Gujarat High Court orders CBDT to extend due date

Judgement on writ petition filed regarding extension of filing of Income Tax Return for FY 2013-14 has been delivered.

CBDT has already extended due date for filing of Tax Audit Report from 30 September to 30 November 2014. However, due date to file tax returns were not extended citing loss of Revenue to the Department.

The Gujarat HC in its judgement has ordered CBDT to extend the due date by arriving at a middle ground stating interest under section 234A would be levied if due taxes are paid after the original due date.

The action of CBDT on this judgement will be awaited with much enthusiasm, whether it provides fair extended due date to taxpayers or goes into Appeal against this judgement!

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)

 

 

 

 

 

 

 

 

 

 

 

Sec. 272B: High Court Explains Scope For Levy of Penalty For TDS Default

CIT vs. DHTC Logistics Ltd (Delhi High Court)

Sec. 272B penalty on deductor for wrong/ non-stating of PAN in TDS return is not applicable if information is not furnished by deductee. Penalty is Rs. 10,000 per deductor and not per wrong PAN


The assessee filed a TDS return in which the PAN of 30,706 deductees was either missing or was incorrectly stated. The AO held that as penalty of Rs. 10,000 u/s 272B was levaible for the non-mentioning of the PAN, the penalty had to be computed per PAN/deductee. He accordingly levied penalty of Rs. 30.70 crore at the rate of Rs. 10,000 per deductee. The CIT(A) restricted the penalty to Rs. 10,000 on the ground that as per the CBDT’s letter dated 05.08.2008 bearing No. 275/24/2007-IT(B), s. 272B penalty is linked to the person/ deductor and not with the number of defaults in the PAN quoted in the TDS return. The Tribunal upheld the view of the CIT(A) (order attached). On appeal by the department to the High Court HELD dismissing the appeal:

There are two reasons why the appeal cannot be entertained. Firstly, the AO in the penalty order u/s 272B has not specifically referred to any default or failure by the assessee mentioning PAN Number even when the said particulars and details were available. The stand taken by the assessee was that the PAN Numbers were not furnished by the truck owners and, therefore, they were not quoted by them or PAN Numbers as informed were quoted. In case, the PAN Numbers are not furnished by the deductees, the assessee cannot be penalized u/s 272B. S. 139A also imposes the obligation on the deductees to furnish PAN Number to the deductor. Secondly, the stand taken by the revenue is contrary to the stand taken by the CBDT. The AO had imposed penalty of Rs.10,000/- in each case where PAN Number was not provided by the deductee. However, the CBDT has in letter dated 5.8.2008 vide No.275/24/2007-IT(B) clarified that penalty of Rs.10,000 u/s 272B is linked to the person, i.e., the deductor who is responsible to deduct TDS, and not to the number of defaults regarding the PAN quoted in the TDS return. Therefore, regardless of the number of defaults in each return, maximum penalty of Rs.10,000/- can be imposed on the deductor. Penalty cannot be imposed by calculating the number of defective entries in each return and by multiplying them with Rs.10,000/-. This also appears to be a legislative intent, as in many cases, the TDS amount may be small or insignificant fraction of Rs.10,000. (Clarified that the Q whether penalty u/s 272B can be imposed if the deductor has not correctly recorded the details despite proper representation by the deductee is not decided)

 Source: itatonline.org

Mere denial of sec. 11 relief won’t invalidate trust registration

Mere fact that an income is not exempt under section 11 would not render Tamil Nadu Cricket Association's registration under section 12AA liable to be cancelled

The High Court held as under:

1) If a particular activity of the institution appeared to be commercial in character, and it was not dominant, then it was for the Assessing Officer to consider the effect of section 11 of the Act in the matter of granting exemption on particular head of receipt;

2) The mere fact that the said income does not fit in with section 11 of the Act would not, by itself lead to the conclusion that the registration granted under section 12AA is bad and, hence, to be cancelled;

3) Only possible enquiry under section 12AA of the Act for cancellation is to find out whether the activities of the trust are genuine or in accordance with the objects of the trust;

4) If any income arising on the activities is not in accordance with the objects of the trust, the assessee's income, at best, might not get the exemption under section 11 of the Act. But this, by itself, would not result in rejection of the registration as 'trust' under section 12AA of the Act;

5) The question as to whether the particular income qualified under section 11 of the Act or not was not the same as activity being genuine or not which was relevant for cancellation of registration;

6) Thus, the tribunal was not right in upholding the cancellation of registration under Section 12AA(3) granted to Tamil Nadu Cricket Association - TAMIL NADU CRICKET ASSOCIATION V. DIRECTOR OF INCOME-TAX (EXEMPTIONS) (2013) 40 taxmann.com 250 (Madras)

Sec. 37(1): Expenditure on acquiring master copy of software subject to obsolescence is deductible as revenue expenditure

Oracle India Pvt. Ltd vs. CIT (Delhi High Court)

The assessee entered into a license agreement with Oracle Corp under which it acquired a non-exclusive & non-assignable right to duplicate software products which were owned by Oracle Corp and to sub-license the same to parties in India. The assessee paid recurring royalty of 30% for the said right. In addition to the royalty, the assessee periodically paid an amount towards “*expenditure on import of software master copy*”. The said master copy was used to replicate the software. The assessee claimed that the said master copies were versions of Oracle’s new product offerings which had very accelerated obsolescence and that at any point of time it was not possible to say whether the version will be current for one day or one month. The AO allowed a deduction for the recurring royalty but held that the expenditure for acquiring the software master copy was capital
expenditure. On appeal, the CIT(A) reversed the AO on the ground that owing to obsolescence, there was no enduring benefit as there were frequent corrections and up-gradation of the software. On appeal by the department, the Tribunal reversed the CIT(A) and held that the expenditure was capital
in nature on the ground that the master copy was an asset of enduring benefit. On appeal by the assessee, HELD reversing the Tribunal:

The assessee’s claim that the master copies had high accelerated obsolescence and that even at the point of time of import it was difficult to say whether the version would be replaced by a new or updated version after one day or a month had not been disproved. Also the facts showed that there were periodical imports of the master copies and that the average price per copy was minimal. This was not a case where the master copies contained operating or system software, which normally did not require frequent up-gradation or changes. It is also not the case of an assessee which is the end user of software. It is a case where the assessee is required to repeatedly pay for the master copy media in view of frequent newer or updated versions of the application software from time to time.
Once newer or better version of the application software is available, the earlier version is not saleable and does not have any market value for the seller i.e. the assessee. Also, as per the “*matching concept*” in accountancy, while determining whether expenditure is capital or revenue in
nature, the question whether the expenditure would create an asset which is of value in further assessment periods and should be amortised (i.e. depreciated) as long as it has value (subject to the statutory provisions) requires to be considered. If the expenditure does lead to creation of an asset but of a limited or short life, it has to be treated as a liability and not as a fixed asset. The said expenditure cannot be valued for price for future financial years (*Oracle Software
<http://itatonline.org/archives/index.php/cit-vs-oracle-software-india-supreme-court-copying-software-onto-blank-discs-is-manufacture-for-s-80-ia/>*320 ITR 546 (SC), *Ashahi India Safety Glass <http://itatonline.org/archives/index.php/cit-vs-asahi-india-safety-glass-ltd-delhi-high-court-expenditure-on-application-software-is-revenue-in-nature/>*346 ITR 329 (Del), *G.E. Capital Services* 300 ITR 420 (Del), *O.K. Play* 346 ITR 57 (P&H), *IAEC Pumps* 232 ITR 316 (SC) referred)
 

Madras HC accepts a novel sale and lease back transaction; allows lessor to claim depreciation on let out asset

Where there was a tacit agreement in form of offer and acceptance for sale of assets and existence of such assets could not be doubted, said sale and its lease back could not be rejected for purpose of allowing depreciation

Facts:

a) The assessee, a leasing company, entered into a sale and leaseback (SLB) agreement in respect of certain assets with Tamil Nadu Electricity Board (Electricity Board);

b) It purchased certain assets from Electricity Board and leased them back to Board. The Assessing Officer, however, disallowed depreciation on such assets to assessee treating those SLB transactions as loan transactions;

c) On appeal, the CIT (A) allowed the depreciation on such assets. Further, the Tribunal held that it was purely a finance transaction and, therefore, no depreciation could be allowed. Aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1) Merely because terms of SLB agreement provided for deduction of lease installments from current consumption charges by way of priority, same could not be form basis to hold that transaction was not a SLB but a mere loan transaction;

2) The provision for repayment of the lease amount by way of installments from the current consumption charges was one mode of repayment in order to ensure that there was no default in paying the installments. There was no flaw in such a provision made in the agreement for repayment;

3) Merely because the assets were all eligible for 100 per cent depreciation, it could not be held that the entire transaction would become doubtful. So long as the sale-cum-lease back agreement was real as between the parties and the transaction was carried out in accordance with law, in the absence of any flaw in the said agreement, one could not doubt the whole transaction;

4) The fact that sale was accepted as between assessee and Electricity Board and after settlement of lease amount, assessee would continue to retain its ownership in no uncertain terms stipulated in agreement, and when such a transaction was not against law, there was no reason to doubt such transaction;

5) As far as the conduct of the parties was concerned, there were no clandestine dealings involved. Every correspondence between the parties was disclosed and placed before the Assessing Officer. Therefore, depreciation claimed by assessee was to be allowed - FIRST LEASING CO. OF INDIA LTD. V. ACIT (2013) 38 taxmann.com 213 (Madras)

Sec. 54EC exemptions allowable despite deeming fiction of sec. 50 treating capital gains as short-term ones

Where capital gain arose out of long-term capital asset and was invested in specified assets, exemption under section 54EC could not be denied due to deeming fiction created under section 50

The High Court held in favour of assessee as under:

1) There is nothing in Section 50 to suggest that the fiction created in it is not only restricted to Sections 48 and 49 but also applies to other provisions;

2) Section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Sections 48 and 49;

3) It is well-established, in law, that a fiction created by the Legislature has to be confined to the purpose for which it is created. The fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that;

4) Legal fiction created under section 50 is restricted to computation of capital gains; such deeming fiction cannot restrict application of section 54EC which allows exemption of capital gains, if assessee makes investment in the specified asset;

5) Exemption provided under section 54EC couldn’t be denied to the assessee due to deeming fiction created under section 50. Thus, the assessee couldn’t be charged to capital gains when short-term gains of long-term capital assets were invested in the areas specified under the law – CIT V. ADITYA MEDISALES LTD (2013) 38 taxmann.com 244 (Gujarat)

Converting a leasehold property into a freehold property improves title of asset; holding period reckoned from date of lease

SHORT TERM CAPITAL GAIN VS LONG TERM CAPITAL GAIN

 

Conversion of rights of lessee in property from leasehold right into freehold right only results in improvement of his or her rights over property and it would not have any effect on taxability of gain from such property, which is related to period over which property is held

Facts:

a) The assessee purchased a property on leasehold basis in year 1984. She got said property converted into freehold property in year 2004 and thereupon sold it. The capital gain arising therefrom was declared by assessee as long-term capital gain (‘LTCG’);

b) The Assessing Officer held that since the property was acquired by converting the leasehold right into freehold right and was sold within three years, gain arising thereform was taxable as short-term capital gain;

c) On appeal, the CIT(A) held that capital gain arising from sale of such property was to be taxed as LTCG. Further, the Tribunal upheld the order of the CIT (A). The aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1) The difference between the 'short-term capital asset' and 'long-term capital asset' was the period over which the property had been held by the assessee and not the nature of title over the property;

2) The conversion of the rights of the lessee in the property from having leasehold right into freehold right was only by way of improvement of her rights over the property and it would not have any effect on the taxability of gain arising from such property, which was related to the period over which the property was held by assessee;

3) In the present case, the property was held by the assessee as a lessee since 1984, and the same was transferred on 31.3.2004, (i.e. after holding it for more than three years) after the leasehold rights were converted into freehold rights on the same property which was in her possession. Thus, gain arising from such property would be taxable as LTCG - CIT V. SMT. RAMA RANI KALIA (2013) 38 taxmann.com 176 (Allahabad)

Tribunal Has Power And Duty To Order Refund Of Taxes Illegally Collected By AO: High Court

DCIT vs. ITAT (Punjab & Haryana High Court)

Dept hauled up for “over-zealousness” and “ham-handed” attempt to recover taxes in violation of stay order. Tribunal is duty-bound to order refund of such taxes
The AO raised a demand of Rs.210.57 crores by making certain adjustments for the AMP expenditure incurred. This was confirmed by the DRP. The assessee filed an appeal before the Tribunal as well an application before the CBDT under the Mutual Agreement Procedure (MAP) prescribed in Article 27 of the India-USA DTAA. The assessee also filed a stay application before the Tribunal. The Tribunal granted a stay of the demand for a period of 180 days or disposal of the appeal or of the MAP application, whichever is earlier. It was provided that the assessee sought an adjournment, the stay would be vacated. On the date fixed for hearing, the assessee pointed out that the issue of adjustments to the AMP expenditure was pending before the Special Bench in L. G. Electronics (since decided 152 TTJ 273) and so the appeal was adjourned. The AO took the view that as the assessee had sought an adjournment, the stay stood automatically vacated and so he attached the assessee’s bank account. The assessee filed an application u/s 151 of the CPC before the ITAT seeking refund of the amount recovered by the revenue. The Tribunal held that the adjournment was granted by it suo motu in conformity with judicial discipline as the issue was pending before the Special Bench. It held that the AO had acted in violation of the stay order and directed him to refund the amount collected. The Department filed a Writ Petition to challenge the said order. HELD by the High Court dismissing the Petition:
(i) A trivial adjournment, an overzealous revenue department, compelled apparently by year ending revenue collection targets, has led to this unnecessary litigation. It is not a case where the assessee sought an adjournment but one where the Tribunal chose to adjourn to await the decision of the Special Bench. Apart from that the show cause notice issued to the assessee does not refer to vacation of the stay order but refers to admission or not of the MAP application though that there was discussion relating to vacation of the stay order during the personal hearing. The AO should have been honest enough to issue a show cause notice on the ground that the stay order stands vacated. The vacillating stand of the revenue clearly indicates a confused state of mind, apparently compelled by the need to achieve targets fixed by superiors of the department;
(ii) As regards the jurisdiction of the Tribunal to order refund of the amount appropriated by the revenue, the Tribunal has rightly held that it is empowered, in view of nature of its jurisdiction, as well u/s 151 of the CPC to order refund, as the stay order has not been vacated. The power to ensure that its orders are not violated during pendency of a lis are inherent in any Court or Tribunal. In fact it is the bounden duty of the Tribunal to ensure where its order is violated that the violation is adequately redressed and money appropriated, is restituted. If such a power is held not to be available to the Tribunal, its interim orders would be flouted with impunity. If, the revenue was of the opinion that the stay order has been violated by the assessee or has been vacated, it should have approached the Tribunal for clarification by way of an appropriate application but instead proceeded in a ham-handed manner, to appropriate this amount.
Note: This impliedly approves RPG Enterprises 251 ITR 20 (Mum) (AT), MSEB 81 ITD 299 (Mum) & KLM Royal Dutch Airlines 1 SOT 659 (Del) where the Tribunal directed the AO to refund taxes illegally recovered

Disbursement of cash to farmers through discounting of cheque doesn't violate sec. 269SS or sec. 269T

When it was not proved that by cheque discounting business assessee had taken any loan or deposit from agriculturists and/or he had repaid any loan to agriculturists, neither section 269SS nor section 269T were attracted

Facts of the case:

• Assessee, engaged in business of cheque discounting, received certain amount through post-dated crossed cheques from farmers who were selling their produce to traders.
• Assessee's case was that such traders made payment to farmers traditionally by way of post-dated crossed cheques and since farmers normally did not maintain any bank account, they used to take such cheques to assessee for discounting same for cash.
• Assessing Officer held that there was contravention of sections 269SS and 269T and, accordingly, levied penalty on assessee under sections 271D and 271E.
• Aggrieved by order of AO, assessee filed an appeal before CIT(A).
• CIT(A) quashed and set aside the orders of penalty imposed under Section 271D and Section 271E of the Act.
• On appeal by revenue to ITAT, ITAT rightly confirmed the order passed by the CIT(A).
• Revenue was in appeal before High Court against order of ITAT.

Gujarat High Court held and observed that:

• Revenue was not in a position to satisfy the Court how by the aforesaid transaction of cheque discounting it could be said that there was any loan or deposit taken by the Assessee.
• In any case, when it not proved and/or established that by cheque discounting business the assessee had taken any loan or deposit from the agriculturist and/or they have repaid any loan to the agriculturist, neither Section 269SS nor Section 269T of the Act was attracted
• Under the circumstances, no error and/or illegality has been committed by the ITAT in confirming the orders passed by the CIT quashing and setting aside orders of penalty passed under Section 271D and Section 271E of the Act.
• Appeal was accordingly dismissed.- CIT V. DINESHCHANDRA SHANTILAL SHAH (HUF) (2013) 37 TAXMANN.COM 307 (GUJARAT)