Friday, August 30, 2013

Finance Lease Is A Sham Transaction For Depreciation Claim: ITAT Mumbai

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

Hathway Investments Pvt. Ltd vs. ACIT (ITAT Mumbai)

S. 32: A finance lease designed as a sale-and-lease back has to be treated as a sham transaction

The assessee, an investment company, bought electric meters from the Gujarat State Electricity Board (GSEB) which were leased back to GSEB simultaneously. The assessee claimed 100% depreciation on the purchase cost of the meters. The AO and CIT(A) rejected the claim on the ground that the circumstances like no physical possession of the meters given etc showed that the transaction of 'sale and lease-back' was a "sham" and that it was one merely of giving finance and that the assets were held as a security for the finance given. On appeal by the assessee to the Tribunal HELD:

A distinction between an 'operating lease' and a 'finance lease' has been made by the Special Bench in IndusInd Bank 135 ITD 165 (Mum) (SB) on the basis of which it can be said that a 'finance lease' is a 'sale' which is given the colour of a 'lease' by the parties for their mutual benefit and to avoid tax. In such transactions, it has to be seen whether the sale transaction is a real transaction or a sham transaction with the object of enabling the alleged purchaser to claim himself as the owner of the goods, which are further claimed to be leased back to the original owner of the goods. In a sham transaction of sale and lease back the ownership of the goods is not transferred to the alleged lessor, but is shown to be done, so as to enable the purchaser to claim ownership for the goods for the purpose of tax relief. On facts, the 'sale and lease back' transaction is a sham transaction done with the object to facilitate the benefits of depreciation to a person who otherwise is not eligible to claim the same. The intention of the parties was not that of sale or lease but was a loan transaction. The rates of interest/ rental have been fixed taking into consideration that the equipments are eligible for 100% depreciation and it is provided that if the claim of depreciation is changed, the rental in the shape of interest will accordingly change. Such clauses cannot be a part of any lease agreement but finance agreement only because in a normal lease agreement, the lessee is not concerned as to what benefits are available to the owner/ lessor under the Income-tax Act. The contention that as the transaction is with a State Government undertaking, it would be highly improper to impute any collusiveness or colourable nature of the transaction is misconceived. The argument that there is no bar for the assessee for making tax planning so as to reduce its taxes, provided it is within the framework of the law, is also not acceptable as u/s 23 of the Indian Contract Act, even if the consideration or object of an agreement may not be expressly forbidden by law, but if it is of such a nature that, if permitted, it would defeat the provisions of law, the same will not be lawful. Engaging in sham transactions with the object of reducing tax liability cannot be said to be a case of tax avoidance but is one of tax evasion (ICDS 350 ITR 527 (SC), IndusInd Bank 135 ITD 165 (Mum)(SB) & Development Credit Bank referred)

Contrast with ICDS 350 ITR 527 (SC) where it was held that even a "financier" satisfies the "ownership" & "user" test for depreciation and with Development Credit Bank (ITAT Mumbai) (the AM was common) where it was held that IndusInd Bank 135 ITD 165 (Mum)(SB) is no longer good law

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Arvind Footwear Pvt Ltd vs. DCIT (ITAT Lucknow)

S. 80-IB: Though Duty Drawback & DEPB were held not eligible for deduction in Liberty India 317 ITR 218 (SC), answer could be different if business model shows dependence on Duty Drawback & DEPB for survival


ITAT Explains Laws On S. 192 TDS Obligation On Medical Reimbursement/ LTC

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ACIT vs. Infosys BPO (ITAT Bangalore)

Law on s. 192 TDS obligation on medical reimbursement & LTC explained

The assessee recruited employees under a contract of employment which provided the salary as a 'cost to company' or 'CTC'. Having determined the CTC, the employee was permitted to choose what would be the various components of his salary and for this purpose a basket of allowances was made available for the employee to choose from. The maximum allowance for each such allowance was fixed by the assessee. The said allowances included a component towards medical expenditure & leave travel concession (LTC). If the employee submitted proof of having incurred the expenditure towards medical treatment, he was allowed exemption to the extent provided in proviso (iv) to s. 17(2) of the Act. Likewise, if the employee submitted proof regarding leave travel, he was allowed exemption u/s 10(5) read with Rule 2B. The AO held that as Proviso (iv) to s. 17(2) and s.10(5) used the expression "actually incurred", the exemption towards medical reimbursement and LTC could be conferred only for amounts paid as reimbursement after they were incurred by the employee and not before. She held that as the assessee was paying medical reimbursement & LTC as a component of salary every month, without the employee having incurred expenditure, the same had to be considered as salary disbursement for purposes of TDS u/s 192. The assessee was accordingly treated as being in default. On appeal by the assessee, the CIT(A) reversed the AO. On appeal by the department to the Tribunal, HELD dismissing the appeal:

Though TDS has to be effected at the time of payment of salary, s. 192(3) permits the employer to increase or reduce the amount of TDS for any excess or deficiency. Even assuming that the case of the AO that at the time of payment the assessee ought to have deducted tax at source is sustainable, the assessee, on a review of the taxes deducted during the earlier months of the previous year, is entitled to give effect to the deductions permissible under proviso (iv) to s.17(2) or exemption u/s10(5) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head 'salaries' as on the last date of the previous year. The case of the AO that LTC and Medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time and that if it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to s.192(3) and cannot be sustained. The reliance placed by the AO on the expression "actually incurred" in s.10(5) & Proviso (iv) to s.17(2) cannot be sustained. In any event, the interpretation of the word "actually paid" is not relevant while ascertaining the quantum of tax that has to be deducted at source u/s192. As far as the assessee is concerned, his obligation is only to make an "estimate" of the income under the head "salaries" and such estimate has to be a bona fide estimate. The primary liability of the payee to pay tax remains. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. On facts, as the assessee had granted exemption towards medical expenditure and leave travel after verifying the details and evidence furnished by the employees, it could not be treated as an assessee-in-default.


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Hathway Investments Pvt. Ltd vs. ACIT (ITAT Mumbai)

S. 32: A finance lease designed as a sale-and-lease back has to be treated as a sham transaction


Thursday, August 29, 2013

CBDT Order Regarding Constitution Of The Dispute Resolution Panel (DRP)

 

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CBDT Order Regarding Constitution Of The Dispute Resolution Panel (DRP)

Further to Order No. 1/FT & TR/2013 dated 13.08.2013, the CBDT has issued Order No. 2/FT & TR/2013 dated 27.08.2013 regarding the Constitution of the Dispute Resolution Panel in Delhi, Mumbai, Ahmedabad, Pune, Kolkota, Bangalore, Hyderabad and Chennai with effect from 19.08.2013


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Resolution Of Rajasthan Tax Consultants' Association


Section 80-IB: Despite SC Verdict Duty Drawback/ DEPB May Be Eligible For Deduction: ITAT

 

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

Arvind Footwear Pvt Ltd vs. DCIT (ITAT Lucknow)

S. 80-IB: Though Duty Drawback & DEPB were held not eligible for deduction in Liberty India 317 ITR 218 (SC), answer could be different if business model shows dependence on Duty Drawback & DEPB for survival

The assessee claimed that the "duty drawback" receipt of Rs. 1.53 crores was eligible for deduction u/s 80-IB on the ground that the said duty drawback refund was a refund of customs and central excise duty on inputs used in manufacturing of its products. The AO & CIT(A) rejected the claim by relying on Liberty India 317 ITR 218 (SC) where it was held that duty drawback was not "derived" from the industrial undertaking. On appeal by the assessee to the Tribunal HELD:

Though in Liberty India it was held that duty drawback and DEPB arises from an independent source and is not "derived" from the industrial undertaking, in Dharam Pal Premchand 317 ITR 353 (Del) (SLP dismissed) it was held that refund of excise duty had a direct nexus with the manufacturing activity & was eligible for s. 80-IB deduction. Accordingly, though duty drawback & DEPB was held in Liberty India to be an independent source of income and to not have a "first degree" nexus with the undertaking, this was in the context of a fact-situation where the duty drawback & DEPB did not arise from core activities of the undertaking and was an additional, ancillary or supplemental profit. There can be situations in which duty drawback itself could be more than the overall profits and in such situations, the duty drawback may not be seen on standalone basis or as an independent source of income because the overall profit is only a part of the duty drawback receipt, and the commercial motivation of running the industrial undertaking is earning only that part of duty drawback receipts. On the present facts, the duty drawback was more than the entire operational profit and so it cannot be an open and shut inference that the duty drawback receipts are an independent source of income and have no first degree nexus with the business activity of the industrial undertaking. There is still room for consideration of the plea that but for the duty drawback the assessee would not have carried out the business activity in the industrial undertaking, because, that would have meant carrying out business for incurring losses. If that be so, the duty drawback receipts can be said to derived from the undertaking and to be eligible for s. 80-IB deduction. The question whether the duty drawback is an incidental profit or a profit of the first degree depends on the business model followed by the assessee.

See also Meghalaya Steels 332 ITR 91 (Gau) & J.K. Aluminium (ITAT Delhi)

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Latest:

CBDT Order Regarding Constitution Of The Dispute Resolution Panel (DRP)


Tuesday, August 27, 2013

Resolution Of Rajasthan Tax Consultants’ Association

Dear Subscriber,

Resolution Of Rajasthan Tax Consultants' Association

Rajasthan Tax Consultants' Association, Tax Consultants Association, Jaipur and Jaipur Tax Tribunal Bar in a Joint Meeting held Sunday 25th August 2013 at 06.00 P.M. passed the following resolution unanimously:

RESOLVED that on complaints being received from members broadly raising the following issues in respect of functioning of Hon'ble Accountant Member of ITAT Jaipur Bench; Shri B.R. Jain that:

- Shri B. R.Jain is very rude in his behavior and deliberately misbehaves with members of the Bar and passes loose comments for obvious reasons during the hearing of cases.

- Shri B.R. Jain is unsettling the settled issues which have been settled by the decisions of ITAT, Jaipur Bench for ulterior motives.

-Past record of Shri B.R. Jain as Member ITAT at Jodhpur, Lucknow and Agra was also discussed where also Bar had boycotted the Bench consisting of Shri B.R. Jain wherein similar allegations were levied against him.

has unanimously resolved to refer the matter to the Hon'ble President ITAT for necessary action within 48 hours failing which to boycott the work at Jaipur Bench till Shri B.R. Jain remains a member of Jaipur Bench.



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ITO vs. Bhagwan Agarwal (ITAT Agra)

ICAI directed to initiate disciplinary proceedings against CA for suppressing information and obtaining order by fraud


ITAT Hauls Up CA For Committing Fraud

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

ITO vs. Bhagwan Agarwal (ITAT Agra)

ICAI directed to initiate disciplinary proceedings against CA for suppressing information and obtaining order by fraud

The assessee bought and sold shares and claimed that he had earned capital gains which were exempt u/s 54F. When the AO alleged that the transactions were bogus and entered into for converting black money into white, the assessee surrendered the claim for exemption u/s 54F and offered the capital gains to tax. The AO levied penalty u/s 271(1)(c) on the ground that the surrender of income was not voluntary. This was upheld by the Tribunal. The assessee filed an appeal before the High Court which was dismissed. The assessee thereafter filed a Miscellaneous Application before the Tribunal on the ground that as the AO had not specified whether the penalty was for concealment or for furnishing inaccurate particulars, penalty could not be levied. The Tribunal allowed the MA and deleted the penalty (order included in file). The Department then filed a MA stating that as the first order of the Tribunal had merged in the order of the High Court, the subsequent MA was not maintainable. The assessee accepted that he was advised by his CA not to disclose the fact of dismissal of the appeal by the High Court in the MA so filed. The CA argued that though the fact of dismissal of the appeal was not stated in the MA he had not concealed the fact because it was known to the Department. HELD by the Tribunal allowing the MA:

In the last 40 years, a new creed of litigants has cropped up. Those who belong to this creed do not have any respect for truth. They shamelessly resort to falsehood and unethical means for achieving their goals. In order to meet the challenge posed by this new creed of litigants, the courts have, from time to time, evolved new rules and it is now well established that a litigant, who attempts to pollute the stream of justice or who touches the pure fountain of justice with tainted hands, is not entitled to any relief, interim or final. On facts, it was the duty of the assessee to disclose the decision of the High Court to the Tribunal while moving the MA and by not doing so, they did not come to the ITAT with clean hands. The assessee and his CA are guilty of fraud for deliberately suppressing the fact that the High Court had dismissed the assessee's appeal and that the MA was not maintainable. The MA order is thus a nullity and non est in the eyes of law. The CA's conduct amounts to professional misconduct and requires disciplinary action by the ICAI.


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The Law On Deductibility Of H. O. Expenses Of A Permanent Establishment


Monday, August 26, 2013

Fy 2013-14 norms for appointment of statutory auditors in public sector banks

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High Court Hauls Up ITO For Harassing Taxpayer With Ulterior Motive

 

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

CIT vs. Intezar Ali (Allahabad High Court)

CBDT directed to inquire into conduct of AO in framing assessment with ill-will/ ulterior motive

The assessee sold agricultural land for Rs. 1.20 crore and deposited the cash proceeds in his bank account. He filed a return in which the transaction was disclosed and claimed to be not chargeable to tax. However, as the sale deed showed the transaction at Rs. 22 lakh and because the purchasers claimed that the sale value was only Rs. 22 lakh, the AO treated the difference of Rs. 97.80 lakhs as income from undisclosed sources. The AO admitted that the evidence produced by the assessee to show that the land was in fact worth Rs. 1.20 crore and that he had in fact received the said sum from the purchasers prima facie supported the version of the assessee though he still made the addition. The CIT(A) upheld the stand of the AO though the Tribunal reversed it on the ground that the evidence on record showed that the assessee had offered the entire sale proceeds and that the purchasers had sought to undervalue the land. On appeal by the department to the High Court HELD dismissing the appeal:

The assessee is an honest citizen who deposited the entire amount in the bank and voluntarily filed return. He also made a complaint to the registering authority that the sale deed has been registered at a value much below the amount actually received. The other evidence produced by the assessee was more than sufficient to discharge the burden which the AO had unreasonably placed on the assessee. The ITO did not act in a bonafide manner. He discarded the overwhelming evidence led by the assessee without giving any reasons at all. The assessment was framed only on the ipse dixit of the AO which gives us reason to believe that he had exceeded his authority with some ill will or with ulterior motive. The CBDT should cause an enquiry into the conduct and motives of the ITO in framing the assessment and raising demand of income tax against the assessee.

See also Fateh Chand Charitable Trust & Vijay Prakash Agrawal where similar strictures were passed against the department for harassing honest taxpayers

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Practical Guide To Appearing Before The Income-tax Appellate Tribunal



Practical Guide To Appearing Before The Income Tax Appellate Tribunal


 

Dear Subscriber,

Practical Guide To Appearing Before The Income-tax Appellate Tribunal

The Income Tax Appellate Tribunal, like any judicial body, has a number of procedural requirements that require to be complied with before an appeal can be heard. Unfortunately, several authorized representatives, though highly qualified CAs and Advocates, neglect to comply with the requirements with the result that their matters get adjourned and they waste their own time and that of the Bench and their clients incur unnecessary costs. To assist the Tribunal and the taxpayers in the cause of justice, the author, an eminent advocate, has prepared a comprehensive check-list of matters that need to be complied with. The author assures all taxpayers that if the check-list is religiously followed, they will have a smooth and pleasant experience before the Tribunal


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Q & A on Service-Tax VCES 2013


Friday, August 23, 2013

ITR (TRIB ) VOL 26 PART 1


ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION

 

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Voluntary retirement scheme--Amortisation of expenditure--Compliance with conditions of rule 2BA mandatory only for exemption under section 10(10C) by employee--Not relevant for deduction in employer’s hands under section 35DDA --One-fifth of expenditure allowable under section 35DDA --Income-tax Act, 1961 , ss . 10(10C), 35DDA --Income-tax Rules, 1962 , r . 2BA -- State Bank of Mysore v. CIT (Appeals) (Bangalore). . .244

Industrial undertaking --Special category State--Special deduction--Return filed belatedly--Explanation that computer got corrupted due to virus and computer technical personnel unable to retrieve data in time and entire data for February and March had to be entered into computer again--Reasonable cause beyond control of assessee--Deduction not to be denied on technicalities when assessee otherwise entitled--Income-tax Act, 1961, ss. 80AC, 80-IC, 139(1)-- ITO v. S. Venkataiah (Hyderabad) . . .256

Non-resident --Shipping company--Income deemed to accrue or arise in India--Profit from operation of ships in international traffic--Not taxable in India under article 9(1)--Income-tax Act, 1961, s. 9--Double Taxation Avoidance Agreement between India and Denmark, art. 9-- A. P. Moller Maersk A/S v. Deputy Director of Income-tax (International Taxation) (Mumbai). . . 253

----Shipping company--Interest on refund received from foreign shipping company--Falling under article 12 of Double Taxation Avoidance Agreement--Liable to tax--Cannot be considered as business income under article 9(4)--Double Taxation Avoidance Agreement between India and Denmark, arts. 9(4), 12-- A. P. Moller Maersk A/S v. Deputy Director of Income-tax (International Taxation) (Mumbai). . . 253

 

PRINT EDITION

Volume 26 : Part 1 (Issue dated : 26-8-2013)

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Co-operative bank--Bad and doubtful debts--Bad debts--Netting provisions made for bad and doubtful debts--Net accretion to be ascertained by analysing quality of each asset--No details available on record--Order set aside and matter remanded for decision afresh--Income-tax Act, 1961, s. 36(1)(viia)-- Trichur District Co-operative Bank Ltd. v. Assistant CIT (Cochin) . . . 31

----Co-operative bank--Bad and doubtful debts--Bad debts--Rural branch--Definition under section 36(1)(viia) applicable--Income-tax Act, 1961, s. 36(1)(viia)-- Trichur District Co-operative Bank Ltd. v. Assistant CIT (Cochin) . . . 31

----Foreign bank--Commission on collection and mobilisation of deposits from non-resident Indians for State Bank of India under its India millennium deposit scheme for five years--Expenses on sub-arrangers fees--Net amount amortised in books of account over five years--Payment not made in lieu of “services of technical or other personnel†by non-resident sub-arrangers--Not consideration for construction or assembly--Activities of sub-arrangers not “consultancy services†--No technical knowledge, expertise or qualification required--Sub-arrangers not managing India millennium deposit issue--Payment not fees for “managerial services†--Payment not within ambit of “fees for technical services†in section 9(1)(vii)--Sub-arrangers simply acting as commission agents or brokers and payment simply a commission or brokerage paid by assessee--Provisions requiring deduction of tax at source not applicable--No disallowance--Expenses eligible for deduction in full year of incurring--No relation with life of deposits received by assessee from SBI--Income-tax Act, 1961, ss. 9(1)(vii), 40(a)(i), 195-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation)
(Mumbai) . . . 51

----Venture capital fund--Trusteeship and management fees--No evidence to prove that expenses not genuine--Expenditure allowable--Income-tax Act, 1961-- Assistant CIT v. Small is Beautiful (Hyderabad) . . . 41

Capital gains --Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii) --Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India--Income-tax Act, 1961, ss. 2(47), 10(23G), 80-IA(4)(iii), 269UA(d)--Double Taxation Avoidance Agreement between India and the Netherlands, arts. 6(2), 13-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

Co-operative society --Special deduction--Cannot be decided without detailed examination of bye-laws and relevant materials--Verification not carried out by Assessing Officer or Commissioner (Appeals)--Order set aside and matter remanded for decision afresh--Income-tax Act, 1961, s. 80P(2)(a)(vi)-- ITO v. Indian Coffee Board Workers Co-operative Society (Cochin) . . . 93

Company --Shares--Shares in company not immovable property-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

Exemption --Industrial undertaking--No condition that exemption applicable only for further investment--Indian company approved as an infrastructure company and allowed deduction under section 80-IA--Conditions satisfied at time of sale of shares in company--Capital gains eligible for exemption--Income-tax Act, 1961, ss. 10(23G), 80-IA(4)(iii)-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

----Venture capital fund--Settlement of violation of provisions, under consent terms not material--Approval not withdrawn by SEBI--Assessee entitled to exemption--Income-tax Act, 1961, s. 10(23FB)-- Assistant CIT v. Small is Beautiful (Hyderabad) . . . 41

Fringe benefits tax --Condition precedent for charge of tax--Employer-employee relationship essential of treating expenses as fringe benefit--Airline crew members not employees--Visiting guests not employees--Expenses on transportation of airline crew and guests not chargeable--Expenses on dropping employees at night time not treated as fringe benefit--Not liable to fringe benefit tax--Income-tax Act, 1961, s. 115WB(2)(B), (D)--Circular No. 8 of 2005 dated August 29, 2005-- Peerless Hotels Ltd. v. Deputy CIT (Kolkata) . . . 151

----Private television channel--Broadcasting news through its four news channel--Channel-placement charges paid to agencies--No employer-employee relationship between assessee and recipients--Not expenditure on sales promotion or publicity--Not liable to fringe benefits tax--Income-tax Act, 1961, s. 115WB(2)--CBDT Circular No. 8 of 2005 dated August 29, 2005-- T. V. Today Network Ltd. v. Deputy CIT (Delhi) . . . 1

Housing project --Special deduction--Change of law with effect from April 1, 2005--Furnishing of completion certificate issued by local authority--Mandatory for years after amendment--Not requirement for earlier years--Deduction for earlier years not to be denied for not submitting completion certificate--No requirement that undertaking must be owner of land--Income-tax Act, 1961, s. 80-IB(10)-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

Income --Disallowance of expenses in relation to exempt income--Exemption--Interest on borrowings in foreign currency--Capital and free reserves far in excess of amount invested in interest-free securities--No disallowance on account of interest paid for making investment in such securities--2 per cent. of exempt income to be disallowed towards operating expenses--Income-tax Act, 1961, ss. 10(15)(iv)(h), 14A-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

Income from house property --Property given on lease--Tribunal for earlier years directing Assessing Officer to recompute income from house property following return on investment method applying rate of 7 per cent. enhanced by applying cost inflation index--Commissioner (Appeals) following direction of Tribunal for year in question--No reason for interference--Failure by assessee to submit details called for by Assessing Officer in support of construction and administrative expenses--Commissioner (Appeals) not justified in allowing expenditure claimed by assessee in toto--On facts disallowance of 5 per cent. of expenditure appropriate--Income-tax Act, 1961, s. 22-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

Income or capital --Benefit on account of unmatured foreign exchange contracts as on last day of accounting year--Credited to profit and loss account--Taxable-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

Industrial undertaking --Special deduction--Small-scale industrial unit--Conditions precedent for grant of deduction--Must be fulfilled each year--Value of plant and machinery in year exceeding Rs. 1 crore--Assessee not qualifying as small scale industry--Not entitled to deduction--Income-tax Act, 1961, s. 80-IB-- Ace Multi Axes Systems Ltd. v. Deputy CIT (Bangalore) . . . 83

Interpretation of taxing statutes --Language clear and unambiguous--No scope for interpretation-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

Non-resident --Income deemed to accrue or arise in India--Deduction of tax at source--Fees for technical services--Export of readymade garments under orders procured by foreign agent--Foreign agent providing systematic market research--Service falls under definition of technical services--Payment is fees for technical services--Assessee liable to deduct tax at source--Income-tax Act, 1961, ss. 9(1)(vii), 40(a)(ia), 195-- Assistant CIT v. Evolv Clothing Co. P. Ltd. (Chennai) . . . 71

----Taxability in India--Transfer of shares in Indian company to another non-resident--Interest for delay in payment of sale consideration--Neither assessee nor purchaser carrying on business in India nor interest payable in respect of moneys borrowed and used for purpose of business--Interest received outside India--Not taxable in India--Income-tax Act, 1961, ss. 5, 9(1)(v)(c)-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

Reassessment --Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible--Income-tax Act, 1961, ss. 54F, 143(3), 147, 148, 158B(b), 158BD-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

Refund --Interest on excess refund--Provision brought with effect from June 1, 2003--Assessment for 2001-02 completed after that date--Interest chargeable--Income-tax Act, 1961, s. 234D-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

Search and seizure --Assessment in search cases--Income from house property--Property leased out--Net annual value of property quantified in assessment under section 143(3)--Same addition not to be made again in assessment under section 153A--Validity of addition made in assessment under section 143(3) not to be adjudicated by Tribunal in appeal arising from search assessment--Income-tax Act, 1961, ss. 143(3), 153A-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

----Assessment in search cases--Scope of powers of Assessing Officer--That issue of claim to deduction under section 80-IB(10) considered in original assessment under section 143(3) not relevant--That issue of fulfilment of conditions under section 80-IB(10) verified in original scrutiny assessment proceedings not ground for not furnishing required information and evidence called for in proceedings under section 153A--Matter remanded--Income-tax Act, 1961, ss. 80-IB(10), 143(3), 153A-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

----General principles--Block assessment--Limitation--Department not entitled to prolong search in arbitrary and unjustified manner--Time-limit for framing order cannot be extended by passing prohibitory orders--Assessment of third party--Satisfaction for taking action to be recorded before completion of block assessment of person searched--Two searches--Panchanamas mentioning that second search was in continuation of previous proceedings--No document or books of account seized or taken into possession--No fresh authorisation or revalidation of earlier authorisation--Total period of search lasting more than nine months--Much beyond reasonable time--Limitation to be reckoned taking into consideration last valid panchanama--Assessment barred by limitation--Income-tax Act, 1961, ss. 132(3), 158BB, 158BC, 158BD, 158BE-- Mani and Money Ltd. v. Deputy CIT (Chennai) . . . 9

Words and phrases --“Immovable property†-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and the Netherlands :

Art. 6(2) --Capital gains--Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii) --Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

Art. 13 --Capital gains--Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii) --Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

Income-tax Act, 1961 :

S. 2(47) --Capital gains--Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii) --Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

S. 5 --Non-resident--Taxability in India--Transfer of shares in Indian company to another non-resident--Interest for delay in payment of sale consideration--Neither assessee nor purchaser carrying on business in India nor interest payable in respect of moneys borrowed and used for purpose of business--Interest received outside India--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

S. 9(1)(v)(c) --Non-resident--Taxability in India--Transfer of shares in Indian company to another non-resident--Interest for delay in payment of sale consideration--Neither assessee nor purchaser carrying on business in India nor interest payable in respect of moneys borrowed and used for purpose of business--Interest received outside India--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

S. 9(1)(vii) --Business expenditure--Foreign bank--Commission on collection and mobilisation of deposits from non-resident Indians for State Bank of India under its India millennium deposit scheme for five years--Expenses on sub-arrangers fees--Net amount amortised in books of account over five years--Payment not made in lieu of “services of technical or other personnel†by non-resident sub-arrangers--Not consideration for construction or assembly--Activities of sub-arrangers not “consultancy services†--No technical knowledge, expertise or qualification required--Sub-arrangers not managing India millennium deposit issue--Payment not fees for “managerial services†--Payment not within ambit of “fees for technical services†in section 9(1)(vii)--Sub-arrangers simply acting as commission agents or brokers and payment simply a commission or brokerage paid by assessee--Provisions requiring deduction of tax at source not applicable--No disallowance--Expenses eligible for deduction in full year of incurring--No relation with life of deposits received by assessee from SBI-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

----Non-resident--Income deemed to accrue or arise in India--Deduction of tax at source--Fees for technical services--Export of readymade garments under orders procured by foreign agent--Foreign agent providing systematic market research--Service falls under definition of technical services--Payment is fees for technical services--Assessee liable to deduct tax at source-- Assistant CIT v. Evolv Clothing Co. P. Ltd. (Chennai) . . . 71

S. 10(15)(iv)(h) --Income--Disallowance of expenses in relation to exempt income--Exemption--Interest on borrowings in foreign currency--Capital and free reserves far in excess of amount invested in interest-free securities--No disallowance on account of interest paid for making investment in such securities--2 per cent. of exempt income to be disallowed towards operating expenses-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

S. 10(23FB) --Exemption--Venture capital fund--Settlement of violation of provisions, under consent terms not material--Approval not withdrawn by SEBI--Assessee entitled to exemption-- Assistant CIT v. Small is Beautiful (Hyderabad) . . . 41

S. 10(23G) --Capital gains--Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii)--Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

----Exemption--Industrial undertaking--No condition that exemption applicable only for further investment--Indian company approved as an infrastructure company and allowed deduction under section 80-IA--Conditions satisfied at time of sale of shares in company--Capital gains eligible for exemption-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

S. 14A --Income--Disallowance of expenses in relation to exempt income--Exemption--Interest on borrowings in foreign currency--Capital and free reserves far in excess of amount invested in interest-free securities--No disallowance on account of interest paid for making investment in such securities--2 per cent. of exempt income to be disallowed towards operating expenses-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

S. 22 --Income from house property--Property given on lease--Tribunal for earlier years directing Assessing Officer to recompute income from house property following return on investment method applying rate of 7 per cent. enhanced by applying cost inflation index--Commissioner (Appeals) following direction of Tribunal for year in question--No reason for interference--Failure by assessee to submit details called for by Assessing Officer in support of construction and administrative expenses--Commissioner (Appeals) not justified in allowing expenditure claimed by assessee in toto--On facts disallowance of 5 per cent. of expenditure appropriate-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

S. 36(1)(viia) --Business expenditure--Co-operative bank--Bad and doubtful debts--Bad debts--Netting provisions made for bad and doubtful debts--Net accretion to be ascertained by analysing quality of each asset--No details available on record--Order set aside and matter remanded for decision afresh-- Trichur District Co-operative Bank Ltd. v. Assistant CIT (Cochin) . . . 31

----Business expenditure--Co-operative bank--Bad and doubtful debts--Bad debts--Rural branch--Definition under section 36(1)(viia) applicable-- Trichur District Co-operative Bank Ltd. v. Assistant CIT (Cochin) . . . 31

S. 40(a)(i) --Business expenditure--Foreign bank--Commission on collection and mobilisation of deposits from non-resident Indians for State Bank of India under its India millennium deposit scheme for five years--Expenses on sub-arrangers fees--Net amount amortised in books of account over five years--Payment not made in lieu of “services of technical or other personnel†by non-resident sub-arrangers--Not consideration for construction or assembly--Activities of sub-arrangers not “consultancy services†--No technical knowledge, expertise or qualification required--Sub-arrangers not managing India millennium deposit issue--Payment not fees for “managerial services†--Payment not within ambit of “fees for technical services†in section 9(1)(vii)--Sub-arrangers simply acting as commission agents or brokers and payment simply a commission or brokerage paid by assessee--Provisions requiring deduction of tax at source not applicable--No disallowance--Expenses eligible for deduction in full year of incurring--No relation with life of deposits received by assessee from SBI-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

S. 40(a)(ia) --Non-resident--Income deemed to accrue or arise in India--Deduction of tax at source--Fees for technical services--Export of readymade garments under orders procured by foreign agent--Foreign agent providing systematic market research--Service falls under definition of technical services--Payment is fees for technical services--Assessee liable to deduct tax at source-- Assistant CIT v. Evolv Clothing Co. P. Ltd. (Chennai) . . . 71

S. 54F --Reassessment--Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

S. 80-IA(4)(iii) --Capital gains--Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii)--Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

----Exemption--Industrial undertaking--No condition that exemption applicable only for further investment--Indian company approved as an infrastructure company and allowed deduction under section 80-IA--Conditions satisfied at time of sale of shares in company--Capital gains eligible for exemption-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114

S. 80-IB --Industrial undertaking--Special deduction--Small-scale industrial unit--Conditions precedent for grant of deduction--Must be fulfilled each year--Value of plant and machinery in year exceeding Rs. 1 crore--Assessee not qualifying as small scale industry--Not entitled to deduction-- Ace Multi Axes Systems Ltd. v. Deputy CIT (Bangalore) . . . 83

S. 80-IB(10) --Housing project--Special deduction--Change of law with effect from April 1, 2005--Furnishing of completion certificate issued by local authority--Mandatory for years after amendment--Not requirement for earlier years--Deduction for earlier years not to be denied for not submitting completion certificate--No requirement that undertaking must be owner of land-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

----Search and seizure--Assessment in search cases--Scope of powers of Assessing Officer--That issue of claim to deduction under section 80-IB(10) considered in original assessment under section 143(3) not relevant--That issue of fulfilment of conditions under section 80-IB(10) verified in original scrutiny assessment proceedings not ground for not furnishing required information and evidence called for in proceedings under section 153A--Matter remanded-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

S. 80P(2)(a)(vi) --Co-operative society--Special deduction--Cannot be decided without detailed examination of bye-laws and relevant materials--Verification not carried out by Assessing Officer or Commissioner (Appeals)--Order set aside and matter remanded for decision afresh-- ITO v. Indian Coffee Board Workers Co-operative Society (Cochin) . . . 93

S. 115WB(2) --Fringe benefits tax--Private television channel--Broadcasting news through its four news channel--Channel-placement charges paid to agencies--No employer-employee relationship between assessee and recipients--Not expenditure on sales promotion or publicity--Not liable to fringe benefits tax-- T. V. Today Network Ltd. v. Deputy CIT (Delhi) . . . 1

S. 115WB(2)(B), (D) --Fringe benefits tax--Condition precedent for charge of tax--Employer-employee relationship essential of treating expenses as fringe benefit--Airline crew members not employees--Visiting guests not employees--Expenses on transportation of airline crew and guests not chargeable--Expenses on dropping employees at night time not treated as fringe benefit--Not liable to fringe benefit tax-- Peerless Hotels Ltd. v. Deputy CIT (Kolkata) . . . 151

S. 132(3) --Search and seizure--General principles--Block assessment--Limitation--Department not entitled to prolong search in arbitrary and unjustified manner--Time-limit for framing order cannot be extended by passing prohibitory orders--Assessment of third party--Satisfaction for taking action to be recorded before completion of block assessment of person searched--Two searches--Panchanamas mentioning that second search was in continuation of previous proceedings--No document or books of account seized or taken into possession--No fresh authorisation or revalidation of earlier authorisation--Total period of search lasting more than nine months--Much beyond reasonable time--Limitation to be reckoned taking into consideration last valid panchanama--Assessment barred by limitation-- Mani and Money Ltd. v. Deputy CIT (Chennai) . . . 9

S. 143(3) --Reassessment--Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

----Search and seizure--Assessment in search cases--Income from house property--Property leased out--Net annual value of property quantified in assessment under section 143(3)--Same addition not to be made again in assessment under section 153A--Validity of addition made in assessment under section 143(3) not to be adjudicated by Tribunal in appeal arising from search assessment-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

----Search and seizure--Assessment in search cases--Scope of powers of Assessing Officer--That issue of claim to deduction under section 80-IB(10) considered in original assessment under section 143(3) not relevant--That issue of fulfilment of conditions under section 80-IB(10) verified in original scrutiny assessment proceedings not ground for not furnishing required information and evidence called for in proceedings under section 153A--Matter remanded-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

S. 147 --Reassessment--Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

S. 148 --Reassessment--Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

S. 153A --Search and seizure--Assessment in search cases--Income from house property--Property leased out--Net annual value of property quantified in assessment under section 143(3)--Same addition not to be made again in assessment under section 153A--Validity of addition made in assessment under section 143(3) not to be adjudicated by Tribunal in appeal arising from search assessment-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

----Search and seizure--Assessment in search cases--Scope of powers of Assessing Officer--That issue of claim to deduction under section 80-IB(10) considered in original assessment under section 143(3) not relevant--That issue of fulfilment of conditions under section 80-IB(10) verified in original scrutiny assessment proceedings not ground for not furnishing required information and evidence called for in proceedings under section 153A--Matter remanded-- Sainath Estates P. Ltd. v. Deputy CIT (Hyderabad) . . . 155

S. 158B(b) --Reassessment--Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

S. 158BB --Search and seizure--General principles--Block assessment--Limitation--Department not entitled to prolong search in arbitrary and unjustified manner--Time-limit for framing order cannot be extended by passing prohibitory orders--Assessment of third party--Satisfaction for taking action to be recorded before completion of block assessment of person searched--Two searches--Panchanamas mentioning that second search was in continuation of previous proceedings--No document or books of account seized or taken into possession--No fresh authorisation or revalidation of earlier authorisation--Total period of search lasting more than nine months--Much beyond reasonable time--Limitation to be reckoned taking into consideration last valid panchanama--Assessment barred by limitation-- Mani and Money Ltd. v. Deputy CIT (Chennai) . . . 9

S. 158BC --Search and seizure--General principles--Block assessment--Limitation--Department not entitled to prolong search in arbitrary and unjustified manner--Time-limit for framing order cannot be extended by passing prohibitory orders--Assessment of third party--Satisfaction for taking action to be recorded before completion of block assessment of person searched--Two searches--Panchanamas mentioning that second search was in continuation of previous proceedings--No document or books of account seized or taken into possession--No fresh authorisation or revalidation of earlier authorisation--Total period of search lasting more than nine months--Much beyond reasonable time--Limitation to be reckoned taking into consideration last valid panchanama--Assessment barred by limitation-- Mani and Money Ltd. v. Deputy CIT (Chennai) . . . 9

S. 158BD --Reassessment--Material gathered during search considered in block assessment--Assessing Officer thereafter not entitled to initiate proceedings under section 147 on issue--Assessment made after scrutiny allowing exemption on long-term capital gains for purchase of residential house--Order affirmed on appeal and becoming final--Block assessment made pursuant to search disallowing exemption set aside on ground of lack of jurisdiction--Reassessment to disallow exemption--Not permissible-- Motilal P. Khinvasara, HUF v. Deputy CIT (Pune) . . . 101

----Search and seizure--General principles--Block assessment--Limitation--Department not entitled to prolong search in arbitrary and unjustified manner--Time-limit for framing order cannot be extended by passing prohibitory orders--Assessment of third party--Satisfaction for taking action to be recorded before completion of block assessment of person searched--Two searches--Panchanamas mentioning that second search was in continuation of previous proceedings--No document or books of account seized or taken into possession--No fresh authorisation or revalidation of earlier authorisation--Total period of search lasting more than nine months--Much beyond reasonable time--Limitation to be reckoned taking into consideration last valid panchanama--Assessment barred by limitation-- Mani and Money Ltd. v. Deputy CIT (Chennai) . . . 9

S. 158BE --Search and seizure--General principles--Block assessment--Limitation--Department not entitled to prolong search in arbitrary and unjustified manner--Time-limit for framing order cannot be extended by passing prohibitory orders--Assessment of third party--Satisfaction for taking action to be recorded before completion of block assessment of person searched--Two searches--Panchanamas mentioning that second search was in continuation of previous proceedings--No document or books of account seized or taken into possession--No fresh authorisation or revalidation of earlier authorisation--Total period of search lasting more than nine months--Much beyond reasonable time--Limitation to be reckoned taking into consideration last valid panchanama--Assessment barred by limitation-- Mani and Money Ltd. v. Deputy CIT (Chennai) . . . 9

S. 195 --Business expenditure--Foreign bank--Commission on collection and mobilisation of deposits from non-resident Indians for State Bank of India under its India millennium deposit scheme for five years--Expenses on sub-arrangers fees--Net amount amortised in books of account over five years--Payment not made in lieu of “services of technical or other personnel†by non-resident sub-arrangers--Not consideration for construction or assembly--Activities of sub-arrangers not “consultancy services†--No technical knowledge, expertise or qualification required--Sub-arrangers not managing India millennium deposit issue--Payment not fees for “managerial services†--Payment not within ambit of “fees for technical services†in section 9(1)(vii)--Sub-arrangers simply acting as commission agents or brokers and payment simply a commission or brokerage paid by assessee--Provisions requiring deduction of tax at source not applicable--No disallowance--Expenses eligible for deduction in full year of incurring--No relation with life of deposits received by assessee from SBI-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

----Non-resident--Income deemed to accrue or arise in India--Deduction of tax at source--Fees for technical services--Export of readymade garments under orders procured by foreign agent--Foreign agent providing systematic market research--Service falls under definition of technical services--Payment is fees for technical services--Assessee liable to deduct tax at source-- Assistant CIT v. Evolv Clothing Co. P. Ltd. (Chennai) . . . 71

S. 234D --Refund--Interest on excess refund--Provision brought with effect from June 1, 2003--Assessment for 2001-02 completed after that date--Interest chargeable-- Credit Lyonnais v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 51

S. 269UA(d) --Capital gains--Non-resident--Sale of 100 per cent. shareholding in Indian company to Singapore company--Indian company’s business undertaking notified as eligible under section 80-IA(4)(iii)--Approved under section 10(23G)--Share held by company not “immovable property†--Capital gains arising on transfer of shares not governed by article 13(1) or (4) but by article 13(5)--Not taxable in India-- Vanenburg Facilities B. V. v. Assistant Director of Income-tax (International Taxation) (Hyderabad) . . . 114


ITR VOL 356 PART 3


INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION

PRINT EDITION

ITR Volume 356 : Part 3 (Issue dated : 26-8-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Accounting --Rejection of accounts--Construction business--Assessee maintaining audited books of account--No question of disbelieving them in absence of cogent evidence--Income-tax Act, 1961, s. 44AA(2)-- CIT v. Dolphin Builders (P.) Ltd.
(MP) . . . 420

Amortisation of expenses --Deduction under section 35D in prior years--Deduction allowable in assessment year under consideration--Income-tax Act, 1961, s. 35D-- Dy. CIT v . Gujarat Narmada Valley Fertilizers Co. Ltd . (Guj) . . . 460

Business expenditure --Capital or revenue expenditure--Amortisation of expenses--Payments to employees under voluntary retirement scheme--Compliance with rule 2BA is for benefit under section 10(10C)--No such compliance mandatory for deduction in hands of employer under section 35DDA--Allowable deduction--Income-tax Rules, 1962, r. 2BA--Income-tax Act, 1961, s. 35DDA-- CIT v. State Bank of Mysore (Karn) . . . 468

----Commission--Sales through commission agents--Some buyers in accounting year relevant to assessment year 2005-06 stating that sales were direct--Statement not rebutted with evidence--Amounts not deductible--Income-tax Act, 1961-- CIT v. Printer House P. Ltd. (Delhi) . . . . 474

----Premium on redemption of debentures--Deductible--Income-tax Act, 1961-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

Business loss --Loss due to confiscation of goods--Deductible--Income-tax Act, 1961-- CIT v. T. C. Reddy (AP) . . . 516

Capital gains --Capital asset--Paintings--Law applicable--Effect of amendment of section 2(14) w.e.f. 1-4-2008--Paintings excluded from personal effects w.e.f. 1-4-2008--Gains from transfer of paintings not assessable in assessment year 2005-06--Income-tax Act, 1961, ss. 2(14), 45-- CIT v. Kuruvilla Abraham (Mad) . . . 519

----Charge of tax--Condition precedent--Transfer of property--Agreement to purchase immovable property--Agreement making it clear that property would be transferred only after payment of entire amount--Entire amount not paid--Clause in agreement that parts of property could be transferred to third parties--Not relevant--No transfer of property--Tax not leviable--Income-tax Act, 1961, s. 45--Transfer of Property Act, 1882, ss. 5, 19-- Ratna Trayi Reality Service P. Ltd. v. ITO
(Guj) . . . 493

Capital or revenue expenditure --Expenditure on restructuring loan--Revenue expenditure--Income-tax Act, 1961, s. 37-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

Charitable purposes --Donation to charitable institution--Approval of institution--Corpus donations substantially utilized for commercial activities in nature of construction of shopping complex--Assessee not entitled to approval under section 80G--Income-tax Act, 1961, ss. 2(15), 80G-- Vishal Khanna Public Charitable Trust v. Union of India (All) . . . 442

Depreciation --Lease of assets--Depreciation allowed in prior years--Depreciation allowable in assessment year under consideration--Income-tax Act, 1961, s. 32-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

Export --Special deduction--Premium payment received on transferring export licence--Does not involve any earnings of foreign exchange and does not result in profits attributable to an export activity--No deduction under section 80HHC allowable--Income-tax Act, 1961, s. 80HHC-- CIT v. Garniwal Exports (P.) Ltd.
(Karn) . . . 432

Income from other sources or business income --Interest earned by short-term investment of money raised by issue of zero coupon bonds in order to maintain debt equity ratio--Taxable as income from other sources and not income from business--Income-tax Act, 1961-- Bharat Oman Refineries Ltd. v. CIT (MP) . . . 399

Income from undisclosed sources --Assessee trading in steel--Finding that some purchases recorded by it were not bogus but from other parties not recorded in books--Estimation of profit element embedded in purchases--Tribunal justified in estimation on the basis of facts--Income-tax Act, 1961-- CIT v. Simit P. Sheth (Guj) . . . 451

Income-tax --General principles--Genuine transaction not colourable device because of motive to avoid taxation-- CIT v. Special Prints Ltd . (Guj) . . . 404

----General principles--Rule of consistency-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

Interest on borrowed capital --Borrowed capital utilised for purchasing new machinery for expansion of business--Interest deductible--Income-tax Act, 1961, s. 36(1)(iii)-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.
(Guj) . . . 460

Loss --Firm--Carry forward and set off of loss--Scope of sections 78 and 170 --Dissolution of firm--Business of firm continued by erstwhile partner--Firm and partner are two distinct entities--Loss of firm could not be carried forward and set off by sole proprietor--Income-tax Act, 1961, ss. 78, 170-- Pramod Mittal v. CIT
(Delhi) . . . 456

----Set-off of loss--Capital gains--Set-off of capital loss against capital gains--Finding that transaction whereby capital loss was incurred was genuine--Set-off of capital loss valid--Income-tax Act, 1961-- CIT v. Special Prints Ltd. (Guj) . . . 404

Penalty --Concealment of income--Loss--Law applicable--Effect of Explanation 4 to section 271(1)(c)--Concealment of income resulting in reduction of loss--Penalty can be levied--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Balaramakrishna Engineering Contractors Corporation (AP) . . . 524

Precedent --Effect of decision in CIT v. Gold Coin Health Food P. Ltd. [2008] 304 ITR 308 (SC)-- CIT v. Balaramakrishna Engineering Contractors Corporation
(AP) . . . 524

----Effect of decision of Supreme Court in Ajantha Industries v. CBDT [1976] 102 ITR 281 (SC)-- Global Energy P. Ltd. v . CIT (Bom) . . . 502

----Effect of Supreme Court decision in Azadi Bachao Andolan’s case-- CIT v. Special Prints Ltd. (Guj) . . . 404

----Effect of Supreme Court decision in Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC)-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

Presumptive taxation --Construction business--Total receipts including those not accounted for in books of account, not exceeding Rs. 40 lakhs--Section 44AD not applicable--Income-tax Act, 1961, s. 44AD-- CIT v. Dolphin Builders (P.) Ltd.
(MP) . . . 420

Reassessment --Notice--Change of opinion--Reasons given in notice not matters considered by assessing authority in original assessment on which opinion formed--Reassessment not by change of opinion--Reassessment valid--Income-tax Act, 1961, ss. 147, 148-- Innovative Foods Ltd. v. Union of India (Ker) . . . 389

----Notice--Condition precedent--Tangible material to show escapement of income from tax--Original assessment without scrutiny--Not relevant--Notice cannot be issued without proper reasons--Income-tax Act, 1961, ss. 147, 148-- Ratna Trayi Reality Service P. Ltd. v . ITO (Guj) . . . 493

----Notice--Validity--Notice not permissible merely for verification of claims--Notice on the ground of miscalculation of special deduction under section 80HHC and excess deduction on account of provision for warranty--Notice valid--Income-tax Act, 1961, ss. 147, 148-- Inductotherm (India) P. Ltd. v. M. Gopalan, Dy. CIT
(Guj) . . . 481

----Notice after four years--Validity--Deduction of excess provision written back--Sufficient disclosure in return to enable Assessing Officer to scrutinise such a claim--Reopening after four years not valid--Income-tax Act, 1961, ss. 147, 148-- National Dairy Development Board v. Dy. CIT (Guj) . . . 413

Refund --Adjustment of refund--Condition precedent--Intimation in writing to assessee prior to adjustment--No intimation in writing to assessee before making adjustment of refund--Order adjusting refund not justified--Income-tax Act, 1961, ss. 240, 244, 244A, 245-- Cognizant Technology Solutions India P. Ltd. v. Dy. CIT
(Mad) . . . 373

Revision --Commissioner--Powers--Industrial undertaking--Transport subsidy--Object is to reduce cost of production--Direct nexus to profits of industrial undertaking--Entitled to deduction--Commissioner revising order on ground transport subsidy could not have been deducted by resorting to section 80-IA--Not valid--Income-tax Act, 1961, s. 263-- Patkai Coal Products Pvt. Ltd. v. CIT (Gauhati) . . . 528

Search and seizure --Block assessment--Limitation--Effect of proviso to Explanation in section 153B--Extension of period of limitation--Proviso can be applied more than once--Stay ordered by High Court and thereafter order passed under section 142(2A) for special audit--Both periods to be excluded for computing limitation--Income-tax Act, 1961, s. 153B-- CIT v. Ulike Promoters P. Ltd. (Delhi) . . . 507

----Warrant of authorisation--No jurisdiction of authority to open camp office in residence of assessee--Allegation that authority trespassed into assessee’s house not countered--Liable to prosecution before competent court--Search and seizure preceded by warrant--Availability of time to pay advance tax and file return--Does not mean that authority had no jurisdiction to issue warrant and effect search and seizure--Income-tax Act, 1961, s. 132-- Prakash V. Sanghvi v. Ramesh G., Major, Dy. DIT (Inv.)
(Karn) . . . 426

Transfer of case --Transfer for purposes of co-ordinated investigation--Reason for such co-ordination must be given--Income-tax Act, 1961, s. 127-- Global Energy P. Ltd. v . CIT (Bom) . . . 502

Writ --High Court--Competency of writ petition--Notice to withdraw registration of trust--Writ petition not maintainable against notice--Income-tax Act, 1961, ss. 12A, 12AA--Constitution of India, art. 226-- Vishal Khanna Public Charitable Trust v. Union of India (All) . . . 442

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Writ--High Court--Competency of writ petition--Notice to withdraw registration of trust--Writ petition not maintainable against notice-- Vishal Khanna Public Charitable Trust v. Union of India (All) . . . 442

Income-tax Act, 1961 :

S. 2(14) --Capital gains--Capital asset--Paintings--Law applicable--Effect of amendment of section 2(14) w.e.f. 1-4-2008--Paintings excluded from personal effects w.e.f. 1-4-2008--Gains from transfer of paintings not assessable in assessment year 2005-06-- CIT v. Kuruvilla Abraham (Mad) . . . 519

S. 2(15) --Charitable purposes--Donation to charitable institution--Approval of institution--Corpus donations substantially utilized for commercial activities in nature of construction of shopping complex--Assessee not entitled to approval under section 80G-- Vishal Khanna Public Charitable Trust v. Union of India
(All) . . . 442

S. 12A --Writ--High Court--Competency of writ petition--Notice to withdraw registration of trust--Writ petition not maintainable against notice-- Vishal Khanna Public Charitable Trust v. Union of India (All) . . . 442

S. 12AA --Writ--High Court--Competency of writ petition--Notice to withdraw registration of trust--Writ petition not maintainable against notice-- Vishal Khanna Public Charitable Trust v. Union of India (All) . . . 442

S. 32 --Depreciation--Lease of assets--Depreciation allowed in prior years--Depreciation allowable in assessment year under consideration-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

S. 35D --Amortisation of expenses--Deduction under section 35D in prior years--Deduction allowable in assessment year under consideration-- Dy. CIT v . Gujarat Narmada Valley Fertilizers Co. Ltd . (Guj) . . . 460

S. 35DDA --Business expenditure--Capital or revenue expenditure--Amortisation of expenses--Payments to employees under voluntary retirement scheme--Compliance with rule 2BA is for benefit under section 10(10C)--No such compliance mandatory for deduction in hands of employer under section 35DDA--Allowable deduction-- CIT v. State Bank of Mysore (Karn) . . . 468

S. 36(1)(iii) --Interest on borrowed capital--Borrowed capital utilised for purchasing new machinery for expansion of business--Interest deductible-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (Guj) . . . 460

S. 37 --Capital or revenue expenditure--Expenditure on restructuring loan--Revenue expenditure-- Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.
(Guj) . . . 460

S. 44AA(2) --Accounting--Rejection of accounts--Construction business--Assessee maintaining audited books of account--No question of disbelieving them in absence of cogent evidence-- CIT v. Dolphin Builders (P.) Ltd. (MP) . . . 420

S. 44AD --Presumptive taxation--Construction business--Total receipts including those not accounted for in books of account, not exceeding Rs. 40 lakhs--Section 44AD not applicable-- CIT v. Dolphin Builders (P.) Ltd. (MP) . . . 420

S. 45 --Capital gains--Capital asset--Paintings--Law applicable--Effect of amendment of section 2(14) w.e.f. 1-4-2008--Paintings excluded from personal effects w.e.f. 1-4-2008--Gains from transfer of paintings not assessable in assessment year 2005-06-- CIT v. Kuruvilla Abraham (Mad) . . . 519

----Capital gains--Charge of tax--Condition precedent--Transfer of property--Agreement to purchase immovable property--Agreement making it clear that property would be transferred only after payment of entire amount--Entire amount not paid--Clause in agreement that parts of property could be transferred to third parties--Not relevant--No transfer of property--Tax not leviable-- Ratna Trayi Reality Service P. Ltd. v. ITO (Guj) . . . 493

S. 78 --Loss--Firm--Carry forward and set off of loss--Scope of sections 78 and 170 --Dissolution of firm--Business of firm continued by erstwhile partner--Firm and partner are two distinct entities--Loss of firm could not be carried forward and set off by sole proprietor-- Pramod Mittal v. CIT (Delhi) . . . 456

S. 80G --Charitable purposes--Donation to charitable institution--Approval of institution--Corpus donations substantially utilized for commercial activities in nature of construction of shopping complex--Assessee not entitled to approval under section 80G-- Vishal Khanna Public Charitable Trust v. Union of India
(All) . . . 442

S. 80HHC --Export--Special deduction--Premium payment received on transferring export licence--Does not involve any earnings of foreign exchange and does not result in profits attributable to an export activity--No deduction under section 80HHC allowable-- CIT v. Garniwal Exports (P.) Ltd. (Karn) . . . 432

S. 127 --Transfer of case--Transfer for purposes of co-ordinated investigation--Reason for such co-ordination must be given-- Global Energy P. Ltd. v . CIT
(Bom) . . . 502

S. 132 --Search and seizure--Warrant of authorisation--No jurisdiction of authority to open camp office in residence of assessee--Allegation that authority trespassed into assessee’s house not countered--Liable to prosecution before competent court--Search and seizure preceded by warrant--Availability of time to pay advance tax and file return--Does not mean that authority had no jurisdiction to issue warrant and effect search and seizure-- Prakash V. Sanghvi v. Ramesh G., Major, Dy. DIT (Inv.)
(Karn) . . . 426

S. 147 --Reassessment--Notice--Change of opinion--Reasons given in notice not matters considered by assessing authority in original assessment on which opinion formed--Reassessment not by change of opinion--Reassessment valid-- Innovative Foods Ltd. v. Union of India (Ker) . . . 389

----Reassessment--Notice--Condition precedent--Tangible material to show escapement of income from tax--Original assessment without scrutiny--Not relevant--Notice cannot be issued without proper reasons-- Ratna Trayi Reality Service P. Ltd. v . ITO
(Guj) . . . 493

----Reassessment--Notice--Validity--Notice not permissible merely for verification of claims--Notice on the ground of miscalculation of special deduction under section 80HHC and excess deduction on account of provision for warranty--Notice valid-- Inductotherm (India) P. Ltd. v. M. Gopalan, Dy. CIT (Guj) . . . 481

----Reassessment--Notice after four years--Validity--Deduction of excess provision written back--Sufficient disclosure in return to enable Assessing Officer to scrutinise such a claim--Reopening after four years not valid-- National Dairy Development Board v. Dy. CIT (Guj) . . . 413

S. 148 --Reassessment--Notice after four years--Validity--Deduction of excess provision written back--Sufficient disclosure in return to enable Assessing Officer to scrutinise such a claim--Reopening after four years not valid-- National Dairy Development Board v. Dy. CIT (Guj) . . . 413

----Reassessment--Notice--Change of opinion--Reasons given in notice not matters considered by assessing authority in original assessment on which opinion formed--Reassessment not by change of opinion--Reassessment valid-- Innovative Foods Ltd. v. Union of India (Ker) . . . 389

----Reassessment--Notice--Condition precedent--Tangible material to show escapement of income from tax--Original assessment without scrutiny--Not relevant--Notice cannot be issued without proper reasons-- Ratna Trayi Reality Service P. Ltd. v . ITO (Guj) . . . 493

----Reassessment--Notice--Validity--Notice not permissible merely for verification of claims--Notice on the ground of miscalculation of special deduction under section 80HHC and excess deduction on account of provision for warranty--Notice valid-- Inductotherm (India) P. Ltd. v. M. Gopalan, Dy. CIT (Guj) . . . 481

S. 153B --Search and seizure--Block assessment--Limitation--Effect of proviso to Explanation in section 153B--Extension of period of limitation--Proviso can be applied more than once--Stay ordered by High Court and thereafter order passed under section 142(2A) for special audit--Both periods to be excluded for computing limitation-- CIT v. Ulike Promoters P. Ltd. (Delhi) . . . 507

S. 170 --Loss--Firm--Carry forward and set off of loss--Scope of sections 78 and 170 --Dissolution of firm--Business of firm continued by erstwhile partner--Firm and partner are two distinct entities--Loss of firm could not be carried forward and set off by sole proprietor-- Pramod Mittal v. CIT (Delhi) . . . 456

S. 240 --Refund--Adjustment of refund--Condition precedent--Intimation in writing to assessee prior to adjustment--No intimation in writing to assessee before making adjustment of refund--Order adjusting refund not justified-- Cognizant Technology Solutions India P. Ltd. v. Dy. CIT (Mad) . . . 373

S. 244 --Refund--Adjustment of refund--Condition precedent--Intimation in writing to assessee prior to adjustment--No intimation in writing to assessee before making adjustment of refund--Order adjusting refund not justified-- Cognizant Technology Solutions India P. Ltd. v. Dy. CIT (Mad) . . . 373

S. 244A --Refund--Adjustment of refund--Condition precedent--Intimation in writing to assessee prior to adjustment--No intimation in writing to assessee before making adjustment of refund--Order adjusting refund not justified-- Cognizant Technology Solutions India P. Ltd. v. Dy. CIT (Mad) . . . 373

S. 245 --Refund--Adjustment of refund--Condition precedent--Intimation in writing to assessee prior to adjustment--No intimation in writing to assessee before making adjustment of refund--Order adjusting refund not justified-- Cognizant Technology Solutions India P. Ltd. v. Dy. CIT (Mad) . . . 373

S. 263 --Revision--Commissioner--Powers--Industrial undertaking--Transport subsidy--Object is to reduce cost of production--Direct nexus to profits of industrial undertaking--Entitled to deduction--Commissioner revising order on ground transport subsidy could not have been deducted by resorting to section 80-IA--Not valid-- Patkai Coal Products Pvt. Ltd. v. CIT (Gauhati) . . . 528

S. 271(1)(c) --Penalty--Concealment of income--Loss--Law applicable--Effect of Explanation 4 to section 271(1)(c)--Concealment of income resulting in reduction of loss--Penalty can be levied-- CIT v. Balaramakrishna Engineering Contractors Corporation (AP) . . . 524

Transfer of Property Act, 1882 :

Ss. 5, 19 --Capital gains--Charge of tax--Condition precedent--Transfer of property--Agreement to purchase immovable property--Agreement making it clear that property would be transferred only after payment of entire amount--Entire amount not paid--Clause in agreement that parts of property could be transferred to third parties--Not relevant--No transfer of property--Tax not leviable-- Ratna Trayi Reality Service P. Ltd. v. ITO (Guj) . . . 493

Income-tax Rules, 1962 :

R. 2BA --Business expenditure--Capital or revenue expenditure--Amortisation of expenses--Payments to employees under voluntary retirement scheme--Compliance with rule 2BA is for benefit under section 10(10C)--No such compliance mandatory for deduction in hands of employer under section 35DDA--Allowable deduction-- CIT v. State Bank of Mysore (Karn) . . . 468