ITR VOL 359 PART 1

 

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

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

HIGH COURTS

Appeal to Appellate Tribunal --Investment allowance--Remand for recomputation--Restricted--No jurisdiction in Assessing Officer to consider admissibility of investment allowance--Need for remand orders to be specific in directions--Income-tax Act, 1961, ss. 32A, 254-- CIT v. V. S. Dempo and Co. Ltd. (Bom) . . . 523

Reassessment --Income escaping assessment--Reason to believe--Material forming basis for--Communication received from Governmental agency under exchange of information in terms of Double Taxation Avoidance Agreement that assessee received money not shown in its books--Prima facie ground for reassessment--Notice valid--Income-tax Act, 1961, s. 147-- Mitsui and Company India Pvt. Ltd. v. ITO (Delhi) . . . 534

----Notice after four years--No failure by assessee to disclose material facts--Notice not valid--Income-tax Act, 1961, s. 147-- CIT v. Gujarat Mineral Development Corporation Ltd. (Guj) . . . 532

Revision --Jurisdiction--Erroneous and prejudicial to Revenue --Assessing Officer after detailed enquiry and considering assessee’s disclosures allowing deduction--Not a case of no enquiry--Order of Tribunal holding expenditure revenue--View taken by Assessing Officer plausible--Revision not permissible--Income-tax Act, 1961, s. 263-- CIT v. Vodafone Essar South Ltd. (Delhi) . . . 526

 

PRINT EDITION

ITR Volume 359 : Part 1 (Issue dated : 2-12-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Assessing Officer --Powers--International transactions--Transfer Pricing Officer determining arm’s length price after taking transactions suo motu for consideration--Assessing Officer cannot deviate from order of Transfer Pricing Officer--Income-tax Act, 1961-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

Assessment --Auditing of accounts--Special audit--Conditions precedent--Charitable trust--No plea that Assessing Officer had concluded complexity of accounts without having examined accounts--Audit as required under section 12A(1)(b) not found satisfactory--Nature and complexity of accounts of assessee satisfied--No prejudice to trust by special audit--Direction for special audit warranted--Income-tax Act, 1961, ss. 12A(1)(b), 142(2A)-- Hiranandani Foundation v. Joint Director of Income-tax (Exemption) (Bom) . . . 29

Business expenditure --Disallowance--Payments subject to deduction of tax at source--Non-resident--Commission or discount paid to non-resident--Circular clarifying that tax need not be deducted if non-resident did not have permanent establishment in India--Withdrawal of circular in October 2009--Non-deduction of tax in accounting year relevant to assessment year 2009-10--Payment not to be disallowed--Income-tax Act, 1961, s. 40(a)(i)-- CIT v. Angelique International Ltd. (Delhi) . . . 9

----Modvat credit on account of excess of excise duty and additional customs duty paid by assessee on purchase of raw material--Allowable--Income-tax Act, 1961, s. 37(1)-- CIT v. Samtel India Ltd. (Delhi) . . . 62

Business income or capital gains --Income from futures and options transactions and daily trading in shares with business motive--Business income--Income-tax Act, 1961-- CIT v. Om Prakash Suri (No. 1 ) (MP) . . . 39

Capital gains --Business--Business income or capital gains--Purchase and sale of shares--Purchase by investment company to obtain right to manage vendor company--Shares held for more than 30 months before sale--Shares not freely transferable--Profits from sale of shares assessable as capital gains--Income-tax Act, 1961, ss. 28, 45-- Accra Investments P. Ltd. v. ITO (Bom) . . . 116

----Firm--Partners--Retiring partner taking only money towards value of his share--No distribution of capital assets among partners--No transfer of capital asset--No profits or gains payable by firm under section 45(4)--Income-tax Act, 1961, ss. 2(47), 45(4)-- CIT v. Dynamic Enterprises [FB] (Karn) . . . 83

----Income from delivery based transactions with investment motive--Short-term capital gains--Income-tax Act, 1961-- CIT v. Om Prakash Suri (No. 1 ) (MP) . . . 39

Circular --Effect--Circulars binding on income-tax authorities--Circulars withdrawing benefit--Not to have retrospective effect--Income-tax Act, 1961, s. 119-- CIT v. Angelique International Ltd. (Delhi) . . . 9

Deduction of tax at source --Salary or professional fees--Consultant doctors employed in hospital in addition to full time resident doctors--Consultants rendering services under contract--Fees paid to them not salary--Tax deductible under section 194J and not under section 192--Consultants declaring professional fees in returns and paying tax thereon--No loss to Revenue--Levy of interest not justified--Income-tax Act, 1961, ss. 192, 194J, 201(1A)-- CIT (TDS) v. Apollo Hospitals International Ltd. (Guj) . . . 78

Deemed dividend --Loan to shareholder--Finding of fact of Tribunal that sum received by assessee upon sale of land not as loan or advance--Sum not taxable as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- CIT v. Om Prakash Suri (No. 2 ) (MP) . . . 41

Depreciation --Imported motor cars--Amalgamation--Assessee acquiring cars after 1-4-2001 under scheme of amalgamation--Bar on depreciation allowance on imported vehicles in section 32(1) proviso (a) has no application--Assessee entitled to depreciation--Income-tax Act, 1961, ss. 32, 43(1)-- CIT v. Mira Exim Ltd. (Delhi) . . . 70

Exemption --New industrial undertaking in free trade zone--Transfer of entire business--Transferee entitled to exemption--Income-tax Act, 1961, s. 10A-- CIT v. Heartland KG Information Ltd. (Mad) . . . 1

International transaction --Transfer pricing--Arm’s length price--Determination--Writ--Determination of arm’s length price after notice to assessee and hearing it--Principles of natural justice followed--Assessee had alternative remedy--Writ would not issue to quash order of Transfer Pricing Officer--Income-tax Act, 1961, s. 92CA-- Hindalco Industries Ltd. v. Addl. CIT (Bom) . . . 46

----Arm’s length price--Amendment empowering Transfer Pricing Officer to consider transaction coming to his notice “during the course of proceedings before him†--Phrase “during the course of the proceedings†--Does not restrict the source to material already on record--Transfer Pricing Officer has jurisdiction to consider transactions not reported by assessee and transactions not referred to him by Assessing Officer where proceedings pending before him on 1-6-2011--Income-tax Act, 1961, s. 92CA(2A), (2B)-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

Penalty --Concealment of income--Claim made in course of scrutiny assessment to loss on account of loan to subsidiary company being written off--Bona fide claim--Not a case of concealment--Penalty not leviable--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. DCM Ltd. (Delhi) . . . 101

----Loan or deposit in cash exceeding specified limit--Assessee doing business as “shroff†--Cheque discounting business--Farmers selling their produce to traders against post-dated cheques--Taking cheques to assessee for discounting for cash--Not a case of assessee taking loan or deposit from agriculturists or repaying loan to agriculturists--Provisions of section 269SS or section 269T not attracted--No question of levy of penalty under sections 271D and 271E--Income-tax Act, 1961, ss. 269SS, 269T, 271D, 271E-- CIT v. Dineshchandra Shantilal Shah (HUF) (Guj) . . . 57

Precedent --Effect of decision of Supreme Court in Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC)-- CIT v. Angelique International Ltd. (Delhi) . . . 9

Purchase of immovable property by Central Government --Conditions precedent--Valuation of cost for resettling tenant--Appropriate Authority ignoring court orders twice and giving same reasons which court found not good enough to sustain acquisition of property--Pre-emptive purchase not warranted--Income-tax Act, 1961, s. 269UD(1)-- Satish Balan v. Union of India (Bom) . . . 15

Reassessment --Notice--Reason to believe income escaping assessment--Grounds must be recorded before issue of notice--Assessing Officer not entitled to record additional reasons thereafter--Income-tax Act, 1961, ss. 147, 148-- CIT v. Living Media India Ltd. (Delhi) . . . 106

----Notice--Validity--Original assessment after scrutiny--No new material showing escapement of income from assessment--Notice not valid--Income-tax Act, 1961, ss. 147, 148-- CIT v. Fujistu Optel Ltd. (MP) . . . 67

----Notice--Validity--To be judged on basis of reasons recorded prior to issue of notice--Additions based on reasons recorded prior to notice deleted and that order becoming final--Reassessment on other grounds recorded after issue of notice not valid--Income-tax Act, 1961, ss. 147, 148-- CIT v. Living Media India Ltd. (Delhi) . . . 106

Unexplained investment --Search and seizure against third person--Reassessment of assessee on basis of statement of such person--Addition relying on statement without opportunity to assessee to cross-examine--Violation of principles of natural justice--Matter remitted to Assessing Officer for fresh consideration--Income-tax Act, 1961, s. 69A-- CIT v. P. C. Chemicals (Delhi) . . . 129

Writ --High Court--Alternative remedy--International transactions--Arm’s length price--More efficacious remedy by filing objections before Dispute Resolution Panel--Disputed questions of fact--Writ petition not maintainable--Constitution of India, art. 226-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

----High Court--Alternative remedy--International transactions--High Court permitting assessee to avail of alternative remedy without prejudice its rights and contentions--Not a ground to refuse to entertain petition--Constitution of India, art. 226-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

----High Court--International transactions--Doctrine of merger--Transfer Pricing Officer’s order and Assessing Officer’s draft order merged in order of Dispute Resolution Panel--Orders passed in proceedings pursued by assessee without prejudice to its rights and pursuant to orders of court--Writ petition maintainable--Constitution of India, art. 226-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Writ--High Court--Alternative remedy--International transactions--Arm’s length price--More efficacious remedy by filing objections before Dispute Resolution Panel--Disputed questions of fact--Writ petition not maintainable-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

----Writ--High Court--Alternative remedy--International transactions--High Court permitting assessee to avail of alternative remedy without prejudice its rights and contentions--Not a ground to refuse to entertain petition-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

----Writ--High Court--International transactions--Doctrine of merger--Transfer Pricing Officer’s order and Assessing Officer’s draft order merged in order of Dispute Resolution Panel--Orders passed in proceedings pursued by assessee without prejudice to its rights and pursuant to orders of court--Writ petition maintainable-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

Income-tax Act, 1961 :

S. 2(22)(e) --Deemed dividend--Loan to shareholder--Finding of fact of Tribunal that sum received by assessee upon sale of land not as loan or advance--Sum not taxable as deemed dividend-- CIT v. Om Prakash Suri (No. 2 ) (MP) . . . 41

S. 2(47) --Capital gains--Firm--Partners--Retiring partner taking only money towards value of his share--No distribution of capital assets among partners--No transfer of capital asset--No profits or gains payable by firm under section 45(4)-- CIT v. Dynamic Enterprises [FB] (Karn) . . . 83

S. 10A --Exemption--New industrial undertaking in free trade zone--Transfer of entire business--Transferee entitled to exemption-- CIT v. Heartland KG Information Ltd. (Mad) . . . 1

S. 12A(1)(b) --Assessment--Auditing of accounts--Special audit--Conditions precedent--Charitable trust--No plea that Assessing Officer had concluded complexity of accounts without having examined accounts--Audit as required under section 12A(1)(b) not found satisfactory--Nature and complexity of accounts of assessee satisfied--No prejudice to trust by special audit--Direction for special audit warranted-- Hiranandani Foundation v. Joint Director of Income-tax (Exemption) (Bom) . . . 29

S. 28 --Capital gains--Business--Business income or capital gains--Purchase and sale of shares--Purchase by investment company to obtain right to manage vendor company--Shares held for more than 30 months before sale--Shares not freely transferable--Profits from sale of shares assessable as capital gains-- Accra Investments P. Ltd. v. ITO (Bom) . . . 116

S. 32 --Depreciation--Imported motor cars--Amalgamation--Assessee acquiring cars after 1-4-2001 under scheme of amalgamation--Bar on depreciation allowance on imported vehicles in section 32(1) proviso (a) has no application--Assessee entitled to depreciation-- CIT v. Mira Exim Ltd. (Delhi) . . . 70

S. 37(1) --Business expenditure--Modvat credit on account of excess of excise duty and additional customs duty paid by assessee on purchase of raw material--Allowable-- CIT v. Samtel India Ltd. (Delhi) . . . 62

S. 40(a)(i) --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Non-resident--Commission or discount paid to non-resident--Circular clarifying that tax need not be deducted if non-resident did not have permanent establishment in India--Withdrawal of circular in October 2009--Non-deduction of tax in accounting year relevant to assessment year 2009-10--Payment not to be disallowed-- CIT v. Angelique International Ltd. (Delhi) . . . 9

S. 43(1) --Depreciation--Imported motor cars--Amalgamation--Assessee acquiring cars after 1-4-2001 under scheme of amalgamation--Bar on depreciation allowance on imported vehicles in section 32(1) proviso (a) has no application--Assessee entitled to depreciation-- CIT v. Mira Exim Ltd. (Delhi) . . . 70

S. 45 --Capital gains--Business--Business income or capital gains--Purchase and sale of shares--Purchase by investment company to obtain right to manage vendor company--Shares held for more than 30 months before sale--Shares not freely transferable--Profits from sale of shares assessable as capital gains-- Accra Investments P. Ltd. v. ITO (Bom) . . . 116

S. 45(4) --Capital gains--Firm--Partners--Retiring partner taking only money towards value of his share--No distribution of capital assets among partners--No transfer of capital asset--No profits or gains payable by firm under section 45(4)-- CIT v. Dynamic Enterprises [FB] (Karn) . . . 83

S. 69A --Unexplained investment--Search and seizure against third person--Reassessment of assessee on basis of statement of such person--Addition relying on statement without opportunity to assessee to cross-examine--Violation of principles of natural justice--Matter remitted to Assessing Officer for fresh consideration-- CIT v. P. C. Chemicals (Delhi) . . . 129

S. 92CA --International transaction--Transfer pricing--Arm’s length price--Determination--Writ--Determination of arm’s length price after notice to assessee and hearing it--Principles of natural justice followed--Assessee had alternative remedy--Writ would not issue to quash order of Transfer Pricing Officer-- Hindalco Industries Ltd. v. Addl. CIT (Bom) . . . 46

S. 92CA(2A), (2B) --International transactions--Arm’s length price--Amendment empowering Transfer Pricing Officer to consider transaction coming to his notice “during the course of proceedings before him†--Phrase “during the course of the proceedings†--Does not restrict the source to material already on record--Transfer Pricing Officer has jurisdiction to consider transactions not reported by assessee and transactions not referred to him by Assessing Officer where proceedings pending before him on 1-6-2011-- Vodafone India Service Pvt. Ltd. v. Union of India (Bom) . . . 133

S. 119 --Circular--Effect--Circulars binding on income-tax authorities--Circulars withdrawing benefit--Not to have retrospective effect-- CIT v. Angelique International Ltd. (Delhi) . . . 9

S. 142(2A) --Assessment--Auditing of accounts--Special audit--Conditions precedent--Charitable trust--No plea that Assessing Officer had concluded complexity of accounts without having examined accounts--Audit as required under section 12A(1)(b) not found satisfactory--Nature and complexity of accounts of assessee satisfied--No prejudice to trust by special audit--Direction for special audit warranted-- Hiranandani Foundation v. Joint Director of Income-tax (Exemption) (Bom) . . . 29

S. 147 --Reassessment--Notice--Reason to believe income escaping assessment--Grounds must be recorded before issue of notice--Assessing Officer not entitled to record additional reasons thereafter-- CIT v. Living Media India Ltd. (Delhi) . . . 106

----Reassessment--Notice--Validity--Original assessment after scrutiny--No new material showing escapement of income from assessment--Notice not valid-- CIT v. Fujistu Optel Ltd. (MP) . . . 67

----Reassessment--Notice--Validity--To be judged on basis of reasons recorded prior to issue of notice--Additions based on reasons recorded prior to notice deleted and that order becoming final--Reassessment on other grounds recorded after issue of notice not valid-- CIT v. Living Media India Ltd. (Delhi) . . . 106

S. 148 --Reassessment--Notice--Reason to believe income escaping assessment--Grounds must be recorded before issue of notice--Assessing Officer not entitled to record additional reasons thereafter-- CIT v. Living Media India Ltd. (Delhi) . . . 106

----Reassessment--Notice--Validity--Original assessment after scrutiny--No new material showing escapement of income from assessment--Notice not valid-- CIT v. Fujistu Optel Ltd. (MP) . . . 67

----Reassessment--Notice--Validity--To be judged on basis of reasons recorded prior to issue of notice--Additions based on reasons recorded prior to notice deleted and that order becoming final--Reassessment on other grounds recorded after issue of notice not valid-- CIT v. Living Media India Ltd. (Delhi) . . . 106

S. 192 --Deduction of tax at source--Salary or professional fees--Consultant doctors employed in hospital in addition to full time resident doctors--Consultants rendering services under contract--Fees paid to them not salary--Tax deductible under section 194J and not under section 192--Consultants declaring professional fees in returns and paying tax thereon--No loss to Revenue--Levy of interest not justified-- CIT (TDS) v. Apollo Hospitals International Ltd. (Guj) . . . 78

S. 194J --Deduction of tax at source--Salary or professional fees--Consultant doctors employed in hospital in addition to full time resident doctors--Consultants rendering services under contract--Fees paid to them not salary--Tax deductible under section 194J and not under section 192--Consultants declaring professional fees in returns and paying tax thereon--No loss to Revenue--Levy of interest not justified-- CIT (TDS) v. Apollo Hospitals International Ltd. (Guj) . . . 78

S. 201(1A) --Deduction of tax at source--Salary or professional fees--Consultant doctors employed in hospital in addition to full time resident doctors--Consultants rendering services under contract--Fees paid to them not salary--Tax deductible under section 194J and not under section 192--Consultants declaring professional fees in returns and paying tax thereon--No loss to Revenue--Levy of interest not justified-- CIT (TDS) v. Apollo Hospitals International Ltd. (Guj) . . . 78

S. 269SS --Penalty--Loan or deposit in cash exceeding specified limit--Assessee doing business as “shroff†--Cheque discounting business--Farmers selling their produce to traders against post-dated cheques--Taking cheques to assessee for discounting for cash--Not a case of assessee taking loan or deposit from agriculturists or repaying loan to agriculturists--Provisions of section 269SS or section 269T not attracted--No question of levy of penalty under sections 271D and 271E-- CIT v. Dineshchandra Shantilal Shah (HUF) (Guj) . . . 57

S. 269T --Penalty--Loan or deposit in cash exceeding specified limit--Assessee doing business as “shroff†--Cheque discounting business--Farmers selling their produce to traders against post-dated cheques--Taking cheques to assessee for discounting for cash--Not a case of assessee taking loan or deposit from agriculturists or repaying loan to agriculturists--Provisions of section 269SS or section 269T not attracted--No question of levy of penalty under sections 271D and 271E-- CIT v. Dineshchandra Shantilal Shah (HUF) (Guj) . . . 57

S. 269UD(1) --Purchase of immovable property by Central Government--Conditions precedent--Valuation of cost for resettling tenant--Appropriate Authority ignoring court orders twice and giving same reasons which court found not good enough to sustain acquisition of property--Pre-emptive purchase not warranted-- Satish Balan v. Union of India (Bom) . . . 15

S. 271(1)(c) --Penalty--Concealment of income--Claim made in course of scrutiny assessment to loss on account of loan to subsidiary company being written off--Bona fide claim--Not a case of concealment--Penalty not leviable-- CIT v. DCM Ltd. (Delhi) . . . 101

S. 271D --Penalty--Loan or deposit in cash exceeding specified limit--Assessee doing business as “shroff†--Cheque discounting business--Farmers selling their produce to traders against post-dated cheques--Taking cheques to assessee for discounting for cash--Not a case of assessee taking loan or deposit from agriculturists or repaying loan to agriculturists--Provisions of section 269SS or section 269T not attracted--No question of levy of penalty under sections 271D and 271E-- CIT v. Dineshchandra Shantilal Shah (HUF) (Guj) . . . 57

S. 271E --Penalty--Loan or deposit in cash exceeding specified limit--Assessee doing business as “shroff†--Cheque discounting business--Farmers selling their produce to traders against post-dated cheques--Taking cheques to assessee for discounting for cash--Not a case of assessee taking loan or deposit from agriculturists or repaying loan to agriculturists--Provisions of section 269SS or section 269T not attracted--No question of levy of penalty under sections 271D and 271E-- CIT v. Dineshchandra Shantilal Shah (HUF) (Guj) . . . 57

 

 

ITR (TRIB) Volume 28 : Part 2 (Issue dated : 2-12-2013)

 

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

 

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Business expenditure --Provision for doubtful debts and advances--Details of opening balance on account of doubtful debts and closing balance clearly indicating assessee had reduced provision for doubtful debts which was no longer written back--No material to show reconciliation not correct--Disallowance not justified--Income-tax Act, 1961, s. 36-- Assistant CIT v. Living Media India Ltd. (Delhi) . . . 666

Business income or capital gains --Trading or investment--Adventure in nature of trade--Purchase of minority stake in loss-making company at high price with view to sell shares at profit--Sale during lock-in-period at huge profit to other promoters--Not an investment--Profit on sale of shares assessable as business income--Income-tax Act, 1961, s. 28(ii)-- ITO v. Accra Investments P. Ltd. (Mumbai) . . . 683

Company --Book profits--Computation--Disallowance of expenditure in earning tax-free income--Principle of apportionment cannot be applied in computing book profit--Amount of expenditure to be adjusted--Matter remanded--Income-tax Act, 1961, s. 115JB-- Joint CIT (OSD) v. Reliance Capital Ltd. (Mumbai) . . . 695

Deduction of tax at source --Shortfall in deduction--Salary or professional fees--Hospital employing doctors under two types of agreements--Employee doctors receiving allowances--Consultant doctors receiving lump sum monthly payment--Employee doctors entitled to leave, medical benefit and personal accident benefit--No such benefit to consultant doctors--Consultant doctors required to take professional indemnity insurance on their own--Relationship of consultant doctors with hospital, not an employer-employee relationship--Deduction of tax at source to be made under section 194J--No short deduction of tax by assessee--No question of charging of interest--Income-tax Act, 1961, ss. 192, 194J, 201-- ITO v. Apollo Hospitals International Ltd. (Ahmedabad) . . . 656

Depreciation --Carry forward and set off--Brought forward depreciation cannot be set off against capital gains--Income-tax Act, 1961, ss. 71, 72-- Assistant CIT v. Living Media India Ltd. (Delhi) . . . 666

Income --Disallowance of expenditure in earning tax-free income--Assessee not able to produce evidence with regard to source of investments--Disallowance to be decided after considering available funds from sale of investments and own funds--Matter remanded--Income-tax Act, 1961, s. 14A-- Joint CIT (OSD) v. Reliance Capital Ltd. (Mumbai) . . . 695

Interest on borrowed capital --Interest on money borrowed and lent to subsidiary company without charging interest--Deduction of interest allowable if made as measure of commercial expediency--Income-tax Act, 1961, s. 36(1)(iii)-- Joint CIT (OSD) v. Reliance Capital Ltd. (Mumbai) . . . 695

Penalty --Concealment of income--Claim of loss made during course of assessment proceedings--Disallowance of loss--Not a case for levy of penalty--Income-tax Act, 1961, s. 271(1)(c)-- DCM Ltd. v. Assistant CIT (Delhi) . . . 680

Reassessment --Jurisdiction--Reason to believe--Detailed questionnaire issued by Assessing Officer and replies filed by assessee--Details of bad debt placed before Assessing Officer--Assessment thereafter completed under section 143(3)--Notice of reassessment to bring provision for bad debts to tax--Assessing Officer assuming jurisdiction without any material--Reopening of assessment without jurisdiction--Income-tax Act, 1961, s. 148-- Assistant CIT v. Living Media India Ltd. (Delhi) . . . 666

----Validity--Reasons recorded only on account of provision for bad debt--Additional reasons recorded during reassessment proceedings--Assumption of jurisdiction originally held not valid--Entire assessment quashed--Income-tax Act, 1961, ss. 147, 148-- Assistant CIT v. Living Media India Ltd. (Delhi) . . . 666

PRINT EDITION

Volume 28 : Part 2 (Issue dated : 2-12-2013)

SUBJECT INDEX TO CASES REPORTED

Advance tax --Interest--Interest under sections 234A and 234B--Mandatory and consequential in nature--Income-tax Act, 1961, ss. 234A, 234B-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

Assessment --Income in whose hands to be taxed--Assessee-society running engineering and medical colleges--Amounts collected from students over and above prescribed fees--Manager stating amounts collected and retained by him without knowledge of management committee--Amounts taxed in his assessments--Manager agreeing to withdraw appeals against assessments and pay tax if amounts added as income of assessee-society deleted--Receipts not to be considered as exclusively relating to assessee-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

Business expenditure --Clearing expenses--Restriction of disallowance to 50 per cent in earlier year--Deviation in decision not permissible in absence of change in facts--Income-tax Act, 1961-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

----Payments to sub-contractors--Letters to parties returned--Disallowance of 5 per cent. of payments covered by letters returned--Reasonable--Income-tax Act, 1961, s. 37-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

----Payments to sub-contractors--That letters addressed to party three or four years after contract executed returned undelivered not ground to disallow expenditure--Payment vouchers produced by assessee giving details including names of payees and bearing signatures of payees as recipients--Genuineness of payments established--However, 15 per cent. of payment to be disallowed to allow for inflation of expenditure by assessee--Income-tax Act, 1961, s. 37-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

----Power and fuel expenses not supported by proper vouchers and bills--Disallowance of 15 per cent. proper--Income-tax Act, 1961, s. 37-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

Business income --Engineering college--Receipt of fees over and above those prescribed--No evidence of collection of excess fees in academic years 2003-04 to 2007-08--No admission by assessee of such collection--Estimation of income on materials seized relating to academic years 2008-09 and 2009-10 assuming unaccounted receipts of fees for earlier assessment years--Not proper--Direction for quantification of receipt of fees for management quota seats, if any, on basis of seized material and other material, if any, relating to academic years 2003-04 to 2007-08-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

Capital gains --Exemption--Rectification of mistake--Assessment--Intimation--Claim to exemption for capital gains on basis of investment of consideration in residential property in foreign country--Intimation under section 143(1)(a) denying exemption--Not permissible--Question of law to be considered in light of section 54F(4) and beyond jurisdiction under sections 143(1)(a) and 154--Direction to Assessing Officer to pass fresh orders on petition under section 154--Income-tax Act, 1961, ss. 54F(4), 143(1)(a), 154-- Ms. Sushiela Natarajan v. ITO (Chennai) . . . 237

----When transfer took place--Sale deed executed on 3-9-2005 and possession handed over in financial year relevant to assessment year 2006-07 itself--Capital gains assessable in 2006-07--Income-tax Act, 1961, s. 54-- Satishkumar Agarwal v. Deputy CIT (Hyderabad) . . . 167

Charitable purpose --Charitable trust--Donations given for specific purpose as tied-up grant--Not taxable as income if used for specific purpose for which given--Donations used for benefit of trustees to be brought to tax as business income after allowing usual deductions-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

----Charitable trust--Exemption--Corpus donation is in nature of capital receipt and not taxable irrespective of registration--Income-tax Act, 1961, ss. 12A, 12AA-- ITO v. Gaudiya Granth Anuved Trust (Agra) . . . 161

----Registration of trusts--Assessment denying exemption under sections 11 and 10(23C)(vi)--Order of Tribunal upholding cancellation of registration under section 12A--Denial of exemption cannot be challenged--Income-tax Act, 1961, ss. 10(23C)(vi), 11, 12A-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

----Registration of trust--Cancellation--Conditions precedent for cancellation--Objects of society to preserve, protect and maintain traditional customs, culture, heritage and language of kodavas--Law applicable-- Amendment of section 2(15) w. e. f. 1-4-2009 disqualifying entity carrying on commercial activities--Cannot be invoked to revoke registration if conditions for cancellation not satisfied--Income-tax Act, 1961, s. 12AA-- Kodava Samaja v. Director of Income-tax (Exemption) (Bangalore) . . . 224

Income --Accrual of income--Receipt of fees from students joining institution for entire course--To be appropriated proportionately for each year under consideration during course period-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

----Computation--Disallowance of expenditure relating to exempt income--Bank loans dedicated towards financing working capital to be excluded--Matter remanded--Income-tax Act, 1961, s. 14A-- Kunal Corporation v. Assistant CIT (Mumbai) . . . 277

----Expenditure in relation to income not includible in taxable income--Dividend--Assessee suo motu disallowing sum at 10 per cent.--Assessing Officer working out disallowance applying rule 8D--Onus of proving assessee’s claim is with assessee--Expenditure allowable depends upon facts--Records and accounts to be examined--Matter remanded--Income-tax Act, 1961, ss. 10(34), 14A--Income-tax Rules, 1962, r. 8D-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

International transactions --Condition precedent--Transaction between associated enterprises--“International transaction†and “associated enterprise†--Definitions--General principles--Transactions with permanent establishment of non-residents--Permanent establishments treated as resident and taxed in India--Transactions not international and not subject to transfer pricing regulations--Income-tax Act, 1961, ss. 92A, 92B, 92CA(3)-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

----Transfer pricing--Arm’s length price--Expenditure on advertisement and business promotion expenses--Transactional net margin method--Comparable uncontrolled price method--Matter remanded for fresh adjudication in light of Special Bench decision--Income-tax Act, 1961-- Diageo India P. Ltd. v. Deputy CIT (Mumbai) . . . 242

----Transfer pricing--Arm’s length price--Payment towards market promotion expenses made to associated enterprises--Transfer Pricing Officer not entitled to consider whether it was necessary or prudent for assessee to incur expenditure or disallow it on ground assessee has not justified benefit--Direction to Assessing Officer to examine nature of expenditure and to allow expenditure in nature of reimbursement--Income-tax Act, 1961-- Social Media India Ltd. v. Assistant CIT (Hyderabad) . . . 212

----Transfer pricing--Arm’s length price--Transactional net margin method--Comparables--Functional similarity in transactions with associated enterprise and unrelated enterprise--Profitability from uncontrolled party in similar business and circumstances is measure of arm’s length result--Income-tax Act, 1961-- Diageo India P. Ltd. v. Deputy CIT (Mumbai) . . . 242

----Transfer pricing--Determination of arm’s length price--Purchase of web portal, an intangible asset--Valuation report furnished as external comparable uncontrolled price--Nothing on record against value shown by assessee--Intangible asset purchased to be considered at arm’s length price--Depreciation allowable since intangible asset used for business--Assessing Officer not entitled to consider whether purchase was necessary--Income-tax Act, 1961-- Social Media India Ltd. v. Assistant CIT (Hyderabad) . . . 212

Penalty --Concealment of income--Expenditure in relation to income not includible in taxable income accepted at ten per cent. in earlier years--Not a case of concealment--Penalty cannot be levied--Income-tax Act, 1961, s. 271(1)(c)-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

Search and seizure --Assessment--Cash balance in books of assessee on date of search--Addition cannot be made--Assessee to prove availability of cash balance on date of search--Income-tax Act, 1961, s. 153A-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961

S. 10(23C)(vi) --Charitable purpose--Registration of trusts--Assessment denying exemption under sections 11 and 10(23C)(vi)--Order of Tribunal upholding cancellation of registration under section 12A--Denial of exemption cannot be challenged-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

S. 10(34) --Income--Expenditure in relation to income not includible in taxable income--Dividend--Assessee suo motu disallowing sum at 10 per cent.--Assessing Officer working out disallowance applying rule 8D--Onus of proving assessee’s claim is with assessee--Expenditure allowable depends upon facts--Records and accounts to be examined--Matter remanded-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

S. 11 --Charitable purpose--Registration of trusts--Assessment denying exemption under sections 11 and 10(23C)(vi)--Order of Tribunal upholding cancellation of registration under section 12A--Denial of exemption cannot be challenged-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

S. 12A --Charitable purpose--Charitable trust--Exemption--Corpus donation is in nature of capital receipt and not taxable irrespective of registration-- ITO v. Gaudiya Granth Anuved Trust (Agra) . . . 161

----Charitable purpose--Registration of trusts--Assessment denying exemption under sections 11 and 10(23C)(vi)--Order of Tribunal upholding cancellation of registration under section 12A--Denial of exemption cannot be challenged-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

S. 12AA --Charitable purpose--Charitable trust--Exemption--Corpus donation is in nature of capital receipt and not taxable irrespective of registration-- ITO v. Gaudiya Granth Anuved Trust (Agra) . . . 161

----Charitable purpose--Registration of trust--Cancellation--Conditions precedent for cancellation--Objects of society to preserve, protect and maintain traditional customs, culture, heritage and language of kodavas--Law applicable-- Amendment of section 2(15) w. e. f. 1-4-2009 disqualifying entity carrying on commercial activities--Cannot be invoked to revoke registration if conditions for cancellation not satisfied-- Kodava Samaja v. Director of Income-tax (Exemption) (Bangalore) . . . 224

S. 14A --Income--Computation--Disallowance of expenditure relating to exempt income--Bank loans dedicated towards financing working capital to be excluded--Matter remanded-- Kunal Corporation v. Assistant CIT (Mumbai) . . . 277

----Income--Expenditure in relation to income not includible in taxable income--Dividend--Assessee suo motu disallowing sum at 10 per cent.--Assessing Officer working out disallowance applying rule 8D--Onus of proving assessee’s claim is with assessee--Expenditure allowable depends upon facts--Records and accounts to be examined--Matter remanded-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

S. 37 --Business expenditure--Payments to sub-contractors--Letters to parties returned--Disallowance of 5 per cent. of payments covered by letters returned--Reasonable-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

----Business expenditure--Payments to sub-contractors--That letters addressed to party three or four years after contract executed returned undelivered not ground to disallow expenditure--Payment vouchers produced by assessee giving details including names of payees and bearing signatures of payees as recipients--Genuineness of payments established--However, 15 per cent. of payment to be disallowed to allow for inflation of expenditure by assessee-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

----Business expenditure--Power and fuel expenses not supported by proper vouchers and bills--Disallowance of 15 per cent. proper-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

S. 54 --Capital gains--When transfer took place--Sale deed executed on 3-9-2005 and possession handed over in financial year relevant to assessment year 2006-07 itself--Capital gains assessable in 2006-07-- Satishkumar Agarwal v. Deputy CIT (Hyderabad) . . . 167

S. 54F(4) --Capital gains--Exemption--Rectification of mistake--Assessment--Intimation--Claim to exemption for capital gains on basis of investment of consideration in residential property in foreign country--Intimation under section 143(1)(a) denying exemption--Not permissible--Question of law to be considered in light of section 54F(4) and beyond jurisdiction under sections 143(1)(a) and 154--Direction to Assessing Officer to pass fresh orders on petition under section 154-- Ms. Sushiela Natarajan v. ITO (Chennai) . . . 237

S. 92A --International transactions--Condition precedent--Transaction between associated enterprises--“International transaction†and “associated enterprise†--Definitions--General principles--Transactions with permanent establishment of non-residents--Permanent establishments treated as resident and taxed in India--Transactions not international and not subject to transfer pricing regulations-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

S. 92B --International transactions--Condition precedent--Transaction between associated enterprises--“International transaction†and “associated enterprise†--Definitions--General principles--Transactions with permanent establishment of non-residents--Permanent establishments treated as resident and taxed in India--Transactions not international and not subject to transfer pricing regulations-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

S. 92CA(3) --International transactions--Condition precedent--Transaction between associated enterprises--“International transaction†and “associated enterprise†--Definitions--General principles--Transactions with permanent establishment of non-residents--Permanent establishments treated as resident and taxed in India--Transactions not international and not subject to transfer pricing regulations-- IJM (India) Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 176

S. 143(1)(a) --Capital gains--Exemption--Rectification of mistake--Assessment--Intimation--Claim to exemption for capital gains on basis of investment of consideration in residential property in foreign country--Intimation under section 143(1)(a) denying exemption--Not permissible--Question of law to be considered in light of section 54F(4) and beyond jurisdiction under sections 143(1)(a) and 154--Direction to Assessing Officer to pass fresh orders on petition under section 154-- Ms. Sushiela Natarajan v. ITO (Chennai) . . . 237

S. 153A --Search and seizure--Assessment--Cash balance in books of assessee on date of search--Addition cannot be made--Assessee to prove availability of cash balance on date of search-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

S. 154 --Capital gains--Exemption--Rectification of mistake--Assessment--Intimation--Claim to exemption for capital gains on basis of investment of consideration in residential property in foreign country--Intimation under section 143(1)(a) denying exemption--Not permissible--Question of law to be considered in light of section 54F(4) and beyond jurisdiction under sections 143(1)(a) and 154--Direction to Assessing Officer to pass fresh orders on petition under section 154-- Ms. Sushiela Natarajan v. ITO (Chennai) . . . 237

S. 234A --Advance tax--Interest--Interest under sections 234A and 234B--Mandatory and consequential in nature-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

S. 234B --Advance tax--Interest--Interest under sections 234A and 234B--Mandatory and consequential in nature-- J. B. Educational Society v. Assistant CIT (Hyderabad) . . . 284

S. 271(1)(c) --Penalty--Concealment of income--Expenditure in relation to income not includible in taxable income accepted at ten per cent. in earlier years--Not a case of concealment--Penalty cannot be levied-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

Income-tax Rules, 1962

R. 8D --Income--Expenditure in relation to income not includible in taxable income--Dividend--Assessee suo motu disallowing sum at 10 per cent.--Assessing Officer working out disallowance applying rule 8D--Onus of proving assessee’s claim is with assessee--Expenditure allowable depends upon facts--Records and accounts to be examined--Matter remanded-- AFL P. Ltd. v. Assistant CIT (Mumbai) . . . 263

 

 

ITAT Upset At Roughneck Recovery Measures Of AO

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

Maharashtra Housing & Area Development Authority vs. ADIT (ITAT Mumbai)

AO's action of recovering outstanding taxes without affording reasonable time to take remedial steps is a misuse of powers and a gross violation of the directions laid down by the Courts. AO has to refund the taxes recovered

The assessee received the order of the CIT(A) on 16.11.2013. It filed an appeal before the Tribunal on 18.11.2013 which was the next working day. The assessee also filed an application before the Tribunal requesting stay of demand. The said application was fixed for hearing on 22.11.2013. However, the AO, without awaiting the outcome of the stay application, attached the assessee's bank account u/s 226(3) on 18.11.2013 and withdrew Rs. 159.84 crore. The assessee argued before the Tribunal that the coercive action of the AO was wrong because (i) the AO had taken coercive action before the expiry of time of filing the appeal against the order of the CIT(A), (ii) the action was taken even prior to the disposal of the stay application by the Tribunal and (iii) no prior notice was given to the assessee before taking the recovery action u/s 226(3). HELD by the Tribunal:

The action of the AO in recovering the outstanding without affording the assessee minimum reasonable time to take remedial steps is a misuse of powers and a gross violation of the directions laid down by the Courts as well as the basic rule of law and principles of natural justice. Accordingly, we direct the Revenue to refund the entire amount of Rs. 159.84 crore to the assessee within 10 days from the receipt of this order (Mahindra & Mahindra Ltd UOI 59 ELT 505, Mahindra & Mahindra W.P. 2164/2007, UTI Mutual Fund 345 ITR 71 (Bom), RPG Enterprises 251 ITR 20 (Mum) & MSEB 81 ITD 299 (Mum) followed)

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Oracle India Pvt. Ltd vs. CIT (Delhi High Court)

S. 37(1): Expenditure on acquiring master copy of software subject to obsolescence is deductible as revenue expenditure

Vodafone TP: Tax Dept Should Not Cause Misery And Harass Taxpayers: Bombay High Court

 

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Vodafone India Services Pvt. Ltd (No. 2) vs. UOI (Bombay High Court)

Transfer Pricing: Existence of income is a jurisdictional requirement for the applicability of T. P. provisions. AO must deal with it after giving personal hearing before making reference to TPO. The dept should not treat the assessee as an adversary who has to be taxed, no matter what

The assessee, an Indian company, issued equity shares at the premium of Rs.8591 per share aggregating Rs.246.38 crores to its holding company. Though the transaction was reported as an "international transaction" in Form 3 CEB, the assessee claimed that the transfer pricing provisions did not apply as there was no income arising to it. The AO referred the issue to the TPO without dealing with the preliminary objection. The TPO held that he could not go into the issue whether income had arisen or not because his jurisdiction was limited to determine the ALP. He held that the assessee ought to have charged the NAV of the share (Rs. 53,775) and that the difference between the NAV and the issue price was a deemed loan from the assessee to the holding company for which the assessee ought to have received 13.5% interest. He accordingly computed the adjustment for the shares premium at Rs. 1308 crore and the interest thereon at Rs. 88 crore. The AO passed a draft assessment order u/s 144C(1) in which he held that he was bound u/s 92-CA(4) with the TPO's determination and could not consider the contention whether the transfer pricing provisions applied. The assessee filed a Writ Petition challenging the jurisdiction of the TPO/AO to make the adjustment. On the merits of the adjustment, the assessee filed objections before the DRP. Before the High Court the assessee argued that (i) it was a precondition before the transfer pricing provisions apply that there has to be income arising to the assessee. As the allotment of shares at a premium does not give rise to income, the transfer pricing provisions do not apply, (ii) there was a breach of natural justice because neither the TPO nor the AO had heard the assessee on, or decided, the fundamental issue as to whether the transfer pricing provisions applied at all, (iii) the DRP does not offer an alternative remedy because the DRP has no power to quash the draft assessment order even if it is satisfied that the same is without jurisdiction & (iv) the DRP cannot take an unbiased view because one of its members is the DIT (TP). HELD by the High Court:

(i) The assessee's contention that the DRP does not offer an alternative remedy because it does not have the power to quash the assessment order even if it is satisfied that the same is without jurisdiction is not acceptable because in Vodafone 37 taxmann.com 250 it was held that the DRP's power to confirm would include the power not to confirm and to annul the draft assessment order;

(ii) It is clear from s. 92(1) that there must be income arising/ potentially arising by an international transaction for the application of the transfer pricing provisions. This is a jurisdictional requirement and has to be dealt with by the AO when specifically raised by the assessee before making reference to the AO. Grant of personal hearing before referring the matter to the TPO has to be read into s. 92CA(1) in cases where the very jurisdiction to tax under Chapter X is challenged by the assessee (Veer Gems 351 ITR 35 (Guj) disagreed with to the extent it holds that no hearing is required at the stage of reference to the TPO even on jurisdictional issues). If, after the hearing the assessee, the AO holds that there is an international transaction, that would be binding on the TPO;

(iii) The department's contention, based on CBDT Instruction No.3 dated 20.05.2003, that the action of the AO in referring the international transaction is a mere administrative act is not acceptable. The AO is bound to hear the assessee in respect of jurisdictional issues before making the reference. The failure to do so is an illegality;

(iv) The assessee's contention that the DRP would not give a fair hearing as one of its members is the DIT (TP) is not acceptable because it overlooks the fact that these are not appeal proceedings but to finalize the draft assessment order. Also, the DIT(TP) who approved the TPO's order is not on the panel;

(v) The Revenue should keep in mind the sage advice of Nani Palkhivala that the department should not cause misery and harassment to the taxpayer and the gnawing feeling that he is made the victim of palpable injustice. In this case it would be natural for the assessee to feel harassed as neither the AO nor the TPO gave a hearing or dealt with the preliminary objection. It is hoped that the revenue will be more sensitive to the just demands of the assessee and not treat the assessee as an adversary who has to be taxed, no matter what;

(vi) The DRP should decide the assessee's objection regarding chargeability of alleged shortfall in share premium as a preliminary issue. In case the DRP's decision on the preliminary issue is adverse, the assessee shall be entitled to challenge it in a writ petition if it can show that the DRP's decision on the preliminary issue is patently illegal notwithstanding the availability of alternate remedy before the ITAT.

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Maharashtra Housing & Area Development Authority vs. ADIT (ITAT Mumbai)

AO's action of recovering outstanding taxes without affording reasonable time to take remedial steps is a misuse of powers and a gross violation of the directions laid down by the Courts. AO has to refund the taxes recovered

Deductibility Of Expenditure For Acquiring Software: High Court Explains Law

 

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

Oracle India Pvt. Ltd vs. CIT (Delhi High Court)

S. 37(1): Expenditure on acquiring master copy of software subject to obsolescence is deductible as revenue expenditure

The assessee entered into a license agreement with Oracle Corp under which it acquired a non-exclusive & non-assignable right to duplicate software products which were owned by Oracle Corp and to sub-license the same to parties in India. The assessee paid recurring royalty of 30% for the said right. In addition to the royalty, the assessee periodically paid an amount towards "expenditure on import of software master copy". The said master copy was used to replicate the software. The assessee claimed that the said master copies were versions of Oracle's new product offerings which had very accelerated obsolescence and that at any point of time it was not possible to say whether the version will be current for one day or one month. The AO allowed a deduction for the recurring royalty but held that the expenditure for acquiring the software master copy was capital expenditure. On appeal, the CIT(A) reversed the AO on the ground that owing to obsolescence, there was no enduring benefit as there were frequent corrections and up-gradation of the software. On appeal by the department, the Tribunal reversed the CIT(A) and held that the expenditure was capital in nature on the ground that the master copy was an asset of enduring benefit. On appeal by the assessee, HELD reversing the Tribunal:

The assessee's claim that the master copies had high accelerated obsolescence and that even at the point of time of import it was difficult to say whether the version would be replaced by a new or updated version after one day or a month had not been disproved. Also the facts showed that there were periodical imports of the master copies and that the average price per copy was minimal. This was not a case where the master copies contained operating or system software, which normally did not require frequent up-gradation or changes. It is also not the case of an assessee which is the end user of software. It is a case where the assessee is required to repeatedly pay for the master copy media in view of frequent newer or updated versions of the application software from time to time. Once newer or better version of the application software is available, the earlier version is not saleable and does not have any market value for the seller i.e. the assessee. Also, as per the "matching concept" in accountancy, while determining whether expenditure is capital or revenue in nature, the question whether the expenditure would create an asset which is of value in further assessment periods and should be amortised (i.e. depreciated) as long as it has value (subject to the statutory provisions) requires to be considered. If the expenditure does lead to creation of an asset but of a limited or short life, it has to be treated as a liability and not as a fixed asset. The said expenditure cannot be valued for price for future financial years (Oracle Software 320 ITR 546 (SC), Ashahi India Safety Glass 346 ITR 329 (Del), G.E. Capital Services 300 ITR 420 (Del), O.K. Play 346 ITR 57 (P&H), IAEC Pumps 232 ITR 316 (SC) referred)

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CIT vs. Riyaz A. Sheikh (Bombay High Court)

Amount received by partner on his retirement is not chargeable to tax as capital gains

ITAT Duty-Bound To Deal With All Cited Judgements: Gujarat High Court

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

Dattani & Co vs. ITO (Gujarat High Court)

ITAT duty-bound to deal with all judgements cited during hearing of appeal

The assessee filed an appeal against an addition for alleged bogus purchases/sales which was dismissed by the Tribunal. The assessee filed an appeal before the High Court claiming that he had relied on the judgement in CIT vs. President Industries 258 ITR 654 in the verbal and written submissions and that the Tribunal had not considered it. HELD by the High Court remanding the case to the Tribunal for fresh consideration:

Whenever any decision has been relied upon and/or cited by the assessee and/or any party, the authority/tribunal is bound to consider and/or deal with the same and opine whether in the facts and circumstances of the particular case, the same will be applicable or not. In the instant case, the Tribunal has failed to consider and/or deal with the aforesaid decision cited and relied upon by the assessee. Under the circumstances, all these appeals are required to be remanded to the Tribunal to consider the addition made by the AO towards alleged bogus purchases/sales and to take appropriate decision in accordance with law and on merits and after considering the decision of this Court in the case of CIT vs. President Industries 258 ITR 654.

See also Naresh K. Pahuja 224 CTR 284 (Bom), Inventure Growth 324 ITR 319 (BOM) (non cited judgements should not be referred to) & Shivsagar Veg. Restaurant (Bom). Contrast with Visvas Promoters 323 ITR 114 (Mad) & Geofin Investment 30 taxmann.com 73. See also Guidelines to Hon'ble Members of ITAT for drafting orders

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DIT vs. Infrasoft Ltd (Delhi High Court)

Non-exclusive & non-transferable license to use customized software not taxable as "royalty" under Article 12 of India-USA DTAA

Income From Supply Of Customized Software Not Taxable As Royalty: Delhi High Court

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DIT vs. Infrasoft Ltd (Delhi High Court)

Non-exclusive & non-transferable license to use customized software not taxable as "royalty" under Article 12 of India-USA DTAA

The assessee, a USA company, set up a branch office in India for the supply of software called "MX". The software was customized for the requirements of the customer (not "shrink wrap"). The Indian branch imported the software package in the form of floppy disks or CDs and delivered it to the customer. It also installed the software and trained the customers. The AO & CIT(A) held that the software was a "copyright" and the income from its license was assessable as "royalty" under Article 12 of the India-USA DTAA. On appeal by the assessee, the Tribunal held, following Motorola 270 ITR (AT) (SB) 62, that the income from license of software was not taxable as "royalty". Before the High Court, the Department argued that in view of CIT vs. Samsung Electronics 345 ITR 494 (Kar), the right to make a copy of the software and storing it amounted to copyright work u/s 14(1) of the Copyright Act and payment made for the grant of a license for the said purpose would constitute royalty. HELD by the High Court dismissing the appeal:

In order to qualify as a royalty payment under Article 12(3) of the India-USA DTAA, it is necessary to establish that there is a transfer of all or any rights (including the granting of any licence) in respect of a copyright of a literary, artistic or scientific work. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by Article 12 because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. Consequently there is no transfer of any right in respect of copyright by the assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income-tax Act or under the DTAA (Ericson AB 343 ITR 370 (Del) & Nokia Networks OY 25 taxmann.com 225 followed; Samsung Electronics 345 ITR 494 (Kar) not followed)

Contrast with Reliance Infocom/ Lucent Technologies (ITAT Mum) where it was held that Ericson AB 343 ITR 370 (Del) & Nokia Networks OY 25 taxmann.com 225 applied only to cases where the software was embedded in the hardware and not to pure license cases

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Crores Of Revenue Locked Up In Litigation But No Money For ITAT Working?