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2008 (5) TMI 458
Issues Involved:
1. Validity of the order u/s 263.
2. Retention of the assessment order u/s 143(3).
3. Allowance of deduction u/s 80-IB(10).
4. Business formation by splitting up or reconstruction.
5. Applicability of section 80-IB(2).
6. Treatment of units of flats and their area.
7. Assessment order being erroneous or prejudicial to the revenue.
8. Deduction u/s 80-IB(10).
Summary:
1. Validity of the Order u/s 263:
The assessee contended that the CIT's order u/s 263 was ab initio void and bad in law. The CIT had issued a show-cause notice u/s 263, claiming the assessment orders were erroneous and prejudicial to the revenue as no proper enquiry was made by the Assessing Officer (AO). The Tribunal found that the AO had indeed made necessary enquiries and allowed the deduction u/s 80-IB(10) after due consideration. Thus, the CIT's order u/s 263 was deemed unsustainable.
2. Retention of the Assessment Order u/s 143(3):
The assessee argued that the original assessment order u/s 143(3) should be retained in its original form. The Tribunal noted that the AO had conducted a thorough enquiry and found no errors in the original assessment. Therefore, the assessment order was to be retained as it was.
3. Allowance of Deduction u/s 80-IB(10):
The assessee claimed that all conditions for deduction u/s 80-IB(10) were satisfied. The Tribunal observed that the AO had verified the details and allowed the deduction. The CIT's contention that the assessee was not an industrial undertaking was rejected, as section 80-IB(10) applies to undertakings developing and building housing projects, not necessarily industrial undertakings.
4. Business Formation by Splitting Up or Reconstruction:
The CIT argued that the business was formed by splitting up or reconstruction of an existing business. The Tribunal found that the assessee had provided evidence that no construction activity had commenced on the plot by the previous entities, and it was barren land at the time of the assessee's formation. Thus, it was not a case of reconstruction.
5. Applicability of Section 80-IB(2):
The CIT's claim that section 80-IB(2) was applicable was rejected. The Tribunal clarified that section 80-IB(2) pertains to industrial undertakings manufacturing or producing articles, whereas section 80-IB(10) relates to housing projects. Therefore, the conditions of section 80-IB(2) were not applicable for claiming deduction u/s 80-IB(10).
6. Treatment of Units of Flats and Their Area:
The CIT contended that the AO failed to verify the area of certain coupled flats. The Tribunal noted that the AO had relied on the statements of architects and the DVO's report, which confirmed that the area of none of the flats exceeded 1,000 sq. ft. Thus, the AO's assessment was correct.
7. Assessment Order Being Erroneous or Prejudicial to the Revenue:
The CIT argued that the assessment order was erroneous and prejudicial to the revenue. The Tribunal found that the AO had made a detailed enquiry and accepted one possible view, which cannot be reversed by the CIT u/s 263. Therefore, the assessment order was neither erroneous nor prejudicial to the revenue.
8. Deduction u/s 80-IB(10):
The Tribunal concluded that the assessee was entitled to the deduction u/s 80-IB(10) as all conditions were satisfied, and the AO had correctly allowed the deduction in the original assessment.
Conclusion:
The Tribunal cancelled the CIT's order u/s 263 and allowed the appeals of the assessee for both assessment years 2004-05 and 2005-06.
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2008 (5) TMI 457
Eligibility for deduction u/s 10B - Loss arising from Industrial Unit - set off against the other income - Treatment of interest income, training fees and income from sale and purchase of software - Determination of preliminary expenses u/s 35D - Computation of Book profit u/s 115JB.
Eligibility for deduction u/s 10B - Loss arising from Industrial Unit - 100 per cent export oriented undertaking - business of software development - Whether the loss incurred in the business eligible u/s 10B can be set off against the other incomes of the assessee u/s 70 or 71 of the Act? - CIT(A) held that profits and gains derived from the business eligible u/s 10B did not form part of total income and since profits and gains include losses also, neither profits nor the loss from such business could be considered for the purpose of computing total income - Consequently, the losses arising from such unit could not be set off under the provisions of sections 70 and 71 of the Act.
HELD THAT:- On perusal of Sec.10B clearly reveals that a deduction is allowed to the assessee in respect of the profits derived from the undertaking eligible under this section from the total income of the assessee. That means the total income of the assessee would include the profits or losses derived from such unit and if there is any profit, then the eligible amount shall be deducted in computing the total income. Accordingly, it is held that the CIT(A) was not legally justified in holding that profits and gains of the business eligible u/s 10B of the Act do not form part of the total income. The view taken by us is also fortified by the decision of the Tribunal in the case of Mindtree Consulting (P.) Ltd. v. Asstt. CIT[2005 (11) TMI 176 - ITAT BANGALORE-B].
Having held that the income from the eligible business u/s 10B is to be taken into consideration in computing the total income of the assessee, we are of the view that all the provisions of the Act would be applicable for the purpose of computing the total income of the assessee unless expressly excluded by the Legislature. It is pertinent to note that provisions of section 70 or 71 have not been included in the non-obstante provisions and, therefore, it cannot be said that provisions of section 70 or 71 cannot be applied in computing the income of the assessee.
Had the Legislature intended that the provisions of sections 70 and 71 should not be applied in respect of loss incurred in business eligible under section 10B, it could have specifically provided so as provided in respect of section 72 or section 74. The view taken by us is also fortified by the unreported decision of the Third Member in the case of Navin Bharat Industries Ltd. [2004 (3) TMI 318 - ITAT BOMBAY-E], held that provisions of section 70 or 71 are applicable even in respect of loss incurred in the business eligible, u/s 10B or 10A.
Therefore, it is held that the assessee is entitled to set off the loss incurred in the industrial unit at Pune which is eligible u/s 10B of the Act against the other incomes earned by him. The order of the CIT(A) is, therefore, set aside on this issue and consequently, the Assessing Officer is directed to allow the set off of the business loss incurred by the assessee in the aforesaid unit against the other incomes.
Treatment of interest income - training fees and income from sale and purchase of software - Whether these incomes form part of the income derived from the industrial unit eligible u/s10B of the Act ? - HELD THAT:- Following the decision of Tribunal in assessee’s own case pertaining to AY's 1998-99 and 2000-01 - it is held that interest income is to be treated as business income but cannot be treated as derived from the industrial unit eligible u/s 10B of the Act. However, the training income would be considered as income from the unit eligible u/s 10B.
As far as the profit on the purchase and sale of software is concerned, the learned counsel for the assessee has not been able to submit as to how such income could be treated as income derived from industrial unit u/s 10B. Section 10B applies only to the income which is derived from the export of articles or things or computer software which are manufactured or produced in the said unit. Therefore, in our opinion, the profit arising from purchase and sale of software cannot be treated as income derived from industrial unit u/s 10B of the Act. The order of the CIT(A) is, therefore, modified accordingly.
Disallowance u/s 35D - incurred an expenditure which was amortised over a period of five years and thus 1/5th of such expenditure was claimed - HELD THAT:- In our view, the alternate contention of the assessee requires fresh adjudication as the AO had disallowed the same without ascertaining the nature of the expenditure. AO in a summarily manner held that the expenditure was capital in nature without giving any reasons. Accordingly, we set aside the order of the CIT(A) on this issue and remit the matter to the file of AO for fresh adjudication after ascertaining the real nature of expenditure incurred by the assessee.
Book profit u/s 115JB - HELD THAT:- In our opinion, gross injustice has been caused to the assessee by not applying the provisions of section 115JB correctly. AO has conveniently added the expenditure relating to section 10B unit but failed to ignore the provisions of clause (ii) of the said Explanation which provides that income relating to such unit credited to the Profit & Loss Account should also be reduced. Accordingly, we are of the view that the matter requires fresh adjudication.
The order of the CIT(A) is, therefore, set aside on this issue and the matter is remitted to the file of AO for fresh adjudication after applying the provisions of the Explanation to section 115JB correctly as observed by us. The quantum of expenditure relatable to section 10B unit shall be re-worked out after giving fair opportunity of being heard to the assessee.
In the result, appeal is partly allowed.
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2008 (5) TMI 456
Validity of the reopening of the assessment u/s 147 - notice u/s 148 was issued after the expiry of 4 years - Borrowed in the course of business between two corporate companies - unsecured loan transactions - loans and advances - Addition made in the income as deemed dividend u/s 2(22)(e).
Validity of the reopening of the assessment u/s 147 - notice u/s 148 was issued after the expiry of 4 years - Income escaping assessment - Whether reopening of the assessment is hit by proviso to section 148? - HELD THAT:- We find that whatever conditions are imposed for reopening of the assessment u/s 147 it is with regard to assessment framed under section 143(3) or u/s 147 of the Act. Under section 147, if the assessments are framed within 4 years from the end of the relevant assessment year, it is immaterial whether the assessee has disclosed fully and truly all material facts necessary for his assessment.
Assessment can be reopened if the AO has reason to believe that any income chargeable to tax, has escaped assessment. But, after the 4 years, the assessment can only be reopened if it is established that income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make return u/s 139 or in response to notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Since there is no reference of section 143(1) in proviso to section 147 of the Act, the conditions laid down in proviso for reopening the assessment after 4 years, cannot be imposed for reopening the assessment framed u/s 143(1) of the Act. We, therefore, of the view that CIT(A) has rightly adjudicated the issue in the light of given facts and the judgments referred to before him. Accordingly, confirm the order of the CIT(A) on this issue.
Addition in AY 1999-2000 and AY 2000-01 u/s 2(22)( e) - Deemed dividend - loan and advances - HELD THAT:- No doubt, the assessee has purchased the assets from M/s. Sinar Engineering Co. Pvt. Ltd. But, nothing was paid to them. Only a general entry was passed as on 1-4-1999. It is also evident from the record that this amount was shown as loan and advances given to the assessee-company in the books of account of M/s. Sinar Engineering Co. Pvt. Ltd. for AY 1999-2000 and this liability remains outstanding in the next year as on 31-3-2000. This amount was also shown in the assessee’s books of account as receipts from M/s. Sinar Engineering Co. Pvt. Ltd. and remain outstanding as on 31-3-1999. Though the assets were purchased by the assessee, but the cost of it was shown to be as loan and advances in the books of account in both the companies. Since the assessee itself has given a colour of this transaction as loan advances, he cannot take a contrary stand before the revenue authorities.
We are of the view that it is not necessary that the payer or the payee must have shareholdings in other company. If the loans and advances are given by one company to other company in which the shareholder is common having sufficient holding or has a beneficial interest in both the companies, provisions of section 2(22)( e) can be invoked.
Undisputedly, Mr. Ramesh G. Chabria has 59 shares out of total equity shares of the assessee-company besides having a shareholding of 5,400 shares out of 5,500 equity shares of M/s. Sinar Engineering Co. Pvt. Ltd. Meaning thereby Mr. Ramesh G. Chabria has a beneficial interest in both the companies. We have also carefully examined the order of the Tribunal in the case of Seamist Properties (P.) Ltd.[2004 (8) TMI 323 - ITAT BOMBAY-G], but it was rendered on different set of facts, as such ratio laid down in that case, cannot be applicable to the present facts of the case. In the light of this legal proposition, we are of the view that the CIT(A) has rightly adjudicated the issue in both the appeals. We, therefore, confirm his order.
In the result, appeals of the assessee are dismissed.
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2008 (5) TMI 455
Validity of re-assessment proceedings under section 147 - Computation of Long-term capital gain (LTCG) u/s 48 - Cost of acquisition "Nil" - Right to construct additional floors was acquired by the assessee free of cost - Receive consideration against right acquired - Applicability of amended provisions section 55(2)(a).
HELD THAT:- Assessee society acquired the right to construct the additional floors by virtue of DCR, 1991 which could not be available to assessee on expenditure of money. Prior to DCR, 1991, no society had any right to construct the additional floors. So it was not a tradable commodity. Suddenly by virtue of DCR, 1991, the right was conferred by the Government on the assessee. Such right exclusively belonged to the building owned by the society. It could not be transferred to any other building.
Similarly, similar right belonging to other societies could not be purchased by assessee for the purpose of constructing additional floors in its own building. Therefore, such right had no inherent quality being available on expenditure of money and therefore, cost of such asset could not be envisaged. Hence, the view taken by us is fully justified by the decision of the Apex Court in the case of B.C. Shrinivasa Shetty [1981 (2) TMI 1 - SUPREME COURT].
Therefore, the right acquired by the assessee did not fall within the ambit of section 45 of the Act itself. The amended provisions are also not applicable since such right is not covered by any of the assets specified in section 55(2)(a) of the Act. Therefore, applying the decision of Apex Court in the case of B.C. Shrinivasa Shetty (supra) as well as the decision of the co-ordinate Bench in the case of Mehtal D. Mehta [2005 (1) TMI 595 - ITAT MUMBAI], the issue is decided in favour of the assessee. The order of the CIT(A) is, therefore, set aside and consequently, the AO is directed to delete the addition from the total income.
Since the assessee succeeds on the main ground that receipt is capital receipt not chargeable to tax, we need not adjudicate the other issues raised by the assessee.
In the result, appeal filed by the assessee is allowed.
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2008 (5) TMI 454
Issues:
1. Allowance of credits under section 115JAA of the Income-tax Act, 1961 for taxes paid under KVSS 1998.
2. Allowance of credit of taxes paid under Minimum Alternate Tax (MAT) for a period of five years though paid under KVSS.
Issue 1:
The appeal concerned the allowance of credits under section 115JAA of the Income-tax Act, 1961 for taxes paid under the Kar Vivad Samadhan Scheme, 1998 (KVSS). The assessee, engaged in exporting computer software technical services, filed its return for the assessment year 1997-98 claiming deduction under section 80HHE. The income was determined under section 115JA, resulting in a demand. The assessee opted for KVSS, paying the tax demand and contended that the tax paid should be carried forward and set off against tax liability under section 115JAA. The CIT(A) allowed the credit, but the revenue disputed, arguing that tax under KVSS cannot be treated as regular income tax. The Tribunal held that the assessee, having paid tax under section 115JA, is entitled to the benefit of section 115JAA, rejecting the revenue's argument.
Issue 2:
The second issue revolved around the allowance of credit for taxes paid under MAT for five years, even if paid under KVSS. The assessee claimed entitlement to MAT Credit under section 115JAA for taxes paid by opting under KVSS. The CIT(A) directed the Assessing Officer to allow the credit for taxes paid under KVSS for five assessment years. The revenue contended that KVSS is a separate scheme, barring the benefit of section 115JAA. However, the Tribunal held that the income determined under KVSS falls under section 115JAA, following precedents and highlighting that KVSS does not affect the liability to any tax. Citing judgments affirming this interpretation, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order.
In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow credits under section 115JAA for taxes paid under KVSS and MAT for a period of five years, as the income determined under KVSS falls under the purview of section 115JAA. The Tribunal emphasized that opting for KVSS does not deprive the assessee of the benefit of section 115JAA, as clarified by legal precedents.
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2008 (5) TMI 453
Issues Involved:
1. Adoption of depreciation figure on revalued assets for computing book profit under section 115JA of the Income-tax Act, 1961.
2. Validity of net profit distribution as per the decision of the Apex Court.
3. Admissibility of depreciation on revalued assets as per CBDT guidelines and pending SLP.
4. Reassessment proceedings.
Detailed Analysis:
1. Adoption of Depreciation Figure on Revalued Assets:
The primary issue revolves around whether the depreciation of Rs. 9,70,596 on revalued assets should be included while computing the book profit under section 115JA of the Income-tax Act, 1961. The Assessing Officer (AO) recomputed the book profit by excluding this depreciation, citing CBDT letter No. 385/76/88-IT(B) dated 31-1-1989. However, the CIT(A) directed the AO to adopt the figure of depreciation as claimed by the assessee, including the depreciation on revalued assets, relying on the Supreme Court decision in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. The Tribunal upheld the CIT(A)'s decision, noting that the accounts were prepared in accordance with Accounting Standard-6 (AS-6) and certified by auditors without any qualification regarding non-adherence to AS-6.
2. Validity of Net Profit Distribution:
The CIT(A) accepted the assessee's explanation that the net profit shown in the Profit & Loss (P&L) account cannot be distributed, in line with the decision of the Apex Court in Apollo Tyres Ltd. The Tribunal agreed, emphasizing that the AO does not have the jurisdiction to go behind the net profit shown in the P&L account except to the extent provided in the Explanation to section 115JA. The Tribunal cited the Supreme Court's ruling in Malayala Manorama Co. Ltd. v. CIT [2008] 300 ITR 251, reinforcing that the AO's power is limited to examining whether the books of account are certified by the authorities under the Companies Act.
3. Admissibility of Depreciation on Revalued Assets:
The AO argued that depreciation on revalued assets is not admissible while computing book profit under section 115JA, referencing the pending SLP and CBDT guidelines. However, the Tribunal noted that the adjustment for depreciation on revalued assets was not permissible under section 115JA for the relevant assessment year. The Tribunal highlighted that the specific provision excluding depreciation on revalued assets was introduced in section 115JB by the Finance Act, 2006, effective from 1-4-2007, and did not apply to the assessment year in question. The Tribunal also referenced several case laws, including Punjab Fibres Ltd. v. Dy. CIT [2000] 72 ITD 68 and Amrit Vanaspati Co. Ltd. v. Dy. CIT [2000] 111 Taxman 186 (Delhi) (Mag.), which supported the assessee's position.
4. Reassessment Proceedings:
Although the issue regarding reassessment was raised before the CIT(A), it was not dealt with in detail as the assessee was granted relief on merits. The Tribunal did not address this issue further, given the resolution of the primary issues in favor of the assessee.
Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the inclusion of depreciation on revalued assets in the computation of book profit under section 115JA and confirming that the AO does not have the jurisdiction to adjust the net profit shown in the P&L account beyond the specific provisions of the Explanation to section 115JA. The Departmental appeal was dismissed.
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2008 (5) TMI 452
Issues Involved:
1. Taxability of stock options under the head 'Salaries.'
2. Employer-employee relationship concerning stock options.
3. Applicability of Section 17(2)(iii) and 17(2)(iiia) of the Income Tax Act.
4. Relevance of Circular No. 710 and Supreme Court judgment in CIT v. Infosys Technologies Ltd.
5. Compliance with guidelines issued by the Central Government for Employee Stock Option Plans (ESOP).
Detailed Analysis:
1. Taxability of Stock Options under the Head 'Salaries':
The primary issue is whether the amount of Rs. 32,75,716 from the sale of stock options should be taxed under 'Salaries.' The Assessing Officer taxed this amount under 'Salaries,' asserting that the stock options were granted due to the assessee's employment with the Indian Branch Headquarters of American Express Bank Limited (AEBL), a wholly-owned subsidiary of American Express International Banking Corporation, New York, which in turn is a subsidiary of American Express Company (Amexco), New York.
2. Employer-Employee Relationship Concerning Stock Options:
The assessee argued that the stock options were provided by Amexco, not by AEBL, thus lacking an employer-employee relationship. However, the Tribunal observed that the stock options were granted due to the assessee's employment with AEBL. The stock options were part of a common plan formulated by Amexco for employees of its subsidiaries, including AEBL. Therefore, the employer-employee relationship was deemed to exist indirectly.
3. Applicability of Section 17(2)(iii) and 17(2)(iiia) of the Income Tax Act:
The Tribunal analyzed the legislative history of Sections 17(2)(iii) and 17(2)(iiia). Section 17(2)(iiia) was omitted by the Finance Act, 2000, effective from 1-4-2001, and thus not applicable to the assessment year 2001-02. The proviso to Section 17(2)(iii), inserted simultaneously, was applicable. This proviso covers the value of any benefit provided by a company free of cost or at a concessional rate to its employees through stock options, provided the scheme complies with guidelines issued by the Central Government.
4. Relevance of Circular No. 710 and Supreme Court Judgment in CIT v. Infosys Technologies Ltd.:
The assessee relied on Circular No. 710, which clarifies that shares transferred by the Government to employees do not constitute a perquisite due to the absence of an employer-employee relationship. However, the Tribunal found this circular inapplicable as it pertains to government disinvestment, not relevant to the case at hand. The assessee also cited the Supreme Court judgment in CIT v. Infosys Technologies Ltd., which was deemed inapplicable as it pertained to assessment years prior to 1-4-2000.
5. Compliance with Guidelines Issued by the Central Government for ESOP:
The Tribunal noted that the taxability of the stock options depended on whether the ESOP scheme complied with the guidelines issued by the Central Government. The authorities below had not verified this compliance. Therefore, the Tribunal set aside the impugned order and remanded the matter to the Assessing Officer for fresh consideration, specifically to verify if the ESOP scheme adhered to the Central Government's guidelines.
Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal remanding the case to the Assessing Officer to reassess the taxability of the stock options, considering the compliance with the Central Government's guidelines for ESOPs. The Tribunal emphasized the indirect employer-employee relationship and the applicability of the proviso to Section 17(2)(iii) in determining the taxability under 'Salaries.'
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2008 (5) TMI 451
Issues Involved:
1. Disallowance of expenditure towards the Cost of Purchase of Right of Way.
2. Disallowance of expenditure towards the Purchase of Additional Floor Space Index (FSI).
Detailed Analysis:
1. Disallowance of expenditure towards the Cost of Purchase of Right of Way:
The assessee, a firm engaged in civil construction, completed two projects, "Madhuban" and "Millennium Gardens" and claimed deductions for expenditures incurred towards the Right of Way. The Right of Way was purchased from Upvan Developers, a related party under Section 40A(2)(b) of the Income Tax Act. The Assessing Officer (AO) questioned the reasonableness of the expenditure, arguing that the right of way was not exclusive and was acquired only in the year of project completion, suggesting a motive to reduce taxable income. The AO disallowed Rs. 88,00,000 for the Madhuban project and Rs. 82,00,000 for the Millennium project, considering the payments excessive.
On appeal, the CIT(A) deleted the disallowance, finding that the combined cost of land and right of way was Rs. 646 per sq. ft. for Madhuban and Rs. 617 per sq. ft. for Millennium, which was below the circle rate of Rs. 900 per sq. ft. The CIT(A) concluded that the right of way was essential for project viability and the costs were reasonable.
The Tribunal upheld the CIT(A)'s decision, emphasizing that the right of way provided significant benefits, including increased FSI, and the costs were consistent with market rates. The Tribunal found no infirmity in the CIT(A)'s order, deleting the AO's additions.
2. Disallowance of expenditure towards the Purchase of Additional Floor Space Index (FSI):
The assessee purchased additional FSI from Upvan Developers to enhance the development potential of the projects. The AO disallowed part of the expenditure, arguing that the cost paid (Rs. 912 per sq. ft. for Madhuban and Rs. 856 per sq. ft. for Millennium) was excessive compared to the market rate of Rs. 400-500 per sq. ft. for slum TDR.
The CIT(A) partially upheld the AO's disallowance, accepting a value of Rs. 800 per sq. ft. as reasonable, based on a comparable sale instance of Rs. 750 per sq. ft. in 1997, and sustained a disallowance of Rs. 55,54,976 out of Rs. 1,20,09,876.
The Tribunal disagreed with the CIT(A), noting that the purchase of additional FSI was necessary and the costs paid were in line with market rates, considering the benefits derived and the circle rate of Rs. 900 per sq. ft. The Tribunal found the assessee's costs reasonable and directed the deletion of the entire disallowance.
Conclusion:
The Tribunal concluded that both the right of way and additional FSI were legitimate business needs and the expenditures were reasonable and necessary. The parameters of Section 40A(2)(a) were not satisfied, and no disallowance was warranted. The appeal by the assessee was allowed, and the appeal by the revenue was dismissed.
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2008 (5) TMI 450
Interpretation of the statues - Provisions of section 67A - difference of opinion on the issue - Third Member Order - Whether provisions of section 67A of the Income-tax Act, 1961 can be invoked for computing total income of the assessee, who is a company, is a member of association of persons or body of individual, wherein the shares of the members are determinate and known ?
Disallowance of depreciation on building acquired - HELD THAT:- Undisputedly, the assessee was not engaged in the business of manufacturing, as such, the building could not be used for the manufacturing activities of the assessee. Moreover, during the course of hearing of the appeal, nothing is placed on behalf of the assessee to establish that this building acquired by the assessee were ever used for the purpose of business. In these circumstances, we are of the considered opinion that the CIT(A) is justified in disallowing the claim of depreciation of the assessee. We, accordingly, confirm the same.
Disallowance of interest expenses - borrowed for the purpose of the business - HELD THAT:- It is also evident from the record that the financial position of the Roplas (India) Ltd. were very critical and the return of principal amount was highly doubtful. It is not clear from the record that assessee was in regular terms of business with the Roplas (India) Ltd. We have also carefully examined the judgment of the Apex Court in the case of S.A. Builders Ltd.[2006 (12) TMI 82 - SUPREME COURT] and we find that more emphasis was given to the words "business exigencies" of the assessee. Their Lordship have made it clear in para No. 36 of their judgment that it is not their opinion that in every case, interest on borrowed funds has to be allowed if the assessee advances it to a sister concern, it all depends on the facts and circumstances of the respective case. The commercial expediencies of the assessee for advancing interest-free loan to a sister concern is to be examined.
In the instant case, no commercial expediencies of the assessee for giving interest-free advances to Roplas (India) Ltd., were explained during the course of hearing. We, therefore, of the view that revenue authorities are rightly disallowed the corresponding interest paid on the borrowed funds which were given to Roplas (India) Ltd. as an interest-free advance. Accordingly, the Order of the CIT(A) is confirmed.
Disallowance of being expenses incurred - purpose of the business treating the same as non-business expenditure - The capital asset which was transferred and for which the capital gain was computed, were the shares and not the immovable property. We have also find force in the argument of the learned DR that the expenditure has nothing to do with the transfer of shares by the assessee and as such it cannot be allowed as an expenditure, relating to earning of the capital gain by the assessee.
This expenditure also cannot be allowed as a business expenditure as the business of the assessee is financing and investment and not the perfecting of titles in which no business income is being earned. We, therefore, of the view that this expenditure, cannot be allowed as a business expenditure in the impugned assessment year. We, accordingly, confirm the Order of the CIT(A).
Quantum of proportionate share of loss - We do not find any force in the revenue’s contention that on account of reduction in holdings from 7.69 per cent to 1.54 per cent, a proportionate share of loss should be reduced to 1.54 per cent because except one day throughout the year, its holding remained 7.69 per cent. At the most, proportionate loss for one day be reduced by 6.15 per cent. The rest of the argument of the revenue is based on hypothecation and we do not endorse it.
We, accordingly, find no merit in reduction of loss. But, in any case, this loss cannot be adjusted against the profits under the different heads of the assessee inasmuch as the provisions of section 67A cannot be applied in the assessee’s case. We, accordingly, reject the claim of the assessee.
In the result, both the appeals of the assessee are dismissed.
Applicability of section 67A(1) - Association of persons - Assessee-company is a beneficiary unit holder in AOP, India Auto Ancillary Trust (IAAT) - assessee-company claimed the set off of the loss against the income under other head -
Order of JM - HELD THAT:- On careful reading of sec. 67A provision, we do not find any iota of doubt to interpret this section differently. It gives a clear meaning that total income of the assessee who is a member of AOP and BOI wherein the shares of members are determinate and known are to be computed as per the provisions of section 67A of the Act if the assessee is other than a company or a co-operative society or a society registered under the Societies Registration Act or under any law corresponding to that Act in force in any part of (India).
But, in the instant case, assessee is admittedly a company, hence, its total income, cannot be computed as per the provisions of section 67A of the Income-tax Act. Accordingly, the proportionate share of the assessee in the AOPs i.e., (India) Auto Ancillary Trust cannot be adjusted against the income under different heads of the assessee as per the provisions of section 67A of the Act. No other provision in the Act provides such type of adjustment of loss against the other income of the assessee. In these circumstances, the assessee is not entitled to claim of set off of its proportionate share of loss against its other income. We, therefore, confirm the Order of the CIT(A) in this regard who has rightly adjudicated the issue.
Order of AM - company or co-operative society or other types of societies can be termed as association of persons or Body of Individuals in a broad sense, however, the profits/losses of such entities do not come into the hands of members as such, hence, for this reason these entities have been excluded from association of persons or Body of Individuals for the purpose of section 67A of the Act.
Order Third Member - The perusal of Section 40(ba) and Section 167B(1) clearly shows that the income of the entities specified in the parenthesis is not to be computed in the manner in which the income of AOP/BOI is to be computed. Section 67A provides the manner in which share of income/loss of member of such AOP/BOI is to be determined. Section 86 provides that such share of income/loss of member of such AOP/BOI shall be included in the total income but no tax shall be payable in respect of such income.
If all the provisions are read together then in my view, the entities specified in the parenthesis in section 67A would qualify the AOP/BOI and not the member of such AOP/BOI. The context in which all the sections are placed in the statute book does not suggest that different meaning can be given to the words in the parenthesis in different sections even though identically worded.
Whether the expression ‘AOP or BOI’ can include a company or a co-operative society or a society within its ambit so that such entities can be excluded from the scope of AOP/BOI for the purpose of section 67A - Anything can be excluded from an item only when it is included in that item. If the answer to such question is in affirmative then the second question is what is the purpose behind such exclusion. There is no dispute that a co-operative society or a society registered under the Societies Registration Act, 1860 is always assessable as an AOP. This view is also fortified by the decision of the hon’ble Madras High Court in the case of CIT v. Salem District Urban Bank Ltd. [1940 (2) TMI 13 - MADRAS HIGH COURT].
This clearly shows that an association of persons can also be a company by virtue of the provisions contained in sub-clauses (ii) and (iii) of section 2(17) of the Act. Thus, the first question is to be answered in the affirmative by holding that the expression ‘AOP’ includes a company or a co-operative society or a society mentioned in the parenthesis.
Considering the different scheme of taxation in respect of income received by members from such entities, the Legislature has excluded these entities from the ambit of the expression "AOP/BOI". Had the Legislature not excluded the entities specified in the parenthesis, it would have resulted in double taxation - once as per share determined under section 67A read with section 86 of the Act and again when dividend income is distributed by such entities to its members.
Therefore, it is clear that the words in the parenthesis in section 67A of the Act qualify the expression "Association of Persons or Body of Individuals" and not the members of such AOP/BOI. Accordingly, I am in agreement with the view taken by the learned Accountant Member.
In the light of majority view, it is held that provisions of section 67A of the Income-tax Act can be invoked for computing total income of the assessee, as the word in the parenthesis in section 67A of the Income-tax Act qualifies the expression " association of persons or body of individuals" and not the member of such AOP or BOI. Accordingly, the assessee succeeds in this ground No. 3
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2008 (5) TMI 449
Issues involved:
The issues involved in this legal judgment include the deletion of addition of commission expenses, interpretation of section 37(1) of the Income-tax Act, and the question of whether certain expenditures were deductible under section 37(1).
Deletion of Addition of Commission Expenses:
The appeal of the revenue was based on the deletion of the addition of Rs. 46,45,317 out of the commission expenses incurred for ensuring the continuation of lottery trade in the State of Madhya Pradesh. The revenue contended that the deletion was erroneous as it was done without appreciating the grounds of the assessee and without evidence of efforts made by agents to prevent the ban on lottery trade. The CIT(A) had deleted the addition without making a reference to the earlier CIT(A) who had enhanced the assessment.
Interpretation of Section 37(1) of the Income-tax Act:
The expenditure in question was claimed to be incurred for preserving the trade of the assessee and fell within the ambit of section 37(1). The issue revolved around whether the expenditure was against public policy as per the Explanation to section 37(1). The Lotteries (Regulation) Act, 1998 was cited, and it was argued that the expenditure was allowable under section 37(1) as it was paid before the ban on lottery tickets of Bhutan State lottery by the State Government.
Deductibility of Expenditures under Section 37(1):
The Tribunal considered whether the impugned payments were deductible under section 37(1) in light of the provision in the Explanation. It was concluded that the activities of the agents were not illegal or prohibited by law, and there was no evidence to show that it was against public policy. The Tribunal dismissed the appeal, upholding the decision of the CIT(A) that the expenditures were deductible under section 37(1).
This legal judgment addressed the issues of deletion of addition of commission expenses, interpretation of section 37(1) of the Income-tax Act, and the deductibility of expenditures under section 37(1), ultimately dismissing the appeal and affirming the decision of the CIT(A) regarding the deductibility of the expenditures.
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2008 (5) TMI 448
Issues Involved:
1. Whether the CIT(A) was justified in deleting the interest charged by the Assessing Officer u/s 234B of the Income-tax Act.
2. Whether the tax deductible at source can be excluded from the tax payable while computing the liability on account of advance tax even in cases where tax had not actually been deducted at source.
Summary:
Issue 1: Deletion of Interest Charged u/s 234B
The revenue appealed against the CIT(A)'s order for the assessment year 2002-03, which deleted the interest charged by the Assessing Officer u/s 234B. The CIT(A) observed that the entire income of the foreign technicians was liable to deduction of tax at source. Therefore, as per section 209(1)(d), the tax payable for advance tax purposes was to be reduced by the tax deductible. Since the entire tax payable was tax deductible, no advance tax was payable by the assessee, leading to the deletion of interest charged u/s 234B.
Issue 2: Exclusion of Tax Deductible at Source from Advance Tax Liability
The revenue argued that u/s 191, in cases where tax had not been deducted at source, the income-tax was payable by the assessee directly, and this was not overridden by section 209. They cited the judgment of the Hon'ble High Court of Uttaranchal in CIT v. Halliburton Offshore Services Inc., which held that the provisions of section 191 were not overridden by sections 192, 208, and 209(1)(d). The assessee countered that section 191 did not override sections 192, 208, and 209(1)(d), and that advance tax was to be computed as per section 209, which required the exclusion of tax deductible at source.
The Tribunal noted that section 191 provides for direct payment of tax where it has not been deducted at source, but this does not relate to advance tax. Section 209(1)(d) specifically provides for the exclusion of tax deductible at source while computing advance tax. The Tribunal emphasized that the phrase "tax deductible at source" was used purposefully, as the person responsible for deducting tax at source is deemed an assessee in default if they fail to do so, and the tax can be recovered from them with interest and penalty.
The Tribunal referred to the decision of the Delhi Bench in Western Geco International Ltd., which held that tax deductible at source must be excluded while computing advance tax liability. They also noted that the Hon'ble High Court of Uttaranchal in Halliburton Offshore Services Inc. did not hold that the tax payable directly u/s 191 would be payable as advance tax.
Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the tax deductible at source must be excluded while computing advance tax liability, even if it was not actually deducted. Consequently, no advance tax was payable by the assessees, and there was no case for charging interest u/s 234B. All the appeals by the revenue were dismissed.
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2008 (5) TMI 447
TDS u/s 195 - commission payment to the foreign agents - non-residents - Income - Place of accrual - fees for technical services or Royalty - Assessee has entered into agreements with certain non-residents appointing them as their sales agents - HELD THAT:- Following the decision laid down in the case of Sundwiger EMFG & Co. [2003 (2) TMI 35 - ANDHRA PRADESH HIGH COURT]. We held that, Basically, the agreement is for the promotion and sales of the assessee’s products. The services that are mentioned in the agreement and which are to be rendered by the agent are normal services which any agent may have to perform unless there is a specific stipulation in this regard.
Similarly, obtaining an LC or advance payment can by no stretch of imagination be considered to be a managerial service as envisaged in section 9(1)(vii) of the Act. It is only one agreement of sales promotion and not a composite agreement as argued by the Ld DR. There is also a fallacious argument made that since the orders are in the name of the assessee, the sales are deemed to have been effected in India. This argument has totally ignored the Sale of Goods Act and if such an argument was allowed to be sustained, then all the clarifications issued by the Board would be nullified and the very concept of export sales would disappear altogether.
The Commercial information which the agent in our case is expected to provide to the assessee is not such over which the agent has an exclusive domain. It is merely a market informa-tion which any Tom, Dick and Harry can go into the market and obtain it. The definition given in the DTAA is also in consonance with the definition. It states that royalty means payment of any kind received as a consideration for information concerning industrial, commercial or scientific experience. It simply means that a person who has an exclusive right over a particular information and over which no one else in the world is a privy to it, can assign a right to use such information to the other. There is no such issue in the present case.
Thus, the argument of the ld DR with regard to royalty has no basis at all. Similarly, the argument relating to technical services also has no basis. In other words, the Circulars of the Board apply with full force to the facts of the present case and since the payments made to the non-residents are not income chargeable to tax in India, the assessee was not liable to deduct at source under section 195 of the Act.
Remittance made through bank, we agree with the view of the CIT(A) that since none of the agreements stipulated the mode of payment nor was there any specific request by the payees about the mode of payment, the decision in the case of Ogale Glass Works Ltd. [1954 (4) TMI 3 - SUPREME COURT], will not apply. Similar issue has been dealt with by the Hyderabad Bench of the Tribunal in the case of Dr. Reddy’s Laboratories Ltd. and the discussion made therein will apply with full force in the present case. Accordingly, we uphold the order of the CIT(A) cancelling the demand.
In the result, all the appeals of the department are dismissed.
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2008 (5) TMI 446
Issues Involved:
1. Recalling or modification of the Tribunal order.
2. Grounds of appeal related to the head under which income is assessable.
3. Non-consideration of judicial decisions and principles of natural justice.
4. Jurisdiction of the Tribunal in deciding issues not raised in the appeal.
5. Allowability of business expenditure under different heads of income.
6. Whether the assessee is engaged in the business of holding investments.
7. Pre-commencement or post-closure expenses and their allowability.
Detailed Analysis:
1. Recalling or Modification of the Tribunal Order:
The assessee sought recalling or modification of the Tribunal order dated 29-3-2008, arguing that the grounds of appeal did not specifically address whether the income from the assessee's activities should be assessed under 'capital gain' or 'income from other sources'. The assessee contended that the Tribunal did not consider this issue and cited various judicial decisions which were allegedly overlooked, constituting a mistake apparent from the record.
2. Grounds of Appeal Related to the Head Under Which Income is Assessable:
The revenue challenged the decision of the CIT(A) that the assessee was engaged in the business of investment, thus allowing professional fees as business expenditure. The Tribunal noted that if the head of income is disputed, the expenses should be claimed under the finally decided head. The Tribunal found that the grounds inherently involved the issue of allowance of expenditure under 'Business or profession' when the assessee is engaged in the business of investment.
3. Non-Consideration of Judicial Decisions and Principles of Natural Justice:
The assessee argued that the Tribunal's order was based on unverified statements and assumptions, violating the principles of natural justice. The Tribunal, however, recorded the contentions of both parties and found no material evidence from the assessee showing income chargeable under 'Income from business or profession' in any relevant year. The Tribunal held that its observations were contextually correct and did not require citing judicial decisions for every proposition of law.
4. Jurisdiction of the Tribunal in Deciding Issues Not Raised in the Appeal:
The Tribunal addressed the assessee's contention that it acted beyond its jurisdiction by deciding issues not raised in the appeal. The Tribunal clarified that its findings emanated from the inherent issues in the grounds of appeal and were within its jurisdiction. It emphasized that if the assessee believed the findings were beyond jurisdiction, the appropriate remedy would be under Article 226, not section 254(2) of the Act.
5. Allowability of Business Expenditure Under Different Heads of Income:
The Tribunal discussed the allowability of business expenditure, stating that expenses under 'Profits and gains of business' are allowable only when the assessee engages as a trader, not as an owner of an asset. The Tribunal found no evidence of the assessee earning income chargeable under 'Income from business or profession', thus disallowing the expenses under that head.
6. Whether the Assessee is Engaged in the Business of Holding Investments:
The Tribunal examined whether the assessee was engaged in the business of holding investments. It referred to the test laid down by the Apex Court, requiring a real, substantial, and systematic course of activity. The Tribunal found no material evidence proving the assessee's engagement in such business. It concluded that mere investment in shares does not constitute a business of holding investments.
7. Pre-Commencement or Post-Closure Expenses and Their Allowability:
The Tribunal elaborated on the allowability of pre-commencement or post-closure expenses, stating that such expenses are not allowable unless incurred in connection with one indivisible business with interlacing of funds, unity of control, and common management. The Tribunal emphasized the matching principle, which requires matching costs with revenue. It found no possibility of income under 'Income from business or profession' for the assessee, thus disallowing the expenses.
Conclusion:
The Tribunal dismissed the Miscellaneous Application, rejecting all contentions raised by the assessee. It upheld that the assessee was not entitled to the claimed deductions and found no merit in the plea for recalling or modifying the Tribunal order.
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2008 (5) TMI 445
Issues Involved:
1. Refusal to grant exemption u/s 80G(5)(vi) of the Income-tax Act, 1961.
2. Compliance with procedural requirements and principles of natural justice.
3. Validity of reliance on untested statements from the Investigation Wing.
Summary:
Issue 1: Refusal to Grant Exemption u/s 80G(5)(vi)
The assessee, a registered society engaged in imparting higher and professional education, appealed against the order of the Commissioner of Income-tax (Exemption) [DIT(E)], Delhi, dated 4-5-2006, which refused to grant exemption u/s 80G(5)(vi) of the Income-tax Act, 1961. The DIT(E) based the refusal on findings from the Investigation Wing that certain donors were accommodation entry providers, thus deeming the donations received by the assessee as not genuine.
Issue 2: Compliance with Procedural Requirements and Principles of Natural Justice
The assessee contended that all required documents were submitted as per Rule 11AA of the Income-tax Rules, 1962, and that there was no change in the objectives or activities of the society since its previous registration and exemption. The assessee argued that the DIT(E) relied on the Investigation Wing's inquiry without giving the assessee an opportunity to cross-examine the donors or confront the veracity of the statements, violating the principles of natural justice and the proviso to sub-rule (5) of Rule 11AA.
Issue 3: Validity of Reliance on Untested Statements
The Tribunal noted that the DIT(E) used information from the Investigation Wing without giving the assessee a chance to cross-examine the donors, which goes against the legal requirements and principles of natural justice. Citing precedents from the Supreme Court and High Courts, the Tribunal emphasized that any evidence or statement used against the assessee without an opportunity for cross-examination is inadmissible. The Tribunal found that the DIT(E) did not provide a valid reason for rejecting the application, especially since the assessee had complied with all procedural requirements and there was no change in the society's objectives or activities.
Conclusion:
The Tribunal concluded that the DIT(E) was not justified in refusing the continuation of registration u/s 80G(5)(vi) and allowed the appeal of the assessee. The Tribunal did not accept additional evidence as it was not produced before the DIT(E), but this did not affect the decision to grant the exemption. The appeal was allowed, and the refusal of the exemption was overturned.
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2008 (5) TMI 444
Issues Involved:
1. Whether the sale of agricultural land by the assessee to Citizen Co-operative Housing Society can be considered as a transfer of capital asset.
2. Whether the sale can be treated as an adventure in the nature of trade.
Detailed Analysis:
Issue 1: Transfer of Capital Asset
Background:
The assessee purchased agricultural land in Juchandra, Thane, between 1986 and 1992, acquiring around 450 acres. The land was sold to Citizen Co-operative Housing Society. The assessee contended that the land was agricultural, situated beyond 8 km of municipal limits, and thus not a capital asset under section 2(14) of the Income-tax Act.
Findings:
- The Assessing Officer (AO) claimed the land fell within 8 km of municipal limits, citing a letter from the Additional Collector, Thane.
- The first appellate authority (CIT(A)) found the land was beyond 8 km from Greater Mumbai Urban Agglomeration, based on certificates from the Urban Development Department and statutory orders under the Urban Land Ceiling Act.
- The CIT(A) concluded the land was not a capital asset and thus not liable for capital gains tax.
Conclusion:
The appellate tribunal upheld the CIT(A)'s findings, confirming that the land was beyond 8 km of municipal limits and not a capital asset under section 2(14). Thus, no capital gains tax liability arose from the transaction.
Issue 2: Adventure in the Nature of Trade
Background:
The AO argued that the assessee, being a builder, purchased the land with the intention of resale for profit, treating the transaction as an adventure in the nature of trade.
Findings:
- The CIT(A) noted the assessee had not developed the land and sold it as agricultural land. The land was in a green zone and used for agricultural purposes.
- The assessee had declared agricultural income over the years, which was accepted by the AO.
- The CIT(A) relied on the judgments of the Bombay High Court in CIT v. V.A. Trivedi and the Supreme Court in Smt. Indramani Bai v. Addl. CIT, concluding the transaction was not an adventure in the nature of trade.
Conclusion:
The appellate tribunal agreed with the CIT(A), holding that the transaction was not an adventure in the nature of trade. The land was agricultural, used as such, and the sale did not indicate a business activity.
Separate Judgments for Different Assessment Years:
Assessment Year 1992-93:
The tribunal dismissed the revenue's appeal, confirming the CIT(A)'s findings that the land was not a capital asset and the transaction was not an adventure in the nature of trade.
Assessment Year 1998-99:
The tribunal, consistent with its decision for 1992-93, dismissed the revenue's appeal, holding the transaction as not an adventure in the nature of trade.
Assessment Year 2001-02:
Following the same reasoning as for the previous years, the tribunal dismissed the revenue's appeal, affirming the transaction was not an adventure in the nature of trade.
Final Outcome:
The appeals filed by the revenue for the assessment years 1992-93, 1998-99, and 2001-02 were dismissed.
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2008 (5) TMI 443
CA possessed the requisite 'authority' to receive the notice u/s 143(2) on behalf of the assessee and in rejecting the assessee's plea against the validity of assessment on the ground of non-service of notice u/s 143(2) within the stipulated period of one year. Held that:- The Tribunal being the fact finding authority should examine the material on record and give basis for coming to a conclusion that Sri G. K. Lath possessed requisite authority to receive the notice. The Tribunal has not considered Order V, rule 12 of the Code of Civil Procedure. Set aside to Tribunal.
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2008 (5) TMI 442
Cenvat credit - Rule 57-H of Central Excise Rules, 1944 - notification. No. 20/89-CE(NT) dated 5-5-89 - With this amendment w.e.f. 5-5-89, the second limb of the proviso [Rule 57-H(1)(ii)] which provided for credit of the duty paid on inputs used in the manufacture of final products which are cleared from the factory on or after the 1” day of March, 1987 was omitted - In term of amended Rule 57-H, the credit of inputs used in the manufacture of final products, which are cleared from the factojy on or after the 1st day of March, 1987 was not admissible - claim for Modvat credit for the period 6-5-89 to 20-12-89 is not admissible due to amended provision of law prevalent during the period in this case as discussced above If under the statutory provision such credit was not permissible then the respondent was right to follow the aforesaid amended provision in deciding the issue of modvat credit - it was held that even after 5-5-1989 when the sub-rule was deleted from statute book, petitioner was entitled for modvat credit. In absence of any specific direction in this regard, the respondent while passing the order, considered the amended Rule 57(H) and disallowing the modvat Credit, in which no wilful disobedience is found - Petition is dismissed
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2008 (5) TMI 440
Confiscated goods - Sale of goods without giving notice to pettioner - imported goods of the petitioner were seized - The order passed by the Tribunal of release the goods - The customs authorities in its affidavit have stated that due to mistake, the goods have been sold - The explanation in the affidavit is as there was delay on part of the petitioner in preferring appeal, as the Deputy Commissioner of Customs Division, was not a party in the appeal and as there was communication gap in between the respondents the goods were sold - Customs authorities have sold the goods without going in for public auction and without giving notice to the owner of the goods - Hence, sale is in total disregard of the provisions contained in Section 150 of the Act - It is also in utter disregard to the Circular No. 711/4/2006-Cus. (AS) dated 14-Feb-2006 the authorities are to be remined that law interpreted and laid down is for strict compliance and circulars issued by the authorities themselves are for adherence in letter and spirit. Therefore, the impugned action of the Revenue in selling the goods cannot be sustained - The Revenue directed to pay a sum of Rs. 9,19,625/- to the petitioner along with interest at the rate of Rs. 9% per annum to be calculated from the date of the order passed by the Tribunal till the date of actual payment.
Therefore, the impugned action of the respondents in selling the goods cannot be sustained -
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2008 (5) TMI 438
Export of Rice - Export of non-Basmati rice, prohibited under a notification datedOctober 15, 2007 - relaxation was made permitting such export issued on December 12, 2007 - rice intended to be exported, must have been certified by the customs authorities - certificate issued by the District Collector, an interim order was passed permitting the petitioners to export the rice - substantial difference-between the respective clauses in the two notifications – interim order rejected
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2008 (5) TMI 437
Notice under section 148 were not cured by section 292B of the Income-tax Act, 1961 - assessee who was already dead even on the date of issue of notice - Even the name of the deceased assessee was not correctly mentioned in the notice - notice was addressed to Ganga Prasad Jaiswal while the correct name of the assessee was Ganga Ram Jaiswal - Held that: - answered in favour of the assessee and against the Department
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