Category: Direct Taxes

The assessee is a co-operative housing society formed of plot owners, who had obtained a lease of land from the Maharashtra Housing Board. The society in turn entered into sub-lease agreements with its members. The society passed a resolution by which it resolved that if any member desires to avail of the benefit of TDR for carrying out construction on his/her plot, the member should apply for a no objection certificate which would be granted on the payment of a premium calculated at Rs. 250 per sq. ft. In the previous year relevant to the A. Y. 2005-06, the assessee society received a premium of Rs. 18.75 lakh from four members of the society. The Assessing Officer rejected the claim of the assessee society that the premium amount is governed by the principle of mutuality and accordingly is not chargeable to tax and added the said amount of Rs. 18.75 lakh to the total income. The Tribunal allowed the assessee’s claim and deleted the addition.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The principle of mutuality would clearly apply to a situation as to the present. The TDR premium is a payment made by a member to the society of which he is a member, as a consideration for being permitted to make an additional utilization of FSI on the plot allotted by the co-operative housing society.

ii) The society which looks after the infrastructure, requires the payment of the premium in order to defray the additional burden that may be cast as a result of the utilisation of the FSI. The point however is that there is a complete mutuality between the co-operative housing society and its members. The principles of mutuality would apply. Hence no substantial question of law arises.”

For the A. Y. 1999-00, while filing the return of income, the assessee did not have TDS certificates in respect of Rs. 19,44,692/- and accordingly, could not claim credit of the said amount in the return of income. After receiving the intimation u/s. 143(1), the assesee received the TDS certificates in respect of the said amount. Thereafter, the assessee filed the said TDS certificates and claimed credit of the said amount by rectification u/s. 154 of the Act. The Assessing Officer allowed the claim by passing order u/s. 154. The Commissioner exercising his power u/s. 263 of the Act withdrew the said credit of Rs. 19,44,672/- given by the Assessing Officer u/s. 154. The Tribunal allowed the appeal filed by the assessee and set aside the order of the Commissioner passed u/s. 263.

On appeal by the Revenue, the following question was raised:

“Whether the order passed by the assessing authority giving credit to the amount paid by way of tax deducted at source and consequently directing refund when the assessee has not claimed the said amount in the return filed under the purported exercise of power u/s. 154 of the Act is valid?”

The Karnataka High Court dismissed the appeal and held as under:

“i) As the provisions of section 155(14) were not in the statute book on the day the Assessing Officer passed the order u/s. 154, the order passed on 12th June, 2001, could not be strictly in accordance with law. It was erroneous. The amendment came into effect only from 1st June, 2002.

ii) But on the day the Commissioner exercised his power and passed order on 31st July, 2002, the amendment was in the statute book. Therefore, on 31st July, 2002, when revisional jurisdiction was exercised, the Commissioner could not have held that the order passed by the assessing authority was erroneous, as on that day the amended law provided for such rectification.

iii) Even if it was erroneous, unless the erroneous order was prejudicial to the interest of the Revenue, the Commissioner could not have exercised the power. The amount that was ordered to be refunded to the assessee was not an amount lawfully due to the Revenue at all, but an amount which the Revenue legitimately should have refunded if only the claim had been made in the return enclosing the certificates u/s. 203.

iv) Because the assesee was handicapped by such certificates not being forwarded to it and consequently not being able to make the claim, such a claim was not made. The moment it got possession of those certificates within two years from the end of the assessment year it had put forth the claim. The amount was not a lawful amount due to the Government. It was an amount which should have been refunded to the assessee.

v) In that view of the matter we do not see any merit in this appeal. The substantial question of law framed is answered in favour of the assessee and against the Revenue. The appeal is dismissed.”

The assessee, a construction company constructed 24 flats in two buildings and entered into agreement with ‘G’, according to which flats were sold through ‘G’ on an agreed commission. A raid was conducted in the premises of ‘G’ in which a note book was found, where in the column for cost of flats some figures were mentioned in respect of assessee’s apartments. The Assessing Officer taking view that the figures indicated the sale price of flats of assessee’s apartments, recomputed the income u/s. 44AD by calculating sale proceeds as per the seized document. Commissioner (Appeals) held that since gross receipts including those not accounted for exceeded Rs. 40 lakh, section 44AD was not applicable. On cross appeals before the Tribunal, the appeal of the assessee was allowed that no addition was required.

On appeal by the Revenue, the Madhya Pradesh High Court upheld the decision of the Tribunal and held as under:

“i) On perusing the orders of the Assessing Officer, Income-Tax Commissioner, the ITAT it is agreed that the arguments advanced on behalf of assessee that no prima facie evidence of passing any money from ‘G’ to assessee was proved and for the papers seized from any other place i.e. ‘G’ assessee cannot be held liable, so, the tribunal has committed no error.

ii) On perusing the material in the matter it is found that there was no evidence in the matter that the excess amount, if any, was collected by ‘G’ or even if it was collected then it was passed on to the assessee. There was no search, survey or seizure of the premises of the assessee. Apart from this, the department had not examined any purchaser or flat owner to verify the correctness of the aforesaid noting that some higher amount was paid by the said purchaser to ‘G’ or the fact that actual price was much higher to the price which was recorded in the account books.

iii) The Tribunal has also found that if any amount was collected in excess to the agreed price then ‘G’ could have been liable for that and not the assessee. It is found that reasoning of the Tribunal to be reasonable. Though there may be some doubt about the price of the flats but until and unless it could have been proved by some evidence, aforesaid doubt cannot take place of proof. Until and unless such noting is corroborated by some material evidence, the Assessing Officer erred in making addition in the income.

iv) So far as the applicability of section 44AD is concerned, when the assessee had maintained accounts books, vouchers and other documents as required u/s/s. (2) of section 44AA and got them audited and furnished it along with audit report then such benefit should have been extended to the assessee. In the present case audited accounts books were maintained and there was no question of disbelieving them in absence of any cogent evidence.

v) The order passed by the Tribunal is based on proper appreciation of facts and there is no error in the order. In view of the aforesaid discussion, no merit and substance is found in the appeal and is, accordingly dismissed.”

In the A. Y. 1999-00, the assessee had claimed exemption of interest on tax free bonds of Rs. 5,60,11,644/-. In the course of the assessment proceedings, the assessee was asked to give details of interest on tax free bonds. While preparing the said details, it was noticed that 6% Government of India Capital Index Bonds purchased during the year were inadvertently categorised as tax free bonds and therefore interest of Rs. 75,00,000 was wrongly claimed as exempt. The assesee offered the said amount to tax. The Assessing Officer levied penalty u/s. 271(1)(c) of the Income-tax Act 1961 on the said amount. The Tribunal found that by inadvertent mistake interest at the rate of 6% on the Government of India Capital Index Bonds was shown as tax-free bonds. The Tribunal concluded that there was no desire on the part of the assessee to hide or conceal the income so as to avoid payment of tax on interest from the bonds. Accordingly, the Tribunal deleted the penalty.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The decision of the Tribunal is based on finding of fact that there was an inadvertent mistake on the part of the assessee in including the interest received of 6% on the Government of India Capital Index Bonds as interest received on tax free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is perverse.

ii) In these circumstances, we see no reason to entertain the proposed question. Appeal is dismissed.”

The assessee was promoted by the Government of Gujarat and the Gujarat Electricity Board to augment power generating capacity in the State of Gujarat. The Gujarat Government sanctioned a sum of Rs. 5 crore towards equity share capital. It was agreed that, pending the allotment of shares whatever income was earned by way of interest by the assessee would belong to the Government of Gujarat. In the accounting year relevant to the A. Y. 1992-93, the assessee earned interest of Rs. 53.92 lakh from such short-term deposits. The assessee claimed that the interest amount belonged to the State Government and accordingly was not assessable in its hands. The Assessing Officer did not accept the contention and assessed the interest in the hands of the assessee. The Tribunal confirmed the addition.

On appeal by the assessee, the Gujarat High Court reversed the decision of the Tribunal and held as under:

“i) Merely because the initial agreement between the parties did not make any provision with respect to the treatment of such interest, that would not be sufficient to change the nature and basic character of such income. In the absence of specific stipulation to the contrary, such interest must be treated to be held by the assessee in trust for the Government.

ii) Further, on 17th September, 1992, the Government of Gujarat and the assessee after due deliberation, agreed that the best solution would be to transfer such income to the Government. The amounts were not assessable in the hands of the assessee.”

The assessee was engaged in the business of printing of lottery tickets and organising lotteries on behalf of, inter alia, the Government of Sikkim. The following question of law was raised by the Revenue in appeal before the Delhi High Court:

“Whether, on the facts and the circumstances of the case, the Tribunal was right in law in holding that the tickets sent to the stockists do not become a sale on their dispatch but assumes the character of a sale on the happening of various events including the draw taking place?”

According to the Revenue, the moment the assessee dispatches the tickets to its stockists, a sale takes place. Therefore, the fact that the tickets were sent to the stockists within the accounting year would mean that the sales had been finalised during that year. It is also the contention of the revenue that it is irrelevant as to when the draw actually takes place.

The High Court upheld the decision of the Tribunal and held as under:

“i) After going through the agreement, the Tribunal had observed that the arrangement by which the assessee sent tickets to the stockists who in turn sold the same to their agents did not indicate that the sale took place at the point of dispatch of tickets to the stockists. We also notice that the unsold tickets are to be returned to the organising agent of the assessee at least one day before the actual date of the draw and any tickets received thereafter would not be accepted and treated as sold by the stockists.

ii) This makes it clear that those tickets which are returned by the stockists cannot be treated as having been sold. The corollary to this is that mere dispatch of tickets to the stockists would not entail a sale. It is only those dispatches of tickets which are not returnable in the manner indicated as above which would be recorded as sales.

iii) Thus, till the date of the draw or just prior to the date of the draw it cannot be ascertained as to whether the dispatched tickets were actually sold or not.

iv) We, therefore, agree with the view taken by Tribunal and, consequently, decide this question in favour of the assessee and against the Revenue.”

CBSE denied recognition to SSSPL, which established a corporate run school, on the ground that the school was run by a private limited company and insisted that a properly registered society of non-proprietary character was required to be constituted. Thereafter, SSSPL formed the assessee society. It took on lease, premises belonging to SSSPL. It was granted affiliation by the CBSE. It paid rent for the building and playground that belonged to SSSPL and royalty for using its name. The Assessing Officer denied exemption u/s. 11, on the ground that SSSPL was taking out huge receipts of the assessee in the shape of rent and royalty which has the effect of violating section 13(1)(c). The Tribunal upheld the disallowance of the claim for exemption.

On appeal by the assessee, the Andhra Pradesh High Court reversed the decision of the Tribunal and held as under:

“i) If the assessee had taken the infrastructure and the trade name of somebody, other than SSSPL, it could not be disputed that the assessee would incur similar expenditure like the one being paid to SSSPL towards royalty as no reasonable man would transfer user rights of name and other benefits without charging adequate consideration. Merely because such facility was provided by SSSPL and royalty was being paid to it by the assessee in that behalf, the Revenue could not contend that it was impermissible.

ii) Therefore, the Revenue’s contention that this amounted to diversion of funds by the assessee to SSSPL and clause (g) of s/s. (2) of section 13 was attracted was misconceived since the payment of royalty was necessary to secure the use of trade name and infrastructure of SSSPL.

iii) Merely because the assessee was registered by SSSPL to run the school after SSSPL’s application for approval was rejected by the CBSE, it could not be said that the assessee’s payment by way of royalty to SSSPL was prohibited and consequently the assessee shall be deprived of exemption u/s. 11. The assessee was entitled to the benefit of section 11.”

On 20-06-2006, the assessee sold an agricultural land and a residential house for Rs. 2,16,00,000/- and Rs. 8,25,000/- respectively. In the A. Y. 2007- 08, the Assessing Officer disallowed the assessee’s claim for exemption of long-term capital gain of Rs. 76,85,829/- on the ground that the sale proceeds were not deposited in the specified capital gains account before the due date for filing the return u/s. 139(1) of the Income-tax Act, 1961. The assessee claimed that on 20-06-2006 itself the assessee had written a letter to the bank to deposit the said amount in the capital gains account, but the said amount was deposited in a “flexi general account”, which is a saving as well as fixed deposit account. Assessee purchased a residential house from the sale proceeds and took possession on 30-03-008. A substantial amount was paid before 31-03-2008 and the balance amount of Rs. 24 lakh was paid on 23- 04-2008. The Tribunal allowed the assessee’s claim on the ground that the assessee has purchased the residential house within the period prescribed for filing return of income u/s. 139 of the Act.

On appeal by the Revenue, the Punjab and Haryana High Court upheld the decision of the Tribunal, and held as under:

“i) In the present case, the assesee has proved the payment of substantial amount of sale consideration for purchase of a residential property on or before 31-03-2008, i.e. within the extended period of limitation of filing of return. Only a sum of Rs. 24 lakh was paid out of total sale consideration of Rs. 2 crore on 23-04-2008, though possession was delivered to the assessee on execution of the power of attorney on 30-03- 2008.

ii) Since the assessee has acquired a residential house before the end of the next financial year in which sale has taken place, therefore, the assessee is not liable to pay any capital gains tax. Such is the view taken by the Tribunal.

iii) In view of the above, we do not find any merit in the present appeal. Hence, the same is dismissed.”

The assessee sold different plots of land, which were claimed to be agricultural land, situated at distance of more than 8 kms. from municipal limits. In support of his contention, the assessee furnished certificate of Tehsildar and letter of District Town Planner stating that the land was situated beyond 8 kms from Municipal Committee. However, the Assessing Officer did not accept the contention of the assessee that it was not a capital asset u/s. 2(14) (iii) of the Income-tax Act, 1961, taking a view that there was possibility of some other shorter distance between the plots of land and the municipal limits, being less than 8 kms. The Commissioner (Appeals) allowed assessee’s claim. The Tribunal upheld the order of Commissioner (Appeals).

In appeal by the Revenue, it contended by the Revenue that the Tribunal did not consider the question raised by the revenue that the lands in question were not agricultural lands at all. The Delhi High Court dismissed the appeal and held as under:

“i) The Tribunal noted that the Assessing Officer had made the disallowance merely on the ground that there was the possibility of a shorter distance, which would be less than 8 kms from the outer limits of the municipal corporation. The Tribunal noted that the Assessing Officer had not doubted the nature of the land being for agriculture. It was in these circumstances that the Tribunal rejected the plea of the revenue that the matter be restored to the file of the Commissioner (Appeals) for verification of the fact as to whether the lands were agricultural in nature or not.

ii) The decision in National Thermal Power Co. Ltd. vs. CIT [1998] 229 ITR 383 (SC) would be of no assistance to the revenue. In the said decision it has been clearly noted that the Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the Income-tax authorities and which had a bearing on the tax liability of the assessee. The point to be noted is that the question of law which could be raised before the Tribunal would have to arise from the facts as found by the Income-tax authorities.

iii) In the present case, the Assessing Officer had not doubted the fact that the lands in question were agricultural in nature. There was no foundational fact that the lands were not agricultural in nature. As such the plea raised by the revenue before the Tribunal could not be gone into by the Tribunal as there was no foundational basis for the same. Clearly, the decision in National Thermal Power Co. Ltd. (supra) would be of no avail to the revenue in the facts of the present case.

iv) In view of the foregoing, no interference is called for with the impugned order of the Tribunal. The appeals are dismissed.”