ITR (TRIB) VOL 17 PART 4

 

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

Volume 17 : Part 4 (Issue dated : 30-07-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal --Additional evidence--Commissioner (Appeals) admitting new evidence after considering facts and circumstances of case in entirety and validly--Justified--Income-tax Rules, 1962, r. 46A-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

Business expenditure --Capital or revenue expenditure--Assessee running tutorial institution--Purchase of books for use by students for professional entrance examinations--Is capital expenditure--Depreciation to be allowed at 60 per cent.--Income-tax Act, 1961, ss. 32, 37-- Brilliant Study Centre v. Asst. CIT (Cochin) . . . 394

----Cost of books and awards--Assessee failing to produce vouchers of purchase of books--Expenditure to be disallowed--Assessee to furnish details regarding expenditure on awards--Matter remanded--Income-tax Act, 1961-- Brilliant Study Centre v. Asst. CIT (Cochin) . . . 394

----Demurrage charges paid to railways--Assessee furnishing certificate regarding nature of demurrage--Deduction allowable--Income-tax Act, 1961-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

----Disallowance--Payments in cash exceeding specified limit--Finding that single transactions made to appear as multiple transactions--Payments to be disallowed--Income-tax Act, 1961, s. 40A(3)-- Brilliant Study Centre v. Asst. CIT (Cochin) . . . 394

----Interest on borrowed capital--Interest-free advances--Direction to disallow interest at same rate charged by bank from assessee--Justified--Income-tax Act, 1961-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

Business income --Remission or cessation of trading liability--Addition--Unclaimed liabilities--No record of any remission or cessation of trading liability--Addition to be deleted--Income-tax Act, 1961, s. 41(1)-- Dy. CIT v. Bax Global India P. Ltd. (Delhi) . . . 414

Capital gains --Computation--Sale of land--Valuation by stamp valuation authority applied--Fair market value lower than value adopted by stamp duty authority--Direction to adopt fair market value--Justified--Income-tax Act, 1961, s. 50C-- ITO v. Gita Roy (Kolkata) . . . 431

Cash credits --Assessee producing details and creditor confirming loan granted to assessee--Addition to be deleted--Income-tax Act, 1961, s. 68-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

Company --Dividend--Deemed dividend--Advance to shareholder--Advance to company in which shareholder had substantial interest--Section 2(22)(e) not applicable--Amount not assessable as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- Asst. CIT v. Color Crafts P. Ltd. (Chandigarh) . . . 419

Depreciation --Assets given on financial lease--Assessing Officer to determine nature of lease--Different yardstick cannot be adopted for allowing depreciation and taxing lease rent--Matter remanded--Income-tax Act, 1961, s. 32-- Dy. CIT v. Bax Global India P. Ltd. (Delhi) . . . 414

Double taxation avoidance --Non-resident--Permanent establishment--Exact period of continuation of activities in India to be ascertained--Matter remanded--Double Taxation Avoidance Agreement between India and Mauritius, art. 5(1), (2)(i)-- GIL Mauritius Holdings Ltd. v. Assistant Director of Income-tax (International Taxation) (Delhi) . . . 491

Income --Business income--Remission of liability--Bank--Amount transferred from inter-branch transaction blocked accounts to reserves through profit and loss account--Transfer permitted by Reserve Bank of India subject to conditions that claim in respect of entries should be honoured and amount should not be used for declaration of dividends--Amount not of revenue nature to begin with--Amount not assessable under section 41(1)--Income-tax Act, 1961, s. 41(1)-- Punjab National Bank v. Addl. CIT (Delhi) . . . 462

Income from undisclosed sources --Unexplained sales and expenditure--Addition based on statement of director recorded by Central excise authorities--Addition not supported by evidence--Additions not valid--Income-tax Act, 1961-- Asst. CIT v. A. K. Alloys P. Ltd. (Chandigarh) . . . 424

Interpretation of taxing statutes --Interpretation beneficial to assessee--Principle applicable to non-residents-- Deputy Director of Income-tax (International Taxation) v. Solid Works Corporation (Mumbai) . . . 510

Loss --Set off--Loss on share transactions--Actual delivery received by agent of assessee--Loss not speculation loss--Commissioner (Appeals) allowing set off of loss against other heads of income--Justified--Income-tax Act, 1961, s. 43(5)-- Dy. CIT v. Dr. S. Thilagavathy (Chennai) . . . 506

Non-resident --Income deemed to accrue or arise in India--Double taxation avoidance--Assessee providing various hotel related services to hotels across the world--Assessee having no permanent establishment in India--Payments received not royalty or fees for technical services--Income-tax Act, 1961, s. 9(1)(vii), Explanation 2 --Double Taxation Avoidance Agreement between India and the U. S. A, art. 7-- Deputy Director of Income-tax (International Taxation) v. Sheraton International Inc. (Delhi) . . . 457

----Royalty--Payment from re-sellers on sale of shrink wrap software--Not royalty but business income--Non-resident not having permanent establishment in India--Income not assessable in India--Income-tax Act, 1961, s. 9--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12(3)-- Deputy Director of Income-tax (International Taxation) v. Solid Works Corporation (Mumbai) . . . 510

Revision --Powers of Commissioner--No tax effect--Order cannot be revised--Income-tax Act, 1961, s. 263-- Punjab Wool Syndicate v. ITO (Chandigarh) . . . 439

Unexplained income --Unexplained credit entries in capital account--Assessee furnishing details of remittance--Addition to be deleted--Income-tax Act, 1961-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Mauritius :

Art. 5(1), (2)(i) --Double taxation avoidance--Non-resident--Permanent establishment--Exact period of continuation of activities in India to be ascertained--Matter remanded-- GIL Mauritius Holdings Ltd. v. Assistant Director of Income-tax (International Taxation) (Delhi) . . . 491

Double Taxation Avoidance Agreement between India and the U. S. A :

Art. 7 --Non-resident--Income deemed to accrue or arise in India--Double taxation avoidance--Assessee providing various hotel related services to hotels across the world--Assessee having no permanent establishment in India--Payments received not royalty or fees for technical services-- Deputy Director of Income-tax (International Taxation) v. Sheraton International Inc. (Delhi) . . . 457

Art. 12(3) --Non-resident--Royalty--Payment from re-sellers on sale of shrink wrap software--Not royalty but business income--Non-resident not having permanent establishment in India--Income not assessable in India-- Deputy Director of Income-tax (International Taxation) v. Solid Works Corporation (Mumbai) . . . 510

Income-tax Act, 1961 :

S. 2(22)(e) --Company--Dividend--Deemed dividend--Advance to shareholder--Advance to company in which shareholder had substantial interest--Section 2(22)(e) not applicable--Amount not assessable as deemed dividend-- Asst. CIT v. Color Crafts P. Ltd. (Chandigarh) . . . 419

S. 9 --Non-resident--Royalty--Payment from re-sellers on sale of shrink wrap software--Not royalty but business income--Non-resident not having permanent establishment in India--Income not assessable in India-- Deputy Director of Income-tax (International Taxation) v. Solid Works Corporation (Mumbai) . . . 510

S. 9(1)(vii), Explanation 2 --Non-resident--Income deemed to accrue or arise in India--Double taxation avoidance--Assessee providing various hotel related services to hotels across the world--Assessee having no permanent establishment in India--Payments received not royalty or fees for technical services-- Deputy Director of Income-tax (International Taxation) v. Sheraton International Inc. (Delhi) . . . 457

S. 32 --Depreciation--Assets given on financial lease--Assessing Officer to determine nature of lease--Different yardstick cannot be adopted for allowing depreciation and taxing lease rent--Matter remanded-- Dy. CIT v. Bax Global India P. Ltd. (Delhi) . . . 414

----Business expenditure--Capital or revenue expenditure--Assessee running tutorial institution--Purchase of books for use by students for professional entrance examinations--Is capital expenditure--Depreciation to be allowed at 60 per cent.-- Brilliant Study Centre v. Asst. CIT (Cochin) . . . 394

S. 37 --Business expenditure--Capital or revenue expenditure--Assessee running tutorial institution--Purchase of books for use by students for professional entrance examinations--Is capital expenditure--Depreciation to be allowed at 60 per cent.-- Brilliant Study Centre v. Asst. CIT (Cochin) . . . 394

S. 40A(3) --Business expenditure--Disallowance--Payments in cash exceeding specified limit--Finding that single transactions made to appear as multiple transactions--Payments to be disallowed-- Brilliant Study Centre v. Asst. CIT (Cochin) . . . 394

S. 41(1) --Business income--Remission or cessation of trading liability--Addition--Unclaimed liabilities--No record of any remission or cessation of trading liability--Addition to be deleted-- Dy. CIT v. Bax Global India P. Ltd. (Delhi) . . . 414

----Income--Business income--Remission of liability--Bank--Amount transferred from inter-branch transaction blocked accounts to reserves through profit and loss account--Transfer permitted by Reserve Bank of India subject to conditions that claim in respect of entries should be honoured and amount should not be used for declaration of dividends--Amount not of revenue nature to begin with--Amount not assessable under section 41(1)-- Punjab National Bank v. Addl. CIT (Delhi) . . . 462

S. 43(5) --Loss--Set off--Loss on share transactions--Actual delivery received by agent of assessee--Loss not speculation loss--Commissioner (Appeals) allowing set off of loss against other heads of income--Justified-- Dy. CIT v. Dr. S. Thilagavathy (Chennai) . . . 506

S. 50C --Capital gains--Computation--Sale of land--Valuation by stamp valuation authority applied--Fair market value lower than value adopted by stamp duty authority--Direction to adopt fair market value--Justified-- ITO v. Gita Roy (Kolkata) . . . 431

S. 68 --Cash credits--Assessee producing details and creditor confirming loan granted to assessee--Addition to be deleted-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

S. 263 --Revision--Powers of Commissioner--No tax effect--Order cannot be revised-- Punjab Wool Syndicate v. ITO (Chandigarh) . . . 439

Income-tax Rules, 1962 :

R. 46A --Appeal--Additional evidence--Commissioner (Appeals) admitting new evidence after considering facts and circumstances of case in entirety and validly--Justified-- ITO v. Bhagwan Dass (Chandigarh) . . . 446

 

 

Circular 158/9/2012 of 8th May Stayed by Delhi High Court on 27 July

To:

From: rebecca.andrews88@yahoo.in
Date: Sat, 28 Jul 2012 12:24:16 +0800
Subject: [aaykarbhavan] Circular 158/9/2012 of 8th May Stayed by Delhi High Court on 27 July

The Service Tax Department vide Circular No.158/9/2012-ST dated 8th May 2012 demanded differential service tax of 2% in respect of 8 categories of service providers who were required to pay service tax on receipt basis even after introduction of Point of Taxation Rules, 2011. The aforesaid Circular was challenged in Writ Petition (c) No. 4456 of 2012 titled "Delhi Chartered Accountants Society v UOI" before the Hon'ble Delhi High Court. The matter was listed before the Division Bench of Hon'ble Acting Chief Justice A.K. Sikri and Hon'ble Mr. Justice Rajiv Sahai Endlaw. Mr. Ruchir Bhatia, Advocate appeared on behalf of the Petitioner; and I am pleased to inform you that the Hon'ble Court was pleased to hear; and after hearing was pleased to stay (the coercive recovery of) the differential  demand of service tax of 2% on services provided and invoices issued prior to 01.04.2012 by all the 8 categories of professionals including Chartered Accountants. Text of Notification is as follows : Circular No. 158/9/ 2012 – ST   F.No 354/69/2012- TRU Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs Tax Research Unit Room No 146, North Block, New Delhi Dated : 8th May 2012 To Chief Commissioner of Customs and Central Excise (All) Chief Commissioner of Central Excise & Service Tax (All) Director General of Service Tax Director General of Central Excise Intelligence Director General of Audit Commissioner of Customs and Central Excise (All) Commissioner of Central Excise and Service Tax (All) Commissioner of Service Tax (All)   Madam/Sir,   Subject: - Clarification on Rate of Tax - regarding.         1.             The rate of service tax has been restored to 12% w.e.f. 1st April 2012.  Representations have been received requesting clarification on the rate of tax applicable wherein invoices were raised before 1st April 2012 and the payments shall be after 1st April 2012. Clarification has been requested in case of the 8 specified services provided by individuals or proprietary firms or partnership firms, to which Rule 7 of Point of Taxation Rules 2011 was applicable and services on which tax is paid under reverse charge. 2.             The rate of service tax prevalent on the date when the point of taxation occurs is rate of service tax applicable on any taxable service. In case of the 8 specified services and services wherein tax is required to be paid on reverse charge by the service receiver the point of taxation is the date of payment. Circular No 154/5/2012 – ST dated 28th March 2012 has also clarified the same. Thus in case of such 8 specified services provided by individuals or proprietary firms or partnership firms and in case of services wherein tax is required to be paid on reverse charge by the service receiver, if the payment is received or made, as the case maybe, on or after 1st April 2012, the service tax needs to be paid @12%. 3.             The invoices issued before 1st April 2012 may reflect the previous rate of tax (10% and cess). In case of need, supplementary invoices may be issued to reflect the new rate of tax (12% and cess) and recover the differential amount. In case of reverse charge the service receiver pays the tax and takes the credit on the basis of the tax payment challan. Cenvat credit can be availed on such supplementary invoices and tax payment challans, subject to other restrictions and conditions as provided in the Cenvat Credit Rules 2004. 4.             Trade Notice/Public Notice may be issued to the field formations accordingly. 5.             Please acknowledge the receipt of this circular. Hindi version to follow.   (Dr. Shobhit Jain) OSD, TRU Fax: 011-23093037   Kind regards, Rebecca Andrews

High Court Takes Liberal View On Section 271(1)(c) Penalty

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Date: Thu, Jul 26, 2012 at 11:07 AM
Subject: Message from EGroup of SolapurCAs High Court Takes Liberal View On S. 271(1)(c) Penalty
To: editor@itatonline.org

 

Dear Subscriber,

 

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

CIT vs. Societex (Delhi High Court)

No s. 271(1)(c) penalty if wrong claim caused by "bona fide mistake"

 

The AO levied s. 271(1)(c) penalty in respect of two issues: (i) claim of depreciation in respect of properties that were assessed under the head "house property" and (ii) claim of deduction in respect of provision for income-tax. The CIT (A) & Tribunal deleted the penalty on the ground that the claim for deduction in respect of income-tax was a "human bonafide clerical mistake" as the assessee was a firm not having expert chartered accountants on its payroll. In appeal before the High Court, the department relied on Zoom Communication 327 ITR 510 and Escorts Finance 328 ITR 44 where it was held that as under no circumstances could an assessee have claimed provision for tax as a deduction, penalty was imposable. HELD by the High Court dismissing the appeal:

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Finance Ministry's Press Release Reg "Taxpayer Friendly Initiatives"

Section 10A/10B EOU: Special Bench Entire Law On "Manufacture" vs. "Processing"

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From: editor@itatonline.org <itatonline.org@gmail.com>
Date: Mon, Jul 23, 2012 at 5:38 PM
Subject: Message from EGroup of SolapurCAs S. 10A/10B EOU: Special Bench Entire Law On "Manufacture" vs. "Processing"
To: editor@itatonline.org

 

Dear Subscriber,

 

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

Madhu Jayanti International Ltd vs. DCIT (ITAT Kolkota Special Bench)

The Special Bench had to consider whether the assessees engaged in the business of blending & processing of tea and export thereof can be said to "manufacturer/producer" of the tea for the purpose of s. 10A/10B of the Act. HELD by the Special Bench, after a comprehensive review of the entire law on the subject, and deciding in favour of the assessee:

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Guide To Service-tax On Advocates From 1.07.2012 Onwards

Download UK Govt’s Paper: “Lifting the lid on Tax Avoidance Schemes”

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Date: Tue, Jul 24, 2012 at 9:50 AM
Subject: Message from EGroup of SolapurCAs Download UK Govt's Paper: "Lifting the lid on Tax Avoidance Schemes"
To: editor@itatonline.org

 

Dear Subscriber,

Download UK Govt's Paper: "Lifting the lid on Tax Avoidance Schemes"

The United Kingdom's HM Revenue & Customs has issued a Consultation Paper dated 23.07.2012 called "Lifting the lid on Tax Avoidance Schemes" to discuss how Tax Avoidance Schemes are created and what steps can be taken to expose them. The Paper also describes proposals for revising and extending the Disclosure of Tax Avoidance Schemes (DOTAS) regime.

 

The Consultation Paper is of great importance in the Indian context in the light of GAAR which is proposed to be introduced w.e.f. 1.4.2013 and the Draft General Anti-Avoidance Rules (GAAR) Guidelines which were introduced recently. The Australian Income-tax Department has issued a similar guide on exposing tax avoidance schemes.

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Madhu Jayanti International Ltd vs. DCIT (ITAT Kolkota Special Bench)

S. 10A/10B: Law on what is "manufacture", "production" & "processing" explained

Value Of ESOP Shares Is Deductible Revenue Expenditure: ITAT Chandigarh

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Date: Thu, Jul 19, 2012 at 6:01 PM
Subject: Message from EGroup of SolapurCAs Value Of ESOP Shares Is Deductible Revenue Expenditure: ITAT Chandigarh
To: editor@itatonline.org

 

Dear Subscriber,

 

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

ACIT vs. Spray Engineering Devices Ltd (ITAT Chandigarh)

Value of shares allotted free of cost to employees is deductible revenue expenditure

 

The assessee allotted 3,94,692 Sweat Equity shares to its employees free of cost for rewarding them for past services or providing know how for making available rights in the IPR as per s. 79A of the Companies Act, 1956. Though the shares were allotted for no consideration, the assessee accounted for the shares at Rs.106.26 each (face value Rs. 10) at its arms length price and claimed Rs. 4.19 crores as a deduction towards "employees benefit expenses". The shares were not allotted as at 31.3.2006. The AO disallowed the claim on the ground that it was not an ascertained liability but was a contingent liability though the CIT (A) allowed the claim. In appeal before the Tribunal, the department relied on Ranbaxy Laboratories 124 TTJ 771 (Del) & VIP Industries (ITAT Mum). HELD dismissing the appeal:

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CIT vs. CA Computer Associates India Pvt. Ltd (Bombay High Court)

Transfer Pricing: Arms' length royalty allowable even in respect of unpaid sales

Vodafone Law Permits Tax Planning Within Framework Of Law: Bombay High Court

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Date: Thu, Jul 19, 2012 at 2:57 PM
Subject: Message from EGroup of SolapurCAs Vodafone Law Permits Tax Planning Within Framework Of Law: Bombay High Court
To: editor@itatonline.org

 

Dear Subscriber,

 

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

In Re AVM Capital Services Private Limited (Bombay High Court)

Tax planning is legitimate if it is within the framework of the law

 

A scheme of arrangement u/s 391 to 394 of the Companies Act was entered into which provided that five private limited companies would be merged with Unichem Laboratories. Pursuant to the Scheme, (a) the entire undertaking of the transferor companies would stand vested with the transferee, (b) The shares held by the transferor companies in the transferee company would be cancelled & (c) shares of the transferee company would be issued to the shareholders of the transferor companies. The scheme was challenged by a shareholder on the ground that it was propounded to avoid capital gains tax that would have arisen if the transferor companies would have directly transferred their shares to the promoters and that it was a "colourable device to evade tax". Reliance was placed on McDowell 154 ITR 148 (SC), Wood Polymer 47 CC 597 (Guj) & Groupe Industrial Marcel Dassault (AAR). HELD by the High Court rejecting the objection:

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Transfer of Hon'ble ITAT Member (July 2012)

No Section. 271(1)(c) Penalty If Assessment Order Silent On "Satisfaction" About Concealment: ITAT Delhi

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Date: Thu, Jul 19, 2012 at 2:58 PM
Subject: Message from EGroup of SolapurCAs No s. 271(1)(c) Penalty If Assessment Order Silent On "Satisfaction" About Concealment: ITAT Delhi
To: editor@itatonline.org

 

Dear Subscriber,

 

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

Global Green Company Limited vs. DCIT (ITAT Delhi)

S. 271(1)(c) penalty not valid if "satisfaction" not recorded in the assessment order

 

The AO passed an order u/s 143(3) in which he took the view that the assessee had wrongly claimed deduction for a provision made towards non-saleable goods. This was upheld by the CIT(A) & the Tribunal. The AO also imposed penalty u/s 271(1)(c) for concealment / furnishing of inaccurate particulars of income. The CIT (A) upheld it. Before the Tribunal, the assessee argued that penalty was not imposable because (a) in the assessment order, the AO had not recorded a finding that there was concealment/ furnishing of inaccurate particulars of income and so there was no "satisfaction" and (b) there was no finding in the quantum order that the assessee's claim was not bona fide and so penalty was not imposable. HELD upholding the assessee's plea:

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In Re AVM Capital Services Private Limited (Bombay High Court) 

Tax planning is legitimate if it is within the framework of the law

Transfer Pricing On Royalty For Unpaid Sales: Bombay High Court Explains Law

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Date: Thu, Jul 19, 2012 at 6:00 PM
Subject: Message from EGroup of SolapurCAs Transfer Pricing On Royalty For Unpaid Sales: Bombay High Court Explains Law
To: editor@itatonline.org

 

Dear Subscriber,

 

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

CIT vs. CA Computer Associates India Pvt. Ltd (Bombay High Court)

Transfer Pricing: Arms' length royalty allowable even in respect of unpaid sales

 

The assessee entered into a Software Distribution Agreement with CA Management Inc ("CAMI") pursuant to which it was appointed as a distributor of CAMI's products in India. The assessee was required to pay an annual royalty of 30% on sales. The TPO accepted that the rate of royalty was at arms' length price but held that royalty ought not to have been paid on sales where there was complaints on quality or which had turned into bad debts. The CIT (A) upheld the TPO's stand though the Tribunal reversed it. On appeal by the department to the High Court, HELD dismissing the appeal:

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Global Green Company Limited vs. DCIT (ITAT Delhi)

S. 271(1)(c) penalty not valid if "satisfaction" not recorded in the assessment order

23B filing w/o fees Date extended

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From: CA Suhas Vadulekar <suhas.arun.vadulekar@icai.org>
Date: Sat, Jul 21, 2012 at 5:40 PM
Subject: NashiCAs Fwd: 23B filing w/o fees Date extended
To: aurangabad_ca@yahoogroups.com, nashiCAs@googlegroups.com

Good News !!!

Ministry vide circular number 14/2012 dated 21.06.2012 had imposed fees on Form 23B (Information by auditor to Registrar) w.e.f. 22/07/2012. Kindly note that the last date for filing the Form 23B without fee has been extended for two weeks. Fee shall be charged on any eForm 23B filed on or after 5th August, 2012. You are therefore advised to file the pending eForms within the time limit to avoid any last minute rush.

 

Regards,

Suhas,

09890660719

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ITAT Hauls Up AO & Imposes Heavy Costs For Harassment To Assessee

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Date: Fri, Jul 20, 2012 at 2:51 PM
Subject: Message from EGroup of SolapurCAs ITAT Hauls Up AO & Imposes Heavy Costs For Harassment To Assessee
To: editor@itatonline.org

 

Dear Subscriber,

 

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

Sushila Suresh Malge vs. ACIT (ITAT Mumbai)

AO hauled up for repeatedly disregarding ITAT's directions & directed to pay costs

 

Pursuant to a search u/s 132, the assessee's statement was recorded u/s 132(4) in which he offered Rs. 1.50 crores as undisclosed income. This was modified/ retracted subsequently by stating that the admission was only to the extent of the evidence found during the course of search operation. Despite the retraction, the AO passed a s. 158BC assessment order in which he determined the total undisclosed income at Rs. 1.50 crores. In the first round of appeal, the Tribunal remanded the matter to the AO to make a fresh assessment on the basis of the evidence found in the search and not only on the basis of the retracted/ modified statement. The AO passed a fresh assessment order in which he again determined the total undisclosed income at Rs. 1.50 crores on the basis of the s. 132(4) statement. In the second round, the Tribunal again remanded the matter back to the AO for framing a fresh assessment after imposing costs of Rs. 5000 upon the AO. The AO once again repeated the conclusions drawn in the earlier orders and determined the income at the same figure of Rs. 1.50 crores on the basis of the s. 132(4) statement. HELD by the Tribunal in the third round:

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CIT vs. PVP Ventures Limited (Madras High Court)

Difference between market price & option price of ESOP shares deductible

ITAT Dissents & Allows Depreciation On Non-Compete Fee

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Date: Fri, Jul 20, 2012 at 2:51 PM
Subject: Message from EGroup of SolapurCAs ITAT Dissents & Allows Depreciation On Non-Compete Fee
To: editor@itatonline.org

 

Dear Subscriber,

 

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

ACIT vs. GE Plastics India Ltd (ITAT Ahmedabad)

Non-Compete rights are an "intangible asset" eligible for depreciation

 

The assessee paid Rs. 4.55 crores to obtain a non-compete covenant from another company for a period of 10 years and claimed that the expenditure had resulted in an "intangible asset" u/s 32(1)(ii) on which depreciation was allowable. The AO rejected the claim though the CIT (A) allowed it. Before the Tribunal, the department relied on Srivatsan Surveyors (P) Ltd. vs. ITO 125 TTJ 286 (Chennai) where it was held that a non-compete right is a 'right in persona' and not a 'right in rem' and so depreciation was not allowable. HELD by the Tribunal dismissing the appeal:

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Sushila Suresh Malge vs. ACIT (ITAT Mumbai)

AO hauled up for repeatedly disregarding ITAT's directions & directed to pay costs

Difference Between Market Price & Offer Price Of ESOP Shares Deductible Expenditure: Madras HC

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Date: Fri, Jul 20, 2012 at 9:37 AM
Subject: Message from EGroup of SolapurCAs Difference Between Market Price & Offer Price Of ESOP Shares Deductible Expenditure: Madras HC
To: editor@itatonline.org

 

Dear Subscriber,

 

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

CIT vs. PVP Ventures Limited (Madras High Court)

Difference between market price & option price of ESOP shares deductible

 

The assessee allotted shares to its employees under an ESOP scheme. In accordance with the Employees Staff Option Plan and Employee Staff Purchase Scheme Guidelines, 1999 issued by SEBI, the difference between the market value of the shares and the value at which they were allotted to the employees was debited to the P&L A/c. This was claimed as a deduction under the head "staff welfare expenditure". The AO allowed the claim though the CIT revised the assessment u/s 263 and held that the expenditure was notional and contingent in nature and not allowable as a deduction. On appeal, the Tribunal (S.S.I Ltd vs. DCIT 85 TTJ 1049) held that as the SEBI regulations required the difference between the market price of the shares and the price at which the option is exercised by the employees to be debited to the P&L A/c as expenditure, it was an ascertained expenditure and not contingent in nature. On appeal by the department to the High Court, HELD dismissing the appeal:

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ACIT vs. Spray Engineering Devices Ltd (ITAT Chandigarh)

Value of shares allotted free of cost to employees is deductible revenue expenditure

ITR VOL 345 PART 6 AND ITR (TRIB) VOL 17 PART 3

 

INCOME TAX REPORTS (ITR)

Volume 345 Part 6 (Issue dated 23-7-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Export --Special deduction--Mode of computation--Duty entitlement pass book credit--Sale value less face value alone to be taken as profits--Income-tax Act, 1961, ss. 28(iiib), 80HHC-- Vikas Kalra v . CIT . . . 557

----Special deduction--Mode of computation--Reduction of ninety per cent. of interest included in profits--Refers to net interest and not gross interest--Income-tax Act, 1961, s. 80HHC, Expln. (baa) -- Vikas Kalra v . CIT . . . 557

HIGH COURTS

Assessment --Notice under section 143(2)--Tribunal finding notice served within time--Assessment valid--Income-tax Act, 1961, s. 143(2)-- Gajendra Singh v . CIT (Raj) . . . 541

----Status--Whether association of persons or firm--Certified copy of partnership deed not filed with return--Deed copy certified by one partner only--Failure to file original deed for verification--Assessment as association of persons justified--Income-tax Act, 1961-- Gajendra Singh v. CIT (Raj) . . . 541

Capital gains --Adventure in the nature of trade--Assessees acquiring land by testamentary succession--No transaction for a period of sixty-five years since purchase of land--Sale of land not motivated by a desire to make a profit but to protect corpus and resulting expenditure due to litigation--No improvements on land by way of laying out drainage levelling or construction of roads--Surplus realised on sale of land in the nature of capital gains--Income-tax Act, 1961-- CIT v . Administrator of the Estate of Late Shri E. F. Dinshaw (Bom) . . . 529

Deduction of tax at source --Interest--Failure to deduct tax at source--Order under section 201--Limitation--Order passed beyond four years--Barred by limitation--Income-tax Act, 1961, s. 201-- CIT v . Satluj Jal Vidyut Nigam Ltd . (HP) . . . 552

----Payment to non-resident--Royalty--Meaning of royalty in Double Taxation Avoidance Agreement and Act--Purchase of shrink wrap computer software--Computer software is a copyright work--Payments for shrink wrap computer software constitute royalty--Tax deductible at source on payments to non-resident on computer software--Double Taxation Avoidance Agreement between India and U. S. A., art. 12(3)--Income-tax Act, 1961, s. 9(1)(vi)--Copyright Act, 1957, s. 2(o)-- CIT v . Samsung Electronics Co. Ltd . (Karn) . . . 494

Income --Accounting--Mercantile system of accounting--Accrual of income--Interest on loan--Mortgage of property as security for loan--No evidence that mortgage could not be enforced or that loans were irrecoverable--Interest had accrued and was assessable--Income-tax Act, 1961-- Rohini Holdings P. Ltd . v . CIT (Mad) . . . 466

Industrial undertaking --Special deduction--Manufacture or processing of article or thing--Computer data processing services and sale of computer stationery--Activities amount to manufacture or processing of any article or thing--Entitled to special deduction--Income-tax Act, 1961, s. 80-I-- CIT v . Business Information Processing Services (Raj) . . . 548

Recovery of tax --Notice of demand--Stay--Refund adjusted against demand of previous year--Appeal before Commissioner (Appeals) pending--Order stayed pending disposal of appeal--Income-tax Act, 1961, s. 220(6)-- Nishith Madanlal Desai v. CIT  (Bom) . . . 545

Refund --Perquisites--Employees Stock Option Scheme--Deduction of tax at source--Employer paying tax with interest and recovering from employees--Employees entitled to refund with interest--Income-tax Act, 1961-- Chief CIT v . Sajan Verghis Mathew (Mad) . . . 489

AUTHORITY FOR ADVANCE RULINGS

Non-resident --Research and development activities of group co-ordinated through one company--Cost of research shared by entities based on allocation key--Service receiver liable only for costs relating to service--No sharing of cost--Payment only on use of product of research--Is consideration for use of process--Is royalty--Taxable in hands of recipient--Income-tax Act, 1961, s. 9(1)(vi), Expln. 2 --Double Taxation Avoidance Agreement between India and Germany, art. 12-- “A†Systems , In re . . . 479

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

Volume 17 : Part 3 (Issue dated : 23-07-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Accounting --Valuation of stock--Books of account maintained regularly--Valuation of closing stock on basis of method followed in past accepted by income-tax authorities--Addition on ground that valuation was not proper--Not justified--Income-tax Act, 1961-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

Business expenditure --Claim on account of breakage--Explanation regarding claim reasonable--Entire amount deductible--Income-tax Act, 1961, s. 37-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

----Deduction of tax at source--Disallowance of expenditure--Non-deduction of tax at source on payments for freight, agency charges and crane charges etc.--Finding that tax was not deductible on payments--Expenditure cannot be disallowed--Income-tax Act, 1961, ss. 37, 40(a)(ia)-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

----Disallowance--Failure to deduct tax at source--Reimbursement of cost to group concern--Deduction of tax at source not required--Disallowance of expenditure not justified--Income-tax Act, 1961, s. 40(a)(ia)-- Bayer Material Science P. Ltd. v. Addl. CIT (Mumbai) . . . 275

----Wages and bonus--No defect in accounts--Ad hoc disallowance of part of expenditure--Not justified--Income-tax Act, 1961-- Deputy CIT v. Octave Apparels (Chandigarh) . . . 307

Company --Dividend--Deemed dividend--Advance to shareholder--Advance to assessee which held 1.07 per cent. of shares in company--Not to be assessed as deemed dividend--Partners of assessee-firm holding more than 10 per cent. shareholding in company--Not relevant--Income-tax Act, 1961, s. 2(22)-- Deputy CIT v. Octave Apparels (Chandigarh) . . . 307

Depreciation --Depreciation claimed in accordance with Income-tax Rules--Deductible--Income-tax Act, 1961, s. 32--Income-tax Rules, 1962-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

International transactions --Arm’s length price--Determination--Transfer Pricing Officer--Must record reasons for rejecting method adopted by assessee--Rejection without stating reasons--Assessing Officer not following any of prescribed methods to determine arm’s length price--Transactional net margin method--Mean percentage of certain type of expenditure not arm’s length price--Not transactional net margin method--Order not sustainable--Income-tax Act, 1961, s. 92CA-- Assistant CIT v. Genom Biotech P. Ltd. (Mumbai) . . . 260

----Determination of arm’s length price--Assessee having trading and indenting activities--No proper figures regarding indenting activities--Determination of arm’s length price after considering comparable cases--Justified--Income-tax Act, 1961, s. 92CA-- Bayer Material Science P. Ltd. v. Addl. CIT (Mumbai) . . . 275

Non-resident --Double taxation avoidance--Fees for technical services--Fees for designing management tool termed balance score card--Balance score card enabled clients in India to implement business strategies more effectively--Amount received for development of balance score cards--Fees for technical services--Assessable in India--Income-tax Act, 1961, s. 9--Double Taxation Avoidance Agreement between India and Singapore, art. 12-- Organisation Development Pte. Ltd. v. Deputy Director of Income-tax (International Taxation) (Chennai) . . . 341

Penalty --Concealment of income--Claim for deduction of fees paid for raising authorised capital--Expenditure prima facie inadmissible--No evidence that claim was bona fide--Levy of penalty justified--Income-tax Act, 1961, s. 271(1)(c)-- Chadha Sugars P. Ltd. v. Asst. CIT (Delhi) . . . 316

Reassessment --Notice--Income escaping assessment--Reassessment on factually incorrect reasons--Assessing Officer must apply his mind--Reassessment not valid--Income-tax Act, 1961, ss. 147, 148-- Mahadev Trading Co. v. ITO (Ahmedabad) . . . 332

Revision --Commissioner--Erroneous and prejudicial to interests of Revenue--Two conditions precedent--Income from investment in shares treated as capital gains--Order passed applying mind and taking a view tenable in law--Cannot be revised only because prejudicial to interests of Revenue--Income-tax Act, 1961, s. 263-- Manish Kumar v. CIT (Indore) . . . 324

----Commissioner--Jurisdiction--Capital gains--Sale of substantial shareholding in company by assessee--Original agreement showing part consideration as non-compete consideration--Direction of SEBI to acquirers to make public offer at consolidated price--Agreement revised to show single consolidated price without mention of non-compete fee--Valid--Profits from sale of shares brought to tax as capital gains--Proper--Assessing Officer failure to conduct enquiry not stated as ground for revision--No material to show agreement was colourable device--Revision to tax sum originally shown as non-compete consideration as business income--Not proper--Income-tax Act, 1961, ss. 28(va), 263-- Hulas Rahul Gupta v. CIT (Delhi) . . . 366

----Limitation--Revision of order of reassessment--Limitation starts from date of order of reassessment--Income-tax Act, 1961, s. 263-- Pentamedia Graphics Ltd. v. Asst. CIT (Chennai) . . . 302

----Powers of Commissioner--Order passed by Assessing Officer under direction of Tribunal--Can be revised--Excess depreciation allowed--Order to recompute depreciation--Justified--Commissioner has power to remand matter to Assessing Officer--Income-tax Act, 1961, s. 263-- Pentamedia Graphics Ltd. v. Asst. CIT (Chennai) . . . 302

Words and phrases --†Prejudicial to interests of Revenue†-- Manish Kumar v. CIT (Indore) . . . 324

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Singapore :

Art. 12 --Non-resident--Double taxation avoidance--Fees for technical services--Fees for designing management tool termed balance score card--Balance score card enabled clients in India to implement business strategies more effectively--Amount received for development of balance score cards--Fees for technical services--Assessable in India-- Organisation Development Pte. Ltd. v. Deputy Director of Income-tax (International Taxation) (Chennai) . . . 341

Income-tax Act, 1961 :

S. 2(22) --Company--Dividend--Deemed dividend--Advance to shareholder--Advance to assessee which held 1.07 per cent. of shares in company--Not to be assessed as deemed dividend--Partners of assessee-firm holding more than 10 per cent. shareholding in company--Not relevant-- Deputy CIT v. Octave Apparels (Chandigarh) . . . 307

S. 9 --Non-resident--Double taxation avoidance--Fees for technical services--Fees for designing management tool termed balance score card--Balance score card enabled clients in India to implement business strategies more effectively--Amount received for development of balance score cards--Fees for technical services--Assessable in India-- Organisation Development Pte. Ltd. v. Deputy Director of Income-tax (International Taxation) (Chennai) . . . 341

S. 28(va) --Revision--Commissioner--Jurisdiction--Capital gains--Sale of substantial shareholding in company by assessee--Original agreement showing part consideration as non-compete consideration--Direction of SEBI to acquirers to make public offer at consolidated price--Agreement revised to show single consolidated price without mention of non-compete fee--Valid--Profits from sale of shares brought to tax as capital gains--Proper--Assessing Officer failure to conduct enquiry not stated as ground for revision--No material to show agreement was colourable device--Revision to tax sum originally shown as non-compete consideration as business income--Not proper-- Hulas Rahul Gupta v. CIT (Delhi) . . . 366

S. 32 --Depreciation--Depreciation claimed in accordance with Income-tax Rules--Deductible-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

S. 37 --Business expenditure--Claim on account of breakage--Explanation regarding claim reasonable--Entire amount deductible-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

----Business expenditure--Deduction of tax at source--Disallowance of expenditure--Non-deduction of tax at source on payments for freight, agency charges and crane charges etc.--Finding that tax was not deductible on payments--Expenditure cannot be disallowed-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

S. 40(a)(ia) --Business expenditure--Deduction of tax at source--Disallowance of expenditure--Non-deduction of tax at source on payments for freight, agency charges and crane charges etc.--Finding that tax was not deductible on payments--Expenditure cannot be disallowed-- Assistant CIT v. Seaward Exports P. Ltd. (Jaipur) . . . 353

----Business expenditure--Disallowance--Failure to deduct tax at source--Reimbursement of cost to group concern--Deduction of tax at source not required--Disallowance of expenditure not justified-- Bayer Material Science P. Ltd. v. Addl. CIT (Mumbai) . . . 275

S. 92CA --International transactions--Arm’s length price--Determination--Transfer Pricing Officer--Must record reasons for rejecting method adopted by assessee--Rejection without stating reasons--Assessing Officer not following any of prescribed methods to determine arm’s length price--Transactional net margin method--Mean percentage of certain type of expenditure not arm’s length price--Not transactional net margin method --Order not sustainable-- Assistant CIT v. Genom Biotech P. Ltd. (Mumbai) . . . 260

----International transactions--Determination of arm’s length price--Assessee having trading and indenting activities--No proper figures regarding indenting activities--Determination of arm’s length price after considering comparable cases--Justified -- Bayer Material Science P. Ltd. v. Addl. CIT (Mumbai) . . . 275

S. 147 --Reassessment--Notice--Income escaping assessment--Reassessment on factually incorrect reasons--Assessing Officer must apply his mind--Reassessment not valid-- Mahadev Trading Co. v. ITO (Ahmedabad) . . . 332

S. 148 --Reassessment--Notice--Income escaping assessment--Reassessment on factually incorrect reasons--Assessing Officer must apply his mind--Reassessment not valid-- Mahadev Trading Co. v. ITO (Ahmedabad) . . . 332

S. 263 --Revision--Commissioner--Erroneous and prejudicial to interests of Revenue--Two conditions precedent--Income from investment in shares treated as capital gains--Order passed applying mind and taking a view tenable in law--Cannot be revised only because prejudicial to interests of Revenue-- Manish Kumar v. CIT (Indore) . . . 324

----Revision--Commissioner--Jurisdiction--Capital gains--Sale of substantial shareholding in company by assessee--Original agreement showing part consideration as non-compete consideration--Direction of SEBI to acquirers to make public offer at consolidated price--Agreement revised to show single consolidated price without mention of non-compete fee--Valid--Profits from sale of shares brought to tax as capital gains--Proper--Assessing Officer failure to conduct enquiry not stated as ground for revision--No material to show agreement was colourable device--Revision to tax sum originally shown as non-compete consideration as business income--Not proper-- Hulas Rahul Gupta v. CIT (Delhi) . . . 366

----Revision--Limitation--Revision of order of reassessment--Limitation starts from date of order of reassessment-- Pentamedia Graphics Ltd. v. Asst. CIT (Chennai) . . . 302

----Revision--Powers of Commissioner--Order passed by Assessing Officer under direction of Tribunal--Can be revised--Excess depreciation allowed--Order to recompute depreciation--Justified--Commissioner has power to remand matter to Assessing Officer-- Pentamedia Graphics Ltd. v. Asst. CIT (Chennai) . . . 302

S. 271(1)(c) --Penalty--Concealment of income--Claim for deduction of fees paid for raising authorised capital--Expenditure prima facie inadmissible--No evidence that claim was bona fide--Levy of penalty justified-- Chadha Sugars P. Ltd. v. Asst. CIT (Delhi) . . . 316