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Tuesday, October 11, 2011

ITR VOL 338 PART 1

 

INCOME TAX REPORTS (ITR)

Volume 338 : Part 1 (Issue dated 17-10-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Business --Business income--Remission of liability--Unclaimed balances--Deposits by assessee on behalf of its customers with Mumbai Port Trust--Amounts refunded by Mumbai Port Trust lying with assessee for more than three years offered for taxation--Entire amount of refund not assessable--Income-tax Act, 1961-- CIT v. Modest Maritime Services P. Ltd. (Bom) . . . 64

Business expenditure --Disallowance--Expenditure on guest house--Guest house maintained exclusively for employees of assessee--Expenditure would be deductible if conditions laid down in the second proviso to section 37(4) are fulfilled--Matter remanded--Income-tax Act, 1961, s. 37(4)-- Goodricke Group Ltd. v. CIT (No. 1 ) (Cal) . . . 97

----Interest--Accrual of liability--Breach of contract--Arbitration--Award--Appellate award decreasing damages but increasing rate of interest--Decree made rule of court in 2000--Liability to interest did not accrue in assessment years 1996-97 to 1998-99--Not deductible--Income-tax Act, 1961-- National Agricultural Co-operative Marketing Federation of India Ltd . v. CIT (Delhi) . . . 36

Business income --Remission or cessation of trading liability--Scope of section 41(1)--Cheques not presented by creditors within validity period--No remission of liability--Amount not assessable under section 41(1)--Income-tax Act, 1961, s. 41(1)-- Goodricke Group Ltd . v. CIT (No. 2 ) (Cal) . . . 116

Capital gains --Sale of agricultural land in accounting year relevant to assessment year 1991-92--Deposit of capital gains as prescribed in section 54B--Failure to utilise capital gains for purchase of another agricultural land--Assessment of capital gains--No re-computation necessary--Amended provisions of section 48 not applicable--Assessee not entitled to deduction of indexed cost of acquisition and indexed cost of improvements--Income-tax Act, 1961, ss. 45, 54B-- CIT v. Thomy P. Chakola (Decd.) (Ker) . . . 8

Capital or revenue expenditure --Payment for use of know-how--Know-how not becoming exclusive property of assessee--Royalty payable on year to year basis--Expenditure deductible--Income-tax Act, 1961, s. 37-- CIT v. G4S Securities System (India) P. Ltd. (Delhi) . . . 46

----Replacement of membranes used to separate anode and cathode compartments in electrolyser--Membrane having life of three years--Capital expenditure--Expenditure to the extent of one-third is revenue expenditure--Income-tax Act, 1961, s. 37-- Punjab Alkalies and Chemicals Ltd . v. CIT (P&H) . . . 86

Company --Computation of book profits under section 115JB--Accounts certified by authorities under Companies Act--Assessing Officer cannot consider whether accounts had been properly kept--Income-tax Act, 1961, s. 115JB-- CIT v. Adbhut Trading Co. P. Ltd . (Bom) . . . 94

Deduction of tax at source --Non-resident--Income deemed to accrue or arise in India--Payments for business information reports--No liability to deduct tax at source on amount remitted--Income-tax Act, 1961, ss. 195, 201-- Director of Income-tax (International Taxation) v. Dun and Bradstreet Information Services India P. Ltd. (Bom) . . . 95

Gift-tax --Deemed gift--Transfer of asset without consideration--Transfer of shares in company from one group of shareholders to another group--Properties received by transferor group for waiving right to receive consideration--No deemed gift--Gift-tax Act, 1958, s. 4-- Pannalal Silk Mills P. Ltd. v. CGT (Bom) . . . 1

Interpretation of taxing statute --Purposive interpretation-- Goodricke Group Ltd. v. CIT (No. 1) (Cal) . . . 97

Investment allowance --X-ray machine, ultrasound scanner, angiography, gamma camera, stress analysis equipment--Entitled to investment allowance--Income-tax Act, 1961, s. 32A-- CIT v. Apollo Hospital Enterprises (Mad) . . . 68

Penalty --Loan or deposit exceeding prescribed limit otherwise than by account payee cheque or bank draft--Director of company offering undisclosed expenditure incurred on behalf of company for taxation--Consequent entries in books of company--No deposit or loan--Penalty could not be levied under section 271D--Income-tax Act, 1961, s. 271D-- CIT v. Motta Construction P. Ltd. (Bom) . . . 66

Precedent --Advance ruling--Decision of Authority on similar facts in respect of same subject-matter--Can be followed-- Director of Income-tax (International Taxation) v. Dun and Bradstreet Information Services India P. Ltd. (Bom) . . . 95

----Effect of decision of Supreme Court in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518-- Goodricke Group Ltd. v. CIT (No. 2 ) (Cal) . . . 116

----Effect of decision of Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC)-- Faridabad Investment Co. Ltd . v. CIT (Cal) . . . 26

Reassessment --Condition precedent--Reason to believe that income had escaped assessment--Notice based on report from Director of Income-tax that credit entry in accounts of assessee was an accommodation entry--Assessing Officer not examining evidence--Notice--Not valid--Income-tax Act, 1961, ss. 147, 148-- Signature Hotels P. Ltd. v. ITO (Delhi) . . . 51

----Depreciation--Carry forward and set off--Change of law with effect from 1-4-1997 --Effect--Unabsorbed depreciation of assessment years 1993-94 to 1996-97 by operation of law forms part of depreciation allowance for previous year relevant to assessment year 1997-98--Reassessment on ground assessee not entitled to set off unabsorbed depreciation relating to assessment years 1993-94 to 1996-97 while computing income for assessment year 1997-98--Reopening on erroneous interpretation of relevant statutory provisions--Not sustainable--Income-tax Act, 1961, ss. 32(2), 147, 148-- Devesh Metcast Ltd. v. Joint CIT (Asstt.) (Guj) . . . 130

Rectification of mistakes --Intercorporate dividends--Special deduction--No evidence regarding expenditure--Deduction of notional expenditure--Not permissible--Income-tax Act, 1961, ss. 80M, 154-- Faridabad Investment Co. Ltd. v. CIT (Cal) . . . 26

----Mistake in original return--Closing stock not taken as opening stock of following year--Mistake which can be rectified--Income-tax Act, 1961, s. 154--B ridge and Roof Co. (India) Ltd . v. CIT (Cal) . . . 15

Search and seizure --Assessment of third person--Notice under section 153C--Notice not based on seized material--Not valid--Income-tax Act, 1961, s. 153C-- CIT v. Late J. Chandrasekar (HUF) (Mad) . . . 61

----Block assessment--Assessment of third person--Satisfaction under section 158BD recorded against person searched--Block assessment of third person not valid--Income-tax Act, 1961, ss. 158BC, 158BD-- CIT v. Ramesh Kumar (P&H) . . . 126

Tea development allowance --Scope of section 33AB--Entire tea grown by assessee blended with a small amount of tea purchased from outside--Assessee entitled to deduction under section 33AB--Income-tax Act, 1961, s. 33AB-- Goodricke Group Ltd. v. CIT (No. 1 ) (Cal) . . . 97

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Gift-tax Act, 1958 :

S. 4 --Gift-tax--Deemed gift--Transfer of asset without consideration--Transfer of shares in company from one group of shareholders to another group--Properties received by transferor group for waiving right to receive consideration--No deemed gift-- Pannalal Silk Mills P. Ltd. v. CGT (Bom) . . . 1

Income-tax Act, 1961 :

S. 32(2) --Reassessment--Depreciation--Carry forward and set off--Change of law with effect from 1-4-1997--Effect--Unabsorbed depreciation of assessment years 1993-94 to 1996-97 by operation of law forms part of depreciation allowance for previous year relevant to assessment year 1997-98--Reassessment on ground assessee not entitled to set off unabsorbed depreciation relating to assessment years 1993-94 to 1996-97 while computing income for assessment year 1997-98--Reopening on erroneous interpretation of relevant statutory provisions--Not sustainable-- Devesh Metcast Ltd. v. Joint CIT (Asstt.) (Guj) . . . 130

S. 32A --Investment allowance--X-ray machine, ultrasound scanner, angiography, gamma camera, stress analysis equipment--Entitled to investment allowance-- CIT v. Apollo Hospital Enterprises (Mad) . . . 68

S. 33AB --Tea development allowance--Scope of section 33AB--Entire tea grown by assessee blended with a small amount of tea purchased from outside--Assessee entitled to deduction under section 33AB-- Goodricke Group Ltd. v. CIT (No. 1 ) (Cal) . . . 97

S. 37 --Capital or revenue expenditure--Payment for use of know-how--Know-how not becoming exclusive property of assessee--Royalty payable on year to year basis--Expenditure deductible-- CIT v. G4S Securities System (India) P. Ltd. (Delhi) . . . 46

----Capital or revenue expenditure--Replacement of membranes used to separate anode and cathode compartments in electrolyser--Membrane having life of three years--Capital expenditure--Expenditure to the extent of one-third is revenue expenditure-- Punjab Alkalies and Chemicals Ltd . v. CIT (P&H) . . . 86

S. 37(4) --Business expenditure--Disallowance--Expenditure on guest house--Guest house maintained exclusively for employees of assessee--Expenditure would be deductible if conditions laid down in the second proviso to section 37(4) are fulfilled--Matter remanded-- Goodricke Group Ltd. v. CIT (No. 1 ) (Cal) . . . 97

S. 41(1) --Business income--Remission or cessation of trading liability--Scope of section 41(1)--Cheques not presented by creditors within validity period--No remission of liability--Amount not assessable under section 41(1)-- Goodricke Group Ltd . v. CIT (No. 2 ) (Cal) . . . 116

S. 45 --Capital gains--Sale of agricultural land in accounting year relevant to assessment year 1991-92--Deposit of capital gains as prescribed in section 54B--Failure to utilise capital gains for purchase of another agricultural land--Assessment of capital gains--No re-computation necessary--Amended provisions of section 48 not applicable--Assessee not entitled to deduction of indexed cost of acquisition and indexed cost of improvements-- CIT v. Thomy P. Chakola (Decd.) (Ker) . . . 8

S. 54B --Capital gains--Sale of agricultural land in accounting year relevant to assessment year 1991-92--Deposit of capital gains as prescribed in section 54B--Failure to utilise capital gains for purchase of another agricultural land--Assessment of capital gains--No re-computation necessary--Amended provisions of section 48 not applicable--Assessee not entitled to deduction of indexed cost of acquisition and indexed cost of improvements-- CIT v. Thomy P. Chakola (Decd.) (Ker) . . . 8

S. 80M --Rectification of mistakes--Intercorporate dividends--Special deduction--No evidence regarding expenditure--Deduction of notional expenditure--Not permissible-- Faridabad Investment Co. Ltd. v. CIT (Cal) . . . 26

S. 115JB --Company--Computation of book profits under section 115JB--Accounts certified by authorities under Companies Act--Assessing Officer cannot consider whether accounts had been properly kept-- CIT v. Adbhut Trading Co. P. Ltd .(Bom) . . . 94

S. 147 --Reassessment--Condition precedent--Reason to believe that income had escaped assessment--Notice based on report from Director of Income-tax that credit entry in accounts of assessee was an accommodation entry--Assessing Officer not examining evidence--Notice--Not valid-- Signature Hotels P. Ltd. v. ITO (Delhi) . . . 51

----Reassessment--Depreciation--Carry forward and set off--Change of law with effect from 1-4-1997--Effect--Unabsorbed depreciation of assessment years 1993-94 to 1996-97 by operation of law forms part of depreciation allowance for previous year relevant to assessment year 1997-98--Reassessment on ground assessee not entitled to set off unabsorbed depreciation relating to assessment years 1993-94 to 1996-97 while computing income for assessment year 1997-98--Reopening on erroneous interpretation of relevant statutory provisions--Not sustainable-- Devesh Metcast Ltd. v. Joint CIT (Asstt.) (Guj) . . . 130

S. 148 --Reassessment--Condition precedent--Reason to believe that income had escaped assessment--Notice based on report from Director of Income-tax that credit entry in accounts of assessee was an accommodation entry--Assessing Officer not examining evidence--Notice--Not valid-- Signature Hotels P. Ltd. v. ITO (Delhi) . . . 51

----Reassessment--Depreciation--Carry forward and set off--Change of law with effect from 1-4-1997 --Effect--Unabsorbed depreciation of assessment years 1993-94 to 1996-97 by operation of law forms part of depreciation allowance for previous year relevant to assessment year 1997-98--Reassessment on ground assessee not entitled to set off unabsorbed depreciation relating to assessment years 1993-94 to 1996-97 while computing income for assessment year 1997-98--Reopening on erroneous interpretation of relevant statutory provisions--Not sustainable-- Devesh Metcast Ltd. v. Joint CIT (Asstt.) (Guj) . . . 130

S. 153C --Search and seizure--Assessment of third person--Notice under section 153C--Notice not based on seized material--Not valid-- CIT v. Late J. Chandrasekar (HUF) (Mad) . . . 61

S. 154 --Rectification of mistakes--Intercorporate dividends--Special deduction--No evidence regarding expenditure--Deduction of notional expenditure--Not permissible-- Faridabad Investment Co. Ltd. v. CIT (Cal) . . . 26

----Rectification of mistakes--Mistake in original return--Closing stock not taken as opening stock of following year--Mistake which can be rectified--B ridge and Roof Co. (India) Ltd . v. CIT (Cal) . . . 15

S. 158BC --Search and seizure--Block assessment--Assessment of third person--Satisfaction under section 158BD recorded against person searched--Block assessment of third person not valid-- CIT v. Ramesh Kumar (P&H) . . . 126

S. 158BD --Search and seizure--Block assessment--Assessment of third person--Satisfaction under section 158BD recorded against person searched--Block assessment of third person not valid-- CIT v. Ramesh Kumar (P&H) . . . 126

S. 195 --Deduction of tax at source--Non-resident--Income deemed to accrue or arise in India--Payments for business information reports--No liability to deduct tax at source on amount remitted-- Director of Income-tax (International Taxation) v. Dun and Bradstreet Information Services India P. Ltd. (Bom) . . . 95

S. 201 --Deduction of tax at source--Non-resident--Income deemed to accrue or arise in India--Payments for business information reports--No liability to deduct tax at source on amount remitted-- Director of Income-tax (International Taxation) v. Dun and Bradstreet Information Services India P. Ltd. (Bom) . . . 95

S. 271D --Penalty--Loan or deposit exceeding prescribed limit otherwise than by account payee cheque or bank draft--Director of company offering undisclosed expenditure incurred on behalf of company for taxation--Consequent entries in books of company--No deposit or loan--Penalty could not be levied under section 271D-- CIT v. Motta Construction P. Ltd. (Bom) . . . 66

 CA.RAJU SHAH

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