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).

‘Satisfaction’ of Assessing Officer for assessment of other person may come after concluding assessment of searched person

CIT v. Calcutta Knitwears [2014] 43 taxmann.com 446 (Supreme Court)

The Assessing Officer could record his satisfaction for issuing notice under section 158BD in the case of person other than searched person even after the completion of assessment of searched person.

The issue that falls for consideration of Supreme Court is:

At what stage of proceedings under Chapter XIV-B the assessing authority is required to record his satisfaction for issuing a notice under section 158BD?

The Supreme Court held in favour of revenue as under:

• The section 158BD is a machinery provision and it is inserted in the statute book for the purpose of carrying out assessment of a person other than the searched person. Under Section 158BD, if an officer is satisfied that there exists any undisclosed income which may belong to a person other than the searched person, after recording such satisfaction, he may transmit the records/documents to the Assessing Officer having jurisdiction over such other person;
• After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional Assessing Officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD;
• Section 158BD provides that the satisfaction note could be prepared by the Assessing Officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC or during the stage of the assessment proceedings.
• It didn't mean that after completion of the assessment, the Assessing Officer couldn't prepare the satisfaction note to the effect that there exists undisclosed income belonging to person other than the searched person;
• Thus, for the purpose of Section 158BD, a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages:
• At the time of or along with the initiation of proceedings against the searched person under Section 158BC;
• Along with the assessment proceedings under Section 158BC ; and
• Immediately after the assessment proceedings are completed under Section 158BC of the searched person.

Why is Long Term Investment Important?

Long Term Investments are those when you hold your stock, assets, bonds etc for a duration which is more than a year, may be ten years or something that you intend to hold for even much longer. If you are the one who is not running after quick returns then long term investments are your cup of tea. Long term investments grow substantially in good number of years and give you higher returns in the long run.

However, long term investments demand a high level of commitment, discipline, effort and time but the result is worth the wait. Experts advise you to make long term investments as they help you to remain focused and disciplined and provide you with higher profits as compared to short term investments.

You have heard the story of the tortoise and the rabbit and you know it well that slow and steady wins the race. Same applies to long term investments. You may click on short term growing funds in order to make steady cash but if you go for long term investments you let the compounding magic work for you.

Advantages of Long Term Investment

• It is not always possible to have high returns all the time. While you invest in short term funds it is not necessary that the fund in which you have invested will grow in the short span. On the other hand, if you go in for long term investment you will be able to sail through the highs and lows of the market and get substantial returns on your investments.
• Long term investments help you grow your money through the magic of compounding. The early you start the better for you. While playing in long term stocks, you do not get distracted by short term conditions.
• It is very difficult for you to predict the performance of market in short term whereas if you have a look at the performance of a stock over a period of time you will realize that the stock has showed upward movement.
• Long term investment helps you to build a diversified portfolio. It is important for you to accept that you are a human being and you cannot make right choices always and long term investment will help you run smoothly through the peaks and valleys of the market and also provide you with higher returns as you will have a good amount of varied options in your portfolio. If you keep updating your portfolio by getting rid of the non-performing chunk and catching hold of the performing stocks you will be able to yield good returns.
• Long term investments offer lower risk as compared to short term investments. One wrong move in your short term investment and you are gone whereas when it comes to long term investment you can slowly and steadily choose your investment options which will at least leave you well-off and it will surely not be strenuous for you.
• Long term investment seems more direct and easy than day trading. Day trading requires a lot of caution and time.
• In case of long term investments, investors need to be proactive and is less cumbersome. You do not have to sit at the edge of your chair. Even passive investments prove to be convenient.
• Even if you have made a mistake while making investment decisions, long term investment gives you a chance to mend them. You have time at your disposal to rectify where you have gone wrong. You can make up for the bad year of performance of your stock easily in coming years.
• When you opt for long term investment your portfolio turnover comes out to be less as compared to short term investments where whatever you sell becomes subject to taxes. With long term investments at your disposal you can grow money through compounding and delay tax liabilities.
• If we talk about the commission expenses then it goes without saying that such expenses are far less in long term investments. 

Experts do advise long term investments as they help you meet your long time financial goals. As you play in a diversified portfolio you are able to nullify the effect of a bad year of stocks with the coming years. However, while you plan to invest for long term you need to analyze the time that you have at your disposal. You need to plan well in advance the amount you can spare, the years for which you can stay invested and whether you will require that money in the next few years or not.

When you stay invested for long you do extend your risk to the following years but you indeed have a fair chance of rectifying your mistakes if you have landed yourself with a non-performing stock.

Long term investments pay off well in long durations like five years or ten years or above. If in any year during this period your stocks fall, you need not panic because if you sell off your stocks while the market is low you are bound to lose but remember that the market cannot remain the same, it will surely recover and you can easily make up for the loss.

Following are few of the options that are available for making long term investments: 

• Equity Shares
• Mutual Funds
• Post Office Saving Schemes
• Bonds and Debentures
• Public Provident Fund
• Life Insurance
• Real Estate
• Commodities
• National Saving Certificates
• Fixed Deposits