Income Tax Act, 1961 - Section 45(4) - Revaluation of asset partnership firm - Applicability of Section 45(4) of the Income Tax Act as introduced by the Finance Act, 1987 – Revenue appeal challenging deletion of short term capital gains - Assessee case that unless there is a dissolution of partnership firm and thereby the transfer of the amount on revaluation to the capital accounts of the respective partners, Section 45(4) of the Income Tax shall not be applicable – Assessee contention that there can be no income merely due to revaluation of the capital assets unless capital assets is also transferred – HELD – In the present case, the assets of the partnership firm were revalued and the revalued amount was credited to the accounts of the partners in their profit-sharing ratio and the credit of the assets’ revaluation amount to the capital accounts of the partners can be said to be in effect distribution of the assets - during the years, some new partners came to be inducted by introduction of small amount of capital and the said newly inducted partners had huge credits to their capital accounts immediately after joining the partnership, which amount was available to the partners for withdrawal and in fact some of the partners withdrew the amount credited in their capital accounts - Therefore, the assets so revalued and the credit into the capital accounts of the respective partners can be said to be “transfer” and which fall in the category of “otherwise” and therefore, the provision of Section 45(4) inserted by Finance Act, 1987 w.e.f. 01.04.1988 shall be applicable - Under the circumstances, for the purpose of interpretation of newly inserted Section 45(4), the decision of this Court in the case of Hind Construction Ltd. shall not be applicable and/or the same shall not be of any assistance to the assessee - the impugned judgment and order passed by the High Court and that of the ITAT are unsustainable and set aside – revenue appeal is allowed
Income Tax Act, 1961 – Disallowance of deduction under Section 80-IB – AO disallowed the deduction under Section 80-IB by observing that the nature of the business of the assessee is “manufacturer of polyurethane foam seats” which falls under entry 25 to the Eleventh Schedule of the IT Act and therefore the assessee shall not be entitled to deduction under Section 80-IB - High Court by the impugned judgment observed that what is manufactured by the assessee is polyurethane foam in different sizes/designs and there is no further process undertaken by the assessee to convert it into automobile seats and therefore what is manufactured by the assessee is polyurethane foam falling in entry 25 to Eleventh Schedule and therefore the assessee shall not be entitled to deduction claimed under Section 80-IB of the IT Act - High Court allowed the appeal preferred by the revenue and restored the assessment order denying the deduction claimed under Section 80- IB of the IT Act – assessee in appeal – HELD - Merely because the assessee is using the chemicals and ultimately what is manufactured is polyurethane foam and the same is used by assembly operators after the process of moulding as car seats, it cannot be said that the end product manufactured by the assessee is car seats/automobile seats. There must be a further process to be undertaken by the very assessee in manufacturing of the car seats. No further process seems to have been undertaken by the assessee except supplying/selling the polyurethane foam in different sizes/designs/shapes which may be ultimately used for end product by others as car seats/automobile seats - when the articles which are manufactured by the assessee, namely, polyurethane foam is an article classifiable in the Eleventh Schedule (entry 25), considering Section 80-IB(2)(iii), the assessee shall not be entitled to the benefit under Section 80-IB of the IT Act - High Court has rightly held so and has rightly set aside the order passed by the ITAT and has rightly restored the order passed by the assessing officer denying the deduction/benefit claimed under Section 80-IB of the IT Act – assessee appeal is dismissed
Income Tax Act, 1961 - Section 194H and 271C of the Income Tax Act - Interpretation of term “Commission or brokerage” under Section 194H of the Income Tax Act, 1961 - deduction of tax at source at 10% plus surcharge from payments falling under the definition of “Commission” or “Brokerage” under the Section 194H - Lower Courts held that the assessees were required to deduct TDS under Section 194H of the Income Tax Act, 1961 on the Supplementary Commission accrued to travel agents entrusted by the Appellants to sell airline tickets - As a consequence of the assessees’ failure to carry out the subtraction of the requisite amount of TDS, appellants were declared “assessees in default” under Section 201 and subjected to payment of interest and penalties under Sections 201(1A) and 271C of the IT Act – HELD – Section 194H of the IT Act does not distinguish between direct and indirect payments. Both fall under Explanation (i) to the provision in classifying what may be called a “Commission” - ambit of Section 194H in an expansive manner, the factum of the exact source of the payment would be of no consequence to the requirement of deducting TDS. Even on an indirect payment stemming from the consumer, the Assessees would remain liable under the IT Act. Consequently, the contention of the airlines regarding the point of origination for the amounts does not impair the applicability of Section 194H of the IT Act - the lack of control that the airlines have over the Actual Fare charged by the travel agents over and above the Net Fare, cannot form the legal basis for the Assessees to avoid their liability - In a principal-agent relationship, it is sufficient for the latter to be informed of the responsibilities and duties under the contract and certain guidelines on how to satisfy them - The accretion of the Supplementary Commission to the travel agents is an accessory to the actual principal-agent relationship under the agreement - the conclusion reached by the High Court in the impugned judgment on the nature of the relationship between the airlines and the travel agents, and the liability that is attached to deduction of TDS on the Supplementary Commission, is affirmed - in view of the consensus between the parties that the travel agents have already paid income tax on the Supplementary Commission, there can be no further recovery of the shortfall in TDS owed by the Assessees. However, interest may be levied under Section 201(1A) of the IT Act – Appeal is partly allowed Issue 2: Whether the matter has been rendered revenue neutral - the travel agents who received the Supplementary Commission for AY 2001-02, have already shown these amounts as their income. Subsequently, they have paid income tax on these sums - if the recipient of income on which TDS has not been deducted, even though it was liable to such deduction under the IT Act, has already included that amount in its income and paid taxes on the same, the assessee can no longer be proceeded against for recovery of the short fall in TDS. However, it would be open to the Revenue to seek payment of interest under Section 201(1A) for the period between the date of default in deduction of TDS and the date on which the recipient actually paid income tax on the amount for which there had been a shortfall in such deduction - in view of the consensus between the parties that the travel agents have already paid income tax on the Supplementary Commission, there can be no further recovery of the shortfall in TDS owed by the Assessees. However, interest may be levied under Section 201(1A) of the IT Act
Income Tax Act, 1961- Section 10(5), 192(1), 201 - Rule 2B of Income Tax Rules, 1962 - whether the appellant was in default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC) - employees of the assessee-employer claimed LTC of travel expenses between two points within India but between the two points they had also travelled to a foreign country as well, thus taking a circuitous route for their destination which involved a foreign place – vide the impugned order High Court held that the amount received by the employees of the assessee employer towards their LTC claims is not liable for the exemption as these employees had visited foreign countries which is not permissible under the law – assessee filed this appeal - HELD - The contention of the Appellant that there is no specific bar under Section 10(5) for a foreign travel and therefore a foreign journey can be availed as long as the starting and destination points remain within India is also without merits. LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this - The argument by the appellant that payments made to these employees was of the shortest route of their actual travel cannot be accepted either - in view of the provisions of the Act, the moment employees undertake travel with a foreign leg, it is not a travel within India and hence not covered under the provisions of Section 10(5) of the Act - the provision for LTC was introduced to motivate employees and encourage its employees towards tourism in India and it is for this reason that reimbursement of LTC was exempted. There was no intention of legislature to allow the employees to travel abroad in the garb of LTC available by virtue of Section 10(5) of the Act - The appellant cannot claim ignorance about the travel plans of its employees as during settlement of LTC Bills the complete facts are available before the assessee about the details of their employees’ travels. Therefore, it cannot be a case of bonafide mistake, as all the relevant facts were before the assessee-employer and was, therefore, fully in a position to calculate the ‘estimated income’ of its employees – assessee-employer therefore ought to have applied its mind and deducted tax at source under Section 192(1) of the Act – the High Court order is upheld and assessee appeal is dismissed
Income Tax - Charitable Trust - Clarification with respect to Supreme Court judgement in the case of Ahmedabad Urban Development Authority interpreting Section 2(15) of the Income Tax Act, 1961 - Revenue seeking clarification in view of Para 253 H and Para 254 of the said judgement preclude it from dealing with the assessments of parties, and with the dismissal of revenue’s appeals, will preclude an examination of the merits for these assesses in future, as well – HELD - this court consciously recorded its findings, with the intent of finally deciding the issues, for various organizations, in relation to the assessment years in question - The reference to application of the law declared by this court’s judgment, therefore, has to be understood in the context, which is that they apply for the assessment years in question, which were before this court and were decided; wherever the appeals were decided against the revenue, they are to be treated as final. However, the reference to future application has to be understood in this context, which is that for the assessment years which this court was not called upon to decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year. In view of this discussion, no further clarification is necessary or called for – the application is disposed of
Income Tax Act - Section 2(15) - Section 11(4A) - Exemption to charitable organisation - whether local authorities can be treated as charitable institutions even though they are involved in the activity of profit where the entire revenue or income so generated was to be kept in a fund and its accounts were mandatorily audited by the State’s Accountant General - The revenue relied on the decisions in Lok Shikshana Trust, and Indian Chamber of Commerce, highlighting that the significance of the change brought about by Section 2(15) of the IT Act - It was argued that Parliament amended the definition due to rampant abuse of the law by businesses claiming to be driven by charitable purposes - contention of assessee organisations was that all three corporations i.e. Ahmedabad Urban Development Authority (“AUDA”); the Gujarat Industrial Development Corporation (“GIDC”) and Gujarat Housing Board (“GHB”) were established by or under statutes enacted by the Gujarat legislature treated as local authority under Section 10(20) of the IT Act, as it existed till 2003 - Thereafter they were treated as charitable institutions engaged in activities involved in the advancement of public utility till the amendment of 2008 and if surplus is generated in the activities of AUDA, GIDC, or GHB, those would not be handed to the State Government, which previously had control over them but rather kept in a separate fund to be utilised for further development, expansion and development activities by each of such corporations - These cannot be construed as carrying on any trade, business or commerce – HELD - General test under Section 2(15): It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration (“cess, or fee, or any other consideration”) - However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years - Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment - Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict - Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3), reaffirm this interpretation and bring uniformity across the statutory provisions - The revenue’s appeals against Ahmedabad Urban Development Authority (AUDA); the Gujarat Industrial Development Corporation (GIDC) and Gujarat Housing Board (GHB) are rejected B. Authorities, corporations, or bodies established by statute B.1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the state government or central governments, for achieving what are essentially ‘public functions/services’ (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC. B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of “trade, commerce or business” and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act. B.3. In clause (b) of Section 10(46) of the IT Act, “commercial” has the same meaning as “trade, commerce, business” in Section 2(15) of the IT Act. Therefore, sums charged by such notified body, authority, Board, Trust or Commission (by whatever name called) will require similar consideration – i.e., whether it is at cost with a nominal mark-up or significantly higher, to determine if it falls within the mischief of “commercial activity”. However, in the case of such notified bodies, there is no quantified limit in Section 10(46). Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under Section 10(46). B.4. For the period 01.04.2003 to 01.04.2011, a statutory corporation could claim the benefit of Section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the denial of benefit under Section 10(46) after 01.04.2011 does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under Section 10(23C) or other provisions of the Act. C. Statutory regulators C.1. The income and receipts of statutory regulatory bodies which are for instance, tasked with exclusive duties of prescribing curriculum, disciplining professionals and prescribing standards of professional conduct, are prima facie not business or commercial receipts. However, this is subject to the caveat that if the assessing authorities discern that certain kinds of activities carried out by such regulatory body involved charging of fees that are significantly higher than the cost incurred (with a nominal mark-up) or providing other facilities or services such as admission forms, coaching classes, registration processing fees, etc., at markedly higher prices, those would constitute commercial or business receipts. In that event, the overall quantitative limit prescribed in the proviso to Section 2(15) (as amended from time to time) has to be complied with, if the regulatory body is to be considered as one with ‘charitable purpose’ eligible for exemption under the IT Act. C.2. Like statutory authorities which regulate professions, statutory bodies which certify products (such as seeds) based on standards for qualification, etc. will also be treated similarly. D. Trade promotion bodies Bodies involved in trade promotion (such as AEPC), or set up with the objects of purely advocating for, coordinating and assisting trading organisations, can be said to be involved in advancement of objects of general public utility. However, if such organisations provide additional services such as courses meant to skill personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income or receipts from such activities, would be business or commercial in nature. In that event, the claim for tax exemption would have to be again subjected to the rigors of the proviso to Section 2(15) of the IT Act. E. Non-statutory bodies E.1. In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and NIXI are engaged in important public purposes. The materials on record show that fees or consideration charged by them for the purposes provided are nominal. In the circumstances, it is held that the said two assessees are driven by charitable purposes. However, the claims of such non-statutory organisations performing public functions, will have to be ascertained on a yearly basis, and the tax authorities must discern from the records, whether the fees charged are nominally above the cost, or have been increased to much higher levels. E.2. It is held that though GS1 India is in fact, involved in advancement of general public utility, its services are for the benefit of trade and business, from which they receive significantly high receipts. In the circumstances, its claim for exemption cannot succeed having regard to amended Section 2(15). However, the Court does not rule out any future claim made and being independently assessed, if GS1 is able to satisfy that what it provides to its customers is charged on cost-basis with at the most, a nominal markup. F. Sports associations So far as the state cricket associations are concerned (Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot), this Court is of the opinion that the matter requires further scrutiny, in light of the discussion in paragraphs 228-238 of the judgment. Accordingly, a direction is issued that the AO shall adjudicate the matter afresh after issuing notice to the concerned assessees and examining the relevant material indicated in the previous paragraphs of this judgment. Furthermore, if any consequential order needs to be issued, the same shall be done and resulting actions, including assessment orders shall be passed in accordance with the law under relevant provisions of the IT Act. G. Private Trusts So far as the appeal by assessee-Tribune Trust is concerned, it has been held that despite advancing general public utility, the Trust cannot benefit from exemption offered to entities covered by Section 2(15) as the records reveal that income received from advertisements, constituted business or commercial receipts. Consequently, the limit prescribed in the proviso to Section 2(15) has to be adhered to for the Trust’s claim of being as a charity eligible for exemption, to succeed. Therefore, despite differing reasoning, this court has held that the impugned judgment of the High Court does not call for interference. Application of interpretation: The conclusions arrived at by way of this judgment, neither precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit. The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the assessee’s activities amount to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in proviso to Section 2(15), has been breached, thus disentitling them to exemption.
Income Tax Act - Section 10(23C) – exemption to university or educational institution existing solely for educational purposes and not for the purposes of profit - whether assessee is an educational institution existing solely for educational purposes and not for the purposes of profit - whether registration under the Andhra Pradesh Charities Act was an essential prerequisite for registration or approval under the IT Act - the Andhra Pradesh High court has answered both the questions in negative – assessee’s case that the High Court’s approach in considering the memorandum of association, rules or the constitution of the trust was correct, however the literal interpretation of the expression ‘solely’ under Section 10(23C)(vi) was not correct - It was urged that there was no bar or restriction imposed by law on trusts involved or engaged in activities other than education, from claiming exemption under Section 10(23C)(vi), provided their motive was not-for-profit - It was submitted that in the present case, the assesses had other objects apart from education which were charitable - Consequently, the denial of registration by the Commissioner was contrary to law - determination of whether the ‘principal’ or ‘main’ activity was education or not – HELD - It is held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education - In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities - Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT Act - At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities - The seventh proviso to Section 10(23C), as well as Section 11(4A) refer to profits which may be ‘incidentally’ generated or earned by the charitable institution - In the present case, the same is applicable only to those institutions which impart education or are engaged in activities connected to education - The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of business which is ‘incidental’ to educational activity, relating to education such as sale of text books, providing school bus facilities, hostel facilities, etc. - The reasoning and conclusions in American Hotel and Queen’s Education Society so far as they pertain to the interpretation of expression ‘solely’ are hereby disapproved, the judgments are accordingly overruled to that extent – The interpretation of education being the ‘sole’ object of every trust or organization which seeks to propagate it, through this decision, accords with the constitutional understanding - the assessees appeals fail and dismissed While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution - To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes - The observations made in American Hotel suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment - Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts – it also applies to existing ones - The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure - It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws - This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc.- This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021. In a knowledge based, information driven society, true wealth is education – and access to it - Every social order accommodates, and even cherishes, charitable endeavour, since it is impelled by the desire to give back, what one has taken or benefitted from society - Our Constitution reflects a value which equates education with charity - That it is to be treated as neither business, trade, nor commerce, has been declared by one of the most authoritative pronouncements of this court in T.M.A Pai Foundation - The interpretation of education being the ‘sole’ object of every trust or organization which seeks to propagate it, through this decision, accords with the constitutional understanding and, what is more, maintains its pristine and unsullied nature - In the light of the foregoing discussion, the assessees’ appeals fail - It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard - This court is further of the opinion that since the present judgment has departed from the previous rulings regarding the meaning of the term ‘solely’, in order to avoid disruption, and to give time to institutions likely to be affected to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates hereafter - As a result, it is hereby directed that the law declared in the present judgment shall operate prospectively – assessee appeals are dismissed
Gift Tax Act, 1958 – Rules 9 and 11 of Part C of Schedule III of the Wealth Tax Act, 1957 - Valuation of listed shares sold in lock-in-period – revenue has challenged the order of the High Court on the ground that the listed shares even though sold in the lock-in-period, should be valued at market value as per Rule 9 of Schedule III of the Wealth Tax Act - valuation of shares of M/s. BPL Sanyo Technologies Limited and of M/s. BPL Sanyo Utilities and Appliances Limited, which were gifted by the respondent-assessee to M/s. Celestial Finance Limited - The shares of M/s. BPL Sanyo Technologies Limited and M/s. BPL Sanyo Utilities and Appliances Limited, both public limited companies, were listed and quoted on the stock exchanges. However, these gifted shares, being promoter quota shares, allotted to the assessee were under a lock-in period – HELD - When the equity shares are in a lock-in period, then as per the guidelines issued by the SEBI, there is a complete bar on transfer, which is enforced by inscribing the words “not transferable” in the relevant share certificates - This position is accepted by the Revenue, which, however, has relied upon a general circular issued by SEBI, wherein it is stated that the shares under the lock-in period can be transferred inter se the promoters - This restricted transfer would not make the equity shares in the lock-in period into “quoted shares” as defined vide sub-rule (9) to Rule 2 of Part A of Schedule III of the W.T. Act, as the lock-in shares are not quoted in any recognised stock exchange with regularity from time to time, and it is not possible to have quotations based upon current transactions made in the ordinary course of business - Possibility of transfer to promoters by private transfer/sale does not satisfy the conditions to be satisfied to regard the shares as quoted shares - The shares in question would become transferable post the lock-in period - Easy and unrestricted marketability are important considerations that would normally impact valuation/price of a share - Therefore, one may have to depreciate the value of the lock-in equity shares, viz. shares that are free from such restriction - The shares in question being “unquoted shares” have to be valued in terms of Rule 11 as a standalone valuation method - This would be in accord with sub-section (1) to Section 6 of the G.T. Act - explanation to Rule 2(9) of Part A, Schedule III of the W.T. Act does not prohibit the authority, Tribunal or the Court from examining whether a particular share, be it equity or preference share, is a “quoted share” or an “unquoted share” in terms of sub-rules (9) and (11) of Rule 2 of Part A of Schedule III of the W.T. Act. This right which is conferred on the authorities under the W.T. Act or the G.T. Act is not delegated to the stock exchange. A decision of the authority is amenable and can be examined when challenged in an appeal – Revenue appeal is dismissed ^In the case of Ahmed G.H. Ariff and Others v. Commissioner of Wealth Tax, Calcutta, a three Judge Bench of this Court, in a matter relating to the W.T. Act for a period when Schedule III of the W.T. Act was not applicable, had observed that the expression ‘property’ is a term of the widest import as it signifies every possible interest which a person can clearly hold or enjoy - ‘Property’, as a term, should be given a liberal and wide connotation, and extends to those well-recognised types of interests that have the insignia or characteristics of a proprietary right - Having held so, Apex Court rejected the argument of the assessee therein that his right to receive a specified share of the net income from an estate in respect of a Wakf-Alal-Aulad was not an asset assessable to wealth tax, on the ground that this asset had ‘nil’ or no value as it was of a non-transferable nature - the expression “if sold in the open market” refers to a hypothetical case, where, for the purpose of valuation, one must assume that there is an open market in which an asset with restrictions or bar on transfer can be sold. Following the decision of Ahmed G.H. Ariff in the case of Purshottam N. Amarsay and Another v. Commissioner of Wealth Tax, Bombay, which was a case relating to the valuation of the right to property of the assessee in a trust - The argument of the assessee that the right to property in a trust, being a personal estate, is incapable of being sold in the open market and, therefore, it would have ‘nil’ or no value was rejected. ^As per explanation to Rule 2(9) of Part A, Schedule III of the W.T. Act - The certificate from the concerned stock exchange is only to state whether an equity share, preference share or debenture, as the case may be, was quoted with the regularity from time to time and whether the quotations of such shares or debentures are based on current transactions made in the ordinary course of business - The explanation does not prohibit the authority, tribunal or the court from examining whether a particular share, be it equity or preference share, is a “quoted share” or an “unquoted share” in terms of sub-rules (9) and (11) of Rule 2 of Part A of Schedule III of the W.T. Act - This right which is conferred on the authorities under the W.T. Act or the G.T. Act is not delegated to the stock exchange - A decision of the authority is amenable and can be examined when challenged in an appeal - appeal by the Revenue is dismissed
Income Tax Act, 1961 – Section 2(24), 36 & 43B – Income, Other Deductions - Interpretation of a tax statute - Interpretation of Section 36(1)(va) and Section 43B – whether the appellant-assessees are entitled to deduction of contribution towards the EPF and ESI when such sums are belatedly deposited beyond the due dates - AO ruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) of the IT Act, such sums received by the appellants constituted “income” which could not have been allowed as deductions under Section 36(1)(va) when the payment was made beyond the relevant due date under the respective Acts - assessee’s pleas were unsuccessful before the ITAT and the High Court – assessee filed instant appeal – HELD - One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations – there is a marked distinction between the nature and character of the two amounts i.e. the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B – The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed - however, that cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions-which are deducted from their income. They are not part of the assessee-employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction - Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction - there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law - the impugned judgment is upheld and assessee appeals are dismissed
Income Tax Act – Section 36(1)(vii) – Bad-debt written off – CIT(A) confirmed the disallowance on account of bad debts and interest – in further appeal the ITAT allowed the assessee’s plea – in Revenue appeal the High Court declined to entertain the Revenue’s plea - Revenue claims that the assessee’s claim of giving amount to Developers for the alleged project was not substantiated by any material - Additionally, the assessee had also pleaded that the amount was given as a ‘loan’ to the developer, which was a different plea altogether as same was bereft of any material as to the terms of the loan, or the conditions of repayment, including interest – Revenue submission that by virtue of Section 36(2) of the Act, the AO has to be satisfied that the action of writing off is on sound and reasonable basis and that the assessee is obligated to prove that the claim satisfies the ingredients of both Section 36(1)(vii) and Section 36(2) of the Act as well - assessee’s submission that the amount was advanced to Developer to acquire certain commercial premises and for reservation by way of bookings in their upcoming project in the ordinary course of its business - HELD – the accounts of the assessee nowhere showed that the advance was made by it to Developer in the ordinary course of business - there was no material to substantiate this submission that the amount was given for the purpose of purchasing constructed premises - Equally, in support of its other argument that the amount was given as a loan, the assessee nowhere established the duration of the advance, the terms and conditions applicable to it, interest payable, etc. The assessee conceded that it had received interest income for the relevant assessment year. However, it could not establish that any interest was paid - Furthermore, there is nothing on record to suggest that the requirement of the law that the bad debt was written-off as irrecoverable in the assessee’s accounts for the previous year had been satisfied - it is held that the assessee’s claim for deduction of Rs. 10 crores as a bad and doubtful debt could not have been allowed. The findings of the ITAT and the High Court, to the contrary, are insubstantial and set aside ^Admissibility of an expenditure as a deduction, which does not fall within the provisions of Sections 28 to 43, and is not capital in nature, but is laid out or spent exclusively for the purpose of business, under Section 37 of the Act - the disallowance of the amount, on account of bad and doubtful debt, did not preclude a claim for deduction, on the ground that the expenditure was exclusively laid out for the purpose of business - in a given case, if the expenditure relates to business, and the claim for its treatment under other provisions are unsuccessful, application of Section 37 is per se not excluded - Section 37 applies only to items which do not fall in Section 30 to 36. If a provision for doubtful debt is expressly excluded from Section 36 (1) (vii) then such a provision cannot claim deduction under Section 37 of the IT Act even on the basis of “real income theory” - the impugned judgment of the High Court and the order of ITAT are hereby set aside – Revenue appeal is allowed
Income Tax Act - Considering the fact that the AO had called upon the petitioners to produce the evidence in support of increase of authorised share-capital, evidence of share allotment and names and addresses of the parties from whom share-premium was received, among other things and thereafter, the AO finalised the assessment, the subsequent re-opening can be said to be change of opinion - the re-opening of assessment is rightly set aside by the High Court - No reason to interfere with the same and Special Leave Petition stands dismissed
Benami Property Transactions Act - whether the Prohibition of Benami Property Transactions Act, 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 has a prospective effect - Adjudicating Authority issued a notice to the respondent–company invoking Section 24(1) of the Benami Transactions (Prohibition) Amendment Act, 2016 to show cause as to why the property acquired by the respondent should not be considered as Benami property and the respondent company as Benamidar within the meaning of Section 2(8) of the 2016 Act - The Adjudicating Authority passed an order under Section 24(4)(b)(i) of the 2016 Act, provisionally attaching the property - The High Court, while quashing the show-cause notice held that the 2016 Act does not have retrospective application - Aggrieved by the aforesaid impugned order, the Union of India is in appeal before Apex Court - HELD - Section 3(2) of the Prohibition of Benami Property Transactions Act, 1988 is declared as unconstitutional for being manifestly arbitrary - Section 3(2) of the Benami Transactions (Prohibition) Amendment Act, 2016 is also unconstitutional as it is violative of Article 20(1) of the Constitution - In rem, the forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary - The 2016 Amendment Act was not merely procedural, rather prescribed substantive provisions - forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively - authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., 25.10.2016 - As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed – The appeal is disposed of ^The criminal provisions under the Prohibition of Benami Property Transactions Act, 1988, prior to amendments in 2016, were arbitrary and incapable of application, the law through the 2016 amendment could not retroactively apply for confiscation of those transactions entered into between 05.09.1988 to 25.10.2016 as the same would tantamount to punitive punishment, in the absence of any other form of punishment - it is in this unique circumstance that confiscation contemplated under the period between 05.09.1988 and 25.10.2016 would characterise itself as punitive, if such confiscation is allowed retroactively. Usually, when confiscation is enforced retroactively, the logical reason for accepting such an action would be that the continuation of such a property or instrument, would be dangerous for the community to be left free in circulation. ^The response by the Government and the Law Commission to curb benami transactions was also not sufficient as it was conceded before this Court that Sections 3 and 5 of the 1988 Act in reality, dehors the legality, remained only on paper and were never implemented on ground. Any attempt by the legislature to impose such restrictions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of the Constitution. ^Continuation of only the civil provisions under Section 4, etc., would mean that the legislative intention was to ensure that the ostensible owner would continue to have full ownership over the property, without allowing the real owner to interfere with the rights of benamidar. If that be the case, then without effective any enforcement proceedings for a long span of time, the rights that have crystallized since 1988, would be in jeopardy. Such implied intrusion into the right to property cannot be permitted to operate retroactively, as that would be unduly harsh and arbitrary.
Income Tax Act - Section 127 & 260A – Appellate jurisdiction of the High Courts under Section 260A of the Income Tax Act, 1961 - appeal to High Court where the case involves a substantial question of law - revenue is aggrieved by the dismissal of appeal by the High Court of Delhi refusing to exercise jurisdiction to entertain an appeal - the question raised in this appeal is which High Court would have the jurisdiction to entertain an appeal against a decision of a Bench of the ITAT exercising jurisdiction over more than one state, particularly when cases are transferred under Section 127 of the Act - As Benches of the ITAT are constituted to exercise jurisdiction over more than one state, each state having a separate High Court, question as to which of the High Court is the appropriate Court for filing appeals under Section 260A - HELD - the vesting of appellate jurisdiction has no bearing on judicial remedies provided in Chapter XX of the Act before the ITAT and the High Court. The mistake committed by the High Court was in assuming that the expression “case” in the Explanation to Sub-Section 4 of Section 127 has an overarching effect and would include the proceedings pending before the ITAT as well as a High Court - appeals against every decision of the ITAT shall lie only before the High Court within whose jurisdiction the Assessing Officer who passed the assessment order is situated. Even if the case or cases of an assessee are transferred in exercise of power under Section 127 of the Act, the High Court within whose jurisdiction the Assessing Officer has passed the order, shall continue to exercise the jurisdiction of appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year(s) - for clarity and certainty it is reiterated that the jurisdiction of a High Court is not dependent on the location of the ITAT, as sometimes a Bench of the ITAT exercises jurisdiction over plurality of States - Appeal is allowed by setting aside the order passed by the High Court of Delhi refusing to exercise jurisdiction and the High Court of Delhi is directed to entertain the appeal and dispose of the appeal as per law
Income Tax Act – Section 197 - issuance of certificate for Nil TDS under Section 197 – assessee is engaged in the fabrication of Petroleum Platforms, Submarine Pipelines, onshore and offshore oil facilities etc – assessee appeal against order passed by High Court dismissing its petition against the refusal of the DCIT to modify the Certificate issued to the assessee for the Financial/Previous Year 2019-20, under Section 197 for Tax Deduction at Source at the rate of 4% in respect of payments received by the assessee from “ONGC” towards work done out of India as well as within India – whether the Appellant had PE in India in the relevant Assessment Years - HELD – As per Indira Banerjee, J.: the High Court rightly held that the question of whether the assessee had PE, could not possibly be undertaken in an enquiry for issuance of Certificate under Section 197 of the IT Act, with regard to the time-frame permissible in law for deciding an application, when regular assessment had been completed in respect of the immediate preceding year and the assessee found to be taxable under the IT Act at 10% of the contractual receipts - The Assessing Authority found that the assessee had PE in India in the concerned AYs - it is well settled that the principle that res judicata is not applicable to income tax proceedings because assessment for each year is final only for that year and does not cover later years – As rightly held by the High Court, since the assessee requested issuance of Certificate for deduction of TDS at 4% of taxable value it is not for the assessee to challenge the certificate - it appears that in the final assessment for one or two preceding AYs it was found that the assessee did have PE in India, on this issue the appeals are pending - Tax deducted at source is adjustable against the tax, if any, ultimately assessed as payable by the Assessee and any excess tax deducted is refundable with interest - Interference is not warranted at this stage, Counsel for the Revenue handed us a Draft Assessment Order, issued in respect of the AY in question, that is 2020-21, holding that the assessee had PE in India and was liable to tax in India under the IT Act - any observation made by this Court or by the High Court will not influence the final assessment which has to be made in accordance with law taking into account all relevant facts - if it is found that the assessee is not liable to tax, the assessee will be entitled to refund of TDS with interest Per J.K. Maheshwari, J.: the issuance of the certificate under Section 197(1) is based on the existing and estimated tax liability after recording satisfaction by assessing officer following the procedure so prescribed - Since there was no change in circumstances and the situation of the assessee in FYs 2017-2018 and 2018-2019 and at the FY 2019-20 in question are the same, the principle of consistency to be followed while considering the application u/s 197 the order passed by the High Court is without considering the perspective and scope of issuance of the certificate for deduction of tax at lower rate or no deduction at tax and also without following the prescribed procedure - High Court has committed error in dismissing the writ petition – against the previous judgement of Delhi High Court is pending, but it cannot be connected to the issue of certificate under Section 197(1) the view taken by Delhi High Court is correct and plausible view – it is made clear that the TDS certificate granted under Section 197 (1) shall be provisional subject to the assessment of the returned income, the appeal filed by the assessee is allowed setting aside the order of the High Court -this appeal is allowed - On account of the difference of opinion of both the Judges , the Registry is directed to place the matter before Hon’ble the Chief Justice of India so that an appropriate Bench could be constituted to hear the matter
Income Tax Act - Section 132 - Assessee challenged the act of authorization for search and seizure on the ground that it is a fishing enquiry and the conditions precedent as specified in Section 132 of the Act are not satisfied – Vide impugned judgement the High Court of Gujarat quashed the warrant of authorization issued by the Revenue under Section 132 of the Income Tax Act,1961, consequently, all actions taken pursuant to such warrant of authorization were ordered to be rendered invalid – aggrieved by the order Revenue filed instant appeal – HELD – the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure - the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Act as follows: i) The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character; ii) The information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide. It cannot be merely pretence. Consideration of any extraneous or irrelevant material would vitiate the belief; iii) The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him; or iv) Such person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property which has not been or would not be disclosed; v) Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof; vi) Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order; vii) The question as to whether such reasons are adequate or not is not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue; viii) The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof; ix) In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1.4.1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal - High Court was not justified in setting aside the authorization of search - the appeal is allowed and the order passed by the High Court is set aside - the Revenue would be at liberty to proceed against the assessee in accordance with law
Income Tax Act - Section 10B (8) - the assessee is a 100% export-oriented unit and engaged in the business of running a call centre and IT Enabled and Remote Processing Services – Assessee filed its return of income before the due date for AY 2001-02, declaring loss and claimed exemption under Section 10B of the IT Act - The assessee filed the revised return of income after the due date wherein exemption under Section 10B of the IT Act was not claimed and the assessee claimed carry forward of losses - AO passed an order rejecting the withdrawal of exemption under Section 10B of the IT Act - ITAT decided the issue in favour of the assessee stating that the declaration requirement under Section 10B (8) of the IT Act was filed by the assessee before the AO before the due date of filing of return of income as per Section 139(1) of the IT Act. ITAT allowed the assessee’s claim for carrying forward of losses under Section 72 of the IT Act - ITAT and the High Court decided the issue in favour of the assessee - the revenue contends that the ITAT and the High Court have committed a grave error in allowing the assessee’s claim for carrying forward of losses under Section 72 of the IT Act – HELD - for claiming the benefit under section 10B(8), both the conditions of furnishing the declaration and to file the same before the due date of filing the original return of income are mandatory in nature - It cannot be debated that in a taxing statute the provisions are to be read as they are and they are to be literally construed, more particularly in a case of exemption sought by an assessee – in a case where there is an omission or a wrong statement, the assessee can file a revised return - But a revised return of income, under Section 139(5) cannot be filed to withdraw the claim and later on claiming the carried forward or set off of any loss - Filing a revised return under Section 139(5) of the IT Act and taking a contrary stand or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible - By filing the revised return of income, the assessee cannot be permitted to substitute the original return of income filed under section 139(1) of the IT Act - Therefore, claiming benefit under section 10B (8) and furnishing the declaration as required under section 10B (8) in the revised return of income which was much after the due date of filing the original return of income under section 139(1) of the IT Act, cannot mean that the assessee has complied with the condition of furnishing the declaration before the due date of filing the original return of income under section 139(1) - it is held that the High Court has committed a serious error in observing and holding that the requirement of furnishing a declaration under Section 10B (8) of the IT Act is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory - The same is wrong and contradictory to the unambiguous language contained in Section 10B (8) of the IT Act - for claiming the benefit under Section 10B (8) of the IT Act, the twin conditions of furnishing a declaration before the AO and that too before the due date of filing the original return of income under section 139(1) are to be satisfied and both are mandatorily to be complied with - the question of law is answered in favour of the Revenue and against the assessee
Income Tax Act - Section 147, 148, 148A, 151 - initiation of reassessment Proceedings – valid “reason to believe”- Revenue appeals aggrieved and dissatisfied with the impugned common judgment and order passed by the High Court by which the High Court has allowed the said writ petitions and has quashed several reassessment notices issued by the Revenue, issued under section 148 of the Income Tax Act, 1961, on the ground that the same are bad in law in view of the amendment by the Finance Act, 2021 which has amended Income Tax Act by introducing new provisions i.e. sections 147 to 151 w.e.f. 1st April, 2021 – HELD – by substitution of sections 147 to 151 of the Income Tax Act by the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings - the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021 - The impugned common judgments and orders passed by the High Courts and other allied tax appeals/petitions, is/are hereby modified and substituted as: (i) The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b) - The AO shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assessees can reply to the show cause notices within two weeks thereafter; (ii) The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a one-time measure vis-à-vis those notices which have been issued under section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts; (iii) The AOs shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted); (iv) All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available - The present order shall be applicable Pan India and all judgments and orders passed by different High Courts on the issue and under which similar notices which were issued after 01.04.2021 issued under section 148 of the Act are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent - The present order is passed in exercise of powers under Article 142 of the Constitution of India so as to avoid any further appeals by the Revenue on the very issue by challenging similar judgments and orders, with a view not to burden this Court appeals – it is also observe that present order shall also govern the pending writ petitions, pending before various High Courts in which similar notices under Section 148 of the Act issued after 01.04.2021 are under challenge - The impugned common judgments and orders passed by the High Court shall stand modified to the aforesaid extent only - the appeals are accordingly partly allowed
Income Tax Act - Section 271(1)(c) – penalty for concealed the particulars of income or furnished inaccurate particulars of income - High Court has allowed appeal preferred by the Revenue and has set aside the order passed by the ITAT deleting the penalty under Section 271(1)(c) of the Income Tax Act – appellant submitted that in view of the CBDT Circular No.21 of 2015 dated 10.12.2015 the appeal preferred by the Revenue was not maintainable - It is the case on behalf of the appellant that in view of the aforesaid circular no appeal can be filed by the Department in any High Court, for non-payment of taxes, where the tax effect is less than Rs.20,00,000/- - HELD - so far as the primary submission on behalf of the assessee that in view of the CBDT Circular dated 10.12.2015 the tax effect being lower than the permissible limit to prefer the appeal before the High Court and therefore the appeal before the High Court was not maintainable is concerned, it is required to be noted that what was assailed by the Revenue was the penalty amounting to Rs.29,02,743/- and not the penalty reduced by the CIT(A) - Before the Tribunal, both the Revenue, as well as the assessee, preferred the appeals and the entire penalty amounting to Rs.29,02,743/- was an issue before the Tribunal as well as before the High Court - The subsequent reduction in penalty in view of the subsequent order cannot oust the jurisdiction - What is required to be considered is what was under challenge before the Tribunal as well as the High Court - The aforesaid aspect has been dealt with by the High Court in the impugned judgment and order – the court in in complete agreement of the view taken by the High Court - Therefore, it cannot be said that the appeal before the High Court at the instance of the Revenue challenging the order passed by the ITAT was not maintainable in view of CBDT circular dated 10.12.2015 - there is no substance in the present appeal and the same is dismissed
Income Tax Act – Claim of deduction of loss arising on account of exchange fluctuation - assessee claimed deduction in respect of loss arising on account of exchange fluctuation and also set up a fresh claim in respect of revenue expenses erroneously capitalised in the returns - ITAT entertained this fresh claim set forth by the appellant in exercise of powers under Section 254 of the 1961 Act - ITAT reversed the finding given by CIT(A) regarding application of Section 43A of the 1961 Act - The ITAT opined that the said provision had no application to the fact situation of the present case - Having said that, it then proceeded to consider the question whether the loss suffered by the assessee owing to exchange fluctuation can be regarded as revenue expenditure or capital expenditure incurred by the assessee, and answered the same in favour of the assessee by holding that it would be a case of expenditure on revenue account and an allowable deduction - The High Court vide impugned judgment has reversed the view taken by the ITAT, mainly observing that the ITAT had not recorded sufficient reasons in support of its conclusion and in any case, the conclusion was without any basis – aggrieved assessee filed instant appeal - HELD – appellant entered into a loan agreement with one CDC for borrowing amount to carry on its project for expanding its primary business of leasing and hire purchase of capital equipment to existing Indian enterprises - The loan was obtained in foreign currency. However, while repaying the loan, due to the difference of rate of foreign exchange, the appellant had to pay higher amount, resulting in loss to the appellant. Indeed, the loan amount was utilised by the appellant for financing the existing Indian enterprises for procurement of capital equipment on hire purchase or lease basis - the transaction of loan was in the nature of borrowing money by the appellant, which was necessary for carrying on its business of financing and it was certainly not for creation of asset of the appellant as such or acquisition of asset from a country outside India for the purpose of its business - In such a scenario, the appellant would be justified in availing deduction of entire expenditure or loss suffered by it in connection with such a transaction in terms of Section 37 of the Act as the loan is wholly and exclusively used for the purpose of business of financing the existing Indian enterprises, who in turn, had to acquire plant, machinery and equipment to be used by them. It is a different matter that they may do so because of the leasing and hire purchase agreement with the appellant. That would still be an activity concerning the business of the appellant - the ITAT was right in answering the claim of the appellant in the affirmative - The impugned judgment of the High Court is set aside and the decision of the ITAT is affirmed and restored – as a result of allowing the entire claim of the appellant being revenue expenditure, suitable amends will have to be effected in the final assessment order passed by the AO – assessee appeal is allowed
Income Tax - Revenue in appeal against the order of the High Court on the ground that vide the impugned order the High Court has dismissed it is appeal simply by observing that none of the questions as proposed by the revenue could be termed as the substantial questions of law and all the questions proposed are on factual aspects of the matter - except reproducing the proposed questions of law, there is no further discussion on the factual matrix of the case – HELD - the impugned order passed by the High Court is a non-speaking and non-reasoned order and even the submissions on behalf of the revenue are not recorded - the impugned order passed by the High Court dismissing the appeal is unsustainable - matter is remanded to the High Court to decide and dispose of the appeal afresh in accordance with law and on its own merits. If the High Court is of the opinion that the proposed questions of law are not substantial questions of law and they are on factual aspects, it will be open for the High Court to consider the same in accordance with law, however, the High Court to pass a speaking and reasoned order after recording the submissions made on behalf of the respective parties - the impugned order is quashed and set aside – the appeal is allowed