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.