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Showing 361 to 380 of 835 Records
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2010 (4) TMI 879
Interest on delayed payment of duty drawback - re-export of machinery parts imported - commissioner of Customs (Appeals) allowed full drawback claim - appellant not received any balance amount of Drawback - Later the exporter requested for sanction of interest under Section 75A of the Customs Act 1962 for the delayed Drawback amount – Held that:- Appellants were requested to produce the documentary evidence with proper acknowledegment by the department for having filed the claim as stipulated under the Drawback Rules which they failed - Drawback amount was hit by the limitation of time and erroneous payment had been made - High Court under writ jurisdiction cannot direct the customs authorities to ignore time limit provided under Section 27 of Customs Act, 1962 even though High Court itself may not be found by the time limit of said section - claim hit by limitation
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2010 (4) TMI 878
Rebate claims - rebate claim for the duty so paid were sanctioned by the Lower Authority in full and paid in cash – tariff rate of the goods exported was prescribed @8% adv. w.e.f. 1-3-06, however the applicant continued to assess their goods Central Excise Duty @16% adv. - applicant wrongly assessed their goods and thereby took advantage of excess rebate which was admissible upto 8% - Held that:- Duty was required to be paid @ 8% whereas applicant paid duty @ 16% - excess paid amount which was not payable as duty becomes a mere voluntarily deposit made by the applicant - rebate claim is admissible to the extent of duty legally payable. The excess paid amount is required to be allowed re-credit in the Cenvat account from where it was originally paid
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2010 (4) TMI 877
Double taxation relief - Article 12(3) of the Indo-US DTAA - supply of software - nature of ‘Royalty’ - liable for tax - HELD THAT:- Computer programme cannot also be treated as patent and invention. Computer programme cannot said to be an invention and therefore cannot be said to be covered by the patient Act. Computer software cannot also be as process. End user of the software in the case of shrink-wrap software does not have any access to source code. He has only right to use the software for his personal or business use. In the absence of any distinguishing feature brought on record by the revenue we respectfully following the order of the Lucent Technologies Hindustan Ltd. v. ITO[2003 (10) TMI 250 - ITAT BANGALORE-A], hold that the payment received by the assessee was not in the nature of royalty within the meaning of Article 12(3) of Indo-US DTAA and accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the addition made by the AO, The grounds taken by the revenue are, therefore, rejected.
liability to pay interest u/s 234B - we find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee being a non-resident, its entire income arising in India is subject to deduction of tax at source in terms of section 195. In the absence of any distinguishing feature brought on record by the revenue, we, respectfully following the decision of the DIT (International Taxation) v. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] and the Tribunal[2005 (6) TMI 226 - ITAT DELHI-A], hold that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee and accordingly we are inclined to uphold the order, of the ld. CIT(A) in deleting the interest charged u/s 234B. The ground taken by the revenue is therefore rejected.
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2010 (4) TMI 876
Disallowance of provisions of contingencies inventory - assessee’s claim that the Assessing Officer may be directed that the reversal of said provision in subsequent years by the assessee should not be taxed and should be allowed as deduction - HELD THAT:- Since, the amount of provision has already been subjected to tax then in our view if the amount is credited in subsequent years out of the said provision and has been shown and taxed as income for that assessment year then that amount cannot be taxed twice over. Since this issue has been raised by the assessee for the first time before the Tribunal therefore, we after admitting the same, are of the view that in the interest of justice the matter to this extent should go back to the file of the Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and restore the issue; to file of the Assessing Officer who shall decide the same afresh, according, to law after providing reasonable opportunity of being heard to the assessee. The additional ground taken by the assessee is therefore partly allowed for statistical purposes.
Disallowance of addition of provision for sales return - AO was of the view that such a provision is contingent in nature and not allowable as deduction and it has neither arisen nor accrued during the year under consideration nor has it made self apparent by the time of filing return of income and accordingly he added the same, to the income of the assessee - only claim of the assessee is that the reversal of provision of sales return made by the assessee and offered as income should not be taxed as it amounts to double taxation - HELD THAT:- Since the provision of sales return has not been allowed and has been taxed, therefore, we are of the view that if any amount is received in subsequent years out of the said provision for sales return, that amount cannot be taxed again if already taxed in the year in which the provision for sales return was made. Since this requires verification at the end of Assessing Officer, therefore, we consider it fair and reasonable that in the interest of justice the matter should go back to the file of the Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and restore the issue to file of the Assessing Officer who shall decide the same afresh.
Levy of interest charged u/s 234D - Applying the ratio of the decision in Ekta Promoters (P.) Ltd. [2008 (7) TMI 452 - ITAT DELHI-E] we find that the assessment order for the year under consideration i.e. assessment year 2003-04 was passed on 29-3-2004 i.e., after June 1, 2003, the interest u/s 234D is not chargeable as the same is chargeable from the assessment year 2004-05 and accordingly the ground taken by the assessee is allowed.
Levy of interest u/s 234B and 234C - HELD THAT:- There is no dispute that in terms of section 195 of the Act the entire income of the assessee is subject to deduction of tax at source. Accordingly the assessee was not liable to pay advance tax . As relying on Ngc Network Asia LLC[2009 (1) TMI 174 - BOMBAY HIGH COURT] when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee and accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the interest charged under section 234B.
TP Adjustment - international transactions with its associated enterprises - Payment to BSFE - receipt of marketing support payment and the commission on direct sales - HELD THAT:- Transaction of the receipt of marketing support and commission on direct sales cannot be de-linked separately from the business of purchase and sale of BSFE products by the appellant under the distributorship agreement. It is therefore held that the Assessing Officer has wrongly concluded that these transactions can be separated. The AR has filed chart of month-wise position of amounts payable by the appellant to BSFE showing the receivable and payment.
The examination of the distributorship agreement clearly provides that there is no provision of charge of interest on any outstanding of payments. Neither the quantum nor the schedule of the payment of marketing support has been mentioned in the agreement. The commission on sales made directly by BSFE has also been allowed by BSFE to the appellant for which efforts, commission is not clearly spelt out in the distributorship agreement. It is therefore held that the Assessing Officer has wrongly held that the receipt of marketing support payment and the commission on direct sales has to be separately examined devoid of its inter se relationship with the liability of the appellant for the payment of purchases made from BSFE - Thus assessee was required to make the payment to BSFE throughout the year and not otherwise, we are of the view that the order passed by the ld. CIT(A) in this regard does not require any interference.
Under valuation of closing stock - HELD THAT:- We find that there is no dispute that the assessee is consistently following the same method of valuation of closing stock i.e. cost or market price whichever is lower. However, in practice it is only at cost it has been valued. Further the assessee is following FIFO method and as a result recent purchases go into the closing stock. AO in place of examining the valuation of different qualities of stents has applied average purchase rate of stents. Since the quality of stents varies significantly and when each stent can be identified quality-wise and amount-wise, there is no basis to apply average purchase rate.
The assessee in arriving at the closing stock for the year valued the closing stock by multiplying the quantity of each type of stent with the respective value of such stent. The said working of valuation of closing stock of stent has not been controverted by the revenue even at this stage. In this view of the matter, we, are of the view that the AO was not justified in applying the average purchase price method for valuation of closing stock of stent when the assessee has identified the closing stock of stent with the corresponding purchase price of such stent. Accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the addition made by the Assessing Officer in this regard. The grounds taken by the revenue are therefore, rejected.
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2010 (4) TMI 875
Issues:
Interpretation of payment for value added services as technical services and business receipts under the Income-tax Act and DTAA between India and U.K.
Analysis:
The appeal by the revenue challenged the order of the CIT(A) regarding the nature of payment made by the assessee for value added services (VAS) provided by a renowned enterprise in the diamond trade. The revenue contended that the entire payment should be considered as technical services, while the CIT(A) held that 50% of the payment constituted royalty/fees for technical services, and the remaining 50% was categorized as business receipts.
The Assessing Officer initially deemed the services provided by the enterprise as technical services, subject to tax at 15% under the DTAA. The CIT(A), however, analyzed the specific services offered by the enterprise, such as continuity of supply, intention to offer, consistency of boxes, SoC integrity, and provision of a key account manager. The CIT(A) concluded that certain services fell under business receipts and were not technical services as defined in the India-UK treaty.
The CIT(A) further observed that the enterprise passed on its commercial experience and expertise to the sight holders, allowing them to use its intranet and server. The ITAT upheld the CIT(A)'s findings, emphasizing that the enterprise's services were a mix of technical and business elements. The ITAT also noted that the enterprise did not have a Permanent Establishment (PE) in India, and no services were rendered in India, supporting the conclusion that the payment for VAS was not taxable in India as business income.
Based on the consistent findings and reasoning, the ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision to categorize 50% of the payment as royalty/fees for technical services and the remaining 50% as business receipts. The judgment highlighted the importance of distinguishing between technical and business services, considering the specific nature of the services provided and the absence of a PE in India for tax implications.
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2010 (4) TMI 874
Issues Involved:
1. Scope of undisclosed income under Chapter XIV-B of the Income-tax Act.
2. Addition based on client ID mismatch and non-furnishing of confirmations.
3. Applicability of Section 69 for additions as unexplained investment when transactions are recorded in regular books of account.
Detailed Analysis:
1. Scope of Undisclosed Income under Chapter XIV-B:
The Tribunal examined whether the scope of undisclosed income under Chapter XIV-B includes income arising from post-search inquiries and investigations on disclosed transactions. The Tribunal noted that undisclosed income is defined inclusively under Section 158B(b) and includes any income based on entries in the books of account, other documents, or transactions that have not been or would not have been disclosed for tax purposes. The Tribunal emphasized that if material found during a search indicates that a transaction recorded in the books of account does not disclose the true income, it can be considered undisclosed income. The Tribunal concluded that client ID mismatches found during the search constituted material evidence, and subsequent inquiries could be used to determine undisclosed income.
2. Addition Based on Client ID Mismatch and Non-Furnishing of Confirmations:
The Tribunal addressed whether additions could be made for transactions with client ID mismatches when the assessee had furnished confirmations for over 98% of the transactions. The Tribunal held that merely furnishing confirmations for a majority of transactions does not discharge the assessee's burden for all transactions. The Tribunal noted that where client ID mismatches were found, and confirmations were not provided, the transactions could be treated as the assessee's own and added as undisclosed income. The Tribunal emphasized that the onus was on the assessee to fully explain the transactions and provide confirmations, failing which adverse inferences could be drawn.
3. Applicability of Section 69 for Additions as Unexplained Investment:
The Tribunal examined whether Section 69 could be applied to add unexplained investments when transactions are recorded in the regular books of account. The Tribunal noted that Section 158BB(2) makes provisions of Sections 68, 69, 69A, 69B, and 69C applicable to block assessments. The Tribunal held that merely because transactions are recorded in the books of account does not preclude the application of Section 69 if the income embedded in the transactions is not disclosed. The Tribunal concluded that Section 69 could be applied to the extent of undisclosed income in transactions recorded in the books of account.
Conclusion:
The Tribunal concluded that the undisclosed income embedded in transactions recorded in the books of account due to client ID mismatches constituted the subject matter of block assessment. The Tribunal restored the matter to the Assessing Officer to examine confirmations filed before the CIT(A) and decide the issue in conformity with the findings where confirmations were accepted. The Tribunal also agreed that brokerage should not be added to avoid double taxation. The appeal was partly allowed for statistical purposes.
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2010 (4) TMI 873
Issues Involved:
1. Whether the amount received by the assessee for the supply of software is in the nature of 'royalty' liable for taxation in India.
2. Whether the payment for obtaining computer software is considered 'royalty' within the meaning of Article 12(3) of the DTAA.
Summary:
Issue 1: Nature of Payment for Software Supply
The Revenue contended that the amount of Rs. 15,75,78,477 received by the assessee for the supply of software should be treated as 'royalty' and thus taxable in India. The Assessing Officer (AO) argued that the payment made for the software license falls under the definition of 'royalty' as per Article 12 of the DTAA and section 9(1)(vi) of the Income-tax Act. The AO emphasized that the assessee had only granted a license to use the software without transferring any intellectual property rights to Reliance Infocomm Ltd. (Reliance).
The CIT(A) examined the agreement and concluded that Reliance was only granted a perpetual, irrevocable, non-exclusive, royalty-free, worldwide license to use the software, without any transfer of copyright. The CIT(A) held that the payment made by Reliance was for the purchase of a copyrighted article and not for the use of or right to use a copyright, thus not amounting to 'royalty' under Article 12(3) of the DTAA.
Issue 2: Definition of 'Royalty' under DTAA
The CIT(A) referred to various case laws and the provisions of the Copyright Act to determine that the software supplied did not involve the transfer of any copyright. The CIT(A) cited the Supreme Court's decision in Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401, which held that software, once placed on a media, becomes goods. The CIT(A) also referred to the ITAT Bangalore Bench's decision in Lucent Technologies Hindustan Ltd. v. ITO [2005] 92 ITD 366, which held that payment for software integrated with hardware did not constitute 'royalty'.
The CIT(A) further analyzed the definition of 'royalty' under Article 12(3) of the DTAA and section 14 of the Copyright Act, concluding that the payment for the software did not involve the transfer of any copyright. The CIT(A) relied on several ITAT decisions, including Samsung Electronics Co. Ltd. v. ITO 93 TTJ 658 and Motorola Inc. [2005] 270 ITR(AT) 62, which distinguished between the sale of copyrighted articles and the transfer of copyrights.
The Tribunal upheld the CIT(A)'s findings, agreeing that the supply of software to Reliance did not amount to a transfer of copyright and the payment was for the purchase of a copyrighted article, not 'royalty'. Consequently, the Revenue's appeal was dismissed, and the assessee's cross-objection became academic.
Conclusion:
The Tribunal concluded that the payment received by the assessee for the supply of software did not constitute 'royalty' under Article 12(3) of the DTAA and section 9(1)(vi) of the Income-tax Act. The appeal by the Revenue was dismissed, and the cross-objection by the assessee was also dismissed as academic.
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2010 (4) TMI 872
Penalty u/s 271(1)(c) - unproved cash purchases - assessee’s books of account had not been properly maintained and he has not discovered any specific amount of concealed income - HELD THAT:- The assessee has honestly produced the relevant materials and evidence available with it to prove the correctness of the books of account.
AO not accepted the genuineness of the transactions since the AO wanted inward Register and stock registers and the AO not discovered any positive material of inflating of purchases. There were certain insertion of entries in the cash book and also correction in the cash balance made by the assessee in its books of account and according to AO these books of account of the assessee are not reliable. This finding is enough to make additions in the assessment proceedings but that itself is not enough to sustain the penalty. It is to be true that even in cases of estimation or in case of best judgment penalty is leviable. But there should be finding has to be recorded that the difference in the income return and the income assessed is due to the fraud or gross or wilful neglect on the part of the assessee. In the instant case, the lower authorities have not recorded any such findings.
The books of account of the assessee not wholly amenable to verification. That at best can only lead to inference that the result shown by the assessee are inconclusive. But that is far from saying that there is any fraud or gross or wilful neglect on the part of the assessee. There may be justification for making addition to the assessment; there was no justification for imposing penalty because the department had not established that what was added by them in the assessment represented the income of the assessee. The penalty order should be self-contained one, the findings that there has been concealment or furnishing of inaccurate particulars of income recorded in the assessment proceedings cannot automatically transferred to the penalty order and the concealment or furnishing of inaccurate particulars as specifically required to be recorded in the penalty order. Failure in this regard vitiates the validity of the penalty order itself. Appeal of the assessee is allowed.
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2010 (4) TMI 871
TDS liability on deemed dividend - survey u/s 133A - survey under section 133A was conducted in the case of the assessee during the survey it was noticed that the assessee is a closely held company reporting substantial profits - majority of the shareholders in both the companies are common - AO held that the amount of loan extended by the assessee-company to MMPL constituted "Deemed Dividend" to the extent of accumulated profit available with the assessee-company in each of the earlier financial year - CIT(A) held that the payment made by assessee to MMPL would fall within the purview of section 2(22)(e) as such provisions of section 194 is applicable - revenue is having grievance on direction given by CIT(A) relating to consideration of depreciation as per Income-tax Act while computing the accumulated profits under section 2(22)(e).
HELD THAT:- As per the facts on record the assessee-company is having no shareholding in the other group companies. It is well-settled principle that dividend income is only received by the shareholder. See BHAUMIK COLOUR (P) LIMITED. [2008 (11) TMI 273 - ITAT BOMBAY-E]
The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word ‘dividend’ is extended to loans and advance to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word ‘dividend’ is altered. To this extent the definition of the term ‘dividend’ can be said to advance to a non-shareholder the ordinary and natural meaning of the word ‘dividend’ is taken away. In the light of the intention behind the provisions of section 2(22)(e) to extend the legal fiction to a case of loan or advance to a non-shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder.’
Under these circumstances, when payment is made to a non-shareholder, it is impossible for the payer company to ascertain whether it will attract the provisions of section 2(22)(e) of the Income-tax Act or not. Therefore, in this view of the matter, law does not expect the payer company to deduct TDS when payment is made to a non-shareholder. This is the reason, the law expressly provides for TDS requirements only when payment is made to shareholder. Thus, section 194 requires TDS only when payment is made to the shareholder. Payments to a shareholder will cover both as dividends normal divided as well as deemed dividend. Otherwise also, deemed dividend will be taxed in the hands of the shareholders and not in the hands of non-shareholders payee. Therefore, section 194 does not require TDS when payment is made to non-shareholders. Also, under section 206 of the Companies Act, 1956 the dividend can be paid a registered shareholder only. Therefore, section 194 of the Act is synchronized with the requirements of Companies Act, 1956 containing sections 150 and 206 of the Companies Act. Accordingly, in our opinion, the impugned amount cannot be as deemed income in the hands of recipient being so the provisions of section 194 is not applicable. Consequently, the provisions of sections 201 and 201(1A) cannot be applied.
Now coming to the fact of computation of accumulated profit, since we have held that in the present case there is no question of application of provisions of section 2(22)(e), consequently, there is no question of computation of accumulated profit. In view of this, all the three Revenue appeals become infructuous.
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2010 (4) TMI 870
Issues involved: Tax liability of a foreign company in India for advertisement revenue and the impact of arm's length service fee on tax liability.
The Appellate Tribunal ITAT MUMBAI addressed the appeal by the Revenue against the order of the CIT(A) XXXI, Mumbai dated 31-1-2007. The assessee, a foreign company, engaged in acquiring television programs and motion pictures and transmitting them on Sony Entertainment Television from Singapore, claimed to be a tax resident of Singapore under the India-Singapore tax Treaty. The assessee contended that only income attributable to its Indian operations, specifically marketing activities through SET India, should be taxed in India as per the Income-tax Act and the Treaty provisions. The basis for declaring income was as per CBDT Circular No. 742, calculating income at a percentage of advertisement receipts. The Assessing Officer held the advertisement revenue earned by the assessee as taxable business income, deducting commissions and service fees. On appeal, the CIT(A) accepted the plea that the arm's length service fee paid to SET India extinguished the tax liability on advertisement revenue in India. The Tribunal noted previous cases and upheld the view that the payment of service fee on an arm's length basis extinguishes tax liability, dismissing both the Revenue's appeal and the assessee's cross-objection.
The Tribunal referred to previous cases where the issue of tax liability on advertisement revenue received in India by the assessee had been considered. In those cases, the Tribunal had reversed the CIT(A)'s orders but the High Court had restored the CIT(A)'s decision, emphasizing that payment of service fee on an arm's length basis extinguishes tax liability in India. The Tribunal noted that the facts and circumstances in the present assessment year were identical to those cases, leading to the dismissal of the Revenue's appeal based on the High Court's decision. The Tribunal also dismissed the assessee's cross-objection in light of the Revenue's appeal outcome.
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2010 (4) TMI 869
Issues Involved:
1. Validity of initiation of reassessment proceedings under section 147 of the Income-tax Act, 1961.
2. Validity of additions made by the Assessing Officer on account of accommodation entries and commission paid.
Detailed Analysis:
1. Validity of Initiation of Reassessment Proceedings under Section 147 of the Income-tax Act, 1961
Background:
The revenue filed an appeal against the order of the CIT(A) which deleted the additions made by the Assessing Officer under sections 144/147. The assessee cross-objected, challenging the validity of the reassessment proceedings under section 147.
Facts:
- The assessee filed a return on 28-11-2003, declaring an income of Rs. 18,19,740, which was processed under section 143(1).
- Information from DCIT, CC-VI, Kolkata indicated that the assessee was involved in receiving accommodation entries from dummy companies controlled by Mr. P.K. Ruia.
- Based on this information, the Assessing Officer recorded reasons to believe that the income had escaped assessment and issued a notice under section 148.
Contentions:
- The assessee contended that the reasons recorded were vague, unspecified, and based on no material, asserting that no loans or share capital were raised during the relevant year.
- The revenue argued that the return was processed under section 143(1), and no regular assessment under section 143(3) was made, giving the Assessing Officer jurisdiction to initiate proceedings under section 147 based on the information received.
Legal Findings:
- The Tribunal emphasized that the "reason to believe" must be based on relevant and material reasons, not arbitrary or irrational assumptions.
- The Tribunal found that the Assessing Officer's belief was based on non-existent grounds, as no loans or share capital were raised by the assessee in the relevant year. The addition made was actually on account of sales receipts, not loans or share capital.
- The Tribunal concluded that the proceedings were initiated on vague and unfounded grounds without proper application of mind, thus invalidating the reassessment proceedings.
Conclusion:
The initiation of proceedings under section 147 was found to be without jurisdiction, arbitrary, and based on irrelevant and non-existent material. The reassessment order was thus cancelled.
2. Validity of Additions Made by the Assessing Officer on Account of Accommodation Entries and Commission Paid
Background:
The Assessing Officer made additions of Rs. 10,52,62,889 for accommodation entries and Rs. 10,52,629 for commission paid, which were deleted by the CIT(A).
Facts:
- The CIT(A) concluded that the transactions related to the sale of cotton knitted fabrics and not bogus loans/share capital.
- The CIT(A) found no evidence to support the Assessing Officer's claim of accommodation entries and commission paid.
Contentions:
- The assessee argued that the additions were baseless as the transactions were genuine sales.
- The revenue contended that the additions were justified based on the information received from the investigation.
Legal Findings:
- The Tribunal noted that the CIT(A) had deleted the additions on merit, finding the transactions to be genuine sales.
- Since the reassessment proceedings were invalidated, the Tribunal did not find it necessary to delve into the merits of the additions.
Conclusion:
The appeal by the revenue was dismissed as infructuous, and the cross-objection by the assessee was allowed, confirming the deletion of the additions.
Final Decision:
The reassessment proceedings initiated under section 147 were declared invalid, and the assessment order was cancelled. Consequently, the appeal by the revenue was dismissed, and the cross-objection by the assessee was allowed.
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2010 (4) TMI 868
Issues Involved:
1. Levy of penalty under section 271(1)(c) for foreign exchange loss.
2. Bona fide belief in claiming deduction.
3. Recording of satisfaction by the Assessing Officer during assessment proceedings.
4. Applicability of section 271(1B) and related judicial precedents.
Issue-Wise Detailed Analysis:
1. Levy of Penalty under Section 271(1)(c) for Foreign Exchange Loss:
The primary issue was whether the penalty of Rs. 15,34,529 under section 271(1)(c) for claiming a foreign exchange loss was justified. The assessee had taken a loan from Microsoft Corporation, U.S.A., and due to foreign exchange fluctuations, incurred a loss of Rs. 39.90 lakhs. This amount was claimed as a revenue loss. However, the Assessing Officer disallowed this claim, stating that the onus of proving the loss as a revenue loss was not discharged by the assessee. The penalty proceedings were initiated on the basis that the assessee furnished inaccurate particulars of income by claiming capital expenses as revenue expenses.
2. Bona Fide Belief in Claiming Deduction:
The assessee argued that the claim was made under a bona fide belief, supported by judicial precedents, that the loss could be considered a revenue loss. The assessee cited cases like Sutlej Cotton Mills Ltd. v. CIT and CIT v. Woodward Governor India (P.) Ltd., which discuss the nature of foreign exchange losses. The assessee maintained that the determination of whether an expenditure is of capital or revenue nature is a debatable issue, and thus, the penalty should not be levied.
3. Recording of Satisfaction by the Assessing Officer During Assessment Proceedings:
The assessee contended that the penalty order was void ab initio as no satisfaction was recorded by the Assessing Officer during the assessment proceedings that the assessee furnished inaccurate particulars of income. However, this ground was not pressed during the hearing.
4. Applicability of Section 271(1B) and Related Judicial Precedents:
The assessee also challenged the penalty on the grounds that the CIT (Appeals) erred by relying on section 271(1B), inserted by the Finance Act, 2008, with retrospective effect from 1st April 1989. The assessee cited the Delhi High Court's decisions in Madhushree Gupta v. UOI and British Airways Plc. v. UOI, which held that penalty proceedings would be quashed if prima facie satisfaction was not recorded by the Assessing Officer. However, this ground was also not pressed during the hearing.
Tribunal's Findings:
- Merits of the Case: The Tribunal noted that the assessee did not furnish details of the utilization of the loan or the loss before the Assessing Officer. The CIT (Appeals) found that only a small portion of the loan (Rs. 1.25 lakhs) was used for revenue purposes, while the rest was for capital purposes. Payment of taxes was not considered revenue expenditure. Thus, the CIT (Appeals) upheld the disallowance of the loss as a revenue expense.
- Bona Fide Dispute: The Tribunal acknowledged the assessee's argument that there was a bona fide dispute regarding whether the foreign exchange loss was revenue or capital in nature. However, it concluded that there could be no bona fide belief regarding the loss related to tax payments, as these are appropriations of income and not business expenditures.
- Penalty on Tax Payment: The Tribunal held that while there could be a bona fide belief regarding the loss related to capital assets and security deposits, there was no such belief for the loss related to tax payments. Hence, the penalty was justified for the loss related to tax payments.
- Penalty on Other Claims: The Tribunal found that the penalty should not be levied on the portion of the loss related to capital assets and security deposits, as there was a genuine debate on their nature.
Conclusion:
The Tribunal partly allowed the appeal, concluding that the penalty under section 271(1)(c) was justified only for the loss related to tax payments and not for the loss related to capital assets and security deposits.
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2010 (4) TMI 867
Strategic consulting services - Nature of royalty or scientific experience - DTA between Switzerland and India - payment of fees taxable in India or not - The assessee is a company incorporated in Switzerland and is a non-resident. It is engaged in the business of providing strategic consulting services. The assessee entered into agreement with Stock Traders (P.) Ltd. (STPL) an Indian company engaged in the business of financing and making investments. The assessee received fees as payments for the services rendered to STPL. The assessee claimed that the fees were not taxable in India.
CIT(A) held that receipts by the assessee from STPL cannot be brought to tax and that they are not in nature of royalty or fees for technical services within the meaning of Article 12(3) or 12(4)(b)( ii) of DTAA between India and Switzerland. As, the assessee does not have PE in India; and therefore, business income cannot be taxed in India.
HELD THAT:- We have also gone through the material available on record regarding nature of services rendered by the assessee to STPL. Descriptions of services rendered by the assessee are given in invoices raised by the assessee on STPL. It is clear from these documents that what are provided by the assessee, was only strategic consulting.
The Memorandum of understanding is a tool to understand as to what meaning was intended to be conveyed in the DTAA between countries. Since the wording of Article 12(4)(b) of the treaty and Article 12(4)(b) of the DTAA between India and US are identical, the MOU to the Indo-US treaty can be looked into to see what meaning India and Switzerland would have contemplated in the treaty.
The law is settled that a DTAA with one country can be compared with the DTA with another country in case of ambiguity and in order to understand the true scope and meaning of the concerned DTA. The Karnataka High Court in the case of A.E.G. Telefunken v. CIT [1998 (3) TMI 107 - KARNATAKA HIGH COURT] compared the DTA with German Democratic Republic with the DTA with Finland towards this end.
the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2002 (4) TMI 891 - ITAT MUMBAI] had to deal with a case payment of commission by an Indian company to a non-resident in connection with Public Issue of Global Depository Receipts (GDR) for services rendered outside India. The question before the Tribunal was whether the commission so paid can be said to be "Fees for included services" i.e., Fees for Technical Services under Article 13(4)(c) of the Indo-UK DTAA which is the same as that of Article 12(4)(b) of the treaty between India and Switzerland. After considering Article 12(4)(b) of the Indo-US DTAA [which are similar to Article 12(4)(b) of the treaty between India and Switzerland], and after referring to the Memorandum of understanding to the Indo-US DTAA.
We have already described nature of services rendered by the assessee to STPL. It is clear from the nature of service that nothing is made available to STPL by the assessee. Technical knowledge, experience, skill continues to remain with the assessee even after conclusion of the agreement to render services between the assessee and STPL. Services are not made available to STPL by the assessee for its future use or utilization on reasonably permanent basis. It is also significant to mention that with effect from 1-4-2001, definition of term ‘fees for included services’ have undergone a change and it is wide enough to cover to technical managerial or consultancy services. Thereafter, the assessee has offered for the purpose of taxation the receipts from STPL.
Therefore, We do not find any grounds of interfere with the order of learned CIT(A) on this issue.
Nature of receipts - HELD THAT:- It is clear from that consideration for information concerning industrial, commercial and scientific experience is to be regarded as royalty, only if it is received from imparting know-how. However, providing strategic consulting services, which may entail the use of technical skills and commercial experience by a strategic consultant, does not amount to know-how being imparted to the buyer of the strategic consulting services.
We have already seen the nature of services rendered by the assessee. The assessee was only rendering consultancy services. The assessee did not impart any know-how to STPL. The assessee retained the experience required to perform the services. Therefore, the receipts in question cannot be said to be in the nature of royalty.
In the result, all the appeals by the revenue are dismissed.
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2010 (4) TMI 866
Issues Involved:
1. Enhancement of the value of land for capital gains computation.
2. Determination of the fair market value of the land as on 1-4-1981 for computing capital gains.
Detailed Analysis:
1. Enhancement of the Value of Land for Capital Gains Computation:
The primary issue in these appeals is the enhancement of the value of land from Rs. 400 per sq. mtr. to Rs. 5,000 per sq. mtr. by the Commissioner of Income-tax (Appeals) [CIT(A)], which was contested by the assessee. The Assessing Officer (AO) had estimated the land value at Rs. 700 per sq. mtr., while the assessee declared it at Rs. 483 per sq. mtr.
The CIT(A) justified the enhancement by noting that the sale deed was registered much later after the initial payments, indicating that further payments were likely received after the initial transaction. The CIT(A) also considered the revised Jantry (stamp duty valuation) rates applicable from April 2008, which were based on market rates during 2005-2006, thus adopting Rs. 5,000 per sq. mtr. as the fair market value.
However, the Tribunal found that the sale consideration received by the assessee was Rs. 483 per sq. mtr., which was higher than the circle rate fixed by the Stamp Duty Authorities at Rs. 400 per sq. mtr. The Tribunal noted that the provisions of section 50C of the Income-tax Act, which create a legal fiction for taxing capital gains based on the stamp duty valuation, were applicable. Since the sale consideration was higher than the stamp duty valuation, the Tribunal ruled in favor of the assessee and deleted the addition made by the lower authorities.
2. Determination of the Fair Market Value of the Land as on 1-4-1981:
The second issue involved the determination of the fair market value of the land as on 1-4-1981 for computing capital gains. The AO had adopted a value of Rs. 25 per sq. mtr. based on comparable sale instances ranging from Rs. 15 to Rs. 32 per sq. mtr. The assessee, however, had adopted a value of Rs. 60 per sq. mtr. based on a valuation report from a registered valuer.
The CIT(A) agreed with the AO's valuation, rejecting the higher valuation provided by the assessee's valuer. However, the Tribunal found that the value adopted by the AO had no substantial basis and accepted the assessee's valuation of Rs. 60 per sq. mtr., which was based on a technical report by a registered valuer approved by the department. The Tribunal directed the AO to adopt this value for the computation of capital gains.
Conclusion:
The Tribunal ruled in favor of the assessee on both issues, reversing the orders of the lower authorities. The appeals of the assessees were allowed, with the Tribunal directing the AO to adopt the value of Rs. 60 per sq. mtr. for the computation of capital gains and to apply the provisions of section 50C, accepting the sale consideration declared by the assessee.
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2010 (4) TMI 865
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MAT Computation of book profit u/s 115JB - adjustment made on account of provision for doubtful debts and advances - Scope of amendment - CIT(A) confirmed the action of AO by observing that as per the amended provisions of section 115JB vide Finance Act, 2009 a new clause (i) has been inserted to provide that the amount set aside as provision for diminution in value of any asset is to be added in the book profit. Against this order of CIT(A), the assessee is in further appeal before us.
HELD THAT:- According to the amended provision, amount set aside as provision for diminution in value of any asset is required to be added in the book profit. Clause (i) has been inserted retrospectively with effect from 1-4-2001 meaning thereby from assessment year 2001-02, such provision for bad debts is to be added in the book profit while computing book profit under section 115JB.
The ratio laid down by the Hon’ble Supreme Court in the case of HCL Comnet Systems & Services Ltd.[2008 (9) TMI 18 - SUPREME COURT] is no more applicable in view of the amended provisions brought in the statute with retrospective effect. The relevant assessment year under consideration is assessment year 2005-06 to which amended provisions are applicable.
Recently Hon’ble Delhi High Court in the case of CIT v. Ilpea Paramount (P.) Ltd.[2010 (2) TMI 45 - DELHI HIGH COURT] after considering the decision of the Hon’ble Supreme Court in the case of HCL Comnet System & Services Ltd. (supra) held that amendment brought in section 115JA was brought with retrospective effect, accordingly, provision for doubtful debts are nothing but provision for diminution in the value of the asset covered under clause (g) of the said Explanation.
It was accordingly, held that such provision is required to be added while computing book profit u/s 115JA. Similarly, amendment in section 115JB was also brought by the same Finance Act with effect from assessment year 2001-02, therefore respectfully following the order of the Hon’ble Jurisdictional High Court, we do not find any infirmity in the orders of the lower authorities - Appeal of the assessee is dismissed.
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2010 (4) TMI 864
Issues Involved:
1. Deletion of disallowance of excess salary paid to working partners under section 40(b) of the Income-tax Act, 1961.
2. Addition in respect of purchases of rice made in cash.
3. Non-consideration of section 40A(3) in respect of cash purchases and carriage freight.
4. Examination of section 40(a)(ia) for freight charges without TDS deduction.
Issue-wise Detailed Analysis:
1. Deletion of Disallowance of Excess Salary Paid to Working Partners:
The first issue pertains to the deletion of disallowance of Rs. 2.02 lakhs and Rs. 4.52 lakhs for the assessment years 2005-06 and 2006-07, respectively, due to excess salary paid to working partners under section 40(b) of the Income-tax Act, 1961. The Assessing Officer (A.O.) disallowed the excess salary as it exceeded the limit prescribed by the partnership deed and section 40(b)(v) of the Act. The Commissioner of Income-tax (Appeals) [CIT(A)] allowed the claim by interpreting the salary clause liberally, considering a resolution by the partners as an amendment to the partnership deed. However, the Tribunal found that there was no resolution or proper documentation to support the increase in salary, distinguishing it from the case of Pulimoottil Silk House. The Tribunal emphasized the necessity of specific documentation and adherence to section 40(b)(v) and Explanation 3. Consequently, the Tribunal restored the A.O.'s order, disallowing the excess salary claims.
2. Addition in Respect of Purchases of Rice Made in Cash:
The second issue concerns the addition made by the A.O. for cash purchases of rice, which were not fully verifiable. The A.O. made additions to compensate for potential income escapement. The CIT(A) deleted the additions, stating that section 40A(3) was not applied, and the disallowance lacked specific instances of non-verifiable purchases. The Tribunal agreed with the CIT(A), noting the absence of any specific defects or inflated purchases identified by the A.O. Thus, the Tribunal upheld the deletion of the additions, deciding in favor of the assessee.
3. Non-consideration of Section 40A(3) in Respect of Cash Purchases and Carriage Freight:
The third issue involves the non-consideration of section 40A(3) by the A.O. for cash purchases and carriage freight. The CIT observed that the A.O. did not examine the applicability of section 40A(3), which mandates disallowance for cash payments exceeding the prescribed limit. The Tribunal noted that the A.O. did not invoke section 40A(3) in the assessment orders, leading to a lack of proper inquiry. The Tribunal upheld the CIT's revision order, emphasizing the need for the A.O. to consider section 40A(3) and examine the transactions accordingly.
4. Examination of Section 40(a)(ia) for Freight Charges Without TDS Deduction:
The fourth issue pertains to the examination of section 40(a)(ia) for freight charges where no tax was deducted at source (TDS). The CIT observed that the A.O. did not consider the applicability of section 40(a)(ia), which requires TDS deduction for certain payments. The Tribunal noted that the A.O. did not examine the transactions for TDS liability, making the assessment orders erroneous and prejudicial to the revenue. The Tribunal upheld the CIT's direction to the A.O. to re-examine the applicability of section 40(a)(ia) for freight charges.
Conclusion:
The Tribunal's judgment addressed multiple issues, primarily focusing on the disallowance of excess salary to working partners, additions for cash purchases of rice, and the non-consideration of sections 40A(3) and 40(a)(ia) by the A.O. The Tribunal restored the A.O.'s order on the disallowance of excess salary, upheld the CIT(A)'s deletion of additions for cash purchases, and affirmed the CIT's revision orders for non-consideration of sections 40A(3) and 40(a)(ia), directing the A.O. to re-examine these aspects. The revenue's appeals were partly allowed, and the assessee's appeals were dismissed.
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2010 (4) TMI 863
Issues Involved:
1. Classification of interest income on FDRs: "Income from other sources" vs. "Business income."
2. Eligibility for deduction under section 10A of the Income-tax Act, 1961.
3. Charging of interest under sections 234B and 244A of the Act.
Detailed Analysis:
1. Classification of Interest Income on FDRs:
The primary issue was whether the interest income of Rs. 44,36,745 earned on Fixed Deposit Receipts (FDRs) should be classified as "income from other sources" or "business income." The assessee argued that the FDRs were made out of business funds and kept as security for availing credit facilities, thus qualifying the interest earned as business income. However, the Assessing Officer and the CIT(A) both rejected this claim, categorizing the interest income as "income from other sources."
2. Eligibility for Deduction under Section 10A:
The assessee claimed deduction under section 10A for the interest income on FDRs, asserting that it was part of the business income. The CIT(A) held that the interest income on FDRs is not a profit from the business of the eligible undertaking but is assessable under the head "Income from other sources." The CIT(A) referenced several judgments, including CIT v. Shree Ram Honda Power Equipment and Urban Stanislaus Co. v. CIT, to support this conclusion. The Tribunal upheld this view, stating that the interest income earned on fixed deposits made out of surplus funds, without a direct link to the export business, does not qualify for deduction under section 10A.
3. Charging of Interest under Sections 234B and 244A:
The issue of charging interest under sections 234B and 244A was found to be consequential in nature. The Tribunal directed the Assessing Officer to examine and rework the actual amount of interest chargeable under these sections as per the provisions of law.
Conclusion:
The Tribunal concluded that the interest income earned on FDRs is assessable under the head "Income from other sources" and does not qualify for deduction under section 10A. The appeal was partly allowed for statistical purposes, with the issue of charging interest under sections 234B and 244A being remanded back to the Assessing Officer for reworking as per law.
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2010 (4) TMI 862
Income - Deemed to accrue or arise in India - Double Taxation Avoidance Agreement (DTAA) between India and Mauritius - HELD THAT:- The preparation of designs in this case is done by Jebel Ali, Dubai and the documents were transmitted to EIL from outside the country. The distance from Jebel Ali to India is 1050 nautical miles and the travel within India is about 100 nautical miles, which means 10 per cent of the total transportation is within the country. The assessee in this case followed the project completion method to recognize contract revenues. The revenues pertaining to work carried on within India and works carried on outside India has been determined based on actual activities carried out, and as already stated there is no dispute on this fact.
In such a situation, in our considered opinion the first appellate authority has rightly observed that section 9(1)(i) Explanation 1 provides that the income from business deemed under this clause to accrue or arise in India, shall be only such part of the income, as is reasonably attributable to the operations carried out in India. We also agree with the finding that the income in question should be first taxable in view of section 5 of the Act read with section 9 and that section 44BB cannot override section 5 which is the charging section.
Thus, we uphold the order of the first appellate authority and dismiss ground No. 1 of the Revenue.
In the result, the appeal of the Revenue is dismissed.
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2010 (4) TMI 861
Issues Involved:
1. Double deduction on fixed assets and depreciation.
2. Collection of anonymous donations.
3. Expenditure on Mandir Pooja exceeding 5% of total income.
4. Application of income less than 85% for charitable purposes.
5. Corpus donations without specific directions.
6. Transparency in investment modes.
7. Authority of Commissioner in renewal of registration under section 80G.
Issue-wise Detailed Analysis:
1. Double Deduction on Fixed Assets and Depreciation:
The Commissioner of Income-tax (CIT) noted that the assessee-trust claimed double deduction by applying funds on fixed assets and also claiming depreciation on those assets. Citing the Supreme Court decision in Escorts Ltd. v. Union of India [1993] 199 ITR 43, the CIT argued that double deduction for the same business outgoings was not intended by the Legislature. However, the tribunal held that such issues are not relevant at the time of granting or renewing registration under section 80G. The tribunal emphasized that the CIT should not act as an Assessing Officer during the renewal process and should focus on whether the trust's objects and activities are charitable.
2. Collection of Anonymous Donations:
The CIT observed that the trust collected anonymous donations amounting to Rs. 6,42,800 in the financial year 2006-07, which were treated as specific donations despite the absence of donor details. These donations were liable to be taxed under section 115BBC(1)(i) of the Act. The tribunal, however, referenced the ITAT Lucknow Bench decision in Kalyanam Karoti v. CIT [2010] 123 ITD 317, stating that the Commissioner should only verify if the trust meets the conditions in section 80G(5) and not delve into the specifics of donations.
3. Expenditure on Mandir Pooja Exceeding 5% of Total Income:
The CIT noted that the trust incurred Rs. 2,40,167 on Mandir Pooja, exceeding 5% of its total income, thus violating section 80G(5). The tribunal found that the CIT incorrectly calculated the net income from Gaushala and interest income. The correct total income was Rs. 48,68,989, and the expenditure on Mandir Pooja was 4.93%, which is within the permissible limit under section 80G(5B). Therefore, the benefit of section 80G could not be denied on this ground.
4. Application of Income Less Than 85% for Charitable Purposes:
The CIT observed that the trust did not apply 85% of its income for charitable purposes in the financial year 2005-06. The tribunal held that such compliance issues are not relevant for the renewal of registration under section 80G. The focus should be on whether the trust's objects are charitable.
5. Corpus Donations Without Specific Directions:
The CIT noted that the trust received substantial corpus donations but could not produce specific directions from donors as required under section 11(1)(b). The tribunal reiterated that such issues should be addressed during assessment and not during the renewal of registration under section 80G.
6. Transparency in Investment Modes:
The CIT found that the trust opened a locker in Allahabad Bank, Brindavan, which was not transparent under section 11(5). The tribunal found no evidence that the locker contained undisclosed income and stated that the CIT's presumption was baseless. Lockers could be necessary for keeping valuables of the trust.
7. Authority of Commissioner in Renewal of Registration Under Section 80G:
The tribunal emphasized that the CIT should not act as an Assessing Officer during the renewal process. The CIT should focus on whether the trust meets the conditions specified in section 80G(5). The tribunal referenced several court decisions, including Sonepat Hindu Educational & Charitable Society v. CIT [2005] 278 ITR 262 and N.N. Desai Charitable Trust v. CIT [2000] 246 ITR 452, to support this view.
Conclusion:
The tribunal concluded that the CIT was not justified in refusing the continuation of registration under section 80G. The trust's objects and activities are charitable, and it has been registered under section 12A for 25 years. The tribunal set aside the CIT's order and directed the CIT to allow the registration under section 80G for the period applied by the assessee. The appeal filed by the assessee was allowed.
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2010 (4) TMI 860
Issues Involved:
1. Taxability of subscription fees as fees for technical services or royalty.
2. Set-off of brought forward losses.
3. Levy of interest u/s 234B.
Summary:
Issue 1: Taxability of Subscription Fees
The primary issue was whether the subscription fees received by the assessee from subscribers for providing information/data on various markets should be taxed as fees for technical services or royalty. The assessee, a Singapore-based company, contended that the income from these activities should be treated as business income, not as fees for technical services (FTS) u/s 9(1)(vii) of the Income-tax Act. The Assessing Officer (AO) disagreed, treating the income as consultancy and technical services, thereby taxable u/s 44D read with Article 12 of the DTAA between India and Singapore. The Tribunal, following its earlier decision in the assessee's own case for AY 1997-98, held that the subscription fees should be assessed as business income under Article 7(3) of the DTAA and not as FTS or royalty. The Tribunal directed the AO to recompute the total income on a net basis.
Issue 2: Set-off of Brought Forward Losses
The revenue challenged the CIT(A)'s direction to the AO to verify the set-off of brought forward losses, arguing that the income was assessed on a gross basis, disallowing any set-off. The Tribunal, having decided that the income should be assessed as business income, held that the set-off of brought forward losses is permissible under section 72 of the Act. The Tribunal upheld the CIT(A)'s direction to the AO to verify and allow the set-off of brought forward business losses.
Issue 3: Levy of Interest u/s 234B
The revenue also contested the CIT(A)'s decision that no interest u/s 234B was leviable. The Tribunal, citing the jurisdictional High Court's decision in DIT (International Taxation) v. NGC Network Asia LLC, held that the assessee should not suffer due to the failure of the payer to deduct TDS. Consequently, the Tribunal dismissed the revenue's appeal on this ground.
Conclusion:
The Tribunal allowed all the appeals of the assessee, directing the AO to assess the subscription fees as business income and to allow the set-off of brought forward losses. The Tribunal also dismissed the revenue's appeals, confirming that no interest u/s 234B was leviable.
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