The Income Tax Appellate Tribunal, in a recent ruling, held that TDS provisions are not applicable in case of promotional charges/ payments under the relevant provisions of the Income Tax Act, 1961.
In the instant case, the assessee-company is engaged in the business of cultivation of land, sowing, irrigation and production and sale of seeds. While filing returns for the relevant assessment years, the assessee claimed deduction in respect of promotional payments. However, the Assessing Officer disallowed the same under section 40(1)(a) of the Income Tax Act by holding that no TDS was paid by the assessee on such amount. The assessee challenged the order before the CIT(A)by contending that the payment made by it towards promotional expenses i.e. either towards purchase of promotional items or reimbursement of expenses incurred by the company’s employee towards promotional activities, are not liable to TDS.
Further, section 40(a)(ia) is not applicable in the case of purchase of seeds. The appeal was allowed and therefore, the Revenue approached the Appellate Tribunal impugning the order of the Commissioner of Income Tax (Appeals).
The appeal of the Revenue was dismissed by the Tribunal by relying upon the decision of the Co-ordinate bench of the Tribunal in Merlyn Shipping & Transports vs. Addl., in which it was held that the liability to deduct TDS out of promotional charges/payments does not arise.
Read the full text of the order below.
While upholding the decision of the Appellate Tribunal, the division bench of the Bombay High Court recently ruled that,a subcontractor, who did not provide any technical know how to a person outside India is not entitled to claim any deduction under Section 35B of the Income Tax Act, 1961.
Section 35B of the Act provides for export markets development allowance, allowing weighted deduction in a sum equal to one and one third times the amount of expenditure incurred for various export related activities enumerated in clause (1)(a) of the said section during the previous year by a domestic company.
Coming to the facts of the case, Electricity Corporation of Saudi Arabia (“ECSA”) and
Bharat Heavy Electricals Ltd. (“BHEL”) were entered into an agreement as per which, the latter agreed to provide, deliver at site, erect, set up, work, test, hand over and maintain a turn key project for an electrification scheme. The said scheme was named as Wadi Jizan Electrification Scheme.Subsequently, the BHEL entered into a sub-contract with the assessee through which a portion of the work was sub-contracted to the latter. The assessee claimed that they are eligible for weighted deduction on expenditure incurred by it in respect of its business of provision of technical know how or rendering services in connection with provision of technical know how to a person outside India as enumerated in Section 35B of the Income Tax Act. However, the claim was rejected by the assessing officer on ground that the assessee is a sub-contractor. On appeal, both the appellate authorities confirmed the same. Aggrieved with the above order, the assesse approached the High Court for relief.
While analyzing the provisions of section 35B(1)(a), the bench comprising of Justice M S Sanklecha and Justice S C Gupte found that the assessee for claiming deduction under Section 35B has to be an exporter of goods or technical know how and the expenditure should have been incurred by him in connection with that business.
The Court concurred with the findings of the Appellate tribunal and held that “what emerges from the record is that the exporter of know how in the present case was BHEL, who provided know how to a person outside India, namely, ECSA. It is BHEL, who, as such exporter incurred expenses for the purpose of provision of technical know how to a person outside India. The assessee as a subcontractor of BHEL, did not provide any technical know how to a person outside India and was not entitled to claim any deduction under Section 35B, as it was then applicable. All authorities below, namely, the Assessing Officer, the Commissioner of Income Tax (Appeals) and the Tribunal, came to a concurrent conclusion that the assessee was not an exporter of any goods or know how and was merely a sub-contractor of BHEL, who provided these services to BHEL and not to the person outside India, namely, ECSA. As held by the Tribunal in its order dated 18 November 1991, the agreement was entered into between BHEL and the foreign party and it was the duty of former to provide whatever services were contracted to the later. As to how these services were to be provided to the foreign party was in the exclusive domain of BHEL. It alone was responsible to the foreign party for the provision of these services. In the premises, the Tribunal was right in coming to the conclusion that whatever was provided to the foreign party was clearly by BHEL and not the assessee concerned. The Tribunal rightly concluded that what was done by the assessee-company, however technically specialized job it may be, it was done only for BHEL as a subcontractor and not for a person outside India and that, accordingly, it did not entitle the assessee to any deduction under Section 35B of the Income Tax Act.”
Read the full text of the Judgment below.
In a recent ruling, the ITAT Mumbai bench held that the handing over of possession of the land to a developer for the limited purpose of developing the land will not give rise to capital gains tax under the provisions of Income Tax Act, 1961. While upholding the order of the first appellate authority, the Tribunal further observed that the transfer of land on the basis of an unregistered agreement cannot constitute “transfer” under section 2(47)(v) of the Income Tax Act.
In the instant case, the assessing Officer found that the asessee has earned long term capital gain on account of a development agreement entered into by the assessee with a partnership firm with respect to land owned by the assessee. The AO observed that the assessee is liable to pay capital gain tax since the said transfer is covered by section 2(47)(v) of the Income Tax Act. The assessee, on the other hand, denied all these findings by submitting that the impugned development agreement does not give effect to transfer of impugned land for various legal and factual reasons. on appeal, the Commissioner of Tax(Appeals) allowed the appeal.Aggrieved with the order of the CIT(A), the Revenue preferred an appeal before the Appellate Tribunal.
The Tribunal found that physical possession has not been handed over to the developer by the assessee due to non-fullfillment of certain conditions specified in the development agreement. Therefore, it was concluded that no transfer under section 2(47)(v) has taken place.Further, section 2(47)(v) cannot be invoked on the basis of an unregistered agreement.
While dismissing the appeal, the Tribunal observed that “For the purpose of determining the actual date of transfer of the land by the land owner, all these stages / events needs to be collectively analsysed and after evaluating overall effect of the same we can determine the actual date of transfer. These stages /events may be described as date of entering into JDA, date of executing power of attorney authorising the developer for taking various approvals / permissions etc., handing over the possession of the land to the developer for various purposes, receipt of part / full sale consideration from the developer, date of execution of power of attorney in favour of developer authorising him for the sale of developed units to the customers at his absolute discretion; and transfer of developed units to the customers etc. There may be few more stages /events to complete the transaction. Though, one single event may trigger the process of transfer but may not necessarily complete it also. Whether the transfer has, in substance, taken place, can be determined by analysing the inter-play and effect of all these stages / events combined and put together.”
“when the possession is given along with other legal rights to the developer resulting into entitlement of the developer for full use and enjoyment of the property as well as its further sale after converting it into developed units at its full, own and sole discretion, then it may result into ‘transfer’ provided other conditions also suggest so. Thus, handing over of the possession has to be necessarily coupled with the intention of transferring the rights of ownership and enjoyment of the property to the developer. Handing over of the possession for the limited purpose of developing the land while still retaining the ownership and control of various legal rights upon the property by the land owner would not fall in clause (v) of section 2(47).”
Read the full text of the order below.
In a recent decision, the division bench of the Bombay High Court held that the deduction under section 80O of the Income Tax Act, 1961 is allowable on net income, not on gross receipts. The Court while holding so, observed that the section 80AB of the Income Tax Act is applicable while computing deduction under section 80O of the Income Tax Act.
In the instant case, the assessee contended that the deduction should be allowed on gross basis i.e. dehors the provisions of Section 80AB of the Income Tax Act. The Income Tax Appellate Tribunal, based on its decision in the earlier year, held that the assessee would be entitled to deduction after deducting corporate expenses, after computing the income according to the provisions of the Act, in compliance with the provisions of section 80AB of the Act. The Tribunal sought for an opinion of the High Court through Reference under Section 256(1) of the Income Tax Act. The substantial question of law raised before the Court was that whether deduction under Section 80O is allowable on the gross receipts?
The Court noticed its decision in CIT v/s. Asian CableCorporation Ltd., (No.2) 262 ITR 537. In which it was held that income earned in foreign exchange for services rendered, has to be allowed on net basis, inter alia, on application of Section 80AB of the Act.
The Court also noticed the decision of the Apex Court in the case A. M. Moosav/s. CIT in which it was held that Section 80AB of the Act has an overriding effect over all Sections of Chapter VIA of the Act. Undisputedly, Section 80O of the Income Tax Act is part of Chapter VIA of the Act and,therefore, would be governed by Section 80AB of the Act.
In view of the above judicial pronouncements, the Court concluded the issue in favour of the Revenue.
Read the full text of the Judgment below.
Recently, the Income Tax Appellate Tribunal, Delhi bench ruled that the assessee is entitled to get depreciation for the amount incurred by him on account of professional and legal charges while taking over other business. The division bench found that the same forms the part of actual cost of the acquisition of the assessee.
Coming to the facts of the case, the assessee is having a manufacturing unit at Madras SEZ in respect of which the claim of deduction u/s 10AA of the Income Tax Act, 1961 was made through the original return. Subsequently, the assessee filed a revised return in order to revise their claim under section 10AA on the basis of the Budget speech made by the Financial Minister on 2009 in which the entire profits of MSEZ was proposed to be deducted from the total income.The amendment in Section was brought in the Act with retrospective effect.Further, the assessee claimed deduction in respect of payment of professional and legal charges in relation to taking over the business from Hindustan Motors Ltd incurred during Assessment Year 2006-07. As the expenditure was incurred for the purpose of acquiring a capital asset it was not claimed as revenue expenditure by the assessee. The Assessing Officer disallowed both the claims on ground that since the amendment came w.e.f 1/4/2010 the revised return and revised claim of the assessee u/s 10AA of the Income Tax Act, 1961 is not allowable.
On appeal preferred by the assessee, the first appellate authority allowed the same finding that the revise return must be allowed since the said amendment is retrospective in nature. Further, it was observed that the legal and professional charges charges were essential for effecting the takeover of business units of Hindustan Motors. Thus, it actually forms the part of actual cost of the acquisition of the assessee. Therefore, claim of depreciation was allowed. The Revenue approached the appellate tribunal challenging the order of the CIT(A).
While concurring with the order of the first appellate authority, the division bench of the Tribunal held that “ the retrospective amendment is very much applicable to the assessee. By the retrospective amendment to Section 10AA (7) through the Finance Act 2010, the benefit conferred on to the assessee from 1/4/2010 has been made applicable from 1/4/2006 and shall apply to Assessment Year 2007-08 also. As regards Ground No. 2, the Ld. AR relied on the ITAT order in assessee’s own case for Assessment Year 2006-07 for depreciation claim being ITA No. 1606/DEL/2010 order dated 31.05.2013. In light of this, the professional charges have to be allowed because the expenses incurred by the assessee was as per the agreement and it was not Hindustan Motors which was incurring the expenses. It actually forms the part of actual cost of the acquisition.”
Read the full text of the order below.
The Central Board of Excise & Customs (CBEC) has recently issued a circular directing its officials regarding launching of prosecution in relation to offences including gold items punishable under the Customs Act, 1961.
Last year, the Board has issued Circular No. 27/2015 clarifying the procedures to be followed for launching of prosecution in relation to offences punishable under the Customs Act. As per para 6 of the said Circular, prosecution in respect of cases involving offences relating to items i.e. FICN, arms, ammunitions and explosives, antiques, art treasures, wild life items and endangered species of flora and fauna may preferably be launched immediately after issuance of show cause notice.
The present Circular amends para 6 of the 2015 Circular by inserting “Gold” to the above list of items. Consequently, the Department can launch the prosecution immediately after the issuance of Show Cause Notice in case of offences relating to gold items.
Read the full text of the circular below.
In a recent decision, the Bombay High Court expressed its concern over the attitude of Income Tax Officials on prcessing the refund claims of the tax payers. The Court was considering a writ petition preferred by the assessee in connection with their refund claim.
The petitioners approached the High Court challenging the action of the Assessing Officer who is withholding the refund claim of the assessee without any valid reasons. When the assessee filed an application sought for refund of tax entitled to them for the year 2015-16.After repeated queries of the petitioners, the Assessing Officer informed that as per the Instruction No.1 of 2015 issued by the CBDT, empowers the assessing officer to exercise his discretion under Section 143(1D) of the Act in case of refund matters. The petitioners, in response, pointed out that the above circular was set aside by the Delhi High Court in the case of Tata Teleservices Ltd. Vs. Central Board of Direct Taxes &Anr.
While allowing the writ petition, the High Court observed that the action of the officer on the ground urged seems to be in complete variance with the higher echelons of administration of the tax administration being an assessee friendly regime.The Court further referred the Instruction No.7/2012 of CBDT which directs the officials to process all returns in which refunds are payable expeditiously.
“In this case, the return was filed on 29th November, 2015, yet there is no reason why the Assessing Officer has not processed the refund and taken a decision to grant or not grant a refund under Section 143(1D) of the Act. This attitude on the part of the Assessing Officer leaves us with a feeling (not based on any evidence) that the Officers of the Revenue seem to believe that it is not enough for the assessee to please the deity (Income Tax Act) but the assessee must also please the priest (Income Tax Officer) before getting what is due to him under the Act. The officers of the State must ensure that their conduct does not give rise to the above feeling even remotely.”
While concluding, the Court emphasised that “Lastly, we must for the benefit of the Revenue reiterate that our powers under Article 226 of the Constitution are very wide for the purpose of doing justice. The powers of a Court under Article 226 of the Constitution of India are not limited only to prerogative writs but also to issue any direction or order for doing justice. Therefore, Article 226(1) of the Constitution empowers the Court to issue directions, orders or writs, including writs in the nature of habeas corpus,mandamus, certiorari or any of them”.
Read the full text of the Judgment below.
While giving a major Setback to petroleum Company Cairn India, the division of bench Rajasthan High Court has rejected the Company’s refund claim towards the Education Cess and Secondary and Higher Education Cess worth Rs. 300 Crore.
The Court set aside the Customs, Excise and Service Tax Appellate Tribunal order dated July 24, 2014, in which the Tribunal held that respondents-assessee, Cairn India Limited is not liable to pay any cess in terms of Section 91 read with Section 93 of the Finance Act, 2004 and Section 136 read with Section 138 of the Finance Act, 2007, being the cess as per Section 15(1) of the Oil Industries (Development) Act, 1974, is said to be not levied and collected by the Ministry of Finance.
The Revenue contended that, the tribunal erred while relying upon the law laid down in the case of Commissioner v. Sahakari Khand Udyog Mandi Ltd., as in the case aforesaid the Gujarat High Court was dealing with the provisions of Sugar Cess Act, 1982, whereas in the case in hand the oil cess is made applicable as per Section 15 of the Oil Industries (Development) Act, 1974. The provisions of the Act of 1974 are quite different than the provision of the Sugar Cess Act, 1982.
While allowing the appeal filed by Union of India, the bench comprising of Justice Govind Mathur and Justice Kailash Chandra Sharma observed that, “no any reason to escape the respondent from application of education/secondary and higher education cess under the Act of 2004 and the Act of 2007 respectively. The Customs, Excise and Service Tax Appellate Tribunal, under the judgment dated July 24, 2014, erred while arriving at the conclusion that respondent M/s Cairn India Ltd. is not liable to pay any cess in terms of Section 91 read with Section 93 of the Finance Act, 2004 and Section 136 read with Section 138 of the Finance Act, 2007, being not levied and collected by the Ministry of Finance (Department of Revenue).
Read the full text of the Judgment below.
In a recent Circular, the Central board of Direct Taxes (CBDT) has clarified that TDS provisions under section 194I of the Income Tax Act, 1961 is not applicable in case of lump sum lease premium paid for acquisition of long-term lease.
Section 194I of the Income Tax Act mandates tax deduction at source at the prescribed rates from payment of any income by way of rent. The Circular was issued as a result of representations received by the CBDT regarding clarification on the applicability of section 194I of the Income Tax Acton ‘lump sum lease premium’ or ‘one-time upfront lease charges’.
Earlier, the Delhi and Chennai High Courts were expressed a view that these payments constitutes capital expenses and hence, TDS provisions are not applicable. It is in this circumstance, the Board issued the present circular in order to give effect to the above decisions.
Read the full text of the circular below.
With an aim to minimize the number of litigation over taxation, the Central Board of Direct Taxes (CBDT) has recently notified the rules for computation of distributed income arising out of issue of shares following buy back, demerger, amalgamation or bonus issue by companies. A new Rule 44B has been introduced by the CBDT which provides for computation of income received by a company in respect of issue of share for computing buy back tax payable.
Till now, no specific methodology has been prescribed for determining the amount received by the company, under different circumstances in which the shares have been issued. The present rules prescribes the method for computation of ‘amount received’ in 12 different scenarios by a company, depending upon the manner of issue of shares — regular issue, amalgamation, demerger, bonus issue, conversion of bond or debenture, sweat equity share issue and share-buyback in demat form.
The final rules further prescribe rules for issuance of equity shares, pursuant to conversion of a firm into company or succession of a sole proprietorship by a company.
The rules take effect from 1st June, 2016.
Read the full text of the Amendment rules below.
In an order on 18th October 2016, the Central Board of Direct Taxes has again extended deadline of filing Income Tax return in the state of Jammu & Kashmir to 31st December 2016.
The CBDT has issued an order on consideration of reports of dislocation of general life in certain areas of the state of Jammu & Kashmir to September 30from the earlier deadline of August 31.
The extension pertains to the tax returns for Assessment Year 2016-17 for all categories of Tax payers in the State of Jammu & Kashmir.
Read the full text of the order below.
The Government of India had invited stakeholder/public comments on the Draft Financial Resolution and Deposit Insurance(FRDI) Bill, 2016 from 28.9.2016 to 14.10.2016
A Committee was set up pursuant to the Budget Announcement of 2016-17 on framing a draft code on resolution of financial firms. A copy each of the Report of the Committee, the Draft Bill and an explanatory note explaining the key legal provisions of the Bill can be read here.
A number of requests have been received from stakeholders and institutions of repute for extending the time-line for providing comments on the draft Bill. The time line for receiving comments on the Draft Bill is accordingly extended till 31.10.2016.
All stakeholders concerned/public are requested to forward comments/suggestions that they may wish to submit on the Draft Bill by 31st October 2016 by e-mail to parveen.k63@gov.in or in hard copy to Shri Parveen Kumar, Under Secretary (FSLRC), Department of Economic Affairs, Ministry of Finance, Room No. 48, North Block, New Delhi-110001. The decision of the Government with respect to the Report and the Draft Bill will be taken later after receipt of public / stakeholders comments and after following due procedure thereafter.
While upholding the order of the Karnataka High court, the two-judge bench of the Supreme Court observed that the income arising out of the sale of capital assets of a going concern by a partner to other partners are taxable from the hands of the assessee, after the dissolution of the firm. The Court held that such income are assessable to tax under section 45 of the Income Tax Act, 1961.
In the instant case, the assessee approached the Apex Court impugning the assessment order as per which, the assessing officer held that the assets of a going concern, transferred by the assessesto other partners are liable to be treated as capital gain. The assessee maintained that the above amount is not subject to tax since it is a capital receipt. Rejecting this contention, the assessing officer passed the impugned order which was upheld by all the appellate authorities including the High Court.
Diving deeply into the facts of the case, the bench comprising of Justice A K Sikri and Justice N V Ramana observed that asset of the firm that was sold was the capital asset within the meaning of Section 2(14) of the Act. Therefore, the gain arising out of such asset should be treated as “capital gain” within the meaning of section 45 of the Act.The Court rejected the contention raised by the assessee that, the impugned transaction was a “slump sale” within the meaning of Section 2(42C) of the Income Tax Act and there was no mechanism at that time as to how the capital gain is to be computed in such circumstances, on ground that,the assets were put to sale after their valuation. The Court emphasized that there was a specific and separate valuation for land as well as building and also machinery. Such valuation has to be treated as that of a partnership firm which had already stood dissolved.Therefore, in the opinion of the Court, the transaction does not come within the ambit of the term “slump sale.”
The bench further noted that the partnership firm had dissolved and thereafter winding up proceedings were taken up in the High Court. The result of those proceedings was to sell the assets of the firm and distribute the share thereof to the erstwhile partners. Thus, the ‘transfer’ of the assets triggered the provisions of Section 45 of the Act and making the capital gain subject to the payment of tax under the Act.
Regarding the next submission of the assessee, i.e, the income of the firm cannot be taxed in the hands of the assesses, the Court held that “First, and pertinently, it is an admitted case that 40% of the said income was allowed by the High Court to be retained by the successful bidder (AOP-3) precisely for this very purpose. This 40% represented the tax which was to be paid on the income generated by the ongoing concern being run by the Association of Persons, as authorised by the High Court. Secondly, in the previous years, the Department had taxed the AOP and this procedure had to continue in the Assessment Year in question as well”. In view of this, the Court arrived at a conclusion that business income/revenue income in the Assessment Year in question is to be assessed at the hands of AOP-3, in terms of the orders of the High Court, as AOP-3 retained the taxamount from the consideration which was payable to the assesses herein and it is AOP-3 which was supposed to file the return in that behalf and pay tax on the said revenue income.
Read the full text of the Judgment below.
In a recent ruling, the ITAT, Mumbai bench, confirmed that penalty is not leviable where there is a difference of opinion between the assessee and the Revenue as to the head of income under which the income is assessable.
Coming to the facts of the case, the assessee-Company is engaged in the business of real estate. The building of the company was given on licence. The assessee, while filing return for the relevant assessment year, shown the consideration for the same was as business income on the ground that the assessee’s business was of real estate and expenses such as administrative and depreciation were claimed accordingly. The assessing officer initiated penalty proceedings against the assessee on ground that the rental income was deliberately shown as business income and thereby they have wronglyclaimed deduction in respect of various exepnses.
The Commissioner of Income Tax (Appeals) while allowing the first appeal preferred by the assessee,held that the penalty is not justifiable since it was a case of difference of opinion and the issue was debatable one.
Concurring with the findings of the CIT(A), the Tribunal held that “In our opinion the ld conclusion drawn by the FAA was correct as the assessee has shown full particulars of income in the return of income itself and mere fact the income shown under one head of income was assessed by the AO under the other head could not be taken as tantamount to filing inaccurate particulars. Therefore the order of FAA is correct and does not required to be disturbed or interfered with. Accordingly we uphold the same by dismissing the appeal of the revenue.”
Read the full text of the order below.
The Kolkata bench of the Income Tax Appellate Tribunal, in a recent case, held that assessment under section 153A of the Income Tax Act, 1961 cannot be completed without citing any “incriminatory material” discovered during the search.
The assessee-Company is primarily engaged in the manufacture of railway products. In consequent to a search took place on the business premises of the assessee, the officer completed assessment by disallowing the amount paid in respect of Commission, PF/ ESI ,
Fringe Benefit Tax u/s 40(a) and Bonus u/s 43B of the Act.The assessee impugned the said order before the Appellate Tribunal on second appeal by contending the hat the assessment was completed under section 153A without the support of any incriminating material. The revenue on the other hand, contended that the expression, ‘incriminating material’ is not found in the provisions of the Act and the same is merely a creation of the judiciary.
While quashing the impugned order by rejecting the contentions of the Revenue, the Tribunal observed that “we find that the provisions of section 132 of the Act relied upon by the ld DR would be relevant only for the purpose of conducting the search action and initiating proceedings u/s 153A of the Act. Once the proceedings u/s 153A of the Act are initiated, which are special proceedings, the legislature in its wisdom bifurcates differential treatments for abated assessments and unabated assessments. At the cost of repetition, we state that in respect of abated assessments (i.e pending proceedings on the date of search), fresh assessments are to be framed by the ld AO u/s 153A of the Act which would have a bearing on the determination of total income by considering all the aspects, wherein the existence of incriminating materials does not have any relevance. However, in respect of unabated assessments, the legislature had conferred powers on the ld AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A of the Act , as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance.”In view of the above, the Tribunal allowed the above expenses claimed by the assessee.
Read the full text of the order below.
While setting aside the order of the High Court, the two-judge bench of the Supreme Court has categorically held that polished Granite Slabs are subject to sales tax under the relevant provisions of Karnataka Sales Tax Act, 1957. Earlier, the High Court, on an appeal preferred by the Revenue had opined that imposition of levy under the KST would amount to double taxation since the same are already subjected to Central Sales Tax.
The factual settings of the case are that, the assessee is engaged in the business of manufacturing and trading in granite stone. Initially, the assessing authority allowed exemption on the sale of polished granite stones on ground that the same is produced from out of granite slabs that had suffered tax as rough granite blocks. The revisional authority by invoking its powers conferred under section 12A of the Act, set aside the said order by holding that the same is erroneous since polished and unpolished granite stones have separate entries in the said schedule and, therefore, treating of said sale of polished granite stone within the State which is obtained out of unpolished granite stone as sales suffered would not be correct.
The appellate authorities including the High Court quashed the orders by relying upon the decision in M/s. Vishwakarma Granites v. Commissioner of Commercial Taxes.The revenue approached the Apex Court impugning the order of the High Court.
The bench comprising of Justice Dipak Misra and Justice Shiva Kirthi Singh found that the decision in Vishwakarma Granites cannot be applied to the facts of the case. While confirming the levy f sales tax on the goods, the Court noted that there is a distinction between polished granite stone or slabs and tiles. “If a polished granite stone is used in a building for any purpose, it will come under Entry 17(i) ofPart S of the second schedule, but if it is a tile, which comes into existence by different process, a new and distinct commodity emerges and it has a different commercial identity in the market. The process involved is extremely relevant. That aspect has not been gone into. The Assessing Officer while framing the assessment order has referred to Entry 17(i) of Part S but without any elaboration on Entry 8. Entry 8 carves out tiles as a different commodity. It uses the words “other titles”. A granite tile would come within the said Entry if involvement of certain activities is established. To elaborate, if a polished granite which is a slab and used on the floor, it cannot be called a tile for the purpose of coming within the ambit and sweep of Entry 8. Some other process has to be undertaken. If tiles are manufactured or produced after undertaking some other activities, the position would be different. A finding has to be arrived at by carrying out due enquiry and for that purpose appropriate exercise has to be undertaken. In the absence of that, a final conclusion cannot be reached.”
Read the full text of the Judgment below.
While confirming the order of the Income Tax Appellate Tribunal, the Kerala High Court observed that an order passed section 158BC and 158BD of the Income Tax Act, 1961 shall be initiated and concluded by the same officer.
In the instant case, proceedings under section Section 158BD and 158BC of the Income Tax Act were initiated against the assessee. The assessee challenged the order on ground that the officer, who concluded the proceedings under Section 158BC of the Income Tax Act is different from the officer, who initiated the proceedings under Section 158BD of that Act. The Appellate Tribunal allowed the appeal preferred by the assessee. The Revenue approached the high Court against the said order.
The division bench comprising of Justice Thottathil B Radhakrishnan and Justice Anu Sivaraman while dismissing the appeal found that, the issue is squarely covered by the decision of the Supreme Court in Maheshwari v. Assistant Commissioner of Income Tax. Based on this, the Court observed that “The issue that arises for decision relates to compatibility of proceedings under Section 158BD and 158BC of the Income Tax Act, 1961. On the facts of the case, it is not in dispute that the officer, who concluded the proceedings under Section 158BC of the Income Tax Act is different from the officer, who initiated the proceedings under Section 158BD of that Act. Therefore, it is sine quo non in law that the officer, who initiated the proceedings under Section 158BD ought to have recorded satisfaction as to the existence of grounds to invoke Section 158BD of the Income Tax Act.”
Read the full text of the Judgment below.
In a recent ruling, the Ahmedabad bench of the ITAT held that the Commissioner cannot exercise his revisional jurisdiction under section 263 of the Income Tax Act, 1961 merely on the ground that the Assessing Officer has not initiated penalty proceedings against the assessee on conclusion of assessment proceedings.
In the instant case, the assessing officer completed re-assessment against the assessee. The Commissioner of Income Tax, passed a revisional order on ground that the Assessing Officer had not initiated Section 271(1)(c) explanation 3 and Section 271F penalty proceedings against the assessee. The order of revision was impugned by the assessee on second appeal.
The Tribunal quashed the order while pointing out that “The dispute admittedly between the parties is as to whether the Assessing Officer in his order dated 28.01.2014 had in fact instituted penal action or not against the assessee. It has come on record that the assessment order forming part of the case file contains penalty initiation stipulation. There is no such order filed at the Revenue’s behest in the course of arguments before us. The assessee’s assessment order filed along with the appeal contains signatures of the Assessing Officer. The samegoes against assessing authority’s clarification dated 09.03.2016 submitted before the CIT(A). We afforded sufficient to the Revenue to place on record the said clarification along with the assessment order not initiating penalty proceedings. The same has not been filed. All this makes us to conclude that the assessment order in the instant appeal filed is the correct assessment order. The CIT is therefore held to have erred in exercising Section 263 jurisdiction for the reason that the Assessing Officer had not initiated the impugned penalty proceedings. This exercise of revisional jurisdiction is accordingly declared to be not sustainable since based on a wrong assumption of the relevant facts forming the very backbone of Section 263.”
Read the full text of the order below.
ITAT Hyderabad rescinds the order of withdrawing registration granted to the Hyderabad Cricket Association.
The Hyderabad bench of the Income Tax Appellate Tribunal, has recently overruled the order withdrawing the registration granted to the Hyderabad Cricket Association under section 12AA of the Income Tax Act 1961.
While allowing the appeal preferred by the association, the division bench held that various activities carried out by the assessee as part of IPL programme can be treated as “for the advancement of any other object of general public utility” which is permitted under section 2(15) of the Income Tax Act. In the opinion of the Tribunal, these activities would not result in losing the assessee society’s charitable nature.
In the instant case, the registration granted to the Hyderabad Cricket Association was withdrawn on ground that the assessee is no more a charitable society since it is deriving income from various commercial sources including receipts from league fees, sale of tickets of ODI & IPL matches, advertisement charges, franchise fee, subsidy and sponsorship money from various companies.The DIT(E) further observed that the assessee conducted a cricket match for women, which is against the objects of the Trust and some of the expenses incurred by the assessee are not supported by vouchers.The assessee challenged the order before the ITAT.
The tribunal noted that after the insertion of section 2(15) of the Income Tax Act, the definition of the term “charitable activity” has undergone a major change. Now the position is that if the assessee carries on commercial activities for the advancement of any other object of general public utility and its turnover is less than the prescribed limit, it does not lose its charitable nature.
The Tribunal further relied upon the decision of the Madras High Court in the case of Tamil Nadu Cricket Association, in which the Court considered the CBDT circular 1/2011 and also the Hon’ble Supreme Court’s decision in the case of CIT vs. Andhra Chamber Of Commerce and held that if the primary or dominant purpose of the Trust or Institution is charitable, another object which by itself may not be charitable, but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the Trust or Institution from being a valid charity.
The Tribunal further noticed the decision of the Bombay High Court in DIT (E) vs. Khar Gymkhana, in which the Court opined that the DIT has no jurisdiction to cancel registration of a charitable institution on the ground that it is carrying on commercial activities which are in breach of the amended definition of “charitable purpose” in section 2(15) and that registration can be cancelled only if the activities of the trust are not genuine or are not being carried out in accordance with its objects and further that this is clarified by Circular No.21 of 2016.
It was further observed that “as regards the other grounds i.e. holding of a cricket match for women in violation of the object No.(xxviii), we find that the main object of the assessee is to promote the game of cricket and particularly for men only as there is a separate cricketing body for women. The reason given by the assessee for holding women’s cricket match is that it was held at the instance of the BCCI particularly since the women cricket association was not functioning. We find that this activity cannot be said to be exactly in contravention of the objects of the assessee society. Even if it is to be considered to be in violation of the object, it is a solitary deviation and the AO might consider disallowing the income derived by the assessee from conducting of such a match while computing the exempt income u/s 11 of the Income Tax Act.”
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Recently, the Hyderabad bench of the Income Tax Appellate Tribunal has observed that TDS under section 194H of the Income Tax Act, 1961 is liable to be paid on commission expenses. Earlier, the lower authorities including the assessing authority and the first appellate authority, vide their orders, disallowed the claim of the assessee on the amount paid as commission to various persons on ground that no TDS were paid on these amounts.
While impugning the above orders, the assessee submitted that they are following merchantile system of accounting as per which the provision of commission of Rs.26 lacs was made on estimate basis. According to the assessee, since the names of payees were not known, the TDS was not deducted as the assessee did not know in whose account the TDS was to be credited. They further relied up on the decisions in IDBI and, Mahindra & Mahindra and CBDT clarification dated 05.07.1996 and contended that the practice followed by the assessee has been accepted by the Department in past year; therefore, making a provision on the estimate basis on the sales effected by the assessee, the commission become an ascertained liability and was allowable as business expenditure.
On first appeal, the Commissioner of Income Tax (Appeals), confirmed the assessment order by suspecting the genuineness of the claim and there by held that the provisions are made according to the whims and fancies of the appellant without any proper basis and liability to pay.
While upholding the findings of the first appellate authority, the Single Member held that “The findings of the ld. CIT(A) are very elaborated and demonstrated that the provision of commission payment claim by the assessee is totally unascertainable, uncrystallized and fanciful. It does not assume the character of ascertained mercantile liability. Even in case of mercantile liability, Section 40a(ia) clearly mandates that the expenditure cannot be allowed in the absence of corresponding TDS payment in Government treasury. In view thereof, I find no infirmity in the order of the ld. CIT(A) which is upheld and the appeal of the assessee is thus dismissed.”
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The ITAT, Bangalore bench, in a recent ruling confirmed the finding of the Commissioner of Income Tax (Appeal) that the interest paid by the assessee on account of investing in properties are capital in nature.
In the instant case, the assessee’s claim for expenditure on the above was disallowed by the assessing officer by holding that the assessee has neither proved that interest was not incurred for the investment in property nor that it has utilized interest free fund if any available for investment in acquiring various properties. Accordingly, he disallowed the amount of interest paid on the same. The approached the Income Tax Appellate Tribunal challenging the orders of both the authorities.
The Tribunal found that the assessee has shown the stock in trade of land separately from the investment in land.Concurring with the findings of the lower authorities, the Tribunal observed that “The Assessing Officer has considered the amount of investment in land of Rs.21.84 Crores and therefore the contention of the assessee that this investment in land is also part of the business activity of the assessee is not borne from the facts recorded in the books of accounts and financial statements. It is pertinent to note that when the assessee has not shown the income from sale of these investment as business income then the interest expenditure on account of investment in land cannot be allowed against the business income. Accordingly, we do not find any error or illegality in the orders of the authorities below.”
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