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Most Important Case Laws For Nov 17 Attempt


As per ICAI Presentation

1. Case law: Henkel Spic India Ltd (SC)


Facts Provision: U/s 56 of the Income tax Act, 1961, the interest income shall
The assessee had come out form part of income from other sources in the year when it is actually
with public issue on ACCRUED TO THE ASSESSEE.
29/01/1992 and received the Analysis:
application money which was
Timing of Recognition:
deposited in bank A/c in
accordance with statutory (1) The interest earned on deposits cannot be regarded as an
requirement. In June 1992, the amount available to the assessee for its own use, since interest is
assessee refunded the money an amount which accrued on a fund which was held in trust until
along with interest to persons the allotment of shares got completed &moneys are returned to
who could not be allotted the those whom shares are not allotted.
shares. Right to Receive:
Contention of A.O is to tax the (2) No part of this fund i.e. principal and interest can be utilized by
entire interest in the year of the company until the allotment process is completed. The
public issue i.e. AY 1992-1993 interest along with allotment money needs to be repaid & it is
only after allotment process, the balance remaining application
Issue raised
money along with interest on it can be regarded as belonging to
Interest income earned on company.
share application money
deposited with a bank for a Conclusion: As the amount of interest in the bank A/c includes interest
specified period in accordance payable to the applicants to whom the shares are not allotted, the trust
with statutory requirement would terminate only after allotment. The interest on application money
becomes taxable in A.Y. in (on shares allotted) would accrue to the company only after allotment is
which allotment is completed completed.
or in the year of accrual?

2. Case law: Chennai Properties and Investment Ltd (SC)


Facts Provision: As per Section 22, Rental income from house property is
As, per the object clause of the taxable under the head house property, if the house property is not used
assessee company in the MOA, by the assessee for its business and profession.
its main objective was to Analysis:
acquire and let out properties.
Object of the company needs to be looked:
The entire income of company
(1) The deciding factor as to the head under which the income was to be
comprised of income from
assessed is not the ownership of land or leases but the nature of the
letting out of such properties.
activity of the assessee and the nature of the operations in relation to
The assessee accordingly
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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?

3. Case law: IBM Global Services India (P) Ltd. (HC)


Facts Provision: As per section 37(1), any expenditure not being capital in
(i) The assessee-company came nature shall be allowed as deductions provided it is incurred wholly and
into existence on the exclusively for the purpose of business & profession.
bifurcation of a joint venture
company floated earlier by two Analysis:
other companies. (1) Payment for right to use database:
(ii) The assessee-company paid The expenditure incurred for use of customer database did not result in
amount to JVC for use of acquisition of any capital asset.
domestic customer database, The assessee got the right to use the database and the company which
which gave information about provided the database was not precluded from using such database.
various past customers and also
Therefore, the expenditure incurred was for use of data base and not for
paid for obtaining certain
acquisition of such data base and, hence, is deductible as revenue
skilled and trained employees
expenditure.
of the JVC.
(iii) The assessee claimed both (2) Payment for obtaining trained and skilled employees:
the payments as revenue As regards payment for obtaining trained and skilled employees, it was
expenditure. held that the JVC spent a lot of money to give training to employees who
(iv) The AO contended that were transferred to the assessee-company.
domestic customer database is In effect, the payment made by the assessee-company was towards
a capital asset which provides expenditure incurred for their training and recruitment with the JVC in
an enduring benefits to past. Such expenditure was in the revenue field, and therefore, the
assessee, since by utilizing the payment made was also revenue in nature.
same, the assessee can
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successfully run its business


activity over considerable point
of time and hence treated the
same as capital expenditure.
(v) On similar line A.O also
contended that compensation
paid by assessee to JVC for
transfer of human skills is
capital expenditure.
Issue raised Conclusion: The HC held that expenditure towards right to use customer
Can the amount paid by the database and for obtaining trained and skilled employees was revenue
assessee- company (which expenditure and cannot be termed as capital expenditure. Therefore the
came into existence on contention of the AO is not correct.
bifurcation of JVC) to the JVC
for use of customer database
and for obtaining trained
personnel of JVC, be claimed as
revenue expenditure?

4. Case law: Tamil Nadu Tourism Development Corporation Ltd. (HC)


Facts Provision: As per Section 22, the annual value of house property owned
(i) The assessee-company, by the assessee shall be chargeable under the head house property only if
engaged in the business of the said house property is not used by the assessee for the purpose of its
development tourism, leased own business or profession.
some of its loss making hotel
units to various franchisees forAnalysis:
a consideration. (1) Contract looked upon
(ii) The franchisee agreement
The HC looked into the contract between the assessee and the
envisaged leasing of hotels
franchisees which contained various conditions and observed that the
with certain conditions to be
assessee had not simply leased the land and building but had imposed
complied with as to how the
further conditions as to how the business of franchisees should be
franchisees should conduct
conducted with regard to the hotels given on lease.
the business which inter alia
included display of assessees (2) Conditions imposed
company name above the The special conditions stipulated in the contract clearly indicated that:
name of the franchisee in the (a) the name of the assessee should be prominently indicated in the
name board. name board above the name of the franchisee.
(iii) The assessee offered (b) The franchisee needs to maintain certain standard facilities to do
franchise fee as Income from the operations, thereby, making it clear that the assessee
house property and claimed continued to operate the business of tourism through the
deduction at 30% of Net franchisees and received income as franchisee fee.
Annual Value (NAV) under
Conclusion: The HC held that the income earned by the assessee by way
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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?

5. Case law: TVS Motors Ltd. (HC)


Facts Provision: Under section 31 of the Act repairs, rent and taxes of
The assessee-company claimed machinery is allowed as deduction. However the deduction on account of
deduction u/s 31 for repair is allowed only if it is in the nature of Current Repair. Current
expenditure incurred on repair is an expenditure not being capital in nature,
replacements of dies and Analysis:
moulds in the place of worn out
dies and moulds since the dies (1) Moulds & dies are not independent of plant and machinery but are
and moulds are not plant and parts of plant and machinery and once they are worn out, they need
machinery but are attachments to be replaced to enable the machinery to perform the same
to make plant and machinery functions.
function. (2) As long as there was no change in the performance of the machinery
The claim was rejected by the and the parts that were replaced were performing precisely the same
A.O on the ground that function, the expenditure has to be considered as current repairs of
assessee had claimed plant and machinery.
depreciation on machinery in (3) When the object of the expenditure was not:
earlier years. (a) for bringing into existence a new asset; or
Issue raised (b) to obtain a new advantage, the said expenditure qualifies as
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Whether Expenditure on current repairs under section 31.


replacement of dies and (4) The assessee-company claimed deduction under section 31 in respect
moulds, being parts of plant of expenditure incurred on replacement of dies and moulds in the
and machinery, are deductible place of worn out dies and moulds since the dies and moulds are not
as current repairs u/s 31? plant and machinery but are attachments to make plant & machinery
function.
Conclusion: The HC held that the expenditure incurred by the assessee
towards replacement of parts of machinery to ensure its performance
without bringing any new asset or advantage, is eligible for deduction as
current repairs u/s 31

6. Case law: Shyam Burlap Co. Ltd. (HC)


Facts Provision: As per Section 37(1), any expenditure not being capital in
(i) The assessee-company was nature and for the purpose of Business and Profession shall be allowed as
deriving 85% of its income from deduction.
rent and lease rentals and its
object clause of MOA
Analysis:
permitted the assessee to carry
on the business of letting out (1) Object clause in MOA needs to be looked:
premises. Apex Court in the case of Chennai Properties and Investments Ltd. v. CIT
(ii) The assessee had leased its had laid down the ratio that the objects of the company must also be
certain property and had kept in mind while interpreting the nature of rental income and the head
decided to revise the lease rent under which the same is taxable
on the higher scale. (2) If the main object of the company was to earn rental income by letting
(iii) However, the lessee out of properties, such income constituted its business income and not
refused to increase the lease income from house property.
rent and offered to vacate the (3) The assessee, being the owner of the property, was carrying on
premises provided the assessee business by letting out of properties and the compensation paid to the
paid adequate compensation. existing tenants was for deriving higher rent by re-letting out the
(iv) The assessee claimed such properties which was in line with the MOA of the company.
compensation as its business (4) The said compensation paid is arising out of business necessity and
expenditure treating it as commercial expediency.
revenue in nature. (5) As the compensation was not for acquiring a property, it cannot be
(v) The AO disallowed the claim said that the payment made was for having a benefit of enduring nature.
of the assessee by treating the
amount of compensation as
capital expenditure on the
ground that such payment was
made for acquiring a benefit of
enduring nature.

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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?

7. Case law: ITC Hotels Ltd (HC)


Issue raised Provision: As per section 37(1), any expenditure being capital in nature
Would the expenditure shall not qualify for deduction. An expenditure will be treated as Capital
incurred for issue and Expenditure if it-
collection of convertible (i) brings an asset into existence, or
debentures be treated as (ii) results in a benefit which is enduring in nature.
revenue expenditure or capital
Analysis:
expenditure?
The HC held that the expenditure incurred on the issue and collection of
debentures shall be treated as revenue expenditure even in case of
convertible debentures i.e. the debentures which had to be converted
into shares at a later date. Expenditure on issue of debenture is not in the
capital field unlike issue of shares.
Conclusion: Accordingly, expenditure incurred for issue and collection of
convertible debentures shall be treated as revenue expenditure and not
capital expenditure.

8. Case law: Rayala Corporation (P) Ltd. (SC)


Facts Provision: Section 22 provides that income from property would be
The assessee was in the taxable under the head income from house property, if the house
business of leasing its property is not used for the purpose of business and profession.
properties and received rent Section 28 provides that profits and gains from business carried on by the
which it claimed as its business assessee shall be chargeable under the head PGBP.
income. It had no other
income. The Revenue
contended it to be income from Analysis:
house property. Object of the business to be looked upon
Issue raised (1) It made reference to law laid down by it in Chennai Properties &
Investments Ltd v. CIT (2015) 373 ITR 673 (SC) that if an assessee is
Rental income from the
engaged in the business of letting out house property on rent, then, the
business of leasing out
income from such property, even though in the nature of rent, should be
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properties would be taxable treated as business income.


under the head Profits and (2) The Apex Court held that the judgment in Chennai Properties &
gains from business or Investment Ltd.s case would squarely apply in this case also, since the
profession or Income from company is engaged in the business of letting out properties and earning
house property? rental income there from.
Conclusion: The Apex Court, thus, held that since the business of the
company is to lease out its property and earn rent there from, the rental
income earned by the company is chargeable to tax as its business
income and not income from house property.

9. Case law: Meghalaya Steels Ltd (SC)


Facts Provision: Section 80-IB Provides that profits and gains derived from
Assessee claimed deduction the specified business shall be allowed as deduction.
under section 80-IB in respect Section 28(iii)(b) specifically states that income from cash assistance, by
transport subsidy, interest whatever name called, received or receivable by any person against
subsidy and power subsidy exports under any scheme of the Government of India, will be income
received from the Government. chargeable to income-tax under the head Profits and gains of business or
AO disallowed the deduction in profession.
respect of these three subsidies
contending that such subsidies Analysis:
belonged to the category of (1) Direct nexus between profits & gains derived from the activities of
ancillary profits and hence do undertaking:
not qualify for deduction under The SC observed that an important test to determine whether the profits
section 80-IB. and gains are derived from business of an undertaking is that there
should be a direct nexus between such profits and gains and the
Issue raised
undertaking or business.
Can transport subsidy, interest Such nexus should not be only incidental. As long as profits and gains
subsidy and power subsidy emanate directly from the business itself, the fact that the immediate
received from the Government source of the subsidies is the Government would make no difference.
be treated as profits derived
(2) Profits and gains referred to in section 80-IB is the NET PROFIT of the
from business or undertaking
eligible business:
to qualify for deduction under
section 80-IB? The profits and gains referred to in section 80-IB has reference to net
profit, which can be calculated by deducting from the sale price of an
article, all elements of cost which go into manufacturing or selling it.
Thus, the profits arrived at after deducting manufacturing costs and
selling costs reimbursed to the assessee by the government, is the profits
and gains derived from the business of the assessee.
(3) Cash assistance and subsidies received from government are being
included as income under the head Profits and gains of business or
profession:
The Apex Court further observed that if cash assistance received or

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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.

10. Case law: KLN Agrotechs (P) Ltd. (HC)


Facts Provision: As per section 41(1) where in any P.Y. any deduction of any
The assessee had obtained the expenses or trading liability was claimed and subsequently, benefit is
loan from bank and the obtained by way of recovery/remission/cessation of such liability then
outstanding loan amount was such benefit would be taxed as business profits in the year when benefit
Rs. 635.26 Lakhs. The assessee is received.
made default in repayment of As per section 43B, interest on any loan or advance from a scheduled
loan. Interest amount was Rs. bank is allowed as a deduction, if they are actually paid by the assessee
193.96 Lakhs. It entered into before the due date of filing ROI.
one-time settlement (OTS) with
the bank and paid the lump
sum amount of Rs. 378.72 Analysis:
Lakhs without any bifurcation NO DOUBLE JEOPARDY:
into principal and interest. In The assessee cannot be subjected to double jeopardy i.e., it could not be
the return filled, the assessee subjected to tax on the entire waived amount as well as subjected to
offered as income Rs. 256.54 disallowance of interest under section 43B, as the said two effects are
Lakhs being the difference mutually exclusive and cannot co-exist.
between the amount
Accordingly, the High Court held that where the entire sum waived (Rs.
outstanding (Rs. 635.26 Lakhs)
256.54 Lakhs) was offered to tax then the interest amount of Rs. 193.96
and the actual amount paid (Rs.
Lakhs would be allowed as deduction U/s 43B. Therefore, the effective
378.72 Lakhs). The assessee
amount that would be chargeable to tax would be Rs. 62.58 Lakhs (Rs.
also claimed the interest of Rs.
256.54 lakhs Rs. 193.96 Lakhs).
193.96 Lakhs as deduction
under section 43B. The revenue Conclusion: Based on the above reasoning, the HC held that either the
disallowed the deduction of interest amount has to be allowed as deduction under section 43B or the
interest and charged to tax the sum offered for tax (as waived by the bank) has to be reduced by the
entire amount of Rs. 256.54 amount of interest. In either case, the effective amount which is
Lakhs considering the actual subjected to tax would come to the same.

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amount paid as the amount DS Comments:


adjusted towards the principal
This, in effect, is the rationale of the court ruling, i.e. where the entire
outstanding amount.
amount waived has been offered as income under section 41(1), interest
Issue: waived and interest paid would be allowed as deduction under section
Where the lump sum amount 43B and that would effectively bring to tax, the principal amount waived.
paid as One Time Settlement
(OTS), without bifurcation of
Interest and Principal, has been
offered to tax under section
41(1), can the assessee claim
benefit of deduction of interest
(interest paid plus interest
waived) under section 43B?

11. Case law: Kribhco (HC)


Facts Provision: As per Section 14A, no deduction shall be allowed in respect of
(i) The assessee, a co-operative expenditure incurred by the assessee in relation to such income which
society claimed deduction u/s does not form part of total income.
80P(2)(d)on dividend income Analysis:
received from co -operative (1) Exemption under Chapter III
bank and also interest on The words do not form part of the total income under this Act used in
deposits made with co- section 14A are significant and important.
operative banks. Income referred to in Chapter III do not form part of the total income
(ii) AO contended that the and therefore, as per section 14A, no deduction shall be allowed in
income was not included in respect of expenditure incurred by the assessee in relation to such
total income of the assessee, income which does not form part of the total income.
and therefore expenditure (2) Deduction under Chapter VI-A is different from exemption under
related with such income chapter III:
would be disallowed as per SecThe deduction under chapter VI-A is different from exemptions provided
14A. under Chapter III. Income which qualifies for deductions under section
80C to 80U has to be first included in the total income of the assessee and
then allowed as a deduction.
Conclusion: The HC held that no disallowance can be made under section
Issue raised 14A in respect of income included in total income in respect of which
Whether section 14A is deduction is allowable under section 80C to 80U.
applicable in respect of
deductions, which are
permissible and allowed under
Chapter VI-A?

12. Case law: Society for the Promotion of Education (SC)


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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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Issue raised by the donee, on fulfillment of other conditions about application of


income.
Can application filed U/s 80G
be rejected on non-fulfillment (iii) Once a trust is registered under section 12AA, its income from
of the conditions applicable u/s property includes donation which is covered by section 11(1)(d) or under
11? section 12. Such donations are deemed to be income from property,
which are not to be included in the total income under section 11 or
section 12. The enquiry under section 80G, hence, cannot go beyond that.
(2) Scope of enquiry cannot be restricted only towards application of
85% of income
(i) The scope of enquiry cannot include an enquiry as to whether, at the
close of the previous year, the donee-trust will actually be able to apply
85% of its income because non-fulfillment of some conditions by the
donee-trust as regards application or accumulation cannot be ascertained
in presenti, when the donation is made.
Conclusion: The HC thus set aside the order passed by the Commissioner
refusing to grant registration under section 80G(5) to the assessee-trust
due to the reason that it has not applied 85% of its income for
charitable purposes.

14. Case law: Queens Educational Society (SC)


Facts Provision: As per Sec. 10(23C)(iiiad) exemption is available if 3
The assessee, an educational requirements are fulfilled, any university or other educational institution
institution, showed a net existing solely for educational purposes and not for purposes of profit if
surplus of 6.59 lakhs and 7.83 the aggregate annual receipts of such university or educational institution
lakhs, respectively, for the do not exceed 1 crore rupees.
assessment years 2000-01 and Analysis:
2001-02 and claimed
(1) Profit is incidental to the main objects of spreading education
exemption under section
10(23C)(iiiad). The Assessing The profit is only incidental to the main object of spreading education.
Officer rejected the claim of The predominant object test must be applied the purpose of education
exemption on the ground that should not be submerged by a profit making motive.
the assessee has made profits (2) making of surplus does not lead to conclusion that educational
and did not exist solely for institution becomes an entity for profit
educational purposes which
(i) Where an educational institution carries on the activity of education
was also affirmed by HC.
primarily for educating persons, the fact that it makes a surplus does not
lead to the conclusion that it ceases to exist solely for educational
purposes and becomes an institution for the purpose of making profit.
Issue raised (ii) If after meeting expenditure, surplus arises incidentally, it will not
cease to be one existing solely for educational purposes.
Where an institution engaged
in imparting education (iii ) A distinction must be drawn between the making of surplus and an
institution being carried on for profit. Merely because imparting of
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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.

15. Case law: St. Peters Educational Society (HC)


Facts Provision: As per Sec. 10(23C)(iiiad) exemption is available if 3
The CIT refused application for requirements are fulfilled, any university or other educational institution
grant of exemption u/s existing solely for educational purposes and not for purposes of profit if
10(23C)(vi) on the ground that the aggregate annual receipts of such university or educational institution
society does not exist solely for do not exceed 1 cr. rupees.
education purpose and
provides coaching/training
Analysis:
courses on the behalf of
industry, trade and commercial (1) Institutions engaged in providing specialised training need not to
organizations and also provides impart education in formalized manner
general public utility services. Institutions engaged in providing specialized training in certain fields and
awarding diplomas and certificates are also eligible for tax exemption in
Issue raised
terms of section 10(23C) (vi).
Whether words imparting
It is not mandatory for such institutions to impart education in formalized
education/training in
manner or conduct only recognized educational courses. Further, when
specialized field like
corporates depute employees for gaining specialized knowledge, such
communication, advertising
imparting of knowledge by the institution would not mean that the
etc. and awarding diplomas/
institution is engaged in the activity of general public.
certificates constitute an
educational purpose for grant (2) Making of surplus does not lead to conclusion that educational
of exemption under section institution becomes an entity for profit
10(23C)(vi)? The predominant object test must be applied the purpose of education
should not be submerged by a profit making motive.
A distinction must be drawn between the making of surplus and an
institution being carried on for profit. Merely because imparting of
education results in making a profit, it cannot be inferred that it becomes
an activity for profit.
Conclusion: The Apex Court held that the institution is established for the
sole purpose of imparting education in a specialized field and thus set
aside the order of the Chief Commissioner of Income-tax refusing
exemption under section 10(23C)(vi).

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.

17. Case law: UCO Bank (HC)


Facts Provision: TDS on interest other than interest on securities u/s 194A will
(1) The assessee bank accepted be deducted by any person (other than individual or HUF) at the time of
fixed deposit in the name of credit or payment to a resident payee.
Registrar General Of HC and Analysis:
issued a receipt of such deposit
in compliance with a direction (1) Credit of interest:
passed by the court in relation As per sec194A of the Act, the bank is obliged to deduct tax at source in
to certain proceedings. respect of any credit or payment of interest on deposits made.
(2) The assessee had not The expression payee u/s 194A would mean the recipient of income

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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?

18. Case law: Manipal Health System (P) Ltd. (SC)


Facts Provision:
1.The assessee- Company is an Tax u/s 192 would be deducted on remuneration payable only if
institution providing health employer employee relationship exists.
services
Section 194J requires deduction of TDS on fees paid for professional
2. As per the terms of contract
and technical services.
entered into between the
assessee- company and the Analysis:
doctors 1. Contract for service or Contract of Service
The remuneration paid to
The HC observed that the terms of contract have to be seen to decide
the doctors depends on the
whether employer-employee relation exists or not.
number of patients and
treatment given to them. 2. Non-competition clause
Timing of doctors is fixed Mere provision of such clause in the agreement shall not change the
They cannot have private nature of contract
practice or attend any 3. Condition of bar to private practice
hospital Imposing of such condition is to make use of expertise skill of doctor
Provision of non exclusively for the assessee-company. This again does not render the
competence clause is services of doctors in the capacity of being an employee to the hospital.
present in the agreement
Doctors are not entitled to

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gratuity, provident fund.


3. Doctors have filed their
return of income showing
income received from assessee-
company as professional
income and the same is
accepted by the department.
Issue raised Conclusion: The HC held that consultancy charges paid to the doctors
Where remuneration paid to rendering professional service would be subject to tax deduction u/s 194J
the doctors is variable based on and not u/s 192
the number of patients and
treatment given to them, then
would the liability to deduct tax
at source arise u/s 192 or u/s
194J?

19. Case law: Avenue Super Chits (P) Ltd (HC)


Facts Provision: As per sec 2(28A) Interest means: Interest payable in any
1. The assessee company manner in respect of any moneys borrowed or debt incurred and includes
engaged in Chit fund business any service fee or in respect of any credit facility which has not been
had several chit groups which utilized
consisted of 25-40 customers As per section 194A: person paying interest to a resident, other than
each. income by way of interest on securities, shall deduct income-tax thereon.
2. Each subscriber has to Analysis:
subscribe an equal amount
based on the value of chit. 1.The amount paid by the way of chit dividend could not be called as
interest in terms of sec 2(28A) of the Income Tax Act,1961 as it is not a
3. Under the auction system, payment in respect of any money borrowed or debt incurred.
during each installment of the
2.Further sec 194A has no application to such (chit) dividend
chit, the highest bidder got the
chit amount. The unsuccessful
members would earn dividend.
Issue raised
Whether chit dividend paid to Conclusion: The HC held that chit dividend paid to the subscriber of Chit
subscribers of chit fund is in the is not interest as defined u/s 2(28A) of the Income Tax Act,1961.
nature of interest in terms of
section 2(28A) to attract
deduction of tax at source u/s
194A

20. Case law: Kotak Securities Ltd. (SC)


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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?

21. Case law: Ajmer Vidyut Vitran Nigam Ltd (AAR)


Facts Provision: As per section 9(1)(vii), fees for technical services means any
(i) The applicant is a consideration for rendering of any managerial, technical and consultancy
government company engaged services but does not include consideration for construction, assembly,
in the business of supply of mining and salaries.
electricity to customers. Analysis:
(ii) The production is by the 1)Transmission and wheeling charges constitute fees for technical
generating company, which is services:
another entity and transmission
The AAR did not agree with the applicants contention regarding
to the applicant is through the
transmission and wheeling charges not constituting fees for technical
transmission system.
services on the ground that no rendering of technical services was
(iii) The transmission of

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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?

22. Case law: Smt. A. Kowsalya Bai (HC)


Facts Provision:
(1) The assessee had income (i) As per the provisions of section 139A, inter alia, a person whose total
below taxable limit and was not income does not exceed the maximum amount not chargeable to
holding PAN. It earned interest income tax is not required to apply to the Assessing Officer for the
on bank deposits. allotment of PAN.
(2) For seeking exemption from (ii) As per sec 206AA notwithstanding, anything contained in any other
deduction of tax, PAN is provisions of the Act, any person who is entitled to receive any sum
required to be furnished to the or income or amount on which tax is deductible under Chapter XVII-
bank despite filing 15G u/s B, i.e., the deductee, shall furnish his PAN to the deductor, otherwise
197A otherwise tax would be tax shall be deducted as per the provisions section 206AA, which is
deducted at higher rate u/s normally higher.
206AA

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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23. Case law: Mehak Finvest (P) Ltd. (HC)


Facts Provision: Section 147 provides that the A.O having reasons to believe
In the present case during the that the income has escaped assessment shall assess such income or any
reassessment proceedings, the other income which comes to his notice subsequently during the course
AO made additions o n some of assessment u/s. 147
different grounds other tha n on Also, as per Explanation 3 to Sec. 147 the A.O can assess or reassess such
the basis of the original reason additional income even if reasons for such issue havent been recorded in
for which reassessment the notice issued u/s. 148.
Proceedings were initia ted.
Analysis:
Issue raised (1) Explanation 3 to sec. 147 nowhere contemplates that A.O cannot
make additions on any other different grounds
Can additions be made in
reassessment when the The section empowers the A.O who has initiated the proceedings u/s.
ORIGINAL REASONS to believe 147 to reassess any other income which comes to his notice during the
on the basis of which the notice course of assessment.
u/s 148 was issued ceased to (2) If original assessment u/s.147 is valid, reassessment proceedings
exist? even on a different ground are also valid
If original assessment u/s. 147 has been initiated in a valid manner, then
the proceedings doesnt become invalid only on the basis that the A.O has
made an addition on some other ground without making additions on the
original ground.
Conclusion: The HC held that even though no addition is made on the
original grounds which formed the basis of initiation of reassessment
proceedings, the order passed by the A.O considering only different
ground is VALID.

24. Case law: Govindaraju (HC)


Facts Provision: As per section 147, if AO has reasons to believe that the
(1) The assessee derived income has escaped assessment, he may assess such income and any
income from HP, transport other income which comes to his notice subsequently during pendency of
business, CG and other sources assessment under sec 147.
and agricultural income Explanation 3 to Section 147 provides that AO may assess or reassess the
(2) Notice issued u/s 148 on the income in respect of any issue, which has escaped assessment which
grounds of excessive indexation comes to his notice subsequently in the course of the proceedings under
benefit taken stating this section, notwithstanding that the reasons for such issue have not
agricultural land was converted been included in the reasons recorded u/s 148(2).
for non-agricultural purposes Analysis:
but indexation benefit was
(1) The proceedings is valid, if notice is valid: the notice is valid under
taken upto the date of sale
following two grounds:
instead of date of conversion,
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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.

25. Case law: Ranbaxy (HC)


Facts Provision: As per section 147, if AO has reasons to believe that the
(1) The AO accepted the return income has escaped assessment, he shall assess such income and any
but initiated reassessment u/s other income which comes to his notice subsequently during pendency
147 and issued notice u/s 148. of assessment under sec 147.
(2) After sufficient enquiries, Explanation 3 to Section 147 provides that AO may assess or reassess
the AO did not make additions the income in respect of any issue, which has escaped assessment which
on account of items mentioned comes to his notice subsequently in the course of the proceedings under
in the notice. this section, notwithstanding that the reasons for such issue have not
been included in the reasons recorded u/s 148(2).
(3) However, the AO made few
additions on issues which were
not the original reasons to Analysis:
believe, in line with
Income chargeable e to tax which has escaped assessment which forms
Explanation 3 to Section 147.
"reasons to believe for reopening assessment" AND ALSO any other
Issue raised income which comes to notice of the AO
Can the AO reassess the issues 1 The assessment or reassessment must be in respect of the income, in
other than the issues in respect respect of which the Assessing Officer has formed a reason to believe
of which proceedings were that the same has escaped assessment and also in respect of any
initiated u/s 147 when the other income which comes to his notice subsequently during the
original reasons to believe on course of the proceedings as having escaped assessment.
the basis of which the notice 2. Accordingly both should be cumulatively present.
was issued ceased to exist?
3. If the income, the escapement of which was the basis of the formation
of the "reason to believe" is not assessed or reassessed, it would not

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be open to the Assessing Officer to independently assess only that


income which comes to his notice subsequently in the course of the
proceedings under the section as having escaped assessment. If he
intends to do so, a fresh notice under section 148 would be necessary.
Conclusion:
The HC accordingly, held that the order of AO was invalid.

26. Case law: P.P. Engineering Works (HC)


Facts Provision: (i)As per Section 149(1) the time limit for issuance of notice
The Tribunal gave a finding that u/s 148 is six years from the end of the relevant assessment year, where
the cash credit u/s 68 was the income chargeable to tax which has escaped assessment amounts to
assessable in a different Rs. 1 lakh or more for that year and;
assessment year (A.Y. 2000-01) (ii) There must be failure on the part of the assesse to disclose all the
than the assessment year in material facts.
respect of which it heard the (iii) As per Section 150(1), notice u/s 148 may be issued at any time
appeal (A.Y. 2001-02). This notwithstanding anything contained u/s 149, if assessment/
prompted the AO to issue a reassessment are in consequence of or to give effect to any direction or
notice u/s 148 for that findings contained in the appellate order, court or revisionary order.
assessment year for reopening
(iv) Explanation 2 to section 153 provides that where by any
the proceedings for the A.Y.
appellate/revisionary order, any income is excluded from total income of
2000-01.
the assessee for an A.Y., then assessment of such income for another A.Y.
shall for the purpose of section 150 and 153 be deemed to be one made
in consequence of or to give effect to any finding or direction contained in
the said order.
Analysis:
Issue raised Section 150 overrides the time limit of 6 years u/s 149 to give effect to
order of the Tribunal.
Does the findings or direction in
an appellate order that income The HC observed that in view of the Tribunals order that credit entries
relates to a different A.Y. related to earlier A.Y., the AO reopened the assessment of that earlier
empower re-opening of A.Y. and passed an order.
assessment for that A.Y.
irrespective of the expiry of the
Conclusion: The HC held that by virtue of sec 150 read with Explanation 2
6 years time limit?
to sec 153, the said order passed was not time barred by limitation.

27. Case law: Allanasons Ltd. (HC)


Facts Provision: As per Section 147, any assessment is sought to be opened
(1) The assessee-company filed beyond period of 4 years from the end of the relevant assessment year,
its return of income in which a two conditions have to be fulfilled cumulatively;
claim for deduction under (1) There must be reason to believe that income chargeable to tax has
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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?

28. Case law: Hemant Kumar Sindhi & Another (HC)


Facts Provision: Section 132B(1)(i) provides for application of asset seized u/s
132 or requisitioned u/s 132A towards meeting up of any existing tax

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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?

29. Case law: New Mangalore Port Trust (HC)


Facts Provision: As per Section 263 Commissioner can invoke revisionary power
(1) The assessment order u/s to rectify the order passed by the AO which is erroneous and prejudicial
143(3) was passed by the AO to the interest of the Revenue.
on 27th December, 2009.The As per Section 264 Commissioner can revise the order of the AO after
assessee filed a revision application has been filed by the assessee.
petition u/s 264 which was
Analysis:
allowed and the matter was
remanded to AO to compute (1) The assessee contented before the HC that the order passed by A.O
the income of the assessee in u/s 143(3) on original assessment does not exist after the order of
terms of the order of revision revision is passed by Commissioner u/s 264. (Doctrine of Merger)
u/s 264. (2) The said order which no longer subsists was revised by Commissioner
(2) The AO gave effect to the u/s 263.
revision order by revising the (3) Invoking suo moto revision by Commissioner u/s 263 is not justifiable
original order passed on 27th in this case.
December, 2009. (4) The HC accepted the assessees contention.
(3) Thereafter original order
passed on 27th December, 2009
was revised by CIT u/s 263.
(4) The revision order u/s 263

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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?

30. Case law: Lark Chemicals Ltd. (HC)


Facts Provision: As per Section 263 the PCIT/CIT can invoke revisionary power
The assessees ROI was to rectify the order passed by the AO which is erroneous and prejudicial
processed u/s 143(1). to the interest of the Revenue.
Subsequently, it was reopened ii) The time limit for revision u/s 263 is two years from the end of the
by issue of notice under section financial year in which the order sought to be revised was passed.
148 and the order of
Analysis:
reassessment was passed in
June, 2006. The Commissioner Time limit for passing order u/s 263 in respect of issues which are not
assumed jurisdiction for subject matter of re-assessment be reckoned from the date of passing
revision of order by invoking of original assessment order.
Section 263 in March, 2009. (i) Since the re-assessment order had not dealt with issues covered by
The subject matter of revision, the original assessment order, doctrine of merger shall not apply i.e.
however, was not related to original assessment order shall not be merged with re-assessment
any of the issues dealt with in order.
the reassessment. (ii) Where the revision happens in relation to those issues dealt with
Issue raised in the reassessment proceedings, then, it would not be barred by
limitation as the time limit would expire only on 31.03.2009 i.e. 2
Whether the time limit u/s 263
years from the end of the financial year in which the order sought to
is to be reckoned with
be revised u/s 263, was passed.
reference to the date of
assessment order or the date of (iii) In the present case, the revision proposed u/s 263 was in respect of
reassessment order, where the issues, other than the issues dealt with in the order of reassessment.
revision is in relation to an (iv) The issues on which the Commissioner sought to exercise
item which was not the subject jurisdiction u/s 263 were concluded by virtue of intimation issued
u/s 143(1). The time limit of 2 years from the end of FY when

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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.

31. Case law: Fortaleza Developers (HC)


Facts Provision: (i) As per Section 263 the PCIT/CIT can invoke revisionary
The assesse (an AOP) claimed power to rectify the order passed by the A.O which is erroneous and
deduction u/s 80-IB (10).The prejudicial to the interest of the Revenue.
assessment was completed u/s (ii) Explanation 1(c) to Section 263 provides that when the order of CIT(A)
143(3) disallowing fully the is complete and the appeal is pending before the Tribunal, CIT is
deduction u/s 80- IB (10). The precluded from invoking Section 263 for revision.
assesse filed an appeal before Analysis:
CIT (A) who held that the CIT cannot exercise jurisdiction u/s 263 in respect of deduction u/s 80-IB
assesse had fulfilled all the (10) which was subject matter of appeal before the Tribunal and was
conditions u/s 80-IB (10) and decided by the CIT (A). The Order passed by the AO got merged with the
directed the AO to allow the order of CIT (A) and the same could not be revised by invoking Section
deduction. 263.
The order of CIT (A) was
challenged before the Tribunal
by the Revenue. During the
pendency of the appeal before
the Tribunal, the CIT issued a
notice u/s 263 asking the
assesse to show cause as to
why the assessment order
should not be set aside on the
ground that excess deduction
u/s 80-IB (10) was granted to
the assessee by the Revenue.
Issue raised
Can the CIT invoke revision u/s Conclusion: The HC held that when the order of the first appellate
263, when the subject matter authority is complete and the appeal is pending before the Tribunal, the
of revision has been decided by CIT cannot invoke revision u/s 263 for the matter which is decided by
the CIT(A) and the same is the first appellate authority.
pending before the Tribunal?

32. Case law: Amitabh Bachchan (SC)


Facts Provision: As per Section 263, the PCIT/CIT
(1) The assessee in the revised (i) If on examination of assessment order considers that any order passed

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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?

33. Case law: Subrata Roy (SC)


Facts Provision: Section 260A(7) provides that order can be recalled by HC and
(1) The assessee prayed before appeal shall be reheard
the HC to adjourn the case for a (1) where an appeal is heard ex-parte and the judgment is pronounced
day since its senior counsel was against the respondent
not available. The assessee (2) where the notice is not served
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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.

34. Case law: Meghalaya Steels Ltd. (SC)


Fact Provision: Section 260A(7) states that provisions of Civil Procedure
(1) The assessee filed a review Code(CPC) relating to HC appeals shall apply. Under CPC, HC can review
petition whereupon the its order.
Division bench of HC recalled its Analysis:
order passed for adjudication (1) Review can be made to prevent miscarriage of justice or to correct
on the ground that it had not grave errors committed by it.
formulated the substantial (2) HC have inherent power to review its own order as per Section 260A.
questions of law before hearing DS COMMENT Comparison between Recall,
the appeal and the parties to
Review, Rectification
the hearing were not given
Particulars Recall Review Rectification
opportunity of being heard.
When (i) When-exparte To prevent When mistake is
Issue raised assessment order is miscarriage of apparent from
Does HC have power to review passed. justice, or records
(ii) A notice is not When a grave
its order passed under Income
served. mistake is
tax act, 1961? (iii) Assessee is committed
prevented from
sufficient cause to
attend the
proceedings.
Who ITAT/HC/SC (CPC) HC/SC (CPC) ITA/ITAT
Case Laws Subrata Roy (SC) Meghalaya Steels
(SC)
Conclusion:
The Apex Court held that the HC have inherent power to review its own
order as per Section 260A.

35. Case law: Vir Vikram Vaid (HC)


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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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