MODE OF CITATION : [2015] 153 ITD

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1 REGULAR BENCH VOL. 153 ISSUE 2 APRIL 23 - MAY 7, 2015 TOTAL PAGES [184] ISSN : AUTHORISED FORTNIGHTLY OF INCOME-TAX APPELLATE TRIBUNAL (MINISTRY OF LAW & JUSTICE) MODE OF CITATION : [2015] 153 ITD EDITOR : RAKESH BHARGAVA CENTRAL ADVISORY BOARD SHRI H.L. KARWA, PRESIDENT, ITAT SHRI G.D. AGARWAL, VICE-PRESIDENT, ITAT SHRI D. MANMOHAN, VICE-PRESIDENT, ITAT SHRI DR. O.K. NARAYANAN, VICE-PRESIDENT, ITAT SHRI G.C. GUPTA, VICE-PRESIDENT, ITAT The Fortnightly is processed by Amit Bhargava It comes in Four Volumes Income-tax Tribunal Decisions is published on every 8th & 23rd of the Month Subscription for January 2015 to December 2015 : ` 5,500 Single copy ` 300 only. Remittance of subscription should be made in favour of Taxmann Allied Services (P.) Ltd. Non-receipt of part must be notified within 60 days from the due date. Material published in this part is the exclusive copyrighted property of Taxmann Allied Services (P.) Ltd. and cannot be reproduced or copied in any form or by any means without written permission of the publisher. This publication is sold with the understanding that authors/editors and publishers are not responsible for the result of any action taken on the basis of this work nor for any error or omission to any person, whether a purchaser of this publication or not. All disputes are subject to jurisdiction of the Delhi High Court. Address your subscription correspondence to Taxmann Allied Services (P.) Ltd., 59/32, New Rohtak Road, New Delhi Phone : Fax : Printed and Published by Amit Bhargava on behalf of Taxmann Allied Services (P.) Ltd. and Printed at Tan Prints (India) Pvt. Ltd., 44 Km. Mile Stone, National Highway, Rohtak Road, Village Rohad, Distt. Jhajjar (Haryana) and Published at 59/32, New Rohtak Road, New Delhi Editor : Rakesh Bhargava. sales@taxmann.com. Website: INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 3

2 A-2 Contents CONTENTS TABLE OF CASES u Agreenco Fibre Foam (P.) Ltd. v. ITO (Cochin) 262 u Anand M. Fatehpuria HUF v. Asstt. CIT (Mum.) 145 u Arvind Footwear (P.) Ltd. v. Dy. CIT (Luck.) 264 u Asstt. CIT v. Chandrakumar (T.G.) (Cochin) 259 u Asstt. CIT v. Prasad (N.), Executive Chairman (Hyd.) 257 u Cellular Mobile Telecom Services v. ITO (Chennai) 278 u Deepak N. Phalke v. ITO (Mum.) 249 u Deloitte Haskins & Sells v. Dy. CIT (Chennai) 275 u Dy. CIT v. Kishori Lal Agarwal (Luck.) 291 u Dy. CIT v. Messe Dusseldorf India (P.) Ltd. (Delhi) 296 u Dy. CIT v. Sir Sobha Singh & Sons (P.) Ltd. (Delhi) 157 u Dy. CIT v. Tamil Nadu Tourism Development Corpn. Ltd. (Chennai) 270 u Dy. CIT v. Velti India (P.) Ltd. (Chennai) 244 u Dy. CIT v. Worldwide Media (P.) Ltd. (Mum.) 162 u Dy. DIT v. Airline Rotables Ltd. (Mum.) 252 u Dy. DIT v. Sri Vekkaliamman Educational & Charitable Trust (Chennai) 153 u Desai & Gaikwad v. CIT (Pune) 183 u ITO v. Adani Port Infrastructure (P.) Ltd. (Ahd.) 231 u ITO v. Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (Cochin) 280 u ITO v. Rosamma Korah (Smt.) (Cochin) 197 u Jaisalmer Central Co-operative Bank Ltd. v. Jt. CIT (Jodh.) 245 u K.R. Automobiles v. Asstt. CIT (Ahd.) 240 u Khimji Visram & Sons v. Addl. CIT (Mum.) 176 u Kumarpal Mohanlal Jain v. ITO (Mum.) 292 u Mansukhlal Ghelabhai Doshi v. Asstt. CIT (Rajkot) 220 u Metro Exporters (P.) Ltd. v. Asstt. CIT (Mum.) 212 u Nilackal St. Thomas Church & Ecumenical Centre Trust v. CIT (Cochin) 255 u Oswin Plastics (P.) Ltd v. Dy. CIT (Mum.) 226 u Pioneer E Bizz. (P.) Ltd. v. Dy./Asstt. CIT (Hyd.) 228 u Revathi (N.) v. ITO (Hyd.) 285 u Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) 234 u Sri Premananda Trust v. Asstt. CIT (Chennai) 202 INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 4

3 Contents A-3 u Tewari Charitable Trust v. DIT (Mum.) 129 u Toll (India) Logistics (P.) Ltd. v. Dy. CIT (Chennai) 241 u Tourist Resorts Kerala Ltd. v. Asstt. CIT (Cochin) 288 u Trinity Charitable Trust v. ITO (Cochin) 247 u Video Effects v. ITO (Mum.) 134 SUBJECT INDEX APPELLATE TRIBUNAL n Power of - Condonation of delay - Delay in filing appeal of 1210 days not acceptable when it was found that assessee was acting on professional advice of Chartered Accountant - Pioneer E Bizz. (P.) Ltd. v. Dy./Asstt. CIT (Hyd.) Ex parte order - Where assessee had failed to show that there was a reasonable cause for non-appearance on date of hearing of appeal, applications filed by assessee for setting aside ex parte order and restoring appeal were to be dismissed - Tourist Resorts Kerala Ltd. v. Asstt. CIT (Cochin) 288 BUSINESS DISALLOWANCE n Interest, etc., paid to a resident without deduction of tax at source - When to deposit tax - Where assessee claimed deduction of certain payment made to contractors or sub-contractors, no disallowance could be made under section 40(a)(ia) if TDS on said expenditure was deposited by assessee before due date of filing of return of income under section 139(1) - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) 234 BUSINESS EXPENDITURE n Allowability of - Foreign Exchange Fluctuation Loss - Loss suffered by assessee on account of fluctuation in rates of foreign exchange is an expenditure under section 37(1) - Toll (India) Logistics (P.) Ltd. v. Dy. CIT (Chennai) Contributions to Govt. - Where a statue of a great saint of Tamil legacy was constructed by Government of Tamil Nadu and thereafter it directed assessee, a Government undertaking, to take care of maintenance of said statue, expenditure incurred by assessee on maintenance of statue was revenue expenditure in nature - Dy. CIT v. Tamil Nadu Tourism Development Corpn. Ltd. (Chennai) 270 n Year in which deductible - Salary - Liability to pay in respect of salary settlement crystallizes in year of approval - Jaisalmer Central Co-operative Bank Ltd. v. Jt. CIT (Jodh.) 245 BUSINESS INCOME n Chargeable as - Share dealings - Where assessee was an investor for past several years and during previous year he sold certain shares and claimed gain arising on sale of shares as short-term capital gain, since assessee was maintaining same set of books of account for both its business transactions and purported investment activity out of same common pool of funds, share transactions represented only business transactions - Anand M. Fatehpuria HUF v. Asstt. CIT (Mum.) 145 INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 5

4 A-4 Contents - Governments grants - Where assessee, a Government undertaking, received grants from Governments of India and Tamil Nadu to erect rope way facilities and later on proposed projects were dropped and grant given by Government of India was directed to be kept in trust and grant given by Government of Tamil Nadu was converted into equity capital, grants given by Governments could not be treated as revenue receipts in hands of assessee - Dy. CIT v. Tamil Nadu Tourism Development Corpn. Ltd. (Chennai) Lease rentals and franchisee fees - Where assessee was engaged in business of developing tourism activities at tourism destinations and it had let out some of guest houses, motels and hotels owned by it to others on basis of lease agreements to run tourism activities, lease rental received by assessee was in nature of business income - Dy. CIT v. Tamil Nadu Tourism Development Corpn. Ltd. (Chennai) 270 CAPITAL GAINS n Chargeable as - Firm/Partner, in case of - Amount received by a partner on dissolution of firm or on his retirement is an amount paid towards his share capital; no element of transfer of interest in partnership asset by retiring partner to continuing partner can be said to be involved - Asstt. CIT v. N. Prasad, Executive Chairman (Hyd.) 257 n Exemption of, in case of investment in residential house - Capital gains account scheme - Due date mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4) - ITO v. Smt. Rosamma Korah (Cochin) Residential house - Where building has been constructed for residential use with all amenities like kitchen, bathroom etc., which are necessary for residential accommodation, in such a case, even if it is used as a school or for any other commercial purpose, it cannot lose its character as a residential building so as to claim deduction under section 54F - N. Revathi v. ITO (Hyd.) 285 n Full value of consideration in certain cases, special provision for - Assessee s objections - Where assessee had clearly objected before Assessing Officer against adoption of stamp duty valuation, it was duty of Assessing Officer to refer valuation of property to Valuation Cell of Income-tax Department - Mansukhlal Ghelabhai Doshi v. Asstt. CIT (Raj.) 220 n Transfer of land used for agricultural purposes - Owner - Under Income-tax Act, when possession of property is handed over to purchaser towards part performance of sale agreement, there is a transfer - Asstt. CIT v. T.G. Chandrakumar (Cochin) 259 CHARITABLE AND RELIGIOUS TRUST n Denial of Exemption - Sub-section (1)(d)/(2)(c) - Where firm of managing trust won construction bids on competitive basis and sum was advanced to said firm, neither section 13(2)(c), nor section 13(1)(d) was violated - Dy. DIT v. Sri Vekkaliamman Educational & Charitable Trust (Chennai) 153 CHARITABLE OR RELIGIOUS TRUST n Registration of - Founder trustee committed heinous crimes - Where assessee, a public religious trust, made applications seeking registration under sections 12A and 80G, registration could not be declined merely because once upon a time assessee s founder trustee had been accused of INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 6

5 Contents A-5 heinous crimes and he was awarded life imprisonment - Sri Premananda Trust v. Asstt. CIT (Chennai) 202 CHARITABLE TRUST n Exemption of income from property held under - Application of income - In order to obtain approval under section 80G(5), donation made by a charitable trust to other charitable trusts/institutions amounts to application of income within meaning of section 11(1)(a) - Tewari Charitable Trust v. DIT (Mum.) 129 CIRCULARS & NOTIFICATIONS - Circular No. 72, dated Circular No. 469, dated CBDT Circular Nos. 23 of 1969, 163 of 1975, dated and 786 of 2000, dated DEDUCTION OF TAX AT SOURCE n Commission or brokerage - Monetary limit - Authorities below should examine each and every item of payment by way of commission or brokerage and where payments are made to same person and aggregate of payments is not exceeding limit of Rs. 2,500 during relevant financial year, then provisions of section 194H would clearly not apply - Pioneer E Bizz. (P.) Ltd. v. Dy./Asstt. CIT (Hyd.) In case of Cellular company - Discount offered by cellular company to distributors on payments for recharge coupons which were eventually sold to subscribers at listed price, is commission and, thus, liable to TDS - Cellular Mobile Telecom Services v. ITO (Chennai) 278 n Contractors/Sub-Contractors, payments to - Form 15-I - Filing of Form 15-I to obtain benefit of section 194C being mandatory, since no effort was made by assessee to obtain duplicate Form 15-I on account of loss of original, disallowance under section 40(a)(ia) be made - Toll (India) Logistics (P.) Ltd. v. Dy. CIT (Chennai) 241 n Credit for tax deducted - Conditions precedent - Where assessee claimed credit for tax deducted at source, Assessing Officer was wrong in not allowing credit for TDS on ground that income in respect of TDS was not shown by assessee - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) 234 n Interest other than interest on securities - Interest not claimed as deduction - Assessee is liable to deduct tax at source on interest payments, even if it has not claimed same as deduction while computing its total income - Agreenco Fibre Foam (P.) Ltd. v. ITO (Cochin) 262 DEDUCTIONS n Donation to certain funds, charitable institutions - Approval under sub-section (5) - Church spending no money for charitable activity while spending more than 5 per cent of income for religious purpose, would not be entitled for approval under section 80G(5)(vi) - Nilackal St. Thomas Church & Ecumenical Centre Trust v. CIT (Cochin) 255 n Income of co-operative societies - Labour society - Where assessee, a co-operative society, was engaged in tapping of toddy from coconut trees and sale of toddy and all its member-employees were toddy tapping INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 7

6 A-6 Contents workers, since main objective of assessee was to run retail toddy shops and it had generated income only through sale of toddy, it could not be considered a co-operative society engaged in collective disposal of labour of its members as contemplated under section 80P(2)(a)(vi) - ITO v. Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (Cochin) 280 n Profits and gains from industrial undertakings other than infrastructure development undertakings - Audit report - Even if revised audit report for purpose of claiming deduction under section 80-IB is filed after date of passing of assessment order, same should be taken into cognizance for examining allowability of deduction - Oswin Plastics (P.) Ltd v. Dy. CIT (Mum.) Computation of deduction - Where assessee, a hundred per cent export oriented undertaking, claimed deduction under section 80-IB in respect of entire business profits including duty drawback receipt, duty drawback receipt was includible in computation of deduction under section 80-IB, only if it had first degree nexus with profits of assessee s industrial undertaking - Arvind Footwear (P.) Ltd. v. Dy. CIT (Luck.) Res judicata - Deduction under section 80-IB being allowed in preceding year, contrary view could not be taken in current year on same facts - Dy. CIT v. Kishori Lal Agarwal (Luck.) 291 n Profits and gains from infrastructure undertakings - Computation of - In view of substitution of section 80-IA w.e.f , where a newly established undertaking started earning profit after few years, assessee could claim deduction under section 80-IA by treating such subsequent year as initial assessment year; brought forward losses of previous years could not be reduced from eligible profits - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) Computation of - Where assessee owned more than one unit while computing deduction under section 80-IA, losses suffered by loss making units could not be allocated against eligible income of profit making units - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) Computation of - Where borrowed funds were not utilised for making FDRs, while computing eligible profit under section 80-IA, Assessing Officer was justified in allocating gross interest expenditure in place of net interest expenditure computed after deducting interest income from gross interest expenditure - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) 234 DEEMED DIVIDEND - Loan or advances - Where main object of lender companies was not money lending and they only invested surplus fund for time being, loan given by them to assessee-shareholder, being not in ordinary course of business, would not be deemed dividend - Dy. CIT v. Kishori Lal Agarwal (Luck.) 291 DEPRECIATION n Allowance/Rate of - Goodwill - Where assessee claimed depreciation contending that retiring partners were paid their share of goodwill at time of retirement, in view of fact that no tangible or intangible asset was acquired on retirement of partners as nothing was paid in excess of amount due to partners in their capital account, assessee s claim was to be rejected - Video Effects v. ITO (Mum.) Goodwill - Where assessee having acquired magazine business as on-going concern, claimed depreciation in respect of amount paid for acquiring intangible assets like trademark and copyright, in view of fact that depreciation was allowable on goodwill like INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 8

7 Contents A-7 any other intangible asset, Assessing Officer was not justified in apportioning certain amount towards acquisition of goodwill and denying depreciation on said amount - Dy. CIT v. Worldwide Media (P.) Ltd. (Mum.) Leasehold premises - Where property taken on lease was not used for business purpose and it was returned to lessor, assessee s claim of depreciation for renovation expenses incurred in respect of said property was to be rejected - Metro Exporters (P.) Ltd. v. Asstt. CIT (Mum.) User of assets - Depreciation be allowed where in light of fire incident which had gutted branch offices of assessee, assessee had not been able to produce documents in support of purchase of assets but assessee had been able to show from records that expenditure was incurred for fixing of assets - Toll (India) Logistics (P.) Ltd. v. Dy. CIT (Chennai) 241 EMPLOYEE S CONTRIBUTIONS - Conditions precedent - Where assessee claimed deduction in respect of certain amount received from employees as contribution to provident fund, assessee was entitled to deduction if said amount had been paid by it to PF authorities before due date of filing of return of income under section 139(1) - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) 234 EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - Mutual fund - When there was no material on record showing that interest paid by assessee was attributable to funds borrowed for investment in material funds which yielded exempt income, impugned disallowance made in terms of clause (ii) of sub-rule (2) of rule 8D deserved to be deleted - Desai & Gaikwad v. CIT (Pune) Rule 8D - In case of composite accounts, estimation of expenditure incurred to earn exempt income was to be made as per of Rule 8D - Metro Exporters (P.) Ltd. v. Asstt. CIT (Mum.) 212 FIRM n Assessed as such - Revision by Commissioner - Where original partnership deed and amended deed were before Assessing Officer and he without going into amended deed accepted claim of assessee that it was a partnership firm and also allowed salaries paid to partners, assessment order was an erroneous one - Deloitte Haskins & Sells v. Dy. CIT (Chennai) 275 GRATUITY FUND, CONTRIBUTIONS TOWARDS AN APPROVED - Provision for contribution towards approved gratuity fund of LIC is allowable deduction - Jaisalmer Central Co-operative Bank Ltd. v. Jt. CIT (Jodh.) 245 INCOME n Deemed to accrue or arise in India - Fees for technical services - Where commission payments were made to foreign agents for securing sales orders payments will not fall in category of Fee for Technical Services requiring withholding of tax - Khimji Visram & Sons v. Addl. CIT (Mum.) Fee for technical services - Payment made by assessee to foreign company for navigation studies at Indian port to determine pre-existing conditions could not be ascribed as fee for technical services as per article 13 of Indo-UK DTAA - ITO v. Adani Port Infrastructure (P.) Ltd. (Ahd.) Royalties and fees for technical services - Where assessee-company made carrier payments to a non-resident company in order to transmit bulk SMS data, since nature of services rendered by foreign company required no technical knowledge, payments in question could not be regarded as fee for technical services and, thus, assessee was not required to deduct tax at source while making said payments - Dy. CIT v. Velti India (P.) Ltd. (Chennai) 244 INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 9

8 A-8 Contents - Royalties and fees for technical services - Where in order to determine taxability of payment made to a UK based company for supplying aircraft components to an Indian company, Tribunal remanded matter back to examine provisions of article 13 of India-UK DTAA, in view of fact that article 13(3)(a) would not apply to assessee s case, Commissioner (Appeals) was justified in examining matter from angle of article 13(3)(b) of DTAA only and holding that payment in question was not taxable in India as royalty - Dy. DIT v. Airline Rotables Ltd. (Mum.) 252 INCOME FROM HOUSE PROPERTY n Annual Letting Value - Composite rent - ALV does not include value of other amenities like watchman, sweeper, gardener, etc. which are provided by owner as per separate agreements with tenants - Dy. CIT v. Sir Sobha Singh & Sons (P.) Ltd. (Delhi) 157 INCOME FROM OTHER SOURCES n Chargeable as - Compensatory interest - On builder s failure to deliver flat by a specified date, compensatory interest received by assessee on refund of deposit amount was assessable as interest income under section 56 - Kumarpal Mohanlal Jain v. ITO (Mum.) 292 INCOME-TAX ACT, Section 2(22) Section 9 177, 231, 244, Section Section 12A Section Section 14A 184, Section Section 28(i) 145, Section , 162, 213, Section 36(1)(iii) Section 36(1)(v) Section 36(1)(va) Section 37(1) 242, 245, Section 40(a)(ia) Section 43(6) Section Section 50C Section 54B Section 54F 197, Section Section Section Section 80G 255 INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 10

9 Contents A-9 - Section 80-IA Section 80-IB 226, 265, Section 80P Section 92C Section Section 194A Section 194C Section 194H 228, Section Section , Section Section 271(1)(c) 236 INTEREST ON BORROWED CAPITAL - Interest Free loans to subsidiary - No disallowance under section 36(1)(iii) was called for as assessee had advanced interest free loan to its subsidiary company as a measure of commercial expediency and funds were used by subsidiary for purpose of business only - Toll (India) Logistics (P.) Ltd. v. Dy. CIT (Chennai) 241 LOSSES n Set off of from one head against income from another - Illustration - Set off of business loss against addition under section 68 to be allowed - K.R. Automobiles v. Asstt. CIT (Ahd.) 240 LOSSES UNDER HEAD CAPITAL GAINS n Set off of - Applicability of - Where assessee s claim for set off of long-term capital loss was not accepted in earlier assessment year, there was no question of same being carried forward for set off subsequent year/s - Metro Exporters (P.) Ltd. v. Asstt. CIT (Mum.) 212 PENALTY n For concealment of income - Deletion of disallowance in appeal - Where assessee claimed deduction under section 80- IA and Assessing Officer while computing deduction made disallowance out of claim of deduction and also levied penalty under section 271(1)(c) upon assessee, since Tribunal had deleted impugned disallowance made by Assessing Officer, penalty levied upon assessee was liable to be deleted - Sadbhav Engineering Ltd. v. Dy. CIT (Ahd.) 234 REVISION n Of orders prejudicial to interest of revenue - Order under section Where two views were possible and Assessing Officer had taken one view with which Commissioner did not agree, it could not be treated as an order prejudicial to interests of revenue; therefore recourse could not be taken to section 263(1) - Trinity Charitable Trust v. ITO (Cochin) 247 TRANSFER PRICING n Computation of arm s length price - Comparables and adjustments - Where TPO included domestic transaction while computing TP adjustment and one of comparables was found to be functionally dissimilar from INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 11

10 A-10 Contents assessee, TP adjustment to that extent be deleted - Dy. CIT v. Messe Dusseldorf India (P.) Ltd. (Delhi) 296 WORDS AND PHRASES - Labour occurring in section 80P(2)(c)(vi) of the Income-tax Act, Prejudicial to interests of the revenue occurring in section 263 of the Income-tax Act, WRITTEN DOWN VALUE - Sale and purchase of assets in same block of assets - Where assessee owned three proprietary concerns and during year he sold factory building of a concern and out of sale consideration he purchased another office premises, which fell into same block of assets, in name of another proprietary concern and further he sought adjustment of said block of assets, Assessing Officer was directed to apply ratio of decision of Delhi High Court in case of CIT v. Ansal Properties & Infrastructure Ltd. [2012] 207 Taxman 61/20 taxmann.com 770 and compute WDV of block of assets under section 43(6)(c) accordingly - Deepak N. Phalke v. ITO (Mum.) 249 INCOME-TAX TRIBUNAL DECISIONS n ISSUE 2 q APRIL 23 - MAY 7, 2015 v 12