INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION
Capital gains --Transfer--Definition--Transfer of shares pledged with bank--Purchaser would not be able to get shares transferred in his name--Transaction amounts to transfer within the meaning of section 2(47)--Gains from transfer of right in shares assessable under section 45--Income-tax Act, 1961, ss. 2(47), 45-- Asst. CIT v. Biraj Investment P. Ltd. (Guj) . . . 157
Income-tax --General principles--Avoidance of tax--Colourable transaction--Transfer of shares at loss to group company--Transfer not prohibited by law--No evidence that price of shares was lower than market value--Transfer not a colourable device--Income-tax Act, 1961-- Asst. CIT v. Biraj Investment P. Ltd. (Guj) . . . 157
Non-resident --Shipping--Double taxation relief--Income from operation of ships in international traffic--Scope of article 9 of DTAA--Income from slot hire facilities--Entitled to benefit under article 9--Income-tax Act, 1961, s. 44B--Double Taxation Avoidance Agreement between India and the U. K., art. 9-- Director of Income-tax (International Taxation) v. Balaji Shipping U. K. Ltd. (Bom) . . . 135
Appeal to Appellate Tribunal --Commissioner (Appeals) allowing twelve claims--Independent appeals preferred by parties with reference to various claims--Tribunal bound to deal with them independently--Failure to furnish reasons would render proceedings defective or deficient to that extent--Income-tax Act, 1961-- CIT v. Orient Longman Ltd. (T & AP) . . . 559
----Duty of Tribunal--Duty to consider facts--Question regarding existence of agency--Tribunal deciding case without considering facts and relying solely on its earlier decision in another case--Decision erroneous--Matter remanded--Income-tax Act, 1961-- CIT v. Koottummal Groups (Ker) . . . 546
----Export--Exemption--Export oriented undertaking--Requisite approval from Board constituted under Industries (Development and Regulation) Act, 1951 not possessed by assessee--Tribunal not entitled to rewrite law or accept anything in lieu of what was required by statute--Matter remanded to Assessing Officer with directions--Income-tax Act, 1961, s. 10B-- CIT v. J. E. Enterprises P. Ltd. (Cal) . . . 571
Appeal to High Court --Substantial question of law--Penalty--Concealment of particulars--Disallowance of claim--Does not mean that ingredients of clause (c) satisfied or fulfilled--Finding that penalty not warranted--Finding of fact--Income-tax Act, 1961, ss. 260A, 271(1)(c)-- CIT v. Larsen and Toubro Ltd. (Bom) . . . 502
Business income --Banking business--Broken period interest--Deductible--Income-tax Act, 1961-- CIT v. HDFC Bank Ltd. (Bom) . . . 505
Business loss --Set off against income from house property--Lease of entire factory premises--Rejection of case of assessee that it was still carrying on business activity--Disallowance of set off of business loss against income from house property--No reason to interfere findings--Income-tax Act, 1961, s. 71-- Phelix Appliances Ltd. v. ITO (Guj) . . . 574
Capital or revenue expenditure --Expenditure on development of software--Revenue expenditure-- CIT v. Shri Renuga Textiles Mills Ltd. (Mad) . . . 649
----Manufacture of cast iron ingots using iron scrap--Cast iron moulds not having enduring shelf life--Expenditure on reusable cast iron moulds--Revenue expenditure--Income-tax Act, 1961-- CIT v. Aditya Ferro Alloys P. Ltd. (Mad) . . . 490
Central Board of Direct Taxes --Return--Delay in filing return--Application to CBDT to condone delay--Rejection of application without recording reasons--Not justified--Income-tax Act, 1961, s. 119(2)(b)-- Bal Kishan Dhawan (HUF) v. Union of India (P&H) . . . 639
Company --Dividend--Deemed dividend--Loan to shareholder--Money-lending not business of company--Loan assessable as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- Smt. Thankamma Oommen v. Asst. CIT (Ker) . . . 542
Depreciation --Block of assets--Written down value--Certain items of block assets destroyed in fire--Compensation received from insurer--Reduction in written down value only to extent of value reflected in accounts--Income-tax Act, 1961, s. 43(6)-- CIT v. Priyadarshini Spinning Mills Ltd. (T & AP) . . . 563
----Sale and lease back agreement--Purchase of machinery by assessee, a finance company, on payment of sales tax--Lease of machinery back to manufacturer--Lease income disclosed as business income--Assessee owner of machinery--No material to show transaction of sale and lease back not genuine--Assessee entitled to depreciation--Income-tax Act, 1961, s. 32-- CIT v. TVS Finance and Services Ltd. (Mad) . . . 487
Export --Exemption--Export oriented undertaking--Assessee’s sister undertaking fulfilling requirements of section 10B(2)(ii) and (iii) at time of formation--Transfer of entire business to assessee--Assessee entitled to exemption--Income-tax Act, 1961, s. 10B(2)(ii), (iii)-- CIT v. Heartland Delhi Transcription Services P. Ltd. (Delhi) . . . 523
----Exemption--Export oriented unit--Subsidiary of assessee, a 100 per cent. export oriented unit, merging with assessee by order of court--Not a case of business formed by splitting up or reconstruction of a business already in existence--Assessee’s status as 100 per cent. export oriented unit approved by Government of India--Assessee eligible for benefit of exemption--Income-tax Act, 1961, s. 10B-- CIT v. Shri Renuga Textiles Mills Ltd. (Mad) . . . 649
Income-tax --General principles--Necessity of passing a reasoned order-- Bal Kishan Dhawan (HUF) v. Union of India (P&H) . . . 639
Interest on borrowed capital --Banking business--Own funds and other non-interest bearing funds of bank more than investment in tax-free securities--No disallowance of interest under section 14A--Income-tax Act, 1961, s. 14A-- CIT v. HDFC Bank Ltd. (Bom) . . . 505
Loss --Carry forward and set off--Condition precedent--Carrying on same business--Tests for “same businessâ€--Finding that there was unity of control and common management--Finding of fact--Set off of carried forward loss--Valid--Income-tax Act, 1961-- CIT v. Ganga Corporation Asbestos P. Ltd. (All) . . . 582
Penalty --Furnishing inaccurate particulars--Liquidated damages paid in terms of contract with purchaser--Allowance claimed on basis of quantity in excess of that actually agreed--No material to support assessee’s claim that quantity for which deduction claim was agreed quantity--Plea that figure included moisture content found untrue--Explanation not bona fide--Penalty justified--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Global Associates (Delhi) . . . 499
Precedent --Effect of decision of Supreme Court in Kranti Associates P. Ltd. v. Masood Ahmed Khan [2010] 9 SCC 496-- Bal Kishan Dhawan (HUF) v. Union of India (P&H) . . . 639
Rectification of mistakes --Mistake apparent from record--Construction activity--Investment allowance--Unabsorbed investment allowance--Substantial part allowed to be set off in earlier and subsequent years without any reservation as to admissibility of allowance--Subsequent Supreme Court decision that construction activity cannot be treated as manufacturing activity--After expiry of four years from end of financial year as specified in section 154(4)--Assessing Officer cannot without modifying order of earlier years disallow unabsorbed investment allowance already allowed--Income-tax Act, 1961, ss. 32A, 154(4)-- Prefab Gratings Ltd. v. Asst. CIT (T & AP) . . . 550
Refund --Interest on refund--Assessee entitled to refund consequent upon deduction given on minimum alternate tax credit and tax deduction at source--Assessing Officer directed to work out interest on refund--Income-tax Act, 1961, s. 244A-- CIT v. Aban Loyd Chiles Offshore Ltd. (Mad) . . . 483
Revision --Commissioner--Powers--Condition precedent--Order of Assessing Officer must be erroneous and prejudicial to Revenue--Presumption that assessment order passed after due application of mind--Evidence that order was made after enquiry--Finding of Tribunal that assessment order was not erroneous--Order not challenged--Cancellation of order of revision--Valid--Income-tax Act, 1961, s. 263-- CIT v. J. L. Morrison (India) Ltd. (Cal) . . . 593
Transfer pricing --International transactions--Arm’s length price--Transactions of purchase and sale between parties on principal to principal basis--Trading transactions and transactions not commission agent or broker--Appropriate comparables would be chosen--Income-tax Act, 1961-- Mitsubishi Corporation of India P. Ltd. v. Addl. CIT (Delhi) . . . 495
Valuation of stock --Finding that there were discrepancies in valuation--Finding of fact--Additions to income justified--Income-tax Act, 1961-- Smt. Shakuntla Thukral v. CIT (P&H) . . . 644
----Loss due to diminution in value of current investment and amortisation of premium on investments held to maturity--RBI guidelines--Mandatory--Loss deductible--Income-tax Act, 1961-- CIT v. HDFC Bank Ltd. (Bom) . . . 505
S. 2(22)(e) --Company--Dividend--Deemed dividend--Loan to shareholder--Money-lending not business of company--Loan assessable as deemed dividend-- Smt. Thankamma Oommen v. Asst. CIT (Ker) . . . 542
S. 10B --Appeal to Appellate Tribunal--Export--Exemption--Export oriented undertaking--Requisite approval from Board constituted under Industries (Development and Regulation) Act, 1951 not possessed by assessee--Tribunal not entitled to rewrite law or accept anything in lieu of what was required by statute--Matter remanded to Assessing Officer with directions-- CIT v. J. E. Enterprises P. Ltd. (Cal) . . . 571
----Export--Exemption--Export oriented unit--Subsidiary of assessee, a 100 per cent. export oriented unit, merging with assessee by order of court--Not a case of business formed by splitting up or reconstruction of a business already in existence--Assessee’s status as 100 per cent. export oriented unit approved by Government of India--Assessee eligible for benefit of exemption-- CIT v. Shri Renuga Textiles Mills Ltd. (Mad) . . . 649
S. 10B(2)(ii), (iii) --Export--Exemption--Export oriented undertaking--Assessee’s sister undertaking fulfilling requirements of section 10B(2)(ii) and (iii) at time of formation--Transfer of entire business to assessee--Assessee entitled to exemption-- CIT v. Heartland Delhi Transcription Services P. Ltd. (Delhi) . . . 523
S. 14A --Interest on borrowed capital--Banking business--Own funds and other non-interest bearing funds of bank more than investment in tax-free securities--No disallowance of interest under section 14A-- CIT v. HDFC Bank Ltd. (Bom) . . . 505
S. 32 --Depreciation--Sale and lease back agreement--Purchase of machinery by assessee, a finance company, on payment of sales tax--Lease of machinery back to manufacturer--Lease income disclosed as business income--Assessee owner of machinery--No material to show transaction of sale and lease back not genuine--Assessee entitled to depreciation-- CIT v. TVS Finance and Services Ltd. (Mad) . . . 487
S. 32A --Rectification of mistakes--Mistake apparent from record--Construction activity--Investment allowance--Unabsorbed investment allowance--Substantial part allowed to be set off in earlier and subsequent years without any reservation as to admissibility of allowance--Subsequent Supreme Court decision that construction activity cannot be treated as manufacturing activity--After expiry of four years from end of financial year as specified in section 154(4)--Assessing Officer cannot without modifying order of earlier years disallow unabsorbed investment allowance already allowed-- Prefab Gratings Ltd. v. Asst. CIT (T & AP) . . . 550
S. 43(6) --Depreciation--Block of assets--Written down value--Certain items of block assets destroyed in fire--Compensation received from insurer--Reduction in written down value only to extent of value reflected in accounts-- CIT v. Priyadarshini Spinning Mills Ltd. (T & AP) . . . 563
S. 71 --Business loss--Set off against income from house property--Lease of entire factory premises--Rejection of case of assessee that it was still carrying on business activity--Disallowance of set off of business loss against income from house property--No reason to interfere findings-- Phelix Appliances Ltd. v. ITO (Guj) . . . 574
S. 119(2)(b) --Central Board of Direct Taxes--Return--Delay in filing return--Application to CBDT to condone delay--Rejection of application without recording reasons--Not justified-- Bal Kishan Dhawan (HUF) v. Union of India (P&H) . . . 639
S. 154(4) --Rectification of mistakes--Mistake apparent from record--Construction activity--Investment allowance--Unabsorbed investment allowance--Substantial part allowed to be set off in earlier and subsequent years without any reservation as to admissibility of allowance--Subsequent Supreme Court decision that construction activity cannot be treated as manufacturing activity--After expiry of four years from end of financial year as specified in section 154(4)--Assessing Officer cannot without modifying order of earlier years disallow unabsorbed investment allowance already allowed-- Prefab Gratings Ltd. v. Asst. CIT (T & AP) . . . 550
S. 244A --Refund--Interest on refund--Assessee entitled to refund consequent upon deduction given on minimum alternate tax credit and tax deduction at source--Assessing Officer directed to work out interest on refund-- CIT v. Aban Loyd Chiles Offshore Ltd. (Mad) . . . 483
S. 260A --Appeal to High Court--Substantial question of law--Penalty--Concealment of particulars--Disallowance of claim--Does not mean that ingredients of clause (c) satisfied or fulfilled--Finding that penalty not warranted--Finding of fact-- CIT v. Larsen and Toubro Ltd. (Bom) . . . 502
S. 263 --Revision--Commissioner--Powers--Condition precedent--Order of Assessing Officer must be erroneous and prejudicial to Revenue--Presumption that assessment order passed after due application of mind--Evidence that order was made after enquiry--Finding of Tribunal that assessment order was not erroneous--Order not challenged--Cancellation of order of revision--Valid-- CIT v. J. L. Morrison (India) Ltd. (Cal) . . . 593
S. 271(1)(c) --Appeal to High Court--Substantial question of law--Penalty--Concealment of particulars--Disallowance of claim--Does not mean that ingredients of clause (c) satisfied or fulfilled--Finding that penalty not warranted--Finding of fact-- CIT v. Larsen and Toubro Ltd. (Bom) . . . 502
----Penalty--Furnishing inaccurate particulars--Liquidated damages paid in terms of contract with purchaser--Allowance claimed on basis of quantity in excess of that actually agreed--No material to support assessee’s claim that quantity for which deduction claim was agreed quantity--Plea that figure included moisture content found untrue--Explanation not bona fide--Penalty justified-- CIT v. Global Associates (Delhi) . . . 499
Validity of reopening of assessment has to be determined on the basis of reasons for reopening
In the present case, the submission of the assessee before the Tribunal, as recorded in paragraph 3 of the impugned order, is that the only reason which was given by the Assessing Officer for initiating reassessment proceedings was that the property was sold by the assessee for Rs.31 lacs but its value for the purpose of stamp duty as per the circle rate was Rs.82.54 lacs, resulting in an escapement of income of Rs.51.54 lacs. The notice under Section 148 was available on the record of the Tribunal. The Tribunal also had the benefit of perusing the income tax return filed by the assessee. It is on that basis that the Tribunal, after duly perusing the computation of income submitted by the assessee, found that as a matter of fact, the assessee had shown a sale consideration of Rs.82.54 lacs in the computation of income. Once this is the position, the only basis on which the Assessing Officer issued notice under Section 148 would not possibly give rise to a reason to believe.
It has been urged on behalf of the revenue that the Tribunal has not given due regard to the submission of the revenue that the assessee had reduced the capital gain by increasing the cost of acquisition and the cost of improvement of the property. The difficulty in accepting the submission is that, in fact, this was not the basis on which the assessment was reopened under Section 148. The validity of the reopening of the assessment has to be determined on the basis of reasons which are disclosed by the Assessing Officer. The legality of the notice reopening the assessment has to be determined, when it is questioned, on the basis of the reasons which are recorded by the Assessing Officer. Those reasons cannot be allowed to be supplemented subsequently. This was also so observed in a judgement of a Division Bench of the Bombay High Court in Balkrishna Hiralal Wani vs. Income-Tax Officer and others3 where it was held as follows:
"…For the purpose of determining the validity of the challenge to the notice under section 148, the court would have to refer to the reasons recorded by the Assessing Officer and to those reasons alone."
Hence, in our view, the Tribunal was justified in assessing the correctness of the notice for reopening the assessment under Section 148 on the basis of the reasons which were disclosed by the Assessing Officer. Those reasons, as the Tribunal noted, could not give rise to a reason to believe that income had escaped assessment for the simple reason that in the computation of income, the assessee had adopted the circle rate which is higher than the sale consideration. Hence, the appeal will not give rise to any substantial question of law.
CIT Vs. Shri Samraj Krishan Chaudhary (Allahabad High Court) , ITA No. 127 of 2014, Date of Order: 04/08/2014
Whether all returns filed before filing Tax Audit Report are defective?
CA Sandeep Chunduru
As you are aware CBDT vide order no. F.No. 133/24/2014-TPL dt. 20.08.2014 issued order thereby exercising power conferred u/s 119 of the Income Tax Act for extending the due date for obtaining and furnishing of report of audit u/s 44AB of the Act for the Assessment Year 2014-15. In the absence of any reference to section 139 of the Act in that order, a vacuum was created which in turn leads to ambiguity and confusion among the assesses and professionals with respect to the due date for filing of return of income. As a result, already different views prevail on the subject of due date for filling of return of income among the people concerned. Adding to the fuel, the said order has created one more dimension of confusion even if, the return is filed before the due date mentioned u/s 139 of the Act as explained hereunder:
As per the clause (bb) of Explanation to sub-section 9 of Section 139 of the Act, a return of income shall be regarded as 'defective' unless among inter-alia the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing of report. In other words, as per the existing provisions of the Act, such audit report shall be furnished either prior to the furnishing of return or should be accompanied with the return. Therefore, furnishing such audit report by virtue of CBDT's impugned order subsequent to the date of filing of return makes the already filed returns defective. Moreover, many experts are of the view that in the absence of specific reference to section 139(1) in the CBDT order, the due date for filing of ITR is untouched. In the same manner since the order does not make any reference to clause (bb) of explanation to 139 (9), we are of the opinion that any returns filed without TAR will make such Returns defective.
In this context, one should keep in mind during the last assessment year, the CPC invoked the provisions of Section 139 (9) and treated the Returns filed without paying self assessment tax as defective. So, in the same lines Department may invoke such provisions at a later date.
CBDT being aware of all these complications may come out with suitable solution by way of clarification to clear the clouds of confusion among the people concerned.
Production of cinematograph film amounts to manufacture by industrial undertaking
If the production of cinematograph film amounts to "manufacture of an article or goods" within the meaning of section 104(4)(a) as it then stood, it follows that the said activity must be treated as an "industrial undertaking" within the purview of section 80J of the Income-tax Act, 1961. Apart from the circular, we are satisfied that, even on a common sense view, "film production" will have to be considered as a manufacturing activity and the undertaking will have to be considered as an industrial undertaking. It is so considered under excise law and other allied laws also. Whether the assessee satisfies all other conditions of the said section or not will have to be examined by the authorities below to whom the directions have already been issued by the Income-tax Tribunal.
Bombay High Court
Commissioner Of Income-Tax
vs
D.K. Kondke
Date of Order / Pronouncement- 12 March, 1991
Equivalent citations: 1991 192 ITR 128 Bom, 1991 (1) MhLj 572
Author: D Dhanuka
Bench: B Srikrishna, T Sugla
JUDGMENT
D.R. Dhanuka, J.
1. The Income-tax Appellate Tribunal has referred the following question to this court for its decision under section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, Bombay. This question reads as under :
"Whether, on the facts and in the circumstances of the case, the activity of the assessee of producing cinematograph films is an 'industrial undertaking' for the purpose of deduction under section 80J of the Income-tax Act, 1961, for the assessment years 1972-73, 1973-74 and 1974-75 ?"
2. During the previous year pertaining to the assessment year 1972-73, the assessee started production of motion pictures in the Marathi language. The assessee claimed the benefit of deduction under section 80J of the Income-tax Act, 1961, on the ground that the said business was an "industrial undertaking" within the meaning of the said expression used in section 80J. The Income-tax Officer refused to grant the said benefit to the assessee, as the Income-tax Officer was not satisfied that the film industry was within the purview of the said section. Being aggrieved by the said order, the assessee filed an appeal before the Appellate Assistant Commissioner. During the course of the hearing of the said appeal, the assessee relied, inter alia, on Circular No. 24, dated July 23, 1969 (See [1969] 73 ITR (St.)). 23, issued by the Central Board of Direct Taxes. By the said Board's circular, it was notified by the Board that the production of cinematograph films amounted to manufacture of processing of goods within the meaning of section 104(4)(a) of the Income-tax Act, 1961. It was also stated in the said circular that, in the opinion of the Board, a cinematograph film suitable for exhibition was entirely different from the raw unexposed film which was loaded into the camera in a studio. Relying upon the said circular and the judgment of the Gujarat High Court in CIT v. Ajay Printer Private Ltd. [1965] 58 ITR 811, the Appellate Assistant Commissioner accepted the claim made by the assessee. The Appellate Assistant Commissioner held that the activity of the assessee by way of production of motion pictures was liable to be treated as an "industrial undertaking" within the meaning of section 80J of the Income-tax Act, 1961, and the assessee was entitled to the necessary relief under the said section for the accounting period relevant to the assessment year 1972-73 and all subsequent years, subject to the assessee satisfying the other conditions also. Being aggrieved by the said order, the Department filed a second appeal before the Income-tax Appellate Tribunal. The Tribunal examined the matter in further depth. The expression "industrial undertaking" has not been defined in the Income-tax Act, 1961. The Tribunal applied the normal commercial meaning of the words "industrial underrating" in support of its view that the aforesaid activity amounted to "industrial undertaking" and also referred to the definition of the word "industrial" from the Concise Oxford Dictionary and the Chambers Twentieth Century Dictionary. The Tribunal relied upon various judgment of the of the Hon'ble Supreme Court delivered under the Central Excises and Salt Act, 1944, and particularly the judgments in Union of India v. Delhi Cloth and General Mills Co. Ltd. , and in South Bihar Sugar Mills Ltd. v. Union of India, , and held that "manufacture", in its ordinary connotation, meant production of articles which was commercially different from the basis component by which the item manufactured. We are in complete agreement with the view taken by the Tribunal. We do not think it necessary to refer to various judgment or discuss the matter in any greater detail.
3. Dr. Balasubramaniam, learned counsel for the Revenue, has fairly admitted that the above-referred circular is still operative and is being given effect to for the purpose of applying section 104(4)(a) of the Income-tax Act, 1961. Section 104(4)(a) reads as under : "104. (4) Without prejudice to the provisions of section 108, nothing contained in this section shall apply to -
(a) an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power;"
4. If the production of cinematograph film amounts to "manufacture of an article or goods" within the meaning of section 104(4)(a) as it then stood, it follows that the said activity must be treated as an "industrial undertaking" within the purview of section 80J of the Income-tax Act, 1961. Apart from the circular, we are satisfied that, even on a common sense view, "film production" will have to be considered as a manufacturing activity and the undertaking will have to be considered as an industrial undertaking. It is so considered under excise law and other allied laws also. Whether the assessee satisfies all other conditions of the said section or not will have to be examined by the authorities below to whom the directions have already been issued by the Income-tax Tribunal.
5. Accordingly, we answer the question referred to us in the affirmative and in favour of the assessee. There shall be no order as to costs.
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