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)

Sec. 43B Deduction Applies To Employees PF/ ESIC Contribution: Rajasthan High Court

CIT vs. Jaipur Vidyut Vitran Nigam Ltd (Rajasthan High Court)

Employees’ PF/ ESI Contribution is also covered by s. 43B & allowable as a deduction u/s 36(1)(va) if paid by the “due date” for filing ROI


In AY 2001-02 etc, the assessee claimed a deduction for payment of (employees’ contribution) to GPF, CPF and ESI u/s 36(1)(va) read with s. 43B of the I.T. Act. The basis of the claim was that though the amount was not paid on or before the due date under the respective Act, the same was deposited on or before the due date of furnishing of the Income-tax returns u/s 139 of the I.T. Act and, therefore, in view of s. 43B read with s. 36(1)(va), the entire amount was allowable. The AO rejected the claim for deduction though the Tribunal allowed it. On appeal by the department to the High Court HELD dismissing the appeal:

No substantial question of law arise out of the orders of the ITAT as it is an admitted fact that the entire amount was deposited by the assessee at least on or before the due date of filing of the returns u/s 139 of the I.T. Act. If the amount has been deposited on or before the due date of filing the return u/s 139 then the amount cannot be disallowed u/s 43B or u/s 36(1)(va) of the Act

See the contrary view in Gujarat State Road Transport Corp (Guj). For a listing of all cases see forum post. In Pradip J. Mehta 300 ITR 231 (SC) it was held that the benefit of doubt should invariably go to the taxpayer.

Sec 43B Deduction Does Not Apply To Employees PF/ ESIC Contribution: Gujarat High Court

CIT vs. Gujarat State Road Transport Corp (Gujarat High Court)

Employees’ PF/ ESI Contribution is not covered by Sec 43B & is only allowable as a deduction u/s 36(1)(va) if paid by the “due date” prescribed therein


In AY 2005-06 the assessee collected Rs.51 crore from its employees as their contribution to the provident fund but deposited an amount of Rs.21 crore with the provident fund trust within the time allowed under the Provident Fund Act. The shortfall was deposited with the PF trust before the due date for filing the ROI u/s 139(1). The AO held that the amount not deposited in time was assessable as “income” u/s 2(24)(x) & that a deduction u/s 36(1)(va) could not be allowed as the payment was not within the prescribed “due date”. He also held that s. 43B applied only to the employer’s contribution. On appeal by the assessee, the CIT(A) and ITAT upheld the assessee’s claim by relying on Alom Extrusions Ltd 319 ITR 306 (SC). On appeal by the department to the High Court HELD allowing the appeal:

S. 43B which permits a deduction for payments made upto the due date for filing the ROI applies only to the employer’s contribution to the provident fund etc. It does not apply to the employees’ contribution. The employees’ contribution received by the employer-assessee is deemed to be income in the assessee’s hands u/s 2(24)(x) and if the assessee has not credited the said sum to the employees’ account in the relevant fund or funds on or before the due date mentioned in Explanation to s. 36(1)(va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in s. 28 of the Act. The argument that two view are possible is not acceptable because only one view is possible on a correct interpretation of the provision (Alom Extrusions 319 ITR 306 (SC) distinguished, Aimil Ltd 321 ITR 508 (Del), Nipso Polyfabriks 350 ITR 327 (HP), Spectrum Consultants 34 taxmann.com 20 (Kar), Udaipur Dugdh Utpadak Sahakari Sandh 35 taxmann.com 616 (Raj) & Hemla Embroidery Mills (P&H) dissented

Note: The consequence is that if the payment of employees’ contribution is delayed, a deduction will never be allowed. The same view is taken in LKP Securities following ITC Ltd 112 ITD 57 (Kol)(SB). Contrast with Kichha Sugar 356 ITR 351 (Utt) where it was held that the “due date” in s. 36(1)(va) meant the “due date” for filing ROI u/s 139(1). See also Bharati Shipyard 132 ITD 53 (SB)(Mum) where it was held that s. 43B applies even to the employees’ contribution