CASE LAWS FOR MAY 2018 Compiled by Ashik Babu · 2020-05-30 · CASE LAWS FOR MAY 2018 Compiled by Ashik Babu BASIC CONCEPTS 1) Saurashtra Cement Ltd. (2010) (SC) Facts / Matter What

CASE LAWS FOR MAY 2018

Compiled by Ashik Babu

BASIC CONCEPTS

1) Saurashtra Cement Ltd. (2010) (SC)

Facts / Matter What is the nature of liquidated damages received by a company from the

supplier of plant for failure to supply machinery to the company within the

stipulated time – a capital receipt or a revenue receipt?

Court observation >> The damages were directly and intimately linked with the procurement of a

capital asset i.e., the cement plant, which lead to delay in coming into existence of

the profit-making apparatus.

>> It was not a receipt in the course of profit earning process.

Final Conclusion Therefore, the amount received by the assessee towards compensation for

sterilization of the profit earning source, is not in the ordinary course of business,

hence it is of the assessee.

2) M. Venkateswara Rao (2015) (T & AP)

Facts / Matter Can capital contribution of the individual partners credited to their accounts

in the books of the firm be taxed as cash credit in the hands of the firm, where

the partners have admitted their capital contribution but failed to explain

satisfactorily the source of receipt in their individual hands?

Court observation >> Sec. 68 directs that if an assessee fails to explain the nature and source of credit

entered in the books of account of any previous year, the same can be

treated as income.

>>Where the firm explains that the partners have contributed capital, section 68

cannot be pressed into service. At the most, the AO can make an enquiry against

the partners and not the firm when the partners have also admitted their capital

contribution in the firm.

Final Conclusion Capital Contribution of partners CANNOT be taxed in hands of firm, though they

may be assessed in the hands of individual partners.

RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME

1) Alcatel Lucent Canada (2015) (Del)

Facts / Matter Can consideration for supply of software embedded in hardware tantamount

to ‘royalty’ under section 9(1)(vi), where the software was no independent

functional existence?

Court observation >> the software that was loaded on the hardware did not have any independent

existence;

>> the software supply is an integral part of GSM mobile telephone system and is

used by the cellular operators for providing cellular services to its customers;

>> there could not be any independent use of such software;

>> this software merely facilitates the functioning of the equipment and is an

integral part of the hardware.



Final Conclusion where payment is made for hardware in which the software is embedded and the

software does not have independent functional existence, no amount could be

attributed as 'royalty' for software in terms of section 9(1)(vi).

INCOME WHICH DO NOT FORM PART OF TOTAL INCOME

1) Kribhco (2012) (Delhi)

Facts / Matter Whether section 14A is applicable in respect of deductions, which are

permissible and allowed under Chapter VI-A?

Court observation Section 14A is applicable only if an income is EXEMPT as per Chapter III of the

IT ACT 1961.

Deductions under chapter VI-A are different from the exemptions.

As per section 14A, no deduction shall be allowed in respect of

expenditure incurred by the assessee in relation to such income which

does not form part of the total income (Exempt Income).

Final Conclusion No disallowance can be made under section 14A in respect of income included in

total income in respect of which deductions allowable u/s 80C to 80U.

INCOME FROM SALARIES

1) Shankar Krishnan (2012) (Bom.)

Facts / Matter Rent free accommodation provided by Employer to Assessee.

The accommodation was taken on rent by the employer. For obtaining the

accommodation, employer made a payment of security deposit of Rs 30 lacs.

AO held that notional interest on the security deposit © 12% shall be added

and treated as a perquisite.

Court observation Assessing Officer is not right in adding the notional interest on the security deposit

given by the employer to the landlord in valuing the perquisite of rent-free

accommodation, since the perquisite value has to be computed as per Rule 3 and

Rule 3 does not require addition of such notional interest.

Final Conclusion Notional interest shall not be added.

2) Director, Delhi Public School (2011) (Punj. & Har.)

Facts / Matter Can the limit of ̀ 1,000 per month per child be allowed as standard deduction,

while computing the perquisite value of free or concessional education facility

provided to the employee by the employer?

Court observation As per Rule 3(5), in case the value of perquisite for free/concessional educational

facility arising to an employee exceeds - 1,000 per month per child, the whole

perquisite shall be taxable in the hands of the employee and no standard deduction

of Rs 1,000 per month per child can be provided from the same. It is only in case

the perquisite value is less than - 1,000 per month per child, the perquisite value

shall be nil.

Final Conclusion Notional interest shall not be added.



INCOME FROM HOUSE PROPERTY

1) Chennai Properties and Investments Ltd. (2015) (SC)

Facts / Matter Would income from letting out of properties by a company, whose main

object as per its memorandum of association is to acquire and let out

properties, be taxable as its business income or income from house property,

considering the fact that the entire income of the company as per its return

of income was only from letting out of properties?

Court observation The main objective of the company as per its MOA is to acquire and hold properties

in Chennai and let out these properties. Therefore, holding of the properties and

earning income by letting out these properties is the main objective of the

company. Further, in the return of income filed by the company and accepted by

AO, the entire income of the company comprised of income from letting out of

such properties & Nature of activity of assessee is Business activity.

Final Conclusion Assessee had rightly disclosed the income derived from letting out of such

properties under the head "PGBP"

2) Rayala Corporation (P) Ltd. (2016) (SC)

Facts / Matter Would rental income from the business of leasing out properties be taxable

under the head "IFHP" or "PGBP"? The assessee company was in the business

of renting its properties and received rent which it claims as its business income

chargeable under the head "PGBP". The Assessing Officer, however, brought to

tax the rental income under the head "IFHP"

Court observation Assessee is engaged in the business of letting out house property on rent, then, the

income from such property, even though in the nature of rent, should be treated as

business income. The Court held that the judgment in Chennai Properties &

Investment Ltd.'s case would squarely apply in this case also, since the company

is engaged in the business of letting out properties and earning rental income

therefrom.

.Final Conclusion Taxable as PGBP only.

3) New Delhi Hotels Ltd. (2014) (Delhi]

Facts / Matter Whether the rental income derived from the unsold flats which are shown as

stock-in-trade in the books of the assessee would be taxable under the head

'PGBP' or under the head 'IFHP' ?

Court observation Sec 22 Condition are satisfied

►► there is House property

►► Assessee is the owner

Assessee’s main business is sold the flats and not let-out.

Final Conclusion Rental income was taxable under House Property head even though the property

was a stock-in-trade



4) NDR Warehousing P Ltd (2015) (Mad)

Facts / Matter Under what head of income should income from letting out of godowns and

provision of warehousing services be subject to tax -"IFHP" or "PGBP"?

Court observation Assessee's activity was not merely letting out of warehouses but storage of goods

with provision of several auxiliary services such as pest control, rodent control

and fumigation service to prevent the goods stored from being affected by vagaries

of moisture and temperature. Further, service of security and protection was also

provided to the goods stored. These activities are more than mere letting out of the

godown for tenancy.

Final Conclusion It was a case of warehousing business, and, therefore, the income would fall under

the head "PGBP”.

5) Hariprasad Bhojnagarwala (2012) (Guj.)

Facts / Matter Can benefit of self-occupation of house property under section 23(2) be

denied to a HUF on the ground that it, being a fictional entity, cannot occupy

a house property?

Court observation The HUF is a group of individuals related to each other i.e., a family comprising

of a group of natural persons. The said family can reside in the house, which

belongs to the HUF. Since a HUF cannot consist of artificial persons, it cannot be

said to be a fictional entity.

Final Conclusion HUF is entitled to claim benefit of self-occupation of house property under section

23(2).

6) Asian Hotels Ltd. (2010) (Del.)

Facts / Matter Can notional interest on interest-free deposit received by landlord in respect

of a shop let out on rent be brought to tax as PGBP or IFHP?

Court observation Notional interest on deposits in not covered u/s 28 as well as u/s 23.

Final Conclusion Its not taxable under PGBP or HP



PROFITS & GAINS OF BUSINESS OR PROFESSION

JUDICIAL RULINGS RELEVANT SECTION

1) I.C.D.S. Ltd. (2013) (SC) Section 32

2) Smifs Securities Ltd. (2012) (SC) Section 32

3) K and Co. (2014) (Delhi) Section 28/56

4) Conf. of Indian Pharmaceutical Industry (55I) (2013) (H.P.) Section 37

5) Gujarat State Road Transport Corpn (2014) (Guj) Section 36/43B

6) Orient Ceramics and Industries Ltd. (2013) (Delhi) Section 37

7) BSES Yamuna Powers Ltd (2013) 358 ITR 47 (Delhi) Section 32

8) Areva T and D India Ltd. (2012) (Delhi) Section 32

9) Smt. A. Sivakami and Another (2010) (Mad.) Section 32

10) Federal Bank Ltd. (2011) (Kerala) Section 32

11) Echjay Forgings Ltd. (2010) (Bom.) Section 37

12) Kap Scan and Diagnostic Centre P. Ltd. (2012) (P&H) Section 37

13) ITC Hotels Ltd. (2011) (Kar.) Section 37

14) Shanti Bhushan (2011) (Delhi) Section 31/37

15) Priya Village Roadshows Ltd. (2011) (Delhi) Section 37

16) Neelavathi& Others (2010) (Karn.) Section 37

17) Hindustan Unilever Ltd. (2010) (Bom.) Section 37

18) Millennia Developers (P) Ltd. (2010) (Karn.) Section 37

19) Great City Manufacturing Co. (2013) (All) Section 40A(2)

20) Shasun Chemicals & Drugs Ltd (2016) (SC) Section 36/43B



1) I.C.D.S. Ltd. v. CIT (2013) (SC)

Facts / Matter Can depreciation on leased vehicles be denied to the lessor on the ground that

the vehicles are registered in the name of the lessee and that the lessor is not

the actual user of the vehicles?

Court observation sec 32 imposes a twin requirement of “ownership” and “usage for business” as

conditions for claim of depreciation. Sec 32 does not mandate actual usage by the

assesse itself. In this case, the assessee did use the vehicles in the course of its

leasing business.

As per the lease agreements-

The assessee is the exclusive owner of the vehicle at all points of time;

The assessee is empowered to repossess the vehicle, in case the lessee

committed a default;

At the end of the lease period, the lessee was obliged to return the vehicle

to the assesse;

The assessee had a right of inspection of the vehicle at all times.

It can be seen that the proof of ownership lies in the lease agreement

itself, which clearly points in favour of the assessee.

Final Conclusion The assesse (Lessor) was entitled to claim depreciation in respect of vehicles

leased out since it has satisfied both the requirements of sec 32.

2) Smifs Securities Ltd. (2012) (SC)

Facts / Matter Is the assessee entitled to depreciation on the value of goodwill

considering it as an asset u/s 32(1)?

Court observation SC observed that explanation 3 to section 32 (1) states that the

expression 'asset' shall mean an intangible asset, being know how,

patents, copyrights, trademarks, licenses, franchises or any other

business or commercial rights of similar nature. A reading of the

words 'any other business or commercial right of similar nature'

indicates that goodwill would fall under the said expression.

Final Conclusion It was held that 'Goodwill' is an asset u/s 32 (1) and depreciation

thereon is allowable

3) K and Co. (2014) (Delhi)

Facts / Matter Is interest income on margin money deposited with bank for obtaining bank

guarantee to carry on business, taxable as business income?

The assessee running a lottery, deposited certain funds with a bank

in order to obtain bank guarantee to be furnished to the State

Government of Sikkim. Such guarantee enabled the assessee to carry

on the business of printing lottery tickets and for conducting lotteries

on behalf of the State Government of Sikkim. The funds which were held as

margin money, earned some interest.

Court observation The High Court noted that the interest income from the deposits

made by the assessee is inextricably linked to the business of the

assessee. Therefore such income cannot be treated as income from

other sources. If the assessee had not furnished bank guarantee, it

would not have got the contract for running the said lottery

Final Conclusion HC held that interest income + taxable under the head 'PGBP'



4) Confederation of Indian Pharmaceutical Industry (55I) (2013) (H.P.)

Facts / Matter Is Circular No. 5/2012 dated 01.08.2012 disallowing the expenditure incurred

on freebies provided by pharmaceutical companies to medical practitioners,

in line with Explanation to section 37(1), which disallows expenditure which

is prohibited by law?

Court observation HC observed that Indian medical council regulations,2002 every

medical practitioner and his professional associate is prohibited from

accepting any gift, travel facility, hospitality, cash or monetary grant

from pharmaceutical and allied health sector industries.

This is salutary regulation in the interest of the patients and the

public.

Final Conclusion Its illegal expenditure, so disallowed.

5) Gujarat State Road Transport Corpn (2014) (Guj)

Facts / Matter Can employees contribution to Provident Fund and Employee’s State

Insurance be allowed as deduction where the assessee-employer had not

remitted the same on or before the “due date” under the relevant Act but

remitted the same on or before the due date for filing of return of income

under section 139(1)?

Court observation The HC noted that section 43B pertaining to employer's contribution

cannot be applied with respect to employees' contribution which is

governed by section 36(1)(va). So far as the employee's contribution is concerned,

the Explanation to section 36 (1) (va) continues to remain in the statute and there

is no provision for applying the extended time limit provided under section 43B

for remittance of employee's contribution.

Final Conclusion Delayed remittance of employees' cont. beyond the 'due date' prescribed in

sec 36 (1)(va), is not deductible, even though such remittance has been made

before the due date of filing of return of income u/s 139(1 )

Note: A contrary view was expressed by Uttrakhand High Court in the case of CIT v. Kichha Sugar Co. Ltd.

(2013) 356 ITR 351 holding that the employees' contribution to provident fund, deducted from the salaries

of the employees of the assessee, shall be allowed as deduction from the income of the employer-assessee,

if the same is deposited by the employer-assessee with the provident fund authority on or before the due date

of filing the return for the relevant previous year.

6) Orient Ceramics and Industries Ltd. (2013) (Delhi)

Facts / Matter What is the nature of expenditure incurred on glow-sign boards displayed at

dealer outlets - capital or revenue?

Court observation The expenditure incurred by the assesse on glow sign boards

does not bring into existence an asset or advantage for the enduring

benefit of the business. The glow sign board is not an asset of

permanent nature. It has a short life. The materials used in the glow

sign boards decay with the effect of weather. Therefore, it requires



frequent replacement. Consequently, the assessee has to incur

expenditure on glow sign boards regularly in almost each year.

Final Conclusion HC held that expenditure on glow sign boards displayed at dealer outlets was

revenue in nature.

7) BSES Yamuna Powers Ltd (2013) 358 ITR 47 (Delhi)

Facts / Matter What is the eligible rate of depreciation in respect of computer accessories

and peripherals under the Income-tax Act, 1961?

Court observation Computer accessories and peripherals such as printers, scanners and server etc.

form an integral part of the computer system and they cannot be used without the

computer

Final Conclusion Eligible for depreciation at the higher rate of 40% applicable to computers

including computer software

.

8) Areva T and D India Ltd. (2012) (Delhi)

Facts / Matter Can business contracts, business information, etc., acquired by the assessee

as part of the slump sale and described as 'goodwill', be classified as an

intangible asset to be entitled for depreciation under section 32(1)(ii)?

Court observation HC observed that in the absence of intangible assets (business contracts, business

information),the assesse would have had to commence business from scratch

and go through the gestation period whereas by acquiring the aforesaid business

rights along with tangible assets, the assesse has got a running business

Final Conclusion HC held that the specified intangible assets acquired under the slump sale are in

the nature of intangible asset under the category 'other business or commercial

rights of similar nature' accordingly eligible for depreciation u/s 32.

9) Smt. A. Sivakami and Another (2010) (Mad.)

Facts / Matter Would beneficial ownership of assets suffice for claim of depreciation on such

assets?

The assessee, running a proprietary concern, claimed depreciation on three buses,

even though she was not the registered owner of the same. However, in order to

establish that she was the beneficial owner, she furnished documents relating to

loans obtained for the purchase of buses, repayment of such loans out of

collections from the buses, road tax and insurance paid by her. She had also

obtained an undertaking from the persons who hold the legal title to the vehicles

as well as the permits, for plying buses in the name of her proprietary concern.

Further, in the income and expenditure account of the proprietary concern, the

entire collections and expenditure (by way of diesel, driver's salary, spares, R.T.O.

tax etc.) from the buses was shown. The buses in dispute were also shown as assets

in the balance sheet of the proprietary concern.

Court observation HC Observed that in the context of the income tax act 1961, to tax the income, the

owner is a person who is entitled to receive income from the property in his own

right.

Final Conclusion Beneficial owner entitled to claim depreciation even though she was not the legal

owner of the buses.



10) Federal Bank Ltd. (2011) (Kerala)

Facts / Matter Can EPABX and mobile phones be treated as computers to be entitled to

higher depreciation?

Court observation Rate of depreciation of 40% is available to computers and there is no ground to

treat the communication equipment as computers.

Final Conclusion EPABX and mobile phones are not computers, not entitled to depreciation at 40%

11) Echjay Forgings Ltd. (2010) (Bom.)

Facts / Matter Can expenditure incurred by a company on higher studies of the director’s

son abroad be claimed as business expenditure under section 37 on the

contention that he was appointed as a trainee in the company under

“apprentice training scheme”, where there was no proof of existence of such

scheme?

Court observation It was observed that there was no evidence on record to show that any other person

at any point of time was appointed as trainee or sent abroad for higher education.

Further, the appointment letter to the director's son neither had any reference

number nor was it backed by any previous application by him.

Final Conclusion The HC held that there was no nexus between the education expenditure incurred

abroad for the director's son and the business of the assesse company. Therefore

the aforesaid expenditure was not deductible.

12) Kap Scan and Diagnostic Centre P. Ltd. (2012) (P&H)

Facts / Matter Can the commission paid to doctors by a diagnostic centre for referring

patients for diagnosis be allowed as a business expenditure under section 37

or would it be treated as illegal and against public policy to attract

disallowance?

Court observation As per the Indian Medical Council (Professional Conduct, Etiquette and Ethics)

Regulations, 2002, no physician shall give, solicit, receive, or offer to give, solicit

or receive, any gift, gratuity, commission or bonus in consideration of a return

for referring any patient for medical treatment. The demanding as well as paying

of such commission is bad in law. It is not fair practice and is opposed to public

policy and should be discourage

Final Conclusion Thus HC held that commission paid to doctors for referring patients for diagnosis

is not allowable as a business expenditure.

13) ITC Hotels Ltd. (2011) (Kar.)

Facts / Matter Would the expenditure incurred on issue and collection of convertible

debentures be treated as revenue expenditure or capital expenditure?



Court observation The expenditure incurred on the issue and collection of debentures shall be treated

as revenue expenditure even in case of convertible debentures, i.e. the debentures

which had to be converted into shares at a later date.

Final Conclusion Revenue Exps.

14) Shanti Bhushan (2011) (Delhi)

Facts / Matter Can the expenditure incurred on heart surgery of an assessee, being a lawyer

by profession, be allowed as business expenditure under section 31, by

treating it as current repairs considering heart as plant and machinery, or

under section 37, by treating it as expenditure incurred wholly and

exclusively for the purpose of business or profession?

Court observation Though the definition of "plant" as per the provisions of section 43(3) is inclusive

in nature, such plant must have been used as a business tool which is not true in

case of heart. Therefore, the heart cannot be said to be plant for the business or

profession of the assessee. According to section 37 (1) the said expenditure must

be incurred wholly and exclusively for the purposes of assessee’s profession.

Final Conclusion No direct nexus between the expenses incurred by the assessee on the heart surgery

and his efficiency in the professional field. Hence, the heart surgery expenses shall

not be allowed as a business expenditure of the assessee under the Income-tax Act,

1961.

15) Priya Village Roadshows Ltd. (2011) (Delhi)

Facts / Matter Can the expenditure incurred on heart surgery of an assessee, being a lawyer

by profession, be allowed as business expenditure under section 31, by

treating it as current repairs considering heart as plant and machinery, or

under section 37, by treating it as expenditure incurred wholly and

exclusively for the purpose of business or profession?

Court observation HC observed that whether or not a new business/asset comes into existence would

become a relevant factor. Since the feasibility studies were conducted by the

assesse for the existing business with a common administration and common fund

and the studies were abandoned without creation a new asset, this expenses were

of revenue nature.

Final Conclusion If there is no creation of new asset, then the expenditure incurred would be of

revenue nature.

16) Neelavathi& Others (2010) (Karn.)

Facts / Matter Can payment to police personnel and gundas to keep away from the cinema

theatres run by the assessee be allowed as deduction??

Court observation If the assessee had incurred expenditure for the purpose of security, the same

would have been allowed as deduction. But any payment made to the police

illegally amounts to bribe and such amount cannot be considered as an

allowable deduction. Similarly any payment to gunda as a precautionary measures

so that he shall not cause any disturbance in the theatre is an illegal payment

for which no deduction is allowable under the act.

Final Conclusion Illegal Expenditure not allowed as deduction.



17) Hindustan Unilever Ltd. (2010) (Bom.)

Facts / Matter Can exemption under section 54EC be denied on account of the bonds being

issued after six months of the date of transfer even though the payment for

the bonds was made by the assessee within the six month period?

Court observation The purpose of the provisions of section 54EC, the date of investment by the

assessee must be regarded as the date on which payment is made.

Final Conclusion Therefore, held that if such payment is within a period of six months from the date

of transfer, the assessee would be eligible to claim exemption u/s 54EC.

18) Millennia Developers (P) Ltd. (2010) (Karn.)

Facts / Matter Is the amount paid by a construction company as regularization fee for

violating building bye-laws allowable as deduction?

Court observation The amount paid to compound an offence is obviously a penalty and hence, does

not qualify for deduction under section 37. Merely describing the payment as a

compounding fee would not alter the character of the payment.

Final Conclusion Penalty NOT ALLOWED as deductions.

19) Great City Manufacturing Co. (2013) (All)

Facts / Matter Can remuneration paid to working partners as per the partnership deed be

considered as unreasonable and excessive for attracting disallowance under

section 40A(2)(a) even though the same is within the statutory limit

prescribed under section 40(b)(v)?

Court observation HC observed that section 40(b)(v) prescribes the limit of remuneration to working

partners, and deduction is allowable up to such limit while computing the business

income. If remuneration paid is within the ceiling limit provide u/s 40 (b)(v) ,then

recourse to provisions of section 40A(2)(a) cannot be taken.

Final Conclusion HC held that remuneration paid to working partners within the limits specified

under section 40(b)(v) cannot be disallowed by invoking the provisions of section

40A(2)(a)

20) Shasun Chemicals & Drugs Ltd (2016) (SC)

Facts / Matter In a case where payment of bonus due to employees is paid to a trust and such

amount is subsequently paid to the employees before the stipulated due date,

would the same be allowable under section 36(1)(ii) while computing business

income?

Court observation Apex Court held that section 36(1) contains various kinds of expenses which are

allowable as deduction while computing the business income. The amount paid by

way of bonus is one such expenditure which is allowable as deduction under

section 36 (1)(ii). It also held that the embargo contained in section 43B(b) or

section 40A(9) does not come in the way of the assessee's claim, since the bonus

was ultimately paid to the employees before the due date as per the statutory



requirement. SC has applied the concept of "substance over form" in allowing the

deduction of bonus paid under section 36(1)(ii) by considering that the payment

of bonus was ultimately made to employees before the stipulated due date.

Final Conclusion Therefore, the payment in respect of bonus is allowable as deduction, as there is

no dispute that the amount was paid by the assessee to its employees before the

due date by which such payment is supposed to be made in order to claim

deduction under section 36(1)(ii).

CAPITAL GAINS


1) Manjula J. Shah (2013)(Bom.) Section 48/49

2) Gita Duggal (2013) (Delhi) Section 54/54F

3) Syed Ali Adil (2013) (A.P.) Section 54

4) Gurnam Singh (2010) (P&H) Section 54B

5) Kamal Wahal (2013) (Delhi) Section 54F

6) Ravinder Kumar Arora (2012) (Delhi) Section 54F

7) Sambandam Udaykumar (2012) (Kar.) Section 54F

8) Dempo Company Ltd (2016 (SC) Section 54EC

9) Gouli Mahadevappa (2013) (Kar.) Sec 54F & 50C

10) Hindustan Unilever Ltd (2010) (Bom.) Section 54EC

11) Fibre Boards (P) Ltd (2015) (SC) Section 54G

1) Manjula J. Shah (2013) (Bom.)

Facts / Matter Whether indexation benefit in respect of the gifted asset shall apply from the

year in which the asset was first held by the assessee or from the year in which

the same was first acquired by the previous owner?

Court observation HC observed that 'deemed holding period fiction' created by the statue, the assessee

is deemed to have held the capital asset from the year the asset was held by the

previous owner and accordingly the asset is LTCA in the hands of the assessee.

Final Conclusion The indexed benefit in case of gifted asset has to be computed with reference to

the year in which the previous owner first held the asset and not the year in which

the assessee became the owner of the asset.



2) Gita Duggal (2013) (Delhi))

Facts / Matter Where a building, comprising of several floors, has been developed and re-

constructed, would exemption under section 54/54F be available in respect of

the cost of construction of –

(i) the new residential house (i.e., all independent floors handed over to the

assessee); or

(ii) a single residential unit (i.e., only one independent floor)?

In the present case, the assessee was the owner of property comprising basement,

ground floor, first floor and second floor. In the year 2006, she entered into a

collaboration agreement with a builder for developing the property. According to

the terms of the agreement, the builder was to demolish the existing structure on

the plot of land and develop, construct, and/or put up a building consisting

of basement, ground floor, first floor, second floor and third floor with terrace at

its awn costs and expenses. The assessee handed over to the builder, the physical

possession of the entire property, along with 22.5% undivided interest over the

land. The handing over of the entire property was, however, only for the limited

purpose of development. The builder was to get the third floor plus the

undivided interest in the land to the extent of 22.5% for his exclusive enjoyment.

In addition to the cost of construction incurred by the builder on development of

the property, a further amount of 4 crores was payable by the builder to the

assessee as consideration against the rights of the assessee.

The assessee, in her return of income, showed only ' 4 crores as sales consideration.

The Assessing Officer, however, took the view that the sale consideration for the

transfer should include not only the amount of 4 crores received by the assessee

in cash, but also the cost of construction amounting to 3.44 crore incurred by

the developer in respect of the other floors, which were handed over to the

assessee.

The assessee contended that if the cost of construction incurred by the builder is

to be added to the sale price, then, the same should also correspondingly be

considered as re-investment in the residential house for exemption under section

54

However, the Assessing Officer rejected the claim for exemption under section 54

on the ground that the floors obtained by the assessee contained separate

residential units having separate entrances and cannot qualify as a single

residential unit. He contended that deduction under section 54F was allowable,

and that too only in respect of cost of construction incurred in respect of one unit

i.e., one floor

Court observation The HC observed that Section 54 and 54F use the expression 'residential house'

and not 'residential unit'. Sec. 54/54F require the assessee to acquire a 'residential

house'. The only requirement is that it should be for residential use and not for

commercial use.

Final Conclusion Exemption allowed for full building.

3) Syed Ali Adil (2013) (A.P.)

Facts / Matter Would an assessee be entitled to exemption under section 54 in respect of

purchase of two flats, adjacent to each other and having a common meeting

point?



Court observation where the flats are situated side by side and the builder had effected the

necessary modification to make it as one unit, the assessee would be entitled to

exemption under section 54 in respect of investment in both the flats, despite the

fact that they were purchased by separate sale deeds

Final Conclusion The assessee was entitled to investment in both the flats purchased by him

4) Gurnam Singh (2010) (P&H)

Facts / Matter Can exemption under section 54B be denied solely on the ground that the new

agricultural land purchased is not wholly owned by the assessee, as the

assessee’s son is a co-owner as per the sale deed?

Court observation Merely because the assessee's son was shown in the sale deed as co- owner, it did

not make any difference. It was not the case of the Revenue that the land in

question was exclusively used by the son

Final Conclusion The assessee was entitled to deduction under section 54B

5) Kamal Wahal (2013) (Delhi)

Facts / Matter Can exemption under section 54F be denied solely on the ground that the new

residential house is purchased by the assessee exclusively in the name of his

wife?

Court observation The HC observed that a new residential house need not necessarily be purchased

exclusively in his name. Assessee had not purchased the new house in the name

of a strange or somebody who is unconnected with him, but had purchased it in

the name of his wife. The entire investment for purchase of new residential house

had come out of the sale proceeds of the capital asset and there was no contribution

from his wife.

Final Conclusion HC held that the assessee is entitled to claim exemption under Sec.54F in respect

of utilization of sale proceeds of capital asset for investment in residential house

property in the name of his wife.

6) Ravinder Kumar Arora (2012) (Delhi)

Facts / Matter In case of a house property registered in joint names, whether the exemption

under section 54F can be allowed fully to the co-owner who has paid whole of

the purchase consideration of the house property or will it be restricted to his

share in the house property?

Court observation The assessee was the real owner of the residential house in question and mere

inclusion of his wife's name in the sale deed would not make any difference. The

High Court also observed that section 54F mandates that the house should be

purchased by the assessee but it does not stipulate that the house should be

purchased only in the name of the assessee. In this case, the house was purchased

by the assessee in his name and his wife's name was also included additionally.

Final Conclusion Therefore, the conditions stipulated in section 54F stand fulfilled and the entire

exemption claimed in respect of the purchase price of the house property shall be

allowed to the assessee.



7) Sambandam Udaykumar (2012) (Kar.)

Facts / Matter Can exemption under section 54F be denied to an assessee in respect of

investment made in construction of a residential house, on the ground that

the construction was not completed within three years after the date on which

transfer took place, on account of pendency of certain finishing work like

flooring, electrical fittings, fittings of door shutter, etc?

Court observation HC observed that condition for claiming the benefit u/s 54F is that capital gains

realized from sale of capital asset should have been invested either in purchasing

a residential house or in constructing a residential house within the stipulated

period. Merely because the construction was not completed in all respects and

possession could not be taken within the stipulated period, would not disentitle the

assessee from claiming exemption under section 54F

Final Conclusion The HC held that assessee would be entitled to exemption u/s 54F in respect of the

amount invested in construction within the prescribed period.

8) Dempo Company Ltd (2016 (SC)

Facts / Matter In a case where a depreciable asset held for more than 36 months is

transferred, can benefit of exemption under section 54EC be claimed, if the

capital gains on sale of such asset are reinvested in long-term specified assets

within the specified time??

Court observation The deeming fiction created by section 50 that the capital gain arising on transfer

of a depreciable asset shall be treated as capital gain arising on transfer of short-

term capital asset is only for the purpose of sections 48 and 49 and not for the

purpose of any other section. Section 54F/54EC being an independent section will

not be bound by the provisions of section 50.

Final Conclusion The depreciable asset if held for more than 36 months shall be a long-term

capital asset and exemption can be claimed u/s 54F/54EC

9) Gouli Mahadevappa (2013) (Kar.)

Facts / Matter Where the stamp duty value under section 50C has been adopted as the full

value of consideration, can the reinvestment made in acquiring a residential

property, which is in excess of the actual net sale consideration, be considered

for the purpose of computation of exemption under section 54F, irrespective

of the source of funds for such reinvestment?

Court observation Assessee sold a plot of land for 20 lakhs and reinvested the sale consideration of

20 lakhs together with agriculture income of 4 lakhs, in construction of residential

house. When capital gain is assessed on notional basis as per the provisions of

section 50C, and the higher value i.e., the SDV of Rs.36 lakhs u/s 50C has been

adopted as the full value of consideration.



Final Conclusion The entire amount of 24 lakhs reinvested in the residential house within the

prescribed period should be considered for the purpose of exemption under section

54F, irrespective of the source of funds for such reinvestment.

10) Hindustan Unilever Ltd (2010) (Bom.)

Facts / Matter Can exemption under section 54EC be denied on account of the bonds being

issued after six months of the date of transfer even though the payment for

the bonds was made by the assessee within the six month period?

Court observation The purpose of the provisions of section 54EC, the date of investment by the

assessee must be regarded as the date on which payment is made.

Final Conclusion Therefore, held that if such payment is within a period of six months from the date

of transfer, the assessee would be eligible to claim exemption u/s 54EC.

11) Fibre Boards (P) Ltd (2015) (SC)

Facts / Matter Can advance given for purchase of land, building, plant and machinery

tantamount to utilization of capital gain for purchase and acquisition of new

machinery or plant and building or land, for claim of exemption under

section 54G?

Court observation For availing exemption, all that was required for the assessee is to "utilise" the

amount of capital gain for purchase and acquisition of new machinery or plant and

building or land. Since the entire amount of capital gain, in this case, was utilized

by the assessee by way of advance for acquisition of land, building, plant and

machinery, the assessee was entitled to avail exemption/deduction u/s 54G

Final Conclusion Exemption/deduction u/s 54G



INCOME FROM OTHER SOURCE


1) Parle Plastics Ltd. (2011) (Bom.) Section 2(22)(e)

2) Vir Vikram Vaid (2014)(Bom) Section 2(22)(e)

3) Pradip Kumar Malhotra (2011) (Cal.) Section 2(22)(e)

4) Ambassador Travels (P) Ltd. (2009) (Del.) Section 2(22)(e)

5) Manjoo and Co. (2011 (Kerala) Sec 28/56/115BB

1) Parle Plastics Ltd. (2011) (Bom.)

Facts / Matter What are the tests for determining “substantial part of business” of lending

company for the purpose of application of exclusion provision under section

2(22)?

Court observation u/s 2(22), "dividend" does not include, any advance or loan made to shareholder

by a company in the ordinary course of its business where the lending of money

is a substantial part of the business of the company. Sometimes a portion which

constitutes a substantial part of the turnover, though it contributes a relatively

small portion of the profit, would be termed as a substantial part of the business.

Similarly, a portion which is relatively small as compared to the total turnover, but

generates a large portion, say more than 50% of the total profit of the company

would also be a substantial part of its business. The capital employed for a specific

division of a company in comparison to total capital employed would also be

relevant to determine whether the part of the business constitutes a substantial

part.

Final Conclusion Since lending of money was a substantial part of the business of the lending

company, the money given by it by way of advance or loan to the assessee could

not be regarded as a dividend, as it had to be excluded from the definition of

"dividend" by virtue of the specific exclusion in section 2(22)

2) Vir Vikram Vaid (2014)(Bom)

Facts / Matter Can repair and renovation expenses incurred by a company in respect of

premises leased out by a shareholder having substantial interest in the

company, be treated as deemed dividend?

Court observation The HC observed that no money had been paid by way of advance or loan to the

shareholder who has substantial interest in the company. The amount spent was

towards repairs and renovation of the premises owned by the assessee but

occupied by the company as lessee. The expenditure cannot be brought within the

definition of advance or loan given to the shareholder having substantial interest

in the company, though he is the owner of the premises.



Final Conclusion HC held that repair and renovation expenses in respect of premises occupied by

the company cannot be treated as deemed dividend in the hands of shareholders

being the owner of the building.

3) Pradip Kumar Malhotra (2011) (Cal.)

Facts / Matter What are the tests for determining “substantial part of business” of lending

company for the purpose of application of exclusion provision under section

2(22)?

Court observation HC observed that the phrase 'by way of advance or loan' appearing in sec (22)(e)

must be construed to mean those advances or loans which a shareholder enjoys

simply on account of being a person who is the beneficial owner of shares holding

not less than 10% of the voting power. In case such loan or advance is given to

such shareholders as consequences of any further consideration which is beneficial

to the company received from such a shareholder, such advance or loan cannot be

said to a deemed dividend within the meaning of the Act.

Final Conclusion Therefore, the said advance cannot be treated as deemed dividend in the hands of

the shareholder U/s 2(22)(e).

4) Ambassador Travels (P) Ltd. (2009) (Del.)

Facts / Matter Would the provisions of deemed dividend under section 2(22)(e) be attracted

in respect of financial transactions entered into in the normal course of

business?

Court observation HC observed that the assessee was involved in booking of resorts for the customers

of these companies and entered into normal business transactions as a part of its

day-to-day business activities.

Final Conclusion The HC, therefore, held that such financial transactions cannot treated as loans

or advances received by the assessee from these concerns for the purpose of

application of section 2(22)(e).

5) Manjoo and Co. (2011 (Kerala)

Facts / Matter Can winnings of prize money on unsold lottery tickets held by the distributor

of lottery tickets be assessed as business income and be subject to normal

rates of tax instead of the rates prescribed under section 115BB?

Court observation HC observed that the receipt of the prize money is not in his capacity as a lottery

distributor but as a holder of the lottery ticket which won the prize. Further,

winning from lotteries are assessable under the special provisions of section

115BB, irrespective of the head under which such income falls.

Final Conclusion The rate of 30% prescribed u/s 115BB is applicable in respect of `winnings from

lottery received by the distributor.



SET-OFF AND CARRY FORWARD OF LOSSES

1) Pramod Mittal (2013) (Delhi)

Facts / Matter Can the loss suffered by an erstwhile partnership firm, which was dissolved,

be carried forward for set-off by the individual partner who took over the

business of the firm as a sole proprietor, considering the succession as a

succession by inheritance?

Court observation HC observed that the firm and the proprietorship concern are two separate and

distinct units for the purpose of assessment_ Sec. 78(2) deals with the carry

forward of losses in case of succession Of business. It provides that only the

person who has incurred the losses, can be set off & c/f. An exception provided

thereunder is in case of succession by inheritance. The exception given in section

78 (2) permitting c/f of losses by the successor in case of inheritance, is not

applicable in the present case since the partnership firm was dissolved and ceased

to continue. Taking over of business by a partner cannot be considered as a case

of inheritance due to death as per the law of succession.

Final Conclusion The loss suffered by the erstwhile partnership firm before dissolution of the

firm cannot be carried forward by the successor sole- proprietor, since it is

not a case of succession by inheritance.

DEDUCTIONS FROM TOTAL INCOME

1) Shree Govindbhai Jethalal Nathavani Charitable Trust (2015) (Guj)

Facts / Matter Can the Commissioner reject an application for grant of approval under

section 80G(5) on the ground that the trust has failed to apply 85% of its

income for charitable purposes?

Court observation Sec. 80G does not relate to assessment of the trust, primarily, section 80G is related

to giving deduction in respect of donations made by a person to such trusts and

institutions. Once a trust is registered under section 12AA, its income from

property includes donation which is covered by section 11/12. Such donations are

deemed to be income from property, which are not to be included in the total

income under section 11/12. The enquiry under section 80G, hence, cannot go

beyond that. The scope of enquiry cannot include an enquiry as to whether, at the

close of the previous year, the done trust will actually be able to apply 85% of its

income.

Final Conclusion CIT can’t reject registration application.

2) Swarnagiri Wire Insulations Pvt. Ltd. (2012) (Kar.)

Facts / Matter Can unabsorbed depreciation of a business of an industrial undertaking

eligible for deduction under section 80-IA be set off against income of

another non-eligible business of the assessee?



Court observation EXAMPLE;

A company X LTD having two units, UNIT A and UNIT B. If A engaged in

eligible business (say, power generation) has a profit of Rs.100 lacs in A.Y 2015-

16, before claiming depreciation of Rs.120 lacs and Unit B engaged in non-eligible

business (say, manufacture of wires) has a profit of Rs.70 lacs, then, as per the

above decision, the loss of Rs.20 lacs (representing balance depreciation not set-

off) pertaining to UNIT A can be set-off against profit of Rs.70 lacs of UNTI B

carrying on non-eligible business.

Therefore, the net profit of Rs.50 lacs would be taxable in the A.Y 2015-16. If in

the next year, i. e A.Y 2016-17 the net profits of UNIT A and UNIT B are Rs.200

lacs and Rs.80 lacs, respectively, then the eligible deduction under section 80IA

for that year would be Rs.180 lacs (i.e Rs.200 lacs minus Rs.20 lacs, being loss

(representing balance depreciation) set-off in the A.Y 2015- 16 against other

income.

Final Conclusion Assessee was entitled to the benefit of set off of loss of eligible.

3) Orchev Pharma P. Ltd. (2013) (SC)

Facts / Matter Can Duty Drawback be treated as profit derived from the business of the

industrial undertaking to be eligible for deduction under section 80-IB?

Court observation SC observed that DEPB/Duty drawback are incentives which flow from the

schemes framed by the CG

Final Conclusion Its cannot be treated as profit from industrial undertaking to be eligible ded. u/s

80IB

4) Meghalaya Steels Ltd (2016) (SC)

Facts / Matter Can transport subsidy, interest subsidy and power subsidy received from

the Government be treated as profits “derived from” business or

undertaking to qualify for deduction under section 80-IB?

Court observation An important test to determine whether the profits and gains are "derived from

business or an undertaking is that there should be a direct nexus between such

profits and gains and the undertaking or business. Such nexus should not be only

incidental. The profits and gains referred to in section 80-IB has reference to net

profit, which can be calculated by deducting from the sale price of an article, all

elements of cost which go into manufacturing or selling it. Thus, the profits arrived

at after deducting manufacturing costs and selling costs reimbursed to the assessee

by the Government, is the profits and gains "derived from" the business of the

assessee. Subsidies which go towards reimbursement of cost of production of

goods of a particular business would also have to be included under the head

"PGBP", and not under the head IFOS.

Final Conclusion Transport subsidy, interest subsidy and power subsidy from Government were

revenue receipts which were reimbursed to the assessee for elements of cost

relating to manufacture or sale of their products.

Therefore, there is a direct nexus between profits and gains of the undertaking or

business, and reimbursement of such subsidies. The subsidies were only in order

to reimburse, wholly or partially, costs actually incurred by the assessee in the

manufacturing and selling of its products. Accordingly, these subsidies qualify for

deduction under section 80-IB.



5) Nestor Pharmaceuticals Ltd. (2010) (Delhi)

Facts / Matter Does the period of exemption under section 80-IB commence from the year

of trial production or year of commercial production? Would it make a

difference if sale was effected from out of the trial production?

In this case, the assessee had started trial production in March 1998 whereas

commercial production started only in April, 1998 but assessee sold trial run

product of 2 items in March 1998. Therefore, the assessee claimed deduction under

section 80-18 for the assessment years 1999-2000 to 2003-04, whereas the

Assessing Officer denied deduction for A.Y.2003-04 on the ground that the five-

year period would be reckoned from A.Y.1998-99, since the trial production began

in March, 1998

Court observation The High Court observed that with mere trial production, the manufacture for the

purpose of marketing the goods had not started which starts only with commercial

production, namely, when the final product to the satisfaction of the manufacturer

has been brought into existence and is fit for marketing.

HC held that since the assessee had effected sale in March 1998, it had crossed the

stage of trial production and the final saleable product had been manufactured and

sold. The quantum of commercial sale and the purpose of sale (namely, to obtain

registration of excise / sales-tax) is not material. With the sale of those articles,

marketable quality was established.

Final Conclusion Therefore, the conditions stipulated in section 80-1B were fulfilled with the

commercial sale of the two items in that AY, and hence the five year period has to

be reckoned from A.Y.1998-99.

6) Praveen Soni (2011) (Delhi)

Facts / Matter Can an assessee who has not claimed deduction under section 80-IB in the

initial years, start claiming deduction thereunder for the remaining years

during the period of eligibility, if the conditions are satisfied?

Final Conclusion The deduction u/s 80-16 should be allowed to the assessee for the remaining years

up to the period for which his entitlement would accrue, provided the conditions

of u/s 80-IB are fulfilled

ASSESSMENT OF VARIOUS ENTITIES

1) Govindbhai Mamaiya (2014) (SC)

Facts / Matter Where land inherited by three brothers is compulsorily acquired by the State

Government, whether the resultant capital gain would be assessed in the

status of “Association of Persons” (AOP) or in their individual status? Three brothers inherited a property consequent to demise of their father. A part of

this bequeathed land was acquired by the State Government and compensation

was paid for it. On appeal, compensation was enhanced and the enhanced

compensation was paid with interest. The issue under consideration is regarding

the status in which capital gain arising on transfer of property would be assessed.

The assessee’s offered income in their status as 'individual" but the Revenue

sought to tax the same in their status as "Association of Persons" (AOP).



Court observation The Apex Court noted that "AOP" means an association in which two or more

persons join in a common purpose or common action. In this case, the property

came to the assessee’s possession through inheritance i.e., by operation of law.

Further, even the interest earned is not because of any business, but is the result of

compulsorily acquiring of land. Thus, the basic test to be satisfied for making an

assessment in the status of AOP is absent in this case.

Final Conclusion It held that income from asset inherited by the legal heirs is taxable in their

individual hands and not in the status of AOP.

2) D. L. Nandagopala Reddy (2014) (Kar)

Facts / Matter Would the ancestral property received by the assessee after the death of his

father, be considered as HUF property or as his individual property, where

the assessee’s father had received such property as his share when he went

out of the joint family under a release deed?

Court observation The High Court observed that the property originally belonged to HUF. One of

the members of the family (i.e., the assessee's father) went out of the joint family

under a release deed and the remaining members continued to be the members of

joint family. After the death of assessee's father and mother, the assessee, being

the adopted son, became the sole surviving co- parcener. When such property

came to the hands of the assessee it was not his individual property; it was the

property of his HUF

Final Conclusion The HC held that when the property came to the hands of the assessee, it was

property belong to HUE. If the same transferred to his wife without registered

documents then HUF Property. If with reg. doc. then individual property.

3) Sudhir Nagpal (2012) (P & H)

Facts / Matter Under which head of income is rental income from plinths inherited by

individual co-owners from their ancestors taxable - “Income from house

property” or “Income from other sources”? Further, would such income be

assessable in the hands of the individual co-owners or in the hands of the

Association of Persons?

Court observation HC observed that plinth is not treated as Building. Merely accruing of income

jointly to more persons that one would not constitute them an AOP. Unless the

members join in a common purpose, it cannot be held that they have formed

themselves into an AOP.

Final Conclusion The court held that the income from letting out the plinth is assessable u/s 56 as

IFOS". There was nothing to show that they had acted as an AOP. Hence, income

has to be assessed in the status of individual and not AOP

4) Madras Gymkhana Club (2010) (Mad)

Facts / Matter Would the interest earned on surplus funds of a club deposited with

institutional members satisfy the principle of mutuality to escape taxability?

Court observation The HC held that interest earned from investment of surplus funds in the form of

fixed deposits with institutional members does not satisfy the principle of

mutuality.

Final Conclusion Hence cannot be claimed as exempt on this ground



5) Sind Co-operative Housing Society (2009) (Bom)

Facts / Matter Can transfer fees received by a co-operative housing society from its incoming

and outgoing members be exempt on the ground of principle of mutuality?

Court observation The HC observed that charging of transfer fees had not element of trading or

commerciality. The amount paid was to be exclusively used for the benefit of the

members as a class.

Final Conclusion It's NOT taxable.

6) Indcom (2011) (Cal.)

Facts / Matter Would non-resident match referees and umpires in the games played in India

fall within the meaning of “sportsmen” to attract taxability under the

provisions of section 115BBA, and consequently attract the TDS provisions

under section 194E in the hands of the payer?

Court observation HC observed that, in order to attract the provision of section 194E, the person should

be a NR sportsperson or MR sports association or institution whose income is

taxable as per the provisions of section 155BBA. The umpires and the match

referees can be described as professional or technical persons who render

professional or technical services.

Final Conclusion Income are not taxable under the provision of sec. 115BBA, and thus the assessee

is not liable to deduct tax u/s 194E. Since income has accrued and arisen in India

to NR, the TDS provisions u/s 195 would be attracted and tax would be deducible

at the rates in force.

7) Anil Hardware Store (2010) (HP)

Facts / Matter In a case where the partnership deed does not specify the remuneration

payable to each individual working partner but lays down the manner of

fixing the remuneration, would the assessee-firm be entitled to deduction in

respect of remuneration paid to partners?

Court observation The manner of fixing the remuneration of the partners has been specified in the

partnership deed. There is nothing which debars them from claiming the maximum

amount of remuneration payable in terms of the partnership deed.

Final Conclusion Firm can claim deduction of remuneration.

8) Rolta India Ltd. (2011) (SC)

Facts / Matter Can interest under sections 234B and 234C be levied where a company is

assessed on the basis of book profits under section 115JB?

Court observation SC observe that there is specific provision in sec. 115JB(5) providing that all other

provisions of the IT ACT,1961 shall apply to every assessee. Section 1115JB is a

self-contained code pertaining to MAT, and by virtue of sub-section (5) thereof,

the liability for payment of advance tax would be attracted.

Final Conclusion SC held that interest u/s 234B, C shall be payable on failure of the company to pay

advance tax in respect of tax payable u/s 115JB



9) N. J. Jose and Co. (P.) Ltd (2010) (Ker.)

Facts / Matter Can long-term capital gain exempted by virtue of section 54EC be included

in the book profit computed under section 115JB?

Court observation As long as LTCGs are part of the profits included in the Statement of Profit and

Loss prepared in accordance with Part II of schedule III to the companies act,2013

Final Conclusion capital gains cannot be excluded unless provided under the explanation to section

115JB.

10) Trans Asian Shipping Services (P) Ltd (2016) (SC)

Facts / Matter Can income derived by an Indian shipping company from slot charter

arrangement in other ships be computed applying the special provisions

under Chapter XII -G of the Income-tax Act, 1961, relating to Tonnage Tax

Scheme, inspite of non-fulfillment of the condition of holding a valid

certificate in respect of such ships indicating its net tonnage in force?

Court observation Company would regarded as operating a ship If it operates any ship whether

owned or chartered by it in an arrangement such as slot charter, space charter or

joint charter". Thus, even an arrangement such as slot charter would be regarded

as operating a ship.

A perusal of the provisions of section 115VD, containing the conditions for a ship

to qualify as a "qualifying ship" would indicate that all the conditions laid down

therein are fulfilled by the assessee, except the condition stipulated in clause (c)

which imposes an obligation on the assessee to produce a valid certificate in

respect of such a ship indicating its net tonnage in force.

The SC, noted that provisions of sec. 115VG(4) are in two parts in so far as

computation of tonnage is concerned. When it comes to tonnage of a ship, a valid

certificate is to be produced. The second part of this provision talks about "deemed

tonnage" in contradistinction to the "actual tonnage" mentioned in the certificate.

Explanation to sub-section 115VG(4), inter alia, mentions that in so far as slot

charter arrangements are concerned, purchase of such slot charter shall be treated

as deemed tonnage.

The requirement of producing a certificate would not apply when entire ship is not

chartered and the arrangement pertains only to purchase of slots, slot charter and

an arrangement of sharing of break-bulk vessel. This position becomes abundantly

clear by reading Rule 11Q(1) which specifies the basis/formula of computing

deemed tonnage in respect of arrangement of slot charter.

Final Conclusion Income from slot charter arrangement in other ships can be computed applying the

special provisions under Chapter XII-G.



CHARITABLE OR RELIGIOUS TRUSTS AND INSTITUTIONS

1) Queen’s Educational Society (2015) (SC)

Facts / Matter Where an institution engaged in imparting education incidentally makes

profit, would it lead to an inference that it ceases to exist solely for educational

purposes?

Court observation Provisions of section 10(23C)(iiiad) provide for three requirements, namely,

(i) the education institution must exist solely for educational purposes;

(ii) it should not be for purposes of profit;

(iii)the aggregate annual receipts of such institution should not exceed 1 crore

Final Conclusion Assessee was engaged in imparting education and the profit was only incidental

to the main object of spreading education. Hence, it satisfies the conditions laid

down in section 10(23C) & Exemption shall be allowed

2) St. Peter’s Educational Society (2016) (SC)

Facts / Matter Would imparting education/training in specialized field like communication,

advertising etc. and awarding diplomas/certificates constitute an

“educational purpose” for grant of exemption under section 10(23C)(vi)?

Assessee engaged in imparting higher and specialized education. It imparted

education in the field of communication including advertising and its related

subjects. The assessee submitted an application for exemption under section

10(23C)(vi) and for which aft, CIT refused to grant exemption under section

10(23C)(vi). The reasons for refusal were (i) the society was not having education

as the sole purpose; (ii) it is engaged in conducting coaching / training courses for

and on behalf of industry, trade and commercial organizations; (iii) it is engaged

in various social activities of general public utility; and (iv) it was not conducting

educational courses as charitable activity but for the purpose of making profit

Court observation The object clause of the society which indicated that the institution was awarding

diplomas, certificates etc after providing training in communication, advertising

and related subjects. The memorandum of the assessee showed that the fee

collected shall not exceed the cost of training, hostel expenses etc and it is not

precluded from subsidizing such costs. Teaching does not mean teaching the

students only in the manner and method, the regular schools or colleges adopt to

teach. In the progressive world, it is expected from certain institutions that they

educate, teach and train persons so that those persons can compete with similar

experts worldwide.

SC made reference to Queen's Educational Society :

Objective is not for Profit Making

Profit is only incidental etc.

Final Conclusion Institution is established for the sole purpose of imparting education in a

specialized field. The Supreme Court, thus, allowed the petition and set aside the

order of the Chief Commissioner of Income-tax refusing exemption under section

10(23C)(vi)

3) Society for the Promotion of Education (2016) (SC)

Facts / Matter In a case where the charitable trust is deemed to be registered under section

12A due to non-disposal of application within the period of 6 months, as

stipulated under section 12AA(2), from when would such deemed registration

take effect?



Court observation The Court opined that non-consideration of the application for registration within

the time fixed by the legal provision would lead to deemed grant of registration

and there is no reason to make the assessee suffer merely because the Income Tax

Department is not able to keep its officers under check and control so as to take

timely decisions on the matter.

Final Conclusion SC held that the non-consideration of the registration application within the said

time frame of six months would amount to 'deemed registration’

4) Meenakshi Amma Endowment Trust (2013) (Kar.)

Facts / Matter Where a charitable trust applied for issuance of registration under section

12A within a short time span (nine months, in this case) after its formation,

can registration be denied by the concerned authority on the ground that no

charitable activity has been commenced by the trust?

Court observation with the money available with the trust, it cannot be expected to carry out activity

of charity immediately. Consequently, in such a case, it cannot be concluded that

the trust has not intended to do any activity of charity. In such a situation, the

objects of the trust as mentioned in the trust deed have to be taken into

consideration by the authorities for satisfying themselves about the genuineness

of the trust and not the activities carried on by it. Later on, if it is found from the

subsequent returns, that it is not carrying on any charitable activity, it would be

open to the CIT to withdraw/Cancel the registration granted.

Final Conclusion Registration application can't denied

5) Khetri Trust (2014) (Del)

Facts / Matter In a case where properties bequeathed to a trust could not be transferred to

it due to ongoing court litigation and pendency of probate proceedings, can

violation of the provisions of section 11(5) be attracted & The trustees made

advance 1, 10,000 for raising a memorial for donor.

Court observation The CIT(A) observed that, till the 'WILL' is probated and affirmed as genuine, the

trust would not acquire the legal right on the property till for the purpose of IT

ACT 1961.

Acquisition of shares by the trust is dependent upon the adjudication of

the probate.

Further with regard to advance give to entity, the CIT(A) found that the

said amount cannot be treated as an investment which was covered and

regulated by section 11(5), since the intent and purpose behind the

payment was not investment.

Final Conclusion HC held that there was no violation of section 11(5)



6) Ramoji Foundation (2014) (AP)

Facts / Matter Is the approval of Civil Court mandatory for amendment of trust deed, even

in a case where the settler has given power to the trustees to alter the trust

deed?

Court observation The power has been given to the trustees by the settler to amend the trust deed

without approaching the Civil Court, provided all the conditions laid down by the

settler are fulfilled. The sanction of Civil Court is required only when there is no

such power.

Final Conclusion When the power has been specifically given to the trustees by the settler, no further

power from the Civil Court is required

INCOME-TAX AUTHORITIES

1) Hemant Kumar Sindhi & Another (2014) (All)

Facts / Matter Can the assessee’s application, for adjustment of tax liability on income

surrendered during search by sale of seized gold bars, be entertained where

assessment has not been completed?

Court observation Only when the liability is determined on the completion of assessment that it would

stand crystalized and in pursuance of which a demand can be raised and recovery

can be initiated.

Final Conclusion Gold bar can be sold only after completion of assessment u/s 153A

2) Kathiroor Service Co-operative Bank Ltd. (2014) (SC)

Facts / Matter Where no proceeding is pending against a person, can the Assessing Officer

call for information under section 133(6), which is useful or relevant to any

enquiry, with the permission of Director or Commissioner?

Court observation The AO, with the prior approval of the CIT , issued notice u/s 133(6) to a co-

operative society engaged in banking business, calling for information regarding

details of all persons who had made a cash transactions of 1,00,000/-. The SC

observed that the assessing officer has been empowered to call for information

which will be useful for or relevant to ANY ENQUIRY OR PROCEEDING under

the Income-tax Act, 1961. in the case of any person.

.Final Conclusion AO Can issue notice u/s 133(6) whether assessment is pending or not

3) Sahara Hospitality Ltd. (2013) (Bom.)

Facts / Matter Is the requirement to grant a reasonable opportunity of being heard,

stipulated under section 127(1), mandatory in nature?

Court observation The HC observed that the provisions of section 127(1) provides that the income

tax authority mentioned therein may give an opportunity of being heard to the

assessee, wherever it is possible to do so. As per sec 127 case can be transfer from

one AO to another.



.Final Conclusion The word 'MAY' used in this section should be read as 'SHALL' and such IT

authority has to mandatorily give a reasonable opportunity of being heard to the

assessee, wherever possible to do so.

4) Lodhi Property Company Ltd. (2010) (Del.)

Facts / Matter Does the Central Board of Direct Taxes (CBDT) have the power under section

119(2)(b) to condone the delay in filing return of income?

Court observation Sec. 119 empowers the CBDT to authorize any IT authority to admit an application

or claim for any exemption, deduction, refund or any other relief under the act

after the expiry of the period specified under the act, to avoid genuine hardship in

any case or class of cases. The claim for c/f of loss in case of loss return is relatable

to a claim arising under the category of any other relief available under the Act.

.Final Conclusion Therefore the CBDT has the power to condone delay in filing of such loss return

due to genuine reasons.

ASSESSMENT PROCEDURE

1) Govind Nagar Sugar Ltd. (2011) (Delhi)

Facts / Matter Can unabsorbed depreciation be allowed to be carried forward in case the

return of income is not filed within the due date?

Court observation HC observed that, the provisions of section 80 and section 139(3) , requiring the

return of income claiming loss to be filed within the due date, applies to carry

forward of business loss and not for unabsorbed depreciation.

.Final Conclusion Yes it Can C/F.

2) Orissa Rural Housing Development Corpn. Ltd. (2012) (Orissa)

Facts / Matter Can an assessee revise the particulars filed in the original return of income

by filing a revised statement of income?

Court observation The HC observed that the assessee can make a fresh claim before the assessing

officer or make a change in the originally filed return of income only by filing

revised return of income u/s 139(5). There is no provision under the IT ACT 1961,

to enable an assessee to revise his income by filing a revised statement of income.

Final Conclusion Therefore the filing of statement of income is of no value and will not be

considered by the AO for assessment purpose.



3) Smt. A. Kowsalya Bai (2012) (Kar.)

Facts / Matter Is a person having income below taxable limit, required to furnish his PAN

to the deductor as per the provisions of section 206AA, even though he is not

required to hold a PAN as per the provisions of section 139A?

Court observation The provisions of section 139A are contradictory to section 197A, due to the fact

that assessee’s whose income was less than the maximum amount not chargeable

to income-tax, were not required to hold PAN, whereas their declaration furnished

under section 197A was not accepted by the bank or financial institution unless

PAN was communicated as per the provisions of section 206AA. The provisions

of section 206AA creates inconvenience to small investors, who invest their

savings from earnings as security for their future, since, in the absence of PAN,

tax was deducted at source at a higher rate.

Final Conclusion In order to avoid undue hardship caused to such persons, the Karnataka High Court,

in the present case, held that it may not be necessary for such persons whose

income is below the maximum amount not chargeable to income-tax to obtain

PAN and in view of the specific provision of section 139A, section 206AA is not

applicable to such persons. Therefore, the banking and financial institutions shall

not insist upon such persons to furnish PAN while filing declaration under section

197A. However, section 206M would continue to be applicable to persons whose

income is above the maximum amount not chargeable to income-tax.

4) Aventis Pharma Ltd. (2010) (Bom.)

Facts / Matter Can the Assessing Officer reopen an assessment on the basis of merely a

change of opinion?

Court observation The power to reopen an assessment is conditional on the formation of a reason to

believed that income chargeable to tax has escaped assessment.

Final Conclusion It's not treated as reason to believe so AO cannot open case u/s 147

5) ICICI Securities Primary Dealership Ltd. (2012) (SC)

Facts / Matter Is it permissible under section 147 to reopen the assessment of the assessee on

the ground that income has escaped assessment, after a change of opinion as

to a loss being a speculative loss and not a normal business loss, consequent

to a mere re-look of accounts which were earlier furnished by the assessee

during assessment under section 143(3)?

Court observation Facts: After the lapse of four years from relevant assessment year, the AO had

reopened the assessment u/s 147. It was noticed that the assessee company had

incurred a loss in trading in share, which was a speculative one. Therefore, such

loss can only be set off against speculative income. SC OBSERVED that the

assessee had disclosed full details in the return of income in the matter of its

dealing in stocks and shares. There was not failure on the part of the assessee to

disclose material facts as mentioned in proviso to section 147. Further there is

nothing new which has come to the notice of the AO. The accounts had been

furnished by the assessee when called upon.

Final Conclusion Therefore, re-opening of the assessment by the assessing officer is clearly a change

of opinion and therefore, the order of reopening the assessment is not valid.



6) Hemant Traders (2015) (Bom)

Facts / Matter Can a notice under section 148 for a particular assessment year be issued

solely on the ground that survey under section 133A was carried on at the

business premises of the assessee, where nothing had been found therein

which would indicate escapement of income chargeable to tax for the said

assessment year?

Facts: Assessee engaged in wholesale trading of potato on commission basis. The

survey was conducted based on the allegations that these parties were hoarding of

potatoes and making huge profits.

Court observation During survey, the assessee's books of account, cash and stocks were physically

verified and inventory prepared. The report revealed cash difference of - 5,020 and

the explanation given was that the same pertained to the day-to-day and

miscellaneous expenditure incurred on the day of survey. The report also revealed

physical stock difference of 672 bags of potatoes. The explanation for such

difference was recorded. Neither the survey report nor any other material indicated

escapement of income chargeable to tax for A.Y.2010-11. The AO had nothing

before him to record his belief or satisfaction that escapement of income had taken

place. Merely because survey had taken place cannot be a ground for reopening

the assessment without valid material or evidence at the time of issue of notice.

Final Conclusion Since there is absolutely no material to indicate escapement of income for the

relevant AY, the issue of notice to initiate reassessment proceedings under section

148 on the basis of survey which had taken place is not valid.

7) Godrej Industries Ltd (2015) (Bom)

Facts / Matter Will the subsequent amendment of law with retrospective effect validate a

reassessment notice issued on a different ground before the retrospective

amendment was made? AO issued notice u/s 148 on the basis of reason that

Prov. For Bad Debts and depletion in investment both are Prov for

unascertained liability.

Court observation The High Court observed that it is the AO's belief at the time of issuing the

reassessment notice that determines the validity of the notice. In this case, he

wanted to apply clause PROV. FOR Contingent Liab. and whereas the issues got

covered by subsequent amendment by means of insertion of clause PROV. FOR

Diminution in the Value of Assets to the Explanation to sec. 11538 by the Finance

Act, 2009 with retrospective effect from 1.4.1998. The subsequent event could not

put life into the Assessing Officer's reason that income chargeable to tax had

escaped assessment when the reasons as originally recorded are still born.

Final Conclusion The position of law on the date of issue of notice under section 148 must be looked

into and the retrospective amendment subsequent to issue of notice could not

validate a notice issued earlier. It could only amount to change of opinion and the

notice for reopening of assessment would become unsustainable.



8) Ranbaxy Laboratories Ltd. (2011) (Delhi)

Facts / Matter Can the Assessing Officer reassess issues other than the issues in respect of

which proceedings were initiated under section 147 when the original “reason

to believe” on the basis of which the notice was issued ceased to exist?

Court observation If the income, the escapement of which was the basis of the formation of the "reason

to believe" is not assessed or reassessed, it would not be open to the AO to

independently assess only that income which comes to his notice subsequently in

the course of the proceedings under the section as having escaped assessment.

Final Conclusion If he intends to do so, a fresh notice u/s 148 would be necessary.

9) Mehak Finvest P Ltd (2014) (P&H); N. Govindaraju (2015) (Kar.)

Facts / Matter Same as above

Court observation The HC held that, in effect, once satisfaction of reasons for the notice is found

sufficient i.e. if the notice under section 148(2) is found to be valid, then, the AO

may do reassessment in respect of any other item of income which may have

escaped assessment, even though the original reason for issue of notice u/s 148

does not survive.

Final Conclusion The High Court, accordingly, held that even though no addition is made on the

original grounds which formed the basis of initiation of reassessment proceedings,

the Assessing Officer is empowered to make additions on another ground for

which reassessment notice might not have been issued but which came to his

notice subsequently during the course of proceedings for reassessment. This

decision has dissented from the decisions in the case of CIT V. Jet Airways (I) Ltd

(2011) 331 ITR 236 (Bom); Ranbaxy Laboratories Ltd

10) Vipin Walia (2016) (Del)

Facts / Matter Would the reassessment proceedings initiated under section 147 against the

legal heirs of the deceased assessee be valid if notice of reassessment was sent

to the legal heirs after the limitation period, though a notice addressed to the

deceased assessee was sent prior to the limitation period?

Court observation A notice u/s 148 issued on 27-3-15 to assessee for the AY 08-09. The notice got

returned unserved with the remarks "addressee expired". Later, the AO issued a

letter dated 15.06.15 to the legal heirs to complete the proceedings for the AY 08-

09. HC took note of sec 159 which sets out the procedure for assessment is made

on the legal representatives. As per Sec 159 any proceeding already taken against

an assessee 'before his death' shall be deemed to have been taken against the legal

representative. & any proceeding which could have been taken against the

deceased if he had survived, may be taken against the legal representative of the

deceased assessee, even if it had not been taken while the assessee was alive.

Final Conclusion The AO initiated proceedings u/s 147 against the deceased for the AY 08-09. The

time limit for issue of notice was 31.03.15. On March 27, 15 when the notice was

issued, the assessee was already dead. If the AO intended to proceed u/s 147, it

could have done so prior to 31.03. 15 by issuing a notice to the legal

representatives. Issue of notice on the legal representatives beyond the limitation

time would render the reassessment proceedings invalid.



11) PP Engineering Work (2014) (Del)

Facts / Matter Does the finding or direction in an appellate order that income relates to a

different assessment year empower reopening of assessment for that

assessment year, irrespective of the expiry of the six year time limit?

Court observation As per ITAT order, directed that the cash credit of - 32 lakhs found credited in the

books of the assessee in the FY 99-00 is chargeable to tax in the AY 00-01 as

against the assessment made by taxing the said amount in the assessment year 01-

02. AO issue a notice u/s 148 in February, 2009 for reopening the proceedings for

the A.Y. 2000¬01. The issue is validity of notice issued after a lapse of 6 years

from the end of the relevant AY.

Final Conclusion The High Court made reference to section 150 which overrides the time limitation

specified in section 149. AO Can issue notice u/s 148

12) Allanasons Ltd (2014) (Bom)

Facts / Matter Is initiation of reassessment beyond a period of 4 years on the basis of

subsequent Tribunal and High Court ruling valid, if there is no failure on the

part of the assessee to disclose fully and truly all materials facts?

Court observation The HC observed that it is well settled in terms of the proviso to sec 147, that where

any assessment is sought to be opened beyond a period of 4 years from the end of

the AY, two conditions have to be fulfilled cumulatively.

1. Escapement of income.

2. Omission or failure on the part of the assessee to disclose fully and truly all

material facts necessary for his assessment

Even a subsequent change of law cannot be taken as income escaping assessment

for triggering reassessment provisions beyond 4 years from the end of the

assessment year unless there was a failure on the part of the assessee to disclose

fully and truly all material facts necessary for assessment.

Final Conclusion The High Court, accordingly, held that a subsequent decision of Tribunal or High

Court by itself is not adequate for reopening the assessment completed earlier

under section 143(3) unless there is a failure on the part of the assessee to disclose

complete facts.

13) Amarnath Agrawal (2015) (All)

Facts / Matter Is recording of satisfaction and quantification of escaped income a pre-

condition for issuing notice under section 148 after 4 years from the end of

the relevant assessment year?

Court observation HC observed that two distinct conditions must be satisfied for issue a notice under

section 148 after a period of 4 years (as discuss above) U/s 149(1), it is imperative

for the AO, in his reasons, to state that the escaped income is likely to be Rs.1 Iakh

or more. This is an essential ingredient for seeking approval and the basis on which

satisfaction is to be recorded by the competent authority u/s 151. If the condition

precedent to substantiate the satisfaction of escapement of income is not made, the

issuance of notice would be invalid.

Final Conclusion In this case, since no reasons were recorded that the escaped income is likely to be

Rs.1 lakh or more so HC held that, in this case the issue of notice u/s 148 after the

four year time period was not valid.



14) H. K. Buildcon Ltd. (2011) (Guj.)

Facts / Matter In case of change of incumbent of an office, can the successor Assessing

Officer initiate reassessment proceedings on the ground of change of opinion

in relation to an issue, which the predecessor Assessing Officer who framed

the original assessment had already applied his mind and come to a

conclusion?

Court observation The reasons recorded indicated that the successor AO had merely recorded a

different opinion in relation to an issue to which the AO, who had framed the

original assessment, had already applied his mind and come to a conclusion.

Final Conclusion The notice of reassessment was, therefore not valid.

15) Tony Electronics Limited (2010) (Del.)

Facts / Matter Would the doctrine of merger apply for calculating the period of limitation

under section 154(7)?

Court observation The issue under consideration is whether the time limit of 4 years as per section

154(7) would apply from the date of original assessment order or the order of the

appellate authority. The HC held that once an appeal against the order passed by

an authority is preferred and is decided by the appellate authority, the order of the

AO merges with the order of the appellate authority.

Final Conclusion After merger, the order of the original authority ceases to exist and the order of

the appellate authority prevails. Thus, the period of limitation of 4 years for the

purpose of section 154(7) has to be counted from the date of the appellate

authority.

APPEALS AND REVISION

1) Pruthvi Brokers & Shareholders (2012) (Bom.)

Facts / Matter Can an assessee make an additional/new claim before an appellate authority,

which was not claimed by the assessee in the return of income (though he was

legally entitled to), otherwise than by way of filing a revised return of income?

Court observation While considering the above mentioned issue, the HC observed the decision of SC

in the case of Jute Corporation of India Ltd that an assessee is entitled to raise

additional claims before the appellate authorities even otherwise than by way of

filing ROI. The SC in Goetze (India) ltd, held that additional claim before the AO

can be made only by way of filing revised return of income.

Final Conclusion Therefore, in the present case, the Bombay High Court, considering the above

mentioned decisions, held that additional grounds can be raised before the

Appellate Authority even otherwise than by way of filing return of income.

However, in case the claim has to be made before the Assessing Officer, the same

can only be made by way of filing a revised return of income.



2) Earnest Exports Ltd. (2010) (Bom.)

Facts / Matter Does the Appellate Tribunal have the power to review or re-appreciate the

correctness of its earlier decision under section 254(2)?

Court observation The HC observed that the power u/s 254(2) is limited to rectification of a mistake

apparent on record.

Final Conclusion ITAT cannot review its order.

3) Lachman Dass Bhatia Hingwala (P) Ltd. (2011) (Delhi)

Facts / Matter Can the Tribunal exercise its power of rectification under section 254(2) to

recall its order in entirety, where there is a mistake apparent from record?

Court observation The HC observed that the ITAT, while exercising the power of rectification u/s

254(2), can recall its order in entirety if it is satisfied that prejudice has resulted to

the party which is attributable to the ITAT's mistake, error or omission and the

error committed is apparent.

Final Conclusion Yes ITAT can.

4) Meghalaya Steels Ltd. (2015) (SC)

Facts / Matter Does the High Court have an inherent power under the Income-tax Act, 1961

to review an earlier order passed on merits?

Court observation Section 260A(7) states that all the provisions that would apply appeals in the Code

of Civil Procedure would apply to appeals under section 260A. That does not in

any manner suggest either that the other provisions of the Code of Civil Procedure

are necessarily excluded or that the HC inherent jurisdiction is in any manner

affected.

Final Conclusion Yes HC have inherent power to review its order.

5) Subrata Roy (2016) (SC)

Facts / Matter Can High Court exercise its inherent power to recall its order by exercising

jurisdiction under section 260A(7) read with the relevant Rule of the Code of

Civil Procedure, 1908 even if that order is not an ex-parte order?

The HC on the ground that it had passed its order rejecting the request of the

assessee for a day's adjournment since the senior advocate on behalf of the

assessee, was to come from Mumbai next day and thus, the applicant could not

advance any argument.

Court observation The SC noted that the assessee had participated in the hearing of the appeals before

HC which is apparent from the various parts of the order. order passed by the High

Court is not an ex-parte order for invoking the provisions of the Code of Civil

Procedure, 1908, since the order of the High Court contains the submissions of the

counsel of the assessee (though not that of the senior counsel for whose presence

a short adjournment was prayed).

Final Conclusion Therefore, the High Court did not have the jurisdiction to recall the order passed by it previously.

The inherent power under the Code of Civil Procedure, 1908 is hedged by certain pre-conditions and

unless the pre-conditions are satisfied the power thereunder cannot be exercised. Accordingly, the

Supreme Court set aside the order dated 21.2.2014 of the High Court.



6) Amitabh Bachchan (2016) (SC)

Facts / Matter Can revision under section 263 be made on the ground that the order is passed

without making inquiries or verification which should have been made? Assessee filed his ROI and subsequently, filed a revised return in which he claimed

30% of professional receipts amounting to Rs.3.17 crore as personal security exps.

When the AO asked for the details of exps, the assessee replied that the expenses

were for security for the personal safety & the payments made in cash. Thereafter,

by way of a letter, the assessee informed the AO that the claim was made on a

belief that it was allowable but as it is not feasible to substantiate the claim, the

revised return may be taken to be withdrawn. The AO had proposed to treat the

expenditure claim as unexplained expenditure u/s 69C but after considering the

assessees reply, did not pursue the matter.

After the assessment was finalized, the CIT issued show cause notice u/s 263

containing the grounds on which the assessment order was proposed to be revised.

On getting the replies to the show cause notice, the Commissioner set aside the

order of assessment and directed a fresh assessment on the principal ground that

requisite and due enquiries were not made by the AO prior to finalization of the

assessment. On this basis, the CIT came to the conclusion that the order in question

was erroneous and prejudicial to the interests of the Revenue warranting exercise

of power under section 263. In his order, the CIT did not record any finding on the

several issues mentioned in the show cause notice whereas he recorded

conclusions adverse to the assessee in respect of issues which were not specifically

mentioned in the show cause notice. However, few of the issues, including the

claim of additional expenses in the revised return were common to the show cause

notice as well as the revisionary order.

Court observation Exercise jurisdiction under section 263 the requirement is that the order passed by

the assessing authority is erroneous and prejudicial to the interests of the revenue.

Section 263 does not require any specific show cause notice to be served on the

assessee. What is required is granting of opportunity to the assessee of being heard

before making the revision order. Failure to give such an opportunity would render

the revisionary order legally fragile not on the ground of lack of jurisdiction but

on the ground of violation of principles of natural justice. In the course of revision,

the documents and books of accounts overlooked in the assessment proceedings

were considered and at every stage of revisionary proceeding, the authorized

representative of the assessee had appeared and had full opportunity to contest the

basis on which the revisionary authority was proceeding in the matter. There is no

breach of the requirement to give a reasonable opportunity of being heard as

required under section 263. Further, it also observed that when the Assessing

Officer has dropped the investigation of the claim of expenses, it does not preclude

the Commissioner of Income-tax from looking in to the same. Making a claim

which would prima facie disclose that the expenses in respect of which deduction

had been claimed had been incurred and thereafter, withdrawing the claim gave

rise to the necessity of further enquiry in the interests of the Revenue. The notice

issued under section 69C of the Act could not have been simply dropped on the

ground that the claim had been withdrawn.

Final Conclusion So Revisionary order u/s 263 is VALID.



7) Krishna Capbox (P) Ltd (2015) (All)

Facts / Matter Can mere non-mention or non-discussion of enquiry made by the Assessing

Officer in the assessment order justify invoking revisionary jurisdiction

under section 263?

During the course of scrutiny, the AO raised certain queries which were answered

by the assessee. The AO, after being satisfied with the replies given, completed

the assessment by accepting the declared income.

Court observation Subsequently, the CIT invoked revisionary jurisdiction under section 263 by

holding that the AO had not made enquiry on certain aspects, such as-

1) Non-verification of source of investment in respect of addition in fixed assets;

2) Non-confirmation of sundry creditors by the assessee;

3) Non-enquiry of unsecured loan by the AO;

4) Not obtaining the copy of bank statements;

5) Non-verification of genuineness of shareholders;

6) Deduction of freight paid without deduction of tax at source

This all enquires available in paper book but not mention in order of AO.

Final Conclusion Since the relevant enquiries and replies are available on 'record' (i.e., the paper

book), the CIT cannot invoke revisionary jurisdiction merely because there was

no mention of such enquiry and verification in the assessment order.

8) Fortaleza Developers (2015) (Bom)

Facts / Matter Can the Commissioner invoke revisionary jurisdiction under section 263,

when the subject matter of revision (i.e., whether the manner of allocation of

revenue amongst the members of AOP would affect the allowability and/or

quantum of deduction under section 80-IB) has been decided by the

Commissioner (Appeals) and the same is pending before the Tribunal?

Court observation When the order of the first appellate authority is complete and the appeal is pending

before the Tribunal, the Commissioner is precluded from invoking section 263 for

revision of the very same matter decided by the first appellate authority since

clause (c) of the Explanation 1 to section 263 debars the same..

Final Conclusion High Court held that the order passed by the AO got merged with the order of the

first appellate authority. The very same issue cannot be revised by invoking

revisionary jurisdiction u/s 263.

9) Samsung India Electronics P. Ltd. (2014) (Del.)

Facts / Matter Can an assessee, objecting to the reassessment notice issued under section

148, directly approach the High Court in the normal course contending that

such reassessment proceedings are apparently unjustified and illegal?

Court observation HC observed that when a notice u/s 148 is issued, the proper course of action for

the NOTICEE is to file a return of income and if he so desires, to seek reasons for

issuing notices. The HC noted that the assessee has not filed objections before the

AO and has directly approached the court by way of the writ petition.

Final Conclusion Thus assessee should first respond to the Assessing Officer by filing return of

income and thereafter if the AO does not provide reason to believe he may

approach to the court.



10) Lark Chemicals Ltd (2014) (Bom.) ; ICICI Bank Ltd. (2012) (Bom.)

Facts / Matter Should time limit under section 263 to be reckoned with reference to the date

of assessment order or the date of reassessment order, where the revision is

in relation to an item which was not the subject matter of reassessment?

Court observation HC held that the order of assessment u/s 143(3) allowed deduction u/s 36(1)(vii)/

(viia). The order of reassessment, however, had not dealt with these issues.

Therefore, the doctrine of merger cannot be applied in this case. The order u/s

143(3) cannot stand merged with the order of reassessment in respect of those

issues which did not form the subject matter of the reassessment.

Final Conclusion Therefore, the period of limitation in respect of the order of the CIT u/s 263 with

regard to a matter which does not form the subject matter of reassessment shall be

reckoned from the date of the original order u/s 143(3) and not from the date of

the reassessment order u/s 147.

11) New Mangalore Port Trust (2016) (Karn)

Facts / Matter Can the original assessment order under section 143(3), which was

subsequently modified to give effect to the revision order under section 264,

be later on subjected to revision under section 263?

Court observation Earlier order passed u/s 143(3) was merged with revision order u/s 264 so CIT

cannot revise 143(3) order u/s 263.

Final Conclusion Order passed by the CIT u/s 263, revising the non-existing order is void ab initio

and is a nullity in the eyes of law.

12) Sanchit Software and Solutions Pvt. Ltd. (2012) (Bom.)

Facts / Matter Can an assessee file a revision petition under section 264, if the revised return

to correct an inadvertent error apparent from record in the original return,

is filed after the time limit specified under section 139(5) on account of the

error coming to the notice of the assessee after the specified time limit?

Assessee also filed rectification application u/s 154.

Court observation The assessee E-filed it's ROI. It committed a mistake by including dividend income

(exempted u/s 10(34) and LTCG on sale or shares (exempt u/s 10(38) in its ROI,

though the same was correctly disclosed in the schedule containing details of

exempt income. The return was processed u/s 143(1) denying the exemption u/s

10(38) and 10(34).

The HC observed that, in this case, the CIT of IT had committed a fundamental

error in proceeding without considering that the assessee had specifically sought

to exclude the same as is evident from the entries in the relevant schedule.

Final Conclusion The HC directed the AO to consider the rectification application u/s 154 as a fresh

application received on the date of service of this order and dispose of the

rectification application on its own merits, without awaiting the result of the

revision proceedings before the CIT of IT on remand, at the earliest.



PENALTIES

1) Muthoot Financiers (2015) (Del)

Facts / Matter Is penalty under section 271D imposable for cash loans/deposits received

from partners?

Court observation The HC observed that, in this case, there was no dispute as regards the money

brought in by the partners of the firm. The source of money was also not doubted.

The transaction was bona fide and not aimed to avoid any tax liability. The credit

worthiness of the partners and genuineness of the transactions coupled with

relationship between the 'two persons' and two different legal interpretations put

forward, could constitute a reasonable cause in a given case for not invoking

sections 271D /271E.

Final Conclusion The HC held that the issue being a debatable one, there was reasonable cause for

not levying penalty.

2) V. Sivakumar (2013) (Mad.)

Facts / Matter Can loan, exceeding the specified limit, advanced by a partnership firm to the

sole proprietorship concern of its partner be viewed as a violation of section

269SS to attract levy of penalty?

Court observation HC held that there is no separate identity for the partnership firm and that the

partner is entitled to use the funds of the firm. In the present case, the assessee has

acted bona fide and that there was reasonable cause within the meaning of sec

273B.

Final Conclusion Transaction cannot be said to be in violation of section 26955 and no penalty is

attracted in this case.

3) Triumph International Finance (I.) Ltd. (2012) (Bom.)

Facts / Matter Where an assessee repays a loan merely by passing adjustment entries in its

books of account, can such repayment of loan by the assessee be taken as a

contravention of the provisions of section 269T to attract penalty under

section 271E?

Court observation The transaction is bona fide in nature being a normal business transaction and has

not been made with a view to avoid tax, it was held that the assessee has shown

reasonable cause for the failure under section 269T.

Final Conclusion Therefore, as per the provisions of section 273B, no penalty under section 271E

could be imposed on the assessee for contravening the provisions of section 269T..

Note: In order to mitigate the hardship caused by certain penalty provisions in case of

genuine business transactions, section 273B provides that no penalty under, inter

alia, section 271E shall be imposed on a person for any failure referred to in the

said section, if such person proves that there was reasonable cause for such

failure



OFFENCES AND PROSECUTION

1) Bhavecha Machinery and Others (2010) (MP)

Facts / Matter Would prosecution proceedings under section 276CC be attracted where the

failure to furnish return in time was not willful?

Court observation The provisions of section 276CC to get attracted, there should be a willful delay

in filing return and not merely a failure to file return in time. There should be clear

& reliable evidence that the failure to file return in time was 'willful' and there

should be no possible doubt of its being 'wilful’.

Final Conclusion In this case, it was observed that there were sufficient grounds for delay in filing

the ROI and such delay was not willful. Prosecution proceedings u/s 276CC are

not attracted in such a case.

MISCELLANEOUS PROVISIONS

2) Dr. ManojKabra (2014) (All)

Facts / Matter Can the Assessing Officer suo moto assume jurisdiction to declare sale of

property as void under section 281?

Court observation The HC observed that the legislature had no intention to confer any exclusive

power or jurisdiction upon the IT authority to decide any question arising under

section 281. In order to declare a transfer as fraudulent under section 281, an

appropriate proceeding in accordance with law was required to be taken under

section 53 of the Transfer of Property Act, 1882. The AO is required to file a suit

for declaration to the effect that the transaction of transfer was void u/s 281 of the

IT Act; but he himself cannot assume jurisdiction to declare the sale deed as void.

Final Conclusion The AO has no jurisdiction under section 281 to suo moto declare the sale as void.

DEDUCTON, COLLECTION & RECOVERY OF TAX

1) ITC Ltd (2016) (SC)

Facts / Matter Whether “tips” received by the hotel-company from its customers (who made

payment through credit card) and distributed to the employees would fall

within the meaning of “Salaries” to attract tax deduction at source under

section 192?

Court observation The SC analysed the provisions of section 192 and noted that "any person

responsible" for paying any income chargeable under the head "salaries" is alone

brought into the dragnet of deduction of tax at source. The person responsible for

paying an employee an amount which is to be regarded as the employee's income

is only the employer. However, in the present case, the person who is responsible

for paying the employee is not the employer at all, but a third party, namely, the

customer. Thus, income from tips would be chargeable in the hands of employees

as "Income from Other Sources". Since such tips are being received from

customers and not from the employer, section 192 would not get attracted.



The Supreme Court observed that section 15 applies when an employee has a

vested right to claim any salary from an employer or former employer. However,

in the case on hand, there is no vested right on the part of the employee to claim

any amount of tips from the employer, since tips are purely voluntary amounts that

may or may not be paid by customers for services rendered. the amount of tips

paid by the employer to the employees had no reference to the contract of

employment at all.

Final Conclusion In such a case, no liability to deduct tax at source under section 192 arises, and

hence, the assessee company cannot be treated as an assessee in default for non-

deduction of tax at source from the amount of tips collected and distributed to its

employees

2) UCO Bank (2014) (Del)

Facts / Matter Is section 194A applicable in respect of interest on fixed deposits in the name

of Registrar General of High Court?

Court observation In this case, the actual payee is not ascertainable and credit of interest is not a

credit to the account of a person who is liable to pay tax.

The deposits kept with the bank under the orders of the court were, essentially,

funds which were funds in the custody of the court. The interest on that account

— although credited in the name of the Registrar General — was also part of funds

under the custody of the Court. The Registrar General is not the recipient of the

interest income.

Final Conclusion The credit by the bank in the name of the Registrar General would, thus, not attract

the provisions of section 194A

3) Hindustan Lever Ltd. (2014) (Kar.)

Facts / Matter Where the assessee fails to deduct tax at source under section 194B in respect

of the winnings, which are wholly in kind, can he be deemed as an assessee-

in-default under section 201?

Court observation Where the winnings are wholly in kind the question of deduction of any therefrom

does not arise and in the eventuality, the only responsibility, as cast u/s 194B is to

ensure that tax is paid by the winner of the prize before the prize or winnings is or

are released in his favour.

The HC observed that if the assessee fails to ensure that tax is paid before the

winnings are released in favour of the winner, then, section271C empowers the

3C to levy penalty equivalent to the amount of taxnot paid, and u/s 276B

imprisonment for a term which shall not be less than three months but which may

extend to seven years and with fine.

Final Conclusion The HC held that proceedings under section 201 cannot be initiated against the

assesse.



4) Ajmer Vidyut Vitran Nigam Ltd.,(2013) (AAR)

Facts / Matter Can the transmission, wheeling and SLDC charges paid by a company

engaged in distribution and supply of electricity, under a service contract, to

the transmission company be treated as fees for technical services so as to

attract TDS provisions under section 194J or in the alternative, under 194C?

Court observation The ARR considering the definition of fees for technical services Ws 9(1)(Vii)

and the process involved in proper transmission of electrical energy, held that

transmission and wheeling charges paid by the applicant to the transmission

company are in the nature of fees for technical services, in respect of which the

applicant has to withhold tax thereon u/s 1941. As regards SDLC CHARGES the

MR opined that the main duty of the SDLC is to ensure integrated operation of the

power system in the state for optimum scheduling and dispatch of electricity

within the state. The SDLC charges paid appeared to be more supervisory charge

with a duty to ensure just and proper generation and distribution in the state as a

whole. Therefore, such services were not in the nature of technical service to the

applicant to.

Final Conclusion Transmission and wheeling charges — TDS u/s 194J

SLDC charges —NO TDS u/s 194C/J

5) Ahmedabad Stamp Vendors Association (2012) (SC)

Facts / Matter Can discount given to stamp vendors on purchase of stamp papers be treated

as ‘commission or brokerage’ to attract the provisions for tax deduction

under section 194H?

Court observation HC observed that stamp vendors are required to purchase the stamp papers on

payment of price less discount on 'principal to principal' basis and there is not

'contract of agency' at any point of time. discount on purchases of stamp papers

does not fall within the expression 'commission or brokerage"

Final Conclusion Sale and the discount given to stamp vendors for purchasing stamps in bulk

quantity is in the nature of cash discount so section 194H not attract.

6) Intervet India P Ltd (2014) (Bom)

Facts / Matter Can incentives given to stockists and distributors by a manufacturing

company be treated as "commission" to attract —

(i) the provisions for tax deduction at source under section 1941-1; and

(ii) consequent disallowance under section 40(a)(ia) for failure to deduct tax

at source?

Court observation The HC observed that the assessee had undertaken sales promotion by way of

product discount scheme under which it offered incentive to the stockists

distributors and dealers. The relationship between the assessee and the distributors

/ stockists was that of principal to principal. The products were firstly sold to

distributors / stockists who in turn resold the goods in the market. No service was

offered by the assessee to them except a discount under the product discount

scheme/product campaign scheme to buy the assessee’s product.

Final Conclusion The HC held that such payment does not attract TDS. Consequently, disallowance

u/s 40(a)(ia) would not be attracted.



7) Bharti Cellular Ltd. (2013) (Cal.)

Facts / Matter Can discount given on supply of SIM cards and pre-paid cards by a telecom

company to its franchisee be treated as commission to attract the TDS

provisions under section 194H?

Court observation There was no sale of goods and the entire charges collected by the assessee from

the distributors at the time of delivery of SIM cards or recharge coupons were

ONLY FOR RENDERING SERVICES TO THE ULTIMATE SUBSCRIBERS.

The assessee was accountable to the subscribers for failure to render prompt

services pursuant to connections given by the distributor. Therefore, the distributor

only acted as a middlemen on behalf of the assessee for procuring and retaining

customers and consequently ,the discount given to him was within the meaning of

commission on which was deductible u/s 194H.

Final Conclusion There is an indirect payment of commission, in the form of discount, by the

assessee-telecom company to the franchisee. Therefore, the assessee is liable to

deduct tax at source on such commission as per the provisions of section 194H.

8) Qatar Airways (2011) (Bom.)

Facts / Matter Can the difference between the published price and the minimum fixed

commercial price be treated as additional special commission in the hands of

the agents of an airline company to attract TDS provisions under section

194H, where the airline company has no information about the exact rate at

which tickets are ultimately sold by the agents?

Court observation HC observed that the difference between the published price and minimum fixed

commercial price cannot be taken as additional special commission in the hands

of the agents. Since the published price was the maximum price and airline

company had granted permission to the agents to sell the tickets at a price lower

than the published price, In order to deduct tax at source the exact income in the

hands of the agents must necessarily be ascertainable by the airline company.

However, the airline company would have no information about the exact rate at

which the tickets were ultimately sold by its agents, since the agents had been

given discretion to sell the tickets at any rate between the minimum fixed

commercial price and the published price.

Final Conclusion It would be impracticable and unreasonable to expect the airline company to get a

feedback from its numerous agents in respect of each ticket sold. Thus tax at

source was not deductible, even though the amount earned by the agent over and

above the minimum fixed commercial price would be taxable as income in his

hands.

9) Japan Airlines Co. Ltd. & Singapore Airlines Ltd. (2015) (SC)

Facts / Matter Are landing and parking charges paid by an airline company to Airports

Authority of India in the nature of rent to attract tax deduction at source

under section 194-I? Court observation The SC observed that the charges which are fixed by the MI for landing and take-off services as well

as for parking of aircrafts are not for the "use of the land". These charges are for services and facilities

offered in connection with the aircraft operation at the airport which include providing of air traffic

services, ground safety services, aeronautical communication facilities, installation and maintenance

of navigational aids and meteorological services at the airport.

Final Conclusion So TDS not attracted u/s 194I.TDS attracted u/s 194C



10) Indus Towers Ltd (2014) (Del)

Facts / Matter Is payment made for use of passive infrastructure facility such as mobile

towers subject to tax deduction under section 194C or section 194-I?

Court observation The High Court observed that it was the intention of the parties to use the technical

and specialized equipment maintained by the assessee. The infrastructure was

given for the use of mobile operators. The towers were the neutral platform

without which the mobile operators could not operate.

- The dominant intention was the use of equipment or plant or machinery and the

use of premises was only incidental.

Final Conclusion The underlying object of the arrangement was the use of machinery, plant or

equipment i.e., the passive infrastructure. It directed that TDS to be made at 2%

as per section 194I.

11) Senior Manager, SBI (2012) (All.)

Facts / Matter In respect of a co-owned property, would the threshold limit mentioned in

section 194-I for non-deduction of tax at source apply for each co-owner

separately or is it to be considered for the complete amount of rent paid to

attract liability to deduct tax at source?

Court observation HC held that, since the share of each co-owner is definite and ascertainable, they

cannot be assessed as AOP. The income from such property is to be assessed in

the individual hands of the co-owners.

Final Conclusion Threshold limit mentioned in section 1941 has to be seen separately for each co-

owner.

12) Shree Mahalaxmi Transport Co. (2011)(Guj.)

Facts / Matter Can the payment made by an assessee engaged in transportation of building

material and transportation of goods to contractors for hiring dumpers, be

treated as rent for machinery or equipment to attract provisions of tax

deduction at source under section 194-I?

Court observation The HC observed that the assessee had given contracts to the parties for the

transportation of goods and had not taken machinery and equipment on rent. The

court observed that the transactions being in the nature of contracts for shifting of

goods from one place to another would, covered as works contract thereby

attracting the provisions of section 194C.

Final Conclusion TDS u/s 194C applicable.

13) Kotak Securities Ltd (2016) (SC)

Facts / Matter Would transaction charges paid by the members of the stock exchange for

availing fully automated online trading facility, being a facility provided by

the stock exchange to all its members, constitute fees for technical services to

attract the provisions of tax deduction at source under section 194J?



Court observation The services provided by the stock exchange are available to all members in respect

of every transaction that is entered into. There is nothing special, exclusive or

customized in the service that is rendered by the stock exchange. A member who

wants to conduct his daily business in the stock exchange has no option but to

avail such services. Each and every transaction by a member involves the use of

such services provided by the stock exchange for which the member is required to

pay transaction charge based on the transaction value besides charges for the

membership of the stock exchange.

Final Conclusion The transaction charges paid to SSE by its members are not for technical services

but are in the nature of payments made for facilities provided by the stock

exchange. Such payments would, therefore, not attract the provisions of tax

deduction at source u/s 194J.

14) V.S. Dempo & Co P Ltd (2016) (Bom)

Facts / Matter Is tax is required to be deducted under section 195 on the demurrage charges

paid to a foreign shipping company which is governed by section 172 for the

purpose of levy and recovery of tax?

Court observation Since section 172 dealing with shipping business of non-residents contains a non-

obstante clause and applies both for the purpose of the levy and recovery of tax in

the case of any ship carrying passengers etc., belonging to or chartered by a non-

resident and shipping at a port in India.

Final Conclusion There would be no obligation on the payer-assessee to deduct the tax at source u/s

195 on payment of demurrage charges to the non-resident shipping company.

15) Wizcraft International Entertainment (P) Ltd (2014) (Bom.)

Facts / Matter Is payment made to an overseas agent, who did not perform any service in

India, liable for tax deduction at source?

Court observation Service rendered by the agent was outside India and hence, was not chargeable to

tax in India

Final Conclusion Thus, the requirement for TDS u/s 195 on such payment does not arise.

16) Priya Blue Industries (P) Ltd (2016) (Guj)

Facts / Matter Can items of finished products from ship breaking activity which are usable

as such be treated as “Scrap” to attract provisions for tax collection at source

under section 206C?

Court observation The 'waste and scrap' must be from manufacture or mechanical working of material

which is definitely not usable as such because of breakage, cutting up, wear and

other reasons. Since the assessee is engaged in ship breaking activity, these

products are finished products obtained from such activity which are usable as

such and hence, are not 'waste and scrap' though commercially known as scrap.

Final Conclusion Any material which is usable as such would not fall within the ambit of the

expression 'scrap' so NO TCS.



17) Bhagat Construction Co (P) Ltd (2016) (SC)

Facts / Matter Is levy of interest u/s 2348 attracted in a case where the assessment order does

not contain any specific direction for payment of interest, but is accompanied

by form ITNS 150 containing a calculation of interest payable on tax

assessed?

Court observation The Form I.T.N.S 150 is also a form for determination of tax payable and when

it is signed or initialled by the AO, it is certainly an order in writing by the AO

determining the tax payable within the meaning of section 143(3). The said form

also contains the calculation of interest payable on the tax assessed. This form

must, therefore, be treated as part of the assessment order. The SC further observed

that the provisions of section 234B are attracted the moment an assessee liable to

pay advance tax has failed to pay such tax or the advance tax paid by him is less

than 90% of the assessed tax. The assessee, thus, becomes liable to pay simple

interest at 1% for pm or part of the month.

Final Conclusion The levy of interest u/s 2346 is automatic when the conditions specified therein

are satisfied and the assessment order is accompanied by the prescribed form

containing the calculation of interest payable.

Documents

CASE LAWS FOR MAY 2018 Compiled by Ashik Babu · 2020-05-30 · CASE LAWS FOR MAY 2018 Compiled by Ashik Babu BASIC CONCEPTS 1) Saurashtra Cement Ltd. (2010) (SC) Facts / Matter What