THE CHAMBER OF TAX CONSULTANTS. STUDY GROUP MEETING ON 22/04/2013 SPEAKER : KESHAV B. BHUJLE, Advocate

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1 THE CHAMBER OF TAX CONSULTANTS STUDY GROUP MEETING ON 22/04/2013 SPEAKER : KESHAV B. BHUJLE, Advocate 1. AAR: 1.1 AAR: S. 245R of I. T. Act, 1961: Application for ruling: No requirement of recording reasons at stage of admission: Commissioner or his representative need not be heard at that stage: Hearing Commissioner or his representative before pronouncing advance ruling only if Authority considers necessary: DIT Vs. AAR; 352 ITR 185 (AP): 2. APPEAL: 2.1 Appeal: CIT(A) and ITAT have power to consider claim not made in return: Judgments in National Thermal Power Co. Ltd. Vs. CIT; 229 ITR 383(SC) and Goetze (India) Ltd Vs. CIT 284 ITR 323 (SC) considered: CIT Vs. Pruthvi Brokers and Shareholders P. Ltd.; 349 ITR 336 (Bom): 3. Business expenditure: 3.1 Business expenditure: Fines and penalties: S. 37(1) of I. T. Act, 1961: A. Y : Dishonor of export commitment in view of losses: Encashment of bank guarantee by Export Promotion Council: Payment recorded as penalty in assessee s books and 1

2 claimed as deduction: Compensatory in nature: Deduction allowable: CIT Vs. Regalia Apparels Pvt. Ltd.; 352 ITR 71 (Bom): 3.2 Business expenditure: S. 37(1) of I. T. Act, 1961: A. Y : Assessee exported tea to Iraq under a program called Oil for food program framed by United Nations to meet humanitarian crises of food in war ravaged Iraq: Assessee made certain payments to an Iraqi company viz., Alia, as commission for receiving services in the nature of inland transportation and after sales services : AO disallowed the claim for deduction on the ground that payment so made were illegal in nature being kickbacks received by Iraqi authorities: Tribunal allowed the claim: Dy. CIT Vs. Rajrani Exports (P) Ltd.; (2012) 22 taxman.com 13 (Kol)(Tri): 4. CAPITAL GAINS: 4.1 Capital gains: Exemption u/s. 54F of I. T. Act, 1961: A. Y : Exemption in case of investment in residential house: For claiming deduction u/s. 54F, new residential house need not be purchased by assessee exclusively in his own name: Pur chase of new house in name of wife: Exemption could not be denied: CIT Vs. Kamal Wahal; 30 Taxman.com 34 (Del): 4.2 Capital gains: Exemption u/s. 54/54F of I. T. Act, 1961: A. Y : A residential house includes a building with a basement, ground floor, first floor and second floor constituting two residential units: Exemption allowable: 2

3 CIT Vs. Gita Duggal; 257 CTR 208 (Del): 214 Taxman 51 (Del): 30 Taxman.com 320 (Del): 4.3 Capital gain: Exemption u/ss. 54 and 54EC of I. T. Act, 1961: A. Y : Long term capital gain: investment in residential property and bonds: Inclusion of husband s name as joint owner: Assessee entitled to exemption of entire investment: DI(Int Tax) Vs Mrs. Jennifer Bhide; 349 ITR 80 (Kar): 5. DEPRECIATION: 5.1 Depreciation(Unabsorbed): Carry forward and set off: A. Y : Effect of amendment of s.32(2) of I. T. Act, 1961 w.e.f. 01/04/2002: Unabsorbed depreciation from A. Y to got carried forward to A. Y and became part thereof: It is available for carry forward and set off against the profits and gains of subsequent years, without any limit: General Motors India (P) Ltd. Vs. Dy. CIT; 257 CTR 123 (Guj): 7. DOUBLE TAXATION RELIEF: 7.1 Double taxation relief: S. 91(1) of I. T. Act, 1961: A. Y : Income earned in foreign country: Relief of taxes paid abroad: Relief not dependent upon payment of taxes being made in foreign country in previous year: CIT Vs. Petroleum India International; 351 ITR 295 (Bom): 8. EXEMPTION: 3

4 8.1 Exemption: Interest on tax free bonds: S. 10(15) of I. T. Act, 1961: A. Y : Interest for period between application for allotment and actual allotment: Entitled to exemption: CIT Vs. Bharat Heavy Electricals Ltd.; 352 ITR 88 (Del): 8.2 Educational Institution: Exemption u/s. 10(22) of I. T. Act, 1961: A. Y : Denial of exemption disputing genuineness of transaction: Contributor to assessee denying the transaction: Assessee should be given opportunity to cross -examine the disputant: Sri Krishna Educational and Social Trust Vs. ITO; 351 ITR 178 (Mad): 8.3 Educational Institution: Exemption u/s. 10(23C)(vi) of I. T. Act, 1961: A. Y : Institution should exist wholly for education: Government grant, incidental surplus, upgrading facilities of college including for purchase of library books and improvement of infrastructure: Not a ground for denial of exemption: Tolani Education Society Vs. DDIT(Exemption); 351 ITR 184 (Bom): 8.4 Educational Institution: Exemption u/s. 10(23C)(vi) of I. T. Act, 1961: A. Y : Violation of the prescribed rules and regulations in the matter of admission of students does not 4

5 deprive an educational institution of its character as an entity existing solely for the purpose of education and therefore, approval for exemption u/s. 10(23C)(vi) cannot be denied: CCIT Vs. Geetanjali University Trust; 257 CTR 239 (Raj): 9. INCOME: 9.1 Capital or revenue receipt: Capital gains: Forfeiture of earnest money: S. 51 r/w. s. 4 of I. T. Act, 1961: A. Y : Earnest money forfeited on cancellation of sale agreement is capital receipt: Not taxable as income: CIT Vs. Meera Goyal; 30 Taxman.com 128 (Del): 9.2 Capital or revenue receipt: Test: A. Y : assessee receiving amount in terms of release agreement: Compensation for loss of source of income: Capital receipt: Not taxable: Khanna and Annadhanam Vs. CIT; 351 ITR 110 (Del): 9.3 Capital or revenue receipt: Entertainment subsidy: Object of subsidy to promote cinema houses by constructing Multiplex Theatres: Subsidy is capital receipt: CIT Vs. Chaphalkar Bros.; 351 ITR 309 (Bom): 9.4 Capital or revenue receipt: A. Y : Business of Multiplexes and Theatres: Exemption from entertainment tax 5

6 under scheme of incentive for tourism project 1995 to 2000 for giving boost to tourism sector: Scheme offering incentive for recouping or covering capital investment: Is capital receipt: Dy. CIT Vs. Inox Leisure Ltd.; 351 ITR 314 (Guj): 10 INTEREST: 10.1 Interest u/s. 234A of I. T. Act, 1961: A. Y : Tax paid before due date but return filed late: Interest u/s. 234A not leviable: Bharatbhai B. Shah Vs ITO; 255 CTR 278 (Guj): 11. PENALTY: 11.1 Penalty: S. 271(1)(c) of I. T. Act, 1961: Short term capital gains assessed as business income: Penalty u/s. 271(1)(c) not justified: CIT Vs. Amit Jain; 351 ITR 74 (Del): 11.2 Penalty: Ss. 269SS and 271D of I. T. Act, 1961: Amount received by assessee from her father-in-law for purchasing property: Transaction genuine and source disclosed: Penalty u/s. 271D not to be imposed: CIT Vs. Smt. M. Yeshodha: 351 ITR 265 (Mad): 11.3 Penalty: Limitation: Ss. 271D and 275(1)(c) of I. T. Act, 1961: A. Y : On 27/03/2003 AO served show cause notice for penalty u/s. 271D: Matter referred to Jt. CIT on 6

7 22/03/2004:Jt. CIT passed order of penalty u/s. 271D on 28/05/2004: The order is barred by limitation u/s. 275(1)(c): CIT Vs. Jitendra Singh Rathore; 257 CTR 18 (Raj): 12. REASSESSMENT: 12.1 Reassessment: Ss. 143(1), 143(3), 147 and 148 of I. T. Act, 1961: A. Y : No distinction to be made while interpreting the words reason to believe vis -à-vis section 143(1) and 143(3): In the absence of fresh material assessment cannot be reopened: Change of opinion is not a valid basis for reopening assessment: CIT Vs. Oriented Craft Ltd.; 29 taxman.com 392 (Del): 12.2 Reassessment: Ss. 115AD, 147 and 148 of I. T. Act, 1961: A. Y : Validity to be determined with reference to reasons recorded for belief: Assessment u/s. 143(1) determining Nil income: Notice u/s. 148 on the ground that section 115AD may be applicable: Not valid: Indivest Pte Ltd. Vs. Addl. DIT; 350 ITR 120 (Bom): 12.3 Reassessment: Ss. 147 and 148 of I. T. Act, 1961: A. Y : Where AO has acted only under compulsion of audit party and not independently, action of reopening assessment is not valid: Vijay Rameshbhai Gupta Vs. ACIT; 32 Taxman.com 41 (Guj): 13. TAX RECOVERY AND STAY: 7

8 13.1 Recovery: Stay of demand pending appeal: S. 220(6) of I. T. Act, 1961: A. Y : Stay can be granted on the basis of the merits even if there is no financial hardship: UTI Mutual Fund Vs. ITO (Bom); WP(L) No. 523 of 2013 dated 06/03/2013: 13.2 Provisional attachment u/s. 281B of I. T. Act, 1961: A. Y : Provisional attachment remains in operation only till the passing of the assessment order: Motorola Solutions India (P) Ltd. Vs. CIT; 254 CTR 569 (P&H): 14. SETTLEMENT COMMISSION: 14.1 Settlement of cases: Chapter XIXA of I. T. Act, 1961: A. Ys to : Order passed by Settlement Commission is final: No Income Tax Authority can initiate proceedings in respect of period and income covered by such order: Settlement Commission cannot delegate its power: CIT Vs. Smt. Diksha Singh; 350 ITR 157 (All): 15. TDS and S. 40(a)(ia): 15.1 TDS: Failure to deduct: Consequences: S. 201(1) and (1A) of I. T. Act, 1961: Failure to deduct tax at source by deductor: Tax paid by deductee: Deductor not assessee in default: Interest u/s. 201 cannot be levied after payment of tax: i) CIT Vs. Adidas India Marketing P. Ltd.; 2 88 ITR 379 (Del); 8

9 ii) Hindustan Coca Cola Beverages P. Ltd. Vs. CIT 293 ITR 226 (SC); iii) Circular No. 275/201/95-IT(B) dated 29/01/1997; 15.2 TDS: Failure to deduct: Consequences: S. 201(1) and (1A) of I. T. Act, 1961: Failure to deduct tax at source by deductor: Deductee has no tax liability due to loss: Deductor not assessee in default: Interest u/s. 201(1A) cannot be levied: i) ITO Vs. Owen D souza (2001) 116 Taxman 128 (Mum)(Mag); ii) Thomas Muthoot Dy. CIT; (2012) 28 taxman.com 25 (Coch); 15.3 TDS: Failure to deduct: Consequences: S. 201(1) and (1A) of I. T. Act, 1961: Provisions u/s. 201 can be invoked only when loss to revenue is established: Once assessee furnishes lawfully maintained information about recepients, AO should first ascertain related facts about payment of taxes directly from recipients before invoking s. 201: i) Jagran Prakashan Ltd. Vs. Dy. CIT (TDS); 345 ITR 288 (All); ii) Ramakrishna Vedanta Math Vs. ITO; (2013) 55 SOT 417 (Kol): (2012) 24 taxman.com 29 (Kol): 15.4 TDS: Failure to deduct: Consequences: S. 201( 1) and (1A) of I. T. Act, 1961: The payee, the Airport Authority of India being a Government undertaking, taxes may be presumed to have been paid lastly by the due date of filing of the return of income: Payer assessee not in default u/s. 201(1): Interest u/s. 201(1A) payable till due date of filing of return by payee: CIT Vs. Trans Bharat Aviation (P) Ltd.; 320 ITR 671 (Del): 15.5 Amendment to s. 40(a)(ia) by Finance Act, 2010 is retrospective: Piyush C. Mehta Vs. ACIT; (2012) 52 SOT 27 (Mum); Followed Calcutta High Court judgment. 9

10 15.6 Appellant bonafide believed that there is no obligation to deduct tax at source: No revenue loss: Disallowance u/s. 40(a)(ia) not justified: CIT Vs. Kotak SecuritiesLtd; 340 ITR 333 (Bom); 15.7 Amendment to s. 40(a)(ia) by Finance Act, 2012: 15.8 Article 265 of Constitution of India: No tax shall be levied or collected except by authority of law. 10