Case Digest on High Court Income Tax Judgments, 2016-17 – Part 3

Income from Development Right is not Taxable on Accrual basis: Delhi HC CIT vs M/S ETHAN ESTATES DEVELOPERS PVT. LTD. The Delhi High Court quashed the assessment order by the Commissioner of Income Tax, which assessed income from development rights on an accrual basis. The court held that such income should not be taxed on an accrual basis. In this case, the assessee, a real estate development company, entered into a development agreement with another company. Initially, the assessee received an interest-free deposit. The development agreement stated that the consideration for the development rights had to be paid within two years from the effective date, which was the date of the completion of the property purchase, including mutation in the assessee's name in the revenue records. The Assessing Officer had assessed the income from development rights on an accrual basis, but both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal set aside the order. The matter was then brought to the High Court to determine the legality of taxing the income from development rights. The Court referred to the decision in Commissioner of Income Tax-XI vs. M/s DLF Commercial Project Corporation ITA, which stated that the income should be treated as accrued at the point of sale of development rights upon the acquisition of the license, and that income received before that event should not be taxed as income. Following this decision, the Court dismissed the appeals, finding that no question of law needed to be considered. Assessee can set off business loss even after business transfer agreement: Madras HC CIT vs M/s ISC INVESTMENTS AND FINANCE PVT. LTD. The Madras High Court recently ruled that an assessee is entitled to set off its business loss, even after entering into a business agreement in which only a part of the business was transferred. The court was reviewing the legality of orders issued by the Appellate Tribunal and the Commissioner of Income Tax (Appeals), both of which allowed the assessee's set-off claim. In this case, the assessee was involved in providing automated teller machine (ATM) infrastructure facilities under outsourcing. The Assessing Officer rejected the assessee's return for the relevant assessment year, claiming that the assessee had adjusted its interest income against the business loss. The assessee successfully appealed the Assessing Officer's decision before the Commissioner of Income Tax (Appeals). Although the Revenue filed an appeal before the Tribunal, it was unable to secure any relief. The Tribunal found that the assessee had not transferred the entire business but only a portion of it through a business transfer agreement. The assessee continued to carry on the business of job work in the outsourcing of ATM business, earning income in the process. The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) and concluded that the assessee engaged in business activities during the relevant assessment year. The Revenue challenged the Tribunal's decision in the High Court. The Court agreed with the Tribunal's findings and held that the assessee was engaged in business during the assessment year 2008-09. Therefore, the Court dismissed the Revenue's appeal. No Income Tax or Stamp duty shall be levied on Compensation for Land Acquisition: Kerala HC THE COMMISSIONER OF INCOME TAX (TDS) vs PRAMOD The Kerala High Court recently upheld a single bench decision stating that income tax or stamp duty shall not be levied on compensation for land acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013. In its decision, the division bench concluded that the single judge's ruling was just and proper because Section 96 of the Act specifically states that no income tax or stamp duty shall be imposed on any award or agreement made under this Act, except under Section 46, which does not apply in this case. Therefore, the Act provides an exemption from levying income tax and stamp duty. The court also relied on a previous case, S. Sreekumar vs. The District Collector, which concluded that income tax should not be deducted from the compensation payable to similarly situated persons. The bench dismissed the appeal and directed the authorities to pay compensation to the petitioners without deducting any amount for income tax or stamp duty. Income Tax Commissioner can allow a fresh claim for deduction without a revised return u/s 264 of the Income Tax Act: Kerala HC TRANSFORMERS AND ELECTRICALS KERALA LIMITED vs Dy. CIT A single bench of the Kerala High Court determined that, under Section 264 of the Income Tax Act, 1961, the Commissioner of Income Tax can consider a fresh claim for deduction even without a revised return. The case involved a government company proceeding for rehabilitation as a sick industrial unit under an approved scheme. The assessee's claim for deduction for arrears of salary and wages was disallowed by the Assessing Authority. The Commissioner rejected the revision petition, arguing that a fresh claim for deduction required a revised return. The High Court was approached, and the substantial question of law was whether the claim for deduction was permissible without filing a revised return. The Court relied on the Parekh Brothers case, a decision of the division bench of the Kerala High Court, which stated that even if a mistake was discovered by the assessee after the assessment order and the order was not erroneous, the Commissioner had the jurisdiction to entertain a revision under Section 264 and grant appropriate relief. The Court directed the Commissioner to re-examine the matter without requiring a revised return. Investing in Multiple Flats will not deny the benefit of exemption from Long term Capital Gain Tax: Madras HC SHRI. G. CHINNADURAI vs ITO A single bench of the Madras High Court ruled that an assessee can claim the benefit of exemption from Long Term Capital Gain Tax under section 54F of the Income Tax Act, 1961, for investing in multiple flats. The court found that the legislative intention behind section 54F is not limited to granting a deduction for a single property. The case involved an assessee whose claim for deduction under section 54F was disallowed because he had invested the sale consideration of his property in multiple flats, and the construction was not completed up to 70%. The High Court found that Section 54F allows investment in residential property, even if spread over multiple flats. The court ruled in favour of the petitioner, stating that the petitioner is entitled to the benefit of exemption under Section 54F for all the flats and that the reasons for reopening the assessment were unsustainable. Search u/s 132(1) of the Income Tax Act cannot be carried out on family members of person against whom warrant is issued: Rajasthan HC CIT JAIPUR vs SMT. UMLESH GOEL The Rajasthan High Court ruled that Section 132(1) of the Income Tax Act, 1961 does not allow searches against family members of the person initially named in the warrant. The court stated that this section is meant for specific individuals, and extending it to family members violates their fundamental rights as separate assessable entities. In the specific case where a search was conducted at Mr. O.P. Goyal's residence and his sons, Anant Goyal and Sumant Goyal, assessment proceedings were initiated against family members (wife and daughter of Anant Goyal). The family members argued that Section 158-BC did not apply to them since they weren't specifically named in the warrant. The court upheld their argument, emphasizing that search and seizure powers must be exercised strictly, with privacy as a fundamental right. Section 158-BC only applies when a search is carried out under Section 132(1) in the name of a specific person, and family members are separate assessable entities. Therefore, the court confirmed the previous decisions, stating that the search under Section 132(1) must be person-specific, and issuing the notice under Section 158-BC exceeded jurisdiction, making subsequent actions, including assessment, legally unsustainable. Madras HC disallows depreciation on Computerised counting machine under the head ‘Computer & Computer peripherals’ M/s.DINAMALAR vs The INCOME TAX OFFICER The Madras High Court recently ruled that depreciation cannot be claimed for items like scanners, computerised counting machines, and CTP machines under the category "computer and computer peripherals." The court held that these machines don't meet the definition of a computer and its peripherals, and depreciation is only allowable for computers and their peripherals. The case involved a newspaper business that claimed excessive depreciation for control panel boards and transformers under a different category and attempted to include various items like scanners, counting machines, and CTP machines as computers. The assessing officer disallowed these depreciation claims, which was upheld by the Commissioner of Income Tax (Appeals) and the Appellate Tribunal. The High Court upheld these decisions, stating that the machines in question don't qualify as "computers, including computer software," and therefore, the depreciation claims were not valid. Expenditure in respect of issue of Additional Share Capital is Capital in nature, Bombay HC disallows expenditure M/s. HINDUSTAN PETROCHEMICAL CORPORATION LTD. vs COMMISSIONER OF CENTRAL EXCISE (APPEALS) The Bombay High Court's division bench recently disallowed an assessee-company's expenditure related to issuing additional share capital, categorizing it as "capital expenditure." This decision upheld the previous ruling by the Income Tax Appellate Tribunal. The company had incurred the expense to dilute foreign shareholding, in accordance with the Indian government's directives, to expand its business. The Commissioner of Income Tax (Appeals) initially allowed the expenditure, but the Income Tax Appellate Tribunal, following the Kerala High Court's decision in Commissioner of Income Tax v/s. Common Wealth Trust Ltd. 167 ITR 365, deemed the amount as capital expenditure. The assessee appealed to the High Court, arguing that their main objective was to enhance profitability and that the change in capital structure was secondary. The High Court, in line with the Supreme Court's ruling in Commissioner of Income Tax v/s Kodak India, determined that if the primary goal is to improve business profitability and capital increase is incidental, the expenditure should be considered as revenue expenditure. Therefore, the High Court supported the ITAT's decision regarding the capital expenditure. Additionally, the High Court upheld the ITAT's decision not to adjust the interest income earned by the company on the share application money against the expenditure incurred for issuing shares. The court clarified that this interest income was part of the integrated transaction of issuing and allotting shares, and it should not be taxed separately. Re-Assessment cannot be made on the basis of error in law pointed out by the Audit Party: Gujarat HC N.K.PROTEINS LTD vs INCOME TAX OFFICER (OSD) The Gujarat High Court ruled that re-assessment cannot be solely based on the audit party's opinion on a point of law. They clarified that the audit party can only point out factual errors. In a specific case challenging the re-opening of an assessment under the Income Tax Act, the petitioners argued that the audit party had raised issues that were not considered during the original assessment. The court found that the Assessing Officer did examine the deduction claim under Section 80IB during the original assessment and made an error in allowing deductions for amounts that were not eligible. The court also noted that there was no direct proof of its examination during the original assessment, but it was revealed that the Assessing Officer had considered and rejected the audit objections related to interest expenditure. The court concluded that the audit party's opinion on a legal matter is not sufficient to initiate reassessment proceedings. In this case, the audit party's objections did not justify reopening, and the court set aside the notices. Relegating a Party to the Alternative Remedy at a belated stage is the discretion of the Court: Gujarat HC ASHIT JAIN vs ASSISTANT DIRECTOR INCOME TAX The Gujarat High Court stated that it has the discretion to refer a party to an alternative remedy even at a late stage, and it's not an absolute rule. The court also discussed the Supreme Court's decision in Vijaybhai N. Chandrani and found that the High Court's interpretation of Section 153C of the Income Tax Act remains valid. The petitioners had challenged an assessment order issued under Section 153C, arguing that it lacked jurisdiction because no documents were found during a search of the taxpayer. They relied on the Vijaybhai N. Chandrani case, which emphasized that Section 153C can only be invoked if certain conditions are met. The Revenue argued that the writ petition should be dismissed because the taxpayer had an alternative remedy available. They also pointed out that the Supreme Court had expressed reservations about the High Court examining such matters in a writ petition. The High Court noted that the Supreme Court had limited the High Court's authority to review the Assessing Officer's powers under Section 153C and had not disapproved of the High Court's interpretation. Therefore, the High Court ruled that the issue was open for consideration, and it was not bound by the earlier Vijaybhai N. Chandrani judgment. The Court concluded that, in line with the Supreme Court's approach in similar cases, it would dismiss the petition and suggested the petitioners use the statutory remedy available to them. The High Court emphasised that while it has discretion regarding alternative remedies, it is not an absolute rule, and it may dismiss a petition if an alternative remedy is available, even if the petition has been admitted. Interest on Refund cannot be granted in case of belated Returns: Kerala HC PALA MARKETING CO-OP. SOCIETY LTD vs CIT The Kerala High Court recently ruled that interest is not granted on refund claims when taxpayers file their returns after the due date, even if the delay is excused. In a specific case, a co-operative society paid taxes but filed a late return with no taxable income. The tax department initially rejected their refund claim due to the late filing but was later directed by the High Court to process the refund. However, the tax authority refused to pay interest on the refund, arguing the delay was the taxpayer's fault. The court explained that once a return is accepted and a refund is ordered, interest cannot be denied, except when the delay is directly attributable to the taxpayer. In this case, the delay was due to an auditing issue caused by the taxpayer, justifying the denial of interest under Section 244A(2). The court found no error in rejecting the interest claim. Matters relating to Deduction of Expenditure under Wrong Head must be Remanded to AO: Punjab & Haryana HC CIT (CENTRAL) vs M/s HERO CYCLES LIMITED The Punjab & Haryana High Court decision, the Court stressed that when the appellate authority believes deductible expenses were categorized incorrectly, the matter should be sent back to the assessing officer for review. In this specific case, expenses intended for a dividend deduction under section 80M were erroneously deducted under section 56 instead of section 57(i)(iii) of the Act. The Court found that the appellate Tribunal invalidated the assessment order without sending it back to the assessing officer. The assessing officer had made additions, disallowing expenses, including those related to the foreign travel of the Director's wives. They also made additions for the proportionate management expenses allocated against dividend income for the purpose of calculating the deduction under section 80M. Regarding the tax treatment of expenses related to foreign travel, the taxpayer argued that these were legitimate business expenses incurred under contractual obligations and common business practice. The CIT(A) rejected this claim due to insufficient evidence. However, in a second appeal, the Tribunal reversed this decision based on previous decisions in favor of the taxpayer. The Court emphasized that the business nature of expenses depends on the specific facts of each case, and not all travel may be for business purposes. Therefore, the Tribunal's decision was considered incorrect, as the nature and purpose of the visits varied from those considered in a different assessment year. The Court disagreed with the Tribunal, asserting that deductions under section 80M should adhere to the provisions of that section. When the appellate authorities identify expenses eligible for deduction categorized wrongly, they should instruct the assessing officer to correct the error for all purposes. In this case, expenses meant for dividend deductions under section 80M should be deducted under section 57(i)(iii) of the income Tax Act. Writ Petition not Maintainable against an Assessment Order when the Assessee can avail Alternative Remedy through Appeal: Madras HC E.MADHAVAN vs THE INCOME TAX OFFICER The Madras High Court dismissed a writ petition filed by the taxpayer. The Court ruled that the petition was not valid because the taxpayer had the option to use the statutory appeal process for relief. The case concerned a best judgment assessment by the Income Tax Officer, which the taxpayer claimed was issued without a reasonable opportunity for the taxpayer to present their case. Upon closer examination, the Court found that the taxpayer had received proper notice and was heard through their representative, a Chartered Accountant. Based on this, the Court concluded that the taxpayer should file an appeal with the Appellate Authority if they were dissatisfied with the order, and there were no grounds to bypass that remedy. The Court directed the taxpayer to pursue the appellate process for their concerns. Notice for Re-assessment without Recording any Reason is Invalid: Bombay HC CIT vs M/s. IDBI Ltd. The Bombay High Court, in a case where the taxpayer challenged a reassessment order under Section 148 of the Income Tax Act, 1961, emphasised the importance of recording and communicating the reasons for reassessment. The Court held that the failure to provide these reasons renders the reassessment order invalid. In this case, the taxpayer argued that the assessing officer did not provide the reasons for the reassessment, and relying on previous decisions, claimed that the order should be quashed due to the absence of these reasons. The Commissioner of Income Tax (Appeals) upheld the order, but the Income Tax Appellate Tribunal allowed the taxpayer's appeal, deeming the order invalid. The division bench clarified that supplying reasons for issuing a reopening notice is a necessary jurisdictional requirement. These reasons form the basis for determining whether the assessing officer had valid grounds to believe that taxable income had escaped assessment. The court noted that the reasons must be provided to the taxpayer, allowing them to challenge the reopening notice. In this case, the reasons for the reopening notice were never communicated to the taxpayer despite their repeated requests, making the Revenue's objection baseless. ‘Guarantee Commission’ to acquire the Asset is Revenue Expenditure, not Taxable: Punjab & Haryana HC HARYANA STATE ROAD & BRIDGES DEVELOPMENT CORPORATION LTD. vs CIT The Punjab & Haryana High Court ruled that guarantee commission paid by the taxpayer for acquiring an asset on instalment terms is considered a revenue expenditure and is deductible under section 37(1) of the Income Tax Act. In this case, Haryana State Road & Bridges Development Corporation Ltd filed its income tax returns, seeking a deduction for the commission paid to the State of Haryana in connection with a guarantee issued by the State of Haryana to Housing Urban Development Corporation Limited (HUDCO). The assessing officer disallowed the deduction, treating it as capital expenditure. The officer also disallowed certain payments under Section 40(a)(ia) due to the lack of TDS payment. The Court, when examining the nature of the "guarantee fee," referenced a decision in Sivakami Mills Ltd. vs. Commissioner of Income Tax, where the Madras High Court refused to treat the guarantee fee as capital expenditure. The Supreme Court later upheld this view. Following this precedent, the Court concluded that the deduction claim for the "guarantee fee" by the taxpayer is valid and should be subtracted from their total income. The Court noted that even if the guarantee was issued in connection with loans for acquiring capital assets, the guarantee commission should still be considered a revenue expense. The State of Haryana issued the guarantee at the taxpayer's request in favour of HUDCO. Foreign Exchange Contract forward loss are Revenue Loss: Bombay HC CIT vs M/s.D. CHETAN & Co. The Bombay High Court decision, it was determined that losses incurred from foreign exchange transactions used to hedge business activities should be treated as revenue losses, not speculative or notional losses. The Court upheld the lower authorities' rulings and stated that such losses should be deducted from the total income under section 37 of the Income Tax Act, 1961. The case involved a business engaged in diamond import and export. The business claimed a loss due to hedging transactions carried out to protect against exchange rate fluctuations during import and export deals using forward contracts. The assessing officer initially rejected this claim, considering it a notional loss associated with a contingent liability debited to the Profit and Loss account. Both the Commissioner of Income Tax (Appeals) and the Appellate Tribunal accepted the business's argument, determining that the loss was a revenue loss and not related to speculative activities. The Revenue appealed these decisions to the High Court, citing the S. Vinodkumar Diamonds Pvt. Ltd. vs. Addl. CIT case. The Court agreed with the lower authorities, noting that the transactions carried out by the business were not speculative in nature. Furthermore, the Revenue did not object to the argument that the business's use of forward contracts was a regular part of its operations to mitigate losses from foreign exchange fluctuations. The Court found that the assessing officer had rejected the claim solely on the grounds that it was notional. Additionally, the Court pointed out that the decision in S. Vinodkumar Diamonds Pvt. Ltd. vs. Addl. CIT had been overturned by the Court in the CIT vs. Badridas Gauridas (P) Ltd. case. This ruling clarified that forward contracts in foreign exchange, when incidental to a business operation like cotton exporting and used to mitigate losses from foreign exchange value differences, should be regarded as a business activity rather than speculative. As a result, the previous decisions were upheld. Proceedings u/s 158BC and 158BD of Income Tax Act shall be completed by the Same Officer: Kerala HC CIT vs M/S.FRESH BAKES In a case confirmed by the Kerala High Court, it was emphasised that an order issued under sections 158BC and 158BD of the Income Tax Act, 1961, should be initiated and concluded by the same officer. In this specific case, proceedings under both Section 158BC and 158BD were initiated against the taxpayer. The taxpayer contested the order on the grounds that the officer who concluded the Section 158BC proceedings was different from the one who initiated the Section 158BD proceedings. The Appellate Tribunal ruled in favour of the taxpayer, prompting the Revenue to appeal to the High Court. The High Court, in its decision, cited the Supreme Court's ruling in Maheshwari v. Assistant Commissioner of Income Tax and noted that the issue at hand pertained to the compatibility of proceedings under Section 158BD and 158BC. In this case, it was undisputed that the officer who concluded the Section 158BC proceedings was not the same as the one who initiated the Section 158BD proceedings. As per the law, it is essential for the officer who initiates the Section 158BD proceedings to be satisfied about the grounds for invoking Section 158BD of the Income Tax Act. Bombay HC criticises IT Officials’ Attitude on processing Refund Claims M/s. GROUP M. MEDIA INDIA PVT. LTD vs THE UNION OF INDIA & ORS. The Bombay High Court expressed its concern regarding the behaviour of Income Tax Officials in handling taxpayer refund claims. The Court addressed a writ petition filed by the taxpayers, who were contesting the withholding of their refund claim by the Assessing Officer without valid reasons. The petitioners had sought a tax refund for the year 2015-16. Despite repeated inquiries from the taxpayers, the Assessing Officer stated that, as per CBDT Instruction No. 1 of 2015, he had the discretion to exercise his authority under Section 143(1D) of the Income Tax Act for refund matters. The High Court, while allowing the writ petition, expressed its disapproval of the officer's actions. It pointed out that the officer's conduct appeared to be at odds with the taxpayer-friendly approach expected in tax administration. The Court also referred to CBDT Instruction No. 7/2012, which directs officials to promptly process all returns with refunds payable. The High Court questioned why, in this case, where the return was filed in November 2015, the Assessing Officer had not yet processed the refund or made a decision under Section 143(1D) of the Act. The Court raised concerns that tax officials may have adopted an attitude suggesting that taxpayers not only need to comply with the tax laws but also need to appease the tax officers to receive their rightful refunds. In conclusion, the Court emphasised its wide-ranging powers under Article 226 of the Constitution, highlighting that these powers are not limited to issuing writs but also extend to giving directions or orders to ensure justice. Deduction under Sec 80O of the Income Tax Act is allowable on the Net Basis, Not on Gross Receipts: Bombay HC M/s. TATA UNISYS LIMITED vs CIT The division bench of the Bombay High Court ruled that the deduction under section 80O of the Income Tax Act, 1961 should be calculated based on net income, not on gross receipts. The Court emphasised that Section 80AB of the Income Tax Act, 1961 is applicable when computing the deduction under Section 80O. In this case, the assessee argued that the deduction should be allowed on a gross basis without considering Section 80AB. However, the Income Tax Appellate Tribunal, following its earlier year's decision, held that the deduction should be granted after deducting corporate expenses when computing income according to the provisions of the Act, in accordance with Section 80AB. The Tribunal referred the matter to the High Court for an opinion under Section 256(1) of the Income Tax Act. The key legal question before the Court was whether the deduction under Section 80O could be calculated based on gross receipts. The Court cited its previous decision in CIT v/s. Asian Cable Corporation Ltd., (No.2) 262 ITR 537, which stated that income earned in foreign exchange for services rendered should be allowed on a net basis, considering Section 80AB. The Court also referenced the Supreme Court's decision in A. M. Moosa v/s. CIT, which held that Section 80AB of the Act takes precedence over all Sections in Chapter VIA of the Act. Since Section 80O is part of Chapter VIA, it is governed by Section 80AB. Based on these legal precedents, the Court ruled in favour of the Revenue. A sub-contractor is not Entitled to Weighted Deduction provided u/s 35B of the Income Tax Act: Bombay HC BOMBAY SUBURBAN ELECTRIC SUPPLY LTD. vs COMMISSIONER OF INCOME TAX The Bombay High Court recently upheld a decision by the Appellate Tribunal, stating that subcontractors who do not provide technical know-how to entities outside India are not eligible for a tax deduction under Section 35B of the Income Tax Act, 1961. Section 35B provides a tax benefit for expenses related to export activities by domestic companies. In this particular case, Bharat Heavy Electricals Ltd. (BHEL) and the Electricity Corporation of Saudi Arabia (ECSA) had a project agreement, with BHEL overseeing the project. BHEL, in turn, subcontracted part of the work to the petitioner. The petitioner claimed a tax deduction under Section 35B for expenses related to providing technical know-how services to a foreign entity, ECSA. However, the assessing officer rejected this claim, arguing that the petitioner was a subcontractor. This decision was upheld by the appellate authorities. Consequently, the petitioner appealed to the High Court. Upon examining Section 35B(1)(a), the High Court determined that, to qualify for the deduction under Section 35B, a taxpayer must be an exporter of goods or technical know-how, and the expenses must be directly related to that business. The Court concurred with the findings of the Appellate Tribunal, affirming that BHEL was the exporter of technical know-how, as it provided these services to ECSA, a foreign entity. The petitioner, serving as a subcontractor to BHEL, did not export technical know-how directly to a foreign entity. Therefore, the Court ruled that the petitioner was not entitled to the deduction under Section 35B of the Income Tax Act. Notice u/s 158BC cannot be issued If No Incriminating Material Found during the Search: Bombay HC Dr. GAUTAM SEN vs CHIEF COMMISSIONER OF INCOME TAX And OTHERS The Bombay High Court recently ruled that the Income Tax Department must find incriminating evidence during a search to proceed against a taxpayer under Section 158BC of the Income Tax Act, 1961. In a specific case, the Department conducted a search at the taxpayer's premises but found no incriminating material indicating undisclosed income. The Court quashed the notice issued to the taxpayer under Section 158BC, stating that without evidence of undisclosed income, the Department couldn't initiate proceedings. The Court criticised the Department for its actions and emphasised the importance of following proper procedures and safeguards to protect citizens from unwarranted notices and ensure that Revenue officers comply with the law. The Court also ordered the Department to compensate the taxpayer for costs incurred. ‘Stridhan’ of the Wife cannot be seized while completing assessment proceedings of the husband: Delhi HC SUSHILA DEVI vs CIT The Delhi High Court ruling, it was determined that a woman's "Stridhan" (personal property received during her marriage) cannot be seized when conducting assessment proceedings against her husband. The Court ordered the Department to return the seized jewellery, stating that since the wife is the rightful owner of "Stridhan," it cannot be attached. The case involved the Department seizing assets during a search of the husband. The wife claimed ownership of the jewellery, received at the time of her marriage, and argued that it shouldn't be considered her husband's undisclosed income. The Department did not respond to her requests, prompting her to file a writ petition. The Court found the Department's actions to be deliberate harassment and emphasised the wife's rightful ownership of her "Stridhan." The Court also cited a Supreme Court decision supporting the wife's claim and declared the Department's refusal to release the jewellery as unlawful deprivation of property. Royalty & Technical Assistance Fee are two separate Transactions for the purpose of computing ALP: Delhi HC MAGNETI MARELLI POWERTRAIN INDIA PVT. LTD. vs DEPUTY COMMISSIONER OF INCOME TAX The Delhi High Court, while supporting the ITAT's decision, ruled that royalty and technical assistance fees should be treated as separate transactions rather than a composite one for benchmarking under the Income Tax Act, 1961. The Court partially favoured the appellant-assessee, allowing the Transactional Net Margin Method (TNMM) for computing the arm's length price for the "technical assistance fee" transaction. In this case, a joint venture company, involved in manufacturing Engine Control Units, reported various international transactions, including "Payment of technical assistance fee." The Tax Authorities rejected the company's approach of considering all these transactions collectively for determining the arm's length price. The Court clarified that each international transaction must be assessed separately, and contractual obligations alone don't justify payments being at arm's length. Regarding the second question, the Court approved the TNMM method for all international transactions, including royalty payments, emphasising that changing the method would lead to confusion and hinder both the assessee and the revenue. Income Tax Officer (exemptions) cannot Complete Assessment against a Trust who do not avail any IT Exemptions: Patna HC M/s GURUKUL vs CIT (Exemptions) The Patna High Court ruled that the Income Tax Officer (Exemption) does not have the authority to assess a Trust that does not claim tax exemptions under the Income Tax Act, 1961. The Trust in question aimed to promote education among underprivileged children. The Income Tax Officer (Exemptions) in Muzzafarpur initiated assessment proceedings under section 143(3) of the Income Tax Act. The Trust challenged this order in a Writ petition, arguing that it lacked jurisdiction because the Trust wasn't registered under section 12 and didn't benefit from section 11 of the Act. The Court, consisting of Chief Justice I.A Ansari and Justice Ravi Ranjan, highlighted that only the Commissioner of Income Tax (Exemptions) had the authority to assess under the relevant provisions of the Income Tax Act, including section 11, which pertains to income from property held for charitable or religious purposes. Consequently, the Income Tax Officer lacked jurisdiction in this case. Method of Computation prescribed u/s 80HHC(3) can be applied for determining profit/loss from Trading Goods for the purpose of s. 80IA: Punjab & Haryana HC CIT vs M/s NAHAR EXPORT LTD. The Punjab and Haryana High Court, in response to an appeal by the Commissioner of Income Tax-III, Ludhiana, directed the Assessing Officer to calculate the deduction under Section 80 IA of the Income Tax Act, 1961 using the method specified in Section 80 HHC (3) for determining profit/loss from trading goods. The case involved M/s Nahar Exports Ltd., engaged in both trading and manufacturing. The Assessing Officer concluded that the sale price couldn't be verified and rejected the company's claim of a loss in trading. The AO suggested splitting the profit based on the ratio of expenses between manufacturing and trading. The Court upheld the findings of the ITAT and CIT, noting that the AO had accepted a loss in trading activities under Section 80 HHC and couldn't reach a different conclusion under Section 80 IA. The Court supported the Tribunal's decision to remand the issue to the AO for the recalculation of deductions under Section 80 IA. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Case Digest on High Court Income Tax Judgments, 2016-17 – Part 3

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