Direct Tax Recent Case Laws and Judgements

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Supreme Court / High Courts

Ss. Tangas Calvin Klein Baratos 22, 28 Business income from letting of premises to be taxed as business income

The appellant-assessee is a company incorporated under the Indian Companies Act with its main objective, as stated in the Memorandum of Association, is to acquire the properties in the city of Chennai and to let out those properties. The assessee had rented out such properties and the rental income received therefrom was shown as income from business in the return filed by the assessee. It was held that letting of the properties is in fact is the business of the assessee and hence income therefrom rightly disclosed the income under the Head Income from Business and not as ‘income from the house property’ – Chennai Properties & Investments Ltd. vs. CIT [2015] 56 taxmann.com 456 (SC)

Ss. 28, 145A(a) write off in value of stores and spares

The assessee claimed write-off was on account of deterioration in the condition of the non-moving stores since the assessee’s plants were located in remote places and near the sea. The non-moving stores and spares were corroded over a period of time due to wear and tear. This method of accounting having been adopted in the earlier years, there was no reason for the Assessing Officer to disallow the same on the ground that the accounting method had changed. Accordingly it was held that value of the closing stock so adopted is not in violation of Section 145A(a) – CIT vs. Indian Rare Earths Ltd. [2015] 57 taxmann.com 393 (Bombay)

S. 43B Meaning of expression ‘whatever name called’

The State compulsorily takes from the three mills, a vend fee for the purpose of conferring a special benefit on the said three mills, viz., the repair and replacement of existing machinery and equipment. Adidas Yeezy Boost 350 Acheter Even if the vend fee that is paid by the assessee – Sugar Mill to the State does not directly fall within the expression ‘fee’ contained in Section 43B(a), it would be a ‘fee’ by ‘whatever name called’, that is even if the vend fee is called ‘privilege’ – CIT vs. Travancore Sugars & Chemicals Ltd. Civil Appeal No. 2558 of 2005 Order dated 7/5/2015 (Supreme Court)

S43B is attracted to a case where payment is to be made to the State Government in the capacity of the State as a sovereign and not to a case where payment is to be made to the State Government in its capacity as a principal by an agent. In the instant case, the relationship between the State and the licensee is of a principal and agent/fiduciary and not that of a sovereign and a subject. The licensee does not collect the electricity duty for its own consumption or utilization. If the licensee collects the duty but does not pay the same to the Government, the statute provides mechanism for the Government to recover the same from the licensee. ITA Nos. 82 to 84 of 2004, 110 of 2005 CESC LTD. vs. CIT (Calcutta High Court) Order dated 18/12/2014

S. 45 apportionment of lump sum share purchase consideration towards negative covenants in agreement

Considering various clauses in the Share Purchase Agreement it was held that the lump sum consideration specified in the agreement can be bifurcated and a part thereof i.e. 25% to be apportioned towards the restrictive covenants – ITA No. 557 of 2006 (P & H) Date of Order 15/5/2015

S. 80-IB(10)(d) – Builtup area in housing projects for commercial use not applicable for the projects approved before 1/4/20015

The Assessee claims a deduction under section 80-IB(10), the assessee is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the assessee. Calvin Klein Boxer It was also observed that clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to do with the profits derived therefrom – CIT vs. Sarkar Builders [2015] 57 taxmann.com 313 (SC)

S. 132 Assessee can peruse reasons recorded for conducting search only during the course of assessment proceedings after completion of search

Supreme Court reiterated following principles –

(i) The authority must have information in its possession on the basis of which a reasonable belief can be founded that –(a) The concerned person has omitted or failed to produce books of account or other documents for production of which summons or notice had been issued

OR
Such person will not produce such books of account or other documents even if summons or notice is issued to him.

OR
(b) Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed.

(ii) Such information must be in possession of the authorised official before the opinion is formed.

(iii) There must be application of mind to the material and the formation https://www.acheterviagrafr24.com/acheter-du-viagra-en-france-sans-ordonnance/ of opinion must be honest and bona fide. Consideration of any extraneous or irrelevant material will vitiate the belief/satisfaction.

(iv) Though Rule 112(2) of the Income Tax Rules which specifically prescribed the necessity of recording of reasons before issuing a warrant of authorisation had been repealed on and from 1st October, 1975 the reasons for the belief found should be recorded.

 

(v) The reasons, however, need not be communicated to the person against whom the warrant is issued at that stage. Adidas Ultra Boost Femme Pas Cher (vi) Such reasons, however, may have to be placed before the Court in the event of a challenge to formation of the belief of the authorised official in which event the court (exercising jurisdiction under Article 226) would be entitled to examine the relevance of the reasons for the formation of the belief though not the sufficiency or adequacy thereof.

Supreme Court also disagreed with the High Court’s observations about possibility of manipulation of records and concluded that suspicion cannot be the basis of any judicial order.

The Supreme Court also observed that the remaining findings of the High Court with regard to the satisfaction recorded by the authorities appear to be in the nature of an appellate exercise touching upon the sufficiency and adequacy of the reasons and the authenticity and acceptability of the information on which satisfaction had been reached by the authorities. Such an exercise is alien to the jurisdiction under Article 226 of the Constitution – DG(Inv) vs. Spacewood Furnishers (P.)

Ltd. [2015] 57 taxmann.com 292 (SC)

S. 254(2A) ITAT’s power to extend stay beyond 365 days

The expression ‘even if the delay in disposing of the appeal is not attributable to the assessee’ introduced by the Finance Act, 2008 is struck down as being violative of Article 14 of the Constitution of India. Where the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deserving cases – Pepsi Foods (P.) Ltd. Adidas Yeezy Boost 350 Homme vs. ACIT [2015] 57 taxmann.com 337 (Delhi)

ITAT

S. 2(15) Proviso to section is meant to curb exempt earning from trade and commerce and not to deny exemption to institutions carrying charitable object

The primary object of insertion of proviso to section 2(15) was to curb the practice of earning income by way of carrying on of trade or commerce and claiming the same as exempt in the garb of pursuing the alleged charitable object of general public utility. This proviso never meant to deny the exemption to those institutions, where the predominant object is undeniably a charitable object and in order to achieve the same incidental activities, essential in the given circumstances, are carried on.

The predominant activities of the Centre was not to earn income but to provide facilities for disseminating or exchanging knowledge as per the object of the society. Acheter Adidas Yeezy Boost 550 There is no gainsaying that without creating a proper platform the primary object of dissemination and exchanging of knowledge could not be achieved. Therefore, merely because incidental income was earned by assessee society for achieving its dominant object from providing hostel and catering activities, it cannot be said that the assessee was doing trade or business as contemplated under proviso to section 2(15). The Centre had to necessarily charge for the hostel, catering and use of such facilities from members/ participants since it had to recover cost and at the same time have enough funds to carry out the charitable activities – India International Centre vs. ADIT(E) [2015] 57 taxmann.com 265 (Delhi – Trib.)

Ss. 40(a)(ia), 201(1) Assessee in default

The disallowability u/ss. 40(a)(i) & 40(a)(ia), and the liability and sec. 201(1) cannot be different and they arise out of the same default. Once there is a disallowance u/ss. 40(a)(i) & 40(a)(ia), it is not possible to argue that there was no liability under Chapter XVII-B of the Act and therefore the provisions of sec. 201(1) will not be attracted. Assessee followed practice of creating provision of expenses on quarterly basis global group reporting purposes. It was also held that assessee is liable to deduct tax on such provision and assessee cannot take a plea that the payments in question are not chargeable to tax and therefore there was no obligation on its part to deduct tax at source stand – IBM India Private Ltd vs. Boxer Calvin Klein Outlet ITO(TDS) ITA Nos. 749 to 752/Bang/2012 & 1588 to 1591/Bang/2012 (Bang-ITAT) Date of order 14/5/2015

S. 54F Entitlement of exemption for purchase absolute tenancy rights

The assessee earned long term capital gains of on sale of shares. The assessee then has acquired absolute tenancy rights in respect of the flat. These rights includes rights to transfer tenancy to any person, to charge such consideration/premium for such transfer/assignment. The tenant assessee not be required to obtain any permission from the owner and also not required to pay any premium for consideration to the owner for such transfer/assignment of the tenancy rights. On these facts it was held that the assessee is entitled to claim benefit under section 54F of the Act on capital gains earned – Archana Parasrampuria vs. ITO -[2015] 57 taxmann.com 23 (Mumbai – Trib.)

S. 54F Gifting of property to spouse before claiming deduction in respect of purchase of another house

Assessee earned long term capital gains on transfer of capital assets. Bañadores Calvin Klein Hombre Baratos Calvin Klein Underwear España Against such capital gains assessee claimed deduction u/ss. 54E & 54F. However before acquiring new residential premises assessee being co-owner of the flat gift it to her spouse. Calvin Klein Bañadores Hombre Revenue challenged such gift and denied deduction u/s 54F. It was held that such gifting cannot be regarded as sham and provision of sections 27(ii) and 64(1)(iv) has no effect. It was also held that exemption u/s. 54F cannot be denied by disregarding the gift of a house property by the assessee to her spouse prior to the transfer date (of the original asset) – Smt. Maya A. Ajwani vs. ITO [2015] 56 taxmann.com 255 (Mumbai – Trib.)

S. 254 ITAT order pronounced after 90 days from hearing is not barred by limitation

The objection that order pronounced beyond the period of 60 days from the date of hearing and hence, the same was barred by limitation is not tenable. It was also observed that the function of ‘pronouncement or orders’ is not like of a nature such as an ‘actionable legal claim’ which if not claimed within the period of 60 days or 90 days, can be said to have been barred by limitation. Calvin Klein Bañadores A contention that the order was pronounced beyond the period of 60 days cannot validly be raised in a petition u/s. 254 of the Act, as the same cannot be said to be an error apparent on record – Times Guaranty Ltd. vs.