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Monthly (August 2013) + Consol Digest of Imp Case Laws (Jan - August 2013)
October, 05th 2013

S.2(14): Capital asset–Agricultural land–Urban land-Distance from municipality-Different States-Assessable as capital gains.
Land within specified distance from Panchkula municipality fell in the State of Haryana while the land was in the State of Punjab. Thus, the land was urban land for the purpose of the definition of "capital asset". The concept of municipality as a unit of State or the fact that a State has no jurisdiction to make law beyond its territory have no relevance for the purpose of determining whether a particular land was "capital asset"’ or not for the purpose of taxing capital gains. Even if the municipality and the land fall in different States ,the land will continue to be urban land and gains on sale of agricultural is assessable as capital gains. (AY. 1997-1998)
CIT v. Anjana Sehgal (Smt.)(2013) 355 ITR 294 (P&H)(HC)

S.2(14): Capital asset–Agricultural Land–Situated Within 8 K.M.
Since the land in Question was Situated Within 8 K.M From Local Limits Of Hyderabad Municipal Corporation Which Was Notified Area, It Cannot Be Treated As Agricultural Land. (A.Y. 2007-2008)
Syed Nawab Hussain v. ACIT (2013) 24 ITR 180 (Hyd.)(Trib.)

S.2(15): Charitable purpose–“Advancement of any other object of public utility” – First proviso to s. 2(15) amended by Finance (No. 2) Act, 2009.
First proviso to s. 2(15) amended by Finance (No. 2) Act, 2009 is applicable in cases where an assessee claims that it is carrying on charitable purpose covered by residuary clause i.e., ‘advancement of any other object of public utility’, and proviso is not applicable in case an assessee or institution claims that it is carrying on charitable purposes like relief to poor, education, medical relief etc., i.e., purposes which have been specifically enumerated and stated in earlier part of s.2(15). Where question of application of income, quantum of surplus available or whether activities undertaken by third party to whom more than 85 per cent surplus was donated could be treated as charitable activity under s. 2(15) had not been examined while rejecting registration under s. 10(23C)(iv), matter was to be remitted to decide issue afresh. (AY 2004-05)
Hamdard Laboratories India v. DGIT (2013) 216 Taxman 201 (Delhi)(HC)

S.2(15): Charitable purpose–Intention to make profit – Denial of exemption was held to be not justified.[S.11,12A]
Profit earned by sale of milk, fodder and other items by gaushala established by Mahatma Gandhi to breed and keep cows, to improve quality of cows and oxen, to produce and sell cow’s milk and its various preparations was entitled to exemption. Held, intention to make profit was essential to attract disqualification and that some profit incidentally earned, is not sufficient. (A.Y.2009-10)
Sabarmati Ashram Gaushala Trust v. Addl. DIT (Exemption) (2013) 25 ITR 701 (Ahd.)(Trib.)

S.2(22)(e): Deemed dividend- Loans and advances–Genuineness of trust.
The assessee had taken loan from a company “C” in which he was having shareholding and voting power exceeding 10 per cent. The assessee contended that section 2(22)(e) was not applicable since all shares of said company had been settled in a trust resulting in no beneficial interest in said company. This explanation was rejected by the Assessing Officer and the Commissioner (Appeals). The Tribunal allowed assessee’s claim after examination of trust deed and carrying out of all relevant enquiries. Held, where the Tribunal came to conclusion that trust was genuine, view of revenue that shares were not settled in said trust since there was no financial transaction in name of trust and trust deed was not found at time of search was not acceptable and therefore, loan could not be held as deemed dividend.(AY 2006-07)
CIT v. Krupeshbhai N. Patel (2013) 216 Taxman 61 (Guj)(HC)

S.2(22)(e): Deemed dividend-Loans or advances to shareholder– Condition precedent.
Where assessee shareholder had already divested his interest in shares of a company in favour of a trust, assessee could no more be said to be beneficial owner of those shares and, thus, any sum advanced by company to assessee subsequently could not be treated as deemed dividend. (AY 2006-07)
CIT v. Navinbhai N. Patel (2013) 216 Taxman 137(Mag.) (Guj)(HC)

S.2(24): Income –Gift-Prizes-Rewards-Received by non-professional sportsman shall not be income chargeable to tax.[S. 10(17A, 56(2)]
The assessee was a shooter who won medals international events including a gold medal in Olympic Games. AO held that prize money received are liable to be taxed on the ground that Circular no 447dt 22-1-1986, is not applicable due to amendment in section 10(17A) and insertion of section 56(2)(v).On appeal Commissioner (Appeals) enhanced the Income and held that awards /rewards received from various Governments are also liable to be taxed. On appeal Tribunal relying on the Circular no 447 dt 22-1-1986 held that the CBDT has distinguished a sportsman who is professional and who is non professional. In the case of a professional sportsman ,the award received by him will be in the nature of benefit in exercise of his profession and therefore ,will be liable to tax .But in the case of a non-professional ,the award the award received by him will be in the nature of gift or personal testimonial and it will not be liable to be taxed. Since in the present case , the assessee is a non-professional sportsman , the rewards and awards received by him is not liable to be taxed.
Abhinav Bindra v. DCIT (2013) 35 575 (Delhi)(Trib.)

S.2(47):Transfer–Year Of Transfer–Capital gains-Development Agreement-Joint venture-No transfer as commencement of construction activity was not started.[S. 2(47)(v), 45, Transfer of Property, Act, 1882, S.53A )
Tribunal held that during the previous year only an agreement to develop the property was entered in to ,whereby assigned his landed property in favour of joint venture between him and developer ,without commencement of construction activity. Tribunal held that there is no transfer , as there is no extinguishment of rights or receipt of consideration, it could not be said that developer had performed its obligations as envisaged in section 53A of Transfer of Property Act , and therefore there was no transfer as per section 2(47) so as to attract capital gain tax.(ITA no 290/292 &336 /Hyd/ Bench ‘ ‘ dt 7-06-2013 (A.Y.2006-07).
S.Ranjit Reddy v. Dy.CIT (Hyd.)(Trib.)(Unreported)

S.2(47):Transfer–Year Of Transfer–Development Agreement-Possession. [S.2(47)(V), 45 ]
"Possession" as contemplated in Section 2(47)(V) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. In the case of an agreement for development of property, the mere fact that the Assessee, as owner, has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, does not restrict the rights of the developer or introduce any incompatibility. (A.Y.2005-06)
Durdana Khatoon(Mrs) v. ACIT (2013) 24 ITR 55 (Hyd.)(Trib.)

S.4: Charge of income-tax–Inherited–Sale proceeds of agricultural land as per will of late father is not assessable as income.
Sale proceeds of agricultural land received by assessee from her brother in accordance with direction given by her late father in his will could not be treated as income of assessee.(A.Y.2006-07)
CIT v. Neera Bhandari (2013) 216 Taxman 88 (Mag.) (Delhi)(HC)

S.4: Charge of income-tax–Waiver of loan–Loan used for acquisition of capital asset-Capital receipt cannot be subject to tax.
Where the loan taken was utilised for acquiring a capital asset, waiver of payment of such loan being in nature of capital receipt could not be subjected to tax. (A.Y.2001-02)
CIT v. Softworks Computers (P.) Ltd. (2013) 216 Taxman 219 (Mag.) (Bom.)(HC)

S.4: Charge of income-tax-Accrual of income-Retention money cannot be said to be accrued. [S.5]
Amount retained to ensure satisfactory performance of contract cannot be held to accrue. Retention money could not be said to have accrued to assessee, and therefore, this amount did not represent assessee’s accrued income. (AY 2003-04)
DIT (IT) v. Ballast Nedam International (2013) 355 ITR 300 /216 Taxman 69 (Guj.)(HC)
S.4: Charge of Income-tax-Subsidy–Special incentive for boosting mega investment is capital receipt.
Subsidy received under a scheme clearly mentioning that it was given as special incentive for boosting mega investments in the state was a capital receipt. (A. Y. 2007-2008)
Ford India P. Ltd. v. DCIT (2013) 25 ITR 456 (Chennai)(Trib.)

S.9(1)(i): Income deemed to accrue or arise in India – Business connection- DTAA-India-USA-Taxation of branch of foreign company–Head office incurred loss – Permanent establishment [Art. 5(1), 7(3), R.10 of Income-tax Rules, 1962]
The assessee, an American company, engaged in the business of medical transcription and software development related to health care, opened a branch in India after obtaining permission from the Reserve Bank of India. The Assessing Officer was of the view that the branch office, engaged in software development, software product enhancements, customer care and medical transcription services for its head office was a permanent establishment in India under article 5(1) of the Double Taxation Avoidance Agreement between India and the USA and came to the conclusion that the assessee’s income had to be estimated at cost plus 15% mark up. The Commissioner (Appeals) reduced the profit mark up to 10%. Held that the branch was a permanent establishment in India and the contention that the head office had suffered loss and hence there could not be any profit to the branch office was held to be unacceptable as profit of the branch office had to be computed in accordance with the income earned by it. Tribunal held that Article 7(3) has two parts. The first part relates to commercial and business activities carried on by a PE where as second part relates to certain specified non-commercial services performed by PE for its Head Office .While commercial and business services are taxable , if HO assigns some non-commercial activities to its BO ,income from such activities would not be taxable in terms of Article 7(3) of the India –USA DTAA. In the present case BO provided customer care and medical transcription services to the HO . These were commercial services outsourced by the HO, hence consideration for such services was taxable in India. Since the assessee has not at all provided any basis of computation of profit, estimation of profit at 10 percent was held to be reasonable. (A.Y.2006-07)
Wellinx Inc. v. ADIT(IT) (2013) 25 ITR 671 / 143 ITD 749 / 35 420 (Hyd.)(Trib.)

S.9(1)(vi): Income deemed to accrue or arise in India – Subscription charges – Royalty-Deduction at source-DTAA-India-USA [S. 195, 201(1), (1A), Art. 12]
Payments to foreign publishing house for subscription to web-based foreign publishing house constitute royalty from which tax is deductible at source.(A.Ys. 2001-2002, 2003-2004)
CIT v. Wipro Ltd.(2013) 355 ITR 284 (Karn.)(HC)
Editorial: Decision in Wipro Ltd v. ITO (2005) 278 ITR 57(AT) (Bang.)(Trib.) is reversed.

S.9(1)(vi): Income deemed to accrue or arise in India–Royalty–DTAA-India-USA-Consideration for supply of software which is not embedded in equipment is taxable as “royalty”. [Art 12(3)].
The assessee, Reliance Infocomm Ltd, wanting to establish a wireless telecommunications network in India, entered into a contract with Lucent Technologies for supply of software required for the telecom network. The assessee claimed, that amount paid by it to Lucent for acquiring the software was for purchase of a “copyrighted article” and “goods” and that it was not assessable to tax as “royalty” u/s.9(1)(vi) or Article 12(3) of the India-USA DTAA. The claim was upheld by the CIT(A). On appeal by the department to the Tribunal HELD allowing the appeal:
There is a distinction between a case where the software is supplied along with hardware as part of the equipment and there is no separate sale of the software and a case where the software is sold separately. Where the software is an integral part of the supply of equipment, the consideration for that is not assessable as “royalty”. However, in a case where the software is sold separately, the consideration for it is assessable as “royalty”. On facts, the assessee had acquired the software independent of the equipment. It had received a license to use the copyright in the software belonging to the non-resident. The non-resident supplier continued to be the owner of the copyright and all other intellectual property rights. As there was a transfer of the right to use the copyright, the payment made by Reliance to Lucent was “for the use of or the right to use copyright” and constituted “royalty” under s. 9(1)(vi) and Article 12(3) of the India-USA DTAA (A. Y. 2003-04 to2007-08)

DDIT v. Reliance Infocom Ltd (Mum.)(Trib.)
DDIT v. Lucent Technologies (Mum.)(Trib.)

S.9(1)(vi): Income deemed to accrue or arise in India–Royalty– Right to use any property in existence at the time of use-DTAA-India-Netherland. [Art.7, 12(4)]
The assessee is a tax resident of Netherlands. The tax payer had entered in to a Franchise agreement with a hotel in India for providing sales, marketing publicity and promotion services outside India. The Indian hotel was also to participate in the hotel system of the tax payer. The assessee contended that the payment was purely reimbursement of expenses on sales promotion and marketing and hence was not “royalties”. The Tribunal held that to cover any amount within the purview of Article 12(4) of India –Netherlands DTAA, the payment should be received as consideration ‘for use of right to use‘ any defined property (i.e. copy right ,patent, trade mark, etc). Thus, a payment would be “royalties” if it is made for defined property existing at the time of use and not for creation of defined property. Even if the payment contributed towards brand building, it would not be for use of the brand and hence cannot be characterized as “royalties”. The Tribunal also held that the contribution , being a percentage of gross revenue, was reimbursement of actual expenses on itemized basis and no material was placed on record to demonstrate that actual expenses were equal to the reimbursed amount. Therefore, the AO should decide on the taxability of the amounts under Article 7 of India –Netherlands DTAA. (A.Y.2003-04)
DDIT v. Marriott International Licencing Company BV (2013) 35 400 (Mum.)(Trib.)

S.9(1)(vii): Income deemed to accrue or arise in India-Fees for technical services-Training fee to service provider-Make available-DTAA-India-UK . [Art.13(4)(c)]
The assessee made certain payments to a UK service provider for providing ‘market awareness and development training’ to its employees. Tribunal held that unless the technical service provided by the UK company resulted in transfer of technology ,the ‘make available’ condition was not satisfied. To ‘make available’ clause, the onus is on the tax authority to demonstrate that the training services involved transfer of technology .This onus was not discharged. The training services provided were general in nature and did not involve transfer of technology. Therefore, the fees paid for the same could not be covered under Article 13(4) of India –UK DTAA.(A.Y. 2008-09)
ITO v. Veeda Clinical Research Pvt. Ltd. (2013) 35 577 (Hyd.)(Trib.)


S.10(1): Exempt income-Agricultural income–Certificate of Agricultural Officer and Village Officer/ Report of the Inspector of Income-tax.
The assessee furnished documents in support of his claim that he carried on agricultural operations in these lands. The Assessing Officer contended that the certificates given by the Agricultural Officer and Village Officer did not show that the assessee carried on agricultural activities thereon. The Assessing Officer as well as the Commissioner (Appeals) relied on the report of the Inspector of Income-tax and the development work carried out by the purchaser of land. Therefore, the order of the Commissioner (Appeals) was to be set aside and the matter remitted to the file of the Assessing Officer with direction to examine the case of the assessee and decide the issue afresh in accordance with law. (A.Y. 2007-08)
Mampilly Antony (Dr.) v. DDIT (IT) (2013) 25 ITR 91 (Cochin)(Trib)

S.10(23C): Exempt income – Educational institution – Contribution to lions club-Being social club, exemption is not allowable.
The assessee-trust was running an educational institution for women. Contributions towards Lions Club and Fine Arts Academy were claimed for exemption under section 10(23C)(iiiab). Held, Lions Club might be undertaking some charitable activities, but by and large it was a social club and could not be construed a social organisation for undertaking social work as envisaged in the study curriculum. No explanation was furnished by the assessee why contributions were made to the Fine Arts Academy. The only plausible reason for making contributions to the two organisations was that secretary-cum-correspondent of the assessee was the office bearer of the organisations. Therefore, the assessee was not entitled to exemption under section 10(23C)(iiiab). (A.Y.2009-2010)
Ganapathy Educational Trust v. ADIT (Exemption) (2013) 25 ITR 231 (Chennai)(Trib.)

S.10(23C): Exempt income–Medical institution –Wholly or substantially funded by Government of India or State Government, exemption is automatic. [S.10(23C)(iiiac)]
The assessee-society, an association of persons, was formed by the Government of Karnataka for charitable purposes. The Government of India for implemented its public health, family welfare, child welfare and various diseases control objectives through the assessee. Held the purpose of establishing State and district level health societies was to act as nodal agency for implementation of the Central Government’s programme of the National Rural Health Mission and, thus, there could be no profit motivation. The assessee-society had been recognised as a Government established or sponsored entity, as affirmed by the Ministry of Finance. Therefore, exemption was automatic for entities which were wholly or substantially funded by the Government of India or a State Government under s. 10(23C)(iiiac). (AY. 2008-2009, 2009-2010)
The District Health and Family Welfare Society v. DCIT (2013) 24 ITR 604 (Bang.)(Trib.)

S.10(26AAB): Exempt income–Supply of essential commodities for general public–Similar issue in last year.[S. 143]
Since no order of Appellate Tribunal had been passed for earlier assessment year on similar issue of deduction under s. 10(26AAB), proceedings pertaining to assessment year 2010-11 should be kept in abeyance, till disposal of appeal filed by department before Tribunal. (A.Y.2010-11)
U.P. State Food & Essential Commodities Corpn. Ltd. v CCIT (2013) 216 Taxman 89 (Mag.) (All)(HC)

S.10(34): Exempt income-Dividend–Shares held in subsidiary company as investment-Dividend is exempt.
Tribunal held that assessee was entitled to exemption under section 10(34) in respect of dividend received on shares held in subsidiary company and reflected in balance sheet under the head ‘investments’ .(A.Y. 2007-08)
Dy.CIT v. Auto Ltd (2013) 144 ITD 1 (TM)(Rajkot)(Trib.)

S.10A: Free trade zone – Computation of deduction – Communication charges-Export turnover-Total turnover.
While computing exemption under section 10A of the Act, communication charges were to be excluded from the export turnover as well as the total turnover. (A. Y. 2007-2008)
Zavata India P. Ltd. v. DCIT (2013) 25 ITR 504 (Hyd.)(Trib.)

S.10B: Hundred percent export–Export is more than 75 percent of total sales, satisfies condition.
Where export is more than 75 per cent of total sale, it satisfies condition prescribed for availing relief under s. 10B. (A.Ys.1995-96 and 1997-98)
CIT v. WTI Advanced Technology Ltd. (2013) 216 Taxman 179 (Mag.) (Mad)(HC)

S.10B: Hundred percent export–Deduction to be allowed without setting off unabsorbed depreciation and brought forward business losses.
Deduction under s. 10B is to be allowed on profits of current year without setting off unabsorbed depreciation and brought forward business losses. (AY 2007-08)
CIT v. Ganesh Polychem Ltd. (2013) 216 Taxman 179 (Mag.) (Bom)(HC)

S.10B: Hundred per cent export–Manufacture of plants-Assembled machines partially disassembled for proper packaging for export, transportation and installation-Entitled to deduction.
Held, plants were supplied in the form of sub-assemblies and components after manufacturing them or after getting them manufactured in accordance with the prescribed specifications. These sub-assemblies and components were manufactured outside and transported to the exports processing zone and thereafter, certain operations were carried out and disassembling was done prior to export of the subassemblies and components to the ultimate destination. This process was required for containerisation and packing of these items on account of their size which was a necessary process for transportation and installation. The assessee was engaged in the manufacturing and assembling the plants which were disassembled for export. Hence, the assessee was entitled to deduction under s. 10B. (A.Ys. 2007-08, 2008-09)
Aar Ess Exim P. Ltd. v. ITO (2013) 25 ITR 14 (Delhi.)(Trib.)

S.10B: Hundred per cent export–Loss in one unit–Set off of loss-Provision is not attracted in case of unit suffering loss. [S.14A]
Provisions of section 14A are not attracted in the case of the unit suffering losses eligible for deduction under section 10B and further the assessee is entitled to set off of loss of STP unit under section 10B against other business income.(A.Y.2008-09)
Sandoz P. Ltd. v. DCIT (2013) 25 ITR 347 (Mum.)(Trib.)

S.10B: Hundred per cent Export-Oriented Undertaking-Certificate produced first time before Commissioner (Appeals)–Matter set aside.
The Assessee Company is engaged in the business of software development, filed its return of income for the year declaring a total income of Rs. 4,36,600. Subsequently, the assessee filed revised return on March 31, 2005, declaring Rs. nil income after claiming deduction under section 10B. The assessment was completed by the Assessing Officer under section 143(3) read with section 147 determining the total income at Rs. nil. A. O. disallowed the claim of the Assessee. Before the Commissioner of Income-tax (Appeals), the authorised representative for the assessee submitted that the assessee had got a clarification from the Joint Director, Software Technology Park of India, Hyderabad, where they have clearly mentioned that they have the power to grant approval and their approval is eligible to get exemption under section 10B of the Act. on that basis CIT(A) allowed claim of assessee. where assessee did not produce necessary material before Assessing Officer for consideration on having identical issue, it was just and proper to set aside order of Commissioner (Appeals) and remit matter back to Assessing Officer for passing a de novo order. (A.Y. 2005-06 and 2008-09)
ITO v.Singularity Software (India) (P.) Ltd. (2013) 143 ITD 483 / 34 198 (Hyd.)(Trib.)

S.11: Property held for charitable purposes–Business held in trust – Insurance business. [S.13]
Even if business of insurance was carried out by assessee-society for carrying on primary purpose of charitable activities in accordance with aims and objects of trust, assessee would still be entitled to exemption. (A.Y. 1977-78)
CIT v. Modi Charitable Fund Society (2013) 216 Taxman 140 (Mag.) (All)(HC)

S.11: Property held for charitable purposes – Education-Conducting seminars, workshops and diploma courses are educational activities. [S.2(15)]
Assessee an educational institution conducting various courses categorized as continuing education diploma and certificate programmes, management development programmes, seminars and workshops and conferences. 80 % receipts were from continuing education programme. The A.O. was of the opinion that on going through the nature of courses and duration, the resultant surplus for each activity, the activity of the assessee is not educational and it was held by the A.O. that the assessee’s activities are not educational and since the provisions of Section 2(15) are applicable and therefore the assessee is not entitled for exemption. In appeal CIT (A) also confirmed the view of A.O. On appeal the Tribunal held that the assessee is conducting various diploma courses, certificate progarmmes seminars, workshops etc all these programmes fulfilled systematic instruction and training test hence covered under section 2 (15) as education hence eligible for exemption under section 11. (A.Y.2009-10)
Ahmedabad Management Association v.JDIT(Exemption) (2013) 143 ITD 476 (Ahd.)(Trib.)

S.12A: Registration–Genuineness of activities–Sufficient evidence was not furnished. [S.12AA]
Where the list of donors submitted by assessee contained insufficient information and no proof had been adduced regarding specific direction with which donations were made towards corpus of trust, activities of trust could not be held as genuine, and therefore, registration under s. 12A could be declined.
CIT v. Savior Charitable Trust (2013) 216 Taxman 91 (Mag.) (P&H)(HC)

S.12A: Registration–Amendment in object clause–Amended clause to be considered-Matter remanded.
Since the denial of registration was based on the pre-amended clause, the registration application was to be considered in light of the amended clause. Matter remanded
Vyapari Vyavasayi Ekopana Samithi Welfare Society v. CIT (2013) 24 ITR 528 (Cochin)(Trib.)

S.12AA: Procedure for registration–Denial of registration was not justified only because the Trust has not commenced the activities. [S.12A]
Where there was no material to conclude that objects of trust or activities of trust were not genuine or any doubt arose in respect of genuineness of activities, registration under s. 12AA could not be denied.
Only because trust has not commenced activities, Commissioner would have no authority to ipso facto reject application made under s. 12A for registration under s. 12AA.
DIT v. Pannalalbhai Foundation (2013) 216 Taxman 148 (Guj.)(HC)

S.12AA: Procedure for registration-Trust or institution- Genuineness of trust. [S.10(22),10(23C) 11, 12]
The principles laid down for excluding the income from consideration under s. 10(22) [now 10(23C)] or s. 11/ 12 are not applicable while considering the application for registration under s. 12AA. S. 12AA requires satisfaction in respect of the genuineness of the activities of the trust, which includes the activities which the trust is undertaking at present and also which it may contemplate or undertake. The stage for application of income arise when it files its return. Appeal of revenue was dismissed.
CIT v. Surya Educational and Charitable Trust (2013) 355 ITR 280 (P&H)(HC)
CIT v. Bahara Educational and Charitable Society (2013) 355 ITR 280 (P&H)(HC)

S.12AA: Procedure for registration-Not passing of order even after six months from receipt of Tribunal’s order remitting the matter to him will be deemed to have been granted. [S.80G]
Tribunal had passed the order on 12th December 2008 remitting the matter to Commissioner to decide fresh in accordance with law. Commissioner passed the order on 28th October 2011 refusing to grant the registration. On appeal Tribunal held that where Commissioner does not pass any order even after six months from receipt of Tribunal’s order remitting the matter to him ,the registration will be deemed to have been granted. Approval under section 80G having been denied for want of registration under section 12AA, now that registration under section 12AA is granted , very foundation for denial of approval under section 80G ceases to hold good in law, Commissioner was directed to grant approval under section 80G also.
Harshit Foundation v.CIT (2013) 156 TTJ 422 (Lucknow)(Trib.)

S.12AA: Procedure for registration-Cancellation of registration was restored. [S.2(15)]
The Trust was granted registration under section 12A(a), since 1984. AO held that the trust is carrying on activities in the nature of trade, commerce or business & the registration granted was cancelled or withdrawn w.ef. A.Y. 2009-10 on the ground that sale of liquor at Rs 1.45 crores, canteen compensation etc are in nature of business income & therefore proviso of section 2(15) which came in to effect from A.Y. 2009-10 is applicable. Before Tribunal the assessee relied on the order of earlier year of ITAT. The Tribunal held that the department has no where mentioned that “social intercourse among members” was not one of the objects of the Trust when it was originally formed on 04-10-1934. Further earlier order of Tribunal is in favour of assessee. Following the earlier year order cancellation of registration was restored. [ITA No.373/Mum/2012 dt 10-07-2013.Bench “A”]
Khar Gymkhana v. DIT (E)(2013) BCAJ-September-P. 27 (Mum.)(Trib.)

S.12AA: Procedure for registration-Object to take over school for better administration is not charitable in nature, hence refusal of registration was justified. [S. 2(15)]
Assessee Society had filed an application under section 12AA. Commissioner made certain enquiries in order to verify genuineness of the objects and activities of assessee society. The assessee stated that their trustees were already running schools and it proposed to take over one of such school for better administration. Commissioner observed that activities proposed to be undertaken were not charitable in nature and no activities were yet being carried out by assessee society hence refused registration .On appeal the Tribunal held that ,objects of assessee society were found to be varied and were not in any particular direction of imparting education or for relief of poor since assessee-society had not initiated any activity, there was no material to verify genuineness of its object and activities and thus order of Commissioner refusing to grant registration was to be upheld.
Suchinta Educational Society v. CIT(2013) 143 ITD 487 / 35 178 (Chd.)(Trib.)

S.12AA: Procedure for registration–Charging huge fees – Charitable purpose. [S.2(15)]
Application for registration was liable to be rejected since the society was charging huge fees from public in addition to prescribed fee of Punjab Government.
Sukhmani Society for Citizen Services v. CIT (2013) 24 ITR 443 (Amritsar) (Trib.)

S.14A: Disallowance of expenditure–Exempt income-Expenditure not connected with exempt income disallowance cannot be made.
The Tribunal held that expenses which had been claimed by assessee were not towards exempted income. Held in view of factual finding recorded by Tribunal, disallowance was to be limited.(A.Y.2008-09)
CIT v. Oriental Structural Engineers (P.)Ltd. (2013) 216 Taxman 92 (Mag) (Delhi)(HC)

S.14A: Disallowance of expenditure–Reasonable disallowance- Income from tax-free and infrastructure bonds and dividend.
Disallowance of 2% of expenditure following reasonable computation method was held to be justified. (A.Ys. 1999-2000, 2000-01, 2001-02, 2004-05, 2005-06, 2006-07)
KarurVysya Bank Ltd. v. ACIT (2013) 25 ITR 731 (Chennai)(Trib.)

S.14A: Disallowance of expenditure–Exempt income-Shipping company–Tonnage tax scheme.
Since the AO embarked upon computing disallowance under rule 8D without considering the assessee’s claim, the disallowance under section 14A could not stand. The assessee had not directly incurred any expenditure for earning the exempt income and the Assessing Officer had not recorded any satisfaction with reference to the accounts of the assessee or claim that no expenditure was incurred. The assessee offered most of the income under the tonnage tax scheme and the remaining expenditure was for earning taxable non-tonnage tax income. Therefore, the question of invocation of rule 8D for disallowing the expenditure under section 14A on presumptive basis does not arise. (A. Y. 2008-2009)
Raj Shipping Agencies Ltd. v. Add. CIT (2013) 24 ITR 249 (Mum.)(Trib.)

S.22: Income from house property–Commercial complex-Rental income assessed as income house property and not as business income. [S. 28(i), 147]
Assessee, a partnership firm, filed its return declaring rental income as income from business which was assessed accordingly. Subsequently, the Assessing Officer initiated reassessment proceedings, taking a view that income was coming from letting out of commercial complex and it was only income of assessee-firm, thus it was to be assessed under heading ‘income from house property’. The Commissioner (Appeals) as well as Tribunal confirmed said order. Held no substantial question of law arose for consideration (A.Y.2003-04)
Mahesh Investments v. ACIT (2013) 216 Taxman 93 (Mag.) (Karn.) (HC)

S.22: Income from house property-Firm-Partner-Partner would qualify exemption provided under section 22.
Property let out to partnership firm where the assessee was partner, income from house property which was used in the business carried out in partnership firm which the assessee was a partner would qualify for the exemption provided under section 22.Tribunal relied on CIT v. Rabindranth Bhol (1995) 211 ITR 799 (Orissa)(HC)(ITA no 4032/Mum/2009 dt 25-05-2012 Bench “F’). (A.Y. 2006-07)
Bhawanji Kunverji H aria v. DCIT (2013) BCAJ –September-P. 28 (Mum.)(Trib.)

S.23: Income from house property-Annual Value–Notional interest on security deposit cannot be added. [S.22]
It is open to the Assessing authority to take note of the amount of advance paid which gives an indication of fair rent of property that it fetches in market. However, the addition of notional interest on the interest-free security deposit to the rent agreed upon is not permissible in law. (A.Ys. 1997-1998, 1998-1999)
CIT v. Shastha Pharma Laboratories P. Ltd (2013) 355 ITR 316/216 Taxman 73 (Karn.)(HC)

S.23: Income from house property-Notional rent-Property let out from April 2006-Income cannot be estimated on notion basis for the year ending 31-03-2005.
Assessee received the possession of property in December 2005.Assessee took three months to complete the furniture work and the property was let out from April 2006. AO held that as the property was in possession of the assessee, the provisions of section 23(1) were attracted and annual value of the property was deemed to be the income of the assessee. Tribunal held that where on account of interior work being carried out during the year the property could only be leased out from the next financial year , no notional rent could be added as the income of the assessee in the current year.(ITA no 4032/Mum/2009 dt 25-05-2012 Bench “F’).(A.Y. 2006-07)
Bhawanji Kunverji Haria v. DCIT (2013) BCAJ–September-P. 28(Mum.)(Trib.)

S.28(i): Business income–Income from other sources-Survey- Amount surrendered assessed as business income and set off loss is permissible. [S. 56, 133A]
No perversity had been pointed out in finding of Commissioner (Appeals) as well as Tribunal to extent that surrendered amount was an income of assessee from business and not from other sources as held by Assessing Officer. Therefore, set off was permitted against the amount of Rs. 1.75 crores surrendered during survey under s. 133A. (AY 2004-05)
CIT v. Ram Gopal Manda (2013) 216 Taxman 95(Mag.) (Raj.)(HC)

S.28(i): Business income–Income from house property-Rented property–Assured return in lieu of profit/loss. [S.22]
The assessee had not only rented out property but had allowed its use thereof for purpose of joint venture business and in addition to space with proper infrastructural facilities, it also provided other facilities to be used for purpose of diamond processing. Thus, it could not be said that the assessee was not in business through joint venture of processing of diamonds, and merely because agreement envisaged assured return to assessee, in lieu of either profit or loss to be shared from joint venture would not take away fact that assessee was engaged in business.(A.Y.2006-07)
CIT v. Tirupati Organisers (P.) Ltd. (2013) 216 Taxman 84 (Guj.)(HC)

S.28(i): Business income–Set up of business-Commencement of business–Previous year-First year of business-Participation in an auction to acquire land. [S.3,57(iii)]
The assessee obtained loan from its holding company and deposited same as earnest money to acquire land. However, it could not succeed in auction and paid interest on borrowed fund and received interest on earnest money. It claimed differential between interest as loss and claimed for carry forward of said loss. However, the Assessing Officer found that current year was first year of existence of assessee and since it failed to acquire land, it could not be said that business was set up in relevant year and disallowed the said claim. The Tribunal held that acts of applying for participation in tender, borrowing of monies on interest from holding company and deposit of borrowed monies on same day as earnest money clearly established that business had been set-up. Held the finding returned by Tribunal, being a finding of fact, no question of law arose. (A.Y.2006-07)
CIT v. Dhoomketu Builders & Development (P.) Ltd. (2013) 216 Taxman 76 (Delhi)(HC)

S.28(i): Business income–Idle funds-Interest earned on investment of idle funds assessable as business income. [S.56]
Assessee set up as joint venture with Government to consult on transport delivery systems Interest earned on investment of idle funds was not income from other sources but business income. (AY 2007-2008)
Urban Mass Transit Company Ltd. v. ACIT(2013) 24 ITR 741 (Delhi) (Trib.)

S.28(i): Business income–Agricultural and non-agricultural income– Apportionment. [Income–Tax Rules, 1962, Rule 8]
The assessee was engaged in the business of growing, manufacturing and selling tea. For the purpose of apportionment between agricultural income and business income in the ratio of 60:40, interest on investment is not to be regarded as income from sale of tea and hence, liable to be excluded for purpose of apportionment. (A.Y.2007-08)
DCIT v. Mcleod Russel India Ltd. (2013) 24 ITR 262 (Kol.)(Trib.)
S.28(i): Business loss–Share transactions–Loss on sale of shares transaction is to be set off against profit.
The assessee sold three sets of shares, realized profit from one while loss from others. The Assessing Officer held that loss was intentional to set off gain and found that shares were not quoted shares and valuation of shares both at time of purchase as well as at time of sale of said shares was made on net worth basis which had not been challenged by Revenue. Further, the Revenue was unable to produce any evidence to dispel credibility of the prices. Held, the prices arrived at on basis of net worth would have to be accepted and, thus, no addition could be made as transactions would be in order. (A.Y.2005-06)
CIT v. Bhushan Capital & Credits Services (P.) Ltd. (2013) 216 Taxman 94 (Mag.)(Delhi)(HC)

S.28(i): Business loss-Bad debt-Provision towards doubtful advances –Mere provision is not allowable. [S.36(1)(vii)]
Held, mere provision in accounts was not equivalent to write-off. Addition was rightly made for provision towards doubtful advances written off as irrecoverable when there was nothing to prove actual write-off. (A. Y. 2007-08)
Ford India P. Ltd. v. DCIT (2013) 25 ITR 456 (Chennai)(Trib.)

S.32: Depreciation–Software–Held to be allowable.
The Assessing Officer disallowed the claim of depreciation on software for want of details regarding valuation and nature of software. The relevant details were furnished by the assessee before the Commissioner (Appeals) and Revenue had not doubted them. Held the Commissioner (Appeals) was justified in deleting the addition.
CIT v. Net 4 Nuts Ltd. (2013) 216 Taxman 99 (Mag.) (Guj)(HC)

S.32: Depreciation–Lease-Use by third party–Business of leasing of vehicles.
For claiming depreciation usage of asset by assessee is not mandatory, as long as asset is utilized for purpose of its business. Where assessee leased out vehicles to customers, vehicles were assets of its business and thus, depreciation on same was allowable.
PKF Finance Ltd. v. CIT (2013) 216 Taxman 141 (Mag.) (P&H)(HC)

S.32: Depreciation–Construction of building–Disallowance cannot be made on account of procedural irregularities.
Where the appellate authorities allowed expenses after analyzing material on record and ground realities, as well as, inconsistencies in order of Assessing Officer, it could not be said that order of appellate authorities suffered from any perversity. (A.Y.2005-06)
CIT v. Bohra Industries Ltd. (2013) 216 Taxman 143 (Mag.) (Raj.)(HC)

S.32: Depreciation–Cost of asset exempted–Explanation 5.
Entire expenditure incurred towards purchase of certain fixed assets had already been exempted in its entirety in current year or in earlier year. However, in view of specific provision as contained in Explanation 5 to s.32(1), depreciation in respect of such assets would be allowable in hands of assessee.
CIT v. Krishi Upaj Mandi Samiti, Timarni (2013) 216 Taxman 172 (Mag.) (MP)(HC)

S.32: Depreciation–Hospital building–Plant and machinery.
Where nursing home was equipped with scientific instruments, same would be treated as plant and machinery and depreciation should be allowed on it accordingly.(A.Y.1995-96)
Shri Shashi Nursing Home Ltd. (2013) 216 Taxman 97 (Mag.) (All)(HC)

S.32: Depreciation-Income from undisclosed source-Existence of Crane was proved, disallowance of depreciation was not justified. Depreciation. [S.69]
Assessee proved purchase and existence of crane and the cost of crane was not claimed in return in the profit and loss account. Hence, no addition could be made in respect of the purchase price. Since there was no material to show that the crane was not in existence, depreciation was not disallowable. (A.Y.1997-1998)
CIT v. Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.) (HC)

S.32: Depreciation–Rate of 60%-Computer peripherals.
The assessee was eligible for depreciation at 60% on computer accessories and peripherals. (A.Ys. 2007-08, 2008-09)
Hughes Systique India P. Ltd. v. ACIT (2013) 25 ITR 556 (Delhi)(Trib.)

S.32: Depreciation-Sale and lease-Banks-Sale & lease transactions by banks are genuine and eligible for depreciation.
The assessee, a Bank, purchased windmills worth Rs.27 crore in a sale-and-lease-back transaction and claimed depreciation thereon. The AO & CIT(A) rejected the claim and held that the transaction was not one of purchase but was a finance transaction in which the windmills were received as security on the basis that (a) under the Banking Regulation Act, 1949, the assessee was not permitted to engage in any business other than banking, (b) the lease rentals were fixed on the basis of interest on advances and other charges receivable by the assessee as a financier and were not co-related to the projected income on the capacity of each wind energy generator, (c) the assessee was not entitled for surplus income on excess generation of power and was not to suffer any loss owing to lesser production or any other contingencies, (d) the return of the assessee on financing was granted by taking interest-free deposit, (e) the assessee had no responsibility of labour, repairs, taxes etc in running of the project and (f) though the purchase of wind energy generators was in the assessee’s name, the land and power purchase agreements with the Electricity Boards were not in its name. On appeal by the assessee to the Tribunal HELD allowing the appeal:
S.32 allows depreciation if the asset is “owned, wholly or partly, by the assessee and used for the purposes of the business“. There is no requirement that the asset must be used by the assessee himself. It is sufficient if the asset is utilized for the purpose of business of the assessee. The argument, relying on McDowell and co. Ltd. v. CTO (1985)154 ITR 148 (SC), that Sale & Lease Back transactions are a devise for lowering the tax effect cannot be accepted. Sale & Lease Back transactions are genuine and cannot be considered to be sham.(ITA No. 2572,2737/A/2006, 4386,4388/A/2007,236,238/A/2000, 790/A/2012, (A.Ys. 2002-03, 2004-05 & 2007-08)

UTI Bank Limited v. ACIT (Ahd.)(Trib.)
S.32: Depreciation-Lease-Banks-Lease transactions by Banks are in the nature of loans/advances. Transaction of sale & lease back of railway assets cannot be treated as genuine, it is a nature of finance transaction.
The assessee, a Bank, entered into a sale and lease back transaction with Konkan Railway Corporation pursuant to which it bought assets like railway tracks, rails, sleepers etc for a consideration of Rs. 25 crore and leased it back for a period of 84 months for a monthly lease rental. The AO & CIT(A) disallowed the claim for depreciation on the ground that the sale and lease back transaction was in the nature of a financial transaction and that it was given the shape of a lease transaction only in order to enable the assessee-bank to claim depreciation and reduce its taxable income. On appeal by the assessee to the Tribunal HELD dismissing the appeal:

The real object of the entering into the sale and lease back transaction so far as Konkan Railway is concerned is to raise funds. The transaction of sale of the asset to the assessee bank and its lease back to Konkan Railway cannot be separated. It was not possible for Konkan Railway to sell out the railway system. Thus, the sale transaction was merely on paper and to facilitate the financial arrangement by the assessee to Konkan Railway without involving any real intention of transfer of the assets. The terms of the lease agreement are only to secure the interest of the bank till the recovery of the full amount along with the interest. The assessee cannot exercise the real and actual ownership over the asset keeping in view the facts and circumstances and nature of the asset in question. Further, under the Banking Regulation Act, 1949 read with RBI circular dated 19.2.1994, banking companies can undertake the activities of equipment leasing but these are required to be treated on par with loans and advances. Therefore, the activity of equipment leasing permitted by the RBI is only in the nature of finance lease. The terms and conditions specified by the RBI for income recognition of lease transactions are also on par with the manner in which a loan transaction is treated. In view of the said circular, there is no scope for treating the instant lease agreement as that of an operating lease (IndusInd Bank limited v. Add. CIT (2012) 135 ITD 165 (Mum) (SB) followed; ICDS ltd. v. CIT (2013) 350 ITR 527 (SC) distinguished on the basis that the lease there was not by a Bank but by a NBFC). ( ITA No. 5470/Mum/2002, dt. 26/07/2013) (A.Y.1996-97)

State Bank of India v. DCIT (Mum.)(Trib.)
S.32: Depreciation-Finance lease-A finance lease designed as a sale-and-lease back has to be treated as a sham transaction.
The assessee, an investment company, bought electric meters from the Gujarat State Electricity Board (GSEB) which were leased back to GSEB simultaneously. The assessee claimed 100% depreciation on the purchase cost of the meters. The AO and CIT(A) rejected the claim on the ground that the circumstances like no physical possession of the meters given etc showed that the transaction of ‘sale and lease-back’ was a “sham” and that it was one merely of giving finance and that the assets were held as a security for the finance given. On appeal by the assessee to the Tribunal HELD:
A distinction between an ‘operating lease’ and a ‘finance lease’ has been made by the Special Bench in IndusInd Bank limited v. Add. CIT (2012) 135 ITD 165 (Mum) (SB) on the basis of which it can be said that a ‘finance lease’ is a ‘sale’ which is given the colour of a ‘lease’ by the parties for their mutual benefit and to avoid tax. In such transactions, it has to be seen whether the sale transaction is a real transaction or a sham transaction with the object of enabling the alleged purchaser to claim himself as the owner of the goods, which are further claimed to be leased back to the original owner of the goods. In a sham transaction of sale and lease back the ownership of the goods is not transferred to the alleged lessor, but is shown to be done, so as to enable the purchaser to claim ownership for the goods for the purpose of tax relief. On facts, the ‘sale and lease back’ transaction is a sham transaction done with the object to facilitate the benefits of depreciation to a person who otherwise is not eligible to claim the same. The intention of the parties was not that of sale or lease but was a loan transaction. The rates of interest/ rental have been fixed taking into consideration that the equipments are eligible for 100% depreciation and it is provided that if the claim of depreciation is changed, the rental in the shape of interest will accordingly change. Such clauses cannot be a part of any lease agreement but finance agreement only because in a normal lease agreement, the lessee is not concerned as to what benefits are available to the owner/lessor under the Income-tax Act. The contention that as the transaction is with a State Government undertaking, it would be highly improper to impute any collusiveness or colourable nature of the transaction is misconceived. The argument that there is no bar for the assessee for making tax planning so as to reduce its taxes, provided it is within the framework of the law, is also not acceptable as u/s 23 of the Indian Contract Act, even if the consideration or object of an agreement may not be expressly forbidden by law, but if it is of such a nature that, if permitted, it would defeat the provisions of law, the same will not be lawful. Engaging in sham transactions with the object of reducing tax liability cannot be said to be a case of tax avoidance but is one of tax evasion .( ITA No.4069 & 2406/Mum/2001 dt. 07/08/2013) (A.Y.1994-95)

Hathway Investments Pvt. Ltd v. ACIT (Mum.)(Trib.)

S.32: Depreciation–Computers, Accessories and peripherals–Rate of depreciation at 60%.
The assessee was eligible to claim depreciation at 60% on computers, accessories and peripherals. (A.Ys. 2006-07, 2007-08, 2008-09)
Canon India P. Ltd. v. DCIT (2013) 24 ITR 694 (Delhi)(Trib.)

S.32: Depreciation–Computer peripherals–Rate of depreciation at 60%.
The assessee was entitled to depreciation in regard to the computer peripherals at 60%. (A.Y. 2007-08, 2008-09)
Sojitz India P. Ltd. v. DCIT (2013) 24 ITR 474 (Delhi)(Trib.)

S.32: Depreciation–Block of assets-Put to use–Claim of depreciation in subsequent years.
Held there was no basis for working out the utilised and unutilised areas as was done by the Assessing Officer when the entire multiplex was put to use. The assessee had started operation in only three places and the other projects were under various stages of construction. Therefore, what the assessee claimed was depreciation of projects under operation and repairs and maintenance thereof. Once the entire project had commenced business operations, just because part of it was not leased out or commercially exploited that could not be a basis for disallowing depreciation and expenditure. Once an asset has entered into "block of assets" and depreciation has been granted on it, depreciation cannot be denied in subsequent years. (A.Y.2005-06)
E-City Entertainment (India) Pvt. Ltd. v. Add.CIT (2013) 24 ITR 73 (Mum.)(Trib.)

S.32:Depreciation-Software purchase–Treated as capital expenditure. [S.37(1)]
Depreciation was to be allowed on software purchases where the same was treated as capital expenditure.
Sandoz P. Ltd. v. DCIT (2013) 25 ITR 347 (Mum.)(Trib.)

S.32: Depreciation-Use of vehicle contravention of rules of Transport department- Depreciation is allowable.
AO did not allow the depreciation on the ground that assessee did not have a certificate and permission from the authorities to transport the goods and transporting goods on a chassis without a body was in violation of law. On appeal Tribunal held that to allow depreciation, the assessee has only to prove that he has put the vehicle to use before the relevant date. If the vehicle is used in contravention of the rules provided by the respective transportation department, AO cannot disallow the depreciation.(ITA no 1726/Hyd/2012 dt.24-5-2013) (A.Y.2005-06)
R. Viswanath v. ITO (Hyd.)(Trib.)(Un reported)

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