Pradip Kumar Malhotra v CIT (2011) - Calcutta High Court.

Advance given by company to assessee shareholder by way of compensation for keeping his property as mortgage on behalf of company to reap benefit of loan could not be treated as deemed dividend within the meaning of section 2(22)(e). Phrase ‘ by way of advance or loan’ appearing in section 2(22)(e) must be construed to mean those advancesor loans which a shareholder enjoys for simply on account of beinga person who is beneficial owner of shareholding not less than 10 percent of voting power , but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to company received from such a share holder, such advances or loan cannot be treatedto be deemed dividend with in the meaning of section 2(22)(e).

Pitney Bowes India Pvt Ltd vs. CIT - Delhi High Court

The assessee acquired the mailing business of Kilburn Office as a going concern on a slump sale basis pursuant to a Business Transfer Agreement. The consideration for the transfer was Rs. 18.92 crores which included Rs. 5.94 Crores by way of non-compete fee for a period of 5 years. In the accounts, the expenditure was treated as a capital payment though a deduction was claimed in the computation u/s 37(1). The AO disallowed the claim though the CIT (A) allowed it as deferred revenue expenditure. On appeal by the department, the Tribunal reversed the CIT (A) following Tecumesh India 132 TTJ 129 (Del) (SB) though it directed the AO to consider whether the payment was an “intangible asset” for purposes of depreciation. On appeal by the assessee, HELD dismissing the appeal. 

DIT vs. Ericsson AB - Delhi High Court

The assessee, a Swedish company, entered into contracts with ten cellular operators for the supply of hardware equipment and software. The contracts were signed in India. The supply of the equipment was on CIF basis and the assessee took responsibility thereof till the goods reached India. The equipment was not to be accepted by the customer till the acceptance test was completed (in India). The assessee claimed that the income arising from the said activity was not chargeable to tax in India. The AO & CIT (A) held that the assessee had a “business connection” in India u/s 9(1)(i) & a “permanent establishment” under Article 5 of the DTAA. It was also held that the income from supply of software was assessable as “royalty” u/s 9(1)(vi) & Article 13. On appeal, the Special Bench of the Tribunal (Motorola Inc 95 ITD 269 (Del)) held that as the equipment had been transferred by the assessee offshore, the profits therefrom were not chargeable to tax. It was also held that the profits from the supply of software was not assessable to tax as “royalty”. On appeal by the department to the High Court, HELD dismissing the appeal.

Cadila Healthcare Ltd vs. ACIT - Gujarat High Court

The Revenue Audit raised an objection that the assessee had made remittances to foreign parties without deduction of TDS u/s 195 and that the expenditure ought to have been disallowed u/s 40(a)(i). In reply, the AO wrote back stating that as the amounts remitted to the foreign parties were not chargeable to tax in India, the assessee was under no obligation to deduct tax u/s 195 and that the expenditure was not disallowable u/s 40(a)(i). However, she still issued a notice u/s 147 and reopened the assessment to disallow the said expenditure. The assessee filed a Writ Petition to challenge the reopening. HELD allowing the Petition.

Swaraj Enterprises v ITO (2011) - Visakhapatanam Tribunal

Assessee partnership firm paid interest to partners on their capital account and claimed the deduction. Assessing officer held that as the assessee has not claimed depreciation in books of account however claimed depreciation in the computation, he reworked the capital balances of partners by reducing the cumulative amount of depreciation therefrom and allowed the interest computed on such reduced capital balances. The Tribunal held that in terms of section 40(b), read with section 28(i) and 29 Assessing Officer is not entitled to disallow payment of interest to partners by re-working capital account balances of partners.

Sterling Abraive Ltd v. ACIT (2011) - Mumbai Tribunal

Where the assessee acted bona fide in conformity with the provision of Act and the legal position in not deducting tax at source, retrospective amendment could not make him liable and therefore no disallowance under s. 40(a)(ia) was called for.

Dalal Broacha Stock Broking (P.) Ltd v. Addl. CIT - Mumbai Tribunal - Special Bench

Payment of commission to directors owning entire capital were paid commission for their hard work not allowed as it was paid in lieu of profit or dividend as it was revealed that the profit earned was due to improved market conditions and not because of any extra services were rendered for improving the performance of the company.

Nuclear Power Corporation of India Ltd - AAR

The Applicant, a PSU, entered into an offshore services contract with a Russian company for setting up a power plant. The Applicant claimed that the income arising to the Russian company from offshore supply of equipment was not chargeable to tax in India and that it was not liable to deduct/ bear TDS thereon u/s 195. However, as in the assessment of the Russian company, the AO had already taken the view that the income from offshore supply was chargeable to tax u/s 44BBB and the issue was pending before the Tribunal, the question arose whether the application was maintainable in view of clause (1) of the Proviso to s. 245R(2) which provides that an application is not maintainable if the question raised in it “is already pending before any income-tax authority or Appellate Tribunal, or any Court.” The Applicant claimed that the pendency in the case of the recipient did not affect the maintainability in the context of the payer’s obligation to deduct tax u/s 195. HELD rejecting the application.

ACIT vs. Major Deepak Mehta - Chattisgarh High Court

The AO reopened the assessment u/s 148 on the ground that certain income had escaped assessment. However, in the reassessment order, the AO did not assess the income which was referred to in the reasons but instead assessed other income which had escaped assessment. The Tribunal quashed the reassessment order on the ground that if the AO did not assess the income for which he had reopened the assessment, he had no jurisdiction to assess other escaped income. The Department challenged the Tribunal’s order by relying on Explanation 3 to s. 147 & Sun Engineering 198 ITR 297 (SC). HELD dismissing the appeal.


To get the Complete Order kindly contact the administrator.

DCIT Vs. Bharat Aluminium Company Ltd. - ITAT Delhi

This appeal filed by the Revenue on the  ground that learned CIT(A) erred on facts and in law in directing to delete the interest of Rs.2,24,28,120/- charged u/s 234C of the Income-tax Act on the account of deferred payment of advance tax ignoring the provisions Sec.115JB(5) of the Income-tax Act, which clearly implies that in a case where tax is payable under the special provisions of Income-tax Act (here MAT case), all provisions of the Income-tax Act shall apply to the assessee and hence the provisions of section 207 to 211 are applicable in the assessee’s case.

Neither at the time of processing of return or on the date of application u/s 154 of the Act and even at the time of  passing of impugned order, any contrary decision  in respect of levy of interest on  tax computed on book profits u/s 115JB of the Act was available nor  pointed by  the assessee before the lower authorities and even  before us, there was no such debatable issue as has been made out by the ld. CIT(A)  while referring to decisions rendered in the context of altogether  different  provision of sec. 115J of the Act, existed. In view of  specific provisions of Sec. 115JB(5) of the Act and in the light of view taken in the aforesaid decisions by  the  Hon’ble Apex Court in Rolta India Ltd.(supra) , Saurashtra Kutch Stock  Exchange Limited (supra) and by the Hon’ble Karnataka High Court in Jindal Thermal Power Co. Ltd. (supra), and   Sankala Polymers P  Ltd(supra) as also observations of the Hon’ble Madras High Court in Geetha Ramakrishna Mills P Ltd.(supra), the bench was of the opinion that the AO is perfectly justified in levying interest u/s 234C on tax determined on book profits calculated u/s 115JB of the Act and there was no such debatable issue as has been made out by the ld. CIT(A).

As a result the appeal was allowed in favour of Revenue. Date of order 09^th December 2011.

To get the Order Please kindly contact the administrator.

CIT v Gopala Naicker Bangarue (2011) Madras High Court.

Assessee as religious head was not performing any religious rituals for his devotees for consideration. He was doing charitable work and spiritualisation for benefit of mankind. Gift received by assessee from devotees out of natural love and affection. Receipt cannot be taxed as income from any vocation or profession.

CIT v Morgan Stanley Advantage Services (P) Ltd (2011) Bombay High Court

The assessee made an application to the RBI on 7‐10‐2004 seeking extension of time for realisation of the export proceeds. The RBI granted approval in realisation of exports proceeds but said approval was issued in the context of the provisions of the FEMA and there was no formal approval was granted by the RBI under section 10A. The Tribunal held that once the assessee had applied for extension and had completed all the formalities and in response the RBI had taken the remittances on record, then non issuance of formal letter of approval by the RBI could not be held against the assessee, it must be held that the extension had been granted in substance and therefore the benefit of section 10A had to be allowed. The court upheld the order of the Tribunal.

Muthoot Finance Limited - Issue of Non Convertible Debenture (NCD's)

Muthoot Finance Ltd, country’s largest gold loan financing company, plans to raise 600 crores though public bond. The issue will open on December 22,2011,and close on January 7,2012. There are four investment options, including a 24-month plan, which will pay 13% coupon to different categories of investors, while 36-month and 60-month maturities will both pay a coupon of 13.25%. A 66-month option will gets a yield of 13.43% to different categories of investors. The face value of each NCD is 1,000 and the minimum application is for five NCDs and in multiples of each NCD thereafter.

For investment contact the Below Mentioned Person:
Mohit Monga
9899396322
011-26225253
6044@religare.in

DCIT v S. K. Tekriwal - ITAT Kolkata

Where it is a case of short deduction of payment as against non‐deduction of TDS, disallowance u/s 40(a)(ia) could not be made. Though S. 40(a)(ia) provides for a disallowance if amounts towards rent, etc have been paid without deducting tax at source. It does not apply to a case of shortdeduction of tax at source. As the assessee had deducted u/s 194C, it was not a case of “nondeduction” of TDS. If there is a shortfall due to difference of opinion as to which TDS provision would apply, the assessee may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40(a)(ia).

CIT v Asahi India Safety Class Ltd. - Delhi High Court

The expenditure incurred for the purpose of installation of “Oracle” software for financial accounting, inventory and purchase held to be revenue in nature as it did not result in creation of new asset or a new source of income. The test of enduring benefit is not a certain or a conclusive test. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. Expenditure incurred which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched is expense in the nature of revenue expenditure. Test of enduring benefit or advantage collapses in such like cases especially in cases which deal with technology and software application which do not in any manner supplant the source of income or added to the fixed capital of the assessee.

CIT vs. Samsung Electronics Co Ltd. - Karnataka High Court

The assessee imported “shrink-wrapped”/ “off-the-shelf” software from suppliers in foreign countries and made payment for the same without deducting tax at source u/s 195. The AO & CIT (A) held that the payments were assessable to tax as “royalty” u/s 9(1)(vi)/ Article 12 and that the assessee was liable to pay the tax u/s 201. On appeal, the Tribunal relied on the judgement of the Supreme Court in Tata Consultancy Services vs. State of AP 271 ITR 401 (SC) and held that the assessee had acquired a “copyrighted article” but not the “copyright” itself and so the amount paid was not assessable as “royalty“. On appeal by the department, HELD reversing the Tribunal.

CIT vs. Smt. Shaila Agarwal - Allahabad High Court

For AY 2002-03, an addition of Rs. 99 lakhs was made by the AO & confirmed by the CIT (A). During the pendency of the appeal before the Tribunal, a search under Sec.132 was conducted and Sec.153A proceedings were initiated. The Tribunal held that in view of the Sec.153A notice, the assessments of the six preceding assessment years prior to the date of search abated and that assessments pending in appeal would stand merged in the fresh assessment to be made by the AO u/s 153A pursuant of the search. The AO was directed to reconsider the additions in the Sec.153A assessment. On appeal by the department, HELD reversing the Tribunal.

CIT vs. Reliance Industries Ltd - Supreme Court

The assessee received sales-tax incentive for setting up a new industrial undertaking in Patalganga. The assessee claimed that the said subsidy was a capital receipt. The Special Bench (DCIT vs. Reliance Industries Ltd 88 ITD 273) upheld the assessee’s claim. On appeal by the department (for a subsequent year), the Bombay High Court held (order enclosed) that as a finding had been recorded by the Special Bench that the object of the subsidy was to encourage the setting up of industries in the backward area by generating employment therein, the subsidy was, applying the “purposive test” in Ponni Sugars and Chemicals Ltd 306 ITR 392 (SC), a capital receipt and held that a substantial question of law did not arise. The department filed an appeal to challenge the judgement of the High Court. HELD allowing the appeal

Groupe Industrial Marcel Dassault - AAR

Two French companies named “Murieux Alliance” (‘MA’) and “Groupe Industrial Marcel Dassault” (“GIMD”) held shares in another French company named “ShanH”. MA & GIMD acquired shares in an Indian company named “Shantha Biotechnics Ltd” (“Shantha”). The shares in Shantha were transferred to ShanH. MA and GIMD subsequently sold the shares in ShanH to another French company named “Sanofi Pasteur Holding”. The assessees filed an application for advance ruling claiming that as the two French companies had sold the shares of another French company to a third French company, the gains were not chargeable to tax in India. The department opposed the application on the ground that ShanH was formed with no purpose other than to hold the shares of the Indian company and that the transaction was taxable in India. HELD upholding the department’s plea.

SKIL Infrastructure Ltd vs. ITO - ITAT Mumbai

The assessee paid “hire charges” for hiring helicopter & aircraft services and deducted TDS at 2% u/s 194C. The AO & CIT (A) held that the assessee ought to have deducted TDS at 22.44% u/s 194-I on the ground that “vehicles” were “plant and machinery” and the assessee had “hired” the vehicles and not merely taken services for carrying passengers or goods. The assessee was held liable to pay the deficit u/s 201. On appeal by the assessee, HELD allowing the appeal.

Chattisgarh State Electricity Board vs. ITO - ITAT Mumbai

The assessee, a SEB, entered into an agreement with NTPC for purchase of power and another with Power Grid Corporation for transmission of the power from NTPC’s ‘bus bars’ to the delivery point. The AO & CIT (A) took the view that the transmission charges paid by the assessee to Power Grid was “rent for use of plant” and tax ought to have been deducted u/s 194-I. The argument that as the payee had been assessed, no recovery could be made from the payer was also rejected. The assessee was held liable for failure to deduct TDS. On appeal by the assessee, HELD allowing the appeal.

Dy CIT v Nusli Neville Wadia (2011) Mumbai Tribunal

Assessee, administrator of the estate of deceased, having purchased the right to receive the sale proceeds of the estate by entering into an indenture with the legatee on account of close personal relations with her and not for overriding commercial considerations. The transaction cannot be construed as an adventure in the nature of trade. The said receipt cannot be taxed even as capital gains as the estate continued to be the owner of the properties and as such payment did not result in extinguishment of assessee’s right hence there was no transfer of any capital asset.

CIT v. Gautam R. Chadha (2011) Delhi High Court

Assessee being engaged in the business of travel agency as a representative of RCCL bookings tickets for the latter's cruise and entitled to base commission of 25 % on all bookings as per the terms of the agreement between the parties, the commission accrues to the assessee with the booking of tickets against full payment as per the mercantile system of accounting followed by him; however, assessee is entitled to credit of 10% on account of travel agents commission which is payable by him.

CIT vs. Arvind Kumar Jain - Delhi High Court

The assessee held 50% of the shares of a closely held company. The assessee’s books showed that he had taken an “unsecured loan” of Rs. 47 lakhs from the company. The AO assessed the said amount as “deemed dividend” u/s 2(22)(e) though the CIT(A) & Tribunal deleted it on the ground that there was a running business relationship between the assessee and the company and the said amount was not a loan but was the result of those business transactions. The department filed an appeal before the High Court. HELD dismissing the appeal.

Pradip Kumar Malhotra vs. CIT - Calcutta High Court

The assessee, a substantial shareholder in a closely held company, let out his flat to the company and also permitted it to place it on mortgage. In consideration, the company passed a resolution authorizing the assessee to obtain from the company an interest-free deposit up to Rs.50 lakhs. He also received an amount by way of “security deposit”. The AO assessed the said “advances/ deposits” as “deemed dividend” u/s 2(22)(e). The CIT (A) deleted the addition though the Tribunal upheld it. On appeal by the assessee, HELD reversing the Tribunal.

DCIT vs. Eversmile Construction Co Pvt Ltd (ITAT Mumbai)

ORDER

Per R.S.Syal, AM :

1)    This appeal by the Revenue arises out of the order passed by the Commissioner of Income-tax (Appeals) on 30.03.2010 in relation to the assessment year 2001-2002.

2)    The Revenue has raised following grounds:­

          i.         On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in giving relief to the assessee on the income disclosed by him in the return of income filed u/s 153A ignoring the fact that the Assessing Officer has merely assessed the total income at the returned income.

         ii.        On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in determining the total income at a figure lower than the returned income ignoring the fact that the assessee did not resort to the provisions of filing revised return within the prescribed time as it envisaged by the Supreme Court in the case of Goetz (India) Ltd. 284 ITR 323.”

IT0 Vs. Shri Sanjay Singh - ITAT Delhi

O R D E R

PER G.D. AGRAWAL, V.P.

In this appeal by the revenue, as many as four grounds are raised. However, they are all against the deletion of the addition of Rs.55,42,877 made by the Assessing Officer under the head ‘Long Term Capital Gain’. At the time of hearing before us, it is stated by the ld. DR that during the accounting year relevant to assessment year under consideration, the assessee converted his proprietorship business into company and claimed exemption u/s 47(xiv) in respect of transfer of capital assets. The Assessing Officer found that the assessee has not satisfied the conditions for claiming exemption u/s 47(xiv). He pointed out that as per clause (b) of Section 47(xiv), the shareholding of the sole proprietor in the company should not be less than 50% of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of succession. He submitted that the Assessing Officer has pointed out that on the date of succession i.e. 6.9.2000 and till the end of the relevant accounting year i.e. 3 1^st March 2001, the shareholding of the sole proprietor was not more than 50% in the company. In fact, the shares were allotted to the sole proprietor on 7.3.2002, thereafter his shareholding exceeded 50%. Thus, there was clear violation of clause (b) of Section 47(xiv). Therefore, the AO rightly denied exemption to the assessee and the CIT(A), without properly appreciating the facts of the case and legal position, accepted the assessee’ s claim. He submitted that the order of the CIT(A) should be reversed and that of the AO may be restored.

Rent Agreement

RENT AGREEMENT

THIS RENT AGREEMENT is made and executed at New Delhi on this the _____date_____ BETWEEN ____First Party____ residing at ___________address_________, hereinafter called the “LESSOR” which term shall mean and include whatever the context so admits and permits his legal heirs, legal representative, executors, administrators and assigns of ONE PART

AND

_____Second Party________ residing at / office at __________address________ through it partners/directors (If Corporates) ________________, hereinafter called the “LESSEE” which term shall mean and include whatever the context so admits and permits his legal heirs, legal representative, executors, administrators and assigns of OTHER PART.

CIT vs. Sumangal Overseas Ltd - Delhi High Court

The assessee gave advances to its suppliers of which Rs. 2.05 crores was written off as “bad debts”. The AO disallowed the claim on the ground that as the advances had never been treated as income, the conditions of Sec.36(1)(vii) & 36(2) were not satisfied. The assessee accepted the disallowance. Penalty u/s 271(1)(c) was levied by relying on Escort Finance 328 ITR 44 (Del) on the ground that in the case of a corporate assessee whose accounts were duly audited by qualified Chartered Accountants, the claim of bona fide mistake is untenable. However, the Tribunal deleted the penalty on the ground that the write off, though not admissible as “bad debts” was allowable as a “trading loss”. On appeal by the department, HELD dismissing the appeal.

Star India Ltd vs. ACIT (ITAT Mumbai)

S. 263: AO’s acceptance of Jurisdictional High Court view may be “erroneous & prejudicial” to interests of Revenue The AO passed an assessment order on 24.3.2006 in which he allowed deduction u/s 80HHF without setting off the brought forward losses. The CIT passed a revision order u/s 263 on 19.10.2007 in which he claimed that the loss had to be set-off in terms of the judgement dated 11.3.2004 of the Supreme Court in IPCA Laboratories 266 ITR 521. The assessee claimed that the action of the AO was in line with the judgement dated 24.7.2000 of the Bombay High Court in Shirke Construction 246 ITR 429 which held the field till it was overruled on 17.5.2007 (291 ITR 380 (SC)). It was pointed out that even after the SC ruling in IPCA, there were Tribunal judgements (Infocon International 2 SOT 444) which had followed Shirke Construction and held that s. 80HHF deduction was available without set-off of the losses. It was argued that (i) the law prevailing on the date of the assessment order had to be seen as per G. M. Stainless Steel 263 ITR 255 (SC) and in any event (ii) there were two views possible and the AO’s view could not be termed erroneous as per Malabar Industrial 243 ITR 83 (SC). HELD by the Tribunal upholding the revision.

M. Naranan & Bros v Asst CIT (2011) Madras High Court

Merely on the basis of statement made under section 132 (4),in respect of loans , addition under section 69 as income from undisclosed source can not be made when the said statement was retracted and evidence to show the genuineness of loan was filed. The court also referred the Circular of CBDT No F.NO.286/2/2003 IT (Inv) dt 10th March 2003.

G.D. Metsteel (P) Ltd v Asst CIT ( 2011) Mumbai Tribunal

Once shares are specifically covered by indexation of costs ,and unless there is a specific exclusion clause for “preference shares” ,it can not be open to Assessing Officer to decline indexation benefits to preference shares.

Devendra Motilal Kothari v Dy CIT ( 2011) Mumbai Tribunal

Fees paid by assessee for PMS was not inextricably linked with particular instance of purchase and sale of shares and securities and sale of shares and securities so as to treat the same as expenditure incurred wholly and exclusively in connection with cost of acquisition, improvement, of shares and securities so as to be eligible for deduction in computing capital gains under section 48. Payment of fees by assessee for PMS did not amount to diversion of income by an overriding title.

Homi K. Bhabha v ITO - Mumbai Tribunal

Whether an earlier order should be followed or a reference to the Special Bench be made depends on whether the Bench is satisfied or not about the correctness of the earlier order and not on the view point of the aggrieved party. It is only when a subsequent Bench finds itself unable to endorse the earlier view that it may make reference for the constitution of the Special Bench. The aggrieved party cannot compel the later Bench to either take a contrary view or make a reference for the constitution of the Special Bench.

CIT v Consolidated Finvest and Holding Ltd (2011) Delhi High Court.

Mere fact that the shares were sold in a short span of time of acquisition due to steep and unanticipated rise in stock market does not mean that the intention was not to hold them for long period of time or deal in them . Profit on sale of shares with in short span of 7 to 10 months held to be capital gains and not as business income.

CIT v Naishadh V. Vachharajani - Bombay High Court

In the instant case the Tribunal recorded the finding that in a number of cases the assessee had held the LTCG shares for more than 10 years and that the purchase and sale of shares within a period of one year had been offered as STCG. The same was accepted in the preceding assessment year. It was held that it is open to an assessee to trade in the shares and also to invest in shares. When shares are held as investment, the income arising on sale of those shares is assessable as LTCG/STCG. Accordingly, the decision of the Tribunal in holding that the income arising on sale of shares held as investment were liable to be assessed as LTCG/STCG cannot be faulted.

Dy CIT v Hotel Excelsior Ltd ( 2011) Delhi Tribunal

Outstanding liabilities of the assessee cannot be said to have ceased to exist merely because the relevant accounts have become non operational or period of three years have expired and, therefore such liabilities cannot be charged to tax by invoking the provisions of section 41(1), more so when the assessee has not written back such liabilities in its profit and loss account.

Maharashtra state Warehousing Corporation v ACIT – Pune Tribunal

The assessee, a corporation set up under a State Act, made a contribution of Rs. 16.77 lakhs, in its capacity as employer and as per the service regulations, to the “MSW Karmachari Welfare Fund”. The AO & CIT (A) took the view that the payment, being to a “fund“, was hit by s. 40A (9) and not allowable as a deduction. In the appeal to the Tribunal, the assessee claimed that its service regulations had the “force of law” and s. 40A (9) did not apply. HELD allowing the appeal: S. 40A(9) provides that no deduction shall be allowed in respect of “any sum paid by the assessee as an employer … as contribution to any fund … except where such sum is so paid … as required by or under any other law for the time being in force“. In the case of statutory corporations, the regulations providing for the terms and conditions of employment and conditions of service have the force of law. There is no distinction in principle between a person directly under the employment of the Government and a person under the employment of a statutory corporation. Consequently, the service regulations framed by the assessee by which it agreed to make payment to the Fund carried statutory force and fell within the expression “as required by or under any other law” for purposes of s. 40A(9).

ACIT v Anchor Health and Beauty Care Pvt. Ltd. - Mumbai Tribunal

The assessee, engaged in manufacture of tooth paste etc paid Rs 11,71,826 as “accreditation panel fees” to British Dental Health Foundation UK without deduction of tax at source. The AO disallowed the sum u/s 40(a)(i) on the ground that the sum was taxable as “royalty” and tax had not been deducted at source u/s 195(1). The CIT(A) deleted the disallowance. Before the Tribunal, the department argued that since the assessee derived valuable advantage from the accreditation by BDHF and used the same as a marketing tool, the amount constituted “royalty”. HELD dismissing the appeal: (i) The obligation to deduct tax u/s 195(1) arises only if the payment is chargeable to tax in the hands of non‐resident recipient. If the recipient of the income is not chargeable to tax, the vicarious liability on the payer is ineffectual. As the AO had not established how the recipient was liable to pay tax, he was in error in disallowing u/s 40(a)(i). (ii) On merits, though the accreditation fees permitted the assessee the use of name of British Dental Health Foundation, it did not constitute “royalty” under Article 13 of the India‐UK DTAA because it did not allow the accredited product to use, or have a right to use, a trademark, nor any information concerning industrial, commercial or scientific experience so as to fall within the definition of the term. The purpose of the accreditation by a reputed body was to give certain comfort level to the end users of the product and to constitute the USP of the product. The term “royalty” cannot be construed as per its normal connotations in business parlance but has to be construed as per the definition in Article 13. The amount constituted “business profits” and as the recipient did not have a PE in India, it was not taxable in India.

Shyam Sunder Kailash Chand v ITO ( 2011) Jaipur Tribunal

Depositors having submitted form no 15G to the assessee well in time ,interest paid to them without deduction of tax at source cannot be disallowed under section 40(a)(ia) simply because the said forms could not be submitted to the AO the within the time stipulated in the Act , once the same were available to the AO while framing the assessment.

Sharp Business Systems ( India) Ltd v Dy CIT ( 2011) Delhi Tribunal

Expenditure incurred by the assessee to ward off the competition for a period of seven years during which any company could have set up its products and reputation in the market, expenditure cannot be allowed as revenue expenditure. As non –compete fee is held to be capital expenditure , claim for treating it as revenue expenditure entitled to deduction for seven years is also not allowable.

CIT v Kirti Resorts (P) Ltd (2011) HP High Court.

Provisions of section 32 (2) as amended w.e.f. 1st April ,1997 permit set off of brought forward unabsorbed depreciation firstly against the business profits and then against income under any other head in Asst Year 1997‐98 and subsequent assessment years for a period of eight years ,therefore unabsorbed depreciation for the period up to assessment year 1996‐97 could be brought forward and set off against income chargeable under the head income from other sources. ( A.ys 1989 to 2002‐03).

CIT v Phil Corporation (2011) Bombay High Court.

Investment made by the assessee company out of bank overdraft in the shares of its subsidiary company to have control over that company being an integral part of its business ,interest paid by the assessee which is attributable to said borrowings is allowable as deduction under section 36(1)(iii).

Sharp Business Systems (India) Ltd v Dy CIT ( 2011) Delhi Tribunal

Non compete fee is not in the nature of knowhow, patents copy right, trademarks, licenses or franchises within the meaning of section 32 (1) (ii), depreciation is not allowable.

CIT v Kirti Resorts (P) Ltd ( 2011) HP High Court

Assessee company did not do any hotel business after its hotel building was washed away in floods in September, 1995. However, assessee company being a juristic entity incorporated under the Companies Act, did not cease to exist. Since it has to fulfill its obligations imposed by Companies Act till it is wound up, some staff has to be maintained. Therefore, once the assessee company is in existence, it is entitled to depreciation though it has discontinued its business.

C&C Construction Pvt Ltd vs. CIT (Delhi High Court)

S. 260A: High Court has no power to consider issue not raised before Tribunal. The assessee filed an appeal before the Tribunal in which it argued that it had constructed a “temporary construction” which was eligible for 100% depreciation. This was rejected by the Tribunal on the basis that the construction was permanent. Before the High Court, the assessee argued for the first time that the expenditure was “revenue” in nature and admissible as business expenditure. HELD not permitting the assessee to raise the plea.

CWT Vs. Smt. Neena Jain 2011 P&H High Court

As per Sec. 2(ea), "assets" mean, inter alia, any building, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within 25 kms from local limits of any municipality or a cantonment board. The Definition of "assets" under Sec. 2(ea) also includes urban land.
The High Court opined that the words "any building" could not be read in isolation and had to be harmoniously construed with the remaining portion of Sec.2(ea) i.e., whether the building was used for residential or commercial purposes or for the purpose of maintaining a guest house, because an incomplete building could not be possibly either be used for residential or commercial purposes or for the purposes of maintaining a guest house. Therefore, the word "building" has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings, etc.
Consequently, the incomplete building is not an asset chargeable to wealth tax.

CIT v. Saurashtra Cement Ltd. (2010) Supreme Court

The assessee, a cement manufacturing company, entered into an agreement with a supplier for purchase of additional cement plant. One of the conditions in the agreement was that if the supplier failed to supply the machinery within the stipulated time, the assessee would be compensated at 5% of the price of the respective portion of the machinery without proof of actual loss. The assessee received Rs.8.50 lakhs from the supplier by way of liquidated damages on account of his failure to supply the machinery within the stipulated time. The Department assessed the amount of liquidated damages to income-tax. However, the Appellate Tribunal held that the amount was a capital receipt and the High Court concurred with this view.
The Apex Court affirmed the decision of the High Court holding that the damages were directly and intimately linked with the procurement of a capital asset i.e., the cement plant, which lead to delay in coming into existence of the profit-making apparatus. It was not a receipt in the course of profit earning process. Therefore, the amount received by the assessee towards compensation for sterilization of the profit earning source, not in the ordinary course of business, is a capital receipt in the hands of the assessee.

Dy CIT v Hotel Excelsior Ltd (2011) Delhi Tribunal

Since the assessee is in Hotel business its building is not merely a structure of four walls but includes all such things as are necessary to give the building better look and is a matter of attraction for the customers, therefore Landscaping done by assessee in its hotel is to be treated as “building” and depreciation is allowable.
Payments made by assessee to NDMC for unauthorized occupation , construction of diesel storage tanks and fire fighting tanks and covering sanitary lines without approval in respect of the hotel acquired by it from the Central Government formed part of purchase consideration as these payments were made to perfect the title of the assessee in the property and the amount being capitalized the assessee is entitled for depreciation.

ACIT vs. Maersk Global Service Center (ITAT Mumbai)

The assessee, a captive service provider rendering back office support services to its AEs, earned an adjusted Net Cost plus Margin of 7.90%. The assessee adopted TNMM and computed the mean of margins earned by the comparables at 7.62%. The TPO held that “No companies were identified as comparables” by the assessee and after selecting 12 companies as comparables, determined an arithmetic mean of 27.80% and made an adjustment of Rs. 10.49 crores. The CIT(A) deleted the addition. On appeal by the department, HELD dismissing the appeal.

CIT vs. Manjula J. Shah (Bombay High Court)

The assessee’s daughter purchased a flat on 29.1.1993 at a cost of Rs.50.48 lakhs. She gifted the flat to the assessee on 1.2.2003. The assessee sold the flat on 30.6.2003 for Rs. 1.10 crores. In computing LTCG, the assessee took the indexed cost of acquisition under Explanation (iii) to s. 48 on the basis that she “held” the flat since 29.1.1993. The AO held that as the assessee had “held” the flat from 1.2.2003, the cost inflation index for 2002-03 would be applicable. The CIT (A) and the Special Bench of the Tribunal upheld the claim of the assessee. On appeal by the department, HELD dismissing the appeal.

Director of IT vs. Maersk Co. Ltd., as Agent of Henning Skov (2011) Uttarakhand High Court

Advance tax is not payable on the salary of an employee in as much as the obligation to deduct tax at source is upon the employer under section 192, upon failure on the part of the employer to deduct at source, the assessee (employee) only becomes liable to pay the tax directly under section 191 and does not become liable to pay interest under section 234B.

CIT vs. Jyoti Plastic Works Pvt Ltd (Bombay High Court)

For Sec.80-IB “workers” need not be “employees”
The assesee was engaged in the manufacture of goods by using job workers; its total number of permanent employees was less than ten. The department relied on Venus Auto Pvt Ltd vs. CIT 321 ITR 504 (All) and claimed that the non-employment of at least 10 workers was in breach of s. 80IB(2)(iv) and deduction u/s 80IB was not admissible. This was reversed by the Tribunal. On appeal by the department, HELD dismissing the appeal.

ACIT vs. The Total Packaging Services (ITAT Mumbai)

For s. 80-IB, Modvat credit is “derived” from industrial undertaking
The assessee availed/set off Modvat credit of excise duty of earlier years amounting to Rs. 1.93 crores. The AO held that s. 80-IB deduction was not admissible on the said Modvat credit on the ground that the “source of the income was government policy imposing excise duty at differential rate” and it was not “derived” from the industrial undertaking. This was reversed by the CIT (A). On appeal by the department, HELD dismissing the appeal.

ITO vs. Indian Oil Corporation (ITAT Delhi)

The assessee entered into contracts with transporters for transporting petroleum products from the plant to various destinations. The assessee deducted TDS u/s 194C at 2% on the basis that the transportation contract was “work”. The AO held that the contract was a “hiring” of vehicles on the basis that
(i)the assessee had exclusive possession and usage,
(ii)the use was for a fixed tenure,
(iii)the tankers were customized to the assessee’s requirements
Thus TDS ought to have been u/s 194-I at 10%. The assessee was held to be in default u/s 201. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal.

Sood Brij & Associates vs. CIT (Delhi High Court)

The assessee, a firm of Chartered Accountants, provided by its partnership deed that the profits would be divided equally. By a supplementary deed of 1992 it was agreed that the working partners would be paid such remuneration as may be “mutually agreed upon” subject to the provisions of the Act. It was also specified that the total remuneration payable to the working partners would be an amount permissible as remuneration to the working partners under the Act. The AO, CIT (A) & Tribunal held that the deed did not satisfy the conditions of s. 40(b)(v) and deduction was not admissible. On appeal to the High Court, HELD dismissing the appeal.

Atma Ram Properties Pvt Ltd vs. DCIT - Delhi High Court

In AY 2001-02, the AO assessed advances of Rs. 1.56 crores received from a group concern as “deemed dividend” u/s 2(22)(e). In appeal, the CIT (A) held that the advances received in earlier years could not be assessed. The AO thereafter reopened the assessment for AY 1999-00 (after 4 years from the end of the AY). Though the AO alleged that there was a failure on the part of the assessee to disclose full and true material facts, he did not specify what that failure was. The reopening was upheld by the CIT (A) & the Tribunal. On appeal to the High Court, HELD allowing the appeal.

Maxopp Investment Ltd vs. CIT - Delhi High Court

No Sec.14A or Rule 8D Disallowance without showing how assessee’s calculation is wrong. Only real expenditure can be disallowed. The High Court had to consider two issues:
(a) whether interest paid on funds borrowed to acquire “trading shares” is hit by Sec.14A given that the profits there from are assessable to tax as “business profits” and the dividend is incidental and
(b) whether Rule 8D has retrospective operation.
High Court held that, "the AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent. While rejecting the claim of the assessee with regard to the expenditure or no expenditure in relation to exempt income, the AO will have to indicate cogent reasons for the same"
Also Sec.14A(2) & (3) were inserted w.e.f. 1.4.1962,but Rule 8D was inserted on 24.03.2008. Accordingly, Rule 8D would operate prospectively. However, here also, he will have to show why he is not satisfied with the correctness of the assessee’s claim.

ITO v Chander HUF (2011) Chennai Tribunal

A Town Panchayat is notified for urban agglomeration, but it is not a municipality. Agricultural lands falling within said town panchayat would not fall within municipality, and hence is not a capital asset as per the definition under Sec.2(14)(iii).

ITO v Chandar HUF (2011) Chennai Tribunal

A person makes investment in agricultural land within limits of town panchayats, and agricultural income was shown and declared year after year. Permission was sought to develop lands. No further action, was taken for over 12 years till date of sale, and entire land is sold after its value appreciated, it would not become adventure in the nature of trade.

CIT vs. Manish Build Well Pvt Ltd (Delhi High Court)

CIT(A) shall have to show cause AO before admitting additional evidences on assessee's application.
The AO asked the assessee to furnish confirmation letters from customers who had paid advances by cash (& not cheque) which the assessee complied with. In the assessment order, the AO treated the advances received by cheque as “unexplained cash credits” u/s 68. Before the CIT (A), the assessee produced confirmation letters from customers who paid by cheque. The CIT(A) admitted the additional evidence under Rule 46A & without giving the AO an opportunity, deleted the addition. In appeal by the department, the Tribunal upheld the CIT(A)’s action on the ground that as the AO had not called for the confirmations before making the addition, the CIT(A) was justified in admitting the additional evidence and there was no reason to set-aside the matter to the AO for a second innings. On further appeal to the High Court, HELD allowing the appeal.

Maximum Deposit Limit in PPF Increased

With NOTIFICATION [F.No. 1/9/2011-NS-II], dated 25-11-2011 Central Government has increased Maximum Limit to be deposited in the PPF Account has been increased from Rs. 70,000/- to Rs. 1,00,000/-.

Jayantibhai Meghibhai v Addl CIT - Ahmadabad Tribunal

Assessee having two self occupied properties. In case of the second property, relevant provisions of the Rent control Act were applicable. The Assessing Officer is bound to determine the standard rent of the premises in accordance with provisions of Act. However ,where the standard rent has not been determined by the rent control authority , the Assessing Officer is duty bound to do the exercise him self and determine the standard rent as per the provisions of the relevant Rent Control Act.

The Indian Hume Pipe Co Ltd vs. ACIT (Bombay High Court)

The assessee entered into an agreement in July 2001 for sale of development rights for Rs.39 crores. The transfer was in December 2003. The assessee computed LTCG of Rs. 23.19 crores. The assessee invested in eligible bonds between Feb & June 2002 (after the agreement to sell but before the transfer) and claimed exemption u/s 54EC. During the assessment proceedings, the AO asked for a copy of the agreements with the purchaser and other details which the assessee furnished. A copy each of the s. 54EC bonds (which gave the dates of investments) was also furnished. The AO allowed the deduction as claimed. After the expiry of 4 years from the end of the assessment year, the AO issued a notice u/s 148 claiming that as the investments were made prior to the date of transfer (Dec 2003), s. 54EC deduction was not admissible. The assessee filed a Writ Petition to challenge the reopening on the ground that there was no failure on its part to make a full and true disclosure of material facts. HELD dismissing the Petition.

TDS: AO in place of payment has no jurisdiction if assessee assessed outside.

The assessee, based & assessed in Delhi, was allotted land by MMRDA at Bandra Kurla Complex, Mumbai, on lease for 80 years. The lease premium of Rs.88.52 crores was paid without deduction of tax at source. The ITO (TDS) Mumbai passed an order u/s 201 in which he held that the assessee had defaulted in not deducting TDS u/s 194-I on the lease premium. The assessee filed a Writ Petition to challenge the jurisdiction of the ITO (TDS) Mumbai. HELD upholding the plea. - Indian Newspaper Society vs. ITO (TDS) (Bombay High Court)

ACIT v Punjab state Coop & Mktg - Chandigarh Tribunal

In AY 2007‐08, the assessee received dividend of in respect of investment in shares made in earlier years. No investments were made during the year. It was claimed that the investment in the earlier years was made out of reserves & surplus and that there was no expenditure incurred during the year to earn the dividend. The AO held that as in the earlier years, the assessee had borrowed funds, Sec.14A applied. It was held that if there is no nexus between borrowed funds and investments made in purchase of shares, disallowance u/s 14A is not warranted.