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Showing 141 to 160 of 273 Records
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1987 (11) TMI 133
Issues:
1. Applicability of provisions of section 145(2) and confirmation of gross profit rate at 17%.
2. Disallowance of depreciation claim on vehicles.
3. New ground of appeal related to section 40A(8) not considered by CIT(A).
4. Reduction of trading additions in revenue's appeal.
Analysis:
1. The main issue in the appeal was the applicability of section 145(2) and the confirmation of the gross profit rate at 17%. The assessee, a sub-dealer of Ashok Leyland truck and spare parts, disclosed a gross profit rate of 33%, but the ITO invoked section 145(2) due to lack of maintained inventory and quantitative details. The CIT(A) agreed with the applicability of section 145(2) but disagreed with the enhancement of sales. The ITAT considered comparable cases and determined that a gross profit rate of 12% was reasonable, leading to the deletion of the addition made by the ITO.
2. Another issue was the disallowance of depreciation claim on vehicles. The assessee claimed depreciation on two motor cycles used exclusively by employees for business purposes. The ITAT found no substance in the CIT(A)'s disallowance and allowed the full depreciation claim as the motor cycles were used for business purposes.
3. The ITAT noted a new ground of appeal related to section 40A(8) raised by the assessee but not considered by the CIT(A). The matter was remitted back to the CIT(A) to hear and decide the issue on its merits.
4. In the revenue's appeal, the issue was the reduction of trading additions. The ITO had enhanced sales without justifying it, which was rightly deleted by the CIT(A). The ITAT upheld the CIT(A)'s decision, finding no jurisdiction to interfere with the deletion of the addition based on the enhancement of sales.
In conclusion, the ITAT allowed the assessee's appeal, dismissed the revenue's appeal, and deemed the cross objection by the assessee as infructuous, resolving all issues raised in the case.
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1987 (11) TMI 132
The appellate tribunal ITAT Jaipur ruled in favor of the assessee, holding that the disputed income from nursery activities should be considered as agricultural income and not from undisclosed sources. The tribunal found no evidence of interpolations in cash memos and accepted the explanations provided by the assessee, leading to the deletion of the addition of Rs. 50,000. The appeal was allowed.
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1987 (11) TMI 131
Issues Involved:
1. Nature of refund of excise duty amounting to Rs. 1,61,316.
2. Whether the refund constitutes income of the assessee.
3. Applicability of Section 41(1) of the Income Tax Act.
4. Whether a question of law arises from the Tribunal's findings.
5. Cessation of liability towards customers.
Issue-wise Detailed Analysis:
1. Nature of Refund of Excise Duty:
The central issue revolves around the nature of the refund of excise duty amounting to Rs. 1,61,316 received by the assessee. The Tribunal observed that the assessee was compelled to charge excise duty from its customers due to the excise authorities' view that the product manufactured was excisable. The amount received was termed as a deposit, and when the excise authorities granted the refund, it was determined that the product was not excisable. The Tribunal found that the assessee received the amount as an intermediary and not as the ultimate owner, as the ultimate owners were the customers who had purchased the goods.
2. Whether the Refund Constitutes Income:
The Tribunal noted that the Department did not dispute that the refund was not income of the assessee and that the amount was payable to several parties. The Department sought to tax the refund under Section 41(1) on the premise that the liability might not be paid ultimately and could be appropriated by the assessee, thus escaping tax. The Tribunal concluded that the refund did not constitute income as it represented a liability towards the customers and there was no cessation of liability. The Department's apprehension that the assessee might not pay the amounts to the customers was not sufficient to treat the refund as income.
3. Applicability of Section 41(1) of the Income Tax Act:
Section 41(1) of the Income Tax Act pertains to the taxability of amounts that cease to be liabilities. The Tribunal emphasized that for an amount to be considered income under this section, there must be a remission or cessation of liability. In this case, the Tribunal found no evidence of cessation of liability towards the customers, and therefore, the refund could not be taxed under Section 41(1).
4. Whether a Question of Law Arises:
The Tribunal discussed whether the issue at hand constituted a question of law. The learned Departmental Representative argued that it was a mixed question of law and facts, while the learned counsel for the assessee contended that the Tribunal's findings were factual and did not raise a question of law. The Tribunal referred to various case laws, including CIT v. Tollygunge Club Ltd., CIT v. Bijli Cotton Mills (P.) Ltd., and others, to support the view that not all questions are referable questions of law. The Tribunal concluded that the issue was a finding of fact and did not warrant a reference to the High Court.
5. Cessation of Liability Towards Customers:
The Tribunal found that the Department could not provide evidence to show that there was a cessation of liability from the customers in favor of the assessee. The Tribunal observed that the assessee received the refund for the purpose of passing it to the respective owners (customers) and that the liability had not ceased. The Tribunal rejected the Department's reference application, stating that the Department's apprehension about the non-payment to customers indicated that they accepted the amount as liabilities.
Separate Judgments Delivered by Judges:
Per Shri H. S. Ahluwalia, Judicial Member:
The Judicial Member opined that it would be safer to submit the reference rather than withholding it. He noted that the assessee received the amount from its business activities and credited it to the profit and loss account. He questioned how the assessee could claim that the amount was not its income after crediting it to the P&L account. He suggested that the following question should be submitted for the opinion of the High Court: "Whether on the facts and in the circumstances of the case the Tribunal was correct in law in deleting the amount of Rs. 1,61,316 already received by the assessee from the Excise Deptt. and credited to its profit and loss account?"
Per Shri A. Kalyanasundharam, Accountant Member:
The Accountant Member disagreed with the Judicial Member, stating that the manner of depiction of an item in the accounts does not establish cessation of liability. He emphasized that the fundamental requirement of remission or cessation of liability was absent, and thus the amount could not acquire the character of income. He concluded that no reference was called for.
Third Member Order by Shri Ch. G. Krishnamurthy, President:
The Third Member was called upon to resolve the difference of opinion. He noted that the issue involved was whether the liability to refund the money to customers had ceased. He found it difficult to agree with the Accountant Member's view and held that the conclusions arrived at by the Tribunal were mixed questions of law and fact. He opined that a question of law did arise and should be referred to the High Court. The matter was left to the Bench to decide the form of the question while drawing up the statement of the case.
Conclusion:
The Tribunal ultimately decided that the reference application by the Department was dismissed, concluding that the refund of excise duty did not constitute income of the assessee due to the absence of cessation of liability. The issue was deemed a finding of fact, and no question of law was found to arise from the Tribunal's order.
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1987 (11) TMI 130
Issues Involved:
1. Whether the Income Tax Officer (ITO) can levy interest under section 139(8) in rectification proceedings initiated under section 154.
2. Whether the calculation sheet (Form ITNS-150) accompanying the assessment order can be considered part of the assessment order for the purpose of levying interest.
3. Whether the Appellate Assistant Commissioner (AAC) was correct in deleting the interest levied by the ITO.
4. Whether the matter should be sent back to the ITO for fresh examination or the departmental appeal should be dismissed altogether.
Detailed Analysis:
Issue 1: Levy of Interest under Section 139(8) in Rectification Proceedings under Section 154
The revenue appealed against the AAC's order, which held that the ITO cannot levy interest under section 139(8) in rectification proceedings initiated under section 154. The revenue argued that the interest was mentioned in the demand notice and calculation sheet, indicating the ITO's intention to charge interest. However, the assessee contended that unless the interest is explicitly mentioned in the assessment order, the assessee cannot be held liable for interest. The AAC followed the Calcutta High Court decision (139 ITR 946) and the Allahabad High Court decision in CIT v. Himalaya Drug Co. (1982) 135 ITR 368, which supported the view that the calculation sheet does not form part of the assessment order.
Issue 2: Calculation Sheet as Part of Assessment Order
The ITO did not mention any default by the assessee in the assessment order dated 28-2-1983. The calculation sheet (Form ITNS-150) prepared by clerks was argued to be an intermediary working sheet and not an order passed by the ITO. The Calcutta High Court in 139 ITR 946, CIT v. Bharat Machinery & Hardware Mart (1982) 136 ITR 875 (Guj.), and Himalaya Drug Co.'s case held that the calculation sheet cannot be the basis for raising the demand on the assessee. The AAC upheld this view, stating that the presumption should be in favor of the assessee that there was no delay and, therefore, no interest is chargeable.
Issue 3: Deletion of Interest by AAC
The AAC's order deleting the interest was challenged by the revenue. The Judicial Member disagreed with the Accountant Member's view, arguing that an accidental slip by the ITO should not be fatal to the revenue's case. According to section 156 of the IT Act, the notice of demand specifies the sum payable, and the assessment order under section 143(3) is separate from the calculation sheet. The Judicial Member cited CIT v. Executors of the Estate of Late H. H. Rajkuverba Dowager Maharani Saheb of Gondal (1978) 115 ITR 301 (Kar.) and argued that the calculation sheet could be considered part of the assessment order. The Judicial Member also referred to section 292B of the IT Act, which validates proceedings with mistakes, defects, or omissions if they conform to the intent and purpose of the Act.
Issue 4: Remanding the Matter to ITO
The Judicial Member suggested that the matter should be sent back to the ITO for a fresh examination, arguing that the ITO's omission to mention interest in the assessment order could be rectified under section 292B. The Judicial Member emphasized that the AAC should have considered the issue of interest himself rather than canceling the order altogether. The Judicial Member cited CIT v. City Palayacot Co. (1980) 122 ITR 430 (Mad.) and CIT v. R. Giridhar (1984) 145 ITR 246 (Kar.) to support the view that the calculation sheet forms part of the assessment order.
Third Member's Opinion
The Third Member, President Ch. G. Krishnamurthy, was called to resolve the difference of opinion. He reviewed the conflicting judicial opinions and concluded that the calculation sheet should be considered part of the assessment order, following the Karnataka High Court's decision in R. Giridhar's case. The Third Member emphasized that section 292B validates proceedings with mistakes, defects, or omissions if they conform to the intent and purpose of the IT Act. He agreed with the Judicial Member that the matter should be remanded to the ITO for reconsideration regarding the waiver of interest under Rule 117A of the Income-tax Rules.
Conclusion
The majority opinion favored remanding the matter to the ITO for fresh examination regarding the waiver of interest under section 139(8), rather than dismissing the departmental appeal altogether. The Third Member's decision resolved the difference of opinion, emphasizing the application of section 292B and the inclusion of the calculation sheet as part of the assessment order.
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1987 (11) TMI 129
Issues Involved:
1. Applicability of interest under sections 139(8) and 215 for assessments made under section 147.
Issue-wise Detailed Analysis of the Judgment:
1. Applicability of Interest under Sections 139(8) and 215 for Assessments Made under Section 147:
The core issue in the appeals was whether interest under sections 139(8) and 215 can be charged in respect of assessments made under section 147. The Revenue contended that interest was rightly chargeable, while the assessee argued that assessments under section 147 do not qualify as 'regular assessments' under section 2(40) and thus should not attract such interest.
The Revenue relied on the case of Bardolia Textile Mills v. ITO, asserting that despite the definition of 'regular assessment' not including assessments under section 147, the intention to avoid taxes, as discussed in McDowell & Co. Ltd. v. CTO, should result in interest being chargeable. The assessee, on the other hand, cited several cases, including H. N. Malak v. ITO and Charles D'souza v. CIT, arguing that assessments under section 147 are not 'regular assessments' and thus should not attract interest under sections 139(8) and 215.
The Tribunal examined the definition of 'regular assessment' under section 2(40) and the provisions of sections 139(8) and 215. It noted that section 139(8)(a) imposes interest for delayed returns based on 'regular assessment,' which is defined to include assessments under sections 143 and 144 but not section 147. The Tribunal also considered the amendment brought by the Taxation Laws Amendment Act, 1984, which added Explanation 2 to section 139(8), stating that assessments made for the first time under section 147 shall be regarded as 'regular assessments' for the purposes of this sub-section, effective from 1-4-1985.
The Tribunal concluded that the amendment was not clarificatory but an actual amendment effective from 1-4-1985, and thus not applicable to the assessment years in question. It held that the assessments made under section 147 for the relevant years could not be considered 'regular assessments' and thus should not attract interest under sections 139(8) and 215. Consequently, the Tribunal dismissed the departmental appeals, agreeing with the Appellate Assistant Commissioner (AAC) that the levy of interest was invalid.
Separate Judgment by Judicial Member:
The Judicial Member dissented, arguing that the amendment should be considered clarificatory and applicable retrospectively. He cited the Supreme Court's decisions in McDowell & Co. Ltd. and Distributors (Baroda) (P.) Ltd., emphasizing that the legislative intent was to treat assessments under section 147 as 'regular assessments' even before the amendment. He believed that the amendment should be deemed declaratory, thus applicable to earlier years, and concluded that the appeals should be accepted, setting aside the AAC's order and restoring the ITO's order.
Third Member's Opinion:
Due to the difference of opinion, the matter was referred to a Third Member, who sided with the Accountant Member. The Third Member agreed that the Explanation to section 139(8) was an amendment and not clarificatory, thus not applicable to the assessment years prior to 1-4-1985. The Third Member also noted that several High Courts had consistently interpreted 'regular assessment' to exclude assessments under section 147. Consequently, the Third Member upheld the view that the levy of interest was unlawful.
Final Decision:
The appeals were dismissed, and it was held that the assessee was not liable to pay interest under sections 139(8) and 215 for assessments made under section 147 for the relevant assessment years.
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1987 (11) TMI 128
Issues Involved:
1. Depreciation on bottles and shells.
2. Investment allowance.
3. Taxability of compensation received from Coca Cola Export Corporation.
4. Alternative claim for loss on breakage of bottles and shells.
5. Investment allowance on power capacitors.
6. Charging of interest under sections 139 and 215 of the Income Tax Act.
7. Departmental appeal regarding bottles and shells as part of plant and machinery.
Detailed Analysis:
1. Depreciation on Bottles and Shells:
The primary issue was whether bottles and shells constitute plant and machinery, thereby qualifying for depreciation. The Income Tax Officer (ITO) initially denied any depreciation, considering them as mere packing material. However, the CIT(A) allowed a 10% depreciation based on earlier Tribunal decisions, despite being doubtful about their classification as plant and machinery. The Tribunal upheld the CIT(A)'s decision, maintaining uniformity with previous years where only 10% depreciation was allowed.
2. Investment Allowance:
The assessee claimed investment allowance on the basis that bottles and shells were part of the machinery. The CIT(A) rejected this on the grounds that the products contained blended flavoring concentrates, which were listed in the 11th Schedule of the Income Tax Act. However, the Tribunal admitted new evidence (a letter from the Indian Beverage Co.) and directed the ITO to reconsider the claim on its merits.
3. Taxability of Compensation from Coca Cola Export Corporation:
The assessee received compensation from Coca Cola Export Corporation for destroying bottles following a government ban on Coca Cola concentrate imports. The CIT(A) treated this compensation as revenue receipts taxable under section 41(2) of the Income Tax Act. The Tribunal upheld this view, noting that the compensation was directly related to the destruction of bottles, which were previously allowed as terminal loss. The dissenting opinion argued that the compensation should be considered a capital receipt, as it was for the closure of business, not directly related to the destruction of bottles.
4. Alternative Claim for Loss on Breakage of Bottles and Shells:
The assessee raised an alternative ground that if depreciation was not allowed, then loss on breakage should be considered. Since the CIT(A) had already allowed depreciation, this ground was dismissed as it did not arise from the CIT(A)'s order.
5. Investment Allowance on Power Capacitors:
The assessee claimed investment allowance on two power capacitors. The ITO had not allowed this claim due to lack of details. The Tribunal directed the ITO to reconsider this claim afresh, asking the assessee to furnish the necessary details.
6. Charging of Interest under Sections 139 and 215:
The assessee contested the charging of interest under sections 139 and 215, arguing that the original assessment order did not contain a direction for charging interest. The CIT(A) upheld the interest charge, citing that the demand notice sufficed for this purpose. The Tribunal agreed, stating that the demand notice is part and parcel of the assessment order. The ITO was directed to reconsider the issue afresh in light of the assessee's claim for investment allowance.
7. Departmental Appeal on Bottles and Shells as Plant and Machinery:
The department appealed against the CIT(A)'s decision to treat bottles and shells as part of plant and machinery. The Tribunal rejected the department's appeal, maintaining its earlier stance that bottles and shells are part of the machinery, thus eligible for depreciation.
Conclusion:
The Tribunal partly allowed the assessee's appeals for statistical purposes and dismissed the departmental appeals. The Third Member concurred with the Judicial Member's view that the compensation received from Coca Cola Export Corporation was taxable under section 41(2) of the Income Tax Act, as it was directly related to the destruction of bottles, thereby making it a revenue receipt. The matter was referred back to the regular Bench for final disposal in accordance with the majority opinion.
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1987 (11) TMI 127
Issues:
1. Whether the assessee's claim to withdraw the liability for interest of Rs. 65,88,875 based on a revised return filed under section 139(5) was justified.
Analysis:
The main issue in this appeal before the Appellate Tribunal ITAT Jaipur was whether the CIT (A) erred in disallowing the assessee's claim to withdraw the liability for interest of Rs. 65,88,875 based on a revised return filed under section 139(5) for the assessment year 1983-84. The assessee initially filed a return declaring a loss and later filed a revised return claiming nil income and withdrawing the interest liability claim. The dispute arose as the interest in question was waived in a subsequent year, leading to a disagreement on the timing of the claim and waiver of the interest liability.
The Tribunal considered the facts that the interest in question was not waived or remitted in the accounting year relevant to the assessment year under consideration. The assessee, following the mercantile system of accounting, claimed the interest as a deduction in the original return. The revised return was filed under section 139(5) to withdraw the interest claim. The Tribunal analyzed relevant case laws, including Sulemanji Ganibhai v. CIT and Kumar Jagadish Chandra Sinha v. CIT, to determine the validity of the revised return. It was established that for a revised return to be valid, there must be a discovery of omission or wrong statement in the original return, which was not the case here.
The Tribunal highlighted the conditions set by previous judgments for accepting the validity of a revised return, emphasizing that deliberate concealment or false statements in the original return would not entitle the assessee to revise the return. In this case, the assessee's original return accurately reflected the interest claim, and there was no omission or wrong statement. As the interest liability was waived in a subsequent year, the Tribunal upheld the decision of the lower authorities in disallowing the revised return and confirming the allowance of the interest deduction claimed in the original return. The Tribunal dismissed the appeal, ruling in favor of the revenue authorities based on the facts and legal precedents analyzed during the proceedings.
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1987 (11) TMI 126
Issues Involved:
1. Legality of the partition of HUF assets.
2. Recognition of partition under Section 171 of the IT Act.
3. Physical division of assets versus division by book entries.
4. Unequal partition and its implications.
5. Applicability of Supreme Court decisions.
Detailed Analysis:
1. Legality of the partition of HUF assets:
The appeal concerns the partition of the HUF assets between Srikrishnamohan Rao and his minor son, Mallikarjuna Pradeep, recorded in a memorandum of partition dated 25-3-1982. The ITO rejected the claim for partition, stating it was not legally conceivable as no physical division of assets occurred. The AAC confirmed this decision, emphasizing that the partition was not by metes and bounds as required by law.
2. Recognition of partition under Section 171 of the IT Act:
A petition was filed to recognize the partition under Section 171 of the IT Act. The ITO conducted an inquiry and found that the assets, primarily movable properties like stocks, shares, and debentures, were not physically divided. The ITO held that the partition did not meet the legal requirements since the assets were capable of physical division but were instead divided by book entries.
3. Physical division of assets versus division by book entries:
The ITO relied on the Supreme Court's decision in Kalloomal Tapeswari Prasad (HUF) v. CIT, which stated that any partition without physical division of assets, when possible, lacks legal sanction. The ITO argued that the shares and debentures, being movable properties, should have been physically divided. The assessee contended that dividing the book capital by making relevant entries in the books of account is a recognized mode of partition, especially when the assets involve risks and uncertainties.
4. Unequal partition and its implications:
The ITO also argued that the partition was unequal as the shares were not taken at their market price, and the difference between cost price and market price was not given to the minor son. The assessee countered that the partition was not unequal, as the father assumed the risks associated with the assets, and the minor son received half the value of the assets in cash, which was more advantageous. The assessee cited the Supreme Court decision in Apoorva Shantilal Shah v. CIT, which stated that the Department cannot refuse recognition of a partition on the grounds of inequality, as only the minor, upon attaining majority, could challenge it.
5. Applicability of Supreme Court decisions:
The assessee distinguished the Supreme Court decision in Kalloomal Tapeswari Prasad (HUF)'s case, arguing it concerned immovable properties and partial partition, whereas the present case involved movable properties and a full partition. The Supreme Court recognized that a partition could involve one coparcener taking the whole asset and the other receiving an equivalent amount of money, which was applicable in this case. The Supreme Court's decision in Apoorva Shantilal Shah v. CIT further supported the assessee's position, emphasizing that the father, as a natural guardian, could effect a partition even against the wishes of the minor sons.
Conclusion:
The Tribunal upheld the assessee's contention, stating that the memorandum of partition was a record of a past transaction and did not create the partition. The division of book value by making relevant entries was recognized as a valid mode of partition. The Tribunal found no basis for the lower authorities' objections and directed the ITO to recognize the partition dated 25-3-1982. The appeal was accordingly allowed.
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1987 (11) TMI 125
Issues Involved:
1. Taxability of fees paid to a non-resident company as technical fees u/s 9(1)(vii).
2. Quantum of technical fees to be taxed.
3. Application of grossing up principle for tax calculation.
Summary:
Issue 1: Taxability of Fees as Technical Fees u/s 9(1)(vii)
The primary issue was whether the fees paid by the Indian company (NMDC) to the non-resident company (DEMAG) could be considered as technical fees u/s 9(1)(vii). The Tribunal held that the fees paid to DEMAG for the services of their Engineer, who was sent to rectify defects in machinery, constituted technical fees. The Tribunal emphasized that Explanation 2 to section 9(1)(vii) includes the provision of services of technical or other personnel, thus expanding the scope of technical services. The Tribunal rejected the argument that the services were merely repairs and not consultancy, noting that both DEMAG and NMDC had treated the services as consultancy work in their correspondence.
Issue 2: Quantum of Technical Fees to be Taxed
The Tribunal addressed the quantum of technical fees, rejecting the department's contention that all expenditures incurred by NMDC, including air fare and daily allowances, should be considered as technical fees. The Tribunal held that only the payment for services at the rate of DM 565 per day, totaling Rs. 1,32,072, could be brought to tax. The Tribunal reasoned that incidental expenses like air fare and daily allowances, which were reimbursements, could not be treated as technical fees. The Tribunal emphasized that section 9(1)(vii) should be strictly construed, and only the agreed technical fees should be taxed.
Issue 3: Application of Grossing Up Principle
The Tribunal upheld the Income-tax Officer's application of the grossing up principle for tax calculation. The Tribunal noted that the contract stipulated that NMDC would bear the income-tax liability, implying that the technical fees should be grossed up to ensure DEMAG received the net amount stipulated in the contract. The Tribunal referred to section 28(iv) and relevant case law, concluding that the benefit of passing on the tax liability to NMDC must be included in the assessment. The Tribunal demonstrated through arithmetic examples that grossing up was necessary to accurately reflect the tax liability and upheld the method of grossing up receipts for tax calculation.
Conclusion:
The appeal was partly allowed, with the Tribunal holding that only Rs. 1,32,072 could be taxed as technical fees, and the grossing up principle was correctly applied for tax calculation.
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1987 (11) TMI 124
Issues:
1. Levy of penalties under the Income-tax Act and the Compulsory Deposit Act.
2. Dispute regarding the penalty for non-payment of compulsory deposit.
3. Interpretation of provisions related to compulsory deposit and current income.
4. Assessment of liability to pay compulsory deposit based on current income calculation.
5. Consideration of whether the assessees are liable to pay compulsory deposit.
Detailed Analysis:
1. The judgment involves appeals by partners in a firm of contractors against penalties levied under the Income-tax Act and the Compulsory Deposit Act. A common order was passed for convenience.
2. The specific dispute in ITA Nos. 1867 and 1864/Hyd./1985 relates to the penalty for non-payment of compulsory deposit. The assessees had not paid the deposit during the year but made the payment before the assessment was completed. The Income-tax Officer imposed the penalty, which was upheld in the first appeal.
3. The arguments presented before the tribunal included the submission that no penalty should be levied as the assessees had not submitted advance tax statements. The tribunal considered the provisions of the Compulsory Deposit Act, particularly the definition of "current income," which is crucial in determining liability.
4. The tribunal analyzed the definition of "current income" under the Compulsory Deposit Act, emphasizing that it can be ascertained based on various scenarios outlined in the Act. In this case, the assessees had not submitted the required advance tax statements, impacting the calculation of their current income.
5. Ultimately, the tribunal concluded that since the assessees had not sent the necessary advance tax statements as required by law, their current income could not be ascertained per the provisions of the Act. As a result, the tribunal held that the assessees were not liable to pay the compulsory deposit, vacating the penalties imposed on them.
In conclusion, the tribunal partly allowed some appeals, dismissed others, and allowed the appeals specifically related to the penalty for non-payment of compulsory deposit. The judgment centered on the interpretation of statutory provisions regarding compulsory deposit liability based on the calculation of current income, highlighting the importance of complying with procedural requirements under the law.
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1987 (11) TMI 123
Issues:
1. Entitlement to investment allowance for fabrication contractor.
2. Disallowance of depreciation on plant and machinery.
3. Cash credit disallowance for unconfirmed creditor.
4. Credit disallowance for unexamined creditor.
Entitlement to Investment Allowance:
The case involved appeals by an assessee, a fabrication contractor, for the assessment years 1982-83 and 1983-84 regarding the claim of investment allowance. The Income-tax Officer and the Commissioner of Income-tax (Appeals) disallowed the investment allowance, stating that the assessee did not produce new articles but only rendered services for fabricating materials supplied by principals. However, the assessee contended that it manufactured cranes, tanks, and other articles using large machinery, justifying the investment allowance claim. The tribunal analyzed the fabrication process, noting that the raw materials were transformed into new articles like cranes and tanks, distinct from the original materials. Citing various precedents, including cases where tailoring, printing, retreading tires, and construction activities were considered manufacturing, the tribunal held that the assessee was entitled to investment allowance as it produced new articles or things.
Depreciation Disallowance and Cash Credit Issues:
In the assessment year 1983-84, the tribunal addressed the disallowance of depreciation on plant and machinery and cash credit issues. While the depreciation rate ground was not pressed, the tribunal directed the Commissioner of Income-tax (Appeals) to consider the disallowance of depreciation on plant and machinery. Regarding the cash credits, the tribunal upheld the addition of Rs. 66,000 due to the absence of documentation and genuineness of the loan. However, for another credit of Rs. 10,000, the tribunal noted that a confirmatory letter was submitted, but the Commissioner (Appeals) did not examine the creditor. The tribunal remitted this issue back to the Commissioner (Appeals) for further examination to determine the genuineness of the credit. Ultimately, the appeals were partly allowed for statistical purposes.
In conclusion, the judgment clarified the entitlement of a fabrication contractor to investment allowance based on the manufacturing process, addressed the depreciation disallowance and cash credit issues for the assessment year 1983-84, and emphasized the importance of examining creditors for credit transactions.
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1987 (11) TMI 122
Issues:
1. Whether the advance made for the purchase of a commercial flat constitutes an asset under the Wealth Tax Act.
2. Whether the valuation of flats should include the advance paid before possession and conveyance.
Analysis:
Issue 1:
The appeals revolve around the classification of an advance made for the purchase of a commercial flat as an asset under the Wealth Tax Act. The AAC held that until possession was granted, the advance could not be considered a right in the property, thus not falling under the definition of assets. The Revenue argued that the advance should be considered an asset, while the respondent contended that the valuation was the key issue, not the classification as an asset.
Issue 2:
The assessment year in question was 1981-82, where the return initially declared a wealth of Rs. 8,86,792, later revised to Rs. 9,08,500 due to an error in mentioning the deposit with the construction company. The AAC overturned the assessments, stating that the advance for the property could not be considered an asset until possession was granted. The Tribunal agreed with the AAC's decision, emphasizing that possession and final payment were crucial factors in determining ownership. The Tribunal cited recent judicial precedents, including a Supreme Court judgment, to support the view that ownership is not established solely by possession without a conveyance deed.
In conclusion, the Tribunal dismissed the Revenue's appeals, affirming that the advance paid for the commercial flat could not be considered an asset for wealth tax purposes until possession was granted. The Tribunal highlighted the importance of possession and final payment in determining ownership, in line with recent judicial pronouncements.
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1987 (11) TMI 121
Issues:
1. Taxability of wages received by the assessee for the assessment year 1982-83.
2. Applicability of Section 5(i)(a) versus Section 15 of the Income Tax Act, 1961.
3. Interpretation of legal principles regarding the taxation of income.
Detailed Analysis:
The judgment pertains to an appeal by an individual assessee, who was previously a non-resident, regarding the taxability of wages received during the assessment year 1982-83. The assessee, a former employee of a foreign employer, claimed wages based on International Transport Workers Federation (ITF) rates, which were higher than the amount paid to him. The Income Tax Officer (ITO) held the amount taxable in the assessment year in question on a receipt basis, contrary to the assessee's contention that it accrued in the previous year when he was a non-resident. The Appellate Assistant Commissioner (AAC) upheld the taxability under Section 5(i)(a) of the IT Act, 1961.
In the appeal before the ITAT, the assessee argued that the amount became due and payable in the previous year when he was a non-resident, making it non-taxable in the current assessment year. The assessee contended that Section 15, not Section 5(i)(a), was applicable in this case. The ITAT considered legal precedents cited by both parties, emphasizing that income is taxable when it accrues or is received, whichever is earlier. The tribunal highlighted that taxability is a legal matter, not a matter of choice for the assessee or the assessing officer.
The ITAT analyzed the provisions of Section 15(a) concerning salary due to an assessee, emphasizing that such income is chargeable to tax under the head "Salaries" in the previous year, whether paid or not. The tribunal distinguished between accrual and receipt of income, citing legal precedents such as Bhuban Mohan Banerjee, Laxmipat Singhania, and Chunilal V. Mehta & Sons P. Ltd. These cases underscored that income cannot be taxed twice and that income accrued in a specific year should not be taxed in a subsequent year based on receipt alone.
Ultimately, the ITAT allowed the appeal, ruling that the wages in question could not be taxed for the assessment year 1982-83. The tribunal concluded that since the income accrued in the previous year when the assessee was a non-resident, it could not be taxed in the current assessment year solely based on receipt. The judgment reaffirmed the principle that income is taxable at the earliest point of accrual or receipt, as per the provisions of the Income Tax Act, 1961.
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1987 (11) TMI 120
Issues:
1. Validity of the order made under section 263 of the Income-tax Act, 1961 by the Commissioner of Income-tax for the assessment years 1984-85 and 1985-86.
2. Jurisdiction of the Commissioner of Income-tax in setting aside the assessments and directing re-examination of evidence.
3. Compliance with legal requirements by the Income-tax Officer in making the assessments.
4. Consideration of evidence and proper application of law in the assessment process.
Analysis:
The appeals were directed against the consolidated order made under section 263 of the Income-tax Act, 1961 by the Commissioner of Income-tax, Delhi-VI for the assessment years 1984-85 and 1985-86. The Commissioner set aside the assessments with directions to the Income-tax Officer (ITO) to re-examine the evidence and reframe the assessments in accordance with the law. The appellant's counsel argued that the Commissioner's order was untenable both factually and legally. The counsel emphasized that the assessments were made after thorough inquiries by the ITO and that the Commissioner did not show any errors in the ITO's orders that were prejudicial to the revenue's interests. The appellant relied on specific case laws to support their argument regarding the validity of the assessments.
On the other hand, the revenue contended that the Commissioner can regard the order as erroneous if the ITO failed to conduct further inquiries when necessary. The revenue supported its position by citing relevant case laws. The Tribunal carefully considered the submissions from both parties and reviewed the applicable legal principles. It was established that for an order of revision under section 263, the Commissioner must specify the errors in the ITO's order that are prejudicial to the revenue's interests. The Tribunal analyzed the assessments made by the ITO and found that proper inquiries were conducted, and relevant provisions of the law were considered during the assessment process.
The Commissioner's order under section 263 highlighted alleged errors by the ITO, including the failure to examine the salary payments and the use of premises for the residence of the institution's President. However, the Tribunal found that the ITO had indeed conducted thorough inquiries, including spot inspections, and had satisfied himself regarding the claims made by the society. The Tribunal concluded that the Commissioner's assumptions were based on conjectures and lacked concrete evidence to prove that the ITO's orders were erroneous and prejudicial to the revenue's interests.
Ultimately, the Tribunal held that the Commissioner lacked jurisdictional facts to assume lawful jurisdiction under section 263. Therefore, the consolidated order made by the Commissioner for the assessment years 1984-85 and 1985-86 was deemed invalid and was canceled. The Tribunal restored the orders of the ITO for those years. Additionally, the Tribunal emphasized the importance of considering the nature of services rendered by the institution and the use of premises in the context of the institution's activities, ultimately allowing the appeals.
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1987 (11) TMI 119
Issues Involved:
1. Disallowance of the provision made towards purchase tax of marine products.
2. Entitlement to deduction under section 80HHC for exports carried out through export houses.
Issue-wise Detailed Analysis:
1. Disallowance of the Provision Made Towards Purchase Tax of Marine Products:
The assessee, a registered firm engaged in the export of marine products, contested the Income-tax Officer's disallowance of a provision amounting to Rs. 18,63,564 made towards purchase tax. The assessee claimed exemption from purchase tax under sections 5(1) and 5(3) of the Central Sales Tax Act, relying on the Kerala High Court decision in Neroth Oil Mills Co. Ltd. Despite no demand being raised by the Sales Tax Department for the relevant year, the assessee anticipated a future liability due to an appeal by the department to the Supreme Court and potential statutory changes.
Both the Income-tax Officer and the CIT (Appeals) held that there was no liability to pay purchase tax, relying on the Kerala High Court decision and the Supreme Court decision in Sterling Foods v. State of Karnataka [1986] 63 STC 239. The Tribunal upheld the CIT (A)'s order, stating that the assessee is not entitled to this deduction, referencing a similar decision in Geo Sea Foods [IT Appeal No. 9 (Coch.) of 1987, dated 9-9-1987].
2. Entitlement to Deduction Under Section 80HHC for Exports Carried Out Through Export Houses:
The second issue was whether the assessee was entitled to a deduction under section 80HHC for exports conducted through export houses. Section 80HHC allows deductions for Indian companies or residents exporting goods, provided the sale proceeds are received in convertible foreign exchange.
The Income-tax Officer partially disallowed the claim, noting that a significant portion of the exports (Rs. 3,81,81,565 out of Rs. 4,10,84,286) was conducted through recognized export houses, leaving only Rs. 29,02,720 as direct exports by the assessee. The question was whether the assessee could claim deductions for exports made through export houses.
The Tribunal examined the agreements between the assessee and export houses, such as M/s. Mathur Imports and Exports Pvt. Ltd. The agreements stipulated that the export houses would procure orders, and the assessee would export the goods in the name of the export house, with letters of credit opened in the export house's name. The export house would negotiate the documents and credit the sale proceeds to the assessee's account, paying a commission of 2.25% on the FOB value.
The Tribunal analyzed various documents, including export applications, bills of lading, invoices, and bank accounts, which indicated that the assessee undertook all export formalities and received the sale proceeds in convertible foreign exchange. The department argued that the export house was the real exporter since they claimed deductions and received letters of credit.
The Tribunal concluded that the assessee was the real exporter, as they purchased, processed, and shipped the goods, bore all risks and expenses, and received the sale proceeds. The export house merely facilitated the process to gain RCP entitlements. The Tribunal referenced the Delhi High Court decision in Fero Alloys Corpn. Ltd. v. R. C. Mishra, Director, Tax Credit [1978] 114 ITR 753, which held that the actual exporter should be considered the exporter for tax benefits.
The Tribunal also noted that the CBDT circular referred to by the CIT(A) applied to the amended section 80HHC post-1985, which required engagement in the export business, unlike the unamended section applicable for the year in question.
Conclusion:
The Tribunal allowed the assessee's appeal in part, holding that the assessee is entitled to the deduction under section 80HHC for exports conducted through export houses. The appeal was partly allowed.
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1987 (11) TMI 118
Issues:
1. Deduction of expenditure for valuing estates as a business expense.
2. Taxability of rubber replantation subsidy as income assessable to tax.
3. Determination of whether the rubber replantation subsidy is agricultural or non-agricultural in nature.
Issue 1: The High Court ruled in favor of the department, stating that the expenditure of Rs. 34,201 for valuing the assessee's estates cannot be considered a business expense. The Appellate Tribunal upheld this decision, denying the deduction for the said expenditure.
Issue 2: The Income Tax Officer (ITO) brought Rs. 10,25,086 received as rubber replantation subsidy to tax, considering it as income under section 2(24) read with section 10(30) of the Income Tax Act. The CIT (Appeals) disagreed, holding that the subsidy was granted for replantation expenses and should not be treated as income. The department appealed, arguing that the subsidy should be taxed. The Tribunal referred to previous decisions and held that the subsidy is not income liable to tax under the IT Act, in line with the decision in CIT v. Malayalam Plantations Ltd. The High Court affirmed this decision, concluding that the subsidy is a revenue receipt, leaving the question of its agricultural nature undecided.
Issue 3: The CIT (A) did not provide a clear finding on whether the rubber replantation subsidy is agricultural in nature. However, as the appeal was decided in favor of the assessee on other grounds, it can be inferred that this point was decided against the assessee. The Appellate Tribunal, considering previous cases and its own detailed analysis, determined that the receipts are agricultural in nature, contrary to the department's position. As a result, the appeal was partly allowed in favor of the assessee.
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1987 (11) TMI 117
Issues Involved:
1. Credit for tax deducted at source (TDS) amounting to Rs. 9,33,630.
2. Disallowance of travelling expenses.
3. Disallowance of motor car expenses.
4. Addition of sales tax penalty.
5. Charging of interest under sections 139(8) and 215/217.
Detailed Analysis:
1. Credit for Tax Deducted at Source (TDS):
The primary issue is the CIT(A)'s order upholding the ITO's action in not allowing the assessee's claim for credit of TDS aggregating to Rs. 9,33,630. The TDS certificates were furnished by the assessee during the original assessment proceedings. The ITO withdrew the credit on the grounds that the dates for deposit of the sums deducted were not furnished in the TDS certificates. The CIT(A) observed that the parties who issued the TDS certificates were "the sister concerns of the assessee" and had not deposited the deducted tax with the Government even after 5/6 years. The CIT(A) termed the TDS certificates as "mere scraps of paper" and upheld the ITO's action.
The assessee challenged these observations, arguing that credit for TDS under section 194A cannot be denied merely because the tax was not paid to the Government by the deductor. The assessee's counsel referred to sections 191, 194A, 198, 199, 203, 205, and 206, emphasizing that the person who suffers tax deduction cannot be taxed again due to the default of the deductor. The counsel cited Supreme Court decisions to support this argument. However, the Tribunal noted that no direct demand was raised on the assessee and upheld the CIT(A)'s order, finding that the TDS certificates were not in accordance with sections 199, 203, and Form 19A.
2. Disallowance of Travelling Expenses:
The ITO disallowed Rs. 15,665 out of the travelling expenses claimed by the assessee, referring to Rule 6D. The CIT(A) restricted this disallowance. The Tribunal found that the details of actual travelling and period of stay were not furnished. A comparative chart showed that disallowances in earlier years were significantly lower. Therefore, the Tribunal restricted the addition to Rs. 5,000, considering the past disallowances.
3. Disallowance of Motor Car Expenses:
The ITO disallowed Rs. 4,000 out of the motor car expenses claimed by the assessee. The CIT(A) upheld this disallowance. The Tribunal found the disallowance reasonable, considering the total expenditure claimed and the fact that cars were also used for personal purposes of the directors. Therefore, the disallowance was confirmed.
4. Addition of Sales Tax Penalty:
The ITO added back a sales tax penalty of Rs. 10,000. The CIT(A) upheld this addition. The Tribunal found that the facts mentioned by the lower authorities were not in dispute and upheld the addition.
5. Charging of Interest under Sections 139(8) and 215/217:
The ITO charged interest under sections 139(8) and 215/217. The CIT(A) upheld this charging of interest. The Tribunal noted that the assessee's counsel did not seriously contest this ground and upheld the CIT(A)'s order, referring to the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd vs. CIT, which allows disputing the levy of interest in appeal only if the assessee denies its liability to the levy.
Conclusion:
The appeal was allowed in part. The Tribunal upheld the CIT(A)'s order regarding the TDS credit, disallowance of motor car expenses, and addition of sales tax penalty. The disallowance of travelling expenses was restricted to Rs. 5,000. The charging of interest under sections 139(8) and 215/217 was also upheld.
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1987 (11) TMI 116
Issues:
1. Rejection of appeals by CIT(A) against additions and disallowances made by ITO.
2. Rejection of claim under section 80J by ITO and maintenance of the same by CIT(A).
Detailed Analysis:
1. The appeals filed by the assessee were against separate orders of the CIT(A) for the assessment years 1981-82 and 1982-83. The common points involved in these appeals led to a common order for convenience. Grounds related to CIT(A) not allowing appeals against additions and disallowances made by the ITO were rejected, as they were not passed at the time of hearing. Additionally, a ground regarding interest charged under sections 139, 215, and 217 of the IT Act was also rejected as it was not pressed.
2. The main issue in these appeals was the rejection of the assessee's claim under section 80J by the ITO and its maintenance by the CIT(A). The ITO disallowed the claim as the assessee failed to establish essential facts required for relief under section 80J, such as investment of fresh capital, manufacturing of new articles yielding additional profit, employment of requisite labor, and a separate and distinct identity of the industrial unit. The CIT(A) upheld the disallowance based on the lack of evidence regarding the establishment of a new unit separate from the existing one.
3. The assessee argued before the CIT(A) that they had indeed set up a new unit for the manufacture of pharmaceuticals, fulfilling the conditions for deduction under section 80J. They provided details of fresh capital employed, profits derived from the new industrial undertaking, employment of labor, and the manufacturing process. However, the CIT(A) rejected the claim, citing the absence of a separate and distinct identity for the new unit and the presence of old machinery exceeding 20% of the total plant and machinery.
4. Upon review, the Tribunal found that the CIT(A) erred in rejecting the claim under section 80J. They noted that the assessee had successfully set up a new industrial undertaking for the manufacture of pharmaceutical formulations, distinct from the existing business. The Tribunal highlighted previous findings in the assessee's favor for the assessment year 1979-80 and emphasized the separate nature of the new unit. They concluded that the CIT(A) was unjustified in rejecting the claim, and the assessee was entitled to the deduction under section 80J.
5. Consequently, the appeals were allowed in favor of the assessee, overturning the CIT(A)'s decision to disallow the claim under section 80J for both the assessment years 1981-82 and 1982-83.
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1987 (11) TMI 115
Issues:
1. Taxability of surplus income from an exhibition football match organized by an Athletic Club.
2. Assessment of the actual surplus amount derived from the exhibition match.
Issue 1: The main issue in this case was the taxability of the surplus income of Rs. 5,29,832.37 generated from an exhibition football match organized by an Athletic Club. The Income Tax Officer (ITO) included this amount in the club's income, but the Commissioner of Income Tax (Appeals) deleted it based on a resolution by the Executive Committee to utilize the surplus for charitable purposes. The CIT (Appeals) found that the surplus was diverted for charitable uses before reaching the club, akin to a trust, following the precedent set in CIT v. Tollygunge Club Ltd. The department contended that there was no diversion of income for charity as per the resolution, and the surplus was not exempt under section 10(23) of the Income-tax Act, 1961. The Appellate Tribunal disagreed with the CIT (Appeals) and held that the surplus income was taxable as it was applied to discharge an obligation, not diverted before reaching the club.
Issue 2: The second issue revolved around the assessment of the actual surplus amount from the exhibition match. The CIT (Appeals) found the net surplus to be Rs. 9,29,542, differing from the initial assessment of Rs. 5,29,832 by the ITO. The discrepancy arose due to incomplete accounting for receipts and expenditures spanning across different accounting periods. The department raised an objection that the CIT (Appeals) did not enhance the assessment amount despite finding a higher surplus. The Tribunal referred to the scope of enhancement under section 251, emphasizing that the CIT (Appeals) cannot introduce new sources of income but can correct matters considered by the ITO during assessment. Consequently, the Tribunal allowed the appeal for statistical purposes and remanded the case to the ITO for a fresh assessment to determine the exact surplus amount after further inquiries.
In conclusion, the Appellate Tribunal held that the surplus income from the exhibition match was taxable as it was applied to discharge an obligation, rejecting the notion of diversion for charitable purposes. The case highlighted the importance of accurate accounting for income and expenditures to determine the actual surplus amount for tax assessment purposes.
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1987 (11) TMI 114
Issues: Valuation of property under Wealth-tax Act, Deduction of loans incurred for purchasing property and shares
Valuation of Property:
The appeal pertains to the valuation of a property purchased by the assessee shortly before the valuation date for assessment years 1978-79 to 1981-82. The assessee contended that the property should be valued according to rule 1BB of the Wealth-tax Rules, which was accepted by the AAC. The department argued that since the property was recently purchased, its value should be based on the purchase price, not rule 1BB. The Tribunal held that while rule 1BB is mandatory, its application in this case would be theoretical as the property was self-occupied and not leased out. The Tribunal rejected the assessee's argument that the valuation should be based on the gross maintainable rent assessed by the Municipal Corporation. The Tribunal upheld the AAC's order to value the property in accordance with rule 1BB but directed the value to be taken at the actual purchase price.
Deduction of Loans Incurred for Property and Shares:
The assessee had incurred loans for purchasing the property and shares, claiming deductions under relevant sections of the Wealth-tax Act. The WTO allowed deductions proportionate to the value of the property and shares. The assessee appealed, maintaining that the full amount of debts should be allowed as deductions. The department argued that the deductions were correctly disallowed or allowed proportionately. The Tribunal relied on a Full Bench judgment of the Madras High Court and previous instructions by the CBDT. However, the assessee cited a recent Rajasthan High Court decision that supported allowing the full amount of debt as a deduction. The Tribunal concluded that the assessee could not claim further deduction for shares but was entitled to a deduction for the house loan, albeit in a reduced amount. The excess deduction allowed for the house loan was noted, and the AAC's orders were reversed, restoring those of the WTO.
In conclusion, the appeals were allowed, with the Tribunal providing detailed reasoning for the valuation of the property and the deductions claimed by the assessee for loans incurred for property and shares under the Wealth-tax Act.
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