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

[CIT v. Dhingra Metal Works, 196 Taxman 488 (Del.)]

During the course of a survey at the business premises of the
assessee-firm, the tax officials noticed some discrepancies in stock. One of the
partners of the assessee could not explain the difference at that time and,
therefore, to get a peace of mind, certain additional income was offered for
assessment. Subsequently, the assessee submitted that the statement of the
partner about the stock was incorrect; and that the impugned discrepancy had
been reconciled as it was only a mistake. Consequently, the assessee withdrew
the offer of additional income for taxation on account of excess stock. However,
the Assessing Officer did not accept the assessee’s claim and made an addition
as per the statement recorded in the course of survey. The Tribunal deleted the
addition.

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

“(i) From a reading of section 133A, it is apparent that it
does not mandate that any statement recorded u/s.133A would have an
evidentiary value. For a statement to have evidentiary value, the Survey
Officer should have been authorised to administer oath and to record sworn
statement. This would also be apparent from section 132(4).

(ii) It is apparent that while section 132(4) specifically
authorises an officer to examine a person on oath, section 133A does not
permit the same.

(iii) Moreover, the word ‘may’ used in section 133A(iii)
clarifies beyond doubt that the material collected and the statement recorded
during the survey are not conclusive piece of evidence by themselves.

(iv) In any event, it is a settled law that though an
admission is extremely important piece of evidence, it cannot be said to be
conclusive and it is open to the person, who has made the admission, to show
that it is incorrect.

(v) Since in the instant case, the assessee had been able
to explain the discrepancy in the stock found during the course of survey by
production of relevant record including the excise register of its associate
company, the Assessing Officer could not have made the aforesaid addition
solely on the basis of the statement made on behalf of the assessee during the
course of survey.

(vi) In view of the aforesaid, instant appeal being bereft of merit, was to
be dismissed.”

[Pasupati Acrylon Ltd. v. CBDT, 237 CTR 138 (Del.)]

For the A.Ys. 2002-2003 and 2003-2004, the petitioner company
had deducted tax at source of Rs.40,65,917 and Rs.51,59,393, respectively, on
the interest payable to IDBI and had deposited the said amount in the Government Treasury by
way of TDS. It was then found that the interest did not accrue to IDBI and
accordingly was not liable to tax. Therefore, the petitioner applied for the
refund of the amount of TDS so deposited, but the application was rejected.

The petitioner filed a writ petition against the said
rejection order. The Delhi High Court allowed the writ petition and held as
under :

“Interest payable by the petitioner to IDBI not having
accrued to it and not liable to tax, the tax paid by the petitioner by way of
TDS in respect of the said interest is to be refunded to the petitioner in view
of Circular No. 285, dated 21-10-1980.”

[Kanubhai M. Patel (HUF) v. Hiren Bhat, 237 CTR 544 (Guj.)]

For the A.Y. 2003-2004, the Assessing Officer signed the
notice u/s.148 on 31-3-2010, but the notice was sent to the speed-post centre
for booking on 7-4-2010. The assessee filed a writ petition and challenged the
validity of the notice on the ground of the period of limitation.

The Gujarat High Court allowed the writ petition and held as
under :

“(i) The expression ‘to issue’ in the context of issuance
of notices, writs and processes, has been attributed the meaning, to send out;
to place in the hands of the proper officer for service. The expression ‘shall
be issued’ as used in section 149 would therefore have to be read in the
aforesaid context.

(ii) In the present case, the impugned notices have been
signed on 31-3-2010, whereas the same were sent to the speed-post centre for
booking only on 7-4-2010. Considering the definition of the word ‘issue’, it
is apparent that merely signing the notice on 31-3-2010, cannot be equated
with issuance of notice as contemplated u/s.149.

(iii) The date of issue would be the date on which the same
were handed over for service to the proper officer, which in the facts of the
present case would be the date on which the said notices were actually handed
over to the post office for the purpose of booking for the purpose of
effecting service on the petitioners. Till the point of time the envelops were
properly stamped with adequate value of postal stamps, it cannot be stated
that the process of issue is complete.

(iv) In the facts of the present case, the impugned notices
having been sent for booking to the speed-post centre only on 7-4-2010, the
date of issue of the said notices would be 7-4-2010 and not 31-3-2010, as
contended on behalf of the Revenue.

(v) In the circumstances, the impugned notices u/s.148 in
relation to A.Y. 2003-2004, having been issued on 7-4-2010, which is clearly
beyond the period of six years from the end of the relevant assessment year,
are clearly barred by limitation and as such, cannot be sustained.”

[CIT v. Dinesh Kumar Goel, 331 ITR 10 (Del.)]

The assessee running coaching classes followed mercantile
system of accounting. Total fees for the entire course, which may be of two
years duration was taken in advance at the time of admission of the students.
For the A.Y. 1997-1998, the assessee claimed that the fees received in the
relevant year were to be carried forward to the next assessment year as they
related to the next financial year. The Assessing Officer rejected the claim on
the ground that the assessee was following the mercantile system of accounting.
The Tribunal allowed the assessee’s claim.

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

“(i) The relevant yardstick for the purpose of taxation is
the time of accrual or arisal. In order to be chargeable, the income should
accrue or arise to the assessee during the previous year. Unless the revenue
is earned, it is not accrued; likewise, unless the expenses are incurred, cost
in respect thereof cannot be treated as accrued. Under Accounting Standard 9,
revenue is recognised only when the services are actually rendered. If the
services are rendered partially, revenue is to be shown proportionate with the
degree of completion of services.

(ii) Though at the time of admission, the students were
required to deposit the whole fee for the entire course, that was only a
deposit or advance and it could not be said that this fee has become due at
the time of deposit.

(iii) The fee was charged in advance for the entire course,
presumably because there should not be any default by the students during the
period of course. The fee was not due at the time of deposit. Services in
respect of financial year 1997-98, for which also the payment was taken in
advance were yet to be rendered.”

[CIT v. Smt. Debbie Alemao, 331 ITR 59 (Bom.)]

On 28-2-1988 the assesses had purchased an agricultural land
(shown in Revenue records as agricultural) at the cost of Rs.8,00,000. They sold
the said land to a company on 3-9-1990 for a consideration of Rs.73,00,000. In
the returns of income the assesses claimed that the gain is exempt as
agricultural income. The Assessing Officer rejected the claim on the ground that
the land had non-agricultural potential and the fact that it was sold at nearly
10 times the purchase price within two years from its purchase and it was
purchased by the purchaser for the purpose of a beach resort showed that the
land was not agricultural land. 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 Department’s observation that the land was not
actually used for agricultural purposes inasmuch as no agricultural income was
derived from this land and was not shown by the assessees in their income-tax
returns was explained saying that there were coconut trees in the land but the
agricultural income derived by sale of the coconuts was just enough to
maintain the land and there was no actual surplus.

(ii) If an agricultural operation does not result in
generation of surplus that cannot be a ground to say that the land was not
used for agricultural purposes. Admittedly the land was shown in the Revenue
records as used for agricultural purposes and no permission was ever obtained
for non-agricultural use by the assessee. Permission for non-agricultural use
was obtained for the first time by the purchaser after it had purchased the
land.

(iii) Thus the finding that the land was used for the
purposes of agriculture was based on appreciation of evidence and by
application of correct principles of law.”

[CIT v. Haryana Warehousing Corporation, 196 Taxman 260
(P&H)]

The assessee was a corporation established under the
provisions of the Warehousing Corporation Act, 1962. It was earlier claiming
exemption u/s.10(29), but after deletion of the said provision with effect from
1-4-2003, it applied for registration u/s.12AA. The said application was
rejected by the Commissioner mainly on the ground that the assessee was earning
income and was declaring dividends. The profits were ploughed back for expanding
its activities to earn larger incomes. Thus, the activities were on commercial
principles for profit motive which could not be held to be charitable in nature.
The Tribunal allowed the assessee’s claim.

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

“(i) It was clear by reference to the statutory provisions
of the Act that the assessee had been constituted with the object of
warehousing of agricultural produce and other activities and matters connected
therewith. Constitution of the assessee was under the statutory provisions by
way of a Notification in the Official Gazette by the State Government with the
approval of the Central Warehousing Corporation. The Central Warehousing
Corporation is constituted u/s.3 by the Central Government. The functions of
the assessee were statutory functions of acquiring and building godowns and
warehouses and running of such warehouses for storage of agricultural produce
and other similar commodities; providing facilities for transport of
agricultural produce and to act as an agent of the Central Warehousing
Corporation for purchasing, selling, storing and distribution of such produce.
These being statutory functions of the assessee they clearly fell u/s.2(15)
and, therefore, no fault could be found with the finding recorded by the
Tribunal.

(ii) Mere fact that the assessee could acquire, hold and
dispose of the property which was feature of every juristic person and that it
was deemed to be a company and could declare dividend would not in any manner
deviate it from the character of the charitable institution.

(iii) In view of aforesaid, the Tribunal was right in law,
in directing to grant the registration u/s.12AA, even when under the
Warehousing Corporation Act, the assessee-corporation was a deemed company and
was liable for income-tax in respect of its income, profits and gains.”

[CIT v. Neelakanth Synthetics and Chemicals P. Ltd., 330
ITR 463 (Bom.)]

The assessee-company had taken a business premises on lease
from its sister concern for a period of 12 years on a lease rent of Rs.20,000
per month. The assessee-company had sub-leased the said
business premises to a bank for Rs.2,26,800 per month, inclusive of water
charges and taxes. The said business premises was offered as collateral security
for raising finance from the bank by a sister concern. Due to heavy losses
incurred, the sister concern could not repay that loan and accordingly the
premises was liable to be disposed off by the bank for realisation of the loan
amount. In such circumstances a settlement was reached between the
assessee-company and the bank whereby a loan was advanced by the bank in the
name of the assessee-company and the same was used to settle the liability of
the sister concern. The assessee did not charge any interest from its sister
concern. For the A.Y. 1997-1998, the Assessing Officer disallowed the amount of
interest on the said loan on the ground that the said loan was not utilised for
the purposes of the business of the assessee-company. 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) Both the authorities below concurrently proceeded on
the footing that any expenditure incurred for protecting the business asset
held by an assessee for its business or any expenditure incurred for the
protection and maintenance of the business premises would be an allowable
expenditure. It was only to retain the business premises that the assessee had
to borrow the funds from the bank and as such, interest payable on the
borrowing for retaining the premises would be an allowable deduction
u/s.36(1)(iii) of the Income-tax Act, 1961, because the loan was used for the
purpose of retaining the business premises which was necessary to carry on the
business activities of the assessee.

(ii) The Assessing Officer accepted the income received by
the assessee from the leased premises as rental income and assessed it as
income from other sources. In such circumstances, the finding was that in
order to safeguard the interest of the lease premises and also to bail out its
sister concern, the loan was obtained from the bank. The findings were
reasonable and could not be said to be perverse.”

[CIT v. Siya Ram Garg (HUF), 237 CTR 321 (P&H)]:

The Assessing Officer had made disallowance u/s. 40A(2) of
the Income-tax Act, 1961 in respect of the cotton and waste purchased from the
sister concerns on the ground that the purchases were at a higher rate. The
Tribunal deleted the disallowance.

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

“(i) The details filed by the assessee showed that its
sister concerns were being taxed at the same rate at which the assessee was
being taxed, proving that there was no reason for the assessee to show higher
rate purchases made by the assessee from its sister concerns.

(ii) The assessee’s sister concerns had offered their
income from such sales, which fact has not been disputed. Therefore, the
Assessing Officer erred in invoking the provisions of section 40A(2) of the
Act.”

In 1984, the Income-tax Department had filed a complaint
before the Chief Judicial Magistrate against a number of accused for offences
under the Income-tax Act, 1961 and the corresponding provisions under IPC. In
2006 the Public Prosecutor filed application for seeking consent to  withdraw
the prosecution against Accused Nos. 1 to 3. The operative portion of the order
passed by the Magistrate dismissing the application reads as under:

Being aggrieved, the Accused Nos. 1 to 3 filed revision
petitions before the Madras High Court. The High Court allowed the petition
and held as under:

iii) The impugned order is set aside and the matter is
remitted back to the Magistrate for disposal as per law”

The assessee was engaged in the business of
investment in shares and property development. In the relevant year, i.e. A. Y.
2004-05, the assessee had sold a property held as business asset for a
consideration of Rs. 5 crores. The Sub-Registrar took the guideline value of Rs.
6,94,45,920/-. The Assessing Officer invoked the provisions of section 50C of
the Income-tax Act, 1961 and substituted the stamp duty value of Rs.
6,94,45,920/- for the consideration of Rs. 5 crores. The Tribunal held that the
invocation of the provisions of section 50C was not warranted as the property
was never held by the assessee as capital asset and as per the accounts also the
amount given to the owner of the property has been shown as loans and advances
thereby the property had been treated as a business asset and not as a capital
asset.

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

The assessee applied for a job in the Voice of America which
is a state owned broadcasting agency. The assessee was denied a job on the basis
of gender discrimination. On a class action suit filed on behalf of the women
who had been denied employment, a proposal was made by the Government of United
States to settle the entire class action. The settlement offer was accepted and
a consent decree was drawn up awarding compensation of $ 508 million to the
persons who were not offered the job. The Assessing Officer made addition to the
income of the assessee in respect of the compensation amount and interest
received by the assessee treating it as “profit in lieu of salary” u/s.
17(3)(iii) of the Income-tax Act, 1961. The Tribunal deleted the addition and
held that the amount received by the assessee was in the nature of capital
receipt since the amount was received by the assessee by way of compensation in
respect of job not offered to the assessee on the basis of gender
discrimination.

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