Thursday, February 23, 2017

No sec. 54F relief if newly acquired house is instantly demolished: Chennai ITAT


a) Assessee sold two shops and a residential building for certain amounts. These amounts were deposited in the capital gains scheme account in a nationalized bank. Later on, the assessee withdrew this amount and purchased a residential plot and claimed the benefit of section 54F.

b) Assessing Officer (AO) disallowed claim of the assessee on the ground that the new asset purchased was instantly demolished by the assessee and, further, he had proceeded to construct a shopping complex.

c) CIT (Appeals) affirmed the order of the AO. Aggrieved assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) The Parliament in its wisdom had enacted section 54F in the Finance Act, 1982 with a view to encourage housing construction. Thus, the intention of the legislation was not for destruction of residential building but for promoting the construction of the residential housing units.

2) If the benefit of section is extended where the new residential building is demolished without constructing another residential building within the time limit prescribed under the Act, then the purpose of the Act is defeated.

3) In the case CIT v. V. Pradeep Kumar [2006] 153 Taxman 138 (Madras), it had been categorically held that "the burden is on the assessee to prove that he had actually constructed a new residential house for the purpose of the exemption under section 54F. Section 54F emphasizes construction of residential house. The construction must be a real one. It should not be a symbolic construction. Mere construction by way of extension of the old existing house would not mean constructing a residential house as contemplated under section 54F."

4) Since assessee had demolished the newly acquired residential house instantly for the purpose of construction of a six floored shopping complex, exemption under section 54F was rightly disallowed. - [2017] 78 177 (Chennai - Trib.)

Limitation of Relief clause can’t be invoked to deny tax exemption to Singaporean Shipping Company


a) Singapore based company was engaged in the business of operation of ships in international waters. It had a shipping agent in India in the form of a wholly owned subsidiary ‘ALP India Pvt. Ltd.’

b) In return of income, assessee sought to claim benefit of article 8 of India-Singapore DTAA for its gross freight earnings collected from India.

c) Assessing Officer (AO) noted that the assessee could not produce ship registration certificates and copies of charter party agreements of few ships so he denied benefit of article 8 of DTAA in respect of such operating ships.

d) Further, CIT (Appeals) denied entire benefit by invoking the limitation clause of article24 of India-Singapore DTAA. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) As per the remittance basis of taxation under Singapore law, income arising outside the country is taxable only when that income is remitted to and received in the Singapore. However, any income accruing in or derived from Singapore is taxable on accrual basis under Singapore law.

2) For applicability of limitation of benefit clause, two conditions needs to be satisfy, firstly, income earned from the source state (here in this case, India) is exempt from tax or is taxed at a reduced rate; and secondly, under the laws in force of the resident State (Singapore), such income is subject to tax by reference to the amount thereof which is remitted to or received in the resident State and not by reference to the full amount  thereof. If both the conditions are satisfied, then only the exemption is allowed or the reduced rate of tax is levied on the amount so remitted.

3) In the instant case, the income of assessee-company from shipping operations was not taxable on remittance basis under the laws of Singapore, albeit it was liable to be taxed in-principle on accrual basis by virtue of the fact that this income under the income tax laws of Singapore is regarded as 'accruing in or derived from Singapore'.

4) Thus, the condition of article 24 couldn’t be satisfied in the present case. Therefore, CIT (Appeals) was not justified in denying the benefit of article 8 by invoking the limitation of benefit clause. - [2017] 78 240 (Mumbai - Trib.)

Key Takeaways from 10th Meeting of GST Council: State Compensation Law Approved

The GST Council failed to approve all GST related Bills in its 10th meeting at Udaipur, Rajasthan and it has only finalised legally vetted State Compensation law. The following are the key takeaways of the meeting:

a) State Compensation Law Approved: The Council has approved the legally vetted Draft of State Compensation Law. According to 101st Constitution Amendment Act, 2016 the Centre will compensate State for first five years of GST implementation in case any loss revenue accrues to State on account of GST Implementation. The Draft Law provides that base year for calculation of compensation would be financial year 2016 and growth in revenue would be taken as 14 percent calculated on compounding basis. The Draft bill will now laid before the Cabinet and after approval of same it will be presented before the Parliament.

b) Central GST, State GST and Integrated GST: The Finance Minister said that there were some contentions issues pending on Model GST Laws. Some of them are as under:

1) Composition of Tribunal members and their eligibility

2) Exemptions during transition phase to Industry (E.g. Extension of time for return filling, etc.)

3) Classification of Works Contract as goods or Services

4) Definition of Agriculture, etc.

Advocate’s laxity to obtain receipt from Police for transfer of bounced cheque isn’t misconduct

Client has filed a complaint before Bar Council of India alleging that cheque handed over to the appellant – Advocate to initiate criminal action against defaulter under Section 138 of the Negotiable Instrument Act was not returned to him. On the basis of complaint received, a disciplinary proceeding was initiated against Advocate and found him guilty of professional misconduct. Further, An Advocate has filed appeal to the Apex Court against the order of disciplinary committee.

The Apex Court held that it is only a case of negligence and not a case of 'gross negligence' and hence the Advocate is not guilty of professional misconduct as Advocate handed over the original bounced cheque to police given by his client and failed to obtain any acknowledgement from them. - [2017] 78 220 (SC)