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JAY SWAMINARYAN
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Summary of Imp Case Laws including RTP-2016 Case Law on Direct Taxes for May/Nov.2016
Attempt
No Issue / Questions Assessee Held
CHAPTER:1 BASIC CONCEPTS
1 What is the nature of liquidated
damages received by a company
from the supplier of plant for
failure to supply machinery to the
company within the stipulated
time a capital receipt or a revenue
receipt?
Saurashtra
Cement Ltd
(Supreme Court)
The damages were directly and intimately linked with the
procurement of a capital asset i.e., the cement plant, which
lead to delay in coming into existence of the profit-making
apparatus. It was not a receipt in the course of profit
earning process. Therefore, the amount received by the
assessee towards compensation for sterilization of the
profit earning source, is not in the ordinary course of
business, hence it is a capital receipt in the hands of the
assessee.
2 Can capital contribution of the
individual partners credited to
their accounts in the books of the
firm be taxed as cash credit in the
hands of the firm, where the
partners have admitted their
capital contribution but failed to
explain satisfactorily the source of
receipt in their individual hands?
M.Venkateswara
Rao (2015)
The view taken by the Assessing Officer that the partnership
firm has to explain the source of income of the partners as
regards the amount contributed by them towards capital of
the firm, in the absence of which the same would be
treated as the income of the firm, was not tenable.
CHAPTER 2: INCOME WHICH DO NOT FORM PART OF TOTAL INCOME
1 Whether section 14A is applicable
in respect of deductions, which are
permissible and allowed under
Chapter VI-A?
Kribhco
(Delhi High
Court)
No disallowance can be made under section 14A in respect
of income included in total income in respect of which
deduction is allowable under section 80C to 80U.
2 In a case where the application for
registration of a charitable trust is
not disposed of within the period
of 6 months as required under
section 12AA(2), can the trust be
deemed to have been registered
as per provisions of section 12AA?
Karimangalam
Onriya Pengal
Semipu Amaipu
Ltd.
(Madras High
Court)
In that case, the Madras High Court held that the time
frame mentioned in section 12AA(2) is only directory in
nature and non-consideration of the registration application
within the said time frame of six months would not amount
to “deemed registration”
3
Where a charitable trust applied
for issuance of registration under
section 12A within a short time
span (nine months, in this case)
after its formation, can registration
be denied by the concerned
authority on the ground that no
charitable activity has been
commenced by the trust?
Meenakshi
Amma
Endowment
Trust
( Karnataka High
Court)
The money available with the trust, it cannot be expected
to carry out activity of charity immediately. Consequently,
in such a case, it cannot be concluded that the trust has not
intended to do any activity of charity. In such a situation,
the objects of the trust as mentioned in the trust deed have
to be taken into consideration by the authorities for
satisfying themselves about the genuineness of the trust
and not the activities carried on by it. Later on, if it is found
from the subsequent returns filed by the trust, that it is not
carrying on any charitable activity, it would be open to the
concerned authorities to withdraw the registration granted
or cancel the registration as per the provisions of section
12AA(3).
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4 In a case where properties
bequeathed to a trust could not be
transferred to it due to ongoing
court litigation and pendency of
probate proceedings, can violation
of
the provisions of section 11(5) be
attracted?
Khetri Trust
(2014)
the advance given to the business entity, the
Commissioner(Appeals) found that the said amount cannot
be treated as an investment which wascovered and
regulated by section 11(5), since the intent and purpose
behind the paymentwas not investment. These views of the
Commissioner (Appeals) were confirmed by the Tribunal.
Based on the above factual findings, elucidated and
affirmed by the Commissioner (Appeals) and the Tribunal,
the High Court held that there was no violation of section
11(5) in this case.
5 Is the approval of Civil Court
mandatory for amendment of trust
deed, even in a case where the
settler has given power to the
trustees to alter the trust deed?
Ramoji
Foundation
(2014)
Accordingly, in this case, the High Court held that the
Tribunalhas correctly dealt with the matter and the trust
deed amended by the trustees can be relied upon by the
Revenue authorities for the purpose of granting registration
under Sec. 12AA.
CHAPTER 3: INCOME FORM SALARY
1 Can notional interest on security
deposit given to the landlord in
respect of residential premises
taken on rent by the employer and
provided to the employee,be
included in the perquisite value of
rent-free accommodation given to
the employee?
Shankar
Krishnan
(Bombay High
Court)
That the Assessing Officer is not right in adding the notional
interest on the security deposit given by the employer to
the landlord in valuing the perquisite of rent-free
accomodation, since the perquisite value has to be
computed as per Rule 3 and Rule 3 does not require
addition of such notional interest. Thus, the perquisite value
of the residential accommodation provided by the
employer would be the actual amount of lease rental paid
or payable by the employer, since the same was lower than
10% (now 15%) of salary.
2 Can the limit of Rs. 1,000 per
month per child be allowed as
standard deduction, while
computing the perquisite value of
free or concessional education
facility provided to the employee
by the employer?
Delhi Public
School
(Punjab and
Haryana High
Court)
The value of perquisite for free/concessional educational
facility arising to an employee exceeds Rs. 1,000 per month
per child, the whole perquisite shall be taxable in the hands
of the employee and no standard deduction of Rs. 1,000 per
month per child can be provided from the same. It is only in
case the perquisite value is less than Rs. 1,000 per month
per child, the perquisite value shall be nil. Therefore, Rs.
1,000 per month per child is not a standard deduction to be
provided while calculating such a perquisite.
CHAPTER 4: INCOME FROM HOUSE PROPERTY
1 Whether the rental income
derived from the unsold flats
which are shown as stock-in-trade
in the books of the assessee would
be taxable under the head ‘Profits
and gains from business or
profession’ or under the head
‘Income from house property’, in a
case where the actual rent receipts
formed the basis of computation
of income?
New Delhi
Hotels Ltd.
(Delhi High
Court)
Rental income derived from unsold flats which were shown
as stock-in-trade in the books of the assessee should be
assessed under the head “Income from house property”
and not under the head “Profits and gains from business or
profession.
2 Can the rental income from the
unsold flats of a builder be treated
as its business income merely
because the assessee has, in its
wealth tax return, claimed that the
unsold flats were stock-in-trade of
its business?
Azimganj Estate
(P.) Ltd
(Calcutta High
Court)
The rental income from the unsold flats of a builder shall be
taxable as “Income from house property” as provided under
section 22 and since it specifically falls under this head, it
cannot be taxed under the head “Profit and gains from
business or profession Therefore, the assessee would be
entitled to claim statutory deduction of 30% from such
rental income as per section 24. The fact that the said flats
have been claimed as not chargeable to wealth-tax, treating
the same as stock-in-trade, will not affect the computation
of income under the Income-tax Act, 1961.
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3 Can benefit of self-occupation of
house property under section
23(2) be denied to a HUF on the
ground that it, being a fictional
entity, cannot occupy a house
property?
Hariprasad
Bhojnagarwala
(Gujarat High
Court)
On the above mentioned issue, the Gujarat High Court
observed that a firm, which is a fictional entity, cannot
physically reside in a house property and therefore a firm
cannot claim the benefit of this provision, which is available
to an individual owner who can actually occupy the house.
However, the HUF is a group of individuals related to each
other i.e., a family comprising of a group of natural persons.
The said family can reside in the house, which belongs to
the HUF. Since a HUF cannot consist of artificial persons, it
cannot be said to be a fictional entity. Also, it was observed
that since singular includes plural, the word "owner" would
include "owners" and the words "his own" used in section
23(2) would include "their own". Therefore, the Court held
that the HUF is entitled to claim benefit of self-occupation
of house property under section 23(2).
4
Can an assessee engaged in letting
out of rooms in a lodging house
also treat the income from renting
of a building to bank on long term
lease as business income?
Joseph George
and Co.
(High Court)
While lodging is a business, however, letting out of building
to the bank on long-term lease could not be treated as
business. Therefore, the rental income from bank has to be
assessed as income from house property.
5 Can notional interest on interest-
free deposit received by an
assessee in respect of a shop let
out on rent be brought to tax as
business income or income from
house property?
Asian Hotels
Ltd.
(High Court)
The High Court observed that section 28(iv) is concerned
with business income and brings to tax the value of any
benefit or perquisite, whether convertible into money or
not, arising from business or the exercise of a profession.
Section 28(iv) can be invoked only where the benefit or
amenity or perquisite is otherwise than by way of cash. In
the instant case, the Assessing Officer has determined the
monetary value of the benefit stated to have accrued to the
assessee by adding a sum that constituted 18 per cent
simple interest on the deposit. Hence, section 28(iv) is not
applicable. Section 23(1) deals with the determination of
the expected rent of a let out property for computing the
income from house property. It provides that the expected
rent is deemed to be the sum for which the property might
reasonably be expected to be let out from year to year. This
contemplates the possible rent that the property might
fetch and certainly not the interest on fixed deposit that
may be placed by the tenant with the landlord in
connection with the letting out of such property. Thus, the
notional interest is neither assessable as business income
nor as income from house property.
CHAPTER 5: PROFITS AND GAINS OF BUSINESS OR PROFESSION
1 Under which head of income is
franchise fee received by an
assessee in tourism business,
against special rights given to
franchisees to undertake hotel
business in assessee‟s property,
taxable?
Tamil Nadu
Tourism
Development
Corporation
Ltd(2014)
The special conditions stipulated in the contract clearly
indicated that the name of the assessee should be
prominently indicated in the name board and that the name
of the franchisee should be below the name of the
assessee, thereby, making it clear that the assessee
continued to operate the business through the franchisees.
Thus, these special conditions were a clear indicator that
the assessee continued to be in the business of tourism
activities, Hence The High Court held that the income
earned by the assessee by way of franchisee fee is in the
nature of business income and not income from house
property.
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2 Is interest income on margin
money deposited with bank for
obtaining bank guarantee to carry
on business, taxable as business
income?
CIT v. K and Co.
(2014)
The High Court held that the interest income received on
funds kept as margin money for obtaining the bank
guarantee would be taxable under the head “Profits and
gains of business or profession”.
3 Is the expenditure on replacement
of dies and moulds, being parts of
plant and machinery, deductible as
current repairs?
TVS Motors Ltd
(2014)
The High Court held that “moulds & dies” are not
independent of plant and machinery but are parts of plant
and machinery. Once the dies are worn out, they had to be
replaced so that the machine can produce the product
according to business specifications. Thus, the expenditure
incurred by the assessee towards replacement of parts of
machinery to ensure its performance without bringing any
new asset or advantage, is eligible for deduction as „current
repairs‟ under section 31.
4 Can depreciation on leased
vehicles be denied to the lessor on
the ground that the vehicles are
registered in the name of the
lessee and that the lessor is not
the actual user of the vehicles?
I.C.D.S. Ltd
(Supreme Court)
Assessee was entitled to claim depreciation in respect of
vehicles leased out since it has satisfied both the
requirements of section 32, namely, ownership of the
vehicles and its usage in the course of business
5 What is the eligible rate of
depreciation in respect of
computer accessories and
peripherals under the Income-tax
Act, 1961?
BSES Yamuna
Powers Ltd
(Delhi High
Court)
Computer accessories and peripherals such as printers,
scanners and server etc. form an integral part of the
computer system and they cannot be used without the
computer. Consequently, the High Court held that since
they are part of the computer system, they would be
eligible for depreciation at the higher rate of 60% applicable
to computers including computer software.
6 Can the second proviso to section
32(1) be applied to restrict the
additional depreciation under
section 32(1)(iia) to 50%, if the
new plant and machinery was put
to use for less than 180 days
during the previous year?
M.M. Forgings
Ltd. v. ACIT
(Madras High
Court)
If an asset is acquired on or after 1.04.2003, it was
mandatory that the claim of the assessee made under
section 32(1)(iia) had to be necessarily assessed by applying
the second proviso to section 32(1). Since there is a
statutory stipulation restricting the allowability of
depreciation to 50% of the amount computed under section
32(1)(iia), where the asset is put to use for less than 180
days, the amount of depreciation allowable has to be
restricted to 50% of the amount computed under section
32(1)(iia). The High Court, accordingly, affirmed the order of
the Tribunal.
7 Can business contracts, business
information, etc., acquired by the
assessee as part of the slump sale
and described as 'goodwill', be
classified as an intangible asset to
be entitled for depreciation under
section 32(1)(ii)?
Areva T and D
India Ltd.
(Delhi High
Court)
The specified intangible assets acquired under the slump
sale agreement by the assessee are in the nature of
intangible asset under the category "other business or
commercial rights of similar nature" specified in section
32(1)(i ) and are accordingly eligible for depreciation under
section 32(1)(ii).
8 Is the assessee entitled to
depreciation on the value of
goodwill considering it as an asset
within the meaning of Explanation
3(b) to Section 32(1)?
Smifs Securities
Ltd.
(Supreme Court)
A reading of the words 'any other business or commercial
rights of similar nature' in Explanation 3(b) indicates that
goodwill would fall under the said expression. In the
process of amalgamation, the amalgamated company had
acquired a capital right in the form of goodwill because of
which the market worth of the amalgamated company
stood increased.Therefore, it was held that 'Goodwill' is an
asset under Explanation 3(b) to section 32(1) and
depreciation thereon is allowable under the said section.
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9 Is the assessee entitled to
depreciation on value of goodwill
considering it as “other business or
commercial rights of similar
nature” within the meaning of an
intangible asset?
B. Raveendran
Pillai
(Kerala)
When goodwill paid was for ensuring retention and
continued business in the hospital, it was for acquiring a
business and commercial right and it was comparable with
trade mark, franchise, copyright etc., referred to in the first
part of clause (ii) of section 32(1) and so, goodwill was
covered by the above provision of the Act entitling the
assessee for depreciation.
10 Can EPABX and mobile phones be
treated as computers to be
entitled to higher depreciation at
60%?
Federal Bank Ltd
(Kerala High
Court)
The rate of depreciation of 60% is available to computers
and there is no ground to treat the communication
equipment as computers. Hence, EPABX and mobile phones
are not computers and therefore, are not entitled to higher
depreciation at 60%.
11 Would beneficial ownership of
assets suffice for claim of
depreciation on such assets?
Smt. A. Sivakami
and Another
(Mad. High
Court)
The assessee has made available all the documents relating
to the business and also established before the authorities
that she is the beneficial owner, the High Court held that
she was entitled to claim depreciation even though she was
not the legal owner of the buses.
12
Is guarantee commission paid by a
company to its employee directors
deductible as its business
expenditure, where such
guarantee was given by the
employee directors to the bank for
enabling credit facility to the
company?
Controls &
Switchgear
Contractors Ltd
(2014),
The High Court observed that the directors of the company
are employees of the company and are entitled to
remuneration for the services rendered as employees. The
assessee-company passed a resolution resolving that the
directors be paid commission for providing their personal
guarantees for the financial assistance availed by the
assessee-company from the bank. This act of providing
personal guarantee was clearly beyond the scope of their
services as employees of the company. The assessee-
company, in its commercial wisdom, had agreed to pay a
commission for furnishing of such guarantees by the
director employees, which cannot be faulted. In such a
case, the Assessing Officer only has to determine whether
the transactions are real and genuine. It is not within his
jurisdiction to impose his views as regards the necessity or
the quantum of expenditure undertaken by the assessee. As
regards section 36(1)(ii) the recipient directors were not
entitled to receive the amount as commission in lieu of
bonus or dividend. Dividend is paid to all the shareholders
and the recipient directors were not the only shareholders
of the company. The payment of commission, hence,
cannot be taken as payment of dividend, since payment of
dividend would result in payment to all the shareholders
and not to select shareholders.
The High Court, therefore, set aside the tribunal’s order and
directed rectification of the disallowance of amount paid as
commission to directors.
13 Is interest paid by the holding
company as guarantor for the
amount borrowed by the
subsidiary company deductible
under section 36(1)(iii)?
JK Synthetics Ltd
(2014)
High Court observed that the assessee had deep business
interest in the existence of subsidiary and therefore, repaid
installments of loan to financial institutions. Such loans
were given for the purpose of business. The High Court,
thus, held that the claim for deduction of interest by the
assessee-holding company is allowable.
14 Can employees contribution to
Provident Fund and Employee’s
State Insurance be allowed as
deduction where the assesssee-
employer had not remitted the
same on or before the “due date”
Gujarat State
Road Transport
Corpn (2014)
The High Court, accordingly, held that the delayed
remittance of employees’ contribution beyond the ‘due
date’ prescribed in section 36(1)(va), is not deductible while
computing the business income, even though such
remittance has been made before the due date of filing of
return of income under section 139(1).
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under the relevant Act but
remitted the same on or before
the due date for filing of return of
income under section 139(1)?
15 Is expenditure incurred for
construction of transmission lines
by the assessee for supply of
power to UPPCL by the assessee
deductible as revenue
expenditure?
Dharmpur Sugar
Mill (P) Ltd
(2015)
High Court, in this case, held that the expenditure which
was incurred by the assessee in the laying of transmission
lines was clearly on the revenue account. The transmission
lines, upon erection, vested absolutely in UPPCL. The
expenditure which was incurred by the assessee was for
aiding efficient conduct of its business since the assessee
had to supply electricity to its sole consumer UPPCL. This
was not an advantage of a capital nature.
16 Where the assessee-company
came into existence on bifurcation
of a Joint Venture Company (JVC),
can the amount paid by it to the
JVC for use of customer database
and transfer of trained personnel
be claimed as revenue
expenditure?
IBM Global
Services India P
Ltd (2014)
The High Court observed that the expenditure incurred for
use of customer database did not result in acquisition of
any capital asset. The assessee got the right to use the
database and the company which provided the database
was not precluded from using such database. Therefore, the
expenditure incurred was for use of data base and not for
acquisition of such data base and, hence, is deductible as
revenue expenditure. As regards payment for obtaining
trained and skilled employees, it was held that the joint
venture company spent a lot of money to give training to
employees who were transferred to the assessee-company.
They were trained in the field of software. They have opted
for employment with the assessee, and for their past
services with the joint venture company, expenditure has
been incurred. In effect, the payment made by the
assessee-company was towards expenditure incurred for
their training and recruitment. Such expenditure was in the
revenue field, and therefore, the payment made by the
assessee-company as per agreement to save such
expenditure was also revenue in nature. Therefore, the
expenditure incurred for obtaining trained and skilled
employees cannot be termed as capital expenditure though
the benefit may be of enduring nature. The High Court,
thus, held that both the expenditures claimed were
allowable as revenue expenditure.
17 What is the nature of expenditure
incurred on glow-sign boards
displayed at dealer outlets - capital
or revenue?
Orient Ceramics
and Industries
Ltd. (Delhi High
Court)
Such expenditure on glow sign boards displayed at dealer
outlets was revenue in nature.
18 Would the expenditure incurred
on issue and collection of
convertible debentures be treated
as revenue expenditure or capital
expenditure?
ITC Hotels Ltd
(Karnataka High
Court)
The expenditure incurred on the issue and collection of
debentures shall be treated as revenue expenditure even in
case of convertible debentures, i.e. the debentures which
had to be converted into shares at a later date.
19 Would expenditure incurred on
feasibility study conducted for
examining proposals for
technological advancement
relating to the existing business be
classified as a revenue
expenditure, where the project
was abandoned without creating a
new asset?
Priya Village
Roadshows Ltd
(Delhi High
court)
Since the feasibility studies were conducted by the assessee
for the existing business with a common administration and
common fund and the studies were abandoned without
creating a new asset, the expenses were of revenue nature.
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20 Can expenditure incurred on
alteration of a dam to ensure
adequate supply of water for the
smelter plant owned by the
assessee be allowed as revenue
expenditure?
Hindustan Zinc
Ltd
(Raj. High court)
The expenditure incurred by the assessee for commercial
expediency relates to carrying on of business The
expenditure is of such nature which a prudent businessman
may incur for the purpose of his business. The operational
expenses incurred by the assessee solely intended for the
furtherance of the enterprise can by no means be treated
as expenditure of capital nature.
21 Is Circular No. 5/2012 dated
01.08.2012 disallowing the
expenditure incurred on freebies
provided by pharmaceutical
companies to medical
practitioners, in line with
Explanation to section 37(1), which
disal ows expenditure which is
prohibited by law?
Confederation of
Indian
Pharmaceutical
Industry (SSI)
(H.P)
Any expenditure incurred by an assessee for any purpose
which is prohibited by law shall not be deemed to have
been incurred for the purpose of business or profession.
The sum and substance of the circular is also the same.
Therefore, the circular is totally in line with the Explanation
to section 37(1).However, if the assessee satisfies the
assessing authority that the expenditure incurred is not in
violation of the regulations framed by the Medical Council
then it may legitimately claim a deduction, but it is for the
assessee to satisfy the Assessing Officer that the expense is
not in violation of the Medical Council Regulations.
22 Can the commission paid to
doctors by a diagnostic centre for
referring patients for diagnosis be
allowed as a business expenditure
under section 37 or would it be
treated as illegal and against public
policy to attract disallowance?
Kap Scan and
Diagnostic
Centre P. Ltd.
(P&H)
Commission paid to doctors for referring patients for
diagnosis is not allowable as a business expenditure.
23 Can expenditure incurred by a
company on higher studies of the
director’s son abroad be claimed
as business expenditure under
section 37 on the contention that
he was appointed as a trainee in
the company under “apprentice
training ”, where there was no
proof of existence of such scheme?
Echjay Forgings
Ltd
(Bombay High
Court)
There was no nexus between the education expenditure
incurred abroad for the director’s son and the business of
the assessee company. Therefore, the aforesaid
expenditure was not deductible
24 Can the expenditure incurred on
heart surgery of an assessee, being
a lawyer by profession, be allowed
as business expenditure under
section 31, by treating it as current
repairs considering heart as plant
and machinery, or under section
37, by treating it as expenditure
incurred wholly and exclusively for
the purpose of business or
profession?
Shanti Bhushan
(Delhi High
Court)
No direct nexus between the expenses incurred by the
assessee on the heart surgery and his efficiency in the
professional field Therefore, the claim for allowing the said
expenditure under section 37 is also not tenable. Hence, the
heart surgery expenses shall not be allowed as a business
expenditure of the assessee under the Income-tax Act,
1961.
25 Can payment to police personnel
and gundas to keep away from the
cinema theatres run by the
assessee be allowed as deduction?
Neelavathi &
Others
(Karnataka High
Court)
If the assessee had incurred expenditure for the purpose of
security, the same would have been allowed as deduction.
However, in the instant case, since the payment has been
made to the police and gundas to keep them away from the
business premises, such a payment is illegal and hence, not
allowable as deduction.
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26 Is the amount paid by a
construction company as
regularization fee for violating
building bye-laws allowable as
deduction?
Millennia
Developers (P)
Ltd
(Karnataka High
Court)
The amount paid to compound an offence is obviously a
penalty and hence, does not qualify for deduction under
section 37. Merely describing the payment as a
compounding fee would not alter the character of the
payment.
27 Can remuneration paid to working
partners as per the partnership
deed be considered as
unreasonable and excessive for
attracting disallowance under
section 40A(2)(a) even though the
same is within the statutory limit
prescribed under section 40(b)(v)?
Great City
Manufacturing
Co
(All. High Court)
The question of disallowance of remuneration under
section 40A(2)(a) does not arise in this case, since the
Tribunal has found that all the three conditions mentioned
above have been satisfied. Hence, the remuneration paid to
working partners within the limits specified under section
40(b)(v) cannot be disallowed by invoking the provisions of
section 40A(2)(a).
28 Can unpaid electricity charges be
treated as “fees” to attract
disallowance under section 43B?
Andhra Ferro
Alloys P. Ltd.
(A.P High Court)
The provisions of section 43B do not incorporate electricity
charges. Therefore, non-payment of electricity charges
would not attract disallowance under section 43B since
such charges cannot be termed as “fees”.
CHAPTER 6: CAPITAL GAINS
1 What are the factors determining
the nature of income arising on
sale of shares i.e. whether the
income is taxable as capital gains
or business income?
PVS Raju
(AP. High Court)
The question whether the shares were held as an
investment to give rise to capital gain on its sale or as a
trading asset to give rise to business income is not a pure
question of law but essentially one of fact
2 Where a leasehold property is
purchased and subsequently
converted into freehold property
and then sold, should the period of
holding be reckoned from the date
of purchase or from the date of
conversion for determining
whether the resultant capital gains
is short-term or long-term?
Smt. Rama Rani
Kalia
(All. High Court)
Conversion of the rights of the lessee from leasehold to
freehold is only by way of improvement of her rights over
the property, which she enjoyed. It would not have any
effect on the taxability of gain from such property, which is
related to the period over which the property is held. Since,
in this case, the period of holding is more than 36 months,
the resultant capital gains would be long-term.
3 In determining the period of
holding of a capital asset received
by a partner on dissolution of firm,
can the period of holding of the
capital asset by the firm be taken
into account?
P. P. Menon
(Ker. High Court)
The benefit of including the period of holding of the
previous owner under section 2(42A) read with section
49(1)(iii)(b) can be availed only if the dissolution of the firm
had taken place at any time before April 1, 1987.In this
case, the firm was dissolved on April 15, 2001 and therefore
the benefit of these sections would not be available to the
assessee. Therefore, in this case, the period of holding of
the asset received by the assessee-partner on dissolution of
the firm has to be reckoned only from the date of
dissolution of the firm. Since the assessee-partner has sold
the property within three days of acquiring the same, the
gains have to be treated as short-term capital gain.
4 What would be the period of
holding to determine whether the
capital gains on renunciation of
right to subscribe for additional
shares is short-term or long-term?
Navin Jindal
(SC)
The capital gains on renunciation of right to subscribe for
additional shares is short-term or long-term, the period of
holding would be from the date on which such right to
subscribe for additional shares comes into existence upto
the date of renunciation of such right.
JAY SWAMINARYAN
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5 Whether indexation benefit in
respect of the gifted asset shall
apply from the year in which the
asset was first held by the assessee
or from the year in which the same
was first acquired by the previous
owner?
Manjula J. Shah
(Bombay High
Court)
The indexed cost of acquisition in case of gifted asset has to
be computed with reference to the year in which the
previous owner first held the asset and not the year in
which the assessee became the owner of the asset.
6 Where a building, comprising of
several floors, has been developed
and re-constructed, would
exemption under section 54/54F
be available in respect of the cost
of construction of -
(i) the new residential house (i.e.,
al independent floors handed over
to the assessee); or
(ii) a single residential unit (i.e.,
only one independent floor)?
Gita Duggal
(Delhi High
Court)
The fact that the residential house consists of several
independent units cannot be permitted to act as an
impediment to the allowance of the deduction under
section 54 or section 54F. It is neither expressly nor by
necessary implication prohibited. Therefore, the assessee is
entitled to exemption of capital gains in respect of
investment in the residential house, comprising of
independent residential units handed over to the assessee.
7 Would an assessee be entitled to
exemption under section 54 in
respect of purchase of two flats,
adjacent to each other and having
a common meeting point?
Syed Ali Adil
(A.P. High Court)
The assessee was entitled to investment in both the flats
purchased by him, since they were adjacent to each other
and had a common meeting point, thus, making it a single
residential unit.
8 Can exemption under section 54B
be denied solely on the ground
that the new agricultural land
purchased is not wholly owned by
the assessee, as the assessee’s son
is a co-owner as per the sale deed?
Gurnam Singh
(P&H High
Court)
Merely because the assessee’s son was shown in the sale
deed as co-owner, it did not make any difference. It was not
the case of the Revenue that the land in question was
exclusively used by the son. Therefore, the assessee was
entitled to deduction under section 54B.
9 Can exemption under section 54F
be denied solely on the ground
that the new residential house is
purchased by the assessee
exclusively in the name of his wife?
Kamal Wahal
(Delhi High
Court)
That the assessee is entitled to claim exemption under
section 54F in respect of utilization of sale proceeds of
capital asset for investment in residential house property in
the name of his wife.
10 In case of a house property
registered in joint names, whether
the exemption under section 54F
can be allowed fully to the co-
owner who has paid whole of the
purchase consideration of the
house property or will it be
restricted to his share in the house
property?
Ravinder Kumar
Arora
(Delhi High
Court)
The assessee was the real owner of the residential house in
question and mere inclusion of his wife’s name in the sale
deed would not make any difference. The High Court also
observed that section 54F mandates that the house should
be purchased by the assessee but it does not stipulate that
the house should be purchased only in the name of the
assessee. In this case, the house was purchased by the
assessee in his name and his wife's name was also included
additionally. Therefore, the conditions stipulated in section
54F stand fulfilled and the entire exemption claimed in
respect of the purchase price of the house property shall be
allowed to the assessee.
JAY SWAMINARYAN
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11 Can exemption under section 54F
be denied to an assessee in
respect of investment made in
construction of a residential
house, on the ground that the
construction was not completed
within three years after the date
on which transfer took place, on
account of pendency of certain
finishing work like flooring,
electrical fittings, fittings of door
shutter, etc?
Sambandam
Udaykumar
(Karnataka High
Court )
The assessee would be entitled to exemption under section
54F in respect of the amount invested in construction
within the prescribed period.
12 Can the assessee claim exemption
under section 54F, on account of
capital gain arising on transfer of
depreciable assets held for more
than 36 months i.e. a long-term
capital asset, though the same is
deemed as capital gain arising on
transfer of short-term capital asset
by virtue of section 50?
Rajiv Shukla
(Delhi High
Court)
The deeming fiction created by section 50 that the capital
gain arising on transfer of a depreciable asset shall be
treated as capital gain arising on transfer of short-term
capital asset is only for the purpose of sections 48 and 49
and not for the purpose of any other section Section 54F
being an independent section will not be bound by the
provisions of section 50. The depreciable asset if held for
more than 36 months shall be a long-term capital asset as
per the provisions of section 2(29A).Therefore, the
exemption under section 54F on transfer of depreciable
asset held for more than 36 months cannot be denied on
account of fiction created by section 50.
13 Where the stamp duty value under
section 50C has been adopted as
the full value of consideration, can
the reinvestment made in
acquiring a residential property,
which is in excess of the actual net
sale consideration, be considered
for the purpose of computation of
exemption under section 54F,
irrespective of the source of funds
for such reinvestment?
Gouli
Mahadevappa
( Karnataka High
Court )
When capital gain is assessed on notional basis as per the
provisions of section 50C, and the higher value i.e., the
stamp duty value of Rs.36 lakhs under section 50C has been
adopted as the full value of consideration, the entire
amount of Rs. 24 lakhs reinvested in the residential house
within the prescribed period should be considered for the
purpose of exemption under section 54F, irrespective of the
source of funds for such reinvestment.
14 Can exemption under section 54EC
be denied on account of the bonds
being issued after six months of
the date of transfer even though
the payment for the bonds was
made by the assessee within the
six month period?
Hindustan
Unilever Ltd
(Bombay High
Court)
The purpose of the provisions of section 54EC, the date of
investment by the assessee must be regarded as the date
on which payment is made. The High Court, therefore, held
that if such payment is within a period of six months from
the date of transfer, the assessee would be eligible to claim
exemption under section 54EC.
15 In the case of an assessee, being a
dealer in shares and securities,
whose portfolio comprises of
shares held as stock-in-trade as
well as shares held as investment,
is it permissible under law to
convert a portion of his stock-in-
trade into investment and if so,
what would be the tax treatment
on subsequent sale of such
investment?
Yatish Trading
Co. Pvt. Ltd.
(Bombay High
Court)
The gains arising on sale of those shares held as
investments by the dealer-assessee (i.e., the difference
between the sale price and the fair market value on the
date of conversion) were to be assessed under the head
"Capital gains" and not under the head "Profits and gains of
business or profession
CHAPTER 7: INCOME FROM OTHER SOURCES
JAY SWAMINARYAN
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1 What are the tests for determining
“substantial part of business” of
lending company for the purpose
of application of exclusion
provision under section 2(22)?
Parle Plastics
Ltd.
(Bombay High
Court)
Since lending of money was a substantial part of the
business of the lending company, the money given by it by
way of advance or loan to the assessee could not be
regarded as a dividend, as it had to be excluded from the
definition of "dividend" by virtue of the specific exclusion in
section 2(22).
2 Does repair and renovation
expenses incurred by a company in
respect of premises leased out by
a shareholder having substantial
interest in the company, be
treated as deemed dividend?
Vir Vikram Vaid
(2014) RT MAY-
14
The High Court, accordingly, held that the repair and
renovation expenses in respect of premises occupied by the
company cannot be treated as deemed dividend in the
hands of shareholder being the owner of the building.
3 Can the loan or advance given to a
shareholder by the company, in
return of an advantage conferred
on the company by the
shareholder, be deemed as
dividend under section 2(22)(e) in
the hands of the shareholder?
Pradip Kumar
Malhotra
(Cal. High Court)
The advance given to the assessee by the company was not
in the nature of a gratuitous advance; instead it was given
to protect the interest of the company. Therefore, the said
advance cannot be treated as deemed dividend in the
hands of the shareholder under section 2(22)(e).
4 Would the provisions of deemed
dividend under section 2(22)(e) be
attracted in respect of financial
transactions entered into in the
normal course of business?
Ambassador
Travels (P) Ltd.
(Delhi High
Court)
the assessee was involved in booking of resorts for the
customers of these companies and entered into normal
business transactions as a part of its day-to-day business
activities. The High Court, therefore, held that such financial
transactions cannot under any circumstances be treated as
loans or advances received by the assessee from these
concerns for the purpose of application of section 2(22)(e).
5 Can winnings of prize money on
unsold lottery tickets held by the
distributor of lottery tickets be
assessed as business income and
be subject to normal rates of tax
instead of the rates prescribed
under section 115BB?
Manjoo and Co
( Kerala High
Court )
The rate of 30% prescribed under section 115BB is
applicable in respect of winnings from lottery received by
the distributor.
CHAPTER 8: SET OFF AND CARRY FORWORD OF LOSSES
1 Can the loss suffered by an
erstwhile partnership firm, which
was dissolved, be carried forward
for set-off by the individual partner
who took over the business of the
firm as a sole proprietor,
considering the succession as a
succession by inheritance?
Pramod Mittal
(Delhi High
Court)
The loss suffered by the erstwhile partnership firm before
dissolution of the firm cannot be carried forward by the
successor sole-proprietor, since it is not a case of succession
by inheritance. The assessee sole-proprietor is, therefore,
not entitled to set-off the loss of the erstwhile partnership
firm against his income.
CHAPTER 9: DEDUCTIONS FROM GROSS TOTAL INCOME
1 Can unabsorbed depreciation of a
business of an industrial
undertaking eligible for deduction
under section 80-IA be set off
against income of another non-
eligible business of the assessee?
Swarnagiri Wire
Insulations Pvt.
Ltd.
( Karnataka High
Court )
It is a generally accepted principle that deeming provision of
a particular section cannot be breathed into another
section. Therefore, the deeming provision contained in
section 80-IA(5) cannot override the provisions of section
70(1). The assessee had incurred loss in eligible business
after claiming depreciation. Hence, section 80-IA becomes
insignificant, since there is no profit from which this
deduction can be claimed. It is thereafter that section 70(1)
comes into play, whereby the assessee is entitled to set off
the losses from one source against income from another
source under the same head of income. The Court,
JAY SWAMINARYAN
RAVI TANK 12
therefore, held that the assessee was entitled to the benefit
of set of 57 of loss of eligible business against the profits of
non-eligible business. However, once set-off is allowed
under section 70(1) against income from another source
under the same head, a deduction to such extent is not
possible in any subsequent assessment year i.e., the loss
(arising on account of balance depreciation of eligible
business) so set-off under section 70(1) has to be first
deducted while computing profits eligible for deduction
under section 80-IA in the subsequent year.
2 Can freight subsidy arising out of
the scheme of Central Government
be treated as a “profit derived
from the business” for the
purposes of section 80-IA?
Kiran Enterprises
(HP High Court)
On appeal, the High Court held that the transport subsidy
received by the assessee was not a profit derived from
business since it was not an operational profit. The source
was not the business of the assessee but the scheme of
Central Government. The words “derived from” are
narrower in connotation as compared to the words
“attributable to”. Therefore, the freight subsidy cannot be
treated as profits derived from the business for the
purposes of section 80-IA.
3 Can Duty Drawback be treated as
profit derived from the business of
the industrial undertaking to be
eligible for deduction under
section 80-IB?
Orchev Pharma
P. Ltd.
(SC)
Duty Drawback receipts cannot be said to be profits derived
from the business of industrial undertaking for the purpose
of computation of deduction under section 80-IB
4 Would grant of transport subsidy,
interest subsidy and refund of
excise duty qualify for deduction
under section 80-IB?
Meghalaya
Steels Ltd.
(Gauhati High
Court)
The payment of Central excise duty had a direct nexus with
the manufacturing activity and similarly, the refund of the
Central excise duty also had a direct nexus with the
manufacturing activity, being a profit-linked incentive, since
payment of the Central excise duty would not arise in the
absence of any industrial activity. Therefore, the refund of
excise duty had to be taken into account for purposes of
section 80-IB.
5 Does income derived from sale of
export incentive qualify for
deduction under section 80-IB?
Jaswand Sons
(P&H High
Court)
Income derived from sale of export incentive cannot be said
to be income “derived from” the industrial undertaking and
therefore, such income is not eligible for deduction under
section 80-IB.
6 Would the procurements of parts
and assembling them to make
windmill fall within the meaning of
“manufacture” and “production”
to be entitled to deduction under
section 80-IB?
Chiranjjeevi
Wind Energy
Ltd.
(Madras High
Court)
The different parts procured by the assessee could not be
treated as a windmill individually. Those different parts had
distinctive names and only when assembled together, they
got transformed into an ultimate product which was
commercially known as a "windmill". Thus, such an activity
carried on by the assessee would amount to "manufacture"
as well as "production" of a thing or article to qualify for
deduction under section 80-IB.
7 Can an industrial undertaking
engaged in manufacturing or
producing articles or things treat
the persons employed by it
through agency (including
contractors) as “workers” to
qualify for claim of deduction
under section 80-IB?
Jyoti Plastic
Works Private
Limited
(Bombay High
Court)
The Tribunal was justified in holding that the condition of
section 80-IB(2)(iv) had been fulfilled and therefore, the
deduction under section 80-IB is allowable.
8 Does the period of exemption
under section 80-IB commence
from the year of trial production or
Nestor
Pharmaceuticals
Ltd. / Sidwal
The manufacture for the purpose of marketing the goods
had not started which starts only with commercial
production, namely, when the final product to the
JAY SWAMINARYAN
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year of commercial production?
Would it make a difference if sale
was effected from out of the trial
production?
Refrigerations
Ind Ltd.
(Delhi High
Court)
satisfaction of the manufacturer has been brought into
existence and is fit for marketing. However, in this case,
since the assessee had effected sale in March 1998, it had
crossed the stage of trial production and the final saleable
product had been manufactured and sold. The quantum of
commercial sale and the purpose of sale (namely, to obtain
registration of excise / sales-tax) is not material. With the
sale of those articles, marketable quality was established.
Therefore, the conditions stipulated in section 80-IB were
fulfilled with the commercial sale of the two items in that
assessment year, and hence the five year period has to be
reckoned from A.Y.1998-99.
9 Can an assessee who has not
claimed deduction under section
80-IB in the initial years, start
claiming deduction thereunder for
the remaining years during the
period of eligibility, if the
conditions are satisfied?
Praveen Soni
(Delhi High
Court)
The provisions of section 80-IB nowhere stipulated a
condition that the claim for deduction under this section
had to be made from the first year of qualification of
deduction failing which the claim wil not be allowed in the
remaining years of eligibility. Therefore, the deduction
under section 80-IB should be allowed to the assessee for
the remaining years up to the period for which his
entitlement would accrue, provided the conditions
mentioned under section 80-IB are fulfilled.
CHAPTER 10: ASSESSMENT OF VARIOUS ENTITIES
1 Where land inherited by three
brothers is compulsorily acquired by
the State Govt, whether the
resultant capital gain would be
assessed in the status of
“Association of Persons” (AOP) or in
their individual status?
Govindbhai
Mamaiya
(2014)
The Apex Court, accordingly, held that the income from
asset inherited by the legal heirs is taxable in their
individual hands and not in the status of AOP.
2 Would the ancestral property
received by the assessee after the
death of his father, be considered as
HUF property or as his individual
property, where the assessee’s
father had received such property
as his share when he went out of
the joint family under a release
deed?
D. L.
Nandagopala
Reddy
(Individual)
( Karnataka
High Court )
The High Court held that that when the property came to
the hands of the assessee, it was not his self-acquired
property; it was property belonging to his HUF. The
assessee had given a portion of the property to his wife
without a registered document, which is possible only if the
property is a HUF property. If such property is treated as a
self-acquired property, then assessee would have been able
to give the portion of the property to his wife only by
registered document.
3
Under which head of income is
rental income from plinths inherited
by individual co-owners from their
ancestors taxable - “Income from
house property” or “Income from
other sources”? Further, would such
income be assessable in the hands
of the individual co-owners or in the
hands of the Association of
Persons?
Shudir Nagpal
(P & H High
Court)
That the income from letting out the plinths is assessable
under section 56 as “Income from other sources” and not
under the head “Income from house property”.
4 Would the interest earned on
surplus funds of a club deposited
with institutional members satisfy
the principle of mutuality to escape
taxability?
Madras
Gymkhana
Club
(Madras High
Court)
Interest earned from investment of surplus funds in the
form of fixed deposits with institutional members does not
satisfy the principle of mutuality and hence cannot be
claimed as exempt on this ground. The interest earned is,
therefore, taxable.
JAY SWAMINARYAN
RAVI TANK 14
5 Can transfer fees received by a co-
operative housing society from its
incoming and outgoing members be
exempt on the ground of principle
of mutuality?
Sind Co-
operative
Housing
Society
(Bombay High
Court)
Transfer fees received by a co-operative housing society,
whether from outgoing or from incoming members, is not
liable to tax on the ground of principle of mutuality since
the predominant activity of such co-operative society is
maintenance of property of the society and there is no taint
of commerciality, trade or business. Further, section 28(iii),
which provides that income derived by a trade, professional
or similar association from specific services performed for
its members shall be treated as business income, can have
no application since the co-operative housing society is not
a trade or professional association.
6 Would non-resident match referees
and umpires in the games played in
India fall within the meaning of
“sportsmen” to attract taxability
under the provisions of section
115BBA, and consequently attract
the TDS provisions under section
194E in the hands of the payer?
Indcom
(Cal High
Court)
The payments made to non-resident umpires and the match
referees are “income” which has accrued and arisen in
India, the same are not taxable under the provisions of
section 115BBA and thus, the assessee is not liable to
deduct tax under section 194E.
7 In a case where the partnership
deed does not specify the
remuneration payable to each
individual working partner but lays
down the manner of fixing the
remuneration, would the assessee-
firm be entitled to deduction in
respect of remuneration paid to
partners?
Anil Hardware
Store
(HP High court)
The manner of fixing the remuneration of the partners has
been specified in the partnership deed. In a given year, the
partners may decide to invest certain amounts of the profits
into other ventures and receive less remuneration than that
which is permissible under the partnership deed, but there
is nothing which debars them from claiming the maximum
amount of remuneration payable in terms of the
partnership deed. The method of remuneration having
been laid down, the assessee-firm is entitled to deduct the
remuneration paid to the partners under section 40(b)(v).
8 Can interest under sections 234B
and 234C be levied where a
company is assessed on the basis of
book profits under section 115JB?
Rolta India Ltd.
(SC)
Interest under sections 234B and 234C shall be payable on
failure of the company to pay advance tax in respect of tax
payable under section 115JB.
9 Can long-term capital gain
exempted by virtue of section 54EC
be included in the book profit
computed under section 115JB?
N. J. Jose and
Co. (P.) Ltd
Kerela High
Court)
Once the Assessing Officer found that total income as
computed under the provisions of the Act was less than 30
per cent of the book profit, he had to make the assessment
under section 115J which does not provide for any
deduction in terms of section 54E. As long as long-term
capital gains are part of the profits included in the profit
and loss account prepared in accordance with the
provisions of Parts II and III of Schedule VI to the Companies
Act, 1956 ( now, Statement of Profit and Loss prepared in
accordance with Part II of Schedule III to the Companies Act,
2013), capital gains cannot be excluded unless provided
under the Explanation to section 115J(1A).
CHAPTER 11: INCOME-TAX AUTHORITIES
1 Can the assessee’s application, for
adjustment of tax liability on
income surrendered during search
by sale of seized gold bars, be
entertained, where assessment
has not been completed?
Hemant Kumar
Sindhi &
Another(2014)
The High Court, accordingly, held that the Assessing Officer
was justified in his conclusion that it is only when the
liability is determined on the completion of assessment that
it would stand crystallized and in pursuance of which a
demand can be raised and recovery can be initiated.
Therefore, in the present case, the first proviso to section
132B(1)(i) would not be attracted. The High Court, thus,
dismissed the writ petition.
JAY SWAMINARYAN
RAVI TANK 15
2 Where no proceeding is pending
against a person, can the Assessing
Officer call for information under
section 133(6), which is useful or
relevant to any enquiry, with the
permission of Director or
Commissioner?
Kathiroor
Service Co-
operative Bank
Ltd
(SC)
Information of general nature could be called for from
banks. In this case, since notices have been issued after
obtaining approval of the Commissioner, the assessing
authority had not erred in issuing the notices to assessees
requiring them to furnish information regarding account
holders with cash transactions or deposits of more than Rs.
1 lakh. The Supreme Court, therefore, held that for such
enquiry under section 133(6), the notices could be validly
issued by the assessing authority.
3 Is the requirement to grant a
reasonable opportunity of being
heard, stipulated under section
127(1), mandatory in nature?
Sahara
Hospitality Ltd.
(Bombay High
Court )
The word “may” used in this section should be read as
“shall” and such income-tax authority has to mandatorily
give a reasonable opportunity of being heard to the
assessee, wherever possible to do so, and thereafter, record
the reasons for taking any action under the said section
“Reasonable opportunity” can only be dispensed with in a
case where it is not possible to provide such opportunity. In
such a case also, the authority should record its reasons for
making the transfer, even though no opportunity was given
to the assessee. The discretion of the authority is only to
consider as to what is a reasonable opportunity in a given
case and whether it is possible to give such an opportunity
to the assessee or not. The authority cannot deny a
reasonable opportunity of being heard to the assessee,
wherever it is possible to do so.
4 Does the Central Board of Direct
Taxes (CBDT) have the power
under section 119(2)(b) to
condone the delay in filing return
of income?
Lodhi Property
Company Ltd
(Delhi High
Court)
The Board has the power to condone the delay in case of a
return which was filed late and where a claim for carry
forward of losses was made. The delay was only one day
and the assessee had shown sufficient reason for the delay
of one day in filing the return of income. If the delay is not
condoned, it would cause genuine hardship to the
petitioner. Therefore, the Court held that the delay of one
day in filing of the return has to be condoned.
CHAPTER 12: ASSESSMENT PROCEDURE
1 Can unabsorbed depreciation be
allowed to be carried forward in
case the return of income is not
filed within the due date?
Govind Nagar
Sugar Ltd
(Delhi High
Court)
That the unabsorbed depreciation will be allowed to be
carried forward to subsequent year even though the return
of income of the current assessment year was not filed
within the due date.
2 Can an assessee revise the
particulars filed in the original
return of income by filing a revised
statement of income?
Orissa Rural
Housing
Development
Corpn. Ltd.
(Orissa High
Court)
The assessee can make a fresh claim before the Assessing
Officer or make a change in the originally filed return of
income only by filing revised return of income under section
139(5). There is no provision under the Income-tax Act,
1961 to enable an assessee to revise his income by filling a
revised statement of income. Therefore, filling of revised
statement of income is of no value and will not be
considered by the Assessing Officer for assessment
purposes.
3 Is a person having income below
taxable limit, required to furnish
his PAN to the deductor as per the
provisions of section 206AA, even
though he is not required to hold a
PAN as per the provisions of
section 139A?
Smt. A. Kowsalya
Bai
(Karnataka High
Court)
That it may not be necessary for such persons whose
income is below the maximum amount not chargeable to
income-tax to obtain PAN and in view of the specific
provision of section 139A, section 206AA is not applicable
to such persons. Therefore, the banking and financial
institutions shall not insist upon such persons to furnish
PAN while filing declaration under section 197A., section
206AA would continue to be applicable to persons whose
income is the maximum amount not chargeable to income-
tax.
JAY SWAMINARYAN
RAVI TANK 16
4 Can the Assessing Officer reopen
an assessment on the basis of
merely a change of opinion?
Aventis Pharma
Ltd
(Bombay High
Court)
There was no tangible material before the Assessing Officer
to hold that income had escaped assessment within the
meaning of section 147 and the reasons recorded for
reopening the assessment constituted a mere change of
opinion. Therefore, the reassessment was not valid.
5 Is it permissible under section 147
to reopen the assessment of the
assessee on the ground that
income has escaped assessment,
after a change of opinion as to a
loss being a speculative loss and
not a normal business loss,
consequent to a mere re-look of
accounts which were earlier
furnished by the assessee during
assessment under section 143(3)?
ICICI Securities
Primary
Dealership Ltd.
(SC)
The assessee had disclosed full details in the return of
income in the matter of its dealing in stocks and shares.
There was no failure on the part of assessee to disclose
material facts as mentioned in proviso to section 147.
Further, there is nothing new which has come to the notice
of the Assessing Officer. The accounts had been furnished
by the assessee when called upon. Therefore, re-opening of
the assessment by the Assessing Officer is clearly a change
of opinion and therefore, the order of re-opening the
assessment is not valid.
6 Can the Assessing Officer reassess
issues other than the issues in
respect of which proceedings
were initiated under section 147
when the original “reason to
believe” on basis of which the
notice was issued ceased to exist?
Ranbaxy
Laboratories Ltd
(Delhi High
Court)
If the income, the escapement of which was the basis of the
formation of the “reason to believe” is not assessed or
reassessed, it would not be open to the Assessing Officer to
independently assess only that income which comes to his
notice subsequently in the course of the proceedings under
the section as having escaped assessment. If he intends to
do so, a fresh notice under section 148 would be necessary.
7 Can the Assessing Officer reassess
the issues other than the issues in
respect of which proceedings were
initiated under section 147, when
the original “reasons to believe”
on the basis of which the notice
was issued ceased to exist?
Mehak Finvest P
Ltd (2014)
The High Court, accordingly, held that even though no
addition is made on the original grounds which formed the
basis of initiation of reassessment proceedings, the
Assessing Officer is empowered to make additions on
another ground for which reassessment notice might not
have been issued but which came to his notice
subsequently during the course of proceedings for
reassessment.
8 Does the finding or direction in an
appellate order that income
relates to a different assessment
year empower reopening of
assessment for that assessment
year, irrespective of the expiry of
the six year time limit?
PP Engineering
Work (2014)
The High Court observed that in view of the order of the
Tribunal that the credit entries related to the earlier
assessment year i.e., A.Y.2000-01, the Assessing Officer
initiated reassessment proceedings under section 147 by
issue of notice under section 148 for the year and passed an
order dated 29/12/2009 making an addition of Rs.32 lakhs.
The High Court held that by virtue of section 150 read with
Explanation 2 to section 153, the said order was not barred
by limitation.
9 Is initiation of reassessment
beyond a period of 4 years on the
basis of subsequent Tribunal and
High Court ruling valid, if there is
no failure on the part of the
assessee to disclose fully and truly
all materials facts?
Allanasons Ltd
(2014)
The High Court held that a subsequent decision of Tribunal
or High Court by itself is not adequate for reopening the
assessment completed earlier under section 143(3) unless
there is a failure on the part of the assessee to disclose
complete facts.
JAY SWAMINARYAN
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10 Is recording of satisfaction and
quantification of escaped income a
pre-condition for issuing notice
under section 148 after 4 years
from the end of the relevant
assessment year?
Amarnath
Agrawal (2015)
The High Court observed that the property was held for
more than 3 years and the conversion from leasehold to
freehold being an improvement of the title did not have any
effect on the taxability of profits. The reasons recorded by
the Assessing Officer did not indicate any failure on the part
of the assessee to disclose fully and truly all material facts
at the time of assessment; it also did not indicate that the
quantum of escapement of income exceeds ` 1 lakh.
Accordingly, the High Court held that, in this case, the issue
of notice under section 148 after the four year time period
was not valid.
11 In case of change of incumbent of
an office, can the successor
Assessing Officer initiate
reassessment proceedings on the
ground of change of opinion in
relation to an issue, which the
predecessor Assessing Officer who
framed the original assessment
had already applied his mind and
come to a conclusion?
H. K. Buildcon
Ltd
(Gujarat High
Court)
The Gujarat High Court, applying the rationale of the Apex
Court ruling, observed that in the entire reasons recorded in
this case, there was nothing on record to show that income
had escaped assessment in respect of which the successor
Assessing Officer received information subsequently, from
an external source. The reasons recorded themselves
indicated that the successor Assessing Officer had merely
recorded a different opinion in relation to an issue to which
the Assessing Officer, who had framed the original
assessment, had already applied his mind and come to a
conclusion. The notice of reassessment was, therefore, not
valid.
12 Can the Assessing Officer issue
notice under section 154 to rectify
a mistake apparent from record in
the intimation under section
143(1), after issue of a valid notice
under section 143(2)?
Haryana State
Handloom and
Handicrafts
Corporation Ltd.
(P&H High
Court)
The Punjab and Haryana High Court relying, inter alia, on
the said decision held that the scope of proceedings under
section 143(2) is wider than the power of rectification of
mistake apparent from record under section 154.The notice
under section 143(2) is issued to ensure that the assessee
has not understated the income or has not computed
excessive loss or underpaid the tax. It is only on
consideration of the matter and on being satisfied that it is
necessary or expedient to do so that the Assessing Officer
issues the notice under section 143(2). Therefore, the
Assessing Officer has to proceed under section 143(3) and
issue an assessment order. If issue of notice under section
154 is permitted to rectify the intimation issued under
section 143(1), then it would lead to duplication of work
and wastage of time. Therefore, it was concluded that
proceedings under section 154 for rectification of
intimation under section 143(1) cannot be initiated after
issuance of notice under section 143(2) by the Assessing
Officer to the assessee.
13 Would the doctrine of merger
apply for calculating the period of
limitation under section 154(7)?
Tony Electronics
Limited
(Delhi High
Court)
The High Court held that once an appeal against the order
passed by an authority is preferred and is decided by the
appellate authority, the order of the Assessing Officer
merges with the order of the appellate authority. After
merger, the order of the original authority ceases to exist
and the order of the appellate authority prevails. Thus, the
period of limitation of 4 years for the purpose of section
154(7) has to be counted from the date of the order of the
Appellate Authority.
CHAPTER 13: APPEALS AND REVISION
JAY SWAMINARYAN
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1 Should the four year time limit for
rectification of order by the
Tribunal under section 254(2) be
reckoned from the date of its
order or from the date of receipt
of order by the assessee?
Peterplast
Synthetics P Ltd
(2014)
Applying the rationale of the above Bombay High Court
rulingpronounced in relation to an application for revision,
to the issue on hand pertaining to the date of reckoning the
period of limitation for rectification under section 254(2),
the Gujarat High Court held that the period of limitation has
to be reckoned from the date of receipt of order by the
assessee and not from the date of order. Therefore, the
Tribunal had erred in dismissing the rectification application
on the ground that it was barred by limitation by computing
the time limit from the date of order instead of from the
date of receipt of order by the assessee.
2 Can an assessee, objecting to the
reassessment notice issued under
section 148, directly approach the
High Court in the normal course
contending that such
reassessment proceedings are
apparently unjustified and illegal?
Samsung India
Electronics P.
Ltd.
(Delhi High
Court)
The High Court, thus, held that it will not be appropriate
and proper in the facts of the present case to permit and
allow the petitioner to bypass and forgo the procedure laid
down by the Supreme Court in GKN Driveshafts (India) Ltd.
by directly approaching to the High Court, since the
procedure of assessment under section 147 has been
almost universally followed and has helped cut down
litigation and crystallise the issues thus assessee should first
respond to the Assessing Officer by filing return of income
and thereafter if the AO does not provide reason to believe
he may approach to the court.
3 Should time limit under section
263 to be reckoned with reference
to the date of assessment order or
the date of reassessment order,
where the revision is in relation to
an item which was not the subject
matter of reassessment?
Lark Chemicals
Ltd (2014)
The High Court held that the jurisdiction under section 263
could not be assumed on issues which were not the subject
matter of issues dealt with in the order of reassessment but
were part of the original assessment, for which the period
of limitation expired long ago.
4 Would the period of limitation for
an order passed under section 263
be reckoned from the original
order passed by the Assessing
Officer under section 143(3) or
from the order of reassessment
passed under section 147, where
the subject matter of revision is
different from the subject matter
of reassessment under section
147?
ICICI Bank Ltd.
(Bombay High
Court)
The order of assessment under section 143(3) allowed
deduction under section 36(1)(vii), 36(1)(viia) and in respect
of foreign exchange rate difference. The order of
reassessment, however, had not dealt with these issues.
Therefore, the doctrine of merger cannot be applied in this
case. The order under section 143(3) cannot stand merged
with the order of reassessment in respect of those issues
which did not form the subject matter of the reassessment.
Therefore, the period of limitation in respect of the order of
the Commissioner under section 263 with regard to a
matter which does not form the subject matter of
reassessment shall be reckoned from the date of the
original order under section 143(3) and not from the date of
the reassessment order under section 147.
5 Can an assessee file a revision
petition under section 264, if the
revised return to correct an
inadvertent error apparent from
record in the original return, is
filed after the time limit specified
under section 139(5) on account of
the error coming to the notice of
the assessee after the specified
time limit?
Sanchit Software
and Solutions
Pvt. Ltd
(Bombay High
Court)
The High Court, accordingly, set aside the order of
Commissioner and remanded the matter for fresh
consideration. The High Court further directed the
Assessing Officer to consider the rectification application
filed by the assessee under section 154 as a fresh
application received on the date of service of this order and
dispose of the rectification application on its own merits,
without awaiting the result of the revision proceedings
before the Commissioner of Income-tax on remand, at the
earliest
JAY SWAMINARYAN
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6 Can an assessee make an
additional/new claim before an
appellate authority, which was not
claimed by the assessee in the
return of income (though he was
legally entitled to), otherwise than
by way of filing a revised return of
income?
Pruthvi Brokers
& Shareholders
(Bombay High
Court)
The Bombay High Court, considering the above mentioned
decisions, held that additional grounds can be raised before
the Appellate Authority even otherwise than by way of filing
return of income. However, in case the claim has to be
made before the Assessing Officer, the same can only be
made by way of filing a revised return of income.
7 Does the Appellate Tribunal have
the power to review or re-
appreciate the correctness of its
earlier decision under section
254(2)?
Earnest Exports
Ltd.
(Bombay High
Court)
In this case, the Tribunal, while dealing with the application
under section 245(2), virtually reconsidered the entire
matter and came to a different conclusion. This amounted
to a re-appreciation of the correctness of the earlier
decision on merits, which is beyond the scope of the power
conferred under section 254(2).
8 Can the Tribunal exercise its power
of rectification under section
254(2) to recall its order in
entirety, where there is a mistake
apparent from record?
Lachman Dass
Bhatia Hingwala
(P) Ltd.
(Delhi High
Court)
The Delhi High Court observed that the Tribunal, while
exercising the power of rectification under section 254(2),
can recall its order in entirety if it is satisfied that prejudice
has resulted to the party which is attributable to the
Tribunal’s mistake, error or omission and the error
committed is apparent.
9 Does the High Court have an
inherent power under the Income-
tax Act, 1961 to review an earlier
order passed on merits?
Deepak Kumar
Garg
(MP High Court)
In that case it was observed that, keeping in view the
provisions of section 260A(7), the power of re-
admission/restoration of the appeal is always enjoyed by
the High Court. However, such power to restore the appeal
cannot be treated to be a power to review the earlier order
passed on merits.
RTP-
16
Does the High Court have the
inherent power under the Income-
tax Act, 1961 to review its own
order on merits?
Meghalaya
Steels Ltd.
(2015) RTP
MAY-16
The Supreme Court went ahead to further observe that it is
clear on a cursory reading of section 260A(7), that it does
not purport in any manner to curtail or restrict the
application of the provisions of the Code of Civil Procedure.
Section 260A(7) only states that all the provisions that
would apply qua appeals in the Code of Civil Procedure
would apply to appeals under section 260A. That does not
in any manner suggest either that the other provisions of
the Code of Civil Procedure are necessarily excluded or that
the High Court's inherent jurisdiction is in any manner
affected.
CHAPTER 14: PENALTIES
1 Can an assessee who has
surrendered his income in
response to the specific
information sought by the
Assessing Officer in the course of
survey, be absolved from the penal
provisions under section 271(1)(c)
for concealment of income?
MAK Data P. Ltd
(SC) (2013)
The Apex Court was, therefore, of the view that surrender
of income in this case is not voluntary, in the sense, that the
offer of surrender was made in view of detection made by
the Assessing Officer in the survey conducted in the sister
concern of the assessee. The Apex Court, therefore,
concurred/agreed with the view of the High Court that levy
of penalty is correct in law.
2 Would making an incorrect claim
in the return of income per se
amount to concealment of
particulars or furnishing inaccurate
particulars for attracting the penal
provisions under section 271(1)(c),
when no information given in the
return is found to be incorrect?
Reliance Petro
Products Pvt. Ltd
(SC)
The Apex Court, therefore, held that where there is no
finding that any details supplied by the assessee in its
return are incorrect or erroneous or false, there is no
question of imposing penalty under section 271(1)(c). A
mere making of a claim, which is not sustainable in law, by
itself, will not amount to furnishing inaccurate particulars
regarding the income of the assessee.
JAY SWAMINARYAN
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3 Can reporting of income under a
different head tantamount to
furnishing of inaccurate particulars
or suppression of facts to attract
penalty under section 271(1)(c)?
Amit Jain
(Delhi High
Court)
The High Court, after considering the above observations of
the Tribunal and the decision of the Supreme Court in CIT v.
Reliance Petro Products Pvt.Ltd. (2010) 322 ITR 158, held
that mere reporting of income under a different head
would not characterize the particulars reported as
“inaccurate” to attract levy of penalty under section
271(1)(c).
4 Can penalty under section
271(1)(c) be imposed on the
ground of disallowance of a certain
deduction under Chapter VI-A
owing to the subsequent decision
of the Supreme Court?
Celetronix
Power India P.
Ltd.
(Bombay High
Court)
The Bombay High Court affirmed the decision of Appellate
Tribunal deleting the penalty under section 271(1)(c) on the
ground that the additions made on account of disallowance
were neither due to the failure on the part of the assessee
to furnish accurate particulars nor on account of furnishing
inaccurate particulars.
5 Can penalty under section
271(1)(c) for concealment of
income be imposed in a case
where the assessee has raised a
debatable issue?
Indersons
Leather P. Ltd.
(P&H High
Court)
The High Court observed that, mere raising of a debatable
issue would not amount to concealment of income or
furnishing inaccurate particulars and therefore, penalty
under section 271(1)(c) cannot be imposed.
6 Is concealment penalty leviable
when the High Court admits the
quantum appeal as involving
substantial question of law?
Nayan Builders
& Developers
(2014)
The High Court observed that the issue of quantum addition
was admitted by the High Court since it involved substantial
question of law. When the High Court admits substantial
question of law on an addition, it becomes apparent that
the addition is certainly debatable. In such circumstances,
penalty cannot be levied under section 271(1)(c). Thus, the
High Court held that when the quantum proceeding is
admitted by the High Court, it amounts to a debatable issue
and hence, concealment penalty is not leviable.
7 Is penalty under section 271D
imposable for cash loans/deposits
received from partners?
Muthoot
Financiers
(2015)
The High Court observed that, there was no dispute as
regards the money brought in by the partners of the
assessee-firm. The source of money was also not doubted.
The transaction was bona fide and not aimed to avoid any
tax liability. The credit worthiness of the partners and
genuineness of the transactions coupled with relationship
between the „two persons‟ and two different legal
interpretations put forward, could constitute a reasonable
cause in a given case for not invoking sections 271D /271E
read with section 273B.
8 Where an assessee repays a loan
merely by passing adjustment
entries in its books of account, can
such repayment of loan by the
assessee be taken as a
contravention of the provisions of
section 269T to attract penalty
under section 271E?
Triumph
International
Finance (I.) Ltd.
(2012)
the assessee has violated the provisions of section 269T by
repaying the loan amount by way of passing book entries
and therefore, penalty under section 271E is applicable.
However, since the transaction is bona fide in nature being
a normal business transaction and has not been made with
a view to avoid tax, it was held that the assessee has shown
reasonable cause for the failure under section 269T, and
therefore, as per the provisions of section 273B, no penalty
under section 271E could be imposed on the assessee for
contravening the provisions of section 269T.
CHAPTER 15: OFFENCES AND PROSECUTION
JAY SWAMINARYAN
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1 Would prosecution proceedings
under section 276CC be attracted
where the failure to furnish return
in time was not willful?
Union of India v.
Bhavecha
Machinery and
Others
(MP High Court)
The High Court observed that for the provisions of section
276CC to get attracted, there should be a willful delay in
filing return and not merely a failure to file return in time.
There should be clear, cogent and reliable evidence that the
failure to file return in time was ‘willful’ and there should be
no possible doubt of its being ‘wilful’. The failure must be
intentional, deliberate, calculated and conscious with
complete knowledge of legal consequences flowing from
them. In this case, it was observed that there were
sufficient grounds for delay in filing the return of income
and such delay was not willful. Therefore, prosecution
proceedings under section 276CC are not attracted in such
a case.
CHAPTER 16: MISCELLANEOUS PROVISIONS
1 Can the Assessing Officer suo moto
assume jurisdiction to declare sale
of property as void under section
281?
Dr. Manoj Kabra
(2014),
Applying the rationale of the Apex Court ruling, the High
Court held that the Assessing Officer has no jurisdiction
under section 281 to suo moto declare the sale as void.
2 Can loan, exceeding the specified
limit, advanced by a partnership
firm to the sole-proprietorship
concern of its partner be viewed as
a violation of section 269SS to
attract levy of penalty?
Sivakumar
(Mad High
Court)
The High Court, relying upon the various court decisions,
upheld the decision of the Tribunal holding that there is no
separate identity for the partnership firm and that the
partner is entitled to use the funds of the firm. In the
present case, the assessee has acted bona fide and that
there was a reasonable cause within the meaning of section
273B. Therefore, the transaction cannot be said to be in
violation of section 269SS and no penalty is attracted in this
case.
CHAPTER 17: DEDUCTION, COLLECTION AND RECOVERY OF TAX
1 Do the tips collected by hotel and
disbursed to employees constitute
salary to attract the provisions for
tax deduction at source under
section 192?
ITC Ltd.
(Delhi High
Court)
The High Court, therefore, held that the tips would
constitute income within the meaning of section 2(24) and
thus, taxable under section 15. It was obligatory upon the
company to deduct tax at source from such payments
under section 192. In this case, the assessee-company had
not deducted tax at source on tips under a bona fide belief
that tax was not deductible. This practice had been
accepted by the Revenue by accepting the assessments in
the form of annual returns of the assessees in the past. The
High Court held that since no dishonest intention could be
attributed to the assessees, they could not be made liable
for levy of penalty as envisaged under section 201.
2 Is section 194A applicable in
respect of interest on fixed
deposits in the name of Registrar
General of High Court?
UCO Bank (2014) The High Court observed that in the absence of a payee, the
machinery provisions for deduction of tax to his credit are
ineffective. The expression “payee” under section 194A
would mean the recipient of income whose account is
maintained by the person paying interest. The Registrar
General is neither recipient of the amount credited to his
account nor to interest accruing thereon. Therefore, he
cannot be considered as a „payee‟ for the purposes of
section 194A. The credit by the bank in the name of the
Registrar General would, thus, not attract the provisions of
section 194A.
JAY SWAMINARYAN
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3 Where the assessee fails to deduct
tax at source under section 194B in
respect of the winnings, which are
wholly in kind, can he be deemed
as an assessee-in-default under
section 201?
Hindustan Lever
Ltd.
(Karnataka High
Court)
The High Court observed that if the assessee fails to ensure
that tax is paid before the winnings are released in favour of
the winner, then, section 271C empowers the Joint
Commissioner to levy penalty equivalent to the amount of
tax not paid, and under section 276B, such non-payment of
tax is an offence attracting rigorous imprisonment for a
term which shall not be less than three months but which
may extend to seven years and with fine. However, the High
Court held that proceedings under section 201 cannot be
initiated against the assessee.
4 Can the transmission, wheeling
and State Load Despatch Centre
(SLDC) charges paid by a company
engaged in distribution and supply
of electricity, under a service
contract, to the transmission
company be treated as fees for
technical services so as to attract
TDS provisions under section 194J
or in the alternative, under 194C?
Ajmer Vidyut
Vitran Nigam Ltd
(AAR)
The AAR, considering the definition of fees for technical
services under section 9(1)(vii) and the process involved in
proper transmission of electrical energy, held that
transmission and wheeling charges paid by the applicant to
the transmission company are in the nature of fees for
technical services, in respect of which the applicant has to
withhold tax thereon under section 194J. As regards SLDC
charges, the AAR opined that the main duty of the SLDC is
to ensure integrated operation of the power system in the
State for optimum scheduling and dispatch of electricity
within the State. The SLDC charges paid appeared to be
more of a supervisory charge with a duty to ensure just and
proper generation and distribution in the State as a whole.
Therefore, such services were not in the nature of technical
service to the applicant; Resultantly, it does not attract TDS
provisions under section 194J or under section 194C.
5 Can discount given to stamp
vendors on purchase of stamp
papers be treated as ‘commission
or brokerage’ to attract the
provisions for tax deduction under
section 194H?
Ahmedabad
Stamp Vendors
Association
(SC)
The Supreme Court affirmed the above decision of the High
Court holding that the given transaction is a sale and the
discount given to stamp vendors for purchasing stamps in
bulk quantity is in the nature of cash discount and
consequently, section 194H has no application in this case
6 Can incentives given to stockists
and distributors by a
manufacturing company be
treated as “commission” to attract
(i) the provisions for tax deduction
at source under section 194H; and
(ii) consequent disallowance under
section 40(a)(ia) for failure to
deduct tax at source?
Intervet India P
Ltd (2014)
The High Court, accordingly, held that the stockists and
distributors were not acting on behalf of the assessee and
most of the credit was by way of goods on meeting the
sales target which could not be said to be a commission
within the meaning of the Explanation (i) to section 194H.
Accordingly, the High Court affirmed the order of the
Tribunal which held that such payment does not attract
deduction of tax at source. Consequently, disallowance
under section 40(a)(ia) would not be attracted.
7 Can discount given on supply of
SIM cards and pre-paid cards by a
telecom company to its franchisee
be treated as commission to
attract the TDS provisions under
section 194H?
Bharti Cellular
Ltd
(Cal. High Court)
The High Court held that there is an indirect payment of
commission, in the form of discount, by the assessee-
telecom company to the franchisee. Therefore, the assessee
is liable to deduct tax at source on such commission as per
the provisions of section 194H
JAY SWAMINARYAN
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8 Are TDS provisions under section
194H attracted in a case where an
assessee, a dairy, makes an
outright sale of milk to its
concessionaires at a certain price
(which is lower than the MRP fixed
by the assessee-dairy) and the
concessionaires make full payment
for the purchases on delivery and
bear all the risks of loss, damage,
pilferage and wastage?
Mother Dairy
India Ltd.
(Delhi High
Court)
The High Court opined that the issue had to be decided on
the basis of the fact as to when and what point of time the
property in the goods passed to the concessionaire. In this
case, the concessionaire became the owner of the milk and
products on taking delivery of the same from the assessee-
dairy. Therefore the relationship between the assessee and
the concessionaire is a Principal to Principal relationship.
The High Court, therefore, held that the difference between
the purchase price (price paid to the Dairy) and the MRP is
the concessionaire’s income from business and cannot be
categorized as commission to attract the provisions of
section 194H.
9 Can the difference between the
published price and the minimum
fixed commercial price be treated
as additional special commission in
the hands of the agents of an
airline company to attract TDS
provisions under section 194H,
where the airline company has no
information about the exact rate
at which tickets are ultimately sold
by the agents?
Qatar Airways
(Bombay High
Court)
Tax at source was not deductible on the difference between
the actual sale price and the minimum fixed commercial
price, even though the amount earned by the agent over
and above minimum fixed commercial price would be
taxable as income in his hands
10 Is payment made for use of passive
infrastructure facility such as
mobile towers subject to tax
deduction under section 194C or
section 194-I?
Indus Towers Ltd
(2014)
The High Court held that the submission of the assessee
that the transaction is not “renting” is incorrect. Also, the
Revenue’s contention that the transaction is primarily
“renting of land” is also incorrect. The underlying object of
the arrangement was the use of machinery, plant or
equipment i.e., the passive infrastructure and it is incidental
that it was necessary to house the equipment in some
premises. It directed that tax deduction be made at 2% as
per section 194-I(a), the rate applicable for payment made
for use of plant and machinery.
11 In respect of a co-owned property,
would the threshold limit
mentioned in section 194-I for
non-deduction of tax at source
apply for each co-owner
separately or is it to be considered
for the complete amount of rent
paid to attract liability to deduct
tax at source?
Senior Manager,
SBI
(All. High Court)
The Allahabad High Court held that, since the share of each
co-owner is definite and ascertainable, they cannot be
assessed as an association of persons as per section 26. The
income from such property is to be assessed in the
individual hands of the co-owners. Therefore, it is not
necessary that there should be a physical division of the
property by metes and bounds to attract the provisions of
section 26. Therefore, in the present case, since the
payment of rent is made to each co-owner by way of
separate cheque and their share is definite, the threshold
limit mentioned in section 194-I has to be seen separately
for each co-owner. Hence, the assessee would not be liable
to deduct tax on the same and no interest under section
201 is leviable.
12 What is the nature of landing and
parking charges paid by an airline
company to the Airports Authority
of India and is tax required to be
deducted at source in respect
thereof?
Japan Airlines
Co. Ltd.
Delhi High
Court)
The landing and parking fee were definitely “rent” within
the meaning of the provisions of section 194-I as they were
payments for the use of the land of the airport.
JAY SWAMINARYAN
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13 Can the payment made by an
assessee engaged in
transportation of building material
and transportation of goods to
contractors for hiring dumpers, be
treated as rent for machinery or
equipment to attract provisions of
tax deduction at source under
section 194-I?
Shree
Mahalaxmi
Transport Co.
(Gujrat High
Court)
Since the assessee had given sub-contracts for
transportation of goods and not for the renting out of
machinery or equipment, such payments could not be
termed as rent paid for the use of machinery and the
provisions of section 194-I would, therefore, not be
applicable.
14 Is payment made to an overseas
agent, who did not perform any
service in India, liable for tax
deduction at source?
Wizcraft
International
Entertainment
(P) Ltd (2014)
The High Court, therefore, affirmed the decision of the
Tribunal and Commissioner (Appeals) holding that the
service rendered by the agent was outside India and hence,
was not chargeable to tax in India. Thus, the requirement
for deducting tax at source under section 195 on such
payment does not arise.
15
Can the Tax Recovery Officer (TRO)
adjudicate disputes regarding
quantum of liability between the
garnishee (petitioner company, in
this case) and the defaulting
company, by exercising his powers
under section 226(3)?
Uttar Pradesh
Carbon &
Chemicals Ltd
(2014)
The High Court referred to Apex Court decision in Beharilal
Ramcharan v. ITO (1981) 131 ITR 129 to hold that under
section 226(3)(vi), a limited enquiry could only be
conducted by the TRO and that too, by following the
principles of natural justice. When the claim of amount is
disputed by the debtor, the TRO cannot proceed to
adjudicate the dispute between the parties i.e., the
defaulting company and its debtor, for recovery of tax.
Thus, the High Court directed that the order of the TRO
treating the petitioner as an assessee in default for the
amount alleged to be owed by it to the defaulting company,
cannot be sustained.
RTP-
16
Are landing and parking charges
paid by an airline company to
Airports Authority of India in the
nature of rent to attract tax
deduction at source under section
194-I?
Japan Airlines
Co. Ltd. (2015)
RTP-MAY - 2016
The Supreme Court observed that the charges levied on air-
traffic includes landing charges, lighting charges, approach
and aerodrome control charges, aircraft parking charges,
aerobridge charges, hangar charges, passenger service
charges, cargo charges, etc. Thus, when the airlines pay for
these charges, treating such charges as charges for "use of
the land" would tantamount to adopting a totally simplistic
approach which is far away from the reality. The Supreme
Court opined that the substance behind such charges has to
be considered and when the issue is viewed from this angle,
keeping the full and larger picture in mind, it becomes very
clear that the charges are not for use of the land per se and,
therefore, it cannot be treated as "rent" within the meaning
of section 194-I. The Supreme Court, thus, concurred with
the view taken by the Madras High Court in Singapore
Airlines case and overruled the view taken by the Delhi High
Court in United Airlines/Japan Airlines case.
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answer of all case law question in exam.
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