CA Ashok Seth

127th Feb 2015

PRECEDENT

A judgment of SC is binding. It is theprinciple laid down in the judgment, andnot every word appearing therein, thatbecomes the law of the land.

Between two decisions of benches ofequal strength of the Supreme Court,the later decision should be followed,provided the earlier decision isconsidered

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Acceptance or Rejection of SLP by SC

SC dealt the effect of acceptance or

rejection of a SLP in Kunhayammed v.

State of Kerala, (245 ITR 360) and held

that when there is a refusal of SLP in non -

speaking order, it does not amount to a

declaration of the law as laid down by the

SC. If the refusal is a speaking order, it

then becomes a declaration of law.

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Reliance of Decision

Sun Engineering Works Pvt. Ltd. (198

ITR 297) SC observed

It is neither desirable nor permissible to

pick out a word or a sentence from the

judgment of the Supreme Court divorced

from the context of the question under

consideration and treat it to be the

complete law declared by the court.

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Contd.

The judgment must be read as a whole and

the observations from the judgment have to be

considered in the light of the questions which

were before the court. A decision of the

Supreme Court takes its colour from the

questions involved in the case in which it is

rendered and, while applying the decision to a

later case, courts must carefully try to

ascertain the true principle laid down by the

decision.

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Ratio Decidendi, Obiter Dicta, and

Casual Observations

The question which was necessary fordetermination of the case would be theratio; the opinion of the court on thequestion which was not necessary todecide the case would be only obiterdictum. ‘casual observations’ of the SC isthat observation are made on points whichdo not arise for the determination of thecourt at all.

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Sec 147-The Indian Hume Pipe Co Ltd (S.C.)- Dt 19-2-2015

Indian Hume Pipe Co Ltd 348 ITR 349 (Bom.)reversed Held as under by HC

“Full and true disclosure of materialfacts” means that the disclosure shouldnot be garbled or hidden in the crevicesof the documentary material which hasbeen filed by the assessee with the AO.The assessee must act with candor. Afull disclosure is a disclosure of allmaterial…

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115JB- Difference – Reserve & Provision

Srei Infrastructure Finance Ltd vs. ACIT – Delhi HC (still not reported decided 11th Feb 2015

Statutory reserve created u/s 45-IC of RBI Act is not a "diversion of income at source

GN of ICAI refereed to by HC

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Registration U/s 12AA-Violation of 13(1)(b)

Kul Foundation v. CIT - (2015) 54 taxmann.com 143 (Pune - Trib.)

S. 12AA/80G(5): CIT, while granting registration or renewal, can only look at the nature of activities and is not concerned with potential violation of s. 11(5) or s. 13. Registration cannot be denied on ground that activities have not commenced

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Development agreement, real income theory

CIT v Chemosyn Ltd (Bom HC)

Even if gains have accrued onexecution of the developmentagreement as per ChaturbhujDwarkadas, the subsequentmodification/ supercession of theagreement means that gains are nottaxable as per real income theory

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CIT vs. Excel Industries Ltd. 358 ITR 295 (SC)- Real Income

Accrual of Income- Test- Whether income accrued to assessee is real or hypothical, whether corresponding liability to pay of other party and probability of realisation- seen from practical point of view.

AO to take pragmatic view rather than pedantic approach.

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Accrual of Income

Vinay Vasudeo Kulkarni BCAJ–June P 26 (Pune)(Trib.)

Income is taxable in the year when right to receive accrues-Commission [S.4].

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Contd.

Though the Schedule VI requires incomeaccrued but not due as part of profit, forincome tax purpose ‘income accrued butnot due‘ is a contradiction terms , sincewhat was not due could not haveaccrued. What is not due cannot besubjected to legal action to enforcerecovery and hence , income in legalsense could not be treated as accrued soas to require its inclusion in taxableincome.

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Real Income Theory

Excess Bill- Not an income

Tyco Sanmar Ltd 370-ITR 173 (Mad)

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“Charitable Purpose” S. 2(15)/ 10(23C)(iv)

India Trade Promotion Organization vs. DGIT (E) (Delhi High Court)

If the definition of "charitable purpose"is construed literally, it is violative of theprinciples of equality & unconstitutional.If the dominant object is not to carry onbusiness or trade or commerce, then anincidental or ancillary activity for whicha fee is charged does not destroy thecharacter of a charitable institution

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Deemed Dividend 2(22)(e)

CIT vs. Jignesh P. Shah (Bombay High Court) Held: -

S. 2(22)(e) has to be construed strictly.If assessee is not a shareholder oflending co, s. 2(22)(e) does not applyeven if funds are ultimately paid by Coin which assessee is a shareholder –

Vatika Township (1) SCC 1, UniversalMedicare Pvt. Ltd. 324 ITR 263 ImpactContainers Pvt. Ltd. 367 ITR 346followed

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54 taxmann.com 67 (Allahabad) February 21, 2015

AO couldn't make partial disallowanceof exp. After accepting thegenuineness

Where Assessing Officer had acceptedgenuineness of payment ofconsultancy charges to architect,entire amount should have beenallowed and allowing part paymentwas not justified

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Claim for Bad Debts- [2015] 54 taxmann.com 28 (Gujarat)

Once amount of bad debt is debitedto profit and loss account andsimultaneously reduced from assetside, same is to be allowed; it wasnot necessary for assessee to closeindividual account of each of itsdebtors in its books

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Service of Notice- Affixture

Godavari Electrical Conductors (Andhra Pradesh High Court)

Issue of notice straightaway throughaffixture is not proper & rendersproceedings void.

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142-A Reference to VO- NirpalSingh 220 Taxmann 152 (P&H)

Reference by AO to valuation officerwithout rejecting books of account orreferring to any material/ evidence/information on basis of which it couldbe said that investment reflected byassessee was understated orsuppressed, reference was notjustified

Section amended w.e.f 1-10-2014

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Re-assessment

CIT v P.N. Sharma All HC 43 Taxmann.com 131

Where no assessment order was passed either u/s 143(1)(a) or 143(3) or 144 there was no occasion to pass re-assessment order u/s 147

Followed UP Rajya Utpadan Nigam 202 ITR 93 (All)

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Capital Gain- Holding Period

Smt Rama Rani Kalia 221 Taxman 72 (All)

Conversion from Lease Hold to Free Hold

Entire period to be seen

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Holding Period- K Rama Krishnan 225 Taxman 123 (Del)

A plot allotted on 3-08-1999, aconveyance deed and possession of plotwas given on 12-12-2005- sold plotthrough registered sale deed on 9-01-2008- jitendra Mohan v/s ITO [2007] 11SOT 594 (Delhi),

It is date of allotment which is relevantfor purpose of computing holding periodand not date of registration ofconveyance deed- Held, yes

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Addition on AIR information

M/s. ANS Law Associates vs. ACIT (ITAT Mumbai)

Additions made solely on the basis ofAIR information are not sustainable inlaw. The AO has to prove thatassessee has received income from aparticular source. The assesseecannot be expected to prove thenegative

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50-C

Pradeep Steel Re-Rolling Mills (P.) Ltd 61 SOT 104 (URO)

section 50C applies only to capital assets being land or building or both; it does not in terms include leasehold rights in land or building within its scope

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50C- Chandra Narain Chowdhri219 Taxman 60 (Alld)111

Where assessee objects before Assessing Officer that value adopted by stamp valuation authority under section 50C(1) exceeds fair market value of property on date of transfer, Assessing Officer may either accept valuation of property on basis of report of approved valuer filed by assessee or he may refer question of valuation of capital asset to DVO in accordance with section 55A

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Property Trf. by Partner to firm

M/s. Chakrabarty Medical Centre vs. TRO (ITAT Pune)

Property introduced by a partner intofirm becomes the asset of the firm evenif there is no registered deed. Thoughthe asset is held by the firm as adepreciable asset and though theinvestment in s. 54EC bonds is made inthe names of the partners, the firm iseligible for s. 54EC exemption

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Institute’s Publication

CIT vs. Virtual Soft Systems Ltd 18 Taxman 119 (Delhi)

Method for accounting for lease rentalswas based on the Guidance Note“Accounting for Leases” issued by theICAI, the AO was not entitled todisregard the same. The Guidance Notereflects the best practices adopted byaccountants the world over and the factthat it was not mandatory is irrelevant

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Development Agreement

CIT v Ved Prakash Rakhra 370 ITR 762 (Kar)

Exchange Value- How determined

Should be estimate cost ofconstruction.

Where development agreement specifies a figure as a cost of construction to be incurred by developer, it could be taken as basis

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THANK YOU

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