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Showing 381 to 400 of 558 Records
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2007 (6) TMI 179
Issues Involved:
1. Classification of consideration received on surrender of leasehold rights.
2. Obligation to assess capital receipt under "Other sources" if not taxable under "Capital gains".
Summary:
Issue 1: Classification of Consideration Received on Surrender of Leasehold Rights
The Tribunal held that the consideration received from the surrender of leasehold rights in carrying on hotel business, which was sub-leased and not carried on by the assessee itself, is not a business receipt but capital gains, and not taxable as no costs were involved. The first appellate Commissioner and the Tribunal agreed with the assessee's claim that the cost of acquisition of leasehold rights does not admit of determination and cannot be charged u/s 45 of the Act. However, the Supreme Court in A. R. Krishnamurthy v. CIT [1989] 176 ITR 417 held that the cost of acquisition of leasehold rights is capable of ascertainment and must be determined by the Income-tax Officer based on evidence. Therefore, the first appellate authority had a duty to determine the cost of acquisition or remand the matter to the Assessing Officer for determination. The court concluded that the authorities below failed to determine the cost of acquisition of leasehold rights, necessitating a remand to the Assessing Officer for this purpose.
Issue 2: Obligation to Assess Capital Receipt Under "Other Sources"
The Tribunal, as the final fact-finding body, was questioned whether it was obliged to hold that if a capital receipt is not taxable under the head "Capital gains," it should be assessable under the head "Other sources" in view of the inclusive definition of income in section 2 and section 10(3). The court, following the decision in Traders and Miners Ltd. v. CIT [1955] 27 ITR 341 and the Supreme Court's decision in CIT v. D. P. Sandu Bros. Chembur P. Ltd. [2005] 273 ITR 1, held that the income from the transfer of leasehold rights falls under the head "Capital gains" and not under the head "Income from other sources," unless otherwise provided in the Act. The Assessing Officer is directed to determine the cost of acquisition by affording an opportunity of being heard to the assessee.
The reference stands disposed of accordingly, and a copy of this order shall be sent to the Tribunal as required u/s 260(1) of the Act.
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2007 (6) TMI 178
Issues Involved:
1. Jurisdiction of the Assessing Officer during the pendency of an application before the Settlement Commission.
2. Legality of the attachment order issued by the Tax Recovery Officer.
3. Legality of the garnishee notice issued by the Assessing Officer.
4. Cancellation of instalment facility by the Settlement Commission.
Issue-wise Detailed Analysis:
1. Jurisdiction of the Assessing Officer during the pendency of an application before the Settlement Commission:
The learned single judge held that under section 245F of the Income-tax Act, once an application is filed and admitted by the Settlement Commission, the Assessing Officer cannot proceed to recover any amount ordered to be paid by the Settlement Commission. The judge concluded that the jurisdiction of the Assessing Officer is ousted once an application is pending before the Settlement Commission. This conclusion was reached by relying on section 245F, which grants exclusive jurisdiction to the Settlement Commission to perform the functions of an income-tax authority in relation to the case until an order is passed under section 245D(4).
However, the appellate court disagreed, stating that section 245D(2D) allows the Assessing Officer to recover unpaid tax and interest if the assessee defaults on payments directed by the Settlement Commission. The appellate court emphasized that the learned single judge did not consider section 245D(2D) while making the decision.
2. Legality of the attachment order issued by the Tax Recovery Officer:
The Tax Recovery Officer issued an attachment order dated December 30, 1999, due to the assessee's default in paying the instalments as per the Settlement Commission's order. The single judge quashed this order, deeming it illegal based on the exclusive jurisdiction of the Settlement Commission under section 245F.
The appellate court noted that the attachment order was issued in accordance with section 245D(2D), which permits the Assessing Officer to recover unpaid amounts. Consequently, the appellate court set aside the single judge's order and remitted the matter back for reconsideration of the attachment order's legality.
3. Legality of the garnishee notice issued by the Assessing Officer:
The Assessing Officer issued a garnishee notice dated March 18, 2003, to the branch manager of LIC of India, requesting payment of any amount due to the assessee. The single judge quashed this notice, again relying on the exclusive jurisdiction of the Settlement Commission under section 245F.
The appellate court reiterated that section 245D(2D) allows the Assessing Officer to recover unpaid amounts during the pendency of the application before the Settlement Commission. Therefore, the appellate court set aside the single judge's order and remitted the matter back for reconsideration of the garnishee notice's legality.
4. Cancellation of instalment facility by the Settlement Commission:
The Settlement Commission cancelled the instalment facility granted to the assessee by an order dated February 9, 2004, due to the assessee's default in payment. The single judge quashed this order based on the exclusive jurisdiction of the Settlement Commission under section 245F.
The appellate court clarified that the Settlement Commission has the authority under sections 245D(2A) and 245D(2B) to direct payment of additional tax and to allow instalments. If the assessee defaults, section 245D(2D) permits the Assessing Officer to recover the unpaid amounts. The appellate court found the single judge's decision to be incorrect and set aside the order, allowing the Assessing Officer to take action as per section 245D(2D).
Conclusion:
The appellate court set aside the orders passed by the learned single judge in O. P. No. 1798 of 2000 and O. P. No. 12979 of 2003, remitting the matters back for reconsideration of the legality of the attachment order and the garnishee notice. The appellate court emphasized the applicability of section 245D(2D) in allowing the Assessing Officer to recover unpaid amounts during the pendency of an application before the Settlement Commission. The appeal was disposed of with directions for the parties to bear their own costs.
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2007 (6) TMI 177
Income derived from letting out the commercial complex - Taxable under head 'Income from Business' or 'Income from House Property' - service-cum-lease agreements - No bifurcation for a portion of the rental receipt - HELD THAT:- It is fairly stated by counsel appearing for the assessees that mere letting out the property and deriving income from it should be assessed only under the head "Income from house property" and also the issue now stands concluded by this court judgment in CIT v. Chennai Properties and Investments Ltd.[2003 (3) TMI 28 - MADRAS HIGH COURT] in favour of the Revenue. Hence we answer the questions in favour of the Revenue, against the assessee.
An alternative argument is also advanced that the whole receipt amount should not be assessed under the head "Income from house property" on the ground that certain portion of the amount is related to services provided as per the agreements which are independent ones.
It is clear that the assessee-firm has to provide certain services. For the purpose of providing such services, the occupant has to pay a consolidated charge of Rs. 1,200 per month in the case of T.C. There is no dispute regarding the actual services provided by the assessee firms and the Revenue also did not deny the same. The only reason given by the Tribunal is that the assessees failed to substantiate their claims.
The profit and loss account as well as balance-sheet were filed before the authorities wherein all the details regarding expenditure as well as receipts were reflected. There is no proper consideration of the details regarding providing services as well as receipt of the same by the authorities below. The authorities ought to have considered the same. If it is necessary, they have to bifurcate a portion of the rental receipt into various heads. In such circumstances, in the interest of justice, we direct the Assessing Officer to consider the details regarding the services provided as well as the amount received for the same and the said receipt amounts derived from providing services may be considered under the head "Income from other sources" or under the head "Income from business" and pass orders in accordance with law after giving opportunity to the assessees.
With the above observations, the tax cases are disposed of.
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2007 (6) TMI 176
Issues involved: Interpretation of income derived from sub-leasing property as "income from property" or "business income".
Summary:
The High Court of Madras heard an appeal against the Income-tax Appellate Tribunal's order regarding the treatment of income derived from subletting a property for the assessment year 1998-99. The main question raised was whether such income should be considered as "income from property" or "business income." The assessee had sublet a portion of a property they had leased. The Assessing Officer initially treated the income as "income from house property," but the Commissioner of Income-tax (Appeals) directed it to be treated as "business income," a decision upheld by the Tribunal. The appeal questioned whether a lessee can be deemed the owner of a property solely because they sublet it.
The computation of income from house property is governed by sections 22 to 27 of the Income-tax Act, 1961. Section 22 defines "income from house property" as the annual value of property owned by the assessee, excluding portions used for business or profession. Section 27 defines the "owner of house property," including scenarios where possession is transferred or acquired under specific conditions.
In this case, the lease agreement allowed the lessee to retain possession for a maximum of 11 months with a further option for two years, paying monthly rent. As per section 27(iiib), the lessee, having acquired rights through a lease not exceeding one year, is excluded from being considered the owner of the property. Therefore, the provisions of sections 22 to 26 do not apply to the assessee.
Ultimately, the court found no substantial question of law and dismissed the appeal without costs.
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2007 (6) TMI 175
Constitutional validity of clause (f) of Section 43B - Inconsistency of clause (f) and absence of nexus with Section 43B - actual payment of liability to the employees (leave encashment) as a condition precedent for extending the benefit of deduction under the 1961 Act - HELD THAT:- On a perusal of object and reasons as disclosed by the Finance Act, 1983, for enacting section 43B, it would appear that the Legislature expressed concern about the unreasonable deduction claim on the basis of mercantile accounting method without discharging statutory liabilities. It was observed by the Legislature that there had been a trend to evade statutory liabilities on the one hand and claim appropriate benefit under the said Act of 1961 on the other hand. Hence, such enactment was necessary.
While inserting clause (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement on such issue provided the subject amendment could be termed as in furtherance to widen the scope of the original section on the identical objects and reasons as disclosed at the time of enacting the original provision. As we find, the original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to the financial institutions. Leave encashment is neither statutory liability nor a contingent liability. It was a provision to be made for the entitlement of an employee achieved in a particular financial year.
An employer is entitled to deduction for the expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. Hence, it is a trading liability. As such he is otherwise entitled to have deduction of such amount by showing the same as a provisional expenditure in his accounts. The Legislature by way of amendment restricts such deduction in the case of leave encashment unless it is actually paid in that particular financial year. The Legislature is free to do so after they disclose reasons for that and such reasons are not inconsistent with the main object of the enactment. We are deprived of such reasons for our perusal. Mr. Banerjee, appearing for the Revenue could not enlighten us on that score. We also do not find such enactment consistent with the original provision being section 43B which was originally inserted to plug in evasion of statutory liability.
The apex court considered the situation in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT], when clause (f) was not there. The apex court, considering all aspects as disclosed by us hereinbefore, rejected the contention of the Revenue and granted appropriate deduction to the concerned assessee. The Legislature to get rid of the decision of the apex court brought about the amendment which would otherwise nullify the judge-made law. The apex court decisions are judge-made law and are applicable to all under the Constitution. We do not for a single moment, observe that the Legislature was not entitled to bring such amendment. They were within their power to bring such amendment. However they must disclose reasons which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the apex court decision.
The appeal succeeds and is allowed. Section 43B(f) is struck down being arbitrary, unconscionable and de hors the apex court decision in the case of Bharat Earth Movers.
The appeal is disposed of accordingly without any order as to costs.
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2007 (6) TMI 174
Issues Involved:
1. Constitutional validity of sections 115-O(1) and 115-O(3) of the Income-tax Act, 1961.
2. Legislative competence of Parliament to levy additional income-tax on dividends derived from agricultural income.
Issue-wise Detailed Analysis:
1. Constitutional Validity of Sections 115-O(1) and 115-O(3) of the Income-tax Act, 1961:
The petitioners challenged the constitutional validity of sections 115-O(1) and 115-O(3) of the Income-tax Act, 1961, which levy additional income-tax on dividends distributed by domestic companies. They argued that these provisions were ultra vires the Constitution as they imposed a tax on agricultural income, which falls under the exclusive jurisdiction of the State Legislature as per Entry 46 of List II (State List) in the Seventh Schedule of the Constitution.
The court analyzed the provisions of section 115-O, which mandate a domestic company to pay additional income-tax at a specified rate on any amount declared, distributed, or paid by way of dividends. The court noted that the term "dividend" as defined in section 2(22) of the Act includes various distributions by a company, and the tax levied under section 115-O is on the profits distributed by way of dividends, not directly on agricultural income.
The court referred to the Supreme Court's decision in Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC), which held that dividends received by shareholders do not retain the character of agricultural income, even if the profits out of which the dividends are paid were derived from agricultural operations. Therefore, the tax on dividends under section 115-O does not infringe upon the State Legislature's exclusive power to tax agricultural income.
2. Legislative Competence of Parliament to Levy Additional Income-tax on Dividends Derived from Agricultural Income:
The petitioners contended that Parliament lacked the legislative competence to levy additional income-tax on dividends derived from agricultural income, as agricultural income is exclusively taxable by the State Legislature under Entry 46 of List II. They argued that the income derived from growing and manufacturing tea is partly agricultural and partly non-agricultural, and only the non-agricultural portion can be taxed by Parliament.
The court examined the legislative framework, including Article 246 of the Constitution, which delineates the powers of Parliament and State Legislatures. Entry 82 of List I (Union List) empowers Parliament to legislate on "Taxes on income other than agricultural income." The court reiterated that the tax levied under section 115-O is on the distributed profits (dividends) and not directly on agricultural income.
The court referred to several judicial precedents, including CIT v. Khatau Makanji Spg. and Wvg. Co. Ltd. [1960] 40 ITR 189 (SC) and Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18 (SC), which supported the view that dividends do not retain the character of agricultural income and can be subjected to tax by Parliament.
The court concluded that the provisions of section 115-O are intra vires the Constitution and within the legislative competence of Parliament. The tax on dividends under section 115-O does not amount to a tax on agricultural income and does not infringe upon the State Legislature's exclusive jurisdiction.
Conclusion:
The court held that Parliament has the legislative competence to enact sections 115-O(1) and 115-O(3) of the Income-tax Act, 1961, and these provisions are not ultra vires the Constitution. The writ petition was dismissed, and the court directed the parties to bear their own costs.
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2007 (6) TMI 173
Issues involved: Violation of section 269SS of the Income-tax Act, 1961 by obtaining a loan above Rs. 10,000 not through an account payee cheque or bank draft, constitutional validity of sections 269SS, 276DD, and 271D of the Income-tax Act, applicability of penalty and imprisonment post omission of section 276DD.
Violation of Section 269SS: The accused, a cinema actress, obtained a loan of Rs. 4,65,000 from a political party not through an account payee cheque or bank draft, leading to charges under section 276DD read with section 269SS of the Income-tax Act. The trial court found the accused guilty, sentencing her to 2 years rigorous imprisonment and a fine.
Constitutional Validity of Sections 269SS, 276DD, and 271D: The accused challenged the constitutional validity of these sections before the apex court, which upheld their constitutionality. The omission of section 276DD from the Act did not repeal it, leading to the conclusion that prosecution for violations of section 269SS could continue under section 271D.
Applicability of Penalty and Imprisonment Post Omission: Post the omission of section 276DD, the court held that only penalties could be levied under section 271D, not imprisonment. The court set aside the 2-year imprisonment but confirmed the fine of Rs. 4,65,000 imposed on the accused.
Conclusion: The revision was allowed in part, setting aside the 2-year rigorous imprisonment but confirming the fine imposed on the accused for violating section 269SS of the Income-tax Act.
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2007 (6) TMI 172
Whether the assessee who only leased out the vehicle on hire purchase basis, is entitled for higher depreciation – Held, yes – AO isn’t justified in disallowing the claim of 40% depreciation & restricting it to 25% on ground that assessee itself had not utilized the commercial vehicles on hire – revenue’s appeal dismissed
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2007 (6) TMI 171
Amounts spent on replacement of machinery - capital or revenue expenditure – claim had to be determined only by the provisions of the Act, not by the accounting practice of assessee - Department did not raise any objection before the Tribunal regarding the claim of allowance on the premise of the block of assets concept - Tribunal was right in allowing a deduction of the amounts spent on replacement of machinery as revenue expenditure – deduction allowed
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2007 (6) TMI 170
Assessee cleared biscuits valuing them as per Section 4A of CEA - Revenue proceeded to re-assess the goods in terms of provisions of Schedule III of Standards of Weights and Measures (Packaged Commodity) Rules - impugned goods viz., biscuits are notified under Section 4A and are not exempted under Rule 34 of the Packaged Commodity Rules, their valuation would be under Section 4A only - there is no requirement in respect of biscuits that they cannot be packed in packages weighing more than 1 kg
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2007 (6) TMI 169
Appellant, Dept. is seeking condonation of 150 days in filing appeal – plea that delay was due to restructuring of the Department, is not a reasonable cause for delay – above is a routine and stereotype reason furnished by the Revenue in almost all the applications for condonation of delay though restructuring of the Department has actually taken place in the year 2001 whereas this appeal is filed in the year 2003 – merely on the ground of restructuring delay cannot be condoned
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2007 (6) TMI 168
Credit on capital goods – depreciation also claimed on credit amount – decision of CESTAT in the case of Anuradha Sugar Mills Ltd .is fully applicable to this case - since after being pointed out, appellants have filed the revised return with the Income-tax Department reducing the claim to the extent of the credit availed on the capital goods, credit so availed is admissible to the appellants –- once the credit is admissible, penal action is not sustainable – revenue’s appeal rejected
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2007 (6) TMI 167
Transfer of property - no sale agreement between assessee & builder - assessee not received sale consideration during relevant period – no proof that assessee had put the developer in possession of property by receiving the consideration partly or in full - unless there is a written agreement, Section 53A of Transfer of Property Act will not come into operation - Tribunal is right in holding that there is no transfer of property, as contemplated u/s 2(47(v)) – no capital gains assessable
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2007 (6) TMI 166
Demand & penalty imposed by lower authority - lower authority had passed the above order without serving SCN on assessee or giving them any opportunity of being heard – appellate authority was not justified in enquiring into prima facie case and to direct the party to make pre-deposit – appellate authority must have remanded the matter to lower authority for de novo adjudication in accordance with law and the principles of natural justice – appeal stands allowed by way of remand
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2007 (6) TMI 165
Whether the input service tax credit on mobile phone is admissible in terms of Cenvat Credit Rules – Commissioner (Appeals) allowed credit following to decision of the Tribunal in another case – Against that tribunal order, appeal was filed by revenue before HC but failed to produce any order from the Hon’ble High Court for stay of operation of the Tribunals decision – hence impugned decision of comm. (A) of allowing credit is totally justified
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2007 (6) TMI 164
Assessee is a dealer in shares – for AY 1991-92, assessee valued the closing stock of shares at the market value - From AY 1992-93, the assessee changed the method of valuation to cost price - no finding to the effect that the assessee had resorted to an ad hoc change in valuation merely to secure any temporary gain or advantage - being a substitution of one method by another scientific method - assessee was right in changing over the method of valuation, so valuation of stock is correct
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2007 (6) TMI 163
Assessee debited equal amount of diminution in the value of shares in the P/L account claiming it revenue loss - since the issue whether it is a business loss or not has been decided against assessee, it cannot be concluded that the assessee had filed inaccurate particulars of income, because assessee had duly disclosed the same in the audit statements filed before AO - disclosed writing off of investments in audit statements for both the A.Y.s so, penalty u/s 271(1) (c) is not justified
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2007 (6) TMI 162
Deemed Export - Goods supplied to BHEL under notification no. 6/2002 as amended vide notification no. 48/2004 - BHEL is the main contractor for executing the Mega Project for Kahalgaon Super Thermal Power Project by International Competitive Bidding (ICB) - Department denied the benefit of exemption notification on the ground that the appellant, a subcontractor, has not participated in ICB - held that the contention of the department is not acceptable and benefit of exemption is allowed.
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2007 (6) TMI 161
Issues:
1. Valuation of closing stock - inclusion of excise duty element.
2. Interpretation of Section 43B - deduction on actual payments.
Issue 1: Valuation of closing stock - inclusion of excise duty element
The appeal challenged the order of the Income Tax Appellate Tribunal regarding the inclusion of excise duty on the closing stock not cleared from the factory for the assessment year 1993-94. The Assessing Officer included the excise duty element on both cleared and uncleared stock, but the Commissioner of Income Tax (Appeals) deleted these additions. The Tribunal, following a previous judgment, held that excise duty liability should not be included in the valuation of closing stock. The appellant argued against this decision, citing a Supreme Court judgment under Section 43B. However, the court referenced previous decisions where it was held that excise duty liability is not part of the assets in the closing stock valuation and should not be converted into an asset. Thus, the court ruled in favor of the assessee, stating that excise duty on uncleared stock should not be included in the valuation.
Issue 2: Interpretation of Section 43B - deduction on actual payments
The second issue raised in the appeal pertained to the interpretation of Section 43B regarding deductions on actual payments. The court, after resolving the first issue in favor of the assessee, deemed the second issue consequential and decided not to provide a specific answer. The court dismissed the appeal, stating that the excise duty on closing stock not cleared from the factory should not be included in the valuation, aligning with previous judgments and interpretations of the law. The decision was made based on established legal principles and precedents, ultimately resulting in the dismissal of the appeal without costs.
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2007 (6) TMI 160
Another SCN issued after one year in respect of the same subject matter alleging that there is a misstatement of fact – held that as there is no allegation of suppression in earlier proceedings, so allegation of suppression in subsequent SCN is not sustainable – demand of duty time-barred.
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