- Assessment year 1995-96 - During relevant year, assessee-company issued and allotted certain fully convertible debentures and claimed deduction of debenture issue expenses as revenue expenses - Said debentures had two convertible portions, namely, Part-A and Part-B, while Part-A portion was fully converted by assessee into equity shares on date of allotment itself, Part-B portion of said debentures was converted on expiry of one year from date of their allotment - In view of this, Assessing Officer held that since debentures so issued and allotted during previous year were fully converted by assessee into equity shares within one year of allotment thereof, debenture issue expenses were capital expenses - Whether, in view of Tribunal’s decision in assessee’s own case in relation to assessment year 1996-97, expenses incurred by assessee in respect of Part-B of debentures till their conversion into equity capital were revenue in nature - Held, yes - Whether since debenture issue expenses relating to Part-A of debentures were treated as capital expenses, same were entitled to be amortized as per section 35D and assessee was entitled to deduction as contemplated in section 35D - Held, yes - Ganesh Banzoplast Ltd. v. Asstt. CIT (Mum.) (URO)

- Assessment years 1997-98 and 1998-99 - Assessee-company had borrowed certain funds and invested same in shares of its subsidiary companies for acquiring controlling interest therein - Assessee claimed deduction of interest expenditure under section 37(1) - Whether since assessee had made investment of borrowed funds in its subsidiary companies for acquiring controlling interest therein and not to earn dividend income and, moreover, acquiring of controlling interest in subsi-diary companies was not a part of business activities of assessee, interest expenditure could not be allowed under section 37(1) - Held, yes - Lloyds Steel Industries Ltd. v. Asstt. CIT (Mum.)

Capital gains

Computation in case of depreciable assets

- Assessment year 2000-01 - Whether sections 50 and 32(1)(iii) deals with different types of situations on transfer of capital assets of assessee - Held, yes - Whether section 50 deals with those cases where profit accrues to assessee on transfer of any block of assets, whereas section 32(1)(iii) deals with those cases where assessee suffers a loss on sale of any building, machinery, plant, furniture, etc. - Held, yes - Whether, therefore, loss suffered on transfer of block of asset cannot be computed under section 50 and this type of situation would be dealt with by provisions of section 32(1)(iii) - Held, yes - Whether, however, deduction of such loss would be allowed under section 32(1)(iii) if such deficiency is actually written off in books of assessee - Held, yes - Mukand Global Finance Ltd. v. Dy. CIT (Mum.)

Cost with reference to certain modes of acquisition

- Assessment year 2000-01 - Whether when capital assets are sold and purchased between holding company and subsidiary company, transaction would not fall within ambit of sections 47 and 49 - Held, yes - Whether when capital asset is sold by holding company to its subsidiary company, year of indexation in case of subsidiary company would be year of transfer of capital asset in favour of subsidiary company on its sale - Held, yes - Assessee-company purchased certain shares from its holding company ‘M’ during year ending on 31-3-1994; while ‘M’ had acquired said shares in year ended on 31-3-1989 - During previous year, relevant to assessment year 2000-01, assessee sold said shares - Whether year of indexation for computing capital gain on sale of shares would be taken from assessment year 1994-95, i.e., when shares were transferred in favour of subsidiary company i.e., assessee, and not year in which it was acquired by holding company - Held, yes - Mukand Global Finance Ltd. v. Dy. CIT (Mum.)

Circulars and Notifications

- CBDT Circular No. 14 of 2001

Deductions

Exporters

- Assessment year 2001-02 - Whether export sales of rough and rejected diamonds would form part of ‘total turnover’ for purpose of working out allowable deduction under section 80HHC(3) - Held, yes - Dy. CIT v. Dimexon Diamonds Ltd. (Mum.)

Intercorporate dividends

- Assessment year 1992-93 - Whether for purpose of granting deduction under section 80M, only actual expenditure incurred is to be taken into consideration and there is no question of taking expenditure on estimation or presumption basis - Held, yes - Tata Finance Ltd. v. Asstt. CIT (Mum.)

Profits and gains from publication of books

- Assessment years 1995-96 and 1996-97 - Whether word ‘book’ is a word of widest amplitude which would not only include literary work or other work authored by someone, but may also include mere collection of sheets within its ambit - Held, yes - Whether in view of abovesaid wide meaning of word ‘book’, it can be said that ‘yellow pages’ which is in form of a directory listing addresses and telephone numbers of various persons under various classifications such as lawyers, doctors, etc., can be treated as ‘book’ - Held, yes - Whether expression ‘publication of books’ used in section 80Q refers to only those books which are offered to public in sense that it enables public to read or know contents of book and such offer may be made either by way of sale or distribution of same to public - Held, yes - Whether charging of price is not a condition precedent for bringing book within scope of word ‘publication’ - Held, yes - Whether expression, ‘publication of books’ used by Legislature in section 80Q would refer to only those books which are offered to public in sense that it enables public to read or know contents of book and thus books which do not contain reading material would be outside ambit of provisions of section 80Q; thus, books like exercise books, cash book, ledger, registers, etc., which otherwise fall within scope of word ‘book’ would not be considered for purpose of section 80Q - Held, yes - Whether there is nothing in its natural meaning of words ‘publication of books’ that book must be one which is authored by somebody - Held, yes - Whether it is right to say that there is a common thread amongst excluded items of books specified in section 80Q(3) i.e., there is no author in respect of excluded items - Held, no - Whether merely because a printer or publisher of a book is registered with Registrar of Newspaper and book published by him contains certain advertisement, he cannot be said to be publisher of newspaper - Held, yes - Whether income generated from advertisement given in a Yellow Pages Directory could not be ignored and would have to be taken into consideration while computing income derived from business of publication of books - Held, yes - Tata Infomedia Ltd. v. Asstt. CIT (Mum.)

Expenditure incurred in relation to exempt income

- Assessment year 2000-01 - Whether for invoking proviso to section 14A there should be an assessment order passed which is sought to be reopened or rectified by subsequent act of Assessing Officer - Held, yes - Whether disallowance under section 14A of interest paid on borrowed funds can only be made where borrowed funds are invested in shares which are held by assessee as an investment or as capital asset - Held, yes - Mukand Global Finance Ltd. v. Dy. CIT (Mum.)

Income

Chargeable as

- Assessment year 1998-99 - Assessee, a highly qualified person in field of human resource management, entered into a contract of employment with a bank for a period of four years - One of clause of contract provided that at end of contract assessee would receive certain sum subject to fulfilment of three conditions : continuous employment, good conduct and performance, and non-taking of post retirement job with any foreign bank or foreign financial services company - Thus, at end of contract, assessee received certain sum from bank and claimed same as capital receipt - Assessing Officer rejected assessee’s claim and treated receipt as revenue in nature and brought it to tax - Whether if an apparatus for earning income is extinguished and assessee receives some compensation for loss of such apparatus, such receipt would be treated as capital in nature - Held, yes - Whether since condition provided in contract clause for not taking up a job with any foreign bank or foreign financial company was a condition which limited future prospective employment of assessee, and very instrument of earning income with such institution was no more available to assessee, it could be said that receipt in question was a capital receipt - Held, yes - Sharad S. Patil v. Asstt. CIT (Mum.)

Income from house property

Annual value

- Assessment year 2002-03 - Whether if owner of a house has no intention to let out house and does not occupy same for large part of a particular year or for years together, such houses, although not in actual physical possession of owner, would be deemed to be under self-occupation of owner and their annual letting value (ALV) would be determined as per clause (a) of section 23(1) - Held, yes - Whether such category of houses which are maintained by owner with an intention for letting out, rent received or receivable in such case, being in excess of reasonable sum assessable under clause (a) of section 23(1), would be liable to be assessed and their ALV would be determined as per clause (b) of sub-section (1) of section 23 - Held, yes - Whether where owner of property with intention to earn rent has let out property but for reasons beyond control of owner or for some other good reasons, property (whole or in part) remains vacant during whole or any part of previous year, and actual rent received or receivable is less than ALV referred to in clause (a), then such houses would be assessed under clause (c) of section 23(1) - Held, yes - Whether, in view of abovesaid position, in every case a finding has to be recorded by revenue authorities under what category house property falls in relevant previous year for determining ALV of property - Held, yes - Smt. Poonam Sawhney v. Assessing Officer (Delhi)

Income from other sources

Deductions

- Assessment years 1997-98 and 1998-99 - Whether in view of facts stated under heading ‘Business expenditure - Allowability of’, interest expenditure in question would be allowable as a deduction under section 57(iii) - Held, no - Lloyds Steel Industries Ltd. v. Asstt. CIT (Mum.)

Income-tax Act, 1961

- Section 4

- Section 14A

- Section 23

- Section 36(1)(iii)

- Section 37(1) 1,

- Section 49

- Section 50

- Section 57

- Section 80HHC

- Section 80M

- Section 80Q

- Section 115JA

Income-tax Rules, 1962

Salaries

Perquisites

- Assessment years 1996-97 to 1998-99 - Whether tax paid by employer in respect of salaries paid to employees is salary in terms of rule 3 - Held, yes - Whether tax so paid by employer in respect of salary of employee is ‘salary’ for working out perquisites in respect of rent-free accommodation - Held, yes - Mitsubishi Corpn. v. Dy. CIT (Delhi)

Income-tax Rules, 1962

- Section 17(2)

Interest on borrowed capital

- Assessment year 1992-93 - Assessee-company was engaged in business of finance - It had borrowed funds for making investment in business assets and claimed deduction of interest paid on borrowed funds - Assessing Officer found that assessee’s funds were mixed and it had made investment in shares which came out of such bank accounts wherein both borrowed fund and incomes/receipts had been deposited - He, therefore, presumed that borrowed funds were utilized for making investment in shares/debentures, etc., and, accordingly, made proportionate disallowance out of interest on borrowed funds on ground that same was relatable to funds utilized for non-business purposes - In support of its claim, assessee submitted a fund flow and cash flow statements and pointed out that, incremental funds exceeded investment made during year and, hence, borrowed funds, were not utilized for making investment in shares - Whether assessee had discharged its onus of proving that investment shares/debentures were made out of net funds available with assessee - Held, yes - Whether further since it was found from balance-sheet of relevant assessment year that there was an increase in share capital as well as reserve and surplus funds of assessee-company as compared to previous year and there was also an increase in fixed as well as net current assets, it could be said that borrowed funds had been utilized for investment in business assets - Held, yes - Whether, therefore, there was no justification for proportionate disallowance of interest expenditure - Held, yes - Tata Finance Ltd. v. Asstt. CIT (Mum.)

- Assessment year 2000-01 - Whether where assessee had invested borrowed funds in shares which were kept as stock-in-trade, interest paid on borrowed funds was to be allowed under section 36(1)(iii) - Held, yes - Mukand Global Finance Ltd. v. Dy. CIT (Mum.)

Minimum alternate tax

- Assessment year 2000-01 - Whether debt is amount receivable by assessee and not any liability payable by assessee and, therefore, any provision towards recovery of debt cannot be said to be provision for liability - Held, yes - Assessee kept outstanding debts which could not be properly recovered under head non-performing assets and made provision for same - Assessing Officer treated provision for non-performing assets made by assessee as a provision for unascertained liability and, accordingly, increased net profit of assessee by this provision in order to compute book profit - Whether Assessing Officer was justified - Held, no - Mukand Global Finance Ltd. v. Dy. CIT (Mum.)

Words and phrases

- Expression ‘Book’ and ‘Publication of books’ as appearing in section 80Q of the Income-tax Act, 1961

- ‘total turnover’ as appearing in section 80HHC(3) of the Income-tax Act, 1961

SELECTED ORDERS OF ITAT