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Showing 321 to 340 of 576 Records
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2008 (6) TMI 270
Issues Involved:
1. Validity of assessment order under Section 144 due to alleged improper service of notice under Section 143(2).
2. Adequacy of service of notice under Section 143(2) on an unauthorized person.
3. Compliance with procedural requirements under Section 282 of the Income Tax Act and Order V of CPC.
Detailed Analysis:
1. Validity of Assessment Order under Section 144:
The primary issue is whether the assessment order under Section 144 is valid, given the alleged improper service of notice under Section 143(2). The assessee contended that the notice was not served within the mandatory 12-month period from the end of the month in which the return was filed. The return was filed on 8th October 2003, and the notice should have been served by 31st October 2004. The notice dated 3rd November 2004 was received on 27th November 2004, which was beyond the prescribed period.
2. Adequacy of Service of Notice under Section 143(2):
The assessee argued that the notice dated 21st October 2004, allegedly served on 28th October 2004, was not valid as it was served on Shri Ram Sewak Verma, who was neither an employee nor an authorized agent. The AO's examination of ITI, who served the notice, and subsequent inquiries revealed that Ram Sewak Verma was unknown to the assessee. The Tribunal found that the Revenue failed to prove the identity and authorization of Ram Sewak Verma, making the service of notice invalid.
3. Compliance with Procedural Requirements:
The Tribunal emphasized the importance of compliance with Section 282 of the Income Tax Act and Order V of CPC, which mandate that notices should be served on the assessee or their authorized agent. The Tribunal cited several judgments, including the Allahabad High Court's decision in Har Shingar Gutkha (P) Ltd. vs. CIT, which reinforced that service of notice must be on the person named or their authorized agent. The Tribunal concluded that the Revenue did not meet the burden of proof to establish that the notice was served within the stipulated period.
Conclusion:
The Tribunal held that the assessment order was invalid due to the improper service of notice under Section 143(2). The Revenue's failure to establish the identity and authorization of the person who received the notice rendered the service invalid. Consequently, the assessment order was annulled, and the assessee's appeal was allowed. The Revenue's appeal was dismissed as it became infructuous due to the annulment of the assessment order.
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2008 (6) TMI 269
Issues Involved:
1. Claim of depreciation on five trucks.
2. Source of unexplained cash amounting to Rs. 2,36,000.
3. Deletion of addition of Rs. 2,20,979 out of total addition of Rs. 4,56,979 on account of unexplained credits.
4. Validity of raising new issues in limited scrutiny without formal notice.
Summary:
1. Claim of Depreciation on Five Trucks:
The Revenue challenged the CIT(A)'s decision allowing the assessee's claim of depreciation on five trucks purchased from her husband, arguing there was no valid transfer as the trucks were still registered in the husband's name. The CIT(A) allowed the claim based on several judgments, including *Mysore Minerals Ltd. vs. CIT* and *CIT vs. Basti Sugar Mills Co. Ltd.*, which held that beneficial ownership and usage for business purposes entitle the assessee to depreciation, even if the vehicles are not registered in their name. The Tribunal upheld the CIT(A)'s decision, emphasizing that the term "ownership" should be interpreted broadly to include beneficial ownership.
2. Source of Unexplained Cash Amounting to Rs. 2,36,000:
The assessee contested the CIT(A)'s decision holding Rs. 2,36,000 as unexplained cash, arguing that this issue was beyond the scope of limited scrutiny. The Tribunal noted that the issue of whether the AO could raise new issues in a limited scrutiny case without formal notice needed to be addressed.
3. Deletion of Addition of Rs. 2,20,979 on Account of Unexplained Credits:
The Revenue also contested the deletion of Rs. 2,20,979 out of the total addition of Rs. 4,56,979 made on account of unexplained credits. The Tribunal decided to address the procedural aspect of whether the AO could take up new issues in a limited scrutiny case.
4. Validity of Raising New Issues in Limited Scrutiny Without Formal Notice:
The Tribunal examined the procedural validity of the AO raising new issues during limited scrutiny without formal notice, referencing CBDT Instruction No. 5/2002. The Tribunal restored the issue to the CIT(A) to determine if the AO's actions violated Board Instructions and whether such a violation would invalidate the assessment on that issue. The Tribunal emphasized the need for formal notice for new issues in limited scrutiny cases.
Conclusion:
The Tribunal partly dismissed and partly allowed the Revenue's appeal for statistical purposes and allowed the assessee's appeal for statistical purposes, directing the CIT(A) to address the procedural validity of raising new issues in limited scrutiny cases.
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2008 (6) TMI 267
Issues Involved:
1. Classification of income from car hire charges: 'Income from business or profession' vs. 'Income from other sources'.
2. Consistency in tax treatment across assessment years.
3. Allowability of deductions under Section 57(iii) of the Income Tax Act.
4. Allegation of a colorable device to reduce tax liability.
Detailed Analysis:
1. Classification of Income from Car Hire Charges:
The primary issue pertains to whether the income from hiring out a motor car should be classified under 'Income from business or profession' or 'Income from other sources'. The assessee filed a return declaring income from car hire charges under 'Income from other sources'. The Assessing Officer (AO) reclassified this as 'Income from business or profession', thereby disallowing the set-off of the loss against salary income due to Section 71(2A) of the Income Tax Act, 1961, which was introduced w.e.f. 1st April, 2005.
The CIT(A) upheld the AO's decision, reasoning that the assessee's activity of hiring out the car was systematic and organized, thus qualifying as a business. The CIT(A) stated, "Business can be defined as an organized activity and in the present case merely because assessee has been hiring her car to M/s Jai Prakash Associates out of borrowed funds for a long time denotes that there is systematic activity for the purposes of obtaining profit."
2. Consistency in Tax Treatment:
The assessee argued that in all previous years, the income from car hiring was assessed under 'Income from other sources' and that there was no change in facts in the current year. The principle of consistency was cited, referencing the Supreme Court's decision in Radhasoami Satsang vs. CIT, which emphasized that in the absence of any material change, the Department should not deviate from its earlier stance.
The Tribunal noted the consistent treatment in earlier years, stating, "For the sake of convenience, we give below the figures of income/loss assessed under s. 143(3) in earlier years," and listed the assessment years where losses from car hiring were set off against other income.
3. Allowability of Deductions under Section 57(iii):
The Tribunal examined whether the deductions claimed by the assessee, such as depreciation, car insurance, interest, and driver's salary, could be allowed under Section 57(iii). It was noted that these deductions are permissible under Section 57(iii) and that claiming such deductions does not automatically shift the income head to 'Income from business or profession'. The Tribunal stated, "Merely because similar claims can also be made while computing income under the head 'Income from business or profession', it cannot be said that any claim or deduction which is otherwise legally permissible under s. 57(iii) would automatically shift the head."
4. Allegation of a Colorable Device:
The Department argued that the assessee's classification of income was a colorable device to reduce tax liability. The Tribunal rejected this argument, stating that since the Department had accepted the classification in earlier years, it was not justifiable to change the stance without any apparent reasoning or change in facts. The Tribunal concluded, "Once Department has accepted the position in earlier years and no corrective step has been taken then assessee could not be blamed for offering the income from car hire charges under the head 'Income from other sources'."
Conclusion:
The Tribunal allowed the appeal, holding that the income from car hire charges should be assessed under 'Income from other sources' in line with the principle of consistency. The Tribunal emphasized that there was no organized business activity involved in merely hiring out one car to a fixed customer for the entire year. The deductions claimed under Section 57(iii) were deemed permissible, and the AO was directed to verify and allow the insurance charges if paid/payable during the year. The appeal filed by the assessee was thus allowed.
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2008 (6) TMI 263
Issues Involved:
1. Limitation for passing the block assessment order under Section 158BC of the IT Act, 1961.
2. Validity of the warrants of authorization signed by the Addl. Director of IT (Inv.) and Jt. Director of IT (Inv.).
3. Competence of the Tribunal to examine the validity of warrants of authorization.
4. Applicability of Section 24 of the General Clauses Act to the substituted authorities.
Detailed Analysis:
1. Limitation for Passing the Block Assessment Order:
The primary issue raised by the assessee in the cross-objection was that the block assessment order dated 29th Sept., 2001, was barred by limitation as per Section 158BE of the IT Act, 1961. The last valid authorization of search dated 5th Aug., 1999, was executed on 13th Aug., 1999, and hence, the block assessment order should have been passed by the AO by 31st Aug., 2001. However, it was passed on 29th Sept., 2001, making it beyond the limitation period and thus illegal, bad in law, and void ab initio.
2. Validity of the Warrants of Authorization:
The assessee contended that the warrants of authorization signed on 23rd Aug., 1999, and 7th Sept., 1999, were invalid as they were signed by the Addl. Director of IT (Inv.) and Jt. Director of IT (Inv.), who were not authorized by the CBDT as required by Section 132 of the IT Act, 1961. The Tribunal had to examine whether these warrants were valid and if they extended the limitation period for passing the block assessment order.
3. Competence of the Tribunal to Examine the Validity of Warrants of Authorization:
The Tribunal considered whether it could examine the validity of the warrants of authorization, particularly in light of the decision in Promain Ltd. vs. Dy. CIT. It was determined that the Tribunal could examine whether the authority lacked the inherent jurisdiction to issue the warrant of authorization, which would affect the limitation period for passing the assessment order.
4. Applicability of Section 24 of the General Clauses Act to the Substituted Authorities:
The Tribunal examined whether the circulars dated 11th June, 1979, and 11th Oct., 1990, continued to be applicable to the substituted authorities (Jt. CIT) in view of Section 24 of the General Clauses Act. It was concluded that Section 24 applies to amendments by substitution, ensuring continuity of statutory instruments unless a different intention appears.
Conclusion:
The Tribunal concluded that the assessment order was passed within the limitation period, as the limitation was to be reckoned from the last warrant of authorization duly executed on 7th Sept., 1999. The cross-objection filed by the assessee was dismissed, and the appeal of the Revenue was to be fixed for a fresh hearing on merits before the regular Bench.
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2008 (6) TMI 261
Eligibility of exemption u/s 10(22) and 10(23C) - Powers Of CIT(A) - annulment of assessment - activity of educational purposes - ex gratia expenditure - where in a case where provisions of s. 10(23C)(iiiad) are applicable, the provisions of ss. 11 to 13 would not be applicable? - HELD THAT:- In our considered view, the judgment of learned CIT(A) in annulling the assessment is basically incorrect. An assessment order is annulled only when AO passes the order without jurisdiction. Once AO has acquired a valid jurisdiction on the basis of return filed by the assessee then assessment cannot be annulled. It can only be modified. Thus, the order of the learned CIT(A) is set aside and the assessment order is not treated as annulled.
Whether case of the Revenue falls under cl. (2) of s. 13(1)(c) or under s. 13(2) - person referred to in sub-s. (3) is the founder member of the trust - HELD THAT:- In the present case, there is no material on record firstly to show that alleged inflated expenditure has gone to the persons of prohibited category, therefore, the case of the Revenue made out on the basis of s. 13(1) cannot be upheld. The question of invoking s. 13(2) in the present case also does not arise because s. 13(2) could be invoked only when there is a claim of expenses in the form of salary/allowances or perquisites to the persons of prohibited category for some services rendered. The AO has not made out a case on these premises. Thus, neither s. 13(1) nor s. 13(2) is applicable on the facts of the present case.
Whether difference in cost of construction arising on account of valuation done by the DVO could be added as income - HELD THAT:- We are of the considered view that firstly, there is no case made out for referring the under construction of the school building to the DVO by rejecting the books and pointing out defects therein. Even otherwise, if an addition is proposed to be made u/s. 69 as unexplained investment in school building then same would be treated as application of funds for charitable purposes. This investment would, therefore, come within the ambit of 85 per cent of total income applied for charitable purposes within the meaning of s. 11(1), if the case of assessee is to be considered for exemption under that section.
Therefore, the AO has not made out any case that excess investment in property to be added u/s. 69 is not coming out of property held under the trust or is not income from such property. For taxing excess investment u/s. 69, he has to prove that the property held under the trust is not capable of yielding income to the extent excess investment is made out. Since the case of the assessee is also covered under ss. 11 to 13 as held by the AO, by virtue of it being registered under s. 12A/12AA, its income is to be computed as per income and expenditure account under ss. 11 to 13 and not under ss. 28 to 430 under the head 'Income from business and profession'.
Where it is claimed that unexplained investment is income out of property held under trust, then onus would shift to the AO to prove otherwise. Thus, it is for the AO to show with material on record that property held under the trust is not capable of generating excess income which is alleged to be invested in the construction of the property and therefore, beyond the scope of ss. 11 to 13 and provisions of ss. 68 to 69C would be applicable in addition to the computation of income under these sections. We, therefore, reject the argument of l/d DR that addition u/s. 69 for excess investment has to be independently carried out notwithstanding exemption of income under ss. 11 to 13.
In the present case, mere disallowance of certain expenses can add to the surplus but cannot become basis for denying exemption u/s. 10(22)/10(23C)(iiiad). Therefore, we hold that the learned CIT(A) was justified in granting exemption to the assessee u/s. 10(23C)(iiiad) on the basis that gross receipt of the society is less than rupees one crore and that there is no material to suggest that assessee is not existing solely for educational purposes. To this extent the order of the learned CIT(A) is confirmed.
Separate addition u/s. 68/69 on account of excess investment in the construction of property - HELD THAT:- Reference made to decision of Hon'ble Delhi High Court in the case of Director of IT vs. Raunaq Education Foundation [2007 (4) TMI 61 - HIGH COURT, DELHI], on which ld AR has placed reliance. In this decision it is held that provisions of s. 10(22) cannot be given restricted meaning and the exemption available u/s. 10(22) could cover the income chargeable u/s. 68 also. In this regard, we refer to relevant portion of the headnotes from the above judgment as under - "The words 'derived from' (or some other similar words) do not occur in s. 10(22) of the IT Act, 1961, and, therefore, the word 'income' as occurring in s. 10(22) cannot be given a restrictive meaning and must be given its natural meaning or the meaning ascribed to it in s. 2(24). Hence, an assessee who is entitled to exemption u/s. 10(22) can claim the benefit thereof for the purpose of income deemed to be chargeable to tax u/s. 68."
As a result, appeals filed by the Revenue are partly allowed and matter is restored to the file of the AO to compute the income/allow exemption in the light of observation made above for both the years.
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2008 (6) TMI 258
Issues Involved:
1. Deletion of trading addition made by the AO on account of low GP rate by invoking provision of s. 145 of IT Act.
2. Allowance of deduction under s. 10BA on account of DEPB and DDB receipts.
Detailed Analysis:
1. Deletion of Trading Addition on Account of Low GP Rate:
The first issue pertains to the deletion of trading additions of Rs. 5,00,000 and Rs. 3,00,000 made by the AO for the assessment years 2004-05 and 2005-06, respectively, due to a low Gross Profit (GP) rate by invoking s. 145 of the IT Act.
Facts and Arguments:
- The AO rejected the books of account citing a fall in the GP rate and the absence of stock records, making ad hoc trading additions.
- The learned CIT(A) deleted these additions, noting that the AO did not present material defects, omissions, or unauthorized trading activities. The CIT(A) emphasized that the nature of the business, involving numerous distinct wooden handicraft items, made it impractical to maintain detailed stock records.
- The assessee maintained regular, audited books of account with fully vouched and verifiable purchases, sales, and manufacturing expenses. The AO did not find specific defects in these records.
- The assessee argued that the low GP rate alone could not justify the rejection of books and that various judicial judgments supported this view.
Decision:
- The Tribunal upheld the CIT(A)'s decision, finding no error in the well-reasoned decision. The Tribunal noted that the AO failed to provide material evidence of suppression of income or activities outside the books. The remand report also found no discrepancies in the assessee's records. Consequently, the Tribunal rejected the Revenue's grounds for all related appeals.
2. Allowance of Deduction under s. 10BA on DEPB and DDB Receipts:
The second issue concerns the allowance of deductions under s. 10BA for Duty Entitlement Pass Book (DEPB) and Duty Drawback (DDB) receipts, which the AO argued were not derived from the export of eligible articles or things.
Facts and Arguments:
- The learned CIT(A) allowed the deduction, considering DEPB and DDB as reimbursements of customs and excise duties, thus part of the export business profits.
- The Departmental Representative contended that DEPB and DDB were incentives not directly linked to the export of eligible articles, and thus should not be included in the deduction.
- The assessee argued that DEPB and DDB reduced the cost of production, making them integral to the export business. The assessee cited various judicial decisions supporting the inclusion of such incentives in business profits for deduction purposes.
Decision:
- The Tribunal analyzed the provisions of s. 10BA, noting that the profits derived from the export of eligible articles or things should proportionally relate to the profits of the business of the undertaking.
- The Tribunal found that the legislative intent was to include such incentives in the profits of the business, as evidenced by their inclusion under s. 28 of the IT Act.
- The Tribunal distinguished the present case from other cases cited by the Departmental Representative, noting that the specific language and context of s. 10BA supported the inclusion of DEPB and DDB in the profits of the business.
- The Tribunal upheld the CIT(A)'s decision, allowing the deduction under s. 10BA for DEPB and DDB receipts, and rejected the Revenue's appeals.
Conclusion:
The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s decisions on both issues. The trading additions made on account of low GP rate were deleted, and the deductions under s. 10BA for DEPB and DDB receipts were allowed.
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2008 (6) TMI 256
Issues Involved:
1. Calculation of profit for deduction under s. 80HHC based on DEPB receipts.
2. Disallowance of commission expenses paid to auto drivers.
3. Disallowance of car maintenance, depreciation, and telephone expenses.
Issue 1:
The Appellate Tribunal considered whether the entire DEPB receipt or only the profit on transfer of DEPB should be reduced from the profit of the business for the purpose of deduction under s. 80HHC. It was held that only the profit on transfer of DEPB should be excluded. The Tribunal noted that DEPB is accounted for as income even if not yet transferred, as per accounting standards. In the case at hand, as there was a loss on the sale of DEPB licenses, no amount was to be reduced for the deduction under s. 80HHC. The Tribunal emphasized that the cost of DEPB is the value of the license, and any amount received above this value constitutes profit to be considered for deduction under s. 80HHC.
Issue 2:
Regarding the disallowance of commission expenses paid to auto drivers, the Tribunal upheld the disallowance of 50% of the amount paid to various auto-rickshaw drivers as the payments were not fully verifiable. The Tribunal found that only payments with proper documentation and tax deductions were acceptable, while payments to auto drivers without proper verification were subject to disallowance.
Issue 3:
The Tribunal addressed the disallowance of car maintenance, depreciation, and telephone expenses. It was held that a 10% disallowance for car maintenance was appropriate, considering the size of the business. However, the claim for depreciation on the car was allowed as it is a statutory provision not dependent on personal use. The disallowance of telephone expenses was partly upheld, with the Tribunal finding the amount reasonable and not warranting further interference based on the lack of a register to track personal use of the telephones.
In conclusion, the appeal was partly allowed, with decisions made on each issue in relation to the calculation of profit for deduction under s. 80HHC, disallowance of commission expenses, and disallowance of car maintenance, depreciation, and telephone expenses.
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2008 (6) TMI 255
Deduction u/s 80-IA(4) - Generation of Power - ''Steam'' generated by the industrial undertaking - 'generate' - HELD THAT:-We concur with the view of the ld AR that there is little room for any doubt that scientifically or in general parlance, 'production of steam' and 'generation of steam' or for that matter, 'production of electricity' and 'generation of electricity', shall have the same meaning whichever of the two be the item under consideration. Definition of word 'generate' u/s. 2(29) of the Electricity Act, 2003 as per which 'generate' means to produce electricity from a generating station for the purpose of giving supply to its any premises or enabling a supplier to be so given.
The 'power' and 'energy' are synonymous, which can be in several types and forms, be it heat, which is steam or mechanical or electrical, wind or be it thermal.
As per the Cambridge International Dictionary of English, the steam is the hot gas that is produced when water boils; steam can be used to provide power, steam turbines of a steam engine/locomotive of the age of steam. Thus there is no doubt, like electricity, steam is also a form of power.
The arguments advanced on behalf of the assessee also find support from the decision of Delhi Bench of the Tribunal in the case of Sial SBEC Bioenergy Ltd. vs. Dy. CIT[2004 (3) TMI 342 - ITAT DELHI-C] on an identical issue wherein dealing with the matter in detail, it has been held that the word 'power' has to be given a meaning which is in common parlance and in common parlance the word 'power' shall mean the energy only.
Therefore, we fully concur with the decision on the issue arrived at by learned CIT(A) that assessee is in the business of generation of power and that the steam so generated by the industrial undertaking and receipt from the business of industrial undertaking is within the meaning of s. 80-IA which would qualify for this benefit. The first appellate order is thus upheld. The ground is thus rejected.
In the result, appeals are dismissed.
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2008 (6) TMI 254
Issues involved:
1. Challenge to first appellate order by Revenue regarding relief under s. 68 of the Act.
2. Maintainability of appeal by Department based on CBDT instructions.
Issue 1 - Relief under s. 68 of the Act:
The Revenue contested the first appellate order, questioning the relief granted by the CIT(A) regarding additions made under s. 68 of the Act. The AO had added Rs. 1,17,000 and Rs. 3,31,700 under s. 68, which the CIT(A) partially allowed and deleted, respectively. The CIT(A) found the additions unsustainable due to the nature of the transactions and the regular books of accounts maintained by the assessee. The CIT(A) upheld the deletion of Rs. 1,17,000, considering it as trade advances deposits and not a loan or cash credit. Similarly, the addition of Rs. 3,31,700 was also deleted as it represented money received from trade creditors during the course of business by the assessee.
Issue 2 - Maintainability of appeal based on CBDT instructions:
The Department raised a preliminary objection against the maintainability of their appeal, citing CBDT Instructions No. 2 of 2005 and No. 5 of 2007 and 2008. The Department argued that the tax effect in the appeal did not exceed the prescribed limit for filing an appeal before the Tribunal. The Departmental Representative contended that the CBDT instructions now have statutory recognition u/s 268A of the Act, making violation of these instructions enforceable by the affected party, i.e., the assessee. The Tribunal upheld the preliminary objection, dismissing the appeal based on the CBDT instructions.
Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.
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2008 (6) TMI 250
Trading addition - Deduction u/s. 80HHC - Disallowance towards office expenses and car expenses.
Trading addition - Estimation of income - Bogus Purchase - claimed to have made purchases of goods from different parties - CIT(A) deleted the addition made by the AO by applying GP rate - HELD THAT:- We are of the view that the AO was not justified in doubting the genuineness of the claimed purchases made by the assessee from the said four suppliers merely on the basis that on subsequent occasion the parties were not found on the given addresses or in some other cases some connected person to the supplier had stated that they were only issuing bills without supplying the goods or that the money paid by the assessee against the purchases was withdrawn by those parties. Undisputedly, after completion of transaction a purchaser cannot have any control over the suppliers and suppliers are always at liberty to use the money paid to them against the goods sold by them - We are thus of the view that in absence of any positive evidence that the goods were not purchased from the four parties but from some named person or that the money paid by the assessee against the goods was ultimately returned to the assessee by the suppliers, there was no occasion before the AO to deny the claimed purchases especially when the genuineness of the export of those goods by the assessee has been accepted by the AO. The learned CIT(A) has thus rightly deleted the addition made by the AO by applying GP rate after disbelieving the genuineness of the claimed purchases made from the four parties. The first appellate order in this regard is thus upheld. The ground No. 1 is accordingly rejected.
Deduction u/s. 80HHC - received delayed payment - HELD THAT:- We are of the view that there was no occasion before the learned CIT(A) to entertain those claims of deduction u/s. 80HHC which were ultimately withdrawn by the assessee before the AO and the learned CIT(A) was to restrict to the extent of remittance received within time or extended time and in the alternative to be computed on the basis of business income - We, find that the learned CIT(A) in conclusion of the issue raised before him regarding disallowance of deduction u/s 80HHC has directed the AO only to recompute the deduction u/s. 80HHC on the basis of business income finally determined in view of his decision in respect of ground Nos. 1 to 4. In the ground Nos. 1 to 4 before him the issues raised were regarding trading addition, disallowance made out of office expenses, telephone expenses and car expenses - We thus do not find substance in the issue raised in ground No. 2 of the appeal as not arising out of the first appeal in question. The ground No. 2 is thus rejected - appeal is dismissed.
Disallowance towards office expenses and car expenses - HELD THAT:- On perusal of orders of the lower authorities, we find that the AO had made above disallowances on account of personal user of telephone and car and office facilities in absence of maintenance of proper record @ 10 per cent out of office expenses, 20 per cent out of car expenses and depreciation thereon and 20 per cent out of telephone expenses - We, however, considering the totality of facts and circumstances of the case especially nature of the business i.e. export are of the view that disallowance of 10 per cent out of the claimed expenses on office, car and telephone will meet the end of justice. We order accordingly. The cross-objection is partly allowed.
In result appeal is dismissed and Cross objection is partly allowed.
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2008 (6) TMI 249
Rejection of the additional evidence under r. 46A of the IT Rules, 1962 - whether the assessee was prevented by sufficient cause from producing the evidence before the AO? - addition u/s 68 - HELD THAT:- Assessee has submitted the explanation that the assessee was dependent upon his counsel for representing the matter before the IT authorities and for submitting the documents given to him with regard to the details required by the AO. The assessee should not be made to suffer for the lapse on the part of the counsel of the assessee. The assessee came to know only after the receipt and perusal of the assessment order and thereafter the assessee changed the counsel, this said explanation appears to be bona fide and in our view the assessee was prevented by sufficient cause from producing the evidences which were called upon to produce before the AO.
Relying on the decision of Hon'ble Bombay High Court in the case of CIT vs. Suretech Hospital & Research Centre Ltd.[2007 (6) TMI 522 - BOMBAY HIGH COURT]. We held that the learned CIT(A) was not justified in not admitting the additional evidences which were necessary for the disposal of the case. Since all the evidences have to be examined by the AO, therefore, in the interest of justice, the matter is restored to the me of the AO who will examine the evidences filed by the assessee before the learned CIT(A) and decide the issue de novo but by providing the adequate opportunity of being heard to the assessee. The assessee may submit further documents or evidences as required in support of his claim before the AO. The AO is directed to act accordingly. Thus, the ground Nos. 1 to 6 of the assessee are allowed for statistical purposes.
The ground No. 7 of the assessee is general in nature which needs no adjudication by us.
In the result, the appeal of the assessee in ITA No. 379/Jp/2008 is allowed for statistical purposes.
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2008 (6) TMI 248
Disallowance of Exemption U/s 10BA - survey u/s 133A - three units did not fulfil the conditions laid down u/s. 10BA - Disallowance u/s. 80HHC - SFT sales (counter sales) against convertible foreign exchange.
Disallowance of Exemption U/s 10BA - survey u/s 133A - three units did not fulfil the conditions laid down u/s. 10BA - partnership firm dealing in the manufacture and export of wooden handicraft items, Diaris, textile and other metal items - items of artistic value - AO has observed that the items exported by the assessee are furniture and other items of general utility and these items cannot be said to be the items having artistic value as per Expln. (b) to s. 10BA - HELD THAT:- Assessee has submitted that the workers live in the premises of the assessee, took their food, use the modem toiletries and washing facilities etc. Their work is all alone checked by the assessee quality inspectors and are indeed under the ultimate control of the assessee. The termination of the contract of the contractor would result in their immediate eviction and loss of job. As per agreement those employees cannot work in any other units of any other person.
As per definition of the workman as provided in s. 2(s) of the Industrial Disputes Act, 1947 includes any person employed in any industry or by a contractor in relation to execution of his contract with such employer included within the ambit of employees these workmen also - Therefore, we are of the view that the assessee has employed more than 20 workers during the year and therefore, satisfies the conditions contained in s. 10BA(2)(e) of the Act.
Assessee further submitted that the assessee in all the preceding years has been accepted as exporter of wooden handicrafts and has been allowed (benefit) u/s. 80HHC of the Act. The assessee has also been recognized by other departments of Government of India, Handicraft Export Council of India, the Sales-tax Department of Government of Rajasthan and all other concerned authorities, all along. The assessee caters to the requirement of diverse buyers of Europe, USA, Japan, Australia, South Africa, etc. for wood based handicrafts amidst fierce competition in the global market.
The assessee is engaged in promoting those types of manufacturing and with those steps within the manufacturing value chain that require more people inputs (labour intensive) that cannot be easily performed by the machinery and requires less capital. The creative talent visualization and originality of its carpenters in "production department" the dexterity of its workmen directly employed or through contractors or the job workers, the expertise of the large number of labour in polishing artistic, mirror and bone china fixing in wooden articles, special packing as per requirement of MNCs is the main strength of our artistic wooden handicrafts manufactured for export. The use of 'Aara machine' fumigation, power driven screw drivers; grinders, gauge machine are only aid to the workmen and playa secondary role and help. The real role is that of the expert creative workmen with their dexterity.
The assessee has further submitted the explanation that the goods manufactured or produced by the assessee are eligible articles or things having the artistic value and in this regard the explanation was that Webster Dictionary defines "artistic".
During the course of survey u/s. 133A, the authorized officers themselves had occasion to visit and see Manglam Arts woodbased more than 850 items of artistic nature developed by Manglam Arts from time to time at one place for review by visitors. Besides they had also visited the product development section where the skilled and trusted craftsmen were busy in crafting new models and the videography was also done by the department.
Survey authorities had visited and saw the picture painting artists doing art work on wooden boxes, wooden containers etc. Manglam Arts has successfully developed its leading position in designing colour shading artistry in hand in printing on wooden articles/things, but its wooden products are presently a brandname by itself and this is duly reflected in the continuous surge in its sales of wooden handicrafts since 2001.
From the perusal of the facts and circumstances of the case and the explanation given by the assessee, we are of the view that the AO has ignored the explanation given by the assessee and has not taken the facts of the case in the right perspective. Therefore, in our view the assessee is manufacturing the items of artistic value even after getting some process on piece of job basis from outside but under its control. The items so produced or manufactured will be treated as manufacture or production by the assessee employing more than 20 persons.
Therefore, we are of the view that the assessee has fulfilled all the conditions u/s 10BA(2) of the Act and therefore. he is entitled to deduction u/s 10BA(1) and we find no infirmity in the order of the learned CIT(A) who has rightly reversed the decision of the AO. Thus ground No. 1 of the Revenue is dismissed.
Disallowance u/s. 80HHC - SFT sales (counter sales) against convertible foreign exchange - HELD THAT:- We concur with the views of the learned CIT(A) in view of the consistent decisions taken by this Bench and also the case referred by the learned CIT(A) and also the decision of Hon'ble Supreme Court of India in the case of CIT vs. Silver & Arts Palace [2002 (12) TMI 12 - SUPREME COURT]. Therefore, we find no infirmity in the order of the ld CIT(A) who has rightly reversed the order of the AO on the issue. Thus ground No. 2 of the Revenue is dismissed.
In the result the appeal of the Revenue is dismissed.
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2008 (6) TMI 245
Issues Involved:1. Maintainability of the appeal by the Revenue in light of CBDT Instructions and s. 268A. 2. Entitlement of the assessee to deduction u/s 80-IB. 3. Validity of notice u/s 148. 4. Addition on account of low household withdrawals. Summary:Issue 1: Maintainability of the AppealThe Revenue's appeal was challenged based on CBDT Instruction No. 2 of 2005, which restricts appeals where the tax effect is up to Rs. 2 lacs. The learned Authorised Representative argued that s. 268A, inserted by the Finance Act, 2008, gives statutory recognition to these instructions. The Tribunal agreed, stating that the monetary limit must be considered before admitting the appeal. The Tribunal found the appeal not maintainable as it violated CBDT Instruction No. 2 of 2005. Issue 2: Entitlement to Deduction u/s 80-IBOn the merits, the Tribunal upheld the first appellate order allowing the deduction u/s 80-IB. The assessee, a small-scale industrial undertaking, was engaged in manufacturing and producing tiles and slabs from raw sandstone blocks. The Tribunal noted that the activities were regarded as manufacturing by the District Industrial Forum and the Department of Commercial Taxes. The Tribunal also referenced the jurisdictional High Court's decision in Arihant Tiles & Marbles (P) Ltd. vs. ITO, which supported the assessee's claim. The ground raised by the Revenue was rejected. Issue 3: Validity of Notice u/s 148The assessee objected to the issuance of notice u/s 148, arguing it was based on a change of opinion and issued after four years of filing the return. The Tribunal found merit in this objection, noting that the jurisdictional High Court had already decided a similar issue in favor of the assessee in Arihant Tiles & Marbles (P) Ltd. vs. ITO. The Tribunal held the notice u/s 148 invalid and set aside the assessment made in furtherance to the said notice. Issue 4: Addition on Account of Low Household WithdrawalsOn the addition of Rs. 34,250 for low household withdrawals, the Tribunal found no reason to interfere with the lower authorities' findings. The AO had rightly estimated household expenses for a family of six members. However, this finding became academic due to the invalidity of the notice u/s 148. Conclusion:The appeal by the Department was dismissed, and the cross-objection by the assessee was partly allowed.
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2008 (6) TMI 243
Issues Involved:
1. Initiation of reassessment proceedings under Section 147/148 of the Income Tax Act.
2. Addition on account of unexplained cash credits.
3. Addition on account of bank withdrawals not entered in the cash book.
Issue-Wise Detailed Analysis:
1. Initiation of Reassessment Proceedings under Section 147/148:
The assessee challenged the initiation of reassessment proceedings under Section 147/148 of the Income Tax Act. The original return of income was filed on 30th August 1989, and an intimation under Section 143(1)(a) was issued on 19th January 1990. A search under Section 132(1) was conducted in October 1992, and certain books of accounts were seized. Based on this, the AO issued a notice under Section 148 on 22nd November 1993, citing unexplained credits in the books of accounts.
The assessee argued that the reopening was based on "surmises, conjectures, and suspicion." The CIT(A) confirmed the reopening. The assessee's counsel contended that there was no reference to the assessment year in the order under Section 132(5) and no seized material indicating unexplained credits. They argued that the AO's action was based on presumption without material evidence, citing several case laws to support their argument.
The Tribunal found that the AO did not have a valid basis for reopening the assessment. The reasons recorded by the AO did not indicate a belief that income had escaped assessment. The AO merely noted unexplained credits without verifying their genuineness. The Tribunal concluded that the AO had not applied his mind to the material on record and had not made a case of income escapement, thus quashing the reassessment proceedings.
2. Addition on Account of Unexplained Cash Credits:
The assessee challenged the addition of Rs. 9,000 on account of unexplained cash credits in the names of Arunkumar and Rajendrakumar. The AO treated these credits as unexplained because the assessee did not produce the creditors for verification. The CIT(A) upheld the addition.
The Tribunal noted that the assessee had provided details of the creditors and argued that the AO should have issued summons under Section 131 for verification. The Tribunal found that the AO had not taken steps to verify the creditors and had merely presumed the credits to be unexplained. Since the reassessment proceedings were quashed, the Tribunal did not need to decide this ground on merits.
3. Addition on Account of Bank Withdrawals Not Entered in the Cash Book:
The assessee challenged the addition of Rs. 65,000 on account of bank withdrawals not entered in the cash book. The AO alleged that these withdrawals were not recorded, and thus treated them as unexplained.
The Tribunal observed that the assessee had provided details of the withdrawals and argued that they were verifiable from the seized books. The AO did not verify these details and made the addition based on presumption. Since the reassessment proceedings were quashed, the Tribunal did not need to decide this ground on merits.
Conclusion:
The Tribunal quashed the reassessment proceedings, finding that the AO had not satisfied the necessary ingredients of Section 147. The AO did not have a valid reason to believe that income had escaped assessment and had acted on presumption without material evidence. Consequently, the Tribunal set aside the orders of the authorities below and allowed the appeal.
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2008 (6) TMI 242
Issues Involved:
1. Applicability of Section 194J for payments made towards royalty, technical aids, and courseware consumption.
2. Liability of the assessee to deduct tax under Section 194J for technical know-how fees.
3. Charging of interest under Section 201(1A) for non-deduction of TDS.
4. Applicability of Section 194-I for rent payments and associated TDS.
Detailed Analysis:
1. Applicability of Section 194J for Payments Made Towards Royalty, Technical Aids, and Courseware Consumption:
The assessee contended that payments made to NIIT for royalty, technical aids, and courseware consumption were not for professional or technical services and thus not subject to TDS under Section 194J. The CIT(A) agreed, stating that these payments were in the nature of purchases and did not fall within the ambit of Section 194J. The Tribunal upheld this view, noting that the payments were for purchasing material and not for rendering technical services. Consequently, the Department's appeal on this issue was dismissed.
2. Liability of the Assessee to Deduct Tax Under Section 194J for Technical Know-How Fees:
The assessee argued that the payments for technical know-how did not constitute fees for technical services under Section 194J. However, the CIT(A) and the Tribunal found that the payments were indeed for technical services as defined in the agreement, which included various managerial, technical, and consultancy services. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was liable to deduct TDS on these payments. The assessee's appeal on this issue was dismissed.
3. Charging of Interest Under Section 201(1A) for Non-Deduction of TDS:
The assessee contended that since NIIT had already paid taxes on the amounts received, no interest should be charged under Section 201(1A). The Tribunal noted that the assessee had provided additional evidence showing that NIIT had paid the taxes. It was decided to remand the matter to the AO for verification of the tax payments by NIIT. If confirmed, no demand or interest should be raised against the assessee. The alternate contention of the assessee was allowed, and the matter was remanded for verification.
4. Applicability of Section 194-I for Rent Payments and Associated TDS:
The AO found that the assessee had short-deducted TDS on rent payments exceeding Rs. 1,20,000, leading to a demand under Section 201(1) and interest under Section 201(1A). The assessee argued that the rent included other charges and that the landlord had already paid the taxes. The Tribunal upheld the AO's finding that TDS was to be deducted on the gross rent. However, it remanded the matter for verification of tax payments by the landlord. If verified, no demand or interest should be raised against the assessee.
Conclusion:
The Tribunal dismissed the Department's appeals and partly allowed the assessee's appeals, remanding the matters for verification of tax payments by the payees. The Tribunal upheld the CIT(A)'s findings that Section 194J did not apply to payments for royalty, technical aids, and courseware consumption but did apply to technical know-how fees. The Tribunal also confirmed the charging of interest under Section 201(1A) but allowed for verification of tax payments to potentially negate the demand.
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2008 (6) TMI 241
Issues Involved:
Classification of income as "Income from house property" vs. "Income from business."
Detailed Analysis:
Classification of Income:
The core issue is the classification of income earned by the assessee from leasing properties to its sister concerns. The assessee argued that the income should be classified as "business income" because the properties were part of a larger business activity involving the development of infrastructure for film production. The assessee cited several judgments to support this claim, including those from the Andhra Pradesh High Court and the Supreme Court.
Assessee's Argument:
The assessee, a private limited company and part of a group involved in film production, argued that the income from leasing properties should be treated as business income. It claimed that the properties were developed as part of a comprehensive business strategy to support film production. The assessee cited judgments from the Andhra Pradesh High Court and the Supreme Court, arguing that the properties were commercial assets exploited for business purposes.
Department's Argument:
The Department contended that the income should be classified as "Income from house property." It argued that the assessee merely leased out the properties and did not engage in any incidental services. The Department emphasized that the rental income was received in the capacity of a landlord and not as part of a business operation. The Department cited various judgments, including those from the Madras High Court and the Supreme Court, to support its position.
Tribunal's Findings:
The Tribunal examined the lease agreements and the nature of the transactions. It noted that the properties were leased out for long terms (10 years) and that the assessee did not provide any incidental services to the tenants. The Tribunal found that the assessee's income was derived from leasing properties as a landlord, not from exploiting commercial assets in a business capacity. The Tribunal distinguished this case from others cited by the assessee, noting that the properties were not used by the assessee for its own business activities but were leased to independent legal entities (sister concerns).
Key Judgments Considered:
1. Vazir Sultan Tobacco Co. Ltd.: The Tribunal noted that this case involved properties occupied by employees for business purposes, which was not analogous to the present case where properties were leased to sister concerns.
2. New India Maritime Agencies (P) Ltd.: The Tribunal distinguished this case by noting that the properties in question were used by directors for business purposes, unlike the present case.
3. Universal Plast Ltd.: The Tribunal highlighted that this case involved the lease of an entire factory, whereas the present case involved residential units leased for long terms.
4. A.P. Small Scale Industrial Development Corporation and Andhra Pradesh Industrial Infrastructure Corporation: The Tribunal found these cases inapplicable as they involved infrastructure development specifically for business promotion, unlike the present case where properties were leased for rental income.
Conclusion:
The Tribunal concluded that the income from leasing properties should be classified as "Income from house property" under Section 22 of the IT Act. It found no merit in the assessee's claim that the income should be treated as business income. The appeal of the assessee was dismissed, and the order of the lower authority was confirmed.
Result:
The appeal of the assessee stands dismissed, and the income is classified as "Income from house property."
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2008 (6) TMI 240
Issues Involved:
1. Whether the assessee could be treated as the owner of the "Katwaria Sarai" property.
2. Whether the rental income received by the assessee constituted "Income from house property" or under any other head.
3. Validity of the order passed by the CIT under section 263.
4. Allowability of deductions under sections 24(1)(i) and 24(1)(iv).
5. Validity of reassessment proceedings under section 147.
Issue-wise Detailed Analysis:
1. Ownership of the "Katwaria Sarai" Property:
The Tribunal examined whether the assessee could be considered the owner of the property. The Third Member concluded that the assessee was a lessee and not the owner of the property. The agreement between the assessee and Vaitalik did not confer any ownership rights on the assessee, and the property was held on a lease basis.
2. Head of Income:
The Tribunal addressed whether the rental income received by the assessee should be taxed under "Income from house property" or another head. The Third Member ruled that the income was not taxable under "Income from house property" but under "business income" or "income from other sources." The Tribunal upheld this view, stating that the assessee was not entitled to deductions under section 24(1) as it was not the owner of the property.
3. Validity of the Order under Section 263:
The CIT had invoked section 263, treating the original assessment as erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the CIT's order under section 263, agreeing that the assessee was not the owner and the rental income was incorrectly assessed under "Income from house property." The Tribunal followed the Third Member's decision for the assessment year 1997-98, confirming the validity of the CIT's action under section 263.
4. Allowability of Deductions under Sections 24(1)(i) and 24(1)(iv):
Since the rental income was not chargeable under "Income from house property," the deductions under sections 24(1)(i) and 24(1)(iv) were disallowed. The Tribunal set aside the CIT(A)'s orders allowing these deductions, aligning with the Third Member's decision that the assessee was not entitled to such deductions.
5. Validity of Reassessment Proceedings under Section 147:
For assessment year 1996-97, the Tribunal found that the reassessment was invalid as the reasons recorded did not indicate any failure by the assessee to disclose fully and truly all material facts. Thus, the reassessment proceedings were deemed invalid. However, for assessment year 1999-2000, the Tribunal upheld the reassessment, noting that fresh material had come to the Assessing Officer's possession, justifying the reopening of the assessment.
Conclusion:
The Tribunal dismissed the assessee's appeal and upheld the CIT's order under section 263 for the assessment year 1997-98. The revenue's appeals for assessment years 1997-98, 1998-99, and 1999-2000 were allowed, disallowing the deductions under sections 24(1)(i) and 24(1)(iv). The reassessment for assessment year 1996-97 was invalidated, while the reassessment for 1999-2000 was upheld.
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2008 (6) TMI 239
Issues Involved:
1. Limitation of the assessment order.
2. Validity of the special audit under section 142(2A).
3. Compliance with principles of natural justice.
4. Deletion of various additions by CIT(A).
Detailed Analysis:
Limitation of the Assessment Order:
The primary issue raised by the assessee was that the assessment order passed by the Assessing Officer (AO) was barred by limitation. The search and seizure operation occurred on 18-12-2002, necessitating the assessment under section 158BC to be completed by 31-12-2004. The AO directed a special audit under section 142(2A) on 7-12-2004, which extended the time for completion. The Supreme Court in Rajesh Kumar's case held that the special audit order without giving the assessee an opportunity was bad in law. The Tribunal concluded that the assessment completed on 3-6-2005 was within the extended time allowed under Explanation 1(ii) to section 158BE, despite the invalidation of the special audit order.
Validity of the Special Audit under Section 142(2A):
The assessee contended that the direction for a special audit was issued without proper justification and without giving an opportunity to be heard, making it invalid. The Supreme Court in Rajesh Kumar's case confirmed that the special audit directed without affording an opportunity was bad in law. However, the Tribunal noted that the invalidation of the special audit did not automatically nullify the extended period for completing the assessment.
Compliance with Principles of Natural Justice:
The Tribunal addressed the necessity of adhering to the principles of natural justice, particularly the rule of audi alteram partem, before directing a special audit under section 142(2A). The Supreme Court's judgment in Sahara India (Firm) reaffirmed the requirement of providing a reasonable opportunity to the assessee before passing such an order. The Tribunal concluded that the law on audi alteram partem, as laid down in Rajesh Kumar's case and reaffirmed in Sahara India (Firm), would apply prospectively from 11-4-2008.
Deletion of Various Additions by CIT(A):
The revenue's cross-appeal challenged the deletion of various additions by CIT(A). Since the Tribunal set aside the assessment order to the AO for a fresh assessment, the revenue's appeal was allowed for statistical purposes.
Conclusion:
The Tribunal set aside the assessment to the file of the AO to frame the assessment de novo after affording the assessee an opportunity of being heard, emphasizing the need for compliance with principles of natural justice. Both the appeals filed by the assessee and the revenue were allowed for statistical purposes.
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2008 (6) TMI 238
DTAA between India & Australia - Income accrued in India - Revenues earned from a non-resident company on account of provision of services for executing contracts - work of 2D/3D seismic data processing - deemed profit rate of 10% u/s 44BB - “fees for technical services” within section 9(1)(vii)(b) or chargeable u/s 44BB.
HELD THAT:- From the terms of the letter of award, it seems to us that there can be no dispute that no part of the processing work which was entrusted to the assessee was carried out in India. The entire income thus accrued to the assessee outside India, if one were to apply the principles laid down by the Supreme Court in Carborandum Co.’s case [1977 (4) TMI 2 - SUPREME COURT]. The AO does not dispute the factual position that no part of the processing work was carried out in India, but says that since the processed data is utilised in India, the income accrues in India.
There is no statutory basis for this conclusion. U/s 5(2)(b) of the Income-tax Act, the total income of a non-resident includes all income from whatever source derived which accrues or arises or is deemed to accrue or arise to him in India during the year. If the law laid down by the Supreme Court in the aforesaid judgment is applied to the facts of the present case, it is not possible to say that any income accrued or arose to the assessee-company in India by reason only of the fact that the processed data was utilised by RIL for its project in India.
It is also to be noted that it is not necessary for the application of section 9(1)(vii) that the recipient of the fees for technical services should have any business connection in India. All that is required is that the source of the payment should be in India, from a resident of India. In this view of the matter, we agree with the ld CIT (DR) that the amount received by the assessee-company from RIL under the letter of award (the contract) is taxable u/s 9(1)(vii)(b) r/w Explanation 2 of the Income-tax Act, 1961.
We do not see how RIL can be richer in the area of technical knowledge, experience, skill, etc., because of the use of the processed data sent by the assessee-company. The processed data does not also amount to the development and transfer of a technical plan or design. In our opinion, therefore, Article 12(3)(g) of the Indo-Australian Treaty is not applicable to the facts of the present case.
So far as the legal position is concerned, if the definition of “fees for technical services” in the domestic law is wider, but the definition of the same is narrower in the double tax treaty in comparison still it is the narrower definition in the treaty that will override the wider definition in the domestic law. This is the ratio of the decision in Citizen Watch Co. Ltd. v. IAC [1983 (5) TMI 16 - KARNATAKA HIGH COURT] and in CIT v. Davy Ashmore India Ltd.[1990 (12) TMI 51 - CALCUTTA HIGH COURT]. Actually, this is a subsidiary principle emerging from the broader principle that the treaty overrides the domestic law. Implied in this broader principle is the position that the definition of a term in the double tax agreement should prevail, even if it is narrower than the definition in the domestic law.
We are of the view that the amount received by the assessee-company from RIL under the contract did not represent consideration for any technical services rendered to RIL which made available technical knowledge, experience, skill, etc., or consisted of the development and transfer of any technical plan or design within the meaning of Article XII(3)(g) of the Indo-Australian Treaty. The consideration will continue to be viewed as business profits under Article VII of the treaty and since the assessee had no PE in India the business profits cannot be taxed in India. We thus affirm the decision of the CIT (Appeals) and dismiss the first ground.
Applicability of receipts u/s 44BB - In our opinion, section 44BB would be the more appropriate section applicable to the case since the assessee is rendering technical services to RIL and such services were rendered in connection with the prospecting for or extraction or production of mineral oil. It is here that the Board’s Instruction seems to support the assessee’s case. In view of the clear instruction of the Board that consideration for services rendered by a non-resident in connection with the prospecting for mineral oil in India will be taxed u/s 44BB, the assessee is right in offering the revenues under the contract for tax under this section. The applicability of this section does not depend upon the existence of any PE of the non-resident in India. Therefore, even though the assessee has no PE in India, the receipt under this contract is assessable u/s 44BB.
In the present case, no arguments were advanced by the learned CIT (DR) to show how the assessee is covered by section 44D and how the revenues under the contract can be treated as royalty within the meaning of the above section read with Explanation 2 to section 9(1)(vi) of the Income-tax Act. The Instruction issued by the Board also rules out the applicability of section 44D read with section 115A of the Act. Therefore, there is no need or legal justification to examine the applicability of Article XII(3)(a) or (d) of the treaty between India and Australia.
We have already held that the provisions of section 44BB are more appropriate to the present case. Accordingly, we hold that the assessee was right in contending and the CIT (Appeals) was right in accepting the contention that the revenues under the contract are assessable in India u/s 44BB of the Income-tax Act. We confirm his decision on this point and dismiss the ground.
In the result, the appeal filed by the department is dismissed with no order as to costs.
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2008 (6) TMI 237
Issues Involved:
1. Sustaining of disallowance under Section 80JJAA of the IT Act, 1961.
2. Deletion of addition under Section 35(1)(ii) of the IT Act.
3. Deletion of disallowance under Section 35(2AB) of the IT Act.
Issue 1: Sustaining of Disallowance under Section 80JJAA of the IT Act, 1961
The primary issue pertains to the disallowance of Rs. 26,99,432 under Section 80JJAA. The assessee claimed a deduction of Rs. 52,75,173 under this section. The AO interpreted that additional wages mean wages paid to workmen in excess of 100 workmen employed during the year. The AO allowed a deduction for 136 new workmen out of 236 employed during the year. The CIT(A) upheld this view partially, allowing the deduction for 136 workmen but disallowing the deduction for the remaining 100.
The assessee argued that the deduction should be available for all new regular workmen employed for more than 300 days, provided the increase is not less than 10% of the existing workmen. The Tribunal clarified that for an existing undertaking, the percentage increase in regular workmen should be compared to the total workmen employed, including casual and contract labor. The Tribunal found that the CIT(A) and AO incorrectly excluded 100 regular workmen from the deduction calculation. The Tribunal directed the AO to recompute the deduction, considering the correct interpretation of the law.
Issue 2: Deletion of Addition under Section 35(1)(ii) of the IT Act
The second issue involves the deletion of an addition of Rs. 5,00,000 under Section 35(1)(ii). The assessee claimed a deduction for a payment made to M/s Talwar Research Foundation (TRF) for scientific research. The AO disallowed the deduction as TRF was not notified by the Central Government for the relevant period. The CIT(A) allowed the deduction, stating that the payment was for scientific research related to the assessee's business and that the research need not be conducted by the assessee itself.
The Tribunal upheld the CIT(A)'s decision, noting that TRF was recognized by the Department of Scientific and Industrial Research (DSIR) and that the payment was related to scientific research connected to the assessee's business. The Tribunal found no infirmity in the CIT(A)'s order, allowing the deduction under Section 35(1)(i).
Issue 3: Deletion of Disallowance under Section 35(2AB) of the IT Act
The third issue concerns the deletion of a disallowance of Rs. 7,72,25,725 under Section 35(2AB). The assessee claimed a weighted deduction for expenditure on in-house R&D. The AO disallowed the claim, citing the absence of a report in Form No. 3CL from the DSIR to the Director General of IT (Exemptions). The CIT(A) admitted additional evidence, including the DSIR's report certifying the research expenses, and allowed the deduction.
The Tribunal noted that all conditions for the deduction under Section 35(2AB) were satisfied except for the submission of the report to the Director General of IT (Exemptions). The Tribunal found that the Revenue did not object to the admission of additional evidence and upheld the CIT(A)'s decision, allowing the deduction.
Conclusion:
The appeal filed by the assessee is partly allowed, and the appeal filed by the Revenue is dismissed.
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