Amount of investment and not extent of construction is relevant to compute relief under sec. 54F

Section 54F relief was available if sale consideration was invested in purchase of residential building as per provisions; in such a case extent of construction of residential building was irrelevant.

The High Court held in favour of assessee as under:

1)  What the law (i.e., section 54F) contemplates is, after selling the property, if the assessee invests the sale consideration in purchase of a residential property, he is entitled to exemption under section 54F;

2)  What should be the extent of construction of residential building, what facilities should be provided in such constructions to be eligible for the exemption, have not been set out in the Act;

3)  The Authorities have ensure, whether what is purchased is a residential construction or not?;

4)  If the material on record showed that prior to the sale, the vendor lived there and had sold the site along with the residential construction, merely because the property was not suitable to the assessee and construction materials were kept there, would not be a valid grounds to deny exemption under section 54F;

5) Thus, assessee was entitled to avail of relief under section 54F – CIT v. Dr. R. Balaji [2014] 41 taxmann.com 411 (Karnataka)

Retainer fee to doctor would attract sec. 192 TDS instead of sec. 194J TDS if terms of contract prove him to be an employee

Cumulative effect of agreement with retainer-doctor is relevant to decide whether TDS is to be effected either under section 192 or under section 194J.

The Tribunal held as under:

1)  Retainer-doctor was an employee and not an independent professional as terms of contract provided that:

a)  Retainer-doctor was debarred from taking any other assignment with any other company engaged in business similar to assessee-company (i.e., corporate hospital);

b)  He was required to follow rules, regulations and policies of assessee-company and to report to the head of the department in which he was working;

c)  He was to be paid fixed consolidated monthly fee with no fee-sharing with hospital.

2)  The retainership agreement was also for a limited period. Mere fact that the retainer-doctor had to raise monthly bills for getting payment of consolidated retainership fee would not make him an independent professional doctor, when in substance the cumulative effect of agreement indicated employer-employee relationship;

3) Thus, his fixed monthly retainer fee was in nature of salary which would be liable for tax deduction under section 192 and it was not a professional fee liable for tax deduction under section 194J - Escorts Heart Institute & Research Centre Ltd. v. Dy. CIT [2014] 42 taxmann.com 200 (Jaipur - Trib.) (TM)

Investment of sales consideration provides sec. 54F relief even if construction isn't completed within 3 years

Where consideration received on transfer of property had been invested by assessee in construction of residential house, merely because construction was not completed in all respects within stipulated period, benefit of section 54F, could not be denied.

The Tribunal held in favour of assessee as under:

1)  It was clear from the order of the CIT (A) that the assessee had commenced construction of the building within a period of three years from the date of transfer of property. The construction, however, could not be completed by the assessee within three years;

2)  The Karnataka High Court in case of CIT v. Sambandam Udaykumar [2012] 19 taxmann.com 17 had taken a view that under the provisions of section 54F, the condition precedent was that the capital gain realized from sale of capital asset should have been parted by the assessee and invested in construction of a residential house;

3)  Benefit of section 54F couldn’t be denied to assessee if the money was invested in constructing the residential house, even if the construction was not completed in all respects and house was not in a condition to be occupied within the stipulated period;

4)  There is no particular stage of completion of construction that is contemplated by the provision. Therefore, the benefit of deduction under section 54F was to be allowed to the assessee – ITO v. Smt. B.S. Shanthakumari [2014] 41 taxmann.com 325 (Bangalore - Trib.)

Deemed STCG under sec. 50 qualifies for sec. 54EC relief as deeming fiction only provides mode of computation

Capital gain computed under section 50 qualifies for exemption if investment is made out of sale proceeds towards prescribed bonds under section 54EC.

In the instant case the issue that arose for consideration of High Court was as under:

Whether the exemption permitted by the statute under Section 54EC shall be available in the case of capital gains arising out of transfer of depreciable asset under section 50?

The High Court held in favour of assessee as under:

1)  The Madras High Court in the case of M. Raghavan v. Asstt. CIT [2004] 134 Taxman 790 has held as under:

The object of introducing section 50 was to disentitle the owners of such depreciable assets from claiming the benefit of indexing. The said provision was never meant to confer such multiple benefits to assessees selling depreciable assets;

2)  Section 50 creates a deeming fiction only for mode of computation of capital gains under sections 48 and 49 and not for other provisions;

3)  Section 54EC does not make any distinction between depreciable assets and non-depreciable assets and, therefore, deduction available under section 54EC shall be available in case of capital gains arising out of transfer of depreciable asset, if investment is made out of sale proceeds towards prescribed bonds under section 54EC;

4) Thus, the appeal of revenue was to be dismissed. – CIT v. Polestar Industries [2014] 41 taxmann.com 237 (Gujarat)

Waterfront royalty recovered by State Govt. was not an 'intellectual property service'

Facts:

a) The assessee, i.e., State Government had collected Waterfront Royalty charges, which were charged by Government of Gujarat from Fort users/private parties for use of such Waterfront;

b) The Department sought levy of service tax on such charges under Intellectual Property Services.

The Tribunal held in favour of assessee as under:

1)  The definition of Intellectual Property Rights is about right available with an individual or person;

2) The charges collected by the assessee-Government for usage of Waterfront as Waterfront Royalty Charges could not, prima facie, be covered under definition of Intellectual Property Rights  -  State Charge Gog Port of Magdalla v. Commissioner of Central Excise & Service Tax [2014] 41 taxmann.com 376 (Ahmedabad - CESTAT)

Contractual liability to pay custom duty on importer’s behalf won’t be hit by sec. 43B, it’s not statutory liability

The High Court held as under:

1)  Section 43B applies only in cases of statutory liability. By virtue of the said section a statutory liability is not deductable in the year in which it accrues, if the same remains unpaid. A deduction with respect to a statutory liability is allowed only on payment of the same;

2)  The liability to pay the amount of additional customs duty on behalf of the importers as and when they were called upon to discharge the same was clearly a contractual liability and not a statutory liability;

3)  Therefore, in the instant case, the question as to whether the said liability would be considered as deductible under Section43B would not arise;

4)  Even assuming that section 43B would apply to such contractual liability, the furnishing of a bank guarantee to importers would not be considered as actual payment under section 43B so as qualify for deduction under that section - Oswal Agro Mills Ltd. v. CIT [2014] 42 taxmann.com 100 (Delhi)

Going abroad for purpose of ‘employment’ includes self-employment to determine residential status under I-T Act

Facts:

a)  The assessee had earned consultancy income for rendering technical services for setting-up a hospital in Saudi Arabia. He had not offered the same as his income of the year as he claimed that during the year he was not a resident within the meaning of section 6(1);

b)  The A.O. found that assessee was not regularly employed abroad, but worked as a consultant for a foreign company. He opined that the term ‘for the purposes of employment’ used in the section 6 was to be interpreted in the context of employer–employee relationship and should be given a restrictive meaning;

c)  He, therefore, held that assessee was resident as per section 6(1) and the sum received by him had to be brought to tax as the income of assessee for the year;

d)  On appeal, the CIT(A) held that assessee had not left India for any period of time in connection with employment abroad as he was continuously resident in India. Therefore, he could not be considered as having left India and being stationed outside India for the purpose of employment. Accordingly, he had to be considered as resident only.

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

1)  As far as the argument of the learned CIT(A) that assessee did not leave India and was stationed outside the country was not material, as nowhere the section specified that assessee should leave India permanently so as to reside outside the country. Thus, the argument of the CIT(A) had no meaning. Therefore, that contention had to be rejected;

2)  The Hon’ble Supreme Court in the case of CBDT v. Aditya Birla [1988] 36 TAXMANN 009 (SC) considered that employment does not mean salaried employment but also includes self-employment/professional work. Therefore, the assessee’s earning from foreign enterprise and visit abroad for rendering consultation could be considered for the purpose of examining whether assessee was resident or not?;

3)  Thus, going abroad for the purpose of employment only meant that the visit and stay abroad had not be for other purposes such as a tourist or for medical treatment or for studies or the like;

4)  Going abroad for the purpose of employment, therefore, meant going abroad to take-up employment or any avocation. Unless assessee travelled on business visa or for the purpose of business/consultation, the entire period of travel abroad could not be considered as ‘going abroad for the purpose of employment’;

5)  The AO was to verify whether the visits were for the purpose of employment or for the purpose of tour or for any other reason. Only to the visits for the purpose of employment could be considered, while determining status of assessee as per the provisions of law;

6)  The assessee was requested to furnish necessary details of visas obtained and also place onrecord the English version of the stampings done on the passport, so as to support his contention that the travel was for the purpose of employment. For these reasons, the issue was to be restored to the file of the AO for fresh examination

Sec. 40(a)(i) disallowances based on residential status doesn’t violate non-discrimination clauses of treaties

The Tribunal held as under:

1)  As section 40(a)(i) creates differentiation based on residential status, it does not violate non-discrimination clauses of treaties which forbid discrimination based on nationalities;

2)  A differentiation in treatment due to residential status cannot be covered by the scope of Article 24(1)/ Art. 25(1)/Art. 26(1) as such a differentiation is not due to nationality factor – Dy. CIT v. Gupta Overseas [2014] 42 taxmann.com 42 (Agra - Trib.)

CCI approves of combination of two banks as resultant business would have insignificant impact on competition

Proposed combination was to be approved when presence of acquirer in mortgage and banking business in India after proposed combination was insignificant and same did not have any appreciable adverse effect on competition.

Facts:

a)  A notice was given under section 6 of the Competition Act, 2002 (‘the Act’) to the Commission for the proposed combination relating to the acquisition by Ratnakar bank of the 'Relevant Business' of RBS, which included credit card business, mortgage portfolio business and banking business, pursuant to the Master Sale & Purchase Agreement;

b)  Mortgage portfolio included housing loans and loans against property and banking business' includes providing small and medium sized enterprises with high end products and services.

The Competition Commission of India held as under:

1)  Both Ratnakar Bank and RBS have a relatively small number of branches operating in India. They provide banking and financial services in India;

2)  After the proposed combination comes into effect, RBS would exit the credit card business, mortgage portfolio and business banking segment;

3)  The Ratnakar Bank has no presence in the credit card business. Its presence in the mortgage and banking business in India would be insignificant after the proposed combination;

4)  Thus, the proposed combination was not likely to have an appreciable adverse effect on competition in India and, therefore, it was to be approved under sub-section (1) of section31 of the Act -  Ratnakar Bank Ltd., In re [2014] 41 taxmann.com 331 (CCI)

Hiring of vehicle on hourly basis shifts TDS obligations from sec. 194C to sec. 194-I front yard

Where assessee entered into an agreement with a contractor for hiring of vehicles and made use of vehicles and paid hire charges on number of hours of use, section 194-I and not section 194C would be attracted.

Facts:

1)  The assessee entered into an agreement with contractor for hiring of vehicles to be used for loading, unloading and transportation of goods. It applied provisions of section 194C and deducted tax at 2 %;

2)  However, the Assessing Officer (‘AO’) held that the assessee was to deduct tax at source under section 194-I;

3)  On appeal, the CIT(A) confirmed the order of AO which was further affirmed by the Tribunal. Aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1) The agreement entered into by assessee was composite agreement for hiring of vehicles to be used for loading, unloading and transportation of goods;

2) The owner of the vehicles was to retain ownership and possession of the vehicles. The vehicles were to be driven and operated by the persons who were to be paid by the owner;

3) The agreement did not require the owner of the vehicles to do any work at all. It was the assessee who made use of the vehicles. He paid hire charges on the number of hours of use and, thus, clearly the assessee was not justified in contending that section 194C was applicable;

4) What the assessee was permitted to do with the vehicles alone was mentioned in the contract. All those works were done by the assessee and no work within the meaning of section 194C was actually done by the owner;

5) Section 194-I specifically contemplates liability of person paying rent to deduct income tax at the rate of ten per cent for the use of any machinery or plant or equipment. Thus, in the instant case section 194-I was attracted instead of section 194C - Three Star Granites (P.) Ltd. v. ACIT [2014] 41 taxmann.com 91 (Kerala)