Recent Judgements Direct Taxes

From Jan 2008 to Feb 2011 This is arranged from latest to oldest

S. 2(24) Income The act of affirmative voting in favour of the resolution passed in the EOGM is not a recurring event to likely happen regularly, nor it is expected to happen again and again and, hence, the receipt of money for affirmative voting for the resolution is not a receipt in the nature of an income. CIT vs. David Lopes Menezes [2010] 195 Taxman 131 (BOM.) S. 28 (iv), 41(1) Waiver of loan taken for purchase of capital Asset Assessee availed loan from the bank for the purchase of capital assets. On waiver of such loan there is no change in character with regard to the original receipt, which was capital in nature into that of trading transactions. Accordingly waiver of loan taken for purchase of capital asset is not chargeable u/s 28 (iv). Further on waiver of such loan S.41(1) is not also. Since S 41(1) only applies with respect to trading liability on which earlier deduction was allowed. Iskraemeco Regent Ltd. vs. CIT (2011) 49 DTR (Mad.) 185 S. 32 Depreciation on passive assets The word “used” even though interpreted in wider sense, it cannot extend for non-user of assets for number of years. However, High Court appreciating the concept of block of assets held that assessee is entitle for depreciation on assets of the unit which is closed for last several years but forms part of block. CIT vs. Oswal Agro Mills Ltd. ITA No.161 of 2006 Order dt. 24-12-2010 (Del.). S. 32 Depreciation on intangible assets The assessee paid consideration for business in excess of value of tangible assets. The excess payment represents payment made towards the marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information or consumption patterns and habits of consumers in the territory. Though such excess was recorded in the books as Goodwill, assessee was entitled for the depreciation, if true nature of assets comes in the ambit of ‘any other business or commercial rights of similar nature.’ Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, and commerce, as is understood, is a wider term which encompasses in its fold many a facet. CIT vs. Hindustan Coca Cola Beverages Pvt. Ltd. ITA Nos.1391/2010, 1394/2010 & 1396/2010 (Del.) Order Dt 14-1- 2011 S. 40(a)(i) Exchange fluctuation The provision made by the assessee towards foreign exchange fluctuation in respect of technical know-how fee is a permissible deduction and the provisions of section 40(a)(i) of the Act is not applicable. CIT vs. Mac Charles (India) Ltd. [2010] 195 Taxman 296 (KAR.) S. 40A(2) Excessive and unreasonable payment to related party Subsidiary company is not a related person within the meaning of section 40A(2)(b)(ii). As a subsidiary is not a member of holding company provisions of this clause are not attracted. [2011] 196 Taxman 193 CIT vs. V.S. Dempo & Co (P) Ltd. (Bom) S. 45 Characterisation of payment as Goodwill Assessee firm engaged in running profitable concern for last 25 years, was taken over as a going concern without any specific payments of goodwill. Amount received towards transfer of technical know how and non-compete fees was in effect payment for goodwill and accordingly such sums are chargeable as long term capital gains. Indo Tech Electro Co. vs. DCIT (2011) 49 DTR (Mod.) 218 S. 56 Interest from Sick Company

All concerned parties will have to comply and abide by the provisions of the SIC Act, 1985 irrespective of the provisions of IT Act to levy and collect the tax on the interest earned by the grantor of loan in absence of challenge to the order of BIFR. BIFR ordering for waiver of interest payable by debtor, in favour of the assessee no interest would accrue under the Act and accordingly such interest is not exigible to tax CIT vs. Kadremukh Iron Ore Co. Ltd (2011) 50 DTR (Kar) 57 S. 115JA, 234B & 234C Advance tax on tax payable on MAT Interest U/s 234B & 234C shall be payable on failure to pay advance Tax in respect of tax payable U/s 115JA / 115JB - CIT vs. Rolta India Ltd (2011) 49 DTR (SC) 346 115JAA MAT Credit If an assessee is entitled to a tax credit as a consequence of the assessee making payment of tax under section 115JA(1) in the year one, then, the set off of such tax credit follows as a matter of course once the conditions mentioned in section 115JAA are fulfilled and the grant of such credit is not dependent upon determination by the Assessing Officer. MAT credit available under section 115JAA has to be excluded while calculating ‘assessed tax’ under section 234B. Further a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute. CIT vs. Tulsyan NEC Ltd. [2011] 196 Taxman 181 (SC) S. 115JB Adjustment to book profits The net profit should be reduced by the amount withdrawn from reserves if any such amount is credited to P & L A/c. The reduction under Cl. (i) could be availed of only if revaluation reserve had increased the book profit. Indo Rama Synthetics (I) Ltd vs. CIT [2011] 330 ITR 363 (SC) S.142(2A) Special Audit In absence of the order showing consideration of legal requirements and reasons on which the opinion may have been formed for directing special audit, such order is directing special audit is bad in law. The order mentioning grant of approval by the Commissioner without any mention as to why it was considered necessary having regard to nature and complexity of accounts and interest of revenue that special audit was necessary, is not sufficient. The further it was observed that fact remains that the reasons are conspicuous when such reasons are absent in the order. Hind Samachar Ltd.vs. ACIT [2011] 196 Taxman 278 (P. & H.) S. 147 Reassessment Additions made during block assessment were deleted by Tribunal. Post deletion AO issued notice to re-assesee it, as income escaped assessment u/s 147. It was held that once the Tribunal has arrived to the conclusion that the alleged amounts are not the undisclosed income, it cannot be treated as the escaped income, chargeable to tax, under the provision of section 147 of the Act. It is not open to the assessing authority to circumvent the order of the Tribunal and to take a different view. Vishwanath Prasad Ashok Kumar Sarraf V. CIT [2010] 327 ITR 190 (ALL.) S.163 Agent of Non-resident The assessment could be made on legal representative only after he is appointed as an agent within the meaning of S. 163. Mere holding of power of attorney without fulfilling the description of ‘agent’ in relation to non-resident, as envisaged u/s 163 would not make such person an agent. CIT vs. Mulesh B. Shah [2010] 195 Taxman 15 (Guj) S 244A(2) Interest on Refund Interest under section 244A could not be denied only on the ground that the TDS certificates were not furnished along with the return of income but were filed during the course of the assessment proceedings. CIT vs. L & T Ltd [2010] 196 Taxman 308 (Bom) S. 263 Revision Where details are available in audit report and explanation was offered before AO, who then takes a one view which is a plausible one. The Commissioner is not entitle to exercise jurisdiction u/s 263 merely on the ground that in the books of accounts it was mentioned as “goodwill” and nothing else. CIT vs. Hindustan Coca Cola Beverages Pvt. Ltd. ITA Nos. 1391/2010, 1394/2010 & 1396/2010 (Del.) Order Dt 14-1- 2011

S. 276 r.w.s. 2(35) Prosecution Before launching a prosecution under Section 276B of the Act against the directors of a company, Assessing Officer has to issue notice under Section 2(35) of the Act expressing his intention to treat such directors of a company as “principal officers”. However, it may not be necessary to issue a separate notice or communication to all the directors that they are to be treated as “principal officers”, if in the show-cause notice issued to the company it is mentioned that the directors are to be considered as principal officers of the company under the Act. ITO vs. Delhi Iron Works (P.) Ltd. [2010] 195 Taxman 372 (Delhi) ITAT S. 35(2AB) Inhouse R & D facilities Considering the phraseology used “on in-house research or development facility” and not “by in-house research and development facility” u/s 35(2AB), the expenditure incurred on inhouse research is only entitled for weighted deduction. Concept Pharmaceuticals Ltd. vs. ACIT ITA No.1739/M/2009 AY 2005-06, ITAT Mumbai “C” Bench order dt. 19.11.2010 S. 40A(3) Cash payment between Principle & Agent Once the relationship between the franchisee-distributor and the service-provider to be one of Principal and Agent, there is no question of any ‘purchase’ by the latter, and the income arising thereto is only in the nature of a commission or remuneration against services rendered. As such, there is no question of allowance of any ‘expenditure’ in respect of purchases qua which section 40A(3) could apply, irrespective of the ‘mode of payment’ thereof. S. Rahumathulla vs. ACIT [2010] 127 ITD 440 (Cochin) 43B(b) Late payment of Employee’s Provident fund Payment of employees contribution to provident Fund beyond due date would be allowed as deduction if such payment is made before due date of filing return. ACIT vs. Ranbaxy Laboratories Ltd (2011) 7 ITR (Trib) 161 (Delhi) S. 54F(4) Capital Gain Account Scheme On sale of property assessee deposited sums in capital gains deposit scheme. Thereafter assesse purchased new house property availing of loan on a Capital Gain Deposit scheme within a stipulated period of 2 years from the date of transfer. Assesse having no other income other than arising them sale of property. The assesse had a time to file the return of income U/s. 139(4) and assesse is entitle to claim deduction U/s 54F. P. Thrimoorthy, P Mohan Gandhi vs ITO (2011) 7 ITR (Trib) 10 (Chennai). S. 80-IB(10) Housing projects The area of 1 acre should be available for the housing project inclusive of amenities required to be set apart as per the norms of a Corporation. 15 per cent of area, to be earmarked or set-apart or reserved or segregated out of the total area meant for the purpose of project in terms of rules/regulation of a local body and without that segregation the project could not be sanctioned then that portion being mandatory for amenity purposes has to be taken as a part and parcel of the land available for the project. Bunty Builders vs ITO [2010] 127 ITD 286 (Pune) S. 147 Reassessment The issue of jurisdiction of the authorities is fundamental and is like the root of the proceedings or matter. Assessee is entitled to challenge the validity of proceedings initiated under s. 147 in the second round of litigation before the Tribunal, arising pursuant to matter being remanded back to AO (by ITAT), even though initially ie during first round before the Tribunal such question was not raised. In a way that issue is always open to challenge even if the round is second or third. As long as the issue had not reached the finality, it is always open to question or challenge in judicial proceedings. Hemal Knitting Industries vs ACIT [2010] 127 ITD 160 (Chennai)(TM) S. 254 Recall of Order post its pronouncement It is a long standing convention in the Tribunal that if dissenting orders have to be passed, they should be passed within fifteen days. Third member observed that the fact that Judicial Member had todevote nearly twenty five pages to point out the error and then to

set it aside for re-consideration, itself proved that the conclusion of the Judicial Member was the result of a long drawn-out process of reasoning on points where there may conceivably two opinions. On the facts it was held that the order pronounced in the Court could not be called for rehearing. ITO vs. Smt. V. Meenakshi [2011] 128 ITD 1 (Chennai)(TM) S. 263 Order prejudicial to revenue Commissioner cannot evoke its jurisdiction u/s 263, where Assessing Officer did not conducted enquiry into books of account during the assessment proceeding, in way Commissioner wanted it. SICAL Logistics Ltd. vs. ACIT [2010] 127 ITD 187 (Chennai)(TM) Lachman Dass Bhatia Hingwala vs. ACIT (Delhi High Court – Full Bench) Re: Sec. 254(2) > Tribunal entitled to recall order in entirety to rectify apparent mistake In this appeal, the ITAT passed an order. Later on, it passed a fresh order recalling the earlier one by taking a view that there was an apparent mistake in the original order and fixed the case for fresh hearing. The assessee challenged this move by filing a writ petition before the Delhi High Court and challenged the powers of the ITAT in recalling entire order. The assessee argued that while the ITAT could rectify apparent mistakes but could not recall the order in its entirety. On these facts, the High Court upheld the view of the ITAT and held that Tribunal is entitled to recall order in entirety to rectify apparent mistake. Indo Tech Electric Co vs. DCIT (Madras High Court) Corporate Veil – Income Tax - Form of transaction can be ignored In this case, the assessee firm comprising of father and son, sold its business to a limited company on going concern basis. The partners of the firm were directors of the buyer limited company. The buyer company paid Rs. 1.25 Crores towards “Technical know-how” and Rs. 36 lakhs towards ‘noncompete compensation for pending orders’ and Rs. 33 lakhs towards ‘noncompete compensation for future orders’. The firm claimed all these receipts free of tax. However, the AO taxed entire sum and assessed as consideration for transfer of “goodwill” u/s 55. On appeal, the CIT (A) upheld the assessee’s stand with regard to the technical know-how & “non-compete compensation for pending orders” and rejected the assessee’s contention in respect of ‘noncompete compensation for future orders’. The assessee as well as the department filed appeals before the ITAT. The Tribunal upheld the stand of the AO on the ground that the arrangement to pay technical know-how etc was a “colourable device to evade tax” and the entire amount was assessable as “goodwill”. On appeal by the assessee, the High Court upheld the order of the Tribunal and held that the corporate veil could be lifted and the form of transaction could be ignored where the arrangement between the persons involved are merely colourable device to evade taxes. Vodafone Essar Ltd vs. Dispute Resolution Panel (Delhi High Court) Sec. 144C > Dispute Resolution Panel (DRP) > Cogent and germane reasons In this case, DRP has given directions u/s 144C. The assessee filed a Writ Petition to challenge the order of the Dispute Resolution Panel (DRP) on the ground, inter alia, that the DRP had not given any reasons in support of its directions to the AO. Before the Delhi High Court, the DRP accepted that they should have given cogent and germane reasons for their directions in the order and its order deserves to be quashed. Hotel Leela Venture vs. Ag. ITO (Kerala High Court) Recovery proceedings - No coercive recovery - if first appeal ready for hearing In this case, the assessee has filed appeals before the Commissioner (Appeals) and the appeals were also posted for hearings. The AO without considering the pendency of appeals has issued demand notices and took steps to attach the bank account of the assessee. The assessee has filed writ petition before the Kerala High Court and

challenged the move which was opposed by the department on the ground that the assessee had been seeking adjournments for hearing before the Commissioner (Appeals). The High Court was pleased to allow the writ petition and held that: i) The appellate authority is directed to dispose of the appeals at the earliest possible, after affording an opportunity of hearing to the assessee, at any rate within a period of one month from the date of receipt of a copy of the Court’s judgment; ii) Till such time orders are passed by the appellate authority, recovery steps shall be kept in abeyance; iii) If there is any non-cooperation from the part of the assessee, the appellate authority is at liberty to finalise the appeals without providing any further opportunity of hearing. KEC International Limited vs. ACIT (ITAT Mumbai) Re: Stay of Demand - Ability to pay - No bar for grant of stay on recovery In this case, the assessee filed a stay application before the Tribunal. The Department opposed the application by taking a plea that the company has ability to pay the tax demand and paucity of funds has not been demonstrated in its application by relying on judgment of the Supreme Court in CCE vs. Dunlop India 154 ITR 172 (SC) and argued that for this reason alone stay should not be granted. The Tribunal granted stay of tax demand and rejected the contention of the department. The Tribunal observed that ‘The Supreme Court’s observations in Dunlop cannot be interpreted to mean that the Tribunal is denuded of the powers to grant stay until case for financial stringency is successfully made out by the applicant’. The Tribunal observed that there is no conflict in holding this view as also adhering to the settled principles governing grant of stay which lay down that financial constraints of the applicant are important, even if not sole of qualifying, consideration in entertaining a stay application, besides considerations like existence of strong prima facie case, balance of convenience and possibilities of Revenue’s rights of recovery being prejudiced by waiting till the outcome of appeals. Arif Akhtar Hussain vs. ITO (ITATMumbai) Re: Sec. 50C – Application to development rights in property The assessee was inherited a property and entered into an agreement with a developer for development of the property and received Rs. 63 Lakhs as consideration for the same and offered the same for Capital gains. The Stamp Authority valued the transaction at Rs. 4.73 Crores. The DVO valued the same at Rs. 1.81 Crores. The AO invoked the provisions of section 50C and adopted the DVO’s valuation as the consideration. This was confirmed by the CIT (A). Before the Tribunal, the assessee argued that there was a distinction between “rights in land & building” and the “land and building” and that s. 50Cdid not apply to “rights” in land&building such as development rights. It was pointed out that the fact that only development rights were transferred was borne out by the fact that the assessee was shown as owner of the property in the municipal records. It was also pointed out that the stamp duty law made a distinction between transfer of development rights and transfer of the property by imposing different rates of duty. The Tribunal rejected the arguments of the assessee and held that the argument that transfer of development rights does not amount to transfer of land or building and therefore section 50C is not applicable is not acceptable for: i) Giving of possession in part performance of a contract as per section 53A of the Transfer of Property Act is deemed to be a transfer u/s 2(47) of the Income Tax Act, 1961; ii) The assessee received the sale consideration and handed over possession of the property vide the development agreement, the condition prescribed in s. 53A of the Transfer of Property Act was satisfied and u/s 2 (47) (v) the transaction of transfer was completed. The fact that the assessee’s name stands in the municipal records does not change the nature of the transaction. Zylog Systems vs. ITO (ITAT Chennai Special Bench)

Re: Sec. 10B - foreign expenditure for self purposes - turnover retained abroad – Whether could be reduced from “export turnover” In this case, the assessee was engaged in the business of development of software by way of on-site and off-shore development and had a branch in USA for which separate accounts were maintained. Recent Decisions – Direct Taxes – Jan 11 The assessee had claimed deduction u/s 10B in respect of the exports of software made. In computing the export turnover, the AO held that an amount of Rs. 3.33 Crores incurred by the USA branch constituted “expenses incurred in foreign exchange in providing technical services outside India” and had to be deducted from the export turnover as provided in section 10B. He also held that the turnover of the USA branch to the extent of Rs. 15.14 Crores had to be reduced from the export profits as it had not been received in convertible foreign exchange in India within the period specified in s. 10B (3) but retained abroad. On appeal, the CIT (A) upheld the claim of the assessee with regard to Rs. 15.14 Crores while he rejected the claim with regard to the expenditure of 3.33 Crores. The assessee as well as the department filed appeals before the Tribunal. A special bench was constituted to decide the issue. The special bench decided both the issues in favour of the assessee and held that :- i) As regards the expenditure of Rs. 3.33 Crores incurred abroad, though the definition of “export turnover” in section 10B excludes “expenses incurred in foreign exchange in providing technical services outside India”, expenses incurred in a foreign country towards pay roll etc in connection with staff in the foreign branch is not covered because there is no provision of technical services to any outside agency but it is towards fulfillment of the object to develop software. A person cannot provide services to self. Even as per Circular Nos. 621 dated 19-12-91 and 694 dated 23-11-94, expenditure incurred on site abroad is eligible for deduction u/s. 10B; ii) As regards the turnover of Rs. 15.14 Crores retained abroad, one limb of the Government cannot be allowed to defeat the operation of the other limb. While section 10B requires the foreign exchange to be brought to India within the prescribed period, the RBI permits the assessee to retain the said foreign exchange abroad for specific purposes. RBI is the competent authority for section 10B as well. The result is that the reinvestment of export earning is deemed to have been received in India and thereafter to have been repatriated abroad. Vinod Kumar Jain vs. CIT (2010) 46 DTR 253 S. 2(14), 2(29A), 2(42A) : The assessee was allotted the flat on 27/02/1982 by issuance of an allotment letter and he had been making instalment payments in terms thereof. However, the specific number of flat was allotted to the assessee and possession was delivered on 15/05/1986. It was held that the right of the assessee prior to 15-5-1986 was a right in the property and it cannot be held that prior to the said date the assessee was not holding the flat. Thus the gain arising out of sale of flat, allotted to assessee vide allotment letter dated 27/02/1982 and sold on 6/01/1989 is a long term capital gain even though possession was granted on 15/05/1986. CIT vs. Salitho Ores Limited (2010) 46 DTR (Bom) 377 S. 37(1) : The assessee is the best judge in the matter of commercial expediency. Assessee incurs expenditure in pursuit of a business opportunity. But sometimes judgement as to the existence of a business opportunity turns sour. Expenditure incurred for pursuit of the business or exploitation of business opportunity cannot be denied by tax authorities on the ground that the decision was imprudent. Accordingly it was held that lease rent of 4 dozers is allowed as deduction even if 3 out of 4 dozers were not used at all. CIT vs. Glaxosmithkline Asia (P) Ltd (2010) 47 DTR (SC) 65 Sec. 40(A)(2): In the case of domestic transactions, the under-invoicing of sales and over-invoicing of expenses ordinarily will be revenue neutral in nature, except in two

circumstances having tax arbitrage— [i] If one of the related Companies is loss making and the other is profit making and profit is shifted to the loss making concern; and [ii] If there are different rates for two related units [on account of different status, area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of tax arbitrage. For example, sale of goods or services from non-SEZ area [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less profit taxable and non-taxable division will have a higher profit exemption. All these complications arise in cases where fair market value is required to be assigned to the transactions between related parties in terms of Section 40A(2). In order to reduce litigation, we are of the view that certain provisions of the Act, like Section 40A(2) and Section 80IA(10), need to be amended empowering the Assessing Officer to make adjustments to the income declared by the assessee having regard to the fair market value of the transactions between the related parties. The Assessing Officer may thereafter apply any of the generally accepted methods of determination of arm’s length price, including the methods provided under Transfer Pricing Regulations. The Court further suggestions the law should be amended to make it compulsory for the taxpayer to maintain Books of Accounts and other documents on the lines prescribed under Rule 10D CIT vs. Vijay Kumar Goel (2010) 235 CTR (Chattisgarh) 516 Sec. 40(A)(3) read with Rule 6DD(d)(iv): Payment made through bankers cheque/ pay order / CDR, are bills of exchange and payments made through these instruments cannot be disallowed u/s 40A(3) read with Rule 6DD(d)(iv). CIT vs. Maruti Employees Co-Op Hous. Soc. Limited (2010) 235 CTR (P&H) 407 57(iii) : Interest was derived on deposits made by the members as to so requiring the assessee to discharge the liability of maintaining their house. As a matter of executing the obligations of the deposits made, the assesse was incurring expenses. Accordingly expenses incurred towards maintenance of houses by the assessee were allowed as a deduction against such income. CIT vs. Smt Alka Bhonsale (2010) 46 DTR (Bom) 253 Sec. 94 : Mutual fund unit striping - the conditions prescribed in clause (a),(b) and (c) of sub-section (7) of Section 94 are intended to be cumulative in nature. Sakthi Textile Limited vs. JCIT (2010) 46 DTR (Mad) 191 Sec. 147 , 148 AY: 1991-92, 1992-93, 1993-94 : Having entertained an writ petition, if the same is dismissed after several years on the ground of availability of alternative remedy it would not be in the interest of justice. CIT vs. Bhagwati Steels (2010) 47 DTR (P&H) 75 S. 194C: On the facts of case it was held that where whole of the distribution agreement was considered as transaction of goods per se, it cannot be segregated for the purpose of payment of expenses viz. freight charges and accordingly amount of freight charged separately in the invoice cannot be held liable for deduction of tax at source u/s 194C Brij Lal vs. CIT [2010] 194 Taxman 566 (SC) Settlement Commission: Provisions dealing with a regular assessment, self assessment and levy & computation of interest for default in payment of advance tax, etc are engrafted under chapter XIXA pertaining to settlement of cases. Interest u/s 234B is levied up to the date of order u/s 245D(1) and not upto the date of order u/s 245D(4). The Settlement Commission cannot reopen its concluded proceedings by invoking S. 154 so as to levy interest u/s 234B particularly in view of S. 245-I Tribunal Inter Gold (I)(P) Ltd vs. JCIT 2010 47 DTR (Mumbai) (Tribunal) 150 S. 4, 28(i): If the receipt is to make good actual or prospective loss in a particular trading transaction or set of transactions, it is a revenue receipt liable to tax. Any receipt towards loss of source income is capital receipt. Loss on source of income does not necessarily

mean that it must absolutely extinguish. If the source of income has been severely beaten thereby causing serious damage to the income earning apparatus itself, it will also be construed as the loss of source of income. So if goodwill of the business is damaged and later on some compensation is awarded in lieu of that, it will also fall in the same category of loss of source of income. It is imperative that the receipt should be in fact towards the loss of goodwill in general and no part of it should relate to make good loss of a particular trading transaction or set of transactions. Zylog Systems Limited vs. ITO - ITA No. 1138 & 1141/Mds/2007 Order dt 2-11-2010 (Chennai Sp. Bench) S. 10A, AY 2003-04: The appellant receiving the export proceeds in foreign exchange abroad (as per the guidelines of RBI) within due dates and utilizing the same for the purpose of business is considered as deemed receipts in India. Accordingly such receipts cannot be excluded from the exports proceeds while computing deduction u/s 10B. DCIT vs. Shree Laxmi Tractors 2010-TIOL-572-ITAT-BANG S.40A(3): Assessee granting discount from actual sale price of tractor to a customer at the time of purchase is cannot be categorised as a expenditure. It is merely an deduction from sale price and there is no actual cash payment. Hence disount is not liable for disallowance u/s 40A(3) DCIT vs. SMK Shares & Stock Broking P. Ltd ITA No. 799/Mum./2009 ‘E’ Bench, Mumbai Order dt. 24/11/2010 S.45 A.Y. 2005-06 : The assessee, a broker, disclosed gains on sale of shares as a short-term capital gains and long-term capital gains. During the assessment proceeding AO treated short term gain as business income on the ground that there was large volume and frequency of transaction. A prudent investor always keeps a watch on the market trends and, therefore, is not barred under law from liquidating his investments in shares. The law itself has recognised this fact by taxing these transactions under the head “Short Term Capital Gains”. If the Assessing Officer’s reasoning is accepted, then it would be against the legislative intent itself. It was held that if the modus operandi of the assessee remained the same in regard to other shares purchased during the year, then the assessee’s claim could not be negated only on the basis of frequency of the transaction. Godrej Agrovet Ltd. vs. ACIT, ITA 1629/M/09 ‘G’ Bench, Mumbai Order Dt 17-09-2010 S. 14A AY 2005-06 : In view of decision of Godrej Boyce Mfg. Co. Ltd. 328 ITR 81 (Bom), Rule 8D is applicable only prospectively i.e. from A.Y. 2008-09. Where the investment in shares was made out of own funds & not out of borrowed funds, relying on decision of CIT vs. Hero Cycles Ltd 323 ITR 518 (P&H) it was held that disallowance of interest u/s 14A is not sustainable. Further disallowance out of common administrative expenses was restricted to 2% of the total exempt income. Sulzer India Ltd vs. JCIT AIT-2010-503-ITAT- I.T.A. No.2944/MUM/2007 (Mum Sp. Bench) S.41(1)(a): Difference between the discounted value paid towards the future sales tax liability cannot be termed as remission/ cessation of liability because the Sate Government has neither waived any of the liability nor tax payer has enjoyed any benefit S.41(1) (a) DCIT vs. Mayavati (2010) 42 SOT 59 (Del) Sec. 56(2)(v) : In absence of any quid pro quo and any duties or obligations on the part of the assessee to render any services political or otherwise, gifts could not be held to be received from exercise of vocation of politics. However gifts upto and above specified amount i.e. 25000 to be considered u/s 56(2)(v). DCM Engineering Ltd vs. ACIT (201) 46 DTR (Del) (Trib) 505 Sec. 115JB : In order to determine book profits liable for MAT, profit as per the Profit and Loss A/c for the relevant previous year is to reduced by an amounts, lower of brought forward loss or unabsorbed depreciation as per books of accounts and not by the business loss or depreciation as per tax audit report. Further no adjustment can be made on account

of provision of gratuity and leave encashment arrived as per actuarial valuation JSW Steel Limited vs. ACIT 2010 133 TTJ 742 (Bom) Sec115JB : Debenture Redemption Reserve created even though is created towards ascertained liability is on capital account. Accordingly same cannot be deductible while computing Book Profits. N.G. Roa vs. DCIT (2010) 133 TTJ (Del.) 797 Sec. 271(1)(c) : By no stretch of imagination an making an incorrect claim tantamount to furnishing of inaccurate particulars. The claim of HRA in respect of 2 accommodations by furnishing all particulars in the return is a case of a claim of exemption made by the assessee, which in the eyes of the department is a claim not sustainable in the law is not subject to levy of concealment penalty. MICROSOFT CORPORATION VS. ADIT (ITAT DELHI) Re: Payment of Softwares through distributors – Whether Royalty? Section 9(1)(vi) Microsoft Corporation through a subsidiary which was holding license to copy Software which was available off the shelf and sell the same to the end users through distributors sold softwares in India. The issue arose whether or not remittances to be made by the distributors were liable for withholding tax by considering the same to be payments of‘Royalty’? Microsoft Corporation argued that it was selling a copyrighted article and not a copyright itself and have no PE in India and therefore no tax should be with held in India. Lower authorities held that this payment was liable for withholding tax. On facts, the ITAT, Delhi bench held that even if Microsoft Corporation did not have a PE in India during the relevant period as a copyright subsists in a computer programme and it is also a literary as also a scientific work. It is also a patent, invention or process. As the end users have made payment for transfer of rights including the granting of license in respect of copyright the payment would be in the nature of Royalty. After amendment in section 9(10(vi) w.r.e.f 01.06.1976, income u/s 9(10(vi) is deemed to accrue or arise in India even if the non-resident does not have a place of business in India. The ITAT further observed that the proposition that the DTAA will prevail over the Act is infallible. Later domestic tax legislation can over-ride treaty provisions if there is an irreconcilable conflict. As the India-USA DTAA was entered on 20.12.1990, the subsequent retrospective amendment to section 9 which provides that royalties will be deemed to accrue or arise in India even if the non-resident has no place of business in India will apply irrespective of any contrary provision in the India-USA DTAA. The ITAT further observed that as the Microsoft Corporation had filed various suits in Indian courts alleging copyright infringement when pirated or unlicensed softwares are used, it cannot ‘blow hot & cold’ in the same breath on the same issue. The ITAT has accordingly held that payment to Microsoft Corporation from end users through distributors in respect of sale of computer software is taxable in India as ‘Royalty’ u/s 9(1)(vi) of the Income-tax Act, 1961 and tax is to be withheld accordingly. (Note: The observations of the ITAT with regard to supremacy of later Indian law over the Treatise have wide ramifications. There are few other old judgments wherein different view has been taken). ASSOCIATION OF LEASING & FINANCIAL SERVICES COMPANIES VS. UOI (SUPREME COURT) Re: Difference between Operating Lease, Finance Lease&Hire Purchase - Explained The Finance Act, 1994 levied service tax in respect of leasing and hire purchase transactions. The constitutional validity of the said provisions was challenged primarily on the groundthat as under Article 366(29A) of the Constitution hirepurchase and leasing transactions are deemed to be a ‘sale’ and liable to sales-tax, only the State Legislature has jurisdiction to impose tax and not Parliament. The Supreme Court dismissed the challenge and held that:- (i) The circulars and guidelines issued by RBI read with AS-19“Accounting for Leases”

issued by the ICAI show that the equipment leasing and hire-purchase are activities undertaken by NBFCs and banks are regulated as parabanking activities by the RBI. Such activities of leasing & hire-purchase are financing activities and that fall within the meaning of the words “banking and other financial services” for purposes of service tax. The taxable event is rendition of service and it is not a tax on material or sale; (ii) In a hire-purchase, there is a hire of goods with the option to purchase. If that is the real effect of the agreement there is no contract of sale until the hirer has made the required number of payments and he remains a bailee till then. But some so-called hire-purchase agreements are in reality contracts to purchase; the price to be paid by installments and in those cases the contract is a contract of sale and not of hiring. However, if the intention of the financing party in obtaining the hire-purchase and the allied agreements is to secure the return of the loan advanced to its customer the transaction would be merely a financing transaction; (iii) Funding or financing the transaction of equipment leasing and hire-purchase covers two different and distinct transactions; i.e., the financing transaction and the equipment leasing/hire-purchase transaction. While the former is exigible to service tax, the latter is exigible to local sales tax/VAT; (iv) There is a difference between a “finance lease” and an“operating lease”. A finance lease transfers all the risks and rewards incidental to ownership, even though the title may or may not be eventually transferred to the lessee. In the case of “finance lease” the lessee could use the asset for its entire economic life and thereby acquires risks and rewards incidental to the ownership of such assets. In substance, finance lease is a financial loan from the lessor to the lessee. On the other hand an operating lease is a lease other than the finance lease. In a finance lease, it is the lessee who selects the equipment to be supplied by the dealer or the manufacturer, but the lessor [finance company] provides the funds, acquires the title to the equipment and allows the lessee to use it for its expected life. During the period of the lease the risk and rewards of ownership are transferred to the lessee who bears the risks of loss, destruction and depreciation or malfunctioning. The bailment which underlies finance leasing is only a device to provide the finance company with a security interest [its reversionary right]. If the lease is terminated prematurely, the lessor is entitled to recoup its capital investment [less the realizable value of the equipment at the time] and its expected finance charges [less an allowance to reflect the return of the capital]; (v) A hire-purchase agreement is a vehicle of installment credit. It is an agreement under which an owner lets chattels out on hire and further agrees that the hirer may either return the goods and terminate the hiring or elect to purchase the goods when the payments for hire have reached a sum equal Western Indiato the amount of the purchase price stated in the agreement or upon payment of a stated sum. The essence of the transaction is bailment of goods by the owner to the hirer and the agreement by which the hirer has the option to return the goods at sometime or the other. Further, in the bailment termed “hire” the bailee receives both possession of the chattel and the right to use it in return for remuneration to be paid to the bailor. In the case of hire-purchase agreement the periodical payments made by the hirer is made up of (a) consideration for hire and (b) payment on account of purchase. [Note:- This judgment is rendered in respect of a challenge for applicability of Service tax, but, in this judgment the Supreme Court took pains to define the finance lease and operating lease and important distinctions between the both are explained. This could help reducing the litigation on related issues.] BRIJLAL VS. CIT (SUPREME COURT – 5 JUDGE BENCH) Re: Interest u/ss 234-A, 234-B and 234-C – Settlement proceedings – S. 245D (1) In the light of the divergent judgments of the Supreme Court in Anjum Ghaswala (252 ITR 1) , Hindustan Bulk Carrier (259 ITR 449) and Damani Brothers (259 ITR 475), a reference was made to the Full Bench of the Supreme Court to answer the questions (i) whether ss. 234A, 234B & 234C were applicable to Settlement Commission proceedings,

(ii) whether such interest is payable up to the date of the section 245D(1) order or up to the date of the section 245D (4) order and (iii) whether the Settlement Commission can reopen its concluded proceedings by having recourse to s. 154 so as to levy interest u/s 234B, if it was not done in the original proceedings? The full bench of the Supreme Court held that the procedure to be followed by the Settlement Commission is nothing but assessment or computation of total income which takes place at the s. 245D (1) stage. In that computation, provisions dealing with a regular assessment, self-assessment and levy and computation of interest for default in payment of advance tax, etc. are engrafted. Hence interest u/ss 234-A, 234-B and 234-C are chargeable. Interest is however payable only up to the date of the s. 245D (1) order and not up to the date of the s. 245D (4) order. In a case where 90% of the assessed tax is paid but on the basis of the Commission’s order u/s 245D(4) the advance tax paid turns out to be less than 90% of the assessed tax as defined in the Explanation to s. 234B(1), no interest is payable for shortfall. The Legislature has not contemplated levy of interest between the s. 245D(1) stage and the s. 245D(4) stage. Interest u/s 234B is chargeable only till the order of the Settlement Commission u/s 245D(1), i.e., admission of the case. The Supreme Court further held that the Settlement Commission cannot reopen concluded proceedings by having recourse to section 154 to levy interest if it was not done in the original proceedings. CIT VS. JETAIRWAYS (INDIA) LTD. (BOMBAY HIGH COURT) SECTION 147: REOPENING OF ASSESSMENT In this case, the Bombay High Court had to consider validity of the assessment when the income sought to have escaped in the reasons recorded u/s 148 is not assessed but other additions are made in the assessment order passed u/s 147. The Bombay High Court held that:- (i) S. 147 provides that the AO may assess the income which has escaped assessment “and also” any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section”. Explanation 3 to s. 147 inserted by F (No. 2) Act, 2009 w.r.e.f. 1.4.1989 provides that the AO “may assess or reassess the income in respect of any issue … notwithstanding the reasons for such issues have not been included in the reasons recorded …” (ii) The words “and also” indicate that reassessment must be with respect to the income for which the AO has formed an opinion and also in respect of any other income which comes to his notice subsequently. However, if the AO accepts the objection of the assessee and does not assess the income which was the basis of the notice, it is not open to him to assess income under some other issue independently; (iii) Explanation 3 to s. 147 was inserted to supersede the judgments in Vipin Khanna 255 ITR 220 (P&H) & Travancore Cements 305 ITR 170 (Ker.) where it was held that the AO could not assess income in respect of issues unconnected with the issue for which the notice was issued. However, Explanation 3 does not affect the judgments in Shri Ram Singh 306 ITR 343 (Raj.) & Atlas Cycle Industries 180 ITR 319 (P&H) where it was held that if the AO accepted that the reasons for which the notice was issued were not correct, he would cease to have jurisdiction to proceed with the reassessment; (iv) Explanation 3 lifts the embargo inserted by judicial interpretation on the making of a section 147 assessment in respect of items not referred to in the recorded reasons. However, it does not and cannot override the substantive part of section 147 that the income for which the notice was issued must be assessable. CIT v Walfort Share & Stock Brokers (P) Ltd., 192 Taxman 211 (SC), 326 ITR 1 (SC) S. 14A : A.Y. 2000-01 : It was held that Parliament has not treated dividend stripping transactions as sham or bogus. Accordingly after April 1, 2002, losses over and above the dividend received would not be ignored u/s. 94(7). Loss is not expenditure. Section 14A and 94(7) operates in the different field. S. 14A dealt with disallowance of expenditure

incurred in earning tax-free income against the profits; on the other hand, s. 94(7) dealt with disallowance of the loss on the acquisition of an asset. A pay back is not expenditure in the scheme of s. 14A. For attracting s. 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income and since pay-back or return of investment is not such proximate cause, s. 14A is not applicable in the present case. CIT v Saurashtra Cement Ltd., 192 Taxman 300 (SC) S. 4 : A.Y. 1974-75 : Assessee engaged in manufacture of cement, entered into an agreement with a supplier for purchase of additional cement plant for certain consideration. Since supplier defaulted and failed to supply plant and machinery on schedules time, assessee received certain amount from supplier by way of liquidated damages. It was held that the amount received by assessee was towards compensation for sterilization of profit earning source and not in ordinary course of its business and, therefore, it wss a capital receipt in its hand. Timken Company, In re; 326 ITR 193 (AAR) / Praxair Pacific Ltd., In re; 326 ITR 276 (AAR) MAT u/s. 115JB on Foreign Company: Provisions for Minimum Alternate Tax is not applicable to a non-resident company or a foreign company having no presence or PE in India. CIT v Smt. Alka Bhosle, 192 Taxman 174 (Bom) S. 94 : The assessee had purchased certain units within a period of less than three months from the record date, but, admittedly, the units were sold beyond a period of three months from the record date. It was held that s. 94(7) had no application since all the three conditions as spelt out in clause (a), (b) and (c) of s. 94(7) are not satisfied. CIT v Kotak Mahindra Finance Ltd., 191 Taxman 280 (Bom) S. 32 : When assessee had admittedly leased out machinery before the end of financial year and had received lease rentals for same, it can be said that assessee has ‘used’ leased equipment for the purpose of business and fact whether lessor has put to use leased equipment or not would be irrelevant. Accordingly, assessee’s claim of depreciation was to be allowed even when lessee had not installed said machinery in the said financial year. Tribunal Decisions ACIT v Syed Maqbul Hussain, 4 ITR (Trib) 44 (Chennai) Capital Gain : A.Y. 2006-07 : During this year assessee sold land inherited by him from his mother in 1993. During the course of assessment, assessee had claimed fair market value as on 1-4-1981, since mother had acquired property prior to 1-4-1981. Assessee has also considered indexed cost by considered index of 100 for the year 1981-82. According to AO index applicable for the year 1992-93 had to be adopted since assessee became owner of the property in the year 1992-93. It was held that the base year of cost in relation to an asset which had been acquired through inheritance from the previous owner who held the property in 1956, was 1981-82. With reference to substitution of fair market value as on 1-4-1981 without a revised return, it was held that Supreme Court’s decision in the case of Goetz (India) is not applicable as it does not deal with the power of appellate authorities. Further, since claim was already there and it was only enhancement of claim, the decision of CIT(A) to consider value as on 1-4-1981 was upheld. DCIT v Times Guarantee Limited, 4 ITR (Trib) 210 (Mum)(SB) Depreciation: It was held that unabsorbed depreciation relating to A.Y. 1997-98 to AY 1999-2000 is to be dealt with in accordance with provisions of section 32(2) as applicable for AY 1997-98 to 1999- 2000. Such unabsorbed depreciation cannot be setoff against income from other sources in the year 2003-04 and 2004-05. DDIT v Scientific Atlanta Inc., 4 ITR (Trib) 422 (Mum) Assessee, a tax resident of USA, entered into an agreement with TVCL to provide satellite network communication system and also to provide certain installation and commissioning services associated with initial installation and communications thereof.

Such services were provided overseas to facilitate timely execution of the project. Further, assessee did not make available any technical knowledge, experience or skill to TVCL by way of rendering such services. Thought assessee had a PE in India, no part of services rendered overseas could be linked with the PE in India. Hence such consideration is not taxable in India under DTAA between India and USA. DCIT v Bank of Bahrain and Kuwait, 5 ITR (Trib) 301 (Mum)(SB) Loss on forward foreign exchange contract: A.Y. 1998-99, 1999-2000 : It was held that where a forward contract is entered into by the assessee to sell foreign currency at an agreed price at a future date falling beyond the last date of accounting period, the loss occurs to the assessee on account of evaluation of the contract on the last date of accounting period, i.e. before the date of maturity. It was also held that the consistent method of accounting followed by the assessee could not be disregarded only on the ground that a better method could be adopted. Although assessee has not shown any closing stock of unmatured forward contracts as on the balance sheet date and had only booked the profit and loss in that regard, there was no dispute that foreign exchange currency held by the assessee bank was its stock-in-trade and assessee had entered into forward contracts in order to protect its interest against the wide fluctuation in the foreign currency itself. Therefore, the forward foreign exchange contract had all the trappings of stock-in-trade. Also when securities were held as stock-in-trade, mere classification of the security as investment in the balance sheet was of no consequence. GARWARE POLYSTER LTD vs. STATE (BOMBAY) Failure to follow High Court’s order is contempt of court The AO passed an assessment order in which he declined to follow the judgment of the Bombay High Court in CST vs. Pee Vee Textiles 26 VST 281 on the ground that the said judgment “is not accepted by the Sales Tax Department and legal proceeding is initiated against the said judgment”. On a Writ Petition filed by the assessee, the High Court has taken the view that as the said judgment in Pee Vee Textiles is not stayed, “the refusal to follow and implement the judgment of this Court by the AO in our considered view prima facie amounts to contempt of this Court”. The Court directed issue of a show-cause notice to the AO as to why action under the Contempt of Courts Act should not be initiated against him. In Kamakshi Finance Corporation 53 ELT 433(SC), ITO v. Siemens India 156 ITR 11 (Bom), and Bank of Baroda V. Srivastava 122 TM 330(Bom), it was held that the orders of the Income Appellate a Tribunal are also binding on the AO. BAPUSHEB NANASAHEB DHUMAL vs. ACIT (ITAT Mumbai) Default u/s 194C would not attract disallowance under Section 40(a)(ia), if TDS is paid before due date of filing ROI – Before Amendment In this case during FY 2004-05, the assessee made payments to a contractor during the year but deducted tax at source only on 31/03/2005 and paid the same before the due date for filing of return. The AO disallowed the expenditure in respect of the period of April 2004 to February 2005. The CIT (A) confirmed the view taken by the AO. On appeal before the Tribunal, it is held by the ITAT, Mumbai that failure to deduct or deposit tax as per s. 194C or Chapter-XVII makes the assessee liable to the consequences provided under the said Chapter-XVII. However, section 40(a)(ia) is in addition to Chapter XVII. Section 40(a)(ia)(A) provides that if tax is deducted during the last month of the previous year and paid on or before the due date of filing of return as per s. 139(1), then such sum shall be allowed as deduction. In cases where tax is deducted other than the last month of previous year but is deposited before the last day of the previous year, then it will be allowed as deduction. Therefore, the conditions for allowability of deduction are prescribed u/s 40(a)(ia) itself and Chapter-XVII and section 194C are not relevant. The Tribunal observed that If the condition of deduction and payment prescribed u/s 194C / Chapter XVII are held applicable for disallowance of deduction u/s 40(a)(ia), then section 40(a)(ia) will be rendered meaningless, absurd and otiose. Since the assessee had

(belatedly) deducted tax in the last month of the previous year i.e. March 2005 and deposited the same before the due date of filing the return u/s 139(1), deduction had to be allowed u/s 40(a)(ia) (A). In Re ~ The Timken Company (AAR) S. 115JB (MAT) not applicable to foreign company without presence or PE in India In this case, the assessee was a foreign company having presence or PE in India. The Company earned Long Term Capital Gains (With STT) which were exempt u/s 10(38). The company applied for advance ruling on the issue whether it is liable to pay Minimum Alternative Tax (MAT) u/s 115JB of the Income Tax Act, 1961. By taking a different view than its earlier ruling in 234 ITR 335, the AAR for following reasons held that legislature did not intend section 115JB to apply to a foreign company which has no presence or a PE in India. (a) the earlier ruling (234 ITR 335) was rendered in the case of an assessee who was doing business and had a PE in India. Its income was being assessed under the head “income from business and profession”. It was required to maintain accounts under section 44AA of the IT Act and prepare accounts under sections 591 & 594 of the Companies Act; (b) Section 591 of the Companies Act applies only to foreign companies who have established a place of business within India and requires the preparation of a balance sheet and P&L Account as per section 594. The obligation in s. 115JA(2) to prepare P&L Account in accordance with Parts II and III of Schedule VI can apply only to a foreign company which has a place of business within India. As the applicant does not have a place of business in India, its preparation of P&L Account in accordance with Parts II & III of Schedule VI cannot be complied; (c) In the ruling, the AAR has not taken into account the Budget Speech, Memorandum & Notes on Clauses explaining the purpose behind introduction of section 115JA which makes the legislative intent clear that MAT was not intended to apply to foreign companies; (d) Though section 2(17) defines a “company” to include a “foreign company”, the context of the definition has to be seen. Income, which does not have a source in India, cannot be made part of the book profits. The annual accounts, including the P&L Account, cannot be prepared as per s.115JB(2) in respect of the world income and laid before the company at its AGM in accordance with s. 210 of the Companies Act. The speech of the Finance Minister and the Memorandum explaining the provision also become out of sync if the meaning of “company” appearing in s. 115JB is adopted as ‘foreign company”. Any other meaning would take away force and life from the true intent of the makers of the Act. The contention of the department that there is no demarcation between a ‘domestic company’ and a ‘foreign company’ while applying s. 115JB is not acceptable. As the applicant did not have a place of business in India and was not required to prepare its accounts under s. 594 rws 591 of the Companies Act, it could not have prepared its accounts in accordance with the provisions of Part II and III of Schedule VI of the companies Act, 1956. Accordingly, it was held that section 115JB is not designed to apply to a foreign company which has no presence or PE in India. Tecumseh India vs. ACIT (ITAT Delhi Special Bench) Amount paid for non-compete rights while acquiring business is capital expenditure In this case the assessee entered into an agreement with Whirlpool India which inter alia provided that Whirpool would not compete with Tecumseh for 5 years for a consideration. In a composite agreement the assessee agreed to pay Rs. 52.50 Crores to Whirpool for acquiring its Compressor business. The amount of Rs. 52.50 Crores included Rs. 2.65 Crores for not competing with the assessee for 5 year. Lower authorities disallowed assessee’s claim for deduction of Rs. 2.65 Crores paid towards non-compete fees. The Special Bench (Delhi) held that the assessee is not entitled to a deduction for non-

compete fees and the expenditure is on capital account. The bench observed that (i) the parties had agreed for total consideration of Rs. 52.50 Crores and it was only allocated between Assets and non-compete covenant. Accordingly, non-compete agreement can not be considered on stand alone basis. The bench further observed that all agreements form one transaction which are interwoven by a common thread. The agreements are not mutually exclusive as one cannot be fulfilled without fulfilling the other. (ii) The general proposition that in all cases of payment of non-compete fee, the purpose of making such payment is to maintain/protect the profitability of the business by insulating the same from the risk of competition and that it is, therefore, revenue in nature is not acceptable; (iii) There are several tests formulated by Courts to distinguish between capital and revenue expenditure such as the test of initial outlay of the business, the aim and object of the expenditure, enduring benefit test and the test of fixed and circulating capital. These tests continue to be applicable even in the context of the modern situation; (iv) As the ‘non-compete agreement’ is part & parcel of the entire transaction of acquisition of business, it falls under the first test which is that if the expenditure is made for the initial outlay or for the expansion of business or a substantial replacement of the equipment, then, it is capital expenditure. The incurring of expenditure also brought enduring benefit to the assessee. In Assam Bengal Cement Company a period of five years was regarded as providing enduring advantage to the assessee irrespective of the fact that the payment was to be made annually. The argument that this was a case of acquiring monopoly rights is not right because in Coal Shipment it was held that even payment made to ward off competition from a rival dealer would constitute capital expenditure; (v) Accordingly, the amount paid under the non-compete agreement is capital expenditure. Kansai Nerolac Paints vs. ADIT (ITAT Mumbai) Fee for software is NOT royalty & TDS u/s 195 not required In this case, the assessee applied for NOC u/s 195(2) for remitting of a fee to IXOS Software, Singapore to acquire software. The assessee claimed that the fee was commercial profits and not taxable in the hands of the recipient under Article 7 of the India-Singapore DTAA as the recipient did not have a PE in India. The AO & CIT (A) took the view that as the software was a “copyright” / “secret process” and the assessee had merely acquired a ‘non-exclusive & non-transferable’ license to use the software and as the Singapore Company continued to be the owner of the software, the fee constituted “royalty” under section 9(1)(vi) of the Act and Article 12 of the DTAA and that it was chargeable to tax in India. On appeal by the assessee, the ITAT, Mumbai held that the primary condition for coming within the definition of ‘royalty’ is that the payment must be received as consideration for the use of or right to use any copyright of a literary, artistic or scientific work etc. A ‘right to use the copyright’ is totally different from the ‘right to use the programme embedded in a CD’. In acquiring a ready made off-the-shelf computer programme, no right was granted to the assessee to utilize the copyright of the computer programme. The assessee had merely purchased a copy of the copyrighted article, namely, a computer programme which is called ‘software’. Computer software when put into a media and sold becomes goods like any other audio cassette or painting on canvas or book. Accordingly, the amount paid by the assessee towards purchase of the software cannot be treated as payment of “royalty” so as to be taxable in India under Article 12 of the DTAA and the assessee was not liable to deduct tax at source. Hindustan Unilever vs. DCIT (Bombay High Court) Section 147 reopening for rectifying section 154 mistakes is invalid In this case, the AO has issued a notice u/s 147 within the period of 4 years. The AO recorded four reasons to issue notice u/s 147. One of them was that the AO has committed computation error and allowed deduction of a wrong figure instead of a right figure. The assessee filed writ petition challenging that reopening inter alia on the ground that as the mistake could be rectified u/s 154 and reopening was therefore bad. Hon’ble Bombay High Court held that (i) While Explanation 2 to section 147 deem income to

have escaped assessment if excessive deduction is allowed; the reopening of an assessment u/s 147 has serious ramifications because the AO is empowered to reassess income even in respect of issues not set out in the notice. Therefore, if the power to rectify an order u/s 154(1) is adequate to meet a mistake or error in the order of assessment, the AO must take recourse to that power as opposed to the wider power to reopen the assessment. If the error can be rectified u/s 154, it would be arbitrary for the AO to reopen the entire assessment u/s 147. Further, the error in the order was not attributable to a fault or omission on the part of the assessee and the Assessee cannot be penalized for a fault of the AO; (ii) when one or more modes of assessment or remedies are available to the taxing Authority, the Authority must adopt that remedy which causes least prejudice to the assessee. GODREJ & BOYCE V. DCIT (BOMBAY HIGH COURT) Section 14-A – Various aspects In this case, the assessee challenged the decision of the special bench of the ITAT, Mumbai in the matter of Daga Capital & Management Ltd (117 ITD 169) on the applicability of section 14A & Rule 8D. Hon’ble Bombay High Court has held that (a) The argument that section 14A does not apply to shares and units because (i) the income there from is not “tax-free” in view of the ‘dividend distribution tax’ paid by the payer & (ii) the potentiality of taxable income arising on sale thereof is not acceptable because the dividend distribution tax is paid by the company u/s 115-O on its own account and not on behalf of the shareholder; (b) Section 14A(2) & (3) are constitutionally valid; (c) Rule 8D is not ultra vires section 14A; (d) As Rule 8D was introduced wef 24.3.2008, it is prospective and applies for AY 2008-09 and onwards; (e) For assessment years where Rule 8D is not applicable, the AO has to apply section 14A on a “reasonable basis”. ACIT vs Elecon Engg. Co. Ltd., 189 Taxman 84 (SC) S. 43A : A.Y. 1986-87 : Assessee company procured a foreign currency loan to finance purchase of plant and machinery. Since the amount was payable in installments, assessee booked forward contracts for entire outstanding amount. Delivery of foreign currency was obtained from time to time as per installment due and balance value of forward contract was rolled over. It was held that roll over charges represent the difference arising on account of change in the foreign exchange rates. Roll over charges paid/ received in respect of liabilities relating to the acquisition of fixed assets should be debited/ credited to the asset in respect of which liability was incurred. However, roll over charges not relating to the fixed assets should be charged to the profit and loss account. ONGC vs CIT, 189 Taxman 292 (SC) S. 43A : It was held that when assessee maintained its accounts on mercantile system of accounting and had complied with Accounting Standards laid down by the Central Government, loss suffered by assessee on account of fluctuation in rate of foreign exchange as on date of balance sheet could be allowed as expenditure u/s. 37(1) notwithstanding that liability had not been actually discharged. Further, in respect of foreign exchange loans in capital account, prior to amendment to s. 43A, assessee could adjust cost of imported assets acquired in foreign currency, on account of fluctuation in rate of exchange. CIT vs H.E.G. Ltd., 189 Taxman 335 (SC) S. 244A : A.Y. 1993-94 : During A.Y. 1993-94, amount paid by assessee towards TDS was Rs. 45,73,528 and tax paid after assessment was Rs. 1,70,00,320 aggregating to Rs. 2,16,73,848. Subsequently, assessee was entitled to refund of Rs. 2,16,73,848 which payment was made after 57 months. On this the department’s contention that word ‘any amount’ would not include interest which accrued to assessee for non refunding Rs. 45,73,528 for 57 months is not accepted.

JCIT vs Saheli Leasing & Industries Ltd., 191 Taxman 165 (SC) S. 271 (1)(c) : Following its earlier decision in the case of Gold Coin Health Food (P) Ltd, 304 ITR 308, it was held that clause (a) of Explanation 4 to s. 271(1)(C) replaced w.e.f. 1-4-2003 was clarificatory in nature and would apply to all assessments even prior to A.Y. 2003-04. Hence, penalty could be levied in a case where addition of concealed income reduces returned loss and finally assessed income is also loss. Prashant S. Joshi vs ITO, 189 Taxman 1 (Bom) S. 147 : A.Y. 2005-06 & 2006-07 : It was held that the reasons recorded by AO for reopening an assessment, are only reasons which can be considered when formation of belief is impugned. The requirement of recording reasons is a check against arbitrary exercise of power. It is only on the basis of reasons recorded and on those reasons alone the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with the age and ingenuity. It was further held that an amount paid to a partner towards his share in net partnership assets (after taking deduction of liabilities and prior charges) does not involve an element of transfer of interest in the partnership assets within the meaning of s. 2(47). Purity Techtextiles (P.) Ltd. vs ACIT, 189 Taxman 21 (Bom) S. 147 : It was held that the reasons recorded by the AO for reopening the assessment are crucial and it is on the basis of those reasons alone that the validity of an order reopening an assessment has to be decided. Even when a reopening of assessment had taken place within the period of four years from the end of the relevant assessment year, yet it was apparent that AO did not have before him any additional material at all to form a belief that income had escaped assessment and therefore reopening was not justified. CIT vs Hero Cycles Ltd., 189 Taxman 50 (P&H) S. 14A : It was held that any disallowance u/s. 14A requires finding of incurring of expenditure and where it was found that for earning exempted income no expenditure was incurred, disallowance u/s. 14A cannot stand. Umicore Finance Luxembourg, In re; 189 Taxman 250 (AAR) S. 47 & 47A : It was held that u/s. 47A(3) what is deemed to be profit and gains of successor company is the amount of profit or gain arising from transfer of such capital asset not charged earlier. At the time when firm was registered as company under part IX of the Companies Act, the consequent vesting of assets in the company did not amount to transfer and hence no capital gain had arisen within the meaning of section 45. Hence, irrespective of violation of conditions, the deeming provisions of section 47A(3) cannot be invoked. Rallis India Ltd. vs ACIT, 190 Taxman 1 (Bom) S. 147 : Earlier Supreme Court in HCL Comnet System has held that provision for bad and doubtful debts cannot be regarded as provision for liability. Subsequently, s. 115JB was amended by Finance Act, 2009 with retrospective effect from 1-4-2001. Yet this amendment was enacted in to a law after the AO had exercised the power to reopen the assessment in the present case by notice dated 16-7-2008. As a result the date on which AO exercised his jurisdiction u/s. 148, the amendments brought in by Finance Act 2009 was not in existence. In the circumstances, there was no warrant for re-opening the assessment in exercise of power conferred u/s. 147. CIT vs Varanasi Auto Sales (P) Ltd., 190 Taxman 60 (All) S. 32 : Assessee company purchased trucks in the name of directors of company and claimed depreciation. AO rejected the claim of depreciation. The Tribunal allowed the claim on the ground that the purchase of trucks in the name of directors was just for

convenience and funds for purchase was invested by assessee company. Further, income received by truck was offered to tax by company as de facto owner. The decision of Tribunal was upheld. Arthur Anderson & Co. vs ACIT, 190 Taxman 279 (Bom) S. 147 : A.Y. 2003-04 : In its return of income, assessee disclosed certain interest income as income from other sources. In notes to computation of income, it was disclosed that said interest income represented difference between interest received u/s. 244A and interest paid u/s. 220. During the course of assessment, AO had raised a query regarding said income and after considering assessee’s reply, passed an assessment order. Later AO had issued a notice u/s. 148 on the ground that entire interest u/s. 244A was required to be offered for taxation. On writ, it was held that, since assessee has disclosed fully and truly all material facts, reopening of assessment could not be sustained. Further, referring to SC decision in the case of Harshad Shantilal Mehta, it was held that interest paid u/s. 220(2) could not be considered as tax for the purpose of business disallowances. CIT vs Anuj A. Sheth HUF, 190 Taxman 330 (Bom) S. 112 : A.Y. 2001-02 : During the relevant year, assessee entered into eight sale transaction of shares. In one transaction, shares being bonus shares their cost was Nil and therefore entire sale consideration was considered as long-term capital gains. Out of remaining seven transactions, one resulted in long-term capital gains with indexation and in remaining transactions assessee reported long-term capital loss with indexation. Assessee set off long-term loss against long-term gain and paid tax of 10% on net long-term capital gain. It was held that there is nothing in the proviso to s. 112 which deprive an assessee of indexation benefit where there is resultant loss. Accordingly the contention of the revenue, that assessee is entitled to set off u/s. 70, but without the benefit of indexation, is not accepted. CIT vs Apar Industries Ltd., 190 Taxman 353 (Bom) S. 234B, 244A, 115JAA : A.Y. 2000-01 : MAT credit, to which assessee is entitled, must be given before computing interest payable u/s. 234B. Further, interest u/s. 244A is allowable on tax refundable after giving MAT credit . Tribunal Decisions DCIT vs Angel Broking Ltd., 3 ITR (Trib) 294 (Mum) S. 40(a)(ia), 194J : Assessee company, engaged in the business of stock broking, was a member of the Bombay and National Stock Exchange. As a member, assessee paid VSAT charges, lease line charges, bolt charges, demate charges, etc. According to AO all these charges are in the nature of fees for technical services and hence assessee ought to have deducted tax at source u/s. 194J. Accordingly he denied deduction for such expenses u/s. 40(a)(ia). It was held that such services provided by stock exchange cannot be considered as technical services. The facts that such services were not available to the public at large but only to registered members by itself would not make the services in question as technical services. Mustaq Ahmed vs DCIT, 124 ITD 312 (Chennai) Article 26 of India Singapore Tax treaty: Assessee was a citizen of Singapore and non-resident under the Act. For the relevant assessment year (A.Y. 2004-05) he was granted deduction u/s. 80HHC. Commissioner was of the opinion that assessee being non-resident was not eligible for deduction u/s. 80HHC. Assessee has relied on Articlee 26 of DTAA. It was noted that clause (4)(a) of article 26 of DTAA clearly mentioned that these paragraph would not be construed as obliging Contracting State to grant to the resident of other Contracting State any personal allowances, reliefs, reductions and deductions which it grants to its own residents. Accordingly it was held that s. 80HHC which provides for

deduction to residents in India could not be superseded by non discrimination clause of DTAA. Relq Software (P) Ltd. vs ITO, 125 ITD 101 (Bang) S. 10A : A.Y. 2004-05 : It was held that business loss or unabsorbed depreciation of non-STPI unit of assessee could not be set off from its income of STPI unit for computing deduction u/s. 10A. Further, payment made by assessee in foreign exchange to engineers employed on site for development of software could not be excluded from its export turnover for computing deduction u/s. 10A. CIT v Hero Cycles Ltd., 323 ITR 518 (P&H) S. 14A : Where the expenditure on interest was set off against the income from interest and investment in shares and funds were out of dividend income, the disallowance u/s. 14A is not sustainable. Disallowance is not permissible if there is no nexus between expenditure incurred and income generated. Jay Bharat Maruti Ltd. v CIT, 324 ITR 289 (Del) S. 147 - Reopening: The AO formed a belief that by charging to P&L account Rs. 25 lakhs which was closing balance in MODVAT account, the assessee’s income had escaped assessment. While passing the order, he not only made an addition for Rs. 25 lakhs but also treated certain expenses as capital in nature. It was held that no reasonable person would have come to a conclusion that there was relevant material available with AO to have reasons to believe that income chargeable to tax have escaped assessment. The Supreme Court’s decision in the case of Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500, was referred for the scope of the expression “reason to believe”. It was also held that the assessment order so far it dealt with items other than those which formed the basis of the reasons disclosed u/s. 148 was bad in law. CIT v Silical Metallurgic Ltd., 324 ITR 29 (Mad) Depreciation : Amalgamated Company: A reading of Explanation 2A to s. 43(6) makes it very clear that the WDV of the transferred capital asset to the amalgamated company would be the same as it would have been if the amalgamating company continued to hold the capital asset for the purpose of its business. Thus it is clear that the WDV of the assets would be the actual cost of the assets less depreciation allowed. Any unabsorbed depreciation which was not set off cannot be taken into account. Hence, amalgamated company was entitled to depreciation on the WDV of the assets as increased by the unabsorbed depreciation carried forward in the hands of the amalgamating company. Arthur Anderson and Co. v ACIT, 324 ITR 240 (Bom) Reassessment : Receipt of interest on tax refund and netting off against interest u/s. 220 was disclosed in Return and also during the course of assessment. Hence there is no failure on the part of the assessee to disclose material facts. Accordingly, the notice of reassessment beyond the period of four years was not valid and was liable to be quashed. Tribunal Decisions Hyundai Motor India Ltd. v DCIT, 123 ITD 445 (Chennai) S. 115JAA r.w.s. 244 and 244A : A.Y. 2003-04 : It was held that the only interpretation which can be given to the Circular No. 763 dated 18-12-1998 is that interest cannot be allowed for the intervening period. That is if MAT is paid in AY 2001-02 and the same is credited in the AY 2003-04 then for the intervening years 2001-02 and 2002-03 no interest would be payable on MAT credit. However for the year in which MAT credit is given and credit for other payments, i.e. TDS, advance tax, etc. is also given, then refund becomes due not because of MAT credit but because of the other tax payments. The reference is made to a Delhi bench’s decision in the case of Ajanta Offset & Packaging wherein it was held that credit for MAT is to be given first and then only credit for TDS and advance tax, etc. has to be allowed. Srei International Finance Ltd. v ACIT, 123 ITD 480 (Del) S. 28(i) : A.Y. 2001-02 : Assessee debited certain amount to P&L account on account of

provisions for premium on mezzanine capital. Such provision was made in respect of premium payable on redemption of unsecured subordinated bonds spread over the tenure of the bond. It was held that since face value and tenure of bonds was known and amount of premium was also fixed, it cannot be said that liability in question was incapable of being ascertained. Hence, such premium debited to P&L account was to be allowed. Keshav S. Phansalkar v ITO, 3 ITR (Trib) 236 (Mum) S. 70(3), 112 : Long-term capital loss with indexation can be set off against long-term gains without indexation after determining tax following formula provided in proviso to s. 112. DCIT v Orient Ceramics and Industries Ltd., 3 ITR (Trib) 246 (Del) Depreciation : Capital goods was imported without duty under exemption certificate in earlier year. Department later raised the demand and assessee paid custom duty. Assessee is entitled for depreciation on same irrespective of the treatment in the accounts. Further the expenditure of glow sign board is revenue expenditure. Also UPS is integral part of computers and entitled to depreciation at 60%. Vijaya Bank vs. CIT [323 ITR 166 (SC)] S. 36(1)(vii) : A.Ys. 1993-94, 1994-95 : After 1st April, 1989, a mere provision for bad debt will not be entitled to deduction u/s. 36(1)(vii). If an assessee debits an amount of doubtful debt to the profit and loss account and credits the assets account like sundry debtors account, that would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debts to the profit and loss account and makes a corresponding credit to the “current liabilities and provisions” on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debts. In later case assessee would not be entitled to deduction after 1st April 1989. T.R.F. Ltd vs. CIT [323 ITR 397 (SC)] S. 36(1)(vii) : After the amendment of s. 36(1)(vii) of the Income-tax Act, 1961, w.e.f. 1st April 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. ACIT vs. Elecon Engineering Co. Ltd. [322 ITR 20 (SC)] Ss. 36(1)(iii), 43A : The assessee has procured a foreign currency loan for expansion of its existing business, repayment of which was in instalments. It had paid rollover premium charges in respect of foreign exchange forward contracts. The High Court has allowed such cost u/s. 36(1)(iii) treating the same as interest. The Supreme Court has reversed the decision of High Court by holding that such charges in connection with purchase of fixed assets should be added towards capital cost. According to the Court, the rollover charges paid to avoid increase or reduction in liability as a consequence of the change in the rate of exchange is covered by section 43A. CIT vs. Lokmat Newspapers P. Ltd. [322 ITR 43 (Bom)] Ss. 73, 43(5) : A.Y. 2003-04 : Assessee has showed profit on sale of shares and securities held as stock-in-trade and offered it as profit of speculation business under Explanation to section 73 and set off brought forward speculation loss. The AO has not treated such profit as speculation on the ground that transactions of purchase and sale of shares were settled by physical delivery and accordingly denied the set off of speculation loss. It was held that assessee for the purpose of section 73 deemed to carry on a speculation business to the extent to which the business consist of the purchase and sale of shares. Once the assessee is carrying on speculation business and the profits and gains have arisen from such business, the assessee is entitled to set off carried forward losses from speculation business. Amiantit InternationalHolding Ltd. In re; [322 ITR 678 (AAR)] Ss. 45, 92B : The applicant, a non-resident company of Bahrain, was an investment company, having investment in various Asian, European as well as Latin American companies. It holds 70% of equity capital as investment in an Indian company, namely AFIL. Only income the applicant received from AFIL was dividend and it had no other

source of income from India. Applicant also had a 100% subsidiary company in Cyprus, namely ACHL. As a part of restructuring process, it proposed to hold all international investments through ACHL of Cyprus. Therefore applicant proposed to contribute shares of AFIL, the Indian company, in ACHL and was not to receive any consideration. On these facts, it was held that the applicant was not liable to tax in India in relation to the proposed contribution of shares of AFIL. No consideration would accrue or arise to the applicant by transfer of shares and the applicant could not be said to have derived any profit or gain from the transaction. If the consideration was such that it was incapable of being valued in definite terms or it remained unascertainable on the date of the occurrence of the taxable event, the question of applying s. 45 read with s. 48 would not arise. Further, since income was not chargeable to tax, transfer pricing provisions of s. 92B(1) would not apply. CIT vs. Blend Well Bottles P. Ltd. [323 ITR 18 (Karn.)] Depreciation: A.Y. 1994-95: On account of riots and other activities, the assessee was forced to close down the activities till the peace was restored. If for the reasons which were beyond the control of the assessee, its business activities were closed, such closure could not be treated as a closure with an intention to close business once for all. The assessee should be entitled to claim depreciation as well as business expenditure u/ss. 32 and 37 of the Act Rallis India Ltd. vs. ACIT [323 ITR 54 (Bom.)] Reassessment: When the AO has allowed a part of the claim for bad debts u/s. 36(1)(vii) during the course of assessment proceedings and the balance claim was allowed by the CIT(A), reassessment proceedings within 4 years to disallow such claim was not valid. Further, when the computationzzz of book profits u/s. 115JB was in accordance with the decision of the Supreme Court, which says that provisions for bad and doubtful debts cannot be regarded as provision for liabilities, amendment in law with retrospective effect subsequent to issue of notice u/s. 148, cannot warrant reopening. Hence, reassessment proceedings held to be invalid. CIT vs. Bhartesh Jain [323 ITR 358 (Del.)] S. 271(1)© : Tribunal has held that change of treatment from business loss as claimed by the assessee to speculation loss as determined by the AO, would not amount to concealment u/s. 271(1)(c). Further with reference to addition u/s. 68 of the Act doubting source of source, it was held that same could not be the basis for imposing penalty, as Explanation 1 to s. 271(1)(c) cannot be applicable to such additions. Tribunal Decisions Kaira Can Co. Ltd. vs. DCIT [2 ITR (Trib.) 20 (Mum)] S. 37 Expl. : Default in making disclosure under SEBI regulation : Assessee had failed to make disclosure of details as required under SEBI regulation and accordingly paid Rs. 140,000 under a scheme namely Securities and Exchange Board of India Regularization Scheme 2002. Since the object of the scheme was to regularize the default which could have been because of oversight or lack of knowledge, the payment under the scheme cannot be considered as payment for violation of law and consequently the same cannot be said to be a penalty u/s. 15A of SEBI Act. Hence it was held that such payments cannot be disallowed u/s. 37 G.K. Ramamurthy vs. JCIT [2 ITR (Trib) 139 (Mum)] Ss. 10(38), 70(3), 74 : A.Y. 2005-06 : Long term capital loss from redemption of units prior to 1-4-2004 cannot be set off exempt long term capital gains. Income which does not form part of total income under Chapter III of the Act does not enter the computation of total income and question of aggregating them under Chapter VI and setting them off u/s. 70(3) does not arise. Therefore right to carry forward long term capital loss< u/s. 74(1) was not hit by s. 70(3) of the Act. Expeditors International (India) P. Ltd vs. ACIT [2 ITR (Trib) 153 (Del)] It was held that VSAT uplinking charges paid by the assessee company to its parent company were not in the nature of fees for technical services and were not liable for

deduction of tax at source. Hence no disallowance can be made invoking s. 40(a)(I). Similarly reimbursement of common expenses incurred by parent company for the benefit of all the group concerns including the assessee company did not attract any deduction of tax at source and disallowance cannot bemade by invoking s. 40(a)(iii). Goldcrest Capital Markets Ltd. vs. ITO [2 ITR (Trib) 355 (Mum)] S. 37: A.Ys. 2002-03, 2003-04 : Assessee has claimed a deduction for amount paid as fines to NSE for trades executed which were in violation of regulation of Capitalmarket segment and rules of the Exchange. It was held that violation of rules and regulations framed by stock exchanges cannot be considered as violation of any provisions of the SEBI. Fines and penalties for violation on NSE regulations cannot be equated with violation of a statutory rule or law. Hence such fine paid cannot be disallowed. SunMetal Factory (I) P. Ltd. vs. ACIT [124 ITD 14 (Chennai)] S. 251 : In an appeal against block assessment, the CIT(A) has held that the addition made in block assessment did not emanate from the evidence found at the time of search and hence deleted the addition. However, he directed the AO to issue notice u/s. 148 for the A.Y. 1999-2000 to tax bogus advances. It was held that the Appellate Authority cannot give findings in respect of other years. The CIT(A) had failed to record a categorical finding justifying the direction given to the AO when AO himself had not chosen for reopening the assessment. Accordingly such direction was set aside. Dr. A. Naresh Babu vs. ITO [ 124 ITD 28 (Hyd)] S. 246A : Assessee filed revision petition u/s. 264. The CIT passed orders setting aside the assessments and restored the matter with certain direction. AO completed assessment making some additions. The assessee filed an appeal against such additions. The issue was whether appeal is maintainable against the order giving effect to the revision order. It was held that such appeal is maintainable against the issues which have not attained finality by virtue of order passed u/s. 264. Ashoka Buildcon vs. ACIT (Bombay High Court) [Section 147/263: Time limit for reassessment/Validity of Notice u/s 263][Suggested reading: 250 ITR 193(SC); 293 ITR1 (SC)] In this case regular assessment u/s 143(3) was passed on 27/12/2006. Reassessment order u/s 147 was passed on 27/12/2007. Subsequently, the CIT issued notice u/s 263 on 30/04/2009 in respect of issues which were not subject matter of the reassessment order. The issue before the Bombay High Court was whether the notice issued u/s 263 was time barred? The notice issued u/s 263 was time barred if reckoned from the date of the regular assessment order. It was in time if reckoned from the date of re-assessment order. The department pleaded that the notice is within time. The High Court held that doctrine of merger does not apply where the subject matter of re-assessment and original assessment is not one and the same. Where the assessment is re-opened on a specific ground and the reassessment is confined to that ground, the original assessment continues to hold good except for those grounds considered in reassessment. Consequently, any appeal on the grounds on which the original assessment was passed and which does not form the subject of reassessment continues to hold the field and does not abate. The order of the original assessment does not merge in the order of reassessment in respect of those items which do not form part of the re-assessment. The High Court accordingly, held that time limit for exercise of power u/s 263 with reference to issues which do not form the subject matter of reassessment order commences from the date of original assessment order and not from the date of re-assessment order. The High Court further explained that insertion of Explanation 3 to 147 by the Finance Act (No. 2), 2009 with retrospective effect from 01/04/1989 is that the AO can reassess even those items that are not the subject matter of the recorded reasons makes and this fact would not make any difference to this principle of law. CIT vs. DRESSER RAND INDIA (BOMBAY HIGH COURT) [Section 80-HHC – Receipts having no nexus to exports]

In this case, the assessee received reimbursements in respect of freight, insurance, packing charges, sales tax set off/refund and service income. In view of the judgment of the Bombay High Court in the matter of Bangalore Clothing Co. (260 ITR 371), the Tribunal took a view that these receipts were operational receipts and should not be excluded under Explanation (baa) to section 80-HHC from Profits of the Exports. The High Court held that the view expressed by the High Court in the matter of Bangalore Clothing Co. is inconsistent with the decision of the Supreme Court in the matter of Ravindranathan Nair (295 ITR 228) and therefore that is no longer a good law. The submissions that the judgment in the matter of Bangalore Clothing Co. was impliedly approved by the judgment of the Supreme Court in the matter of Baby Marine Exports (290 ITR 323) did not impress the High Court because that judgment was delivered on a fact that the Export house premium was an integral part of the sale consideration realised for sale of goods by the assessee, a supporting manufacturer. ADIT vs. VALENTINE MARITIME (MAURITIUS) : (ITAT – MUMBAI) [Article 5(2) of DTAA – Permanent Establishment (PE)] The assessee a Mauritius company executed 3 different contracts in India. While the period of each contract was less than 183 days but, cumulatively they exceeded the period of 183 days. The question arose, whether the assessee could be said to have a PE in India by aggregating the period of all contracts? The Mumbai ITAT held that though there is a PE under Article 5(1), a ‘construction, installation or project site’ cannot fall under this clause if the period specified in Article 5(2)(i) is not satisfied. Article 5(2)(i) is a test of ‘permanence’ for purposes of Article 5(1) and both are required to be read together. The Tribunal held that for computing the threshold time limit under Article 5(2)(i) activities of any foreign company on any particular site has to be viewed on a stand alone basis and not all activities as a whole. This is on the assumption that the different business activities are not so inextricably interconnected that they are required to be viewed as a coherent whole. The Tribunal held that on facts, there was no finding that the three contracts were inextricably interconnected, interdependent or could only be seen a coherent whole in conjunction with others, duration of the projects could not be aggregated for the purpose of ascertaining whether or not there was a PE. CIT vs. GLENMARK PHARMACEUTICALS (BOMBAY HIGH COURT) [Section 194C – Contract manufacturing – whether will amount to Sale?] The assessee entered into an agreement with a third party for the manufacturing of certain pharmaceutical products under which if provided the formulations and specifications and the manufacturer affixed the trademark of the assessee in the article produced. Raw materials were purchased by and property in goods was transferred only on delivery of goods produced. The agreement was on principal to principal basis. The assessee did not deduct any tax u/s 194C in respect of such purchases and contended that this was simply a transaction of sale and purchase of goods and not covered by section 194C. The AO took the view that this was a contract of ‘Work” and Tax should have been deducted u/s 194C. The Tribunal upheld the contention of the assessee. On further appeal by the revenue, the High Court held that a contract for sale has to be distinguished from contract of work. If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the contract primarily involves carrying on of work involving labour and service and for use of materials is incidental to the execution of the work, the contract would constitute a contract of work and labour. The argument of the revenue that the restriction imposed on the manufacturer to (i) utilise the formula provided by the assessee, (ii) affix trade mark of the assessee, (iii) manufacture as per specifications provided by the assessee and (iv) deal exclusively with the assessee show that the contract is not one of sales was not accepted by the High Court this has not been the understanding of the law to any point of time even by the CBDT and

judicial precedents. The High Court held that though a product is manufactured to the specifications of a customer, the agreement would constitute a contract for sale, if (i) the property in the article passes to the customer upon delivery and (ii) the material that was required was not sourced from the customer/purchaser, but was independently obtained by the manufacturer from a third party. E*Trade Mauritius Limited, [AAR No. 826 of 2009] dated 23rd March, 2010 [ 2010 – TIOL – 20-ARA] Capital gain tax under India Mauritius treaty: Relying on the Supreme Court’s decision in Azadi Bachao Andolan and CBDT Circular No. 789 dated 13th April, 2000, AAR held that the gain arising to Applicant, a Mauritian resident, from transfer of shares of an Indian Company is not taxable in India under India Mauritius Tax Treaty. AAR observed that corporate personality and separate legal entity status in the case of parent-subsidiary relationship should not be over looked, unless it is a case of dubious and dishonest method adopted by parties. The fact that holding company exercises control over its subsidiary does in absence of compelling reasons dilute the separate legal identity of subsidiary. AAR also held that the concept of ‘beneficial ownership’ which is used in the treaty in connection with interest and dividend is irrelevant for determining taxability of capital gains. KSPG Netherland Holding B.V. in Re., [2010 – TIOL – 09 – ARA] Capital gain – Beneficial ownership under treaty: Applicant is a company incorporated in Netherland and is subsidiary of German company and parent of an Indian company. It approached AAR for seeking ruling whether it will be liable to tax in India on the capital gains that may arise if it transfers shares of Indian company to another non-resident or when Indian company does buy back its shares. The revenue contended that the beneficial owner of capital gains would be ultimate holding company which is German company and as per the treaty between India and Germany capital gains can be taxed in India. AAR ruled that the concept of beneficial ownership is not present in capital gain article unlike dividend or interest article. AAR further ruled that there is no factual or legal basis to hold that German company is the real beneficial owner of the shares and capital gains that would accrue. Applicant, though a subsidiary, is a separate distinct legal entity having its own board of director and management systems. Applicant has made a significant investment in Indian company. The beneficial ownership in the gain cannot be held to be vested with the ultimate holding company. Hence provisions of India Netherland treaty would be applicable and capital gain cannot be taxed in India. CIT vs. Reliance Petro Products Private Limited, 2010 - TIOL - 21 (SC) S. 271(1)(c)– No penalty merely on the ground of rejection of claim: A.Y. 2001-02 : Assessee, an Investment Company had filed its return of income declaring loss of Rs. 2.6 millions. In the return, assessee has claimed deduction for interest expenditure of Rs. 2.8 millions incurred on loan borrowed for investing in shares. AO disallowed interest u/s. 14A on the ground that expenditure was incurred for earning dividend income which is exempt. Accordingly AO levied penalty on the ground of furnishing inaccurate particulars of income by claiming interest expenses. The Supreme Court held that existence of conditions prescribed u/s. 271(1)(c) is must for initiating penalty proceedings. It is not disputed that information provided in the return of income was correct or accurate. Merely because the tax-payer has claimed expenditure which was not accepted by tax by itself would not attract penalty. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. The Court has referred its earlier decision in the case of Dilip N. Shroff and Dharmendra Textile and held that the decision in the case of Dharmendra Textile has overruled the decision in the case of Dilip N. Shroff only to the extent of inference that mens rea was essential ingredient for levy of penalty. There was no fault found with reference to

meaning of terms ‘conceal’ and ‘inaccurate’ as explained in Dilip N. Shroff. Seagate Singapore International Headquarters Pvt. Ltd. In re, [2010 – TIOL – 08 – ARA] Warehouse service provider can constitute Permanent Establishment: Applicant, a non resident company, is engaged in the business of manufacture and sale of Hard Disk Drives. Applicant has been supplying disk to Original Equipment Manufacturers (OEM) in India. To minimize delay in procurements, OEM proposed a new Vendor Management Inventory (VMI) model under which applicant would enter into agreement with independent service provide to stock disks in India on behalf of applicant and to deliver them to OEM on a ‘just-in-time’ basis. AAR analyzed the agreement between applicant and service provider and based on facts ruled that applicant has fixed PE in India as demarcated place in warehouse of the service provider would constitute fixed place of business. According to AAR the fact that fixed place of business was owned or possessed by the service provider does not detract the position that the applicant has a distinct, earmarked and identified place which cater to its business. Van Oord SCZ India P. Ltd., 2010 – TIOL – 187 HC Delhi Ss. 40(a)(i), 195(2)- Withholding tax obligation only when non-resident recipient is subject to tax in India: Assessee, a wholly owned subsidiary of VOAMC, a Netherland entity, was engaged in the business of dredging, contracting, reclamation and marine activity. It entered into a dredging contract with an Indian company. Assessee reimbursed mobilization and demobilization cost to VOAMC for services provided. It filed an application for NIL withholding certificate on the ground that there is no income element in reimbursement of expenses. The AO directed assessee to deduct tax at the rate of 11%. However, the taxes were not deducted on the entire amount. The AO disallowed the reimbursement expenditure u/s. 40(a)(i). Delhi High Court, after analyzing the Supreme Court’s decision in the case of Transmission Corporation, has held that liability to deduct tax at source arises only when sum paid to non-resident is chargeable to tax in India. High Court observed that when in the assessment proceedings of recipient the tax authority has taken a view that tax is not payable at all on amount so received, provision of s. 195 would not be attracted. Court did not agree with some of the observations of Karnataka High Court in the decision of Samsung Electronic Company. With reference to the Order u/s. 195(2), the Court has observed that the Order u/s. 195(2) is tentative in nature. However, when in the assessment proceeding of the recipient if it is ultimately held that sum received was not chargeable to tax, then assessee should not be treated as in default and would be absolved from all the consequences arising for non deduction of tax at source. Royal Bank of Canada In re [AAR No. 816 of 2009] dated 22nd March, 2010 [ www.aar.gov.in] FII not taxable in absence of PE in India, profit (loss) on derivative transactions is business income: Applicant, Royal Bank of Canada (RBC) was registered as FII with SEBI in India. Applicant was dealing in derivative segment of Indian stock exchange. The derivative transactions were carried out at regular frequency and volumes were substantial. It also proposes to under take purchase and sales of equity shares and other securities for the purpose of earning trading profits. It claimed that shares and securities will not be held on long-term basis and primary purpose would not be to earn dividend. AAR has considered its earlier decision in the case of Morgan Stanley wherein it was ruled that income from exchange traded derivative was business income. Further, AAR observed that derivatives have a short life of about 3 months and do not earn any income like dividend and hence investment of money with a view to derive any income is not feasible. They are held only as stock in trade. As per FEMA regulations FII are permitted to trade in exchange traded derivatives. On the basis of these facts, AAR ruled that profits (loss) from futures and options were in the nature of business income. In absence of PE in India under the tax treaty such business income is not taxable in India. Rallis India vs. ACIT, [ 2010 – TIOL – 173 – HC- Mum]

Reopening – law prevalent on the date of issue of notice u/s. 148: For A.Y. 2004-05, assessee filed its tax return declaring loss after claiming deduction for bad debts. The assessee also computed book loss u/s. 115JB. During the course of assessment a query was raised with regard to allowability of bad debts under the normal computation and also under section 115JB. While passing the assessment order, AO disallowed part of the bad debts which was later allowed by the CIT(A). Appeal, cross appeals are pending before ITAT. Meanwhile a notice u/s. 148 was issued stating the reasons that assessee had not written off debts by debiting to P&L accounts and while computing book profits u/s. 115JB assessee has not considered the provisions for doubt full debts, provision for doubtful advances and provisions for diminution in value of investment. Aggrieved by this a writ petition was filed before the High Court. Bombay High Court has observed that during the assessment proceedings the AO has specifically applied his mind to the bad debts claimed. Hence reopening is merely a case of change of opinion without any tangible material. The Court has reiterated that the assessment cannot be reopened without any tangible material as laid down by Supreme Court in Kelvinator of India Ltd., 320 ITR 561. Further, there is no requirement in s. 36(1)(vii) that bad debts should be debited to P&L account. Court also held that for the purpose of reopening, the Law as it exists on the date of issuing notice u/s. 148 would be relevant. Since on the date of issue of notice for reopening, the legislative amendment by insertion of clause (i) to Explanation (1) to s. 115JB had not been brought into force, the same cannot be considered as ground for reopening. In other words the validity of reopening should be determined on the basis of the law prevailing on the date of issue of notice and not retrospectively amended law. Climate System India Limited vs. CIT, 185 Taxman 139 (Delhi) Royalty based on turnover – revenue expenditure: Assessee company was in the business of manufacturing and selling radiators. It had entered into a technical collaboration agreement with a US company to upgrade and manufacture radiators using technology owned by US Company. Over and above lump sum payment, assessee was required to pay royalty as a percentage of turnovers. It was observed that royalty payment was directly related to sale of radiators and hence the same was not for transfer of technology but for provision of services. Accordingly Court held that payment of royalty is a continuous process and should be allowed as revenue expenditure. CIT vs. ITC Hotels Limited [2009 – TIOL 678 – HC – Kar] Expenditure relating to convertible debentures: Assessee engaged in the hotel business had issued convertible and non convertible debentures and claimed debenture issue expenses as revenue expenditures. The High Court, following Supreme Courts decision in CIT vs. Secure Meters Ltd., has held that expenditure incurred on convertible debentures is to be treated as revenue expenditures even when debentures were to be converted into shares at a later date. Mepco Industries Ltd. v CIT, 185 Taxman 409 (SC) S. 154 : A.Y. 1993-94 and 1994-95 : Assessee received power subsidy for two years which it initially offered as revenue receipt in its return of income. Thereafter, it sought revision of assessment orders contending that subsidy amount was capital receipt. Commissioner allowed revision petitions. Subsequently, in case of Sahney Steel, 228 ITR 253 (SC),Supreme Court held that incentive subsidy was a revenue receipt. Following said judgment, Commissioner passed an order of rectification on the ground that power subsidy given to assessee was admissible only after commencement of production and consequently it constituted operational subsidy and not capital subsidy. It was held that in each case one has to examine nature of subsidy and this exercise cannot be undertaken under section 154. Hence Commissioner is not justified in invoking s. 154 and holding subsidy in question to be revenue in nature. CIT v AlomExtrusions Ltd., 185 Taxman 416 (SC) S. 43B : It was held that the deletion of second proviso to s. 43B by Finance Act, 2003 is

curative in nature and hence it is retrospective and would operate w.e.f. 1-4-1988 when the first proviso cameto be inserted. DIT (IT) v Oman International Bank SAOG, 184 Taxman 314 (Bom) S. 36(1)(vii) : After amendment to s. 36(1)(vii) it is neither obligatory nor is there any burden on assessee to prove that debt written off by himis indeed a bad debt as long as it is bonafide and is based on commercial wisdomor expediency. CIT v Kings Exports, 318 ITR 100 (P&H) S. 36(1)(vii), 14A : A.Y. 2005-06 : The assessee was engaged in manufacture and export of engineering goods. The AO disallowed assessee’s claim for bad debts u/s. 36(1)(vii) on the ground that claim for bad debts would be hit by s. 14A since assessee had claimed deduction u/s. 80HHC. Itwas held that the expenditure incurred fromexport incomecouldnot be held to be for earning income which did not form part of total income. S. 80HHC deals with deduction of the element of profit from export from taxable income. Therefore claimof bad debts could not be disallowed. CIT v Estel Communications P. Ltd., 318 ITR 185 (Del) S. 9(1)(vii) : The assessee provided internet access of a certain bandwidth to its subscribers, and levied a charge for the services rendered to its subscribers in India. The main server, on the basis of which the internet services are provided, is located in USA. Payment to US company for provision of bandwidth is not a technical service u/s. 9(1)(vii)of the Act and hence assesseewas not liable to deduct tax at source. CIT v Arthur Andersen and Co., 318 ITR 229 (Bom) Reimbursement of expenses: Assessee, a firm of Chartered Accountant, claimed deduction for certain sumfor A.Y. 1997-98.Whenmatter was remanded back, the AO has disallowed expenditure of 20%. CIT(A) has deleted the disallowance and ITAT has upheld the order passed by CIT(A). Deduction was again denied in the A.Y. 1998-99. It was held that revenue is precluded from raising the issue in A.Y. 1998-99 since they have not challenged the order for A.Y. 1997-98 and also not shown any valid cause for reconsideration. CIT v Ajanta Pharma Ltd., 318 ITR 252 (Bom) S. 115JB, 80HHC : A.Y. 2001-02 : MAT companies are entitled to the same deduction of export profits u/s 80HHC as any other company involved in export in terms of s. 80HHC(1B). Hence, even for computing book profits u/s. 115JB, percentage of export earnings deductible u/s. 80HHB(1B) to be taken into account. Mittal Court Premises Co-operative Society Ltd. v ITO, 184 Taxman 292 (Bom) S. 4 : Assessee, a co-operative commercial society, has received a transfer fee and non occupancy charges from incoming/ existingmembers. As per the bye laws of the society,even if receipt was issued in the name of transferee, it was in the nature of admission fee which could be appropriated only on transferee being admitted and surplus could be disposed off in favour of members only for objects which they would specify. Hence transfer fee would be governed by the principle of mutuality and not exigible to tax. Similarly since the object of contribution in form of non occupancy charges was for the purpose of increasing society’s fund, which could be used for the object of society, non occupancy charges were also not taxable. United Exports v CIT, 185 Taxman 374 (Del) S. 40A(2) : It was held that provisions of s. 40A(2) do not apply to trade discount as trade discount is not an expenditure which is incurred or with respect to which a payment is made. Assesse was engaged in the business of exporting rice. It had claimed certain amount of trade discount allowed to its sister concern at the rate of 11 percent. The AO allowed only 3 percent of trade discount against 11 percent. CIT(A) allowed 8 percent but Tribunal had reduced the same at 5 percent. It was held that when out of total domestic sales of 13 cr., sale made to sister concern was 11 cr., this clearly justifies the trade discount of 11 percent to sister concern. CIT vWhirlpool of India Ltd., 185 Taxman 387 (Del)

S. 37(1) : Assessee company was engaged in rendering financial services. Hence it was possible to say that business was set up when Directors were appointed staff such as regional and branch manager was appointed and their salaries were paid, computers were acquired and installed and company was ready to commence business. Accordingly expenses incurred after set up of business cannot be disallowed. Tribunal Decision DCIT v Munjal J. Shah, 318 ITR (AT) 417 (Mum)(SB) Capital gain : Cost of acquisition :A.Y. 2004-05 : When assessee acquired assets by transaction which was not regarded as transfer (Gift), for the purpose of working out indexed cost, the cost inflexion index for the year in which asset was acquired by the previousowner should be considered. Shree Capital Services Ltd. v ACIT, 318 ITR (AT) 1 (Kol)(SB)/ 121 ITD 498 (Kol)(SB) S. 43(5) : Transaction in which contract for purchase and sale of commodity is settled otherwise than by actual delivery. S. 43(5) was brought on the statute when there was no concept of trading in derivative. Hence, when underlying asset of any derivative is shares and stock, the treatment given such derivative should be similar to stock and securities. Therefore, derivative will also fall within the meaning of “commodity” used in s. 43(5). Amendment by Finance Act 2005, providing that transaction of trading in derivative not to be deemed speculative transaction, cannot be considered as clarificatory in nature.Hence loss in transaction in derivative for the period prior toamendment is a speculative loss. Topman Exports v ITO, 318 ITR (AT) 87 (Mum)(SB) S. 80HHC, 28(iiia) to (iiie) : A.Y. 2002-03, 2003-04 : Under the foreign trade policy, there is a requirement of making an application, and mere export will not automatically entitle toDEPB credit/ duty drawback. Though exporter does not purchase DEPB credit from market by incurring cost, the face value of DEPB credit, at the time of making an application, results in accrual of income u/s. 28(iiib). Whereas only profit element on sale of DEPB credit, and not the entire sale proceeds, is covered u/s. 28(iiid). Further, the export incentives, though strictly going by the meaning of expression “derived from”, are not to form part of the profits derived fromsuch exports under sub-section (1), are considered for computation by virtue of sub-section (3) readwithExplanation. Further, face value of DEPB credit should not be reduced from the purchase cost but is a separate income u/s. 28(iiib), which accrues at the time of making an application. However, profit on subsequent sale ofDEPBcredit is independent transaction unrelated to export, though face value of DEPB credit is profits from export business. Hence sale proceeds of DEPB credit will form part of total turnover but not export turnover (as not realized in convertible foreign exchange). State Bank of Travancore v ACIT, 318 ITR (AT) 171 (Cochin) S. 14A : Bank subscribing to tax free bonds and instruments not for earning tax free income but for meeting its statutory obligation of maintaining statutory liquidity ratio.Therefore the expenses were incurred not for earning tax free income but for maintaining required statutory liquidity ratio. Tax free interestwas only an incidence on fulfillment of the statutory liquidity ratio requirements. Hence section 14A has no application. Pacific Internet (India) P. Ltd. v ITO, 318 ITR (AT) 179 (Mum) S. 9, 194J : A.Y. 2003-04 to 2005-06 : It was held that the payments made to MTNL and VSNL for using bandwidth and network infrastructure could not be said to be technical services within themeaning of s. 194J read with Explanation 2 to clause (vii) of s. 9(1). InderlockHotelsPvt. Ltd. v ITO, 318 ITR(AT) 234 (Mum) S. 50C : When sale of flats is treated as business income, provisions of s. 50C is not applicable . Kotak Securities Ltd. v ACIT, 318 ITR (AT) 268 (Mum)

A.Y. 2005-06 : The membership card of BSE is a capital asset which confers right to trade on the floor of the exchange and when acquired by the assessee such right which is an intangible asset, would fall within the parameters of s. 32(1)(ii) of the Act and hence assesseewould be entitled to claimdepreciation thereon. ACIT v Travancore TitaniumProducts Ltd., 121 ITD 513 (Cochin) S. 5: Assessee company, owned by Govt. of Kerala, had advanced loan to another Govt.company on such terms and conditions, which were to be decided by the Govt. of Kerala. AO found that assessee has neither charged any interest nor was there any waiver of interest. He held that interest amount should be deemed to have accrued to assessee. It was held that unless and until terms and conditions of advance were known and agreed between parties through Govt. of Kerala, assessee could not acquire any right to receive interest hence no incomewould accrue by way of interest. KalyanMemorial & Charitable Trust v ACIT, 121 ITD 525 (Agra)(TM) S. 68 : In the course of assessment proceedings, AO has added certain cash credits to assessee’s income for want of credit worthiness and genuiness of creditors. It wasseen that assessee had brought on record P.A. numbers of all creditors, their copies of bank accounts as well as proof of filing returns of income for year under consideration and for preceding years. Hence initial burden u/s. 68 is held to be discharged and thereupon burden shifted on revenue to show that what was stated or explained by assessee was not correct state of affairs. Accordingly additionsmade by authoritieswas deleted. ITOv PIC (Gujarat) Ltd., 121 ITD 87 (Ahd) S. 139 rws 68 : Assessee had furnished its return of income on estimated basis based on unaudited accounts, where in it had declared certain loss. AO treated this return as defective return and issued notice requiring assessee to rectify the defect within 15 days. Assessee has furnished written request requestingAOto extend timefor rectifying defects by twomonths. Thereupon assessee removed defect within twomonths and filked revised return showing loss. Such revised retun was processed u/s. 143(1) and refundwas issued to assessee. Later AO in a proceedings u/s. 143(3) has rejected claim of loss on the ground that the original return was defective and since such defects were not removed within 15 days the same could not be taken into account. According to AO assessee’s request for extension of time had been rejected. It was held that even if request was rejected, the order of rejection was not intimated to the assessee and hence original return was a valid return and accordingly revised returnwas also valid. KANEL OIL vs. JCIT (ITAT Ahmedabad Third Member) Re: Charge of Interest u/ss 234-B and 234-C in 115 JA cases In this case, the Tribunal had to consider whether an assessee liable to pay Minimum Alternate Tax u/s 115-JA was also liable to pay interest u/ss 234-B and 234-C. The judicial members followed the judgment of the Bombay High Court in Snowcem India Ltd 313 ITR 170 and held that no interest is chargeable in case of book profit was computed u/s 115-JA. The accountant member dissented and followed earlier judgment of the special bench in the matter of Ashima Syntex Ltd 117 ITD 1 where it was held that interest u/ss 234-B and 234-C is chargeable in such case. The third member held that the view that the High Court is above the Tribunal in judicial hierarchy and that the judgment of a jurisdictional High Court would prevail over that of the special bench is subject to 2 exceptions. First exception is where there is only one judgment of a High Court on the issue and no contrary view has been expressed by any other High Court. But, when there are several decisions of nonjurisdictional High Courts expressing contrary views, the Tribunal is free to choose that view which appeals to it and in certain circumstances the view which is favourable to the taxpayer may be adopted. The third member also held that the decision of the Bombay High Court in Snowcem India Ltd. 313 ITR 170 may be per incuriam. CIT vs. BONANZA PORTFOLIO (DELHI HIGH COURT)

Re: Bad-debts in case of a Share Broker – Whether eligible? Section 36(1)(vii) / 36(2) The assessee a share broker bought shares on behalf of his client and paid for them. The brokerage on the transaction was charged and offered for tax. The broker could not recover money from the client and written off the due as bad-debt and made a claim u/s 36(1)(vii). AO rejected the claim by holding that the debt has not been taken into consideration for computing the income of any of the years and thus conditions of section 36(2) are not satisfied. The CIT (A) upheld the order of the AO. On appeal, the Tribunal upheld assessee’s claim on the ground that section 36(2) required “such debt or part thereof” to be taken into account in computing the income and as the brokerage had been offered to tax, section 36(2) was satisfied. On appeal by the revenue, the High Court dismissed the appeal and held:– (i) The assessee being broker, the fact that it paid for the shares did not make it an “investment” for the assessee. The transaction was one of brokerage on purchases/ sale on behalf of the client; (ii) The money receivable from the client for the said shares was a “debt” and since it became bad, it was rightly treated as a “baddebt”; (iii) Since the brokerage payable by the client was a part of the debt and that debt had been taken into account in computing the income, the conditions of section 36(2) read with section 36(1)(vii) were satisfied and therefore the same is deductible. Accordingly, the Delhi High Court allowed the claim. CIT vs. HERO CYCLES (P&H HIGH COURT) Re: Disallowance u/s 14-A The assessee earned exempt dividend income. The AO took the view that the investment in shares was made out of borrowed funds on which interest expenditure was incurred and consequently made disallowance u/s 14A. This was partly upheld by the CIT (A). The Tribunal deleted the disallowance by noting that the assessee has proved that investment was made out of non-interest bearing funds. The Tribunal held that unless there was evidence to show that interest bearing funds had been invested in tax-free investments and the nexus is established by the department, section 14A could not be applied on mere assumption. The Income tax department appealed to the High Court and claimed that in view of section 14A read with rule 8D(1)(b), a disallowance could be made even if the assessee claimed that no expenditure had been incurred in respect of tax free income. The High Court dismissed this claim and held (i) If the investment in the shares is out of non-interest bearing funds, disallowance u/s 14A is not sustainable. (ii) The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s 14A is not sustainable. CIT vs. PEERCHAND RATANLAL BAID (GUWAHATI HIGH COURT) RE: Reopening of Block Assessment can be made u/s 147/148 In this case, the AO passed an order u/s 158BC by which he assessed undisclosed income of Rs. 24.37 lakhs. Subsequently he passed an order by which he added further Rs. 13.66 lakhs to the said undisclosed income without issuing any notice u/s 148. The Tribunal allowed assessee’s appeal on the ground that the AO could not have made the addition without re-opening of the block assessment u/s 147. On appeal by the revenue, the High Court upheld the Tribunal’s order. However, on the question whether the AO had jurisdiction to issue notice u/s 148 in respect of a block assessment made under Chapter XIV-B in view of the judgment of the Gujarat High Court in Cargo Clearing Agency 307 ITR 1, the High Court held that the view of the Gujarat High Court that while section 147 permits reassessment of income that has escaped assessment for any assessment year,assessment under chapter XIV-B is for a block period of 10/6 years without reference to any particular assessment year and that, therefore, section 147 does not apply to a block assessment cannot be accepted in view of the judgment of the Supreme Court in Suresh N. Gupta 297 ITR 322 where it was held

that the other provisions of the Act would be applicable to the scheme under chapter XIV-B, if no conflict arises upon such application. The provisions of chapter XIV prescribing the period of limitation for re-opening of assessment apply to block assessment under Chapter XIV-B and there is no conflict between the two. Accordingly, the High Court dissented from the view of the Gujarat High Court in Cargo Clearing Agency 307 ITR 1. CIT vs. VANDANA VERMA (Allahabad High Court) Re: Search warrant in Joint Names – Validity of assessment In this case, a search warrant u/s 132(1)(c) was issued in joint names of the assessee and her spouse. Subsequently, a block assessment of undisclosed income was made in the individual name of the assessee. In appeal against such assessment, the assessee raised a preliminary objection that the search warrant having been issued in joint names of the assessee and her spouse, the assessment on the assessee in the individual capacity was invalid. This objection was upheld by the Tribunal. The department appealed to the High Court. The High Court dismissed the appeal and held section 132(1)(c) empowers the AO to enter into premises etc. and search it if he has reason to believe that any person is in possession of any money, bullion etc. representing undisclosed income. As the search warrant was issued in the joint names of the assessee and her spouse, it means that the officer had reason to believe that the undisclosed assets and income were held jointly. If so, it is not open for the AO to assess the assessee individually on the basis of assets and documents seized during the course of search in pursuance to the said warrant but the assessment ought to have been only in the capacity of AOP or BOI. CIT vs. ALOM EXTRUSIONS (SUPREME COURT) Re: Retrospective application of deletion of 2 proviso to section 43-B Section 43B provides that any sum payable by way of contribution to a provident fund etc. shall be allowed as a deduction only in the year of payment. The second proviso to section 43B provided that the sums referred to in section 43B (b) would not be allowed as deduction unless the sum had been paid on or before the due date. The 2nd proviso was omitted by the Finance Act, 2003 w.e.f. 1-4-2004. Simultaneously, the benefit of the first proviso, which provides that even sums paid beyond the previous year but before the due date of filing of return shall be allowed as a deduction, was extended to section 43B. The question arose in this appeal was whether the deletion of said 2nd proviso and amendment of the first proviso was retrospective or prospective. The Supreme Court by upholding assessee’s claim held that – (i) The deletion of the 2nd proviso to section 43B and the amendment to the first proviso, by the Finance Act, 2003 was to overcome implementation problems. Consequently, the amendments, though made applicable by parliament only with effect from 1-4-2004, were curative in nature and would apply retrospectively w.e.f. 1-4-1988. (ii) In Allied Motors 224 ITR 677 it was held that even though the first proviso to section 43B was inserted w.e.f. 1-4-1988, it operated retrospectively from 1-4-1984. It was held that when a proviso is inserted to remedy unintended consequences and to make the section workable it could be retrospective in operation. This principle applies to the deletion of 2nd proviso as well. DCIT vs. GLENMARK LABORATORIES (ITAT MUMBAI) Re: Whether Special Bench judgment on Section 80-HHC/115JB is still a good law? The assessee’s income was determined u/s 115-JB as it had no income under the normal provisions of the Act. The assessee claimed that despite the absence of profits, it was eligible for deduction u/s 80-HHC in computing the book profits under Explanation (iv) of section 115JB in accordance of judgment of the special bench in Syncome Formulation 106 ITD 193 (Mum) and that the judgment of the Bombay High Court in Ajanta Pharma 223 CTR 441 (Bom) which overruled the judgment in Syncome Formulation was not applicable. The Tribunal accepted this contention and held that in Syncome Formulation the special

bench had to consider two questions i.e. (a) method of computation of deduction u/s 80-HHC and (b) percentage of deduction allowable in each year. As regards the percentage of deduction, the special bench held that the assessee would be entitled to 100% deduction. This view was overruled by the High Court in Ajanta Pharma where it was held in view of section 80-HHC (1B), deduction was only allowable as per the limit set out therein. However, the first issue as to the method of deduction u/s 80-HHC was not before the High Court. As per Sun Engineering 198 ITR 297, the observation of a court has to ben read in context. Consequently, the judgment of the Special bench on this aspect still hold good and the assessee was entitled to deduction u/s 80-HHC even though there were no normal profits. IT vs. ITI Ltd., 183 Taxman 219 (SC) S. 10(5) rws 192 : Leave travel concession – Employer is under no obligation to collect evidence to show that its employee has actually utilized amount paid towards leave travel concession/ conveyance allowance for the purpose of TDS u/s. 192. Liberty India vs. CIT, 183 Taxman 349 (SC) / 317 ITR 218 (SC) S. 80-IB : A.Y. 2001-02 : It was held that duty drawback receipts/ Duty Entitlement Pass book (DEPB) benefits are on account of statutory provisions in Customs Act/ Scheme. Therefore profits so derived do not form part of net profits of eligible undertaking for the purpose of s. 80-IB,90-I and 80-IA. CIT vs. NHK Japan Broadcasting Corp., 184 Taxman 39 (SC) S. 192 : Assessee, a Japanese organization set up for transmission of news and broadcasting, paid salary to its employee employed in India. The AO included citizen tax as a part of the employee’s income on the ground that it was an amount paid by the assessee to its employees. TheCIT(A) has taken a view that citizen tax is a statutory levy in Japan and such tax constitute an overriding charge on the salary income, and therefore, the same had to be excluded in computation of taxable income. This view was upheld by the Tribunal. The High Court has dismissed the appeal on the ground of finding of facts. The Supreme Court held that CIT(A) ought to have examined the provisions of Citizens Individual Inhabitant Tax Act which is a Japanese Law. If citizen tax has overriding charge then CIT(A) was right in holding that it would not be an income. However, since the provisions of the Act have not been examined, the matter needs to be considered a fresh by the Tribunal. CIT vs. Techno Shares & Stock Ltd., 184 Taxman 103 (Bom) S. 32 : Depreciation on BSE Card : It was held that the expression “license” used in s. 32(1)(ii) to apply to licences relatable to intellectual properties only and not to all licences. Since BSE card is not a business or commercial right relating to intellectual property rights, depreciation cannot be allowed on same. Gilbs Computer Ltd. vs. ITAT, 317 ITR 159 (Bom) S. 256 (3) : The petitioner filed its return of income for A.Y. 2003-04 claiming carried forward loss of Rs. 19 crores. The AO determined total loss at Rs. 9 crores. The CIT(A) dismissed the petitioner’s appeal. The appeal was preferred u/s 253 to ITAT by paying a appeal fees of Rs. 500. According to ITAT appeal fees paid was less by Rs. 9500 and hence dismissed appeal as unadmitted. It was held that petitioner was not obliged to pay fees in excess of Rs. 500 as income computed was less than Rs. 100,000. The expression “more” or “less” in section 256(3) have to be given their natural meaning. Negative income cannot be “more”. It will always be “less”. Factset Research Systems Inc., In re. 317 ITR 169 (AAR) S. 9(1)(vi) - DTAA (USA): The applicant, maintained a “database” located outside India containing the financial and economic information including fundamental data of large number of companies world-wide. By an agreement with Indian customer it granted non exclusive, nontransferable right to use the software, hardware, consulting services and data base solely and exclusively for licensee’s own internal and business purpose and only in its own business premises. It was held that the subscription fees received by the

applicant did not fall within the scope of clause (v) of Explanation 2 to section 9(1)(vi) of the Act or Article 12 of the DTAA between India and USA and therefore not in the nature of royalty. Further since applicant did not share the experience, the techniques or methodology employed in evolving the database with the subscriber, the same cannot be considered as payment for “information concerning industrial, commercial or scientific experience” in article 12(3). It was further held that the department is free to find out business establishment in which case income would be taxable as business income. Ms. Madhushree Gupta vs. UOI, 183 Taxman 100 (Del.) S. 271(1)(c) : S. 271(1B) is not violative of Article 13 of the Constitution. However, it was held that the position of the law both, pre and post amendment, is similar, in as much as the AO will have to arrive at prima facie satisfaction during the course of proceedings with regard to assessee having concealed particulars of income or furnished inaccurate particulars of income before he initiate penalty proceedings. CIT vs. Tagros Chemicals of India Ltd., 183 Taxman 175 (Mad) S. 115JAA : MAT credit u/s. 115JAA is to be setoff from tax payable before levying interest u/s. 234B and 234C. CIT vs. Smt. Sushila Devi Khadaria, 183 Taxman 275 (Bom) S. 57 : Interest as well finance charges paid on loan borrowed for making investment in shares is allowable as deduction u/s. 57(iii). UAE Exchange Centre Ltd. vs. UOI, 183 Taxman 495 (Del) Authority for Advance Ruling (AAR) has ‘trappings of Court’ and, hence,it would qualify as a Tribunal within meaning of Article 227 of the Constitution and would be amenable to Jurisdiction of High Court under article 226/ 227 of the Constitution. Petitioner was engaged in offering remittance services for transfer of monies from UAE to various places in India. It has opened a liaison office in India. AAR, while giving its ruling, has examined a case from point of view of s. 5(2)(b) and s. 9(1) of the Act, while it was required to look at provisions of DTAA for ascertaining assessee’s liability to tax. On facts, the activities carried on by LO did not in any manner contribute directly or indirectly to earning of profits or gains by petitioner in UAE, as activity performed are only supportive activity. Therefore impugned ruling was set aside. CIT vs. Kotak Mahindra Finance Ltd., 317 ITR 236 (Bom) Depreciation : Since assessee had supplied the machinery before the end of financial year and assessee had received lease rentals for the same, it could be said that the assessee had used the leased equipment for the purpose of business and hence entitled for depreciation. The fact that the lessee had installed the machinery after the end of the accounting year was irrelevant. Tribunal Decision Enem Nostrum Remedies (P.) Ltd. vs. ACIT, 119 ITD 427 (Mum) The assessee company was engaged in the business of contract research and in providing of laboratory facility to its parent company in USA. Assessee was denied the benefit of section 10B. The same was upheld relying on the decision of the Ministry of Communications and Information Technology as also of the DSIR, that such activities were not covered under the category of IT / ITES. Further, with reference to deduction u/s. 80-IB(8A), it was held that the condition stipulated u/s. 80-IB(2) were not required to be fulfilled since the same is applicable only if eligible assessee is an industrial undertaking within the meaning of sub-section (3) to (5). ACIT vs. Idea Cellular Ltd., 317 ITR (AT) 176 (Hyd) S. 194H : A.Y. 2003-04 : It was held that discount allowed by the assessee to distributors cannot be considered as commission as there is no relationship of principal and agent and the transaction was on principal to principal basis. Accordingly there is no duty to deduct any tax at source. DCIT vs. Satish Aggarwal & Co., 317 ITR (AT) 196 (Amritsar) S. 194C : A.Y. 2005-06 : The assessee made payment on account of hiring charges in respect of hiring of trucks. The hired trucks were utilized by the assessee in its business

of civil construction. It was held that the hiring of trucks would not amount to a contract for carrying out any work,as contemplated u/s. 194C. Hence no tax was required to be deducted at source on the amount paid as hiring charges. STAR TELEVISION VS.UOI (BOMBAYHIGHCOURT) Re:Application u/s 254D– Settlement Commission The Bombay High Court in dealing with an issue raised with regard to constitution validity of section 245D(4A) has held that the provisions of section 245D(4A) are ultra vires Article 14 of the Constitution of India. The High Court held that fixing of cut off date u/s 2245D(4A)(1), the abatement or proceedings u/s 245HA(1)(iv) and making available of confidential information u/s 245HA(3) for no fault of the applicant are ultra vires the Constitution. The High Court further held that in order to save these provisions from being struck down as being unconstitutional; they will have to be read as applying only to caseswhere the settlement commission is unable to pass an order on or before 31/3/2008 for any reason attributable on part of the applicant. The expression “reasons attributable” should be reasonably construed. If in the writ petition, the applicant has urged that it was not responsible for the nondisposal of the application and the same is not denied by the revenue, the circumstance should be considered in favour of the applicant. ITOVS.DHAN SAI SRIVAS(CHHATTISGARHHIGHCOURT) Re: Exemption u/s 10(10C)~VRS Payments The High Court while dealing with the provisions of section 10(10C) held that it could not be the intention of the legislature that the benefit of S.10 (10C) should be restricted in the case of employees who retired before 1/4/2004 only to the sum actually received while employees who retired subsequently will get the benefit also in respect of amounts payable in subsequent financial years. Accordingly, the amendment was clarificatory and curative in nature and applies even to employees who retired prior to 01/04/2004 and received VRS payment in installments. ACITVS.MAHAVIR PRASAD(CHHATTISGARHHIGHCOURT) Re: Powers ofHigh Court – S. 260A While dealing with the powers of High Court of condoning any delay in filing of an appeal u/s 260-A, the high court held that the Incometax Act is a special law. The scheme of the Income-tax Act supports the conclusion that the time limit prescribed u/s 260A to file an appeal before the High Court is a absolute and unextendable by court u/s 5 of the Limitation Act and the limitation cannot be extended by invoking provisions of S.5 of the Limitation Act. CIT VS. PUNJAB STATE ELECTRICITY BOARD (PUNJAB & HARYANAHIGHCOURT) Re: Sale & lease back transactions –Whether sham? The assessee, a State Electricity Board, sold energy saving devices on which 100% depreciation was permitted and took the same assets on lease and claimed deduction for the lease rent paid. The claim was disallowed. Though the decision of the lower authorities was reversed by the ITAT, on appeal by the department, the HighCourt held that:- (i) The fact that the machinery was in integral part of the boilers and continued with the assessee even after the sale is irrelevant because the assessee received the sale consideration and paid the lease rental. The mere reduction of tax liability is not conclusive of an arrangement being a shamor a device. (ii) The principle that an assessee is entitled to arrange his affairs to reduce tax liability, without violating the law has been approved by the apex court in A. Raman 67 ITR 11 and Azadi Bachao Andolan 263 ITR 706 and the contrary observations inMcDowell 154 ITR 148 are not the ratio of that judgment. (iii) The words ‘device’ or ‘sham’ cannot be used to defeat the effect of a legal situation. HIMACHAL PRADESHENVIRONMENT VS. CIT (ITAT – CHANDIGARH)

Re: Section 2(15) – application thereof The assessee was performing regulatory function for the public good and collected fees or charges in the course of discharging these regulatory functions. The questions arose as to whether the fees or charges were not receipts in consideration of rendering services to trade, commerce or business? While dealing with the issue the ITAT held that the proviso to S. 2(15) does not mean that in case an assessee receives any payment for any thing done for trade, commerce, or business, it will hit by the said proviso. In accordance with the CBDT Circular, the proviso applies onlywhere the object of general public activity is a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto. It does not apply to cases where the services rendered are purely incidental to or subservient to the main object of‘general public utility’. MEDI ASSIT TPAVS.DCIT (KARNATAKAHIGHCOURT) Re: TDS on payments to hospitals The assessee, a Third Party Administrator (TPA) and was engaged in providing‘Cashless’ health insurance claim services. Upon treatment, the hospital sent the bill to TPA and the same would be paid by the TPA to hospital. The payments would be made from funds made available by the Insurance Company to the TPA. The AO took the view that the hospital had rendered professional services and the TPA should have deducted tax at source u/s 194J at the time of payment. The assessee filed writ petition to challenge the said order on the ground that itwas not responsible formaking the payment. Dismissing the writ petition, the High Court held that TPA can be termed as an agent of the Insurance ompany. The mechanism of operation of funds also point to the same. A claim float account was opened in the name of TPA into which money would be deposited by the insurer and used by the TPA to pay the hospitals. The funds were replenished by the insurer. The TPA was in control ofmaking payments to the hospitals and the liability of the insurer was only to replenishing the funds. The control of fundswaswith the TPAalone. The ‘service level agreement’ entered into by the TPA with the insurance company as well as the agreement entered into by the TPA with the hospital indicated that the TPA was responsible for making payment and that it was obliged to deduct the tax at source. CIT vs. Larsen & Toubro Ltd., 181 Taxman 71 (SC) S. 10(5) r.w.s. 192 : LTA : Assessee employer is under no statutory obligation to collect evidence to show that its employee has actually utilized amount paid towards leave travel concession/ conveyance allowance for the purpose of TDS under section 192. CIT vs. McDowell & Co. Ltd., 180 Taxman 514, 521, 524, 526, 528, (SC)/ 314 ITR 167, 174, 177, 180, 185(SC) CIT vs. Udaipur Distillery Co Ltd., 180 Taxman 530 (SC)/ 314 ITR 188 (SC) S. 43B : Furnishing of bank guarantee in respect of any sum payable by an assessee cannot be equated with actual payment as required u/s. 43B for allowance as deduction in computation of profits. Further bottling fees payable under Excise Law for acquiring a right of bottling of IMFL does not fall within the purview of s. 43B. Rotork Controls India (P.) Ltd. vs. CIT, 180 Taxman 422 (SC)/ 314 ITR 62(SC) S. 37(1) : Warranty provision : A.Y. 1991-92 to 1994-95 : For a provision to qualify for recognition, there must be a present obligation arising from past events, settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate of amount of obligation is possible. If historic trend indicates that in past large number of sophisticated goods were manufactured and defects existed in some of items manufactured and sold, then provision made for warranty in respect of army of such sophisticated goods would be entitled to deduction u/s. 37(1), provided the data is systematically maintained. Bang Securities Pvt. Ltd. vs. ACIT, 314 ITR 256 (Bom)

Reassessment : A.Y. 2001-02 : There was no material to hold that any income chargeable to tax had escaped assessment. There was no failure on the part of the assessee to disclose fully and truly all material facts. The reopening of the assessment after the expiry of four years from the end of the relevant assessment year could not be sustained. Vijay Ship Breaking Corporation and Others vs. CIT, 314 ITR 309 (SC) A.Y. 1997-98 : Assessee was entitled to allowance of deduction u/s. 80HH and 80I of the Act in respect of profits from ship breaking activity. Further assessee was not liable to deduct tax at source on usance interest paid on the purchase of vessels from outside, since it was exempt from tax under Explanation 2 to section 10(15)(iv)(c) after retrospective amendment. CIT vs. Shiva Texyarn Ltd. 182 Taxman 1 (Mad) S. 115JAA : A.Y. 2004-05 : MAT credit u/s. 1151JAA should be given effect to before charging of interest u/s. 234B and 234C. Tribunal Decisions K.J. Arora vs. DCIT, 180 Taxman (Mag.) 131 (Delhi) S. 14A : A.Y. 2003-04 : For applicability of s. 14A, it is for the AO to demonstrate that expenditure was incurred by assessee in relation to income which does not form part of total income. In absence of such finding or nexus, provisions of s. 14A cannot be invoked so as to disallow expenses on proportionate basis. Bhagwandas Associates vs. ITO, 119 ITD 1 (Pune) S. 154 r.w s. 250, 254 & 32AB: AO while framing original assessment, allowed higher deduction u/s. 32AB than what was claimed by assessee. In addition AO also made certain addition on account of sales tax refund. On appeal, the Tribunal directed AO to reduce addition in respect of sales tax refund. While giving effect to appellate order, AO has also reduced the deduction wrongly allowed in the original assessment. It was held that when a mistake which is otherwise rectifiable u/s. 154, cannot be cured or adjusted at the time of giving effect to an appellate order u/s. 250/254. Smartalk (P) Ltd. vs. ITO, 119 ITD 13 (Mum) S. 28(iv) / 10(3)/ 41(1) : A.Y. 2001-02 : Assessee company, a JV formed by ‘M’ (holding 49%) and ‘B’ (holding 51%), had taken a loan of Rs. 7 crores from bank on personal guarantee of ‘M’ and ‘B’. Assessee Company has repaid loan of Rs. 2 crores and balance amount was repaid by shareholders. The AO treated the repayment of loan by shareholders as income of the assessee u/s. 10(3). The CIT(A) has taxed the said amount u/s. 28(iv)/ 41(1). It was held that since the amount in question being the contribution made by shareholder for repaying its liabilities in order to fulfill its guarantee obligations could not be treated as income u/s. 28(iv) or s. 41(1). The said income was not taxable u/s. 10 also. CIT vs. Woodward Governor India (P.) Ltd.,179 Taxman 326 (SC)/ 312 ITR 254(SC) S.37(1):A.Y.1998-99:Loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure u/s. 37(1). Hence exchange fluctuation loss arising on markto market restatement of liabilities at the year end is an allowable loss.Further,prior to amendment to s.43A,assessee was entitled to adjust actual cost of imported assets acquired in foreign currency on account of fluctuation in rate at each balance sheet date. CIT vs. Doom Dooma India Ltd.,178 Taxman 261 (SC)/ 310 ITR 392(SC) S. 43(6) r.w.rule 8 : A.Y. 1988-89 to 1991-92 :The words“depreciation actually allowed” under s.43(6)(b)mean depreciation actually deducted in arriving at taxable income.Assessee was in the business of growing and manufacturing tea. Since income which is brought to tax is only 40% of composite income, only 40% of the depreciation computed at the prescribed rate is required to be taken in to account,being depreciation actually allowed, to determine WDV u/s.43(6)(b).

CIT v B. Suresh,178 Taxman 457(SC) S 80HHC:A.Y.1993-94 :Feature film right would fall in the category of article of trade and commerce and, hence, merchandise. Foreign exchange earned by transfer of feature film rights for exploitation outside India in form of lease is eligible for deduction u/s.80HHC. CIT v Eli Lilly & Co. (India) (P.) Ltd.,178 Taxman 505 (SC)/ 312 ITR 225 (SC) S. 192 r.w.s. 9 : A foreign company seconded some employees to its Indian joint venture company,and such Indian company has not deducted tax at source on home salary/special allowance payment made outside India by foreign company. Where home salary/ special allowance payment made to expatriate by a foreign company abroad for rendition of service in India and no work is found to have been performed for foreign company, such payment would come under s.192 read with section 9(1)(ii).Further, for computation of interest u/s. 201(1A), the period of defaults starts from the date of deductibility of tax and restricted till the date of actual payment by concerned employees. CIT v Pranoy Roy, 179 Taxman 53 (SC) S. 234A : A.Y. 1995-96 : Assessee earned substantial capital gains forA.Y. 1995-96. The return was filed after a delay of about 11 months.However taxes due were paid before the due date for filing the return. It was held that interest is levied by way of compensation and is not a penalty. Since tax due had been paid question of levy of interest did notarise. CIT v Shaikh Hassan Hotels, 178 Taxman 313 (Bom)S. 271(1)(c) : AO levied penalty for concealment of income. However Tribunal found that assessee has disclosed all the details in return filed belatedly but prior to receipt of notice u/s. 148. Therefore it was held that Tribunal was justified in coming to conclusion that there is no deliberate concealment. Pallonji M. Mistry v CIT, 178 Taxman 341 (Bom) S. 22: Assesse was co-owner of property consisting of 40 flats, out of which 23 flats were sold during A.Y. 1978-79 and conveyance deed was executed in next year. The AO treated assessee as owner of said 23 flats for the purpose of assessing income therefrom on the ground that for transfer mere execution of conveyance deed is not enogh, without deed being registered. It was held that there is no requirement that there has to be a registered deed of conveyance for the purpose of s. 22.Hence assessee has ceased to be the owner of flats in question. Compagnie Financiere Hamon, In re;177 Taxman 511 (AAR) S. 112 : A.Y. 2008-09 : It was ruled that the benefit of lower rate of tax envisaged by s. 112(1) is available to non-resident foreign company also even if second proviso to s. 48 is not applicable to them.Further,while computing capital gains, deduction is admissible for legal expenses distinctly related to and integrally connected with transfer of shares. On facts,it was ruled that legal fees paid to lawyers for filing petition u/s. 397 & 398 before CLB and for appearing before CLB prior topassing the final order giving green signal for transfer of shares areinadmissible. METRO EXPORTERS LTD vs. ITO ITA NO. 1693/MUM/2005 ORDER DT. 20/02/2009 (MUMBAI ITAT) Re: Section 36(1)(vii) The assessee company was keeping borrowed funds as well as its owned funds in a common account and utilized this account also for making interest free advances or for advances not related to its business. The AO disallowed interest in respect of moneys used for other than business purposes. On appeal, the ITAT held that in all such cases where mixed funds are used for both business and other than business purposes, there is no presumption that moneys used for other purposes came out of borrowed funds. The ITAT held that it can be said that interest free funds given are out of own funds to the extent of capital and reserves. If an assessee having sufficient interest free funds, in the form of capital, reserves and other funds without interest from relatives and friends not related to business, to cover funds

given interest free or utilized other than for business purpose, no disallowance is warranted. If the own funds are not sufficient to cover interest free advances, a proportionate disallowance is warranted. BHOLANATH R. SHUKLA vs. ITO ITA NO. 6695/MUM/2004, ORDER DT. 26/05/2008 [MUMBAI ITAT] Re: Ss 143(2)(i); 143(2)(ii) In this case notice under section 143(2)(i) for scrutiny assessment was issued within prescribed time. Later, the AO wanted to scrutinize the case under section 143(2)(ii) and completed the assessment accordingly. The assessee challenged the action of the AO. On appeal, the ITAT while explaining the provisions of section 143(2)(i) and section 143(2)(ii) held that the provisions of section 143(2) are clear regarding the issuance of notice for both type of scrutiny proceedings independently and limit has also been prescribed for issuance of notice under section 143(2) for both types of scrutiny proceedings; hence, notice issued under section 143(2)(i) cannot by itself extent the time for the issuance of notice under section 143(2)(ii) of the Income Tax Act, 1961. MEERA COTTON & SYNTHETIC MILLS (P) LTD vs. ACIT [2009] SOT 177 (MUM) Re: Section 80-IB The assessee had 3 units eligible for deduction under section 80-IB. In unit Nos. 1 & 2, the company incurred losses. In unit No. 3, the company earned profits and claimed deduction u/s 80-IB in respect of profits of this unit. The AO adjusted the losses of Unit No. 1 & 2 against the profits of Unit No. 3 and allowed deduction u/s 80-IB in respect of the net profit remaining after such adjustment. The CIT (A) upheld the action of the AO. On appeal, the ITAT held that sub-section 80-IB (2) states that this section applied to any industrial undertaking which fulfills all conditions stipulated in this section. As this sub-section provides for granting deduction on the profits and gains derived from ‘such industrial undertaking’ which has obvious reference to the one in an industrially backward state, it is clear pointer for granting deduction in respect of profits earned by each of such industrial undertaking separately. Accordingly, the ITAT set aside the order of the CIT (A) and held that the assessee was to be allowed deduction u/s 80-IB in respect of profits of unit No. 3. Mcorp Global P. Ltd. vs. CIT; 309 ITR 434 (SC) S. 32, 254(1) : A.Y. 1991-92 : The assessee bought 5,46,000 soft drink bottles, which were supplied directly by seller to Coolade under a lease. AO found that Coolade received only 42,000 bottles and hence restricted depreciation on 42,000 bottles and disallowed depreciation on balance bottles. The CIT(A), after formulating “user test” remanded matter to AO. On remand, the AO held that all the 546,000 bottles stood paid for before 31st March 1991 and assessee was entitled for depreciation of 100%. The Tribunal held that since the lease was not renewed and the bottles were not returned on expiry, the transaction in question was only a financial arrangement and not lease and hence disallowed the depreciation and the High Court affirms the decision. On appeal to Supreme Court, it was held that u/s. 254(1), the Tribunal had no power to take back benefit conferred by the AO or enhance the assessment. Since AO had granted depreciation in respect of 42,000 bottles that benefit could not be withdrawn. Cholamandalam MS Gen. Insurance Co. Ltd., In re; 309 ITR 356 (AAR) The applicant was engaged in the business of non-life insurance and had two divisions, in Japan and Korea. It was in need of person well versed in insurance business practices, foreign language and other related information. It entered into an agreement with a Korean company under which an employee at Korea were kept at the disposal of applicant. Applicant reimbursed a part of the salary and other benefits payable to

employee, and that Korean company continued to be the employer and continue to pay his salary. The Korean company has deducted tax at source and deposited in India. On these facts, the Authority rules that the amount paid by the applicant could not be said to be in the nature of consideration for offering the service of employee and cannot be treated as 'fees for technical services'. Hence the applicant is not liable to deduct tax at source. CIT vs. Rampur Eng. Co. Ltd.; 309 ITR 143 (Del)(FB) S. 271(1)(c), (1B) : Sub-section (1B) has been inserted in s. 271 is made effective w.e.f. April 1, 1989. Hence, where assessment were made prior to April 1, 1989, the legal position is well settled in view of Supreme Court's decision in 44 ITR 739 and 86 ITR 557, that power to impose penalty u/s. 271 depends upon the satisfaction of the AO in the course of proceedings. It cannot be exercised if he is not satisfied and has not recorded his satisfaction. CIT vs. P.M. Electronics Ltd., 177 Taxman 1 (Del) S. 43B : A.Y. 1998-99 : The amounts paid by an employer towards provident fund contribution after the prescribed due date under the PF Act but before the due date of furnishing return are allowable in view of s. 43B r.w.s. 36(1)(va). The deletion of second proviso to s. 43B by Finance Act 2003 is held to be retrospective in operation. Coca Cola India Inc. vs. ACIT, 177 Taxman 103 (P&H) S. 147 r.w.s 92C : A.Y. 1998-99 to 2001-02 : It was held that the provisions of section 92 to 92F are applicable even when there is no intention to transfer profits outside India or evasion of tax. The income arising from international transaction is to be computed having regard to arms length price by adopting one of the laid down methods at the discretion on competent authority and mere fact that assessee has chosen one of the said methods does not take away discretion to select other method which may be considered to be more appropriate. Compagnie Financiere Hamon In re, 177 Taxman 511 (AAR) S. 112 : It was ruled that the benefit of lower rate u/s. 112(1) is available to non-resident even if second proviso to s. 48 is not applicable to them. Further, the legal expenses distinctly related to and integrally connected with transfer of shares are admissible for deduction u/s. 48(i). Tribunal Decisions Galileo International Inc. vs. DCIT, 116 ITD 1 (Del) S. 9 r.w.s. 5 : A.Ys. 1995-96 to 1998-99 : Assessee, a US company, developed a global computerized reservation system (CRS) through which subscriber travel agents could check availability of seat/ room in airline/ hotel, etc. and book them. Assessee had to maintain master computer system in US, which was connected to servers of participant hotels and airlines. Assessee engaged an Indian company as distribution agent in India. The system is originating from the desk of Indian subscribers' computers and ending at their computer too. A continuous seamless process was involved, atleast part of which was in India. Since the computer at the subscribers’ desks were not dumb or kiosk incapable of performing any function and computers being supplied by assessee/its agent and connectivity by assessee enabling subscribers to perform ticketing and booking functions, there was direct business connection in India. Further, since the assessee exercised complete control over computers installed at premises of subscribers, the premises of subscribers would amount to fixed place PE. ITO vs. Smt. Saraswati Ramanathan, 116 ITD 234 (Delhi) S. 54EC : A.Y. 2004-05 : It was held that there is no requirement in s. 54EC that the

investment should be in the name of the assessee. The requirement, having regard to the object of the section, is that the sale proceeds of the capital asset must be invested in certain specified assets. Accordingly, when sale proceeds was invested in the joint name of the assessee and her son without any contribution from son, the exemption could not be denied. JCIT vs. George Williamson (Assam) Ltd., 116 ITD 328 (Guwahati) S. 40(a)(i) r.w.s. 195 : A.Y. 1995-96 : Assessee company had paid selling commission, brokerage and other related charges to its non-resident agents in respect of sale of tea outside India. It was held that in view of CBDT Circular No. 786 dated 7-2-2000, no income had accrued or arisen in India, therefore no tax was deductible u/s. 195. Hence, no disallowance can be made u/s. 40(a)(i). DCIT vs. Brijlaxmi Leasing and Finance Ltd.; 309 ITR (AT) 211 (Ahmedabad) Capital receipt : A.Y. 1999-2000 : Share application money, which had been forfeited as per the terms of the prospectus was received for issue of shares and issue of shares was not the business of the assessee. Hence, the amount credited to Capital Reserve account is a capital receipt. Millennium Infocom Technologies Ltd. vs. ACIT, 309 ITR (AT) 18 (Del) S. 40(a)(i), 195(2) : A.Y. 2001-02 : It was held that expenditure for domain registration and server charges for hosting website is not in the nature of interest or royalties or fees for technical services or other services chargeable to tax in India in absence of PE in India. Accordingly, the assessee was not required to deduct tax at source u/s. 195 while making payment outside India. Muthuswamy Ravikumar vs. ACIT, 309 ITR (AT) 41 (Bang) S. 2(29A), (42A) : A.Y. 2004-05 : The assessee was granted stock options under an ESOP scheme. As per the scheme, the trust will hold shares until legal ownership is transferred to employees. A particular no. of shares have been offered to employees at a strike price. The assessee becomes beneficial owner of such shares with immediate effect. The beneficial ownership will be converted into full fledged ownership in a phased manner, as employee's association with the company progress. In financial year 2003-04 assessee exercised the option and sold the shares and treated gains as long term capital gains. It was held that period of holding of shares is to be ascertained from the date on which assessee acquired full fledge legal ownership. Further, as per the scheme, the assessee acquired full legal ownership in phased manner. Since in respect of 30% of shares the period of holding will be less than 12 months, the subject gain will be treated as short term capital gains. Kopran Pharmaceuticals Ltd. vs. DCIT, 309 ITR (AT) 146 (Mum) S. 115JB : A.Y. 2001-02 : Assessee sold a factory gala and excess of net sale consideration over the original cost was transferred to the capital reserve. It was held that such amount should be included in the book profit for the purpose of s. 115JB as the Bombay High Court, in CIT vs. Veekaylal Investment Co. P. Ltd., 249 ITR 597 has held that income by way of capital gains should form part of the book profit. Further, the proposition of the Supreme Court in Apollo Tyres Ltd., 255 ITR 273, that the assessing authorities does not have jurisdiction to make adjustment to book profits certified by the statutory auditors other than the adjustment provided under the Explanation, is a general proposition of law. However, the Bombay High court has specifically dealt with the question of capital gain, therefore the decision of the Bombay High Court is applicable. Skyline Caterers (P) Ltd. vs. ITO, 116 ITD 348 (Mum) S. 32 : Assessee company was engaged in business of providing catering, house-keeping

and allied services to HLL. Such catering business was earlier carried on by one 'R' under a catering contract with HLL. Assessee entered into an agreement with R for taking over catering contract of R with HLL against consideration of Rs. 27 lakhs out of which Rs. 25 lakhs was for acquiring all rights under said contract and Rs. 2 lakhs was on account of not to compete with assessee. It was held that the right acquired under catering contract, along with article and paraphernalia lying in canteen of HLL which were tangible assets, would be eligible for depreciation under clause (i) of s. 32(1) and balance amount would be allocated for intangible asset for the purpose of granting depreciation under clause (ii) of s. 32(1) Vijay Ship Breaking Corpn Vs CIT, 175 Taxman 77(SC) S. 80HH r.w.s. 80-I : Ship breaking activity results in production of a distinct and different article and, therefore, assessee doing said activity would be entitled to deduction u/ss. 80HH and 80-I. CIT Vs Sarabhai Holdings (P.) Ltd., 175 Taxman 82 (SC) section 5 : A.Y. 1980-81: Assessee company had transferred its industrial unit to its subsidiary for certain consideration w.e.f. 1-3-1979. In terms of sale agreement, part of sale consideration was payable in eight installments along with interest. Subsequently, the terms were modified and part of sale consideration was payable as and when demanded without interest, and balance sum was payable in five instalments with interest from 1-7-1979 instead of 1-3-1977. It was held that interest could not be included in income of assessee since resolution dated 30-6-1978 had been passed prior to commencement of relevant accounting year which was from 1-7-1978 to 30-6-1979, and therefore, it could not be said that interest had accrued to assessee. PNB Finance Ltd. Vs CIT, 175 Taxman 242 (SC) S. 48 : A.Y. 1970-71 : Assessee, a banking company was nationalized and it received certain amount as compensation. Banking undertaking included intangible assets like, goodwill, tenancy rights, manpower, and valuable banking licence and compensation received was not allocable item-wise. Hence, it was impossible to determine capital gains and cost of acquisition and therefore, compensation received was not taxable u/s. 45. Asteroids Trading and Investments P. Ltd. Vs DCIT, 308 ITR 190 (Bom) Reassessment : A.Y. 2003-04: The assessee claimed deduction u/s. 80M, in respect of dividend declared by it against dividend received. The claim was accepted by AO in the regular assessment. Though the notice u/s. 148 was issued, there was neither any change of law nor had any new material been brought on record. Hence it was only fresh application of mind by the AO to the same set of facts and reassessment proceedings were initiated based on change of opinion. Asian Paints Ltd. Vs DCIT, 308 ITR 195 (Bom) Reassessment : A.Y. 2003-04 : It was held that mere change of opinion of AO should not be the ground for reassessment. Since AO had failed to apply his mind to the relevant materials while framing the assessment order, he could not take advantage of his own wrong and reopen the assessment u/s. 147. Peninsula Land Ltd. Vs CIT, 175 Taxman 58 (Bom)/ 307 ITR 183 (Bom) Rectification of mistakes : The power of ITO to amend assessment in consequent of decision in an appeal/ revision/ reference or by a High Court or Supreme Court is not traceable to section 154 but is inherent and traceable to ss. 143 and 144 and, therefore, limitation as contained in s. 154(7) would not apply to passing of such order.

ISRO Satellite Centre [ISAC], In re, 175 Taxman 97 (AAR)/ 307 ITR 59 (AAR) S. 9 r.w. article 13 of DTAA between India - UK : Applicant, which is a part of Department of Space, Govt. of India, has entered into a contract with IGL of UK for taking on lease, space segment capacity consisting of L-1 and L-5 transponder centered on Satellite. Under contract, applicant pays fixed annual charge to IGL regardless of actual use of transponder capacity. Since applicant does not get possession or control of equipment of IGL, charges paid cannot be regarded as payment for use of equipment. Further, technical and operating requirement and procedures and system's definition manual containing service requirements annexed to agreement so as to ensure uninterrupted access to space segment capacity does not amount to making available any technical knowledge, skill, experience, know-how or process to applicant. Hence, income arising to IGL is neither in the nature of royalty under the Act nor is fee for technical services under treaty. Singapore Tourism Board, In re, 175 Taxman 125 (AAR)/ 307 ITR 34 (AAR) S. 115WA : Foreign entity not earning any income in India is liable to pay FBT in respect of fringe benefit paid by it to its employees working in its liaison office in India. CIT Vs Bharti Cellular Ltd., 175 Taxman 573 (Del) Ss. 9(i)(vii) and 194J : The expression 'Fees for technical services' as appearing in s. 194J would have reference to only technical service rendered by human, it would not include any service rendered by machine. According to Explanation 2 to section 9(1)(vii), the term technical services means any consideration (including lump sum consideration) for rendering of any managerial, technical or consultancy services …" The word technical is preceded by the word 'managerial' and succeeded by the word 'consultancy'. Hence, according to the rule of nosciture a sociis, the word technical would take colour from the words 'managerial and consultancy', between which it is sandwiched. The facility provided by MTNL/ other companies for interconnection/ port access is one which is provided automatically by machine. The services rendered qua interconnection / port access did not involve any human interface and, therefore, the same could not be regarded as technical services. LMN India Ltd., In re., 307 ITR 40 (AAR) S. 2(28A) : The applicant, an Indian Non Banking Financial Company, made investment in various businesses in India and abroad. For the purpose of funding its business activities, it proposed to borrow money from LMCC of USA by issuing fully convertible bonds under FDI scheme. The bonds are convertible into equity shares at the end of 5 years, unless extended for further period of 5 years. Interest payable on the bonds by the applicant up to the date of conversion fell within the definition of "interest" in s. 2(28A) of the Act read with article 11 of DTAA between India and USA. There was a debt and what was paid as interest was towards that debt. The debt was extinguished on making over fully paid equity share at agreed price and at the agreed time. If the mode of discharging debt is by issuing equity shares in lieu of cash, it does not in any way detract from legal character as debt. Accordingly, applicant was liable to deduct tax at source u/s. 195(1) of the Act. CIT Vs M.K. Sharma, 307 ITR 147 (Del) S. 271(1)(c) : A.Y. 1984-85 : Mere observation in the Order by AO that penalty proceedings had been initiated, did not satisfy the requirement of s. 271(1)(c). No satisfaction of AO that penalty proceedings were required to be initiated against assessee was discernible. Thus decision of Tribunal, setting aside penalty proceedings was upheld. CIT Vs Ram Commercial Ent. Ltd., 246 ITR 568 (Del) was followed. [The Supreme Court has dismissed the SLP filed by the Department against this judgement - 306 ITR (St) 2]

SET Satellite (Singapore) Pte. Ltd. Vs DDIT, 307 ITR 205 (Bom) Resident of Singapore, through its dependent agent in India (SET India) carried on marketing activities for advertisement slots by canvassing advertisements in India. Sale contracts were entered outside India on Principle to Principle basis. It was held that Circular No. 23, dated July 23, 1969 would be binding on the AO. Since agent is compensated at arm's length, the advertisement revenue received by the appellant was not taxable in India. Tribunal Decisions TCM Ltd. Vs JCIT, 115 ITD 183 (Kochin) S. 150 r.w.s. 147 & 148 : The assessee has offered the power charges of Rs. 5,58,598 as its income in the A.Y. 1979-80. The AO while completing the assessment for the A.Y. 1977-78 included this said amount in the said year, as according to AO the same was liable to be taxed in the A.Y. 1977-78. Accordingly, the amount offered by the assessee in the A.Y. 1979-80 was excluded by the AO. The High Court has held that amount in question could not be brought to tax in the A.Y. 1977-78. Thereupon, the AO issued notice u/s. 148 for A.Y. 1979-80. It was held that since the original assessment for A.Y. 1979-80 was completed u/s. 143(3), the maximum time limit was four years for reopening. Further, since there was no specific finding given by the High Court that the amount in question was assessable in A.Y. 1979-80, AO could not take shelter u/s. 150(1) to initiate reassessment proceedings. ITO Vs De Beers India Minerals (P) Ltd., 115 ITD 191 (Bang.) S. 90 : A.Y. 2004-05 : Assessee company engaged in mining of diamonds, entered into an agreement with a foreign company "Fugro" to conduct airborne survey for providing geophysical data suitable for selecting probable diamond bearing rocks. AO held that the consideration paid falls within the definition of 'fees for technical services'. It was found that specialized equipment, technicians, technical knowledge and other intangibles were always owned by 'Fugro' and had never been transferred, imparted or made available to assessee, that assessee was not in a position to utilize said specialized equipment and technical knowledge, and that ownership of all information and data was always with assessee. Hence, payment made by assessee could not be said to be fees for technical services within the meaning of Article 12(5). ACIT Vs Prakash L. Shah, 115 ITD 167 (Mum)(SB) S. 80HHC : A.Y. 2001-02 : Foreign exchange fluctuation gain is part of 'Export turnover' and cannot be treated as 'Income from other sources'. Further, foreign exchange fluctuation gain pertaining to exports made in earlier year shall be part of export turnover of the year in which such export is made and not in the year of realization. Rohan Software (P) Ltd. Vs ITO, 115 ITD 302 (Mum) S. 2(42C) : A.Y. 2000-01 : Assessee company, engaged in the business of software development and related services, transferred its business assets, i.e., intellectual properties, code, formulae, design, etc. for a consideration. Assessee claimed that the amount received was for sale of business as going concern which had to be treated as slump sale and hence computed capital gain u/s. 50B. According to revenue, assessee had not transferred building, motor car and assets and liabilities relating to income tax matters and, therefore, consideration is not for slump sale but a revenue receipt. It was held that the consideration was for sale of business as a going concern for slump price since transferee would be able to carry on business with the assets transferred by assessee without purchasing any independent items. Non transfer of items like, motor car, building has nothing to do with assessee's business.

Patni Telecom P. Ltd. Vs ITO, 308 ITR (AT) 414 (Hyd) S. 10A : A.Y. 2000-01 & 2001-02 : The expenses on Internet Service Provider (ISP) were in respect of development of software and not attributable to the delivery of computer software, hence did not come within the scope of telecommunication charges as provided under clause (iv) of Explanation 2 to s. 10A. Similarly, expenses in foreign exchange for providing technical services outside India was not in connection with provision of technical services, since appellant did not render any independent technical services. The expenditure was for development of software. Therefore such expenses need not be excluded from consideration in foreign exchange and there was no scope for exclusion from export turnover. R.G. Keswani Vs ACIT, 308 ITR (AT) 271 (Mum) Depreciation of Goodwill : A.Y. 2002-03 : The assessee company commenced its business by acquiring goodwill and the trade name and claimed depreciation on Goodwill as an intangible assets. It was held that the same is not similar in nature to know-how, patents, copyrights, trade marks, licences, franchises. Any business or commercial rights not similar in nature to the above- mentioned six items cannot be treated as intangible assets qualified for depreciation. Hence, acquisition cost of goodwill was not entitled for depreciation. S. Balan Vs DCIT, 308 ITR (AT) 151 (Pune) Capital Gains : Interest paid on amount borrowed for the purpose of acquisition of shares should be included in cost of acquisition for the purpose of computing capital gains. CIT V. Jaiparabolic Springs Ltd 172 Taxman 258 (Delhi)Re: Appellate power of Tribunal The assessee has written off 1/5th of deferred revenue expenditure in its books of account and claimed the expenditure on deferred basis in its return of income. In appeal, the CIT (A) allowed full expenditure. The ITAT confirmed the findings of the CIT (A). On appeal by the department, the High Court dismissed the appeal filed by the revenue with following observations: (i) The revenue expenditure, which is incurred wholly and exclusively for the purposes

of business, must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of a number of years.

(ii) There is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter for just decision of the case. Therefore, there was no infirmity in the order of the Tribunal

CIT V. Arvind Construction Co. 172 Taxman 5 (DEL) Re: Deduction u/s 80-HHB ( Asst Years 1997-98 and 2000-01) The assessee was a sub contractor of Indian Railway Construction Corporation and carried out certain project in IRAQ. Due to war in Iraq, the payments were held up. Subsequently, settlement between the Governments of India and the Govt of Iraq was arrived at and the assessee was entitled to a sum that also included interest on Bonds. The money so received was in the form of RBI Bonds and ECGC Bonds. The assessee claimed deduction u/s 80-HHB also on the amount of interest. The Assessing officer rejected the claim. The ITAT however allowed its claim. On appeal by the revenue, the High Court upheld the decision of the Tribunal with following observations: “We find that as regards the interest on the RBI Bonds, this was part of the total settlement package by which the assessee was to receive 54.93 Crores for the works

undertaken in Iraq as a sub contractor of IRCON. In the facts and circumstances of the case, it is not possible to view the interest received on the RBI Bonds as payment dehors the activity of the assessee pursuant to the execution of contract.” GUJRAT J H M HOTELS Ltd v. DGIT (Exemption) 305 ITR 386 (Gujarat) Re: Deduction u/s 80-IA (4)(iii) The assessee constructed and run a Hotel at an important place of pilgrimage in Gujarat. The assessee claimed deduction u/s 80-IA (4)(iii) in respect of profits of this Hotel. The assessee in support of its claim furnished evidence in the form of certificates issued by State Government authorities. The Director General of Income Tax (Exemption) however rejected the application by observing that it is a well known fact that the place where assessee’s Hotel is located is an important Industrial Town, having existent infrastructure/ tourism facilities, to promote industrial and tourism development and that place like the one where the assessee had set up a Hotel did not require the additional benefit of section 80-IA (4)(iii). On writ petition by the assessee, the High Court allowed the appeal and held that ~ (i) A bare perusal of the documents furnished by the petitioner vis-à-vis section 80-IA

(4)(iii) of the Act and Rule 18BBC made it clear that the petitioner had fulfilled all the necessary conditions for grant of the approval.

(ii) The authority has only considered that the petitioner did not fulfill the pilgrimage test without dealing with the two certificates issued by the prescribed authorities. Once the prescribed authorities grant certificates, if the authority wants to reject it, valid and justifiable reasons must be given therefore. Rejecting the application on merely considering the fact whether S is a place which could be considered as requiring approval for notification for promotion of pilgrimage, was an extraneous consideration to the provisions of the Act and the Rules and the benefit could not be refused to the petitioner on this ground.”

JOINT CIT V. ICICI LTD [2008] 307 ITR (AT) 262 (MUMBAI) Re: Depreciation on Sale & Lease back Transactions The assessee was in business of leasing and is a known banking organisation. The assessee has entered into as much as 7000 transactions of sale and lease back. The AO disallowed depreciation in respect of 2 transactions with Gujarat Electricity Board (GEB) and Rajasthan State Electricity Board (RSEB) holding that these were merely loan transactions. The CIT (A) confirmed the orders of the Assessing officer. On appeal, the Tribunal held that the CIT (A) had not taken into consideration the aspect that the assessee was in regular leasing business and about 7000 transactions had been entered into by the assessee with various parties for sale and lease back. The assessee was a banking organisation and was maintaining all records in regard to each and every item, and proper profit & loss account was maintained. All the details were furnished and not a single case was detected by the Assessing officer where these were not genuine or were only paper transactions. Insurance cover in respect of the items involved in these transactions was in name of the assessee. Any liability on account of insurance premium or on account of theft, damage etc., was on account of the assessee. Therefore, merely on suspicion or conjectures, doubting that the transactions were entered into for claiming higher depreciation was not justified. The orders of the lower authorities were liable to be set aside and the assessing officer was directed to allow the claim of depreciation on all items claimed by the assessee. Mayfair Builders And Developers V. DCIT [2008] 306 ITR (AT) 308 (PUNE) Re: Section 249(4)(a), 264; Block period ~ 01-04-1988 to 25-06-1998 The assessee was a firm engaged in the business of construction/ development of immovable properties. Following a search, the assessee offered an additional income of

Rs. 97.70 Lakhs for the block period. The AO however assessed total undisclosed income of Rs. 4.34 Crores. The assessee filed appeal before the CIT (A). A revision petition u/s 264 was also filed before the CIT. The petition filed under section 264 was rejected on the ground that the assessee had filed an appeal to the CIT (A). While deciding the appeal, the Commissioner (Appeal) noticed that the assessee had not paid full taxes due on the undisclosed income declared in the block return filed in response to notice under section 158BC. He held that the appeal cannot be admitted in view of provisions of section 249(4)(a). Subsequently, the assessee paid the taxes on the undisclosed income declared in its return filed in form 2B and thereafter filed a fresh appeal before the Commissioner (Appeals) along with a request for condonation of delay. The appeal was rejected. On further appeal, the Tribunal held that the order of the Commissioner 9Appeals) could not be sustained because when substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred. The CIT (A) in his order, failed to examine whether there existed sufficient reasons on part of the assessee for non- compliance with the provisions of section 249(4)(a) of the Act. The Commissioner (Appeals) was not justified in refusing to condone the delay without examining the aspect of the matter. The matter was remanded. CIT vs. Gold Coin Health Food P. Ltd., 304 Itr 308 (SC)/ 172 Taxman 386 (SC) Penalty u/s. 271(1)(c) : After referring to recommendation of the Wanchoo Committee and Circular No. 204 dated 24th July, 1976, it was held that Explanation 4 to s. 271(1)(c)(iii) regarding the imposition of penalty even if the returned income is loss, is clarificatory in nature and the same applies even to A.Ys. prior to 1st April, 2003. Accordingly, the decision in the case of Virtual Soft Systems has been overruled. ACIT vs. Saurashtra Kutch Stock Exchange Ltd., 173 Taxman 322 (SC) S. 254 : Non consideration of a decision of a jurisdictional High Court or Supreme Court can be said to be ‘mistake apparent from record’ which can be rectified u/s. 254(2). CIT vs. HCL Comnet Systems and Services Ltd., 305 ITR 409 (SC) S. 115JA : A.Y. 1997-98 : The AO has to accept the authenticity of the accounts maintained by the company in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956. The provision for bad and doubtful debt cannot be said to be a provision for a liability. Such provision for bad and doubtful debts cannot be added back. CIT vs. Jannhavi Investments P. Ltd., 304 ITR 276 (Bom) Capital gains : Assessee acquired certain shares and later received bonus shares. All the shares were held as stock-in-trade till 1987. For computing capital gains, the cost of acquisition could only be the cost on the date of actual acquisition. There was no acquisition of shares in 1987, when they were converted from stock-in-trade to capital assets. Hence assessee is entitled to take FMV as on 1-4-1981 as cost of acquisition. Further it was held that coupons received along with non-convertible debenture is not liable to capital gains tax, as there was no proof that coupons were securities within the meaning of section 2(h) of SCRA and hence the same cannot be covered in s. 55(2)(aa)(ii). Set Satellite (Singapore) Pte. Ltd. vs. DCIT, 173 Taxman 475 (Bom) S. 90 r.w. Article 7 of DTAA : A.Y. 1999-2000 : Assessee company, a resident of Singapore, was carrying on marketing activities in India through its dependent agent (DA) in India, for advertisement slots by canvassing advertisements in India. The finding of CIT(A), that contracts to sell were made outside India and sales were made on principal-to-principal basis, para 6(3) of Circular No. 23 was applicable and as assessee had remunerated its DA on an arm’s length basis, no further assessment could be made in the hands of assessee, was upheld. It was further held that merely because tax on income

was paid for some years would not stop the assessee from contending that its income was not liable to tax. CIT vs. Gardhara Singh, 173 Taxman 46 (P&H) S. 148 : A.Y. 1967-68 : Where the reasons recorded for reopening assessment were different from the reasons on the basis of which reassessment was made, the Tribunal was justified in holding that reassessment proceedings were invalid. Cushman and Wakefield(s) Pte. Ltd., In Re; 305 ITR 208 (AAR) Referral fees: The applicant, a foreign company, incorporated in Singapore, was engaged in the business of rendering services in connection with acquisition, sale and dealing in real estate, etc. It had developed certain international client relationship and earned referral fees. On the facts, it was held that the referral fees does not amount to “business income” in India of the applicant u/s. 9(1)(i). Also such referral fees did not amount to “royalty” or “fees for technical services” and hence the same is not taxable in India and accordingly, s. 195 was not attracted. CIT vs. Noble and Hewitt (I) P. Ltd., 305 ITR 324 (Del) A.Y. 1999-2000 : Assessee maintained its accounts on the mercantile system. It had collected service tax during the relevant year and part of the amount aggregating to Rs. 14.40 lakhs was not deposited. The assessee did not claim any deduction in this regard nor did it debit the amount as expenditure in the P&L account. It was held that such amount could not be disallowed. CIT vs. Trishul Investments Ltd., 305 ITR 434 (Mad) Capital Gain : Assessee carrying on business of investments in shares and had no intention to trade in shares. Profits derived from sale of shares should be subject to capital gain. Further, interest paid for acquisition of shares would partake of the character of cost and therefore it was rightly capitalized along with the cost of acquisition. Tribunal Decisions ITO vs. Ekta Promoters P. Ltd., 305 ITR (AT) 1(Del)(SB)/ 113 ITD 719 (Del)(SB) S. 234D : A.Ys. 1998-99 to 2000-01 : The provisions of s. 234D should not be construed to be procedural or machinery provisions and, hence, should not be applied retrospectively. Interest is not chargeable for earlier years even though the regular assessment was framed after 1st June, 2003. Provisions of s. 234D are applicable only with effect from A.Y. 2004-05 Rohan Software P. Ltd. vs. ITO, 304 ITR (AT) 314 (Mum) Capital gains – Slump sale : It was held that as assessee’s business assets were the computers, furniture, etc. because assessee was in the field of software business and the purchaser could continue the activities purchased even in absence of building and motor car, which had been kept apart. Hence the view of the AO that the assessee had not sold the undertaking as a whole was wrong. Medicare Investments Ltd. vs. JCIT, 114 ITD 34 (Del)(SB) S. 28(i) : A.Y. 1996-97 : Company M had offered to its existing shareholders 12.5% secured non-convertible debenture of Rs. 250 each along with detachable warrants. An option was given to the successful allottees to sell the NCDs without warrant at a price of Rs. 169 per warrant. Assessee exercised option and sold NCD without warrants at Rs. 169 and claimed loss on sale of NCD. AO, disallowed claim holding that warrant cost was to be taken at Rs. 81 and not nil. Following the decision of jurisdictional High Court, the AO was directed to allow the claim of assessee for loss on sale of NCD.

DCIT vs. Lurgi India Co. Ltd., 114 ITD 1 (Del) S. 4: A.Ys. 2000-01 and 2001-02 : During the year, assessee received certain sum from its parent company which was credited to its P&L account by way of capital grants. However, in the computation the assessee did not include said amount on the ground that the same was received from parent for recoupment of its losses and hence the same was a capital grant. Since the fact did not lead to a conclusion that there were business transactions between the assessee and the holding company, and also in absence of detail of any loss having been incurred in transactions with the associated concerns, the reimbursement of losses are not in revenue field. Max Telecom Ventures Ltd. vs. ACIT, 114 ITD 46 (Asr) S. 2(47) : A.Y. 1998-99 : On 17-3-1998 assessee entered into a share purchase agreement for sale of certain shares. The said agreement was acted upon and was followed by delivery of share certificates along with transfer deed on 23-4-1998. Relying on CBDT circular No. 704, it was held that the material date for sale was 17-3-98 even when certain conditions are stipulated in the agreement. In case, where a transaction is not followed by delivery of shares and transfer deeds due to non-fulfilment of conditions, it will not be regarded as ‘transfer’ for the purpose of capital gain. Therefore, the uncertainties arising had been taken care of by subsequent delivery. Therefore, the date of transfer for the purpose of s. 45 would be 17-3-1998 and not 23-4-1998. Fidelity Textiles P. Ltd. vs. ACIT, 305 ITR (AT) 97 (Chennai) Income : S. 2(24) : The assessee was a JV company promoted by two Indians and a British national B. B advanced a loan which is to be repaid in equal instalments over a period of 5 years. Assessee could not repay anything. B suddenly passed away. The executors of the estate of B entered into a settlement agreement agreeing to waive the loan advanced to assessee. Since the loan was availed for the purpose of purchase of capital assets and was utilized for the same purpose, the waiver represented a capital receipt, which did not constitute income u/s. 2(24). Fascel Ltd. vs. ITO, 305 ITR (AT) 368 (Ahmedabad) Book Profit : S. 115JB and s. 79 : A.Y. 2003-04 : The AO was directed to consider the loss according to the books of account of the assessee irrespective of whether it was allowable or not u/s. 79 of the Act. ORNATE TRADERS PVT LTD vs. ITO [2008] 24 SOT 125 (MUM) Re: Section: 45 RWS 28(1) In this case the assessee was holding shares by way of investments. It had sold some of them and claimed professional fees paid for such sale as business expenditure. The AO took a view that such expenditure is not deductible as the assessee was holding shares/ units by way of investments. On these facts, the Mumbai bench of the ITAT has held that where a specific head is provided in respect of a particular income, then such income must be computed under that head, irrespective of nature of income. The Tribunal held that when the assessee is holding shares as investments and it has disposed of certain shares, then income therefrom has to be computed under that very head ‘Capital Gains’ and deduction of expenses, if any, is to be allowed only under that head and not under head ‘ Business Income’. ITO vs. GRAHAM FIRTH STEEL PRODUCTS (I) LTD [2008] 24 SOT 106 (MUM) Re: Section: 32(2) RWS 50 [Asst. Year 2000-01]

The assessee company was engaged in the business of cold rolled steel strips. It sold some depreciable assets and in view of section 50, there resulted some short-term capital gains. The assessee has carried forward unabsorbed depreciation which it claimed to adjust against such short-term capital gains. The AO denied the claim by relying on provisions of section 432(2) as applicable to Asst. Year 2000-01. The CIT(A) allowed the assessee’s claim. On appeal by the Department before the Mumbai bench of the Tribunal, it is held that depreciation allowed to the assessee up to and inclusive of assessment year 1996-97 which remained unabsorbed and is brought forward to the assessment year 1997-98 and subsequent assessment years up to assessment year 2004-05 can be set off as per the pre-amended section 3292) and, consequently, it can, be set-off against taxable business profits or income under any other head for assessment years. MOHAN BREWERIES & DISTILLERIES LTD vs. ACIT [2008] 24 SOT 170 (CHENNAI) Re: Section: 80-IA The assessee company had started 3 power projects. First one in AY 1996-97 and other 2 are in A.Y. 1999-00. The assessee claimed deduction under section 80-IA for the first time in Asst. Year 2004-05. The AO held that while computing Gross Total Income of the eligible units, the notional brought forward loss incurred by those units in earlier year had to be taken into account first and after that, if any remaining profit was available then deduction under section 80-IA had to be allowed. The CIT(A) upheld the order of the Assessing Officer. On appeal, the ITAT while allowing the appeal of the assessee held that the law had given an option to claim relief under section 80-IA in 10 out of 15 years beginning from the year in which the undertaking begins to operate infrastructure facility. Once the assessee opted the first year of relief then it continues for further 9 consecutive years. The Tribunal held that since the assessee opted to claim deduction only in 5th year, the provision of section 80-IA (5) cannot be applied right from the year in which the undertaking commenced operations. Hence, the provisions of section 80-IA (5), treating undertaking as a separate sole source of income, could not be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Further, depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA cannot be notionally carried forward and set-off against the income from the year in which the assessee started claiming deduction under section 80-IA. CIT vs. GUPTA GLOBAL EXIM PVT LTD [2008] 171 TAXMAN 474(SC) Re: Section 32 The assessee was engaged in the business of trading in timber logs. The assessee purchased trailers and loaders and put them use on hire and claimed higher rate of depreciation at 40% on such vehicles. The AO denied the claim by holding that the assessee was not in business of transportation and higher depreciation is available only to those assessees who are engaged in plying of vehicles. The AO further noticed that such vehicles were given out on hire to outside parties occasionally. The CIT(A) and also the ITAT allowed assessee’s claim by holding that transport income by way of running subject vehicles on hire was an integral part of assessee’s business and it was included in ‘Business income’. The High Court refused to interfere in the matter and dismissed the appeal of the revenue. On appeal by the Income Tax department before the Supreme Court, the apex court held that under sub-item 2(ii) of Item IIII, higher rate of depreciation is admissible on motor trucks used in business of running them on hire. Therefore, the user of the same in the business of transportation is the test. Their lordships observed what is relevant for consideration under the sub-item 2(ii) of Item III of Appendix I of the Income Tax Rules, 1962 is whether the assessee was in business of hiring out his trucks in addition to his business of trading of timber logs. There is no evidence to indicate that, the assessee was in business of hiring out Motor

Lorries for running them to earn business income. The inference drawn by the CIT(A) on the footing that the AO has treated hire charges received by the assessee as part of total business income which is not determinative of the above test, viz., whether the trucks were used in the business of transportation as claimed by the assessee. The judgment of the High Court was accordingly set aside and the matter was remitted to the CIT (A) for de novo examination of the case accordingly to law. CIT V GUPTA GLOBAL EXIM (P.) LTD., 171 TAXMAN 474 (SC) S. 32: A.Y. 1998-99 : What was relevant for allowance of higher depreciation was whether assessee was in business of hiring out its truck. Mere inclusion of transportation income in total business income was not determinative factor to decide whether trucks were used by assessee during the relevant year in a business of running them on hire. B. DESRAJ V CIT, 171 TAXMAN 481 (SC) S. 80HHC : A.Y. 1991-92 : During the relevant year, assessee received cash compensatory allowance and duty drawback for export made in preceding assessment year. Since assessee had not made any export sales during the relevant year, AO held that said duty drawback and cash compensatory allowance did not constitute eligible income for the purpose of deduction u/s. 80HHC. It was held that words ‘business profits’ in formula mentioned in s. 80HHC(3) would include cash compensatory allowance and duty drawback and, therefore, AO was directed to work out the deduction in accordance with law as it stood during the relevant assessment year 1991-92. SREE AYYANAR SPINNING AND WEAVING MILLS LTD. V CIT, 301 ITR 434 (SC)/ 171 TAXMAN 498 (SC) S. 254(2) : A.Y. 1989-90 : Power of the Appellate Tribunal to pass order of rectification – Where the application for rectification is made within four years of the appellate order of the Appellate Tribunal, the Appellate Tribunal has jurisdiction to pass the order disposing the application and cannot reject the application on the ground that four years have elapsed. IDEA CELLULAR LTD. V DCIT, 301 ITR 407 (BOM) S. 147 : A.Y. 2001-02 : AO has raised specific queries on several occasions and all the queries had been answered. Once all the material was before the AO and he choose not to deal with the several contentions raised by the petitioner in his final assessment order, it could not be said that he had not applied his mind. The Explanation of s. 147 was not applicable. The pre-requisite condition contained in proviso to s. 147 to enable the reassessment to be opened after the period of four years have elapsed have not been met. Hence reassessment proceedings were held to be invalid. CIT V INDERPAL MALHOTRA, 171 TAXMAN 359 (DEL) S. 143 : Where notice u/s. 143(2) was issued by registered post on last day of period of limitation, it could not be said to have been served in time. CIT V GKN DRIVELINE INDIA LTD., 171 TAXMAN 366 (DEL) CIT V. AMAZONE EXPORTS INC.(DEL) CIT V HOLIDAY AIR SERVICES (P) LTD., 171 TAXMAN 384 (DEL) S. 271(1)(c) : Where it was not possible to discern from assessment order any satisfaction of AO that penalty proceedings must be initiated against assessee u/s. 271(1)(c), Tribunal was justified in deleting penalty.

CIT V INDIAN FARMERS FERTILIZER CO-OP. LTD., 171 TAXMAN 379 (DEL) S. 147 : A.Y. 1992-93 : Where in reasons recorded for re-opening, there was no allegation that assessee had failed to disclose fully or truly all material facts necessary for assessment, AO was not justified in taking action u/s. 147/148 after expiry of four years from end of relevant assessment year. ANIL KUMAR BHANDARI V JCIT, 171 TAXMAN 428 (CAL) S. 147 : A.Y. 1994-95: AO completed assessment by allowing deduction u/s. 80 HHC. Subsequently, on 20-3-2001, he issued notice u/s. 148 on the ground of wrong allowance of deduction u/s. 80HHC. In reasons shown in notice, AO had not struck upon any new material not disclosed earlier. Hence, impugned action against assessee was barred by limitation, since such action not having been initiated within four years from the end of assessment year. CIT V NEHA PROTEINS LTD., 171 TAXMAN 455 (RAJ) S. 56 : Interest accrued on share application money lying with bank under mandate of s. 73 of Companies Act, 1956 is not taxable as “Income from other sources” and is required to be set off or adjusted against public issue expenses, so as to reduce amount of public issue expenses for the purpose of enabling assessee to claim amortization under and in accordance with provisions of section 35D. CUSHMAN & WAKEFIELD(S) PTE. LTD., IN RE, 172 TAXMAN 179 (AAR) S. 9 : Applicant, a foreign company, engaged in business of rendering services in the field of real estate. It has developed certain international client relationships and accordingly agreed to refer/ recommend potential customers, desirous of obtaining real estate consultancy in India to an Indian company. It was held that referral fee received in Singapore does not accrue or arises in India. Further, there is no business connection in India u/s. 9(1)(i). Further the referral fee is neither business income u/s. 9(1)(i) nor royalty u/s. 9(1)(vi) not FTS u/s. 9(1)(vii) read with Article 12(4)(b) of the Treaty. TRIBUNAL DECISIONS BAKLIWAL CORPORATE SERVICES (P.) LTD. V ITO, 113 ITD 14 (MUM) S. 32 : Membership card of stock exchange is a capital asset, but that, by itself, is not sufficient for allowance of depreciation unless other statutory conditions stipulated by s. 32 are fulfilled, namely, (1) asset in question is capable of diminishing in value; (2) asset is owned by assessee; (3) asset is used for the purpose of business. GE CAPITAL TRANSPORTATION FINANCIAL SERVICES LTD. V ACIT, 113 ITD 22 (DEL) S. 115JA : A.Y. 1998-99 : Provision made by assessee leasing company for lease equalization charges in its books of account as per guidance note issued by ICAI cannot be regarded as an amount transferred to reserves as envisaged in Explanation (b) to s. 115JA(2) and therefore AO is not justified in making any adjustment while computing book profit. FLOAT GLASS INDIA LTD. V JCIT, 303 ITR (AT) 170 (MUM) S. 32 : A.Y. 1995-96 : Expenditure incurred prior to commencement of production : Entertainment expenditure and guest house expenditure had direct nexus with setting up the new project. By virtue of some other provisions of the Income-tax Act, certain expenses may be disallowable or partly disallowable, but, for the purpose of determining the “actual cost” of the assets u/s. 43(1) the entire expenditure incurred for the purpose of bringing into existence the relevant assets and put such assets into

working condition, had to be capitalized and added to the cost of the project. DCIT V TORQUISE INVESTMENT AND FINANCE LTD., 300 ITR 1 (SC)S. 5(1)(c) : A.Y. 1992-93 : Dividend received from Malaysian Company is not liable to be taxed in the hands of assessee in India. PRADIP J. MEHTA V. CIT, 300 ITR 231 (SC)/ 169 TAXMAN 454 (SC) s. 5(1)(c), 6(6)(a) : Assessee, a marine engineer, was posted to work on the high seas and was paid abroad. For A.Y. 1982-83, as he was not resident in India for 9 out of 10 years, he claimed the status of “not ordinary resident” as defined in s. 6(6)(a). It was held that a person would become an ordinary resident only (a) if he had been residing in India in 9 out of 10 preceding years, and (b) he had been in India for atleast 730 days in the previous seven years. Accordingly, the Supreme Court, reversing the decision of the High Court, has held that assessee was “not ordinary resident”. [Note: S.6(6) has been amended w.e.f. 1-4-2004] MALAYALA MANORAMA CO. LTD. V CIT, 300 ITR 251 (SC)/ 169 TAXMAN 471 (SC) S. 115J : A.Y. 1988-89, 1989-90 : Assessee company was consistently charging depreciation in its books of account at the rate prescribed in the Income-tax Rules. The AO does not have jurisdiction u/s. 115J, to rework the net profit by substituting depreciation at the rate prescribed in schedule XIV to the Companies Act, 1956. SAHARA INDIA (FIRM) V CIT, 169 TAXMAN 328(SC) S. 142(2A) : A.Y. 2003-04 : It was held that exercise of power under s. 142(2A) leads to serious civil consequences, therefore, even in absence of an express provisions, the requirement of observance of principles of natural justice is to be read into said provision. [Note : Proviso was inserted to s. 142(2A) w.e.f. 1-6-2007] R.B. FALCON (A) PTY LTD. V CIT, 169 TAXMAN 515 (SC) S. 115WB : It was held that sub-section (1) and (2) of section 115WB operates in different field. Therefore, the matters enumerated in sub-section (2) of s. 115WB are not covered by sub-section (3) thereof. The amenities in the nature of free or subsidized transport are covered by sub-section (1). It was further held that the AAR was not correct in its view in reading the words ‘in India’ after the word ‘residence’ in sub-section (3). Therefore, the transportation cost incurred by appellant, a non-resident company, in providing transportation facility for movement of its offshore employees from their residence in home country (outside India) to place of work (rigs in India) should not be liable to FBT. CIT V JOSEPH VALAKUZHY, 170 TAXMAN 196 (SC) S. 37(1) : According to Rule 9A, if a film is not released for exhibition on a commercial basis at least 180 days before the end of such previous year, the cost of production of film insofar as it does not exceed the amount realised by exhibiting the film on a commercial basis, is to be allowed as a deduction in computing profits and gains of such previous year and the balance cost would be allowed as a deduction for the next year. CIT V REALEST BUILDERS & SERVICES LTD., 170 TAXMAN 218 (SC) S. 5 r.w.s. 145 : Accrual of Income/ Method of accounting : In cases where the department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether the change in method of accounting was warranted on the ground that

profit is being underestimated under the impugned method of accounting. If AO comes to conclusion that there is underestimation of profits, he must give facts and figures in that regard and demonstrate the same to the Court; otherwise the presumption would be that the entire exercise is revenue neutral. FOSTER’S AUSTRALIA LTD, IN RE, 170 TAXMAN 341 (AAR) S. 9 : Applicant, a non-resident company, was engaged in brewing, processing, packing, marketing, promoting and selling of beer products in Australia and abroad under various brand, including Foster’s brand. It had registered Foster’s trade mark and logo in India. It had entered into a brand licence agreement with Foster India (an Indian company). In 2006, applicant entered into sale and purchase agreement with SAB UK for transfer of shares of Foster’s Mauritius entity (which directly or indirectly held shares in Foster India). Applicant also agreed to sell the trade mark and brand IP to SAB and as a sequel to that agreement, a deed of assignment was executed between applicant and SKOL (Indian company nominated by SAB Miller). AAR has not accepted the contention that intangible assets have no particular geographical location. Based on various facts,have no particular geographical location. Based on various facts, AAR held that trade mark and brand, which were an integral part of the business of Foster’s India together with goodwill they generated by reason of such user, can be said to be situated in India within the meaning of s. 9(1) of the Act. CIT V. ELTEK SGS P. LTD., 300 ITR 6 (DELHI) S. 80-IB, 80 HH : A.Y. 2001-02 : There is a material difference between the language used in s. 80HH and 80-IB. While 80HH requires that profits and gains should be derived from the industrial undertaking, s. 80-IB requires that profits and gains should be derived from any business of industrial undertaking. The language used in s. 80-IB is not as broad as the expression “attributable to” referred to by the Supreme Court in Sterling Foods and Cambay Electric, nor is it as narrow as the expression “derived from”. The expression “derived from the business of an industrial undertaking” is somewhere in between. The source of the duty drawback is the business of the industrial undertaking which is to manufacture and export goods out of raw material that is imported and on which custom duty is paid. Hence, custom duty drawback is entitled for deduction u/s. 80-IB. DIT V RAVVA OIL (SINGAPORE) P. LTD., 300 ITR 53 (DELHI) S. 44C : The assessee, a non-resident company, had a sole branch office in India in connection with the exploration of oil. Assessee claimed that, since it did not carry on any business outside India, the entire HO expenses attributable to the business in India. It was held that the expenses incurred at its HO on account of administration, accounting and management services were holly related to India operations and would not attract s. 44C. [Note : SC has granted special leave to the Department against this judgment, 299 ITR (St.) 1] V. RAVI NARAYANAN, IN RE, 300 ITR 62 (AAR) Non-resident : NRO Deposit with convertible foreign exchange would be treated as “foreign exchange asset” u/s. 115C(b) and interest on such deposit could be treated as “investment income” u/s. 115C(c) and would be liable to income-tax at the rate of 20% only. CIT V SANT RAM MANGAT RAM, 169 TAXMAN 35 (PUNJ & HAR) S. 147 : A.Y. 1981-82 : Assessee firm was dissolved on 30-7-1980 and proprietary concern of one of its partner came into existence. Assessment of firm was completed by adopting value of closing stock at original cost. Subsequently, on advice of audit party that stock should be valued at market price, AO reopened assessment and added difference between market price and cost as income of assessee. It was held that, in view

of Supreme Court’s decision in Indian and Eastern Newspaper Society, 119 ITR 996, the opinion of audit party on a point of law cannot be regarded as ‘information’ u/s. 147(b) and hence reassessment proceedings initiated were ab initio void and liable to cancelled. CIT V INDIAN SUGAR & GENERAL INDUSTRY EXPORT IMPORT CORPN. LTD., 170 TAXMAN 229 (DEL.) S. 147 : A.Y. 1995-96 : On the basis of objection raised by the audit party, AO issues a notice u/s. 148 for reopening assessment, stating that assessee had been allowed excess deduction for repairs. There was nothing on record to show that AO had applied his mind to the contents of audit objection before issuing notice u/s. 148. It was held that reopening was nothing but a mere change of opinion and therefore, action taken by AO was not justified. Tribunal Decisions FREIGHTSHIP CONSULTANTS P. LTD. V ITO, 300 ITR (AT) 96 (DELHI) S. 234B, 154 : Interest u/s. 234B is payable up to the date of regular assessment. AO is duty bound to work out interest u/s. 234B on account of Order passed by the Tribunal and to increase or reduce interest which he had charged while passing the assessment order but up to the date of assessment order and not up to the date of order passed by him in consequence of Tribunal order. ACIT V ALEMBIC GLASS INDUSTRIES LTD., 111 ITD 320 (AHD) S. 244A : A.Y. 1999-2000 : In the context of s. 244A(1)(b), expression ‘tax’ would include interest also and the definition of tax in s. 2(43) meaning ‘income-tax’ would not be applicable in the context of s. 244A(1). Accordingly, interest paid u/s. 234B has to be regarded as forming part of tax or an adjunct to income-tax and assessee would be entitled to interest on refund of interest paid u/s. 234B also. SUMIT BHATTACHARYA V ACIT, 112 ITD 1 (MUM)(SB) S. 15 r.w.s. 56 : A.Y. 1998-99 : The amount received by the assessee on redemption of share appreciation rights was in the nature of Income (consideration for services rendered by assessee). The taxability of this amount was under the head ‘Income from salary’. However, if assessee’s argument that amount in question was received from a person other than de jure employer is accepted then in that case the amount would have been taxed under the head ‘Income from other sources’. Further, redemption amount of stock appreciation rights is dependent on the market price of shares, and hence income earned on account of redemption can only be taxed in the year of redemption and not in the year of grant or vesting. ITO V SMT. SUKHINI P. MODI, 112 ITD 1 (AHD) S. 143(3) r.w.s 147 and 148 : A.Y. 1996-97 & 1997-98 : Once a valid return u/s. 148 is filed by assessee, compliance of the provisions of s. 143(2) is mandatory. Non-issuance of notice u/s. 143(2) within the time limit prescribed will render assessment order framed u/s. 147 as invalid. VAN OORD ACZ INDIA (P.) LTD. V ACIT, 112 ITD 79 (DEL) S. 195 r.w.s. 40(a)(i) : Where deduction of tax is required to be made u/s. 195(1), the same cannot be avoided unless ‘nil’ deduction or deduction at lower rate is authorized by the AO u/s. 195(3) or 197. Where a certificate from AO is obtained for deduction of tax at nil or lower rate, the duty of payer ends and he is not required to examine and look into other aspect.

ASST. CIT VS. ARVIND POLYCOT LTD [2008] 299 ITR 12 (SC) RE: INTEREST ON BORROWED CAPITAL – BEFORE AMENDMENT IN SECTION 36(1)(III) The assessee paid interest on funds borrowed for acquiring capital assets. The capital asset so purchased was however not put to use in the previous year. The AO has disallowed interest on such borrowing and the matter travelled to the Supreme Court. The Supreme Court held that as per the provisions as stood before amendment in section 36(1)(iii) with effect from 1-4-2004, interest on borrowing has to be allowed and whether the asset has been used or not in the previous year irrelevant upto 31-3-2004. B. ARUNKUMAR & CO VS. ADDL. CIT [2008] 299 ITR (AT) 109 (MUMBAI) RE: SECTION 80-HHC — ROUGH DIAMONDS The assessee was engaged in the business of importing rough diamonds, cutting and polishing them and then exporting the cut and polished diamonds. The assessee claimed that the rough diamonds exported by it were processed diamonds and not minerals as envisaged in section 80-HHC of the Act and therefore eligible for deduction under section 80-HHC in respect of profit derived from export of rough diamonds. The AO held that rough diamonds were minerals and not processed minerals and disallowed assessee’s claim of deduction. The Commissioner dismissed the assessee’s appeal and affirmed the order of the AO. On appeal, the ITAT held that rough diamonds exported by it could not be considered as eligible for deduction under section 80-HHC of the Income-tax Act, 1961. The ITAT observed that the emphasis in item (x) of Twelfth Schedule to the Act is on “cut & polished minerals” and not on “cut or polished” minerals. Therefore the case of the assessee did not fall under item No. (x) of the Twelfth Schedule and hence the profits derived from exports of rough diamonds are not eligible for deduction under section 80-HHC of the Income-tax Act, 1961 SCM CREATIONS VS. ACIT, TIRUPUR (MADRAS) TAX CASE (APPEAL) NOS. 310 & 311 OF 2008 (A.YS. 2002-03 & 2003-04) RE: SECTIONS 80-IA AND 80-HHC This assessee was intervener in the matter of Rogini Garments wherein the special bench of the ITAT, Chennai ruled that the amount of deduction allowed under section 80-IA is to be reduced from the Profits for the purpose of deduction under section 80-HHC of the Income tax Act, 1961. This assessee has filed appeal before the Madras High Court against that order, and the High Court vide order dated 8-3-2008 has decided that the deduction allowed under section 80-IA is not required to be reduced from profits for the purposes of computing deduction under section 80-HHC of the Income-tax Act, 1961. In effect, it could be said that the Special Bench judgment in the matter of Rogini Garment has been overruled by the High Court. KERALA ROAD LINES VS. CIT [2008] 299 ITR 343 (SC) RE: DEDUCTION OF INTEREST EXPENDITURE U/S 37 The assessee had purchased land with building thereon. The assessee demolished building and sold the scrap and offered the sale value of scrap as business income. The assessee paid interest for delay in payments of consideration for land & building and claimed the same as business expenditure. The Supreme Court held that the interest expenditure is to be allowed as deduction as the department itself has charged the income from building scrap as business income of the assessee. K. K. DOSHI & CO. VS. CIT [2008] 215 CTR 114 (SC) RE: DEDUCTION U/S 80-HHC – EXPLANATION (BAA) While amending the section 80-HHC was amended through the Finance (No. 2) Act, 1991, an Explanation (baa) was inserted {with retrospective effect from 1-4-1987}to

exclude brokerage, commission, interest, rent, charges etc. and other receipts of the nature of Government incentives. The Supreme Court has ruled that amendment is of prospective nature and not of retrospective nature. The order of the High Court was set aside and the appeal was allowed. CIT VS. NARENDRA D. DESAI [2008] 214 CTR 190(BOM) RE: TAXABILITY OF NON-COMPETE FEES The assessee received Non-compete fees. The High Court held that the amount of non-compete fees is neither taxable as revenue receipt or as a capital gains. It is mentioned that section 28(va) and section 55(2)(a) has no application to the year in which the amount was received. The receipt, therefore, being a capital receipt was not chargeable to tax. CIT VS. SAMBANDHAM SPG. MILLS LTD [2008] 298 ITR 306 (MAD) RE: REPLACEMENT OF MACHINERY – WHETHER DEDUCTIBLE? The assessee company claimed entire expenditure for replacement of machineries under section 31 of the Income-tax Act, 1961. The claim was rejected by the AO. The ITAT accepted the claim of the assessee. On appeal before the High Court by the revenue – The High Court held that where all plant and machinery put together amounts to a complete spinning mill which is capable of manufacturing yarn and hence, each replaced machine could not be considered as an independent one as no intermediate marketable product was produced. CIT VS. SABARI ENTERPRISES [2008] 298 ITR 141 (KARN) RE: DEDUCTION OF PF/ESIC – EMPLOYEE’S CONTRIBUTION In view of the Explanation below the section 36(1)(va), the AO denied deduction of amounts in respect of employee’s contribution paid after due dates for such payments under relevant Act. The ITAT accepted the contention of the assessee and allowed deduction in respect of all those payments which were made before the due date for filing of return. On appeal before the High Court by the department – The High Court held the submission of the department that deduction from out of gross income for payment of tax at the time of submission of returns under section 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in clause (b) are paid within the due date under the respective statutory enactments by the assessee as contended by the revenue is not tenable in law. SHIRISH S. MANOR VS. ITO [2008) 167 TAXMAN 81 (MUMBAI) RE: FAMILY ARRANGEMENT – TRANSFER – SECTION 2(47), SECTION 45 Under a family arrangement, the assets and liabilities including flats were divided amongst the family members. The AO held that the family arrangement was not bonafide and it was a colourable device to save tax. No material however was brought on record to establish the allegation. On appeal before the ITAT – It is held that transfer of assets under family arrangement cannot be treated as transfer under section 2(47) and be taxed as capital gains merely on the presumption that the family arrangement was not bonafide and it was a colourable device to save tax, when no positive evidence or other material was brought in record to substantiate the allegation that the family arrangement was not actually acted upon. OCIT VS. TORQOUiSE INVESTMENT & FINANCE LTD., 168 TAXMAN 107 (SC) S. 90 : A.Y. 1992-93 : Dividend income derived by assessee from a company in Malaysia is not liable to tax in India under article XI of DTAA. SYNCO INDUSTRIES LTD. VS. AO, 299 ITR 444 (SC}/ 168 TAXMAN224 {SQ

S. 80HH, 80-I : A.Y. 1990-91 and 1991-92 : Assessee making profits in chemical unit and incurred loss in Oil unit. It was held that the loss from the oil division was required to be adjusted before determining gross total income and as gross total income was 'nil' the assessee was not entitled to claim deductions Chapter VI-A which include ss. 80HH and 80-1. While computing quantum of deduction i/s. 80-1(6), AO has to treat profits derived from an industrial undertaking as only source of income, however non obstante clause in 80-1(6) is applicable only to quantum of deduction. Gross total income, referred ins. 80-1(1) is required to be computed in manner provided under the Act, i.e. after adjusting losses of other division against profits derived from an industrial undertaking. DCIT VS. CORE HEALTH CARE LTD., 167 TAXMAN 206 (SC) S. 36(1)(iii) : It was held that proviso inserted in s. 36(1)(iii) w.e.f. 1-4-2004 is operative prospectively. Further, s. 36(1)(iii) emphasizes on user of capital and not user of asset, unlike s. 37(1). An assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be result of using such borrowed capital. Further, Explanation 8 to s. 43 have no .application to s. 36( 1 )(iii) as this section does not incorporate concept of depreciation. OCiT VS GUJARAT ALKALIES ft CHEMICALS LTD., 167 TAXMAN 203(SC)/299ITR85(SC) S. 37(1) r.w.s. 36(1)(iii) : Assessee company borrowed foreign currency loan from IDBI which in turn was refinanced by the foreign company. It paid commitment charges and finance charges to the said foreign company. It was held that commitment charges were deductible u/s. 37(1). Further, if finance charges are in the nature of interest, then the same had to be allowed u/s. 36(1)(iii) in lieu of SC's decision in Core Health Care, 167 Taxman 206. If the finance charges are in the nature of commitment charges, then the same had to be allowed u/s. 37(1) in lieu if SC's decision in Akkamamba Textile Ltd., 227 ITR 464 and Sivakami Mills Ltd., 227 ITR 465. Cil VS GANESH BUILDERS LTD.. 299 TAXMAN 403 (MAD) S. 271(1)(c) : A.Y. 1997-98, 1998-99 : The assessee acquired shares from A and claimed the diminution in the value of the shares as revenue loss. The loss was held to be capital in nature. Since the assessee had disclosed writing off of investment in audit statement, it cannot be said that assessee has furnished inaccurate particulars of income. Hence, levy of penalty was not warranted. SMT. LILA CHOUDHURY VS. CIT, 167TAXMAN 1 (GUJ) S. 263 : A.Y. 1992-93 : Commissioner should consider explanations offered by assessee in response to show-cause notice issued u/s. 263 and on that basis to record his opinion/ conclusion as to whether he still considered assessment order in question to be erroneous and prejudicial to interest of revenue and, if so, reason therefore. SICA EDUCATIONAL TRUST (REGD.) VS. UOI, 167 TAXMAN 19 (MP) S. 147 : A.Y. 1999-2000 : Assessee raised various objections against reopening of assessment. However, without passing any separate order on said objections, AO passed an assessment order. It was held that impugned order was to be quashed since objections raised were not at all adverted to by AO and no speaking order had been passed. AIRPORTS AUTHORITY OF INDIA, IN RE, 299 ITR 102 (AAR) 168 TAX MAN 158 (AAR) The applicant entered into two contracts with a US company, (i) the hardware repair support contract, and (ii) the software maintenance support contract. Under hardware repair support contract, the applicant had to send defective hardware outside India and to take delivery of repaired items outside India. Hence it was ruled that applicant was not

required to deduct tax at source. However, the applicant is required to deduct tax at source @10% (plus surcharge) in relation to payments made under software maintenance support contract. V. RAVINARAYANAN, IN RE, 168 TAXMAN 65 f AAR) S. 115C r.w.s. 115E : A.Y. 2008-09 : It was held that Non-Resident Ordinary (NRO) deposit acquired with convertible foreign exchange in a banking company, which is not private company, shall be treated as a 'foreign exchange asset' u/s. 115C(b). Therefore interest on such NRO deposit shall be treated as investment income which is liable to tax at the rate of 20% u/s. 115E. Therefore Banks paying interest on such NRO deposit are required to deduct tax at the rate of 20%. CIT VS. ENRON OIL & GAS INDIA LTD., 168 TAXMAN 33 IUTTARAKHAND) S. 42 : A.Y. 1998-99 to 2000-2001 : Assessee, a non-resident company, was engaged in production of crude oil along with its JV partners under Production Sharing Contract (PSC) entered into with Central Government. Assessee debited foreign exchange loss to its profit and loss account on the basis of accounting procedure set out in PSC. It was held that the depreciation claimed on account of foreign exchange loss was admissible u/s. 42. Further, when revenue was accepting the tax on profits/gains arising out of foreign exchange rate, it could not deny depreciation on account of loss incurred for that reason. SIEMENS INFORMATION SYSTEM LTD. VS. ACIT, 168 TAXMAN 209 (BOM) S. 148 : A.Y. 2001-02 : For relevant year, AO allowed deduction u/ss. 10A and 10B in respect of profits derived from various eligible undertakings, and loss suffered by assessee in respect of operation of other units was allowed to be carried forward. For A.Y. 2003-04, a different AO held that losses incurred in units, which were not eligible for deduction u/s. 10A and 10B, had to be first set off against profits of the eligible units and only balance profits were eligible for deduction. Based on that finding and further on the basis of Tribunal's decision in Navin Bharat Industries, 90 ITD 1 (Bom), AO issued notice u/ss. 148. It was held that when the accounting system was same in both the years, merely because second AO differed with the opinion of earlier AO on interpretation of provision, without any other additional material, AO is not entitled to assume jurisdiction to issue notice u/s. 148. TRIBUNAL DECISIONS DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD.. 299 ITR (AT) 1 (CHANDIGARH)SB) S. 43B : A.Y. 2001-02 : It was held that the excess credit in deposit in "Account-current" with Central Excise Department on last day of accounting year is to be treated as excise duty actually paid and allowed as deduction. PIONEER EQUITY TRADE (INDIA) (P.) LTD. VS ITO, 168 TAXMAN 76(MAG)(MUM) S. 73 : A.Y. 2002-03 : Where assessee company was engaged in business of share broking and only in immediately preceding assessment year, it had purchased certain shares of another company and that was solitary transaction and no part of such shares was sold in immediately preceding assessment year or during relevant assessment year, it could not be said that assessee's business consisted in purchase and sale of shares of company and therefore, provisions of Explanation to s. 73 were not applicable to assessee. DCIT VS. INTERRA SOFTWARE (INDIA) (P.) LTD., 168 TAXMAN 80 (MAGHDEL)

S. 10A r.w.s. 80HHE : A.Y. 2002-03 : Assesses company, engaged in business of development and export of computer software, set up an industrial undertaking/ unit in an EPZ and started commercial production in A.Y. 1997-98, it incurred loss in said unit and, therefore, did not claim any relief. In the A.Y. 1998-99, it claimed deduction u/s. 80HHE. Thereafter, from A.Y. 1999-2000 onwards, assessee claimed exemption u/s. 10Aand same was allowed till A.Y. 2001-02. For A.Y. 2002-03, AO rejected claim u/s. 10A on the ground that since assessee was allowed deduction u/s. 80HHE in A.Y. 1998-99, it become ineligible to claim exemption u/s. 10A on the basis of provisions of s. 80HHE(5). Narang Overseas (P) Ltd v. ACIT [2008] 111 ITD 1 (MUM SB) Re: Section 4 Taxability of MESNE profits Asst. Year 2002-03: In this case, the assessee leased its property. The lessee was not vacating the property and also did not pay rent etc. The civil matter went to the Supreme Court and the ultimately the assessee was awarded arrears of rent and also mesne profits for wrongful deprivation of use of its property. The assessee claimed such mesne profits are not liable to tax and claimed that to be tax free. The special bench of the ITAT has considered the issue and hold that such mesne profits are not liable to tax. Bindal Developers (P) Ltd v. ITO [2008] 111 ITD 203 (DELHI) Asst. Year 2001-02 Re: Section 27 Income from Property or Other sources Asst. Year 2001-02 The Assessee in this case entered into an agreement of lease for 9 years and 11 months. It was holding powers to sublet property. The assessee sublet part of the premises and realised rental income. The assessee claimed such rental income to be assessed under the heading '”Income from other sources”. The AO has however invoked the provisions of section 27 and assessed the same under the heading “Income from House Property”. On appeal, the ITAT held that it could not be said that the assessee was realising rent in his own right, assessee could not be said to be beneficial owner and therefore rental income realised by assessee was to be assessed under head “Other sources” and not under head “House Property”. This is further held that if the lease is for considerable long period like 99 years and lessee has right to construct property and to sell property constructed by him, then the assessee could be treated as deemed owner within the meaning of section 27(iiib) read with section 269UA(f), of the Income Tax Act, 1961. Gulf Oil Corporation Ltd v. ACIT [2008] 111 ITD 124 Re: Section 115-JB Items to P&L appropriation account The assessee company was engaged in the business of manufacturing of detonators, industrial explosives etc. The assessee debited certain extra ordinary expenditures in P&L appropriation account and paid tax under section 115-JB on book profits after reducing those extra ordinary expenditures. The AO took a view that extra ordinary items could not be reduced for the purpose of computing book profits under section 115-JB. On appeal, the Commissioner (Appeals) held observed that such extra ordinary items do not fall within the adjustments that could be made to the net profits as per P&L account because the expenditure related to transactions of earlier year. Accordingly, he confirmed the stand taken by the AO. On further appeal, the ITAT held that the part II & III of schedule VI to the Companies Act, 1956 does not make any distinction between P&L account and P&L Appropriation account at all. It is only a matter of presentation that most of the companies segregate to reflect as to what has been appropriated out of the profits earned by them. The ITAT accordingly held that the computation of book profit has to be done on the basis of net profit shown in P&L appropriation account and thereafter adjustments are to be made. As

no adjustment has been provided in the section 115-JB in respect of such extra ordinary items, the assessee was correct in reducing those items for computation of book profit. Munjal Sales Corporation v. CIT [2008] 168 taxman 43(SC) Re: Interest on borrowed Capital from Partners - The assessee paid interest to partners on capital. The AO found that the assessee has advanced interest free loan to its sister concerns and disallowed part of such interest by holding that the borrowed capital has been utilised for advancing interest free loans to sister concerns. The ITAT deleted the disallowance for assessment year upto Asst. Year 1993-94 but confirmed the disallowance for Asst. Year 1994-05 onwards due to insertion of section 40(b) on the statute. The assessee contended before the Supreme Court that section 40(b) is a stand alone section and section 36(1)(iii) had no application in the instant case, as it was a case of payment of interest to the partner on his capital contribution which could not be equated to monies borrowed by the firm from third parties and, hence, the instant case fell only under section 40(b)(iv) and not under section 36(1)(iii) of the Act. HONDA SIEL POWER PRODUCTS LTD VS. CIT, 165 TAXMAN 307 (SC) S. 254 : Rectification by Tribunal : During the relevant year, assessee had taken a term loan in foreign exchange for import of machinery. The liability to repay loan in term of rupees went up on account of fluctuation in foreign exchange. The assessee enhanced the WDV of block of assets and claimed depreciation by referring to s. 43A. AO disallowed claim of enhanced depreciation. Initially, the Tribunal has upheld the same. Assessee has filed a rectification application u/s. 254(2) stating that the decision of Samtel Color Ltd. was inadvertently not referred to by the Tribunal even when the same was cited before it. Tribunal acknowledged its mistake and accordingly rectified its order by allowing assessee’s claim. However, High Court set aside Tribunal’s Order holding that in guise of rectification, Tribunal had, in fact, reviewed its earlier order which fell outside the scope of s. 254(2). In this context it was held that when prejudice results from an order attributable to Tribunal’s mistake, error or omission, then it is duty of Tribunal to set it right. For the aforesaid reason, the order of High Court was set aside. CIT VS. INFOSYS TECHNOLOGIES LTD., 166 TAXMAN 204 (SC) S. 17(2) r.w.ss. 192 and 201: It was held that s. 17(2)(iiia) inserted by Finance Act 1999 w.e.f. 1-4-2000 cannot have retrospective operation. Further, with reference to ESOP it was held that Department erred in treating the difference between the market value of shares on the date of exercise of option and total amount paid as perquisite, in view of the facts that (i) during lock-in-period there was no cash inflow to employees on account of mere exercise of options, (ii) on date when options were exercised, it was not possible for employees to foresee future market value of shares, and (iii) benefit, if any, which arose on date when option stood exercised was only a notional benefit whose value was unascertainable. CIT VS. HUGHES ESCORTS COMMUNICATIONS, 165 TAXMAN 318 (DEL) S. 37(1) : Assessee company, incorporated with object of setting up satellite business communication systems, placed a purchase order dated 28-7-1994 with a foreign company for purchase of VSAT equipment. Assessee claimed that its business was set up on the date on which purchase order was placed and accordingly expenditure incurred after such date was treated as revenue expenditure. AO disallowed the claim holding that business was said to be set up only in March 1995 when it completed installation of VSAT after receiving satellite signals therein. It was held that business was held to be set

up when assessee placed purchase order. There was no question of assessee having to place a purchase order for the purpose other than that of its business. In the different activities involved in the assessee’s business, first step was purchase of VSAT equipment and application to DOT for licence and receipt of signals were consequential stages. CIT VS. R. RAJINIKANTH AND ANOTHER, 295 ITR 523 (MAD) S. 80HHC : A.Ys. 1994-95 & 1998-99 : The transfer of the right to exhibit films amounts to sale of goods or merchandise for the purpose of section 80HHC of the Income-tax Act, 1961. CIT VS. INDIA PISTONS LTD., 295 ITR 550 (MAD)S. 40(a)(i) & 80HHC : Excise duty and custom duty on closing stock are not to be included in total turnover, while computing the income u/s. 80HHC. Further, the conditions for supply of goods by the non-resident to the assessee were that the payment of purchase price was to be made in instalments and the assessee would compensate the supplier by means of interest on the unpaid instalments. Such interest could not be treated as interest on loan and hence deduction of tax at source was not attracted. Hence, no disallowance u/s. 40(a)(i) could be made. CIT VS. INSILCO LTD., 165 TAXMAN 522 (DEL) S. 32 : A.Y. 1999-2000 : Following the decision in CIT vs. Woodward Governor India (P.) Ltd., 162 Taxman 60, it was held that Tribunal was correct in allowing depreciation on increase in cost of plant and machinery due to increased liability on account of foreign exchange rate fluctuation on last date of accounting year. CIT VS. MOSERBAER INDIA LTD., 165 TAXMAN 528 (DEL) S. 271(1)(c) : A.Y. 1996-97 : Explanation 4 permitting levy of penalty even when income is not positive, was added effective from 1-4-2003. Prior to this Supreme Court in Prithipal Singh & Co. had ruled that no penalty could be imposed unless some tax was payable. In view of unambiguous declaration by Supreme Court, no penalty could be levied u/s. 271(1)(c) since there was no positive assessed income. CIT VS. CHOLAMANDALAM INVESTMENT & FINANCE CO. LTD., 166 TAXMAN 132 (MAD) S. 244A : A.Y. 1997-98 : It is also trite law that wherever the assessee is entitled to refund, there is a statutory liability upon the revenue to pay the interest on such refund on general principles and to pay interest on sum wrongfully retained. Thus assessee is entitled to interest u/s. 244A when the refund had arisen on account of payment of self-assessment tax. TRIBUNAL DECISIONS RBF RIG CORP. LIC (RBFRC) VS. ACIT, 109 ITD 141 (DEL) (SB) S. 10(10CC) : A.Y. 2004-05 : It was held that the payment of tax on behalf of employee at the option of employer is non-monetary perquisite fully covered by sub-clause (iv) of clause (2) of s. 17 and thus exempt u/s. 10(10CC). Therefore, taxes paid by employer can be added only once in salary of employee and thereafter, tax on such perquisite is not to be added again. J.M. SHARES & STOCK BROKERS VS. DCIT, 109 ITD 329 (MUM) S. 32 : In case of financial lease, depreciation cannot be allowed to lessor, as it is lessee who becomes owner of property according to the Supreme Court’s decision in Asea Brown Boveri Ltd., 154 Taxman 512. As per the terms of the lease agreement, lessee was liable to pay all taxes, cesses and charges, etc., in respect of leased vehicles, to bear entire risk of any loss or damage, etc., to vehicles and the lessor was totally indemnified against

all defects in the vehicles. Further, 50% of the invoice price was received from lessee and it is intended to sell the leased assets at the expiry of lease period. Thus all the features of the financial lease existed in the lease agreement. Therefore, assessee (lessor) was not entitled to any depreciation. SURAJ MAL, HUF VS. ITO, 109 ITD 327 (DEL) (TM) S. 148 : When the notice u/s. 148 was issued to Individual, the AO has no jurisdiction to assess HUF of assessee and that defect of jurisdiction could not be cured by obtaining consent of assessee. ACIT VS. MOTOROLA INDIA ELECTRONICS P. LTD., 295 ITR (AT) 376 (BANG.) Ss. 10A, 10B : A.Ys. 1997-98, 1998-99, 2001-02 : The assessee had outstanding ECB obtained in earlier years for the business of a STP undertaking. The RBI had placed restrictions on prepayment of instalments. Hence the assessee had to park the funds in EEFC account and advance as intercorporate loans. The interest income in question could be considered to have close nexus with the business activity of the assessee and thus would be assessable under the head “Income from business”. Further, for the A.Y. 2001-02, s. 10B had undergone a change. Earlier it was an exemption section. Hence interest earned to be included in profits of business for the purpose of deduction for the period after amendment. MIHIR ENGINEERS LTD. VS. JCIT, 109 ITD 349 (MUM) S. 80-IA : A.Ys. 1996-97 to 1998-99 : Assessee company is engaged in manufacture of cooling towers. Assessee, on receipt of orders from clients, manufactured basic components required for cooling tower at its unit and certain items like; electric motors, etc. were purchased from market. Assembly of unit and erection of same was carried out at customer’s site and assessee raised an additional bill for installation charges, forwarding charges and service charges. It was held that the assessee was entitled to benefit of deduction under s. 80-IA both on manufactured items and bought out components used for erection of cooling towers. Further, assessee was also entitled to benefit of deduction u/s. 80-IA on net receipts from installation, forwarding and service charges. SECTION 46 - CONVERSION OF INVESTMENT INTO STOCK IN TRADE [DCIT Vs. DWARKAPRASAD ANILKUMAR INVESTMENTS (P) LTD [[2008] 110 ITD 247 (MUMBAI)] The assessee company held shares of X & Y Company as Investments till 31-3-1991. With effect from 1-4-1991, holding in said two companies were converted as stock in trade. The stocks of shares were again converted into Investments on 31-3-1998 and the assessee made adequate disclosure of this fact in its returns and the AO accepted those returns. Subsequently on liquidation of Assessee Company in the month of April, 1999, those shares were transmitted to a third company. Subsequently a search was conducted and in block assessment proceedings, the AO took a view that the conversion of stocks of shares into Investments was a well planned and a calculated mode to avoid payment of tax which assessee would otherwise had to pay on liquidation. The AO accordingly levied tax u/s 46(2) of the Income-tax Act, 1961. On appeal, the ITAT held that in a block assessment order under Chapter XIV-B, the AO does not have the same jurisdiction that he has while completing the regular assessment under the general provisions of the Act. For the purpose of block assessment, there should be prima facie undisclosed income on the basis of long drawn reasoning. Therefore, the nature of the shareholding in X & Y in the hands of the assessee as on the date of transfer was not its stock-in-trade and only Investments and therefore the assessee was not required to pay any tax under section 46(2).

SECTION 80-HHE - EXPORT OF COMPUTER SOFTWARE - ASST. YEAR 1993-94 [DATAMATICS LTD V. ACIT [2008] 110 ITD 24 (MUM)] The assessee had exported computer software from a Unit. It had various distinct units with separate business. The assessee maintained independent and separate books of account for exports as well as domestic sale. The question before the ITAT was whether to consider the turnover of each units is to be taken separately or collective for the purpose of computing deduction under section 80-HHE of the Act? The AO took entire turnover for computing the deduction under section 80-HHE. The CIT(A) confirmed the order of the AO. On appeal, the ITAT held that since two separate business of the assessee were properly demarcated in terms of location, operations, and also separate books of account were maintained for different units, unit as SEEPZ should be considered as separate entity and only turnover of SEEPZ unit should have been considered while calculating deduction under section 80-HHE of the Income-tax Act, 1961. DEDUCTION U/S 80-IB - MANUFACTURING OR PROCESSING [DXN HERBAL MFG. (INDIA) PRIVATE LIMITED VS. ITO [2008] 110 ITD 99 (CHENNAI)] The assessee company was engaged in an activity of filling of mushroom powder in capsules and selling the same in the market. It claimed deduction under section 80-IB on the ground that this capsulation made the commodity marketable and consumable and after capsulation, commodity became distinct from the original commodity as by putting the raw mushroom powder into gelatin capsule, new product emerged which was different from raw material. The AO disallowed deduction by holding a view that this does not amount to manufacture or production of a thing or article, so as to claim benefit under section 80-IB. The CIT (A) confirmed the order of the AO. On appeal, the ITAT that the activities carried on by the assessee did not bring in any new article or product into existence. The mushroom powder even after capsulation remained the same. There was no transformation of mushroom powder into new article. By filling the mushroom powder into gelatin capsules, no new and distinct or separate product came into existence. There was no change in the basic identity of the product and taste of the product. Where there is no essential difference in identity between the original commodity and processed article, it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, yet is must be regarded as still retaining its original identity. Thus the manufacturing or production must result in bringing into existence an article or thing as a distinct marketable commodity. The ITAT concluded that the expression 'manufacture' or 'producing' any thing or article under section 80-IB (2) (iii) has been used in a generic sense and within its ambit does not include any processing of goods, which does not bring out a new or commercially distinct commodity. Accordingly, putting the mushroom powder into the gelatin capsule does not amount to manufacture or production of any commercially distinct commodity. Therefore, it was held that the assessee was not entitled to deduction under section 80-IB. CASH CREDIT - INVESTMENT IN SHARE CAPITAL [JAYA SECURITIES LTD VS. CIT [2008] 166 TAXMAN 7 (ALL)] The assessee received share application money from various investors. The AO by invoking provisions of section 68 of the Act made additions in the hands of the assessee in respect of investment made by different persons in the share capital issued by the assessee.

The High Court held that no addition under section 68 could be made in respect of the subscription amount towards the share capital of a company limited by shares whether it is private or public. CASH CREDIT - FALSE CAPITAL GAINS [CIT VS. ANUPAM KAPOOR [2008] 166 TAXMAN 178 (PUNJ & HAR)] The assessee declared long term capital gains from sale of shares. The AO took a view that the long term capital gains declared by the assessee was false and the transactions were not genuine. The AO held a view that cheque had been taken by paying cash equivalent to the cheque amount and the premium thereon. The passed the order the amount was considered as unexplained credit and the same was added to the income of the assessee. On appeal, the CIT(A) deleted the addition. On further appeal, the ITAT upheld the order of the Commissioner. On further appeal, the High Court did not hold that the assessee had made investment in a company in which he was a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed, and the transaction took place through a registered share broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simpliciter a device to camouflage activities, to defraud the revenue. No such presumption could be drawn by the AO, merely on surmises and conjectures. It was for the AO, who had reopened the assessment to have sought some evidence on record, to substantiate his formulation of consideration that the assessee has not filed a return bonafide. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. Therefore, the AO could not have added income, which was rightly deleted by the Commissioner as well as the Tribunal. SECTION 113 - SURCHARGE ON TAX IN BLOCK ASSESSMENTS [CIT VS. SURESH N GUPTA [2008] 166 TAXMAN 313 (SC)] The AO levied surcharge on tax levied under block assessment. The assessee argued that before insertion of a proviso in section 113 by the Finance Act, 2002, the position as to leviability of surcharge was ambiguous as it was not clear to the department as to which year's Finance Act would be applicable and therefore no surcharge could be levied in respect of searches initiated upto 31-05-2002. The High Court accepted this argument and held accordingly. On appeal by the Government, the Supreme Court held that to clear this doubt precisely, the proviso has been inserted in section 113 by which it is indicated that the Finance Act of the year in which the search was initiated would apply. Therefore the said proviso was clarificatory in nature and surcharge is leviable even in respect of searches initiated prior to the insertion of the proviso to section 113. CIT VS. MAX INDIA LTD., 295 ITR 282 (SC) S. 263 : A.Y. 1992-93 : The phrase "prejudicial to the interest of the Revenue" in s. 263 has to be read in conjunction with expression "erroneous" order passed by the AO. When the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law. G.K. CHOKSI & CO. VS. CIT, 165 TAXMAN 299 (SC) S. 32 : Assessee, a firm of Chartered Accountants, constructe a building for the purpose

of residence of its low paid employees and claimed initial depreciation u/s. 32(1)(iv). It was held that scope of word 'business' as appearing in s. 32(1)(iv) does not include in it word 'profession'. HERO EXPORTS VS. CIT, 195 ITR 454 (SC) S. 80HHC(3)(b) : A.Ys. 1994-95 to 1997-98 : To compute profits derived from export of trading goods, assessee reduced direct and indirect cost attributable to such export by excluding the cost attributable to export incentives, commission, interest, etc. It was held that assessee was entitled to exclude the cost attributable to export incentives, commission, interest, etc. TRINITY CORPORATION IN RE., 165 TAXMAN 272 (AAR) S. 9 r.w.s. 45 Even if transaction relating to a capital asset takes place outside India but if capital is situated in India, profits or gains thereon, is accruing or arising in India. Where income in question is capital gain arising to non-resident by reason of transfer of a capital asset situated in India, transferee may be assessed as a representative assessee of transferor and such transferee may be either be a resident or a non-resident. TIMKEN FRANCE, IN RE., 164 TAXMAN 354 (AAR)/ 294 ITR 513 (AAR) S. 112 r.w.s. 48 : It was held that the benefit of proviso to s. 112(1) cannot be denied to non-resident/ foreign companies though they are entitled to relief under first proviso to s. 48. The eligibility to avail benefit of indexed cost of acquisition under second proviso to s. 48 is not sine qua non for applying reduced rate of 10 per cent prescribed by proviso to s. 112(1). Further proviso to s. 112(1) does not make any distinction between original shares and bonus shares. UTI VS. B.M. MALANI, 164 TAXMAN 463 (SC) S. 226 : Collection and recovery : Assessee had invested certain amount in unit of monthly income plan offered by UTI. Since certain sum was due from assessee on account of income-tax, Department issued notice u/s. 226(3). In compliance of demand, appellant paid certain sum to Department wherefor value of unit at relevant time was calculated @ Rs. 6.93 per unit. Assessee filed writ petition questioning said action of appellant in resorting to sale of unit without his consent. It was held that s. 226(3) cannot be interpreted to mean that UTI was authorized to dispose of unit on its own without any notice to unit holder. In absence of any right of option having been exercised by assessee, appellant could not have transferred units without consent of assessee. CIT VS WOODWARD GOVERNOR INDIA P. LTD., 294 ITR 451 (DEL) Ss. 37, 43A: A.Ys. 1991-92 & 1993-94 : The fixed assets were purchased by way of import, payments for which were agreed to be made in foreign exchange on a deferred payment basis. The increase in liability due to foreign exchange fluctuation as per exchange rate prevailing on last date of financial year is allowable despite the fact that the liability had not been discharged in concerned previous year. Further, the amendment to s. 43A would take effect from April 1, 2003, and would accordingly apply in relation to the A.Y. 2003-04 and subsequent years. CIT VS. WOODWARD GOVERNOR INDIA P. LTD., 295 ITR 1 (DEL) S. 192 : A.Ys. 1998-99 : The assessee was not aware of any remuneration being received by its Managing Director from the foreign collaborator. It was held that the employer is liable to deduct tax at source only with regard to amount paid by employer. It cannot be burdened with the liability of deducting tax at source on any other payment, either by way of salary or otherwise. CIT VS. ELECTRO POLYCHEM LTD., 294 ITR 661 (MAD)

S. 68 : Share Application Money : A.Ys. 1998-99, 1999-2000 : It was held that even if it was assumed that the subscribers to the increased share capital were no genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the company. CIT VS. ORACLE SOFTWARE INDIA LTD., 164 TAXMAN 478 (DEL) S. 40(a)(i) : A.Ys. 1994-95 & 1995-96 : Where tax was deducted at source from royalty paid by assessee to foreign company within the relevant previous year, the assessee was entitled to the benefit u/s. 40(a)(i) even when tax deducted was paid in the next financial year. Further, the assessee company imported master copies of the software, duplicated on blank disc, packed and sold in the market. It was held that the assessee was carrying on manufacturing activity and therefore entitled to benefit of s. 80-IA. GARDEN SILK MILLS LTD. VS. DCIT, 164 TAXMAN 572 (GUJ) S. 214/ 244 : A.Y. 1988-89 : In the financial year, assessee has paid Rs. 162,98,750 towards advance tax. Subsequently on 23-6-1988; i.e., after financial year, assessee paid further tax of Rs. 54,00,000. After assessment u/s. 143(3), AO granted refund to assessee. Since Rs. 54,00,000 was paid after financial year, the same was not in the nature of advance tax and assessee would not be entitled to interest u/s. 214(1) on the said amount. However, assessee would be entitled to grant of interest from the date of assessment order to date of payment of refund u/s. 244(1A) and also interest on amount of interest payable on sum of Rs. 54,00,000 from the date of refund till date on which amount of interest was actually paid. CIT VS. SYNERGY FINANCIAL EXCHANGE LTD., 165 TAXMAN 67 (MAD) S. 43B : A.Y. 1994-95 : It was held that the deletion of second proviso to s. 43B could not be given retrospective operation so as to make it applicable for the A.Y. 1994-95. CIT VS. RAJ KUMAR SINGH AND CO., 295 ITR 9 (ALL) S. 2(22)(e) : A.Y. 1986-87 : For the purpose of s. 2(22)(e), shareholder means registered holder of shares. Since assessee firm is not registered shareholder, advance cannot be taxed as deemed dividend in the hands of assessee. KRISHNA MOHAN AGRAWAL VS. CIT, 295 ITR 190 (ALL) S. 64(1) : It was held that amendment to s. 64, enforced w.e.f. April 1, 1976, will not be applicable to A.Y. 1976-77. Unless the amending Act provides otherwise either expressly or by necessary implication, the normal presumption would be that any amendment brought about, would apply only to previous year which is yet to come, on or after the date on which such amendment is enforced. TRIBUNAL DECISIONS ACIT VS. ROGINI GARMENTS, 108 ITD 49 (CHENNAI)(SB) S. 80HHC r.w.s. 80IA : A.Ys. 1999-2000 & 2002-03 : In view of restriction placed in s. 80-IA(9), relief u/s. 80-IA should be deducted from profits and gains of assessee's business before computing relief u/s. 80HHC. MERCEDES BENZ INDIA LTD. VS. JCIT, 294 ITR (AT) 372 (PUNE) Ss. 35AB, 263 : A.Ys. 1996-97, 1997-98 : Lump sum payment for acquisition of technical know-how, where payments were made partly in cash and partly by allotment of shares. It was held that the method of accounting and mode of payment whether by cash or by allotment of shares, did not change the character of lump sum payment. Further, where two views are possible, the action of AO cannot be termed as erroneous when the AO has adopted one of the courses permissible in law. Accordingly, revision to

disallow deduction by invoking the jurisdiction u/s. 263 of the Act was not permissible. ACIT VS. BALARAMPUR CHINI MILLS LTD., 109 ITD 146 (KOL) S. 115JB : A.Y. 2004-05 : It was held that deferred tax charge is not covered by any clause of Explanation to s. 115JB(2) and hence such deferred tax charge is not required to be added back in computation of book profit. Further, since FBT is an allowable deduction in computation of book profit, tax on profit distributed as dividend u/s. 115-O is also allowable as deduction in computation of book profit. MIDLAND INTERNATIONAL LTD. VS. DCIT, 109 ITD 198 (DEL) S. 23 : A.Y. 1998-99 : For computing income under the head 'Income from House property' the AO cannot consider the element of notional income by way of interest on interest free security received by assessee for determining Annual Letting Value u/s. 23(1)(a). MOSERBAER INDIA LTD. VS. JCIT, 295 ITR (AT) 148 (DEL) S. 10B(7) : A.Ys. 1996-97 to 1998-99 : The assessee company claimed exemption u/s 10B in the A.Y. 1994-95 as the initial year. In the subsequent assessment year 1996-97, though the exemption u/s. 10B was claimed in the return, the claim was retracted by filing a letter during the course of assessment proceedings. It was held that the assessee has an option not to claim exemption for any one or more year of relevant block of five years by filing declaration during the course of assessment proceedings. The Revenue could not thrust the exemption upon the assessee. ALCAN INC. VS. DCIT, 295 ITR (AT) 216 MUMBAI The assessee, a Canadian company, had, over a period of time, acquired shares in an Indian company. Bonus shares were allotted. For shares acquired and bonus shares allotted prior to 1-4-1981, the capital gains were computed by adopting the FMV as on April 1, 1981 and capital gains initially computed in Canadian dollars were reconverted into Indian Rupees. In respect of bonus shares allotted after April 1, 1981, the cost of acquisition was taken at NIL. The AO has challenged the adoption of FMV as on 1-4-1981 by non-resident and further determined capital gain tax It was held that the assessee was entitled to the benefit of option available u/s. 55(2)(b)(i). Further, assessee is entitled to concessional rate of 10 per cent. OM ENGINEERS & BUILDERS VS. ITO, 109 ITD 235 (PUNE) S. 80-IB : A.Y. 2001-02 : For the impugned housing project, the assessee builder had a plot of land admeasuring only 3,800 sq. mtrs., which is less than one acre. Accordingly assessee is not eligible to claim a deduction u/s. 80-IB.