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

CIT vs. C-Sam (India) Pvt. Ltd.; 398 ITR 182 (Guj):

For the A. Y. 2009-10, upon a scrutiny
assessment and applying transfer pricing on account of assessee’s international
transactions with associated persons against the nil returned income, the
Assessing Officer computed the assessee’s income at Rs. 2.86 crores making
various additions and deletions according to the order of the Transfer Pricing
Officer (TPO). In appeal before the Commissioner (Appeals) the assessee
challenged the validity of the assessment order and the additions on the ground
that the procedure laid down u/s. 144C of the Income-tax Act, 1961, was not
followed by the Assessing Officer. The Commissioner (Appeal) allowed the
assessee’s claim and quashed the assessment order passed u/s. 143(3) of the Act
without complying with the requirement of section 144C(1) of the Act. The
Tribunal dismissed the Department’s appeal and confirmed the order of the
Commissioner (Appeal).

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

“i)   The
procedure laid down in section 144C of the Act, is mandatory. Before the
Assessing Officer can make variations in the returned income of an eligible
assessee, section 144C(1) lays down the procedure to be followed
notwithstanding anything to the contrary contained in the Act. This non
obstante clause thus gives an overriding effect to the procedure. When an
Assessing Officer proposes to make variations in the returned income declared
by an eligible assessee he has to first pass a draft order, provide a copy
thereof to the assessee and only thereupon the assessee could exercise his
valuable right to raise objections before the Dispute Resolution Panel (DRP) on
any of the proposed variations. In addition to giving such opportunity to an
assessee, the decision of the DRP is made binding on the Assessing Officer. It
is therefore not possible to say that such requirement is merely procedural.
The requirement is mandatory and gives substantive rights to the assessee to
object to any additions before they are made and such objections have to be
considered not by the Assessing Officer but by the DRP. The legislative desire
is to give an important opportunity to an assessee who is likely to be
subjected to upward revision of income on the basis of transfer pricing
mechanism. Such opportunity cannot be taken away by treating it purely
procedural in nature.

ii)   Circular dated June 3,
2010 was an explanatory circular issued by the Finance Ministry in which it was
provided that the amendments (which include section 144C of the Act) are made
applicable w.e.f. October 1, 2009 and will accordingly apply in relation to A.
Y. 2010-11 and subsequent years. In the clarificatory circular dated November
19, 2013, it was provided that section 144C would apply to any order which is
being passed after October 1, 2009 irrespective of the assessment year. The
latter circular clarified what all along was the correct position in law.
Section 144C(1) itself in no uncertain terms provides that the Assessing
Officer shall forward a draft order to the eligible assessee, if he proposes to
make any variation in the income or loss which is prejudicial to the interest
of the assessee on or after October 1, 2009. The statute was thus clear,
permitted no ambiguity and required a procedure to be followed in case of any
variation which the Assessing Officer proposed to make after October 1, 2009.
The earlier circular dated June 3, 2010 did not lay down the correct criteria
in this regard.

iii)   The upward revision was
made in the income of the assessee on the basis of the order of the TPO and was
done without following the mandatory procedure laid down u/s. 144C. When the
statute permitted no ambiguity and required the procedure to be followed in
case of any variation which the Assessing Officer proposed to make after
October 1, 2009 the assessee could not be made to suffer on account of any
inadvertent error which ran contrary to the statutory provisions.

iv)  No question of law arises.
Tax appeal is therefore dismissed.”

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Turner International India Pvt. Ltd. vs.
Dy. CIT; 398 ITR 177 (Del):

The assessee was a wholly owned subsidiary
of T engaged in the business of sub-distribution of distribution rights and
sale of advertisement inventory on satellite delivered channels. For A. Ys.
2007-08 and 2008-09, the Assessing Officer made a reference u/s. 92CA of the
Act, to the Transfer Pricing Officer (TPO) who passed separate orders in
respect of the distribution activity segment. On that basis, the Assessing
Officer passed orders. The Dispute Resolution Panel (DRP) concurred with the
orders of the TPO and the final orders were passed by the Assessing Officer.
The Tribunal held that neither the assessee nor the TPO had considered the
appropriate comparables and therefore, the determination of the arm’s length
price (ALP) was not justifiable. It set aside the orders of the DRP and
remanded the matter to the Assessing Officer for undertaking a transfer pricing
study afresh and accordingly make the assessments. The TPO issued fresh notices
u/s. 92CA(2) and passed separate orders proposing upward adjustments.
Subsequently, the Assessing Officer passed orders in respect of both assessment
years confirming the additions proposed by the TPO. He also issued demand
notices u/s. 156 and notices u/s. 271(1)(c) initiating penalty proceedings.

The assessee filed writ petitions and
challenged the assessment orders, demand notices u/s. 156 and the notices u/s.
271(1)(c). The assessee contended that there was non-compliance with the
provisions of section 144C(1) which required the Assessing Officer to first
issue draft assessment orders.

The Delhi High Court allowed the writ
petitions and held as under:

“i)   The legal position is
unambiguous. The failure by the Assessing Officer to adhere to the mandatory
requirement of section 144C(1) and first pass draft assessment orders would
result in invalidation of the final assessment orders and the consequent demand
notices and penalty proceedings.

ii)   The final assessment
orders dated 31/03/2015 passed by the Assessing Officer for the A. Ys. 2007-08
and 2008-09, the consequent demand notices issued by the Assessing Officer and
the initiation of penalty proceedings are hereby set aside.”

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CIT vs. Olam Exports (India) Ltd.; 398 ITR 397 (Ker):

For the A. Ys.
1997-98 and 1998-99, the assessee claimed dediction u/s. 37 of the Act, of the
amounts payed towards commission to a concern, LE, for consignment sales. The
Assessing Officer disallowed the claim on the ground that the existence of such
an agent itself was in doubt. The Tribunal found that the evidence indicated
that the assessee had received only 95% of the invoice price and held that the
assessee could not have been taxed for the income which the assessee had not
received.

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

“i)   The assessee could only
be taxed for the income that it had derived. There were transactions between
the assessee and LE and the invoices which were raised by the assessee in the
name of the agent contained the gross sale prices and the net amount payable
after recovery of 5% towards commission and other expenses due. Based on such
transactions, the amounts were realised by the assessee through banks and the F
form under the Central Sales Tax Act, 1956 were also obtained from the agent.

ii)   Those admitted facts,
therefore, showed that the assessee had received only 95% of the gross price
and the Department had no material before it to show that the assessee had
received anything in excess thereof, either directly or otherwise. If that was
so, despite the contentions raised by the Department regarding the doubtful
existence of the agent, the assessee having received only 95% of the gross
value, it could have been taxed only for what it had actually received.

iii)   Therefore, the Tribunal
was justified in coming to the factual conclusion that the assessee could not
have been taxed for anything more than what it had received. No question of law
arose.”

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CIT vs. Arya Exports and Industries; 398 ITR 327 (Del):

The assessee was a supporting manufacturer
of an export trading house, R. In its return for the A. Y. 1996 97, the assessee claimed deduction u/s. 80HHC(1) on the net profit
shown in the profit and loss account. It had dispatched the supplies prior to
31/03/1995 and on various dates between 01/04/1995 to 05/06/1995 and the goods
were exported by R which had issued a disclaimer certificate on 29/08/1996. It
submitted the certificate in form 10CCAB, which was issued by the export
trading house R, confirming that no deduction u/s. 80HHC(1) had been claimed by
R in respect of the export turnover shown by the assessee. The certificate
contained the particulars which related to the supporting manufacturers and the
export trading house, also included the invoice numbers, dates of invoice,
shipping bill numbers, nature of goods with quantities, etc. R had a
trading house certificate, valid up to 31/03/1995 and had filed an application
for renewal of its trading house certificate by a receipt dated 16/10/1995, and
had not received any communication to indicate that its application for renewal
was rejecetd. The Assessing Officer held that it was obligatory on the part of
R, the export trading house, to obtain a certificate from the concerned
Government authorities and that without the renewal certificate, the claim for
deduction u/s. 80HHC by the assessee, a supporting manufacturer, was not valid
and that therefore, the exports done after 01/04/1995 were not entitled to
deduction u/s. 80HHC. The Commissioner (Appeals) and the Tribunal allowed the
assessee’s claim for deduction.

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

“i)   The assessee was entitled
to the deduction u/s. 80HHC(1A) for the A. Y. 1996-97. The legislative scheme
which emanated from sub-section (1A) of section 80HHC was to treat the
supporting manufacturer and its entitlement to deduction separately from that
of the exporter. The words “assessee” used throughout s/s. (1) referred only to
the exporter whereas the same word used throughout s/s. (1A) referred to the
supporting manufacturer. There was a discernible distinction, in the
legislative scheme of section 80HHC between, the deduction that could be
claimed by an exporter and the deduction that could be claimed by a supporting
manufacturer. While the supporting manufacturer has to fulfil the condition of
a certificate having been issued by the exporter/export trading house to avail
the benefit of a deduction from the turnover that had been made available to
the supporting manufacturer, expressly u/s. 80HHC(1A), the deduction did not
hinge upon the eligibility of the exporter for the deduction u/s. 80HHC(1).
Further, a perusal of form 10CCAB showed that there was a separate certificate
to be issued in favour of the supporting manufacturer where the exporter made a
declaration that it had not claimed a deduction u/s. 80HHC(1) and there was a
counter verification by the chartered accountant of such a certificate. It was,
therefore, clear that there was no double deduction claimed in respect of the
export, which was consistent with the legislative intent of extending the
benefit u/s. 80HHC either to the exporter or to the supporting manufacturer and
not to both.

ii)   Even
after the period for which the renewal of the trading house certificate was
sought, R continued to be treated as an export house according to the facts
that had emerged before the Commissioner (Appeals) and the Tribunal. R filed an
application for renewal of its trading house certificate, which was pending
before the relevant authorities for four years and was pending even on the date
of the assessment order.

iii)   The export import policy
for the relevant period expressly stated that during the interim period the
export trading house would be eligible to claim all the facilities and benefits
of the exporter and, therefore, the further benefit of the supporting
manufacturer as well. The benefit u/s. 80HHC was, therefore, available to R for
the exports made during the period in question. However, R having issued the
disclaimer, did not, in fact, claim the deduction. The mere non-grant of the
renewal of the trading house certificate by the Director General of Foreign
Trade could not deprive the assessee as a supporting manufacturer of the
deduction it was entitled to u/s. 80HHC(1A).”

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CIT vs. Water and Land Management
Training and Research Institute; 398 ITR 283 (T&AP):

The assessee is an institution established
in the year 1983, under the control of the Irrigation Department of the
Government of Andhra Pradesh. The assessee applied for registration u/s. 12AA
of the Act. The Director of Income Tax (Exemptions) observed that though the
institute was mainly functioning as a training institute for the purpose of
training Government officials in the field of water and land management, the
institute was also providing guidance to farmers and rendering consultancy
services to various organisations for a fee. With this view, the Director of
Income-tax (Exemptions) rejected the application for registration. The Tribunal
allowed the appeal and directed registration u/s. 12AA. 

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

“i)   A careful reading of the
definition of the expression “charitable purpose” appearing in section 2(15) of
the Act, 1961 would show that it is an inclusive definition. This is clear from
the usage of the word “includes”. The definition “includes” within its ambit,
(a) relief of the poor, (b) education, (c) yoga, (d) medical relief, (e)
preservation of environment including waterheads, forests and wildlife, (f)
preservation of monuments or places or objects of artistic or historic interest
and (g) the advancement of any other object of general public utility.
Interestingly, the first proviso does not deal with anyone of the first six
items. The first proviso as it stood before April 1, 2016 or even as it stands
after April 1, 2016 deals only with one of the seven items covered by the
substantive part of the definition, namely, “advancement of any other object of
general public utility”. The second proviso takes away from the ambit of the
first proviso, even an activity relating to the advancement of any other object
of general public utility, if the aggregate value of the receipts from the
activities referred to in the first proviso is 
Rs. 25 lakhs or less in the previous year.

ii)   It is only after an
institution is granted registration u/s. 12AA of the Act; that the examination
of the gross receipts year after year for the purpose of finding out the
eligibility for exemption would arise. This has also been clarified by the CBDT
Circular No. 21 of 2016, dated May 27, 2016.

iii)   Charitable purpose
includes preservation of environment including waterheads, forests and
wildlife. The activity carried out by the assessee had a direct casual
connection to the activity of preservation of environment. The Tribunal was
correct and the assessee was entitled to registration.”

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CIT vs. Vasavi Pratap Chand; 398 ITR 316 (Del):

A piece of land
was owned by co-owners. They entered into an agreement with A on 02/05/1984. In
terms of the agreement, the building on the land was to be demolished and an
apartment complex was to be constructed thereon. It was agreed that the
co-owners would get built up area of 89,136 sq. ft. which constituted 56% of
the total built up area. 44% of the built-up area would belong to A. The entire
cost of construction was to be met by A. The co-owners entered into agreements
with various flat buyers and ultimately sold constructed flats during the
assessment years 1993-94 to 1995-96. In the A. Y. 1995-96, the three co-owners
sold 18,636 sq. ft. of built up area for a total consideration of Rs.
4,72,98,075. Each co-owner disclosed a loss of Rs. 31,30,663 under the head
“capital gains” in his individual return. The Assessing Officer held that the
cost of acquisition of property (one-third share) would be only Rs. 2,03,334.
In other words, the Assessing Officer adopted the computation of cost of
acquisition in the manner indicated in section 49(1)(i) of the Wealth-tax Act,
1957. The Tribunal held that the figure indicated in the wealth-tax return
filed by the assessee could not be taken to be the basis for determining
capital gains. It held that the agreement of sale clearly showed that 56% of
the built-up area including the land would be retained by the assessee and 44%
by the builder. There was simultaneous transfer of possession of 44% of land by
the assessee to the builders and possession of 56% of the built-up area by the
builder to the assesses in the financial year 1991-92 in terms of section 2(47)
of the Income-tax Act, 1961 read with section 53A of the Transfer of Property
Act. The Tribunal further held that the cost of acquisition of land had to be
its market value as on 01/04/1981. It did not reduce the land and development
charges from the sale consideration.

On appeal, the Delhi High Court held as under:

“i)   There was transfer of
title to the land by the assessee in favour of A. What was transferred under
the collaboration agreement was only 44% of the land owned by them in exchange
for 56% of the built-up area and not the entire land. Further, the assesee not
only transferred the flats to the buyers but the proportionate right in the
appurtenant land as well. There was transfer of possession of 44% of the land
by the assesee to the builder and possession of 56% of the built-up area by the
builder to the assessee in terms of section 2(47) of the 1961 Act read with
section 53A of the Transfer of Property Act.

ii)   The consideration for the
transfer of 44% land was the cost of construction of the 56% built-up area. The
land and development charges had to be reduced from the sale consideration.

iii)   The value declared in
the tax return filed by the assessee under the Wealth-tax Act could not be
taken to be the cost of acquisition in the hands of the assessee. The cost of
acquisition of land had to be the market value of land as on 01/04/1981.”

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Saheb Ram Omprakash Marketing P. Ltd. vs.
CIT; 398 ITR 292 (Del):

In the case of the assessee, a notice u/s.
148 of the Act, was issued on 27/03/2012 for reopening the assessment for the
A. Y. 2006-07. The assessee filed a writ petition and challenged the validity
of the notice and the reassessment proceedings. The High Court granted stay of
the reassessment proceedings by an order dated 18/03/2013. The stay was vacated
by an order dated 09/11/2016. According to the assessee, on the date of the
stay order being vacated i.e., on 09/11/2016, there were only 13 days left for
passing the reassessment order where period is extended to 60 days by
Explanation 1 to section 153. Therefore, the assessee claimed that a valid reassessment
order could have been passed only up to 08/01/2017, i.e. within 60 days from
09/11/2016; the date on which the stay was vacated by the Court. The Department
rejected the assessee’s claim. It was the claim of the Department that the said
order of the Court dated 09/11/20016 was received by the Department on
02/12/2016 and therefore, the Department would have 60 days from 02/12/2016 to
pass the order of reassessment. Accordingly, the Assessing Officer passed the
reassessment order on 30/01/2017. 

The assessee filed a writ petition and
challenged the validity of the reassessment order on the ground of limitation.
The Delhi High Court allowed the writ petition and held as under:

“i)   In terms of explanation 1
to section 153 of the Act, in computing the period of limitation “the period
during which the assessment proceedings are stayed by an order or injunction by
the court” shall be excluded. In terms of the first proviso to Explanation 1,
where, after the vacation of stay, the period available to the Assessing
officer to complete the reassessment proceedings is less than 60 days, then
such remaining period shall be extended to 60 days and the period of limitation
shall be deemed to be extended accordingly.

ii)   Clause (ii) of
Explanation 1 only excludes from the computation of limitation, “the period
during which the assessment proceeding is stayed by an order or an injunction
of any court”. It does not exclude the period between the date of the order of
vacation of stay by court and the date of receipt of such order by the
Department.

iii)   Circular No. 621 dated
19/12/1991, issued by the CBDT, while explaining the reason for introduction of
the proviso to Explanation 1, acknowledged that the time remaining after
vacation of stay in terms of section 153(2) of the Act may not be sufficient to
complete the reassessment proceedings which is why the language used in the
first proviso is that the period “shall be extended to 60 days” for passing the
assessment order in terms of section 153(2) of the Act, if the period remaining
within limitation after the excluded period has elapsed, is less than 60 days.

iv)  The Revenue could not take
advantage of the fact that it received the copy of the order dated 09/11/2016
of the Court only on 02/12/2016 to contend that the assessment order having
been passed on 30/01/2017 within 60 days of the date of receipt of the order of
the High Court, was not issued (passed) beyond the period stipulated u/s.
153(2) of the Act read with the proviso to Explanation 1 thereof.

v)   Even otherwise, the
assertion that the Revenue was aware of the order only on 02/12/2016 was not
correct. The Revenue had been unable to dispute the fact that, on 30/11/2016, a
notice was issued by the Assessing Officer u/s. 142(1) of the Act and this was
pursuant to the order passed by this Court on 09/11/2016. Clearly, therefore,
on the date such notice was issued, the Assessing Officer was aware of the
order dated 09/11/2016 of the Court. Also, the order dated 09/11/2016 was
passed in the presence of counsel of the Revenue and, therefore, the Revenue
clearly was aware of the order on that date itself.

vi)  The order dated 30/01/2017
was time-barred.”

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Thyrocare Technologies Ltd. vs. ITO(TDS);
398 ITR 443 (Bom):

The assessee
is a sample testing laboratory. The Assessing Officer was of the view that the
sample collectors were not independent persons but were agents of the assessee
which was the principal and that it was an arrangement with the sample
collectors to avoid the obligation to deduct tax at source. The assessee
submitted before the Commissioner (Appeals) that the samples were not collected
directly by it from the patients, but by the sample collectors who visited the
patients and thereafter, brought the samples to it for testing. It was also
submitted that there was no privity of contract between it and the patients and
that the sample collectors did not collect the samples exclusively for it, but
were free to send the samples collected by them for testing to any other
laboratories and therefore it was a principal to principal relationship. The
order of the Assessing Officer was set aside by the Commissioner (Appeals). The
Tribunal held that the payments made by the assessee to the sample collectors
were in the nature of commission or brokerage which was evident from the
affidavit-cum-undertaking executed by the sample collectors and their
application forms for appointment as sample collectors and also from the
statements recorded during the survey u/s. 133A of the Income-tax Act, 1961
(Hereinafter  for the sake of
brevity  referred to as the “Act”).
It also held that the assessee did not satisfactorily explain the queries
raised. It further held that the Commissioner (Appeals) erred in not correctly
appreciating the nature of the payments made to the sample collectors, that
there was a principal and agent relationship between the assessee and the
sample collectors and deleting the interest levied u/s. 201(1A).

In appeal before the High Court, the
assessee raised the issue whether the findings of the Tribunal that the
assessee had not “satisfactorily explained the queries”, “not produced any
documents to substantiate the contention” and “not discharged the burden”, were
perverse, contrary to the facts on record and that it never indicated during
the hearing that it was not satisfied with the evidence. The Bombay High Court
remanded the matter back to the Tribunal and held as under:

“i)   The order of the Tribunal
was vitiated not only by non-application of mind but also by misdirection in
law. The Tribunal as the last fact finding authority, failed to make any
reference to the observations, findings and conclusions in the order of the
Assessing Officer and that of the first appellate authority.

ii)   It termed certain facts
as undisputed, whereas, they were very much disputed such as the non-admission
by the assessee that the service providers were its agents or that they were
allowed to collect the necessary charges from its clients for collecting the
sample and delivering the reports. There was no reference to any communication
or any document which indicated that the Tribunal’s queries had not been
satisfactorily answered by the assessee.

iii)   The
Tribunal should, independent of the statements recorded during the survey u/s.
133A, have referred to such of the materials on record which disclose that the
assessee had entered into such arrangements so as to have avoided the
obligation to deduct tax at source. If the arrangements were sham, bogus or
dubious, then such a finding should have been rendered.

iv)  The Tribunal was obliged,
in terms of the statutory powers conferred on it, to examine the matter,
reappraise and reappreciate all the factual materials satisfactorily. It had
not rendered a complete decision and its order was to be set aside.

v)   We direct the Tribunal to
hear the appeals afresh on the merits and in accordance with law after giving
complete opportunity to both sides to place their versions and arguments. The
Tribunal shall frame proper points for its determination and consideration and
render specific findings on each of them.”

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Vijay Vishin Meghani vs. Dy. CIT; 398 ITR
250 (Bom):

For the A. Ys. 1994-95 and 1996-97, the
assessee filed appeals before the Appellate Tribunal against the orders of the
Commissioner (Appeals) with a delay of 2,984 days. The assessee made applications
for condonation of delay. The assessee submitted an affidavit stating that he
followed the advice given by his chartered accountant not to file further
appeals before the Tribunal for the A. Ys. 1994-95 and 1996-97, as the issue
involved was    identical to the appeal
filed before the Tribunal for the A. Y. 1993-94, which was then pending before
the Tribunal, to avoid multiplicity of litigation and that after the
adjudication of appeal for the A. Y. 1993-94 by the Tribunal, he could move a
rectification application before the Assessing Officer to bring the assessment
order in conformity with the decision of the Tribunal. In support of the
averments made in the affidavit, the assessee also filed an affidavit by one of
the partners of the firm of chartered accountants.

The Tribunal dismissed the appeal in limine
and observed that a chartered accountant could not have given an absurd advice.
The affidavit filed by the firm of chartered accountants was rejected. The
affidavit filed by the assessee was also rejected on the ground that it gained
strength only from the affidavit filed by the firm of chartered accountants.
The Tribunal held that the assessee had failed to show the reasons for the
entire period of delay, i.e., no reason was given for the delay that occurred
between periods and therefore, the delay in filing the two appeals could not be
condoned. In a miscellaneous application u/s. 254(2).

The Bombay High Court allowed the appeals
filed by the assessee against the said orders of the Tribunal dismissing the
appeals as barred by limitation and held as under:

“i)   None should be deprived
of an adjudication on the merits unless the Court or the Tribunal or appellate
authority found that the litigant had deliberately and intentionally delayed filing
of the appeal, that he was careless, negligent and his conduct lacked
bonafides. Those were the relevant factors.

ii)   The Tribunal’s order did
not meet the requirement set out in law. It had misdirected itself and had
taken into account factors, tests and considerations which had no nexus to the
issues at hand. The Tribunal, therefore, had erred in law and on the facts in
refusing to condone the delay. The explanation placed on affidavit was not
contested nor could it have been concluded that the assessee was at fault, that
he had intentionally and deliberately delayed the matter and had no bona
fide or reasonable explanation for the delay in filing the proceedings. The
position was quite otherwise.

iii)   In the light of the
above discussion, we allow both the appeals. We condone the delay of 2,984 days
in filing the appeals but on the condition of payment of costs, quantified
totally at Rs. 50,000. Meaning thereby,  
Rs. 25,000 plus 25,000 in both appeals. The cost to be paid in one set
to the respondents within a period of eight weeks from today. On proof of
payment of costs, the Tribunal shall restore the appeals of the assessee to its
file for adjudication and disposal on the merits.”

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Dy DIT vs. Virage Logic International; 389
ITR 142 (Del):

The assessee was a 100% export oriented unit
which developed software and electronically transmitted to its head office
located abroad at a markup of 15% over the cost. For the A. Y. 2002-03 the
assessee’s claim for deduction u/s. 10A of the Act was rejected by the
Assessing Officer holding that the transfer of software by the assessee did not
amount to export. 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)   Mere omission of a
provision akin to section 80HHC(2), Explanation 2 or the omission to make a
provision of a similar kind that encompassed Explanation 2(iv) to section 10A
of the Income-tax Act, 1961 by itself did not rule out the possibility of
treatment of transfer or transmission of software from the branch office to the
head office as an export.

ii)   According to section
80IA(8) the transfer of any goods “for the purpose of eligible business” to
“any other business carried on by the assessee” was covered. The incorporation
in its entirety without any change in the provision of section 80IA(8) in
section 10A through sub-section (7) was for the purpose of ensuring that inter
branch transfers involving exports were treated as such, as long as the other
ingredients for a sale were satisfied.

iii)   The absence of a “deemed
export” provision in section 10A similar to the one in section 80HHC did not
logically undercut the amplitude of the expression “transfer of goods” u/s.
80IA(8) which was part of section 10A. Such an interpretation would defeat section
10A(7). The transfer of computer software by the Indian branch to the head
office was entitled to claim benefit of section 10A of the Act.”

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CIT vs. Veerakeralam Primary Agricultural
Co-operative Credit Society; 388 ITR 492 (Mad):

Assessee is a primary agricultural
co-operative credit society. For the A. Ys. 2008-09, 2009-10 and 2011-12, the
Assessing Officer disallowed the assessee’s claim for deduction u/s. 80P on the
ground that assessee is a co-operative bank. The Tribunal allowed the assesee’s
claim.

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

“i)   The benefit of section
80P is excluded for co-operative banks, whereas the primary agricultural credit
societies are entitled to the deduction.

ii)   The primary object of the
assessee-society was to provide financial accommodation to its members to meet
all the agricultural requirements and to provide credit facilities to the
members, as per the bye-laws and as laid down in section 5(cciv) of Banking
Regulation Act, 1949.

iii)   The assessee society was
admittedly not a co-operative bank but a credit co-operative society. It was
entitled to deduction u/s. 80P.”

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CIT vs.
Karnataka Reddy Janasangha; 389 ITR 229 (Karn):

Dealing with the amendment inserting section
11(6) of the Income-tax Act, 1961 w.e.f. 01/04/2015, the Karnataka High Court
held as under:

“For assessment years prior to the
introduction of section 11(6) of the Income-tax Act, 1961. i.e. prior to April
1, 2015, depreciation is allowable on assets, where cost of such assets has
already been allowed as application of income in the year of
acquisition/purchase of asset.”

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CIT vs. Krishi Upaj Mandi Samiti; 388 ITR
605 (Raj):

The assessee was a charitable trust eligible
for exemption u/s. 11. The assessee had availed exemption u/s. 11 in respect of
an asset being building. In the A. Y. 2004-05, the Assessing Officer disallowed
the assessee’s claim for depreciation on the said building on the ground that
exemption has been availed u/s. 11 on investment in the said building. The
Tribunal allowed the assessee’s claim.  

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

“i)   In computing the income
of a charitable institution or trust depreciation of assets owned by such
institution is a necessary deduction in commercial principles, hence the amount
of depreciation has to be deducted to arrive at the income.

ii)   The Appellate Tribunal
rightly allowed depreciation claimed by the assessee on capital assets for
which capital expenditure was already allowed in the year under consideration.

iii)   The income of a
charitable trust derived from the depreciable heads was also liable to be
computed on commercial basis. The assessee was a charitable institution and its
income for tax purposes was required to be determined by considering the
provisions of section 11 of the Act, after extending normal depreciation and
deductions from its gross income.

iv)  In computing the income of
a charitable institution depreciation of assets owned by it was a necessary
deduction on commercial principles, hence, the amount of depreciation had to be
deducted to arrive at the income.”

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CIT vs. Umicore Finance Luxemborg; [2016]
76 taxmann.com 32 (Bom):

The assessee was a non-resident company
incorporated under the laws of Luxembourg. It purchased entire shareholding of
an Indian company ‘A’. The company ‘A’ was incorporated as a private limited
company succeeding erstwhile firm ‘AZ’. On the date of the conversion, the
partners of the erstwhile firm continued as shareholders having shareholding
identical with profit sharing ratio of the partners. The assessee filed an
application before the AAR seeking a ruling on question as to whether
notwithstanding the non-compliance with clause (d) of proviso to
section 47(xiii), it was liable to pay capital gain tax. The AAR noted
that the assessee had clarified that whilst converting the partnership firm
into a company, there was no revaluation of the assets and the assets and
liabilities of the firm as also the partners, capital and current accounts were
taken at their book value in the accounts of the company. It was in such
circumstances the AAR ruled that notwithstanding premature transfer of shares
as specified in clause (d) of proviso to section 47(xiii),
the assessee-company was not liable to pay capital gain tax.

On a writ petition filed by the Department
challenging the said order of the AAR, the Bombay High Court held
as under:

“i)   The AAR noted that
section 47(xiii) specifically excludes different categories of transfers
from the purview of capital gains taxation but it is subject to fulfilling the
conditions laid down in clauses (a) to (d). The fact that
conditions (a) to (c) are satisfied, is not in dispute but,
however, the question is whether clause (d) requires to be satisfied.
The AAR has rightly pointed out that the first part of clause (d) has
been satisfied but, however, it is noted by the AAR the requirements of second
part of clause (d) i.e. the shareholding of 50 % or more should continue
to be as such for the period of five years from the date of succession, has not
been fulfilled in the instant case by reason of the transfer of shares by the
Indian Company to the assessee before the expiry of five years.

ii)   The AAR has also noted
that the consequences of violation of those conditions have been specifically
laid down in sub-section (3) of section 47A which was also introduced by the
same Finance Act. It is further pointed out that if no profit or gains arose
earlier when the conversion of the firm into a Company took place or if there was no transfer at all of the capital assets of the firm at
the point of time, the deeming provision u/s. 47A(3) cannot be inducted to levy
the capital gain tax.

iii)   The AAR further found
that the shares allotted to the partners of the existing firm consequent upon
the registration of the firm as a Company, did not give rise to any profit or
gains. It is further noted that by such reconstitution of the Company under
part IX of the Companies Act, the assets automatically gets vested in the newly
registered Company as per the statutory mandate contained u/s. 575 of the
Companies Act. It is further found that it cannot be said that the partners
have made any gains or received any profits assuming that there was a transfer
of capital assets. It was also noted that worth of the shares of the company
was not different from the interest of partners in the existing firm.

iv)  On perusal of the said
observations, it is opined that AAR in a very reasoned order, has taken a view
that no capital gains accrued or attracted at the time of conversion of the
partnership firm into a private limited company. In part IX of the Companies
Act, therefore, notwithstanding the non-compliance with clause (d) of
the proviso to section 47(xiii) by premature transfer of shares, the
said Company is not liable to pay capital gains tax. These findings have been
arrived at essentially looking into the fact that there was no revaluation of
assets at the time of conversion of the firm ‘AZ’.

v)   The said finding of fact
has not been disputed by the revenue and, as such, the finding of the AAR that
there was no capital gains in the transaction in question cannot be faulted. It
is also to be noted that even immediately after such conversion in question
from the partnership firm into a private limited company, the assessment with
regard to the income of the new company as well as of the respective partners
were carried out and there was no objection or grievances raised by the
Assessing Officer that any capital gains tax had to be paid on account of the
incorporation of the company in terms of the said provisions.

vi)  The transfer of shares in
favour of the assessee by the erstwhile partners who were shareholders of ‘A’
Ltd. and such partners/shareholders are liable to pay capital gains even if
acceptable, would not affect the decision passed by the AAR whilst coming to
the conclusion that there were no capital gains at the time of incorporation of
the new company by the said partnership firm.

vii)  The contention of the
revenue that in view of the violation of clause (d) of section 47(xiii),
the exemption from capital gains enjoyed by the assessing firm upon conversion
into a private limited company, ceases to be in force cannot be accepted. There
are no capital gains which have accrued on account of such incorporation. In
such circumstances, the said contention of the revenue that in view of the
transfer of the capital assets or intangible assets, there are capital gain tax
payable by the transferee company, cannot be accepted. As pointed out
hereinabove, there was no capital gains payable at the time of the
incorporation of the company from the erstwhile partnership firm.

viii) The next contention of
the revenue is that the application u/s. 245N of the assessee itself was not
maintainable. The main submission on that aspect is that the assessee not being
parties to the transaction, the question of seeking an advance ruling at the
instance of the assessee is not covered under clauses (i), (ii)
and (iii) of section 245N(a). Looking into the question as to whether
capital gains are liable to be paid or not in terms by the transferee company
being a non-resident company, the respondent herein, would be a matter which
would come within the scope of advance ruling.

ix   Considering the aforesaid
observations and taking note of the findings of the AAR, it is held that there
is no case made out for interference by the Court under article 226 of the
Constitution of India. As such, the petition stands rejected.”

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CIT vs. Amaltas Associates; 389 ITR 175
(Guj):

The assessee had developed a housing
project. In the A. Y. 2006-07, the assessee claimed deduction u/s. 80IB(10) in
respect of the profits from the said housing project. The Assessing Officer
disallowed the claim on two grounds. Firstly, he held that the assessee is not
a developer but a contractor. Secondly, he held that the condition for built up
area is not satisfactory. He included the terrace area into the built up area.
The Tribunal held that the assessee was a developer and that the terrace area
is not to be included into the built up area. The Tribunal accordingly held
that the condition of built up area is satisfactory. Accordingly, the Tribunal
allowed the claim for deduction u/s. 80IB(10) of the Act.

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

“i)   The Tribunal had found
that the assessee was a developer. The assessee had undertaken full
responsibility of constructing the residential units and had also been
responsible for the resultant profit or loss arising out of such venture. The
assessee, thus, had undertaken full risk.

ii)   The Tribunal had rightly held
that the open space attached to a pent house cannot be included in the term
“balcony”. The Tribunal was right in law and on facts in allowing deduction
claimed by the assessee u/s. 80IB(10) of the Act.”

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S. Sevugan Chettiar vs. Princ. CCIT;
[2016] 76 taxmann.com 156 (Mad):

The petitioner is a retired employee of the
ICICI Bank and was aged 68 years. He was constrained to approach this Court in
terms of the proceedings dated 04/08/2016 issued by the third respondent. The
petitioner, upon retirement, filed his return of income for the relevant year
and the assessment was finalized. Subsequently, the petitioner came to know
that the Hon’ble Supreme Court, in the case of S. Palaniappan vs. I.T.O.
[Civil Appeal No. 4411 of 2010 dated 28/09/2015] held that a person, who has
opted for voluntary retirement under the Early Retirement Option Scheme shall
be entitled to exemption u/s. 10(10C). Following the said decision, the CBDT
issued a circular dated 13/04/2016 stating that the judgment of the Hon’ble
Supreme Court be brought to the notice of all officials in the respective
jurisdiction so that relief may be granted to such retirees of the ICICI Bank
under Early Retirement Option Scheme, 2003. The petitioner, on coming to know
of the same, filed a revised return by referring to the said decision and
stating that only after the said decision came to his notice, he had been
advised to file the revised return. However, this has been rejected vide
the impugned proceedings dated 04/08/2016 by the third respondent by referring
to section 139(5) of the Act. In other words, the revised return was refused to
be accepted as it is beyond the time stipulated u/s. 139(5). Assailing the
correctness of the order of the third respondent, the petitioner writ petition
before the Madras High Court. 

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

“i)   After hearing the learned
counsel for the parties and perusing the materials placed on record, this Court
is of the view that the technicality should not stand in the way while giving
effect to the order passed by the Hon’ble Supreme Court. The Board also issued
a circular on 13/04/2016 with a view to grant relief to the retirees of the
ICICI Bank under the Early Retirement Option Scheme. Several persons, who had
filed writ petitions before the Madurai Bench of this Court, have been granted
the relief. In fact, in those orders, the Court took into consideration the
decision of the Hon’ble Supreme Court and granted the relief.

ii)   The circular issued by
CBDT is in exercise of the powers conferred u/s. 119 of the Act. The said
provision deals with instructions to Subordinate Authorities. Sub-section (1)
of section 119 of the Act states that the Board may, from time to time, issue
such orders, instructions and directions to other Income Tax Authorities, as it
may deem fit, for the proper administration of the provisions of the Act and
such Authorities and all other persons employed in the execution of this Act
shall observe and follow such orders, instructions and directions of the Board.
The Proviso carves out certain exceptions, under which circumstances, the Board
will not issue instructions.

iii)   Admittedly, the case,
which was considered by the Hon’ble Supreme Court related to an individual
employee namely S. Palaniappan, who was also a similarly placed person as that
of the petitioner. Thus, the Board, in its wisdom, while implementing the judgement
in the case of S. Palaniappan, took a decision that such a benefit
should be extended to the similarly placed persons treating them as class of
cases. Therefore, the Board observed that the order should be communicated to
all the Commissioners, so that relief can be granted to such retirees of the
ICICI Bank. Thus, the petitioner cannot be non-suited solely on the ground that
he had filed a revised return well beyond the period stipulated u/s. 139(5) of
the Act.

iv)  It is relevant to point
out that Clause (c) to sub- section (2) of section 119 of the Act states that
the Board may, if it considers it desirable or expedient so to do for avoiding
genuine hardship in any case or class of cases, by general or special order,
relax any requirement contained in any of the provisions contained in Chapter
IV or Chapter VI-A of the Act, which deal with computation of total income and
deductions to be made in computing the total income and such power is
exercisable where the petitioner failed to comply with any requirement
specified in such provision for claiming deduction thereunder, subject to the
conditions that (i) the default is due to circumstances beyond the control of
the assessee and (ii) the assessee has complied with the requirement before the
assessment in relation to previous year, in which, such deduction is claimed.

v)   Thus, if the default in
complying with the requirement was due to circumstances beyond the control of
the assessee, the Board is entitled to exercise its power and relax the
requirement contained in Chapter IV or Chapter VI-A. If such a power is
conferred upon the Board, this Court, while exercising jurisdiction under
Article 226 of The Constitution of India, would also be entitled to consider as
to whether the petitioner’s case would fall within one of the conditions
stipulated u/s. 119(2)(c).

vi)  Considering the hard
facts, the petitioner, being a senior citizen, cannot be denied of the benefit
of exemption u/s. 10(10C) of the Act and the financial benefit that had accrued
to the petitioner, which would be more than a lakh of rupees. Therefore, this
Court is of the view that the third respondent should grant the benefit of
exemption to the petitioner.

vii)  Accordingly, the writ
petition is partly allowed, the impugned order is set aside and the third
respondent is directed to grant the benefit of exemption u/s. 10(10C) of the
Act and refund the appropriate amount to the petitioner, within a period of
three months from the date of receipt of a copy of this order. Considering the
facts and circumstances of the case, the prayer for interest is rejected.”

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CIT vs. Sunil Vishwambharnath Tiwari; 388
ITR 630 (Bom):

The Assessee was eligible for deduction u/s.
80IB(10) and the same was allowed. In the A. Y. 2006-07, the Assessing Officer
made certain disallowances u/s. 40(a)(ia) of the Act, on account of non
deduction of tax at source and also did not allow deduction u/s. 80IB(10) in
respect of the increased income of the project. The Commissioner (Appeals) and
the Tribunal allowed the assessee’s full claim.

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

“i)   In view of the scheme of
section 40 deduction of tax at source was not effected by the assessee and
payment to contractors could not be deducted as the expenditure became
inadmissible. The expenditures were added back to the income being eligible
income. This income eligible for deduction in terms of section 80IB(10) only
increased by the figure of disallowed expenditure.

ii)   The Commissioner(Appeals)
had rightly pointed out that the deduction allowable u/s. 80IB(10) of the Act,
was with reference to assessee’s gross total income. Hence disallowance u/s.
40(a)(ia) cannot be treated separately and it got added back to the gross total
income of the asessee.

iii)   Section 40 pointed out
that due to error of the assessee, such expenditure could not be deducted while
computing the income chargeable under the head ”Profit and gains of business or
profession”. That was the only limited effect of the lapse on the part of the
assessee. The Appellate Tribunal had considered these facts and upheld them. No
substantial question of law arose for consideration.”

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