No transfer under section 2(47) if share in inherited property was transferred pursuant to Court decree

SMT. T. GAYATHRI V. ITO [2014] 47 taxmann.com 190 (Bangalore - Tribunal)

Amount received by assessee pursuant to a Court decree in lieu of her share in self acquired property of father who died intestate, could not be said to result in 'transfer' attracting provisions of section 2(47).

Facts:

• The Father (‘B’) of assessee (daughter) died intestate leaving behind four sons and six daughters including the assessee. After expiry of 'B', assessee along with other sisters filed a suit for partition of self acquired property of their father.
• The Court duly recognized the suit compromised between the parties. In terms of memorandum of compromise, the daughters agreed to receive their 1/10th share in property, i.e., a sum of Rs. 87.50 lakhs each from their brothers.
• The assessee's brothers subsequently entered into a joint development agreement of property. In terms of said agreement, the developer directly paid amount of Rs. 87.50 lakh each to daughters including assessee herein. The daughters thereupon executed a release deed of disputed property in favour of their brothers.
• The assessee had not offered to tax the impugned sum on the ground that there was no transfer of any capital asset. The AO made additions on the ground that the said transaction was to be deemed as transfer under section 2(47). The CIT (A) confirmed the order of AO. The aggrieved assessee filed instant appeal.

The Tribunal held in favour of assessee as under:

• In the instant case, on death of 'B', their children became entitled to 1/10th share each over the property by way of intestate succession. Since a physical division of each of the 1/10th share was not possible, sons took the property and daughters took money equivalent to their share over the property.
• The sum received by the assessee was thus traceable to the realization of her rights as legal heir on intestate succession and not to any sale, relinquishment or extinguishment of right to property. It was, thus, clear that the release deed was executed by daughters (in favour of their brothers) only to confer better title over the property. That document did not create, extinguish or modify the rights over the property either of the sons or the daughters.
• The sum of Rs.87.50 lakhs was paid only through Court and not at the time of registration of the deed of release. The document of release was between the daughters and sons. The developer was not a party to the document. The developer was also not a party to the suit for partition.
• Therefore, the conclusions of the revenue authorities that there was a conveyance of the share of the daughters in favour of the developer was contrary to the written and registered document and could not be sustained. Thus, revenue authorities were not justified in taxing the impugned amount as capital gains in the hands of the assessee.

Salary income declared after search proceedings would be deemed as undisclosed even if tax was deducted there from

ASSTT. CIT V. MINOOBHAI D. IRANI [2014] 47 taxmann.com 289 (Gujarat)

Where return was filed by assessee after block assessment proceedings were initiated by the AO, the intention of assessee was not to disclose income and, therefore, same was required to be treated as an undisclosed income as per section 158B(b).

Facts:

The issue that arose for consideration of the High Court was:

Whether non-disclosure of the salary income (by not filing the return of income) on which the tax was deducted at source, could be treated as "undisclosed income" within the meaning thereof in Section 158B(b)?

The High Court held in favour of revenue as under:

• The Supreme Court in Asstt. CIT v. A.R. Enterprises [2013] 29 taxmann.com 50 held that since the tax to be deducted at source is also computed on the estimated income of an assessee, such deduction cannot result in the disclosure of the total income for the relevant assessment year'.
• The assessee filed the return declaring the income only when the block assessment proceedings were initiated by the AO. It indicated that there was no intention on the part of assessee to disclose the income.
• Therefore, the salary income was required to be treated as undisclosed income within the meaning thereof in section 158B(b). The Tribunal had materially erred in not treating the income earned by way of salary as 'undisclosed income'.

No section 40A(2) disallowance if payment to director was authorized by Company Law Board and taxed at maximum rate in his hands

Commissioner of Income-tax v/s Indu Nissan Oxo Chemical Industries Ltd [2014] 45 taxmann.com 478 (Gujarat High Court)

 

Where payment made to director was authorised by Company Law Board and said payment was taxed at maximum rate, no addition could be made under section 40A(2).

Facts:

• The assessee had made payment to its director which was disallowed by AO by invoking section 40A(2). b)However, addition made by AO was deleted by CIT(A) and Tribunal. Thus, the aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

• Section 40A(2) permits the Assessing Officer to disallow certain expenses or payments, where he is of the opinion that such expenditure or payment is excessive or unreasonable; having regard to the fair market value of the goods, services or facilities for which the payment is made.
• In the instant case, the members of the Company approved of the payment made to director in the annual general meeting and such payment was also approved by the Company Law Board. The salary was also taxed in the hands of director at maximum rate.
• Nothing had been brought on record by the Revenue to controvert the findings of CIT(A) and, therefore, the impugned payment to director was to be allowed.

Sum paid to acquire rights of telecasting from outside India, in absence of its link with Permanent Establishment in India, wasn’t royalty

DIT (INTERNATIONAL TAXATION) V. SET SATELLITE (SINGAPORE) PTE LTD. [2014] 45 taxmann.com 100 (Bombay)

Sum paid to acquire rights of telecasting from outside India had no connection with the marketing activities carried out through Permanent Establishment ('PE') of assessee in India. Thus, impugned payments couldn't be deemed as royalty in view of Article 12(7) of India-Singapore DTAA.

Facts:

• The assessee, a Singaporean company, was engaged in the business of acquiring rights in television programmes and exhibiting the same on its television channels from Singapore.
• The issues for consideration before High Court were:
• Whether the payment to G (a Singaporean Company)for acquisition of telecasting rights were in the nature of 'royalty' covered by Explanation 2 to section 9(1)(vi)(c)?
• Even if payments would be deemed as royalty, whether they would not be chargeable to tax as per Article 12(7) of India-Singapore DTAA?

The High Court held as under:

• The appellate authorities had already held that payment was made only for broadcasting operations carried out from Singapore, which had no connection with the marketing activities carried out through alleged Permanent Establishment ('PE') of assessee in India;
• Thus, there was no economic link between the payments. The payer was not a resident of India and the liability to pay royalty had not been incurred in connection with and was not borne out by the PE of the payer in India
• The absence of economic link was thus the foundation on which the Tribunal's conclusions were based. Thus, the Appeal was to be dismissed as no substantial question of law was involved.

Section 194-I applicable if vehicle hired for employee is at his disposal; Chauffeur cost covered under section 194C

ITO v. Bharat Sanchar Nigam Ltd. [2014] 45 taxmann.com 124 (Mumbai - Tribunal)

Hiring of vehicle and at disposal of employee shall be subject to Section 194-I. A reasonable sum towards chauffeur and fuel charges are to be deducted from composite sum and the balance amount would fall under Section 194-I.

Facts:

The issue before the Tribunal was:

Whether payment for hiring of vehicle (including chauffeur and fuel cost) for a designated person or class of persons, for a particular time, would fall under section 194C or under section 194J for the purpose of deduction of tax at source?

The Tribunal held as under:

• Where payment was made for solitary transaction of hiring of vehicle or where a pick and drop facility was provided, it would clearly fall under Section 194C as payment was made for a specified work.
• In this case, the arrangement was for making available cars for a designated person or class of person for a particular time, which was at the disposal of the employee.
• As the arrangement also included services of a chauffeur and the fuel cost of transportation. The same could not by any means be considered as towards car rental.
• Therefore, after deduction of a reasonable amount towards chauffeur and fuel charges, the balance amount would fall under section 194-I.
• As it was a finding of fact, Assessing Officer was directed to decide the case after due verification and after giving reasonable opportunity to assessee.

SEBI is empowered to monitor call records of any person against whom any enquiry or investigation is pending

INDIAN COUNCIL OF INVESTORS V. UNION OF INDIA [2014] 45 taxmann.com 45 (Bombay)

SEBI is authorized to call for call data records from telecom service providers. However, such power can only be exercised it in respect of a person against whom an authorized officer conducts any investigation or enquiry. 

Facts: 

• The petitioner, Indian Council of Investor, filed the instant PIL alleging violation of fundamental right of privacy by SEBI as it had intercepted and monitored calls and called for Call Data Records (CDRs) from Telecom Service providers (TSP). 
• The petitioner further stated SEBI was prohibited from calling for any records such as CDRs from any TSP in view of Section 5 (2) of the Indian Telegraph Act, 1885. The SEBI denied allegation made against it on ground that it had only called for data that was already available in the records of the telecom providers. 
• The respondent stated that Section 5 (2) of the Indian Telegraph Act, 1885 has no application in respect of calling for CDRs from TSP as the provision only applies to intercepting call and, or prohibiting call/messages. 

The High Court held as under: 

• SEBI is authorized under SEBI Act to call for CDRs from TSP. However, this power is capable of misuse and can violate a citizen's right to privacy guaranteed by Article 21 of the Constitution.
• SEBI cannot exercise such power for conducting a fishing enquiry. It cannot be a blanket power to hunt out information without any pending inquiry or investigation. This power can only be exercised by SEBI in respect of any person against whom any investigation or enquiry is being conducted.
• Only an officer duly authorized by SEBI can call for information about CDRs from TSP. Thus, the instant PIL was disposed of.

Beneficiaries of discretionary trust won’t be liable to tax if income of trust is taxed at maximum marginal rate

SMT. ALPANA KIRLOSKAR V. ACIT [2014] 46 taxmann.com 336 (Delhi - Tribunal)

Where income from trust had already been assessed in hands of trustees at maximum marginal rate, beneficial share could not be assessed in hands of beneficiaries again.

Facts:

• Assessee was one of beneficiaries of a private discretionary trust. Trust's income was from dividend, which was exempt under section 10(34). The assessee received her beneficial share out of said dividend income and claimed it as exempt as income of trust had already been taxed in hands of trustees under section 164. 
• The Assessing Officer, however, was of the view that section 164 provided that it was only when no income was distributed amongst the beneficiaries by a private discretionary trust then the trust’s income was taxable in the hands of the trust. 
• Thus, he made additions on the ground that when the surplus was distributed by such trust, the receipt in the hands of beneficiary would be taxable as it becomes "income from other sources" in his hands. On appeal, the CIT(A) confirmed the addition. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The revenue had not denied the fact that the department had already assessed discretionary-trust at the maximum marginal rate. 
• Thus, it clearly emerged that the department had already exercised the option to tax the trust’s income directly in the hands of trustees in terms of sections 161 to 166. The assessee's stand was correct that as per the scheme of assessment of private discretionary trust department had to opt whether to assess the income in the hands of trust or beneficiaries. The option was clearly exercised first in the hands of trust as demonstrated by its assessment order. 
• In any case it had not been disputed that entire trust income from dividends was exempt under section 10(34) and what came in the hands as beneficial share retained the same colour and was also exempt under section 10(34). Therefore, alternatively also, the beneficial share being part of exempt dividend income, was exempt from tax and was to be excluded while computing the income of assessee. 
• Therefore, the department had already exercised the option to tax the income directly in the hands of the trust, there was no provision to review the option taken in the case of trust and again to change the option from one beneficiary to another, the impugned income was therefore held to be exempt in the hands of the assessee.

Assessee can’t either seek withdrawal of appeal or file revision petition when appeal is pending before CIT(A)

YOGENDRA PRASAD SANTOSH KUMAR V. CIT [2014] 44 taxmann.com 299 (Allahabad)

Where an application is filed, seeking withdrawal of appeal, but no order is passed by CIT(A), appeal will remain pending and subsequent revision petition will not be maintainable. 

Facts:

• Scrutiny assessment was made on assessee. Thereafter, he had filed an appeal before the CIT(A). Subsequently, the assessee sent an application by post seeking withdrawal of his appeal. The application was received by the CIT(A). Thereafter, the assessee preferred revision of assessment order stating that he had already waived of his right of appeal.
• The Commissioner allowed revision by deleting part of the addition made during assessment. When a notice was issued for hearing before the CIT(A), the assessee did not appear. He sought adjournment but the CIT (A) declined the same. The CIT(A) rejected the withdrawal application of assessee.
• Further, the CIT (A) confirmed the assessment. Subsequently, the Commissioner also passed order cancelling/revoking his earlier revisional order. The aggrieved-assessee filed the instant writ. 

The High Court held as under:

• There is no provision in Income-tax Act, which permits withdrawal of an appeal, once it is filed. Once party exhausts right of appeal, and the appeal is filed before appropriate appellate authority, who after receiving the same has registered it, then there is no provision in the statute permitting withdrawal thereof;
• Mere filing of an application seeking withdrawal of appeal would not mean a deemed withdrawn unless an order is passed by appellate authority thereon. The appeal continues to remain pending even when the assessee files the application for withdrawal of an appeal;
• The assesseee’s appeal was pending before the CIT(A) when the revision application was filed by him or when the Commissioner passed an order on revision petition. Hence, the revisional authority was barred from revising order of assessing authority by virtue of sub-section (4) of section 264;
• Clause (a) of section 264(4) provides for a situation where assessee has not waived of his right of appeal. When appeal was filed, the right of appeal was availed of and exhausted by assessee, hence, question of waiver of right of appeal thereafter would not arise.
• Thus, the Commissioner had committed a manifest error in exercising revisional power when assessee's appeal was pending before the CIT (A). That being so, it had rightly been recalled. Thus, the writ petition was to be dismissed.

Courtyard of residential unit isn’t includible in built-up area to determine section 80-IB(10) relief, rules High Court

COMMONWEALTH DEVELOPERS V. ACIT [2014] 44 taxmann.com 303 (Bombay)

Area of courtyard appurtenant to residential unit is not to be included to compute built-up area in terms of section 80-IB(10)

The High Court held in favour of assessee as under: 

• Section 80-IB(14)(a) prescribes that in order to avail of the deduction, the built-up area of the residential unit cannot exceed 1500 square feet. In order to be treated as a 'built -up area' some construction has to be in existence in such area.
• Unless and until it is shown that some construction is there, the area of the courtyard which is open to the sky, cannot be included to compute the built-up area.
• The meaning of a courtyard in the Legal dictionary, inter alia, signifies a space of land around a dwelling house which might be enclosed, appurtenant to which buildings and structures may be erected;
• Thus, area of courtyard could not be included to calculate the built-up area in terms of section 80-IB(10). The Tribunal had misconstrued the provisions of Act and the material on record to deny the benefit of deduction to the assessee in terms of section 80-IB(10).

ITAT raps revenue for invoking section 40(b) by treating only those partners as working who were entitled to salary

Id. Mohd. Nizamuddin v. ACIT [2014] 44 taxmann.com 213 (Jaipur - Tribunal)

Facts:

• The assessee firm had four partners. In terms of the partnership deed, salary was being paid only to three partners. However, bonus was paid to all the four partners. 
• The Assessing Officer opined that when only three partners were drawing salary, only they could be treated as the working partners. Hence, the Assessing Officer disallowed the bonus paid to fourth partner. 
• The CIT(A) confirmed said disallowance.

The Tribunal held in favour of assessee as under:

• It was not disputed that all the four partners were actively engaged in the conduct of the business of the firm and, thus, they were the working partners. The provisions contained under section 40(b) provide that any remuneration by whatever name called, shall not be allowable if such payment is not made to a working partner. Secondly, such payment is not found to be authorized by or is not found to be in accordance with the terms of the partnership deed; 
• In the instant case, the partnership deed authorized payment of salary to three partners whereas payment of bonus was allowed to all the four partners. Thus, all the conditions provided under section 40(b) stand fulfilled. The interpretation by the Assessing Officer and the CIT(A) that only those partners who were paid the salary were working partners and not the others, was a complete misreading of the provision; 
• It was decision taken by the partners by mutual consent that out of all the four partners, salary would be payable to only three partners whereas bonus shall payable to all the four partners, in which the law does not permit interference by the revenue. 
• The CIT (A) had wrongly interpreted section40(b)(v) while holding that the definition of 'working partners' was meant only for section 40(b)(v). The Explanation 4 below section 40(b) clearly reads that for the purpose of this clause which meat clause (b) to section 40. Thus, the disallowance under section 40(b) was to be deleted.

Payment for software licensed to foreign Head Office and used by Indian branch with non-exclusive rights isn't 'royalty'

ADIT v. Antwerp Diamond Bank NV Engineering Centre[2014] 44 taxmann.com 175 (Mumbai - Tribunal)

Where foreign Bank had obtained a license to use software and, subsequently, allowed its Indian branch to use such software, data processing cost reimbursed by Indian branch for use of such software could not be deemed as royalty if head office alone had exclusive right of license to use software.

Facts:

• The assessee-bank, incorporated in Belgium, was operating through a branch office in India.  It had acquired banking application software from an Indian company.
• Later on, when its branch was set up in India, it allowed the Indian branch to use the same software by making it accessible through server located at Belgium.
• In terms of agreement, the branch had to reimburse the cost of data processing for use of said software to the head office.
• The Assessing Officer opined that payment made by Indian branch amounted to ‘royalty’. Further, the CIT(A) reversed the order of AO. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

• As per the definition of 'royalty' provided in Article12(3)(a) ofIndia-Belgium DTAA (‘treaty’), when the payment of any kind is received for 'use' of or 'the right to use' of any of the copy right of any item or for various terms used in the said article, then only it can be held as 'royalty';
• The character of payment towards royalty depends upon the independent 'use' or the 'right to use' of the computer software, which is a kind of copyright. In the instant case, the Branch did not have any independent right to use or control over such computer software installed in Belgium, but it simply sent the data to the Head Office for getting it processed;
• The Branch was only reimbursing the cost of processing of such data to the Head Office. Such reimbursement did not fall within the ambit of 'royalty'. To fall within its ambit, the Branch should have exclusive and independent use or right to use the software and for such usage, payment had to be made in consideration thereof;
• The character of the payment under the royalty transactions depends upon the rights that the transferee acquires in relation to the use and exploitation of the software programme;
• In the instant case, there was no such right which had been acquired by the Branch in relation to the usage of software, because the head office alone had the exclusive right to use the software. Thus, the reimbursement of the data processing cost to the Head Office did not fall within the ambit of definition of 'royalty' under article 12(3)(a) of treaty.  Accordingly, the conclusion drawn by the Commissioner (Appeals) was to be affirmed.

Best Ways to Plan for Retirement

Understanding Retirement Planning

Retirement Planning refers to a process of saving money for the time when the paid work comes to a halt. It is the process of planning and analyzing your future monetary needs and the source from where you can earn that.

You have to identify your expenses, sources of income, manage your assets and make apt arrangements for future cash inflows. How will you spend your time after retirement, where will you live, your style of living etc also forms a part of your retirement planning apart from the financial aspects.

In order to remain financially independent even when the paid work ends, it becomes mandatory for you to plan your retirement. It is important for you to work out in advance if you have enough money before you retire and how you will improve your cash inflows after retirement.

If you wish to follow your lifestyle of today even after your retirement it is important for you to plan your retirement today. It goes without saying that though for few of you, you will have pension rolling in after your retirement but just ponder will that be enough to suffice? If the answer is No, then get started today and work towards your retirement.

Importance of Retirement Planning

• Retirement Planning is important as you would surely love to have money flowing in when you comfortably relax on a rocking chair heading towards your golden years.
• With age comes the uncertainty of financial security for yourself and your family and in most cases pension benefits are not enough to carry you forth. There comes the importance and need of planning your retirement.
• Your body is like any machine that undergoes wear and tear with time. Retirement Planning helps you to meet up those unanticipated medical expenses that may crop up in future. In case your health takes a worse turn while you are heading towards old age, it may become difficult for you to move on with your life without sufficient funds in your account. You need to well equip yourself with medical insurances etc so as to avoid your retirement income being eaten by medical bills.
• Retirement planning plays a pivotal role in estate planning. It is important for you to secure cash flows for future so that you do not have to liquidate your assets in future in order to meet your financial expenses. If you have planned your retirement in advance you can freely and lavishly spend for your children and grand children, retain that land with which you are so sentimentally attached and there is no fear of becoming a financial burden on your loved ones.
• We all resist change. But change is inevitable. While we you move towards your golden days, retirement planning helps you face any change or challenge that life may throw at you without any hitch. You can face any situation at any age when you are financially sound.
• If becoming completely dependable on the social security system after retirement is on your mind, think again. That’s the worst road chosen. With social security system as ours it becomes mandatory for you to plan your retirement else there are every possible chances of outliving your money and working till you breathe your last. 

Best Ways to Plan for Your Retirement

• Time factor plays the paramount role while you plan to build your nest egg. You need to consider the difference between your current age and the age at which you will retire in terms of years while you prepare your strategies for your retirement. If you have a good number of years in hand prior to your retirement then you are in a position to take up greater risks and diversify investments accordingly. 
• While planning your retirement you should keep inflation in mind as it can prove to be a vital factor in your scheme of things.
• It is very much important to keep in mind your spending requirements. You need to understand your spending habits when you start to plan for your retirement. Your portfolio would largely depend on the way you spend and the expenses you incur. Many people feel that when you retire you will spend less than what you actually do now but they fail to consider that when you retire you will have additional 8-9 hours which you used to spend in office and now this time may be used in traveling, shopping or other activities that may prove expensive.
• You need to consider the after-tax rate of return while planning your retirement. You may outlive your income if this part is not analyzed properly. You can not ignore the fact that you are taxed on your returns according to the plans that you have chosen. So you need to keep a holistic approach while you move ahead with choosing your plans for future.
• Portfolio Planning is of paramount importance. You need to choose and prepare a portfolio that churns out capital gains for you in the long run. You need to think about the risk that you can take today so as to reach your future financial goals. You need to list out plans that may provide you with regular fixed incomes. Stable dividend paying stocks, small caps fund or international investments can be taken into considerations while you prepare your portfolio.
• Diversification of your money in different funds while you plan for your retirement will help you to churn capital gains with ease. A diversified portfolio would help you to sail smoothly in the highs and lows of the market.
• There are number of investment options available while you plan for your nest egg, few of them are Equities, Fixed Deposits, Mutual Funds, Public Provident Fund (PPF), Life insurance plans, Pension plans, Real estate, etc.
• You can financially secure your loved ones even after you die by including life insurance covers and good estate planning. A roughly structured retirement plan can be balanced with a good estate plan.
• Do not ignore the magic of compounding. When you start saving early for your future, compounding of interest works wonders for you. Your money tends to grow steadily.
• You should also analyze it well when and how you need to pull back your retirement savings.
• Try reducing your unwanted expenses so that you are able to save. Flip through your passbooks to check how much you save each month. Don’t get tempted to spend your saved amount. Invest your saved amount in order to churn out more money. Keep in mind that this saving is for long term usage.
• There is no harm in turning to a professional advisor if the need be in order to plan your nest egg but make sure you use your wits before taking decisions. Seeking advice will help but following blindly will not. 

Retirement planning is one of the most important and crucial plans that we make for ourselves and our loved ones. You are a person who has walked with pride throughout your life. You would surely not want to become a financial burden on your children or family after you stop working.

Rather you would want to enjoy your life more when you will retire as there will be no office rush, projects, deadlines and targets to bother you. Plan your retirement well in advance so that you are able to enter and suffice through your golden age comfortably and proudly.

No Income Tax relief to trust if its business receipts exceeded threshold; yet its registration couldn't be revoked

Cotton Textiles Exports Promotion Council v. DIT (Exemption) [2014] 44 taxmann.com 168 (Mumbai - Tribunal)

Where gross receipts of a charitable institution from its business exceeds prescribed limit, it will not be entitled for exemption or other admissible tax benefits for relevant year only; however its registration as charitable institution will continue.

Facts:

• a)  The assessee, a textile promotion council, was registered as a charitable trust. Its activities were falling under the category of 'advancement of any other objects of general public utility' as per definition of 'charitable purpose' given under section 2(15);
• The Director (Exemption) had cancelled the registration of assessee as he noticed that the assessee was carrying out activities in the nature of trade, commerce or business, etc., and its gross receipts therefrom were in excess of prescribed limit.
• The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• Merely because income of a registered charitable trust from ancillary activities of business crosses prescribed limit, that by itself cannot be a ground for cancellation of its registration invoking section 12AA(3);
• If income arising out of the activities is not in accordance with the objects of the trust, the assessee may not get the exemption under section 11.
• Thus, for the previous year, during which the gross receipt of income of trust crossed the prescribed limit, it would not get exemption or benefit of its being charitable in nature despite its charitable activities;
• Therefore, the impugned order of the Director (Exemptions) was to be set aside and the registration granted to assessee undersection 12A was to be restored.

Upon issue of Form 16A TDS certificate, TDS credit has to be given to the payee even if there is Form 26AS mismatch or deductor is at fault for non-deposit of TDS with Government

Sumit Devendra Rajani vs. ACIT (Gujarat High Court)

The assessee filed a Writ Petition claiming that though the deductor-employer, Amar Remedies Ltd, had deducted TDS from salary and issued Form 16A, the department had not given him credit of the said TDS solely on the ground that the credit did not appear on the ITD system (Form 26AS) of the department and / or same does not match with the ITD system of the department. HELD by the High Court allowing the Petition:

Under section 204, the liability to deduct TDS is on the employer / payer. U/s 205, when tax is deductible at source, the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income. This means that the assessee / deductee is entitled to credit of such amount of TDS. Even if the deductor, after deducting the TDS, does not deposit the sum with the department, the department has to recover the said amount from the deductor and cannot deny credit to the deductee 

Related caselaws:

Om Prakas Gattani 242 ITR 638 (Gau)

Yashpal Sahni 293 ITR 539 (Bom)

Rakesh Kumar Gupta vs. UOI (Allahabad High Court) 

Citicorp Finance (India) Ltd vs. ACIT (ITAT Mumbai)

  

Methodologies in Return Form don’t prevail over Income Tax Act; MAT credit to be given after computing surcharge and SHEC

3F Industries Ltd. v. JCIT [2014] 44 taxmann.com 200 (Visakhapatnam - Tribunal)

Tax has to be computed on the total income as assessed under normal provisions of the Income-tax Act as increased by applicable surcharge and education cess, MAT credit to be granted thereafter.

Facts:

• The Assessing officer made certain additions during assessment of the assessee. 
• The assessee contended that the MAT credit should be allowed before calculation of surcharge and education-cess, as per the methodology provided in the form for filing of return of income. 
• The CIT(A) rejected such contention and held against the assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

•  In an issue before the Madras High Court in Chemplast Sanmar Ltd. [2009] 180 Taxman 335 as to whether the form for filing return of income, which lays down the manner of computing the total tax, prevails over the provisions of the Act, the Court held that rule 12(1)(a) of Income-tax Rules and Form for filing of return couldn’t go beyond the provisions of the Act; 
• The Supreme Court in the case of CIT v. K Srinivasan, [1972] 83 ITR 346 held as under: 
• The meaning of ‘surcharge’ is to charge in addition or to subject to an additional or extra charge. The additional charges form a part of the income-tax and Super-tax. The word ‘surcharge’ has been used in article 271 for the purposes of distributing the proceeds between the Union and the States. 
• The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act it is expressly stated that the surcharge is meant for the purpose of Union; 
• The income-tax includes surcharge which is a receipt in the nature of additional income-tax. The assessee’s argument that the term ‘tax’ has been defined under section 2(43) and it includes only income-tax and not surcharge, goes against the proposition laid down by the Supreme Court. The only requirement is that the levy should have been under the Income-tax Act itself as there is no reference to any Central Act in the proviso or in section 158 BA(2). [Merit Enterprises v. DCIT (Hyd.)(SB).

• Thus, the impugned tax is to be computed on the total income as assessed under normal provisions of the Income-tax Act as increased by applicable surcharge and education cess, thereafter credit of MAT is to be granted.

TDS refund couldn't denied if delay in issue of TDS certificates caused delay in filing of refund claim

Ashok B. Jadhav v. CIT [2014] 44 taxmann.com 102 (Karnataka)

Facts:

•  The Land Acquisition Officer (‘LAO’) acquired assessee’s lands and paid compensation to assessee in installments from financial year 2000-01 to 2005-06. He had deducted tax at source on the entire compensation and remitted the same to the department.
• However, TDS certificate was issued in favour of petitioner only in financial year 2005-06. The petitioner filed application for refund of the tax so deducted.
• The Commissioner rejected the said application on ground that the petitioner had not prayed for refund within a period of six years i.e. 2000-01 to 2005-06. The aggrieved-assessee filed the instant petition.

The High Court held in favour of assessee as under:

• The TDS certificate was issued in favour of the petitioner only on 10-2-2005. Only thereafter, petitioner came to know that certain sum was deducted at source from the compensation;
• The petitioner filed the returns in the year 2005 itself. Thus, there was no delay on the part of the petitioner. No tax deduction was required be made under section 194-L(2) from any payment made on or after June 1, 2000;
• Thus, deduction made by the LAO towards tax, out of the compensation awarded was illegal. Therefore, the amount so deducted was to be refunded to the petitioner.

Trust activities couldn't be tainted as commercial even if it had earned profits from its charitable activities

DIT (Exemption) v. Sabarmati Ashram Gaushala Trust [2014] 44 taxmann.com 141 (Gujarat)

Assessee-trust was not hit by proviso to section 2(15) if its aims and objects were charitable and profit earned from said activities was incidental in nature.

Facts:

• The assessee-trust was created with object to breed the cattle and to improve the quality of the cows and oxen.
• During the course of assessment, the Assessing Officer (‘AO’) denied benefit of section 11 to assessee-trust on ground that considerable income was generated from the activity of milk production and sale and therefore, trust was directly hit by the proviso to section 2(15).
• On appeal, the CIT (A) had confirmed the order of the AO. On further appeal, the Tribunal held in favour of assessee. The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

• The proviso to section 2(15) applies only to cases of advancement of any other object of general public utility, if the conditions provided under the proviso are satisfied. However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business.
• Many activities of genuine charitable purposes, which are not in the nature of trade, commerce or business, may still generate marketable products. The law does not expect the trust to dispose of its produce at any consideration less than the market value;
• If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating 'surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature.
• The objects of the trust clearly established that the same was for general public utility and were for charitable purposes. Profit making was neither the aim nor object of the Trust. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, it would not render the activity as in the nature of trade, commerce or business;
• The proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of 'public utility'. Thus, the Tribunal had not committed any error in directing the Assessing Officer to provide exemption under section 11 and holding that the proviso to section 2(15) was not applicable to this case.

ITAT exempts capital gain on sale of self-generated trademark as its cost of improvement isn't ascertainable

Institute For Micronutrient Technology v. DY. CIT [2014] 43 taxmann.com 426 (Pune - Tribunal)

The self-generated trademark is not capable of improvement at an ascertainable cost in terms of money, therefore, it is outside the scope and ambit of the charge envisaged under section 45(1).

Facts:

• The assessee-firm had sold some 'trademarks'. The Assessing Officer denied claim of deduction of 'cost of improvement' on the ground that 'cost of improvement' was liable to be taken as 'Nil' in view of section 55(1)(b).
• The assessee contended that it was not liable to pay any capital gains tax in respect of sale of trademarks because such asset did not have any cost of improvement as same could not be ascertained.
• On appeal, the CIT(A) disallowed the claim of assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The term 'cost of any improvement' for the purposes of section 48 has been explained in section 55(1)(b) and the same does not include a capital asset in the shape of trademark. A conjoint reading of section 55(2)(a) and section 55(1)(b), ascribes the meaning of 'cost of acquisition' and 'cost of any improvement' respectively for the purposes of section 48;
• Section 55(2)(a) prescribes cost of acquisition of a trademark for the purposes of section 48 at Nil, whereas no such prescription is contained in section 55(1)(b) defining the 'cost of any improvement' of a trademark for the purposes of section 48;
• Therefore, the plea of the assessee that a self-generated trademark was not capable of improvement at an ascertainable cost in terms of money and 'cost of any improvement' thereto has not been defined for purposes of section 48 in section 55(1)(b), was well founded;
• The self-generated trademarks are not capable of improvement at an ascertainable cost in terms of money and therefore, the computation of capital gains fails and, accordingly, it is outside the scope and ambit of the charge envisaged under section 45(1);
• Therefore, there was no capital gain exigible to tax under section 45(1) on transfer of the impugned trademark by the assessee and the lower authorities had erred in taxing the same while computing the total income of the assessee.

Expenditure on construction of temporary structure on leasehold land to meet business needs was revenue expense

CIT v. Gujarat Co-op Milk Marketing Federation Ltd [2014] 43 taxmann.com 398 (Gujarat High Court)

Expenditure on construction of temporary structure was allowable as revenue expenditure if such structure was made by assessee on leasehold land to run its business.

Facts:

• The assessee had entered into lease agreement with Ahmedabad Urban Development Authority [‘AUDA’] to run its AMUL milk parlour in the land of AUDA. As per the agreement,  the assessee would maintain a small garden and would permit access to the public.
• On such structure put up by assessee, it claimed depreciation at the rate of 100 per cent. The Assessing Officer held that the parlour was run in a pukka constructed building. He, therefore, reduced depreciation to 10 per cent;
• The Tribunal allowed full depreciation at the rate of 100 per cent to the assessee. The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

• Part A of Appendix I to the Income-tax Rules, 1962 provides for 100 per cent deduction on 'purely temporary erections such as wooden structures';
• The arrangement between the assessee and AUDA was purely temporary in nature. It did not derive any enduring benefit from putting up such construction;
• Under the agreement, the assessee was given certain rights by the AUDA to use land on the terms and conditions set out therein. Combined reading of the said conditions would establish that the assessee had the right to use the land for putting up its parlour for a period of five years;
• Thereafter, only upon mutual agreement between the assessee and the AUDA, the period could be extended. During the period of the agreement, the assessee had to maintain the garden and permit full access to the members of the public. The assessee did not have any right to develop any part of the land or put up construction without the permission of AUDA;
• Such conditions would establish that the assessee had a limited right to use the land for the limited purpose and the limited period. In the next year due to non-renewal of the agreement, the assessee's structure was demolished;
• Therefore, expenditure incurred on construction of structure was allowable as revenue expenditure.

Section 54F relief couldn't be withdrawn if residential property was subsequently put to use for commercial purpose

Shyamlal Tandon v. ITO [2014] 43 taxmann.com 155 (Hyderabad - Tribunal)

Subsequent change in usage of property does not disentitle assessee to relief under section 54F, if what was acquired was originally a residential property.

Facts:

• The assessee had purchased a piece of land. He gave property to a developer to construct a residential property. The municipal permission had also been obtained for such purposes. 
• The assessee had received possession of such residential property but said property was subsequently used for commercial purposes.He claimed exemption under section 54F. 
• The Assessing Officer (‘AO’) noticed that the income chargeable to tax had escaped assessment and completed assessment by working out-long term capital gains. 
• The CIT (A) denied exemption under section 54F to assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The intention of the parties was to construct a residential property when the development agreement was entered. The municipal permission had also been obtained only for construction of a residential complex; 
• The assessee had received possession of such residential property but the said property was subsequently used for commercial purposes; 
• Merely because of change in the use of such property for non-residential purposes, it could not be held that what was acquired was not a residential property, but a commercial one; 
• The assessee was entitled to relief under section 54F, if what was originally acquired was a residential property. Thus, the impugned order of the CIT (A) was set aside, and the matter was restored to the AO, with a direction to consider the assessee's claim for exemption under section 54F.

Sums received in excess of capital account by retiring partner were capital receipts

ACIT v. P. Sivakumar (HUF) [2014] 43 taxmann.com 211 (Chennai - Tribunal)

Additional amounts paid to retiring partners in excess of the capital account are not in nature of any profit or income; hence not taxable.

Facts:

• The assessees (i.e. partners) retired from the firm and at the time of retirement, they were paid amounts in addition to the amounts lying in their capital accounts. 
• The Assessing Officer invoked section 28(va) and held that the amount received by partners in excess of the capital account was to be treated as business income on ground that while retiring from the firm, partners had agreed not to carry on any activity in relation to any business. 
• The additional amount was, thus, brought to tax in the respective hands of the assessees. On appeal, the CIT (A) allowed the appeal of assessees.

The Tribunal held in favour of assessees as under:

• The retirement deeds executed by the parties were not in the nature of any agreement restraining the parties from carrying on business activities. Therefore, section 28(va) was not applicable if partners were retiring from the business. That clause was more applicable to situations like non-competition agreement, etc; 
• The character of additional amounts paid to the retiring partners represented the share of the retiring partners in the worth and value of the business in which they were partners. The worth and value included the standing of the business, the goodwill and many other intangible virtues; 
• So, what was paid to the retiring partners was their rightful share in that worth and value of the firm. The only thing was that their shares in worth and value of business had been separately computed; 
• Therefore, the additional payments made to the retiring partners were not in the nature of any profit or income within the meaning of section 28(va); They were non-taxable capital receipts. Thus, the CIT(A) was right in holding that the amounts were not taxable.

No section 10(23C) relief to Government approved educational unit if it was not funded by Government

Dy. CIT v. Malout Institute of Management & Information Technology [2014] 43 taxmann.com 228 (Amritsar - Tribunal)

Where assessee-institute was approved as Government autonomous body for educational purpose but was not wholly or substantially financed by Government, exemption under section 10(23C) (iiiab) could not be allowed.

Facts:

• The assessee, an educational institution, claimed its income as exempt under section 10(23C)(iiiab) by contending that institute was approved by the Punjab Government and it was 100% funded Govt. Autonomous Body.
• The Assessing Officer disallowed exemption claimed by assessee on ground that assessee-society had been granted exemption under section 10(23C)(vi).

The Tribunal held in favour of revenue as under:

• The assessee-institute was an educational institute but his main motto was profit. It was also approved as the 100 per cent Govt. autonomous body;
• The Government had not financed any paisa to the institute in the last 5 years because the institute was already having a good amount lying in Fixed Deposits with Banks;
• The assessee was not fulfilling the conditions regarding the institutions ought to have been wholly or substantially financed by the Government. The assessee had not produced any documentary evidence to prove that the assessee had got approval from the prescribed authority for the exemption under section 10(23C)(iiiab);
• Therefore, the assessee was not entitled to exemption under section 10(23C)(vi).

Expenditure on installation of traffic signals to ensure timely presence of employees in office was allowable u/s 37(1)

Where assessee incurred expenditure on installation of traffic signals at various parts of city in order to secure free movement of its employees so that they reached office in time, amount so spent being a part of its corporate responsibility, was to be allowed as business expenditure under section 37(1)

Facts

• The assessee paid certain amount for installation of traffic signals in a particular part of the city.
• The assessee claimed that the traffic signals had been installed to ensure that employees would reach office in time without facing any traffic problems and, hence, it should be allowed as revenue expenditure.
• The Assessing Officer held that benefit from installation of traffic signals derived by assessee being very remote, the expenditure could not be allowed under section 37(1).
• The Tribunal, however, allowed the assessee's claim.

On revenue's appeal: Held

Expenditure incurred by the assessee was allowed by the High Court in the light of the following grounds:-

• Payment made by aseessee couldn’t be considered as illegal as it wasn’t paid to the police or rowdies to keep them away from the business premises.
• Payment made by assessee couldn’t be disallowed on the ground that expenditure was incurred voluntary and without any necessity and pubic was also benefited from such expense.
• To allow an expense the term ‘for the purpose of business’ shouldn’t be limited to meaning of earning the profits only.
• Expense incurred by assessee had to be allowed because late coming of employee due to severe traffic congestion was seriously affecting the business of the assessee.
• Expense couldn’t be disallowed on the ground that it was the responsibility of the State and in particular, the police department either to install the traffic signal or control the traffic because it was also the corporate Social responsibility of the assessee.

Income from hoardings earned by Municipal Corporation is taxable under section 56

CIT v. Rajkot Municipal Corporation [2014] 43 taxmann.com 99 (Gujarat High Court)

Where assessee, a Municipal Corporation, granted licences for putting up hoardings in its property, income from hoardings was in nature of 'income from other sources' and, therefore, it was exempt under section 10(20).

Facts:

• The assessee, a Municipal Corporation, granted licences for putting up hoardings in its properties. It had received income from hoardings and claimed that the same was exempted under section 10(20) as it was in the nature of 'income from other sources'.
• The Assessing Officer treated the income from hoardings as 'income from business' and accordingly disallowed the assessee's claim for exemption under section 10(20).
• On appeal, the CIT (A) held in favour of assessee. Further, the Tribunal upheld the order of the CIT (A).

The High Court held in favour of assessee as under:

• The Corporation was granting licenses for putting up hoardings in its properties and it was merely charging license fees to regulate such activities;
• In terms of its function, it would also be necessary for the Corporation to regulate such activities. It is the duty of the Corporation to regulate the offensive trades or practices and to construct, maintain, alter and improve public streets, bridges, sub-ways, etc;
• Further, it is the duty of the Corporate to remove obstructions and projections in or upon the streets, bridges and other public places. It may undertake any measure not specifically here in before named, likely to promote public safety, health, convenience or instruction;
• Thus, if the Corporation permits hoardings to be put up in its property by issuing licenses, for which it was charging license fees, the same could not be deemed as its business activity;
• The collection from such licence fees is less than 1 per cent of the total revenue of the Corporation. Therefore, such income was not 'business income' and to be held as 'income from other sources'.

No section 10(23C) relief to school collecting fees in name of development fund to be created for benefit of trustee

ACIT v. Sabarigiri Trust [2014] 43 taxmann.com 19 (Cochin - Tribunal)

Facts:

• The assessee-trust established a higher secondary school. There was a search in the premises of husband of managing trustee of trust. The seized material found during the course of search operation showed excess collection over and above the fees in the name of development fund.
• Before the Assessing officer, the assessee claimed exemption under section 10(23C). The Assessing Officer held that since it was a family trust which was established for the benefit of children of managing trustee, thus, claim of the assessee for exemption under section 10(23C) was to be rejected;
• The CIT(A), however, allowed the claim of the assessee on the ground that it was a capital receipt. The aggrieved revenue filed the instant appeal.

The Tribunal held in favour of revenue as under:

• Section 10(23C) provides that the educational institution existing solely for educational purposes and not for purposes of profit is eligible for exemption. In the instant case, the trust was established for the benefit of the children of managing trustee;
• It was a private family trust. Now, the question for consideration was as to when the trust itself was established for the benefit of the two children of managing trustee, whether the trust had any profit motive or not?;
• A bare reading of the trust deed clearly showed that the trust was established for the benefit of two children of managing trustee;
• There was a clause in the trust deed which enabled the children of managing trustee to appropriate the profit. The assessee had no obligation to reinvest the profit in the educational activities. Therefore, it could be concluded that the assessee was not in existence solely for educational purposes. It existed only for profit motive and, hence, it was not eligible for exemption under 10(23C).