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2011 (11) TMI 831
Issues Involved: The judgment involves the deletion of addition made by the Assessing Officer (AO) u/s 37(1) of the Income Tax Act and undervaluation of closing stock of shares and bonds.
Issue 1 - Deletion of Addition u/s 37(1) of the Act:
The appellant claimed deduction for Keyman Insurance premium under the head "Keyman Insurance premium" on the life of two partners. The AO disallowed 20% of the premium, considering it as personal expenses of the partners. However, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the disallowance citing CBDT Circular No. 762 and relevant legal provisions. The CIT(A) referred to keyman insurance policy definitions and relevant sections of the IT Act to support the deletion. The CIT(A) also relied on judicial decisions emphasizing that expenditure incurred for commercial expediency is deductible u/s 37. The Appellate Tribunal upheld the CIT(A)'s decision, stating that the method of valuation followed by the appellant was consistent and in line with accounting standards and legal provisions.
Issue 2 - Undervaluation of Closing Stock:
The AO added an amount on account of undervaluation of closing stock of shares and bonds, rejecting the weighted average method consistently followed by the appellant. The CIT(A) deleted the disallowance after considering detailed submissions and legal precedents. The Appellate Tribunal agreed with the CIT(A) that the weighted average method was a recognized and acceptable valuation method. The Tribunal noted that the method followed by the appellant was consistent over many years and in compliance with Accounting Standard 2. The Tribunal upheld the CIT(A)'s decision, emphasizing that the valuation method was valid and there was no reason to interfere with the first appellate order.
In conclusion, the appeal was dismissed, and the decisions of the CIT(A) regarding both issues were upheld by the Appellate Tribunal.
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2011 (11) TMI 830
Issues Involved:
1. Taxability of the property at Raniwala Oil Mill, Alwar.
2. Taxability of the property at Mangal Marg, Station Road, Alwar.
3. Taxability of the property at Rishikesh.
4. Valuation of the property at Paharganj.
5. Taxability of the property at Kush Marg, Alwar.
6. Taxability of the property at Nagli Khora, Alwar.
Detailed Analysis:
1. Taxability of the property at Raniwala Oil Mill, Alwar:
The primary issue was whether the property at Raniwala Oil Mill, Alwar, should be considered an asset liable to Wealth Tax. The revenue argued that the property should be treated as urban land since it was not used for industrial purposes by the current owner. The department referenced the case of Distributor (Baroda) (P) Ltd. to support their stance that errors should be rectified. The department also cited the Finance Minister's Budget Speech and the amendments in the Wealth Tax Act aimed at encouraging investment in productive assets. However, the Tribunal upheld the findings of the CIT(A) and previous decisions, including the case of Shri Shailendra Bhargava, confirming that the property should not be treated as urban land for Wealth Tax purposes due to its industrial classification and the refusal of the Urban Improvement Trust to permit construction.
2. Taxability of the property at Mangal Marg, Station Road, Alwar:
The revenue challenged the CIT(A)'s decision that the property at Mangal Marg, Station Road, Alwar, was not liable to Wealth Tax. The property, known as Krishna Oil Mill, was argued by the assessee to be an industrial unit with ongoing civil suits regarding its ownership. The CIT(A) accepted the assessee's submissions, noting that the property was an industrial unit with buildings and sheds constructed with municipal approval. The Tribunal upheld this decision, agreeing that the property should be treated as an industrial establishment and not urban land for Wealth Tax purposes.
3. Taxability of the property at Rishikesh:
The issue was whether the land at Rishikesh should be considered urban land or agricultural land. The assessee contended that the land was agricultural, supported by purchase deeds and revenue records. The Tribunal found no evidence to suggest otherwise and upheld the CIT(A)'s decision that the land was agricultural and not liable to Wealth Tax.
4. Valuation of the property at Paharganj:
For the assessment years 1998-99 and 1999-2000, the revenue disputed the valuation of a small residential room at Paharganj, Delhi. The CIT(A) directed the AO to adopt the sale value of Rs. 60,000, which was the actual sale consideration in the assessment year 2000-01. The Tribunal agreed with this valuation, noting that there was no evidence of understatement of consideration.
5. Taxability of the property at Kush Marg, Alwar:
The revenue argued that the property at Kush Marg, Alwar, should be included in the assessee's wealth. The CIT(A) and the Tribunal found that the property was in the name of the assessee's daughters, who were major, and there was no evidence to suggest that the assessee held the property benami. Thus, the property was not includible in the assessee's wealth for tax purposes.
6. Taxability of the property at Nagli Khora, Alwar:
The revenue contended that the property at Nagli Khora, Alwar, should be treated as commercial land. The assessee argued that the land was reserved for a park as per the Urban Improvement Trust's master plan, and construction was not permissible. The CIT(A) and the Tribunal upheld that the land was not liable to Wealth Tax as it was reserved for park use and no construction was allowed.
Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all issues, confirming that the properties in question were not liable to Wealth Tax based on their classifications, usage, and legal precedents. The order was pronounced in the open Court on 16-11-2011.
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2011 (11) TMI 829
Issues involved: Appeal by revenue and cross objection by assessee on the issue of deemed dividend u/s 2(22)(e) of the Income Tax Act.
Summary:
The case involved the treatment of funds borrowed by an assessee company from certain sister concerns as deemed dividend u/s 2(22)(e) of the Act. The Assessing Officer added the borrowed amounts to the total income of the assessee. The assessee contended that since they were neither registered nor beneficial shareholders in the lending companies, the provisions of deemed dividend should not apply.
The Commissioner of Income Tax (Appeals) agreed with the assessee, citing a Special Bench decision and a High Court ruling. The Special Bench held that Section 2(22)(e) is attracted only when the assessee company is a registered and beneficial owner of shares in the lender company. The High Court emphasized that the shareholder must be a registered shareholder, and beneficial ownership alone is not sufficient.
During the appeal, the Senior DR relied on the Assessing Officer's order, while the assessee's counsel relied on the CIT(A)'s order. The Tribunal considered the arguments and upheld the CIT(A)'s decision. It was concluded that for Section 2(22)(e) to apply, the assessee must be both a registered and beneficial shareholder of the lender company. As the assessee did not meet these conditions, the deeming provisions under Section 2(22)(e) could not be invoked.
Therefore, the appeal by the revenue and the cross objection by the assessee were dismissed based on the requirement of the assessee being a registered and beneficial shareholder of the lender company for Section 2(22)(e) to apply.
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2011 (11) TMI 828
Issues Involved:
1. Jurisdiction of the Special Court to grant pardon prior to the filing of the charge sheet.
2. Interpretation of Sections 306 and 307 of the Code of Criminal Procedure and Section 5(2) of the Prevention of Corruption Act, 1988.
Summary:
Issue 1: Jurisdiction of the Special Court to Grant Pardon Prior to the Filing of the Charge Sheet
The main argument by the appellant was that the Special Court has no jurisdiction to grant pardon before the filing of the charge sheet. The appellant contended that the power to grant pardon is not inherent and must be specifically conferred, arguing that the Special Judge under the P.C. Act cannot exercise this power u/s 306 of the Code. The appellant relied on several decisions, including Lt. Commander Pascal Fernandes v. State of Maharashtra and Ors. and A.R. Antulay v. Ramdas Sriniwas Nayak and Anr., to support the contention that pardon should be granted only after the commencement of the trial.
The Court, however, held that u/s 5(2) of the P.C. Act, the power of the Special Judge to grant pardon is unfettered and can be exercised at any stage. The deeming clause in Section 5(2) is for a limited purpose, specifically for the purposes of Sub-sections (1) to (5) of Section 308 of the Code, which deals with the trial of a person not complying with the conditions of pardon. The Court emphasized that the power to grant pardon is not restricted to the trial stage and can be exercised during the investigation.
Issue 2: Interpretation of Sections 306 and 307 of the Code of Criminal Procedure and Section 5(2) of the Prevention of Corruption Act, 1988
The Court examined the provisions of Sections 306 and 307 of the Code and Section 5(2) of the P.C. Act. It was noted that Section 306(2)(a) makes Section 306 applicable to the Court of Special Judge under the P.C. Act. The Court referred to the decision in Harshad S. Mehta and Ors. v. State of Maharashtra, which held that a Special Court is a court of original criminal jurisdiction and enjoys all the powers of such a court under the Code, including those of Sections 306 to 308.
The Court concluded that the Special Judge under the P.C. Act has the dual power of a Session Judge and a Magistrate, and thus, can grant pardon at any stage, including prior to the filing of the charge sheet. This interpretation aligns with the purpose of preventing failure of justice by allowing the offender to escape from a lack of evidence.
Conclusion:
The Court dismissed the appeals, holding that the Special Judge has the jurisdiction to grant pardon prior to the filing of the charge sheet. The Court directed that the Special Judge conducting the trial will independently apply his mind to the facts of the case, uninfluenced by the order granting pardon.
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2011 (11) TMI 827
Issues involved: Petition against orders of MM under Section 33 of the Excise Act for release of confiscated vehicle.
Summary:
The High Court of Delhi heard a petition against the orders of the Metropolitan Magistrate (MM) dated 24th May, 2011 and 14th July, 2011 in connection with a case under FIR No.112/11 u/s 33 of the Excise Act at P.S. Aman Vihar. The MM had dismissed the application for release of a vehicle (HR-56-7290) on superdari, which was seized along with 27 cartons of liquor and being driven by Naseeb Singh. The petitioner, claiming to be the owner of the vehicle, filed the application for release through his attorney, Virender, son of Jagat Singh. The MM, citing lack of authority to release the vehicle in Excise Act cases, rejected the application on both occasions. The petitioner contended that the vehicle was seized by the Police and not confiscated, hence the provisions of Section 58 of the Delhi Excise Act did not apply. The Court directed the release of the vehicle to the registered owner on superdari, as it was no longer required by the Police, following the procedures outlined in Chapter VI of the Delhi Excise Act and Section 451 of the Cr.P.C.
The Court noted that the vehicle in question was seized by the Police and not confiscated, therefore the provisions of Section 58 of the Delhi Excise Act did not apply. The Court directed the release of the vehicle to the registered owner on superdari, as it was no longer required by the Police, following the procedures outlined in Chapter VI of the Delhi Excise Act and Section 451 of the Cr.P.C. The petition was disposed of, granting relief to the petitioner for the release of the vehicle.
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2011 (11) TMI 826
Issues involved: Justification of advertisement and sale promotion expenses as business expenditure u/s Income Tax Act for AY 2003-2004.
Comprehensive details:
1. The main issue in this appeal was whether the Income Tax Appellate Tribunal was justified in allowing the advertisement and sale promotion expenses incurred by the assessee as business expenditure. The assessee had entered into a Sales Agency Agreement with MTV Asia and Nickelodeon Asia, Singapore, to promote the MTV brand in India for which the assessee was paid a commission at 15%. The assessee claimed advertisement and sales promotion expenses for the assessment year 2003-2004, which were initially disallowed by the tax authorities.
2. The Income Tax Appellate Tribunal, relying on its decision in the case of Star India Private Limited, held that the assessee was in the business of acting as an advertising sales agent in India. As the assessee was entitled to a percentage of advertising revenue received in India as commission, it was deemed in the business interests of the assessee to incur advertisement and sales promotion expenditure. This would lead to increased advertisement revenue, thereby entitling the assessee to receive higher commission. The Tribunal allowed the expenditure claimed by the assessee as legitimate business expenditure.
3. The High Court noted that the appeal filed by the Revenue against the decision of the Income Tax Appellate Tribunal in the case of Star India Private Limited had been dismissed earlier. Given this precedent and the reasoning provided by the Tribunal in the current case, the High Court found no reason to entertain the appeal and dismissed it with no order as to costs.
This summary highlights the key issues and details of the judgment regarding the justification of advertisement and sale promotion expenses as business expenditure under the Income Tax Act for the assessment year 2003-2004.
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2011 (11) TMI 825
Issues: Challenge to imposition and realization of advertisement tax by Nagar Palika Parishads/Nagar Panchayats on hoardings/signboards and glow-signs not belonging to them or on public land.
Judgment Details:
The Court held that u/s 128 of the U.P. Municipalities Act, 1916, Nagar Palika Parishads/Nagar Panchayats can only impose tax on items listed in the provision, excluding advertisement tax on hoardings/signboards and glow-signs on private properties. The argument that such taxes could be imposed as fees u/s 293 and 293A was rejected, as these sections pertain to fees for use of municipality property or public places with facilities. The Court also ruled out justification for the tax as a license fee u/s 294, emphasizing the need for specific permissions and byelaws, which were absent in this case.
The Court highlighted the requirement of State Government approval for framing byelaws under Section 298 (1) to regulate activities for health, safety, and convenience of municipal area inhabitants. Referring to ICICI Bank vs. Prakash Kaur (2007) 2 SCC 711, the Court dismissed the argument that private agencies could recover such taxes or fees. The judgment in Bharti Airtel Limited vs. State of UP was endorsed, and the decision of the High Court of Uttrakhand in Vodafone Essar South Limited vs. State of Uttrakhand was cited as consistent with the Lucknow Bench's ruling.
Consequently, all writ petitions were allowed, annulling the advertisement tax imposed by Nagar Palika Parishads/Nagar Panchayats or their agents. Refunds were ordered for amounts deposited in compliance with court directions, with no cost implications. The objection against refunding consumer-borne tax amounts was dismissed, as the tax imposition was deemed illegal and unauthorized. The principle of unjust enrichment was deemed inapplicable, and refunds were directed to be processed within a month upon request by the petitioners.
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2011 (11) TMI 824
Issues Involved: Disallowance of short-term capital loss (STCL) and disallowance of interest expenditure on loans given to a related concern.
Short-term Capital Loss (STCL) Disallowance:
The assessee appealed against the disallowance of &8377; 4,73,811/- as short-term capital loss (STCL) by the AO. The shares were sold @ &8377; 15/- per share resulting in a loss of &8377; 33,30,913/-. The breakup value of the shares was &8377; 18/- per share. The AO disallowed the loss as the justification for the sale price was not provided. The assessee argued that capital gains or loss should be determined based on the sale price, not the fair market value. The Tribunal referred to the decision in the case of Rupee Finance & Management (P) Ltd. and held that the loss should be classified as STCL. The AO was directed to treat the loss as STCL under the head of "capital gains."
Interest Expenditure Disallowance:
The revenue appealed against the deletion of the disallowance of &8377; 16,11,254/- made by the AO on account of interest expenditure on loans given to a related concern. The loans were advanced at lower rates from the CC A/c, on which the assessee paid interest @ 9.5% p.a. The AO disallowed the differential interest charged and paid on the loans. The assessee argued that the advances were made in the course of business to enhance the value of products. The ld. CIT(Appeals) held that the advances were made in the course of business, and therefore, the interest paid on the overdraft account cannot be disallowed. The Tribunal upheld the decision of the ld. CIT(Appeals) stating that the advances were made in the course of business, and hence, the disallowance was not justified.
In conclusion, the appeal of the assessee was allowed, and the appeal of the revenue was dismissed.
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2011 (11) TMI 822
Issues Involved:
1. Whether the appellant company is an "assessee in default" u/s 201(1) for failing to deduct TDS u/s 194A.
2. Whether the appellant company is liable to pay interest u/s 201(1A) for the delay in deduction of tax at source.
3. Whether the tax on the impugned income has already been paid by the payee, Larsen & Toubro Ltd. (LT), and hence, the appellant company should not be held liable for TDS and interest.
Summary:
Issue 1: Assessee in Default u/s 201(1)
The primary controversy revolves around the Revenue's stand that the appellant company is an "assessee in default" u/s 201(1) for failing to deduct TDS u/s 194A on amounts paid to LT. The appellant argued that the impugned amount was not in the nature of interest but a premium or discount, and hence, not liable for TDS u/s 194A. The Tribunal noted that if the taxes on the impugned income have been paid by the payee, LT, the appellant cannot be treated as an assessee in default, following the precedent set by the Supreme Court in Hindustan Coca Cola Beverage P. Ltd. and the CBDT Circular No 275/201/95-IT(B) dated 29.1.1997.
Issue 2: Liability to Pay Interest u/s 201(1A)
The appellant contended that since LT had already paid the taxes on the impugned income, the liability to pay interest u/s 201(1A) does not arise. The Tribunal directed the Assessing Officer to verify the chargeability of interest, if any, in terms of section 201(1A) of the Act, considering the date when the relevant assessments were finalized.
Issue 3: Payment of Tax by the Payee
The appellant provided evidence that LT had paid taxes on the impugned income in the assessment years 2000-01 to 2002-03. The Tribunal found that the taxes on the impugned sums had been recovered from LT, and therefore, the appellant cannot be treated as an assessee in default u/s 201(1). The Tribunal remitted the matter back to the Assessing Officer to verify the chargeability of interest u/s 201(1A) and directed that the appellant should not be held liable for TDS and interest if the taxes have already been paid by LT.
Conclusion:
The Tribunal allowed the appeals, stating that the appellant cannot be treated as an assessee in default u/s 201(1) and remitted the matter back to the Assessing Officer to verify the chargeability of interest u/s 201(1A). The other aspect of whether the appellant is liable to deduct tax at source on such payment within the meaning of section 194A was left open.
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2011 (11) TMI 821
Issues involved: Appeal against order of CIT(Appeals)-II, Chennai in ITA No. 4/08-09 dated 21-02-2011 for assessment year 2001-02.
Grounds raised by Revenue:
1. CIT(A) erred in deleting penalty u/s 271(1)(c) of `6,29,160.
2. CIT(A) failed to recognize debts written off as falling outside section 36(2) provisions.
Summary of Judgment:
The appeal was filed by the Revenue against the order of the CIT(A) for the assessment year 2001-02. The Revenue contended that the bad debts written off by the assessee were not in line with the provisions of section 36(2) of the Income Tax Act, 1961. The Tribunal noted that the assessee, engaged in lottery agency and financing, had written off a loan of `16,05,000 to a sister concern, M/s. Deccan Pictures, Telugu, which suffered losses. The Assessing Officer treated the write off as a capital loss, but the CIT(A) allowed the deduction under section 36(1)(vii). The Tribunal reversed the CIT(A)'s decision, leading to the levy of penalty u/s 271(1)(c) on the assessee.
The Tribunal observed that the bad debt was disclosed in the assessee's return and there was no concealment of facts. The issue revolved around whether the bad debt was a revenue loss or a capital loss. The Tribunal held that the assessee had not furnished inaccurate particulars of income or concealed any details, as the facts were clear and available. The Tribunal concluded that it was an interpretation of the law that led to the disallowance, not any deliberate act by the assessee. Therefore, the Tribunal upheld the CIT(A)'s decision to cancel the penalty, dismissing the Revenue's appeal.
The order was pronounced on 29/11/2011.
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2011 (11) TMI 820
Issues Involved:
1. Legality and correctness of the sale of mortgaged property by the State Finance Corporation.
2. Sale of property below market value without fixing reserve price.
3. Rejection of borrower's request to pay the amount quoted by the successful bidder.
4. Acceptance of balance payment from the successful bidder beyond the stipulated period without forfeiting earnest money.
Detailed Analysis:
1. Legality and Correctness of the Sale:
The core question in this writ appeal is the legality and correctness of the sale of the mortgaged property by the State Finance Corporation for an amount less than the market value indicated in the Valuation Certificate prepared by the Registered Valuer, without fixing the reserve price, and rejecting the borrower's request to pay the amount quoted by the successful bidder even before the payment of 90% of the balance consideration. The Corporation later accepted the balance amount from the successful bidder without forfeiting the earnest money as per the auction condition.
2. Sale Below Market Value Without Reserve Price:
The property was sold for Rs. 1.20 crores, which was below the market value of Rs. 156.43 lakhs fixed by the authorized valuer. The auction notification did not contain either the market value or the upset price of the property. The Corporation was expected to fix the upset price to ensure the property would not be sold below a certain value, which was not done.
3. Rejection of Borrower's Request:
The appellant had approached the Corporation to pay the bid amount quoted by the successful bidder, but the request was turned down. The appellant submitted a representation on 2 November 2009, agreeing to pay the amount quoted by the third respondent. However, the Corporation rejected this request on 17 November 2009 without providing a substantial reason.
4. Acceptance of Balance Payment Beyond Stipulated Period:
The auction notification contained a mandatory clause requiring the successful bidder to pay the balance 90% within thirty days from the date of confirmation. The third respondent failed to pay the balance consideration within the stipulated period and requested the Corporation not to present the cheques until he gave permission. The Corporation accepted the balance payment after 92 days, violating the mandatory auction conditions.
Analysis and Conclusion:
- The Corporation violated the mandatory conditions of the auction by accepting the balance payment beyond the stipulated period without forfeiting the earnest money.
- The sale was made below the market value without fixing the reserve price, which is essential for ensuring that the property is not sold at a throwaway price.
- The rejection of the appellant's request to pay the amount quoted by the successful bidder was arbitrary, especially since the successful bidder had not deposited the money within the prescribed period.
- The Corporation acted unreasonably and unfairly, indicating collusion between the Corporation and the successful bidder.
Disposition:
The sale of the property in favor of the third respondent is set aside. The Corporation is directed to take possession of the property from the third respondent upon repayment of the amount deposited by him and to auction the property again following a transparent procedure, fixing the reserve price, and obtaining a fresh valuation certificate. The writ petition is allowed with no costs, and connected miscellaneous petitions are closed.
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2011 (11) TMI 819
The Supreme Court cited a circular from the Ministry of Finance, Department of Revenue, stating that nothing remains for consideration in the appeals. The appeals are disposed of as infructuous. [Case: 2011 (11) TMI 819 - SC]
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2011 (11) TMI 818
Issues involved: Appeal by Revenue challenging order of Income Tax Appellate Tribunal regarding disallowance of interest expenditure on diverted funds for non-business purpose.
Summary:
1. The Assessing Officer disallowed interest expenditure of Rs. 43 lakhs u/s 10(33) and 14A of the Income Tax Act, as funds were diverted for non-business purposes.
2. CIT(Appeals) set aside the Assessing Officer's order and allowed the appeal based on detailed findings.
3. Revenue challenged CIT(Appeals) order before the Tribunal, which dismissed the appeal.
4. Tribunal found no material to dislodge CIT(Appeals) findings and noted sufficient funds were available for investments.
5. Tribunal cited the case of S.A. Builders Ltd. vs. Commissioner of Income-Tax, emphasizing commercial expediency for deductions.
6. Tribunal relied on decisions of other High Courts and agreed with CIT(Appeals) findings.
7. No infirmity was found in Tribunal's reasoning, which applied the law aptly to the presented facts.
8. Tribunal concluded that the investment in shares was made from the assessee's own funds, hence dismissing Revenue's appeal as no substantial question of law was raised.
Therefore, the High Court upheld the Tribunal's decision, dismissing the Revenue's appeal regarding the disallowance of interest expenditure on diverted funds for non-business purposes.
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2011 (11) TMI 817
Issues Involved:
1. Appropriation of payments towards principal or interest.
2. Charging of compound interest.
Detailed Analysis:
Issue 1: Appropriation of Payments Towards Principal or Interest
The primary issue was whether the payments made by HUDCO were to be appropriated first towards the interest due or towards the principal amount. The Appellant argued that the sum of Rs. 89.78 crores should be appropriated towards the interest, following the decision in Smithaben H. Patel and Ors.: (1999) 3 SCC 80, which states that post-decretal payments should first be applied to the interest and costs, and then to the principal amount. The Division Bench of the Delhi High Court had ruled that the payment should be appropriated towards the principal amount, based on the implied acceptance by the Appellant since no objection was raised at the time of the deposit. The Supreme Court, however, disagreed with the Division Bench's reasoning, stating that the Appellant had accepted the payment on protest and without prejudice to its rights. The Court emphasized that in the absence of a specific agreement, the creditor is entitled to appropriate payments first towards interest, as established in previous rulings by the Privy Council and the Supreme Court.
Issue 2: Charging of Compound Interest
The second issue was whether compound interest was chargeable. Both parties agreed that no compound interest would be payable in terms of the Award. The Appellant had initially calculated interest on the basis of yearly rests but later limited its claim to simple interest. The Supreme Court noted that this issue did not survive since both parties had agreed on the matter.
Conclusion:
The Supreme Court set aside the judgment of the Division Bench and restored the order of the learned Single Judge. The Court held that the Appellant was entitled to appropriate the payment of Rs. 89.78 crores towards the interest due, in accordance with the established legal principles. The Court also confirmed that no compound interest was payable, as agreed by both parties. The appeal was allowed, and each party was directed to bear its own costs.
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2011 (11) TMI 816
Issues involved:
Cross-appeals by assessee and Revenue challenging order on disallowance u/s 14A for interest expenses in investment in shares of M.P. Power Generating Company.
Assessee's Appeal:
- Assessee challenges disallowance u/s 14A for interest expenses on investment in shares of M.P. Power Generating Company.
- Assessee argues direct nexus of interest free funds and investment, no disallowance u/s 14A required.
- Assessee contends no dividend income earned, hence no disallowance u/s 14A warranted.
- Tribunal finds direct nexus between investment and share capital contributed by state Govt., upholds assessee's appeal.
Revenue's Appeal:
- Revenue contests disallowance u/s 14A on investment in shares of M.P. Power Generating Company.
- Assessing Officer justifies disallowance towards interest expenses.
- Tribunal notes investment in shares by state Govt. and SIDBI, disallows proportionate interest claimed u/s 14A.
- Tribunal rules no disallowance needed as direct nexus between investment and share capital contributed by state Govt.
Assessee's Cross-Appeal:
- Assessee aggrieved by direction for remaining investment on plea of lack of relevant documents.
- Tribunal finds details of investment available, questions if amount was borrowed or share capital.
- Tribunal holds burden on Revenue to prove interest bearing funds were invested in shares, which was not discharged.
- Assessee's appeal allowed as investment in shares for business operation/commercial expediency.
Conclusion:
- Revenue's appeal dismissed, assessee's appeal allowed.
- Order pronounced in open court in presence of both sides' representatives.
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2011 (11) TMI 815
Issues involved: Rejection of renewal/approval of certificate u/s 35(1)(ii) of the Income Tax Act, 1961 based on failure to maintain separate account books, late submission of documents, and absence of certificate from a Chartered Accountant.
Issue 1: Rejection of renewal/approval of certificate u/s 35(1)(ii) based on failure to maintain separate account books:
The petitioner argued that the rejection was without jurisdiction as it was not passed by the Central Government, citing a previous judgment. The respondents supported the impugned order, stating that the approval of the Finance Minister indicated the validity of the decision. The impugned order dated 22.10.2010 was found to be signed by the Director (ITAII) and not by the Finance Minister, leading to the conclusion that the order lacked proper authority. The Court directed respondent no.1 to pass fresh orders within three months, emphasizing the need for a decision by the Central Government or its authorized officer u/s 35(1) of the Income Tax Act, 1961.
Issue 2: Rejection of renewal/approval of certificate u/s 35(1)(ii) based on late submission of documents:
The respondents argued that the rejection was justified as the conditions of eligibility were not met and were expressly breached. They contended that the findings of fact in the impugned order supported the decision to reject the application for renewal. However, the Court found that the order lacked proper authorization and quashed the decision made by the Director (ITAII) on 22.10.2010.
Issue 3: Rejection of renewal/approval of certificate u/s 35(1)(ii) based on absence of certificate from a Chartered Accountant:
The communication dated 17th October, 2011 highlighted the procedure followed by the CBDT, indicating that the Finance Minister's approval was necessary for the final decision. While the respondents argued that the Finance Minister's approval validated the impugned order, the Court emphasized that the order was not passed by the Finance Minister but by the Director (ITAII). The Court concluded that the impugned order lacked proper authorization and directed respondent no.1 to issue fresh orders within three months.
Conclusion:
The High Court quashed the impugned order dated 22.10.2010 passed by the Director (ITAII) and directed respondent no.1 to pass fresh orders within three months, ensuring that the decision is made by the Central Government or its authorized officer as per Section 35(1) of the Income Tax Act, 1961. All other contentions and questions were left open, and no costs were awarded in the case.
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2011 (11) TMI 814
Issues involved: Interpretation of provisions u/s 32AB of the Act and treatment of capital expenditure.
Interpretation of provisions u/s 32AB of the Act:
The High Court noted that the second question raised by the Revenue was already settled in a previous case, CIT Vs. Antifriction Bearings Corporation Ltd. The Court held that this question cannot be entertained due to the precedent set by the earlier decision. The Court admitted the appeal on the reframed question regarding the inclusion of specific items as profits of business for computing the allowable deduction u/s 32AB of the Act. The Court will consider whether the ITAT was justified in directing the Assessing Officer to include the write-off of Dadri asset and loss on sale/write-off of fixed assets as profits of business, despite these items not being covered under the adjustments specified u/s 32AB(3) of the Act.
Treatment of capital expenditure:
The parties agreed that the fourth question raised in the appeal does not arise from the order passed by the ITAT being challenged. The Court also admitted the appeal on the question regarding the addition made on account of the disallowance of expenditure on temporary construction of a site office and building, despite it being classified as capital expenditure. The Court will examine whether the ITAT was correct in directing to delete this addition, considering the nature of the expenditure as capital in nature.
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2011 (11) TMI 813
Issues involved: Assessment of income under different heads, applicability of section 14A for disallowance of expenditure against exempt income.
Assessment of income under different heads:
The assessee declared income under the heads "Income From House Property", "Income From Other Sources", and "Income From Long Term Capital Gain" for assessment year 2006-07. The assessee did not claim any expenditure under any of the heads of income, arguing that statutory deductions were claimed under the head "Computation of Property" and interest income was offered on a gross basis under "Income From Other Sources".
Applicability of section 14A for disallowance of expenditure against exempt income:
The Departmental Representative opposed the assessee's contentions, citing the Hon'ble Jurisdictional High Court's ruling that reasonable expenditures should be allocated for the purpose of earning dividends. Upon examination, it was found that certain expenditures were indeed claimed against income from other sources, such as charges from a sports club and sale of tickets. As the High Court mandated disallowance of reasonable expenditures against exempt income, the impugned order was set aside, and the issue was remanded back to the Assessing Officer for fresh adjudication in accordance with the law.
Outcome:
The appeal by the assessee was allowed for statistical purposes, and the order was pronounced in the open court on 29th November 2011.
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2011 (11) TMI 812
The Allahabad High Court admitted an income tax appeal and re-framed the question regarding the validity of notice issued under Section 148 of the Income Tax Act. The court stayed the operation of the impugned order passed by ITAT, Agra Bench until further orders.
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2011 (11) TMI 811
Issues Involved:
1. Eligibility for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Engagement in business incidental to educational purposes.
3. Justification of the Chief Commissioner of Income Tax (CCIT) in denying approval under Section 10(23C)(vi).
4. Validity of the CCIT's rejection of the rectification application under Section 154 of the Income Tax Act.
Detailed Analysis:
1. Eligibility for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961:
The petitioner, a registered society, challenged the CCIT's order denying approval under Section 10(23C)(vi) of the IT Act for the financial year 2006-07. The CCIT's refusal was based on the grounds that the petitioner-institution was not existing solely for educational purposes, was engaged in business activities not incidental to education, and did not maintain separate books of accounts for its business activities. The petitioner argued that its primary objective was to impart education in business management and related fields, and that its activities, including training and consultancy, were incidental to its educational purposes. The court examined the provisions of Section 10(23C)(vi), which exempts income of educational institutions existing solely for educational purposes and not for profit, provided they are approved by the prescribed authority.
2. Engagement in business incidental to educational purposes:
The petitioner contended that its activities, including short duration management development programs, feasibility studies, and research activities, were incidental to its educational objectives and should not be construed as business activities. The court noted that the petitioner conducted various programs and projects under its Centre for Development Research & Training (CENDERET), which involved significant income and expenditure. The CCIT observed that no separate books of accounts were maintained for these activities, and a large portion of expenses were merged in the general accounts of the petitioner-institution. The court held that the CCIT was justified in concluding that the petitioner was engaged in business activities not incidental to education.
3. Justification of the Chief Commissioner of Income Tax (CCIT) in denying approval under Section 10(23C)(vi):
The court examined the CCIT's findings, which included the petitioner's involvement in various non-educational activities, investments in the share market, and the absence of separate books of accounts for its business activities. The court referred to the Supreme Court's judgment in American Hotel & Lodging Association Educational Institute, which emphasized that mere excess of income over expenditure cannot be decisive in determining whether an institution exists for profit. The court concluded that the CCIT's decision to deny approval under Section 10(23C)(vi) was justified, as the petitioner did not meet the conditions required for exemption, including the requirement to exist solely for educational purposes and not for profit.
4. Validity of the CCIT's rejection of the rectification application under Section 154 of the Income Tax Act:
The petitioner also challenged the CCIT's order rejecting its application for rectification under Section 154 of the IT Act, arguing that the order was passed without giving an opportunity of hearing, thereby violating principles of natural justice. The court noted that the CCIT had held that the issues raised in the rectification application were not covered under Section 154 and did not constitute mistakes apparent from the record. The court found no substance in the petitioner's argument and upheld the CCIT's decision, stating that the rectification application was not entertainable under Section 154.
Conclusion:
The court dismissed the writ petition, upholding the CCIT's decision to deny approval under Section 10(23C)(vi) for the financial year 2006-07 and the rejection of the rectification application under Section 154. The court emphasized that the petitioner did not meet the conditions for exemption, including the requirement to exist solely for educational purposes and not for profit, and that the CCIT's findings were based on a detailed examination of the petitioner's activities and accounts.
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