SELECTED ORDERS OF ITAT
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Vol. 20, Part 5, for the week
March 18 - March 24, 2008 |
CONTENTS
List of Cases
Addl.
CIT v. Rama Leasing
Addl. DIT (Exemption)
v. Manav Bharati Child
Institute & Child Psychology (
Anita M. Shah (Smt.) v. Dy. CIT
(Mum.)
Asstt. CIT v. Pasricha (Dr. P.S.)
(Mum.)
Blue
Star Ltd. v. Jt. CIT (Mum.) (URO)
Dy. CIT v. ABG Heavy Industries Ltd. (Mum.)
ITO v. Kavita Khurana (Smt.) (
ITO v.
Shringar Cinemas (P.) Ltd. (Mum.)
J.M.
Trading Corpn. v. Asstt. CIT (Mum.)
Shree Par Fragrance (P.)
Ltd. v. ITO (Mum.)
Taxation
Department, ICICI Bank Ltd. v. Dy. CIT (Mum.)
Assessment in case
of search on requisition
- Assessment years 1998-99 to 2001-02 and
2004-05 - Whether provisions of section 153A are only applicable in case valid
search is conducted against assessee under section 132 - Held, yes - J.M.
Trading Corpn. v. Asstt.
CIT (Mum.)
Capital gains
Capital asset
- Assessment year 1996-97 - Assessee entered
into a joint venture agreement with a foreign company HP by which assessee was
given right to subscribe to extent of 20 per cent of paid-up capital of joint
venture, namely, HPIL - Resultantly, assessee paid Rs.
2,73,20,000 towards share application money for allotment of shares of HPIL -
However, HPIL did not allot 20 per cent shares to assessee and vide a
memorandum of understanding (MoU), said Joint Venture
agreement was terminated - MoU provided for payment
of Rs. 15 crores to
assessee which included refund of share application money as also for a
non-compete clause incorporated in agreement which prohibited assessee from
carrying on a business in competition with HP or HPIL - In broad terms, sum and
substance of MoU was that a sum of Rs. 15 crores was to be paid to
assessee as compensation upon termination of joint venture agreement and,
consequently, upon extinction of assessee’s rights to
subscribe share capital of HPIL - Whether since sum of Rs.
15 crores was compensation for extinction of source
of income, which assessee would have enjoyed through HPIL if joint venture
agreement had not been terminated, compensation so received was a capital
receipt liable to tax as capital gains, provided requisites of section 45 were
satisfied - Held, yes - Whether since right of assessee to subscribe to
share capital and to be involved in affairs of HPIL under joint venture
agreement was a valuable right, such right was a capital asset within meaning
of section 2(14) - Held, yes - Whether loss or extinction of such
a right fell within meaning of ‘transfer’ as defined in section 2(47) - Held,
yes - Whether since said capital asset had been transferred during relevant
previous year, profits or gains arising from such transfer were chargeable to
tax under head ‘Capital gains’ under section 45 - Held, yes - Blue
Star Ltd. v. Jt. CIT (Mum.)
(URO)
Profit on sale of
property used for residential house
- Assessment year 2001-02 - Whether requirement
of section 54 is that assessee should acquire a residential house within period
of one year before or two years after date on which transfer took place and
source of funds is quite irrelevant inasmuch as it is not necessary that same
funds must be utilized for purchase of another residential house - Held,
yes - Assessee acquired a residential flat/property at cost of approximately Rs. 3 lakhs - During relevant
previous year, assessee sold said property for Rs.
1.40 crores - Assessee within period specified under
section 54(1), purchased two adjoining residential flats in one building for a
total consideration of Rs. 104.78 lakhs
and gave them on rent to two different tenants - Assessee claimed deduction of Rs. 104.78 lakhs under section
54(1) - Assessing Officer denied deduction under section 54 on grounds that
sale proceeds from original flat were not deployed fully in new flats, and that
assessee had not purchased one single property, but two units - Whether since
assessee had purchased residential flats before due date of filing of return of
income, he was entitled to deduction under section 54(1) and his claim was not
hit by sub-section (2) of section 54 - Held, yes - Whether since
assessee had purchased two adjoining flats in one building and these flats were
rented out to two different tenants after few days from purchase, it could be
said that assessee had never intended to use both flats as a residential house
by removing intermediate wall with a common kitchen and, therefore, assessee
would be entitled to deduction under section 54(1) with respect to any one of
flats as claimed - Held, yes - Asstt.
CIT v. Dr. P.S. Pasricha (Mum.)
Charitable or
religious trust
Exemption of income
from property held under
- Assessment year 2001-02 - Whether so long as
objects of a society are for charitable purposes, merely because there is some
surplus in activities carried out by society, it would not disentitle it to
claim exemption under sections 11 and 12 - Held, yes - Whether there is
no prohibition in Act to remunerate interested person but such remuneration
should be commensurate with services rendered by them and so found, it cannot
be said that provisions of section 13(1)(c) are attracted so as to deny
benefit of exemption under sections 11 and 12 - Held, yes - Addl. DIT
(Exemption) v. Manav Bharati Child Institute & Child Psychology (Delhi)
- Assessment year 2001-02 - Whether though
filing of Form No. 10 in respect of accumulation of income is mandatory to
claim exemption under sections 11 and 12 but same can be filed at any time
during pendency of assessment proceedings - Held,
yes - Whether if Form No. 10 is filed, benefit of accumulation of income for
charitable purpose cannot be denied - Held, yes - Addl. DIT
(Exemption) v. Manav Bharati Child Institute & Child Psychology (Delhi)
Circulars and
Notifications
- Circular No. 736, dated 13-2-1996
- Circular No. 733, dated 31-01-1996
- Circular No. 793, dated 23-6-2000
Deduction of tax at
source
Contractors/sub-contractors,
payments to
- Assessment years 2004-05 and 2005-06 -
Whether provisions of section 194C can only be invoked where payments are made
to any resident contractor for carrying out any work including supply of labour for carrying out any work in pursuance of a contract
between contractor and various bodies given under section 194C - Held,
yes - Assessee-company was engaged in business of exhibition of films -
Assessee made payments to distributors of film as share on account of supply of
film prints of various films on basis of standard film renting contract (SFRC)
entered into between assessee and distributor - Assessing Officer held that
payments made to distributor were in nature of contractual payment, which
attracted provisions of section 194C and raised demand under section
201(1)/201(1A) - Commissioner (Appeals) held that working on movie exhibition
in theatre through contract between distributor and exhibitor of
cinematographic films was not covered under definition of ‘any work’ as
envisaged under provisions of section 194C and cancelled Assessing Officer’s
order - Whether Commissioner (Appeals) was justified - Held, yes - ITO
v. Shringar Cinemas (P.) Ltd. (Mum.)
Payments to
non-resident
- Assessment year 1997-98 - Assessee-bank had
appointed one ‘M’, a non-resident credit rating agency, based in USA for
purpose of rating its floating rate euronotes issue -
‘M’ provided commercial information to assessee for rating euronotes
and assessee made payments in US dollars to ‘M’ for rendering, such analytical
services without deducting tax under section 195, on such payments - Lower
authorities held that payments received by ‘M’ would fall within category of
‘fees for included services’ defined in article 12(4) of DTAA and, would be
taxed in India and therefore, tax deduction was to be done - As per article
12(4), for bringing any payment within definition of ‘fees for included
services’ non-resident must make available technical skill, expertise or
technical know-how to assessee, on basis of which non-resident has prepared or
developed commercial information - Whether since in instant case assessee had
only got commercial information and not technical know-how/technical expertise
or technologies on basis of which it was prepared, payment made by assessee for
obtaining such commercial information could not be called to be fees for
‘included services’ and, therefore, said payment would not be taxed in India - Held,
yes - Taxation Department, ICICI Bank Ltd. v. Dy.
CIT (Mum.)
Rent
- Assessment years 2004-05 and 2005-06 -
Whether provisions of section 194-I can only be invoked where payments of rent
are made, but, they relate to payment of rent for use of machinery or land or
building, etc., and further these provisions are not attracted in sharing of
proceedings of film exhibitions between film distributor and film exhibitor
owning cinema theatre - Held, yes - ITO v. Shringar
Cinemas (P.) Ltd. (Mum.)
Deductions
Profits and gains
from industrial undertakings, etc., after certain dates/infrastructure
undertakings
- Assessment years 1997-98 and 1998-99 -
Assessee was a company registered in India which had started its operation
after 1-4-1995 - It had entered into an agreement with local authority, i.e.,
a port, for supply, installation, test, commissioning and maintenance of cranes
on lease for a period of ten years at container terminal of said port -
Assessee claimed that as it was operating infrastructure facility at port, it
would be eligible for deduction under section 80-IA - Certificates issued by
port in question showed that agreement with assessee was under built, own,
lease and transfer scheme (BOLT Scheme) and on expiry of ten years contract
period said cranes would be transferred to said port - Agreement also provided
that equipment would be operational round clock and staff would be deployed by
assessee for maintenance of equipment - Whether in view of Circular No. 793
issued by CBDT, dated 23-6-2000 structures at port for storage, loading and
unloading, etc., would be included in definition of ‘port’ for purpose of
section 80-IA provided concerned port authority had issued a certificate that
structures form part of Port and such structures have been build under BOT or
BOLT scheme and there is an agreement that said structures would be transferred
to authority on expiry of terms stipulated in agreement - Held, yes -
Whether in view of agreement entered into between assessee and port in
question, it could be said that assessee fell within extended definition of
‘port’ as provided by CBDT Circular No. 793 and would be eligible for deduction
under section 80-IA - Held, yes - Dy.
CIT v. ABG Heavy Industries Ltd. (Mum.)
Profits and gains
from industrial undertakings other than infrastructure development undertakings
- Assessment year 2004-05 - Whether
manufacturing process should be construed as comprising of procurement of raw
materials, processing thereof and generation of finished products and persons
involved in all these three processes have to be treated as employed in
manufacturing process - Held, yes - Whether, therefore, a factory
manager and his assistant looking after various activities of a unit and being
ultimately responsible for production results would be considered as workers
employed in manufacturing process for purpose of section 80-IB - Held,
yes - Whether, however, persons employed in accounting and administrative
functions cannot be considered as part of manufacturing process - Held,
yes - Assessee-company engaged in manufacturing of perfumery components claimed
deduction under section 80-IB - Assessing Officer disallowed deduction under
section 80-IB on grounds that (i) assessee did
not employ 10 or more workers during year, and list of workers also included
factory manager and his assistant which could not be categorised
as worker, (ii) assessee could not be said to be engaged in
manufacturing as no new product came out of activities carried on by assessee,
(iii) there was no electricity consumption in factory because
electricity bill was of a very small amount - Whether since finished products, i.e.,
perfumery components, were chemically and commercially different from raw
materials, i.e., chemicals used in making of such finished products,
assessee could be said to be engaged in manufacturing of perfumery components
qualifying for deduction under section 80-IB - Held, yes - Whether since
assessee had submitted bill of meter installed in connection with machinery
used for manufacturing and if consumption of electricity was low due to
involvement of machinery in processing activity, same could not be a valid
ground for denying deduction under section 80-IB and for holding that assessee
was carrying manufacturing activity without aid of power - Held, yes -
Whether, moreover, since factory manager and his assistant were ultimately
responsible for production result, they should be considered as workers
employed in manufacturing process, and, accordingly, assessee would be entitled
to deduction under section 80-IB - Held, yes - Shree
Par Fragrance (P.) Ltd. v. ITO
(Mum.)
Royalty, etc., from
certain foreign enterprises
- Assessment year 1996-97 - Whether deduction under
section 80-O is admissible on net receipts and not on gross receipts - Held,
yes - Whether revenue authorities are under legal mandate to allow deduction
only in respect of net receipts and they have ample jurisdiction to work out
expenses incurred for earning receipts under section 80-O on pro rata
basis or on a reasonable basis in case assessee has not maintained books of
account - Held, yes - Blue Star Ltd. v. Jt.
CIT (Mum.) (URO)
Income from house
property
Annual value
- Assessment years 1996-97 to 1998-99 - Whether
income from house property cannot be computed on basis of enhanced rent which
tenants agreed to pay after close of previous year - Held, yes - Whether
claim made by landlord for enhancement of rent cannot be said to be amount
receivable within meaning of section 23(1) - Held, yes - Smt. Anita M. Shah v. Dy.
CIT (Mum.)
Arrears of rent
received
- Assessment years 1996-97 to 1998-99 -
Assessee jointly owned certain property along with other two co-owners - Said
property was let out to a bank - For relevant assessment years 1996-97 to
1998-99, assessee filed her return of income - However, prior to that, assessee
had jointly along with other co-owners had made a claim for revision of rent
payable to them - Accordingly, rent was increased and arrears of rent were
released by bank for period 1-7-1994 to 31-3-1999 in accounting year relevant
to assessment year 2000-01 - Whether since section 25B came into effect from
assessment year 2001-02, same could not be applied to assessment year 2000-01,
and, therefore, arrears of rent could not be taxed in assessment year 2000-01 -
Held, yes - Whether, moreover, arrears of rent received by assessee
could not be assessed even in those years to which they related, as there was
no specific provision in lease agreement for increase in rent - Held,
yes - Smt. Anita M. Shah v. Dy. CIT (Mum.)
Chargeable as
- Assessment year 1997-98 - Premises owned by
assessee-company was leased out to company ‘I’ for a period of three years -
Lessee desired early termination of lease agreement and as per deed of
surrender paid certain compensation on account of early termination of lease -
Whether compensation received by assessee though related to property would not
be exigible to tax as such income could not be termed
as annual value of property under section 23 - Held, yes - Whether said
receipts would also not be taxed as ‘income from other sources’, as it fell
within another head of income, i.e., ‘income from house property’ - Held,
yes - Whether, therefore, in view of decision of Tribunal Pune
Bench in Datar & Co. v. ITO
[IT Appeal No. 1134 (Pune) 1991, dated 25-6-1999]
compensation received by assessee on premature termination of lease agreement
was not chargeable to tax though it was a revenue receipt - Held, yes - Addl.
CIT v. Rama Leasing Co. (P.) Ltd. (Mum.)
Income from other
sources
Profits chargeable
to tax
- Assessment year 1999-2000 - Whether in order
to apply provisions of section 59(1), read with section 41(1) to computation of
income from other sources, liability in respect of which any cessation or
remission takes place during year has to be of nature similar to trading
liability in respect of which deduction was allowed in earlier years in
computing taxable income under head ‘Income from other sources’ - Held,
yes - ITO v. Smt. Kavita Khurana (Delhi)
Income-tax Act,
1961
- Section 2(14)
- Section 11
- Section 22
- Section 23
- Section 25B
- Section 54
- Section 59
- Section 69C
- Section 80-IA
- Section 80-IB
- Section 80-O
- Section 132
- Section 153A
- Section 194C
- Section 194-I
- Section 195
Search and seizure
General
- Assessment years 1998-99 to 2001-02 and 2004-05
- Whether mere mentioning of name in panchnama does
not lead to conclusion that a valid search was conducted against assessee - Held,
yes - Whether mere search of premises owned by assessee but rented to another
concern does not by any implication prove conduct of search as enumerated under
section 132 against assessee - Held, yes - J.M. Trading Corpn. v. Asstt.
CIT (Mum.)
Unexplained
expenditure
- Assessment year 2004-05 - Assessing Officer
verified cash/factory book of assessee for period April, 2003 to March, 2004
and found a negative cash balance - Assessee submitted that there was cash in
head office which had been transferred and paid to workers - However, Assessing
Officer held that there should be a transfer entry in account books of both
head office and factory to show such flow of cash from head office - Assessing
Officer further held that cash withdrawal shown by assessee on 29-11-2003 was
actually withdrawn from bank on 1-12-2003 and this sum was not available on
29-11-2003; accordingly, he disallowed this sum under section 69C - On appeal,
assessee explained that as bearer cheque was sent on
29-11-2003 from head office and after encashment thereof on 30-11-2003, wages
were paid, there could be no shortage or negative balance - He further
explained that wages for month of December were actually paid on 3-1-2004,
which was inadvertantly recorded by accountant on
31-12-2003 resulting into generation of negative cash balance - Commissioner
(Appeals) rejected said explanation - Whether, on facts, it appeared to be a
case of accounting mistake only and, hence, no addition was warranted - Held,
yes - Shree Par Fragrance (P.) Ltd. v. ITO (Mum.)
Words and Phrases
- ‘Infrastructure facility’ as appearing in section 80-IA(12)(ca)
of the Income-tax Act, 1961