Digest Case Laws October 2011

MONTHLYDIGESTOFCASELAWS(OCTOBER2011) (JournalsReferred:ACAJ/BCAJ/BLR/CITC/CTR/DTR/ITD/ITR(Trib.)/ITR/SOT/SSC/TTJ/TLR /Taxman/Taxation/TaxWorld,www.itatonline.org) S.4:IncomeCapitalreceiptBusinessincomeCapitalgains.(S.28(i),45).
5). Assessee, administrator of the estate of deceased, having purchased the right to receive the sale proceedsoftheestatebyenteringintoanindenturewiththelegateeonaccountofclosepersonal relations with her and not for overriding commercial considerations. The transaction cannot be construedasanadventureinthenatureoftrade.Thesaidreceiptcannotbetaxedevenascapital gainsastheestatecontinuedtobetheownerofthepropertiesandassuchpaymentdidnotresult inextinguishmentofassesseesrighthencetherewasnotransferofanycapitalasset.(A.Y.200405). DyCITvNusliNevilleWadia(2011)61DTR218/141TTJ521(Mum)(Trib). S.4:IncomeMethodofAccountingNPAs. Income fromnonperformingassets shouldbeassessedoncashbasisandnotonmercantilebasis despiteoftheassesseemaintainingaccountsonmercantilebasis. CITv.CanfinHomesLtd.(2011)201Taxman273(Kar.)(HighCourt). S.5:IncomeAccrualAdvancefromcustomerstowardsbookingofcruisetickets. AssesseebeingengagedinthebusinessoftravelagencyasarepresentativeofRCCLbookingstickets forthelatter'scruiseandentitledtobasecommissionof25%onallbookingsasperthetermsofthe agreementbetweentheparties,thecommissionaccruestotheassesseewiththebookingoftickets againstfullpaymentasperthemercantilesystemofaccountingfollowedbyhim;however,assessee isentitledtocreditof10%onaccountoftravelagentscommissionwhichispayablebyhim. CITv.GautamR.Chadha(2011)62DTR58(Delhi)(Highcourt) S.5:IncomeAccrualFixeddepositsinbanksInterest Assesseesocietyheldfixeddepositsinbanksforatermexceedingmorethanoneyear.Ithadnot shown any interest income from said FDs during previous year on ground that income from FDs wouldbeofferedtotaxonitsreceiptonmaturityonbasisofTDScertificateissuedbybank.Itwas heldthattheassesseewasnotliabletodeclareinterestincomeaccruedbutnotdueintherelevant assessmentyearasthesaidsumwasnotacknowledgedbybankorbytheassessee.(A.Y.200708). PuriDistrictCoop.MilkProducersUnionLtd.v.ITO(2011)132ITD127(Cuttack)(Trib). S.9(1):IncomedeemedtoaccrueorariseinIndiaPermanentEstablishmentDTAAIndia UK.[Art.5] AssesseewasBritishCompany.ItsuppliedcertainpartsandequipmentstoIndiancustomers.RRIL wasassessees100%subsidiarysetupinIndiathroughwhichitcarriedoutmarketingandsellingof goodstoIndiancustomers.A.O.afterholdingRRILasPEoftheassessee,attributed100%ofprofits earned from sale of goods to Indian customers to activities carried on in India. The Tribunal restricted such attribution to 35 % holdings that profits attributed to manufacturing activity and researchanddevelopmentactivities,i.e.50%and15%,respectivelyhadtobeexcluded.Assessee filedappealbeforetheHighCourtcontendingthatnetresearchanddevelopmentexpensesshould
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alsobereducedwhilecomputingoperatingprofits;andthatTribunalhadnotconsideredobjections anddocumentsfiledbyitonaspectofPEproperlyand,therefore,mattershouldberemandedfor reconsideration.Heldthatexpensesonresearchanddevelopmentwerealreadytakencareofwhen remunerationatrateof35%wasattributedtomarketingactivitiesinIndiaonwhichglobalprofits wasapportioned.FromtheorderoftheTribunalitwasclearthatwhileholdingthatRRILconstituted PE of assessee, it had undertaken critical analysis of material on record including objections and documentsfiledbytheassesseeandthereforetherewasnoreasontoremandthecasebacktothe Tribunal. RollsRoycePlcv.DIT(Internationaltaxation)(2011)202Taxman309(Delhi)(HighCourt) S. 9 (1) (i) : Income deemed to accrue or arise in India Fact of Office PE under Article 5(2) irrelevant if there is no Construction Site PE under Article 5(3) DTAA India Netherlands. [Art.5(3),5(2)] The assessee had a site or project in India. Under Article 5 (3) of the treaty, such a site or projectisaPEonlyifitcontinuesforaperiodofmorethansixmonths.Astheassesseescontract wascompletedintwomonths,therewasnoPEunderArticle5(3).TheargumentthattheMumbai officewasaPEunderArticle5(2)isnotacceptablebecausewhileArticle5(2)isageneralprovision, Article5(3)isaspecificprovisionwhichprevailsoverArticle5(2). CITvBKI/HAMv.o.f.(Uttarakhand)(HighCourt)(www.itatonline.org) S.9(1)(vi):IncomedeemedtoaccrueorariseinIndiaRoyaltySoftware. Considerationreceivedbytheapplicant,aSriLankanCompany,fromICELforgivingittherightto useitscopyrightedsoftwareanduseitforlattersownpurposeswheneverandwhereverneededby itistaxableinIndiaasroyaltyundercl.(v)ofExpln.2ofS.9(1)(vi)aswellasunderArt.12.2ofthe IndoSriLankaDTAAandconsequently,provisionofwithholdingtaxu/s195isapplicable. MillenniumITSoftwareLtd.,InRe(2011)62DTR1/338ITR391(AAR) S.9(1):IncomedeemedtoaccrueorariseinIndiaPermanentestablishmentRoyaltyandfees fortechnicalservicesDTAAIndiaUSA.(S.9(1)(vii)&90). In the contract of the kind undertaken by the assessee, if there is a composite consideration, the same can be conveniently segregated in different components. If the profits from supply contract are held to be taxable separately, as the supply is a milestone in the whole contract, then the treatment meted out to profits on sale of equipment and consideration received for supply of software will have to be different, as the two assets are of different nature involving different profitabilities.TheA.O.bifurcatedintheratioof30:70.Astheassesseewasunwillingtogivethe detailsthebifurcationmadebytheA.O.wasjustified. RaytheonCompanyv.DCIT(2011)62DTR1(Del)(Trib) S. 9 (1) (vii) : Income deemed to accrue or arise in IndiaInstallation projectPermanent establishmentDTAAIndiaSingapore.(Art5.3) Four installation projects undertaken by the applicant, a Singaporean company, in India requires setting up, fitting, placing and positioning projects covered under Art 5.3 of the Indo Singapore DTAA, and all these projects being independent projects with no interconnection and interdependenceamongstthem.ItcannotbesaidthattheapplicanthasaPermanentestablishment intermsofart5.2oftheDTAAprovidedthatthedurationofeachoftheprojectsdoesnotexceed
183daysin onefinancialyearandtherefore, incomeearnedbytheapplicantformits activitiesof executionoftheinstallationprojectisnotliabletotaxinIndia. TiongWoonProject&ContactingPteLtd(2011)61DTR337(AAR)/338ITR386(AAR) S.10(23C)(via):ExemptincomesHospitalApplicationBeyondtime. Application u/s 10(23C)(via) filed beyond time. Accounts not maintained properly. No evidence regarding activities. Registration u/s 80G and exemption u/s 12A in prior years not conclusive. Rejectionofapplicationwasjustified. All India J. D. Educational Society v. Director General of income tax(exemptions) (2011) 338 ITR 218(Delhi)(HighCourt). S.10A:ExemptincomesFreetradezoneCompetentauthorityFEMARBI. TheassesseemadeanapplicationtotheRBIon7102004seekingextensionoftimeforrealisation of the export proceeds. The RBI granted approval in realisation of exports proceeds but said approvalwasissuedinthecontextoftheprovisionsoftheFEMAandtherewasnoformalapproval wasgrantedbytheRBIundersection10A.TheTribunalheldthatoncetheassesseehadappliedfor extensionandhadcompletedalltheformalitiesandinresponsetheRBIhadtakentheremittances onrecord,thennonissuanceofformalletterofapprovalbytheRBIcouldnotbeheldagainstthe assessee, it must be held that the extension had been granted in substance and therefore the benefitofsection10Ahadtobeallowed.ThecourtupheldtheorderoftheTribunal.(A.Y.200405). CITvMorganStanleyAdvantageServices(P)Ltd(2011)202Taxman40(Bom)(HighCourt). S.10A:ExemptincomesFreetradeZoneConvertibleforeignexchangeLocalsales. Section 10A provides for exemption only on profits derived on export proceeds received in convertible foreign exchange. Benefit cannot be extended to local sales made by units in special Economic Zone, whether as part of domestic tariff area sales or as inter unit sales within zone or unitsinotherZones.(A.Y.200405). CITvElectronicControls&DischargeSystems(P)Ltd(2011)202Taxman33(Ker)(HighCourt). S. 10A : Exempt incomes Free Trade Zone Export Oriented UndertakingExemptions under sections 10A,10B continue to exempt profits & so loss of other units (eligible & noneligible, includingB/floss)notliableforsetoffagainstsections10A,10Bprofits. TwoissueswherebeforetheHighCourtforAY200102&onwards,(i)Whetherthelossincurredby anoneligibleunit&(ii)whetherthebroughtforwardunabsorbedloss&unabsorbeddepreciation oftheeligibleunithastobesetoffagainsttheprofitsoftheeligibleunitbeforeallowingdeduction u/s10A/10B. Heldthat(a)S.10Aallowsdeductionfromthetotalincome.Thephrasetotalincomeins.10A meansthetotalincomeoftheSTPunitandnottotalincomeoftheassessee.Consequently,s. 10Adeductionhastobegivenbeforecomputingtheprofits&gainsofbusinessunderChapterIV. Thoughs.10Awasamendedtomakeitadeductionprovision,itcontinuestoremaininChapterIII and was not moved to Chapter VIA. The result is that even now s. 10A is in the nature of an exemptionprovisionandtheprofitsoftheeligibleunithavetobedeductedatsourcelevelanddo notenterintothecomputationofincome.
(b) S. 10A(6) as amended by the FA 2003 w.e.f. 1.4.2001 provides that depreciation and business lossoftheeligibleunitrelatingtotheAY200102&onwardsiseligibleforsetoff&carryforward for setoff against income post tax holiday. This amendment does not militate against the proposition that the benefit of relief u/s 10A is in the nature of exemption with reference to commercialprofits.However,togiveeffecttothelegislativeintentionofallowingthecarryforward of depreciation and loss suffered in respect of any year during the tax holiday for being set off againstincomeposttaxholiday,itisnecessarythatanotionalcomputationofbusinessincomeand thedepreciationshouldbemadeforeachyearofthetaxholidayperiod.Suchlossiseligibletobe carriedforward.But,astheincomeofthe10Aunithastobeexcludedatsourceitselfbeforearriving at thegross total income, thequestionof settingoffthe loss of the currentyears or the brought forwardbusinessloss(andunabsorbeddepreciation)againstthes.10Aprofitsdoesnotarise. CITvYokogawaIndiaLtd.(Karn)(HighCourt)(www.itatonline.org) S.10B:ExemptincomesExportOrientedUndertakingOutsourcingJob. Someworkdoneonjobbasisbysisterconcernisnotrelevant.Assesseeisentitledtoexemption. CITv.ContinentalEnginesLtd.(2011)338ITR290(Delhi)(HighCourt) S.12A:ExemptincomesCharitableTrustCommercialActivities. Registration under section 12A was rightly refused to the trust where the trust has carried out commercialactivityanddidnotapplytheincometofulfiltheobjectofthetrust. SocietyfortheSmall&MediumExportersv.DirectorofIT(Exemptions)(2011)139TTJ218(Delhi.) (Trib) S.12A:ExemptincomesCharitableTrustRegistration.(S.11(4A) Assessee engaging manufacturing and trading activities. Assessee converting incidental objects as mainobjects.Assesseenotsatisfyingfirstconditionofsection11(4A)Cancellationofregistration valid. AurolabTrustv.CIT(2011)12ITR74(Chennai)(Trib) S.22:IncomefromhousepropertyBusinessincomePartnershipfirm. Exemptionu/s22inrespectofapropertynowownedbythepartnershipfirmcannotbeavailedof byanindividualcoownermerelybecausehehappenstobeapartnerofafirminoccupationofa partoftheproperty;therefore,theassesseecannotprayforexclusionofincomeoftheimpugned portioninoccupationofapartnershipfirm. ProdipKumarBothravs.CIT(2011)62DTR47(Cal)(HighCourt) S.22:IncomefromHousePropertyBusinessofConstructionanddevelopmentofresidential CommercialUnit.[S.28(i)] Whereprincipalobjectoftheassesseecompanybeingtodevelopandsellthepremisesconstructed andthere isnomaterialonrecordtoshowthatthesaidprincipalobjectofthecompanyincludes leasing of the stock i.e. property for a temporary period to persons/companies interested in temporaryuse,rentisnotreceivedfromexploitationofthepropertybywayofcomplexcommercial activitiesbuttherentalincomeisderivedbytheassesseeasanownerofthepropertyanditisliable tobeassessedunderthehead`incomefromhouseproperty.Leaserentreceivedfromexploitation
ofpropertybywayofcomplexactivities,therentincomederivedasownerofpropertybeassessed as`IncomefromHouseProperty. RomaBuilders(P)Ltd.v.Jt.CIT(2011)131ITD91/60DTR231(Mum)(Trib.) S.28(1):BusinessincomeGiftsfromdevoteesonbirthdayVocationProfessionCapitalreceipt. Assessee as religious head was not performing any religious rituals for his devotees for consideration. He was doing charitable work and spiritualisation for benefit of mankind. Gift received by assessee from devotees out of natural love and affection. Receipt cannot be taxed as incomefromanyvocationorprofession. CITvGopalaNaickerBangarue(2011)Tax.L.R.686(Mad)(HighCourt). S.32:DepreciationRatePrintersUPS. PrintersandUPSfallwithintheclassofcomputerperipheralsandtherefore,eligiblefordepreciation attherateof60%. Haworth(India)(P)Ltd.v.Dy.CIT(2011)140TTJ446(Delhi.)(Trib). S.32:DepreciationComputerPeripheralsIntegralParts Computer peripherals like printers scanners, servers, UPS, etc., form integral part of computer systemonwhichhigherdepreciationof60%isallowable.[A.Y.200506] ITOv.OmniGlobeInformationTechnologiesIndia(P)Ltd(2011)131ITD280(Delhi)(Trib). S.35E:Deductionforexpenditureonprospectingetc,forminerals. Wheretheassesseeincurredaloss,thedeductionundersection35Eisnotavailable.(A.Ys1997,98 &200001to200405). SingareniColliweriesCompanyLtdvAsstCIT(2011)141TTJ593(Hyd)(Trib) S.36(1)(ii):BusinessexpenditureBonusorCommissionCommissioninlieuofDividend. Paymentofcommissiontodirectorsowningentirecapitalwerepaidcommissionfortheirhardwork notallowedasitwaspaidinlieuofprofitordividendasitwasrevealedthattheprofitearnedwas due to improved market conditions and not because of any extra services were rendered for improvingtheperformanceofthecompany. DalalBroachaStockBroking(P.)Ltdv.Addl.CIT131ITD36(Mum.)(SB)(Trib) S.36(1)(iii):BusinessexpenditureInterestpayableonloans. Theassesseewasinthebusinessoftradinginsharesandhadclaimedinterestonloansobtainedfor business. The shares had been shown under Investments in its books and hence the Assessing Officer disallowed interest on borrowings. It was held that treatment in books was not conclusive andgiventhenature,volumeoftheassesseesbusiness,itwasclearthattheassesseewastradingin sharesandhenceinterestcouldnotbedisallowed. CITv.AravindPrakashMalpani(2011)200Taxman41(Kar.)(Mag.)(HighCourt) S.37(1):BusinessExpenditureExpendituretoprocurerawMaterial. Expenditure incurred for the purpose of procuring the raw material in thermal power station is allowableexpenditure. ACITv.ChettinadCementCorporationLtd.(2011)140TTJ100(Chennai)(Trib) 5
S.37(1):BusinessExpenditureBrokenperiodinterest. Brokenperiodinteresthastobeallowedifthesecuritieswereheldascurrentassets. Jt.CITv.DenaBank(2011)139TTJ81(Mum.)(Trib) S.37(1):BusinessexpenditureCapitalorrevenueLeaserentof99years. Lease rent of Rs.48,02,616/ paid to G.I.D.C for period of 99 years held to be revenue in nature. Registration of lease deed is not relevant for deciding the issue of capital or revenue. High Court confirmedtheorderoftribunal. DY.CITvSunPharmaceuticalsIndLtd(2011)224Taxation456(Guj)(HighCourt). S.37(1):BusinessexpenditureCapitalorrevenueSoftwareusage. Softwareusageandproductdevelopmentexpenses incurredbytheassesseecompanyengagedin internetrelatedservicesareallowableasrevenueexpendituretotheextentthesameareroutine andperiodicexpensesnotresultingincreationofnewassets.(A.Y.200506). DyCITvRediffComIndiaLtd(2011)61DTR426/47SOT310(Mum)(Trib). S.37(1):BusinessexpenditureForeigntourexpenses. Foreigntravelexpensesofdoctorpartnerforobtainingthelatestinformationonthetechnological advancements,concerningdentalimplantsareallowableasbusinessexpenditure.(A.Y200405) DyCITvB2CImplants(2011)141TTJ638(Mum)(Trib). S.37(1):BusinessexpenditureExpenditureonforeigneducationofdirectorbeingsonofthe majorshareholder. Wheretheassesseecompanywasnotabletosubstantiatethatsendingofthedirectorfortraining abroadwasforthebenefitofthebusinessoftheassessee,theexpensesincurredforforeigntraining werenotallowableinthehandsofassesseecompany. VisheshEntertainmentLtdvs.ACIT(2011)60DTR284(Mum)(Trib.) S. 37(1) : Business Expenditure Capital or Revenue Expenditure Expenditure on Application Softwarerevenueinnature The expenditure incurred for the purpose of installation of Oracle software for financial accounting,inventoryandpurchaseheldtoberevenueinnatureasitdidnotresultincreationof newassetoranewsourceofincome.Thetestofenduringbenefitisnotacertainoraconclusive test.Whatisrequiredtobeseenistherealintentandpurposeoftheexpenditureandwhetherthe expenditureresultsincreationoffixedcapitalfortheassessee.Expenditureincurredwhichenables theprofitmakingstructuretoworkmoreefficientlyleavingthesourceoftheprofitmakingstructure untouchedisexpenseinthenatureofrevenueexpenditure.Testofenduringbenefitoradvantage collapsesinsuchlikecasesespeciallyincaseswhichdealwithtechnologyandsoftwareapplication which do not in any manner supplant the source of income or added to the fixed capital of the assessee Followed:AlembicChemicalWorksCoLtdvCIT(1989)177ITR377(SC). CITvAsahiIndiaSafetyClassLtd.(Delhi)(HighCourt)(www.itatonline.org) S.37(1):BusinessExpenditureBenefittootherpersonNowrittenagreement.
Iftheexpenditureisincurredforthepurposeofassesseesbusinessthennopartofthesamecanbe disallowed merely because some other person has benefited out of the same, and there is no writtenagreementwiththepayee/recipient. CITv.AgraBeveragesCorpPvt.Ltd.(2011)200Taxman43(Delhi)(Mag.)(HighCourt) S.37(1):BusinessExpenditureGlowsignboards. Expenditureincurredonglowsignboardsforpurposeofadvertisementbytheassesseeisrevenue expenditure. CITv.OrientCeramics&IndustriesLtd.(2011)200Taxman64(Delhi)(Mag.)(HighCourt). S.37(1):BusinessExpenditureForeignToursExpansionofexistingproject. Expenditureincurredbytheassesseeonforeigntoursofitspersonnel,inconnectionwithexpansion ofexistingprojectiseligiblefordeductionasrevenueexpenditure. CITv.J.K.SyntheticsLtd.(2011)200Taxman101(Delhi)(Mag.)(HighCourt) S. 40(a) (i) : Amounts not deductible NonResident Certificate by a Chartered Accountant Deductionoftaxatsource.(S.195). Acertificateissuedbyacharteredaccountantcannotbeaconclusivedeterminationoftaxabilityof income in the hands of the recipient. Question of taxability in the hands of the recipient remains open and the assessee continues to have obligation to file all the relevant details, enabling determinationofsuchliability,beforetherevenueauthorities.MatterwasremittedtotheAssessing Officertoexaminethetaxabilityofthepaymentsinthehandsofrecipients,onmerits.(A.Y.200506). DyCITvRediffComIndiaLtd(2011)61DTR426/47SOT310(Mum)(Trib). S. 40(a) (ia) : Amount not deductible Short Deduction of Tax at source No disallowance for shortdeductionTDSdefault. WhereitisacaseofshortdeductionofpaymentasagainstnondeductionofTDS,disallowanceu/s 40(a)(ia) could not be made. Though S. 40(a)(ia) provides for a disallowance if amounts towards rent, etc have been paid without deducting tax at source. It does not apply to a case of short deduction of tax at source. As the assessee had deducted u/s 194C, it was not a case of non deductionofTDS.IfthereisashortfallduetodifferenceofopinionastowhichTDSprovisionwould apply, the assessee may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40(a)(ia).[Chandabhoy&Jassobhoy(ITATMumbai)followed] DCITvS.K.Tekriwal(Kolkata)(ITAT)(www.itatonline.org) S.40(a)(ia):AmountsnotdeductibleDeductionoftaxatsourceRetrospectiveAmendment. WheretheassesseeactedbonafideinconformitywiththeprovisionofActandthelegalpositionin notdeductingtaxatsource,retrospectiveamendmentcouldnotmakehimliableandthereforeno disallowanceunders.40(a)(ia)wascalledfor. SterlingAbraiveLtdv.ACIT(2011)57DTR361(Mum)(Trib) S.40(b):AmountsnotdeductibleFirmPartnerInterestSalary.(S.28(i),29,32145). Assessee partnership firm paid interest to partners on their capital account and claimed the deduction. Assessing officer held that as the assessee has not claimed depreciation in books of account however claimed depreciation in the computation, he reworked the capital balances of
partners by reducing the cumulative amount of depreciation therefrom and allowed the interest computedonsuchreducedcapitalbalances.TheTribunalheldthatintermsofsection40(b),read withsection28(i)and29AssessingOfficerisnotentitledtodisallowpaymentofinteresttopartners byreworkingcapitalaccountbalancesofpartners.(A.Ys19992000&200203). SwarajEnterprisesvITO(2011)132ITD488(Visakhapatanam)(Trib). S.40(b)(v):AmountnotdeductiblePartnershipDeedmustquantifyorlaydownthemannerof quantifyingremunerationtopartners S. 40(b) (i) to (v) which prescribe the conditions for deduction of remuneration paid to a partner requires that the payment should be authorized by, and be in accordance with the terms of the partnershipdeed.Thismandatesthatthequantumofremunerationorthemannerofcomputing thequantumofremunerationshouldbestipulatedinthepartnershipdeedandshouldnotbeleft undetermined,undecidedortobedeterminedordecidedonafuturedate; SoodBrij&AssociatesvCIT(Delhi)(HighCourt)(www.itatonline.org) S.40(b)(v):AmountsnotdeductibleInterest,Salary,etc.paidbyfirmtopartner. Section40(b)(v)doesnotlaydownthatremunerationpayabletopartnershouldbefixedormethod ofremunerationshouldbeprovidedforinthepartnershipdeed.Allthatthesaidsectionprovidesis that if the remuneration paid to partner is in accordance with the partnership deed and does not exceed the aggregate amount laid down in the said section, then the same shall be eligible for deduction.Circularno.739whichstatesthatamountofremunerationshouldbeprovidedforinthe deed,cannotoverridethestatutoryprovisionsandmustyieldtothesubstantiveprovisions. DurgaDassDevkiNandanv.ITO(2011)200Taxman318(HP)(HighCourt). S.40A(2):AmountsnotdeductiblePurchasetransactionfromassociateconcerns. Assessing Officer did not call upon the assessee to furnish any evidence regarding purchase transactionfromassociateconcern,nodisallowancecouldbemadeapplyingprovisionsofsection 40A(2)(b),whentherewerenocommentsuponthematerialplacedbeforehimduringthecourse ofremandproceedings.(A.Y200405) DyCITvB2CImplants(2011)141TTJ638(Mum)(Trib). S.40A(2):AmountsnotdeductiblePaymentofinteresttoassociatedconcern. Obtaining the unsecured loan @ 11% from associated concern was commercially expedient as assessee could earn more income from such borrowed funds and secured loans were neither availableeasilynortheywereenoughtocaterthebusinessneedsoftheassesseeasitdidnothave enough security and/or provision of guarantee for obtaining such loan and therefore no disallowanceu/s40A(2)wascalledfor. Addl.CITvReligareFinvestLtd.(2011)62DTR46(Delhi)(Trib). S.41(1):ProfitschargeabletotaxBusinessincomeRemissionofliabilityUnclaimedbalances. Theassesseewasashippingagentprovidingservicestoshipsandactedasoffshorerepresentative. During the course of its business, the assessee was required to make deposits on behalf of its customersonvariousaccountswiththeMumbaiPortTrust.Afterrecoveringthecharges,Mumbai PortTrustusedtorefundtheamountswhichinturn,wereadmittedlyreturnedbytheassesseeto itsprincipal as andwhendemanded. Therefundofamountlyingwiththe assessee formorethan
three years were considered by the assessee as income and offered to tax. The Assessing Officer rejected the method of accounting followed by the assessee and brought to tax entire refund amount lying with the assessee to tax under section 41(1). The Tribunal deleted the addition. On appealtheHighCourtupheldtheviewofTribunal. CITvModestMaritimeServicesPLtd(2011)338ITR64(Bom)(HighCourt) S.43(5):SpeculativetransactionDerivativeloss. Notificationissuedon25thJan,2006cannotcurtailtheapplicabilityofcl.(d)ofprovisotoS.43(5)so as to make investments in derivatives done prior to 25th Jan, 2006 as speculative; transactions carriedoutthroughstockexchangesfrom1stApril,2005to25thJan,2006whicharerecognizedby notificationissuedbyCBDTon25thJan,2006wouldbeeligibleforbeingtreatedasnonspeculative withinthemeaningofcl(d)ofprovisotos.43(5). ACITv.HirenJaswantraiShah(2011)62DTR95(Ahd)(Trib) S.45:CapitalgainsBusinessincomeTransferoftrademarkCopyrights.(S.28(va)) Saleofbrandnames,trademark,copyrightandgoodwillinthejournalsweresoldbytheassessee to the transferee, it would be liable to capital gain and not as business profits under section 28(va).(A.Y.200607). CITvMediworldPublications(P)Ltd(2011)61DTR391(Delhi)(HighCourt). S.45:CapitalgainsAmountpaidtobankbypurchaseronbehalfofassessee. Where the assessee had transferred plant and machinery, stores, spares, licenses, etc. alongwith certain specified liabilities under an agreement for a consideration and the purchaser had undertaken to pay a sum due by the assessee to a bank, such payment to the bank is only applicationofincomeandnotchargeonincomeandhencenotdeductiblefromtotalconsideration. ShreeChangdeoSugarMillsLtdv.JCIT.(2011)58DTR340(Mum.)(Trib) S.45:CapitalgainsAmountreceivedbytheassesseeonretirementfromfirmafterrevaluation ofassets. Where the retiring partner received lump sum payment in consideration of his assigning or relinquishinghisshareorrightinthepartnershipanditsassetsinfavourofthecontinuingpartners andpartnerscapitalaccountshadbeenartificiallyincreasedbyrevaluingassetsjusttoensurethat theretiringpartnerispaidconsiderationstandingtothecreditofhiscapital account,therewas a transferofinterestoftheretiringpartnerovertheassetsofthefirmgivingrisetocapitalgains. SudhakarM.Shettyv.ACIT(2011)139TTJ687(Mum.)(Trib)/58DTR289 S.68:CashCreditsAssesseesAOcannotquestionCreditorsI.T.Return IfthecreditordiscloseshisPANandclaimstobeanassessee,theAOcannothimselfexaminethe returnandP&LA/cofthecreditorandbrandthesameasunworthyofcredence.Instead,heshould enquire from the creditors AO as to the genuineness of the transaction and whether such transaction has been accepted by the creditors AO. So long it is not established that the return submitted by the creditor has been rejected by the creditors AO, the assessees AO is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction throughaccountpayeechequehasbeenestablished. CITvDatawarePvt.Ltd.(Calcutta)(HighCourt)(www.itatonline.org)
S.72:CarryforwardandsetoffSpeculationbusinessDerivativesSamebusiness.(S.43(5),73, 263). Lossfromtradinginderivativestreatedasspeculationlossinearlieryearscarriedforward.Thesaid loss can be set off against the profit from same business. i.e. allowable against the profit from trading in derivatives after amendment. Revision order of commissioner under section 263 was quashedonmerit.(A.Y200607). GajendraKumarT.AgrwalvITO(2011)11ITR640(Mum)(Trib). S.73:LossinspeculationbusinessBillsrediscountingbusinessSaleandpurchaseofshares. Assesseewasmainlydoingbusinessofbilldiscounting/rediscounting,undercontractualobligation betweentheassesseeandpartiestothebills.Billswererediscountedandplacedonlyascollateral security.TheTribunalheldthatactivityofbillsrediscountingwouldamounttograntingofloansand advancesandaccordingly,Explanationtosection73wouldnotbeapplicable,hencelossonaccount ofsaleandpurchaseofsharescouldnotbetreatedasspeculationlosses,thoughtheobjectclause of memorandum of Association showed that advancing the money was only ancillary object.(A.Y.199697). MomayaInvestments(P)LtdvITO(132ITD604(Mum)(Trib). S.80HHC:DeductionExportProfitofBusinessForpurposeofS.115JA/JBdeductiontobe computedasperP&Lprofitandnotnormalprovisions. Thedeductionu/s80HHCistobeworkedoutnotonthebasisofregularincometaxprofitsbutithas tobeworked outonthe basis ofthe adjustedbook profitsina case wheres. 115JAis applicable. Accordingly,thedeductionclaimedbytheassesseeu/s80HHC&80HHEhastobeworkedoutonthe basisofadjustedbookprofitu/s115JAandnotonthebasisoftheprofitscomputedunderregular provisionsoflawapplicabletocomputationofprofitsandgainsofbusiness. ViewofSpecialBenchinDCITvSyncomeFormulations106ITD193upheld. CITv.BhariInformationTechSystems(SupremeCourt)(www.itatonline.org) S.80IA:DeductionIndustrialundertakingSetoffofCarryforwardlosses. After set off of carried forward losses, the income of the assessee for the A.Y was Rs.14,57,200/ while the profit from industrial undertaking were Rs 98.43 lacs . The Tribunal restricted the deductiontoRs14,57,200.TheHighcourtupheldtheorderofTribunal(A.Y.199697). CITvTridossLaboratoriesLtd(2011)224Taxation382(Bom)(HighCourt). S.80IB:DeductionProfits&GainsfromIndustrialUndertakingsProduction The word production is wider in scope than manufacture and would include byproducts and otherresidualproductsresultingduringthecourseofmanufacture.Hencetheactivityofconverting boulder into grits/stone chips/powder may not be manufacturing but would amount to production and therefore the assessee would be entitled to deduction u/s. 80IB on the said activity. CIT v. Mallikarjun Georesources Associates (2011) 201 Taxman 86 (Uttarakhand) (Mag.) (High court)
10 MonthlyDigestofCaselaws(October2011)http://www.itatonline.org
S. 80IB : Deduction Profits & Gains from Industrial Undertakings Refund of Excise Duty Transportsubsidy. RefundofExciseDutyhasadirectnexustothemanufacturingactivityoftheassesseeandhencethe samequalifiesfordeductionundersection80IB. Transport subsidy & Interest Subsidy Transport & Interest Subsidies received by the assessee, cannot be said to be derived from the industrial activity and the same would not qualify for deductionundersection80IB. CITv.MeghalayaSteelsLtd.(2011)201Taxman135(Gau.)(Mag)(HighCourt) S.80IB(10):DeductionHousingprojectsOwnershipofLand. When the assessee has taken possession of land after the payment of full consideration and developed it, the assessee has fulfilled all the conditions laid down in section 80IB(10), therefore entitledtodeductionundersection80IB. ACITv.C.Rajini(Smt)(2011)140TTJ218(Chennai)(Trib) S.92C:AvoidanceoftaxTransferpricingComputationofArmsLengthPrice. The High Court made certain observations on merits, while remanding the matter to the TPO, virtuallyconcludingthematter.TheTPOwasdirectedtoproceedwiththematteruninfluencedby theobservations/directionsgivenbytheHighCourt. MarutiSuzukiIndiaLtd.v.Addl.CIT[2011]335ITR121(SC) S.115AD:ForeignInstitutionalInvestorsShorttermcapitallossfromexchangetradedderivative transactions.(S.43(5) Sec.43(5)hasnoapplicationtoFIIsinrespectof`securitiesasdefinedinExplanationtoS.115AD, incomefromwhosetransferisconsideredasshorttermorlongtermcapitalgain.Inthefactsofthe case,IncomefromderivativetransactionsresultingintolossofRs.12.27croreswastobeconsidered asshorttermcapitallossonthesaleofsecuritieswhichiseligibleforadjustmentagainstshortterm capitalgainsarisingfromthesaleofsharesandnotspeculationloss. LGAsianPlusLtdv.ACIT(2011)60DTR159(Mum)(Trib.) S. 115J : CompanyBook ProfitsUnabsorbed depreciation Brought forward losses. (Companies ActS.205). AssesseehasshownlossofRs16,48,74,073/intheprecedingyearandclaimeddepreciationofRs 13,85,66,473/forthesaidprecedingyear.Oncethebroughtforwardisarrivedataftertakinginto accountthedepreciation,itistheamountofdepreciationwhichislessthantheloss,istobesetoff intermsofclause(iv)ofexplanationtosection115Jforcomputingthebookprofit.(A.Y.199091) PeicoElectronics&ElectricalsLtdvCIT(2011)61DTR401(Cal)(HighCourt). S.115JA:CompanyBookprofitsCompanyPriorperiodexpensesProvisionforbadanddoubtful debt.(S.115JB). Prior period expenditure and any provision for bad and doubtful debt, cannot be deducted while computingbookprofitundersections115JA,115JB.(A.ys1997,98&200001to200405). SingareniColliweriesCompanyLtdvAsstCIT(2011)141TTJ593(Hyd)(Trib). S.115JA:CompanyBookProfitsProvisionforBadDebt.
Whileworkingoutbookprofit,provisionforbaddebthastobeaddedbacktothenetprofitunder section115JAExpl.(g). ACITv.ChettinadCementCorporationLtd.(2011)140TTJ100(Chennai)(Trib) S.115JB:CompanyBookProfitsPowerofAssessingOfficer. Once the accounts including the profit and loss account are certified by the authorities under the Companies Act ,1956, it is not open to the Assessing Officer to contend that the profit and loss account has not been prepared in accordance with the provisions of Companies Act ,1956. Hence the Tribunal was right in deleting the addition of 1.98 Crores made by the Assessing Officer while computingthebookprofitsundersection115JB. CITvAdbhutTradingCoPvtLtd(2011)338ITR94(Bom)(HighCourt). S. 132 : Search and Seizure Authorisation u/s 132(1) Notice u/s 131(1A) after warrant u/s 132(1) Section 131(1A) is only an enabling section and it does not in any manner effect the search and seizure operation carried on under 132. For the purpose of judging the action of the concerned authority with respect to search and seizure, S.132 alone has to be considered. S. 132 is an independentcodeitself.Materialscollectedbeforesearchshowedthatofficerconcernedcouldhave reason to believe that the petitioner were in possession of money, bullion etc., wholly or partly undisclosedincomeorassetandthereforetherewasreasontobelievewithinmeaningofS.132(1). Further, after search and seizure operation, the power u/s 131(1A) cannot possibly be invoked in viewofitsplainlanguageandifthepowerisinvoked,itwillnotinanymanneraffectthevalidityof thesearchandseizureoperation.S.131(1A)and132shouldbeinterpretedharmoniously. V.S.Chaudan(Dr)&Anr.vDIT(Inv)(2011)62DTR67(All)(HighCourt). S.132:SearchandSeizureWarrantofAuthorisation Theopinionorthebeliefsorecordedmustclearlyshowwhetherthebelieffallsunderclause(a)or (b)or(c)ofsection132(1)oftheAct.Thesatisfactionnoteshoulditselfshowtheapplicationofmind and the formation of opinion by the officer ordering the search. In order to justify the action the authority must have relevant materials on the basis of which he can form an opinion that he has reasontobelievethatactionagainstapersonu/s132oftheActisneeded.Thebeliefshouldnotbe basedonsomesuspicionordoubt. VisaComtradeLtd.vUOI(2011)338ITR343(Orissa)(HighCourt) S. 144C : Dispute Resolution Panel Power to enhance Confined to issues raised in draft assessmentorderFuturelossesallowableasdeduction U/s144C(5),theDRPcanissuedirectionsonlyinrespectoftheobjectionsraisedbytheassessee and the objections are to be in terms of the variation proposed in the draft order. S. 144C (8) restrictsthepowersoftheDRPtoconfirm,reduceorenhancethevariationsproposedinthedraft assessmentorder.Hence,theDRPsdirectionshavetobewithreferencetotheobjectionstothe variationsproposedinthedraftorder.(GEIndiaTechnologyCentrevs.DRP(Kar)followed); As regards the deduction for future losses, Accounting Standard AS7 requires expected loss (difference between probable contract costs and contract revenues) to be recognised as an expenseimmediatelyirrespectiveofwhetherworkhascommencedandthestageofcompletionof activity. Accordingly, estimated or foreseeable losses are allowable as a deduction. (Jacobs EngineeringPrivateLtd(ITATMumbai)&MazagaonDock29SOT356followed).
DredgingInternationalNVvADIT(Mumbai)(ITAT)(www.itatonline.org) S.147:ReassessmentNoticeu/s142(2) Thereisnorequirementofnoticeu/s143(2)inthecaseofreassessmentu/s147 CITv.MadhyaBharatEnergyCorpn.Ltd.(2011)62DTR37(Delhi)(HighCourt) S.147:ReassessmentBeyondfouryearsRetrospectiveamendmentS.80HHC Duringthecourseofassessmentproceedings forA.Y. 200102&2002 03,assesseesclaim for deduction u/s 80HHC was allowed. After the expiry of four years from the end of relevant assessment year an amendment to S. 80HHC was brought with retrospective effect from 0104 1998.Itwasadmittedpositionthattheconditionswerenotthereinatthetimeoffilingofreturnnor at the time of original assessments. A.O. issued notice u/s 148. The Tribunal, on examination of materialonrecord,concludedthatalltherelevantfactswereavailableonrecordandthatitcannot besaidthatassesseehadfailedtodisclosefullyandtrulyallmaterialfacts,andthusnoreopening could be done. Held that, the Tribunal rightly concluded that proviso to section 147 could not be invoked merely because there was an amendment in future which was introduced retrospectively andcoveredperiodinquestion,andthusTribunalorderhastobeconfirmed. CITv.GaneshRiceMills(2011)202Taxman96(All)(HighCourt)(Mag) S.147:ReassessmentIncomeescapingassessment. Duringthesearchnobooksofaccountordocumentsormoneyorbullionorjewelleryoranyother valuable articles or things were found. It was a solitary statement of the assessee, which too was retractedimmediatelythereafter.Furthermore,apartfromthestatementtherewerenoparticulars coming forward namely who were the dummy subscribers, whether shares from the socalled dummysubscribersweretransferredinthenameoftheassesseeorassesseeremainedthebenami ownerthereofandwasinthecontrolandpossessionsofthoseshares,etc.Nosuchquestionswere even put by the A.O. to the assessee after recording the statement. Thus the only material for issuanceofnoticeu/s148wasthestatementrecordedu/s132(4).Evenifthestatementwastobe believed, that would have been the basis for issuing the notice for A.Y. 1995 1996 and not A.Y. 19941995.ItwasmerelyafigmentofimaginationonthepartoftheCIT(A)thatstatementshould notbebelievedtotheextentthatthatcashwaspaidinthecurrentfinancialyeari.e.19941995as normallysuchcashispaidatthetimeofpurchaseofsharesbythesocalleddummysubscribers.It wasnotevenrecordedinthereasonstobelievebytheA.O.ThereforetheorderoftheCIT(A)on thataspectwasclearlyerroneousandjustifiablysetasidebytheTribunal. CITv.BelaJain(Smt)(2011)202Taxman90(Delhi)(HighCourt)(Mag) S.158BC:BlockofassessmentSearchandSeizureValidityJointwarrant. Warrantofauthorizationissuedinthenamesofthreecompaniesincludingassessee,separatedonly byacommawithoutthewordandbetweencompaniesisnotawarrantinthejointnamesofthree companiesand,therefore,theblockassessmentorderframedintheindividualnameoftheassessee companywasnotinvalid. RadanMultimediaLtdvs.DCIT(2011)58DTR129(Mum)(Trib). S.168:ExecutorsIncomeAdministrator(S.4.) Amount received by the administrator (Assessee) on distribution out of the accumulated funds of theestateofthedeceasedinhiscapacityasatransfereeofthelegateesinterestwasnottaxablein 13
hishands,sincetheassesseehadonlyacquiredtherightstosaleproceedsofthepropertiesandthe estatewascontinuingandwasbeingadministeredbytheassessee,hecouldnotbetreatedasthe residuelegatee.(A.Y.200405). DyCITvNusliNevilleWadia(2011)61DTR218(Mum)(Trib)/141TTJ521(Mum). S.194A : Deductionof tax atsource Interest otherthaninterestonsecurities Reimbursement CommissionInterest(S.28A). Assesseecompanyutilizedunspentcreditlimitofothercompanyforimportinggoodsforwhichbank chargedinterest,whichwaspaidbysaidcompanyonbehalfofassessee.Assesseereimbursedsuch amountofinteresttosaidcompany.Itclaimedthatinrealityitpaidcommissiontothatcompanyfor utilisingitsunspentcreditlimitandtherefore,provisionsofsection194Awerenotapplicable.The courtheldthatamountpaidbytheassesseewouldclearlycomewithinthedefinitionof interest under section 2 (28A) and assessee was liable to deduct TDS from the said amount in terms of section194A.(A.Y.200203) BhuraExportsLtdvITO(2011)202Taxman88(Cal)(HighCourt). S.194H:DeductionoftaxatsourceCommissionDiscountFranchisee. Franchiseeactsonbehalfoftheassesseeforsellingstartuppackandprepaidrechargecouponsto the customers of assessee and all the trappings of liability as agent, of the franchisee towards assesseesubsistandthereforediscountgiventothefranchiseewasinfactcommission,subjectto TDSundersection194H.(A.Y.200304and200405). BharatiCellularLtdvAsstCIT(2011)61DTR225(Cal)(HighCourt). S.194J:DeductionofTaxSourceTransactionchargespaidtoBSEfeesfortechnicalservices In the instant case, there is direct linkage between the managerial services rendered and the transaction charges levied by the stock exchange. The BOLT system provided by the BSE is a complete platform for trading in securities. A stock exchange manages the entire trading activity carried on by its members and accordingly renders managerial services. Consequently, the transaction charges constituted fees for technical services u/s 194J and the assessee ought to have deducted TDS. However, on facts, because from 1995 to 2005 no tax was deducted and no objectionwasraisedbytheAOandbecausefromAY200607onwardstheassesseehaddeducted TDS,therewasabonafidebeliefthatnoTDShadtobededucted,hencenodisallowanceu/s40(a)(i) canbemadeforAY200506. CITvKotakSecuritiesLimited(Bombay)(HighCourt)(www.itatonline.org) S.195:DeductionoftaxatsourceOthersumsNonresidentIncomedeemedtoaccrueorarisein IndiaBusinessinformation.(S.201). TheassesseehadimportedbusinessinformationreportsfromDunandBrandstreet,USAandmade remittancesinrespectthereofwithoutdeductingtaxatsource.TheAssessingOfficerheldthatthe assessee was liable to deduct tax at source. Tribunal set aside the order of Assessing Officer. The Court held that the Authority for Advance Rulings had held that the sale of business information reports by the subsidiaries of Dun and Brand Street, USA in Spain, Europe and the U.K. to the assesseedidnotattracttheprovisionsofsection195.ThoughthedecisionoftheAuthoritywasnot bindinginthepresentcase,sincethedecisionofAuthorityrelatedtothesamebusinessinformation reportsimportedbytheassesseeandnofaultinthedecisionoftheAuthoritywaspointedout,the decisionoftheTribunalwasaffirmed.
DirectorofIncomeTaxvDunandBrandStreetInformationServicesIndiaP.Ltd(2011)338ITR95 (Bom)(HighCourt). S.201:ConsequenceoffailuretodeductorpayAssesseeindefaultDeductionoftaxatsource Limitation. When there was no period of limitation fixed for exercising power under section 201 at relevant point of time, there is no question of invoking a reasonable period of limitation for applying the provisionofsection201.(A.Y.200203). BhuraExportsLtdvITO(2011)202Taxman88(Cal)(HighCourt). S.220:WhentaxpayableandwhenassesseedeemedtobeindefaultCollectionandrecoveryof taxWaiverofinterest. Petitionforwaiverofinterestundersection220(2)canbefiledevenafterinteresthasbeenpaidby theassessee.(A.Y.199394). JewellersOmPrakashvChiefCIT(2011)202Taxman71(Delhi)(HighCourt). S.234B:InterestBookprofitCompany.(S.234C). Interest is chargeable under sections 234B, 234C on failure to pay advance tax in respect of tax payableundersections115JA/115JB.(A.Ys199798&200001to200405). SingareniColliweriesCompanyLtdvAsstCIT(2011)141TTJ593(Hyd). S.244A:InterestonrefundsAdjustmentofamountseized. Afterasearchconductedatassesseespremises,itfileditsreturnofincome.However,itfailedto payselfassessmenttaxdueasperreturnandrequestedauthoritiestoadjustamountoftaxdueout of amount seized from its office and its chairman. Subsequently, assessment order came to be passed making assessment at a lesser amount and, consequently, assessee became entitled to refund. Held that, clause (b) of S.244A was attracted and assessee was entitled to refund with interest. CITv.IslamicAcademyEducation(2011)202Taxman276(Kar)(HighCourt). S.245R:ProcedureonreceiptofapplicationAdvanceRulingsPendencyofproceedingsNotice undersections.143(2)and147. Noticesundersection143(2) and 147 havingbeenissuedtotheapplicantbythetimeitfiledthe applicationundersection245Qseekingrulingonthequestionastowhethertheamountsreceived bytheapplicantareliabletotaxinIndiaundertheprovisionsoftheIncomeTaxAct,thequestion raisedistheveryquestionpendingadjudicationbeforetheAssessingOfficersofarasthatparticular incomeisconcernedandtherefore,applicationisliabletoberejectedunderprovisotosection245R (2). SepcoIIIElectricPowerConstructionCorporation(2011)243CTR529/61DTR49/202Taxman149 (AAR). S.246A:AppealableOrdersCommissioner(Appeals)Taxdeterminedaspersection246(1)(a) Reliefinrespectofundersection90orsection91 Section246A(1)(a)coversissueofnotallowingreliefinrespectofwithholdingtaxundersection90 orsection91.
CapgeminiBusinessServices(India)Ltd.v.Dy.CIT(2011)131ITD396(Mum.) S.251:PowersofCommissioner(Appeals)NewclaimNonfilingofrevisedreturn. Whentheassessee,duringthecourseof assessmentclaimedthecostof acquisitionofthecapital assetasperthevaluationreportstatingthefairmarketvalueason1stApril1981,theAOshould haveentertainedthesaidclaimandCIT(A)alsoerredinnotconsideringtheclaim,whichisalegally permissibleclaim. GopiS.Shivnani(Mrs)v.ITO(2011)57DTR18/139TTJ308(Mum)(Trib) S.251:PowersoftheCommissioner(Appeals)Omissiontoclaiminthereturn. Wheretheassesseehadnotclaimeddeductionu/s80IBinthereturnofincomeandfactsrelatingto thatdeductionhavealsonotbeenshowntobeexistingonrecord,CITwasnotjustifiedindirecting theA.O.toconsidertheclaiminaccordancewithlaw. ACITv.ParabolicDrugsLtd.(2011)62DTR73(Delhi)(Trib) S.254(1):OrdersofAppellateTribunalDutyofTribunal. ItisthedutyoftheTribunaltofollowdecisionofjurisdictionalHighCourt.TribunalcannotholdHigh Courtdecisionerroneousbecauseitdidnotconsiderrelevantprovision. NationalTextileCorporationLtd.(M.P.)v.CIT(2011)338ITR371(MP)(HighCourt) S.254(1):OrdersofAppellateTribunalPowersPowerofEnhancement. The arrears of rent & damages received by the assessee were claimed as not taxable by the assessee, being capital receipts whereas the Department contended that the same were taxable, beingonrevenueaccount.TheTribunalremandedthematterbacktoconsiderwhetherthesame couldamounttoCapitalGains,beingreceivedforsurrenderoftenancy.Itwasnoteventhecaseof the Department that these were capital gains. It was held that the Tribunal cannot enhance the scopeoftheappealbyadjudicatingongroundsnotraisedbytheAppellant. JasmineCommercialsLtd.v.CIT(2011)200Taxman338(Cal.)(HighCourt) S. 254(2) : Orders of Appellate TribunalRectification of mistakesPowers Jurisdiction of Income taxAppellateTribunal,whichoriginallyheardmatter,torecallitsorder TheTribunalomittedtoconsideranissue.AMiscellaneousapplicationwasmovedseekingtorecall theorder.Thetribunalrecalledtheorderandregistrywasdirectedtofixtheappealasfarasground regarding rent receipt was concerned. Assessee moved instant application seeking admission of additional ground that reopening was bad in law. Held that the statute permits bench, which originallyheardthematter,torecallitsorderinitsentiretyortorecallinalimitedwayortopassa corrigendumorcorrectcertainmistakesapparentfromrecordandbenchhasnojurisdictiontogo intootherissuesotherthanonewhichwasrecalled.Hence,Assesseewasnotentitledtoraiseany additionalground.(A.Y.19992000). TokhemEnterprisesvITO(2011)132ITD375(Mum)(Trib). S.254(2):OrdersofAppellateTribunalRectificationofmistakesRevieworRecalloftheorder. Tribunal cannot recall its previous order unless there are manifest errors which are obvious, clear andselfevident. SudhakarM.Shettyv.ACIT(2011)139TTJ687(Mum.)(Trib)/58DTR289
S.260A:AppealHighCourtTaxeffectlessthan4LakhsReferencereturnedunanswered. In view of Instruction no 2/2005 dated 24102005 , issued by CBDT, it has to be directed that wherever tax effect is less than 4 lakhs , department should not file appeal under section 260A, unlessquestionoflawinvolvedorraisedinappealisofrecurringnaturewhichistobesettledby HighCourt. CITvVitesseeTradingLtd(2011)202Taxman242(Bom)(HighCourt). S.260A:AppealHighCourtCondonationofDelayHugeStakes. When huge stakes are involved, the High Court should not dispose of the appeals fled by the Department merely on the ground of delay. High Court may consider imposing costs on the Departmentforthedelayanddecidetheappealonmerit. CITv.WestBengalInfrastructureDevelopmentFinanceCorpn.Ltd.(2011)56DTR351(SC) S.263:RevisionofordersprejudicialtorevenueTwoviewsOneofthepossibleview. WheretheAssessingOfficerhastakenoneofthepossibleviewswhichresultedinlossofrevenue, theordercannotbetreatedaserroneousandtheCommissionercannotinvokejurisdictionunder section263. CITv.KelvinatorofIndiaLtd.(2011)201Taxman88(Delhi)(Mag.)(HighCourt). S. 271D : Penalty Loan or deposit Income offered by Director Entry in books of account of Companybyjournalentry.(S.269SS). ThepremisesofK,adirectoroftheassesseecompanyweresearchedbytheIncomeTaxAuthorities. Duringthecourseofsearch,incriminatingdocumentsregardingunaccountedexpenditureincurred byKwereseized.Intheproceedingsinitiatedundersection153C,Kofferedfortaxtheundisclosed expenditure incurred by him for and on behalf of the company for construction activities. Accordinglyjournalentrieswerepassedinthebooksofthecompany.AssessingOfficerwasofthe opinion that the assessee has violated section 269SS and accordingly levied the penalty but the Tribunaldeleted.HighCourtconfirmedtheorderofTribunal. CITvMottaConstructionP.Ltd(2011)338ITR66(Bom)(HighCourt). S.271G:PenaltyTransferPricingNoPenaltyforfailuretorespondtoomnibusnotice S.271Gauthorizesthelevyofpenaltyiftheinformation/documentsprescribedbys.92D(3)arenot furnished. Rule 10D prescribes a voluminous list of information and documents required to be maintainedanditisonlyinrarecasesthatallclauseswouldbeattracted.Someofthedocuments maynotbenecessaryincaseofsomeassessees.Beforeissuinganoticeu/s92D(3),theAOhasto applyhismindtowhatinformationanddocumentsarerelevantandnecessaryfordeterminingALP. Anoticeu/s92D(3)isnotroutineandcannotbecasuallyissuedbutrequiresapplicationofmindto consider the material on record and what further information on specific points is required. The noticecannotbevagueorcallforunprescribedinformation. DCITvLeroySomer&Controls(India)(P)Ltd.(Delhi)(ITAT)(www.itatonline.org) S.281:CertaintransferstobevoidRecoveryoftaxSaleandattachmentofpropertyofassessee indefault.
Property transferred by assessee during pendency of recovery proceedings, can be attached and sold withoutfiling suit, as section 281 statutorily declaring such transfer as void provides for such mode.Noticetotransfereeisinvariablynotnecessarybeforetakingsuchaction. KarnailSinghvUOI(2011)Tax.L.R.648(P&H).(HighCourt). Interpretations. PrecedentDecisionofjurisdictionalHighCourtBindingnature Tribunal has to follow the decision of the jurisdictional High Court without making any comment uponthesaiddecision,itisnotpermissiblefortheTribunaltosidetrackand/orignorethedecision of the jurisdictional high court on the ground that it did not take into consideration a particular provisionoflaw. Deputy Commissioner of Income Tax v. Gujarat Ambuja Cements Ltd (2011) 57 DTR 179 (Mum.) (Trib.) PrecedentAdvanceRulings. DecisionofAuthorityonsimilarfactsinrespectofsamesubjectmattercanbefollowed. DirectorofIncomeTaxvDunandBrandStreetInformationServicesIndiaP.Ltd(2011)338ITR95( Bom)(HighCourt). GiftTax. S. 4 : Deemed giftTransfer of assets without considerationTransfer of shares of company from onegrouptoanother.(S.5(1)(xiv). Theassesseecompanywasmanagedbytwogroupsofshareholders,KandP.Disputescroppedup regarding the entitlement to the sum of Rs 80 Lakhs receivable from S for the sale of surplus FSI. According to the decree of court, the K group transferred all its shares in the assessee to the P group.Intheannualaccounts,thevalueofthepropertiesalienatedtotheKgroupwasshownatRs 35 Lakhs. The Assessing Officer held that the assessee had gifted Rs 35 lakhs without any consideration and such amount was exigible to gift tax. The order was confirmed by CIT(A) and Tribunal.Onreference theCourtheld that the Kgroup had relinquishedandwaived its right, title andinterestinthepropertyandalsotheconsiderationwhichtheassesseewastoreceiveoutofthe landtransactionandinlieuthereofitgotpropertiesfreefromallliabilitiesonownershipbasis.The consideration was the transfer of property in favour of K group. The consideration for the transactioncouldbespeltoutfromtheawardofthearbitrator.Therewasnogiftexigibletotax. PananlalSilkMillsPLtdvCGT(2011)338ITR1(Bom)(HighCourt). Editorial. Judgement of Mumbai Tribuanl Panalal Silk Mills Pvt. Ltd v DCIT (1993) 44 ITD (458) reversed. WritPetitions: WritMaintainabilityFoundationalFactstobeEstablished.(Article226) Where the foundational facts had to be established, the assessee ought not to have filed a writ petition. CocaColaIndiaInc.v.Addl.CIT&Ors.[2011]336ITR1(SC) ServiceTaxActivationofSIM
TheamountreceivedbythecellularcompanyfromitssubscriberstowardsSIMcardsformspartof the taxablevalue for levy of servicetax,as SIM cards are never sold asgoods independentof the services provided and therefore, the value of the taxable service is calculated on the gross total amountreceivedbytheoperatorfromthesubscribers. IdeaMobileCommunicationsLtd.v.CCEC(2011)59DTR209(SC).
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Digest Case Laws October 2011

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MONTHLYDIGESTOFCASELAWS(OCTOBER2011) (JournalsReferred:ACAJ/BCAJ/BLR/CITC/CTR/DTR/ITD/ITR(Trib.)/ITR/SOT/SSC/TTJ/TLR /Taxman/Taxation/TaxWorld,www.itatonline.org) S.4:IncomeCapitalreceiptBusinessincomeCapitalgains.(S.28(i),45).

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