|
Advanced Search Options
Case Laws
Showing 121 to 140 of 273 Records
-
1985 (7) TMI 154
Issues: Proper service of notice under s. 263(1) of the IT Act, 1961 and adequacy of the opportunity given for hearing; Failure of the ITO to consider entries in a seized diary during assessment leading to an erroneous and prejudicial assessment order by the CIT.
Proper service of notice and adequacy of opportunity for hearing:
The case involves an appeal against an order passed by the CIT under s. 263 of the IT Act, 1961 for the assessment years 1979-80 and 1980-81. The main contention of the assessee was that the service of notice under s. 263(1) was improper and inadequate time was given for the hearing, thus denying a proper opportunity to be heard. The CIT issued a show cause notice to the assessee, fixing the date of hearing after serving the notice. The assessee raised concerns about inadequate opportunity, which the CIT rejected, emphasizing that the assessee was duly heard and had the chance to present submissions. The CIT's decision was upheld, stating that the opportunity provided was not inadequate, and the assessee had been heard, thus not warranting the setting aside of the order on this ground.
Failure to consider entries in seized diary during assessment:
The CIT's order was based on the failure of the ITO to take into account entries in a diary seized from the assessee, indicating large-scale manufacturing operations and investments exceeding Rs. 2 lakhs. The CIT found the original assessment erroneous and prejudicial to the Revenue due to the ITO's failure to examine the diary entries. The CIT directed the ITO to redo the assessment after considering the diary entries and providing a proper opportunity for the assessee to be heard. The Tribunal upheld the CIT's decision, stating that the completion of the original assessment without examining the seized diary was indeed erroneous and prejudicial to the Revenue. The Tribunal found no reason to interfere with the CIT's order, rejecting the appeal and affirming the direction to conduct fresh assessments considering the diary entries and providing a hearing opportunity to the assessee.
In conclusion, the Tribunal upheld the CIT's order under s. 263, emphasizing the importance of considering seized diary entries during assessments and ensuring proper opportunities for the assessee to be heard. The appeal was rejected, affirming the necessity for a thorough assessment process in compliance with the IT Act, 1961.
-
1985 (7) TMI 153
Issues Involved:
1. Correctness of the order under Section 263 of the IT Act, 1961.
2. Adequacy of rent charged by the assessee Trust.
3. Applicability of Section 13(2)(b) and Section 13(3)(b) of the IT Act, 1961.
4. Validity of proceedings under Section 263.
5. Consideration of municipal valuation and rent restriction laws.
Detailed Analysis:
1. Correctness of the Order under Section 263 of the IT Act, 1961:
The assessee challenged the correctness of the CIT's order under Section 263, which held that the assessment order was erroneous and prejudicial to the interests of Revenue. The CIT directed the ITO to deny the exemption under Section 11 because the property was let out to a substantial contributor (the Tea Company) at an inadequate rent, violating Section 13(2)(b).
2. Adequacy of Rent Charged by the Assessee Trust:
The CIT argued that the rent of Rs. 650 per month was inadequate. The assessee contended that the rent was fair considering the property's value, repairs, and municipal taxes. The property was let out before the Tea Company made any substantial contribution. The municipal valuation and Tamil Nadu Buildings (Lease & Rent Control) Act, 1960, were cited to support the adequacy of the rent. The Tribunal found that the rent was adequate, considering the property's value and the responsibilities of the tenant.
3. Applicability of Section 13(2)(b) and Section 13(3)(b) of the IT Act, 1961:
The CIT held that the Tea Company, having contributed more than Rs. 5,000, was a substantial contributor under Section 13(3)(b), and the property was used for its benefit without adequate compensation, violating Section 13(2)(b). The assessee argued that the rent was agreed upon before the contribution, and the amendment to Section 13(3)(b) was not applicable retrospectively. The Tribunal agreed with the assessee, stating that the rent was adequate and the property was let out before the contribution.
4. Validity of Proceedings under Section 263:
The assessee initially challenged the initiation of proceedings under Section 263 but later focused on the merits. The Tribunal proceeded on the basis that the initiation of proceedings was valid.
5. Consideration of Municipal Valuation and Rent Restriction Laws:
The Tribunal emphasized the relevance of municipal valuation and rent restriction laws in determining the adequacy of rent. The CIT's disregard for these factors was found unjustified. The Tribunal cited several decisions, including Dewan Daulat Rai Kapoor vs. NDMC and Dr. Balbir Singh & Others vs. MCD, to support the view that rent should be reasonable and not exceed the standard rent.
Conclusion:
The Tribunal quashed the CIT's order under Section 263, concluding that the rent charged was adequate and the exemption under Section 11 should not be denied. The appeal filed by the assessee was allowed.
-
1985 (7) TMI 152
Issues Involved:
1. Correctness of the order under section 263 of the Income-tax Act, 1961.
2. Applicability of section 13(2)(b) and section 13(3)(b) of the Income-tax Act, 1961.
3. Adequacy of rent charged by the assessee-trust.
Issue-wise Detailed Analysis:
1. Correctness of the order under section 263 of the Income-tax Act, 1961:
The primary issue in the appeal was whether the order of the Commissioner under section 263 of the Income-tax Act, 1961, was correct. The Commissioner had held that the assessment order was erroneous and prejudicial to the interests of the revenue because the assessee-trust had allegedly contravened the provisions of section 13(2)(b) by not charging adequate rent for a property let out to a substantial contributor. The Tribunal noted that the arguments were pressed only on the merits, and it was assumed that there was a valid initiation of proceedings under section 263.
2. Applicability of section 13(2)(b) and section 13(3)(b) of the Income-tax Act, 1961:
The assessee-trust received a donation of Rs. 7,000 from the Tea Company in 1972, which exceeded the Rs. 5,000 limit specified in section 13(3)(b) for the assessment year 1982-83. Consequently, the Tea Company was considered a substantial contributor. The Commissioner argued that the rent of Rs. 650 per month was inadequate and, therefore, the property was deemed to have been used for the benefit of the Tea Company, violating section 13(2)(b). However, the Tribunal found that the rent charged in 1971, when the property was let out, had to be evaluated for adequacy. The Tribunal noted that the rent restriction laws, specifically the Tamil Nadu Buildings (Lease and Rent Control) Act, were applicable, and the rent could not be increased arbitrarily.
3. Adequacy of rent charged by the assessee-trust:
The Tribunal examined the adequacy of the rent charged by the assessee-trust. The Tribunal considered several factors:
- The municipal valuation of the property, which indicated a reasonable annual letting value.
- The Tamil Nadu Buildings (Lease and Rent Control) Act, which restricted the rent to fair rent or agreed rent.
- The value of the property as per the deed of settlement and subsequent sales of portions of the land.
- The responsibilities of the tenant (Tea Company) for repairs and municipal taxes.
The Tribunal concluded that the rent of Rs. 650 per month was not inadequate. The Tribunal emphasized that the rent agreed upon in 1971 was not sham and was in line with the municipal valuation and rent control laws. The Tribunal also noted that the Commissioner had incorrectly relied on a report from the ITO, Coimbatore, without providing the assessee an opportunity to respond.
Conclusion:
The Tribunal quashed the order of the Commissioner under section 263, holding that the rent charged from the Tea Company was adequate and that the ITO's original assessment allowing exemption under section 11 was correct. The appeal filed by the assessee was allowed.
-
1985 (7) TMI 151
Issues Involved:
1. Addition of Rs. 90,000 maintained by the Commissioner (Appeals).
2. Rejection of allowance of weighted deduction u/s 35B of the Income-tax Act, 1961.
3. Disallowance of Rs. 2 lakhs on the instructions of the IAC u/s 144B.
Summary:
1. Addition of Rs. 90,000:
The assessee, a manufacturer of garments for export, contested the addition of Rs. 90,000 maintained by the Commissioner (Appeals). The ITO had disallowed payments to related parties under section 40A(2)(a) of the Act, considering them excessive. The Commissioner (Appeals) partially upheld this, disallowing Rs. 90,000. The Tribunal found that the fair market value of services was not established, and comparisons made were not like-for-like. The Tribunal concluded that the disallowance was uncalled for and deleted it, also covering the department's appeal against the deletion of Rs. 60,000.
2. Rejection of Weighted Deduction u/s 35B:
The assessee's appeal included the non-allowance of weighted deduction u/s 35B for bank commission, bank interest, and salary to the export division. The Tribunal allowed weighted deduction for bank interest and commission, following a precedent. However, it upheld the Commissioner (Appeals)'s decision to allow only 50% of the salary to the export division due to lack of necessary details to support a higher claim.
3. Disallowance of Rs. 2 lakhs u/s 144B:
The department's appeal involved the disallowance of Rs. 2 lakhs for payments to Sonu International for embroidery work, considered excessive compared to other parties. The Commissioner (Appeals) found no material evidence to support the excessiveness and noted that section 40A did not apply. The Tribunal agreed, emphasizing the need for like-for-like comparisons and the consistency of gross profit rates, and confirmed the deletion of the addition.
Conclusion:
The assessee's appeal was allowed in part, and the department's appeal was dismissed.
-
1985 (7) TMI 150
Issues:
1. Whether the assessment order passed by the ITO was erroneous and prejudicial to the interests of revenue.
2. Whether the ITO erred in not including interest income and allowing excess interest under section 214 of the Income-tax Act, 1961.
Detailed Analysis:
1. The appeal was filed against the order under section 263 of the Income-tax Act, 1961, by the assessee for the assessment year 1979-80. The Commissioner found the assessment order passed by the ITO to be erroneous and prejudicial to the revenue's interests due to non-inclusion of interest income and excess interest allowed under section 214. The Commissioner issued a show-cause notice proposing to cancel the assessment order and direct the ITO to redo the assessment.
2. The assessee contended that the interest income in question was not part of its income based on a previous Tribunal order and that the excess interest under section 214 was a clerical error. The Commissioner, however, disagreed and held the sum as taxable income. The assessee further argued that the ITO followed the Tribunal's order and the interest payment was made as advance tax, hence not erroneous. The Commissioner, despite the possibility of rectification under section 154, maintained that the assessment order was erroneous and fell under the ambit of section 263.
3. The representative for the assessee cited legal precedents to support the contention that following a higher authority's decision does not constitute an error by the ITO. Additionally, the payment made on 15-9-1978 was considered advance tax, as evidenced by the department's treatment of the amount. The department's representative supported the Commissioner's order, emphasizing the strict criteria for interest under section 214.
4. The Tribunal analyzed the contentions of both parties and found that the ITO had conducted a proper enquiry, considering the Tribunal's order and the IAC's review. The non-inclusion of interest income and the treatment of the payment as advance tax were found to be in accordance with the law. The Tribunal concluded that the Commissioner's assumption of jurisdiction under section 263 was not sustainable, and hence, the impugned order was canceled, allowing the appeal.
-
1985 (7) TMI 149
Issues Involved:
1. Validity of the assessment under section 148 of the Income-tax Act.
2. Taxability of the award amounts and interest.
3. Status of the firm as an unregistered firm.
4. Applicability of section 176(3A) of the Income-tax Act.
5. Legality of the order under section 263 of the Income-tax Act.
Issue-wise Detailed Analysis:
1. Validity of the assessment under section 148 of the Income-tax Act:
The assessee contended that the assessment under section 148 was arbitrary, capricious, and illegal as no notice under section 148 was served on the assessee or its partners. The department produced a postal acknowledgment showing service of the notice on 22-11-1979. The assessee argued that the notice was served on a wrong person, a partner in another firm. The Tribunal noted that proper service of a notice under section 148 is a condition precedent to the validity of any assessment under section 147. However, the Tribunal refrained from sending the affidavit and related papers for verification, deeming it an exercise in futility due to subsequent findings.
2. Taxability of the award amounts and interest:
The assessee argued that the award amounts were taxable in the years in which the work was executed. The Commissioner (Appeals) rejected this contention, relying on a precedent. The Commissioner (Appeals) accepted the contention that the principal amount and interest were not taxable as income based on the decision in Govinda Choudhury & Sons v. CIT. Both parties agreed that under section 176(3A), the award amounts, if taxable, would be taxable in the year of receipt, not in the assessment year under consideration (1975-76), as the amounts were not received during this year. Consequently, the Tribunal canceled the assessment for the year 1975-76.
3. Status of the firm as an unregistered firm:
The assessee contended that the status taken as an unregistered firm by the ITO was incorrect. The Commissioner (Appeals) rejected this argument, noting that the assessee never filed an application for registration. The Tribunal found this ground infructuous as the assessment itself was canceled.
4. Applicability of section 176(3A) of the Income-tax Act:
The Tribunal agreed with both parties that section 176(3A) applied, meaning the award amounts, if taxable, would be taxable in the year of receipt. Since the amounts were not received in the assessment year 1975-76, the Tribunal canceled the assessment for this year.
5. Legality of the order under section 263 of the Income-tax Act:
The assessee argued that the order under section 263 was illegal as it was passed after the assessee filed an appeal before the AAC. The Tribunal found that the order under section 263 was passed on 26-2-1981, before the AAC disposed of the appeal on 22-7-1981. The Tribunal rejected the assessee's contention, noting that the Commissioner does not lose jurisdiction to act under section 263 merely because an appeal is pending before the AAC. The Tribunal upheld the order under section 263, finding no force in the assessee's grounds.
Conclusion:
The first appeal, the assessee's appeal for the assessment year 1975-76, was allowed, canceling the assessment. The remaining three appeals, two by the department for the assessment years 1975-76 and 1977-78, and one by the assessee for the assessment year 1977-78, were dismissed.
-
1985 (7) TMI 148
Issues:
Interpretation of section 80P(2)(a)(iii) of the Income-tax Act, 1961 regarding exemption for marketing of agricultural produce of members by a cooperative society.
Analysis:
1. The primary issue in this case is whether a cooperative society, engaged in processing and selling raw latex purchased from its members, is entitled to exemption under section 80P(2)(a)(iii) of the Income-tax Act, 1961. The Income Tax Officer (ITO) initially denied the claim, arguing that the society, by purchasing and processing the raw latex, became the absolute owner of the commodity, thereby not marketing any agricultural produce of its members.
2. Upon appeal, the Commissioner (Appeals) ruled in favor of the cooperative society, stating that the society is indeed engaged in the marketing of agricultural produce of its members and is entitled to the exemption under section 80P(2)(a)(iii) for the income derived from this activity.
3. The revenue challenged the Commissioner's decision, contending that the product sold by the cooperative society cannot be considered agricultural produce once it is purchased and processed. Additionally, the revenue argued that the marketing must be of the members' produce, which was not the case as the society became the owner of the raw latex upon purchase.
4. The Appellate Tribunal analyzed the facts and legal precedents, emphasizing that the processed raw latex remained agricultural produce even after processing, as seen in previous cases such as ITO v. Kannam Latex Industries and CIT v. Woodland Estates Ltd. The Tribunal concluded that the cooperative society, by selling the processed latex, was not marketing the agricultural produce of its members but its own produce, thereby not meeting the criteria for exemption under section 80P(2)(a)(iii).
5. The Tribunal further referenced legal precedents, such as Kisan Co-operative Rice Mills Ltd.'s case, to support its decision that the society must market the members' agricultural produce to qualify for the exemption. The Tribunal distinguished this case from Ryots Agricultural Produce Co-operative Marketing Society Ltd.'s case, where the society marketed the members' produce, unlike the situation at hand.
6. Ultimately, the Tribunal overturned the Commissioner's decision, ruling that the cooperative society was not entitled to the exemption under section 80P(2)(a)(iii) as it was not marketing the agricultural produce of its members. The Tribunal reinstated the ITO's order, denying the exemption to the society.
7. In conclusion, the judgment clarifies the interpretation of section 80P(2)(a)(iii) regarding the eligibility criteria for exemption for marketing agricultural produce of members by a cooperative society, emphasizing the ownership and marketing aspects in determining entitlement to the exemption.
-
1985 (7) TMI 147
Issues Involved:
1. Whether the amount of Rs. 41,86,349 credited as the price of medicines supplied to the Government of Kerala should be treated as part of the trading receipts of the assessee.
2. Whether the Central subsidy received by the assessee should be reduced from the cost of the assets for calculating depreciation.
Issue-Wise Detailed Analysis:
1. Treatment of Rs. 41,86,349 as Trading Receipts:
The primary issue in this appeal was whether the amount of Rs. 41,86,349, credited as the price of medicines supplied to the Government of Kerala, should be treated as part of the trading receipts of the assessee. The assessee, a company engaged in the manufacture and sale of pharmaceutical products, had credited this amount in its accounts based on a recommendation by the Bureau of Industrial Costs and Prices. However, the Government of Kerala did not accept this claim. The Income Tax Officer (ITO) included this amount in the total receipts of the assessee, reasoning that the assessee followed the mercantile system of accounting and the credit once taken could not be excluded.
The Commissioner (Appeals) held that the amount of Rs. 41,86,349 should be excluded from the total income of the assessee for the assessment year 1978-79. The Commissioner reasoned that a mere claim does not constitute income and that the treatment in the accounts is not conclusive of its real character. The Commissioner emphasized that the claim was never admitted by the Government, and thus, no income had accrued.
In the second appeal, the Tribunal examined the arrangement between the assessee and the Government of Kerala. It was noted that the price of drugs supplied was only tentative and subject to final approval by the Government of India. The Tribunal referenced the Supreme Court decision in CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144, which held that income tax is a levy on income, and if income does not result, there cannot be a tax. The Tribunal concluded that the amount represented only a tentative claim and not an accrued income or receipt. Therefore, the Tribunal upheld the Commissioner (Appeals)'s decision to exclude the amount from the total income.
2. Central Subsidy and Depreciation Calculation:
The second issue was whether the Central subsidy received by the assessee should be reduced from the cost of the assets for calculating depreciation. The Commissioner (Appeals) had held that the Central subsidy should not be reduced from the cost of the assets, as provided in section 43(1) of the Income-tax Act, for the purpose of calculating depreciation.
The Tribunal referred to the Madras Special Bench decision in Pioneer Match Works v. ITO [1982] 1 SOT 331, which held that the Central subsidy amount cannot reduce the real cost of plant and machinery for granting depreciation. Based on this precedent, the Tribunal found no merit in the departmental appeal and dismissed it.
Conclusion:
The Tribunal dismissed the departmental appeal, upholding the Commissioner (Appeals)'s decision on both issues. The amount of Rs. 41,86,349 was rightly excluded from the total income of the assessee as it represented only a tentative claim and not an accrued income. Additionally, the Central subsidy received by the assessee should not be reduced from the cost of the assets for calculating depreciation.
-
1985 (7) TMI 146
Issues:
Validity of proceedings under s. 147(b) of the IT Act challenged by the assessee.
Analysis:
The appeal challenged the order of the AAC upholding the validity of the proceedings under s. 147(b) of the IT Act and the consequent assessment order. The assessee disputed the findings supporting the initiation of proceedings under s. 147(b).
The issue revolved around the jurisdiction over the assessee's case, which was transferred from ITO Special Survey Circle I, Ludhiana to ITO Central Circle V, Ludhiana. The ITO Special Survey Circle I, Ludhiana completed an ex-parte assessment under s. 144 after the transfer but without transferring the records. The AAC annulled this assessment due to lack of jurisdiction. Subsequently, the ITO Central Circle V, Ludhiana issued a notice under s. 148 r/w s. 147(b) for escaped income assessment. The assessee contended that the conditions for invoking jurisdiction under s. 147(b) were not met, as no new information was available post-original assessment. The ITO, however, maintained that jurisdiction was validly assumed, citing legal precedents.
The Tribunal analyzed the situation where jurisdiction was transferred from one ITO to another after the original return filing. It held that the original return filing with the ITO of competent jurisdiction rendered the return valid. The failure to transfer records did not invalidate the return. Referring to legal precedents, the Tribunal concluded that the ITO's inaction in making the assessment allowed the income to escape assessment, justifying proceedings under s. 147(b).
The Tribunal disagreed with the AAC's rejection of the appeal without delving into the merits of the case. It remanded the determination of grounds of appeal regarding quantum to the AAC for a decision after providing both parties an opportunity. The appeal was partly allowed, upholding the validity of the proceedings under s. 147(b) and allowing further review on the quantum issue.
-
1985 (7) TMI 145
Issues:
- Addition of interest paid by the assessee-firm on capital contributed by a partner
- Interpretation of provisions of section 40(b) of the IT Act, 1961
- Relevance of previous decisions in similar cases
Analysis:
The Departmental appeal involved the addition of Rs. 10,085 as interest paid by the assessee-firm on capital contributed by a partner, which was deleted by the ld. AAC. The ITO's action was reversed by the AAC based on a previous decision in the case of Kanhaya Lal Rameshwar Dass & Co. The Departmental Representative cited a Gujarat High Court decision to support the Revenue's position, while the assessee's counsel argued that the issue was covered against the Revenue by earlier decisions. The Tribunal noted conflicting decisions and the need to review the matter.
The Tribunal considered the latest legal position and observed that the earlier decision supporting the assessee's contention was based on a now-overruled Gujarat High Court decision. The Full Bench decision provided a new perspective, emphasizing that interest paid to an HUF must be disallowed, while interest paid in the partner's individual account must be disallowed. As no other Full Bench decision was presented, the Tribunal followed the Full Bench decision overruling the previous Gujarat High Court decision, leading to the reversal of the AAC's action in favor of the Revenue.
Ultimately, the Tribunal allowed the appeal, highlighting the significance of the Full Bench decision in shaping the outcome. The judgment underscored the importance of legal precedents and the impact of Full Bench decisions on resolving conflicting interpretations of the law, ultimately leading to a reversal of the initial decision in favor of the Revenue.
-
1985 (7) TMI 144
The ITAT Chandigarh reduced penalty for late filing of return from Rs. 18,331 to Rs. 9,166. The penalty was canceled due to interest charged under s. 139(8) being paid. The Revenue's appeal contesting the penalty reduction was dismissed.
-
1985 (7) TMI 143
Issues:
Admissibility of leave with wages amounting to Rs. 25,186 for the assessment year 1973-74.
Analysis:
The appeal by the Revenue challenged the order of the CIT (A) regarding the allowance of the assessee's claim for 'leave with wages' amounting to Rs. 25,186. The primary issue revolved around whether this claim was a contingent liability or an accrued liability of the relevant accounting period. The ITO allowed the claim partially based on actual payments made by the assessee but disallowed the balance amount. The assessee argued that there was a contractual obligation with the workers for encashment of leave with wages, supported by certificates from some workers. The CIT (A) sided with the assessee, stating that the claim represented a contractual obligation and accrued liability, hence allowing the full claim of Rs. 25,186.
The Department representative contended that the issue was decided against the assessee in a previous year and raised concerns about the lack of certificates from all workers. The assessee's counsel argued that the previous decision did not consider all facts, emphasizing the contractual nature of the obligation supported by provisions of the Factories Act, 1948. The Tribunal rejected the Department's reliance on a previous decision, noting that the issue for the current assessment year was based on an oral agreement between the workers and management, evidenced by certificates submitted. The Tribunal found no merit in the Department's argument regarding missing certificates, as the ITO did not request further evidence. The Tribunal affirmed the CIT (A)'s decision, highlighting the contractual nature of the obligation and the consistent treatment of the claim in subsequent years.
In the final analysis, the Tribunal dismissed the appeal, upholding the CIT (A)'s decision to allow the full claim of Rs. 25,186 for leave with wages. The Tribunal emphasized the contractual basis of the obligation, distinguishing it from the application of the Factories Act as considered in a previous year. The consistent treatment of the claim in subsequent assessments further supported the decision to allow the claim in full based on accrued liability and contractual obligation.
-
1985 (7) TMI 142
Issues Involved:
1. Jurisdiction of the CIT under Section 263 of the IT Act.
2. Validity of the assessment order passed by the ITO under the direction of the IAC under Section 144A of the IT Act.
Detailed Analysis:
Jurisdiction of the CIT under Section 263 of the IT Act:
The primary issue revolves around whether the CIT could assume jurisdiction under Section 263 of the IT Act when the assessment order was passed by the ITO based on directions from the IAC under Section 144A. The assessee contended that once the ITO passed the order in accordance with the IAC's directions, it ceased to be the ITO's order, thus invalidating the CIT's jurisdiction under Section 263. The assessee supported this argument with precedents from the Tribunal (Madras Bench 'C') and the Allahabad High Court.
The Tribunal analyzed the facts and relevant case laws, concluding that the CIT could not invoke Section 263 in this scenario. The Tribunal referenced the decision in *V. V. A. Shanmugam vs. Second ITO*, which held that Section 263 applies only to orders passed by the ITO independently, not those influenced by binding directions from the IAC under Section 144A. The Tribunal agreed with this interpretation, emphasizing that the order, although formally passed by the ITO, was substantively influenced by the IAC's directions, thus falling outside the purview of Section 263.
Validity of the Assessment Order under Section 144A:
The Tribunal also considered whether the assessment order passed by the ITO under the IAC's directions could be reviewed by the CIT. It examined the Allahabad High Court's decision in *Ramlal Kishorelal vs. CIT*, which dealt with the imposition of penalties under Section 271(1)(c) and the role of the IAC. The Tribunal distinguished this case, noting that the IAC's directions in the current case were authorized by law under Section 144A, making them binding on the ITO.
Further, the Tribunal referred to the judgment of the Punjab and Haryana High Court in *S. Sewa Singh Gill vs. CIT*, which underscored that directions from a superior authority, if authorized by law, do not invalidate the lower authority's order. The Tribunal concluded that the IAC's directions under Section 144A, being legally binding, rendered the ITO's order non-reviewable under Section 263 by the CIT.
The Tribunal also considered the Calcutta High Court's decision in *CIT vs. Christian Mica Industries Ltd.*, where the ITO's proposal to drop penalty proceedings, approved by the IAC, was deemed reviewable under Section 33B (analogous to Section 263). However, the Tribunal found this case inapplicable as the ITO in the present case was directed by the IAC to exclude a specific amount, making the ITO's order fundamentally influenced by the IAC's binding direction.
Conclusion:
The Tribunal concluded that the CIT lacked jurisdiction under Section 263 to review the ITO's assessment order, which was passed in compliance with the IAC's directions under Section 144A. The order of the CIT was annulled, and the appeal was allowed. The Tribunal did not address other grounds of appeal raised by the assessee, as the primary issue resolved the matter.
Result:
The appeal was allowed, and the CIT's order was annulled.
-
1985 (7) TMI 141
Issues:
Dispute over deletion of addition of advertisement expenses by the ITO.
Analysis:
The judgment involves a dispute regarding the deletion of an addition of Rs. 53,391 made by the ITO in the assessment year 1977-78. The assessee, a renowned soft drink manufacturer, had claimed the amount as advertisement expenses. The Commissioner (Appeals) initially deleted the addition, stating that the company had introduced a new product, necessitating sampling and advertisement. However, upon appeal by the revenue, the Tribunal sent the matter back for reevaluation. The Commissioner (Appeals) then allowed the claim based on past history and the nature of expenses, leading to the revenue disputing this decision before the Tribunal.
The revenue contended that during the relevant period, the sale mostly involved the old product Coca Cola, questioning the necessity of popularizing the drink through free sampling. The assessee's counsel argued that free samples were a normal practice approved by the management. However, the counsel failed to provide specific details or justification for certain instances of free sampling, especially at private events like weddings and birthdays. The Tribunal emphasized that each assessment year must be independently evaluated, even if past claims were accepted without scrutiny. It noted discrepancies in the nature and purpose of the claimed expenses, particularly in instances of free sampling at private events.
The Tribunal scrutinized a detailed list of expenses presented by the assessee, highlighting various instances of free sampling given to individuals at private functions. It found such actions to be more of personal gestures towards friends and relatives rather than legitimate advertisement expenses. The Tribunal concluded that the nature and context of the expenses did not align with genuine advertisement activities. Therefore, it partially allowed the revenue's appeal, upholding the deletion of only a portion of the claimed expenses while disallowing the majority related to personal gestures.
In conclusion, the Tribunal's decision focused on the distinction between legitimate advertisement expenses and personal gestures disguised as such. It emphasized the need for expenses to align with the business purpose and raised concerns over the nature of free sampling at private events. The judgment highlights the importance of justifying claimed expenses in each assessment year based on their merit and relevance to the business activities.
-
1985 (7) TMI 140
Issues Involved:
1. Inclusion of commission amount in the property passing on death.
2. Deceased's interest in the properties of a smaller Hindu Undivided Family (HUF).
3. Deceased's share in the estate of a bigger HUF.
4. Deduction for maintenance of the widow from the value of HUF properties.
5. Valuation of equity shares of Hico Products Ltd. considering depreciation due to the death of the deceased.
Issue-wise Detailed Analysis:
1. Inclusion of Commission Amount in the Property Passing on Death:
The first ground concerned the inclusion of Rs. 52,500, which was the commission payable to the deceased. The accountable person included Rs. 45,000 in the return but excluded Rs. 7,500, arguing that it was not due on the date of death and became due at the end of the accounting year. The Assistant Controller included the Rs. 7,500 in the property passing on death. The Controller (Appeals) held that commission became payable as soon as services were rendered, regardless of subsequent quantification. The Tribunal agreed, stating, "The right to receive commission constitutes property in praesenti although the commission is to be quantified and to be actually received on a future date." Hence, the entire amount of Rs. 52,500 was included in the property passing on death.
2. Deceased's Interest in the Properties of a Smaller HUF:
The second issue was whether the deceased's interest in the properties of a smaller HUF, where he was the sole surviving coparcener, should be fully included. The Tribunal referenced the Allahabad High Court decision in CED v. Smt. Kalawati Devi, stating, "the entire property passed on the death of the deceased when that property is received on partition from bigger-HUF by the deceased having no son but only wife and daughter." Thus, the Tribunal rejected the accountable person's argument that only half of the property should pass on the death of the deceased.
3. Deceased's Share in the Estate of a Bigger HUF:
The third ground involved the deceased's one-half coparcenary share in the estate of a bigger HUF. The accountable person argued that only one-fourth share should pass on death. The Tribunal rejected this argument, noting that the wife of the deceased had no share in the property on the date of death, referencing the principle that a wife cannot demand partition but is entitled to a share if a partition occurs between her husband and his son. The Tribunal concluded, "the principle laid down in that decision would not be applicable in the present case where the deceased was sole surviving coparcener."
4. Deduction for Maintenance of the Widow from the Value of HUF Properties:
The fourth issue was whether a deduction should be made for the widow's maintenance from the value of the HUF properties. The Tribunal cited Hindu law, stating, "The maintenance of the wife by her husband is a matter of personal obligation... independent of the possession by the husband of any property." The Tribunal found no charge on the property for the widow's maintenance at the time of the deceased's death and rejected the claim for deduction.
5. Valuation of Equity Shares of Hico Products Ltd.:
The fifth ground concerned the valuation of equity shares of Hico Products Ltd., considering depreciation due to the deceased's death. The accountable person argued that the stock exchange quotations did not reflect the real value of the shares, which depreciated due to the deceased's death. The Tribunal noted that the Controller (Appeals) ignored the proviso to section 36(2) of the Act, which states that depreciation due to death should be considered. The Tribunal concluded that the matter required further consideration and remanded it to the Controller (Appeals) for re-evaluation, stating, "if it is proved to his satisfaction that the value had so depreciated that depreciation shall be taken into account and the price shall be estimated accordingly."
Conclusion:
The appeal was partly allowed. The Tribunal upheld the inclusion of the commission amount and the full interest in the properties of both smaller and bigger HUFs. It rejected the deduction for the widow's maintenance but remanded the issue of share valuation back to the Controller (Appeals) for reconsideration of depreciation due to the deceased's death.
-
1985 (7) TMI 139
Issues Involved:
1. Investment Allowance under Section 32A
2. Foreign Exchange Reserve Taxation
3. Relief under Section 80-O
4. Investment Allowance for Dumpers
5. Disallowance of Interest Paid to IT Department
6. Weighted Deduction under Section 35B
7. Business Loss Claim
Issue-wise Detailed Analysis:
1. Investment Allowance under Section 32A:
The Revenue's appeal contested the investment allowance claimed by the assessee under Section 32A, which the ITO had declined but was allowed by the CIT(A). The CIT(A) relied on the Tribunal's decision in Progressive Engineering Company vs. ITO. The Revenue cited CIT vs. Shah Construction Co. Ltd. and CIT vs. N.U.C. Pvt. Ltd., arguing that investment allowance could not be granted. However, the Tribunal clarified that these cases did not directly address the issue of investment allowance under Section 32A. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's business activities were not specified in the Eleventh Schedule and that construction activities qualified for investment allowance under Section 32A(2)(iii).
2. Foreign Exchange Reserve Taxation:
The Revenue challenged the CIT(A)'s decision to exclude Rs. 4,59,098 in foreign exchange reserves from taxation. The Tribunal affirmed the CIT(A)'s decision, stating that the foreign currency had not been adjusted during the accounting year and remained outside India. The Tribunal referenced the Supreme Court's decision in Sutlej Cotton Mills Ltd. vs. CIT, noting that the facts were different as no conversion had taken place in the present case. The Tribunal concluded that the foreign currency reserve did not constitute taxable income until adjustments resulted in profit or loss.
3. Relief under Section 80-O:
The assessee and the Revenue both appealed against the CIT(A)'s decision to remand the issue of relief under Section 80-O to the ITO. The assessee had executed a contract in Iraq, and the CBDT had approved the agreement for Section 80-O purposes. The ITO granted relief for only 50% of the remitted amount, citing a CBDT circular. The Tribunal found the remand unnecessary, as all relevant materials were already on record. The Tribunal set aside the remand order and directed the CIT(A) to consider the issue on merits and quantify the deduction under Section 80-O after hearing the assessee.
4. Investment Allowance for Dumpers:
The assessee appealed against the disallowance of investment allowance for dumpers, which the authorities below classified as road transport vehicles under the second proviso to Section 32A(1). The Tribunal considered the function of the dumpers, noting that they were used for specialized construction activities and not as ordinary transport vehicles. The Tribunal referenced the Calcutta High Court's decision in Orissa Minerals Development Co. Ltd. vs. CIT and concluded that the dumpers were eligible for investment allowance as they were part of the construction activity.
5. Disallowance of Interest Paid to IT Department:
The assessee claimed interest paid for delayed payment of income tax as a business expenditure. The Tribunal upheld the authorities' decision to disallow this claim, referencing Section 80V and the Delhi High Court's decision in Bharat Commerce & Industries Ltd. vs. CIT. The Tribunal concluded that interest on delayed tax payment could not be treated as business expenditure.
6. Weighted Deduction under Section 35B:
The assessee claimed weighted deduction under Section 35B, which the ITO partially allowed. The CIT(A) disagreed with the ITO's interpretation and remanded the issue for detailed scrutiny. Both parties agreed that all relevant materials were on record, and the Tribunal directed the CIT(A) to consider the claim on merits and dispose of it according to law.
7. Business Loss Claim:
The assessee claimed a business loss of Rs. 2,22,300 due to the forfeiture of a security deposit for machinery purchase. The authorities below treated it as a capital loss. The Tribunal agreed, stating that the forfeiture resulted from an infructuous expenditure in the capital field and could not be treated as a revenue loss.
Conclusion:
The appeal by the Revenue was dismissed except for the issue of relief under Section 80-O, which was remanded to the CIT(A) for a fresh decision on merits. The assessee's appeal was allowed in part, specifically regarding the investment allowance for dumpers.
-
1985 (7) TMI 138
Issues Involved:
1. Applicability of Rule 1BB of the Wealth-tax Rules, 1957 for valuation of the self-occupied flat.
2. Deductibility of estate duty payable.
3. Inclusion of premiums paid on life insurance policies of minor children as gifts.
4. Inclusion of renewal commission as property passing on death.
Issue-wise Detailed Analysis:
1. Applicability of Rule 1BB of the Wealth-tax Rules, 1957 for valuation of the self-occupied flat:
The accountable person contended that the valuation of the self-occupied flat should be done under Rule 1BB of the Wealth-tax Rules, 1957. The department objected, arguing that this plea was not raised before the lower authorities. However, the Tribunal rejected this preliminary objection, stating that the question of valuation was under consideration at each stage and could be raised before the Tribunal. The Tribunal emphasized that for consistency, the same property should not be valued differently under different Acts. Hence, it directed the Assistant Controller to apply Rule 1BB for valuation.
2. Deductibility of estate duty payable:
The accountable person argued that the estate duty payable should be an admissible deduction. This plea was rejected based on the precedent set in Smt. V. Pramila v. CED [1975] 99 ITR 221 (Kar.), which held that such a deduction was not permissible.
3. Inclusion of premiums paid on life insurance policies of minor children as gifts:
The Assistant Controller included Rs. 10,789, the premiums paid on life insurance policies for minor children, as gifts under section 9(1) read with section 27 of the Estate Duty Act, 1953. The Controller (Appeals) deleted this amount, reasoning that the payments were made to LIC, not as gifts to the children. The Tribunal modified this decision, holding that Rs. 789 should be included as it exceeded the normal expenditure limit of Rs. 10,000 under section 9(2)(b). The Tribunal left open the broader question of whether such premiums constituted gifts.
4. Inclusion of renewal commission as property passing on death:
The Assistant Controller included Rs. 63,257.35, the estimated future renewal commission, as property passing on death. The Controller (Appeals) deleted this amount, considering it a contingent interest. The Tribunal disagreed, noting that the deceased had a beneficial interest in the renewal commission, which constituted property passing on death. However, it directed the Assistant Controller to verify whether the amount represented an actuarial valuation and to allow the accountable person to submit necessary material for accurate valuation.
Conclusion:
Both appeals were partly allowed. The Tribunal directed the valuation of the self-occupied flat under Rule 1BB, rejected the plea for estate duty deduction, modified the inclusion of life insurance premiums to Rs. 789, and remanded the issue of renewal commission valuation for further verification.
-
1985 (7) TMI 137
Issues Involved:
1. Whether the assessee-trust was carrying on a business within the meaning of section 13(1)(bb) of the Income-tax Act, 1961.
2. Whether the income derived from leasing out the cinema theatre should be considered as business income or income from property/investment.
Detailed Analysis:
1. Nature of Trust and Business Activity:
The assessee is a public charitable trust created by a deed dated 30-7-1960. The trust was granted exemption under section 11 of the Income-tax Act, 1961, until the assessment year 1977-78 when the exemption was denied under section 13(1)(bb) of the Act. The denial was based on the trust's acquisition of a cinema theatre, Prabhat Cinema, donated by the settlor, which was subsequently leased out. The Income-tax Officer (ITO) and the Commissioner (Appeals) concluded that the trust was carrying on cinema business, which was not in line with the primary purpose of the trust.
2. Assessee's Argument:
The learned counsel for the assessee argued that the trust was not authorized to carry on any business according to its deed and had not engaged in running the theatre as a business. The theatre was leased out on a part-time basis to maximize income for the trust, and the trust retained control over the theatre to protect its property. The counsel cited several judicial decisions to support the claim that the theatre was held as an investment, not a commercial asset.
3. Department's Argument:
The department argued that the theatre was a commercial asset donated by the settlor and continued to be so in the hands of the trust. The trust deed authorized the trustees to make investments in business, and the management and control of the theatre indicated a business activity. The department cited clauses of the lease agreement and the trust's actions, such as obtaining licenses and earning income from extra shows and advertisements, as evidence of business activity.
4. Tribunal's Conclusion:
The Tribunal held that the provisions of section 13(1)(bb) could not be applied to the case. The law relating to trusts prohibits altering the nature and objects of a trust except under court directions. The trust's assets did not involve carrying on a business, and the trustees could not accept any activity conflicting with the trust's primary purpose. The theatre was donated in a dilapidated condition and remodeled by the settlor before donation. The trustees did not run the theatre for exhibiting films but leased it out to generate income for the trust.
5. Nature of Income:
The Tribunal accepted the assessee's claim that the theatre was held as an investment, not a business asset. The trust did not engage in exhibiting films, and the leasing out of the theatre did not constitute carrying on a business. The employment of staff and obtaining licenses were prudent steps to maintain the asset and did not indicate business activity. The Tribunal emphasized that the trust could not accept a donation that would subject it to section 13(1)(bb) and potentially erode the trust property.
6. Supporting Judicial Decisions:
The Tribunal referred to several judicial decisions supporting the assessee's case, including:
- Seth Banarsi Das Gupta v. CIT
- Narain Swadeshi Wvg. Mills v. CIT
- Nalinikant Ambalal Mody v. CIT
- New Savan Sugar & Gur Refining Co. Ltd. v. CIT
- Sultan Bros. (P.) Ltd. v. CIT
- CIT v. D.L. Kanhere
- East India Housing & Land Development Trust Ltd. v. CIT
- Karanpura Development Co. Ltd. v. CIT
- CIT v. Ajmera Industries (P.) Ltd.
These decisions highlighted the importance of the intention of the assessee, the nature of the asset, and the use to which it is put in determining whether a business is carried on.
7. Final Decision:
The Tribunal concluded that the assessee-charitable trust was not carrying on a business and was not subject to the provisions of section 13(1)(bb). The appeals were allowed, and the trust's exemption under section 11 was restored.
-
1985 (7) TMI 136
Issues Involved:
1. Validity of initiation of proceedings under Section 269C.
2. Determination of fair market value and bona fide purchase of the property by the transferees.
Detailed Analysis:
1. Validity of initiation of proceedings under Section 269C:
The first effective ground of appeal argued by the counsel for the transferees was the invalid initiation of proceedings under Section 269C. The paper-books presented detailed documents including Form No. 37EE, the agreement between the transferees and the transferor, and various correspondences. The counsel highlighted that the conditions requisite for exercising powers under Section 269C, as elucidated by the Bombay High Court in Unique Associates Co-operative Housing Society Ltd. vs. Union of India & Ors., were not satisfied. These conditions include:
(i) Immovable property of market value exceeding Rs. 25,000 is transferred.
(ii) The fair market value exceeds the apparent consideration by more than 15%.
(iii) The consideration for transfer has not been truly stated in the transfer instrument.
(iv) The untrue statement of consideration is aimed at facilitating tax evasion.
The counsel argued that the IAC (Acq) did not have sufficient material to conclude that the property was purchased at less than 15% of the fair market value or that the untrue statement was made with the object of evading tax. The Department's standing counsel, while almost conceding, referred to decisions by other High Courts and the Supreme Court, suggesting that the initiation of proceedings could be justified if there were reasonable grounds to believe non-disclosure of material facts. However, the Tribunal, bound by the Bombay High Court's decision, held that the initiation of proceedings under Section 269C was invalid as the requisite conditions were not met, particularly the aspect of tax evasion was not established or indicated in the reasons recorded.
2. Determination of fair market value and bona fide purchase of the property:
Regarding the fair market value, the transferees purchased the flat for Rs. 9,00,000, which was not ready for occupation at the time of purchase. The Department's valuer estimated the fair market value at Rs. 12,98,000, based on different valuation methods. The Tribunal considered several factors, including the condition of the flat, the introduction of Section 269AB affecting real estate prices, and comparable sales in the same building.
The Tribunal noted that a flat on the second floor of the same building was sold at Rs. 700 per sq. ft., and acquisition proceedings for that flat were dropped. Additionally, the flat in question required further investment for completion, which the transferees incurred. The Tribunal concluded that the apparent consideration represented the fair market value, and the order of the IAC (Acq) could not be sustained on merits.
Conclusion:
The appeal was allowed, with the Tribunal holding that the initiation of proceedings under Section 269C was invalid and the apparent consideration represented the fair market value of the property.
-
1985 (7) TMI 135
Issues Involved:
1. Entitlement of the assessee-trust to claim exemption under section 10(22) of the Income-tax Act, 1961.
2. Entitlement of the assessee-trust to claim exemption under section 11 of the Income-tax Act, 1961.
Issue-wise Detailed Analysis:
1. Entitlement to Exemption under Section 10(22):
The primary issue was whether the assessee-trust qualified as an educational institution existing solely for educational purposes and not for profit, thereby entitling it to exemption under section 10(22) of the Income-tax Act, 1961. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) both denied this exemption, reasoning that the trust's activities, which included conducting training programs for participants from a few limited companies that made donations, did not qualify as charitable or educational purposes. The AAC further noted that the trust charged fees for securing admissions for Indian students in foreign institutions, which negated the claim of charitable purpose or general public utility.
The assessee's counsel argued that the trust's activities, such as counseling Indian students for admission abroad and conducting entrance exams on behalf of foreign institutions, were educational in nature. He cited the Supreme Court ruling in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234, to support the claim that these activities constituted part of the function of a university. However, the Tribunal concluded that the trust's activities did not amount to 'education' as defined by the Supreme Court in the Loka Shikshana Trust case, which emphasized systematic instruction and schooling. Consequently, the claim for exemption under section 10(22) was rightly denied.
2. Entitlement to Exemption under Section 11:
The alternative claim was that the trust's objects were charitable or of general public utility, thus qualifying for exemption under section 11 of the Act. The assessee's counsel highlighted that the trust was registered under the Bombay Public Trust Act and had received a certificate from the Commissioner under section 80G, recognizing it as a charitable institution. The counsel argued that the trust's predominant object was charitable, as evidenced by its activities, which included providing financial assistance to needy students and organizing educational seminars.
The Tribunal referred to the Supreme Court ruling in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1, which established that the test for charitable purpose is whether the predominant object is to subserve the charitable purpose or to earn profit. It was noted that the trust's activities did not result in significant profits, as any surpluses were offset by deficits in other years. Additionally, the trust's registration under the Bombay Public Trust Act and the Commissioner's certificate supported the claim of charitable purpose.
The Tribunal concluded that the predominant object of the assessee-trust was to carry out the object of general public utility with a view to subserve the charitable purpose rather than to earn profit. Therefore, the trust was entitled to exemption under section 11, provided it met the other conditions laid down for this purpose.
Conclusion:
The appeals were partly allowed. The assessee-trust was not entitled to exemption under section 10(22) but was entitled to exemption under section 11, subject to satisfying the necessary conditions for each of the assessment years in question.
............
|
9911796707
