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2004 (2) TMI 296
Issues:
Disallowance of claim under s. 80-IA of the Act for specific assessment years within the block period.
Detailed Analysis:
1. The appeal was against the disallowance of the claim under s. 80-IA of the Act for certain assessment years within the block period. The assessee, a limited company engaged in digital prints and photo furnishing, had claimed deduction under s. 80-IA for its slitting activities of photographic paper at Silvasa, considering it as a manufacturing activity.
2. The Assessing Officer (AO) disallowed the deduction, stating that the company did not meet all conditions for the deduction. The AO observed that the company's name changes indicated a reconstruction of an existing business activity. The AO further noted the limited number of employees, which did not align with the requirements for the deduction under s. 80-IA.
3. The CIT(A) upheld the disallowance, leading to the appeal. The appellant contended that the deduction had been allowed in previous assessments under regular provisions, and no incriminating documents were found during the search to disallow the claim under Chapter XIV-B. Various legal precedents were cited to support this argument.
4. The jurisdiction of the AO in issuing the notice under s. 158BC of the Act was challenged, but the Tribunal found no substance in the argument. The Tribunal clarified the roles of different authorities in the assessment process under Chapter XIV-B.
5. The Tribunal emphasized that under Chapter XIV-B, only undisclosed income found during the search could be taxed. If no incriminating documents were discovered during the search, income declared in earlier assessments could not be disturbed. The Tribunal referred to specific observations made by the AO regarding the lack of relevant documents found during the search operation.
6. The scope of undisclosed income was discussed concerning the evidence found during the survey under s. 133A. The Tribunal highlighted the importance of establishing a connection between the documents found during the survey and the evidence from the search operation to justify any addition to undisclosed income.
7. The Tribunal set aside the issue and directed the AO to re-examine the matter, instructing that any addition to undisclosed income based on documents found during the survey should be justified only if they were related to evidence from the search operation. The AO was given the flexibility to consider such documents during regular assessments for the relevant periods.
8. Consequently, the Tribunal allowed the appeal filed by the assessee for statistical purposes, indicating a favorable outcome for the appellant regarding the disallowance of the claim under s. 80-IA of the Act for the specified assessment years within the block period.
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2004 (2) TMI 295
Issues Involved:
1. Deletion of addition of Rs. 1,25,800 on account of disallowance of consultancy charges.
2. Genuineness of the consultancy charges paid to Mr. Ashok Bhardwaj.
3. Examination of the evidence and statements regarding consultancy services and payments.
Issue-wise Detailed Analysis:
1. Deletion of Addition of Rs. 1,25,800 on Account of Disallowance of Consultancy Charges:
The Revenue appealed against the CIT(A)'s order which deleted the addition of Rs. 1,25,800 made by the AO on account of disallowance of consultancy charges. The AO had disallowed these charges, considering them non-genuine. The AO observed that the assessee-company claimed to have paid consultancy charges of Rs. 1,85,800 to Mr. Ashok Bhardwaj, but no actual payment was made during the relevant financial years. The AO suspected the genuineness of the consultancy services and payments, noting that the payments were made through bearer cheques after a significant delay, and the cheques were encashed by different individuals not associated with Mr. Bhardwaj.
2. Genuineness of the Consultancy Charges Paid to Mr. Ashok Bhardwaj:
The assessee argued that the consultancy services were genuine, involving detailed drawings and site visits for fabrication work. The AO, however, questioned the authenticity of the consultancy services, citing Mr. Bhardwaj's statement where he denied rendering such services and claimed that he signed blank papers in a state of intoxication. The CIT(A) accepted the genuineness of the consultancy charges, noting that Mr. Bhardwaj had signed the bearer cheques and raised bills on his letterhead. The CIT(A) also mentioned that the books of account were audited and no defects were found.
3. Examination of the Evidence and Statements Regarding Consultancy Services and Payments:
The CIT(A) considered various submissions and concluded that the consultancy services were genuine, partly based on the acceptance of Rs. 60,000 by Mr. Bhardwaj. However, the Tribunal found that the CIT(A) did not adequately consider the AO's findings and Mr. Bhardwaj's statement denying the consultancy services. The Tribunal noted that the CIT(A) failed to refer to the evidence indicating that Mr. Bhardwaj was offered crossed cheques, which he allegedly refused. The Tribunal also highlighted the inconsistency in the payment method, questioning the necessity of issuing bearer cheques after a substantial delay.
The Tribunal concluded that the CIT(A) erred in deleting the addition without thoroughly examining the evidence and statements recorded by the AO. The Tribunal emphasized that the payments made through bearer cheques and the delayed payment timeline did not support the genuineness of the consultancy charges. Consequently, the Tribunal allowed the Revenue's appeal, reinstating the addition of Rs. 1,25,800.
Conclusion:
The appeal filed by the Revenue was allowed, and the addition of Rs. 1,25,800 on account of disallowance of consultancy charges was reinstated. The Tribunal found that the CIT(A) did not adequately consider the AO's findings and the evidence questioning the genuineness of the consultancy services and payments.
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2004 (2) TMI 294
Interpretation of statutes - Deductions u/s 80HHC - Exporters - export profits - set off of interest paid against the interest receipt - concession u/s 80HHC of the Act misused prior to the amendments brought about in subsection (3) of section 8HHC of the Act, which the Parliament wanted to abolish? - Mischief rule (Heydon's rule) - Principle of netting - nexus between the interest paid and the interest received - HELD THAT:- In Circular No. 621, dated19-12-1991 explaining the amendment, it was recognized that "the, tax concession under section is intended to compensate an exporter for the comparative disadvantage faced by him in the international market. With a view to ensuring that the tax concession is not misused, sub-section (3) of section 80HHC of the Income-tax Act has been amended.
According to Circular No.621 cited, explaining the introduction of Explanation (baa) w.e.f. 1-4-1992, the formula that existed before the date for computing the export profits on which deduction was to be allowed gave a distorted figure "when receipts like interest, commission, etc. which do not have element of turnover are included in the profit and loss account" and it was with a view to removing the distortion that it was clarified through the Explanation "that 'profits of the business' for the purpose of section 80HHC will not include receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature.
In fact, it would be incongruous to hold that the Legislature recognised the principle of netting in clause (2), it did not do so in clause (1) of the same Explanation, though both the clauses deal with the same subject-matter, viz., exclusion from business profits of something which cannot strictly be called business income. In clause (2), it is significant to note, no ad hoc deduction is allowed for common expenses, obviously because it speaks of profits of any branch, office, warehouse or any other establishment of the assessee situate outside India, in which case it would not be difficult to ascertain the expenses incurred in maintaining such branch etc.
The case of the assessees was not put forward before us on the basis of the accounting principles, which do recognise the principle of netting. The Income-tax Act itself is concerned with the principle of netting, in the sense that it does not tax the gross receipts but taxes only the gross receipts minus the expenditure incurred in relation thereto. All the computation provisions of the Act, whatever be the head of income, are aimed at bringing only the net income to assessment. Even under the head 'capital gains' it is only the gains that are assessed and not the entire sale proceeds. Therefore there is no violence done to the language employed in the Explanation when we read into it the principle of netting. We do not think that any absurdity ensues by doing so.
We are however not inclined to accept the argument of Mr. Ajay Vohra, the learned counsel for Lalsons Enterprises, based on the use of the words 'gross receipts' in sections 44AA and 44AB. As rightly pointed out on behalf of the Department by Mr. Salil Gupta, those are provisions designed for a different situation and do not impinge on the determination of the eligibility for or the conditions of or the actual computation of any deduction. In our opinion, the Explanation (baa) has to be construed on its own terms, keeping in mind the general scheme of section 80RRC, which is perceived to be a self-contained provision.
Conclusion: (i) Whether the negative profit (loss) from the business or export computed in accordance with clause (a), (b) or (c) of sub-section (3) of section 80HHC of the Income-tax Act should be ignored or it should be adjusted/set-off against export profits computed under any of the aforesaid clauses for the purpose of computing deductions u/s 80HHC(1) of the Income-tax Act? - For purposes of clause (c) of sub-section (3) of section 80HHC, the loss arising in either the export of manufactured goods or trading goods shall be set-off or adjusted against the profits arising in the other business. In other words, the results of the business of export of manufactured goods and the business of export of the trading goods shall be adjusted against each other.
(ii) Whether the proviso to section 80HHC(3) can be applied in a case where the export profit computed as per clause (a), (b) or (c) of sub-section (3) or aggregate thereof is a negative profit (loss) and if so whether the said negative profit (loss) has to be adjusted/setoff against the amount of deduction allowable under the proviso to section 80HHC(3) or the loss computed under all or any of the clause (a), (b) or (c) of section 80HHC(3) has to be ignored and deduction u/s 80HHC is required to be allowed on the amounts computed under proviso to section 80HHC(3) of the Income-tax Act? - For the purpose of computing the deduction allowable under the proviso to sub-section (3) of section 80HHC in respect of the export incentives mentioned in section 28(iiia),(iiib) and (iiic), the loss, if any, suffered by the assessee under any of the clause (a),(b) or (c) of the sub-section shall be ignored and the deduction shall be allowed in respect of the amount computed under the said proviso.
(iii) Whether 90 per cent of the gross interest received by the assessee shall be reduced from the profit and gains of the business or profession to determine profits of the business as given in Explanation (baa) below sub-section 4(b) of section 80HHC of the Income-tax Act in order to compute the deduction u/s 80HHC of the Income-tax Act or only 90 per cent of net receipt of the interest after allowing a set off of interest paid against the interest receipt? - For the purpose of applying Explanation (baa) below sub-section (4B) of section 80HHC and while reducing 90 per cent of the receipt by way of interest from the profits of the business, it is only the 90 per cent of the net interest remaining after allowing a set-off of interest paid, which has a nexus with the interest received, that can be reduced and not 90 per cent of the gross interest.
The appeals will now be placed before the Division Bench for being disposed of in accordance with our decision. It will be open to the assessees to place all the relevant facts before the Division Bench in connection with the principle of netting raised in question No.(iii) and seek to establish the nexus between the interest paid and the interest received.
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2004 (2) TMI 293
Issues:
1. Deduction under section 80-O of the Income Tax Act.
2. Disallowance of prior period expenses.
Analysis:
Issue 1: Deduction under section 80-O of the Income Tax Act
The appeal was against the order of the CIT(A) regarding the deduction under section 80-O. The AO had restricted the deduction claimed by the assessee, leading to a dispute. The AO calculated the deduction based on a Mumbai Bench decision, deducting proportionate expenses from the total convertible foreign exchange. The AO allowed only a portion of the claimed deduction, leading to further disallowance. The CIT(A) upheld the AO's decision, relying on various judgments, including a Special Bench decision. The Tribunal considered the arguments of both sides. The assessee claimed that only net earnings should be considered for deduction, while the Departmental Representative argued that the deduction should be based on net income earned from foreign convertible exchange. The Tribunal found that the assessee did not provide sufficient evidence of maintaining separate project accounts. Therefore, the Tribunal set aside the CIT(A) order and directed the AO to re-compute the deduction after verifying the maintenance of independent project accounts.
Issue 2: Disallowance of prior period expenses
The assessee did not press the ground related to disallowance of prior period expenses during the appeal hearing. As a result, this ground was rejected without further consideration.
In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, directing the AO to re-calculate the deduction under section 80-O after ensuring proper verification of independent project accounts.
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2004 (2) TMI 292
Issues:
1. Disallowance of expenditure incurred by International Contracts division
2. Addition on account of unpresented cheques issued by the appellant-company
3. Disallowance of misc. expenses in paper unit
4. Assessment of short-term capital gain in respect of sale of factory land and building
5. General ground not requiring adjudication
Issue 1: Disallowance of expenditure incurred by International Contracts division
- The assessee claimed Rs. 11,79,818 as expenditure for obtaining new contracts, which was disallowed by the AO and CIT(A) as capital in nature.
- The Tribunal, following its previous year's order, deleted the addition as the facts were identical.
Issue 2: Addition on account of unpresented cheques issued by the appellant-company
- The AO treated uncashed cheques as income, observing parties showed no interest in collecting payments.
- The CIT(A) upheld the addition, stating the liability ceased to exist as cheques were not encashed or revalidated.
- The Tribunal found no evidence of forfeiture or intention not to honor debts, restoring the issue to AO for verification.
Issue 3: Disallowance of misc. expenses in paper unit
- The assessee did not press this ground, leading to its dismissal.
Issue 4: Assessment of short-term capital gain in respect of sale of factory land and building
- The assessee argued that assets entitled to the same rate of depreciation should form a single block for determining capital gain.
- The CIT(A) considered the block of assets only in relation to the paper unit as a separate distinct block, rejecting the assessee's plea.
- The Tribunal restored the issue to the AO for further consideration based on previous year's order.
Issue 5: General ground not requiring adjudication
- A general ground not pressed by the assessee was dismissed as not pressed.
In conclusion, the appeal was partly allowed, with various issues either decided in favor of the assessee or restored back to the AO for further examination based on previous year's orders and legal principles.
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2004 (2) TMI 291
Issues Involved:
1. Stay of recovery of tax demand.
2. Adequacy of opportunity provided to the assessee to defend the case.
3. Non-supply of documents by the Revenue.
4. Balance of convenience and prima facie case.
5. Transfer of properties by the assessee during recovery proceedings.
6. Compliance with principles of natural justice.
7. Jurisdiction of Chief CIT in granting stay.
Detailed Analysis:
1. Stay of Recovery of Tax Demand:
The assessee filed a stay application seeking to halt the recovery of a tax demand amounting to Rs. 2,42,78,678. The Tribunal noted that the assessee contended the demand was wrongful and illegal, and that the Revenue's insistence on payment led to the present application for stay.
2. Adequacy of Opportunity Provided to the Assessee to Defend the Case:
The Tribunal observed that the assessee was given multiple opportunities to file the return and provide necessary documents. Despite various adjournments and notices, the assessee did not comply, leading the AO to declare the return invalid and proceed under Section 144. The Tribunal concluded that the assessee was granted sufficient opportunity to defend his case but failed to utilize it.
3. Non-Supply of Documents by the Revenue:
The assessee argued that the non-supply of seized documents and computers by the Revenue prevented him from making a proper representation. The Tribunal found this claim to be an afterthought, stating that the AO's order clearly recorded that the documents were available and the assessee was given ample opportunity to collect them. The Tribunal noted that the assessee did not raise this issue before the CIT(A) and did not file any affidavit contradicting the AO's observations.
4. Balance of Convenience and Prima Facie Case:
The Tribunal evaluated whether the assessee had a prima facie case and if the balance of convenience was in his favor. It concluded that the assessee failed to establish a prima facie case, as the claim of non-supply of documents was not substantiated. Furthermore, the balance of convenience was not in favor of the assessee, as the assessee had transferred properties during the pendency of recovery proceedings, indicating a lack of good faith.
5. Transfer of Properties by the Assessee During Recovery Proceedings:
The Tribunal noted that the assessee had transferred properties despite assurances to the contrary. This transfer was seen as an attempt to evade tax recovery, further weakening the assessee's case. The Tribunal emphasized that such actions indicated a lack of balance of convenience in favor of the assessee.
6. Compliance with Principles of Natural Justice:
The assessee claimed that the proceedings were contrary to the principles of natural justice due to the non-supply of documents. The Tribunal rejected this argument, stating that the assessee was given sufficient opportunity to collect the documents, and the claim of non-supply was not raised at the appropriate stages of the proceedings.
7. Jurisdiction of Chief CIT in Granting Stay:
The Tribunal addressed the issue of the Chief CIT granting a stay on the grounds of non-supply of documents. The Revenue argued that the Chief CIT who granted the stay did not have jurisdiction over the assessee's case. The Tribunal agreed with the Revenue, noting that the stay order was passed without verifying the facts from the AO and was therefore not binding.
Conclusion:
The Tribunal rejected the stay application, concluding that the assessee failed to establish a prima facie case, the balance of convenience was not in his favor, and there was no irreparable loss. The Tribunal also ordered an out-of-turn hearing for the appeal to expedite the resolution of the matter, emphasizing the need for both parties to cooperate in the early disposal of the appeal.
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2004 (2) TMI 290
Issues Involved:
1. Disallowance of deduction under Section 80M.
2. Levy of interest under Section 234B.
Issue-wise Detailed Analysis:
1. Disallowance of Deduction under Section 80M:
The primary issue in this appeal revolves around the disallowance of the assessee's claim for deduction under Section 80M of the Income Tax Act. The assessee-company had received a dividend income of Rs. 9,49,740 from M/s Indofos Industries Ltd. and claimed a deduction of Rs. 5,00,000 under Section 80M, asserting that it had declared and distributed dividends of Rs. 5,000 per share during the Annual General Meeting held on 27th Sept., 1997.
The Assessing Officer (AO) sought to verify the actual distribution of the dividend by examining the bank statements. It was found that the assessee did not have sufficient funds in its bank account up to the due date of filing the return (30th Nov., 1997), and the cheques issued for the dividend were encashed much later, between January and April 1998. Consequently, the AO issued a show-cause notice to the assessee, questioning the validity of the claim under Section 80M.
In response, the assessee argued that the dividend declaration created a debt or liability in favor of the shareholders, and the issuance of cheques constituted an enforceable right under the Negotiable Instruments Act. The assessee contended that the encashment of cheques at a later date did not negate the fact of distribution before the due date.
The AO, however, rejected these contentions, stating that the issuance of cheques without sufficient funds in the bank account was a device to claim the benefit of deduction under Section 80M. The AO concluded that the distribution of dividends was tainted with conditionality regarding the availability of funds and disallowed the claim, adding Rs. 5,00,000 to the assessee's income.
Upon appeal, the CIT(A) upheld the AO's decision, emphasizing that the dividend must be distributed in substance and not merely in form. The CIT(A) distinguished the case of Hanuman Prasad Gupta vs. Hira Lal, noting that the Supreme Court did not state that the obligation to pay dividends is discharged by merely issuing cheques without sufficient funds.
Before the Tribunal, the assessee's representative argued that the distribution requirement under Section 80M is only for setting the limit of deduction and not a condition for the grant of deduction. Various legal interpretations and case laws were cited to support this view. However, the Tribunal found that the term "distribution" implies actual and not notional distribution. The Tribunal referred to several Supreme Court decisions, including Punjab Distilling Industries Ltd. vs. CIT and J. Dalmia vs. CIT, which emphasized that distribution must be actual and unconditional.
The Tribunal concluded that the assessee did not satisfy the condition of actual distribution of dividends before the due date, as the funds were not available in the bank account, and the cheques were encashed much later. The claim for deduction under Section 80M was thus rightly disallowed.
2. Levy of Interest under Section 234B:
The second issue pertains to the levy of interest under Section 234B amounting to Rs. 66,640. The CIT(A) upheld the levy, stating that it was in conformity with the relevant provisions of the Act. The assessee's counsel could not provide a valid reason for why the interest should not be levied. The Tribunal found the interest to be consequential and upheld the CIT(A)'s decision, rejecting the assessee's ground.
Conclusion:
The Tribunal dismissed the appeal, upholding the disallowance of the deduction under Section 80M and the levy of interest under Section 234B. The Tribunal commended the efforts of the AO and the senior Departmental Representative for their thorough investigation and arguments.
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2004 (2) TMI 289
Issues Involved:
1. Computation of deduction under section 80-I of the Income Tax Act, 1961.
2. Set-off of losses from one unit against the profits of another unit for the purpose of deduction under section 80-I.
3. Inclusion of other income for the computation of deduction under section 80-I.
Issue-wise Detailed Analysis:
1. Computation of Deduction under Section 80-I:
The primary issue revolves around the computation of deduction allowable to the assessee under section 80-I for the assessment year 1996-97. The Revenue contended that the deduction should be calculated only on the part of the profit included in the gross total income after setting off losses of earlier years, including the loss of unit-II and income from other sources. The CIT(A) directed the AO to allow a deduction of Rs. 21,28,859 under section 80-I, calculated at 25% on the amount of Rs. 85,15,435, which was contested by the Revenue.
2. Set-off of Losses from One Unit Against Profits of Another Unit:
The assessee had two units, with one unit showing a profit of Rs. 93,20,232 and the other unit showing a loss of Rs. 67,47,084. The AO computed the deduction under section 80-I after adjusting the loss of the second unit against the profit of the first unit. The CIT(A) upheld this adjustment, referring to earlier decisions and various judicial pronouncements. However, the Tribunal, after considering the Supreme Court decisions in Canara Workshops (P) Ltd. and English Electric Co. Ltd., held that the deduction under section 80-I should be computed without setting off the loss of unit No. 2 against the profits of unit No. 1. The Tribunal emphasized that the binding authority of the Supreme Court's decisions must be followed, which supported the assessee's contention.
3. Inclusion of Other Income for the Computation of Deduction under Section 80-I:
The AO excluded other income, including interest income amounting to Rs. 8,04,797, from the computation of deduction under section 80-I. The Tribunal upheld this exclusion, aligning with the Supreme Court's strict and narrow interpretation of 'derived from' in cases such as CIT vs. Sterling Food and Pandian Chemicals Ltd. vs. CIT. The Tribunal agreed that the interest income should not be included for the purposes of computing the deduction under section 80-I.
Conclusion:
The Tribunal decided in favor of the assessee, holding that the deduction under section 80-I should be computed on the profits of unit No. 1 without setting off the losses of unit No. 2. The Tribunal also upheld the exclusion of other income, including interest income, from the computation of the deduction under section 80-I. The appeals of both the assessee and the Revenue were disposed of accordingly.
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2004 (2) TMI 288
Issues Involved:
1. Validity of Notice under Section 158BC
2. Validity of Assessment Order
3. Addition of Rs. 5 Lakhs for Payment to Jewellers
4. Addition of Rs. 4,91,000 for Donation
5. Addition of Rs. 4,27,201 for Foreign Exchange
6. Addition of Rs. 4,07,438 for Jewellery
7. Addition of Rs. 20,000 for Silver Utensils
Detailed Analysis:
1. Validity of Notice under Section 158BC:
The appellant challenged the jurisdiction of the AO due to the notice under Section 158BC not mentioning the appellant's status. The appellant argued that the notice was illegal, citing various case laws. However, the tribunal held that the notice was presumed to be addressed to the individual, and the appellant had complied with it by filing a return. Thus, the AO had correctly assumed jurisdiction, and the additional ground of appeal was not admitted.
2. Validity of Assessment Order:
The appellant contended that the CIT's approval of the assessment order was merely procedural and thus void. The tribunal found that the correspondence between the AO and CIT was procedural and did not require a hearing for the assessee before approval. Therefore, the ground of appeal was dismissed.
3. Addition of Rs. 5 Lakhs for Payment to Jewellers:
During a search, a promissory note for Rs. 5 lakhs was found. The appellant claimed it was an advance for a diamond set, covered by surrendered cash and jewelry. The AO found contradictory statements from the jewellers and treated the amount as undisclosed income. The tribunal, however, agreed that since Rs. 7 lakhs in cash was surrendered, the promissory note amount was covered, and no separate addition was warranted. The addition was deleted.
4. Addition of Rs. 4,91,000 for Donation:
Receipts for donations totaling Rs. 4,91,000 were found. The appellant claimed these were from the sale of movable property per his father's will. The AO disbelieved this, treating it as undisclosed income. The tribunal noted the will was neither registered nor on stamp paper, and no witnesses were produced. The delay in selling the assets further questioned the will's authenticity. Thus, the addition was upheld.
5. Addition of Rs. 4,27,201 for Foreign Exchange:
Foreign currency worth Rs. 4,27,201 was found. The appellant claimed it was unspent currency from business trips, supported by employer certificates. The tribunal found that the foreign currencies were surrendered to banks and reconciled with the seized amounts. Since the employer confirmed the issuance for business purposes, the addition was deleted.
6. Addition of Rs. 4,07,438 for Jewellery:
Jewellery worth Rs. 5,88,867 was found, with Rs. 1,81,427 explained. The appellant had surrendered Rs. 3 lakhs for undisclosed jewellery, leaving Rs. 1,07,438 disputed. The tribunal considered the surrendered amount from on-money received on a flat sale, which covered the disputed amount. Thus, the addition was deleted.
7. Addition of Rs. 20,000 for Silver Utensils:
The tribunal similarly considered the surrendered amount from on-money received on a flat sale to cover the investment in silver utensils. Thus, the addition was deleted.
Conclusion:
The appeal was partly allowed, with the tribunal deleting the additions for the promissory note, foreign exchange, jewellery, and silver utensils while upholding the addition for the donation.
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2004 (2) TMI 287
Taxability of Income from Technical Facilities under International Airlines Technical Pool (IATP) - Double Taxation Agreement Between India And Germany - Whether the profits of the appellant was due to participation in a pool - HELD THAT:- Admittedly, if it was so then the profits will not be liable to tax in India. The aims and objectives of participation in IATP have been mentioned earlier. We find that the appellant has rendered services/facilities to three airlines and has availed the services of one airline. On extending services to the other airlines, the appellant has received a sum of Rs. 49.64 lakhs and on availing the services, it has paid the sum of Rs. 45.50 lakhs. Thus, there was reciprocity between the members of the pool. But in the case of British Airways, we find that it has rendered services to more than 16 airlines and has not availed services from any other airlines in India. It was only one way traffic. Thus, there was no reciprocity between the British Airlines and the other airlines and, therefore, the ITAT has held that in the case of British Airways, there was no reciprocity and, therefore, it could not be said to be participation in a pool.
We also find that in the case of British Airways [2001 (9) TMI 242 - ITAT DELHI-A], the ITAT has held that the services rendered by that airline was in the nature of commercial activities and, therefore, was in the nature of business activities. For coming to this conclusion, the ITAT had noted that the British Airlines had employed excess staff for such purposes. Volume of receipts which is in crores for providing services also suggested that the providing of services by British Airways was a commercial activity. But in the case of the appellant, it has not been proved by the revenue that the extra staff was employed for providing services to other airlines. We have also noted that the services rendered and availed were as per IATP manual and, therefore, the profit was not taxable inIndiain view of Article 8(4) of DTAA.
We have also noted that as per Article 8(4) of DTAA between India and Germany, the profit from the participation "in a pool" will not be taxable in India. But Article 8(2) of DTAA between India and UK talks of "participation in pool of any kind by enterprises engaged in air transport". The use of the word "pools" envisages that there could be several pools or understanding i.e. more than one. Here the word "pool" does not indicate a pool which is internationally recognized. The use of the word "pools any kind" clearly indicates that it was in the nature of commercially understood meaning. But in the international aviation industry, there is only one pool i.e. IATP. Certainly, in the case of British Airways, it was not a case of participation in a pool.
In the appellant's case, it is participation in IATP only. This was the reason that the IT AT has to find out the meaning of the word "pool" in the case of British Airways. Moreover, in the case of British Airways, it was "pools of any kind" but in the case of the appellant, it was not a pool of any kind but only IATP. Thus, the facts in the case of British Airways were altogether different then the facts of the appellant's case and the view taken by the ITAT in the case of British Airways is not applicable in the case of appellant as the facts are entirely different. We have also noted that British Airways has rendered services to Atlas Air Corporation which is not a member of IATP. The services rendered to that airline could not be bound by IATP manual.
Looking to the above distinguishing features, we hold that the appellant's profit due to participation in a pool was covered under Article 8(4) of the DTAA between India and Germany and such profit cannot be brought to tax inIndia. We, therefore, allow the ground of appeal and delete the addition sustained by the CIT(A).
In the result, the appeal filed by the assessee is allowed.
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2004 (2) TMI 286
Undisclosed income in block return - Assessment on the basis of confessional statement - duress and pressure - Search And Seizure of certain books of accounts and documents - No evidence of any incriminating documents found - HELD THAT:- We are unable to hold that above acts of the Revenue authorities would not put any pressure on normal businessman. It is further admitted that the accounts were revoked and released only after Rs. 5 lakhs were deposited by the assessee on 30th March, 2001. In between, on 12th Feb., 2001, the said confessional statement was recorded. We are unable to reject assessee's contention that great psychological pressure was built upon him before he made a statement in February, 2001. It is to be noted that it is not possible to lead direct evidence of use of pressure tactics. It is to be gathered from the evidence, mostly circumstantial.
It is matter of record that after the raid the assessee was called upon to explain entries in the seized material and the seized document. The assessee rendered detailed explanations for each of the document found and seized and no adverse comment has been made by the AO on the explanations rendered. This plea that all the entries in the seized documents were explained, was raised before the AO as also before the CIT(A). It has not been held to be wrong. If statement is not wrong, then it is difficult to accept that seized material reflected or established undisclosed income of Rs. 25 lakhs.
While the assessee stated that Rs. 20 to 25 lakhs were earned in last 10 years, the AO assessed the total amount in two asst. yrs. 1999-2000 and 2000-2001. i.e., Rs. 12,50,000 each. The assessment is not based on the confession and therefore, the Revenue authorities have to show that assessment refers to material available on record; that the assessee had undisclosed income of Rs. 12,50,000 in each of the two years and thus justify the assessment of the said income.
That confession relied upon is not clear as to form basis of assessment of undisclosed income. Provisions of Chapter XIV-B are made applicable in search cases and undisclosed income is defined in s. 158B(b) of IT Act. It is to be assessed on the basis of seized material. It cannot be totally de hors of such material.
We are of the view that alleged confessional statement was not good material for computing the undisclosed income at Rs. 25 lakhs. The assessment is not based on legal and justifiable basis. In the above circumstances, we are inclined to hold that income disclosed in Form 2B at Rs. 7 lakhs for the entire block period be assessed in the hands of the assessee. No arguments were advanced by the learned counsel for the assessee that aforesaid amount was not assessable in the hands of the assessee. The Revenue authorities have failed to prove that seized material or other relevant and admissible material establishes higher income than shown in the return by the assessee. As already noted that entries have been explained in various letters written by the AO and therefore, assessment of higher amount than Rs. 7 lakhs would not be legal and permissible. It is therefore, deemed proper that on facts of the case, the AO be directed to take assessee's undisclosed income under Chapter XIV-B at Rs. 7 lakhs. The AO is directed to revise the assessment accordingly.
In the result, the assessee's appeal is partly allowed.
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2004 (2) TMI 285
Issues Involved:
1. Validity of notice issued under Section 147/148 of the IT Act.
2. Estimate of cost of acquisition of land as on 1st April 1974.
3. Deduction under Section 54B for investment in agricultural land.
4. Assessment of disputed interest on enhanced compensation.
Issue-wise Detailed Analysis:
1. Validity of Notice Issued under Section 147/148 of the IT Act:
The assessee challenged the initiation of proceedings under Section 147/148, contending that the notice issued was bad in law since it did not specify whether it was issued to the individual or HUF. The Revenue argued that the notice was correctly issued to the individual. The Tribunal held that when a notice is issued to an individual, no specific capacity needs to be mentioned. Since the assessee did not claim to be assessed in multiple capacities, the notice and assessment were valid. The Tribunal found no legal infirmity in the notice and rejected the assessee's ground regarding its validity.
2. Estimate of Cost of Acquisition of Land as on 1st April 1974:
The assessee claimed the cost of acquisition at Rs. 40 per sq. yard, while the AO estimated it at Rs. 15 per sq. yard. The CIT(A) allowed Rs. 25 per sq. yard. The Tribunal considered the material on record, including a valuation report and other evidence, and found no reason to reject the assessee's claim. The Tribunal allowed the cost of acquisition at Rs. 40 per sq. yard, accepting the appeal of the assessee and rejecting that of the Revenue.
3. Deduction under Section 54B for Investment in Agricultural Land:
The assessee claimed deduction under Section 54B for investing Rs. 7,12,894 in agricultural land. The AO denied the relief, stating that the land was not purchased by the assessee. The CIT(A) upheld this view, relying on a jurisdictional High Court decision. The Tribunal noted that there was no material to show the land was ancestral. However, it highlighted the purpose of Section 54B to encourage investment in agricultural land and held that the provision should not be construed narrowly. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO to examine if the compensation was invested in agricultural land.
4. Assessment of Disputed Interest on Enhanced Compensation:
The assessee argued that the interest on enhanced compensation was not final and subject to appeal, thus inchoate. The Tribunal noted that with the introduction of sub-section (5) of Section 45 by Finance Act, 1987, capital gain or interest is now assessable on a receipt basis. The assessee did not press this point further, and the Tribunal rejected this ground of appeal.
Conclusion:
The assessee's appeal was allowed in terms of the cost of acquisition and the Section 54B deduction, while the Revenue's appeal was dismissed. The Tribunal provided a detailed analysis and directions for re-examination where necessary, ensuring a thorough consideration of all relevant legal and factual aspects.
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2004 (2) TMI 284
Issues:
1. CIT not following Supreme Court decision in passing order under s. 263.
2. CIT setting aside AO's order under s. 143(3) and not allowing standard deduction under s. 16(i) of the IT Act.
Analysis:
1. The first issue raised by the assessee was the CIT's failure to follow the Supreme Court decision in the case of Ram Prasad vs. CIT while passing the order under s. 263. The CIT observed that the AO did not consider crucial factors such as employer-employee relationship and eligibility criteria for standard deduction under s. 16(i) in the assessment order. The CIT found the AO's order erroneous and prejudicial to the Revenue's interest, leading to the direction for a fresh assessment to be conducted in accordance with the law and relevant judicial precedents.
2. The second issue pertained to the CIT setting aside the AO's order under s. 143(3) and disallowing the standard deduction claimed by the assessee under s. 16(i) of the IT Act. The assessee argued that in previous years, the standard deduction had been allowed, and there were no changes in the circumstances to warrant a deviation from past decisions. The Departmental Representative contended that the AO failed to justify the allowance of standard deduction without establishing the employer-employee relationship, rendering the order erroneous and prejudicial to the Revenue's interest. The Tribunal agreed that the AO's failure to verify the claim and lack of justification made the order erroneous, justifying the CIT's invocation of s. 263. However, the Tribunal noted that the CIT did not adequately consider the material on record and directed the issue to be reconsidered, emphasizing the need for a fresh assessment based on all relevant documents presented.
In conclusion, the Tribunal found merit in the CIT's invocation of s. 263 based on the AO's errors but directed a reevaluation of the issue considering all relevant documents presented before the Tribunal. The appeal was disposed of with directions for a fresh assessment by the CIT, ensuring a comprehensive review of the documents filed during the proceedings.
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2004 (2) TMI 283
Issues:
1. Excess depreciation allowed by Assessing Officer.
2. Failure of assessee to substantiate claim of depreciation.
3. Submission of revised return by assessee.
4. Invocation of powers under section 263 by Commissioner of Income Tax.
5. Allegation of prejudice to Revenue due to excess depreciation.
6. Consideration of revised return by authorities.
Analysis:
1. The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (CIT) under section 263, challenging the excess depreciation allowed by the Assessing Officer (AO) on assets used for less than 180 days during the assessment year 1995-96.
2. The CIT observed that the AO had erroneously allowed 100% depreciation on assets used for less than 180 days, directing the AO to make a fresh assessment as per law. Despite opportunities, the assessee failed to provide details to substantiate its claim for depreciation, leading to the conclusion that the AO's order was prejudicial to the interests of the Revenue.
3. The Authorized Representative of the assessee argued that a revised return was filed within the specified time, withdrawing the excess claim of depreciation. However, the Departmental Representative contended that the assessee did not furnish details regarding asset usage exceeding 180 days, causing prejudice to Revenue due to excess depreciation.
4. The Departmental Representative emphasized that the conditions for invoking section 263 were met, as the AO's order was erroneous and prejudicial to Revenue. The Tribunal noted that the CIT correctly set aside the AO's order and directed a fresh assessment, providing the assessee an opportunity to withdraw the excess depreciation claim.
5. The Tribunal found that the assessee failed to substantiate the claim of excess depreciation withdrawal before the CIT or the Tribunal. Despite arguments, no evidence was presented to refute the excess depreciation pointed out by the CIT. The Tribunal upheld the CIT's decision as both conditions for invoking section 263 were satisfied, and the CIT directed the AO to reframe the assessment after affording the assessee a reasonable opportunity to be heard.
6. Ultimately, the Tribunal dismissed the appeal, affirming the CIT's decision to set aside the AO's order and conduct a fresh assessment, allowing the assessee the opportunity to rectify the excess depreciation claim.
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2004 (2) TMI 282
Issues Involved:
1. Applicability of the Interest Tax Act to the assessee.
2. Classification of the assessee as a credit institution.
3. Definition and interpretation of "deposit" under the Interest Tax Act.
4. Levy of interest under sections 12 and 12A of the Interest Tax Act.
Issue-wise Detailed Analysis:
1. Applicability of the Interest Tax Act to the Assessee:
The primary issue revolves around whether the provisions of the Interest Tax Act, 1974 apply to the assessee. The assessee contends that it cannot be classified as a credit institution within the meaning of section 4(2) of the Interest Tax Act. The assessee argues that its principal business is chitty business, and it has been exempted from registration under section 45(1A) of the Reserve Bank of India Act by the Reserve Bank of India. The Commissioner (Appeals) held that the assessee falls under the purview of the Interest Tax Act, which the assessee disputes.
2. Classification of the Assessee as a Credit Institution:
The assessee argues that it cannot be classified as a financial company or a credit institution under section 2(5B) of the Interest Tax Act. The Commissioner (Appeals) held that the assessee is a credit institution as it receives subscriptions under various chitty schemes, which he classified as accepting deposits "in instalments by way of contributions or subscriptions." The assessee disputes this classification, arguing that the subscriptions received cannot be treated as deposits.
3. Definition and Interpretation of "Deposit" under the Interest Tax Act:
The assessee contends that the amount received from chitty subscribers does not constitute a deposit as defined under the Reserve Bank of India Act, 1934. The Interest Tax Act does not define "deposit," and the assessee argues that the definition provided by the Reserve Bank of India Act should be applied. According to the Reserve Bank of India Act, "deposit" excludes any amount received by subscription in respect of a chit. Therefore, the assessee argues that it should not be classified as a credit institution liable to interest tax.
4. Levy of Interest under Sections 12 and 12A of the Interest Tax Act:
The Revenue appeals pertain to the assessment years 1993-94, 1994-95, 1995-96, 1996-97, 1999-2000, and 2000-01, challenging the Commissioner (Appeals)'s decision that no interest is leviable under sections 12 and 12A of the Interest Tax Act. The Commissioner (Appeals) held that since the assessee returned Nil interest, no interest is leviable. The Revenue argues that the Supreme Court decision cited by the Commissioner (Appeals) relates to sections 234A and 234B of the Income Tax Act, not sections 12 and 12A of the Interest Tax Act.
Judgment Summary:
The Tribunal held that the assessee is not liable under the Interest Tax Act. The Tribunal found that the subscriptions received by the assessee from its chitty subscribers cannot be treated as deposits under the definition provided by the Reserve Bank of India Act, 1934. Consequently, the assessee cannot be classified as a credit institution for the purposes of the Interest Tax Act. The Tribunal also noted that the Central Board of Direct Taxes' Circular No. 636, dated 31-8-1992, supports this interpretation. Therefore, the orders of the revenue authorities were canceled, and the appeals by the assessee were allowed. Consequently, the appeals by the Revenue were dismissed as they had become infructuous.
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2004 (2) TMI 281
Issues Involved:
1. Condonation of delay in filing the appeal due to short deposit of Tribunal fee.
2. Justification of the addition of Rs. 2,90,133 on account of alleged unaccounted sales to M/s Partap Bhangu Solvex (P) Ltd.
Issue-wise Detailed Analysis:
1. Condonation of Delay in Filing the Appeal:
The appeal filed by the assessee was barred by a period of limitation of 2 years and 317 days due to the short deposit of Tribunal fee. The assessee contended that the delay was due to a mistaken belief regarding the fee amount and not due to any mala fide intention. The Tribunal noted that the appeal was initially filed within the period of limitation but became barred due to the short deposit of the fee, which was a curable defect. The Tribunal found that the defective memos issued by the registry were not served upon the assessee as they were returned unserved by the postal authorities. Upon receiving the last notice, the assessee promptly made the payment to rectify the shortfall. The Tribunal referred to the Supreme Court's decision in Vedabai Alias Vijayanatabai Baburao Patil vs. Shantiram Baburao Patil & Ors., emphasizing a pragmatic approach and liberal construction of "sufficient cause" to advance substantial justice. Consequently, the Tribunal condoned the delay in filing the appeal, considering it a fit case for such condonation.
2. Justification of the Addition of Rs. 2,90,133:
The addition of Rs. 2,90,133 was made by the AO based on a diary seized during a search and seizure operation at the premises of M/s Partap Bhangu Solvex (P) Ltd., which allegedly showed unaccounted sales by the assessee. The CIT(A) upheld the addition, stating that the diary's entries were reliable as other rice shellers had made disclosures under the VDIS scheme. However, the assessee argued that entries in the books of a third party are not conclusive proof, citing the jurisdictional High Court's decision in Chiranji Lal Steel Rolling Mills vs. CIT and a similar case decided by the Tribunal in M/s Sadhu Ram Parkash Chand vs. ITO. The Tribunal noted that the Revenue did not provide any corroborative evidence such as G.R. numbers, transporter details, or payment receipts to substantiate the alleged sales. The Tribunal held that the addition was not justified solely based on the third party's diary entries without corroborative evidence. Therefore, the Tribunal set aside the order of the CIT(A) and deleted the addition of Rs. 2,90,133, allowing the assessee's appeal.
Conclusion:
The appeal filed by the assessee was allowed. The Tribunal condoned the delay in filing the appeal due to the short deposit of the Tribunal fee and found that the addition of Rs. 2,90,133 on account of alleged unaccounted sales was not justified in the absence of corroborative evidence.
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2004 (2) TMI 280
Issues:
Deduction of Rs. 8,34,107 written off by the assessee on account of MODVAT receivable account due to general exemption of jute products from excise duty.
Analysis:
The assessee, engaged in manufacturing jute products, claimed a deduction of Rs. 8,34,107 written off on MODVAT receivable account following a general exemption on excise duty for jute goods. The dispute arose as the Assessing Officer (AO) denied the deduction, questioning the lack of reasons and supporting evidence for the write-off. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, stating that the assessee suffered a revenue loss due to the exemption, making it allowable as a deduction.
The Revenue challenged the decision, arguing that the assessee, under the MODVAT scheme, was entitled to exemption only up to the duty paid on raw material/capital goods, not total exemption like the notification provided. The Revenue contended that the CIT(A) erred in allowing the deduction. Conversely, the assessee's counsel argued that the general exemption caused a loss to the assessee, affecting their accounting treatment based on MODVAT guidelines and resulting in reduced claims for duty paid on inputs and machinery.
The Tribunal considered the competing contentions and the impact of the assessee's accounting entries over the years. While acknowledging that the assessee did not suffer a direct loss due to the exemption, the Tribunal recognized the accounting method followed by the assessee, which led to reduced deductions on inputs and machinery costs. Consequently, the Tribunal allowed a deduction of Rs. 2,29,496 for duty attributable to inputs carried forward from the preceding year and Rs. 6,04,651 for the excise duty component on capital goods. The Tribunal modified the CIT(A)'s order, directing the AO to implement the decision.
In conclusion, the appeal of the Revenue was partly allowed, with the Tribunal recognizing the unique circumstances and allowing deductions based on the accounting treatment and impact of the general exemption on the assessee's business operations.
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2004 (2) TMI 279
Disallowance of deduction u/s 80M - domestic companies - On what basis is a company classified as a domestic company and a foreign company under the Income-tax Act - Whether or not the provisions of section 80M are in discriminatory provisions vis-a-vis French companies assessed to tax in India -HELD THAT:- During the course of hearing before us, we shared our, then prima facie, impression with the learned representatives that the discrimination so far as non-availability of section 8M to the foreign companies is concerned, if at all that can be termed as a discrimination, is not on the ground of nationality but is on the ground as to whether or not the company in question has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of income liable to tax in India have not been made. Learned counsel's reply was that since the appellant company does not have any shareholders in India, there is no question of making any prescribed arrangements for the declaration and payment, within India, of the dividends. It thus implies that conditions u/s 2(22A) of the Act, for being classified as a domestic company, are satisfied.
We are of the considered view that the provisions of Article XXI only deal with the cases of discrimination on the ground of nationality, and non-availability of deduction u/s 80M to the foreign companies, i.e., companies which are not domestic companies, has nothing to do with nationality of a company. On the contrary, this classification is at best relatable to requirements connected with residence, which, as stated in the OECD commentary extracted earlier in this order, cannot be a reason enough for invoking the non-discrimination clause. We may add that the provisions of Article 26(1) of the present India France DTAA (209 ITR Statute 130) is materially similar in scope. Accordingly, non-discrimination clause in the Indian France DTAA cannot be invoked in the cases where provisions of Indian Income-tax Act more favourable to the domestic companies vis-a-vis foreign companies. Once we come to this conclusion, it follows that the case of non-availability of deduction u/s 80M cannot be covered by the non-discrimination clause under the India France DTAA. We, therefore, see no need to address ourselves to the merits of assessee's grievance about discrimination against foreign companies, even if such a discrimination actually exists.
The assessee's grievance against CIT(A)'s declining the deduction u/s 80M, and assessee's reliance on Article XXI of the applicable India France DTAA, in support of such a grievance, is not sustainable in law. We, therefore, reject the same.
The appeal is allowed.
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2004 (2) TMI 278
Taxability of Income chargeable - Non-resident - Double Taxation Avoidance Agreement between India and Mauritius ('DTAA') - Existence of a Permanent Establishment ('PE') in India in the form of Agents - Computation of profits u/s 44B - Circular of CBDT - Quantum of income assessable - HELD THAT:- On persual on the record, we find no merits in the claim of assessee that such Certificate should be treated as sufficient evidence for accepting the factum of place of effective management. We also find no force in the contention of Learned AR of the assessee that "Place of Effective Management" to be determined vis-a-vis Contracting State, for which reliance has been placed on the decision of AAR in Advance Ruling No. P.9 of 1995 case. The relevant observations in the said authority are regarding a situation as envisaged in Article 4 of DTAC where a concerned party is resident in both the Contracting States. Here in the present case "A" is resident of Mauritius only.
Thus, we are of the opinion that once Article 8 is held inapplicable on the facts of the present case, the consequence will be that income of the assessee earned in India from operation of Ships in international traffic has to be taxed as per provisions of Indian Income-tax Act. As already pointed out that the income of the assessee is taxable as per Indian Income-tax Act, as per section 44B read with section 5(2) of the Act. Therefore, there is no question of quantification of the assessable income as per the other provisions of DTAC. Thus, we find no merit in the claim of the assessee that if Article 8 is held inapplicable, then the income of the assessee should be computed in accordance with various other Articles of the DTAC.
The income of assessee in the present case is income arising out of operation of ships in international traffic, therefore, it cannot be held to be covered by any other article of DTAC. It also does not mean that the income which is received, accrues or arises or deemed to be received, to accrue or arise in India as per provisions of section 5(2) of Income-tax Act, 1961 cannot at all be taxed in India. DTAC does not debar such taxability at all as there is no provision in DTAC to exempt such income. In that case the only consequence will be that assessment has to be made in normal course in accordance with the provisions of section 44B read with section 5(2) of the Income-tax Act, 1961. Thus, articles 4, 5, 7 of DTAC have no application and relevance under the facts of the present case. The discussion of these articles is academic and does not affect the assessability of such income as per normal provisions of Income-tax Act, 1961. The income of assessee is assessable under Income-tax Act, 1961.
The provision of section 44B being special provision will have precedence over general provisions and income as envisaged in section 44B has to be computed according to section 44B itself. It is not disputed that any part of gross receipt of the assessee shown in the return of income filed in India does not comprise of the amounts mentioned in section 44B(2) of the Act. In this view of the situation the deemed profits and gains of the assessee in respect of gross receipts shown by the assessee cannot be less than 7.5 per cent thereof. Thus we hold that there being no doubt with regard to gross quantum of receipts as prescribed u/s 44B(2), the deemed profits and gains of assessee have rightly been computed by Assessing Officer u/s 44B of the Act.
In the result, the appeal filed by the assessee is dismissed.
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2004 (2) TMI 277
Issues Involved:
1. Applicability of section 164(1) of the Income-tax Act, 1961.
2. Whether the income of the trust is specifically receivable on behalf of the sole beneficiary, Miss Sheetal Sundar.
Issue-wise Detailed Analysis:
1. Applicability of Section 164(1) of the Income-tax Act, 1961:
The primary issue in these appeals is whether the provisions of section 164(1) of the Income-tax Act, 1961, are applicable to the income generated by the Sheetal Sunder Trust. The Income-tax Officer argued that due to the potential for the trust income and corpus to be transferred to another trust if the sole beneficiary, Miss Sheetal Sundar, did not survive until the age of majority, the income should be assessed under section 164(1). This section applies when the income is not specifically receivable by or on behalf of any one person or where the individual shares of the beneficiaries are indeterminate or unknown.
The Dy. Commissioner of Income-tax (Appeals) disagreed, stating that since Miss Sheetal Sundar was alive on the last day of the relevant accounting years, the income should be considered as received on her behalf. Therefore, section 164(1) was not applicable, and the protective assessments were canceled.
2. Whether the Income of the Trust is Specifically Receivable on Behalf of the Sole Beneficiary, Miss Sheetal Sundar:
The revenue contended that due to the provisions in the trust deed, specifically clause 13, which allowed the trustee to transfer the income and corpus to another trust if Miss Sheetal Sundar did not survive until the age of majority, there was an element of uncertainty. This uncertainty meant that the income was not specifically receivable on behalf of Miss Sheetal Sundar during her minority, invoking section 164(1).
The assessee argued that since Miss Sheetal Sundar was alive during the relevant accounting years, the income should be considered as received on her behalf, and the contingency of her death before attaining majority did not alter this fact. They relied on precedents from the Bombay High Court (CWT v. Trustees of Mrs. Hansabai Tribhuwandas Trust) and the Gujarat High Court (Padmavati Jaykrishna Trust v. CWT), which supported their stance that the possibility of a future contingency did not affect the assessment for the relevant years.
Separate Judgments Delivered by the Judges:
Judicial Member's View:
The Judicial Member agreed with the Dy. Commissioner of Income-tax (Appeals), holding that the income was received on behalf of the sole beneficiary, Miss Sheetal Sundar, as she was alive on the last day of the relevant accounting years. Therefore, section 164(1) was not applicable, and the protective assessments were rightly set aside.
Accountant Member's Dissenting View:
The Accountant Member disagreed, emphasizing that the income was not specifically receivable on behalf of Miss Sheetal Sundar due to the contingent nature of her interest in the trust. Since the trustee had the discretion to transfer the income and corpus to another trust if she did not survive until majority, it could not be said that the income was received on her behalf during the relevant years. Thus, section 164(1) was applicable.
Third Member's Decision:
The Third Member, agreeing with the Accountant Member, concluded that the income was not specifically receivable on behalf of Miss Sheetal Sundar due to the contingent nature of her interest. Therefore, the provisions of section 164(1) were applicable, and the revenue's appeals were allowed.
Conclusion:
In light of the majority view, the appeals by the revenue were allowed, and it was held that the Assessing Officer was justified in holding that section 164(1) of the Income-tax Act, 1961, was attracted.
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