Legal Reference Library

In DCIT Vs. M/s Beas Valley Corporation Ltd.,  the ITAT Chandigarh held that the interest from Bank deposits prior to the period of commencement of the business is Capital receipt. It further allowed the assesses’ claim to set off the interest so received on short term deposit during the year on the loan received against the interest payable on PFC loan so as to reduce the cost of project. Assessee, Beas Valley Power is a Government Company promoted by HPSEBL to execute the 100 MW UHL Stage -III in Joginder Nagar Distt. Mandi. While completing the assessment against the assessee- Company, the AO noted that the interest on bank deposits earned by the Company before the commencement of business is a taxable income and should have be shown under the head ” Income from other sources”. Article referred: http://www.taxscan.in/interest-bank-deposits-prior-period-commencement-business-capital-receipt-itat-chandigarh/8515/

In ACIT v. M/s.Nokia Siemens Networks (P) Ltd, the Delhi ITAT held that assessee cannot be treated as Assessee-in-Default for Late payment of TDS due to system and connectivity issues at the bankers’ end. In the instant case, assessee was held as assessee-in-default for delay in deposit of TDS. Assessee maintained that the amount of TDS was debited from the bank account of the assessee on the due date i.e. 7.10.2009 and the delay in deposit of such tax by a day was on account of system and connectivity issues at the bankers’ end, which were beyond the control of the assessee. On appeal, the first appellate authority held in favour of assessee. However, it confirmed the levy of interest for late payment of TDS. Both the assessee and the Revenue preferred appeals against the order. Before the Tribunal, the Revenue contended that the first appellate authority erred in holding in favour of the assessee in view of the decision of the Supreme Court in the case of CIT Vs. Ogale Glass Work...

In Anwar Basith v. ACIT, the Bangalore ITAT held that the income of minor beneficiaries can be clubbed to income of parents under section 64(1)(a) of Income Tax Act, 1961. Assessee was a partner of Firm, M/s. INJ Enterprises, along with her husband and three minor children with equal distribution of profit among the partners including the three beneficiaries. The partnership firm was dissolved in the year 1989 with a condition that all the 5 partners would possess the asset and the liability of the firm as coowners and tenants in common and have equal shares in land & building. One of the source of funds used by M/s. INJ Enterprises for construction and development of the aforesaid property was a loan from Dr. Nayeema Khan Trust for which the Firm was paying interest. The said Trust was formed by assessee and her husband, Mr. Maqsood Ahmed as a trustee and their children as beneficiaries of the trust. While completing assessment against the assessee, the AO noted that to Pay ...

The Central Board of Direct Taxes (CBDT) has clarified that trade advances would not attract the provisions of “deemed dividend” under the provisions of Section 2(22)(e) of the Income Tax Act. As per section 2(22) clause (e) of the Income Tax Act, “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. The B...

In AVTEC Limited v. DCIT, the division of the Delhi High Court held that AO is bound to look at the litigation history of the assessee and cannot expect the assessee to inform him.  In the instant case, the Petitioner, engaged in the business of manufacturing and selling of automobiles, power trains and power shift transmissions along with their components, approached the High Court challenging the re-assessment order passed against them. For the year 2006-07, the Petitioner entered into a Business Transfer Agreement with Hindustan Motors Ltd, as per which, the Petitioner took over the business from HML.  While filing income tax return for the said year, the petitioner claimed the expenses incurred in respect of professional and legal charges for the purpose of taking over of the business from HML as capital expenses and claimed depreciation. Though the above claim was denied by the AO, the ITAT allowed the claim on second appeal filed by the assessee. Though the departm...

In CIT v. M/S Rama Educational Society, the division bench of the Allahabad High Court held that benefit of section 80G of the Income Tax Act cannot be granted to assessee merely on ground that it satisfies all the conditions prescribed under section 10(23)(c) of the Income Tax Act. While quashing the ITAT order, the bench confirmed the order of the CIT denying exemption to the assessee for want of regular maintenance of Books of Accounts. Respondent-assessee, a society running a Dental College and Research Centre had availed exemption under s. 80 G of the IT Act. On expiry of the exemption, they made an application for renewal of the same. However, the Commissioner rejected the application on grounds that the department recovered and seized unaccounted cash amount belongs to the assessee during a search and the assessee was not properly maintaining its books of accounts. He was of the opinion that the exemption is not available to the assessee as they does not satisfies condition (iv)...

In ITO v. Raghu Nandan Modi, the ITAT Kolkata held that rent-Free accommodation received by a Part Time-Director cum Employee from the Company cannot be taxable as “Business Income” under the provisions of Income Tax Act. Assessee, in the instant case, was a part-time Director of M/s Prabhukripa Overseas Ltd. during his tenure, assessee received rent-free accommodation in the flat owned by the Company, POL. AO completed assessment by holding the value of the rent fee accommodation is taxable in the hands of the assessee under Section 2(24)(iv) of the Income Tax Act r.w.s. 17(2)/ 28(iv) of the Income Tax Act. Before the appellate authorities, assessee contended that he was holding the post of part-time director in the company as well as the post of employee to look after the export business of POL. The assessee has received no salary from the company, therefore the perquisites value u/s. 17(2) r.w.s. Rule 3 of the Rules becomes nil. He further contended that s. 28(iv) would not appl...

In Business Strategy Group v. ACIT, the ITAT, Delhi held that the loan obtained from a Company wherein the partners of the Assessee-Firm are the shareholders cannot be termed as ‘deemed dividend’ of the Firm and therefore, it is not taxable in the hands of the Firm under the provisions of Income Tax Act. Assessee-Firm is engaged in the business of rendering Management Consultancy Services. The partners of the Firm are equal share holders in a Private Ltd Company, i.e, M/s TMI Associates Pvt. Ltd. The AO found that the assessee firm had shown a loan of Rs. 3 lakhs from M/s TMI Associates Pvt. Ltd and treated the same as the deemed dividend which is taxable in the hands of the assessee-Firm. Before the Trbunal, the assessee contended that it is not a share holder in the said Company and Section 2(22)(e) has no application to the amounts received from a Company by the non-shareholder. The bench noted the decision in Assistant Commissioner Of Income Tax Vs. Bhaumik Colour (P) Ltd wherein i...

The Amritsar bench of Income Tax Appellate Tribunal has recently rule that a Holding Company is entitled to get deduction in respect of the debt unrecovered from its subsidiary company under the provisions of the Income Tax Act, 1961. Coming to the facts of the case, the assessees, M/s Sarup Tanneries Ltd, is engaged in the business of manufacture and sale of leather goods, Shoe upper, soles etc. The Assessing Officer, while completing assessment for the relevant assessment year, has disallowed the claim made by the assessee in respect of loss written off due to its subsidiary company in US on ground that such losses claimed by assessee were not related to the business of assessee. On appeal, the Commissioner of Income Tax (Appeals) partly allowed the impugned order. The case was brought before the ITAT. The Revenue contended that reliance should be placed on the decision in Amalgamations Pvt. Ltd vs. CIT (1969) 226 ITR 188 (SC). The Tribunal found that the assessee had issued standby ...

In DCIT v. M/s. The Hooghly Mills Co.Ltd, the ITAT Kolkata held that shareholding by Subsidiary Company is irrelevant while considering ‘deemed dividend’ liability of Holding Company under section 2(22)(e) of the Income Tax Act. Assessing Officer, while completing assessment against the assessee-Company, found that assessee had during the previous year accepted the loans of Rs.10,20,00,000/- from M/s. Mega Resources Ltd, in which the subsidiary company of the assessee holds equity shares. The Officer, considering  the shareholding of both the assessee and its subsidiary company and concluded that the assessee held more than 10% of the voting power in M/s. Mega Resources Ltd,. and therefore, the assessee is liable to pay tax on ‘deemed dividend’ under provision of section 2(22)(e) of the Income Tax Act. The first appellate authority allowed the plea of the assessee on first appeal. Aggrieved by the order of the first appellate authority, the department approached the Tribunal relyin...

In Gyaan Vikas Foundation v. CIT (Exemptions), the division bench of the ITAT, Kolkata held that registration under section 12A of the Income Tax Act cannot be denied to a Trust merely on ground it collects fee from the students. Assessee-Trust conducted vocational training in garment making and designing. The CIT refused to grant registration under section 12A to the assessee by finding that they had received fees from the students undergoing course in garment making and designing. The bench noticed the decision in India Trade Promotion Organisation vs DGIT (Exemption) and Others wherein the Hon’ble Delhi High Court held that merely because fee or some other consideration is collected or received by an institution, it would not loose its character of having been established for charitable purpose. Granting relief to the assessee, the bench held that the CIT(E) went wrong in concluding that the assessee trust is not genuine and does not exist for charitable purpose for the sole...

The Supreme Court, in Palam Gas Service vs Commissioner of Income Tax, has held that though the word used in Section 40(a) (ia) of the Income Tax Act, is ‘payable’, it would also cover the situations where the amount is already paid, but no advance tax was deducted thereupon. A bench comprising Justice AK Sikri and Justice Ashok Bhushan extensively quoted the judgments of high courts of Punjab & Haryana, Madras and Calcutta in this regard and affirmed the same. The court also overruled the Allahabad High Court judgment, which had held that Section 40(a) (ia) would apply only when the amount is ‘payable’. Section 40 of the Act enumerates certain situations wherein expenditure incurred by the assessee, in the course of his business, will not be allowed to be deducted in computing the income chargeable under the head ‘Profits and Gains from Business or Profession’. Section 40(a) (ia) states that certain payments made, which includes amounts payable to a contractor or sub-contr...

In an important verdict, the Supreme Court, in Godrej & Boyce Manufacturing Company Limited vs Dy Commissioner of Income-Tax, has held that Section 14A of the Income Tax Act would apply to dividend income on which tax is payable under Section 115-O of the Act. This would mean that expenditure incurred to earn dividend income on shares is not deductible, as Section 14A of Income Tax Act is held to be applicable. Section 14A deals with expenditure incurred in relation to income not includible in total income and Section 115-O is about tax on distributed profits of domestic companies. The issue involved in the appeal was ‘whether the phrase “income which does not form part of total income under this Act” appearing in Section 14A includes within its scope dividend income on shares in respect of which tax is payable under Section 115-O of the Act and income on units of mutual funds on which tax is payable under Section 115-R”. The bench comprising Justice Ranjan Gogoi and ...

Supreme Court of India in M/s McDowell v. CIT Karnataka held that to ascertain the actual accumulated loses to be set off in the hands of the assesssee first adjust the income that is accruing to it on account of waiver of interest by financial institutions. The Bench of Justices AK Sikri and Ashok Bhushan was considering an appeal against the Judgment of Karnataka High Court whereby the appeal of Commissioner of Income Tax (Revenue) was allowed setting aside the order to the Income Tax Appellate Tribunal(ITAT) which had granted the benefit of provisions of Section 72A of the Income Tax Act, 1961 to the appellant-assessee. In the instant matter, M/s Hindustan Polymers Ltd. (HPL) had become a sick industrial company and was amalgamated with appellant-assesssee company i.e. M/s McDowell and Company Ltd. Since HPL was a sick industrial undertaking it owed a lot of money to banks and financial institutions. The interest was claimed as expenditure by HPL in its return and by the virtue ...

The Madras High Court, in Principal of Commissioner of Income Tax vs M/s Managed Information Services Private Limited, has held that the test to determine whether or not a particular expenditure incurred by an assessee be allowed under Section 37 of Income Tax Act is to ascertain whether or not the expenditure in issue is incurred wholly and exclusively for the purpose of business i.e., incurred on account of commercial expediency of the assessee. Article referred: http://www.livelaw.in/legal-fee-expense-allowed-income-tax-act-incurred-commercial-expediency-madras-hc-read-judgment/

In Rajesh Projects (India) Pvt. Ltd vs. CIT, the issue before the Delhi High Court was the nature of the payments made towards lease. Do they constitute rent so as to attract Section 194-I? The court is of opinion that clearly these payments are not “rent”. That they are annual payments cannot be doubted. Yet, part of the payment is clearly capital in nature. Clause 1 of the lease deeds entered into in each of the cases, clearly points to the fact that a small percentage of the agreed amounts were paid as part of the lease premium and were towards acquisition of the asset; they fell, consequently in the capital stream and were not “rents”. The balance of such premium payments were spread over a period of 8 to 10 years, in specified annual or bi-annual installments. Here, distinction between a single payment made at the time of the settlement of the demised property and recurring payments made during the period of its enjoyment by the lessee is to be made. This distinction is c...

In Mother Hospital Pvt. Ltd vs. CIT, the Supreme Court held that We are in agreement with the view taken by the High Court. Building which was constructed by the firm belonged to the firm. Admittedly it is an immovable property. The title in the said immovable property cannot pass when its value is more than Rs.100/- unless it is executed on a proper stamp paper and is also duly registered with the sub-Registrar. Nothing of the sort took place. In the absence thereof, it could not be said that the assessee had become the owner of the property. As is clear from the plain language of the Explanation, it is only when the assessee holds a lease right or other right of occupancy and any capital expenditure is incurred by the assesee on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension of or improvement to the building and the expenditure on construction is incurred by the assessee, that assessee would be entitled to de...

In Anita. D. Kanjani Vs ACIT, the ITAT Mumbai held that The mere fact that possession was delivered later, would not detract from the fact that assessee (allottee) was conferred a right to hold the property on issuance of an allotment letter. The payment of balance amount and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee. Holding period should be computed from the date of issue of allotment If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assessee would be long term capital asset in the hands of the assessee and the gain on sale of the same would be taxable in the hands of the assessee as Long Term Capital Gain. Article referred: http://taxguru.in/income-tax/property-holding-period-should-be-computed-from-allotment-letter-date.html#sthash.Z8TxegiO.dpuf

In Red Chillies Entertainment Pvt. Ltd. Vs Asstt. Commissioner of Income Tax,  ITAT Mumbai held that the very fact that the assessee abandoned the projects goes to prove that the projects were not found to be viable or workable. Therefore, keeping in view the business interest, the assessee decided to abandon the projects. In fact, in the CBDT circular no.16 of 6th October 2015, the Board has clearly stated that cost incurred in abandoned projects should be allowed as revenue expenditure under section 37 of the Act. In view of the aforesaid, we allow assessee’s claim of deduction. Article referred: http://taxguru.in/income-tax/red-chillies-entertainment-pvt-asstt-commissioner-income-tax-itat-mumbai.html#sthash.Qlrad9gT.dpuf

In Berger Paints India Ltd. Vs. C.I.T., Delhi-V,  the short question before the Supreme Court was  whether “premium” collected by the appellant-Company on its subscribed share capital is “capital employed in the business of the Company” within the meaning of Section 35D of the Act so as to enable the Company to claim deduction of the said amount as prescribed under Section 35D of the Act? While dismissing the appeal the Hon'ble court held that as rightly pointed out by the learned Attorney General appearing for the Revenue, the Companies Act provides in its Schedule V- Part II (Section 159) a Form of Annual Return, which is required to be furnished by the Company having share capital every year. Column III of this Form, which deals with capital structure of the company, provides the break up of “issued shares capital break up“. This column does not include in it the “premium amount collected by the company from its shareholders on its issued share capital“. This is indi...