ITR (TRIB) VOL 3 PART 1

 

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 3 : Part 1 (Issue dated : 3-5-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appellate Tribunal --Special Bench--Whether bound by decision of court other than jurisdictional High Court-- ITO v . Prasad Production Ltd. [SB] (Chennai ) . . . 58

Bad debts --Assessee establishing debts claimed related to agro-chemical division--No contrary material to prove bad debt related to engineering division which was sold--Deletion of addition justified--Income-tax Act, 1961, s. 36(1)(vii)-- CIT (Joint) v . Rallis India Ltd. (Mumbai) . . . 1

Business expenditure --Sugar industry--Distillery business run as a separate undertaking--Separate set of accounts for distillery business--Closure of distillery business in 1997--Expenditure incurred in distillery business not deductible in assessment year 2003-04--Income-tax Act, 1961, s. 37-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

Business loss --Loans advanced to subsidiaries--Controlling interest in subsidiaries along with engineering unit sold on April 1, 1991--Entire loan advanced to subsidiary written off and claimed as bad debt--No business loss on account of business relationship--No commercial expediency--Transactions of write off and claim as loss related to sale of shares of subsidiaries and engineering unit--Capital loss not business loss--Income-tax Act, 1961, s. 28-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

Capital gains --Long-term capital loss--Carry forward and set off--Allowable --Direction to recalculate loss under "Capital gains" and allow carry forward and set off--Income-tax Act, 1961, s. 74-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

Capital loss --Long-term capital loss--Recomputation--Remand for valuation by yield method after verifying method for valuing of share--Proper--Income-tax Act, 1961-- CIT (Joint) v . Rallis India Ltd. (Mumbai) . . . 1

Capital or revenue expenditure --Travelling and incidental expenses incurred in finalisation of project--Expenditure incurred for existing business--Revenue in nature--Income-tax Act, 1961, s. 37-- CIT (Joint) v . Rallis India Ltd. (Mumbai) . . . 1

Co-operative society --Special deduction--Condition precedent--Deduction allowable to society marketing agricultural produce grown by members--Society buying sugarcane from agriculturists, crushing it and selling sugar--Deduction not allowable--Income-tax Act, 1961, s. 80P(2)(a)(iii) -- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

Deduction of tax at source --Payment to non-resident--Liability to make deduction if sum chargeable to tax--"Sum chargeable to tax"--Meaning of--Liability to deduct tax at source if even a part of payment chargeable to tax--No liability if payer bona fide believes no part of payment chargeable to tax--Income-tax Act, 1961, ss. 4, 195, 201(1), (1A)--Circular No. 759, dated 18-11-1997-- ITO v. Prasad Production Ltd. [SB] (Chennai ) . . . 58

Depreciation --Closure of business in 1997--Depreciation not allowable in assessment year 2003-04--Income-tax Act, 1961, s. 32-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

Income or capital --Sugar industry--Loan given by State Government to compensate assessee for price paid to farmers--Loan converted into grant-in-aid on 31-12-2002--No restriction on use of grant--Grant was revenue receipt--Assessable in assessment year 2003-04--Not in year of receipt of loan--Income-tax Act, 1961, s. 5-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

Loss --Carry forward and set off--Business loss related to engineering unit of assessee--Business not carried on in previous year--Business loss cannot be carried forward and set off--Income-tax Act, 1961, s. 72(1)(i), proviso-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

Penalty --Concealment of income--Furnishing inaccurate particulars--Payment of royalty for using brand name in accordance with agreement--Business centres run on partnership and franchisee basis--Disallowance on ground royalty expenses of franchisees and partnerships assessable to tax separately--Income generated only by use of brand name--Payment of royalty not concealment of income or furnishing of inaccurate particulars--Penalty deleted--Income-tax Act, 1961, s. 271(1)(c)-- VLCC Health Care Ltd. v . Asst. CIT (Delhi) . . . 51

----Limitation--Penalty order passed within prescribed time--Not barred by limitation--Income-tax Act, 1961, s. 275(1)(a)-- VLCC Health Care Ltd. v. Asst. CIT (Delhi) . . . 51

Unexplained investment --Addition on account of addition made to fixed assets based on inspection report--Neither statement of neighbour recorded nor collection of material during inspection--Assets duly recorded in books of account --Section 69 not applicable--Income-tax Act, 1961, s. 69-- Victoria Foods P. Ltd. v. Deputy CIT (Delhi) . . . 35

----Addition on account of discrepancy between declared value of fixed assets in balance-sheet and certificate submitted to bank to avail of loan--Audited accounts submitted along with return--Certificate estimating probable cost of project not sufficient evidence--Department to substantiate proof of unexplained investment by concrete material--Addition to be deleted--Income-tax Act, 1961-- Victoria Foods P. Ltd. v . Deputy CIT (Delhi) . . . 35

Words and phrases --"Loss"--"Expenditure"-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 4 --Deduction of tax at source--Payment to non-resident--Liability to make deduction if sum chargeable to tax--"Sum chargeable to tax"--Meaning of--Liability to deduct tax at source if even a part of payment chargeable to tax--No liability if payer bona fide believes no part of payment chargeable to tax--Circular No. 759, dated 18-11-1997-- ITO v. Prasad Production Ltd. (Chennai ) . . . 58

S. 5 --Income or capital--Sugar industry--Loan given by State Government to compensate assessee for price paid to farmers--Loan converted into grant-in-aid on 31-12-2002--No restriction on use of grant--Grant was revenue receipt--Assessable in assessment year 2003-04--Not in year of receipt of loan-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

S. 28 --Business loss--Loans advanced to subsidiaries--Controlling interest in subsidiaries along with engineering unit sold on April 1, 1991--Entire loan advanced to subsidiary written off and claimed as bad debt--No business loss on account of business relationship--No commercial expediency--Transactions of write off and claim as loss related to sale of shares of subsidiaries and engineering unit--Capital loss not business loss-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

S. 32 --Depreciation--Closure of business in 1997--Depreciation not allowable in assessment year 2003-04-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

S. 36(1)(vii) --Bad debts--Assessee establishing debts claimed related to agro-chemical division--No contrary material to prove bad debt related to engineering division which was sold--Deletion of addition justified-- CIT (Joint) v . Rallis India Ltd. (Mumbai) . . . 1

S. 37 --Business expenditure--Sugar industry--Distillery business run as a separate undertaking--Separate set of accounts for distillery business--Closure of distillery business in 1997--Expenditure incurred in distillery business not deductible in assessment year 2003-04-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

----Capital or revenue expenditure--Travelling and incidental expenses incurred in finalisation of project--Expenditure incurred for existing business--Revenue in nature-- CIT (Joint) v . Rallis India Ltd. (Mumbai) . . . 1

S. 69 --Unexplained investment--Addition on account of addition made to fixed assets based on inspection report--Neither statement of neighbour recorded nor collection of material during inspection--Assets duly recorded in books of account --Section 69 not applicable-- Victoria Foods P. Ltd. v. Deputy CIT (Delhi) . . . 35

S. 72(1)(i), proviso --Loss--Carry forward and set off--Business loss related to engineering unit of assessee--Business not carried on in previous year--Business loss cannot be carried forward and set off-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

S. 74 --Capital gains--Long-term capital loss--Carry forward and set off--Allowable--Direction to recalculate loss under "Capital gains" and allow carry forward and set off-- CIT (Joint) v. Rallis India Ltd. (Mumbai) . . . 1

S. 80P(2)(a)(iii) --Co-operative society--Special deduction--Condition precedent--Deduction allowable to society marketing agricultural produce grown by members--Society buying sugarcane from agriculturists, crushing it and selling sugar--Deduction not allowable-- Gurdaspur Co-operative Sugar Mills v. Deputy CIT (Amritsar) . . . 101

S. 195 --Deduction of tax at source--Payment to non-resident--Liability to make deduction if sum chargeable to tax--"Sum chargeable to tax"--Meaning of--Liability to deduct tax at source if even a part of payment chargeable to tax--No liability if payer bona fide believes no part of payment chargeable to tax--Circular No. 759, dated 18-11-1997-- ITO v. Prasad Production Ltd. (Chennai ) . . . 58

S. 201(1) --Deduction of tax at source--Payment to non-resident--Liability to make deduction if sum chargeable to tax--"Sum chargeable to tax"--Meaning of--Liability to deduct tax at source if even a part of payment chargeable to tax--No liability if payer bona fide believes no part of payment chargeable to tax--Circular No. 759, dated 18-11-1997-- ITO v. Prasad Production Ltd. (Chennai ) . . . 58

S. 201(1A) --Deduction of tax at source--Payment to non-resident--Liability to make deduction if sum chargeable to tax--"Sum chargeable to tax"--Meaning of--Liability to deduct tax at source if even a part of payment chargeable to tax--No liability if payer bona fide believes no part of payment chargeable to tax--Circular No. 759, dated 18-11-1997-- ITO v. Prasad Production Ltd. (Chennai ) . . . 58

S. 271(1)(c) --Penalty--Concealment of income--Furnishing inaccurate particulars--Payment of royalty for using brand name in accordance with agreement--Business centres run on partnership and franchisee basis--Disallowance on ground royalty expenses of franchisees and partnerships assessable to tax separately--Income generated only by use of brand name--Payment of royalty not concealment of income or furnishing of inaccurate particulars--Penalty deleted-- VLCC Health Care Ltd. v . Asst. CIT (Delhi) . . . 51

S. 275(1)(a) --Penalty--Limitation--Penalty order passed within prescribed time--Not barred by limitation-- VLCC Health Care Ltd. v. Asst. CIT (Delhi) . . . 51

-CA.RAJU SHAH 

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LEGAL UPDATES: VOL 323 : PART 1

INCOME TAX REPORTS (ITR)

Volume 323 : Part 1 (Issue dated 3-5-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Bad debt --Writing off--Law after April 1, 1989 --Mere debit to profit and loss account not sufficient--Simultaneous obliteration of provision from accounts by reduction from "loans and advances" or "debtors" on assets side of balance-sheet--Amounts to writing off for grant of deduction--Disallowance for failure to close individual account of each debtor in account books--Not justified--Provisions apply to banking as well as non-banking assessees--Income-tax Act, 1961 , ss. 36(1)(vii) , 41(4) -- Vijaya Bank v. CIT . . . 166

Business income --Deemed profits--Deduction allowed--Part recovery later of deduction allowed--Income-tax Act, 1961, s. 41(4)-- Vijaya Bank v. CIT . . . 166

HIGH COURTS

Appeal to Appellate Tribunal --Rectification of mistake--High Court--Precedent--Commissioner (Appeals) allowing deduction on basis of order of Tribunal of different jurisdiction--Tribunal disallowing assessee's claim without referring to that order or decision of High Court confirming it--No mistake apparent from record--Decision of High Court of different jurisdiction not binding on Tribunal--Rectification sought on that basis under section 254(2) not valid--Income-tax Act, 1961, ss. 254(2), 260A-- Visvas Promoters (P) Ltd. v. ITAT (Mad) . . . 114

----Rectification of mistakes--Dismissal of application on merits--Another application for rectification--Not maintainable--Income-tax Act, 1961, s. 254-- CIT v. Panchu Arunachalam (Mad) . . . 31

Appeal to High Court --Competency of appeal--Monetary limit laid down by CBDT circular--Composite appeal--Tax in one of the assessment years above monetary limit--Appeal competent--Circular No. 5 of 2008, dated May 15, 2008--Income-tax Act, 1961, s. 260A-- CIT v. Biju Varghese (Ker) . . . 36

----Writ--Alternative remedy--Appeal not maintainable against order of rectification passed by Tribunal under section 254(2)--Writ petition maintainable--Income-tax Act, 1961, ss. 254(2), 260A--Constitution of India, art. 226-- Visvas Promoters (P) Ltd. v. ITAT (Mad) . . . 114

Bad debts --Deduction claimed on basis of debit of provision to profit and loss account--Disallowance on ground that claim only a provision and not written off in books of account--Remand to reconsider matter on basis of facts stated and material furnished by assessee--Proper--Income-tax Act, 1961, s. 36(1)(vii), Expln.-- CIT v. Wipro Infotech Ltd. (Karn) . . . 151

----Writing off of debt--Closing of each individual debtor's account essential--Mere debit entries in profit and loss account and credit entries in bad debt reserve account not sufficient to write off debts--Income-tax Act, 1961, s. 36(1)(vii), Expln.-- CIT v. Vijaya Bank (Karn) . . . 163

Business expenditure --Pre-commencement expenses--Tribunal allowing as revenue expenditure--Low tax effect--No interference--Income-tax Act, 1961, s. 37-- CIT v. INFO Vergix Technologies Limited (Delhi) . . . 52

Capital gains --Transfer--Doctrine of part performance--Agreement between assessee and firm for sale of whole property--Receipt of full consideration and possession handed over--Transfer complete--Subsequent act of assessee in executing power of attorney and sale deeds executed by power holder--Would not alter status of parties to agreement for applicability of doctrine--Income-tax Act, 1961, s. 2(47)(v)--Transfer of Property Act, 1882, s. 53A-- Smt. D. Kasturi v. CIT (Mad) . . . 40

Capital or revenue expenditure --New project expenses--Finding that no capital asset created out of expenditure--Findings of fact--Income-tax Act, 1961-- CIT v. Escorts Auto Components Ltd. (P&H) . . . 11

Charitable purpose --Exemption--Income from letting out of kalyana mandapam on licence--Whether income from business or property income--Matter remanded for reconsideration in light of case law--Income-tax Act, 1961, s. 11(4A) -- Director of Income-tax (Exemptions) v. AVM Charities (Mad) . . . 27

Co-operative society --Co-operative bank--Special deduction under section 80P--Interest on deposits of non-SLR funds--Interest attributable to banking activity--Entitled to special deduction under section 80P--Income-tax Act, 1961, s. 80P(2)(a)(i)-- CIT v. H. P. State Co-operative Bank Ltd. (HP) . . . 1

Deduction of tax at source --Interest--Interest paid on TDRs/STDRs--Interest paid by bank to NRIs on deposits in Indian currency exempt under section 10(15)(iv)(fa)--Not subject to deduction of tax at source--Income-tax Act, 1961, ss. 10(15)(iv)(fa), 195-- CIT v. Manager, State Bank of India (Raj) . . . 93

----Payments to non-resident--Liability to deduct tax at source arises only when sum paid to non-resident is chargeable to tax in India--Mobilization and demobilization costs reimbursed to non-resident--Not taxable in India--No liability for deduction of tax at source--Income-tax Act, 1961, ss. 40(a)(i), 195-- Van Oord ACZ India (P) Ltd. v. CIT (Delhi) . . . 130

----Rent paid to co-sharers--Limit or ceiling applies to each and every owner separately--Payments not liable to deduction of tax at source--Income-tax Act, 1961, s. 194-I-- CIT v. Manager, State Bank of India (Raj) . . . 93

Depreciation --Business expenditure--Closure of business due to riots--Closure for reasons beyond control of assessee--Assessee entitled to depreciation and business expenditure--Income-tax Act, 1961, ss. 32, 37-- CIT v. Blend Well Bottles P. Ltd. (Karn) . . . 18

----Investment allowance--Actual cost--Fluctuations in rate of foreign exchange--Fluctuations to be taken into account--Increase in liability to repay loan taken for purchase of machinery or plant must be taken into account--Income-tax Act, 1961, s. 43A-- Century Enka Ltd. v. Asst. CIT (Cal) . . . 86

----Law applicable--Effect of amendment of section 32 w.e.f. 1-4-1998--Depreciation for "licences"--Meaning of "licence"--Term confined to licence in relation to intellectual property rights--Stock exchange membership card--Licence to trade in stock exchange--Not covered by section 32--Not entitled to depreciation--Income-tax Act, 1961, s. 32(1)(ii)-- CIT v. Techno Shares and Stocks Ltd. (Bom) . . . 69

Exemption --Educational institution--Condition precedent for exemption--Institution should exist solely for purposes of education--Assessee-society not solely for educational purposes--Rejection of exemption--Valid--Income-tax Act, 1961, s. 10(23C)(vi)-- Scientific Educational Advancement Society v. Union of India (P&H) . . . 84

Interpretation of taxing statutes --Importance of words used in provision-- CIT v. H. P. State Co-operative Bank Ltd . (HP) . . . 1

----Principles of nositur a sociis-- CIT v. Techno Shares and Stocks Ltd. (Bom) . . . 69

Reassessment --Limitation--Reassessment after four years--Assessee not maintaining books of account--Not barred by limitation--Matter remanded--Income-tax Act, 1961, s. 147-- CIT v. Mangalam Publications (Ker) . . . 6

----Limitation--Reassessment after four years--Assessee partner in firm--Withdrawals from firm--Firm furnishing balance-sheet to bank disclosing massive credit balance in accounts of partners but not maintaining accounts--Reassessment after four years--Not barred by limitation--Matter remanded--Income-tax Act, 1961, s. 147-- CIT v. Biju Varghese (Ker) . . . 36

----Notice--Intercorporate dividends--Special deduction under section 80M--Deduction not in respect of amount declared or distributed by way of dividend--Reassessment on ground of failure to pay tax under section 115-O--Not permissible--Income-tax Act, 1961, ss. 80M, 115-O, 147, 148-- Godrej Agrovet Ltd. v. Deputy CIT (Bom) . . . 97

----Reason to believe income had escaped assessment--Bad debt--Assessing Officer considering claim and allowing part of claim--Commissioner (Appeals) allowing it fully--Reassessment proceedings within four years to disallow claim--Not valid--Income-tax Act, 1961, ss. 36(1)(vii) 147-- Rallis India Ltd. v. Asst. CIT (Bom) . . . 54

----Reason to believe income had escaped assessment--Law applicable--Computation of book profits of company under section 115JB--Computation in accordance with decision of Supreme Court--Change of law with retrospective effect subsequent to issue of notice under section 148--Reassessment proceedings not valid--Income-tax Act, 1961, ss. 115JB, 147, 148-- Rallis India Ltd . v. Asst. CIT (Bom) . . . 54

Royalty or technical fees received from foreign enterprise --Special deduction--Failure to furnish details of expenses incurred for earning gross income-Deduction cannot be granted--Deduction to be only on net income--Income-tax Act, 1961, ss. 80AB, 80B(5), 80-O-- CIT v. Wipro Infotech Ltd. (Karn) . . . 151

----Special deduction--Use of patent or design outside India--Condition precedent for special deduction under section 80-O--Designs prepared by architect used outside India--Convertible foreign exchange received in India--Assessee entitled to special deduction under section 80-O--Income-tax Act, 1961, s. 80-O-- CIT v. Charles M. Correa (Bom) . . . 174

Search and seizure --Block assessment--Condition precedent--Notice--Service by affixture--Finding that procedure laid down by Code of Civil Procedure for service by affixture not followed--Block assessment proceedings--Not valid--Code of Civil Procedure, 1908, O. V, r. 17--Income-tax Act, 1961, s. 158BD-- CIT v. Naveen Chander (P&H) . . . 49

----Block assessment--Undisclosed income--No proper explanation regarding amount--Addition as undisclosed income--Justified--Income-tax Act, 1961, s. 158BC-- Sudhakar T. Pendse v. ITO (Bom) . . . 22

Voluntary Disclosure of Income Scheme, 1997 --Beneficial scheme--No scope for extension of Scheme beyond period mentioned under Scheme--Finance Act, 1997, ss 65, 67, 68-- Tiruvengadam Investments P. Ltd. v. CIT (Mad) . . . 44

Wealth-tax --Asset--Amount deposited under Compulsory Deposit Scheme--Asset includible in net wealth--Claim for refund of income-tax--Refund not ascertainable--Claim not an asset includible in net wealth--Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, ss. 3, 4, 7, 8--Wealth-tax Act, 1957, s. 2(e)-- Smt. Smitaben N. Ambani v. CWT (Bom) . . . 104

----Valuation of assets--Valuation of self-acquired property--Municipal rateable value with statutory deductions can be adopted--Wealth-tax Rules, 1957, r. 1BB-- Smt. Smitaben N. Ambani v. CWT (Bom) . . . 104

Words and phrases --Meaning of "licence"-- CIT v. Techno Shares and Stocks Ltd. (Bom) . . . 69

AUTHORITY FOR ADVANCE RULINGS

Advance ruling --Application for--Authority allowing application--Matter posted for hearing on merits--No objection taken then--Department not entitled to raise objection as to maintainability when matter posted for hearing on merits--Income-tax Act, 1961, s. 245R(2)-- Umicore Finance, In re . . . 25

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Code of Civil Procedure, 1908 :

O. V, r. 17 --Search and seizure--Block assessment--Condition precedent--Notice--Service by affixture--Finding that procedure laid down by Code of Civil Procedure for service by affixture not followed--Block assessment proceedings--Not valid-- CIT v. Naveen Chander (P&H) . . . 49

Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 :

Ss. 3, 4, 7, 8 --Wealth-tax--Asset--Amount deposited under Compulsory Deposit Scheme--Asset includible in net wealth--Claim for refund of income-tax--Refund not ascertainable--Claim not an asset includible in net wealth-- Smt. Smitaben N. Ambani v. CWT (Bom) . . . 104

Constitution of India :

Art. 226 --Appeal to High Court--Writ--Alternative remedy--Appeal not maintainable against order of rectification passed by Tribunal under section 254(2)--Writ petition maintainable-- Visvas Promoters (P) Ltd. v. ITAT

(Mad) . . . 114

Finance Act, 1997 :

Ss. 65, 67, 68 --Voluntary Disclosure of Income Scheme, 1997--Beneficial scheme--No scope for extension of Scheme beyond period mentioned under Scheme-- Tiruvengadam Investments P. Ltd. v. CIT (Mad) . . . 44

Income-tax Act, 1961 :

S. 2(47)(v) --Capital gains--Transfer--Doctrine of part performance--Agreement between assessee and firm for sale of whole property--Receipt of full consideration and possession handed over--Transfer complete--Subsequent act of assessee in executing power of attorney and sale deeds executed by power holder--Would not alter status of parties to agreement for applicability of doctrine-- Smt. D. Kasturi v. CIT (Mad) . . . 40

S. 10(15)(iv)(fa) --Deduction of tax at source--Interest--Interest paid on TDRs/STDRs--Interest paid by bank to NRIs on deposits in Indian currency exempt under section 10(15)(iv)(fa)--Not subject to deduction of tax at source-- CIT v. Manager, State Bank of India (Raj) . . . 93

S. 10(23C)(vi) --Exemption--Educational institution--Condition precedent for exemption--Institution should exist solely for purposes of education--Assessee-society not solely for educational purposes--Rejection of exemption--Valid-- Scientific Educational Advancement Society v. Union of India (P&H) . . . 84

S. 11(4A) --Charitable purpose--Exemption--Income from letting out of kalyana mandapam on licence--Whether income from business or property income--Matter remanded for reconsideration in light of case law-- Director of Income-tax (Exemptions) v. AVM Charities (Mad) . . . 27

S. 32 --Depreciation--Business expenditure--Closure of business due to riots--Closure for reasons beyond control of assessee--Assessee entitled to depreciation and business expenditure-- CIT v. Blend Well Bottles P. Ltd. (Karn) . . . 18

S. 32(1)(ii) --Depreciation--Law applicable--Effect of amendment of section 32 w.e.f. 1-4-1998--Depreciation for "licences"--Meaning of "licence"--Term confined to licence in relation to intellectual property rights--Stock exchange membership card--Licence to trade in stock exchange--Not covered by section 32--Not entitled to depreciation-- CIT v. Techno Shares and Stocks Ltd. (Bom) . . . 69

S. 36(1)(vii) --Bad debt--Writing off--Law after April 1, 1989 --Mere debit to profit and loss account not sufficient--Simultaneous obliteration of provision from accounts by reduction from "loans and advances" or "debtors" on assets side of balance-sheet--Amounts to writing off for grant of deduction--Disallowance for failure to close individual account of each debtor in account books--Not justified--Provisions apply to banking as well as non-banking assessees-- Vijaya Bank v. CIT (SC) . . . 166

----Reassessment--Reason to believe income had escaped assessment--Bad debt--Assessing Officer considering claim and allowing part of claim--Commissioner (Appeals) allowing it fully--Reassessment proceedings within four years to disallow claim--Not valid-- Rallis India Ltd. v. Asst. CIT (Bom) . . . 54

S. 36(1)(vii), Expln. --Bad debts--Deduction claimed on basis of debit of provision to profit and loss account--Disallowance on ground that claim only a provision and not written off in books of account--Remand to reconsider matter on basis of facts stated and material furnished by assessee--Proper-- CIT v. Wipro Infotech Ltd. (Karn) . . . 151

----Bad debts--Writing off of debt--Closing of each individual debtor's account essential--Mere debit entries in profit and loss account and credit entries in bad debt reserve account not sufficient to write off debts-- CIT v. Vijaya Bank (Karn) . . . 163

S. 37 --Business expenditure--Pre-commencement expenses--Tribunal allowing as revenue expenditure--Low tax effect--No interference-- CIT v. INFO Vergix Technologies Limited (Delhi) . . . 52

----Depreciation--Business expenditure--Closure of business due to riots--Closure for reasons beyond control of assessee--Assessee entitled to depreciation and business expenditure-- CIT v. Blend Well Bottles P. Ltd. (Karn) . . . 18

S. 40(a)(i) --Deduction of tax at source--Payments to non-resident--Liability to deduct tax at source arises only when sum paid to non-resident is chargeable to tax in India--Mobilization and demobilization costs reimbursed to non-resident--Not taxable in India--No liability for deduction of tax at source-- Van Oord ACZ India (P) Ltd. v. CIT (Delhi) . . . 130

S. 41(4) --Bad debts--Writing off--Law after April 1, 1989 --Mere debit to profit and loss account not sufficient--Simultaneous obliteration of provision from accounts by reduction from "loans and advances" or "debtors" on assets side of balance-sheet--Amounts to writing off for grant of deduction--Disallowance for failure to close individual account of each debtor in account books--Not justified--Provisions apply to banking as well as non-banking assessees-- Vijaya Bank v. CIT (SC) . . . 166

----Business income--Deemed profits--Deduction allowed--Part recovery later of deduction allowed-- Vijaya Bank v. CIT (SC) . . . 166

S. 43A --Depreciation--Investment allowance--Actual cost--Fluctuations in rate of foreign exchange--Fluctuations to be taken into account--Increase in liability to repay loan taken for purchase of machinery or plant must be taken into account-- Century Enka Ltd. v. Asst. CIT (Cal) . . . 86

S. 80AB --Royalty or technical fees received from foreign enterprise--Special deduction--Failure to furnish details of expenses incurred for earning gross income-Deduction cannot be granted--Deduction to be only on net income-- CIT v. Wipro Infotech Ltd. (Karn) . . . 151

S. 80B(5) --Royalty or technical fees received from foreign enterprise--Special deduction--Failure to furnish details of expenses incurred for earning gross income-Deduction cannot be granted--Deduction to be only on net income-- CIT v. Wipro Infotech Ltd. (Karn) . . . 151

S. 80M --Reassessment--Notice--Intercorporate dividends--Special deduction under section 80M--Deduction not in respect of amount declared or distributed by way of dividend--Reassessment on ground of failure to pay tax under section 115-O--Not permissible-- Godrej Agrovet Ltd. v. Deputy CIT (Bom) . . . 97

S. 80-O --Royalty or technical fees received from foreign enterprise--Special deduction--Failure to furnish details of expenses incurred for earning gross income-Deduction cannot be granted--Deduction to be only on net income-- CIT v. Wipro Infotech Ltd. (Karn) . . . 151

----Royalty or technical fees received from foreign enterprise--Special deduction--Use of patent or design outside India--Condition precedent for special deduction under section 80-O--Designs prepared by architect used outside India--Convertible foreign exchange received in India--Assessee entitled to special deduction under section 80-O-- CIT v. Charles M. Correa (Bom) . . . 174

S. 80P(2)(a)(i) --Co-operative society--Co-operative bank--Special deduction under section 80P--Interest on deposits of non-SLR funds--Interest attributable to banking activity--Entitled to special deduction under section 80P-- CIT v. H. P. State Co-operative Bank Ltd. (HP) . . . 1

S. 115JB --Reassessment--Reason to believe income had escaped assessment--Law applicable--Computation of book profits of company under section 115JB--Computation in accordance with decision of Supreme Court--Change of law with retrospective effect subsequent to issue of notice under section 148--Reassessment proceedings not valid-- Rallis India Ltd . v. Asst. CIT (Bom) . . . 54

S. 115-O --Reassessment--Notice--Intercorporate dividends--Special deduction under section 80M--Deduction not in respect of amount declared or distributed by way of dividend--Reassessment on ground of failure to pay tax under section 115-O--Not permissible-- Godrej Agrovet Ltd. v. Deputy CIT (Bom) . . . 97

S. 147 --Reassessment--Limitation--Reassessment after four years--Assessee not maintaining books of account--Not barred by limitation--Matter remanded-- CIT v. Mangalam Publications (Ker) . . . 6

----Reassessment--Limitation--Reassessment after four years--Assessee partner in firm--Withdrawals from firm--Firm furnishing balance-sheet to bank disclosing massive credit balance in accounts of partners but not maintaining accounts--Reassessment after four years--Not barred by limitation--Matter remanded-- CIT v. Biju Varghese (Ker) . . . 36

----Reassessment--Notice--Intercorporate dividends--Special deduction under section 80M--Deduction not in respect of amount declared or distributed by way of dividend--Reassessment on ground of failure to pay tax under section 115-O--Not permissible-- Godrej Agrovet Ltd. v. Deputy CIT (Bom) . . . 97

----Reassessment--Reason to believe income had escaped assessment--Bad debt--Assessing Officer considering claim and allowing part of claim--Commissioner (Appeals) allowing it fully--Reassessment proceedings within four years to disallow claim--Not valid-- Rallis India Ltd. v. Asst. CIT (Bom) . . . 54

----Reassessment--Reason to believe income had escaped assessment--Law applicable--Computation of book profits of company under section 115JB--Computation in accordance with decision of Supreme Court--Change of law with retrospective effect subsequent to issue of notice under section 148--Reassessment proceedings not valid-- Rallis India Ltd . v. Asst. CIT (Bom) . . . 54

S. 148 --Reassessment--Notice--Intercorporate dividends--Special deduction under section 80M--Deduction not in respect of amount declared or distributed by way of dividend--Reassessment on ground of failure to pay tax under section 115-O--Not permissible-- Godrej Agrovet Ltd. v. Deputy CIT (Bom) . . . 97

----Reassessment--Reason to believe income had escaped assessment--Law applicable--Computation of book profits of company under section 115JB--Computation in accordance with decision of Supreme Court--Change of law with retrospective effect subsequent to issue of notice under section 148--Reassessment proceedings not valid-- Rallis India Ltd . v. Asst. CIT (Bom) . . . 54

S. 158BC --Search and seizure--Block assessment--Undisclosed income--No proper explanation regarding amount--Addition as undisclosed income--Justified-- Sudhakar T. Pendse v. ITO (Bom) . . . 22

S. 158BD --Search and seizure--Block assessment--Condition precedent--Notice--Service by affixture--Finding that procedure laid down by Code of Civil Procedure for service by affixture not followed--Block assessment proceedings--Not valid-- CIT v. Naveen Chander (P&H) . . . 49

S. 194-I --Deduction of tax at source--Rent paid to co-sharers--Limit or ceiling applies to each and every owner separately--Payments not liable to deduction of tax at source-- CIT v. Manager, State Bank of India (Raj) . . . 93

S. 195 --Deduction of tax at source--Interest--Interest paid on TDRs/STDRs--Interest paid by bank to NRIs on deposits in Indian currency exempt under section 10(15)(iv)(fa)--Not subject to deduction of tax at source-- CIT v. Manager, State Bank of India (Raj) . . . 93

----Deduction of tax at source--Payments to non-resident--Liability to deduct tax at source arises only when sum paid to non-resident is chargeable to tax in India--Mobilization and demobilization costs reimbursed to non-resident--Not taxable in India--No liability for deduction of tax at source-- Van Oord ACZ India (P) Ltd. v. CIT (Delhi) . . . 130

S. 245R(2) --Advance ruling--Application for--Authority allowing application--Matter posted for hearing on merits--No objection taken then--Department not entitled to raise objection as to maintainability when matter posted for hearing on merits-- Umicore Finance, In re (AAR) . . . 25

S. 254 --Appeal to Appellate Tribunal--Rectification of mistakes--Dismissal of application on merits--Another application for rectification--Not maintainable-- CIT v. Panchu Arunachalam (Mad) . . . 31

S. 254(2) --Appeal to Appellate Tribunal--Rectification of mistake--High Court--Precedent--Commissioner (Appeals) allowing deduction on basis of order of Tribunal of different jurisdiction--Tribunal disallowing assessee's claim without referring to that order or decision of High Court confirming it--No mistake apparent from record--Decision of High Court of different jurisdiction not binding on Tribunal--Rectification sought on that basis under section 254(2) not valid-- Visvas Promoters (P) Ltd. v. ITAT (Mad) . . . 114

----Appeal to High Court--Writ--Alternative remedy--Appeal not maintainable against order of rectification passed by Tribunal under section 254(2)--Writ petition maintainable-- Visvas Promoters (P) Ltd. v. ITAT (Mad) . . . 114

S. 260A --Appeal to Appellate Tribunal--Rectification of mistake--High Court--Precedent--Commissioner (Appeals) allowing deduction on basis of order of Tribunal of different jurisdiction--Tribunal disallowing assessee's claim without referring to that order or decision of High Court confirming it--No mistake apparent from record--Decision of High Court of different jurisdiction not binding on Tribunal--Rectification sought on that basis under section 254(2) not valid-- Visvas Promoters (P) Ltd. v. ITAT (Mad) . . . 114

----Appeal to High Court--Competency of appeal--Monetary limit laid down by CBDT circular--Composite appeal--Tax in one of the assessment years above monetary limit--Appeal competent--Circular No. 5 of 2008, dated May 15, 2008-- CIT v. Biju Varghese (Ker) . . . 36

----Appeal to High Court--Writ--Alternative remedy--Appeal not maintainable against order of rectification passed by Tribunal under section 254(2)--Writ petition maintainable-- Visvas Promoters (P) Ltd. v. ITAT (Mad) . . . 114

Transfer of Property Act, 1882 :

S. 53A --Capital gains--Transfer--Doctrine of part performance--Agreement between assessee and firm for sale of whole property--Receipt of full consideration and possession handed over--Transfer complete--Subsequent act of assessee in executing power of attorney and sale deeds executed by power holder--Would not alter status of parties to agreement for applicability of doctrine-- Smt. D. Kasturi v. CIT (Mad) . . . 40

Wealth-tax Act, 1957 :

S. 2(e) --Wealth-tax--Asset--Amount deposited under Compulsory Deposit Scheme--Asset includible in net wealth--Claim for refund of income-tax--Refund not ascertainable--Claim not an asset includible in net wealth-- Smt. Smitaben N. Ambani v. CWT (Bom) . . . 104

Wealth-tax Rules, 1957 :

R. 1BB --Wealth-tax--Valuation of assets--Valuation of self-acquired property--Municipal rateable value with statutory deductions can be adopted-- Smt. Smitaben N. Ambani v. CWT (Bom) . . . 104

 -CA.RAJU SHAH

Concept Paper for determination of taxable value of services from composite consideration in respect of commercial or industrial construction service and construction of complex service

DEAR MEMBERS,

 

Following Announcement is hoisted on www.icai.org regarding

Concept Paper for determination of taxable value of services from composite consideration in respect of commercial or industrial construction service and construction of complex service-(22-04-2010)

The Indirect Taxes Committee of the Institute has submitted a Concept Paper for determination of taxable value of services from composite consideration in respect of commercial or industrial construction service and construction of complex service to the Ministry of Finance on 20th April, 2010

 

 

Regards,
-------
CA.C.V.PAWAR
Member of Western India Regional Council of
Institute of Chartered Accountants of India
The Chairman, Banking, Insurance and Pension Committee of WIRC of ICAI
0253-2319641. M-9423961209

Consolidation for Acceleration

ICAI: PARTNER IN NATION BUILDING
Dear Members,

I've started a sms group (which is free) for members of Nashik to give updates on matters related to profession. To join this send sms "Join NashikCAs" (inverted comma is not required) from your mobile to 567678.
To join an email group canews@googlegroups.com for members, send your email id (with introduction) to cvpawar@gmail.com

Dear Students,
Similarly, the group for CA students of Nashik is "CAStudentNK". To receive update on CA course, examination, seminar etc. To join this sms group, send sms "Join CAStudentNK" (inverted comma is not required) from your mobile to 567678.

To join an email group castudentnews@googlegroups.com for CA Students, send your email id to cvpawar@gmail.com

 

For latest Updates visit Blogspot : http://canews1.blogspot.com

NEWS, INFORMATION...

Regards,
-------
CA.C.V.PAWAR
Member of Western India Regional Council of
Institute of Chartered Accountants of India
The Chairman, Banking, Insurance and Pension Committee of WIRC of ICAI
0253-2319641. M-9423961209

Consolidation for Acceleration

ICAI: PARTNER IN NATION BUILDING

INDIAN CA - NURTURED IN INDIA, GROOMED FOR THE WORLD

Certified Facilitation Centres under ACES Project of the CBEC - (13-04-2010)

Chartered Accountants in practice for one year or more

 

Become Certified Facilitation Centre (CFC) for providing facilities to Central Excise and Service Tax assessees to file returns and other documents electronically under Automation of Central Excise and Service Tax (ACES) Project of the CBEC.

 

The Institute of Chartered Accountants of India (ICAI) is pleased to announce signing of Memorandum of Understanding with the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India to facilitate setting up of Certified Facilitation Centres (CFCs) under ACES Project by Chartered Accountants in practice / proprietary concerns of Chartered Accountants / firms of Chartered Accountants.

 

Any member/proprietor of a proprietorship firm/any partner of a partnership firm desirous of operating a CFC in his/firm's name is required to make an application to the ICAI together with the requisite information, whereupon the ICAI will issue a Certificate to operate Facilitation Centre under ACES Project of the CBEC. CBEC will issue a user name and password to the CFC on the basis of which, the CFC will be able to upload returns and other documents for Central Excise and Service Tax assessees .

 

The names of the CFCs along with their contact details as provided by the CFCs will be put up on the website of the ICAI and the CBEC. The eligibility criteria, fee schedule and obligations of CFCs are set out in the Memorandum of Understanding and in the FAQs on the subject.

 

Submit your Scanned Application Forms at : cbectech@icai.org.

 

Queries relating to setting up of Certified Facilitation Centers may be sent at cfcaces@icai.org.

 

Please click here for Memorandum of Understanding

http://www.icai.org/resource_file/18637cbecMOUicai.pdf

 

 

Please click here for FAQs

http://www.icai.org/resource_file/18636faqcfc.pdf

 

 

Please click here for Application Form for CFC under ACES Project

http://www.icai.org/cbec/

 

 

Summary of Valuation rules for Jewellery, Artistic Work, Shares and securities

 

Apr 15, 2010 Income Tax

 

Recent Notification No. 23/2010 dated 8 April 2010 (Notification) issued by the Central Board of Direct Taxes (CBDT)  prescribed the  rules (Rules) for determining the fair market value (FMV), for the purposes of taxation, of certain specified assets received by a taxpayer without consideration or for inadequate consideration i.e. a consideration which is less than the FMV by an amount exceeding INR 50,000. The Finance (No. 2) Act, 2009 had inserted Section 56(2) (vii) (Section) to tax such specified assets received on or after 1 October 2009 (See Note-1 below). Specified assets are archaeological collections, drawings, paintings, sculptures or any other work of art (artistic work), jewellery and shares and securities.

 

Summary of the Rules

» The Rules prescribe different methods for the purpose of valuation of specified assets.

» The Rules come into effect from 1 October 2009, being the date from which the Section became operative.

» The FMV needs to be determined as on the valuation date. For this purpose, the valuation date is the date on which the taxpayer receives specified assets.

Valuation methods

 

A) Valuation of jewellery and artistic work:

 

1. Valuation of jewelery and artistic work (assets) is as follows:

» Estimated to be the price which the asset would fetch if sold in the open market on the valuation date.

» In case the asset is received by way of purchase on the valuation date from a registered dealer, the FMV is the invoice value of the asset.

» In case the asset is received by any other mode and the value of the asset exceeds INR 50,000, the taxpayer may obtain a report from a registered valuer in respect of the price it would fetch if sold in the open market on the valuation date.

 

2. For the purposes of the Rules, a registered dealer means a dealer who is registered under Central Sales Tax Act, 1956 or general sales tax laws prevailing in a State, including value added tax laws.

 

3. A registered valuer is a person who is entitled to function as a registered valuer for the purposes of the Wealth Tax Act.

 

 

B) Valuation of Quoted shares and securities:

1. 'Quoted shares and securities' are defined to mean shares or securities quoted, with regularity from time to time, on any RSE where the quotations of such shares or securities are based on current transactions made in the ordinary course of business.

 

2. Valuation of shares and securities quoted in a recognised stock exchange (RSE) is as follows:

» Transaction carried out through RSE: – Transaction value recorded in such RSE

» Others i.e. Transaction carried out otherwise than through RSE:-

 

>Lowest price quoted on any RSE as on the valuation date

 

>In case no trading on the valuation date, lowest price on the date immediately preceding the valuation date when trading happened

 

 

C) Valuation of Unqoted shares and securities: Valuation of unquoted equity shares is as follows:

» The Rules prescribe the method to determine the value, based on the break-up value method. To start with, under this method, the excess of book value of specified assets over specified liabilities as per the investee company's balance sheet is determined. The excess so arrived at is divided by total amount of paid-up equity share capital of the investee company. The value so determined is then multiplied by paid-up value of equity shares received by the taxpayer. The value so arrived at is the FMV of unquoted equity shares received by the taxpayer.

» The FMV of unquoted equity shares needs to be determined on the valuation date, being the date of receipt of the shares by the taxpayer.

» For the purposes of valuation, the value of specified assets is that of all assets in the investee company's balance sheet, as reduced by advance tax, debit balance of profit and loss account or any amount not represented by the value of any asset.

» The value of specified liabilities is that of all liabilities in the investee company's balance sheet, excluding the following:

 

> Paid-up capital in respect of equity shares.

 

> The amount set apart for payment of dividends on preference shares and equity shares, where such dividends have not been declared before the date of transfer at a general body meeting of the investee company.

 

> Reserve, by whatever name called, other than those set apart towards depreciation.

 

> Credit balance of the profit and loss account.

 

> Provision for taxation other than the amount paid as advance tax, to the extent of the excess over the tax payable with reference to the book profits, in accordance with the law applicable thereto.

 

> Provision for unascertained liabilities.

 

> Provision for contingent liabilities other than the arrears of dividends payable in respect of cumulative preference shares.

» Valuation of unquoted shares other than equity shares is as follows:

 

>. Estimated to be the price it would fetch if sold in the open market on the valuation date.

>. The taxpayer is required to obtain a report from a merchant banker or a chartered accountant in support of the FMV.

 

Comments

 

The Rules provide guidance on the methodology of valuation of different specified assets. The Section became operative from 1 October 2009 whereas the Rules were notified on 8 April 2010 with effect from 1 October 2009. Question may arise about the validity of applicability of the Rules for the tax year ended on 31 March 2010, in view of the general understanding that rules need to be in existence as on the first day of the year immediately following the end of the relevant tax year. Question may also arise about the validity of the normative provisions of the Rules e.g. in the context of shares of an unlisted company, if the prescribed methodology results in determining an FMV which is higher than the bonafide/commercially agreed value.

 

Notes:-

 

1. The Finance Bill, 2010 proposes to insert a similar provision to tax the receipt of shares of a closely-held company by a firm or another closely-held company. If the Bill is enacted, the Rules will also apply to the valuation of shares covered by the proposed provision.

 -CA.RAJU SHAH

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