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

[CIT v. Deepak Verma,
194 Taxman 265 (Del.)]

At the time of his
retirement, the assessee had received certain payment from his employer in
addition to normal benefits. The employer had deducted the tax at source on that
amount also. In the assessment proceedings for the A.Y. 2001-02, the assessee
claimed that the said amount was not exigible to tax being an ex gratia payment
which was outside the scope and ambit of S. 17(3). The Assessing Officer held
that the said payment was made as ‘compensation’ for his services and,
therefore, was liable to tax u/s.17(3)(i). The Tribunal deleted the addition
holding that it was not chargeable to tax u/s.17(3)(i) as ‘profit in lieu of
salary’.

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

“(i) Though sub-clause
(iii) squarely covered the nature of payment received by the assessee, that
did not exist in the relevant assessment year and was incorporated only with
effect from 1-4-2002. Therefore, that provision was not applicable to the
instant case.

(ii) Under sub-clause (i),
in order to characterise a particular payment received from the employer, on
termination of the employment, as ‘profit in lieu of salary’, it has
necessarily to be shown that this amount is due or is received as
‘compensation’.

(iii) When the payment is
to be received as ‘compensation’, the employee would have a right to receive
such a payment. If the employee has no right, it cannot be treated as a
‘compensation’. It is for this reason that if the payment is made as ex gratia
or voluntary by an employer out of his own sweet will and is not conditioned
by any legal duty or legal obligation, whether on sympathetic reasons or
otherwise, such payment is not to be treated as ‘profit in lieu of salary’
under sub-clause (i).

(iv) In the instant case,
all dues admissible to the assessee on his resignation were otherwise paid by
the employer to him. In addition, the employer agreed to pay ‘in its
discretion’ certain amount as an ‘exceptionable’ and ‘one off ex gratia
payment’. It was very clearly stated in the letter of the employer that
management had agreed to pay that amount in its discretion. It was not
compelled by any obligation to pay that amount which would assume the nature
of any ‘compensation’. The amount was also described as not only exceptionable
but ex gratia. It, therefore, clearly partook the character of voluntary
payment and could not be termed as a payment by way of ‘compensation’.
Therefore, the receipt of that payment by the assessee would not be covered
under sub-clause (i) of clause (3) of S. 17.

(v) Thus, the amount received by the
assessee was not ‘profit in lieu of salary’ and, therefore, was not an income
exigible to tax.”

“(i) It was urged on behalf of the Revenue
that since the assessee, being a person was paying a sum to the members-truck
operators’ who were resident within the meaning of the Act, TDS was required
to be deducted. That argument did not take into consideration the heading of
the Section and the entire language of S. 194C(2) which clearly indicates that
the payment should be made to the resident who is a sub-contractor.

(ii) The concept of
sub-contract is intrinsically linked with S. 194C(2). If there is no
sub-contract, then the person is not liable to deduct tax at source, even if
payment is being made to a resident. To understand the nature of the contract,
it would be relevant to mention that in the instant case the assessee-society
was created by the transporters themselves. The transporters formed the
society or union with a view to enter into a contract with the companies. The
companies entered into contract for transportation of goods and materials with
the society. However, the society was nothing more than a conglomeration of
the truck operators themselves. The assessee-society had been created only
with a view to make it easy to enter into a contract with the companies as
also to ensure that the work to the individual truck operator was given
strictly in turn so that every truck operator had an equal opportunity to
carry the goods and to earn income.

(iii) The society itself
did not do the work of transportation. The members of the society were
virtually the owners of the society. A finding of fact had been rendered by
the authorities that the societies were formed with a view to obtain the work
of carriage from the company, since the companies were not ready to enter into
a contract with the individual truck operator but had asked them to form a
society.

(iv) Admittedly, the
society did not retain any profits. It only retained a nominal amount as
‘parchi charge’ which was used for meeting the administrative expenses of the
society. There was no sub-contract between the society and the members.

(v) In fact, if the entire
working of the society was seen, it was apparent that the society had entered
into a contract on behalf of the members. The society was nothing but a
collective name of all the members and the contract entered into by the
society was for the benefit of the constituent members and there was no
contract between the society and the members.

(vi) For the foregoing
reasons, S. 194C(2) was not attracted and the assessee-society was not liable
to deduct tax at source on account of payments made to the truck owners, who
were also members of the society.”

[Danny Denzongpa v. CIT,
194 Taxman 415 (Bom.)]

The assessee was an Indian
national of Sikkimese origin. For the relevant assessment years, his
assessments had been completed. Thereafter,
S. 10(26AAA) was introduced by the Finance Act, 2008 with retrospective effect
from 1-4-1990. The assessee was entitled to benefit under the new S. 10(26AAA).
Therefore, for the A.Ys. 1997-98 to 2005-06, the
assessee made an applications for revision u/s.264 of the Income-tax Act, 1961
to the Commissioner on 4-9-2008 with the application for condonation of delay
for grant of relief under the new S. 10(26AAA). The Commissioner rejected the
applications on the ground that those have been filed beyond the time limit
prescribed in the Act.

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

“(i) A reading of S.
264(6) discloses that if the assessee had been prevented by sufficient cause
from making the application within the period prescribed and the Commissioner
is satisfied with the reasons given by the assessee for not filing the said
application within the period prescribed, he may admit the application made
after expiry of the period. Indubitably, in the instant case, the application
u/s.264 came to be filed by the assessee on account of the introduction of S.
10(26AAA) which came into operation with retrospective effect from 1-4-1990.
By the said provision, the assessee, who was Sikkimese by origin, was entitled
to certain benefits. Obviously there seems to be a rationale in introducing
the said provisions as the Government was of the view that the said benefit is
required to be granted for the upliftment of the people of Sikkimese origin.

(ii) There can be no
dispute that the Finance Act, by which the said provision was introduced,
received the assent of the President on 10-5-2008. The assessee had made an
application immediately after a period of four months of the said Finance Act
receiving assent of the President. The reasons as to why the assessee did file
the applications at the said point of time, had been mentioned by him in the
applications for each of the assessment years. However, as could be seen from
the impugned order, the Commissioner had not even adverted to the reasons
mentioned by the assessee in the application for condonation of delay and had,
in a cryptic manner, rejected the said application by observing that he was
unable to entertain the assessee’s petitions beyond the time limit prescribed.

(iii) Once the
Commissioner is vested with the power of condonation of delay, then it is
incumbent upon him to take into consideration the reasons mentioned by the
assessee seeking condonation of the delay. A reading of the impugned order,
however, did not indicate that the reasons mentioned by the assessee had been
considered. In fact, the said reasons had not even been adverted to by the
Commissioner.

(iv) In matters of this
kind, wherein a benefit is sought to be given to an assessee, that too with a
retrospective effect, a highly technical and pedantic approach is required to
be eschewed and one which furthers the intent and purport of the legislation
is required to be adopted.

(v) Though in the normal
circumstances, for the reasons mentioned hereinabove, we would have set aside
the orders and remanded the matter back to the Commissioner for a de novo
consideration, however, for the reasons which we have mentioned hereinabove,
we do not deem it appropriate to do so and, therefore, allow these petitions
by making the Rule absolute in terms of prayer clauses (a) and (b)”.

[Kerala State Electricity
Board v. Dy. CIT, 329 ITR 91 (Ker.)]

Dealing with the scope of S.
115JA and S. 115JB of the Income-tax Act, 1961, the Kerala High Court has held
as under :

“(i) S. 115JB of the
Income-tax Act, 1961 creates a legal fiction regarding total income of
assessees which are companies. Though the Kerala State Electricity Board, a
statutory corporation constituted by virtue of S. 5 of the Electricity
(Supply) Act, 1948 answers the description of an Indian company and therefore
a company within the meaning of S. 2(17) of the Income-tax Act, 1961, it is
not a company for the purposes of the Companies Act, 1956.

(ii) At the earliest point
of time when S. 115J was introduced, the Section expressly excluded from its
operation bodies like the Electricity Board. Though such express exclusion is
absent in S. 115JA, the CBDT issued Circular No. 762, dated 18-2-1998
excluding bodies like the Electricity Board from operation of the Section.
Such an understanding of the CBDT is binding on the Department. S. 115JB,
which is substantially similar to S. 115JA cannot have a different purpose and
need not be interpreted in a manner different from the understanding of the
CBDT of S. 115JA.

(iii) The Electricity
Board or bodies similar to it, which are totally owned by the Government,
either State or Central, have no share-holders. Profit, if at all, made would
be for the benefit of entire body politic of the State. Therefore the enquiry
as to the mischief sought to be remedied by the amendment becomes irrelevant.
Therefore, the fiction fixed by S. 115JB cannot be pressed into service
against the Electricity Board while making the assessment of tax payable under
the Income-tax Act.”

[Bombay Mercantile
Co-operative Bank v. CBDT, 195 Taxman 106 (Bom.)]

The assessee was a
multi-state co-operative bank. For the A.Y. 2001-02, it filed loss return after
the statutory audit was completed on 15-11-2001 and the audit u/s.44AB of the
Income-tax Act, 1961 was completed on 28-11-2001. In view of the delay in filing
the return, the assessee had filed an application u/s.119(2)(b) for condonation
of the delay in filing the return. The reason for delay was that the statutory
auditors were appointed by the Commissioner of Corporation and the Registrar of
Co-operative Societies on 3-9-2001 and the said statutory auditors were able to
complete the audit only on 15-11-2001 and the audit u/s.44AB was completed on
28-11-2001; and that the return of income was filed on the very next day. The
CBDT rejected the said application for condonation of delay on the ground that
the assessee-bank had been operating for the several years and was, therefore,
aware of its statutory obligation u/s. 44AB, so as to get its accounts audited
within specified time to file the return of income within due date.

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

“(i) The assessee was a
multi-state co-operative bank operating under the Multi-State Co-operative
Societies Act, 1984. The power to appoint the statutory auditors was that of
the Central Registrar, who was the Registrar of the Co-operative Societies,
Maharashtra State. The said authority had appointed the statutory auditors on
3-9-2001. It appeared that the said authority appointed chartered accountants
to be statutory auditors in place of the departmental auditors. That change
was made in respect of all the societies. Therefore, the assessee could not be
blamed for the delay in carrying out its audit, as the same was beyond its
control.

(ii) The contention of the
Revenue that the departmental auditors, in fact, had started the audit in the
year 2000 and it was for the assessee to get the audit expedited, could not be
accepted. Though the departmental auditors might have started the audit, it
appeared that pursuant to the said policy decision taken, the departmental
auditors were replaced by the chartered accountants to be the statutory
auditors, which was by letter dated 3-9-2001. Therefore, the said reason
mentioned by the assessee in its application deserved to be accepted.

(iii) The other reasons
cited for condonation of delay, therefore, did not need be gone into as the
assessee would be entitled to condonation of the delay on the said ground
alone.

(iv) It is well settled
that in matters of condonation of delay, a highly pedantic approach should be
eschewed and a justice-oriented approach should be adopted. A party should not
be made to suffer on account of technicalities.

(v) In that view of the
matter, the petition was required to be allowed. The impugned order was
required to be set aside and, resultantly, the delay in filing the return
would stand condoned and the assessee would be entitled to the carry forward
and set off of losses in accordance with law.”

[Vinod Kumar Jain v. CIT,
195 Taxman 174 (P&H)]

The assessee was allotted a
flat on 27-2-1982 on instalments under residential scheme of the DDA. The
possession of the said flat was, however, given to the assessee on 15-5-1986 and
the letter issued in that behalf indicated the flat number and called upon the
assessee-allottee to deposit the balance amount. The assessee sold the said flat
on 6-1-1989 and claimed that capital gain arising on sale of said flat was
long-term capital gain. The assessee had also claimed exemption u/s.54 on
account of purchase of another flat on 31-1-1989. The Assessing Officer
disallowed the assessee’s claim holding that the possession of the flat was
given to the assessee on 15-5-1986 and, therefore, the capital gain on sale of
the flat in question was short-term capital gain governed by S. 2(42A). The
Tribunal upheld the decision of the AO.

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

“(i) A conjoint reading of
S. 2(14), S. 2(29A) and S. 2(42A) leads to one conclusion that a capital asset
held by the assessee for 36 months would be termed as a long-term capital
asset and any gain arising on account of sale thereof would constitute a
long-term capital gain.

(ii) Circular No. 471,
dated 15-10-1996 issued by the CBDT, on which heavy reliance had been placed
by the assessee, describes the nature of right that an allottee acquires on
allotment of a flat under self-financing scheme. According to it, the allottee
gets title to the property on the issuance of an allotment letter and the
payment of instalments is only a consequential action upon which the delivery
of possession flows.

(iii) The provisions of S.
2(14), S. 2(29A) and S. 2(42A) encompass within their ambit those cases of
capital assets which are held by an assessee. Once that is so, adverting to
the facts of the instant case, the assessee was allotted a flat on 27-2-1982
on payment of instalments by issuance of an allotment letter and he had been
making payment in terms thereof, but the specific number of the flat was
allocated to the assessee and possession delivered on 15-5-1986. The right of
the assessee prior to 15-5-1996 was a right in the property. In such a
situation, it could not be held that prior to the said date, the assessee was
not holding the flat.

(iv) Accordingly, capital
gain arising on sale of flat was a long-term capital gain and the assessee was
entitled to set off the same u/s.54.”