|
Advanced Search Options
Case Laws
Showing 341 to 360 of 686 Records
-
2009 (6) TMI 686
Issues Involved:
1. Rectification of mistakes apparent from record u/s 254(2) of the Income-tax Act, 1961.
2. Block assessment and addition of undisclosed income u/s 158BC.
3. Treatment of cash found during search operations as undisclosed income.
Summary:
Issue 1: Rectification of mistakes apparent from record u/s 254(2) of the Income-tax Act, 1961
The assessee filed miscellaneous applications seeking rectification of mistakes apparent from the record in the Tribunal's order dated 29-9-2008. The Tribunal held that the issues raised by the assessee were adjudicated on merit after evaluating rival submissions and relevant records. The Tribunal emphasized that issues considered and decided on merit do not constitute obvious, glaring, patent, and self-evident mistakes of facts or law within the meaning of section 254(2). The Tribunal cited the jurisdictional High Court's decision in CIT v. Ramesh Electric & Trading Co. [1993] 203 ITR 4972 (Bom.), stating that the power of rectification can only be exercised for obvious and patent mistakes apparent from the record, not for errors requiring lengthy reasoning or arguments.
Issue 2: Block assessment and addition of undisclosed income u/s 158BC
In M.A. No. 230/Mum./09, the Assessing Officer made an addition of Rs. 1,15,00,000 as undisclosed income, representing investment in imports and profits therefrom. The CIT(A) deleted the addition based on the Commissioner of Customs' adjudication order and the assessee's submissions. However, the Tribunal restored the Assessing Officer's findings, concluding that the CIT(A)'s order was based on irrelevant material and ignored the relevant evidence brought on record by the Assessing Officer.
Issue 3: Treatment of cash found during search operations as undisclosed income
In M.A. No. 231/Mum./09, the Assessing Officer treated Rs. 5,26,000 found at the assessee's residence during a search operation as undisclosed income. The CIT(A) deleted the addition, but the Tribunal upheld the Assessing Officer's decision, noting that the CIT(A) ignored relevant evidence and statements. The Tribunal found that the assessee admitted in a statement u/s 132(4) that he had no evidence to explain the cash found and that it was from unrecorded cash sales.
Conclusion:
The Tribunal dismissed both miscellaneous applications, concluding that the issues raised were adjudicated on merit and did not constitute mistakes apparent from the record u/s 254(2). The Tribunal reiterated that the scope of section 254(2) is limited to rectifying apparent mistakes and does not extend to reviewing or reconsidering decisions taken on merit.
-
2009 (6) TMI 685
Issues Involved:
1. Whether the sale of Howmedica business transaction should be treated as a slump sale or an itemized sale.
2. Whether the claim of slump sale made at the assessment stage is legally permissible.
3. Whether the non-filing of the audit report along with the return of income affects the claim.
4. Whether the Assessing Officer can examine the real character of the transaction instead of going by the agreement.
5. The treatment of the reimbursement received from Pfizer Inc.
6. The issue of write-off in closing stock.
Detailed Analysis:
1. Treatment of Howmedica Business Transaction:
The primary issue was whether the sale of Howmedica business should be treated as a slump sale or an itemized sale. The assessee claimed it as a slump sale, meaning the transfer of one or more undertakings for a lump sum consideration without assigning values to individual assets and liabilities. The Assessing Officer rejected this claim, treating it as an itemized sale, pointing out that the business transfer agreement provided a break-up of various items for the computation of net worth. The CIT(A) upheld the Assessing Officer's view, noting that the transaction involved the transfer of identifiable parts of the business rather than the business as a whole.
2. Legal Permissibility of Claim at Assessment Stage:
The CIT(A) held that the assessee was entitled to make a claim before the Assessing Officer even if it was not made in the Return of Income, relying on the judgment in National Thermal Power Corpn. Ltd. v. CIT [1998] 229 ITR 383 (SC). This decision was not contested by the revenue, thus settling the issue in favor of the assessee.
3. Non-Filing of Audit Report with Return of Income:
The CIT(A) concluded that the claim could not be denied merely because the audit report was not filed along with the return of income. The courts have held that while filing an audited report is mandatory, filing it along with the return is directory, and it can be accepted if filed before the completion of the assessment, provided there are good and sufficient reasons for the delay.
4. Examination of Real Character of Transaction:
The CIT(A) upheld the Assessing Officer's action to examine the various clauses of the business transfer agreement to ascertain the true character of the transaction. The CIT(A) noted that the agreement and the surrounding circumstances indicated that the transaction was not a transfer of the business as a whole but rather a transfer of identifiable parts of the business.
5. Treatment of Reimbursement from Pfizer Inc.:
The assessee received a sum from Pfizer Inc. as reimbursement for the cost of surgical instruments. The CIT(A) held that this amount should be assessed as short-term capital gain under section 50(1) of the Income-tax Act, as it related to depreciable assets. The CIT(A) directed the Assessing Officer to allow the deduction of the value of stock and other related expenses before computing the profits.
6. Write-Off in Closing Stock:
The Assessing Officer disallowed the claim of the assessee regarding the write-off in closing stock, suspecting unaccounted sales. The CIT(A) allowed the claim, noting that the write-off was a normal business practice in the pharmaceutical industry and had been allowed in previous years. The CIT(A) emphasized that such a deduction could only be disallowed if there were good and sufficient reasons, which were not present in this case.
Conclusion:
The appeal by the assessee was partly allowed, and the appeal by the revenue was dismissed. The transaction of Howmedica business was treated as an itemized sale, and the reimbursement from Pfizer Inc. was assessed as short-term capital gain. The write-off in closing stock was allowed as a legitimate business expense. The case was remanded to the Assessing Officer for the limited purpose of determining the net worth for computing the capital gains from the slump sale.
-
2009 (6) TMI 684
Issues Involved:
1. Confirmation of levy of penalty under section 271(1)(c) of the Income-tax Act.
2. Applicability of Explanation 5(2) to section 271(1)(c).
3. Interpretation of the manner in which undisclosed income was derived.
4. Reliance on legal precedents and their applicability.
Detailed Analysis:
1. Confirmation of Levy of Penalty under Section 271(1)(c):
The appeal was filed against the confirmation of a penalty of Rs. 16,83,000 levied under section 271(1)(c) for the assessment year 2006-07. The appellant, a member of the Tanveerkumar Group engaged in diamond trading and export, was subjected to a search and seizure operation under section 132 of the Income-tax Act on 8-12-2005. During the search, the Director of the company, Shri Tanveerkumar Choksi, offered a sum of Rs. 3 crores as undisclosed income for all group concerns. The bifurcation of this income included Rs. 50 lakhs for the appellant's concern for the assessment year 2006-07. The appellant included this amount in the return of income, which was accepted by the Assessing Officer, who then proposed to levy a penalty on this additional income.
2. Applicability of Explanation 5(2) to Section 271(1)(c):
The appellant argued that the amount offered was part of the statement made under section 132(4) and that taxes were paid on it, thus no penalty should be levied as per Explanation 5(2) of section 271(1)(c). However, the Assessing Officer contended that the statement under section 132(4) did not specify the manner in which the income was earned, which is a requirement for immunity under Explanation 5(2). Consequently, the minimum penalty was levied.
3. Interpretation of the Manner in Which Undisclosed Income Was Derived:
The CIT(A) upheld the penalty, stating that the conditions for immunity under Explanation 5(2) were not met. The conditions include making a statement under section 132(4) that the assets were acquired from undisclosed income, specifying the manner in which the income was derived, and paying the tax with interest. It was noted that these conditions must be fulfilled during the search itself. The CIT(A) observed that the appellant's statement did not meet these requirements.
4. Reliance on Legal Precedents and Their Applicability:
The Supreme Court in Union of India v. Dharamendra Textile Processors [2008] 306 ITR 2771 emphasized strict liability for concealment or inaccurate particulars under section 271(1)(c). The Tribunal examined whether the appellant's case satisfied the requirements of Explanation 5(2). It was noted that the statement under section 132(4) explained the undisclosed income as arising from discrepancies in stock and unexplainable credits. The Tribunal found this explanation specific enough to meet the requirements of Explanation 5(2). The Tribunal also referred to the Special Bench decision in Asstt. CIT v. VIP Industries Ltd. [2009] 30 SOT 254, which laid down the requirements for penalty under section 271(1)(c).
Conclusion:
The Tribunal concluded that the appellant's case was covered by Explanation 5(2) to section 271(1)(c) and thus no penalty was leviable. The appeal was allowed, and the penalty of Rs. 16,83,000 was deleted. The Tribunal emphasized that the explanation provided by the appellant was sufficient and that the department had accepted the offer without dispute. The decision of the first appellate authority was overturned, and the appellant was granted immunity under Explanation 5(2) to section 271(1)(c).
-
2009 (6) TMI 683
Issues Involved:
1. Taxability of Rs. 1,00,06,785 as revenue income (Assessment Year 1997-98).
2. Taxability of Rs. 4.60 crores as revenue receipt (Assessment Year 1997-98).
3. Validity of the revised return and set-off of business loss from the Paper Mill division (Assessment Year 1999-2000).
4. Set-off of short-term capital gains against brought forward loss under section 72 (Assessment Year 1999-2000).
I. ITA No. 446/Hyd./01 (Assessment Year 1997-98)
The primary issue was whether Rs. 1,00,06,785 received by the assessee from the sale of a boiler to BEL, which was later leased back, should be treated as revenue income. The Assessing Officer (AO) viewed the transaction as fraudulent since the assessee was not the owner of the boiler, having originally leased it from ITC. The AO treated the sum as revenue receipt and disallowed the lease rent payable to BEL. The CIT(A) disagreed, stating the asset did not form part of the block of assets and the transaction was a financial lease, thus the sum could not be taxed as income.
Upon review, it was determined that the asset was already on lease from ITC, and the assessee had no legal ownership. The transaction with BEL was deemed a sham, and the assessee benefited by Rs. 1,00,06,785, which was taxable as business income under section 28(iv) of the Act. The CIT(A)'s observation regarding the creation of a second charge on the asset was misplaced as the lease agreement with ITC prohibited it. Consequently, the addition of Rs. 1,00,06,785 to the assessee's income was restored.
II. ITA No. 346/Hyd./04 (Assessment Year 1997-98)
The issue was whether Rs. 4.60 crores received by the assessee from APA for the revival of a sick unit should be treated as revenue receipt. The AO considered it revenue income, while the assessee claimed it was a capital receipt for revival purposes. The CIT(A) sided with the assessee, noting the funds were used for revival activities and not for revenue expenditure.
The Tribunal upheld the CIT(A)'s decision, emphasizing that the receipt was for reviving a sick unit and not earned in the course of business operations. The amount was intended to help the assessee resuscitate the unit, and the nature of the receipt was capital, not revenue. The funds had to be transferred to Jogighopha, where the unit was located, and the responsibility for revival was on the assessee. Thus, the addition of Rs. 4.60 crores was deleted.
III. ITA No. 559/Hyd./2003 (Assessment Year: 1999-2000)
The assessee contested the AO's refusal to treat the revised return as valid and not allowing the business loss from the Paper Mill division. The original return showed a profit of Rs. 54.83 lakhs from the textile division, while the loss of Rs. 9.13 crores from the paper division was shown only for 'exhibition' purposes. The revised return included capital gains and the paper division loss, but the AO found it defective and not bona fide, treating it as invalid.
The Tribunal concluded that the revised return was valid under section 139(5), but the omission to include the loss and capital gains in the original return was not a bona fide mistake. The loss was not part of the book profit and was shown as recoverable from the Government. The capital gains were also not included inadvertently. Hence, the revised return was rightly treated as invalid, and the claim of loss was denied. The capital gains were to be treated as business income, and corrective action was directed.
IV. ITA No. 560/Hyd./2003 (Assessment Year: 1999-2000)
The assessee's appeal against not allowing the set-off of short-term capital gains of Rs. 1,00,06,785 against brought forward loss under section 72 was not pressed and dismissed. The Tribunal reiterated that the receipt was business income, and corrective action should be taken as directed.
Summary of Results:
(a) Departmental appeal in ITA No. 446/Hyd./01 is allowed.
(b) Departmental appeal in ITA No. 346/Hyd./04 is dismissed.
(c) Assessee's appeal in ITA No. 559/Hyd./03 is dismissed.
(d) Assessee's appeal in ITA No. 560/Hyd./03 is dismissed.
-
2009 (6) TMI 682
Penalty levied u/s 271(1)(c) - non-disclosure of deemed dividend income - plea of ignorance of law - explanation tendered by the assessee having not been found to be false, hence no justification in levying the penalty - shifting of onus on assessee and the nature of liability - business of supply and replacement of ship parts and accessories - assessee obtained loan from the closely held company having 99 per cent shareholding - taking the loan did not figure in the final balance sheet filed along with the return of income of the assessee - being an Engineer by profession, claimed that he was not conversant with the provisions of the Income-tax Act and hence he was filing the return by taking the assistance of C.A. from year to year.
HELD THAT:- The tax authorities have not disputed, in principle, about the incorrect guidance by the C.A. They were of the opinion that the assessee ought to have informed the AO voluntarily ignoring the fact that as per the procedure prescribed under law the burden is not cast upon the assessee to annex the copy of the books of account along with return of income. It is also not the case of the Revenue that the return of income and the annexure thereto are not as per the requirements of the provisions. Merely because loan was cleared within the year and thus do not find place in the Balance Sheet, one cannot jump to the conclusion that the assessee withheld the information till an enquiry was made during the course of assessment proceedings.
The tax laws in this country are so complex and complicated that even a person specializing in this field, including tax administrators, may not understand the law in the correct perspective or a particular provision may go unnoticed because of the number of amendments made to the tax enactments from year to year. Under these circumstances, it would be a travesty of truth and justice to hold that an assessee ought to have known the correct law and comply therewith, even though he was not aware of the provisions.
In the case of Kaushal Diwan v. ITO [1982 (11) TMI 74 - ITAT DELHI-A], the ld AM observed, on an analogous situation, that the tax provisions are so complex that even he was not aware of the provision in question till the matter was placed before the Bench. Similar view was taken in the case of WTO v. S.P. Jaya Kumar [1982 (7) TMI 178 - ITAT MADRAS-A]. The Bench observed that the plea of ignorance of law can be treated as a proper explanation. Such explanation can be said to have been substantiated when it is shown that : (a) he was assisted by a professional C.A. who has not brought to his notice the applicability of provisions of section 2(22)(e) of the Act and (b) by making a statement that this is the first year in which these provisions came to be applied in assessee’s case.
It could thus be seen that the assessee tendered an explanation which was substantiated and thus the burden is cast upon the Revenue to prove that the explanation is false so as to invoke Explanation 1 to section 271(1)(c).
Except merely stating that the assessee ought to have furnished the loan particulars voluntarily, along with the return of income, no other reason was assigned by the tax authorities to dispute the bona fides of the explanation. Under the peculiar facts and circumstances and in the light of decisions cited by the learned counsel for the assessee, we are of the view that the explanation of the assessee is bona fide and hence the case falls outside the ambit of Explanation 1 to section 271(1)(c). We, therefore, set aside the Orders of the tax authorities and cancel the penalty levied by the AO.
Appeal filed by the assessee is allowed.
-
2009 (6) TMI 681
Disallowance of deduction u/s 43B - excise duty paid during the year represented PLA balance - assessee claimed deduction on payment basis with respect to amount deposited through Personal Ledger Account (PLA) as per Rule 173G of the Central Excise Rules, 1944 - AO disallowed the deduction on the ground that the impugned payment made in advance, without accrual of liability, is not deductible u/s 43B - CIT(A) has sustained the action of the AO.
HELD THAT:- We find that Special Bench of Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd.[2007 (7) TMI 334 - ITAT CHANDIGARH] held that in respect of expenditure stated in section 43B which are allowable only on actual payment, for claiming deduction in respect of such expenses which also includes payment of excise duty, it is not necessary that liability to pay duty must be incurred first and only thereafter payment of such duty is to be made for the purpose of allowance thereof. It was held that deduction for tax, excise duty etc. is allowable u/s 43B on payment basis even before incurring liability to pay such amount.
Since in the present case the amount is already paid by way of excise duty, though lying in PLA balance, yet the same is payment towards excise duty and hence allowable in terms of section 43B.
Disallowance of prior period expenses - As per assessee liability has been crystallized settled during the year - assessee claimed miscellaneous expenses on account of tour and travel expenses of employees, internal audit fee, electrical repair fee etc. relating to preceding years that were not booked in earlier years - AO disallowed the expenses for the reason that since the assessee is maintaining its books of account on mercantile system and hence deduction in respect of expenses which do not pertain to the year cannot be allowed. CIT(A) noted that the expenses are in the nature of day-to-day running expenses pertaining to the business, the same are allowable only in the year in which the liability was incurred and hence not allowable for this year.
HELD THAT:- We find that the assessee is a body corporate. It has a set system for approving the payment of expenditure. The assessee therefore, accounts for the expenses when same is approved by prescribed authority within the organization. Admittedly, the expenses pertaining to business for day-to-day running. Since the bills or claims were made during the year, it can be said that the liability became known for the first time when such claim was made. Accordingly, the same is allowable in the year in which the liability got crystallized. Similar view has been adopted in the case of Saurashtra Cement & Chemical Industries Ltd.[1994 (10) TMI 30 - GUJARAT HIGH COURT].
We therefore, direct the AO to examine whether such expenses are incurred wholly and exclusively for the purpose of business and if so found, allow the same irrespective of the year in which it pertains as the liability in regard to these expenses got crystallized during the relevant previous year.
As regards expenses pertaining to the year under appeal but debited to the profit & loss account of subsequent assessment year i.e., assessment year 1996-97, the assessee has raised specific ground in this regard which has not been disposed of by the CIT(A). We, therefore, direct the CIT(A) to decide this ground after affording reasonable opportunity of being heard to the assessee. The assessee shall place necessary material as to when the liability got crystallized so that the expenses may be allowed in appropriate assessment year.
Disallowance of Interest u/s 43B - interest on loans due to Financial Institutions which was actually paid by the appellant during the previous year by way of allotment of shares to the Financial Institution - AO disallowed the claim for deduction of unpaid interest of the amalgamating company discharged by the assessee amalgamated company by issue of shares, inter alia - as per DR what the assessee discharged is not liability towards interest incurred by the assessee but by way of liability taken over. Therefore, the nature of payment in the hands of the assessee is not by way of expenses towards interest but towards unpaid liability of erstwhile company - Since the assessee has not incurred the liability in respect of interest, even under section 43B, the same is not allowable - CIT(A) confirmed the disallowance made by the AO.
HELD THAT:- In the present case it is seen that the liability is discharged by way of issuance of shares and not actual payment by way of legal tender. What is allowable under section 43B is in respect of deduction otherwise allowable under this Act. The deduction allowable under the Act is in respect of various sums referred to in sections 30 to 37 of the Act. Interest on any loan or borrowing is one such sum referred in section 36(1)(iii) of the Act. Therefore, for the purpose of allowability, the amount should be in the nature of expenditure. The word "expenditure" is not defined under the Act
Hon’ble Supreme Court in the case of Indian Molasses Co. Ltd. v. CIT [1959 (5) TMI 5 - SUPREME COURT] held that expenditure is equal to ‘expense’ and ‘expense’ is money laid out by calculation and intention though in many uses of the word this element may not be present, as when one speaks of a joke of another’s expense. But the idea of ‘spending’ in the sense of ‘paying out or away’ money is the primary meaning which is relevant. ‘Expenditure’ is thus, what is ‘paid out or away’ and is something which has gone irretrievably.
It is seen that the liability was discharged by way of issuance of shares. When the assessee issues shares the assessee does not incur any expenditure as the assessee is not to make any payment legally towards shares issued. The shares cannot be equated with debentures, which is purely by way of loan and the same are required to be repaid on maturity. However, in respect of shares the company is under no obligation to make any payment in respect of such shares where shareholders accept payment of pro rata dividend when such dividend is declared.
Thus by issuance of shares the assessee cannot be said to have incurred any expenditure and hence issuance of shares in lieu of interest liability cannot be considered to have been payment towards expenditure. Accordingly the interest liability discharged is not an allowable expenditure. This ground is accordingly dismissed.
Disallowance on unabsorbed investment allowance of Amalgamated company since merged with effect from 1-4-1994 - assessee claimed carry forward and set off of unabsorbed investment allowance of the amalgamating company. The claim was disallowed by the AO, inter alia, on the ground that the amalgamated company was entitled to set off of only unabsorbed depreciation and unabsorbed business losses of the amalgamating company in terms of section 72A, provided the condition laid down in that section were fulfilled. According to the AO, the benefit of unabsorbed investment allowance of the amalgamating company could not have been claimed by the amalgamated company. The CIT(A) upheld the findings of the AO.
HELD THAT:- Section 72A contains the provision relating to carry forward and set off of accumulated loss and unabsorbed depreciation of allowance in a case of amalgamation or de-amalgamation etc. However, it does not provide for carry forward and set off of any unexplained investment allowance. Therefore, CIT(A) was incorrect in applying provision of section 72A in respect of unabsorbed investment allowance. On the contrary sub-section (6) of section 32A provides for carry forward and set off of unabsorbed investment allowance.
Though the attention of the CIT(A) was drawn to the provision of section 32A(6), the same has been overlooked. We, therefore, direct the AO to allow the benefit of unabsorbed investment allowance of erstwhile Flowmore Polyesters Ltd.[Amalgamated company] in terms of section 32A(6) and if the conditions specified in section 32A(6) are complied with, the amount of unabsorbed investment allowance be allowed in the hands of the assessee company.
-
2009 (6) TMI 680
Issues Involved:
1. Whether the running and maintenance of ships/barges belonging to a third party constitute the operation of ships u/s 33AC.
2. Whether the term "ship" includes "barge" for the purpose of section 33AC.
3. Whether the business of running and maintaining third-party barges qualifies as the operation of ships u/s 33AC.
Summary:
Issue 1: Running and Maintenance of Third-Party Ships/Barges
The revenue appealed against the CIT(A)'s order, arguing that the CIT(A) erred in treating the running and maintenance of third-party ships/barges as the operation of ships. The assessee, engaged in shipping management and operations, claimed a deduction u/s 33AC, which was denied by the Assessing Officer (AO) on the grounds that the income from contracts with JNPT and barge rental income did not qualify as income derived from the operation of ships. The CIT(A) allowed the deduction, relying on past judgments and the definition of "ships" to include "barges."
Issue 2: Definition of "Ship" Including "Barge"
The AO argued that "ships" and "barges" are distinct entities, relying on dictionary definitions. However, the CIT(A) referred to section 2(55) of the General Clauses Act, 1897, and the Income-tax Rules, 1962, which include "barges" in the definition of "ships." The Tribunal agreed with the CIT(A), stating that the legal definitions are more relevant than dictionary meanings, thus concluding that "ships" include "barges."
Issue 3: Business of Running and Maintaining Third-Party Barges
The AO contended that the deduction u/s 33AC is intended for generating internal resources to augment the fleet, implying ownership of ships/barges. However, the Tribunal clarified that section 33AC does not mandate ownership but requires carrying on the business of operation of ships. The Tribunal cited the Chennai Bench decision in Sirius Shipping Co. Ltd., which held that "running and maintenance" falls within the ambit of "operation of ships." Thus, the Tribunal concluded that the business of running and maintaining third-party barges qualifies as the operation of ships u/s 33AC.
Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the running and maintenance of third-party ships/barges constitute the operation of ships and that "ships" include "barges" for the purpose of section 33AC. The appeal of the revenue was dismissed.
-
2009 (6) TMI 679
Issues involved: The judgment involves issues related to disallowance of SEBI turnover fees under section 43B of the Income-tax Act, sustaining addition of certain expenses, applicability of Explanation to section 73 on loss from purchase/sale of shares, and disallowance of speculative loss.
SEBI Turnover Fees Disallowance: The Assessing Officer disallowed SEBI turnover fee under section 43B as it was only a provision in the account and no payment had been made during the year. The ld. CIT(A) confirmed the disallowance citing SEBI as a statutory body and the fee being a statutory liability. The assessee argued that the fee was not a tax, duty, or fee, and SEBI provided services in exchange for the fee. The department contended that section 43B applied as no actual payment was made. The Tribunal held that SEBI turnover charges were akin to tax, duty, or fee, and upheld the disallowance based on precedent.
Personal Expenses Disallowance: The Assessing Officer disallowed certain telephone and car expenses for personal use, which the ld. CIT(A) restricted to 10%. The assessee argued that no personal benefit was specified, and as a private limited company, no such private use was envisaged. The Tribunal allowed the expenses as no personal user was shown for a private limited company.
Speculative Loss Disallowance: The Assessing Officer disallowed the claim of loss on account of trading as speculative loss, which was upheld by the ld. CIT(A). The assessee contended that the speculative profit should constitute its business activity, which was not the case here. The Tribunal upheld the disallowance of speculative loss but directed examination of any profit on sale and purchase of shares for possible set off.
Conclusion: The appeal was partly allowed, with the disallowance of SEBI turnover fees and speculative loss being upheld, while the disallowance of personal expenses was overturned. The assessee's argument regarding the applicability of Explanation to section 73 was not pressed and thus rejected.
-
2009 (6) TMI 678
Issues involved: Refusal of registration under section 12A of the Income-tax Act to an assessee-trust by the Commissioner of Income-tax, Meerut.
The trust, established by Shri Hari Om Anand, filed an application for registration under section 12A of the Act, but faced refusal by the Commissioner due to certain observations regarding the charitable activities and financial dealings of the trust. The original trust deed included a clause regarding the succession of the President position, which was later amended. The trust was set up with various charitable objects related to rural development, education, healthcare, public welfare, and relief activities. The trust engaged in providing free cleft lip and palate surgeries to the poor in collaboration with Smile Train Inc., a not-for-profit corporation. The Commissioner's refusal was based on the perception that the charity was primarily funded by Smile Train Inc., the trust charged fees from patients, and there was lack of disclosure regarding the trustees' interests in the trust's activities.
The counsel for the assessee argued that the observations made by the Commissioner were incorrect. They clarified that the trust provided services to patients during and after surgeries without charging any fees. The counsel contended that the trust had complied with the necessary statutory requirements and that any fees charged by trustees would not violate relevant sections of the Act. They emphasized that the focus of registration under section 12A should be on the genuineness and charitable nature of the trust's objects, as established in previous legal precedents. On the other hand, the Departmental Representative supported the Commissioner's observations and cited a decision of the Kerala High Court in a similar context.
Upon considering the facts and arguments presented, the Appellate Tribunal found that the trust's objects aligned with charitable purposes as defined in the Act. The Tribunal highlighted that the registration process under section 12A requires verification of the trust's activities' genuineness, rather than delving into income-related violations. The Tribunal noted that the trust's sole income source was a grant from Smile Train Inc., contradicting the Commissioner's assertion of fee charging. The Tribunal referenced legal precedents, including decisions by the Allahabad High Court and the Gujarat High Court, to support the conclusion that registration should not be denied based on income utilization or profit-making considerations. Consequently, the Tribunal directed the Commissioner to grant the trust appropriate registration, emphasizing the ongoing charitable activities as a crucial factor in the decision-making process. The Tribunal distinguished the Kerala High Court case cited by the Departmental Representative, as it did not align with the circumstances of the present case where charitable activities were already in progress.
In conclusion, the appeal by the assessee was allowed, and the Tribunal directed the Commissioner to proceed with granting the trust registration under section 12A of the Income-tax Act.
-
2009 (6) TMI 677
Deduction u/s 10A - export proceeds - convertible foreign exchange within six months of the date of invoice - relayed receipt of realization of computer software export - HELD THAT:- The Regulation by itself not only speaks of this deeming date of export, but also mention, various periods for realization of export value of goods or software as 12 and 15 months. In fact, there is no mention of any six months in such regulation and this only clearly implies that Regulation 9 was only for the purpose of Foreign Exchange Management and not for the purpose of application of tax provisions. It is clear from paper book page No. 21 that on account of half yearly closing of accounts, there was no conduct of normal business in banks on 30-9-2004. There is also no dispute that sum as received on 1-10-2004 by the assessee, as clear from the certificate of M/s. J.P. Morgan dated 8-5-2007 (placed at paper book page 19).
The period of six months from the end of the previous year comes to 30-9-2009. Application of General Clauses Act when a date prescribed is a holiday has been succinctly summarized by Hon’ble Kerala High Court in the decision of Kerala State Industrial Development Corpn. Ltd. v. Addl. CIT [2006 (10) TMI 91 - KERALA HIGH COURT].
Therefore, remittance received by the assessee on 1-10-2004 has to be deemed as received within six months period from the end of the relevant previous year. Therefore, insofar as the sum as received above has to be allowed. However, the balance amount which was received on 26-11-2004 would not be eligible for the purpose of computing deduction u/s 10A. Ground partly assessee is allowed.
Treating the interest from fixed deposit and interest on staff loan as income falling under the head ‘Profits and gains from business or profession’ eligible for deduction under section 10A - HELD THAT:- The Hon’ble Delhi High Court in the case of Eltek SGS (P.) Ltd. [2008 (2) TMI 17 - DELHI HIGH COURT] has held that the term "derived by an undertaking from export of articles or things or computer software" used in section 10A was neither as broad as "attributable to" nor as narrow as "derived from".
Though section 80HHC used the term "derived from", Hon’ble jurisdictional High Court in the case of Punit Commercial Ltd. [2000 (8) TMI 71 - BOMBAY HIGH COURT] held that the whole of the business income was eligible for deduction u/s 80HHC.
Further to this, we also find that Hon’ble jurisdictional High Court in the case of Lok Holding[2008 (1) TMI 365 - BOMBAY HIGH COURT] has clearly held that if surpluses were deposited by the assessee out of its business proceeds, interest therefrom could only be considered as part of profits and gains of business of the assessee.
Therefore, we are inclined to allow the claim of the assessee for treating the interest from fixed deposit and interest on staff loan as income falling under the head ‘Profits and gains from business or profession’ eligible for deduction u/s 10A.
As far as the contention of the learned DR that section 10A was an exemption provision whereas section 80HHC is a deduction provision, we find that section 10A as substituted by Finance Act, 2000, with effect from 1-4-2000 clearly mentions it to be a deduction from profits and gains derived by an undertaking from export of articles or things or computer software. Therefore, it cannot be deemed as an exemption provision for the impugned assessment year. Ground No. 2 of the assessee is, therefore, partly allowed.
-
2009 (6) TMI 676
Transactions in derivatives - set off of speculation loss, jobbing loss and brought forward speculation loss against the profit of future and option (F&O) income - Nature of F&O transaction ''speculative or derivatives'' - whether the provisions of clause (d) of section 43(5) are clarificative in nature and have retrospective application? - admittedly, the transactions in future entered into by the assessee are derivative transactions. AO held that F&O transactions were speculative transactions in terms of definition of such transaction in section 43(5) and amendment by the Finance Act, 2005 had only clarified the position. Thus the amended provisions were applicable to the assessment year 2004-05. Accordingly he disallowed the claim of the assessee.
CIT(A) agreed with the submission of the assessee that F&O transactions were also without delivery and therefore such transactions were speculative in nature. CIT(A) also agreed that amended provisions of section 43(5)(d) had only prospective application from assessment year 2006-07.
HELD THAT:- We find that the same issue has already been considered by the Jaipur Bench of the Tribunal in case of P.S. Kapur v. Asstt. CIT.[2008 (7) TMI 463 - ITAT JAIPUR-A], The Tribunal noted that in order that a transaction be speculative within the meaning of the definition in section 43(5), the following three ingredients should be satisfied :
(a)It should be transaction in purchase/sale of commodity. Commodity would include stock and share.
(b)The transaction envisages delivery/transfer.
(c)The transaction is settled otherwise than by delivery or transfer.
The transactions in derivative are thus not speculative as these lack the basic ingredients of speculative transactions. The Tribunal also held that clause (d) of section 43(5) inserted by the Finance Act, 2005 deeming the transactions in derivative as non-speculative was clarificatory in nature as it only clarified the existing position. It has therefore retrospective application. Thus transactions in derivative were held to be non-speculative.
We therefore hold that the subject transactions are not speculative transactions and thus the income from such transactions cannot be set off against the speculation loss. The order of CIT(A) therefore cannot be sustained. The same is set aside and the order of AO is upheld.
-
2009 (6) TMI 675
Income deemed to accrue or arise in India - PE in India - taxability of receipts from the offshore supply of equipments - assessee is a German Company - DTAA between India and Germany - whether there is any tax liability of the assessee under the regular provisions of the Act - contention of the revenue in this part of the ground is that the provisions of DTAA will be attracted on the assessee as it has PE in India and hence the income will be taxable - HELD THAT:- In our considered opinion, this contention of revenue deserves the fate of rejection. Section 90(1) empowers the Central Government to enter into an contract with the Government of any country outside India for ‘the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country’ etc. The logic behind the Agreement for the avoidance of double taxation of income is to allow relief to the assessee
If the income is taxable as per the domestic law, then the assessee can opt for the provisions of the DTAA for extincting or marginalizing the liability so created. If the income is not taxable and there does not exist any tax liability of the assessee as per the regular provisions of the Act, it is simple and plain that the DTAA cannot be invoked to create any such tax liability. The object of the DTAA is not to create any fresh tax liability if it is not there as per domestic law but to restrict it, if it exists and is permissible. If there is no tax liability as per domestic law then the DTAA cannot create it.
Circular No. 786, dated 7-2-2000 further clarifies the position qua commission and charges payable for services rendered outside India, it has been explained that no tax is deductible u/s 195 on the export commission and other related charges payable to non-resident for services rendered outside India.
Therefore, as clearly borne out that a sum of Rs. 74.57 crores represents the consideration for the exclusive supply of offshore equipment, which cannot be considered as leading to any taxable income resulting in the hands of the assessee. As regards the other alleged receipt of Rs. 10 crores considered by the AO we find that the assessee categorically stated before the AO that there was no such other contract from which business income could be said to have been earned by the assessee.
The reference to three contracts is in respect of fees for technical services which was separately offered for taxation voluntarily by the assessee. The AO went to estimate the further receipt at Rs. 10 crores without any material, worth the name, in his hands to indicate, even remotely, that the assessee did earn any income from other contracts. The view of the ld. CIT(A) in ignoring Rs. 10 crores is, therefore, upheld.
As far as the remaining amount of Rs. 74.57 crores is concerned, we have noted above that no income on this score is received or is deemed to be received or accrues or arises or is deemed to accrue or arise in India to the assessee. Hence there cannot be fastened any tax liability on the assessee as it is outside the scope of total income as per section 5(2).
From the contract with BPL, we have seen that there is additional charge for the spare parts to ensure that the work of the customer does not come to halt, in case there arises some technical problem with any of the parts of the equipment. Thus it is seen that the assessee cannot be said to have any P.E. in India through the TAC 2 Bombay.
Since the assessee is not liable to tax in the instant case in respect of offshore supply of equipments as per the regular provisions of the Income-tax Act, 1961, in our considered view there is no need to ascertain or fix any taxability as per DTAA. This ground is, therefore, not allowed.
Chargeability of interest u/s 234B - AO charged interest - CIT(A) held that the assessee could not be subjected to interest as it was not liable to pay advance tax. The assessee in the instant case is a non-resident and hence any person responsible for paying to it is under obligation for deducting tax at source if income is chargeable to tax under the Act.
HELD THAT:- We observe that section 195 provides that any person responsible for paying to a non-resident, any sum chargeable under the provisions of this Act, shall at the time of credit of such income to the account of the payee or at the time of payment thereof, deduct income-tax thereon at the rates in force.
By virtue of section 195 all the payments made to the assessee are subjected to deduction of tax at source. Under these circumstances, the assessee cannot be said to have committed any default in not paying the advance tax for which the liability to pay interest u/s 234B could be fastened on it. Our view is fortified by the Special Bench order of the Tribunal in Motorola Inc. v. Dy. CIT [2005 (6) TMI 226 - ITAT DELHI-A], which stands impliedly affirmed by the Hon’ble jurisdictional High Court in D.I. (International Taxation) v. NGC Network Asia Ltd.[2009 (1) TMI 174 - BOMBAY HIGH COURT]. Respectfully following the precedent, we accept the opinion of the learned CIT(A) on this count in ordering to delete the levy of interest u/s 234B. This ground also fails.
Bringing to tax the fees for technical services on accrual basis - assessee disclosed the fees for technical services on receipt basis - AO and CIT(A) has recorded that the royalty and fees for technical services was to be recognized on accrual basis - HELD THAT:- It is noted that in assessment year 1980-81 the Tribunal decided the issue against the assessee by holding that royalty and fees for technical services should be accounted for on accrual basis. Thereafter the language employed by Article VIIIA of DTAA was considered which implied that the royalty and fees for technical services should be reckoned for taxation only when it is received and not otherwise.
Considering this position the Tribunal in assessee’s own case for assessment years 1990-91, 1991-92, 1994-95 and 1996-97 decided the issue in assessee’s favour by holding that royalty and fees for technical services was to be considered on receipt basis and not accrual basis. Recently the Tribunal in assessee’s own case for assessment year 2001-02 has reiterated the same view by following the afore-noted earlier year’s order in assessee’s favour.
The order of the learned CIT(A), being not in conformity with the latter view of the Tribunal, needs to be overturned. We, therefore, direct that the fees for technical services should be taxed only on receipt basis as offered by the assessee and not on accrual basis. This ground is allowed.
-
2009 (6) TMI 674
Stay petition and appeal - application for waiver of pre-deposit of Service Tax - demand is confirmed on the ground that applicant is undertaking industrial construction service which is liable for service tax - During argument, the applicant had submitted that almost 50% of the contracts are in respect of Industrial construction. issue regarding taxability of the service is not contested by the applicant before the adjudicating authority. applicants registered with the Revenue authorities as service provider, however, had not filed any returns hence revenue was not aware whether applicant provided any taxable service or not. - application for waiver of pre-deposit allowed partly.
-
2009 (6) TMI 673
Writ petition - whether the petitioner is entitled to file an application for setting aside the order and restore the appeal - respondent has passed orders on merits, even though without hearing the petitioner, due to the petitioner’s non-appearance. The non-appearance of the petitioner is due to non-service of any notice of hearing - it is evident that before passing the order in the appeal, the petitioner was not heard - in the case of Sarwan Singh v. Kishan Singh (SC), held that merely because of the fact that the appeal was dismissed on merits could not be a ground to refuse restoration. The dismissed of the restoration application passed by the High Court was set aside by the Honourable Supreme Court and restoration of the second appeal was ordered, petitioner is right in contending that it is entitled to pray for setting aside of the order passed in the appeal and to hear the appeal on merits after hearing the petitioner or its counsel, writ petition is ordered on the above terms
-
2009 (6) TMI 670
Deduction u/s 80-IB(10) - The common lacunae noted by the Assessing Officer on the claims were that some of the units in the respective projects namely, Aishwariya, Netpune and Jupiter had a built up area, exceeding one thousand sq. ft. thereby rendering such projects ineligible for claiming deduction under section 80-IB(10) of the Act - Whether balcony is to be construed as a part of the built-up area - Whether Finance (No. 2) Act, 2004 is retrospective or not - Even according to the Assessing Officer himself, built-up area as normally understood in common parlance means area enclosed within the external lines of the external walls - the enactment itself clearly specifies that clause will have effect from 1-4-2005 - prior to 1-4-2005, balcony would not form part of the built-up area, irrespective of the area of such balcony - Held that: there is no such definition for built up area, prior the amendment which came into effect from 1-4-2005, whereby its meaning was linked to any other enactments There is much strength in the argument that any addition of wall area thickness would not take it beyond 92.25 sq.mtr. which is equivalent to 1000 sq. ft - this issue has been correctly answered by the learned CIT(A) when he has given a finding that on verification the total built up area of all the four flats of A & B Wing of Neptune Project tallied with the built-up area of the floor as per the approved BMC plan - Held that: none of the units exceeded the 1000 sq.ft. limit in the Neptune project and the assessee was eligible for claiming deduction under section 80-IB(10) Regarding Jupiter project - D.V.O. Report dated 12-5-2008, though as aforesaid, it was obtained after the assessment it clearly shows that in none of the flats in Jupiter project exceeded 1000 sq. ft. - Appeal of the assessee is partly allowed
-
2009 (6) TMI 668
Transfer of sole proprietorship business to company - exemption u/s 47(xiv) - revision u/s 263 - whether the CIT is right in invoking revisional jurisdiction under section 263 of the Act and directing to assess the goodwill to the extent of Rs. 2,45,00,000 under "capital gains tax" on the ground that all the conditions as laid down under the proviso to section 47(xiv)( c) of the Act are not fulfilled. - held that:- if the full amount due under the capital account and also the current account of the proprietor have to be clubbed and treated as the consideration payable to the sole proprietary concern on the transfer, then there could be no case of violation of sub-clause (c) of section 47(xiv) of the Act, during the previous year ended 31-3-2001, relevant to the assessment year 2001-02. This is because under sub-clause (c) of section 47(xiv) only if the consideration is received in any form or manner other than by way of allotment of shares, there can be said to be a violation of the provisions. During the year under appeal, the sole proprietor has not received any payment in cash or in kind or otherwise, except for allotment of shares in the company. - Decided in favor of assessee.
-
2009 (6) TMI 666
Validity of notification - cess - fixing the rate of cess on the Rubber produced in India and procured for export production by the Export Oriented Units (EOUs), Units in the Special Economical Zone (SEZ) and Units in the Export Processing Zone (EPZs) at “zero paise” per Kg. - Held that:- The fixation of “Zero paise per kilogram” as duty of excise leviable from certain class of manufacturers as Rubber cess will clearly amount to granting of exemption. It is evident that fixation of “Zero paise” is only an indirect method of granting exemption, which the Government knows that they could not do directly. Government themselves admitted that they had issued such a notification only by virtue of power conferred under Section 12(1) of the Act. But it is clear and evident that Section 12(1) of the Act does not empower the Government from issuing any order granting exemption to any category of estate owners or manufacturers from payment of the duty of excise. No other provisions in the Act empowers the Government from granting such an exemption. - Notification is issued beyond the power and competence of the Government and hence it is not sustainable. It is settled law that a policy decision cannot be permitted to contradict the provisions of the statute or its legislative object. Therefore the exemption granted through Ext. P1 which is in violation of the provisions of the Act, and its legislation object could not be held valid, even if it is issued as a policy decision taken by the Government, writ petition is allowed quashing the notification.
-
2009 (6) TMI 664
Stay Application - Provisions comprised under Section 37-C of the Central Excise Act, 1944 - Limitation - It is not in dispute that the letter nowhere stated that the signatures, which were found on the copies, were of the persons employed in the appellants’ company or that the persons who had signed and received the copies had done so on behalf of the company - Indeed, the Assistant Commissioner could not have stated so because the endorsement neither discloses the same nor it is the case of the respondent that the author of the letter dated 11th June, 2007 had himself served the copy of the order upon the appellants - He had no personal knowledge about the actual service of the copy of the order upon the appellants - The records on the face of it did not disclose anything more than signatures of some person on the copies of the orders - There was no cogent material available before the Commissioner (Appeals) to hold that the copies of the orders were really served upon the appellants on 2nd August, 2000 and 16th September, 2000 - Hence, the records that the copies were received for the first time on 19th July, 2006 and the appeals were filed on 7th September, 2006, they were filed within the period of limitation and, therefore, it was necessary for the Commissioner (Appeals) to deal with the appeals on merits - Decided in favour of assessee.
-
2009 (6) TMI 662
Classification - Appellants have declared the imported items as “Crude Palm Oil (Industrial grade)” - However, the appellants took a stand that since the goods imported by them did not fulfil the criteria of definition of Crude Palm Oil given in the Notification No. 120/2003-Cus, and Para 7 of the Circular of Notification No. 85/2003, the imported product has to be classified under CTH 1511 90 90 - In this case Commissioner has rightly observed that in first instance, the goods have to be classified based on the tariff heading and the description - In that case the appellants had also claimed that there is nothing on record to show that the assessable value, acid value and Carotene oil in question conforming to the definition of Crude Palm Oil contained in Notification No. 120/2003-Cus and therefore, it has to be classified as Palm Oil within group - find that the Commissioner has followed the correct principles of classification and if appellants wanted to claim an exemption, they were required to show that the product imported by them does not fulfil the definition of Crude Palm Oil given in the relevant notification.
-
2009 (6) TMI 660
Search and seizure - whether in the matter of quantification of redemption fine, provisions of Section 73 of the Gold (Control) Act would apply even in a situation where Gold was neither seized nor confiscated under the provisions of Gold (Control) Act - in accordance with the provisions of Section 73 of Gold (Control) Act, the officer adjudging the quantum of fine is required to consider the market price of Gold as on the date of the seizure thereof which cannot exceed the value of the seized Gold in respect of which confiscation is authorized - with regard to the determination of the quantum of fine in lieu of confiscated Gold, it is held that the provisions of Section 73 of Gold (Control) Act and the sub-rule 8(a) of 'Rules, 1962' are inconsistent and in such a situation the provisions of Gold (Control) Act, 1968 will not apply in the instant case when the entire proceedings of seizure and confiscation of Gold were made under the provisions of Defence of India Rules, 1962 Once it is decided that in the matter of imposition of redemption fine, the provisions of Section 73 of erstwhile Gold (Control) Act, 1968 shall not apply then how can the definition of 'value' as given in Section 2(v) of Gold (Control) Act can be imported in the instant case for adjudging the quantum of fine - Option is required to be given by the officer and before giving option, the amount of fine is required to be adjudged and this amount of fine, if the owner of the Gold opts to deposit in lieu of confiscated Gold, he can deposit or if he feels that he does not want to deposit, the Gold shall remain confiscated with the Government - the amount of fine when adjudged cannot be more than the market value of confiscated Gold at that point of time when the adjudging officer gives an option nor can it be much less than the market value of the Gold on that date - It appears that the Gold worth Rs. 2.5 crores in compliance of the above order must have been retained and the rest of the Gold might have been released to the respondent No. 1 - Petition is disposed of
............
|
9911796707
