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From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Thursday, 14 February 2013 10:32 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] P&H Full bench High Court detailed order explaining Capital vs. Revenue expense (club entrance ass fav. Groz Beckert) Bombay high court Allowable business loss; Penalties 271C Non TDS; 271D Cash loan relatives; Concealment; Rectification (154 scope) Charitable trust expenses
From: Kapil Goel <advocatekapilgoel@gmail.com>
To: CA.KAPIL GOEL <kapilnkgoelandco@gmail.com>
Sent: Thursday, 14 February 2013 10:32 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] P&H Full bench High Court detailed order explaining Capital vs. Revenue expense (club entrance ass fav. Groz Beckert) Bombay high court Allowable business loss; Penalties 271C Non TDS; 271D Cash loan relatives; Concealment; Rectification (154 scope) Charitable trust expenses
Included in this update1. P&H high court FULL BENCH on capital versus revenue expense (Club entrance fees revenue held Ass. fav detailed order)2. Bombay High Court Trade loss (business compulsion and protection of business interests)3. Bombay High Court on Penalties (Concealment; Non deduction of TDS 271C)4. Bombay High Court on expenses on educational object of trust by development of surrounding of TEMPLE section 11
5.Madras high court on Penalty 269SS (Ass Fav. relative transactions) & Rectification scope u/s 154
IN THE PUNJAB & HARYANA HIGH COURT
AT CHANDIGARH
Date of Decision: 24.01.2013 M/s Groz Beckert Asia Limited ITA No.366 of 2008 1. A Division Bench of this Court vide its order dated 31.10.2012
referred the following Question No.5.1 to the Larger Bench in view of the doubt expressed about the correctness of the view of a Division Bench of this Court in ITA No.448 of 2007 titled "Commissioner of Income Tax – I, Ludhiana Vs. M/s Majestic Auto Limited, Ludhiana" decided on 11.09.2008: "5.1 Whether on the facts and in the circumstances of the case, the ITAT was right in law in not sustaining the addition of
Rs.6,16,945/- on account of corporate membership fee paid to Golf
Club as a capital expenditure?" 2. The said question of law arises out of the fact that the assessee obtained corporate membership of Golf Club, Chandigarh on payment of Rs.6 lacs. Having heard learned counsel for the parties, we find that the judgment of this court in M/s Majestic Auto Limited's case (supra) is not a correct law for the reasons recorded herein after Section 37 of the Income Tax Act, 1961 provides that "Any
expenditure (not being expenditure of the nature described in Sections 30 to 36) and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession". The expression 'capital expenditure' has been interpreted by the various judgments, starting from Assam Bengal Cement Co. Ltd. case (supra) 27 ITR 34,, wherein the Supreme Court approved the opinion of the Full Bench of Lahore High Court in Benarsidas Jagannath (1947) 15 ITR 185 and held that it is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Some of the broad principles deduced were that, outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a
substantial replacement of equipment and; expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence as asset or an advantage for the enduring benefit of a trade. The expression 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset
In the present case, the corporate membership of Rs.6 lacs was for a limited period of 5 years. The corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. onsequently, it cannot be treated as capital asset. Therefore, the reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court
Empire Jute Co. Ltd. Vs. Commissioner of Income
Tax 124 ITR 1, Commissioner of Income Tax, Bombay City-I Vs. Associated Cement Companies Ltd. (1988) 172 ITR 257 (S.C), Commissioner of Income Tax Vs. Madras Auto Service (P) Ltd. (1998) 233 ITR 468; Delhi High Court in Commissioner of Income Tax Vs. Engineers India Ltd. (1999) 239 ITR 237 Bombay High Court in Otis Elevator Co. (India) Ltd. Vs. Commissioner of Income Tax (1992) 195 ITR 682; Delhi High Court in Commissioner of Income Tax Vs. Nestle India Ltd. (2008) 296 ITR 682 and Commissioner of Income Tax Vs.
Samtel Color Ltd. (2010) 326 ITR 425, The Gujarat High Court in a judgment reported as Gujarat State Export Corporation Limited Vs. Commissioner of Income Tax (1994) 209 ITR 649
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 784 OF 2011 Kirloskar Oil Engines Ltd Whether on the facts and in the circumstances of
the case and in law the Tribunal was justified in deleting the
dis-allowance of Rs.1,54,00,000/- being remission of the
amount receivable from Kirloskar Tractors Ltd. (KTS) holding
the same to be revenue expenditure? For the assessment year under consideration the respondent assessee had debited an amount of Rs.1.54 crores to its profit and loss account on the ground of remission of the amount receivable from one Kirloskar Tractors Limited (hereinafter referred to as "KTL"). The respondent assessee along with another group company namely Kirloskar Brothers Limited
had promoted M/s. KTL. The respondent assessee was a
manufacturer of diesel engine and the same would be used in
manufacture of tractors by M/s. KTL. The respondent assessee
wrote off this amount of Rs.1.54 crores being the amounts due on the diesel engines supplied by it to M/s. KTL as financial
condition of M/s. KTL was precarious . Further, the financial
institutions had approached the promoters i.e. the assessee and
Kirloskar Brothers Ltd. to write off the amount due to it from
M/s. KTL so as to enable the financial institution to help in the
revival of M/s. KTL. The Tribunal concluded
that write off was made under compelling business circumstances
only with a view to protect investment of the assessee and to
maintain and develop profitable business relationships by selling
more of its diesel engines to M/s. KTL.
We note that the impugned order upheld the order of
the CIT(Appeals) and allowed the remission of Rs.1.54 crores as expenditure in respondent-assessee's profit and loss account.
The Tribunal has come to a conclusion on the basis of the facts
examined by it that the respondent assessee had business
interest in M/s. KTL and continued existence of M/s. KTL was in
the business interest of the respondent assessee as manufacturer
of diesel engines which would be purchased by M/s. KTL to be
used in manufacture of tractors. Therefore, the respondent
assessee had a business interest and equity share in the well
being of M/s. KTL. Therefore, we find that waiver of the amounts due from M/s. KTL was not malafide but was done so as to put
M/s. KTL in a sound condition so as to enable the respondent
assessee to have higher sale of diesel engine in future. This
remission of Rs.1.54 crores was done not with any oblique motive
but for the reasons of commercial expediencies and in the
long term interest of the respondent-assessee. Thus, the
remission of Rs.1.54 crores debited in profit and loss account is an allowable business expenditure under Section 37 of the Act.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL (L) NO. 1814 OF 2012 Shri. Balaji Society
In so far as questions (a) and (b) are concerned, the
basic issue is whether the amounts spent on the surrounding area
of the temple would qualify for exemption under Section 11 of the
Income Tax Act as being amounts spent towards the object of the
Trust. The Assessing Officer disallowed an amount of Rs.34.18
lacs spent on construction of the temple and surrounding area of
the temple. This was on the basis that the object of the
respondent assessee was spreading of education and learning
while construction of temple and developing of its surrounding
area would not meet the object of the respondent assessee viz.
Education of students.
On appeal, the CIT(A) and the Tribunal on examination of facts held that only Rs.12 lacs (subject to verification of the Assessing officer) out of Rs.34.18 lacs was spent on construction of a temple. The balance amount was spent on the surroundings of a temple. The finding of fact concurrently reached by CIT(A) and the Tribunal was that the surrounding of the temple was so built that various activities for all round development of students like Medication, Yoga, Jogging, Physical exercise etc. was being carried out and this was for the benefit of general public/ students. Therefore, the aforesaid expenditure on the surrounding area of the temple would qualify for exemption under Section 11 of the Income Tax Act. The decision of the Tribunal upholding the order of the CIT(A) that the expenditure on surrounding area of the temple would qualify for exemption under Section 11 of the Income Tax Act is based on a finding of fact
Further,the CIT (A) as well as the Tribunal have concluded that once the amount mentioned in the bills raised by the Contractors against the work done is accepted without disputing the same then that amount becomes payable by the respondent assessee. In such a case the entire amount becomes payable. The Tribunal held that the terms of payment relating to retention money allows the assessee to retain certain amount of payment till future date but this would in no way mitigate the liability of the respondent assessee which arises as soon as the bill amount is admitted by the assessee. Thus, the amounts are spent/applied to the objects of the trust and the same is allowable as expenditure
THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL (L) NO.1891 OF 2012 M/s. Forbes Gokak Limited
By the impugned order, the Tribunal has deleted the penalty
imposed under Section 271 (1)(c) of the Income Tax Act, 1961. This was
after recording a finding of fact that the RespondentAssessee
has not furnished inaccurate particulars of income or concealed any facts.
4 The impugned order also records the fact that the disallowance
was made by the Assessing Officer in reassessment proceedings, in view of a later judgment of the Apex Court. Thus it was a simple case of disallowance of deduction on account of the later
judgment of the Apex Court and has nothing to do with either furnishing
of inaccurate partic ulars or concealment of facts. The Tribunal while deleting the penalty has followed the decision of the Apex court in the matter of Commissioner of Income Tax v/s. Reliance Petro Products Pvt. Ltd. reported in 322 ITR 158. 6 In these circumstances, we do not see any reason to entertain the proposed question of law (INCOME TAX APPEAL (L) NO.1642 OF 2012 4th February, 2013 M/s. Glaxo Smithkline)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION M/s. Satellite Television Asian Region Limited DATE : 6th FEBRUARY, 2013 In all these Appeals by the Revenue, the following question has been proposed:"
Whether on the facts and in the circumstance of the case
and in law, the ITAT was correct it holding that penalty u/s 271
C is not leviable." The basic dispute is; whether the failure of RespondentAssessee to deduct tax in respect of the payments made by it to various Channel Companies belonging to star groups of Companies warrant penalty under Section 271C of the Income Tax Act, 1961? Channel Companies belonging to star groups of Companies warrant
penalty under Section 271(1)(c) of the Income Tax Act, 1961?
Smt.M.Yesodha In the High Court of Judicature at Madras Dated: 05.02.201310. The contention of the Revenue is that the amount received by the assessee from her father-in- has to be treated only as a loan and if is a loan, then the assessee is liable to pay penalty under Section 271D of the Income Tax Act. Whether it is a loan or other transaction, still the other provision, namely, Section 273B of the Income Tax Act, comes to the rescue of the assessee, if she ables to show reasonable cause for avoiding penalty under Section 271D of the Income Tax Act. The Tribunal has rightly found that the transaction between the daughter-in-law and father-in-law is a reasonable transaction and a genuine one owing to the urgent necessity of money to be paid to the seller. We find that this would amount to reasonable cause shown by the assessee to avoid penalty under Section 271D of the Income Tax Act. 12. The Tribunal, referring to the decision of this Court reported in [2008] 303 ITR 99 (Mad) (Commissioner of Income Tax V. Lakshmi Trust Company), has rightly allowed the appeal Accordingly, the substantial question of law is answered in favour of the assessee and this Tax Case (Appeal) stands dismissed (Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in deleting the penalty of Rs.20,99,393/- levied under Section 271D of the Income Tax Act for violation of Section 269SS on the ground that the assessee had taken the loan only from her father-in-law and the transaction was genuine?")
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 1-2-2013
M/s.Veejay Marketing 10. The issue having been agitated and final decision having been implemented, the action of the Assessing Officer to re-open the issue on the ground of rectification, is not coming within the purview of Section 154 of the Income Tax Act, 1961, which clearly states that rectification power is available only if there is a mistake apparent from the record and the said power cannot be invoked either to nullify the earlier order, which became final or on the basis of change of opinion 12. In the light of the above decisions of the Supreme Court and this Court, and having regard to the fact that the Assessing Officer has already passed re-assessment order as per the directions of the Commissioner of Income Tax (Appeals), he was not justified in initiating further proceedings for rectification to impose his own view under the guise of rectification under Section 154 of the Income Tax Act, 1961 and as such the questions of law raised are answered in favour of the Assessee and against the Revenue.
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