ITAT follows AS-10 to include one-time vehicle tax in cost of vehicle treating it as capital expenditure

Facts:

The issue that arose in the instant appeal was:

Whether one time vehicle tax paid by the assessee was includible in cost of vehicles, (eligible to depreciation) or, was in nature of revenue expenditure, deductible under Section 37(1)?

The Tribunal held in favour of revenue as under:

1)Section 43(1) defines the term 'actual cost' as under: "Actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority.

2)The definition emphasizes on the elements, which would not form a part thereof, so that the principles of commercial accounting would apply in determining the actual cost. Even otherwise, it was a trite law that in the absence of a statutory definition or mandate, the accounting prescription would prevail.

3)It is only where the law specifically provides for a particular course of action, inconsistent with the accounting mandate, that the same shall prevail and override the latter, viz., section 43B.

4)Para 20 of ‘Accounting Standard-10 - Accounting for Fixed Assets’ required that the cost of a fixed asset would comprise of its purchase price and any attributable cost of bringing the asset to its working condition for its intended use.

5)One-time tax for the lifetime of "all motor cars and omnibuses used or kept for use" in the State of Maharashtra was a tax for user, active or passive, of the motor vehicle in the territory of Maharashtra. Therefore, payment of tax, only enabled the vehicle being put to its intended use; in fact, represented a condition thereof, and would form part of its cost. - M. DINSHAW & CO. (P.) LTD. V. DY. CIT [2014] 48 taxmann.com 190 (Mumbai - Trib.)

CCI approved of proposed combination of retailers as their share was not significant in retailer’s market

Where in proposed combination of retail businesses in India shares of parties to combination were insignificant as compared to overall retail market, proposed combination was not likely to have appreciable adverse effect on competition in India and, therefore, same was to be approved

Facts:

a)The Tesco Overseas Investments Limited (‘TOIL’)gave notice to Commission relating to proposed acquisition of 50 per cent of issued and paid-up equity share capital of Trent Hypermarket Limited (‘THL’).

b)The proposed combination related to retail business in India which comprised both organized and un-organized retailing.

c)It was found that some of large players who had been operating in organized retail market in India were Reliance Retail, Future Retail, Spencer's retail, Bharti Retail, Aditya Birla's 'More', Shoppers Stop, etc.

d)Additionally, due to increased internet penetration and changing lifestyles, Indian retail market had also witnessed a surge in online retailers which had widened the choice for consumers.

e)‘THL’ operated only 16 retail stores across various locations in India. Its total revenue was insignificant as compared to size of overall retail market as well as organized retail market in India.

The Competition Commission of India held as under:

1)It was observed that while ‘THL’ was engaged in business of multi-format retail trading in India, including hypermarkets, supermarkets and smaller convenience stores, ‘TOIL’ was not present in retail market in India and, therefore, there was no horizontal overlap between business activities of ‘THL’ and ‘TOIL’ in retail market in India.

2)On facts, combination was not likely to have appreciable adverse effect on competition in India and, therefore, same was to be approved– Tesco Overseas Investments Ltd., In re [2014] 47 taxmann.com 261 (CCI)

Conducting educational diploma courses and management programmes was an educational activity under sec. 2(15)

Facts:

a)The assessee, a public charitable trust, was having objects of continuing education, training and research on various facets of management and related areas.

b)It claimed exemption under section 11. The Assessing Officer (‘AO’) held that activities of assessee would fall within scope of 'advancement of any other object of general public utility’ and the assessee would not be entitled to exemption under Section 11 as its aggregate receipts exceeded the limit specified under second proviso to Section 2(15).

c)The CIT(A) confirmed the said order. Further, the Tribunal reversed the order of CIT(A). The aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The revenue had denied the exemption under section 11 mainly on the ground that the case of the assessee would fall under the fourth limb of the definition of 'charitable purpose' i.e. 'advancement of any other object of general public utility'.

2)The activities of the assessee such as continuing education diploma, certificate programmes; management development programmes, public seminars, workshops and conferences, etc., were educational activities. 3)Second proviso to section 2(15) would not apply in respect of relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution was relief of the poor; education or medical relief, it would constitute 'charitable purpose' even if it incidentally involved the carrying on of the commercial activities.

4)In the instant case, as the activities of assessee would fall within realm of education which was a 'charitable' purpose as per section 2(15). The assessee was entitled to exemption under section 11. – DIT(Exemption) v. Ahmedabad Management Association [2014] 47 taxmann.com 162 (Gujarat)

Undue delay in filing of appeal was not condonable when assessee was working with professional advice of CA

Delay in filing appeal not acceptable when it was found that assessee was acting on professional advice of Chartered Accountant.

Facts:

a)The Commissioner invoked the revsional jurisdiction directing the Assessing Officer to redo the assessment, and, accordingly, the Assessing Officer (‘AO’) passed an order under section 143(3). The assessee filed an appeal before the CIT(A), which was dismissed.

b)The assessee submitted that it was not in his knowledge that an appeal laid against the order under Section 263, and it was only when he approached an Advocate, it came to his knowledge that appeal was not filed.

c)The assessee prayed that since the delay was neither intentional nor deliberate, but was for valid reasons, it might be condoned.

The Tribunal held in favour of revenue as under:

1)The assessee had filed the appeal against the consequential order passed by the AO and a Chartered Accountant represented it.

2)It was clear that the assessee was acting on the professional advice of the Chartered Accountant. Therefore, it could not be accepted that the assessee was unaware of the legal remedy available to it.

3)However, the assessee had filed the present appeal, nearly more than a year after the filing of the original appeal. Thus, the assessee had not satisfactorily explained the delay in the filing of the appeal against the order under section 263.

4)It proved that the assessee had not been vigilant enough in pursuing its legal remedies. Therefore, the delay in the filing of the appeal could not be condoned and, consequently, the appeal was to be dismissed as time-barred. - PIONEER E BIZZ. (P.) LTD. V. DY./ACIT [2014] 46 taxmann.com 456 (Hyderabad - Trib.)

Payment of commission with RBI’s approval for export to Iraq under ‘Food and Oil programme’ isn’t prohibited

Where Assessing Officer disallowed assessee's claim for commission paid to intermediary companies in respect of export made to Iraq under 'Food for Oil Programme' run by United Nations, in view of fact that said payment was duly approved by RBI, impugned disallowance deserved to be deleted.

Facts

a)The assessee-firm made exports to Iraq under the 'Food for Oil Programme' run by the United Nations. It paid commission to various intermediaries in connection with export and such payments were made through agency of Reserve Bank of India.

b)The Assessing Officer (‘AO’) relied upon report of Volcker Committee wherein it was noticed that oil companies/traders paid premium to intermediaries above the United Nations' official rate, and such premium was used by the intermediaries to pay to the beneficiary or entity who was designated to receive the funds.

c)He further held that Iraq having initiated its policy of collecting illicit surcharge on every barrel of oil sold under the programme, under the caption "after sales services". Such payments had to be treated as prohibited in view of Explanation to section 37(1).

d)Merely by taking note of the Volcker Committee report the AO held that 10 per cent of the commission had to be disallowed, which was confirmed by the CIT(A). The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:-

1)It was rightly pointed out by the assessee that the United Nation’s sanction was with reference to payment made to Iraqi Government by suppliers and not the payment made to intermediaries.

2)The commission paid by the assessee to third party was duly approved by the Reserve Bank of India.

3)The Volcker Commission report had discussed about the utilisation of money by the recipient of the commission, whereas in the instant case there was no finding at all by the tax authorities that the third party had rendered any services and the commission paid to it was diverted to the Government of Iraq.

4)Thus, the disallowance made by the AO was not in accordance with law and the commission paid to third parties was not prohibited in terms of Explanation to Section 37(1). - AIR PAC EXPORTS V. ASSISTANT CIT [2014] 47 taxmann.com 58 (Mumbai - Trib.)

Gymkhana Club providing sports and other facilities only to its members could not be treated as a charitable trust

Where assessee-club was involved in providing sports activities accompanied by facilities like liquor bar, playing cards, restaurant, marriage hall, catering services, etc. to a certain group of persons, i.e., members of club, activities of assessee-club would not fall in definition of charitable purpose.

Facts:

a)The assessee-trust, claiming to be a charitable trust, filed its return of income declaring total income at nil. The Assessing Officer (‘AO’) noticed that, though the assessee-trust had been granted registration under section 12A, yet, the activities of the assessee-trust were not charitable activities.

b)He, therefore, held that the assessee was not entitled to exemption under section 11. He, accordingly, taxed the assessee's receipts. On appeal, the CIT(A) observed that the assessee-trust had been conferred the benefit of exemption under section 11 up to assessment year 2008-09.

c)The sports and other activities carried out by the assessee-trust would partake the character of general public utility which term was included in the definition of charitable purpose as defined under section 2(15). He, therefore, held that the assessee-trust was eligible for exemption under section 11. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)The assessee had been involved in providing sports and recreational facilities to its members only. The AO had given a categorical finding that, though the membership of the club was open to public yet it had been restricted in many ways. Even the membership was offered on payment of very high premium.

2)High class premium services, such as facility of liquor bar, playing cards, restaurant, marriage hall, catering services, etc., were provided to the members, which could not be said to constitute any charitable activity.

3)Members who constituted high class, influential and rich persons could obtain services, that too on payment of high premium. However, the assessee-trust was also offering the facility of sports to its members that by itself could not partake the character of charitable activity.

4)It was not the case of the assessee-trust that such sports activities had resulted into any benefit to the public at large or any section of the society. The sports activities accompanied by facilities like liquor bar, playing cards, restaurant, marriage hall, catering services, etc., were limited to a certain group of persons.

5)There was no element of charity involved in such activities rather the activities of the club were meant for leisure and pleasure of the members of the club and the membership had been restricted to certain individuals. Thus, there was no infirmity in the order of the AO in holding that the activities of the assessee-trust would not fall in the definition of charitable purpose as defined under section 2(15). – ADIT(E) V. NAVI MUMBAI MERCHANTS GYMKHANA [2014] 47 taxmann.com 53 (Mumbai - Trib.)

Payment made to foreign co. to conduct navigation studies at Indian port won’t satisfy ‘make available’ clause; no FTS

Payment made by assessee to foreign company for navigation studies at Indian port to determine pre-existing conditions could not taken as fee for technical services as per Article 13 of India-UK DTAA.

Facts:

a)The assessee had entered into an agreement with a foreign company (Wallingford) for morphological studies, sedimentation assessment, navigation and mooring assessment in respect of a port.

b)The assessee did not deduct tax on payments made for said studies as it was of the view that said fee was not in the nature of ‘fee for technical services’ (FTS). However, the Assessing Officer opined that services provided by Wallingford were in nature of FTS.

c)On appeal, the CIT(A) reversed the order of Assessing Officer and held that the assessee would not be liable to withholding tax under section 195(1). The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)Article 13 of India-UK DTAA provides that 'FTS' arising in a contract State and paid to a resident of other contracting State may be taxed in that other State if it is made available to the recipient.

2)In the case of Mahindra & Mahindra Ltd. v. Dy. CIT [2010] 122 ITD 216 (Mum.) (SB), the meaning of expression 'make available' had been analyzed by discussing decision of Intertek Testing Services India (P.) Ltd. In re [2008] 175 Taxman 375 (AAR - New Delhi) wherein it was held that the service had to be aimed at and results in transmitting the technical knowledge, etc., so that the receiver of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider.

3)It was undisputed that assessee was supposed to receive only a report on pre-existing condition in relation to port. There was a clause of confidentiality in the agreement, which provided that the report so prepared by Wallingford would not be transferable by the assessee.

4)The agreement further provided that the assessee couldn’t not use the know-how in performing services for any other client in future. Even the assessee was not entitled to sub-license any of the rights granted in the report.

5)Thus, in the instant case, the fees for technical services was not paid for making available the technical knowledge, experience and know-how to the assessee. Therefore, the payment made by the assessee was out of the ambit of the provisions of section 195. The view taken by CIT(A) was to be affirmed. – ITO (INTERNATIONAL TAXATION) V. ADANI PORT INFRASTRUCTURE (P.) LTD [2014] 47 taxmann.com 17 (Ahmedabad - Trib.)

‘Javed Akhtar’ got 50% deduction for getting his Society’s lift replaced benefitting his professional work

Where assessee had incurred expenditure on replacement of new lift to remove hardship and inconvenience in his professional work as well as family life, 50 per cent of total expenditure which was considered to be for professional purpose was allowed as revenue expenditure.

Facts:

a)The assessee, a lyricist, did his professional work from two premises occupied by him in a building for professional and residential purposes. Assessee offered replacement of old lift with new one on the condition that lift would belong to society and would be used by all members. Assessee claimed expenditure on installation of lift as an allowable expenditure under section 37(1).

b)The Assessing Officer did not accept the claim of the assessee. On appeal, the CIT(A) was of the view that the installation of lift was a capital expenditure. Since the lift was installed both for personal and professional purposes, the CIT(A) held that 50% of expenditure was of capital nature and depreciable.

On appeal, the Tribunal held as under:

1)It was apparent from the facts that the assessee had incurred expenses for replacement of the lift due to compelling circumstances as he was facing inconvenience and hardship on his professional front as well as in his private life due to frequent break down of the old lift in the building.

2)Thus, it was clear that the advantage of the new lift was not restricted exclusively to the professional activity of the assessee but assessee as well as his family members also enjoyed such facility.

3)Though other residents of the buildings were also using the lift, yet, for considering the allowability of expenditure the use of lift by other residents in the building was not relevant. The assessee had incurred the expenditure keeping in view his professional and family requirements.

4)For allowing the expenditure under section 37, the mandatory condition is that the expenditure has to be laid out wholly and exclusively for the purpose of business or profession, however, it should not be on the capital field.

5)Since the assessee did not acquire any advantage on the capital account or any new asset for its professional purpose and the lift was not an apparatus for generating the professional income, it could not be considered as an expenditure of capital nature.

6)The assessee had incurred expenditure in the compelling circumstances for removing the inconvenience and hardship faced by him in his professional work as well as non-professional life. The said expenditure had been incurred so that professional activity of assessee would be carried out more efficiently and profitably.

7)Thus, 50% of the total expenditure was to be considered to be for the professional purposes and was to be allowed as revenue expenditure. – JAVED AKHTAR V. ACIT [2014] 46 taxmann.com 395 (Mumbai - Trib.)

Beneficiaries of discretionary trust won’t be liable to tax if income of trust is taxed at maximum marginal rate

Where income from trust had already been assessed in hands of trustees at maximum marginal rate, beneficial share could not be assessed in hands of beneficiaries again.

Facts:

a)Assessee was one of beneficiaries of a private discretionary trust. Trust's income was from dividend, which was exempt under section 10(34). The assessee received her beneficial share out of said dividend income and claimed it as exempt as income of trust had already been taxed in hands of trustees under section 164.

b)The Assessing Officer, however, was of the view that section 164 provided that it was only when no income was distributed amongst the beneficiaries by a private discretionary trust then the trust’s income was taxable in the hands of the trust.

c)Thus, he made additions on the ground that when the surplus was distributed by such trust, the receipt in the hands of beneficiary would be taxable as it becomes "income from other sources" in his hands. On appeal, the CIT(A) confirmed the addition. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The revenue had not denied the fact that the department had already assessed discretionary-trust at the maximum marginal rate.

2)Thus, it clearly emerged that the department had already exercised the option to tax the trust’s income directly in the hands of trustees in terms of sections 161 to 166. The assessee's stand was correct that as per the scheme of assessment of private discretionary trust department had to opt whether to assess the income in the hands of trust or beneficiaries. The option was clearly exercised first in the hands of trust as demonstrated by its assessment order.

3)In any case it had not been disputed that entire trust income from dividends was exempt under section 10(34) and what came in the hands as beneficial share retained the same colour and was also exempt under section 10(34). Therefore, alternatively also, the beneficial share being part of exempt dividend income, was exempt from tax and was to be excluded while computing the income of assessee.

4)Therefore, the department had already exercised the option to tax the income directly in the hands of the trust, there was no provision to review the option taken in the case of trust and again to change the option from one beneficiary to another, the impugned income was therefore held to be exempt in the hands of the assessee. – SMT. ALPANA KIRLOSKAR V. ACIT [2014] 46 taxmann.com 336 (Delhi - Trib.)

CIT couldn’t revise order of AO because AO lost his jurisdiction due to a circular issued by CBDT subsequently

Income tax Officer had valid jurisdiction at time of issuance of notice under section 143(2), subsequent disqualification would not deprive him of jurisdiction of making assessment.

Facts:

a)The Assessing Officer (‘AO’) issued notice under section 143(2) after analyzing various claims made by the assessee. The ITO passed assessment order, which was partly allowed by the CIT(A).

b)However, later on the Commissioner initiated proceeding under section 263. But on basis of detailed submission of assessee, said revisional proceeding was dropped by him

c)Thereafter, the subsequent CIT initiated revisional proceeding on ground that there was an internal circular according to which with effect from 1-4-2001 for any return of income of any assessment year, being over Rs. 5 lakh, ITO would have no jurisdiction, as jurisdiction in such case would lie with Dy. CIT /ACIT.

d)On appeal, the Tribunal quashed the order of CIT. The aggrieved-revenue filed the instant appeal. The High Court held in favour of assessee as under:

1)The AO had the jurisdiction when the notice under section 143(2) was issued. Once the ITO had valid jurisdiction at the time of issuance of notice, the Assessing Officer ought to have informed the assessee if there was some internal circular.

2)The opinion of CIT that the ITO had no jurisdiction could not be said to be proper, as the assessee appeared on valid notice and after considering all the submissions or representation, the ITO passed the order.

3)It was not the case where the ITO had passed order in a cryptic or summary manner accepting the returned income. The order could not be termed to be erroneous only because the CIT was not satisfied with the conclusion.

4)If the CIT was of the view that the AO had passed the order without jurisdiction then he ought to have initiated departmental enquiry against such officer. No such information had been brought forward from the appellant-revenue or perused from the order of Commissioner under section 263.

5)Thus, the order of CIT under section 263 would be deemed as a change of opinion and would tantamount to abuse of powers granted to him. The practice adopted by the CIT amounted to unnecessary harassment to the assessee for no fault of his. Thus, there was no infirmity or perversity in the order of the Tribunal so as to call for any interference.- CIT V. KAILASH CHAND METHI [2014] 47 taxmann.com 59 (Rajasthan)