Sec. 54F stipulates deposit of unutilized sum within due date specified under sec. 139(1) and not sec. 139(4)

'Due date' mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4).

Facts:

a)The assessee had claimed exemption under section 54F. The Assessing Officer held that the assessee had not deposited the unutilized sale consideration in the capital gain account scheme within the due date for filing the return of income under section 139(1). He accordingly, denied section 54F benefit to the assessee.

b)On appeal, the CIT(A) allowed Section 54F exemption to the assessee. The aggrieved-revenue filed the instant appeal.

c)Thus, the question that arose for consideration of the Tribunal was: Whether Section 54F provided for deposit of unutilized gains within due date specified under Section 139(1) and not under Section 139(4)?

The Tribunal held as under:

1)The Section 54F provides that the assessee is entitled to exemption in case he/she constructs a residential house within a period of three years after the sale of the capital asset. However, sub-clause (4) of section 54F provides that the unutilized portion of the net sale consideration shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139.

2)The Apex Court in case of Prakash Nath Khanna v. CIT [2004] 135 Taxman 327 (SC), had an occasion to interpret the term ‘due date’ provided under Section 54F and it held that due date means the due date for filing the return under section 139(1) and not under section 139(4);

3)When the Legislature had specifically referred only to section 139(1) and omitted to refer to section 139(4) in Section 54F, making a reference to section 139(4) was not proper;

4)Thus, the case to be reconsidered by the AO in the light of the judgment of the Apex Court (Supra). Accordingly, the orders of the lower authorities were to be set aside and the issue of exemption under section 54F was to be restored to the file of the AO. – ITO V. SMT. ROSAMMA KORAH [2014] 45 taxmann.com 153 (Cochin - Trib.)

Payments of commission for services rendered in relation to securities are out of ambit of sec. 194H; no TDS

Services rendered in relation to securities are excluded from express definition of 'brokerage or commission' and, thus, excluded from purview of section 194H.

Facts

a)The assessee received certain amount from Mutual fund houses and paid commission to TPL on account of brokerage for motivating potential investors to invest through the assessee in Mutual funds. According to agreement entered into by the assessee, TPL canvassed and marketed various Mutual fund schemes to potential investors after collecting details from the assessee.

b)The Joint Commissioner passed an order under section 144A directing disallowance of the commission paid to TPL.

c)The Assessing Officer disallowed the commission paid by the assessee to TPL under section 40(a)(ia) on the ground that tax was liable to be deducted at source under section 194H, but had not been deducted.

d)On appeal, the CIT(A) set aside the disallowance holding that services rendered in relation to securities are excluded from the express definition of 'brokerage or commission' and, thus, excluded from the purview of section 194H. Further, the Tribunal upheld the order of the CIT(A). The aggrieved- revenue filed the instant appeal.

The High Court held in favour of assessee:

1)The Joint Commissioner was in error in holding that while TPL had motivated investors to subscribe to Mutual Funds, it had no connection whatsoever with 'securities' as defined in Explanation to section 194-H. Explanation (iii) to section 194-H specifically states that the expression 'securities' will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956.

2)Once it was an admitted position that TPL had motivated potential investors to invest through the assessee in Mutual Funds, it had to be held that these services were rendered in relation to a transaction in 'securities' and would be excluded from the definition of 'brokerage or commission' under section 194-H.

3)The CIT(A) was justified in coming to the conclusion that the services were rendered by TPL were in relation to 'securities'. Consequently, the disallowance under section 40(a)(ia) was not warranted.

4) Thus, there was no reason to hold that the Tribunal was in error. The appeal by the revenue had not given rise to a substantial question of law - CIT V. TANDON & MAHENDRA [2014] 45 taxmann.com 183 (Allahabad)

Details of assets reported in wealth-tax returns by loan defaulter to be shared by I-T Dept. with PSU Banks

Every Return of Wealth filed by the assessee is subject to assessment under the Wealth Tax Act (‘the WT Act’). The information contained therein qualifies for being supplied, provided that the CCWT/CWT is satisfied that supply of such information to Public Sector Banks (PSBs) would be in public interest.

The CBDT in this context has clarified that sharing of information on assets of loan defaulters to enable recovery of loans by PSBs from such defaulters would be in public interest. It has further clarified that such information may be provided in respect of the borrower/mortgager/guarantor of the loan only.

At the time of supply of such information a confidentiality clause may be included specifying that such information should be used only for the purpose of recovery of loan and will not be shared with any other person/agency.

To ensure that the tax dues of the Department against the defaulter (if any) are safeguarded, the PSBs are required to obtain a NOC from the jurisdictional CIT of the loan defaulter, information in respect of whom is shared by department. These guidelines are to be brought to the notice of all DGsIT, CCsIT and CsIT. – Letter No. F. No. 328/10/2014 – WT, dated 28-05-2014.

ITAT deals with ‘booking’ amount paid to acquire a new house; distinguishes between Ownership and Investment

Booking of two residential houses before the date of transfer would not provide ownership rights to assessee, thus, he could not be deemed to be owning two residential houses on date of transfer.

Investment in new house by payment of booking amount would be deemed as valid investment for purposes of Section 54F relief.

The issues that arose before the Tribunal were as follows:

a)Whether assessee could be deemed to own two residential houses on date of transfer if he had only booked two residential houses?

b)Whether booking of residential flats could be deemed as investments for purposes of exemption under section 54F?

The Tribunal held in favour of assessee as under:-

1)Proviso to Section 54F(1) provides that if assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset then he will not be entitled to exemption.

2)The meaning of term ‘owns’ used in proviso to section 54F has a different meaning. The owner here, means a legal owner who is entitled to receive income from the property in his own right. In the absence of possession, registration, title, etc., question of assessing ‘income from house property under section 22 of Income-tax Act (the Act) doesn’t arise.

3)When a flat is booked assessee has a ‘right to acquire’ and this right is not equivalent to ‘own’ a house. Therefore, by mere booking of flats, it could not be said that assessee had ownership of the flats. Thus, assessee did not own more than one residential house on the date of transfer of original asset.

4)With regard to purchase of new residential house, the provision does not lay down a condition that a new house should either be complete or it should be purchased as a complete habitable house. The aim is to direct the minds of the society towards purchasing new residential houses so that the menace of shortage of houses is tackled to some extent.

5)CBDT vide circular No. 471 dated 15/10/1986 and circular No. 672 dated 06/12/1993 had also clarified that the amount paid towards booking is to be treated for ‘construction’ for the purpose of section 54/54F.

6)Hence, owning of a residential house at the time of transfer of the original asset has different meaning and acquisition of new asset ‘which is equivalent to purchase of new residential house’ has entirely different meaning. The CIT(A) had misdirected himself in giving the same meaning to the residential house owned at the time of transfer of the original asset and the investment made out of the capital gain in the purchase or construction of new house, which has been defined as ‘new asset’ in the Act. Therefore, investment in new residential house by payment of booking amount only had to be allowed.- RAM PRAKASH MIYAN BAZAZ V. DY. CIT [2014] 45 taxmann.com 550 (Jaipur - Trib.)

vice-Presidents of ITAT is to be appointed on basis of merits without considering seniority of candidates

vice-President of ITAT is to be appointed on merits as per under Rule 7C of ITAT Members (Recruitment and conditions of service rules), 1963 rather on basis of seniority of candidates

Facts:

a)The Central government had appointed four vice-Presidents of ITAT on recommendation of Selection Committee.

b)The Committee selected the candidates on the basis merit by considering the Annual Confidential Report (ACRs) of the candidates.

c)Two senior judicial members of ITAT had filed appeal before Central Administrative Tribunal (CAT) contending that Selection Committee had overlooked their seniority while selecting candidates for the post of vice-President. The CAT had rejected their appeal, thus, they filed the instant writ.

The High Court held as under:

a)Rule 7C of ITAT Members (Recruitment and conditions of service rules), 1963 prescribes the constitution of Selection Committee to recommend person for appointment as President, senior vice-President and vice-President. It clearly provides for the appointment on basis of merit rather than on basis of seniority. As rule 7C was the sole guiding principle in the instant case, one could not be depart from it.

b)Selection of candidates on the basis of their ACRs was justified as Rule 7C mandatorily prescribes ‘merit’ as criteria for selection and Selection Committee had the discretion to decide what constituted ‘merit’ for the purpose of appointing individual to the post of vice-President.

c)Thus, Selection Committee had rightly made appointment of candidates to the post of vice-Presidents of ITAT on basis of merits without considering their seniority. d)Further, to allay any future apprehensions, the Central Government is required to frame certain guidelines applicable to future cases to make this decision making process fairer and reasonable-R.P. Tolani v. Union of India [2014] 45 taxmann.com 444 (Delhi)

Signing of development agreement couldn’t trigger capital gains tax unless developer discharged his obligations

Capital gains could not be brought to tax in year of signing of development agreement, as developer had not done anything to discharge obligations casted on it.

Facts:

1)During the relevant year, the assessee gave its land for development and received a refundable deposit from the developer. In terms of development agreement, the developer had to develop the property according to the approved plan and deliver to the assessee 38 per cent of the constructed area in the residential part.

2)The Assessing Officer opined that since the transfer had taken place during the year under appeal, in terms of the development agreement-cum-GPA, the assessee was liable to pay capital gain tax on the date of transfer.

3)The CIT (A) confirmed the order of Assessing Officer. The aggrieved-assessee filed the instant appeal.

The ITAT held in favour of assessee as under:

a)'Development Agreement-cum-General Power of Attorney' indicated that only a 'permissive possession' was handed over by assessee to the developer.

b)It was only upon receipt of consideration in the form of developed area by the assessee, the capital gain becomes assessable in the hands of the assessee.

c)Mere receipt of refundable deposit by assessee from developer could not be termed as receipt of consideration as no developmental activity was carried out on the land and even no approval for the construction of the building was obtained by developer.

d)While the assessee had fulfilled its part of the obligation under the development agreement, developer had not done anything to discharge the obligations cast on it under the development agreement, thus, capital gains could not be brought to tax in the year in which development agreement was signed by assessee- BINJUSARIA PROPERTIES (P.) LTD. V. ACIT [2014] 45 taxmann.com 115 (Hyderabad - Trib.)

Members of AOP couldn’t claim their share of loss when losses of AOP were wiped out due to late filing of return.

Where AOP did not file its return of loss in time and, thus, loss got forfeited, no member of said AOP could claim his share of loss against his individual income.

Facts:

a)The assessee, a member of Association of Persons (AOP), had entered into a joint venture to put up a wind energy generator. The AOP filed its return beyond the prescribed time-limit.

b)The assessee had claimed that his share of loss in the AOP could be set off against his individual income. The Assessing Officer (‘AO’) rejected the claim of assessee.

c)On appeal, the appellate authorities upheld the decision of AO. The assessee pointed out that section 80 makes no specific reference to section 67A, thus the question of rejecting his claim in respect of loss referable to AOP would not arise. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of revenue as under:

1)Section 67A(2) specifies that the apportioning of the share of a member in the income or loss of the AOP under the various heads of income has to be in the same manner in which the income or loss of the AOP has been determined under each head of income.

2)The determination of loss or income at the hands of AOP leads to the determination of the same at the hands of the member in his assessment. Hence, the grant of relief under section 67A is dependent on the determination of the income at the hands of the AOP.

3)The assessee could not take advantage of the absence of reference of section 67A in section 80 when the AOP was under the legal obligation to file its return declaring loss or income, as the case may be, and had defaulted in filing the return within the time prescribed.

4)The relief that had to be considered for the purpose of section 67A was not dependent on section 80 and for that matter, section 80 had nothing to do with the computation to be done under section 67A by the assessee. Thus, the share of loss of assessee in the AOP could not to be set off against his individual income.- N. JAGADEESAN V. ACIT [2014] 45 taxmann.com 95 (Madras)

Sum paid to foreign co. for production of 2D and 3D animated films wasn’t fees for technical service

No element of any technical services was involved in production of animation films, thus, provisions of section 9(1)(vii), would not apply to payments made by assessee to foreign sub-contractors for production of animated films.

Facts:

a)The assessee was engaged in production of 2D and 3D animation films. It had outsourced part of its project on sub-contract to foreign sub-contractors.

b)The assessee had made payments to foreign companies as per agreement, named as 'Outsourcing Facilities Agreement'. The Assessing Officer (‘AO’) held that the payments made to foreign companies were 'fees for technical services' and, thus, said payments were taxable in India.

c)Since the assessee had not made TDS before making aforesaid payments, it was to be treated as assessee-in-default under section 201 and 201(1A). On appeal, the CIT(A), set aside the order of AO. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee:

1)There was no element of any technical services involved in the production of animation films to attract the provision of section 9(1)(vii), read with section 5(2)(b).

2)It is possible that job undertaken by one party for the other party' of supply of any goods or services may involve utilization of the knowledge, information and expertise of the party undertaking the said job.

3)However, just because such expertise, knowledge, technology and experience are possessed by the said party and the same have been utilized for rendering the services, it cannot be said that the services so rendered are in the nature of technical and consultancy services without making any technology available to the other party.

4)Thus, the impugned payment made by the assessee could not be treated as 'fees for technical services'.

5)The foreign parties had not done any activity in India nor they had any permanent establishment in India. As there was no liability to deduct tax on the impugned payments under section 195, the AO was not justified in raising demand on assessee. Thus, the appeal of revenue was to be dismissed.- ADIT (INTERNATIONAL TAXATION) V. DQ ENTERTAINMENT (INTERNATIONAL) (P.) LTD [2014] 45 taxmann.com 17 (Hyderabad - Trib.)

Resident assessee can claim losses incurred from house property located abroad in return filed in India

An option is available to the resident-assessee to file return of income either under the Indian tax laws or under the treaty. If assessee files the return of global income in India, the Revenue is bound to give effect to such return. Therefore, losses from house property located abroad was to be included in the income of resident-assessee.

Facts:
a)The assessee filed his return of income after including losses from house property located abroad. He purchased this property in Australia which was already on rent. He obtained a loan from ANZ Bank, Australia (‘ANZ’) to purchase the property.

b)The loss was computed under the head house property due to payment of interest to ANZ.

c)During appellate proceedings, the CIT(A) referred to the decision of Apex Court in case of CIT V. PVAL Kulandagan Chettiar [2004] 137 Taxman 460 (SC) and held that as far as rent income from Australia was concerned, the assessee was required to file the return in Australia and such income could not be included in Indian income. Therefore, negative income could not be assessed in India.

The Tribunal held in favour of assessee as under:

1)In view of Section 5 of the Income-tax Act (‘the Act’) in case of a resident, income accruing or arising outside India had to be assessed in India. The Sec 90(2) of the Act clearly provides that wherever DTAA is applicable to assessee he has an option to apply either Indian Tax Laws or provisions of DTAA, whichever are more beneficial to him.

2)Therefore, the assessee had an option to file return of income under the Indian tax laws where DTAA was applicable.

3)In the instant case, the assessee had exercised the option of filing return under Indian laws, thus, the same could not have been refused simply because DTAA was applicable.

4)The decision in case of PVAL Kulandagan Chettiar (supra) was distinguishable because in that case the assessee was a resident of India and Malaysia. It was due to financial connection of the assessee with Malaysian property it was held that income from Malaysian rubber plantation was taxable only in Malaysia.

5)The assessee had right to file the return of global income in India and the Revenue was bound to give effect to such return. The CIT(A) was not correct in holding that income from house property in Australia was not assessable in India. Accordingly, the order of the CIT(A) was to be set aside and the Assessing officer was to be directed to include the loss from such house property in the hands of the assessee. - SUMIT AGGARWAL V. DY. CIT [2014] 45 taxmann.com 345 (Chandigarh - Trib.)

Exp. on higher education of director’s son was deductible as he committed to continue his employment after education

Where expenditure on higher education of employee had an intimate and direct connection with assessee's business, it would be deductible, even though such an employee was son of a director.
Facts:

a)The assessee, engaged in business of dealing in securities and investment, had incurred expenditure on higher education of 'D', an employee of the company, who happened to be the son of a director, for undertaking an MBA course in the UK.

b)The Assessing Officer rejected the deduction under section 37(1). Further, the CIT(A) and the Tribunal upheld the disallowance. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1)As assessee was in business of investments and securities and expenditure was incurred on MBA course of D, it couldn’t be said that course was unconnected with the business of the assessee.

2)The board of directors duly passed a resolution authorizing the disbursement of such expense. As assessee had secured a bond from ‘D’ by which he committed himself to work for a further five years period, after completing his MBA, such arrangement could not be regarded as a sham.

3)The expenditure claimed by the assessee to fund the higher education of its employee had an intimate and direct connection with its business, i.e., dealing in security and investments. It was, therefore, deductible under section 37(1). - KOSTUB INVESTMENT LTD. V. CIT [2014] 45 taxmann.com 123 (Delhi)