Cost of improvement is allowable even if it’s sourced through general loan and through housing loan

Merely because loan used by assessee in improvement of house was a general loan and not a housing loan, cost of improvement could not be disallowed.

Facts:

a)  The assessee had borrowed loan from a bank for improving the house property. He had sold said property and while computing capital gains, he had claimed cost of improvement.

b)  The Assessing Officer had disallowed the claim of assessee merely because the loan was classified as a general loan and not as a housing loan. 

The Tribunal held as under:

1)  The assessee had claimed deduction of cost of improvement of property while computing capital gains during the assessment year 2006-07;

2)  The original construction of property was made in the year 1991-92, thus, there would have been some kind of improvement or maintenance after lapse of so many years. Therefore, the assessee’s claim could not be rejected in toto;

3)  The assessee would have spent considerable amount during the assessment year 2006-07 at least for maintenance of the building, if not on improvement of the original construction.

4)  Thus, cost of improvement could not be disallowed merely because it was sourced through general loan and not through housing loan. Therefore, rejecting the claim of the assessee in toto was not justified. - K.K. Venugopalv. Dy. CIT [2014] 42 taxmann.com 389 (Cochin - Trib.)

Sec. 54F relief can’t be denied if assessee merely pays booking amount one year prior to date of transfer

Mere booking of flat one year prior to date of transfer of asset did not vest assessee with ownership of new asset and it was only by virtue of registered sale deed executed within prescribed time period under section 54F assessee became owner of flat. Thus, assessee's claim for deduction under section 54F was to be allowed

Facts:

a)  The assessee received compensation on acquisition of his land by State Industrial Area Development Board (SIADB). The assessee had declared long term capital gains after claiming deduction under section 54F in respect of investment made in purchase of a flat.

b)  The Assessing Officer found that assessee had availed housing loan and booked said flat one year prior to date of receipt of compensation, and accordingly, he rejected assessee's claim for deduction. 

c) On appeal, the CIT (A) held against the assessee. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  The authorities were not justified in holding that the investments were made one year prior to the date of receipt of compensation for the asset as the amounts paid by the assessee on booking of the asset had not vested the assessee with ownership of the new asset;

2)  The assessee had been vested with the ownership of the new flat only by virtue of the registered sale deed executed within prescribed time period under section 54F;

3)  Thus, the assessee's claim for deduction was to be allowed. The Assessing Officer was to be directed to allow the assessee’s claim of exemption under section 54F accordingly. - Gopilal Laddha v. ACIT [2014] 42 taxmann.com 390 (Bangalore - Trib.)

Sum paid in cash of smaller denomination in lieu of currency of higher denomination is out of ambit of sec. 40A(3)

No element of expenditure was involved when sums were paid by assessee-company to its managing director for conversion of currency in small denomination into currency of higher denomination, and, thus, provisions of section 40A(3) were not applicable.

Facts:

a)  The assessee-company paid sums to its Managing Director (‘MD’) for conversion of currency in smaller denomination to currency of higher denomination and certain sum was advanced to him for incurring of expenditure on behalf of assessee-company.

b)  The Assessing Officer was of the view that the provisions of section 40A(3) were attracted as the sums paid were in cash, and, accordingly, disallowed the same. On appeal, the CIT (A) deleted the disallowance.

c)  The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

On sums paid for conversion of money:

1)    It could not be disputed that there was no element of expenditure involved and there was no outgo of funds of the assessee-company, inasmuch as whatever amount was paid to the MD, was returned by him; only difference being in the size of denomination of the currency given and returned.

2)    Thus, the provisions of section 40A(3) were not attracted to this amount.

On sums paid as advances:

3)    At the point of time, when advance was given for incurring the expenditure, there was no outgo of funds of the assessee-company, and the actual outgo took place only when expenditure was actually incurred by MD or such other person to whom he passed on such sums for incurring expenditure on behalf of the assessee-company;

4)    In the instant case, the process prior to actual incurring of expenditure was also recorded in the form of advances given, etc. The money did not go out of the coffers of the assessee-company unless and until the amount of such advance was spent towards any expenditure on behalf of the assessee-company;

5)    It was only the outgo of funds in the form of expenditure exceeding Rs. 20,000 in cash at a time, out of the coffers of the company, that would attracted the provisions of section 40A(3). Thus, the CIT (A) was justified in deleting the disallowance under section 40A(3).- ACIT v. Dodla Dairy Ltd [2014] 42 taxmann.com 407 (Hyderabad - Trib.)

Explicit religious trust won't get registration; Madarsa with dual purpose of charity and religious gets registration

The Supreme Court held as under:

1)  The objects of trust providing for activities of religious nature and were restricted to the specific communities were objects with religious purpose only. However, other objects would not be purely religious in nature if such objects trace their source to the Holy Quran and resolve to abide by the path of godliness shown by Allah;

2)  The establishment of Madarsas or institutions to impart religious education to the masses would qualify as a charitable purpose under the head of education under the provisions of section 2(15). The Madarsas do not confine themselves to only dissipation of religious teachings but also contribute to the holistic education of an individual;

3)  Therefore, the objects of the trust exhibited the dual tenor of religious and charitable purposes and activities;

4)  From the phraseology in section 13(1)(b), it could be inferred that the Legislature intended to include only the trusts established for charitable purposes in such provision. That, however, would not mean that if a trust was a composite one, i.e., one for both religious and charitable purposes, it would not be covered by clause (b);

5)  What was intended to be excluded from being eligible for exemption under section 11 was a trust for charitable purpose which was established for the benefit of any particular religious community or caste;

6)  In the instant case, the objects of the trust were based on religious tenets under Quran according to religious faith of Islam. The perusal of the objects and purposes of the trust would clearly demonstrate that the activities of the trust, though, were both charitable and religious, yet were not exclusively meant for a particular religious community;

7)  The objects of trust did not channel the benefits to any community and, thus, would not fall under the provisions of section 13(1)(b).Thus, assessee was a charitable and religious trust which did not benefit any specific religious community and, therefore, it would be eligible to claim exemption under section 11.- CIT v. Dawoodi Bohara Jamat [2014] 43 taxmann.com 243 (SC)

SC upholds right of deductor to claim interest on excess TDS deposited to and refunded by revenue subsequently

The Supreme Court held as under:

1)  In the instant case, the deductor had paid taxes pursuant to a special order passed by the assessing officer. In the appeal filed against the said order, the assessee has succeeded and a direction was issued by the appellate authority to refund the taxes paid;

2)  When the said amount was to be refunded it would carry interest in the matter of course. Awarding interest was a kind of compensation for use and retention of the money collected unauthorizedly by the Department.

3)  When the collection was illegal, there was corresponding obligation on the revenue to refund such amount with interest as they have retained and enjoyed the money deposited;

4)  The object behind insertion of section 244A was that an assessee was entitled to payment of interest for money remaining with the Government which would be refunded.

5)  There was no reason to restrict the payment of interest to an assessee only without extending the similar benefit to deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company;

Thus, the deductor was entitled to interest under section 244A(b) from the date of payment of TDS, i.e., date of deposit of TDS with Government

Holding period of booking rights of flats to be counted from date of agreement and not from date of allotment letter

The issue for consideration of the High Court was:

Whether booking rights of apartment accrued to the assessee on the date of application for allotment/confirmation of allotment (‘confirmation letter’) or on the date of execution of the agreement to sell, i.e., the buyer's agreement? 

The High Court held as under:

1)  Booking rights in apartment could be held as long-term capital asset only after the period of 36 months from the date of buyer's agreement with builders;

2)  The 36 months period under section 2(42A) was to be counted from date of buyer's agreement and not from the date of confirmation letter if it was mentioned in the letter that no right to provisional or final allotment would be accrued until buyer's agreement was signed and returned to the builder.

3)  Thus, the builders do not intend to convey any right of provisional/final allotment or any right to claim title under the confirmation letter.

4)  It would be impermissible to conclude that right to obtain booking rights emanated from confirmation letter. These rights might only be prescribed in the buyer's agreement, and, thus, the date of signing of said agreement was to be considered as the date of acquisition of the capital asset.- Gulshan Malik v. CIT [2014] 43 taxmann.com 200 (Delhi)

No TDS from salary paid to NR working on a foreign ship for less than 90 days as it is exempt under sec. 10(6)(viii)

Payments made to foreigner-crew member of ship who had worked for a period of less than 90 days in India, were not income of employees in India liable to TDS.

Facts:

a)  The assessee entered into a contract with ‘Alfa Crew’, under which Alfa Crew was entitled to receive a fixed fee; salary of crew to be provided by Alfa Crew and handling charge of 5 per cent thereon.

b)  The assessee engaged the crew members as its employees. It withheld taxes on the fixed fees and handling charges yet, it did not withheld taxes on the amount of salary.

c)  The Assessing Officer did not allow deduction of salary by holding that the same was part of the fees for technical services, on which tax was deductible at source but same was not deducted; hence, said amount was specifically not deductible in terms of section 40(a)(i).

d)  Further, the CIT(A) held against the assessee. On appeal to the Tribunal, the assessee succeeded. Thus, aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)  The employees, being foreigners, had earned their salaries while working in India during a period less than 90 days, and those salaries, in view of section 10(6)(viii), were not income of the employees in India. Therefore, the assessee was not liable to deduct taxes on under section 192;

2)  Section 40(a)(i) would not be applicable in the instant case as the payments made were neither royalty nor fees for technical services;

3)  In view of section 10(6)(viii), the payment was not an income for the person, who received the same and, accordingly, was not chargeable under the head salaries. 

4)  Section 192 was applicable only when there was an income chargeable under the head 'salaries' and, as aforesaid, the payment made by the assessee, in the instant case, and the income derived by recipient, was though regarded as salary but never regarded as salary chargeable under this Act. Thus, the salaries were outside the purview of section 192 by reason of section 10(6)(viii). – DIT v. Dolphin Drilling Ltd. [2014] 42 taxmann.com 264 (Uttarakhand)

Sec. 54 relief allowed as two houses were acquired instead of one big house to avoid disharmony among children

Facts:

The assessee sold his house and invested the capital gains from sale of house in purchasing two independent residential houses for his two sons. 

The issue for consideration of High Court was:

Whether exemption under sec. 54 would be available in respect of two separate residential houses acquired out of capital gains?

The High Court held in favour of assessee as under:

1)  It was open to the assessee to purchase a big residential house out of the sales consideration so as to accommodate his two sons and avail of exemption under section 54. Instead, he chose to purchase two small residential houses to avoid any litigation or disharmony;

2)  The context in which the expression "a residential house" is used in section 54 makes it clear that it was not the intention of the Legislature to convey the meaning that it referred to a single residential house;

3)  The singular 'a residential house' also permits use of plural by virtue of section 13(2) of the General Clauses Act. Therefore, the acquisition of two residential houses by the assessee out of the capital gains would fall within the phrase 'residential house' and, accordingly, the assessee would be entitled to the benefit under sec. 54(1);

4)  However, while interpreting this word, the authorities have to keep in mind the facts of the particular case. When we hold 'a' could not be read as singular, it also could not be read as multiples and so as to avoid paying taxes. – CIT v. Khoobchand M. Makhija [2014] 43 taxmann.com 143 (Karnataka)

Corporate guarantees are outside the ambit of international transaction even after retro amendment to sec. 92B

The Tribunal held as under:

1)    Capital financing transactions (covered by the Explanation to section 92B) are international transactions only if they have any real bearing as distinct from contingent effect on the profits, income, losses or assets of the enterprise;

2)    When an assessee extends an assistance to the Associated Enterprise (AEs), which does not cost anything to the assessee, such an assistance or accommodation will not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B(1).

3)    Corporate guarantees issued for the benefit of AEs do not cost anything to the issuing enterprise and yet it might provide certain comfort levels to the parties dealing with the AEs;

4)    These guarantees do not have any impact on profits, income, losses or assets of the enterprise. Therefore, corporate guarantees do not fall within the scope of the term 'international transaction' even after insertion of Explanation to section 92B by Finance Act, 2012 with retrospective effect from 1-4-2002.- Bharti Airtel Ltd. v. ACIT [2014] 43 taxmann.com 150 (Delhi - Trib.)

Income of Malaysian branch of Indian Co. not taxable in India if it was taxable in Malaysia on existence of PE

Facts:

a)  The assessee, an investment company, had a branch in Malaysia. It had admitted foreign income from Malaysian branch in its return of income and had claimed exemption on as per India-Malaysia DTAA.

b)  Thus, the issue that arose before the Tribunal was whether the Malaysian Branch of the assessee-company had a permanent establishment in Malaysia?.

c)  The levy of tax on the income of Malaysian Branch entirely hinges on the aforesaid question. In case the answer to above question was in affirmative, the income arising from foreign Branch would be exempt from tax in view of DTAA between India and Malaysia.

The Tribunal held as under:

1)  The order passed by Tribunal in earlier assessment year relating to assessee's own case was as under:

a)  There was nothing on record to deny the Malaysian branch of assessee-company the status of a permanent establishment operating in Malaysia;

b)  There was no dispute that the taxability of the income of the assessee and its Malaysian branch was governed by the India-MalaysiaDTAA (‘treaty’);

c)  As far as the income attributable in the hands of the assessee's Malaysian branch was concerned, the income was to be taxed in Malaysia;

d)  The income generated in the hands of the Malaysian branch of the assessee company was rent and interest income. They were generated from assets of assessee situated outside India;

e)  Therefore, the income of Malaysian branch of assessee-company was liable for taxation in Malaysia. Once it was liable for taxation in Malaysia, treaty made it clear that the said income was not subjected to the jurisdiction of Indian taxation.

2)      Thus, following the aforesaid order, it was held that the Malaysian Branch of the assessee was having a permanent establishment in Malaysia and the income arising there from was not taxable in India in view of treaty.

3)      Thus, the appeal of revenue was to be dismissed. – ACIT v. Sivagami Holdings (P.) Ltd [2014] 42 taxmann.com 418 (Chennai - Trib.)