- Assessment year 2001-02 - Assessing Officer disallowed entire commission given by assessee to salesmen and employees - He also partly disallowed vehicle running and vehicle rent expenses incurred by assessee - Whether since Assessing Officer in remand report had accepted commission as discount to customers and vehicle expenses as genuine, entire expenditure in question was an allowable expenditure - Held, yes - Rewa Group v. ITO (Jab.) (URO)

Business loss/deductions

Allowable as

- Assessment year 2001-02 - Assessee, a liquor contractor, claimed allowance of breakage loss of Rs. 1,38,448 - Assessing Officer disallowed assessee’s claim - Whether since breakage loss was a normal business loss considering value of turnover, it was allowable as a business loss - Held, yes - Rewa Group v. ITO (Jab.) (URO)

Capital gains

Computation of

- Assessment year 2001-02 - Assessee sold his share in a property - While computing capital gains, assessee claimed to have spent a sum of Rs. 1,70,000 on account of construction/renovation of property sold - In support of its claim, assessee filed a bill of said amount issued by one ‘S’ - However, when Assessing Officer verified said bill, it was found to be bogus and signature stated therein was not of ‘S’ - Assessing Officer, accordingly, disallowed said sum in calculation of cost of property - Whether genuineness of any claim is not proven merely on production of some paper but only when same is substantiated - Held, yes - Whether since there was nothing on record to suggest that sum in question was paid by assessee so as to claim cost of improvement of property sold, Assessing Officer was justified in disallowing same - Held, yes - ITO v. Gurdip Singh (Delhi)

Cash credits

- Assessment year 2001-02 - Assessee-firm consisting of several partners carried on business in liquor - Said partners made certain investment in assessee-firm - Assessee filed all documentary evidence in respect of said investment and further explained that aforesaid amount was in existence prior to 31-3-2000 relevant to assessment year 2000-01 and not in assessment year 2001-02 - Assessing Officer having not been satisfied with statements of partners and material placed on record, held that capital investment made by partners remained unexplained, and accordingly, made certain addition under section 68 to total income of assessee, in assessment year 2001-02 - Whether since amount in question being in existence prior to 31-3-2000 and, moreover, assessee had proved identity of creditors and source of investment, no addition could be made in assessment year 2001-02 - Held, yes - Rewa Group v. ITO (Jab.) (URO)

Charitable or religious trust

Exemption of income from property held under

- Assessment year 1998-99 - Assessee-society claimed exemption under sections 11 and 12 - Assessing Officer having noticed that assessee had made excessive payment of salary to one ‘S’, who was member/executive secretary of governing body of trust and further assessee had not brought any material on record to show that ‘S’ had rendered any extraordinary service in relevant year for which substantial increment was awarded, held that there was violation of provisions of sections 13(1)(c) and 13(2)(c) and, therefore, exemption under sections 11 and 12 was not allowable - Assessing Officer further assessed entire gross receipt as reflected in income and expenditure account of assessee-society under head ‘Income from other sources’ - Whether, Assessing Officer was justified in denying exemption under sections 11 and 12 to assessee - Held, yes - Whether, however, Assessing Officer was wrong in bringing entire gross receipt of assessee to tax as it is net income which is to be charged to tax after allowing expenses incurred for earning that income - Held, yes - Whether, therefore, matter was to be set aside to file of Assessing Officer to examine genuineness of expenditure shown by assessee in income and expenditure account - Held, yes - Deputy Director of Income-tax (Exemptions) v. Pariwar Sewa Sanstha (Delhi) (URO)

Circulars and Notifications

- CBDT Circular No. 347, dated 7-7-1992

Deductions

Profits and gains from industrial undertakings other than infrastructure development undertakings

- Assessment years 2000-01 to 2004-05 - Assessee was engaged in business of manufacture and export of readymade garments - Manufacturing activity of garments was carried on at industrial undertaking of assessee at Jaipur and export of same was done from head-office at Mumbai - Assessee claimed deduction under section 80-IB in respect of profits of industrial undertaking established by it at Jaipur - Assessing Officer held that assessee used to get job of dyeing and printing of gray fabric by outside agencies on payment of job charges to them, and that part of fabrication works was also done through one ‘M’ at Mumbai, and denied deduction under section 80-IB holding that assessee’s business at Mumbai was a separate industrial undertaking - He further held that Jaipur unit of assessee undertook two distinct activities one starting from procurement of cloth till dyeing and printing of same and other starting from printed cloth to fabrication and packing of readymade garments, and that activity pertaining to dyeing and printing did not pertain to any newly established undertaking and, hence, was not eligible for deduction under section 80-IB - Whether since job work was being done by ‘M’ at Mumbai under direct control and supervision of and with materials provided by assessee as per its specifications and orders, it could not be said that assessee had a separate unit at Mumbai - Held, yes - Whether since for purpose of section 80-IB, all steps followed by undertaking including even job-work of dyeing and printing is one complete and integrated manufacturing activity, in such circumstances, Assessing Officer was not justified in bifurcating composite activities of manufacturing at Jaipur unit into separate activities relating to dyeing and printing and rest of activities differently - Held, yes - Whether, therefore, assessee was entitled to deduction under section 80-IB on entire profits and gains of its Jaipur industrial undertaking as claimed - Held, yes - Shah Originals v. Asstt. CIT/Dy. CIT (Mum.)

Deemed dividend

- Assessment year 2001-02 - Whether as per Explanation 2 to section 2(22) accumulated profits shall always included all profits of company to date of payment of dividend and cannot merely be taken as accumulated profits on last date of previous accounting year as business profits earned by company accrues from day to day and not only at end of year when accounts are finalized - Held, yes - Whether, therefore, once amount is advanced to extent of which company possesses accumulated profits, on date of advance itself it becomes income in form of deemed dividend under section 2(22)(e) - Held, yes - ITO v. Gurdip Singh (Delhi)

Depreciation

Unabsorbed depreciation

- Assessment year 1999-2000 - During relevant assessment year, assessee claimed set-off of unabsorbed depreciation pertaining to earlier assessment years 1991-92 and 1992-93 against its current year’s income from house property - Assessing Officer disallowed assessee’s claim holding that there was no provision of set-off of unabsorbed depreciation against income from house property as per section 72 where business had been permanently discontinued - Commissioner (Appeals) confirmed action of Assessing Officer - Whether in view of amended provisions of section 32(2), which came into force with effect from assessment year 1997-98, assessee was entitled to set-off of unabsorbed depreciation allowance allowed up to and inclusive of assessment year 1996-97 against taxable business profit or income under any other head, which in instant case was income from house property - Held, yes - Sain Processing & Weaving Mills v. Asstt. CIT (Delhi)

Income

Chargeable as

- Assessment years 1987-88, 1988-89 and 1990-91 - Whether in order to bring to tax a receipt of income, an assessee should have unflinching right of ownership and disposition, control and user, over such income - Held, yes - Whether in a case where money which has been fraudulently withdrawn by assessee is within knowledge of original owner and original owner is pursuing recovery and persons involved in criminal act of fraud have already surrendered and admitted of their crime, such amount cannot constitute income of assessee within meaning of section 5 to be brought to tax under section 4 - Held, yes - Whether where assessee had fraudulently withdrawn amounts from Animal Husbandry Department of State of Bihar in fodder scam which was later on confessed by assessee and everything belonging to assessee was under attachment of State and ownership of State over defrauded amount was not refuted by assessees, such amount could not be assessed as income of assessee - Held, yes - Dy. CIT v. Dipesh Chandak (Patna) (URO)

Deemed to accrue or arise in India

- Assessment year 1997-98 - Assessee, a company incorporated in France, entered into an agreement with Central India Coal Company Ltd. (CICCO) for feasibility study report for developing coal mines for Lohara West Mine Project - Said agreement provided, inter alia, that CICCO would furnish information, technical data and geological information in respect of Lohara West Mine Project to assessee for purpose of preparing report after feasibility study; that feasibility report was to remain a property of CICCO; and that assessee shall have no right, title and interest in project report prepared - CICCO furnished information in France to assessee - Assessee was not having a permanent establishment in India - Assessee received payment of Rs. 55.32 lakhs from CICCO and claimed that said income/profit arising to it on sale and/or transfer of feasibility report to CICCO was only a business profit liable to be taxed in France as preparation and finalization of feasibility report was carried outside India and no part of its activity was conducted at any place in India - Assessing Officer held that sum of Rs. 55.32 lakhs received by assessee as a consideration for services of managerial, technical or consultancy nature fell within meaning of ‘fees for technical services’ in article 13(4) of DTAA with France and was taxable in India under Act, even in absence of permanent establishment of assessee in India - Whether since assessee had no permanent establishment in India and all services were rendered outside India, income in question could not be considered as accrued in India and thus section 5(2) and section 9(1)(vii) were not attracted - Held, yes - Whether, therefore, provisions of DTAA between India and France need not be gone into - Held, yes - Whether, therefore, impugned payment received by assessee could not be taxed in India - Held, yes - Charbonnages De France International SA v. Dy. CIT (Mum.)

Income from house property

Annual value

- Assessment year 2001-02 - Assessee, who was owning certain property had sold same to one ‘S’ - He claimed deduction on account of property tax paid while computing income from house property - Said amount of property tax consisted part of amount paid by ‘S’ who had purchased said property - Assessing Officer disallowed part of property tax paid by ‘S’ - Whether since amount in question was not paid by assessee, deduction was not permissible under section 23 - Held, yes - ITO v. Gurdip Singh (Delhi)

Deductions

- Assessment year 2001-02 - Assessee claimed deduction under section 24 on account of interest on loan which was taken for acquiring/constructing house property - However, details regarding amount of loan taken, date of loan, rate of interest, confirmation from creditors, etc., were not filed in support of claim - Assessing Officer disallowed deduction holding that assessee had not produced material to suggest that amount which was borrowed was utilized for acquisition of house property - Whether since no nexus was established between borrowal of loans and utilization of same for purpose of acquiring/constructing house property, deduction under section 24 was not allowable - Held, yes - ITO v. Gurdip Singh (Delhi)

Income-tax Act, 1961

- Section 2(22)

- Section 4

- Section 9

- Section 11

- Section 16(i)

- Section 23

- Section 24

- Section 28(i)

- Section 32

- Section 37(1)

- Section 48

- Section 68

- Section 80-IB

Interpretation of statutes

- Strict rule of interpretation

Salaries

Standard deduction

- Assessment year 2001-02 - Assessee declared salary income of Rs. 1,80,000 - In salary certificate, however, a sum of Rs. 2,40,000 was stated to be paid to assessee - When assessee was asked to explain discrepancy, he claimed that balance sum of Rs. 60,000 was towards of reimbursement of conveyance expenses - Assessing Officer disallowed claim regarding reimbursement of conveyance expenses - Commissioner (Appeals) however, allowed deduction of conveyance expenses under section 37(1) - Whether since in computing income under head ‘Salaries’, only those deductions as narrated under section 16 can be allowed, Commissioner (Appeals) was in error in allowing deduction under section 37(1) - Held, yes - ITO v. Gurdip Singh (Delhi)

Wealth-tax Act, 1957

Deemed wealth

- Assessment years 1997-98 and 1998-99 - Whether a lessee cannot be deemed to be owner of property leased to him under section 4(8)(b) if lease is on month to month or year to year basis or if terms of lease is less than 12 years - Held, yes - Whether, in such cases, it is legal owner who is liable to wealth-tax levy on value of specified assets licensed/leased by him for a term of less than twelve years, as laid down in section 269UA(f) and his legal ownership would remain unaffected so long as term of lease is less than twelve years - Held, yes - Whether, however, if term of lease is 12 years or more, then lessee would be deemed to be owner of such property under section 4(8)(b) and liable to wealth-tax - Held, yes - Voltas Ltd. v. Asstt. CWT (Mum.) (SB)

- Assessment years 1997-98 and 1998-99 - Whether section 4(8)(b) applies to lease and not to leave and license agreements - Held, yes - Whether, in case of license, all ingredients of ownership including right to possession vest in owner-licensor and not in licensee and, therefore, in a leave and license arrangement, legal owner shall continue to be owner of licensed premises and assessable to wealth-tax as such - Held, yes - Voltas Ltd. v. Asstt. CWT (Mum.) (SB)

Wealth-tax Act, 1957

- Section 4

Words and phrases

- Expression ‘accumulated profits’ as appearing in Explanation 2 to section 2(22)(e) of the Income-tax Act, 1961

- “excluding any rights by way of lease from month to month or for a period not exceeding one year” as appearing in section 4(8)(b) of the Wealth-tax Act, 1957

SELECTED ORDERS OF ITAT