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2008 (10) TMI 284
Issues Involved:
1. Interest charged u/s 220(2) of the Income-tax Act, 1961.
2. Applicability of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964.
3. Interpretation of appellate orders and their impact on original assessment orders.
Summary:
Issue 1: Interest charged u/s 220(2) of the Income-tax Act, 1961
The appeal concerns the cancellation of interest charged by the Assessing Officer (AO) u/s 220(2) of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) [CIT(A)] had set aside the interest charged by the AO, prompting the Revenue to appeal. The AO had charged interest from the due date of the original demand, which the CIT(A) deemed incorrect.
Issue 2: Applicability of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964
The Revenue argued that the original demand gets restored upon passing a consequential order by the AO, as per the Validation Act, and thus interest u/s 220(2) was correctly charged from the original due date. The CIT(A)'s order was seen as a modification rather than a fresh order, implying that the original demand notice remained effective.
Issue 3: Interpretation of appellate orders and their impact on original assessment orders
The CIT(A) had set aside the assessment on specific issues, leading to a recomputation of income. The assessee contended that the entire order was set aside, and interest should be charged only from the date of the consequential order. The Tribunal noted that the CIT(A) had not set aside the entire assessment but only directed modifications on certain issues. Therefore, the original demand notice remained valid, and interest was chargeable from the original due date.
Conclusion:
The Tribunal concluded that the provisions of the Validation Act apply, and interest u/s 220(2) is chargeable from the original demand notice's due date. The CIT(A)'s order was reversed, and the appeal filed by the Revenue was allowed. The Tribunal emphasized that the original assessment order was not entirely set aside, and the modifications directed by the CIT(A) did not nullify the original demand notice. Consequently, interest was correctly charged from the original due date.
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2008 (10) TMI 282
Issues Involved:1. Disallowance of Rs. 60,000 out of director's remuneration u/s 40A(2)(b). 2. Justification of the increase in director's remuneration. 3. Examination of the reasonableness and business exigency of the remuneration. Summary:Issue 1: Disallowance of Rs. 60,000 out of director's remuneration u/s 40A(2)(b)The AO made an addition of Rs. 60,000 out of director's remuneration while passing the assessment order u/s 143(3) and directed for charging interest u/s 234B and 234C. The learned CIT(A) sustained the addition and confirmed the finding of AO for disallowance by invoking s. 40A(2)(b) of the Act. The assessee appealed against this decision. Issue 2: Justification of the increase in director's remunerationThe assessee argued that the director, an MBA from Pune University, was paid Rs. 20,000 per month due to his significant contribution to the company, which was justified by a board resolution. The director's remuneration was increased from Rs. 10,000 to Rs. 20,000 per month due to his contributions. The learned senior Departmental Representative contended that there were no circumstances to justify the increase in salary, and the AO found the payment beyond reasonableness by invoking s. 40A(2)(b). Issue 3: Examination of the reasonableness and business exigency of the remunerationThe Tribunal noted that the director was appointed as per a board resolution and there was no violation of s. 37 of the Companies Act. The director was responsible for production, sales, administration, finance, and legal compliances without any perquisites. It was emphasized that it is the prerogative of the company to manage its affairs, including the pay of directors, within the provisions of the relevant Act. The Tribunal concluded that the increased payment was due to commercial exigency and not unreasonable, supported by various case laws. Separate Judgments:There was a dissenting opinion between the members of the Tribunal. The learned AM upheld the addition made by the AO, emphasizing the AO's power to examine the reasonableness of payments made to persons specified in s. 40A(2)(b). The learned JM, however, found the disallowance unjustified, arguing that the remuneration was not excessive or unreasonable given the director's responsibilities and qualifications. The Vice President, acting as the Third Member, agreed with the JM, stating that no enquiry was made to ascertain whether the payment was excessive or unreasonable having regard to the fair market value of the services rendered. Conclusion:The Tribunal concluded that the disallowance made by the AO and confirmed by the learned CIT(A) was unjustified and unreasonable, and thus, the appeal of the assessee was allowed.
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2008 (10) TMI 281
Issues Involved:
1. Addition of Rs. 1,60,000 for unexplained excess cash found during the survey.
2. Addition of Rs. 2,000 in the husk account on the ground of alleged unrecorded sales.
Detailed Analysis:
1. Addition of Rs. 1,60,000 for Unexplained Excess Cash Found During the Survey:
Background:
- The assessee, a partnership firm running a rice mill, was subject to a survey under s. 133A on 20th Jan., 2003. During the survey, excess cash of Rs. 2,51,250 was found.
- The partner of the firm could not explain the excess cash during the survey and agreed to surrender it as income. However, in the return filed later, only Rs. 91,250 was offered as income, explaining that Rs. 1,60,000 was withdrawn from its bank account on the survey date.
AO's Decision:
- The AO rejected the explanation, noting the physical impossibility of withdrawing Rs. 1,60,000 from Raipur (140 kms away) and bringing it to the premises before the survey started. The AO added Rs. 1,60,000 to the total income.
CIT(A)'s Decision:
- The CIT(A) upheld the AO's addition, reasoning that the distance made it impossible to withdraw and transport the cash in time for the survey. The retraction was also not immediate but made at the time of filing the return, which was not credible.
ITAT Members' Opinions:
- Judicial Member (JM):
- The JM found the addition unjustified, noting that the withdrawal was recorded in the books and supported by documentary evidence (cheque and bank statement). The retraction was based on corroborative evidence, and the addition was made on mere presumption without rejecting the books of account.
- Accountant Member (AM):
- The AM agreed with the CIT(A), emphasizing the physical impossibility and the lack of immediate retraction. The explanation was seen as an afterthought, and the addition was upheld.
- Third Member (Vice President):
- The Vice President sided with the AM, highlighting the impossibility of transporting the cash 140 kms in time for the survey. The statement of the partner during the survey and the delayed retraction undermined the credibility of the explanation.
Final Decision:
- The majority decision upheld the addition of Rs. 1,60,000, finding the explanation of the assessee implausible and the retraction not credible.
2. Addition of Rs. 2,000 in the Husk Account:
Background:
- The AO added Rs. 2,000 for alleged unrecorded sales in the husk account.
CIT(A)'s Decision:
- The CIT(A) confirmed the addition.
ITAT Decision:
- The assessee did not press this ground during the hearing. Consequently, the ground was dismissed for non-prosecution.
Conclusion:
- The appeal of the assessee was partly allowed. The addition of Rs. 1,60,000 was upheld based on the majority decision of the ITAT members. The addition of Rs. 2,000 was dismissed due to non-prosecution by the assessee.
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2008 (10) TMI 280
Disallowance out of Director's remuneration u/s 40A(2)(a) - excessive or unreasonable - difference of opinion between the Members - Third Member Appointment - business of running a Roller Flour Mill - AO noted that the assessee had discontinued its manufacturing activities and instead carried on the job work of its sister concern. It was also noted that Shri Aditya Goel was also working director in M/s. Ind Agro Synergy Ltd., where he was fully engaged in installation and commencement of business of Sponge Iron Unit of the said concern. Therefore, AO was of the view that the increase in the salary to Shri Aditya Goel was excessive. Consequently, disallowance made u/s 40A(2)(a). CIT(A) upheld the order of AO.
HELD THAT:- The payment to the Director was made as per resolution within the provisions of Companies Act which prevails over Income-tax Act. The revenue cannot be replaced for Board of Directors. It is prerogative of the Board of Directors to run the industry in the national interest keeping in view the social responsibility.
Since the increase in the salary was supported by Board of Directors Resolution and there is no embargo under the Companies Act to have Directorship in two companies and the payment made to the Director after having increase in turnover and profitability of the company during the relevant assessment year which is brought on record by the assessee. Therefore, we conclude that the increased payment is due to commercial exigency and not unreasonable. Our view get support from orders in Addl. CIT v. Kuber Singh Bhagwandas [1978 (10) TMI 134 - MADHYA PRADESH HIGH COURT], CIT v. Sinnar Bidi Udyog Ltd. [2002 (6) TMI 33 - BOMBAY HIGH COURT] and CIT v. Dalmia Cement (Bharat) Ltd.[2001 (9) TMI 48 - DELHI HIGH COURT]. The AO and the CIT has not brought on record any reason for disallowing the higher payment being personal benefit or not for business purpose.
Therefore, we are of the definite view that the disallowance made by the AO and confirmed by the CIT(A) in appeal is unjustified and unreasonable, to be set aside.
On the other hand, the ld JM was of the view that no disallowance could be made u/s 40A(2)(a) inasmuch as the remuneration paid to Shri Aditya Goel, director of the assessee-company could not be said to be excessive or unreasonable since (i) the appointment of the director was made as per the resolution passed by the Board of Directors in their meeting held on 30-9-2003, (ii) that Shri Goel was to look after the production, sales, administration, finance and legal matters without any perquisites, (iii) that it is the prerogative of the company as how to run and manage the daily affairs of the company and, therefore, the same could not be challenged and (iv) that increase in the salary was supported by the resolution passed by the Board of Directors as usual and there is no embargo under the Companies Act to have directorship in two companies.
Third Member order - In the absence of enquiry as contemplated by the provisions of section 40A(2)(a), no disallowance could have been made or sustained. The onus was on the AO to bring the material on record to prove that the payment made by the assessee was excessive or unreasonable having regard to the fair market value of the services rendered. If some material evidence is brought on record to indicate that payment appeared to be excessive or unreasonable then the onus would shift to the assessee to prove that the payment was not excessive or unreasonable.
Since no enquiry as contemplated by the aforesaid provisions was made on this account, it cannot be said that the payment was excessive or unreasonable. Therefore, I find myself in agreement with the conclusions arrived at by the Ld JM though for different reasons.
The matter may now be placed before the Division Bench for disposal of the appeal.
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2008 (10) TMI 275
Claim of depreciation on Road - Expenditure incurred on construction and development - Claimed depreciation as plant and machinery @ 25 per cent - Whether the assessee would become entitled to depreciation on the road in the category of building - entered into an agreement of concession with the State of Tamil Nadu for development of project in the roads owned by the Government of Tamil Nadu.
HELD THAT:- From the Explanation (1) to section 32 Explanation makes it clear that in case, the assessee incurs expenditure for the purpose of business operation on the construction of any structure or by way of renovation or extension of a building, etc., which is owned by the assessee on leasehold basis, then the assessee is entitled to depreciation as if such building was owned by him. This means even if the expenditure is incurred on construction of any structure on leasehold property such expenditure will also be treated as capital expenditure and the assessee becomes entitled to depreciation.
It is not disputed before us that the road has been constructed and developed on the Government land as well as existing road which is owned by the Government of Tamil Nadu. Therefore, there is no question of claiming such expenditure as revenue expenditure. In any case, the ld counsel for the assessee had mentioned during the hearing that he was only serious about the claim of depreciation and such depreciation should be allowed on the basis as if the road constitutes a plant.
Merely because some Optical Fibre lines or connection lines have been laid, the road cannot get converted into a plant. As per agreement entered into Government of Tamil Nadu, the assessee-company became entitled to collect fixed amount of toll per vehicle for which it could have created any kind of barrier for collection of such toll. If the assessee has chosen to install automated toll plaza then the same was done for its own convenience and mere construction of one toll plaza will not change the nature of the asset which remains the road.
In the case of Scientific Engg. House (P.) Ltd.[1985 (11) TMI 1 - SUPREME COURT], the Hon'ble Supreme Court was concerned with the issue as to whether the expenditure incurred on documentation services consisting of specification for manufacture of certain instruments constitute plant. SC held that sanitary and pipeline fittings fill within the definition of plant.
It is absolutely clear that the Hon'ble Supreme Court has held in the case of Indore Municipal Corpn.[1997 (3) TMI 92 - SUPREME COURT] that the buildings would not include roads because Appendix I did not clarify that roads would be included in the building. As pointed out, after the AY 1988-89, all the Appendices have the note that building would include roads. Therefore, in our view, the assessee would become entitled to depreciation on the road in the category of building. In these circumstances, we set aside the order of the CIT (A) on this issue and direct the AO to allow depreciation on the road at the rate applicable to the buildings.
This appeal is partly allowed.
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2008 (10) TMI 273
Issues Involved:
1. Legitimacy of penalty u/s 271(1)(c) for concealment of income.
2. Applicability of Explanation 5 to Section 271(1)(c).
3. Validity of assessment based on estimated income.
Summary:
1. Legitimacy of Penalty u/s 271(1)(c) for Concealment of Income:
The assessee, engaged in various businesses including Arrack, did not file a return for the assessment year 1986-87. The AO assessed the total income at Rs. 20,56,130 u/s 144 and levied a penalty of Rs. 10,06,590 u/s 271(1)(c) for concealment of income. The CIT(A) confirmed the penalty, stating that the assessee had concealed income and failed to cooperate with the Department.
2. Applicability of Explanation 5 to Section 271(1)(c):
The CIT(A) invoked Explanation 5 to Section 271(1)(c), arguing that the penalty was justified as the income came to light only due to search and seizure operations. However, the Tribunal noted that Explanation 5 applies to assets found during a search, not to estimated income. The Tribunal held that the CIT(A) erred in applying Explanation 5 to the additions made by the AO on account of estimated income from various sources.
3. Validity of Assessment Based on Estimated Income:
The AO's assessment included estimated income from Arrack shops and other businesses. The Tribunal emphasized that the main item of Rs. 15,15,284 was based on pure estimation. The Tribunal concluded that a legal fiction, such as Explanation 5, should not be extended beyond its intended purpose. Since the additions did not represent tangible assets found during the search, the penalty could not be sustained.
Conclusion:
The Tribunal cancelled the penalty, stating that the CIT(A)'s order could not be sustained. The appeal filed by the assessee was allowed.
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2008 (10) TMI 270
Issues involved:
Cross-appeals against CIT(A) order for asst. yr. 2000-01, additional ground of appeal, legality of IT Inspector's statements during search, trading addition based on statements, validity of evidence, GP rate declaration, job work receipts, appeal against deceased person.
Analysis:
The case involves cross-appeals challenging the CIT(A) order for the assessment year 2000-01. The appeal by the assessee includes an additional ground related to the authority of the IT Inspector to take statements during a search. The Inspector's statements were crucial in determining a trading addition made by the Assessing Officer (AO) based on the stock estimation and statements of an individual. The legality of these statements was questioned as they were not signed by the Inspector or the AO, rendering them invalid as evidence against the assessee.
Regarding the trading addition, it was noted that the GP rate declared by the assessee was better than previous years, indicating proper maintenance of accounts. However, discrepancies in recording purchase bills were found, leading to sustained additions in the trading account. The exclusion of the statements and lack of concrete evidence supporting the trading addition led to the dismissal of further additions by the ITAT.
In relation to job work receipts, the AO made an addition based on estimated net income, which was reduced by the CIT(A) and further relief granted. The ITAT concurred with the CIT(A) decision, finding no basis for additional additions in the job work receipts account.
Lastly, an argument was raised regarding the appeal against a deceased person. The ITAT clarified that while an appeal against a deceased individual may not be maintainable, in this case, the death of the assessee was only brought to the notice of the authorities after the appeal was filed. Therefore, the appeal was deemed not to abate, and corrections were made by including legal representatives on record.
In conclusion, the appeals were partly allowed, with the additional ground of appeal being disallowed entirely, the assessee's ground allowed, and the Revenue's appeal dismissed on certain issues.
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2008 (10) TMI 268
Issues Involved:
The issues involved in the judgment are the treatment of the assessee company as assessee in default under section 201(1) for alleged TDS on deemed dividend and the confirmation of the levy of interest under section 201(1A)/194 of the IT Act 1961.
Treatment of Assessee as Assessee in Default:
The case involved a survey under section 133A of the Act, where it was found that the assessee had not deducted TDS under section 194 of the Act on certain payments and had also not deposited the TDS deducted in the Government account within the specified time. The Assessing Officer (AO) determined the tax liability of the assessee under section 201(1) for non-deduction of TDS and also calculated the interest payable under section 201(1A). The learned CIT(A) confirmed the AO's action. However, the Tribunal allowed the appeal of the assessee, stating that there was no requirement of TDS under section 194 in the present case as the payments were made to non-shareholders, and therefore, the assessee could not be held as assessee in default under section 201.
Levy of Interest:
Regarding the levy of interest under section 201(1A)/194 of the IT Act 1961, the Tribunal held that since there was no requirement of TDS under section 194, the assessee could not be treated as assessee in default under section 201. Consequently, the Tribunal allowed the appeal of the assessee, quashing the levy of interest under section 201(1A).
In conclusion, the Tribunal allowed the appeal of the assessee, stating that there was no requirement of TDS under section 194 for the payments made to non-shareholders, and therefore, the assessee could not be considered as assessee in default under section 201. Additionally, the Tribunal quashed the levy of interest under section 201(1A), resulting in the appeal of the assessee being allowed.
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2008 (10) TMI 264
Issues Involved:
1. Taxability of reimbursement of advance tax from AP Transco.
2. Taxability of interest earned on margin money kept for providing bank guarantees.
Issue-wise Detailed Analysis:
1. Taxability of Reimbursement of Advance Tax from AP Transco:
The assessee, a private limited company engaged in the business of power generation, contended that the reimbursement of advance tax from AP Transco should not be taxed for the assessment year 1999-2000. The assessee argued that as per the Power Purchase Agreement (PPA) with APSEB, the reimbursement of taxes would commence only after the start of commercial production, which began on 25th Oct 2000, relevant to the assessment year 2001-02. The assessee further stated that no claim for reimbursement was made or received during the assessment year 1999-2000. The Assessing Officer (AO) disagreed and added the advance tax amount of Rs. 4,25,000 to the income of the assessee, which was upheld by the CIT(A).
Upon appeal, it was found that during the relevant assessment year, the power plant was under construction and no income from the project was realized. The clause 3.8 of the PPA specified that the tax to be reimbursed would be calculated on the income from the project only. Since there was no project income and no reimbursement claim was made, the Tribunal concluded that the addition of Rs. 4,25,000 was not sustainable and deleted it.
2. Taxability of Interest Earned on Margin Money Kept for Providing Bank Guarantees:
The AO noted that the assessee earned interest of Rs. 25,83,348 on margin money kept for providing bank guarantees to APSEB and added this amount to the income of the assessee under the head 'Income from other sources.' The assessee argued that the margin money was kept as a contractual obligation and the interest earned was incidental to the business, not intended for earning interest. The CIT(A) deleted the addition, holding that the reassessment proceedings were not valid.
The Tribunal examined whether the AO could assess the interest income in the reassessment proceedings initiated for a different reason. It was noted that during the original assessment, the AO had raised a specific query regarding the taxability of interest income, which the assessee had explained. The reassessment proceedings were initiated to tax the reimbursement of income-tax from AP Transco, not the interest income. However, during reassessment, the AO noticed the interest income and added it to the income of the assessee.
The Tribunal referred to various judgments, including the Supreme Court's decision in Kalyanji Mavji & Co. vs. CIT, which allowed the AO to reassess any escaped income noticed during reassessment proceedings. It was held that the interest income on margin money was taxable under 'Income from other sources' and the AO was justified in adding it during reassessment. The Tribunal reversed the CIT(A)'s order and restored the AO's addition of Rs. 25,83,348.
Conclusion:
The appeals filed by both the assessee and the Revenue were allowed. The Tribunal deleted the addition of Rs. 4,25,000 towards reimbursement of advance tax and upheld the addition of Rs. 25,83,348 towards interest earned on margin money.
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2008 (10) TMI 263
Issues involved:
The issues involved in this judgment are whether the notice under section 148 was rightly issued as per Explanation 1 to the proviso to section 147 of the Income Tax Act, 1961, and whether the claim of depreciation of Rs. 16,20,35,856 was admissible to the assessee company.
Notice u/s 148:
The Revenue contended that the notice under section 148 was validly issued as per Explanation 1 to the proviso to section 147. The Explanation states that the production of account books or evidence that could have been discovered by the Assessing Officer will not necessarily amount to disclosure. On the other hand, the Authorized Representative argued that the notice for reopening the assessment was erroneous and beyond the time limit prescribed by law. It was asserted that all relevant information regarding depreciation claimed was available to the Assessing Officer during the reassessment, and no new information had come to light. The Tribunal held that the reopening of assessment was not valid as the conditions for invoking section 147 were not satisfied, and it was deemed a change of opinion by the Assessing Officer.
Claim of Depreciation:
Regarding the claim of depreciation, the Assessing Officer had disallowed Rs. 16,20,35,856 on account of depreciation. The Authorized Representative argued that the restriction of depreciation to 50% should only apply if the asset was acquired during the year and used for less than 180 days, which was not the case here. The assets in question were acquired in earlier years and used for more than 180 days during the assessment year. The Tribunal found that the reassessment under section 143(3) read with section 147 was not validly made. It was noted that the amendment to section 43A requiring proof of remittance for claiming depreciation on foreign exchange fluctuation was not applicable for earlier assessment years. Therefore, the Tribunal upheld the order of the CIT(A) annulling the reassessment and deleting the demand raised by the Revenue.
Conclusion:
In conclusion, the Tribunal dismissed the appeal of the Revenue, holding that the notice under section 148 was not validly issued and the claim of depreciation disallowed by the Assessing Officer was found to be admissible. The order of the CIT(A) annulling the reassessment and deleting the demand was confirmed.
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2008 (10) TMI 262
Long-term and short-term capital gains - Transfer Of Land - Joint development agreement - exemption u/s. 54F - Liability to pay capital gains - Capital gain arise in the year of entering into development agreement or not - AO hold that the assessee had entered into two different transactions resulting into two kinds of capital gains-long-term capital gains on transfer of ownership rights over 55 per cent of the undivided share of land and short-term capital gains on sale of flat - CIT(A) upheld the computation of short-term capital gains on the sale of flat (part) except for correcting certain computational errors. Thus, the assessee got partial relief from the CIT(A).
HELD THAT:- It is well established that it is enough if the assessee has received the right to receive the consideration. The assessment so made may be liable to modification when the actual consideration is determined. Therefore, we have no hesitation in holding that in the instant case, capital gains accrued in the previous year relevant to AY 2000-01. May be, the AO might have had to resort to estimating the consideration but the same would have been subject to modification later. Thus, we hold that the capital gain arising on the transfer of land is not chargeable to tax in the year under consideration.
It is not in dispute that the land held by the assessee was her capital asset. It cannot also be disputed that the flats acquired by her were also her capital assets. As per the development agreement she has no claim over the land which has been given to the developer and she may not sell any of the flats coming to her share. In that case, despite there being transfer of land as per s. 2(47), the assessee could escape the liability of capital gains tax. Therefore, the stand of the assessee to treat the two transactions as one is too fallacious. It does not merit acceptance. Accordingly, we hold that transfer of land in consideration of the flats constitute one transaction giving rise to capital gains and the sale of flats by the assessee constitute another transaction giving rise to capital gains.
Year of Taxability of capital Gain - Transfer of land - HELD THAT:- It is well established that it is enough if the assessee has received the right to receive the consideration. It may be quantified later or it may be received later, but these factors do not retard or stall the accrual and hence the gain has to be taxed in the year of its accrual only. - in the instant case, capital gains accrued in the previous year relevant to asst. yr. 2000-01. - the capital gain arising on the transfer of land is not chargeable to tax in the year under consideration.
Exemption u/s. 54F - It has been rightly allowed by the CIT(A) as the provision is very clear to the effect that if the assessee is having one residential house as on the date of transfer of the asset, then the assessee would be entitled to exemption u/s. 54F. Therefore, on this issue we uphold the order of the CIT(A) and reject the ground raised by the Revenue.
Computation of Capital Gain - Allowability of the cost of the old superstructure demolished by the assessee - HELD THAT:- the building being attached to the earth will pass on to the transferee along with the land. It is immaterial that the said building was demolished by the assessee. It was merely taking upon oneself a responsibility. Further, it also makes no difference if the sale proceeds of the scrap are taken by the owner, i.e., the transferor. This fact does not necessarily lead us to the inference that the building is not transferred along with the land. Thus, unless there is a specific agreement to the contrary, when land is transferred, things attached to it or fastened to anything attached to the earth will also get automatically transferred. At the most, if the owner receives the sale proceeds of the scrap, then while computing capital gains on transfer of land, the proceeds so received may be added to the overall consideration received by the assessee.
Computation of Capital Gain - Matter restored before the AO to compute the capital gain in view of the various issued decided in this matter.
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2008 (10) TMI 261
Long-term or short-term capital gain (LTCG or STCG) - Sale of land - conversion of stock-in-trade into capital assets - Period of holding for the purpose of capital gain to include the period during with assets were held as stock in trade or not? - HELD THAT:- As rightly held by the AO as well as by the learned CIT(A), "capital asset" is defined in s. 2(14) as property of any kind held by the assessee whether or not connected with his business or profession, but the same does not include inter alia any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession. In the present case the property in question i.e., land was held by the assessee company upto 31st March, 2002 as the stock-in-trade for the purpose of its business and this being so, we are of the view that the period for which the said property was held by the assessee company as stock-in-trade of its business could not be reckoned for ascertaining as to whether it was a long-term capital asset or a short-term capital asset within the meaning given in ss. 2(29A) and 2(42A) as the same was not held by it as a capital asset. It is only when the same was converted by the assessee company into investment i.e., w.e.f. 1st April, 2002 that the same was held by it as capital asset and as the same was held by it for not more than 36 months immediately preceding the date of its transfer i.e., 12th Dec., 2002, it was a short-term capital asset as defined in s. 2(42A) and the capital gain arising from the sale thereof was chargeable to tax as 'short-term capital gain' as defined in s. 2(42B).
In that view of the matter, we find no infirmity in the order of the ld CIT(A) upholding the action of the AO in treating the profit arising from the sale of the said property as short-term capital gain and upholding the same, we dismiss this appeal filed by the assessee.
Appeal of the assessee is dismissed.
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2008 (10) TMI 260
Issues involved: Appeal against penalty u/s 271(1)(c) for claiming exemption under s. 10(23G) without proper approval.
Summary:
The appeal was filed against the penalty imposed for claiming exemption under s. 10(23G) without the necessary approval from the Central Government. The AO held that the assessee, an infrastructure capital company, must be approved by the Central Government to claim the exemption. The penalty was levied under s. 271(1)(c) for concealment of income. The CIT(A) upheld the penalty as the approval was still pending. The assessee argued that they believed in obtaining approval based on correspondence with the infrastructure company. Various documents were submitted to support the claim, showing the company's efforts to obtain approval. The Tribunal found that the assessee had a bona fide belief in claiming the exemption and had substantiated their claim. As the explanation provided was not false, the penalty under s. 271(1)(c) was canceled, citing relevant case laws.
In conclusion, the Tribunal allowed the appeal, canceling the penalty imposed under s. 271(1)(c) for claiming exemption under s. 10(23G) without the necessary approval.
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2008 (10) TMI 259
Issues Involved:
1. Whether the addition of Rs. 32,84,310 as taxable income from other sources was justified.
2. Whether the contributions made by the member establishments to the trust were exempt u/s 10(25) r/w s. 2(38) of the IT Act.
Summary:
Issue 1: Addition of Rs. 32,84,310 as Taxable Income from Other Sources
The Revenue contended that the learned CIT(A) erred in deleting the addition made by the AO, treating Rs. 32,84,310 as taxable income from other sources. The AO argued that the recognized Provident Fund (PF) should operate within the employer-employee framework and should not accept deposits from other employers. The AO held that the income from such contributions was outside the ambit of exemption u/s 10(25) and brought Rs. 32,84,309 to tax in the assessment completed u/s 143(3).
Issue 2: Exemption of Contributions Made by Member Establishments
The assessee trust argued that the PF scheme was for the benefit of employees of M/s Sahara India and other Sahara Group entities. The trust was registered with the Regional Provident Fund Commissioner under the Employees' Provident Fund Act, 1952, and was entitled to have multiple participating establishments. The CIT(A) accepted the assessee's submissions, holding that the trust's income was exempt from tax u/s 10(25) r/w s. 2(38) of the IT Act. The CIT(A) noted that the definition of "recognized PF" includes a PF established under a scheme framed under the Employees' Provident Fund Act, 1952, and does not mandate recognition by the Chief CIT or CIT.
Tribunal's Decision:
The Tribunal upheld the CIT(A)'s order, stating that the definition of "recognized PF" in s. 2(38) includes a PF established under a scheme framed under the Employees' Provident Fund Act, 1952, irrespective of recognition by the Chief CIT or CIT. The Tribunal found no merit in the Revenue's contention that such recognition was required. Consequently, the Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, affirming that the income received by the trust was exempt u/s 10(25).
Conclusion:
The appeal of the Revenue and the cross-objection of the assessee were dismissed, confirming that the contributions made by the member establishments to the trust were exempt from tax u/s 10(25) r/w s. 2(38) of the IT Act.
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2008 (10) TMI 258
Generation of revenue from Indian Operation - Reimbursement of expenses on cost to cost basis - DTAA between India and USA - Non-resident - Whether the assessee has earned any profit out of services rendered by it to EOGIL as per PSC - activities in connection with oil and gas exploration drilling - DR contended that assessee company is having a PE in India as per cls. (j), (k) and (l) of art. 5(2) of DTAA between India and USA.
HELD THAT:- As per clauses of art. 5(2) of DTAA between India and USA, it cannot be said that assessee is having a PE in India. Nothing brought on record to show that the assessee was having an installation or structure which was used for exploration or exploitation of natural resources and hence. cl. (j) cannot be applied in the present case.
As per art. 7, we find that the business profits of an enterprise of a Contracting State shall be taxable only in that State, unless, the enterprise carries on business in the other Contracting State i.e., India in the present case through a PE situated therein.
We have noted that there is no PE of the assessee in India, business profits of the assessee, even if any, is taxable only in USA and not in India. Hence, even if it is held that the assessee company was having PE in India, there is no taxable profit of the assessee in India because the assessee has incurred expenses of equal amount for rendering the services. With regard to 1 per cent of the expenses charged by the assessee company as production overhead charges, it may have some element of profit but the same cannot be brought to tax because income does not accrue or arise in India.
As per s. 90(2), where there is a DTAA between India and any other country, in relation to the assessee to whom such agreement applies, the provisions of IT Act of India shall apply to the extent that they are more beneficial to that assessee. In the present case, the provisions of DTAA between India and USA are more beneficial to the assessee and hence, provisions of s. 44BB cannot be thrusted upon the assessee.
We are of the considered opinion that no interference is called for in the order of ld CIT(A) because we have noted that there is no profit element in the receipts of the assessee company from EOGIL because payments were made by EOGIL as per PSC which have been approved by both Houses of Parliament and as per this PSC, the payment made by a party to the PSC to any of its affiliated concern is to be without profit.
This is an admitted position that the assessee company is an affiliated concern of EOGIL and payment made by EOGIL to the assessee company are in line with PSC and hence, it has to be accepted that such payments were made by the EOGIL to the assessee without any profit and hence, it has to be accepted that no profit has been earned by the assessee company on this account.
The claim of the Revenue is that the assessee had not maintained books of account and could not produce evidence for its claim that the services provided by it were on a cost to cost basis and without any profit. This claim of the Revenue is meaningless once it is shown by the assessee that the payments received by the assessee company are in line with PSC as per which no payment can be made by a party to PSC to its affiliate concern after including any profit element therein. Under this factual position, we uphold the order of ld CIT(A) on this issue and this ground of the Revenue is rejected.
Appeal of the Revenue is dismissed.
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2008 (10) TMI 257
Issues Involved:
1. Whether the payment for training fees to a non-resident company constitutes "fee for technical services" u/s 195 of the IT Act, 1961.
2. Applicability of Article 13 of the DTAA between India and UK to the training fees.
Summary:
Issue 1: Payment for Training Fees as "Fee for Technical Services" u/s 195 of IT Act, 1961
The assessee, an Indian company, sought permission from the AO to remit payment towards training fees to M/s Corus Consulting Ltd., UK, without deduction of tax at source u/s 195 of the IT Act, 1961. The AO held that the payments were in the nature of "fee for technical services" and directed the assessee to deduct tax at source. The CIT(A) confirmed the AO's order. The assessee contended that the training was imparted outside India and did not involve any technical services as defined under Article 13(4)(c) of the DTAA between India and UK. The Departmental Representative argued that the services provided were technical in nature and fell under the definition of "fee for technical services" as per Article 13 of the DTAA and s. 9(1)(vii) of the IT Act, 1961. The Tribunal concluded that the training involved high-level technical knowledge and skills, thus constituting "fee for technical services" under Explanation 2 to s. 9(1)(vii) of the Act.
Issue 2: Applicability of Article 13 of the DTAA between India and UK
The assessee argued that the training fee was not chargeable to tax in India as it did not constitute "fee for technical services" under Article 13(4)(c) of the DTAA. The Tribunal examined the agreement and found that the training provided by Corus Consulting Ltd. involved technical expertise and knowledge, which were to be used by the assessee's personnel in India. Therefore, the training fee was deemed to accrue and arise in India u/s 9(1)(vii) of the Act and was chargeable to tax under Article 13(2) of the DTAA. The Tribunal held that the nature of services provided fell within the scope of Article 13 of the DTAA and s. 9(1)(vii) of the IT Act, 1961.
Conclusion:
The Tribunal upheld the CIT(A)'s order confirming the AO's action for deduction of tax in respect of payment of training fees by the assessee to Corus Consulting Ltd., treating the services as technical in nature. All appeals of the assessee were dismissed.
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2008 (10) TMI 256
Capital Gains - Sale of property - selection of assessment year - Whether the agreement dt. 19th Oct., 1995 constituted a sale deed or mere agreement to bind the vendor to sell and the vendee to buy on the terms and conditions governing the proposed sale of property by the vendor to the vendee/purchasers at future date.
HELD THAT:- The agreement dt. 19th Oct., 1995 only contained the terms and conditions to be adhered to and complied with at the time of sale of the property by the vendor and purchaser of the property at specified future date without any future addition or modification of the conditions. As there was neither transfer nor extinguishment of any right, vendor remained lawful owner of the property and paid all the municipal taxes from the year of agreement to all subsequent years till date.
Therefore, It is proved that the registered sale deed dt. 20th Dec., 2007 executed by and between the same parties indicating that the earlier agreement dt. 19th Oct., 1995 was only an agreement to sell and not a sale deed transferring the capital asset in favour of the buyer.
Applying the ratio of decision in the case of Smt. Maniben Hirji Jadavji Bhatt & Smt. Saraswati Jayantilal Hirjibhai Bhatt, Smarak Shri Copal Krishna Trust vs. ITO [1997 (1) TMI 116 - ITAT AHMEDABAD-B], it is held that the agreement dt. 19th Oct., 1995 does not establish that the transaction of sale of property was completed in terms of provisions of s. 2(47)(v), 1961 r/w s. 53A of the Transfer of Property Act and so the capital gain worked out by the AO and added to the income of the assessee in AY 1996-97 was not justified. Therefore, the CIT(A) has rightly deleted the impugned addition by reversing the order of AO. Accordingly the order of CIT(A) is upheld and the grounds of appeal taken by the Revenue are rejected.
Hence, AO is at liberty to take appropriate action on the basis of the registered sale deed dt. 31st Dec., 2007 in case, on verification, he finds that the assessee has not declared the capital gain in the return in relevant assessment year he may take action for working out the capital gain, if any, as permitted under law.
In the result, the appeal filed by the Revenue and cross-objection filed by the assessee are dismissed.
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2008 (10) TMI 255
Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income Tax Act.
2. Addition of amount received/receivable from Birla AT&T Communications Ltd.
3. Levy of interest under Sections 234B and 234D.
Issue-wise Detailed Analysis:
1. Disallowance under Section 40(a)(i) of the Income Tax Act:
The first issue pertains to the disallowance of Rs. 1,31,58,290 made by the AO under Section 40(a)(i) and confirmed by the CIT(A). The assessee, a company engaged in network design and management communication connectivity services, claimed a deduction for an amount payable to AT&T Worldwide Communication Services, Singapore, with tax deducted at source (TDS) at 10%. The AO noted that the bill from AT&T was dated 23rd November 2001, and the TDS was also deposited on the same date. The AO held that since the TDS was deducted and paid in the subsequent year, the assessee was not entitled to claim the deduction in the year under consideration.
The CIT(A) upheld the AO's decision, stating that the liability was not crystallized before November 2001, and the assessee did not comply with the legal requirements for TDS deduction and payment. The CIT(A) emphasized that the liability was determined only in November 2001, and the assessee's claim that TDS was deducted on 31st March 2001 was not substantiated.
The Tribunal, however, disagreed with the CIT(A)'s stand that the liability had not crystallized during the year under consideration. It noted that the services were rendered as per an agreement effective from 1st April 2000, and the liability had arisen during the year under consideration. However, the Tribunal upheld the disallowance under Section 40(a)(i), as the TDS was deducted only in November 2001, making the deduction allowable in the subsequent year.
2. Addition of Amount Received/Receivable from Birla AT&T Communications Ltd.:
The second issue involves the addition of Rs. 3,98,36,108 received/receivable from Birla AT&T Communications Ltd. The assessee had shown this amount as a liability under "Brand Building Fund" in its balance sheet. The AO treated this amount as business income, stating that it was royalty for the usage of the AT&T brand.
The assessee contended that it was merely a designee of AT&T Corporation, USA, to collect the amount from Birla AT&T and incur specified expenses on behalf of AT&T Corporation, USA. The CIT(A) confirmed the AO's addition, stating that the amount was received as royalty and should be treated as revenue receipt.
The Tribunal noted that the exact nature of the amount received by the assessee needed to be ascertained by examining the arrangement between the assessee and AT&T Corporation, USA. It found that the AO and CIT(A) had relied more on the agreement between AT&T Corporation, USA, and Birla AT&T rather than the arrangement between the assessee and AT&T Corporation, USA. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh examination of the arrangement between the assessee and AT&T Corporation, USA.
3. Levy of Interest under Sections 234B and 234D:
The third issue pertains to the levy of interest under Sections 234B and 234D. The Tribunal noted that the levy of interest under Section 234B is consequential. Regarding Section 234D, the Tribunal referred to the decision of the Delhi Special Bench in the case of ITO vs. Ekta Promoters (P) Ltd., which held that interest under Section 234D, applicable from 1st June 2003, cannot be applied to assessment years 2003-04 or earlier. Since the assessment year in question was 2001-02, the Tribunal directed the AO to cancel the interest imposed under Section 234D.
Conclusion:
The appeal of the assessee was partly allowed. The Tribunal upheld the disallowance under Section 40(a)(i) but set aside the addition of the amount received from Birla AT&T and remanded the matter for fresh examination. The interest under Section 234D was directed to be canceled.
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2008 (10) TMI 254
Issues Involved:
1. Non-grant of refund due to TDS claim.
2. Applicability of reassessment proceedings for granting additional refund.
3. Limitation period for claiming refund u/s 239.
4. Relevance of DTAA provisions.
Summary:
Issue 1: Non-grant of refund due to TDS claim
The assessee, a foreign company governed by the DTAA between India and Mauritius, claimed a refund of Rs. 2,02,577 on account of TDS in the return filed u/s 148 on 30th July, 2004. The CIT(A) confirmed the AO's order denying the refund, citing that the claim was not made within one year from the last day of the assessment year u/s 239 of the IT Act.
Issue 2: Applicability of reassessment proceedings for granting additional refund
The CIT(A) upheld the AO's decision, stating that proceedings u/s 148 are initiated to tax income that escaped assessment, not for granting additional refunds. Reliance was placed on the Supreme Court decision in CIT vs. Sun Engineering Works (P) Ltd., which held that reassessment proceedings are for the benefit of the Revenue and not the assessee.
Issue 3: Limitation period for claiming refund u/s 239
The assessee argued that the refund claim was made within the time limit prescribed u/s 239, as the application for refund was filed on 31st March, 2004, before the expiry of the limitation period. The Tribunal found that the claim was indeed made within the prescribed time limit and that the CIT(A) erred in holding that the claim was barred by limitation.
Issue 4: Relevance of DTAA provisions
The Department's argument that the DTAA provisions were not applicable was dismissed by the Tribunal. The Tribunal noted that the AO himself had accepted the income as non-taxable in the hands of the assessee, making the DTAA argument irrelevant to the issue of refund.
Conclusion:
The Tribunal concluded that the assessee is entitled to the refund of Rs. 2,02,577. The decision of the CIT(A) was reversed, and the AO was directed to grant the necessary refund to the assessee. The Tribunal emphasized that tax authorities are obligated to act in accordance with the law and ensure that only legitimate taxes are collected, referencing the Gujarat High Court's decision in S.R. Koshti vs. CIT. The appeal filed by the assessee was allowed.
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2008 (10) TMI 253
Unexplained Cash credit - Addition on Investment in purchases of books and substantial cash introduced in the books of account - Third Member order - difference of opinion on certain points between the members - Whether the issue relating to source of investment in purchases should be restored back to the file of the AO for fresh decision as proposed by the ld. AM - Assessee described as 'a loss making company', again showed loss in return for the AY 1995-96 - AO treated, cash introduced in the books of account on account of sale of books was treated as unexplained and added to the total income u/s 68. The investment in the books was also treated as unexplained and sum was added on this account.
Assessee submitted that the sale of books to the assessee was duly reflected in the books of associate company. The legal books had been sold and there was no dosing stock left. Therefore, the purchases and sales had to be accepted - CIT(A) was satisfied by the explanation of the assessee - CIT observed that existence of shareholders was established and money received from them was well founded. Therefore, he deleted both the additions.
HELD THAT:- I am inclined to hold that assessee has not been able to establish that cash was represented sale proceeds of books. I do not find any substance in the finding of ld CIT (A) that sales should be accepted as it is recorded in the books of account of the assessee. In my considered opinion, some evidence of sale generating extraordinary income of about 100 per cent in hands of a loss making company in purchase of books from a sister concern i.e. in an item not carried in routine, was required to be placed by the assessee. Mere entries of sale to justify credit were not good enough. It is accordingly held that the assessee has failed to establish that credit represented sale consideration of books. Having held so, I am inclined to hold that addition was not made by the AO in this case.
It is evident that by adding and deducting the same amount the AO practically did not make any addition for unexplained sale of books. Ultimately what has been left of transactions of sale and purchase of books is the disallowance of purchases. If relief is allowed, it would result in assessment of income lower than returned.
Introduction of cash could be held to be income from "undisclosed sources". As the amount already stood credited to the books of account of the assessee as income, the matter was required to be left by recording an appropriate finding. There is no addition of amount in the computation of the income. In the circumstances the question of deletion cannot arise. The effective addition made as noted and no addition. Therefore, relief cannot be allowed to the assessee. This position unfortunately has not been taken into account by the ld CIT (A) or by the ld JM.
Question of sustaining addition is being separately considered. I, therefore, hold that there is no addition in the assessment order. The amount stood already credited in the P&L account. It is receipt from "undisclosed sources" and could not be deleted. I, therefore, answer question No. 1 in the negative. The amount was neither required to be deducted nor added in the income of the assessee.
AO had also challenged delivery of books to the assessee. Shri Sampath during the course of hearing of appeal had vehemently contended that the assessee and M/s. Haryana Wool & Allied Industries (P.) Ltd. were operating from the same premises. In this connection, he relied upon observations made by ITAT in the case of the assessee for AY 1996-97. The ld JM in the proposed order had accepted the claim of the assessee but ld AM had raised certain doubts and has further held that source of investment in purchase is not clear from the order of the AO and the CIT(A). Therefore, this aspect was restored to the AO for fresh scrutiny.
There is no doubt that assessee, before the A.O. adopted a non-cooperative attitude and did not furnish evidence called for to prove investment. No evidence was furnished before CIT (A) of delivery and investment in purchase. The plea that the assessee and M/s. Haryana Wool & Allied Industries (P.) Ltd. are operating from the same premises has been advanced for the first time before the Tribunal, although adverse finding was recorded by the AO in the assessment order. The claim relating to payment of purchase money and of delivery of books is required to be verified by the AO.
The ld Members of the Tribunal in the AY 1996-97 were also not called upon to examine the issue whether the assessee and M/s. Haryana Wool & Allied Industries (P.) Ltd. were operating from the same premises and in their order has made only a passing observation. It is not a finding of fact. Although purchase and sale of books has been claimed by the assessee as part and parcel of transaction, yet it is different. Purchase has been claimed to be made from the sister concern for a stated consideration. Sale had been claimed to be made to other outside parties.
Purchase and sale are, therefore, two distinct transactions discussed as one in orders impugned before me. It is possible that assessee may be able to establish purchase of books, though sale of the same books has not been accepted. In that case, addition of will have to be allowed as a deduction.
The parties before me could not draw my attention to any relevant evidence on record on the basis of which the issue could have been resolved. Therefore, on facts, I agree with proposed order of ld AM that this question should be restored to the file of the AO for re-determination in accordance with law.
Therefore, the matter may now be placed before the regular Bench for an appropriate order, in accordance with law.
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