Section 143 of Income Tax Act

Completion : Issue of intimation under section 143(1) cannot amount to completion of assessment under section 139(5) disabling assessee from filing a revised return - (2014) 52 taxmann.com 480 (Calcutta)

Limitation : Assessment order framed consequent to notice issued under section 143(2) which was time-barred, would also become invalid and time-barred - (2015) 53 taxmann.com 113 (Jodhpur - Trib.)

BUSINESS DISALLOWANCE - CASH PAYMENT EXCEEDING PRESCRIBED LIMITS

Section 40A(3) of Income-tax Act, 1961

Payment to farmers : Where payment to Kachcha Aaratia by assessee was to be taken as a payment to farmer as Aaratia held agency relationship and he did not receive payment in his own right, Assessing Officer could not invoke section 40A(3) - (2014) 52 taxmann.com 361 (Agra - Trib.)

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.)

 

 

Income from Mobile Antenna tower is Income from House Property

SECTION 22

INCOME FROM HOUSE PROPERTY – CHARGEABLE AS

Sum received from cellular companies for renting out of the terrace for installation of mobile antenna was taxable as income from house property and not as income from other sources since roof and terrace would be considered as part of the building - (2015) 53 taxmann.com 244 (Delhi - Trib.)

Delhi ITAT : Sec.37 disallowance cannot be done since prior approval of Government was not taken, Jai Surgicals Ltd Vs ACIT

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : D : NEW DELHI

ITA No.844/Del/2013
Assessment Year : 2009-10
Jai Surgicals Ltd.,New Delhi.
Vs. ACIT,
ORDER

This appeal by the assessee emanates from the order passed by the CIT (A) on 20.11.2012 in relation to the assessment year 2009-10.
2. The only issue raised in this appeal through various grounds is against the confirmation of addition of ` 41,24,129/-. Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacture and export of surgical blades. Note no.6 to the Annual accounts, attached with the return of income, read as under:-
“On an observations by auditor, it was been noticed that the Central government approval of contract for sale, purchase of blades and scalpels and for getting
job work done from M/s Razormed INC. (a partnership concern in which directors of the company are interested as partners) had expired on 01.04.2007 and
the company continued to make transactions their under without renewal approval from Central Government. Subsequent to the closure of financial year the company has got necessary approval from Central Government for the period 06.04.2009 to 31.03.2012 offence relating to the period 01.04.2007 to 05.04.2009 has been compounded by the Company Law Board on an application

Delhi ITAT : Additional evidence acceptance explained, LinkedIn profile can be an evidence, GE Energy parts Vs ADIT

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “ NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG : JUDICIAL MEMBER
ITA No. 671/Del/2011
Asstt. Yr: 2001-02
GE Energy Parts Inc. Vs. Addl. Director of Income-tax,
AIFACS Building, 1, Rafi Marg, Circle 1(2), International
New Delhi-110001. Taxation, New Delhi.
PAN: AACCG 2798 N
Department by : Shri Sanjeev Sharma CIT(DR) &
Shri Vivek Kumar CIT(DR)
Assessee by : Shri S. Ganesh Sr. Counsel along with
Ms. Anuradha Dutt Adv.; S/Shri Rashi Dhir,
Sachit Jolly, Rahul Sateeja adv. &
Ms. Shwetha Bidhuri &
Ms.Roohina Dua Advocates
 
Interim order on application dated 19-2-2014 filed by the department under
Rule 29 of the ITAT Rules, 1963 for admission of additional evidence:
Before we proceed to consider the admissibility of this additional
evidence filed by the department, we may point out the proceedings which
took place in this lead appeal of GE group of cases on various dates. Hearing
of the appeal commenced on 28-1-2014 and continued on 29-1-2014 and 18-
2-2014. Thereafter on 19-2-2014 the revenue sought permission to file the
following documents as additional evidence:
S.
No.
Vol. of
Paper
book
Particulars Page no.
1. Vol. III Linkedin Profiles of Employees 1 to 94
2. Vol. IV Whistleblower’s Writ petition in Hon’ble Delhi High
Court
1 to 177
2. On 20-2-2014 the asses

There should be Exempt income for Sec. 14A/Rule 8D disallowance, Caselaw ACIT Vs M Baskaran (Chennai ITAT)

IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI
BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
    I .T.A.No.1717/Mds/2013
(Assessment Year : 2009-10)
Assistant Commissioner of
Income Tax,
Company Circle- I (2) ,
Chennai-34.
Vs Mr . M.Baskaran,
11/5, Val l iammal St reet ,
Alagappa Nagar ,Ki lpauk,
Chennai-600 010.
PAN: AAFPB8375E

Appellant by : Mr. Pramod Nangia, CIT
Respondent by : Mr. M.Karunagaran, Advocate
Date of hearing : 20th June, 2014
Date of Pronouncement : 31st July, 2014
O R D E R
Per Challa Nagendra Prasad, JM:
This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-VI, Chennai dated 22.02.013 for the assessment year 2009-10. The only grievance of the Revenue in this appeal is that the Commissioner of Income Tax (Appeals) erred in deleting disallowance made under section 14A read with Rule 8D holding that assessee has not received any exempt income and hence disallowance is unwarranted
2. The Assessing Officer while completing the assessment disallowed ` 19,28,666/- under section 14A read with Rule 8D of the Act as expenditure incurred for earning exempt income as the assessee was holding investments worth `14.05 crores and incurred interest expenses of ` 34.80 lakhs. On appeal the Commissioner of Income Tax (Appeals) deleted the disallowance holding that assessee has not derived income out of investments and investments are made
from his own source which did not suffer any interest. The Commissioner of Income Tax (Appeals) also observed that Assessing Officer should have excluded share application money from the working of the qualifying amount. Therefore
Commissioner of Income Tax (Appeals) following the ratio of  the decision in the case of Hero Cycles Ltd. (320 ITR 518) deleted the disallowance made under section 14A of the Act.

Synopsis of Mithila Credit Services Limited Vs ITO (ITAT Delhi) Caselaw

Mithila Credit Services Limited Vs ITO (ITAT Delhi)

Primary burden is on AO to show that share application money is assessable as unexplained cash credit. AO cannot sit back with folded hands & simply reject assessee’s evidences.

Sections involved: Section 68, Section 148

Facts of the case:  Assessee carried on financing business, Return of Income was filed declaring NIL Income for Assessment Year 2002-2003. The case was selected for scrutiny and the AO made additions of Rs. 400,000/- on account of share application money u/s 68 of the Income-tax Act.

Contentions of Revenue: During the course of assessment proceeding, the assessee was given adequate opportunity to substantiate its claim of share capital received with relevant supporting evidences so as to discharge its onus u/s 68 of the Act. As the assessee failed to do so, the AO made certain enquires with the bankers about the purported share applicants, which revealed that during the stated financial year, there were huge deposits of cash in their respective bank accounts from a firm M/s Gupta and Gupta. Further to verify the veracity of the claim, it was found that no such firm exists. This had resulted into suspicion in the eyes of the revenue regarding the genuineness of the transaction and lead to reopening the case u/s 148 read with section 147 of the Income-tax Act, 1961.

Contentions of the Assessee: The assessee contended that there is no mention of any tangible material on the basis of which the Assessing Officer has made such a serious allegation and reached a pre-determined conclusion to re-open the assessment. Thus, there is no cause and effect relationship established in the reasons recorded by the Assessing Officer, that income has escaped assessment in order to reopen the case. Thus concluded that the two companies have in fact applied for the shares and it was a genuine transactions and it was not accommodation entries. As the department had no concrete information/material against the assessee, there is clear violation of natural justice. Merely on the basis of suspicion the case cannot be reopened.

Conclusion: Even if the reopening is sustained, the primary burden that income has escaped assessment is on the shoulder of the AO and after discharging this burden only, the onus shifts to the shoulder of the assessee. There are two types of cases; One in which the AO carries out the exercise which is required in law and the other in which AO ‘sits back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. On facts, nothing has been brought on the record by the AO to substantiate his serious allegation that these two entries are accommodation entries which was the sole ground and basis of reporting.

The assessee produced the necessary documents before the authorities and discharged the obligation to explain the transaction with it. If the AO was still not satisfied with the aforesaid documents & explanation of the assessee, he should have resorted to Sec 131 and other provisions in the Act to investigate and check the veracity of the documents. A cloud of suspicion and doubt can be raised by stating a lot of cash was deposited in the accounts of M/s Gupta and Gupta and immediately thereafter cheque transaction could be evident from the side of M/s Gupta and Gupta to some other person/legal entity. However, a judicially trained mind will search from the said cloud brought before it, relevant admissible evidences if any from the records before it, to see whether the said evidence support the transaction as alleged by the AO which is under consideration before it, and not get swayed by the other irrelevant materials which comes on record.

Suspicion howsoever cannot take the place of evidence or proof.

Lawyers in Important positions in Cabinet

The following was Statement released by itatonline team with regards to Lawyers taking charge of important ministries in new Modi led Cabinet.

We are proud to announce that the appointees to the post of Finance Minister, Shri. Arun Jaitley, and the post of Law Minister, Shri. Ravi Shankar Prasad, are eminent senior advocates who are extremely well versed with income-tax law and have appeared as counsel in several leading matters.

Shri. Arun Jaitley has appeared in several leading cases such as Municipal Corporation of Delhi vs. Batra 121 CTR 92 (SC) (stay of demand), SRF Finance Ltd vs. CBDT 211 ITR 861 (Del) (TDS u/s 194C) etc. Shri. Ravi Shankar Prasad has appeared in leading cases such as J. Jayalalitha vs. ACWT 309 ITR 217 (Mad) (prosecution for non-filing of return), Sushil Kumar Modi In Re 104 TM 666 (Pat) (tax implications of animal husbandry scam) etc.

Apart from a flourishing practice in income-tax law, both professionals have an excellent grasp of civil law.

Further, Shri. Arun Jaitley has a special affinity towards the Tribunal. During his previous tenure as Law Minister (1998 to 2004), he had taken special interest to ensure that more Benches & Members for the ITAT was sanctioned. He has even visited the premises of the ITAT in Mumbai to inaugurate the new court rooms.

In fact, on that momentous occasion, Shri. Arun Jaitley delivered a speech which is fondly remembered even today by the members of the Bar. He said “There is good rationale why these appeals filed before the Tribunal should be disposed of expeditiously (within a matter of months). If there is no liability of the assessee, there is no reason that a sword should hang on his head. And if there is a liability, then the Revenue should not suffer“. The learned jurist made several other perceptive remarks about the functioning of the Tribunal.

Apart from an expert understanding of income-tax law, both Ministers are sensitive to the needs and concerns of tax payers. They have made it clear in their public speeches that while taxpayers engaging in nefarious activities of tax evasion and generating black money will not be spared, honest taxpayers will not be harassed and all their problems will be resolved. They have also stated that steps shall be taken to ensure that the income-tax department functions in an efficient manner and accountability is brought in to rein in over-zealous officers.

The ITAT Bar Association shall formally approach both Hon’ble Ministers with a request that the following long-standing issues raised by the Bar be addressed at the earliest:

(i) Appointment of a permanent President for the Tribunal as well as filling up the vacancies in the posts of Sr. Vice Presidents and Vice Presidents;

(ii) Removal of the proposal regarding appointment of ITAT Members for an initial period of only 5 years;

(iii) Increase in the age limits for Judges & Tribunal Members from 62 years to 65 years.

We are very confident that all these long-standing issues will be speedily resolved under the dynamic leadership of the said two Hon’ble Ministers.

We wish the Hon’ble Ministers good luck in their new postings.

Income Tax Appellate Tribunal asks IBM to prove rebate claim on Rs 6,000-cr revenue

NEW DELHI | MUMBAI: IBM India has been asked to prove that revenue to the tune of Rs 6,000 crore during 2007-08 was from export of software under a special incentive scheme if it wants the taxman off its back.
The order by the Income Tax Appellate Tribunal, the first of its kind, has implications for the entire industry which has claimed tax rebates under the Software Technology Parks of India (STPI) scheme. Although tax rebates under the STPI scheme came to an end in March 2011, several software companies are in disputes with authorities over rebates for previous years.

IBM India, which is estimated to employ more than one lakh professionals in the country, has been locked in a battle with tax authorities for the past three years. This latest order came as the company is appealing a Rs 1,090-crore tax demand for the assessment year 2008-09.
The order, a copy of which was acquired by ET, asked the dispute resolution panel to re-examine the case against IBM, but it also said that the income-tax department was "at liberty to examine as to whether the convertible foreign exchange brought into India represents consideration received for export of computer software". IBM India should file all documents that will be necessary to establish its claim for deductions, it said. Even though the preliminary investigation centered on the fact that IBM did not keep separate books for its units, a tax official said that the company was yet to produce mandatory documents to support export proceeds.
"You see, like in every order what will determine the sustainability of the order is the facts in the case and the way the facts are presented. I am sure a company of IBM's stature is preparing a strong, well-reasoned defence," Shailesh Haribhakti, chairman of audit advisory firm Haribhakti & Co. Haribhakti is not involved in the case.
"The Draft Assessment issued by the India Tax Authorities in October 2013 ignores fundamental accounting and tax principles and IBM is seeking relief from the High Court," an IBM spokesperson said in an email.
Several information technology companies, among them Wipro, Infosys, iGate and WNS, are fighting the income tax department which is arguing that they are not eligible for rebates worth thousands of crore under the STPI scheme or in Special Economic Zones.
Under STPI guidelines, every company must sign software development agreements with clients to export software. The agreements form the basis for STPI authorities to certify export invoices and so-called Software Export (Softex) forms. In the case of IBM, the Softex forms were cleared without software development agreements, the income tax department is claiming.

Moreover, despite specific complaints, STPI ignored the issue, according to an income tax official. The STPI did not respond to an emailed questionnaire and calls seeking comment.
"We will use this order to try and get similar orders against other IT companies which are violating rules," the official said.

V Balakrishnan, a former CFO of Infosys, while declining to comment on IBM specifically, observed that every time work is done from an STPI unit, a Softex form is filled, an invoice raised with the client and Softex form filed with the remitting bank. "It is just not possible to do STPI transactions without paperwork," he said.
The tax holiday under the STPI scheme began in 2000-01. IBM India has eight units in STPIs and two in SEZs.

Source: Economic Times

DCIT vs. Gupta Overseas (ITAT Agra)

S. 40(a)(i): Disallowance of payment to Non-residents without TDS violates ‘deduction neutrality non-discrimination‘ clause in DTAA as there is no similar bar for residents as per Merilyn Shipping 136 ITD 23 (SB)


In Rajeev Sureshbhai Gajwani 137 TTJ 1 (Ahd)(SB) it was held that differentiation simplicitor is enough to invoke the non-discrimination clause. Consequently, it will be contrary to the deduction neutrality clause in non-discrimination in the tax treaties if the provisions for deduction of payments to non-residents are more onerous than those applicable for payments to residents. The payments made to residents of Ireland, Denmark and Austria are protected by the deduction neutrality clauses and any pre-conditions for deductibility, which are harsher than payments made to the residents are ineffective in law. However, payments to the residents of Belgian, UK, Italy and Spain will not be entitled to the same protection under the omnibus non-discrimination clause of Article 24(1) based on nationality (Herbalife International 103 TTJ 78 (Del) referred)

Expenditure on discounting/factoring charges is not in the nature of interest for purposes of TDS u/s 194A or disallowance u/s 40(a)(ia)

ITO vs. M K J Enterprises Ltd (ITAT Kolkata)

The term “interest” relates to a pre-existing debt, which implies a debtor creditor relationship. Unpaid consideration gives rise to a lien over goods sold and not for money lent as held in Bombay Steam Navigation Co. Pvt. Ltd. Vs. CIT (1963) 56 ITR 52 (SC) where interest on unpaid purchase price was not treated as interest on loan. It is clear from the definition that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. According to us, discounting charges of Bill of Exchange or factoring charges of sale cannot be termed as interest. The assessee in the present case is acting as an agent. 

Now what is this is to be seen. A Del Credere is an agent, who, selling goods for his principal on credit, undertakes for an additional commission to sell only to persons for whom he can stand guarantee. His position is thus that of a surety who is liable to his principal should the vendee make default. The agreement between him and his principal need not be reduced to or evidenced by writing, for his undertaking is a guarantee. A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract, for example, if the buyer refuses to take delivery. In the present case before us the assessee has assessed the income as Del Credere being trading in goods and merchandise and also dealing in securities and which is assessed as income from business and not income from other sources. The expenditure incurred is also on account of business expenditure and not interest expenditure in the nature of interest falling u/s. 194A of the Act. 

Accordingly, these discount/factoring charges do not come within the purview of section 194A and assessee is not liable to TDS on these charges

Important latest income tax caselaws / judgements

SECTION 2(14)
CAPITAL GAINS - CAPITAL ASSETS

Agricultural land : If a land is adjacent to a municipality and is urban land covered under section 2(14), though municipality and land fall in different States, land will continue to be urban land - Commissioner of Income-tax v. Smt. Anjana Sehgal 40 taxmann.com 485 (Punjab & Haryana)

 

 

SECTION 12A

CHARITABLE OR RELIGIOUS TRUST - REGISTRATION OF

Founder trustee committed heinous crimes : Where assessee, a public religious trust, made applications seeking registration under sections 12A and 80G, registration could not be declined merely because once upon a time assessee's founder trustee had been accused of heinous crimes and he was awarded life imprisonment - Sri Premananda Trust v. Assistant Commissioner of Income-tax 40 taxmann.com 514 (Chennai - Trib.)

 

 

 

SECTION 36(1)(iii)

INTEREST ON BORROWED CAPITAL

Interest free loan to related parties : Unless nexus between interest free advance to related party and interest bearing borrowing is established, disallowance of interest would not be justified - Marudhar Hotels (P.) Ltd.v.Joint Commissioner of Income-tax 40 taxmann.com 475 (Jodhpur - Trib.)

  

 

 

SECTION 37(1)

BUSINESS EXPENDITURE - ALLOWABILITY OF 

Repair and renovation expenses : Where renovation expenses included both revenue and capital expenses and it was difficult to bifurcate same, disallowance of 50 per cent of such expenditure as capital expenditure was proper - SICOM Ltd. v. Joint Commissioner of Income-tax 40 taxmann.com 469 (Mumbai - Trib.)

 

 

SECTION 45

CAPITAL GAINS - CHARGEABLE AS 

Capital gains v. Business income : Where under a development agreement with a developer assessee merely realised sale proceeds of capital asset held for 30 years, same would give rise to 'capital gains', and not 'business income' - Marudhar Hotels (P.) Ltd.v.Joint Commissioner of Income-tax 40 taxmann.com 475 (Jodhpur - Trib.)

 

 

SECTION 194H

DEDUCTION OF TAX AT SOURCE - COMMISSION OR BROKERAGE, ETC.

Credit card collection charges : Payment to bank for collecting money paid through credit card is business expenditure - Marudhar Hotels (P.) Ltd.v.Joint Commissioner of Income-tax 40 taxmann.com 475 (Jodhpur - Trib.)

 

 

SECTION 254

APPELLATE TRIBUNAL - POWERS OF

Power to admit additional grounds : Where determination of correct status of assessee impacts ultimate tax liability, such an issue can be admitted for first time before Tribunal even if it was not raised before lower authorities - Income-tax Officer v. Sew Precision Joint Venture 40 taxmann.com 515 (Pune - Trib.)

  

  

  

 

  

 

Recent Important Income tax caselaws / judgements

SECTION 2(22)

Loans or advances to share holders : Where assessee-company received share application money from another company, in view of fact that assessee was not a registered shareholder of said company, amount in question could not be taxed as deemed dividend in its hands - Commissioner of Income-tax, Jaipur v. Suram Holding (P.) Ltd (2014) 41 taxmann.com 32 (Rajasthan)

SECTION 12AA

Cancellation of registration : Where assessee cricket board arranged international matches and received share in broadcasting right and advertisement sales from its apex body BCCI, under section 12AA(3) Commissioner could not cancel its registration by invoking first proviso to section 2(15) - Saurashtra Cricket Association v. Commissioner of Income-tax (2013) 40 taxmann.com 527 (Rajkot - Trib.)

 

 

SECTION 32

User of assets : Where relevant lease agreements, bills for purchase of assets, inspection reports, insurance papers, etc., were produced, sale and lease back transactions could not be treated as sham so as to deny depreciation thereon - Development Credit Bank Ltd. v. Deputy Commissioner of Income-tax (2013) 40 taxmann.com 532 (Mumbai - Trib.)

 

 

SECTION 37(1)

Corporate membership : Fees for corporate membership of club is revenue expenditure - Development Credit Bank Ltd. v. Deputy Commissioner of Income-tax (2013) 40 taxmann.com 532 (Mumbai - Trib.)

 

 

SECTION 143

Land dealings : Where shops sold by assessee were registered with Sub-Registrar and sale deeds were executed for them, Assessing Officer without examining those sale deeds or even making inquiries about circle rates fixed by Sub-Registrar for purpose of stamp duty valuation, could not make addition to assessee's income by merely taking a view that shops were sold below their cost of construction in terms of square feet area - Commissioner of Income-tax v. Shanti Enterprise (2013) 40 taxmann.com 484 (Gujarat)

 

 

SECTION 158BD

BLOCK ASSESSMENT IN SEARCH CASES - UNDISCLOSED INCOME OF ANY OTHER PERSON

Scope of provision : Assessment of a person, other than searched person, based on materials recovered during search is authorised only under section 158BD and not under section 158BC - Commissioner of Income-taxv.Ram Singh* (2013) 40 taxmann.com 479 (Punjab & Haryana)

  

 

 

 

 

 

 

 

Gist of important latest tax caselaws

SECTION 2(15)
CHARITABLE PURPOSE

Education : Where assessee-trust was conducting a study centre for Karnataka Open University, it could not be considered to be an educational institution within meaning of section 2(15) - New Elim Charitable & Educational Trust v. Commissioner of Income-tax (2013) 40 taxmann.com 373 (Cochin - Trib.)

 

 

SECTION 2(22)

Loans or advances to shareholder : Deemed dividend provisions cannot be invoked merely because shareholders are common in both companies - Commissioner of Income-tax v. AR Magnetics (P.) Ltd. (2013) 40 taxmann.com 392 (Delhi) 

 

 

SECTION 9

Permanent Establishment/Business profits/Royalty or fees for technical services : Where marketing and management services were rendered outside India, mere existence of service PE in India would not make it taxable - ADIT (IT) v. WNS Global Services (UK) Ltd. (2013) 40 taxmann.com 315 (Mumbai - Trib.) 

 

 

SECTION 32

User of asset/Additional depreciation : Where equipment purchased for starting FM radio broadcasting services could not put to use till end of relevant financial year as licence could not be obtained from Ministry, depreciation thereon could not be allowed - Malayala Manorama Co. Ltd. v. Assistant Commissioner of Income-tax (2013) 40 taxmann.com 380 (Cochin - Trib.) 

 

 

SECTION 37(1)

Film production : Where assessee could not generate any income during year from films in respect of which it acquired television rights, deduction for cost of their acquisition could not be allowed - Malayala Manorama Co. Ltd. v. Assistant Commissioner of Income-tax (2013) 40 taxmann.com 380 (Cochin - Trib.)

 

 

SECTION 43B

ESI and PF contribution : Statutory payments in respect of ESI contribution and Provident Fund of employees which were paid by assessee company after expiry of financial year but before filing of return, are allowable under section 43B - Nuchem Ltd. v. Income Tax Appellate Tribunal (2013) 40 taxmann.com 371 (Punjab & Haryana)

 

 

SECTION 69B

Statement recorded during survey : Where Assessing Officer made addition on account of unexplained investment on basis of document impounded during survey and statement recorded by partner of assessee-firm, in view of fact that said documents did not suggest that noting were of loans and advances and, moreover, statement recorded during survey could not be relied upon, impugned addition was to be set aside - Commissioner of Income-tax v. Golden Finance (2013) 40 taxmann.com 329 (Gujarat)

 

 

SECTION 271(1)(c)

Surrender of income, effect of : Where after completion of assessment, consequent upon inquiry assessee surrendered amount of certain loan as bogus loan and interest on said loan, concealment of income was established making a case for levy of penalty under section 271(1)(c) - Bharatkumar G. Rajani v. Deputy Commissioner of Income-tax (2013) 40 taxmann.com 344 (Gujarat)

 

 

 

 

 

 

 

 

 

 

 

ITAT Explains Important Law on Capitals Gains For Development Agreements

Fibars Infratech Pvt. Ltd vs. ITO (ITAT Hyderabad)

S. 2(47)(v): A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty


The assessee entered into a Development Agreement-cum-GPA with MAK Projects on 15.12.2006 (AY 2007-08). The agreement provided the MAK would construct a villa township in 30 months and that the assessee was entitled was entitled to a certain portion (16 villas) of the developed area as consideration for the transfer of the land. Though possession of the property was handed over to the developer, the assessee claimed that the transaction did not give rise to capital gains in AY 2007-08 on the basis that (a) the consideration was neither received nor quantified, (b) the project was at the conception stage and even the building plan approvals were not received & (c) the developer had not incurred any expenditure on the project. The AO & CIT(A) relied on Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) where it was held that the execution of a development agreement amounted to a transfer u/s 2(47)(v) and gave rise to capital gains. On appeal by the assessee to the Tribunal HELD allowing the appeal:

S. 2(47)(v) provides that the term ‘transfer‘ includes “any transaction involving the allowing of, the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness” has to be absolute and unconditional. If willingness is studded with a condition, it is no more than an offer and cannot be termed as willingness. On facts, the “willingness” of the developer to perform his part of the obligations is not ascertainable in AY 2007-08 because (a) the consideration was not paid to the assessee, (b) the building plans had not been approved, (c) there was no progress with regard to development in the AY, (d) there was no investment by the developer in the construction activity during the AY. It is not possible to say whether the developer is prepared to carry out those parts of the agreement to their logical end. The fact that the assessee has given possession is not relevant. Consequently, s. 2(47)(v) does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) explained/ distinguished)

Contrast with Charanjit Singh Atwal vs. ITO (ITAT Chd) (order attached) where a contrary view was taken following Chaturbhuj Kapadia 260 ITR 491 (Bom) but without appreciating the fine point regarding certainty of developers’ “willingness” to perform his part of the bargain

Sec. 32(1): ITAT Explains Law On Depreciation Of BOT Assets Where Assessee Is Not Owner

DCIT vs. Swarna Tollway Pvt. Ltd (ITAT Hyderabad)

S. 32: Road constructed on Build-Operate-Transfer (“BOT”) terms is eligible for depreciation even though assessee is not the legal owner of the road


The assessee, a SPV, was awarded a contract by the NHAI for widening, rehabilitation and maintenance of an existing two lane highway into a four lane one on the Tada-Nellore section of NH-5 on BOT basis. The entire cost of construction of Rs. 714 crore was borne by the assessee. The construction was completed during the FY 2004-05 after which the highway was opened to traffic for use and the assessee started claiming depreciation from AY 2005-06 onwards. The AO rejected the claim on the ground that the assessee had no ownership, leasehold or tenancy rights for the asset in question, i.e., the roads. On appeal, the CIT(A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:

Though the NHAI remains 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. The very concept of depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment cost by wear and tear and would need to replace the same by having lost its value fully over a period of time. The term “owned” as occurring in s. 32 (1) of the Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered (Mysore Minerals 239 ITR 775 (SC), Noida Toll Bridge 213 Taxman 333 etc referred)

Sec. 147: Failure To Compute Capital Gains U/s 50C Does Not Lead To Escapement Of Income

ITO vs. Haresh Chand Agarwal HUF (ITAT Agra)

S. 147: Failure to compute capital gains u/s 50C does not lead to escapement of income


The assessee sold property for Rs.6 lakh and offered capital gains on that basis. The AO accepted the claim without examining the applicability of s. 50C. He later (within 4 years from the end of the AY) reopened the assessment on the basis that the stamp duty valuation was Rs. 25 lakhs and the capital gains had to computed on that basis u/s 50C. The assessee challenged the reopening inter alia on the ground that the failure to apply s. 50C did not mean income had escaped assessment. The CIT(A) accepted the plea. On appeal by the department to the Tribunal HELD dismissing the appeal:

S. 50C is not a final determination to prove that it is a case of escapement of income. The report of the approved valuer may give estimated figure on the basis of facts of each case. Therefore, mere applicability of s. 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. The reassessment is on change of opinion which is not justified

Note: On the question whether failure to voluntarily apply s. 50C attracts s. 271(1)(c) penalty see Madan Theatres (Cal HC), Renu Hingorani (ITAT Mum) & Chimanlal Manilal Patel (ITAT Ahd)

No Sec. 40(a)(i) TDS Disallowance For Income Made Taxable Under Retrospective Law: ITAT Hyderabad

Infotech Enterprises Limited vs. ACIT (ITAT Hyderabad)

No sec. 40(a)(i) TDS disallowance for amounts made taxable due to retrospective amendment. Also, concept of “business connection” u/s 9(1)(i) & “fees for technical services” u/s 9(1)(vii) explained


The assessee entered into an agreement with its Associated Enterprises (AEs) outside India pursuant to which it sub-contracted some of the work that it had obtained from its customers. The assessee incurred an expenditure of Rs.19 crore towards “technical consultancy charges” paid to the said AEs. The AO & DRP held that the assessee was “habitually securing orders” for the AEs from India and that there was a ‘business connection’ between the assessee and the AEs under Explanation 2 to s. 9(1)(i). Alternatively, it was held that the amount was assessable as “fees for technical services” u/s 9(1)(vii). As the assessee had not deducted TDS u/s 195, the expenditure was disallowed u/s 40(a)(i).

On appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) The facts show that the assessee secured orders from customers for its own benefit and only parceled out a portion of the work to the AEs. The Explanation to s. 9(1)(i) can be invoked only when the Indian company secures orders for the benefit of non-resident. As the assessee has not canvassed / secured any orders for its non resident subsidiaries, s. 9(1)(i) cannot be invoked. Also, the foreign subsidiaries do not work exclusively for the assessee and they obtain orders on their own from other foreign parties and also sub contract the work to the assessee depending on exigencies. Further, no operations have been undertaken by foreign subsidiaries in India and no engineers have been deputed by them to India and even they do not have permanent establishment in India. Even under the DTAA, no income is assessable to tax in India. CBDT Circular No. 29 dated 27.3.1969 is inapplicable to the present case;

(ii) As regards “fees for technical services”, the payments made to the subsidiaries may be construed as “fees for technical services”. However this is only due to the retrospective amendment by Finance Act 2010. Prior to that, Ishikawajima-Harima Heavy Industries 288 ITR 408 (SC) had held that s. 9(1)(vii) could be invoked only where the services were rendered in India and utilized in India. At the time of the payment Ishikawajima-Harima was the law of the land and the assessee was of the bona fide belief that TDS was not necessary on the said payments of fees for technical services. S. 40(a)(i) cannot apply to disallow payments which become taxable subsequently due to a retrospective legislation. Further, some of the payments do not satisfy the “make available” test in the DTAA as held in De Beers India Minerals

Note: The judgement also considers the question whether sum paid for acquiring license of software is taxable as “royalty” and the transfer pricing implications of a loan given to the AE and guarantee fee paid to the AE

Sec. 44BB Receipts Are Not Assessable As FTS. S. 234B Interest Verdict Cannot Be Followed: ITAT Mumbai

ADIT vs. Valentine Maritime (Gulf) LLC (ITAT Mumbai)

If the contract falls u/s 44BB, incidental technical services are not assessable as “fees for technical services” u/s 9(1)(vii). Verdict in Alcatel Lucent (Del) on liability of foreign company to pay s. 234B interest cannot be followed in Mumbai
The Tribunal had to consider two questions of law (i) whether a part of the consideration paid for a project involving installation, assembly or the like in connection with the prospecting for, or extraction or production of, mineral oils can be assessed as “fees for technical services” u/s 9(1)(vii) or the entire consideration has to be assessed only u/s 44BB? and (ii) whether in view of the verdict of the Delhi High Court in Alcatel Lucent a foreign company can be held liable for advance-tax and consequent payment of interest u/s 234B? HELD by the Tribunal:
(i) The contract was a composite one and its main purpose was to install offshore pipelines, etc. To achieve this main purpose, the assessee had undertaken various activities which were listed down in the various articles of the contract. Those activities were incidental to the main job and were an integral part of the contract to ensure that all the pipe lines were successfully installed, commissioned, tested and complied with the standards set out in the contract. The argument of the department that the activity relating to providing technical services should be assessed as “fees for technical services” u/s 9(1)(vii) is not acceptable. When a contract consists of a number of terms and conditions, each condition does not form a separate contract. The contract has to be read as a whole. The entire consideration is assessable only u/s 44BB and no part of it is assessable as fees for technical services u/s 9(1)(vii) (Chaturbuj Vallabhdas AIR 1954 (SC) 236, Mitsui Engg. & Ship Building 259 ITR 248 (Del), Jindal Drilling and Industries 320 ITR 104 (Del) & G&T Resources (Europe) Ltd 139 TTJ 568 followed);
(ii) The argument of the department based on Alcatel Lucent USA (Del) that even a foreign company is liable to pay advance tax and consequential interest u/s 234B is not acceptable in view of the contrary decision of the jurisdictional High Court in NGC Network 313 ITR 187 (Bom).