Case Digest on High Court Income Tax Judgement, 2016-17 – Part 4

A Foreign Company can claim benefit u/s 10A of Income Tax Act for the Transfer of Computer Software by its Indian Branch: Delhi HC DEPUTY DIRECTOR OF INCOME TAX vs VIRAGE LOGIC INTERNATIONAL In a recent Delhi High Court ruling, it was determined that an entity can claim the benefits of Section 10A of the Income Tax Act, 1961 for software developed by a branch as per the Head Office's requirements and not sold to a third party. The Court granted the exemption, stating that the transfer of computer software from the Indian branch to the Head Office qualifies as a 'sale.' In this case, the taxpayer, engaged in software development, had a branch in India that developed software called "Softex Form" and exported it through data communication links. They received consideration and clarification, which was accepted by the STPI authorities, and remittances from the Head Office for software export/transmission. The taxpayer claimed Section 10A exemption on their tax return, which was initially rejected by the assessing officer. On appeal, the ITAT accepted the taxpayer's arguments, leading the Revenue to challenge the ITAT's decision in the High Court. The division bench, comprising Justice S. Ravindra Bhat and Justice Najimi Waziri, noted that the relevant section covers the transfer of goods or services for the eligible business and found that the AO had correctly conducted the necessary assessment under Section 10A(7) read with Section 80-IA(8). They emphasised that the absence of a "deemed export" provision in Section 10A doesn't undermine the interpretation of "transfer of goods" under Section 80-IA(8), which now applies to Section 10A. This interpretation aligns with the legislative intent and the logic of legal fiction. Reason for an Order passed by a Quasi-Judicial Authority should not be supplemented by any Memorandum or Affidavit: Madras HC THE CENTRAL BOARD OF DIRECT TAXES vs M/s. REGEN INFRASTRUCTURE & SERVICES PVT. LTD., The Madras High Court's division bench emphasised that orders issued by Quasi-Judicial Authorities must be based on valid and documented reasons. Such reasons cannot be provided later through a memorandum or affidavit. The Court considered such orders legally flawed and subject to being quashed. The case involved the grievance of an assessee whose return, filed on the due date at midnight, was labeled as a "belated return" by the assessing authority. The assessee sought condonation of a one-day delay from the CBDT, but this request was denied. The High Court, in a writ petition, initially ruled in favour of the assessee by quashing the CBDT's order and directing the Assessing Officer to consider the return on its merits. The Revenue appealed this decision to the division bench. The bench noted that the CBDT has discretionary power under Section 119(2)(b) of the Income Tax Act to admit claims made beyond specified periods. They emphasised that this discretion should be exercised considering whether grave hardship or injustice would result from not condoning the delay. The Court upheld the single bench's decision, emphasising that an order issued by an Administrative or Quasi-Judicial Authority must stand or fall based on the reasons initially provided and documented. Additional reasons or explanations provided later, whether in the form of an affidavit or otherwise, cannot be relied upon to validate an originally flawed order. Interest on Amount Borrowed for declaring Dividend is Deductible from Income Tax even in the Absence of Profit Reserve: Madras HC CIT vs M/s. SAKTHI AUTO COMPONENTS LIMITED The Madras High Court judgment, a division bench ruled that interest on funds borrowed to declare dividends is deductible under Section 36(1)(iii) of the Income Tax Act, 1961, even if there were no profits or reserves and even if the dividends were treated as loans in the company's books. The Commissioner of Income Tax, Coimbatore, had appealed a single bench decision favouring M/s. Sakthi Auto Components Limited. The company argued that it had sufficient cash profits when declaring dividends, and the declaration of dividends was a business purpose. Therefore, the expenses associated with it were deductible under Section 36(1)(iii) of the Income Tax Act. The division bench, in dismissing the appeal, emphasised that even if borrowed funds were used for dividend declaration, the interest paid on those borrowings qualified as a business expense and was allowable under Section 36(1)(iii) of the Income Tax Act. Assessment Proceedings without Disclosing Full Materials against the Assessee is Invalid: Kerala HC THE COMMISSIONER OF INCOME TAX vs M/S. HINDUSTAN LATEX LTD., The Kerala High Court's division bench determined that assessments completed without the full and accurate disclosure of necessary material during the original assessment proceedings can be annulled. This decision came from a Revenue appeal challenging the Appellate Tribunal's order that invalidated the assessment for lack of full and accurate disclosure. The division bench, consisting of Justice Thottathil B Radhakrishnan and Justice Devan Ramachandran, upheld the Tribunal's decision and emphasized that proceedings under section 147(1) of the Income Tax Act can only be initiated when the taxable income has escaped assessment due to the assessee's failure to file a return under section 139 or to fully disclose all the essential facts for the assessment. The Court noted that the assessee had adequately responded to the assessing officer's queries during the original assessment and provided all the relevant and necessary information. Therefore, the Tribunal was correct in concluding that, given the circumstances, initiating further proceedings was impermissible according to the first proviso to Section 147 of the Income Tax Act. Relief u/s 54EC cannot be denied to the Assessee merely invoking MAT provisions: Madras HC CIT vs M/s METAL & CHROMIUM PLATER(P) Ltd, In a recent decision, the Madras High Court's division bench ruled that an assessee cannot be deprived of the benefit provided under Section 54EC of the Income Tax Act, 1961, solely because the provisions related to Minimum Alternate Tax (MAT) apply to them. The assessing officer had denied the benefit of Section 54EC to the assessee based on the applicability of MAT. However, both adjudicating authorities ruled in favor of the assessee and quashed the order. The Revenue appealed to the High Court, arguing that the provisions of Section 115JB, which pertain to MAT, should prevent the granting of Section 54EC relief. The Court disagreed with this argument, emphasizing that Section 115JB forms a self-contained code for assessment, and it allows for the application of other provisions of the Income Tax Act unless specifically barred by Section 115JB itself. The Court noted that while the Supreme Court's decision in Apollo Tyres Ltd. vs. CIT and the Bombay High Court's decision in Commissioner of Income Tax vs. Veekaylal Investments rejected claims under Section 54EC for the purpose of computing tax under Section 115JB, these decisions were rendered in the context of Section 115J, which lacks provisions analogous to the ones found in Section 115JA or Section 115JB. The Court clarified that while an assessment under Section 115J is based solely on book profits adjusted by items in the Explanation, assessments under Sections 115JA or 115JB involve further adjustments to book profits based on other provisions of the Act. Therefore, Section 54EC benefits can be granted in the assessment despite the presence of MAT provisions. TDS not payable by an Insurance Co. in respect of the interest payment made under the Award of the Tribunal: Bombay HC THE NEW INDIA ASSURANCE CO. LTD. vs HUSSAIN BABULAL SHAIKH The Bombay High Court upheld an attachment warrant against an insurance company, stating that the company was not required to pay TDS on interest payments under the Tribunal's award. The case involved a petition filed by New India Assurance Co. Ltd, challenging the attachment warrant issued by the Maharashtra Accident Claims Tribunal, Mumbai. The petitioner argued that they had already paid TDS to the Income Tax department, and the 2011 guidelines did not apply in this case. However, the Court rejected these arguments, referring to the case of Gauri Deepak Patel & Ors. vs. New India Assurance Co. Ltd. & Anr. The Court concluded that the petitioner should not have deducted a lump sum TDS and deposited it with the Income Tax department. The Court also stated that Sections 56, 145A, and 194A(3)(ix) of the Income Tax Act clarified the tax to be paid on interest awarded by the Tribunal. Therefore, the Court rejected the petitioner's reliance on other cases, including the decision of the Madras High Court in "The New India Assurance Co. Ltd. vs. Mani S. Nachimuthu, N." and the case of "Bikram Singh & Ors. vs. Land Acquisition Collector & Ors." Power to Impose Penalty u/s 47(6) of KVAT Act is not Absolute; Quantum of Penalty must be ascertained to the Gravity of Offence: Kerala HC THE INTELLIGENCE OFFICE, SQUAD NO.V, DEPARTMENT OF COMMERCIAL TAXES vs K.MARI In a recent judgment, the division bench of the Kerala High Court clarified that the power of the officer to impose a penalty under section 47(6) of the KVAT Act is not absolute, and the maximum penalty cannot be imposed in all cases. The Court was addressing a Writ appeal filed by the Revenue against the Single bench's order, which had reduced the penalty imposed on the taxpayer under the aforementioned section. The Court upheld the Single bench's decision and stressed that the power to impose a penalty is quasi-judicial in nature and should be exercised cautiously, with the penalty amount being determined based on the seriousness of the offense. In the case at hand, the Intelligence Officer detained the taxpayer's vehicle, alleging a lack of necessary documents under Section 46 of the Kerala Value Added Tax Act. Subsequently, the officer imposed a penalty equal to twice the alleged evaded tax under Section 47(6) of the KVAT Act. The first appellate authority affirmed the decision. Regarding the Single Judge's authority to determine and reduce the penalty by assessing the relevant facts, the Court affirmed that the Single Judge has the power to reduce the penalty if the Assessing Officer and other authorities did not consider all the pertinent issues, and the taxpayer's conduct was not fraudulent or serious enough to warrant the maximum penalty. The division bench also clarified that Section 47(6) of the Act does not obligate the Officer to impose the maximum penalty in every case. It grants discretion to the Officer to impose an appropriate penalty within the limits of not exceeding twice the amount of tax, based on the facts and circumstances of each case. The key factor is to establish the taxpayer's guilt in attempting to evade tax, and the penalty amount should be determined considering all relevant circumstances. Income from Letting out a Commercial Complex is Business Income: Patna HC PANDOOI PALACE vs CIT The division bench of the Patna High Court ruled that income earned by the assessee from renting out a commercial complex should be classified as business income. The Court, guided by established legal precedents, determined that this income should be categorized as "income from house property." The case involved an assessee firm that had constructed a commercial complex and received rental income from it. The assessee initially reported this income as "business income" in their income tax returns. However, the assessing authority rejected this classification and instead labeled the income as "income from house property." Before the High Court, the appellant-assessee cited legal decisions \ such as Chennai Properties & Investment Ltd and Rayala Corporations Pvt Ltd to support their argument that rental income from a building constructed for income generation should be considered as business income. The Court accepted the assessee's position in light of these precedents and ruled that income from renting out the commercial complex should indeed be classified as business income. Interest paid, but not Deducted during the previous year can Set-Off in the next year: Delhi HC CIT vs M/S NAV SANSAR AGRO PRODUCTS The Delhi High Court, in ruling stated that interest that wasn't claimed as a deductible expense in the previous year can now be considered prior period expenditure under the Income Tax Act, 1961. The case involved a real estate business that borrowed a substantial amount from a bank to purchase commercial land. In the first year, the business didn't claim the interest payment as an expenditure. Subsequently, they sought to claim it in the following years, but the Assessing Officer initially denied the claim, arguing that since the expense wasn't incurred in the relevant assessment year, it couldn't be treated as prior period expenditure. Upon appeal, the first appellate authority disagreed with the Assessing Officer, and the ITAT upheld this decision. The Revenue, dissatisfied with the outcome, took the matter to the High Court, arguing that the amount couldn't be considered prior period expenditure. However, the High Court, consisting of Justices Ravindra S Bhat and Najimi Waziri, referred to the KumKum Cultivation case and concluded that if the transaction would have allowed the interest to be included as part of the land cost had it matured, then the reverse situation, where the transaction doesn't mature, should also permit the interest paid but not claimed as a deductible expense in the previous period to be treated as prior period expenditure. Amount received for Promotion of Formula One event is ‘Business Income’, Taxable in India: Delhi HC FORMULA ONE WORLD CHAMPIONSHIP LIMITED vs CIT The Delhi High Court held that the consideration received by Formula One Asset Management Ltd (FOAM) from its license agreement with Jaypee Sports should be taxed in India as "business income" rather than "royalty." Jaypee is now required to make appropriate deductions under section 195 of the Income Tax Act when paying Formula One World Championship Ltd (FOWC). In this case, FOAM and Jaypee Sports entered an agreement for hosting the Formula One Grand Prix of India for $40 million. The central question was whether the consideration under the agreement should be classified as business income or royalty. The petitioners argued that the income was in the nature of business income because it pertained to a commercial right (the hosting right) and not the use of trademarks, copyrights, or equipment, making it distinct from "royalty." The division bench, consisting of Justice S. Ravindra Bhat and Justice Najimi Waziri, noted that FIA, as a motorsport regulatory authority, had an arrangement with Formula One Administration Ltd. (FOA), holding all commercial rights. The FOWC had rights under the Concorde Agreement to draw the FIA F1 Championship and exclusively control all commercial exploitation rights. FOWC monetized these rights, and its dominant role in organizing and controlling the F1 event in India was evident. The Court concluded that the FOWC conducted business activities in India during the race's duration and the weeks before and after, and thus the income should be treated as business income. Circular prescribing Monetary Limit is not applicable to Offences such as Furnishing False Declaration at the time of filing IT Return: Karnataka HC MAGDUM DUNDAPPA LOKAPPA vs INCOME TAX DEPARTMENT The Karnataka High Court, in a recent ruling, clarified that providing false declarations during income tax return filing and tax evasion constitute separate offences. The court stated that the Central Board of Direct Taxes (CBDT) circular, which prescribes a monetary limit, does not apply to the former offence. The court upheld that making false declarations during IT return filing can lead to penalties and criminal punishment. In the case in question, a petitioner, who was a chartered accountant, submitted a tampered document as proof of tax payment. The tax department initiated criminal proceedings against the petitioner for offences under sections 276(C)(2) and 277 of the Income Tax Act. The petitioner cited a CBDT circular that restricts prosecution if the amount attempted to be evaded is less than Rs. 25,000. However, the court dismissed the petition, asserting that the circular does not apply because the allegation against the petitioner pertains to filing a false declaration rather than tax evasion, and these are distinct offences. Deduction u/s 80P(4) is not allowable to Co-operative Marketing Society: Madras HC CIT vs M/s. THE NILGIRIS CO-OPERATIVE MARKETING SOCIETY LTD. The Madras High Court ruled that the deduction provided under section 80P(4) of the Income Tax Act, 1961, is not applicable to Cooperative Marketing Societies but is limited to Cooperative Banks. The court upheld lower authorities' decisions and clarified that Cooperative Credit Societies, like the petitioner in this case, do not qualify for deductions under this section for interest received from their members. In this particular instance, the petitioner is a Cooperative Marketing Society involved in the sale of agricultural produce by its members and provides banking and credit services to its members. The Assessing Officer initially disallowed the petitioner's claim for deductions on interest received from members. However, the Tribunal ruled in favour of the petitioner, stating that it is eligible for deductions under section 80P(2)(a)(i) since it is not a Cooperative Society engaged in banking or credit services to the general public. Section 80P(4) specifically pertains to Cooperative Banks engaged in banking activities regulated by the Banking Regulation Act, 1949. The division bench, consisting of Justice Nooty Rama Mohana Rao and Justice Anita Sumant, noted that the petitioner, a Cooperative Credit Society offering credit facilities to its members but not the general public and not accepting deposits from the general public, does not fall under the category of a Cooperative Bank. Therefore, the petitioner is entitled to seek deductions provided under Section 80P of the Income Tax Act. Re-Assessment under DVAT Act must be based on some Objective Material which persuades the AO to Re-Open an Assessment: Delhi HC M/S FRANKE FABER INDIA PVT.LTD. vs COMMISSIONER,TRADE & TAXES A Division bench of the Delhi High Court invalidated a re-assessment order made under section 24 of the Delhi Value Added Tax Act. The court found that such an order is not valid unless there is some objective material on which the assessing officer relies to justify re-opening a completed assessment. The petitioners challenged the reassessment proceedings, asserting that the previous assessment had already become final, and there was no valid reason for re-assessment. The court allowed the appeal and referred to the decision in Jagdish Cold Storage Ice Factory vs. The Commissioner of Sales Tax & Ors., where it was opined that, similar to Section 147-148 of the Income Tax Act, the interpretation of Section 24, which confers the right to reopen an assessment, depends on objective material that persuades the assessing officer to do so. Upon examining the case's details, the court observed that the previous observation made by the Tribunal regarding classification based on the available material was conclusive and had been accepted by the revenue. What was remitted after the Tribunal's decision under Section 49 was related to the tax on statutory forms. The Sales Tax Officer issued a notice under Section 24 during a limited remand, but neither the order of the AO nor that of the STO or the Tribunal provided any insight into the new material or significant material that would have justified a valid reassessment under Section 24. S. 52C is not applicable to Capital Gains arising out of the Transfer of Leasehold Property: Bombay HC CIT vs M/s. GREENFIELD HOTELS & ESTATES PVT. LTD. The Bombay High Court clarified that Section 52C of the Income Tax Act, 1961 does not apply to Capital Gains arising from the transfer of leasehold property under the relevant provisions of the Income Tax Act. The revenue had contested an Income Tax Appellate Tribunal order that deleted the addition of Long Term Capital Gain on the grounds that Section 50C did not apply to leasehold property transfers. The division bench, comprising Justice M.S. Sanklecha and Justice S.C. Gupte dismissed the appeal. They cited previous court decisions and the salutary principle that when the Revenue accepts a court or tribunal's decision on a legal issue and does not challenge it in an appeal, a subsequent decision following the earlier one cannot be contested. The Revenue did not provide any distinguishing features between the current case and the precedent. Excess sum received by Assessee due to Fluctuation of Exchange Rates are Capital Receipts, Taxable as Capital gain: Calcutta HC CIT vs SDB INFRASTRUCTURE PRIVATE LTD. The division bench of the Calcutta High Court determined that the excess sum received by the assessee due to fluctuation of exchange rates is considered a capital receipt. This capital receipt is subject to taxation as "Capital Gain" under the provisions of the Income Tax Act, 1961. In the case at hand, the assessee had entered into agreements with the Government of Iraq for two projects related to water supply and civil construction works on a deferred payment basis. Due to the Gulf crisis, remittances from Iraq ceased, and the assessee had to write off the arrears as bad debt. Subsequently, the Indian Government intervened, and the assessee received payment in US dollars, which, upon conversion into Indian currency, amounted to Rs. 83,59,80,000/-. After accounting for a sum written off and an excess amount received, a balance of Rs. 37,91,32,586/- remained, which was considered a long-term capital gain. Citing several judicial decisions, the Court concluded that in this case, the project receivables remained blocked for about 11 years with no chance of recovery. Consequently, the project receivables, originally of a revenue nature, lost that character and became a capital investment. The assessee eventually wrote off the debt, which did not change the fact that the assessee remained a creditor of the Iraq Government. Therefore, when the money was realized, it assumed the character of a capital receipt. The Court also emphasized that the entire balance sum, approximately Rs. 38 crores, should be taxable as long-term capital gain without the deduction of any cost of acquisition because the cost of acquisition had become zero through the debt write-off. Revised Return filed by the Assessee on the basis of the CBDT circular cannot hit by Limitation: Madras HC S. SEVUGAN CHETTIAR vs PCIT The Madras High Court held that a revised tax return filed by a retired ICICI Bank employee, based on a Supreme Court decision and a subsequent CBDT circular, cannot be rejected due to a time limitation. The court emphasized that technicalities shouldn't hinder the implementation of the Supreme Court's order. The court also noted that the CBDT has the authority to relax requirements when non-compliance is beyond the assessee's control. In this case, the petitioner, a senior citizen, should receive the benefit of tax exemption under Section 10(10C) of the Income Tax Act, resulting in significant financial relief. The court urged the authorities to grant this benefit to the petitioner. Penalty cannot be Levied where the Assessee has relied on Legal Opinion of a Professional and there is No Tax Impact: Punjab & Haryana HC PCIT vs M/s ATOTECH INDIA LTD. The Punjab & Haryana High Court upheld the Appellate Tribunal's decision to remove the penalty imposed on an assessee under section 271(1)(a) of the Income Tax Act, 1961. The Tribunal had determined that the penalty was based on the professional legal opinion, and the assessee's actions did not affect tax collection. The petitioner, a company, had claimed a set-off of Rs. 1.85 crores in business income against previous business losses, resulting in the penalty. The Court confirmed the Tribunal's decision, stating that the loss was allowed to be carried forward in a prior assessment year and that the letter in question was voluntary. Therefore, the order didn't need to be reversed, and there were no financial implications for changing the basis of the claim. Delhi HC quashes Income Tax notices issued against Airtel BHARTI AIRTEL LTD. AND ANR. vs UOI AND ANR. In a writ petition by Bharati Airtel, the Delhi High Court quashed show cause notices issued against the company. The notices were related to interconnection charges paid to foreign entities without tax deduction under Section 195 of the Income Tax Act. Bharati Airtel argued that the proceedings were time-barred under Section 201 due to a recent amendment. The division bench ruled that the amendment only applied to residents, not non-residents. They cited the Vodafone Essar case and concluded that a reasonable time period should be read into the Act. The notices were quashed, considering the harsh consequences for resident payers and the lack of a specified time period in the Income Tax Act. Salary of an Indian Citizen Working in a Foreign Ship & rendered services outside India for 286 days is Exempt from Taxation: Calcutta HC UTANKA ROY vs DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, TRANSFER PRICING The Calcutta High Court ruled that the salary of an Indian citizen working on a foreign ship and providing services outside India for 286 days is exempt from taxation under section 5(2) of the Income Tax Act, 1961. The petitioner, a marine engineer, filed income tax returns as a Non-Resident Indian and challenged the assessment orders. The court considered the location of income accrual and found that since the petitioner worked for a foreign entity and rendered services outside India for 286 days, the income received for those services should be treated as income received outside India. The court also noted that the writ petition was maintainable, and the Commissioner had the power to grant relief under Section 264 of the Income Tax Act, but instead, the matter was remanded to the assessing officer. Delhi HC allows Depreciation on Lease Property u/s 32 of the Income Tax Act CIT vs M/S BHUSHAN STEELS & STRIPS LTD The Delhi High Court has ruled that an assessee is eligible for depreciation under Section 32 of the Income Tax Act even when they are not the owner of the property but possess it as a lessee. M/S Bhushan Steels & Strips Ltd had a lease agreement with M/s Nehru Place Hotels Limited. The Income Tax Appellate Tribunal's judgment, based on the Supreme Court's ruling in CIT vs. Podar Cement (P) Ltd., stated that non-registration of the agreement doesn't deny the benefit of continuing possession in part performance of an agreement to sell under Section 53A of the Transfer of Property Act, 1882. The division bench upheld the Tribunal's decision, stating that the Supreme Court's clear legal precedents supported the assessee's case, and the Revenue's appeal was denied. No TDS to Payments for Construction, Erection of Plants involving inputs from Technical Personnel: Punjab & Haryana HC PCIT vs THE SENIOR MANAGER (FINANCE), BHARAT HEAVY ELECTRICALS LTD. In a recent Punjab & Haryana High Court ruling, it was decided that Section 194J of the Income Tax Act, 1961 does not apply to payments made for construction and plant erection involving input from technical personnel. The Assessing Officer had initially assessed the case under section 194J, but on appeal, both the CIT(A) and ITAT ruled in favour of the assessee. The High Court upheld this decision, stating that the contract in question was for erecting, commissioning, testing, and trial operation of equipment according to the contract's terms. Technical personnel were deployed by the contractor for their own benefit, not to supply technical services to the customer. Therefore, the payments made under the contract were not for professional or technical services, and section 194J did not apply. The Court also noted that sections 194C and 194J of Income Tax Act are independent provisions, and the dismissal of the appeal followed due to the finding that the contract did not fall under section 194J. The Court refrained from deciding whether the contract fell under section 194C, as the respondent had accepted that it fell within that section and complied with its obligations. Project Completion method is an Accepted Mode of Accounting: Delhi HC dismisses Revenue’s appeal against DLF Universal Ltd CIT vs DLF UNIVERSAL LTD. The project completion method of accounting was upheld as an acceptable method in an appeal against the revenue by DLF Universal Ltd by the Delhi High Court. The company engaged in land development and sales, purchasing land through subsidiaries, which were funded by the assessee. The Court found that the project completion method of accounting was a recognized and proper approach. The Court referred to the decision in Paras Buildtech India P. Ltd. v. Commissioner of Income Tax, which also supported the validity of this accounting method. The Court noted that the change in the accounting method in 1992-93 didn't result in a loss of revenue and that the treatment of development charges and other expenses was justified by statute. The Court also clarified that the part performance of agreements did not lead to accounting distortions as the revenue had argued, as there was no evidence to support such claims. Therefore, the Court upheld the project completion method as an appropriate way to account for the income in this case. Statements made to UK Revenue Authorities without any Material Evidence cannot be a Sole basis for Re-Assessment: Delhi HC CIT vs LATE SH. K.M. BIJLI THRU LR’S The Delhi High Court determined that the reassessment under the Income Tax Act cannot be based solely on statements made by the assessee to UK Revenue authorities. The case involved re-assessment against the assessee due to statements made about interest income on UK bank accounts. The Court noted that while the UK authorities' information triggered the re-assessment, the Indian Revenue waited too long before initiating the process, and the assessee had already passed away. The Court emphasised that the lack of a proper probe and an over-reliance on UK revenue information was insufficient to conclude that the funds attributed to the deceased assessee actually belonged to him. Therefore, the reassessment was deemed inappropriate, and the tax authorities failed to take necessary actions when they initially received the information in September 1989. Foreign Taxes not entitled to Double Tax Relief can be allowed as Deduction u/s 40(a)(ii) of the Income Tax Act: Bombay HC RELIANCE INFRASTRUCTURE LTD. vs CIT The Bombay High Court judgment ruled that foreign taxes not eligible for double tax relief under Sections 90 and 91 of the Income Tax Act can be allowed as deductions under section 40(a)(ii) of the Income Tax Act, 1961. The case involved Reliance Infrastructure Ltd, which paid income tax in Saudi Arabia for income earned there. The Indian tax authorities rejected the claim for double taxation relief under Section 91, stating that the same income must be taxed in both countries. The ITAT also rejected the alternative claim for a deduction in India. The High Court, however, noted that the delay in initiating the re-assessment proceedings and the lack of a proper probe by the tax authorities were significant issues. The Court observed that it was not sufficient to conclude that the amount attributed to the assessee actually belonged to him based solely on statements made to UK revenue authorities. The Court also clarified that part performance of agreements did not lead to accounting distortions. The Court ultimately allowed the foreign tax paid in Saudi Arabia as a deduction under Section 40(a)(ii) and reduced it for the purposes of computing the Indian tax liability on the income arising or accruing in India. ‘Share Application Money’ cannot be treated as Undisclosed Income: Bombay HC CIT vs M/s LIKPROOF INDIA P. LTD The Bombay High Court upheld an ITAT order stating that share application money cannot be treated as undisclosed income. In the case of M/s. Likproof India P. Ltd, it was found that the company had received a sum of Rs. 1 crore from Hindustan Hotels Limited (HHL), which was disclosed as "share application money." The Assessing Officer had treated this amount as undisclosed income. However, the High Court ruled that the treatment of receipts in the books of account should prevail, as there was no evidence to support the claim that the amount was compensation or undisclosed income. The Court noted that the pay-in-slip narrations were made by employees without instructions from the assessee. The Tribunal's order was upheld, concluding that the Rs. 1 crore could not be assessed as undisclosed income. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Case Digest on High Court Income Tax Judgement, 2016-17 – Part 4

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