Thursday, August 27, 2015

[aaykarbhavan] Judgements and Information [6 Attachments]






Imp Directive Of Bar Council For Practicing Advocates To Verify Themselves Before 15.09.2015 Or Face Suspension

It may be recalled that The Bar Council of India has issued a Notification dated 29th October 2014 by which the "Bar Council of India Certificate of Practice and Renewal Rules. 2014" have been notified.
The Bombay Bar Association has now issued the following directive:
Bar Council of India has framed the "Bar Council of India Certificate and Place of Practice (Verification) Rules 2015" which provide as follows:
"8.1 An advocate graduating in law in academic year 2009-2010 to 30th June, 2010) and thereafter, enrolled on the "Roll of Advocates" on or after June 12, 2010, is required to apply for issuance of "Certificate of Practice" under All India Bar Examination Rules, 2010 and for verification of such "Certificate of Practice" from the State Bar Council in which he/she is enrolled as an advocate under Rule 9.
8.2 An advocate having obtained graduate degree in law before the academic year 2010 enrolled on the "Roll of Advocates", is required to apply for verification of "Certificate of Practice and place of practice" from the State Bar Council in which he/she is enrolled as an advocate under this rule within a period of 6 months of the enforcement of these Rules/date of enrolment."
Rule 5(a) provides for a separate form of verification for Senior Advocates. Members who are Senior Advocates are requested to kindly submit the form accordingly.
A copy of the rules is available with the Bar Association. The necessary forms for the application for verification are also available. The members are requested to comply with the said Rules and to make the necessary applications after getting the same certified from the Bar Association. The last date for compliance is 15th September, 2015.
Stay by the Kerala High Court
According to press reports, the Kerala High Court has granted an ad-interim stay on the operation of the said Certificate and Place of Practice (Verification) Rules – 2015 in the case of MOHANAN L Vs. BAR COUNCIL OF INDIA (Writ Petition Civil 17467 of 2015). The Petition claims there is patent discrimination in the issuance of the 'certificate of practice' because it is not required to be obtained by advocates enrolled after the year 2010, but only by advocates enrolled prior to that year. It is also claimed that banning lawyers from practicing without a valid certificate from BCI amounts to forbidding legal practice to an advocate who was enrolled with the Bar Council of Kerala and other state bar councils.
A copy of the Petition is available here. However, the text of the High Court's order is not available. Also, the present status of the matter is not known.

Mitsui & Co. India Pvt. Ltd vs. DCIT (ITAT Delhi)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: , ,
COUNSEL: ,
DATE: August 20, 2015 (Date of pronouncement)
DATE: August 27, 2015 (Date of publication)
AY: 2007-08, 2008-09
FILE: Click here to download the file in pdf format
CITATION:
Transfer Pricing: Transactions of providing support services to "Sogo shosha" entities cannot be characterized as trading transaction for purposes of comparison and determining ALP and the cost of sales cannot be included
The assessee company is a wholly owned subsidiary of Mitsui & Co. Ltd., Japan. Mitsui & Co. Ltd., Japan is one of the leading sogo shosha establishment in Japan. Sogo shosha means general trading and these companies are general trading companies. These companies play an important role in linking buyers and sellers for wide range of products. The range is very wide that it includes grain and oil, machinery, equipment, etc. The assessee company being a subsidiary of the Mitsui & Co. Ltd., Japan provided support services to the various group entities of Mitsui & Co. Ltd., Japan. This support services is the main activity whereby it acts as a facilitator for the transactions entered into by Mitsui & Co. Ltd., Japan and other group entities of the Mitsui & Co. Ltd., Japan. The assessee used TNMM (Transactional Net Margin Method) as the most appropriate method and the Profit Level Indicator (PLI) selected was 'Berry Ratio' against operating expenses. The assessee claimed that the average berry ratio come out to 1.34 as against 1.09 computed on the basis of the 20 comparables set out in the transfer pricing study and hence the transactions entered into by the assessee company was at arm's length price. The TPO was also of the view that the way the assessee has computed arm's length price by using berry ratio as PLI, the entire international transactions relating to sales and services of the commodities have remained out of the PLI. He held that the cost of sale is to be included in the denominator of the PLI used. It was also held that as per the Income Tax Rules operating expenses cannot be the basis as these expenses do not include cost of sales. The TPO invoked Rule 10B(1)(e)(i) to hold that net profit margin realized by an assessee from an international transaction entered into with associated enterprises is to be computed in relation to costs incurred, sales effected or assets employed by the assessee. It was also held that as regards the support services provided by the assessee is concerned, the right course will be to treat such services as equivalent to trading and the income received by the assessee from such support services is to be considered as income from trading and comparison need to be made accordingly. This was upheld by the DRP. On appeal by the assessee to the Tribunal HELD allowing the appeal:
(i) The activities of purchase and sale i.e. trading involves risk and finance whereas in the activity of support services i.e. intending transactions the assessee has neither to incur any financial obligation nor carries any significant risk. The nature of two activities is absolutely different. The activities of trading i.e. purchase and sale are highly insignificant as compared to activity of support service which constitutes the core business activities of the assessee. The TPO and DRP are wrong in applying the trading margins ignoring the facts of the case that the assessee being a service provider the trading margins cannot be applied. Further, the TPO DRP have gone wrong in including the cost of sales in OP/TC ignoring the fact the value of the sale under no circumstances effects the activities of the assessee company, a service provider. For support services the correct method is the TNMM and the assessee has computed the same on the basis of OP/TC. The OECD guidelines also supports this contention that in TP study business transactions cannot be recharacterized. The support service or intending provided by the assessee company is nothing but a trading facilitation both in form and substance.
(ii) The trading activities are undertaken by Mitsui Japan not by Mitsui India. If it is import of goods for buyers in India, the Mitsui Japan has a contract with the Japanese suppliers and Mitsui Japan also enters into contract with the buyers in India. Similarly for exports from India, Mitsui Japan enters into a contract with Indian supplier directly for the purchase and sales transactions. Thus the role of Mitsui India, the assessee company is a mere facilitator, a mere service provider. Mitsui India does not take title or possession of the merchandise at any moment and bears no price risk. Mitsui India does not take inventory risk, it does not take warranty risk, it does not take credit risk. It does not employ its capital. In purchase and sale, inventory, advances, debtors, Mitsui India's main function is to maintain contact with the suppliers to ensure timely delivery of merchandise to the customers in the quality and grade desired, communicating with Mitsui India or its affiliates, gathering information on demand and supply conditions of the commodities. The above functions are entirely different than the trading business. In trading activities, one ventures himself. Buys and sells goods in it's account. It takes price risk, inventory risk, it deploys capital in inventory, debtors. It takes risk in warranty, credit, etc. Thus the functions performed, assets deployed and risk assumed in trading are entirely different than that of business support services. The TPO has gone wrong in holding that margins earned in trading are in identical circumstances as while providing support services.
(iii) As regards the issue of inclusion of cost of sales in the denominator, the reasoning given by the TPO that compensation model in the case of the assessee should be expressed as a percentage of FOB price of goods serviced through the assessee is also wrong. The comparison model as a percentage of the value of the goods can be good where the service provider has knowledge of the product, knowledge of the quality, its usage and has developed competency. In this regard this model can't be applied to an entity which is just providing support services to an entity who in turn has core competency of that business, its product, design, etc. There is a difference in carrying on the business oneself and providing support service to the one who is doing the business. That reasoning given by the TPO for adding cost of goods sold while computing margin is not correct. Rule 10B(e)(i) specifically provides that net profit margin in relation to transaction entered into with an AE is computed in relation to costs incurred, or sales effected or assets employed or to be employed by the enterprise. The cost incurred here will mean the cost incurred by the enterprise which will in the case of the assessee mean the cost incurred in providing services. Since no sales have been effected by the assessee company it is not appropriate to take cost of sales for computing margin. Even otherwise the compensation model to determine the arm's length price based on a single rate of commission on total FOB value of all types of goods to be sold will not be appropriate. The percentage of brokerage or commission for procuring business in respect of luxury goods or commodities is higher as compared to the percentage of commission or brokerage for high value products like gold, bullion. Similarly the percentage of commission or brokerage for consumer products is always higher as compared to the industrial products. Thus even where commission rate based on value of goods sold to be applied the nature and type of product n respect of which such services have been rendered have to be taken into consideration and then a comparison needs to be made with the commission rate prevalent in respect of such product goods. In the present case the nature of products and items varies a lot. The TPO without even looking at any of these items details has in a most arbitrary manner considered trading as one and the same to support services and applied trading margin in different nature of the product and items to the support services taking turnover of the AE as the basis. The TPO was not justified in re-characterizing the transaction of business support services as that into trading and applying the profit margin in the trading as the PLI (Sojitz India (P) Ltd. vs. DCIT 24 ITR (Trib) 474 (Del), Li and Fung India Pvt. Ltd. vs. CIT 361 ITR 85 (Delhi) and Mitsubhishi Corporation India (P) Ltd. vs. DCIT, ITA No. 5042/Del/11 dated 21.10.2014 followed)

Related Judgements

  1. Mitsubishi Corporation India Pvt. Ltd vs. DCIT (ITAT Delhi) 
    As regards the transfer pricing adjustment: (i) Even the TPO does not dispute that (a) MCI is a low risk activity in the field of trading, (b) MCJ group is primarily involved in high volume sales, or 'colossal sales' of…Read more ›
  2. Li And Fung India Pvt. Ltd vs. CIT (Delhi High Court) 
    Transfer Pricing: TNMM under Rule 10B(1)(e) contemplates ALP determination with reference to the relevant factors (cost, assets, sales etc.) of the assessee and not those of the AE or third party. Assessee's study report cannot be discarded without showing how it is wrong. Finding that assessee is a risk…
  3. Marubeni India Private Ltd vs. ACIT (ITAT Delhi) 
    Even if interest on surplus funds is assessed as "business income", it has to be excluded in computing the 'operating profits' because if it is included, one is computing the "return on investment" which is an inappropriate profit level indicator for a service provider. As the PLI is the…
  4. AWB India Pvt Ltd vs. DCIT (ITAT Delhi) 
    (i) One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can…Read more ›
  5. Nokia India (P) Ltd vs. DCIT (ITAT Delhi) 
    (i) The assessee simply purchased mobile phones and accessories from Nokia group companies situated outside India and resold the same as such without any further value addition, mainly, to HCL Infosystems in India. Since the goods imported from the foreign…Read more ›

Mitsui & Co. India Pvt. Ltd vs. DCIT (ITAT Delhi)

Transfer Pricing: Transactions of providing support services to "Sogo shosha" entities cannot be characterized as trading transaction for purposes of comparison and determining ALP and the cost of sales cannot be included
The activities of purchase and sale i.e. trading involves risk and finance whereas in the activity of support services i.e. intending transactions the assessee has neither to incur any financial obligation nor carries any significant risk. The nature of two activities is absolutely different. The activities of trading i.e. purchase and sale are highly insignificant as compared to activity of support service which constitutes the core business activities of the assessee. The TPO and DRP are wrong in applying the trading margins ignoring the facts of the case that the assessee being a service provider the trading margins cannot be applied. Further, the TPO DRP have gone wrong in including the cost of sales in OP/TC ignoring the fact the value of the sale under no circumstances effects the activities of the assessee company, a service provider. For support services the correct method is the TNMM and the assessee has computed the same on the basis of OP/TC. The OECD guidelines also supports this contention that in TP study business transactions cannot be recharacterized. The support service or intending provided by the assessee company is nothing but a trading facilitation both in form and substance

Infogain India Pvt. Ltd vs. DCIT (ITAT Delhi)

COURT:
CORAM: ,
SECTION(S): , ,
GENRE:
CATCH WORDS: , ,
COUNSEL: ,
DATE: August 19, 2015 (Date of pronouncement)
DATE: August 27, 2015 (Date of publication)
AY: 2008-09
FILE: Click here to download the file in pdf format
CITATION:
Transfer Pricing: Circumstances in which the Profit Split Method (PSM) has to be preferred over the TNMM for determining the ALP and method of allocation of profits between the assessee and the AE under the PSM explained
The Tribunal had to consider whether the most appropriate method is the Profit Split Method (PSM) as claimed by the assessee or the TNMM as claimed by the AO, while working out the Arm's length value in respect of international transactions between Infogain India i.e. assessee and Infogain US i.e. parent company. HELD by the Tribunal:
(i) Rule 10B(1)(d) of the Income Tax Rules, 1962, defines the Profit Split Method. From the provisions contained in the said Rule 10B(1)(d), it is clear that "PSM" may be applicable in case where transaction involved transfer of unique, intangibles or any multiple transactions interrelated international transactions which cannot be evaluated separately for determining the Arm's Length Price of any one transaction. The Profit Split Method (PSM) first identifies the profit to be split for the associated enterprise from the controlled transactions in which the AEs are engaged. It then splits these profits between the AEs on an economically valid basis that approximates the division of the profit that would have been anticipated and reflected in an agreement, transaction or a residual profit intended to represent the profit that cannot readily be assigned to one of the parties. The contribution of each enterprise is based upon a functional analysis and valued to the extent possible by any available reliable standard market data. The functional analysis is an analysis of the functions performed (taking into account assets used and risk assumed) by each enterprise (Aztech Software and Technology Ltd. Vs ACIT 107 ITD 147 (SB) and Global One India Pvt. Ltd. Vs ACIT in ITA No. 5571/Del/2011 referred);
(ii) A perusal of the function of the assessee company reveals that the international transactions are highly integrated and interrelated and both the entities are contributing significantly to the value chain of provision of software services to the end customers. The Global Delivery Organization Group (GDO) in India is responsible for delivery of services to the customers globally. The primary objective of the group is to bring synergies amongst geographic groups and project, to make efficient use of the available resources, to broaden areas of service offerings, to improve opportunity fulfillment ration, and to maximize customer satisfaction with each project execution. However, the TPO had not considered the role of the GDO. The assessee assigned weights to each activity keeping in view the relative importance in the entire value chain, based on interviews with the key management personnel and the functions in the value chain of software services provided by the Infogain Group to the customers based in the US were identified and weights were assigned to the functions having regard to their relative importance in the value chain. Both the parties i.e. Infogain India (assessee) and Infogain US are making contribution. Therefore, the Profit Split Method is the most appropriate method for determination of ALP. The decision as what is the most appropriate method does not depend on the fact as to whether an assessee is having loss or has a profit.
(iii) On the question as how the allocation is to be done for residuary profits under the Profit Split Method, it is well settled that as per the Rule 10D, the benchmarking should be done with the external uncontrolled transactions, however, in the present case, it is not possible to get a comparable. Therefore, such allocation can be done on the basis that how much each independent enterprise might have contributed. Therefore, relative contribution has to be determined, based on key value drivers because benchmarking is not practicable. In the present case, as the comparables having similar transactions would be difficult to find out, therefore, in such a situation, a harmonious interpretation of the provisions is required to make the rule workable, so as to achieve the desired result of the determination of the ALP.
(iv) Both the OECD Transfer Pricing Guidelines as well as the UN draft method of transfer pricing for developing countries, suggest that an allocation of residual profits under PSM should be done, based on contributions by each entity. In the present case, since the department has accepted in the preceding year and the succeeding year 40:60 ratio between the Infogain India and Infogain US and if the facts are similar for the year under consideration then no deviation is to be done.

Related Judgements

  1. ITO vs. Net Freight (India) P. Ltd (ITAT Delhi) 
    Transfer Pricing: Law for applying Profit Split Method as per Rule 10B (1) (d) explained
    The Profit Split Method as provided under Rule 10 B(1)(d) is applicable mainly in international transactions: (a) involving transfer of unique intangibles; (b) in multiple international transactions which are so interrelated that…
  2. Yamaha Motor India Pvt. Ltd vs. ACIT (ITAT Delhi) 
    The argument of the department that under Rule 10B(1)(b) the Resale Price Method can be applied only when the assessee buys from an associated enterprise and sells to a non-associated enterprise and not when the sale is to an AE…Read more ›
  3. Toll Global Forwarding India Pvt Ltd vs. DCIT (ITAT Delhi) 
    The assessee followed the 50:50 business model of sharing residual profits in equal ratio with the service provider at the other end of the transaction i.e. at the consignee's end in the case of export transaction and at consigner's end…Read more ›
  4. Clear Plus India Pvt Ltd vs. DCIT (ITAT Delhi) 
    U/s 92C read with Rule 10B, the most appropriate method has to be applied for determination of arm's length price. In principle, the CUP method (the traditional transaction method) is preferable to the other methods because all other things being equal, the CUP and traditional transactional methods lead to…
  5. Mitsui & Co. India Pvt. Ltd vs. DCIT (ITAT Delhi) 
    The activities of purchase and sale i.e. trading involves risk and finance whereas in the activity of support services i.e. intending transactions the assessee has neither to incur any financial obligation nor carries any significant risk. The nature of two activities is absolutely different. The activities of trading i.e….

Infogain India Pvt. Ltd vs. DCIT (ITAT Delhi)

Transfer Pricing: Circumstances in which the Profit Split Method (PSM) has to be preferred over the TNMM for determining the ALP and method of allocation of profits between the assessee and the AE under the PSM explained
The Profit Split Method (PSM) first identifies the profit to be split for the associated enterprise from the controlled transactions in which the AEs are engaged. It then splits these profits between the AEs on an economically valid basis that approximates the division of the profit that would have been anticipated and reflected in an agreement, transaction or a residual profit intended to represent the profit that cannot readily be assigned to one of the parties. The contribution of each enterprise is based upon a functional analysis and valued to the extent possible by any available reliable standard market data. The functional analysis is an analysis of the functions performed (taking into account assets used and risk assumed) by each enterprise

CIT vs. Noida Medicare Centre Ltd (Delhi High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: August 4, 2015 (Date of pronouncement)
DATE: August 27, 2015 (Date of publication)
AY: 2009-10
FILE: Click here to download the file in pdf format
CITATION:
S. 32: Customs duty paid in a later year can be capitalized in the year the obligation to pay the duty arose. Question whether it can be capitalized in year of import of the goods left open
The assessee imported hospital equipment valued at Rs. 2,75,11,988 during the years 1988-89 and 1992-93, without payment of custom duty, on the basis of a customs duty exemption certificate ('CDEC') issued by the Director General of Health Services ('DGHS'). The equipment thus imported was capitalized by the Assessee on the actual value of the equipment paid by it. Depreciation was being claimed on the said equipment from year to year at the prescribed rate as per the Act. Subsequently, the DGHS noted that the assessee had failed to fulfil the essential condition stipulated in the relevant notification of the Customs Department dated 1st March 1968 for retaining CDECs for import of hospital equipments. Accordingly, the CDEC granted to the Assessee stood withdrawn. In AY 2005-06, upon such withdrawal, the Customs authorities raised a demand of Rs. 1,10,04,795 (reduced from Rs. 3,78,66,864) as custom duty on the Assessee for the import of equipment in the aforementioned years. In AY 2009-10, the assessee treated the said payment as 'new' plant and machinery and claimed 100% depreciation on it. The Tribunal allowed the claim. On appeal by the department to the High Court HELD dismissing the appeal:
The central question is whether the obligation to pay customs duty related back to the actual date of payment of customs duty or the date of import of the equipment and whether the said customs duty paid in the previous year relevant to the AY in question can be capitalized with reference to an earlier year. In Funskool (India) Limited (2007) 294 ITR 642 (Mad) the question was whether depreciation could be claimed on the additional customs duty paid in the previous year relevant to the AY in question although such customs duty was in respect of machinery that was imported and installed in an earlier year. That question was answered in the affirmative by the Madras High Court by following the judgment of the Gujarat High Court in Atlas Radio and Electronics P. Limited v. Commissioner of Income Tax (1994) 207 ITR 329 (Guj) in which it was held that even though the sales tax was paid in a subsequent year, the liability to pay sales tax arose in the accounting period relevant to the assessment year in which the machinery was purchased. It was held on the facts of that case that the development rebate had to be claimed in the AY in which the machinery was purchased. Following the above decision of the Madras High Court in Funskool (India) Limited (supra), we are of the view that in the instant case, the AO erred in disallowing the capitalization of the additional customs duty in the manner claimed by the Assessee and adding the entire customs duty paid in the relevant AY to the income of the Assessee. The impugned order of the ITAT affirming the decision of the CIT (A) that the enhanced cost of equipment should be taken into consideration from AY 2005-06 onwards and that the WDV should be reworked for the AY in question does not call for interference. However, as the assessee has not preferred an appeal against the rejection of its cross-objection by the ITAT, the question whether the assessee would be entitled to claim deprecation on the customs duty paid from the year of actual import of equipment is not considered but left open for decision in an appropriate case.

Related Judgements

  1. CIT vs. Bharat Aluminium (Delhi High Court) 
    Though as per s. 32(1) the asset is to be owned and "used" for the purpose of business or profession, the expression "used for the purpose of business" when applied to block asset would mean use of block asset and not any specific items in the said block as…
  2. CIT vs. Mentor Graphics (Noida) Pvt. Ltd (Delhi High Court) 
    The Tribunal was wrong in holding that if one profit level indicator of a comparable, out of a set of comparables, is lower than the profit level indicator of the taxpayer, then the transaction reported by the taxpayer is at an arm's length price and there is no need…
  3. Tirumala Music Centre (P) Ltd vs. ACIT (ITAT Hyderabad) 
    S. 32(1)(ii): Any right (including leasehold rights) which enables carrying on business effectively and profitably is an "intangible asset" & eligible for depreciation
    S. 32(1)(ii) allows depreciation on "business or commercial rights" The expression "business or commercial rights" means rights obtained for effectively carrying on business or commerce….
  4. DCIT vs. Artemis Medicare Service Ltd (ITAT Delhi) 
    Determination of the vexed questions as to whether a contract is a contract of service or contract for service and whether the employees concerned are employees of the contractors has never been an easy task. No decision of this Court has laid down any hard-and-fast rule nor is it…
  5. M/s. Chakrabarty Medical Centre vs. TRO (ITAT Pune) 
    Under s. 239 of the Indian Contract Act and s. 14 of the Indian Partnership Act, for the purpose of bringing the separate properties of a partner into the stock of the firm it is not necessary to have recourse to any written document at all, that as soon…

CIT vs. Noida Medicare Centre Ltd (Delhi High Court)

S. 32: Customs duty paid in a later year can be capitalized in the year the obligation to pay the duty arose. Question whether it can be capitalized in year of import of the goods left open
The central question is whether the obligation to pay customs duty related back to the actual date of payment of customs duty or the date of import of the equipment and whether the said customs duty paid in the previous year relevant to the AY in question can be capitalized with reference to an earlier year. In Funskool (India) Limited (2007) 294 ITR 642 (Mad) the question was whether depreciation could be claimed on the additional customs duty paid in the previous year relevant to the AY in question although such customs duty was in respect of machinery that was imported and installed in an earlier year. That question was answered in the affirmative by the Madras High Court by following the judgment of the Gujarat High Court in Atlas Radio and Electronics P. Limited v. Commissioner of Income Tax (1994) 207 ITR 329 (Guj) in which it was held that even though the sales tax was paid in a subsequent year, the liability to pay sales tax arose in the accounting period relevant to the assessment year in which the machinery was purchased.


Mool Chand Khairati Ram Trust vs. DIT(E) (Delhi High Court)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: July 27, 2015 (Date of pronouncement)
DATE: August 27, 2015 (Date of publication)
AY: 2006-07
FILE: Click here to download the file in pdf format
CITATION:
S. 11: A charity is not entitled to exemption if it carries out activities not as per the objects. The fact that such ultra vires objects are also charitable is not relevant. Fact that CIT has granted registration u/s 12A does not preclude AO from examining compliance with s. 11. Incidental objects to attain the main object, even if significant in value, are permissible. Under principles of consistency, AO is not permitted to change view in the absence of a change in facts
The Assessee contended that it was a charitable institution engaged in running a hospital (both Allopathic and Ayurvedic) and the same constituted a charitable purpose within the meaning of Section 2(15) of the Act. It was urged that as the Assessee had applied its income for charitable purposes, the same was exempt under Section 11 and 12 of the Act. The Assessee further contended that it had been granted registration under Section 12A of the Act after considering the nature of its activities and, therefore, it was not open for the AO to deny the exemption under Section 11 of the Act. The CIT(A) accepted the contentions. However, the Tribunal held that the Assessee's activities relating to Allopathic system of medicine had more or less supplanted the activities relating to Ayurvedic system of medicine and concluded that pre-dominant part of the Assessee's activities exceeded the powers conferred on the trustees and the objects of the Assessee Trust were not being followed. The Tribunal held that whilst the activities of the Assessee relating to providing medical relief by the Ayurvedic system of medicine were intra vires its objects, the activities of providing medical reliefs through Allopathic system of medicine was ultra vires its objects. Consequently, the Assessee was not entitled to exemption under Section 11 of the Act in respect of income from the hospital run by the Assessee, which offered medical relief through Allopathic system of medicine. Accordingly, the Tribunal directed that the income and expenditure of the Assessee from the activities relating to the two disciplines of medicine, namely Ayurveda and Allopathy, be segregated. On appeal by the assessee to the High Court HELD:
(i) The expression "such purposes" in s. 11 clearly refers to the purposes for which the property is held in Trust. Both the conditions i.e. the income should be derived from the property held in Trust for charitable or religious purposes and the condition that the income is applied for such purposes, are cumulative. The contention of the assessee that the expression "such purposes" would mean any charitable or religious purpose, even if the said purpose is not the purpose for which the property is held in Trust is not acceptable. The contention that as long as the Assessee applies the income from a property held in Trust for charitable or religious purpose, to any charitable or religious purpose, the exemption under Section 11(1)(a) of the Act would be available, notwithstanding that the purpose for which the income is applied is not the purpose for which the property is held in Trust, cannot be sustained as the same would be contrary to the plain language of Section 11(1)(a) of the Act. In order for any income to be excluded from the scope of total income, the same must be derived from a property held in Trust for a charitable or religious purpose and must also be applied for that purpose (Commissioner of Income Tax, Ujjain v. Dawoodi Bohara Jamat: (2014) 364 ITR 31 (SC) referred).
(ii) There is also no merit in the contention that the AO is not entitled to inquire whether the income is applied towards the charitable or religious purpose for which the property, from which the income is derived, is held in Trust. It is necessary for the AO to satisfy himself that the conditions for exclusion, as specified under Section 11(1)(a) of the Act, are met and for the said purpose the AO can make such inquiries as necessary. The contention that since the Commissioner, by virtue of Section 12A(3) of the Act, is empowered to cancel the registration granted to an Assessee if it is found that the activities of a Trust or an institution are not genuine or are not being carried out in accordance with the object of the Trust or institution, the AO is precluded from examining whether the Assessee had applied its income for the object of the Trust or institution, is wholly without merit.
(iii) The opening words of Section 12A(1) of the Act clearly indicate that the conditions imposed under that section are in addition to the conditions or exemptions as specified under Section 11 and 12 of the Act. Thus, if the conditions as specified under Section 12A(1) of the Act are not met, then the exemption available under Section 11 of the Act would not be available to the Assessee. This does not mean that if a trust is registered under Section 12A of the Act, exemption under Section 11 and Section 12 of the Act would necessarily follow. The provisions of Section 12 of the Act do not curtail or in any manner dilute the mandatory requirements of Section 11 of the Act. Thus, notwithstanding that an Assessee has been granted a registration under Section 12A of the Act, it would be necessary for the Assessee to comply with the conditions of Section 11 of the Act in order to claim any benefit under the provisions of that Section.
(iv) On facts, the hospital run by the Assessee is an integrated hospital offering treatments under the Ayurvedic system of medicine as well as under the Allopathic system of medicine. The objects do not prohibit running of an Allopathic hospital or drawing from any the other system of medicine for improving the Ayurvedic system of medicine. The Assessee's endeavour of running a hospital providing modern techniques and treatment which would also be a source for improving Ayurvedic system of medicine would, plainly, be an activity towards the objects as specified. Merely because, running of an Allopathic hospital is not specifically mentioned, it does not necessarily mean that the same would be ultra vires the objects, as establishment of an Allopathic hospital does assist the Assessee in its object of improving the Ayurvedic system and taking assistance from the Allopathic system of medicine. Any activity reasonably incidental to the object would not be ultra vires the objects. Thus, the AO and the Tribunal erred in concluding that the Assessee's activities were in excess of its objects. Running an integrated hospital would clearly be conducive to the objects of the Assessee. The trustees have carried out the activities of the trust bonafide and in a manner, which according to them best subserved the charitable objects and the intent of the Settlor. Thus the activities of the Assessee cannot be held to be ultra vires its objects. The AO and the Tribunal were unduly influenced by the proportion of the receipts pertaining to the Ayurvedic Research Institute and the hospital. In our view, the fact that the proportion of receipts pertaining to the Ayurvedic Research Institute is significantly lower than that pertaining to the hospital would, in the facts of the present case, not be material. Undisputedly, significant activities are carried out by the Assessee for advancement and improvement of the Ayurvedic system of medicine in the institution established by the Assessee and though the receipts from the Allopathic treatment are larger, the same does not militate against the object for which the institution has been set up and run.
(v) It was not open for the AO to take a view different from the one that has been accepted by the Revenue for the past several decades. It is well established that each year is a separate assessment unit and the principles of res judicata are not applicable. However, in this case, it would be appropriate to note that the activities carried out by the Assessee have been accepted as being amenable to exemption under Section 11 of the Act for the past several decades. In the past period, the Assessee has been granted exemption under Section 11 of the Act and also under Section 10(22)/10(22A) or Section 10(23C) of the Act. Concededly, the exemptions granted to the Assessee for past several decades would not be available if the activities of the Assessee were considered by the concerned AOs/Authorities to be ultra vires its objects. In the circumstances, it would not be apposite to permit the Revenue to challenge a position that has been sustained over several decades without there being any material change. (Radhasoami Satsang v. CIT:(1992) 193 ITR 321 (SC), Commissioner of Income Tax v. Excel Industries Ltd.: (2013) 358 ITR 295 (SC) and Parashuram Pottery Works Co. Ltd. v. ITO: (1977) 106 ITR 1 SC followed)

Related Judgements

  1. Kapurthala Improvement Trust vs. CIT (ITAT Amritsar) 
    The impact of the proviso to Section 2(15) being hit by the assessee will be that, to that extent, the assessee will not be eligible for exemption under section 11 of the Act. The mere fact that the assessee is granted registration under section 12 A or 12AA as…
  2. Vanita Vishram Trust vs. CCIT (Bombay High Court) 
    The fact that a surplus incidentally arises from the activities of the assessee does not disentitle an assessee of the benefit of s. 10(23C). The third proviso to s. 10(23C) which permits accumulation of surplus up to limits shows that the generation of surplus is per se not a…
  3. Fateh Chand Charitable Trust vs. CIT (Allahabad High Court) 
    It is a shocking to note that as a matter of fact, the said assessment order is no assessment order in the eyes of law. There is not even a whisper with regard to the receipt of donation of Rs. 1.57 crore. It is really not understandable under what…
  4. ITO vs. Bhartiya Vidya Mandir Trust (ITAT Chandigarh) 
    The decision of the Hon'ble Supreme Court in A.L.N Rao Charitable Trust reported in 216 ITR 697(SC) clearly held that there is a blanket exemption with regard to the 25% (now 15%) of gross receipts as per second part of Section 11(1)(a) of the Income Tax Act. This exemption…
  5. ITO vs. Saraswati Educational Charitable Trust (ITAT Lucknow) 
    To be excluded from the definition of expression "anonymous donation" the person receiving the voluntary contributions referred to in section 2(24) (iia) is required to maintain a record of identity indicating the name and address of the contributor and such other particulars as may be prescribed. Since no other…

Mool Chand Khairati Ram Trust vs. DIT(E) (Delhi High Court)

S. 11: A charity is not entitled to exemption if it carries out activities not as per the objects. The fact that such ultra vires objects are also charitable is not relevant. Fact that CIT has granted registration u/s 12A does not preclude AO from examining compliance with s. 11. Incidental objects to attain the main object, even if significant in value, are permissible. Under principles of consistency, AO is not permitted to change view in the absence of a change in facts
The expression "such purposes" in s. 11 clearly refers to the purposes for which the property is held in Trust. Both the conditions i.e. the income should be derived from the property held in Trust for charitable or religious purposes and the condition that the income is applied for such purposes, are cumulative. The contention of the assessee that the expression "such purposes" would mean any charitable or religious purpose, even if the said purpose is not the purpose for which the property is held in Trust is not acceptable. The contention that as long as the Assessee applies the income from a property held in Trust for charitable or religious purpose, to any charitable or religious purpose, the exemption under Section 11(1)(a) of the Act would be available, notwithstanding that the purpose for which the income is applied is not the purpose for which the property is held in Trust, cannot be sustained as the same would be contrary to the plain language of Section 11(1)(a) of the Act. In order for any income to be excluded from the scope of total income, the same must be derived from a property held in Trust for a charitable or religious purpose and must also be applied for that purpose

Hasmukh N. Gala vs. ITO (ITAT Mumbai)

S. 54: Giving advance to builder constitutes "purchase" of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period
The word 'purchase' used in Section 54 of the Act should be interpreted pragmatically. The intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax

Hasmukh N. Gala vs. ITO (ITAT Mumbai)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: , ,
COUNSEL:
DATE: August 19, 2015 (Date of pronouncement)
DATE: August 27, 2015 (Date of publication)
AY: 2010-11
FILE: Click here to download the file in pdf format
CITATION:
S. 54: Giving advance to builder constitutes "purchase" of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period
The assessee declared sale of a residential property vide sale agreement dated 8/12/2009 for a total consideration of Rs.1,02,55,000/-. After considering the indexed cost of acquisition of Rs.14,17,904/-, the long term capital gain was computed at Rs.88,37,096/-. The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house. The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs.1.00 crore given to the builder as booking advance through a cheque dated 6/2/2010. The AO denied the claim for exemption on the ground that the provisions of section 54 of the Act require the assessee to purchase a new residential house either within a period of one year before the date on which the transfer of original asset took place or two years after date on which such transfer take place. He held that as even after two years of the date of transfer of old house the construction of the new property was not completed and that assessee had not gained possession of the new premises also. He, therefore, held that assessee did not comply with the requirements of section 54 of the Act in as much as it could not be said that assessee had purchased a new residential house within the period prescribed therein. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:
(i) It is not disputed by the Revenue that the sum of Rs.1.00 crore has been invested by the assessee towards acquiring new property. Of course, the legal title in the said property has not passed or transferred to the assessee within the specified period and it is also quite apparent that the new property was still under construction. So however, the allotment letter by the builder mentions the flat number and gives specific details of the property. The word 'purchase' used in Section 54 of the Act should be interpreted pragmatically. The intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax (CIT vs. Kuldeep Singh, 270 CTR 561 (Del), Smt. Ranjeet Sandhu vs. DCIT, 49 SOT 7 (Chandigargh) & Sanjeev Lal v. CIT [2014] 46 taxmann.com 300 referred)
(ii) The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued. As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act. In our considered opinion, the aforesaid does not militate against assessee's claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned. In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee's claim under section 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provision also does not justify the action of the Assessing Officer in denying the claim of exemption under section 54 in the instant assessment year.

Related Judgements

  1. ACIT vs. Sagar Nitin Parikh (ITAT Mumbai) 
    The booking of a flat which is going to be constructed by a builder has to be considered as a case of "Construction of flat". Deduction u/s 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant…
  2. CIT vs. Dr. P. S. Pasricha (Bombay High Court) 
    S. 54 provides that if an assessee has LTCG on transfer of a residential house and he purchases or constructs a residential house within the specified period then the amount appropriated towards the new house shall be deducted from the LTCG. The assessee sold a house and used the…
  3. Pradeep Kumar Chowdhry vs. DCIT (ITAT Hyderabad) 
    A flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the…
  4. CIT vs. Sambandam Udaykumar (Karnataka High Court) 
    S. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement…
  5. ITO vs. Narinder Kaur Bhatia (ITAT Mumbai) 
    (i) The assessee purchased a residential flat on 08.01.1981, which was sold on 07.02.2007 for a sale consideration of Rs.1,25,00,000/-. The long term capital gain on such sale amounted to Rs.1,14,63,650/-. Before the said sale, assessee had entered into an…Read more ›

SEBI proposes open offer exemption for share forfeiture, floats discussion paper

SEBI floats discussion paper for reviewing policy relating to forfeiture of partly paid-up shares (subject to compliance of Cos. Act, 2013 and Articles of Association), proposes amendments to Takeover Code; Notes that presently there is no provision for increase in voting rights of a shareholder due to expiry of call notice period and forfeiture of partly paid-up shares, wherein separate applications​ need to be filed with SEBI for seeking exemption from open offer obligations; Observes that facts of such applications are similar but passing such exemption orders take enormous amount of time and efforts, also notes that such increase in voting rights is 'passive' in nature; Seeks comments on proposed amendments in prescribed format on or before September 30, 2015: SEBI

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SEBI advises registered intermediaries to ensure compliance of Income Tax Rules & FATCA

SEBI states that India has joined Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account information and accordingly all countries (which are signatories to MCAA) are obliged to exchange wide range of financial information after collecting from financial institutions in their country / jurisdiction; States that on implementation of MCAA and agreement with USA, Govt. has made necessary legislative changes to Income tax Act,1961 and notified rules under Income Tax Rules, 1962; Advises registered intermediaries to take necessary steps for ensuring compliance of said Rules: SEBI

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SEBI issues FAQs on delisting regulations, elaborates on exit opportunities available for investors

SEBI issues frequently asked questions (FAQs) on Delisting Regulations, 2009; States that in voluntary delisting, co. decides on its own to remove its securities from stock exchange whereas in compulsory delisting, securities of the company are removed from stock exchange as a penal measure for not making submissions/complying with various requirements of Listing agreement; ​Explains​ the exit opportunity available for existing investors of the listed company; Clarifies on whether company listed on more than one stock exchange has to provide exit offer to shareholders in case it delists from one stock exchange but remains listed on the other stock exchange; States that 'reference date' for computing floor price would be the date on which recognized stock exchanges were notified of the board meeting in which the delisting proposal was be considered: SEBI

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FinMin approves creation of 'National Investment & Infrastructure Fund', prescribes sources & governance structure

Ministry of Finance approves creation of 'National Investment and Infrastructure Fund' ('NIIF') with an objective of maximizing economic impact mainly through infrastructure development in commercially viable projects (both, Greenfield & Brownfield); States that NIIF will be established as one or more Alternative Investment Funds ('AIF') with initial authorized corpus of Rs. 20,000 crores, which may be raised from time to time; States that NIIF will solicit equity participation form strategic anchor partners; States that NIIF will be established as trust / other legal entity, wherein the governing council will have Govt. representatives and experts from international finance, eminent economist: Ministry of Finance

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Central Govt. appoints Shri Arun Sathe as SEBI, Part time Member

Central Govt. appoints Shri. Arun P. Sathe, as Part Time Member of SEBI for 3 years from date of assumption of charge of the post or until further orders, whichever is earlier.  

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CBI's investigation-report insufficient reason to initiate winding-up on 'just' & 'equitable' grounds

Division Bench of Delhi HC directs Single Judge to consider recall of winding-up petition of M/s Cyberspace Ltd ('the company') on merits, Single Judge had dismissed recall of winding up order on the ground of 2 years unexplained delay; Notes that appellant (ex-director of co.) had explained the delay in filing recall application that he was implicated under criminal proceedings and was released on bail only after final winding-up order was passed; Holds that, "In any case..the delay by itself would not shut down the doors of the court to a person where such a delay can be compensated by way of imposition of costs"; Notes that winding-up was initiated on the ground that it was just & equitable (u/s 433(f)) to wind up the co based on CBI's report, holds "This by itself would not fulfil the requisite satisfaction of provisions contained under sub-section (f) of Section 433 of the Companies Act.."; Further holds that "winding up orders are the last resort which are passed only after the court concludes that it is just, convenient and essential to wind up the company…":Delhi HC

The order was passed by Justice Gita Mittal and Justice I.S.Mehta.
Advocates P. Nagesh, Anand M. Mishra, argued on behalf of appellant while Advocate Anjana Gosain, Rajiv Bahl represented respondents.


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