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

The assessee-company’s operational, administrative and management activities were controlled and directed from New Delhi. The assessee-company has consistently filed its returns of income at New Delhi and has been assessed by the Assessing Officer at New Delhi. The PAN and TAN issued u/s.139A and u/s.203A were allotted by the Assessing Officer at New Delhi. The assessee-company lodged TDS returns at New Delhi. The assessee was allotted certain land in Mumbai by MMRDA for which the assessee had paid lease premium. The Assessing Officer at Mumbai passed order u/s.201(1) r.w.s. 201(1A) dated 29-3-2011 holding the assessee to be an assessee in default.

On a writ petition challenging the order, the Bombay High Court quashed the order and held as under:

 “(i)  Evidently, on the facts and circumstances, it cannot be denied that jurisdiction would lie not with the Assessing Officer at Mumbai, but with the competent authority at New Delhi.

  (ii)  The petitioner’s contention that the jurisdiction lies with the authorities at New Delhi was brushed aside on the ground that the assessment was getting time barred on 31-3-2011 and it is not possible to transfer the case papers to the authorities at New Delhi. This could be no ground whatsoever valid in law to pass an order us.201/201(1A) when there is complete absence of jurisdiction on the part of the Assessing Officer at Mumbai.

  (iii)  The impugned order of 29-3-2011 is set aside only on the aforesaid ground. The order shall not preclude the competent authority having jurisdiction over the case from adopting such proceedings as are available in law.”

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The assessee had sold the agricultural land on which agricultural activities were carried out till the date of transfer. Thereafter order permitting non-agricultural use was obtained. The assessee claimed that it is a case of transfer of an agricultural land and therefore there was no capital gain chargeable to tax. The Assessing Officer held that the land was a capital asset and assessed the capital gain as taxable. The CIT(A) accepted the assessee’s claim and allowed the assessee’s appeal. The Tribunal held that the land sold by the assessee retained its agricultural character till the date of the order permitting non-agricultural use and that it could be treated as a capital asset only thereafter. The Tribunal held that there was no need to interfere with the finding of the CIT(A) that the sale transaction was not a transaction involving transfer of a capital asset and, therefore, no need to bring to tax the income referable to the capital gains.

On an appeal filed by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held that there was no illegality in the order of the Tribunal.

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The assessee was engaged in the business of construction of buildings. The assessee entered into an agreement with AFPL to takeover by assignment and complete all the pending projects/contracts/work-inprogress remaining to be completed by the transferor company. For the A.Y. 1993-94, the assessee claimed deduction of the payment of Rs.3,20,00,000 made to AFPL as revenue expenditure. The Assessing Officer disallowed the claim holding that the expenditure is capital in nature. The Tribunal upheld the disallowance.

On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held:

“(i) What was transferred was in the nature of stockin- trade and not the entire building division of the transferor company. There were no clauses to lead to the inference that with the transfer of the ongoing projects awaiting agreements to be signed, the transferor company had transferred its entire business.

(ii) The expenditure was deductible as revenue expenditure”

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In the A.Y. 1994-95, the assessee sold a property consisting of land and factory building for a consideration of Rs.17.5 lakh. Permission for sale was granted by the Appropriate Authority u/s.269UL(3) of the Income-tax Act, 1961. The assessee challenged the apportionment of the sale consideration between the land and building by the Assessing Officer. The Tribunal referred back the question of bifurcation and apportionment of sale consideration between land and building to the Assessing Officer. While re-examining, the Assessing Officer also enhanced the sale consideration. The Tribunal accepted the enhancement.

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

“(i) The Tribunal had referred back the question of bifurcation and apportionment of the sale consideration of Rs.17.5 lakh as between the land and the factory building. To this extent, the report of the Valuation Officer was required.

(ii) The Departmental Valuation Officer and the Assessing Officer were not required or permitted by that order to go into to question and examine the total sale consideration as the assessee had applied under Chapter XX-C and the Appropriate Authority had accepted the sale consideration mentioned by the assessee. The sale consideration and the quantum thereof was never in question or doubt. This was not the aspect to be reexamined.

(iii) Thus the enhancement by the Assessing Officer of the sale consideration from 17.5 lakh to Rs.21,42,502 was not justified and as per law.

(iv) According to the report of the Depatmental Valuation Officer, the bifurcation and apportionment of the sale consideration towards the land and the factory building by the assessee had been accepted.

(v) In view of the above, the question of law is answered in favour of the assessee appellant.”

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For the A.Y. 2002-03, Spice Corp. Ltd. filed the return of income on 30-10-2002 declaring Nil income. Subsequently, vide order dated 11-2-2004 the said company stood amalgamated with M/s. MCorp (P) Ltd. w.e.f. 1-7-2003. The Assessing Officer selected the case for scrutiny and issued notice u/s.143(2) of the Income-tax Act, 1961 dated 18-10-2003 in the name of Spice Corp. Ltd. The fact that Spice Corp. Ltd., having been dissolved, as a result of its amalgamation with MCorp (P) Ltd. was duly brought to the notice of the Assessing Officer by letter dated 02-04-2004. However, the Assessing Officer passed the assessment order u/s.143(3) dated 28-3-2005 in the name of Spice Corp. Ltd. The assessee’s contention that the assessment having been framed in the name of a non-existing entity is bad in law and void ab initio was rejected by the CIT(A) and the Tribunal. The Tribunal held that the mere failure of the Assessing Officer to mention the name of the amalgamated company in the assessment order did not vitiate the assessment as a whole since the assessment was, in substance and effect, made on the amalgamated company viz., MCorp Global (P) Ltd. and not on the non-existing entity, viz. Spice Corp. Ltd. The Tribunal further held that the omission to mention the name of the amalgamated company in the assessment order was a mere procedural defect and in terms of the provisions of section 292B of the Act, such assessment was not invalid.

On appeal by the assessee, the Delhi High Court reversed the decision of the Tribunal and held:

“(i) Assessment in the name of a company which has been amalgamated with another company and stands dissolved is null and void.

(ii) Assessment framed in the name of a non-existing entity is a jurisdictional defect and not merely a procedural irregularity of the nature which can be cured by invoking the provisions of section 292B of the Act.”

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The relevant assessment year is A.Y. 1997-98. The assessee was one of the promoters and a director of Gaghra Sugar Ltd. which had a factory for manufacture of sugar. The assessee was also the director of Ganges Sugar Mills (P) Ltd. which had applied for and received licence to set up new sugar factory in the same region. In such circumstances Gaghra Sugar Ltd. negotiated with the assessee and entered into an agreement with the assessee preventing the assessee from competing with the sugar business of the company directly or indirectly for a period of five years for a consideration or Rs.25 lakh. In the assessment proceedings the assessee claimed the said amount received for ‘non-competition’ as capital receipt not liable for tax. The Assessing Officer however taxed the said amount under the head ‘Other Sources’. The CIT(A) accepted the assesses contention and allowed the appeal. In the appeal filed by the Revenue, the Tribunal held that the claim of the assessee of ‘non-competition’ fee was not genuine and allowed the appeal of the Assessing Officer.

In the appeal filed by the assessee the Calcutta High Court reversed the decision of the Tribunal and held as under:

“(i) The Assessing Officer having assessed the noncompetition fee as revenue receipt without disputing the genuineness of the transaction and not questioned the genuineness even in the appeal either before the CIT(A) or before the Tribunal, order passed by the Tribunal treating the receipt of non-competition fees as a sham transaction is erroneous.

(ii) Non-competition fees received by the assessee prior to 1-4-2003 has to be treated as capital receipt and it is not taxable.”

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Search and seizure operations u/s.132 of the Incometax Act, 1961 were carried out at the premises of the assessee. The assessee moved application before the Settlement Commission. The Settlement Commission passed order u/s.245D(4) whereby the undisclosed income of the assessee was settled for the relevant assessment years. The order of the Settlement Commission observed that the CIT/AO may take such appropriate action in respect of the matter not before the Commission as per provision of section 245F(4) of the Act. Thereafter, the Assessing Officer issued notice and made additions over and above the additions sustained by the Settlement Commission. The additions were deleted by the CIT(A) and the Tribunal upheld the order of the CIT(A).

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

“(i) After passing the order by the Settlement Commission, no power vests in the Assessing Officer or any other authority to issue the notice in respect of the period and income covered by the order of the Settlement Commission. Except in the case of fraud or misrepresentation of facts, the order passed by the Settlement Commission is final and conclusive and binding on all parties. The Assessing Officer, therefore, has no jurisdiction to issue the impugned notice for making further enquiry in the matter in view of sections 245D(6) and 245I.

(ii) There cannot possibly be piecemeal determination of the income of an assessee for relevant period, one by the Settlement Commission and another by the Assessing Officer. Otherwise the very purpose of filing application before the Settlement Commission would be frustrated.

(iii)  In the absence of any right conferred by the Act, mere observation of the Settlement Commission will not empower the assessing or Appellate Authority to reassess on any ground, whatsoever, for the same financial year with regard to which the Settlement Commission had exercised jurisdiction and given a finding.”

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For the A.Y. 1994-95, the original assessment order was passed on 27-2-1997 and the order giving effect to the order of the CIT(A) was passed on 31-3-1999. The CIT passed an order of revision u/s.263 of the Income-tax Act, 1961 on 20-2-2001. It was the claim of the Revenue that the order of revision was within the period of limitation taking into account the assessment order dated 31-3-1999 giving effect to the order of the CIT(A). The Tribunal held that the period of limitation is to be counted from the date of the original assessment order dated 27-2-1997 and accordingly that the order of revision dated 20-2-2001 is beyond the period of limitation and hence is invalid.

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

“The order passed by the CIT in exercise of the revisional jurisdiction beyond two years of the assessment order was clearly barred by limitation and hence rightly set aside.”

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[Madhya Pradesh State Electricity Board v. UOI, 197 Taxman 238 (MP)]

The assessee, an organisation fully-owned and aided by the Government of Madhya Pradesh, was engaged in business of power. For the relevant assessment years, it filed its returns of income declaring certain loss after a delay of 16 months and filed an application before the CBDT for condonation of the delay, contending that as per the provisions contained in the M.P. Re-organisation Act, 2000, the erstwhile State of Madhya Pradesh and the assessee-Board, both were bifurcated and because of that reason, returns could not be filed in time. The CBDT rejected the assessee’s contention and declined to condone the delay.

On a writ petition filed by the assessee challenging the order of the CBDT, the Madhya Pradesh High Court set aside the order of the CBDT for fresh determination and held as under:

“(i) In the instant case, as per the return filed by the assessee, there was a loss of Rs.1,500 crores in the accounting year 1999-2000. If the return filed by the assessee was not accepted by the Department, then the loss suffered by it could not be carried forward and it would cause hardship to it in successive assessments.

(ii) From the perusal of the impugned order, it was apparent that the CBDT had not considered that aspect of the matter which was having a material bearing in the matter and ought to have been considered by the CBDT while considering the question of condonation of the delay in filing the return. Though there was a delay of nearly 16 months in filing returns by the assessee before the Department, but in the peculiar facts of the case, the delay ought to have been dealt with by the CBDT in proper perspective, but it appeared that the said aspect had escaped from the notice of the CBDT.”

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[Tamilnadu Petroproducts Ltd. v. ACIT, 328 CTR 454 (Mad.)]

Dealing with the scope of section 80-IA(4)(iv) of the Income-tax Act, 1961, the Madras High Court held that the assessee, which is in the business of generation of electricity is entitled to deduction u/s.80-IA in respect of notional income from generation of electricity which was captively consumed by itself.

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[Asia Satellite Telecommunications Co. Ltd. v. DI, 238 CTR 233 (Del); 197 Taxman 263 (Del.)] The assessee, a non-resident company was carrying on the business of private satellite communications and broadcasting facilities. The assessee was the lessee of a satellite called AsiaSat 1 and was the owner of a satellite called AsiaSat 2. These satellites neither use Indian orbital slots, nor are they positioned over Indian airspace. The foot prints of AsiaSat 1 and AsiaSat 2 extend over four continents, viz., Asia, Australia, Eastern Europe and Northern Africa. AsiaSat 1 comprises of a South Beam and a North Beam and AsiaSat 2 comprises of the C Band and Ku Band. The territory of India falls within the footprint of the South Beam of AsiaSat 1 and the C Band of AsiaSat 2. The assessee enters into agreements with TV Channels, communication companies or other companies who desire to utilise the transponder capacity available on the assessee’s satellite to relay their signals. The customers have their own relaying facility, which are not situated in India. The assessee has no role to play either in the uplinking activity or in the receiving activity. The assessee’s role is confined in space where the transponder which it makes available to customers performs a function which it is designed to perform. The only activity that is performed by the assessee on earth is the telemetry, tracking and control of the satellite. This is carried out from a control centre at Hong Kong. In the relevant year the assessee had no customers who were residents of India. In response to a notice u/s.142(1) of the Income-tax Act, 1961 issued by the Assessing Officer, the assessee filed the return of income claiming that no part of income of the assessee is taxable in India. The Assessing Officer held that the assessee had a business connection in India and, therefore, was chargeable to tax in India. He held that the revenues would have to be apportioned on the basis of countries targeted by the TV channels who were the assessee’s customers. On this basis, he estimated that 90% of the assessee’s revenue was attributable to India. After arriving at the income of the assessee, he held that 80% thereof was apportioned to India as most of the channels were India-specific and their advertisement revenue was from India. The Tribunal held that the provisions of section 9(1)(i) are not attracted, but the provisions of section 9(1)(vi) are attracted and accordingly a portion of the income of the assessee is taxable in India.

On appeal, the Delhi High Court held that neither the provisions of section 9(1)(i), nor the provisions of section 9(1)(vi) are attracted and accordingly, no portion of the assessee’s income is taxable in India.

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[DI v. L. G. Cable Ltd., 197 Taxman 100 (Del.)] The assessee was a Korean company. It was awarded two contracts by Indian company PGCIL; the first for onshore execution of the fibre optic cabling system package project under the system coordination and control project involving onshore services, including erection/installation, testing and communicating, etc., of the fibre of the cabling system; and the second for offshore supply of equipment and offshore services. As regards offshore supply contract, the assessee claimed that the income was not liable to tax in India as the entire contract was carried out in Korea and was subject to income-tax in Korea. The Assessing Officer did not accept the claim of the assessee and held the income accruing to the assessee from the offshore supply contract was taxable in India. The Tribunal accepted the assessee’s claim and held that the income from the offshore contract was not taxable in the hands of the assessee.

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

“(i) The offshore supply of equipment related to the supply of specified goods discharged from Korea for which the PGCIL had opened an irrevocable letter of credit in the name of the assessee with a bank in South Korea. The consignor of the equipment who supplied the same from Korea to Indian Port was the assessee while the importer was the PGCIL. The equipment was delivered to the shipping company named in the Bill of Lading and the Bill of Lading and other documents were handed over to the nominated bank. Accordingly, with the delivery of the Bill of Lading to the bank, the property in the goods stood transferred to PGCIL. The cargo insurance policy was obtained by the assessee and it named the PGCIL as co-insurer. The contract unequivocally clarified that the assessee and PGCIL intended to transfer the title/property in the goods as soon as the goods were loaded on the ship at the port of shipment and the shipping documents were handed over to the nominated bank where the letter of credit was opened. The sale was complete and unequivocal. There was no condition in the contract which empowered the assessee to keep control of the goods and/or to repossess the same. With the completion of the sale, the income accrued outside India. There was neither any material to show that accrual of such income was attributable to any operations carried out in India, nor any material to show that the permanent establishment of the assessee had any role to play in the offshore supply of the equipments.

(ii) Furthermore, the scope of work under the onshore contract was under a separate agreement and for a separate consideration. There was, therefore, no justification to mix the consideration for the offshore and onshore contracts. None of the stipulations of the onshore contract could conceivably postpone the transfer of property of the equipments supplied under the offshore contract, which, in accordance with the agreement, had been unconditionally appropriated at the time of delivery, at the port of shipment. When the equipment was transferred outside India, necessarily the taxable income also accrued outside India and, hence, no portion of such income was taxable in India.

(iii) The contention of the Revenue that offshore supplies were not taxable only in the case of sale of goods simpliciter, and that the contract was a turnkey contract split/divided into offshore and onshore supplies at the instance of the assessee, was not sustainable in view of the authoritative pronouncement of the Supreme Court in the case of Ishikawajma Harima Heavy Industries Co. Ltd. v. DIT, (2007) 288 ITR 408/158 Taxman 259, wherein it has been held that offshore supplies are not taxable even in the case of a turnkey contract as long as the title passes outside the country and payments are made in foreign exchange.

(iv) Applying the law enunciated by the Supreme Court in the case of Ishikawajma Harima Heavy Industries Co. Ltd., (supra), there could be no manner of doubt that the offshore supplies in the instant case were not chargeable to tax in India. The instant case, in fact, was on a better footing as two separate contracts had been entered into between the parties, albeit on the same day, one for the offshore supply and the other for the onshore services, but even assuming that both the contracts needed to be read together as a composite contract, the issue in controversy was nevertheless squarely covered by the decision of the Supreme Court in Ishikawajma Harima Heavy Industries Co. Ltd.’s case (supra).

(v) Then again, undue importance could not be attached to the fact that the agreement imposed on the assessee the obligation to handover the equipment functionally completed. That obligation had been rightly construed by the Tribunal to be in the nature of a trade warranty.

(vi) Viewed from any angle, the fact situation in the instant case was almost identical to that in the case of Ishikawajma (supra) and the law as enunciated by the Supreme Court in the said case would squarely apply to the facts of the instant case.

(vii) In view of aforesaid, the Tribunal was justified in holding that the contract in question was not a composite one and, therefore, the assessee was not liable to pay tax in India in respect of offshore services.”

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[CIT v. Oswal Agro Mills Ltd., 197 Taxman 25 (Del.); 238 CTR 113 (Del.)]

For the A.Y. 1998-99, the assessee claimed depreciation on its various assets which included the claim of depreciation in respect of a closed unit at Bhopal. The assessee claimed that the depreciation was to be allowed on the assets of the closed units also as the assets of that unit remained part of the block of assets and were ready for passive use, which was as good as real use. The Assessing Officer, however, disallowed the claim for depreciation on the assets of the closed unit. The Tribunal allowed the assessee’s claim on two grounds, viz., (1) there was a passive user of the assets at Bhopal unit, which would be treated as ‘used for the purpose of business’, and (2) as it was a case of depreciation on block of assets, the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets.

On appeal by the Revenue, the Delhi High Court held as under:

Whether the assets of the closed unit can be treated as ‘used’

(i) By catena of judgments, it stands settled that the assessee should have used the asset for the whole of assessment year in question to claim full depreciation. Passive user of the asset is also recognised as ‘user for purpose of business’. This passive user is interpreted to mean that the asset is kept ready for use. If this condition is satisfied, even when it is not used for certain reason in the concerned assessment year, the assessee would not be denied the depreciation.

(ii) In the instant case, the entire Bhopal unit came to a standstill and there was a complete halt in its functioning from the A.Y. 1997-98. In that year, the Assessing Officer still allowed the depreciation treating it to be a ‘passive user’. However, when it was found that even in subsequent year, the Bhopal unit remained non-functional, the Assessing Officer(s) disallowed the depreciation. Instant appeals related to the A.Y. 1998-99. In the process six years passed, but there was no sign of that unit becoming functional. The ‘passive user’, in those circumstances, could not be extended to absurd limits. Otherwise, the words ‘used for the purpose of business’ will lose their total sanctity. It cannot be the intention of the Legislature that the word ‘used’ when it is to be interpreted in a wider sense to mean ‘ready to use’, the same is stretched to the limits of non-user for number of year.

(iii) Thus, one should proceed on the basis that particular assets, viz., assets of Bhopal unit were not ‘used for the purpose of business’ in the concerned assessment year.

Depreciation on block of assets

(iv) The position concerning the manner in which the depreciation is to be allowed, has gone a sea change after the amendment of section 32 by the Taxation Laws (Amendment) Act, 1986. As per amended section 32, deduction is to be allowed — ‘In the case of any block of assets at such percentage on the writtendown value thereof as may be prescribed’. Thus, the depreciation is allowed on block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use.

(v) With the aforesaid amendment, the depreciation is now to be allowed on the written-down value of the ‘block of assets’ at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of ‘block of assets’ has been introduced, which is relevant for calculating the depreciation. It would be of benefit to take note of the Circular issued by the Revenue itself explaining the purpose behind the amended provision. The same is contained in the CBDT Circular No. 469, dated 23-9-1986, wherein the rationale behind the aforesaid amendment is described.

(vi) It becomes manifest from the reading of the aforesaid Circular that the Legislature felt that keeping the details with regard to each and every depreciable asset was time-consuming for both the assessee and the Assessing Officer. Therefore, it amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of assets falling within the same class of assets.

(vii) Another significant and contemporaneous development, which needs to be noticed, is that the Legislature has also deleted the provision for allowing terminal depreciation in respect of each asset, which was previously allowable u/s.32(1)(iii) and also taxing of balancing charge u/s.41(2) in the year of sale. Instead of these two provisions, now whatever is the sale proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particulars, it cannot be ascertained whether on sale of any asset, there is any profit liable to be taxed u/s.41(2) or terminal loss allowable u/s.32(1)(iii). This amendment also strengthens the claim that now only detail for ‘block of assets’ has to be maintained and not separately for each asset.

(viii) Having regard to this legislative intent contained in the aforesaid amendment, it was difficult to accept the submission of the Revenue that for allowing the depreciation, user of each and every asset was essential even when a particular asset formed part of ‘Block of assets’. Acceptance of this contention would mean that the assessee was to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. The Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the ‘block of assets’ even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short-term capital gain, which would be exigible to tax and for that reason, there is no loss to Revenue either.

(ix) Thus, though the reasoning of the Tribunal contained in the impugned judgment could not be agreed with, the conclusion of the Tribunal based on the ‘block of assets’ was to be upheld.”

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[DI v. Raghuvanshi Charitable Trust, 197 Taxman 170 (Del.)] In this case, the following question was for consideration before the Delhi High Court:

“Whether adjustment of deficit (excess of expenditure over income) of current year against the income of subsequent year would amount to application of income of the trust for charitable purposes in the subsequent year within the meaning of section 11(1)(a) of the Act?

The Delhi High Court referred to the following observations of the Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection (IBPS); 264 ITR 110 (Bom.):

“Now coming to question No. 3, the point which arises for consideration is: whether excess of expenditure in the earlier years can be adjusted against the income of the subsequent year and whether such adjustment should be treated as application of income in the subsequent year for charitable purposes? It was argued on behalf of the Department that expenditure incurred in the earlier years cannot be met out of the income of the subsequent year and that utilisation of such income for meeting the expenditure of earlier years would not amount to application of income for charitable or religious purposes. In the present case, the Assessing Officer did not allow carry forward of the excess of expenditure to be set off against the surplus of the subsequent years on the ground that in the case of a charitable trust, their income was assessable under selfcontained code mentioned in section 11 to section 13 of the Income-tax Act and that the income of the charitable trust was not assessable under the head ‘Profits and gains of business’ u/s.28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of the subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in the section 11 of the Act and that such adjustment will have to be excluded from the income of the trust u/s.11(1)(a) of the Act. Our view is also supported by the judgment of the Gujarat High Court in the case of CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal, (1995) 211 ITR 293. Accordingly, we answer question No. 3 in the affirmative, i.e., in favour of the assessee and against the Department.”

The Delhi High Court held as under:

“It is clear from the above that as many as five High Courts have interpreted the provision in an identical and similar manner. Learned counsel for the Revenue could not show any judgment where any other High Court has taken contrary view. Since we are in agreement with the view taken by the aforesaid High Courts, we answer these questions in favour of the assessee and against the Revenue.”

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[CIT v. Rockman Cycle Industries (P) Ltd., 331 ITR 401 (P&H) (FB); 238 CTR 363 (P&H) (FB)]

The assessee borrowed money from sister concern for interest at the rate of 18% per annum and purchased shares from sister concern, which carried dividend at the rate of 4%. The Assessing Officer held that there was no justification to borrow funds at 18% interest for making investment in shares, which would give a dividend of 4% only. Having regard to the fact that the borrowing was made from sister concern and investment was also in another sister concern, the claim for interest was disallowed. It was held that investment of shares was not for business purposes or business consideration. The Tribunal allowed the assessee’s claim and held that the assessee could not be prevented from making investment only because the returns from shares was low. The investment was incidental activity of the business and there was no effect on the Revenue as the assessee and the sister concerns belonged to the same group. The transaction was bona fide and not sham.

In the appeal filed by the Revenue, the following question was raised:

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing interest claimed by the assessee at a higher rate on the borrowings though the investment had been made by the assessee in the shares of a sister concern which gave a fixed return of income?”

The Division Bench of the Punjab and Haryana High Court referred the matter to the Full Bench which considered the following question of law:

“Whether having regard to relationship between different concerns, where a transaction which is patently imprudent, takes place, the taxing authority should examine the question of business expediency and not go merely by the fact that the assessee had taken a decision in its wisdom which may be wrong or right?”

The Full Bench of the Punjab and Haryana High court held as under:

“(i) The Assessing Officer or the Appellate Authorities and even the Courts can determine the true legal relation resulting from a transaction. If some device has been used by the assessee to conceal the true nature of the transaction, it is the duty of the taxing authority to unravel the device and determine its true character.

(ii) However, the legal effect of the transaction cannot be displaced by probing into the ‘substance of the transaction’. The taxing authority must not look at the matter from their own viewpoint, but that of a prudent businessman.

(iii) Each case will depend on its own facts. The exercise of jurisdiction cannot be stretched to hold a roving enquiry or deep probe.”

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[CIT v. Text Hundred India (P) Ltd., 197 Taxman 128 (Del.)]

In an appeal before the Tribunal filed by the assessee, the Tribunal admitted certain additional evidence filed by the assessee, allowing the application of the assessee u/r. 29 and remitted the case back to the Assessing Officer to decide the issue afresh after considering the said additional evidence.

The Revenue filed an appeal before the High Court contending that Rule 29 permits the Tribunal only to seek the production of any document or witness or affidavit, etc., to enable it to pass orders or for any other substantial cause; and that the assessee had no right to move any application for producing additional evidence.

The Delhi High Court held as under: “(i) As per the language of Rule 29, parties are not entitled to produce additional evidence. It is only when the Tribunal requires such an additional evidence in the form of any document or affidavit or examination of a witness or through a witness, it would call for the same or direct any affidavit to be filed, that too in the following circumstances:

(a) when the Tribunal feels that it is necessary to enable it to pass orders; or
(b) for any substantial cause; or
(c) where the Income Tax Authorities did not provide sufficient opportunity to the assessee to adduce evidence.

(ii) In the instant case, it was the assessee who had moved an application for production of additional evidence. It had the opportunity to file evidence before the Assessing Officer or even before the Commissioner (Appeals) but it chose not to file that evidence.

(iii) In view of several decisions, a discretion lies with the Tribunal to admit additional evidence in the interest of justice, once the Tribunal affirms opinion that doing so would be necessary for proper adjudication of the matter and this can be done even when application is filed by one of parties to appeal and it need not to be a suo motu action of the Tribunal.

(iv) The aforesaid rule is made for enabling the Tribunal to admit the additional evidence in its discretion, if the Tribunal holds the view that such an additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade for justice and should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that said evidence would have material bearing on the issue which needed to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect.

(v) In the instant case, the Tribunal looked into the entire matter and arrived at a conclusion that the additional evidence was necessary for deciding the issue at hand. It was, thus, clear that the Tribunal found the requirement of the said evidence for proper adjudication of the matter and in the interest of substantial cause.

(vi) Rule 29 categorically permits the Tribunal to allow such documents to be produced for any substantial cause. Once the Tribunal had predicated its decision on that basis, there was no reason to interfere with the same.”

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[CIT v. M/s. Brahma Associates (Bom.), ITA No. 1194 of 2010 dated 22-2-2011]

In this case, the following questions of law were raised before the Bombay High Court:

“(i) Whether in the facts and in the circumstances of the case and in law, the ITAT was justified in holding that the deduction u/s. 80IB(10), as applicable prior to 1-4-2005 is admissible to a ‘Housing project’ comprising residential housing units and commercial establishments?

(ii) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that a project having commercial area up to 10% of the project is eligible for deduction on the entire profits of the project u/s. 80IB(10) up to 1-4-2005?

(iii) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that the projects wherein the commercial area is more than 10% of the project and the profits from the residential dwelling units in that project can be worked out separately, then subject to fulfilling other conditions, deduction on the profits relatable to the residential part of the project would be eligible for deduction u/s.80IB(10)?

(iv) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that the limit on commercial use of built-up area as prescribed by clause (d) of section 80IB(10) has no retrospective application and it applies only w.e.f. the A.Y. 2005-06?”

The Bombay High Court answered the questions as under:

“(i) Up to 31-3-2005 (subject to fulfilling other conditions), deduction u/s.80IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under the DC Rules/Regulations framed by the respective local authority.

(ii) In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/ Regulations, the deduction u/s.80IB(10) up to 31-3-2005 would be allowable irrespective of the fact that the project is approved as ‘housing project’ or ‘residential plus commercial’.

(iii) In the absence of the provisions under the Income-tax Act, the Tribunal was not justified in holding that up to 31-3-2005 deduction u/s.80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user up to 10% of the total built-up area of the plot.

(iv) Since deductions u/s.80IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting section 80IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing section 80IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf.

(e) Clause (d) inserted to section 80IB(10) w.e.f. 1-4-2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1-4-2005.”

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[CIT v. C. J. International Hotels Ltd., 197 Taxman 230 (Del.)]

The assessee-company was running a five-star hotel. The lawn on which the hotel was constructed belonged to NDMC which had executed a licence deed in favour of the assessee granting it licence for a period of 99 years for running of the aforesaid hotel. Adjacent to the hotel, there was another building constructed on that very lawn. Admittedly, that building was not used for hotel business of the assessee, but the apartments of that building were given on sub-licence basis to different parties for carrying on business as specified in the sub-licence agreements. The sub-licences were given for a period of 9 years and 11 months, which were renewable at the request of the sub-licensees. The assessee was not charging any lease rent or licence fee from those parties, instead it had received interest-free security deposits in the year of original sub-licence, which receipts were shown by it as unsecured loans in its balance sheet. The sub-licence deeds, which were executed by the assessee with the sublicensees, permitted the sub-licensees to transfer the same to any other person on payment of transfer charges to the assessee-company. Almost all the sub-licensees had transferred their sub-licences and, thus, various other persons were occupying those premises. The said persons were paying rents to the sub-licensees, which amount had been taxed in the hands of sub-licensees under the head ‘income from house property’. The Assessing Officer, calculated the annual letting value of the said property on the basis of rent/licence fee paid by the occupiers to the sub-licensees and added same to the assessee’s income under the head ‘Income from house property’. The Tribunal accepted the submissions of the assessee that in view of the provisions of section 27(iii) it was the sub-licensee who would be ‘deemed owner’ of those premises who would be assessable and not the assessee. The Tribunal set aside the addition.

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

“The approach of the Tribunal in deciding the aforesaid issue was perfectly justified. There was no reason to interfere with the same. The Tribunal was justified in directing the Assessing Officer not to charge the annual letting value of the said buildings under the head ‘Income from house property’.”