[aaykarbhavan] Fw: [Gzb_CA Group -CA. V. MITTAL] Delhi high court explaining difference between business under trust and business on behalf of trust (unconnected to trust objects) rev fav; reopening reasons and available material on record (rev fav); business revenue expense (bombay high court) etc

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From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Thursday, 6 December 2012 1:22 AM
Subject: [Gzb_CA Group -CA. V. MITTAL] Delhi high court explaining difference between business under trust and business on behalf of trust (unconnected to trust objects) rev fav; reopening reasons and available material on record (rev fav); business revenue expense (bombay high court) etc [6 Attachments]

 

Included in this update capsule

a)      Revenue fav reopening Delhi high court order (reasons to believe can be improved in certain cases); Charity Katha business has no nexus with attainment of the objects, namely advancing of education, patriotism, Indian culture, running of hospitals and dispensaries, etc

b)      Bombay high court on business head capital vs revenue expense (reliance case JETTY expense revenue held and business expansion)

c)      Allahabad high court charity

d)      P&H high court np rate controversy in construction contracts

 

 

 IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on : 2nd November 2012 % Date of Decision: 04th December, 2012 + WRIT PETITON (CIVIL) NOS. 14076/2009

 MEINHARDT SINGAPORE PTE LTD 28. Learned counsel for the petitioner in these circumstances submitted that the reasons to believe recorded by the Assessing Officer on 26.03.2009 do not record or state that the agreement between the petitioner and Quest was not on record, and that there was failure on the part of the assessee to fully and truly disclose the material facts. We feel that the contention, though attractive, must fail for various reasons. Whether or not the agreement between the petitioner and Quest was available with the Assessing Officer is a matter of record and when disputed, must be examined and decided on preponderance of probabilities. Factually, it is correct that, as per the record, the agreement is not on record. On examination of the said dispute on the preponderance of probabilities with reference to the evidence/material available, we have to hold that the agreement with Quest was not filed with the assessing officer in the assessment years 2002-03 and 2003-04. Secondly, we have quoted above the reasons to believe recorded for the assessment year 2002-03, which are similar to the reasons recorded for the assessment year 2003-04. In paragraph 4.1 it is recorded that a copy of the agreement between the assessee and Quest dated 1st February, 2001 was submitted during the course of assessment proceedings of AY 2006-07. Thereafter, the Assessing Officer had made queries and came to know about the payments received by Quest directly as a sub- contractor from NHAI. Copies of Form 16A for AYs 2002-03 to 2005-06 were also placed on record i.e. on record for the assessment year 2006-07. Thereafter, the Assessing Officer has referred to the contract between Quest and the petitioner in paragraph 4.8 onwards. The reasons to believe have to be read holistically and in a pragmatic manner. No doubt the reasons to believe should be clear and not ambiguous and should show a nexus between escapement of income and under assessment, but it is not just and fair to read the reasons to believe in such as manner as to examine them under a magnifying lens, with a view to find fault. Some latitude and play in the language can be granted, when it is justified and required. Dogmatic approach should not be adopted. The assessment records are also required to be examined and considered, along with the reasons to believe. Read in this manner, we do not think that the Revenue is trying to build up a new case, or is supporting the reasons to believe on the basis of grounds which are not stated or recorded in the reasons to believe. The decision in the case of Mohinder Singh Gill and Another Vs. Chief Election Commissioner 1978 (1) SCC 405, is, therefore, not applicable.

29. Lastly, it was submitted on behalf of the petitioner that the reasons to believe do not show any nexus, or formation of belief, that income had escaped assessment. It is not possible to accept the said contention. At this stage, only a prima facie or tentative view has to be formed by the Assessing Officer, that income has escaped assessment. The prima facie view must have some foundation or basis. The Assessing Officer has formed such tentative opinion. He has interpreted the clauses of the two agreements to reach a prima facie opinion. Whether or not, ultimately, the addition is sustained, is a different matter, and need not be examined at this stage

The present case would, therefore, be one where there has been concealment of fact, and the Assessing Officer has proceeded on the basis of the wrong factual statement made by the assessee. The plea, and submission, that the agreement with Quest was filed, is not correct. There is no proof or letter filing the agreement. The reply dated 24.1.2005 does not state that agreement with Quest was being filed. The agreement is not on record. In this situation the following observations of the Full Bench in ITA No. 2026/2010 titled CIT Vs. Usha International, decided on 21st September, 2012 are apposite and applicable:-

 

 IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 6th September, 2012 % Date of Decision: 20th November, 2012

 MEHTA CHARITABLE PRAJNALAY TRUST

 "(a) Whether the Tribunal was correct in law in confirming the order of CIT (A) and thereby holding that the assessee is entitled to exemption under Section 11 of the Income Tax Act (b) Whether the Tribunal was justified in law in relying on its earlier order for A.Y. 1992-93 and thereby holding that the business activities carried on by the assessee were incidental to the main aims and objects of the Trust which are of Charitable nature?" Generally a person has to get rid of the asset itself before ceasing to be assessable in respect of the income from that asset. A mere direction that the income from the business shall be applied to the charitable objects of a trust, without there being a settlement of the business itself upon trust, does not result in any trust or legal obligation. 22. We now proceed to consider the question whether the carrying on of the business in Katha was incidental to the attainment of the objects of the trust. We fail to see any connection between the carrying on of the Katha business and the attainment of the objects of the trust, which are basically for the advancement of education, inculcation of patriotism, Indian culture, running of dispensaries hospitals, etc. The mere fact that whole or some part of the income from Katha business is ear-marked for application to the charitable objects would not render the business itself being considered as incidental to the attainment of the objects. We are in agreement with the view taken by the CIT (Appeals) in his order for the assessment year 1992-93 that the application of the income generated by the business is not the relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. The examples, appositely given by the CIT (Appeals) in his order, clarify the position: the instance of a charitable trust established for providing medical relief running a nursing home in the process, or a trust for advancement of education running a publishing house or a newspaper 26. It was contended on behalf of the assessee that in case we hold that the assessee-trust is not eligible for exemption because the Katha business was itself not held under trust, it would produce an anomalous or discriminatory result inasmuch as all that is required is for the settler of the trust to declare that the Katha business itself would be held in trust. It is not for us to comment on the contention; we cannot question the legislative wisdom and if there is really an anomalous or discriminatory resultant position, it is for the legislature to take care of it. It is not for us to enter "such a complex arena in which no perfect alternatives exist" as observed by Justice Stewart of the Supreme Court of the USA in Sam Antonio School District Vs. Rodrigous (1973) 411 US 1. 27. For the reasons given above we answer the substantial questions of law in all the appeals against the assessee and in favour of the Revenue. The appeals of the Revenue are accordingly allowed with no order as to costs

 

 

M/s. Reliance Ports & Terminals Ltd. THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO.6457 OF 2010 The appellant-assessee had constructed a jetty at Sikka,

Jamnagar in Gujarat after entering into an agreement with the Gujarat

Maritime Board. As per the agreement, the ownership of the said jetty

vested with Gujarat Maritime Board and, therefore, the entire

expenditure on construction of the jetty was claimed by the assessee

as revenue expenditure. According to the revenue, by constructing a jetty, the

assessee starts its business and, therefore, in the absence of any

existing business, the activity of building, erecting, installing,

maintaining and operating infrastructural facility like port, jetty, etc.

cannot be considered as business activity, because by constructing the

jetty, the assessee is not facilitating its business operations at all and

hence the expenditure incurred on the jetty cannot be considered as

revenue expenditure. The Tribunal has recorded a finding of fact that

the activity of the constructing a jetty at Sikka, Jamnagar is very much

a business activity of the assessee and was covered by the main

object of the company. Relying upon a decision of the Apex Court in

the case of CIT V/s. Associated Cement Companies Ltd. reported in

(1988) 172 ITR 257 (SC), the Tribunal held that though the expenditure

incurred by the assessee resulted in creation of a capital asset, since

the said asset did not belong to the assessee, such expenditure has to

be allowed as a revenue expenditure. The Tribunal has also held that

in the subsequent assessment year, the assessee has incurred some

other expenditure in providing further facility on the said jetty which has

been allowed as revenue expenditure. Counsel for the revenue

submitted that the decision of the Apex Court in the case of Associated Cement Co. Ltd. (supra) is distinguishable on facts. In our opinion,

though the facts in that case were slightly different, the ratio laid down

therein would squarely apply to the facts of the present case. It is an

undisputed fact that the expenditure incurred on construction of jetty is wholly and exclusively for the purpose of the business of the assessee.

Since the construction of infrastructure facility of jetty was a full fledged

business acvitity of the assessee, no fault can be found with the

decision of the Tribunal in allowing the claim of the assessee.

Accordingly, we see no reason to entertain the first question

 

THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO.31 OF 2011 M/s. Thirumalai Chemicals Ltd The ITAT has recorded a finding that the said expenditure

was incurred by the assessee for expansion of the activity of

manufacturing the same product and not an expenditure incurred

towards the feasibility or otherwise of some different product. The

ITAT has distinguished the judgment of this Court in the case of CIT

V/s. J.K. Chemicals Ltd. reported in (1994) 207 ITR 985 (Bom) by

holding that in that case, the expenditure was incurred in relation to the

feasibility of a different product whereas in the present case, the

expenditure was incurred for expansion of manufacturing the same

product and not a different product. In our opinion, the decision of the

Tribunal is based on finding of fact and hence the first question cannot

be entertained.

 

IN THE HIGH COURT OF PUNJAB AND HARYANA AT

CHANDIGARH

ITA No. 646 of 2010 (O&M)

Date of decision: 01.11.2012 M/s Competent Constructions Company The core issue that arises for consideration in both these

appeals is whether the Tribunal was justified in adopting net profit

rate of 7% on contract receipts including sub-contract receipts.

6. The Assessing Officer had adopted rate of 10% after

rejecting the books of account under Section 145(3) of the Act. On

appeal by the assessee, the same had been varied by the CIT(A). The

CIT(A) adopted the rate of 6.5% in case of direct contract receipts

and 5% on sub contract receipts. The Tribunal applied the rate of 7%

on the total contract receipts to estimate the income from contract

business… Nothing could be shown by either side that the rate was

either arbitrary or irrational in the facts and circumstances. Though

some amount of guess work may necessarily be there in adopting the

net profit rate as there is no definite method prescribed under the

statute, the court shall interfere only where the same appears to be

excessive or arbitrary or discriminatory. That being not the situation in

the present case, the adoption of 7% rate by the Tribunal cannot be

faulted.

 

 

Allahabad high court  Case :- INCOME TAX APPEAL No. - 537 of 2009

Petitioner :- The Commissioner Of Income Tax And Another Shri Radha Sarveshwar Seva Sansthan We have gone through Rule 11AA of Income Tax Rules, 1962 and Section 12AA of the Act and are of the considered opinion that the Commissioner of Income Tax cannot decline to grant exemption to the trust only on the ground that the trust had failed to spend 85% of its total income in charitable activities. Another ground for

refusing the grant of exemption under Section 80G(5) of the Act was that its income is less that Rs.1.00 lac. Both the grounds are wholly foreign for actual consideration for grant of registration and claiming exemption. The Tribunal has allowed the appeal. We are of the considered opinion that the order of the Tribunal does not suffer from any legal infirmity. The appeal fails and is dismissed

 

 

 

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