Section 54 only requires investment of capital gains, which can be in several independent residential units, High Court rules

CIT V. SYED ALI ADIL (Andhra Pradesh High Court)

Exemption under section 54 cannot be denied, where residential house property purchased by an assessee consists of several independent units

In the instant case, the assessee had claimed deduction under section 54 in respect of two independent flats purchased by him with sale proceeds of an ancestral house property. During assessment, the Assessing Officer (AO) held that deduction was to be restricted to only one flat since the two residential units purchased by the assessee were separated by a strong wall and, moreover, they were purchased from two different vendors and under separate sale deeds. On appeal, the CIT(A) sets aside the order of AO and the Tribunal confirmed the order of CIT(A). Aggrieved by the order revenue has filed the instant appeal.

The High Court held in favour of assessee as under:

1. The expression ‘a residential house’ used in section 54(1) has to be understood in a sense that the building should be of residential nature and ‘a’ should not be understood to indicate a singular number; 
2. Where assessee had purchased two residential flats, he was entitled to exemption under section 54 in respect of both the flats, more so, when the flats were situated side by side and the builder had effected modification of the flats to make them as one unit, despite the fact that the flats were purchased by separate sale deeds; 
3. The two flats purchased by the assessee were adjacent to one another and had a common meeting point. Exemption under section 54 only requires that the property should be of residential nature. The fact that residential house consists of several independent units can’t be an impediment to grant relief under section 54, even if such independent units are on different floors; 
4. The decision in ITO v. Shushila M. Jhaveri [2007] 107 ITD 327 (Mum) (SB) holding that only one residential house had to be given the relief under section 54 didn’t appear to be correct and was to be disapproved. Hence, sec. 54F exemption was to be granted to assessee in respect of two independent flats purchased by him.

Indian subsidiary providing back office support to its overseas parent company to be treated as fixed place Permanent Establishment; Tribunal provides a method to allocate profits to Permanent Establishment

CONVERGYS CUSTOMER MANAGEMENT GROUP INC. V. ADIT (INTERNATIONAL TAXATION) (Delhi - Tribunal)

In the instant case, the assessee, i.e., 'CCMG', a US based company, providing IT enabled customer management services, had a subsidiary in India in name of CIS which was providing IT enabled call centre or back office support service to assessee to service its Indian customers. Issues that arose before the Tribunal were as under:

a) Whether assessee had a Fixed Place Permanent Establishment?

b) Determination of profits attributable to the alleged Permanent Establishment (PE) in India.

The Tribunal held as under:

On the issue of PE

1. The employees of the assessee frequently visited the premises of CIS to provide supervision, direction and control over the operations of CIS and such employees had a fixed place of business at their disposal; 
2. CIS was practically the projection of assessee's business in India and carried out its business under the control and guidance of the assessee, without assuming any significant risk in relation to such functions; 
3. Thus, the finding of the CIT(A) that assessee has a fixed place PE in India under Article 5(1) of the India-USA DTAA was upheld. There was no infirmity in the order of the CIT(A) that CIS did not constitute a dependent agent PE of the assessee in India as the conditions provided in paragraph 4 of Article 5 of the India-USA DTAA were not satisfied.

On the issue of profits attributable to PE

• An overall attribution of profits to the permanent establishment is a transfer pricing issue and no further profits can be attributed to a PE once an arm's length price has been determined for the Indian associated enterprise, which subsumes the functions, assets and risk profile of the alleged PE; 
• The correct approach to arrive at the profits attributable to the PE should be as under:

Step 1: Compute global operating income percentage of the customer care business as per annual report of the company.

Step 2: This percentage should be applied to the end-customer revenue with regard to contracts/projects where services were procured from CIS. The amount arrived at would be the operating income from Indian operations.

Step 3: The operating income from India operations is to be reduced by the profit before tax of CIS. This residual is now attributable between US and India.

Step 4: The profit attributable to the PE should be estimated on residual profits as determined under Step 3 above.

Delhi High Court interprets sec. 80-I broadly; conditions stipulated by sec. 80-I to be satisfied only in initial Assessment Year

DELHI PRESS PATRA PRAKASHAN LTD. V. CIT (Delhi High Court)
 

The Delhi High Court clarifies several aspects of sec. 80-I provisions and held as under:

• Industrial undertaking which undertakes job work would be entitled to section 80-I deduction:

1. There was nothing in the language of Section 80-I(2)(iii) of the Act to suggest that the assessee claiming the benefit of Section 80-I must structure his business in any particular form. Carrying on job work is only a method of structuring his business; 
2. An assessee owning an industrial undertaking may either choose to purchase raw material on its own and process the same or it may acquire raw material on job work basis and utilize the same for carrying on the industrial activity;
3. In either event so long as the industrial undertaking owned by the assessee fulfills the conditions as specified under Section 80-I(2), the benefit of Section 80-I couldn’t be denied to the assessee.

• Printing amounted to "manufacture or production of an article or thing"

1. It can’t be said that the printing does not alter the character of the paper used and there is no distinction between the raw paper and the resultant product; 
2. The purpose and usage of a blank paper is completely different from the use and purpose of a printed magazine or periodical;
3. Once the blank paper undergoes a process of printing, the character of blank paper changes completely and the content of the printed material now becomes the identity of a printed paper;
4. A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from a blank paper on which it is printed; 
5. The expression used in Section 80-I(2)(iii) is "manufacture or produce any article or thing" which is much wider and, thus, would take in its sweep any article that may be manufactured or produced.

‘Limitation on benefit’ clause denies treaty benefit for non-remittance of interest to Singapore

ABACUS INTERNATIONAL (P.) LTD. V. DY. DIT (INTERNATIONAL TAXATION) (Mumbai - Trib.)
 

Tax refund received by Singaporean resident won’t be taxed at concessional rate of 15% under Article 11 of India-Singapore DTAA, as mere proving that it has not been deposited in bank account in India wouldn’t be sufficient to prove its receipt in or remittance to Singapore to satisfy limitation of benefit clause.

In the instant case, the assessee, a resident of Singapore, had received interest on Income-Tax refund. Assessee contended that it was taxable at concessional rate of 15% as per Article 11(2) of India-Singapore DTAA. However, Revenue taxed it at 20% as per section 115A by applying Article 24(limitation on benefit) of India-Singapore DTAA. The CIT(A) upheld order of Assessing Officer. Thus, the instant appeal was filed by assessee against CIT(A)’s decision.

The Tribunal held as under:

• Article 24 of the India-Singapore DTAA limits the relief granted by other relevant Articles, including article 11 of the DTAA, subject to the fulfillment of the conditions enshrined therein; 
• Article 24 of the DTAA provides that the receipt or remittance of income in Singapore is sine qua non for claiming the benefit of lower rate of tax on the interest income from India. Thus, if the income hadn’t been remitted to or received in Singapore, then the benefit of Article-11 providing for a reduced rate of tax of 15% couldn’t be extended to the assessee. In that situation, the income would be taxed as per the Act, as had been done by the IT authorities;
• The acceptance of Ld AR claim, that assessee had no bank account in India and, hence, the only possibility of receipt, was of receiving the amount in Singapore, would lead to making the Article 24 redundant and putting an unending burden on the Revenue to prove the negative, the positive of which is otherwise required to be established by the assessee;
• The assessee had its presence in several countries and he could, instead of depositing the refund voucher in some bank account in Singapore, also deposit it in its bank account maintained in some other country, in which case again the requirement of Article 24 would be wanting;
• The burden was on the assessee to prove that the amount of income was remitted to or received in Singapore. This burden could be discharged by showing a credit in the bank account maintained by the assessee in Singapore; 
• A submission not backed by any supporting evidence to prove the fulfillment of the requisite condition, couldn’t be a good reason for drawing an inference in favour of the assessee. The authorities below were justified in refusing the benefit of Article-11 of the DTAA to the assessee by taxing the interest on income-tax refund @ 20% as per section 115A of the Act.

Assessing Officer can’t compare assessee’s Gross Profit rate with third party if no variation found in its past records

CIT V. JAIMAL RAM KASTURI (Rajasthan High Court)

Assessing Officer (AO) was not justified in making addition to gross profit rate declared by assessee comparing it with the case of another assessee engaged in same line of business when assessee's past history was available and there was no material difference in facts pertaining to assessment year under consideration and current year

In the instant case, the assessee was engaged in the liquor business. During assessment, the AO held that the books of account maintained by the assessee were not reliable, thus, he rejected the same by applying provisions of section 145(2). The AO then held that the profit of liquor business of the assessee had to be determined in comparison with other assessee engaged in the same line of business and made addition by taking higher rate of net profit in comparison to the rate declared by assessee. However, the CIT (A) was of the view that the past history of the case becomes relevant and the same could be a guide for reasonable profit and restricted the addition made by the AO. Further, the Tribunal deleted the entire addition.

The High Court held in favour of assessee as under:

• The CIT (A) had given cogent reason for not endorsing the approach of the AO in making assessment with reference to the case of another assessee, after finding that the case of assessee was not directly comparable case; 
• Assessee's past history was available and there was no material difference in the facts pertaining to the relevant assessment year and the past history year; 
• The CIT (A) even while accepting past history as the relevant basis for assessment, proceeded to retain a part of the addition without cogent and sufficient reason thereof. The Tribunal, therefore, while endorsing the basis adopted by the CIT(A), has found no reason to sustain any addition and deleted the addition altogether. 
• The Tribunal had rightly accepted the profit rate declared by the assessee while not approving the rate as applied by the AO. Thus, the order passed by the Tribunal didn’t suffer from any perversity or from the application of any wrong principle so as to call for interference. 

Expenditure disallowed for default in withholding tax would qualify for sec. 80-IB deductions

ITO V. KEVAL CONSTRUCTION (Gujarat High Court)

Disallowance for non-deduction of TDS liability would increase profit of assessee from business of developing housing projects and ultimate profit would qualify for deduction under section 80-IB

In the instant case, interalia, the issue that arose before the Gujarat HC was as under:

Whether disallowance under section 40(a)(ia) would qualify for deduction under section 80IB(10) of the Act?

The High Court held as under:
Even if a expenditure incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it couldn’t be denied that such disallowance would ultimately go to increase the assessee's profit from the business of developing housing project. So, whatever be the ultimate profit of assessee even after making disallowance under section 40(a)(ia) of the Act, would qualify for deduction as provided for under the law. As no question of law arose, tax appeal was dismissed.

Underwriting

The procedure by which an underwriter brings a new security issue to the investing public offering. In such a case, the underwriter will guarantee a certain price for a certain number of securities to the party that is issuing the security (in exchange for a fee). Thus, the issuer is secure that they will raise a certain minimum from the issue, while the underwriter bears the risk of the issue. in an

Method of discounted cash flow can be used for share valuation if other methods of sec. 92C are not applicable

ASCENDAS (INDIA) (P.) LTD. V. DY.CIT (Chennai - Trib.)

Where assessee-company sold its stake in an Indian company to its foreign associate company, discounted cash flow method could be used for valuation of shares sold, due to non-applicability of other methods prescribed under section 92C(1).

In the instant case, the assessee-company owning 84.97% of shareholding of AITPCL India, entered into a contract with its AE for sale of its stake in AITPCL. The TPO valued the shares using discounted cash flow method and made Transfer Pricing adjustment. The objections filed by the assessee were rejected by the Dispute Resolution Panel. Aggrieved assessee filed instant appeal.

The Tribunal held as under:

• As per Section 92C, ALP in relation to an international transaction has to be determined by one of the six methods mentioned therein;

• Re-sale price Method couldn't be applied in the instant case because the shares sold by the assessee were, in turn, not sold to anybody else. Cost Plus Method couldn't be applied since assessee had made no value addition to any item. Original cost per share was only its face value, and the cost incurred which resulted in increase of its intrinsic value couldn't be correctly ascertained. Neither Profit Split Method nor TNM Method could be used. Further, similar companies doing similar share transactions were hard to find;

• Purpose of transfer pricing rules is to verify whether the prices at which an international transactions have been carried out is comparable with the market value of the underlying asset or commodity or service. This might require some subtle adjustments in the methodology prescribed for evaluation of an international transaction;

• A water-tight attitude of interpretation of the prescribed methods will defeat the very purpose of enactment of transfer pricing rules and regulations and also detrimentally affect the effective and fair administration of an international tax regime;

• Interpretation of the word 'shall' need not always be mandatory and could also be read as 'may', is a rule laid down by the Gujarat High Court in the case of CIT v.Gujarat Oil & Allied Industries [1993] 201 ITR 325;

• Hence, while finding the most appropriate method, it is not that modern valuation methods fitting the type of underlying service or commodities have to be ignored. Fixing enterprise value based on discounted value of future profits or cash flow is a method used worldwide. Endeavour was only at arriving at a value which would give a comparable uncontrolled price for the shares sold. If viewed from this angle, it couldn’t be said that the discounted cash flow method adopted by the TPO was not in accordance with section 92C(1).

Services availed for market research and customer’s credit rating are eligible for input credit

Gujarat Reclaim & Rubber Products Ltd. v. Commissioner of Central Excise (Ahmedabad - CESTAT)

Management consultancy service availed by assessee relating to conduct of 'market research' and customers 'credit rating' in international market to improve its market condition abroad is eligible for input service credit

In the instant case, the assessee availed of management consultancy service relating to conduct of market research and customers credit rating in international market to improve its market condition abroad. The Department denied credit on ground that that there was no nexus of these services with manufacture.

The Tribunal held as under:

• The definition of input services in the inclusive portion clearly includes market research services on which credit is available; 
• Credit rating of customers also relatables to sales promotion and business of manufacture. In any case, as the activity was specifically included in the definition of input services, credit thereof couldn’t be denied.

No concealment penalty if expense claimed in current year and withholding taxes deposited in subsequent year

DYNATRON (P.) LTD. V. DY. CIT (Mumbai - Trib.)

Provision of sec. 40(a)(i) would be deemed to have been substantially complied with if taxes withheld from payment made to non-resident were deposited subsequent to the previous year in which expenditure was claimed by assessee. Hence, concealment penalty would not be leviable.

The Tribunal held as under:

• The relevant provisions of section 40(a)(i) provides for the disallowance of specific sums payable to non-residents, where tax deducible at source, has not been deducted and deposited to the credit of the Central Government within the time prescribed under section 200(1); 
• This section is not absolute in its terms, and provides for the allowance thereof in the year of payment, i.e., where the tax stands deducted and paid after expiry of the time prescribed under section 200(1). There is, as such, no reference or correlation with the due date of the filing of the return by the assessee-deductor under section 139(1); 
• The deposit of TDS subsequently would operate as a mitigating factor. The provision itself providing for the contingency and consequence of delayed payment, deferring the claim to the year of actual payment; 
• The assessee would be entitled to claim the deduction for the immediately succeeding year, and which it has ostensibly not. In terms of the provision itself, therefore, it has become clear that it has been substantially complied with as the payment of TDS was made, though subsequently. 
• It would decidedly be a different matter if the provision made no such exception, as in that case there would be no question of the principal condition of the payment having been met and, thus, of the assessee being substantially compliant. This, therefore, served as a valid explanation under Explanation (1B) to section 271(1)(c) Thus, assessee's appeal was allowed and penalty was deleted.

Tolerable variation between ALP and actual price allowable even if one price is determined by Most Appropriate Method

DY.DIT V. DEVELOPMENT BANK OF SINGAPORE (Mumbai - Trib.)

Option of transaction price as deemed Arm's Length Price (ALP) under second proviso to section 92C(2) shall apply not only to a situation where more than one ALP is determined by ALP but also where only one price is determined as ALP

In the instant case, interalia, the issue that arose before the ITAT was as under:

Whether tolerable variation between ALP and actual transaction price is allowed in a situation where only one ALP is determined as per Most Appropriate Method (MAM)?

The Tribunal held in favour of assessee as under:

• As per the first proviso to section 92C(2), where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices. Per contra, if there is only one price which is determined by the most appropriate method, then as per the main sub-section (2) without the aid of proviso, that price shall constitute the ALP;

• The second proviso comes into play to deem the actual transacted price as the ALP. It provides that where the variation between the ALP `so determined’ does not exceed the specified percentage, the price at which the international transaction has actually been undertaken `would be deemed to be the arm’s length price’. The words `so determined’ as employed in the second proviso assume significance. As these have been used in the second proviso distinct from the subject matter of the first proviso, naturally these would apply to the ALP determined under sub-section (2) consisting of the main provision and also the first proviso;

• Thus, the option of `deemed’ ALP would extend not only to a situation where more than one price is determined as ALP by the most appropriate method but also where only one price is determined as ALP. Therefore, the option to the assessee would be available in both the situations, covered under main sub-section (2) and also under the first proviso.

Actual payment of tax isn’t a precondition to be a resident of partner country, as per India-UAE DTAA

KPMG v. JCIT (Mumbai - Tribunal)

As per Article 4(1) of India-UAE DTAA, to be a resident of contracting State, it isn’t necessary to pay tax there; mere right of contracting State to tax such person by reason of domicile, place of management or incorporation is sufficient

In the instant case, the assessee had challenged the section 40(a)(i) disallowance in respect of professional fee paid to ‘V’, sole proprietor of KPMG, Dubai. Assessee, contended that these payments were made in pursuance of professional services carried out by KPMG, Dubai as understood in Article 14 of the India-UAE treaty dealing with independent personal services. It was stated that the income was not chargeable to tax in India since ‘V’ was not in India for more than 183 days during the previous year and, therefore, the question of deduction of tax at source didn’t not arise. The AO, on the other hand, made disallowance on the footing that 'V' couldn’t take benefit of India-UAE treaty, as it couldn’t be treated as a resident of U.A.E. as per Article 4(1) of India-UAE DTAA, as he was not paying tax in U.A.E., which was confirmed by CIT(A). Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• Article 4(1) of India-UAE treaty provides that the term 'Resident' of a 'Contracting State' means any person, who, under the laws of that State (i.e. U.A.E.), is liable to tax therein by reason of his domicile, resident, place of management, place of incorporation, or any other criterion of similar nature. The term ‘liable to tax in the contracting State’ doesn’t necessarily imply that the person should actually pay the tax in that contracting State. Right to tax on such person is sufficient;

• If a fiscal domicile of a person is in the contracting State, which in the present case has not been doubted was in U.A.E., then he was to be treated as resident of that contracting State irrespective of whether or not that person is actually liable to pay taxes in that country;

• Liability to tax in the contracting State doesn’t imply that the person was actually liable to tax but would also cover the cases where the other contracting State has the right to tax such person. It is immaterial whether or not such right has been exercised. The basis for deducting the TDS under section 195 by the assessee for making the payment to 'V' was rejected.

REVISED OECD GUIDELINES ON SAFE HARBOUR RULES

Definition of ‘safe harbour’

• A safe harbour in a transfer pricing regime is a provision that relieves eligible taxpayers from certain obligations otherwise imposed by a country’s general transfer pricing rules.

• A safe harbour substitutes simpler obligations for those under the general transfer pricing regime.

• Such a provision could, for example, allow taxpayers to establish transfer prices in a specific way, e.g. by applying a simplified transfer pricing approach provided by the tax administration.

• Alternatively, a safe harbour could exempt a defined category of taxpayers or transactions from the application of all or part of the general transfer pricing rules.

• Safe harbours do not include administrative simplification measures which do not directly involve determination of arm’s length prices, e.g. simplified, or exemption from, documentation requirements (in the absence of a pricing determination)

• Under a safe harbour, taxpayers would be able to establish transfer prices which will not be challenged by tax administrations providing the safe harbour without being obligated to search for comparable transactions or expend resources to demonstrate transfer pricing compliance to such tax administrations.

OECD’s Recommendations on use of Safe harbour

• Transfer pricing compliance and administration is often complex, time consuming and costly. Properly designed safe harbour provisions, applied in appropriate circumstances, can help to relieve some of these burdens and provide taxpayers with greater certainty.

• Where safe harbours can be negotiated on a bilateral or multilateral basis, they may provide significant relief from compliance burdens and administrative complexity without creating problems of double taxation or double non-taxation. Therefore, the use of bilateral or multilateral safe harbours under the right circumstances should be encouraged.

• The problems of non-arm’s length results and potential double taxation and double non-taxation arising under safe harbours could be largely eliminated if safe harbours were adopted on a bilateral or multilateral basis by means of competent authority agreements between countries. Revised OECD Guidelines contain sample formats for such agreements

• For more complex and higher risk transfer pricing matters, it is unlikely that safe harbours will provide a workable alternative to a rigorous case by application of the arm’s length principle under the provisions of these Guidelines.

• Country tax administrations should carefully weigh the benefits of and concerns regarding safe harbours, making use of such provisions where they deem it appropriate.

IPO

Initial Public Offering. The first sale of shares by a company to the public. Companies offering an IPO are sometimes new, young companies, or sometimes companies which have been around for many years but are finally deciding to go public. IPOs are often risky investments, but often have the potential for significant gains. IPOs are often used as a way for a young company to gain necessary market capital.

Scrutiny notice not valid if it's not issued as per CBDT's instruction for selection of a case for assessment

CRYSTAL PHOSPHATES LTD. V. ACIT (Delhi Tribunal)

In the instant case, assessee’s case was selected for scrutiny by way of notice under section 143(2) of the Act, under the CBDT Instructions contained in Scrutiny Guidelines. The assessee challenged the assumption of jurisdiction. However, the Addl. CIT held that notice was issued in accordance with law. The CIT (A) upheld the order of Addl. CIT.

The Tribunal quashed the scrutiny notice and held as under:

• As per the CBDT’s instructions contained in scrutiny guidelines, for compulsory scrutiny of corporate assessee’s cases, there has to be an addition or disallowance of Rs. 5 lakhs or more against which an appeal is pending and such an issue must also arise in the year under consideration. All these facts must be available with the AO on the date of assumption of jurisdiction;
• In the instant case, there was no disallowance of Rs. 5 lakhs or more and in any case, no finding was available from the order of the authorities below that an identical issue had arisen in the year under consideration;
• Thus, once the CBDT has issued instructions for assumption of jurisdiction for selection of cases of corporate assessees for scrutiny and assessment thereof, the same have to be followed in letter and spirit by the AO;
• The burden lies on the authority assuming jurisdiction to show and establish that such instructions have duly been complied with and satisfied in letter and spirit. However, in the instant case, instructions issued by the CBDT were not shown to have been complied with for assumption of jurisdiction. Hence, the notice and the assessment framed were held to be without valid jurisdiction and were quashed.

Construction of hostels for educational institutes is deemed to be for non-commercial purpose; Service Tax is not leviable

ANAND CONSTRUCTION CO. V. COMMISSIONER OF CENTRAL EXCISE (Mumbai - CESTAT)

Building constructed as hostel for residence of students studying in an educational institution is a non-commercial/non-industrial building and, therefore, such construction is not liable to service tax under Works Contract Services

The assessee had constructed a Boys and a Girls Hostel for students of educational institutions. It paid service tax thereon under Works Contract Services during April, 2008 to September, 2008 but thereafter it realized that as it was not constructing any building which was being used for commercial purpose therefore it was not liable to service tax, it stopped paying service tax. However, service tax was demanded from assessee.

The Tribunal set aside the service tax demand with the following observations:

• The building was constructed as hostel for the residence of students studying in medical institute and there was no allegation that the building was used for any other purpose; 
• In above set of facts, the Board Circular No. 80/10/2004-ST, dated 17.9.2004 was applicable and the assessee was not liable to pay service tax. Accordingly, demand was set aside.

Gujarat High Court rejects interpretation made by ITAT’s special bench

CIT V. SIKANDARKHAN N TUNVAR (Gujarat High Court)

Section 40(a)(ia) covers not only the amounts which are payable as on 31st March of a particular year but also amounts payable at any time during the year. The language used in such provision doesn’t convey that such amount must continue to remain payable till the end of the accounting year.

In the instant case, the Assessing Officer (AO) disallowed the entire expenditure incurred by assessee under section 40(a)(ia) on the ground that the assessee had, admittedly, not deducted the tax at source. CIT(A) dismissed assessee's appeal against such disallowance. On further appeal, the Tribunal deleted the entire disallowance, relying on the decision of the Special Bench of the Tribunal (Visakhapatnam) in the case of M/s. Merilyn Shipping & Transports v. ACIT. Revenue filed the instant appeal against the order of Tribunal.

The High Court held in favour of revenue as under:

• The term used in section 40(a)(ia) is interest, commission, brokerage, etc., payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used doesn’t convey that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading into words which the Legislature has not used; 
• The Courts in India have been applying the principle of deliberate or conscious omission. Such principle is applied mainly when an existing provision is amended and a change is brought about; 
• The Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, there was serious doubt whether such principle could be applied by comparing the draft presented in the Parliament and ultimate legislation which might be passed. Secondly, the statutory provision was amply clear. 
• Section 40(a) (ia) covers not only the amounts which are payable as on 31st March of a particular year but also amounts payable at any time during the year, of course, as long as the other requirements of the said provision exist. Thus, revenue's appeal was allowed.

Section 13 can’t be invoked to deny exemption if siphoning off of funds by trustee can’t be proved

AMOL CHAND VARSHNEY SEWA SANSTHAN V. ACIT (Agra - Trib.)

In absence of material on record showing that difference in cost of construction of building disclosed by assessee-society and estimation made by DVO resulted in siphoning off of money by managing trustee, Assessing Officer (AO) was not justified in denying exemption of income to assessee by invoking provisions of section 13(1)(c)

In the instant case, the assessee-society was running an educational institution. During the assessment proceedings, the AO took a view that there was huge difference in the amount claimed to have been spent by the assessee on construction of building and estimation made by the DVO and it could be concluded that the money was being siphoned out of the society to benefit the managing trustee. The AO held that there was clear violation of section 13(1)(c)(ii) and assessee was not entitled to exemption under sections 11 and 12. The CIT (A) confirmed the order of AO. Aggrieved assessee filed instant appeal.

The Tribunal held in favour of assessee as under:

• If the person in the prohibited category renders services and in lieu thereof a benefit is provided then the case doesn’t fall in clause (ii) of section 13(1)(c);
• A benefit would be said to have been given to the persons of prohibited category, if they in return do nothing but only enjoy the fruits of the trust/society and take away the funds/income of the society for their personal benefit or for discharging personal obligations. There was no such situation in the case under consideration;
• Section 13 carves out an exception to the general exemption granted under sections 11 and 12. The onus lies on the revenue to bring on record cogent material/evidence to establish that the trust/charitable institution is hit by provisions of Section 13;
• The AO had made out the case on presumption, as he had neither brought on record any evidence nor was able to point out modus operandi, and how was the managing trustee directly or indirectly benefited out of the construction cost of building of the society;
• Thus, it was held that the AO had erroneously invoked section 13 and withdrawn benefit of section 11, read with section 12. Consequently, the appeal filed by the assessee was allowed.