Thursday, April 30, 2015

Assessee can be prosecuted anytime when exonerated in penalty proceedings on ground of limitation and not on merits


Where exoneration in adjudication/penalty proceedings is not on merits but on ground of limitation, assessee-accused cannot take shelter thereof to avoid prosecution proceedings; since there is no time-limit for launching prosecution, same can be launched despite recovery/penalty becoming time-barred.

Facts:


a)Department initiated prosecution proceedings for wrongful credit.

b)Revisional court discharged assessee on ground that penalty proceedings were decided in its favour and department's appeal thereagainst before High Court was dismissed.

c)Department argued that penalty was dropped on ground of limitation and not on merits and appeal before High Court was dismissed for non-appearance; hence, same cannot be relied upon in criminal matters, where there is no time-limitation.

High Court held in favour of revenue as under:

1)Proceedings for recovery of duty with penalty and prosecution/ punishment are separate proceedings. For recovery, there is time-limit of 1 year/5 years in section 11A, but, for prosecution there is no time-limit in section 9.

2)In this case, despite arguments on merits, adjudication/recovery/penalty was dropped on ground of limitation and not on merits and appeal thereagainst was dismissed on ground of non-appearance and not on merits.

3)Since exoneration in adjudication/penalty proceedings is not on merits, assessee-accused cannot take shelter thereof to avoid prosecution proceedings. Since there is no time-limit in section 9, prosecution proceedings can be launched despite recovery/penalty becoming time-barred. Hence, prosecution was valid - Superintendent (Prosecution) Central Excise & Customs Department v. Ashok Leyland Ltd. (2015) 56 taxmann.com 309 (Rajasthan).

Editor's Note:

In adjudication, the appellate authority may decide appeal on grounds of limitation and not on merits despite strong case on merits. In such cases the prosecution may be initiated by the department since there is no adjudication on merits. It appears that in adjudication proceedings on huge tax demand, the assessee must press more on merits (if they are strong enough) and not on limitation to avoid prosecution.

Wednesday, April 29, 2015

No TP adjustment by treating share application money as loan to AE merely due to delay in issuance of shares


Share application money could not be treated as loan amount merely because there was delay in issuance of shares by subsidiary in name of assessee, particularly when cause for delay was duly explained by assessee

Facts


a)The assessee advanced certain sum to its subsidiaryat Philippines, in the form of share application money. However, shares were not allotted till two subsequent years and subsidiary continued to use those funds.

b)TPO was of the view that the share application money was actually in the nature of loan as there was considerable delay in issuance of shares by subsidiary in name of assesse. Accordingly, TPO made addition to assessee’s income by determining the arm's length interest rate on the said transaction.

c)Commissioner (Appeals)confirmed the addition made by TPO. Aggrieved by the order, assessee filed the instant appeal before the tribunal.

d)On appeal, the assessee submitted that the delay was due to obtaining necessary approval from the Securities and Exchange Commission, Phillipines and finally, the shares were issued as per the share certificate, which had been produced by the assessee as additional evidence before the tribunal.

The tribunal held in favour of assessee as under-

1)Though there was delay in issuance of shares against the share application money given by the assessee to its subsiary, however, the assessee had duly explained the cause of delay and it was not a deliberate delay for using the money by subsidiary in the garb of share application money

2)Since share certificates were not before the authorities below, for limited purpose of considering the said certificates, the issue was remanded to Assessing Officer/TPO to consider the same.

3)As far as the re-characterization of the share application money as loan was concerned, the High Court in the case of DIT, International Taxation v. Besix Kier Dabhol S.A. [2012] 26 taxmann.com 169 (Bom.) had considered an identical issue and held that there were at the relevant time and even on relevant day no thin capitalization rules in force to consider debt as an equity.

4)Accordingly, subject to verification of the share certificates by the Assessing Officer, the share application money could not be treated as loan amount merely because there was a delay in issuance of shares by the subsidiary in the name of the assessee, particularly when cause for delay was duly explained by assessee- ADITYA BIRLA MINACS WORLDWIDE LTD. V. DCIT [2015] 56 taxmann.com 317 (Mumbai - Trib.)

Monday, April 27, 2015

CIT(A) should adopt market rates in valuers directory/stamp duty reckoner in absence of sale instances in same area


Where no sale instances were available of same area, Fair Market Value of land could be determined by relying upon rate mentioned in Indian Valuers Directory and Reference Book and Stamp Duty Ready Reckoner and by adopting annual rate of appreciation method

Facts


a)The assessee-company sold its factory land. The assessee reported fair market value (FMV) of land as on 1-4-1981 at Rs. 14.12 crore on the basis of report of a registered valuer and, accordingly, it computed the capital gains;

b)As no instances of sale of similar property in same area were available, registered valuer determined the value of property by presuming the value it would fetch if residential flats were constructed and sold on that land in 1981, utilising the maximum Floors Space Index (FSI);

c)The Assessing Officer (AO) referred matter to Departmental Valuation Officer (DVO) who determined the value of land, taking into account rate of land in undeveloped industrial area as on 1-4-1981 as per Indian Valuers Dictionary and Reference Book (IVDRB), at Rs. 1.7 crore;

d)The Commissioner (Appeals)rejected the valuation made by registered valueras he determined the value of land on the basis of some imaginary situations. He also did not agree with the DVO’s valuation as land was situated in a developed industrial area;

e)The CIT(A) taking into account the rate quoted in IVDRB and Stamp Duty Ready Reckoner and by adopting annual rate of appreciation method worked out FMV at Rs. 2.78 crore;

f)Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of revenue as under:

1)It is true that for valuation purposes some kind of assumption has to be taken especially if valuation is to be done in the year 2001 for the year 1981. But, assumption should have some basis. In the instant case, the very base adopted by the valuer was totally improper as concept of FSI was not prevalent in the year 1981;

2)The value determined by DVO was also improper as land was situated in developed industrial area and not in under-developed industrial area;

3)CIT(A) determined the value of property by referring to IVDRB and stamp duty Ready Reckoner and by adopting annual rate of appreciation method. So, the method adopted by him was a better 'guess work' than the guess work done by the registered valuer. His estimation was also very near to the valuation made by the DVO;

4)Therefore, FMV adopted by the CIT(A) was more reasonable as compared to the FMV quoted by the registered valuer- PFIZER LTD. V. DCIT [2015] 56 taxmann.com 260 (Mumbai - Trib.)

Saturday, April 25, 2015

No denial of sec. 54F relief on pretext of two houses when assessee had gifted one of them orally under Muslim law


Facts:

a)The assessee had sold a vacant site and purchased another vacant site. She deposited the balance capital gain in the Capital Gains Account Scheme to claim deduction under section 54F.

b)The Assessing Officer (AO) denied relief under Section 54F on the ground that the assessee was owner of two residential houses at the time of sale of vacant land.

c)The assessee contended that she was not owner of two houses as she had made an oral HIBA by which one of the properties was given as a gift to her daughter before the date of transfer of land.

d)The AO rejected the explanation taking a view that gift had not been executed by a registered document.On appeal, the CIT (A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:


2)However, the assessee herein was a Muslim andunder the Mohammedan Law, essentials of a gift are declaration of gift by the donor and acceptance of the gift by the donee and delivery of possession. This rule of Mohammedan Law was unaffected by the provision of section 123 of the Transfer of Property Act, 1882.

3)Thus,oral gift made by the assessee could not be disregarded by the revenue authorities.The requirements of a valid gift as per Mohammedan Law were duly satisfied inasmuch as there had been a declaration of gift by the donor and acceptance of gift by the donee and delivery of possession. The delivery in this case would only be constructive.

4)Since the gift satisfied all the requirements of Mohammedan law it had to be held as valid in law. Assessee could not be regarded as owner of two properties as one of themwas gifted by him before the transfer of vacant land. Thus, restriction placed under the proviso to section 54F(1) would not be attracted in the instant case - SMT. SAJIDA BEGUM V. ITO[2015] 56 taxmann.com 269 (Bangalore - Trib.)

Friday, April 24, 2015

Sec. 11 relief available to Indian Medical Association if it was endorsing health products to promote public health


Where assessee, Indian Medical Association, engaged in promoting public health, endorsed products of various companies due to their health and nutritional benefits, said activity could not be regarded as violative of provisions of section 2(15) and, thus, assessee's claim for exemption of income was to be allowed.

Facts:

a)The assessee-society was formed to promote public health and medical education in India.

b)The Assessing Officer (AO) noticed that assessee had received endorsement money for making endorsement of products of various corporate entities. Thus, he took the view that assessee society failed to comply with requirements of section 2(15) and rejected its exemption claim.

c)The CIT (A) opined that assessee had been able to demonstrate that it was engaged in promotion and advancement of the public health. Hence, its activities fell within the meaning of section 2(15).

d)The Aggrieved-revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under :

1)It was not the case of revenue that endorsement of healthy nutrition wasn't medically/scientifically incorrect. The assessee as per the mandate of its objects had endorsed products due to their health and nutritional benefits.

2)Therefore, activities of assessee to promote public health by endorsing products of various companies due to their health and nutritional benefits could not be said as violative of provisions of section 2(15).

3)Accordingly, assessee's claim for exemption of income was to be allowed. - ADIT V. INDIAN MEDICAL ASSOCIATION - (2015) 56 taxmann.com 271 (Delhi - Trib.)

Thursday, April 23, 2015

Parking charges collected on vacant land were taxable even if developer was following project completion method


Where assessee-developer was following project completion method for payment of taxes, parking charges collected by him on vacant land had nothing to do with the completion of his project; he was obliged to pay on parking charges in year of receipt of parking charges.

Facts:


a)The assessee, being a builder and developer was following project completion method for purposes of paying taxes.

b)He had generated income in assessment year 2000-01 on account of parking charges collected on the vacant land. Since assessee had not filed his return of income of AY 2000-01, a notice under section 148 was issued and income received from parking charges was assessed to tax.

c)On appeal, the CIT (A) set-aside the order of AO on the ground that the amount earned by assessee by exploiting vacant land was an amount relatable to costs of the project and therefore, was taxable in subsequent years. Further the Tribunal set aside the order of the CIT(A)

d)Consequently, AO charged interest u/s 234A and 234B in respect of default in payment of advance tax for the assessment year 2000-01. CIT (A) and Tribunal upheld AO action of AO. The aggrieved-assessee filed the instant appeal before High Court.

The High Court held in favour of revenue as under :

1)The non-filing of return of income by assessee was on the ground that the income earned on parking charges would have to be returned when the project would be completed. This was not accepted as the amount received on account of parking charges was not a part of any project. Thus parking charges was brought to tax in Assessment Year 2000-01.

2)It had been held by the Tribunal that the amount received on parking charges had nothing to do with the appellant's project and was assessable to tax in Assessment Year 2000-01. This has been accepted by the assessee. Thus, the assessee was obliged to pay advance tax and non-payment of the same would carry with it the further burden on interest under Section 234B of the Act.

3)Therefore, the AO was right in charging interest in respect of default in payment of advance tax for the assessment year 2000-01. - SUDHIR G. BORGAONKAR V. ACIT - (2015) 56 taxmann.com 188 (Bombay)

Monday, April 20, 2015

Even investment in name of partners would provide sec. 54EC relief to partnership firm


Facts: a)Partners of assessee-firm introduced land and building as their capital contribution to firm.

b)The firm carried out its operation from such land and building after its formation. Subsequently, firm sold said land and building and earned capital gain.

c)Sale consideration of property was credited directly to bank account of partners of firm and bonds specified under Section 54EC were also purchased in names of those partners.

The issues that arose before the Tribunal were as under:-

I.Whether capital asset introduced by partners could be said to be the property of the firm and, thus, capital gain arising on sale of such building was taxable in hands of firm?

II.Whether a firm could claim exemption under section 54EC where specified bonds were purchased in name of partners?

On the first issue the Tribunal held that:

By relying upon the judgment of Allahabad High court in the case of K. D. Pandey v. CWT [1977] 108 ITR 214, it was held that where partners of firm introduced land and building as their capital contribution to firm, said land and building would become property of firm and, therefore, capital gain arising on sale of said property was taxable in hands of firm.

On the second issue the Tribunal held that:

1)Partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner, though not specifically defined in terms of their shares.

2)It was not disputed that the sale consideration was directly credited to the Bank accounts of the partners and firm was immediately dissolved subsequently. Therefore, whatever amount was invested by the partners in specified bonds in their individual names was, in fact, from the funds of the firm.

3)Hence, benefit of section 54EC could not be denied to the assessee-firm,even though the bonds were purchased in the name of partners- CHAKRABARTY MEDICAL CENTRE V. TRO [2015] 56 taxmann.com 76 (Pune - Trib.)

Saturday, April 18, 2015

Snippets of New ITR Forms and e-Filing requirements: Assessment year 2015-16


CBDT has amended Rule 12 of Income-tax Rules, 1962 relating to return of income which shall be applicable for the assessment year 2015-16 vide Notification No.4, dated 15-4-2015. Several changes have been made in the conditions prescribing the mode of filing of return of income by different categories of taxpayers. CBDT has also notified new ITR-1, ITR-2 and ITR-4S for the Assessment Year 2015-16.The key changes are as under:-

1)Compulsory e-filing to claim tax refund : Till assessment year 2014-15, individuals or HUFs, who were otherwise not liable to file return of income electronically, could claim tax refund by filing return of income in physical form. However, the new provision makes it mandatory for every taxpayer to file return of income electronically so as to claim refund of tax from the department. However, an option is given to super senior citizens claiming income-tax refund, to file return of income in physical form, provided return is furnished in ITR- 1 or ITR- 2.

2)Mandatory reporting of details of bank accounts in India : In new ITR forms, an assessee is required to report details of all bank accounts held by him in India at any time (including opened/closed ones) during the previous year. Further assessee is also required to report the closing balance of accounts as on 31st march of the previous year.

3)Reporting of details of foreign travel : Now details about overseas travel are also required to be furnished in new ITR Forms.

4)Details about foreign income : The new ITR forms seeks more details about the foreign assets. Now details about income from any source outside India are also required to be furnished in new ITR forms.

5)Compulsory e-filing of ITR-3 and ITR-4 : Every individual or HUF who is required to file return in form ITR-3 or ITR-4 shall file the same electronically.

Click here to view full article

Click here to view Notification

Friday, April 17, 2015

Now banks can issue FDs exceeding 15 lakhs without option of pre-mature withdrawal at differential interest rates


Earlier, banks were allowed to offer differential rates of interest on term deposits on the basis of tenor of deposits less than Rs. 1 crore and on the basis of quantum and tenor of term deposits of Rs. 1 crore and above. In the sixth bi-monthly monetary policy review held on February 3,2015 the RBI had decided to introduce the feature of early withdrawal in case of term deposits as a distinguishing feature for offering differential rates of interest.

Accordingly, RBI has given discretion to banks to offer differential interest rates based on whether the term depositsare with or without the premature withdrawal facility, subject to riders that:

I.Bank shall provide premature withdrawal facility for Fixed deposits made by Individuals (whether held jointly or singly) for an amount uptoRs. 15 lakh;

II.For fixed deposits above Rs. 15 Lakh, banks can offer deposits without the option of premature withdrawal as well (However, it would be obligatory on part of such banks to provide an option to customers to choose between term deposits either with or without premature withdrawal facility);

III.Banks should disclose in advance the schedule of interest rates payable on deposits; and

IV.The banks should have a Board approved policy relating to interest rates on deposits, including deposits with differential rates of interest and ensure that the interest rates offered are reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required.

Thursday, April 16, 2015

Govt. notifies income computation and disclosure standard for purpose of Section 145; effective from April 1, 2015


Section 145(2) of the Income-tax Act (‘the Act’) provides that the Central Government may notify Accounting Standards (‘AS’) for any class of assessees or any class of income. In 1996, two AS relating to ‘disclosure of accounting policies’ and ‘disclosure of prior period and extraordinary items and changes in accounting policies’ were notified.

In December, 2010 the CBDT has constituted the Committee to harmonize the AS issued by the ICAI with the provisions of the Act for the purposes of notification under the Act and to suggest amendments to the Act. The Committee recommended that some of the AS issued by ICAI related to ‘disclosure’ requirement, whilst some other contained matter are adequately dealt within the Act. In view of this, the Committee formulated the drafts of only fourteen Tax Accounting Standards (‘TAS’) issued by the ICAI. It submitted its final report along with draft of TAS in August, 2012 which was placed in public domain for comments.

After examining the comments, the CBDT has revised the draft of twelve TAS submitted by the Committee and it has withdrawn draft of TAS which correspond to AS-4 on "Contingencies and Events Occurring After the Balance Sheet Date" and AS-5 on "Net Profit or Loss for the Period, Prior Period Items and changes in Accounting Policies". The Committee reiterates its stand taken in previous report that that the TAS notified under the Act is applicable only for computation of income chargeable under the head "profit and gains of business or profession" or "income from other sources" and not for the purpose of maintenance of books of accounts. It further reiterates that in the case of conflict between the provisions of the Act andtheseAccounting standards, the provisions of the Act shall prevail tothat extent.

The CBDT invited comments and suggestions on new draft of standards by February, 8, 2015. The CBDT has now notified the Income Disclosure and Tax Accounting Standards vide notification no. 32/2015, F. No. 134/48/2010-TPL, dated March 31, 2015.

No TP addition for variation between actual price and ALP of fixed asset but depreciation to be re-computed on ALP


The international transaction of purchase of fixed assets is required to be benchmarked as per the most appropriate method. An increase in the value of the fixed assets after application of ALP, being a capital transaction in itself, will not give rise to anyaddition towards transfer pricing adjustment, but the depreciation on such assets, being a revenue offshoot of the capital transaction, will be requiredto be recomputed on such revised value.

Facts:


a)Assessee had made international transaction of purchase of fixed asset from its AE.

b)TPO made addition on the value of international transaction of the purchase of fixed assets. The counsel of assessee contended that the TPO was not justified in proposing the transfer pricing adjusting w.r.t. the value of purchase of fixed assets. It was argued that only the depreciation element of such adjusted value of the international transaction of purchase of fixed assets would call for adjustment to the operating profits.

c)Aggrieved-assessee filed the instant appeal

The Tribunal held in favour of assessee as under:

1)Section 92 is not a charging provision, but it is a procedural provision for recomputing the income arising from an international transaction having regard to its ALP. Before applying the mandate of this provision, it is of utmost importance that there should be some existing income chargeable to tax, which is sought to be recomputed having regard to its ALP.

2)If there is an international transaction which in itself gives rise to income that is chargeable to tax, then its ALP shall constitute a basis for making of addition on account of difference between the assigned value and ALP of such international transaction as per the relevant provisions. But if there is an international transaction in the capital field, which does not otherwise give rise to any income in itself, then even though its ALP may be computed in consonance with the provisions, but no adjustment can be made for the difference between the declared value and the ALP of such international transaction.

3)It does not mean that the computation of the ALP of such an international transaction in the capital field is just a ritual and should not be embarked upon. In fact, such a computation is necessary because of the impact of such a transaction of capital nature on the transactions of its revenue offshoots.

4)In the instant case, the international transaction of purchase of fixed assets was required to be benchmarked as per the most appropriate method. The application of the ALP, if required, would give rise to the re-computation of the revised value of the purchase of fixed assets. Such an increase in the value of the fixed assets, being a capital transaction in itself, would not give rise to anyaddition towards transfer pricing adjustment, but depreciation on such assets would be required to be recomputed on such revised value.

5)Therefore, addition made by TPO due to the determination of the ALP of purchase of fixed assets was required to be set-aside and AO was directed to compute depreciation on such fixed assets on adjusted value. - HONDA MOTORCYCLE & SCOOTERS INDIA (P.) LTD. V. ACIT - (2015) 56 taxmann.com 237 (Delhi - Trib.)

Monday, April 13, 2015

Interest paid on refundable deposits of tenants is allowable u/s 24 if deposits are used to repay housing loan


Interest paid on refundable security deposits received from tenants is allowable under section 24(b) if deposits are used to repay loan taken for purchase of house property.

Facts:
a)The assessee had purchased immovable property after utilizing the unsecured loan taken from Reliance Industries ltd.

b)Thereafter, properties were let out and in terms of agreement refundable security deposits were received from tenants. These deposits were interest bearing where the assessee had to pay interest @ 6%. These deposits were utilized for the repayment of loan taken form the Reliance industries.

c)Assessee claimed deduction under Section 24(b) for interest paid on refundable deposits received from tenants on the ground that it was borrowed capital utilized for the repayment of old loan.

d)The Assessing Officer disallowed interest under section 24(b) but the CIT(A) allowed the claim of assessee. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)In order to decide issue of allowance under Section 24(b) it had to be decided as to whether refundable deposits received from tenants could be reckoned as "borrowed capital" within the meaning of section 24(b)?. The word "borrow" as defined in Law lexicon (2nd edition) means to take or receive from another person as a loan or on trust money or other article of value with the intention of returning or giving an equivalent for.

2)A person can borrow on a negotiated interest with or without security. If the deposits are interest bearing and are to be refunded back, then debt is created on the assessee which is liable to be discharged in future.

3)Here the concept of debt had to be understood as per the terms of the parties. If the deposits had been security deposits simplicitor to cover the damage of the property or lapses on part of the tenant either for non-payment of rent or other charges, then such a deposit could not be equated with the borrowed money, because then there was no debt on the assessee.

4)The moment a deposit is accepted on interest, then it partakes the character of borrowed money. It was an undisputed fact that these interest bearing deposits had been utilized for repayment of borrowed capital. Thus, interest paid on refundable deposits would be deductible under Section 24(b). – ITO V. STRUCTMAST RELATOR (MUMBAI) (P.) LTD. [2015] 56 taxmann.com 107 (Mumbai - Trib.)

No disallowance of loss claimed in return filed u/s 153A after the due date prescribed under sec. 139(1)


Where assessee did not file its return under section 139(1) as he was statutorily required to file its return under section 153A, loss claimed by assessee could not be disallowed on ground that return was filed after due date prescribed under Section 139(1).

Facts:


a)A search and seizure operation was carried out by the department on assessee. Pursuant to the search, notice under Section 153A was served.

b)Assessee had not filed any return of income under Section 139(1) for the reason that assessment proceedings had abated in view of the second proviso to section 153A(1).

c)The assessee had claimed loss in the return filed under Section 153A but such claim was disallowed by Assessing Officer ('AO') by observing that business loss was not allowed to be carried forward since the return was filed by assessee after the due date prescribed under Section 139(1).

d)On appeal, the CIT (A) upheld the order of the AO and the aggrieved assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:

1)Section 153A provides that where a search is initiated under section 132, AO shall issue notice to assessee requiring him to furnish the return of income in respect of six assessment years.

2)It is specifically prescribed that the provisions of Section 153A, so far as may be, apply accordingly as if such return was a return required to be furnished under section 139.

3)The second proviso to section 153A(1)(b) provides that if on the date of search or requisition under section 132 or 132A any assessment or re-assessment proceedings relating to that particular assessment year falling within the six assessment years is pending, then the pending proceedings for the regular assessment shall stand abated and fresh assessment can be done only under section 153A.

4) The legislature has particularly used the words 'shall abate' and specifically it is also mentioned that return has to be filed under section 153A(1)(a) and such return is to be treated as the return of income required to be furnished under section 139.

5)In such circumstances, assessee was not supposed to file its return of income under section 139(1) because he was statutorily required to file return of its income in response to notice under section 153A.

6)Therefore, loss claimed by assessee could not be disallowed on ground that return was filed after due date prescribed under sec. 139(1).- MAITHANISPAT LTD. V. DEPUTY CIT - (2015) 55 taxmann.com 444 (Kolkata - Trib.)

Tuesday, April 7, 2015

Cash award received by editor for excellence in journalism is tax-free as it is a capital receipt


Rs. 1 lakh received by the assessee as an award from B.D. Goenka Trust for excellence in Journalism would be a capital receipt and, hence, not taxable.

Facts
: a)Appellant-assessee was editor-in-chief of a reputed English magazine and derived income from salary, interest, dividend and property.

b)He claimed exemption of Rs.1 lakh received by him as an award fromB.D. Goenka Trust for excellence in Journalism.

c)The Assessing Officer (‘AO’) disallowed claim for exemption on the ground that it didn't satisfy conditions of section 10(17A) which exempts from tax awards instituted by Central/State Govt in public interest.

d)On appeal, the CIT(A) allowed claim of assesseebut same was reversed by ITAT. Aggreived-assessee filed the instant appeal before High Court.

The High Court held in favour of assessee as under:

1)The primary reason of giving award in the assessee’s case was not directly related to the carrying on of vocation as a journalist or publisher.The award for excellence in Journalism was directly linked with the personal achievements and personality of the assessee. Further, payment in the instant case was not of a periodical or repetitive nature.

2)The paymenthad been made by a third person andnot made by an employer, who was not concerned with the activities or associated with the "vocation" of the appellant.

3)It being a payment of a personal nature, should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo. The impugned prize money was paid to the assessee on a voluntary basis and was purely gratis. 4)Hence, cash award of one lakh received from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and would not be taxable under Income Tax Act. - AROONPURIE V. COMMISSIONER OF INCOME-TAX [2015] 56 taxmann.com 80 (Delhi)

Monday, April 6, 2015

Institute providing coaching to students appearing for competitive exams is eligible for sec. 10(23C) relief


A coaching institute imparting coaching to students for various competitive examinations is eligible for exemption under section 10(23C)(iiiad)

Facts:

a)The assessee-society was registered under section 12A with the object of providing coaching and training to students appearing in competitive examinations.

b)It claimed exemption under Section 10(23C)(iiiad) which was rejected by the Assessing Officer ('AO').

c)The AO opined that assessee-society could not be classified as a charitable institution as it was not created for imparting a systematic education.

d)On appeal, the CIT (A) held that the activities of the assessee were covered under the realm of 'education' and it was eligible for exemption under section 10(23C)(iiiad). The aggrieved-revenue filed the instant appeal before Tribunal

The Tribunal held in thefavour of assessee as under:

1)On examination of the definition of 'charitable purpose' under section 2(15), it is clear that education is one of the activities coming within the meaning of charitable purpose. It is a fact that the Supreme Court in case of Sole Trustee, LokaShikshana Trust v. CIT (1975) 101 ITR 234 observed that 'education' as used in section 2(15) could not be interpreted in a manner to mean that the expression 'education' envisaged under section 2(15) had to be given a restricted meaning and would only mean the education as imparted in schools and colleges.

2)If education was considered to mean training and developing the skill, knowledge, mind and character of students, then the activity of the assessee could be termed to be coming within the expression 'education' as used in section 2(15).

3)The provision contained under section 10(23C)(iiiad) uses the words 'Any University or other Educational Institution' solely for educational purpose and not for the purpose of profit. Thus, if the activities of the assessee' society had to be considered, it would be considered as other educational institution existing solely for educational purpose and without profit motive.

4)Thus, the coaching institute providing coaching to students appearing for competitive exams would be eligible for exemption under section 10(23C)(iiiad). - ADIT V. HYDERABAD STUDY CIRCLE - (2015) 55 taxmann.com 379 (Hyderabad - Trib.)

Saturday, April 4, 2015

Marker and highlighter are 'pens' and exempt under Rajasthan Sales Tax Act, 1994; eraser and carbon paper are stationery and taxable


a)The assessee was engaged in the business of manufacturing (i) Marker or highlighter, (ii) Carbon paper, (iii) Stamp pad and ink of stamp pad (iv) Covert (eraser).

b)The assessing authority held that

a.Marker or highlighter would fall in the category of stationery, liable to be taxed at the rate of 4 per cent.

b.Carbon paper, Stamp pad, ink of stamp pad and Covert (eraser) would fall in the general category and liable to be taxed at the rate of 10 per cent.

c)The first appellate authority held that

a.Marker or highlighter would fall within the definition of a pen and, therefore, no tax was leviable thereon.

b.Other three items would fall within the category of stationery and were liable to be taxed at the rate of 4 per cent/8 per cent. d)The Rajasthan Tax Board sustained the order of the first appellate authority.

e)Revenue argued that marker/highlighter was only for the purpose of highlighting a portion or marking a portion for the benefit of a reader; one could not write words or figures with marker/highlighter as a pen could do and therefore, it could not fall within the category of 'pen'.

High Court held in favour of assessee as under:

1)Earlier, the category for classification of goods under Rajasthan Sales Tax Act, 1994 was 'all types of fountain pens, ball pens and accessories thereof' and afterwards it was exchanged to 'all types of pens including parts and accessories thereof, drawing materials and poster colours'. Therefore, the scope of pen was enlarged and marker or highlighter fell within the meaning of a pen. By highlighter or marker one could certainly write. Though the flow by writing from marker or highlighter might not be to that extent, but it was definitely instrument of writing. The Apex Court in the assessee's own case, titled as Camlin Ltd. v. CCE 2009 (11) VAT 28, observed that the fountain pens, marker pens, croquill lettering pens, sketch pens, etc. were definitely the instruments of writing.

2)The other category was 'all kinds of paper, stationery, greeting/wedding and other printed cards'. Therefore, the other three items, namely, Carbon paper, Stamp pad and ink of stamp pad and Covert (eraser) would fall within the category of stationery. The sales tax enactment was one which touched the common man and his everyday life. Therefore, the terms in the said enactment must be in the manner in which the common man would understand them.

3)In common parlance (i) Carbon paper, (ii) Stamp pad and ink of stamp pad and (iii) Covert (eraser) could certainly be called to be the items of stationery. These items would be available in a stationery shop alone. If one had to purchase such items, one would have to go to a shop of stationery only to get those items rather than from a textile or a grocery shop. Therefore, all these items formed part of stationery items and could not be termed as failing within the general category.

4)In view of the aforesaid, the order of the Tax Board deserved to be upheld - Assistant Commissioner, Anti Evasion, Rajasthan-I v. Camlin Ltd. (2015) 55 taxmann.com 369 (Rajasthan).

Thursday, April 2, 2015

Non-furnishing of PAN by NR doesn't attract higher TDS rate of 20% u/s 206AA if tax rate under DTAA is beneficial


Where payment has been made to non-residents who did not have PAN and tax has been deducted on the strength of the provisions of DTAAs, the provisions of section 206AA could not be invoked by the AO to insist on the tax deduction at 20% having regard to overriding nature of Section 90(2).

Facts:


a)Assessee made payment of royalty and fee for technical services to non-residents after deducting tax at source in accordance with the rates provided under DTAAs.

b)It was noted by the AO that on account of payment of royalty and fee for technical services in case of some of the non-residents, the recipients did not have PANs. As a consequence, AO treated such payments, as cases of 'short deduction' of tax in terms of the provisions of section 206AA of the Income-tax Act (‘the Act’).

c)The AO contended that assessee was under an obligation to deduct tax at higher rate of 20% following the provisions of section 206AA, hence he raised demand relatable to the difference between 20% and the actual tax rate provided under the DTAAs.

d)Onappeal, the CIT(A) deleted the demandas he was of the view that Section 206AA would not be applicable in case of non-residents as the DTAA overrides the Act. The aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)Section 206AAof the Act prescribes that where PAN is not furnished by recipient of income on which tax is deductible the payer would be required to deduct tax at the higher of the following rates:

- At the rate prescribed in the relevant provisions of the Act; or

- At the rate/rates in force; or

- At the rate of 20%

2)Further, Section 90(2) of the Act provides that the provisions of the DTAAs would override the provisions of the Act in cases where the provisions of DTAAs are more beneficial to the assessee.

3)Thus, there could not be any doubt to the proposition that in case of non-residents, tax liability in India is liable to be determined in accordance with the provisions of the Act or the DTAA between India and the relevant country, whichever is more beneficial to the assessee, having regard to the provisions of section 90(2) of the Act.For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation.

4)It would be incorrect to say that though the charging section 4 and section 5 of the Act are subordinate to the principle enshrined in section 90(2) of the Act but the provisions of Chapter XVII-B governing tax deduction at source are not subordinate to section 90(2) of the Act. Notably, section 206AA of the Act is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source.

5)Therefore, where the tax has been deducted on the strength of the beneficial provisions of section DTAAs, the provisions of section 206AA of the Act could not be invoked by the AO to insist on the tax deduction at 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act. -DEPUTY DIRECTOR OF INCOME-TAX V. SERUM INSTITUTE OF INDIA LTD.[2015] 56 taxmann.com 1 (Pune - Trib.)