Category: Tribunal News: Part A-Domestic Taxation

Facts
The assessee-company was a member of the Bombay Stock Exchange and engaged in the business of share broking, trading and dealing in shares and securities

The assessee had claimed set-off of brought forward short term capital loss against the long term capital gains during the relevant assessment year.

The AO opined that loss arising from transfer of shortterm capital assets (on which STT is paid) was assessed at 15 per cent tax rate while the long-term capital gain was assessed at 20 per cent tax rate and hence it could not be set-off in view of section 70(3).

The CIT(A) upheld the order of AO.

On appeal before Tribunal.

Held
Section 70 deals with the set-off of losses from one source against the income from another source under the same head of income and deals with intra-head adjustment of losses during the same assessment year under the different heads of income.

On the other hand, section 74 which deals with the carry forward of capital losses and set-off against the income of the subsequent financial year, clearly stipulates that loss arising from transfer of short-term capital asset which is brought forward from earlier years, can be set-off against the capital gain assessable for subsequent assessment year, in respect of any other capital asset which could be either long-term capital gain or short-term capital gain.

Circular no. 8 of 2002, dated 27-08-2002 issued by CBDT explains the amendment made by the Finance Act, 2002 as follows:

“Since long-term capital gains are subject to lower incidence of tax, the Finance Act, 2002 has rectified the anomaly by amending the sections to provide that while losses from transfer of short-term capital assets can be set-off against any capital gains, whether short-term or long-term, losses arising from transfer of long-term capital assets, will be allowed to be set-off only against long-term capital gains. It is further provided that a long term capital loss shall be carried forward separately for eight years to be set-off only against long-term capital gains. However, a short-term capital loss, may be carried forward and setoff against any income under the head Capital gains”.

Thus, in view of our above discussions and reasoning, it was held that the assessee had rightly claimed set-off of brought forward short term capital loss against the long term capital gains during the relevant assessment year.

In result, the appeal filed by the assessee-company was allowed and the orders of CIT-(A) and AO were set aside.

Facts
During the relevant assessment year, the assessee, his son and daughter had overdrawn certain amount from a company in which the assessee was a substantial shareholder holding 41% of shares. The son and daughter were not shareholders in the company.

The AO treated the aforesaid amount overdrawn by the assessee and his son and daughter from the company as deemed dividend u/s. 2(22)(e) and added the same in the income of the assessee.

The CIT(A) held that the deemed dividend could be taxed only in the hands of shareholder holding more than 10% voting power in the company from which monies are drawn. He therefore deleted the addition made towards deemed dividend in respect of the amount overdrawn by the son and daughter, as they were not shareholders of company.

However, he confirmed the addition made towards deemed dividend in respect of the amount overdrawn by the assessee by ignoring assessee’s contention that there was only negative accumulated profits, if the tax exempt long term capital gain was excluded from accumulated profits.

On cross appeals to the Tribunal:

Held
In respect of amount overdrawn by son and daughter
Both the son and daughter of the assessee are not shareholders in the lending company. The deemed dividend, if any, could be assessed only in the hands of the shareholders and not otherwise. This argument was taken by the assessee even before the lower authorities and the revenue has not brought on record any contrary evidence to this fact. Hence, the provisions of section 2(22)(e) could not be invoked in respect of amount overdrawn by the son and daughter.

In respect of amount overdrawn by assessee
The legal fiction created in the Explanation 2 to section 2(22) states that ‘accumulated profits’ shall include all profits of the company up to the date of distribution or payment. For reckoning the said accumulated profits, apart from the opening balance of accumulated profits, only the profits earned in the current year are to be added and then the total accumulated profits should be considered for the purpose of calculation of dividend out of accumulated profits, if any. The said Explanation nowhere contemplates to bring within the ambit of expression ‘accumulated profits’ any capital profits which are not liable to capital gains tax.

In the instant case, the capital gains derived by the company are tax exempt and hence, the same should not be included in accumulated profits and if the said gains are excluded, then there are only negative accumulated profits available with the company.

In the absence of accumulated profits, there is no scope for making any addition towards deemed dividend u/s. 2(22)(e).

Accordingly, the ground raised by the assessee is allowed and appeal of the revenue is dismissed.

Note: Reliance was placed on CIT vs. Mangesh J. Sanzgiri [1979] 119 ITR 962 (Bom. HC) and ACIT vs. Gautam Sarabhai Trust No. 23 [2002] 81 ITD 677 (Ahd. Trib).

Facts
The assessee company was engaged in generation, transmission and distribution of power in the State of Himachal Pradesh. It purchased/sold power from PGCIL and was also selling power to consumers. Power was transmitted through transmission network of PGCIL and assessee made payments on account of wheeling charges, SLDC, transmission charges to PGCIL. In respect of payments made by the assessee to PGCIL, during the financial years 2006-07 to 2009-10, the assessee company was liable to deduct tax at source, but did not deduct tax at source.

Since PGCIL was found to have paid taxes on its income received from the assessee, the assessee was not treated as an assessee-in-default u/s. 201 of the Act. However, the AO levied penalty u/s. 271C of the Act amounting to Rs.1,36,00,187; Rs., 2,48,13,453; Rs.2,76,67,625 and Rs.5,71,017 for the financial years 2006-07, 2007-08, 2008-09 and 2009-10 respectively. He held that there was no reasonable cause for the deductor assessee not to deduct tax at source. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held
The Tribunal, having noted the provisions of section 271C of the Act and also the ratio of the decision of the Karnataka High Court in the case of Remco (BHEL) House Building Co-operative Society Ltd. vs. ITO (2015) 273 CTR 57 (Kar), and observed that the assessee has not been treated as “assessee in default” as per section 201 of the Act, and is therefore neither liable to deduct nor pay any tax as per Chapter XVII-B. It held that in such circumstances, the question of levy of penalty u/s. 271C does not arise. It observed that this view has been upheld by the Hyderabad Bench of the Tribunal, in the case of ACIT vs. Good Health Plan Ltd. in ITA No. 155/Hyd/2013, wherein penalty levied u/s. 271C was deleted, since the assessee was not held to be an assessee in default. The Tribunal held that no penalty u/s. 271C could be levied in the case of the assessee.

The Tribunal also observed, that the fact that the tax on impugned sums had been reimbursed to PGCIL had not been controverted by the Revenue. It held that in such circumstances, the belief harboured by the assessee that by deducting further TDS, it would tantamount to double taxation, appears to be a reasonable and bonafide belief. It considered the explanation of the term “reasonable cause” as explained by the Delhi High Court in the case of Woodward Governor India (P.) Ltd. vs. CIT (2001) 168 CTR 394 (Del), and held that there is no merit in the contention of the Department Representative (DR) that the assessee did not have reasonable cause for not deducting tax at source.

The Tribunal held that the assessee not being in default in respect of the amount of tax itself, there cannot be any levy of penalty u/s. 271C, and more so, where there was a reasonable cause for not deducting the TDS on the payment made.

This ground of appeals filed by the assessee was allowed.

Facts – I
The Assessing Officer (AO) in the course of assessment proceedings, noticed that the assessee had not deducted tax at source on interest amounting to Rs. 2,52,043 paid to various depositors and also on Rs. 1,44,000 paid towards car hire charges. He disallowed both these expenses u/s. 40(a)(ia) of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where it contended that the second proviso is curative in nature, intended to supply an obvious omission, take care of unintended consequence and make the section workable and is therefore retrospective.

Held – I
The Tribunal noted that the contention made on behalf of the assessee is supported by the decision of the ITAT , Kolkata Bench in the case of Santosh Kumar Kedia vs. ITO in ITA No. 1905/Kol/2014 for AY 2007-08; order dated 4.3.2015. It observed that the Delhi High Court in the case of CIT vs. Ansal Landmark Township Pvt. Ltd. (377 ITR 635) has also taken the similar view. The Tribunal restored this issue to the file of the AO, with the direction that the assessee shall provide all details to the AO with regard to the recipients of the income and taxes paid by them. The AO shall carry out necessary verification in respect of the payments and taxes of such income and also filing the return by the recipient. In case, the AO finds that the recipient has duly paid the taxes on the income, the addition made by the AO shall stand deleted.

This ground of appeal filed by the assessee was allowed.

Facts – II
The assessee had credited Rs. 10,20,430 to its Profit & Loss Account being profit on sale of godown on which it had been claiming depreciation from year to year. The AO was of the view that salary paid to partners is not to be paid on these profits. He excluded profit on sale of godown for the purposes of computation of remuneration to partners. Accordingly, he recomputed the partners remuneration and disallowed Rs. 3,60,540 out of Rs. 5,40,000 claimed by the assessee as salary paid to the partners.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.

Held – II
The Tribunal considered the provisions of section 40(b)(v) which lay down the maximum quantum of remuneration payable to partners and also Explanation 3 thereto which defines “book profit”. It held that from the Explanation 3, it is apparent that the book profit has to be the profit as has been shown in the profit & loss account for the relevant previous year. It observed that the profit received by the assessee on sale of godown amounting to Rs. 10,20,430 was credited to Profit & Loss Account as prepared by the assesse and was part of net profit as shown in profit & loss account. Both the authorities below did not appreciate the provisions of section 40(b)(v), Explanation 3 and misinterpreted definition of “book profit” as given under Explanation 3 to section 40(b) of the Act. It observed that this view is supported by the decision of the Calcutta High Court in the case of Md. Serajuddin & Brothers vs. CIT (2012 – TIOL- 593- HC – CAL) as well as the following decisions –

i) Suresh A. Shroff & Co. (Mum) (2013) 140 ITD 1;

ii) CIT v. J. J. Industries – (2013)(Guj.) 216 Taxman 162;

iii) S. P. Equipment & Services vs. ACIT – (Jaipur)(2010) 36 SOT 325;

iv) ITO vs. Jamnadas Muljibhai – 99 TTJ 197 (Rajkot);

v) Deepa Agro Agencies vs. ITO – 154 Taxman 80 (Bang. Trib.);

vi) Allen Career Institution vs. Addl CIT – (2010) 37 DTR 379 (Jp)(Trib.);

vii) ACIT vs. Bilawala & Co. – 133 TTJ 168 (Mum.)(Trib.)

The Tribunal allowed this ground of appeal filed by the assessee.

Facts
The assessment of total
income of the assessee company was completed by the Assessing Officer
(AO) vide his order dated 28th December, 2010 passed u/s. 143(3) of the
Act. Subsequently, the AO passed an order, dated 24th February, 2014, to
give effect to an order dated 6th February, 2013 passed u/s. 263 of the
Act.

Aggrieved by the additions made in the order dated 6th
February, 2013 passed u/s. 143(3) r.w.s. 263 of the Act, the assessee
preferred an appeal to the Tribunal.

Held
The
Tribunal observed that the assessee company has preferred a first appeal
directly before the Tribunal against order passed u/s. 143(3) r.w.s.
263 of the Act. The Tribunal noticed that an appeal against an order
passed u/s. 143(3) r.w.s. 263 lies with the CIT(A), u/s. 246A(1)(a) of
the Act, being an order passed u/s. 143(3) and not with the Tribunal
under section 253. Referring to the decision of the Apex Court in the
case of CIT vs. Ashoka Engineering Co. (1992) 194 ITR 645 (SC), it
observed that an appeal under the Act is a statutory right which
emanates only from the statute. The assessee does not have a vested
right to appeal, unless provided for in the statute.

The
Tribunal held that it cannot adjudicate the appeal filed by the
assessee, and that the assessee is at liberty to file an appeal before
the CIT(A) u/s. 246A(1)(a) of the Act, for adjudication on merits. It
also observed that while adjudicating the condonation application, the
CIT(A) shall liberally consider the fact that in the intervening period,
the assessee company was pursuing the appeal with the Tribunal, albeit
at the wrong forum with the Tribunal, instead of filing the first appeal
with the CIT(A) as provided in the Act.

The appeal filed by the assessee was dismissed.

Facts:
In the case of the assessee, proceedings for levy of penalty u/s. 271E were initiated in assessment order dated 28th December, 2007. Aggrieved by the assessment order the assessee preferred an appeal to the CIT(A) on various grounds. The appeal filed by the assessee was dismissed by the CIT(A). Upon dismissal of the appeal filed by the assessee, the Assessing Officer (AO) referred the matter regarding levy of penalty u/s. 271E to the Ad ditional Commissioner. The Additional Commissioner passed an order levying penalty u/s. 271E on 20th March, 2012.

Aggrieved by the levy of penalty, the assessee preferred an appeal to CIT(A) who quashed the order levying the penalty on the ground that it is barred by limitation.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the Delhi High Court has in the case of CIT vs. Worldwide Township Projects Ltd. 269 CTR 444 (Del) held that section 275(1)(c) will apply to cases of penalty for violation of section 269SS. The Tribunal held that the date on which CIT(A) had passed order in quantum proceedings had no relevance as it did not have any bearing on the issue of penalty. The Tribunal held that the CIT(A) had rightly held that the penalty order passed by the AO was barred by limitation as the penalty order was passed beyond six months from the end of the month in which penalty proceedings were initiated in the month of December 2007 and penalty order was thus required to be passed in before 30th June, 2008 whereas the penalty order was passed on 20th March, 2012.

Facts :
In the case of the assessee, the assessment of undisclosed income was completed and the amount of tax payable was computed @ 67.2% i.e. applying the rate of 60% plus surcharge thereon @ 12% as per proviso to section 113.

In the course of appellate proceedings before CIT(A), the assessee took an additional ground and contended that the proviso to section 113 was introduced by the Finance Act, 2002. Till 31st May, 2002 section 113 did not have a proviso levying surcharge on income-tax. The assessee contended that the proviso is prospective and does not apply to his case where search was carried on 16.11.1999. Accordingly, the assessee is not liable to pay surcharge levied by proviso to section 113. Reliance was placed on the Special Bench decision in the case of Merit Enterprises vs. DCIT 101 ITD 1 (Hyd)(SB). The CIT(A) decided the case against the assessee by following the decision of Supreme Court in the case of CIT vs. Suresh N. Gupta 297 ITR 322 (SC) wherein it held that the proviso was clarificatory and curative in nature. The assessee did mention that in the case of CIT vs. Vatika Township (P) Ltd. 314 ITR 338 (SC) the issue had been referred by the Division Bench to the Larger Bench of the Supreme Court.

Before the Tribunal, while arguing the Cross Objection filed by the assessee, it was pointed out that the issue has been referred to the Larger Bench of the Supreme Court. However, the Tribunal following the decision of the Supreme Court in the case of CIT vs. Suresh N. Gupta (supra) decided the issue against the assessee.

Subsequently, the Larger Bench of the Supreme Court in the case of CIT vs. Vatika Township (P.) Ltd. 49 taxman. com 249(SC) reversed the decision of the Division Bench of the Supreme Court in the case of CIT vs. Suresh N. Gupta and held that the proviso was prospective and not clarificatory. The assessee filed Miscellaneous Application requesting the Tribunal to correct the view taken while deciding the Cross Objection by relying on a Supreme Court decision decided after the Cross Objection was decided.

Held:
The Tribunal noted that the order of the Supreme Court in the case of Vatika Township (P.) Ltd. (supra) was pronounced after the decision of the Tribunal. However, it observed that the order of the Supreme Court laid down the law of the land as it existed since the inception of the enactment. It noted that the Supreme Court has in the case of Saurashtra Kutch Stock Exchange 305 ITR 227 (SC) held that even a subsequent decision of the Supreme Court is binding on the Tribunal and if the decision of the Tribunal is contrary to the subsequent decision of the Supreme Court such decision of the Tribunal gives rise to a mistake apparent which needs to be rectified.

The Tribunal allowed the application filed by the assessee.

Facts :
While assessing the total income of the assessee, an individual, the Assessing Officer (AO) held that the assessee had not properly explained the source of cash deposits. He, accordingly, made certain additions on account of cash deposits.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the appeal filed by the assessee.

Aggrieved, the Revenue preferred an appeal to the Tribunal. The tax effect of the appeal filed was less than Rs. 4,00,000. The appeal was filed on 15.5.2013. Vide CBDT Instruction No. 5 of 2014 the threshold limit for filing appeal to Tribunal was fixed at Rs. 4,00,000. The Bench noticed that the Revenue ought not to have filed the appeal since the tax effect was less than Rs. 4,00,000. The DR argued that the appeal was filed before issuance of Instruction No. 5 of 2014, and therefore, the said instruction is not applicable to the present case.

Held:
The Tribunal noted that section 268A has been inserted by the Finance Act, 2008 with retrospective effect from 1.4.1999. It also noticed that CBDT has vide Instruction No. 5 of 2014 fixed the threshold of tax effect for filing appeal by the Revenue to the Tribunal to be Rs. 4,00,000. Accordingly, it held that the circular is applicable for pending cases also and therefore, the Revenue should not have filed the appeal before the Tribunal. It fortified its decision by the following decisions of the Hon’ble Punjab & Haryana High Court:

1 CIT vs. Oscar Laboratories P. Ltd. (2010) 324 ITR 115 (P & H)
2 CIT vs. Abinash Gupta (2010) 327 ITR 619 (P & H)
3 CIT vs. Varindera Construction Co. (2011) 331 ITR 449 (P & H)(FB)

It also noted that the Delhi High Court in the case of CIT vs. Delhi Race Club Ltd. in ITA No. 128/2008, order dated 3.3.2011 has following its earlier order dated 2.8.2010 in ITA No. 179/1991 in the case of CIT Delhi-III vs. M/s P.S.Jain & Co. held that such circular would also be applicable to pending cases.

The appeal filed by the Revenue was dismissed.

Income cannot be said to have deemed to accrue or arise in India when the assessee pays commission to non-resident for the services rendered outside India and the non-resident does not have a permanent establishment in India. Consequently, section 195 is not attracted and so the assessee is not liable to deduct TDS from the said payment.

FACTS
The assessee exported granite to USA and paid commission on export sales made to a US company but it did not deduct tax u/s. 195.

The Assessing Officer held that the sales commission was the income of the payee which accrued or arose in India on the ground that such remittances were covered under the expression fee for technical services’ as defined u/s. 9(1)(vii)(b). He thus held that the assessee was liable deduct tax u/s. 195 and he was in default u/s. 201(1) for tax and interest.

On Appeal, CIT (Appeals) held that commission does not fall under managerial, technical or consultation services and therefore, no income could be deemed to have accrued or arisen to the non-resident so as to attract provisions of withholding tax u/s. 195.

On Appeal-

HELD THAT
The order of CIT(A) was to be upheld as the non-resident recipients of commission rendered services outside India and claimed it as business income and had no permanent establishment in India. Thus, provisions of section 9 and section 195 were not attracted.

Section 80-IB – Assessee engaged in development of Geographical Information System software, claimed deduction u/s. 80IB –AO and CIT(A) denied deduction u/s. 80IB holding that the assessee was not engaged in the manufacture or production of any article– Tribunal held that the software came into existence after carrying on several processes and was transferred only on completion of the said processes. When transfer of property is an ongoing process at each stage of work, then it will amount to provision for services. The fact that software is produced on a platform not owned by the assessee is irrelevant, when what is being transferred by the assessee is not the platform but the end product and hence assessee was held eligible for deduction u/s. 80-IB.

The assessee was engaged in the business of development of Geographical Information System (GIS) software for municipality. And it was undisputed fact that the assessee was engaged in the business of development of customised software on job work basis. The process of development of GIS software involved collection of maps in paper form from municipality. The maps were then digitised by the assessee and also demographic features, geographical features and other infrastructure available in particular areas were incorporated. The maps so prepared were then integrated into software solution to attach further attribute, information and to provide reports and analytical options to the municipalities. The assessee had claimed deduction u/s 80-IB in respect of his business income.

The Assessing Officer had disallowed claim of deduction u/s. 80-IB on the ground that the customised software developed by the assessee was not manufacture of articles or things. The CIT (A) had upheld the order of the Assessing Officer. The Tribunal, relying on decision of Supreme Court in case of CIT vs. Oracle Software India Ltd., (2010) 320 ITR 546, had held that if a process renders a software usable for which it is otherwise not fit then the said process can be termed as manufacture. However, Tribunal was also of the opinion that if one party engages another party to create an item of property that the first party will own from the moment of its creation, then no property will have been acquired by the first party from the other and the transaction should be characterised as the provision of services. However, in case of customised software when the originally developed software is owned by the developer and not by the receiver of such software prior to its transmission then the consideration paid by the receiver is towards the software and not towards the intellectual skills employed by the software developer and in such cases the developer can be held as engaged in manufacture of a customised software and thereby be entitled to deduction u/s. 80IB. Hence Tribunal remitted the matter to the Assessing Officer to show the point of time at which the client of the assessee acquired property in the software, developed by the assessee.

The Assessing Officer, in remand proceedings, expressed the view that since basic area maps were the material on the basis of which the software was developed, and since basic area maps always belonged to the client, it was a case of provision of services. The Commissioner (Appeals) also confirmed the view of the Assessing Officer. Aggrieved, the assessee filed appeal before Tribunal again.

Held:

On demonstration of this software in court, it was noticed that what was produced by the assessee was not a mere compilation of map simplictitor but a much value added product that produced a variety of information which was big help in efficient administration of the municipal work.

The software, came into existence after carrying on several processes, and it was only on completion of these processes, the property in the product could be transferred to the client and the mere fact that one of the inputs was owned by the client itself, did not mean that the property in the product never belonged to the assessee. The transfer of property was therefore not an ongoing process at each stage of work as it is in the case of a provision of services and therefore assessee was held eligible for deduction u/s. 80-IB.

The Tribunal also held that, though the basic inputs (area maps) were given by the client, i.e. the municipality itself, but the product was much more than the compilation of the input and the fact that was being produced, was on a platform (basic inputs) not owned by the assessee, was irrelevant, inasmuch as what was being transferred by the assessee was not the platform but the end product.

The assessee, an individual, was in employment of a Singapore Company (ESM-S) and worked on merchant vessels and tankers plying on international routes. The assessee’s stay in India in the relevant previous year, was less than 182 days, and so the residential status of the assessee is ‘non-resident’. In the income tax return filed by the assessee, the salary received from ESM-S was not offered to tax on the grounds that his salary income was accruing and arising outside India. As for the salary income being credited to the bank account in India, the assessee’s contention was that the salary income deposited in the bank account in India, directly from the bank account of the company outside India. Thus, it was outside the ambit of section 5(2). However, the Assessing Officer was of the view that the assessee’s explanation could not be accepted for several reasons. One of the reasons is that since the appointment letter was issued by a foreign employer’s agent in India, it is to be deemed that the salary income accrued in India. The Assessing Officer further took note of the fact that the salary cheques were credited to the assessee’s account with HSBC Bank in Mumbai. Hence, the salary of Rs. 13,34,884 received from ESM-S was brought to tax in the hands of the assessee.

Held:

The above issue is analysed in two parts as follows:

1. Whether issuance of an appointment letter gives the assessee the right to receive salary?

 Once it is not in dispute that the assessee qualifies to be treated as a ‘non-resident’ u/s. 6, as is the undisputed position in this case, the scope of taxable income in the hands of the assessee is restricted to section 5(2), Therefore, it is only when at least one of the two conditions u/s. 5(2) is fulfilled that the income of a non-resident can be brought to tax in India. In the present case, the services are rendered outside India as crew on merchant vessels and tankers plying on international routes. A salary is compensation for the services rendered by an employee and, therefore, situs of its accrual is the situs of services, for which salary paid, being rendered. It is wholly incorrect to assume that an employee gets the right to receive the salary just by getting the appointment letter. An employee has to render the services to get a right to receive the salary and unless these services are rendered, no such right accrues to the employee. Undoubtedly, if an assessee acquires a right to receive an income, the income is said to have accrued to him even though it may be received later on, it’s being ascertained, but this proposition will be relevant only when the assessee gets a right to receive the income, and, in the present case, the assessee gets his right to receive salary income when he renders the services and not when he simply receives the appointment letter. Thus, the receipt of an appointment letter cannot be the sole basis for deciding situs of accrual of salary.

2. Whether salary amount remitted to bank account in India attracts taxability u/s 5(2)(a)?

The law is trite that the ‘receipt’ of income, for this purpose, refers to the first occasion when the assessee gets the money in his own control – real or constructive. What is material is the receipt of income in its character as income, and not what happens subsequently once the income, in its character as such is received by the assessee or his agent; an income cannot be received twice or on multiple occasions. As the bank statement of the assessee clearly reveals these are US dollar denominated receipts from the foreign employer and credited to non-resident external account maintained by the assessee with HSBC, Mumbai. The assessee was in lawful right to receive these monies, as an employee, at the place of employment, i.e. at the location of its foreign employer, and it is a matter of convenience that the monies were thereafter transferred in India. The connotation of an income having been received and an amount having being received are qualitatively different. The salary amount is received in India in this case but the salary income is received outside India. Thus, when the salary has accrued outside India, and thereafter, by an arrangement, the salary is remitted to India and made available to the employee, it will not constitute as receipt of salary in India by the assessee so as to trigger taxability u/s. 5(2)(a).

In the course of the assessment proceedings for the assessment year 2007-08, the Assessing Officer noticed that the assessee had shown creditors’ outstanding at Rs. 1,95,17,664 as on 31-03-2007. He asked the assessee to give details of payments made to the said outstanding creditors in the subsequent years. Upon receiving the details from the assessee, the AO made enquiries with the concerned banks where the cheques issued by the assessee were presented for clearance. From the replies furnished by the bank, the AO noticed that the cheques issued in the name of the creditors M/s. Bhavi Enterprises, M/s. Patel Traders and M/s. Jayraj Traders were deposited in some other persons accounts. Cheques of amounts aggregating to Rs. 62,10,000 issued in favour of M/s. Bhavi Enterprises were deposited in accounts of another person. Cheques of amounts aggregating to Rs. 12,10,000 issued in favour of Patel Traders were deposited in accounts of other persons. The AO called upon the assessee to give details as to in which assessment year expenses have been claimed on account of the above creditors. The assessee expressed inability to furnish the reply. The AO concluded that the payments were made otherwise than by account payee cheques and accordingly Rs. 62,10,000 is required to be treated as income in the assessment year 2008-09 and Rs. 12,10,000 is required to be treated as income in the assessment year 2010-11. He reopened the assessment for the assessment year 2008-09 u/s. 147 of the Act. The assessee vide its reply informed the AO that the above mentioned parties were mediators who were entitled only to commission which is evident from the sample copy of the bill. Without prejudice, it was submitted that the purchases were made in the year 2004 and as the transactions related to the said year only 20% of the disallowance should be made of the amounts paid otherwise, than by account payee cheques or drafts as per provisions applicable in that assessment year. The AO added Rs. 62,10,000 to the total income of the assessee for assessment year 2008-09. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held :

The Tribunal found that there is no dispute about the facts. It noted that the expenses were incurred in the assessment year 2004-05 and the payment was made in the assessment year 2008- 09 by crossed cheques. It then noted the provisions of section 40A(3) as applicable in assessment year 2004-05 and also as applicable in assessment year 2008-09. It held as under: When we go through the provisions applicable in assessment year 2004-05 and assessment year 2008-09, we find that there are three major differences;

(i) The first difference is that, as per the provisions of the assessment year 2004-05, the assessee is required to make payment by way of crossed cheque/crossed bank draft whereas as per the provisions of assessment year 2008-09, the assessee is required to make payment by way of a/c. payee cheque/a/c payee bank draft;

(ii) The second difference is this, that as per the provisions applicable in assessment year 2004-05, the disallowance was to be made to the extent of 20% of payments made in contravention to the prescribed mode whereas, as per the provisions applicable in the assessment year 2008-09, such disallowance is to the extent of 100% of such payment in contravention to the prescribed mode;

(iii) The third difference is with regard to payment in a subsequent year in contravention to the prescribed mode. As per the provisions applicable in the assessment year 2004- 05, the disallowance was to be made in the relevant year in which the expenditure was incurred whereas as per the provisions of assessment year 2008-09, addition is to be made in the year in which payment in contravention to the prescribed mode was made by the assessee irrespective of the fact as to whether the expenditure was incurred in an earlier year. Now, the question to be decided by us, is as to whether if an expenditure incurred in the assessment year 2004-05 for which payment is made in the assessment year 2008-09, provision of section 40A(3) applicable in assessment year 2004-05 is required to be applied or the provisions in assessment year 2008-09 being the year of payment, are to be applied. The A O has applied the provisions of section 40A(3) as amended w.e.f. 01-04-2008, because the payments were made by the assessee in the assessment year 2008-09 and the claim of the assessee before us is this, that since the expenses were incurred in the assessment year 2004-05, such expenses are to be subjected to the provisions applicable in assessment year 2004-05.

The Tribunal noted that the decision of the Tribunal in the case of Anand Kumar Rawatram Joshi (supra) is under similar facts with small difference that in that case, the expenses were incurred in assessment year 2007-08 and the payments were made in assessment year 2008-09. It noted that in the said case the Tribunal has in para 8 held that if the liability is incurred up to 2007-08 but the payment made is in a subsequent year i.e., in the assessment year 2008-09 or any subsequent year, the provisions of section 40A(3) as applicable in that year in which the liability was incurred should be applied, as per which, if the assessee does not make payment for such a liability in a sum exceeding Rs. 20,000/- by an a/c payee cheque drawn on a bank or by an a/c payee bank draft, the allowances originally made shall be deemed having wrongly been made and the assessment order of that year in which liability was incurred should be rectified as per the provisions of section 154 and for the purpose of reckoning the limitation period of four years, it shall be reckoned from the end of the assessment year following the previous year in which the payment was so made.

The Tribunal held that the present issue is squarely covered in favour of the assessee by this Tribunal decision rendered in the case of Anand Kumar Rawatram Joshi (supra). Applying the ratio of the said decision, if the provisions of section 40A(3) as applicable in the assessment year 2004-05 are applied, no addition in the present year is justified and no disallowance can be made in the assessment year 2004-05 also because as per the provision of section 40A(3) as applicable in the assessment year 2004-05, the payments are required to be made by a crossed cheque/crossed bank draft and the assessee has made the payment by way of crossed cheque and, therefore, no disallowance is called for in the present case as per the provisions of section 40A(3) applicable for the assessment year 2004-05. The Tribunal allowed the appeal filed by the assessee.

During the previous year relevant to assessment year 2009-10, land belonging to the assessee was acquired by the Karnataka Industrial Development Board for Bangalore Metro Rail Corporation and the assessee received compensation of Rs. 84,61,701 on 21-07-2008. The assessee acquired a residential flat at Bangalore for Rs. 50,98,720 by registered sale deed dated 11-09-2008. He, accordingly, claimed exemption of Rs. 46,11,166 u/s. 54F of the Act.

In the course of assessment proceedings the Assessing Officer (AO) noticed that the said flat whose cost was considered for claiming exemption u/s. 54F of the Act was booked on 19-01-2006 and the assessee had taken a loan of Rs. 40 lakh from Syndicate Bank which was sanctioned on 24-05-2006 for investment in purchase of the said flat. Thus, the AO noticed that the amount of Rs. 44,70,852 was paid by 31-03-2007 i.e., more than one year prior to acquisition of the new asset. The AO was also of the view that since the assessee invested Rs. 40 lakh out of the Housing Loan from Syndicate Bank in the purchase of the new asset and therefore only Rs. 6,23,433 qualified for exemption. He accordingly, worked out the exemption u/s. 54F at Rs. 6,23,433 and allowed Rs. 6,23,433 instead of Rs. 46,11,166 as claimed.

Aggrieved, the assessee preferred an appeal to Commissioner of Income-tax (Appeals), who dismissed the appeal by holding that the assessee is not eligible for exemption u/s. 54F as claimed.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

The Tribunal noted that the AO had restricted the claim for exemption for the reason that though the flat was purchased by registered deed dated 11-09-2008, the booking was made on 09-01-2006 and a housing loan of Rs. 40 lakh was taken from Syndicate Bank on 24-05-2006 which was invested in the said property before 31-03-2007.

The Tribunal did not agree with the view of the authorities below that both these investments amounting to Rs. 44,70,852 being made more than one year prior to the date of receipt of compensation of Rs. 84,61,701 for asset, on 21-07-2008, the assessee would not be eligible for exemption u/s. 54F of the Act. The Tribunal was of the view that the amounts paid by the assessee on booking of the asset on 09- 01-2006 and the housing loan of Rs. 40 lakh availed from Syndicate Bank for investment in the purchase thereof have not vested the assessee with the ownership of the new asset. The assessee has been vested with the ownership of the new asset only by virtue of the Registered Sale Deed dated 11-09- 2008. It held that the authorities below have erred in restricting the exemption u/s. 54F of the Act to Rs. 6,23,433. It held that the assessee is entitled to exemption of Rs 46,11,166 as claimed by it.

This ground of appeal filed by the assessee was allowed.

During the previous year relevant to the assessment year 2008-09, the assessee transferred wet agricultural land for a consideration of Rs. 1,41,12,000. The assessee purchased an agricultural land, for a consideration of Rs. 52 lakh, in the name of her younger daughter and a residential house in the name of her eldest daughter for a consideration of Rs. 58 lakh. The long term capital gain arising on such transfer was claimed to be exempt under s/s. 54B/54F on the grounds that the investment made in the names of two daughters qualifies for exemption under s/s. 54B/54F. The assessee claimed that she has entered into “Possession purchase agreements” with her two daughters to comply with the provisions of s/s. 54B/54F. It was also contended that the daughters should be considered as her benamidars.

The Assessing Officer (AO) denied the exemption claimed by the assessee on the ground that the properties purchased were not registered in the name of the assessee. The claim of “benami” was rejected by the AO on the grounds that the Benami Transactions (Prohibition) Act provides exemption to the property purchased in the name of unmarried daughters only. He also refused to recognise both the “possession purchase agreements” as they were unregistered documents and did not transfer the properties. Tribunal news Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:

The decision of the jurisdictional High Court in the case of Late Mir Gulam Ali Khan vs. CIT 56 CTR 144 (AP) was rendered on typical facts of the case before the Court viz. that the assessee in that case entered into an agreement for purchasing a residential property and had also paid earnest money in furtherance of the same. Unfortunately, he passed away before the completion of the purchase transaction. Hence, the legal representative of the assessee completed the purchase of property. Thus, in effect, the new house property was not purchased in the name of the assessee, who sold the old property. Since the said legal representative of the assessee is liable to be assessed in respect of the capital gain on the property sold by his father, he claimed the cost of new property as deduction u/s. 54 of the Act. Thus, the facts prevailing in the case of Late Mir Gulam Ali Khan are peculiar and further, u/s. 159 of the Act, the legal representative is treated as assessee in respect of liability of the deceased person. The liberal view taken by the High Court in that case cannot be stretched in each and every case, where the property was not purchased in the name of the assessee who sold the property. It held that the assessee in the present case cannot derive support from this decision.

In respect of the other decisions relied upon, on behalf of the assessee, the Tribunal noted that in all those cases, the new property was either purchased in joint names i.e., in the names of the assessee and others, or it was purchased in the names of spouse or minor daughter. The Tribunal held that in its view the Courts have considered the investments made in the name of wife or minor daughter as an investment made by the assessee himself for the reason that there was no real intention to provide consideration for the benefit of wife/minor daughter alone.

In the instant case, undisputedly, the investments have been made in the names of the married daughters and apparently both of them are also majors. Thus, it is not a case of joint ownership along with the assessee. Both the daughters of the assessee shall have every right over the property purchased in their respective names. Thus, it cannot be said that the intention of purchasing the properties was not to give benefit to them. The assessee claims that she has entered into purchase possession agreement with her two daughters. However, we tend to agree with the view of the learned CIT(A) that the said agreement does not actually effect transfer of assets to the name of the assessee. Further, as pointed out by the AO, the said agreements have been entered only to show some compliance with the provisions of section 54B/54F of the Act.

The appeal filed by assessee was dismissed.