Section 56 Share issue deemed income
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'C', BANGALORE
I.T.A No.1290/Bang/2015
(Assessment Year : 2012-13)
Dr. Rajan Pai,
Pronounced on : 29.04.2016
06. We have perused the orders and heard the rival contentions. Section
56(1) and (2), in so far as it is relevant on the issue on hand, is reproduced
below :
07. To answer the question raised before us, it is necessary to have a
walk through the legislative history behind clause (v) to (vii) of section
56(2) reproduced above. The genesis for the introduction of the above
clauses was apparently the abuse arising out of abolishment of tax on gift.
By virtue of clause (3) to Section 3 of Gift-tax Act, 1958 inserted through
Finance (No.2) Act, 1998, provisions of the Gift-tax Act ceased to apply on
any gifts made after first October, 1998. Before this, taxable gifts made by
a person was charged at the rate of 30% in the hands of the donor. Then,
there was a period of free for all, when neither the donor nor the donee had
to pay tax on the gifts and the said period ran from October 1998 to
August, 2004. To redress the situation, Finance Act (No.2), 2004, inserted
clause (v) to Section 56(2) with effect from 01.04.2005, and clause (xiii) to
Section 2(24) of the Act, by virtue of which receipts without consideration or
inadequate consideration were made taxable in the hands of the recipient
assessee Subsequent clause (vi) introduced by Taxation Laws
(Amendment) Act, 2006 w.e.f. 01.04.2007 and clause (vii) by Finance
(No.2) Act, 2009 w.e.f.01.10.2009 were only extrapolation of the above
intention, while widening its scope to ensure that where a person received a
property without consideration, or for a consideration less than its fair
market value, was levied tax on the value thereof, as a part of his ‘income
from other sources’.
08. Keeping in mind the above legislative history, we need to have a
close look to clause (vii) to Section 56(2), for ascertaining whether it could
be applied to bonus shares. Prior to the introduction of clauses (v), (vi) and
(vii), and during the period Gift-tax Act was applicable, issue of bonus
shares was never considered as gift by a company to its share holder and
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never subjected to gift-tax in the hands of the company considering it to be
a donor. When clauses (v), (vi) and (vii), were introduced in Section 56(2),
subsequent to the repeal of the Gift-tax Act, for redressing the vacuum
created on account of such repeal, can we say that legislative intention was
to include therein items which were not within the ambit of Gift-tax Act
also ? The answer obviously is no.
09. A careful study of clause (c) of Section 56(2)(vii) of the Act, would
show that two situations are considered therein. First is where a property is
received without consideration and second where it is received for a
consideration less than the fair market value. Situation can be better
illustrated through an example. Let us consider the case of a company
having 100 equity shares of Rs.10/- each, with a reserve and surplus of
Rs.10,000/-. If the company considering its immense reserves and surplus,
decides to issue bonus shares in the ratio of 1 : 1, how would its balance
sheet look before and after such issue ? Hypothetically it should be as
under :…
Value of one equity share before the issue of bonus shares will be
Rs.11,000 ÷ 100 = __. 110. Value of the equity share after the issue of
bonus share will be equal to Rs.11,000 ÷ 200 = __. 55. If a person was
having 10 equity shares of the above company with him, after the bonus
shares issue, it would become 20. However value of the ten equity shares
(10 x Rs.110) is the same as value of 20 shares (20 x Rs.55) after the bonus
shares issue. This in other words would mean that there is a prorata
decrease in the value of equity shares when there is an issue of bonus
shares. Thus when there is an issue of bonus shares there is a detriment
suffered by the recipient share holder, through the depression in the value
of the shares held by him. There is indeed a consideration flowing out
which is exactly counter balanced by the value of the bonus shares
received. The simple reason is that when bonus shares are issued by
capitalising a portion of reserves and surplus, there is no increase in the
asset value of a company, in any manner. What really happens is that the
value of equity shares goes down prorata. Total value of equity shares held
along with bonus shares remains the very same. Thus any profit derived by
the assessee on account of receipt of bonus shares is theoretically offset by
the depression in the value of the equity shares already held by him. Bonus
shares does not result in recipient getting a property without consideration or for
inadequate consideration.
10. Hon’ble Apex Court in the case of CIT v. Dalmia Investment Co.
Ltd [(1964) 252 ITR 567] had as early as 1964 held that bonus shares if
they ranked pari passu with the original shares, had to be valued at average
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Kapil Goel Advocate (9910272806) [email protected]
of both bonus and the original shares.
Hon’ble Apex Court not only held that bonus shares can never be given nil
value but also held that its value has to be worked out by the principle of
averaging. In any case, the principle enunciated is simple. It is that for
every bonus share issued, there is a corresponding reduction in the actual
fair market value of the equity share originally held. This being the
situation we are of the opinion that an assessee who received bonus shares
could never be considered as receiving something without consideration or
for a consideration less than the fair market value of the property. When
bonus shares are received, it is not something which has been received free
or for a lesser fair market value. A consideration has flown out from the
holder of the shares, may be unknown to him, which is reflected in the depression
in the intrinsic value of the original shares held by him. Thus in
our view, Section 56(2)(v), (vi) and (vii) brought in to the Act for
addressing the vacuum caused due to withdrawal of the Gift-tax Act cannot
be used for the purpose of taxing the value of bonus shares received by an
assessee. Valuation of unquoted shares set out in Rule 11 UA(B) will have
applicability only on receipt of shares as gift or for inadequate
consideration. Bonus shares can never be considered as received without
consideration or for inadequate consideration calling for application of subclause
(c) of clause (vii) of Section 56(2) of the Act. We have no hesitation
to uphold the order of CIT (A) deleting the addition made by the AO.
Section 68 Alleged bogus long term capital gains
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
ITA No. 3801/Mum/2011
(Assessment Year: 2005-06)
Ms. Farrah Marker
Vs.
Income Tax Officer 19(3)(1)
C/o. D.C. Bothra & Co
Date of Pronouncement: 27.04.2016
3.4.1 We have heard the rival contentions of both the parties and perused
and carefully considered the material on record, including the judicial
pronouncements cited. From a perusal of the Paper Book (pages i to viii
and pages 1 to 72) containing copies of written submissions, copies of
documents placed before the authorities below, we find that documents
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pertaining to the purchase and sale of shares of M/s Shukun
Constructions Ltd. such as contract notes of brokers, copies of physical
share certificates, transfer of physical shares to the name of the assessee
and consolidation by the company, the D-MAT account statement of the
assessee with SHCIL confirming the said shares in the assessee’s name,
bank statements and summary thereof and financial statements of the
assessee, viz., Balance Sheet of earlier years showing that the fact of
holding these shares were furnished before the AO from 16.07.2007
onwards, i.e. well before the assessment was concluded on 31.12.2007. It
is also seen that the show cause notice issued by the AO to the assessee on
13.11.2007 as to why the transaction in the said shares be not treated
as a bogus/arranged one was replied to by the assessee vide letter dated
21.11.2007 addressed to the AO. In our considered view, after an
appreciation of the material on record, we find that no proper investigation
has been carried out by the AO to controvert the material evidence brought
on record by the assessee. Even the statement recorded on 31.12.2007 by
the AO from one Sir Niraj Sanghvi, which was strongly relied upon by the
AO, we find has no evidentiary or corroborative value as it is of a person
who has no role in the said share purchase transactions. Further, the said
statement, recorded on the day the order of assessment was concluded, i.e.
31.12.2007, was recorded behind the back of the assessee and neither
copy of the same was given to the assessee for rebuttal, nor was the
assessee allowed due opportunity to cross-examine Shri Niraj Sanghvi. It is
seen from the record that no statement was recorded from Smt. Charu
Sanghvi, Proprietor, Falgun Invest from whom the assessee purchased the
said shares of M/s. Shukun Constructions Ltd. In this factual and legal
matrix as discussed above, we find that the statement of Shri Niraj
Sanghvi, which was so strongly relied upon to form the basis of the AO’s
conclusion, is fatally flawed and has no corroboratory or evidentiary value
since it was recorded behind the back of the assessee and was used to
arrive at an adverse finding in respect of the assessee’s purchase of the
‘said shares’ without putting the assessee on notice by affording her
opportunity of rebuttal of the statement and/or cross-examination of Shri
Niraj Sanghvi.
3.4.2 It is also seen that, as contended by the assessee, there is no
evidence on record to show that any action or enquiry was carried out
either by the SEBI or BSE in respect of the alleged manipulation or
propping up of the price rate movement of the ‘said shares’ of Shukun
Constructions Ltd., as has been assessed by the AO. We find from the
details filed by the assessee on record in pursuance of the query by the AO
in the course of assessment proceedings, that the shares of Shukun
Constructions Ltd. is listed on BSE and that the sale transaction of the
‘said shares’ by the assessee is at the rate quoted on the date of sale has been
confirmed both by BSE and the concerned stock broker M/s.
Khambatta Securities Ltd. It is strange that the AO has made the addition
under section 68 of the Act treating the entire sale proceeds of the ‘said
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Kapil Goel Advocate (9910272806) [email protected]
shares’ received by the assessee through regular banking channels from
stock broker registered with SEBI, M/s. Khambatta Securities Ltd., which
facts have been confirmed by the said stock broker. In our considered
view, in these factual circumstances, the assessee has discharged the onus
required under section 68 of the Act as she has established the identity of
the payer, source of funds received on sale of the same shares and the
genuineness of the transaction.
3.4.3 The addition under section 68 of the Act in the case on hand, it
appears, has been made only because the AO presumed that the purchases
of the ‘said shares’ of M/s. Shukun Constructions Ltd. were not made on
the date as disclosed by the assessee, but was backdated and an arranged
transaction, and not because there was any irregularity in the sale of the
said shares. We find from the material on record that the purchases of the
said shares were duly disclosed under the head investment in the audited
Balance Sheet as on 31.03.2004 relevant to A.Y. 2004-05. In this context we
concur with the averments of the learned A.R. for the assessee that if there
was any adverse material in respect of the purchases of the ‘said shares’,
the AO ought to have or would have proceeded to initiate proceedings for
reopening
the assessment for A.Y. 2004-05 while concluding the assessment
for A.Y. 2005-06, the year under consideration, on 31.12.2007 or thereafter
till 31.03.2011, which he has not done.
3.4.4 We also find that the decision of the ITAT, Chandigarh Bench, in the
case of Somnath Mani (100 TTJ 917) relied on by the AO is factually
different and not applicable to the facts of the assessee’s case. In that case,
the facts were that the sale proceeds of the shares sold were not reported
on the transaction date at the concerned Stock Exchange. Further, the
said shares continued to appear in the name of that assessee for quite a
long period after the sale and also the sale proceeds were received by that
assessee only in instalments over a period of six to seven months after the date
of sale of shares. In the case on hand, however, we find that the
factual matrix is quite different. In the case on hand the assessee received
the full sale proceeds of the sales of the ‘said shares’ from the stock broker
as and when they were sold; BSE has confirmed her sale transaction on
the date shown and also the fact that the said shares on sale have been
transferred to the buyer immediately is evident from her D-MAT account.
In this factual matrix, we find that the decision in the case of Somnath
Mani (supra) is factually different and distinguishable from the case on
hand; is not applicable to reach an adverse finding in the case on hand
and has been erroneously applied and relied on by the AO.
3.4.5 The assessee has placed before us a compilation of judicial
pronouncements, the ratio of which has been placed reliance upon in
furtherance of her case. In the case of Andaman Timber Industries (2015) 281
CTR 214 (SC) the Hon'ble Apex Court has held that denial to the assessee of
the right to cross-examine the witness whose statement was made the basis of
the impugned order is a serious flaw which renders the order a nullity in as
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Kapil Goel Advocate (9910272806) [email protected]
much as it amounted to violation of the principles of natural justice because of
which the assessee was adversely affected. In our considered view, this
judgement of the Hon'ble Apex Court supports the case of the assessee in the
case on hand as she was not afforded any opportunity of cross-examination of
Shri Niraj Sanghvi whose statement was a basis for the AO making the
addition under section 68 of the Act. This finding of ours is in addition to our
earlier finding (supra), that the statement of Shri Niraj Sanghvi has no legal
sanctity or evidentiary value as he was not the person through whom the ‘said
shares’ of M/s. Shukun Constructions Ltd. were purchased.
3.4.6 Another case relied upon by the assessee is of the Coordinate Bench
of this Tribunal in the case of Jatin Chhadwa in ITA No. 8573/Mum/2010
dated 24.08.2012 for A.Y. 2005-06. In this case, on similar facts, we find
that the Coordinate Bench has held that the claim of the assessee cannot
be denied on the basis of presumptions and surmises in respect of penny
stock without conducting any inquiry and by disregarding the direct
evidences on record by the assessee. 3.4.7 In the decision of the Coordinate
Bench of this Tribunal in the case
of Harkhchand K. Gada (HUF) & Others in ITA Nos. 1772 to 1775, 1788 &
1789/Mum/2010 dated 08.08.2012 relied on by the assessee, on similar
facts, the Coordinate Bench, following the judgements of the Hon'ble
Bombay High Court in the case of Mukesh R. Manolia in ITA No. 456 of
2007 dated 07.07.2011 and of the Coordinate Bench in the case of Sharda
Credit Pvt. Ltd. (ITA No. 3415/Mum/2007 dated 09.02.2009) held that
shares purchased/sold off market cannot be considered illegal
transactions. It was also found that the assessee was not provided the
opportunity to cross-examine a witness whose statement was relied upon
to form the basis for taking an adverse view in that case, overlooking the
direct documentary evidence placed on record of the sale/purchase
transaction in shares such as brokers contract notes, confirmation of
receipt of sale proceeds through regular banking channels, reflection of
these transactions in the assessee’s audited financial statements and
relevant returns of income and it was held by the Bench that in these
circumstances, the sale of shares could not be held to be non-genuine.
3.4.8 From the appreciation of the facts of the case, the material evidence
placed on record by the assessee and in the light of the discussion of the
factual and legal matrix of the case as discussed from para 3.1 to 3.4.7 of this
order (supra), we are of the considered opinion that the authorities below, i.e.
AO/CIT(A) have made the addition under section 68 of the Act merely on
presumptions, suspicions and surmises in respect of penny stocks;
disregarding the direct evidences placed on record and furnished by the
assessee in the form of brokers contract notes for purchases and sales of the
‘said shares’ of M/s. Shukun Constructions Ltd., copies of the physical share
certificates and her D-MAT account statement establishing the holding of the
shares in her name prior to the sale thereof; confirmation of the transactions
of buying and selling of the ‘said shares’ by the respective stock brokers,
receipt of sale proceeds through banking channels, etc. As observed earlier in
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Kapil Goel Advocate (9910272806) [email protected]
this order, we are of the view that the statement recorded from Shri Niraj
Sanghvi on 31.12.2007, the day the order of assessment was passed, would
have no evidentiary or corroborative value to be the basis for coming to an
adverse view in the case on hand, since it was recorded behind the assessee’s
back, from a person who was not involved in the purchase of the said shares
and also since the assessee was not afforded opportunity for rebuttal of the
same and to cross-examine the said person. We are also of the view that the
ratio and the factual matrix of the decisions in the cited case, i.e. Jatin
Chhadwa (supra), Harkhchand K. Gada (HUF) & others (supra) and
Andaman Timber Industries (supra) would be applicable and support the
case of the assessee since no adverse finding has been rendered in respect of
the direct material evidence placed on record in respect of her transactions of
purchase and sale of the ‘said shares’ of M/s. Shukun Constructions Ltd.
which stand duly disclosed in her audited Balance Sheets filed with the
return of income of assessment years 2004-05 and the current year under
consideration. In this factual and legal matrix of the case, as discussed
above, we find that the addition of `95,12,812/- under section 68 of the Act
made and confirmed by the authorities below to be unsustainable and
therefore direct the AO to delete the said addition and accept the LTCG
income of `93,00,012/- shown as exempt under section 10(38) of the Act.
Consequently, ground No. 1 of the assessee’s appeal is allowed.
Section 50C held donot apply to proceeds from surrender of disputed rights
(right of ownership/limited rights)
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “B”, HYDERABAD
I.T.A. No. 48/HYD/2015
Assessment Year:
2009-10 Sri Tummala
Vidyapal Reddy,
:
Date of
Pronouncement
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29-04-2016
Kapil Goel Advocate (9910272806) [email protected]
This is an appeal by assessee against the order of the Commissioner of Income
Tax (Appeals)-VI, Hyderabad dated 17-10-2014. The issue in this appeal is with
reference to the application of provisions of Section 50C of the Income Tax Act
[Act] on the transaction entered by assessee by way of sale of agricultural land
on 26-07-2008.
Additional Ground:
“2. The learned First Appellate Authority failed to appreciate the fact that the vide doc No.
8799/08 dt. 26-07-2008 the appellant had only surrendered his disputed rights and hence
the provisions of sec 50C are not applicable to the facts of the case”.
We have considered the rival contentions and perused the documents placed on
record. As far as the facts are concerned, there is no dispute that assessee had
purchased the property way back in 1984 but failed to mutate the property in his
favour in the Revenue records. Assessee purchased only Acr1.20 cents of land
from Shri K. Joseph Reddy, however, Shri Mundla Narayana Reddy, Proprietor,
Sudha Enterprises has purchased more land, about four acres, vide the
registered deed dt. 26-08-1996, got his name entered in the Pahanis in 1999
itself and is in continuous possession of the land. Assessee filed a petition before
Special Grade Dy. Collector for mutating the land in his favour. The Ld. Dy.
Collector while recording that assessee has prior claim over the land having been
registered in 1984, however, stated that there is a title dispute between two
parties and therefore, the entries made in the register were set aside and
aggrieved parties were directed to seek remedy before the Civil Court. This order
was issued in 15th March 2008. Subsequently, an appeal was filed before the
Joint Collector by Mr. Mundla Narayana Reddy. In those proceedings, a
compromising memo was undertaken wherein it is clearly stated that the
respondent (assessee) has received an amount of Rs. 5 Lakhs and executed a
registered sale deed bearing Document No. 8799/2008 dt. 26-07-2008 in favour
of the Managing Partner of Sudha Enterprises, transferring his right of ownership.
10.1. Thus, it is clear that even though the sale deed is stating that assessee had
full ownership and transferred in favour of Shri Mundla Narayana Reddy, what
actually transpired between the parties and the claims made before the
authorities is that assessee has a title over the property but not complete
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Kapil Goel Advocate (9910272806) [email protected]
ownership and possession of the property. It is alleged by the other party i.e.,
Mundla Narayana Reddy that the documents are fabricated. Whatever may be
the contentions before the authorities, the fact is that assessee had indeed
settled the issue by accepting the consideration of Rs. 5 Lakhs and parted with
the claim of ownership on the said property. The record indicates that assessee
is not complete owner of the property as in the Govt. records Shri Mundla
Narayana Reddy was already shown as owner of the property and continues to
be in possession of the property by virtue of registered sale deed in his favour dt.
26-08-1996. In view of this, we agree with the contentions that assessee has
transferred only a right of ownership but not the land and building. 11. Similar
facts were considered in the decision of the Co-ordinate Bench decision in the
case of D. Anitha in ITA No. 394/Hyd/2014 / 373/Hyd/2014 dt. 24-12-2014
(supra), wherein assessee was also not the owner of the property and had only
limited rights over the property. It was held that the provisions of Section 50C are
not applicable. 11.1. Not only that, in the Co-ordinate Bench decision in the case
of Atul G. Puranik Vs. ITO [132 ITD 499], it was considered as under:… 11.2. In
view of the principles laid down by the Co-ordinate Benches and also on the
facts, we are of the opinion that the provisions of Section 50C are not applicable
in the given case. Accordingly, AO is directed to compute the capital gains on the
value received only. Assessee’s grounds are allowed accordingly.
12. In the result, appeal of assessee is allowed.
Gujarat high court on section 133A & related aspect of reopening
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL
APPLICATION NO.19694 of 2015
SHREE SIDHNATH ENTERPRISE....Petitioner(s) Versus ASSISTANT
COMMISSIONER OF INCOME TAX....Respondent(s)
============================================
Date : 28/03/2016
For the purpose of testing the validity of the impugned notice, the court would be
required to examine as to whether there is any material available on the record on
the basis of which the requisite belief could be formed by the Assessing Officer
and further whether such material had any rational connection or live link with the
formation of the requisite opinion. Secondly, as to whether such income has
escaped assessment on account of failure on the part of the assessee to disclose
fully and truly all material facts.
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Kapil Goel Advocate (9910272806) [email protected]
It may be noted that in the affidavit-in-reply filed by the respondent, it is the case
of the respondent that the petitioner is engaged in the business of cheque
discounting and shroff. The firm charges commission for cheque discounting
facility provided to its customers. The firm receives cash from the beneficiary and
gives cheque in lieu thereof. The cheque is drawn in favour of the beneficiary. For
arranging this transaction, the firm charges commission. Reference has been made
in the reply to instances where the petitioner has received cash from parties and has
issued cheques in lieu thereof which were deposited by such parties in its account
and the cheques were cleared at Rajkot. Based on this, the Assessing Officer had
stated that she had reason to believe that income chargeable to tax has escaped
assessment on account of the failure on the part of the petitioner to disclose fully
and truly all material facts. Thus, while it is the case of the espondent that it is the
business of the petitioner to accept cash and issue cheques in lieu thereof, it is also
the case of the respondent on the basis of the instances cited in the affidavit, that
the cash deposits received by the petitioner are in the nature of undisclosed
income, despite it being the specific case of the respondent that the petitioner had
issued cheques in lieu of cash received by it which had been encashed by the
concerned party by depositing the same in its bank account. It may be noted that it
is not the case of the respondent that the beneficiary after encashing such amount
had returned the same to the petitioner nor has any material been unearthed in this
regard. Insofar as the petitioner is concerned, as stated in the affidavit-in-reply, it is
its business to receive cash and issue cheques in lieu thereof for which it charges
commission. Under the circumstances, in the absence of any material to show that
the cash in respect of which the cheque had been issued travelled back to the
petitioner, one fails to understand as to how such amount may be said to be the
undisclosed income of the petitioner. Under the circumstances, on the facts as
recorded in the reasons as well as in the affidavit-in-reply, in the opinion of this
court, the Assessing Officer could not have formed the belief that income
chargeable to tax has escaped assessment.
In the opinion of this court, in case of a survey under section 133A of the Act,
what is material are the suppressed transactions, if any, which are discovered as
a result of the survey. In the present case, no material has been discovered
during the survey warranting any further inquiry by the survey party. If
consequent upon the survey, the survey party discovers any incriminating
material, it may call upon the assessee to explain the same, but when no
incriminating material is found, the survey party cannot assume the jurisdiction
of the Assessing Officer and call for information in relation to the material
which is already on record. In case any concealed income has been discovered, it
may justify reopening the assessment. In the present case, no concealed income
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Kapil Goel Advocate (9910272806) [email protected]
has been discovered by the survey party, but the assessment is sought to be
reopened for the purpose of verification of facts.
In the present case, the Assessing Officer, at the time of the first reopening,
examined the cash transactions to the extent he thought necessary and on the basis
of the inference drawn by him, accepted the return as filed by the petitioner.
However, the successor Assessing Officer now finds the inference drawn by the
Assessing Officer to be erroneous, which amounts to a mere change of opinion and
does not justify initiation of action under section 147 of the Act. Moreover, the
Assessing Officer while recording the reasons, does not appear to have applied her
mind to the information furnished by the Investigation Wing, inasmuch as, if she
had ascertained the facts from the record, she would have found that certain cash
deposits have already been examined at the time of assessment under section 143
(3) read with section 147 of the Act and had been accepted while framing
assessment under section 143 (3) read with section 147 of the Act and would not
have sought to reopen the assessment in respect of total amount of cash deposits
recorded in the cash books. It is not the case of the respondent that the cash
deposits of Rs.96,85,63,426/- in respect of which the assessment is sought to be
reopened are in addition to the cash deposits of Rs.4,70,11,830/- in respect of
which the assessment was reopened on the earlier occasion and the cash deposits
which the Assessing Officer had examined while framing the assessment under
section 143(3) read with section 147 of the Act.
Gujarat high court on sec.145A, interest on enhanced compensation ass
Fav order
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO.17944 of 2015
MOVALIYA BHIKHUBHAI BALABHAI....Petitioner(s)
Versus
INCOME TAX OFFICER - TDS - 1 - SURAT & 1....Respondent(s)
Date : 31/03/2016
By this petition under Article 226 of the Constitution
of India, the petitioner has challenged the communication
dated 9th February, 2015 issued by the Income Tax Officer,
TDS-1, Surat as well as the action of the second respondent of
deducting and depositing an amount of Rs.2,07,416/- towards
10% TDS from the total amount of interest and further seeks a
direction to the second respondent to pay the amount of TDS,
that is, Rs.2,07,416/- to the petitioner. The facts as emerging from the record are that the
petitioner’s agricultural lands came to be acquired under the
provisions of the Act of 1894 for the public purpose of the
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Kapil Goel Advocate (9910272806) [email protected]
Ozat-2 Irrigation Scheme. The award passed by the Collector
came to be challenged by the petitioner before the learned
Principal Senior Civil Judge, Junagadh (hereinafter referred to
as the “Reference Court”), who by an order dated 20th March,
2011 awarded additional compensation of Rs.5,01,846/- in
favour of the petitioner together with other statutory benefits.
Pursuant to such award, the second respondent calculated the
amount payable to the petitioner and in terms of the
statement showing the amount of compensation to bedeposited in the court, computed an
amount of Rs.20,74,157/as payable to the petitioner by way of interest under section
28 of the Act of 1894. In support of such statement, the second
respondent has also issued a communication dated 12th
October, 2015 certifying that the interest shown in Columns
No.13 and 14 indicates the interest under section 28 of the Act
of 1894. It may be noted that Column No.15 is comprised of
the total amount of interest under Columns No.13 and 14 of
the above statement. Undisputedly, therefore, the amount of
interest from which the income tax is sought to be deducted at
source, is interest payable under section 28 of the Act of 1894. The above referred
decision in the case of
Ghanshyam (HUF) came to be followed by the Supreme
Court in the case of Commissioner of Income Tax, Rajkot
v. Govindbhai Mamaiya, (2014) 16 SCC 449, wherein the
court after referring to the above decision in the case of C.I.T.
v. Ghanshyam (HUF) (supra) held that it is clear that whereas
interest under section 34 of the Act of 1894 is not treated as a
part of income subject to tax, the interest earned under
section 28, which is on enhanced compensation, is treated as
an accretion to the value and, therefore, part of the enhanced
compensation or consideration making it exigible to tax under
section 45(5) of the Income Tax Act. Thus, the Supreme Court in the case of
Commissioner of Income Tax, Faridabad v. Ghanshyam
(HUF) (supra) has held that the interest under section 28 of
the Act of 1894 unlike interest under section 34 is an accretion
to the value and hence, it is a part of the enhanced
compensation or consideration which is not the case with
interest under section 34 of the 1894 Act. Therefore, interest
under section 28 of the Act of 1894 would form part of the
enhanced compensation and would be exigible to capital gains
under section 45(5) of the I.T. Act. In other words, in case of a
transaction which is otherwise exigible to capital gains tax
under section 45 of the I.T. Act, the interest received under
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Kapil Goel Advocate (9910272806) [email protected]
section 28 of the Act of 1894 being an accretion to the value,
would form part of the compensation and would be exigible to
tax under section 45(5) of the I.T. Act, whereas the interest
received under section 34 of the Act of 1894 would be
“interest” within the meaning of such expression as envisaged
under section 145A of the I.T. Act and would be deemed to be
the income of the year under consideration, chargeable to tax
as income from other sources under section 56 of the I.T. Act. It has been vehemently
contended on behalf of the
first respondent that the above decision has been rendered
prior to the substitution of section 145A of the I.T. Act by
Finance (No.2) Act, 2009 with effect from 1st April, 2010, andhence, would have no
applicability to the facts of the present
case. The scope and effect of the substitution (with effect from
1st April, 2010) of section 145A, as also amendment made in
section 56(2) by Act 33 of 2009 have been elaborated in the
following portion of the departmental circular No.5/2010, dated
3.6.2010,… Thus, the substitution of section 145A by Finance (No.2) Act,
2009 was not in connection with the decision of the Supreme
Court in Ghanshyam (HUF) (supra) but was brought in to
mitigate the hardship caused to the assessee on account of
the decision of the Supreme Court in Smt. Rama Bai v. CIT,
(1990) 181 ITR 400 (SC) whereby it was held that arrears of
interest computed on delayed or enhanced compensation shall
be taxable on accrual basis. Therefore, when one reads the
words “interest received on compensation or enhanced
compensation” in section 145A of the I.T. Act, the same have
to be construed in the manner interpreted by the Supreme
Court in Ghanshyam (HUF) (supra).
The upshot of the above discussion is that since
interest under section 28 of the Act of 1894, partakes thecharacter of compensation, it
does not fall within the ambit of
the expression “interest” as contemplated in section 145A of
the I.T. Act. The first respondent - Income Tax Officer was,
therefore, not justified in refusing to grant a certificate under
section 197 of the I.T. Act to the petitioner for non-deduction of
tax at source, inasmuch as, the petitioner is not liable to pay
any tax under the head “income from other sources” on the
interest paid to it under section 28 of the Act of 1894. character of compensation, it does
not fall within the ambit of
the expression “interest” as contemplated in section 145A of
the I.T. Act. The first respondent - Income Tax Officer was,
therefore, not justified in refusing to grant a certificate under
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Kapil Goel Advocate (9910272806) [email protected]
section 197 of the I.T. Act to the petitioner for non-deduction of
tax at source, inasmuch as, the petitioner is not liable to pay
any tax under the head “income from other sources” on the
interest paid to it under section 28 of the Act of 1894. For the foregoing reasons, the
petition succeeds
and is accordingly allowed. The second respondent having
wrongly deducted an amount of Rs.2,07,416/- by way of tax
deducted at source out of the amount of Rs.20,74,157/payable to the petitioner under section 28 of the Act of 1894
and having deposited the same with the income-tax
authorities, taking a cue from the decision of the Punjab andHaryana High Court
in Jagmal Singh v. State of Haryana
(supra), the first respondent is directed to forthwith deposit
such amount with the Reference Court, which shall thereafter
disburse such amount to the petitioner herein. Rule is made
absolute accordingly with costs.
Delhi high court on capital receipt non chargeable amount from cancellation of
sale deed
IN THE HIGH COURT OF DELHI AT NEW DELHI .
ITA 136/2004
GIRISH BANSAL
versus UNION OF INDIA & ORS.
% 28.04.2016
Present appeals
12. While admitting the present appeals on 14th February 2005, the Court framed
the following question of law for consideration in ITA 136 of 2003: “Whether in
the facts of the case the amount received covered under Section 10(3) of the IT
Act, 1961 deals with receipts which are of a casual and non-recurring nature, or
not?” 12.1 This court also framed a similar question in ITA 138 of 2003 by an
order also dated 14th February 2005: “Whether in the facts of the case the
amount receive by the Assessee under a compromise recorded by the Supreme
Court is a receipt of a casual and non-recurring nature within the meaning of
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Kapil Goel Advocate (9910272806) [email protected]
Section 10(3) of the Income Tax Act, 1961?” 13. At the outset, it must be observed
that learned counsel for both the parties have agreed that the above questions
require to be reframed. Accordingly, the question that arises for determination in
both appeals is reframed as under: “What is the nature of the receipt of
Rs.10,00,000 each in the hands of the two Assessees and whether the AO, the CIT
and the ITAT were justified in treating it as a receipt of a casual and non-recurring
nature which could be brought to tax under Section 10(3) of the Act?”
New plea cannot be permitted
21. Be that as it may, the Court finds that the Revenue cannot be permitted to
shift its stand from one forum to another. The consistent case of the Revenue is
to be tested at various levels for its correctness. It is possible that in the
interregnum there might be decisions of the Supreme Court which might support
or negate the case of the Revenue. That would then have to be taken to its logical
end. In the circumstances, the Court is not prepared to permit the Revenue to
urge a new plea for the first time in this Court.
Not a receipt taxable under Section 10 (3)
23.1 The settled legal position is that all receipts do not constitute income. For a
receipt sought to be taxed as income, the burden lies upon the Revenue to prove
that it is within the taxing provision. Among the earlier decisions of the Supreme
Court is Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC).
31. Examined in light of the legal position explained in the above decisions, the
Court is of the view that as far as the present case is concerned, the sum of Rs.20
lakhs received by the Assessees was in the context of the cancellation of the sale
certificate and the sale deed executed in their favour in relation to an immovable
property and neither Assessee was dealing in immovable property as part of his
business. While it could if at all be said to be in the nature of a capital receipt, what
is relevant for the present case is that the Revenue has been unable to make out a
case for treating the said receipt as of a casual and non-recurring nature that could
be brought to tax under Section 10(3) read with Section 56 of the Act. Conclusion
32. In the light of the clear enunciation of the law in the aforementioned decisions
of the Court, it is plain that as far as the present case is concerned, the AO was in
error in proceeding on the basis that a sum of Rs.20,00,000 received by the
Assessee was in the nature of a casual and non-recurring receipt which can be
brought to tax under Section 10(3) of the Act. Having held that it could not be in
the nature of capital gain it was not open to the Revenue to seek to bring it to a tax
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Kapil Goel Advocate (9910272806) [email protected]
under the revenue receipt. Following the decision in Cadell Weaving Mill (supra),
there can be no manner of doubt that what is in the nature of capital receipt, cannot
be sought to be brought to tax by resorting to Section 10(3) read with Section 56 of
the Act.
33. The question framed by the Court is accordingly answered in favour of the
Assessee and against the Revenue. Consequently, the impugned orders of the AO,
CIT as well as the ITAT are hereby set aside. The appeals are allowed but in the
circumstances with order as to costs.
Section 143(2) Mechanical issuance
IN THE HIGH COURT OF DELHI AT NEW DELHI
1.
+ W.P.(C) 5818/2013
HYOSUNG CORPORATION
06.04.2016
6. Under Section 143 (2) (ii) of the Act, an AO can serve on the Assessee a
notice requiring him to attend his office and produce any evidence on which
the Assessee seeks to rely in support of return if the AO "considers it
necessary or expedient to ensure that the Assessee has not understated the
income or has not computed excessive loss or has not underpaid the tax in
any manner'. Therefore, the scope of the enquiry that an AO can undertake
in terms of Section 143 (2) (ii) is a wide ranging one. What is relevant for
the present case is that prior to issuance of the notice under Section 143(2) (ii) the
AO has to form an opinion that it is 'necessary or expedient' to ensure
that an Assessee has not (i) understated the income or (ii) has not computed
excessive loss, or (iii) has not underpaid the tax in any manner. The AO is,
therefore, not expected to issue a notice under Section 143 (2) (ii) in a
routine or casual or mechanical manner…. There appears to be no
prescribed format for issuance of the notice under Section 143 (2)(ii) of the
Act. This notice, in any event, does not set out the opinion of the AO that he
considers it necessary or expedient to issue such notice for any of the
reasons specified in Section 143(2)(ii)….
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Kapil Goel Advocate (9910272806) [email protected]
Section 263 Deemed explanation Finance Act, 2015 interpreted by Mumbai
ITAT
IN THE INCOME TAX APPELLATE TRIBUNAL
“B” Bench, Mumbai
Before S/Shri B.R. Baskaran (AM) & Amit Shukla (JM)
I.T.A. No. 2690/Mum/2016
(Assessment Year 2007-08)
I.T.A. No. 2691/Mum/2016
(Assessment Year 2008-09)
Shri Narayan Tatu Rane
Date of Pronouncement 6.5.2016
19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT,
before holding an order to be erroneous, should have conducted necessary
enquiries or verification in order to show that the finding given by the assessing
officer is erroneous, the Ld Pr. CIT should have shown that the view taken by
the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to
do so and has simply expressed the view that the assessing officer should have
conducted enquiry in a particular manner as desired by him. Such a course of
action of the Ld Pr. CIT is not in accordance with the mandate of the provisions
of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted
Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to
whether the said explanation, which was inserted by Finance Act 2015 w.e.f.
1.4.2015, would be applicable to the year under consideration, yet we are of the
view that the said Explanation cannot be said to have over ridden the law
interpreted by Hon’ble Delhi High Court, referred above. If that be the case,
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Kapil Goel Advocate (9910272806) [email protected]
then the Ld Pr. CIT can find fault with each and every assessment order, without
conducting any enquiry or verification in order to establish that the assessment
order is not sustainable in law and order for revision. He can also force the AO
to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing
the independent application of mind of the AO. Definitely, that could not be the
intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since
it would lead to unending litigations and there would not be any point of finality
in the legal proceedings. The Hon’ble Supreme Court has held in the case of
Parashuram Pottery Works Co. Ltd Vs. ITO (1977)(106 ITR 1) that there must
be a point of finality in all legal proceedings and the stale issues should not be
reactivitated beyond a particular stage and the lapse of time must induce repose
in and set at rest judicial and quasi-judicial controversies as it must in other
spheres of human activity.
20. Further clause (a) of Explanation states that an order shall be deemed to
be erroneous, if it has been passed without making enquiries or verification,
which should have been made. In our considered view, this provison shall
apply, if the order has been passed without making enquiries or verification
which a reasonable and prudent officer shall have carried out in such cases,
which means that the opinion formed by Ld Pr. CIT cannot be taken as final one,
without scrutinising the nature of enquiry or verification carried out by the AO
vis-à-vis its reasonableness in the facts and circumstances of the case. Hence,
in our considered view, what is relevant for clause (a) of Explanation 2 to sec.
263 is whether the AO has passed the order after carrying our enquiries or
verification, which a reasonable and prudent officer would have carried out or
not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise
each and every order, if in his opinion, the same has been passed without
making enquiries or verification which should have been made. In our view, it is
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Kapil Goel Advocate (9910272806) [email protected]
the responsibility of the Ld Pr. CIT to show that the enquiries or verification
conducted by the AO was not in accordance with the enquries or verification that
would have been carried out by a prudent officer. Hence, in our view, the
question as to whether the amendment brought in by way of Explanation 2(a)
shall have retrospective or prospective application shall not be relevant. 21. In the
instant case, as noticed earlier, the AO has accepted the
explanations of the assessee, since there is no fool proof evidence to link the
assessee with the document and M/s RNS Infrastructure Ltd, from whose hands
it was seized, also did not implicate the assessee. Thus, the assessee has been
expected to prove a negative fact, which is humanely not possible. No other
corroborative material was available with the department to show that the
explanations given by the assessee were wrong or incorrect. Under these set of
facts, the AO appears to have been satisfied with the explanations given by the
assessee and did not make any addition. We have noticed that the Hon’ble
Supreme Court has held in the case of Central Bureau of Investigation Vs. V.C.
Shukla and Others (supra) that the entries in the books of account by
themselves are not sufficient to charge any person with liability. Hence, in our
view, it cannot be held that the assessing officer did not carry out enquiry or
verification which should have been done, since the facts and circumstances of
the case and the incriminating document was not considered to be strong by the
AO to implicate the assessee. Thus, we are of the view that the assessing
officer has taken a plausible view in the facts and circumstances of the case.
Even though the Ld Pr. CIT has drawn certain adverse inferences from the
document, yet it can seen that they are debatable in nature. Further, as noticed
earlier, the Ld Pr. CIT has not brought any material on record by making
enquiries or verifications to substantiate his inferences. He has also not shown
that the view taken by him is not sustainable in law. Thus, we are of the view
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Kapil Goel Advocate (9910272806) [email protected]
that the Ld Pr. CIT has passed the impugned revision orders only to carry out
fishing and roving enquiries with the objective of substituting his views with that
of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was
not correct in law in holding that the impugned assessment orders were
erroneous. 23. In view of the foregoing discussions, we are of the view that the Ld
Pr.
CIT has failed to show that the impugned assessment orders passed by the
assessing officer were not only erroneous but also prejudicial to the interests of
the revenue. It is a well established proposition that both the above said
conditions are required to be satisfied before invoking the revisional power given
u/s 263 of the Act. In the instant case, we are of the view that the Ld Pr.
CIT has failed to show that both the conditions exist in the instant case.
Accordingly we find merit in the contentions of the assessee that the revision
orders passed by Ld Pr. CIT for the years under consideration are beyond the
scope of sec. 263 and hence not valid. Accordingly we set aside the revision
orders passed by Ld CIT for the two years under consideration.
Supreme court on section 263 in case of Amitabh Bachnan
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.5009 OF 2016
[Arising out of S.L.P.(C) No.11621 of 2009]
AMITABH BACHCHAN ...RESPONDENT(S)
At this stage, it may be appropriate to reproduce hereunder the provisions of Section 263 of the Act to
appreciate the arguments advanced and to understand the contours of the suo motu revisional power vested in
the learned C.I.T. by the aforesaid provision of the Act. Under the Act different shades of power have been
conferred on different authorities to deal with orders of assessment passed by the primary authority. While
Section 147 confers power on the Assessing Authority itself to proceed against income escaping assessment,
Section 154 of the Act empowers such authority to correct a mistake apparent on the face of the record. The
power of appeal and revision is contained in Chapter XX of the Act which includes Section 263 that confer suo
motu power of revision in the learned C.I.T. The different shades of power conferred on different authorities
under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power
under one provision cannot trench upon the powers available under another provision of the Act. In this regard,
it must be specifically noticed that against an order of assessment, so far as the Revenue is concerned, the
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Kapil Goel Advocate (9910272806) [email protected]
power conferred under the Act is to reopen the concluded assessment under Section 147 and/or to revise the
assessment order under Section 263 of the Act. The scope of the power/jurisdiction under the different
provisions of the Act would naturally be different. The power and jurisdiction of the Revenue to deal with a
concluded assessment, therefore, must be understood in the context of the provisions of the relevant Sections
noticed above. While doing so it must also be borne in mind that the legislature had not vested in the Revenue
any specific power to question an order of assessment by means of an appeal.
Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an
order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the
basic precondition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to
be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available
subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section
to give the assessee an opportunity of being heard. It is in the context of the above position that this Court has
repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of
revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has
been understood not to require any specific show cause notice to be served on the assessee. Rather, what is
required under the said provision is an opportunity of hearing to the assessee. The two requirements are
different; the first would comprehend a prior notice detailing the specific grounds on which revision of the
assessment order is tentatively being proposed. Such a notice is not required. What is contemplated by Section
263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would
render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation
of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court
in Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and others1 and in The C.I.T., West
Bengal, II, Calcutta vs. M/s Electro House2 . Paragraph 4 of the decision in The C.I.T., West Bengal, II,
Calcutta vs. M/s Electro House (supra) being illumination of the issue indicated above may be usefully
reproduced hereunder: ...
It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given
to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt
necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory
show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to
confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact.
This is not the purport of Section 263. Of course, there can be no dispute that while the C.I.T. is free to exercise
his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the
circumstances surrounding such facts, as may be considered It may be that in a given case and in most cases
it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or
even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section
(Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of
the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and
foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of
course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all
relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such
facts, as may be considered
Insofar as the first question i.e. findings contained in the order of the learned C.I.T. dated 20th March, 2006
beyond the issues mentioned in the show cause notice is concerned the learned Tribunal taking note of the
aforesaid admitted position held as follows: .... The above ground which had led the learned Tribunal to
interfere with the order of the learned C.I.T. seems to be contrary to the settled position in law, as indicated
above and the two decisions of this Court in Gita Devi Aggarwal (supra) and M/s Electro House (supra). The
learned Tribunal in its order dated 28th August, 2007 had not recorded any finding that in course of the suo
motu revisional proceedings, hearing of which was spread over many days and attended to by the authorized
representative of the assessee, opportunity of hearing was not afforded to the assessee and that the assessee
was denied an opportunity to contest the facts on the basis of which the learned C.I.T. had come to his
conclusions as recorded in the order dated 20th March, 2006. Despite the absence of any such finding in the
order of the learned Tribunal, before holding the same to be legally unsustainable the Court will have to be
satisfied that in the course of the revisional proceeding the assessee, actually and really, did not have the
opportunity to contest the facts on the basis of which the learned C.I.T. had concluded that the order of the
Assessing Officer is erroneous and prejudicial to the interests of the Revenue. The above is the question to
which the Court, therefore, will have to turn to. If the revisional authority had come to its conclusions in the
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Kapil Goel Advocate (9910272806) [email protected]
matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee
and available to his authorized representative at all times it is difficult to see as to how the requirement of giving
of a reasonable opportunity of being heard as contemplated by Section 263 of the Act had been breached in
the present case. The order of the learned Tribunal insofar as the first issue i.e. he revisional order going
beyond the show cause notice is concerned, therefore, cannot have our acceptance. The High Court having
failed to fully deal with the matter in its cryptic order dated 7th August, 2008 we are of the view that the said
orders are not tenable and are liable to be interfered with.
It appears that thereafter the Assessing Officer issued a notice to show cause as to why the provisions of
Section 69-C should not be invoked and the expenses claimed should not be treated as unexplained
expenditure. In reply, the assessee by letter dated 24th March, 2004 submitted that the claim was made as a
standard deduction and that the assessee had been wrongly advised to make the said claim and as the same
has been withdrawn, Section 69-C will have no application. The record of the assessment proceedings disclose
that the said stand was accepted by the Assessing Officer and the matter was not pursued any further. An
argument has been made on behalf of the assessee that notice under Section 69-C was issued by the
Assessing Officer and thereafter on withdrawal of the claim by the assessee the Assessing Officer thought that
the matter ought not to be investigated any further. This, according to the learned counsel for the assessee, is
a possible view and when two views are possible on an issue, exercise of revisional power under Section 263
would not be justified. Reliance in this regard has been placed on a judgment of this Court in Malabar Industrial
Co. Ltd. vs. CIT3 which has been approved in Commissioner of Income-tax vs. Max India Ltd. 4 21. There can
be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be
interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another
possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible
would really amount to conferring some kind of an appellate power in the revisional authority. This is a course
of action that must be desisted from. However, the above is not the situation in the present case in view of the
reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further
investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the
expenses in respect of which deduction has been claimed has been incurred and thereafter
abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue.
The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the
claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in
coming to his conclusions insofar as the issue No.(iii) is concerned and in passing the impugned order on that
basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said
conclusion. 22. In the light of the discussions that have preceded and for the reasons alluded we are of the
opinion that the present is a fit case for exercise of the suo motu revisional powers of the learned C.I.T. under
Section 263 of the Act. The order of the learned C.I.T., therefore, is restored and those of the learned Tribunal
dated 28th August, 2007 and the High Court dated 7th August, 2008 are set aside. The appeal of the Revenue
is allowed.
Attachments area
Calcutta high court on section 263
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
NO.509 OF 2016
WITH
ITAT NO.113 OF 2016
RAJMANDIR ESTATES PRIVATE LIMITED.
Versus
PRINCIPAL COMMISSIONER OF INCOME TAX, KOLKATA – III, KOLAKTA
Judgement delivered on:13th May 2016.
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Kapil Goel Advocate (9910272806) [email protected]
(21) After hearing the learned advocates, we are of the opinion that the
following questions arise for consideration:(a)Whether in the light of the views expressed in the case of Lovely Exports
(supra) & Steller Investment (supra) the order under Section 263 directing
further investigation is legal?
(b) Is the finding of the Commissioner of Income Tax that unaccounted
money was or could have been laundered as clean share capital by creating
facade of paper work, routing the money through several bank accounts and
getting it the seal of statutory approval by getting the case reopened under
Section 147 suo motu perverse?
(c) Whether the order passed by the assessing officer under Section
143(3)/147 of the Income Tax Act is erroneous and also prejudicial to the
interest of the revenue?
(d)Whether the impugned judgement of the learned Tribunal is perverse?
(28) We have indicated above the pieces of evidence which go to show that
the Commissioner had reasons to entertain the belief that this was or could be a
case of money laundering which went unnoticed because the assessing officer
did not hold requisite investigation except for calling for the records. The
evidence which we have tabulated above and the prima facie inference drawn by us is
deducible from the documents also submitted before the assessing officer.
The fact that the assessing officer did not apply his mind to those pieces of
evidence would be evident from the assessment order itself which reads as
follows:“During the Financial Year the assessee company has issued
792737 No. of equity share with a face value of Rs.10/- along
with
a premium of Rs.390/-.
Thereafter, Notices u/s. 133(6) of the I.T. Act, 1961 were
also issued to verify the transactions of the assessee on test
check basis. The case is discussed and heard. Issue relevant
for
determination of total income of the assessee is discussed as
under:”
The issues relevant according to the assessing officer were a receipt of a
sum of Rs.61,000/- on account of consultancy charges and the preliminary
expenses written off amounting to a sum of Rs.60,000/-. He, therefore,
completed the assessment after making addition of a sum of Rs.1,21,000/-.
When is an order erroneous in so far as the same is prejudicial to the interest of
the revenue was considered by this Court in the case of CIT –Vs- Maithan
International reported in (2015) 375 ITR 123 (Cal) to which one of us (Girish
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Kapil Goel Advocate (9910272806) [email protected]
Chandra Gupta, J.) was a party… The persons behind the assessee company and the persons
behind the
subscribing companies were not interrogated which was essential to unearth the
truth. Reference may also be made to the judgement of this Court in the case of
CIT –Vs- Active Traders Pvt. Ltd. (supra).
The question for consideration is whether in the presence of materials
discussed above the Commissioner was justified in treating the assessment
order erroneous and prejudicial to the interest of the revenue. That question in
the facts and circumstances has to be answered in the affirmative.
[28] We find no substance in the submission that the order of the learned
Tribunal is perverse, after examining all the submissions advanced by Mr.
Poddar.
[29] Whether receipt of share capital was a taxable event prior to 1st April,
2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of
the Income Tax Act; whether the concept of arms length pricing in a domestic
transaction before introduction of Section 92A and 92BA of the Income Tax Actwas there at
the relevant point of time are not questions which arise for
determination in this case. The assessee with an authorised share capital of
Rs.1.36 crores raised nearly a sum of Rs.32 crores on account of premium and
chose not to go in for increase of authorised share capital merely to avoid
payment of statutory fees is an important pointer necessitating investigation.
Money allegedly received on account of share application can be roped in under
Section 68 of the Income Tax Act if the source of the receipt is not satisfactorily
established by the assessee. Reference in this regard may be made to the
judgement in the case of Sumati Dayal –Vs- CIT (supra) wherein Their Lordships
held that any sum “found credited in the books of the assessee for any previous
year, the same may be charged to income tax….”. We are unable to accept the
submission that any further investigation is futile because the money was
received on capital account. The Special Bench in the case of Sophia Finance
Ltd. (supra) opined that “the use of the words “any sum found credited in the
books” in Section 68 indicates that the said section is very widely worded and an
Income-tax Officer is not precluded from making an enquiry as to the true
nature and source thereof even if the same is credited as receipt of share
application money. Mere fact that the payment was received by cheque or that
the applicants were companies, borne on the file of Registrar of Companies were
held to be neutral facts and did not prove that the transaction was genuine as
was held in the case of CIT –Vs- Nova Promoters and Finlease (P) Ltd. (supra).
Similar views were expressed by this Court in the case of CIT –Vs- Precision
Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the
proviso to Section 68 of the Income Tax Act is retrospective in nature. To that
extent the question is kept open. We may however point out that the Special
Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that
“the ITO may even be justified in trying to ascertain the source of depositor”.
Therefore, the submission that the source of source is not a relevant enquiry
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Kapil Goel Advocate (9910272806) [email protected]
does not appear to be correct. We find no substance in the submission that the exercise of
power under Section 263 by the Commissioner was an act of
reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was
unable to point out any error in the explanation furnished by the assessee.
Whereas in the present case we have tabulated the evidence which was before
the assessing officer which should have provoked him to make further
investigation. The assessing officer did not attach any importance to that aspect
of the matter as discussed above by us. The judgement in the case of Leisure
Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability
because the evidence furnished by the assessee in this case does suggest a cover
up. We also have held prima facie that neither the transaction appears to be
genuine nor are the applicants of share are creditworthy.
The judgement in the case of Omar Salay Mohamed Sait (supra) cited by
Mr. Poddar has no application for reasons already discussed. It is not true that
the Commissioner in this case has merely on the basis of suspicion held that
this was or could be a case of money laundering. We as a matter of fact have
discussed this issue in great detail and need not reiterate the same. The order
passed by the Commissioner is by no means an act of substituting his own views
to that of the assessing officer. It is true that the assessing officer had
requisitioned the necessary details by his notice u/s.142(1) but he thereafter did
not apply his mind thereto. The judgement in the case of J. L. Morrison (India)
Ltd. has no manner of application because in that case the question essentially
was whether the receipt was of a capital or revenue nature. The facts and
circumstances were not in dispute. Moreover the view taken by the assessing
officer was not shown nor was held by the Court to be an erroneous view.
Whereas in this case we have demonstrated in some detail as to why is the order
of the assessing officer erroneous and prejudicial to the revenue.
The judgement in the case of Malabar Industrial Co. Ltd. (supra) and Max
India Ltd. do not apply to the facts of this case for reasons already discussed by
us. From the judgement of the learned Tribunal in the case of Subholaxmi, placed before us
in great detail by Mr. Poddar, we find that all important issues
placed for consideration by no other than Mr. Poddar himself were duly
considered by the learned Tribunal.
[30] For reasons already discussed we answer the issue No. (a) and (c) in
the affirmative and the issue No. (b) and (d) in the negative. In the result the
appeal fails and is dismissed. It is clarified that the views expressed herein are
for the purpose of disposal of this appeal and shall not preclude the statutory
authority from arriving at its own conclusion in accordance with law.
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Kapil Goel Advocate (9910272806) [email protected]
Registration of agreement must for taxation of joint development agreement
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
Before S/Shri Amit Shukla (Judicial Member) &
Ramit Kochar (Accountant Member)
Dr. Devendra H.Dave
Date of Pronouncement 02.05.2016
/_Assessment Year : 2008-09)\
I .T.A. No. 1038/Mum/2013
We have also observed that there has been an amendment in Section 17 of the
Registration Act,1908 whereby Section 17A was introduced and added to the
statute w.e.f. 24.9.2001 by the Registration and Other Related laws
(Amendment) Act, 2001, whereby it is clearly stipulated that a contract to be a
valid contract under section 53A of the Transfer of the Property Act, 1882, it has to
be agreement in writing which is to be an registered agreement and
otherwise the same shall have no effect for the purposes of the said section
53A of the Transfer of Property Act,1882 . The said section 17(1A) of the
Registration Act , 1908 as added and introduced to the statute w.e.f.
24.9.2001 by the Registration and Other Related laws (Amendment) Act, 2001
is reproduced hereunder:…. As per Section 49 of the Registration Act,1908 , in the
absence of registered
agreement as contemplated u/s 17 of the Act of 1908, the same shall not affect
any immovable property comprised there-in or confer any power to adopt or be
received in evidence of any transaction affecting such property or conferring
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Kapil Goel Advocate (9910272806) [email protected]
such power. The said section 49 of the Registration Act,1908 is reproduced
hereunder : In this instant case , the MOU dated 29.12.2004 entered with GCB is
not
registered and hence it does not convey any title or ownership rights u/s. 53A
of the Transfer of Property Act,1882 in respect of the property as per the newly
inserted section 17(1A) of the Registration Act,1908. Thus with regard to the
transfer of the property in the instant case as per factual matrix of the case as
set out above, there is no valid transfer u/s. 53A of the Transfer of Property
Act,1882 had taken place as contemplated u/s. 2(47) of the Act as the MOU
dated 29.12.2004 is an unregistered document , no title has been transferred
in part performance of the contract as it had not affected the immovable
property comprised there-in, hence capital gain cannot be brought to tax. The
similar view has been taken in the case of C.S. Atwal (supra) by the Hon’ble
Punjab and Haryana High Court. We have also noticed in the instant case
that possession is handed over for the limited purpose of demolition and
reconstruction of the property for constructing seven storey’s of residential
building on this property , and it is not that the assessee and the other coowners
of the property in execution of the MOU have handed over the
possession of the property in lieu of the part consideration received from GCB
in the capacity of the buyer of the said property, rather the possession of the
afore-stated property was handed over to GCB as licensee only for limited
purpose of demolition of the existing bungalow and for reconstruction of the
said property by constructing seven storey’s residential building on the said
property. The assessee and the co-owners continue to enjoy the possession as
and in the capacity as the owners of the afore-stated property while concurrent
possession was with GCB as licensee for limited purposes of demolition of
bungalow and for construction of seven stories and hence in our considered
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Kapil Goel Advocate (9910272806) [email protected]
view, income there-of cannot be brought to tax in the hands of the assessee
and the co-owner during the impugned assessment year as transfer as
contemplated u/s 2(47) of the Act read with Section 53A of the Transfer of
Property Act ,1882 is not been effected as the possession in fact was never
been transferred from the assessee and the co-owners to the GCB in its capacity as
buyer of the fourth and fifth floor to be constructed in lieu of
constructing rest of five floors for the assessee and the other co-owners as
also on payment of Rs.1.65 crores by GCB to the assessee and other co-owners
as per facts and circumstances of the case as set out above. The agreement
has already been terminated by the assessee and the co-owners on15.10.2007
for deficiency and discrepancies in performance by GCB in terms of the MOU
dated 29.12.2004 with respect to the quality of construction and time of
completion and the matter being sub-judice whereby Hon’ble Bombay High
Court is seized of the suit no. 189 of 2008 filed by GCB with respect to the
dispute between the assessee and co-owners on the one hand and the GCB on
the other hand. Complete performance of the MOU has not allegedly been done
by the builder as it is also on record that only 90% of the work was claimed to
have been finished by GCB and no conveyance deed or registered agreement
for sale has been registered in favour of GCB by the assessee and the other
coowners.
The additions made by the AO and as confirmed by the CIT(A) in view
of our above reasoning and discussions as set out above are not sustainable ,
the same is ordered to be deleted. We order accordingly.
Re-registration application u/s 12AA Held impermissible
IN THE INCOME TAX APPELLATE TRIBUNAL
28
Kapil Goel Advocate (9910272806) [email protected]
HYDERABAD BENCHES “A”, HYDERABAD
I.T.A. No.
1748/HYD/2014J.B.
Educational Society
:
Date of
Pronouncement
29-04-2016
5. After considering the rival contentions and perusing the orders on record and
case law relied upon by the parties, we are of the opinion that DIT(E) has rightly
rejected the application. First of all, as admitted during the hearing itself,
assessee has neither changed the objects of the Trust nor changed the persons
in the management. On the same set of trust deed and its committee, assessee
sought re-registration of the trust. The question for consideration is whether the
registration having been cancelled can be granted again? There are no
precedents on the subject and there is no specific provision in the Act to grant
registration again once it is cancelled. Therefore, it is to be examined in the
context of the existing provisions and law on the subject. Section 12AA provides
for a procedure to be followed by the Commissioner for the grant of registration
to a trust or an institution. According to this procedure, the Commissioner shall
call for documents and information and conduct enquiries to satisfy about the
genuineness of the activities of the trust or institution. It is on the basis of this
satisfaction that the Commissioner is required to grant registration. The
phraseology of Section 12AA of the Act prescribes the scope and ambit of the
enquiry that the Commissioner is authorized to carry out at the time of grant of
registration to a trust or institution, The scope and ambit of the enquiry revolves
around the nature of the objects being charitable or religious, and the
genuineness of the activities of the trust or institution. On the other hand,
cancellation of registration u/s 12AA(3) follows the satisfaction of the
Commissioner that the activities of the trust are not genuine or not in accordance
with its objects. The satisfaction of the Commissioner regarding the genuineness
of the activities of the trust or institution forms the basis for both the grant of
registration and its cancellation. Having held as a finding of fact, while cancelling
the registration, that the activities of the trust were not genuine or not in
accordance with its objects, it would be illogical and self-contradictory for the
Commissioner to hold that the activities of the trust were genuine, which is a prerequisite for granting registration. The refusal to grant registration after it has
been cancelled is, therefore, a natural corollary of the cancellation itself.
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Kapil Goel Advocate (9910272806) [email protected]
In our opinion, on the basis of the same trust deed and the activities of the trust,
registration cannot be granted by the authority, who has earlier cancelled the
registration. Even though not a directly related case but on similar situation, the
Hon'ble Madhya Pradesh High Court, Indore Bench in the case of CIT Vs.
Shyamlal M Sony [276 ITR 156] has considered that when an appeal arising out
of the same order of the Tribunal has been dismissed, then, it necessarily follows
that all appeals from that order are to be disposed of on the same lines. It is of no
significance whether the dismissal was by a speaking or otherwise. It was held
that the court was bound by the order passed by the earlier Divisional Bench
dismissing the appeal which arose out of this very same order. Taking support
from the principles laid down by the Hon'ble High Court in the above said case,
we are of the opinion that DIT/CIT cannot take a decision against its own
decision cancelling the registration earlier, now registering the trust again so as
to confer certain benefits which assessee trust was not found entitled earlier. In
view of that, we are of the opinion that re-registration on the same trust deed
cannot be considered by the authorities which may amount to review of earlier
decision cancelling the registration. The statute also should specifically provide
for re-registration. Under the company’s law re-registration was provided
whenever a Private Limited company converts itself into a Public Limited
Company. If the Legislature intended to grant registration to the trust to which
registration was already cancelled, then there should be specific provisions to
that extent provided in the IT Act. There are no such provisions made so far. One
cannot infer such right when the cancellation of registration already granted has
become final. Therefore, there cannot be any second innings by way of
registration of the same trust with the same objects. When there is no specific
right provided in the Act for re-registration of the trust, assessee cannot seek
such registration. It may be different scenario/case if assessee has modified its
objects, or changed its committee who were governing the trust or handed over
the ‘property of the trust’ to another trust for its proper maintenance, then, fresh
registration of the new trust could be examined by the DIT/CIT as per the law. At
present there is no provision either in Sec.12A or in Sec. 12AA allowing the
assessee registration for the second time. Ld. Counsel relied on certain cases in
support of contentions The issue in appeal in those cited cases arose from the
refusal of the CIT to condone the delay in filing the application or refusal to revise
his own order granting registration. There was no cancellation of registration nor
a finding that the activities of the assessee were not genuine or not in
accordance with the objects. Therefore, these decisions cannot be considered as
precedent in the present appeal. Ld CIT-DR rightly distinguished the cases with
which we agree.
9. In the given facts, we are of the opinion that assessee cannot apply for reregistration, once the registration granted was cancelled validly, having found
that that the trust is not genuine and has not been carrying out its activities in
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Kapil Goel Advocate (9910272806) [email protected]
accordance with the objects of the trust. We are of the opinion that the CIT was
correct in refusing to entertain the application. In view of this, the grounds raised
by assessee are dismissed.
Time bound section 12AA decision : deemed registration ass fav recent order
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “B”, KOLKATA
[Before Shri Mahavir Singh, JM & Shri M.Balaganesh, AM]
ITA No.647/Kol/2013
M/s. Broadway Charitable Trust
Date of Pronouncement : 29.04.2016.
We find that the Hon’ble Kerala High Court in its recent decision had an occasion
to consider the powers of the Learned CIT vis a vis the behaviour of the trustees at
the stage of granting registration u/s 12AA of the Act, in the case of Sree Anjaneya
Medical Trust vs CIT reported in (2016) 382 ITR 399 (Ker) dated 11.2.2016,
wherein it was held that : It is clear from a plain reading of sections 12A and 12AA
of the Act that what is intended thereby is only a registration simplicitor of the
entity of a trust. This has been made a condition precedent for claiming the benefits
of exemption. No examination of the modus of the application of the funds of the
assessee or an examination of the ethical background of its settlors is called for ,
while considering an application for registration. The stage for consideration of the
relevance of the object of the assessee and the application of its funds arises at the
time of the assessment. Where benefits are claimed by assesses in terms of sections
11 and 12 of the Act, the question as to the nature of such contribution and income
can be looked into. At the time of registration of the assessee what is to be looked
into is whether the assessee is a genuine one or whether it is a sham institution
floated only to avail of the benefits of exemption under the Act. Similarly we find
that carrying on of charitable activities of the trust in accordance with the
objects is not be treated as a condition precedent for the purpose of seeking
registration u/s 12AA of the Act. We draw support from the following cases in
this regard:- (a) Hon’ble Delhi High Court in the case of DIT vs Foundation of
Ophthalmic and Optometry Research Education Centre reported in (2013) 355
ITR 361 (Del) (b) Hon’ble Karnataka High Court in the case of DIT
(Exemptions) vs Meenakshi Amma Endowment Trust reported in (2013) 354
ITR 219 (Kar) (c ) Hon’ble Madras High Court in the case of DIT (Exemptions)
vs Seervi Samaj Tambaram Trust reported in (2014) 362 ITR 199 (Mad
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Kapil Goel Advocate (9910272806) [email protected]
The delay in passing the original order on 30.8.2012 which is beyond six months
was also brought to the notice of the Learned CIT by the assessee which has not
been taken into cognizance by the Learned CIT even in the second round of
proceedings. We find that the Central Board of Direct Taxes had issued Instruction
No. 16/2015 dated 6.11.2015 specifically addressing the impugned issue under
dispute which is reproduced hereinbelow :- Instruction No.16/2015
F.No.197/38/2015-ITA.1 Government of India Ministry of Finance, Department of
Revenue (Central Board of Direct Taxes) (ITA-1 Division) North Block, ITA.I
Division Dated, the 6th November, 2015 To All the Principal Chief Commissioners
of Income-tax All the Chief Commissioners Income-tax Chief Commissioner of
Income-tax (Exemptions) All Directors General of Income-tax Sub : Following the
prescribed Time limit in passing order u/s 12AA of the Incometax Act, 1961 Subsection(2) of Section 12AA of the Income-tax Act, 1961 prescribes that every order
granting or refusing registration under clause(b) of sub-section (1) of that Section
shall be passed before the expiry of six months from the end of the month in which
the application was received under clause (a) or clause (aa) of the sub-section (1)
thereof. Thus while processing the application u/s 12AA of the Act, the time limit of
six months has to be adhered to by the Commissioner of Income Tax (Exemptions).
However, it has been brought to the notice of the Board that the said time limit has
not been observed in some cases. 2. The undersigned is directed to convey that the
aforesaid time limit of six months is to be strictly followed by the Commissioner of
Income tax (Exemptions) while passing order u/s 12AA. The CCIT (Exemptions)
may monitor the adherence of prescribed time limit and initiate suitable
administrative action in case any laxity in adhering to the same is noticed.” We
also find that the Hon’ble Supreme Court in the case of CIT vs Society for the
Promotion of Education , Allahabad in Civil Appeal No. 1478 of 2016 dated
16.2.2016 had categorically held as below:- 3. The short issue is with regard to the
deemed registration of an application under section 12AA of the Income Tax Act.
The High Court has taken the view that once an application is made under the said
provision and in case the same is not responded to within six months, it would be
taken that the application is registered under the provision. 4. The learned
Additional Solicitor General appearing for the appellants, has raised an
apprehension that in the case of the respondent, since the date of application was of
24.02.2003, at the worst, the same would operate only after six months from the
date of the application. 5. We see no basis for such an apprehension since that is
the only logical sense in which the Judgement could be understood. Therefore, in
order to disabuse any apprehension, we make it clear that the registration of the
application under section 12AA of the Income Tax Act in the case of the
respondent shall take effect from 24.08.2003. We find that the aforesaid judgement
32
Kapil Goel Advocate (9910272806) [email protected]
had emanated out of the order passed by the Hon’ble Allahabad High Court
reported in (2008) 171 Taxman 113 (Allahabad) wherein it was held that :
“Admittedly, after the statutory limitation, the Commissioner would become
functus officio, and he could not thereafter pass any order either allowing or
rejecting the registration. It is obvious that the application cannot be allowed to be
treated as perpetually undecided. Therefore, the key question arises whether upon
lapse of the six months period without any decision, the application for registration
should be treated as rejected or it should be treated as allowed. [Para 6] Taking the
view that non-consideration of the registration application within the time fixed by
section 12AA (2) would result in deemed registration, may, at the worst, cause loss
of some revenue or income-tax payable by that individual assessee. This would be
similar to a situation where the assessing authority fails to make the assessment or
reassessment within the limitation prescribed for the same. That also leads
occasionally to loss of revenue from that individual assessee. [Para 10] On the
other hand, taking the contrary view and holding that not taking a decision within
the time fixed by section 12AA(2) was of no consequence would leave the assessee
totally at the mercy of the income-tax authorities, inasmuch as the assessee had not
been provided with any remedy under the Act against non-decision. [Para 11]
Besides, the said view would not create any irreversible situation, because under
section 12AA(3), the registration can always be cancelled by the Commissioner, if
he is satisfied that the objects of such trust or institution are not genuine or the
activities are not being carried out in accordance with the objects of the trust or
institution. The only drawback is that such cancellation would operate only
prospectively. Therefore, if a view is taken that non-consideration of the
registration application within the time fixed by section 12AA(2) would amount to
deemed grant of registration, the only adverse consequence likely to flow from
such a view, in respect of any case of that assessee arising in future would, at best,
be some loss of revenue from that individual assessee from the date of expiry of
the limitation under section 12AA(3) till the date of cancellation of that
registration, if such cancellation is called for. [Para 12] For the interpretation of a
statute, purposive construction' of the enactment, which gives effect to the
legislative purpose/intendment, if necessary, must be followed and applied. [Para
13] Considering the pros and cons of the two views, by far the better interpretation
would be to hold that the effect of non-consideration of the application for
registration within the time fixed by section 12AA (2) would be deemed grant of
registration. There is no good reason to make the assessee suffer merely because
the Income-tax Department is not able to keep its officers under check and control,
so as to take timely decisions in such simple matters, such as consideration of
applications for registration even 'within the large six months period provided by
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Kapil Goel Advocate (9910272806) [email protected]
section 12AA(2). ,[Para 18] Therefore, the writ petition was to be allowed. [Para
20].”
5.6. In view of the aforesaid findings and judicial precedents relied upon
hereinabove, to sum up, we hold that :- (a) Sufficiency or some irregularities in
bringing the initial corpus fund would not automatically make the trust as not to
have come into existence ; (b) The charitable objects of the trust are not disputed
by the Learned CIT ; (c) What is to be seen at the time of granting registration by
the Learned CIT is only whether the objects of the trust are charitable and activities
carried out are genuine in nature , which conditions have been duly satisfied by the
assessee in the instant case ; (d) In any case, the order passed by the Learned CIT
refusing registration u/s 12AA of the Act is beyond the stipulated period of six
months as per section 12AA(2) of the Act and hence the assessee cannot be
denied the benefit of registration u/s 12AA of the Act .
N THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH,
BANGALORE
ITA Nos.1379, 1380 & 1381/Bang/2014 (Assessment year: 2005-06, 2006-07 &
2007-08)
Rajkumar C (HUF)
Date of pronouncement : 27/04/2016
8. We heard rival submissions and perused material on record. At the outset, we
shall deal with the preliminary ground challenging the very validity of the reassessment proceedings as it goes to the root of the jurisdiction of the assessment
proceedings. Indisputedly, Shri Rajkumar made a statement before ADIT,
Investigation Wing of the Department on 26/8/2008 and subsequently by letter
dated 24/12/2008 that income was earned from real estate activities in the hands of
HUF of which he was a kartha. However, no returns were filed. Returns were filed
in the individual capacity. He also admitted the sale of land of ancestral property
situated at Sy.No.85 & 186 situated at Doddathimmasandra village, Sy.No.32 at
Medahally village, Sy.No.310 at Sarjapura Hobli and Sy.No.24 at Medahally
village. He made an admission that all these transactions took place in the hands of
HUF of which he was a kartha. But the AO has chosen to tax them in his
individual hands and the CIT(A) accepted the submission of the assessee that
profits on account of sale of agricultural land as well as profits earned from
purchase and sale of property were taxable in the hands of HUF. This order of the
CIT(A) came to be affirmed by the Tribunal. The CIT(A), while dealing with the
appeal filed by C.Rajkumar, in his individual capacity, had directed the AO to take
necessary steps for assessing impugned income in the hands of Rajkumar, C,
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Kapil Goel Advocate (9910272806) [email protected]
(HUF). Pursuant to these directions, the AO had initiated reassessment proceedings
in the hands of the appellant. 9. In these circumstances, we are required to
adjudicate the validity of the re-assessment proceedings in the present case. The
condition precedent for initiating re-assessment proceedings is that the AO should
have reason to believe that income chargeable to tax had escaped assessment.
Whether this condition is satisfied by the AO or not is to be judged from th reasons
recorded by the AO u/s 148 for issuance of notice for reassessment proceedings. It
is trite law that validity of reassessment is to be judged only on the touch-stones of
reasons recorded for issuance of notice u/s 148 of the AcT. The principle of law
therefore is well settled that the question as to whether there was a reason to
believe within the meaning of section 147 that income escaped assessment must be
determined with reference to the reasons recorded by the AO. From the reasons
recorded by the AO, it is clear that reassessment proceedings were initiated
pursuant to directions of the CIT(A) only. From the reasons recorded (extracted
supra), the AO mentioned that the appellant was in the business of real estate, had
not filed return of income, had not disclosed this income in the returns of income
filed in individual capacity. In the second para the AO referred to the fact of search
and seizure operations of Shri Purushotham Reddy & others along with others
including the assessee on 26/8/2008. He further referred to the fact that based on
the incriminating documents found as a result of search and seizure operations, the
assessments were made in the individual hands of Shri C.Rajkumar, vide
assessment order dated 28/12/2010. The next para refers to the directions of the
CIT(A) in the case of Shri Rajkumar, Individual, to assess the income in the hands
of Rajkumar C (HUF). The last para states that based on the above facts, he had
reason to believe that income had escaped assessment. The AO had not even
recorded his satisfaction as to the correctness of the findings of the CIT(A). The
AO had not recorded his findings as to how he reached conclusion that income in
the hands of appellant had escaped assessment of tax. Therefore, we are unable to
discern whether the AO had applied his mind to the information/directions of
CIT(A) and independently arrived at a belief that on the basis of the material
which he had before him, income had escaped assessment. The AO merely acted on
the directions of the CIT(A). The directions of the CIT(A) are not binding on
the AO and it is a matter of record that the AO, in fact, had challenged the
correctness of the CIT(A)’s order before the Tribunal which came to be
dismissed. The directions of the CIT(A) are only in the form of opinion/view
of the CIT(A). The AO has to independently form an opinion that income has
escaped assessment which is not discernible from the reasons recorded. The
formation of belief that income escaped assessment also vitiated by the fact
that the correctness of the order passed by the CIT(A) was challenged in
appeal before the Tribunal by the AO. Therefore, AO had not independently
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Kapil Goel Advocate (9910272806) [email protected]
made up his mind on the basis of information in his possession to form
opinion that income escaped assessment, which is sine qua non for valid
initiation of re-assessment proceedings. It is trite law that the initiation of reassessment proceedings should be done by the AO only on the AO’s own
satisfaction and not at the behest of third party, more so, the superior authorities.
In this context, reliance can be placed on the decisions of the Hon’ble Delhi High
Court in the cases of CIT vs. SFIL Stock Broking Ltd. (325 ITR 285(Del), Atul Jain
(299 ITR 383)(Del) and Jay Bharat Maruti Ltd. vs. CIT (324 ITR 289)(Del) and
CIT vs. Batra Bhatta Co. (321 ITR 526)(Del) In other words, AO could not have
been subjected to any compulsion while taking the decision to reopen the
assessment. The AO is a quasi-judicial authority. The quasijudicial authority
which is expected to perform statutory functions cannot act on the dictates of any
authority. In this regard, it is apt to reproduce the observations made by the
Hon’ble Delhi High Court in the case of Sun Pharmaceuticals Industries Ltd. vs.
DCIT:… Thus, the law is fairly well settled that AO cannot act on the dictates of
higher authority to reopen the assessment, without applying his mind
independently to the facts of the case. We are unable to discern any independent
application of mind by the AO while initiating the impugned re-assessment
proceedings. Furthermore, even the directions issued by the CIT(A) are beyond the
scope of the subject matter of appeal before him. The CIT(A) can only issue such
directions which are necessary for disposal of the appeal before him. This
principle was reiterated by the Hon’ble Supreme Court in the case of CIT vs.
Greenworld Corporation (314 ITR 81).. Therefore, in the light of the law
enunciated in the above decisions, it is clear that the directions of the CIT(A) to
AO to reopen the assessments in the case of Rajkumar C (HUF) does not hold
water. 9.6 This issue can be also approached from another prospective. The
information that the appellant earned the subject income was very much available
before the AO at the time of making assessments in the individual hands. In fact,
all along, it is the contention of Shri C.Rajkumar, kartha of the appellant before
AO that the income has to be assessed in the hands of the HUF. But AO had taken
a view that this income is taxable in the hands of individual. It is only when the
CIT(A), while dealing with the appeals in the individual hands of C.Rajkumar, the
AO had come to the conclusion to initiate proceedings u/s 148 in the hands of the
appellant, in order to correct this error of judgment earlier committed. This is not
permissible, as held by the Hon'ble High Court of Karnataka in the case of First
ITO, vs. A.Y.Panduranga Rao(128 ITR 250).
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Kapil Goel Advocate (9910272806) [email protected]
Concealment Penalty : difference of opinion between AO, CIT-A etc
ass Fav order
IN THE HIGH COURT OF DELHI AT NEW DELHI 16. +ITA 313/2016
FORTUNE TECHNOCOMPS (P) LTD. ..... Respondent
13.05.2016
3. By the impugned order the ITAT affirmed the order of the Commissioner
of Income Tax (Appeals) [CIT(A)] deleting the penalty imposed by the
Assessing Officer (‘AO’) under Section 271(1)(c) of the Income Tax Act,
1961 (‘Act’). The ITAT has in the impugned order noted that in the appeal
filed by the Assessee in the quantum proceedings against the order of the
AO making addition on account of bogus purchases, the CIT (A) disallowed
the loss of Rs.55,53,994 claimed by the Assessee on sale of some of the
unbranded items out of the purported purchases made from nine parties.
Further a sum of Rs.12,77,202 was added as additional income by applying
the estimated gross profit rate of 4.25% on the declared sales. The ITAT
thus concluded that the CIT(A) had made the overall addition of Rs.
68,31,196 on ‘estimated basis’. Consequently, the ITAT felt that this is not
a case where a penalty was leviable under Section 271(1) (c) of the Act. 4.
Mr. P.Roy Chaudhuri, learned counsel for the Revenue urged that while
additions of Rs. 12.77 lakhs may have been the basis of the estimated
gross profit rate, the disallowance of loss of Rs.55,53,994 was not based
on any estimate, therefore the penalty could not be deleted. He further
submitted that the ITAT was in error in holding that the AO was denuded of
the power to initiate penalty proceedings once the CIT (A) had deleted the
additions made by the AO in the original assessment proceedings.
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Kapil Goel Advocate (9910272806) [email protected]
According to him, the CIT (A) had merely modified the order of the AO. 5.
The Court notes that in the quantum proceedings originally the AO had
proposed an addition to the extent of Rs.3,62,49,274/- as bogus
transactions of purchases shown by the assessee from nine parties, as the
alleged sellers were not traceable. In the appeal by the Assessee the CIT
(A) held that the entire purchases could not be treated as bogus since the
assessee had established the identity of the suppliers who had made
substantial supplies. The CIT (A) held that the purchases made by the
assessee were genuine and deleted the addition made by AO and instead
made an addition of Rs. 68,31,196 in the manner and for the reasons noted
hereinabove. This order of the CIT (A) stood affirmed by the ITAT when it
dismissed the Revenue's quantum appeal. 6. Despite the basis for
issuance of the penalty notice under Section 271 (1) (c) having
disappeared with the deletion by the CIT (A) of the addition made by the
AO, the latter continued with the penalty proceedings and imposed the
penalty as noted above. This was set aside by the CIT (A). The Revenue
then went in appeal before the ITAT which by the impugned order affirmed
the order of the CIT (A). Relying on the decision of the Calcutta High Court
in CIT v. Ananda Bazar Patrika Pvt. Ltd. (1979) 116 ITR 416 (Cal), the
ITAT held that "once the basis for initiation of penalty proceedings was
altered or modified by the first appellate authority, the Assessing Officer
has no jurisdiction thereafter to proceed on the basis of the findings of the
first appellate authority." 7.Having examined the impugned order of the
ITAT and having considered the submissions of the learned counsel
for the Revenue, the Court is unable to discern any legal infirmity in
the analysis or conclusion reached by the ITAT. Once the assessment
order of the AO in the quantum proceedings was altered by the CIT
(A) in a significant way, the very basis of initiation of the penalty
proceedings was rendered non-existent. The AO could not have
thereafter continued the penalty proceedings on the basis of the same
notice. Also, the Court concurs with the CIT (A) and the ITAT that
once the finding of the AO on bogus purchases was set aside, it could
not be said that there was any concealment of facts or furnishing of
inaccurate particulars by the Assessee that warranted the imposition
of penalty under Section 271 (1) (c) of the Act.
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Kapil Goel Advocate (9910272806) [email protected]
Delhi high court declaring cbdt instruction u/s 143(1D) as ultra vires
IN THE HIGH COURT OF DELHI AT NEW DELHI 9. +W.P.(C) 12304/2015
& CM 32604/2015
TATA TELESERVICES LIMITED ..... Petitioner
11.05.2016
6. By the Finance Act, 2012, with effect from 1st July 2012, sub-section (1D)
was inserted in Section 143 and it reads as under: “(1D) Notwithstanding
anything contained in sub-section (1), the processing of a return shall not
be necessary, where a notice has been issued to the assessee under subsection (2)”. 7. The Memorandum to the Finance Bill, 2012 gives the
following explanation for insertion of the above provision: “Processing of
return of income where scrutiny notice issued Under the existing
provisions every return of income is to be processed under sub-section (1)
of Section 143 and refund, if any, due is to be issued to the taxpayer. Some
returns of income are also selected for scrutiny which may lead to raising a
demand for taxes although refunds may have been issued earlier at the
time of processing. It is therefore proposed to amend the provisions of the
income-tax Act to provide that processing of return will not be necessary in
a case where notice under sub-section (2) of Section 143 has already been
issued for scrutiny of the return. This amendment will take effect from the
1st day of July, 2012."
8. It is evident that Section 143 (1D) in the manner it is worded gives a
discretion to the Assessing Officer („AO‟) to decide whether the return of
has to be processed where a notice has been issued under Section 143 (2)
of the Act. It is significant that sub-section (1D) was inserted in Section 143
subsequent to the insertion of sub-section (1A) which provides for
centralised processing of returns. Under the Scheme framed by the CBDT
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Kapil Goel Advocate (9910272806) [email protected]
in 2011 in terms of Section 143(1A), there is a computerized random
selection of returns which might be taken up for scrutiny. Thus the
discretion regarding picking up a return for scrutiny is no longer left with the
AO. Section 143(1D), however, continues the element of discretion in the
AO when it states that the processing of return “shall not be necessary”. In
other words, it does not expressly state that the return shall not be
processed where a notice has been issued to the Assessee under Section
143(2) of the Act. 9. However, despite terming the language of Section
143(1D) to be "unambiguous" the CBDT felt that it required clarification.
This led to the CBDT issuing the impugned Instruction dated 13th January
2015 under Section 119 of the Act. The said instruction inter aliastates that
some doubts have been expressed in view of the words “shall not be
necessary” used in Section 143(1D) of the Act and that in the light of the
explanatory note in the Finance Act, 2012 (which has been referred to
hereinbefore) “the legislative intent is to prevent the issue of refund after
processing as scrutiny proceedings may result in demand for taxes on
finalisation of the assessment subsequently” (emphasis supplied). The
circular then proceeds to state as under:
“4. Considering the unambiguous language of the relevant provision and
the intention of law as discussed above, the Central Board ofDirect Taxes,
in exercise of the powers conferred on it under section 119 of the Act
hereby clarifies that the processing of a return cannot be undertaken after
notice has been issued under sub-section (2) of section 143 of the Act. It
shall, however, be desirable that scrutiny assessments in such cases are
completed expeditiously. 5. This may be brought to the notice of all
concerned for strict compliance.” 10. The impugned Instruction therefore
interprets the language of Section 143(1D) as „preventing‟ the issue of
refund once notice is issued under Section 143(2) of the Act. It is as a
result of the above impugned instruction and with the notices having been
issued to the Petitioner under Section 143(2) of the Act by the Respondent
No.2 in relation to the returns filed by it for the AYs in question where it had
claimed refund, that the Respondent No. 2 declined to issue the refund by
the impugned communication dated 8th September 2015.
15. Nevertheless, the Petitioner seeks to pursue with its challenge to the
impugned Instruction No.1 of 2015 since it is pointed out that despite the
Petitioner incurring substantial losses year after year and representing to
the Department to issue a lower withholding certificate under Section 197
of the Act, that request has not been acceded to by the Department. This
has compelled the Petitioner to seek refund year after year and those
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Kapil Goel Advocate (9910272806) [email protected]
refunds have been unnecessarily delayed. It is submitted that on the
strength of the impugned Instruction, notices under Section 143(2) of the
Act in respect of the returns filed by the Petitioner were issued as a matter
of routine thus, obviating the need for the Department to process its
returns. The net result is that the refund would be either denied or delayed
and this is hurting the Petitioner since its losses are mounting year after
year 16. Indeed, as already noticed at the time the present petition was
filed, a aggregate figure of the refund that the Petitioner was owed for the
four AYs i.e. 2012-13 to 2015-16 was to the tune of Rs.733.73 crores. This
is a very substantial figure considering the huge losses that the Petitioner
has been suffering over the years. Section 119 of the Act, on the strength
of which the impugned Instruction has been issued by the CBDT, no doubt
enables the CBDT to issue “such orders, instructions and directions” to the
income tax authorities “for the proper administration of this Act”. However,
this power of the CBDT is hedged in by certain limitations. One such
limitation is provided in a proviso to Section 119(1) of the Act. The other
limitation is under Section 119(2) of the Act where it is mentioned that the
direction or instructions issued by the CBDT should not be “prejudicial to
assessees”. 17. The idea of vesting the CBDT with the above power is to
ensure that there is an ease of administration of the Act and that
ambiguities in the practice and procedure may get clarified. At the same
time it has to be ensured that such instructions or orders do not add to the
difficulties of the tax payers. Circulars, orders and instructions issued by the
CBDT under Section 119 of the Act, to the extent they are beneficial to the
Assessees are binding on the Department. If they are prejudicial to the tax
payer, then they cannot prevail over the statute, which does not envisage
such harsher measure. 21. It is sought to be explained by Mr. Ashok K.
Manchanda, learned Senior Standing counsel for the Revenue, that what
has been issued by the CBDT on 13th January 2015 is only an 'instruction'
and not a 'circular' and that the impugned instruction was only for the
internal guidance of the officers of the Department. 22. The Court finds that
it is this very impugned instruction which is being relied upon by the
Department to deny refund, where notice has been issued under Section
143(2) of the Act. This is evident from the impugned letter dated 8th
September 2015, addressed to the Petitioner. The power of the CBDT to
issue such instructions can be traced only to Section 119 of the Act.
Therefore, such 'instruction' also has to adhere to the discipline of Section
119 of the Act. 24. Consequently, the Court is of the view that the
impugned Instruction No.1 of 2015 dated 13th January 2015 issued by the
CBDT is unsustainable in law and it is hereby quashed. It is directed that
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Kapil Goel Advocate (9910272806) [email protected]
the said instruction shall not hereafter be relied upon to deny refunds to the
Assessees in whose cases notices might have been issued under Section
143(2) of the Act. The question whether such return should be processed
will have to be decided by the AO concerned exercising his discretion in
terms of Section 143 (1D) of the Act.
Cit-a ROLE IN Income Tax Act
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.2336 OF 2013
Premkumar Arjundas Luthra (HUF) ..Respondent
DATE : 25TH APRIL, 2016
7. An appeal is filed with the CIT(A) from appealable orders listed in
Section 246A of the Act. We find that the procedure in appeal before the
CIT(A) and the powers of the CIT(A) are governed by Sections 250 and
251 of the Act respectively. The relevant provisions for consideration are
as under:“
Procedure in appeal
250 (1) …....
(2) …...
(3) …....
(4) The Commissioner (Appeals) may, before disposing of
any appeal, make such further inquiry as he thinks fit, or
may direct the Assessing Officer to make further inquiry
and report the result of the same to the Commissioner
(Appeals).”
(5) …....
(6) The order of the Commissioner(Appeals) disposing of the
appeal shall be in writing and shall state the points for
determination, the decision thereon and the reason for the
decision.
(6A) …..... (7) ….....
“Powers of the Commissioner (Appeals)
“Section 251(1) In disposing of an appeal, the Commissioner
(Appeals) shall have the following powers –
(a) – in an appeal against an order of assessment, he may
confirm, reduce, enhance or annul the assessment.
(aa) …....
(b) in an appeal against an order imposing a penalty, he may
confirm or cancel such order or vary it so as either to
enhance or to reduce the penalty.”
(c) ….....
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Kapil Goel Advocate (9910272806) [email protected]
(2) The Commissioner (Appeals) shall not enhance an
assessment or a penalty or reduce the amount of refund unless
the appellant has had a reasonable opportunity of showing
cause against such enhancement or reduction.
Explanation. – In disposing of an appeal, the
Commissioner(Appeals) may consider and decide any matter
arising out of the proceedings in which the order appealed
against was passed, notwithstanding that such matter was not
raised before the Commissioner(Appeals) by the appellant.”
8. From the aforesaid provisions, it is very clear once an appeal is
preferred before the CIT(A), then in disposing of the appeal, he is obliged
to make such further inquiry that he thinks fit or direct the Assessing
Officer to make further inquiry and report the result of the same to him as
found in Section 250(4) of the Act. Further Section 250(6) of the Actobliges the CIT(A)
to dispose of an appeal in writing after stating the
points for determination and then render a decision on each of the points
which arise for consideration with reasons in support. Section 251(1)(a)
and (b) of the Act provide that while disposing of appeal the CIT(A)
would have the power to confirm, reduce, enhance or annul an
assessment and/or penalty. Besides Explanation to subsection(
2) of
Section 251 of the Act also makes it clear that while considering the
appeal, the CIT(A) would be entitled to consider and decide any issue
arising in the proceedings before him in appeal filed for its consideration,
even if the issue is not raised by the appellant in its appeal before the
CIT(A). Thus once an assessee files an appeal under Section 246A of the
Act, it is not open to him as of right to withdraw or not press the appeal.
In fact the CIT(A) is obliged to dispose of the appeal on merits. In fact
with effect from 1st June, 2001 the power of the CIT(A) to set aside the
order of the Assessing Officer and restore it to the Assessing Officer for
passing a fresh order stands withdrawn. Therefore, it would be noticed
that the powers of the CIT(A) is coterminus
with that of the Assessing
Officer i.e. he can do all that Assessing Officer could do. Therefore just as
it is not open to the Assessing Officer to not complete the assessment by
allowing the assessee to withdraw its return of income, it is not open to
the assessee in appeal to withdraw and/or the CIT(A) to dismiss the appeal on account of
nonprosecution
of the appeal by the assessee. This
is amply clear from the Section 251(1)(a) and (b) and Explanation to
Section 251(2) of the Act which requires the CIT(A) to apply his mind to
all the issues which arise from the impugned order before him whether or
not the same has been raised by the appellant before him. Accordingly,
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Kapil Goel Advocate (9910272806) [email protected]
the law does not empower the CIT(A) to dismiss the appeal for nonprosecution
as is evident from the provisions of the Act.
9. In the above view, the question as raised does not give rise to any
substantial question of law. Thus, not entertained.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S) 4091 OF 2016
(Arising out of SLP (Civil)No(s)6384 of 2009)
M/S P.G.& W.SAWOO
PVT.LTD.& ANR. ...APPELLANT(S)
APRIL 19, 2016
The short question that arises for
determination in this appeal is the validity
of the notice issued under Section 148 of
the Income Tax Act (for short, 'the Act')
seeking to reopen the concluded assessment
of the appellant-assessee for the assessment
year 1989-1990 (for the period of 21 months
commencing on 01.07.198 and ending on
31.03.1989).
The contention of the assessee before us is
that having regard to the provisions of
Section 5, 22 and 23 of the Act and the
decision of this Court in 'E.D. Sassoon &Company Ltd. And Others vs. Commissioner
of
Income-Tax', (1954) 26 ITR 27, no income
accrued or arose and no annual value which
is taxable under Sections 22 and 23 of the
Act was received or receivable by the
assessee at any point of time during the
previous year corresponding to the
assessment year 1989-1990. Hence, the
impugned notice seeking to reopen the
assessment in question is without
jurisdiction or authority of law. To controvert the aforesaid contention on
behalf of the appellant-assessee the
respondent-Revenue contends before us that
the enhancement of rent is retrospective
i.e. from 01.09.1987 and, therefore, the
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Kapil Goel Advocate (9910272806) [email protected]
income must have to be understood to have
been received in the said assessment year
i.e. 1989-1990.
The issue is capable of resolution within a
short compass. A reading of the decision of this Court in E.D. Sassoon (supra) would
go
to show that the income to be chargeable to
tax must accrue or arise at any point of
time during the previous year. This Court in
E.D. Sassoon (supra) has held in categorical
terms that income can be said to have
accrued or arisen only when a right to
receive the amount in question is vested in
the appellant-assessee. Viewed from the aforesaid perspective, it is
clear that no such right to receive the rent
accrued to the assessee at any point of time
during the assessment year in question,
inasmuch as such enhancement though with
retrospective effect, was made only in the
year 1994. The contention of the Revenue
that the enhancement was with retrospective
effect, in our considered view, does not
alter the situation as retrospectivity is
with regard to the right to receive rent
with effect from an anterior date. The
right, however, came to be vested only in
the year 1994. In the light of the foregoing discussions,
it has to be held that the notice seeking to
reopen the assessment for the assessment
year 1989-1990 is without jurisdiction and
authority of law. The said notice,
therefore, is liable to be interfered with
and the order of the High Court set aside. We order accordingly. Consequently, the
appeal is allowed. Needless to say, the present adjudication is
confined to the question of jurisdiction to
issue the notice under Section 148 of the
Act for reopening the assessment for the
assessment year 1989-1990. No opinion on the
rights and liabilities of the parties in
respect of the receipt in question with
regard to any subsequent year(s) has been
dealt with by us and we make it clear that
the same will be governed by the relevant
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Kapil Goel Advocate (9910272806) [email protected]
provisions of the Act.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
ITC LIMITED GURGAON
…APPELLANT
April 26, 2016
9. Learned senior advocates Shri Vohra and Shri Syali, assailed the
judgment of the High Court before us. They argued that tips are paid by
customers out of their own volition as payments to the employees being
waiters in a restaurant for the quality of service provided to them and for
courteous behavior. Since this payment is gratuitous, and the assessees
act as mere trustees in collecting the tips charged to the customers’
credit cards, and then pass over the same to the employees, it is clear
that no amount by way of tip has any connection with the contract of
employment between the employer and the employee. They further submitted
that the tips received by the employees are not remuneration or reward for
services rendered by the employees to the assessees. They argued that there
was no vested right of an employee to claim any tip from a customer. It
was further argued that the expression “employer” contained in Sections 15
and 17 is of crucial importance, and must be contrasted with the expression
“any person” occurring in Section 17 (3)(iii). It was also argued, based on
the Hotel Receipts Tax Act and a circular issued thereunder, that tips do
not form any part of taxable receipts of the employers. Further, we were
shown a publication in which guidelines were issued by the Australian Tax
Office stating that voluntary tips are not consideration for the supply of
food or service in a hotel or restaurant. The intervenor represented by
Shri S. Ganesh also argued that Section 192 is attracted only when any
person responsible for paying any income chargeable under the head “salary”
is to deduct income tax on the amount payable. According to the learned
counsel, since the income received from tips is not income chargeable under
the head “salary”, so far as the employees are concerned, but income from
other sources, Section 192 is not at all attracted. It was further agued
by him that the machinery provision contained in Section 192 is not
possible of compliance inasmuch as it is impossible for the employer to
predicate how much each individual employee would get by way of income from
tips, particularly when the schemes for distribution are many and varied
and may include different sums being received by different employees based
on various criteria. He also argued that no question of Section 201 would
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Kapil Goel Advocate (9910272806) [email protected]
come into play in this case as it is only in consequence of failure to
comply with Section 192 that Section 201 is at all attracted. It was also
argued that since the High Court had found that the conduct of the
assessees was bonafide, interest therefore could not have been charged from
them under Section 201(1A). All the learned counsel have relied upon
various judgments of this Court and other courts in support of their
submissions.
10. Shri Neeraj K. Kaul, learned Additional Solicitor General, appearing
on behalf of the Revenue, argued that Section 15(b) referred to salary that
is “paid” or “allowed” to an employee by or on behalf of an employer, and
stated that the expression “allowed” is an expression of wide import and
would include amounts such as tips paid by employers to their employees.
He also relied upon Section 17(3) (ii) to state that any payment received
by an assessee from an employer would be regarded as ‘profit in lieu of
salary’, and that since the amount of tips received by way of credit cards
from the customer are first put into the employer’s account and thereafter
received by the employees from the employer, that was sufficient to attract
‘profits in lieu of salary’ as defined. According to the learned counsel,
the section makes no reference to the contract of employment, which is
therefore a foreigner to the Section. The learned Additional Solicitor
General for this proposition relied heavily upon Karamchari Union, Agra’s
case (supra), to buttress this submission and stated that the High Court
correctly relied upon the said decision. He went on to add that the
judgments contained in Rambagh Palace Hotel and Quality Inn Southern Star
were not directly on point and were rightly distinguished by the High
Court. He also supported the finding of the High Court that bonafide
belief would have no bearing on payability of interest under Section
201(1A). He referred to the provision of section 192(3) in order to
buttress his submission that the machinery provisions contained in Section
192 could easily be worked out as monthly estimates of the tips that were
received or receivable had to be made by the employer.
12. At this stage it is important to analyse Section 192 of the Income
Tax Act. First and foremost, under sub-section (1) thereof, “any person
responsible” for paying any income chargeable under the head “salaries” is
alone brought into the dragnet of deduction of tax at source. The person
responsible for paying an employee an amount which is to be regarded as the
employee’s income is only the employer. In the facts of the present case,
it is clear that the person who is responsible for paying the employee is
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Kapil Goel Advocate (9910272806) [email protected]
not the employer at all, but a third person – namely, the customer. Also,
if an employee receives income chargeable under a head other than the head
“salaries”, then Section 192 does not get attracted at all. In Emil
Webber v. CIT, (1993) 2 SCC 453, the Ballarpur Paper and Straw Board Mills
wanted to set up a caustic soda/chlorine manufacturing plant at Ballarpur.
For this purpose, it entered into two agreements with Krebs, a French
concern, which in turn entered into an agreement with a Swiss concern for
making available services of certain personnel. The assessee, Emil Webber,
was a person engaged by the Swiss concern. The assessee came to India and
worked in connection with the setting up of the said plant. The question
that was posed before this Court was whether the tax component paid by
Ballarpur of the assessee’s taxable income could be included within the
income of the assessee. This Court, in answering the said question,
specifically stated in paragraph 8, that the question arose as to under
which head of income should the said income be placed. This Court held
that inasmuch as the assessee is not an employee of Ballarpur, which made
the payment, it cannot be brought within the purview of Section 17 of the
Act. Thus, such income must necessarily be placed under Section 56(1) of
the Act as ‘income from other sources’.
13. Following the aforesaid decision, it is clear that as income from
tips would be chargeable in the hands of the employees as income from other
sources, such tips being received from customers and not from the employer,
Section 192 would not get attracted at all on the facts of the present
case.
14. Section 15 of the Act is in three parts. Sub-clause (a) refers to
salary that is “due” from an employer or a former employer, whether paid or
not. Under this sub-clause, salary is taxable upon accrual – it matters not
whether payment is actually made or not. On the other hand, under subclause (b), with which we are directly concerned, any salary that is paid
or allowed to an employee by or on behalf of an employer or former employer
though not due, or before it becomes due, becomes taxable. Under this subclause, it matters not whether the salary is at all due. Payment made or
allowance given to the employee by or on behalf of an employer or former
employer is sufficient to bring such payment or allowance to tax under the
said sub-clause. Under sub-clause (c) any arrears of salary paid or allowed
to an employee by or on behalf of an employer or previous employer if not
earlier charged to income tax in any previous year is also brought to tax. 15. It
can be seen, on an analysis of Section 15, that for the said
Section to apply, there should be a vested right in an employee to claim
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Kapil Goel Advocate (9910272806) [email protected]
any salary from an employer or former employer, whether due or not if paid;
or paid or allowed, though not due. In CIT v. L.W. Russel reported in 53
ITR 91 (SC), this Court dealt with the provisions of Section 7(1) of the
1922 Act, which preceded Sections 15 and 17 of the present Act.
16. On the facts of the present case, it is clear that there is no vested
right in the employee to claim any amount of tip from his employer. Tips
being purely voluntary amounts that may or may not be paid by customers for
services rendered to them would not, therefore, fall within Section 15(b)
at all. Also, it is clear that salary must be paid or allowed to an
employee in the previous year “by or on behalf of” an employer. Even
assuming that the expression “allowed” is an expression of width, the
salary must be paid by or on behalf of an employer. It must first be
noticed that the expression “employer” is different from the expression
“person”. An “employer” is a person who employs another person under a
contract of employment, express or implied, to perform work for the
employer. Therefore, Section 15(b) necessarily has reference to the
contract of employment between employer and employee, and salary paid or
allowed must therefore have reference to such contract of employment. On
the facts of the present case, it is clear that the amount of tip paid by
the employer to the employees has no reference to the contract of
employment at all. Tips are received by the employer in a fiduciary
capacity as trustee for payments that are received from customers which
they disburse to their employees for service rendered to the customer.
There is, therefore, no reference to the contract of employment when these
amounts are paid by the employer to the employee. Shri Kaul, however,
argued that there is an indirect reference to the contract of employment
inasmuch as but for such contract, tips to employees could not possibly
have been paid at all. We are afraid that this argument must
be rejected
for the simple reason that the payments received by
the employees have no reference whatsoever to the contract of employment
and are received from the customer, the employer only being a conduit in a
fiduciary capacity in between the two. Indeed, if Shri Kaul’s arguments
were to be accepted, even the position accepted by the revenue and
consequently the High Court that tips given in cash, which admittedly are
not covered by Section 192, would also then be covered inasmuch as such
tips also would not have been given but for the contract of employment
between employer and employee. Clearly, therefore, such argument does not
avail Revenue.
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Kapil Goel Advocate (9910272806) [email protected]
17. However, the sheet anchor of Shri Kaul’s submission is Section
17(3)(ii) in which Shri Kaul stressed that any payment received by an
assessee from an employer would be regarded as profits in lieu of salary.
According to Shri Kaul it is undisputable that payments were received by
the employees from their employer and that, without more, Section 17 would
therefore be attracted to the facts of the case. This argument again cannot
be countenanced for the simple reason that Section 17(3) itself uses two
different expressions – “employer” in sub-clause (ii) and “person” in subclause (iii). Obviously “person” is wider than “employer”. Even the word
“person” which appears in the said sub-clause has reference either to a
future employer or a past employer. Therefore, it is clear that under the
scheme of Section 17, payment must be by an employer, whether such employer
is a future employer or a past employer of the employee in question. When
sub-clause (ii) uses the expression “employer”, it uses the said expression
in the same sense as is used in Section 15, as the opening line of Section
17 itself states that “for the purposes of Section 15” salary includes
profits in lieu of salary. We have already held that the word “employer”
in Section 15 necessarily brings in a contract of employment, express or
implied, and for this reason also we are afraid we are not able to accept
Shri Kaul’s argument.
29. The difference in language between the U.K. Act and Sections 15 and
17 of the Income Tax Act, 1961 is obvious. There need not be an employer
employee relationship under Schedule E read with Rule 1 to attract the
aforesaid provision. Since this is the case, it is clear that amounts that
are received by any person chargeable under the said Schedule and Rule
become taxable even if the said amount is paid by a third person. Keeping
this vital difference in view, let us analyse the two English judgments
relied upon by Shri Kaul.
37. A great deal of argument was made by both sides on the nature of
interest contained in Section 201(1A) of the Act. We find it unnecessary
to go into this question for the simple reason that as held in Commissioner
of Income Tax, New Delhi v. Eli Lilly and Company (India) Private Limited,
(2009) 15 SCC 1 at paragraph 91, interest under section 201(1A) can only be
levied when a person is declared as an assessee-in-default. Having found
that the appellants in the present cases are outside Section 192 of the
Act, the appellants cannot be stated to be assessees-in-default and hence
no question of interest therefore arises.
50
Kapil Goel Advocate (9910272806) [email protected]
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 4361-4366 OF 2016
(Arising out of S.L.P. (C) Nos.5354-5359 of 2014)
VISVESVARAYA TECHNOLOGICAL
UNIVERSITY
April 22, 2016.
The question, therefore, that arises in the present appeals
is the entitlement of the appellant – University – Assessee to
exemption from payment of tax under the provisions of Section
10(23C)(iiiab) of the Act which is in the following terms:
“10. Incomes not included in total
income. In computing the total income of a
previous year of any person, any income falling
within any of the following clauses shall not be
included(23C) any income received by any person on behalf of(iiiab) any university or other
educational institution existing solely for
educational purposes and not for purposes of
profit, and which is wholly or substantially
financed by the Government”
5. The entitlement for exemption under Section 10(23C)
(iiiab) is subject to two conditions. Firstly the educational
institution or the university must be solely for the purpose of
education and without any profit motive. Secondly, it must be
wholly or substantially financed by the government. Both
conditions will have to be satisfied before exemption can be
granted under the aforesaid provision of the Act
The relevant principles of law which will govern the first
issue i.e. whether an educational institution or a university, as
may be, exists only for educational purpose and not for profit
are no longer res integra, having been dealt with by a long line
of decisions of this Court which have been elaborately noticed
and extracted in a recent pronouncement i.e. Queen's
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Kapil Goel Advocate (9910272806) [email protected]
Educational Society vs. Commissioner of Income Tax 1 . The principles that
emanate from the views expressed by this Court
are set out in paragraph 11 in Queen's Educational Society
(supra),….
To the above principles, one further test as laid down in
CIT vs. Surat Art Silk Cloth Manufacturers' Assn.2 and
culled out in American Hotel and Lodging Association
Educational Institute vs. Central Board of Direct Taxes
and Others 3 may be added which is as follows:
“In order to ascertain whether the institute is carried
on with the object of making profit or not it is the
duty of the prescribed authority to ascertain whether
the balance of income is applied wholly and
exclusively to the objects for which the applicant is
established.” (Paragraph 37)
The above principle has been specifically reiterated in
paragraph 19 of the decision in Queen's Educational Society
(supra) in the following terms:
“The final conclusion that if a surplus is made by an
educational society and ploughed back to construct
its own premises would fall out of Section 10(23-C)
is to ignore the language of the section and to ignore
the tests laid down in Surat Art Silk Cloth case [CIT
v. Surat Art Silk Cloth Manufacturers' Assn.(1980) 2
SCC 31], Aditanar case [Aditanar Educational
Institution v. CIT [(1997) 3 SCC 346] and American
Hotel & Lodging case [American Hotel & Lodging
Assn. Educational Institute v. CBDT [(2008) 10 SCC
509]. It is clear that when a surplus is ploughed
back for educational purposes, the educational
institution exists solely for educational purposes and
not for purposes of profit.”
In the present case, we find that during a short period of a
decade i.e. from the year 1999 to 2010 the appellant University
had generated a surplus of about Rs.500 crores. There is no
doubt that the huge surplus has been collected/accumulated
52
Kapil Goel Advocate (9910272806) [email protected]
by realizing fees under different heads in consonance with the
powers vested in the University under Section 23 of the VTU
Act. The difference between the fees collected and the actual
expenditure incurred for the purposes for which fees were
collected is significant. In fact the expenditure incurred
represents only a minuscule part of the fees collected. No
remission, rebate or concession in the amount of fees charged
under the different heads for the next Academic Year(s) had
been granted to the students. The surplus generated is far in
excess of what has been held by this Court to be permissible (6
to 15%) in Islamic Academy of Education and another vs.
State of Karnataka and others 4 though the percentage of
surplus in Islamic Academy of Education (supra) was in the
context of the determination of the reasonable fees to be
charged by private educational bodies. As against the above, the amount of direct
grant from the
Government has been meagre, details of which are being
noticed separately later in a different context. The University
nevertheless has grown and the number of private engineering
colleges affiliated to it had increased from about 64 to presently
about 194. The infrastructure of the University has also
increased offering educational avenues to an increasing
number of students in different and varied subjects. Materials
have been brought on record before the High Court as well as
before this Court to show the several number of work
orders/tenders issued by the University for infrastructure
expansion. It is emphatically contended by the appellant in the
written submissions filed that between 1994 and 2009 the
University had actually spent about Rs.504 crores on
infrastructure and the available surplus in the year 2010
which was in the range of Rs.440 crores was also intended to
be applied for different infrastructural work, details of which
have also been brought on record. However, the said amount
was attached by the Revenue pursuant to the demands raised in terms of the
assessments made. Even in a situation where
direct government grants have not been forthcoming and
allocation against permissible heads like salary, etc. had not
been made the University has thrived and prospered. There
can, however, be no manner of doubt that the surplus
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Kapil Goel Advocate (9910272806) [email protected]
accumulated over the years has been ploughed back for
educational purposes. In such a situation, following the
consistent principles laid down by this Court referred to earlier
and specifically what has been said in paragraph 19 in
Queen's Educational Society (supra), extracted above, it
must be held that the first requirement of Section 10(23C)
(iiiab), namely, that the appellant University exists “solely for
educational purposes and not for purposes of profit” is
satisfied. 10. The above would require the Court to go into the further
question as to whether the appellant University is wholly or substantially financed
by the Government which is an
additional requirement for claiming benefit under Section
10(23C)(iiiab) of the Act. It is not in dispute that grants/direct
financing by the Government during the six (06) Assessment
Years in question i.e. 2004-2005 to 2009-2010 had never
exceeded 1% of the total receipts of the appellant - UniversityAssessee. In such a situation, the argument advanced is that
fees of all kinds collected within the four corners of the
provisions of Section 23 of the VTU Act must be taken to be
receipts from sources of finance provided by the Government.
Such receipts, it is urged, are from sources statutorily
prescribed. The rates of such fees are fixed by the Fee
Committee of the University or by authorized Government
Agencies (in cases of Common Entrance Test). It is, therefore,
contended that such receipts must be understood to be funds
made available by the Government as contemplated by the
provisions of Section 10 (23c) (iiiab) of the Act. Having regard to the text and the
context of the provisions
of Section 10 (23c) (iiiab), 10 (23c) (iiiad) and 10 (23c) (vi) it will
be reasonable to reach a conclusion that while Section 10 (23c)
(iiiab) deals with Government Universities, Section 10 (23c)
(iiiad) deals with small Universities having an annual “turnover” of less than
Rupees One Crore (as prescribed by
Rule 2 (BC) of the Income Tax Rules). On a similar note, it is
possible to read Section 10 (23c) (vi) to be dealing with Private
Universities whose gross receipts exceeds Rupees One Crore.
Receipts by way of fee collection of different kinds continue to a
major source of income for all Universities including Private
54
Kapil Goel Advocate (9910272806) [email protected]
Universities. Levy and collection of fees is invariably an
exercise under the provisions of the Statute constituting the
University. In such a situation, if collection of fees is to be
understood to be amounting to funding by the Government
merely because collection of such fees is empowered by the
Statute, all such receipts by way of fees may become eligible to
claim exemption under Section 10 (23c) (iiiab). Such a result
which would virtually render the provisions of the other two
Sub-sections nugatory cannot be understood to have been
intended by the Legislature and must, therefore, be avoided. It will, therefore,
be more appropriate to hold that funds
received from the Government contemplated under Section
10(23c)(iiiab) of the Act must be direct grants/contribution from
governmental sources and not fees collected under the
statute. The appellant University is
neither directly nor even substantially financed by the
Government so as to be entitled to exemption from payment of
tax under the Act. For the aforesaid reasons, we do not find the present to be
a fit case for interference. The appeals, consequently, are
dismissed however without any order as to costs
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on: 01.9.2015 & Pronounced on : 22.4.2016
Tax Case (Appeal) No.278 of 2014
M/s. Ramaniyam Homes P Ltd.,
"1. Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in holding that
the amount representing the principal loan amount waived by the
bank under the one time settlement scheme which the assessee
received during the course of its business is not exigible to tax?
2. Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal ought to have seen that
the waiver of principal amount would constitute income falling
under Section 28(iv) of the Income Tax Act being the benefit
arising for the business?"
10. On the only remaining issue namely the deletion of the principal
portion of the term loan waived by the bank, the Tribunal held in para 12 of
its order that the term loan had admittedly been used by the assessee for
acquiring capital assets. Therefore, the Tribunal followed the decision of this
Court in Iskraemeco Regent Limited and confirmed the order of the first Appellate Authority.
Hence, this appeal by the revenue.
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Kapil Goel Advocate (9910272806) [email protected]
11. Before taking up the rival contentions for consideration, it may be
necessary to have a look at the decision of this Court in Iskraemeco
Regent Limited, since the first Appellate Authority as well as the Tribunal
have merely followed the said decision . 12. In Iskraemeco Regent Limited, the assessee
admittedly availed
a loan from the bank for the purchase of capital assets. When the assessee
became a sick industrial undertaking, they approached the BIFR. Under a
Scheme of Rehabilitation sanctioned by the BIFR, a one time settlement was
arrived at between the assessee and the Bank. The assessee credited the
waiver of principal amount to the capital reserve account in the balance sheet
treating it as capital in nature. But, the Assessing Officer treated the amount
as income under Section 28(iv) read with Section 2(24). The assessee's
appeal was dismissed by the Commissioner, following the judgment of the
Supreme Court in CIT v. T.V.Sundaram Iyengar & Sons Ltd. [222 ITR
344]. But, the said decision was reversed by a Bench of this Court in a Tax
Case Appeal filed by the assessee in Iskraemeco Regent Limited. This
Court held that a loan transaction has no application with respect to Section
28(iv) of the Income Tax Act and that the same cannot be termed as an
income within the purview of Section 2(24). In paragraph 29 of the
judgment, this Court held that Section 28(iv) has no application to loan
transactions and that therefore, it cannot be termed as income taxable as a
receipt. 13. However, drawing our attention to the definition of the expressions
"income" and "total income" under Sub-sections (24) and (45) of Section 2
and the provisions of the charging Section 4 as well as the relevant
provisions of Sections 28(iv), 41(1) and 59, it is contended by
Mr.T.Ravikumar, learned Standing Counsel for the Department that the
principal amount of loan waived by the Bank under the one time settlement
was a taxable receipt coming within the definition of the expression "income".
\
36. Therefore, the law as expounded by the Delhi High Court appears
to be that if a loan had been taken for acquiring a capital asset, waiver
thereof would not amount to any income exigible to tax. If the loan is taken
for trading purposes and was also treated as such from the beginning in the
books of account, the waiver thereof may result in the income, more so when
it is transferred to the profit and loss account 37. But, the Delhi High Court, both in Logitronics as
well as in
Rollatainers, did not take note of one fallacy in the reasoning given in
paragraph 27.1 of the decision of this Court in Iskraemeco Regent Limited. In
paragraph 27.1 of the decision in Iskraemeco Regent Limited, this Court held
that Section 28(iv) speaks only about a benefit or perquisite received in kind
and that therefore, it would have no application to any transaction involving
money. This observation was actually based upon the decision of the Bombay
High Court in Mahindra & Mahindra, which, in turn, had relied upon the
decision of the Delhi High Court in Ravinder Singh Vs. C.I.T.[205 I.T.R.
353].
38. With great respect, the above reasoning does not appear to becorrect in the light of the
express language of Section 28(iv). What is treated
as income chargeable to income tax under the head 'profits and gains of
business or profession' under Section 28(iv), is "the value of any benefit
or perquisite, whether convertible into money or not, arising from
business or the exercise of a profession." 39. Therefore, it is not the actual receipt of money, but
the receipt of a
benefit or perquisite, which has a monetary value, whether such benefit or
perquisite is convertible into money or not, which is what is covered by
Section 28(iv). Say for instance, a gift voucher is issued, enabling the holder
of the voucher to have dinner in a restaurant, it is a benefit of perquisite,
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Kapil Goel Advocate (9910272806) [email protected]
which has a monetary value. If the holder of the voucher is entitled to
transfer it to someone else for a monetary consideration, it becomes a
perquisite convertible into money. But, irrespective of whether it is
convertible into money or not, it should have a monetary value so as to
attract Section 28(iv). A monetary transaction, in the true sense of the
term, can also have a value. Any number of instances where a monetary
transaction confers a benefit or perquisite that would have a value, can be
conceived of. There may be cases where an incentive is granted by the
supplier, waiving a portion of the sale price or granting a rebate or discount
of a portion of the price to be paid, when the payments scheduled over a
period of time, are made promptly. It is needless to point out that in such
cases, the prompt payment of money itself brings forth a benefit in the form
of an incentive or a rebate or a discount in the price of the product. We do not know why it
should not happen in the case of waiver of a part of the loan.
Therefore, the finding recorded in paragraph 27.1 of the decision in
Iskraemeco Regent Limited that Section 28(iv) has no application to
any transaction, which involves money, is a sweeping statement and
may not stand in the light of the express language of Section 28(iv).
In our considered view, the waiver of a portion of the loan would certainly
tantamount to the value of a benefit. This benefit may not arise from "the
business" of the assessee. But, it certainly arises from "business".
The
absence of the prefix "the" to the word "business"makes a
world of difference.
40. We shall now turn our attention to the distinction sought to be
made between the waiver of a portion of the loan taken for the purpose of
acquiring capital assets on the one hand and the the waiver of a portion of
the loan taken for the purpose of trading activities on the other hand.
41. It appears that in so far as accounting practices are concerned, no
such distinction exists. Irrespective of the purpose for which, a loan is availed
by an assessee, the amount of loan is always treated as a liability and it gets
reflected in the balance sheet as such. When a repayment is made in
monthly, quarterly, half yearly or yearly instalments, the instalment is
divided into two components, one relating to interest and another relating to
a portion of the principal. To the extent of the principal repaid, the liability as
reflected in the balance sheet gets reduced. The interest paid on the principal
amount of loan, will be allowed as deduction, in computing the income under the head "profits
and gains of business or profession", as per the provisions
of the Act.
44. In view of the above, the questions of law are liable to be
answered in favour of the Revenue/appellant. Accordingly, they are answered
in favour of the appellant/Revenue and the appeal filed by the Revenue is
allowed. No costs.
Karnataka high court in case of
IBC Knowledge Park Pvt Ltd
28/04/2016
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Kapil Goel Advocate (9910272806) [email protected]
 Under section 153A, the satisfaction regarding an inference of liability
must be recorded.
 Mere fact that search has been conducted would not justify issuance of
notice u/s 153A of the Act;
 It is only when during a valid search incriminating materials are detected
notice could be issued;
 Sine qua non for purpose of assessment/reassessment u/s 153C/153A is
detection of undisclosed income;
 When no material belonging to 3rd party is found but only inference is
there of undisclosed income, section 153c would have no application;
 CBDT circular no.24/2015 applied & held that section 153C sans
satisfaction to the effect seized documents represent undisclosed income and
are incriminating in nature held viod ab inition
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.2455 OF 2013
M/s. Air Cargo Agents Association of
India
DATE : 31ST MARCH, 2016
Mr. Kotangale, the learned counsel for the Revenue in support of the
appeal placed reliance upon the decision of the Apex Court in Bangalore
Club v/s. CIT 350 ITR 509 and submits that in view of the aforesaid
decision, the concept of mutuality will not be applicable/available to the
respondentassessee.
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Kapil Goel Advocate (9910272806) [email protected]
This is for the purpose that some part of its excess of
income over expenditure has been invested in Mutual Funds. On the
other hand, Mr. Jhaveri, the learned counsel for the Assessee reiterates the
reasoning in the impugned order of the Tribunal and further points out
that the dividend received on the Mutual Funds have been offered to tax.
find that the contributions made by the members to the
respondentassessee
cannot be a subject matter of tax merely because the
part of its excess of income over expenditure is invested in mutual funds.
It is also not the case of the Revenue that the dividend received from
mutual funds have not been offered to tax by the respondentassessee.
The concept of Mutual concerns not being subject to tax is based on the
principle of no man can profit out of itself. Therefore the test to be
satisfied before an association can be classified as a Mutual concern are
complete identity between the members i.e. contributors and the participants, the action
of the mutual concern must be in furtherance of its
objectives and there must be no scope of profiteering by the contributors
from a fund. These tests have in fact been reiterated in Bangalore Club
case (supra). However, the facts therein are completely distinguishable.
Amongst the members of the Bangalore Club were certain banks. The
Bangalore Club have invested its excess funds in member banks as well as
non member banks in form of fixed deposits and earned interest thereon.
The assessee thereon paid tax on the interest earned on fixed deposit with
non member banks. However, so far as interest earned from member
banks was concerned, the assessee therein sought to apply the doctrine of
mutuality to contend that the interest on the fixed deposit received from
the member banks would not be assessable to tax as the dealing was with
members only. The Apex Court held that no sooner any amount is
invested by an association claiming to be mutual concern in a fixed
deposit with the banks the complete identity between the contributors
and the participants in the fund on the amounts invested in member banks
is ruptured. It held that till the surplus funds were generated and was
used only amongst the members/contributors, the complete identity
between contributors and participants continued. However the moment
the funds are invested in fixed deposits with the banks and the funds are
used for advancing loans etc. by the Bank to its customers, the identity of
participants and contributors is sapped. Thus the interest earned on fixed
::: deposits is to be brought to tax. However, it is to be noted that it did not
result in the Bangalore Club being taxed on all contributions of its
members. The case of the Revenue here is that having invested excess
amounts in mutual funds the concept of mutuality would not extend to
the contribution made by the members of the association even though the
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Kapil Goel Advocate (9910272806) [email protected]
contributions are used to achieve the objectives of the association. In fact
as pointed out above the Apex Court in Bangalore Club (supra) did not
hold so but only brought to tax the interest earned on fixed deposit with
member banks. In this case it is not disputed that the income earned on
account of investments made in Mutual Funds has been offered to tax.
The respondent has in effect followed the decision of the Apex Court in
Bangalore Club (supra). However as held in Bangalore Club (supra), it
cannot result in the respondent being charged to tax on the contribution
received from its members. In fact the decision of this Court in Common
Effluent (supra) concludes the issue in favour of the respondent assessee.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 2443 OF 2013
M/s. Saifee Hospital Trust .. Respondent.
DATE : 4th APRIL, 2016.
On further appeal by the Revenue to the Tribunal, reliance was
placed by the Revenue upon the decision of the Allahabad High
Court in Allahabad Agricultural Institute & Others v/s. Union of
India 291 ITR 116 to contend that as the trust deed has been
amended, benefit of exemption under Section 11 of the Act is not
available as registration under Section 12A
of the Act itself ceased.
The Tribunal had on examination of the amended trust deed as well
as original trust deed found that there was no change in its
objectives. Thus holding decision of the Allahabad High Court in
Allahabad Agricultural & Institute (supra) would not apply to the
present facts as in that case, there was a change in the objects of
the trust as some additional objects being added in the
amended trust deed. In the above facts, the appeal of the Revenue
was dismissed while upholding the order of the CIT(A); and We find that both the
Tribunal as well as the CIT(A) have rendered
a concurrent finding of fact that there has been no change in the
object clause of the trust by virtue of amended trust deed. Thus,
decision of Allahabad High Court in Allahabad Agricultural Institute
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Kapil Goel Advocate (9910272806) [email protected]
(supra) being relied upon by the Revenue is completely
distinguishable. Thus, the question of law as framed does not give rise to any
substantial question of law. Hence, not entertained.
We find that it is not disputed before us that the primary objects of
the RespondentAssessee
is to provide treatment to patients who
cannot afford to pay for treatment. Thus merely because in
rendering services to patients who can afford to pay, some income
is generated, the same would not result in it ceasing to be a
charitable trust. Further, the Revenue has not been able to show
that the finding of the Authority that 85% of its income is applied to
charitable purpose, is perverse
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.2348 OF 2013
Mrs. Hemal Raju Shete .. Respondent.
DATED : 29TH MARCH, 2016
The respondent-assessee filed her return of income for
the assessment year 2006-07 declaring total income of
Rs.11,68,470/-. The respondent-assessee had also shown the long
term capital gain of Rs.42,38,674/- arising out of the sale of 75,000
shares of M/s. Unisol Infraservices Ltd. (M/s. Unisol) to one
M/s.Radha Krishna Hospitality Services (P) Ltd. (“RKHS”) in terms
of agreement dated 25th January, 2006. The Assessing Officer on
perusal of the agreement dated 25th January, 2006 was of the view
that under the agreement, the respondent-assessee as well as other
co-owners (Shete family) of M/s. Unisol were to receive in aggregate
a sum of Rs.20 crores and proceeded to tax entire amount of Rs.20
crores in the subject assessment year in the hands of all co-owners
of shares. This resulted in the respondent-assessee being taxed on
her share of capital gains at Rs.4.48 crores after availing exemption
under Section54EC of the Act. In the result the Assessing Officer by
order dated 30th December, 2008 assessed the respondent to an
income of Rs.4.60 crores.
Mr.Pinto, learned counsel for the Revenue urged that in
terms of section 45(1) of the Act that transfer of capital asset
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Kapil Goel Advocate (9910272806) [email protected]
would attract the capital gains tax. It is further submitted that the
amount to be taxed under section 45(1) is not dependent upon the
receipt of the consideration. In support of the above he invites our
attention to Section 45(1)(A) and section 45(5) of the Act which in
contrast brings to tax capital gains on amount received. In the
above view, it is his submission that the Assessing Officer was
justified in bringing to tax entire amount of the respondentassessee's
share in Rs.20 crores referred to in the agreement dated
25th January, 2006 as maximum amount that could be received on
the sale of shares in M/s. Unisol by its co-owners from M/s. RKHS. In the present case,
from the reading of the above
clauses of the agreement the deferred consideration is payable over
a period of four years i.e. 2006-07, 2007-08, 2008-09 and 2009-10.
Further the formula prescribed in the agreement itself makes it
clear that the deferred consideration to be received by the
respondent-assessee in the four years would be dependent upon the profits made by
M/s. Unisol in each of the years. Thus in case
M/s. Unisol does not make net profit in terms of the formula for the
year under consideration for payment of deferred consideration then
no amount would be payable to the respondent-assessee as deferred
consideration. The consideration of Rs.20 crores is not an assured
consideration to be received by the Shete family. It is only the
maximum that could be received. Therefore it is not a case where
any consideration out of Rs.20 crores or part thereof (after reducing
Rs.2.70 crores) has been received or has accrued to the respondentassessee.
As observed by the Apex Court in Morvi Industries Ltd.
vs. CIT (1971) 82 ITR 835. “The income can be said to accrue
when it becomes due.... The moment the income accrues, the
assessee gets vested right to claim that amount, even though not
immediately.” In fact the application of formula in the agreement
dated 25th January, 2006 itself makes the amount which is
receivable as deferred consideration contingent upon the profits of
M/s.Unisol and not an ascertained amount. Thus in the subject
assessment year no right to claim any particular amount gets vested
in the hands of the respondent-assessee. Therefore, entire amount
of Rs.20 crores which is sought to be taxed by the Assessing Officer
is not the amount which has accrued to the respondent-assessee.
The test of accrual is whether there is a right to receive the amount
though later and such right is legally enforceable. In fact as
observed by the Supreme Court in E.D. Sassoon & Co. Ltd. Vs. CIT (1954) 26 ITR 27
“It is clear therefore that income may
accrue to an assesee without the actual receipt of the same. If the
assessee acquires a right to receive the income, the income can be
said to have accrued to him though it may be received later on its
being ascertained. The basic conception is that he must have
acquired a right to receive the income. There must be a debt owed
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Kapil Goel Advocate (9910272806) [email protected]
to him by somebody. There must be as is otherwise expressed
debitum in presenti, solvendum in futuro …. …. ….”. In this case
all the co-owners of the shares of M/s.Unisol have no right in the
subject assessment year to receive Rs.20 crores but that is the
maximum which could be received by them. This amount which
could be received as deferred consideration is dependent/contingent
upon certain uncertain events, therefore, it cannot be said to have
accrued to the respondent-assessee. The Tribunal in the impugned
order has correctly held that what has to be taxed is the amount
received or accrued and not any notional or hypothetical income. As
observed by the Apex Court in Commissioner of Income-Tax vs.
M/s. Shoorji Vallabdas and Co. (1962) 46 ITR 144 “Income-Tax
is a levy on income. No doubt, the Income-Tax Act takes into
account two points of time at which liability to tax is attracted, viz.,
the accrual of its income or its receipt; but the substance of the
matter is income, if income does not result, there cannot be a tax,
even though in book-keeping an entry is made about a hypothetical
income, which does not materialize.” In this case Rs.20 crores cap in the agreement is
not income in the subject assessment year. It
has been observed by the Apex Court in the case of K.P. Varghese
vs. Income-Tax Officer, Ernakulam & Anr. 181 ITR Page 597
that one has to read capital gain provision along with computation
provision and the starting point of the computation is “the full
value of the consideration received or accruing”. In this case
the amount of Rs.20 crores is neither received nor it has accrued
to the respondent-assessee during the subject assessment year.
We are informed that for the subsequent assessment year (save
Assessment Year 2007-08 for which there is no deferred
consideration on application of formula), the Assessee has offered
to tax the amounts which have been received on the application of
formula provided in the agreement dated 25th January, 2006
pertaining to the transfer of shares.
9. The contention of the Revenue that the impugned order
is seeking to tax the amount on receipt basis by not having brought
it to tax in the subject assessment year, is not correct. This for the
reason, that the amounts to be received as deferred consideration
under the agreement could not be subjected to tax in the assessment
year 2006-07 as the same has not accrued during the year. As
pointed out above, accrual would be a right to receive the amount
and the respondent-assessee alongwith its co-owners have not under
the agreement dated 25th January, 2006 obtained a right to receive Rs.20 crores or any
specified part thereof in the subject assessment
year.
10. In the above view there could be no occasion to bring
the maximum amount of Rs. 20 crores, which could be received as
deferred consideration to tax in the subject assessment year as it
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Kapil Goel Advocate (9910272806) [email protected]
had not accrued to the respondent-assessee.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1816 OF 2013
M/s. Reliance Communication Ltd. ... Respondent
MONDAY, 28TH MARCH, 2016
8. We have considered the rival contentions carefully. There
is no reason to multiply this order with some decisions and
reference to them in detail. Suffice it to state that Mr. Tejveer
Singh relies on the decision of a Division Bench of this Court in
Commissioner of Income Tax vs. Hindustan Lever Limited
(2012) 343 ITR 161.
9. That decision refers to the assessment year 1998-99 where
the assessee filed return of income of Rs.661.15 crore and
claimed deduction in the sum of Rs.11.41 crore under section 80I, Rs.21,=8.62 crore under section 80-IA and Rs.20.20 crore
under section 80-HH. The Assessing Officer assessed the income
under section 43(3) at Rs.814.66 crore and restricted the
deduction claimed to the sum or figure quoted in paragraph 3 of
the order. The Commissioner noticed on verification of the
records that the expenditure having a bearing on the profits of
the units had not been considered for allocation. The
Commissioner found that in the exercise carried out by the
Assessing Officer there was indeed an error and the order of the
Assessing Officer, therefore, is erroneous insofar as it is
prejudicial to the interest of the Revenue. The rival contention have been noted
and in dealing with them, the Division Bench
found that the Tribunal has interfered with a finding by
proceeding on the basis that during the course of assessment, the
Assessing Officer made a specific query. This query was with
reference to the deduction under the three sections, that assessee
gave reply for each and every item qua this deduction which was
enquired into by the Assessing Officer. That was replied one by
one. It is only thereafter that the Assessing Officer accepted the
claim of the assessee. According to the Division Bench, there was
patent fallacy in the approach of the Tribunal inasmuch as the
Assessing Officer sought explanation on why certain expenditure
should not be allocated and the reply of the assessee contained
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virtually no material or details to establish that there was no
direct nexus between the expenditure incurred under the heads
in question and the business of the undertakings with reference
to which the deduction was claimed. If there was a general
explanation given that the expenditure, namely, capital on
scientific research had not been incurred at the undertakings and
is not directly linked to the operations of the undertakings but
the facts to the knowledge of the assessee were not revealed,
then, that was no explanation at all. Once that was no explanation, much less
acceptable, then, the Assessing Officer
should not have proceeded on the lines indicated by the
Commissioner as that was a complete error. That resulted in his
order being erroneous and prejudicial to the interest of the
Revenue. It is in dealing with that situation so also the
contention raised by the assessee of having supplied the relevant
details and giving a point to point reply that the observations
relied upon by paragraph 17 by Mr. Tejveer Singh have been
made. That must be seen in the backdrop of the facts. In such
circumstances, when the order in that case was found to be
erroneous insofar as it is prejudicial to the interest of the
Revenue that the Commissioner rightly stepped in.
10. In the case before us, the concession of the assessee's
authorized representative apart, what the Tribunal found and on
all the three items highlighted by Mr. Tejveer Singh is that there
were materials before the Assessing Officer. The Assessing
Officer made enquiries about the above referred aspects and
which have been noted by the Commissioner. The assessee made
submissions by placing all relevant documents before the
Assessing Officer. Thus the case does not fall within the parameters laid down in
the decision of the Hon'ble Supreme
Court and other High Courts. The mere fact that the Assessing
Officer did not make any reference to these three issues in the
assessment order cannot make the order erroneous when the
issues were indeed looked into. The entire details were filed and
the order itself indicates that it can be inferred that the Assessing
Officer not only made enquiries, but satisfied himself with the
assessee's replies furnished from time to time in support of its
stand. When the Tribunal concludes in this manner and finally in
paragraph 16 holds that the Assessing Officer took a perfectly
correct or a possible view, then, the order passed by him cannot
be termed as erroneous insofar as it is prejudicial to the interest
of the Revenue. The Commissioner of Income Tax was not,
therefore, justified in invoking section 263 of the Act.\
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We are of the view that the Tribunal's order and conclusions
are essentially on facts. They cannot be termed as perverse and
after it adverted to the rival contentions and all the materials on
record. The Tribunal's order cannot thus be held to be vitiated by
an error of law apparent on the face of record so as to call for
interference in our further appellate jurisdiction. The appeal therefore, does not
raise any substantial questions of law, but the
attempt of the Revenue is to have a reappreciation and
reappraisal of the same factual material. That is impermissible.
The appeal is, therefore, devoid of merits and is dismissed. No
order as to costs.
IN THE HIGH COURT OF BOMBAY AT GOA
TAX APPEAL NO. 66 OF 2015
Shri Girish L. Ragha,
Date:- 17th March, 2016
Upon hearing the learned counsel appearing for the
respective parties, the only contention which arise for consideration is
whether the Income Tax Appellate Tribunal was justified to come to the
conclusion that merely purchasing a flat for the purpose of seeking
exemption of capital gain taking within a period of two years would
imply taking the actual possession and also completion certificate of such
premises within such period.
On perusal of the records, we find that the fact finding
authorities below have concurrently come to the conclusion that the
consideration amount was in fact paid for the purpose of purchasing the
flat to the Developer M/s Ashraya Real Estate Developers. It is also not
disputed that the construction was incomplete as there was a dispute
between a Bank and the original owner in respect of the subject
property. Only after the injunction was vacated, the developers could
complete the premises and hand over possession to the respondent
which admittedly is beyond the period of two years. On the basis of
such fact, as the payment of the total consideration was paid by the
respondent, merely because the residential premises were not occupied,
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Kapil Goel Advocate (9910272806) [email protected]
as the possession was not delivered to the respondent by the Developer
and the deed of conveyance was not executed within such period
would not by itself be a ground to deprive the respondent from availing
the exemption of payment of capital gain under Section 54 of the
Income Tax Act. Our view also takes support of the judgment of the
Delhi High Court reported in 2014 SCC OnLine Del 4087 in the case
of the Commissioner of Income Tax II V/s Kuldeep Singh wherein it has
been observed at paras 6, 8, 9, 10, 11, 12 and 13 thus…
We are in respectful agreement with the view taken by the
Delhi High Court to come to the conclusion that the purchase would be
computed when the consideration is duly paid by the assessee for the
purpose of purchasing the premises and the construction had already
commenced by the builder which remained to be completed on account
of the litigation. In the present case, the learned Tribunal has noted that
the assessee has sold the property on 01.12.2009 and the assessee has
made the payment on 16.03.2010. The assessee was required to get the
house and occupancy certificate on or before 01.12.2011. But however,
the assessee got the occupancy certificate of the property on 17.01.2014.
The learned Tribunal further noted that the assessee submitted the
documentary evidence to show that after purchasing the property there was a
civil suit filed by the other parties and the assessee could not
complete the construction and the licence for constructing the house was
accordingly delayed. The learned Tribunal further noted that CIT (A) in
his order relied upon the decision of the Madras High Court in the case
of CIT V/s Sadarmal Kothani, 302 ITR 286 (Chennai) wherein, it is
held that in order to get the benefit under Section 54 of the Income Tax,
the assessee need not complete the construction of the house and occupy
the same. It is further noted that the assessee has invested the money
and the occupancy certificate is delayed which is beyond the control of
the assessee then the assessee is entitled for deduction under Section 54
of the Act. The learned Tribunal as such found that the assessee was
entitled for deduction under Section 54 of the Act and consequently,
dismissed the appeal of the Revenue. Considering the said facts and the
ratio of the judgment referred to herein above, we find that there is no
substantial question of law which arises for consideration in the present
appeal under Section 260A of the Income Tax Act, 1961.
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Kapil Goel Advocate (9910272806) [email protected]
IN THE INCOME TAX APPELLATE TRIBUNAL
“C” BENCH, CHENNAI
ITA No.992/Mds/2015
Assessment Year : 2001-02
M/s Emgeeyar Pictures P. Ltd.,
11th March, 2016
At the time of hearing, the parties were directed to examine the
points of difference and to bring forth appropriate/ common points of
dispute
so as to enable the Third Member to resolve the issues. Accordingly, the
learned Counsel as well as the learned Departmental Representative
formulated the points of difference emerging out of the respective orders of
Hon'ble Members. On going through the same, and after discussing the
matter with the parties, I have reframed the points of difference as under:
1. Whether the notice issued u/s 148 r.w.s 150(1)of the
Act dated 10.6.2011 for the assessment year 2001-02 is
based on any finding or direction issued by the ITAT in
I.T.A.Nos.327 & 328/Mds/2010?
2. In the event of holding that there is a finding or direction,
whether the notice issued u/s 148 of the Act dated
10.6.2011 is barred by limitation or not?
I have carefully considered the rival submissions and perused
the record. As could be noticed from the observations made by the
Tribunal, while disposing of the appeals for assessment years 2003-04
and 2004-05, a casual observation was made to deal with the issue
before them as to whether the capital gains is attracted in assessment
year 2003-04 and 2004-05; but there is no specific finding or direction
that it is assessable to tax in assessment year 2001-02. Even if it is
assumed that there is a finding or direction, in my humble opinion, the
Hon'ble Madras High Court, in the case of M/s Goldmine Investments
(supra) Tax Case (Appeal) No.215 of 2008 dated
29.11.2013,, has considered an identical issue wherein it was held that in
respect of any assessment year wherein further proceedings are barred
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Kapil Goel Advocate (9910272806) [email protected]
by limitation, the same cannot be reopened merely by virtue of an
opinion expressed by any higher forum at a later date i.e. subsequent to
the date of limitation period. In fact, the judgments of the Apex Court are
also on the same lines. Having regard to the circumstances of the case,
I am of the view that the reopening of assessment is bad in law since the
proceedings u/s 148 of the Act are sought to be initiated by issuing notice
after the period of limitation. In the light of the above findings, the
reframed questions are answered as follows:
(1) The notice issued u/s 148 r.w.s 150(1) of the Act, cannot be
said to be based on any finding or direction issued by the
ITAT in I.T.A.Nos.327 & 328/Mds/2010.
(2) Even otherwise the notice issued u/s 148 of the Act is
barred by limitation.
18. Now, the case will be placed before the Regular Bench for
passing a concluding order in accordance with the majority view.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO. 3172 OF 2015
Soignee R. Kothari
DATED : 5th APRIL, 2016.
However, on enquiry by the Revenue from HSBC, Geneva, it was
learnt that a modified Consent Waiver Form would not enable the bank
to give copies of the bank statement of A/c. No. 5091404580 since the
Waiver would have to be provided without modifications. We notice
that the principal contention of the Petitioner before us has been that
she is nonresident and it is only her income which is received or
accrued or arising in India which can be brought to tax under the Act.
Thus, it is submitted that it is for the Revenue to establish that the
income had accrued or arisen in India which was lying on 26th March,
2006 in A/c. No. 5091404580 in HSBC, Geneva. We find that the
Petitioner and/or her uncle – Dilip Mehta i.e. Executor of the Estate of
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Kapil Goel Advocate (9910272806) [email protected]
late Ramniklal N. Mehta who could probably amongst others be able
to produce copies of the bank statement either by giving a Consent
Waiver Form to the Income Tax Department or in the alternative Mr.
Dilip Mehta could instruct the Director of M/s. White Cedar to apply for
and furnish to him copies of the bank statement in A/c. No.
5091404580 of HSBC,Geneva. The fact that it is within the
authority/power of Mr. Dilip Mehta to instruct M/s. White Cedar is
evident from the letter dated 14th. August 2014 addressed by HSBC
Bank, Geneva to M/s. Red Oak Operation Ltd. which has been taken on
record and marked X for identification. This bank statement if obtained
from HSBC, Geneva, would reveal and/or possibly give clues as to the
source of amounts deposited in the Account No. 5091404580 of HSBC
Bank, Geneva . Neither the Petitioner nor her uncle i.e. Executor of the
Estate of late Ramniklal N. Mehta is ready to obtain the necessary
statement either directly or through M/s. White Cedar from HSBC,
Geneva in respect of A/c. No. 5091404580 by exercising or causing to
be exercised the limited authority to instruct White Cedar to apply for
and obtain the requisite information. In the normal course of human
conduct if a person has nothing to hide and serious
allegations /questions are being raised about the funds a person
would make
available the documents which would put to rest all questions which
seem to arise in the mind of the Authorities. The conduct on the part of
the Petitioner and her uncle, in not being forthcoming, to our mind
leads us to the conclusion that this is not a fit case where we should
exercise our extra ordinary writ jurisdiction and/or interfere with the
orders passed by the authorities under the Act. If a person has nothing
to hide, we believe the person would have cooperated in obtaining the
Bank Statements.
It may be pointed out that just before giving our reasoned order, Mr.
Nitesh Joshi, the learned Counsel appearing for the Petitioner
sought permission to withdraw this Petition. We declined. This
is
particularly, so as after having taken up substantial time of the Courtand
only after we expressed our final view that we are dismissing the
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Kapil Goel Advocate (9910272806) [email protected]
Petition, an attempt is made to withdraw the petition. This cannot be
permitted.
Therefore, for the reasons indicated herein above in para 11, we
see no reasons to exercise our extra ordinary writ jurisdiction in the
case of present Petitioner. We are not expressing any opinion on merits.
of the Petition. The parties are entitled to raise all contention available
to it in law before the authorities under the Act.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.2307 OF 2013
JUDGMENT PRONOUNCED ON: 13TH APRIL 2016
The assessment year in question is 200910. The revenue has proposed the
following question of law for our consideration:
6.1 “Whether on the facts and in circumstances of the case, the Hon'ble ITAT
was justified in allowing the
appeal of the assessee brushing aside the provisions of
Section 11 (4A) of the Income Tax Act, 1961 ?”
We have heard learned counsel for the parties and
with their assistance we have perused the order passed by the DIT
(E) and the impugned order of the tribunal and other documents as
placed in the paper book. The admitted position is that the assesseetrust
being founded on 10th April 1959 had applied for registration
under section 12A of the Act on 29th June 1973 and was granted
registration under section 12A of the Act, considering the object of
the trust to be charitable. Even after amendment of the Trust Deed
the main object of the trust was to promote education and conduct
colleges or schools, institutions etc for advancement of education, giving
scholarship or assistance to students prosecuting studies.
Further one of the object was also to pay some part of income to any other
institutions which are carrying out the said objects. In
furtherance of these objects, the building of the assesseetrust which
consist of ground floor and class rooms from 2nd to 7th floors were let out to
Lala Lajpatrai Institute which conducts junior college,
senior college, Law college and a management Institution on the 6th and 7th
floors. In the Assessment year in question it was observed
that the assessee had received service charges of Rs.12.00 lacs and
letting out of the premises for running the Institution of Management
and also an amount of Rs.15,02,182/was received for letting out of the auditorium.
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Kapil Goel Advocate (9910272806) [email protected]
On this basis the DIT (E) by an order dated 22nd
May 2013 concluded that case of the assessee would fall within the
proviso to section 2 (15) of the Act as made applicable with effect
from Assessment year 200910, in as much as case of the assessee
could no more be categorized as 'advancement of education' and
would fall under the first proviso to section 2 (15) of the Act so as to
be “any other object of general public utility”, which stands excluded
to be a charitable purpose as it involved an activity in the nature of
trade, commerce or business in exchange for a consideration and the
use or application or retention of the income from such activity. The
Tribunal however, negatived these findings of the DIT (E)
We may observe that the premises of the assessee were
let out to Lala Lajpatrai Institute to conduct junior college, senior college, Law
College and a management Institution which is
indisputedly an educational purpose. This is also in consonance with
the objects of the assesseetrust which is to conduct colleges and schools and
achieve 'advancement of education.' It is further an
admitted position that these premises were let out on a nominal rent.
The objection of the DIT (E) that the 6th and 7th floors rendered an
income of Rs.12.00 lacs from the Institution of Management by way
of service charges which according to the DIT (E) indicated that the
assessee was involved in carrying out activities in the nature of trade,
commerce or business, amounting to the assessee deviating from its
object of 'advancement of education'. In our opinion, considering the
facts, this conclusion of the DIT (E) is not well founded. The DIT (E)
has overlooked that the principal purpose for which the premises
were let out was for conducting an educational activity namely the
Management Institution. There is no material before the DIT (E) to
show that the 6th and 7th floors were used for purposes other than the
Management Institution or for any other purpose which is not an
educational purpose. First Proviso to section 2 (15) of the Act would
also not be attracted in this situation. As regards the auditorium the
same was also part of the building housing these colleges conducted
by Lala Lajpatrai Institute which was used by the colleges for 209
days and it was vacant for 76 days and was let out only for 80 days
only when it was not needed by the colleges. In the course of this
letting out the assessee had incurred expenses for electricity and AirConditioners.
Letting out of the auditorium was not the dominant
object of the trust and admittedly the auditorium was incidentally let
out to outsiders for commercial purpose. It thus cannot be said that
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Kapil Goel Advocate (9910272806) [email protected]
such letting out would fall within the first proviso to section 2 (15) of the Act. It
is wellsettled principle of law that the test to determine as to what
would be a charitable purpose within the
meaning of section 2 (15) of the Act, is to ascertain what is the
dominant object of the activity; whether it is to carry out a charitable
purpose or to earn profit. If the predominant object is to carryout a
charitable purpose and not to earn profit the purpose would not lose
its charitable character merely because the some profit arises from the activity.
(See CIT Andhra Pradesh vs APSRTC Hyderabad
(1986) 2 Supreme Court Cases 391) The revenue's contention that the tribunal has
overlooked the provisions of section 11(4A) is unfounded. We have
noted above that the service charges received in respect of 6th and 7th
floor were clearly on account of educational purpose. Letting out
was incidental and not the principle activity of the assesseetrust.
Thus, in our opinion, section 11(4A) which require separate account
to be maintained would not be attracted in view of our conclusion
that the said amounts as received by the assessee for the assessment year have
been received from educational activity which is the
dominant activity of the assesseetrust. In our opinion, if this be the
case, separate books of accounts cannot be insisted upon as the said
activity becomes part and parcel of the educational activities carried
out by the assesseetrust. In such a case, the benefit of exemption
under section 11 (4A) cannot be denied. An interpretation as urged on behalf
of the revenue would render nugatory the very spirit,
rationale and the object of the exemption provisions making the same unworkable.
In this context, we may usefully refer to the observations of the division bench
of this Court in the case of Director of Income Tax (Exemption) vs
Vile Parle Kelawani
Mandal to which one of us (S.C.Dharmadhikari, J) is a member) in
which a similar contention as urged on behalf of the revenue was repelled. The
assessee has also appropriately relied on the
Circular No.11 of 2008 of the CBDT and which was issued in view of
the amendment to section 2 (15) of the Act and insertion of the first
proviso in question. The circular further clarifies the position as held by us
above. We answer the question accordingly
in affirming the view taken by the tribunal and dismiss the appeal
with no order as to costs.
THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.2251 OF 2013
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Kapil Goel Advocate (9910272806) [email protected]
DATE : 5TH APRIL, 2016
The RespondentAssessee had in 2003 subscribed to 2% nonconvertible
unsecured debentures of Rs.42 crores issued by one of its
group companies viz. M/s. Marketing & Brand Solutions (I) Pvt. Ltd. On
20th May, 2004 M/s. Marketing & Brand Solutions (I) Pvt. Ltd. in response
to a demand for interest from the RespondentAssessee requested waiver
of interest on the debentures as it were facing financial difficulties. In
fact on 31st May, 2004 at a meeting of debenture holders waiver of
interest on the debentures till 31st March, 2010 was approved. Consequent
to the above, the Board of Directors of the RespondentAssessee on 8th
June, 2004 also passed a Resolution to waive interest on the debentures of
M/s. Marketing & Brand Solutions (I) Pvt. Ltd. upto 31st March, 2010 and
also duly informed the same to M/s. Marketing & Brand Solutions (I) Pvt. Ltd.
On further appeal, the Tribunal by the impugned order takes into
account the fact that even in mercantile system of accounting an item
would be regarded as accrued income only if there is certainty of receivi
ng
it and not when it has been waived. The Tribunal has in the impugned
order very succinctly set out the principles to be applied while recoverin
g income in following the mercantile system of accounting:
“(A) that merely because assessee was following mercantile
system of accounting, it could not be held that income had accrued to it.
(B) earning of the income, whether actual or notional, has to
be seen from the viewpoint of a prudent assessee. If in given
facts and circumstances the assessee decides not to charge interest in
order to safeguard the principal amount and
ensure its recovery, it cannot be said that he has acted in a
manner in which no reasonable person can act.
(C) The guidance note on accrual of income on accounting issued by
the ICAI lays down that where the ultimate
collection with reasonable certainty is lacking, the revenue
recognition is to be postponed to the extent of uncertainty
involved. In terms of the guidance note, it is appropriate to recognize
revenue in such cases only when it becomes
reasonably certain that ultimate collection will be made. (D) Nonrecognition of income on the ground that the income
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had not really accrued as the realisability of the principal
outstanding itself was doubtful, is legally correct under the mercantile
system of accounting, when the same is in accordance with ASI notified by the Government.
(E) It is one of the fundamental principles of accounting that, as a
measure of prudence and following the principle of
conservatism, the incomes are not taken into account till the
point of time that there is a reasonable degree of certainty of its
realization, while all anticipated losses are taken into
account as soon as there is a possibility, howsoever uncertain,
of such losses being incurred. (F)
The provisions of Section 145(1) are subject to, inter
alia, mandate of ASI which also prescribes that 'Accounting policies
adopted by an assessee should be such so as to
represent a true and fair view of the state of affairs of the
business, profession or vocation in the financial statements prepared
and presented on the basis of such accounting
policies.' In the name of compliance with Section 145(1), it
cannot be open to anyone to force adoption of accounting
policies which result in a distorted view of the affairs of the business.
Therefore, even under the mercantile method of
accounting, and, on peculiar facts of instant case, the assessee
was justified in following the policy of not recognizing these
interest revenues till the point of time when the uncertainty to
realize the revenues vanished.”The Tribunal further referred to the fact that th
e various resolutions which
were passed by the company as well as the communication exchanged between
the parties would establish on facts that interest has been
waived. Further on facts it holds that there is no reason to disbelieve the
resolution passed by the RespondentAssessee waiving interest. The
Tribunal further adverted to the fact that subsequently, M/s. Marketing & Brand
Solutions (I) Pvt. Ltd. had amalgamated with the RespondentAssessee
which would also establish that the debentures issuing company was in serious
financial difficulties which was incidentally a group
company of the Respondent. The decision rendered by the Tribunal in the
impugned order is a decision on facts and nothing has been shown to us
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Kapil Goel Advocate (9910272806) [email protected]
which would warrant interference by this Court on account of any finding
being perverse or arbitrary.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 2304 OF 2013
M/s. Unicorn Textiles Pvt. Ltd. .. Respondent.
DATE : 11th APRIL, 2016.
The Assessing Officer made an addition of Rs.15.50 lakhs under
Section 69A of the Act. This being the blank signed
cheques issued by the various parties found in the premises of the
RespondentAssessee. Section 69A of the Act was invoked by the
Assessing Officer even though he had rejected the books of
account and proceeded to make a best judgment Assessment by
estimating the Gross Profit Margin. In appeal by the RespondentAssessee, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted
addition made under Section 69A
of the Act. This on the ground that as the books of account have
been rejected, there would be no occasion to invoke Section 69A of
the Act as it requires parties to explain the nature and source of
acquisition of the money or other valuable article which are not
recorded in its books of account. Further, if the explanation
offered is not found satisfactory, then such money or the
valuable article is deemed to be income of the Assessee for that
year. Being aggrieved, the Revenue carried the issue in appeal to the
Tribunal. By the impugned order, the Tribunal held that where
books of account have been rejected, no occasion to invoke Section 69A of the Act can arise .
In this case, the books of account having been rejected, is self
evident position as revealed on a plain reading of Section 69 A of
the Act, that it cannot be invoked. This for the reason that in the absence
of books of accounts in view of its rejection, no occasion to
explain the absence of the recording the same therein can arise.
The Assessing Officer after having rejected the books of account,
estimated the Gross Profit Margin of the RespondentAssessee at the
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Kapil Goel Advocate (9910272806) [email protected]
rate of 20% of its turn over. In appeal, the CIT(A) held that in
computing the Gross Profit
Margin at the rate of 20%, the Assessing Officer had not considered
direct expenses incurred by the assessee for arriving at the correct
Gross Profit rate. It held that the Assessing Officer should have
taken into account expenditure like Customs Duty, Freight, other
Shipping Expenses etc., to determine its profit rate before
estimating the Gross Profit. In view of the above, the CIT(A) held
that the estimated Gross Profit should be taken at 8% and not at
20% as done by the Assessing Officer. On
further appeal by the Revenue, the Tribunal agreed with the finding of
the CIT(A) that the estimation of Gross Profit
should be at 8%. In view of the fact that the Assessing Officer while
adopting the Gross Profit at 20%, has not considered the direct
expenses to determine the Gross Profit. This would result in a
reduction in the Gross Profit Margin. We find that both the CIT(A) as
well as the Tribunal have estimated the Gross Profit to be at
8% and not at 20% as determined by the
Assessing Officer. This finding arrived at by the
CIT(A) and the Tribunal has not been shown to be perverse. This
view taken by the CIT(A) as well as by the Tribunal on the present
facts is a possible view. This estimation taken by the CIT(A) as well
as Tribunal at 8% is not shown to be perverse.
THE HONBLE SRI JUSTICE RAMESH RANGANATHAN AND THE HONBLE SRI JUSTICE
M.SATYANARAYANA MURTHY
Writ Petition Nos. 31680 of 2015
29-02-2016
M/s IVRCL-KBL (JV), Having regd.office at No.10-3-552/B, M-22/2RT,
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Kapil Goel Advocate (9910272806) [email protected]
Vijayanagar Colony, Hyderabad .Petitioner
Assistant Commissioner of Income Tax, Circle-7(1), IT Towers, Hyderabad & 3
others. . Respondents
While examining the applicability of the Rules, it must be borne
in mind that the Rules made by the CBDT, in the exercise of the
powers conferred under Section 199(3) of the Act, must be read
harmoniously with all the clauses of Section199 and the other
provisions of the Act. It is settled law that Rules, made under the
Act, should be interpreted in conformity with the provisions of the Act
(Ispat Industries Ltd. v. Commr. of Customs ), and not the other
way round. A rule should be read as supplemental to the provisions
of the parent Act. It cannot be interpreted in a manner as to come
into conflict with the parent Act, in which case the Act will prevail.
(STO v. H. Farid Ahmed & Sons ). A piece of subordinate legislation
should be read in the light of the statutory scheme of the Act.
(Bombay Dyeing & Mfg. Co. Ltd. v. Bombay Environmental Action
Group ). Rules made for carrying out the purposes of the Act cannot
be so framed as not to carry out the purposes of the Act, and cannot
be in conflict therewith, (Laghu Udyog Bharati v. Union of India ).
An expression used in a rule must, unless there is anything
repugnant in the subject or context, have the same meaning as is
assigned to it under the Statute. (Onkarlal Nandlal v. State of
Rajasthan ). Rules should be consistent with the provisions of the
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Kapil Goel Advocate (9910272806) [email protected]
Act. (State of U.P. vs. Babu Ram Upadhya ). A statutory rule
cannot enlarge or restrict the meaning of a Section. If a rule goes
beyond, or is contrary to, what the Section contemplates, the rule
must yield to the Statute. (Central Bank of India v. Workmen ). It
is necessary, therefore, to read Rule 37BA(2)(i) of the Rules in
conformity with Section 194C and 199(1) of the Act.
While Sri T.Vinod Kumar, learned Senior Standing Counsel for
Income Tax, would place emphasis on the words the person from whose
income, in Section 199(1) of the Act, to contend that the said person
is the sub-contractor and not the petitioner, that would require this
Court to ignore the subsequent words from whose income the deduction
was made. In the present case, the deductions were made by the
Government from the amounts paid to the petitioner, and no amount
was paid by the Government directly to the sub-contractor. As such
the question of deducting tax at source, from the amount payable to
the sub-contractor, does not arise. On a reading of Section 199(1) of
the Act as a whole, it is evident that the said provision, when applied
to the facts of the present case, refers only to the petitioner, and not
to the sub-contractor.
Emphasis is placed by both the learned Senior Standing
Counsel for Income Tax on the word shall, in Clause 2(i) of Rule
37BA of the Rules, to contend that, by its use, the Rule mandates the
assessing authority, notwithstanding the claim of the petitioner for
credit to be given to them, to give credit only to the other person
(sub-contractor), and not to the petitioners. Use of the word shall,
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Kapil Goel Advocate (9910272806) [email protected]
in Clause 2(i) of Rule 37BA of the Rules, casts an obligation on the
assessing authority to give credit, of the tax deducted at source, to
the person in whose hands the income is assessable to tax. In case it
is a person, other than the deductee, then the assessing authority is
required, nay bound, to give them credit. The assessing authority
cannot refuse to give credit to the other person, in whose hands the
income is assessable to tax, merely because tax was deducted at
source from the amounts paid to the deductee.
As noted hereinabove, in the present case, there are two
distinct and independent contracts. While it does appear that the
joint venture was constituted only for it to enter into a contract with
the Government, and for one of its constituents to execute the work,
the fact remains that there is no privity of contract between the
Government and the constituent of the JV i.e the sub-contractor.
The rights and obligations under the first contract are only that of the
Government and the petitioner; and those, in the second contract,
are only that of the petitioner and the sub-contractor. The
contractual obligation, to execute the work for the Government, is
that of the joint venture alone, and not that of the constituent
member of the JV i.e the sub-contractor. Any action which the
Government of Andhra Pradesh could have taken, for breach of the
terms and conditions of the first contract, was only against the
petitioner JV and not its constituent. While the sub-contractor, no
doubt, executed the work, they did so in terms of the second contract
entered into between them and the petitioner-JV. It is evident,
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Kapil Goel Advocate (9910272806) [email protected]
therefore, that the contractual receipts under the first contract is
only that of the petitioner; and the income, arising out of the said
contract, is assessable only in their hands, and not in the hands of
the sub-contractor. The sub-contractor is assessable to tax on their
income earned out the amounts received by them from the petitioner
in terms of the second contract, and not in terms of the first contract
between the Government of Andhra Pradesh and the petitioner-JV.
As noted hereinabove, not only did the Government of Andhra
Pradesh deduct tax at source from the petitioners bills, the
petitioner, in turn, while making payment to the sub-contractor, also
deducted tax at source from the bills of the latter. Credit for the tax
deducted at source, by the petitioner from the bills of the subcontractor, was given to the sub-contractor as such income was
assessable in their hands. Likewise credit for the tax deducted at
source, from the bills of the petitioner, was required to be given to the
petitioner alone as the income, from the contract entered into
between them and the Government of Andhra Pradesh, was
assessable only in their hands, and not in the hands of the subcontractor.
The ambit of Clause 2(i) of Rule 37BA of the Rules is restricted
by its proviso. Ordinarily, a proviso is read either as an exception to
the substantive provision to which it is added, or as restricting the
width and amplitude of the said provision. The proper function of a
proviso is to except, and to deal with a case which would otherwise
fall within the general language of the provision, and its effect is
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Kapil Goel Advocate (9910272806) [email protected]
confined to that case. It is a qualification of the preceding provision.
Ordinarily, a proviso is not interpreted as stating a general rule.
(Haryana State Coop. Land Development Bank Ltd. v. Banks
Employees Union ; Shah Bhojraj Kuverji Oil Mills and Ginning
Factory v. Subhash Chandra Yograj Sinha ; Calcutta Tramways
Co. Ltd. v. Corpn. of Calcutt ; A.N. Sehgal v. Raje Ram Sheora ;
Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal
and Kerala State Housing Board v. Ramapriya Hotels (P) Ltd ). A
proviso to a particular provision of a Statute/Rule embraces the field
which is covered by the said provision. It carves out an exception to
the provision to which it has been enacted as a proviso, and to no
other. (CIT v. Indo-Mercantile Bank Ltd., ; Ram Narain Sons Ltd.
v. Assistant Commissioner of Sales Tax ). The proper course is to
apply the broad general rule of construction which is that a
Section/Rule must be construed as a whole, each portion throwing
light, if need be, on the rest. (Tahsildar Singh v. State of U.P., ;
Dwarka Prasad v. Dwarka Das Saraf ; Commissioner of Incometax, Kerala and Coimbatore v. P. Krishna Warriar Maxwell on
Interpretation of Statutes, 10th Edn., p. 162). A proviso cannot be
torn apart from the main Section/Rule nor can it be used to nullify or
set at naught the real object of the main Section. (S. Sundaram Pillai
v. V.R. Pattabiraman ; Craies in his book Statute Law (7th Edn.)
It is a fundamental rule of construction that a proviso must be
considered in relation to the principal matter to which it stands as a
proviso. It is to be construed harmoniously with the main enactment.
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Kapil Goel Advocate (9910272806) [email protected]
(Abdul Jabar Butt v. State of Jammu & Kashmir ; IndoMercantile Bank Ltd.,14; Ram Narain Sons Ltd.15 and State of
Punjab v. Kailash Nath ).
As the proviso restricts the ambit of Rule 37BA(2)(i), it is only
in cases where the procedure prescribed in the proviso is followed is
credit, of the tax deducted at source, required to given to the person
other than the deductee. In the present case, as the deductee (the
petitioner) claims that credit, for the tax deducted at source, should
be given to them, and not to the sub-contractor, they have justifiably
not filed any such declaration with the Government, and the
Government has also not reported, the tax deducted at source, in the
name of the other person, but has reported such deduction only in
the name of the deductee (the petitioner).
As it would make no difference to the case on hand, whether
the pre-amended or the amended Clause 2(i) of Rule 37BA of the
Rules is applied, we shall proceed on the premise that the amended
Clause 2(i) of Rule 37BA is alone applicable. The amended Clause
2(i) of Rule 37BA starts with the words Where under any provisions of the
Act. It is only where a specific provision in the Act stipulates that
the tax deducted at source is assessable in the hands of a person,
other than the deductee, is credit for the whole, or any part, of the
tax deducted at source required to be given to the other person, and
not to the deductee. We have not been shown any such provision in
the Act which requires the whole, or any part of the income, on which
tax is deducted at source from the bills of the petitioner-JV, to be
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Kapil Goel Advocate (9910272806) [email protected]
assessable in the hands of its constituent i.e the sub-contractor.
Sri S.Ravi, learned Senior Counsel appearing on behalf of the
petitioners, would, as an explanation to the apparent contradiction,
submit that the issue before the ITAT was regarding the person in
whose hands the income was to be subjected to tax, and the question
as to who was entitled to be given credit, for the tax deducted at
source, did not arise for consideration therein. Learned Senior
Counsel would point out that, in the appeal before the ITAT, the
joint-venture was sought to be assessed to tax on an estimation of
their profits, though the constituent sub-contractor had also been
assessed to tax. On the other hand Sri T.Vinod Kumar, learned
Senior Standing Counsel for Income Tax, would submit that their
contention to the contrary before the ITAT notwithstanding, the
assessing authority, in the present cases, had merely followed the
order of the ITAT in the appeal relating to an earlier assessment year.
This submission of the learned Senior Standing Counsel for Income
Tax does not merit acceptance as the assessment orders, in the
present batch of writ petitions, make no reference to the order of the
ITAT.
On being asked how the Revenue could retain the amount
representing the tax deducted at source from the petitioners bills,
and not pay it either to the petitioner or to the sub-contractor, Sri
T.Vinod Kumar, learned Senior Standing Counsel for Income Tax,
would submit that, as the income is assessable in the hands of the
sub-contractor, it is they, and not the petitioner, who can claim
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Kapil Goel Advocate (9910272806) [email protected]
credit and, whenever any such claim is made, the Department would
give them credit for the TDS, and refund the amount in accordance
with Rule 37BA of the Rules. It is, however, not in dispute that the
sub-contractor has not made any claim for being given credit for the
tax deducted at source by the Government from the bills of the
petitioner herein. It is not as if there were conflicting claims by the
petitioner-JV on the one hand, and its constituent sub-contractor on
the other, both seeking credit for the tax deducted at source by the
Government, necessitating retention of these amounts by the
Revenue till resolution of the conflicting claims. As held by the
Division Bench of this Court, in Bhooratnam and Co.24, the
Revenue cannot be allowed to retain the amounts representing the
tax deducted at source without credit being given to anybody. If
credit of tax is not allowed to the petitioner-assessee, and the subcontractor has not made any claim for refund, it would result in
credit of the TDS not being taken by anybody and this, as has been
rightly pointed out by the Division Bench in Bhooratnam and Co.22,
is not the spirit and the intention of the law.
To the limited extent the assessing authority denied credit to
the petitioner, for the tax deducted at source from their bills by the
Government, the impugned assessment orders/rectification orders
are set aside. The assessing authority shall determine the quantum
of credit for TDS which the petitioners are entitled to in terms of this
order, and refund the amount so computed to the petitioners herein
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Kapil Goel Advocate (9910272806) [email protected]
in accordance with law. The entire exercise, culminating in final
orders being passed, shall be completed within a period of three
month from the date of receipt of a copy of this order. It is made
clear that this order shall not preclude the assessing authority, if he
so chooses, from reopening the assessments, and in passing orders
thereafter in accordance with Sections 147 and 148 of the Act.
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD
ITA No. 2006/Ahd/2012
/Assessment Year: 2009-10
M/s. Aayush ICU & Multispecialty Hospital
/Date of Pronouncement 31/03/2016
We have heard the rival contentions and perused the material on record. We find that in
the present case a survey proceedings u/s 133A of the Act was undertaken on 20.08.2009
and during the survey proceedings, the assessee disclosed a sum of Rs.50 lacs being the
amount not accounted in the books of accounts of the assessee and the same was offered for
taxation. This amount was reflected in the profit and loss account, which has been placed on
record. During the course of appellate proceedings, the Authorized Representative submitted that
all the capital expenses were recorded in the books of accounts of the assessee-firm and the
assessee had duly produced all the ledger accounts alongwith the vouchers for addition of fixed
asset before the Assessing Officer. The Assessing Officer has verified all the capital expenses
and accepted the genuineness of expenditure recorded. The assessee has given the source of
expenditure incurred. As per department Circular No.772 dated 23.12.1998 on the scope and
effect of newly inserted (w.e.f. 01.04.1999) proviso to Section 69C by Finance Act, 1998 under
the existing provisions, where as expenditure incurred by the taxpayer in respect of which he
either offers no explanation regarding the source of such expenditure and where explanation
found unsatisfactory, the expenditure is treated as "income" under Section 69C. There is no
corresponding provision for disallowance of such expenditure. This used to enable the taxpayer
charged to tax u/s.69C to claim the expenditure as deduction u/s.37 defeating the very objective
of the section. From the aforesaid circular, it is clear that the intention behind inserting proviso to
Section 69C is to prevent the assessee from claiming as business expenditure which is deemed as
income with respect to unexplained expenditure.
The assessee-firm has declared unexplained investment in hospital building. Thus, the case of
the assessee does not fall under section 69C, so proviso to Section 69C is not applicable,
meaning thereby that the declared undisclosed capital expenditure on hospital buildings does
not fall under the category of proviso to Section 69C of the Act. Proviso to Section 69C has
direct reference to disallowance of unexplained expenditure which is otherwise allowable
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Kapil Goel Advocate (9910272806) [email protected]
u/s.37 of the Incometax Act, 1961. In view of the above, CIT(A) rightly held that the
expenditure incurred by the assessee-firm is covered by provisions of Section 69B of the Act,
as the amount spent has given rise to an asset on which depreciation is allowable. In this case,
expenditure was incurred in development of the hospital building which has given rise an
asset and on this asset depreciation is allowable. Therefore, the addition of Rs.50,00,000/- and
addition on account of disallowance of depreciation amounting to Rs.5,00,000/-, were rightly
deleted by the CIT(A). These reasoned findings of the ld. CIT(A) need no interference from
our side and we uphold the same.
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “
B”
T.(I.T.) A. Nos.1544 to 1547/Bang/2013 (Assessment Year : 2011-12) M/s.
Wipro Ltd.,
Date of Pronouncement : 12.02.2016.
Before us, the learned Authorised Representative of the assessee submitted that the
demand of tax has been raised by the Assessing Officer vide intimation under
Section 200A on the ground that the assessee has not furnished PAN of nonresidents / recipients and accordingly as per the provisions of section 206AA of the
Act, the TDS should have been deducted @ 20%. The learned Authorised
Representative has submitted that the tax liability of the non-resident recipients
cannot be more than as provided under DTAA and therefore payment to
nonresidents is eligible for the benefit of DTAA and consequently
the tax deduction cannot be more than the tax liability provided under DTAA. The
learned Authorised Representative has further contended that issuing intimation
under Section 200A and raising a demand without considering the provisions of
DTAA as well as without giving an opportunity of hearing to the assessee is also
beyond the scope of the Assessing Officer. The Assessing Officer is not permitted
to make the adjustment while issuing the intimation under Section 200A when the
issue involves is a highly debatable issue and require a well drawn reasoning and
finding. Thus the learned Authorised Representative of the assessee has submitted
that the impugned order of the Assessing Officer is not sustainable. In support of
his contention, he has relied upon the decision of the co-ordinate bench of this
Tribunal Dt.29.6.2015 in the case of DCIT Vs. Infosys BPO Ltd. in ITA No.1143
and 8 & 9/bang/2014 as well as cross objection Nos.83 & 84/Bang/2014. 5. On the
other hand, the learned Departmental Representative has relied upon the orders of
authorities below.
Thus, the provisions of TDS has to be read alongwith the machinery provisions
of computing the tax liability on the sum in question. Following the decisions of
Coordinate Benches Supra, as well as the judgment of Hon’ble
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Kapil Goel Advocate (9910272806) [email protected]
jurisdictional High Court in the case of M/s Bharti Airtel Ltd Supra, we do not
find any error or illegality in the order of the CIT(A) that there is no scope for
deduction of tax at the rate of 20% as provided under the provisions of Section
206AA of the IT Act when the benefit of DTAA is available. 13. Having
considered the rival submission as well as the relevant material available on
record, we note that while making the adjustment the AO has ignored the
provisions of DTAA which are applicable on the payment in question. There is
no dispute that the beneficial provisions under the Act as well as the DTAA
are applicable for the non-resident assessee. The payment in question was
made to the non-resident and the provisions of DTAA are applicable, as the
same has not been disputed by the AO before us. Thus, the issue of applying
the rate of tax at 20% and ignoring the provisions of DTAA is a debatable
issue and does not fall in the category of any arithmetical error or incorrect
claim apparent from any information in the statement, as per the provisions
of section 200A (1) of the IT Act, 1961 No contrary view or decision has been
brought to our notice by the learned Departmental Representative and
therefore in view of the decision of the coordinate bench as well as the other
decisions as followed by the co-ordinate bench, we decide this issue in favour
of the assessee on both grounds that the provisions of TDS has to be read
along with DTAA for computing thetax liability on the sum in question and
therefore when the recipient is eligible for the benefit of DTAA then there is
no scope for deduction of tax at source @ 20% as provided under the
provisions of section 206AA. Similarly, on the issue of jurisdiction, the
question of computing the rate of 20% under section 206AA of the Act is a
debatable issue when the recipient is eligible for the benefit of provisions of
DTAA and therefore the Assessing Officer cannot proceed to make the
adjustment while issuing the intimation under Section 200A. This is beyond
the scope of the said provisions. 7. In view of the above findings in the appeals,
the stay petitions filed by the assessee become infructuous and accordingly
dismissed
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE ‘B’
BENCH, BANGALORE
ITA Nos.1053 & 1054(BNG.)/2014 (Assessment years : 2008-09)
Smt. S.B.Patil,
Date of pronouncement : 10-02-2016
5. We have heard the rival contentions. 6. The AO had levied penalty of
Rs.57,77,213/- u/s 271E of the IT Act, 1961 on the assessee which was on appeal
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Kapil Goel Advocate (9910272806) [email protected]
reduced by the learned CIT(A) to Rs.7,59,443/-. Similarly, the AO had levied
penalty of Rs.41,35,000/- u/s 271D of the IT Act, 1961 which on appeal was
reduced to Rs.13,50,000/- by the learned CIT(A). These penalties were levied for
violation of Sec.269SS and 269T of the IT Act, viz. for accepting unsecured
loans/hand loans in cash and repaying such loans in cash. The loans taken by the
assessee were from her husband Shri B.R.Patil and the repayment were also to very
same person. Assessee was engaged in dairy farming business and her husband
was helping her in such business. Copy of the assessment for the impugned
assessment year which is placed on record by the learned AR does not have even a
whisper regarding the acceptance of loan in cash or re-payment of loans in cash.
The assessment order dated 28-09-2009 for the impugned assessment year does not
mention anything regarding any initiation of penalty proceedings for violation of
sec.269SS and 269T of the IT Act, 1961. In the case of Jai Laxmi Rice Mills
decided by the Hon’ble Apex Court the question was whether a satisfaction has to
be recorded in the assessment order for initiation of penalty u/s 271E of the Act. In
the said case, after the levy of penalty u/s 271E of the Act, the original assessment
wherein satisfaction regarding initiation of penalty proceedings was expressed, was
set aside on appeal filed by the assessee. In the fresh assessment order, there was
no expression of any satisfaction regarding initiation of penalty proceedings u/s
271E of the IT Act. 7. In our opinion, the legal issue raised by the assessee do not
require any fresh assimilation of facts and can therefore, be admitted. A reading of
the judgment of the Hon’ble Apex Court reproduced above does show that it is
thus imperative for satisfaction to be recorded in the assessment order for initiation
of penalty u/s 271E of the Act. Proceedings u/s 271D of the IT Act, also in our
opinion will stand on the very same footing. If satisfaction has to be recorded with
respect to proceedings u/s 271E of the IT Act, similar satisfaction has be recorded
for the proceedings u/s 271D of the IT Act, 1961 also. These have not been done in
the case before us. Accordingly, by virtue of judgment of the Hon’ble
Apex Court in the case of CIT Vs Jai Laxmi Rice Mills (Supra), we are of the
opinion, that the levy of penalty u/s 271D & 271E of the IT Act, 1961 cannot
survive. Such orders are set aside and the appeals of the assessee are allowed .
IN THE HIGH COURT OF DELHI AT NEW DELHI
8.
+ W.P.(C) 8942/2015
SMART PROJECTS PVT.LTD
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Kapil Goel Advocate (9910272806) [email protected]
14.03.2016
10. In the present case with the return having been filed at an income
Rs.1,24,110 and the income being computed as Rs.25,78,64,110, there is
merit in the contention that it falls in the category of a high pitched demand.
In Soul v. DCIT (supra), the Court noted that Instruction No. 1914 of 1993
does not alter the earlier Instruction No. 96 of 1969 and that one of the
illustrations given in Instruction No. 96 of 1969 regarding an
'unreasonably high pitched demand' was an assessment if made at twice
the amount of returned income. In those circumstances, the Court kept the
impugned notices in abeyance till such time the CIT (A) did not dispose of
the appeal.
11. Accordingly, the Court directs that as far as the present case is
concerned, the appeal pending before the CIT (A) should be disposed of
within a period of two months from today and in any event not later than
16th May 2016. Till such time, the impugned demand notice as well as any
coercive steps taken pursuant thereto shall remain stayed. This is
notwithstanding the order dated 7th October 2015 passed by the Pr CIT.
12. The writ petition and the application are disposed of in the above terms.
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE ‘A’ BENCH, BANGALORE
ITA No.1583(BNG)/2014
(Assessment year : 2012-13)
M/s Bosch Limited,
Date of pronouncement : 01-03-2016
6. As regards the expenses for which the service provider or vendor had not
raised any invoices nor acknowledgement by the assessee company made a
provision for such expenses on a scientific basis and such provision was debited to
its P&L account, on conformity with the provisions of accounting standard 29pertaining to provisions, contingent liabilities and contingent assets issued by the
Institute of Chartered Accountant of India (CAI) and such provision was reversed
in the beginning of the next accounting year. It was further submitted that it is
mandatory to provide such provisions in terms of accounting standard-29 issued
by the CAI. The learned counsel for the assessee company made the following
submissions;
a) That no income had accrued to the payees and a mere provision was
made in the books of accounts at the year end. The very fact that the provision was reversed in the beginning
of the next accounting year goes to show that no
income had accrued to the payee and therefore, there is no liability to deduct TDS
on the basis of mere provision.
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b) The payees as well as the exact amount payable to them are not
identifiable and therefore, no liability to deduct tax at source.
c) The existence/accrual of income in the hands of payee is a pre-condition
to fasten the liability of tax deduction at source in the hands of the payer and the
last limb of his arguments is that the provisions of sec.195 stipulates that the
payer has to deduct tax at source at the earlier point of time either at the time of
crediting to the payee account or at the time of payment of income to the payee.
The phrase “whichever is earlier” would mean that both the events i.e crediting
the amount to the account of payee and payment to the assessee must
necessarily occur. Therefore, when there was no payment made the question of
deducting TDS at the time of crediting does not arise. Learned counsel for the
assessee also placed reliance on the CBDT’s Instruction No.1215(F.No.385/61/78IT(B) dated 08-11-1978.
7. On the other hand, learned Sr. DR submitted that on a plain reading of
Sec.195, the liability to deduct tax at source had arisen the moment the amount is credited in the books of
accounts, irrespective of fact whether the amount is
paid or not. He further submitted that the provision of taxing statutes should be
construed strictly that there is no place for any inference and therefore, he
supported the orders of lower authorities.
8. We have heard the rival submissions and perused the material on record.
9. The undisputed facts in this case are that he provisions were made at the
end of the year and the same were reversed in the beginning of the next
accounting year. The short point that arises for our consideration is whether the
liability for deduction of tax at source has arisen the moment the amount is
credited in the books of accounts. Having regard in the scheme of tax deducted
at source, under Chapter-XVII-B of the IT Act, we are of the considered opinion
that the liability to deduct tax at source arises only when there is accrual of
income in the hands of the payee. We are holding so, keeping in view the ratio
laid down by the Hon’ble Apex Court in the case of M/s GE India Technology
Centre P. Ltd. Vs. CIT and another 327 ITR 456 (SC) wherein the Hon’ble
Supreme Court held that if payment is not assessable to tax there is no question
of tax at source being deducted…10. Now to determine where there was income accrued or not considering
the fact that the provisions were made at the year end is reversed in the
beginning of the next accounting year goes to show that there was no income
accrued. Mere entries in the books of accounts does not establish the accrual of
income in the hands of the payee as held by the Hon’ble Supreme Court in the
case of CIT Vs M/s Shoorji Vallabhdas & Co. 46 ITR 144 …Thus, having regard to the ratio laid down by the
Hon’ble Apex Court, it
cannot be said that income had accrued in the hands of the payee. We, therefore,
hold that there was no liability in the hands of the assessee company to deduct
TDS, merely on the provisions made at the year end. Hence, the assessee
company cannot be treated as ‘assessee in default’ for not deducting tax at source and therefore, we allow the
grounds of appeal filed by the assessee company in this
regard.
11. In the result, the appeal filed by the assessee company is treated as
allowed.
IN THE HIGH COURT OF DELHI AT NEW DELHI
17. + W.P.(C) 8273/2015 & CM No. 17434/2015 (for stay)
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VIPIN WALIA ..... Petitioner
15.02.2016
10. As far as Assessees who have expired, Section 159 of the Act sets out how the
Department should go about proceeding against the legal representatives (‘LRs’)
of such Assessee. 11. Section 159(2) of the Act makes a specific reference to a
reassessment proceeding under Section 147 of the Act. While Section 159(2)(a) of
the Act talks of a proceeding already taken against an Assessee ‘before his death’.
Section 159(2)(b) of the Act envisages any proceeding which could have been
taken against the deceased if he had survived. It permits such a proceeding to be
taken against the LRs of the deceased Assessee even if it had not taken while the
Assessee was alive. Section 159(2)(b) is relevant as far as the present case is
concerned. 12. What was sought to be done by the ITO was to initiate proceedings
under Section 147 of the Act against the deceased Assessee for AY 2008-09. The
limitation for issuance of the notice under Section 147/148 of the Act was 31st
March 2015. On 27th March 2015, when the notice was issued, the Assessee was
already dead. If the Department intended to proceed under Section 147 of the Act,
it could have done so prior to 31st March 2015 by issuing a notice to the LRs of
the deceased. Beyond that date it could not have proceeded in the matter even by
issuing notice to the LRs of the Assessee. 18. Consequently, the Court has no
hesitation in holding that the actions of the Revenue in this case in persisting with
the proceedings under Section 147/148 of the Act against the Petitioner were
wholly misconceived both on facts as well as on merits. Accordingly, the impugned
notice dated 27th March 2015 and all proceedings consequent thereto are hereby
quashed.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 2331 OF 2013
Shri. Hiralal Doshi ..Respondent
DATE :- FEBRUARY 9, 2016.
The Revenue has urged the following question of law
for our consideration:“Whether on the facts and circumstances of the case and in
law, the ITAT is justified in deleting the penalty u/s.271(1)(c)
of the I. T. Act,1961 on the income which was offered for
taxation during survey and return of income was revised
after detection by department”
10 The reliance by the Revenue upon the decision of the
Apex Court in Mak Data P. Ltd(supra) to contend that the
justification of having deleted and accepted the amount of Rs.1.62
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Crores as business income, to buy peace is not available. We find
that the facts in that case are completely distinguishable and the
observations made therein would not be universally applicable.
In that case, a sum of Rs.40.74 lakhs had never been disclosed to the
Revenue. During the course of survey, the assessee therein
had surrendered that amount with a covering letter that this
surrender has been made to avoid litigation and buy peace with
the Revenue. In the aforesaid circumstances, the Apex Court held
that the words like “to avoid litigation and buy peace” is not
sufficient explanation of an assessee's conduct. It held that the
assessee had to offer an explanation for the concealment of
income and/or furnishing of inaccurate particulars of income by
leading cogent and reliable evidence. The Apex Court further
records that in the facts of the case before it the surrender of
income was not voluntary but was made only on the account of
detection by the Assessing Officer during the course of survey.
Further, the Apex Court also records the fact that the survey was
conducted more than 10 months before the assessee filed its
return of income. However, the assessee therein had not declared
this income in its return of income filed subsequent to the survey
which again indicated the fact that he had no intention to declare
its true income. In any event, the facts in the present case as
found by the CIT(A) and the Tribunal is that the Respondentassessee
had disclosed an amount of Rs.1.62 Crores in the original
return by crediting the same to its capital account being Long Capital Gain
on the sale of share. Thus, the Appellant was
under bonafide belief that the income from long term capital gain
was exempt from tax. Thus, the decision of the Apex Court would
not apply to the facts arising in the present case .
11 The contention on behalf of the Revenue that in case
there is a tax impact by virtue of change of head during the
assessment proceedings then penalty is imposable and the
decision of this Court in M/s. Bennett Coleman(supra) would not
apply. In such a case, Mr. Malhotra, for the Revenue emphasized
the fact that in M/s Bennett Coleman(supra) the Court was dealing
with the change of head of income but not with regard to a claim
for full exemption from payment of tax as in this case. We are
unable to accept the aforesaid submission. According to us, the
distinction sought to made on behalf of the Revenue is not
acceptable as the ratio of the decision in M/s Bennett
Coleman(supra) is where complete disclosure of income had been
made in the return of income and head of the income undergoes a
change at the hands of the Assessing Officer would not by itself
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Kapil Goel Advocate (9910272806) [email protected]
justify the imposition of penalty under Section 271(1)(c) of the
Act.
We find that the Commissioner of Income Tax(A)
during the penalty proceedings had again examined the issue
whether the claim of capital gain made in the regular return of
income to the extent of Rs.1.62 Crores with the particulars in
support of the same. On examination, the CIT(A) reaches a prima
facie conclusion that the income could be regarded as long term
capital gain. Once the aforesaid conclusion has been reached
coupled with two further facts viz. the authorities have rendered a
finding of fact that the Respondent-assessee had not concealed its
income nor filed inaccurate particulars attributable to capital
gains in its regular return of income, the view taken to delete the
penalty is a possible view.
In the present fact, the view taken by the CIT(A) as
well as the Tribunal is a reasonable and possible view. Nothing
has been shown to us to hold that the findings of the CIT(A) and
Tribunal was perverse and/or arbitrary warranting any
interference by this Court. It may be pointed out that even in the
Memo of Appeal, it is not urged by the Revenue that the finding of
the CIT(A) and Tribunal are in any manner perverse.
IN THE HIGH COURT OF DELHI AT NEW DELHI 11. + W.P.(C)
9659/2015 & CM No.23056/2015
RAJIV AGARWAL
16.03.2016
In the case of Rajeev Agarwal, the Assessee/Petitioner in W.P. (C) No.9659/2015
the reasons recorded reads as under: "Income Tax Return Jar the A.Y 2008-09 was
filed by the assessee on 29.07.2008 declaring income of Rs. 14,64,950/-. In this
case, the information in the form of complaint of tax evasion dated 10.12.2014
pertaining to Sh. Rajiv Agarwal has been received in this office. Keyman
Insurance In the said complaint, it is stated that the company (M/s Scan Holdings
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Pvt Ltd) in the which Shri Rajiv Agarwal is one of the Director of the Company
has paid premium for the policies of directors amounting to Rs. 20 lakh up to
financial year 2007-08 (i.e. AY 2008-09) and claimed as business expenses. Before
it is due for maturity and liable for tax, the policies were shown as sold in FY
2007-08 for a meager amount of Rs. 4.16 lakhs to its directors. It has been used to
tooi to avoid tax and transferred the money to its directors without payment of tax.
The exact amount of each director is still to be quantified. therefore, it is clear that
un quantified income in this case but quantified income of Rs. 20,00,000/- (in the
case of both the Directors of the company) has escaped assessment because the
assessee has not disclosed fully and truly all material facts in the return of income
and the same could not be verified/assessed to tax as the case was not selected
under scrutiny assessment. Therefore, I have reasons to believe that the assessee
has not offered the income referred above which needs to be scrutinized and hence
income as above has escaped assessment within the meaning of section 147(b) of
the I. T. Act, 1961 in the interest of revenue/to protect the revenue. The case of
assessee was not assessed u/s 143(3) of the Act and Since 4 years has lapsed and
the case falls under section 151 (2) of the I. T. Act, 1961, therefore, the reason are
put up before Addl. CIT, Range-22, New Delhi for necessary approval for issuing
notice u/s 148 of the I. T. Act, 1961."
6. It is apparent from the plain reading of the reasons recorded by the AO that the
AO has relied solely on a complaint dated 10th December, 2014 received by the
AO and assumed that certain Keyman Policies, on which a premium aggregating
Rs.20 lakhs had been paid, was sold to the Assessees for a sum of Rs.4.16 lakhs
and this transaction had resulted in an income of Rs.20 lakhs arising in the hands
of both the Directors. Insofar as Rajeev Agarwal is concerned, it is not disputed
that no policy was assigned and no such transaction as recorded by the AO in the
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reasons to believe that the income had escaped assessment was entered into by
Rajeev Agarwal with SHPL. In the circumstances, the fundamental premise on
which the assessment of Rajeev Agarwal was sought to be re-opened is bereft of
any factual foundation. We note that Rajeev Agarwal had specifically pointed out
the said fact in his objections against the reasons recorded by the AO. However,
the same was neither considered nor adverted to by the AO in its order dated 11th
September, 2015 disposing of the said objections. 7. Since the foundation on the
basis of which re-assessment proceedings have been initiated in the case of Rajeev
Agarwal is absent, the same must fail on this ground alone. 9. In our view, the
proceedings for re-assessment under Section 147 commenced by the AO are
fundamentally flawed for several reasons. First of all, it is apparent that the
proceedings have been initiated merely on an unsubstantiated complaint. It is now
well settled by a number of decisions that concluded assessments cannot be reopened merely on suspicion and the AO must have "reason to believe” that income
has escaped assessment and this is quite different from merely having a reason to
suspect. 10. In the present case, it is doubtful whether the AO even had any ground
to suspect that income had escaped assessment. Apparently, apart from an
unsubstantiated complaint there was no material which could possibly lead the AO
to suspect that income had escaped assessment. This is quite apparent from the fact
that the AO was also clueless of the fact that no such transaction as alleged had in
fact been entered into between SHPL and Rajeev Agarwal. In Rajesh Jhaveri Stock
Brokers (supra), the Supreme Court had explained that the expression „reason to
believe‟ would mean justification to know or suppose that income had escaped
assessment. While, it is correct that it is not necessary for the AO to finally
ascertain whether income had escaped assessment, nonetheless, the AO must have
sufficient cause to believe that it has.
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Kapil Goel Advocate (9910272806) [email protected]
Secondly, the AO‟s belief that income of an Assessee has escaped assessment
must be based on tangible material. It has been explained in a number of decisions
that there must be a 'close nexus' or „live link‟ between tangible material and the
reason to believe that income has escaped assessment. It follows that the material
on the basis of which re-assessment proceedings can be initiated must be credible
material which could lead to such belief. Clearly, an unsubstantiated complaint
cannot be the sole basis for forming a belief that income of an assessee has escaped
assessment. Even in cases where the AO comes across certain unverified
information, it is necessary for him to take further steps, make inquiries and garner
further material and if such material indicates that income of an assessee has
escaped assessment, form a believe that income of the Assessee has escaped
assessment. Plainly, in this case, the Assessee had not acquired any material to
form such belief. On the contrary, when it is pointed out to the AO that SHPL had
not assigned any policy to Rajeev Agarwal, the said fact was completely
overlooked. Similarly, in the case of Vijay Laxmi Agarwal, the AO failed to take
into account the fact that the Assessee had paid a sum of Rs.2,08,000/-, which was
more than surrender value of the policy, for assignment of the policy in her favour.
This too was completely ignored by the AO. 12. Thirdly, the procedure for
providing reasons to believe to an assessee and thus enabling him to file his
objections after he has filed his return – as directed by the Supreme Court in G. K.
N. Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) - is not a purposeless
exercise. The procedure as established is an essential safeguard provided to an
Assessee against arbitrary initiation of re-assessment proceedings. It is thus,
necessary that an AO consider the objections in a meaningful manner. In the
present case, the AO has completely ignored the objections filed by the Assessee
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Kapil Goel Advocate (9910272806) [email protected]
and has failed to apply its mind to any of the facts or material presented by the
Assessee, thus rendering the entire exercise meaningless.
13. In our view, Mr Shivpuri‟s contention that the AO is not required to apply his
mind to the facts in relation to the escapement of income at the stage of
considering objections is wholly without merit. Whilst, the AO is not expected to
finally decide whether income of an assessee has escaped assessment at the stage
of considering the objections he, nonetheless, has to consider the facts presented in
support of the objections in a meaningful manner and at least to consider whether
his reason to believe that income escaped assessment is justified or is without
sufficient basis. Since in the present case, the AO has failed to consider the
objections filed by the Assessees, the order dated 11th September 2015 passed by
the AO rejecting the objections raised cannot be sustained. 14. Accordingly, the
writ petitions are allowed. The impugned notices dated 31st March, 2015 issued
under Section 148 of the Act as well as the orders dated 11th September 2015
passed by the AO rejecting the objections filed by the respective Assessees, are set aside.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.241 OF 2014
Techpac Holdings Ltd.,
Pronounced On: 18th March, 2016
11. Section 148 of the Act clearly stipulates that before
making any assessment, re-assessment or re-computation
under section 147 of the Act, the Assessing Officer shall serve
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Kapil Goel Advocate (9910272806) [email protected]
on the assessee a notice requiring him to furnish within such
period as may be specified in the notice a return of income or
the income of any other person in respect of which he is
assessable in the prescribed form and verified in the prescribed
manner and setting forth such other particulars as may be
prescribed. The section further stipulates that once this is done,
the provisions of the Income Tax Act shall, so far as may be,
apply as if such return were a return required to be furnished
under section 139 of the Act. Therefore, clearly as stipulated in
the said section, the notice issued under section 148 of the Act
has to be served on the assessee. This is a sine-qua-non before
any further action can be taken. If this notice itself is not
served, all other proceedings that flow therefrom would have
no legs to stand on and would fall to the ground. This is no
longer res-integra as it stands concluded by the decision of the
Supreme Court in the case of Y. Narayana Chetty and
another.1 The Supreme Court, whilst considering similar
provisions under the Income Tax Act, 1922 held that service of the requisite notice
on the assessee is a condition precedent to
the validity of any re-assessment. If a valid notice is not issued
as required, proceedings taken by the Income Tax Officer in
pursuance of the invalid notice and the consequent orders on
assessment passed by him, would be void and inoperative. The
Supreme Court opined that the notice under section 34 of the
1922 Act (similar to section 148 of the 1961 Act) cannot be
regarded as a mere procedural requirement. It is only if the
said notice is served on the assessee as required, that the
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Income Tax Officer would have jurisdiction to proceed further
against him. If no notice is issued or if the notice issued is
invalid, then the proceedings taken by the Income Tax Officer
without a notice, or in pursuance of the invalid notice, would be
illegal and void. Looking to the facts of the present case and since the
notice issued under section 148 of the Act was admittedly not
served upon the Petitioner (who is the assessee in the present
case), the consequent Assessment Order passed under section
144 of the Act is clearly without jurisdiction and ought to be set
aside on this ground alone.
14. Having held so, we must state that in the facts of the
present case, we find that even otherwise the Assessing Officer could never have
reason to believe that income chargeable to
tax had escaped assessment warranting the issuance of a notice
under section 148 of the Act. Section 147 of the Act stipulates that if the
Assessing Officer has reason to believe that any income
chargeable to tax has escaped assessment for any assessment
year, he may, subject to the provisions of sections 148 to 153,
assess or re-assess such income and also any other income comes to his notice
subsequently in the course of the
proceedings under this section, or recompute the loss or the
depreciation allowance or any other allowance, as the case may
be, for the assessment year concerned. Therefore, before any
notice under section 148 of the Act can be issued for initiating
assessment / re-assessment proceedings, the Assessing Officer
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ought to have reason to believe that any income chargeable to
tax has escaped assessment for that particular assessment
year. This “reason to believe” is a sine-qua-non for issuance of
the notice under section 148.
16. The facts of the present case and as more
elaborately set out earlier in the judgment, clearly show that the
shares of the Petitioner company were transferred by its
shareholders to Ingram Micro Asia. The Petitioner itself has not
transferred anything. In order to attract capital gains tax there
are two requirements that need to be fulfilled – (1) that there is
a transfer of a capital asset; and (2) there is a gain by virtue of
such transfer. If these conditions are satisfied, then capital
gains tax is to be computed as set out in section 48 of the Act. The facts of the
present case would clearly show that the
Petitioner has not transferred any capital asset in India that
would give rise to any capital gains tax in their hands. This is
borne out from the share purchase agreement which itself
stipulates that the 100% shareholding of the Petitioner
company was transferred by its shareholders (described in
schedule I thereof) to Ingram Micro Asia for a total
consideration of AUD 730 million (Australian dollars)
equivalent to Rs.2,501.72 crores (conversion rate being 1
Australian dollar = Rs.34.l27). Even if we were to assume that
by virtue of Ingram Micro Asia purchasing the 100%
shareholding of the Petitioner, there was a transfer of a capital
asset in India, the same could never be taxed as capital gains in
the hands of the Petitioner company. This is for the simple
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reason that the shares of the Petitioner company have been
transferred to Ingram Micro Asia by the Petitioner's
shareholders and therefore the transferor in the aforesaid
transaction is the shareholders of the Petitioner and not the
Petitioner company. In these circumstances, if there was any
liability towards capital gains tax, if at all (we are not called
upon to consider this aspect), it was that of the shareholders of the Petitioner and
not the Petitioner itself. This being the
position in law, the Assessing Officer could never have reason to
believe that income of the Petitioner chargeable to tax in India
had escaped assessment. If the Assessing Officer could not have
had any reason to form the aforesaid belief, then naturally what
follows is that no notice under section 148 of the Act could be
issued in the facts of the present case. Consequently, the
Assessment Order passed under section 144 of the Act was
therefore wholly without jurisdiction. On this count also, we
find that the Assessment Order passed under section 144 of the
Act is unsustainable and has to be set aside. In view of our earlier findings the
Petitioner must
succeed. However, it is clarified that we have not examined
whether any capital gains have accrued to the shareholders of
the Petitioner. If the Revenue Authorities are of the opinion that
in fact capital gains have accrued to the shareholders of the
Petitioner, they are free to take such action against the
shareholders of the Petitioner as are permitted in law. Equally,
if such proceedings are adopted by the Revenue against the
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shareholders of the Petitioner, all contentions to contest the same are left open.
Thus all contentions of all the parties
concerned are kept open in that regard. For all the aforesaid
reasons, rule is made absolute and the Petition is granted in
terms of prayer clause (a).
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “L”, MUMBAI
ITA NO.1216/Mum/2011
Assessment Year: 2007-08
M/s. VJM Media (P) Ltd.
Date of Order: 13/04/2016\
We have gone through entire material and arguments
placed before us by both the sides. It is noted by us that Ld.
CIT(A) has correctly analysed the fact and provisions of law
applicable. In our considered opinion also the agreement between the
assessee and KAL cannot be said to be an agreement in the
nature of work contract or even service contract. The
agreement between the two was on account of sharing of
incremental advertisement only and nothing else. According to
Ld. DR, displaying of magazine to the captive audience by KAL
in its flight would itself fall within the definition of ‘work’. In
this regard we beg to differ with the views of Ld. DR. The
admitted facts are that KAL has purchased the magazines,
which was a separate transaction and for which KAL had
made payment to the assessee. Thus displaying of magazines
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by KAL was for its own consumption and purposes. Once the
product of the assessee was purchased by KAL, thereafter
whatever has been done by KAL with the said product was for
own benefits, advantages and purposes of KAL only. Under
these circumstances it could not be said at all that KAL had
displayed the magazine for and on behalf of the assessee, nor
it could be said that by placing the magazines on the back of
the seats of the aircraft, KAL had done a ‘work’ for the
assessee. KAL provided magazines to its guest passengers as
part of its effort for creating a five star in-flight experience for
its customers. Thus, increase in the advertisement revenue cannot be said
to have occurred directly as a result of any
‘work’ done by KAL for on behalf of the assessee. Further, no
such ‘work’ could have been recognized or merged in any
tangible or quantifiable terms. Thus, without any hesitation,
we can say that the impugned payment made by the assessee
to KAL on account of sharing of incremental advertisement
revenue shall not fall within the provisions of section 194C.
The judgments relied upon by the Ld. Counsel and by the Ld.
CIT(A) are directly applicable on the facts of the case. The case
of Hon’ble Delhi Bench of the Tribunal in the case of ITO v.
Bhasin Motors India P. Ltd., relied upon by Ld DR, shall not
be applicable on the facts of this case, because in the said case
admittedly the payee had done endorse ‘work’ for and on
behalf of the payee, and thus, the facts of the said case are
clearly distinguishable. It is also noted by us that during the course of the
course
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of assessment proceedings for assessment year 2009 – 10, the
assessing officer raised query on the similar issue, in
response, the assessee filed detailed reply along with copy of
the agreement with KAL. The assessing officer considered the
reply of the assessee, but did not make any disallowance in
the assessment order passed under section 143 (3) dt
24.11.2011. Thus, the assessing officer himself has taken a
view that no tax was required to be deducted on the said
amount paid by the assessee. Under these circumstances, we
find that taking a contrary view by the AO in the year under
consideration was unjustified. Thus, keeping in view all the fact and
circumstances of
the case, we find that findings of Ld. CIT(A) are in accordance
with law and facts, and therefore these are upheld
As a result, the appeal filed by the Revenue is dismissed/
We have gone through the submissions made by both the
sides as well as order of the lower authorities. It is noted by us
that the facts have been analysed by the Ld. CIT(A) on which
both the parties unanimously agree, and therefore, we shall
analyse the position of law on the admitted facts as discussed
by the Ld. CIT(A). The facts as narrated by Ld. CIT(A) are that
written terms of agreement with Singapore party and copies of
bills and payments in respect of UK party show that terms of
transactions with both of them are identical. The photographs
of celebrities and other models, like those which the assessee
has obtained through the website of these foreign parties, are
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generally taken by the photographers who are generally on
contract with some corporate entity. These corporate entities
become the owners of the photographs of these celebrities and
others models by way of making payments to the celebrities, and
thereby acquiring a right to use of these photographs in
the manner they like. In this manner, these corporate entities
become owners of such photographs. It has been analysed and
held by Ld. CIT(A) on the basis of agreement and other terms
of conditions that what has been given to the assessee its only
the right to use a particular photograph, and right is limited to
publication of the photographs in assessee’s own magazine.
The Ld. CIT(A) has further stated that a limited right has been
given to the assessee in lieu of a payment. It has been
concluded by the Ld. CIT(A) that foreign party did not sell the
‘photo’, and therefore it cannot be classified a business
transactions, since the ownership of the photographs has not
been transferred to the assessee.
7.6. Ld. CIT(A) further holds that such limited rights given for
the limited purpose shall fall within the definition of royalty in
terms of Article 12 of DTAA with Singapore. It is further held
by him that Article 13 of DTAA with UK is identical wherein
the term royalty has similar definition as given in DTAA with
Singapore. We do not find ourselves in complete agreement
with the views of Ld. CIT(A). It is settled law and we need not
debate much upon a settled principle that as per section 90(2)
of the Act, out of the provisions of DTAA and Income Tax Act,
the provisions which are more beneficial to the assessee can
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be availed by it for the purpose of determining its tax liability.
It has been argued that the definition of the term royalty given
in DTAA is more restrictive in nature as compared to the
definition given in the Act, though, the impugned payment would not fall
even in Section 9(1)(vi) read with its explanation
2(v). For the sake of simplicity, let us first analyse the
provisions of Article 12, of DTAA with Singapore, which read
as under:
“any copyright of a literary, artistic or scientific work,
including cinematograph film or films or taps used for
radio or television broadcasting, any patent, trade mark,
design or model, plan, secret formula or process, or for
information concerning industrial, commercial or scientific
experience, including gains derived from the alienation of
any such right, property or information.” 7.7. Thus, our understanding of
the definition given above is
that to be included in the definition of ‘royalty’, the payment
should be made for use of a copyright of the items which have
been mentioned in the aforesaid Article. Even if we presume,
although denied by the assessee, that photograph will fall in
any one or more of the items mentioned in the above said
definition, even, then it is mandatory on the part of the
revenue before applying these provision to show that the
payment was for use of ‘copyright’ and not ‘copyrighted
article’. In our opinion, use of copyright and ‘copyrighted
article’ are altogether two different things as has been held in
many judgments also. The admitted fact is that the
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photograph has been given to the assessee for the limited
purpose of its one time use in the magazine. The assessee can
neither edit the photograph nor can it make copies of the
photograph to be sold further or to be used elsewhere. The
assessee is not permitted to make resale of these photographs to any other
person for any other use. Thus, what has been
permitted to the assessee is to make use of the article and not
use of the copyright. Thus, we find that the transactions of
downloading of
photographs for exclusive one time use for publication in the
magazine did not fall within the provisions of relevant Article
12 of DTAA and therefore, assessee was not liable to deduct
tax on the payments made for the same 7.9. It is further brought to our
notice that in the assessment
year 2009-10 also payments were made to these very parties
namely M/s Getty Images and M/s Famous-Pictures &
Features Agency, for downloading of photos. But no
disallowance has been made by the assessing officer in the
assessment order passed under section 143 (3) dated
24.11.2011.
7.10. The case law relied upon by the Ld. DR would not be
applicable on the facts of this case. It is noted that terms of
the agreement in the case of Agence France Press (supra) were
different. In that case, full rights were transferred. The
assessee was free to use the downloaded news and other news
items in any manner and was allowed to make further
circulation of the same. In the given facts of the said case it
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was held that there was transfer of copyright, and therefore,
relevant provisions of the Act and Indo-France treaty were
attracted. The facts are distinguishable in the case before us.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “L”, MUMBAI
ITA NOs.4661,4662,4663/Mum/2013
Assessment Years: 2007-08, 2008-09 & 2009-10
M/s. Rediff.com India Ltd.,
Date of Order: 13/04/2016
11. Ground No.4: This ground deals with the grievance of the
revenue for the action of Ld. CIT(A) in deleting disallowance of
Rs.6,32,79,350/- in respect of provisions of expenses, made by
the AO u/s 40(a)(ia) of the Act.
11.1. The brief facts are that during the course of assessment
proceedings it was found by the AO that though the assessee
has made a provision of various expenses for the aforesaid
amount but failed to deduct tax at source. In response, it was
submitted that these were pure estimate and since no bills
were received, the accounts of parties were not credited and
therefore, it was not possible to deduct tax at source. But the
AO did not accept submissions and made disallowance of the
entire amount of the provisions.
11.2. Being aggrieved, the assessee filed appeal before the Ld.
CIT(A) wherein detailed submissions were made. The Ld. CIT(A) agreed
with the submissions by the assessee and held
that TDS was not liable to be deducted on the amount of mere
provisions, in absence of the amount payable having been
quantified and payee identified. He, therefore, deleted the
disallowance made by the AO.
11.3. Being aggrieved the revenue has filed before us.
11.4. During the course of hearing, Ld. Counsel drew our
attention on page no.60 of the paper book wherein item wise
details of these expenses have been given, and submitted that
these were mere provisions and no tax could have been
deducted on such kind of provision.
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11.5. On the other hand, Ld. DR relied upon the order of the
AO.
11.6. We have gone through the orders of the lower authorities
and find that Ld. CIT(A) had made detailed analysis of the
facts and recorded comprehensive finding to deal with the
issue, before taking a decision that TDS was not required to be
deducted on these amounts of provisions. Relevant part of his
findings is reproduced below:
“8.3. I have considered the facts of the case. The AO
has disallowed the above amount holding that the
provisions of expenses was on estimate basis, for
unascertained l iabil i ties, had nothing to do wi th
actual expenditure, expenses were not debited to
account of a particular party and no TDS had been deducted thereon.
A.O's f inding and appel lant's
submissions have been considered.
During assessment proceedings as well as appellate
proceedings, the appellant has satisfactorily
explained that the provisions were made in
respect of expenses actually incurred during the year
but the bills/invoices of which remained to be received
from the parties during the year. In view of
this position, the A.O's finding does not appear to be
correct that the provisions was made on estimate
basis and the said provisions were not
pertaining to expenditure actually incurred during the
year. The appellant had satisfactorily explained that the
expenses were incurred during the year
itself. The bills for all expenses were not received during
the year. Since, the
purchases were made or the services were received during
the year itself in
respect of such expenses, therefore, these provisions
represent the expenses pertaining to the year under
consideration. The liability for such expense was
crystalised during the year itself, though such liability was
not quantifiable at the end of the year. In view of the
Supreme Court decision in the case of Bharat Earth
Movers (supra) and various other decisions of High Courts,
the expenses pertaining to such crystalised liability
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were required to be allowed as deduction. In absence of
actual invoices, the provision was required to be made on
estimate basis only, but such estimation was based on
past practice/ experience consistently followed by the
appellant in earlier and subsequent years. Thus, the
provisions were not on adhoc basis. The details of such
expenses were already filed with the AO. The appellant
has received bills for such provision for expenses in
subsequent year, the deduction of which has not been
claimed by the appellant in the subsequent year.
In view of above discussion, in my considered view the
appellant's claim for provision of expenses was
allowable as deduction since the provision was
pertaining to the liability crystalised during the year.
The AO has also made disallowance of provision of
expenses holding that the appellant had not deducted TDS on such
provisions. Since, the provision was made
in respect of expenses pertaining to the year under
consideration, the bills of which were not received
during the year, therefore, the amount of such provisions
could not have been debited to account of a particular
party. Therefore, there was no requirement of deduction of
tax at source on such provision since neither the amount
was credited in party account nor could be related to
any party. In any case, wherever, TDS was required
to be made, the appellant itself had deducted tax
thereon. On the payments which were subject to TDS
and the appellant had not deducted TDS thereon, the
appellant had already offered such expenses as
disallowance at Rs. 1,86,38,108/-. In this way, the
appellant had claimed only expenses of
Rs.4,46,41,242/- as provision for expenses. Since the
appellant had already deducted tax wherever
applicable or had already offered disallowance on
account of non-deduction of tax, the entire provision of
expenses could not have been disallowed u/s.40(a)(ia) of
the Act.
In view of the above discussion, the disallowance made by
the AO is therefore, deleted.”
11.7. We have carefully gone through the evidences shown to
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us. This factual position that as when payments were made
TDS was deducted, has not been disputed by the Revenue. It
is nobody’s case that any payment has been made
subsequently without deduction of tax at source. Thus,
admitted facts on record or that in the subsequent years,
either the TDS has been deducted while making the payment
or crediting the amount in the account of payee or the excess
amount of provisions has been written back. Thus, factually,
there is no loss to revenue. Under these circumstances we find
that no interference is called for in the order of Ld. CIT(A), and
therefore, same is upheld. Thus, Ground no.4 is dismissed.
IN THE INCOME TAX APPELLATE TRIBUNAL
“D” BENCH, AHMEDABAD
IT(SS)A Nos. 407 to 409/Ahd/2011
Assessment Year: 2005-06 to 2007-0
Shri Dinesh Jain,
/Date of Pronouncement 05/04/2016
5.4 Such mutual, open, current, running & trade account
transactions made in normal course of business can by no
stretch of imagination partake the character of a payment by
way of loans or advances. The deeming provisions of law
contained in section 2(22)(e) being very much confined and
limited to the particular purpose for which it has been enacted
and cannot assume any role beyond the said restricted and
confined limit. In order to cover any amount within the
provisions of section 2(22)(e) of the Income-tax Act, 1961, it I necessary that
the amount involved should either be "loan or
advance".
5.5 The CIT(A) has rejected this contention of the assessee
only on the ground that the said OIL is not in the business of
money lending; therefore its transactions with OC and OBA
cannot be treated as current accommodation adjustment
entries. However, for entering into current account
transactions, a party need not be in the business of money
lending. Simple frequent movement of funds between two or
more parties on need basis without charging of interest is
current accommodation adjustment entries. For entering into
such transactions, assessee need not carry on money lending
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Kapil Goel Advocate (9910272806) [email protected]
business. In fact, under identical facts and nature of
transactions, the Hon’ble Jurisdictional High Court in the case
of CIT vs. Schutz Dishman Bio-tech Pvt Ltd. in Tax Appeal Nos.
958-959 of 2015, held as under: 5.6 The Assessing officer has invoked
section 2(22)(o) only
because the account contain transactions of payment and
repayment between the said Company OIL and firms OC and
OBA. Further, he has nowhere ascertained that the payment
received and the payments made are towards payment by way
of loans or advances. Therefore, simply because there were
transactions of cheques received and cheques paid in the
mutual, open, current, running account with the sister
concerns, the same cannot be considered as payment by way of
loans or advances so as to attract provisions of section 2(22)(e)
as held in the case of Schutz Dishman Bio-tech Pvt Ltd (supra).
Similar transactions have been made in earlier year also but
never in past the same has been considered to be transaction
attracting section 2(22)(e). Therefore, in view of the bindingdecision in the
case of Schutiz Dishman Bio-tech Pvt Ltd
(supra), the transactions is required to be held in the nature of
mutual current accommodation entries and therefore outside
the purview of provisions of Section 2(22)(e) of the Act. We hold
accordingly.
5.7 Once the impugned transactions between OIL & OBA are
treated as current accommodation adjustment entries, the
other grounds become academic and therefore, no separate
adjudication is required. In the result, all the appeals filed by
the assessee are allowed.
IN THE HIGH COURT OF DELHI AT NEW DELHI
10.
+ W.P.(C) 924/2014 & CM 1873/2014 (for stay)
DR. AJIT GUPTA
03.03.2016
9. By a letter dated 17th September 2013, the AO reproduced the reasons for
reopening of the assessment, the relevant portion of which read as under:
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Kapil Goel Advocate (9910272806) [email protected]
"The assessee is a Doctor by profession and derived income from proprietary
business from M/s. Park Hospital and M/s. Sunil Hospital & Nursing. The assessee
filed its return of income on 31.10.2006 declaring the income of Rs.12,35,268/-.
On the basis of information gathered while scrutiny proceedings u/s. 143(3) for A.
Y. 2010-11 and as per para 11(a) of Tax Audit Report u/s. 44AB dated 28.10.2006
of the assessee (M/s. Park Hospital and Sunil Hospital and Nursing Home), the
assessee is regularly following mixed system of accounting. As per section 145 of
the I.T.Act, 1961, income chargeable under the head 'profits and gains of business
or profession' shall be computed in accordance with either cash or mercantile
system of accounting regularly employed by the assessee.
xxx
Following the cash basis of accounting, unpaid expenses or expenses payable or
provision for expenses are not allowed as deductible expenditure. Since, there is an
outstanding balance of Rs.5,97,750/- and Rs.4,12,215/- in the Sundry creditors and
amounts payable respectively in M/s. Park Hospital and M/s. Sunil Nursing Home
respectively during the F.Y 2005-06, the same are not an allowable expenditure
under Cash system of accounting. Following the mercantile system of accounting,
bills raised and accrued income has to be shown as taxable income. Since, the
assessee is not showing any debtors or receivables in the balance sheet, accrued
income during the F.Y 2005-06 has escaped from the assessment.
The case has been completed u/s. 143(3) on 22.12.2008 assessing the total income
at Rs.14,40,230/-. The assessee neither at the time of assessment nor while filing
the Income Tax Return disclosed the above mentioned facts. Therefore, the income
chargeable to tax has escaped assessment by reasons of the failure on the part of
the assessee to disclose fully and truly all material facts necessary for his
assessment.
In view of above facts, I have reason to believe that the assessee has income which
has escaped from assessment and fit case to issue notice u/s 148 of the I.T Act,
1961.”
10. Within three days of the earlier notice, i.e., on 28th March 2013, another notice
under Section 148 of the Act was issued by the DCIT seeking to reopen the
assessment for AY 2008-09. The same reasons, as extracted hereinbefore, were
given to the Assessee for the reopening of the said assessment for AY 2008-09.
11. As far as AY 2007-08 is concerned, the notice under Section 148 of the Act
was issued by the Assistant Commissioner of Income Tax (‘ACIT’), Circle 37(1)
on 5th March 2014. The reasons conveyed to the Assessee by the letter dated 9th
October 2014 were more or less similar to the above reasons. It was stated further
as under:
“During the assessment proceedings for A.Y. 2010-11, the assessee submitted in
his reply on 14.03.2013 that he has been following cash system of accounting until
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Kapil Goel Advocate (9910272806) [email protected]
F.Y 2008-09 and shifted over to mercantile system of accounting for F. Y. 200910. Assessee during the assessment proceedings of the A.Y. 2007-08 never
submitted that he had been following cash system of accounting. It was only
during the assessment proceedings of A.Y. 2010-11 that the assessee submitted this
fact.
Following the cash basis of accounting, sundry creditors and expenses payable are
not allowed as deductible expenditure. In the balance sheet of Park Hospital and
Sunil Nursing Home, the following sundry creditors and expenses payable are
appearing:
As, Sundry creditors and amounts/expenses payable are not allowed to be claimed
as expenditure under the cash system of accounting. Accordingly, Rs. 30,15,907/is not allowable as expenditure, thus, Rs. 30,15,907/- has escaped from
assessment.”
12. For AY 2009-10, the notice was issued two days later, i.e., on 7th March 2014,
again by the ACIT where the reasons were identical for the reasons for AY 200708.
22. During the course of today’s hearing, apart from the mistake made in the audit
report by mentioning the system of accounting of the Assessee as ‘mixed’ and the
letter issued by the Assessee himself, no other ‘tangible material’ was cited to
justify the reopening of assessment for AY 2006-07 and 2007-08, the two years for
which the reopening was beyond the period of four years. The reasons provided
were the same reasons supplied for the reopening of the assessment for AYs 200809 and 2009-10 although for AY 2008-09 the earlier assessment was completed
under Section 143 (1) of the Act. The fact of the matter was that the reason for the
reopening of the assessment was a mistaken factual premise that the Assessee had
changed the system of accounting from the mercantile to the cash system. It was
more than adequately explained by the Assessee that this was an inadvertent error.
The Assessee has convincingly shown that he has consistently been following the
mercantile system of accounting not only for AYs in question but for the earlier
and later AYs as well.
23. Since the action of the Revenue was based on a factually erroneous premise,
the Court is of the view that the reopening of the assessments for the said AYs is
not sustainable in law. The Court is also satisfied that the requirement of the law,
as explained by the Court in Commissioner of Income Tax. v. Kelvinator of India
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Limited (2010) 320 ITR 561 (SC), and reiterated in the later decisions, has not
been fulfilled in the present case.
24. Accordingly the impugned notices under Section 148 of the Act dated 25th
March 2013 (for AY 2006-07), 28th March 2013 (for AY 2008-09), 5th March 2014
(for AY 2007-08) and 7th March 2014 (for AY 2009-10) and the corresponding
orders dated 13th December 2013 and 11th March 2015 rejecting the objections
of the Assessee to the said notices, are hereby quashed.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 16043 of 2015
KANTI AUTO FABRICATION PVT LTD....Petitioner(s) Versus ASSISTANT
COMMISSIONER OF INCOME TAX....Respondent(s)
Date : 02/02/2016
To issue such notice for reopening of assessment, the Assessing Officer had
recorded following reasons:- “The assessee company had filed its return of income
for the year on 11.10.2010 declaring gross total income at Rs.11,36,670/- and the
same is set off against brought forward loss of A.Y. 2007-08 (unabsorbed
depreciation). Regular assessment u/s.143(3) of the Act was completed on
04/12/2012 by assessing the returned loss as such. Perusal of the lease agreement
filed, reveals that the assessee who is the lessor of its machinery & equipments
contained in the industrial shed & office building on land bearing revenue survey
/block no.859 paikee (old survey no.462 paikee) has leased out the above for
monthly lease rent of Rs.3,00,000/- which is exclusive of Service Tax. The P & L
accounted enclosed, however indicates that the assessee company had debited
Service Tax of Rs.8,23,397/- under the head administrative & other expenses as
per Schedule-IT. In view of the above, the assessee should have offered
Rs.44,23,397/- (Rs.36,00,000/- + Rs.8,23,397/-) as the total lease rent income and
thereafter should have claimed Rs.8,23,397/- as service tax as expense. Failure to
do so has resulted in underassessment of income to the extent of Rs.8,23,397/-.
Hence, I have reason to believe that income of Rs.8,23,397/- has escaped
assessment & is a fit case for reopening the assessment u/s.147 of the Act.”
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Kapil Goel Advocate (9910272806) [email protected]
We would focus only on the question of income of the assessee chargeable to tax
having escaped assessment. In this context, we may recall that the reason recorded
by the Assessing Officer for issuing the impugned notice states that the assessee
had leased out a property for monthly rent of Rs.3 lacs, which was exclusive of the
service tax. He had collected service tax of Rs.8.23 lacs and showed it under the
head of administrative and other expenses. According to the Assessing Officer,
instead, the assessee should have shown gross income of Rs.44.23 lacs of rental
income and thereafter should have claimed Rs.8.23 lacs of service tax as expense.
In our opinion, whichever way it is shown, in the eventual tax computation, it
would not make any difference. Whether the assessee showed net income of Rs.36
lacs by way of rental income or showed the gross income of Rs.44.23 lacs
inclusive of the service tax and claimed Rs.8.23 lacs of service tax separately as
expense, in the ultimate analysis, it was this sum of Rs.36 lacs which was
chargeable to tax. In other words, the service tax component of Rs.8.23 is not only
as per the CBDT circular noted above, even as per the Assessing Officer himself,
as indicated in the reasons recorded, was not chargeable to tax. That being the
position, mere accounting entry or even if there was some defect in indicating such
amount in the accounts presented by the assessee, as long as income chargeable to
tax had not escaped assessment, reopening of the assessment would not be
permissible.
DIT vs. Mitchell Drilling
International Pvt Ltd (Delhi
High Court)
he High Court had to consider the following important question of law:
“Whether the amount of service tax collected by the Assessee from its various
clients should have been included in gross receipt while computing its income
under the provisions of section 44BB of the Act?” HELD by the High Court:
(i) Section 44BB begins with a non obstante clause that excludes the
application of Sections 28 to 41 and Sections 43 and 43A to
assessments under Section 44 BB. It introduces the concept of
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Kapil Goel Advocate (9910272806) [email protected]
presumptive income and states that 10% credit of the amounts paid or
payable or deemed to be received by the Assessee on account of “the
provision of services and facilities in connection with, or supply of plant
and machinery on hire used, or to be used, in the prospecting for, or
extraction or production of, mineral oils in India” shall be deemed to be
the profits and gains of the chargeable to tax. The purpose of this
provision is to tax what can be legitimately considered as income of the
Assessee earned from its business and profession.
(ii) The expression ‘amount paid or payable’ in Section 44 BB (2) (a) and
the expression ‘amount received or deemed to be received’ in Section
44 BB (2) (b) is qualified by the words ‘on account of the provision of
services and facilities in connection with, or supply of plant and
machinery.’ Therefore, only such amounts which are paid or payable for
the services provided by the Assessee can form part of the gross
receipts for the purposes of computation of the gross income under
Section 44 BB (1) read with Section 44 BB (2).
(iii) It is in this context that the question arises whether the service tax
collected by the Assessee and passed on to the Government from the
person to whom it has provided the services can legitimately be
considered to form part of the gross receipts for the purposes of
computation of the Assessee’s ‘presumptive income’ under Section
44BB of the Act?
(iv) The Court concurs with the decision of the High Court of Uttarakhand
in DIT v. Schlumberger Asia Services Ltd (2009) 317 ITR 156 which held
that the reimbursement received by the Assessee of the customs duty
paid on equipment imported by it for rendering services would not form
part of the gross receipts for the purposes of Section 44 BB of the Act.
The Court accordingly holds that for the purposes of computing the
‘presumptive income’ of the assessee for the purposes of Section 44 BB
of the Act, the service tax collected by the Assessee on the amount paid
by it for rendering services is not to be included in the gross receipts in
terms of Section 44 BB (2) read with Section 44 BB (1). The service tax
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is not an amount paid or payable, or received or deemed to be received
by the Assessee for the services rendered by it. The Assessee is only
collecting the service tax for passing it on to the government.
(v) This position has been made explicit by the CBDT itself in two of its
circulars. In Circular No. 4/2008 dated 28th April 2008 it was clarified
that “Service tax paid by the tenant doesn’t partake the nature of
“income” of the landlord. The landlord only acts as a collecting agency
for Government for collection of Service Tax. Therefore, it has been
decided that tax deduction at source) under sections 194-I of Income
Tax Act would be required to be made on the amount of rent
paid/payable without including the service tax.’ In Circular No. 1/2014
dated 13th January 2014, it has been clarified that service tax is not to
be included in the fees for professional services or technical services
and no TDS is required to be made on the service tax component under
Section 194J of the Act.
(Chowringhee Sales Bureau Pvt. Ltd. v. Commissioner of Income-tax
[1973] 87 ITR 542 and George Oakes (P.) Ltd. v. State of Madras [1962]
2 SCR 570, DIT v. Schlumberger Asia Services Ltd. (2009) 317 ITR 156,
CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) Sedco Forex
International Inc. v. CIT 299 ITR 238 (Uttarakhand) and CIT Tax-XI v.
M/s DLF Commercial Project Corporation 2015-TIOL-1609-HC-DEL-IT
referred).
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