Section 54F exemption to be allowed on investment even if transaction hasn’t been completed within stipulated time

Assessee would be entitled to benefit under section 54F if he had invested amount of capital gain in purchasing or constructing a residential house, even though transaction was not completed within stipulated period

In the instant case the assessee had sold certain property and claimed exemption from capital gains under section 54F by stating that he had invested the amount in purchase of land and construction of house property. During the assessment, the AO noted that the period of 3 years from the date of sale of that property had expired and that the assessee had neither purchased any residential house nor had completed construction of any residential house as stipulated in section 54F, therefore, assessee was not eligible for deduction under section 54F. The CIT (A) confirmed the action of the AO. Aggrieved assessee filed the instant appeal.

The Tribunal held as under:

1) Provisions contained in section 54F being a beneficial provisions, have to be construed liberally. In various judicial precedents it has been held that the condition precedent for claiming benefit under section 54F is only that the capital gain realized from the sale of capital asset should be invested by assessee either in purchasing or constructing a residential house within the stipulated period;

2) If the assessee had invested the money in construction of residential house, merely because the construction was not complete in all respects and the house was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F;

3) Once the assessee demonstrated that the consideration received on transfer had been invested, even though the transaction was not complete in all respects, he would be entitled to avail of benefit under section 54F;

4) Even though investment made in purchasing a plot of land for the purpose of construction of a residential house had been held to be an investment satisfying the conditions of section 54F, yet the assessee was required to prove the actual date of investment and the amount invested towards purchase or construction of the residential house with supporting evidence;

5) The order of CIT (A) was to be set aside and matter was to be restored to the file of the AO. Thus, ground raised by the assessee was to be allowed - NARASIMHA RAJU RUDRA RAJU V. ACIT 35 taxmann.com 90 (Hyderabad - Trib.)

Service tax refund can't be denied without specifying documents required from assessee

Department cannot deny refund of service tax alleging non-supply of 'requisite documents'; it must specify, in writing, list of documents required, in addition to documents already submitted by assessee

In the instant case the assessee was a service provider to its associates which were located outside India. The assessee wrongly raised invoices on its associates for commission which had to be received from the associates and paid service tax thereon. Later on, on finding that invoice was not to be issued, it issued credit note and filed a claim for refund along with copy of service tax returns, invoices, credit notes, correspondence and challan and a certificate from chartered accountant. Despite all that the refund claim was rejected on the premise that the assessee had not provided the required documents in support of claim of its refund.

The Tribunal remanded the matter with the following observation:

The adjudicating authority must have specified, in writing, list of documents required, apart from documents already submitted by the assessee. Matter was to be remanded back for supply and verification of additional documents required by the adjudicating authority - CMA CGM Global (India) (P.) Ltd. v. Commissioner of Service Tax [2013] 35 taxmann.com 318 (Mumbai - CESTAT)

Failed candidates could endanger lives of PSC interviewer; their personal details out of ambit of RTI Act

Disclosure of names and addresses of members of Interview Board of PSC would ex facie endanger their lives; such disclosure would serve no fruitful public purpose

In the instant case the Bihar Public Service Commission (‘the Commission’) published advertisement to fill up post of 'State Examiner of Questioned Documents in police Laboratory’. The advertisement stated that written examination would be conducted if adequate number of applications were received. Since limited applications were received, selection was done on basis of viva voce test. The respondent filed an application before the Commission seeking information regarding interview conducted for aforesaid post. The Commission furnished all information. However, particulars of members of interview Board were not furnished.  Aggrieved assessee filed the writ in HC which was also dismissed. Assessee challenged the judgment of the learned Single Judge before the Division Bench of that Court which held in favour of assessee.

On appeal, the Supreme Court held as under:

1) The disclosure of names and addresses of the members of the Interview Board would ex facie endanger their lives or physical safety. The possibility of a failed candidate attempting to take revenge from such persons couldn’t be ruled out. Disclosure was likely to expose the members of the interview Board to harm and it would serve no public purpose;

2) Furthermore, the view of the High Court in the judgment under appeal that element of bias could be traced and would be crystallized only if the names and addresses of the interviewers were furnished, was without any substance;

3) The element of bias could hardly be correlated with the disclosure of the names and addresses of the interviewers. The transparency that was expected to be maintained in such process would not take within its ambit the disclosure of the information called for regarding the names and particulars of examiners;

4) Transparency in such cases was relatable to the process where selection was based on collective wisdom and collective marking. Marks were required to be disclosed but disclosure of individual names would hardly be relevant either to the concept of transparency or for proper exercise of the right to information. The judgment of HC was to be set aside and the Commission was not bound to disclose the information asked for by the applicant - Bihar Public Service Commission v. Saiyed Hussain Abbas Rizwi [2013] 35 taxmann.com 333 (SC)

ESOPs from foreign employer are taxable in India if these relate to services rendered by employee in India

In case of an assessee, being an employee of a foreign company, only such proportion of ESOP is taxable which relates to service rendered by such assessee in India

In the instant case the assessee, an employee of foreign company, had exercised ESOPs while on his assignment in India. He, therefore, offered to tax the amount of proportionate ESOP earned in India, i.e., proportionate to the number of days of his assignment in India. However, the AO while framing the assessment brought to tax the entire amount of perquisite on account of stock options. On appeal, the CIT (A) allowed assessee's appeal. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The principle laid down by the Delhi 'I' Bench in the case of Asstt. CIT v. Ellin 'D' Rozario [IT Appeal No. 2918 (Delhi) of 2005, dated 5-12-2008] was that only proportionate salary would be taxable in India, if a part of activity done by the assessee had no relation to any India-specific job or activity;

2) In the instant case, it was not in dispute that the assessee was in India only for a short period and prior to it, he had not done any service connected with any activity in India;

3) As the assessee had not rendered service in India for the whole grant period, applying the proposition laid down (supra), only such proportion of the ESOP would be taxable in India as related to the service rendered by the assessee in India. - ACIT v. Robert Arthur Keltz [2013] 35 taxmann.com 424 (Delhi - Trib.)

Income of Indian branch computed on basis of commercial activities rendered by it to its foreign HO

For determining the total income of an Indian branch receipt arising on account of commercial services rendered by it to American head office to be considered

The Tribunal held as under:

1) Article 7(3) of the India-US DTAA is in two parts. The first part of the Article relates to the activity carried on by the branch office which is commercial in nature whereas the second part relates to the activities which are not commercial in nature and relates to specific services performed by the branch office;

2) The assessee contented that it was rendering services covered by second part and, hence, the income arising on account of such specific services couldn’t be considered for determining its total income;

3) The services performed by the branch office was on account of outsourcing of commercial activities by its head office and, therefore, income arising out of such services rendered would be taxable under article 7(3) of India-USA DTAA, whereas if some non-commercial activities were specifically assigned by the head office to its branch office, then income arising out of such activity would not be taxable;

4) The branch office was involved in the customer care and medical transcription services. Thus, it was very clear that the branch office was also rendering services of commercial nature which had been outsourced by the head office;

5) After going through the order of the CIT (A), it was quite obvious that the assessee was only carrying out the normal commercial activities of the head office, in USA, i.e., a part of medical transcription work and software development. The assessee hadn’t established the fact that the activities carried on by it were non-commercial and in the nature of specific services as per the instruction of the head office. There was no infirmity in the order of the CIT (A) in holding that the income earned by the assessee from the activities carried on by it was taxable in India - Wellinx Inc. v. ADIT (International taxation) [2013] 35 taxmann.com 420 (Hyderabad - Trib.)

Pre-payment charges for closure of housing loan are eligible for section 24 deduction

Prepayment charges for closure of loan account which was taken for acquisition of property are allowable under section 24(b)

In the instant case during the assessment, the AO disallowed the assessee's claim for deduction of prepayment charges on closure of housing loan. Further, the CIT (A) upheld the disallowance. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The definition of interest under section 2(28A) makes it clear that it has basically two components, firstly, the amount of interest for moneys borrowed and secondly, the amount paid by whatever name called in respect of the money borrowed or debt incurred;

2) The second category might also encompass any charges paid for not utilizing the credit facility. By incorporating the definition of 'interest' in section 24(b), the position that emerges is that not only the amount paid as interest but also any other amount paid, by whatever name, called, in relation to such debt incurred also qualifies for deduction;

3) By early repayment, the assessee managed to wipe out its interest liability in respect of the loan, which would have otherwise qualified for deduction under section 24(b) during the continuation of loan;

4) It was obvious that these prepayments had live and direct link with the obtaining of loan which was availed for acquisition of property. It was beyond comprehension as to how the amount paid as interest on the loan taken was allowable as deduction but the amount paid as prepayment charges of the very same loan was not deductible;

5) The payment of such 'prepayment charges' couldn’t be considered as de hors the loan obtained for acquisition or construction or repair, etc., of the property on which interest was deductible under section 24(b). Both, the direct interest and prepayment charges, were species of the term 'interest'. Therefore, the impugned order of CIT(A) was to be set aside and deduction claimed by the assessee was to be granted - Windermere Properties (P.) Ltd. v. Dy. CIT [2013] 34 taxmann.com 109 (Mumbai - Trib.)

Special audit can be directed without providing an opportunity of personal hearing to assessee

Proviso to section 142(2A) does not envisage any personal hearing to assessee before an order under sub-section (2A) can be passed

In the instant case the assessee-company was opposed to the proposal of special audit on the ground that there were no complexities in the accounts and contented that proviso to section 142 (2A) provides an opportunity of personal hearing to assessee.

The HC held as under:

1) The requirement of personal hearing is normally not seen as necessary concomitant to a reasonable opportunity of being heard. The same depends on the statutory provisions from which such right flows, the nature of the proceedings and the consequences likely to follow from such proceedings;

2) The proviso to section 142(2A) does not envisage any personal hearing before an order under sub-section (2A) can be passed. The said proviso only requires giving a reasonable opportunity of being heard to the assessee. Such reasonable opportunity ordinarily would not include right of personal hearing;

3) It was strongly argued by assessee that the very fact that the AO believed that the accounts were complex, it meant that the issues were complex and the personal hearing was required. This contention was misconceived. Complexity of accounts and complexity of the question whether accounts were complex or not were two totally different things;

4) Thus, a clear distinction had to be drawn between the two. Whether the accounts were complex so as to call for special audit was one aspect. Another aspect was whether the question to ascertain if the accounts were complex was itself a complex question. This would have a bearing on whether personal hearing was necessary. Thus, assessee’s contention of personal hearing was rejected;

5) Coming to the question of validity of the order on the premise of complexity and the requirement of interest of revenue, it was noticed that the assessee had been given previous notice under section 142(1) with respect to its accounts. For a long time the assessee did not comply with such notices;

6) The authorities had highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report was obtained. The various points on which the AO desired that the auditor should make a report itself would demonstrate that the accounts were complex;

7) The AO had sufficient material at his command to form an opinion that the accounts were complex and that it was in the interest of the revenue to get them audited by the special auditor. Thus, there was no merit in instant petition and the same was to be dismissed. - Neesa Leisure Ltd. v. Dy. CIT [2013] 35 taxmann.com 216 (Gujarat)

HC presumes existence of culpable mind in not filing return within time; confirms prosecution

Where assessee had not filed return of income timely, it could be prosecuted under section 276CC on presumption that there existed a culpable mental state as onus to prove that delay was not willful was on assessee and not on department

In the instant case, the assessee had filed the return of income on 1-5-1995 for assessment year 1994-95. The revenue's case was that inspite of several notices issued to assessee, she had filed the return of income beyond the statutory period. Therefore, delay in filing return was wilful and deliberate and, thus, she was liable to be prosecuted and punished under section 276CC. However, the trial Court and the Sessions Court discharged the assessee. The revenue then filed the petition seeking reversal of orders of both the Courts.

The High Court held as under:

1) It was not in dispute that the assessee had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the revenue had required her to do so. The assessee had not even responded to the communications sent by the revenue requiring her to file return of income or to show the proof of filing. So, the offence under Section 276CC stood committed by that time and for that offence, the department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court;

2) It was for the respondent to establish during the trial that her failure to file return was not willful. The Courts went wrong in going into the question as to whether the explanation offered by the assessee before the filing of the complaint in Court was rightly rejected or not;

3) Once the complaint stood filed, the trial Court was only required to examine whether cognizance was to be taken or not and if it was decided to take cognizance, thereafter, trail Court was required to examine whether in the pre-charge evidence the complainant had been able to show that the assessee had not filed her return for the relevant assessment year within the prescribed period, which fact in the present case was not even disputed by the assessee;

4) So, after raising the presumption under section 278E, the trial Court should have framed the charge against the assessee leaving it to her to show thereafter that there was no willful default on her part. Just because the assessee had applied for the compounding of the offence before the filing of the complaint against her in Court, and the same had not been decided before the filing of the complaint, it could not be said that the complaint was not maintainable;

5) The trial Court was not required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority for compounding, she would have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department;

6) The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trail Court and, therefore, its order also couldn’t be sustained. This petition, accordingly, was allowed. The impugned orders of the trial Court and the revisional Court were set aside – ACIT v. Nilofar Currimbhoy [2013] 35 taxmann.com 99 (Delhi)

Due date under sec. 36(1)(va) for payment of employee’s contribution to PF is same as contemplated under section 43B

Employee's contribution towards Provident Fund if paid before due date of filing return is allowable under section 36(1)(va) to employer-assessee
In the instant case the AO had disallowed the payment made by the assessee to the Provident Fund Authority on account of employee's contribution towards Provident Fund since there was delay in payment.  On appeal, the CIT (A) held that since the money had already been paid by the assessee and was no longer in the hands of assessee it could not be taken as income. Further, the Tribunal confirmed the decision of CIT (A). Aggrieved revenue filed the instant appeal.

The HC held in favour of assessee as under:

1) Any sum received by the assessee from his employees towards contributions to the Provident Fund is the income of the assessee, however, section 36(1)(va) allows deduction if contribution thus received is deposited on or before the due date;

2) The due date referred to in section 36(1)(va) is to be read in conjunction with section 43B(b) and a reading of the same would make it amply clear that the due date as mentioned in section 36(1)(va), is the due date as mentioned in section 43B(b), i.e., payment or contribution made to the Provident Fund Authority before the filing the return for the year in which the liability to pay has accrued;

3) The AO proceeded on the basis that 'due date', as mentioned in section 36(1)(va) was the due date fixed by the Provident Fund Authority, whereas he was required to take note of section 43B(b).  By not taking note of the provisions contained therein, he committed gross error, which had been rectified by the appellate authority and confirmed by the Tribunal. So, there was no scope of interference in the order of the Tribunal – CIT v. Kichha Sugar Co. Ltd [2013] 35 taxmann.com 54 (Uttarakhand)

AAR can only determine tax liability of an applicant and not any of its affiliates or AOP

It would be impermissible for the authority (‘AAR’) to determine tax liability of person other than the applicant

Facts

The applicant, a foreign company, formed a consortium with an Indian company to execute a project (i.e., ‘contract’) in India. The contract was awarded to the consortium. Under the contract, the applicant was responsible for offshore supplies, offshore services and the Indian company was responsible for onshore supplies, construction and erection. The applicant approached the AAR to determine the taxability of income receivable from offshore supplies made to Indian company. The AAR ruled that the applicant’s income from offshore supplies would not be taxable in India in view of the Supreme Court’s decision in Ishikawajima. Revenue filed an application for rectification of apparent mistake as the contract was awarded to consortium (AOP) and not to applicant, thus, ruling of AAR that applicant was not liable to be taxed was inconsistent with the finding that AOP was the assessing unit. The AAR allowed the rectification application of revenue and posted the application for main hearing as to whether AOP could be liable to be taxed in respect of offshore supplies?

Held

Section 245N of the Act doesn't permit AAR to rule on tax liability of a person other than the applicant. The AAR couldn’t give a ruling that the applicant was not liable to be taxed and somebody else would be liable to be taxed.  The proposed question framed by AAR for determination could only relate to applicant's tax liability. It would be impermissible for AAR to determine tax liability of person other than the applicant (i.e., AOP) - CTCI Overseas Corporation Ltd., In re [2013] 35 taxmann.com 391 (AAR - New Delhi)