Category: Tribunal News: Part A-Domestic Taxation

The Tribunal deleted the addition made by the AO. This ground of appeal filed by the assessee was allowed.

This ground of appeal was decided in favor of the assessee.

The assessee company was running a multi-specialty hospital. At the relevant time, the assessee did not have a blood bank and, therefore, patients were required to arrange blood from outside.

For various operations, the assessee company charged a package fee to the patients. Since the facility of the blood bank was not available, the patients were required to procure blood from outside and whatever expenses the patients were required to incur at blood banks, the credit for the same was given to the patients from their package fee.

If the assessee charged a sum of Rs. 1,00,000/- as a package fee for performing one operation upon a patient, say ‘A’, and ‘A’ was required to take certain services of Rs. 1,000/- from the outside blood bank, then ‘A’ would directly make the payment of Rs. 1,000/- to the blood blank and assessee would later refund the same to ‘A’. In substance, the fee received by the hospital was only Rs. 99,000/- from the patient ‘A’ and Rs. 1,000/- was debited as blood processing charges by the assessee in its books of accounts.

Revenue held that the assessee had disclosed the payment made to the blood bank in its books of account and, therefore, the only inference that can be drawn is that the patients made the payment to the blood bank on behalf of the assessee and therefore assessee was required to deduct TDS u/s. 194J for the payments made to blood bank.

Aggrieved, the assessee filed appeal before Tribunal.

 It is to be noted, that it was not disputed, that all the charges received by the blood banks and were against the processing of the blood and/or conducting various tests on the blood and the blood banks were not charging anything against the cost of blood.

It was held, that it is settled law, that the entries in the books of account are not decisive. It is the substance of the transactions which is to be seen. In substance, it clearly emerged that the assessee had not made any payment to the blood banks and payments were made directly by the patients to blood banks, and hence the question of affixing the liability u/s. 194J upon the assessee does not arise.

II. When amount payable by assessee to retainer doctor was fixed, the retainer doctor was not allowed to take any similar assignment in any company engaged in similar business and the retainer doctor was also required to abide by general rules and regulations of the company, then it was held that there existed employer – employee relationship between assessee and the retainer doctor and the assessee was required to deduct tax u/s. 192.

Facts II:

The assessee had deducted tax from the payment made to retainer doctors u/s. 194J, treating the payment made to the doctors as professional charges. While, as per revenue, the payment made to the doctors should have been treated as salary and, accordingly, tax should have been deducted at source u/s. 192. Aggrieved, the assessee filed appeal before Tribunal.

As per retainership agreement, the following things were evident-

• The agreement initially was for fixed period and thereafter renewable, on mutually agreeable terms.

• The retainer doctor had to report to the Head of the Department.

• The retainer doctor was not allowed to act in a similar, or any capacity, for any other company engaged in a business similar to that of the company.

• Though a consolidated retainership fee of fixed amount was paid to retainer doctor, but he was required to raise a monthly bill for processing of his professional fees.

• This agreement could be terminated ‘by either party’ upon three months’ prior notice or payment of three months’ retainer fee in lieu to the other party.

• The retainer doctor must commit to work in the interests of the company and in accordance with its values and philosophy, abiding by the rules, regulations and policies, as applicable. The retainer doctor must also follow the work processes, technical standards, protocols and general instructions issued thereof, of the company, as are in force, or amended from time to time.

Held II:

On facts, it was held that the fixed monthly remuneration payable to retainer doctors is in the nature of salary liable for deduction of tax u/s. 192. It was also held that merely because a retainer doctor is required to raise a monthly bill, it cannot be accepted that he is an independent professional and the employer – employee relationship does not exist. While holding that there existed employer employee relationship between assessee and retainer doctor, the following distinctions were pointed out between facts of assessee’s case and some other cases wherein it was held that no employer-employee relation existed-

• In the case of CIT vs. Coastal Power Co. [2008] 296 ITR 433 (Delhi), consultant had agreed to indemnify the company against liabilities which it may suffer/ incur, arising out of or in connection with agreement with the consultant of the performance of services thereunder. Thus, an indemnity clause was the basis on which it was held that no employer-employee relation existed, because it is unlikely that any employee would indemnify his employer and other employees against all liabilities.

• In the case of Dr. Shanti Sarup Jain vs. First ITO [1987] 21 ITD 494 (Mum.), the doctor was not only in receipt of fixed salary of Rs. 1,000/- per month but was also entitled to 50% income from indoor patients and on visits. The doctor had also employed his own staff in his consulting room. Hence, it was held that the income received by Dr. Shanti Sarup Jain was income from profession.

• In the case of Dy. CIT vs. Ivy Health Life Sciences (P.) Ltd. [2012] 20 ITR (T) 179, the remuneration payable to the doctor was not a fixed amount but there was a fee sharing arrangement between the doctor and the hospital.

• In the case of ITO vs. Apollo Hospitals International Ltd. ITA NO. 3363/AHD/2008, it was pointed out that in the case of employee doctor, general service rules and regulations were made applicable but not in the case of consultant doctors. Judicial Member had upon certain findings concluded that there is no employer-employee relationship between assessee and retainer doctor. However the Third Member, while arriving at the conclusion that there exists employer-employee relationship, did not comment upon the following findings of the Judicial Member –

• An employee doctor is paid performance-linked bonus whereas a consultant doctor is not paid any such bonus.

• There is no retirement age for consultant retainers, whereas the same is defined for an employee as 58 years.

• The retainer doctor is required to report to the directors/ HOD of the appellant hospital. The retainer doctor is also bound by the general instructions/regulations of the company and also with the secrecy clause etc. However, these sorts of conditions would be always there in all types of employment arrangements, be it a regular, temporary or of consultancy in nature so as to ensure discipline and proper coordination in running an origination and this condition does not imply that there exists employer employee relationship.

•    The condition of the MOU with the retainer doctors, which restrict them not to work, for other hospitals, is a quite natural condition and would be there in such arrangement, especially in view of the nature of the service/expertise involved in the medical profession and this condition does not imply that there exists employer employee relationship.

•    The retainer doctors are engaged for the fixed period on temporary basis which may or may not be renewed as such. Similarly they are also not entitled for other benefits like PF contribution, retirement benefits, live benefits, HRA, LTA, terminal compensation etc., which are otherwise available to all the regular employee of the assessee.

III.    merely because the sale price is fixed as per the agreement between the parties, it cannot be said that the difference between the purchase cost and the sale price, i.e., the markup, is the commission for sale of medicines and consequently no tax is deductible u/s. 194h on the markup.

Facts iii:
The assessee had an agreement with FHWL.

the agreement had two aspects-
1.    With regard to sale of the medicines by FHWL to the assessee.
as per the agreement, FHWL had to sell the medicines at cost plus certain markup which had been fixed on the basis of turnover as under.
for turnover upto rs. 12 crore, 2% markup.
for turnover in excess of 12 crore, 1.5% markup. for turnover in excess of 15 crore, 1.25% markup.

2.    With regard to providing of the manpower by FHWL to the assessee
as per agreement fhWl would provide manpower to the assessee for smooth running of their pharmacy. however, as per the agreement, all expenses incurred by FHWL on the employees and the smooth running of pharmacy were to be reimbursed by the assessee to  FHWL  on  monthly  basis.  thus,  FHWL was  not charging anything over its actual labour cost on which the tax at source was being deducted by the assessee u/s. 194C.

Revenue  was  of  the  opinion  that  the  mark  up  paid  by the  assessee  to  FHWL on  medicines  sold  by  FHWL to assessee was commission chargeable to tax u/s. 194H.

Learned accountant  member  observed  that  FHWL was not charging anything over its actual labour cost to the assessee-company on which tax at source was being deducted u/s. 194C. The Learned Accountant Member was thus of the opinion that the mark-up on the turnover, under the given facts and circumstances, thus, represented neither business profit of FHWL nor commission allowed to it by the assessee, but a consideration toward the manpower services contracted to the assessee-company, exigible to TDS u/s. 194C.

Learned  Judicial  member  however  posed  a  question before third member that whether in the facts and circumstances of the case, the provisions of section 194C on the mark up/profits, be invoked by the Tribunal where neither this is a case of department nor of the assessee.

Held iii:
Merely because the sale price is fixed as per the agreement between the parties, it cannot be said that the difference between the purchase cost and the sale price, i.e., the markup, is the commission for sale of medicines. the sale price charged by FHWL i.e., cost plus markup is the price of the medicines sold by FHWL to the assessee and there was no element of principal and agent relationship, as assumed by the ao. Therefore, the stand of the revenue that the markup is the commission cannot be accepted and consequently no tax was deductible u/s. 194h on the markup.

Similarly, the view of the learned accountant member that the markup is a consideration for providing the manpower is also based upon the presumption and contrary to the express provisions of the agreement and hence provisions of section 194C is not applicable on mark ups/ profits.

The Tribunal, following the Special Bench decision of ITAT Chennai in the case of Scientific Atlanta India Technology (P.) Ltd. v. ACIT, (2010) 129 TTJ 223 (Chennai) (SB)/(2010) 37 DTR 46 (Chennai) (SB)/(2010) 2 ITR 66 (Trib.) (Chennai) (SB), held as under:

(1) The business loss of non-eligible unit(s) cannot be set off against the profits of undertaking(s) eligible for deduction u/s.10A.

(2) Any other income, including the losses arising to the assessee from other concerns, shall be computed as per the regular provisions of the Act, and, consequently, carried forward under and in terms of the regular provisions of the Act.

(3) That the unabsorbed claim u/s.10A, i.e., the income after deduction, having arisen from an eligible unit, cannot be carried forward in the like manner as a business loss or unabsorbed depreciation and would, therefore, be subject to tax.

(4) Deductions u/s.10A and u/s.10B, and also those u/s.80HH, u/s.80HHA, u/s.80-I, u/s.80-IA, etc. are unit-specific in contradiction to being assessee-specific.

(5) There is nothing in the section that suggests aggregation of profits from two or more undertakings so that the profit derived from each is to be considered separately i.e., as if it were the only income of the assessee, for the purpose of computation of deduction thereunder.

(6) In other words, the qualifying amount and, consequently, the deduction in its respect are to be worked out on a stand-alone basis, independently for each eligible unit.

(7) Loss of any other unit is not to be set off while computing deduction u/s.10A.

(8) Income that remains after the deduction u/s. 10A or the unabsorbed claim u/s.10A would stand to be taxed as such i.e., shall not be set off against any other loss or be carried forward.

During the search and seizure operations at the premises of SGL Ltd. and its director A, certain incriminating documents were found. Investigations revealed that SGL Ltd. had received large amount in the form of share capital from sister concerns through bogus shareholders and from agricultural income. Since assessee-trusts also made investment in SGL Ltd., the Assessing Officer framed block assessment u/s.158BD r.w.s 158BC. So-called satisfaction in the order sheet dated 4th September 2003 was recorded before the commencement of block assessment proceedings of the persons searched on 5th September 2003.

The assessees challenged the block assessment orders u/s.158BD before the learned CIT(A). The learned CIT(A) accepted the contention of the assessee and quashed the proceedings u/s.158BD because such notices were issued without any basis. The CIT(A) held that there is no satisfaction recorded objectively and that the same is without application of mind and, accordingly, annulled the block assessment orders u/s.158BD.

There was a difference of opinion between the members of the Tribunal. The Third Member, relying on the decisions in the following cases, upheld the CIT(A)’s order in favour of the assessee:

(a) Manish Maheshwari v. ACIT & Anr., (2007) 208 CTR 97 (SC)/(2007) 289 ITR 341 (SC)

(b) Manoj Aggarwal v. Dy. CIT, (2008) 117 TTJ 145 (Del.) (SB)/(2008) 11 DTR 1 (Del.) (SB) (Trib.)/ (2008) 113 ITD 377 (Del.) (SB).

The Tribunal noted as under:

(1) The so-called satisfaction in the order sheet dated 4th September 2003 has been recorded before the commencement of the block assessment proceedings of the persons searched on 5th September 2003. This satisfaction is not in accordance with the provisions of section 158BD. The satisfaction recorded u/s.158BD on 4th September 2003 i.e., before the initiation of block assessment proceedings of the person searched does not satisfy the requirement of law. The observation that the Assessing Officer has taken simultaneous action in the case of persons searched and in the cases of these assessee-trusts is factually incorrect, because in the cases of assessee-trusts the satisfaction was recorded on 4th September 2003, whereas the block assessment proceedings of the person searched were started subsequently on 5th September 2003.

(2) Similarly, the observation of the AM that it is immaterial whether the satisfaction was recorded in the file of the persons searched or in the case of assessee-trusts is legally incorrect and is not according to the provision of law. Similarly, the reason given by the AM that the Assessing Officer in the case of assessee-trusts and the persons searched is the same and, hence, it is immaterial whether the reasons recorded were in the file of the persons searched or in the case of assesseetrusts is incorrect and is contrary to law.

(3) Satisfaction should be recorded by the Assessing Officer of person searched as per the provisions of section 158BD. It is well-settled law that satisfaction recorded has to be objective/ judicious satisfaction and the order sheet dated 4th September 2003, in the cases of the present assessees, does not fulfil this condition, because the block assessment proceedings of the persons searched were started by issuing notice u/s.158BC on 5th September 2003 and hearing of the case of the persons searched was started on 13th October 2003.

(4) Hence, in no case, the Assessing Officer of the persons searched can examine the seized record on 4th September 2003 and ask the assessees’ explanation in respect of seized record of the persons searched.

(5) The so-called satisfaction recorded on 4th September 2003 by the Assessing Officer is based on assumption and presumption and is not based on seized record and is not a judicious satisfaction and, hence, the order sheet dated 4th September 2003 does not fulfil the requirement of section 158BD.

The Tribunal, relying on the decision of the ITAT Pune in the case of Serum Institute of India Ltd. v. Dy. CIT, (2007) 12 TTJ (Pune) 174/111 ITD 259 (Pune), upheld the assessee’s claim.

The Tribunal noted as under:

(1) It is evident that the compensation was awarded to the assessee ‘against loss of reputation and goodwill’. It was not on account of the failure on the part of UBS to supply the quantity ordered or some loss caused to the assessee in a particular trading transaction.

(2) It was on account of injury caused to the reputation of the assessee, albeit such injury was caused due to some business transaction.

(3) Had the amount been awarded to make good the loss caused due to excess or short supply of the material or some other trading deficiency, it would certainly have been regarded as a revenue receipt.

(4) Since the nexus of the compensation is with reputation and goodwill and not with the trading operations, it cannot be held to be a revenue receipt.

(5) The main criterion to judge as to whether the compensation is capital or revenue is to ascertain the purpose for which such compensation is awarded. If the compensation is to recoup the loss suffered by the assessee in its business activity, then it will be a revenue receipt. If, however, the purpose is unrelated to the trading activity of the assessee, it will be in the nature of a capital receipt.

Facts:
The assessee was a super-specialty hospital dealing with cardiac and cardio vascular diseases. It had taken insurance policies on life of its key personnel — Chief Surgeon, Chairman and Managing Director, the premium on which was claimed as deduction.

The Assessing Officer disallowed the deduction on grounds that the benefit of policy was assigned to key personnel and therefore was not incurred wholly for business purpose.

On appeal, the learned CIT(A) held that since the surgeon had the requisite skill and knowledge of the field, therefore he was responsible for the turnover of the company and accordingly only the premium paid on his policy is deductible and that on the policy of the Chairman and the Managing Director is not.

Held:
(1) The assessee’s activity cannot be said to be solely depending on the surgeon. Though, he may be responsible for the turnover of the company, he may not be responsible for the profits of the company, due to lack of competence necessary for a businessman.

(2) Further, since the business is carried on with the ultimate motive of earning profits, it cannot be said that profits could not be taken as guiding factor to analyse the business.

(3) It was also not argued that the salaries paid to these persons were not allowable.

(4) Further, on their resignation in the subsequent year, the profits of the assessee reduced substantially.

(5) All the above factors led to the conclusion that the Chairman and the Managing Director were key personnel and accordingly the premium paid on their policy is allowed.

Facts:
The assessee derives income from sale of motor parts, tractor parts, tyres, etc. The assessee had shown GP at 10.84% which was less than previous year GP of 14.17%. To support the reduction in GP, the assessee submitted regular books of accounts which were audited. As no quantitative details of  purchases, sales, closing stock, etc. were maintained, the book results were rejected by the AO applying provisions of section 145. The AO thereafter added an estimated amount of Rs.50,000 to total income.

Held:
The assessee had maintained inventory of opening and closing stock and vouchers for purchases and sales which were also audited. Mere non-maintenance of stock register cannot mean that the books of accounts maintained are false. Also, low GP may justify an enquiry but cannot justify an addition to the profit shown. In the present case, the AO had not shown any mistake in books of accounts. Furthermore, rate of GP in a particular year depends on many factors and the same need not be constant from year to year. Therefore addition to income is not justified.

Facts:
The assessee received gift from two parties vide cheques. To prove the gifts are genuine, the assessee submitted affidavits of donors. However, the assessee’s claim was rejected as the AO was also not satisfied with the relationship between donor and donee. Further the AO observed that the assessee did not produce donors for verification and also did not prove financial capacity. The CIT(A), however, upheld the contention of the assessee.

On Revenue’s appeal, there was a difference of opinion between the members, and the matter was referred to the Third Member.

Held II:
The gifts received by the assessee were to be considered genuine as the gift was made through cheque and also disclosed in the books of accounts of the donees. Also the donees have admitted the gift given in their respective affidavits and hence there was no reason in disbelieving the genuineness of the gift.

Facts:
The assessee, a partnership firm, engaged in business of running a marine training institute, filed its return of income declaring the total income of Rs.1,86,466. During the previous year relevant to the assessment year under consideration the assessee sold a building, on which depreciation was claimed in earlier years, for a consideration of Rs.49,43,525. Since the amount of consideration was the same as its WDV, the assessee did not offer short-term capital gains on sale of the building. The value of this building as per stamp valuation authorities was Rs.76,49,000. The Assessing Officer (AO) was of the view that one of the office building i.e., office No. 101 having a WDV of Rs.13,14,425 was not sold by the assessee during the year under consideration. The Assessing Officer (AO) held that in view of the provisions of section 50 r.w.s 50C, the value of the building adopted by the stamp valuation authorities needs to be taken as full value of consideration. He, accordingly, made an addition of Rs.20,44,900, being the difference between value of the office sold (excluding office No. 101) as per stamp valuation authorities (Rs.56,74,000) and the WDV of the said office (Rs.36,29,100), to the total income of the assessee.

Aggrieved the assessee preferred an appeal to the CIT(A), where it contended that the provisions of section 50C cannot be invoked in the case of an assessee wherein section 50 is applicable. It contended that it is not permissible to impose a supposition on a supposition of law. The CIT(A) held that the deeming provisions of section 50C could not apply to depreciable assets. He also held that the block of assets had ceased to exist. He deleted the addition made by the AO.

Aggrieved the Revenue preferred an appeal to the Tribunal.

The President, ITAT constituted a Special Bench to consider the following question:

“On a proper interpretation of sections 48, 50 and 50C of the Income-tax Act, 1961, was the Assessing Officer right in law in applying section 50C to capital assets covered by section 50 (depreciable assets) and in computing the capital gains on the sale of depreciable assets by adopting the stamp duty valuation?”

Held:
(1) There are two deeming fictions created in section 50 and section 50C. The first deeming fiction modifies the term ‘cost of acquisition’ used in section 48 for the purpose of computing the capital gains arising from transfer of depreciable assets, whereas the deeming fiction created in section 50C modifies the term ‘full value of the consideration received or accruing as a result of transfer of the capital asset’ used in section 48 for the purpose of computing the capital gains arising from the transfer of capital asset being land or building or both.

(2) The deeming fiction created in section 50C operates in a specific field which is different from the field in which section 50 is applicable. It is not a case where a supposition has been sought to be imposed on other supposition of law. Going by the legislative intentions to create the said fictions, the same operate in different fields.

(3) The harmonious interpretation of the relevant provisions makes it clear that there is no exclusion of applicability of one fiction in a case where other fiction is applicable.

(4) The assessee’s alternate argument that as the AO had held that the block of asset had not ceased to exist in the year and was in existence, section 50C could not apply as held in Roger Pereira Communications 34 SOT 64 was not acceptable, since the assessee itself had considered the entire block of buildings as having been sold/transferred during the year and the same was upheld by the CIT(A). The assessee is not entitled to take a stand with regard to facts, inconsistent with the stand that he had taken before the Revenue Authorities to obtain a decision in his favour. He cannot be heard to say that the stand on facts so taken by him is not correct just to raise a new legal plea.

The question referred to the Special Bench was answered in the affirmative i.e., in favour of the Revenue and against the assessee. The appeal filed by the Revenue was allowed.

Facts:
One Mrs. Mani Cawas Bamji (the deceased) was a childless widow who died in Mumbai on 6-1-2001. She possessed considerable movable properties in the form of shares, debentures and fixed deposits and immovable property known as Avasia House in her sole name at Nepean Sea Road, Mumbai. During her lifetime, she had allegedly executed a will dated 2-5- 1997. The only legal heirs entitled to her property in the event of her intestacy were the assessee, being the son of a pre-deceased sister of the deceased, and Mr. Dinshaw Jamshedji Mistry, being brother of the deceased. Under her will dated 2-5-1997, the deceased had bequeathed all her properties to her brother Mr. Dinshaw Jamshedji Mistry (DJM), who was also appointed as one of the executors in the will. There were three executors to the will but the other two (other than Mr. Dinshaw Mistry) renounced their executorship. DJM filed a petition before the Bombay High Court for grant of probate of the last will of the deceased. The assessee, as a legal heir of the deceased, received a citation from the Bombay High Court in the petition for grant of probate in respect of the last will of the deceased. The assessee filed a caveat against the grant of probate in respect of the last will of the deceased. In the affidavit filed in support of the caveat the assessee set out reasons as to why the alleged will was not valid. On such objection, the petition for grant of probate was converted into a testamentary suit. The Bombay High Court restrained DJM from dealing with the properties of the deceased. On 28-9-2002, DJM died leaving behind his will dated 29-10-2001 appointing Mr. Rajesh K. Bhavsar (RKB) as the sole executor and legatee. RKB got himself impeded as plaintiff in place of DJM in the testamentary suit for grant of probate of the last will of the deceased.

RKB and the assessee entered into a compromise agreement dated 22-11-2002, whereby the assessee agreed to receive a sum of Rs.5,08,80,000 in consideration for agreeing to the Court granting probate in respect of the last will of the deceased. This sum of Rs.5,08,80,000 was later reduced by Rs.30,00,000 and the sum of Rs.4,78,80,000 was received by the assessee in the following manner:

F.Y. 2003-04 : Rs.1,04,77,032 by various cheques
F.Y. 2005-06 : Rs.3,73,95,335 by various cheques
F.Y. 2006-07 : Rs.7,633 by cash

RKB and the assessee had on 12-12-2002 signed consent terms which consent terms were identical to the agreement dated 22-11-2002. The Court recorded the consent terms and modified the earlier order restraining DJM from alienating any part of the estate of deceased and permitted RKB to alienate some of the properties to enable him to raise funds to discharge the obligation to pay the assessee. The assessee on receipt of the agreed sum was to withdraw his caveat to enable issue of letters of administration with the Will annexed in respect of the estate of the deceased.

The assessee did not offer these amounts for taxation in the A.Y. 2006-07. The AO taxed on substantive basis the sum of Rs.3,73,95,335 (in the year of receipt) and the sum of Rs.1,04,77,032 (received in previous year relevant to A.Y. 2004-05 on a protective basis).

Aggrieved the assessee preferred an appeal to the CIT(A) who confirmed the order of the AO.

Aggrieved the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted section 56(2)(v) has been introduced w.e.f. 1-9-2004. Thus, prior to 1-9-2004, receipts of any sum of money would not be income u/s.56(2)(v). A sum of Rs.1,04,77,032 was received between 3-4-2003 to 14-10-2003. Therefore, these receipts could not be taxed as income u/s.56(2)(v). As regards the sum of Rs.3,73,95,334, the Tribunal held that the sum in question was received by the assessee in consideration of giving up his rights to contest the will of late Mrs. Mani Cawas Bamji. The consideration referred to in the provisions of section 56(2)(v) of the Act have to be understood as per the definition of consideration as given in the Indian Contract Act, 1872 in section 2(d). The assessee has abstained from contesting the will and this constitutes the consideration for payment by RKB to the assessee. Thus, the amount received by the assessee is not without any consideration. Therefore the provisions of section 56(2)(v) were not applicable. The additions made by the AO were directed to be deleted.

The appeal filed by the assessee was allowed.

Facts:
The
assessee company, engaged in the business of providing IT-enabled
services and BPO services, e-filed its return of income declaring total
income of Rs.98,90,146 and claiming therein a refund of Rs.22,76,152.
The Assessing Officer in an order passed u/s.143(3) assessed the total
income to be Rs.98,90,146. While calculating the amount of tax payable
by the assessee/refund due to it, the AO in form ITNS 150A granted
credit for TDS and advance tax as claimed by the assessee, but did not
grant credit of Rs.8,38,764 claimed by the assessee u/s.90 and u/s.91 of
the Act.

Aggrieved, the assessee preferred an appeal to the
CIT(A) who held that the appeal was not maintainable since he was of the
view that section 246A did not permit such issues within its ambit.
Referring to the provisions of section 246A(1) (a), he held that the
reference to ‘tax’ is only for calculation of tax on total income and
not beyond that. He also made a reference to the definition of ‘tax’
u/s.2(43) and held that since the assessee was not challenging the
calculation of tax on total income, the grounds raised were several
steps beyond this calculation. He held that the issue of granting of
credit for advance tax or TDS could not be agitated in an appeal.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The
Tribunal noted that the AO had in form ITNS 150A not granted credit of
withholding tax of Rs.8,38,764 u/s.90/91 and also that he had left the
column 18 of ITNS-150A, which specifically provides for DIT relief
u/s.90/91, blank. Upon going through the provisions of section
246A(1)(a) of the Act, the Tribunal observed that the assessee’s case
can be considered only under the second part of section 246A(1)(a) viz.
‘to the amount of tax determined’ and not under the remaining parts as
non-granting of benefit in respect of withholding tax u/s.90 /91 can
neither be considered as ‘the income assessed’, nor ‘the loss computed’,
nor ‘the status under which he is assessed’. Having so observed the
Tribunal proceeded to examine whether non-granting of refund in respect
of withholding tax u/s.90/91 can be considered under the expression
‘amount of tax determined’ and held:

(1) From the ratio
decidendi of the decisions of SC, in the case of Auto and Metal
Engineers and Others v. Union of India and Others, 229 ITR 399 (SC) and
Kalyankumar Ray v. CIT, 191 ITR 634 (SC), it is discernible that the
‘determination of tax’ refers to finding out the amount finally payable
by the assessee for which notice of demand is issued.

(2) The
expression ‘amount of tax determined’ in section 246A(1)(a) also refers
to the determination fo the sum finally payable by the assessee. Not
only the calculation of tax on the total income but also the adjustment
of taxes paid by or on behalf of the assessee is also covered within the
determination of sum payable by the assessee u/s.156 of the Act.

(3)
The expression ‘amount of tax determined’ as employed in section
246A(1)(a) encompasses not only the determination of the amount of tax
on the total income but also any other thing which has the effect of
reducing or enhancing the total amount payable by the assessee. As the
question of not allowing relief in respect of withholding tax u/s.90/91,
has the direct effect of reducing the refund or enhancing the amount of
tax payable, such an issue is squarely covered within the ambit of
section 246A(1)(a).

(4) Accepting the view-point of the CIT(A)
that the appeal is not maintainable in respect of non-allowing of relief
for tax withheld u/s.90/ 91 would amount to violating the language of
section 246A, which has otherwise given the right to the assessee to
appeal broadly against on any aspect of the ‘amount of tax determined’.

(5)
The CIT(A) was not justified in dismissing the appeal of the assessee
as not maintainable on the aspect of not allowing of credit by the AO of
tax withheld on behalf of the assessee u/s.90 and 91. The AO was
directed to modify ITNS 150A and grant the consequential refund due,
which has not been allowed.

The appeal filed by the assessee was allowed.

The Tribunal also held in favour of the assessee. The Tribunal noted as under:

(1) The assessee is a broker as well as an investor. It has maintained the investment portfolio separately, income from which was liable to be taxed as capital gains, since the intention in respect of this was to hold the investment as investment only and was shown as such in the books of account and income therefrom was shown and treated as capital gains in the successive assessments.

(2) The schedule of investments was duly appended in the balance sheet.

(3) The assessee has also maintained separate D-mat accounts for investment and for trading. Therefore, the assessee has distinctly maintained investment account and trading account.

(4) The assessee was holding certain stock for the purpose of doing business of buying and selling and at the same time it was holding other shares as its capital for the purpose of dividend income.

Therefore, the CIT(A) has rightly held that the income is to be treated as capital gains and not as business income.

For the relevant assessment year, certain additions were made by the Assessing Officer against which the assessee filed an appeal. The CIT(A) considered the issue in great detail and passed an elaborate order in favour of the assessee. Aggrieved by this, the Department preferred an appeal before the Tribunal. The Tribunal passed a short order since it was in agreement with the CIT(A)’s order.

The Department filed a miscellaneous application on the ground that the Tribunal was not justified in passing a short order without elaborating on the issues and, thus, it gives rise to a ‘mistake apparent from record’ since it has to be presumed that the Tribunal has not applied its mind on the contentions and issues raised by the Department. In this regard, the applicant has taken a support from para 11 of the guidelines issued by the then President of the Tribunal.

Rejecting the miscellaneous application, the Tribunal observed as under:

(1) Internal guidelines issued by the then President were only to prod the Members to give detailed reasons, as far as practicable, implying thereby that whenever an order of the lower forum is based on two reasons out of which an Appellate Authority agrees only with one reason which would ultimately have an effect of upholding the order of the lower authority, it is the duty of the Tribunal to give detailed reasons to satisfy as to the basis for coming to such conclusion. In a given case, where the appellant raises some additional issues and relies upon some additional case laws which were not considered by the lower authority, even though they are not applicable to the facts of the instant case, the Tribunal may have to give its reasons rejecting such arguments while upholding the order of the CIT (A).

(2) However, when the facts and circumstances are not disputed before the Tribunal and no additional arguments were advanced by the learned Departmental Representative and, in addition to that, when the Tribunal is fully agreeing with the reasons given by the learned CIT(A), as rightly observed by the Apex Court in the case of K. Y. Pilliah & Sons (1967) 63 ITR 411 (SC), it may not be necessary to repeat the reasons given by the first Appellate Authority and an order passed by the Tribunal under such circumstances cannot be said to be illegal.

(3) In para 3 of the order of the Tribunal this Bench has specifically observed that it was in agreement with the reasons given by the CIT (A). Thus, mere non-production of the reasons and the conclusions of the CIT(A) in the body of the order of the Tribunal do not give rise either to a mistake of law or fact, nor can it be considered as an irregular order.

Facts:
The appellants had entered into a ‘Marketing agreement’ with its joint venture to sell, distribute, market, advertise and promote the products of joint venture. The appellants had a belief that the services rendered by them during the period 1-7-2003 to 8-7-2004 were of a commission agent and were fully exempt under Notification No. 13/2003-S.T., dated 20-6-2003. Therefore, they did not pay any Service tax on the services rendered by them. However, the said Notification was withdrawn w.e.f. 9-7-2004 and as a consequence of which the appellants got themselves registered with the Service Tax Department in August 2004.

The Revenue contended that the services provided by the appellants were taxable under business auxiliary service and benefit of exemption Notification cannot be availed as the appellants were not the commission agents. Commission agent meant a person who causes sale or purchase of goods on behalf of another person for a consideration. The commission agents usually charge a fixed percentage of sale price, but the appellants were not charging a fixed percentage. Additionally, the scope of activities undertaken by the appellants is far beyond the activities of commission agent and fall within the purview of definition of business auxiliary service.

The extended period of limitation was invoked. However, the appellants contended that the limitation of five years cannot be invoked as the intention of the appellants was bona fide since they had immediately registered themselves when the relevant exemption Notification was withdrawn.

Held:
The services were to be taxable under business auxiliary service. However, due to reasonable cause for failure to pay Service tax, the penalties levied on the appellants were set aside. Further, the matter was remanded for quantification of demand within the period of limitation.

Facts:
The assessee sold a property, being a flat, for consideration of Rs.1.68 crore. The assessee acquired the property at Rs.46.38 lakh on 27- 12-1990. However, he got the possession of the property only on 6-1-1992 and that too after paying the tenant Rs. 18,00,000 to vacate the same.

The Assessing Officer was of the view that since the assessee got possession only on 6-1-1992, it could be said that the assessee held the property from that date in view of section 48. The AO, accordingly, calculated the indexed cost of acquisition and capital gains. AO also disallowed the payment made to the tenant for vacating the property which was claimed by the assessee as indexed cost of improvement.

On appeal, the CIT(A) upheld the assessment order.

Held:
(1) Assets which are referred under the capital gains include not only the property which is tangible, but also intangible rights whose physical possession cannot be taken. The word ‘held’ used in the Explanation (iii) to section 48 does not mean physical ownership or physical possession of the property, but it refers to ownership rights only.

(2) The ownership has been passed by virtue of the agreement. Possession of property was delayed only due to the adverse possession of a tenant which subsequently got vacated and so, the assessee was deemed to be holding the property with effect from the agreement date. Accordingly claim of indexation from 27-12-1990 was correct.

(3) Further the assessee was entitled to consider the amount paid to the tenant as cost of improvement.

(2) The assessee had filed NIL return, claiming exemption u/s.11.

(3) The Assessing Officer denied the benefits u/s. 11 and u/s.12 on two grounds, namely:

(a) Hospital charges were on higher side and were comparable to hospitals run on commercial basis, and

(b) The alleged subsidised treatment was only given to doctors, relatives/friends of the doctors and employees of the hospital.

(4) On appeal, the assessee proved the facts to the satisfaction of the CIT(A) that its charges were in line with those hospitals who were claiming benefits of sections 11 and 12 and also that the patients have come from farflung areas and that the second ground was altogether baseless. Consequently the CIT(A) set aside the order passed by the AO. Thereupon the Revenue went into second appeal.

Held:

(1) Profitability is not the sole criterion to assess the charitable nature of a society. Charitable activity can also result in profits and that does not conclude that the activity carried on was not charitable in nature.

(2) Further, profits accruing to the society were utilised for charitable purpose only, which was also affirmed by the AO.

(3) Thus, the appeal of the Revenue was dismissed.

Section 54F — exemption u/s.54F can be claimed in respect of deemed long-term capital gain u/s.54F(3) arising on transfer of new house if net consideration thereof is again invested in purchase of a residential house within a period of two years.

On 5-5-2005 the assessee sold land held by him as long-term capital asset, for a consideration of Rs.81 lakh. On 1-10-2005, the assessee invested Rs.75 lakh in purchase of new house property at Alwarpet. In A.Y. 2006-07, the assessee claimed Rs.73,94,157 to be exempt u/s.54F of the Act, which was allowed. On 13-11-2006, the assessee sold the house purchased at Alwarpet for a consideration of Rs.50 lakh and purchased another residential house at Spur Tank Road on 15-11-2006 for Rs.70,80,620. The Assessing Officer (AO) while assessing the total income for A.Y. 2007-08 held that the long-term capital gain of Rs.73,94,157 claimed to be exempt u/s.54F in A.Y. 2006-07 was to be withdrawn in A.Y. 2007-08. According to the AO, the assessee suffered a capital loss of Rs.25 lakh on sale of house property situated at Alwarpet and therefore, allowing set-off of such loss, he brought to tax the balance amount of Rs.48,94,157. Aggrieved the assessee preferred an appeal to the CIT(A) who allowed the appeal. Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:

The Tribunal after considering the provisions of section 54F(3) of the Act held that the AO was justified in treating Rs.73,94,157 as long-term capital

Section 54 —  exemption u/s.54 can be claimed when under a development agreement an assessee exchanges his old flat for a new flat. Such acquisition amounts to construction of new flat and therefore time period of 3 years is available for such acquisition.

Vide development agreement dated 8-7-2005 the assessee surrendered his flat of carpet area 866 sq.ft. to the builder and in lieu thereof was allotted new flat of carpet area 1040 sq.ft. and also given cash compensation of Rs.11,25,800. The cash compensation was invested by the assessee in REC bonds and was claimed to be exempt u/s.54EC. Since the assessee had acquired new flat in lieu of the old flat, capital gain arising on account of the transfer of the old flat was claimed to be exempt u/s.54 of the Act. The assessee submitted that the capital gain computed at Rs.55,91,866 was less than the value of the new flat and, therefore, the same was exempt u/s.54 of the Act.

The AO held that the assessee had neither purchased, nor constructed the new flat and therefore was not eligible to claim exemption u/s.54. He denied the claim u/s.54. He computed sale consideration of old flat to be Rs.86,96,760 comprising Rs.75,64,960 being market value of the new flat and Rs.11,25,800 being cash compensation. After deducting indexed cost of acquisition from the sale consideration, he computed the long-term capital gains to be Rs.55,91,866.

Aggrieved the assessee preferred an appeal to the CIT(A) who confirmed the disallowance u/s.54. Aggrieved the assessee preferred an appeal to the Tribunal.

Held:

The Tribunal held that acquisition of a new flat under a development agreement in exchange of the old flat amounts to construction of new flat. This view was also taken in the case of ITO v. Abbas Ali Shiras, (5 SOT 422). The Tribunal held that the provisions of section 54 are applicable and the assessee is entitled to exemption if the new flat had been constructed within a period of 3 years from the date of transfer. Since cash compensation was part of consideration for the transfer of old flat and the assessee had invested money in REC bonds, the exemption u/s.54EC will be available. Since the longterm capital gain computed by the AO including cash compensation as part of sale consideration was much below the cost of new flat and therefore, the cash component was also held to be exempt u/s.54. The Tribunal noted that to substantiate the completion of new flat within 3 years the assessee had filed a copy of letter dated 30-5-2007 of the builder in which it was mentioned that the builder had applied for occupation certificate and possession was given on 14-6-2007. This letter was not available with lower authorities. The exact date of taking possession of the flat was also not clear. The Tribunal directed the AO to verify these facts.

The Tribunal held that the assessee is entitled to exemption u/s.54, subject to verification of the date of taking possession by the assessee. The Tribunal decided this ground of appeal in favour of the assessee.