Shree Cement Ltd vs. ACIT (ITAT Jaipur)

Shree Cement Ltd vs. ACIT (ITAT Jaipur)

Carbon Credit receipts are not chargeable to tax as “income”. For s. 80-IA(8) if there are multiple “market values” assessee has the right to choose


(i) Carbon credit is in the nature of ‘an entitlement’ received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits is a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to ‘world concern’. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. My Home Power Ltd 151 TTJ 616 (Hyd), Velayudhaswamy Spinning Mills 40 taxmann.com 141 (Chennai) & Ambika Cotton Mills Ltd (Chennai) followed. Also, in Vodafone International Holdings 341 ITR 1 the Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and Direct Tax Code (“DTC”) serves as an important guide in determining the taxability of said item. Since DTC specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, it means that carbon credits are not taxable under the Act.

The transfer fee and TDR premium charged by the Society from its members is a commercial transaction and not eligible for exemption on grounds of mutuality

Hatkesh Co-op Housing Society Ltd vs. ACIT (ITAT Mumbai)

A Co-op Hsg Society is not a mutual association because its members can earn income from its property. The transfer fee and TDR premium charged by the Society from its members is a commercial transaction and not eligible for exemption on grounds of mutuality

The assessee, a co-operative housing society, received transfer fee and TDR premium from its members which it claimed was exempt on the ground of mutuality. This stand was upheld by the Tribunal for the earlier years relying on the judgements in Sind Co-op Housing Society 317 ITR 47 (Bom), Mittal Court Premises Co-op Society 320 ITR 414 (Bom) & Jai Hind CHS Ltd 349 ITR 541 (Bom). In the present year, the Department argued that this view was not correct and that the transfer fee and TDR premium were not exempt on the ground of mutuality. HELD by the Tribunal upholding the Department’s plea:
(i) The three perquisites which form the essential conditions for mutuality are (a) complete identity between contributors and participants, (b) the actions of the participants must be in furtherance of the mandate of the society as determined from the memorandum and articles of association & rules & (c) there must be no scope of profiteering by the contributors from the fund made by them, which could only be expended on or returned to them. The principle or the notion of mutuality cannot be extended to a cooperative housing society, be it a flat owner’s society or a plot owner’s society;
(ii) There are three objections to treating a co-op housing society as a mutual concern. The first objection is that while a mutual concern cannot lead to any profit for the members, a member of a co-op housing society can earn income from the property such as by letting. The contributors, by virtue of their membership, obtain a valuable capital asset in their own hands, i.e., the leasehold right in the plots allotted to them, as well as the interest in the super structure. They may encash or capitalize on or even trade on the property. Such valuable rights that inure to the members are separate and distinct from the rights that vest in them as a part of the class of contributors and militates against the very notion of mutuality, which in its concept and operation cannot yield any income to them in their individual capacity. The second objection is that the assessee’s activities of charging premium at one half the amount of the premium received by the transferor-member from the transferee-member is a commercial transaction. As such, not only does the arrangement lead to creation and holding of wealth/property by the individual-members, it allows them to encash or otherwise exploit it, paying the society its share. That is, the society also partakes of the profit arising on the subsequent transfer by a member, to the extent of 50% thereof. The third objection is that the policy of allowing the individual members to purchase TDRs from outside and load them on to their existing structures and of allowing non-members residing in the flats built by the members on their plots to have access to and enjoy the common facilities means that there is a break-down in the identity between the contributors and participants and violates another basic condition of mutuality that there must be no dealings with the non-members;
(iii) Apart from that, transfer fees cannot be considered as tax-exempt because the income arises from the exercise of commercial rights, which is akin to a sale. The judgement in Sind CHS cannot be followed because the decision in Presidency CHS Ltd 216 ITR 321 (Bom) would prevail. Sind CHS was based on the fact that the amount there was reasonable and based on the bye-laws. The decision in Mittal Court PCS Ltd does not apply as it is in respect of non-occupancy charges. The TDR Premium is also not governed by the principle of mutuality. The judgement in Jai Hind CHS Ltd holding TDR premium to be exempt does not apply because the question whether commerciality is involved, or the transaction is guided by profit motive, is a matter of fact. The assessee’s charter as well as its’ operations have been found to be imbued with commerciality and common facilities are being enjoyed by the non-members (Bangalore Club 350 ITR 509 (SC) & Presidency Co-op Housing Society 216 ITR 321 (Bom) followed).

Payment of one time lease premium to acquire a leashold land isn’t subject to tax deduction under sec. 194-I

Where payment of lease premium was not made on periodical basis but it was one-time payment to acquire land with right to construct a commercial complex thereon, section 194-I had no application on deposit of such lease premium

In the instant case the Mumbai Development Authority offered certain land on lease to assessee for a period of 80 years for certain consideration comprising of lease premium. The assessee paid said premium in two installments. The AO held that the assessee was liable to deduct tax at source on lease premium under section 194-I. The CIT (A) held in favour of assessee. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) In Durga Das Khanna v. CIT (1969) 72 ITR 796 (SC), the Supreme Court held that the onus was on the Revenue to demonstrate that premium has been camouflaged as advance rent and the AO, in the instant case has not brought on record any material to indicate that the rent has been suppressed and the premium has been inflated.

2) Thus, undoubtedly premium in relation to leased land was on capital account not liable to be classified as revenue outgoing;

3) Since the payment of lease premium was not to be made on periodical basis but it was one- time payment to acquire land with right to construct a commercial complex thereon, section 194-I was not applicable

4) Therefore, the impugned sum does not constitute advance rent, but it was to be classified as capital expenditure not falling within the operative realm of section 194-I - ITO v. Indian Newspapers Society (2013) 37 taxmann.com 401 (Delhi - Trib.)

No tax on FTS if service utilized for business carried abroad; upgradation of existing website is revenue expenditure

In the instant case, two moot questions were raised before the ITAT which were as under:

A. Liability of tax deduction on overseas commission

B. Whether website development charges were deductible as revenue expenditure ?

On first issue, it held in favour of assessee as under:

1) Commission paid to non-residents for services rendered outside India does not accrue or arise in India;

2) Hence, no TDS was deductible from such commission and such commission couldn’t be disallowed under section 40(a)(i);

3) Even if services rendered by the non-resident did fall within the definition of "fees for technical services, the commission paid would not be taxable in India as clause(b) of section 9(1)(vii) would save the assessee.

On second issue, it held in favour of assessee as under:

1) Expenses incurred for upgradation of an existing website ought to be distinguished from expenses for development of a new website;

2) The former was revenue expenditure and the latter was capital expenditure, resulting in creation of an intangible asset;

3) Expenditure on upgradation of existing website was equivalent to maintenance of an existing asset. Thus, it was revenue expenditure - MAHINDRA HOLIDAYS & RESORTS INDIA LTD. V. JCIT (LTU) (2013) 38 taxmann.com 207 (Chennai - Trib.)

School to apply sec. 194C and not sec. 194I on transport contract if transporter incurs running cost and keeps possession of vehicle

Contract awarded by assessee-school to transporter for carrying students would be covered by sec. 194C and by not sec. 194I if bus remained in possession of transporter and all running and maintenance costs were incurred by him

In the instant case the assessee-school awarded contracts to various transporters for carrying its students from their homes to school and from school back to homes. It had deducted tax under section 194C for making payments to bus owners. The AO held that the assessee should have deducted tax under section 194I on such payments. On appeal, the CIT(A) reversed the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The object of the assessee to enter into such agreement was a simple activity of carrying its students from their homes to the school and similarly from school back to their homes;

2) The assessee had no responsibility whatsoever regarding the buses to be utilized for that purpose which was the sole responsibility of the transport contractor;

3) The transport contractor only was liable to keep and maintain the required number of buses for such activity at its own expenses with the specified standards;

4) Therefore, the said contract was purely in the nature of services rendered by the transport contractor to the assessee. The assessee was not having any responsibility whatsoever regarding the transport vehicles used in such activity;

5) The assessee itself had not utilized the buses but they were used by the transport contractor for fulfilling the obligations set out in the contract. Thus, the aforesaid payments were not covered in the definition of 'rent' which was defined in Explanation to section 194-I,;

6) Therefore, the provisions of section 194-I could not be applied in the instant case. The assessee had rightly deducted tax at source under the section 194C on the aforesaid payments – ACIT (TDS) V. DELHI PUBLIC SCHOOL (2013) 37 taxmann.com 211 (Delhi - Trib.)

Supreme Court Lays Down Important Law On Accrual Of Income

CIT vs. Excel Industries Ltd (Supreme Court)

(i) Q whether income has accrued must be considered from a realistic & practical angle (ii) If Dept has accepted adverse verdict in some years, it cannot be allowed to challenge verdict in other years (iii) disputes as to the year of taxability with no/ minor tax effect should not be raised by Dept
Pursuant to the import-export policy of the Government, the assessee was entitled to make duty free imports of raw materials in respect of the exports made by it. The assessee accounted for the benefit of the entitlement to make duty free imports in the year of export but claimed that the benefit was not chargeable to income-tax in the year in which the exports were made but it was chargeable to tax only in the year in which the imports were availed of and the raw materials consumed. The AO rejected the contention and held that as the assessee was following the mercantile system of accounting, the right to receive the benefit accrued as soon as the export obligation was fulfilled and it was chargeable to tax in that year u/s 28(iv). On appeal, the CIT(A), Tribunal and High Court upheld the assessee’s stand. On appeal by the department to the Supreme Court, HELD dismissing the appeal:

(i) Three tests have been laid down by various decisions of the Supreme Court to determine when income can be said to have accrued: (a) whether the income is real or hypothetical; (b) whether there is a corresponding liability of the other party to pay the amount to the assessee & (c) the probability or improbability of realisation of the income by the assessee has to be considered from a realistic and practical point of view. Applying these tests, on facts, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. Also, from a realistic and practical point of view (the assessee may not have made imports), no real income accrued to the assessee in the year of exports and s. 28(iv) would be inapplicable. Essentially, the AO is required to be pragmatic and not pedantic (Shoorji Vallabhdas 46 ITR 144 (SC), Morvi Industries 82 ITR 835 (SC) & Godhra Electricity Co 225 ITR 746 (SC) followed);

(ii) Further, as in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further, it cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers’ money in pursuing litigation for the sake of it (Radhasoami Satsang 193 ITR 321 (SC) & Parashuram Pottery Works 106 ITR 1 (SC) followed);

(iii) Further, as the dispute was only as to the year of taxability and as the rate of tax remained the same the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. It is hoped that the Revenue implements its litigation policy a little more practically and a little more seriously.

Husband gets HRA exemption on rent paid to wife

In the instant case the AO disallowed assessee's claim for HRA exemption on the ground that assessee and his wife were living together and claim of payment of rent by assessee to his wife was made to reduce his tax liability. The CIT(A) confirmed the addition on the ground the tenant (i.e., assessee) and landlord (i.e., his wife) were staying together which indicated that the whole arrangement was a colourable device. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The section 10(13A) provides that exemption would be allowable to an assessee for any allowance granted to him by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the him;

2) However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent;

3) Admittedly, the AO had given a finding of fact that the assessee and his wife were living together as a family. Therefore, it could be inferred that the house owned by wife of the assessee was occupied by the assessee also;

4) The assessee had submitted the rent receipt(s) and payments had been duly verified. Therefore, the assessee had fulfilled the twin requirements of the provision, i.e., occupation of the house and the payment of rent. Thus, he was entitled to exemption under section 10(13A) - BAJRANG PRASAD RAMDHARANI V. ACIT (2013) 37 taxmann.com 186 (Ahmedabad - Trib.)

TDS credit to be awarded in deductor deposited it irrespective of 26AS mismatch

CBDT’s Instruction No. 5/2013 [F.No.275/03/2013-IT(B)], dated 8.07.2013

1. The CBDT issues instructions with respect to processing of Income-tax returns and giving credit for TDS thereon in the case of TDS mismatch. A few of the instructions on this subject issued in previous years are Instruction No. 1/2010 (25-2-2010) for returns pertaining to A.Y, 2008-09; Instruction No. 05/2010 (21-7-2010), Instruction No. 07/2010 (16-8-2010) and Instruction No. 09/2010 (9-12-2010) for returns pertaining to AY. 2009-10; Instruction No. 02/2011 (9-2-2011) for returns pertaining to A.Y. 2010-11; and Instruction No. 1/2012 (2-2-2012) and Instruction No. 04/2012 (25-5-2012) for returns pertaining to A.Y. 2011-12. The instructions gave decisions and the manner in which the TDS claims were to be given credit while clearing the backlog of returns pending processing. In the cases that did not fall under the specific TDS amount limit or refund amount computed, the residuary clause in these instructions gave the manner of processing those returns and it stated that “TDS credit shall be given after due verification“. 2. The Hon’ble Delhi High Court vide its judgment in the case ‘Court On its Own Motion v. UOI and Ors. (W.P. (C) 2659/2012 & W.P. (C) 5443/2012 dated 14-3-2013) has issued seven mandamuses for necessary action by Income-tax Department, one of which is regarding the issue of non-credit of TDS to the taxpayer due to TDS mismatch despite the assessee furnishing before the Assessing Officer, TDS certificate issued by the deductor. 3. In view of the order of the Hon’ble Delhi High Court (reference: para 50 of the order); it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down. 4. Thus, the manner laid down by the Hon’ble HC in the above mandamus may be one of the method of due verification as mentioned in the various instructions referred in para (1) above. 5. This may be brought to notice of all Officers working under your jurisdiction for compliance

Digital Signature / DSC FAQs for Income-tax Purpose

Questions along with Answers

1. What is a Digital Signature?
Answer: A digital signature authenticates electronic documents in a similar manner a handwritten signature authenticates printed documents. This signature cannot be forged and it asserts that a named person wrote or otherwise agreed to the document to which the signature is attached. The recipient of a digitally signed message can verify that the message originated from the person whose signature is attached to the document and that the message has not been altered either intentionally or accidentally since it was signed. Also, the signer of a document cannot later disown it by claiming that the signature was forged. In other words, digital signatures enable the "authentication" and "non-repudiation" of digital messages, assuring the recipient of a digital message of both the identity of the sender and the integrity of the message. A digital signature is issued by a Certification Authority (CA) and is signed with the CA's private key. A digital signature typically contains the: Owner's public key, the Owner's name, Expiration date of the public key, the Name of the issuer (the CA that issued the Digital ID), Serial number of the digital signature, and the digital signature of the issuer. Digital signatures deploy the Public Key Infrastructure (PKI) technology. If you file electronically using digital signature you do not have to submit a physical copy of the ITR-V (Acknowledgment). Even if you do not have a digital signature, you can still e-File the Income Tax Return. However, you must also physically submit the printed and duly signed ITR-V (Acknowledgment) of your e-Filed Income Tax Return.


2. How legal is a Digital signature?
Answer: India is one of the select band of nations that has the Digital Signature Legislation in place. This Act grants digital signatures that have been issued by a licensed Certifying Authority in India the same status as a physical signature. Digital Signature Certificate deploys the Public Key Infrastructure (PKI) technology.


3. If a taxpayer does not have a Digital Signature, does this mean he/she cannot file the return online?
Answer: For non-auditable cases, DSC is not mandatory. If the DSC is used to the Income Tax Return (ITR), the ITR will be treated as legally filed immediately after uploading. However in case, a taxpayer does not have a DSC, he/she can still file the return electronically, but, in this case, a signed copy of ITR-V has to be sent to CPC, Post Bag No.1, Electronic City post office, Bangalore - 560100 within 120 days. After receiving the signed copy of ITR-V at ITD CPC, return will be treated as legally filed and will be processed.


4. How and where can I get a Digital Signature Certificate (DSC)?
Answer: The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. Certification Agencies are appointed by the office of the Controller of Certification Agencies (CCA) under the provisions of IT Act, 2000. There are a total of eight Certification Agencies authorized by the CCA to issue the Digital Signature Certificates. They are listed as below:
Name of Certifying Agency
Website
Address
(n)Code Solutions Ltd., (A division of Gujarat Narmada Valley Fertilisers Company Ltd.)
http://www.ncodesolutions.com/
(n)Code Solutions, (A division of GNFC Ltd.) 301, GNFC Infotower, S G Highway, Ahmedabad 380054. marketing@ncodesolutions.com +91 79 40007300
e-Mudhra CA
http://www.e-mudhra.com/
M/S 3i Infotech Consumer Services Ltd., 3rd Floor, Sai Arcade, Outer Ring Road,Devarabeesanahalli, Bangalore 560036, Karnataka, India , Phone:+91 80 67821616 , Fax: +91 80 67175306 , Email:info@e-mudhra.com
Institute for Development & Research in Banking Technology (IDRBT)
http://idrbtca.org.in/
IDRBT, Castle Hills, Road No.1, Masab Tank, Hyderabad, Andhra Pradesh 500 057 (India)
MTNL
http://www.mtnltrustline.com/
3rd Floor, Mahanagar Doorsanchar Sadan, 9, CGO Complex, Lodi Road, New Delhi 110003
National Informatics Centre
http://www.nic.in/
A Block CGO Complex, Lodhi Road,New Delhi 110 003
Safescrypt
http://www.safescrypt.com/
Safescrypt Ltd. II Floor, Tidel Park 4 Canal Bank Road Taramani, Chennai Tamilnadu 600113
Tata Consultancy Services Ltd.
http://www.tcs-ca.tcs.co.in/
Tata Consultancy Services Ltd. 11th Floor, Air India Building, Nariman Point, Mumbai 400 021
For further details, visit http://cca.gov.in/rw/pages/faqs.en.do#igetadigitalsignaturecertificate


5. I already have a Digital Signature Certificate? Do I need a separate Digital Signature Certificate for e-Filing?
Answer: A person who already has the specified class II or III DSC for any other application can use the same for filing the Income Tax Return and is not required to obtain a fresh PAN embedded DSC. Fresh PAN embedded DSC is required in cases where the existing DSC has expired OR revoked.


6. How much does a digital signature cost?
Answer: The Digital Signature certificates are typically issued with one year validity and two year validity. It includes the cost of medium (a USB token which is a one time cost), the cost of issuance of Digital Signature and the renewal cost after the period of validity. The issuance costs in respect of each Certification Agency vary and are market driven.


7. How can a DSC be attached with the return while uploading?
Answer: The website allows the assessee to use Digital Signature Certificate as an option. Therefore, it is not possible to embed the DSC feature in the software utility /form. However, the assessee can browse and attach the Digital Signature Certificate at the time of submission of the Income Tax Return. Taxpayer has to first register his/her DSC on the e-filing website - either during Registration OR post LOGIN → Profile Settings → Register Digital Signature Certificate. Once DSC is registered, taxpayer has to use the same DSC while uploading the Income Tax Return.


8. The Web site accepts DSC in the .pfx format. Other formats like .cer are not being accepted. Can USB token based DSC be used to file the return?
Answer: DSC in USB token is also accepted.


9. It is not clear what class of DSC should be used while filing the return ?
Answer: DSC should be of Class II or III only, issued by CCA approved certifying agencies in India.


10. Whose DSC to be used for e-Filing Income Tax Return for Company / Firm / HUF?
Answer: In case, the e-Filing is being signed digitally using a Digital Signature Certificate, then the Digital Signature Certificate should be that of the Principal Contact assigned during registration OR the Principal Contact updated in 'Profile settings' → 'Change Principal Contact details'.


11. I am unable to register DSC in the ITD e-filing website?
Answer: Kindly try again with the correct details. If problem persists, contact Customer care at 1800-180-1861. You can also go through the Trouble shooting section where the possible solution is listed.


12. When I upload my return with DSC, I get the error 'fake path and can't read the file'. Why is it so?
Answer: Please do the following settings: Internet explorer → Tools →Internal Option → Security → reset the setting to medium high, close and reopen the Internet Explorer. OR Create a folder called 'fakepath' in your C drive and store the XML in the folder. On BROWSE, select this file and upload.


13. While registering my DSC, an error appears on the screen as "The Digital Signature Certificate is already registered". What should I do?
Answer: A DSC can not be registered by multiple users. When this error appears, it maybe that the DSC you are trying to register belongs to someone else. Please make sure that the DSC you are registering belongs to you and has your PAN and e-mail ID encrypted. The only exception for this rule is that an authorized signatory (principal contact) for an organization should register his/her own DSC to e-File for the organization. The same DSC can be used for personal e-Filing too.


14. While registering my DSC, an error appears on the screen as "The PAN mentioned in the Digital Signature Certificate does not match. Please retry.". What should I do?
Answer: The PAN in the Digital Signature Certificate does not match with your registered PAN. You should contact the Certificate Provider and get the PAN in your Digital Signature Certificate checked.


15. While registering my DSC, an error appears on the screen as "Validity of the Digital Signature Certificate has expired. Please update a valid Digital Signature Certificate". What should I do?
Answer: The validity period of the Digital Signature Certificate has ended. Attain a new Digital Signature Certificate from the Certified Service Providers and then register.


16. While registering my DSC, an error appears on the screen as "Invalid Digital Signature Certificate. Please contact your Certificate Provider". What should I do?
Answer: This could be due to the below reasons: 1. Digital Signature Certificate is revoked. 2. Digital Signature Certificate is not Level 2 or above. Only Level 2 or above Digital Certificates can be registered on e-Filing website. In this case, you should contact the Certificate Provider and get your Digital Signature Certificate checked.

ITR-V Do's & Don'ts

ITR-V Do's & Don'ts

 Please use Ink Jet /Laser printer to print the ITR-V Form. Use of Dot Matrix printer should be avoided.

 The ITR-V Form should be printed only in black ink. Do not use any other ink option to print ITR-V.

 Ensure that print out is clear and not light print/faded copy.

 Please do not print any water marks on ITR-V. The only permissible watermark is that of "Income tax
Department" which is printed automatically on each ITR V.

 The document that is mailed to CPC should be signed in Original.

 Photocopy of signatures will not be accepted.

 The signatures or any handwritten text should not be written on Bar code.

 Bar code and numbers below barcode should be clearly visible.

 Only A4 size white paper should be used.

 Avoid typing anything on the reverse side of the paper.

 Perforated paper or any other size paper should be avoided.

 Do not use stapler on ITR-V Acknowledgement.

 In case, you are submitting Original and Revised Income Tax Returns, do not print them back to back.
Use two separate papers for printing ITR-Vs separately.

 Please do not submit any annexures, covering letter, pre stamped envelopes, along with ITR-V.

 The ITR-V form is required to be sent to Post Bag No.1, Electronic City Post Office, Bengaluru,
Karnataka-560100, by Ordinary or Speed Post (without Acknowledgment) ONLY

 ITR-Vs that do not conform to the above specifications may get rejected or acknowledgement of receipt
may get delayed.

Arrears received by lawyer who stopped his practice on being elevated as judge not taxable as business income

Arrears of professional fee received by assessee after he had discontinued his legal profession of lawyer on being elevated as a judge of High Court couldn’t be taxed as business income despite insertion of section 176(4) in the Act

In the instant case the assessee was a practising lawyer before his elevation as a judge of the Delhi High Court. He received certain amount of arrears of his professional fees for professional services rendered in the earlier years before his elevation as a Judge of the High Court. The AO held that such receipts were chargeable to tax under section 176(4). On appeal, the CIT (A) deleted the addition made by the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) As per provisions of section 176(4), in the case of cessation of a profession by a professional, the receipt of any sum after such cessation shall be deemed to be the income of the professional and would be taxed in the year of receipt as if, it had been received prior to the cessation of the profession;

2) Section 176(4) introduces a legal fiction, which should be limited only to the purpose for which it has been created. Section 176(4) merely treats the receipt as the income of the recipient. In the absence of any further fiction in the section, the character of such receipt cannot be determined and no further fiction can be introduced so as to determine the head of charge under which such receipt would fall;

3) Thus, the express language of section 176(4) does not render the receipt to be treated as profit and gains of business or profession (PGBP). Therefore, in spite of introduction of section 176(4) in the Act, the receipts in question couldn’t be treated as the assessee's income falling under the head "PGBP”, even though they were the fruits of the assessee's professional activities;

4) It was due to the absence of any legislative provision that these receipts couldn’t be treated as business income falling under the head "PGBP”. They couldn’t be included in the total income of the assessee, even though the amount was received by the assessee before the discontinuance of his profession due to his elevation as the High Court Judge. Thus, the order of CIT (A) was to be confirmed. – ITO v. Justice Rajiv Shakdher (2013) 36 taxmann.com 585 (Delhi - Trib.)

Consideration received by an advocated in form of land to undertake patta and layout of properties is taxable as capital gains and not as professional receipts

Facts of the case:

A. The assessee, an practising advocate, entered into an agreement as per which he had to undertake the job of obtaining patta and design the layout of the properties and for the services rendered the owners agreed to transfer 3 plots of land to him;

B. In pursuance of the agreement, possession of the property was handed over to the assessee and General Power of Attorney was executed in his favour;

C. Sale agreement was executed in respect of three plots of land for a consideration of Rs. 1.5 crores out of which the assessee received a consideration of Rs. 90 lakh as ‘confirming party’.

D. The AO held that such receipt was to be assessed as income from professional services. On appeal, the CIT(A) reversed the order of AO and held that the receipt could only be taxed as capital gains. The Tribunal upheld the order of AO.

The High Court held as under:

1) The agreement entered between the assessee and the owners made no reference at all to the professional status of the assessee for taking his services. There was no mention about his being an Advocate and that his services were being taken only in that capacity;

2) The possession given of the entire 5 plots of land to the assessee was with the specific object of getting patta and layout of the property. The sale agreement made it very clear that the transfer of 3 plots of land to the assessee was intended by way of consideration for securing patta and layout and, as such, the original owners had entrusted the entire land to the assessee;

3) The assessee had rightly placed his reliance on section 2(47)(v) of the Income-tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882, that the receipt would attract capital gains at his hands. There was nothing on record to show that the services to be rendered were taken in the capacity as a lawyer. Therefore, the Consideration received by an advocated in form of land to undertake patta and designing of layout of properties is taxable as capital gains and not as professional receipts – CIT V. J. MAHALINGAM (2013) 37 taxmann.com 38 (Madras)

Sum paid to access commercial information for further transmission to principal isn’t a ‘royalty’

Where assessee made remittance for procurement of commercial information for onward transmission to its principal, remittance made was not for availing technical services and did not amount to royalty

In the instant case the assessee had entered into a master clinical services agreement with its principal 'BHAG' for clinical trials. Assessee had arrangement with CSPL to provide information on clinical trial test undertaken by CTU of University of Kelmia, Sri Lanka. It applied for issue of certificate for non-deduction of tax on remittances made to CSPL which had no PE in India. The AO held that remittance for clinical services was in nature of royalty and was liable to be taxed in India. On appeal, the CIT (A) reversed the order of AO.

The Tribunal held in favour of assessee as under:

1) The services in question were services for supply of information which assessee was not using for any technical know-how but it was working as a conduit for supply of this information further to its principal;

2) Thus, the assessee was making remittance for procurement of commercial information for onward transmission to its principal;

3) The remittance made by the assessee was not for availing of technical services and did not amount to royalty. It was not liable for withholding taxes. Thus, the order of CIT (A) was to be upheld – ITO, TDS V. KENDLE INDIA (P.) LTD (2013) 37 taxmann.com 140 (Delhi - Trib.)

S. 50B: Transfer of assets without monetary consideration is not a “slump sale”

ITO vs. Zinger Investments (P) Ltd (ITAT Hyderabad)

The assessee transferred its manufacturing division to Novapan Industries Ltd under a scheme of amalgamation pursuant to which Novapan transferred investments worth Rs. 25.24 crore to the assessee and allotted shares worth Rs. 6.81 crore to the assessee’s shareholders. There was no monetary consideration. The AO held that the transfer of the manufacturing division was a “slump sale” and that it attracted s. 50B. He computed capital gains on that basis. The CIT(A) reversed the AO and held that there was no slump sale. On appeal by the department to the Tribunal HELD dismissing the appeal:

S. 2(42C) defines a ‘slump sale’ to mean the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. A plain reading of s. 2(42C) makes it clear that to qualify as a slump sale, two conditions have to be satisfied viz., (i) there must be transfer of one or more undertakings as a result of sale and (ii) the sale should be for a lump sum consideration without values being assigned to the individual assets and liabilities. The presence of money consideration is an essential element to a transaction of sale. If the consideration is not money but some other valuable consideration it may be an exchange or barter but not a sale. In the present case, as no monetary consideration was received by the assessee for transfer of the assets and liabilities of the manufacturing division to Novapan Industries Ltd, the transaction is not a “slump sale” and does not attract s. 50B (Motors and General Stores 66 ITR 692 (SC), R.R. Ramakrishna Pillai 66 ITR 725 & Avaya Global Connect 26 SOT 397 (Mum) followed)

Yog trust is tax exempt; its main object is to impart training in Yoga, for education and curing of diseases

The predominant object of imparting Yoga training through well structured Yoga shivirs is to provide medical relief and impart education, which fall under the category of charitable objects defined under section 2(15).

The Tribunal held as under:

1) Yoga can be safely accepted as a system that fits into the definition of medical relief. As a science it is a well recognized system of medicine, which has therapeutic effects in treating serious ailments;

2) The predominant objective of the assessee-trust was to provide medical relief through Ayurveda and propagation of Yoga for the purpose of curing various diseases;

3) Any form of educational activity involving imparting of systematic training, to develop the knowledge, skill, mind and character of students is to be regarded as 'education', covered under section 2(15);

4) Thus, imparting of Yoga training through well structured Yoga shivirs would fall under the category of imparting education, which is one of the charitable objects defined under section 2(15);

5) The various other objectives of assessee-trust were merely ancillary to its main object, which was to provide medical relief and impart education and would not in any way constitute objectives of general public utility;

6) The proviso to section 2(15) applies only to trusts falling in the last limb of the definition of charitable purpose, that too if such trust carries on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to a trust providing education and medical relief. Thus, revenue was not justified in refusing the exemption claimed by assessee-trust under sections 11 and 12 - DIVYA YOG MANDIR TRUST V. JCIT (2013) 37 taxmann.com 227 (Delhi - Trib.)

Sec. 147: Despite Sanction Reopening Void If Satisfaction Not Recorded: ITAT Mumbai

Amarlal Bajaj vs. ACIT (ITAT Mumbai)

S. 147/ 151: Merely writing “approved” in the sanction form without recording satisfaction renders the reopening void
The AO issued a notice u/s 147 and reopened the assessment on the ground that the assessee was the beneficiary of hawala entries in the form of loans, expenses & gifts. He alleged that the assessee had deposited unaccounted cash and received cheques in the form of loans, expenses, gifts. The CIT granted sanction u/s 151 to the reopening by writing the words “approved”. The assessee challenged the reopening on the ground that as satisfaction was not recorded by the CIT the sanction was without application of mind and void. HELD by the Tribunal allowing the appeal:

S. 147 and 148 are a charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. S. 151 guards that the sword of S. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of S. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO’s belief is well reasoned and bona fide, he is to accord his sanction to the issue of notice u/s 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put “approved” and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction (Chhugamal Rajpal 79 ITR 603 (SC) & United Electrical Co 258 ITR 317 (Del) followed)

See also The Central India Electric Supply Co Ltd 51 DTR 51 (Del HC)

Setback to govt’s reconciliation talks with Vodafone

Pradeep Thakur,TNN | Sep 17, 2013, 06.46AM IST
NEW DELHI: The finance ministry's efforts to settle Vodafone's over $2 billion tax dispute through reconciliation has received a setback with the Law Commission likely to tell the government that amendments in the Arbitration and Reconciliation Act, as asked by the law ministry, may not help settle the case out of court.

The law ministry had asked the Law Commission to submit a report on suggestions to amend the Arbitration and Reconciliation Act where cases such as Vodafone's -- arising out of retrospective amendment in the Income Tax (I-T) Act — could be settled avoiding international arbitration.

The British telecom major wanted to settle the tax dispute under the United Nation's Commission on International Trade Law rules which India had rejected. The government had said any settlement would have to be strictly under Indian laws.

Sources in the Law Commission said any settlement with Vodafone could be made either through I-T's settlement commission or an amendment had to be brought in the I-T Act providing for reconciliation and settlement of tax disputes other than through the settlement commission.

Vodafone, however, has refused to go to the I-T's settlement commission as it will lose the right to any international arbitration once it approaches the commission. The government had earlier offered the telecom giant waiver of penalty if it approached the settlement commission and paid the tax dues and interest on it.

Also, if the company approaches the settlement commission, it has to deposit in advance all tax dues and interest on it before the case is listed for hearing. The government though had initiated conciliation talks between Vodafone's representatives and the law secretary.

The Law Commission was asked by the government to frame guidelines on arbitration and reconciliation so that it could bring in amendments in laws which could help it drag some of the multinational companies engaged in tax disputes to Indian courts and subject them to settlement.

The government has been demanding more than Rs 20,000 crore from Vodafone on account of tax, interest and penalty on gains made by Hutchison when it sold its India assets to the company in 2007. The company has, however, refused any offer of settlement of dispute under Indian laws.

At one point, the government was even contemplating bringing in a fresh clause in the retrospective amendment to I-T Act where tax demand raised on past cases could automatically get penalty waiver.

Vodafone had also won a case against the government in the Supreme Court in January 2012 which ruled that capital gains tax was not applicable to the company. The apex court had also asked the government to refund the telecom giant's Rs 2,500 crore with interest which it had paid against the tax dues.

CBDT Instruction On Procedure For Adjustment Of Refund Against Demand

Pursuant to the judgement of the Delhi High Court in Court on Its Own Motion vs. UOI 352 ITR 273, the CBDT has issued Instruction No. 12/2013 (F. NO. 312/55/2013-OT) dated 09.09.2013 stating that no refund should be adjusted without following the procedure prescribed in s. 245 of the Act of intimating the assessee of the proposed adjustment and considering his objections thereto.

“Instruction No. 12/2013 (F. NO. 312/55/2013-OT) dated 09.09.2013
Hon’ble Delhi High Court vide its judgment in case Court On Its Own Motion v. UOI in W.P.(C) 2659/2012, dated 14.3.2013 has issued seven Mandamus for action by the Income Tax Department. One Mandamus is on compliance of section 245 of the Income-tax Act, 1961.
2. The Hon’ble High Court in this context had issued interim directions vide its order dated 31-8-2012 as under:

“13. We issue interim direction to the respondents that they shall in future follow the procedure prescribed under section 245 before making any adjustment of refund payable by the CPC at Bengaluru. The assessees must be given an opportunity to file response or reply and the reply will be considered and examined by the Assessing Officer before any direction for adjustment is made. The process of issue of prior intimation and service thereof on the assessee will be as per the law. The assessees will be entitled to file their response before the Assessing Officer mentioned in the prior intimation. The Assessing Officer will thereafter examine the reply and communicate his finding, to the CPC, Bengaluru, who will then process the refund and adjust the demand, if any payable. CBDT can fix a time limit for communication of findings by the . Assessing Officer. The final adjustment will also be communicated to the assessees.”

3. In compliance with the above directions of the Hon’ble Court, CPC Instruction No. 1 dated 27.11.2012 was issued explaining the step by step procedure for adjustment of refunds to be followed by Assessing Officers and CPC, followed by the DIT(Systems)-III letter dated 30.1.2013.
4. Vide its final order in the Writ Petition dated 14.3.2013, the Hon’ble High Court in para 24 has confirmed its interim order and issued Second Mandamus as under:

“24. The said interim order is confirmed. We notice that the respondents have taken remedial steps to ensure compliance of section 245 of the Act as they now give an option to the assessee to approach the Assessing Officer. This is the second mandamus which we have issued. As noticed above, the interim order passed in the writ petition dated 31st August, 2012 has been implemented.”

5. In view of the above directions of the Hon’ble High Court, I am directed to convey that the provisions of section 245 of the IT Act be strictly adhered to before making any adjustment of refund. In respect of adjustment of refund payable by the CPC at Bengaluru, the procedure detailed in Para 2 above may be complied with. The Assessing Officer, in this regard, should respond to CPC within 45 days from the date of communication of issuance of notice u/s 245 by the CPC to the Assessing Officer.
6. I am further directed to state that the above be brought to notice of all officers working under your jurisdiction for necessary and strict compliance.”

High Court Explains Proper Scope Of S. 50C In Assessing Capital Gains

CIT vs. Chandra Narain Chaudhri (Allahabad High Court)

S. 50-C: Extent to which reliance can be placed by AO on stamp duty valuation explained
The assessee sold property for Rs. 25 lakhs. The AO held that as the property was valued by the stamp valuation officer at Rs. 78.48 lakhs and as the purchaser had paid stamp duty on that basis, the capital gain had to be worked out on that basis applying s. 50C(2). The assessee claimed that the property was tenanted and produced valuation reports to justify the sale consideration. On appeal by the assessee the CIT(A) held that the AO ought to have referred the matter to the DVO and directed him to adopt the value arrived at by an approved valuer. This was approved by the Tribunal. On appeal by the department to the High Court, HELD:
(i) S. 50-C is a rule of evidence in assessing the valuation of property for calculating capital gains and is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value and determines the value in accordance with the circle rates fixed by the Collector. The object of valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value for which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as it occupation by tenant, any charge or legal encumbrances;
(ii) If the assessee raises an objection that the value assessed by the stamp valuation authority u/s 50-C (1) exceeds the fair market value of the property on the date of transfer, the AO has to apply his mind on the validity of the objection and may either accept the valuation of the property on the basis of the report of the approved valuer filed by the assessee or invite refer the valuation of the capital asset to the DVO in accordance with s. 55-A. In all these events, the AO has to record valid reasons, which are justifiable in law. He is not supposed to adopt an evasive approach of applying the deeming provision without deciding the objection or referring the matter to the DVO u/s 55-A as a matter of course without considering the report of the approved valuer submitted by the assessee.

ITAT elucidates law on condonation of delay; arguments as to sufficient cause isn’t a license to file belated appeal

Liberal view in condoning delay is one of the guiding principles in the realm of belated appeals, which can't be equated with a license to file appeals at will-disregarding the time-limits fixed by the statutes

In the instant case the assessee moved an application before the FAA for condoning the delay in filing appeal. The FAA dismissed the appeal filed by assessee.

On appeal, the Tribunal explains basic principles of condonation of delay as under:

1) If sufficient causes for delay are presented, discretion is available to the FAAs to condone the delay and admit the appeal. The expression 'sufficient cause' is not defined, but it means a cause which is beyond the control of the assessee;

2) Any cause which prevents a person approaching the FAA within given time limit is considered as a sufficient cause. The test whether or not a cause is sufficient is to see whether it could have been avoided by the party by the exercise of due care and attention;

3) In every case of delay, there is some lapse on the part of the assessee. If there are no mala fides the FAA should consider the application of the assessee. But when there is reasonable ground to think that the delay was occasioned otherwise than a bonafide conduct, then the FAA should lean against acceptance of the explanation;

4) The application for condonation of delay should be supported by an affidavit, showing that there is sufficient cause for condonation. Condonation of delay, though an equitable relief, yet, cannot be accorded merely on sympathy or compassion and the grounds offered have to be evaluated to test whether the party in default had been guilty of conscious and deliberate inaction.

Based on the above principles it held in favour of revenue as under:

A) Adopting a liberal view in condoning delay is one of the guiding principles in the realm of belated appeals, but liberal approach cannot be equated with a license to file appeals at will-disregarding the time-limits fixed by the Statutes;

B) For a period of more than three years, assessee did not bother to find out the outcome of the appeal it had filed. The behaviour of the assessee could be termed as personified inaction and negligence which would not constitute reasonable cause;

C) Assessee, a corporate-assessee, filing returns of income of lacs of Rupees and assisted by highly qualified professionals couldn't take umbrella of ignorance of the provisions of law. Therefore, the order of FAA was to be upheld - PRASHANT PROJECTS LTD. V. DY. CIT (2013) 37 taxmann.com 137 (Mumbai - Trib.)