- Assessment year 1999-2000 - Assessee had made payment on behalf of its subsidiary company - Later said amount was written off as bad debts by assessee - Assessing Officer held that conditions specified under section 36(2)(i) were not fulfilled, and that so called debts were recoverable from assessee’s own subsidiary which was operational and, therefore, debts did not become irrecoverable - He, therefore, disallowed amount in question - Whether Assessing Officer was justified in his action - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

Business disallowance

Excessive or unreasonable payments

- Assessment years 2001-02 and 2002-03 - Assessee paid certain sum as one time compensation to a company for terminating service of that company as a guarantor in respect of six trading terminals - Department disallowed 25 per cent of compensation by applying section 40A(2) observing that payment was excessive, and that there was a common director in assessee-company and recipient company who had substantial interest in recipient company - Whether since it was not clear as to how much shareholding director of assessee-company held in recipient company, issue was to be restored to file of Assessing Officer for fresh decision - Held, yes - Peninsular Capital Market Ltd. v. Asstt. CIT (Cochin)

Business expenditure

Allowability of

- Assessee-company was engaged in multiple business activities like tea and rubber cultivation, estate supplies and trading, clearing and shipping, air travel and air cargo - It entered into an agreement with ‘RPGEL’ to acquire non-exclusive licence to use logo owned by ‘RPGEL’ for purpose of business - In accordance with said agreement, assessee made certain payment to ‘RPGEL’ - Said payment was disallowed by Assessing Officer - Whether since RPGEL was having infrastructure which was used by assessee for development of its business, payment made to RPGEL was an allowable expenditure under section 37(1) - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

- Assessment year 1998-99 - Whether premium paid on redemption of debentures, is allowable expenditure - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

- Assessment year 1999-2000 - Whether where tea business was one of principle business of assessee, contribution made to Tea Trade Association could be treated as out of commercial expediency and an allowable expenditure - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

Year in which deductible

- Assessment year 1998-99 - Assessee-company made advances to distributors/suppliers on various locations for procuring hybrid seeds in connection with its seed business - Said advances could not be recovered by assessee and same was claimed as deduction under section 37(1) - Claim was disallowed on ground that advances were made in earlier years - Whether since non-supply of seeds by farmers could be ascertained by assessee only in relevant previous year, entire claim of loss towards advances was allowable in relevant assessment year - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

Cash credits

- Assessment year 2003-04 - Whether for income-tax purposes also validity of gift is to be examined in light of conditions laid down in sections 122 and 123 of Transfer of Property Act - Held, yes - Whether gifts can be made to stranger - Held, yes - Whether no occasion is required for gift - Held, yes - Whether it is not uncommon that people give donations and charities to persons in whom they place faith or for whom they have limitless regards and element of reverence, veneration or personal esteem and faith-all depend upon personal feelings and desire; no probe can easily be made into such aspects of human psychology and best persons to explain such feelings and desires are those who advance and execute same - Held, yes - Whether a cash credit appearing in assessee’s pass book relevant to a particular previous year, in a case where assessee does not maintain books of account, does not attract provisions of section 68 - Held, yes - Assessee, a public and political figure, had received five gifts, three of which were in cash by way of cheques and two were in kind by way of two immovable properties, from five different donors - Assessing Officer treated two of said cash gifts as genuine and rest three (viz., two immovable properties and one cash gift) as ingenuine - Consequently, he added amounts of said three gifts as assessee’s income under section 68 - Whether since in respect of cash gift it was found that same was made through account payee cheque; donor had confirmed gift; assessee had filed gift deed as well as affidavit of donor confirming gift; donor was assessed to tax whose identity was not disputed by Assessing Officer; and there was no material to show that amount gifted by donor was money given by donee in any form at any time, it could be said that, gift was valid - Held, yes - Whether similarly since in respect of immovable properties, it was found that those properties had been purchased by donars through registered sale deeds; donors had transferred said properties through registered gift deeds and confirmed same through affidavits; donors were assessed to tax and they had also filed evidence in terms of photographs to show their intimacy with donee which was not doubted by Assessing Officer; and transaction relating to transfer of property through gift to donee had not been found to be benami or sham in law, it could be said that, gifts of immovable properties satisfied all conditions laid down in sections 122 and 123 of Transfer of Property Act and was valid - Held, yes - Whether therefore, additions made on account of said gifts by Assessing Officer were to be deleted - Held, yes - Ms. Mayawati v. Dy. CIT (Delhi)

Depreciation

Allowance/rate of

- Assessment years 2001-02 and 2002-03 - Whether membership card of a Stock Exchange is an intangible asset eligible for depreciation under section 32(1)(ii) - Held, yes - Peninsular Capital Market Ltd. v. Asstt. CIT (Cochin)

Expenditure incurred in relation to income not includible in total income

- Assessment year 1995-96 - Assessee-company earned interest from tax-free bonds - No expenditure was shown in connection with earning of said interest - Commissioner (Appeals) took view that proportionate interest claimed by assessee in its profit and loss account should be disallowed because interest bearing funds had been utilized for investment in bonds - Whether since general reserves of assessee were substantial in addition to other reserves, it could be said that assessee made said investment out of surplus funds - Held, yes - Whether, therefore, addition made by disallowing expenditure under section 14A, was to be deleted - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

Export oriented undertaking

- Assessment year 2000-01 - Assessee, a public limited company, was engaged in business of computer software development and sale of software - Assessee claimed exemption under section 10B in respect of profits and gains derived from business, which included interest income received from bank deposits and advances made, income from professional fees, and income from training - Whether since interest income was not derived from export oriented undertaking, assessee would not be entitled to exemption under section 10B on same - Held, yes - Whether since income from professional fees was a business receipt and had arisen from export undertaking, assessee would be entitled to exemption under section 10B on same - Held, yes - Whether since training activity of assessee was intrinsically connected with software development, sale, maintenance, etc., assessee would be entitled to exemption under section 10B on income from training - Held, yes - Sovika Infotek Ltd. v. ITO (Mum.)

Income

Chargeable as

- Assessment years 1995-96 to 1998-99 - Assessee-company was engaged in multiple business activities like tea and rubber cultivation - In course of assessment, Assessing Officer found that certain incomes were related to rubber, more specifically to rent, scrap materials, sale of old tyres, etc., and, accordingly, brought same to tax under Act - Whether since income from sale of scrap, salvage material, etc., which related to rubber had been treated as agricultural income and already brought to tax under Kerala Agricultural Income-tax Act, same could not be brought to tax again under Act - Held, yes - Harrisons Malayalam Ltd. v. Asstt. CIT (Cochin)

- Assessment year 2001-02 - Whether once a contract is entered into in ordinary course of business, any compensation received for its termination would be a revenue receipt, irrespective of whether its performance would consist of a single act or a series of acts spread over a period - Held, yes - DCM owned certain acres of land - An agreement was entered into between DCM, KNA and assessee, whereby both KNA and assessee were to develop and construct residential complex for DCM - In consideration, both KNA and assessee were entitled to specified percentage of residential complex and other saleable area and it was specifically agreed that subject to term of agreement, KNA and assessee would have right to enter into contract to book and sell their respective areas - Subsequently, DCM unilaterally terminated said agreement and paid Rs. 4.25 crores as compensation to assessee on account of termination of agreement - Assessee claimed that sum of Rs. 4.25 crores was capital receipt not chargeable to tax, whereas Assessing Officer held same as revenue receipt chargeable to tax - Whether since assessee had entered into contract with DCM in its ordinary course of business, and, moreover compensation was awarded to assessee for loss of future profit and also for development already undertaken by assessee, such compensation amount was rightly considered as revenue receipt by Assessing Officer - Held, yes - Ansal Properties & Industries Ltd. v. Dy. CIT (Delhi)

Deemed to accrue or arise in India

- Assessment year 1997-98 - Whether mere existence of business relation of a non-resident company in India would not give any right to Assessing Officer to assess any income of such company in India - Held, yes - Assessee-company, which was incorporated in Italy, had a subsidiary company in India - During relevant year, it supplied machinery and raw material to its subsidiary company on cost-to-cost basis - Assessing Officer held that income of assessee arising from transfer of machinery and raw materials to subsidiary company was taxable in India under Act on ground that assessee had business connection in India, and that subsidiary company of assessee was a permanent establishment of assessee in India - Whether since assessee only supplied machinery and raw materials to its subsidiary company on cost-to-cost basis for which contract was executed in Italy and moreover, it was not having any control over said company nor said company was acting as an agent of assessee in India, in such circumstances, it could not be said that subsidiary company was a permanent establishment of assessee in India - Held, yes - Whether, therefore, no part of profit was taxable in India and provisions of section 9 could not be applied in instant case - Held, yes - Dy. CIT v. Perfetti SPA (Delhi)

Income-tax Act, 1961

- Section 4

- Section 9

- Section 10B

- Section 14A

- Section 32

- Section 36(1)(vii)

- Section 37(1)

- Section 40A(2)

- Section 68

SELECTED ORDERS OF ITAT