Category: In the High Courts: Part A-Reported Decisions

The Petitioner bank had accepted fixed deposits in the name of the Registrar General of the Delhi High Court in compliance with a direction by the Court in relation to certain proceedings before the Court. On the question of applicability of section 194A, 201(1) and (1A) of the Income-tax Act, 1961, the High Court held as under:

“i) In the absence of an assessee, the machinery of provisions for deduction of tax to his credit are ineffective. The expression “payee” u/s. 194A would mean the recipient of the income whose account is maintained by the person paying interest. The Registrar General of the Court was clearly not the recipient of the income represented by interest that accrued on the deposits made in his/her name. Therefore, the Registrar General could not be considered as a “payee” for the purposes of section 194A. The Registrar General was also not an assessee in respect of the deposits made with the bank pursuant to the orders of the Court. The credit by the bank in the name of the Registrar General would, thus, not attract the provisions of section 194A. Although section 190(1) clarifies that deduction of tax can be made prior to the assessment year of regular assessment, none the less the section would not imply that deduction of tax is mandatory even where it is known that the payee is not the assessee and there is no other assessee. The deposits kept with the bank under the orders of this Court were, essentially, funds which were in custodia legis, that is, funds in the custody of the Court. The interest on that account – although credited in the name of the Registrar General – was also part of funds under the custody of the Court. The credit of interest to such account was, thus, not a credit to an account of a person who was liable to be assessed to tax. Thus, the bank would have no obligation to deduct tax because at the time of credit there was no person assessable in respect of that income which may be represented by the interest accrued/paid in respect of the deposits. The words “credit of such income to the account of the payee” occurring in section 194A have to be ascribed a meaning in conformity with the scheme of the Act and that would necessarily imply that deduction of tax bears nexus with the income of an assessee.

ii) Circular No. 8 of 2011, dated 04-10-2011, proceeds on an assumption that the litigant depositing the money is the account holder with the bank or is the recipient of the income represented by the interest accruing thereon. This assumption is fundamentally erroneous as the litigant who is asked to deposit the money in Court ceases to have any control or proprietary right over those funds. The amount deposited vests with the Court and the depositor ceases to exercise any dominion over those funds. It is also not necessary that the litigant who deposits the money would be the ultimate recipient of the funds. The person who is ultimately granted the funds would be determined by orders that may be passed subsequently. And at that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient. However, the litigant who deposits the funds cannot be stated to be the recipient of income.

iii) Deducting tax in the name of the litigant who deposits the funds with the Court would also create another anomaly because the amount deducted would necessarily lie to his credit with the Income Tax Authorities. In other words, the tax deducted at source would reflect as a tax paid by that litigant/depositor. He, thus, would be entitled to claim the credit in his return of income. The implications of this are that whereas the Court had removed the funds from the custody of a litigant/depositor by judicial orders, a part of the accretion thereon is received by him by way of tax deducted at source. This is clearly impermissible because it would run contrary to the intent of judicial orders.

iv) Therefore, the notices issued by the Assistant Commissioner directing the bank to submit the details of deposits made with the bank by all litigants in the name of the Registrar General of the Court during the financial years 2005-06 to 2010-11, Circular No. 8 of 2011 and the order holding the bank to be an assesee in default within the meaning of section 201(1) for a sum of Rs. 7,78,34,950 determined u/s. 201(1)/201(1A) were liable to be set aside.”

The Registrar of the Himachal Pradesh High Court had put up a note that Bank Authorities were making tax deductions on interest accrued on the term deposits, i.e., fixed deposits made by the Registry in terms of the orders passed by the Court in Motor Accident Claims cases. The matter was referred to the Finance/Purchase Committee for examination. The Committee was of the view that since the dispute involved was intricate and public interest was involved, it was recommended that the matter required consideration on judicial side. The recommendation of the Committee was treated as Public interest Litigation and suo motu proceedings were drawn. The department filed the reply and pleaded that in terms of Circular No. 8/2011, dated 14-10-2011, issued by the Income-tax authorities, income-tax was to be deducted on the interest periodically accruing on the deposits made on the court orders to protect the interest of the litigants.

The High Court Held as under:

“i) The circular, dated 14-10-2011, issued by the incometax authorities, is not in tune with the mandate of sections 2(42) and 2(31), read with section 6. The said circular also is not in accordance with the mandate of section 194A.

ii) Section 194A clearly provides that any person, not being an individual or a Hindu undivided family, responsible for paying to a “resident” any income by way of interest, other than income by way of interest on securities shall deduct income tax on such income at the time of payment thereof in cash or by issue of a cheque or by any other mode.

iii) While going through the said provisions of law, one comes to the inescapable conclusion that the mandate of the said provisions does not apply to the accident claim cases and the compensation awarded under the Motor Vehicles Act is awarded in lieu of death of a person or bodily injury suffered in a vehicular accident, which is damage and not income.

iv) Chapter X and XI of the Motor Vehicles Act, 1988 provides for grant of compensation to the victims of a vehicular accident. The Motor Vehicles Act has undergone a sea change and the purpose of granting compensation under the Motor Vehicles Act is to ameliorate the sufferings of the victims so that they may be saved from social evils and starvation, and that the victims get some sort of help as early as possible. It is just to save them from sufferings, agony and to rehabilitate them. One wonder how and under what provisions of law the income tax authorities have treated the amount awarded or interest accrued on term deposits made in Motor Accident Claims cases as income. Therefore, the said Circular is against the concept and provisions referred to hereinabove and runs contrary to the mandate of granting compensation.

v) The Apex Court has gone to the extent of saying that the Claims Tribunals, in Motor Accident Claims cases, should award compensation without succumbing to the niceties of law and procedural wrangles and tangles.

vi) The Circular dated 14-10-2011, issued by the Income- Tax Authorities, whereby deduction of income-tax has been ordered on the award amount and interest accrued on the deposits made under the orders of the Court in Motor Accident Claims cases, was quashed, and in case any such deduction has been made by department, they are directed to refund the same, with interest at the rate of 12% from the date of deduction till payment.”

Allowing
the assessee’s writ petition challenging the orders of provisional
attachment u/s. 281B of the Incometax Act, 1961, the Madras High Court
held as under:

“i) A combined reading of the provisions of law
would show that even to make a provisional attachment of the property of
the assessee, there should be a notice to pay the arrears as per rule
51 of the Second Schedule, Part III of the Income-tax Act. Without any
notice to the assessee, the provisional attachment cannot be made u/s.
281B of the Act. In the instant case this court finds that without
notice of demand to pay arrears, the respondent has passed an order for
provisional attachment in arbitrary manner.

iii) This court is
of the considered view that in the absence of any notice of demand or
notice u/s. 156 of the Act, the petitioner cannot be termed as “assessee
in default” or “assessee deemed to be in default”. Similarly, in the
absence of any notice to pay the arrears of tax as per rule 51 of Second
Schedule, Part III, of the Act, there cannot be any provisional
attachment u/s. 281B of the Act. Hence the impugned orders are liable to
the quashed.”

For the A. Y. 1997-98, in respect of addition made by the Assessing Officer, the High Court had admitted the appeal filed by the assessee and substantial questions of law were framed. Penalty u/s. 271(1)(c) of the Income-tax Act, 1961 imposed by the Assessing Officer was cancelled by the Tribunal on the ground that the quantum appeal has been admitted by the High Court.

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

“i) The imposition of penalty was found not to be justified and the appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on the assessee’s appeal in quantum proceedings and the substantial questions of law which had been framed therein.

ii) Thus, there was no case made out for imposition of penalty and the penalty was rightly set aside.”

For the A. Y. 1997-98, the assessee filed return of income on 06/01/1998 declaring income of Rs. 5,29,270/-. The Assessing Officer concluded the assessment u/s. 143(3) of the Income-tax Act, 1961 and assessed the business loss of Rs. 74,84,234/- and also allowed the same to be carried forward. Subsequently, the Assessing Officer issued notice u/s. 154, to rectify the order, withdrawing the benefit of carry forward of business loss stating that the return filed by the assessee was belated. Accordingly, he rectified the assessment order. The Tribunal set aside the order of rectification.

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

“i) The assessee had not violated any of the conditions u/s. 80 of the Act. The assessee had shown positive income in the return but in the assessment, the business loss was determined by the Assessing Officer. This being the factual position the assessee was entitled to the benefit of carry forward of business loss.

ii) Whether the loss ultimately determined by the Assessing Officer was liable to be carried forward or not was a debatable issue. The order of rectification was not valid.”

The assessee was engaged in construction activity having more than 50 construction sites in India and abroad. For the A. Y. 1984-85, the assessee computed the claim for deduction u/s. 80HHB of the Income-tax Act, 1961 in respect of each of the foreign projects. The Assessing Officer computed the deductible amount by netting off the profit from all the overseas projects. The Tribunal allowed the assessee’s claim.

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

“i) The Assessing Officer was not justified in computing the income from construction activities undertaken abroad and by process of clubbing or netting. The only issue before the Tribunal was whether the computation of deduction u/s. 80HHB could be made in respect of each unit and that was not prohibited by section 80HHB(1). It was only for the purpose of computation of the deduction and whether the section prohibited computation unit-wise that the Tribunal referred to the judgment of the Supreme Court. Beyond that, it had not considered any wider question or controversy.

ii) The Tribunal had decided the matter essentially in the light of the facts and material placed before it. In such circumstances and considering the provisions of section 80HHB and the order of the Tribunal, the Tribunal was not in error in holding that the assessee was entitled to the deduction u/s. 80HHB in respect of each project instead of netting up of profits from all the overseas projects.

iii) Thus, the Tribunal was in no error in directing the Assessing Officer to allow the deduction as claimed by the assessee without setting off all the losses suffered in other foreign projects.”

The assessee entered into an agreement for availing of logistic services of S of Singapore. Under the agreement, the services included spare management services, provision of buffer stock, defective repair services, managing local repair centres, business planning to address service levels, etc. S did not have any place of business or permanent establishment in India. The entire services were rendered by S from outside India. The Assessing Officer held that the payments made by the assessee to S were taxable in India. The Tribunal held that as S did not have any permanent establishment and had not made available the technical knowledge, experience or skill, the payments made by the assessee to S were not required to be taxed under the head “Business” and were not taxable in view of article 7 of DTAA between India and Singapore.

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

“i) If along with the technical services rendered, the service provider also makes available the technology which it used in rendering the services, the case falls within the definition of “fees for technical services” as contained in DTAA . However, if technology is not made available along with technical services what rendered is only technical services and the technical knowledge is withheld, such a technical service would not fall within the definition of “technical services” in DTAA and the payment thereof is not liable to tax.

ii) From the facts of this case, it was clear that S had not made available to the assessee the technology or the technological services which was required to provide the distribution, management and logistic services. That was a finding of fact recorded by the Tribunal on appreciation of the entire material on record. The Payments made by the assessee were not liable to be taxed under the head “ fees for technical services”.”

Under a written tenancy agreement for three years the assessee occupied premises on 15-03-1973. Thereafter the assessee continued to use and occupy the premises as a tenant. Rent was paid by assessee and was accepted by the landlord. On 18-02-1987 the tenancy rights were surrendered and consideration of Rs. 6.78 crore was received from a third party. The Assessing Officer held that the amount should be treated as short-term capital gains and not as long term capital gains. The logic behind the finding of the Assessing Officer was that the tenancy after the initial period of three years by way of a written instrument, was month to month. Thus the tenancy rights were extinguished on the last day of each month and a fresh or new tenancy was created. The Tribunal held that the amount was assessable as long-term capital gain.

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

“The tenancy rights had been held for nearly fourteen years and consideration received on surrender had been rightly treated as long-term capital gain.”

In the A. Y. 1992-93, the Assessing Officer found that the assessee had received Rs. 5 lakh as miscellaneous income from relinquishment of sub-tenancy rights of a property. He made an addition of Rs. 5 lakh as income under the head “Income from other sources”. The Tribunal held that the amount is taxable as “capital gain” and not as “income from other sources”.

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

“The Revenue could have taxed the amount of Rs. 5 lakh, which was received towards surrendering the tenancy rights from the lessor, under the head “Capital gains” and not under any other head. Therefore, the Tribunal had not committed any jurisdictional error in passing the order.”

The assessee was a share broker registered with the National Stock Exchange and the Bombay Stock Exchange and was engaged in the business of purchase and sale of shares. In the A. Y. 2005-06, the assessee declared short-term capital gains of Rs. 82,32,316/- from sale of shares held by it as investment. The Assessing Officer held that the profit was assessable as business income. The Tribunal accepted the assessee’s claim that it is short-term capital gain.

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

“i) It was clear from the finding of the Tribunal that the assessee, though a member of the Bombay Stock Exchange and National Stock Exchange, maintained two portfolios, one relating to investment and the other relating to stock-in-trade. Profits and losses from investments were shown as “capital gains” either long term or short term and profits and losses from “stock-intrade were shown as “business income”. This position was also accepted in earlier assessment years, i.e., A. Y. 2002-03 onwards.

ii) The assessee had turnover of more than Rs. 4697.23 crore, whereas investment in shares in comparison was small amount of Rs. 2.95 crore. The assessee had declared “business income” of Rs. 63.77 crore in respect of transactions as a member of the stock exchanges and as a result of carrying out trade in shares.

ii) The shares held as investment were kept in a separate portfolio. The shares related to only three companies were not treated as stock-in-trade. These shares were sold after a gap of four months or more. Hence the profits were assessable as short-term capital gains.”

The assessee was engaged in the manufacture and sale of synthetic yarn and cement. It had a subsidiary company. The subsidiary company incurred heavy losses and as a result, it became a defaulter in paying its debts. The assessee was also a guarantor to the loans taken by the subsidiary company for the purpose of protecting its own business interest. Since the subsidiary company could not adhere to the repayment of its liabilities, the assessee repaid instalments of the loans. It claimed deduction of the interest on the amounts advanced for such payments. The claim was rejected by the Assessing Officer and this was upheld by the Tribunal.

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

“i) Three conditions must be established by an assessee for getting the benefit u/s. 36(1)(iii) of the Income-tax Act, 1961. They are (i) interest should have been payable, (ii) there should be a borrowing, and (iii) capital must have been borrowed or taken for business purposes.

ii) In Madhav Prasad Jatia vs. CIT [1979] 118 ITR 200 (SC), the Supreme Court held that the expression “for the purpose of business” occurring u/s. 36(1)(iii) of the Act is wider in scope than the expression “for the purpose of earning income, profits or gains”. Where a holding company has a deep interest in its subsidiary company and advances money to the subsidiary company and the money is used by the subsidiary company for its business purposes, the assessee would be entitled to deduction of interest on its borrowed loans.

iii) The assessee had deep business interest in the existence of its subsidiary company and discharged its legal obligation by repaying the instalments of loan to the financial institutions. Such loans were given for the purpose of business. The assessee was entitled to deduction of interest.”

The petitioners had filed two applications u/s. 245C of the Income-tax Act, 1961 and disclosed the entire amount of unaccounted turnover which became subject-matter of orders passed by the Settlement Commission under the Excise Act. Applications were allowed to be proceeded with and a report u/s. 245D(2B) was sought from the concerned Commissioner. The Settlement Commission, however, held that applicants was indulged in suppression of income even before Commission and rejected the application filed by the petitioners. Petitioners filed writ petitions and submitted that the two petitioners were subjected to search under the Central Excise Act, 1944 and thereafter by the Income Tax Department and the Settlement Commission was swayed by factors which even the Commissioner did not consider were relevant. The Delhi High Court allowed the writ petitions and held as under:

 “i) Facts and the dispute inter se parties have not been reflected upon and adverted to in the impugned order. It is recorded that the order under challenge is cryptic and is not focused on the issues and contentions, which were raised by the petitioners and by the Commissioner.

 ii) The Settlement Commissioner earlier had directed and decided to proceed with the applications on 14-01-2013 in the two cases. They had set out points, which had to be adjudicated and decided. These included turnover of the two applicants for the assessment years covered, determination of the issues arising out of the stock, including valuation by the Department, allowability of excise duty for the Assessment year 2009-10 and determination of year-wise additional income. All these factors and facts have been shunned and ignored. The Settlement Commission has rejected the applications for all assessment years, without referring to facts and issues relating to each year.

 iii) Once an application is filed, then the said application must be dealt with in accordance with law, i.e., refer to the contentions of the petitioners, the contention of the revenue and then an objective, considered and a reasoned decision has to be taken. This is only when the stand of the two sides are fully noticed and considered before an order u/s. 245D(2C) is passed. The impugned orders do not meet the said legal requirements.

 iv) The petitioners must come clean and be honest and admit their faults and cannot but declare their true and full undisclosed income. However, their plea and explanation that their declarations are genuine and truthful, cannot be rejected without a legitimate and fair consideration. The two searches were conducted in earlier years and not in the period relevant to the assessment year 2012-13. The Settlement Commission’s order has not referred to any specific issues and documents or made references to the contentions of the Commissioner. Facts stated are incorrect or that Commissioner had not objected to the stock reduction is not adverted to. Maybe, the applications deserve dismissal for the said reasons but full factual position should be noted, before opinion is formed whether there has been full and true disclosure. There has been error and failure in the decision making process and the failure vitiates the order passed.

v) In view of the aforesaid discussion, the impugned order dated 01-03-2013 in the case of the two petitioners is set aside and pass an order of remand.”

For the A. Y. 2006-07, the assessment was completed u/s. 143(3) of the Income-tax Act, 1961. On 19-01-2010, the Assessing Officer issued notice u/s. 148 on the ground that the deduction of doubtful debts of Rs. 1,87,41,755/- was wrongly allowed and accordingly there is escapement of income from tax to that extent. Subsequently, after nine months, additional reasons as regards depreciation and section 14A disallowance were supplied by the Assessing Officer. In reassessment additions were made on all the three counts. The Commissioner (Appeals) held the notice u/s. 148 was valid. He also confirmed the addition concerning the depreciation. He deleted the additions concerning bad debts and s. 14A disallowance. Before the Tribunal, the assessee challenged the validity of notice u/s. 148 and the addition concerning depreciation. The Department preferred appeal against the deletion concerning the bad debts. The Tribunal dismissed the Department’s appeal and allowed the assesee’s appeal.

 On appeal by the Revenue against the finding of the Tribunal that the proceedings u/s. 147/148 were invalid and the addition concerning depreciation, the Delhi High Court dismissed the appeal and held as under:

“i) The appeal was not concerned with the issue of bad debts and, therefore, the deletion of the addition made on account of bad debts had become final. Until and unless there was an addition on the basis of the original reasons, no other additions could be made in view of the expression “and also” used in Explanation 3 to section 147. Therefore, in the absence of any addition on the issue of bad debts no additions could have been made by the Assessing Officer.

ii) The initiation of the proceedings u/s. 147 was also bad as held by the Tribunal because of the record of the assessment completed originally nowhere showed that the assessee had claimed any deduction on account of provision for bad debt and the assessing Officer assumed jurisdiction without any material. In fact, the entire issue of the provision for bad debts was discussed by the Assessing Officer at the time of original assessment and, therefore, the Tribunal was right in holding that the attempt to reassess was based on a mere change of opinion.

iii) On the basis of the very same notice issued u/s. 148, the Assessing Officer had recorded additional reasons subsequent to the issuance of the notice and this was impermissible in law.”

The assessee, a venture capital fund claimed that contributions by its investors in terms of the trust deed and contribution agreements constituted revocable transfers under the provisions of the Income-tax Act, 1961, and, hence, the income accruing to the venture capital fund was not liable to tax in the hands of the assessee but in the hands of the investors or contributors in proportion to their respective contributions. The Assessing Officer brought the income to tax on the basis that the status of the assessee was that of an association of persons. The Commissioner (Appeals) held that the income arising to the trust was taxable in the hands of the contributors and not in the hands of the assessee since there was a revocable transfer within the meaning of sections 61 to 63. The correctness of that determination was pending before the Tribunal. In the meanwhile, the Assessing Officer issued notice u/s. 148 on the ground that the income arising from the contributions made by the contributors to the venture capital fund was taxable in the hands of the body of contributors whose members being companies and individuals were an association of persons of the contributors if the provisions of sections 61 to 63 were attracted to the transactions between the contributors and the venture capital funds.

The Bombay High Court allowed the writ petition challenging the notice u/s. 148 and held as under:

“i) Recourse to section 148 cannot be founded in law on a hypothesis of what would be the position in future should an appeal before an appellate authority, being the Tribunal or the High Court, result in a particular outcome. The statute does not contemplate the reopening of the assessment u/s. 148 on such a hypothesis or a contingency which may emerge in the future.

 ii) The whole basis of the reopening was the hypothesis that if the provisions of sections 61 to 63 were attracted as had been claimed by the assessee and the income of Rs. 32.83 crore which had been claimed by the assessee to be exempt was treated as exempt, in that event an alternative basis for taxing the income in the hands of the association of persons of the contributors was sought to be set up. The entire exercise was only contingent on a future event and a consequence that may enure upon the decision of the Tribunal, if the Tribunal were to hold against the Revenue.

 iii) A reopening of an assessment u/s. 148 could not be justified on such a basis. “Has escaped assessment” indicates an event which has taken place. Tax legislation cannot be rewritten by the Revenue or the court by substituting the words “may escape assessment” in future.”

iv) Rule is accordingly made absolute by quashing and setting aside the notice of reopening dated 18-05-2012, issued u/s. 148 of the Act.”

The assessee had built the gas sweetening plant in the previous year(i.e. F. Y. 1996-97) relevant to the A. Y. 1997-98. The plant was commissioned in that year by running a test run. Considering the trial as equivalent to putting the said plant to use, depreciation was allowed by the Department in the A. Y. 1997-98. However, due to non-availability of the raw material, the plant was not run in the F. Y. 1997-98. Therefore, the Assessing Officer disallowed the claim for depreciation in the A. Y. 1998-99 on the ground that the plant was not used at any time in the relevant year. The Tribunal allowed the assessee’s claim holding that once the plant was ready for use, the assessee was entitled to depreciation.

On appeal by the Revenue, the Madras High court applied the judgment of the Bombay High Court in Whittle Anderson Ltd. vs. CIT; (1971) 79 ITR 613 (Bom), upheld the decision of the Tribunal and held as under:

 “i) So long as the business is going one and the machinery is ready for use but due to certain extraneous circumstances, the machinery could not be put to use, the fact would not stand in the way of granting relief u/s. 32 of the Incometax Act, 1961.

 ii) On the admitted case that the business was a going concern and the machinery could not be put to use due to raw material paucity, the machinery was entitled to depreciation.”

The petitioner society was registered as a charitable society under the residuary clause of section 2(15) of the Income-tax Act, 1961. The Income-tax department had granted registration to the petitioner u/s. 12A. The petitioner has acquired intellectual property rights qua bar coding system from GSI Global Officer, Belgium and permits use of these intellectual property rights by third parties under licence agreements for initial registration fee of Rs. 20,000 and subsequent annual registration fee of Rs. 4,000. GSI, Belgium has been granted legal status of International ‘Not-for-profit’ association under the Belgium tax law and was, therefore, not liable to pay corporation tax. The petitioner claimed approval for exemption u/s. 10(23C)(iv) of the Act. However, the Director General (Exemption) denied approval on ground that no charitable activity was involved in permitting use of intellectual property right for consideration and same was in nature of trade, commerce or business and that petitioner was not maintaining separate books of account for the business/commercial activity, i.e., licencing bar coding system, and did not intend to do so in future.

The Delhi High Court allowed the writ petition filed by the assessee and held as under:

“i) Legal terms ‘trade, commerce or business’ in section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether any activity is business, trade or commerce.

ii) Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognised business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or selfgain should be missing and the predominant purpose of the activity should be to serve and benefit others.

 iii) A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?.

iv) The petitioner does not cater to the lowest or marginalised section of the society, but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockist, wholesellers, government department etc. while nominal fee is only paid by the manufacturer or marketing agencies, i.e., the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Anyone from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related, i.e., dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GSI identification on all their products. Non-levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent.

v) Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, the petitioner fulfils the charitable activity test. It is apparent to us that revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head ‘general public utility’ but simultaneously regards the said activity as business. Thus the contention of the revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing in present. In the absence of ‘profit motive’ and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.

vi) The statement and submission of the respondents that the petitioner was not maintaining separate books of account for commercial activity and, therefore, denied registration/notification, has to be rejected as fallacious and devoid of any merit. Similar allegation is often made in cases of charitable organisation/association without taking into account the activity undertaken by the assessee and the primary objective and purpose, i.e., the activity and charity activity are one and the same. The charitable activity undertaken and performed by the petitioner relates to promotion, dissemination of knowledge and issue of unique identification amongst third parties etc. The ‘business’ activity undertaken by the petitioner is integral to the charity/charitable activities. As noted above, the petitioner is not carrying on any independent, separate or incidental activity, which can be classified as business to feed and promote charitable activities. The act or activity of the petitioner being one, thus a single set of books of account is maintained, as what is treated and regarded by the revenue as the ‘business’ is nothing but intrinsically connected with acts for attainment of the objects and goals of the petitioner. When the petitioner is maintaining the books of account with regard to their receipts/ income as well as the expenses incurred for their entire activity then how it can be held that separate books of account have not been maintained for ‘business’ activities.

vii) The ‘business’ activities are intrinsically woven into and part of the charitable activity undertaken. The ‘business’ activity is not feeding charitable activities. In any case, when it is held that the petitioner is not carrying on any business, trade or commerce, question of requirement of separate books of account for the business, trade or commerce is redundant.

ix) On the basis of reasoning given in the impugned order, the petitioner can not be denied benefit of registration/notification u/s. 10(23C) (iv).

x) In view of the aforesaid discussion, we allow the present writ petition and issue writ of certiorari quashing the order dated 17th November, 2008 and mandamus is issued directing the respondents to grant approval u/s. 10(23C)(iv) of the Act and the same shall be issued within six weeks fr

The following question was referred to the Full Bench of the Karnataka High Court for consideration:

“When a retiring partner takes only the money towards the value of his share, whether the firm should be made liable to pay capital gains even when there is no distribution of capital asset/ assets among the partners u/s. 45(4) of the Income-tax Act, 1961? or Whether the retiring partner would be liable to pay for the capital gains?” The Full Bench of the High Court answered the questions as under:

“When a retiring partner takes only money towards the value of his share and when there is no distribution of capital asset/assets among the partners there is no transfer of a capital asset and consequently no profit or gain is payable u/s. 45(4) of the Income-tax Act.”

For the A Y 2008-09 the Assessing Officer disallowed certain expenditure and added Rs. 73,91,380/- on the ground that the assessee has made payment in cash in excess of Rs. 20,000/- in respect of a single transaction which is in gross violation of section 40A(3)of the Income-tax Act 1961. Before the Tribunal the assessee contended that all the payments were made by him to purchase the scrap from the Railways, which is run by the Union of India and any payment made to the Government is required to be considered as a legal tender and the question of adding the same by way of disallowance u/s. 40A(3) is not justified. The Tribunal allowed the assessee’s claim.

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

“i) The revenue is not disputing that the assessee is a scrap dealer purchasing scrap from the Railways. Admittedly Railways is a concern of the Union of India. If any cash is paid towards purchase of the scrap the same cannot be disputed by the revenue since such payment has to be considered as a legal tender. If the revenue is of the opinion that no such payment has been made to the Railways, we could have considered their grievance.

 ii) In the circumstances, the appeal is dismissed.”

The payments made by the assessee to the nonresidents by way of commission and discount were covered by the Circular Nos. 23, dated 23-07-1969; 163 dated 29-05-1975; and 786 dated 02-07-2000 wherein it was clarified that payments in the form of a commission or discount to a foreign party were not chargeable to tax in India u/s. 9(1)(vii) of the Income-tax Act, 1961 and accordingly, tax was not deductible at source. In view of these circulars the assessee had not deducted tax at source on payments aggregating to Rs. 37,87,26,158/- in the relevant year, i.e. A. Y. 2009-10. These circulars were withdrawn by circular No. 7 of 2009 dated 22- 10-2009.

In the A. Y. 2009-10, the Assessing Officer disallowed the said amount applying section 40(a) (i) of the Act and relying on the said circular No. 7 of 2009 dated 22/10/2009. The Tribunal deleted the disallowance.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under: “Circular No. 7 of 2009, cannot be classified as explaining or clarifying the earlier circulars issued in 1969 and 2000. Hence, it did not have retrospective effect. The deletion of disallowance u/s. 40(a)(i) was justified.”

The assessee had claimed deduction of Rs. 2.57 crore being amount paid to financial consultants who provided their professional services in connection with the scheme of corporate debt restructuring by negotiating with the banks and financial institutions, which eventually helped the reduction of interest burden of the assessee.

The Assessing Officer disallowed the claim holding that the expenditure is capital in nature. The Tribunal held that the expenditure was revenue in nature and spread it over a period of six years with the consent of the assessee considering the judgment of the Supreme Court in Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 225 ITR 802 (SC).

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

“i) For the waiver of the loan, payment had been made to the financial consultants. This was for the purpose of business and was allowable u/s. 37(1). Once the expenditure was held to be revenue in nature incurred wholly and exclusively for the purpose of business, it could be allowed in its entirety in the year in which it was incurred.

 ii) However, when the expenditure was spread over a period of six years and the assessee had no objection to such revenue expenditure being spread over, though it could have insisted that this amount be allowed in the year under consideration, the Department could
not challenge it as the expenditure was revenue in nature.”