IT : Deduction under Chapter VI-A is admissible in computing undisclosed income or loss under section 158BB
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[2013] 29 taxmann.com 20 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax - I, Agra
v.
Anil Sarin*
R.K. AGRAWAL AND RAM SURAT RAM (MAURYA), JJ.
IT APPEAL NO. 121 OF 2007†
DECEMBER 12, 2012
I. Section 158BB, read with Chapter VI-A, of Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income, computation of - Deduction under Chapter VI-A - Block Period 1-4-1985 to 14-11-1995 - Assessing Officer disallowed deduction under Chapter VI-A while computing undisclosed income of assessee for relevant block period - Whether deduction under Chapter VI-A has to be given while computing total income or loss - Held, yes [Para 6] [In favour of assessee]
II. Section 158B of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income - Block period 1-4-1985 to 14-11-1995 - Where amount in question had been taken into consideration in regular assessment order under section 143(3), said amount could not be included under sub-clause (b) of section 158B - Held, yes [Para 7] [In favour of assessee]
A.N. Mahajan for the Appellant. Shakeel Ahmad for the Respondent.
ORDER
1. Present appeal has been filed under Section 260-A of the Income tax Act, 1961 (hereinafter referred to as the Act) against the order dated 18th April, 2002 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra. The appeal has been admitted vide order dated 5th February, 2010 on the following substantial question of law:
"(1) Whether the Tribunal was legally correct in directing the A.O. to allow deductions claimed by the assessee under Chapter IV and VI-A of the Income tax Act, 1961 which were allowed in regular assessment for the respective assessment years, while computing the undisclosed income under section 158BB(1) for the Block period 1.4.1985 to 14.11.1995?
(2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that the income which was duly disclosed and considered in the original assessment proceedings, could not form part of undisclosed income as defined in sub-clause (b) of Section 158 B of the Income Tax Act, 1961?
(3) Whether on the facts and in the circumstances of the case the Tribunal is right in law in deleting the addition of Rs. 1,50,500/- made under section 145 read with section 55(2) of the Act on account of goodwill received by the assessee from the firm M/s Sarin Chemical Laboratories, Agra for the period Assessment Year 1993-94, which was added as undisclosed income for the assessment year 1993-94?"
2. Briefly stated the facts giving rise to the present appeal are as follows:
The appeal relates to the block period 1.4.1985 to 14.11.1995 in respect of the assessment made under section 158-BC of the Act. Action under section 132(1) was initiated at the residential premises of the assessee on 26.10.1995 and locker no. 413 at Allahabad Bank, Chilli Int. Road, Agra was searched on 14.11.1995. The locker was in the joint names of the assessee and his wife, Smt. Abha Sarin. A notice under section 158BC(a) of the Act was issued asking the assessee to file return of undisclosed income for the block period 1.4.1985 to 14.11.1995. In pursuance of the notice issued the assessee filed return showing total income at Rs. 11,28,989/- which included undisclosed income of Rs. 44,300/-. The total undisclosed income declared for the block period was Rs. 44,300/- only. The Assessing Officer did not accept the income of Rs. 44,300/- declared for the block period as according to him deduction under Chapter VI-A of the Act is not admissible. He accordingly denied any exemption under Chapter VI A of the Act for the block period.
The Assessing Officer further found that the assessee had received a sum of Rs. 1,50,500/- on account of retirement of being partner in the firm, M/s Sarin Chemical Laboratory, Agra. The amount was received during the previous year relevant to assessment year 1993-94 which also form part of the block period. The amount was subjected to tax.
3. The assessee feeling aggrieved filed an appeal before the Tribunal. The Tribunal by the impugned order had held that deduction under Chapter VI-A of the Act was admissible. It had relied upon letter No. F.NO. 414/75/99/IT-(INV-I) dated 27th August, 1999 issued by Sri Davinder Gupta. OSD (INV-I), Ministry of Finance, Department of Revenue, Central Board of Direct Taxes wherein it had been stated that the issue regarding allowability of deduction under Chapter VI-A of the Act already claimed by the assessee in the regular returns filed have been examined and it is clarified that any deduction under Chapter VI-A of the Act due to the assessee in any previous years included in the block period will not form part of the undisclosed income for the block period. The Tribunal further deleted the addition of Rs. 1,50,500/- on the ground that the said amount was disclosed in the regular return filed for the assessment year 1993-94 and the same has been considered in the assessment order dated 8th February, 1994 passed under Section 143 of the Act which fact has not been disputed by the Department. Thus the same cannot be said to be undisclosed income.
4. We have heard Sri S. Chopra, learned senior standing counsel for the Revenue and Sri Shekeel Ahmad, learned counsel appearing for the respondent assessee.
5. We find that under the proviso to Clause (a) of Explanation under section 158BB of the Act for the purpose of determination of undisclosed income or loss of each previous year for the purpose of aggregation is to be taken as the total income or loss computed in accordance with the provisions of the Act without giving effect to set off or brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32 of the Act. However, if deduction under Chapter VI-A of the Act is being computed then effect is to be given to set off or brought forward losses under Chapter VI or unabsorbed depreciation under section 32(2) of the Act.
6. We may mention here that earlier total income or loss was computed in accordance with Chapter IV of the Act. However, the word 'Chapter IV' was substituted by the word 'the Act' by Finance Act, 2002 with effect from 1st July, 1995 and, therefore, while computing the undisclosed income or loss deduction under Chapter VI-A is admissible. In view of the clear statutory provision, we are of the considered opinion that the Tribunal had rightly held that the deduction under Chapter VI-A of the Act has to be given while computing total income or loss.
7. So far as the question regarding taxability of the sum of Rs. 1,50,500/- which was received by the assessee on his retirement from the Firm, M/s Sarin Chemical Laboratory, Agra is concerned, we find that the said amount was disclosed in the regular return filed for the assessment year 1993-94 which has been taken into consideration while passing regular assessment order under section 143(3) of the Act, therefore, the said amount cannot be included under sub-clause (b) of section 158B of the Act.
8. In view of the finding that the amount of Rs. 1,50,500/- cannot be treated to be as undisclosed income the question of it being treated as capital gain under section 145(5)(2) of the Act is not required to be gone into and the Tribunal has rightly declined to go into this question. The order of the Tribunal does not suffer from any legal infirmity. The appeal fails and is dismissed.
----- Forwarded Message -----
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Friday, 4 January 2013 12:14 AM
Subject: Point of Taxation-Life Insurance
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Friday, 4 January 2013 12:14 AM
Subject: Point of Taxation-Life Insurance
RULE 4A OF THE SERVICE TAX RULES, 1994 - TAXABLE SERVICE TO BE PROVIDED OR CREDIT TO BE DISTRIBUTED ON INVOICE, BILL OR CHALLAN - CLARIFICATION IN RESPECT OF NOTICES/REMINDER LETTERS ISSUED FOR LIFE INSURANCE POLICIES
CIRCULAR NO. 166/1/2013-ST [F.NO. 354/190/2012-TRU], DATED 1-1-2013
It has been represented by life insurance companies that in terms of the practice followed, reminder notices/letters are being issued to the policy holders to pay renewal premiums. Such reminder notices only solicit furtherance of service which if accepted by policy holder by payment of premium results in a service. Clarification has been desired whether service tax needs to be paid on the basis of such reminders.
2. The matter has been examined. Under the Point of Taxation Rules 2011, the point of taxation generally is the date of issue of invoice or receipt of payment whichever is earlier. The invoice mentioned refers to the invoices as issued under rule 4A of the Service Tax Rules, 1994. No tax point arises on account of such reminders. Thus it is clarified that reminder letters/notices for insurance policies not being invoices would not invite levy of service tax. In case of issuance of any invoice, point of taxation shall accordingly be determined.
3. The above clarification is issued only for life insurance sector.
4. Trade Notice/Public Notice may be issued to the field formations accordingly.
Best Wishes
CA. V.M.V.SUBBA RAO
Chartered Accountant
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