Sum received from developer due to hardship caused on redevelopment of flat not a revenue receipt

The issue before the ITAT was as under:

Whether compensation received towards hardship caused to assessee on redevelopment of flat was in the nature of capital receipt and as such not taxable?

The ITAT held as under:

1) Similar facts were present in case of Kushal K Bangia v. ITO [2012] 18 taxmann.com 31 (Mum.), wherein the Mumbai ITAT held as under:

“It is not even the case of the AO that the compensation received by the assessee is in the revenue field, and rightly so because the residential flat owned by the assessee in society building is certainly a capital asset in the hands of the assessee and compensation is referable to the same. The only defence put up by DR is that cash compensation received by the assessee is nothing but his share in profits earned by the developer which are essentially revenue items in nature. This argument however proceeds on the fallacy that the nature of payment in the hands of payer also ends up determining it's nature in the hands of the recipient. In order to find out whether it is a capital receipt or revenue receipt, one has to see what it is in the hands of the receiver and not what it is in the hands of the payer"

2) Following the judgment of Kushal (Supra), it could be held that such compensation could not be said to be of revenue nature, and, accordingly, the same was outside the ambit of income under section 2(24).

3) The impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same would be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. - JITENDRA KUMAR SONEJA V. ITO [2016] 72 taxmann.com 318 (Mumbai - Trib.)

Sec. 145A applies only to valuation of goods and not services

Facts:

a) The assessee was engaged in the business of real estate consultancy/agency and property management services. During the course of the assessment proceedings, the AO sought to include the service tax as trading receipts on invocation of Section 145A(ii).

b) The assessee contended that Section 145A(a)(ii) would have no application to the present facts as service tax is not mentioned therein.

c) On appeal, the CIT (Appeals) held that Section 145A(a)(ii) would apply as it is not restricted only to manufacturing and trading companies. It was concluded that the service tax stands on the same footing as excise duties, sales tax and other taxes, which are collected to be paid over to the Government.

d) Further, the Tribunal held in favour of assessee by observing that section 145A(a)(ii) deals with goods and not services.

The High Court held as under:

1) For the better appreciation of the controversy to be examined, it was necessary to reproduce Section 145A of the Act, which at the relevant time read as under :—

“145A - Notwithstanding anything to the contrary contained in Section 145 —

a) The valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be

i) In accordance with the method of accounting regularly employed by the assessee; and

ii) Further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.”

No compensation from Insurance Co. if there is theft without a forcible entry: Apex Court

Insurer cannot claim compensation against theft from insurance company in absence of any forcible entry.

Facts:

a) Appellant had taken insurance on assets taken over from company under the Fire Policy and the Burglary and House Breaking policy.

b) At the time of auction of asset, it was detected that some parts of plant and machinery were missing from factory premises. Thus, appellant filed claim for theft with the insurance company.

c) The claim of appellant was rejected by the insurance company on the ground that the theft was not occurred as result of forcible and violent entry of and/or exit from the premises.

The Apex Court held as under:

1) It was clear from the facts of the present case that the Appellant has made out a case of theft without a forcible entry. The case of appellant is that forcible entry is not required for a claim to be made under the policy.

Church can furnish decree issued by bishop to establish creation of trust for sec. 12A registration

Facts:

a) The assessee, a religious institution (Parish),was created under the conventional way by issuing a 'decree' under Cannon law by the concerned Bishop. It filed an application in Form No. 10A requesting for registration under section 12A.

b) The Commissioner denied registration stating that since the assessee had not produced copy of the instrument in support of creation of the trust, the objects and its activities as well as the existence of the trust could not be ascertained.

The Tribunal held as under:

1) A plain reading of rule 17A makes it clear that a religious or charitable organization can be an institution other than a 'trust'. The usage of the words 'charitable or religious trust or institution' in the first and second limb of rule 17A connotes that where the trust is created, or institution is established, under an instrument, the instrument in original, together with a copy thereof, have to be filed along with the prescribed Form No. 10A for registration.

Any dishonest act of CA isn’t a professional misconduct if it is done in Individual capacity

Chartered Accountant Act, 1949: Where a CA sold his shares but continued to receive dividends declared by the Company by cheating upon transferee, such activity could not be said done in relation to practice as CA as such act of dishonesty was done in individual capacity. Thus, disciplinary committee’s proposal to remove CA’s name from registers of members of ICAI for 6 months was to be set aside.

Facts:

1) A Chartered Accountant sold his shares in November 1999 however, share transfer deed for transfer of shares was lodged on November 04, 2004. In the meantime, CA continued to receive dividend declared by company for 5 years.

2) The transferee made complaint about this conduct of CA before the Disciplinary Committee of the Institute of Chartered Accountants. The Disciplinary Committee found that the conduct of CA was wholly unworthy and amounted to professional misconduct.

On appeal the High Court held as under:

a) In the instant case the respondent was acting as an individual in his dealings with the complainant which were purely commercial. While selling the shares held by him the respondent was not acting as a Chartered Accountant. He was not discharging any function in relation to his practice as a Chartered Accountant.

Updates on Income Declaration Scheme

Recently, the CBDT has amended Income Declaration Scheme (‘IDS’) Rules and it has also issued fi􀁺h set of FAQs on IDS.

Key takeaways from such changes are given here under:

1) The CBDT has amended the valuation rules to determine fair value of property declared under IDS on basis of stamp duty valuation.

2) Where loans, creditors, advances received, share capital, payables etc. are disclosed in the audited balance sheet but are fictitious in nature and cannot be directly linked to acquisition of a particular asset, then such fictitious liabilities can be disclosed under the IDS as such without linking the same with the investment in any specific asset.

3) The income declared under the IDS for an earlier assessment year can be taken into account to explain the related transactions of the subsequent assessment years in assessment proceedings pending before the Assessing Officer provided there is a nexus between the two.

'Loan processing fee' paid to bank would be treated as interest; not liable to sec. 194A TDS

Facts:

a) The assessee-company was engaged in providing outdoor media advertising services to leading Indian and multinational brands. During the course of assessment, the AO observed that assessee had debited certain processing fees without deducting tax at source. The AO rejected the claim of the assessee as he was of the view that such payment was made for rendering managerial services and liable to TDS under Section 194J.

b) The assessee submitted that no tax was deductible under Section 194J on processing fee as it would fall within the exclusion provided in section 194A(3). The Commissioner (Appeals) decided the appeal in favour of the assessee. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The definition of interest will include any service fee or any other charge in respect of money borrowed. Here, processing fee definitely falls within such definition and, therefore, it could not be reckoned as payment for rendering of any managerial services by the bank.

2) Despite such a payment to the Nationalized Bank falls within the ambit of 'interest' under section 2(28A), the TDS provisions under section 194A would not be applicable, because it falls within the exclusionary provisions as laid down in sub-section (3) of section 194A. Thus assessee was not required to deduct tax at source on such processing fee paid. – DY. CIT (TDS) v. Laqshya Media (P.) Ltd. [2016] 72 taxmann.com 119 (Mumbai - Trib.)

Time-limit for acknowledgment extended to 30 days for IDS declaration made in month of July, 16

The Principal Commissioner or Commissioner issues Form 2 to the declarant as an acknowledgment of income disclosed under Income Declaration Scheme (‘IDS’). He has to issue Form 2 within 15 days from the end of the month in which the declaration has been furnished. Hence, the acknowledgment in Form-2 for the declaration filed in the month of July, 2016 is required to be issued by 15th August, 2016.

Earlier declarants were required to pay taxes under IDS till November 30, 2016. However, the CBDT has notified the revised schedule for payment of taxes in three installments till September 30, 2017. Accordingly, necessary amendments to Form-2 as prescribed in the Rules are in the process of being made. In view of the above, the CBDT hereby extends the time for issuance of acknowledgment in Form-2 from 15 days to 30 days in respect of the declarations filed under the Scheme in the month of July, 2016.

Service tax levy on short-term accommodation in hotel is unconstitutional: Delhi HC

Facts:

‘Federation of Hotels and Restaurants Association of India’ filed a writ before the Delhi High Court challenging the constitutional validity provision whereby, service tax is levied on supply of food items by restaurants having AC facility. It also challenged constitutional validity of provision, whereby service tax is levied on short-term accommodation by hotels. 

The Delhi High held as under:

I. It upheld the constitutional validity of service tax levy on foods items served in AC restaurants and made following observations:

- Rule 2C of the Service Tax (Determination of Value) Rules, 2006 enables the assessing authority to put a definite value to the service portion of the composite contract of supply of goods and services in an air-conditioned restaurant.

- Correspondingly there is an abatement for that portion which pertains to the supply of goods in the form of food and drink which would be amenable to sales tax or value added tax.

- It is to be kept in mind that the ready reckoner formula is useful where an assessee does not maintain accounts in a manner that will enable the assessing authority to clearly discern the value of the service portion of the composite contract. With the machinery provision for the levy and determination of service tax on the service portion clearly being spelt out in the Rules themselves, the legal requisites stand satisfied.

Usage of second residential property as office won't lead to denial of sec. 54F relief

Facts:

a) The assessee sold his Gurgaon Flat and earned long term capital gains. He invested the same in a residential property and claimed deduction under section 54F.

b) The AO disallowed such claim as he was of the view that property of assessee (located at New Delhi) was a second residential property. The AR was of the view that such property was only used by assessee for his own profession.

c) The DR submitted that such premises was undisputedly a residential house as per the municipal corporation and thus it will not change the character.

d) The CIT(Appeals) upheld the order of the Assessing Officer.The aggrieved-assessee filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under: