Resident assessee can claim losses incurred from house property located abroad in return filed in India

An option is available to the resident-assessee to file return of income either under the Indian tax laws or under the treaty. If assessee files the return of global income in India, the Revenue is bound to give effect to such return. Therefore, losses from house property located abroad was to be included in the income of resident-assessee.

Facts:
a)The assessee filed his return of income after including losses from house property located abroad. He purchased this property in Australia which was already on rent. He obtained a loan from ANZ Bank, Australia (‘ANZ’) to purchase the property.

b)The loss was computed under the head house property due to payment of interest to ANZ.

c)During appellate proceedings, the CIT(A) referred to the decision of Apex Court in case of CIT V. PVAL Kulandagan Chettiar [2004] 137 Taxman 460 (SC) and held that as far as rent income from Australia was concerned, the assessee was required to file the return in Australia and such income could not be included in Indian income. Therefore, negative income could not be assessed in India.

The Tribunal held in favour of assessee as under:

1)In view of Section 5 of the Income-tax Act (‘the Act’) in case of a resident, income accruing or arising outside India had to be assessed in India. The Sec 90(2) of the Act clearly provides that wherever DTAA is applicable to assessee he has an option to apply either Indian Tax Laws or provisions of DTAA, whichever are more beneficial to him.

2)Therefore, the assessee had an option to file return of income under the Indian tax laws where DTAA was applicable.

3)In the instant case, the assessee had exercised the option of filing return under Indian laws, thus, the same could not have been refused simply because DTAA was applicable.

4)The decision in case of PVAL Kulandagan Chettiar (supra) was distinguishable because in that case the assessee was a resident of India and Malaysia. It was due to financial connection of the assessee with Malaysian property it was held that income from Malaysian rubber plantation was taxable only in Malaysia.

5)The assessee had right to file the return of global income in India and the Revenue was bound to give effect to such return. The CIT(A) was not correct in holding that income from house property in Australia was not assessable in India. Accordingly, the order of the CIT(A) was to be set aside and the Assessing officer was to be directed to include the loss from such house property in the hands of the assessee. - SUMIT AGGARWAL V. DY. CIT [2014] 45 taxmann.com 345 (Chandigarh - Trib.)

Exp. on higher education of director’s son was deductible as he committed to continue his employment after education

Where expenditure on higher education of employee had an intimate and direct connection with assessee's business, it would be deductible, even though such an employee was son of a director.
Facts:

a)The assessee, engaged in business of dealing in securities and investment, had incurred expenditure on higher education of 'D', an employee of the company, who happened to be the son of a director, for undertaking an MBA course in the UK.

b)The Assessing Officer rejected the deduction under section 37(1). Further, the CIT(A) and the Tribunal upheld the disallowance. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1)As assessee was in business of investments and securities and expenditure was incurred on MBA course of D, it couldn’t be said that course was unconnected with the business of the assessee.

2)The board of directors duly passed a resolution authorizing the disbursement of such expense. As assessee had secured a bond from ‘D’ by which he committed himself to work for a further five years period, after completing his MBA, such arrangement could not be regarded as a sham.

3)The expenditure claimed by the assessee to fund the higher education of its employee had an intimate and direct connection with its business, i.e., dealing in security and investments. It was, therefore, deductible under section 37(1). - KOSTUB INVESTMENT LTD. V. CIT [2014] 45 taxmann.com 123 (Delhi)

No I-T exemption on let out portion of palace as it won’t be deemed to be in occupation of Ruler under sec. 10(19A)

As long as the Ruler continues to occupy the palace, whether by actually utilizing it or by keeping it vacant, it shall be for the purpose of section 10(19A) deemed to be in his occupation. He, however, would disentitle himself to the exemption from tax on the annual value of that part of the palace which is let out to a tenant

Facts:
The issue before the High Court was:

Whether the rental income received by a Ruler from part of the palace, which was declared as his official residence, would be exempt from tax under section 10(19A) of income-tax Act (the Act')?

The High Court held in favour of revenue as under:

1)Section 10(19A) of the Act clearly provides that the annual value of any one palace which is in the occupation of a ruler would be exempt from tax.

2)The Apex Court in case of Mohammad Ali Khan v. Commissioner of Wealth-tax [1997] 92 Taxmann 52 (SC) had ruled (in the context of wealth tax Act) that if any portion of a building was let out to a tenant, it couldn't be said to be in the occupation of the Ruler. Hence, to claim exemption under Wealth Tax Act, the Ruler should have occupation over the building.

3)There is substantial similarity in the language of section 5(1)(iii) of the Wealth Tax Act and section 10(19A) of the Act on all relevant aspects, except that the word "building" has been substituted by "Palace" in the latter Act;

4)Therefore, the ratio of Mohammad Ali Khan (supra) would squarely apply to the present case. As herein also Section 10(19A) of the Act postulates exemption from income-tax on "the annual value of any one palace in the occupation of the Ruler"

5)Thus, so long as Ruler continues to occupy the palace, whether by actually utilizing it or by keeping it vacant, it shall be, for the purpose of section 10(19A) of the Act, deemed to be in his occupation. He, however, would disentitle himself to the exemption from income-tax on the annual value of such part of the palace, possession and/or control of which he has parted with in favour of the tenant.- CIT V. MAHARAO BHIM SINGH OF KOTA [2014] 45 taxmann.com 350 (Rajasthan)

Composite contract of manufacture, supply and installation of lifts in buildings amounts to works contract

Composite contract of manufacture, supply and installation of lifts in buildings (involving civil construction) amounts to works contract; however, if there are two contracts - purchase of components of lifts from a dealer and separate contract for installation, same would be 'sale' and 'labour and service' respectively. Facts:

The issue before the Supreme Court was:

Whether a contract for manufacture, supply and installation of lifts in buildings is a "contract for sale of goods" or a "works contract"?

The Supreme Court held as under:

1)Lift is not a plant which is erected at site. It is basically comprised of components like lift car, motors, ropes, rails, etc., which have their own identity even prior to installation of lift. The Lifts cannot be functional without its installation because it is a permanent fixture in a building;

2)Therefore, installation of a lift in a building could not be regarded as a transfer of a chattel or goods and it was to be deemed as composite contract;

3)Thus, composite contract which required installation of lift in a building would be deemed as 'works contract' and liable to tax accordingly.

4)However, if there was two contracts, namely, purchase of components of lift from a dealers, and separate contract for installation, they would be deemed as 'sale' and 'labour and service' respectively. - KONE ELEVATOR INDIA (P.) LTD. V. STATE OF TAMIL NADU [2014] 45 taxmann.com (SC)

Sec. 54F doesn’t stipulate approval from Municipal Corporation for construction of residential house; says ITAT

Provisions of section 54F mandate construction of a residential house within period specified, however, there is no condition that building plan of residential house should be approved by Municipal Corporation.
Facts:

a)During relevant year, the assessee earned long-term capital gain on sale of shares. He claimed deduction under section 54F in respect of construction of a new residential property.

b)The Assessing officer denied benefit under section 54F to assessee and made additions. On appeal, the CIT(A) upheld the order of AO on the ground that since there was no approval plan for new construction the assessee was not entitled to section 54F benefit.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The provisions of section 54F mandate construction of a residential house within the period specified, however, there is no condition that the building plan of the residential house should be approved by the Municipal Corporation.

2)If any person constructs a house without approval of building plan, he will be raising construction at his own risk and cost. As far as for availing of exemption under section 54F was concerned, approval of building plan was not necessary. The approved building plan, certificate of occupation, etc., are sought to substantiate the claim of new construction.

3)In the instant case, the fact that the assessee had raised new construction was evident from the interim order issued by the Municipal Corporation. It was evident that the assessee had put up a new construction in place of old residential building; thus, he was entitled to claim exemption under section 54F. – B. SIVASUBRAMANIAN V. ITO [2014] 45 taxmann.com 74 (Chennai - Trib.)

NR’s capital gains are taxable at concessional rate under Proviso to sec. 112(1); Cairn’s judgment followed

The first and second proviso to section 48 can't be said to be granting the same relief or benefit. Both provisos are neither identical nor they serve the same purpose. Hence, benefit of Proviso to section 112(1) is allowable to non-resident availing of benefit of first proviso to section 48.
Facts

a)'P', a Mauritian Company ('applicant'), purchased listed shares of an Indian company from 'I' (a US based Company).

b)The applicant sought advance ruling on the issue whether tax had to be deducted at 10% under section 195 on long-term capital gain arising to such non-resident as per proviso to section 112(1)?

The Authority held as under:

1)The observations of the High Court in case of Cairn UK Holdings Ltd. v. DIT [2013] 38 taxmann.com 179 (Delhi provided as under:

a)Proviso to section 112(1) gives an option to assessee to tax long-term capital gain at lower rate of 10% (without giving benefit of indexation as per second proviso to section 48) in case of transfer of listed securities, units or zero coupon bonds.

b)The first proviso to section 48 ensues that non-resident would be given benefit to adjust fluctuation in foreign exchange while computing capital gain.

c)The second proviso to section 48, which provides for cost inflation index, is applicable to all assessees including non-residents, if such non-residents are not covered by the first proviso.

d)The two provisos to Section 48 cannot be equated as granting same relief or benefit. They operate independently and have different purposes and objectives.

e)It is difficult to state that benefits under the first proviso and second proviso to section 48 are identical or serve the same purpose.

f)Thus, the legislative intent was to allow benefit of Proviso to section 112(1) to non-residents as well who are claiming benefit of first proviso to section 48.

2)Following the order of High Court (supra), the Mauritian Company was directed to deduct tax at source at the rate of 10% under proviso to section 112(1). - PAN-ASIA IGATE SOLUTIONS, IN RE [2014] 45 taxmann.com 322 (AAR - New Delhi)

‘Most Favoured Nation’ clause can be referred to interpret treaties and not to import ‘make available’ clause

Facts:

a)The applicant entered into a Management Service Agreement with 'S' France for various management services.

b)It was submitted that the 'make available' clause was not satisfied in the case and, hence, the services would not fall under the technical services as per the India-France Treaty.

c)Applicant stated that, although there was no 'make available' clause in the India-France Treaty, yet, pursuant to protocol signed between India and France, the restricted scope of FTS in the India-UK DTAA would be applicable.

d)Therefore, in absence of such 'make available' of the technical knowledge, experience, skill, know-how or processes, the services rendered by S would not fall under the definition of technical services.

The Authority held in favour of Revenue as under:

1)A Protocol cannot be treated as the same with the provisions contained in the treaty itself, though it may be an integral part of the Treaty.

2)Protocol to the said DTAA puts restrictions on the rates and 'make available' clause cannot be read in the items.

3)The Notification ratifying the protocol did not include anything about the 'make available' provision. Had the intention of the Protocol or the Government been to include 'make available' clause in the Tax Treaty between India and France, it would have been done so in the said Notification.

4)Protocol or Memorandum of Association can be used for interpreting provision of the Treaty. It will not be correct/proper to import words, phrases or clause, that are not available into the Treaties between two Sovereign nations, on the basis of Treaties with another countries.

5)Therefore, the payments made by the applicant for the services rendered would come under the definition of fees for technical services both under the Act and the Treaty and would be liable to tax in India.- STERIA (INDIA) LTD., IN RE [2014] 45 taxmann.com 281 (AAR - New Delhi)

Rules uploaded on MCA portal under Companies Act, 2013 won't be effective until their publication in gazette; HC

Bombay High Court questions application of Rules framed under Companies Act, 2013 from 1-4-2014, without they being notified in Gazette

The Bombay High Court held as under:
1)The website of the Ministry of Corporate Affairs3 has, on its front page, a link to a single scanned PDF file entitled "COMPANIES ACT 2013 - STATEMENT OF NOTIFICATION OF RULES".4 Some 21 rules are listed. They are all said to be effective 1st April 2014. Several of these are not yet gazette.

2)A question was raised that how any such rules can be made effective on this basis where a ministry simply puts up some scanned document under the signature of one of its officers but sans any publication in the official gazette. That publication is not an idle formality. It has a well-established legal purpose. That purpose is not and cannot be achieved in this ad-hoc manner.

3)Therefore, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force. - WADALA COMMODITIES LTD., IN RE [2014] 45 taxmann.com 245 (Bombay)

Postal ballot voting can't completely serves as substitute for actual meeting; doesn't apply to court-convened meetings

Provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings.
Facts:

The issue before the High Court was:

Whether in view of the provisions of Section 110 of the Companies Act, 2013, a resolution for approval of amalgamation Scheme can be passed by a majority of the shareholders casting their votes by postal ballot, which includes voting by electronic means, which would eliminate need for an actual meeting?


The High Court held as under:
1)Provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting could not and do not apply to court-convened meetings; 2)At such meetings, provision ought to be made for postal ballots and electronic voting, in addition to an actual meeting. Electronic-voting would also be made available at the venue of the meeting;

3)Any shareholder who has cast his vote by postal ballot or by electronic voting from a remote location (other than the venue of the meeting) would not be entitled to vote at the meeting. He or she might attend the meeting and participate in those proceedings. - WADALA COMMODITIES LTD., IN RE [2014] 45 taxmann.com 245 (Bombay)

Notice is required while contemplating attachment of bank a/c and not for initiating action for such attachment

No notice is required for initiating action for attaching account of tax defaulter; notice required when such act is contemplated.
Facts:
a)The assessee filed an application for stay before the assessing authority when the matter was pending before the CIT (A). The Assessing Officer did not dispose of the stay application without any explanation for nearly two years.

b)During the pendency of that application, the authorities passed an order for attachment of bank account of assessee under section 226(3) in haste without giving any prior notice.

c)The aggrieved-assessee filed the instant writ petition. One of the issues for consideration of High Court was:

Whether before taking recourse to section 226(3), the authorities should have issued a prior notice to the assessee?

The High Court held as under:

1)In Golam Momen v. Asstt. CIT [2003] 132 Taxman 826 (Cal.), it was held that mere filing of an appeal does not tantamount to stay of the recovery proceedings. Section 226(3) contemplates the notice to be issued to the assessee but it does not prescribe issuing of prior notice to assessee before taking course to the aforesaid provision.

2)The section does not postulate that before an action is set into motion, a notice is required to be served on the assessee but what is held is that if such an action is contemplated, the notice should also be served to the assessee. Therefore, the judgment rendered in the case of Golam Momen (supra) depicted the correct proposition of law. - ANIL KUMAR BANERJEE V. UNION OF INDIA [2014] 44 taxmann.com 465 (Calcutta)