- Assessment year 2001-02 - Assessee was a registered medical practitioner, who examined patients and gave medicines to them - He was also a member of Rajasthan Ayurvedic Chikitsak Sangh (P.) Regd. - For relevant year, assessee filed his return of income showing gross receipts from profession, and in addition, pursuant to a survey conducted at his business premises, assessee surrendered a sum of Rs. 1,35,000 as his additional income - On account of certain discrepancies, Assessing Officer rejected books of assessee under section 145(1), estimated consultancy charges received by assessee from his patients as also profit on sale of medicine to patients and, thus, made certain addition to income of assessee - Assessee explained that being a member of Rajasthan Ayurvedic Chikitsak Sangh (P.) Regd., he did not charge consultation fees from patients and earned profits only on sale of medicines - In support of his claim, assessee had produced a certificate issued by said society - Said certificate was not considered by Assessing Officer, meaning, thus, that said claim of assessee had remained unaddressed - Whether, on facts, it could be said that there was no cogent evidence in possession of Assessing Officer except wild guesswork to come to a conclusion that assessee charged consultation fees from patients - Held, yes - Whether further, in view of additional income being surrendered by assessee to plug in any leakage, on either of counts, there was no need to make any further addition in either receipts from consultancy or for giving medicines - Held, yes - Whether therefore, impugned addition made to income of assessee was not justified and was liable to be deleted - Held, yes - Dr. Ashok Uppal v. ITO (Jodh.) (URO)

Issue of notice

- Assessment year 2001-02 - Assessee-society filed its return of income on 27-9-2001 - Thereafter, assessment order was framed by issuing notice under section 143(2) on 22-11-2002 - Whether since notice under section 143(2) was issued after a period of 12 months from end of month in which return was filed, same was barred by limitation and, therefore, assessment made in pursuance of such notice was without jurisdiction - Held, yes - Maker Tower A&B Co-op. Hsg. Society Ltd. v. ITO (Mum.)

Bad debts

- Assessment year 2001-02 - Whether RBI Guidelines would override provisions of Income-tax Act - Held, no - Assessee, a non-banking financial company, made provision for bad and doubtful debts following RBI guidelines and claimed deduction of amount of provision for bad and doubtful debts under section 36(1)(vii) - Whether since amount of provision for bad and doubtful debts had not been written off by assessee in accounts of various persons, same was not allowable as a deduction in view of Explanation to section 36(1)(vii) - Held, yes - ITO v. Maruti Countrywide Auto Financial Services (P.) Ltd. (Delhi)

Business expenditure

Allowability of

- Assessment year 1996-97 - Assessee-company had entered into a collaboration agreement with a foreign company - Top management of said foreign company had decided that travelling expenditure on travel and stay of foreign company’s officials visiting India would be borne by assessee - Assessee claimed deduction of such foreign travelling expenses - Whether expenditure which rightly belongs to one company cannot be transferred to other company and such other company cannot claim deduction of such expenditure as it is not bona fide expenditure of that company - Whether since travelling expenditure in question was not a bona fide expenditure of assessee-company but that of foreign company, assessee could not claim deduction of such expenditure - Held, yes - Haden International Group India (P.) Ltd. v. Asstt. CIT (Mum.)

Year in which deductible

- Assessment years 1996-97, 1997-98, 1999-2000 and 2000-01 - Whether when a business liability has definitely arisen in accounting year, deduction should be allowed in said year although liability may have to be quantified and discharged at a future date inasmuch as such a liability is not a contingent one - Held, yes - Assessee was engaged in business of supply of paint finish system for automobiles and white goods industry - It entered into a contract with its customers on certain terms and conditions which included provision for warranty after sales given to customers for a period of one year at estimated rate of 2 per cent of value of turnover booked in each year in its books on accrual basis and, accordingly, claimed deduction of same as a revenue expenditure - Lower authorities disallowed said claim on ground that it was merely a contingent liability and simply a provision and, therefore, could not be allowed as a revenue deduction - Whether moment assessee entered into contract it was tied up with liability attached with contract though it might or might not incur it same in a year’s time - Held, yes - Whether, therefore, assessee would be entitled to deduction as claimed and lower authorities were wrong in denying deduction on ground that it was a case of contingent liability - Held, yes - Haden International Group India (P.) Ltd. v. Asstt. CIT (Mum.)

Business income

Chargeable as

- Assessment years 2001-02 and 2002-03 - Assessee-company was carrying on business of taking property on lease and giving out same along with providing other amenities - In year 2000, assessee took over a partnership firm as a going concern with all assets and liabilities thereof - Assets of said firm included a leasehold property taken in year 1963 for 51 years, which upon expiry of lease was to revert to lessor - During relevant years, assessee leased out said property along with various other facilities and amenities and declared rental income so received as its business income - However, Assessing Officer assessed said rental income as income from house property as, in his view, assessee was owner of said property - Whether since property was to revert back to lessor upon expiry of lease, i.e., by year 2014, assessee could not be said to be owner thereof, but was only a lessee for unexpired period of lease - Held, yes - Whether therefore, rental income received from such short-term leasehold property could not be treated as income from house property - Held, yes - Whether since assessee provided various facilities to its tenants in an organised manner with a set purpose and with a view to earn profits, such activities could be construed as business activities and income arising therefrom was assessable as business income - Held, yes - Whether however, since there was no segregation of rent and service charges in bills raised by assessee against all its tenants, 60 per cent of amount was to be treated on account of rent and rest 40 per cent on account of service charges - Held, yes - Dropadi Properties (P.) Ltd. v. ITO (Kol.) (URO)

- Assessment year 1996-97 - Assessee-company filed its original return of income and declared profit of Rs. 1.70 crores on account of sale of certain property to another company ‘S’ - Subsequently, assessee filed revised return of income excluding above profit of Rs. 1.70 crores and in this regard explained to Assessing Officer that under an agreement to sell dated 31-3-1996 said property was agreed to be sold to ‘S’, but subsequently said agreement was cancelled on 31-10-1997 and, therefore, no profits accrued to it and that was why a revised return was filed - Assessing Officer held that filing of revised return was clearly an after-thought with a view to conceal income and, accordingly, assessed profit of Rs. 1.70 crores in hands of assessee as business profits - However, it was found from records that despite cancellation of agreement ‘S’ continued to show said property in its balance sheet and further there was discrepancy in various clauses of agreement to sell and stamp papers for agreement to sell and cancellation deeds were purchased at same time and there was discrepancy of dates typed in cancellation deed - Whether, in such circumstances, an in-depth examination of all facts, along with recording of statements of persons concerned, i.e., both assessee and ‘S’, would be necessary to bring out truth from somewhat intriguing facts which would be necessary for deciding as to whether there was a real sale of property by assessee to ‘S’ and any income accrued to it as profits of business - Held, yes - Whether therefore matter was to be restored to file of Assessing Officer for deciding it afresh - Held, yes - Jt. CIT v. Trident Projects Ltd. (Delhi)

Cash credits

- Assessment year 1997-98 - Assessee had taken loans from various persons - In respect of his creditors, assessee had furnished all details such as names, addresses, confirmation letters, cheque number, bank name and addresses and details of repayment of loan amount by cheques - Despite this, Assessing Officer treated certain loans as not genuine and added amount thereof to income of assessee under section 68 - Whether by furnishing said detailed information, assessee could be said to have discharged its primary onus, and then, it was for revenue to prove that those creditors were not genuine or had no capacity to advance said loans - Held, yes - Whether since revenue failed to prove same, impugned addition was liable to be deleted - Held, yes - Asstt. CIT v. Suretech Hospital & Research Centre Ltd. (Nag.) (URO) 11

Circulars and Notifications

- CBDT Circular No. 3, dated 9-2-2001

Deduction of tax at source

Technical services fee

- Assessment year 1999-2000 - Whether rendering services by using technical knowledge or skill is different than charging fees for technical services inasmuch as in latter case technical services are made available due to which assessee acquires certain right which can be further used - Held, yes - Assessee made certain payment to a contractor in respect of inspection and maintenance support agreement, fabrication of chilled water line, work order for thermal insulation/erection, conversion of Partially Oriented Yarn (POY) into polyester textured yarn and twisted yarn - Whether such payment could not be treated as ‘fees for technical services’ as technology or technical knowledge of persons were not made available to assessee, but only by using such technical knowledge, services were rendered to assessee - Held, yes - Whether therefore assessee would not be liable to deduct tax at source as per provisions of section 194J, on such payments - Held, yes - Dy. CIT v. Parasrampuria Synthetics Ltd. (Delhi)

Deductions

Income of co-operative societies

- Assessment years 2000-01 and 2001-02 - Assessee-society’s claim of deduction under section 80P(2)(c) for Rs. 50,000 was disallowed by revenue relying upon provisions of section 80P(2)(f) - Whether clause (f) of section 80P(2) is applicable only with reference to income by way of interest on securities or income from house property chargeable under section 22 - Held, yes - Whether since assessee had not claimed any deduction in respect of aforesaid income, provisions of clause (f) would not become applicable - Whether therefore assessee would be entitled to deduction of Rs. 50,000 under section 80P(2)(c) - Held, yes - Maker Tower A&B Co-op. Hsg. Society Ltd. v. ITO (Mum.)

Depreciation

Allowance/Rate of

- Assessment year 2003-04 - Whether expression ‘any other business or commercial rights of similar nature’ appearing in clause (ii) of section 32(1) would include such rights which can be used as a tool to carry on business - Held, yes - Assessee-company was engaged in business of providing catering, house-keeping and allied services to a company HLL - Such catering business was earlier carried on by one ‘R’ under a catering contract with HLL for last 30 years - Assessee entered into an agreement with ‘R’ for taking over catering contract of ‘R’ with HLL against a consideration of Rs. 27 lakhs - Out of said sum, assessee paid a sum of Rs. 25 lakhs to ‘R’ as a consideration for acquiring all rights under said catering contract and balance sum of Rs. 2 lakhs was paid to ‘R’ on account of not to compete with assessee - Assessee further reflected total amount of Rs. 27 lakhs in its balance sheet as goodwill and claimed depreciation thereon treating same as intangible assets - Assessing Officer held that goodwill did not find place in section 32 as part of intangible assets and, therefore, disallowed assessee’s claim for depreciation - Whether since amount paid by assessee to ‘R’ related to acquisition of all rights under catering contract between ‘R’ and HLL as well as all articles and paraphernalia belonging to ‘R’, it could not be said that said payment was on account of goodwill - Held, yes - Whether, therefore, merely because assessee showed said payment on account of goodwill in books of account, no adverse inference could be drawn against assessee - Held, yes - Whether, therefore, rights acquired by assessee under catering contract, along with articles and paraphernalia lying in canteen of HLL which were tangible assets, would be eligible for depreciation under clause (i) of section 32(1) and balance amount would be allocated for intangible asset for purpose of granting depreciation under clause (ii) of section 32(1) - Held, yes - Skyline Caterers (P.) Ltd. v. ITO (Mum.)

Foreign companies, income by way of royalty or fees for technical services

- Assessment years 1998-99 and 1999-2000 - Whether in order to seek benefit of exemption under section 10(6A), both conditions mentioned in sub-clauses (a) and (b) of section 10(6A) should be satisfied - Held, no - Whether when a technology agreement is entered into between an Indian entrepreneur and foreign technology supplier in respect of high priority industries which are within specified parameters of Industrial Policy approved of Government of India, in such a case, in order to seek benefit of exemption under section 10(6A), no specific approval of technology agreement by Central Government is required because approval in such cases is automatic - Held, yes - Asstt. DIT v. Kaiser Aluminium Technical Services Inc. (Mum.)

Income from house property

Chargeable as

- Assessment year 1998-99 - Assessee-company owned an office premises in Mumbai, which was given on rent to sister concerns - Assessee claimed rental income received from its sister concerns as income from business stating that it was conducting business service centre in premises, wherein it used to provide infrastructure facilities like electronic instruments and gadgets, air-conditioners, Epbx systems, telephone instruments, telefax, etc., and that under various lease agreements it had provided said premises along with all infrastructure facilities to its sister-concerns - Alternatively, assessee also contended that rental income was to be apportioned into property income and service charges - Whether since dominant intention of assessee was just to earn income by way of letting out of premises, rental income received by assessee was to be assessed under head ‘Income from house property’ - Held, yes - Whether however since rental income in question included element of rent as well as service charges and there was no segregation of rent and service charges in bills raised against all tenants by assessee, 60 per cent of rental income deserved to be treated on account of rent and rest 40 per cent on account of service charges - Held, yes - Universal Textile Water Proof Co. (India) v. Asstt. CIT (Mum.)

Income-tax Act, 1961

- Section 4

- Section 10(6A)

- Section 22

- Section 28(i) 14,

- Section 32

- Section 36(1)(vii)

- Section 37(1)

- Section 44AF

- Section 68

- Section 73

- Section 80P

- Section 143 9,

- Section 194J

- Section 263

- Section 271(1)(c) 12,

Interpretation of Statute : Rule of Ejusdem Generis

Losses

In speculation business

- Assessment year 2001-02 - Whether Explanation to section 73 would not be applicable in such cases where principal business of a company is that of granting of loans and advances - Held, yes - Punjab Lease Financing Ltd. v. ITO (Ahd.)

Mutual concern

- Assessment years 2000-01 and 2001-02 - Whether co-operative society is a voluntary association and concept of mutuality is applicable to such societies, provided contributors and participators to funds are same - Held, yes - Whether concept of mutuality is not applicable, in respect of transfer fees received from transferees since at time of transfer transferee is not member of housing society - Held, yes - Whether, however, principle of mutuality, would apply in respect of transfer fees received from transferor of flat inasmuch as he is member of housing society on date when transfer fee is paid - Held, yes - Whether where assessee, a co-operative housing society, received transfer fees from both transferors and transferees on account of transfer of its flats it would be entitled to deduction to extent of transfer fees received from transferors in view of principle of mutuality - Held, yes - Maker Tower A&B Co-op. Hsg. Society Ltd. v. ITO (Mum.)

Penalty

For concealment of income

- Assessment year 1997-98 - For relevant year, assessee filed his return of income declaring certain loss - Assessing Officer, while completing assessment, reduced loss declared by assessee to a considerable extent and in view of reduction in loss, levied penalty upon assessee under section 271(1)(c) - Whether since at relevant time, no penalty was imposable for concealing/furnishing inaccurate particulars of income which had effect of reducing loss declared in return, and amendment in Explanation 4 to section 271(1)(c) in that respect was made applicable only with effect from 1-4-2003, Assessing Officer erred in levying penalty by applying amended provision - Held, yes - Asstt. CIT v. Suretech Hospital & Research Centre Ltd. (Nag.) (URO)

- Assessment year 1999-2000 - Assessing Officer made addition of certain amount to income of assessee-company on account of reversal of provision for bad debts - He rejected contention of assessee that impugned amount had been disallowed in earlier assessment year 1997-98 and, thus, was to be reduced from computation holding that no such disallowance was made in assessment year 1997-98 - Assessing Officer also levied penalty under section 271(1)(c) upon assessee holding that there was a deliberate concealment of fact regarding provision for bad debts during assessment year 1997-98 and on top of it assessee had claimed deduction for this amount in return for current year - Whether levy of penalty upon assessee was justified - Held, yes - Haden International Group India (P.) Ltd. v. Asstt. CIT (Mum.)

Retail business

- Assessment years 2001-02 and 2002-03 - Whether an assessee can be denied benefit of sub-section (5) of section 44AF on claiming lower profits and gains than profits and gains as specified in sub-section (1) of section 44AF by keeping and maintaining such books of account and documents and getting same accounts audited, but furnishing report of such audit beyond date specified in section 44AB - Held, no - Leyland Automobiles v. ITO (Cochin)

Revision

Of orders prejudicial to interest of revenue

- Assessment year 2001-02 - Whether an order can be said to be erroneous if there is an incorrect assumption of facts or incorrect application of law in order by Assessing Officer and if Assessing Officer after making enquiries and examining records has taken one of possible views, it cannot be said that order passed by Assessing Officer is erroneous - Held, yes - Punjab Lease Financing Ltd. v. ITO (Ahd.)

Words and Phrases

- ‘fees for technical services’ as appearing in Explanation (6) to section 194J

- Expression ‘any other business or commercial rights of similar nature’, as appearing in clause (ii) of section 32(1) of the Income-tax Act, 1961

- Expression ‘for the purpose of business’ appearing in section 37(1) of the Income-tax Act, 1961

SELECTED ORDERS OF ITAT