INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION
Business expenditure --Deduction only on actual payment--Year in which expenditure is allowable--Effect of section 43B--Mercantile system of accounting--Liability incurred and amount actually paid in accounting year--Amount legally due in following year--Amount deductible--Income-tax Act, 1961, s. 43B-- Paharpur Cooling Towers Ltd. v. CIT (Cal) . . . 177
----Disallowance--Deduction only on actual payment--Tax, cess or duty actually not paid in year of account--Amounts deposited by assessee in Central excise personal ledger account in terms of Central Excise Rules to cover duty liability against clearances of goods--Assessee bound by Rules to keep account in respect of each excisable product--Amount remaining outstanding in personal ledger account at end of year--Part of duty liability--Not disallowable--Income-tax Act, 1961, s. 43B-- CIT v . Maruti Suzuki India Ltd . (Delhi) . . . 187
----Disallowance--Provision for warranties--No disallowance could be made--Income-tax Act, 1961, s. 37-- CIT v . Maruti Suzuki India Ltd . (Delhi) . . . 187
Refund --Interest on excess refund received by assessee--Law applicable--Effect of insertion of Explanation 2 to section 234D--Refund granted prior to 1-6-2003 but proceedings for assessment completed after 1-6-2003--Interest payable by assessee--Income-tax Act, 1961, s. 234D-- CIT v . Indian Oil Corporation Ltd .
(Bom) . . . 198
(Bom) . . . 198
Appeal to High Court --Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable--Income-tax Act, 1961, ss. 260A, 268A-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432
----Powers of High Court--Power to frame additional question of law--High Court has power to frame additional question of law during hearing--Income-tax Act, 1961, s. 260A-- CIT v . Indo Gulf Fertilizers Ltd. (All) . . . 437
Business expenditure --Disallowance--Excessive or unreasonable payments--Tribunal finding assessee did purchases at prevailing market rates and seller incurred certain expenditure in engaging personnel in office and other operations--Section 40A(2) had no application--Income-tax Act, 1961, s. 40A(2)-- CIT v . Vijay M. Mistry Construction Ltd . (Guj) . . . 498
----Excess provision under heads “consultancy charges and professional fees†--Allowable--Income-tax Act, 1961, s. 37-- CIT v . Armour Consultants P. Ltd .
(Mad) . . . 418
(Mad) . . . 418
----Scientific research--Assessee requesting two companies to make payments on its behalf in view of shortage of funds--Revenue not disputing fact or disproving by them--Companies obtaining receipts in their name but claiming no deduction--Assessee paying amounts subsequently to those two companies--Assessee cannot be denied deduction--Income-tax Act, 1961, s. 35(1)(ii)-- CIT v . Armour Consultants P. Ltd.
(Mad) . . . 418
(Mad) . . . 418
Capital gains --Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset--Income-tax Act, 1961, ss. 2(42A), Expln. 1(i)(b), 48-- CIT v . Manjula J. Shah (Bom) . . . 474
----Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable--Income-tax Act, 1961, ss. 2(14)(b), 45--General Clauses Act, 1897, s. 3(31)-- CIT v. Smt. Rani Tara Devi
(P&H) . . . 457
(P&H) . . . 457
Capital or revenue expenditure --Expenses towards designing and lay out, temporary partition and construction for making leased business premises functional--Revenue expenditure--Income-tax Act, 1961-- CIT v. Armour Consultants P. Ltd .
(Mad) . . . 418
(Mad) . . . 418
Charitable purpose --Charitable trust--Registration--Test of genuineness of activity not a ground for refusal of registration--Genuineness of objects to be tested--Registration not to be rejected on ground trust has not yet commenced charitable or religious activity--Commissioner satisfied with objects of trust for subsequent year--Refusal of registration for preceding year not justified--Exemption from application of income received by way of donation--To be decided when return is filed--Income-tax Act, 1961, s. 12AA-- Hardayal Charitable and Educational Trust v. CIT (All) . . . 534
Deduction of tax at source --Commission--Scope of section 194H--Difference between sale and agency--Sale of stamp paper to licensed vendors under U. P. Stamp Rules, 1942--Sale--Tax not deductible at source on discount on such sales--Income-tax Act, 1961, s. 194H-- Chief Treasury Officer v. Union of India (All) . . . 484
Housing project --Special deduction--Computation-- Interest on delayed payment by purchasers--Balance due from contractors and suppliers--Part of income derived from development of housing project--Entitled to deduction--Income-tax Act, 1961, s. 80-IB(10)-- CIT v. Pratham Developers (Guj) . . . 507
Income from undisclosed sources --Assessee proving purchase and existence of crane--No claim of cost of crane in return and no debit in profit and loss account--No addition could be made in respect of purchase price--No material to show crane not in existence--Depreciation not disallowable--Income-tax Act, 1961-- CIT v . Vijay M. Mistry Construction Ltd. (Guj) . . . 498
----Disallowance on account of inflated purchases--Question of fact--Tribunal enhancing disallowance to twenty-five per cent. of cash withdrawals--No interference--Income-tax Act, 1961-- CIT v. Vijay M. Mistry Construction Ltd . (Guj) . . . 498
Interpretation of taxing statutes --Principle of ejusdem generis-- CIT v . Smt. Rani Tara Devi (P&H) . . . 457
Offences and prosecution --Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint--Income-tax Act, 1961, ss. 276B, 278B-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528
Search and seizure --Block assessment--Powers of Assessing Officer and Appellate Tribunal--Assessing Officer or Tribunal cannot consider validity of search--Income-tax Act, 1961, s. 158BC-- CIT v. Dr. A. K. Bansal (Individual) (All) . . . 513
Words and phrases --Meaning of “deemed†and “satisfied†-- CIT v. Indo Gulf Fertilizers Ltd . (All) . . . 437
S. 3(31) --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457
S. 2(14)(b) --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457
S. 2(42A), Expln. 1(i)(b) --Capital gains--Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset-- CIT v . Manjula J. Shah (Bom) . . . 474
S. 12AA --Charitable purpose--Charitable trust--Registration--Test of genuineness of activity not a ground for refusal of registration--Genuineness of objects to be tested--Registration not to be rejected on ground trust has not yet commenced charitable or religious activity--Commissioner satisfied with objects of trust for subsequent year--Refusal of registration for preceding year not justified--Exemption from application of income received by way of donation--To be decided when return is filed-- Hardayal Charitable and Educational Trust v. CIT (All) . . . 534
S. 35(1)(ii) --Business expenditure--Scientific research--Assessee requesting two companies to make payments on its behalf in view of shortage of funds--Revenue not disputing fact or disproving by them--Companies obtaining receipts in their name but claiming no deduction--Assessee paying amounts subsequently to those two companies--Assessee cannot be denied deduction-- CIT v . Armour Consultants P. Ltd.
(Mad) . . . 418
(Mad) . . . 418
S. 37 --Business expenditure--Excess provision under heads “consultancy charges and professional fees†--Allowable-- CIT v . Armour Consultants P. Ltd .
(Mad) . . . 418
(Mad) . . . 418
S. 40A(2) --Business expenditure--Disallowance-- Excessive or unreasonable payments--Tribunal finding assessee did purchases at prevailing market rates and seller incurred certain expenditure in engaging personnel in office and other operations--Section 40A(2) had no application-- CIT v . Vijay M. Mistry Construction Ltd .
(Guj) . . . 498
(Guj) . . . 498
S. 45 --Capital gains--Capital asset--Exclusion--Agricultural land--Meaning of--Effect of section 2(14)(b)--Land within specified distance from local limit of municipality--Not agricultural land--Gains on transfer of land--Capital gains tax leviable-- CIT v. Smt. Rani Tara Devi (P&H) . . . 457
S. 48 --Capital gains--Capital asset--Cost of acquisition--Capital asset acquired by assessee under gift--Indexed cost of acquisition--To be with reference to year in which previous owner acquired asset and not year in which assessee acquired asset-- CIT v . Manjula J. Shah (Bom) . . . 474
S. 80-IB(10) --Housing project--Special deduction--Computation-- Interest on delayed payment by purchasers--Balance due from contractors and suppliers--Part of income derived from development of housing project--Entitled to deduction-- CIT v. Pratham Developers (Guj) . . . 507
S. 158BC --Search and seizure--Block assessment--Powers of Assessing Officer and Appellate Tribunal--Assessing Officer or Tribunal cannot consider validity of search-- CIT v. Dr. A. K. Bansal (Individual) (All) . . . 513
S. 194H --Deduction of tax at source--Commission--Scope of section 194H--Difference between sale and agency--Sale of stamp paper to licensed vendors under U. P. Stamp Rules, 1942--Sale--Tax not deductible at source on discount on such sales-- Chief Treasury Officer v. Union of India (All) . . . 484
S. 260A --Appeal to High Court--Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432
----Appeal to High Court--Powers of High Court--Power to frame additional question of law--High Court has power to frame additional question of law during hearing-- CIT v . Indo Gulf Fertilizers Ltd. (All) . . . 437
S. 268A --Appeal to High Court--Competency of appeal--Effect of section 268A--Tax effect less than monetary limit prescribed by CBDT--Conflicting stands by assessee before Assessing Officer and Tribunal--Appeal not maintainable-- CIT v . Jugal Kishore Mahanta (Gauhati) . . . 432
S. 276B --Offences and prosecution--Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528
S. 278B --Offences and prosecution--Deduction of tax at source--Company--Failure to deposit tax deducted at source to credit of Central Government--Dismissal of complaint for failure by Income-tax Officer to produce documents before trial court within reasonable time--Documents in judicial custody in some other case--Prosecution case to be decided on the merits--No prejudice caused to accused if original complaint restored--Direction to restore complaint-- P. Jayanandan, Income-tax Officer v . Sri Ramakrishna Steel Industries Ltd . (Mad) . . . 528GUWAHATI, AUG 05, 2013: THE issues before the Bench are - Whether when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is a legal obligation to prove that the expenditure was necessary for promotion of his business; Whether for the allowability of an expenditure u/s 37, it is relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly; Whether the expression "wholly and exclusively", appearing in Section 37, does not mean necessarily; Whether expenditure incurred on foreign visits by directors and garden managers for promoting the sales of tea can be questioned, merely because the assessee has appointed a selling agent abroad and Whether expenditure incurred in connection with the travels of the wives of the tea estate managers can be allowed, when it is customary in the European countries for the wives to accompany their husbands. And the verdict goes against the Revenue.
Facts of the case
Facts of the case
The assessee, M/s Williamson Tea (Assam) Limited, is a company registered under the Companies Act, 1956, and engaged in the business of growing, manufacturing and selling of tea. The assessee had claimed several deductions as business expenditure which were disallowed by the AO. This disallowance became the issue of dispute in this matter.
Foreign Travel Expenses
The directors and executives of the assessee had undertaken foreign travels for promoting the sales of the business. The AO observed that the assessee had appointed its selling agent, in London, for sale of tea in overseas market and used to pay commission, brokerage, etc, to its selling agent. Further, the three non-resident Directors of the assessee company were permanently residing in U. K. looking after the assessee company's overseas business. Therefore, as per the AO, these foreign tours were unnecessary and liable to disallowed as non trading expenditure. The AO also disallowed the expenditure incurred on the spouse travelling along with the employees of the company. The CIT(A) upheld this order and directed the AO to initiate penalty proceedings. On further appeal, the Tribunal reversed the finding of the CIT(A) and allowed the substantial part of this expenditure to be claimed as deduction. The Tribunal gave its reasoning that when for promoting export senior executives of the company undertook foreign travel then the expenditure could not be considered for non-business purposes. Further, it noted that the visits to UK and Kenya were undertaken by garden managers who were actively associated with growing and manufacture of tea and were competent to study the methods of competitors and effectively interact with foreign customers for export promotion. The Tribunal also terminated the penalty proceedings.
Erection of fencing
The assessee company had also claimed a sum of Rs. 46,54,687 as 100% depreciation on the expenditure incurred in connection with erection of fencing at their tea garden. The AO observed that the purpose of fencing was to protect tea bushes from being transgressed upon by cattle or stray animals and that the assessee company had acquired assets (tea bushes) with lasting value and, therefore, the respondent company was not entitled to 100% depreciation but to normal depreciation. The CIT(A) allowed the claim on this account. On appeal, the Tribunal allowed the claim of deduction.
Publicity expenditure
The assessee had claimed deduction on an amount of Rs 11,65,000 in connection with centenary celebrations of the clubs whose membership was held by the directors and the employees of the assessee. The assessee had claimed this expenditure on the head of publicity of the company and for promoting the interest of the company. The AO disallowed Rs 9,00,000 out of the total expenditure on the ground that the assessee company could not show any business connection with the business organizations to whom the concerned amount was shown to have been paid. The CIT(A) confirmed the disallowance to the extent of Rs 900,000 and allowed Rs 2,65,000 as publicity expenditure. On appeal, the Tribunal allowed the entire amount of Rs 11,65,000 as publicity expenditure.
Aggrieved on these grounds, the Revenue has filed this appeal before the High Court.
Contentions of the Revenue
The DR submitted that each and every expense, incurred in course of business, is not allowable u/s 37 and, in order to enjoy the benefit of exemption under the Act, the expenditure must be proved, by adducing substantial evidence, that it was laid out wholly and exclusively for business. In the instant case, the DR contended that the assessee had not produced evidence in support of its claim that the expenditure, claimed on account of foreign trips, was wholly and exclusively for business purpose, though it was incumbent, on the part of the respondent company, to give details as to what the representatives of the company did in the foreign countries for the business of the respondent company. Regarding the other claims of deduction, the DR supported the reasoning of the AO for disallowing the same.
Contentions of the Assessee
The AR contended that it is for an assessee, to decide, in the interest of promoting its business, whether any expenditure is to be incurred, in the course of business, and whether such expenses are to be incurred voluntarily. The counsel for the assessee submitted that the assessee can incur certain expenditure and claim deductions of the same u/s 37 even though there was no necessity to incur such expenditure. He further clarified that it is not necessary that the primary motive to incur the expenditure has to be directly earn income thereby. He strongly argued that while applying the test of commercial expediency for determining as to whether an expenditure is wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of businessman and not of the Income Tax Department
Having heard the parties, the High Court held that,
True test of business expenditure
+ the true test for an expenditure, laid out wholly and exclusively for the purpose of business, is that it is incurred by the assessee as incidental to its trade for the purpose of keeping its trade going on and that the expenditure must be incurred by the assessee as a trader and not in any other capacity. The word “wholly†refers to the quantum of expenditure and the word “exclusively†refers to the motive, objective and purpose of the expenditure. The expression “wholly and exclusively†, appearing in Section 37, does not mean necessarily. It is important to note, in this regard, that the word, “necessarily†, found place in the Income Tax Bill, 1961, but it was dropped at the Legislative anvil. It may be noted here that Viscount Cave L. C., in Atherton vs. British Insulated & Helsby Cables Ltd., observed “… a sum of money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purpose of trade†. The same test was applied in Cooke vs. Quick Shoe Repair Service,.;
+ What necessarily follows from the above discussion is that when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product, the assessee is entitled, under Section 37(1) of the Act, to claim exemption from tax on such amount of expenditure. For the allowability of an expenditure under Section 37 of the Act, it is not relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly;
Foreign Travel Expenses
+ the Foreign Directors of the respondent company visited India in order to attend Board meetings and monitoring business operations. Besides representatives and consultants of the respondent company, representatives of holding company from U.K. also visited India for coordinating exports and monitoring functioning of the tea gardens. The garden managers visited U. K. and Kenya for business purposes. Visits to U. K. were necessary as the respondent company exported its tea to London for sale in the European market. The garden managers visited UK also to meet foreign customers and selling agents to promote the respondent company's exports. Visits to Kenya by the Directors/ Executives/Managers were necessary, because the said country is the largest exporter of tea in the world. The respondent company had sent its senior garden Manager for conducting study on Kenyan tea manufacturers so that the respondent company survives in the international competition in tea export. Under such circumstances, the finding of the Income Tax Appellate Tribunal that the expenditure, on the visits by the garden managers, was wholly and exclusively for business purposes cannot be said to be suffering from any illegality and infirmity;
+ as regards the question on the expenditure incurred in connection with the travels of the wives of the tea estate managers, we find force in the submission of Ms. Hawelia, Counsel for the respondent company, that since it is customary in the European countries for the wives to accompany their husbands, the travelling of the wives along with their husbands cannot be said to be personal visits of the wives, but such a visit has to be regarded as having been undertaken for the purpose of business of the respondent company. The Tribunal, as a fact finding authority, having come to the finding that the expenditure, on the visits by the representative of the company abroad and expenditure as well as the visits to India by the London based officials of the respondent company, in view of the respondent company's substantial exposure to overseas trade and large holdings of the respondent company with foreign promoters, were business expenditures, is a finding of fact and the same cannot be interfered with in an appeal under Section 260A of the Act;
Publicity expenditure
+ the expenditure, incurred in connection with sponsoring of the Centenary celebrations of Cotton College, at Guwahati, by Anand Bazar Patrika Ltd. and the sponsoring the State Level National Children Congress in Assam, were also allowable, because the respondent company's banners, as sponsors of the events, were displayed at the said functions. Therefore, the said expenditures were held by the Tribunal to be wholly and exclusively incurred in connection with business. While allowing the respondent company's claim, the learned Tribunal relied on a decision of the Calcutta High Court, in Assam Brooke Ltd. wherein a sum of Rs. 5,00,000/- was paid by the assessee to a club;
+ in view of the above propositions of law, we are of the considered view that it is for the assessee (respondent company in the present case) to decide where and in what manner publicity of its business is to be done and what benefit it will derive for its business by making such publicity. Consequently, we do not find any infirmity in the order of the Income Tax Appellate Tribunal, while deleting the disallowance on account of publicity expenses.
Taxability of inherited property
S.K. RAY
Brief introduction – HUF
1. Hindu Undivided Family (for short, the HUF) is nowhere defined in the Statute. HUF is purely a creature of the law or of the God almighty! HUF is a fluctuating body whose size increases with the birth and decreases on the death in the family. To constitute an HUF there should a Hindu, Jain, Sikh or Buddhist family having more than one member. These members should be undivided, having a commonness. It is a body consisting of the persons lineally descended up to three generations or three degrees from a common ancestor and includes their wives and daughters. As against the HUF, Hindu coparcenary is a much narrower body within the HUF. Hindu coparcenary is the body of individuals who acquire interest by birth in the joint family property. Till the year 2005 the coparcenary used to consist of a common male ancestor (Great grandfather) and his lineal descendants in the male line within 4 degrees, running from and including such ancestor. Now, after amendment to the Hindu Succession Act, 1956 in the year 2005 daughters too are treated as coparceners along with the sons. The essence of the coparcenary is community of interest and unity of possession, which is very useful in regard to determining its taxability.
HUF property vis-a-vis Individual property
2. There has been a material change in the concept of the HUF property vis-a-vis Individual property of a Hindu family after the passage of the Hindu Succession Act, 1956. Earlier the property received by the son from his father, grandfather and the great grandfather was his ancestral property in his hand and was required to be considered in the status of an HUF. However, after the passage of the Hindu Succession Act, 1956 there is distraction between the individual property of the father and that of his HUF. Individual property of the father passes on to his legal heirs in terms of section 8 of the Hindu Succession Act, 1956 whereas HUF property passes on as per section 6 of this Act. In the year 2005 further amendments have been carried out in the Hindu Succession Act, 1956 providing as to how the inherited properties are required to be treated. For the sake of convenience and better understanding and as provided in the proviso to amended section 6(1), the issue will be examined in two parts, i.e., Part-I in reference to the properties which got alienated till 20th December, 2004 and Part-II in reference to properties getting alienated or disposed of thereafter.
Tax treatment for properties inherited till 20-12-2004
3. It is a settled position of law that any property earned by an individual, whether on account of own exertion or out of his own individual funds, or without the investment of the HUF funds, or due to personal qualifications, etc., is separate and individual property of such a Hindu. In this context it is viewed that the effect of the Hindu Succession Act, 1956 is that self acquired property of a Hindu where HUF funds have not been utilized will pass on to his/her legal heirs as per the rule of succession and the legal heirs would receive the property as individual property. Since the aforesaid position is claimed to be so by virtue of the provisions of the Hindu Succession Act, 1956 which is against the accepted perception that ancestral properties inherited would not, as such, pass as individual properties, it will be useful to examine the position of law as contained in the provisions of the Hindu Succession Act, 1956.
3.1 Inheritance and effect of the Hindu Succession Act, 1956 - As per pre-amended section 6 of the Hindu Succession Act, 1956 interest of the Hindu family in Mitakshara coparcenary property dissolves by survivorship and not as per the Act. Section 8 of the Act further stipulates that property of a male Hindu dying intestate devolves firstly upon the heirs in Class I and then, if there are no heirs in Class I upon Class II and then upon Class III heirs. Like many other High Courts the Bombay High Court too was confronted with the above controversy, as to whether the income derived from the intestate self acquired property received from the assessee's father was taxable in the status of the HUF or was it taxable in the individual hands? The High Court, while deciding the case of CIT v. S.R. Kirloskar [1999] 106 Taxman 350 (Bom.) in reference to the above controversy, observed that this issue stood concluded by the decision of the Supreme Court in CWT v. Chander Sen [1986] 27 Taxman 330. The High Court observed that in Chander Sen's case (supra) the Supreme Court has held that the property that devolves on a male Hindu under section 8 of the Hindu Succession Act, 1956 could not be a HUF property but would be the individual property and would be assessable in his hands as such. Holding so the High Court observed as under:-
"The law is thus clear after the coming into force of the Hindu Succession Act, 1956, when a son inherits the property in the situation contemplated by section 8 of that Act, he takes it in his individual capacity and not as karta of his own HUF. In other words, the property devolves on him in his individual capacity. In view of the above, in our opinion, the Tribunal was not right in holding that the income derived by the assessee from the self-acquired property of his father who died intestate was taxable in the status of the HUF."
Since the High Court basically relied upon the Supreme Court's decision, it would be useful to examine the Supreme Court's judgment so as to determine the issue of taxability of the inherited property.
3.2 Analysis of the decision of the Supreme Court in Chander Sen's case (supra) -
3.2.1 Legal position about taxability of assets received in inheritance - To understand properly the legal position about the taxability of assets or incomes thereof received in inheritance it would be useful to examine the decision of the Supreme Court in Chander Sen's case (supra), because relying on this decision various High Courts have held that the effect of section 8 of the Hindu Succession Act, 1956 is that the property which devolves on a male Hindu under section 8 of the Hindu Succession Act, 1956 would be his individual property and, consequently, cannot be taxed in the status of a HUF. Relevant part of this decision is as below:—
"15. It is necessary to bear in mind the preamble to the Hindu Succession Act, 1956. The preamble states that it was an Act of amend and codify the law relating to intestate succession among Hindus. In view of the preamble to the Act, i.e., to modify where necessary and to codify the law in our opinion it is not possible when the schedule indicates heirs in Class I and only includes son and does not include son of the predeceased son, to say that when a son inherits property in the situation contemplated by section 8 he takes it as karta of his own undivided family. The Gujarat High Court's view noted above if accepted would mean that, though the son of a predeceased son and not the son of a son is intended to be excluded(sic) under section 8 inherits the later would be applying the old Hindu law to get a right by birth to said property contrary to the outlined in section 8. Furthermore, as noted by the Andhra Pradesh High Court the Act makes it clear by section 4 that one should look to the Act in the case of doubt and not to pre-existing. It would be difficult to hold today that property which devolved on the Hindu under section 8 of the Hindu Succession Act would be HUF property in his hands vis-a-vis his own son. That would amount of creating 2 classes among the heirs mentioned in Class–I, the male heirs in whose hands it will be joint family property vis-a-vis their son and female heirs with respect to whom no such concept applied or contemplated, it may be mentioned that heirs Class-I of the schedule under section 8 of the Act included widow, mother, daughter of a predeceased son, etc." (Emphasis supplied)
3.2.2 Crux of the Supreme Court's judgment in Chander Sen's case (supra) - In brief the crux of the Supreme Court's judgment is that:—
(a) As per Class I of the Schedule a son does not get any right during the survival of his father who had inherited property from his ancestors (father, etc.)
(b) It is difficult to hold that the property that devolves on a Hindu under section 8 of the Hindu Succession Act, 1956 would he a HUF property in father's own hands vis-a-vis his own son, because that would amount to creating Z classes among the heirs mentioned in Class I.
3.2.3 Section 8 of the Hindu Succession Act, 1956 - Before discussing the true import of the Supreme Court's decision it will be useful to refer the provision of section 8 of the Hindu Succession Act, 1956 in the light of which the Supreme Court gave the above decision in Chander Sen's case (supra).
"Section: 8 - General rule of succession in the case of males - The property of male Hindu dying shall devolve according to the provisions of this chapter-
(A) Firstly upon the heirs, being the relatives specified in Class I of the Schedule:
(B) …
(C) …
(D) …
Here, it will he important to note that Class I of the pre-amended schedule does not include son of the father who inherits the property from his father, etc. lf the provisions of section 8 of the Hindu Succession Act, 1956 are seen in isolation, it would appear as if the concept of taxability of any ancestral asset in the hands of the HUF received in succession would become redundant. If it is taken that way, it would appear as if the HUF qua these particular inherited assets would come to an end. Unless there is blending of them in the corpus of the HUF, it can never be subjected to tax in the hands of HUF. Before understanding so, it would be relevant to go through other provisions of the Hindu Succession Act, 1956 also, which unfortunately were neither quoted nor were considered in the above decisions. ln this context, one such relevant provision is pre-amended section 6 of the Hindu Succession Act, 1956 which reads as under:—
3.2.4 Section 6 of the Hindu Succession Act, 1956 -
"Section: 6 - Devolution of interest in coparcenary property - When a male Hindu dies after the commencement of this Act. Having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act :
Provided that, if the deceased had left him surviving a female relative specified in Class I of the Schedule or a male relative specified in that class who claims through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall be devolved by testamentary or intestate succession, as the case may be, under this Act and not by survivorship.
Explanation 1 - For the purpose of this section, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him, if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not.
Explanation 2 - Nothing contained in the proviso to this section shall be construed as enabling a person who has separated himself from the coparcenary before the death of the deceased or any of his heirs to claim on intestacy a share in the interest referred to therein."
3.2.5 Golden rule of interpretation - As per the explicit language of this provision concept of coparcenary has been kept intact. It clearly provides for the devolution of the property upon the surviving members of the coparcenaries and not in accordance with this Act, which implies that the inherited property need not necessarily be treated as the individual property. Would it be possible to read section 6 and section 8 in the sense in which what is allowed by the provisions of section 6 stands nullified by the provisions of section 8 of the Act. Such an interpretation has to be avoided. Golden rule of interpretation is that different sections of an Act have to be interpreted in a manner whereby all operate and no provision becomes otiose, except when it stands specifically overruled. When one reads the provisions of section 6 and section 8 conjointly it would become clear that section 8 of the Act is basically talking about a property which is other than the coparcenary property, because there is no mention of coparcenary in section 8, i.e., section 8 deals with the self acquired property of a Hindu who dies without making a Will. Further, while applying the Supreme Court's judgment the Courts have not appreciated that the decision was in reference to the limited issue which was as under:
"Whether the income or assets which a son inherits from his father when separated by partition should be assessed as income of the HUF of the son or his individual income."
3.2.6 True import of the Supreme Court's decision - The above issue posed before the Supreme Court goes to show that the Supreme Court's decision cannot be interpreted in the sense that always the inherited property would be taxable in the Individual hands. Before applying this decision one has to categorically record a finding, whether there was partition in the HUF from which the property devolved on the son? The reading of the decision would go to show that if partition was there, then by virtue of the provisions of section 8 the father would inherit the property in his own name and not in the capacity of the HUF. That is why pre-amended section 30 of the Hindu Succession Act, 1956 empowers and enables such a person to dispose of the inherited property by way of a Will which is, as such, not possible in case of HUF properties. In view of the above discussion it is clear that true import of the Supreme Court's decision is as follows:-
(i) After 1956 if there is a partition in the HUF the property devolving on the father of a son would be the individual property of the father and the father's son would have no right therein in view of specific language of section 8 of the Act.
(ii) However, if there is no partition, by virtue of the provisions of section 6 of the Act the property would devolve as the property of HUF upon all the surviving members of the HUF and the son would have the coparcenary rights in the HUF property alongwith his father which would disable the father to dispose it of by way of a Will, i.e., the father will not get such an asset devolved on him in an individual capacity which would also mean the taxability thereof in HUF status.
Any other interpretation would mean redundancy of certain provisions of the Act which is not even whispered in the Supreme Court's decision. To aver that the property received in inheritance would always be of the Individual would be a proposition which would be violative of the provisions of the Hindu Succession Act, 1956 and would also amount to laying down a proposition which the Supreme Court has not indicated indirectly in Chander Sen's case (supra).
4. Tax treatment for properties inherited after 20-12-2004
4.1 Daughters to conferred with Coparcenary rights - As mentioned, with the intention to enable female/daughters to inherit ancestral property as their male counterparts do, major amendments were made to the Hindu Succession Act, 1956, apart from carrying out other amendments to section 6 of the Act, which was completely overhauled and substituted. Removing discrimination as was there in pre-amended section 6 of the Act, by giving equal rights to daughters in the Hindu Mitakshara property as the sons had, daughters too were conferred with coparcenary rights, whereas in the earlier pre-amended provision only sons could have coparcenary rights. On this point it would be of interest to peruse the relevant portion of the substituted section 6 which reads as under:-
"6. Devolution of interest in coparcenary progeny -
| ** | ** | ** |
(3) Where a Hindu dies after the commencement of the Hindu Succession (Amendment) Act, 2005, his interest in the property of joint Hindu family governed by the Mitakshara law, shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship, and the coparcenary property shall be deemed to have been divided as if partition had taken place."
4.2 Interest in property of a Coparcener by intestate succession - It would be seen that old provisions did not allow testamentary disposal. The disposal could be only by way of survivorship. As per the new provision after the death the interest in the property of a coparcener can devolve by testamentary or intestate succession. ln this regard it is important to note that earlier also by virtue of section 8, read with the Schedule of the Act as explained by the Supreme Court in Chander Sen's case(supra), in the case of intestate succession the property would be the individual property of the person on whom it devolves. Allowing the property devolution even by way of a Will goes to show that now for all practical purposes the property which gets devolved on the death of the coparcener would only be individual property; otherwise how can one bequeath a property in which he has no absolute rights? Newly substituted section 6 is more or less in the spirit in which it is provided in section 8. Thus, both under section 8 as well as under section 6 post-2005 the property would devolve as the individual property of the deceased, which means that it will be taxable only in individual hands and not in the hands of the HUF, except when it is later on blended in the common hotchpot of the HUF. In short, post-2005 coparcenary property cannot be subjected to tax in the status of an HUF except in the case of blending.
Summation
5. On the basis of above discussion it becomes clear that the property received by a son from his father, either on partition of an HUF or when the property is acquired on account of own exertion or out of individual funds, without investment of the HUF funds, or due to personal qualifications, etc., devolution would be as per the provisions of section 8 of the Act. The grandson of the person on whom the property gets devolved would not have any right, so long as the grandson's father survives, i.e., the above properties would be considered in the individual hands of the son. However, if the ancestral property devolves otherwise than in the above two ways it would be considered in the hands of the HUF on devolution. However, post-2005 in view of amendments to the Act property inherited from a coparcener would not be inherited as an HUF property, which would mean taxability in Individual hands, except when it is blended with the HUF's common hotchpot.
ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 17 : Part 5 (Issue dated : 06-08-2012)
SUBJECT INDEX TO CASES REPORTED IN THIS PART
Advance tax --Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment--Income-tax Act, 1961, ss. 90, 234B-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Bad debt --Change of law--After 1-4-1989 sufficient if assessee writes off debt in books--Sums shown as income of year and then written off--Claim allowable--Income-tax Act, 1961, s. 36(1)(vii), (2) (as amended w. e. f. 1-4-1989)-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Provision for bad debt at beginning of year-- Deductible--Income-tax Act, 1961, s. 36(1)(vii)-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Business --Loss--Foreign currency received as deposit--Sale of foreign currency and forward contract for purchase of foreign currency--Loss in transaction--Not deductible--Income-tax Act, 1961-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Business expenditure --Disallowance--Excessive or unreasonable payments--Burden of proof--Is on assessee in first instance--No enquiry by Assessing Officer--Ad hoc disallowance of ten per cent.--Not sustainable--Matter remanded--Income-tax Act, 1961, s. 40A(2)(b)-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction--Income-tax Act, 1961, s. 40(a)(ia)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made--Income-tax Act, 1961, ss. 14A, 115VP-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
----Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable--Income-tax Act, 1961, ss. 9(1)(vi), 10A, 40(a)(ia)-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
Capital gains --Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F--Income-tax Act, 1961, ss. 54, 54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617
Deduction only on actual payment --Amendments brought in 2003--Curative--Applicable for earlier years--Employer’s contribution to employees provident fund paid before due date for filing return--Allowable--Income-tax Act, 1961, s. 43B-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
Income --Accrual of income--Time of accrual--Discounting of bills--Future discounts--Amounts had not accrued and were not assessable--Income-tax Act, 1961-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Shipping company --Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible--Income-
Volume 17 : Part 5 (Issue dated : 06-08-2012)
SUBJECT INDEX TO CASES REPORTED IN THIS PART
Advance tax --Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment--Income-tax Act, 1961, ss. 90, 234B-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Bad debt --Change of law--After 1-4-1989 sufficient if assessee writes off debt in books--Sums shown as income of year and then written off--Claim allowable--Income-tax Act, 1961, s. 36(1)(vii), (2) (as amended w. e. f. 1-4-1989)-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Provision for bad debt at beginning of year-- Deductible--Income-tax Act, 1961, s. 36(1)(vii)-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Business --Loss--Foreign currency received as deposit--Sale of foreign currency and forward contract for purchase of foreign currency--Loss in transaction--Not deductible--Income-tax Act, 1961-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Business expenditure --Disallowance--Excessive or unreasonable payments--Burden of proof--Is on assessee in first instance--No enquiry by Assessing Officer--Ad hoc disallowance of ten per cent.--Not sustainable--Matter remanded--Income-tax Act, 1961, s. 40A(2)(b)-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction--Income-tax Act, 1961, s. 40(a)(ia)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made--Income-tax Act, 1961, ss. 14A, 115VP-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
----Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable--Income-tax Act, 1961, ss. 9(1)(vi), 10A, 40(a)(ia)-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
Capital gains --Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F--Income-tax Act, 1961, ss. 54, 54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617
Deduction only on actual payment --Amendments brought in 2003--Curative--Applicable for earlier years--Employer’s contribution to employees provident fund paid before due date for filing return--Allowable--Income-tax Act, 1961, s. 43B-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
Income --Accrual of income--Time of accrual--Discounting of bills--Future discounts--Amounts had not accrued and were not assessable--Income-tax Act, 1961-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
Shipping company --Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible--Income-
tax Act, 1961, ss. 115JB, 115VI, 115V-O-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and the U. S. A. :
Art. 12 --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
Income-tax Act, 1961 :
S. 9(1)(vi) --Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
S. 10A --Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
S. 14A --Business expenditure--Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 36(1)(vii), (2) (as amended w. e. f. 1-4-1989) --Bad debt--Change of law--After 1-4-1989 sufficient if assessee writes off debt in books--Sums shown as income of year and then written off--Claim allowable-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
S. 36(1)(vii) --Bad debt--Provision for bad debt at beginning of year--Deductible-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
S. 40(a)(ia) --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
S. 40A(2)(b) --Business expenditure--Disallowance--Excessive or unreasonable payments--Burden of proof--Is on assessee in first instance--No enquiry by Assessing Officer--Ad hoc disallowance of ten per cent.--Not sustainable--Matter remanded-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
S. 43B --Deduction only on actual payment--Amendments brought in 2003--Curative--Applicable for earlier years--Employer’s contribution to employees provident fund paid before due date for filing return--Allowable-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
S. 54 --Capital gains--Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617
S. 54F --Capital gains--Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617
S. 90 --Advance tax--Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
S. 115JB --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 115VI --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 115V-O --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 115VP --Business expenditure--Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 234B --Advance tax--Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and the U. S. A. :
Art. 12 --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
Income-tax Act, 1961 :
S. 9(1)(vi) --Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
S. 10A --Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
S. 14A --Business expenditure--Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 36(1)(vii), (2) (as amended w. e. f. 1-4-1989) --Bad debt--Change of law--After 1-4-1989 sufficient if assessee writes off debt in books--Sums shown as income of year and then written off--Claim allowable-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
S. 36(1)(vii) --Bad debt--Provision for bad debt at beginning of year--Deductible-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
S. 40(a)(ia) --Business expenditure--Disallowance--Payments subject to deduction of tax at source--Payments to non-resident for purely professional services and reimbursement of expenses--Not payment of royalty--Non-resident not having permanent establishment--No tax deductible at source and payment allowable as deduction-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
----Business expenditure--Unit exempted under section 10A rendering services to unit not so exempted--Service charges allocated on basis of turnover--Service charges allowable--Expenses under heads “deputation expenses†and “other expenses†--Finding that incurred wholly and exclusively for business--Allowable--Purchase of software--Payment not royalty--Allowable-- Asst. CIT v. Sonata Information Tech. Ltd. (Mumbai) . . . 533
S. 40A(2)(b) --Business expenditure--Disallowance--Excessive or unreasonable payments--Burden of proof--Is on assessee in first instance--No enquiry by Assessing Officer--Ad hoc disallowance of ten per cent.--Not sustainable--Matter remanded-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
S. 43B --Deduction only on actual payment--Amendments brought in 2003--Curative--Applicable for earlier years--Employer’s contribution to employees provident fund paid before due date for filing return--Allowable-- KPMG India P. Ltd. v. Dy. CIT (Mumbai) . . . 569
S. 54 --Capital gains--Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617
S. 54F --Capital gains--Exemption--Time of transfer of capital asset--Agreement for sale of land in June 1996--Changes in agreement and final agreement in November 1999--Possession handed over and 98 per cent. of sale consideration received--No-objection certificate from appropriate authority received in February 2000--Transfer took place in November 1999--Investment of sale proceeds in December 1998--Assessee entitled to benefit under section 54/54F-- Asst. CIT v. PR. Chockalingam (Chennai) . . . 617
S. 90 --Advance tax--Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
S. 115JB --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 115VI --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 115V-O --Shipping company--Computation of book profits--Assessment under tonnage tax scheme--Deduction related to shipping--Admissible-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 115VP --Business expenditure--Disallowance--Shipping company--Assessment under tonnage tax scheme--Disallowance of expenditure under section 14A cannot be made-- Varun Shipping Co. Ltd. v. Addl. CIT (Mumbai) . . . 587
S. 234B --Advance tax--Interest--Default and deferment of advance tax --Liability due to amendment of section 90--Interest chargeable only from date of amendment-- Siam Commercial Bank PCL v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 599
ITAT's Guidelines to AOs for making additions under section 68
a) No additions in respect of loan repayments can be made under section 68; additions cannot exceed new loans/credits received during year;
b) Opinion of AO that explanation offered by assessee is not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record; once explanation of assessee is found unbelievable or false, AO is not required to bring positive evidence on record to treat amount in question as income of assessee;
c) Evidence produced by assessee cannot be brushed aside in a causal manner; assessee cannot be asked to prove impossible; explanation about 'source of source' or 'origins of origin' cannot and should not be called for while making inquiry under section 68;
d) Burden of proof under section 68 cannot be discharged to hilt - such matters are decided on particular facts of case as well as on basis of preponderance of probabilities; credibility of explanation, not materiality of evidences, is basis for deciding cases falling under section 68 - ITO VS. ANANT SHELTERS (P.) LTD. [2012] 20 taxmann.com 153 (Mumbai - ITAT)
a) No additions in respect of loan repayments can be made under section 68; additions cannot exceed new loans/credits received during year;
b) Opinion of AO that explanation offered by assessee is not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record; once explanation of assessee is found unbelievable or false, AO is not required to bring positive evidence on record to treat amount in question as income of assessee;
c) Evidence produced by assessee cannot be brushed aside in a causal manner; assessee cannot be asked to prove impossible; explanation about 'source of source' or 'origins of origin' cannot and should not be called for while making inquiry under section 68;
d) Burden of proof under section 68 cannot be discharged to hilt - such matters are decided on particular facts of case as well as on basis of preponderance of probabilities; credibility of explanation, not materiality of evidences, is basis for deciding cases falling under section 68 - ITO VS. ANANT SHELTERS (P.) LTD. [2012] 20 taxmann.com 153 (Mumbai - ITAT)
ST - in definition of Mandap keeper Service, crucial word is 'temporary occupation' - appellant leased out premises to hotel for interest free deposit - since premises is not given for temporary occupation, demand of service tax is not sustainable - appeal allowed: CESTAT
By TIOL News Service
MUMBAI, AUG 05, 2013: THE appellant rented out their premises at Ajivasan Hall, Juhu Tara Road, Mumbai to M/s Hotel Siddharth in terms of agreement entered into between the two parties. As per the said agreement, Hotel Siddharth agreed to furnish an interest free deposit of Rs.40 lakhs to the appellant, of which they had already paid a sum of Rs.25 lakhs and the balance payment to be paid at the time of occupation of the premises.
The department classified the said activity under the category of "Mandap Keeper Service" and demanded Service Tax on the sum of Rs.25 lakhs received by the appellant.
In the words of the CESTAT, even the lower appellate authority 'mechanically' confirmed the demand and rejected the appeal.
The appellant submitted that in the SCN, neither was the Service Tax demand quantified nor the period specified. Inasmuch as since the SCN is bad in law, the subsequent action taken by the department from such a show-cause notice also should held invalid and the appeal be allowed, prayed the appellant.
The Bench observed -
"5. We have perused the records. In the instant case, the appellant has hired/leased out the premises to Hotel Siddharth in consideration for an interest free deposit of Rs.40 lakhs. The said transaction does not come under the purview of 'Mandap keeper Service' under section 65(67) of the Finance Act, 1994. The Mandap Keeper means 'a person who allows temporary occupation of a Mandap for consideration for organizing any official, social or business function'. The crucial word is temporary occupation.5.1 From the records, we find that the premise is not given for temporary occupation by Hotel Siddharth. Therefore, the impugned order is not sustainable in law…."
In fine, the order was set aside and the appeal was allowed.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
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