100% EOU carries on its business in India, its source of income is in India; technical service used by it is Fees for Technical Services

Metro & Metro v. ACIT (2013) (Agra - Trib.)

The Tribunal held as under:

1. Irrespective of the fact whether an India based business is one hundred per cent export oriented unit or not, it is still a business carried on in India, and it cannot, therefore, be covered by the first limb of exception envisaged in section 9(1)(vii)(b); 
2. Even if entire products are sold outside India, the fact of such export by itself does not make business having been carried outside India; 
3. Once the manufacturing facilities are outside India and the customers are also outside India, such a situation will indeed be covered by the exception visualized in section 9(1)(vii)(b), however, merely because the user of services was a one hundred per cent export unit, it couldn’t be said that the technical services were used "for the purpose of making or earning any income from any source outside India", and, accordingly, would be outside the ambit of fees for technical services under section 9(1)(vii).

Section 54EC exemptions allowable despite deeming fiction of section 50 treating capital gains as short-term ones

CIT V. ADITYA MEDISALES LTD (2013) (Gujarat)

Where capital gain arose out of long-term capital asset and was invested in specified assets, exemption under section 54EC could not be denied due to deeming fiction created under section 50

The High Court held in favour of assessee as under:

• There is nothing in Section 50 to suggest that the fiction created in it is not only restricted to Sections 48 and 49 but also applies to other provisions; 
• Section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Sections 48 and 49; 
• It is well-established, in law, that a fiction created by the Legislature has to be confined to the purpose for which it is created. The fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that; 
• Legal fiction created under section 50 is restricted to computation of capital gains; such deeming fiction cannot restrict application of section 54EC which allows exemption of capital gains, if assessee makes investment in the specified asset; 
• Exemption provided under section 54EC couldn’t be denied to the assessee due to deeming fiction created under section 50. Thus, the assessee couldn’t be charged to capital gains when short-term gains of long-term capital assets were invested in the areas specified under the law.

Lease premium paid to acquire a leasehold land for 60 years isn’t a rent; no TDS under sec. 194-I

ITO(TDS) V. NAVI MUMBAI SEZ (P.) LTD (2013) (Mumbai - Trib.)

Lease premium paid for acquiring leasehold land for a period of 60 years did not fall within meaning of 'rent' under section 194-I and, therefore, assessee was not liable to deduct tax at source while making said payment

Facts:

• The assessee entered into lease agreements for a period of 60 years with CIDCO for acquisition of leasehold rights in the land to develop and operate a SEZ; 
• It paid lease premium to CIDCO. The Assessing Officer held that lease premium amounted to payment of rent within meaning of section 194-I and, since, assessee did not deduct tax at source while making said payment, it was to be treated as assessee in default; 
• On appeal, the CIT (A) set aside the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

• When the interest of the lessor is parted with for a price, the price paid is called lease premium or salami. But the periodical payments made for the continuous enjoyment of the benefit under the lease are in the nature of rent; 
• In the instant case, there was transfer of substantive interest of lessor for the leasehold land in favour of the assessee. There is a conferment of right on the lessee by acquiring leasehold land and the premium has been paid in lieu thereof and not for the purpose of use of land; 
• Therefore, the lease premium paid by the assessee for acquiring leasehold land with a right to develop a SEZ thereon couldn’t deemed as advance payment of rent; 
• Accordingly, premium paid by the assessee for acquiring leasehold land does not fall within the ambit of rent under section 194-I. Thus, the CIT (A) had rightly held that the provisions of section 194-I were not attracted in respect of lease premium paid by the assessee. Thus, revenue’s appeal was to be dismissed.

Presumption as to valid service of notice holds good if same is not returned back to department

SHAHBAD COOPERATIVE SUGAR MILLS LTD. V. DY.CIT (2013) (Punjab & Haryana)

Where revenue dispatched notice under section 143(2), and the fact that notice was not received back raise a presumption of service under Section 27 of the General Clauses Act, 1897

Facts:

• Notice under section 143(2) was claimed to have been issued by revenue under section 143(2); 
• The assessee raised an objection that notice was not served within 12 months from end of month in which return was furnished and, thus, it was null and void; 
• Despite this objection, revenue proceeded to finalized assessment. Thus, the dispute, in the present case, revolves around the issuance and service of notices issued under Section 143(2) of the Act.

The High Court held as under:

1. The averments in the reply, duly supported by copy of the notice and the fact that notice was not received back raised a presumption of service under Section 27 of the General Clauses Act, 1897; 
2. The onus to rebut the presumption of service of notice sent by post, lies upon the petitioner; 
3. The petitioner has failed to discharge this onus. Mere denial by the petitioner that notice was never received, was insufficient, to record a finding in favour of the petitioner; 
4. Thus, the instant petition was dismissed as there was no error in the impugned order or proceeding.

Short Sale

Selling of a security (or commodity futures contract) with the understanding that it must later be bought back (hopefully at a lower price). It is a technique used by investors who try to profit from the falling price of a stock.

Inevitable TDS obligation even if deduction for impugned exp. is not claimed

AGREENCO FIBRE FOAM (P.) LTD V. ITO(TDS) (2013) (Cochin - Trib.)

Assessee is liable to deduct tax at source on interest payments, even if it has not claimed same as deduction while computing its total income

Facts:

• The assessee-company credited interest to its sister concern’s account without deducting tax under section 194A. The Assessing Officer treated assessee as an 'assessee-in-default' and levied interest on it under section 201(1A);
• On appeal before the CIT (A), the assessee contended that it could not be treated as an 'assessee-in-default', when it had not claimed interest amount as expenditure. The CIT (A) dismissed the assessee's appeal. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1. Provisions of section 194A(1) provide that the person responsible to pay the interest is liable to deduct tax at source at the time of credit or payment, whichever is earlier. Since the section uses the term 'any income by way of interest', it should be viewed from the angle of the payee and not from the angle of the person making the payment;
2. The accounting or tax treatment given by the payer in respect of interest paid by him may not be relevant at all for the purposes of section 194A. So long as the interest amount constitutes "income" in the hands of recipient, the payer shall be liable to deduct tax at source on the interest amount so paid;
3. Thus, even if the payer had disallowed the expenditure under section 40(a)(ia) or did not claim the same as expenditure at all, he would still be liable to deduct tax at source under section 194A on the interest amount so paid, if the said payment was liable to TDS;
4. Further, the provisions of section 40(a)(ia) do not override the provisions of section 201. It provides only for deferment of the allowance and does not provide for absolute disallowance. Its objective appears to be to compel the assessee to deduct tax at source in order to claim the relevant expenditure as deduction;
5. Section 201 provides for treating an assessee as an assessee-in-default who has failed to deduct or pay the TDS amount. Its objective is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount;
6. Thus, the provisions of section 40(a)(ia) and section 201 operate on different objectives. Accordingly, the assessee was liable to deduct tax at source on interest payments, even if it had not claimed the same as deduction while computing its total income. The revenue was entitled to initiate proceedings under section 201 for such failure. Thus, the order of CIT(A) was to be upheld.

Voluntary disclosures don’t absolve one from concealment penalty; plea as to ‘buy peace’ is irrelevant

MAK Data (P.) Ltd. V. CIT (2013) (Supreme Court)

Voluntary disclosure does not lead to assessee being free from mischief of penal proceedings under section 271(1)(c)

The Supreme Court held as under:

• Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. The burden then shift on the assessee to show otherwise, by cogent and reliable evidence;
• When the initial onus placed by the Explanation, has been discharged by assessee, the onus shifts on the revenue to show that the amount in question constituted the income and not otherwise;
• The Assessing Officer shall not be carried away by the plea of the assessee like ‘voluntary disclosure’, ‘buy peace’, ‘avoid litigation’, ‘amicable settlement’, etc., to explain its conduct;
• Assessee had only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income-tax department. Statute does not recognize those types of defences under the Explanation 1 to section 271(1)(c);
• It is trite law that the voluntary disclosure does not free the assessee from the mischief of penal proceedings under section 271(1)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty;
• The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee;
• The Assessing Officer had to satisfy whether the penalty proceedings were initiated or not during the course of the assessment proceedings and the Assessing Officer was not required to record his satisfaction in a particular manner or reduce it into writing. Thus, there was no illegality in action of department in initiating penalty proceedings.