No sec. 80G approval to trust created for benefit of Hindu community even if religious exp. was less than 5%

Where assessee-trust was established with objects of religious nature for benefit of a particular community, it could not be granted approval under section 80G(5) merely because expenditure incurred by trust on religious activities was less than 5 per cent of its total income.
Facts:
a)The assessee-trust moved an application before the Commissioner for approval under section 80G(5).

b)The Commissioner noticed that the dominant objects of the assessee-trust were for the benefit of Hindu Community only and were purely religious in nature. It was, therefore, opined that these objects contravened the provisions of section 80G(5). c)Accordingly, the Commissioner rejected the application of assessee-trust on the ground that assessee-trust was not established for charitable purpose. The Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue:
1)The provisions for grant of approval under section 80G(5) apply to donations to any institution or fund only if it fulfills certain conditions mentioned therein. One of the conditions prescribed by section 80G is that the assessee-trust should be established for charitable purpose only and the institution or fund is not for the benefit of any particular religious community or caste;

2)The assessee pleaded that since the expenditure incurred by it on religious activities was less than 5 per cent of the total income, it would be given benefit of section 80G(5B). However, the benefit of section 80G(5B) is provided to that trust which is established for charitable purpose only and it incurs expenditure on religious activities not exceeding 5 per cent of its total income;

3)In the instant case, the Commissioner on going through the dominant objects of the assessee-trust had specifically held that they were religious in nature and for the benefit of Hindu Community;

4)Thus, as the assessee had failed to satisfy the conditions of section 80G(5), it was not entitled to approval under the section 80G. – YUG CHETNA PARMARTH TRUST V. CIT [2014] 44 taxmann.com 446 (Agra - Trib.)

Sec. 194-I applicable if vehicle hired for employee is at his disposal; Chauffeur cost covered under sec. 194C

Hiring of vehicle and at disposal of employee shall be subject to Section 194-I. A reasonable sum towards chauffeur and fuel charges are to be deducted from composite sum and the balance amount would fall under Section 194-I.

Facts:

The issue before the Tribunal was:
Whether payment for hiring of vehicle (including chauffeur and fuel cost) for a designated person or class of persons, for a particular time, would fall under section 194C or under section 194J for the purpose of deduction of tax at source?

The Tribunal held as under:
1)Where payment was made for solitary transaction of hiring of vehicle or where a pick and drop facility was provided, it would clearly fall under Section 194C as payment was made for a specified work.

2)In this case, the arrangement was for making available cars for a designated person or class of person for a particular time, which was at the disposal of the employee.

3)As the arrangement also included services of a chauffeur and the fuel cost of transportation. The same could not by any means be considered as towards car rental.

4)Therefore, after deduction of a reasonable amount towards chauffeur and fuel charges, the balance amount would fall under section 194-I.

5)As it was a finding of fact, AO was directed to decide the case after due verification and after giving reasonable opportunity to assessee. – ITO v. Bharat Sanchar Nigam Ltd. [2014] 45 taxmann.com 124 (Mumbai - Trib.)

Subsidy provided by Govt. to theater owners in form of entertainment tax was capital receipt

Facts: a)The assessee was running a cinema hall. It had shown certain receipts, which included entertainment tax.

b)In the profit and loss account, the assessee had transferred a part of receipts to entertainment subsidy account and claimed it as exempt from tax being in the nature of capital receipts. The Assessing Officer treated said receipt as income of assessee.

c)The CIT (A), however, deleted the entire addition by treating the entertainment subsidy as a capital receipt. The Tribunal upheld the order of the CIT (A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under: 1)In the instant case, it was apparent that the State Government proceeded to exempt entertainment tax for a period of 5 years payable by a "new" cinema hall; subject to the condition that commercial exhibition of films in such cinema hall was required to be started by 31-3-2000.

2)Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be considered to be other than that of promoting construction of new cinema hall.

3)The submission that once the assessee had collected the entertainment tax and had not deposited the same with the Government, it was to be treated as revenue receipt remained devoid of substance.

4)The remission by the Government had been to the proprietor of the entertainment and not to the person admitted to the entertainment. The remission had been the methodology adopted by the State Government to provide assistance to the new cinema hall; and had been essentially in the nature of a subsidy, i.e., the assistance from the Government to the new cinema hall. Thus, the entertainment subsidy was to be treated as capital receipts. – CIT V. SAMTA CHAVIGARH [2014] 44 taxmann.com 337 (Rajasthan)

Sum paid to acquire rights of telecasting from outside India, in absence of its link with PE in India, wasn’t royalty

Sum paid to acquire rights of telecasting from outside India had no connection with the marketing activities carried out through Permanent Establishment ('PE') of assessee in India. Thus, impugned payments couldn't be deemed as royalty in view of Article 12(7) of India-Singapore DTAA.
Facts:
a)The assessee, a Singaporean company, was engaged in the business of acquiring rights in television programmes and exhibiting the same on its television channels from Singapore.
b)The issues for consideration before High Court were:
i.Whether the payment to G (a Singaporean Company)for acquisition of telecasting rights were in the nature of 'royalty' covered by Explanation 2 to section 9(1)(vi)(c)?
ii.Even if payments would be deemed as royalty, whether they would not be chargeable to tax as per Article 12(7) of India-Singapore DTAA?
The High Court held as under:
1)The appellate authorities had already held that payment was made only for broadcasting operations carried out from Singapore, which had no connection with the marketing activities carried out through alleged Permanent Establishment ('PE') of assessee in India;
2)Thus, there was no economic link between the payments. The payer was not a resident of India and the liability to pay royalty had not been incurred in connection with and was not borne out by the PE of the payer in India
3)The absence of economic link was thus the foundation on which the Tribunal's conclusions were based. Thus, the Appeal was to be dismissed as no substantial question of law was involved. – DIT (INTERNATIONAL TAXATION) V. SET SATELLITE (SINGAPORE) PTE LTD. [2014] 45 taxmann.com 100 (Bombay)

SEBI is empowered to monitor call records of any person against whom any enquiry or investigation is pending

SEBI is authorized to call for call data records from telecom service providers. However, such power can only be exercised it in respect of a person against whom an authorized officer conducts any investigation or enquiry. Facts: a)The petitioner, Indian Council of Investor, filed the instant PIL alleging violation of fundamental right of privacy by SEBI as it had intercepted and monitored calls and called for Call Data Records (CDRs) from Telecom Service providers (TSP). b)The petitioner further stated SEBI was prohibited from calling for any records such as CDRs from any TSP in view of Section 5 (2) of the Indian Telegraph Act, 1885. The SEBI denied allegation made against it on ground that it had only called for data that was already available in the records of the telecom providers. c)The respondent stated that Section 5 (2) of the Indian Telegraph Act, 1885 has no application in respect of calling for CDRs from TSP as the provision only applies to intercepting call and, or prohibiting call/messages. The High Court held as under: 1)SEBI is authorized under SEBI Act to call for CDRs from TSP. However, this power is capable of misuse and can violate a citizen's right to privacy guaranteed by Article 21 of the Constitution. 2)SEBI cannot exercise such power for conducting a fishing enquiry. It cannot be a blanket power to hunt out information without any pending inquiry or investigation. This power can only be exercised by SEBI in respect of any person against whom any investigation or enquiry is being conducted. 3)Only an officer duly authorized by SEBI can call for information about CDRs from TSP. Thus, the instant PIL was disposed of- INDIAN COUNCIL OF INVESTORS V. UNION OF INDIA [2014] 45 taxmann.com 45 (Bombay)

Assessee can’t either seek withdrawal of appeal or file revision petition when appeal is pending before CIT(A)

Where an application is filed, seeking withdrawal of appeal, but no order is passed by CIT(A), appeal will remain pending and subsequent revision petition will not be maintainable. Facts: a) Scrutiny assessment was made on assessee. Thereafter, he had filed an appeal before the CIT(A). Subsequently, the assessee sent an application by post seeking withdrawal of his appeal. The application was received by the CIT(A). Thereafter, the assessee preferred revision of assessment order stating that he had already waived of his right of appeal. b) The Commissioner allowed revision by deleting part of the addition made during assessment. When a notice was issued for hearing before the CIT(A), the assessee did not appear. He sought adjournment but the CIT (A) declined the same. The CIT(A) rejected the withdrawal application of assessee. c) Further, the CIT (A) confirmed the assessment. Subsequently, the Commissioner also passed order cancelling/revoking his earlier revisional order. The aggrieved-assessee filed the instant writ. The High Court held as under: 1) There is no provision in Income-tax Act, which permits withdrawal of an appeal, once it is filed. Once party exhausts right of appeal, and the appeal is filed before appropriate appellate authority, who after receiving the same has registered it, then there is no provision in the statute permitting withdrawal thereof; 2) Mere filing of an application seeking withdrawal of appeal would not mean a deemed withdrawn unless an order is passed by appellate authority thereon. The appeal continues to remain pending even when the assessee files the application for withdrawal of an appeal; 3) The assesseee’s appeal was pending before the CIT(A) when the revision application was filed by him or when the Commissioner passed an order on revision petition. Hence, the revisional authority was barred from revising order of assessing authority by virtue of sub-section (4) of section 264; 4) Clause (a) of section 264(4) provides for a situation where assessee has not waived of his right of appeal. When appeal was filed, the right of appeal was availed of and exhausted by assessee, hence, question of waiver of right of appeal thereafter would not arise. 5) Thus, the Commissioner had committed a manifest error in exercising revisional power when assessee's appeal was pending before the CIT (A). That being so, it had rightly been recalled. Thus, the writ petition was to be dismissed. - YOGENDRA PRASAD SANTOSH KUMAR V. CIT [2014] 44 taxmann.com 299 (Allahabad)

Courtyard of residential unit isn’t includible in built-up area to determine sec. 80-IB(10) relief, rules HC Area of courtyard appurtenant to residential unit is not to be included to compute built-up area in terms of section 80-IB(10)

The High Court held in favour of assessee as under: 1) Section 80-IB(14)(a) prescribes that in order to avail of the deduction, the built-up area of the residential unit cannot exceed 1500 square feet. In order to be treated as a 'built -up area' some construction has to be in existence in such area. 2) Unless and until it is shown that some construction is there, the area of the courtyard which is open to the sky, cannot be included to compute the built-up area. 3) The meaning of a courtyard in the Legal dictionary, inter alia, signifies a space of land around a dwelling house which might be enclosed, appurtenant to which buildings and structures may be erected; 4) Thus, area of courtyard could not be included to calculate the built-up area in terms of section 80-IB(10). The Tribunal had misconstrued the provisions of Act and the material on record to deny the benefit of deduction to the assessee in terms of section 80-IB(10). - COMMONWEALTH DEVELOPERS V. ACIT [2014] 44 taxmann.com 303 (Bombay)

ITAT raps revenue for invoking sec. 40(b) by treating only those partners as working who were entitled to salary

Facts:

a)  The assessee firm had four partners. In terms of the partnership deed, salary was being paid only to three partners. However, bonus was paid to all the four partners.

b)  The Assessing Officer opined that when only three partners were drawing salary, only they could be treated as the working partners. Hence, the Assessing Officer disallowed the bonus paid to fourth partner.

c)  The CIT(A) confirmed said disallowance.

The Tribunal held in favour of assessee as under:

1)  It was not disputed that all the four partners were actively engaged in the conduct of the business of the firm and, thus, they were the working partners. The provisions contained under section 40(b) provide that any remuneration by whatever name called, shall not be allowable if such payment is not made to a working partner. Secondly, such payment is not found to be authorized by or is not found to be in accordance with the terms of the partnership deed;

2)  In the instant case, the partnership deed authorized payment of salary to three partners whereas payment of bonus was allowed to all the four partners. Thus, all the conditions provided under section 40(b) stand fulfilled. The interpretation by the AO and the ld. CIT(A) that only those partners who were paid the salary were working partners and not the others, was a complete misreading of the provision;

3)  It was decision taken by the partners by mutual consent that out of all the four partners, salary would be payable to only three partners whereas bonus shall payable to all the four partners, in which the law does not permit interference by the revenue.

4)  The CIT (A) had wrongly interpreted section40(b)(v) while holding that the definition of 'working partners' was meant only for section 40(b)(v). The Explanation 4 below section 40(b) clearly reads that for the purpose of this clause which meat clause (b) to section 40. Thus, the disallowance under section 40(b) was to be deleted. - Id. Mohd. Nizamuddin v. ACIT [2014] 44 taxmann.com 213 (Jaipur - Trib.)

Successor Co-op. Societies can’t claim set-off losses of amalgamating societies; Sec. 72A meant for Cos. only

IT:Section 72A provides for setting off losses on amalgamation of companies only. There is no provision in the Income-tax Act, which would permit the amalgamating co-operative society to carry forward and adjust such losses against the profits of the amalgamated co-operative society.

Facts:

The instant appeal was filed before the Supreme Court on following issue:

Whether the amalgamated society could claim the set-off of losses of amalgamating co-operative societies with its profits?

The Supreme Court held in favour of revenue as under:

1)  A non-existent person cannot file an income-tax return and, therefore, cannot carry forward its losses after its existence ends. Societies, upon their amalgamation into the appellant society, had ceased to exist. Thus, those societies had no right under the provisions of the Act to file a return to get their earlier losses adjusted against the income of a different legal personality, i.e., the appellant-society.

2)  There is a specific provision in the Act that upon amalgamation of one company with another, losses of the amalgamating companies can be carried forward and the amalgamated company can get those losses set off against its profits. This is permissible by virtue of Section 72 A of the Act but there is no such provision in the case of co-operative societies.

3)  Such a provision has been made only with regard to amalgamation of companies and later on similar provisions were made with regard to banks, etc., but at the relevant time, there was no such provision, which would permit the amalgamating co-operative society to carryforward and adjust such losses against the profits of the amalgamated co-operative society.

4)  The societies and companies belong to different classes. Simply because both have a distinct legal personality, it could not be said that both ought to have been given the same treatment. In the taxation matters, one has to interpret taxation statute strictly.

5)  Simply because one class of legal entities is given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. Thus, amalgamating co-operative societies are not entitled to carry forward and set off losses against profits of the amalgamated co-operative societies.- Rajasthan R.S.S. & Ginning Mills FED. Ltd. v. Dy. CIT [2014] 45 taxmann.com 1 (SC)

Payment to seconded employees is FTS; Foreign co. is real employer if Indian co. can cancel secondment agreement only

Overseas entity was the real employer of seconded employees when Indian entity had only the right to terminate the secondment without conferring the right to terminate the original employment. Reimbursement of salary of seconded employees to the overseas entities was to be regarded as FTS when they rendered quality control services till the necessary skills were acquired by the resident employee group.

Facts:

a)  The CIOP ('petitioner'), incorporated in India, was wholly owned subsidiary of Centrica Plc. (a company incorporated in the UK).The BSTL and DEML were other subsidiaries of Centrica Plc.

b)  These overseas entities outsourced their back office support functions to third party vendors in India. To ensure that the Indian vendors complied with quality guidelines, the petitioner was established in India.

c)  Accordingly, the petitioner entered into a secondment agreement with these overseas entities, wherein employees continued to remain on the payrolls of the overseas entities. The petitioner was required to reimburse salary costs to the overseas employers.

d)  The issue which arose for the consideration in the instant case was:

Whether the secondment of employees by the overseas entities, would fall within Article 12 of the India-Canada and Article 13 of the India-UK DTAAs?

The High Court held in favour of revenue as under:

1)  Sums paid to the overseas entities for the seconded employees could be covered by the India-Canada DTAA, when it was established that not only technical services were performed, but the enterprise made available the skills behind that service to the other party;

2)  The India-UK DTAA defines Fees for Technical Services ('FTS') as "payments of any kind of any person in consideration for therendering of any technical or consultancy services (including the provision of services of a technical or other personnel)". In this case, the overseas entities had, through the seconded employees, provided technical services to the petitioner including the provision of services of personnel;

3)  The nature of the services rendered by the CIOP was in the nature of "business support services" and was covered within the fold of "technical or consultancy" services. The CIOP and seconded employees were to oversee the quality of service rendered by vendors to the overseas entities, which would fall within the scope of the technical or consultancy services.

4)  It was admitted by the petitioner that the reason for entering into the secondment agreement was to provide support for the initial years of operation, till the necessary skills were acquired by the resident employee group;

5)  All direct costs of such seconded employee's, social security plans, other benefits and costs were ultimately to be paid by the overseas entity. The petitioner was given the right to terminate the secondment only, excluding the right to terminate the original employment relationship (the services of the secondee vis-à-vis the overseas entities);

6)  The Division Bench in DIT v. E-Funds IT solutions [2014] 42 taxmann.com 50 (Delhi) highlighted that the nature of activity undertaken by the employees was determinative of whether it constituted a service. In the present case, the overseas entities outsourced their back office support functions to third party vendors in India. The seconded employees were to oversee quality control of the work of such vendors. This work could not be characterized as mere stewardship;

7)  What could have been left to the petitioner to do was, in fact, being done through the seconded employees, whose expertise and training lent quality and content to the Indian entity. Therefore, the real employer of these seconded employees continued to be the overseas entity concerned. And the payment made by the petitioner to the overseas entities was to be treated as FTS. - Centrica India Offshore (P.) Ltd. v. CIT [2014] 44 taxmann.com 300 (Delhi)