Académique Documents
Professionnel Documents
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Chapter 16
offered this income under head them.
PGBP. (2) The objects of the company must also be kept in view to interpret
the activities
Issue raised (3) The main objective of the company as per its memorandum of
association is to acquire and hold properties and earning income there
Would income from letting out
from.
of properties by a company,
whose main object as per its Conclusion: Rental income from properties of company shall be taxable
MOA is to acquire and let out under head PGBP, if the main object of the company is to let out the
properties, be taxable as its property. The charge U/s 22 is not applicable as it is established that the
business income or income house property is used by the assessee for the purpose of its own
from house property, business and profession.
considering the fact that the
entire income of the company
was only from letting out of
properties?
Chapter 16
section 24. of franchisee fee is in the nature of business income and not income from
The Revenue treated the house property since the assessee received franchisee fee for giving a
income under the head PGBP special right or privilege to the franchisees to undertake tourism business
and disallowed the claim of in the property.
deduction of 30% by the
assessee on the ground that
the assessee had not
withdrawn from the business of
carrying on tourism activities
and that it was only to earn
more profits from its loss
making units that it had let out
the properties including
business to franchisee.
Issue raised
Whether franchise fee received
by an assessee in tourism
business, against special rights
given to franchisees to
undertake hotel business in
assessees property is taxable
under the head PGBP or IFHP?
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Chapter 16
Issue raised
Whether Compensation paid by Conclusion: The HC based on the rational of the SC ruling in Chennai
the assessee-company to its Properties case, held that when income from letting out of property is
tenants for vacating the treated as income from business, the compensation paid to tenants for
premises in order to earn vacating the premises to facilitate the assessee to derive the higher rent
higher rent by re-letting out the by re-letting out the premises, is deductible as revenue expenditure.
same should be allowed as
revenue expenditure incurred
for the business purpose?
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Chapter 16
receivable against exports schemes are being included as income under
the head Profits and gains of business or profession, subsidies which go
towards reimbursement of cost of production of goods of a particular
business would also have to be included under the head Profits and
gains of business or profession, and not under the head Income from
other sources.
Conclusion: There is a direct nexus between profits and gains of the
undertaking or business, and reimbursement of such subsidies. The
subsidies were only in order to reimburse, wholly or partially, costs
actually incurred by the assessee in the manufacturing and selling of its
products. Accordingly, these subsidies qualify for deduction under section
80-IB and therefore, the contention of the AO is not correct.
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Chapter 16
Facts Provision: Sec. 12A provides that, once an application for registration of
The Revenue appealed against the trust is made to CIT and the same is not disposed of within a
the decision of HC and raised stipulated period of six months from the date of such application, the
an apprehension that since the trust would be deemed to be registered under section 12AA.
date of application for Analysis:
registration was February 24,
1)Deemed registration would not have retrospective application
2003, the deemed registration
would operate only after six The Supreme Court in the present case has decided that the deemed
months from the date of registration would be effective only after six months from the date of
application. application, in the sense, that it would not have retrospective application.
2)Benefit of exemption u/s. 11 & 12 available from AY immediately
Issue raised
following the FY in which application made
In a case where the charitable
However, as per section12A(2),the exemption provisions of sections 11
trust is deemed to be
and 12 would apply in relation to the income of the trust from the
registered under section 12A
assessment year immediately following the financial year in which such
due to non-disposal of
application is made, even though the effective date of deemed
application within the period of
registration would be after expiry of the six months.
6months, as stipulated under
section 12AA(2),from when Conclusion: The Apex Court held that deemed registration would
would such deemed commence only after expiry of 6 months from the date of application and
registration take effect? not from the date of making of application. Therefore, the registration of
the application made under section 12AA of the Income-tax Act, in the
case of the assessee (trust) shall not take effect till August 24, 2003.
13. Case law: Shree Govindbhai Jethalal Nathavani Charitable Trust (HC)
Facts Provision: Section 80G(5)(i) provides that donation to any institution or
The assessee trust filed an fund would qualify for deduction thereunder only if it is established in
application for grant of India for a charitable purpose and derives such income which would not
approval under section 80G be liable to inclusion in its total income under the provisions of sections
(5).As per the trust deed, the 11 and 12 or section 10(23AA)/(23C)
main objects of the trust are Analysis:
educational, social activities, (1) Authority granting approval u/s. 80G cannot act as an assessing
etc. On perusal of the books for authority to make detailed enquiry
financial year 2011-12, it was (i) While considering the application for the purpose of section 80G, the
found that the trust had not authority cannot act as an assessing authority and the enquiry should be
applied 85% of its income and confined to finding out only if the institution satisfies the prescribed
therefore, the Commissioner
conditions.
rejected the application of the
(ii) There are 2 different concepts: The first is whether an institution or
assessee seeking approval
fund is established for charitable purpose, has to be determined on the
under section 80G(5) and Rule
basis of its status or character. The second is the actual assessment of
11AA of the Income-tax Rules,
income, which necessarily takes place in future after donation is received
1962
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Chapter 16
incidentally makes profit, education results in making a profit, it cannot be inferred that it becomes
would it lead to an inference an activity for profit.
that it ceases to exist solely for
Conclusion: The Apex Court held that the assesse was engaged in
educational purpose?
imparting education and the profit was only incidental to the main object
of spreading education. Hence, it satisfies the conditions laid down in
section 10(23C) (iiiad) for claim of exemption there under.
16. Case law: Trans Asian Shipping Services Pvt. Ltd. (SC)
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Issue raised Provision: As per section 115VG(4), for the purpose of Chapter XII-G, the
Can income derived by an tonnage shall mean-
Indian shipping Co. from slot (a) The tonnage of a ship indicating in the certificate referred to in
charter arrangement in other section 115VX; and includes
ship be computed applying the (b) The deemed tonnage computed in the manner prescribed:
special provisions under Further, the Explanation to section 115VG(4) provides that for the
chapter XII-G of the Income Tax purpose of this sub-section, deemed tonnage shall be the tonnage in
Act, 1961, relating to Tonnage respect of:
Tax Scheme, in spite of non- 1) An arrangement of purchase of slots,
fulfillment of the condition of
2) Slot charter, and
holding of valid certificate in
respect of such other ships An arrangement of sharing of break-bulk vessel.
indicating? Analysis:
Section 115VG(4) are in two parts in so far as computation of tonnage is
concerned.
(a) When it comes to tonnage of a ship, a valid certificate is to be
produced. The second part of this provision talks about deemed
tonnage in contradistinction to the actual tonnage mentioned in
this certificate.
Explanation to section 115VG(4), inter alia, mentions that in so far as
slot charter arrangements are concerned, purchase of such slot
charter shall be considered as deemed tonnage.
(b) The requirement of producing a certificate would not apply when
entire ship is not chartered and the arrangement pertains only to
purchase of slots or sharing a big bulk vessel.
Conclusion: The Apex Court, accordingly, held that the requirement of
producing a certificate would not apply when entire ship is not chartered
and the arrangement pertains only to purchase of slot, slot charter etc.
Accordingly, income from slot charter arrangement in other ships can be
computed applying the special provisions under Chapter XII-G.
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Chapter 16
deducted tax at source on whose account is maintained by the person paying interest
interest accrued on FD since (2) Actual payee is not ascertainable
the FDRs were in the name of
The Registrar General is neither recipient of the amount nor interest is
Registrar who is a custodian
accruing to him thereon.
because the actual beneficiary
was unknown. The person to whom the fund would be paid would be ultimately
determined by the order of court.
(3) Subsequently the ACIT
issued a show cause notice to
the bank for non deducting tax
at source on the interest
accrued for treated the
assessee as assessee-in-default
u/s 201(1)/ 201(1A)
Issue raised
Is section 194A applicable in Conclusion: The HC observed that in the absence of a payee, the
respect of interest on Fixed provision for deduction of tax to his (Registrar General) credit is
deposits in the name of ineffective and therefore not liable to tax.
Registrar General of HC?
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Chapter 16
Facts Provision: Provisions for deduction of tax at source under section 194J
The assessee company made are attracted in respect of payment of fees for technical services, if the
payment to the Stock Exchange amount of such fees exceeds Rs.30000 in the relevant financial year.
by way of transaction charges Analysis:
in respect of fully automated
(1) Technical services are in nature of specialized services:
online trading facility and
other facilities. These services Technical services like managerial and consultancy service are in the
are available to all the nature of specialized services made available by the service provider to
members of the stock exchange cater to the special needs of the customer-user as may be felt necessary.
in respect of every transaction The transaction charges paid to BSE by its members are not for technical
that is entered into and not in services but are in the nature of payments made for facilities provided by
the nature of any specialized the stock exchange.
service of professional or (2) Services rendered by stock exchange are not special, exclusive or
technical nature which is customized in nature:
otherwise chargeable to tax
The services provided by the stock exchange are available to all members.
deduction at source.
A member who wants to conduct his daily business in the stock exchange
Issue raised has no option but to avail such services. However, there is nothing
Would transaction charges paid special, exclusive or customized in the services rendered by the stock
by the members of the stock exchange and each and every member has to avail such services in the
exchange for availing fully normal course of trading in securities in the stock exchange.
automated online trading Conclusion: The Apex Court, accordingly, held that the services provided
facility, being a facility provided by the BSE for which transaction charges are paid failed to satisfy the test
by the stock exchange to all its of specialized, exclusive and individual requirement of the user or the
members, constitute fees for consumer who may approach the service provider for such assistance or
technical services to attract the service. Such payments would, therefore, not attract the provisions of tax
provisions of tax deduction at deduction at source under section 194J.
source under section 194J?
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electricity from the point of involved for maintaining proper and regular transmission of electrical
generation to the point of energy. It was also not in agreement with the applicants argument that
distribution of the applicant is the services of technical personnel were not needed for ensuring due and
termed as wheeling. The proper transmission of electrical energy from the generation point to the
transmission company also distribution point.
functions as a State Load The AAR, considering the definition of fees for technical services under
Dispatch Centre (SLDC). section 9(1)(vii) and the process involved in proper transmission of
(iv) The applicant pays to the electrical energy, held that transmission and wheeling charges paid by the
transmission company, applicant to the transmission company are in the nature of fees for
wheeling and SLDC charges technical services, in respect of which the applicant has to withhold tax
which it claims as statutory in thereon under section 194J.
nature. 2)SDLC charges are not in nature of technical services
The applicant contended that As regards SLDC charges, the AAR opined that the main duty of the SLDC
the transmission does not is to ensure integrated operation of the power system in the State for
involve rendering of any optimum scheduling and dispatch of electricity within the State. The SLDC
technical services nor were charges paid appeared to be more of a supervisory charge with a duty to
technically qualified staff of ensure just and proper generation and distribution in the State as a
the transmission company whole. Therefore, such services were not in the nature of technical
involved in the transmission of service to the applicant; Resultantly, it does not attract TDS provisions
electrical energy. The SLDC under section 194J or under section 194C.
charges were also mere
statutory charges and does not
involve rendering of technical
services.
(v) The Revenue, on the other
hand, was of the view that the
transmission of electrical
energy from the point of
generation to the point of
distribution of the applicant
involves rendering of technical
services and consequently, the
applicant was bound to
withhold tax.
Issue raised
Will Transmission, wheeling Conclusion:
charges paid by a company Transmission and wheeling charges attract TDS Provision u/s 194J
engaged in distribution and whereas SDLC charges does not attract TDS provisions under section 194J
supply of electricity, under a or under section 194C.
service contract, to the
transmission company be
treated as fees for technical
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Chapter 16
services so as to attract TDS
provisions under section 194J
and also SDLC charges paid will
attract TDS u/s 194J or 194C?
Issue raised
Analysis:
Person having income below
1. The provisions of section 139A are contradictory- to section 197A: The
taxable limit required to furnish
assessee whose income was below taxable limit, were not required to
his PAN to the deductor as per
hold PAN, and whereas their declaration furnished under section 197A
the provisions of sec 206AA
even though he is not required was not accepted by the bank or financial institution unless PAN was
communicated as per the provisions of section 206AA.
to hold PAN as per the
provisions of sec 139A 2. Undue hardship due to provisions of section 206AA: The provisions of
section 206AA creates inconvenience to small investors, who invest
their savings from earnings as security for their future, since, in the
absence of PAN, tax was deducted at source at a higher rate
Conclusion:
In order to avoid undue hardship caused to such persons, the Court held
that it may not be necessary for such persons whose income is below the
maximum amount not chargeable to income-tax to obtain PAN and in
view of the specific provision of section 139A; section 206AA is not
applicable to such persons. Therefore, the banking and financial
institutions shall not insist upon such persons to furnish PAN while filing
declaration under section 197A. However, section 206AA would continue
to be applicable to persons whose income is above the maximum amount
not chargeable to income-tax
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Chapter 16
as per sec 45(2). The reason for (a) notice is challenged and found valid; or
reassessment was the excessive (b) where it is not challenged, it is deemed to be valid
indexation benefit availed by
(2) Power of AO:
the assessee.
Once proceedings have been in initiated on the basis of valid notice, AO
(3) AO adopted FMV which was
can assess all the income which comes under his notice during the
less than the value adopted by
assessment u/s 148.
the assessee and disallowed
50% of expenditure on transfer
and hence original grounds
were dropped
Issue raised
Whether order can be passed Conclusion: The HC held that if the notice u/s 148(2) is found to be valid,
only on the basis of income then, the AO may do reassessment in respect of any other item of income
found during the course of which may have escaped assessment, even though the original reason for
assessment under sec 147? issue of notice u/s 148 does not survive.
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Chapter 16
Chapter VI-A was made. The escaped assessment.
case was subjected to scrutiny And
assessment and order u/s
(2) Escapement of income should have been arisen due to failure on the
143(3) was passed reducing the
assessees part to fully and truly disclose all the material facts as required.
claim for deduction under
Chapter VI-A. Analysis:
(2) After 4 years from the end (1) Escapement of income prompting reopening of assessment beyond
of the assessment year, a the period of 4 years from the end of assessment year is not possible
notice u/s 148 was issued on unless it is due to failure of the assessee to disclose fully and truly disclose
the ground that as per all material facts as required.
subsequent Tribunal and other (2) Instances where the reassessment could not be made after the expiry
Court decisions the deduction of 4 years from the end of relevant assessment year where the assessee
was excessively allowed in this has disclose fully and truly all the material facts;
case.
Subsequent change of law
(3) The assessee challenged the
Subsequent interpretation of decision given by Tribunal and HC
reassessment proceedings by
means of a writ before the
court, contending that it is a
settled position in law that the
decision rendered by court
subsequent to the assessment
order does not by itself amount
to failure on the part of the
assessee to fully and truly
disclose all material facts
necessary for assessment.
Issue raised
Is initiation of reassessment
Conclusion: The HC held that the assessee has disclosed all the material
beyond a period of 4 years on
facts necessary for assessment. Further The HC held that a subsequent
the basis of subsequent
decision of Tribunal or High Court by itself is not adequate for reopening
Tribunal and the High Court
the assessment completed earlier u/s 143(3), unless there is a failure on
ruling valid, if there is no failure
on the part of the assessee to the part of the assessee to disclose complete facts.
disclose fully and truly all
material facts?
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Assessee made an application liability under this Act, and the amount of liability determined on
to the AO for sale of gold bars completion of assessment u/s 153A.
seized during search u/s 132
Analysis:
and adjustment of tax liability
on undisclosed income The HC observed that:
surrendered during search. The Section 132B(1)(i) uses the expression the amount of any existing
AO rejected the application of liability and the amount of the liability determined. Until the
the assessee on the ground assessment is complete, it cannot be postulated that a liability has been
that only when the assessment determined.
is completed and tax demand is
crystallized, recovery can be
initiated.
Issue raised
Can the assessees application, Conclusion: The HC, accordingly, held that the A.O. was justified in his
for adjustment of tax liability conclusion that the liability is determined only on the completion of
on income surrendered during assessment and in pursuance of which a demand can be raised and
search by sale of seized gold recovery can be initiated.
bars, be entertained where
assessment has not been
completed?
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Chapter 16
passed by Commissioner was
challenged by the asseessee
before the Tribunal. The
Tribunal set aside the revision
order of the Commissioner
passed u/s 263.
Issue raised
Can the original assessment Conclusion: Therefore the order which is revised by the Commissioner
order u/s 143(3), which was u/s 264 cannot be revised u/s 263. The HC held that the order passed by
subsequently modified to give the Commissioner u/s 263 revising the non-existing order is void-ab-
effect to the revision order initio and is a nullity in the eyes of the law.
under section 264, be later on
subjected to revision under
section 263?
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matter of reassessment? intimation u/s 143(1) was issued had expired long back.
Conclusion: The HC held that the jurisdiction of CIT u/s 263 could not be
assumed on the issues which were not the subject matter of issues dealt
with in the order of reassessment but were part of the original
assessment, for which the period of limitation expired long ago.
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Chapter 16
ROI claimed cash expenses by the AO is erroneous and prejudicial to the interests of the revenue,
incurred towards his personal (ii) he may, after giving the assessee an opportunity of being heard and
security. Since the assessee was after making inquiry,
unable to substantiate the
(iii) may pass an order enhancing or modifying, or cancelling the
expenditure, the AO treated it
assessment and directing a fresh assessment.
as unexplained expenditure u/s
69C. However, the assessee (iv) As per Explanation 2 to Section 263, an order passed by the AO shall
submitted to the AO that since be deemed to be erroneous in so far as it is prejudicial to the interest of
the expenses were not the revenue, if in the opinion of the PCIT/CIT, the order is passed without
allowable the revised return making inquiries or verification which should have been made.
may be taken to be withdrawn. Analysis:
After considering the assessees
(1) Section 263 does not require issuance of show cause notice to the
reply, the AO did not make
assessee.
addition u/s 69C.
(2) Section 263 provides for principle of audi alteram partem: The
2) After finalization of the
opportunity of being heard is required to be given to the assessee before
assessment, the CIT issued
making the revision order.
show cause notice u/s 263 on
the ground that requisite and (3) The SC observed that during the revisionary proceedings, the assessee
due enquiries were not made was afforded opportunity to contest before CIT and accordingly, there
by the AO and accordingly, the was no denial of opportunity of being heard.
assessment order passed by the (4) It further observed that the assessee had incurred expenditure in cash
AO was erroneous and and later on withdrew the revised return. Since he was not able to
prejudicial to the interests of substantiate the claim, the AO should not have dropped proceedings u/s
the Revenue warranting 69C and accordingly, assessment order was passed without proper
exercise of power u/s 263. The enquiry/verification.
CIT in his order included certain
issues which were not
mentioned at the time of
serving SCN U/s 263.
Issue raised
Can order u/s 263 be passed in Conclusion: The order passed by the AO was erroneous and prejudicial to
respect of issues not recorded the interests of the revenue and accordingly, the action of CIT was
in the show cause notice issued justified.
by the CIT?
however, made the submission (3) where the defendant was prevented by sufficient cause from
through its junior counsel. appearing.
(2) However, the HC passed the Analysis:
adverse order.
The Apex court held that the order passed by the HC is not an ex -parte
(3) Later, the HC recalled its order since the order of the HC contains the submissions of the counsel of
order as per provisions of the assessee (though not that of the senior counsel for whose presence a
Section 260A(7) on the ground short adjournment was prayed).
that appellant could not argue.
Issue raised
Can HC recall its order even if Conclusion: Therefore, the Apex Court held that the HC did not have the
the order is not ex-parte? jurisdiction to recall the order passed by it previously.
Chapter 16
Fact Provision: As per section 2(22)(e) where a closely held company:
The assessee holds more than a. Makes any payment by way of loans & advances to a shareholder
75% of equity shares in a holding more than 10% of voting power in such company; or
company and is the executive b. Makes any payment to any person on behalf of such shareholder;
director of the company. In his
then, it shall be considered as deemed dividend u/s 2(22)(e)
personal capacity, he is the
chargeable in the hands of such shareholder u/s 56.
owner of certain premises in
which he was carrying on a Analysis:
proprietary business. 1. The expenditure incurred by virtue of repairs and renovation cannot
Subsequently, the assessee be brought within the definition of advance or loan given to the
ceased to carry on the business shareholder having a substantial interest in the company, though he is
and hence, let out the premises the owner of the premises.
to the company. The company
2. It cannot be treated as payment on behalf of the shareholder or for
incurred expenses towards
the individual benefit of the shareholder.
construction and improvement
of the factory premises. The
assessing officer held that the
amounts spent by the company
towards repairs and renovation
is taxable as deemed dividend
u/s 2(22)(e) in the hands of the
assessee.
Issue raised
Can repairs & renovation Conclusion:
expenses incurred by a The High Court, accordingly held that the repairs and renovation
company in respect of premises expenses in respect of the premises occupied by the company cannot be
leased out by a shareholder treated as deemed dividend u/s 2(22)(e) in the hands of the assessee.
having substantial interest in
the company, be treated as
deemed dividend?
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