ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION
SUBJECT INDEX TO CASES REPORTED
Business expenditure --Assessee, a manufacturer and trader in cosmetics--Expenditure on production of films and on models for advertisement--Expenditure incurred wholly and exclusively for purpose of business--Revenue in nature--Allowable--Income-tax Act, 1961, s. 37(1)-- ITO v. L’Oreal India P. Ltd. (Mumbai) . . . 145
Business income --Business--When set up--Company newly incorporated for real estate development--Loan raised for participation in tender for sale of land but bid not materialising and earnest money returned to assessee with interest--Participation in tender amounts to starting of activity--Actual development of land immaterial--Interest on earnest money to be assessed as business income--Interest paid on borrowings to be set off and loss to be carried forward--Income-tax Act, 1961-- Dhoomketu Builders and Development P. Ltd. v. Additional CIT (Delhi) . . . 172
Charitable purpose --Exemption--Depreciation on assets can be considered as application of income--Income-tax Act, 1961, ss. 11, 12-- ITO v. Coimbatore Stock Exchange Ltd. (Chennai) . . . 166
----Exemption--Depreciation to be considered as application of income for charitable purposes--Income-tax Act, 1961, ss. 11, 12-- ITO v. Sri Ranganathar Trust (Chennai) . . . 161
International transactions --Arm’s length price--Contributed by assessee to overseas associated enterprises for common marketing services rendered by group entities--Allocation of marketing expenses--Commissioner (Appeals) considering additional documents produced before him and allowing expenses--Appeal to Appellate Tribunal--Transfer Pricing Officer to examine whether assessee received any benefit under cost sharing arrangement and decide claim of assessee accordingly--Matter remanded-- ITO v. L’Oreal India P. Ltd. (Mumbai) . . . 145
----Arm’s length price--Determination--Method to be used--Assessee buying products from associated enterprises and selling them to unrelated parties without further processing--Producing certificates from associated enterprises that margin earned by associated enterprises on supplies to assessee 2 to 4 per cent. or less--Margin reasonable--No shifting of profits by assessee to its associated enterprises--Resale price method accepted in preceding and succeeding assessment years--Rejection not proper-- ITO v. L’Oreal India P. Ltd. (Mumbai) . . . 145
PRINT EDITION
Volume 30 : Part 2 (Issue dated : 3-3-2014)
SUBJECT INDEX TO CASES REPORTED
Business expenditure --Deduction only on actual payment--Contributions to superannuation fund and employer’s contribution to provident fund and employees’ State insurance--Payments made before due date for filing return--Deductible--Income-tax Act, 1961, s. 43B-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
----Employees’ contribution to provident fund--Amount paid before due date for filing return of income--To be allowed--Income-tax Act, 1961, s. 36(1)(va)-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
----Provision on account of unsold magazines and discount on advertisement for March 2005--Scientific basis adopted for making provisions in earlier and subsequent years--Provision pertaining to period prior to March, 2005--To be allowed-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
----Year in which allowable--Professional fees for professional services rendered in earlier years--Bills received in current year and payment made after receipt of bills--Liability crystallised when bills received--One of assessee’s directors partner in firm to which fees paid--Failure by Assessing Officer to examine what could have been proper fees having regard to value of services rendered--Fees allowable-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
Capital or revenue receipt --Charitable society--Sums collected from students towards development fund and utilised for development of amenities for benefit and welfare of children--Fund treated as capital receipt in accounts--System of accounting followed consistently--Sums received towards development fund not to be treated as revenue receipt--Income-tax Act, 1961-- ITO (Exemption) v. J. D. Tytler School Society (Delhi) . . . 277
Charitable purpose --Charitable trust--Exemption--Corpus donations--Voluntary contributions made with specific direction to form part of corpus of trust--Not necessary that purpose for which corpus donation given should be specified--Corpus donations not to form part of income--Income-tax Act, 1961, s. 11(d)-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
----Computation of income--Expenditure on assets treated as income applied to charitable purposes--Depreciation allowable--Income-tax Act, 1961, s. 32-- ITO (Exemption) v. J. D. Tytler School Society (Delhi) . . . 277
----Exemption--Advancement of interest free loans to other charitable institutions registered under section 12A having similar objects not in violation of section 13(1)(d) read with section 11(5)--Income-tax Act, 1961, ss. 11(5), 12A, 13(1)(d)-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
----Exemption--Computation of income applied to charitable purposes--Depreciation can be claimed as application of income--Income-tax Act, 1961, s. 11-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
Depreciation --Assessee awarded contract for widening and maintenance of highways on build-operate-transfer basis--Assessee granted possession and right to enjoyment to exclusion of others--Assessee entitled to depreciation--Income-tax Act, 1961, s. 32-- Deputy CIT v. Swarna Tollway P. Ltd. (Hyderabad) . . . 171
----Assessee’s manufacturing activities closed down with effect from January 1, 2001--Plant and machinery not put to use--Depreciation not allowable--But assessee a going concern--Depreciation not to be denied on plant and machinery used for purpose other than manufacturing--Income-tax Act, 1961, s. 32-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
----Goodwill--Slump sale--Business transfer agreement for acquisition of business of magazines and events division as going concern--Assessee acquiring high-end brandname products--Part of acquisition cost for goodwill of brand product--Depreciation to be allowed on aggregate value of all intangible assets--Whether part of depreciation to be ascribed for goodwill immaterial--Income-tax Act, 1961, s. 43(1), Expln. -- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
Income --Expenditure attributable to earning of exempt income--Dividend--Rule 8D not applicable prior to assessment year 2008-09--Matter remanded to Assessing Officer to work out disallowance on reasonable basis in light of propositions laid down in Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom)--Income-tax Act, 1961, s. 14A--Income-tax Rules, 1962, r. 8D-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
International transactions --Arm’s length price--Determination--Assessee’s entire work depending on man-hours and assessee maintaining system for tracking man-hours--Assessee furnishing details regarding man-hours utilised for each project and on basis thereof preparing segmental accounts--Calculation showing difference of less than 5 per cent. between arm’s length price determined by Transfer Pricing Officer and price charged by assessee--No addition warranted--Assessee receiving guarantee commission--Transaction not reported in transfer pricing study--Transfer Pricing Officer gathering information from bank and applying rate of 3 per cent.--No contradictory evidence to suggest rate not appropriate or to justify rate charged by assessee--Addition proper--Income-tax Act, 1961, s. 92CA-- Tecnimont ICB P. Ltd. v. Deputy CIT (Mumbai) . . . 199
----Arm’s length price--Determination--Department not required to prove tax avoidance--Transactional net margin method--Selection of comparables--Functions and characteristics of services must be similar--Minor differences--Comparables not to be excluded unless differences materially affect margin--Call centre business--Difference in various segments, i.e., low-end to high-end--Comparables belonging to high-end segments could not be excluded--Assessee in service sector--Return on assets employed or on capital employed not appropriate as profit level indicator--Working capital adjustment to be made to improve comparability--Adjustment on account of linked cost and other cost incurred by associated enterprise on behalf of assessee not justified--Standard deviation--Proceedings pending before Assessing Officer/Transfer Pricing Officer as on October 1, 2009--Assessee not entitled to benefit of ± 5 per cent.--Inclusion or exclusion of individual companies as comparables decided--Income-tax Act, 1961, ss. 10A, 92C(2)--Income-tax Rules, 1962, r. 10B-- Vodafone India Services P. Ltd. v. Deputy CIT (Mumbai) . . . 218
----Arm’s length price--Determination--Most appropriate method--Distributor purchasing goods from associated enterprise and reselling them to other independent entities, without any value addition--Gross profit margin is determinative factor--Resale price method most appropriate--Assessee adopting one method as most appropriate in transfer pricing report not precluded from raising objections before Transfer Pricing Officer or appellate court against such method as not resulting in proper determination of arm’s length price--Toys purchased from associated enterprise not sold in domestic market due to negative market trend--Sold at best available price by export back to associated enterprise or to third party--Internal comparability not examined by Transfer Pricing Officer--Matter remanded--Income-tax Act, 1961, s. 92C--Income-tax Rules, 1962, r. 10B-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
S. 10A --International transactions--Arm’s length price--Determination--Department not required to prove tax avoidance--Transactional net margin method--Selection of comparables--Functions and characteristics of services must be similar--Minor differences--Comparables not to be excluded unless differences materially affect margin--Call centre business--Difference in various segments, i.e., low-end to high-end--Comparables belonging to high-end segments could not be excluded--Assessee in service sector--Return on assets employed or on capital employed not appropriate as profit level indicator--Working capital adjustment to be made to improve comparability--Adjustment on account of linked cost and other cost incurred by associated enterprise on behalf of assessee not justified--Standard deviation--Proceedings pending before Assessing Officer/Transfer Pricing Officer as on October 1, 2009--Assessee not entitled to benefit of ± 5 per cent.--Inclusion or exclusion of individual companies as comparables decided-- Vodafone India Services P. Ltd. v. Deputy CIT (Mumbai) . . . 218
S. 11 --Charitable purpose--Exemption--Computation of income applied to charitable purposes--Depreciation can be claimed as application of income-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
S. 11(5) --Charitable purpose--Exemption--Advancement of interest free loans to other charitable institutions registered under section 12A having similar objects not in violation of section 13(1)(d) read with section 11(5)-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
S. 11(d) --Charitable purpose--Charitable trust--Exemption--Corpus donations--Voluntary contributions made with specific direction to form part of corpus of trust--Not necessary that purpose for which corpus donation given should be specified--Corpus donations not to form part of income-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
S. 12A --Charitable purpose--Exemption--Advancement of interest free loans to other charitable institutions registered under section 12A having similar objects not in violation of section 13(1)(d) read with section 11(5)-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
S. 13(1)(d) --Charitable purpose--Exemption--Advancement of interest free loans to other charitable institutions registered under section 12A having similar objects not in violation of section 13(1)(d) read with section 11(5)-- Joint CIT (OSD) (Exemptions) v. Bhaktavatsalam Memorial Trust (Chennai) . . . 264
S. 14A --Income--Expenditure attributable to earning of exempt income--Dividend--Rule 8D not applicable prior to assessment year 2008-09--Matter remanded to Assessing Officer to work out disallowance on reasonable basis in light of propositions laid down in Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom)-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
S. 32 --Charitable purpose--Computation of income--Expenditure on assets treated as income applied to charitable purposes--Depreciation allowable-- ITO (Exemption) v. J. D. Tytler School Society (Delhi) . . . 277
----Depreciation--Assessee awarded contract for widening and maintenance of highways on build-operate-transfer basis--Assessee granted possession and right to enjoyment to exclusion of others--Assessee entitled to depreciation-- Deputy CIT v. Swarna Tollway P. Ltd. (Hyderabad) . . . 171
----Depreciation--Assessee’s manufacturing activities closed down with effect from January 1, 2001--Plant and machinery not put to use--Depreciation not allowable--But assessee a going concern--Depreciation not to be denied on plant and machinery used for purpose other than manufacturing-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
S. 36(1)(va) --Business expenditure--Employees’ contribution to provident fund--Amount paid before due date for filing return of income--To be allowed-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
S. 43(1), Expln. --Depreciation--Goodwill--Slump sale--Business transfer agreement for acquisition of business of magazines and events division as going concern--Assessee acquiring high-end brandname products--Part of acquisition cost for goodwill of brand product--Depreciation to be allowed on aggregate value of all intangible assets--Whether part of depreciation to be ascribed for goodwill immaterial-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
S. 43B --Business expenditure--Deduction only on actual payment--Contributions to superannuation fund and employer’s contribution to provident fund and employees’ State insurance--Payments made before due date for filing return--Deductible-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
S. 92C --International transactions--Arm’s length price--Determination--Most appropriate method--Distributor purchasing goods from associated enterprise and reselling them to other independent entities, without any value addition--Gross profit margin is determinative factor--Resale price method most appropriate--Assessee adopting one method as most appropriate in transfer pricing report not precluded from raising objections before Transfer Pricing Officer or appellate court against such method as not resulting in proper determination of arm’s length price--Toys purchased from associated enterprise not sold in domestic market due to negative market trend--Sold at best available price by export back to associated enterprise or to third party--Internal comparability not examined by Transfer Pricing Officer--Matter remanded-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
S. 92C(2) --International transactions--Arm’s length price--Determination--Department not required to prove tax avoidance--Transactional net margin method--Selection of comparables--Functions and characteristics of services must be similar--Minor differences--Comparables not to be excluded unless differences materially affect margin--Call centre business--Difference in various segments, i.e., low-end to high-end--Comparables belonging to high-end segments could not be excluded--Assessee in service sector--Return on assets employed or on capital employed not appropriate as profit level indicator--Working capital adjustment to be made to improve comparability--Adjustment on account of linked cost and other cost incurred by associated enterprise on behalf of assessee not justified--Standard deviation--Proceedings pending before Assessing Officer/Transfer Pricing Officer as on October 1, 2009--Assessee not entitled to benefit of ± 5 per cent.--Inclusion or exclusion of individual companies as comparables decided-- Vodafone India Services P. Ltd. v. Deputy CIT (Mumbai) . . . 218
S. 92CA --International transactions--Arm’s length price--Determination--Assessee’s entire work depending on man-hours and assessee maintaining system for tracking man-hours--Assessee furnishing details regarding man-hours utilised for each project and on basis thereof preparing segmental accounts--Calculation showing difference of less than 5 per cent. between arm’s length price determined by Transfer Pricing Officer and price charged by assessee--No addition warranted--Assessee receiving guarantee commission--Transaction not reported in transfer pricing study--Transfer Pricing Officer gathering information from bank and applying rate of 3 per cent.--No contradictory evidence to suggest rate not appropriate or to justify rate charged by assessee--Addition proper-- Tecnimont ICB P. Ltd. v. Deputy CIT (Mumbai) . . . 199
R. 8D --Income--Expenditure attributable to earning of exempt income--Dividend--Rule 8D not applicable prior to assessment year 2008-09--Matter remanded to Assessing Officer to work out disallowance on reasonable basis in light of propositions laid down in Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom)-- Deputy CIT v. Worldwide Media P. Ltd. (Mumbai) . . . 181
R. 10B --International transactions--Arm’s length price--Determination--Department not required to prove tax avoidance--Transactional net margin method--Selection of comparables--Functions and characteristics of services must be similar--Minor differences--Comparables not to be excluded unless differences materially affect margin--Call centre business--Difference in various segments, i.e., low-end to high-end--Comparables belonging to high-end segments could not be excluded--Assessee in service sector--Return on assets employed or on capital employed not appropriate as profit level indicator--Working capital adjustment to be made to improve comparability--Adjustment on account of linked cost and other cost incurred by associated enterprise on behalf of assessee not justified--Standard deviation--Proceedings pending before Assessing Officer/Transfer Pricing Officer as on October 1, 2009--Assessee not entitled to benefit of ± 5 per cent.--Inclusion or exclusion of individual companies as comparables decided-- Vodafone India Services P. Ltd. v. Deputy CIT (Mumbai) . . . 218
----International transactions--Arm’s length price--Determination--Most appropriate method--Distributor purchasing goods from associated enterprise and reselling them to other independent entities, without any value addition--Gross profit margin is determinative factor--Resale price method most appropriate--Assessee adopting one method as most appropriate in transfer pricing report not precluded from raising objections before Transfer Pricing Officer or appellate court against such method as not resulting in proper determination of arm’s length price--Toys purchased from associated enterprise not sold in domestic market due to negative market trend--Sold at best available price by export back to associated enterprise or to third party--Internal comparability not examined by Transfer Pricing Officer--Matter remanded-- Mattel Toys (I) P. Ltd. v. Deputy CIT (Mumbai) . . . 283
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