Income Tax Act, 1961 – Section 80 IA - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development – Revenue in appeal contending that the re-computation of deduction made by the assessing officer was interfered with by the Tribunal and affirmed by the High Courts without appreciating the fact that the profits of eligible business of captive power generation plants of the assessees were inflated by adopting an excessive sale rate per unit for power supply to the assessees own industrial units for captive consumption as opposed to the rate per unit at which power was supplied by the assessees to the power distributing companies i.e. the State Electricity Boards which is contended to be the market rate – HELD - the expression “market value” in relation to any goods as defined by the explanation below the proviso to sub-section (8) of Section 80 IA would mean the price of such goods determined in an environment of free trade or competition. “Market value” is an expression which denotes the price of a good arrived at between a buyer and a seller in the open market i.e., where the transaction takes place in the normal course of trading - determination of tariff between the assessee and the State Electricity Board cannot be said to be an exercise between a buyer and a seller in a competitive environment or in the ordinary course of trade and business i.e., in the open market. Such a price cannot be said to be the price which is determined in the normal course of trade and competition - market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market - the rate at which power was supplied to a supplier could not be the market rate of electricity purchased by a consumer in the open market – the market value of the power supplied by the State Electricity Board to the industrial consumers should be construed to be the market value of electricity. It should not be compared with the rate of power sold to or supplied to the State Electricity Board since the rate of power to a supplier cannot be the market rate of power sold to a consumer in the open market - The State Electricity Board’s rate when it supplies power to the consumers have to be taken as the market value for computing the deduction under Section 80-IA of the Act - the Tribunal had rightly computed the market value of electricity supplied by the captive power plants of the assessee to its industrial units after comparing it with the rate of power available in the open market i.e., the price charged by the State Electricity Board while supplying electricity to the industrial consumers - the High Court was fully justified in deciding the appeal against the revenue – the issue is answered in favour of the assessee and against the revenue Issue 2: Whether the Tribunal could ignore compliance to the statutory provisions relating to exercise of option to adopt Written Down Value (WDV) method in place of the straight line method while computing depreciation on the assets used for power generation – HELD – there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Income Tax Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return. All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under sub-rule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done. If that be the position, no merit in the question proposed by the revenue. The same is therefore answered in favour of the assessee and against the revenue. Issue 3: Deletion of addition made by the assessing officer on account of payment made by the assessee to its Consultant – HELD - the entire issue is based on appreciation of the materials on record. Tribunal had scrutinized the materials on record and thereafter had recorded a finding of fact that there were sufficient evidence to justify payment made by the assessee to Shri SK Gupta, a consultant of the assessee, and that the assessing officer had wholly relied upon the statement of Shri Gupta recorded during the search operation which was retracted by him within a reasonable period. In these circumstances, there is no admissible material to deny the claim of expenditure made by the assessee. Accordingly, this issue is answered in favour of the assessee and against the revenue. Issue 4: Whether Carbon Credit is Capital or Revenue Receipt – HELD – The Tribunal vide the order dated 31.03.2016 held that carbon credit is generated under the Kyoto Protocol and because of international commitments. Carbon credit emanates out of such technology and plant and machinery which contribute to reduction of greenhouse gases. That apart, carbon credits are also meant to promote environmentally sound investments which are admittedly capital in nature. Therefore, Tribunal held that carbon credit is a capital receipt - Against the said order of the Tribunal, revenue preferred appeal before the High Court only on the issue relating to disallowance of deduction by the assessing officer under Section 80-IA (4) (iv) of the Act. The question of carbon credit being capital receipt or not was not raised. In other words, revenue had accepted the decision of the Tribunal as regards carbon credit and did not challenge the said decision before the High Court. If that be the position, revenue would be estopped from raising the said issue before this Court at the stage of final hearing. That apart, there is no decision of the High Court on this issue against which the revenue can be said to be aggrieved and which can be assailed. In the circumstances, we decline to answer this question and leave the question open to be decided in an appropriate proceeding
Income Tax Act, 1961 - Section 80 HHC - Disallowance of gain earned from foreign exchange fluctuations by the assessee - With respect to the foreign exchange earned from the exports of goods, instead of converting the exchange immediately to Indian currency, the assessee credited part of foreign exchange to the EEFC account - The assessee received a gain from the amount credited to the EEFC account due to an upward revision in the exchange rate at the end of the financial year - whether the gain on foreign exchange fluctuation in the EEFC account of the assessee partakes the character of profits of the business of the assessee from exports and can the gain be included in the computation of deduction under profits of the business of the assessee under Section 80 HHC of the Act – HELD - In interpreting Section 80 HHC, the expression “derived from” has a deciding position with the other expression viz., “from the export of such goods or merchandise”. While appreciating the deduction claimed as profits of a business, the test is whether the income/profit is derived from the export of such goods/merchandise - The Section 80 HHC enables deduction to the extent of profits derived by the assessee from the export of such goods and merchandise and none else - From the requirements of sub-sections (2) and (3) of Section 80 HHC, it can be held that the deduction is intended and restricted only to profits of the business of export of goods and merchandise outside India by the assessee. Therefore, including other income as an eligible deduction would be counter-productive to the scope, purpose, and object of Section 80 HHC of the Act - the gain from foreign exchange fluctuations from the EEFC account does not fall within the meaning of “derived from” the export of garments by the assessee. The profit from exchange fluctuation is independent of export earnings - disallowance of the deduction under Section 80 HHC of the Act is upheld and assessee appeal is dismissed
Income Tax Act, 1961 - Section 90(1) - Interpretation of the Most Favoured Nation (MFN) clause contained in various Indian treaties with countries that are members of the Organisation for Economic Cooperation and Development (OECD) – Whether there is any right to invoke the MFN clause when the third country with which India has entered into a Double Tax Avoidance Agreement (DTAA) was not an OECD member yet (at the time of entering into such DTAA); and whether the MFN clause is to be given effect to automatically or if it is to only come into effect after a notification is issued – HELD - when a third-party country enters into DTAA with India, it should be a member of OECD, for the earlier treaty beneficiary to claim parity - A notification under Section 90(1) is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a DTAA, or any protocol changing its terms or conditions, which has the effect of altering the existing provisions of law - The fact that a stipulation in a DTAA or a Protocol with one nation, requires same treatment in respect to a matter covered by its terms, subsequent to its being entered into when another nation (which is member of a multilateral organization such as OECD), is given better treatment, does not automatically lead to integration of such term extending the same benefit in regard to a matter covered in the DTAA of the first nation, which entered into DTAA with India. In such event, the terms of the earlier DTAA require to be amended through a separate notification under Section 90 - The interpretation of the expression “is” has present signification. Therefore, for a party to claim benefit of a “same treatment” clause, based on entry of DTAA between India and another state which is member of OECD, the relevant date is entering into treaty with India, and not a later date, when, after entering into DTAA with India, such country becomes an OECD member, in terms of India’s practice – the reasoning and findings in the impugned orders cannot survive; they are set aside - Revenue’s appeals succeed and are allowed
Income Tax Act, 1961 – Section 37 & Section 35ABB - Treatment of variable licence fee paid under the New Telecom Policy, 1999 - Revenue expenditure or Capital Expenditure - Whether the variable licence fee paid by the respondent-assessees to the Department of Telecommunications under the New Telecom Policy of 1999 is revenue expenditure in nature and is to be allowed deduction under Section 37 of the Act or whether the same is capital in nature under Section 35ABB of the Act – Vide the impugned order the High Court held that the variable licence fee paid by the assessees under the New Telecom Policy, 1999 is revenue expenditure in nature and deductible under Section 37 of the Income Tax Act, 1961 - HELD - where the periodic payments are referrable to or have a nexus with the original obligation undertaken by the assessee as consideration for acquisition of a right, the periodic payments would be in the nature of capital expenditure, notwithstanding the fact that they are payable as a percentage of profits, gross revenue or sales – in the present case, since the annual payment of variable licence fee is only towards licence fees and merely because it is paid in annual instalments based on the AGR, the payment cannot be construed as revenue. The annual payments of licence fee as also the entry fee relate to a singular purpose, i.e., the acquisition of the right to carry on the business of rendering telecommunication services. This right being in the nature of a capital asset, any payments made towards the acquisition of the right, whether in lump-sum or in annual instalments dependent on the AGR, would be in the nature of capital disbursements - the entry fee as well as variable licence fees are traceable to the same source, they would both have to be held to be capital in nature, notwithstanding the fact that the variable licence fee is paid in a staggered manner – the impugned Division Bench of the High Court of Delhi is set aside - The judgments passed by the High Courts of Delhi, Bombay and Karnataka, following the judgment of the Division Bench of the High Court of Delhi, are also consequently set aside – Revenue appeal is allowed
Income Tax Act, 1961 – Section 245H - Power of Settlement Commission to grant immunity from prosecution and penalty – Error in accounting of lease income - Whether the Settlement Commission correct in exercising discretion under Section 245H of the Act and granted immunity to the assessee in the absence of any material to demonstrate that there was no wilful concealment on the part of the assessee to evade tax and on that ground remanding the matter to the Commission for fresh consideration – Assessee appeal challenging the impugned judgment passed by the High Court remanding the matter to the Settlement Commission to redetermine the question of immunity from levy of penalty and prosecution – HELD - Considering the nature and circumstances and the complexities of the investigation involved, the Commission was of the view that the application was to be proceeded with under Section 245D (1) of the Act and that prima-facie, a full and true disclosure of income, which was not disclosed before the Assessing Officer, had been made by the appellant – the findings of the Settlement Commission, demonstrate that it had applied its mind to the aspect of whether there was wilful concealment of income by the assessee. Having noted that non-disclosure was on account of RBI guidelines, which required a different standard of disclosure, the Commission decided to grant immunity to the appellant from prosecution and penalty - the appellant also offered additional income and disclosed particulars of the income pertaining to the its transactions/activities - The Commission’s order makes multiple references to the Report of the Commissioner, as required under Section 245D(1). Therefore, there is no substance in the submission of the Ld. ASG appearing on behalf of the Revenue that the procedure contemplated under Section 245D was not followed and in the absence of a report, the Commission was not correct in entertaining the appellant’s application for settlement - the learned Single Judge of the High Court was not right in holding that the reasoning of the Settlement Commission was vague, unsound and contrary to established principles. Division Bench was also not justified in affirming such view of the learned Single Judge - The Order of the Settlement Commission did not suffer from such infirmity – the impugned judgement is set aside and appeal is allowed
Income Tax Act, 1961 - India-Oman DTAA – Taxability of Dividend income – Revenue case that dividend received by the Respondent-assessee is taxable in India and is not exempt because the same is not designed as tax incentive in Oman - whether the dividend income earned by the assessee is taxable, although exempted under Omani Tax Laws to entitle the assessee to the benefits of the DTAA Agreement between India and Oman – HELD – It is clear from the letter of the Omani Finance Ministry that the dividend distributed by all companies, including the tax-exempt companies would be exempt from payment of income tax in the hands of the recipients. By extending the facility of exemption, the Government of Oman intend to achieve its object of promoting development within Oman by attracting investments - Since the assessee has invested in the project by setting up a permanent establishment in Oman, as the JV is registered as a separate company under the Omani laws, it is aiding to promote economic development within Oman and achieve the object of Article 8 - A plain reading of Article 8 and Article 8 (bis) would manifest that under Article 8, dividend is taxable, whereas, Article 8(bis) exempts dividend received by a company from its ownership of shares, portions, or shareholding in the share capital in any other company. Thus, Article 8(bis) exempts dividend tax received by the assessee from its PE in Oman and by virtue of Article 25, the assessee is entitled to the same tax treatment in India as it received in Oman - Insofar as the argument concerning the assessee not having PE in Oman, apparent that the assessee’s establishment in Oman has been treated as PE from the very inception up to the year 2011. There is no reason as to why all of a sudden, the assessee’s establishment in Oman would not be treated as PE when for about 10 years it was so treated, and tax exemption was granted basing upon the provisions contained in Article 25 read with Article 8 (bis) of the Omani Tax Laws - the appellant-Revenue has not been able to demonstrate as to why the provisions contained in Article 25 of DTAA and Article 8 (bis) of the Omani Tax Laws would not be applicable and, consequently, the appeals have no substance and dismissed
Income Tax Act, 1961 - Whether the deposit of surplus funds by the appellant Clubs by way of bank deposits is liable to be taxed in the hands of the Clubs or whether, the principle of mutuality would apply and the interest earned from the deposits would not be subject to tax under the provisions of the Income Tax Act, 1961 – the High Courts in the impugned judgments have uniformly held that the interest earned on the bank deposits made by the clubs is liable to be taxed in the hands of the clubs and that the principle of mutuality would not apply - the pertinent controversy is whether the judgment of this Court in the case of Bangalore Club vs. Commissioner of Income Tax calls for reconsideration in view of the earlier order of this Court in Commissioner of Income Tax vs. M/s Cawnpore Club Ltd., Kanpur – HELD - the judgment in Bangalore Club does not call for reconsideration and these appeals could be disposed of in terms of the said judgment - The Order of this Court in Cawnpore Club cannot be treated as a precedent within the meaning of Article 141 of the Constitution of India as the said order does not declare any law and the appeals filed by the re- venue as against Cawnpore Club were disposed of without going into the larger question as to whether Cawnpore Club could be taxed on the interest income earned on fixed deposits made by it in the banks, or whether the principle of mutuality would apply to the said income - the principle of mutuality would not apply to interest income earned on fixed deposits made by the appellant Clubs in the banks irrespective whether the banks are corporate members of the club or not - the judgment in Bangalore Club is not per incuriam although, the earlier Order passed by a Coordinate Bench of this Court in the case of Cawnpore Club is not noticed in Bangalore Club - the interest income earned on fixed deposits made in the banks by the appellant Clubs has to be treated like any other income from other sources within the meaning of Section 2(24) of Income Tax Act, 1961 - Conversely, if any income is earned by the Clubs through its assets and resources, from persons who are not members of the Clubs, such income would also not be covered under the principle of mutuality and would be liable to be taxed under the provisions of the Income Tax Act - the appeals are dismissed
Income Tax - Revenue appeal against impugned High Court Order and ITAT order deleting the addition made on account of amount paid to milk supplier treating it as appropriation of profit – HELD – since the amount was paid, may be, at the end of the previous year only to the milk suppliers, which was for the quantity of milk supplied and in terms of the quality supplied and the amount was not paid to all the shareholders and not paid out of the profits ascertained at the Annual General Meeting, both the ITAT as well as the High Court have rightly deleted the addition made by the Assessing Officer - the amount paid to the milk suppliers and also to non-members cannot be said to be appropriation of profit. Therefore, no error has been committed by the High Court – no error in order passed by the ITAT and affirmed by the High Court – Revenue appeal is dismissed
Income Tax Act – Section 69A – taxability of ‘bitumen’ as unexplained ‘other valuable article’ U/s 69A - The appellant-assessee carried on business as carriage contractor for bitumen loaded from oil companies namely HPCL, IOCL and BPCL – whether the assessee can be regarded as an ‘owner’ of the bitumen; and whether ‘bitumen’ can be covered within the category of ‘other valuable article’, alongside money, bullion and jewellery, as mentioned in Section 69A of the Income Tax Act, 1961 – HELD - To apply Section 69A of the Act, it is indispensable that the Officer must find that the other valuable article is owned by the assessee - A bailee, who is a common carrier, is not an owner of the goods - A bailee who is a common carrier would necessarily be entrusted with the possession of the goods - The purpose of the bailment is the delivery of the goods by the common carrier to the consignee or as per the directions of the consignor - During the subsistence of the contract of carriage of goods, the bailee would not become the owner of the goods - the assessee was certainly not the owner of the bitumen but was the carrier who was supplying goods from the consignor to the consignee – the assessee is not the owner, for the purposes of Section 69A - Section 69A provides for unexplained ‘money, bullion, jewellery’. It is thereafter followed by the words ‘or other valuable articles’ - The intention of the law-giver in introducing Section 69A was to get at income which has not been reflected in the books of account but found to belong to the assessee. Not only it must belong to the assessee, but it must be other valuable articles - If the ‘article’ is to be found ‘valuable’, then in small quantity it must not just have some value but it must be ‘worth a good price’ or ‘worth a great deal of money’ and not that it has ‘value’. Section 69A would then stand attracted. But if to treat it as ‘valuable article’, it requires ownership in large quantity, in the sense that by multiplying the value in large quantity, a ‘good price’ or ‘great deal of money’ is arrived at then it would not be valuable article. Thus, it is concluded that ‘bitumen’ as such cannot be treated as a ‘valuable article’ - for purpose of Section 69A of Income Tax Act, it is therefore declared that an ‘article’ shall be considered ‘valuable’ if the concerned article is a high-priced article commanding a premium price. As a corollary, an ordinary ‘article’ cannot be bracketed in the same category as the other high-priced articles like bullion, gold, jewellery mentioned in Section 69A by attributing high value to the run-of-the-mill article, only on the strength of its bulk quantity. To put it in another way, it is not the ownership of huge volume of some low cost ordinary article but the precious gold and the like, that would attract the implication of deemed income under Section 69A - bitumen is not a valuable article in the context of Section 69A and the assessee was not the owner of the concerned bitumen for the purpose of section 69A of the Income Tax Act, 1961 – assessee appeal is allowed
Income Tax Act, 1961 – Section 50C and 143(3) - Transfer of capital asset or transfer of stock in trade - assessee is in the business of building and development of properties - the assessee's balance sheets show that it had work in progress/ inventories year after year, since 1999-2000 – AO held that during relevant year transaction of transfer of development rights in respect of land was that of transfer of capital asset – in assessee appeal the ITAT held that the transaction in question is sale of stock in trade – Revenue appeal against the impugned High Court order upholding the order passed by the ITAT – HELD - . It appears that ITAT has neither dealt with the findings given by the AO nor verified/examined the total sales made by the assessee during the relevant time and during the previous years. Merely on the basis of recording of the inventory in the books of accounts, the transaction in question would not become stock in trade. As per the settled position of law in order to examine whether a particular transaction is sale of capital assets or business expense, multiple factors like frequency of trade and volume of trade, nature of transaction over the years etc., are required to be examined. From the order passed by the ITAT, it appears that the ITAT has without examining any of the relevant factors confirmed that the transaction was transfer of stock in trade - The ITAT ought to have appreciated that the moment the receipt of amount is received and recorded in the books of accounts of the assessee unless shown to be refunded/returned, it is to be treated as income in the hands of the recipient. However, the ITAT has also not considered the aforesaid aspect - matter is required to be remanded to the ITAT to consider the appeal afresh and to take into consideration the relevant factors while considering the transaction as stock in trade or as sale of capital assets or business transaction - The impugned judgment and order passed by the High Court and that of the ITAT are quashed and set aside and the matter is remitted back to the ITAT to consider the appeal afresh in accordance with law – Revenue appeal is partly allowed
Income Tax Act, 1961 - Section 80P(4) - Whether the Respondent-assessee is a co-operative credit society or a bank for the purpose of Section 80P(4) of the Act – Revenue case respondent-Assessee will fall under the definition of Benk/Co-operative Bank as their activity is to give credit/loan – HELD - merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also - There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under Section 80(P)(2) of the Income Tax Act – Revenue appeal is dismissed
Income Tax Act, 1961 - Section 9(1)(i) – Article 7 of India-USA DTAA - Respondent-assessee is in the business of providing electronic global distribution services to Airlines through “Computerized Reservation System” - Respondents earn certain amount per booking made in India and out of the said earning, the respondents pay various amounts to the Indian entities - Assessing Officers in the original proceedings came to the conclusion that the entire income earned out of India by the respondents is taxable – Revenue challenge attribution of only 15% of the revenue as income accruing in India within the meaning of Section 9(1)(i) of the Income Tax Act, 1961 read with Article 7 of the Treaty – HELD – Explanation 1(a) under clause (i) of Sub-Section (1) of Section 9 of the Income Tax Act, what is reasonably attributable to the operations carried out in India alone can be taken to be the income of the business deemed to arise or accrue in India. What portion of the income can be reasonably attributed to the operations carried out in India is obviously a question of fact. On this question of fact, the Tribunal has taken into account relevant factors - Article 7 of India-USA DTAA may not help cause of the Revenue for the reason that in the contracting state, the entire income derived by the respondents will be taxable. This is why Section 9(1) confines the taxable income to that proportion which is attributable to the operations carried out in India - the impugned order(s) of the High Court do not call for interference – Revenue appeals are dismissed
Income Tax Act, 1961 - Section 12A – Denial of exemption under Section 12A on the ground that the assessee has failed to produce the certificate of registration – HELD - since 1987 from the date on which the assessee applied for registration under Section 12A, the assessee continued to avail the benefit of exemption under Section 12A at least up to the assessment year 2007-2008 - What was required to be considered was the relevant provision prevailing in the year 1987, namely, the day on which the assessee applied for the registration. At the relevant time there was no requirement of issuance of any certificate of registration - the Assessing Officer was justified in granting the benefit of exemption under Section 12A for the assessment year 2010-2011 - it was never the case on behalf of the revenue and even the Commissioner that in the earlier years there was any certificate of registration or the registration was not granted - the impugned judgment and order passed by the High Court is erroneous and is unsustainable and the same is quashed and set aside – assessee appeal is allowed
Income tax Act, 1961 - Section 80HHC(3) - Computation of deduction under Section 80HHC - treatment of income from sale of shares – HELD – computation of deduction under Section 80-HHC of the 1961 Act would be made as per clause (b) to sub-section (3) to Section 80-HHC of the 1961 Act, as it existed before substitution and amendment by Finance (No. 2) Act, 1991 - for assessment year 1989-1990 for the purpose of Section 80-HHC(3) of the 1961 Act, income/profit earned from sale of shares would be included in the amount which bears to the profits of the business as computed under the head ‘profits and gains of business or profession’. The receipt/gross amount from sale of shares would be included in the total turnover - income by way of interest in the assessment years 1989- 1990, 1990-1991 and 1991-1992, being income taxable under the head ‘income from other sources’, would be compulsorily excluded for the purpose of computation of deduction under Section 80-HHC(3) of the 1961 Act – Appeal is disposed of
Income Tax Act, 1961 - Section 69C - Addition of unexplained expenditure - High Court has set aside the order passed by the ITAT relying upon the affidavits filed by the Typist and Chartered Accountant and accepted the submission on behalf of the assessee that there was a typographical error in the audit report – Aggrieved by the High Court Order Revenue in appeal – HELD – solely relying upon the statements of the Typist and the Chartered Accountant, the High Court has reversed the findings of the Assessing Officer as well as the ITAT. The High Court has also not properly appreciated and considered the fact that the affidavits were filed for the first time before the ITAT. The High Court has also not at all considered the conduct on the part of the assessee, which came to be considered in detail by the ITAT - there has been search in the case of the assessee and its group concern and during the course of the search, duplicate cash book, ledger and other books showing the unaccounted manufacturing and trading arrived at by the assessee in diamonds were found. The ITAT has also noted that the huge addition was made in the case of assessee’s group in the block assessment on the basis of the books so found. Therefore, it was found that the assessee was maintaining the books of accounts outside the regular books. The aforesaid has not at all been considered by the High Court, while passing the impugned order - the impugned judgment and order passed by the High Court is unsustainable and the same is quashed and set aside - The order passed by the ITAT as well as the Assessment Order are restored – Revenue appeal is allowed
Income Tax Act – Section 37 – allowability of goods confiscation by customs department as business loss - A search was conducted by the Directorate of Revenue Intelligence (DRI) officers at the premises taken on rent by the assessee - The DRI recovered 144 slabs of silver from the premises and two silver ingots from the business premises of the assessee - Customs held that the assessee is the owner of silver/bullion and the transaction thereof was not recorded in the books of accounts - The Collector held that the silver under reference was of smuggled nature - the Assessing Officer passed an assessment Order and made an addition under Section 69A of the Act – the assesse claimed the loss of silver confiscation by customs department as business loss - the High Court held that loss due to confiscation by the DRI official of Customs Department is business loss – the CIT has challenged this order – the CIT claimed that confiscation of smuggled/contraband goods which results in infraction of law and has no incidence/connection to the business of assessee, cannot be allowed as a business loss – HELD - The word ‘any expenditure’ mentioned in Section 37 of the Act takes in its sweep loss occasioned in the course of business, being incidental to it. As a consequence, any loss incurred by way of an expenditure by an assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act - Such an expenditure/loss incurred for any purpose which is an offence shall not be deemed to have been incurred for the purpose of business or profession or incidental to it, and hence, no deduction can be made - A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance to the same is not available for deduction regardless of the nature of business, as a penalty or confiscation cannot be said to be incidental to any business - The decisions of this Court in Piara Singh and Dr. T.A. Quereshi do not lay down correct law in light of the decision of this Court in Haji Aziz and the insertion of Explanation 1 to Section 37 - Accordingly, the judgment & order by the High Court of Rajasthan is set aside - appeal of the Revenue is allowed
Income Tax Act, 1961 – Section 153A - Scope of assessment under section 153A of the Income Tax Act, 1961 – As per Revenue, the AO is competent to consider all the material that is available on record, including that found during the search, and make an assessment of ‘total income’ whereas assessees case that if no assessment proceeding is pending on the date of initiation of the search, the AO may consider only the incriminating material found during the search and is precluded from considering any other material derived from any other source - whether any addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under Section 132A of the Act, 1961 – HELD - on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income - the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment - As per the second proviso to Section 153A, only pending assessment / reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed / unabated assessments shall abate - If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law - appeals and review petition preferred by the Revenue are dismissed
Income Tax Act, 1961 – whether the company formed in Sikkim having control and management in New Delhi will be subject to Sikkim Law or Indian Income Tax Act before 1st April, 1990 - by virtue of Section 26 of the Finance Act, 1989 the Act was made applicable to the State of Sikkim from the previous year relevant to the Assessment Year commencing from 1st April, 1990, thereby extending the date of applicability of the Act by one year from the date specified in the notification dated 23rd February, 1989 - The case of the assessees was that each of them was a resident of Sikkim, carrying on business in Sikkim and not elsewhere and that till 31st March, 1990, each of them were governed by the Sikkim Manual, 1948 and not the Income Tax Act - Assessing Officer rejected the objections raised by the assessees as to the jurisdiction and made additions to the income of the assessees under different heads of income – High Court upheld the revenue stand – The impugned judgment passed by the High Court is the subject matter of appeals – HELD - as per the findings recorded by the AO, CIT(A), confirmed by the High Court, it cannot be said that the High Court has committed any error in upsetting the findings recorded by the ITAT – the court is in complete agreement with the view taken by the AO, CIT(A) and the High Court on all issues including the issue of control and management of the affairs of the assessee companies by Rattan Gupta from Delhi; jurisdiction of the AO at New Delhi; applicability of the Income Tax Act, 1961; the assessees did not prove that the income was earned by way of commission in Sikkim and therefore the tax was not liable to be paid under the Income Tax Act, 1961 and was liable to be paid under the Sikkim Manual, 1948 the court is also in agreement with the view taken by the High Court on levy of interest in view of the binding decision of the Constitution Bench - the present appeals fail and the same is dismissed
Income Tax Act, 1961 – Section 271C - Interest/penalty on late remittance of TDS - Meaning and scope of the words “fails to deduct” occurring in Section 271C(1)(a) - whether mere delay in remittance of TDS deducted by assessee can be said a person who “fails to deduct TDS” – Revenue issued notice proposing to levy penalty under Section 271C of the amount equal to TDS - order of ACIT levying the penalty under Section 271C was confirmed by the High Court – Appellant-assessee case that there cannot be any levy of penalty under Section 271C on mere late remittance of the TDS though deducted - HELD - it is a case of belated remittance of the TDS though deducted by the assessee and not a case of non-deduction of TDS at all - Section 271C(1)(a) shall be applicable in case of a failure on the part of the person/assessee concerned to “deduct” the whole of any part of the tax as required the Act - The words used in Section 271C(1)(a) are very clear and the relevant words used are “fails to deduct.” It does not speak about belated remittance of the TDS - the words “fails to deduct” occurring in Section 271C (1) (a) cannot be read into “failure to deposit/pay the tax deducted” - on true interpretation of Section 271C, there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS after deducting the same by the assessee - the consequences on non-payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act, 1961 - as the respective assessees remitted the TDS though belatedly and it is not case of non-deduction of the TDS at all, they are not liable to penalty under Section 271C of the Act - Impugned judgment passed by the High Court are quashed and set aside - the question of law on interpretation of Section 271C of the Income Tax Act is answered in favour of the assessee and against the Revenue – assessee appeals are allowed
Income Tax Act - Levy of interest under Section 158BFA(1) of the Income Tax Act in respect of assessment completed under Section 158BD of the Act for belatedly filing the return of income for the block period - Levy of surcharge under Section 113 of the Income Tax Act - the appellant is an individual and Director-Partner in Khoday Group of Company - A search under Section 132 was conducted in the residential premises of the family members of Khoday Group - The appellant was served with the notice under Section 158BD to file the return of income for the block period of 01.04.1986 to 13.02.1997 - The appellant filed return for the block period in response to notice under Section 158BD by including the undisclosed income for the block period - AO levied interest under Section 158BFA(1) for the period from 18.01.1998 to 19.01.1999 and levied interest on the tax amount - The High Court negatived the submission on behalf of the assessee that in absence of any specific notice under Section 158BC, there shall not be any levy of interest under Section 158BFA(1) - High Court held that merely because the Legislature thought it fit to add or to mention Section 158BC by way of amendment through Finance Act, 2002, it would not make any difference to the earlier provision of Section 158BD which even otherwise envisages within itself the provisions and applicability of Section 158BD and 158BFA(1) - Consequently, the High Court has answered the questions of law in favour of the revenue and against the assessee – aggrieved by the High Court order, assessee filed this appeal - HELD - as observed by Apex Court in the case of Vatika Township Private Limited, Chapter XIV-B prescribes a special procedure for computation of income for the block period in search and seizure cases - Section 158BD shall be applicable in case of any person other than a person with respect to whom search was made - As observed Chapter XIV-B is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period - Therefore, in case of the person other than searched person the notice under Section 158BD would be required and in case of late filing of the return under Section 158BC, the interest will be leviable under Section 158BFA - Any other interpretation would lead to Section 158BD nugatory - by inserting the words “under Section 158BC” in Section 158BD, the Parliament intended to clarify that the assessment for the block period in case of the persons other than searched persons would also be as per the procedure under Section 158BC of the Income Tax Act - in the present case as such M/s. Khoday India Limited and M/s. Khoday Breweries Limited i.e. the persons searched were issued notice under Section 158BC and in case of appellant, who is the “other person”, the notice under Section 158BD has been issued - Therefore, the submission on behalf of the assessee that in absence of any notice under Section 158BC served upon the assessee-persons other than searched persons, for the period prior to the amendment in Section 158BD vide Finance Act, 2002, there shall not be any liability to pay interest under Section 158BFA, has no substance and the same is required to be rejected and the said question is answered in favour of the revenue and against the assessee - however, the respective assessees are not liable to pay the surcharge under proviso to Section 113 of the Income Tax Act - So far as the liability to pay the interest under Section 158BFA of the Income Tax Act for late filing of the return under Section 158BC of the Income Tax Act, in absence of any notice under Section 158BC upon the assessee-persons other than searched persons, the said question is held in favour of the revenue and against the assessee - The impugned judgment and order passed by the High Court is confirmed and it is observed and held that the assessee-persons other than searched persons shall be liable to pay the interest on late filing of the return under Section 158BC even in absence of a notice under Section 158BC of the Income Tax Act and even for the period prior to 01.06.1999 – the assessee appeal is partly allowed