TAXMAN

Vol. 165, Part 5, for the week of December 15 – December 21, 2007

CONTENTS

statutes

q notification

Income-tax Act

- Section 90 of Income-tax Act, 1961 - Double taxation agreement - Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Foreign Countries - With Government of the State of Kuwait

q press release

Savings matters

- Government Announces Sops for Post Office Small Savings Schemes

Tax Reports

Table of cases

CIT v. Anju Bhayana (Mrs.) (Punj. & Har.)

CIT v. Dewan Steels Ltd. (Delhi)

CIT v. Ess Jay Enterprises (P.) Ltd. (Delhi)

CIT v. Global Infosystems Ltd. (Delhi)

CIT v. Graphic (India) (Delhi)

CIT v. H.P. Cotton Textile Mills Ltd. (Punj. & Har.)

CIT v. Havell’s (P.) Ltd. (Delhi)

CIT v. Insilco Ltd. (Delhi)

CIT v. Jitendra Mohan (Delhi)

CIT v. Marturella Bernand Thomson CFS (Delhi)

CIT v. Marubeni India (P.) Ltd. (Delhi)

CIT v. Moser Baer India Ltd. (Delhi)

CIT v. O.K. Hosiery Mills (P.) Ltd. (Delhi)

CIT v. Rajesh Kumar Sharma (Delhi)

CIT v. Shadiram Ganga Prasad Charitable Trust (All.)

CIT v. Televista Electronics (P.) Ltd. (Delhi)

CIT v. Vardhman Estates Ltd. (Delhi)

Govardhandas Odhavji Dhakan v. Laul (S.K.) (Bom.)

Gurbachan Singh Jaggi v. CIT (Punj. & Har.)

Modipon Ltd. v. CIT (Delhi)

Radha Krishna Jalan v. CIT (Gau.)

Ropar District Co-operative Milk Producers Union Ltd. v. CIT (Punj. & Har.)

Shanthi (A.B.) v. Assistant Director of Inspection (Investigation) (Mad.)

U.P. Forest Corporation v. Dy. CIT (SC)

subject index

Advance tax

Interest payable by assessee when no estimate made

- Assessment year 1979-80 - Assessing Officer charged interest under section 217 for reason that assessee had not filed statement of advance tax under section 209A for assessment year 1979-80 - For previous two assessment years, namely, assessment years 1977-78 and 1978-79, assessee had filed loss returns - Whether since no advance tax was in fact payable in terms of computation under section 209(1)(a) or 209(1)(d)(i), second limb of requirement under section 209A, namely, payment of advance tax, was not capable of being fulfilled and could not in fact be fulfilled - Held, yes - Whether, therefore, assessee was not required to file statement of advance tax in terms of section 209A(1)(a) and, as such, interest under section 217 was not chargeable - Held, yes - CIT v. Televista Electronics (P.) Ltd. (Delhi)

Interest payable by Government

- Whether in view of decision of Delhi High Court in J.K. Synthetic Ltd.’s case (supra), Tribunal was correct in directing to allow interest under section 214 to assessee up to date of granting of refund and not up to date of regular assessment - Held, yes - Modipon Ltd. v. CIT (Delhi)

Computation and payment of

- Assessment year 1979-80 - Whether section 209A(4) would be attracted only in a case where assessee is liable to pay advance tax in terms of section 209A(1)/(2) - Held, yes - CIT v. Televista Electronics (P.) Ltd. (Delhi)

Appellate Tribunal

Order of

- Assessment year 2001-02 - Tribunal, while deciding appeal of assessee, followed decisions rendered by co-ordinate Benches of Bombay Tribunal, which had apparently considered decision of Bombay High Court in CIT v. Veekaylal Investment Co. (P.) Ltd. [2001] 249 ITR 597/116 Taxman 104, but did not discuss said decision of Bombay High Court - It took view that in order to maintain consistency, judicial propriety demanded that Tribunal should follow orders passed by co-ordinate Benches on identical facts - Whether approach of Tribunal was erroneous as it made no attempt whatsoever to consider or distinguish judgment of Bombay High Court on which reliance was placed upon by revenue - Held, yes - Whether judicial propriety to which Tribunal had adverted to, also demanded that when there was a judgment of a superior court, that judgment should be considered by Tribunal and clear reasons given why that decision was distinguishable either in its own words or in words of co-ordinate Benches - Held, yes - Whether merely mentioning decision without otherwise referring to facts or law laid down in that decision did not amount to considering decision - Held, yes - CIT v. Havell’s (P.) Ltd. (Delhi)

Block assessment in search cases

Undisclosed income

- Block period 1988-89 to 1998-99 - Whether where it was found as a fact that there was no material or occasion for Assessing Officer to presume that assessee was real beneficiary or owner of fixed deposits found at residential premises of assessee during search, addition made on account of said fixed deposits to assessee’s income was unjustified - Held, yes - CIT v. Mrs. Anju Bhayana (Punj. & Har.)

Capital gains

Chargeable as

- Assessment years 1996-97 and 1997-98 - Whether where assessee had shown its shareholding in ‘J’ as an investment and not as a stock-in-trade of business, and there was nothing to show that shares were converted into stock-in-trade, assessee’s income from sale of shares was to be assessed as capital gains instead of business income - Held, yes - CIT v. Ess Jay Enterprises (P.) Ltd. (Delhi)

Short-term capital asset

- Assessment year 2001-02 - In 1994, assessee was allotted an industrial shed by DSIDC - First instalment was paid on allotment and subsequent instalments were paid over a period of time ending in 1997 - Assessee was put in possession on 18-5-1998 and shed was sold on 15-12-2000 - Assessing Officer held that sale of asset resulted in short-term capital gain since assessee held it for less than 36 months - Tribunal allowed assessee’s appeal and held it as long-term capital gain on ground that assessee was entitled to asset from date of allotment - Whether even if it was found that view taken by Tribunal was incorrect, on facts of instant case, it would pertain only to a single assessee and not constitute a general precedent and, therefore, impugned order did not raise a substantial question of law - Held, yes - CIT v. Jitendra Mohan (Delhi)

Cash credits

- Assessment year 1993-94 - During search conducted at business and residential premises of assessee, Assessing Officer found that assessee’s daughter had received a gift from ‘N’, a non-resident, with whom she had no relation - It was also found that income of ‘N’ did not commensurate with gift made and that gift was made without any specific occasion - Accordingly, addition was made in income of assessee on ground that gift was bogus - Whether, on facts, addition was justified - Held, yes - Gurbachan Singh Jaggi v. CIT (Punj. & Har.)

Charitable or religious trust

Exemption of income from property held under

- Assessment year 1982-83 - Assessee-trust was created when six properties of ‘S’, one HUF, were transferred to assessee - Assessee claimed itself to be a charitable trust and pleaded that its income was exempted under section 11 - ITO having found that out of six properties, three were mutated in name of assessee while remaining three still remained in name of HUF, assessed income of three properties in hands of assessee substantially while income of remaining three properties was assessed in hands of HUF - On appeal, Commissioner (Appeals) having found that all six properties belonged to trust, held that assessee was entitled to exemption under section 11 - On appeal, Tribunal confirmed order of Commissioner (Appeals) - Whether in view of decision of Allahabad High Court in IT Reference No. 127 of 1989, order passed by Tribunal was to be upheld - Held, yes - CIT v. Shadiram Ganga Prasad Charitable Trust (All.)

Registration of

- Assessment years 1977-78, 1980-81 and 1984-85 - Whether registration of a trust/institution under section 12A is a condition precedent for availing benefit under sections 11 and 12 - Held, yes - U.P. Forest Corpn. v. Dy. CIT (SC)

Collection and recovery of tax

Penalty payable when tax in default

- Assessment year 2001-02 - Assessing Officer levied 100 per cent penalty under section 221 for failure to deposit TDS - Commissioner (Appeals) reduced penalty to 10 per cent of total tax - Tribunal upheld order of Commissioner (Appeals) - Whether since assessee had rendered all possible co-operation with department during proceedings under section 201(1) and 201(1A), tax due was deposited though after some delay and this was only first such default committed by assessee, there was no illegality committed by Commissioner (Appeals) as well as by Tribunal in imposing penalty of only 10 per cent of tax - Held, yes - CIT v. Global Infosystems Ltd. (Delhi)

Deduction of tax at source

Salary

- Assessment year 1999-2000 - Whether where an assessee has more than one employer, liability of employer who is expected to deduct TDS in terms of section 192(1) would get triggered after employee furnishes such employer details of income due or received by him from other employer - Held, yes - CIT v. Marubeni (India) (P.) Ltd. (Delhi)

- Assessment year 2000-01 - There was short deduction of tax at source by assessee-employer on salary paid to its employees - Explanation of assessee was that it was deducting TDS from monthly salary of employees on an average rate and that performance incentive was paid to employees only in month of March 2000 and since precise amount of incentive could not be gauged while estimating salary income, there was a short deduction of TDS - Department rejected explanation of assessee and levied interest under section 201(1A) - Whether since payment of performance incentive was dependent on performance of company in a given financial year, payment of such incentive was not only uncertain but amount was also likely to vary - Held, yes - Whether, therefore, it could not be said that assessee was in default due to short deduction of corresponding TDS and, as such, section 201(1A) would not be attracted - Held, yes - CIT v. Marubeni India (P.) Ltd. (Delhi)

Deductions

Profits and gains from industrial undertakings, etc., after certain dates

- Assessment year 1994-95 - On basis of Commissioner’s order under section 263 in respect of assessment year 1996-97 that year 1986-87 was first year of production, Assessing Officer held that deduction under section 80-I for assessment year 1994-95 was not available as it was only for a period of 8 years, which had expired - Tribunal had subsequently cancelled Commissioner’s order under section 263 both on technical grounds as well as on merits holding that year 1986-87 was not first year of production - Whether once an order under section 263 passed by Commissioner in favour of revenue had been reversed by Tribunal, and same had admittedly attained finality, as revenue had not challenged it any further, revenue could not claim that in respect of same year different numbers of years were required to be counted for purposes of granting benefit of section 80-I - Held, yes - CIT v. H.P. Cotton Textile Mills Ltd. (Punj. & Har.)

Depreciation

Allowance/rate of

- Assessment year 1999-2000 - Whether in view of decision of Delhi High Court in CIT v. Woodward, Governor India (P.) Ltd. [2007] 162 Taxman 60, Tribunal was correct in allowing depreciation to assessee on increase in cost of plant and machinery due to increased liability on account of foreign exchange rate fluctuation on last date of accounting year - Held, yes - CIT v. Insilco Ltd. (Delhi)

Firm

Share of profits to partner of firm

- Assessment years 1996-97 and 1997-98 - Whether a sub-partnership which is in receipt of share of profit of a partner in main partnership, has to be deemed to be a partner in main partnership for limited purpose of section 10(2A) - Held, yes - Radha Krishna Jalan v. CIT (Gau.)

Income escaping assessment

Non-disclosure of primary facts

- Assessment year 1996-97 - For assessment year 1996-97, assessee filed its return declaring income of Rs. 23,552 and same was accepted under section 143(1) - Loan in name of ‘V’ was also accepted - Subsequently, Assessing Officer took proceedings under section 147 and issued a notice under section 148 to assessee - Basis of initiating reassessment proceedings was statement of director of ‘V’ who had stated that his company was indulging in money-laundering business and provided merely adjustment entries and not genuine loans to different persons - In reassessment proceedings Assessing Officer held that loan taken from ‘V’ had not been proved and same was assessee’s income from undisclosed sources - Tribunal observed that statement was too general; it did not mention any name much less name of assessee; it was not stand of revenue that a list of creditors, which included name of assessee was furnished by ‘V’ subsequently and same was forwarded to Assessing Officer of assessee - Tribunal, accordingly held that there was no information on record, which could provide foundation for Assessing Officer’s belief that assessee’s transaction with ‘V’ was not genuine and its income had escaped assessment on that account - Whether Tribunal was justified - Held, yes - CIT v. Vardhman Estates Ltd. (Delhi)

- Assessment year 1994-95 - Assessee filed its return of income for assessment year 1994-95 claiming deduction under section 80-I - Assessing Officer allowed deduction - In assessment year 1995-96, assessee’s claim under section 80-I was disallowed by Assessing Officer on ground that milk plant reflected by assessee in balance sheet situated at Mohali was actually constructed by one ‘P’ prior to financial year 1983-84, whereas assessee claimed deduction under section 80-I in assessment year under consideration as if plant had been constructed by assessee - Accordingly, Assessing Officer issued notice under section 148 to assessee for assessment year in question and disallowed claim - Assessee’s case was that notice issued under section 148 was based on mere change of opinion - Whether since reopening of assessment proceedings was based on basis of facts which were collected after investigation during course of assessment proceedings for assessment year 1995-96, proceedings initia-ted under section 147 could not be said to be based on mere change of opinion - Held, yes - Ropar District Co-operative Milk Producers Union Ltd. v. CIT (Punj. & Har.)

Income-tax Act, 1961

- Sections 2(42A)

- Section 10(2A)

- Section 10(14)

- Section 11

- Section 12A

- Section 32

- Section 45

- Section 68

- Section 80-I

- Section 115JA

- Section 145

- Section 147

- Section 158B

- Section 192

- Section 209A

- Section 214

- Section 217

- Section 221

- Section 244A

- Section 254

- Section 269UD

- Section 271(1)(c)

- Section 271D

- Section 282

Interpretation of statutes

- Rule of literal interpretation

Method of accounting

Valuation of stock

- Assessment year 1996-97 - Whether where assessee had been consistently adopting a cost method for valuation of closing stock, which had been accepted by revenue on earlier occasions also and that method was in accordance with well-accepted accounting principles, Tribunal was right in taking view that Assessing Officer was not justified in rejecting same method adopted in year under consideration - Held, yes - CIT v. Dewan Steels Ltd. (Delhi)

Minimum Alternate tax

- Assessment year 1999-2000 - Whether where for making addition to book profits on account of provision for bad debts by invoking Explanation (c) to section 115JA(2) Assessing Officer had given absolutely no reason, assessment order upto that extent was to be set aside - Held, yes - CIT v. Insilco Ltd. (Delhi)

Penalty

For concealment of income

- Assessment year 1998-99 - Assessee used to earn commission in foreign exchange and out of this commission received, it used to transfer part of foreign exchange to dollar account maintained with Hong Kong Bank where it was held by bank as term deposit - Assessing Officer noticed from a perusal of balance-sheet that assessee had shown balance of Rs. 81.83 lakhs with Hong Kong Bank in dollar account-Bank informed that as per conversion rate as on 31-3-1998 value of dollars in rupee was Rs. 92.98 lakhs as against Rs. 81.83 lakhs - Difference of Rs. 11.15 lakhs was, thus, taxed as income from other sources - Assessing Officer also imposed penalty under section 271(1)(c) - Assessee had been consistently following a method by which exchange fluctuation had been shown on realisation of maturity proceeds of fixed deposit whereas Assessing Officer had taken same on yearly accrual basis on account of difference in exchange rate fluctuation - Whether since in year under consideration there was no change in method of accounting followed by assessee, it could not be said that assessee had concealed any particulars with regard to its income and as such provisions of section 271(1)(c) were not attracted - Held, yes - CIT v. Graphic (India) (Delhi)

- Assessment year 1985-86 - Whether where even on a detailed perusal of assessment order no satisfaction of Assessing Officer that penalty proceedings were required to be initiated against assessee was discernible, penalty proceedings could be sustained - Held, no - CIT v. O.K. Hosiery Mills (P.) Ltd. (Delhi) 515

- Assessment year 1996-97 - Explanation 4 permitting levy of penalty even where income is not positive, was added to section 271(1)(c), effective only from 1-4-2003, i.e., from assessment year 2003-04 onwards - Prior to this, Supreme Court in CIT v. Prithipal Singh & Co. [2001] 249 ITR 670/118 Taxman 330 had ruled out that no penalty for concealment could be imposed, unless some tax was payable by assessee - Whether in view of unambiguous declaration of law by Supreme Court, no penalty could be levied under section 271(1)(c) on assessee for assessment year 1996-97, since there was no positive assessed income on which any tax was payable - Held, yes - CIT v. Moser Baer India Ltd. (Delhi)

For failure to comply with section 269SS

- Whether after omission of section 276DD by Direct Tax Laws (Amendment) Act, 1987, as per penal provision inducted thereafter under section 271D, Commissioner can levy only penalty and person who violates provisions of section 269SS, cannot be sentenced to any imprisonment - Held, yes - A.B. Shanthi v. Assistant Director of Inspection (Investigation) (Mad.)

Purchase of immovable property by Central Government

Order by appropriate authority

- Whether where difference in sale price between sale instances relied upon by revenue and flat in question which was purchased by revenue was only about 11 per cent, appropriate authority could not have purchased said property under Chapter XX-C - Held, yes - Govardhandas Odhavji Dhakan v. S.K. Laul (Bom.)

Refunds

Interest on

- Whether in view of decision of Delhi High Court in CIT v. J.K. Synthetic Ltd. [IT Reference Nos. 54 & 55 of 1985], Tribunal was not right, in law, in holding that assessee was not entitled to interest on delayed refund of interest due and payable under sections 214 and 244 from due date to date of payment - Held, yes - Whether in view of decision of Delhi High Court in Modipon Ltd. v. CIT [2004] 270 ITR 257/142 Taxman 92, Tribunal was not right, in law, in holding that assessee was not entitled to interest on refund of interest levied and paid under section 220(2) from date of payment to date of refund - Held, yes - Modipon Ltd. v. CIT (Delhi)

Service of notice

General

- Assessment year 1996-97 - Whether where notice under section 148 sent through process server, was received by an employee of assessee, who was not authorised to receive any summons on behalf of assessee and was not agent of assessee entitled to receive notice under section 148, it could be said that receipt of notice by employee amounted to service of notice upon assessee - Held, no - Whether where revenue had not been able to show that envelope containing notice under section 148 was correctly addressed, revenue’s case that envelope did not return with any remark to effect that it was undelivered and so it must be presumed that it was actually served upon assessee was unsustainable - Held, yes - Whether where assessee entered into appearance, after receiving notices under sections 142(1) and 143(2) and categorically denied receipt of notice under section 148, argument of revenue that his appearance was in response to notice under section 148 did not advance case of revenue that notice under section 148 was actually served upon assessee - Held, yes - CIT v. Rajesh Kumar Sharma (Delhi)

Special allowance

- Whether in view of decision of Supreme Court in CIT v. Goslino Mario [2000] 241 ITR 312, Tribunal was right in holding that living allowance was exempt under section 10(14) - Held, yes - CIT v. Marturella Bernand Thomson CFS (Delhi)

magazine

features

q tax rates

t.c.a. ramanujam, Member, ITAT (Retd.)

t.c.a. sangeetha, Advocate

- Competitive tax rates for a globalised economy

q taxation of charitable trusts

ramesh chander, Addl. CIT

- Implications of non-passing of an order under section 12AA of Income-tax Act

q general principles

sibendu basu, Advocate

- Imperative to enforce judicial discipline for assessment of income

q penal provisions

geeta das, Chartered Accountant

- Penalty in tax system

q miscellanea

dr. m.s. khan, Head of Management Deptt. of Business Administration

amit kumar goel, Lecturer

- Legal, taxation and regulatory consideration in reverse mortgage

- Article browser

q deductions

n. vijia kumar, Advocate

- Tea blending - ‘Process’ - ‘Neither’ ‘Manufacture’ nor ‘Production’

q assessment

ranvir singh, Jt. CIT (Retd.)

- Protective assessment - Whether permissible

case digest/itat

table of cases

Asstt. CIT v. Singh (R.P.) (Delhi - Trib.)

Sushma Rani Bansal (Smt.) v. Asstt. CIT (Delhi - Trib.)

Subject Index

Income-tax

Block assessment in search cases

Undisclosed income of other person

- Block period 1-4-1989 to 2-11-1999 - Whether recording of satisfaction is a pre-requisite condition for completing assessment under section 158BD - Held, yes - Whether where notice under section 143(2) was not served upon assessee within prescribed period, block assessment order passed by Assessing Officer under section 158BD was null and void and same was liable to be quashed - Held, yes - Asstt. CIT v. R.P. Singh (Delhi - Trib.)

Capital gains

Transfer

- Assessment year 1997-98 - In pursuance of agreement entered into between assessee and State Housing Board on 1-9-1986, possession of two flats was handed over to assessee by Board on same day - As per terms and conditions of said agreement, Housing Board was owner of houses and said houses could be registered or transferred in name of assessee only on payment of all instalments and other dues - Full and final payment for property was made to Housing Board on 13-1-1997 and on same day conveyance deed in respect of above properties was executed in favour of assessee - Assessee sold said property on 21-1-1997 and claimed that income earned from sale was long-term capital gain on ground that she was to be treated as owner of those properties from date of handing over of possession to assessee by Housing Board on 1-9-1986 - However, assessing authority assessed said income as short-term capital gain by treating assessee as owner of house properties from 13-1-1997 - Whether since assessee was allowed possession of flats in question on 1-9-1986 in part performance of above contract in question, same was a ‘transfer’ within meaning of section 2(47) - Held, yes - Whether, therefore, aforesaid flats be treated as long-term capital asset and capital gains be computed accordingly - Held, yes - Smt. Sushma Rani Bansal v. Asstt. CIT (Delhi - Trib.)

Income-tax Act, 1961

- Section 2(47)

- Section 158BD