Wednesday, August 20, 2014

Relinquishment of right to purchase a property in lieu of a sum was ‘transfer’; to be taxed as capital gain


Consideration received from relinquishment of right to purchase a property to be taxed as capital gain and not as income of other sources as relinquishment of right over a capital asset amounts to transfer under section 2(47).

Facts:


a)The assessee entered into an agreement to purchase a plot. As per the terms of agreement of sale, assessee paid certain sum as advance to the vendor with the understanding to pay the balance at the time of registration.

b)Since the vendor did not act upon the agreement of sale, the assessee filed a suit for specific performance, which ultimately resulted in compromise. A Memorandum of Understanding (‘MOU’) was entered into between the assessee and the land owner in terms of which assessee gave up his claim over property against consideration of Rs. 1.50 crore (including the advance of Rs. 25 lakhs paid by the assessee at the time of agreement of sale).

c)The assessee disclosed said amount as sale consideration received by him for transfer of plot and computed long term capital gain which was accepted by the Assessing Officer (AO)

. d)The CIT revised the order of AO with an opinion that amount received by the assessee from the land owner being a windfall gain, should have been assessed as income from other sources and not as long-term capital gain. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)Relinquishing or extinguishing one's right over a capital asset amounts to transfer as per section 2(47) of the Income-tax Act. Therefore, when the assessee, as per terms of the MOU, gave up his claim over the property against consideration, certainly it could be interpreted that the assessee had relinquished or extinguished his right over the property.

2)Thus, there was 'transfer' of capital asset within the purview of section 2(47) attracting capital gain.

3)The assessment order passed by AO could not be considered to be erroneous and prejudicial to the interests of revenue, only because the Commissioner considered the receipts as windfall gain and in his opinion such receipt had to be assessed as income from other sources -P. Ramgopal Varma vs. ACIT [2014] 47 taxmann.com 334 (Hyderabad - Trib.)

SAT: Failure to make disclosure under Insider Trading norms attracts penalty, irrespective of mitigating factors


Irrespective of mitigating factors such as disproportionate gain or unfair advantage derived or any loss caused to investors, failure to make timely disclosures under regulation 13 SEBI (Prevention of Insider Trading) Regulations, 1992 would attract penalty

FACTS:

a)The appellant-company had become part of the promoter group of 'INCL' and on account of acquiring control of 'INCL' was obliged to file disclosures under regulation 13(2A) , read with regulation 13(6) of the SEBI (Prevention of Insider Trading) Regulations, 1992.

b)The appellant-company was imposed with penalty for not making disclosures within stipulated time period under regulation 13(2A) of the SEBI (Prevention of Insider Trading) Regulations, 1992.

c)On appeal to the Securities Appellate Tribunal

On appeal, The Securities Appellate Tribunal held as under:

1)An obligation to make disclosure under said regulation is not restricted to cases where there is disproportionate gain or unfair advantage and where loss is caused to investors as a result of failure to make disclosures.

2)Since Explanation to regulation 13 of the Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 1992 does not deal with disclosure requirements, argument of appellant-company that there was confusion regarding disclosure requirements contemplated in said regulations as compared to Takeover Regulations did not merit consideration.

3)Therefore, penalty imposed after consideration of mitigating factors could not be said to be arbitrary or unreasonably excessive and, thus, order passed by Assessing Officer could not be interfered with. – IndiaNivesh Capitals Ltd. vs. Securities and Exchange Board of India [2014] 47 taxmann.com 339 (SAT - Mumbai)

Institutions providing event management courses without awarding any diploma not entitled to sec. 12AA registration


Institutions conducting classes in event management were not entitled to Section 12AA registration as such courses do not result in conferment of any degree or diploma; such activity would not fall within the meaning of education under Sec. 2(15).

Facts:


a)The assessee-institution was formed with an object to establish and administer schools, colleges, etc.

b)In furtherance of its objects, it established an institution for teaching event management course. It filed an application seeking registration under section 12AA.

c)The CIT held that activity carried on by assessee would not fall within meaning of education as mentioned in section 2(15) and rejected assessee's claim for registration. The aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)The Supreme Court in case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 held that the acquisition of all kinds of knowledge would not fall within the definition of education as provided under Section 2(15) and the acquisition of knowledge should be through a normal schooling to be regarded as education.

2)Thus, it was a well-settled principle that there had to be a systematic instruction to the students by way of normal schooling to be regarded as education. Mere conducting of event management classes might provide some kind of knowledge to the students; but that acquisition of knowledge would not fall within the meaning of 'education' as provided in section 2(15).

3)In the instant case, the assessee was conducting classes in event management but the government or any governmental bodies did not recognize the institution run by the assessee.

4)Therefore, the teaching courses conducted by the assessee would not result in conferment of any degree or diploma and remained unrecognised. Thus, the assessee was not eligible for registration under section 12AA. – IMPRESSARIO EDUCATIONAL TRUST V. CIT [2014] 47 taxmann.com 259 (Cochin - Trib.)

No liability of bank to withhold tax from cap gains remitted to a non-resident when it was merely acting as broker


Where assessee-bank was only acting as an authorized dealer to brokers of foreign residents in transferring funds in respect of share transactions, which resulted in gains, it was not liable to withhold tax under section 195.

Facts:


a)Individuals (residents of UAE) carried out transactions in shares through brokers and earned short-term capital gains. The assessee-bank made remittances on behalf of brokers in respect of these gains without deduction of tax.

b)According to the AO, the assessee-bank (in capacity as remitter) was to deduct tax at source before making overseas payments under section 195. Subsequently, the AO held that the assessee-bank was a defaulter under section 201 and was liable to pay interest under section 201(1A). On appeal, the CIT(A) reversed the order of AO.

On appeal, the Tribunal held in favour of assessee as under:

1)The ITAT Mumbai Bench in the case of Hongkong & Shanghai Banking Corpn. Ltd.,v. Jt. CIT [2009] 29 SOT 17 had held that capital gains arising to the NRIs residing in UAE were short term capital gains and the bank, which was acting as an authorized dealer, was not liable to deduct tax. Consequently, the AO was not justified in treating the assessee as a defaulter under section 201;

2)In the instant case, the non-residents had earned short-term capital gains and the assessee-bank was only acting as an authorized dealer in transferring the funds on behalf of the broker.

3)Thus, following the order of ITAT Mumbai bench (Supra) it was to be held that assessee-bank was not a person responsible for paying tax within the meaning of section 204 and, therefore, it was not liable to deduct tax at source under section 195. Therefore, assessee-bank could not be treated as a defaulter within the meaning of section 201. – ITO(IT)(TDS) V. ABU DHABI COMMERCIAL BANK [2014] 47 taxmann.com 263 (Mumbai - Trib.)