AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Validity of assessment under section 153A read with section 153C of the Income-tax Act, 1961.
2. Addition of share application money under section 68 of the Act.
3. Disallowance of expenses under various heads.
Issue-wise Detailed Analysis:
1. Validity of Assessment under Section 153A read with Section 153C:
The primary issue in these appeals is the validity of the assessment framed consequent to the notice issued under section 153A read with section 153C of the Income-tax Act, 1961. The assessee argued that the initiation of proceedings under section 153C read with section 153A was invalid as there was no requisite satisfaction recorded by the Assessing Officer of the searched parties before handing over the relevant materials to the Assessing Officer having jurisdiction over the assessee. The Tribunal noted that the search was conducted by the Central Excise Department on M/s Chandra Kamal Corporation and M/s Virat Overseas Pvt. Ltd., and documents were seized. However, no material was received by the Assessing Officer having jurisdiction over the assessee from the Assessing Officer of the searched parties after valid satisfaction recorded by him.
The Tribunal emphasized that for initiating action under section 153C, there must be a satisfaction recorded by the Assessing Officer having jurisdiction over the searched party that the seized material pertains to the assessee. It was found that no such satisfaction was recorded, and the proceedings under section 153C were initiated based on a letter received by the Additional CIT. The Tribunal held that without initiating action under section 153A upon the searched party, action under section 153C cannot be initiated upon another person. Consequently, the assessment framed under section 153C read with section 153A was not sustainable in the eyes of law and was knocked down.
2. Addition of Share Application Money under Section 68:
On the merits of the case, the Tribunal addressed the addition of Rs.51,70,000 made under section 68 of the Act, which pertains to the share application money received by the assessee. The assessee placed heavy reliance on the judgment of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd., where it was held that if the share application money is received from alleged bogus shareholders whose names are given to the Assessing Officer, the Department is free to reopen their individual assessments but cannot add the same in the hands of the assessee-company. The Tribunal agreed with this view and deleted the additions made by the Assessing Officer and confirmed by the CIT(A) on account of share application money.
3. Disallowance of Expenses under Various Heads:
In ITA No.93/LKW/2011, an additional ground was raised regarding the disallowance of expenses aggregating to Rs.1,62,000 under various heads. No argument was raised by the assessee's counsel on this issue. The Tribunal carefully perused the order of the CIT(A) and found no infirmity therein, thus confirming the disallowance of expenses.
Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee in ITA No.92/LKW/2011 by knocking down the assessment framed under section 153C read with section 153A and deleting the additions made on account of share application money. In ITA No.93/LKW/2011, the Tribunal partly allowed the appeal by confirming the disallowance of expenses while deciding other issues in favor of the assessee.
Tribunal invalidates assessment under section 153C, deletes additions related to share application money.
The Tribunal allowed the appeal in ITA No.92/LKW/2011 by declaring the assessment under section 153C read with section 153A invalid and deleting the additions related to share application money. In ITA No.93/LKW/2011, the Tribunal partly allowed the appeal by confirming the disallowance of expenses while ruling in favor of the assessee on other issues.
Search and Seizure - block assessment - authorization u/s 132A - Held that:- action under section 153C of the Act was initiated on the basis of information received by the Additional CIT, Range IV, Kanpur on 22.12.2004 which is not permissible under the law. The right course available with the Revenue if they intends to initiate action on the basis of information received from some person, they could initiate action under section 153A of the Act requiring the assessee to furnish the requisite information, but action under section 153C of the Act is not permissible under the law. Therefore, we are of the considered opinion that action initiated by the Assessing Officer under section 153C of the Act by issuing notice under section 153C read with section 153A of the Act is not sustainable in the eyes of law.
Search and Seizure - block assessment - authorization u/s 132A - Held that:- action under section 153C of the Act was initiated on the basis of information received by the Additional CIT, Range IV, Kanpur on 22.12.2004 which is not permissible under the law. The right course available with the Revenue if they intends to initiate action on the basis of information received from some person, they could initiate action under section 153A of the Act requiring the assessee to furnish the requisite information, but action under section 153C of the Act is not permissible under the law. Therefore, we are of the considered opinion that action initiated by the Assessing Officer under section 153C of the Act by issuing notice under section 153C read with section 153A of the Act is not sustainable in the eyes of law.
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Reopening of assessment for the years 1995-96 and 1996-97.
2. Entitlement to depreciation.
3. Genuineness of hire purchase and lease transactions.
4. Valuation of assets for depreciation purposes.
Issue-Wise Detailed Analysis:
1. Reopening of Assessment for the Years 1995-96 and 1996-97:
The Tribunal held that the reopening of assessment by the Assessing Officer under Section 147 of the Income Tax Act for the assessment year 1995-96 was bad in law. The Tribunal found that the reassessment was based on a mere change of opinion without any new tangible material. The High Court affirmed this view, referencing the Supreme Court decision in Commissioner of Income Tax (Appeals) Vs. Kelvinator of India Ltd., which emphasized that reassessment must be based on "tangible material" and not merely a change of opinion. The Court noted that the original assessment had already considered the relevant documents, and the reassessment order did not point to any new material justifying the reopening.
2. Entitlement to Depreciation:
The Tribunal ruled in favor of the assessee, holding that the assessee was entitled to claim depreciation on the igni-fluid boiler. The High Court upheld this decision, stating that the transaction involving the purchase and leaseback of the boiler was genuine. The Court noted that the assessee had taken constructive delivery of the machinery and that the transaction had commercial substance. The Court also pointed out that the Revenue had not provided sufficient evidence to prove that the transaction was a sham.
3. Genuineness of Hire Purchase and Lease Transactions:
The Tribunal found that the hire purchase and lease transactions were genuine. The High Court supported this finding, emphasizing that the transactions had been placed before financial institutions like ICICI and IDBI, which had given their clearance. The Court rejected the Revenue's argument that the transactions were merely financial accommodations to a sister concern, noting that there was no material evidence to support this claim. The Court also referenced the Supreme Court decision in Vodafone International Holdings B.V. Vs. Union of India, which stated that genuine strategic tax planning is permissible and that the Revenue must provide substantial evidence to prove that a transaction is a sham.
4. Valuation of Assets for Depreciation Purposes:
The Tribunal allowed the depreciation as claimed by the assessee, rejecting the Revenue's contention that the value of the asset should be the written down value in the books of the seller as per explanation 3 to Section 43(1). The High Court upheld this decision, noting that the valuation of the boiler at Rs.2.50 crores was reasonable and supported by a valuation report. The Court found that the Revenue had not provided any material evidence to dispute this valuation.
Conclusion:
The High Court dismissed the Revenue's appeals, confirming the Tribunal's decisions on all issues. The Court held that the reopening of the assessment for the year 1995-96 was invalid, the assessee was entitled to claim depreciation, the hire purchase and lease transactions were genuine, and the valuation of the assets for depreciation purposes was appropriate. The Court emphasized the need for tangible material to justify reassessment and rejected the Revenue's claims as lacking sufficient evidence.
High Court affirms Tribunal decision, invalidating reassessment for lack of tangible material
The High Court dismissed the Revenue's appeals, affirming the Tribunal's decisions. It held that the reassessment for the year 1995-96 was invalid as it lacked tangible material. The assessee was deemed entitled to depreciation, with genuine hire purchase and lease transactions. The valuation of assets for depreciation was upheld as reasonable. The Court emphasized the requirement for substantial evidence to support Revenue's claims and validated the original assessment's thorough consideration of relevant documents.
Reopening of an assessment u/s 147/148 - Depreciation - possession - hire purchase of the machinery - held that:- while for one year it had accepted the transactions as a genuine one, viz., 1998-99, in respect of assessment years 1995-96 to 1997-98, it took a different stand that it is a colourable transaction. On a perusal of the documents produced, we have no hesitation in confirming the order of the Tribunal, both on the question of jurisdiction to reopen the assessment for the assessment year 1995-96 and on the merits of the claim in respect of the three assessment years viz., 1995-96 to 1997-98. - Decided in favor of assessee.
Reopening of an assessment u/s 147/148 - Depreciation - possession - hire purchase of the machinery - held that:- while for one year it had accepted the transactions as a genuine one, viz., 1998-99, in respect of assessment years 1995-96 to 1997-98, it took a different stand that it is a colourable transaction. On a perusal of the documents produced, we have no hesitation in confirming the order of the Tribunal, both on the question of jurisdiction to reopen the assessment for the assessment year 1995-96 and on the merits of the claim in respect of the three assessment years viz., 1995-96 to 1997-98. - Decided in favor of assessee.
AI TextQuick Glance (AI)Headnote
Issues:
Challenge to addition of commission paid to family members as business expenditure under Income Tax Act.
Analysis:
The appellant challenged an order passed by the Income Tax Appellate Tribunal, affirming the addition of Rs. 16,47,512 made by the Assessment Officer. The issue revolved around the payment of commission to the appellant's son and daughter-in-law, contending it was a legitimate business expenditure. The appellant argued that the payments to family members were for brokerage, supported by documents on record. However, the Tribunal, Commissioner of Income Tax, and Assessment Officer considered these payments as diversion of income to family members, thereby disallowing the claimed expenditure.
Upon review, the High Court found that the payments to family members were not categorized as brokerage but as payments made to relatives. The Tribunal observed that the appellant diverted income to family members to offset their brought forward losses, invoking Section 40A(2)(b) of the Income Tax Act. The Court cited specific provisions and the absence of evidence showing a practice of passing brokerage to other investors, deeming the claimed expenditure excessive and unreasonable.
The appellant relied on precedents from the Madras High Court to support treating the payments as business expenditure. However, the Court distinguished those cases, emphasizing the necessity of considering the unique facts of each case. The Court upheld the findings of the lower authorities, concluding that no substantial question of law arose in the appeal. Consequently, the appeal was dismissed in limine, affirming the decision to disallow the commission payments to family members as business expenditure under the Income Tax Act.
High Court affirms disallowance of family member commissions as business expenses under Income Tax Act
The High Court dismissed the appeal challenging the addition of commission paid to family members as business expenditure under the Income Tax Act. The Court found that the payments were not legitimate business expenses but rather a diversion of income to family members to offset their losses, invoking Section 40A(2)(b) of the Act. Despite appellant's reliance on precedents, the Court upheld lower authorities' decision, deeming the claimed expenditure excessive and unreasonable. The appeal was dismissed, affirming the disallowance of commission payments to family members as business expenditure.
Business expenditure - payment of commission - payment to relatives - Provisions of Section 40A(2)(b) of the Act. - held that:- Assessment Officer has examined various statements of the brokerage which were furnished by the assessee before him and in the case of investors, the assessee has net shown any payment of brokerage to the investor concerned and it has only shown payment of brokerage to his family members. It has been found by the Assessment Officer that it has been done to divert his income to his family members which would have otherwise become taxable in his own hands. Shri Uttam Chand Jain and Smt. Sunita Jain were having huge brought forward loss. The income was also diverted as against the huge loss. Provisions of Section 40A(2)(b) of the Act has been attracted. - Addition upheld - Decided against the assessee.
Business expenditure - payment of commission - payment to relatives - Provisions of Section 40A(2)(b) of the Act. - held that:- Assessment Officer has examined various statements of the brokerage which were furnished by the assessee before him and in the case of investors, the assessee has net shown any payment of brokerage to the investor concerned and it has only shown payment of brokerage to his family members. It has been found by the Assessment Officer that it has been done to divert his income to his family members which would have otherwise become taxable in his own hands. Shri Uttam Chand Jain and Smt. Sunita Jain were having huge brought forward loss. The income was also diverted as against the huge loss. Provisions of Section 40A(2)(b) of the Act has been attracted. - Addition upheld - Decided against the assessee.
AI TextQuick Glance (AI)Headnote
Issues:
- Addition of Rs. 2,74,91,238 on account of non-deduction of TDS u/s 40(a)(ia) of the Income Tax Act.
- Interpretation of section 194C and Circular No. 715 regarding TDS deduction on payments made to subcontractors.
- Applicability of TDS provisions on loading and unloading charges included in subcontractors' bills.
- Challenge to the order of revenue authorities regarding the non-deduction of TDS.
Analysis:
1. The appeal challenged the addition of Rs. 2,74,91,238 due to non-deduction of TDS u/s 40(a)(ia) of the Income Tax Act. The assessee, an individual engaged in the business of truck, lorry, and container transportation, contended that payments made to subcontractors were not subject to TDS. The AO argued that TDS was applicable on certain payments based on the provisions of section 194C and Circular No. 715. The CIT(A) upheld the AO's view, leading to the appeal.
2. The key contention revolved around the interpretation of section 194C and Circular No. 715 regarding the TDS deduction on payments made to subcontractors. The AO argued that the assessee, by engaging subcontractors for transportation services, was liable to deduct TDS on specific payments. However, the assessee argued that each transaction should be treated separately and not aggregated, citing Circular No. 715 and relevant case laws to support the claim.
3. Another issue addressed was the applicability of TDS provisions on loading and unloading charges included in subcontractors' bills. The assessee contended that these charges were not subject to TDS, emphasizing the nature of the business and contractual relationships involved in the transportation services provided.
4. The final aspect involved the challenge to the order of the revenue authorities regarding the non-deduction of TDS. The AR representing the assessee presented detailed arguments, case laws, and interpretations of relevant provisions to support the contention that the assessee was not liable to deduct TDS on the payments made to outsourced lorry owners. After a thorough analysis, the tribunal concluded that the assessee was not obligated to deduct TDS, leading to the allowance of the appeal and deletion of the disallowance.
In conclusion, the judgment delved into the complexities of TDS provisions under the Income Tax Act, emphasizing the importance of accurate interpretation and application of relevant laws and circulars in determining the liability for TDS deduction. The detailed analysis and reliance on case laws underscored the meticulous approach taken by the tribunal in resolving the issues raised by the parties involved.
Tribunal rules in favor of assessee, deleting TDS addition under Income Tax Act
The tribunal allowed the appeal, ruling in favor of the assessee and deleting the addition of Rs. 2,74,91,238 on account of non-deduction of TDS under section 40(a)(ia) of the Income Tax Act. It held that the assessee was not obligated to deduct TDS on payments made to subcontractors for transportation services, including loading and unloading charges, based on a detailed analysis of relevant provisions and case laws. The decision highlighted the importance of accurate interpretation and application of TDS laws in determining liability.
Disallowance on account of non deduction of TDS u/s 40(a)(ia) - loading and unloading charges - sub contractors - Circular No. 715 - Job work - outsourcing - reimbursement - held that:- Except for the observation of the AO that the business of the assessee is continuous, nowhere has the AO proved that the assessee had bound himself in contracts with outsourced third parties. We are in complete agreement with the submissions of the AR that at best the business done by the assessee for whom he hires trucks/lorries/containers would amount to job work because whatever he receives from his customers are paid to the out sourced lorry owners, that too on his own risks and perils and also where the out sourced transporters are not binding the assessee’s customers. - Decided in favor of assessee.
Disallowance on account of non deduction of TDS u/s 40(a)(ia) - loading and unloading charges - sub contractors - Circular No. 715 - Job work - outsourcing - reimbursement - held that:- Except for the observation of the AO that the business of the assessee is continuous, nowhere has the AO proved that the assessee had bound himself in contracts with outsourced third parties. We are in complete agreement with the submissions of the AR that at best the business done by the assessee for whom he hires trucks/lorries/containers would amount to job work because whatever he receives from his customers are paid to the out sourced lorry owners, that too on his own risks and perils and also where the out sourced transporters are not binding the assessee’s customers. - Decided in favor of assessee.
AI TextQuick Glance (AI)Headnote
Issues involved:
1. Legality of garnishee notice issued by the Assistant Commissioner of Income Tax.
2. Disputed tax recovery from the petitioner Board.
3. Appeal filed by the petitioner Board against assessment order.
4. Stay of recovery of demanded tax.
5. Classification of the petitioner Board as a local authority.
6. Exemption from provisions of the Income Tax Act.
7. Pending application under Section 12AA of the Income Tax Act.
8. Grant of stay of the garnishee order.
Analysis:
1. The High Court considered the legality of the garnishee notice issued by the Assistant Commissioner of Income Tax to recover disputed tax from the petitioner Board. The petitioner challenged the notice as illegal, arbitrary, and against the provisions of the Income Tax Act, seeking a direction to withhold payment until the appeal against the assessment order was resolved.
2. The petitioner Board had previously filed a writ petition questioning the assessment order for the year 2003-2004, which was dismissed. Subsequent appeals were made against similar assessment orders. The petitioner contended errors in assessment and raised issues regarding the application of Section 147 and reliance on internal audit.
3. The Court noted that the grounds raised in the appeal before the Commissioner of Income Tax (Appeals) were not within its purview and should be addressed by the appellate authority. The appeal process was ongoing, and the Court emphasized the need for the appellate authority to consider the contentions raised.
4. Regarding the stay of recovery of demanded tax, the Commissioner of Income Tax-III had previously allowed a partial stay subject to conditions. The petitioner's inability to meet the conditions led to the writ petition. The Court directed the Commissioner of Income Tax (Appeals)-IV to extend the same relief granted by the Commissioner of Income Tax-III pending appeal disposal.
5. The classification of the petitioner Board as a local authority was a crucial aspect. The petitioner argued its status as a service-oriented organization established by an Act of the Government, not for profit but for public utility. The Court refrained from expressing an opinion on these contentions, leaving them for the appellate authority to decide.
6. The Court discussed the exemption of local authorities from the Income Tax Act, noting the amendments and the petitioner's application for registration as a charitable institution under Section 12AA, pending consideration by the Central Board of Direct Taxes.
7. Considering the circumstances, the Court granted a stay of the garnishee order and subsequent attachment orders pending appeal disposal. The petitioner was directed to pay 50% of the demanded tax monthly, with the appeal to be expedited within three months.
8. Ultimately, the writ petition was disposed of without costs, emphasizing the need for a speedy resolution of the appeal and the stay of recovery pending the appeal process.
High Court Stay Order on Garnishee Notice for Tax Dispute: Relief granted, payment terms set, speedy appeal process emphasized.
The High Court considered the legality of a garnishee notice issued by the Assistant Commissioner of Income Tax to recover disputed tax from the petitioner Board. The Court directed the Commissioner of Income Tax (Appeals)-IV to extend the relief granted by the Commissioner of Income Tax-III pending appeal disposal, granting a stay of the garnishee order and subsequent attachment orders. The petitioner was instructed to pay 50% of the demanded tax monthly, with the appeal to be expedited within three months. The writ petition was disposed of without costs, emphasizing the need for a speedy resolution of the appeal and the stay of recovery pending the appeal process.
Garnishee notice - Section 226 (3) - attachment orders - held that:- Having regard to the facts and circumstances of the case, we are of the opinion that it is just and proper to grant stay of the impugned garnishee order, and the subsequent attachment orders pending disposal of the appeal before the CIT(A) subject to condition the petitioner pays 50% of the demanded tax at the rate of Rs.2 crores per month commencing from May 2012 payable by 5 th of every month. The Commissioner of Income Tax (Appeals)-IV is directed to dispose of the appeal as expeditiously as possible preferably within a period of 3 (three) months from today.
Garnishee notice - Section 226 (3) - attachment orders - held that:- Having regard to the facts and circumstances of the case, we are of the opinion that it is just and proper to grant stay of the impugned garnishee order, and the subsequent attachment orders pending disposal of the appeal before the CIT(A) subject to condition the petitioner pays 50% of the demanded tax at the rate of Rs.2 crores per month commencing from May 2012 payable by 5 th of every month. The Commissioner of Income Tax (Appeals)-IV is directed to dispose of the appeal as expeditiously as possible preferably within a period of 3 (three) months from today.
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Violation of principles of equity and natural justice.
2. Jurisdiction of the JCIT (TP-II) in passing the order.
3. Rejection of Resale Price Method (RPM) and adoption of Transaction Net Margin Method (TNMM).
4. Adjustment related to sale of redundant stock of parts.
5. Benchmarking of software license using TNMM.
6. Data set of comparables for manufacturing segment under TNMM.
7. Rejection of risk adjustment and standard adjustment of 5 percent.
8. Disallowance of warranty provision.
9. Disallowance of R&D cess payable.
10. Disallowance of marketing support fees paid to IBM as capital expenditure.
11. Disallowance of Future Billing Adjustment (FBA) and Duty Free Replenishment Certificate (DFRC) receivable written off.
12. Levy of interest under sections 234B and 234D.
Issue-wise Detailed Analysis:
1. Violation of Principles of Equity and Natural Justice:
The assessee contended that the order passed by the Dispute Resolution Panel (DRP) was contrary to law and made without giving adequate opportunity for being heard. The panel also failed to consider the submissions made by the appellant. This ground highlights the alleged procedural lapses and the violation of natural justice principles.
2. Jurisdiction of JCIT (TP-II):
The assessee initially raised the issue of jurisdiction of the JCIT (TP-II) in passing the order under section 92CA of the Income-tax Act. However, this ground was not pursued further during the hearing and was rejected as not pressed.
3. Rejection of Resale Price Method (RPM) and Adoption of Transaction Net Margin Method (TNMM):
The assessee argued that the DRP erred in upholding the rejection of RPM for the import of parts for manufacturing and instead adopting TNMM. The TPO had considered the resale of parts initially imported for manufacturing as a separate trading activity. The tribunal found that the TPO did not properly appreciate the facts and methods adopted by the assessee. It noted inconsistencies in the TPO's approach, particularly when similar transactions were accepted in subsequent years without adjustments. The matter was remitted back to the assessing authority to verify the consistency in the approach for the relevant assessment year.
4. Adjustment Related to Sale of Redundant Stock of Parts:
The assessee contended that the sale of redundant stock of parts was closely linked to manufacturing operations and should not be treated as a separate trading activity. The tribunal agreed with the assessee's contention, emphasizing the need for continuity and uniformity in the revenue's approach across different assessment years.
5. Benchmarking of Software License Using TNMM:
The assessee argued against the use of TNMM for benchmarking the software license, stating that it merely reimbursed the cost of software procured by the associated enterprise from third parties. The tribunal found that the TPO had not properly considered the facts and methods adopted by the assessee. The issue was remitted back to the assessing authority for reconsideration.
6. Data Set of Comparables for Manufacturing Segment Under TNMM:
The assessee challenged the data set of comparables used for benchmarking the manufacturing segment under TNMM. The tribunal noted flaws in the TPO's order and remitted the issue back to the assessing authority for verification and consistency with subsequent years' assessments.
7. Rejection of Risk Adjustment and Standard Adjustment of 5 Percent:
The assessee contended that the DRP erred in rejecting the claim for risk adjustment and the standard adjustment of 5 percent from the arithmetic mean margin computed for benchmarking under TNMM. The tribunal found that the TPO did not properly appreciate the facts and methods adopted by the assessee. The issue was remitted back to the assessing authority for reconsideration.
8. Disallowance of Warranty Provision:
The assessee had provided for warranty expenses based on a scientific method, using past data from IBM. The assessing officer disallowed the provision, considering it unascertained. The tribunal referred to the Supreme Court's decision in Rotork Controls India (P.) Ltd., which allows for such provisions if made on a reliable estimate. The issue was remitted back to the assessing authority to verify the scientific basis of the provision.
9. Disallowance of R&D Cess Payable:
The assessee did not pursue this ground further during the hearing, and it was rejected as not pressed.
10. Disallowance of Marketing Support Fees Paid to IBM as Capital Expenditure:
The assessee argued that the marketing support fees paid to IBM were for smooth and efficient business operations and should be treated as revenue expenditure. The tribunal agreed, noting that the services rendered by IBM were for the efficient running of the business and not for acquiring any capital asset. The fees were allowed as a deduction under section 37 of the Income-tax Act.
11. Disallowance of Future Billing Adjustment (FBA) and Duty Free Replenishment Certificate (DFRC) Receivable Written Off:
The assessee contended that the FBA and DFRC receivables written off were necessary for carrying on its business and should be allowed as revenue expenditure. The tribunal agreed, noting that the assessee had taken over liabilities from IBM and incurred these expenses to maintain business relations and for smooth operations. The write-off of DFRC was also justified due to changes in customs duty regulations. The expenses were allowed as revenue expenditure.
12. Levy of Interest Under Sections 234B and 234D:
This ground was found to be consequential in nature, and the assessing officer was directed to give consequential relief to the assessee if any.
Conclusion:
The appeal filed by the assessee was partly allowed, with several issues remitted back to the assessing authority for reconsideration and verification, and specific deductions allowed as revenue expenditure.
Assessee's Appeal Partially Allowed, Remitted for Reconsideration. Deductions for Revenue Expenditure Upheld.
The appeal filed by the assessee was partly allowed, with several issues remitted back to the assessing authority for reconsideration and verification. Specific deductions were allowed as revenue expenditure, including marketing support fees paid to IBM and expenses related to Future Billing Adjustment and Duty Free Replenishment Certificate receivables. The tribunal emphasized the need for consistency and proper consideration of facts and methods adopted by the assessee in the transfer pricing matters.
Transfer pricing - Challenge to the order passed by the Dispute Resolution Panel (DRP) u/s 143(3) read with sec. 144C - Most Appropriate Method (MAM) - Resale Price Method (RPM) or Transaction Net Margin Method (TNMM) - Selection of comparable - held that:- assessee has followed the internal CUP method for arriving at ALP for the import of raw material, where as the TPO, in his order, has mentioned that the assessee has adopted the external CUP method. Similarly, for the royalty payment, the assessee has adopted the external cup method and it was a single payment, whereas the TPO observed at page 21 of his order that it is recurring payment. There were many flaws in the TPO's order which demonstrate that the facts of the case have not been properly appreciated by the TPO while making the TP study analysis. - Matter remanded bact.
Disallowance of warranty provisions - business of desk tops and lap tops from IBM - held that:- Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd., (2009 (5) TMI 16 (SC)) has held that when a product is sold with a warranty provision, it cannot be held that the assessee has no obligation for the said warranty but for making a provision for the said warranty a reliable estimate should be made on the amount of obligation and a scientific method should be used. - Matter remanded back for reconsideration.
Revenue or capital expenditure - marketing support agreement - held that:- it is for efficient running of the business and deriving revenues there-from. In such circumstances, we are inclined to hold that the fees paid by the assessee for marketing support services rendered by IBM, is clearly revenue in nature and is allowable as deduction u/s 37 of the Income-tax Act.
Taking over the business - discharge of the liability of the predecessor - held that:- held by the Hon'ble Supreme Court in the case T. Veerabhadra Rao, K. Koteswara Rao & Co. (1985 (7) TMI 2 (SC)), the successor of a business steps into the shoes of its predecessor and is liable to meet any claims against the predecessor. - Decided in favor of assessee.
Transfer pricing - Challenge to the order passed by the Dispute Resolution Panel (DRP) u/s 143(3) read with sec. 144C - Most Appropriate Method (MAM) - Resale Price Method (RPM) or Transaction Net Margin Method (TNMM) - Selection of comparable - held that:- assessee has followed the internal CUP method for arriving at ALP for the import of raw material, where as the TPO, in his order, has mentioned that the assessee has adopted the external CUP method. Similarly, for the royalty payment, the assessee has adopted the external cup method and it was a single payment, whereas the TPO observed at page 21 of his order that it is recurring payment. There were many flaws in the TPO's order which demonstrate that the facts of the case have not been properly appreciated by the TPO while making the TP study analysis. - Matter remanded bact.
Disallowance of warranty provisions - business of desk tops and lap tops from IBM - held that:- Hon'ble Supreme Court in the case of Rotork Controls India (P.) Ltd., (2009 (5) TMI 16 (SC)) has held that when a product is sold with a warranty provision, it cannot be held that the assessee has no obligation for the said warranty but for making a provision for the said warranty a reliable estimate should be made on the amount of obligation and a scientific method should be used. - Matter remanded back for reconsideration.
Revenue or capital expenditure - marketing support agreement - held that:- it is for efficient running of the business and deriving revenues there-from. In such circumstances, we are inclined to hold that the fees paid by the assessee for marketing support services rendered by IBM, is clearly revenue in nature and is allowable as deduction u/s 37 of the Income-tax Act.
Taking over the business - discharge of the liability of the predecessor - held that:- held by the Hon'ble Supreme Court in the case T. Veerabhadra Rao, K. Koteswara Rao & Co. (1985 (7) TMI 2 (SC)), the successor of a business steps into the shoes of its predecessor and is liable to meet any claims against the predecessor. - Decided in favor of assessee.
AI TextQuick Glance (AI)Headnote
Issues:
Interpretation of deductions under Section 10A of the Act for communication and travel expenses.
Analysis:
The High Court considered an appeal by the revenue challenging the Tribunal's decision on reducing communication and travel expenses from total turnover for computing deductions under Section 10A of the Act. The Court referred to a previous case involving similar issues and held that there should be uniformity in the formula for computing deductions under Section 10A to avoid anomalies. Section 10A aims to provide incentives for promoting exports by exempting profits related to exports. The Court emphasized the importance of apportioning profits based on turnovers in cases of combined export and domestic businesses. It highlighted that the components of export turnover in the numerator and denominator of the formula should be the same, meaning that expenses excluded from the numerator should also be excluded from the denominator. The Court stressed that the interpretation of 'total turnover' should align with the context and legislative intent, respecting the meaning assigned to export turnover. Ultimately, the Court found no error in the Tribunal's decision, citing similarities between Section 10A and Section 80HHC, and ruled in favor of the assessee, dismissing the revenue's appeal.
In conclusion, the High Court determined that no substantial question of law arose in the appeal, leading to the dismissal of the case. The judgment emphasized the need for consistency in interpreting provisions related to deductions under Section 10A to ensure fairness and adherence to legislative intent in promoting export businesses.
High Court favors assessee in appeal on deductions under Section 10A, stresses uniformity in calculation
The High Court ruled in favor of the assessee, dismissing the revenue's appeal regarding the computation of deductions under Section 10A of the Act for communication and travel expenses. The Court emphasized the importance of uniformity in calculating deductions to avoid anomalies and highlighted the need to align with the legislative intent of promoting exports. The judgment concluded that no substantial question of law arose, leading to the dismissal of the case and reinforcing the significance of consistency in interpreting provisions related to deductions under Section 10A.
Deduction u/s 10A - Reduction of expenditure incurred towards communications expenses as well as travelling, boarding and conveyance expenses from the total turnover while computing deductions under Section 10A of the Act. - held that:- no error committed by the Tribunal in following the judgments rendered in the context of Section 80HHC in interpreting Section 10-A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue.
Deduction u/s 10A - Reduction of expenditure incurred towards communications expenses as well as travelling, boarding and conveyance expenses from the total turnover while computing deductions under Section 10A of the Act. - held that:- no error committed by the Tribunal in following the judgments rendered in the context of Section 80HHC in interpreting Section 10-A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue.
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Whether the alcohol including rectified spirit and denatured spirit manufactured by the assessee-company falls under the Eleventh Schedule of the Income Tax Act, 1961.
2. Whether the assessee-company is entitled to investment allowance under Section 32A of the Income Tax Act, 1961 for the assessment years 1985-86, 1986-87, and 1989-90, and also deduction under Section 32AB for the assessment year 1989-90.
Detailed Analysis:
Issue 1: Applicability of the Eleventh Schedule to Alcoholic Spirits
The central question was whether the manufactured alcohol, including rectified spirit and denatured spirit, falls under the Eleventh Schedule of the Income Tax Act, 1961. The ITAT had held that these products do not fall under the Eleventh Schedule, which disqualifies certain items from investment allowance. The Revenue argued that any kind of alcoholic spirits, including non-potable spirits, should be included under item 1 of the Eleventh Schedule, relying on the Finance Minister's speech and definitions in the Andhra Pradesh Excise Act, 1968, and the Andhra Pradesh Rectified Spirit Rules, 1971.
The Court applied principles of statutory interpretation, including Noscitur a Sociis and ejusdem generis, to construe the term "other alcoholic spirits" in the context of "beer" and "wine," which are potable. The Court concluded that the term "other alcoholic spirits" should be limited to those fit for human consumption, excluding industrial alcohol and rectified spirit. This interpretation was supported by the Finance Minister's speech and a CBDT circular clarifying that industrial alcohol is not covered by item 1 of the Eleventh Schedule.
Issue 2: Entitlement to Investment Allowance and Deduction Under Section 32A and 32AB
The assessee claimed investment allowance for machinery used in manufacturing rectified spirit, which was initially allowed by the Income Tax Officer but later revised by the Commissioner of Income Tax under Section 263 of the Act. The ITAT ruled in favor of the assessee, stating that rectified spirit and denatured spirit do not fall within the scope of item 1 of the Eleventh Schedule. The Court upheld this view, noting that the primary activity of the assessee was manufacturing non-potable rectified spirit and denatured spirit, and the incidental production of arrack under government compulsion did not disqualify them from claiming investment allowance.
The Court also referred to Section 32A(2A) of the Act, which allows investment allowance for machinery mainly used for manufacturing non-specified items, even if incidentally used for specified items. Thus, the assessee was entitled to investment allowance for machinery used in manufacturing rectified spirit, despite occasional production of arrack.
Conclusion:
The Court answered both questions in favor of the assessee and against the Revenue, affirming that the manufactured rectified spirit and denatured spirit do not fall under the Eleventh Schedule and that the assessee is entitled to investment allowance and deduction under Sections 32A and 32AB of the Income Tax Act for the relevant assessment years. The referred cases were disposed of accordingly, with no order as to costs.
Court rules in favor of assessee for investment allowance, manufactured spirits not under Income Tax Act schedule
The Court ruled in favor of the assessee, holding that the manufactured rectified spirit and denatured spirit do not fall under the Eleventh Schedule of the Income Tax Act, 1961. The assessee was deemed entitled to investment allowance under Section 32A and deduction under Section 32AB for the relevant assessment years. The Court emphasized that the primary activity of the assessee was manufacturing non-potable spirits, and occasional production of arrack did not disqualify them from claiming investment allowance. The cases were disposed of in favor of the assessee, with no order as to costs.
Investment allowance u/s 32A - Whether article or thing, viz., alcohol including rectified spirit and denatured spirit manufactured by the assessee-company do not come under the ambit of Eleventh Schedule of the I.T.Act, 1961? - held that:- Respectfully following the reasoning in Sangrur Vanaspati Mills and Sraya Industries (2006 (11) TMI 197 (HC)) we hold that the assessee cannot be denied investment allowance. - Decided in favor of assessee.
Investment allowance u/s 32A - Whether article or thing, viz., alcohol including rectified spirit and denatured spirit manufactured by the assessee-company do not come under the ambit of Eleventh Schedule of the I.T.Act, 1961? - held that:- Respectfully following the reasoning in Sangrur Vanaspati Mills and Sraya Industries (2006 (11) TMI 197 (HC)) we hold that the assessee cannot be denied investment allowance. - Decided in favor of assessee.
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Applicability of Section 194H to amounts paid to distributors on the sale of prepaid cards.
2. Applicability of Section 194J to amounts paid to other telephony operators towards roaming charges.
3. Applicability of Section 194I to the payment of roaming charges as an alternative contention.
4. The alternative plea that the assessee should not be required to deduct tax at source again if the tax on the said income has been paid by the deductees.
Issue-wise Detailed Analysis:
1. Applicability of Section 194H to Amounts Paid to Distributors on Sale of Prepaid Cards:
The primary issue is whether the difference between the face value of prepaid cards and the selling price constitutes "commission" liable for deduction at source under Section 194H. The assessee sells prepaid cards to distributors at a price lower than the face value. The assessing officer (AO) argued that this difference is akin to commission, invoking Section 194H. The AO cited the case of Bharti Cellular Ltd. and noted that the relationship between the assessee and distributors is that of Principal and Agent. The assessee, however, contended that the relationship is Principal to Principal and relied on the Gujarat High Court's decision in Ahmedabad Stamp Vendors Association. The Tribunal, following the Delhi High Court's decision in Idea Cellular Ltd., concluded that the discount offered to distributors on prepaid cards is indeed commission and subject to TDS under Section 194H.
2. Applicability of Section 194J to Roaming Charges:
The second issue pertains to whether roaming charges paid to other operators fall under "Technical services" as per Section 194J. The AO and CIT(A) held that these payments are for technical services. The assessee argued that roaming services are automated and lack human intervention, thus not qualifying as technical services. The Tribunal noted the need for technical expertise to understand the operations of roaming services and set aside the orders of CIT(A), directing the AO to re-examine the issue with technical assistance.
3. Applicability of Section 194I to Roaming Charges:
As an alternative contention, the AO argued that Section 194I should apply to roaming charges. The Tribunal, noting the necessity of technical understanding, set aside this issue to the AO for re-examination alongside the Section 194J issue.
4. Alternative Plea on Non-requirement of TDS if Tax Already Paid by Deductees:
The assessee raised an alternative plea that if the tax on the income has already been paid by the deductees, the assessee should not be required to deduct tax at source again. The Tribunal, referencing the Supreme Court's decision in Hindustan Coco Cola Beverage Pvt. Ltd., directed the AO to verify the assessee's claim that the deductees have paid the tax and take appropriate action in accordance with law.
Conclusion:
The Tribunal partly allowed the appeals, directing the AO to re-examine the issues related to roaming charges under Sections 194J and 194I with technical assistance and to verify the claim regarding the non-requirement of TDS if the tax has already been paid by deductees. The decision upheld the applicability of Section 194H to the discount on prepaid cards, treating it as commission.
Appeals partly allowed, re-examination ordered for roaming charges under Sections 194J and 194I. Section 194H applies to prepaid card discounts.
The Tribunal partly allowed the appeals, directing the AO to re-examine issues related to roaming charges under Sections 194J and 194I with technical assistance and verify the claim regarding the non-requirement of TDS if tax has been paid by deductees. The decision upheld the applicability of Section 194H to the discount on prepaid cards, treating it as commission.
TDS u/s 194H - distributors on sale of Prepaid cards - SIM cards - Demand u/s 201(1) and 201(1A) - held that:- The decision rendered by the Hon’ble Delhi High Court in the case of Idea Celular Ltd (2010 (2) TMI 24 (HC)) is directly on the issues agitated before us. Hence, we are inclined to follow the same. In that case, the Hon’ble Delhi High Court held that the transaction between the assessee, a cellular operator and the prepaid market associates (PMAs) appointed by it whereby SIM cards/recharge coupons are ultimately sold to the subscribers through the latter does not amount to ‘sale’ of goods and, therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons which are eventually sold to the subscribers at the listed price is commission and it is subject to TDS u/s 194H. - Decided against the assessee.
Applicability of provisions of sec. 194J on roaming charges paid by the assessee to other operators - held that:- decision of Skycell (2001 (2) TMI 57 (HC)). - held that:- this issue could be resolved if there is proper understanding of the technical details concerning the functioning of Home circle cellular operators and Outside circle operators. From the arguments of the Ld A.R, we understand that the case of the assessee is that the Home circle cellular operator does not actually provide airtime usage facility to the subscriber, once he moves out of the Home circle to an outside circle. The airtime usage in those Outside circles is actually provided by the operators of concerned outside circles. With regard to the billing, the understanding between the cellular operators is that the charges for the usage in Outside circles shall also be collected by the Home circle cellular operator, who in turn, shall pass it on to the concerned outside circle operator. - matter remanded for reconsideration.
TDS u/s 194H - distributors on sale of Prepaid cards - SIM cards - Demand u/s 201(1) and 201(1A) - held that:- The decision rendered by the Hon’ble Delhi High Court in the case of Idea Celular Ltd (2010 (2) TMI 24 (HC)) is directly on the issues agitated before us. Hence, we are inclined to follow the same. In that case, the Hon’ble Delhi High Court held that the transaction between the assessee, a cellular operator and the prepaid market associates (PMAs) appointed by it whereby SIM cards/recharge coupons are ultimately sold to the subscribers through the latter does not amount to ‘sale’ of goods and, therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons which are eventually sold to the subscribers at the listed price is commission and it is subject to TDS u/s 194H. - Decided against the assessee.
Applicability of provisions of sec. 194J on roaming charges paid by the assessee to other operators - held that:- decision of Skycell (2001 (2) TMI 57 (HC)). - held that:- this issue could be resolved if there is proper understanding of the technical details concerning the functioning of Home circle cellular operators and Outside circle operators. From the arguments of the Ld A.R, we understand that the case of the assessee is that the Home circle cellular operator does not actually provide airtime usage facility to the subscriber, once he moves out of the Home circle to an outside circle. The airtime usage in those Outside circles is actually provided by the operators of concerned outside circles. With regard to the billing, the understanding between the cellular operators is that the charges for the usage in Outside circles shall also be collected by the Home circle cellular operator, who in turn, shall pass it on to the concerned outside circle operator. - matter remanded for reconsideration.
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Whether the Assessing Officer (AO) was justified in disallowing the claim of deduction under section 80IB(10) of the Income-tax Act, 1961, due to the non-obtainment of the completion certificate within the prescribed time.
Detailed Analysis:
1. Disallowance of Deduction under Section 80IB(10):
Facts and Background:
The appellant, a partnership firm involved in building and developing residential units, claimed deductions under section 80IB(10) for three housing projects: 'Surendra Enclave', 'Surendra Vihar Phase-I', and 'Surendra Garden'. The AO disallowed these deductions for the Assessment Years (AYs) 2002-03 to 2007-08, arguing that the completion certificates were not obtained from the local authority by the statutory deadline of 31.03.2008.
Arguments by the Departmental Representative (DR):
The DR contended that the completion certificates were issued by the Municipal Authority in June 2010, beyond the prescribed period, thus the construction completion date should be considered as the date of issuance of the certificate, disqualifying the appellant from claiming the deduction.
Findings of the CIT(A):
The CIT(A) reviewed the legislative intent behind section 80IB(10), emphasizing that the provision aims to promote housing projects within approved developmental plans. It was noted that the appellant had applied for the completion certificates on 26.11.2007 and fulfilled all formalities. The delay in issuance by the Municipal Corporation was attributed to the time taken for inspection due to possession being given to most units before the application.
Legal Provisions and Interpretation:
Section 301 of the Madhya Pradesh Nagar Palika Adhiniyam mandates that a completion certificate should be issued within a specified period after the construction is completed and inspected. The CIT(A) inferred that since the appellant had completed the construction and applied for the certificate within the stipulated time, the projects should be deemed completed by 31.03.2008, even though the certificates were issued later.
Supporting Judgments:
The CIT(A) referenced several ITAT decisions, including:
- Hindustan Samuha Awas Ltd. vs. ITO: The Tribunal held that if the assessee has applied for the completion certificate and fulfilled all requirements, the delay in issuance by the local authority should not disqualify the deduction claim.
- M/s Satish Bora and Associates: It was determined that the date of completion should be considered as the date when the application for the completion certificate was made, provided all formalities were completed.
- Sanghvi and Doshi Enterprise: The Tribunal allowed the deduction even when the completion certificate was issued after the due date, recognizing that the delay was beyond the assessee's control.
- M/s D.K. Construction: The Tribunal emphasized that the crucial date is when the construction is completed and the application for the completion certificate is made, not the date of issuance.
Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the appellant was entitled to the deduction under section 80IB(10) for AYs 2002-03 to 2007-08. The Tribunal emphasized that the delay in the issuance of the completion certificate by the local authority, despite the appellant fulfilling all requirements and applying in time, should not penalize the appellant. The appeals filed by the revenue were dismissed.
Judgment:
All appeals filed by the revenue were dismissed, affirming the CIT(A)'s decision to allow the deduction under section 80IB(10) for the appellant. The decision was pronounced in the Open Court on 9.12.2011.
Tribunal upholds CIT(A) decision on deduction eligibility under section 80IB(10) for multiple assessment years.
The Tribunal upheld the CIT(A)'s decision, allowing the appellant's deduction under section 80IB(10) for Assessment Years 2002-03 to 2007-08. The delay in issuing completion certificates by the local authority did not disqualify the appellant, as they had applied on time and fulfilled requirements. The revenue's appeals were dismissed, affirming the deduction eligibility.
Deduction u/s 80IB(10) - completion certificate - housing projects - the only contention of the AO for rejecting the claim of appellant for all these six AYs is that there is no completion certificates in respect of above mentioned three housing projects issued by the Corporation - The Municipal Corporation had issued the completion certificate on 18.06.2010, 23.06.2010 and 24.06.2010 in respect of Permission No. 3737/27.03.2001, 299/04.09.1999 and 580/02.11.1999 respectively - The Municipal authority has not pointed out any defect and irregularity in the assessee's application dated 26.11.2007 submitted for issuance of completion certificate of all the said projects - Decided in favor of the assessee
Deduction u/s 80IB(10) - completion certificate - housing projects - the only contention of the AO for rejecting the claim of appellant for all these six AYs is that there is no completion certificates in respect of above mentioned three housing projects issued by the Corporation - The Municipal Corporation had issued the completion certificate on 18.06.2010, 23.06.2010 and 24.06.2010 in respect of Permission No. 3737/27.03.2001, 299/04.09.1999 and 580/02.11.1999 respectively - The Municipal authority has not pointed out any defect and irregularity in the assessee's application dated 26.11.2007 submitted for issuance of completion certificate of all the said projects - Decided in favor of the assessee
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Deletion of interest charged under Section 234C of the Income-tax Act for deferred payment of advance tax.
2. Applicability of Section 154 for rectification of errors in the context of interest levied under Section 234C.
Detailed Analysis:
Issue 1: Deletion of Interest Charged under Section 234C
The Revenue appealed against the CIT(A)'s decision to delete the interest of Rs. 2,24,28,120/- charged under Section 234C for deferred payment of advance tax. The CIT(A) had directed the deletion of this interest, arguing that the issue was debatable and not subject to prima facie adjustments under Section 143(1). The CIT(A) noted that the MAT income could not be known to the company during the previous year, making it impossible to levy interest under Sections 234B and 234C when MAT income is the deciding factor for tax chargeability.
The Revenue, however, argued that the levy of interest under Section 234C is mandatory, citing various judicial decisions including Jt. CIT Mumbai vs. Rolta India Ltd., CIT vs. Rana Sugars Ltd., and CIT vs. Steel Steips Leasing Ltd. The Tribunal agreed with the Revenue, emphasizing that Section 115JB(5) explicitly states that all provisions of the Act, including those relating to advance tax, apply to companies. The Tribunal referenced the CBDT Circular No. 13 of 2001, which clarified that companies are liable for advance tax under Section 115JB, and therefore, interest under Sections 234B and 234C is applicable.
Issue 2: Applicability of Section 154 for Rectification
The assessee had filed an application under Section 154, arguing that interest under Section 234C was not leviable based on the Supreme Court's decision in CIT vs. Kwality Biscuits Ltd. The AO rejected this application, stating that the issue was debatable and not a clear mistake apparent from the record. The CIT(A) had allowed the assessee's appeal, stating that the issue of charging interest under Section 234C was debatable and thus outside the scope of Section 154.
The Tribunal disagreed with the CIT(A), stating that the AO correctly applied the law as per Section 115JB(5) and the CBDT Circular. The Tribunal noted that the CIT(A) had inappropriately extended the debate by referring to decisions related to Section 115J, which did not apply to the context of Section 115JB. The Tribunal highlighted that the Hon'ble Karnataka High Court in Jindal Thermal Power Co. Ltd. had upheld the levy of interest under Sections 234B and 234C on tax calculated on book profits under Section 115JB, making the issue non-debatable.
Conclusion:
The Tribunal concluded that the AO was justified in levying interest under Section 234C on tax determined on book profits under Section 115JB. The CIT(A)'s order was vacated, and the Revenue's appeal was allowed. The Tribunal emphasized that the specific provisions of Section 115JB(5) and relevant judicial precedents supported the mandatory levy of interest, and no debatable issue existed to warrant rectification under Section 154.
Tribunal upholds Revenue's appeal on interest levy for book profits under Income-tax Act
The Tribunal upheld the Revenue's appeal, ruling in favor of levying interest under Section 234C on tax determined on book profits under Section 115JB. The CIT(A)'s decision to delete the interest charged under Section 234C was overturned, emphasizing the mandatory nature of interest levy under the Income-tax Act. The Tribunal highlighted the applicability of Section 115JB(5) and relevant judicial precedents, concluding that no debatable issue existed to warrant rectification under Section 154.
Minimum Alternate Tax (MAT) - Interest u/s 234C - deferred payment of advance tax - Section 115JB(5) - held that:- Under s. 115JB of the Act, sub-s. (5) clearly states that other provisions of the Act shall apply to every assessee being a company, save as otherwise provided in the said section. In this context, Circular No. 13 of 2001 has also been issued by the CBDT as per which companies covered by the provisions of s. 115JB are liable to pay advance tax and consequently, ss. 234B and 234C of the Act are applicable.
Decision in Kwality Biscuits Ltd.(2006 (4) TMI 121 (SC)) in which SC dismissed the appeal against the decision of HC in (1999 (11) TMI 48 (HC)) distinguished. - Decided against the assessee.
Minimum Alternate Tax (MAT) - Interest u/s 234C - deferred payment of advance tax - Section 115JB(5) - held that:- Under s. 115JB of the Act, sub-s. (5) clearly states that other provisions of the Act shall apply to every assessee being a company, save as otherwise provided in the said section. In this context, Circular No. 13 of 2001 has also been issued by the CBDT as per which companies covered by the provisions of s. 115JB are liable to pay advance tax and consequently, ss. 234B and 234C of the Act are applicable.
Decision in Kwality Biscuits Ltd.(2006 (4) TMI 121 (SC)) in which SC dismissed the appeal against the decision of HC in (1999 (11) TMI 48 (HC)) distinguished. - Decided against the assessee.
AI TextQuick Glance (AI)Headnote
Issues Involved:
1. Whether the receipt of Rs. 21 crores as interest-free security deposit constitutes a transfer of capital asset and is liable to capital gains tax under Section 45 of the Income Tax Act, 1961.
2. Whether the lease rent received should be treated as income from other sources.
Issue-wise Detailed Analysis:
1. Transfer of Capital Asset and Capital Gains Tax Liability:
The primary issue revolves around whether the receipt of Rs. 21 crores as an interest-free security deposit by the assessee should be considered a transfer of a capital asset, thereby attracting capital gains tax under Section 45 of the Income Tax Act, 1961. The Assessing Officer (AO) concluded that the transaction constituted a transfer as per Section 2(47)(v) of the IT Act, which includes transactions involving the possession of immovable property in part performance of a contract as referred to in Section 53A of the Transfer of Property Act, 1882. The AO observed that the lease agreement for a period not less than 12 years amounts to a transfer, and the receipt of Rs. 21 crores as an interest-free security deposit is considered as consideration for the transfer of the property.
The CIT(A) upheld the AO's decision, emphasizing that the lease agreement and subsequent amendment indicated a transfer of capital asset. The CIT(A) noted that the property was given on lease for a nominal rent, and the lessee constructed a building on the leasehold land, enjoying the benefits of the property. The CIT(A) concluded that the receipt of Rs. 21 crores was in the guise of an advance/deposit for the enjoyment of the property, thus constituting capital gains.
The assessee argued that the transaction was a lease and not a transfer of capital asset, contending that the security deposit was refundable and should not be considered as consideration for transfer. The assessee also claimed that the capital gain, if any, should be recognized in the financial year 2010-11 when the property was actually transferred.
The Tribunal observed discrepancies in the documents and transactions, noting that the security deposit was received much before the amendment to the lease agreement. The Tribunal found that the facts and documents presented by the assessee did not corroborate the assessee's claims. Therefore, the Tribunal set aside the orders of the revenue authorities and remitted the issue back to the AO for further investigation and verification of relevant documents to decide the issue as per law.
2. Treatment of Lease Rent as Income from Other Sources:
The second issue pertains to whether the lease rent received by the assessee should be treated as income from other sources. The AO treated the lease rent as income from other sources, citing provisions of Section 27(iiib) read with Section 269UA(f), which deem the lessee to be the owner of the property for the purpose of assessment if the lease period is more than 12 years. The AO relied on the case of Yagyawati Jayaswal Family Trust vs. ITO and CIT vs. Estate of Omprakash Jhunjhunwala to support this view.
The CIT(A) upheld the AO's decision, stating that the lease agreement effectively transferred the property to the lessee, who enjoyed absolute powers over the property. The CIT(A) concluded that the lease rent received should be treated as income from other sources, as the assessee was not engaged in the business of letting plots of land.
The assessee argued that the lease rent should be treated as rental income and not as income from other sources. However, the Tribunal did not find sufficient evidence to support the assessee's claim and upheld the CIT(A)'s decision, treating the lease rent as income from other sources.
Conclusion:
The Tribunal set aside the orders of the revenue authorities and remitted the issue of capital gains tax liability back to the AO for further investigation and verification of relevant documents. The treatment of lease rent as income from other sources was upheld. The appeal of the assessee was allowed for statistical purposes, with directions to the AO to decide the issue as per law after further investigation.
Tribunal remits capital gains tax issue for further investigation, upholds lease rent treatment.
The Tribunal remitted the issue of capital gains tax liability back to the Assessing Officer for further investigation and verification of relevant documents, setting aside the decisions of the revenue authorities. The treatment of lease rent as income from other sources was upheld, with the appeal of the assessee allowed for statistical purposes, directing the AO to decide the matter in accordance with the law after conducting additional inquiry.
Allegation of transfer of property in the guise of lease agreement - Long term capital gain - held that:- It is stated that the said property is sold subsequently. - However, he has neither mentioned the year in which it is sold and the agreement entered in respect of the said sale. - the documents filed by assessee is not sufficient to accept the contentions of the assessee. The facts narrated by the assessee are not in corroboration with the documents placed by assessee. - Matter need re-verification and therefore remitted back to AO.
Allegation of transfer of property in the guise of lease agreement - Long term capital gain - held that:- It is stated that the said property is sold subsequently. - However, he has neither mentioned the year in which it is sold and the agreement entered in respect of the said sale. - the documents filed by assessee is not sufficient to accept the contentions of the assessee. The facts narrated by the assessee are not in corroboration with the documents placed by assessee. - Matter need re-verification and therefore remitted back to AO.
AI TextQuick Glance (AI)Headnote
Issues:
1. Classification of income derived from the sale of crude palm oil as "business income" under Rule 7 of the Income-tax Rules, 1961.
2. Interpretation of whether income generated from plantation and extraction of crude palm oil constitutes agricultural income as per the Income-tax Act, 1961.
3. Application of Rule 7 of the Income Tax Rules in cases where income is partially agricultural and partially from business.
Analysis:
1. The primary issue in this case revolves around the classification of income derived from the sale of crude palm oil. The appellant, a plantation company engaged in oil palm cultivation and processing, contested the assessment of part of its income as business income by the Income-tax Appellate Tribunal. The Tribunal upheld the assessment under Rule 7 of the Income-tax Rules, leading to the appellant filing appeals against the assessments for multiple years.
2. The second issue pertains to the interpretation of whether the income generated by the appellant from plantation activities and the subsequent extraction of crude palm oil qualifies as agricultural income under the Income-tax Act. The definition of agricultural income under Section 2(1A) was scrutinized, emphasizing the processes involved in converting the raw produce into a marketable commodity. The court analyzed the plantation and extraction processes, ultimately concluding that the industrial activities of oil extraction fall under "profits and gains of business" rather than agricultural income.
3. The application of Rule 7 of the Income Tax Rules was crucial in determining the allocation of income between agricultural and business activities. The rule addresses situations where income is partially agricultural and partially from business. The court examined the market value of agricultural produce utilized in business operations and emphasized the exclusion of such value from the computation of business income. Despite the absence of specific provisions for palm oil computation, the court upheld the assessment under Rule 7, dismissing the appeals and suggesting recourse through a pending writ petition for grievances related to double assessment under different tax acts.
In conclusion, the judgment delves into the intricate classification of income derived from agricultural and industrial activities, emphasizing the application of relevant tax rules and definitions to determine the taxability of the appellant's income from crude palm oil sales.
Court rules income from palm oil sale as business income, not agricultural. Rule 7 application crucial.
The court upheld the assessment of income derived from the sale of crude palm oil as "business income" under Rule 7 of the Income-tax Rules, 1961. It determined that the income generated from plantation and extraction of crude palm oil did not qualify as agricultural income under the Income-tax Act, categorizing it as "profits and gains of business." The application of Rule 7 was deemed essential in allocating income between agricultural and business activities, leading to the dismissal of appeals and suggesting redressal through a pending writ petition for issues of double assessment under different tax acts.
Agricultural income Vs. Business income - Sale of palm oil - activity of extracting crude palm oil from palm pericarp (fruit portion excluding the kernel) and also from the kernel - Rule 7 of the Income-tax Rules, 1961 - mechanical and other process - held that:- activity carried out by the appellant in the extraction of oil from the fruit/ from the kernel is an industrial activity and, therefore, income from such activity is assessable as its "profits and gains of business" under Section 28 of the Income Tax Act. - Decided against the assessee.
Double taxation - payment of state tax on agriculture income and central income tax - held that:- eligible relief can be considered only in the writ petition pending and not in these statutory appeals filed by the appellant under Section 260A of the Income Tax Act wherein we have considered the substantial question of law arising from the orders of the Tribunal.
Agricultural income Vs. Business income - Sale of palm oil - activity of extracting crude palm oil from palm pericarp (fruit portion excluding the kernel) and also from the kernel - Rule 7 of the Income-tax Rules, 1961 - mechanical and other process - held that:- activity carried out by the appellant in the extraction of oil from the fruit/ from the kernel is an industrial activity and, therefore, income from such activity is assessable as its "profits and gains of business" under Section 28 of the Income Tax Act. - Decided against the assessee.
Double taxation - payment of state tax on agriculture income and central income tax - held that:- eligible relief can be considered only in the writ petition pending and not in these statutory appeals filed by the appellant under Section 260A of the Income Tax Act wherein we have considered the substantial question of law arising from the orders of the Tribunal.
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