment year, the non-compete fees
paid by the assessee in pursuance of non-compete agreements entered into by it
with certain companies was claimed as revenue expenditure and the claim was
disallowed by the Assessing Officer. Under an application to the Joint CIT
u/s.144A, the assessee made an alternate plea for treating such fees as
capital expenditure — it should be treated as an intangible asset u/s.32 and
depreciation be allowed accordingly. The Jt. CIT did not allow the same,
holding that the payment was capital in nature i.e. neither a revenue
expenditure nor a capital expenditure. The CIT(A) allowed the assessee’s
claim.

The Tribunal, relying on the decisions in the following
cases, allowed the assessee’s claim for depreciation :

(b) ACIT v. Radaan Media Works India Ltd., ITA No.
2241 (Mad.) of 2006 dated 14-12-2007

(c) Techno Shares & Stocks Ltd. v. ITO, (2006) 101
TTJ 349 (Mum.)

The Tribunal noted as under :

(1) When a businessman pays money to another businessman
for restraining the other businessman from competing with the assessee, he
gets a vested right which can be enforced under law and without that the
other businessman can compete with the first businessman.

(2) When by payment of non-compete fee, the businessman
gets his right what he is practically getting is kind of monopoly to run his
business without bothering about the competition.

(3) Generally, non-compete fee is paid for a definite
period which in this case is five years. The idea is that by that time the
business would stand firmly on its own footing and can sustain later on.
This clearly shows that a commercial right comes into existence whenever the
assessee makes payment for non-compete fee.

(4) The term ‘or any other business or commercial rights
of similar nature’ has to be interpreted in such a way that it would have
some similarities as other assets mentioned in clause (b) of Expln. 3. The
other assets mentioned are know-how, patents, copyrights, trade marks,
licences, franchises, etc. In all these cases no physical asset comes into
possession of the assessee. What comes in is only a right to carry on the
business smoothly and successfully and, therefore, even the right obtained
by way of non-compete fee would also be covered by the term ‘or any other
business or commercial rights of similar nature’ because after obtaining
non-compete right, the assessee can develop and run his business without
bothering about the competition. The right acquired by payment of
non-compete fee is definitely an intangible asset.

(5) This right (asset) will evaporate over a period of
time (of five years in this case) because after that the protection of
non-competition will not be available to the assessee. This right is subject
to wear and tear by the passage of time, in the sense that after the lapse
of a definite period of five years, this asset will not be available to the
assessee and, therefore, this asset must be held to be subject to
depreciation.

levitra

S. 56(2)(v) of the Income-tax Act, 1961 — Interest-free loan obtained by assessee from sister concerns for purchase of a flat from one of them cannot be said to be without consideration because while the assessee was benefited by interest-free loan, lende

fiogf49gjkf0d

New Page 1

  1. (2009) 121 TTJ 145 (Mumbai)


Chandrakant H. Shah v. ITO

ITA No. 3966 (Mum.) of 2008

A.Y. : 2005-06. Dated : 12-1-2009

S. 56(2)(v) of the Income-tax Act, 1961 — Interest-free
loan obtained by assessee from sister concerns for purchase of a flat from one
of them cannot be said to be without consideration because while the assessee
was benefited by interest-free loan, lenders were benefited by profit embedded
in the sale consideration, hence not exigible to tax u/s.56(2)(v).

During the relevant assessment year, the assessee took
interest-free loans of Rs.54.70 lacs from four builders (sister concerns) for
purchasing a flat from one of them. The assessee was also employed with one of
the concerns. The Assessing Officer formed an opinion that the assessee was
working with the group for several decades and, hence, having regard to the
said association, these parties gave such a huge loan to the assessee without
any security and interest as a mark of gratitude irrespective of his repayment
capacity and, therefore, in the absence of any obligation on the part of the
assessee to repay these loans, the entire transaction was of the nature of
gift which was given a colour of loan. Accordingly, he added a sum of Rs.54.45
lacs after giving a rebate of Rs.25,000 u/s.56(2)(v) to the total income of
the assessee.

The CIT(A) held that such loan transactions were abnormal
in the sense that there was no interest or any repayment stipulation, and
hence, the said sums were without consideration and upheld the addition.

The Tribunal, relying on various decisions, deleted the
addition.

The Tribunal noted as under :

(1) All these loans have been shown in the balance sheet
submitted along with the return of income as loans and the lenders have also
confirmed the same as such. Thus, apparently, it is a case of loan
transactions and not a case of gift.

(2) Since some of the loans were repaid partly/fully, it
was a material fact so as to rebut the presumption of the Assessing Officer
that the assessee was not under any obligation to repay the loans and this
fact also proves the assessee’s claim that no opportunity was granted by the
Assessing Officer to the assessee before making such addition.

(3) This type of addition also leads to a situation of
having two provisions for charging one type of income i.e. the
legislature has provided two charging sections i.e. S. 68 and S. 56
(2)(v) which cannot be possible. In that case, the legislature would have
made the provisions of S. 56(2)(v) either of overriding nature by stating
that ‘notwithstanding anything contained in S. 68’ or by providing for
applicability of provisions of S. 56(2)(v) in any other manner, in case
provisions of S. 68 could not be invoked. When a specific provision exists
in law for a particular thing, then that thing is liable to be examined
thereunder only and if that item cannot be taxed under that provision, then
that thing cannot be charged to tax under other provisions of the Act.

(4) In the present case, it is not that provisions of S.
68 were not applicable at all and, hence, the Assessing Officer invoked the
provisions of S. 56(2)(v). On the contrary, the Assessing Officer has made
necessary enquiries in that regard and he has not made addition u/s.68 for
the reason that all the requirements of that section i.e. identity,
creditworthiness and genuineness of transactions have been proved. Hence, a
loan transaction has to be treated as a loan transaction only and it should
be examined in the light of provisions of S. 68 and not under provisions of
S. 56(2)(v) and for this reason alone, this addition is liable to be
deleted.

(5) It is important to note that in S. 56(2)(v), the term
‘consideration’ is neither prefixed by the word ‘adequate’ nor it is
suffixed by the words ‘money or money’s worth’. Hence, if in any transaction
there exists consideration as per the provisions of the Indian Contract Act,
1872 such transaction would not come into the ambit of this section.

(6) Consideration for a promise may consist of either
some benefit conferred on the promisor or detriment suffered by the promisee
or both. Hence, on this criteria, the assessee has gained by way of
interest-free loan and the lenders have suffered by giving interest-free
loans and such suffering has got some value and, therefore, the said
transaction cannot be said to be without consideration.

(7) There is another very important aspect of the matter,
i.e. lenders have sold the flat to the assessee. In that sale
consideration, they have earned profit because it is nobody’s case that the
flat to the assessee has been sold at cost. Therefore, lenders have also
derived some benefit which has got value and, therefore, the same forms
consideration for giving interest-free loans to the assessee. Other three
lenders are the sister concerns of the company who actually built or sold,
hence the benefit derived by such company is a good consideration for other
three lenders. Benefit conferred to a third party not connected with the
promissor or promise in a pecuniary capacity would also be a good
consideration to support the transaction. There can be consideration without
any apparent monetary consideration and the only requirement is that the
consideration should create a legal relationship between the contracting
parties and this fact is not in dispute in the present case. Hence, the
transaction is with consideration. The term ‘consideration’ in legal sense,
is somewhat different from what is generally understood and the Revenue’s
decision is based on general understanding and, therefore, the same is not
correct in law. The transaction meets all the requirements of general law
which is only to be looked into while invoking provisions of S. 56(2)(v)
and, therefore, it is a transaction having a consideration and, therefore,
the same does not fall within the ambit of the provisions of S. 56(2)(v) for
this reason also.

 

levitra

E-payment of Stamp Duty.

fiogf49gjkf0d

New Page 1

Part D : Company Law updates





 




19
E-payment of Stamp Duty.

Vide Notifications Number
GSR 642(E) and SO 2276(E), dated 7-9-2009 and SO 3314(E), dated 31-12-2009,
Payment of Stamp Duty for Form No. 1, Memorandum of Association, Articles of
Association, Form No. 5 and Form No. 44 is mandatory to be paid electronically,
through MCA portal (www.mca.gov.in) in respect of the States and Union
Territories of Andaman and Nicobar Islands, Andhra Pradesh, Arunachal Pradesh,
Assam, Bihar, Chhattisgarh, Delhi, Gujarat, Haryana, Jharkhand, Karnataka,
Kerala, Lakshadweep, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Orissa,
Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttarakhand and West Bengal with
effect from 1st April 2010.

levitra

S. 14A and S. 48 of the Income-tax Act, 1961 (i) Interest on funds borrowed for acquisition of shares is to be taken into account towards the cost of acquisition for the purpose of computation of capital gains as prescribed u/s.48(ii)

fiogf49gjkf0d

New Page 1

  1. (2009) 120 TTJ 397 (Pune)


Balan alias Shanmugam Balkrishnan Chettiar v.
Dy. CIT

ITA No. 1859 (Pune) of 2005

A.Y. : 2002-03. Dated : 31-1-2008

S. 14A and S. 48 of the Income-tax Act, 1961 :


(i) Interest on funds borrowed for acquisition of
shares is to be taken into account towards the cost of acquisition for the
purpose of computation of capital gains as prescribed u/s.48(ii)


(ii) Capital gain on the sale of shares being part of
the total income of the assessee and not an exempt income, S. 14A has no
application.



For the relevant assessment year, the Assessing Officer and
the CIT(A) disallowed the assessee’s claim for inclusion of interest paid on
funds borrowed for investment in shares in the cost of acquisition for the
purpose of computing capital gains.

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

(a) CIT v. Mithilesh Kumari, (1973) 92 ITR 9
(Del.)

(b) Addl. CIT v. K. S. Gupta, (1979) 119 ITR 372
(AP)

(c) CIT v. Maithreyi Pai, (1984) 43 CTR 88 (Kar.)/
(1985) 152 ITR 247 (Kar.)

The Tribunal noted as under :

(1) In the past, the assessee had always capitalised the
interest.

(2) S. 48 says that capital gain is to be computed by
deducting from the consideration the cost of acquisition of the asset and
the cost of any improvement thereto.

(3) Once it is established that the assessee had borrowed
the funds for acquisition of shares and the burden of interest had been
capitalised, that interest burden cannot be segregated from the amount of
investment.

In response to the argument of the Revenue that since
interest had a nexus to exempt income, the provisions of S. 14A should be
applied, the Tribunal noted as under :

(1) The words ‘in relation to income which does not form
part of the total income under this Act’ mean if an income does form part of
the total income, then the related expenditure is out of the ambit of the
applicability of S. 14A. The capital gain shown by the assessee had formed
part of the total income of the assessee. Otherwise also, capital gain is
not exempt income and without any ifs and buts, always being taxed in the
hands of a taxpayer. Therefore, the Revenue authorities have proceeded on a
wrong premise that the interest expenditure was in respect of an income
which was exempt or did not form part of the total income.

 

levitra

S. 28(i) and S. 45 of the Income-tax Act, 1961 — Profit from sale of shares out of investment portfolio was taxable as capital gains and not as business income.

fiogf49gjkf0d

New Page 1

  1. (2009) 120 TTJ 216 (Luck.)


Sarnath Infrastructure (P) Ltd. v. ACIT

ITA No. 301 (Luck.) of 2006

A.Y. : 2004-05. Dated : 20-12-2007

S. 28(i) and S. 45 of the Income-tax Act, 1961 — Profit
from sale of shares out of investment portfolio was taxable as capital gains
and not as business income.

The assessee-company was dealing in shares both as business
as well as investment and keeping separate accounts in respect of the two
portfolios. Valuation of holdings in investment portfolio was done at cost
only and holdings were reflected in Balance Sheet as investment. For the
relevant assessment year, the profit on sale of shares out of the investment
portfolio was treated by the Assessing Officer as business income and not as
long term capital gain. The CIT(A) upheld the addition.

The Tribunal held that the said profit was to be treated as
long term capital gain and not as business income. The Tribunal’s decision was
arrived at after examining various decisions.

The Tribunal noted as under :

(1) The material on record showed that the assessee had
clear independent portfolios for investment in shares as well for trade and
it has kept separate accounts in respect of the two portfolios.

(2) The shares which were sold out of investment
portfolio during this year and on which capital gains have been offered by
the assessee were held by it for more than two years and in some cases for
more than three years.

(3) No material is brought on record by the Department to
show that demarcation line between business and investment is hazy or that
assessee has not maintained an investment portfolio and it was dealing in
shares only like a trader.

(4) Valuation of holdings has been done at cost for
investment portfolio. They were reflected in the Balance Sheet as
investment.

(5) The frequency of such purchase or sale in this
portfolio is not large enough to doubt that the investment portfolio is only
a device to pay lesser taxes by parking some stock-in-trade in the
investment portfolio.

(6) Turnover to stock ratio in investment portfolio is
very low as compared to that in trading portfolio. Further, there is no
material to show that these shares in the investment portfolio were also
traded in the same and like manner as those which were in stock-in trade
portfolio.

(7) All the sales out of the investment portfolio were
identifiable to purchases made in the same portfolio.

(8) In view of the above facts, the assessee had
discharged its primary onus by showing that it was maintaining separate
accounts for two portfolios and there was no intermingling. The onus then
shifted on the Revenue to show that apparent was not real. There was no
material brought in by the Revenue to show that separate accounts of two
portfolios were only a smoke screen and there was no real distinction
between the two types of holdings. This could have been done by showing that
there was intermingling of shares and transactions and the distinction
sought to be created between two types of portfolios was not real but only
artificial and arbitrary.

Therefore, in absence of any material to the contrary and
on appreciation of cumulative effect of several factors present, it was held
that the surplus was chargeable to capital gains only and the assessee was not
to be treated as trader in respect of sales and purchases of shares in the
investment port-folio.

 

levitra

Income-tax Act, 1961 — S. 194A — Whether a chit fund agreement is not a money lending contract but a special type of contract — Held, Yes. Whether in a scheme of chit fund there is neither any money borrowed nor any debt incurred, the dividends paid by th

fiogf49gjkf0d

New Page 1

  1. 2009 TIOL 328 ITAT (Bang.)


ITO v. Margasoochi Chits Pvt. Ltd.

ITA No. 995/Bang./2008

A.Y. : 2005-2006. Dated : 16-1-2009

Income-tax Act, 1961 — S. 194A — Whether a chit fund
agreement is not a money lending contract but a special type of contract —
Held, Yes. Whether in a scheme of chit fund there is neither any money
borrowed nor any debt incurred, the dividends paid by the foreman to the
subscribers of the chit cannot be said to be answering the definition of
interest — Held, Yes.

Facts :

In these cases the AO relying on the instructions issued by
CBDT held that the dividend payments made to the subscribers of chit fund were
in the nature of interest and were liable for deduction of tax at source
u/s.194A. Since the assessees had not deducted tax u/s.194A, the AO passed
orders u/s.201(1) and u/s.201(1A) in respect of five assessees for the
impugned assessment years by creating demand on the dividends paid but not
subjected to tax deduction at source. Since identical orders were passed in
all the fifteen appeals they were taken up together by the Tribunal.

The CIT(A) held that a chit agreement is not a money
lending contract, but a special type of contract and any payment with
reference to a chit agreement being referred to as interest payment does not
arise and installments in chit fund being non-refundable in nature cannot be
equated with ‘deposit’ and consequently, the dividend or discount credited to
the account of the subscribers would not constitute interest. He also held
that the CBDT circulars are not binding on the appellate authorities.

Aggrieved by the orders of CIT(A), Revenue preferred an
appeal to the Tribunal.

Held :

The Tribunal noted that the scheme of Chit Funds is
regulated by The Chit Funds Act, 1982 and S. 3 in Chapter I of the Chit Funds
Act provides that the provisions of the Act override all other laws,
memoranda, articles, etc. save as otherwise expressly provided in the Act. In
view of the non obstante clause the Tribunal held that the definitions of the
expression ‘discounts’, ‘dividends’, ‘prize amount’ as given in the said Chit
Funds Act will prevail over similar definition as found in the Income-tax Act.
The Tribunal held that in a scheme of chit fund there is neither any money
borrowed nor a debt incurred and since interest is defined in the Income-tax
Act as interest payable in any manner in respect of any monies borrowed or
debt incurred (including deposit) and in a chit fund there is neither any
money borrowed nor a debt incurred, the dividends paid by the foreman to the
subscribers of the chit cannot be said to be answering the definition of
interest. The Tribunal held that the demands created u/s.201(1) and
u/s.201(1A) were not justified. It upheld the order of the CIT(A) and
dismissed the appeals filed by the revenue.

 

levitra

Income-tax Act, 1961 — S. 40(a)(ia) and S. 194C — Whether an agreement entered into by the assessee with distributors whereby revenue was shared was a works contract and therefore liable to TDS u/s.194C — Held, No.

fiogf49gjkf0d

New Page 1

  1. 2009 TIOL 273 ITAT (Del.)


Competent Films Pvt. Ltd. v. ITO

ITA No. 3397/Del./2008

A.Y. : 2005-2006. Dated : 9-2-2009

Income-tax Act, 1961 — S. 40(a)(ia) and S. 194C — Whether
an agreement entered into by the assessee with distributors whereby revenue
was shared was a works contract and therefore liable to TDS u/s.194C — Held,
No.

Facts :

The assessee company was engaged in the business of running
of cinema hall, canteen and food courts. It had entered into a Memorandum of
Understanding (MOU) with M/s. Mukta Movies Distributors (Distributors) which
inter alia provided that — the assessee was to be a booking agent for
the cinema hall for three years; the assessee had exclusive rights to book
Hindi films for the said cinema and to run a certain number of shows daily as
per the local laws; the MOU also fixed the rate of admission to the cinema
hall; stated revenue at full capacity and the amount due to the assessee on a
weekly basis subject to the exceptions provided in the MOU.

The distributor raised a bill on the assessee under which
the daily collections were shown and after reducing the payment to be made to
the assessee for the cinema hall hired, a bill was raised for the balance by
the Distributor which bills were paid by the assessee. The Assessing Officer
(AO) held that the MOU was in the nature of a works contract and held the
assessee liable to deduct tax at source u/s.194C. Since the assessee had not
deducted tax on payments made to distributor pursuant to the said MOU, the AO
disallowed a sum of Rs.72,43,965 by invoking provisions of S. 40(a)(ia).

The CIT(A) upheld the order of the AO. Aggrieved, assessee
preferred an appeal to the Tribunal.

Held :

The Tribunal upon a close reading of the agreement held it
to be a profit sharing agreement. It further held that the agreement was not
for services rendered but for sharing the profits with the assessee. Following
the ratio of the decisions of Ahmedabad Bench of ITAT in Sunsel
Drive-in-Cinema (P.) Ltd. v. ITO, (2006) 5 SOT 64 (Ahd.) and Mumbai Bench
of ITAT in ITO v. Shrinagar Cinemas (P.) Ltd., (2008) 20 SOT 480 (Mum.)
it held that there was no works contract and, therefore, the assessee was not
liable to deduct any tax u/s.194C of the Act. The Tribunal found that the
distributor has only given the right to exhibit the films and the assessee had
only rendered the services of exhibiting the films and therefore the question
of deduction of tax by the assessee did not arise. The claim of the assessee
was allowed.

 

levitra

Income-tax Act, 1961 — S. 158BFA — Whether for levy of penalty u/s.158BFA issuance of notice is mandatory — Held, Yes. Whether in the absence of issuance of pre-requisite notice, the entire penalty proceedings are to be held as illegal and without jurisdi

fiogf49gjkf0d

New Page 1

  1. 2009 TIOL 300 ITAT Bang.


ITO v. H. E. Distillery Pvt. Ltd.

IT(SS)A No. 28 (Bang.)/2008

Block Period : 1-4-1990 to 18-1-2001 Dated : 30-1-2009

Income-tax Act, 1961 — S. 158BFA — Whether for levy of
penalty u/s.158BFA issuance of notice is mandatory — Held, Yes. Whether in the
absence of issuance of pre-requisite notice, the entire penalty proceedings
are to be held as illegal and without jurisdiction — Held, Yes.

Facts :

The assessee, in response to notice u/s158BC, filed return
for block period on 13-8-2001 admitting undisclosed income of Rs.73,80,526.
The AO assessed the undisclosed income at Rs.2,42,47,658 and initiated
proceedings for levy of penalty u/s.158BFA(2) on the ground that the assessee
failed to disclose the income and furnished inaccurate particulars of income.
Against the order assessing undisclosed income the assessee filed an appeal on
the ground that business loss suffered by the assessee during the block period
and depreciation have to be set off against undisclosed income. The CIT(A) and
the Tribunal decided the appeal against the assessee.

The assessee vide letter dated 15-12-2005 was asked to
offer explanation to the proposed penalty. No reply was received from the
assessee. The AO levied a minimum penalty of Rs.1,18,40,726.

The assessee filed an appeal to the CIT(A) and challenged
levy of penalty on the ground that no notice for initiation of penalty was
issued. The CIT(A) cancelled the penalty.

Aggrieved, the revenue preferred an appeal to the Tribunal
where on behalf of the Revenue it was inter alia contended that the assessment
order did mention that penalty proceedings u/s.158BFA(2) are initiated; the
assessee attended the proceedings for levy of penalty; during the penalty
proceedings when the AO was transferred the new AO did issue a notice before
imposing penalty. It was submitted that CIT(A) took a rigid and narrow view
that physical service of notice was a must before imposition of penalty for
concealment. The intention of the AO to levy penalty was never in doubt.

Held :

The Tribunal relying on the decision of the Supreme Court
in the case of 82 ITR 821, 61 ITR 147, 76 ITR 696, 168 ITR 705 and also on the
decision of the co-ordinate bench of the Tribunal in IT(SS)A. No.
21/Bang./2001 in the case of Nemichand held that issuance of notice is a
pre-requisite for assuming jurisdiction to levy penalty u/s.158BFA(2) and in
the absence of issuance of a pre-requisite notice, the entire penalty
proceedings were held to be illegal and without jurisdiction. It held that
CIT(A) was perfectly justified in canceling the penalty. The Tribunal
confirmed the order of CIT(A) and dismissed the appeal filed by the revenue.

 

levitra

Income-tax Act, 1961 — S. 36(1)(v), S. 40A(7) and S. 263 — Whether it is necessary for CIT to make further inquiries before cancelling the assessment order of the AO — Held, No. Whether the CIT can regard an order as erroneous on the ground that the AO sh

fiogf49gjkf0d

New Page 1

  1. 2009 TIOL 317 ITAT (Mad.) SB


Rajalakshmi Mills Ltd.
v. ITO

ITA No. 1074/Mds./1987

A.Y. : 1981-82. Dated : 24-4-2009

Income-tax Act, 1961 — S. 36(1)(v), S. 40A(7) and S. 263 —
Whether it is necessary for CIT to make further inquiries before cancelling
the assessment order of the AO — Held, No. Whether the CIT can regard an order
as erroneous on the ground that the AO should have made further inquiries
before accepting the statements made by the assessee in his return — Held,
Yes. Whether the word ‘erroneous’ in S. 263 includes cases where there has
been failure to make the necessary inquiries — Held, Yes. Whether it is
incumbent on the AO to investigate the facts stated in the return when
circumstances would make such an inquiry prudent and the word ‘erroneous’ in
S. 263 includes cases where there has been failure to make such an enquiry —
Held, Yes. Whether it is correct to say that the provision made by the
assessee in the accounts for the purposes of making contributions to approved
gratuity fund should be allowed despite the fact that there was no incremental
liability towards the gratuity due for the assessment year under consideration
— Held, No.

Facts :

For the A.Y. 1981-82 the balance sheet of the assessee
company reflected provision for gratuity at Rs.7,85,600 which sum was claimed
by the assessee, in its return of income, u/s.36(1)(v). The AO allowed the
same without making any discussion in the assessment order. The Commissioner
of Income-tax (CIT) assumed jurisdiction u/s.263 as in his opinion the order
was erroneous and prejudicial to the interest of the revenue.

The CIT found that the approved (sic actuarial) gratuity
liability as on 31-3-1981 and 31-3-1980 was Rs.55,35,469 and Rs.51,974,80
respectively. Hence, the amount payable as contribution to the fund was
Rs.3,37,989. The AO had allowed Rs.7,85,600. Accordingly, the CIT by relying
on the decision of the Apex Court in the case of Shree Sajjan Mills Ltd. (156
ITR 585) directed the AO to withdraw the excess allowance of Rs.4,47,611.

In an appeal to the Tribunal the assessee contended that
the conditions precedent for invoking S. 263 have not been satisfied and also
that it is entitled to claim deduction of Rs.7,85,600 being provision for
gratuity actually paid to an approved gratuity fund.

The President of the ITAT constituted a Special Bench to
consider the following questions :

(1) Whether the CIT was correct in invoking the
provisions of S. 263 and in withdrawing the claim of deduction of
Rs.7,85,600, allowed by the AO, being the amount actually paid to an
approved gratuity fund and in allowing incremental actuarial liability
worked out at Rs.3,37,989 ?

(2) Whether the assessee was entitled to claim deduction
of Rs.7,85,600 being the provision of gratuity in terms of S. 36(1)(v) of
the Act, actually paid to an approved gratuity fund on the facts and in the
circumstances of the case ?

(3) Whether the Appellate Tribunal’s order dated
21-6-1990 in ITA No. 529(Mds.)/87 rendered in the assessee’s own case for
A.Y. 1982-83 could be said to be an order rendered per incuriam and not
binding in view of non-consideration of correct legal position in this
regard ?


Held :

The Special Bench (SB) found that the AO had not made any
inquiries regarding the allowability of the sum of Rs.7,85,600 claimed by the
assessee as provision for gratuity actually paid to an approved gratuity fund.
The SB after considering the ratio of the decision of the Apex Court in the
case of Rampyari Devi Saraogi v. CIT, (67 ITR 84) (SC) held as under :

“It is not necessary for the CIT to make further
enquiries before cancelling the assessment orders of the AO. The CIT can
regard the order as erroneous on the ground that in the circumstances of the
case the AO should have made further inquiries before accepting the
statements made by the assessee in his return. The reason is obvious. Unlike
a Civil Court which is neutral in giving a decision on the basis of evidence
produced before it, an AO is not only an adjudicator but also an
investigator. He cannot remain passive in the face of a return which is
apparently in order but calls for further enquiry. It is the duty of the AO
to ascertain the truth of the facts stated in the return when the
circumstances of the case are such as to provoke inquiry. The meaning to be
given to the word ‘erroneous’ emerges out of this context. The word
erroneous would include cases where there has been failure to make the
necessary inquiries. It is incumbent on the AO to investigate the facts
stated in the return when the circumstances would make such an inquiry
prudent and the word ‘erroneous’ in S. 263 includes the failure to make such
an enquiry. The order becomes erroneous because such an enquiry has not been
made and not because there is anything wrong with the order if all the facts
stated therein are assumed to be correct.”

Accordingly, it held that the order passed by AO was
erroneous and prejudicial to the interest of the revenue and that the
conditions precedent for exercising jurisdiction u/s.263 did exist in the
facts of the present case.

As regards the contention of the assessee that since the
provision was made by the assessee for the purpose of payment of a sum by way
of contribution towards the approved gratuity fund, the amount of provision
should be allowed within the meaning of S. 40A(7)(b), the SB following the
ratio of the decision of Madras High Court in CIT v. Loyal Textile Ltd.,
(231 ITR 573) held that it would be incorrect to say that provision made by
the assessee in the accounts for the purposes of making contributions to
approved gratuity fund should be allowed u/s.40A(7)(b)(i) despite the fact
that there was no incremental liability towards the gratuity due for the
assessment year under consideration. It held that an expenditure which is
deductible for income-tax purposes is towards a liability actually existing at
the time, but setting apart money which might become expenditure on the
happening of an event is not expenditure allowable under the law. Since the
assessee did not place anything to demonstrate the nature of liability nor was
there any material to come to a conclusion that the liability was an
ascertained liability the contention of the assessee was rejected.

No contract between assessee transporter and agents/suppliers who enabled the assessee to get the truck hired, but with truck owners and drivers — Deduction of tax u/s.194C not applicable

fiogf49gjkf0d

New Page 2

38 Assessee engaged in Transportation of
goods — No contract between assessee and the agents/suppliers who enabled the
assessee get the truck hired, but with the truck owners and drivers — Deduction
of tax u/s.194C — Held, Not applicable.


 

Facts :

The assessee company is engaged in the business of
transportation of goods for various clients all over India on a contract basis.
The AO, subsequent to survey action u/s.133A, concluded that the appellant had
not deducted taxes properly on payments made to truck owners or agents in
accordance with the provisions of S. 194C. The assessee had made total payments
of Rs.17,08,39,119 to various parties whose trucks were engaged. The AO
estimated an ad hoc 90% of the total payment as payment exceeding
Rs.20,000 and computed tax liability thereon @ 1% + 2% surcharge. Further, he
also levied interest u/s.201(1A). The CIT(A) deleted the demand raised by the
AO, stating that the provisions of S. 194C were not applicable.

 

On appeal to the Tribunal, it was held that :

1. From various correspondences and confirmations, it is
clear that the suppliers/agents were contacted for reference purposes only and
the negotiations for a particular destination were made with the truck
drivers/owners and not with the suppliers/agents.

2. Further, no contracts were entered into between the
assessee and agent/supplier, but were entered into with the truck
owners/drivers. In addition, no payments exceeding Rs.20,000 were made to
truck owners/drivers and where the payment so exceeded, tax has been
appropriately deducted at source and deposited into the treasury.

3. Further, Circular 715 issued by the CBDT was squarely
applicable to the facts and thus, it was clear that if the contracts are with
the truck owners/drivers and GR is separate, then the payment made for the
truck has to be a separate payment. Consequently, it cannot be said that there
was contract with the suppliers and not with the truck owners/drivers. Hence,
the CIT(A) was held right in stating that the provisions of S. 194C were not
applicable.

 


Case referred to :


City Transport Corporation v. ITO, [(2007) 13 SOT 479 (Mum.)]

levitra

Concept of ‘Real Income’ — Assessee-company did not recognise interest income on debentures due to financial difficulties of issues — No interest income accrued to the assessee.

fiogf49gjkf0d

New Page 2

37 (2008) 300 ITR (AT) 159 (Delhi)


Pranav Vikas (India) Ltd. v.
ACIT

ITA No. 3322/Del./2004 (A.Y. 2001-02)

A.Y. 2001-02. Dated : 27-7-2007

Concept of ‘Real Income’ — Investment in debentures —
Assessee-company decided not to recognise interest income on debentures due to
financial difficulties of M/s. PAL Enterprise (P) Ltd. — Held that, No interest
income accrued to the assessee.

 

Facts :


The assessee-company had received interest free advance of
Rs.20 lakhs from M/s. Premier Automobiles Ltd. (PAL) for development of certain
products and since the said project was being delayed considerably, M/s. PAL
required the assessee to invest the said amount in their other group company
i.e., M/s. PAL Enterprise (P) Ltd. (PALEL) by way of 13% unsecured
optionally convertible debentures. For the F.Y. 2000-01, the assessee company
did not recognise the revenue arising out of interest on debenture, because both
M/s. PAL as well as M/s. PALEL became sick and there was no possibility of
recovery of any interest on the debenture. The AO made an addition of
Rs.2,40,000 disregarding AS-9 issued by ICAI, which was mandatory u/s.211(3C) of
the Companies Act, 1956 for the assessee company and the minutes of the BOD
acknowledging the uncertainty of collection of the said interest and the same
was also confirmed by the CIT(A).

 

On appeal to the Tribunal, it was held that :

1. The request of M/s. PALEL to treat the investment made
by the assessee-company as interest-free was accepted by it insofar as the
year under consideration is concerned and the right to receive interest income
on the said debentures, thus, was waived by it with prospective effect. The
decision to take the ‘appropriate measures’ as discussed in the meeting of the
BOD is to be understood to be restricted to the recovery of principal amount
and the interest accrued thereon for the earlier years.

2. Further, even if a decision of waiver is taken after the
F.Y., but within a reasonable proximity such that it results into a formal
resolution, it cannot be said that the said decision is inapplicable to the
relevant F.Y.

3. In the instant case, as the right to receive interest
income on the said debentures was waived by the assessee company for the year
under consideration, there was no real income that can be bought to tax in the
hands of the assessee company on accrual basis. Hence, the impugned order of
the CIT(A) was set aside deleting the addition of Rs.2,40,000.

 


Cases referred to :



(i) CCE v. Dai Ichi Karkaria Ltd., [(1995) 156 CTR
172];

(ii) Ashokbhai Chimanbhai [(1956) 56 ITR 42];

(iii) CIT v. Shoorji Vallabhdas and Co., [(1962) 46
ITR 144];

(iv) State Bank of Travancore v. CIT, [(1986) 158
ITR 102] and others.

 

(2008) 300 ITR (AT) 193 (Mumbai)

ITO v. Bhoruka Roadlines Ltd.

A.Y. 2002–03. Dated : 27-6-2007

S. 194C, S. 201 and S. 201(1A)


levitra

Sum received under non-compete agreement — Capital receipt.

fiogf49gjkf0d

New Page 2

36 (2008) 300 ITR (AT) 113 (Delhi) (SB)


Saurabh Srivastava v. DCIT

ITA No. 3014 (Delhi) 2004

A.Y. 1998-99. Dated : 7-12-2007

S. 17(2)(v); S. 17(3)(i) and S. 28(ii)

Sum received under non-compete agreement — Held, that it is
capital receipt.

 


Facts :

The assessee, a computer engineer associated with software
and information technology, was the promoter, founder and the managing director
of a software company holding 866,450 shares therein. The company was taken over
by a U.K. group whereby 76% of the subscribed equity capital was agreed to be
transferred in favour of the U.K. company. In addition to share transfer
agreement, the U.K. group also entered into a non-compete agreement with the
assessee, whereby the assessee received a sum of Rs.1,07,36,570 as non-compete
fee for F.Y. 1997-98. Thereafter, under a new service agreement, the assessee
was employed as the managing director of the U.K. company and received salary
accordingly. The assessee claimed exemption of non-compete fees as being a
capital receipt.

 

The AO taxed the non-compete fee as revenue receipt
u/s.28(ii). The CIT(A) upheld the order of AO.

 

On appeal to ITAT, the Hon’ble Tribunal held that the said
non-compete fee is a capital receipt, not liable to tax and referred to the
following :

1. The non-compete agreement was independent, distinct and
separate from the service agreement.

2. It was not dependent on his continuing in employment
with the company.

3. It did not arise from employer-employee relationship.

4. The fee was received for accepting restrictive
covenants, as the assessee was restrained from carrying out any software
development activity for any other person who directly or indirectly competed
with the U.K. group.

5. Thus, the same was not taxable u/s.17.1

6. The assessee was not carrying on any business and the
non-compete fee did not arise in the course of business and hence was not
taxable as business income.

7. The same was also not liable to tax as capital gains or
as income from other sources.

 


Cases referred to :




(i) CIT v. Saroj Kumar Poddar, [(2005) 279 ITR 573
(Cal.)];

(ii) CIT v. A. S. Wardekar, [(2006) 283 ITR 432
(Cal.)];

(iii) Swamy (R.K.) v. Asst. CIT, [(2004) 88 ITD 185
(Chennai)] and others.

 

1 Clause (iii) of Ss.(3) of S. 17 was inserted w.e.f. the
Finance Act, 2001 and not with retrospective effect and hence was not
applicable for A.Y. 1998-99. However, the said amount, if received subsequent
to the introduction of the said sub-section may stand on a different footing
as compared to that, in the case discussed.


levitra

S. 234B read with S. 208 & S. 209 : Assessee having only salary income not liable to pay advance tax.

fiogf49gjkf0d

New Page 2

35 (2008) 21 SOT 549 (Delhi)


Asst. Director of Income-tax, International Taxation
v. Western Geco International Ltd.

ITA Nos. 4847 to 4941 (Delhi) of 2007

A.Y. 2006-07. Dated : 21-2-2008

S. 234B read with S. 208 and S. 209 of the Income-tax Act,
1961 — There is no question of payment of advance tax by an employee whose total
income comprises of salary from which tax at source is to be deducted as per
statutory provisions and, hence, there is no question of applying provisions of
S. 234B to such a person who is not liable to pay advance tax.

 

Company ‘G’ was agent of many foreign nationals. It paid
salary to different non-resident assessees and filed returns on their behalf.
The assessees/employees only had salary income, which was subjected to deduction
of tax at source. They claimed deduction u/s.10(10CC) on account of tax paid by
the employer on their salary as per agreement. The Assessing Officer refused to
allow the said deduction and added tax paid on income through multiple grossing
instead of single grossing. This led to additional liability and demand
representing the difference between the assessed tax and tax deducted at source
leading to levy of interest u/s.234B for non-payment of advance tax. On appeal,
the CIT(A) held that the Assessing Officer was not right in levying interest
u/s.234B upon the assessees and, accordingly, deleted the same.

 

The Tribunal, following the decision in the case of
Motorola Inc. v. Dy. CIT, (2005) 95 ITD 269 (Delhi) (SB) held that the
assessees were not liable to pay advance tax, and consequently, were also not
liable to pay any interest u/s.234B. The Tribunal noted as under :

(1) Clause (d) of S. 209(1) clearly provides that while
computing advance tax, the amount of income-tax which is deductible or
collectible at source, will be deducted from the advance tax payable. In other
words, advance tax payable will be reduced by the amount of tax at source
‘deductible or collectible’.

(2) Therefore, when tax is deductible or collectible at
source from salary, which is the only source of income, no advance tax would
be payable by such an employee.

(3) In the instant case, there was no dispute that total
income of the assessee was subjected to deduction of tax at source u/s.192.
The assessee had no amount of advance tax payable if tax at source deductible
from the assessee’s salary was taken into account.

(4) Advance tax is payable in the financial year on the
current income. It cannot be paid after the close of the year. However, a
salaried person, whose salary is subject to deduction of tax at source, cannot
come to know of any short recovery or no recovery of tax at source till the
close of the financial year in which tax is deductible. If the employer has
not correctly deducted tax at source from the salary in one month u/s.192, the
deficiency can be made good U/ss.(3) of S. 192. Therefore, the employer can
always make good the deficiency in deduction of tax at source within the
financial year. If in one month there is short deduction of tax at source, the
employer can make higher deduction in other months in the financial year and
make good the short deduction.

(5) Therefore, a salaried employee would not know that
there had been short, wrong or no deduction of tax at source unless the
financial year is over. By the time he would come to know about short recovery
or no recovery of tax at source in his case, the time for payment of advance
tax would be over. In case of short recovery the employer is liable to pay
interest and penalty and not the employee. That is the scheme of the Act.

(6) Therefore, there is no question of payment of advance
tax by an employee whose total income comprises of salary from which tax at
source is to be deducted as per statutory provisions. Further, there is no
question of applying provisions of S. 234B to such a person who is not liable
to pay advance tax.



levitra

S. 115JB : Capital receipts which do not constitute income, cannot be brought to tax by S. 115JB.

fiogf49gjkf0d

New Page 2

34 (2008) 21 SOT 79 (Mum.)


ITO v. Su-raj Jewellery (India) Ltd.

ITA Nos. 8800 and 8801 (Mum.) of 2004

A.Ys. 1997-98 and 2001-02.

Dated : 10-10-2007

S. 115JB of the Income-tax Act, 1961 — Capital receipts which
do not constitute income under the Act cannot be brought to tax by employing
mechanism of S. 115JB.

 

For A.Y. 2001-02, the assessee credited certain capital
receipts to its profit & loss appropriation account and claimed that such
capital receipts did not form part of its book profits for the purpose of MAT
profit u/s.115J since they were not liable to tax. The Assessing Officer
rejected the claim of the assessee and included these sums in book profits for
the purpose of calculating MAT. The CIT(A), however, upheld the assessee’s
claim.

 

The Tribunal also allowed the assessee’s claim. The Tribunal
noted as under :

(1) The intention of bringing S. 115JB on the statute was
that companies should be made to pay taxes on the basis of the net profits
shown in their profit and loss account. For the purpose of computing the MAT
profit u/s.115JB, business profits as declared in the profit and loss account
are to be considered by the Assessing Officer after making certain
adjustments.

(2) In this case, the assessee was not liable to pay any
tax on the capital receipt i.e., gain arising on transfer of its assets
to holding company. Such profit was exempt from tax u/s.47(v).

(3) Although for computing the MAT profit u/s.115JB,
business profits shown in the profit and loss account are to be adopted, in
case the said profits include certain receipts which are not in the nature of
income, the same are to be excluded before making any calculations in that
regard.

(4) Further, S. 349 of the Companies Act clearly provides
that credit for the profit arising on sale of any immovable property or fixed
assets of capital nature should not be taken into profit and loss account and,
accordingly, the profits/ gains arising on transfer of assets to the holding
company were not includible in the profits of the assessee-company.

(5) The CIT(A) had rightly held that capital receipts which
do not constitute income under the Act cannot be brought under the tax net by
employing the mechanism of S. 115JB and the said Section has not intended to
bring all non-income items within the domain of the Act.


levitra

S. 14A : Interest paid on funds invested in shares which yielded no dividend income cannot be disallowed.

fiogf49gjkf0d

New Page 2

33 (2008) 21 SOT 42 (Mum.) (SMC)


Shree Shyamkamal Finance & Leasing Co. (P) Ltd. v.
ITO

ITA No. 15 (Mum.) of 2006

A.Y. 2002-03. Dated : 15-10-2007

S. 14A of the Income-tax Act, 1961 — Interest paid on funds
invested in shares which have yielded no dividend income cannot be disallowed
u/s.14A.

 

During the relevant assessment year, the assessee-company
which was engaged in the business of finance and investment in equity shares,
acquired unquoted equity shares of its subsidiary company out of unsecured loan
taken. The interest paid on the loan was claimed as deductible expenditure. The
Assessing Officer required the assessee to explain as to when there was no
income from investment and if any income accrued at all as dividend which was
exempt from tax u/s.10(33), then why should not the disallowance of interest on
loan be made u/s.14A. The assessee’s contention that since it had not received
any dividend and, further, since it had not claimed any exemption of income, S.
14A could not be applied was not accepted by the Assessing Officer and he
disallowed the interest expense u/s.14A. The CIT(A) upheld the disallowance.

 

The Tribunal, relying on the decision in the case of Jt.
CIT v. Holland Equipment Co. B. V., (2005) 3 SOT 810, held that no
disallowance could be made u/s.14A.

 

The Tribunal noted as under :

(1) By virtue of S. 10(33), as it stood at relevant time,
dividend income referred to in S. 115-O does not form part of the total
income. If the assessee earned income which is not includible in the total
income, then the expenditure could be disallowed u/s.14A, because it speaks of
expenditure incurred by the assessee in relation to income which does not form
part of the total income.

(2) A reading of S. 14A makes it clear that while computing
the income under Chapter IV, deduction would not be allowed with regard to
expenditure incurred by the assessee in relation to an income which does not
form part of the total income under the Act.

(3) In the instant case, there was no dividend income
earned by the assessee. Therefore, there was no income which could be termed
as ‘income which does not form part of the total income under the Act’.
Therefore, the provisions of S. 14A were not applicable.



levitra

S. 28(iv) : Gift received by assessee in return for helping the donor on various occasions was not income

fiogf49gjkf0d

New Page 2

32 (2007) 18 SOT 362 (Delhi)


ITO v. Sunil Mittal

ITA No. 4350 (Delhi) of 2004

A.Y. 2001-02. Dated : 28-9-2007

S. 28(iv) of the Income-tax Act, 1961 — Gift received in
return for help rendered to a person on various occasions is not income within
the meaning of S. 28(iv).

 

During the year, the assessee received a gift of Rs.6 lacs
from a person whom he had helped on various occasions. The donor confirmed the
gift and the reason for giving the gift. The Assessing Officer, however, held
that gift was received during the course of the assessee’s business and,
accordingly, treated the same as income u/s.28(iv). The CIT(A) treated the gift
as genuine and deleted the addition made by the Assessing Officer.

 

The Tribunal held that the gift received by the assessee was
not income u/s.28(iv). The Tribunal observed as under :

(1) It was an accepted fact that the addition was not made
u/s.68 as unexplained cash credit. It was also accepted that the identity and
creditworthiness of the party were established and the transaction was
genuine.

(2) As per S. 28(iv), the value of any benefit or
perquisite, whether convertible into money or not, arising from the business
or the exercise of a profession, shall be treated as income chargeable to
income-tax under the head ‘Profits and gains of business or profession’.

(3) The amount was received by cheque and was not in any
intangible form in the nature of benefit or perquisite. The amount was not
received in kind. Thus, it could not be treated as benefit or perquisite.

(4) The assessee helped the donor on various occasions.
Thus, it was not in the course of carrying on the assessee’s business that any
benefit or perquisite was received.

 


Therefore, the gift amount was outside the scope of income in
terms of S. 28(iv).

levitra

S. 43(5) r.w. S. 28 and S. 73 — In case of a company, if part of its business consists of dealing in shares, then all types of transactions, whether delivery-based or non-delivery-based, would be treated as speculative transactions.

fiogf49gjkf0d

New Page 1



41. (2009) 33 SOT 168 (Mum.)


Metropolitan Traders (P.) Ltd. v. ITO

A.Y. : 2003-04. Dated : 30-6-2009

S. 43(5) r.w. S. 28 and S. 73 — In case of a company, if
part of its business consists of dealing in shares, then all types of
transactions, whether delivery-based or non-delivery-based, would be treated
as speculative transactions.

The assessee-company was dealing in cement and was also
engaged in the business of dealing in shares. During the relevant year, the
assessee had earned profit from sale of shares held as investments and
accounted for the same in the profit and loss account as speculation profit
and it set off the unabsorbed speculation loss brought forward from earlier
years from the aforesaid speculation profit and claimed allowance for the
same. The Assessing Officer referred to the definition of ‘speculation
transaction’ as contained on S. 43(5) and disallowed the assessee’s claim. The
CIT(A) confirmed the action of the Assessing Officer. He held, inter alia,
that as per the CBDT Circular No. 204 dated 24-7-1976, the object of the
provisions was to curb the device being resorted to by some business people to
manipulate and reduce the taxable income by booking speculative losses.

Relying on the decisions in the following cases, the
Tribunal allowed the assessee’s claim :

(a) Prasad Agents (P.) Ltd. v. ITO, (2009) 180
Taxman 178 (Bom.)

(b) Samba Trading & Investment (P.) Ltd. v. ACIT,
(1996) 58 ITD 360 (Bom.)

(c) ACIT v. Sucham Finance & Investment (I) Ltd.,
(2007) 105 ITD 353 (Mum.)

(d) Starline Ispat & Alloys v. Dy. CIT, (2007) 14
SOT 140 (Mum.)

(e) Jt. CIT v. Kalindi Holdings (P.) Ltd., (2007)
106 TTJ (Pune) 292

The Tribunal noted as under :

(1) Explanation to S. 73 states that if certain
conditions are fulfilled, then the transactions of purchase and sale of
shares would be treated as speculation transactions.

(2) The Legislature itself has used the phrase ‘purchase
and sale of shares’ in the Explanation without any qualification in
contradistinction to the term used in S. 43(5) where it is specifically
stated that the transactions are settled otherwise than by way of actual
delivery. Thus, the term ‘purchase and sale’ has to be given full effect and
its meaning cannot be restricted only with reference to such transaction
where delivery of shares has not been taken.

(3) The Revenue’s contention that only delivery-based
transactions as contemplated u/s.43(5) were to be considered as speculative
transaction was devoid of any merit, because then there was no necessity of
incorporating the Explanation to S. 73. The Explanation to S. 73 enlarges
the ambit of speculative transaction in case of such company where part of
its business is to deal in shares.

Provisions of clause (d) of S. 43(5) inserted with effect from 1-4-2006 which deem derivative transactions as non-speculative are clarificatory in nature and have retrospective application.

fiogf49gjkf0d

New Page 1

  1. (2009) 33 SOT 1 (Mum.)


ACIT v.
Shreegopal Purohit

A.Y. : 2004-05. Dated : 30-6-2009

S. 43(5) — Derivative transactions — Whether speculative :




(a) Provisions of clause (d) of S. 43(5) inserted with
effect from 1-4-2006 which deem derivative transactions as non-speculative
are clarificatory in nature and have retrospective application.


(b) Therefore, income from F & O transactions, being
non-speculative in nature, cannot be set off against speculation loss.



The assessee had earned income from Future and Option (F &
O) transactions. It suffered share trading speculation loss, jobbing loss and
bought forward speculation loss in the relevant assessment year. It had set
off the speculation loss of the current year as well as brought forward
speculation loss against the income from F & O transactions, treating the
latter as speculative income. The Assessing Officer disallowed the claim. The
CIT(A) set aside the order of the Assessing Officer and allowed the claim of
the assessee.

The Tribunal, following the decision in the case of P.
S. Kapur v. ACIT, (2009) 29 SOT 587 (JP), disallowed the assessee’s claim.
The Tribunal, noted as under :

(1) Derivative products are intangible and are not
capable of delivery or transfer. The transactions in derivatives are, thus,
not speculative as these lack the basic ingredients of speculative
transactions.

(2) Clause (d) of proviso of S. 43(5) inserted by the
Finance Act, 2005 deeming the transaction in derivatives as non-speculative
was clarificatory in nature, as it only clarified the existing position.
Therefore, it has retrospective application. Thus, transactions in
derivatives were held to be non-speculative and the income from such
transaction could not be set off against the speculation loss.

 



levitra

List of companies that have applied for striking off their names under the Easy Exit Scheme (EES), 2010.

fiogf49gjkf0d

New Page 1

Part D : COMPANY LAW

96 List of companies that have applied for striking off their
names under the Easy Exit Scheme (EES), 2010.

For details of the list of companies which have applied for
striking off their names from the Register under the Easy Exit Scheme (EES),
2010 visit http://www.mca.gov.in/MCA21/EES.html.

In case any stakeholder has any objections to the same, he/she may raise such
objection to the concerned RoC Office within 30 days from the date of filing
Form EES, 2010.

levitra

Renewal of Certified Filing Centres (CFC).

fiogf49gjkf0d

New Page 1

Part D : COMPANY LAW

95 Renewal of Certified Filing Centres (CFC).

The Ministry has decided to revive the Scheme of Certified
Filing Centres (CFCs) for a further period of three years from July 01, 2010.

The Ministry had earlier Authorised 965 Certified Filing
Centres (CFCs) across the country for greater outreach and e-filing facilities
across the country. The said Certified Filing Centres are managed by
professionals (Chartered Accountants, Company Secretaries and Costs & Works
Accountants).

However, a large number of CFCs have been inactive for the
last 1 year or so. The Ministry is giving an opportunity to such CFCs to renew
their registration with the MCA for which they should send their application to
the concerned Institute along with a renewal fee of Rs.500 within a period of 60
days.

Fresh applications are also invited from professionals who
are desirous of registering as CFCs with MCA. Applications should be submitted
through the Institute along with registration fee of Rs.1000 within a period of
60 days.

For details visit www.mca.gov.in/MCA21/dca/cfc/CFCCorner.html

levitra

Changes relating to Company Law for the period 15th June, 2010 to 15th July 2010.

fiogf49gjkf0d

New Page 1

Part D : COMPANY LAW

94 Changes relating to Company Law for the period 15th June,
2010 to 15th July 2010.

Stamp duty to be paid electronically in Tripura, Chandigarh
and Puducherry.

With effect from 11th July, 2010, stamp duty payable on Form
No. 1, Memorandum of Association, Articles of Association and Form No. 44 in
respect of State of Tripura and union territories of Chandigarh and Puducherry,
is compulsory to be paid electronically at the time of their e-filing through
MCA portal (www.mca.gov.in)

levitra

A.P. (DIR Series) Circular No. 01, dated 13-7-2010 — Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR.

fiogf49gjkf0d

New Page 1

Part C : RBI/FEMA



(b) To their own warehouses outside exporters in India.



93 A.P. (DIR Series) Circular No. 01, dated 13-7-2010 —
Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between
Government of India and erstwhile USSR.

The Rupee value of the special currency basket has been fixed
at Rs.60.8816 w.e.f. from June 21, 2010 as against the earlier value of
Rs.63.0402.

RBI has come out with 15 new Master Circulars dated July 1, 2010. They
consolidate the existing instruction on the subjects covered by them.

levitra

A.P. (DIR Series) Circular No. 57, dated 29-6-2010 — Export of goods and software — Realisation and repatriation of export proceeds — Liberalisation.

fiogf49gjkf0d

New Page 1

Part C : RBI/FEMA

92 A.P. (DIR Series) Circular No. 57, dated 29-6-2010 —
Export of goods and software — Realisation and repatriation of export proceeds —
Liberalisation.

Presently, the time period for realisation and repatriation
of the full value of goods or software exported up to June 30, 2010 is 12 months
from the date of export.

This Circular provides that this facility is being extended
up to March 31, 2011 i.e., the time period for realisation and repatriation of
the full value of goods or software exported up to March 31, 2011 is 12 months
from the date of export.

However, there is no change in the provisions with regard to
period of realisation and repatriation of the full value of the goods or
software exported :


(a) By units situated in a Special Economic Zone (SEZ).

(b) To their own warehouses outside exporters in India.



levitra

Notification No. 1510/CR-65/Taxation-1.

fiogf49gjkf0d

New Page 1

Spotlight

Pinky Shah, Sonalee Godbole, Gaurang Gandhi, Tarun Ghia,
Brijesh Cholera, Pratik Mehta
Chartered Accountants
Sejal Vasa
Company Secretary

Part B : INDIRECT TAXES

MVAT UPDATE

MVAT Notification

90 Notification No. 1510/CR-65/Taxation-1.

By this Notification Composition Scheme of 1% MVAT has been offered as an
option to registered dealers who undertake construction of flats, dwellings or
buildings or premises and transfer them along with land or interest underlying
the land in pursuance of an agreement registered on or after 1-4-2010. Terms and
conditions for availing this scheme are specified in the Notification.


levitra

A.P. (DIR Series) Circular No. 56, dated 28-6-2010 — Foreign Exchange Management Act, 1999 (FEMA) Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) — Compounding of Contraventions under FEMA, 1999.

fiogf49gjkf0d

New Page 1

Part C : RBI/FEMA

91 A.P. (DIR Series) Circular No. 56, dated 28-6-2010 —
Foreign Exchange Management Act, 1999 (FEMA) Foreign Exchange (Compounding
Proceedings) Rules, 2000 (the Rules) — Compounding of Contraventions under FEMA,
1999.

This Circular supersedes the earlier directions contained in
A.P. (Dir Series) Circular No. 31, dated February 1, 2005.

This Circular puts in place an updated procedure for
compounding of contraventions under FEMA, 1999 on the basis of observations and
experience of the last few years. The Circular contains detailed guidelines with
regard to compounding of contraventions in the following areas :


(1) Application for compounding.

(2) Scope and manner of compounding.

(3) Issue of compounding order.

(4) Payment of the amount for which contravention is
compounded

(5) Prerequisites for compounding.



levitra

Applicability of the Hon. Supreme Court judgment in the case of M/s. Pee Vee Textiles judgment — Trade Circular No. 20T of 2010, dated 30-6-2010.

fiogf49gjkf0d

New Page 1

Part B : INDIRECT TAXES

MVAT UPDATE

MVAT Circulars

89 Applicability of the Hon. Supreme Court judgment in the
case of M/s. Pee Vee Textiles judgment — Trade Circular No. 20T of 2010, dated
30-6-2010.

With regard to pro rata allowance of benefits under the
Package Scheme of Incentives, the Commissioner had issued one Internal Circular
No. 8A of 2009, dated 31-3-2009. Vide this Circular, instruction is issued to
lower authorities not to follow the said Internal Circular.

levitra

Filing of Returns as per the periodicity — Trade Circular No. 19T of 2010, dated 23-6-2010.

fiogf49gjkf0d

New Page 1

Part B : INDIRECT TAXES

MVAT UPDATE

MVAT Circulars

88 Filing of Returns as per the periodicity — Trade Circular
No. 19T of 2010, dated 23-6-2010.

Periodicity of filing of returns for the year 2010-11 is
displayed on the Sales Tax Department’s web-site. If a dealer feels aggrieved by
the periodicity displayed on the website, he may contact Joint Commissioner of
Sales Tax (Returns) before 9th July, 2010. A return which does not conform to
the prescribed periodicity will attract penalty u/s. 29 of the MVAT Act.

levitra

S 45. Beneficial ownership of the balance FSI and right to use TDR was that of the members of the society. The members transferred the rights and received consideration for such transfer.

fiogf49gjkf0d

New Page 3

Part B :
Unreported Decisions




ITO v. Ashok Hindu Co-op Hsg. Soc. Ltd.

ITAT ‘D’ Bench, Mumbai

Before N. V. Vasudevan (JM) and

R. K. Panda (AM)

ITA No. 630/Mum./2006

A.Y. : 2002-03. Decided on : 29-9-2008

Counsel for revenue/assessee :

K. K. Mahajan/Satish Modi

10. S 45. Beneficial ownership of the balance FSI and right
to use TDR was that of the members of the society. The members transferred the
rights and received consideration for such transfer.

Per N. V. Vasudevan :

Facts :

The assessee-society was the owner of land together with two
buildings situated thereon. The society had sixteen members who held, on
ownership basis, sixteen flats in the said buildings. It was possible to
construct additional flats on the existing buildings by utilising balance FSI of
the property and FSI that may be obtained from other properties under the TDR
scheme. The total area of the property was 1063.60 sq. mts., it was possible to
construct 11,448 sq. feet on the said property by procuring TDR FSI.

The society, at its Special General Body Meeting held on 15th
July, 2001 passed a resolution to the effect that the benefit of constructing
additional flats by utilising any FSI available on the said property and by
bringing in TDR/FSI belongs to the members equally. Each member thus became
entitled to 715.50 sq. feet by way of TDR/FSI. The society agreed that each
member would be entitled at their own costs to procure proportionate TDR/FSI and
to use his/her respective entitlement for constructing a new flat for himself or
each member may grant development rights to a common developer.

The developer vide agreement dated 29-8-2001 agreed to pay to
the society an amount of Rs.1,76,000 as well as carry out works of repairs and
improvements to the existing buildings and compound of the society in
consideration of the society permitting the developer to construct additional
floors from the entitlement of each of the members of the society.

The developers agreed to pay each of the members a lump sum
of Rs.7,00,000 as compensation for inconveniences and hardships faced or to be
faced by the members during and on account of additional construction. Further,
in consideration of the member granting development rights in respect of his/her
entitlement to the developers, the developers agreed to pay the member a lump
sum monetary consideration of Rs.7,20,000.

In the course of assessment proceedings u/s.147, the assessee
took the stand that by virtue of a resolution passed by the Managing Committee
of the society, the society has specifically authorised each of the members to
sell and transfer their proportionate rights in the FSI and development of the
building with the consent of the society, which means the society has renounced
its rights in favour of individual members and on the basis of this resolution
and upon renouncement of the rights in favour of individual members, the members
were fully authorised and having accepted the renunciation, have a legal
sanction to sell their proportionate right to the builders for development. The
income received by individual members is their individual income and the same is
not liable to be taxed in the hands of the society. The members had filed their
return of income offering to tax receipts on sale of their rights. The AO held
that since the society is the owner of the plot of land, the FSI/TDR is
available to the society and individual members cannot transfer the FSI/TDR
directly to the developers. He taxed the entire compensation received (including
amounts received by the members) in the hands of the assessee.

Aggrieved, the assessee preferred an appeal to the
Commissioner of Income-tax (Appeals) who upon considering the definition of the
term ‘society’ as defined in the Maharashtra Co-operative Societies Act and also
the fact that the Bombay Stamp Act provides for payment of stamp duty by each
member at the time of purchase of individual flat and that such registered
agreements are deemed to be conveyance, held that capital gains have to be taxed
in the hands of the members of the society who have accounted for the same in
their individual returns of income. He allowed the appeal filed by the assessee.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

The Tribunal held that the order passed by the CIT(A) does
not call for interference. It held that the beneficial ownership was that of the
members of the society. It was the members who transferred the rights and
received consideration for such transfer. The Tribunal agreed with the view of
the CIT(A) holding the conclusion of the AO to the contrary to be not proper.

The appeal filed by the Revenue was dismissed.

levitra

S. 143(3) read with S. 252 — De novo Assessment pursuant to order of the Tribunal — Whether AO justified in enhancing assessed income while doing de novo assessment — Held, No.

fiogf49gjkf0d

New Page 1

Part B : UNREPORTED DECISIONS


ITO v. Jabbal Woodcrafts India

ITAT ‘D’ Bench, New Delhi

Before C. L. Sethi (JM) and

K. G. Bansal (AM)

ITA No. 803/D/2009

A.Y. : 1997-98. Decided on : 24-9-2010

Counsel for revenue/assessee : A. K. Monga/

Salil Kapoor and Sonal Kapoor

9. S. 143(3) read with S. 252 — De novo Assessment pursuant
to order of the Tribunal — Whether AO justified in enhancing assessed income
while doing de novo assessment — Held, No.

Per K. G. Bansal :

Facts :

The assessee had filed return of income declaring total
income of Rs.1,980. The income was assessed u/s.143(3) at Rs.10.19 lac. This
order was set aside by the Tribunal to the file of the AO for making fresh
assessment after taking into account evidences including the evidence in the
form of books of accounts. In pursuance thereof, the assessment was framed
determining the total income at Rs.40.64 lac. The major addition was on account
of share application money of Rs.38.84 lac. The CIT(A) on appeal deleted the
addition made on this count.

Before the Tribunal, the Revenue contended that when the
Tribunal restored the matter to the file of the AO with a view to take into
account all the evidences, the AO was well within his right to consider all
matters, including the issue regarding share application money, which was not
the subject-matter of appeal before the Tribunal.

Held :

The Tribunal noted that although it has all the powers to
decide an issue before it, in any manner, the accepted position of law is that
it has no power to enhance the assessment. In such a situation, the order of the
Tribunal restoring the matter to the file of the AO cannot be construed in a
manner as to grant power to the AO to include a totally new issue, which has the
effect of enhancing the income. Thus, what cannot be done directly, cannot be
done indirectly also. Accordingly, it dismissed the appeal filed by the Revenue.


 

levitra

S. 11 read with S. 12A(1)(b) — Non-filing of Auditor’s Report in Form 10B — Whether AO’s action of denying exemption justified — Held, No.

fiogf49gjkf0d

New Page 4

Part B :
Unreported Decisions


ITO v. Sir Kikabhai Premchand Trust




ITAT ‘E’ Bench, Mumbai

Before N. V. Vasudevan (JM) and

R. K. Panda (AM)

ITA No. 5308/Mum./2009

A.Y. : 2006-07. Decided on : 22-9-2010

Counsel for revenue/assessee : Hemant Lal/

K. Shivaram and P. N. Shah

8. S. 11 read with S. 12A(1)(b) — Non-filing of Auditor’s
Report in Form 10B — Whether AO’s action of denying exemption justified — Held,
No.

Per N. V. Vasudevan :

Facts :

The assessee was registered as a charitable institution
u/s.12A of the Act. During the year, the assessee had earned capital gain on the
sale of immovable property, interest income, dividend and donation. It filed
return of income declaring total income at Nil. The AO noticed that the assessee
had not filed an Audit Report in Form 10B. The AO issued notices u/s.143(2) and
u/s.142(1) and amongst others, called for a copy of Form 10B. Simultaneously,
the AO also summoned one of the trustees u/s.131. During the interview on
3-10-2008 – to one of the questions viz., ‘Was any Audit Report prepared in Form
No. 10B which could not be filed for any reason ?’ the reply of the trustee was
‘No. Since the same was not applicable, no Audit Report in Form No. 10B was ever
prepared.’

The assessee, in response to the notices issued by the AO,
filed its reply and along with the same, it also filed an audit report in Form
10B dated 11-10-2006.

On 3-12-2008, the AO issued show-cause notice as to why the
exemption claimed u/s.11 should not be denied to the assessee. In reply, the
assessee filed two affidavits — one from the trustee who was interviewed by the
AO and second from the auditor who had audited the accounts. In his affidavit,
the trustee stated that his reply that he was a computer software consultant and
not an expert in the field of accountancy and taxation, and therefore, did not
know about the audit report in Form 10B had not been correctly recorded. He
further affirmed that he could not see what was being recorded by the AO on his
laptop and he had signed the statement without reading the content. While the
auditor in his affidavit confirmed that he had audited the accounts as per S.
12A(1)(b) and had issued his report in Form 10B on 11-10-2006.

However, the AO rejected the assessee’s explanation as
according to him :

  •   the statement recorded u/s.131 had evidentiary value;


  •   no explanation was offered in respect of omission to file report along
    with the return of income.


Accordingly, applying the provisions of S. 12A(1)(b), the
claim for exemption made u/s.11 was denied.

On appeal, the CIT(A) accepted the contention of the assessee
and allowed the appeal.

Before the Tribunal, the Revenue relied on the order of the
AO and submitted that the circumstances in which the Report was filed throw
doubts on the claim of the assessee that its books were duly audited as required
by the Act.

Held :

The Tribunal relied on the Calcutta High Court decision in
the case of CIT v. Hardeodas Agarwalla Trust, (198 ITR 511) where the audit
report obtained during the course of assessment proceedings was also accepted as
due compliance of law, and dismissed the appeal filed by the Revenue. In coming
to this conclusion, it also relied on the fact that along with the return, the
assessee had also filed the Auditor’s Report obtained under the Bombay Public
Trust Act. Thus, according to it, the plea of the assessee of bonafide omission
to file Form 10B should not be rejected.

levitra

S. 40A(3) read with S. 145(3) — Assessment made u/s.143(3) read with S. 145(3) — No disallowance made u/s.40A(3) — Whether AO’s order could be considered as erroneous — Held, No.

fiogf49gjkf0d

New Page 1

Part B : UNREPORTED DECISIONS



Singhal Builders Contractors
v. Addl. CIT


ITAT ‘A’ Bench, Jaipur

Before R. K. Gupta (JM) and

M. L. Gusia (AM)

ITA No. 393/JP/2010

A.Y. : 2005-06. Decided on : 3-9-2010

Counsel for assessee/revenue :

Mahendra Gargieya/Irina Garg



7. S. 40A(3) read with S. 145(3) — Assessment made u/s.143(3)
read with S. 145(3) — No disallowance made u/s.40A(3) — Whether AO’s order could
be considered as erroneous — Held, No.

Per R. K. Gupta :

Facts :

The assessment was made by invoking provisions of S. 145(3).
Net profit @12% on contract receipts subject to allowance of depreciation and
interest to banks was adopted. The CIT found that disallowance to be made
u/s.40A(3) was not considered by the AO while applying net profit rate, hence,
his order was erroneous and prejudicial to the interest of the Revenue. The
submissions of the assessee were rejected.

Held :

The Tribunal noted that as per the Allahabad High Court
decision in the case of CIT v. Banwarilal Banshidhar, (229 ITR 229), once the
net profit rate is applied by invoking the provisions of S. 145(3), no further
disallowance can be made u/s.40A(3). Further, since no contrary decision was
available, it held that the initiation of proceedings by the CIT u/s.263 was not
justified.

levitra

S. 28 and S. 37(1) — Exchange loss arising on application of AS-11 — Allowable as business loss/expenditure — Ultimate utilisation of fund for investment purpose would not affect the al-lowability of loss.

fiogf49gjkf0d

New Page 1



  1. Karisma Kapoor v. ACIT



ITAT ‘A’ Bench, Mumbai

Before D. K. Agarwal (JM) and

B. Ramakotaiah, (AM)

ITA No. 6780/Mum./2008

A.Y. : 2004-05. Decided on : 20-10-2009

Counsel for assessee/revenue : K. Gopal/

Virendra Ojha

S. 28 and S. 37(1) — Exchange loss arising on application
of AS-11 — Allowable as business loss/expenditure — Ultimate utilisation of
fund for investment purpose would not affect the al-lowability of loss.

Per B. Ramakotaiah :

Facts :

The assessee was a film actress. She had shown her
professional receipts to the tune of Rs.6.12 crore and declared a total income
of Rs.6.04 crore. During the course of assessment the AO noticed that the
assessee had claimed foreign exchange loss of Rs.7.25 lacs. As per the
assessee the loss was arising out of exchange rate difference in the EEFC
account. The assessee had a large amount of dollar fund in the account at the
beginning of the year and after deposits during the year into the same
account, it was closed and converted into Indian Rupees. On conversion, due to
reduction in the value of dollar vis-à-vis Rupee, there was a
loss/reduction in the professional income accounted, which was claimed as a
loss.

This method of accounting, which was based on Ac-counting
Standard 11, was consistently followed by the assessee and the Department had
also assessed the profits earned therefrom in earlier years. However, during
the year, the AO disallowed the exchange loss, holding that the funds after
conversion were utilised for investing in tax relief bonds/fixed deposits.
Thus, since according to the AO, the utili-sation
of foreign currency balance was not for profes-sional purposes, the exchange
loss was disallowed.

Before the Tribunal the Revenue contended that the
Assessing Officer’s finding was correct that the amount was not utilised for
professional activities. It also relied on the decision of the Calcutta High
Court in the case of invest import and contended that the capital loss cannot
he allowed.

Held :

According to the Tribunal the facts do indicate that the
assessee had deposited her professional receipts in the said EEFC account.
Secondly, as noted by the CIT(A), the assessee was consistently following the
Mercantile system of accounting and also AS-11. Further, according to it, the
ultimate utilisation of the professional receipts after its conversion from
dollar to Indian Rupee was not material (relevant). The subsequent utilisation
of the amount cannot convert such loss as capital loss. According to it, the
Calcutta high Court decision relied on by the revenue, was distinguishable by
facts and hence, cannot be applied to the facts of the assessee’s case.

If further observed that the CIT(A) also erred in
up-holding that it was a notional loss. This was an actual loss after
conversion of balance in US $ into Indian Rupee. Accordingly, it was held that
the loss was an allowable loss against professional receipts.

Case referred to :


CIT v. Invest Import, 137 ITR 310 (Cal.)



levitra

S. 28 and S. 45 — Gains arising to the society on sale of 50% of the areas constructed by the builder, at his own cost, by utilising additional FSI received by society from BMC in lieu of roads taken over by BMC are chargeable to tax as Capital Gains.

fiogf49gjkf0d

New Page 1



  1. ACIT v.




Sai Ashish Bandra Co-op. Hsg. Soc. Ltd.

ITAT ‘E’ Bench, Mumbai

Before R. K. Gupta (JM) and A. K. Garodia (AM)

ITA No. 5232/Mum./2004

A.Y. : 2000-2001. Decided on : 22-8-2007

Counsel for revenue/assessee : K. Kamakshi/

Vijay Mehta

S. 28 and S. 45 — Gains arising to the society on sale of
50% of the areas constructed by the builder, at his own cost, by utilising
additional FSI received by society from BMC in lieu of roads taken over by BMC
are chargeable to tax as Capital Gains.

Per R. K. Gupta :

Facts :

The assessee co-operative society was formed in 1971. The
land on which the building of the society stood had roads on two sides. The
BMC acquired some part of the society’s land in 1991 and again in 1994 for the
purposes of road widening and as compensation therefor granted additional FSI
to the society which the society decided to utilise on existing building.
Accordingly, the society entered into an Agreement with the builder pursuant
to which the builder agreed to put up the entire construction at his own cost
and in turn would be entitled to 50% of the area of the constructed flats. The
society was entitled to the balance 50% of the area of the constructed flats.
The construction was completed in 1999. Upon completion of construction, the
flats coming to the share of the society were sold for Rs.1,06,18,000. The
sale consideration of flats was returned by the society as long term capital
gains. The AO reassessed this amount under the head ‘Income from Business’ on
the ground that the society did not have funds for construction and therefore
it indirectly has obtained loan from the builder and has instructed the
builder for appointing architect for getting various sanctions of plans and
approvals to construct the flats. These factors, according to him, were
indicative that the society was engaged in a trade with profit motive.

Aggrieved, the society preferred an appeal to the CIT(A)
where it contended that the income be assessed as long term capital gains or
alternatively, if it is assessed as business income, then, in terms of S.
45(2), fair market value of FSI on date of conversion should be taken as cost
for computing profits of the said business. The CIT(A) held that the income
was chargeable to tax as ‘Income from Capital Gains’.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

There is no evidence on record that the amount spent by the
assessee was loan. The builder was to put up construction at its own cost and
in turn would be entitled to 50% of the area of the constructed flats and
after completion of the project the remaining 50% of the area shall be given
to the society which can be sold by the society. BMC had allowed FSI to the
society in lieu of land taken over by the BMC. The Tribunal concurred with the
findings and decision of the CIT(A) viz. that there were no business
considerations in undertaking the transaction by the assessee, the assessee
could have either sold FSI or utilised it by constructing additional areas; by
deciding to utilise it in construction of additional areas it had maximised
its gains but maximisation of gains cannot by itself impress a transaction
with the character of business; the society did not have profit sharing
arrangement with the builder; the transaction under consideration cannot be
held to be a business transaction.

The Tribunal dismissed the appeal filed by the Revenue.



levitra

S. 50C in the event of the assessee contending that valuation as done by Stamp Valuation Authority is not acceptable to him and asking the Assessing Officer to make a reference to the Valuation Officer, it is mandatory on the part of the Assessing Officer

fiogf49gjkf0d

New Page 1



  1. Kalpataru Industries v. ITO



ITAT ‘H’ Bench, Mumbai

Before S. V. Mehrotra (AM) and

P. Madhavi Devi (JM)

ITA No. 5540/Mum/2007

A.Y. : 2005-06. Decided on : 24-8-2009

Counsel for assessee/revenue : K. Shivram/

Pradip Hedaoo

S. 50C in the event of the assessee contending that
valuation as done by Stamp Valuation Authority is not acceptable to him and
asking the Assessing Officer to make a reference to the Valuation Officer, it
is mandatory on the part of the Assessing Officer to make such a reference
notwithstanding that the assessee has not filed an appeal against such
valuation.

Per P. Madhavi Devi :

Facts :

The assessee, a partnership firm, filed its return of
income declaring total income of Rs.1,75,108. The assessee had sold its
factory premises for a consideration of Rs.15,05,000 and had shown profit on
sale of factory premises amounting to Rs.10,94,721. The market value of the
factory premises as per stamp valuation authorities was Rs.43,98,500. The
assessee drew the attention of the AO to the observations of the Bombay High
Court while admitting the petition filed by Practicing Valuers Association
and Others v. State of Maharashtra, (Writ Petition No. 2027 of 2001) and
contended that the valuation given in the stamp duty ready reckoner cannot be
universally accepted. It was also submitted that it had not preferred an
appeal against the valuation as done by Stamp Valuation Authorities since the
purchaser had already paid stamp duty. However, the assessee requested the AO
to make a reference to the valuation cell of the Department as per the
provisions of S. 50C. The AO held that the reference to the valuation officer
is optional and since the assessee had not objected to the value adopted by
the stamp valuation authority there was no need to refer the matter to the
valuation officer. He, accordingly, adopted the value of the property at
Rs.43,98,500 and computed short term capital gain at Rs.35,89,503.

The CIT(A) confirmed the order passed by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal
where it mainly argued that the matter be sent back to the file of the AO with
a direction to refer the same to the valuation officer for valuing the
property at market rate. It was also pointed out that the assessee was not the
owner of the land but was only a lessee and capital gain has arisen on
transfer of leasehold rights. It was also contended that in the case of
assignment of rights after obtaining necessary permission, S. 50C is not
applicable.

Held :

The assessee had transferred leasehold rights and had
itself offered capital gain on the same. S. 50C is a special provision for
determining full value of consideration in certain cases. The assessee while
making the claim before the AO has to satisfy him that the valuation adopted
by the stamp valuation authority is not based on sound criteria. In such a
case, the AO is bound to refer the matter to the DVO for arriving at the fair
market value of the property. The assessee had vide its letter filed with the
AO relied upon two decisions to the effect that the valuation given in the
stamp duty ready reckoner cannot be universally adopted. In such cases, it is
necessary for the AO to refer the matter to the DVO. The Tribunal has in
ITO v. Smt. Manju Rani Jain, 24 SOT 24 (Del.) and Mehraj Baid v. ITO,
(2008) 23 SOT 25 (Jodh.) held that the word ‘may’ used in S. 50C should be
read as ‘should’ and the AO has no discretion but to refer the matter to the
DVO for the valuation of the property. The Tribunal remanded the issue to the
file of the AO with a direction to refer the valuation of the property to the
DVO and determine the value in accordance with law.

The assessee’s appeal was allowed.


levitra

S. 271(1)(c) — Penalty for concealment of income — Additions/disallowances sustained by the appellate authority — Whether sufficient ground for levy of penalty — Since full disclosure of particulars of transactions were made and additions were on ac-count

fiogf49gjkf0d

New Page 1



  1. ACIT v. Enpack Motors Pvt. Ltd.




ITAT ‘E’ Bench, Mumbai

Before D. Manoharan (VP) and

R. K. Panda (AM)

ITA No. 914/Mum./2008

A.Y. : 2004-05. Decided on : 23-10-2009

Counsel for revenue/assessee : S. K. Singh/

Arvind Dalal

S. 271(1)(c) — Penalty for concealment of income —
Additions/disallowances sustained by the appellate authority — Whether
sufficient ground for levy of penalty — Since full disclosure of particulars
of transactions were made and additions were on ac-count of different view
adopted, penalty cannot be imposed.

Per R. K. Panda :

Facts :

The assessee was a company incorporated in 1983. During the
year it had not carried on the business and it had returned a loss of Rs.1.41
crore. On account of the flood which took place on 26/27 July in Mumbai, all
its records and documents got destroyed and it was not able to produce
documents asked for by the AO. However, a copy of the police complaint and the
certificate issued by the Chartered Engineer evaluating the bad impact of the
flood and loss of material were furnished by the assessee. The AO however,
completed the assessment u/s.144 determining income at Nil after setting off
carried forward loss of Rs.11.15 lacs. The major disallowances made were as
under :


à
Stock valuation : A plot of land of Rs.6.56 crore, held as stock in
trade, was mortgaged to a bank. In order to recover its dues, the bank had
initiated the process of the sale of plot and the sale price mentioned was
Rs.5.2 crore. In view of the same, the assessee had valued the plot of land
at the said price thereby resulting into a loss of Rs.1.35 crore. The AO was
not satisfied with the explanation and disregarded the downward valuation of
stock;


à
Depreciation : Since the Company was defunct, according to the AO, it
cannot be allowed depreciation of Rs.9.74 lacs.


The assessee did not prefer any appeal when the AO’s order
was upheld by the CIT(A). The AO initiated penalty proceedings and after
hearing, held that the assessee was in default u/s.271(1)(c) read with
Explanation 4(a). He accordingly, levied penalty of Rs.54.46 lacs being the
minimum penalty @100% of tax sought to be evaded.

The CIT(A) on appeal cancelled the penalty levied as
according to him, no inaccurate particulars were furnished by the assessee and
the disallowance was not based on any independent evidence brought on record
by the AO.

Before the Tribunal the Revenue submitted that the
non-filing of any appeal against the assessment order amounted to the
acceptance by the assessee that it had furnished inaccurate particulars.
Further, relying on the decision of the Supreme Court in the case of
Dharmendra Textiles Processors & Others, it contended that mens rea was not an
essential condition for levying of penalty.

Held :

The Tribunal noted that the assessee had made full
disclosure of all the particulars relating to the transactions in its accounts
filed with the Income-tax Department. The additions were made merely because
the AO did not share the views of the assessee. It was not disputed that the
plot of land was treated as stock in trade and was sold at a loss. As regards
claim for depreciation, it was noted that there were diverse decisions, both
for and against the assessee when the business was discontinued. As regards
the other expenses disallowed, it agreed with the assessee that in order to
maintain the corporate entity, certain expenses need to be incurred. Thus,
according to it, the decision of the Supreme Court in the case of Dharmendra
Textiles was not applicable to the facts of the case of the assessee. Further,
according to it there was sufficient force in the assessee’s submission that,
in view of the huge amount of brought forward losses, no appeal was filed
against the CIT(A)’s order. For the reasons stated as above, it was held that
the CIT(A) was justified in cancelling the penalty.

Case referred to :

Dharmendra Textiles Processors & Others, 306 ITR 277 (SC).



levitra

S. 70 read with S. 10A — Exemption u/s.10A was of income earned without setting off of loss of non-STPI unit — Loss of the non-STPI unit is allowed to be carried forward.

fiogf49gjkf0d

New Page 1



  1. ACIT v. Honeywell Technology Solutions Lab
    Pvt. Ltd.




ITAT ‘A’ Bench, Bangalore

Before Shailendra Kumar Yadav (JM) and

A. Mohan Alankamony (AM)

ITA Nos. 344 & 345/Bang./2009

A.Ys. : 2003-04 & 2004-05. Decided on : 4-8-2009

Counsel for revenue/assessee :

Vishweshwar Mudigonda/Preeti Garg

S. 70 read with S. 10A — Exemption u/s.10A was of income
earned without setting off of loss of non-STPI unit — Loss of the non-STPI
unit is allowed to be carried forward.

Per Shailendra Kumar Yadav :

Facts :

The assessee, a wholly owned subsidiary of Honeywell, USA,
was engaged in the business of performing high quality software development,
offer testing and support services to other units of the Honeywell group. One
of its units was a 100% software development export oriented undertaking under
the Software Technology Parks Scheme of Government of India. One of the issues
before the tribunal was whether the exemption u/s.10A was of the income earned
without setting off of loss of the non-STPI unit.

Held :

Analysing the provisions of S. 10A, the tribunal noted
that :


à
The provisions of S. 10A were placed under Chapter III which only relates to
‘Incomes which do not form part of total income’;


à
The word ‘such’ refers to the profits and gains of the undertaking which is
engaged in the export of articles or things or computer software; and


à
The word ‘an’ which qualifies the word ‘undertaking’ means that it refers to
a single undertaking.


Referring to the provisions governing computation of
business income, it was noted that as per S. 29, profits and gains of business
are to be computed in accordance with the provisions contained u/s.30 to
u/s.43D. Thus, the provisions of S. 10A do not form part of the sections
mentioned in S. 29. It further noted that the provisions of S. 70 govern
setting off of a loss from one source against income from another source under
the same head of income. Therefore, it observed that since S. 10A was not
forming part of the sections mentioned in S. 29, business losses of the
undertaking whose income was not exempt u/s.10A cannot be set off against the
profits of the undertaking whose income is exempt u/s.10A. Further, relying on
the decisions of the Bangalore tribunal in the cases of Yokogawa India Ltd.
and in the case of Nous Infosystems Pvt. Ltd., the tribunal upheld the
decision of the CIT(A) directing the AO to allow exemption u/s.10A without
setting off of loss of non-STPI unit and consequently, allowing the carry
forward of such losses of non-STPI unit.

Cases referred to :



1. ACIT v. Yokogawa India Ltd., 111 TTJ 548/13 SOT
470 (Bang.);

2. Nous Infosystems Pvt. Ltd. v. ITO, (ITA No.
1042/ Bang./2007 dated 3-6-2008)



levitra

S. 145 r.w. S. 35E — Change in method of accounting — Assessee engaged in prospecting and exploring minerals changed its method of capitalising expenditure incurred to charging same to P/L A/c. — Change bona fide.

fiogf49gjkf0d

New Page 1

16 DCIT v. ACC Rio Tinto Exploration Ltd.


ITAT ‘C’ Bench, New Delhi

Before R. K. Gupta (JM) and

K. G. Bansal (AM)

ITA Nos. 4908 /Del./2005

A.Y. : 2001-02. Decided on : 26-9-2008

Counsel for revenue/assessee : Suresh K. Jain/

Salil Kapoor


S. 145 read with S. 35E of the Income-tax Act, 1961 — Change
in method of accounting — Assessee engaged in the business of prospecting and
exploring ores and minerals changed its earlier method of accounting of
capitalising the expenditure incurred to charging the same to profit and loss
account — Whether the change was bona fide — Held, Yes.


Per K. G. Bansal :

Facts :

The assessee was engaged in the business of prospecting and
exploring ores and minerals. As per its method of accounting, expenditure
incurred on such activities was capitalised. During the year under appeal the
assessee changed its accounting policy in respect of the same and the
expenditure incurred on such activities was charged to profit and loss account.
The AO did not accept the change for the following reasons :



  • Change was not bona fide and it was made only to get over the provisions of S.
    35E;



  • New method of accounting led to mismatch of the expenditure with the receipts;



  •  Business of the assessee i.e., mining minerals and ores, had not commenced;



  • To
    align its accounting policy with its parent company was not a good ground to
    justify the change.



The CIT(A) on appeal came to the conclusion that the assessee
was in the business of exploration, and not mining as held by the AO. Further,
being satisfied that the change made in accounting policy was bona fide, the
CIT(A) allowed the assessee’s appeal.

Before the Tribunal the Revenue contended that the assessee
had changed its policy only to frustrate the provisions contained in S. 35E of
the Act and submitted that the order of the AO be restored.

Held :

Referring to the main objects as per the Memorandum of
Association of the assessee company, the Tribunal noted that the assessee
company was formed to carry on the business of prospecting or exploring the ores
and minerals. According to it, the conclusion got further strength from the FIPB
approval received by the assessee, which was only for carrying out exploration
activity. Thus, the Tribunal held that the mainstay of AO that the business of
the assessee had not commenced and therefore, the expenses cannot be charged to
profit and loss account failed. Further, the Tribunal held that to align the
accounting policy with that of one’s parent, could be a valid ground and it did
not agree with the AO that it was not a good ground to permit the change.
According to it, the change would lead to more appropriate preparation and
presentation of the financial statement for the reason that the losses will not
unnecessarily be carried forward as work-in-progress, when there was none.


levitra

India and Norway have signed a social security treaty on 29 October 2010

fiogf49gjkf0d

New Page 2

Spotlight




Pinky Shah,
Sonalee Godbole, Gaurang Gandhi, Tarun Ghia, Brijesh Cholera, Pratik Mehta

Sejal Vasa

Chartered
Accountants

Company
Secretary

Part E : Miscellaneous

1. India and Norway have signed a social security treaty
on 29 October 2010


levitra

S. 254 — When pendency of Department’s appeal not pointed out at hearing of appeal, no error in hearing only assessee’s appeal.

fiogf49gjkf0d

New Page 1

15 ACIT v. Changepond Technologies Pvt. Ltd.


ITAT ‘A’ Bench, Chennai

Before T. R. Sood (AM) and Vijay Pal Rao (JM)

M.P. No. 137/Mds/08 in ITA No. 731/Mds/07

A.Y. : 2003-04. Decided on : 14-8-2008

Counsel for revenue/assessee : Shaji P. Jacob/

H. Padamchand Khincha

S. 254 of the Income-tax Act, 1961 (‘the Act’) — When the
fact of pendency of Department’s appeal was not pointed out at the time of
hearing of the appeal of the assessee, can it be said that the Tribunal has
committed an error while hearing only the assessee’s appeal — Held, No.

Per Vijay Pal Rao :

Facts :

The Tribunal in ITA No. 731/Mds./2007 passed an order on
15-2-2008 in an appeal filed by the assessee, whereas the appeal filed by the
Department was not disposed of together. The assessee had made a petition with
the registry of the Tribunal for clubbing of both the appeals and being heard
together. Since the appeal of the Department was not heard along with the
assessee’s appeal, the Revenue filed this miscellaneous petition contending that
there was an error in the order of the Tribunal dated 15-2-2008. The Revenue
pointed out that the Apex Court in the case of Vijai Int. Udyog has held that
cross appeals of the assessee and the department should be heard together and if
the Departmental appeal is not heard along with the assessee’s appeal, then the
order passed in the assessee’s appeal is clearly erroneous. Thus, it was
contended that the appeal was disposed of by overlooking the mandatory direction
of the Apex Court and the order dated 15-2-2008 of the Tribunal may be recalled
and heard along with the appeal of the Department.

Held :

The Tribunal noted that admittedly, the fact of pendency of
Department’s appeal was not pointed out at the time of hearing of the appeal of
the assessee. The Tribunal observed that the appeal of the Department was
allowed by the Apex Court in the case of Vijai Int. Udyog, because both the
parties consented to the rehearing of the case. It also noted that the Apex
Court has in para 13 of the decision in the case of Vasant Manganlal Chokshi
held that unless and until the Department had pointed out to the Tribunal that
its appeal was also pending, the Tribunal cannot be said to have committed an
error by adjudicating only the assessee’s appeal. The Tribunal also noted that
though the order of the Apex Court in the case of Vasant Manganlal Chokshi was
by way of dismissal of SLP, it was a case of dismissal with reasons. As the Apex
Court had in the case of Kunhayammed & Others held that when the Apex Court
passes an order in SLP and also gives reasons, then such order would also
constitute binding precedent on the lower Courts. Accordingly, the Tribunal held
that it has not committed an error while hearing only the assessee’s appeal. The
Tribunal found that there was no error apparent from the order of the Tribunal.
The miscellaneous petition was rejected.

Cases referred to :



1. Commissioner of Sales Tax v. Vijai Int. Udyog, (152 ITR
111)(SC)

2. Commissioner of Customs v. Vasant Manganlal Chokshi,
(204 ELT 5) (SC)

3. Kunhayammed & Others v. State of Kerala & Another, (245
ITR 360) (SC)

4. V. M. Salgaocar & Bros. (P) Ltd. v. CIT, 243 ITR 383
(SC)

5. CIT v. Balwant Singh Arora, (180 ITR 400) (Punjab &
Haryana)

6. DCIT v. Smt. P. Shanti, (MP No. 266/Mds./2005) (ITAT —
Chennai)


levitra

Social Security Agreement signed with Belgium effective from 1-9-2009

fiogf49gjkf0d

Spotlight – Part D

Part D :
Miscellaneous





  1. Social Security Agreement signed with Belgium effective
    from 1-9-2009    .


The Government of India had signed a Social Security
Agreement (‘SSA’) with the Government of Belgium on 3 November 2006 to avoid
the hardship of double payment of the social security contribution by
employees and employers in India and Belgium having cross-border operations in
both countries.

It has now been announced that the SSA shall come into
effect from 1st September 2009. Further, the Government has issued a handbook
and FAQs clarifying a few terms/aspects of the SSA.

levitra

Processing of returns for A.Y. 2007-08 and steps to clear the backlog. Instruction No. 12/2008, F.No.225/106/2008-ITA-II dated 5-9-2008 (reproduced).

fiogf49gjkf0d

New Page 1

2 Processing of returns for A.Y. 2007-08 and
steps to clear the backlog. Instruction No. 12/2008, F.No.225/106/2008-ITA-II
dated 5-9-2008 (reproduced).

Kindly refer to the above.

 


2. A review of CAP-II statements for June and July 2008 shows
a large pendency of returns for A.Y. 2007-08 in almost all CCIT Regions. The
Board had earlier kept a target of 4-6 months for processing of returns. The
criteria for matching claims for granting TDS certificates were relaxed in June
2006, in order to expedite the processing of pending returns and necessary
instruction in this regard was issued vide Instruction No. 6/2008, dated 18th
June, 2008. However, the number of returns processed has not shown any
significant improvement. A large number of electronic returns for A.Y. 2007-08
as also refund returns are still pending for processing. The Board is concerned
about the slow pace of progress in this regard. In order to speed up the
processing of pending returns for A.Y. 2007-08, it has been decided to adopt the
following strategy :

(1) All pending returns for A.Y. 2007-08 involving refund
claims (including electronic returns with refund claims) must be processed on
priority basis by 30th September, 2008. Where any scrutiny assessment is
pending in these cases, refund should be issued only after completion of the
scrutiny assessment.

(2) For processing electronic returns involving refund
claims, TDS data supplied by DGIT (Systems) on CDs along with AST instructions
68 may be utilised.

(3) Refund returns involving inter-RCC migration of PAN may
be processed on TMS.

(4) Since data of electronic returns is already on the
system, once this is acquired into the RCC data base, it will become part of
the selection process under CASS. Therefore, electronic returns for A.Y.
2007-08 not involving refund claims can be taken up for processing after 30th
September. However, it has to be ensured that all such returns are acquired
and incorporated into RCC data base before the next round of CASS is run.

(5) Returns in forms ITR-4 and 5 filed in paper made by
business assessees and not covered by S. 44AB of the Income-tax Act, 1961
should be taken up for processing on AST at the stations on network on
priority basis at the earliest before the next round of selection through
CASS.

(6) Salary returns for A.Y. 2007-08 in which there is no
refund or demand and the TDS claim is below Rs.5 lakh, may be given the last
priority for processing.

 


This may be brought to the notice of all concerned for strict
compliance. Any difficulties arising in processing of returns on AST may be
brought to the notice of DGIT (Systems) and, wherever necessary, to the Board.

levitra

Scrutiny of FBT returns — Instruction No. 11/2008, F.No.225/44/2008-ITA-II, dated 5-9-2008 (reproduced)

fiogf49gjkf0d

New Page 1

Scrutiny of FBT returns — Instruction No.
11/2008, F.No.225/44/2008-ITA-II, dated 5-9-2008 (reproduced)


Kindly refer to the above.

 

2. I am directed to state that all the corporate cases
selected for scrutiny as per the guidelines contained in the Action Plan
document 2008-09, which have returned income of Rs.5 crore or more and where
provisions of Fringe Benefit Tax (FBT) apply, assessment order shall also be
passed u/s.115WE of the Income-tax Act, 1961 after scrutiny of all such cases.

 

This may be brought to the notice of all concerned.

levitra

A.P. (DIR Series) Circular No. 40, dated 2-3-2010 — External Commercial Borrowings (ECB) Policy — Structured Obligations.

fiogf49gjkf0d

New Page 1

Part C : RBI / FEMA


Given below are the
highlights of certain RBI Circulars.

14 A.P.
(DIR Series) Circular No. 40, dated 2-3-2010 — External Commercial Borrowings (ECB)
Policy — Structured Obligations.

This Circular permits Indian
companies who have raised debt through issue of capital market instruments such
as bonds and debentures, as well as Infrastructure Development Companies (IFCs)
to obtain credit enhancement facility from eligible non-resident entities. This
is subject to the following terms and conditions :


(i) Credit enhancement
will be permitted to be provided by multilateral/regional financial
institutions and Government-owned development financial institutions;

(ii) The underlying debt
instrument should have a minimum average maturity of seven years;

(iii) Prepayment and
call/put options would not be permissible for such capital market
instruments up to an average maturity period of 7 years;

(iv) Guarantee fee and
other costs in connection with credit enhancement will be restricted to a
maximum 2% of the principal amount involved;

(v) On invocation of the
credit enhancement, if the guarantor meets the liability and if the same is
permissible to be repaid in foreign currency to the eligible non-resident
entity, the all-in-cost ceilings, as applicable to the relevant maturity
period of the Trade Credit/ECBs, would apply to the novated loan. Presently,
the all-in-cost ceilings, depending on the average maturity period, are
applicable as follows :

Average
maturity period of the loan on invocation

All-in-cost
ceilings over 6 month Libor for the respective currency of borrowing or
applicable benchmark

Up to three
years

200 basis
points

Three years and up to five years

300 basis
points

More than five years

500 basis
points

(vi) In case of default
and if the loan is serviced in Indian Rupees, the applicable rate of
interest would be the coupon of the bonds or 250 bps over the prevailing
secondary market yield of 5 years Government of India security, as on the
date of novation, whichever is higher;

(vii) IFCs proposing to
avail of the credit enhancement facility should comply with the eligibility
criteria and prudential norms laid down in the Circular DNBS.PD.CC No.
168/03.02.089/ 2009-10, dated February 12, 2010 and in case the novated loan
is designated in foreign currency, the IFC should hedge the entire foreign
currency exposure; and

(viii) The reporting
arrangements as applicable to the ECBs would be applicable to the novated
loans.



levitra

A.P. (DIR Series) Circular No. 39, dated 2-3-2010 — External Commercial Borrowings (ECB) Policy.

fiogf49gjkf0d

New Page 1

Part C : RBI / FEMA


Given below are the
highlights of certain RBI Circulars.

13 A.P.
(DIR Series) Circular No. 39, dated 2-3-2010 — External Commercial Borrowings (ECB)
Policy.

Presently, Non-Banking
Finance Companies (NBFC) which are exclusively engaged in financing of
infrastructure sector are permitted to avail of ECB from recognised lenders,
including international banks, under the approval route, for on-lending to the
infrastructure sector.

This Circular states that
with the coming into existence of separate category of NBFC viz. Infrastructure
Finance Companies (IFC) vide guidelines contained in Circular DNBS.PD.CC No.
168/03.02.089/2009-10, dated February 12, 2010, NBFC are no longer permitted to
avail ECB for on-lending to the infrastructure sector.

IFC can avail of ECB for
on-lending to the infrastructure sector after obtaining RBI permission under the
‘approval route’, subject to the following conditions :


(i) Compliance with the
norms prescribed in the aforesaid DNBS Circular, dated February 12, 2010;

(ii) Hedging of the
currency risk in full; and

(iii) The total
outstanding ECBs including the proposed ECB not exceeding 50% of the Owned
Funds.



levitra

A.P. (DIR Series) Circular No. 38, dated 2-3-2010 — External Commercial Borrowings (ECB) Policy.

fiogf49gjkf0d

New Page 1

Part C : RBI / FEMA


Given below are the
highlights of certain RBI Circulars.

12 A.P.
(DIR Series) Circular No. 38, dated 2-3-2010 — External Commercial Borrowings (ECB)
Policy.

Presently, infrastructure
sector is defined as (i)
power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v)
sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water
supply, sanitation and sewage projects), and (viii) mining, exploration and
refining.

This Circular had enlarged
the definition of infrastructure sector to include “cold storage or cold-room
facility, including for farm-level pre-cooling, for preservation or storage of
agricultural and allied produce, marine products and meat”. As a result,
infrastructure sector will now include :


(i) power, (ii)
telecommunication,

(iii) railways,

(iv) road including
bridges,

(v) sea port and
airport,

(vi) industrial parks,

(vii) urban
infrastructure (water supply, sanitation and sewage projects),

(viii) mining,
exploration and refining, and

(ix) cold storage or
coldroom facility, including for farm-level pre-cooling, for preservation or
storage of agricultural and allied produce, marine products and meat.



levitra

A.P. (DIR Series) Circular No. 36, dated 24-2-2010 — Overseas Investment Application — Online Reporting of Overseas Direct Investment in Form ODI.

fiogf49gjkf0d

New Page 1

Part C : RBI / FEMA


Given below are the
highlights of certain RBI Circulars.

11 A.P.
(DIR Series) Circular No. 36, dated 24-2-2010 — Overseas Investment Application
— Online Reporting of Overseas Direct Investment in Form ODI.

This Circular states that
online reporting system in respect of Overseas Direct Investment — Form ODI has
been operationalised in a phased manner from March 2, 2010. The online
application form is available on the Secured Internet Website of RBI at —
https://secweb.rbi.org.in.

Physical copy of the said
online application bearing the Unique Identification Number (UIN) will also have
to be filed with the bank.

levitra

VAT-1510/CR 47/Taxation-1, dated 10-3-2010 read with its corrigendum VAT-1510/CR 47/Taxation-1, dated 17-3-2010.

fiogf49gjkf0d

New Page 1

10
VAT-1510/CR 47/Taxation-1, dated 10-3-2010 read with its corrigendum VAT-1510/CR
47/Taxation-1, dated 17-3-2010.


By this Notification, rates
of MVAT have been increased for many items of Schedule-C from existing 4% to 5%
w.e.f. 1-4-2010.

levitra

Tax treatment of goods sent to other States — Trade Circular No. 12T of 2010, dated 22-3-2010.

fiogf49gjkf0d

New Page 1

MVAT Circulars


9 Tax
treatment of goods sent to other States — Trade Circular No. 12T of 2010, dated
22-3-2010.

It is clarified that
requirement of F-Forms in transactions in respect of job work and goods return
would be applicable prospectively from the date of Trade Circular 2T of 2010
i.e., 11th January 2010.

levitra

Increase in rate of tax Schedule-C — Clarification — Trade Circular No. 11T of 2010, dated 17-3-2010.

fiogf49gjkf0d

New Page 1

MVAT Circulars


For CST in Form-IIIE challan
portion is now deleted and a separate challan MTR-6 is now provided for
E-payments as well as manual payments under the CST Act.

8 Increase
in rate of tax Schedule-C — Clarification — Trade Circular No. 11T of 2010,
dated 17-3-2010.

It is clarified that fabrics
and sugars which were tax-free prior to issue of the Notification No.
VAT-1510/CR 47/Taxation-1, dated 10-3-2010 continue to remain as tax-free.

levitra

Optional scheme for electronic payment of VAT and CST : Trade Circular No. 10T of 2010, dated 15-3-2010.

fiogf49gjkf0d

New Page 1

MVAT Circulars


7 Optional
scheme for electronic payment of VAT and CST : Trade Circular No. 10T of 2010,
dated 15-3-2010.

A dealer who desires to make
payment of VAT, interest or penalty under the MVAT Act, 2002 electronically can
use Challan MTR-6. For manual payments Form-210 continues. Facility for
E-payment is not available for payments under the erstwhile BST Act. Procedural
modalities of E-refunds under the MVAT Act, 2002 will be notified in due course.

For CST in Form-IIIE challan
portion is now deleted and a separate challan MTR-6 is now provided for
E-payments as well as manual payments under the CST Act.

levitra

Extension of date for applying for CST declarations for the periods prior to 1-4-2008 : Trade Circular No. 9T of 2010, dated 12-3-2010.

fiogf49gjkf0d

New Page 1

MVAT Circulars

6 Extension
of date for applying for CST declarations for the periods prior to 1-4-2008 :
Trade Circular No. 9T of 2010, dated 12-3-2010.

Application for obtaining
CST declarations for all the periods prior to 1-4-2008 can be made on or before
30-4-2010. Such applications should be made manually (on CD) and not online.
Such applications shall not be accepted after 30-4-2010.

levitra

Compulsory e-payment of service tax and filing of Notification No. 01/2010 — Dated 19-2-2010.

fiogf49gjkf0d

New Page 1

5 Compulsory
e-payment of service tax and filing of Notification No. 01/2010 — Dated
19-2-2010.


By this Notification,
service tax rules have been amended w.e.f. 1-4-2010 to provide that a service
tax assessee who has in the preceding financial year, paid total service tax,
including amount paid by utilisation of CENVAT credit, of Rs.10 lakhs or more,
shall deposit service tax electronically through Internet banking and shall also
file the return electronically.

levitra

CBDT Instruction No. 3/2010, dated 23-3-2010 — Allowing losses on account of forex derivatives under the Income-tax Act, 1961 — reg — F. No. 225/143/2009-ITA.II.

fiogf49gjkf0d

New Page 1

4 CBDT
Instruction No. 3/2010, dated 23-3-2010 — Allowing losses on account of forex
derivatives under the Income-tax Act, 1961 — reg — F. No. 225/143/2009-ITA.II.

Foreign exchange derivative
transactions entered into by the corporate sector in India have witnessed a
substantial growth in recent years. This combined with extreme volatility in the
foreign exchange market in the last financial year is reported to have resulted
in substantial losses to an assessee on account of trading in forex derivatives.
A large number of assessees are said to be reporting such losses on ‘marked to
market’ basis either suo motu or in compliance of the Accounting Standard or
advisory Circular issued by the Institute of Chartered Accountants. The issue
whether such losses on account of forex derivatives can be allowed against the
taxable income of an assessee has been considered by the Board. In this
connection, I am directed to say that the Assessing Officers may follow the
guidelines given below :

‘Marked to Market Losses’ :

2. ‘Marked to Market’ is in
substance a methodology of assigning value to a position held in a financial
instrument based on its market price on the closing day of the accounting or
reporting record. Essentially, ‘Marked to Market’ is a concept under which
financial instruments are valued at market rate so as to report their actual
value on the reporting date. This is required from the point of view of
transparent accounting practices for the benefit of the shareholders of the
company and its other stakeholders. Where companies make such an adjustment
through their Trading or Profit/Loss Account, they book a corresponding loss
(i.e., the difference between the purchase price and the value as on the
valuation date) in their accounts. This loss is a notional loss as no
sale/conclusion/settlement of contract has taken place and the asset continues
to be owned by the company.

A ‘Marked to Market’ loss
may be given different accounting treatment by different assessees. Some may
reflect such loss as a balance sheet item without making any corresponding
adjustment in the Profit and Loss Account. Other may book the loss in the Profit
and Loss Account which may result in the reduction of book profit. In cases
where no sale or settlement has actually taken place and the loss on Marked to
Market basis has resulted in reduction of book profits, such a notional loss
would be contingent in nature and cannot be allowed to be set off against the
taxable income. The same should therefore be added back for the purpose of
computing the taxable income of an assessee.

3.
Treatment of loss from actual transactions in forex derivatives :

In a case where a loss on a
forex derivative transaction arises on actual settlement/conclusion of contract
and is not a notional or Marked to Market book entry, a further question will
arise as to whether such a loss is on account of a speculative transaction as
contemplated in S. 43(5) of the Income-tax Act. For determining whether loss
from a transaction in respect of a forex derivative is a speculatidn loss or
not, the Assessing Officers may refer to proviso (d) below Ss.(5) of S. 43
inserted by the Finance Act, 2005, with effect from 1-4-2006. It lays down that
any ‘eligible transaction’ in respect of trading in derivatives referred to in
clause (ac) of S. 2 of the Securities Contracts (Regulation) Act, 1956, that has
been carried out in a recognised stock exchange shall not be treated as a
speculative transaction. Further, an ‘eligible transaction’ for this purpose
would be one that fulfils the conditions laid down in Explanation to S.
43(5)(d). Any loss in a speculative transaction can be set off only against
profit from speculative transactions.

As the revenue implications
of such transaction are large, the Assessing Officers need to examine the
statements of accounts and the notes to accounts with a view to find out any
reference to any loss on account of forex derivatives. In some cases, these
losses may be camouflaged under the ‘financial charges’, ‘foreign exchange loss’
or some similar head which may make it difficult to detect them. In such cases,
the Assessing Officers should make a specific query asking the assessee to give
a break-up of any ‘Marked to Market’ loss on forex derivatives included in the
Profit and Loss Account and examine whether such transactions are ‘eligible
transaction’ in terms of S. 43(5)(d). An adjustment to the taxable income may
therefore be made, if necessary, keeping in view the provisions of law referred
to above.

levitra

CBDT Instruction No. 1/2010, dated 25-2-2010 — Processing of returns of A.Y. 2008-09 — Steps to clear the backlog.

fiogf49gjkf0d

New Page 1

3 CBDT
Instruction No. 1/2010, dated 25-2-2010 — Processing of returns of A.Y. 2008-09
— Steps to clear the backlog.


The issue of processing of
I.T. returns for the A.Y. 2008-09 and giving credit for TDS has recently been
considered by the Board and the following decisions have been taken in order to
clear the backlog of returns pending for processing :


(i) In all the returns
filed in ITR-1 and ITR-2 for the A.Y. 2008-09, where the aggregate TDS claim
does not exceed Rs.4 lakh and where the refund computed does not exceed
Rs.25,000, the TDS claim of the taxpayer concerned should be accepted at the
time of processing of the return.

(ii) In all the returns
filed in forms other than ITR-1 and ITR-2 for the A.Y. 2008-09, where the
aggregate TDS claim does not exceed Rs.4 lakh and the refund computed does
not exceed Rs.25,000, and there is 70% matching of TDS amount claimed, the
TDS claim of the tax-payer concerned should be accepted at the time of
processing of the return.

(iii) In all remaining
cases, TDS credit shall be given after due verification.



levitra

Income-tax (First Amendment) Rules, 2010 — Notification No. 9/2010, dated 18-2-2010.

fiogf49gjkf0d

New Page 1

2 Income-tax
(First Amendment) Rules, 2010 — Notification No. 9/2010, dated 18-2-2010.

Rules 30, 31 and 31A
providing time and mode of payment of TDS/TCS and issue of certificates of TDS/TCS,
quarterly returns of TDS/TCS are substituted. The CBDT had made certain
amendments on 25th March 2009 in respect of TDS/TCS payments and related
compliance requirements. The CBDT has now reintroduced the erstwhile Income-tax
Rules which prevailed before enacting the above said amendments, with a few
changes with effect from 1st April 2009.

levitra

CBDT Circular No. 03/2010 [F. NO. 275/66/2007-IT(B)], dated 2-3-2010 regarding tax deduction at source u/s.194A on payment of interest on time deposits by banks.

fiogf49gjkf0d

New Page 1


1 CBDT
Circular No. 03/2010 [F. NO. 275/66/2007-IT(B)], dated 2-3-2010 regarding tax
deduction at source u/s.194A on payment of interest on time deposits by banks.

The CBDT has clarified that
tax should not be deducted at source on interest provided by banks on time
deposits on daily or monthly basis. Tax should be deducted at source on accrual
of interest at the end of the financial year or at periodic intervals as per
practice of the bank or as per depositors’ requirement or on maturity or
encashment of time deposits, whichever is earlier.

levitra

Mandatory E-filing of returns for all periods from April-2005. Notification No. VAT/AMD-1007/IB/Adm-6, dated 4-3-2009

fiogf49gjkf0d

New Page 1

13 Mandatory E-filing of returns for all periods from April-2005.
Notification No. VAT/AMD-1007/IB/Adm-6, dated 4-3-2009 :


E-filing has been made mandatory w.e.f. 1-3-2009. of all the pending returns
in respect of any of the periods starting on or after 1st April, 2005 and
ending on or before 30th September, 2008 including fresh and revised
returns.


 

levitra

S. 147 r.w. S. 158BC — If Assessing Officer makes any additions in block assessment proceedings, then he cannot include said income either on substantive or protective basis for initiating re-assessment proceedings.

fiogf49gjkf0d

New Page 1

  1. (2009) 32 SOT 597 (Mum.)


M. P. Ramachandran v. Dy. CIT

A.Y. : 1997-98. Dated : 14-5-2009

S. 147 r.w. S. 158BC — If Assessing Officer makes any
additions in block assessment proceedings, then he cannot include said income
either on substantive or protective basis for initiating re-assessment
proceedings.

For the relevant assessment year, certain addition on
account of disallowance of advertisement expenditure made by the Assessing
Officer in block assessment proceedings was deleted by the CIT(A). In the
meantime the Assessing Officer re-opened the assessment. He held that since
substantive addition relating to the advertisement expenses made in the block
assessment was deleted by the first Appellate Authority and the appeal was yet
to be decided by the Tribunal, addition in the present assessment order was
also called for on protective basis. The CIT(A) upheld the assessment order on
the question of legality of the initiation of reassessment proceedings. On
merits, the CIT(A) reduced a part of addition made towards the advertisement
expenses.

The Tribunal held that the impugned amount did not qualify
for consideration in the reassessment. The Tribunal noted as under :

(2) Since the very foundation of S. 147 is to charge to
tax some income which has escaped assessment, it is sine qua non that
the income now sought to be taxed should be one which earlier escaped
assessment while determining the taxable income of the assessee. Once the
said income has been put to tax in the hands of the assessee, either under
the regular assessment or in the block assessment, the basic requisite
condition of the income ‘escaping assessment’ will become wanting.

(3) In this case, having made an addition in the block
assessment, the Assessing Officer was not justified in forming the belief
either on substantive or protective basis, that the same income has escaped
assessment in the instant year. Therefore, the initiation of reassessment
proceedings on this count could not be upheld.

levitra

S. 22 and S. 28 — Income earned by company from leasing infotech park constructed by it on land (initially taken on lease and later acquired), construction financed by borrowings from banks secured on immovable property, providing various amenities charge

fiogf49gjkf0d

New Page 1

14 Global Tech Park Pvt. Ltd. v. ACIT


ITAT ‘A’ Bench, Bangalore

Before P. Mohanarajan (JM) and

K. K. Gupta (AM)

ITA No. 1021/Bang./2007

A.Y. : 2003-04. Decided on : 30-6-2008

Counsel for assessee/revenue: H. N. Khincha/

Etwa Munda

S. 22 and S. 28 of the Income-tax Act, 1961 (‘the Act’) —
Whether income earned by a company from leasing information technology park,
constructed by it on land belonging to the company (which land was initially
taken on lease and was later on acquired) which construction was financed by
borrowings from banks secured on immovable property of the company, and
providing various amenities and services is chargeable to tax under the head
‘Income from Business’ and not ‘Income from House Property’ as assessed by the
AO — Held, Yes.

Per K. K. Gupta :

Facts :

The assessee developed the land allotted to it by Karnataka
Industrial Areas Development Board and constructed an information technology
park thereon. The information technology park consisted of two large blocks of
buildings with four floors in each block, service block, cafeteria, library,
gymnasium, utilities for staff, rest rooms, security, ATM, and Geodesic Dome.
The assessee provided/installed in the said information technology park
landscaping and construction of steel reinforced cement roads and high-security
compound wall fitted with motorised gate, huge water tank fitted with high
pressure-pumps, reservoir and sump, borewell, sewage treatment plant, lifts,
rainwater harvesting system, high-standard electrical installation including
transformer and generators, air conditioning, fire fighting and smoke detector
equipments, etc. Various amenities and services were provided in the nature of
maintenance of staff, monitoring of the generator room, water supply, etc. Land
and infrastructure were provided by the assessee by obtaining loan from a bank
which had mortgaged the immovable property and had also taken personal
guarantees of the Directors. The assessee received rental income from persons
with whom it entered into an agreement for leasing the information technology
park. The assessee considered rental income to be chargeable under the head
‘Income from Business’. The Assessing Officer was of the view that the lease
deed has been entered into by the assessee as absolute owner of the property
with the tenant and therefore placing reliance upon the decisions of Podar
Cement P. Ltd., East India Housing and Land Development Trust Ltd. and Bhoopalam
Enterprises, he assessed rental income under the head ‘Income from House
Property’. The Commissioner of Income-tax (Appeals) upheld the action of the
Assessing Officer. The assessee preferred an appeal to the Tribunal.

Held :

The Tribunal observed that the assessee was incorporated with
the sole intention of developing technology park for which it obtained leasehold
land from the Karnataka Industrial Areas Development Board and also obtained
loan from Union Bank of India for constructing super structure thereon. Such
conduct according to the Tribunal could not be considered as investment in a
property for earning rental income only. The Tribunal noted that since the lease
of the property was shown as part of the business activity, the income received
therefrom cannot be said as income received as a land owner but as a trader.
According to the Tribunal, if the property is taken on lease and thereafter
developed and leased it, is part of the business activity of the assessee as an
owner, and the income has to be treated as business income. The Tribunal found
that the activity was done by the assessee as a business venture and was in
accordance with the main object of the company. It observed that the intention
of any prudent businessman is to earn profit at a maximum level and investment
made in the business never lost its main intention for which the assessee was
incorporated. Since the entire cost of construction was met by way of obtaining
loan, it was found to be a risk as adventure in the nature of trade. According
to the Tribunal, the conversion from leasehold to ownership leads to a pure
commercial proposition resulting in a business venture carried out by the
assessee company. The Tribunal was of the view that the assessee’s providing
amenities, such as ward and watch, maintenance of common area, maintenance of
light in the common area, supply of water, providing lift, installation of
electric transformer, power to the lessees, providing generator, overhead water
tanks, maintenance of drainage, etc. clearly establish that the entire activity
is carried on in an organised manner to earn profit out of investment made by
the assessee as a commercial venture. The Tribunal noted that the case law cited
by the jurisdictional High Court in the case of Balaji Enterprises had
considered the Apex Court decision in the case of S. G. Mercantile Corporation.
It found the case law relied upon by the learned CIT(A) (Bhoopalan Commercial
Complex & Industries Pvt. Ltd.) to be distinguishable on facts. It found force
in the submission of learned counsel that the term ‘business’, as defined in the
provision of infrastructure facility as provided in sub-clause (iv) of S. 80IA
clearly explains the development and operation of the technology park, has not
been controverted by the authorities below. It noted that in the assessee’s case
the main intention was to exploit the immovable property by way of commercial
application and there was no room for doubting that the intention of the
assessee was in providing software development facility in the Electronic City
in the industrial area within the limits of Bangalore South District, Bangalore.
According to the Tribunal, any activity undertaken with a profit motive would
amount to business and not a mere return on investment when it is exploited. It
found the facts of the assessee’s case to be similar to those of Balaji
Enterprises and also S. G. Mercantile Corporation. In view thereof, the Tribunal
directed the AO to assess the rental income as from business.

Cases referred to :




1. East India Housing and Land Development Trust Ltd. v.
CIT, 42 ITR 49

2. S. G. Mercantile Corporation (83 ITR 700) (SC)

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

Trading in derivatives — Derivatives are not a contract for purchase and sale — Consequently, trading in derivatives not speculative in terms of section 43(5) — Set-off of loss of derivative trading against gains of share trading permissible.

fiogf49gjkf0d

New Page 1

26. (2010) 127 ITD
386(Chennai)

DCIT Circle (VI)

Vs

Paterson Securities (P) Ltd

A.Y.2004-05

Date: 26/12/2010

Trading in
derivatives-Derivatives are not a contract for purchase and sale- Consequently
trading in derivatives not speculative in terms of section 43(5)-Therefore
set-off of loss of derivative trading against gains of share trading
permissible.

Facts :

The assessee was a member of
the NSE and was engaged in purchase and sale of shares on his own account as
well as on behalf of constituents. The assessee filed a return claiming a set
off of the loss suffered on derivative transactions against profit from sale of
shares. The assessing officer was of the view that trading in derivatives was a
speculative transaction and therefore the loss suffered being in the nature of a
speculative loss could not be set off against other business income and was to
be carried forward.

Held :

A speculative transaction in
terms of section 43(5) is that transaction in which the contract for purchase or
sale is ultimately settled otherwise than by delivery. A derivative can be
traded on the exchange. But it is not a trade in share or stock. A derivative is
not a contract for purchase or sale of share, stock or commodity. A derivative
can be traded on the value of the underlying share or stock but is not a trade
in any actual share or stock. The definition of derivative in section 2(ac) of
the Securities Contract (Regulation) Act can also be referred to. The
transactions in derivatives are therefore not speculative transactions within
the meaning of section 43(5). The loss from these transactions had to be set off
against other income.

levitra

Interest u/s.234B was not payable on advance tax liability due to sum payable on account of retrospective amendment.

fiogf49gjkf0d

New Page 1

25. (2010) 46 DTR (Bang.)
(Trib.) 41

JSW Steel Ltd. v. ACIT

A.Y. : 2005-06. Dated :
31-5-2010

 

Interest u/s.234B was not
payable on advance tax liability due to sum payable on account of retrospective
amendment.

Facts :

The assessee, a public
limited company, in A.Y 2005-06 was not required to add back the amount set
aside for deferred tax liability to the net profits u/s.115JB. As such deferred
tax liability did not fall under any of the adjustments permitted in the first
part of the Explanation to S. 115JB. But the Finance Act, 2008 made a
retrospective amendment (from A.Y. 2001-02) whereby the book profit is required
to be increased by an amount of deferred tax and provision thereof. Interest
u/s. 234B was levied on the amount of tax payable u/s.115JB. However, the
assessee opposed such levy contending that when such retrospective amendment was
brought in, the impugned assessment year was already over and there arose no
occasion to provide for advance tax in case of deferred tax liability.

Held :

By the time the
retrospective amendment was made, the financial years 2004-05 to 2007-08 have
already been passed and hence the assessee had no occasion to add back the
deferred tax provision to compute the book profits u/s.115JB. Even though a
retrospective amendment is possible, a retrospective physical payment of advance
tax is not possible. The acclaimed principle lex non cogit ad impossibilia (law
does not command to do which is impossible to do) holds true.

Thus as the statutory
mandate to add back the deferred tax provision to the book profits u/s. 115JB
was unknown during the relevant previous year 2004-05, the levy of interest
u/s.234B on the incremental amount of tax computed u/.s115JB is not justified.

 

levitra

Interest on loan taken for purchase of motor cars — In the absence of a specific provision in clause (H) of S. 115WB(2), the expenditure on payment of interest on loan taken for purchase of motor cars cannot be included to compute fringe benefits.

fiogf49gjkf0d

New Page 1

24. (2010) 46 DTR (Pune)
(Trib.) 157

Brihan Maharashtra Sugar
Syndicate Ltd. v.
DCIT

A.Y. : 2006-07. Dated :
23-7-2010

 

Interest on loan taken for
purchase of motor cars — In the absence of a specific provision in clause (H) of
S. 115WB(2), the expenditure on payment of interest on loan taken for purchase
of motor cars cannot be included to compute fringe benefits.

Facts :

The assessee had incurred
Rs.54,28,382 as expenditure on running and maintenance of motor cars, which was
certified by the auditor. However, in the return of fringe benefits the assessee
had, from the aforementioned expense, excluded Rs.3,11,580 which pertained to
interest paid on loans taken for purchase of motor cars. The AO was of the view
that the words ‘repairs’, ‘running’ and ‘maintenance of motor cars’ shall cover
every expenses connected with use of motor cars in the business activities of
the assessee. Upon further appeal, the CIT(A) upheld the order of the AO.

Held :

In absence of specific
provision laid down u/s. 115WB(2)(H), the expenditure on payment of interest on
loan taken for purchase of motor cars cannot be included to compute fringe
benefits. Every required related expenses like repairs, running (including
fuel), maintenance of motor cars and amount of depreciation thereon have been
mentioned in specific wordings in the provision. Therefore, the interest paid on
loan taken for purchase of motor cars is not liable to Fringe Benefit Tax.

levitra

S. 28(i) — Business Loss v. Capital Loss — securities held as current asset should be treated as stock-in-trade. The loss incurred on the same should be treated as business loss.S. 145 — Method followed by the assessee was cost or market price whichever

fiogf49gjkf0d

New Page 1

23. (2010) 126 ITD 448
(Mum.)

DDIT v. Chohung Bank

A.Ys. : 1997-98, 1999-2000
to 2003-04

Dated : 25-6-2009

 

S. 28(i) — Business Loss v.
Capital Loss — securities held as current asset should be treated as
stock-in-trade. The loss incurred on the same should be treated as business
loss.

S. 145 — Method followed by
the assessee was cost or market price whichever is less — accordingly loss
should be recognised but appreciation in the value should not be booked.

Facts :

The assessee is a
non-resident banking company. It incurred a loss of Rs.77,000 on sale of
Government securities held as ‘current investments’. The Assessing Officer
treated the same as capital loss stated. The assessee contended that the
securities were as ‘current asset’ in the balance sheet as per the norms laid
down by the RBI. It was further contended that buying and selling of securities
was a normal business activity of a banking company and the current investments
were thus stock-in-trade.

Held :

As per the guidelines issued
by the RBI, the securities are to be divided into (i) permanent investments and
(ii) current investments. Permanent investments are the securities purchased
with the intention of retaining them while the current investments are the
securities purchased with an intention of trading to take advantage of
short-term price. Thus the securities in the nature of current investments
automatically become the stock-in-trade of the assessee and not investment. The
loss incurred is thus on account of stock-in-trade which is referred as current
investments by the assessee.

Facts :

The assessee had revalued
certain securities being a part of closing stock and incurred loss of Rs.45,000.
The same was debited to the profit and loss account. The Assessing Officer
observed during the course of assessment proceedings that the assessee had also
revalued certain other securities forming part of the closing stock and incurred
profit of Rs.15,43,400 on the same. This profit was not offered to tax. The
Assessing Officer held that the assessee incurred loss on revaluation of one
portion of the closing stock and profit on revaluation of the another portion of
the same closing stock. While the loss was claimed as deduction, the profit was
not offered to tax. The AO held that the assessee could not be allowed to follow
different methods for valuing different portions of stock. Accordingly, an
addition of Rs.15,43,400 was made.

Held :




1. The method ‘cost or
market price’ whichever is less is a recognised method of valuation of
closing stock. The logic behind this method is that the loss in the value be
recognised without recognising unduly the appreciation in the value of
stock.

2. The Circular issued
by the RBI for valuation and classification of investments states that the
valuation is to be done scripwise and further any appreciation in the value
should not be booked.

3. Further, this method
is being consistently followed by the assessee. Going by the method adopted
by the assessee as ‘cost or market price whichever is less’, there can be no
addition of appreciation on account of revaluation.




Note :
The other issues being minor, have been ignored
for the purpose of above gist.

 

levitra

S. 271(1)(c) — A mere addition made by the Assessing Officer cannot be a ground to levy penalty.

fiogf49gjkf0d

New Page 1

22. (2010) 126 ITD 416
(Ahd.)

Gruh Finance Ltd. v. ACIT

A.Y. : 1998-99. Dated :
16-5-2008

 

S. 271(1)(c) — A mere
addition made by the Assessing Officer cannot be a ground to levy penalty.

Facts :

For the year under
consideration, the assessee had claimed deduction u/s.36(1)(viii) to the tune of
Rs.1,55,75,000. The Assessing Officer recomputed the deduction to the extent of
Rs.84,24,228 and levied penalty u/s.271(1)(c).

Held :

Assessment proceedings and
penalty proceedings are both different. Explanation 1 to S. 271(1)(c) states
that amount added or disallowed in computing the total income shall be deemed to
be income in respect of which particulars have concealed. This deeming provision
is not an absolute one. The presumption is rebuttable and not conclusive. The
assessee in this case has duly submitted required explanation and other
documents. No material has been brought on record to show that the assessee has
concealed the income or has not provided sufficient explanation. A mere addition
made by the Assessing Officer cannot be a ground to levy penalty.

 

levitra