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Category: Tribunal News : PART B - Unreported Decisions

Asst. CIT (TDS) vs. Oil and Natural Gas Corporation Ltd. ITAT ‘C’ Bench, Mumbai Before Sanjay Arora (AM) and Amit Shukla (JM) I.T.A. No. 5808/Mum/2012 Assessment Year: 2008-09. Decided on 03-12-2014 Counsel for Revenue/Assessee: Premanand J./ Naresh Jain & Mahesh Saboo

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Section 194-I – Payments towards lease premium and additional Floor Space Index (FSI) charges not subjected to TDS.

Facts:
The issue before the Tribunal was about the exigibility to Tax Deduction at Source (TDS) u/s.194-I of the sum, described as lease premium and additional Floor Space Index (FSI) charges paid by the assessee to Mumbai Metropolitan Regional Development Authority (MMRDA) during the relevant year.

The Revenue’s case was that u/s.194-I the ‘rent’ is very comprehensively defined to include any payment made under the lease, sub-lease, tenancy or any such agreement or arrangement for use (either separately or together) of any land, building, plant, machinery, etc. By legal fiction, therefore, the scope of the term ‘rent’ stands thus extended beyond its common meaning. The same would include not only the payments on revenue account, but on capital account as well, as long as the sum paid is toward the use of any of the assets specified under the provision. For the purpose, the reliance was placed on the decisions in the case of CIT vs. Reebok India Co. [2007] 291 ITR 455 (Del); United Airlines vs. CIT [2006] 287 ITR 281 (Del); Krishna Oberoi vs. Union of India [2002] 257 ITR 105 (AP); and CIT vs. H.M.T. Ltd. [1993] 203 ITR 820 (Kar).

The CIT(A) on appeal, had held that the lease premium in the instant case was only toward acquisition of lease hold rights and additional FSI in the leased plots and thus, the payment made was not in the nature of rent hence, not covered u/s. 194(I).

Held:
The Tribunal noted that the amount charged by MMRDA as lease premium was equal to the rate prevailing as per the stamp duty ready reckoner for the acquisition of commercial premises. Further, it was also noted that there was no provision in the lease agreement for termination of the lease at the instance of the lessee and hence, for the refund of lease premium under normal circumstances. It noted that even the charges levied for additional FSI was as per the ready reckoner rate. Thus, according to the Tribunal, the whole transaction was for grant of leasehold rights or transfer of property; the lease premium paid by the assessee was the consideration for acquiring leasehold rights, which comprise a bundle of rights, including the right of possession, exploitation and its long term enjoyment. It further observed that the charges for FSI also partake the character of capital assets in the form of Transferable Development Rights (TDRs), such that the owner (of land) transfers the rights of development and exploitation of land, which rights are again capital in nature.

On the basis as discussed above and relying on the decisions in the cases of ITO vs. Naman BKC CHS Ltd. (in ITA Nos. 708 & 709/Mum/2012 dated 12-09-2013) and TRO vs. Shelton Infrastructure Pvt. Ltd. (in ITA No. 5678/ Mum/2012 dated 19-05-2014), the Tribunal upheld the decision of the CIT(A) and dismissed the appeal filed by the revenue. Referring to the decisions of the Tribunal in ITO vs. Dhirendra Ramji Vora (in ITA No.3179/Mum/2012 dated 09-04-2014) and Naman BKC CHS Ltd. (supra), it further observed that the decisions relied on by the A.O. were distinguishable and cannot be applied to the case of the assessee.

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Naresh T. Wadhwani vs. Dy. Commissioner of Income Tax In the Income Tax Appellate Tribunal Pune Bench “A”, Pune Before G. S. Pannu (A. M.) and R. S. Padvekar (J. M.) ITA Nos.18, 19, 20, 60 & 61/PN/2013 Assessment Years : 2007-08, 2008-09 & 2009-10. Decided on 28.10.2014 Counsel for Assessee/Revenue: V. L. Jain/M. S. Verma

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Section 80 IB (10)(c) and (14)(a) – Open terrace cannot be a part of the ‘built-up area’

Facts:
The assessee’s claim for deduction u/s. 80IB(10) was rejected by the lower authorities on the ground that the condition prescribed in clause (c) of section 80IB(10) was not complied with. As per sub-Clause (c) of section 80IB(10) the residential units in the housing project cannot have built-up area of more than 1,500 sq.ft. The housing project of the assessee in Pune city was approved by the local authority on 29.07.2005. The AO applied the definition of ‘built-up area’ contained in section 80IB(14) (a). According to him, as per the said definition, the area comprising of the projected terrace was also to be considered as part of the ‘built-up area’. Based thereon the AO computed the area and found that six of the residential units of the housing project were having built-up area in excess of 1500 sq.ft. Therefore, he denied the claim of the assessee for deduction u/s. 80IB(10) of Rs.1.4 crore. On appeal the CIT(A) upheld the stand of the AO that the built-up area of the aforesaid six units was violative of the condition prescribed in Clause (c) of section 80IB(10). He, however, allowed pro-rata deduction in respect of profits from the residential units of the project which complied with the requirements of section 80IB(10)(c) of the Act. Not being satisfied with the order of the CIT(A), assessee as well as the Revenue are in appeal before the tribunal.

Before the Tribunal, the revenue submitted that open terrace was a private terrace which was available for use of the owner of the unit to the exclusion of others. It also relied on the decisions of the Hyderabad Tribunal in the case of Modi Builders & Realtors (P.) Ltd., (2011) 12 taxmann. com 129 and of the Mumbai Tribunal in the case of Siddhivinayak Homes, Mumbai vs. Department of Income Tax, vide ITA No. 8726 / Mum / 2010 order dated 26.09.2012, for the proposition that all projections and elevations at the floor level are liable to be included in the definition of ‘built-up area’ for the purposes of examining the condition prescribed in Clause (c) of section 80IB(10) of the Act. According to it, the built-up area for the purpose has to be understood in the light of what has been sold by the assessee builder to the respective customers.

Held:
Relying on the decision of the Madras High Court in the case of M/s. Ceebros Hotels Private Limited vs. DCIT (Tax Case (Appeal) No. 581 of 2008 order dated 19.10.2012) the Tribunal held that the area of open terrace cannot be a part of the ‘built-up area’ in a case where such terrace is a projection attached to the residential unit and there being no room under such terrace, even if the same is available exclusively for use of the respective unit holders. The Tribunal also observed that as per the said decision, terrace area would not form part of the built-up area even if the assessee sold it to the purchaser as a private terrace.

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LSG Sky Chef (India) Pvt. Ltd. vs. Dy. CIT In the Income Tax Appellate Tribunal “A” Bench, Mumbai Before I. P. Bansal, (JM) and Sanjay Arora, (AM) I.T.A. No. 4828/Mum/2012 Assessment Year: 2009-10. Decided on 27-03-2014 Counsel for Assessee/Revenue: M. M. Golvala & Amey Wagle/M. L. Perumal

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Section 203AA – Assessee cannot be denied credit for TDS merely because the same were not reflected in Form 26AS when TDS certificates in original were filed.

Facts:
The issue before the Tribunal was about the short credit of the tax deducted at source. In its return of income the assessee had claimed credit for TDS of Rs. 92.52 lakh. However, the AO allowed the credit of Rs. 67.99 lakh only and no credit was allowed for the balanced sum of Rs. 24.53 lakh, as the same was not reflected in Form No. 26AS despite furnishing of the TDS certificates in original by the assessee.

Held:
According to the Tribunal, the burden of proving as to why the said Form does not reflect the details of the entire tax deducted at source for and on behalf of a deductee cannot be placed on an assessee-deductee. The assessee, by furnishing the TDS certificate/s bearing the full details of the tax deducted at source, credit for which is being claimed, has discharged the primary onus on it toward claiming credit in its respect. He, accordingly, cannot be burdened any further in the matter. The Revenue is fully entitled to conduct proper verification in the matter and satisfy itself with regard to the veracity of the assessee’s claim/s, but cannot deny the assessee credit in respect of TDS without specifying any infirmity in its claim/s. Form 26AS is a statement generated at the end of the Revenue, and the assessee cannot be in any manner held responsible for any discrepancy therein or for the non-matching of TDS reflected therein with the assessee’s claim/s. The tribunal further observed that the plea that the deductor may have specified a wrong TAN, so that the TDS may stand reflected in the account of another deductee, is no reason or ground for not allowing credit for the TDS in the hands of the proper deductee. The onus for the purpose lies squarely at the door of the Revenue. Accordingly, the A.O. was directed to allow the assessee credit for the impugned shortfall.

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ACIT vs. Jayendra P. Jhaveri In the Income Tax Appellate Tribunal Mumbai Benches “J”, Mumbai Before P M Jagtap (A. M.) & Sanjay Garg(J. M.) ITA Nos.2141 to 2144 /Mum/2012 Asst.Year 2003-04. Decided on 20th February 2014 Counsel for Revenue / Assessee: S. D. Srivastava / Dharmesh Shah

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Section 153A – Re-assessments made by the AO without any incriminating material found during the search action u/s. 132 not valid.

Facts:
A search and seizure operation was carried out in the case of the assessee on 14-08-2008 u/s. 132 of the Income- tax Act. Pursuant thereto, the AO issued notice u/s. 153A to the assessee to file the return of income for six years subsequent to the search. In response to the notice, the assessee filed return of income before the AO. The AO, thereafter, issued notice u/s. 143(2) and 142(1). The assessee submitted before the AO that books of account and other details were destroyed in the flood in the year 2005 and, therefore, the same could not be produced. Since the assessee failed to produce the books of accounts, the AO passed the order u/s. 144 r.w.s. 153A. On the basis of net profit ratio of certain other persons who were engaged in a similar business as that of the assessee, the AO made the additions to the total income of the assessee. The CIT(A) upheld the action of the AO. However, he directed the AO to re-compute the net profit of the assessee by adopting the net profit of 0.14%. The revenue appealed against the action of the CIT(A) in directing the AO to rework the net profit of the assessee at the lower rate of 0.14% as against the 0.99% estimated by the AO. Whereas the assessee has filed the cross objections against the action of the CIT(A) in upholding of assessment proceedings made by the AO u/s. 153A. Before the Tribunal, the assessee contended that since no incriminating material was found during the search and seizure operation, the re-assessment made by the AO u/s. 153 A was not valid. He has further submitted that since the limitation period for issuing notice u/s. 143(2) had already been expired and as such the assessments in relation to above mentioned assessment years had attained finality. The contention of the revenue was that the absence of the books of accounts, itself, was the incriminating evidence against the assessee necessitating initiation of assessment proceedings u/s. 153A.

Held:
The tribunal noted that in the present case the return was processed u/s. 143(1) and the same had attained finality due to the expiry of limitation period of 12 months from the end of the month in which the return was filed. Further, no incriminating material was found from the premises of the assessee during the search u/s. 132. In view of the same and the decisions of the Rajasthan High Court in the case of Jai Steel (India) vs. ACIT (2013) 259 CTR 281, the Andhra Pradesh High Court in the case of Gopal Lal Badruka vs. DCIT, 346 ITR 106 and of the Delhi High Court in the case of CIT vs. Chetan Dass Lachman Dass [2012] 211 Taxmann 61, the Tribunal observed that when no incriminating evidence was found during the search, it was not open to the AO to make re-assessment of concluded assessment in the garb of invoking the provisions of section 153A. According to it the contention of the revenue that since no books of account were found during the search action that itself was the incriminating material against the assessee had no force of law. Inference of concealment of income cannot be made just on mere assumptions, presumptions or suspicion. Relying on the Tribunal decision in the case of Jitendra Kumar Jain vs. DCIT (ITA Nos. 5951- 5953/M/2011 decided on 16-01-2014) it held that that such an assumption cannot be said to be having any value of evidence in eyes of law and even the assessee cannot be called to disapprove such type of assumptions and presumptions based on mere suspicions. It observed that it is not open to the revenue to rely on the weakness of the evidence produced by the assessee to make any adverse presumption or conclusion of his indulging in any illegal activity, without being there any direct or even circumstantial evidence on record against him.

In view thereof, the Tribunal held that the reassessments made by the AO u/s. 153A, without any incriminating material being found during the search action conducted u/s. 132, were not in accordance with law and the same were set aside.

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Century Metal Recycling Pvt. Ltd. vs. DCIT ITAT Delhi `B’ Bench Before H. S. Sidhu (AM) and H. S. Sidhu (JM) ITA No. 3212/Del/2014 A.Y.: 2007-08. Decided on: 5th September, 2014. Counsel for revenue / assessee: Satpal Singh / Sanjeev Kapoor

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S/s. 79, 271(1)(c) – Penalty u/s. 271(1)(c) is not leviable in a case where claim to carry forward capital loss was denied due to change in majority shareholding.

Facts:
For assessment year 2007-08 the Assessing Officer (AO) in an order passed u/s. 143(3) of the Act assessed the returned income to be the total income. However, the claim of carry forward of loss of Rs. 23,09,722 was denied on the ground that there was a change in majority shareholding of the assessee and therefore by virtue of section 79 the said loss cannot be carried forward.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO. The assessee after receiving the order of CIT(A) did not carry forward the capital loss of Rs. 23,90,722 in its return of income for AY 2012-13. The AO levied a penalty of Rs. 8,05,000 u/s. 271(1)(c) of the Act.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the carry forward of long term capital loss of AY 2005-06 and 2006-07 had been duly accepted as correct as per returns filed and assessment orders passed by the AO in the relevant years. In the AY 2006-07, the AO specifically mentioned that carry forward of long term capital loss is allowed.

The Tribunal also noted that in the assessment order of AY 2007-08 there was no mention that the assessee had furnished any inaccurate particulars of income or had made any wrong claim of carry forward of long term capital loss. The disallowance of carry forward of long term capital loss was on technical ground and not on account of any concealment of any particulars of income. The Tribunal noted that section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. It observed that the conduct of the assessee cannot be said to be contumacious so as to warrant levy of penalty. The Tribunal held that the levy of penalty was not justified. It set aside the orders of the authorities below and deleted the levy of penalty.

The appeal filed by the assessee was allowed.

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ACIT vs. The Upper India Chamber of Commerce ITAT Lucknow `B’ Bench Before Sunil Kumar Yadav (JM) and A. K. Garodia (AM) ITA No. 601 /Lkw/2011 Assessment Year: 2008-09. Decided on: 5th November, 2014. Counsel for revenue/assessee: Y. P. Srivastava/ Abhinav Mehrotra

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Ss. 11, 12A, 50C – Provisions of section 50C cannot be invoked in the case of a society or a charitable trust registered u/s. 12A of the Act. In such a case income is to be computed as per section 11(1A) of the Act which is a complete code by itself.

Facts:
The assessee, a society registered u/s. 12A of the Act, transferred its capital asset whose stamp duty value was more than the consideration accruing or arising on the transfer of the asset. The net consideration arising on transfer of capital asset was invested by the assessee in other capital asset. The Assessing Officer (AO) made an addition of Rs. 43,78,588 on account of capital gain arising out of sale of property by applying the provisions of section 50C of the Act.

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

Aggrieved, the revenue preferred an appeal to Tribunal.

Held:
The question of applicability of provisions of section 50C of the Act on transfer of capital asset in the case of a charitable society was examined by the Tribunal in the case of ACIT vs. Shri Dwarikadhish Temple Trust, Kanpur (ITA No. 256 & 257/Lkw/2011), in which the Tribunal has held that where the entire sale consideration was invested in other capital asset, provisions of section 50C of the Act should not be invoked. The Tribunal noted the following observations from the said order –

“6.1 From the order of the CIT(A),we find that the assessee is a charitable and religious trust registered u/s. 12A of the Act. It is also noted by the Assessing Officer that the assessee has sold immovable property for total sale consideration of Rs. 2.25 lakh and the entire sale consideration was invested in other capital asset i.e. fixed asset with bank. The Assessing Officer invoked the provisions of section 50C of the Act and computed the capital income at Rs. 66.38 lakh based on the value adopted by stamp duty authorities for stamp duty purposes. We find that the CIT(A) has decided this issue in favour of the assessee by following the Tribunal decision in the case of Gyanchand Batra vs. Income Tax Officer 115 DTR 45 (Jp – Trib).

6.2 We also find that it is specifically mentioned in section 50C(1) of the Act that the stamp duty value is to be considered as full value of consideration received or accruing as a result of transfer for the purpose of section 48 of the Act. It is true that the assessee is a charitable trust and the income of the assessee has to be computed u/s .11 of the Act. As per sub-section (1A) of section 11 of the Act, if the net consideration for transfer of capital asset of a charitable trust is utilised for acquiring new capital asset, then the whole of capital gain is exempt. Considering all these facts, we do not find any reason to interfere in the order of CIT(A) on this issue.

6.3 Regarding the reliance placed by the Learned D.R. of the Revenue on the judgment of the Hon’ble Kerala High Court rendered in the case of Lissie Medical Institutions vs. CIT(supra), we find that in that case, it was held by the Hon’ble Kerala High Court that claim of depreciation is not allowable on the assets which were considered as application of income at the time of acquisition of assets. In our considered opinion, this judgment is not relevant in the present case.

6.4 As per the above decision, we find that no interference is called for in the order of CIT(A).”

The Tribunal observed that the CIT(A) has adjudicated the issue based on legal provisions and various judicial pronouncements while holding that section 11(1A) of the Act which lays down a complete system of taxability of capital gains in respect of an institution approved by the CIT u/s. 12A of the Act is a complete code. The Tribunal held the order of the CIT(A) to be in accordance with law. It confirmed the order of CIT(A).

The appeal filed by revenue was dismissed.

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ACIT vs. GMS Motors Pvt. Ltd. ITAT Delhi `C’ Bench Before R. S. Syal (AM) and H. S. Sidhu (JM) ITA No. 3530/Del/2012 A.Y.: 2007-08. Decided on: 6th August, 2014. Counsel for revenue / assessee: Satpal Singh / Sanjeev Kapoor

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S/s. 3, 28 – In a case where premises are taken on rent, manpower was hired, registration under MVAT and CST was obtained and deposit was paid to company whose vehicles were to be sold and sales of some spare parts had been sold, it cannot be said that the business of sales-cum-service centre has not been set up merely because sale of cars has not taken place.

Facts:
The assessee was to commence a business of sale-cumservice centre. During the previous year it took the premises on rent, hired man power who were paid salaries by cheque, obtained registration required under Maharashtra VAT Act, 2002 and Central Sales Tax Act, 1956 and also deposited certain amount with Mahindra & Mahindra Ltd., whose vehicles were to be sold by the assessee. The assessee had also sold some spare parts.

The Assessing Officer (AO) disallowed expenses aggregating to Rs. 56,80,117 incurred towards financial charges and staff administrative charges on the ground that the sale of cars had not taken place during the previous year and therefore the business was not set up and hence deduction of expenses was not permissible.

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

Held:
The Tribunal noted that the term `previous year’ as defined in s. 3 has a relationship with setting up of the business and not with the commencement of the business. It noted that the Apex Court has in the case of CIT vs. Ramaraju Surgical Cotton Mills Ltd. (63 ITR 478)(SC) has held that the business is set up when it is ready to discharge the functions for which it is being set up and the Delhi High Court has in the case of CIT vs. Samsung India Electronics Ltd. (356 ITR 354)(Del) has held that business commences on doing first activity like purchase of raw materials, etc.

Considering the ambit of the term `setting up of the business’ in the light of the above mentioned judicial pronouncements the Tribunal held that any income arising after the date of setting up of the business is chargeable to tax and, similarly, any expenditure incurred after the setting up of the business is deductible subject to other relevant provisions. The activities carried out by the assessee, amply demonstrate that the business was set up though sale of vehicles did not take place during the year. The Tribunal noted that it was not the case of the AO that the expenses were non-genuine or capital in nature. The Tribunal upheld the order passed by CIT(A).

The appeal filed by the revenue was dismissed.

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IFB Agro Industries Ltd. vs. Joint Commissioner of Income-tax In the Income Tax Appellate Tribunal ‘B’ Bench Kolkata Before P. K. Bansal (A. M.) and George Mathan (J. M.) ITA No. 1721/Kol/2012 Assessment Year: 2009-10. Decided on 12th March, 2013 Counsel for Assessee / Revenue: S. K. Tulsiyan / Ajoy Kr. Singh

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Section 2(22)(e) – Deemed dividend – Intercorporate deposit is neither loan nor advance hence not covered u/s. 2(22)(e).

Facts
The assessee had received Inter-corporate deposits of Rs. 11.20 crore. from IFB Automotive Pvt. Ltd., a company wherein the assessee held 18.82% of the shares. The said deposit was treated by the AO as a loan and invoking the provisions of section 2(22) (e), he taxed the said receipt as income of the assessee. On appeal, the CIT(A) confirmed the order of the AO.

Before the tribunal, the revenue supported the orders of the lower authorities and further relied on the decision of the Bombay High Court in the case of Star Chemicals Pvt. Ltd. reported in 203 ITR 11, wherein it has been held that a loan to a shareholder to the extent to its accumulated profits was liable to be treated as deemed dividend.

Held
The tribunal noted that the dispute primarily revolves around the issue as to whether the Inter corporate deposits received by the assessee from M/s. IFB is a ‘loan’ or ‘advance’ or is a ‘deposit’. It further noted that the provisions of section 2(22)(e) refers to only ‘loans’ and ‘advances’ it does not talk of a ‘deposit’. According to the tribunal, the fact that the term ‘deposit’ cannot mean a ‘loan’ and that the two terms ‘loan’ and the term ‘deposit’ are two different and distinct terms, is evident from the explanation to section 269T as also section 269SS of the Act where both the terms are used. Further, it was noted that the second proviso to section 269SS of the Act recognises the term ‘loan’ taken or ‘deposit’ accepted. The tribunal then observed that once it is accepted that the terms ‘loan’ and ‘deposit’ are two distinct terms which has distinct meaning then, if term ‘loan’ is used in a particular section, the deposit received by an assessee cannot be treated as a ‘loan’ for that section.

Further, on perusal of the decision of the Special Bench of the Ahmedabad bench Tribunal in the case of Gujarat Gas & Financial Services Ltd. reported in 115 ITD 218 which had taken into consideration the decision of the Special Bench of the Delhi Tribunal in the case of Housing & Urban Development Corporation Ltd. reported in 102 TTJ (SB) 936 and of the Bombay tribunal in the case of Bombay Oil Industries Ltd. reported in 28 SOT 383, the tribunal opined that the Inter corporate deposits cannot be treated as a loan falling within the purview of section 2(22)(e) of the Act. Accordingly, the addition representing inter-corporate deposits treated as loan by the AO and confirmed by the CIT(A) was deleted by the tribunal.

As regards the decisions relied on by the CIT(A) as also by his counsel before the tribunal, it observed that the same were on ‘loans’ and none of the decisions referred to by them discussed anywhere that deposits were to be treated as loans.

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Addl. CIT vs. Vinay Vasudeo Kulkarni Income-tax Appellate Tribunal Pune Bench “A”, Pune Before Shailendra Kumar Yadav (J.M.) and R. K. Panda (A. M.) ITA No. 2363 / PN / 2012 Asst. Year 2009-10 Decided on 29-04-2014 Counsel for Revenue/Assessee: P. L. Pathade/ Kishore Phadke

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Section 145 – Income is taxable in the year when right to receive accrues.

Facts:

The assessee, an individual, was in business. His main business was that of commission agent /dealer for Daikin Air-conditioning India Pvt. Ltd. As per the practice followed – on receipt of the order for air-conditioner placed by the assessee, Daikin used to credit the commission to the account of assessee irrespective of the supply of goods and deduct tax at source. The assessee had shown such commission as “Contingent Income” under the group “Current Liabilities” in the Balance Sheet. The balance in the said account on 31-03-2009 was Rs. 32,72,500. However, the assessee was advised by Daikin to raise invoice for commission only after the installation of the air-conditioner and collection of money from the air-conditioner sold. The assessee received the payment only thereafter. The assessee, who was following the mercantile method of accounting, recognised the income in the year when invoice was raised. The AO treated the sum of Rs. 32.72 lakh as the income of the current year. On appeal, the CIT(A) allowed the appeal filed by the assessee.

Held:

 The Tribunal observed that income accrues only when there is right to receive such income. It further observed that though the Schedule VI requires income accrued but not due as part of profit, for income tax purpose ‘income accrued but not due’ is a contradiction in terms, since what was not due could not have accrued. What is not due cannot be subjected to legal action to enforce recovery and hence, income in legal sense could not be treated as accrued, so as to require its inclusion in taxable income. The Tribunal relied on the decision of the Pune Tribunal in the case of Dana India Pvt. Ltd. (ITA No. 375 / PN / 09 dt. 09.02.2011). In the case of the assessee, the Tribunal noted that the work relating to erection and installation was completed in the subsequent years. Therefore, the income also accrued in the subsequent years. Relying on the decision of the Madras high court in the case of CIT vs. Lucas Indian Services Ltd. (315 ITR 273), the Tribunal dismissed the appeal of the revenue.

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ITO vs. Yash Developers ITAT Mumbai `G’ Bench Before B. R. Mittal (JM) and N. K. Billaya (AM) ITA No. 809/Mum/2011 and 3644/Mum/2012 A.Y.: 2007-08 and 2008-09. Decided on: 31st January, 2014. Counsel for revenue/assessee: B. P. K. Panda /S. C. Tiwari and Ms. Natasha Mangat.

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S/s. 80AC, 80IB(10), 139 – Amendment made to section 80IB(10) w.e.f. 01-04-2005 whereby as per Clause (d), limit has been imposed on the extent of commercial area which a project can contain, does not apply to projects approved before that date. Claim for deduction made in a return of income filed u/s. 139(4) will be decided on merits even though return of income is not filed within the time prescribed as per section 139(1) of the Act.

Facts:
The assessee, a partnership firm, engaged in the business of developing and construction filed its return of income for assessment year 2007-08 declaring total income of Rs. Nil after claiming deduction u/s. 80IB(10) of Rs. 74,684. For the assessment year 2008-09, the assessee filed return of income on 30-09-2009 by declaring total income at Rs. Nil after claiming deduction of Rs. 24,85,233 u/s. 80IB(10) of the Act.

The Assessing Officer (AO) denied deduction u/s. 80IB(10) of the Act for assessment year 2007-08 on the ground that the assessee had constructed shops with the aggregate built up area of 3,382 sq. ft which constituted commercial area of 6.12% of the total built up area which was in excess of the limit prescribed by Clause (d) of section 80IB(10) as amended by the Finance (No. 2) Act, 2004 w.e.f. 01-04-2005. Since the assessee had not fulfilled one of the conditions, the AO denied deduction u/s. 80IB(10). For assessment year 2008-09, the AO also stated that the assessee did not file the return of income within the stipulated time prescribed u/s. 139(1) of the Act. In view of the provisions of section 80AC of the Act, the AO denied the claim of Rs. 24,85,233 made u/s. 80IB(10) of the Act.

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

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal observed that on similar facts in the assessee’s own case for the same project, the Tribunal by its order dated 29-07-2011 relating to assessment years 2005-06 and 2006-07, the assessment years which also fall after the amendment made by insertion of Clause (d) to section 80IB(10) of the Act, applicable from 1.4.2005 has held that the assessee is eligible to claim deduction u/s. 80IB(10) of the Act in respect of the housing project. As there was no change in the facts and circumstances in the assessment years under consideration, the Tribunal applied the said decision of ITAT to these years as well. It also observed that the similar issue had also come before the Hon’ble Gujarat High Court in the case of Manan Corporation vs. ACIT (214 Taxman 373 (Guj), while considering the appeal for assessment year 2006-07 wherein it was held by their Lordship that the condition of limiting commercial establishment/ shops to 2,000 sq. feet which has come into force w.e.f. 01-04-2005 would be applicable for the project approved on or after 01-04-2005 would be applicable for the project approved on or after 01-04-2005 and where the approval of the project was prior to 31-03-2005, the amended provision would have no application for those projects. The Tribunal observed that the Gujarat High Court placed heavy reliance on the decision of the Bombay High Court in the case of Brahma Associates (333 ITR 289)(Bom). The Tribunal held that the issue is covered not only in the assessee’s own case for assessment years 2005-06 and 2006-07 but also by the decision of the Gujarat High Court in the case of Manan Corporation (supra). The Tribunal rejected the appeal filed by the revenue.

In respect of the return being filed beyond due date prescribed u/s. 139(1) of the Act, the Tribunal observed that the issue is covered in favor of the assessee by the decision of the Bombay High Court in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust (207 ITR 368)(Bom) which has been considered by the CIT(A) while deciding the same in favour of the assessee. Following the said decision, the Tribunal held that there is no reason to interfere with the order of the CIT(A). This ground of appeal taken by the department for assessment year 2008- 09 was also rejected.

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DCIT vs. Chetan M. Kakaria ITAT Mumbai `C’ Bench Before N. K. Saini (AM) and Sanjay Garg (JM) ITA No. 4961/Mum/2011 A.Y.: 2006-07. Decided on: 3rd February, 2014. Counsel for revenue/assessee: Ravi Prakash/ Firoz Andhyarujina

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S/s. 269T, 271E – Amount given or taken from the firm by the partners cannot be treated as giving or taken of loan. Therefore, penalty u/s. 271E cannot be levied even if such amounts are given or taken in cash.

Facts:
In the course of assessment proceedings the Assessing Officer noticed that the assessee had repaid loans, aggregating to Rs. 33,26,960 (Rs. 2,00,000 + 31,26,960), in cash, to the two firms where he was a partner. Such repayment of loan in cash was also reflected in the tax audit report. The amounts borrowed from the firm were reflected in the balance sheet as unsecured loans. The AO considered these payments to be in violation of section 269T of the Act and proceedings for levy of penalty u/s. 271E of the Act. He levied penalty of Rs. 33,26,960 u/s. 71E of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who deleted the penalty levied by the AO.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The transactions between the firm and the assessee were treated by the AO as repayment of loan in cash. It held that there is no independent legal entity opf the firm apart from the rights and liability of the partners constituting it and if any amount is given or taken from the firm by the partners that cannot be treated as giving or taking of the loan. In the instant case, the assessee being a partner gave the money to the partnership firm when it was in need of business exigencies, later on the amount was received back. If the said amount had been routed through the capital account, there could have been no disallowance by the department because a partner can deposit cash in his capital account and he also has a right to receive it in cash. The Tribunal held that the AO was not justified in levying the penalty and CIT(A) has rightly deleted it.

It noted that on a similar issue, the Madras High Court has in the case of CIT vs. V. Sivakumar (354 ITR 9) (Mad) held as under:

“that there was no separate identity for the firm and the partner is entitled to use the funds of the firm. The assessee acted bona fide and there was a reasonable cause within the meaning of section 273B. Penalty could not be imposed.

It also noted that the Rajasthan High Court has in the case of CIT vs. Lokhpat Film Exchange (Cinema) (304 ITR 172)(Raj) held as under:

“the assessee had acted bona fide and its plea that inter se transactions between the partners and the firm were not governed by the provisions of sections 269SS and 269T was a reasonable explanation. Penalty could not be imposed.”

Considering the facts of the case and also the ratio of the above stated decisions the Tribunal held that the CIT(A) was justified in deleting the penalty levied by the AO u/s. 271E of the Act.

The appeal filed by the revenue was dismissed.

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Section 194H – Provisions of section 194H apply when the payments are made to the agents or credited to the agent’s accounts, whichever is earlier, and not when the payment is credited to the provision account.

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5. DCIT vs. Telco Construction Equipment Co. Ltd.
ITAT  Bangalore `C’ Bench
Before P. Madhavi Devi (JM) and Jason P. Boaz (AM)
ITA No. 478/Bang/2012
Assessment Year : 2007-08.                                      
Decided on:   7th March, 2014.
Counsel for revenue/assessee: Priscilla Singsit/S. Anantha.

Section 194H – Provisions of section 194H apply when the payments are made to the agents or credited to the agent’s accounts, whichever is earlier, and not when the payment is credited to the provision account.

Facts:

The assessee-company was carrying on the business of manufacturing, purchase and sale of excavators, loaders, cranes, dumpers and spare parts etc. For the relevant assessment year, the assessee filed its return of income declaring income of Rs. 282,44,84,066/-. In the course of the assessment proceedings, the Assessing Officer (AO) observed that the assessee has debited a sum of Rs. 14,84,26,424 as sales commission, out of which a sum of Rs. 6,46,11,000/- relates to the provision made towards commission. The assessee was asked to explain as to how the provision has been made and on what basis it is worked out and as to why no TDS was made from this amount. The assessee explained that the provision was made on the basis of sales made during the year from different sales offices of the company and on the basis of communication received from these offices regarding commission payable on such sales. As to why no TDS was made from this amount, it was clarified that no TDS was made from the provision but as and when the commission payments were made in the subsequent year, TDS was made and remitted to the Government account.

The AO disallowed a sum of Rs. 6,46,11,000 u/s. 40(a) (ia) since according to him the provisions of section 194H were applicable and the assessee failed to comply with the same. Aggrieved, the assessee filed an appeal to CIT(A) who relying on the decision of the jurisdictional High Court in the case of ACIT vs. Motor Industries Co. (249 ITR 141) held that the amount credited by the assessee is only a provision and not actual payment of commission to the party and till the amounts are credited to the respective party’s account, it cannot be said that the same have become finally quantified and hence, the provisions of section 194H are not attracted. Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:

 The amount credited by the assessee is to the provision account and not to the respective agent’s accounts. Therefore, it is clear that the assessee has not made any payment to the agents. The provisions of section 194H would apply when the payments are made to the agents or credited to the agent’s accounts, whichever is earlier, and not when the payment is credited to the provision account. As rightly pointed out by the learned counsel for assessee, the agents would get vested right to receive the commission only when they fulfill the obligations under the agreement for commission. We find that the CIT(A) has properly appreciated the issue before deleting the addition made by the AO. In view of the same, we do not see any reason to interfere with the finding of the CIT(A) on this issue. This ground of appeal of the revenue was dismissed.

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S/s. 143(2), 292B, 292BB – Where a revised return filed is treated as non-est since the original return was not filed within due date mentioned in section 139(1), the period of issue of notice u/s. 143(2) needs to be computed with reference to date of filing original return of income. Notice issued u/s. 143(2) beyond the period stated in the proviso to section 143(2)(ii) does not fall within the term `any mistake, defect or omission’ stated in section 292B. The provisions of section 292BB canno<

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4. Amiti Software vs. ITO
ITAT  Bangalore `A’ Bench
Before N. V. Vasudevan (JM) and Jason P. Boaz (AM)
ITA No. 540/Bang/2012
A.Y.: 2008-09.  Decided on: 7th February, 2014.
Counsel for assessee / revenue: H. N. Khincha / Bijoy Kumar Panda  

S/s. 143(2), 292B, 292BB – Where a revised return filed is treated as non-est since the original return was not filed within due date mentioned in section 139(1), the period of issue of notice u/s. 143(2) needs to be computed with reference to date of filing original return of income. Notice issued u/s. 143(2) beyond the period stated in the  proviso  to section 143(2)(ii) does not fall within the term `any mistake, defect or omission’ stated in section 292B.  The provisions of section 292BB cannot extend to a case where the question of limitation is raised on admitted factual position in a given case.


Facts:

For the assessment year 2008-09, the assessee filed the original return of income on 01- 10-2008 declaring a total loss of Rs. 16,15,127 and also claiming deduction u/s. 10A amounting to Rs. 1,54,83,511. The assessee computed tax payable under MAT u/s. 115JB. The return of income was processed on 27.8.2009 and it resulted in a demand of Rs. 2,05,710. The return filed was beyond the due date prescribed u/s. 139(1).

The assessee filed a revised return on 30.9.2009 in which business income was stated to be Rs. Nil after claiming exemption of Rs. 1,53,83,511 u/s. 10B. Since the original return was filed beyond the due date, the AO treated the revised return to be non-est. A notice dated 19-08-2010 was issued by the AO and served on the assessee. There was no dispute that this was the only notice issued and served and the assessee did not dispute having received this notice.

Since the original return was filed beyond due date mentioned in section 139(1), the AO in view of the provisions of proviso to section 10A(1A) of the Act, denied the deduction claimed u/s. 10A of the Act. He completed the assessment assessing the total income under the normal provisions of the Act and not u/s. 115JB. Aggrieved, the assessee preferred an appeal to the CIT(A) where it was contended that the assessment be annulled since the notice u/s. 143(2) was issued beyond the time limit mentioned in proviso to 143(2) (ii). The CIT(A) did not agree, since the assessee had attended the hearings and participated in the assessment proceedings. Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:

The admitted factual position is that the notice u/s. 143(2) of the Act dated 09-08-2010 was admittedly beyond the period of six months from the end of the financial year in which the return of income was filed by the assessee, as laid down in proviso to section 143(2)(ii) of the Act. It is also not in dispute that this is the only 143(2) notice issued by the AO. The order of assessment is very clear on this aspect. The law is by now well settled that issuance of a notice u/s. 143(2) of the Act within the statutory time limit is mandatory and it is not a procedural requirement which is inconsequential. Reference may be made to the decision of the Hon’ble Delhi High Court in the case of Alpine Electronics Asia Pvt. Ltd. vs. DGIT, 341 ITR 247 (Del), CIT vs. Vardhana Estates Pvt. Ltd., 287 ITR 368 and ACIT vs. Hotel Blumoon, 321 ITR 362 (SC). The contrary view expressed by the Hon’ble Madras High Court, in our view, cannot be followed as the decisions relied on by the ld. counsel for the assessee of the Hon’ble Punjab & Haryana High Court and Allahabad High Court also took the view that non issuance of notice u/s. 143(2) of the Act renders assessment order invalid. Admittedly, notice u/s. 143(2) of the Act not having been served on the assessee within the period contemplated under law, the order of assessment has to be held to be invalid and annulled.

As far as section 292B is concerned, we do not think that the notice issued by the AO u/s. 143(2) of the Act in the present case will fall within any mistake, defect or omission which is in substance and effect in conformity with or according to the intent and purpose of this Act. The requirement of giving of the notice cannot be dispensed with by taking recourse to the provisions of section 292B of the Act. As far as provisions of section 292BB is concerned, as laid down in the decisions of the Allahabad High Court in the case of Manish Prakash Gupta (supra) & Parikalpana Estate Development (P) Ltd. (supra) and Hon’ble Punjab & Haryana High Court in the case of Cebong India Ltd. (supra), the provisions of section 292BB cannot be applied in a case where admittedly no notice u/s. 143(2) had been issued within the time limit prescribed in law.

We may also clarify that the dispute in the present case is not with regard to issue and service of notice u/s. 143(2) of the Act, as admittedly there was only one notice u/s. 143(2) dated 19-08-2010 issued and served on the assessee before completion of the assessment proceedings.The question is as to, whether the said notice was issued and served within the time contemplated u/s. 143(2) of the Act. The provisions of section 292BB lay down the presumption in a given case. It cannot be equated to a conclusive proof. The presumption is rebuttable. The provisions of section 292BB cannot extend to a case where the question of limitation is raised on admitted factual position in a given case. We therefore hold that the provisions of section 292BB of the Act will not be applicable to the present case.

The appeal filed by the revenue was dismissed.

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Section 54EC –Term ‘month’ used in the provisions does not mean 30 days but it means ‘calendar month’ therefore investments made before the end of the calendar months eligible for deduction.

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3. Alkaben B. Patel vs. Income Tax Officer
In the Income Tax Appellate Tribunal Special
Bench, Ahmedabad
Before G.C. Gupta V. P.), Mukul Kr. Shrawat
(J. M.) and N.S. Saini (A. M.)
ITA No.1973/Ahd/2012
Asst. Year 2009-10.  Decided on 25/03/2014
Counsel for Assessee / Revenue:  U.S. Bhati / P.L. Kureel and O.P. Vaishnav

Section 54EC –Term ‘month’ used in the provisions does not mean 30 days but it means ‘calendar month’ therefore investments made before the end of the calendar months eligible for deduction.

Issue:

The issue before the Tribunal was – whether for the purpose of section 54EC the period of investment of six months should be reckoned after the date of transfer or from the end of the month in which transfer of capital asset took place? The assessee had earned Long Term Capital Gain on sale of a flat. She invested the gain earned in purchase of NHAI bonds and claimed deduction u/s. 54 EC. The sale of flat took place on 10th of June, 2008 and the bonds were purchased on 17th of December, 2008.According to the AO, the assessee was required to invest the capital gain in the specified asset within a period of six months from the date of thetransfer i.e. 10th of December 2008, and that requirement was not complied with by the assessee; hence, not eligible for the deduction u/s. 54EC of IT Act. The contention of the assessee was that since the application for the purchase ofthose bonds was tendered in the bank on 8th December, 2008,which was within the period of six months from the date of the transfer of the Long Term Capital Asset, the assesseewas eligible for the deduction u/s. 54EC.

Alternatively, the assessee’s contention was that up to the endof the month of December 2008, the said investment waseligible for the deduction. According to the AO as well as the CIT(A), the assessee was unable to establish that the impugned application for investment in NHAI bond was actually tendered on 8th of December, 2008. They were also not convinced with the alternate contention of the assessee.

Before the Tribunal, the revenue justified the orders of the lower authorities and contended that the Income-tax Act and the Income-tax Rules have used two types of phraseology in respect of the computation of period for the purpose of prescribing a limitation. The first type of wordings used is “not exceeding 6 months from the date on which application is made” or “anytime within a period of 6 months after the date of suchtransfer”. These words are used in section 54EC and section 281 B as well as in Rule 10K(2) and Rule 11AA(6). The second type of wordings used are “6 months/4months/1 month from the end of the month” in which a particular order is made/received/application is received. This wording is found in section 275 and section 154(8) aswell as in Rule 6DDA(5). It was emphasised that the wordings are unambiguous and the intention of the legislation is apparent that wherever the end of the month is to be calculated then the intention is made clear in the statute itself. Otherwise as per the language, a particular date is to be taken into account for the purpose of calculation of days/ months. It was therefore pleaded that in a situation when the intention of the legislation is clear, then there is no necessity to take the help of “General Clauses Act,1897” as suggested by the assessee. Further, it was pleaded that in section 54EC, the limitation of period for an investment has beenprescribed as “at any time within a period of 6 months from thedate of such transfer”. In ordinary sense, a ‘month’ is a period from a specified date in a month to the date numerically corresponding to the date in the following months, less one. For example, if a particular date is 10th June, 2008, one month shall be up to 9th July, 2008. Therefore, the term”month” has been used in section 54EC in an ordinary sense and the same should not exceed more than 30 days.The wordings of the section should not be replaced by any other wordings. Therefore, in the said example, one month cannot be extended up to 31st July, 2008. If that would have been the intention of the legislation, then certainly these words ought to have been prescribed in the provisions of section 54EC of the Act.

The revenue also relied on the following decisions:
 • Dhanraj Singh Choudhary vs. Nathulal Vishwakarma 16 taxmann.com249 (SC);
• Chironjilal Sharma HUF vs. UOI,(unreported decision of the Supreme Court);
• Jethmal Faujimal Soni vs. ITAT231 CTR332(Bom.);
• Kumarpal Amrutlal Doshi vs. DCIT (Appeal) (ITA No, 1523Mum/2010, order dated 09.02.2011);
• Shree Ram Engg. & Mfg Industries vs. ACIT (ITANo. 3226& 3227/Ahd/2011);
 • Hindustan Unilever Ltd. vs. Deputy Commissioner of Income-tax [191 Taxman 119 (Bom.)];
• S. Lakha Singh Bahra Charitable Trust [15Taxmann. com 97(Asr)].

Held:

The Tribunal noted the argument of the revenue thatsince the statute has prescribed the limitation of six months, the words viz.,“at any time within a period of six months” must not be replaced by the words “at any time within a period of end of six months”. However, according to the tribunal, the incentive provision is to be examined by “purposive construction of statute” or “constructive interpretation of statute” which is neither “liberal interpretation of statute” nor a ‘literal interpretation of statute’. It further added that, it is the true intention of the enactment, which is required to be considered by a court of law.

To resolve the controversy i.e., whether the intention of the legislator was to compute six calendar months or to compute 180 days,the tribunal relied on a decision of the Allahabad High Court in the case of Munnalal Shri Kishan Mainpuri, 167 ITR 415 where the Court while answering the dispute in respect of law of limitation held that, there is nothing in the context of section 256(2) to warrant the conclusion that the word ‘month’ in it refers to a period of 30 days. Therefore, it was held by the Apex court that reference to six months in section 256(2) is to six calendar months and not 180 days. Similarly, it was noted that in the case of Tamal Lahiri vs. Kumar P. N. Tagore, 1978 AIR 1811/1979 SCC (1) 75, the Apex court opined while interpreting section 533 of Bangalore Municipal Act, 1932 the expression six months in the said section means sixcalendar months and not 180 days.

The Tribunal also noted that in a few more sections of the Income-tax Act, the legislature had not used the terms “Month” but has used the number of days to prescribe a specific period e.g. first proviso to section 254(2A) where it is provided that the Tribunal may pass an order granting stay but for a period not exceeding 180 days.This according to the Tribunal was an important distinction made in the statute while prescribing the limitation period. Therefore, the tribunal concluded that in the absence of any definition of the word ‘month’ in the Act, the definition of General Clauses Act 1897 shall be applicable. Accordingly, the tribunal held that the investment in question qualifies for the deduction u/s. 54EC.

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ITO vs. Haresh Chand Agarwal (HUF) ITAT Agra Bench Before A. Mohan Alankamony (AM) and Kul Bharat (JM) ITA No. 282/Agra/2013 A.Y.: 2004-05. Decided on: 20th December, 2013. Counsel for revenue/assessee: K. K. Mishra/ Deependra Mohan.

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S/s. 50C, 147 – Failure to apply provisions of section 50C does not lead to escapement of income. Section 50C is not final determination to prove that it is a case of escapement of income.

Facts:
While assessing the total income of the assessee the Assessing Officer (AO) lost sight of the provisions of section 50C of the Act and computed long term capital gains, arising on transfer of property, by adopting agreement value of Rs. 6 lakh to be the sale consideration. The stamp duty value of this property was Rs. 25,89,000.

Subsequently, the AO recorded reasons and reopened the assessment on the ground that income has escaped assessment. In reassessment proceedings, the AO rejected the contentions of the assessee that the property was rented and since the assessee was in need of funds he had to sell the property to its tenants. The AO adopted the stamp duty value to be full value of consideration. He also did not accept cost of construction declared by the assessee at Rs. 6,42,558 for computation of capital gains.

Aggrieved, the assessee filed an appeal to CIT(A) where it challenged the reopening and also the additions on merits. The CIT(A) held that reopening was bad in law since it was based on change of opinion as the AO did not have any tangible material in his possession except the sale deed which has already been produced before the AO at the stage of original assessment proceedings.

Aggrieved, the revenue preferred an appeal to the Tribunal. Held: The Tribunal after considering the ratio of the various decisions of the Apex Court and the High Courts held that it is clear that AO is not justified in reopening the assessment on mere change of opinion. It is admitted fact that there is no material available with the AO to form his opinion that income has escaped assessment. All material evidences were available at the stage of original assessment proceedings and the AO merely following the provisions of section 50C, as was not considered in the original assessment proceedings, reopened the assessment. The assessee has disclosed all the facts which were known all along to the Revenue. Section 50C is not final determination to prove that it is a case of escapement of income. The report of approved valuer may give estimated figure on the basis of facts of each case. Therefore, on mere applicability of section 50C would not disclose any escapement of income in the facts and circumstances of the case. The AO at the original assessment stage considered all the documents and material produced before him and has accepted the cost of property as was declared by the assessee. Therefore, on mere change of opinion, the AO was not justified in reopening the assessment. The CIT(A) on proper appreciation of facts and law correctly quashed the reassessment proceedings.

The appeal filed by the revenue was dismissed.

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Sunder Deep Education Society vs. ACIT In the Income Tax Appellate Tribunal Delhi Bench ‘ G’ New Delhi Before Rajpal Yadav (J. M.) and T. S. Kapoor (A. M.) ITA No. 2428/Del/2011 Assessment Year: 2007-08. Decided on 6th December, 2013 Counsel for Assessee / Revenue: Rakesh Gupta / N. Srivastava

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Sections 11, 12 and 68 – Failure to present donors on being summoned – Donations cannot be taxed as income under section 68.

Facts
The assessee is registered under the Societies Registration Act, 1860 and u/s. 12AA of the Income tax Act, 1961. It also enjoys exemption u/s. 80G. The assessee runs educational institutions conducting various professional courses. In respect of the voluntary contribution aggregating to Rs. 1.97 crore received during the year, the assessee was not able to produce the donors when summoned by the AO who, as claimed by the assessee, had made the said donations. Therefore, the AO held that the same were anonymous and unexplained cash credit and added the said amount as the assessee’s total income as per section 115BBC and section 68.

Before the CIT(A) the assessee submitted the name and address of the persons who had made donations alongwith other particulars prescribed by the Act. The CIT(A) agreed that the donations could not be treated as ‘anonymous’. However, according to him, since the assessee could not prove the donations amount of Rs. 1.97 crore the same was treated as unaccounted income by him and brought to tax u/s. 11(4) read with section 68/69/69C. Before the tribunal, the revenue did not challenge the CIT(A)’s finding that the donations were not anonymous but contended that as held by the CIT(A), the same were taxable u/s. 68 and 69 as income from other sources and the benefit of section 11 and 12 would not be available to the assessee.

Held
The tribunal referred to the decision of the Delhi tribunal in the case of Shri Vivekanand Education & Welfare Society (ITA No. 2592 / Del / 2012) which was based on the decision of the Delhi high court in the case of DIT(Exem) vs. Keshav Social & Charitable Trust (278 ITR 152) where the Court observed that the fact that complete list of donors was not filed or that the donors were not produced, does not necessariiy lead to the inference that the assesse was trying to introduce un-accounted money by way of donation receipts. The Court further observed that as the assesse had disclosed the donation as income, the provisions of section 68 cannot be applied. Applying the ratio, the tribunal held that the said receipts of Rs. 1.97 crore would be governed by the provisions of sections 11 and 12 of the Act and if 85% thereof is applied towards the objects of the trust, then the income assessable would be nil.

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S/s. 43(6), 50 – The term `acquired’ used in section 50 is not synonymous with acquisition of title to the property. Use of asset is not a condition for availing the benefits of section 50. In a case where amounts are paid and registration had been complete, though possession was not received, it can be said that the assessee has acquired the property for the purpose of section 50.

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6. ITO vs. D. Chetan Kumar & Co.
ITAT  Mumbai `D’ Bench
Before Rajendra (AM) and Dr. S. T. M. Pavalan (JM)
ITA No. 6886/Mum/2011
Assessment Year : 2008-09.                                      
Decided on:  5th March, 2014.
Counsel for revenue/assessee: Sanjeev Jain/Hiro Rai.

S/s. 43(6), 50 – The term `acquired’ used in section 50 is not synonymous with acquisition of title to the property. Use of asset is not a condition for availing the benefits of section 50. In a case where amounts are paid and registration had been complete, though possession was not received, it can be said that the assessee has acquired the property for the purpose of section 50.

Facts:

The assessee had, vide agreement dated 05-04-2007, sold business premises, whose stamp duty value was Rs. 48,47,850, for a consideration of Rs. 39,00,000. Depreciation was claimed on the premises sold and they constituted part of block of asset. The assessee had purchased two new galas vide agreements dated 28-03-2008 for Rs. 27,28,462 and Rs. 12,71,538. The building in which the galas were situated were under construction and possession of these galas was not with the assessee as on 31-03-2008.

The Assessing Officer held that since the possession of new galas purchased were not with the assessee as on 31–03-2008, they could not be said to be forming part of block of assets for financial year 2007-08 and therefore when the sale consideration of the property sold is reduced from the block of assets, the block would cease to exist and the sale consideration in excess of the opening written down value would be taxed u/s. 50. Since the stamp duty value was not disputed by the assessee, the AO adopted stamp duty value to be the sale consideration. He charged Rs. 47,69,046 as short term capital gains.

Aggrieved, the assessee preferred an appeal to CIT(A) who held that a reading of Clause (c) of section 43(6) would reveal that the written down value had to be adjusted by actual cost of any asset falling within the block acquired during the year. The assessee had purchased two galas and the entire amount of Rs. 40 lakh had been paid, registration had been completed, therefore, the assessee had acquired the assets as per section 43(6)(c). The term used in section 50 was “acquired during he previous year”. Referring to the decision of the jurisdictional Tribunal in the case of Orient Cartons Ltd. (60 ITD 87), he held that the use of the asset was not a condition precedent for making an adjustment in block of asset. There was no explicit requirement in the statutory provision to the effect that the new asset should also be used in a business carried on by the assessee and that if there was no business carried on by him, the deduction could not be given. He also held that the word “acquired” in section 50 was of a very amorphous word and the acquisition of the property in that section was not synonymous with acquisition of title to the property. Accordingly, he held that the assessee had acquired the premises within the meaning of section 50 of the Act and therefore was entitled for adjustment of cost of the property with that of WDV of the block of assets for the purposes of capital gains. He allowed the appeal filed by the assessee. Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:

The Tribunal noted that a similar view had been taken in the case of Lalbhai Kalidas & Co. Ltd. (ITA No. 5832/Mum/2011, AY 2007-08 dated 08-11-2013). Following the said decision, the Tribunal upheld the order of the CIT(A) on this ground. This ground of appeal of the revenue was dismissed.

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DCIT vs. Swarna Tollway Pvt. Ltd. In the Income Tax Appellate Tribunal Hyderabad Bench ‘A’, Hyderabad Before Chandra Poojari, (A. M.) and Asha Vijayaraghavan, (J. M.) ITA No. 1184 to 1189/Hyd/2013 Asst. Years : 2005-06 to 2010-11. Decided on 16.01.2014 Counsel for Revenue/Assessee: P. Soma Sekhar Reddy/I. Rama Rao

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Facts:
The assessee was awarded the contract by the NHAI for widening, rehabilitation and maintenance of the existing two-lane highway into a four-lane on BOT basis. The entire cost of construction of Rs. 714.61 crore was borne by the assessee. The assessee claimed depreciation for the years under appeal. The AO held that no ownership, leasehold or tenancy rights were ever vested with the assessee for the assets in question, i.e., roads, in respect of which it had claimed depreciation and, therefore, disallowed the depreciation claimed on the highways.

On appeal by the assessee, the CIT(A) observed that though the NHAI remained the legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possession but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others. In view thereof and relying on certain decisions he held that the assessee was entitled for depreciation. Against this, the Revenue went in appeal before the tribunal.

Held:
The tribunal referred to the decision of the Apex court in the case of Mysore Minerals Ltd. vs. CIT (239 ITR 775) wherein the meaning of word “owner” was explained. In the said case, the Court had allowed the assessee’s claim for depreciation where the title deeds were not executed and possession was given. Further, the tribunal referred to the case of CIT v. Podar Cement (P.) Ltd. (226 ITR 625) (S.C.) where the Court considered the meaning of the word “owner” in section 22 and held that the owner is a person, who is entitled to receive income from the property in his own right. Further, relying on the decision of the Apex Court in the case of R.B. Jodha Mal Kuthiala vs. CIT (82 ITR 570), the Allahabad High Court in the case of CIT vs. Noida Toll Bridge Co. Ltd. (213 Taxman 333) and of the Hyderabad tribunal in the case of M/s. PVR Industries Ltd. (ITA No. 1171, 1175/Hyd/07 and 1176, 1196/Hyd/08 dated 08-06- 2011), dismissed the appeal filed by the revenue.

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Ghatkopar Jolly Gymkhana vs. Director of Income tax (E) In the Income Tax Appellate Tribunal “G” Bench, Mumbai Before D. Karunakara Rao, (A. M.) and Sanjay Garg (J. M) ITA No.882/Mum/2012 Assessment year:2009 -10. Decided on 23/10/2013 Counsel for Assessee / Revenue : A. H. Dalal / Santosh Kumar

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Section 2(15), 12A and 12AA – Charitable trust carrying on the activities which are in the nature of trade, commerce or business receipts therefrom exceeding the limit prescribed under second proviso to section 2(15) – Action of the AO in cancellation of registration by treating the trust as non-genuine not justifiable.

Facts
The assessee is a club registered u/s. 12A as a charitable trust. The DIT(E) noticed that the assessee was carrying on activities in the nature of trade, commerce or business and its gross receipts there from during the year were in excess of Rs.10 lacs, the limit then prescribed under second proviso to section 2(15). According to him since the activities of the assessee did not fall within the definition of charitable purpose as defined u/s. 2(15), the assessee trust became non-genuine and as such the provisions of section 12AA(3) got attracted. He accordingly cancelled the registration w.e.f assessment year 2009-10 and declared the assessee as non-charitable trust. Before the tribunal the revenue justified the order of the DIT(E).

Held
According to the tribunal, before the insertion of the second proviso from 01-04-2009, the definition of charitable purpose when read with first proviso was very restrictive. However, by the insertion of the second proviso the rigour of the first proviso has been diluted and is not applicable if the trust carries on business activities and the gross receipts therefrom is Rs. 10 lakh or less. Thus, according to the tribunal, from 01-04-2009 the carrying out of the activities of trade, commerce or business by a charitable trust is not barred so as to exclude its activities from the definition of charitable purposes. However, a limitation has been imposed to the effect that the gross receipts from such activities should not be more than Rs.10 lacs. The tribunal further noted that the use of the term “previous year” in the second proviso is also more relevant. It means the benefits will not be available to the assessee for the assessment year in which the gross receipts exceed the limit of Rs. 10 lakh. It does not mean that such benefits will not be available to the trust in the years during which its receipts does not exceed Rs. 10 lakh. According to the tribunal, in cases where the receipts from the activities in the nature of trade, commerce or business exceed the limit of Rs. 10 lakh, the registration of the trust as the charitable institution does not get affected, rather, it is the eligibility of the said trust to get tax exemption/benefits which gets affected that too for the relevant year during which the gross receipts of the trust crosses the limit of Rs. 10 lakh. For the said proposition, the tribunal also relied on the decision of the Jaipur bench of the Tribunal in the case of Rajasthan Housing Board vs. CIT (2012) 21 Taxmann.com77.

Accordingly, the tribunal held that the action of the CIT(A) in relying upon the second proviso to section 2(15) for cancelling the registration of the trust was not correct or justified. The only effect will be that the Assessee will not be entitled for exemption or tax benefits which otherwise would have been available to it being registered as charitable institution, for the relevant year during which its income has crossed the limit of Rs. 10 lakh. Subject to the same, the tribunal ordered the restoration of the registration granted to the trust.

(Editorial Note: By the Finance Act, 2011 the limit prescribed under second proviso to section 2(15) has been revised to Rs. 25 lakh w.e.f. 01.04.2012)

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ITO vs. Theekathir Press ITAT Chennai `B’ Bench Before Dr. O. K. Narayanan (VP) and V. Durga Rao (JM) ITA No. 2076/Mds/2012 A.Y.: 2009-10. Decided on: 18th September, 2013. Counsel for revenue/assessee: Guru Bhashyam/J. Prabhakar

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Section 40(a)(ia)– Since there is a judicial controversy on whether section 40(a)(ia) applies to amounts that have already been “paid” or it is confined to amounts “payable” at the end of the year, the rule of judicial precedence demands that the view favorable to the assessee must be adopted.

Facts:
The Assessing Officer disallowed the claim of certain expenditure u/s. 40(a)(ia) on the ground that the tax has not been deducted at source. Aggrieved, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals) who allowed the appeal by stating that the amounts `payable’ only attract disallowance u/s. 40(a)(ia) and the amounts already paid would not attract the provisions of section 40(a) (ia).

Aggrieved, the Revenue preferred an appeal to the Tribunal where it relied on three decisions of Calcutta High Court and Gujarat High Court which have held that the law stated by the Special Bench in Merilyn Shipping & Transports vs. Addl CIT is not acceptable.

Held:
The Tribunal noted that the judgment of the Allahabad High Court is in favour of the assessee but the orders of the Calcutta High Court and the Gujarat High Court are against the assessee. It held that in such circumstances, the rule of judicial precedence demands that the view favourable to the assessee must be adopted, as held by the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC). In view of the fundamental rule declared by the Hon’ble Supreme Court, the Tribunal following the judgment of the Allahabad High Court, which is in favor of the assessee, held that the disallowance u/s. 40(a)(ia) applies only to those amounts which are `payable’ and not to those amounts which are `paid’.

The appeal filed by the revenue was dismissed.

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Section 148 — Reassessment proceedings — Assessee’s appeal allowed by the CIT(A) on merits — In the appellate proceedings whether the assessee can challenge the validity of the reassessment proceedings — Held, Yes.

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Dy. CIT v. Duratex Export
ITAT ‘D’ Bench, Mumbai
Before Pramod Kumar (AM) and Asha Vijayaraghavan (JM)
ITA Nos. 3088 & 3089/Mum./2010 (C.O. Nos. 19 & 20/Mum./2011) A.Ys.: 2001-02 & 2002-03 Decided on: 15-6-2011 Counsel for revenue/assessee: R. K. Gupta/ K. Shivaram

Section 148 — Reassessment proceedings — Assessee’s appeal allowed by the CIT(A) on merits — In the appellate proceedings whether the assessee can challenge the validity of the reassessment proceedings — Held, Yes.


Facts:

The assessee firm was engaged in the business of manufacturing and trading in fabrics. Pursuant to the scrutiny assessment proceedings, the assessment for the A.Y. 2001-02 was finalised on 19-12-2003. In its return the assessee had claimed deduction u/s.80HHC amounting to Rs.3.18 crores which was computed after considering the sum of Rs.24.03 lac received on account of sale of DEPB licence. The assessment for A.Y. 2002-03 was made u/s.143(1). By the Taxation Laws (Amendment) Act, 2005, the receipt on account of the sale of DEPB licence was excluded from the definition of the term ‘total turnover’. The amendment made was retrospective from April 1, 1998. In view thereof, the AO reopened the assessment u/s.147 and issued the notice dated 28-3-2008 u/s.148. The assessee challenged validity of the action of the AO.

On appeal, the CIT(A) treated the grievance against reopening of assessment as not pressed but gave relief to the assess on merits in respect of additions made on account of the sale of DEPB licence by following the Special Bench decision of the Mumbai Tribunal in the case of Topman Exports [318 ITR (AT) 87]. Before the Tribunal, the Revenue relied on the decision of the Bombay High Court in the case of Kalpataru Colours & Chemicals (328 ITR 451) whereunder the Special Bench decision of the Mumbai Tribunal in the case of Topman Exports was reversed. As regards the validity of reopening of assessment, it was contended that since the assessee did not object to reopening of assessment before the CIT(A), it was not open to do so now.

Held:

According to the Tribunal, the mere fact that the assessee was not allowed to, or did not, press the grievance against the reopening of assessment before the CIT(A), particularly in a situation in which the resultant addition on merits could not have been sustained because of binding judicial precedent then holding at the relevant point of time, the assessee cannot be deprived of his rights to adjudicate the reopening of assessment at a later stage. Accordingly, it proceeded to decide the validity of the reassessment proceedings. Relying on the Mumbai Tribunal decision in the case of Dharmik Exim Pvt. Ltd. v. ACIT, (ITA No. 232/ Mum./2009), the Tribunal observed that it was a settled legal position that when the assessment is reopened beyond four years from the end of the relevant previous year and unless it cannot be established that the assessee had failed to disclose all the material facts necessary for the purpose of assessment, such reassessment proceedings cannot be upheld under the law. In the case of the assessee, the assessment for the A.Y. 2001-02 was made u/s.143(3) on 19-12-2003 while the notice u/s.148 was issued after 4 years on 28-3-2008. Therefore, the Tribunal upheld the grievance raised by the assessee in its cross-objection and allowed the same.

According to it, the fact that the assessment for A.Y. 2002-03 was framed u/s.143(1) would not have any impact on the validity of reassessment proceedings. As per the decision of the Mumbai Tribunal in the case of Pirojsha Godrej Foundation v. ADIT, [133 TTJ (Mumbai) 194] where it was held that irrespective of whether the assessment was finalised u/s.143(1) or section 143(3), the requirements of section 147 have to be fulfilled, the Tribunal allowed the cross-objection of the assessee challenging the reassessment proceedings and the appeals filed by the Revenue was dismissed as infructuous.

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Section 271B r.w.s 44AB — Penalty for failure to get accounts audited — Assessee following project completion method of accounting — Whether advances received from the customers could be considered as part of turnover — Held, No.

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Siroya Developers v. DCIT
ITAT ‘I’ Bench, Mumbai
Before S. V. Mehrotra (AM) and Asha Vijayaraghavan (JM)
ITA No. 600/Mum./2010
A.Y.: 2005-06. Decided on: 12-1-2011 Counsels for assessee/revenue: B. V. Jhaveri/ S. K. Singh

Section 271B r.w.s 44AB — Penalty for failure to get accounts audited — Assessee following project completion method of accounting — Whether advances received from the customers could be considered as part of turnover — Held, No.


Facts:

The assessee, a property developer, was following project completion method. During the year the opening work in progress was Rs.4.35 crore and the closing work in progress was Rs.10.07 crore. Besides the assessee had also received advances against sale of flats of Rs.4.03 crore. According to the AO, the assessee was required to obtain and file report u/s.44AB by 31-10-2005. For failure to do so, he levied a penalty u/s.271B. On appeal the CIT(A) confirmed the AO’s order.

Held:

According to the Tribunal, when the assessee was following the project completion method of accounting, the advances received against booking of flats cannot be treated as sale proceeds or a turnover or as part of gross receipt because the same was not received by the assessee unconditionally. For the purpose it relied on views expressed by the Institute of Chartered Accountants of India and on the Pune Tribunal decision in the case of ACIT v. B. K. Jhala & Associates, (69 ITD 141). Accordingly, the penalty levied was deleted and the appeal filed by the assessee was allowed.

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Section 14A — Rule 8D can be invoked only after AO records his satisfaction on how the assessee’s calculation is incorrect. Onus is on the AO to show that expenditure has been incurred for earning taxfree income. Disallowance u/s.14A cannot be made on the basis of presumptions.

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DCIT v. Jindal Photo Limited ITAT ‘D’ Bench, Delhi
Before G. E. Veerabhadrappa (VP) and A. D. Jain (JM)
ITA Nos. 814/Del./2011
A.Y.: 2008-09. Decided on: 23-9-2011 Counsel for revenue/assessee: R. S. Negi/ Rupesh Saini

Section 14A — Rule 8D can be invoked only after AO records his satisfaction on how the assessee’s calculation is incorrect. Onus is on the AO to show that expenditure has been incurred for earning tax-free income. Disallowance u/s.14A cannot be made on the basis of presumptions.


Facts:

The AO disallowed a sum of Rs.31.01,542 u/s.14A of the Act by invoking Rule 8D. However, he did not record satisfaction as to how the assessee’s calculation was not correct. Aggrieved, the assessee preferred an appeal to the CIT(A). The CIT(A) upheld the applicability of Rule 8D but he reduced the amount of disallowance to Rs.19,43,022 by reducing the amount of disallowance on account of interest but as regards disallowance of administrative expenses he upheld the action of the AO. He also upheld the applicability of Rule 8D. Aggrieved, the Revenue preferred an appeal to the Tribunal and the assessee filed cross-objections.

Held:

The Tribunal noted that the assessee has suo motu made a disallowance u/s.14A. The Tribunal also noted that the AO has invoked Rule 8D without recording satisfaction as to how the assessee’s calculation is incorrect. Upon considering the ratio of various decisions of the Tribunal and the decision of the Punjab & Haryana High Court in the case of CIT v. Hero Cycles, (323 ITR 518), the Tribunal held that for invoking Rule 8D the AO must record satisfaction as to how the claim of the assessee is incorrect. If that is not done, provisions of Rule 8D cannot be invoked. An ad hoc disallowance cannot be made under Rule 8D. The onus is on the AO to establish that expenditure has been incurred for earning exempt income. Disallowance u/s.14A cannot be made on the basis of presumption that the assessee must have incurred expenditure to earn tax-free income.

Since the AO had not recorded satisfaction regarding the assessee’s calculation being incorrect and since such satisfaction is a pre-requisite for invoking Rule 8D, the CIT(A) erred in partially approving the action of the AO. The Tribunal dismissed this ground of the appeal filed by the Department. Cases referred:

1. CIT v. Hero Cycles, (323 ITR 518) (P&H)

2. ACIT v. Eicher Ltd., (101 TTJ 369) (Del.)

3. Maruti Udyog v. DCIT, (92 ITD 119) (Del.)

4. Wimco Seedlings Ltd. v. DCIT, (107 ITD 267) (Del.) (TM)

5. Punjab National Bank v. DCIT, (103 TTJ 908) (Del.)

6. Vidyut Investment Ltd. (10 SOT 284) (Del.) 7. D. J. Mehta v. ITO, (290 ITR 238) (Mum.) (AT)

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Section 40(a)(ia) — If tax has been deducted at source and paid to the Government, then no disallowance u/s.40(a)(ia) can be made on the ground that the deduction was at a wrong rate or under an incorrect section.

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DCIT v. S. K. Tekriwal
ITAT ‘B’ Bench, Kolkata
Before Mahavir Singh (JM) and
C. D. Rao (AM)
ITA Nos. 1135/Kol./2010
A.Y.: 2007-08. Decided on: 21-10-2011
Counsel for revenue/assessee: Niraj Kumar/Sanjay Bajoria
       

Section 40(a)(ia) — If tax has been deducted at source and paid to the Government, then no disallowance u/s.40(a)(ia) can be made on the ground that the deduction was at a wrong rate or under an incorrect section.


Facts:

The assessee was engaged in the business of construction of bridges, roads, dams and canals and heavy earth-moving activities in contract with government and semi-government bodies such as BRO, PWD, NTPC, etc. The assessee filed return of income showing total income at Rs.45,49,360. In the course of assessment proceedings, the Assessing Officer (AO) noted that the assessee had debited Rs.3,37,37,464 in the P & L Account under the head ‘machine hire charges’ and on this tax was deducted at source @ 1%. The AO held that these payments attracted TDS u/s.194I @ 10%. He rejected the submissions of the assessee that the payments were made to sub-contractors for completion of specific work and therefore, tax was deducted @ 1% u/s.194C(2) of the Act and also that the payments were not made for hiring of machines, but the same were wrongly grouped under the head ‘Machine hire charges’. He made a proportionate disallowance u/s.40(a)(ia) of the Act with respect to machinery hire charges. Aggrieved, the assessee preferred an appeal to the CIT(A) who examined the agreements entered into by the assessee and found that the quantity of work was fixed and the rate was fixed with reference to the quantity of work. He found merit in the argument that hire charges depend on the time period for which the machines are used. But in the present case, time consumed by the subcontractors or the period for which machines were used was not at all a factor in deciding the payments to be made to sub-contractors. It was only on the basis of quantity of work that the payments were made. He held that the payments were covered by S. 194C(2) and therefore provisions of S. 40(a)(ia) are not attracted. He deleted the addition made by the AO. Aggrieved, the Revenue preferred an appeal to the ITAT.

Held:

The Tribunal after examining the provisions of S. 40(a)(ia) observed that in the present case tax has been deducted at source, although u/s.194C(2) of the Act, it is not a case of non-deduction of tax or no deduction of tax as is the import of the section. It observed that even if it is considered that the sum under consideration falls u/s.194I, it may be considered that tax has been deducted at lower rate and it cannot be considered to be a case of non-deduction or no deduction. It noted that the C Bench of Mumbai ITAT in the case of Chandabhoy & Jassobhoy (ITA No. 20/Mum./2010, order dated 8-7-2011) the Tribunal was dealing with a case where the assessee deducted tax u/s.192 of the Act, whereas the Revenue contended that the tax should have been deducted u/s.194J of the Act, the Tribunal in that case held that the provisions of S. 40(a)(ia) of the Act can be invoked only in the event of nondeduction of tax but not for lesser deduction of tax. S. 40(a)(ia) has two limbs, one is where inter alia the assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay the same into Government account. There is nothing in the said section to treat, inter alia, the assessee as a defaulter where there is a shortfall in deduction. S. 40(a)(ia) refers only to the duty to deduct tax and pay to Government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s.201 of the Act and no disallowance can be made by invoking the provisions of S. 40(a)(ia) of the Act.

The Tribunal confirmed the order of the CIT(A) allowing the claim of the assessee. The Tribunal dismissed the appeal filed by the Revenue.

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Section 51 — Treatment of advance money received — Pursuant to a transaction of sale of property the assessee received advance money — Whether AO justified in reducing the advance money received from cost of acquisition of the property — Held, No.

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Upendrakumar Shah v. ITO
ITAT ‘F’ Bench, Mumbai
Before D. Manmohan (VP) and T. R. Sood (AM)
11 ITA No. 1730/Mum./2009
A.Y.: 2004-05. Decided on: 30-8-2011 Counsel for assessee/revenue: Jayesh Dadia/ A. K. Nayar

Section 51 — Treatment of advance money received — Pursuant to a transaction of sale of property the assessee received advance money — Whether AO justified in reducing the advance money received from cost of acquisition of the property — Held, No.


Facts:

The assessee was the co-owner of an immovable property acquired prior to 31-3-1981. Both the coowners had agreed to sell the property by entering into agreement in November, 1994 for a total consideration of Rs.1.3 crore. The assessee and the co-owner received sales consideration in several instalments during the financial years 1998-99 to 2003-04 and the transfer of the property took place only in the year under consideration. The issue before the Tribunal was whether advance received in connection with the transfer of the property could be reduced from the cost of acquisition of the property. According to the AO as well as the CIT(A), as per the provisions of section 51, the advances received by the assessee should be deducted the from the value of the property as on 1-4-1981 while computing cost of acquisition.

Held:

The Tribunal noted that clause (iii) below the Explanation to section 48 does not provide for reduction of the advance amount from the cost of acquisition as against which, the clause (iv) below the said Explanation, which explains ‘indexed cost of improvement’, states that “the cost inflation index for the year in which the improvement to the asset took place” should be taken as the basis. Further, referring to the Apex Court decision in the case of Travancore Rubber & Tea Co. Ltd. (243 ITR 158), where it was held that advances received and forfeited by the assessee would be reduced from the 11 cost of acquisition u/s.51, the Tribunal held that the provisions of section 51 are applicable to an aborted transaction only. In the case of the assessee, the advances were received from a transaction which was not aborted. According to the Tribunal, the decision of the Bombay High Court in the case of Sterling Investment Corpn. Ltd. (123 ITR 441) also supports the case of the assessee. Accordingly, the appeal filed by the assessee was allowed on the point.

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Shree Cement Ltd. vs. Addl. CIT In the Income Tax Appellate Tribunal Jaipur Bench, Jaipur Before Hari Om Maratha (J.M.) and N.K. Saini (A.M.) ITA No. 503/JP/2012 Assessment year: 2007-08. Decided on 27th January, 2014 Counsel for Assessee/Revenue: D.B. Desai/A.K. Khandelwal

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Section 80IA(8) – Where more than one market value/Arm’s Length Value is available and the assesse is entitled to adopt the market value of its choice. Section 2(24) – Receipt on account of Carbon credit is capital receipt not liable to tax.
(1) Re: Claim u/s. 80IA:

Facts:
The assessee claimed deduction u/s. 80IA in respect of its Power generation undertaking. Power generated by the power undertaking is predominantly used by the assessee captively at its cement unit. For computing the profitability of the power captively consumed, in terms of provisions of section 80IA(8), the assessee considered the market value or Arm’s Length Value being the value at which independent power supplier had sold power to Power Distribution Companies (DISCOMs) in the State of Rajasthan. While the AO applied the rate at which power is supplied by the State Electricity Grid to assessee’s cement unit and accordingly, re-computed the deduction eligible u/s. 80IA. The CIT(Appeals) upheld the action of the AO.

Before the tribunal, the revenue justified the orders of the lower authorities on the grounds amongst others, that:

• the assessee has adopted market price of its choice in computing the transfer price and such discretion cannot be allowed to the assessee;
• On the point of selection of price from the basket of market values, it submitted that there is no such provision in the act which gives assessee such prerogative.
• Since, the assessee itself is drawing power from the State grid on regular basis, Grid rate is the best market price available which should be adopted for computing deduction u/s. 80IA.

Held:
According to the tribunal, the issue before it is where there are two or more market values available and if the assessee has adopted a ‘value’ which is ‘market value’, whether it is permissible for the Revenue to still replace the same by another ‘market value’. The tribunal, on perusal of section 80IA(8) noted that the statute provides that the assessee must adopt ‘Market Value’ as the transfer price. In the open market, where a basket of ‘Market Values’ are available, the Act does not put any restriction on the assessee as to which ‘Market Value’ it has to adopt. It is purely assessee’s discretion. As long as the assessee has adopted a ‘Market Value’ as the transfer price, that is sufficient compliance of law. Even if assessee’s cement unit has purchased power, also from the Grid or that assessee’s Power Unit has also partly sold its power to grid or third parties that by itself, does not compel the assessee or permit the Revenue, to adopt only the ‘grid price’ or the price at which the Eligible Unit has partly sold its power to grid or third parties, as the ‘market value’ for captive consumption of power to compute the profits of the eligible unit. Any such attempt is clearly beyond the explicit provisions of section 80IA(8) of the Act. The above principles are also supported by the decision of Special Bench of Bangalore Tribunal in Aztec Software & Technology Services Ltd. vs. ACIT 107 ITD 141 as well as Mumbai Tribunal decision in the case of ACIT vs. Maersk Global Service Centre (I) Pvt. Ltd. 133 ITD 543. Since the assesse had adopted a rate at which actual transactions had been undertaken by the unrelated entities and the volumes of transaction as relied upon were also substantial, the appeal filed by the assesse on this ground was allowed.

Re: Receipt from Carbon Credit is capital receipt or revenue receipt:

Facts:
The assessee’s project ‘Optimum Utilisation of Clinker’ had generated CER or Carbon Credit by reducing emissions from clinkerisation and from power generation. The said project generated CERs against which the assessee received Rs. 16,02 crore which has been claimed as ‘capital receipt’. In the assessment order, the Assessing Officer held that cost of acquisition of Carbon Credit is NIL & the entire receipt is taxable as capital gain. However, in the computation, it has been added as Business income. The CIT (Appeals) on appeal held that the receipt was in the nature of benefit arising from the business of the assessee and is taxable as ‘Business Income’ u/s. 28(iv) of the Act.

Before the tribunal the revenue submitted that the receipt on account of carbon credit was related to the business of the assessee and the assessee had undertaken activities which had resulted in the receipt on account of carbon credits. Hence, the amount so received had to be considered as related to the business of the assessee and should either be considered as revenue receipts chargeable to tax as business income, or the net amount after deduction of expenditure if any, incurred for the same should be considered as chargeable to tax under the head capital gains.

Held:
The tribunal relied on the decisions of the Hyderabad Tribunal in the case of  My Home Power Ltd.  vs.  DCIT 151 TTJ 616 (Hyd), the Chennai Tribunal in the cases of Sri Velayudhaswamy Spinning Mills (P.) Ltd. vs. DCIT 40 taxmann.com 141  and  Ambika Cotton Mills Ltd. vs. DCIT I.T.A. No. 1836/Mds/2012 and held that receipt on account of Carbon Credit is capital in nature and neither chargeable to tax under the head Business Income nor liable to tax under the head Capital Gains.  In its above view, the tribunal also drew support from the decision of the Supreme Court in the case of Vodafone International Holdings vs. UOI 341 ITR 1 wherein the Supreme Court held that     treatment     of     any     particular     item     in     different    manner in the 1961 Act and DTC serves as an important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically    provides    for    taxability    of    carbon    credit    as    business receipt and Income Tax Act does not do so, the tribunal held in favour of the assessee and the addition made by the AO was deleted.

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Sudhir Thackersey Charitable Trust v. DIT ITAT ‘H’ Bench, Mumbai Before Pramod Kumar (AM) and R. S. Padvekar (JM) ITA No. 5031/Mum./2010 Decided on: 26-8-2011 Counsel for assessee/revenue: A. H. Dalal/ V. V. Shastri

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Section 12AA — Registration of Trust — Delay in application for registration — Refusal to grant registration on the ground that the trust was claiming exemption u/s.11 even though it was not registered — Whether the refusal was on the valid ground — Held, No.

Facts:
The assessee trust came into existence vide trust deed dated 24th August, 2006. It had not applied for registration till 30-10-2009. However, all along the trust was carrying on its activities and duly filing its return of income with claims for exemption u/s.11. The DIT refused to grant registration for the reason that the assessee was claiming exemption u/s.11 even though it had not complied with the mandatory provisions of registration. According to him the assessee had concealed its income by claiming exemption which otherwise it was not entitled to.

Held:
According to the Tribunal the reason for refusal to grant registration as given by the DIT was not relevant to the consideration on which an application for registration of a trust or charitable institution is to be examined. Further, it also noted that the assessee had admitted an inadvertent lapse in nonfiling of registration application and also the fact that the trust had not accepted any donation, other than corpus donation at the time of formation of the trust. According to it, the lapse by the assessee cannot be visited with the consequence of its being declined registration later also, which approach was not supported either by any specific legal provisions or plain logic or rationale. The DIT was only required to examine if the objects of the trust were charitable and the activities were bona fide. Further noting that the assessee had placed enough relevant details and supportive evidences in support of the trust objects being charitable and the activities being bona fide, the Tribunal directed the DIT to grant registration.

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Krishna Land Developres Pvt. Ltd. v. DCIT ITAT ‘G’ Bench, Mumbai Before J. Sudhakar Reddy (AM) and Asha Vijay Raghavan (JM) ITA No. 1057/Mum./2010 A.Y.: 2005-06. Decided on : 12-8-2011 Counsel for assessee/revenue: Rakesh Joshi/ A. K. Nayak

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Sections 22, 28 — Rental income for letting out premises, which are duly notified as IT Park and can be used only for a specific purpose along with provision of complex service facilities and infrastructure for operation such business is chargeable to tax under the head ‘Income from Business’.

Facts:
The assessee had let out on leave and licence basis for a period of 33 months property purchased by it along with the infrastructure, equipment and facilities, which were prescribed both by the Ministry of Commerce as well as the CBDT. The I.T. Park was duly notified by the Ministry of Commerce and also by the CBDT. The assessee offered licence fees in respect of this activity, for taxation, under the head ‘Income from Business’. The Assessing Officer (AO) relying on the decision of the Apex Court in the case of Shambhu Investments P. Ltd. v. CIT, 263 ITR 143 (SC) held that the income is assessable under the head ‘Income from House Property’. Aggrieved the assessee preferred an appeal to the CIT(A).

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

Held:
The Tribunal noted that the property in question was not a simple building but an I.T. Park with all infrastructure facilities and services. It observed that the Ministry of Commerce and Industries, notifies certain buildings as I.T. Park only if various facilities and infrastructure, as specified by the Department, are provided. It noted that all the technical requirements, infrastructures, facilities and services were being provided for in the building and it was for this reason that not only the Ministry of Commerce & Industries but also the CBDT notified the same as an I.T. Park which entitles the assessee to earn certain incentives. It also observed that the intention of the assessee while purchasing the property is to participate in the I.T. Park and it cannot be said that the intention is only to invest in property. The Tribunal observed that:

“The assessee is offering complex services by way of providing operation place in a notified I.T. Park, with all services and amenities such as infrastructure facilities, waiting room, conference room, valet parking, reception, canteen, 24 hours’ securities, internal facilities, high-speed lift, power back-up, etc. Just because a sister concern incurred this expenditure and claims reimbursement from the assessee, it cannot be said that the facilities are not provided for by the assessee. Whoever maintains them, the fact remains that it is the assessee who ultimately bears such expenditure for the services and undertakes to provide such services. The facilities are made available by the assessee to the person occupying the premises.”

The Tribunal noted that the Gujarat High Court has in the case of Saptarshi Services Ltd. 265 ITR 379 (Guj.) held that the income earned from business centre is to be assessed under the head ‘Income from Business and Profession’ and SLP filed by the Revenue against this judgment was rejected by the Supreme Court [264 ITR 36 (St)]. It also noted that the Mumbai Bench of ITAT has in the case of ITO v. Shanaya Enterprises, (ITA No. 3648/Mum./2010, A.Y. 2006-07, order dated 30th June, 2011) held that when the property is used for specific purposes and in the nature of providing complex services, the income is taxable under the head ‘Income from Business’.

Applying the propositions laid down in the abovementioned decisions, the Tribunal held that since the property can be used only for a specific purpose i.e., I.T. operation and the assessee has provided complex service facilities and infrastructure for operating such business, the income in question be assessed under the head ‘Income from Business & Profession’. It set aside the order passed by the CIT(A) and allowed this ground of the assessee’s appeal.

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Mahalaxmi Sheela Premises CHS Ltd. v. ITO ITAT ‘B’ Bench, Mumbai Before J. Sudhakar Reddy (AM) and Vijay Pal Rao (JM) ITA Nos. 784, 785 & 786/Mum./2010 A.Ys.: 2000-01 to 2002-03 Decided on: 30-8-2011 Counsel for assessee/revenue: Hiro Rai/ P. C. Maurya

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Sections 22, 28 and 58 — Income received on lease of a portion of terrace of the building and a wall of the building for the purpose of fixing of hoarding, neon sign, etc., is assessable under the head ‘Income from House Property’.

Facts:
The assessee leased out portion of terrace of the building and a wall of the building to one Mrs. Sudha Vora, for the purpose of fixing of hoarding, neon sign, etc. The Assessing Officer, while assessing the total income for A.Y. 2000-01, assessed the income under the head ‘Income from Other Sources’ on the ground that the amount received by the assessee was not for letting of a building or terrace or any land appurtenant thereto but on account of allowing Mrs. Sudha Vora to display the advertisement of neon sign, illuminated hoarding, of a size 60 ft x 20 ft on the terrace and also illuminated hoarding of size 20 ft x 50 ft on a vertical wall of a building facing Pedder Road. Aggrieved, the assessee preferred an appeal to the CIT(A).

The CIT(A) held that the terrace has not been let out but merely permission has been granted to use the terrace only to set up the hoarding and to display the hoarding. He also observed that the lessee could use only a portion of the terrace and the purpose of utilisation was not for stay, etc. He upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
Before the Tribunal, the assessee relied on the following case laws:

(1) ITO v. Cuffe Parade Sainara Premises Co-op. Society Ltd., (ITA No. 7225/Mum./2005, order dated 28-4-2008)

(2) Dalamal House Commercial Complex Premises Co-op. Society Ltd. v. ITO, (ITA No. 2286/ Mum./2008, order dated 29-5-2009)

(3) Sharda Chambers Premises Co-op. Society Ltd. v. ITO, (ITA No. 1234/Mum./2008, order dated 1-9-2009)

(4) Matru Ashish CHS Ltd. v ITO, (ITA No. 316/ Mum./2010, order dated 27-8-2010)

(5) S. Sohan Singh v. ITO, (16 ITD 272) (Del.); and

(6) CIT v. Bajaj Bhavan Owners Premises Co-op. Society Ltd., (ITA No. 3183 of 2010/Mum.).

The Tribunal noted that in the case of Bajaj Bhavan Owners Premises Co-op. Society Ltd. v. ITO, Mumbai ‘B’ Bench of the Tribunal in ITA No. 5048/Mum./2004, A.Y. 2001-02 and ITA No. 1433/Mum./2007, for A.Y. 2002-03 and ITA No. 1434/Mum./2007, for A.Y. 2003- 04, order dated 4-11-2009, the facts were that the assessee had allowed a telecom company to erect the tower on their terrace in consideration of an amount of Rs.5,93,700 and claimed it as being chargeable under the head ‘Income from House Property’. The Tribunal following the decision in the case of Sharda Chamber Premises v. ITO, (supra) and ITO v. Cuffe Parade Sainara Premises Co-op. Society Ltd. held such income to be chargeable under the head ‘Income from House Property’.

The Tribunal further noted that the jurisdictional High Court in ITA No. 3183 of 2010 in para 3 of judgment dated 16th August, 2011 confirmed the findings of the Tribunal in the case of Bajaj Bhavan Owners Premises Co-op. Society Ltd.

In view of the aforesaid binding judgment of the jurisdictional High Court, the Tribunal set aside the impugned order of the CIT(A), allowed the ground raised by the assessee and directed the AO to assess the income in question under the head ‘Income from House Property’.

The Tribunal allowed the appeal filed by the assessee.

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Raman Gupta Prop. M/s. Raman & Co. v. ACIT ITAT Amritsar Bench, Amritsar Before C. L. Sethi (JM) and Mehar Singh (AM) ITA No. 05/ASR/2010 A.Y.: 2003-04. Decided on: 31-1-2011 Counsel for assessee/revenue: P. N. Arora/ Tarsem Lal

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Section 271D r.w.s 269SS — Penalty for acceptance of loan/deposit otherwise than by account payee cheque/draft — Assessee’s bona fide belief and conduct established a sufficient and reasonable cause — Penalty deleted.

Facts: The assessee had taken cash deposit from three persons amounting to Rs.2.5 lakh from each, aggregating to Rs.7.5 lakh. In response to showcause notice, the assessee explained that on account of urgency, as otherwise the cheque issued by him to the third party would have bounced, he took the cash deposit. Further it was pleaded that he was under the genuine impression that the provisions of section 269SS applied only to the business transactions and not to the personal transactions. However, according to the ACIT, the cheque issued to the third party by the assessee was not for payments to a creditor or discharge of any liability, but the same was issued for payment of a loan to the third party. The ACIT further did not agree with the assessee that the personal transactions were not covered and pointed out that the provisions of section 269SS do not make such distinction. Thus, he imposed a penalty u/s.271D of Rs.7.5 lakh.

According to the CIT(A) none of the exceptions provided u/s.269SS apply to the case of the assessee and the assessee had no compelling reasons to violate the provisions of section 269SS. Accordingly, he confirmed the order imposing penalty.

Held:
The Tribunal noted that the assessee was under bona fide belief that the provisions of section 269SS do not apply to the personal transactions and this belief had not been found to be false or untrue. Secondly, it was noted that the loan so taken was immediately deposited in the bank account and the transactions were duly recorded by the assessee in his books of accounts. According to the Tribunal, the assessee had not consciously disregarded the provisions of section 269SS of the Act. Therefore, relying on the decisions of the Punjab & Haryana High Court in the case of CIT v. Speedways Rubber Pvt. Ltd., (326 ITR 31), it held that the assessee had been able to establish a sufficient and reasonable cause for not accepting the loan by account payee cheque/ draft, and accordingly the penalty imposed was deleted.

Note:
In Hemendra Chandulal Shah v. ACIT, (ITA No. 1129/Ahd./2010), where on a direction of the bank a father had taken cash loan from his son to clear the debit balance in his bank account, according to the Ahmedabad Tribunal, there was reasonable cause and penalty u/s.271D could be imposed. The full text of the decision is available in the office of the Society.

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Vineetkumar Raghavjibhai Bhalodia v. ITO ITAT Rajkot Bench, Rajkot Before A. L. Gehlot (AM) and N.R.S. Ganesan (JM) ITA No. 583/RJT/2007 A.Y.: 2005-06. Decided on: 17-5-2011 Counsel for assessee/revenue: Manish Shah/ N. R. Soni

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Explanation to proviso to clause (v)/(vi) of subsection (2) of section 56 — Gifts from relatives exempt from tax — Whether the gift received from HUF is exempt from tax — Held, Yes — Also held that the amount is exempt u/s.10(2) of the Act.

Issue: The issues before the Tribunal were as under:

1. Whether gift received from HUF by a member of HUF falls under the definition of ‘relative’ as provided in the Explanation to clause (vi) of sub-section (2) of section 56 of the Act?

2. Whether amount received by the assessee from his HUF is covered by section 10(2) of the Act?

The Assessing Officer was of the view that HUF is not covered in the definition of ‘relative’. Therefore, the gift received from the HUF was taxable. On appeal, the CIT(A) confirmed the view of the AO and further observed that if the Legislature wanted, it would have specifically mentioned so in the definition of ‘relatives’. According to him, the exemption u/s.10(2) was available only if the amount was received on partial/total partition and secondly to the extent of share in the assessed income of the current year. Before the Tribunal, the Revenue supported the orders of the lower authorities.

Held:
The Tribunal noted that a Hindu Undivided Family is a person within the meaning of section 2(31) of the Income-tax Act and is a distinctively assessable unit under the Act. Further, it observed that the Act does not define the expression ‘Hindu Undivided Family’, hence, it must be construed in the sense in which it is understood under the Hindu Law. According to it, HUF constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of ‘relative’ as provided in Explanation to clause (vi) of section 56(2) of the Act. It did not agree with the views of the CIT(A) that HUF is as good as ‘a body of individuals’ and cannot be termed as ‘relative’. According to it, an HUF is ‘a group of relatives’. Further, from a plain reading of section 56(2)(vi) along with the Explanation to that section and on understanding the intention of the Legislature from the section, the Tribunal found that a gift received from ‘relative’, irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax as a group of relatives also falls within the Explanation to section 56(2) (vi) of the Act. It pointed out that the Act does not provide that the word ‘relative’ represents a single person. Accordingly, the Tribunal held that the ‘relative’ explained in Explanation to section 56(2)(vi) of the Act includes ‘relatives’ and as the assessee received gift from his ‘HUF’, which is ‘a group of relatives’, the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the ‘relatives’ and therefore, the same was not taxable u/s. 56(2) (vi) of the Act.

As regards the alternative claim for exemption u/s.10(2) — the Tribunal did not agree with the CIT(A) and held that the assessee was entitled to exemption u/s.10(2). According to it, the assessee was a member of HUF and had received the amount out of the income of the family. There was no material on record to hold that the gift amount was part of any assets of HUF. It was out of income of family to a member of HUF, therefore, the same is exempt u/s.10(2) of the Act.

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Bhumiraj Homes Ltd. v. DCIT ITAT ‘B’ Bench, Mumbai Before R. S. Syal (AM) and Asha Vijayaraghavan (JM) ITA No. 2170/Mum./2009 A.Y.: 2004-05. Decided on : 25-3-2011 Counsel for assessee/revenue: Pradip Kapasi/ Naresh Kumar Balodia

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Section 80IB(10) — Deduction in case of housing project — (1) For computation of built-up area for commercial purpose whether proportionate area covered by staircase, passage, lift area and liftroom, etc. is also to be considered — Held, No. (2) While considering the size of the plot whether the unbuilt-up area should be bifurcated in proportion to commercial as well as residential area — Held, No.

Facts:
The assessee, a builder developer had claimed a deduction of Rs.2.55 crore u/s.80IB(10) representing the profits of the housing project. In the original assessment deduction u/s.80IB(10) was disallowed to the extent it was relatable to profits of the commercial area. In the re-assessment proceeding u/s.147, the AO disallowed the remaining part of the deduction which was earlier allowed as in his opinion only the projects approved as ‘housing projects’ were eligible and not those approved as ‘residential as well as commercial projects’ by the local authority.

Before the Tribunal the Revenue contended that the commercial area exceeded 10% of the total built-up area computed on the following basis, hence, the order of the AO was to be upheld. It was submitted that:

  • Built-up area for commercial purpose should include proportionate area covered by staircase, passage, lift area and lift-room;
  • While considering the size of the plot, unbuiltup area should be bifurcated in proportion to commercial as well as residential area. Plot size so calculated was less than 1 acre. It also relied on the decision of the Kolkata Tribunal decision in the case of Bengal Abuja Housing Development Ltd. v. DCIT, (ITA No. 1595/Kol./2005, dated 24-3-2006).

Held:
The Tribunal did not agree with the Revenue’s contention that unbuilt-up area should be bifurcated in proportion to commercial as well as residential area. According to it, in any project there would always be some portion of the area which remains unbuilt and is required to be kept open as per the plans approved. According to the Tribunal the decision of the Kolkata Tribunal was not on the point advocated by the Revenue. As regards the contention to include proportionate area covered by staircase, passage, lift area and lift-room, the Tribunal noted that since all shops and commercial establishments were in the ground floor, such areas cannot be considered to compute built-up area for commercial purpose. Further, relying on the decision of the Bombay High Court in the case of Brahma Associates (ITA No. 1194 of 2010), it allowed the appeal of the assessee.

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Section 115F — Bonus shares received on account of original investments made in foreign currency are ‘foreign exchange asset’ covered by provisions of section 115F.

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Sanjay Gala v. ITO ITAT ‘L’ Bench, Mumbai Before P. M. Jagtap (AM) and V. Durga Rao (JM) ITA No. 2989/Mum./2008  A.Y.: 2005-06. Decided on : 15-7-2011 Counsel for assessee/revenue: Vijay Mehta & Umesh K. Gala/R. S. Srivastava

Facts:

For the A.Y. 2006-07, the assessee, a non-resident Indian, filed his return of income declaring the income of Rs.60,000. The Assessing Officer (AO) while assessing the total income u/s.143(3) of the Act did not treat the bonus shares as foreign exchange assets and denied the benefits available u/s.115C of the Act. He assessed the total income to be Rs.11,23,265. There was no dispute that the original shares in respect of which bonus shares were received were acquired with convertible foreign exchange. Aggrieved, the assessee preferred an appeal to the CIT(A). The CIT(A) held that the provisions of section 115(C)(b) define the term ‘foreign exchange asset’ to mean an asset which the assessee has acquired or purchased or subscribed to in, convertible foreign exchange. He held that the bonus shares were neither acquired nor purchased nor subscribed by the assessee and consequently the same were held to be not ‘foreign exchange asset’. He upheld the order passed by the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

(1) The assessee acquired the original shares by investing in convertible foreign exchange and, therefore, it cannot be said that the bonus shares are acquired in isolation without taking into consideration the original shares acquired by the assessee.

(2) The Tribunal observed that the Supreme Court and various High Courts have considered the issue with regard to value of the bonus shares and held that “the method of spreading over on both the bonus and original shares the cost of acquisition of the original shares would appear to be the proper method of determining the value of the asset. For, there is no doubt that on the issuance of the bonus shares, the value of the original shares is proportionately diminished. In simple language it is ‘split up’. As such, the cost of acquisition of the original shares and their value is closely interlinked and interdependent on the issue of bonus shares. Therefore, once the bonus shares are issued, the averaging out formula has to be followed with regard to all the shares.”

(3) In view of the above proposition, the bonus shares were held to be covered by section 115C(b) of the Act, and the same are eligible for benefit u/s.115F of the Act. The Tribunal allowed the appeal filed by the assessee.

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B. V. Kodre (HUF) v. ITO ITAT ‘B’ Bench, Pune Before I. C. Sudhir (JM) and D. Karunakara Rao (AM) ITA Nos. 834/PN/2008 A.Y.: 2004-05. Decided on: 4-10-2011. Counsel for assessee/revenue: D. Y. Pandit/ Ann Kapthuama

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Section 2(47)(v) — Since the assessee had not received full consideration nor handed over possession of the property, capital gains cannot be assessed in the year of execution of the development agreement.

Facts:
The assessee, B. V. Kodre (HUF), entered into a development agreement on 26-6-2003 with M/s. Deepganga Associates, whereby the HUF gave rights of development of an agricultural land to M/s. Deepganga Associates. The development agreement was stamped under Article 5(ga) of Schedule I of the Bombay Stamp Act, 1958. Under the said article stamp duty was leviable @ 1%. The said article applied if possession of the property was not handed over. In cases where possession of property is handed over, the instrument would be covered by Article 25 and the stamp duty leviable would be 5%. Clause 10 of the agreement provided that possession would be given to the developer on receipt of full payment of consideration. Of the total consideration of Rs.60 lakhs the amount of Rs.38,48,150 was given by the developers to the assessee.

The assessee submitted that since it has not handed over possession of the property and also entire consideration has not been received, there was no transfer. Mere registration of development agreement does not give rise to a transfer. It was contended that since there was no transfer, capital gain is not chargeable to tax in the year under consideration. The AO did not agree with the contentions of the assessee. He noted that transfer u/s.2(47)(v) is wider than that as per the Transfer of Property Act, 1882. He noted that clause 5 of the development agreement allowed the developer to amalgamate, divide, plan and construct. According to him, this indicated that it was a transaction u/s.2(47)(v) of the Act. He charged capital gain to tax.

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

Aggrieved, the assessee preferred an appeal to ITAT where it relied on the ratio of the following decisions:

(a) General Glass Company (P.) Ltd., 14 SOT 32 (Bom.)

(b) ITO v. Smt. Satyawati Devi Verma, (2010) 124 ITD 467 (Del.)

(c) Smt. Raja Rani Devi Ramna v. CIT, (1993) 201 ITR 1032 (Pat.) Held: The Tribunal noted that it has not been rebutted by the Revenue that the development agreement has been stamped under Article 5(ga) of Schedule I of the Bombay Stamp Act and not under Article 25. It also noted that clause 10 of the development agreement provides that property as stated in clause 1 of the agreement will be transferred and the purchase deed will be executed only after the receipt of the payment of entire consideration of Rs.60 lakhs and payment of stamp duty. The Tribunal held that registration is prima facie proof of an intention to transfer but it is no proof of an operative transfer, if there is a condition precedent as to payment of consideration. The transfer u/s.2(47) of the Act must mean any effective conveyance of capital asset to the transferee. Accordingly, where the parties had clearly intended that despite the execution and registration of the sale deed, transfer by way of sale would become effective only on payment of the entire sale consideration, it had to be held that there was no transfer made. Upon considering the ratio of the 3 decisions relied upon by the assessee, the Tribunal observed that the agreement in question does not establish that a transaction of sale of property was completed in terms of provisions of section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act, as neither the sale consideration was paid, nor the possession of the property was handed over to the vendor, and so, the capital gain worked out by the AO and added to the income of the assessee was not justified. The amount received out of the agreed consideration, during the year, at best can be treated as advance towards the agreed consideration of the transaction.

The Tribunal further held that it is an established proposition of the law that the AO is required to make just and proper assessment as per the law based on the merits of the facts of the case before it. Just assessment does not depend as to what is claimed by the assessee, but on proper computation of income deduced based upon the provisions of law. An AO cannot allow the claims of the assessee if the related facts and provisions of law do not approve it and similarly it is also the duty of the AO to allow even those benefits about which the assessee is ignorant but otherwise legally entitled to it.

The facts of the present case are distinguishable from the facts before the Apex Court in the case of Goetze (India) Ltd. v. CIT. In the case before the Apex Court the assessee subsequent to filing of return of income, claimed a deduction by filing a letter. The AO disallowed it on the ground that there was no provision in the Act to allow an amendment in the return without revising it. The action of the AO was upheld. In the present case the question is whether there was a transfer u/s.2(47) of the Act to make an assessee liable to pay capital gains tax. There is no estoppels against proper application of the law.

The Tribunal allowed the appeal filed by the assessee.

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Bennett Coleman & Co. Ltd. v. ACIT ITAT ‘B’ Bench, Mumbai Special Before D. Manmohan, (VP), R. S. Syal (AM) and T. R. Sood (AM) ITA No. 3013/Mum./2007 A.Y. : 2002-03. Decided on : 30-9-2011 Counsel for assessee Revenue : Arvind Sonde and S. Venkatraman/Pavan Ved

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Section 45 r.w.s. 48 — Reduction in share capital of an investee company — Whether the investor can claim proportionate sum of capital reduced as capital loss — Held, No.

Facts:
The assessee had made an investment of Rs.24.84 crore in equity shares of a group company viz., TGL. Pursuant to a scheme of reduction u/s.100 of the Companies Act, the face value of the said company’s shares was first reduced to Rs.5 from Rs.10 and thereafter two equity shares of Rs.5 each were consolidated into one equity share of Rs.10. The assessee claimed its value of investment in TGL got reduced by half to Rs.12.42 crore and hence, after applying the indexation, a sum of Rs.22.22 crore was claimed as long-term capital loss. For the purpose it relied on the decision of the Supreme Court in the case of Kartikeya V. Sarabhai (228 ITR 163) wherein it was held that reduction in face value of shares would amount to transfer, hence, such loss was allowable. According to the AO, the said decision was distinguishable as in that case, the shares involved were non-cumulative preference shares and further in terms of section 87(2)(i) of the Companies Act, 1956, the voting rights of the preference shareholders were also reduced proportionately. He further observed that in the present case the assessee had not received any consideration for reduction in the value of shares, nor any part of the shares had been passed to anyone else. Thus, according to him, there was no change in the rights of the assessee vis-à-vis other shareholders and, therefore, no transfer had taken place and, thus, the assessee was not entitled to the claim of long-term capital loss. On appeal the CIT(A) upheld the action of the Assessing Officer on similar reasoning.

Before the Tribunal the assessee contended that the transaction did amount to a transfer and in support made the following submissions:

ISIN Number, a unique identification number allotted to each security, had changed, meaning thereby that the new shares were different from the old;

old shares had been replaced with the reduced number of new shares, hence, it should be treated as ‘exchange’ of shares which is covered by the definition of ‘transfer’;

as per the decision of the Supreme Court, in the case of Kartikeya V. Sarabhai (228 ITR 163) the definition of transfer given in section 2(47) is an inclusive definition and, inter alia, provides that relinquishment of an asset or extinguishment of any right therein would also amount to transfer of a capital asset;

the principle laid down in the case of CIT v. G. Narsimhan (Decd) and Others, (236 ITR 327) squarely applies since the issue therein was regarding reduction of equity share capital;

as per the Supreme Court in the case of CIT v. Grace Collis & Ors., (248 ITR 323), the expression ‘extinguishment of any right therein’ can be extended to mean extinguishment of right independent of or otherwise than on account of transfer. Thus, even extinguishment of right in a capital asset would amount to transfer and since the assessee’s right got extinguished proportionately, to the reduction of capital, it would amount to transfer.

As regards the absence of consideration, the other ground on which the claim for long-term capital loss was denied by the lower authorities, the assessee contended as under:

In the case of B. C. Srinivasa Setty (128 ITR 294) the proposition was not that if no consideration was received, then no gain can be computed but the proposition was that if any of the element in computation provision could not be ascertained, then computation provision would fail and such gain could not be assessed to capital gains tax. However, in the case of the assessee consideration was ascertainable, in the sense that same should be taken as zero. In this regard he relied on the decision of the Bombay High Court in the case of Cadell Wvg. Mill Pvt. Ltd. v. CIT, (249 ITR 265).

If the idea was not to subject zero consideration transaction to capital gain tax u/s.45, then there was no need for clause (iii) for gifts in section 47.

The assessee concluded by submitting that during the process of reduction of share capital, transfer had taken place and consideration received by the assessee should be considered as zero and, therefore, capital loss should be allowed.

Held:
According to the Tribunal, in the case of Cadell Wvg. Mill Pvt. Ltd. relied on by the assessee, the Bombay High Court specifically declined to entertain the argument that the cost of tenancy right should be taken at zero because according to it, that would amount to charging of capital value of the asset to tax and not capital gain.

In the case of reduction of capital, the Tribunal noted that nothing moves from the coffers of the company and, therefore, it was a simple case of no consideration which cannot be substituted to zero. It further noted that after the decision of the Supreme Court in the case of B. C. Srinivasa Setty, the Legislature had introduced specific provision wherein cost of acquisition of goodwill was to be taken at nil. Similar amendments were made to specify the cost with reference to trademark, cost of right to manufacture or produce or process any article or thing, etc. Therefore, wherever the Legislature intended to substitute the cost of acquisition at zero, specific amendment has been made. In the absence of such amendment it has to be inferred that in the case of reduction of shares, without any apparent consideration, that too in a situation where the reduction has no effect on the right of shareholder with reference to the intrinsic rights on the company, the cost of acquisition cannot be ascertained and, therefore, the provisions of section 45 would not be applicable. For the purpose it also relied on the decisions in the cases of Mohanbhai Pamabhai and also in the case of Sunil Siddharthbhai.

Further with the help of example, the Tribunal explained that even after reduction of capital, the net worth of the company remained the same and the share of every shareholder also remained the same. There was no change in the intrinsic value of the shares and even the shareholder’s rights vis-àvis other shareholders as well as vis-à-vis company remained the same. There was thus no loss that can be said to have actually accrued to the shareholder as a result of reduction in the share capital. The Tribunal further observed that there would also no change even in the cost of acquisition of shares which the shareholder would be entitled to claim as deduction in computing the gain or loss as and when the said shares are transferred or sold in future as per section 55(v).

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Anil G. Puranik v. ITO ITAT ‘A’ Bench, Mumbai Before R. S. Syal (AM) and R. S. Padvekar (JM) ITA No. 3051/Mum./2010 A.Y.: 2006-07. Decided on: 13-5-2011 Counsel for assessee/revenue: Soli Dastur/ Rajeev Agarwal

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Section 49(1), section 50C — Once a particular amount is considered as full value of consideration at the time of its purchase, the same shall automatically become the cost of acquisition at the time when such capital asset is subsequently transferred — Section 50C applies to a capital asset being ‘land or building or both’ and not to ‘any right in land or building or both’ — Leasehold rights in plot of land is not ‘land or building or both’ — Section 50C does not apply to leasehold rights.

Facts:
On 16-8-2004, the assessee was allotted leasehold rights in a plot of land for a period of 60 years under ‘12.50% Gaothan Expansion Scheme’. The allotment was in lieu of agricultural land owned by the assessee’s father which land was acquired by the Government of Maharashtra. The lease agreement, in favour of the assessee, was executed on 8-8-2005. On 25-8-2005, the assessee transferred its rights in the said plot for a consideration of Rs.2.50 crore. In the return of income, the assessee took the stand that since the plot which was transferred by the assessee was received in consideration for agricultural land which was not a capital asset, this plot is also not a capital asset and hence gain on its transfer is not chargeable u/s.45 of the Act. Alternatively, it was contended that the market value of the plot on the date of its allotment to the assessee be taken to be its cost of acquisition. The Assessing Officer (AO) held that though the original land was agricultural, the allotted land was not agricultural and therefore the land transferred was capital asset. He held that by virtue of section 49, the cost of acquisition of original land in the hands of the assessee’s father has to be regarded as the cost of acquisition of the land transferred by the assessee. Also, he invoked the provisions of section 50C and considered the market value of land as per stamp valuation authorities to be full value of consideration.

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:
(1) There were two distinct transactions — the first was the acquisition by the Government of land belonging to the assessee’s father, against which the assessee, as legal heir, was given lease of plot on 16-8-2004. This transaction got completed when the assessee got the leasehold rights viz. on 16-8-2004. The second transaction was transferring, on 25-8-2005, leasehold rights in the plot for a consideration of Rs.2.50 crores. The second asset i.e., leasehold rights in the plot cannot be categorised as agricultural land within the meaning of section 2(14)(iii) of the Act.

(2) The sole criteria for considering whether the asset transferred is capital asset u/s.2(14) or not is to consider the nature of asset so transferred in the previous year and not the origin or the source from which such asset came to be acquired. The second asset i.e., the leasehold rights in the plot cannot be categorised as agricultural land within the meaning of section 2(14)(iii) of the Act. Hence, gains arising on transfer of leasehold rights were chargeable to tax u/s.45 of the Act.

(3) Section 49(1) provides that where a capital asset becomes the property of the assessee by any of the modes specified in clauses (i) to (iv), such as gift or will, succession, inheritance or devolution, etc., the cost of acquisition of such capital asset in the hands of the assessee receiving such capital asset shall be deemed to be the cost for which it was acquired by the person transferring such capital asset in the prescribed modes. In order to apply the mandate of section 49(1), it is a sine qua non that the capital asset acquired by the assessee in any of the modes prescribed in clauses (i) to (iv) should become the subject matter of transfer and only in such a situation where such capital asset is subsequently transferred, the cost to the previous owner is deemed as the cost of acquisition of the asset. Once such capital asset is transferred and another capital asset is acquired, there is no applicability of section 49(1) to such converted asset. The lower authorities erred in applying the provisions of section 49(1) to transfer of leasehold rights.

(4) Since the market value of the leasehold rights, on the date of allotment, constituted full value of consideration for transfer of lands belonging to the assessee’s father, the cost of acquisition of leasehold rights will be its market value on the date of allotment. Once a particular amount is considered as full value of consideration at the time of its purchase, the same shall automatically become the cost of acquisition at the time when such capital asset is subsequently transferred.

(5) Section 50C is a deeming provision which extends only to land or building or both. Deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. The distinction between a capital asset being ‘land or building or both’ and any right in land or building or both is well recognised under the Income-tax Act. The deeming fiction in section 50C applies only to a capital asset being land or building or both, it cannot be made applicable to lease rights in land. As the assessee had transferred lease rights for sixty years in the plot and not land itself, the provisions of section 50C cannot be invoked.

The appeal filed by the assessee was allowed.

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ITO v. Radha Birju Patel ITAT ‘D’ Bench, Mumbai Before N. V. Vasudevan (JM) and Pramod Kumar (AM) ITA No. 5382/Mum./2009 A.Y.: 2006-07. Decided: 30-11-2010 Counsel for revenue/assessee: Jitendra Yadav/Shalin S. Divatia

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Section 14 — Heads of income — Income out of investments in shares of listed companies through Portfolio Management Scheme —Whether the AO was justified in taxing income under the head business income — Held that the income was taxable as capital gains.

Facts:
The assessee had made investment in shares through the Portfolio Management Scheme. She had disclosed a short-term capital gain of Rs.11.61 lakh and short-term capital loss of Rs.0.5 lakh in respect of purchase and sales of shares of various companies. According to the AO based on CBDT Circular No. 4 of 2007, dated 15-6-2007, the case of the assessee falls in the case of trading in shares. A reference was also made to the Supreme Court decision in the case of G. Venkataswami Naidu & Co v. CIT, (35 ITR 594), wherein the had laid down a principle that where purchases had been made solely and exclusively with intention to resell at a profit and the purchaser had no intention of holding property for himself or otherwise enjoying or using it, presence of such an intention was a relevant factor and unless it was offset by presence of other factors, it would raise a strong presumption that the transaction was in the nature of trade. He also noted that dividend earned during the year amounted to Rs.0.94 lakh, which according to him indicated that the intention of the assessee was to hold shares only for such period as may enable her encashing the appreciation in its value. On appeal by the assessee, the CIT(A) held in favour of the assessee. Being aggrieved, the Revenue appealed before the Tribunal and relied on the order of the AO.

Held:
The Tribunal noted that the assessee was doing investment activities through the Portfolio Manager. Such activities were for maximisation of wealth rather than encashment of profits on appreciation in value of shares. It further noted that the very nature of the Portfolio Management Scheme was such that the investments made by the assessee were protected and enhanced. Therefore, according to it, in such a circumstance, it cannot be said that Portfolio Management was a scheme of trading in shares and stock. Accordingly, it upheld the order of the CIT(A).

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ITO v. Chheda Construction Co. (Joint Venture) ITAT ‘C’ Bench, Mumbai Before R. S. Padvekar (JM) and Rajendra Singh (AM) ITA No. 2764/Mum./2009 A.Y.: 2005-06. Decided on: 27-4-2011 Counsel for revenue/assessee: Ajit Kumar Sinha/K. Shivram

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Section 80IB(10) — Amendment to section 80IB(10) w.e.f. A.Y. 2005-06 restricting the commercial area to 5% is not applicable to projects commenced prior to 1-4-2005.

Facts:
The assessee, a builder and land developer, had entered into an agreement to develop and construct a building project on land situated at Mira Taluka, Dist. Thane. For A.Y. 2005-06, the assessee filed a return of income in which it claimed deduction u/s.80IB(10) of the Act. The AO noted that the housing project which consisted of 94,255 sq. ft had shopping area to the extent of 7,935 sq. ft. The AO denied the deduction on the ground that in view of the amendment to section 80IB(10) w.e.f. 1-4- 2005, the assessee was not entitled to deduction u/s.80IB(10) of the Act.

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

Aggrieved by the order passed by the CIT(A) the Revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the assessee’s project had commenced prior to 1-4-2005. It also noted that in the case of Brahma Associates, the High Court has held that the amendment to section 80IB is prospective in operation. Since the assessee’s project had commenced in December 2003, the Tribunal held the amendment to be not applicable to the assessee’s case.

The Tribunal dismissed the appeal filed by the Revenue.

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Pyare Mohan Mathur HUF v. ITO ITAT Agra Bench Before P. K. Bansal (AM) and H. S. Sidhu (JM) ITA No. 471/Agra/2009 A.Y.: 2005-06. Decided on: 21-4-2011 Counsel for assessee/revenue: Rajendra Sharma/ Vinod Kumar

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Section 2(22B), section 50C, section 55(2)(b)(i) — Cost of acquisition of the property u/s.55(2) (b)(i) will be its fair market value as on 1-4-1981 as determined by the registered valuer and not the circle rate.

Facts:
The assessee sold property acquired by him prior to 1-4-1981. The assessee computed capital gains by considering fair market value of the property on 1-4-1981 to be its cost of acquisition. The fair market value adopted by the assessee was on the basis of a valuation report of a registered valuer. The Assessing Officer (AO), on the basis of Inspector’s Report, took circle rate list dated 8-6-1981 and valued the land on 1-4-1981 on the basis of circle rate and regarded this value to be the fair market value to be considered as cost of acquisition for computing capital gains.

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

Aggrieved, by the order of the CIT(A), the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the term ‘fair market value’ is defined in section 2(22B) and no rules have been made for purpose of determining fair market value. The assessee had relied on the valuation report which he obtained from the registered valuer who is technical person and duly approved by the Department, whereas the AO had deputed the Inspector who brought the circle rate of the village where the land was situated and had adopted the circle rate to be fair market value. There is no provision under the chapter relating to capital gains which states that circle rate will be treated as cost of acquisition. Circle rates are notified by the State Government for levy of stamp duty for registration of sale deeds. The circle rates are deemed to be full value of consideration received or accruing as a result of transfer u/s.50C. But this section nowhere states that circle rates as notified will be the fair market value. The Tribunal held that in view of the provisions of section 55A once the assessee has submitted the necessary evidence by way of valuation report made by the Registered Valuer, the onus gets shifted on the AO to contradict the report of the Registered Valuer. The registered valuation officer is a technical expert and the opinion of an expert cannot be thrown out without bringing any material to the contrary on record. In case the AO was not agreeable with the report of the Registered Valuer, he was duty bound to refer the matter to the DVO for determining the fair market value of the land as on 1-4-1981 which he failed to do so. The Tribunal held that the Revenue has not discharged the onus but merely rejected the fair market value taken by the assessee. It set aside the order of the CIT(A) and directed the AO to re-compute the capital gain after taking the fair market value of the land as on 1-4-1981, as claimed by the assessee.

This ground of appeal filed by the assessee was allowed.

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Sections 28(iv) and 41(1) — Remission of loan liability — Loan utilised for the purpose of acquisition of capital assets — Whether loan liability remitted taxable — Held, No.

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Terra Agro Technologies v. ACIT ITAT ‘C’ Bench, Chennai Before Dr. O. K. Narayanan (VP) and Hari Om Maratha (JM) ITA No. 1503/Mds./2010 A.Y. : 2004-05. Decided on : 9-6-2011 Counsel for assessee/revenue: Percy Pardiwala and Jitendra Jain/Dr. I. Vijaykumar
During the year under appeal, the assessee had shown Rs.13.54 crore as extra ordinary income in the profit and loss account. It represented Rs.6 crore as unsecured loan from corporate written back and Rs.7.61 crore, being concession given by banks towards waiver of principal amount of loan. According to the AO, the said income, which was taxable u/s.28(iv), had escaped assessment. Hence, the case was reopened and income was assessed u/s.143(3) r.w.s. 147.

On appeal, the CIT(A) confirmed the order of the AO. Before the Tribunal the assessee challenged the reopening of the case and contended that the facts were known to the AO while passing the original order and it was merely a change of opinion. It was further contended that even if all the procedures are considered to be correctly followed by the AO, the reopening made on the basis of a reason was not sustainable in law. According to it, in all cases of remission of liability, it was section 41(1) which would be applicable and not section 28(iv). The Revenue supported the orders of the lower authorities and relied on the order of the Supreme Court in the case of T. V. Sundaram Iyengar & Sons v. CIT, (222 ITR 344) and the decision of the Bombay High Court in the case of Solid Containers v. DCIT, (308 ITR 417).

According to it, the loans availed by the assessee were utilised for the purpose of carrying on of the business and therefore the AO was right in holding that it was the benefit which arose to the assessee during the course of its business and taxable u/s.28(iv).

Held:

The Tribunal agreed with the assessee and relying on the decision of the Supreme Court in the case of Commissioner of Agricultural Income Tax v. Kerala Estate Mooriad Chalapuram, (161 ITR 155) held that since the loan received was utilised for acquiring capital assets, the amount remitted was not taxable u/s.41(1).

According to the Tribunal the decision of the Chennai High Court in the case of Iskraemeco Regent Ltd. v. CIT, (196 Taxman 103) was also directly applicable to the case of the assessee. According to it, the said decision had considered the decisions of the Bombay High Court not only in the case of Solid Containers Ltd. v. DCIT, (308 ITR 417), but also that of Mahindra & Mahindra Ltd. v. CIT, (261 ITR 501). Further it was noted that the said decision had also distinguished the decision of the Supreme Court in the case of T. V. Sundaram Iyengar & Sons, which was relied on by the Revenue. Accordingly, the appeal of the assessee was allowed.

Errata: Note below a Tribunal decision (Sr. No. 21 on page 24 of August issue of BCAJ) may be read as under: In Hemendra Chandulal Shah v. ACIT, (ITA No. 1129/ Ahd./2010), where on a direction of the bank a father had taken cash loan from his son to clear the debit balance in his bank account, according to the Ahmedabad Tribunal there was reasonable cause and penalty u/s.271D cannot be imposed. The full text of the decision is available in the office of the Society.

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Reference to Special Bench cannot be withdrawn on the ground that the High Court has admitted an identical question of law — Mere fact that a superior authority is seized of an issue identical to the one before the lower authority, there cannot be any impediment on the powers of the lower authority in disposing of the matters involving such issue as per prevailing law.

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DCIT v. Summit Securities Ltd. (SB) ITAT Special Bench, Mumbai Before D. Manmohan (VP), R. S. Syal (AM) and N. V. Vasudevan (JM) ITA No. 4977/Mum./2009 A.Y.: 2006-07. Decided on: 10-8-2011 Counsel for revenue/assessee: Sanjiv Dutt/S. E. Dastur & Niraj Seth

Facts :

The assessee transferred its power transmission business for an agreed consideration of Rs.143 crore and offered the equal amount as capital gain arising out of slump sale. The net worth of the business transferred was determined by the auditors to be negative Rs.157.19 crore. The Assessing Officer (AO) held that the sale consideration should have been taken as Rs.300 crore (agreed sale consideration + additional liabilities taken over). Aggrieved the assessee preferred an appeal to CIT(A). The CIT(A) relying on the two decisions of the Tribunal in Zuari Industries Ltd. v. ACIT, 105 ITD 569 (Mum.) and Paperbase Co. Ltd. v. CIT, 19 SOT 163 (Del.) held that negative net worth has to be treated as zero in the context of the provisions of section 50B. He decided this issue in favour of the assessee. Aggrieved the Revenue preferred an appeal to the Tribunal. When the matter came up for hearing before the Division Bench (DB) and the DB expressed its tentative view that it was not convinced with the view taken by the co-ordinate Bench in the case of Zuari Industries Ltd. (supra) it was submitted on behalf of the assessee that the issue may be referred to the Special Bench. The President, on request of the DB, constituted SB for giving an opinion on the following question.

 “Whether in the facts and circumstances of the case, the Assessing Officer was right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump sale?”

On receipt of the notice for hearing before the SB the assessee vide his letter addressed to the President submitted that since the Bombay High Court has admitted an appeal involving the same issue in the case of Zuari Industries Ltd. (supra) the reference made to the Special Bench be withdrawn. The assessee pointed out that in the past reference to SB was withdrawn when the High Court had taken steps to decide the issue. The President disposed of this application with the remarks “Place before the Special Bench for consideration”. The Special Bench, heard the above issue and held as under:

Held:

The SB, having noted that the High Court has neither decided the point on merits, nor blocked hearing of cases involving identical question of law by the Tribunal till the disposal of the appeal pending before it, held that the mere fact that a superior authority is seized of an issue identical to the one before the lower authority, there cannot be any impediment on the powers of the lower authority in disposing of the matters involving such issue as per law. The consequences of such a course of action would lead to a chaotic situation. The entire working of the Tribunal will come to a standstill if a reference to the Special Bench is withdrawn simply on the ground that identical question of law has been admitted by the High Court. Also, the SB having noticed that the SB was constituted at the request of the assessee, held that when the SB has actually been constituted at the plea of the assessee, now the assessee cannot turn around and argue that the SB be deconstituted. Such vacillating stand of the assessee did not find approval of the SB.

The SB observed that the assessee’s interest is not affected in any manner, whether the case is heard by the DB or the SB. The SB held that the reference to the SB cannot be withdrawn merely for the reason that the High Court has admitted the identical question of law in another case. The preliminary objection of the assessee was not acceptable. The SB finally observed that it has not touched upon, nor does it have jurisdiction to call in question the powers of the President to constitute or deconstitute any SB. He has abundant powers in the matter of constituting or withdrawing reference to the SB in the facts and circumstances of each case. The observations in this case should not be construed in any manner as eclipsing his powers in this regard.

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Section 40(a)(ia) — Disallowance of expenditure on account of non-deduction of TDS — Non-deduction was on account of non-allotment of TAN — Whether the disallowance was justified — Held, No.

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Inder Prasad Mathura Lal v. ITO ITAT ‘A’ Bench, Jaipur Before R. K. Gupta (JM) and N. L. Kalra (AM) ITA No. 1068/JP/2010 A.Y.: 2005-06. Decided on: 27-5-2011 Counsel for assessee/revenue: Mahendra GargieyaG. R. Pareek

Facts:

For non-deduction of tax at source the AO disallowed the sum of Rs.4.62 lakh paid by the assessee towards brokerage and commission. The non-payment was on account of the non-receipt of TAN. The assessee pointed out that he had immediately applied for TAN when the bank refused to accept tax payment without TAN. However, till 31-3-2005 TAN was not allotted. Hence, he again applied for TAN which was finally allotted on 15- 4-2005 and the tax was paid on 25-4-2005. Since the tax was not paid by the year-end, the amount paid by way of brokerage and commission was disallowed by the AO u/s.40(a)(ia). On appeal, the CIT(A) confirmed the order of the AO.

Held:

The Tribunal noted that the assessee was depositing TDS in time up to 7-12-2004. He had also applied for TAN and since the bank refused to accept TDS without TAN, he was unable to pay tax. Thus, according to it, the assessee was prevented from performing his obligations under the law despite his bona fide efforts and he cannot be regarded as defaulter. For the purpose, it also relied on the decisions of the Calcutta High Court in the case of Modern Fibotex India Ltd. & Another v. DCIT, (212 ITR 496) which was approved by the Apex Court in the case of CIT v. Hindustan Electro Graphites Ltd., (243 ITR 48) and also on the Hyderabad Tribunal decision in the case of ACIT v. Jindal Irrigation Systems Ltd., 56 ITD 164 and Nagpur Bench of Tribunal decision in the case of Canara Bank v. ITO, (121 ITD 1). The Tribunal further noted that the provisions of section 40(a)(ia) are amended by the Finance Act, 2010 w.e.f. 1-4-2010 to provide that the expenditure shall not be disallowed if TDS is paid on or before the due date specified in section 139(1). According to it, if the amendment is curative or is intended to remedy unintended consequences or to render the statutory provisions workable, the amendment was to be construed to relate back to the provisions in respect of which it applies to the remedy. It referred to the following decisions where it was held that the amendments were retrospective though such retrospectivity was not mentioned by the Legislature while introducing the provisions.

The cases relied on were:

  •  Allied Motors Pvt. Ltd. v. CIT, (139 CTR 364) (SC);

  •  CIT v. Alom Extrusion Ltd., (319 ITR 306) (SC);

  •  CIT v. Podar Cements Pvt. Ltd., (226 ITR 625) (SC); and
  •  CIT v. Gold Coin Health Food Pvt. Ltd., (304 ITR 308) (SC).

Further, relying on the decisions of the Ahmedabad Tribunal in the case of Kanubhai Ramjibhai v. ITO, (135 ITD 364) and of the Mumbai Tribunal in the case of Bansal Parvahan India Pvt. Ltd. v. ITO, (137 TTJ 319), where it was held that the amendment in section 40(a)(ia) was curative in nature, it allowed the appeal of the assessee.

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Tricon Enterprises Ltd. v. ITO ITAT ‘E’ Bench, Mumbai Before Pramod Kumar (AM) and V. Durga Rao (JM) ITA No. 6143/Mum./2009 A.Y.: 2006-07. Decided on: 31-5-2011 Counsel for assessee/revenue: B. V. Jhaveri/ Ashima Gupta

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Section 36(1)(vii) — Bad debts — Assessee’s claim, who was an exporter, for allowability of bad debts was rejected on the grounds that the assessee was allowed deduction u/s.80HHC as also that it had not obtained RBI’s permission for write-off — Whether the lower authorities justified — Held, No.

Facts:
The assessee was 100% exporter. Its claim for allowability of Rs.33.6 lakh as bad debts was disallowed by the AO on the grounds amongst others that it was allowed deduction u/s.80HHC. The CIT(A) dismissed the appeal for the reason that the assessee had not taken RBI’s permission for writing off of debts.

Held:
The Tribunal noted that the assessee had not included the unrealised export bills while claiming deduction u/s.80HHC. Further, relying on the decision of the Delhi High Court in the case of CIT v. Nilofer I. Singh, (309 ITR 233), it held that obtaining RBI’s permission for write-off of dues on a foreign importer was an irrelevant factor, so far as admissibility of deduction as bad debt was concerned. Relying on the Supreme Court decision in the case of TRF Ltd. v. CIT, (323 ITR 397), the Tribunal allowed the appeal of the assessee.

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Gajendra Kumar T. Agarwal v. ITO ITAT ‘G’ Bench, Mumbai Before D. Manmohan (VP) and Pramodkumar (AM) ITA No. 1798/Mum./2010 A.Y.: 2006-07. Decided on: 31-5-2011 Counsel for assessee/revenue: S. L. Jain/ Pavan Vaid

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Sections 43(5), 72, 73 — Assessee is entitled to set off the loss incurred in the business of dealing in derivatives in the assessment years prior to A.Y. 2006-07 against the profits earned in the same business in the A.Y. 2006-07 and later assessment years.

Facts:
During the A.Y. 2006-07 the assessee earned profit of Rs.1,91,48,060 from dealing in derivatives. He had brought forward losses, for A.Y. 2001-02 to 2005-06, from this activity amounting to Rs.4,68,75,320. The assessee in his return of income claimed set-off of brought forward losses against the current years profit and the balance amount of losses amounting to Rs.2,77,27,260 was claimed to have been carried forward to subsequent years. The set-off and also the carry forward as claimed was allowed. Subsequently, the CIT was of the view that the setoff granted by the AO rendered the assessment order erroneous and prejudicial to the interest of the Revenue to the extent of carry forward of losses. The CIT, in view of the amendment to S. 43(5) which he held to be prospective, declined the set-off of past losses (which he considered to be as speculative in nature) in dealing in derivatives against the profits in dealing in derivatives in the current year (which were considered to be non-speculative).

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
(1) The business loss, speculative or nonspeculative, incurred by an assessee in one assessment year can be set off against the profits of the same business, speculative or non-speculative, or any other business in the same category.

(2) The ratio of the decision of the Supreme Court in the case of CIT v. Manmohan Das, (59 ITR 699) (SC) read with the ratio of the decision of the Bombay High Court in the case of Western Oil Distributing Ltd. v. CIT, (126 ITR 497) (Bom.) is an authority for the following significant propositions viz.:

(a) Whether a particular business loss, speculative or non-speculative, incurred by the assessee in an earlier year is eligible for set-off against business income in a subsequent year, is to be taken in the course of proceedings in the subsequent assessment year, i.e., the assessment year in which set-off is claimed;

(b) Section 73(2) confers a statutory right upon the assessee who sustains a loss of profits in any year in any business, profession or vocation to carry forward the loss as is not set off under sub-section (1) to the following year, and to set it off against his profits and gains, if any, from the same business for that year. Once this statutory right is recognised, it is a natural corollary of that recognition that when an assessee incurs a loss in a business, speculative or non-speculative, in any year, such loss has to be, subject to the fulfilment of other pre-conditions, to be set off against profits of the same business in subsequent year;

(c) In the course of proceedings of the subsequent assessment year, i.e., the assessment year in which set-off of loss is claimed, it is open to even decide the true nature and character of loss incurred in the earlier relevant assessment year. Even a finding about the nature of loss, in the assessment year in which loss is incurred, does not bind the assessee, and that aspect of the matter can be decided afresh in the course of proceedings in the assessment year in which set-off is claimed.

(3) The question whether the losses incurred in dealing in derivatives are eligible for set-off has to be determined as per the law prevailing in the year of set-off. As in the year of set-off, derivatives transactions are not, pursuant to the amendment to section 43(5), treated as ‘speculative transactions’, the losses incurred prior to the amendment have to be treated as normal business losses and are eligible for setoff against all business income in accordance with section 72.

(4) The provisions of carry forward and set-off are to be construed in a manner so as not to defeat the plain and unambiguous intention of the Legislature. This amendment was to provide relief to the taxpayers and is to be viewed as beneficial provisions, as such, one cannot possibly proceed on the basis that the object of making amendment in section 43(5) was to kill the brought forward losses of dealing in derivatives or make them ineligible for being set off against the profits of the same business in subsequent years. Whatever may be the characterisation of income for the purpose of intra-assessment year set-off in the relevant assessment year, and irrespective of the fact that such a characterisation has achieved finality in assessment, the losses and profits from dealing in derivatives must be characterised on a uniform basis in the assessment year in which set-off is claimed.

The Tribunal allowed the appeal filed by the assessee and held that there was no infirmity in the AO granting set-off and the order of the AO could not be held to be erroneous and prejudicial to the interest of the Revenue. The revision proceedings were quashed.

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ITO v. Laxmi Jewel Pvt. Ltd. ITAT Mumbai Bench Before R. V. Easwar (President) and B. Ramakotaiah (AM) ITA No. 2165/Mum./2010 A.Y.: 2004-05. Decided on: 29-4-2011 Counsel for revenue/assessee: Shravankumar/K. A. Vaidyalingam

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CBDT Instruction No. 3/2011, dated 9-2-2011 — CBDT Circular fixing monetary limits for filing appeals by the Department applies to pending appeals as well.

Facts:
This was an appeal filed by the Revenue against the order of the CIT(A) directing the AO to allow deduction u/s.10A amounting to Rs.5,78,432 in respect of interest income, which according to the AO was not derived from the business or profession. On behalf of the assessee, relying on the decision of the Bombay High Court in the case of CIT v. Madhukar K. Inamdar, (318 ITR 149) (Bom.) and also on the ratio of the decision of the Delhi High Court in the case of CIT v. Delhi Race Club Ltd., (ITA No. 128 of 2008 dated 3-3-2011), it was argued that the tax effect is only Rs.2,07,512 and as per Instruction No. 3/2011, the Revenue should not contest appeal up to Rs.3,00,000.

Held:
Considering the similar situation where tax limits were modified by the CBDT Instruction No. 5 of 2008, the Jurisdictional High Court in the case of CIT v. Madhukar Inamdar, (HUF) (supra) held that the Circular will be applicable to the cases pending before the Court either for admission or for final disposal.

The Tribunal dismissed the appeal filed by the Revenue on issue of tax effect involved.

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Akber Abdul Ali v. ACIT ITAT ‘B’ Bench, Mumbai Before J. Sudhakar Reddy (AM) and V. Durga Rao (JM) ITA No. 5538/Mum./2008 A.Y.: 2005-06. Decided on: 28-12-2011 Counsel for assessee/revenue: N. R. Agarwal/P. K. B. Menon

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Section 40(a)(ia) r.w. section 194A — Disallowance of interest for failure to deduct tax at source — Payment of disputed amount with interest as per the Court order — Interest paid without deduction of tax at source — Whether AO justified in disallowing the same — Held, No.

Facts:
The assessee was liable to pay the sum of Rs.68.54 lakh to one of its creditors. On account of his failure to pay, the suit for recovery was filed by the said creditor. The Court passed the decree settling the amount at Rs.55 lakh, which also included the sum of Rs.18.5 lakh towards interest.

In the return of income filed by the assessee, the amount paid by way of interest was claimed as deduction. Since the assessee had not deducted tax at source, the AO disallowed the claim u/s.40(a)(ia). The CIT(A) on appeal upheld the order of the AO.

Before the Tribunal, the assessee contended that the amount was paid in accordance with the decision of the High Court. The interest payable under the decree of the Court was a judgment debt, therefore, he was not obliged to deduct tax at source.

Held:
In view of the ratio laid down by the Bombay High Court in the case of Madhusudan Shrikrishna v. Emkay Exports, (188 Taxman 195), the Tribunal agreed with the assessee and held that the assessee had no obligation to deduct tax at source on the interest amount of Rs.18.5 lakh paid to the creditor.

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HV Transmissions Ltd. v. ITO ITAT ‘H’ Bench, Mumbai Before R. V. Easwar (President) and P. M. Jagtap (AM) ITA No. 2230/Mum./2010 A.Y.: 2001-02. Decided on : 7-10-2011 Counsel for assessee/revenue: Dinesh Vyas/ Goli Sriniwas Rao

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Section 147 — Even an assessment completed u/s.143(1) cannot be reopened unless there is fresh material

Facts:
The assessee company, engaged in the business of manufacturing heavy gear boxes, filed its return of income, on 31-10-2001, declaring a loss of Rs. 73,57,95,273. This return of income was processed u/s.143(1) on 28-1-2003. The assessee filed a revised return of income on 27-3-2003 declaring a loss of Rs.74,22,78,281 after revising its claim u/s.35DDA in respect of employee separation cost. The AO, from the balance sheet filed by the assessee along with its return of income observed that the assessee had incurred expenses towards ERP software amounting to Rs.95,14,000 and although 20% of the said expenses were only debited in P&L account, the entire amount of Rs.95,14,000 was claimed as a deduction in computation of total income. He, accordingly, entertained a belief that to this extent income has escaped assessment and the assessment was reopened by issuing a notice u/s.148 on 3-3- 2006.

In an order passed u/s.143(3) r.w.s. 147, the AO assessed the loss to be Rs.50,17,47,153 after making addition inter alia on account of disallowance of expenses incurred on ERP software treating the same as of capital nature. He also disallowed claim for depreciation at 100% in respect of pollution control and energy saving devices at 100% valued at Rs.29.27 crore holding that the same had been earlier used by sister concern of the assessee-company.

Aggrieved the assessee preferred an appeal to the CIT(A) challenging the validity of the said assessment and also the various additions/disallowances made therein. The CIT(A) upheld the validity of reassessment proceedings and also the addition on account of disallowance of expenses incurred on ERP software treating the same as capital in nature. He, however, allowed relief in respect of depreciation at the rate of 100% on pollution control and energy saving devices.

Aggrieved, the assessee preferred an appeal to the Tribunal challenging inter alia the validity of the assessment on the ground that initiation of reassessment proceedings was bad in law.

Held:
The Tribunal on perusal of the reasons recorded by the AO noted that there was no new material coming to the possession of the AO on the basis of which the assessment completed u/s.143(1) was reopened. The Tribunal also noted that in the case of Telco Dadaji Dhackjee Ltd. v. DCIT, (ITA No. 4613/ Mum./2005, dated 12th May, 2010) (Mum.) (TM), the Third Member, had relying on the decision of the Supreme Court in the case of CIT v. Kelvinator of India, (256 ITR 1) (SC), held that while resorting to section 147 even in a case where only an intimation had been issued u/s.143(1)(a), it is essential that the AO should have before him tangible material justifying his reason that income has escaped assessment. The Tribunal held that the TM decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) is squarely applicable to the present case. Following this decision, it held that the initiation of reassessment proceedings by the AO itself was bad in law and reassessment completed in pursuance thereof is liable to be quashed being invalid.

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DCIT v. Pioneer Marbles & Interiors Pvt. Ltd. ITAT ‘A’ Bench, Kolkata Before Mahavir Singh (JM) and C. D. Rao (AM) ITA No. 1326/Kol./2011 A.Y.: 2008-09. Decided on: 17-2-2012 Counsel for revenue/assessee: Amitava Roy/ J. N. Gupta

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Section 271AAA — Immunity u/s.271AAA cannot be denied only because entire tax, along with interest, was not paid before filing of income-tax return or, for that purpose, before concluding the assessment proceedings.

Facts:
The assessee was subjected to search u/s.132 of the Act on 30-8-2007. During the course of the search, the assessee declared Rs.50,00,000 as undisclosed income. This sum was included in the return filed by the assessee after the search. The Assessing Officer (AO) initiated penalty proceedings while finalising the assessment u/s.143(3) on the ground that the assessee has not paid full taxes and interest on disclosure made u/s.132(4).

In the penalty proceedings, the assessee submitted that while filing the return of income due to an inadvertent error, the assessee had not computed interest u/s.234C, as a result self-assessment tax was underpaid by Rs.46,132 and this shortfall was paid within the time mentioned in notice of demand issued u/s.156 of the Act. This contention was rejected by the AO. He levied penalty u/s.271AAA.

Aggrieved the assessee preferred an appeal to the CIT(A) who deleted the penalty levied by the AO.

Aggrieved the Revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that under the scheme of section 271AAA there is a complete paradigm shift so far as penalty in respect of unaccounted income unearthed as a result of search operation carried out on or after 1st June, 2007 is concerned. Section 271AAA levies penalty @ 10% of undisclosed income. This levy, unlike section 271(1)(c), is without any reference to findings or presumptions of concealment of income or the findings or presumptions of furnishing of inaccurate particulars. S.s (2) grants immunity from levy of penalty u/ss (1), subject to satisfaction of conditions mentioned therein. While payment of taxes, along with interest, by the assessee is one of the conditions precedent for availing the immunity u/s.271AAA(2), there is no time limit set out for such payments by the assessee. Once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the AO to read such a time limit into the scheme of the section to infer one. The Tribunal held that there is no legally sustainable basis for the stand of the AO that in a situation in which due tax and interest has not been paid in full before filing of the relevant income-tax return, the assessee will not be eligible for immunity u/s.271AAA(2).

Section 271AAA does not require any subjective satisfaction of the AO to be arrived at during the assessment proceedings, and, therefore, the outer limit of payment before the conclusion of assessment proceedings will not come into play.

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Vijay Corporation v. ITO ITAT ‘F’ Bench, Mumbai Before N. V. Vasudevan (JM) and R. K. Panda (AM) ITA No. 1511/Mum./2010 A.Y.: 2005-06. Decided on : 20-1-2012 Counsel for assessee/revenue: Ashok J. Patil/ Shantam Bose

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Section 143(3), section 292B — Assessment order without AO’s signature is void. The omission to sign the order of assessment cannot be explained by relying on the provisions of section 292B of the Act.

Facts:
The assessment of total income of the assessee-firm was completed u/s.143(3) of the Act by making various additions. While the notice of demand, computation form, etc. attached with the assessment order were signed, the assessment order was not signed by the AO.

The assessee filed an appeal before the CIT(A) challenging the additions and also raised a ground that the order of assessment is not valid in law since the AO did not sign the same. On this objection the CIT(A) called for the remand report from the AO. The AO did not dispute the fact that the assessment order was not signed. The CIT(A) observed that the notice of demand, computation form, etc. attached along with the assessment order were signed and carried proper stamp and seal of the AO. He held that the omission in signing the order cannot invalidate the order and the irregularity is curable in terms of the provisions of section 292B of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The case of the assessee is squarely covered by the decision of the Apex Court in the case of Smt. Kilasho Devi Burman (219 ITR 214) (SC), in favour of the assessee. In the absence of a signed order of assessment, the assessment is invalid. The provisions of section 292B cannot come to the rescue of the Revenue. Provisions of section 143(3) contemplate that the AO shall pass an order of assessment in writing. The requirement of signature of the AO is therefore a legal requirement. The omission to sign the order of assessment cannot be explained by relying on the provisions of section 292B of the Act. Tax computation is a ministerial act as observed by the SC in the case of Kalyankumar Ray v. CIT, (191 ITR 634) (SC) and can be done by the office of the AO if there are indications given in the order of assessment. But the notice of demand signed by the office of the AO without the existence of a duly signed order of assessment by the AO cannot be said to be a omission which was sought to be covered by the provisions of section 292B of the Act. If such a course is permitted to be followed, then that would amount to delegation of powers conferred on the AO by the Act. Delegation of powers of the AO u/s.143(3) of the Act is not the intent and purpose of the Act. An unsigned order of assessment cannot be said to be in substance and effect in conformity with or according to the intent and purpose of the Act. The Tribunal held the order of assessment to be invalid.

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Section 32 — Claim for depreciation on amount paid for acquisition of the non-compete right — Whether allowable — Held, Yes.

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Issue:

Whether the CIT(A) was right in allowing depreciation on non-compete fee of Rs.4.55 crore by treating the same as intangible asset u/s.32(1)(ii). According to the AO, the fees paid for obtaining non-compete right from the vendor was not an intangible asset u/s.32(1)(ii) for the following two reasons:

(a) It is not covered under the phrase ‘any other business or rights of similar nature’ used in the provisions; and

 (b) It is not capable of and transfer like other intangible assets of know-how. Before the Tribunal, the Revenue relied on the order of the AO and placed reliance on the following decisions:

  • R. Keshvani v. ACIT, (2009) 116 ITD 133 (Mumbai);
  • Srivatsan Surveyors (P) Ltd. v. ITO, (2009) 125 TTJ 286 (Chennai);
  • CIT v. Hoogly Mills Co. Ltd., (2006) 157 Taxman 347 (SC); and
  • Bharatbhai J. Vyas v. ITO, (2006) 97 ITD 248 (Ahd.).


Held:

The Tribunal agreed with the views of the CIT(A) that the acquisition of the non-compete right by the assessee from the vendor for a period of 10 years is a right in the nature of an intangible capital asset which is capable of being transferred. According to it, it was further proved by the fact that this right had been further transferred by the assessee at the time of its amalgamation with another company. As regards the reliance placed by the Revenue on various judicial decisions, the Tribunal noted that, except one judgment of the Tribunal rendered in the case of Srivatsan Surveyors (P) Ltd., the other judgments cited by the Revenue are not regarding the allowability of depreciation on non-compete fees. As regards the Tribunal decision rendered in the case Srivatsan Surveyors (P) Ltd., the Tribunal noted that the issue was decided against the assessee on the basis that the depreciation on restrictive covenant is ‘a right in persona’ and not a ‘right in rem’ and hence, the depreciation was not allowed.

However, the Tribunal noted that in a subsequent decision of the Chennai Tribunal in the case of ITO v. Medicorp Technologies India Ltd., (2009) 30 SOT 506 on the similar issue, the case was decided in favour of the assessee. As held by the Apex Court in the case of CIT v. Vegetable Products Ltd., (1073) 88 ITR 192 (SC), the Tribunal observed that in cases where there are two views possible, the view favourable to the assessee should be followed. Accordingly, the issue was decided in favour of the assessee by following the Tribunal decision rendered in the case of ITO v. Medicorp Technologies India Ltd.

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Section 14A, Rule 8D — Exercising jurisdiction in the larger interest of justice, ITAT directed the AO to compute disallowance u/s.14A @ 2% of the exempt income instead of 4.06% as computed by the AO.

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18. JNJ Holdings P. Ltd. v. ACIT
ITAT ‘J’ Bench, Mumbai
Before B. Ramakotaiah (AM) and S. S. Godara (JM)
ITA No. 3411/M/2009
A.Y.: 2005-06. Decided on: 8-6-2012
Counsel  for  assessee/revenue:  Hiro  Rai/Rupinder Brar
       
Section 14A, Rule 8D — Exercising jurisdiction in the larger interest of justice, ITAT directed the AO to compute disallowance u/s.14A @ 2% of the exempt income instead of 4.06% as computed by the AO.

Facts:

The assessee involved in business of investments and dealing in shares, securities, filed its return declaring total income of Rs.14,60,52,720. In the said return it had shown dividend income of Rs. 76,49,289 as exempt income. In response to the show-cause notice issued by the AO as to why expenses in relation to earning of dividend income should not be disallowed, the assessee explained that it had not incurred any direct expenditure. The AO rejected this contention and computed the disallownce to be Rs.4,36,027 i.e., 4.06% of dividend income.

Aggrieved the assessee preferred an appeal to the CIT(A) who directed the AO to recompute the disallowance by following Rule 8D of the Incometax Rules, 1963.

 Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee it was contended that for the assessment year under consideration, Rule 8D is not applicable and that the Tribunal by exercising jursidiction u/s.254(1) of the Act, should determine the reasonable expenditure in peculiar circumstances of the case.

Held:

The Tribunal held that the CIT(A) was not correct in directing the AO to recalculate the disallowance by following Rule 8D. Keeping in view the fair statement of the AR as well as exercising jurisdiction in the larger interest of justice, the Tribunal directed the AO to compute the disallowance @ 2% of the exempt income instead of 4.06% which the Tribunal felt should meet the ends of justice.

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Section 54G — Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking to non-urban area — Investment by assessee in land and building for its business in non-urban area — Whether is it necessary that the investment in land and building in non-urban area is for the purposes of the business of the industrial undertaking transferred — Held, No.

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17. Dy. CIT v. Enpro Finance Ltd.
ITAT ‘J’ Bench, Mumbai
Before B. Ramakotaiah (AM) and S. S. Godara (JM)
ITA No. 4428/Mum./2008
A.Y.: 2004-05. Decided on: 27-6-2012 Counsel for revenue/assessee: Rupinder Brar/Mayur Kisnadwala

Section 54G — Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking to non-urban area — Investment by assessee in land and building for its business in non-urban area — Whether is it necessary that the investment in land and building in non-urban area is for the purposes of the business of the industrial undertaking transferred — Held, No.


Facts:

The assessee-company was carrying on its business of manufacturing activity at its leased premises in Mumbai for more than 45 years. Due to severe competition and high operational overheads in Mumbai, the assessee incurred losses and the activity was commercially not feasible. During the financial year 1999-2000, it decided to shift its undertaking to a non-urban area. As the plant and machinery was very old, the assessee sold them immediately, but for surrendering the tenancy rights it took some time and after protracted negotiations with the lessor, the leased premises on which the industrial undertaking operated was finally surrendered on 1-10-2003 and compensation of Rs.4.12 crore was received. It earned capital gain of an equivalent amount as the cost of acquisition of the leased premise was nil. Out of this amount the assessee invested Rs.1.4 crore in Capital Gain Account Scheme and Rs.1.14 crore in purchase of land and building in non-urban area. The assessee claimed deduction u/s.54G of the amount of Rs.2.54 crore and offered the balance amount as taxable income.

According to AO, the assessee sold its entire plant and machinery in the financial year 1999-2000 and since there was no existence of an undertaking, having sold the entire plant & machinery, the claim u/s.54G, which provides for exemption for shifting of industrial undertaking from urban area to non-urban area is not eligible to the assessee. However, the CIT(A) on appeal allowed the claim of the assessee.

Held:

On closer reading of the provisions of section 54G the Tribunal noted that whereas u/s.54G(1)(a), the requirement is that the new machinery or plant has to be purchased for the purposes of the business of the industrial undertaking, section 54G(1)(b) merely requires that the acquisition of building or land or construction of a building should be for the purposes of its business in such non-urban area. In other words, the phrase ‘of the industrial undertaking’, which is there in clause 1(a) is conspicuously missing in clause 1(b). It further compared the provisions of section 54G with section 54D and noted that while section 54D mandates that, for the capital gains to exempt, the new land or building, have to be used only for either shifting or re-establishing or establishing an industrial undertaking (and no other purpose), the provisions of section 54G of the Act permits the use of capital gains for acquiring land or building or constructing building for the purposes of (any) business in the non-urban area. Thus, according to the Tribunal, the provisions of section 54G can be interpreted that assessee should carry on any business in non-urban area. If the amounts are utilised for acquisition of assets for the purpose of its business, this should qualify for the purpose of exemption u/s.54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking.

The Tribunal also did not agree with argument of the AO that the assessee’s industrial undertaking ceased to exist in 1999-2000. According to it, the assessee was in the process of shifting and even the section itself provides that shifting was ‘in course of or in consequence of’ of such industrial undertaking.

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Chanchal Kumar Sircar v. ITO ITAT ‘A’ Bench, Kolkata Before Mahavir Singh (JM) and C. D. Rao (AM) ITA No. 1147/Kol./2011 A.Y.: 2005-06. Decided on: 21-2-2012 Counsel for assessee/revenue : S. Bandyopadhyay/S. K. Roy

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Section 54EC — Exemption from capital gains tax —
Whether assessee entitled to claim exemption under the provision when
the investment in the eligible bonds is made within six months of the
date of receipt of consideration as against the prescribed condition of
the date of transfer — Held, Yes.

Facts:
During the year under appeal
the assessee sold three flats and the entire floor of a building
constructed by him by sales agreements dated 2-7-2004 and 1-7-2004,
respectively. The entire consideration aggregating to Rs.131.77 lacs was
received in instalments between 1-7-2004 and 27-6-2005. Each of the
instalment received by the assessee was deposited by him in full with
NABARD almost immediately and in any case within six months’ period from
the dates of the respective receipts. The assessee claimed exemption
u/s.54EC of the Act on Capital Gains. The AO completed the assessment
u/s.143(3) of the Act accepting the returned income. The CIT, in
exercise of his powers u/s.263 of the Act, held that the investments of
sale consideration amounts should be within six months’ from the date of
the sale and not from the date of receipt of consideration as claimed
by the assessee. In that view, he not only set aside the assessment, but
also gave directions for not considering the deposits made beyond the
period of six months from 2-7-2004 for the purpose of section 54EC.

In
consequence to revision order passed u/s.263 of the Act by the CIT,
assessment was framed u/s. 254/263/143(3) of the Act by the AO on
24-12-2010, and disallowed exemption u/s.54EC of the Act. Aggrieved, the
assessee preferred appeal before the CIT(A) and the CIT(A) also
confirmed the action of the AO.

Held:
According to the Tribunal, if the
period is reckoned from the date of agreement and receipt of part
payment at the first instance, then it would lead to an impossible
situation by asking the assessee to invest money in specified asset
before actual receipt of the same. In taking this view the Tribunal was
supported by the decision of the Andhra Pradesh High Court in the case
of S. Gopal Reddy v. CIT, (181 ITR 378), where in a similar situation of
delayed receipt of compensation amount on acquisition of property, the
Court observed that if the investment in specified asset was made within
a period of six months from the date of receipt of compensation, as
against the date of acquisition of the property denoting transfer
thereof, the same should be considered to be sufficient compliance for
the purpose of claiming exemption u/s.54E of the Act. The Tribunal noted
that similar view was also taken by the Allahabad High Court in the
case of CIT v. Janardhan Dass, (late through legal heir Shyam Sunder)
(299 ITR 210) and by the Andhra Pradesh High Court in the case of
Darapaneni Chenna Krishnayya (HUF) v. CIT, (291 ITR 98). In view of the
above consistent principle adopted by the High Courts in respect to
interpretation of a beneficial provision and the fact that the assessee
invested in specified bonds i.e., NABARD bonds, within one month of the
receipt of sale consideration, the Tribunal held that the assessee is
eligible for exemption u/s.54EC of the Act.

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Shri 1008 Parshwanath Digamber Jain Mandir Trust v. DIT ITAT ‘I’ Bench, Mumbai Before P. M. Jagtap (AM) and N. V. Vasudevan (JM) ITA No. 5544/M/2009 Decided on: 8-2-2012 Counsel for assessee/revenue: Ajay Ghosalia/ Sanjiv Dutt

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Section 12AA — Registration of charitable trust — Trust constituted with the object clause consisting of charitable as well as religious — Whether entitled for registration — Held, Yes.

Facts:
The assessee trust had applied for registration u/s.12AA of the Act. Its objects, as per its trust deed, were charitable as well as religious. According to the DIT, since the objects were admixture of religious as well as non-religious, relying on the decision of the Jammu & Kashmir High Court in the case of Ghulam Mohidin Trust v. CIT, (248 ITR 587) and the decision of the Supreme Court in the case of State of Kerala v. M. P. Shanti Verma Jain, (231 ITR 787), the registration u/s.12AA was denied. Before the Tribunal, the Revenue justified the order of the DIT on the ground that at the time of grant of registration u/s.12AA, it was necessary that he was satisfied that the objects are charitable and as per section 2(15), which defines the term ‘charitable purpose’, religious purpose is not part of charitable purpose.

Held:
According to the Tribunal, the trust, whose objects are religious as well as charitable, would be entitled for grant of registration and also to claim exemption u/s.11. For the purpose, reliance was placed on the decision of the Gujarat High Court in the case of ACIT v. Bibijiwala, (AA) Trust (100 ITR 516). It further observed that when the assessee seek exemption u/s.11, the same would be allowed subject to provision of section 13(1)(a) and (b) of the Act. According to it, the decisions relied on by the Revenue were on different facts, hence, not applicable to the case of the assessee.

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Dy. Commissioner v. MTZ Polyfilms Ltd. ITAT ‘B’ Bench, Mumbai Before N. V. Vasudevan (JM) and Pramod Kumar (AM) ITA No. 5015/Mum./2009 A.Y.: 2004-05. Decided on: 30-12-2011 Counsel for revenue/assessee: P. C. Mourya/ Jitendra Jain

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Section 36(1)(iii), section 37(1) and section 43B — Interest paid on unpaid purchase consideration — It was held that such interest is governed by the provisions of section 37(1) and not by section 36(1) (iii) — Further held that the provisions of section 43B are not applicable to such interest.

Facts:
The assessee was engaged in the business of manufacturing of polyester films. It had its manufacturing facilities at GIDC, Gujarat. It was allotted plot of land by GIDC. As per the terms of allotment the assessee was required to pay the purchase consideration of the land in instalments with interest. For the year under consideration the assessee had paid the sum of Rs.99.97 lakh as interest to GIDC and the same was claimed as business expenditure. According to the AO the expenditure was of capital in nature. On appeal the CIT(A) allowed the appeal and held that the expenditure was of revenue in nature.

Before the Tribunal the Revenue supported the order of the AO and further contended that since the interest to GIDC was unpaid, it is not allowable u/s.43B.

Held:
The Tribunal, as per the order of the CIT(A), noted that the fact that the production by the assessee had commenced in October, 1988 was not controverted. Accordingly, it held that the interest paid during the year cannot be considered as capital expenditure. Further, it referred to the decision of the Supreme Court in the case of Bombay Steam Navigation Co. Pvt. Ltd. v. CIT, (1953) (56 ITR 52), where the interest paid on purchase consideration of the assets by the amalgamated company was held as allowable as business expenditure u/s. 10(2)(xv) of the 1922 Act (equivalent to section 37(1) of the 1961 Act) According to the Apex Court, the expression ‘capital’ used in section 10(2)(iii) of the 1922 Act (equivalent to section 36(1)(iii) of the 1961 Act), in the context in which it occurred, meant money and not any other asset. The Apex Court further observed that an agreement to pay the balance consideration due by the purchaser did not in truth give rise to a loan. On that basis the Apex Court held that the interest paid was not allowable as deduction u/s.10(2)(iii) of the 1922 Act, but as business expenditure u/s.10(2) (xv) of the 1922 Act. Applying the above ratio, the Tribunal held that the interest paid to GIDC by the assessee was allowable u/s.37(1). It further agreed with the assessee that the provisions of section 43B would also not apply to the facts of the present case, since unpaid sale consideration cannot be said to be monies borrowed.

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Sections 28, 145 — Project completion method — In the case of an assessee following project completion method, receipts by way of sale of TDR, which TDR has direct nexus with the project undertaken, can be brought to tax only in the year in which the project is completed.

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16. Pushpa Construction Co. v. ITO ITAT ‘C’ Bench, Mumbai
Before J. Sudhakar Reddy (AM) and R. S. Padvekar (JM)
ITA No. 193/Mum./2010

A.Y.: 2006-07. Decided on: 25-4-2012 Counsel for assessee/revenue: Vipul B. Joshi/ A. C. Tejpal

Sections 28, 145 — Project completion method — In the case of an assessee following project completion method, receipts by way of sale of TDR, which TDR has direct nexus with the project undertaken, can be brought to tax only in the year in which the project is completed.


Facts:

The assessee, a partnership firm, engaged in construction activity especially the Slum Rehabilitation Programme (SRA Scheme) launched by the Government of Maharashtra, had undertaken two projects of slum rehabilitation, during the financial year 2005-06, which were not completed as on 31-3-2006. The assessee was following project completion method of accounting.

During the financial year 2005-06, the assessee sold TDR allotted to it by BMC, which TDR was directly linked to the projects undertaken by the assessee, for a consideration of Rs.2,67,29,626. Since the projects were not complete as on 31-3-2006, this amount was reflected in the balance sheet as on 31- 3-2006 as advance. The Assessing Officer (AO) rejected the contentions of the assessee and brought to tax the entire amount as income of the assessee for A.Y. 2006-07. Aggrieved, the assessee preferred an appeal where it was also submitted that the entire sale proceeds of TDR totalling to Rs.6,90,26,192 were reflected in the P & L Account for A.Y. 2008-09 and surplus income of Rs.2,78,59,939 was offered. The CIT(A) confirmed the order of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

The Tribunal noted that admittedly the two slum rehabilitation projects were not completed in A.Y. 2006-07 and also that the TDR in quesetion had direct nexus with the two projects undertaken by the assessee. It found that the contention of the assessee is supported by the decision of the jurisdictional High Court in the case of CIT Central I, Mumbai v. Chembur Trade Corporation, (ITA No. 3179 of 2009) order dated 14-9-2011 and also the decision of Mumbai Bench of ITAT in the case of ACIT v. Skylark Building, 48 SOT 306 (Mum.) and also that the assessee has offered the amounts in A.Y. 2008- 09 when the projects were completed.

The Tribunal accepted the contention of the assessee and restored the matter back to the file of the AO with a direction to verify whether the assessee has offered sale consideration of TDR in question in A.Y. 2008-09. If it has so offered, then the same should not be taxed in A.Y. 2006- 07.

The Tribunal allowed the appeal filed by the assessee.

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Section 54 — Exemption from capital gains tax provided the amount is invested in purchase or construction of a flat within the prescribed time period — Held that (1) booking of the flat with the builder is to be treated as construction of flat; (2) the extended period u/s.139(4) has to be considered for the purposes of utilisation of the capital gain amount.

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15. Kishore H. Galaiya v. ITO ITAT ‘A’ Bench, Mumbai Before B. R. Mittal (JM) and Rajendra Singh (AM) ITA No. 7326/Mum./2010 A.Y.: 2006-07 Decided on: 13-6-2012 Counsel for assessee/revenue: Bhavesh Doshi/K. R. Vasudevan

Section 54 — Exemption from capital gains tax provided the amount is invested in purchase or construction of a flat within the prescribed time period — Held that (1) booking of the flat with the builder is to be treated as construction of flat;     the extended period u/s.139(4) has to be considered for the purposes of utilisation of the capital gain amount.


Facts:

  • The assessee along with his wife was joint and equal owner of the property being a residential flat at Mumbai which had been purchased by them in April 2002 for a consideration of Rs.21 lac. The flat was sold by them on 7-3-2006 for a consideration of Rs.45 lac in which the share of the assessee was Rs.22 lac. The assessee computed the long term capital gain from sale of the flat after deducting the indexed cost of acquisition at Rs.9.98 lac. The assessee purchased another flat jointly along with his wife for a total consideration of Rs.35 lac. The assessee had made total payment of Rs.14.62 lac till 16-2-2009. The assessee, therefore, claimed that he was entitled to claim exemption u/s.54 of the Act as the capital gain had been invested in the new residential flat. The claim for exemption was denied by the AO because the assessee: Failed to deposit the balance amount in the account in any of the specified bank as required u/s.54 and utilise the same in accordance with the scheme framed by the Government; and
  • Could not produce evidence regarding taking possession of the new flat. On appeal, the CIT(A) confirmed the disallowance made by the AO. Before the Tribunal, the Revenue strongly supported the orders of the authorities below.

Held:

The Tribunal noted that the assessee had booked the new flat with the builder and as per agreement, the assessee was to make payment in instalments and the builder was to hand over the possession of the flat after construction. Based on the clarification of the CBDT vide its Circular No. 472, dated 16-12-1993 read with Circular No. 471 dated, 15-10-1986 and the decision of the Mumbai Bench of the Tribunal in the case of ACIT v. Smt. Sunder Kaur Sujan Singh Gadh, (3 SOT 206), the Tribunal noted that the case of the assessee was to be considered as construction of new residential house and not purchase of a flat. Thus, the Tribunal held that in case the assessee had invested the capital gains in construction of a new residential house within a period of three years, this should be treated as sufficient compliance of the provisions of section 54. According to it, it was not necessary that the possession of the flat should also be taken within the period of three years. For the purpose, it relied on the decision of the Bombay High Court in the case of CIT v. Mrs. Hilla J. B. Wadia, (216 ITR 376). As regards the default pointed out by the authorities below regarding non-deposit of unutilised amount of capital gain in the Capital Gain Account Scheme, the Tribunal noted the submission of the assessee that it was only due to ignorance of law and intention of the assessee was always to utilise the amount for construction of flat and the assessee had kept the amount in the savings bank account which was utilised towards the construction of flat. According to the Tribunal, this was only a technical default and on this ground alone the claim of exemption cannot be denied, particularly when the amount had been actually utilised for the construction of residential house and not for any other purpose. The view was supported by the decision of the Jodhpur Bench of the Tribunal in the case of Jagan Nath Singh Lodha v. ITO, (85 TTJ 173). The Tribunal also agreed with the assessee’s contention that the due date of filing of return of income u/s.139(1) has to be construed with respect to the due date of section 139(4) as the s.s (4) provides for the extended period for filing return as an exception to the section 139(1) and considering this, there was no default as the entire amount of capital gain had been invested within the due date u/s.139(4). For the purpose, reliance was placed on the judgment of the Punjab and Haryana High Court in the case of Ms. Jagrity Aggarwal (339 ITR 610).

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(1) Section 54F — Exemption of long-term capital gains where sales consideration is invested in purchase of a house — Whether purchase of house jointly with spouse is eligible — Held, Yes. (2) Section 94(7) — Purchase of units and sale thereof at loss after earning dividend — If date of tender of cheque for purchase of shares was considered as the date of purchase, then the sale was not within three months of purchase — Whether the provisions of section 94(7) attracted — Held, No.

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14. Vasudeo Pandurang Ginde v. ITO ITAT ‘F’ Bench, Mumbai
Before Vijay Pal Rao (JM) and N. K. Billaiya (AM)
ITA No. 4285/Mum./2009
A.Y.: 2004-05. Decided on: 6-6-2012
Counsel for assessee/revenue: C. N. Vaze/ Rajan

Section 54F — Exemption of long-term capital gains where sales consideration is invested in purchase of a house — Whether purchase of house jointly with spouse is eligible — Held, Yes.

Section 94(7) — Purchase of units and sale thereof at loss after earning dividend — If date of tender of cheque for purchase of shares was considered as the date of purchase, then the sale was not within three months of purchase
— Whether the provisions of section 94(7) attracted — Held, No.


Facts:

(1) The assessee had made long-term capital gain on sale of shares. The sales proceeds were invested in purchase of row house and exemption u/s.54F was claimed. One of the grounds on which the exemption was denied by the AO was that the house purchased by the assessee was in the joint name of his wife.

(2) The assessee had purchased units of mutual funds of Rs.3 crore on 26-12-2003. On the very same date, the assessee received a dividend of Rs.1.16 crore. On 29-3-2004, the assessee redeemed the units for Rs.1.7 crore and thereby booked a shortterm capital loss of Rs.1.3 crore. The AO found that the cheque of Rs.3 crore for the purchase of units was actually realised on 30-12-2003 and therefore, according to him, the period of holding before the redemption of the said units on 29-3-2004 was only 88 days i.e., less than 3 months. Therefore, according to him, the transaction was hit by the provisions of section 94(7) of the Act. The AO was also of the view that the entire transaction of sale and purchase of mutual fund units was nothing but a colourable device for setting off of the capital gains arising on sale of shares. Accordingly, the set off of short term capital loss claimed by the assessee was denied. On appeal the CIT(A) confirmed the denial of exemption u/s.54F. While on the issue regarding applicability of section 94(7) he noted that the provisions of section 94(7) lays down three cumulative conditions, the non-fulfilment of any one of the conditions would result into non applicability of section 94(7). Thus, if the date of the purchase as claimed by the AO was 30-12-2003, then it cannot be said that the units were purchased within three months prior to the record date because the record date was 26-12-2003 when the dividend was declared. Thus, one of the conditions essential for application of section 94(7) is not fulfilled. Secondly, the CIT(A) noted that the mutual fund had accepted 26-12-2003 as the date on which the units were allotted to the assessee. Based on the said date, the second conditions viz. that the units are sold within a period of three months was also not fulfilled. Accordingly, it was held that the provisions of section 94(7) were not applicable. As regards the point raised by the AO that the entire transaction was a colourable device, the CIT(A) relying on the decision of the Bombay High Court in the case of CIT v. Walfort Share & Stock Brokers Pvt. Ltd., Appeal No. 18 of 2006 held that as the conditions of section 94(7) have not been fulfilled, no disallowance was permissible.

Held:

(1) The Tribunal noted that the total consideration for the house had been met by the assessee. According to it the assessee had added the name of his wife only for the sake of convenience. It also drew support from the provisions of section 45 of the Transfer of Property Act which provides that the share in the property will depend on the amount contributed towards the purchase consideration. Further, relying on the decisions listed below, the Tribunal held that since the total consideration for the house had been paid by the assessee, the exemption cannot be denied on this ground.

  • The decisions relied on are as under:  ITO v. Arvind T. Thakkar in ITA No. 7338/Mum./2005 vide order dated 29-4-2011;
  •  Ravinder Kumar Arora v. ACIT in ITA No. 4998/ Del./2010 vide order dated 11-3-2011; and
  •  DIT v. Mrs. Jennifer Bhide, (2011) 15 Taxmann 82 (Kar.). (2) As regards section 94(7) The Tribunal noted that the whole issue revolved around the date of purchase of units. The Tribunal agreed with the findings of the CIT(A) and the appeal filed by the Revenue was dismissed.
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Sections 40(a)(ia), 194H — Commission retained by credit card companies out of amounts paid to merchant establishment is not liable for deduction of tax at source u/s.194H.

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13. DCIT v. Vah Magna Retail (P) Ltd.
ITAT ‘B’ Bench, Hyderabad
Before D. Karunakararao (AM) and Saktijit Dey (JM)
ITA No. 905/Hyd./2011
A.Y.: 2007-08. Decided on: 10-4-2012
Counsel for revenue/assessee: Dr. B. V. Prasad Reddy/None

Sections 40(a)(ia), 194H — Commission retained by credit card companies out of amounts paid to merchant establishment is not liable for deduction of tax at source u/s.194H.


Facts:

The assessee-company, engaged in business of direct retail trading in consumer goods, had claimed a deduction of Rs.16,34,000 on account of commission paid to credit card companies, which amount was disallowed by the AO u/s.40(a)(ia) on the ground that assessee failed to deduct tax at source u/s.194H of the Act. Aggrieved the assessee preferred an appeal to the CIT(A) where it contended that the assesee only receives payment from bank/credit card companeis after deduction of commission thereon, and thus, this is only in the nature of a post facto accounting and does not involve any payment or credit to the account of the banks or any other account before making such payment by the assessee. The CIT(A) accepted the claim of the assessee for deduction of Rs.16,34,000 and observed as follows: “9.8 On going through the nature of transactions, I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot be considered as falling within the purview of section 194H. Even though the definition of the term ‘commission or brokerage’ used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts on behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transaction for the bank. The sale made on the basis of a credit card is clearly a transaction of the merchants establishment only and the credit card company only facilitates the electronic payment, for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment. Accordingly, concluding that there was no requirement for making TDS on the ‘Commission retained by the credit card companies, the disallowance of Rs.16,34,000 is deleted . . . . .” Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:

 The Tribunal found no infirmity in the reasoning given by the CIT(A). It upheld the order passed by the CIT(A). The Tribunal dismissed the appeal filed by the Revenue.

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Section 14A — Disallowance u/s.14A applies to partner’s share of profits in a firm — ‘Depreciation’ is not an expenditure but an allowance, hence the same cannot be disallowed u/s.14A.

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12. Vishnu Anant Mahajan v. ACIT
ITAT Special Bench, Ahmedabad
Before G. E. Veerabhadrappa (President),
G. C. Gupta (VP) and K. G. Bhansal (AM)
ITA No. 3002/Ahd./2009
A.Y.: 2006-07. Decided on: 25-5-2012
Counsel for assessee/revenue: Sunil H. Talati/S. K. Gupta with Kartarsingh

Section 14A — Disallowance u/s.14A applies to partner’s share of profits in a firm — ‘Depreciation’ is not an expenditure but an allowance, hence the same cannot be disallowed u/s.14A.


Facts:

The assessee, a partner in the firm, derived income by way of remuneration and interest from the firm in addition to the share of profits in the firm which was exempt u/s.10(2A). Apart from the income from the firm, the assessee also had income under the head house property, capital gains, interest income and dividend income. The assessee had suo motu disallowed 1/10th of depreciation allowance of motor car. The Assessing Officer (AO) disallowed expenditure u/s.14A. Aggrieved, the assessee preferred an appeal to the CIT(A) who held that since the share of profits from the firm is exempt u/s.10(2A), expenditure was required to be disallowed u/s.14A. Since the assessee derived 76% of professional income as share from firm and balance 24% by way of remuneration and interest income, the CIT(A) allocated the expenses to income not includible in total income u/s.10(2A). Thus, business income by way of remuneration and interest from firm was taxed in the hands of the assessee u/s.28(v) after allowing 24% of the expenditure. 76% of the expenditure was disallowed. Aggrieved, the assessee preferred an appeal to the Tribunal.

 Held:

A firm is not a separate entity under the general law, whereas under the Income-tax Act, it is a separate entity distinct from its partners. Remuneration and interest on capital of partners is allowed as a deduction to the firm and the same are taxable in the hands of the partners u/s.28(v), whereas the profits of the firm, after deducting remuneration to partners and interest on capital of partners, are taxed in the hands of the firm. The partners do not pay tax on the share of profits from the firm since the same are exempt u/s.10(2A). Section 10(2A) provides that the share of partner shall not be included in his total income, hence it is not possible to hold that share of profit is not excluded from the total income of the partner because the firm has already been taxed thereon. Since share of profits are excluded from the total income of the partner, section 14A would apply and any expenditure incurred to earn the share of profits needs to be disallowed. In the case of Hoshang D. Nanavati v. ACIT, (ITA No. 3567/Mum./2007 for A.Y. 2003-04, order dated 18-3- 2011), while considering the question as to whether depreciation is an expenditure or not, it has been held that section 14A deals only with the expenditure and not any statutory allowance admissible to the assessee. A statutory allowance u/s.32 is not an expenditure. Being in agreement with the decision of the DB in the case of Hoshang Nanavati (supra), the SB held that depreciation cannot be disallowed u/s.14A.

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Nath Holding & Investment Pvt. Ltd. v. DCIT ITAT ‘B’ Bench, Mumbai Before D. Manmohan (VP) and Pramod Kumar (AM) ITA No. 5328/Mum./2006 A.Y.: 1996-97. Decided on: 25-10-2011 Counsel for assessee/revenue: N. R. Agarwal/P. K. B. Menon

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Section 271(1)(c) — Penalty for concealment of income — During quantum proceedings assessee failed to explain certain discrepancies in respect of its claim for loss in share trading business — AO disallowed the loss and imposed penalty — Held that in the absence of the finding that the claim for loss was bogus or false, penalty cannot be imposed.

Facts:
The impugned penalty was levied in respect of disallowance of loss in share trading business. The loss was disallowed on the ground of discrepancy in the distinctive number of shares purchased and sold and which could not be explained at the relevant point of time. It was only for the lack of explanation for discrepancy that quantum addition was finally confirmed.

Before the Tribunal the assessee furnished reconciliation in order to explain the discrepancy and it also filed an affidavit setting out the reasons as to why the same could not be explained earlier.

Held:
According to the Tribunal, once the assessee had given a reasonable explanation which was not found to be false, imposition of penalty in respect of the same cannot be justified. Further, it observed that the mere fact that the assessee could not explain its claim in the quantum proceedings and in the absence of any independent finding in the penalty order to the effect that claim for loss made by the assessee was bogus or false, it held that the penalty cannot be imposed.

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Ghanshyam Mudgal v. ITO ITAT ‘A’ Bench, Jaipur Before R. K. Gupta (JM) and N. L. Kalra (AM) ITA No. 896/JP/2010 A.Y.: 2007-08. Decided on: 9-9-2011 Counsel for assessee/revenue: Mahendra Gargieya/D. K. Meena

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Section 14 — Heads of income — Compensation received on acquisition of land under the Land Acquisition Act — Additional amount received was linked to the period when the Notification was issued till the date of actual possession — Whether AO justified in treating the sum so received as interest income — Held it was part of the compensation amount receivable and taxable as capital gains.

Section 2(1A) — Agricultural income — Compensation received on account of demolition of borewell and godown on agricultural land — Held that the amount received is agricultural income.

Facts:
During the year under appeal, the assessee’s land was acquired by the government agency under the Land Acquisition Act. Amongst other amounts, he received a sum of Rs.4.64 lakh with reference to the land acquired. As per the provisions of section 23(1A) of the Land Acquisition Act, the said amount was calculated @ 12% p.a. on market value of the land acquired for the period commencing on from the date notified for acquisition of land to the date of taking its possession. In addition, the assessee had also received Rs.8.54 lakh as compensation on account of demolition of borewell and godown used by him in his agricultural activities. According to the assessee, the sum of Rs.4.64 lakh received was part of the land compensation though it was computed on the basis of the period between the date of notification to the date of possession. As regards the sum of Rs.8.54 lakh received, it was contended that the same should be treated as receipt on account of transfer of agricultural land, income wherefrom is exempt from tax. However, the AO treated the sum of Rs.4.64 lakh as interest income. As regards the sum of Rs.8.54 lakh received, the AO assessed it as capital gains and after indexation the gain was determined at Rs.2.86 lakh. On appeal the CIT(A) agreed with the AO and upheld his order.

Held:
As regards the receipt of Rs.4.64 lakh, the Tribunal, relying on the decision of the Apex Court in the case of CIT v. Ghanshyam, (HUF) (224 CTR 522) agreed with the assessee that the amount received should be treated as enhanced compensation receivable on acquisition of the land by the government agency. Accordingly, it was held that the said receipt of Rs.4.64 lakh would be considered as part of capital gains and taxed accordingly.

As regards the sum of Rs.8.54 lakh received, the Tribunal observed that borewell is a form of irrigation and related to agricultural income. Hence, the compensation received on borewell is to be considered as compensation for agricultural land. Similarly, it was held that the compensation received against godown which was used for storage of agricultural produce, would also be considered as compensation for agricultural land.

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Baba Promoters & Developers v. ITO ITAT ‘B’ Bench, Pune Before I. C. Sudhir (JM) and G. S. Pannu (AM) ITA Nos. 629/PN/2009; 625/PN/2009 and 159/PN/2010 A.Ys.: 2004-05, 2006-07 and 2005-06 Decided on: 29-2-2012 Counsel for assessee/revenue: Sunil Ganoo/ Satindersingh Navrath and Ann Kapthuama

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Section 80IB(10) — While computing the area of plot, the area of a plot acquired subsequently for providing approach road also needs to be included in the measurement of total plot area. Areas of open land/garden/store/gym room meant for common use are not to be included for calculating built-up area of the residential unit. Merger of flats, after purchase, by the owners thereof to make it into a larger flat for their own convenience cannot be a cause for denial of deduction u/s.80IB(10).

Facts:
The assessee-firm started construction of a residential project at Aundh, Pune. As per the original lay-out plan approved by Pune Municipal Corporation (PMC), the total area of the plot was shown to be 3995.34 sq.mts. i.e., marginally less than the prescribed area of 1 acre. The assessee submitted that in addition to the above-stated area of land, an additional land measuring 5 ‘Are’ was also acquired by the assessee for the approach road to the said project vide a separate agreement made with the same landlords from whom the above-stated area of 3995.34 sq.mts. of land was purchased. On including this area, the size of the plot exceeded 1 acre. The assessee submitted that if this area would not have been acquired, the PMC would not have sanctioned the plan and issued commencement certificate. The AO visited the site and being satisfied allowed the deduction.

The CIT found this order to be erroneous and prejudicial to the interest of the revenue on the ground that: (1) the area of the plot is less than 1 acre; (2) as per sale agreement of row house, the saleable area mentioned is more than 1500 sq. feet; (3) in A.Y. 2005-06 the AO has in order passed u/s.143(3) denied deduction u/s.80IB(10); and (4) flats have been merged together and the modification is not as per approved plans.

Aggrieved, the assessee filed an appeal questioning the validity of revisional order passed u/s.263 of the Act.

Held:
The Tribunal noted that in the case of Haware Engineers and Builders (P) Ltd. v. ACIT, (11 Taxmann.com 286) (Mum.) deduction claimed u/s.80IB(10) was denied by the A.O. on the ground that the additional plot acquired subsequently, by allotment, was a distinct plot which cannot be included in computation of the area of the plot. The Mumbai Bench of Tribunal held that in case an assessee finds that he is not eligible for deduction u/s.80IB(10), because size of the plot on which project is built is less than minimum necessary size, and he makes good that deficiency, and ensures that all the necessary pre-conditions are satisfied and approvals obtained, the assessee is eligible for deduction u/s.80IB(10). It was further held that the fact that he satisfied the conditions later, does not adversely affect its claim for deduction. What is material is that at the point of time when matter comes up for examination of the claim, the necessary pre-conditions for being eligible to claim are satisfied. The Tribunal held that the facts in the present case are similar as the assessee has acquired the additional land of 5 ‘Are’ subsequently after the acquisition of the main plot of land from the same seller. It held that it is a well-established proposition of law that for transfer of a plot within the meaning of the Act, the requirement is handing over of the possession and payment of consideration. Thus, registration of document of the transaction is not the foremost requirement to establish the transfer for the purpose of the Act. The Tribunal also noted that the Pune Bench of the Tribunal has in the case of Bunty Builders v. ITO held that housing project constitutes development plan, roads and grant of other facilities, therefore, those areas should exist within the prescribed limits and area to be considered as part and parcel of the project. In the present case, after addition of 5 Are of land purchased by the assessee vide agreement dated 20th March, 2004, for the purpose of approach road, to the area given in the lay-out plan, it fulfils the prescribed area for eligibility of claiming deduction u/s.80IB(10) of the Act.

As regards the second ground about row house having area exceeding 1500 sq.ft., the Tribunal noted that sale area included area of open land/garden and if that is excluded, then area of the row house is less than 1500 sq.ft.

As regards the merger of flats and thereby exceeding the prescribed limit of 1500 sq.ft. being taken as a basis for denial of deduction in A.Y. 2005- 06, the Tribunal held that there is no substance since it is undisputed fact that each flat was within the prescribed limit of 1500 sq.ft. area and if after purchasing of 2 flats the owner(s) of flats merges it into a larger flat, the claimed deduction cannot be denied to the assessee.

The Tribunal held that the grounds on which the assessment order has been treated as erroneous and prejudicial to the interest of the Revenue are debatable and hence revisional powers cannot be invoked.

The Tribunal allowed the appeal filed by the assessee.

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DCIT v. Tejinder Singh ITAT ‘B’ Bench, Kolkata Before Pramod Kumar (AM) and Mahavir Singh (JM) ITA No. 1459/Kol./2011 A.Y.: 2008-09. Decided on : 29-2-2012 Counsel for revenue/assessee: A. P. Roy/ L. K. Kanoongo

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Section 50C — Transfer of leasehold rights in a building does not attract provisions of section 50C.

Facts:
The assessee along with one Amardeep Singh had vide registered lease deeds dated 19th November, 1992 acquired from Shree Khubchand Sethia Charitable Trust (Owner), leasehold rights for 99 years, in a house property at Kolkata.

By a tripartite registered deed dated 20th July, 2007 entered into between the owner, the assessee and Amardeep Singh (lessees) and three entities viz. Sugam Builders Pvt. Ltd., Neelanchal Sales and Suppliers Pvt. Ltd. and Pleasant Niryat Pvt. Ltd. (purchasers), the purchasers purchased this property. Under this deed dated 20th July, 2007 the owner transferred its ownership and reversionary rights in the said property for a consideration of Rs.1,00,00,000; the lessees for a consideration of Rs.3,19,00,000 gave up all their rights and interests in the said premises. Thus, purchasers paid total consideration of Rs.4,19,00,000 — Rs.1,00,00,000 to the owner and Rs.1,59,50,000 to the assessee and Rs.1,59,50,000 to Amardeep Singh — co-lessee. As against the consideration of Rs.4,19,00,000 the stamp duty valuation of the property was Rs.5,59,57,375.

The Assessing Officer (AO) computed the capital gains by adopting the stamp duty valuation to be the full value of consideration and notionally divided the said amount amongst the owner and the lessees in the ratio of actual consideration received by them. Accordingly, as against actual consideration of Rs.1,59,50,000 the AO computed capital gain by adopting Rs.2,12,47,375 to be the full value of consideration. He considered the lease rents paid over a period of time, duly indexed, to be the indexed cost of acquisition and on this basis arrived at LTCG of Rs.1,84,17,692. Since the assessee had invested Rs.1,96,03,685 and not the entire consideration adopted by the AO for computing capital gains, the AO granted proportionate exemption u/s.54F and charged balance Rs.14,46,692 to tax as LTCG.

Aggrieved the assessee preferred an appeal to the CIT(A) who relying upon various Tribunal decisions held that provisions of section 50C do not apply to transfer of leasehold rights.

Aggrieved the revenue preferred an appeal to the Tribunal and the assessee filed cross-objection on the ground that the CIT(A) has not adjudicated the alternative ground of the assessee viz. for the purposes of section 54F, full value of consideration does not mean value determined u/s.50C.

Held:
The Tribunal noted that the assessee was a lessee of the property which was sold by the owner of the property, yet the AO had treated the assessee as a seller apparently because the assessee was a party to the sale deed. The Tribunal held that in case of purchase of tenanted property the buyer pays the owner for ownership rights and if he wants to have possession of the property and remove the fetters of tenancy rights he would pay the tenants for surrendering their tenancy rights. Merely because the amount is paid at the time of purchase of the property, the character of receipt will not change.

The provisions of section 50C are not applicable where only tenancy rights are transferred or surrendered. On facts, the assessee had the rights of the lessee and not ownership rights. The assessee had granted, conveyed, transferred and assigned leasehold right, title and interest.

The Tribunal dismissed the appeal filed by the Revenue.

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SRL Ranbaxy Ltd. v. Addl. CIT ITAT ‘G’ Bench, Delhi Before A. D. Jain (JM) and Shamim Yahya (AM) ITA Nos. 434/Del./2011 A.Y.: 2006-07. Decided on: 16-12-2011 Counsel for assessee/revenue: Ajay Vohra & Rohit Garg/Gajanand Meena

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Section 194H — Existence of principal-agency relationship is a sine qua non for invoking section 194H. Amount of discount retained by the collection centres is not ‘commission’ paid by the assessee to the collection centres and consequently section 194H does not apply to such amounts. Since assessee has not paid any amounts to the collection centres, provisions of section 194H could, not have been met.

Facts:
The assessee entered into non-exclusive agreements with domestic and international collection centres comprising of hospitals, nursing homes, clinics and other laboratories/entrepreneurs also. In accordance with the said agreements, the collection centres collected samples from patients/ customers seeking various laboratory testing services. The collection centres had their own premises, infrastructure, staff and necessary licences/ approvals. The collection centres acted as authorised collector for collecting samples and availed of the professional services of the assessee with respect to testing of samples and issue of necessary reports. The assessee charged a discounted price to the collection centres. The price to be charged by the collection centres to its patients/customers was fixed by them and not by the assessee. The assessee raised an invoice on the collection centre which was paid by the collection centre after deduction of TDS u/s.194J. The payment made by the collection centres to the assessee was not dependent on the collection centres receiving the payment from its patients/customers. The amount of discount given to collection centres was not claimed by the assessee as expenditure, but the amount charged to collection centres was shown as its income. The collection centres had flexibility and freedom to choose the laboratory to which samples should be sent for testing, unless the patient/ customer mandated that it be sent to the assessee.

While assessing the total income of the assessee u/s.143(3), the Assessing Officer (AO) held that a sum of Rs.16,80,66,667 being discount offered by the assessee to collection centres was liable for deduction of TDS u/s.194H/194C and since tax was not deducted at source, he disallowed this sum u/s.40(a)(ia).

Aggrieved the assessee preferred an appeal to the CIT(A) who restricted the disallowance from Rs.16,80,66,627 to Rs.11,78,24,030 but affirmed the disallowance, in principle, holding that the relationship between the assessee and the collection centres was that of principal and agent attracting the provisions of section 194H of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The element of agency is necessarily to be there in cases of all the services or transactions contemplated by section 194H. Where the dealing between the parties is not on a principal to agent basis, section 194H does not get attracted. The Tribunal held that the relationship between the assessee and the collection centres was not on a ‘principal & agent’ basis because (a) the centres issued their own bill to the customer/patient, collected the fees and issued the receipt; (b) the rates charged by the centres from its customers were not decided by the assessee; (c) there was no privity of contract between the assessee and the patients; (d) the amounts were not collected by the centres on behalf of the assessee; (e) the set-ups of the collection centres was entirely different from that of the assessee; (f) the collection centres were not under an obligation to forward the samples for testing only to the assessee, but could forward them to other laboratories as well unless mandated by the patients/customers; (g) the expenditure of the collection centres did not show any interlacing with that of the assessee and also the staff of the two was distinct and separate; (h) the collection centres had no authority to bind the assessee in any form.

Further, the disallowance u/s.40(a)(ia) r.w.s. 194H can be made only in respect of expenditure in the nature of commission paid/credited to the account of the recipient, or to any other account. In the present case, the assessee received the amount of the invoice raised, net of discount, from the collection centres. The Tribunal held that this discount, indisputably, cannot, in any manner, be said to be expenditure incurred by the assessee and so, section 40(a)(ia) of the Act is not attracted.

The appeal filed by the assessee was allowed by the Tribunal.

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DCIT v. Tide Water Oil Co. (India) Ltd. ITAT ‘A’ Bench, Kolkata Before Mahavir Singh (JM) and C. D. Rao (AM) ITA No. 2051/Kol./2010 A.Y.: 2003-04. Decided on: 20-1-2012 Counsel for revenue/assessee: D. R. Sindhal/A. K. Tulsiyan

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Section 80IB, Form No. 10CCB — By filing Form No. 10CCB in the course of reassessment proceedings (which form was not filed with the return of income, nor was it filed in the course of assessment proceedings) the assessee is not making any fresh claim for deduction u/s.80IB but merely furnishing the documents to substantiate its claim made during the course of assessment and even reassessment proceedings.

Facts:
For A.Y. 2003-04, the assessee filed its return of income by due date mentioned in section 139(3) of the Act. In the return of income filed the assessee claimed deduction u/s.80IB. The Assessing Officer (AO) assessed the total income u/s.143(3) to be Rs.7,31,51,920 as against returned income of Rs.5,16,02,964 by restricting deduction u/s.80IB on allocation of corporate expenses proportionately over all units. Subsequently, the AO noticed that the assessee had not filed audit report in Form No. 10CCB, hence is not eligible for deduction u/s.80IB and due to that the income has escaped assessment. The AO initiated proceedings u/s.147 r.w.s. 148 of the Act.

In the course of reassessment proceedings the assessee filed Form No. 10CCB and claimed that nonfiling of Form No. 10CCB is only a technical default and since original Form No. 10CCB was filed along with return of income u/s.148, technical default is removed and deduction u/s.80IB should be allowed. The AO noticed that the due date of filing return of income u/s.139(3) was 30-11-2003 and the assessment u/s.143(3) was completed on 31-3-2006, but the audit report filed along with return u/s.148 was dated 23-2-2007 and also balance sheet of Silvasa Unit, in respect of which deduction u/s.80IB was claimed, was audited on 23-2-2007, whereas the P & L Account of Silvasa unit was audited on 16-10- 2003. He held that there was severe non-compliance on the part of the assessee. He, accordingly, denied claim for deduction u/s.80IB. Aggrieved, the assessee preferred an appeal to the CIT(A).

The CIT(A) confirmed the jurisdiction, but he allowed the claim of the assessee u/s.80IB by holidng that submission of audit report in Form No. 10CCB is directory in nature and it is not mandatory and that submission of audit report even during reassessment proceedings is sufficient compliance u/s.80IB of the Act. The assessee did not challenge the decision of the CIT(A) confirming jurisdiction. Therefore, the assumption of jurisdiction became final.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the AO while framing assessment u/s.143(3) of the Act, originally, accepted the claim of deduction u/s.80IB of the Act despite the fact that there was no audit report in Form No. 10CCB i.e., that means that the AO was also under bona fide belief that the assessee is entitled to deduction u/s.80IB of the Act and he allowed the same. It was subsequently that he noticed that the assessee had not filed the audit report along with return of income, nor had it filed the same during the course of assessment proceedings. He, accordingly, recorded reasons and re-opened the assessment.

The Tribunal held that the assessee is not making any fresh claim for deduction u/s.80IB of the Act, but merely furnishing the documents to substantiate its claim made during the course of assessment and even reassessment proceedings. The Tribunal held that there is no infirmity in allowing the claim of deduction even though the assessee has filed audit report in Form No. 10CCB during the course of reassessment proceedings. It upheld the order of the CIT(A).

The Tribunal dismissed the appeal filed by the Revenue.

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Rachna S. Talreja v. DCIT ITAT ‘D’ Bench, Mumbai Before J. Sudhakar Reddy (AM) and V. Durga Rao (JM) ITA No. 2139/Mum./2010 A.Y.: 2006-07. Decided on: 28-12-2011 Counsel for assessee/revenue : G. P. Mehta/ C. G. K. Nair

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Section 143 — Assessment — Assessee during the course of assessment proceedings filed revised computation of income and claimed additional deduction — Whether AO justified in refusing to consider the revised income and insisting that only by filing revised return u/s.139(5) the additional deduction can be claimed — Held, No.

Facts:
The assessee had filed her return of income on 31-10-2006 declaring income of Rs.11.05 lakh. Subsequently, during the course of assessment proceedings, the assessee filed revised computation of income by claiming deduction on account of interest of Rs.2.1 lakh paid to a bank. The AO did not consider the revised computation of income filed by the assessee on the ground that there was no provision in the Act to file a revised computation of income. According to him, the assessee should file revised return of income as per section 139(5). On appeal, the CIT(A), relying on the Supreme Court decision in the case of Goetz India Ltd. (284 ITR 323) upheld the AO’s order.

Held:
The Tribunal noted that a similar issue had arisen before the Mumbai Tribunal in the case of Pradeep Kumar Harlalkar v. ACIT, (47 SOT 204) wherein the Tribunal following the decision in the case of Goetz India Ltd. observed that ‘power of the Appellate Authority to entertain claim in question was still there . . . . .’. In view thereof the Tribunal admitted the claim made by the assessee and restored the matter to the file of the AO with a direction to consider the revised computation of income filed by the assessee and decide the issue afresh.

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Baba Amarnath Educational Society v. CIT ACE Educational & Charitable Society v. CIT ITAT ‘B’ Bench, Chandigarh Before Sushma Chowla (JM) and Mehar Singh (AM) ITA Nos. 825 & 826/Chd./2011 Decided on: 29-12-2011 Counsel for assessees/revenue : P. N. Arora/ Jaishree Sharma

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Section 12A read with section 2(15) — Registration of charitable institution — Assessees engaged in educational activities — One of the objects permitted assessee to export computer and other similar activities — The said object was never acted upon by the assessee — Whether the CIT justified in rejecting registration application of the trust — Held, No.

Facts:
In the present two appeals, since the facts of the cases as well as the grounds of appeal were identical, the Tribunal decided to dispose of the same by a consolidated order.

The assessee-trusts were established primarily to promote education. The assessees’ application for registration u/s.12A was rejected by the CIT on the ground that their one of the object clauses provided for promotion of export of computers hardware/ software, telecommunication, internet, e-commerce and allied services. For the purpose the CIT relied on the decisions of the Supreme Court in the cases of Yogi Raj Charities Trust v. CIT, (103 ITR 777) and of East India Industries (Madras) Pvt. Ltd. (65 ITR 611).

Held:
From the detailed list of activities carried out by the two assessees, the Tribunal noted that they have carried out activities pertaining to achieving their charitable objects viz., imparting education. The object clause, which was objected to by the CIT and the ground on which the registration was rejected was never acted upon and it remained on paper. According to it, single inoperative object cannot eclipse the whole range of other charitable objects and actual conduct of charitable activities. According to it, it was not the letter or language of one single object clause which is conclusive, but it was the activity of the appellants, which was more relevant. Further, it observed that the first proviso to section 2(15) was not applicable to the first three objects enumerated in the definition. The said proviso only restricts the scope of the expression ‘ advancement of any other object of general public utility’. The proposition was also supported by the Board Circular No. 11/2008, dated 19-12-2008 which inter alia states “where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose, even if it incidentally involves the carrying on of commercial activities”.

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Hansraj Mathuradas v. ITO ITAT ‘H’ Bench, Mumbai Before R. V. Easwar (President) and P. M. Jagtap (AM) ITA No. 2397/Mum./2010 A.Y.: 2006-07. Decided on: 16-9-2011 Counsel for assessee/revenue : Mehul Shah/ A. G. Nayak

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Section 37(1) — Business expenditure — Whether the expenditure, which are subjected to FBT, can part thereof be disallowed on the ground that the same are not for the purpose of the business — Held, No.

Facts:
The assessee is a partnership firm engaged in the business of providing services as insurance surveyor and loss assessor. In one of the grounds before the Tribunal, the assesse had challenged disallowance made by the AO and confirmed by the CIT (Appeals), conveyance and telephone expenses of Rs.4,818 and Rs.17,224 out of Rs. 24,088 and Rs.86,120, respectively. In the absence of any record maintained by the assessee in the form of log book or call register to establish that the said expenses were wholly and exclusively for the purpose of its business, the same were disallowed by the AO to the extent of 20%.

Held:
The Tribunal referred to the CBDT Circular No. 8/2005, dated 29-8-2005 and opined that once fringe benefit tax is levied on expenses incurred, it follows that the same are treated as fringe benefits provided by the assessee as employer to its employees and the same have to be appropriately allowed as expenses incurred wholly and exclusively incurred by the assessee for the purpose of its business.

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Dy. Director of Income tax vs. G. K. R. Charities Income tax Appellate Tribunal “G” Bench, Mumbai. Before G. E. Veerabhadrappa (President) and Amit Shukla (J. M.) ITA No. 8210/Mum /2010 Asst. Year 2007-08. Decided on 10.08.2012. Counsels for Revenue/Assessee: Pavan Ved/A. H. Dalal

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Section 11 – Charitable institution – (1) Claim for depreciation on fixed assets is treated as application of income; (2) Receipt of loan in violation of the Bombay Public Trust Act does not invite denial of exemption u/s. 11; (3) Repayment of loan originally taken for the objects of the trust will amount to an application of income.

Facts:
The assessee is a charitable trust registered with the Charity Commissioner as well as u/s 12A of the Act. In the assessment order passed for the year under appeal, the AO held as under:

1. In respect of depreciation of Rs. 19.48 lakh claimed: Since cost of fixed assets had already been allowed as application of income in the earlier years, relying on the decision of the Supreme Court in the case of Escorts Ltd. & Anr. Vs. Union of India (199 ITR 43), the claim for depreciation was denied;

2. Re: Treatment of repayment of loan of Rs. 2.92 crore as the application of income: Since the loan when it was raised was not declared/treated as income in the year of receipt, relying on the decision of the Supreme Court in the case of Escorts Ltd. & Anr. (supra), the assessee’s claim would result into double deduction, hence not permissible;

3. The above loan was taken without the Charity Commissioner’s permission, thus in violation of the provisions of section 36A(3) of the Bombay Public Trust Act. Therefore, relying on the Bombay high court decision in the case of CIT vs. Prithvi Trust (124 ITR 488), he forfeited the exemption granted u/s. 11.

Being aggrieved by the order of the CIT(A), who held in favour of the assessee, the revenue filed appeal before the tribunal. Before the tribunal, the revenue justified the order passed by the AO and further relied on the decision of the Cochin bench of tribunal in the case of DDIT Vs. Adi Shankara Trust (ITA no. 96/Coch/2009 dated 16-06-2011) and on the Cochin tribunal decision in the case of Lissie Medical Institution (2010 TIOL 644). According to it, the later decision was also affirmed by the Kerala high court. Further, it was contended that the decision of the Bombay high court in CIT vs. Institute of Banking Personnel Selection (264 ITR 110) relates prior to insertion of section 14A of the Act without considering the judgment of Escorts Ltd.

Held:
As regards the denial of exemption u/s. 11 on the ground that loan taken by the assessee in earlier years from managing trustee was in violation of the Bombay Public Trust Act, the tribunal held that under the Act, once the CIT grants registration u/s. 12AA, looking to the objects of the trust, the same cannot be withdrawn until and unless there was a violation of provisions of section 13 or the registration is cancelled u/s. 12AA(3). The tribunal further observed that once the loan taken was duly shown in the Accounts, there was no requirement under the Act that the provisions of other Acts have to be complied with. According to it, the Bombay high court decision in the case of Prithvi Trust was on a different ground, hence, not applicable to the case of the assessee. According to it, the decision of the Supreme court in the case of ACIT vs. Surat City Gymkhana (300 ITR 214) and Mumbai tribunal decision in the case of ITO (Exemption) vs. Bombay Stock Exchange (ITA No. 5551/Mum/2009 dt. 22. 08. 2006) also support the case of the assessee.

As regards the allowability of depreciation – the tribunal preferred to follow the decision of the Bombay high court in the case of Institute of Banking Personnel Selection. It further noted that on the similar issue, the Punjab & Haryana high court in the case CIT vs. Market Committee, Pipli (330 ITR 16) after considering the decision of the Supreme Court in the case of Escorts Ltd., held in favour of the assessee. Also, taking note of the Mumbai tribunal decision in the case of ITO vs. Parmeshwaridevi Gordhandas Garodia (ITA No. 4108/ Mum/2010 dated 10-08-2011), the tribunal held that allowing of depreciation is application of income and it does not amount to double deduction. Hence, the order of the CIT (A) was upheld on this ground also.

As regards the claim for treating repayment of loan as the application of income, the tribunal agreed with the order of the CIT (A) and relying on the CBDT Circular No. 100 dated 24-01-1973 and the decision of the Gujarat high court in the case CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal (211 ITR 293)and of the Rajasthan high court in the case of Maharana of Mewar Charitable Foundation (164 ITR 439), held that such repayment of loan originally taken to fulfill one of the objects of the trust will amount to an application of income for charitable and religious purposes.

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Section 54EC — Exemption from payment of capital gains tax provided the amount is invested within six months from the date of transfer — Whether the investment made within six months from the date of the receipt of consideration is eligible — On the facts held yes.

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Mahesh Nemichandra v. ITO
ITAT ‘A’ Bench, Pune
Before Shailendra Kumar Yadav (JM) and
G. S. Pannu (AM)
iTa Nos. 594 to 597/PN/10
A.Y.: 2006-07. Decided on: 29-3-2012
Counsel for assessee/revenue : S. U. Pathak/Ann Kapthuama

Section 54EC — exemption from payment of capital gains tax provided the amount is invested within six months from the date of transfer — Whether the investment made within six months from the date of the receipt of consideration is eligible — on the facts held yes.


Facts:

The assessee jointly owned with three others land at Pune. The
assessee entered into a joint venture development agreement with a
builder on 12-7- 2005, in which the consideration was fixed at Rs.2.50
crore. This document was registered later by way of confirmation deed
dated 23-1-2007. Thereafter, a correction deed was entered into on
2-7-2007 in which the sale consideration was increased to Rs.4.90 crore.
Out of the total sale consideration at Rs.4.90 crore, the assessee’s
share was 1/4th i.e., Rs.1.22 crore. On these facts, the Assessing
Officer inferred that the date of joint venture agreement, i.e.,
12-7-2005 was the date of transfer for the capital asset. Further the
claim for relief u/s.54EC on account of investments of Rs.12.5 lac and
Rs.37.5 lac made on 3-8-2007 and 27-10-2007 was denied. The assessee
objected to taxation of the capital gain in A.Y. 2006-07, and contended
that it should be considered in the A.Y. 2007-08 since the joint venture
agreement was registered on 23-1-2007 and only after which it was acted
upon and implemented. On appeal the CIT(A) confirmed the order of the
AO. Before the Tribunal the Revenue supported the orders of the
authorities below by pointing out that the Bombay High Court in the case
of Chaturbhuj Dwarkadas Kapadia v. CIT, (260 ITR 491) (Bom.) has noted
that after insertion of clauses (v) and (vi) in section 2(47) of the
Act, the expression ‘transfer’ includes any transaction which allowed
possession to be taken/retained in part performance of a contract of the
nature referred to in section 53A of the Transfer of Property Act,
1882. Therefore, it contended that in the case of the assessee, as he
had granted possession with an irrevocable permission for development of
the land in favour of the builder, the date of development agreement
was the date of transfer for the purpose of ascertaining the year of
taxability of capital gains.

Held:

The Tribunal noted that under the
agreement dated 12-7-2005 the builder was given the possession of the
property for development. This according to it, fulfils the requirements
of section 2(47)(v) as understood and explained by the Mumbai High
Court in the case of Chaturbhuj Dwarkadas Kapadia. Accordingly, it held
that the ‘transfer’ in terms of section 2(47)(v), had taken place during
A.Y. 2006-07. As regards the issue relating to granting of exemption
u/s.54EC of the Act in respect of the investment Rs.12.5 lakh and
Rs.37.5 lakh made on 3-8-2007 and 27-10-2007, respectively, in eligible
bonds, the Tribunal noted that the assessee had received the aforestated
consideration on subsequent dates, namely, 12-2-2007, 14-5-2007,
19-6-2007 and 3-7-2007. The Tribunal referred to the CBDT Circular No.
791 issued in the context of the provisions of sections 54EA, 54EB and
54EC. Under the said provisions the assessee is similarly granted
exemption from capital gains tax arising from the conversion of capital
assets into stock-in-trade provided the assessee makes investment in the
specified bonds within six months of the date of conversion.

The CBDT
in consultation with the Ministry of Law decided that the period of six
months for making investment in specified assets for the purpose of
sections 54EA, 54EB and 54EC of the Act should be taken from the date
such stockin- trade is sold or otherwise transferred in terms of section
45(2) of the Act, though the taxability of capital gain was on the
basis of ‘transfer’ as understood in section 45(2) of the Act. According
to the Tribunal, the interpretation placed by the CBDT in the
above-referred Circular to the condition of making investment within six
months from the date of transfer in section 54EC would support the
claim of the assessee for exemption from capital gain with respect to
the impugned sum of Rs.50 lakh invested in specified assets on 3-8- 2007
and 27-10-2007.

Accordingly, the contention of the assessee on this
ground was accepted and exemption u/s.54EC as claimed by the assessee
was granted.

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Sections 37, 40(a)(ii) — Taxes levied in foreign countries whether on profit or gain or otherwise are deductible u/s.37 — Payment of such taxes does not amount to application of income.

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Mastek Ltd. v. DCIT
ITAT ‘A’ Bench, Ahmedabad
Before D. K. Tyagi (JM) and
a. Mohan alankamony (aM)
iTa Nos. 1821/ahd./2005, 2274/ahd./2006 and
2042/ahd./2007
A.Ys.: 2003-04 to 2004-05
Decided on: 11-5-2012
Counsel for assessee/revenue:
S. N. Soparkar/Kartar Singh

Sections 37, 40(a)(ii) — Taxes levied in foreign countries whether on profit or gain or otherwise are deductible u/s.37 — Payment of such taxes does not amount to application of income.


Facts:

The assessee had, in its accounts, debited Rs.42,57,297 on account of taxes paid in Belgium and claimed this amount as a deduction u/s.37 on the ground that all taxes and rates were allowable irrespective of the place where they are levied i.e., whether in India or elsewhere. The exception to this being Indian income-tax which is not allowable by virtue of provisions of section 40(a)(ii). The Assessing Officer (AO) held that the term ‘tax’ u/s.40(a)(ii) is not limited to tax levied under the Indian Incometax Act, but is wide enough to include all taxes which are levied on profits of a business. He disallowed the entire amount of Rs.42,57,297 charged to P & L Account. Aggrieved the assessee preferred an appeal to the CIT(A) who held that the amount is allowable u/s.37 of the Act. He allowed this ground of the appeal. Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:

Taxes levied in foreign countries whether on profits or gains or otherwise are deductible u/s.37(1). Such taxes are not hit by section 40(a)(ii). It is also not application of income. The Tribunal noted that in the case of South East Asia Shipping Co. (ITA No. 123 of 1976) the Mumbai Bench of ITAT has held that tax levied by different countries is not a tax on profits but a necessary condition precedent to the earning of profits. In this case reference application of the Revenue was rejected by the Tribunal which has been upheld by the Bombay High Court in ITA No. 123 of 1976. The Tribunal also noted that in the case of Tata Sons Ltd. (ITA No. 89 of 1989) the Department’s reference applications u/s.256(1) and 256(2) were rejected and the issue has reached finality. The Tribunal upheld the order passed by the CIT(A) on this ground. The Tribunal decided this ground in favour of the assessee.

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Ramakrishna Vedanta Math v. Income Tax Officer In the Income Tax Appellate Tribunal, Kolkata ‘C’ Bench, Kolkata Before Pramod Kumar (A.M.) and Mahavir Singh ( J. M. ) I.T.A. No.: 477,478 and 479/Kol/2012 Assessment year: 2005-06, 2006-07, 2008-09. Decided on July 31 , 2012 C ounsel for Assessee/Revenue : Miraj D Shah/ Amitava Ray

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Section 201(1) and 201(1A) r.w.s. 194C – Default
in recovery and payment of TDS – Appellant treated as Assessee in
default for failure to deduct tax at source u/s 194C – Whether the
appellant is justified in its contention that if the recipient has paid
taxes then no action against it under the provisions be taken – Held,
yes.

Facts:
The issue before the tribunal was whether a
demand under section 201(1) and section 201(1A) r.w.s. 194C can be
enforced even in a situation in which, the recipient of income embedded
in the payments has paid due taxes thereon, and, if not, who has the
onus to demonstrate that status about payment of such taxes.

During
the relevant period, the assessee had made several payments, in respect
of book binding charges, printing charges, advertisement and publicity
and bus hire charges etc, but had not deducted tax at source from the
payments made. According to the assessee the recipients have paid tax on
income embedded in those payments, and in the light of Supreme Court’s
decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v CIT
(293 ITR 226), the taxes cannot once again be recovered from the
assessee. This contention was rejected by the Assessing Officer on the
ground that the assessee was not able to prove that taxes on income
embedded in those payments have been duly been paid by the recipients.
Aggrieved, assessee carried the matter in appeal but without any
success.

Held:
The tribunal referred to the
observations of the Allahabad High Court in the case of Jagran Prakashan
Ltd. v DCIT [ (2012) 21 taxmann.com 489 All], viz. that “tax deductor
cannot be treated an assessee in default till it is found that assessee
has also failed to pay such tax directly”. According to it, once this
finding about the non payment of taxes by the recipient was held to be a
condition precedent to invoking section 201(1), the onus was on the
Assessing Officer to demonstrate that the condition was satisfied. It
further noted that the Act provides for three different consequences for
lapse on account of non-deduction of tax at source viz., penal
provisions (section 271C), and interest provisions (section 201 (1A) and
recovery provisions section 201(1). As far as the matter under the
later two provisions were concerned, the former provides for levy of
interest in case of any delay in recovery of such taxes and the later
provisions seek to make good any loss to revenue on account of lapse by
the assessee tax deductor. The Tribunal further added that the question
of making good the loss of revenue arises only when there is indeed a
loss of revenue and the loss of revenue can be there only when recipient
of income has not paid tax. Therefore, it held that recovery provisions
under section 201(1) can be invoked only when loss to revenue is
established, and that can only be established when it is demonstrated
that the recipient of income has not paid due taxes thereon.

Accordingly,
the Assessing Officer was directed to verify the related facts about
payment of taxes on income of the recipient directly from the recipients
of income before invoking provisions of section 201(1).

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Kumarpal Amrutlal Doshi v. DCIT ITAT ‘G’ Bench, Mumbai Before P. M. Jagtap (AM) and N. V. Vasudevan (JM) ITA No. 1523/Mum./2010 A.Y.: 2006-07. Decided on: 9-2-2011 Counsel for assessee/revenue: B. V. Jhaveri/ S. K. Singh

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Section 54EC — Exemption from capital gains tax if investment is made within six months from the date of transfer of a capital assets in the specified assets — Date of investment — Is it the date when cheque was delivered or encashed or the date of allotment of the bonds — Held the relevant date is the date when the cheque was delivered — Whether NABARD bonds were the specified assets — Held, Yes.

Facts:
The assessee sold a property on 9-8-2005 and earned long-term capital gain of Rs.19.16 lac. He invested Rs.20 lac in NABARD bonds and claimed exemption u/s.54EC. The lower authorities rejected the assessee’s claim on the following two grounds:

The investment was not made within the prescribed period of 6 months from the date of sale; and

NABARD bonds were not the long-term specified assets prescribed under the provisions. The assessee claimed that the application for the bonds and cheque were sent to NABARD by courier on 7-2-2006 which was received by NABARD on 9-2-2006. The bonds were allotted to him by NABARD on 15-2-2006. According to him the date of investment should be considered as the date when the cheque was sent to NABARD. According to the Revenue, the assessee was not able to prove that NABARD had received the application and encashed the cheque before 9-2-2006. As per the bank statement produced by the assessee, the cheque was encashed on 13-2-2006.

As regards whether or not NABARD bonds were long-term specified assets prescribed under the provisions, it was contended by the Revenue that by the Finance Act, 2006, the provisions of section 54EC were amended and NABARD bonds were no longer eligible for exemption.

Held:
The Supreme Court in the case of CIT v. Ogale Glass Works Ltd., (25 ITR 529) had held that payment by cheque realised subsequently relates back to the date of the receipt of the cheque and as per the law, the date of payment is the date of delivery of the cheque. Applying the said principle, the Tribunal held that since the assessee had delivered the cheque to NABARD by 9-2-2006, the date of payment would be the date of delivery of the cheque. The date when the cheque was encashed by NABARD cannot be said to be the date of investment.

As regards whether or not NABARD bonds were long-term specified assets prescribed under the provisions — the Tribunal noted that by the Finance Act, 2006, the clause (b) below Explanation to section 54EC(3) was substituted w.e.f. 1-4-2006, whereby the NABARD bonds were made in-eligible for exemption u/s.54EC. However, the Tribunal pointed out that till 31-3-2006, the said bonds were one of the eligible specified assets. Accordingly, it held that since the assessee had made investment on 9-2-2006, the contention of the Revenue that the law as on the 1st day of the assessment year should be applied cannot be accepted. For the purpose, it also relied on the decision of the Gujarat High Court in the case of CIT v. Nirmal Textiles, (224 ITR 378). It further observed that if the Revenue’s contention was accepted, then the assessee could never claim deduction u/s.54EC, because the period of 6 months would expire well before the 1st day of assessment year.

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Section 263 r.w.s. 40(b) – Allowability of interest to partners – Interest amount calculated as per daily product method by the assessee – Whether CIT is justified in holding the view that the interest should be calculated on the average amount of opening and closing balances – Held, no.

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2. Muthoot Bankers vs. DCIT
In the Income Tax Appellate Tribunal
Cochin Bench: Cochin
Before N. R. S. Ganesan (J. M.) and B. R.
Baskaran (A. M.)
ITA No. 223/Coch/2010
Decided on 27.07.2012
Counsel for Assessee / Revenue: R.
Sreenivasan / A. S. Bindhu

Section 263 r.w.s. 40(b) – Allowability of interest to partners – Interest amount calculated as per daily product method by the assessee – Whether CIT is justified in holding the view that the interest should be calculated on the average amount of opening and closing balances – Held, no.


Facts:

The CIT noticed that the assessee had paid interest of Rs. 2.05 crores to a partner on his current account, which was computed under daily product method. According to him, it should have been calculated on the average amount of opening and closing balances, based on which, the interest payable to partner worked out to Rs. 1.59 crore. Accordingly, he set aside the order of the AO by holding that the assessment was erroneous and prejudicial to the interest of the revenue. The assessee appealed before the tribunal challenging the order of the CIT.

Held:

Referring to the Supreme court decision in the case of Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83), the tribunal observed that the revision of order u/s. 263 is permissible only after showing that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. It further noted that the assessee has followed the product method for the purpose of calculating interest payable to the partner, since the partner was having frequent transaction of both receipts and payments. According to it, the said product method is scientific and also followed by the banks and financial institutions. The method takes into account all transactions of payments and receipts carried out throughout the year. On the other hand, the method suggested by the CIT was unscientific which does not taken into account the transactions that have taken place during the year. Accordingly, it held that the CIT has failed to establish that the assessment order was erroneous. Therefore, it set aside the order of the CIT.

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Section 12A – Registration as charitable institution – Assessee formed for improving the quality and profitability of the members’ enterprises by providing suitable platform to its CEOs who only could become assessee’s members – Whether entitled to registration – Held, yes.

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1. XYZ vs. DIT (Exem)
In the Income Tax appellate Tribunal “C”  
Bench: Mumbai
Before N. V. Vasudevan (J. M.) and
rajendra (A. M.)
ITa No. 3503/Mum/2011
Decided on 13.06.2012
Counsel for Assessee / Revenue: A. H. Dalal / V. V. Shastri

Section 12A – registration as charitable institution – assessee formed for improving the quality and profitability of the members’ enterprises by providing suitable platform to its CEOs who only could become assessee’s members – Whether entitled to registration – Held, yes.


Facts:

The assessee incorporated as a private limited company was granted license u/s. 25 of the Companies Act, 1956. Its main object as per its Memorandum of Association was as under: “To promote and provide networking facilities to the Chief Executive Officers (CEOs) of both private and public companies for improving the quality and profitability of their enterprises by providing a platform for CEOs for exchange of ideas and promotion of entrepreneurship through shared experience in India and to apply its income or profits if any, solely for the promotion of its objects and for the promotion of commerce in India and abroad.” The assessee applied for registration u/s. 12A.

According to the DIT, the object for which the assessee was incorporated were clearly not for the benefit of general public as a whole, but was confined to specific members only, viz., CEOs of companies and was commercial in nature. Hence, the assessee cannot be termed as a charitable association falling within the definition of section 2(15). Further, from the details filed, he noted that most of the activities of the assessee were held outside India. Therefore, relying on the decision of the Bombay high court in the case of State Bank of India (169 ITR 298), he held that the trust would not be entitled to exemption.

Held:

From the decision of the Supreme Court in the case of Surat Art Silks Cloth Manufacturers Association (121 ITR 1), the tribunal noted that the object which seeks to promote or protect the interest of a particular trade or industry is object of public utility. It further noted that the main object of the assessee, was to promote networking facilities to the CEOs for improving the quality and profitability of their enterprises, by providing a platform for CEOs for exchange of ideas and promotion of entrepreneurship through shared experience in India. According to it, advancement or promotion of trade, commerce and industry leading to economic prosperity ensures a benefit of the entire community. It further observed that, that prosperity would also be shared by those who engage in the trade, commerce and industry, but on that account, the purpose is not rendered any less an object of general public utility. As regards holding of conference abroad, it held that the said act would not make the activities of the assessee being carried out outside India. The benefit of such conference will ultimately go to assessee and its members. Thus, it held that the reasons assigned by the DIT for rejecting the assessee’s application for registration cannot be sustained.

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ITO v DKP Engineers & Construction P. Ltd. ITAT Mumbai `D’ Bench Before D. Manmohan (VP) and Rajendra Singh (AM) ITA No. 7796/M/2010 A.Y.: 2006-07. Decided on: 31st August, 2012. Counsel for revenue/assessee: Amardeep /Dr. K. Shivram & Rahul Hakani

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S/s. 28, 45 – In case of assessee following project completion method, sale proceeds of TDR allotted consequent to development of road need to be reduced from WIP.

Facts:
The assessee company engaged in construction activity had undertaken to develop the D.P. Road leading to Vikroli property on which it was to construct flats. Upon development of the road, the assessee became entitled to TDR which was sold on 5.8.2005. Cost incurred on development of road was considered as part of WIP and the sale consideration of TDR was reduced from WIP which had the effect of reducing the total expenditure incurred till the end of the year, on the project under development. The AO assessed the receipts arising on sale of TDR under the head `Income from Capital Gains’.

Aggrieved the assessee preferred an appeal to CIT(A) who allowed the assessee’s appeal.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the receipt of TDR had direct nexus with the work done by the appellant and was incidental to the entire project undertaken. It held that the assessee was correct in reducing the sale proceeds of TDR from work-in-progress. The Tribunal confirmed the order passed by the CIT(A) and dismissed the appeal filed by the revenue.

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A.D.I.T. v Shri Vile Parle Kelvani Mandal ITAT Mumbai ‘E’ Branch Before Dinesh Kumar Agarwal (J.M.) and N.K. Billaiya (A.M.) ITA No. 7106/Mum/2011 Assessment Year: 2008-09. Decided on 05-10-2012 Counsel for Revenue/Assessee : A.B. Koli/A.H. Dalal

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Section 11 – (i) Income from management development program earned by educational institute considered as eligible for exemption; (ii) Income from hiring premises and advertisement rights since applied for educational activities eligible for exemption; (iii) Claim for depreciation on fixed assets, the cost of which was allowed as application of income, allowed.

Facts:
The assessee is a trust engaged in running more than 30 schools and colleges and is registered u/s 12A and also under the Bombay Public Trust Act. The assessee has got approval u/s 10(23C)(vi) as approved educational institution valid from A.Y. 2008-09 and onwards.

The return was filed declaring total income at Rs. ‘nil’. However, the assessment was completed at an income of Rs. 4.19 crores vide assessment order dtd. 31-12-2010 passed u/s. 143(3) of the Act. This was based on the finding that:

i) the assessee had shown receipt of Rs. 3.25 crore under the head ‘Management Development Program & Consultancy Charges’ in the case of one of its institutions viz., NMIMS University. According to the AO, the same was not education in itself, as defined by the Supreme Court in the case of Lok Shikshana Trust vs. CIT (1975) 101 ITR 234 even though it may be incidental to its main activity of providing education. He further observed that since it was an organised systematic activity, it can be called business incidental to the main objects of the trust. He further observed that since the assessee had maintained only the ledger account for this activity separately, as against the requirement to maintain separate books of accounts, the assessee would not be entitled to exemption u/s. 11(4A) of the Act. Accordingly, the difference of Rs. 2.29 crore between the receipt and expenditure was treated as the business income.

ii) The income from hiring premises and advertisement rights of Rs. 1.91 crore was treated as business income.

On appeal, the CIT(A) observed that the element of business was missing in conducting management courses i.e. profit motive, repetitive nature, frequency of transactions etc.. Further, according to him, the assessee was maintaining separate ledger account for Management Development Programme, which should be regarded as sufficient compliance of provisions of section 11(4A) of the Act as held by the Delhi Tribunal in the case of ITO v Jesuit Conference of India (2010) 40 DTR (Del) (Tribunal) 493. As regards the income from hiring of premises and advertisement rights, he noted that income from these rentals were applied towards the educational purpose of the Institute and, hence, eligible to claim exemption u/s 11(1). Further, relying on the decision of the Supreme Court in CIT vs. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), wherein it has been held that the rental income from letting out of property cannot be held to be income from business and the income will be exempt as income from property held for charitable purpose, he directed the A.O. to delete the addition made by him.

The other issue before the tribunal was regarding allowability of depreciation claimed by the assessee. According to the AO, since the cost of fixed assets was fully allowed as application of funds, the depreciation on the same cannot be allowed. In support, reliance was placed on the decision of the Supreme Court in the case of Escorts Ltd. vs. Union of India (1993) 199 ITR 43. On appeal the CIT(A) distinguished the said decision and relied on the decision of the Bombay High Court in CIT vs. Institute of Banking, (2003) 264 ITR 110 and directed the AO to allow depreciation.

Before the tribunal, the assessee pointed out that it was maintaining separate books of accounts. In support, the separate accounts i.e. balance sheets etc. of all the Institutes were placed on record. The revenue, as regards allowability or otherwise of depreciation claimed by the assessee, also relied on the decision of the Kerala High Court in Lissi Medical Institutions, Kochi v CIT, (2012)-TIOL-303-HC-Kerala, ITA No. 42 of 2011 dtd. 17-2-2012.

Held:
In the absence of any contrary material placed on record by the Revenue against the aforesaid finding of the CIT(A) and keeping in view that the assessee was maintaining separate books of accounts for each Institute and also keeping in view that the rental income was applied towards the educational purpose of the Institute, the tribunal upheld the order of the CIT(A).

As regards the allowability of depreciation – the tribunal observed that the assessee was not claiming double deduction on account of depreciation as has been held by the AO. According to it, the income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purpose of Trust. Thus, there was no double deduction claimed by the assessee. The tribunal also referred to the decision of the Punjab & Haryana High Court in CIT v Market Committee, Pipli (2011) 330 ITR 16 where the decision of the Supreme Court in Escorts Ltd.’s case was distinguished, while relying on various decisions including the decision of the jurisdictional High Court in Institute of Banking’s case. Accordingly, the order of the CIT(A) was upheld and deleted the disallowance made by the AO.

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Prabodh Investment & Trading Company Pvt. Ltd. v. ITO ITAT ‘C’ Bench, Mumbai Before R. V. Easwar (President) and R. K. Panda (JM) ITA No. 6557/Mum./2008 A.Y.: 2004-05. Decided on: 28-2-2011 Counsel for assessee/revenue: P. J. Pardiwalla and Nitesh Josh/R. K. Sahu

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Section 50 — Capital gains arising on transfer of a capital asset (flat) on which depreciation was allowed for two years but thereafter the assessee stopped claiming depreciation and also gave the flat on rent is chargeable as long-term capital gains after allowing the benefit of indexation.

Facts:
The assessee, a private limited company, carried on business of investment. During the previous year 2003-04 it sold a flat for Rs.1,30,00,000. This flat was purchased by the assessee in the year 1987. Depreciation on this flat was claimed up till A.Y. 1991-92. In A.Ys. 1992-93 and 1993-94 the assessee claimed depreciation only in books of accounts but not in the return of income. For A.Y. 1994-95 and all subsequent years the assessee did not provide any depreciation in respect of the flat as the same was not used as office premises during the year. The flat was classified as a fixed asset in the balance sheet and was shown at cost less depreciation.

In the return of income the profit arising on transfer of this flat was shown as long-term capital gain. The long-term capital gain was computed after taking indexation benefit and also exemption u/s.54EC. The assessee relied upon the decision of the Bombay High Court in CIT v. Ace Builders P. Ltd., (281 ITR 210) for claiming indexation benefit even in respect of a depreciable asset. The Assessing Officer held that the decision of the Bombay High Court was not applicable to the case of the assessee and since the flat was the only asset in the block, the capital gain arising on sale of flat was taken to be short-term capital gain u/s.50(1).

Aggrieved the assessee preferred an appeal to the CIT(A) who held that the nature of asset continued to be a business asset in absence of anything to suggest that the assessee had taken a conscious decision to treat the flat as an investment. He distinguished the decision of the Cochin Bench of ITAT in Sakthi Metal Depot v. ITO, (2005) 3 SOT 368 (Coch.) on the ground that in the said decision the property was specifically treated by the assessee as an investment in the books of account. He upheld the order passed by the AO.

Aggrieved by the order of the CIT(A), the assessee preferred an appeal to the Tribunal.

Held:
The judgment of the Bombay High Court in Ace Builders was not concerned with the benefit of cost indexation. The decision is confined to relationship between section 50 and section 54E of the Act. The assessee cannot rely upon this decision to contend that the cost indexation benefit should be given even in the case of computation of short-term capital gains u/s.50 of the Act.

On facts, the decision of the Cochin Bench of the Tribunal in Sakthi Metal Depot is applicable, in which it has been held that if no depreciation had been claimed or allowed in respect of the asset, even though for an earlier period depreciation was claimed and allowed, from the year in which the claim of depreciation was discontinued, the asset would cease to be a business or depreciable asset and if the asset had been acquired beyond the period of thirtysix months from the date of sale, it would be a case of long-term capital gains. The Tribunal held that the moment the assessee stopped claiming depreciation in respect of the flat and even let out the same for rent, it ceased to be a business asset. It noted that the order of the Cochin Bench of ITAT applies in favour of the assessee. The Tribunal observed that the principle of the order, dated 31-1-2007, of the Mumbai Bench of ITAT, in the case of Glaxo Laboratories (I) Ltd., though laid down in a different context, would support the assessee in the sense that it is possible for a business asset to change its character into that of a fixed asset or investment. The Tribunal directed that the capital gains be assessed as long-term capital gains after allowing the benefit of cost indexation as claimed by the assessee.

This ground was allowed. Cases referred to:
(i) CIT v. Ace Builders Pvt. Ltd., 281 ITR 210 (Bom.)
(ii) Sakthi Metal Depot v. ITO, (2005) 3 SOT 368 (Coch.) Compiler’s Note: The decision also deals with a small issue on MAT which has not been digested.

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Baba Farid Vidyak Society v. ACIT ITAT Bench, Amritsar Before C. L. Sethi (JM) and Mehar Singh (AM) ITA No. 180/ASR/2010 A.Y.: 2006-07. Decided on: 31-1-2011 Counsel for assessee/revenue: P. N. Arora/ Madan Lal

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Section 40(a)(ia) r.w.s. 194C and 194J — Disallowance of expenditure on account of non-deduction of tax at source — Whether the provisions applicable to the assessee-society engaged in charitable activities — Held, No.

Facts:
For non-deduction of tax at source from the payments made towards advertisement expenses, the AO disallowed the sum of Rs.5.10 lac and taxed the same as business income. Before the CIT(A) the assessee contended that since its income is not chargeable u/s.26 to section 44AD under the head ‘Business income’, the provisions of section 40(a)(ia) were not applicable. However, the CIT(A) upheld the order of the AO.

Held:
Relying on the Amritsar Tribunal decision in the case of ITO v. Sangat Sahib Bhai Pheru Sikh Educational Society, (ITA Nos. 201 to 203/ASR/2004, dated 31- 3-2006), which in turn was based on the Mumbai Tribunal decision in the case of CIT v. India Magnum Fund, (74 TTJ 620), the Tribunal accepted the contention of the assessee and allowed the appeal of the assessee.

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Raj Ratan Palace Co-op. Hsg. Soc. Ltd. v. DCIT ITAT ‘B’ Bench, Mumbai Before N. V. Vasudevan (JM) and J. Sudhakar Reddy (AM) ITA No. 674/Mum./2004 A.Y.: 1997-1998. Decided on: 25-2-2011 Counsel for assessee/revenue: S. N. Inamdar/Ajit Kumar Sinha

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Section 2(24), Section 45 — Mere grant of consent by the land owner to the developer to construct by consuming TDR purchased by the developer from third party does not amount to transfer of land/or any rights therein — Amount of compensation paid by the developer to the members of the society cannot be taxed in the hands of the society.

Facts:
The assessee, a co-operative housing society, having 51 members was the owner of the plot of land admeasuring 3316 sq. mts together with Raj Ratan Palace building in front and a bungalow and other structures thereon. The entire FSI of the said property was already fully consumed in the construction of the multistoried building and the bungalow/structures on the said property. The society invited offers from builders and developers for redevelopment of its property by construction of a new multistoried building behind the Raj Ratan Palace building by means of TDR from elsewhere and by consumption of available FSI of the said property after demolishing the existing bungalow. The offer of M/s. New India Construction Co. (‘the Developer’) was accepted by the society and the terms and conditions agreed upon by the society, the developer and the members of the society were recorded in an agreement dated May 18, 1996. The said agreement in clause 12 provided that the developer will pay compensation at Rs.1431 per sq.ft. to the society and its members. The sum was quantified at Rs.2,00,16,828. Of this only a sum of Rs.2,51,000 was paid to the assessee and the balance amount was to be paid to the members. Clause 13 provided that in case the developers desire to utilise more TDR than what is stated in clause 12, then the developers shall pay to the society and the individual members of the society proportionately additional compensation @ Rs.1341 per sq.ft. of net proposed built-up area and the amount was to be paid to the society and the individual members in the manner provided in their individual agreements. Accordingly, the developers paid a sum of Rs.2,51,000 to the assessee-society and the balance sum was paid to the individual members of the society under 51 different agreements.

The assessee-society in its return of income filed for A.Y. 1997-98 did not offer any sum for taxation. The Assessing Officer (AO) asked the assessee to show cause why the sum of Rs.3,02,16,828 (aggregate of amounts paid by the developer to the society and its members) should not be regarded as income of the assessee since the assessee was the owner of the land and the assessee had allowed the developer to construct multi- storied building on land belonging to it. The AO held that the agreements between the developer and the 51 members were only to facilitate the payment by the developer. He, accordingly, taxed Rs.3,02,16,828 as income of the society u/s.2(24).

Aggrieved the assessee preferred an appeal to the CIT(A) who held that the amount under consideration is chargeable to tax in the hands of the assessee, subject to grant of indexation and also credit for taxes paid by the individual members on the amounts received by them.

Aggrieved the assessee preferred an appeal to the Tribunal where it was contended that the right to use TDR, even assuming was a capital asset, did not have cost of acquisition; consideration received for assigning right to receive TDR was not liable to tax in view of the decisions of the Tribunal; in the case of 21 members of the assessee the Tribunal has upheld the taxability of amount received from the developer.

Held:
The Tribunal held that no part of the land was ever transferred by the assessee. The assessee did not part with any rights and did not receive any consideration except a sum of Rs.2,51,000. The sum so received was for merely granting consent to consume TDR purchased by the developer from a 3rd party. The assessee continues to be the owner of the land and no change in ownership of land has taken place. Mere grant of consent will not amount to transfer of land/or any rights therein. The Tribunal observed that “In such circumstances, we fail to see how there could be any incidence of taxation in the hands of the assessee.” It also noted that the order passed by the AO was vague and did not clarify whether the sum in question was brought to tax as capital gain or as income u/s.2(24). It was of the view that neither of the above provisions can be pressed into service for bringing the sum in question to tax in the hands of the assessee. It also noted that some of the individual members had offered the receipts from the developer to tax and the same has also been brought to tax in their hands. The Tribunal directed that the addition made to the income of the assessee be deleted.

The appeal filed by the assessee was allowed.

Facts:
For non-deduction of tax at source from the payments made towards advertisement expenses, the AO disallowed the sum of Rs.5.10 lac and taxed the same as business income. Before the CIT(A) the assessee contended that since its income is not chargeable u/s.26 to section 44AD under the head ‘Business income’, the provisions of section 40(a)(ia) were not applicable. However, the CIT(A) upheld the order of the AO. Held: Relying on the Amritsar Tribunal decision in the case of ITO v. Sangat Sahib Bhai Pheru Sikh Educational Society, (ITA Nos. 201 to 203/ASR/2004, dated 31- 3-2006), which in turn was based on the Mumbai Tribunal decision in the case of CIT v. India Magnum Fund, (74 TTJ 620), the Tribunal accepted the contention of the assessee and allowed the appeal of the assessee.

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Mehta Jivraj Makandas & Parekh Govindaji Kalyanji Modh Vanik Vidyarthi Public Trust v. DIT(E) ITAT ‘G’ Bench, Mumbai Before Rajendra Singh (AM) and V. D. Rao (JM) ITA No. 2212/M/2010 Decided on: 11-3-2011 Counsel for assessee/revenue: A. H. Dalal/A. K. Nayak

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Section 12A and section 80G — Registration of charitable institution and renewal of exemption certificate — Application for renewal of exemption certificate rejected for the reason that changes made in object clause of trust without following the required procedure, hence the trust became invalid — Whether Revenue was justified in refusing to renew exemption certificate — Held, No.

Facts:
The appellant-trust had been registered u/s.12A of the Income-tax Act and had also been granted exemption u/s.80G earlier. The assessee filed application for renewal of exemption u/s.80G. The DIT(E) noted that the original objects of the trust had been amended and new objects were inserted. According to him in view of the changes in the objects, the original registration u/s.12A did not survive and therefore approval u/s.80G could not be granted. For the purpose he relied on the decision of the Allahabad High Court in the case of Allahabad Agricultural Institute v. Union of India, (291 ITR 116) and of the Madras High Court in case of Sakthi Charities v. CIT, (149 ITR 624). Before the Tribunal the Revenue strongly supported the order of the DIT(E) and contended that:

the objects of the trust cannot be amended without the approval of the High Court. For the purpose, it relied on the decision of the Madras High Court in the case of Sakthi Charities;

the changes in the objects of the trust were not intimated to the Department as provided in form No. 10A;

the changes made in the objects of the trust were not legal, hence the trust had become invalid and therefore the registration already granted u/s.12A could not survive. Reliance was placed on the decision of the Allahabad High Court in the case of Allahabad Agricultural Institute & Others v. Union of India.

Held:
The Tribunal noted that:

the trust was already registered u/s.12A which had not been cancelled;

the original object of the trust of providing hostel accommodation to the ‘Modh’ students had not been deleted;

The object had only been modified so as to include other deserving students also in addition to the students of the Modh community;

There was only one addition in the object clause viz., to provide medical aid to the poor and deserving persons of any community;

even the amended objects remained charitable and had not caused any detriment to the original objects as students of the Modh community continued to be eligible for the benefits;

There was no statutory requirement of intimating the changes except the one mentioned in the form No. 10A. and even in the form No. 10A, there was no time limit prescribed;

The assessee had intimated the changes to the Department, though later.

As regards the applicability of the decision of the Allahabad High Court, the Tribunal observed that in the case of Allahabad Agricultural Institute there were wholesale changes in the objects. The number of objects had been increased to 14 from 6 objects in the original deed and the assessee in that case could not show that the revised objects were practically the same or were charitable. While in the case before it, the Tribunal observed that there were practically no changes in the objects. The original object of providing hostel accommodation remained the same. Only the scope was enlarged to cover all students. The only new object was medical aid to poor, which was also charitable. Therefore it was held that the decision of the Allahabad High Court in the case of Allahabad Agricultural Institute was distinguishable and cannot be applied to the facts of the present case.

Relying on the Supreme Court decision in the case of CIT v. Surat City Gymkhana the Tribunal agreed with the assessee that since the trust had already been registered and since the registration was not cancelled, the AO cannot probe the objects and declare the trust invalid.

In view of the above, the DIT(E) was directed to grant renewal of approval u/s.80G to the assessee.

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Avshesh Mercantile P. Ltd. and 15 others v. Dy. Commissioner of Income-tax In the Income Tax Appellate Tribunal “F” Bench: Mumbai Before P.M. Jagtap (A. M.) and R.S. Padvekar (J. M.) ITA Nos. 5779, 5780, 5821, 6032, 6033, 6194, 6196, 6198, 6266 & 6611/Mum/2006, ITA Nos. 1427, 6742 & 7318 /Mum/2008 and ITA No.208, 210 & 1748/Mum/2009 Assessment Years: 2003-04 & 2004-05. Decided on 13.06.2012 Counsel for Assessees/Revenue: J.D. Mistry/ Subacham Ram

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Section 14A – No disallowance can be made (i) in the absence of any exempt income earned during the year; or (ii) if investment is also capable of generating taxable income.

Facts:
All the assessees in the present case were investment and trading companies. They issued unsecured optionally convertible premium notes of Rs. 1 lakh each. As per the terms of the said issue, the premium note holders could convert the said premium notes into equity shares of the company at the end of maturity period or redeem the same at any time after the end of three years from the date of allotment. In case of early redemption, the premium note holders were entitled to a proportionate premium. During the year under consideration, the premium so paid was claimed by the assessee as deduction being allowable as business expenditure.

The AO found that the amount received by the assessee on issue of premium notes was utilised for making investment in the purchase of shares of Reliance Utilities and Power Ltd. (‘RUPL’) the income arising there from was exempt u/s 10(23G). As the expenditure incurred was for the purpose of earning exempt income, the AO held that the premium paid on redemption of premium notes was liable to be disallowed u/s 14A. He further held that the fact that no exempt income in the form of dividend was actually earned by the assessee in the year under consideration was not relevant. In this regard, he placed reliance on the decision of the Supreme Court in the case of CIT v. Rajendra Prasad Moody 115 ITR 519. As regards the assessee’s contention that the premium paid on redemption of premium notes was the expenditure incurred for the purpose of its business which should be allowed u/s 36(1)(iii), the AO observed that even though making of investment in shares was the object contained in the Memorandum and Articles of Association of the assessee companies, the same alone was not a conclusive yardstick to ascertain the nature of business activity carried on by the assessee in the year under consideration. Further, he noted that there was no cogent material to support and substantiate the case of the assessees that making of investments in the shares of RUPL was a part of their business activities.

On appeal, the CIT(A) upheld the disallowance made by the AO. He noted that the entire income credited to Profit and Loss account was assessable to tax under the head “Income from other sources” by virtue of section 56(2)(i). Accordingly, he held that the investments in securities made by the assessees were held by them as investment and not as a trading asset. Hence, the expenditure incurred on payment of premium on redemption was not the expenditure incurred for the purpose of business. He held that the premium paid on redemption of premium notes, which had been utilised by the assessee for making investment in shares/ debentures of RUPL was allowable as deduction only against interest/dividend income received from RUPL and such income being totally exempt from tax u/s 10(23G), the premium paid was rightly disallowed u/s 14A by the AO.

Before the tribunal, the revenue supported the orders of the lower authorities and contended that the assessee was not in the business of investment and the investment made in RUPL was only to earn dividend and for no other consideration. It was further contended that even otherwise, it makes no difference as far as disallowance of redemption premium u/s 14A was concerned, as the same was the expenditure incurred in relation to earning of exempt income. As regards the argument of the learned counsel for the assessee that the investment in shares had the potential of earning taxable income also, it was submitted that this aspect will not preclude the applicability of law u/s 14A as has been held by the Mumbai tribunal in the case of ITO v. Daga Capital Management (P) Ltd. (2008) 119 TTJ (Mum) (SB) 289. Regarding the argument of assessee that there being no exempt income earned by the assessees in the year under consideration, no disallowance of expenditure u/s 14A could be made, the revenue contended that it was wrong to claim that there should be tax free income in the same year for invoking the provisions of section 14A. In support of this contention, it placed reliance on the following decisions :

1. Everplus Securities & Finance Ltd. v. DCIT 102 TTJ (Del) 120.

2. Harsh Krishnakant Bhatt v. ITO 85 TTJ (Ahd.) 872.

3. ITO v. Daga Capital Management Pvt. Ltd. 117 ITD 169.

4. M/s Cheminvest Ltd. v. ITO and Others ITA No.87/ Del/2008 & ITA No.4788/Del/2007.

5. Godrej & Boyce Mfg. Co. Ltd. v. DCIT 328 ITR 81(Bom.).

Held:
The tribunal noted that the proceeds of premium notes on which the impugned redemption premium was paid by the assessee had been invested in the shares/debentures of RUPL and although the dividend income and income from long term capital gain from the said investment was exempt from tax u/s 10(23G), perusal of the Notification issued u/s 10(23G) showed that such exemption was initially granted only for the specific period i.e. assessment year 1999-2000 to 2001-2002 which was further extended upto assessment year 2004-05 subject to satisfaction of certain conditions. Keeping in view all these uncertainties and contingencies, the tribunal agreed with the contention of the assessee that the premium paid by the assessee on redemption of premium notes utilised for making investment in the shares/debentures of RUPL cannot be regarded as expenditure incurred, exclusively in relation to earning of exempt income so as to invoke the provisions of section 14A. It further noted that the said investment had the potential of generating taxable income also in the form of short term capital gains etc.

As the issue involved in the present cases as well as all the material facts relevant thereto were similar to that of the case of Delite Enterprises Pvt. Ltd. ((ITA No.2983/M/2005)), which was confirmed by the Bombay high court, the tribunal followed the said decision and deleted the disallowance made by the AO and confirmed by the learned CIT(A). As regards the case laws cited by the revenue, it observed that in none of those cases, the facts involved were similar to the case of the present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as were the facts of the case of the assessees.

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ITO v. Galaxy Saws P. Ltd. ITAT ‘G’ Bench, Mumbai Before Rajendra Singh (AM) and V. D. Rao (JM) ITA No. 3747/Mum./2009 A.Y.: 2005-06. Decided on: 11-3-2011 Counsel for revenue/assessee: Pawan Ved/ Jitendra Jain

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Section 115JB — Adjustment to book profit — Revaluation of assets sold — Whether the amount taken to balance sheet as revaluation reserve can be added to the book profit — Held, No.

Facts:
During the year the assessee sold its office premises for Rs.96 lakh. Its book value was Rs.3.29 lakh. However, the assessee revalued the said premises at Rs.97.44 lakh. The gain on revaluation of Rs.94.15 lakh was credited to revaluation reserve. Based on the revalued figure, the loss on sale of the premises was determined at Rs.1.44 lakh.

During the year the assessee had returned its income as per section 115JB. According to the AO, the revaluation of property made by the assessee was only a device to reduce the book profit. Further, he also relied on the decision of the Bombay High Court in the case of Veekaylal Investment Pvt. Ltd. (249 ITR 597). Therefore, the book profit as computed by the assessee was adjusted by him by adding the sum of Rs.92.71 lac to the book profit. On appeal, the CIT(A) following the Supreme Court decision in the case of Apollo Tyres Ltd. (255 ITR 273) allowed the appeal.

Before the Tribunal the Revenue relied on the decision of the Karnataka high Court in the case of CIT v. Brindavan Beverages Ltd., (321 ITR 197) in which case, according to the Revenue, the judgment in the case of Apollo Tyres Ltd. was considered. It also referred to the observation of the Supreme Court in the case of Motibhai Phulabhai Patel & Co. (AIR 1970 SC 829) that no rule of law should be interpreted so as to permit or encourage its circumvention. It pointed out that the assessee had not revalued all its assets and he had revalued only the immovable property, which makes it clear that the assessee had used it as a device to avoid tax.

Held:
Relying on the Supreme Court decision in the case of Apollo Tyres Ltd., the Tribunal noted that once the profit and loss accounts prepared as per Part II and Part III of the Schedule VI of the Companies Act and adopted at the Annual General Meeting of the company, the net profit disclosed in such accounts can only be adjusted for items specified in Explanation I to section 115JB(2).

In respect of the decision of the Karnataka High Court in the case of Brindavan Beverages Ltd. relied on by the Revenue, the Tribunal noted that in the said decision, the Court had only remanded the matter back to the AO and it was not held that the gain arising from the sale of the assets had to be added to the book profit.

As regards the contention of the Revenue that the assessee had adopted colourable device, hence, should be struck down applying the ratio of the Supreme Court decision in the case of McDowell & Co. (154 ITR 148), the Tribunal noted that the para 13 of the accounting standard on Fixed Assets (AS- 10) allows the assessee to revalue any property and para 13.7 of the Standard requires that increase in net book value on account of revaluation to be taken to the capital account as revaluation reserve and was not available for distribution. It also rejected the argument of the Revenue that the assessee had made selective revaluation to avoid payment of tax, since according to it, the Standard required that the whole class of assets should be revalued. And the assessee had only one immovable property which had been revalued and therefore, the entire class of immovable property got revalued in accordance with the Standard.

The Tribunal also noted that as per the provisions of Explanation 1 to section 115JB(2), the amount carried to any reserve had to be added to the net profit if the amount had been debited to the profit and loss account. In the case of the assessee, the amount had been directly taken to the balance sheet without debit to the profit and loss account. Further, the clause (iia) of Explanation 1 inserted w.e.f. 1-4- 2007 only provides for making adjustment qua the depreciation on account of revaluation of assets. It does not provide for addition of revaluation reserve to the net profit even if the same was not debited to the profit and loss account.

In view of the forgoing, the Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue.

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Rajesh Keshav Pillai v. ITO ITAT ‘D’ Bench, Mumbai Before D. Manmohan (VP) and Rajendra Singh (AM) ITA No. 6661/M/2009 A.Y.: 2006-07. Decided on: 23-2-2011 Counsel for assessee/revenue: S. E. Dastur and H. S. Raheja/R. N. Jha

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Section 54 — Exemption u/s.54 is not restricted to capital gain arising on sale of one residential house. If more than one residential house is sold and more than one residential house is bought, a corresponding exemption is available in relation to each set of sale and corresponding investment in residential house. However, the exemption will have to be computed for each sale and the corresponding purchase adopting a combination beneficial to the assessee and not on an aggregate basis.

Facts:
The assessee earned long-term capital gain on sale of two residential houses. The assessee purchased two residential houses and claimed exemption u/s.54 of the Act on the ground that the aggregate investment in purchase of two residential houses was more than the aggregate long-term capital gain arising on sale of two residential houses. The Assessing Officer (AO), referring to the decision of the Special Bench of the Tribunal in the case of ITO v. Sushila M. Jhaveri, [292 ITR (AT) 1], held that the assessee is entitled to exemption u/s.54 in respect of long-term capital gain arising on sale of one residential house with the corresponding investment in one residential house. He, accordingly, charged to tax long-term capital gain arising on sale of other residential house.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the view taken by the AO.

Aggrieved, by the order of the CIT(A), the assessee preferred an appeal to the Tribunal.

Held:
There is no restriction placed anywhere in section 54 that exemption is available only in relation to sale of one residential house. Therefore, in case the assessee has sold two residential houses, being long-term capital assets, the capital gain arising from the second residential house is also capital gain arising from transfer of a long-term capital asset being a residential house. The provisions of section therefore will also be applicable to the sale of second residential house and also to a third residential house and so on. Whenever exemption is restricted to one asset, a suitable provision is incorporated in the relevant section itself. Considering the language used in section 54(1), exemption will be available in respect of transfer of any number of long-term capital assets being residential houses if other conditions are satisfied.

The decision of the Special Bench of ITAT in the case of Sushila M. Jhaveri (supra) is distinguishable. There the issue was whether exemption was available in case the gain from sale of a house is invested in more than one residential houses and it was held that exemption will be available only for one house. But exemption will be available in respect of sale of any number of residential houses if there are corresponding investments in residential houses and all other conditions are fulfilled.

In case there is sale of more than one residential house, the exemption will be available in relation to each set of sale and corresponding investment in the residential house. In case there are sales of more than one residential houses, exemption has to be computed considering each set of sale of residential hose and the corresponding investment in one residential house and the combination which is beneficial to the assessee has to be allowed. The exemption cannot be calculated considering the aggregate of capital gain and aggregate of investment in the residential houses.

This appeal filed by the assessee was allowed.

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Sony India Pvt. Ltd. v. ACIT ITAT ‘G’ Bench, Delhi Before C. L. Sethi (JM) and K. G. Bansal (AM) ITA Nos. 4008/Del./2010 and 4994/Del./2010 A.Ys.: 2005-06 and 2006-07 Decided on: 8-4-2011 Counsel for assessee/revenue: N. Venkat Raman & Ors./Gajanand Meena & Ors.

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Sections 35DDA, 37, Rule 2BA — Deduction u/s.35DDA for expenditure on voluntary retirement cannot be denied on the ground that the scheme is not in accordance with the guidelines prescribed u/s.10(10C) read with Rule 2BA.

Facts:
The assessee was engaged in manufacturing and trading business. During the previous year relevant to A.Y. 2005-06 the assessee, as a part of restructuring of its business, closed down the manufacturing operations of its unit at Dharuhera. A voluntary retirement scheme known as ‘Employees Voluntary Retirement Scheme — 2004’ was framed which was applicable only to the employees of the closed unit. One-fifth of the expenditure incurred on voluntary retirement was claimed as a deduction u/s.35DDA.

The Assessing Officer (AO) disallowed the claim on the ground that since the scheme was not framed in accordance with Rule 2BA, the scheme is not VRS but a substitution of retrenchment compensation payable to the employees and hence the provisions of section 35DDA are not applicable. As regards the allowability of the expenditure u/s.37 he held that deduction can be allowed u/s.37(1) only in respect of those expenses which are incurred for the purposes of business. This, according to the AO, pre-supposes that the business continues to be carried on by the assessee. Since the expenditure under consideration was incurred in the closure of business or the transfer of business, the AO held that the same is not deductible u/s.37.

Aggrieved, the assessee preferred an appeal to the CIT(A) who held that the expenditure under consideration was incurred in terms of VRS and was not in the nature of retrenchment compensation. However, he held that the expenditure is not allowable u/s.35DDA since the VRS of the assessee did not comply with the conditions laid down by Rule 2BA.

Aggrieved, the assessee preferred an appeal to the Tribunal where it was contended that the Department has not challenged the finding of the CIT(A) that the expenditure is not in the nature of retrenchment compensation but is an expenditure on VRS and therefore such a finding has become final.

Held:
The Tribunal, for the following reasons, held the scheme of the assessee to be VRS, to which the provisions of section 35DDA are applicable:

(a) the deletion of conditionalities originally incorporated in the Bill shows that the legislative amendment was not to incorporate all the conditions of section 10(10C) in section 35DDA;

(b) the Legislature left the scheme of voluntary retirement open ended and did not place any restriction on the scheme. Thus, plain language of the provision supports the case of the assessee;

(c) it is not a case of taking guidance from a definition section;

(d) for sustaining the arguments of the learned DR, the provision contained in section 35DDA will have to be modified by incorporating a part of section 10(10C) in it. In our view, such an incorporation does not find support from any rule of construction stated before us.

The expenditure under consideration was held to be allowable u/s.35DDA.

As regards allowability u/s.37(1) of the Act, the Tribunal held that the assessee was required to prove that the closed unit was a part and parcel of the same business of the assessee. It stated that in order to give a finding, the assessee was required to prove that common control and management; interlinking of finances; common employees, no material effect of closure of the business on other businesses. Since the requisite material to give these findings was not on record the Tribunal did not give its finding on this aspect.

The appeal filed by the assessee on this ground was allowed.

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Nayan Builders & Developers Pvt. Ltd. v. ITO ITAT ‘B’ Bench, Mumbai Before R. S. Syal (AM) and Asha Vijayaraghavan (JM) ITA No. 2379/M/2009 A.Y.: 1997-98. Decided on: 18-3-2011 Counsel for assessee/revenue: Sanjiv M. Shah/Hari Govind Singh

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Section 271(1)(c) — Penalty u/s.271(1)(c) cannot be levied with respect to an addition which has been admitted by the High Court as a substantial question of law.

Facts:
The Assessing Officer (AO) levied penalty u/s.271(1) (c) in respect of additions to total income of the assessee of Rs.1,04,76,050 towards income from Spectrum Corporate Services Ltd., disallowance of brokerage of Rs.10,79,221 and disallowance of legal fees of Rs.2,00,000 which additions were upheld by the Tribunal.

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

Aggrieved by the order passed by the CIT(A) the assessee preferred an appeal to the Tribunal.

Held:
Having noted that the additions in respect of which the penalty was levied have been held by the jurisdictional High Court as involving a substantial question of law, the Tribunal held that when the High Court admits a substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances, penalty u/s.271(1)(c) cannot be levied. The admission of substantial question of law by the High Court lends credence to the bona fides of the assessee in claiming the deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred, the mere fact of confirmation of disallowance would not per se lead to the imposition of penalty.

The Tribunal ordered deletion of the penalty. The Tribunal allowed the appeal filed by the assessee.

Cases referred to:
(i) Rupam Mercantile v. DCIT, (2004) 91 ITD 237 (Ahd.) (TM)

(ii) Smt. Ramila Ratilal Shah v. ACIT, (1998) 60 TTJ 171 (Ahd.)

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Synergy Entrepreneur Solutions Pvt. Ltd. v. DCIT ITAT ‘J’ Bench, Mumbai Before D. K. Agarwal (JM) and Pramod Kumar (AM) ITA No. 3076/M/2010 A.Y.: 2005-2006. Decided on: 31-3-2011

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Counsel for assessee/revenue: Arvind Dalal/ Sumeet Kumar

Section 263 — Revision order, if passed for a reason not mentioned in the show-cause notice, is invalid.

Facts:
The assessee was engaged in share trading activity. The assessee had claimed set-off of trading losses against trading profits which set-off was accepted by the Assessing Officer (AO) in an order passed u/s.143(3) of the Act. The CIT issued a show-cause notice u/s.263 in which he claimed that share trading losses were speculation losses u/s.73 and the same could not be set off against trading income. The assessee, in response to show cause, clarified that the trading losses were eligible for being set off against trading profits. The CIT, without rejecting the claim of the assessee, passed an order u/s.263 on the ground that the AO had not taken the details to verify whether the profits and loss from future trading amounts to speculation profit or loss. He directed the AO to obtain complete details and conduct necessary enquiries and examine the same for the assessment year under consideration. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The Tribunal noted that the show-cause notice stated that the assessee was not eligible for set-off of losses on speculation transactions, whereas the revision has been on the ground that the AO did not make necessary verifications about the transactions. Relying on the ratio of the decision of the Tribunal in Maxpack Investments Ltd. v. ACIT, 13 SOT 67 (Del.) and the decision of the Punjab & Haryana High Court in the case of CIT v. Jagadhri Electric Supply and Industrial Co. Ltd., 140 ITR 490 (P & H), the Tribunal held that if a ground of revision is not mentioned in the show-cause notice issued u/s.263, that ground cannot be made the basis of the order passed under the section, for the simple reason that the assessee would have had no opportunity to meet the point. The Tribunal quashed the order passed u/s.263 of the Act.

On merits, the Tribunal found the issue to be covered in favour of the assessee by the decision of the jurisdictional High Court in the case of CIT v. Lokmat Newspapers Pvt. Ltd., (322 ITR 43) (Bom.) wherein it has been held that irrespective of whether or not the profits on sale of shares arose from deliverybased trading or non-delivery-based trading, as long as the assessee is hit by Explanation to section 73, the entire profits will be deemed to be speculation profits and, accordingly, losses from non-deliverybased activity will also be eligible for set-off against profits from delivery-based transactions as well.

The appeal filed by the assessee was allowed.

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DCIT v. Bharat Kunverji Kenia ITAT ‘B’ Bench, Mumbai Before D. Manmohan (VP) and Pramod Kumar (AM) ITA No. 929/Mum./2010 A.Y.: 2006-07. Decided on: 2-2-2011 Counsel for revenue/assessee: Hari Govind Singh/Pradip N. Kapasi

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Section 14 — Heads of income — Income from purchase and sale of shares — Whether taxable as capital gains or as business income — On the facts held as capital gains.

Facts:
During the year the assessee had shown short-term capital gain of Rs.40.31 lac from purchase and sale of shares. The AO noticed that the volume of purchase and sale was worth Rs.2.5 crore and the number of transactions aggregated to 276 in number. Based on the same he concluded that: the data indicated that the assessee intended to deal in shares as a trader and not as an investor. When the assessee contended that in the earlier years, under the similar circumstances, the income was taxed as capital gains and not as a business income, the AO observed that the doctrine of res judicata could be applicable to the decisions of Civil Courts and it cannot be invoked while deciding income-tax matter.

On appeal, the CIT(A) had the benefit of the order of the ITAT in the assessee’s own case for the A.Y. 2005-06 (ITA No. 6544/Mum./2008 dated 15-5-2009) wherein on identical facts, the Tribunal decided the issue in favour of the assessee. Applying the principle of consistency, the CIT(A) allowed the appeal of the assessee.

Before the Tribunal the Revenue relied on the order of the AO and further submitted that the volume, frequency and regularity of the transaction was one of the essential tests to consider the nature of transactions. Further, relying on the following two decisions, it was contended that where facts were distinguishable or fresh facts were brought on record, principles of res judicata did not come into play and the authority was free to take a different view on the matter. The decisions relied upon were as under:

  •  Sadhana Nabera v. ACIT, (ITA No. 2586/M/2009, dated 26-3-2010; and

  •  Rakesh J. Sanghvi v. DCIT, (ITA Nos. 4607/ M/2008 and 5710/M/2009, dated 31-8-2009).

Held:
According to the Tribunal, no single criteria laid down by the Courts or in the Board Circular (No. 4 of 2007, dated 15-6-2007) was decisive and they had to be considered cumulatively to bring out the real intention of the assessee before entering into such transactions. Referring to a chart prepared by the assessee, which was showing compliance with various conditions of the Board Circular, the Tribunal noted that he had complied with all the requirements mentioned in the Circular. In addition the Tribunal noted as under:

  •  The shares held were all along treated as an investment;

  •  The assessee had not borrowed funds for the purpose of making investments;

  •  Shares once sold were not purchased again;

  •  Average holding period of the shares sold by the assessee was of 181 days.

In view of the above and the Tribunal’s decision in the assessee’s own case for the earlier year, the Tribunal dismissed the appeal filed by the Revenue. According to the Tribunal, the case laws relied upon by the Revenue were distinguishable on the facts.

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Jupiter Construction Services Ltd. vs. DCIT ITAT Ahmedabad `A’ Bench Before Pramod Kumar (AM) and S. S. Godara (JM) ITA No. 2850 and 2144/Ahd/11 Assessment Year: 1995-96 and 1996-97. Decided on: 24th April, 2015. Counsel for assessee / revenue: Tushar P. Hemani / Subhash Bains

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Section 255(4) – At the time of giving effect to the majority view, it normally is not open to the Tribunal to go beyond the exercise of giving effect to the majority views, howsoever mechanical it may seem. Even if the Third Member’s verdict is shown to be “unsustainable in law and in complete disregard to binding judicial precedents”, Division Bench has no choice but to give effect to it.

Facts:
There was a different of opinion between the members of Division Bench while deciding the appeal of the assessee relating to levy of penalty. The difference was referred to the Third Member who agreed with the Accountant Member and confirmed the levy of penalty.

At the stage of Division Bench giving effect to the order of the Third Member, the assessee claimed that the order of the Third Member could not be given effect to as it was unsustainable and in complete disregard to binding judicial precedents. The assessee claimed that the matter of whether effect could be given to such an order was required to be referred to a Special Bench.

Held:
Post the decision of the jurisdictional High Court in the case of CIT vs. Vallabhdas Vithaldas 56 taxmann.com 300 (Guj) the legal position is that the decisions of the division benches bind the single member bench, even when such a single member bench is a third member bench.

A larger bench decision binds the bench of a lesser strength because of the plurality in the decision making process and because of the collective application of mind. What three minds do together, even when the result is not unanimous, is treated as intellectually superior to what two minds do together, and, by the same logic, what two minds do together is considered to be intellectually superior to what a single mind does alone. Let us not forget that the dissenting judicial views on the division benches as also the views of the third member are from the same level in the judicial hierarchy and, therefore, the views of the third member cannot have any edge over views of the other members. Of course, when division benches itself also have conflicting views on the issues on which members of the division benches differ or when majority view is not possible as a result of a single member bench, such as in a situation in which one of the dissenting members has not stated his views on an aspect which is crucial and on which the other member has expressed his views, it is possible to constitute third member benches of more than one members. That precisely could be the reason as to why even while nominating the Third Member u/s. 255(4), the Hon’ble President of this Tribunal has the power of referring the case “for hearing on such point or points (of difference) by one or more of the other members of the Appellate Tribunal”. Viewed from this perspective, and as held by Hon’ble Jurisdictional high Court, the Third Member is bound by the decisions rendered by the benches of greater strength. That is the legal position so far as at least the jurisdiction of the Gujarat High Court is concerned post Vallabhdas Vithaldas (supra) decision, but, even as we hold so, we are alive to the fact that the Hon’ble Delhi High Court had, in the case of P. C. Puri vs. CIT 151 ITR 584 (Del), expressed a contrary view on this issue which held the field till we had the benefit of guidance from the Hon’ble jurisidictional High Court. The approach adopted by the learned Third member was quite in consonance with the legal position so prevailing at that point of time.

At the time of giving effect to the majority view, it cannot normally be open ot the Tribunal to go beyond the exercise of giving effect to the majority views, howsoever mechanical it may seem. In the case of dissenting situations on the division bench, the process of judicial adjudication is complete when the third member, nominated by the Hon’ble President, resolves the impasse by expressing his views and thus enabling a majority view on the point or points of difference. What then remains for the division bench is simply identifying the majority view and dispose of the appeal on the basis of the majority views. In the course of this exercise, it is, in our humble understanding, not open to the division bench to revisit the adjudication process and start examining the legal issues.

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Heranba Industries Ltd. vs. DCIT ITAT Mumbai `H’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No. 2292 /Mum/2013 Assessment Year: 2009-10. Decided on: 8th April, 2015. Counsel for assessee / revenue: Rashmikant C. Modi / Jeetendra Kumar

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Section 271(1)(c) – If surrender is on the condition of no penalty and assessment is based only on surrender and not on evidence, penalty cannot be levied. The fact that surrender of income was made after issuance of a questionnaire does not mean that it was not voluntary.

Facts:
The assessee company was engaged in manufacture of pesticides, herbicides and formulations. It filed its return of income for assessment year 2009-10 returning therein a total income of Rs.1.49 crore. In the course of assessment proceedings, the Assessing Officer (AO) noticed that during the previous year under consideration, the assessee had received share application money of Rs. 89.50 lakh. He asked the assessee to furnish details with supporting evidences. In response, the assessee expressed its inability to provide the necessary details and stated that in order to buy peace, it agreed to offer the share application money of Rs. 89.50 lakh as its income.

The AO added Rs. 89.50 lakh to the assessee’s income u/s. 69A and also levied penalty u/s. 271(1)(c).

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

Aggrieved, the assessee preferred an appeal to Tribunal.

Held:
The Tribunal noted that the assessee, at the very first instance, surrendered share application money with a request not to initiate any penalty proceedings. Except for the surrender, there was neither any detection nor any information in the possession of the department. There was no malafide intention on the part of the assessee and the AO had not brought any evidence on record to prove that there was concealment. No additional material was discovered to prove that there was concealment. The AO did not point out or refer to any evidence to show that the amount of share capital received by the assessee was bogus. It was not even the case of the revenue that material was found at the assessee’s premises to indicate that share application money received was an arranged affair to accommodate assessee’s unaccounted money.

The Tribunal noted that the Supreme Court in the case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC) has observed that where assessee has surrendered the income after persistence queries by the AO and where revised return has been regularised by the Revenue, explanation of the assessee that he has declared additional income to buy peace of mind and to come out of vexed litigation could be treated as bonafide, accordingly levy of penalty u/s. 271(1)(c) was held to be not justified.

The Tribunal held that in the absence of any material on record to suggest that share application money was bogus or untrue, the fact that the surrender was after issue of notice u/s. 143(2) could not lead to the inference that it was not voluntary.

The amount was included in the total income only on the basis of the surrender by the assessee. It held that in these circumstances it cannot be held that there was any concealment. When no concealment was ever detected by the AO, no penalty was imposable. Furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax. The Tribunal did not find any merit in the levy of penalty u/s. 271(1)(c).

The appeal filed by the assessee was dismissed.

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DCIT vs. Aanjaneya Life Care Ltd. Income Tax Appellate Tribunal “A” Bench, Mumbai Before D. Manmohan (V. P.) and Sanjay Arora (A. M.) ITA Nos. 6440&6441/Mum/2013 Assessment Years: 2010-11 & 2011-12. Decided on 25.03.2015 Counsel for Revenue / Assessee: Asghar Zain / Harshavardhana Datar

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Section 221(1) – Penalty for delay in payment of self-assessment tax deleted on account of financial crunch faced by the assessee.

Facts:
Due to financial crunch the assessee was not able to pay the self-assessment tax within the stipulated period. However, according to the AO, the assessee could not prove its contention with cogent and relevant material. Further, he observed that substantial funds were diverted to related concerns. He therefore levied penalty u/s. 221(1) of the Act. On appeal, the CIT(A) allowed the appeal of the assessee and deleted the penalty imposed.

Held:
According to the Tribunal, the Revenue was unable to show that the assessee had sufficient cash/bank balance so as to meet the tax demand. Secondly, it also could not show if any funds were diverted for non-business purposes at the relevant point of time so as to say that an artificial financial scarcity was created by the assessee. In view of the same the tribunal accepted the contention of the assessee and upheld the order of the CIT(A).

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Sunder Deep Education Society vs. ACIT In the Income Tax Appellate Tribunal Delhi Bench ‘ G’ New Delhi Before Rajpal Yadav (J. M.) and T. S. Kapoor (A. M.) ITA No. 2428/Del/2011 Assessment Year: 2007-08. Decided on 6th December, 2013 Counsel for Assessee / Revenue: Rakesh Gupta / N. Srivastava

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Sections 11, 12 and 68 – Failure to present donors on being summoned – Donations cannot be taxed as income under section 68.

Facts
The assessee is registered under the Societies Registration Act, 1860 and u/s. 12AA of the Income tax Act, 1961. It also enjoys exemption u/s. 80G. The assessee runs educational institutions conducting various professional courses. In respect of the voluntary contribution aggregating to Rs. 1.97 crore received during the year, the assessee was not able to produce the donors when summoned by the AO who, as claimed by the assessee, had made the said donations. Therefore, the AO held that the same were anonymous and unexplained cash credit and added the said amount as the assessee’s total income as per section 115BBC and section 68.

Before the CIT(A) the assessee submitted the name and address of the persons who had made donations alongwith other particulars prescribed by the Act. The CIT(A) agreed that the donations could not be treated as ‘anonymous’. However, according to him, since the assessee could not prove the donations amount of Rs. 1.97 crore the same was treated as unaccounted income by him and brought to tax u/s. 11(4) read with section 68/69/69C. Before the tribunal, the revenue did not challenge the CIT(A)’s finding that the donations were not anonymous but contended that as held by the CIT(A), the same were taxable u/s. 68 and 69 as income from other sources and the benefit of section 11 and 12 would not be available to the assessee.

Held
The tribunal referred to the decision of the Delhi tribunal in the case of Shri Vivekanand Education & Welfare Society (ITA No. 2592 / Del / 2012) which was based on the decision of the Delhi high court in the case of DIT(Exem) vs. Keshav Social & Charitable Trust (278 ITR 152) where the Court observed that the fact that complete list of donors was not filed or that the donors were not produced, does not necessariiy lead to the inference that the assesse was trying to introduce un-accounted money by way of donation receipts. The Court further observed that as the assesse had disclosed the donation as income, the provisions of section 68 cannot be applied. Applying the ratio, the tribunal held that the said receipts of Rs. 1.97 crore would be governed by the provisions of sections 11 and 12 of the Act and if 85% thereof is applied towards the objects of the trust, then the income assessable would be nil.

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IDBI Capital Market Services Ltd. vs. DCIT ITAT “I” Bench, Mumbai Before N.K. Billaiya, (A. M.) & Amit Shukla (J. M.) I.T.A. No. 618/Mum/2012 Assessment Year: 2008-09. Decided on 18.02.2015 Counsel for Assessee/Revenue: N.C. Jain/Kishan Vyas

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Section 37(1) – Loss arising from valuation of interest rate swap contracts as at the end of the year is allowable as deduction.

Facts:
The assessee is engaged in the business of investment, share broking and dealing in Government securities and it is a member of Bombay Stock Exchange as well as National Stock Exchange. While scrutinising the return of income the AO noticed that as on 31st March 2008 the assessee had valued the outstanding interest swap contracts and the loss of Rs.18.3 crore determined was debited to P&L Account. According to the AO, the assessee had recognised only the loss and not the profit. Further, he observed that the assessee was not consistent and definite in making entries in the account books in respect of losses and gains and accordingly denied the claim of deduction. On appeal, the CIT(A) relied upon the decision of the Bombay High Court in the case of Bharat Ruia in ITA No.1539 of 2010 and treated the loss as speculation loss and confirmed the disallowance.

Held:
The Tribunal noted that it was an undisputed fact that the assessee had made the valuation of interest rate swap contracts as at the end of the year and had incurred losses on such valuation. Further, it also noted that the assessee had made the entries following Accounting Standard AS- 11 of the ICAI. The Tribunal further found the observations of the AO that the assessee had never accounted for the gains on such transactions as totally misplaced and against the facts of the case. Relying on the decision of the Tribunal Special Bench Mumbai in the case of Bank of Bahrain & Kuwait, ITA No.4404 & 1883/Mum/2004 and of the Supreme Court in the case of Woodward Governor India Pvt. Ltd. [2009] 179 Taxman 326 (SC), the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs.18.3 crore.

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S. 80IB(10) — Deduction of profits of of housing project — Date of completion relevant — Not the date of completion certificate but the date of completion mentioned in the certificate.

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Part B :
UNREPORTED DECISIONS

(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)

12 D. K. Construction v. ITO

ITAT Indore Bench, Indore

Before Joginder Singh (JM)
and

R. C. Sharma (AM)

ITA No. 243/Ind./2010

A.Y. : 2006-07. Decided on :
6-12-2010

Counsel for assessee/revenue
:

M. K. Sharma/P. K. Mitra

 

S. 80IB(10) of the
Income-tax Act, 1961 — Deduction in respect of profits and gains arising from
development of housing project — Date of completion of the housing project —
Relevant date is not the date of issuance of the completion certificate by the
local authority but the date of completion as mentioned in the certificate.

Per R. C. Sharma :

Facts :

The assessee was engaged in
the business of civil construction, building and developing housing project. It
claimed deduction of Rs.36.63 lacs u/s. 80IB(10) of the Act. According to the
AO, the housing project was not completed prior to the prescribed date of
31-3-2008. The contention of the assessee was that it had completed the project
before the prescribed date and the local authority was duly informed of the fact
vide its letter dated 21-3-2008. According to the assessee, merely because the
completion certificate was not issued by the local authority, over which the
assessee had no control, the same could not be made a basis for denial of claim.
However, according to the AO, the availability of the completion certificate
before the date prescribed was a must for the allowance of deduction
u/s.80IB(10). Therefore, he rejected the assessee’s claim for deduction. On
appeal, the CIT(A) confirmed the disallowance.

Held :

According to the Tribunal,
what is crucial is not the date of issue of letter by the local authority, but
the date mentioned in the letter certifying completion of the project.
Therefore, it rejected the contention of the Revenue to the effect that the date
of completion shall be taken as the date on which the certificate is physically
issued by the local authority.

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DP World Pvt. Ltd. vs. DCIT ITAT Mumbai Bench ‘D’ Mumbai Before D. Manmohan (V. P.) and N.K. Billaiya (A. M.) ITA No.3627/Mum/2012 A.Y.: 2008-09. Dated: 12-10-2012 Counsel for Assessee/Revenue: Rajan Vora & Nikhil Tiwari/Rupnder Brari

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10. DP World Pvt. Ltd. vs. DCIT
ITAT Mumbai Bench ‘D’ Mumbai
Before D. Manmohan (V. P.) and N.K. Billaiya (A. M.)
ITA No.3627/Mum/2012
A.Y.: 2008-09. Dated: 12-10-2012
Counsel for Assessee/Revenue:  Rajan Vora &
Nikhil Tiwari/Rupnder Brari

Ss. 28(iv)/56(2) – Gift of residential flats through transfer of shares by foreign company to Indian company – Whether taxable – Held no.

Facts:

The assessee had received by way of a gift, three residential flats in Hill Park from its sister concern viz., BISNCL, a UK based company. BISNCL was holding shares of Hill Park Ltd. which entitled it for use and occupation of the said three flats and the gift was effected by transfer of the said shares. Both, the assessee and BISNCL, were 100% subsidiary of a U.K. based entity which in its turn was 100% subsidy of a Dubai based entity. This transaction, in the eyes of the AO, was a colourable device who taxed the value adopted for WT purpose as income from other sources. However, the same, in the eyes of the CIT[A], was nothing but a benefit derived by the donee out of its business relations with the donor company and therefore, he taxed the same as profit and gains of business & profession.

The issue before the tribunal was whether such transaction can be termed as a ‘Gift ‘or Income in the hands of the Donee.

Held:

According to the tribunal, such a transfer may trigger capital gains ramifications in India, since the shares of an Indian company were situated in India and when the transferor is a non-resident, the deeming provisions of section 9(i)(i) of the I.T. Act, 1961 came into play. However, referring to section 47(iii), the tribunal noted that the transfer of a capital asset, amongst others, under a gift is not treated as transfers for the purposes of section 45 of the Act. Referring to the provisions of section 5 and section 122 of the Transfer of Property Act (‘TPA’), the tribunal noted that there was no requirement in the TPA that a ‘gift’ can be made only between two natural persons out of natural love and affection which means that as long as a donor company is permitted by its Articles of Association to make a ‘gift’, it can do so. In case where donor is a foreign company, the tribunal noted that the relevant corporate/commercial law of the jurisdiction where the donor is based needs to be considered. Referring to the Certificate and Attestation by the Notary Public of the City of London, England, wherein the authority has inter alia certified and attested that the Deed of Gift was binding on BISNCL in accordance with the relevant provisions of English law, the tribunal concluded that BISNCL was legally authorised to give gift of shares.

Therefore, it held that the gift of shares of an Indian Company by a foreign company without consideration has to be treated as gift within the meaning of section 47(iii) of the Act.

As regards the order of the CIT(A) applying the provisions of section 28(iv), it observed that simply because both the donor and the donee happened to belong to the same group cannot ipso facto establish that they have any business dealings to attract the provisions of section 28(iv). Therefore, it was held that in the absence of any specific provision taxing a Gift as a deemed business income, provisions of section 28[iv] cannot be applied

As regards the applicability of the provisions of section 56 relied upon by the AO, the tribunal noted that a plain reading of the provisions show that not every receipt is taxable under the head ‘Income from other sources‘ but only those which can be shown as ‘Income‘ can be brought to tax under this head, if it does not fall directly under other heads of income specified in section 14 of the Act. According to it, the issue involved under the present appeal got covered under the clause (viia) of section 56(2). However, the said clause was introduced with effect from 1st day of June, 2010, hence, not applicable to the case of the assessee.

Accordingly, it was held that the transaction involved in the present appeal was nothing but a Gift and thus it was a capital receipt not taxable under the provisions of the Act.

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Kewal Silk Mills v. ACIT ITAT Mumbai `A’ Bench Before I. P. Bansal (JM) and Rajendra (AM) ITA No. 4335/Mum/2012 A.Y.: 2009-10. Dated: 12-10-2012. Counsel for assessee/revenue: Rajan Vora & Hemen Chandriya/Surinder Vit Singh

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9. Kewal Silk Mills v. ACIT
ITAT  Mumbai `A’ Bench
Before I. P. Bansal (JM) and Rajendra (AM)
ITA No. 4335/Mum/2012
A.Y.: 2009-10.    Dated: 12-10-2012.
Counsel for assessee/revenue: Rajan Vora & Hemen Chandriya/Surinder Vit Singh

S/s 2(14), 45, 55(2) – Right to use a portion of the shed, in which the looms and machinery taken on license basis are situated, by way of permissible use on license basis as incidental to using the said looms and machinery is covered by the term “any kind of property” and is therefore a capital asset. Amount received on surrender of such right is chargeable to tax under the head Income from Capital Gains and not Income from Other Sources. Amount received by Licensees who are deemed to be tenants u/s. 15A of the Bombay Rent, Hotel & Lodging and House Rates Control Act, 1947, by virtue of amendment in 1973, on surrender of such license/tenancy is chargeable to tax under the head Income from Capital Gains.

Facts:

The assessee, a partnership firm, through its partners entered into an agreement dated 13.6.1972 with Modern Textile Rayon and Silk Mills Pvt. Ltd. (Modern) whereby it took on license basis, for a period of one year, loom and machinery described in first schedule of the said agreement on a monthly compensation of Rs. 3,250 per month. Modern was the tenant of the shed belonging to Mr. Paresh S. Shah. This agreement referred to the assessee as licensee. The assessee was entitled to use a portion of the shed in which the looms were situated by way of permissible use on license basis only as incidental to using the said looms and machinery. The agreement provided that the assessee shall never be construed as sublessee in any form of the said portion of the said shed. The assessee was also provided with access to the said portion of the said shed through portion of the shed retained by the licensors or otherwise. Thus, as per the agreement the assessee had incidental right of premises through which the looms were to be used. The said right of the assessee was recognised from the date of the agreement till the date of its surrender.

The assessee regarded this right as sub-tenancy and in the return of income filed the amounts received on surrender thereof were offered for taxation under the head Income from Capital Gains after claiming exemption u/s. 54EC of the Act.

The Assessing Officer after going through various clauses of the agreement dated 13.6.1972 came to the conclusion that the assessee was not a sub-tenant of the land which had been sold by the owner thereof but only had an incidental right to use the shed and that the amounts received are not assessable as capital gains. He also examined the purchasers of the said land who mentioned that only Modern and M/s Saurdeep Chemicals Pvt. Ltd were tenants of the land purchased by them. However, actual possession and occupation was held by the assessee and payments have been made to the assessee in order to get peaceful and vacant possession of the property. The AO observed that the payment received was in the nature of nuisance value and assessee did not have any capital right since the possession of portion of the shed was incidental to the license granted to it for use of machinery. The amount received was assessed to tax under the head Income from Other Sources.

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:

The Tribunal noted that the incidental right to use the premises was provided by the agreement dated 13.6.1972 itself and also that the assessee was referred to as the licensee in the said agreement. By an amendment in 1973, which is subsequent to the date of the agreement entered into by the assessee, certain licensees have been deemed to be tenants u/s. 15A of the Bombay Rent, Hotel & Lodging and House Rates Control Act, 1947 and were to be considered as tenants. Therefore, in any case the assessee had acquired the status of tenant of the landlord. As per provisions of section 55(2) tenancy right has been considered to be a capital asset. Moreover, the definition of capital asset as per section 2(14) of the Act is wide enough to cover “property of any kind” and the type of right acquired by the assessee in the property used by it cannot in any manner be said to be less than “any kind of property” held by the assessee.

The Tribunal also observed from some of the rent receipts filed by the assessee before the Tribunal that the amount being paid by the assessee was considered to be rent by the other parties and thus parties in principle had accepted that the assessee was the tenant from whom the rent was being received by the other party. The further correspondence between the assessee and its licensor, the purchaser of the land and the assessee are also describing the right of the assessee as tenancy right only and the deed executed between purchaser of the premises and the assessee is also described as deed of surrender of tenancy. Thus, the assessee was enjoying a right over the property in the nature of being tenant of the same for the last so many years and that right of the assessee cannot be considered as evaluated much less than the right of tenancy right.

The assessee, in fact, was enjoying the possession of the impugned property and for peaceful vacation thereof it had received the impugned amount which was described by both the parties as the amount paid for surrender of tenancy rights. The assessee had acquired the said right long back and licensor to the assessee also had recognised the said right of the assessee. The right of the assessee was undisputed and nature thereof was “property of any kind” which was held by the assessee and was to be termed as capital asset within the meaning of section 2(14) of the Act. Tenancy right has also been recognised as capital asset within the meaning of section 55(2)(a) of the Act.

The tribunal held that the amount received by the assessee is assessable as capital gains and not as income from other sources. The appeal filed by the assessee was allowed.

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Chandrakant K. Shah v. ITO ITAT Mumbai `C’ Bench Before Dinesh Kumar Agarwal (JM) and B. Ramakotaiah (AM) ITA No. 4913/Mum/2011 A.Y.: 1993-94. Dated: 17-10-2012. Counsel for assessee/revenue: Aasifa Khan/ Rajarshi Dwivedy

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8. Chandrakant K. Shah v. ITo
ITAT  Mumbai `C’ Bench
Before Dinesh Kumar Agarwal (JM) and B.
Ramakotaiah (AM)
ITA No. 4913/Mum/2011
A.Y.: 1993-94. Dated: 17-10-2012.
Counsel for assessee/revenue: Aasifa Khan/ Rajarshi Dwivedy

Section 234B – At the time of passing an order giving effect to order of ITAT, interest u/s. 234B is to be computed on tax on total income finally determined under regular assessment as reduced by the amount of TDS and self assessment tax. Interest u/s. 234B cannot be levied on amount of interest chargeable u/s. 234A and 234C.

Facts:

The assessee filed its return of income declaring income of Rs. 1,51,351. The Assessing Officer (AO) vide order passed u/s. 143(3) of the Act assessed the total income of the assessee to be Rs. 15,93,220. After giving effect to the order of ITAT, the total income was determined at Rs. 14,41,074 as per order dated 28.11.2006 giving effect to the order of ITAT. The AO while charging interest u/s. 234B calculated interest @ 2% per month for 19 months on Rs. 8,44,797 (i.e. Rs 5,63,906 amount of tax worked out after giving credit of TDS and self assessment tax (+) Rs. 1,09,440 amount of interest charged u/s. 234A (+) Rs. 1,70,230 amount of interest u/s. 234B up to 15.5.1994 and Rs 1221 amount of interest charged u/s. 234C). According to the assessee, the interest u/s. 234B was chargeable only on Rs 5,63,906 which is amount of tax worked out after giving credit of TDS and self assessment tax. Thus, according to the assessee interest u/s. 234B worked out to Rs. 2,14,284 as against Rs. 8,44,797 charged by the AO. The assessee filed an application u/s. 154 of the Act objecting that interest charged u/s. 234B is not correctly computed.

The AO rejected the claim of the assessee vide order dated 15.4.2010. Aggrieved, the assessee preferred an appeal to the CIT(A) who held that the AO had rightly rejected the appellant’s request for rectification of amount of interest charged u/s. 234B of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:

The Tribunal noted that the there is no dispute that the interest u/s. 234B is leviable. The dispute was on the amount on which interest u/s. 234B is leviable. Having noted the provisions of section 234B of the Act, the Tribunal held that in the facts of the assessee’s case, interest u/s. 234B for the relevant period is chargeable @ 2% per month for 19 months on the amount of Rs. 5,63,906 worked out after giving credit of TDS and self assessment tax.

The Tribunal directed the AO to verify the amount of interest calculated by the assessee as mentioned hereinabove and if he finds that the same is in order, reduce the levy of interest u/s. 234B accordingly. The appeal filed by the assessee was allowed.

Compiler’s Note: Though not mentioned in the order, it appears that 15.5.1994 was the date of filing of return by the assessee.

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Shri Rumi K. Pali v. Dy CIT ITAT Mumbai `D’ Bench Before D. Manmohan (VP) and N. K. Billaiya (AM) ITA No. 7314/Mum/2011 A.Y.: 2008-09. Dated on: 17-10-2012. Counsel for assessee/revenue: Reepal Tralshawala/A B Koli

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7. Shri Rumi K. Pali v. Dy CIT
ITAT  Mumbai `D’ Bench
Before D. Manmohan (VP) and N. K. Billaiya (AM)
ITA No. 7314/Mum/2011
A.Y.: 2008-09.     Dated on: 17-10-2012.
Counsel for assessee/revenue: Reepal Tralshawala/A B Koli

S/s 10(11) – ITAT can consider a new deduction which, inadvertently, was not claimed in the return filed by the assessee. Assessee is entitled to claim interest on PPF to be exempt even though the same was not claimed in the incometax return.

Facts:

The assessee in the return of income filed, which return of income was revised on two occasions, as well as in the two revised returns filed by him offered for taxation under the head Income from Other Sources, Rs 3,81,565 being interest on PPF. The Assessing Officer (AO) completed the scrutiny assessment by accepting the returned income.

In an appeal to CIT(A), the assessee contended that he should be allowed exemption in respect of interest on PPF deposit u/s. 10(11) of the Act. The CIT(A), relying on the decision of the Apex Court in the case of Goetze India Ltd. (284 ITR 323) held that no fresh claim can be made by the assessee. He dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee, it was contended that a statutory claim can be made at any stage; mistake which has crept in the income-tax return was inadvertent; and the assessee cannot be put in a position so as to be taxed on something which he is not legally bound to. Reliance was also placed on the decision of Bombay High Court in the case of CIT v Pruthvi Brokers & Shareholders Pvt. Ltd. (ITA No. 3908 of 2010).

Held:

 The Tribunal noted that the assessee failed to claim interest on PPF deposits as exempt from tax even in the revised returns and the impugned amount of interest is exempt from tax u/s. 10(11) of the Act. It noted that the Supreme Court, in the case of National Thermal Power Company Ltd. v CIT 229 ITR 383 (SC), has observed that even if a claim is not made before the AO, it can be made before the Appellate authority. It also noted that the decision of the Bombay High Court on which assessee has placed reliance, having considered the decisions of the Supreme Court in the case of Goetze India Ltd. (supra) and also National Thermal Power Company Ltd. v CIT (supra), held as under:

“The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgement does not impinge on the power of the Tribunal u/s. 254.”

Following the above mentioned decision of the Bombay High Court, the Tribunal directed the AO to allow exemption of interest on PPF deposit at Rs. 3,81,565. The appeal filed by the assessee was allowed.

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DCIT vs. Kemper Holding Pvt. Ltd. ITAT Mumbai `A’ Bench Before Sanjay Arora (AM) and Sanjay Garg (JM) ITA Nos. 6426/M/2011 A.Y.: 2008-09. Decided on: 26th April, 2013. Counsel for revenue/assessee: Surinder Jit Singh/Pradeep Sagar

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Section 2(47) – Conversion of warrants into shares is neither an extinguishment nor relinquishment of any rights in the assets.

Facts:
During the financial year 2006-07 the assessee was allotted 7,00,000 warrants of Rs. 100 each. 10% of the cost of the warrant was paid on allotment and the balance 90% was to be paid at the time when the warrants were to be converted into shares. During the financial year 2007-08, the assessee paid the balance 90% and the said warrants were converted into shares. The market price of each share on the date of conversion was Rs. 231.35.

The Assessing Officer (AO) held that the assessee while exercising his option for conversion of warrants into equity shares had extinguished his rights in warrants and simultaneously gained rights in equity shares. He held that the shares were purchased at the price of Rs. 100 when their market value was Rs. 231.35. Therefore, he held that the assessee had gained a benefit of Rs. 131.35 per warrant. Thus Rs. 9,45,00,000 was charged to tax as long term capital gain in the hands of the assessee.

Aggrieved the assessee preferred an appeal to the CIT(A) who deleted the addition of Rs. 9,45,00,000 on the ground that there was no transfer at all and the AO had taken market value of the shares to be the full value of consideration. He even rejected the alternative contention of the AO that the said benefit is taxable u/s. 28(iv) of the Act. Aggrieved the revenue preferred an appeal to the Tribunal.

Held :
The conversion of warrant into shares by paying the remaining 90% amount was neither any extinguishment nor relinquishment of any rights in the assets. It observed that the assessee had purchased the warrants by paying 10% of the pre-determined price of the shares. There was an option for the assessee to get the said warrants converted into shares by paying 90% of the amount within the stipulated period, the nonpayment of which would have resulted in forfeiture of money. So the money paid for warrants was just an advance payment for the purchase of shares and the assessee exercised its rights within the stipulated time and got the shares allotted by paying the remaining 90% amount at the predetermined value of the shares. It can be said to be an investment in shares. The capital gain would have arisen if the assessee would have sold the said shares in the market at a higher price. The shares have been retained by the assessee and the gain or fall in the market value of the said shares does not itself constitute any transfer under the Act. The purchase of shares at a specified rate, which were booked by paying 10% amount in advance neither amounts to any transfer of shares or warrant by the assessee nor does it invite any tax liability under the Act. The Tribunal also held that the AO has wrongly and illegally interpreted proviso (iv) to section 48 of the Act. The Tribunal confirmed the order passed by CIT(A).

The Tribunal dismissed the appeal filed by the revenue.

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