Difference between “Finance Lease” & “Operational Lease”: High Court Explains Law

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Date: Fri, Apr 27, 2012 at 10:54 AM
Subject: Message from EGroup of SolapurCAs Difference between "Finance Lease" & "Operational Lease": High Court Explains Law
To: editor@itatonline.org

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

CIT vs. The Instalment Supply Ltd (Delhi High Court)

Difference between "Finance Lease" & "Operational Lease"

 

The assessee bought 1614 items of computer systems for Rs.40 lacs from HCL Hewlett Packard Ltd and leased back to the same company. The assessee claimed 100% depreciation on the ground that the cost of each itemswas less than Rs.5,000. The AO & CIT (A) held that the lease was not a bona fide transaction and that the transaction was a finance transaction. It was held that the assessee had advanced Rs.40 lacs to HCL Hewlett Packard Ltd and agreed to receive back this amount along with the interest over six years. However, the Tribunal upheld the claim on the ground that the conditions of a valid lease were satisfied. On appeal by the department to the High Court, HELD:

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So, Vodafone Knew All Along It Was Playing With Fire?

Section 127 "Transfer of Case" Controversy Referred To Full Bench

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Date: Thu, Apr 26, 2012 at 10:52 AM
Subject: Message from EGroup of SolapurCAs S. 127 "Transfer of Case" Controversy Referred To Full Bench
To: editor@itatonline.org

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

Millenniun Houseware vs. CIT (Gujarat High Court)

Q whether the s. 127(2) transfer order is invalid for want of reasons referred to Full Bench

 

The CIT, Valsad, passed an order u/s 127(2) centralizing the assessee's case from Vapi to Surat "to facilitate coordinated and effective investigation". The assessee challenged the order on the ground that as no reasons were given in the s. 127(2) order (though given in the affidavit-in-reply), the s. 127(2) order had to be struck down as per Ajanta Industries vs. CBDT 102 ITR 281 (SC). The department relied on Arti Ship Breaking vs. DIT 244 ITR 333 (Guj) where it was held that Ajanta Industries was no longer good law and reasons were not required to be stated in the order. HELD by the Court:

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M/s. Alpha Projects Society P. Ltd vs. DCIT (ITAT Ahmedabad) S. 40(a)(ia): Special Bench verdict cannot be followed in view of High Court verdict

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Section 10A/ 10B Special Bench Verdict On Loss Set-Off Approved By High Court

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From: editor@itatonline.org <itatonline.org@gmail.com>
Date: Thu, Apr 26, 2012 at 10:53 AM
Subject: Message from EGroup of SolapurCAs S. 10A/ 10B Special Bench Verdict On Loss Set-Off Approved By High Court
To: editor@itatonline.org

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

CIT vs. Black & Veatch Consulting Pvt.Ltd (Bombay High Court)

S. 10A/ 10B deduction allowable without set off of losses of non-eligible units

 

The question arose whether the brought forward unabsorbed depreciation and losses of a unit which was not eligible for s. 10A deduction could be set-off against the current profit of a unit eligible for s. 10A deduction. The Tribunal, relying on Scientific Atlanta Vs. ACIT 129 TTJ 273 (Che)(SB) held that the a. 10A deduction had to be allowed before set-off of the losses of the non-eligible unit. On appeal by the department to the High Court, HELD dismissing the appeal:

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Millenniun Houseware vs. CIT (Gujarat High Court) Q whether the s. 127(2) transfer order is invalid for want of reasons referred to Full Bench

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ITR VOL 343 PART 1 AND ITR (TRIB) VOL 15 PART 4

 

INCOME TAX REPORTS (ITR)

Volume 343 : Part 1 (Issue dated 30-4-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Export --Special deduction--Computation of profits--Sale of DEPB credit--Sale value less value of DEPB--Ninety per cent. of receipt of nature mentioned in Explanation (baa)(1) included in profits alone to be deducted--Ninety per cent. of net interest or net rent, included in profits, and not of gross interest or gross rent, to be deducted--Income-tax Act, 1961, s. 80HHC, Expln. (baa)-- ACG Associated Capsules Pvt. Ltd. v. CIT . . . 89

HIGH COURTS

Business expenditure --Royalty--Tribunal allowing expenses in earlier years--No question of law--Income-tax Act, 1961-- CIT v. Galaxy Surfactants Ltd .(Bom) . . . 108

Charitable purpose --Registration of trusts--Commissioner--Power to cancel registration--Amendment of provision empowering Commissioner to cancel registration granted to trust under section 12A--Valid--Income-tax Act, 1961, s. 12AA(3)-- Sinhagad Technical Education Society v. CIT (Bom) . . . 23

Deduction of tax at source --Non-resident--Permanent establishment--Convention between India and Netherlands treating branch office in India as a separate entity--No obligation on part of branch office in India to deduct tax while making interest remittance to its head office or any other foreign branch--Double Taxation Avoidance Agreement between India and the Netherlands, arts. 5(2), 7(2)--Income-tax Act, 1961, ss. 40(a)(i), 195(1)-- ABN Amro Bank, N. V . v. CIT (Cal) . . . 81

Export --Deduction under section 10B--Loss in eligible unit could be set off against profits of business--Income-tax Act, 1961, s. 10B-- CIT v. Galaxy Surfactants Ltd. (Bom) . . . 108

----Special deduction under section 80HHC--Conditions precedent--Export and receipt of sale proceeds in convertible foreign exchange--No condition that exports must be from India--Assessee purchasing goods from one foreign country and transporting it to another foreign country--Entitled to special deduction under section 80HHC--Income-tax Act, 1961, ss. 80HHC, 80HHE-- Anil Kumar v. ITO (Karn) . . . 30

Interpretation of taxing statutes --Interpretation beneficial to assessee-- Anil Kumar v. ITO (Karn) . . . 30

Recovery of tax --Stay of recovery proceedings--Assessee appointed agent of State Government--Position accepted for assessment years 2003-04, 2004-05, 2005-06--Assessment and demand for tax for assessment year 2006-07--Appeal to Commissioner (Appeals) and application for stay of recovery proceedings--Direction for expeditious disposal of appeal and stay of demand till disposal of appeal--Income-tax Act, 1961-- City and Industrial Development Corporation of Maharashtra Ltd. v. Asst. CIT (Bom) . . . 102

Refund --Refund of income-tax and wealth-tax--General principles--Scope of article 265 of Constitution--Difference between tax collected or paid under statutes declared unconstitutional and tax collected or paid under valid statute but wrong interpretation of statute or wrong determination of facts--Constitution of India, art. 265--Income-tax Act, 1961--Wealth-tax Act, 1957-- Indglonal Investment and Finance Ltd . v. ITO (Delhi) . . . 44

Revision --Jurisdiction--Limitation--Doctrine of merger--Order of assessment does not merge in orders of reassessment as regards issues not forming subject-matter of reassessment--Limitation for revision of assessment order in respect of those issues--Runs from date of assessment order not from date of reassessment orders--Income-tax Act, 1961, ss. 143(3), 148, 263(2)-- CIT v. ICICI Bank Ltd. (Bom) . . . 74

AUTHORITY FOR ADVANCE RULINGS

Advance ruling --Value as precedent--Income-tax Act, 1961, s. 245R(4)-- Citrix Systems Asia Pacific Pty. Limited, In re . . . 1

Royalty --Sale or licensing for use of copyrighted software is grant of right to use copyright--Payment therefor is royalty--Non-resident--Appointment of non-exclusive distributor of software products in India--Payment from distributor for sale of software product--Subscription for updates--Payment for subscription advantage programme--Royalty--Indian distributor to withhold taxes in India on payments--Income-tax Act, 1961, ss. 9(1)(vi), 195--Double Taxation Avoidance Agreement between India and Australia, art. 12-- Citrix Systems Asia Pacific Pty. Limited , In re . . . 1  Words and phrases --"Royalty"--"Licence"-- Citrix Systems Asia Pacific Pty. Limited , In re . . . 1

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 265 --Refund--Refund of income-tax and wealth-tax--General principles--Scope of article 265 of Constitution--Difference between tax collected or paid under statutes declared unconstitutional and tax collected or paid under valid statute but wrong interpretation of statute or wrong determination of facts-- Indglonal Investment and Finance Ltd . v. ITO (Delhi) . . . 44

Double Taxation Avoidance Agreement between India and Australia :

Art. 12 --Royalty--Sale or licensing for use of copyrighted software is grant of right to use copyright--Payment therefor is royalty--Non-resident--Appointment of non-exclusive distributor of software products in India--Payment from distributor for sale of software product--Subscription for updates--Payment for subscription advantage programme--Royalty--Indian distributor to withhold taxes in India on payments-- Citrix Systems Asia Pacific Pty. Limited , In re (AAR) . . . 1

Double Taxation Avoidance Agreement between India and the Netherlands :

Arts. 5(2), 7(2) --Deduction of tax at source--Non-resident--Permanent establishment--Convention between India and Netherlands treating branch office in India as a separate entity--No obligation on part of branch office in India to deduct tax while making interest remittance to its head office or any other foreign branch-- ABN Amro Bank, N. V . v. CIT (Cal) . . . 81

Income-tax Act, 1961 :

S. 9(1)(vi) --Royalty--Sale or licensing for use of copyrighted software is grant of right to use copyright--Payment therefor is royalty--Non-resident--Appointment of non-exclusive distributor of software products in India--Payment from distributor for sale of software product--Subscription for updates--Payment for subscription advantage programme--Royalty--Indian distributor to withhold taxes in India on payments-- Citrix Systems Asia Pacific Pty. Limited , In re (AAR) . . . 1

S. 10B --Export--Deduction under section 10B--Loss in eligible unit could be set off against profits of business-- CIT v. Galaxy Surfactants Ltd. (Bom) . . . 108

S. 12AA(3) --Charitable purpose--Registration of trusts--Commissioner--Power to cancel registration--Amendment of provision empowering Commissioner to cancel registration granted to trust under section 12A--Valid-- Sinhagad Technical Education Society v. CIT (Bom) . . . 23

S. 40(a)(i) --Deduction of tax at source--Non-resident--Permanent establishment--Convention between India and Netherlands treating branch office in India as a separate entity--No obligation on part of branch office in India to deduct tax while making interest remittance to its head office or any other foreign branch-- ABN Amro Bank, N. V . v. CIT (Cal) . . . 81

S. 80HHC --Export--Special deduction under section 80HHC--Conditions precedent--Export and receipt of sale proceeds in convertible foreign exchange--No condition that exports must be from India--Assessee purchasing goods from one foreign country and transporting it to another foreign country--Entitled to special deduction under section 80HHC-- Anil Kumar v. ITO (Karn) . . . 30

S. 80HHC, Expln. (baa) --Export--Special deduction--Computation of profits--Sale of DEPB credit--Sale value less value of DEPB--Ninety per cent. of receipt of nature mentioned in Explanation (baa)(1) included in profits alone to be deducted--Ninety per cent. of net interest or net rent, included in profits, and not of gross interest or gross rent, to be deducted-- ACG Associated Capsules Pvt. Ltd. v. CIT (SC) . . . 89

S. 80HHE --Export--Special deduction under section 80HHC--Conditions precedent--Export and receipt of sale proceeds in convertible foreign exchange--No condition that exports must be from India--Assessee purchasing goods from one foreign country and transporting it to another foreign country--Entitled to special deduction under section 80HHC-- Anil Kumar v. ITO (Karn) . . . 30

S. 143(3) --Revision--Jurisdiction--Limitation--Doctrine of merger--Order of assessment does not merge in orders of reassessment as regards issues not forming subject-matter of reassessment--Limitation for revision of assessment order in respect of those issues--Runs from date of assessment order not from date of reassessment orders-- CIT v. ICICI Bank Ltd. (Bom) . . . 74

S. 148 --Revision--Jurisdiction--Limitation--Doctrine of merger--Order of assessment does not merge in orders of reassessment as regards issues not forming subject-matter of reassessment--Limitation for revision of assessment order in respect of those issues--Runs from date of assessment order not from date of reassessment orders-- CIT v. ICICI Bank Ltd. (Bom) . . . 74

S. 195 --Royalty--Sale or licensing for use of copyrighted software is grant of right to use copyright--Payment therefor is royalty--Non-resident--Appointment of non-exclusive distributor of software products in India--Payment from distributor for sale of software product--Subscription for updates--Payment for subscription advantage programme--Royalty--Indian distributor to withhold taxes in India on payments-- Citrix Systems Asia Pacific Pty. Limited , In re (AAR) . . . 1

S. 195(1) --Deduction of tax at source--Non-resident--Permanent establishment--Convention between India and Netherlands treating branch office in India as a separate entity--No obligation on part of branch office in India to deduct tax while making interest remittance to its head office or any other foreign branch-- ABN Amro Bank, N. V . v. CIT (Cal) . . . 81

S. 245R(4) --Advance ruling--Value as precedent-- Citrix Systems Asia Pacific Pty. Limited, In re (AAR) . . . 1

S. 263(2) --Revision--Jurisdiction--Limitation--Doctrine of merger--Order of assessment does not merge in orders of reassessment as regards issues not forming subject-matter of reassessment--Limitation for revision of assessment order in respect of those issues--Runs from date of assessment order not from date of reassessment orders-- CIT v. ICICI Bank Ltd. (Bom) . . . 74

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

Volume 15 : Part 4 (Issue dated : 30-4-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Assessment --Limitation--Erroneously passed draft assessment order not to render assessment order time barred-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

Capital gains --Cost of improvement--Charges paid to land development authority for change of ownership of land in revenue records--Nature of, not known--Whether to be capitalised--Matter remanded--Income-tax Act, 1961, s. 48-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

Capital or revenue expenditure --Expenses for acquiring licence to use software--Revenue expenditure-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

Deduction --Expenditure for earning income not liable to tax--Period prior to introduction of rule for determining such expenditure--Disallowance on fair and reasonable basis to be made--Income-tax Act, 1961, s. 10A--Income-tax Rules, 1962, r. 8D-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

Export --Special deduction--Reference to Transfer Pricing Officer for determination of arm's length price--Rules and procedures for transfer pricing matters to be used only for purpose of section 92--Transfer Pricing Officer stating no need for adjustment--Other adjustments to be made independent of order of Transfer Pricing Officer--Section 10A deduction not to be worked out on basis of arm's length price profit generated out of order of Transfer Pricing Officer--Computation of exemption--Adjustments to export turnover also to be made in total turnover--Income-tax Act, 1961, ss. 10A, 92, 92AC, 144C-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

International transactions --Arm's length price--Determination--Selection of comparables--Factors to be considered--Nature of assessee's profile to be first determined--Assessee treating itself as a low end service provider, but Transfer Pricing Officer finding it was high end service provider--Rejection of comparables selected by assessee and fresh selection of comparables--Proper--Filters applied for comparables--Proper--Benefit of five per cent. margin--Not a standard deduction--Income-tax Act, 1961, ss. 92C, 92D, 144C--Income-tax Rules, 1962, rr. 10B, 10D-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

----Arm's length price--Determination--Transactional net margin method--Selection of comparables--Exclusion of loss making and abnormally high profit making companies--Principles--Assessee not charging mark-up on application research services--Activity cannot be clubbed with other activities--Transfer pricing adjustment justified--More than one year's data not to be taken--Unless assessee specifically demonstrates data would influence comparison of transfer price--Comparison of enterprise level profits not proper--Actual margin of servicing segment to be taken--Assessing Officer granting working capital adjustment--No further adjustment necessary--Claim of risk adjustment not to be granted--Direction of Dispute Resolution Panel not to ignore actual mark-up earned by assessee while comparing average mean--Assessing Officer bound to follow--Income-tax Act, 1961, ss. 92CA, 144C(10), (11), (13)--Income-tax Rules, 1962, r. 10B(4)-- Exxon Mobil Company India P. Ltd. v. Deputy CIT (Mumbai) . . . 353

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 10A --Deduction--Expenditure for earning income not liable to tax--Period prior to introduction of rule for determining such expenditure--Disallowance on fair and reasonable basis to be made-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

----Export--Special deduction--Reference to Transfer Pricing Officer for determination of arm's length price--Rules and procedures for transfer pricing matters to be used only for purpose of section 92--Transfer Pricing Officer stating no need for adjustment--Other adjustments to be made independent of order of Transfer Pricing Officer--Section 10A deduction not to be worked out on basis of arm's length price profit generated out of order of Transfer Pricing Officer--Computation of exemption--Adjustments to export turnover also to be made in total turnover-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

S. 48 --Capital gains--Cost of improvement--Charges paid to land development authority for change of ownership of land in revenue records--Nature of, not known--Whether to be capitalised--Matter remanded-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

S. 92 --Export--Special deduction--Reference to Transfer Pricing Officer for determination of arm's length price--Rules and procedures for transfer pricing matters to be used only for purpose of section 92--Transfer Pricing Officer stating no need for adjustment--Other adjustments to be made independent of order of Transfer Pricing Officer--Section 10A deduction not to be worked out on basis of arm's length price profit generated out of order of Transfer Pricing Officer--Computation of exemption--Adjustments to export turnover also to be made in total turnover-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

S. 92AC --Export--Special deduction--Reference to Transfer Pricing Officer for determination of arm's length price--Rules and procedures for transfer pricing matters to be used only for purpose of section 92--Transfer Pricing Officer stating no need for adjustment--Other adjustments to be made independent of order of Transfer Pricing Officer--Section 10A deduction not to be worked out on basis of arm's length price profit generated out of order of Transfer Pricing Officer--Computation of exemption--Adjustments to export turnover also to be made in total turnover-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

S. 92C --International transactions--Arm's length price--Determination--Selection of comparables--Factors to be considered--Nature of assessee's profile to be first determined--Assessee treating itself as a low end service provider, but Transfer Pricing Officer finding it was high end service provider--Rejection of comparables selected by assessee and fresh selection of comparables--Proper--Filters applied for comparables--Proper--Benefit of five per cent. margin--Not a standard deduction-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

S. 92CA --International transactions--Arm's length price--Determination--Transactional net margin method--Selection of comparables--Exclusion of loss making and abnormally high profit making companies--Principles--Assessee not charging mark-up on application research services--Activity cannot be clubbed with other activities--Transfer pricing adjustment justified--More than one year's data not to be taken--Unless assessee specifically demonstrates data would influence comparison of transfer price--Comparison of enterprise level profits not proper--Actual margin of servicing segment to be taken--Assessing Officer granting working capital adjustment--No further adjustment necessary--Claim of risk adjustment not to be granted--Direction of Dispute Resolution Panel not to ignore actual mark-up earned by assessee while comparing average mean--Assessing Officer bound to follow-- Exxon Mobil Company India P. Ltd. v. Deputy CIT (Mumbai) . . . 353

S. 92D --International transactions--Arm's length price--Determination--Selection of comparables--Factors to be considered--Nature of assessee's profile to be first determined--Assessee treating itself as a low end service provider, but Transfer Pricing Officer finding it was high end service provider--Rejection of comparables selected by assessee and fresh selection of comparables--Proper--Filters applied for comparables--Proper--Benefit of five per cent. margin--Not a standard deduction-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

S. 144C --Export--Special deduction--Reference to Transfer Pricing Officer for determination of arm's length price--Rules and procedures for transfer pricing matters to be used only for purpose of section 92--Transfer Pricing Officer stating no need for adjustment--Other adjustments to be made independent of order of Transfer Pricing Officer--Section 10A deduction not to be worked out on basis of arm's length price profit generated out of order of Transfer Pricing Officer--Computation of exemption--Adjustments to export turnover also to be made in total turnover-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

----International transactions--Arm's length price--Determination--Selection of comparables--Factors to be considered--Nature of assessee's profile to be first determined--Assessee treating itself as a low end service provider, but Transfer Pricing Officer finding it was high end service provider--Rejection of comparables selected by assessee and fresh selection of comparables--Proper--Filters applied for comparables--Proper--Benefit of five per cent. margin--Not a standard deduction-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

S. 144C(10) --International transactions--Arm's length price--Determination--Transactional net margin method--Selection of comparables--Exclusion of loss making and abnormally high profit making companies--Principles--Assessee not charging mark-up on application research services--Activity cannot be clubbed with other activities--Transfer pricing adjustment justified--More than one year's data not to be taken--Unless assessee specifically demonstrates data would influence comparison of transfer price--Comparison of enterprise level profits not proper--Actual margin of servicing segment to be taken--Assessing Officer granting working capital adjustment--No further adjustment necessary--Claim of risk adjustment not to be granted--Direction of Dispute Resolution Panel not to ignore actual mark-up earned by assessee while comparing average mean--Assessing Officer bound to follow-- Exxon Mobil Company India P. Ltd. v. Deputy CIT (Mumbai) . . . 353

S. 144C(11) --International transactions--Arm's length price--Determination--Transactional net margin method--Selection of comparables--Exclusion of loss making and abnormally high profit making companies--Principles--Assessee not charging mark-up on application research services--Activity cannot be clubbed with other activities--Transfer pricing adjustment justified--More than one year's data not to be taken--Unless assessee specifically demonstrates data would influence comparison of transfer price--Comparison of enterprise level profits not proper--Actual margin of servicing segment to be taken--Assessing Officer granting working capital adjustment--No further adjustment necessary--Claim of risk adjustment not to be granted--Direction of Dispute Resolution Panel not to ignore actual mark-up earned by assessee while comparing average mean--Assessing Officer bound to follow-- Exxon Mobil Company India P. Ltd. v. Deputy CIT (Mumbai) . . . 353

S. 144C(13) --International transactions--Arm's length price--Determination--Transactional net margin method--Selection of comparables--Exclusion of loss making and abnormally high profit making companies--Principles--Assessee not charging mark-up on application research services--Activity cannot be clubbed with other activities--Transfer pricing adjustment justified--More than one year's data not to be taken--Unless assessee specifically demonstrates data would influence comparison of transfer price--Comparison of enterprise level profits not proper--Actual margin of servicing segment to be taken--Assessing Officer granting working capital adjustment--No further adjustment necessary--Claim of risk adjustment not to be granted--Direction of Dispute Resolution Panel not to ignore actual mark-up earned by assessee while comparing average mean--Assessing Officer bound to follow-- Exxon Mobil Company India P. Ltd. v. Deputy CIT (Mumbai) . . . 353

Income-tax Rules, 1962 :

R. 8D --Deduction--Expenditure for earning income not liable to tax--Period prior to introduction of rule for determining such expenditure--Disallowance on fair and reasonable basis to be made-- Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT (Chennai) . . . 393

R. 10B --International transactions--Arm's length price--Determination--Selection of comparables--Factors to be considered--Nature of assessee's profile to be first determined--Assessee treating itself as a low end service provider, but Transfer Pricing Officer finding it was high end service provider--Rejection of comparables selected by assessee and fresh selection of comparables--Proper--Filters applied for comparables--Proper--Benefit of five per cent. margin--Not a standard deduction-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

R. 10B(4) --International transactions--Arm's length price--Determination--Transactional net margin method--Selection of comparables--Exclusion of loss making and abnormally high profit making companies--Principles--Assessee not charging mark-up on application research services--Activity cannot be clubbed with other activities--Transfer pricing adjustment justified--More than one year's data not to be taken--Unless assessee specifically demonstrates data would influence comparison of transfer price--Comparison of enterprise level profits not proper--Actual margin of servicing segment to be taken--Assessing Officer granting working capital adjustment--No further adjustment necessary--Claim of risk adjustment not to be granted--Direction of Dispute Resolution Panel not to ignore actual mark-up earned by assessee while comparing average mean--Assessing Officer bound to follow-- Exxon Mobil Company India P. Ltd. v. Deputy CIT (Mumbai) . . . 353

R. 10D --International transactions--Arm's length price--Determination--Selection of comparables--Factors to be considered--Nature of assessee's profile to be first determined--Assessee treating itself as a low end service provider, but Transfer Pricing Officer finding it was high end service provider--Rejection of comparables selected by assessee and fresh selection of comparables--Proper--Filters applied for comparables--Proper--Benefit of five per cent. margin--Not a standard deduction-- ST Microelectronics P. Ltd. v. CIT (Appeals) (Delhi) . . . 410

Section 40(a)(ia) TDS Disallowance: Special Bench Verdict Cannot Be Followed: ITAT Ahmedabad

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From: editor@itatonline.org <itatonline.org@gmail.com>
Date: Wed, Apr 25, 2012 at 11:16 AM
Subject: Message from EGroup of SolapurCAs S. 40(a)(ia) TDS Disallowance: Special Bench Verdict Cannot Be Followed: ITAT Ahmedabad
To: editor@itatonline.org

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

M/s. Alpha Projects Society P. Ltd vs. DCIT (ITAT Ahmedabad)

S. 40(a)(ia): Special Bench verdict cannot be followed in view of High Court verdict

 

In AY 2005-06, the assessee made payments to contractors & for professionals & technical services. Though TDS was deducted, it was paid after the end of the FY but before filing the ROI. The assessee pleaded that s. 40(a)(ia), as amended by the FA 2010 w.e.f. 1.4.2010 to provide that no disallowance should be made if the TDS was paid before the due date of filing the ROI should be held to be retrospective. However, the AO & CIT (A), rejected the claim by relying on Bharati Shipyard Ltd 132 ITD 53 (Mum) (SB). On appeal to the Tribunal, HELD allowing the appeal:

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Editor,

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CIT vs. Usha International Ltd (Delhi High Court) S. 147: Q whether there is "change of opinion" if AO does not specifically apply his mind referred to Full Bench

Section 147 "Change of Opinion" Controversy Referred To Full Bench

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Date: Wed, Apr 25, 2012 at 9:32 AM
Subject: Message from EGroup of SolapurCAs S. 147 "Change of Opinion" Controversy Referred To Full Bench
To: editor@itatonline.org

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

CIT vs. Usha International Ltd (Delhi High Court)

S. 147: Q whether there is "change of opinion" if AO does not specifically apply his mind referred to Full Bench

 

In the Notes to accounts, the assessee had disclosed that it had received Rs.173 lakhs for transfer of exclusive distribution rights of AC and water coolers and that it was credited to capital reserve and not treated as income. The AO passed a s. 143(3) assessment order in which he did not deal with the issue. Subsequently, as the revenue audit raised an objection, the AO, within 4 years from the end of the AY, reopened the assessment on the ground that the said amount was chargeable as "Capital gains". The Tribunal, following Kelvinator 256 ITR 1 (FB) (affirmed in 320 ITR 561 (SC)), struck down the reopening on the ground that it was based on the notes on accounts that was already on record, there was no "fresh material" and so it was a case of "lapse of the AO" and a "change of opinion". On appeal by the department, HELD:

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Editor,

itatonline.org

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Nani Palkhivala's Top 10 Secrets Of Success by Vellalapatti Swaminathan Iyer

Nani Palkhivala’s Top 10 Secrets Of Success

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Date: Mon, Apr 23, 2012 at 4:38 PM
Subject: Message from EGroup of SolapurCAs Nani Palkhivala's Top 10 Secrets Of Success
To: editor@itatonline.org

 

Dear Subscriber,

Nani Palkhivala's Top 10 Secrets Of Success by Vellalapatti Swaminathan Iyer

Nani Palkhivala incredible professional success has inspired several generations of youngsters to improve their own performance & become better professionals. But how did Palkhivala achieve such great level of success? Yes, he was a genius with great intellectual ability but were there any techniques that he followed that we can emulate as well? The author investigates and reveals Nani Palkhivala's top 10 secrets of success

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Editor,

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CIT vs. Punjab Breweries Ltd (Punjab & Haryana High Court) Tribunal's order not dealing with finding of "sham" transaction is "perverse"

ITR (TRIB) VOL 15 PART 3

 

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

Volume 15 : Part 3 (Issue dated : 23-4-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Advance tax --Interest--Mandatory--Income-tax Act, 1961, s. 234B-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

Business expenditure --Expenditure on account of recruitment and training expenses, advertisement and sales promotion expenses--To be allowed--Income-tax Act, 1961, s. 37-- Sapient Corporation P. Ltd. v. Deputy CIT (Delhi) . . . 285

Depreciation --Unabsorbed depreciation--Set off of brought forward loss and un-absorbed depreciation--Assessing Officer to determine--Income-tax Act, 1961-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

Export --Special deduction under section 80HHC--Computation of export turnover--Excise duty and sales tax to be excluded from total turnover--Income-tax Act, 1961, s. 80HHC-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

----Special deduction under section 80HHC--Computation of special deduction--Income from scrap, sale, discount and commission, inspection etc.--Matter remanded--Income-tax Act, 1961, s. 80HHC-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

Interest income --Whether business income--Matter remanded-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

International transaction --Arm's length price--Benefit of proviso to section 92C--Assessee exceeding permissible limit and falling outside arm's length range--Benefit not available--Income-tax Act, 1961, s. 92C-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Arm's length price--Business promotion expenses--Expenditure of personal nature--To be excluded from operating cost--Income-tax Act, 1961-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Arm's length price--Claim for risk adjustment--No evidence that details exhibiting risk borne by comparables--Assessee not entitled to benefit of risk adjustment--Income-tax Act, 1961, s. 92D--Income-tax Rules, 1962, r. 10D-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Arm's length price--Compensation for closure of business branches--Closure of branch has direct link with international transaction--To be included in operating cost--Income-tax Act, 1961-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Arm's length price--Determination--Transactional net margin method--Comparison of net margin realised by associated enterprise from international transactions not comparison of operating margins at enterprise level--Transfer Pricing Officer--Entitled to consider information in public domain updated at time of assessment--That assessee had no access to it at time of making transfer pricing report--Not material--Data relating to financial year in which transaction entered into to be considered--Not of multiple years--Unless assessee makes out case--Exclusion of comparables--Only in case of abnormal differences on account of turnover--Income received from associated enterprise computed applying Chapter X--Subsequent claim of bad debt or business loss not allowable--Benefit of five per cent. margin--Available for years prior to amendment--Income-tax Act, 1961, ss. 92C, 92CA(3), 144C--Income-tax Rules, 1962, r. 10B-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

----Arm's length price--General recession in international market--Transfer Pricing Officer considering results of comparable cases and recommending adjustment--Proper--Income-tax Act, 1961-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Arm's length price--Telephone expenses--No material to show that amount directly interlinked with international transaction--To be excluded from calculation of operating cost--Income-tax Act, 1961, s. 92CA-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Computation of arm's length price--Net margin of operating income--Only operating income and operating expenses for relevant business activity to be taken into consideration--Matter remanded--Income-tax Act, 1961-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

----Computation of arm's length price--Section 92C(2) applicable--Income-tax Act, 1961, s. 92C(2)-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

----Computation of arm's length price--Use of multiple years' data--Relevant only if pricing pattern of assessee for relevant financial year has been influenced by market conditions--Assessee in business of courier services, not affected by market fluctuation--Multiple years' data not to be considered--Income-tax Rules, 1962, r. 10B-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

----Determination of arm's length price--Reference to Transfer Pricing Officer--Assessing Officer need not demonstrate avoidance of tax or existence of circumstances in clauses (a) to (d) of section 92C(3) before making reference--Income-tax Act, 1961, ss. 92CA, 92C(3)-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

----Transfer pricing--Arm's length price--Comparables--Reference to Transfer Pricing Officer--Interest income not part of operating income of assessee--Income-tax Act, 1961, s. 92CA-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----Transfer pricing--Computation of arm's length price--Three prices determined involving three comparables--Assessee entitled to deduction not exceeding 5 per cent. out of arithmetic mean--Income-tax Act, 1961, ss. 92C(2), 92CA(3)-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

----Transfer pricing--Determination of arm's length price--Expenses on projects undertaken by assessee--Not related to international transactions of assessee--To be excluded--Income-tax Act, 1961-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

Transfer pricing --International transaction--Computation of arm's length price--Comparable--Enterprise showing super profit--Not to be treated as comparable--Otherwise difference less than 5 per cent.--No adjustment needed--Income-tax Act, 1961, s. 92C-- Sapient Corporation P. Ltd. v. Deputy CIT (Delhi) . . . 285

----International transaction--Determination of arm's length price--Reference to Transfer Pricing Officer--Dispute Resolution Panel--Comparable companies--Factual findings not recorded by Transfer Pricing Officer--Matter remanded--Income-tax Act, 1961, s. 92C-- Avaya India P. Ltd. v. Asst. CIT (Delhi) . . . 237

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 37 --Business expenditure--Expenditure on account of recruitment and training expenses, advertisement and sales promotion expenses--To be allowed-- Sapient Corporation P. Ltd. v. Deputy CIT (Delhi) . . . 285

S. 80HHC --Export--Special deduction under section 80HHC--Computation of export turnover--Excise duty and sales tax to be excluded from total turnover-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

----Export--Special deduction under section 80HHC--Computation of special deduction--Income from scrap, sale, discount and commission, inspection etc.--Matter remanded-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

S. 92C --International transactions--Arm's length price--Benefit of proviso to section 92C--Assessee exceeding permissible limit and falling outside arm's length range--Benefit not available-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----International transactions--Arm's length price--Determination--Transactional net margin method--Comparison of net margin realised by associated enterprise from international transactions not comparison of operating margins at enterprise level--Transfer Pricing Officer--Entitled to consider information in public domain updated at time of assessment--That assessee had no access to it at time of making transfer pricing report--Not material--Data relating to financial year in which transaction entered into to be considered--Not of multiple years--Unless assessee makes out case--Exclusion of comparables--Only in case of abnormal differences on account of turnover--Income received from associated enterprise computed applying Chapter X--Subsequent claim of bad debt or business loss not allowable--Benefit of five per cent. margin--Available for years prior to amendment-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

----Transfer pricing--International transaction--Computation of arm's length price --Comparable--Enterprise showing super profit--Not to be treated as comparable--Otherwise difference less than 5 per cent.--No adjustment needed-- Sapient Corporation P. Ltd. v. Deputy CIT (Delhi) . . . 285

----Transfer pricing--International transaction--Determination of arm's length price --Reference to Transfer Pricing Officer--Dispute Resolution Panel--Comparable companies--Factual findings not recorded by Transfer Pricing Officer--Matter remanded-- Avaya India P. Ltd. v. Asst. CIT (Delhi) . . . 237

S. 92C(2) --International transaction--Transfer pricing--Computation of arm's length price--Three prices determined involving three comparables--Assessee entitled to deduction not exceeding 5 per cent. out of arithmetic mean-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

----International transactions--Computation of arm's length price--Section 92C(2) applicable-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

S. 92C(3) --International transactions--Determination of arm's length price--Reference to Transfer Pricing Officer--Assessing Officer need not demonstrate avoidance of tax or existence of circumstances in clauses (a) to (d) of section 92C(3) before making reference-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

S. 92CA --International transactions--Arm's length price--Telephone expenses--No material to show that amount directly interlinked with international transaction--To be excluded from calculation of operating cost-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

----International transactions--Determination of arm's length price--Reference to Transfer Pricing Officer--Assessing Officer need not demonstrate avoidance of tax or existence of circumstances in clauses (a) to (d) of section 92C(3) before making reference-- TNT India P. Ltd. v. Asst. CIT (Bangalore) . . . 263

----International transactions--Transfer pricing--Arm's length price--Comparables--Reference to Transfer Pricing Officer--Interest income not part of operating income of assessee-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

S. 92CA(3) --International transaction--Transfer pricing--Computation of arm's length price--Three prices determined involving three comparables--Assessee entitled to deduction not exceeding 5 per cent. out of arithmetic mean-- Cummins India Ltd. v. Deputy CIT (Pune) . . . 252

----International transactions--Arm's length price--Determination--Transactional net margin method--Comparison of net margin realised by associated enterprise from international transactions not comparison of operating margins at enterprise level--Transfer Pricing Officer--Entitled to consider information in public domain updated at time of assessment--That assessee had no access to it at time of making transfer pricing report--Not material--Data relating to financial year in which transaction entered into to be considered--Not of multiple years--Unless assessee makes out case--Exclusion of comparables--Only in case of abnormal differences on account of turnover--Income received from associated enterprise computed applying Chapter X--Subsequent claim of bad debt or business loss not allowable--Benefit of five per cent. margin--Available for years prior to amendment-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

S. 92D --International transactions--Arm's length price--Claim for risk adjustment--No evidence that details exhibiting risk borne by comparables--Assessee not entitled to benefit of risk adjustment-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

S. 144C --International transactions--Arm's length price--Determination--Transactional net margin method--Comparison of net margin realised by associated enterprise from international transactions not comparison of operating margins at enterprise level--Transfer Pricing Officer--Entitled to consider information in public domain updated at time of assessment--That assessee had no access to it at time of making transfer pricing report--Not material--Data relating to financial year in which transaction entered into to be considered--Not of multiple years--Unless assessee makes out case--Exclusion of comparables--Only in case of abnormal differences on account of turnover--Income received from associated enterprise computed applying Chapter X--Subsequent claim of bad debt or business loss not allowable--Benefit of five per cent. margin--Available for years prior to amendment-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

S. 234B --Advance tax--Interest--Mandatory-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

Income-tax Rules, 1962 :

R. 10B --International transactions--Arm's length price--Determination--Transactional net margin method--Comparison of net margin realised by associated enterprise from international transactions not comparison of operating margins at enterprise level--Transfer Pricing Officer--Entitled to consider information in public domain updated at time of assessment--That assessee had no access to it at time of making transfer pricing report--Not material--Data relating to financial year in which transaction entered into to be considered--Not of multiple years--Unless assessee makes out case--Exclusion of comparables--Only in case of abnormal differences on account of turnover--Income received from associated enterprise computed applying Chapter X--Subsequent claim of bad debt or business loss not allowable--Benefit of five per cent. margin--Available for years prior to amendment-- Symantec Software Solutions P. Ltd. v. Asst. CIT (Mumbai) . . . 323

----International transactions--Computation of arm's length price--Use of multiple years' data--Relevant only if pricing pattern of assessee for relevant financial year has been influenced by market conditions--Assessee in business of courier services, not affected by market fluctuation--Multiple years' data not to be considered-- TNT India P. Ltd. v . Asst. CIT (Bangalore) . . . 263

R. 10D --International transactions--Arm's length price--Claim for risk adjustment--No evidence that details exhibiting risk borne by comparables--Assessee not entitled to benefit of risk adjustment-- Marubeni India P. Ltd. v. Addl. CIT (Delhi) . . . 297

 

ALLOTMENT OF AUDIT OF URBAN COOPERATIVE BANK (UCB) 2011-12

DEAR MEMBERS,

THE ALLOTMENT OF AUDIT OF UCBs FOR THE FINANCIAL YEAR 2011-12 WILL BE MADE AS PER THE POLICY STATED IN LETTER DATED 11 APRIL, 2011 BY COMMISSIONER CO-OPERATION. THE ALLOTMENT ARE EXPECTED TO BE MADE IN 1 OR 2ND WEEK OF THE MAY 2012.

Regards,
-------
CA.C.V.PAWAR
0253-2319641. M-9423961209

Vijay Mallya Falls Foul (Again) Of High Court For "Diverting Funds"

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From: editor@itatonline.org <itatonline.org@gmail.com>
Date: Mon, Apr 23, 2012 at 12:01 PM
Subject: Message from EGroup of SolapurCAs Vijay Mallya Falls Foul (Again) Of High Court For "Diverting Funds"
To: editor@itatonline.org

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

CIT vs. Punjab Breweries Ltd (Punjab & Haryana High Court)

Tribunal's order not dealing with finding of "sham" transaction is "perverse"

 

The AO disallowed payments made by the assessee to M/s Blue Chip & Co towards "C&F handling charges" on the ground that the transactions were a "sham" and intended to provide interest-free funds to Vijay Mallya & his wife Samira Mallya. This was confirmed by the CIT (A) though the Tribunal allowed the claim on the ground that a similar issue had been allowed in the earlier years. On appeal by the department, HELD reversing the Tribunal:

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Regards,

Editor,

itatonline.org

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R. K. Jain vs. UOI (Delhi High Court) Tribunal Member's Corruption Charges Info Can Be Disclosed Under RTI