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« From the Courts »
 Skaps Industries India Pvt Ltd vs. ITO (ITAT Ahmedabad)
 Antarrashtriya Manav Adhikaar Nigraani Parishad Vs Union Of India & Ors.
 Assistant Commissioner Of Income Tax Circle 1 & Ors.vs Late Rewati Singh Dead Through Lrs. And Husband Hukum Singh (D)
 Assistant Commissioner Of Income Tax vs Saabri Freight Carrier Pvt Ltd
 M/s Indira Industries vs. PCIT (Madras High Court)
 DIT (IT) vs. Hyundai Heavy Industries Co. Ltd (Uttarakhand High Court)
 Assistant Commissioner Assessment Iv Trade Tax, Varanasi & Ors. Vs M/s Auto Centre
 Ansal Housing And Construction Ltd. vs Assistant Commissioner Of Income Tax & Anr.
 40 LPA-Opening Financial Controller
 30 LPA-Opening Senior Manager Finance & Accounts,
 Indus Best Hospitality & Realtors Pvt. Ltd vs. PCIT (ITAT Mumbai)

Monthly Digest of imp case law (Nov 11) Consol Digest of imp case law (Jan-Sept 11) The Nani Palkhivala National Tax Moot Court Competition 2011
December, 29th 2011

S. 2(22) (e): Deemed dividend-Compensation for keeping the property as mortgage- By way of advance or loan.


Phrase by way of advance or loan appearing in section 2(22)(e) must be construed to mean those advancesor loans which a shareholder enjoys for simply on account of beinga person who is beneficial owner of shareholding not less than 10 percent of voting power , but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to company received from such a share holder , such advances or loan cannot be treatedto be deemed dividend with in the meaning of section 2(22)(e). (A.Y 1999-2000)


Pradip Kumar Malhotra v CIT (2011)338 ITR 538/ 203 Taxman 110 (Cal) (High Court).


S. 2 (24): Income- Mutual concern- Trade- Professional association.


Since assessee had not been granted benefit of section 11 and it was also not an institution referred to in clause (21) or clause (23) or clause (23C) of section 10 , provision of section 2(24)(iia) cannot be applied. (A.Y.2005-06).


Asst DIT v Hologram Manufacturing Association (2011) 48 SOT 39 (Delhi) (Trib).


S. 2 (47):Transfer- Capital gains- Possession (S.45).


After introduction of deemed transfer under section 2(47)(v), of the Act, if the contract, read as a whole, passes of or transfers complete control over the property in favour of developer, then the contract would be relevant to decide the year of chargeability. On the facts the actual possession of property was handed over on 30-5-1996, hence the capital gain will be chargeable in assessment year 1997-98. (A.Y.1997-98)


CIT v T.K.Dayalu (Dr) (2011) 202 Taxman 531 (Kar)(High Court).    


S. 4. : Income Capital or Revenue-Sales tax subsidy- Matter send back to High Court to decide the issue.


The assessee received sales-tax incentive for setting up a new industrial undertaking in Patalganga. The assessee claimed that the said subsidy was a capital receipt. The Special Bench (DCIT vs. Reliance Industries Ltd 88 ITD 273) upheld the assessees claim. On appeal by the department (for a subsequent year), the Bombay High Court held thatas a finding had been recorded by the Special Bench that the object of the subsidy was to encourage the setting up of industries in the backward area by generating employment therein, by applying the purposive test in Ponni Sugars and Chemicals Ltd 306 ITR 392 (SC), the subsidy was a capital receipt and thus a substantial question of law did not arise. The department filed an appeal to challenge the judgment of the High Court. The Supreme Court held that the High Court ought not to have dismissed the appeals without considering the following questions, which, according to us, did arise for consideration. They are formulated as under (C) Whether on the facts and circumstances of the case and in law the Honble Tribunal was right in holding that sales tax incentive is a Capital Receipt? Accordingly, the civil appeals are allowed, impugned orders are set aside and the cases are remitted to the High Court to decide the questions, formulated above, in accordance with law.


CIT v Reliance industries Ltd. (SC)


S.4: Income- Accrual- Interest- Mortgage


Assessee advanced certain amount against mortgage. Right from date of granting loan borrowers had neither paid principal amount nor interest `amount. The guarantor company has declared as sick company. Assessee has not shown the interest on the ground that enforceability of mortgage as a mode of recovery being complicated. The court held that, mere difficulty in successfully enforcing mortgage does not make debt bad, therefore interest was assessable on accrual basis in assessment years 2000-01 to 2002-03 and amount of such interest would be reduced from amount of interest offered in assessment year 2003-04.( A.ys 2000-01 to 2003-04).


Rohini Holdings (P) Ltd v CIT (2011) 202 Taxman 341 (Mad) (High Court)


S. 6(1) (c): Residentialstatus- Non resident Deputation- Period of visit to India.


Assessee was in India for a period of 78 days during the relevant assessment year and more than 365 days during the past four years. Tribunal held that the assessee was on deputation from April 2004 to January 2005 and his stay from 18th Aug 2004to 6th September2004 was in respect of a visit to India and this is to be excluded while computing the applicability of section 6(1)(c), his status was to be non-resident. High Court affirmed the order of Tribunal. (A.Y 2005-06).


Director of IT v Manoj Kumar ReddyNare (2011) 62 DTR 358 (Kar) (High Court).


S. 9(1)(vi):Income deemed to accrue or arise in India- Income from license of software assessable as royalty- Deduction of tax at source. ( S. 195 )


The assessee imported shrink-wrapped/ off-the-shelf software from suppliers in foreign countries and made payment for the same without deducting tax at source u/s 195. The AO & CIT (A) held that the payments were assessable to tax as royalty u/s 9(1)(vi)/ Article 12 and that the assessee was liable to pay the tax u/s 201. On appeal, the Tribunal relied on the judgment of the Supreme Court in Tata Consultancy Services vs. State of AP(2004) 271 ITR 401 (SC) and held that the assessee had acquired a copyrighted article but not the copyright itself and so the amount paid was not assessable as royalty. On appeal by the department, HELD reversing the Tribunal:


(i) U/s 9(1)(vi) of the Act & Article 12 of the DTAA, payments of any kind in consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work is deemed to be royalty. Under the Copyright Act, 1957, a software programme constitutes a copyright. A right to make a copy of the software and use it for internal business by making copy of the same and storing it on the hard disk amounts to a use of the copyright u/s 14 (1) of that Act because in the absence of such a license, there would have been an infringement of the copyright. Accordingly, the argument that there is no transfer of any part of the copyright and the transaction involves only a sale of a copyrighted article is not acceptable. The amount paid to the supplier for supply of the shrink-wrapped software is not the price of the CD alone nor software alone nor the price of license granted. It is a combination of all. In substance unless a license was granted permitting the end user to copy and download the software, the CD would not be helpful to the end user;


(ii) There is a difference between a purchase of a book or a music CD because while these can be used once they are purchased, software stored in a dumb CD requires a license to enable the user to download it upon his hard disk, in the absence of which there would be an infringement of the owners copyright. [ TCS vs. State of AP(supra) distinguished as being in the context of sales-tax];


CIT v Samsung Electronics Co. Ltd. (Karn) (High Court)


S. 9(1) (vi) : Income deemed to accrue or arise in India-Payment for live telecast of event is not royalty nor arising from business connection


The assessee entered into an agreement with Nimbus, a Singapore entity, for receiving and broadcasting matches that were to be played in Bangladesh. The signals to be broadcast were on account of live matches as well as recorded matches. The assessee applied for a certificate u/s 195 in which it accepted that the payment on account of recorded matches was in the nature of royalty but claimed that the payment towards live matches was not royalty. The AO held that there was no distinction between the payment for live matches and that for recorded matches and both were assessable as royalty. He also held that as the matches were to be broadcast in Indian Territory and the income by way of advertisements and subscription was to be received by the assessee, there was a business connection between Nimbus and receipt in India. On appeal, the CIT (A) upheld the AOs finding on business connection though he reversed the finding that the payment for live matches was royalty. On further appeal by the department, the assessee filed application under Rule 27, challenging, the issue of business connection. The Tribunal held deciding both issues in favour of the assessee that :


(i) Expl 2 to 9(1)(vi) defines royalty to mean consideration for the transfer of all or any rights in respect of any copyright. Under the Copyright Act, the term copyright means the exclusive right to use the work in the nature of cinematography. The question of granting exclusive right to do any work can arise only when such work has come into existence. The existence of work is a precondition and must precede the granting of exclusive right for doing of such work. Unless the work itself is created, there is no question of a copyright of such work. The result is that there is no copyright in live events and depicting the same does not infringe any copyright. Accordingly, the amount paid for broadcast of live matches is not assessable as royalty (clause 314 (220) of the Direct Tax Code Bill, 2010 referred to which proposes to define royalty to include live coverage of any event);


(ii) The departments argument that because the matches will be broadcast in India and the assessee will earn advertisement & subscription income, Nimbus has a business connection in India is not correct because Nimbus has merely given a license for the live broadcast of the matches and continues to retain the rights in such broadcast. The mere act of allowing the assessee broadcast the matches for consideration does not constitute a business connection in India. In order to constitute a business connection, it is necessary that some sort of business activity must be done by the non-resident in the taxable territory of India (CIT vs. R.D. Agarwal 56 ITR 20 (SC) referred).

ADIT v Neo Sports Broadcast Pvt. Ltd. (Mumbai)(Trib)

S.9(1)(vi) : Income deemed to accrue or arise in India Non resident Assignment of software developed by Indian Company- Compensation- Capital or revenue receipt. (S. 4, 195)


Compensation paid by the Satyam to the applicant, a non-resident company as per terms of settlement agreement for severing their business relationship, deficiency in the patents assigned to the applicant by Satyam and for grant of perpetualworld wide royalty fee license by the applicant on all its patents is capital receipt but not capital gain , except the portion of the amount ascribable to the consideration for licensingof the right to use the patented software . Assessing Officer is directed to determine the portion of the compensation amount that may be attributable to royalty and thereafter to consider the question whether it is taxable in terms of section 9 (1) (vi).


Unpaid Systems Ltd ( 2011) 338 ITR 517/ 244 CTR 465/ 62 DTR 153/ 203 Taxman 28 (AAR).


S. 10 (26AAB): Exemption- Income of agricultural produce market- Local authority S. 10 (20).


Section 10 (26AAB) inserted by the FinanceAct , 2008w.e.f. 1st April 2009cannot be applied retrospectivelyw.e.f 1st April 2003and is applicablew.e.f  1st April 2009and shall apply for the Asst year 2009 10and for the subsequent assessment years . Assessee were not entitled to exemption under section 10 (26AAB) for the asst years 2003-04 to 2008 -09).


CIT v Agricultural Market Committee Tansuku & Ors (2011) 63 DTR 119 (AP) (High Court).


S.10A: Exemption- Free trade zone- Reconstruction.


Assessee was a 100 percent captive centre providing software design and development services to its parent company.Assessee claimed benefit under section 10A from 1-1-2003 to 31-3-2003after getting approval from Director of soft ware Technology Park of India (STPI) on 31-12-2002 . Assessing authority declined to grant benefit under section 10Aon ground that application filed before STPI was seeking approval to establish a new unit and not for recognizingan existing unit. In Appeal the CIT(A) and Tribunal has held that the undertaking of assessee in question was not formed by splittinghence entitled to under section 10A.High Court held that it was not a case of reconstruction which was supported by Circular no 1/05 dated 6-1-2005 hence confirmed the order of Tribunal.( A.Y.2003-04).


CIT v Maxim India Integrated Circuit Design (P) Ltd ( 2011) 202 Taxman 365 (Karn) (High Court).


S.10B: Exempt Incomes Export oriented undertaking- Export out of India -Deliveringmachines in . India to 100 percent EOU.


Transaction of manufacturing machines in India by EOU and deliveringthem in India to another 100 percent EOU , which is alleged be the agent of a foreign buyer does not amount to export out of India either under the Customs Act or under the Income Tax Act, hence the assessee is not entitled to exemption under section 10B.   (A.Y 2007-8)


Swayam Consultancy (P) Ltd v ITO (2011) 63 DTR 205 (AP) (High Court).


S.10B: Exempt Incomes Export oriented undertaking Computation- Brought forward unabsorbed depreciation S. 32(2)


Deductionunder section 10B , has tobe granted with reference to the profit of the industrial unitcomputed under the provisions of the Act , which includes set off of unabsorbed depreciation carried forward from earlier years.( A.Y. 2001-02 to 2005-06).


CIT v Patspin India Ltd ( 2011) 62 DTR 364/ 203 Taxman 47/ 245 CTR 97  (Ker) (High Court).


S.10B: Exempt Incomes Export oriented undertaking-Manufacturing includes any Process- Conversion of gherkin in to gherkin pickles- Manufacture- Law applicable when business started..


Assessee agricultural products processing company was engaged in manufacturing of gherkin pickles by purchasing raw gherkin and putting them through various process. Assessing officer held that theassessee is not doing the manufacturing hence not entitled to exemption under section 10B. The Tribunal held thatthe assessee started its business on 1-4-1999, and current assessment years fell within the permissible period of 10 years, therefore the provision of section 10Bas it stood before its substitution , section 10B and explanation thereto had categorically held that manufacture include any process ,therefore assessee is entitled exemption under section 10B.( A.Ys 2005-06 to 2007-08)


Sterling Agro Processing (P) Ltd v Asst CIT ( 2011) 48 SOT 80 ( Chennai) (Trib).


S.11: Exempt incomes Charitable Trust Accumulation of income Form no 10 was filed before assessment.


Form no 10 was available with the assessee before passing of the original assessment order, hence claim of the assessee for accumulation of income cannot be rejected merely on the ground that form no 10 was not filed along with the return of income. Matter remanded with the direction to verify whether assessee has made investment in accordance with the condition of cl (b) of section 11 (2). ( A.Y 1994-95).


Kandla Dock Labour Board v ITO ( 2011) 62 DTR 234 ( Rajkot) (Trib)


S. 14A: Business expenditure Disallowance Exempt income- Real expenditure Disallowance without showing how assessees calculation is wrong, only real expenditure can be disallowed. (Rule 8D.)


The High Court had to consider two issues: (a) whether interest paid on funds borrowed to acquire trading shares is hit by s. 14A given that the profits there from are assessable to tax as business profits and the dividend is incidental and (b) whether Rule 8D has retrospective operation. HELD by the Court:


(i) The argument that if the dominant and main objective of the expenditure was not the earning of exempt income then, the expenditure cannot be disallowed u/s 14A is not acceptable. The expression in relation to cannot be given a narrow meaning and simply means in connection with or pertaining to. If the expenditure has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction even if it otherwise qualifies under the other provisions of the Act;


(ii) The expression expenditure incurred in s. 14A refers to actual expenditure and not to some imagined expenditure.If no expenditure is incurred in relation to the exempt income, no disallowance can be made u/s 14A (Hero Cycles Ltd 323 ITR 518 referred).


(iii) The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent. While rejecting the claim of the assessee with regard to the expenditure or no expenditure in relation to exempt income, the AO will have to indicate cogent reasons for the same;


(iv) Rule 8D comes into play only when the AO records a finding that he is not satisfied with the assessees method. Though s. 14A(2) & (3) were inserted w.e.f. 1.4.1962, Rule 8D was inserted on 24.03.2008. Accordingly, Rule 8D would operate prospectively. (Godrej and Boyce Mfg. Co. Ltd 328 ITR 81 (Bom) followed);


(v) For periods prior to Rule 8D, the AO will have to adopt a reasonable method on the basis of objective criteria to determine the expenditure. However, here also, he will have to show why he is not satisfied with the correctness of the assessees claim (argument that Rule 8D exceeds the mandate of s. 14A left open).


Maxopp Investment Ltd. v CIT (Delhi) ( High Court).


S. 17 (2) : Salaries Perquisites-Deduction at source- Free education facilities towards of teachers and staff members. Rule 3 (5). ( S. 192 ).


Assessee school was providing free educational facilities to wards of teachers / staff members and cost of education was less than Rs 1000per month per child, assessee was entitled to benefit of proviso to rule (3) ( 5) and consequently , could not be treated as assessee in default.


CIT v Delhi Public School ( 2011) 203 Taxman 81/ 63 DTR 325 (Delhi) (High Court).


S.17 (3): SalariesProfits in lieu of salary- Ex gratia payment.


Assessee took up post retirement as secretary of a club for a period of three years. Club also provided accommodation to assessee. Disputes arose between club and assessee.Assessee filed a police complaint for forcibly removing from club premises. Employment was terminated after end of first year. Termination provided withdrawal of allegations vacate premises allotted to assessee as service accommodation and club would pay Rs 7.5 lakhs which was equivalentto salary for rest of period of three years. Assessee claimed said amount as exgratiaas capital receipt. The Tribunal held that since the amount given to assessee for compensating loss of salary for 25 months . same would fall with in the ambit of expression any compensation used in sub clause (i) of section 17 (3)relating to profits in lieu of salary and taxable under said provisions.( A.Y. 2001-02).


Yatinder Kumar v ITO ( 2011) 133 ITD 237 ( Pune) (Trib).


S. 23: Income from house property- Annual value- Vacancy allowance.


Where property has not been let out at all during previous year under considerationassessee is not entitled for vacancy allowance as provided under section 23 (1)(c). (A.Y 2002-03)


Vivek Jain v Asss CIT ( 2011) 202 Taxman 499 / 63 DTR 174( AP) (High Court).         


S.28(i): Business income- Adventure in the nature of trade-


The assessee purchased the land which was notified or likely to be notified by the State Government for acquisition . Assessee receiving compensation and additional compensation and interest on enhanced compensation assessable as business income. Interest which forms component of compensation has to be taxed in the year of receipt as business income.( A.Y s 2001-to 2002-03)


DyCIT v Gopal Ramnarayan Kasat ( 2011) 225 Taxation 106 (Bom) (High Court).


S. 28(i): Business income-Capital gains-Sale of land and building constructed thereon. (S. 45)


The court held that in the absence of any finding of the authorities as to the date of acquisition of the property in question by the assessee, matter is remanded to the Tribunal to determine the actual date of acquisition of the property and also to decide afresh the question as to whether the profit arising out of the sale was in the nature of business profit or capital gain. (A.Y 1997-98).


Ramachandra Estate Development & Investment Co (P) Ltd v JCIT (2011) 244 CTR 573 (Bom) (High Court).


S. 28(i): Business income- Capital gains- Income from purchase and sale of shares Revision (S.45,263)


Assesseecarried on the activity of buying and selling shares and units of mutual funds in a systematic and regular manner with high frequency and volumes and repetitivepurchases and sales of the same scrip throughout the year , theTribunal held it has to be assesses as business income and the revision order under section 263 directing the A.O. to be assess the same as business income was held to be justified.( A.Y. 2006-07)


Spectra Shares& Scrips ( P) Ltd v Dy CIT ( 2011) 62 DTR 411 ( Hyd) (Trib). 


S.32: Depreciation- Brought forward unabsorbed depreciation. Exempt Incomes-Export oriented undertaking Computation (S.10B)


Deduction under section 10B , has tobe granted with reference to the profit of the industrial unitcomputed under the provisions of the Act , which includes set off of unabsorbed depreciation carried forward from earlier years. (A.Y. 2001-02 to 2005-06).


CIT v Patspin India Ltd (2011) 62 DTR 364/ 245 CTR 97 (Ker) (High Court).


S. 32: Depreciation- Genuineness of purchase of assets- Survey- Disclosure- Revised return- Retraction.( S. 133A.)


During survey assessee admitted that computer software and hardware were not purchased by it, and it filed a revised return withdrawing the claim of depreciation and offered to tax.Thereafter the assessee filed an affidavit retracting the statement during the course of survey. The Tribunal recorded the finding of fact that during the course of survey neither the assets were found nor the assessee could establish names of the parties form whom computer software and computer hardware were purchased. High Court confirmed the order of Tribunal. (A.Y. 2001-02).


B.D.P.S.Software Ltd v Dy CIT ( 2011) 62DTR 361/ 245 CTR 19 (Bom) (High Court).


S. 32: Depreciation -Good will - Assignment


Assessee companyacquired cement plant from company C for Rs 105.30 Crores. Assessing Officer noted that 10 percent of purchase price represented goodwill and on that basishe disalloweddepreciation on Rs 10.53 crores. On appeal , Commissioner ( Appeals) held thatno value could be assigned to good will and entire sale consideration was to be reduced from value of block of assets on ground that transferor company was established five years ago and through this period it was a loss making unitand thus had no goodwill. The court held that since cement plant purchased was a loss making unit from its commencement of business and no value was assigned in respect of brand name as a well as goodwill . Assessing Officer was not justified in deducing 10 percent towards estimated value of goodwill from total purchase consideration and disallow proportionate depreciation. ( A.Y. 1991-92 ).


CIT v India Cements Ltd ( 2011) 203 Taxman 119 ( Madras) (High Court).         


S. 32: Depreciation- Computer system- Trial period- VSAT-Equipments located in members premises.


Computer system which stood installed and used for trial period would also constitute user for purpose of depreciation under section 32 .Assessee is entitled to depreciation in respect ofVSAT net workequipment installed at the premises of members.(A.ys 1997-98 ,1998-99 and 2001-02).


National Stock exchange of India Ltd ( 2011) 133 ITD 27/ 62 DTR 329/ 142 TTJ 189 (Mum) (Trib).


S. 32 (1)(ii) : Depreciation- Intangible asset- Abkari licence.


Abkari licence is a business rights given to the party to carry on liquor trade, on which the assessee is entitled to depreciation at 25 percent. It falls within the definition of intangible asset as per section 32 (1) (ii). (A.Y. 2004-05).


S. Ambika v Dy CIT ( 2011) 245 CTR 103 (Ker) (High Court).


S. 32(1) (ii): Depreciation- intangible assets Leasehold rights over the land User of brand name, Trade mark, Logo, design Slump sale.


Lease hold rights cannot be considered as an intangible asset as per the provisions of section 32 (1) (ii), hence not entitled depreciation.


Where the assessee had purchasedthe user of brand name, trade mark, logo, design, drawings, manufacturing process and technical knowhow in respect of the products manufactured by unit which was acquired by assessee at a slump price , expenditure allocatedby approved valuer is capital expenditure, assessee is entitled depreciation on the said amount.(A.Y.2006-07).


Drilbits International (P) Ltd v Dy CIT ( 2011) 62 DTR 171 ( Pune) (Trib).


S. 35A : Expenditure on acquisition of patent rights or copy rights Business expenditure Patent Copy right. [ S. 37(1) ]


Royalty paid by assessee for use of the brand names and trade marks, and not for acquiring the same, the provisions of section 35A cannot be applied, the expenditure allowable as business expenditure. (A.ys 1997-98 to 1999-2000).


CIT v V. R. V. Breweries & Bottling Industries Ltd ( 2011) 62 DTR 121/ 244 CTR 576 ( Delhi) (High Court).


S. 36 (1) (iii) : Business expenditure-Loans utilized for making advances for acquisition of Machinery-Expansion of the existing business.


Interest paid in respect of loans utilized for acquisition of new machinery for expansion of the existing business , interest relating toprior to utilization of the machinerywas rightly disallowed by the tribunal by invoking proviso to section 36 (1) (ii).( A.Y. 2005-06).


Power Drugs Ltd v CIT (2011) 62 DTR 276 (P &H) (High Court)


S. 37 (1). Business expenditure-Penalty- SEBI regulations-Fine for violation of procedural law not hit by Explanation to s. 37(1).


The assessee paid penalty/fine to BSE/NSE for infringement of procedural rules such as failure to maintain margins, trading beyond exposure limits, late submission of margin certificates, delay in making payment & deliveries etc. The AO disallowed the claim for deduction on the ground that there was an infringement of statutory law laid down by SEBI and the Explanation to s. 37(1) was attracted. The High Court held that, as the payments made by the assessee to the Stock Exchange for violation of their regulation was not an account of an offence or which is prohibited by law, the invocation of the Explanation to s. 37 of the Act was not justified.


CIT v The stock and Bond trading Company (Bom) ( High Court)


S. 37 (1): Business expenditure- Penalty Fine-Settlement of dispute-Infringement of patent- Explanation.


Paramount and governing consideration behind settlement in question was to avoid the expenses and uncertaintyof further litigation and there was no violation of patent laws. Expenditure incurred towardssettlement of dispute for infringement of patent was not hit by Explanation to sub section (1) of section 37and the same is allowable as business expenditure. ( A.Y. 2005-06).


CIT v Desiccant Rotors International (P) Ltd ( 2011) 63 DTR 214 ( Delhi) (High Court).


S. 37 (1): Business expenditure- Recovery of lesser amount than incurred- fees.


If an Asset Management Company of Mutual Funds due to business exigencies claims and recovers from Mutual Fundslesser amount than the amount of expenditure , fees etc , actually incurred during course of its business as allowed under SEBI Regulation ,then unless it is established that there was no business exigencies or claim was not genuine, expenditure the same cannot be disallowed (A.Y. 2003-04).


CIT v Templeton Asset Management ( India) (P ) Ltd (2011) 202 Taxman 496 / 62 DTR 59( Bom) (High Court).


S.37(1):Business expenditure- Ad films-Advertisements.


Assesseewho was engaged in business of stock broking and share transactions expenditure incurred on ad filmsby way of advertisements for promotion and marketing of its products would be allowable as revenue expenditure.


CIT v Bonaza Portfolio Ltd ( 2011) 202 Taxman 545 ( Delhi)(High Court)     


S. 37(1) : Business expenditure- Patent Copy right. (S. 35A).


Royalty paid by assessee for use of the brand names and trade marks, and not for acquiring the same, the provisions of section 35A cannot be applied, the expenditure allowable as business expenditure. (A.Ys 1997-98 to 1999-2000).


CIT v V. R. V. Breweries & Bottling Industries Ltd ( 2011) 62 DTR 121/ 244 CTR 576 ( Delhi) (High Court).


S. 37(1) : Business expenditure- Loss on account of irrecoverable amount that were advanced to farmers.


Assessee advanced the amount to framers as a measure to ensure continuous supply of raw materials, whichwas essential in nature of business of assessee, when raw materials were not received on such advances , it would be a loss in revenue field. Following the ratio of Apex court in CIT v Wood ward Governor India (P) Ltd ( 2009) 312 ITR 254 (SC),wherein the court held that the expression any expenditure used in section 37 cover both expression incurred as well as even if loss amount had gone out of pocket of assessee , therefore the advances written offwas allowable as business expenditure.           ( A.Ys 2005-06 to 2007-08)


Sterling Agro Processing (P) Ltd v Asst CIT (2011) 48 SOT 80 ( Chennai) (Trib)


S. 37(1): Business expenditure-Alleged bogus purchases


Assessee contended that cash received by it against the cheque payments of Rs 30,80,730/- from two parties was utilized to purchase clothfrom the grey market which was found recorded in the inventory of closing stock, the Tribunalhas accepted that the assessee did make cash purchases of Rs 30,80,730/-and the said purchases cannot betreated as bogus purchases.(A.Ys 2001- 02 to 2004-05).


Free India Assurance Services Ltd v Dy CIT ( 2011) 62 ITR349 (Mum) (Trib).  


S. 37 (1): Business expenditure- Capital or revenue-Renovation of office premises- Lease hold premises- Depreciation. ( S. 32 (1).


The assessee has incurred huge expenditure on purchase of ply wood , furniture etcfor making wooden partitions , cabins , cubicles , desks etc in its lease hold office premises, the tribunal held that the expenditure was capital in nature , however the assessee will be entitled depreciation in terms of expalnation1 to section 32. (A.Ys 2001- 02 to 2004-05).


Free India Assurance Services Ltd v Dy CIT ( 2011) 62 ITR349 (Mum) (Trib).


S. 37 (1) Business expenditure- Unaccounted commission- Seized materials.


Assesseehad explained that the commission paid by it to one Mr V by correlating it with the seized material , though not accounted in regular books of account maintained by assesessee , the same is allowable as the payment by cheque was allowed as deduction. (A.Ys 2001- 02 to 2004-05).


Free India Assurance Services Ltd v Dy CIT ( 2011) 62 ITR349 (Mum) (Trib)


S.38: Building Partly used for the purpose of business-Depreciation.


Assessee installed hub in its own premises of assessee and VSAT antenna and monitorswere installed at premises of member brokers . Assessee was collecting only usage charges from members. Assessee claimed depreciation on said equipment. Assessing Officer held that VSAT network was being used by members for purpose of conducting their business ,therefore by invoking provisions of section 38 (2) he estimated that 40% of such net work could be said to have been used for the assessees business and he disallowed 60% of depreciation. The Tribunal held that installationof system was expedient for carrying on business of assessee and full depreciation was to be allowed. ( A.ys 1997-98 ,1998-99 and 2001-02).


National Stock exchange of India Ltd ( 2011) 133 ITD 27(Mum) (Trib).


S.40A (2):Expenses or payments not deductible-Royalty-Trade mark and Brands.


Royaltypaid by the assessee to SWCLfor use of latters trade mark and brands could not be disallowed by invoking the provisions of section 40A(2) ,as SWCL is not holding substantial interest i.e. 20 percentor more of the share capital withattendant voting rights , whether directly or beneficially in the assessee company.( A.ys 1997-98 to 1999-2000).


CIT v  V. R. V. Breweries & Bottling Industries Ltd ( 2011) 62 DTR 121 / 244 CTR 576 (Delhi) (High Court).


S. 40A(3): Expenses or payments not deductible- Cash payments- Presumption.


The Tribunal held that in the absence of any material to show that the assesseehad cash payments in violation of provisions of section 40A (3), disallowance could not be made on presumptions. (A.Ys 2001- 02 to 2004-05).


Free India Assurance Services Ltd v Dy CIT ( 2011) 62 ITR349 (Mum) (Trib).


S. 41 (2): BalancingCharge-Transfer Exchange Transfer of assets at written down value to share holders in exchange for shares[ S. 2 (47) ]


The assessee transferred certain assets in its textile unit to its share holders at written down value in exchange for shares surrendered to it. The Assessing Officer invoked section 41 (2) in respect of the transferred assets in lieu of excess value of the sharesover thewritten down value of the assets and made the addition. The CIT(A) deleted the addition. The Tribunal upheld the deletion. On reference the court held that the assets given at written down value in exchange of shares would amount to Transfer within the meaning of section 2 (47) . It attracted tax under section 41 (2). ( A.y 1983-84).


CIT v Oswal Spinning and Weaving Mills Ltd ( 2011) 338 ITR 648 ( P & H) (High Court). 


S.43B: Business expenditure- Deduction on actual payment- Provident fund.


Provident payment made late cannot be disallowed under section 43B.( A.Y. 2001-02)


B.D.P.S. Software Ltd v Dy CIT ( 2011) 62DTR 361 (Bom) (High Court).


S. 43B : Business expenditure- Deduction on actual payment-Provision for interest financial institutions.


Assessee hadmade the claim only by way of a provision in Profit and loss Accountand no actual payment was made by the assessee in respect of the interest payable to the financial institutions, deduction cannot be allowed.(A.Y. 1995-96).


CIT v Lotus Roofings (P) Ltd (2011) 63 DTR 254 ( Mad) (High Court).


S. 43B: Business expenditure- Deduction on actual payment- Provision for labour welfare expenses.


Provision made for labour welfare expenses was not for payment of bonusor any other payment in guise of bonusbut it was to be paid as a part of wages being incentive for performance of workers , disallowance cannot be made. (A. Y. 1990-91).


Dy CIT v SriShanmugavel Mills Ltd ( 2011) 202 Taxman 640 ( Madras) (High Court). 


S.43B: Business expenditure- Deduction on actual payment- Interest on FCNR loans from Schedule banks.


Assessee had taken loans from HSBC and ICICI banks . Auditors in their audit report mentioned that since assessee had not paid interest on FCNR loans from schedule banks before due date of filing of return of income, same was liable for disallowance under section 43B (d). Assessing Officer did not made the disallowance. SubsequentlyAssessing Officer reopened assessment and made disallowance under section 43 B (d) . The Tribunal held that since HSBC and ICICI banks did not fall under categories of State Financial Institutions , provisions of section 43B (d) were not applicable to case of assessee , hence the disallowance made by the assessing Officer was deleted.( A.Y. 2001-02).


Rabo India Finance Ltd v Asst CIT ( 2011) 48 SOT 52 (Mum) (Trib).


S. 45: Capital gains- Business income-Sale of land and building constructed thereon. [ S. 28 (i) ]


In the absence of any finding of the authorities as to the date of acquisition of the property in question by the assessee, the matter remanded to the Tribunal to determine the actual date of acquisition of the property and also to decideafresh the question as to whether the profit arising out of the sale was in the nature of business profit or capital gain. ( A.Y 1997-98 ).


Ramachandra Estate Development & Investment Co (P) Ltd v JCIT ( 2011) 244 CTR 573 ( Bom) (High Court).


S.45: Capital gains- Possession-Transfer Development agreement Consideration. [ S.2(47) ]


Assessee entered in to a joint venture agreement with developers. Agreement provided that certainsum would be paid to the assessee as a non refundable advance and in addition to same he was entitled for a build up area of to be constructed by developer a free cost. Assessee contended that capital gain will be liable to be taxed in assessment year 2003-04 when construction was completed. The court held that ,after introduction ofdeemed transfer under section 2 (47) (v ), of the Act , if the contract , read as a whole , passing of or transferring of complete control over the propertyin favour of developer, then the contract would be relevant to decide the year of chargeability. On the facts the actual possession of property was handed over on 30-5- 1996 , hence the capital gain will be chargeablein assessment year 1997-98 , .( A.Y.1997-98 )


CIT v T. K. Dayalu (Dr) (2011) 202 Taxman 531 (Kar)(High Court).    


 S. 45: Capital gains- Security of shares for loan Pledge.


Assessee had taken loans from two parties and pledged certain number of shares as security of the loansbut since the value of such shares had fallen, assessee pledged further shares , the addition made by the Assessing Officer treating the value of further shares as long termcapital gains wasdeleted by CIT (A)on the basis of additional evidence in the form of correspondence between assessee and lender requiring further security. ( A.Y. 2001-02)


CIT v Betterways Finance & Leasing (P) Ltd ( 2011) 62 DTR 282 ( Delhi) ( High Court).   


S. 45: Capital gains- Business income- Investment in shares- Shares held less than 30 days business income- More than 30 days capital gains. ( S. 28 (i).)


The Tribunal held that shares heldmore than 30 days then profitand loss arising from sale of such shares was to be consideredas short term capital gains. Shares held less than 30 days was to be taxed as business income. Shares held more than a year were to be assesses as long term capital gains.( A.Y 2003-04 to 2005-06)


Asst CIT v Kavita Devi Agarwal ( 2011) 48 SOT 191 ( Jaipur) (Trib)  


S.47 (xiii): Capital gains-Conversion of firm in to company- Partners capital balance- Loan-Withdrawal of Credit balance.


Partners converted the firm into company and partners credit balance lying as their capital was converted in to loan and was repaid to them. Assessing Officer held that there was violation of proviso (c ) to section 47 (xiii).The Tribunal held that merelybecause the partners credit balance lying as their capital converted in to loan and which was repaid to them, it cannot be said that there was any undue benefit directly or indirectly to the partners. As there was no violation, addition was deleted. (A.Y.2005-06)


Vishal Containers P Ltd v ACIT ( (2011) ACAJ Sept P. 399 (Ahd) (Trib).


S.48: Capital gains- Gift Indexed cost-Previous owner Indexed cost of gifted assets has to be determined with reference to previous owner


   The assessees daughter purchased a flat on 29.1.1993 at a cost of Rs.50.48 lakhs. She gifted the flat to the assessee on 1.2.2003. The assessee sold the flat on 30.6.2003 for Rs. 1.10 crores. In computing LTCG, the assessee took the indexed cost of acquisition under Explanation (iii) to s. 48 on the basis that she held the flat since 29.1.1993. The AO held that as the assessee had held the flat from 1.2.2003, the cost inflation index for 2002-03 would be applicable. The CIT (A) and the Special Bench of the Tribunal upheld the claim of the assessee. On appeal by the department, HELD dismissing the appeal:


Under Explanation 1(i)(b) to s. 2(42A), in determining the period for which any asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner has to be included. Accordingly, though the assessee acquired the capital asset on 30.6.2003, she was deemed to have held the asset from 29.1.1993 onwards. This fiction will apply to clause (iii) of the Explanation to s. 48 as well for determining the indexed cost of acquisition. The object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner. This object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee.


CIT v Manjula J. Shah (Bom) (High Court)


S. 48 : Capital gains- Computation- Professional management fee paid to asset management company.


Professional fees and profit sharing fees paid to an asset management company, cannot be allowed as deduction under section 48 while computing the capital gains. The Tribunal followed theratio of Devendra Motilal Kothari v Dy CIT ( 2011) 13 15 and Pradeep Kumar Harlalka v Asst. CIT ( A.Y 2006-07)


Homi K.Bhabh a v ITO ( 2011)48SOT 102 ( Mumbai ) (Trib)


S.50: Capital gains- Depreciable assets-Export undertaking- Block of assets. [ S 2(11), 10B ]


On expiry of tax holiday period specified in section 10B undertaking comes in automatically for regular assessment and income chargeable has to be computed in accordance with normalprovisions, therefore ,on expiry of period mentioned under section 10B , block of assets. Viz , plant and machineries of industry are available for working out relief under section 50 (2).(A.Y.1993-94)


S. Muthurajan v Dy CIT (2011) 202 Taxman 356 (Mad) (High Court).


S. 50: Capital gains-Capital loss- Depreciable assets- Setoff of long term capital gains against short term capital gains. ( S.(2(11), 74 (1) (b).


Under section 74(1) (b), the assessee is entitled to claim of set off of long term capital loss against the capital gains income arising from the sale of office premises being depreciable asset , the gain of which is short term due to the deeming provisions of section 50 (2) but the asset is long term.( A.Y. 2005-06)


Komac Investments & Finance (P) Ltd v ITO ( 2011) 62DTR 196 (Mum) (Trib).


S. 54: Capital gains Deposit of amount in capital gains account scheme by date mentioned under section 139 (4)- Eligible for exemption.


If a person has not furnished the return of the previous year within time allowed under Sub section (1) i.e. before 31st July of the Assessment year ,the assessee can file the return before expiry of one year from the end of the relevant previous year . The assessee has deposited the amount before filing of return under section 139(4), therefore the assessee is entitled the benefit ofexemption under section 54.(A.Y.2006-07).


CIT v Jagriti Agrwal (Ms) (2011) BCAJSept . P. 397(P&H) (High Court). / (2011) 203 Taxman 203


S. 54: Capital gains- Long term capital gains- Self financing scheme- DDA. [ S. 2(29A), 2 (42A).]


Allottee of a flat under self financing scheme of the DDAgets title to the property on issuanceof allotment letteras clarified vide Circular no 471 dt 15-10-1986 , and therefore , capital gain arising on sale of flat by the assessee on 6 THJan , 1989which was allotted to him on 2th Feb , 1982 , by issuance of an allotment letter was a long teram capital gain , irrespective of the date of allotment of specific flat number and delivery of possession on 15th May , 1986 , assessee was entitled to exemption under section 54von reinvestment of sale proceeds in another house. ( A.Y. 1989-90 ).


Vinod Kumar Jain vCIT ( 2011) 244 CTR 346 ( P&H )( High Court).


S. 54EA: Capital gains- Exemption- Investment- Time limit-Compensation.(S. 45 (5), 54 H ).


Enhanced compensation for land acquired in 1992 having been received by the assessee in 1997 and invested immediately in specified bonds for the purpose of section 54EA , assessee was entitled to claim exemption under section 54EA notwithstanding the fact that on the dates relevant for the assessment year 1998-99section 54H did not contain section 54EA.( A. Y 1998-99 ).


CIT v J.Palemar Krishna( 2011) 244 CTR 618 (Ker) (High Court).


S. 54EC: Capital gains- Sale proceeds of tenancyrights-Wife and daughters were co- holders.


Assessee invested the sale proceeds of Tenancy rights in specified bonds in his name along withwife and daughters were co holders of said bonds. Exemption under section 54EC cannot be denied to the assessee.( A.Y.2007-08).


Asst CIT v Vijay S. Shirodkar ( 2011) 48 SOT 8 (Mumbai) (Trib).


S.56: Income from other sources-Business income- Letting out factory.


The assessee let out its factory with all machineries with effect from September 8, 1983 as per lease agreement for a period of 11 months. After the expiry of lease period, lease agreement was not renewed. The Court held that one has to see whether the intention of the assessee is to go out of business altogether or to come back and restart the same. Except lease agreement, no material has been produced by the assessee before the Assessing Officer or this court to come to the conclusion that the assessee is likely to come back and restart the business .Accordingly the court held that income to be treated as income from other sources. ( A.Ys 1997-98 to 1999-2000).


CIT v Ventateswra Agro Chemicals and minerals P.Ltd ( 2011) 338 ITR 428 (Mad) (High Court).


S. 68: Cash Credits- Burden of proof-Loan.


When an unexplained credit is found in books of account of an assessee initial burden is placed on assessee and once that onus is discharged, it is for revenue to prove that credit found in with respect of deposits found in the books of account of assessee is undisclosed income of assessee.Assessee returned the money, tax was deducted at source, assessee not required to prove the source of source. ( A.Y.1998-99)


CIT v Kinetic Capital Finance Ltd ( 2011) 202 Taxman 548 ( Delhi) (High Court).


S. 68: Cash credits- Share application- Failure to prove identity and credit worthiness.


High Court confirmed the order of Tribunal where the Tribunal held that the assessee has failed to prove the identity and credit worthiness, share application moneythe addition was justified as cash Credits.( A.Y. 2005-06).


Power Drugs Ltd v CIT ( 2011) 62DTR 276 ( P &H) (High Court).


S.68: Cash credits-Burden of proof- Loan confirmation- PANs- Report of inspector- Natural justice.


The Court held that Tribunal was not justified in confirming the addition under section 68 after taking in to consideration of Inspectors report, without giving adequate opportunity to the assessee to explain the information received by the Assessing Officer from the inspector. Assessee has produced the loan confirmation disclosing the Permanent Account numbers ( A.Y.1997-98).


S.K.Bothra & Sons v ITO ( 2011) 62 DTR 234 (Cal) (High Court).  


S. 68: Cash Credit- Gift Non resident-Partners Capital account.


There is no rigid rule that whenever credit entry is in the capital account of a partner, addition could not be made in the hands of firm even when credit entry is, on the face of it, bogus or a device to evade tax. Held that the Assessing Officer was justified in making addition on account of unexplained NRI gifts allegedly received by the partners and brought in to the books of account of the firm through capital accounts of partners. (A.Y.1993-94)


CIT v Deepak Iron & Steel Rolling Mills ( 2011) 63 DTR 196 (P&H) (High Court).


S. 68: Cash Credit-Share application money-Burden of proof.


Mere submission of share application forms, PAN names and address and ROC registrationetc was not sufficient in view of the fact that these companies werefound to benon existent. On the facts the assessee failed to produce any of its directors or employees of the share applicants , as their identity was not proved ,the onus cast on the assessee was not discharged. Addition under section was confirmed.( A.Ys 2005-06 to 2006-07).


Agarwal Coal Corporation (P) Ltd v Additional CIT ( 2011) 63 DTR 201(Indore) (Trib).


S. 69: Unexplained investments- Statement of family members of sellers under Foreign Exchange Regulation Act.


Assessee purchased the property from joint owners of property who were family members. Sale consideration was shown at Rs 4 lakhs in the deed. In the statement recordedunder Foreign Exchange Regulation Actsenior most member offamily who was responsible for sale of propertyadmitted that actual sale consideration was Rs 16 lakhs. High Court held that the addition was justified. (A.Ys 1997-98 to 1999-2000).

CIT v T. O. Abraham ( 2011) 202 Taxman 632 (Kerala) (High Court).


S. 69: Unexplained investments-Income from undisclosed sources- Statement on oath-Stamp duty valuation (S. 132 (4).


Price of the plots paid by the assessee being consistent with the circle rate which the stamp duty has been paid and the department having not found any document or evidence to establish that the assessee has made more payment than that found recorded in his accounts, the statement made by the assessee under section 132 (4) surrendering the amount could not have been taken as basisfor making addition as unexplained investments in plots.( A.Y. 2006-07).


Asst CITv Raj Dhaiwala (Dr) ( 2011) 63 DTR 113 (Jodhpur) (Trib).


S.69A: Unexplained money- Search and Seizure- Jewellery- Streedhan.


During searchat assessees premises 906.900 gms jewellarywas found from assessee, assessee explained that he was married 25 years back and jewellery was received by his wife in form of stree dhan or on their occasions, such as, birth of a child etc. The High Court held that collecting jewellery of 906.900 gms by a women in a married life of 25 years in the form of stree dhan or other occasions is not abnormal hence the assessing officer was unjustified treating only 400 gms as reasonable and treating remaining jewellary as unexplained , accordingly the addition was deleted.( A.Y.2006-07)


Ashok Chaddha v ITO ( 2011) 202 Taxman 395 ( Delhi) (High Court).


S.69C: Unexplained expenditure- Payment by assessee to hospital doctors-Fees received which was distributed.


In the course of search unaccounted collection of fees was noticed in the names of doctors which claimed to be distributed to various doctors whether as regular employees or as consultants. The Court held that addition cannot be made in the hands of assessee, department should have issued the notice to the Doctors for confirmation of the payments and if they deny then only proceedings can be initiated under section 69C . On the facts the assessee has discharged the burden by providing the particulars of payments made to doctors. High Court confirmed the order of Tribunal which has deleted the addition.( A.Ys 2001-02 to 2003-04).


CIT v Lakshmi Hospital ( 2011) 62 DTR 261 ( Ker) (High Court).


S.69C: Unexplained expenditure- Statement of Director before Central Excise Authorities.


Additionscannot be made merely on the basis of statement made by the Director before Central Excise Authorities, without any supporting evidence regarding suppression of production.(A.Ys 2004-05 , 2005-06).


ITO v Arora Alloys Ltd ( 2011) 12 ITR ( Trib) 263 (Chandigarh) (Trib).


S. 70 (3): Capital gains- Capital loss- Set off of indexed long term capital loss againstnon indexed long term capital gains. (S. 48 , 55, 112 ).


Provisions of section 70(3) existed much prior to the mode of computation of capital gain without applying the benefit of indexation which were introduced later by an amendment in the year 2000. It cannot be therefore that the legislature would have contemplated while enacting the provisions of S.70(3) a situation as contemplated by proviso to S.112(1), when it used the expression similar computation in S.70(3). Expression similar computation used in S.70(3) refers to the computation u/s 48 to 55 and not the computation under section proviso to S.48 vis--vis proviso to S.112(1). The Assessee was justified in setting off indexed long-term capital loss against non-indexed long-term capital gains. (A.Y. 2004-05)


Vipul A Shah v Asst CIT ( 2011) 63 DTR 272 (Mum) (Trib). 


S.72A: loss-Carry forward and set off- Amalgamation of companies.(S. 72, 78, 79 )


Amalgamatingcompany was not having loss , and provisions of sections 72A,78 and79 not beingapplicable , benefit ofcarry forward of losses of amalgamated company cannot be denied. Provisions of section 72A, trigger only when the losses of the amalgamating company are to be carried forward by the amalgamated company. As the amalgamating company was a profitmaking company , section 72A is not applicable. Provisions of section 79 are not applicable as more than 51 percent of the share holdings is in the same hands. Asprovisions of section 78 are not applicable benefit of carry forward cannot be denied. (A.Y.2006-07).


Wrigley India (P) Ltd v Addl CIT ( 2011) 62 DTR 201/ 142 TTJ 23 (Trib).


S.74(1)(b): Setoff of long term capital loss against short term capital gains-Capital gains-Capital loss- Depreciable assets. ( S.(2(11),50 ).


Under section 74(1) (b), the assessee is entitled to claim of set off of long term capital loss against the capital gains income arising from the sale of office premises being depreciable asset , the gain of which is short term due to the deeming provisions of section 50 (2) but the asset is long term.( A.Y. 2005-06)


Komac Investments & Finance (P) Ltd v ITO ( 2011) 62DTR 196 (Mum) (Trib).


S. 79: Carry forward and set off losses in case of certain companies-Company in which public aresubstantially interested- ( S. (2.18).)


Although the assessee company was originally registered as a private company, it became public company by virtue of the provisions of S.3(iv)(c) of the Companies Act when GT Ltd., a public company, acquired more than fifty percent shares of the assessee company in the preceding year. Assessee had satisfied condition of Item(B) of S.2(18)(b) as well as in much as GT Ltd. held more than 50 percent of the shares of the assessee company during the whole of the previous years in question. Therefore, assessee company became a company in which the public are substantially interested by fulfilling the requisite conditions and consequently, application of S.79 is automatically ruled out. Hence, CIT was not justified in setting aside the orders allowing set off of brought forward losses of an earlier year against the income of the year under consideration.


Meredith Traders (P ) Ltd v ITO ( 2011) 62 DTR 404 (Mum) (Trib). 


S.80G: Deductions- Donationto certain funds- Charitable institutions- Salaries of preachers.


Assesseechurch society incurred expenditure on T.V. telecast and salaries of preachers. Preachers were generally engaged to spread teachings of Lord Jesus Christ , therefore, salaries paid to preachers cannot be considered to be an expenditure incurred for charitable activities. If salaries to preachers was taken out from the categoryof expenditure for charitable activities , expenditure on religious activities would be more than 5 percent of total income , thus assessee would be hit by sub section 5 (ii) read with sub section (5B) of section 80G. (A.Y. 2010-11).


Church of Christ Social Service Society , Amalapuram v CIT ( 2011) 48SOT 1 ( Visakhapatanam ) (Trib).


S.80HHC: Deduction-Export- Sale of scrap- Total turnover.


Sale of scrap cannot be excluded from Total turnover which shall increase the denominator of the formula for determining the extent of benefit admissible to an assessee under section 80 HHC.( A.ys 1989-90 to 1991-92).


CIT v Bicycle Wheels (India) ( 2011) 244 CTR 453 ( P&H) (High Court).


S.80HHC: Deduction- Export- Different business-Export turnover- Total turnover.


Assessee carried on the business of growing and manufacturing of tea in its own estates, which was sold in the domestic market as well as export, assessee also maintained separate books of account in respect of exporting of tea purchased by it. It was contended that different businesses of the assessee are required to be considered separately for the purpose of calculating the deduction under section 80HHC of the Act. High Court held that different business of the assessee cannot be considered separately for the purpose of calculating deduction under section 80HHC. The deduction under section 80HHC was required to be computed by aggregating the profits, export turn over and total turnover of all the business and not separately with reference to the profits, export turnover and total turnover of each business. ( A.Y. 1991-92).


Duncans Industries Ltd v CIT ( 2011) 62 DTR 305/ 202 Taxman 677(Cal) (High Court).     


S. 80IA: Deduction-Industrial undertaking- Revision- High Court order- Reassessment. (S. 263 ).


In appeal against the order of Tribunal, the High Courtset a side the order of Tribunal , against the Order of the High Court the assessee filed an SLP before the Supreme Court. On 5thJan 2011 the apex court permitted the department to proceed with reassessment ,without prejudice to rights and contention of parties. Assessing Officer passed the order disallowing the deduction under section 80IA. Considering the peculiar facts the Apex Court set a side the matter to the file of CIT (A) to decide a fresh uninfluenced by the earlier order of CIT under section 263 as well as impugned order passed by High Court.


Teknika Components v CIT ( 2011) 63 DTR 186/ 202 Taxman 623 (SC).


S. 80IA: Deduction- Industrial undertaking-Computation- Electricity.


Electricity generated by assessee, collected by Electricity Board and releases to assessee when ever required. Assessee neither selling nor buying  as far as captive consumption of power is concerned. Assessee paid consumption of power more than contribution. Market value to be taken for consumption. Under section 80IA (8) market value means the value determined by market forces. In the captive consumption of power generated by the assessee company no market force was operating. Market forces came in to the picture only when the assessee bought power from Tamil Nadu Electricity Board like any another consumer. The value paid for such consumption was the market value and in the present case it was 3.50 per unit. Therefore the contention of the assessee was to be acceptedand the assessing authority was to recomputed the profit and gains of the eligible unit for the purpose of section 80IAon the basis of the unit price of electricity generated by the assessee company at 3.50 per unit. (A.Y. 2007-08).


SriVelayidhaswamy Spinning Mills P. Ltd v Dy CIT ( 2011) 12ITR 353 ( Chennai)(Trib).


S. 80IA(4)(ii ): Deduction-Industrial undertaking-Development of infrastructure.


Assessee ran a proprietary business providing telecommunication services to her subscribers within a limited radius of 500 meters on the basis of an agreement entered with BSNL. In computing her total income for the Assessment years 2002-03 to 2006-07 the assessee claimed deduction under section 80IA (4) (ii) of the Income Tax Act, 1961.The assessing authority held that the assessee herself had not developed any telecommunication service system nor was she operating and maintaining any system independently . Assessee was running the business as a franchise of BSNL. The Tribunal held that the Assessee a private commercial venture not involving development of infrastructure not entitled to special deduction. ( A.ys 2002-03 to 2006-07).


ITO v A. Jayalakshmi (Smt) (2011) 12 ITR 371 (Chennai) (Trib).


S. 80IA(5):Deduction-Profits and gains from Industrial undertakings-Initial assessment year-Loss & Depreciation of eligible unit prior to initial assessment year, if set-off against other income, not notionally carried forward


In AY 2006-07 the assessee installed a windmill, the profits of which were eligible for 100% deduction u/s 80-IA. Owing to depreciation and loss, the assessee did not claim s. 80-IA deduction in AY 2006-07 & 2007-08 and set-off the loss and depreciation against other income. In AY 2008-09, the assessee earned profits from the windmill and claimed deduction u/s 80-IA. The AO & CIT (A) relied on the Special Bench decision in ACIT vs. Gold Mines Shares & Finance116 TTJ (Ahd) (SB) 705 and held that in view of s. 80IA(5), the loss and unabsorbed depreciation of the eligible unit, though set-off against the other income, had to be notionally carried forward for set-off against the profits of the eligible undertaking. On appeal by the assessee, HELD allowing the appeal:


Though in Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 it was held that in view of s. 80IA(5), the eligible unit had to be treated as the only source of income and the profits had to be computed after deduction of the notionally brought forward losses and depreciation of the eligible business even though they were in fact set-off against other income in the earlier years, the Madras High Court held in Velayudhaswamy Spinning Mills P. Ltd. v. ACIT 38 DTR 57 held that such a notional exercise was not contemplated by s. 80IA (5). It was held that the fiction in s. 80-IA (5) that the eligible unit is the only source of income begins from the initial assessment year which is not the same thing as the year of commencement of activity. The law contemplates looking forward to a period of ten years from the initial assessment and does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off has taken place in an earlier year against the other income, the Revenue cannot rework the set off amount and bring it notionally. The fiction in s. 80-IA(5) is for a limited purpose and does not contemplate to bring set off amount notionally. The judgement of a constitutional court has overriding effect over the decision of a Special Bench of the Tribunal and the latter cannot be followed.(A.Y.2008-09)


Anil H. Lad v DCIT ( Bangalore) (Trib).


S.80IB: Deduction-Industrial undertaking-Amalgamation of companies-Subsidiary company.


Subsidiary company carried on business during intervening period from 1st April 2005 till the order sanctioning amalgamation scheme, is deemed to have been carried on for on behalf of the assessee company , as per instruction no F.NO 15/5/63 IT (AI) dt 13th December , 1963 , the assessee is entitled to deduction under section 80IB, if other conditions are satisfied.(A.Y.2006-07).


Wrigley India (P) Ltd v Addl CIT ( 2011) 62 DTR 201 (Trib).


S. 80J: New industrial undertakings- Use of old parts- Splitting- Reconstruction-Manufacture Detonators.


Assesseeinvesting huge amount to purchasenew machinery to replace out datedunit for manufacturing of basic material . New machinery increasing production as well as enabling the assessee to produce one more product . Assessee using few parts of old machinery the value was less than 10 %of new unit . Use of old parts does not amount to spliting or reconstructionof old unit . Assesssee is entitled to deduction under section 80J.( A.Y 1982-83).


CIT v I.D.L.Chemicals Ltd( 2011) TAX.L.R. 389 (AP) (High Court).


S. 80 IB: Deduction- Industrial Undertaking-Derived- Modvat Credit- Modvat credit is derived from industrial undertaking.


   The assessee availed/set off Modvat credit of excise duty of earlier years amounting to Rs. 1.93 crores. The AO held that s. 80-IB deduction was not admissible on the said Modvat credit on the ground that the source of the income was government policy imposing excise duty at differential rate and it was not derived from the industrial undertaking. This was reversed by the CIT (A). On appeal by the department, HELD dismissing the appeal:


   The payment of central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of Central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of central excise duty and its refund. Consequently, it is derived from the industrial undertaking and eligible for s. 80-IB deduction (CIT vs. Meghalaya Steels 332 ITR 91 (Gau) and J.K. Aluminium vs. ITO (ITAT Delhi) followed)


 ACIT v The Total Packaging services ( Mumbai)(Trib)


S. 90: Double taxation Relief- Permanent establishment- Agent-DTAA- India ( article 5).


Even though agents acts independently in ordinary course of business , if they devote their activities whollyor mostly on behalf of foreign enterprise , theywould be considered as PE of foreign enterprise irrespectiveof whether they conclude contractsbinding on their principal or not( A.Y 1997-98).


Reuters Limited Construction House v JCIT (2011) 62 DTR 322 /48 SOT 246 (Mum) (Trib).


S. 90: Double taxation Relief- Permanent establishment- -Offshore transportation Installation of pipelines-DTAA- India Mauritius Art 5 (2).


Activities of off shore transportation and installation of pipelines carried out by assessee , a Mauritian company , throughmarine vessel amount to assembling definition of the Art5 (2) of the Indo Mauritius DTAA includes only those assembly projects which last for more than nine months . Matter was restored to the Assessing Officer to ascertain the period of existence of the assessee in India and thereafter to decide the existence of Permanent Establishment.( A.Y. 2007-08).


GIL Mauritius Holdings Ltd v Asst Director of IT ( 2011) 63 DTR 282 ( Delhi) (Trib).


S.92B: Avoidance of tax- Transfer pricing-International transaction


Where a transaction is incurred into by AEs being a resident and non resident , transaction shall amount to an international transaction falling under section 92B (1),thereforewhen either or both of AEs are non resident ,transaction entered into would amount to an international transaction within the meaning of section 92B (1),therefore it does not matter that transactions in question are not cross border transaction.( A.Y. 2006-07)


ITO v Tianjin Tianshi India (P) Ltd ( 2011) 133 ITD 123 (Delhi) (Trib).


S.92C: Avoidance of tax-Transfer pricing-Computation-Arms length- Selection of comparables-Substantial question of law. ( S. 260A ).


Tribunalhaving admitted theadditional ground for exclusion of Datamatics Technologies Ltd as comparable and remanded the case to the Assessing Officer directing that the assessee shall be entitled to produce all relevant material for proper determination of ALP and thereafter Assessing Officer having passed an order in favour of the assessee on consideration of the material produced by it, no substantial question of law arises. (A.Y. 2004-05).


CIT v Quark Systems India (P) Ltd ( 2011) 244 CTR 542 /62 DTR 182( P &H) (High Court).


S.92C: Avoidance of tax Transfer pricing Computation Arms length Designing, developing and maintenance of web sites.


As per agreement between assessee and Kll assessee was to receive service charges as per specified direct cost plus mark up of 80 percent. Assessing Officer took the view that said method of determining ALP was not reliable and thus he proposed to determine ALP under section 92C (3) .Assessing Officer issued the notice to assessee asking to explain as to why net margin of 20 percent should not be taken which was prevalent profit in said line of business. However subsequent to issue of notice, the Assessing Officer himself gathered data in respect of profitability of some companies engaged in providing software services and determined ALP on basis of cost plus mark up of 80 percent. In appeal CIT (A) called for remand report in which Assessing Officer admitted that business of three companies was different. CIT (A) deleted the addition. The Tribunal held that the Assessing Officer had relied upon uncomparable the CIT (A) was justified in deleting the addition. (A.ys 2002-03 to 2003-04).


ITO v Kawin Interactive (P) Ltd ( 2011) 133 ITD 29 ( Ahd)(TM)(Trib).


S.92C: Avoidance of tax-Transfer pricing-Computation-Arms length Most appropriate method- CUP-TNMM.


Simply because the comparable transactions are available only in respect of 9 products, it does not mean that the CUP method is to be rejected. TPO was not justified in adopting CPM and in comparing the gross margin in export segment vis--vis gross margins in domestic segment of assessee without appreciating that the CUP or TNMM was the most proper method for determining the ALP. TPO is directed to accept claim of the assessee regarding the ALP based on TNMM which method has been accepted in the succeeding year.( A.Y.2006-07)


Drilbits International (P) Ltd v. Dy CIT ( 2011) 62 DTR 171/ 142 TTJ 86 ( Pune) (Trib).


S.92C: Avoidance of tax-Transfer pricing-Computation-Arms length-Cost plus method-Gross profit mark up- 5% adjustments.


Assessee is sellingthe manufactured products both in the domestic as well as in the foreign market .Assessee is exporting completely finished products in the same manufacturing unitwith the same raw material with mostly unrelated cost base ,therefore ,the cost plus method is most appropriate method to determinetheALP . In respect of assessees international transactions , internal cost plus method taking profit/ direct cost of production as PLI was justified , giving due weightageto the relevant factors includingsmall market and creditrisk , Assessing Officer is directed to adopt60 percentas profit margin mark up on the direct cost. Regarding applicability of proviso to section 92(C ) (2), when variation exceeds 5 percent of the ALP the assessee shall not get benefit. (A.Y.2006-07).


Wrigley India (P) Ltd v Addl CIT ( 2011) 62 DTR 201/ 142 TTJ 23 (Trib).  


S.92C: Avoidance of tax-Transfer pricing-Computation-Arms length- Net margin- TNMM- Segmental financials-Bad debts-Foreign exchange fluctuations-Interest on foreign exchange loan- Corporate guarantee.


For computing the net margin of assessee only the cost related to the transactions with AEs has to be considered and accordingly , segmental financials are to be used for arriving atthe net margin on international transactions. Bad debts which are not being relatable to the transactions with AEs have to be excluded. Foreign exchange loss should be considered while computing the net margin for the international transactions. Rate of interestin respect of foreign currency loan in the international market is to be on LIBOR , matter was remitted to the Assessing Officer to verify the actual average LIBORwhich prevailed in the financial year under consideration and adopt the same. Corporate guarantee provided by the assessee does not fall within the definition of international transaction, hence no adjustmentis required in respect of corporateguarantee transaction, because corporate guarantee is incidental to assesses business and there is no guidelines provided. ( A.Y. 2006-07)


Four Soft Ltd v Dy CIT ( 2011) 62 DTR 308/ 142 TTJ 358 ( Hyd) (Trib).


S.92C: Avoidance of tax-Transfer pricing-Computation-Arms length- Processing charges.


The Tribunal held that the personnel cost of processinghas gone up the same cannot be the basis for assuming that the processing income of the assessee also shouldgo up ,accordingly the Tribunal deleted the substantial adjustment made by the TPO in the computation of ALP on the basis of labour cost to revenue ratio , of the previous year without citing any comparable case .(A.Y. 2005-06).


Dy CIT v Hope (India) Polishing Works (P) Ltd ( 2011) 62 DTR 449 (Mumbai) (Trib).


S. 92C: Avoidance of tax-Transfer Pricing- Comparables- If TPO does not give cogent reasons to reject a comparable, it must be presumed to be comparable & DR cannot argue to the contrary.


The assessee, a captive service provider rendering back office support services to its AEs, earned an adjusted Net Cost plus Margin of 7.90%. The assessee adopted TNMM and computed the mean of margins earned by the comparables at 7.62%. The TPO held that No companies were identified as comparables by the assessee and after selecting 12 companies as comparables, determined an arithmetic mean of 27.80% and made an adjustment of Rs. 10.49 crores. The CIT(A) deleted the addition. On appeal by the department, HELD dismissing the appeal:


(i) The TPO was wrong in stating that the assessee has not provided any comparables. The initial prerogative of choosing comparable cases is always that of the assessee because it is the best judge to know the exact services rendered by it and finding the comparable cases from the data base. If the TPO wants to exclude any of such comparables, he has to justify the exclusion by adducing cogent reasons and cannot act on whims and fancies. If the TPO fails to show expressly as to how the cases are not comparable, a presumption has to be drawn that those cases are comparable;


(ii) The departments argument that even if the TPO had not given reasons to exclude the assessees comparables, the CIT(A) ought to have done so is not acceptable. Going by the presumption of acceptability of such cases, the appellate authority is under no duty to check whether the work was properly done by the AO/TPO to the prejudice of the assessee. The fact that the CIT (A) has the power to enhance does not mean that he has a duty to do so;


(iii) The Dept Representative, while arguing the appeal, cannot improve the order of the AO/TPO by contending that the TPO was wrong in accepting a particular claim of the assessee. While the DR has the duty to defend the order of the TPO, he cannot find flaws in the order of the TPO in an attempt to show that the TPO failed to do what was required to be done by him. If the DR is allowed to fill in the gaps left by the TPO it would amount to conferring the jurisdiction of the CIT u/s 263 to the DR. The DR cannot be allowed to take a stand contrary to the one taken by the TPO. Accordingly, the DR cannot be allowed to argue that certain cases included by the assessee in the list of comparables, were in fact not comparable, when the TPO failed to point out as to how such cases were distinguishable (Mahindra & Mahindra 122 TTJ (Mum) (SB) 577 followed, Quark Systems 38 SOT 307 (Chd) (SB) distinguished).


ACIT v Maersk Global Service Center(Mumbai)(Trib).


S.92C: Avoidance of tax-Transfer pricing-Computation-Arms length- Import of coal-Not furnishing any comparable Data.


Assesseehas imported Coal from its Associate Enterprise , which according to the Assessing Officer were over invoiced. The assessee has not furnished any comparable data . TheTransfer Pricing Officer has worked out the adjustment amount exactly on the basis of price variation between the companies. The Tribunal held that this was most simple and acceptable method. The Tribunal up held the addition. ( A.Y. 2006-07).


Coastal Energy P Ltd v Asst CIT ( 2011) 12 ITR 347 (Chennai) (Trib).


S. 115JB: Company-Book profits-Provision for diminution in value of investments- Change of law.


For the assessment year 2002-03 , the Assessing Officer recomputed the book profits of the assessee by making an adjustment for provision for diminutionin value of investments on the ground that the provision made by the assessee fell under clause (c ) of Explanation 1 to section 115JB (2). The Commissioner(Appeals) deleted the addition which was up held by the Tribunal . In appeal the court held that after amendment by Finance (No 2) Act , 2009 , made effectively from April 1, 2001 , clause (i) of Explanation 1 had been inserted in section 115JB (2)of the Act where by any amount or amounts set aside as provision for diminution in the value of any asset wouldnot reducethe book profits of an assessee . The adjustment claimed by the assessee as provision for diminutionin value of investment was not tenableand it would be added in the profit which therebywould enhance the book profits under section 115JB of the Act. ( A.Y. 2002-03 ).


CIT v Steriplate P. Ltd ( 2011) 338 ITR 547 ( P & H ) (Court).


S. 115JA: Company- Book profits- Capital gains-


Additionsand deductionsto arrive at book profit have to be made strictly in accordance with Explanation tosection 115 JA (2). When there is no provision in clauses (i) to (ix) of Explanation to section 115JA (2) to exclude capital gain from profit and loss account , for purpose of book profit it is immaterialwhether capital gain included in profit and loss account prepared under companies Act , 1956is otherwise assessable to income tax or not. Sale proceeds of old and unyielding rubber trees credited by assessee in profit and loss account prepared under provisions of Companies Act is an item covered by clause (ii) of explanation to section 115JA (2)to be excluded from book profit (A.Ys 1997-98 to 2000-01 ).


CIT v Thiruvambadi Rubber Co Ltd ( 2011) 203 Taxman 63 (Kerala) (High Court).  


S.115VA: Shipping business-Operating qualifying ships- Write back of sundry creditors- Interest on loans and advances to employees- Capital gains.( S. 41 (1),45 56 .)


Provisions of sections 28 to 43C cannot override computation of profits and gains of under section 115VA hence the Assessing Officecannot make separate additions in respect of write back of sundry creditors ,prior period adjustments etc under section 41 (1). Loans were advanced to employees involved in core activity ofassessee company hence interest income derived from such activity was taxable under the head income from business and therefore it cannot be broughtto tax separately. Income earnedby assessee from sale of ships will be taxable under the head capital gains hence receipt in question cannot be considered as turn over as per provisions of section 115VAthus it was our of purview of Chapter XII-G. of the Act.( A.Y. 2007-08).


Shipping Corporation of India Ltd v Addl .CIT ( 2011) 133 ITD 290 ( Mum) (Trib)


S. 124:Income tax authorities- Jurisdiction of Assessing Officer- Objection Could not be raised before the Appellate Authority or Tribunal.( S. 127 )


Question of jurisdiction of Assessing Officer could not be raised and entertained by the Appellate Authorityor Tribunal for the first time in appeal when the samewas not agitatedbefore the Assessing Officer . The Court held that Tribunal was not justified in law in holding that the order passed by the Assessing Officer was invalid for want of Jurisdiction. (A.Y.1974-75 ).


CIT v British India Corporation Ltd ( 2011) 63 DTR 246 (All) (High Court).


S. 131: Deductionat source-Notice calling for certaindetails regarding TDS related matters- Details of information- [ S. 133(6) ]


The assessee challenged the notice in a writ petitionsaying that the said notice was treateda noticeunder section 133(6) and prior approval of commissioner being not obtained the notice be quashed . The High Court held that the said noticewas not liable to be categorizedas a notice issued under section 133(6) and under section 131the Assessing Officer could call for the information as proceedings were pending . The writ was dismissed.


Thaliparamba Municipal Vanitha Service Sahakarana Sangam Ltd v ITO ( 2011) 225 Taxation 274 ( Ker) (High Court).     


S.132 (3): Search and Seizure- Prohibitory order- Bank accounts.


Prohibitory order under section 132(3), cannot be issued indiscriminately and it is not automatic in a search and seizure proceedings ; prohibitory order under section 132 (3) issued in respect of bank accounts without forming any belief or without any material on record to conclude that the amount deposited in such bank accounts is either wholly or partly undisclosed income of the petitioner is not sustainable in law.


Maa Vaishnavi Sponge Ltd v Director of Income tax (2011) 62 DTR 209 / 244 CTR 603 (Orissa) (High Court).    


S.132 (4): Search and seizure Income from undisclosed sources- Statement on oath-Stamp duty valuation (S.69).


Price of the plots paid by the assessee being consistent with the circle rate which the stamp duty has been paid and the department having not found any document or evidence to establish that the assessee has made more payment than that found recorded in his accounts, the statement made by the assessee under section 132 (4) surrendering the amount could not have been taken as basis for making addition as unexplained investments in plots. Affidavit which was filed alleging the coercion and pressure upon him by the authorized officer in proceedings under section 132 (4)was rejectedand not considered. (A.Y. 06-07).


Asst CITv Raj Dhaiwala (Dr) ( 2011) 63 DTR 113 (Jodhpur) (Trib).


S. 132 (4): Search and Seizure- Statement- Addition- Capitation fee.


The Assessing officer made addition towards capitation fees alleged collected from the students was solelybased on thesworn statement recorded under section 132 (4)of a special Officer of engineering College. There was no incriminating evidence regarding the receipt of capitation fee either found or seized. What was found the number of students who were admitted under different quotas in various courses. The Tribunal held the additions cannot be made in the hands of assessee on the basis of such evidence. The Tribunal held that the Central Board of Direct taxes had issued instructions by Circular no 286/2/ 2003 IT, wherein it had directed that the search party should not obtain confession. So the admission made under section 132 (4) by the Special Officer of the college could not be treated even as a valid piece of evidence. Accordingly the order of Commissioner (Appeals) deleting the addition was confirmed. ( A.Y2008-09).


AsstCIT v Saveetha Medicaland Educational Trust ( 2011) 12 ITR 376 (Chennai) (Trib). 


S.133A:Survey- Depreciation- Genuineness of Purchase of purchase of assets-Disclosure- Revised return- Retraction.( S. 32.)

Duringsurvey assessee admitted that computer software and hardwarewere not purchased by it, andit filed a revised return with drawing the claim of depreciation and offered to tax.Thereafter the assessee filed an affidavit retracting the statement during the course of survey. The Tribunal recorded the finding of fact that during the course of survey neither the assets were found nor the assessee could establish names of the parties form whom computer software and computer hardware were purchased. High Court confirmed the order of Tribunal.   (A.Y. 2001-02).


B.D.P.S.Software Ltd v Dy CIT ( 2011) 62DTR 361 (Bom) (High Court).    


S. 144: Best Judgment-Liquor Trade- General principles-Rejection of books of account- Percentage of 40 % could not be adopted. ( S. 145 ).


The Assessing Officer rejected the book results andestimated the gross profit at 40 % of purchases. This was confirmed by CIT (A).The Tribunal held that the estimation of turnover at eight times the purchase price and 1 % there on as profit would be reasonable. The court held the estimating the net profit at 2% of the estimated sales or 16 % of the purchase price would be reasonable. The court laid down the following general principles (1) The power to levy assessment on the basis of best assessment is not an arbitrary power ; it is an assessment on the basis of best judgmentof the officer ; (2) When best judgment assessment is undertaken it cannot be as per the whims and fancies of the Assessing Officerbut should be based on some material either produced by the assessee or gatheredby the taxing officer. If for any reason material like books of account produced by the assessee is rejected as unreliable or unsatisfactory , there should be valid reasons for doing so; and (3) whenever best judgment assessment is made , the court would not call for proof from the officer if there is some nexus betweenthe amount arrived at after some guess work and the facts of the case. ( A.ys 1993-94 and 1995-96).


CIT v R. Narayana Rao and others ( 2011) 338 ITR 625 (AP) (High Court).


S. 147: Reassessent-Full & true disclosure of material facts means specific disclosure of each fact.


The assessee entered into an agreement in July 2001 for sale of development rights for Rs.39 crores. The transfer was in December 2003. The assessee computed LTCG of Rs. 23.19 crores. The assessee invested in eligible bonds between Feb & June 2002 (after the agreement to sell but before the transfer) and claimed exemption u/s 54EC. During the assessment proceedings, the AO asked for a copy of the agreements with the purchaser and other details which the assessee furnished. A copy each of the s. 54EC bonds (which gave the dates of investments) was also furnished. The AO allowed the deduction as claimed. After the expiry of 4 years from the end of the assessment year, the AO issued a notice u/s 148 claiming that as the investments were made prior to the date of transfer (Dec 2003), s. 54EC deduction was not admissible. The assessee filed a Writ Petition to challenge the reopening on the ground that there was no failure on its part to make a full and true disclosure of material facts. HELD dismissing the Petition:


(i) Full and true disclosure of material facts means that the disclosure should not be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the AO. The assessee must act with candor. A full disclosure is a disclosure of all material facts which does not contain any hidden material or suppression of fact. It must be truthful in all respects;


(ii) On facts, though the AO enquired into the matter and the assessee furnished a copy of the s. 54EC bonds (from which the dates of allotment/ investment were evident), there was no (specific) reference by the assessee to the dates on which the amounts were invested in the s. 54EC bonds. Also, it was it was evident that the AO had not applied his mind to the issue of s. 54EC exemption. Accordingly, the AO was justified in reopening the assessment.


The Indian Hume Pipe Co. Ltd v ACIT (Bom) ( High Court)


S. 147: Reassessment- Retrospective amendment does not mean failure to disclose material facts. (S.80HHC ).


   After the expiry of four years from the end of the assessment year, the AO reopened the assessment u/s 147 by relying on the retrospective amendment to s. 80HHC by the Taxation Laws (Amendment) Act, 2005 w.e.f. 1.4.1998. The CIT (A) and Tribunal (included in file) struck down the reopening. On appeal by the department, HELD dismissing the appeal:


The assessment was sought to be reopened on account of retrospective amendment to s. 80HHC introduced by the Taxation Laws Amendment Act, 2005 with effect from 1st April 1998. If the legislature amends the provisions of the Act with retrospective effect, it cannot be said that there was failure on the part of the assessee to disclose fully and truly all material facts relevant for the purpose of assessment.

CIT vMohan & Co. (Exports) (Bom) ( High Court)

S. 147: Reassessment- Non disclosing of primary facts- Exemption-Change of opinion. (Within four years )


Assessee company wasengaged indomain name registrations and website hosting services. For the Assessment years 2002-03 and 2004-05 , it claimed deduction under section 10A. Assessing officer disallowed the said claim. In appeal Commissioner (Appeals) allowed the claim, which had become final. On the basis of that the Assessing Officer allowed the claim for the Assessment years 2004-05 to 2006-07. For the Assessment year 2007-08 the assessee did not make the claim as the returned income was loss. Subsequently theAssessing officer issued notice under section 148 on the ground that domain registration service did not fall undercategory of web siteservices. The court held that since reasons furnished for reopening ofassessment did notcontain any new tangible material or a reference to any new facts which had come on recordand which were not present to mind of Assessing Officer when earlier assessments were finalized , it could be said thatAssessing Officer sought to reopen theassessment for assessment years 2006-07 and 2007-08purely on basis of a change of opinion which is not sustainable in law. Accordingly notice under section 148dated 18th March 2011was set aside. (A Ys 2006-07 & 2007-08).


Direct Information (P) Ltd v ITO ( 2011) 203 Taxman 70 (Bombay) (High Court).


S. 147: Reassessment- Non disclosure of primary facts-Change of opinion- Share from AOP- Survey- With in four years  S. 167B (2).


Assessing Officer after considering all relevant documentspassed assessment order. However ,thereafterAssessing Officer issued notice for reopening assessment on ground that documents seized during surveyat assessees premisesrevealed that assessee had received its share from gross sale proceeds and not from share of profits against surrender of development rights in land . The court held that when the revenue had evidently treated AOP as a valid entity in law and had brought it to tax in order of assessment for assessment year 2007-08 and material relied upon by Assessing Officer for reopening assessment had been submitted during original assessment proceeding , reopening of assessment was un justified. ( A.Y 2007-08)


Sanand Properties (P) Ltd v JCIT ( 2011) 203Taxman 127 (Bombay ) (High Court). 


S. 147: Reassessment- Failure to disclose Lapsesby Assessing Officer AO must specify what facts are failed to be disclosed- Lapse by AO no ground for reopening if primary facts disclosed


   In AY 2001-02, the AO assessed advances of Rs. 1.56 crores received from a group concern as deemed dividend u/s 2(22)(e). In appeal, the CIT (A) held that the advances received in earlier years could not be assessed. The AO thereafter reopened the assessment for AY 1999-00 (after 4 years from the end of the AY). Though the AO alleged that there was a failure on the part of the assessee to disclose full and true material facts, he did not specify what that failure was. The reopening was upheld by the CIT (A) & the Tribunal. On appeal to the High Court, HELD allowing the appeal:


(i) In AY 1999-00, the AO inquired into the details of advances received but did not make any addition u/s 2(22)(e). If the AO fails to apply legal provisions, no fault can be attributed to the assessee. The assessee is merely required to make a full and true disclosure of material facts but is not required to disclose, state or explain the law. A lapse or error on the part of the AO cannot be regarded as a failure on the part of the assessee to make a full and true disclosure of material facts;


(ii) Though the recorded reasons state that the assessee had failed to fully and truly disclose the facts, they do not indicate why and how there was this failure. Mere repetition or quoting the language of the proviso is not sufficient. The basis of the averment should be either stated or be apparent from the record;


(iii) Explanation (1) to s. 147 which states that mere production of books is not sufficient does not apply a case where the AO failed to apply the law to admitted facts on record.


   (iv) The allegation that the assessee did not disclose the true and correct nature of payment received from the sister concern nor disclosed the extent of holding of the sister concern so as to enable the AO to apply his mind regarding s. 2(22)(e) is not acceptable. The assessee had filed statement of accounts of each creditor and indicated them to be sister concerns. The primary facts were furnished. The law does not impose any further obligation of disclosure on the assessee (CIT vs. Burlop Dealers Ltd 79 ITR 609 (SC) followed).

Atma Ram Properties Pvt. Ltd. vDCIT (Delhi )( High Court)

S.147: Reassessment- Non resident-Long term capital gains- Proviso-Rate of tax.( S. 48,112).


Assessing Officer taxed long term capital gains at the rate of ten percent in the hands of the non resident assessee by invoking proviso to section 112 , reopening of assessment on the ground that the long term capital gain was erroneously taxed at the rate of ten percent under the proviso to section 112(1) instead of twenty percent is not valid in the absence of any reason recorded to the effect that proviso to section 112 is not applicable to the case of the assessee , or that the long term capital gainsearned by the assessee do not fall in anyof the categories specified in the proviso to section 112. ( A.Y.2001-02).


Director of Income tax (International Taxation) v May & Baker Ltd ( 2011) 62 DTR 257/ 244CTR 569 (Bom) (High Court).


S. 147: Reassessment- Non disclosure of primary facts- Share of profit from AOP [ S. 167B (2) ].


Assessee in its return of income computed its business income after deducting certain amountwhich was its share of profit from an AOP doing business of real estate developers and was exempt under section 167B (2).Assessing Officerafter considering all the relevant documents passed the order . The Assessing Officer issued the notice for reopening facts of assessment on ground that documents seized during survey at assessees business revealed that assessee had received its share from gross sale proceeds and not from share of profits against surrender of development rights in land. The Court held that when the Department had evidently, treated AOPas a valid entity in law and brought it to tax in order of assessment year 2007-08 and material reliedupon by Assessing Officer for reopening assessment had been submitted during original assessment proceeding , reopening of assessment was unjustified.( A. Y. 2007-08)


Sanand Properties (P) Ltd v JCIT ( 2011) 203 Taxman 127 (Bombay) ( High Court). 


S. 147: Reassessment Change of opinion Revenue audit Registration. (S.11, 12AA )


Assessing Officer allowed the exemption after taking into consideration the registration granted under section 12AA, by the CIT and after considering the explanationof assessee , reopening of assessment on the basis of audit objection by revenue auditwas not justified. ( A.Y. 2006-07).


Agricultural Produce Market committee v ITO ( 2011) 63 DTR 7 (Guj) (High Court).


S. 147: Reassessment- Reasons held to be not valid Additions of other items not part of reasons recorded Cannot be made.


Once the reasons recorded by the Assessing Officer to reopen the assessment were not found valid and no additions were ultimately sustained on that, the additions in respect of other items which were not part of reasons to believe cannot be made. ( A. Y. 1999-2000).


CIT v Adhunik Niryat Ispat Ltd ( 2011) 63 DTR 212 ( Delhi).


S.153: Assessment- Limitation- Interpretation- Proviso.( S. 142(2A), 142(2B), 142 (2)(C).


Amendment ofproviso to section 142(2C ) inserting the words suo motu by Finance Act ,2008 , w.e.f. Ist April 2008, is purely clarificatoryand suo motupower extended the period for submitting the audit report is also to be read in sub s (2C ) and therefore ,the entire period from the date on which the Assessing Officer directs the assessee to get its accounts audited under section 142(2A) and ending with the last date on which the assessee is required to furnish the report of such audit including the period suo motu extended by the Assessing Officer    (Not exceeding 180 days) ,is to be excluded in computing the period of limitation to make assessment as per clause (iii) of Explanation 1 to section 153.


Function of a proviso is to qualify the generalityof the main enactment by providing an exception and taking out from the main enactment a potion which, but  for the proviso , would fall with in the main enactment.( A.Y. 2003-04)


Ghaziabad Development Authority vCIT (2011) 244CTR 397 (All) (High Court).


S.153A: Search and Seizure- Validity- Search warrant- Assessment. (S.132)


Person , in respect of whom search under section132 is initiated , is the same person against whom notice under section 153A is to be issued for making assessment; if there is any illegality in the search warrant , the same will invalidate the search assessment proceedings initiated under section 153A, the matter was remanded to the Tribunal.(A.ys 2001 to 2006-07).


Siksha O Anussandahn v CIT ( 2011) 244 CTR 515/ 62 DTR 161 (Orissa) (High Court).


S. 153C: Search and Seizure Computation Undisclosed income-Presumption-Project completion method-On money. (S. 292C ).


Assesseesuo motto offered the entire alleged receipts of on money of Rs 9.02 croresin its return of income filed under section 153 C. The additions made by the revenueon estimate made for the Asst years 2002-03 to 2005-06 was deleted.. ( A.ys 2006-07 to 2008-09). 


FortProjects (P) Ltd v Dy CIT ( 2011) 63 DTR 145 (Kol) (Trib).


S. 158BB: Block assessment- Search and Seizure-Computation- Undisclosed income. ( S. 69, 132 ).


Whereno evidence has beenproduced by theassessee to rebut the statement made at the timeof searchthat he had invested impugned sum in different names but the sharesactually belonged to him , addition madeby Assessing Officer was sustainable. (Block period 1987-88 to 1997-98).


Dinesh B.Parikh v CIT ( 2011) 63 DTR 25 ( Cal) (High Court)


S. 158BB: Block assessment- Search and Seizure-Computation- Undisclosed income. Return not submitted.( S. 158BC ).


Return not submitted in response to notice under section 158BC, the courtheld best assessmentvalid.


Alok Todiand another v CIT ( 2011) 339 ITR 102 ( Cal) (High Court).


S. 158BB: Block Assessment- Search and Seizure- Undisclosed income- Computation-Peak investment.


Seized documents showed that the assesseehas earned undisclosed income on account of unrecorded turn over in the books of account which was declared in the return for the block period , further additions towards peak investment could not be madein the absence of any document or evidence.


Asst CIT v Saileshkumar Nathalal Patel ( 2011) 63 DTR 249 (Ahd) (Trib). 


S.158BC: Block Assessment-Search and seizure-Undisclosed income- Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds ( Immunities and Exemptions ) Act ,1991.( S. 132 ).


During the course of searchit was found that the assessee has received India Development Bonds of US dollars 10,000 each by way of gift on November 14, 1994 , and February 21,1995 . The amount of Rs 5,69, 884, after maturity of India Development Bonds was credited in her savings bank account and out of this amount , fixed deposit receipts of Rs 33, 75,000 were obtained. The assessing officermade the addition which was deleted by Tribunal. High court held that a perusal of sections 6 and 7 of the Remittances of Foreign Exchange and Investment Bonds (Immunities and Exemptions) Act , 1991 makes it clear that no enquiry can be made from the bond holder regarding the source. The immunities are absolute . The court held that no investigation could be allowed to be held pertaining to the India Development Bonds which were received from non-residents /overseas corporate bodies as gifts.


CIT v Usah Omer ( 2011) 338 ITR 448 (All) (High Court).


S.158BC: Block Assessment-Search and seizure-Undisclosed income- Tax deducted at source- Advancetax paid by recipient- Partner Remuneration.


A search and seizure was conducted under section 132 in the premises of the assessee consequently notice under section 158BC was issued. On the date of search, due date of filing theassessment years 1999-2000 and 2000-01 stood expired. The assesses had not filed their returns. The assesses had the taxable income during relevant years. The source was remuneration from partnership firm. These firms have deducted the tax at source in respect of interest andhave filed their returns before the date of search. The Income of partners cannot be held to be undisclosedin the hands of partners. ( A.Ys1999-2000, 2000-01 )


CIT v H.E.Mynuddin Pasha( 2011) 338 ITR 533 ( Karn) ( High Court).


S. 158BC:Block Assessment- Search and seizure- Computation- Post search enquiry- Materials not relating toevidence found.


Additions which were made in the block assessment, on the basis of material and information available with the Assessing Officerpursuant to post search enquirynot being relatable to anyalleged evidence found in the course of search are not sustainable. Additions were deleted.


Shibu Soren v Asst CIT ( 2011) 62 DTR 273 / 12 ITR 540 ( Delhi) (Trib).


S. 158BD:Block Assessment-Cash flow statement-Balance sheet and other documents from partner. (S.158BC ).


The court held that the finding of the Tribunal that block assessment is solely on cash flow statement furnished by the assessee is factually incorrect, since the assessmentis based on information collected in the form of balance sheet and other documents from partner of assessee , in the course ofSearch carried out in such persons premises , the block assessment order was held to be valid.Order of Tribunal was reversed.


CIT v K.V.Sudhakaran ( 2011) 63 DTR 232 (Ker) (High Court).


S. 158BD: Block Assessment- Search and seizure- Computation- Post search enquiry- Materials not relating toevidence found-Protective assessment. ( S. 158BC).


Income tax department had the information regarding the existence of the bank accounts of all the individual assesses and money deposited in these bank accounts along with relevant dates of such deposits, no incriminating material can be said to have been found as a result of search carried out in respect of their bank accounts and the money lying in the said bank accounts cannot be subject matter of addition in block assessments. Once it is accepted that no incriminating documents were found in the case of four MPs in their premises, which justified any addition under section 158BC, in their hands, protective additionin their party JMM invoking section 158BDalso cannot be sustained.


Shibu Soren v Asst CIT ( 2011) 62 DTR 273 / 12 ITR 540( Delhi) (Trib).


S. 158BE: Block assessment- Search and Seizure- Limitation- Stay order in another assessee of family-Notice under section 142(2A). (S. 142(2A).


Another member MN of Assessees family member has filed a writ petitionchallenging the order under section 142(2A) in his case, and stay was granted. The court held that it cannot be accepted that the stay order passed by the court in writ petition filed by another family member in their assessment, amounted the staying the order under section 142(2A) passed against the assessee. On the facts of the assessee against the search and seizure action carried on 26th June , 1997block assessment was passed on 28th July 2000. The order was time barred.


CIT v Sandeep C.Dugad (2011) 63 DTR 201 (Bom) (High Court). 


S. 158BFA(2): Block assessment-Search and seizure- Penalty-Undisclosed income- Returned income.


Where the income finally assessed under section 158BC (c ) is the only undisclosed income returned by the assessee and the assessee has complied with all the conditions of clauses (i) to (iv) of the first proviso, no penalty under section 158BFA(2) could be levied . Penalty may be leviable in cases where undisclosed income finally assessed under clause (c ) of section 158BC is in excess of the undisclosed income returned by the assessee in the return filed under section clause (a) of section 158BC. If additions made when compared with undisclosed returned income of assessee is very smallpenalty may not be justified.


CIT v Heera Construction CO (P ) Ltd ( 2011) 63 DTR 99 (Ker) (High Court).


S. 158BFA (2): Block assessment-Search and seizure- Penalty-Undisclosed income- Addition on estimate basis- Gross profit- Appeal admitted by High Court.


The Tribunal confirmed the addition by the Assessing Officer on account of estimated gross profit merely on the basis that the entries found recorded in the ledger account found in the possession of a third party, and not on the basis of any material found in the possession of the assessee during the search, penalty under section 158BFA(2)is not leviable, , more so when appeal against quantum has been admitted by the High Court.


Sadhu Ram Goyal v Dy CIT ( 2011) 63 DTR 296 (Jaipur) (Trib). 


S. 158BFA (2): Block assessment-Search and seizure- Penalty-Undisclosed income-(S. 158BD).


The assessee did not file the return of income in response to notice under section 158BD read with section 158BCfor the block assessment. The addition on account of money paid in cash was based on the seized material found during thecourse of search. The Tribunal held that levy of penalty was justified.


Madhuben R.Barot ( Smt) v Asst CIT ( 2011) 12 ITR (Trib) 465 ( Ahmedabad) (Trib).


S. 192 : Deduction at source- Salary-Assessee in default- Honest estimate- Perquisites Free education facilities to wardsof teachers Staff members. [ S. 17 (2), 201 ]


While deducting TDS from employees income employer is not expected to step into shoes of Assessing Officer and determine actual income. Where employer has deducted TDS on estimated income of employee and such estimate is found to be incorrect, this fact alone would not make employer an assessee in defaultunder section 201 (1), unless an inference can reasonably raised that employer has not acted honestly and fairly. Assessee school was providing free educational facilities to Wards of teachers / staff members and cost of education was less than Rs 1000per month per child, assessee was entitled to benefit of proviso to rule (3) ( 5) and consequently , could not be treated as assessee in default.


CIT v Delhi Public School ( 2011) 203 Taxman 81/ 63 DTR 325 (Delhi) (High Court).  


S. 194C: Deduction of at source- Transportation- Hire contract- Rent. Tests to distinguish transportation contract from hire contract( S. 194I ).


The assessee entered into contracts with transporters for transporting petroleum products from the plant to various destinations. The assessee deducted TDS u/s 194C at 2% on the basis that the transportation contract was work. The AO held that the contract was a hiring of vehicles on the basis that (i) the assessee had exclusive possession and usage, (ii) the use was for a fixed tenure, (iii) the tankers were customized to the assessees requirements and that TDS ought to have been u/s 194-I at 10%. The assessee was held to be in default u/s 201. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal:


To decide whether a contract is one for transportation or for hiring, the crucial thing is to see who is doing the transportation work. If the assessee takes the trucks and does the work of transportation himself, it would amount to hiring. However, if the services of the carrier were used and the payment was for actual transportation work, the contract is for transportation of goods and not an arrangement for hiring of vehicles. On facts, the agreement was of the nature of transport agreement and not one for hiring of vehicles because the tank truck owners did not simply confine themselves to providing vehicles at the disposal of the assessee in lieu of rent but also engaged their drivers in driving such vehicles and thereby in transporting petroleum products from one place to the other. In effect, the truck remained in the possession of the staff of the carrier. Further, the assessee was required to pay for the transportation work on the basis of distance and no idle charges were payable. There was no transfer of the right to use the vehicle involved in the agreement. The agreement was merely for carriage of petroleum products and so s. 194-I was not applicable.

ITO v Indian Oil Corporation (Delhi) (Trib).

S. 194I : Deduction at Source-Jurisdiction -Rent- AO in place of payment has no jurisdiction if assessee assessed outside.


The assessee, based & assessed in Delhi, was allotted land by MMRDA at Bandra Kurla Complex, Mumbai, on lease for 80 years. The lease premium of Rs.88.52 crores was paid without deduction of tax at source. The ITO (TDS) Mumbaipassed an order u/s 201 in which he held that the assessee had defaulted in not deducting TDS u/s 194-I on the lease premium. The assessee filed a Writ Petition to challenge the jurisdiction of the ITO (TDS) Mumbai. HELD upholding the plea:


The assessee was assessed at New Delhi. Its PAN & TAN were allotted by the AO at New Delhi. All returns including the TDS returns were filed at New Delhi. Accordingly, there was complete absence of jurisdiction on the part of the AO at Mumbai to proceed against the assessee.


India Newspaper Society v ITO (TDS)(Bom) ( High Court).


S.194J : Deduction of tax at source- Technical or professionalfee-Medical profession- Incidental or ancillary services.


Payment madefor rendering services in course of carryingon medicalprofession or other services as stipulatedin section 194J , deduction of tax at source has to be made and it is immaterial ,whether recipient is an individual , firm or artificial person. Incidental or ancillary services which are connected with carrying on medical profession are also included in term Profession. Payment made by TPA ,on behalfof insurance company to hospital for settlement of professional fee under various claims including cash less claim, it wouldbe liable to deduct TDS under section 194 J on all such payments. Circular no 8 of 2009 of 2009, considered.


Vipul Medicorp TPA(P) Ltd v CBDT ( 2011) 202 Taxman 463 / 63 DTR 65( Delhi) (High Court).   


S. 194J : Deduction of tax at source- Technical or professionalfee Human element- Cheque processing centre.


In the absence of anything on record to discern as to whether an intervention of human elements is involved in the services provided by the PNB MICR cheque processing centreto the assessee bank , orders of the authorities below were set aside and the matter is remitted to the Assessing Officer to examineafresh. (A.Y .2004-05)


CIT v Chief Manager , State Bank of India ( 2011) 245 CTR 107 (P& H ) (High Court).


S.195: Deduction of tax at source Other sums Non resident Lower rate.


Assessee cannotdeduct tax at a lower rate without getting an authorization or certificate under section 195 (2) .( A.Y.2002-03 ).


CIT v Chennai Metropolitan Water Supply & Sewerage Board ( 2001) 202Taxman 454 (Mad) (High Court).


S. 195A: Deductionat source- Income tax payable Net of tax-Foreign companies- Royalty- Fees for technical services-Grossing up Agreement approved by Government of India ( S. 10 (6A ).


Where technical collaboration agreement between assessee and foreign company was approved by Government of India under section 10( 6A), , tax paid by assessee on remittance to foreign collaborator was exempt from further tax and grossing up under section 195A to cover tax component of remittance does not arise. Section 195A , authorizesassessmentof gross income only when collaborationagreement is not approved by Government of India under section 10(6A )


CIT v Tata Ceramics Ltd ( 2011) 203 Taxman 43 ( Kerala) (High Court)..


S.197: Deduction of tax at source-Certificate for deduction at lower rate- Writ- Alternative remedy.(S. 264).


Assessee made application under section 197 for lower  deduction of taxat 0.27%.The Assessing Officer refused to grantthe certificate. The Assesseehas filed writ petitionagainst the saidorder. The Court held that Revision under section 264 is efficacious statutory remedy against such orderand Writ is not maintainable.


Sime Darby Engineering SDN BHD Malaysia v UOI ( 2011) TAX.L.R. 784 (Uttarakhand) (High Court).


S.201(IA):Interest -Deduction of tax at source-Assessee in default.


Interest under section 201(1A), isleviable where recipient is a loss making company. In such case interest under section 201(IA)has to be calculated from date on whichtax should have been deducted to date on which payee should have filed its return under provisions of Act. Circular no 275 /201/95 IT (B)dated 29-1-1997.( A.Y.2002-03 ).


CIT v Chennai Metropolitan Water Supply & Sewerage Board ( 2001) 202Taxman 454 (Mad) (High Court).


S. 206C: Collectionof tax at source- Tax paid by buyer.


If in a given case assessee had not collected tax under section 206 C from buyer, before proceeding against assessee, it is necessary to find out whether buyer has paid tax in accordance provisions of Act and only in event buyer has not paid tax then the authorities can proceed against assessee , who was under obligation to collecttax and remit to Government . Matter remanded.( A.ys 2004-05 and 2005-06).


Sree Manjunatha Wines v CIT ( 2011) 202 Taxman 620 (Karn) (High Court).


S. 220 (7): Collection and recovery-Stay Assessee in default-Money kept abroad in clandestine manner-Russia- England- Certificate to tax recovery officer.( S. 222 ).


Assessee declared money received from a Russian company, kept abroad in a bank account in London in a clandestine manner, only in the revised returns and not in their original returns and there being no bar or restriction on transfer of that money or remittance thereof from Russia to India, assessee is not entitled to protection or benefit of section 220 (7) and stay of recovery.( A.Ys 2004-05, 2005-06 and 2006-07).


Ravina & Associates (P) Ltd & Anr v CIT (2011) 245 CTR 45 (Delhi) (High Court).


Ravina Khurana v CIT ( 2011) 245 CTR 45 (Delhi) (High Court).


S. 221: Penalty payable when tax in dispute-Appeal pending before Tribunal- Assesseedeemed to be in default. (S. 156)


Assessing Officer levied the penalty after considering the explanation of assessee.The CIT (A) held that the no proper opportunity was given before levying the penalty. In cross objection assessee contended that the Assessing Officer should have waited to levy the penalty till the order of Tribunal. The tribunal rejected the contentionholding that there was no provisionin the Act that penalty under section 221 (1) can be imposed only after order is passed by the Tribunal .


Asst CIT v Catmoss Retail Ltd ( 2011) 63 DTR 1 (Delhi) (Trib).


S. 234B: Interest- Waiver or Reduction- CBDT Circulars.(S.80HHC ).


There being no decision of jurisdictional High Court favouring interpretation of section 80HHC , assessee was not entitled to waiver or reduction interest .On the facts the assessee was not entitled to reduction or waiver of interest under section 234B under any of the CBDT circulars dt 23rd May 1996, 30th Jan 1997 or 2 of 2006 dt 17th January , 2006.( A.Y. 2002-03).  


Raju Bhojwani v Chief CIT ( 2011) 63 DTR 236 ( Delhi) (High Court).


S. 234D:Interest on excess refund- Order in pursuance of appeal order of CIT (A)-Regular assessment. ( S. 143(1).


Section 234D is attracted only when the refund is granted to the assessee under section 143 (1) becomes refundable to the revenue on regular assessmentand cannot be charged when the refund was granted to the assessee not in the assessment under section 143 (1) but pursuant to order of CIT (A) on appeal ( A.Ys 1992-93 to 1998-99).


Director of Income Tax (International) v Delta Air Lines Inc ( 2011) 63 DTR 1/ 245 CTR 16 (Bom) (High Court).


S. 245:Set off of refunds against tax remaining payable- Refund arising in earlier year on issue cannot be adjusted against demand on same issue in subsequent year


Against an order passed u/s 144C/143(3), the assessee filed a stay application before the AO u/s 220(6) and also filed a stay application before the Tribunal. The Tribunal passed an interim order directing status quo. Despite the interim order, the AO passed an order u/s 245 (without giving prior notice) and adjusted refunds against the demand. Before the Tribunal, the department accepted that the 245 refund adjustment was not proper and said a proper order would be passed. The AO then passed an order u/s 220(6) in which he held that the adjustment of refunds was in order on the ground that (i) an adjustment of refunds was not a recovery and (ii) though some issues were covered in favour of the assessee, the decision had not become final as the department was in appeal. The Tribunal then passed a stay order in which it accepted the AOs stand that an adjustment of refund was not a recovery. It was also held that action u/s 245 was not mala fide. The assessee filed a writ petition to challenge the adjustment of refunds. HELD allowing the Petition:


(i) S. 220(6) has no application to a case where an appeal is filed before the Tribunal though the Tribunal has inherent power to grant stay. The order passed u/s 220(6) is null and void. The Tribunal should have decided the stay application instead of calling upon the AO to dispose of the application u/s 220(6);


(ii) It is wrong to say that an adjustment of refund u/s 245 is not a recovery only on the ground that s. 245 is placed in the Chapter of Refunds. The term recovery is comprehensive and includes adjustment thereby reducing the demand. In Circular No. 1914 dated 2.12.1993, even the CBDT did not regard recovery as excluding adjustment u/s 245. However, different parameters may apply in considering a request for stay against coercive measures to recover the demand and a stay against refund adjustment. It is permissible for the authority to direct stay of recovery by coercive methods but not grant stay of adjustment of refund. However, when a simple & absolute order of stay of recovery is passed, it bars recover of the demand by way of adjustment of demand. The revenue must be obedient and respect the stay order and not over-reach or circumvent the stay order. No deviancy or breach should be made;


(iii) It will be specious & illogical for the Revenue to contend that if an issue is decided in favour of the assessee giving rise to a refund in an earlier year, that refund can be adjusted u/s 245, on account of the demand on the same issue in a subsequent year. While the AO can made an addition on the ground that the appellate order for an earlier year has not been accepted, he cannot make an adjustment towards a demand on an issue decided in favour of the assessee.


(iv) The argument that as the assessment order has been passed u/s 144C after reference to the DRP, the orders passed by the CIT(A) and Tribunal in favour of the assessee have lost significance and do not justify stay of demandin covered matters is not acceptable. The decisions of the CIT (A) & Tribunal in favour of the assessee should not be ignored and have not become inconsequential. This is not a valid ground to ignore the decisions of the appellate authorities and is also not a good ground to not to stay demand or to allow adjustment u/s 245;


(v) The respondents are officers of the State and the Law requires that they perform their duties with utmost objectivity and fairness, while keeping in mind the sanctity of the role and function assigned to them which at times requires tough steps. On facts, the conduct and action of the Revenue in recovering the disputed tax in respect of additions on issues which are already covered against them by the earlier orders of the ITAT or CIT (A) is unjustified and contrary to law. Directions issued to refund the tax.


Maruti Suzuki India Limited v DCIT (Delhi) ( High Court)


S. 249 (4): Form of appealand limitation- Recovery of amount-Hundi seized.


Assessing Officer recoveredamount out of Hundies Seized from the assessee in excessof the admitted tax , the defect in the appeal before CIT (A)due to non payment of admitted tax as required under section 249 (4) can be treated to have been removed , the matter was remitted to CIT (A)to decide on merit.( Block period Ist April 1966 to 26 th June 2002).


Mansukhlal v CIT ( 2011) 62 DTR 356/ 245 CTR 111 ( MP) (High Court).


S. 250: Procedure in appeal- Commissioner (Appeals) Additional evidence- Rule 46A.


Admission of additional evidence is with in the discretion of the Commissioner(Appeals),onthe facts the said discretion has not been exercised improperly or against the provisions of law.CIT (A)was justified in admitting the additional evidence.( A.Y. 2001-02).


CIT v Better ways Fianance & Leasing (P ) Ltd ( 2011) 62 DTR 252 ( Delhi) (High Court).


S. 250 (4) : Procedure in appeal- Commissioner (Appeals)-Additional evidence.-Powers of CIT (A) to admit Additional Evidence u/s 250(4) & Rule 46A


The AO asked the assessee to furnish confirmation letters from customers who had paid advances by cash (& not cheque) which the assessee complied with. In the assessment order, the AO treated the advances received by cheque as unexplained cash credits u/s 68. Before the CIT (A), the assessee produced confirmation letters from customers who paid by cheque. The CIT (A) admitted the additional evidence under Rule 46A &, without giving the AO an opportunity, deleted the addition. In appeal by the department, the Tribunal upheld the CIT (A)s action on the ground that as the AO had not called for the confirmations before making the addition, the CIT (A) was justified in admitting the additional evidence and there was no reason to set-aside the matter to the AO for a second innings. On further appeal to the High Court, HELD allowing the appeal:

U/s 250(4), the CIT (A) has the power to direct enquiry and call for evidence from the assessee. Under Rule 46A, the assessee has the right to ask for the admission of additional evidence. If the CIT (A) exercises his powers u/s 250(4) to call for additional evidence, the AO need not be given an opportunity to show-cause. However, if the CIT (A) acts on an application under Rule 46A, then the requirement of giving the AO an opportunity as per Rule 46A(3) is mandatory. The argument that in all cases where additional evidence is admitted, the CIT (A) should be considered to have exercised his powers u/s 250(4) is not acceptable as it will render Rule 46A redundant. On facts, as the assessee had produced the evidence, the CIT (A) ought to have followed Rule 46A(3) and remanded the evidence to the AO for comments and verification (matter remanded to the CIT(A)).

CIT v Manish Buil Well Pvt Ltd. (Delhi ) ( High Court).

S. 254 (1): Appellate Tribunal- Additional ground-Remand of the matter.


When the material called upon by Tribunal was produced and available on record, remand of the matter to the CIT (A) was not valid, once the materials are available on record , the Appellate Court should have disposed of the case on merit taking those materials into consideration and there is no need to remand the matter. (A.Ys 2000-01 to 2006-07).


Siksha O Anusandhan v CIT ( 2011) 244CTR 515 / 62 DTR 191( Ori) (High Court).


S. 254 (1) : Appellate Tribunal- Power- Search and seizure-Validity.


A search took place in case of assessee and two sons. Assessee filed the return declaring 1/3 share of rent as his share. Assessing Officer completed the assessment treating the said property as HUF. Assessee challenged the validity of search. Tribunal declined to go into validity of search . On merits the Tribunal remitted the matter back to the assessing Officer. The Court held that refusal on part of Tribunal to go into validity of searchwhich is sine qua nonfor initiatingblock assessment is illegal . The Court also held that it was not proper for the Tribunal to remand matter without attempting to settle at its stage. The order passed by the Tribunal was set aside and the matter was remanded to it for fresh consideration. ( A.Ys 2000-01, 2004-05 and 2005-06.


CIT v Subbalakshmi (Smt) (2011) 202 Taxman 418 (Karn) (High Court).


S. 254 (2):Orders ofAppellate Tribunal Powers- Rectification of Mistakes-Reference in log book.


In the log book of the author of the order of the Tribunalthere is reference to CIT (A)s order which contains the relevant findings on the issue of agency PE , there is also a reference to Departmental Representatives submission contesting the finding of the CIT (A)on this issue , therefore , assessees plea that the question of agency PE was never raised before the Bench at the time of hearing of the appeal cannot be accepted. Tribunal having given its finding on the issue of agency PE which was actually raised before the Bench at the time of hearing of the appeal and arrived at its conclusions based on relevant reasoning , miscellaneous application filed by the assessee questioning the correctness of the view of the Tribunal without indicating any apparenterror in the order of the Tribunalwithout indicating any apparent error in the order of the Tribunal is not maintainable.(A.Y.1997-98).


Reuters Ltdv JCIT ( 2011) 62DTR 322 / 48 SOT 246( Mum) (Trib).


S. 260A: Appeal High Court Power-No power to consider issue not raised before Tribunal.


The assessee filed an appeal before the Tribunal in which it argued that it had constructed a temporary construction which was eligible for 100% depreciation. This was rejected by the Tribunal on the basis that the construction was permanent. Before the High Court, the assessee argued for the first time that the expenditure was revenue in natureand admissible as business expenditure. HELD not permitting the assessee to raise the plea:


A contention/ issue, which is not raised, dealt with or answered by the Tribunal, cannot be raised before the High Court for the first time in an appeal u/s 260A. Though s. 260A(6) empowers the High Court to determine any issue which has not been determined by the Appellate Tribunal, the word determined means that the issue is not dealt with, though it was raised before the Tribunal. The word determined presupposes an issue was raised or argued but there is failure of the Tribunal to decide or adjudicated the same. However, as the issue whether the expenditure is capital or revenue was not raised before the Tribunal, it does not arise from the order of the Tribunal and cannot be entertained (Mahalakshmi Textile Mills 66 ITR 710 (SC) distinguished)


C& C Construction Pvt. Ltd. v CIT (Delhi ) (High Court).


S. 260A: Appeal High Court- Grounds not raisedbefore Assessing Officer or Tribunal.


Grounds not raised before Assessing Officer or Tribunal cannot be raised first time before High Court.


Alok Todi and another v CIT ( 2011)339 ITR 102 ( Cal) (High Court).


S. 263: Revision of orders prejudicial to Revenue-Business income- Capital gains- Income from purchase and sale of shares. [S. 28 (i), 45 ].


Assessing Officeraccepted the income declaredby the assesseeunder the headlong term capital gains without any application of mind or enquirythough the assessee was investment company, the assessment was erroneous and revision order undersection 263 was justified.( A.Y. 2006-07)


Spectra Shares & Scrips ( P) Ltd v Dy CIT ( 2011) 62 DTR 411 ( Hyd) (Trib). 


S. 271 (1) (c): Penalty- Concealment- Capital gains- Development agreement- Year of taxability.


Assessee received only the initial payment of Rs 6 crores andnot the last installment as per the terms of the property development agreement with the developer in the relevant assessment year 2002-03 , it was justified in not offering the capital gains to tax in the assessment year . Assessee has disclosed in the return as advance and the Assessing Officer himself was not suretill the date of passing of the assessment order so as to whether the assessee is liable to pay tax on the impugned amount and if so , in which assessment yearand under which head of income . The Court held that penalty is not leviable.( A.Y. 2002-03)


Metal Rolling Works Ltd v CIT ( 2011) 62 DTR 328 (Bom) (High Court).


S. 271 (1) (c ): Penalty- Concealment-Business loss- Capital loss.


Assessee treated certain sum as a business loss, where as the Revenue treated it as a capital loss, thepenalty under section 271 (1) (c ) cannot be levied.(A.Y. 2004-05).


CIT v Praveen B .Gada (HUF ) (2011) 244 CTR 463 ( MP) (High Court).


S. 271 (1) (c): Penalty- Concealment-Non disclosure of salary- Deduction of tax at source.


If an assessee does not disclose his salary for a part of the year not withstanding the fact that he has worked as an employee for full 12 months and claims higher refund ofTDS , such act amounts to concealmentof income attracting penalty under section 271(1)(c). (A.Y. 2001-02).


Pankaj Rathi v CIT (2011) 62DTR 185 ( Cal) (High Court).  


S. 271(1)(c): Penalty- Concealment- Search and seizure-Loss return.


In the course of search it was found from records that some loose papers were foundhaving jottings on them , no other valuable assets like money , bullion , jewellery etc were found and losses declared by assessee for four assessment years were accepted by Assessing Officer hence there was no tax liability on assessee. The Tribunal held that penalty cannot be levied by invoking Explanation 5 to section 5 to section 271 (1) (c ). ( A.Ys 2002-03 to 2005-06).


Lallubhai Amicahnd Ltd v Dy CIT ( 2011) 133 ITD 205 ( Mum) (Trib)


S.271 (1)(c):Penalty- Concealment- Failure to deduct tax at source- Royalty Advertisement- Publicity (S. 40 (a) (ia).


The assessee not deductedthe tax at source in respect of payments of royalty, advertisement and publicity, audit fee and recruitment expenses. In the auditreport accompanying the return itwas mentioned that the amount was not admissible under section 40 (a) (ia) .The assessee contended that due to inadvertently this amount was not reduced in the computation of income. The Tribunal held that the as the assessee disclosed the amount in accounts , there was no concealment and hence levy of concealment penalty was not justified.( A.Y. 2005-06).


New Horizon India Ltd v Dy CIT ( 2011) 12 ITR 332 ( Delhi ) (Trib).          


S. 271C: Deduction of tax at source- Penalty- Reasonable cause. (S. 194J, 273B ).


Following the ratio of Judgment of Bombay High Court in Dedicated Health Care Services TPA (India) (P) Ltd v Asst CIT ( 2010) 324ITR 345 ,the part ofCircular no.8 of 2009 dated 24-11-2009 ,was set aside, on the said aspects ,the Assessing Officerand the appellate authoritieswere directedto apply the mind independently in exercise of their quasi judicial powers , without being tied down by the circular.


Vipul Meicorp TPA(P) Ltd v CBDT ( 2011) 202 Taxman 463 ( Delhi) (High Court).


Interpretation ofStatutes- External aid- Speech of Finance Minster- ( S. 10 (26AAB).


Speech made by theUnion Finance Ministerwhile relying to the debate to the Finance Billis not conclusiveregarding the intention of legislaturewhether or not a new provision is inserted by way of a declaration.( A.Ys2003-04 to 2008-09).


CIT v Agricultural Market Committee Tanuku & Ors ( 2011) 63 DTR 119 ( AP) (High Court).     




Income tax appellate Tribunal-Appointment of members-Govts decision not to appoint ITAT Members till amendment providing for 2 years appointment upheld


Out of 23 vacancies in the post of Judicial Member (JM) & Accountant Member (AM), the Selection Board recommended 18 candidates in the main select list and 4 candidates in the wait list. Out of the 18 selected candidates, 2 were not cleared by Vigilance. On 26.04.2006, the 16 were approved by the Appointments Committee of the Union Cabinet for a period of 2 years. The Law Ministry was directed to first amend the ITAT (Recruitment and Conditions of Service) Rules, 1963, so as to provide for appointment of the members of the ITAT for a period of two years. As the selection list was not given effect to pending the amendment in the Rules, the Revenue Bar Association filed a Writ Petition in the Madras High Court for a mandamus to give effect to the selection list which was allowed. This was challenged by the UOI in the Supreme Court but the SLP was dismissed with the direction that all formalities to give effect to the Selection List should be completed. The Appointments Committee thereafter approved the names of all the 16 selected candidates and appointed them till the date of retirement on attaining the age of 62 years. On 31.08.2007, the Appointments Committee also decided that the appointment of members of the ITAT in future will be taken up only after the recruitment rules of ITAT are amended. In 2008, the candidates who were in the wait list filed applications in the Central Administrative Tribunal for directions for their appointment which was opposed by the UOI on the ground that the Appointments Committee had decided that no further appointment of members in the ITAT would be made until the ITAT Recruitment Rules were amended. The CAT allowed the applications and directed that the wait-listed candidates be considered for filling up the advertised vacancies existing in the posts of JM & AM. The UOI challenged the order of CAT in the Delhi High Court contending that the vacancies in the post of JM & AM can be filled up only after the recruitment rules were amended as decided by the Appointments Committee. The High Court dismissed the challenge on the ground that the recruitment rules had already been amended by insertion of Rule 4(a) and there was nothing in the amendment which disqualified the wait-listed candidates from being appointed as members of the ITAT. It was also held that the selection having been conducted by a high-power Selection Board presided over by a sitting Judge of the Supreme Court deserved to be given due weightage and consideration. It was also held that the only way of reducing the backlog was to fill up the vacancies at the earliest and by not doing so, the UOI was prolonging the agony of a large number of assesses apart from depriving itself of its legitimate dues which depends upon the verdict of the ITAT. On appeal by the UOI, HELD reversing the CAT & High Court:


Under Rule 4, a person on the select panel has no vested right to be appointed to the post for which he has been selected, but he has a right to be considered for appointment. The candidates in the wait-list, not having been approved by the Appointments Committee, were not persons selected for appointment pursuant to the decision that further appointments would be made only after the amendment of the Rules. As the Central Government is both the rule making authority as well as the appointing authority of any member of the ITAT, if it has taken a decision to undertake appointments in future after amendment of the rules, it is difficult for the Court to hold that the reason given by the Government for not making any further appointments because of the proposed amendments to the rules is not a justifiable or proper reason and that the decision of the Government in not approving the wait list of candidates recommended by the Selection Board is not proper. The High Courts reliance of Rule 4(a) was wrong because this had been inserted on 26.04.2004 and was not in the mind of the Appointments Committee when it took the decision on 26.04.2006 and 31.08.2007 to make further appointments only after the Rules were amended. As the immediate need for filling up the vacancies has been met by the appointment of the 16 Members, the Court cannot compel the Government to make the appointments from the wait-listed candidates by a writ of mandamus.


UOI v Pradip Kumar Kedia ( SC)


Income tax Appellate Tribunal- President-Power-The President of the Tribunal has no power to write the Members ACR.


The Petitioner, a Judicial Member of the Tribunal, was superseded to the post of Vice President by his junior Mr. P. Mohanarajan. The Petitioner claimed that the supersession was on account of adverse Annual Confidential Reports (ACRs) written by the President of the Tribunal which had misguided the high level Selection Committee without the Petitioner being giving an opportunity to represent against the ACR. The Petitioners challenge before the Central Administrative Tribunal was rejected on the ground that the Selection Committee had decided on the basis of merit. The Petitioner challenged the decision before the High Court and raised two issues: (i) whether the post of Vice President is a promotional post to that of the Member of the ITAT or not? & (ii) whether the President of the ITAT has the authority to record the ACRs of the Members & if so, whether the Government has the right to review the ACRs of the Members? HELD by the High Court:


(i) The Vice Presidents of the Tribunal are appointed from amongst the Members in terms of Rule 7A of the Tribunal Members (Recruitment and Conditions of Service) Rules, 1963. Under Rule 7C, the criteria for selection is merit. The argument that because there is a merger of the pay scales of the posts of Members and Vice Presidents, there is also a merger of the posts and hence the Members cannot be subjected to selection process is not acceptable. There is only a unification of the pay and not a merger of the posts. Under the scheme of the Act, the post of Vice President is over and above the level of Member & carries higher responsibilities, higher pay band and is definitely a promotional post from that of the Member;


(ii) The Tribunal is a judicial body and while the President exercises administrative control over the Benches, he has no power to write the ACRs of the Members. Further, being a judicial body, the Tribunal should have judicial autonomy and therefore, the Government cannot act like a reviewing authority;


(iii) On merits, the Petitioners ACR showed that while he was a hard working and knowledgeable person, he behaved in a rude manner with the colleagues and his rigid tendency and non-adjustable nature had invited many problems, resulting in his frequent transfers. These must have weighed with the Selection Committee. As the ACRs were illegally recorded by the President and reviewed by the Government, the Selection Committee must reconsider the claim of the Petitioner on merits de hors the ACRs;


(iv) On the conduct of the Petitioner, the Court observed that it was pained & disturbed by the material on record that showed the he was arrogant and would always throw to winds the well established judicial conventions including instances of keeping the matters for writing dissenting orders for months together and fighting with the other Members on silly aspects. It was noted that the Petitioner was transferring his personal feelings against his colleagues into the orders circulated by them and nurturing unnecessary hatred and ill-feelings and advice was given that the Petitioner should mend his ways and conduct himself in a dignified manner and follow the established judicial conventions, so as to maintain the decorum on and off the dais.


Uttam Bir singh Bedi v UOI (Mad) High Court).


Transfer of property Act, 1982- Sale- Immoveable property- General Power of Attorney.( S. 54 ).


The Apex court held that immoveable property can be legally and law fully transferred / conveyed only by a registereddeed of conveyance .Transactions of nature of General Power of Attorney Sales (GPA Sales) or sale Agreement / General Power of Attorney /Will Transfers (SA/GPA/ Will transfers ) do not convey title and do not amountto transfer , nor canthey be recognizedas valid mode of transfer of immoveable property. Such transactions cannot be relied upon or made basisfor mutations in Municipal revenue records.


Suraj Lamp & Industries (P) Ltd v State of Haryana ( 2011) 202 Taxman 607 (SC).


Kar vivad Samadhan scheme- Finance (NO 2) Act ,1998.- Discrimination- Article 14 of Constitution of India.


Discrimination resulting from fortuitous circumstances arising out of particular situations, in which some of tax payers find them selves is not hit by article 14 if Legislation as such is of general application and does not single them out for harsh treatment. Test adopted to determinewhether a classification is reasonable or not are that classification must be founded on an intelligible differentia which distinguishes person or things that are grouped together from others left out of groups and that differentia must have rational relation to object sought to be achieved by statute in question. Section 87 (m), (ii) (b) , which denies benefit of Kar Vivad Samadhan Scheme to those who were in arrears of tax as on 31-3-1998but to whom demand notices /show cause notices were issued after 31-3-1998 is based on a reasonable basis which is firstly amount to duties, cess, interest , fine or penalty must have been determined as on 31-3-1998 but not paid as on that date of declaration and secondly date of issuance of demand or show cause notice on orbefore 31-3-1998 , which is not disputedbut duties remain unpaid on date of filing of declaration . Therefore scheme 1998 does not violate equal protection clause where there is an essential difference and real basis for classification which is made.

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