Stocks

3 October 2014

Forced staying period in India on impounding of passport is excludible to determine residential status in India

SURESH NANDA V. ACIT [2014] 45 taxmann.com 269 (Delhi - Tribunal)

In order to determine residential status of assessee in India during relevant assessment years, number of days of his forced stay due to untenable impounding of passport was to be excluded.

Facts:
  • Consequent to search operations carried out on assessee, the department had found evidence that assessee was getting huge amount of commission from the companies outside India which was brought into India in the form of FDI.
  • Accordingly, the AO had made additions to the income of assessee in respect of unexplained investment. The assessee contending that for relevant assessment years his status in India was that of non-resident as his stay in India had exceeded 182 days during the year because of illegally impounding of his passport by the Government agencies.
  • The CIT(A), however, confirmed the order of AO. He, however, partly deleted the additions made by the AO on merits. The aggrieved-assessee filed the instant appeal.
The Tribunal held in favour of assessee as under:
  • The assessee's over stay in India was neither attributable to his volition nor free will and was because of untenable actions of impounding of his passport by executive orders which were quashed by the highest Court.
  • In these circumstances, the literal meaning of the provisions led to a manifest absurdity in as much as by untenable actions of executive, a taxpayer was exposed to the perils of losing his valuable right under taxation law, i.e., retaining his NRI status.
  • The legislature in its wisdom might not have envisaged such a situation wherein a person was forced to become a resident due to wrongful restraint in absence of eligibility to travel outside India.
  • Therefore, assessee's case was fit where doctrine of forced meajure might be applied as it was impossible for the assessee to move out of country and, therefore, doctrine of impossibility of performance was also applicable.
  • The stay of assessee was to be calculated after exclusion of days of wrongful impounding of his passport, which constituted forced stay in India. Thus, assessee's residential status was to be held as 'non-resident'.

2 October 2014

Section 54F stipulates deposit of unutilized sum within due date specified under section 139(1) and not section 139(4)

ITO V. SMT. ROSAMMA KORAH [2014] 45 taxmann.com 153 (Cochin - Tribunal)

'Due date' mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4).

Facts:
  • The assessee had claimed exemption under section 54F. The Assessing Officer held that the assessee had not deposited the unutilized sale consideration in the capital gain account scheme within the due date for filing the return of income under section 139(1). He accordingly, denied section 54F benefit to the assessee.
  • On appeal, the CIT(A) allowed Section 54F exemption to the assessee. The aggrieved-revenue filed the instant appeal.
  • Thus, the question that arose for consideration of the Tribunal was: Whether Section 54F provided for deposit of unutilized gains within due date specified under Section 139(1) and not under Section 139(4)?
The Tribunal held as under:
  • The Section 54F provides that the assessee is entitled to exemption in case he/she constructs a residential house within a period of three years after the sale of the capital asset. However, sub-clause (4) of section 54F provides that the unutilized portion of the net sale consideration shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139.
  • The Apex Court in case of Prakash Nath Khanna v. CIT [2004] 135 Taxman 327 (SC), had an occasion to interpret the term ‘due date’ provided under Section 54F and it held that due date means the due date for filing the return under section 139(1) and not under section 139(4);
  • When the Legislature had specifically referred only to section 139(1) and omitted to refer to section 139(4) in Section 54F, making a reference to section 139(4) was not proper;
  • Thus, the case to be reconsidered by the AO in the light of the judgment of the Apex Court (Supra). Accordingly, the orders of the lower authorities were to be set aside and the issue of exemption under section 54F was to be restored to the file of the Assessing Officer.

1 October 2014

Payments of commission for services rendered in relation to securities are out of ambit of section 194H; no TDS

CIT V. TANDON & MAHENDRA [2014] 45 taxmann.com 183 (Allahabad)

Services rendered in relation to securities are excluded from express definition of 'brokerage or commission' and, thus, excluded from purview of section 194H.

Facts
  • The assessee received certain amount from Mutual fund houses and paid commission to TPL on account of brokerage for motivating potential investors to invest through the assessee in Mutual funds. According to agreement entered into by the assessee, TPL canvassed and marketed various Mutual fund schemes to potential investors after collecting details from the assessee. 
  • The Joint Commissioner passed an order under section 144A directing disallowance of the commission paid to TPL. 
  • The Assessing Officer disallowed the commission paid by the assessee to TPL under section 40(a)(ia) on the ground that tax was liable to be deducted at source under section 194H, but had not been deducted. 
  • On appeal, the CIT(A) set aside the disallowance holding that services rendered in relation to securities are excluded from the express definition of 'brokerage or commission' and, thus, excluded from the purview of section 194H. Further, the Tribunal upheld the order of the CIT(A). The aggrieved- revenue filed the instant appeal.
The High Court held in favour of assessee:
  • The Joint Commissioner was in error in holding that while TPL had motivated investors to subscribe to Mutual Funds, it had no connection whatsoever with 'securities' as defined in Explanation to section 194-H. Explanation (iii) to section 194-H specifically states that the expression 'securities' will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956. 
  • Once it was an admitted position that TPL had motivated potential investors to invest through the assessee in Mutual Funds, it had to be held that these services were rendered in relation to a transaction in 'securities' and would be excluded from the definition of 'brokerage or commission' under section 194-H. 
  • The CIT(A) was justified in coming to the conclusion that the services were rendered by TPL were in relation to 'securities'. Consequently, the disallowance under section 40(a)(ia) was not warranted. 
  • Thus, there was no reason to hold that the Tribunal was in error. The appeal by the revenue had not given rise to a substantial question of law.