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2012 (2) TMI 705
Issues involved: Bail application in a case involving charges under Sections 120-B, 420, 468, 471 IPC and Section 7, 12 r/w 7, 13 (2) r/w Section 13(1)(d) P.C. Act.
Summary:
The accused-applicant, a Senior Branch Manager, is involved in a case related to gross violations of bank guidelines in sanctioning housing loans, leading to substantial losses for the bank. Allegations include irregularities in the housing loan segment, resulting in a significant number of loans turning into Non-Performing Assets (NPA). The accused-applicant, along with other co-accused, has been charged and a charge-sheet has been filed. The defense argues that all necessary procedures were followed in sanctioning the loans, including property verification, valuation reports, and legal checks. The bank had taken steps under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, declaring the debt as NPA, writing it off, and securing its interests by taking possession of properties. The defense claims the accused has been falsely implicated, highlighting his lack of criminal history and prolonged incarceration since 2011.
The Court, after considering the facts, records, and arguments from both sides, grants bail to the accused-applicant. The bail is subject to conditions, including not tampering with prosecution evidence or intimidating witnesses, cooperating with a speedy trial, and potential bail cancellation if any conditions are violated.
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2012 (2) TMI 704
Issues Involved:
1. Enforceability of the compromise decree.
2. Whether the execution proceeding was barred by limitation.
Summary:
Enforceability of the Compromise Decree:
The first issue addressed was whether the decree passed by the court of first instance on the basis of compromise was enforceable or required completion of a final decree proceeding. The Supreme Court concluded that the compromise decree dated 03.04.1964 was a final decree. The parties admitted they were in separate and exclusive possession of the properties allotted to them, and no further inquiry was necessary. The decree was final in nature as their shares were allotted, and nothing remained to be done by metes and bounds. The compromise application did not contain any clause regarding the future course of action, indicating that the rights had been fully settled.
Limitation for Execution Proceeding:
The second issue was whether the execution proceeding was barred by limitation. The executing court initially held that the execution petition was barred by limitation. However, the High Court reversed this decision, considering various factors, including the pendency of a subsequent suit and appeal. The Supreme Court, referring to Article 136 of the Limitation Act, stated that the period for filing an execution application is twelve years from when the decree becomes enforceable. It was noted that there was no stay of the earlier judgment or any proceedings emanating from it. The decree became enforceable immediately, and the time consumed in the subsequent suit and appeal could not be excluded for computation of the limitation period. Consequently, the initiation of execution proceedings was barred by limitation, and the High Court's decision was unsustainable.
Conclusion:
The appeal was allowed, the High Court's order in Civil Revision was set aside, and the executing court's decision was restored. The parties were ordered to bear their respective costs.
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2012 (2) TMI 703
Constitutionality of Section 7 of the Indian Medicine Central Council Act, 1970 - Obligation of the Central Government to hold elections to the Central Council - Timeliness and procedural requirements for elections to the Central Council - HELD THAT:- Neither the Government, nor the Central Council can abjure their obligation to complete the election process within five years, or in any case, within a reasonable time thereafter. Thus, in our considered opinion, a period of three months would be more than sufficient for completing the election process in accordance with law. This time limit shall operate only and as and when the Central Government and the Central Council jointly and severely are not able to hold the fresh elections within the term of office of the previously elected members, i.e., five years from the date on which the members first assumed office.
The words of Section 7 of the Act are intended to operate in an extra-ordinary situation, as the normal course should be that the Central Government hold the elections within a period of five years from the date of notification of the elected candidates for the previous tenure. Even where recourse to this exceptional situation becomes necessary, even there, the concept of reasonable time would come into play, in a situation where no definite period has been prescribed by the Legislature itself. The courts can always supply such lacuna in the interpretation of provisions of a law so as to achieve the object of the Act particularly when such interpretation would be in consonance with the legislative object of the statute. Thus, in our considered opinion, a period of three months would be more than sufficient time for completing the election process, in the event of exceptional circumstances and if the elections had not been commenced and completed within the period of previous tenure of five years, as is the requirement of law, and the Government cannot abjure its obligation to do so within a maximum period of three months.
Thus, we partially allow this Public Interest Litigation, with the above observations and the following directions:
(A) Section 7 of the Indian Medicine Central Council Act, 1970 or any part thereof is neither ultra vires nor violative of Articles 14 and/or 16 of the Constitution of India.
(B) We hereby mandate that the Central Government shall discharge all its duties and functions as contemplated under Sections 3, 4 and 7 of the Indian Medicine Central Council Act, 1970, without default, delay and within the required intervals. We make it clear that it is the obligation of the Central Government to hold election to the Central Council within the period of five years i.e., before expiry of, the term of office of the President/Vice-President and Member of the Central Council, as provided under Section 7 of the Act.
(C) In the eventuality of exceptional circumstances, if the Central Government is not able to hold elections within the period of the prescribed term, it shall complete the process within a reasonable time thereafter and in no case, exceeding three months from the date on which the term of the members in office expires.
(D) No elected Member, under any of the three systems of medicine, Ayurveda, Unani or Siddha shall hold the office of the President, Vice President or Member, beyond a period of three months from the expiry of their term.
(E) We direct the Secretary, Ministry of Health and Family Welfare and the President of the Central Council to circulate copies of this judgment, for strict compliance by all concerned.
Conclusion: The Court partially allowed the Public Interest Litigation with specific directions to ensure timely elections and proper constitution of the Central Council. It dismissed other related petitions and applications, providing liberty to the petitioners to seek appropriate relief in competent courts if necessary. The Court appreciated the assistance rendered by the learned ASG and all counsel involved in the case.
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2012 (2) TMI 702
Issues Involved:1. Deletion of addition of Rs. 1,58,14,061/- made u/s 2(22)(e) as deemed dividend. Summary:Issue 1: Deletion of Addition of Rs. 1,58,14,061/- Made u/s 2(22)(e) as Deemed DividendThe Department filed an appeal against the order dated 03.02.2011 by CIT(A)-19, Mumbai, concerning the quantum of assessment for AY 2007-08. The primary issue was the deletion of an addition of Rs. 1,58,14,061/- made u/s 2(22)(e) as deemed dividend. The appellant, engaged in the hotel business, had taken unsecured loans from M/s. EMS Electricals & Engg. Pvt. Ltd. The Assessing Officer (AO) noted that the directors of both companies held significant shares and that M/s. EMS Electricals & Engg. Pvt. Ltd had substantial reserves. The AO held that the provisions of section 2(22)(e) were applicable and taxed the loan amount as deemed dividend in the hands of the assessee company. Before CIT(A), the assessee contended that deemed dividend u/s 2(22)(e) could only be assessed in the hands of a shareholder, and since the assessee company was not a shareholder of M/s. EMS Electricals & Engg. Pvt. Ltd., the provisions were not applicable. The assessee relied on the judgments of CIT vs. Universal Medicare Pvt. Ltd. and ACIT vs. Bhaumik Colour (P) Ltd. The CIT(A) agreed with the assessee, citing the Supreme Court's decision in Sarathy Mudaliar and other relevant judgments, and held that deemed dividend could only be taxed in the hands of a registered shareholder. Since the assessee company was not a shareholder of the lender company, the addition was deleted. The Department argued that the provisions of section 2(22)(e) should apply as the directors were common and had substantial voting rights. However, the assessee's counsel maintained that the issue was covered by the Special Bench judgment in ACIT vs. Bhaumik Colour (P) Ltd., which was also affirmed by the Bombay High Court in CIT vs. Universal Medicare Pvt. Ltd. The Tribunal, after considering the rival submissions and the orders of the AO and CIT(A), upheld the CIT(A)'s decision. It was noted that the assessee company was not a shareholder of the lender company, and the provisions of section 2(22)(e) could not be extended to a non-shareholder. The Tribunal relied on the Special Bench judgment in ACIT vs. Bhaumik Colour (P) Ltd. and the Bombay High Court's decision in CIT vs. Universal Medicare Pvt. Ltd., which clarified that deemed dividend could only be taxed in the hands of the shareholder. In conclusion, the Tribunal dismissed the Department's appeal and upheld the deletion of the addition of Rs. 1,58,14,061/- made u/s 2(22)(e). Order pronounced on this 29th day of February, 2012.
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2012 (2) TMI 701
Issues involved: Complaint u/s 138 of Negotiable Instruments Act, 1881, permission for evidence collection, challenge to trial court and sessions judge orders, quashing petition u/s 482 Cr.P.C.
In the judgment, the petitioner had filed an application seeking permission to take photographs of the cheque and specimen handwriting of the complainant for expert analysis during the trial. The trial court and sessions judge had dismissed the application, leading to a challenge in a petition for quashing u/s 482 Cr.P.C. The petitioner admitted his signatures on the cheque but claimed it was filled up and misused by the complainant. However, the court noted that the petitioner did not confront the complainant with this defense during the trial. The court emphasized that even if details on the cheque were filled by someone else, the petitioner cannot escape liability u/s 138 of the Negotiable Instruments Act if he admitted his signatures. Ultimately, the court found no grounds to quash the orders and dismissed the petition.
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2012 (2) TMI 700
1. ISSUES PRESENTED and CONSIDERED The core legal question in this judgment is whether the principle of mutuality applies to the interest income earned by a society on bank deposits, thereby exempting it from tax under the Income-tax Act, 1961. 2. ISSUE-WISE DETAILED ANALYSIS Issue: Applicability of the Principle of Mutuality to Interest Income Relevant Legal Framework and Precedents: The principle of mutuality, as established in various judgments, dictates that income earned by a mutual association from its members is not taxable. This principle has been elaborated in cases such as Chelmsford Club v. CIT and DIT v. All India Oriental Bank of Commerce Welfare Society, where it was held that if a group of persons contributes to a common fund for a common purpose without any dealings with outside entities, the surplus cannot be considered taxable income. Court's Interpretation and Reasoning: The Tribunal referred to the decision of the Delhi High Court in the case of DIT v. All India Oriental Bank of Commerce Welfare Society, which applied the principle of mutuality to interest income from bank deposits made from contributions by members. The reasoning was that such interest income is derived from funds contributed by members and used for their benefit, thus falling under the principle of mutuality. Key Evidence and Findings: The Tribunal found that the society's funds, generated from member contributions, were deposited in banks, and the interest earned was claimed to be exempt under the principle of mutuality. The Assessing Officer had rejected this claim, arguing that income from third-party dealings (i.e., banks) should be taxable. Application of Law to Facts: The Tribunal applied the principle of mutuality, noting that the funds deposited in banks were entirely from member contributions and were used for mutual benefit. It was emphasized that the identity between contributors and beneficiaries was maintained, meeting the criteria for mutuality. Treatment of Competing Arguments: The Revenue argued that the interest income should be taxable as it involved transactions with third parties (banks). However, the Tribunal, relying on precedents, held that the mere act of depositing funds in a bank does not destroy the mutuality principle, as the funds remain for the benefit of members. Conclusions: The Tribunal concluded that the interest income earned from bank deposits made from members' contributions is exempt under the principle of mutuality, as established by the Delhi High Court and other precedents. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "The principle of mutuality applies to interest income received from the deposits made out of contribution by the members." Core Principles Established: The judgment reinforces the principle that income derived from transactions involving only members of a mutual association is not taxable, even if such income is from interest on bank deposits, provided the funds are used for the mutual benefit of members. Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and confirming that the principle of mutuality exempts the interest income from tax. Conclusion: The appeal was dismissed, affirming the application of the principle of mutuality to the interest income earned by the society, thus exempting it from taxation under the Income-tax Act, 1961.
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2012 (2) TMI 699
The Karnataka High Court dismissed the appeal by the revenue against the order granting relief to the assessee for the assessment year 2006-07. The court adopted the reasoning from a previous case and answered all substantial questions of law in favor of the assessee.
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2012 (2) TMI 697
Issues Involved:
1. Validity of notice issued u/s 158BD after the block assessment of the searched person.
2. Jurisdiction of the Assessing Officer to pass a block assessment.
3. Recording of satisfaction for initiating proceedings u/s 158BD.
Summary:
1. Validity of Notice Issued u/s 158BD:
The assessee challenged the validity of the notice issued u/s 158BD, arguing it was issued after the block assessment of the searched person, Shri M.V. Narayana Gupta, was completed. The CIT(Appeals) agreed with the assessee, citing the Special Bench decision in Manoj Aggarwal v. DCIT (117 ITD 377), which held that such proceedings initiated after the last date were invalid. The Tribunal upheld this view, noting that the satisfaction for issuing the notice was recorded almost a year after the last date for completing the block assessment of the searched person.
2. Jurisdiction of the Assessing Officer:
The Revenue argued that the Assessing Officer of both the searched person and the assessee were the same, and thus the decision in Manoj Aggarwal would not apply. However, the Tribunal found that the satisfaction was recorded after the statutory time period allowed for making an assessment in the case of the searched person, rendering the proceedings invalid.
3. Recording of Satisfaction:
The Tribunal emphasized that recording satisfaction is a prerequisite for initiating proceedings u/s 158BD, regardless of whether the Assessing Officer is the same or different. The satisfaction in this case was recorded after the block assessment period had concluded, which was deemed invalid as per the Punjab and Haryana High Court's decision in CIT v. Mridula, Prop. M/s Dhruv Fabrics (335 ITR 266).
Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(Appeals)'s decision that the notice and subsequent assessment order were invalid and void ab initio. Consequently, the cross-objection filed by the assessee was also dismissed as infructuous. The order was pronounced on 2nd March, 2012.
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2012 (2) TMI 696
Issues involved: Interpretation of the term 'royalty' u/s 9(1) of the Income Tax Act, 1961 in relation to consideration paid by Indian customers to foreign suppliers for software/computer programme usage rights.
Judgment Summary:
Issue 1: Interpretation of 'royalty' u/s 9(1) of the Income Tax Act, 1961
The High Court, in response to the appeal by the revenue against the Tribunal's order favoring the assessee, considered the substantial question of law regarding the payment of consideration by Indian customers to a foreign supplier for the right to use software/computer programs. This question had previously arisen in cases such as Commissioner of Income tax v Synopsis international Old Ltd. and Commissioner of Income Tax v. Samsung Electronics Private Limited. The court held that such consideration falls within the definition of 'royalty' as per sub-clause [V] to Explanation 2 to Clause [vi] of section 9(1) of the Income Tax Act, 1961.
In alignment with the precedents set by the court in previous cases, it was concluded that the consideration paid by Indian customers to foreign suppliers for the transfer of software/computer program usage rights constitutes 'royalty' as defined under the relevant provisions of the Income Tax Act, 1961. Consequently, the substantial questions of law framed in the present case were resolved in favor of the revenue and against the assessee.
Therefore, the appeal by the revenue was allowed, and the order was made accordingly.
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2012 (2) TMI 695
The Karnataka High Court dismissed the revenue's appeal challenging a Tribunal order that granted partial relief to the assessee in a case of block assessment. The Tribunal found the assessment order was passed after the deadline, leading to the dismissal of the appeal.
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2012 (2) TMI 694
Issues Involved:1. Disallowance of depreciation on goodwill. Summary:Disallowance of Depreciation on Goodwill:The Revenue's appeal contested the CIT (A)'s decision to delete the addition of Rs. 1,46,50,834/- made on account of disallowance of depreciation on goodwill. The assessee, engaged in hotel, banquet, and restaurant business, claimed depreciation on goodwill of Rs. 1.46 crores. The AO disallowed this claim, arguing that the payment was for acquiring assets at a higher price, not for intangible assets u/s 32(1). The CIT (A) analyzed the assessee's contentions and judicial pronouncements, concluding that the appellant acquired significant intangible assets, including business rights, brand-name, customer base, and entitlements, from three concerns: M/s. Bhagwati Caterers Private Ltd, M/s. TGB Resorts Karnavati, and M/s. Bhagwati International. The additional amount paid over the book value of tangible assets was accounted for as goodwill, which was considered a commercial right eligible for depreciation u/s 32 of the IT Act. The Tribunal upheld the CIT (A)'s decision, noting that the assessee acquired valuable commercial and business rights, enabling it to continue and expand the businesses of the acquired concerns. The Tribunal referenced judicial precedents, including the Kerala High Court's decision in B. Raveendran Pillai v. CIT and the Delhi High Court's decision in CIT v. Hindustan Coco Cola Beverages (P) Ltd, which supported the view that goodwill is a depreciable intangible asset u/s 32(1)(ii). The Tribunal concluded that the CIT (A) was justified in allowing depreciation on the acquired intangible assets, as the valuation report submitted by the assessee was not successfully challenged by the Revenue. The appeal by the Revenue was dismissed.
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2012 (2) TMI 692
Issues Involved:
1. Whether making of dal from chana, toor, and masur is a manufacturing activity.
2. Entitlement to deduction u/s 80IB(3)(ii) of the I.T. Act.
Summary:
Issue 1: Manufacturing Activity
The primary issue was whether the process of making dal from chana, toor, and masur constitutes a manufacturing activity. The Revenue argued that no new item, article, or thing comes into existence, thus no manufacturing is involved. Conversely, the assessee claimed that the process involves a specialized procedure with the aid of machinery, resulting in a commercially new and distinct product. The Tribunal, referencing its earlier order dated 2.3.2011, detailed the manufacturing process, including mixing, grading, watering, drying, de-husking, splitting, sorting, polishing, and packaging. The Tribunal concluded that the end product, dal, is commercially different from the raw material, thus constituting a manufacturing activity.
Issue 2: Deduction u/s 80IB(3)(ii)
The Tribunal examined whether the assessee is entitled to deduction u/s 80IB(3)(ii) of the I.T. Act. The assessee, a registered SSI Unit, claimed this deduction as a small-scale undertaking. The Assessing Officer had denied the deduction, arguing that no manufacturing was involved. However, the Commissioner of Income Tax (Appeals) decided in favor of the assessee. The Tribunal upheld this decision, citing various judicial pronouncements, including the Hon'ble Apex Court's decisions in cases like India Cine Agencies vs. CIT and CIT vs. Oracle Software India Limited, which supported the view that the process undertaken by the assessee qualifies as manufacturing. Consequently, the Tribunal affirmed that the assessee is entitled to the deduction u/s 80IB(3)(ii) of the Act.
Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the assessee is entitled to the deduction u/s 80IB(3)(ii) of the I.T. Act, as the process of making dal from chana, toor, and masur constitutes a manufacturing activity.
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2012 (2) TMI 691
Issues Involved:
1. Deletion of addition on account of long-term capital gain.
2. Applicability of Section 50C on transfer of leasehold rights.
3. Consideration of alternative ground regarding Section 54F.
Summary:
Issue 1: Deletion of Addition on Account of Long-Term Capital Gain
The appellant Assessing Officer challenged the deletion of Rs. 46,24,350 on account of long-term capital gain by the CIT(A). The CIT(A) held that the assessee was a tenant in the property sold by the owner and the receipt was in the nature of surrendering tenancy rights. The CIT(A) concluded that the capital gains should be computed based on actual consideration and not the stamp duty value.
Issue 2: Applicability of Section 50C on Transfer of Leasehold Rights
The CIT(A) ruled that Section 50C of the Income Tax Act, 1961, does not apply to the transfer of leasehold rights in a building. The Tribunal upheld this view, stating that Section 50C applies only to the transfer of a capital asset, being land or building or both, and not to leasehold rights. The Tribunal noted that the assessee received payment for surrendering tenancy rights, not ownership rights, and thus Section 50C could not be invoked.
Issue 3: Consideration of Alternative Ground Regarding Section 54F
The assessee's cross objection argued that Section 50C is not applicable when the full value of consideration is invested u/s 54F. The CIT(A) did not address this alternative ground, deeming it academic since the primary ground was allowed. The Tribunal agreed, noting that the qualifying investment u/s 54F exceeded the consideration received for surrendering tenancy rights, resulting in no taxable capital gain.
Conclusion:
The Tribunal dismissed both the appeal by the Assessing Officer and the cross objection by the assessee. The Tribunal upheld the CIT(A)'s decision that Section 50C does not apply to the transfer of leasehold rights and that the capital gains should be computed based on actual consideration. The cross objection was deemed academic and not pressed.
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2012 (2) TMI 690
Issues Involved:
1. Validity of re-opening the assessment u/s 147 of the Income Tax Act.
2. Disallowance of loss on account of SWAP cost.
Summary:
1. Validity of Re-opening the Assessment u/s 147:
The assessee, a branch of a foreign bank, filed its original return for the assessment year 1997-98, which was later revised. The Assessing Officer (AO) initially completed the assessment u/s 143(3) but subsequently issued a notice u/s 148 to re-open the assessment u/s 147. The assessee objected, arguing that the re-opening was beyond the four-year period and lacked any allegation of failure to disclose material facts. The first appellate authority rejected the assessee's contentions, but the Tribunal found that the reasons recorded by the AO did not allege any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Citing precedents from the Hon'ble Jurisdictional High Court in Sir Warana Sahakari Dudh Utpadak Prakriya Sang and Bhavesh Developers, the Tribunal concluded that the re-opening was based on a change of opinion and thus invalid. Consequently, the re-opening of the assessment was held to be bad-in-law.
2. Disallowance of Loss on Account of SWAP Cost:
The AO disallowed the loss on account of SWAP cost, which was upheld by the Commissioner (Appeals). The assessee argued that the issue was covered in its favor by the judgment of the Hon'ble Delhi High Court in CIT v/s Industrial Finance Corp. of India Ltd. and the decision of the Mumbai Special Bench in DCIT (IT) v/s Bank of Behrain & Kuwait. The Tribunal, however, did not adjudicate this issue on merits, as it had already concluded that the re-opening of the assessment was invalid, rendering further examination academic.
Conclusion:
The Tribunal allowed the assessee's appeal, holding that the re-opening of the assessment was invalid due to the absence of any failure to disclose material facts and being based on a change of opinion. Consequently, the disallowance of the SWAP cost was not adjudicated on merits. The order was pronounced in the open Court on 10th February 2012.
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2012 (2) TMI 689
Issues Involved:
1. Eligibility for deduction u/s 80P(2)(a)(i) of the I.T. Act, 1961.
2. Validity of the decision of the first appellate authority in allowing the appeal of the assessee.
Summary:
1. Eligibility for deduction u/s 80P(2)(a)(i) of the I.T. Act, 1961:
The Revenue contested the first appellate authority's decision, which allowed the assessee's appeal by relying on a prior decision of the ITAT in the assessee's own case (ITA No.41/Ind/2007 dated 16.5.2008 for A.Y. 2003-04). The Revenue argued that the assessee was not eligible for deduction u/s 80P(2)(a)(i) of the I.T. Act, 1961, and noted that the said decision was not accepted by the Department, with an appeal u/s 260A pending before the Hon'ble High Court at Jabalpur.
2. Validity of the decision of the first appellate authority in allowing the appeal of the assessee:
During the hearing, the learned counsel for the assessee asserted that the issue was covered in favor of the assessee by the Tribunal's decision. This assertion was not contested by the Revenue. The Tribunal reviewed the material and found that the issue was indeed covered by its latest decision in ITA No.54/Ind/2011 (A.Y. 2007-08), which considered the order for A.Y. 2003-04. The Tribunal reproduced relevant portions of the order dated 4.11.2011, which concluded that the interest arising from investments made in compliance with statutory provisions to enable the assessee bank/federation to carry on banking business out of reserved funds is exempt u/s 80P(2)(a)(i) of the I.T. Act, 1961. The Tribunal cited various judicial pronouncements, including decisions from the Hon'ble Supreme Court and High Courts, supporting this conclusion.
The Tribunal affirmed the first appellate authority's decision, noting that the interest income on fixed deposits and savings bank accounts is part of the banking activity/business of the assessee. The Tribunal dismissed the Revenue's appeal, stating that no contrary decision was presented, and the facts were identical to the assessment year 2007-08.
Conclusion:
The appeal of the Revenue was dismissed, and the order was pronounced in the open Court in the presence of learned representatives from both sides at the conclusion of the hearing on 21.2.2012.
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2012 (2) TMI 688
Issues Involved:
1. Treatment of loss on forfeiture of share application money.
2. Disallowance u/s 14A regarding the use of borrowed funds for business/trade purposes.
Summary:
Issue 1: Treatment of Loss on Forfeiture of Share Application Money
The assessee, a non-banking financial company (NBFC), claimed a business loss of Rs. 41,60,000/- due to the forfeiture of share application money for convertible warrants of Surya Roshni Ltd. The Assessing Officer (AO) treated this loss as a capital loss, not a business loss. The assessee argued that the shares were held as stock in trade and cited various judgments, including the Bombay High Court's ruling in Tainwala Trading & Investment Co. Ltd., to support its claim. The AO, however, relied on judgments such as CIT Vs. Mrs. Grace Collis and others to justify treating the loss as capital. The CIT(A) upheld the AO's decision, stating that the cited cases were not applicable to the assessee's situation. The Tribunal noted that the lower authorities did not adequately consider the nature of the investment as stock in trade and remanded the issue back to the AO for reconsideration, emphasizing the need to examine the facts in light of the Bombay High Court judgment.
Issue 2: Disallowance u/s 14A
The AO disallowed Rs. 19,53,603/- u/s 14A, attributing it to dividend income. The CIT(A) partially upheld this disallowance, reducing it to Rs. 9,88,191/- after excluding interest expenses related to loans specifically used for acquiring Reliance Power shares. The assessee contended that the shares generating the dividend were not purchased with borrowed funds and that the interest claimed had no nexus with the dividend income. The Tribunal found that the lower authorities did not properly examine the assessee's claim u/s 36(1)(iii) and the relationship between the borrowed funds and the dividend income. Consequently, the Tribunal remanded this issue back to the AO for a fresh decision, considering the assessee's claims and relevant legal provisions.
Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes, remanding both issues back to the AO for reconsideration and proper examination of the facts and legal arguments presented by the assessee.
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2012 (2) TMI 687
Issues Involved:
1. Eligibility and computation of deduction u/s 36(1)(viii) of the Income-tax Act.
2. Interpretation of the terms "Paid up Capital" and "General Reserves" in the context of the proviso to Section 36(1)(viii).
Summary:
Issue 1: Eligibility and Computation of Deduction u/s 36(1)(viii)
The assessee, a housing finance company, claimed a deduction of Rs. 14,79,41,734/- u/s 36(1)(viii) of the Income-tax Act. The Assessing Officer (AO) reduced this claim to Rs. 2,36,50,900/-, citing that the aggregate of amounts carried to the Special Reserve exceeded twice the amount of the paid-up share capital and general reserves. The AO's decision was based on the interpretation that only the paid-up capital and general reserves should be considered, excluding share premium and profit and loss account balance.
Issue 2: Interpretation of "Paid up Capital" and "General Reserves"
The assessee argued that the terms "Paid up Capital" and "General Reserves" should be interpreted as a single coined term, akin to "Net Worth" under other laws. They included share premium and profit and loss account balance in the computation of general reserves. The Commissioner of Income-tax (Appeals) and the Tribunal both rejected this interpretation, holding that share premium and profit and loss account balance do not qualify as general reserves. The Tribunal upheld the AO's decision, emphasizing that "General Reserves" should be free reserves capable of being distributed through the profit and loss account, which share premium and profit and loss account balance are not.
Detailed Judgment:
1. AO's Analysis: The AO examined the balance sheet and concluded that share premium and profit and loss account balance should not be included in the definition of general reserves. The AO relied on judicial precedents and the Finance Minister's budget speech to support this interpretation.
2. CIT(A)'s Decision: The Commissioner of Income-tax (Appeals) confirmed the AO's decision, stating that general reserves should be revenue reserves and free reserves, capable of being distributed as dividends. The CIT(A) excluded share premium and profit and loss account balance from general reserves.
3. Tribunal's Judgment: The Tribunal agreed with the CIT(A)'s detailed order, stating that the term "General Reserves" does not include share premium, profit and loss account balance, or special reserves. The Tribunal emphasized that the interpretation should be based on the specific context of the Income-tax Act and not on definitions from other laws or budget speeches.
4. Conclusion: The Tribunal dismissed the assessee's appeal, confirming the lower authorities' interpretation and computation of the deduction u/s 36(1)(viii).
Order:
The appeal was dismissed, and the order was pronounced in open court on 24.02.2012.
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2012 (2) TMI 686
Issues Involved:
1. Deduction of Rs. 26,09,350/- as cash payment for Pratiksha Building.
2. Existence of cash payment of Rs. 26,09,350/- for Pratiksha Project.
3. Deletion of disallowance of Rs. 24,15,160/- made u/s 40A(3).
4. Disallowance as undisclosed income within the definition of Sec. 158B.
5. Disallowance u/s 40A(3) in block assessment outside the ambit of Chapter XIV-B.
6. Deletion of addition of Rs. 3,99,763/- for sale of Flat No. 10 in Pratiksha and Pranav Apartments.
Summary:
Ground Nos. 1 & 2:
The revenue questioned the deduction of Rs. 26,09,350/- as cash payment made to Shri Narendra Thakkar for Pratiksha Building. The assessee firm, engaged in the business of builders, was subjected to a search operation u/s 132, and certain documents were seized. The assessee claimed that cash payments were made to Shri Narendra Thakkar as on-money consideration for plot No. 33. The CIT(A) allowed the deduction, holding that the payments were evident from the seized documents. The Tribunal upheld the CIT(A)'s decision, stating that the nexus of transactions between the assessee and Shri Jitendra M. Thakker and his brother Shri Narendra M. Thakker was established, and the payments were evident from the seized documents. Thus, the grounds were rejected.
Ground Nos. 3 to 5:
The AO disallowed 20% of cash payments exceeding Rs. 20,000/- u/s 40A(3), amounting to Rs. 24,15,160/-, on the basis that the cash expenses would not have been revealed but for the search action. The CIT(A) deleted the disallowance, following the decision of the Nagpur Bench of the Tribunal in the case of Sadhuram Wadhwani, which held that disallowance u/s 40A(3) in block assessment was outside the ambit of Chapter XIV-B. The Tribunal upheld the CIT(A)'s decision, noting that different High Courts had expressed different views on the issue, and in the absence of a binding decision from the jurisdictional High Court, the view favorable to the assessee was adopted. Thus, the grounds were rejected.
Ground No. 6:
The AO estimated Rs. 3,99,763/- as on-money receipt for two flats sold by the assessee. The CIT(A) deleted the addition, stating that no addition could be made on estimation without support of any seized material. The Tribunal concurred with the CIT(A), noting that the assessee had recorded all transactions of on-money receipts in the seized records, and there was no reason for the assessee not to record on-money receipts for the two flats if it had actually received the same. The Tribunal upheld the CIT(A)'s decision, stating that the addition based on presumption and surmises was not in conformity with the provisions of Sec. 158BB. Thus, the ground was rejected.
Conclusion:
The appeal was dismissed, and the order was pronounced in the open Court on 13th February 2012.
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2012 (2) TMI 685
Issues involved: Challenge to the validity of Sections 65(105)(zzq) and 65(105)(zzzh) of the Finance Act, 1994 as amended by the Finance Act, 2010 under Articles 14, 246, and 265 of the Constitution of India and Section 66 of the Finance Act.
The petitioner filed a petition under Article 226 of the Constitution of India seeking a declaration that Sections 65(105)(zzq) and 65(105)(zzzh) of the Finance Act, 1994 as amended by the Finance Act, 2010 are null and void and violative of constitutional provisions. The petitioner challenged the validity of these sections under Articles 14, 246, and 265 of the Constitution of India and as ultra vires of Section 66 of the Finance Act.
The High Court noted that the controversy raised in this petition was already addressed in a judgment dated 19th/20th January, 2012, by another Division Bench of the Court in a related case (Writ Petition No.1456 of 2010 and cognate petitions). In line with the previous decision, the present petition was also dismissed.
Following the dismissal of the petition, the petitioner's counsel indicated that the service tax liability would be discharged under protest and without prejudice to their rights and contentions. The petitioner planned to file a special leave petition to challenge the High Court's decision.
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2012 (2) TMI 684
Issues involved:
The judgment deals with the issues of charging interest u/s 201(1A) of the Income-tax Act on account of short deduction of tax at source in respect of non-deduction of TDS on interest paid to Bihar State Housing Board and on deposits made by the official liquidator appointed by the Hon'ble High Court Patna for the company Rohtas Industries Limited.
Issue 1: Failure to deduct TDS on interest paid to official liquidator
The appellant contested the order of the Ld. CIT(A) regarding the failure to deduct TDS on interest paid to the official liquidator of Rohtas Industries Limited. The appellant argued that the official liquidator, being appointed by the Hon'ble High Court, was not liable to pay tax under the Act. Additionally, it was contended that the funds deposited by the official liquidator did not belong to him, and the interest earned was solely to safeguard against further losses to the company in liquidation.
The Ld. CIT(A) rejected the appellant's contentions, citing precedents that companies in liquidation are also liable for tax payments. It was held that the interest paid to the official liquidator constituted income of the company in liquidation, and since the funds were related to a taxable entity, TDS should have been deducted. The Ld. CIT(A) further emphasized that the official liquidator is considered the principal officer under the Income-tax Act and has a statutory duty to comply with tax obligations.
Issue 2: Legal proceedings against the company in liquidation
The appellant argued that the assessing officer should have obtained permission from the Company Court before initiating proceedings for the recovery of TDS and interest from the appellant bank. Reference was made to the requirement under section 446 of the Companies Act, which mandates permission from the Company Court for legal actions against a company in liquidation.
The Tribunal analyzed the provisions of the Companies Act and the Income-tax Act, highlighting that the official liquidator, upon appointment, is deemed the principal officer of the winding-up company and is obligated to comply with tax laws. It was noted that the appellant bank failed to deduct TDS on interest payments to the official liquidator, resulting in the bank being in default and liable for the shortfall of TDS. The Tribunal dismissed the appellant's argument regarding the necessity of permission from the Company Court, affirming the assessing officer's authority to initiate proceedings for TDS non-compliance.
Conclusion:
The Tribunal upheld the order of the Ld. CIT(A) and dismissed the appeal of the appellant, affirming the liability of the appellant bank for the shortfall of TDS on interest payments to the official liquidator. The judgment emphasized the statutory duty of the official liquidator to comply with tax provisions and the appellant bank's obligation to deduct TDS as per the Income-tax Act.
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