- Assessment year 1998-99 - Whether where additions were made on basis of statements of assessee recorded during survey and it was not clear from statements who recorded those statements as officer had not put his signature at end of statements, said additions could not be sustained even if provisions of section 145(1) were invoked - Held, yes - ITO v. Dr. Anand Chhabra (Jodh.) (URO)

- Assessment year 1998-99 - Assessing Officer made an estimation of household expenses of assessee and, consequently, made certain addition to income of assessee - Whether since there was no basis for making estimations of household expenses of assessee, household expenses declared by assessee were to be accepted - Held, yes - ITO v. Dr. Anand Chhabra (Jodh.) (URO)

General

- Assessment year 2003-04 - Whether Assessing Officer may pass an order under section 143(3) without giving effect to provisions of section 10, provided he informs prescribed authority/Central Government as the case may be and approval granted earlier to university college or other institution is withdrawn or rescinded -Held, yes - Whether in a case where no approval is granted by prescribed authority earlier to such an institution, there is no need for Assessing Officer to intimate to prescribed authority before passing assessment order under section 143(3) - Held, yes - Vodithala Education Society v. Asstt. DIT (Exemptions) (Hyd.)

Best judgment assessment

- Assessment years 1998-99 to 2002-03 - Whether failure to file a return in response to notice issued under section 148(1) shall constitute a default envisaged in clause (a) of section 144(1) and any such failure shall provide jurisdiction to Assessing Officer to make a best judgment assessment under section 144 - Held, yes - Whether merely because jurisdiction to make an assessment has been invoked under section 147/148, same does not exclude applicability of section 144 to assessment proceedings - Held, yes -Whether where Assessing Officer had framed assessment of assessee under section 144 without serving on it notice as envisaged in first proviso to section 144(1), Assessing Officer had erred in making assessment under section 144 and therefore, said assessment order was bad in law - Held, yes - Kush Leasing (P.) Ltd. v. ITO (Delhi)

Business expenditure

Year in which deductible

- Assessment year 2000-01 - Whether if a liability as per mercantile system of accounting has already accrued, though same may be discharged at a later date, same would be properly deductible in year of accrual itself - Held, yes - Dy. CIT v. EDS Electronics Data Systems (India) (P.) Ltd. (Delhi)

Cash credits

- Assessment year 2002-03 - In respect of certain cash credits, assessee neither produced creditors for verification before Assessing Officer nor filed confirmation from them - Whether since assessee could not even establish identity of creditors, leave apart their capacity or genuineness of transections, it could be said that credits were not genuine and, hence, Assessing Officer was justified in making addition of cash credits to income of assessee under section 68 - Held, yes - Smt. Saraswati Devi Gehlot v. ITO (Jodh.) (URO)

Charitable/religious institutions

- Assessment year 2003-04 - Whether for purpose of claiming exemption under section 10(23C)(vi), university or other educational institution, has to get approval of prescribed authority and in absence of such approval from prescribed authority, such an institution would not be entitled to any exemption under section 10(23C)(vi) - Held, yes - Vodithala Education Society v. Asstt. DIT (Exemptions) (Hyd.)

Charitable purpose

- Assessment year 2003-04 - Whether education would remain as a charity only in a case where education is imparted systematically for a fee prescribed by Government - Held, yes - Whether a private aided or unaided professional institution or any other educational institution of a State is required to collect fees with regard to infrastructure and benefit of students of that educational institution - Held, yes - Whether, however, such fees has to be fixed by Committee headed by a retired High Court Judge as directed by Apex Court in Islamic Academy of Education v. State of Karnataka [2003] 6 SCC 697 - Held, yes - Whether collection of money over and above fee prescribed by Committee would amount to collection of capitation fee and such an institution would face legal consequences for same - Held, yes - Whether receiving donations by educational institutions connected with admission of students is to be treated as collection of capitation fees - Held, yes - Assessee-society was running an educational institution and hostels - For relevant assessment year, it filed return claiming exemption under section 11 - There was a survey operation in premises of one of colleges run by assessee, wherein several incriminating materials were seized disclosing collection of money over and above prescribed fee from students - Assessing Officer, therefore, disallowed exemption under section 11 - Whether since assessee had collected money over and above prescribed by concerned authority for admission of student, such an amount was to be classified as capitation fee and it could be said that assessee’s case was a clear case of sale of education by assessee and, therefore, it could not be considered as charitable institution under section 2(15) - Held, yes - Vodithala Education Society v. Asstt. DIT (Exemptions) (Hyd.)

Circulars and Notifications

- Circular No. 22, dated 17-7-1969; Circular No. 28, dated 22-9-1980

Deduction

Professional income from foreign sources

- Assessment year 2001-02 - Whether creation of an author can be either in a form of a book, a journal, magazine, newspaper, etc., and such a creation can be result of freelancing or freelance writing - Held, yes - Whether a professional author and freelance writer can claim deduction under section 80RR - Held, yes - Whether if a person writes anything connected with profession he is engaged in and derives income by publishing it abroad, he will be entitled to deduction under section 80RR - Held, yes - Whether word ‘author’ appearing in section 80RR includes a co-author or a collaborator also who has contributed intellectually to writing - Held, yes - Whether in order to claim deduction under section 80RR, a person need not be a professional author and he need not have written only a book, but may have contributed to journals, magazines, etc., by way of articles and write-up - Held, yes - Whether an author has to necessarily write book abroad and publish same abroad for claiming deduction under section 80RR - Held, no - Whether where a person possessing any special skill or art practises and performs his art abroad or writes about same which is published abroad, such a person would be treated as a performing artist and any income received by such person from non-resident for performing this art abroad or writing about it would qualify for deduction under section 80RR - Held, yes - Whether unless a person can exercise his right under Copyright Act, he cannot be regarded to be an author - Held, no - Assessee was engaged in profession of imparting spiritual activities including teaching of meditation - He had received certain amount in his capacity as a co-author of three foreign books which were written on spiritual teaching and art of meditation and claimed deduction on same - Main author in two books was ‘J’ and in third was ‘K’ - Assessing Officer initially allowed said claim but subsequently withdrew same holding that assessee could not be treated as co-author - It was found from records that ‘J’ took ideas and concepts from assessee for writing various sections of books and through his acknowledgement ‘J’ had specifically thanked assessee for his help due to which his work became possible and had also stated that assessee actually wrote certain sections of book - Whether it could be said that assessee had directly contributed to subject-matter of book by writing certain portion of book, which was also acknow-ledged by ‘J’ - Held, yes - Whether, therefore, it could be said that assessee had co-authored book in exercise of his profession of imparting spiritual activities and teaching meditation and would be eligible for deduction under section 80RR - Held, yes - A. Kaleshwar v. Asstt. CIT (Hyd.)

Deduction of tax at source

Payment to non-resident

- Whether payer/assessee is duty bound to deduct tax at source for payments made to non-residents at appropriate rates as provided under section 195; payer cannot escape liability for doing so, unless a certificate from Assessing Officer is obtained for deduction of tax either at a rate lower than rate as prescribed or for non-deduction of tax at source and that duty of payer ends here only and he is not required to examine and look into other aspects beyond this like whether payer received services from non-resident to whom such payments were made or from some other person through non-resident; whether such receipt in hands of recipient non-resident would be his income or part of it would be his income on which he is liable to pay tax; payer is not expected to step into shoes of Assessing Officer for examining whether receipts in hands of recipient are income or not or whether he is liable to pay tax thereon or not - Held, yes - Van Oord ACZ India (P.) Ltd. v. Addl. CIT (Delhi)

Deductions

Profit and gains from export of computer software

- Assessment year 2000-01 - Whether deduction under section 80HHE is allowable after set-off of business losses of earlier year against current year’s income - Held, yes - Dy. CIT v. EDS Electronics Data Systems (India) (P.) Ltd. (Delhi)

Royalty income, etc., of authors of certain books other than text books

- Assessment year 2001-02 - Whether provisions of section 80QQB are more stringent than section 80RR inasmuch as deduction under former provision is confined to writing of a book as defined in Explanation to said section, but deduction under section 80RR is not confined to writing a book, but includes any writing - Held, yes - Whether under section 80QQB author of book and joint author, whosoever is claiming deduction, needs to have a copyright, but under section 80RR there is no need to have a copyright - Held, yes - A. Kaleshwar v. Asstt. CIT (Hyd.)

Export Oriented Undertaking

- Assessment year 2001-02 - Assessee was deriving income from a hundred per cent EOU (Export Oriented Unit) and claimed deduction under section 10B in respect of interest earned on FDRs - Whether since interest income earned by assessee on FDRs was not derived from export of eligible goods of hundred per cent EOU, assessee would not be eligible for exemption under section 10B in respect of interest income - Held, yes - - ITO v. Vinod Chhabra (Delhi)

- Assessment year 2001-02 - For relevant assessment year, assessee, a hundred per cent export oriented undertaking (EOU), claimed exemption under section 10B - Assessing Officer denied exemption under section 10B for certain reasons - He, however, allowed deduction under section 80HHC to assessee in respect of profits and gains derived from export of goods out of India - Commissioner (Appeals), on basis of exemption allowed under section 10B to assessee for assessment year 1994-95, allowed assessee’s claim for exemption under section 10B - Whether since from assessment order for assessment year 1994-95 it was not clear as to in which year assessee started hundred per cent EOU and further since neither Assessing Officer nor Commissioner (Appeals) had examined matter in light of provisions of section 10B, issue was required to be remitted to file of Assessing Officer to examine claim of assessee in light of provisions of section 10B - Held, yes - Whether if exemption under section 10B would be allowed, assessee would not be eligible for deduction under section 80HHC - Held, yes - ITO v. Vinod Chhabra (Delhi)

Income escaping assessment

Non-disclosure of primary facts

- Assessment years 1998-99 to 2002-03 - Whether unearthing of fresh facts subsequent to assessment framed by way of proceedings under section 143(1) forms a basis for Assessing Officer to entertain a belief that certain income has escaped assessment - Held, yes - Assessing Officer originally accepted income of assessee-company as offered by intimation under section 143(1) - In meantime, Investigation Wing of department conducted a survey at business premises of one S, who admitted of having floated a number of companies to provide accommodation entries to various entities - S also admitted before Investigation Wing that various entities approached him or his associates for obtaining bogus entries of either sales or purchases or for seeking commission income, etc., and that a few private limited companies were used as a conduit for execution of such entries/transactions - Thereafter, Assessing Officer concerned received information from Investigation Wing that assessee-company was one such front company of S and one M who was father of said S was a director of assessee-company - Assessing Officer on basis of said information reopened assessment of assessee for relevant assessment year and, accordingly, issued a notice under section 148 to it - Whether since modus operandi of assessee earning incomes outside books of account by indulging in providing of accommodation entries against receipt of consideration came to knowledge of Assessing Officer as a result of survey conducted on S, Assessing Officer on basis of such material and evidence was justified in forming a prima facie belief that certain income of assessee had escaped assessment - Held, yes - Kush Leasing (P.) Ltd. v. ITO (Delhi)

- Assessment year 2001-02 - Assessee was engaged in profession of imparting spiritual activities including teaching of meditation - He had received certain sum on co-authoring of three foreign books and claimed deduction under section 80RR - Assessing Officer allowed same and completed assessment on 22-2-2002 - Subsequently, Assessing Officer came across one of those books at second hand books market and having found that assessee was neither author nor a co-author of book, was of view that assessee was not entitled to deduction claimed and, accordingly, issued notice under section 148 on 1-9-2003 - Assessee contended that assessment was reopened on change of opinion and, therefore, was not valid - Whether since Assessing Officer during original assessment accepted assessee’s claim without any inquiry, there was no formation of opinion and, hence, there was no question of changing it - Held, yes - Whether, moreover, since assessment was reopened within four years from end of relevant assessment year, assessee’s case clearly fell under both sub-clauses (i) and (iii) of clause (c) of Explanation 2 to section 147 and, therefore, validity of reopening of assessment was to be upheld - Held, yes - A. Kaleshwar v. Asstt. CIT (Hyd.)

Income-tax Act, 1961

- Section 2(15)

- Section 10(23C)

- Section 10B

- Section 37(1)

- Section 68

- Section 69

- Section 80HHE

- Section 80QQB

- Section 80RR

- Section 115JA

- Section 142A

- Section 143

- Section 144

- Section 147

- Section 195

Interpretation of statutes

- Latitudinarian Rules of Construction

Minimum alternate tax

- Assessment year 2000-01 - Whether provision for bad and doubtful debts cannot be said to be a provision for a liability because even if debts are not recovered, no liability would be fastened upon assessee - Held, yes - Whether, therefore, question whether it is an ascertained or unascertained liability does not arise - Held, yes - Whether, therefore, provision for bad and doubtful debts will not be covered in clause (c) of Explanation to section 115JA for purpose of computing book profits under section 115JA - Held, yes - Dy. CIT v. EDS Electronics Data Systems (India) (P.) Ltd. (Delhi)

Unexplained investments

- Assessment year 1998-99 - Assessee constructed a property and claimed investment in construction thereof at certain amount - Assessing Officer referred matter of investment to Departmental Valuation Officer, who estimated cost of construction at higher amount - Accordingly, Assessing Officer made addition of difference to income of assessee as unexplained investment under section 69 - Commissioner (Appeals) adopted local PWD rates against CPWD rates adopted by Departmental Valuation Officer and also allowed rebate of self-supervision at rate of 7.5 per cent - Commissioner (Appeals), accordingly, deleted entire addition - Whether Commissioner (Appeals) was justified - Held, yes - ITO v. Dr. Anand Chhabra (Jodh.) (URO)

Valuation Officer

Estimate by, in certain cases

- Assessment year 2002-03 - Whether a reference to Departmental Valuation Officer (DVO) under section 142A can be made by Assessing Officer only in cases where assessee has made more investment or is owner of bullion, jewellery or any other valuable article, etc., at a higher figure than that recorded in his books of account; it nowhere contemplates a situation in which assessee has shown a higher value of assets owned by him, whereas in opinion of Assessing Officer, such value should be at a lower figure - Held, yes - Assessing Officer made a reference to DVO under section 142A on premise that there should be a lower cost of acquisition of shops sold by assessee as against higher figure declared by her - Whether reference made by Assessing Officer to DVO under section 142A was void ab initio and resultant report supplied by DVO was of no conscience insofar as assessment of assessee was concerned - Held, yes - Smt. Saraswati Devi Gehlot v. ITO (Jodh.) (URO)

Words and phrases

- ‘Reasons to believe’ as occurring in section 147; ‘so far as may be, apply’ as occurring in sub-section (1) of section 148 of the Income-tax Act, 1961

- ‘author’ occurring in section 80RR of the Income-tax Act, 1961; ‘in exercise of his profession’ as occurring in sections 80QQA, 80QQB and 80RR of the Income-tax Act, 1961

SELECTED ORDERS OF ITAT