Friday, February 10, 2017

HC orders winding-up of United Breweries on its failure to discharge dues of Kingfisher Airlines

United Breweries Holding Limited (UBHL) has failed to discharge its admitted liability towards creditors of Kingfisher Airlines as UBHL had given corporate guarantee against financial obligation of Kingfisher Airlines. For recovering dues from Kingfisher Airlines, the lenders have filed winding up petition against UBHL. Since, UBHL has failed to discharge its contractual obligation executed under Guarantee agreement in favor of the petitioner, the Karnataka High Court orders winding up of UBHL Company. - [2017] 78 80 (Karnataka)

Apex Court attaches Aamby Valley properties of Sahara

The Supreme Court was convinced that Aamby Valley properties of Sahara would be sufficient for realization of dues to SEBI. Thus, it has ordered attachment of such property. Further, the Apex Court has directed Sahara to furnish a list of properties which would be free from litigation and mortgage so that they could be put to public auction. - [2017] 78 38 (SC)

Transfer of case on restructuring of dept. would be valid even if hearing chance isn't given to assessee


a) The assessee was intimated that jurisdiction of the assessee's case pending with the Income tax department had been transferred from Rourkella to Sambalpur.

b) Assessee challenged orders before the High Court on the ground that his jurisdiction was changed without providing an opportunity of being heard and without assigning any reason. High Court held in favour of revenue as under:

1) There is no denial of the fact that if any decision is taken, which is detrimental to the interest of the parties, a notice is required to be given on the principle that no man can be condemned without hearing him.

2) The underlying motive is to provide an opportunity to know the reasons behind taking the decision of transfer.

3) Restructuring of the department was done for equitable distribution of work and, as such, the order passed by the authorities was for administrative convenience.

4) In the given case, even if the assessee would have been provided an opportunity of being heard before taking the decision, no material change would have come.

5) Further, it was not that the case of the assessee herein had only been transferred but the cases of other assessees had also been transferred.

6) Therefore, transfer of case on restructuring of department would be valid even if hearing chance wasn't given to assessee - [2017] 77 321 (Orissa)

No sec. 43B disallowance on tenant due to non-payment of service-tax on rental payment


a) Assessee-company was running trading business from rented premises and it was paying gross rent (inclusive of service tax) to the landlord.

b) Assessing officer (AO) allowed assessee's claim of payment of rent as deduction. Later on, commissioner passed revisional order to invoke section 43B disallowance as there was default in payment of service tax portion on rental payments.

c) Aggrieved-assessee filed instant appeal before Tribunal.

Tribunal held in favour of assessee as under:

1) Liability to pay the service tax component to landlord was a contractual obligation between the assessee and landlord, whereas to remit the same to the government was a statutory on the part of the landlord.

2) It was the statutory liability of the landlord to pay the service tax to the state. The liability between the assessee (being tenant) and landlord was only a contractual liability for which section 43B would not be application at all.

3) Hence, if section 43B had to be invoked, it had to be invoked only against the landlord, and the non-payment of such component of service tax to the landlord by the assessee was immune from the operation of section 43B. - [2017] 77 324 (Kolkata - Trib.)

Rs. 31 lakhs incurred by Parthiv Patel is deductible if it has nexus with his cricketing income: ITAT

a) Parthiv Patel claimed various expenses under the head business development, office, salary, office rent, other interests, petrol expenses, etc., against income earned from playing cricket.

b) Assessing Officer (AO) declined above expenditure on the ground that since assessee had been deriving match fee and retainerships from various cricket bodies, such expenditure was not attributable to his business or profession.

c) AO was of the view that playing cricket is not akin to a trading or manufacturing or any service activity. Thus, he concluded that such expenditure was not attributable to any business or profession so as to be termed as business expenditure.

Tribunal held in favour of assessee as under:

1) Neither AO nor Commissioner (Appeals) had sought to establish a direct nexus between assessees professional income from playing cricket along with his expenditure in question claimed u/s 37 of the Act.

2) The learned CIT(A) has merely drawn his conclusions qua genuineness aspect instead of establishing the above stated nexus between each head of expenditure vis-à-vis assessee's taxable income.

3) The issue related to disallowance of expenses requires AO’s re-adjudication in accordance with law a􀁺er a􀁹ording adequate opportunity of hearing to the assessee so as to prove the direct nexus with income earned.

4) Therefore, expenses incurred by assessee is deductible against cricketing income if it has nexus with such income. - [2017] 78 4 (Ahmedabad - Trib.)

Fee for Delayed Filing of Return

Income Tax Act, 1961 specifies different due dates for furnishing of return of income by various assessees. If an assessee fails to file its return within the prescribed due date, it has to face the various consequences prescribed in the Income Tax Act, e.g., payment of interest under sections 234A, 234B, 234C, denial of carryover of loss and deductions, etc. One of the consequences is a penalty imposable under section 271F The Finance Bill, 2017 proposes that in case of delay in furnishing of return of income, assessee shall also be liable to pay fee for delay in furnishing of return of income along with the tax and interest payable, if any.

Download “Guide to Budget 2017”

The Finance Minister, Mr. Arun Jaitley, yesterday presented his 4th Union Budget in the parliament. As expected major announcements have been made in this Union Budget 2017. Post-demonetization, taxpayers waited with bated breath for this Union Budget 2017. ‘Taxmann’ has deciphered the fine prints of Union Budget 2017-18 in its e-booklet. All the key proposals in the Union Budget 2017-18 has been legally analyzed in e-booklet titled “Guide to Budget 2017”

18 lakh taxpayers identified by tax dept. to scrutinize huge cash deposits

The Income Tax Department (ITD) has initiated operation clean money. Initial phase of the operation involves e-verification of large cash deposits made during 9th November to 30th December 2016. In the first batch, around 18 lakh persons have been identified in whose case, cash transactions do not appear to be in line with the tax payer’s profile.

ITD has enabled online verification of these transactions to reduce compliance cost for the taxpayers while optimising its resources. The information in respect of these cases is being made available in the e-filing window of the PAN holder (after log in) at the portal The PAN holder can view the information using the link “Cash Transactions 2016” under “Compliance” section of the portal. The taxpayer will be able to submit online explanation without any need to visit Income Tax office.

Compensation paid for using pirated so􀁺ware isn't in nature of penalty; allowable as business exp


a) Assessee was using pirated version of Microsoft software. This resulted in violation of Copyright Act and loss of business of Microsoft Corporation. Microsoft filed civil suit against assessee.

b) The suit was settled in lieu of payment of compensation to Microsoft Corporation and assessee debited the compensation amount as business expenditure.

c) Assessing Officer (AO) rejected such claim stating that expenditure was incurred in violation of Copyright Act thus, explanation to section 37(1) would be attracted.

d) The Commissioner (Appeals) affirmed the order of the AO. Aggrieved-assessee filed instant appeal before Tribunal.

The Tribunal held in favour of assessee as Under:

1) Use of pirated software by the assessee which is the property of Microsoft Corporation admittedly, resulted in loss of business of Microsoft Corporation.

2) There was compromise entered into between the parties for payment of compensation for loss of business and also covering the cost of litigation.

3) The question which arises before the Tribunal was whether the payment made pursuant to the said compromise was for infraction of law or whether it was wholly and exclusively incurred for the purpose of business.

4) The amount which had been agreed to be paid to Microsoft Corporation was on account of contractual liability and was not the case of payment of any penalty.

5) Payment of penalty could not arise when there was an understanding between two private parties. As far as payment which is prohibited by law is concerned, then the same refers to speed money, hafta money, etc., but the same is not to be applied in cases where one party agreed to compensate the other party for loss of its business

6) Since, impugned amount paid to Microsoft was not penalty but it was on account of contractual liability, same would be allowed as business expenditure. [2017] 77 284 (Pune - Trib.)

Sachin Tendulkar gets favourable ruling from ITAT in capital gain tax case

a) During the course of assessment proceedings it was noted by the AO that the Sachin Tendulkar (assessee) had shown capital gains in its return of income.

b) It was noted by AO that Sachin had engaged the services of Portfolio Managers to carry out the transactions of the sale-purchase of shares for which huge amount of PMS charges of Rs.52 lacs were paid. According to the AO, it was not an ordinary thing for a normal investor.

c) Thus, AO issued show cause notice to the Sachin asking him to explain as to why profits on sale of shares/unit should not be treated as 'business income' as against the 'capital gains' as claimed by the Sachin in the return of income.

d) The AO treated such gains as business income. However, the CIT(A) reversed order of AO. The aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held as under:

1. The assessee had always disclosed amounts invested in shares under the head investments. Moreover, in view of CBDT Circular No. 6 of 2016 dated 29-2-2016 and Circular No.4 of 2007 dated 15-6-2007, the initial choice of characterization of share portfolio as investment or stock in trade was with assessee and the assessee had exercised its choice and kept the same as part of investments.

2. The Assessing Officer did not have liberty under the law to thrust his opinion upon the assessee, so long as the assessee followed his choice on consistent basis. Thus, income on sale of shares and mutual funds was to be taxable under head capital gains and not business income. - [2017] 77 305 (Mumbai - Trib.)

Investment can be made out of advance received under sale agreement for sec. 54EC relief


1) The assessee entered into an agreement to sell a property on 21-2-2006. The final sale took place under a sale deed dated 5-4-2007. The assessee had invested an amount of Rs. 50 lakhs from the advance received under the agreement to sale in the Rural Electrification Corporation Ltd. bonds on 2-2-2007.

2) The Assessing Officer as well as the Commissioner (Appeals) held that the assessee was not entitled to the benefit of section 54EC as the amount was invested in the bonds prior to the sale of the subject property on 5-4-2007.

3) The Tribunal, however, held that even when an assessee made investment in bonds as required under section 54EC on receipt of advance as per the agreement to sell, still it was entitled to claim the benefit of section 54EC.

The High Court held as under:

a) The sale deed dated 5-4-2007 records the fact that the agreement to sale had been entered into on 21-2-2006 in respect of the subject property and the amount being received by the assesse under that agreement to sale. Thus, these amounts when received as advance under an agreement to sale of a capital asset, is invested in specified bonds, the benefit of section 54EC is available.

b) The impugned order passed by the Tribunal does not give rise to any substantial question of law. Hence, exemption couldn’t be denied to assessee - [2017] 77 226 (Bombay)

Only capital gains will arise on sale of unlisted shares by certain AIFs: CBDT

SEBI has categorized alternative investment funds into 3 categories, viz., Category I AIF, Category II AIF and Category III AIF, which cover Venture Capital Fund/Venture Capital Company, Private equity funds, Debts funds, etc.

CBDT vide order dated 02.05.2016 in F.No. 225/12/2016/ITA.II had issued order in which it has been directed that the income arising from transfer of unlisted shares would be taxable under the head ‘Capital Gain’, irrespective of period of holding, with a view to avoid disputes/litigation on characterization of income from sale of unlisted shares However, the said order provided exception in those case where transfer of unlisted shares is made along with the control and management of underlying business of AIFs. In this case, Assessing Officer (AO) has given power to take appropriate view to tax transfer of unlisted shares.

Now CBDT has issue direction to remove such exception primarily for SEBI registered Category I & II AIFs. Therefore, sale of unlisted shares by SEBI registered Category I & II AIFs shall only be subject to capital gain tax without any exception.

Payment made for administrative services couldn't be held as 'FTS' under India-UK treaty

a) The appellant, UK based company, was awarded a contract by IOCL for rendering construction support services, procurement services and engineering design services in connection with a refinery located in India.

b) It availed of various support services such as account receivable, human resources, and payroll management, tax support and administrative support, etc., from its sister concern FWEL.

c) Department took the stand that the payments for FWEL services were in the nature of fees for technical services (FTS) by relying on invoices issued to FWEL which describe the category of services as 'consulting engineering services'.

d) Department further pointed out that it was admitted by the applicant that the persons whose names appear in the time-sheets was in fact engineers which further buttresses the department's stand that the services rendered were in the nature of engineering services which would be technical in nature satisfying the 'make available' clause of the India-UK DTAA.

e) Aggrieved by the order of AO, applicant raised this issue before the Authority for Advance Rulings (AAR).

Authority for Advance Rulings held in favour of applicant as under:-

1) Affidavit given by the applicant clarified that the reference to time spent by engineers in the sample invoice were its own engineers deputed in India Project Office and not any engineers of FWEL, and hence no engineering services were rendered by FWEL.

2) Mere mention of 'engineering services' on the invoice cannot satisfy 'make available' clause.

3) Services rendered by third parties and FWEL were administrative support services rendered from abroad and were in the nature of 'managerial services'. Such services did not make available any technical skill, information or knowledge to the employees of applicant deputed in the India Project Office.[2017] 77 205 (AAR - New Delhi)