BUSINESS EXPENDITURE - ALLOWABILITY OF

Section 37(1) of Income Tax Act, 1961

Compounding fees : Compounding fee paid to Municipal Corporation for legalising construction of building is not allowable as business expenditure - (2014) 52 taxmann.com 484 (Punjab & Haryana)

 

 

Software expenses : Expenditure incurred by assessee on replacement of latest version of software had to be allowed as revenue expenditure - (2015) 53 taxmann.com 112 (Ahmedabad - Trib.)

 

 

REPAIRS : Expenditure incurred by assessee on replacement of old tiles, wooden partition, pest control, etc. in respect of business premises taken on lease, was to be allowed as revenue expenditure - (2015) 53 taxmann.com 112 (Ahmedabad - Trib.)

 

 

Gist of recent important tax caselaws

Below are the recent important tax caselaws related to Income tax, Service tax, Excise in brief. The citation is made available for your benefit :

INCOME TAX

SECTION 2(15)

CHARITABLE PURPOSE

Medical relief : Where assessee, a non-profit making company entered into agreement with State Government in terms of which assessee had to provide Emergency Medical Transport Services to patients free of cost, it was to be concluded that assessee was incorporated for charitable purpose of providing medical relief and, thus, its application seeking registration under section 12AA was to be allowed - GVK EMRI (UP) v. Director of Income-tax (Exemption), Hyderabad (2014) 45 taxmann.com 90 (Hyderabad - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Education expenses : Where expenditure on higher education of employee had an intimate and direct connection with assessee's business, it would be appropriately deductible, even though such an employee was son of a director - Kostub Investment Ltd. v. Commissioner of Income-tax (2014) 45 taxmann.com 123 (Delhi)       SECTION 40A(2) BUSINESS DISALLOWANCE - EXCESSIVE OR UNREASONABLE PAYMENTS Commission : Where revenue authorities disallowed payment of sales commission made by assessee to its agents by invoking provisions of section 40A (2), in view of fact that those agents were house wives were not in a position to offer any professional advice on matters relating to production, market survey or procurement of orders, impugned disallowance was to be confirmed - Luxco Electronics v. Commissioner of Income-tax (2014) 45 taxmann.com 122 (Allahabad)       SECTION 92 Comparables and adjustments/CUP Method/TNMM : Where assessee had to incur additional cost in relation to services rendered by it to unrelated parties as compared to similar services rendered to related parties, assessee should have been allowed relief on account of functions performed, risk assumed and asset employed in services rendered by it to related and unrelated parties - J.P. Morgan India (P.) Ltd. v. Assistant Commissioner of Income-tax (2014) 44 taxmann.com 466 (Mumbai - Trib.)       Comparables and adjustments : Where comparable was a big company in all respects including range of turnover, same should be excluded from list of comparables to small companies which were captive service providers having considerably low turnover - United Online Software Development (India) (P.) Ltd. v. Income-tax Officer (2014) 44 taxmann.com 424 (Hyderabad - Trib.)     CENTRAL EXCISE ACT SECTION 11B REFUND – GENERAL Refund has to claim only as per section 11B of Central Excise Act, 1944 and no civil suit cannot be instituted for refund of claim based on discovery of mistake of law - Union of India v. Rajasthan Spinning & Weaving Mills Ltd. (2014) 45 taxmann.com 2 (Rajasthan) SECTION 14 SUMMONS - RETRACTION OF STATEMENT Onus lies on Department to prove that there was clandestine removal by assessee; and for that purpose, department must put forth evidence and conduct examination of witnesses and buyers to prove the charge - Commissioner of Central Excise, Ahmedabad v. Gopi Synthetics (P.) Ltd. (2014) 45 taxmann.com 57 (Gujarat)

Gist of latest important tax caselaws

SECTION 10(22)  
EDUCATIONAL INSTITUTIONS

Where assessee trust, running a school, collected excess fee in name of development fund which was not brought in its books of account, in view of fact that trust was established for benefit of children of managing trustee and, moreover, there was no obligation on its part to reinvest amount in question in educational activities, it was to be concluded that trust existed for profit motive and, therefore, assessee's claim for exemption of income under section 10(22) and 10(23C) was to be rejected - Assistant Commissioner of Income-tax, Central Circle, Kollan v. Sabarigiri Trust (2014) 43 taxmann.com 19 (Cochin - Trib.)

Below are the recent important tax caselaws related to Income tax, Service tax, Excise in brief. The citation is made available for your benefit :

INCOME TAX

SECTION 12AA

CHARITABLE OR RELIGIOUS TRUST - REGISTRATION PROCEDURE

Cancellation of registration : In terms of Circular No. 1/2011 dated 6-4-2011, registration already granted under section 12A can be cancelled only for assessment year 2011-2012 and subsequent assessment years; in instant case, assessment year involved being 2009-10, Assessing Officer could not cancel registration already granted to assessee-trust by taking a view that activities of trust were hit by proviso to section 2(15) - Prithviraj Kapoor Memorial Trust & Research Foundation v. Director of Income-tax (Exemption) (2014) 43 taxmann.com 20 (Mumbai - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Interest : Where assessee used borrowed funds for purpose of setting new project for expansion of its business, interest was to be allowed as revenue expenditure - Commissioner of Income-tax, Meerut v. Diwan Rubber Industries (2014) 43 taxmann.com 27 (Allahabad) SECTION 43B BUSINESS DISALLOWANCE - CERTAIN DEDUCTIONS TO BE ALLOWED ONLY ON ACTUAL PAYMENT Provident Fund contributions : Where employer did not deposit PF/ESI contribution within due date as contemplated under PF/ESI Scheme/Act, but deposited it before due date of filing return, assessee would be entitled to deduction - Essae Teraoka (P.) Ltd. v. Deputy Commissioner of Income-tax (2014) 43 taxmann.com 33 (Karnataka)       SERVICE TAX SECTION 65(69) TAXABLE SERVICES - MARKET RESEARCH AGENCY'S SERVICES Research on equity is a product research and is liable to service tax under Market Research Services - Kotak Securities Ltd. v. Commissioner of Service Tax (2014) 43 taxmann.com 164 (Mumbai - CESTAT) SECTION 65(90a) TAXABLE SERVICES - RENTING OF IMMOVABLE PROPERTY SERVICES Where assessee has been paying service tax on an activity for a subsequent period, it cannot contend, for earlier period, that very same activity was not a service but only a sale of goods - Shoppers Stop Ltd. v. Commissioner of Service Tax (2014) 43 taxmann.com 173 (Mumbai - CESTAT)

Summary of latest important tax caselaws

Below are the recent important tax caselaws related to Income tax, Service tax, Excise in brief. The citation is made available for your benefit :

INCOME TAX

SECTION 10(6)(viii)

SALARY TO FOREIGN CITIZEN AS FOREIGN SHIP CREW

Scope of exempt : Payments made to foreigner-crew member of ship who worked for a period of less than 90 days in India, were not income of employees in India liable to TDS - Director of Income-tax v. Dolphin Drilling Ltd. (2014) 42 taxmann.com 264 (Uttarakhand)     SECTION 28(i) BUSINESS LOSS/DEDUCTIONS - ALLOWABLE AS Provision for fraud : Where assessee-bank claimed deduction of 'provision of fraud', in view of fact that incident which resulted in irregularities/embezzlement occurred during relevant previous year and, moreover, actual amount involved in fraud was calculated by assessee's vigilance cell after detailed study, amount so computed was to be allowed as business loss - Deputy Commissioner of Income Tax v. ING Vysya Bank Ltd. (2014) 42 taxmann.com 303 (Bangalore - Trib.) SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Sales incentives : Where manufacturer of two-wheelers had launched an incentive scheme for encouraging prompt delivery of two-wheelers from site of manufacturing plant up to door step of dealers and in pursuance of said scheme, assessee having received certain amount from manufacturers, paid a part of same to drivers as incentive, amount so paid was to be allowed as business expenditure - Commissioner of Income-tax, Central-II v. Shree Dhain Auto Transport Corporation (2014) 42 taxmann.com 281 (Gujarat) Community welfare expenses : Where assessee incurred expenditure on building a school and toilet at village which was near vicinity of factory for better relationship with workers and employees of assessee, same was allowable as community welfare expenses - Lubrizol Advanced Materials India (P.) Ltd. v. Deputy Commissioner of Income-tax (2014) 42 taxmann.com 263 (Ahmedabad - Trib.)     SECTION 194C DEDUCTION OF TAX AT SOURCE - CONTRACTORS/SUB-CONTRACTORS, PAYMENTS TO Reimbursement of expenses : Where expenses were incurred by C&F agents on behalf of assessee and claims were made on actual basis, assessee while making reimbursement of said expenses was not liable to deduct tax at source under section 194C - Deputy Commissioner of Income-tax -11(1) Bangalore v. Dhaanya Seeds (P.) Ltd. (2014) 42 taxmann.com 277 (Bangalore - Trib.)

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Recent important tax caselaws / judgements

SECTION 36(1)(vii)

BAD DEBTS

Conditions precedent : Deduction on account of bad debts was allowable to assessee since debts were outstanding since long and assessee wrote off same as irrecoverable in its books - Radhu Palace v. Additional Commissioner of Income-tax (2014) 41 taxmann.com 281 (Delhi - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Bad debt : Where trade advances becoming unrealizable, provision was made and profit was loss account was debited in earlier year, same was to be allowed when written of in subsequent year - Commissioner of Income-tax v. Indian Explosives Ltd. (2014) 41 taxmann.com 264 (Calcutta) SECTION 41(1) REMISSION OR CESSATION OF TRADING LIABILITY Time-barred liabilities : Where assessee had outstanding creditors for goods and Assessing Officer made addition in income of assessee under section 41(1) on basis that with respect to 14 creditors liability was outstanding for more than three years, Assessing Officer was not justified in his view - Commissioner of Income-tax v. Puridevi Mahendrakumar Chaudhary (2014) 41 taxmann.com 329 (Gujarat)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Construction : Where consideration received on transfer of property had been invested by assessee in construction of residential house, merely because construction was not complete in all respects within stipulated period, benefit of section 54F, should not be rejected - Income-tax Officer v. Smt. B.S. Shanthakumari (2014) 41 taxmann.com 325 (Bangalore - Trib.)       SECTION 251 COMMISSIONER (APPEALS) - POWERS OF Power to admit additional evidence : Where assessee was prevented by sufficient cause in not appearing before Assessing Officer while framing assessment due to confusion relating to jurisdiction of Assessing Officer, in such circumstances, Commissioner (Appeals) as well as Tribunal relying upon additional evidence produced by assessee were justified in deleting a part of addition made by Assessing Officer - Commissioner of Income-tax v. Safari Bikes Ltd. (East) (2014) 41 taxmann.com 282 (Punjab & Haryana)       SECTION 271(1)(c) PENALTY - FOR CONCEALMENT OF INCOME Surrender of income : Where Assessing Officer had conducted enquiries into matter of sale of shares prior to surrender made by assessee and duly established on record that said share transactions were sham and bogus, he was justified in levying penalty under section 271(1)(c) in respect of addition made for those transactions - Deputy Commissioner of Income-tax v. Mukesh Kumar Agarwal, (HUF) (2014) 41 taxmann.com 269 (Agra - Trib.)    Source : Taxmann

SECTION 35

SCIENTIFIC RESEARCH EXPENDITURE

Where assessee-company, apart from rendering technical services to its clients, did research in field of development of wind power at its own, which was used for benefit of public, scientific research expenditure was to be allowed - Assistant Commissioner of Income-tax -1(1) v. Consolidated Energy Consultants Ltd. (2014) 41 taxmann.com 379 (Indore - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Software : Where assessee-company purchased application software, expenditure incurred towards purchase of software could not be treated as revenue expenditure - Srinivasa Resorts v. Assistant Commissioner of Income-tax (2014) 41 taxmann.com 350 (Hyderabad - Trib.)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Construction : In terms of section 54F, when assessee invests sale consideration in purchase of a residential property within prescribed time period, he is entitled to claim deduction and, in such a case, extent of construction of residential building and facilities provided in such building are not relevant - Commissioner of Income-tax v. Dr. R. Balaji (2014) 41 taxmann.com 411 (Karnataka)     SECTION 158BG BLOCK ASSESSMENT IN SEARCH CASES Where Assessing Officer as a result of search conducted under section 132 upon assessee passed a block assessment order on him, no opportunity of hearing was required to be given to assessee by Commissioner while granting approval under section 158BG - Commissioner of Income-taxv.Dr. K.P. Singh (2014) 41 taxmann.com 406 (Allahabad)       SECTION 194C DEDUCTION OF TAX AT SOURCE - CONTRACTORS/SUB-CONTRACTORS PAYMENT TO Lounging and Catering service : Where consolidated payment was made towards lounging and catering services as a part of single arrangement, it was not permissible to artificially bifurcate payment so made towards two limbs or component services in view of two attracting differential tax and same would fall under generalized contractual category under section 194C - Assistant Commissioner of Income-tax (TDS) -2(2) v. Qantas Airways Ltd. (2014) 41 taxmann.com 383 (Mumbai - Trib.) Cargo handling charges : Where assessee was engaged in business of clearing and forwarding of cargo, etc. and it made payments towards cargo handling charges to two parties and work involved was mainly labour oriented work with help of various machineries and equipments, TDS provisions of section 194C would be applicable with respect to said payments - Commissioner of Income-tax (TDS)v.Aditya Marine Ltd. (2014) 41 taxmann.com 381 (Gujarat)       SECTION 254 APPELLATE TRIBUNAL - ORDER OF Duties of Tribunal : Whenever any decision has been relied upon and/or cited by assessee and/or any party, Tribunal is bound to consider and/or deal with same and opine whether in facts and circumstances of particular case, same will be applicable or not - Dattani And Co. v. Income Tax Officer (2014) 41 taxmann.com 360 (Gujarat)     DIRECT TAX LAWS Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income - Clarification on disallowance of expenses under section 14A in cases where corresponding exempt income has not been earned during the financial year - CIRCULAR NO.5/2014 (F.NO.225/182/2013-ITA.II), DATED 11-2-2014 Section 119, read with section 115R of the Income-tax Act, 1961 - Income-tax Authorities - Instructions to subordinate authorities - Tax on distributed income to unit holders - Clarification on scope of additional income-tax on distributed income under section 115R - CIRCULAR NO.6/2014 (F.NO.225/182/2013-ITA.II), DATED 11-2-2014       Source : Taxmann