Delay in filing of appeal due to resignation of key employee dealing with case was condonable

Where assessee directed its CA to file appeal before Tribunal but its manager resigned at crucial stage and CA delayed filing of appeal, delay could not be said to be entirely on account of assessee and, hence, was to be condoned

Facts:

a)The AO made assessment on assessee under section 143(3) and made additions to its income. On appeal, the CIT(A) confirmed the additions.

b)Further, the Tribunal rejected appeal of assessee against the order of the CIT(A) on the ground that there was delay of forty five days in filing the appeal. The aggrieved-assessee filed the instant writ.

The High Court held in favour of assessee as under:

1)The assessee could not be held entirely responsible for the delay. It had engaged a firm of Chartered Accountants to represent it. It had prosecuted the appeals for the other three years duly and diligently and, in fact, successfully. 2)It instructed the CA to file the said appeal prior to the last date

for filing the same. Even if there was any delay, it was not on account and certainly not on account of the assessee. The assessee's manager had resigned at a crucial stage was another factor in its favour.

3)The assessee had been put to incur considerable expenses and effort merely to obtain a hearing on merits. The assessee could, by no stretch of imagination, be said to have waived off its rights. This was clear from the fact that the assessee had duly and diligently prosecuted the appeals in respect of the three other assessment years.

4)But for the unfortunate circumstances, this appeal would also have been heard on merits in the normal course. The assessee was not entirely at fault for the delay and negligence in prosecuting the fourth appeal. Thus, there was no justification in denying the assessee an opportunity of having its appeal considered on merits. Even assuming that there was some negligence on its part, the same had caused the revenue no prejudice whatsoever. - BAJAJ BHAVAN OWNERS PREMISES CO-OP. SOCIETY LTD. V. ITAT [2014] 45 taxmann.com 231 (Bombay)

Liability to pay interest under IT Act remained intact even if assets of assessee were attached under other Act

Even a notified person whose properties were attached under Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 would be liable to pay interest under sections 234A, 234B and 234C.

Facts

a)The assessee was notified under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. The assets and properties of the assessee were attached by operation of the statute.

b)Interest for default in making payment of advance tax was levied on the assessee. The assessee submitted that its assets and properties were statutorily attached and permission to deal with the same, sought from the Special Court, was rejected and, thus, it was prevented from discharging the liability to pay the advance tax.

c)The Tribunal held that the provisions of sections 234A, 234B and 234C were not applicable to the notified persons and therefore, they were exempted from the liability to pay interest.

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

1)The Tribunal had erred in taking a view that the assessee being a notified person under the Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 was not liable to pay interest under sections 234A, 234B and 234C.

2)Thus, merely because the assets and properties had been attached, it did not mean that the liability to pay interest would not arise. - CIT v. Cascade Holdings (P.) Ltd [2014] 45 taxmann.com 228 (Bombay)

Forced staying period in India on impounding of passport is excludible to determine residential status in India

In order to determine residential status of assessee in India during relevant assessment years, number of days of his forced stay due to untenable impounding of passport was to be excluded.

Facts:

a)Consequent to search operations carried out on assessee, the department had found evidence that assessee was getting huge amount of commission from the companies outside India which was brought into India in the form of FDI.

b)Accordingly, the AO had made additions to the income of assessee in respect of unexplained investment. The assessee contending that for relevant assessment years his status in India was that of non-resident as his stay in India had exceeded 182 days during the year because of illegally impounding of his passport by the Govt. agencies.

c)The CIT(A), however, confirmed the order of AO. He, however, partly deleted the additions made by the AO on merits. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The assessee's over stay in India was neither attributable to his volition nor free will and was because of untenable actions of impounding of his passport by executive orders which were quashed by the highest Court.

2)In these circumstances, the literal meaning of the provisions led to a manifest absurdity in as much as by untenable actions of executive, a taxpayer was exposed to the perils of losing his valuable right under taxation law, i.e., retaining his NRI status.

3)The legislature in its wisdom might not have envisaged such a situation wherein a person was forced to become a resident due to wrongful restraint in absence of eligibility to travel outside India.

4)Therefore, assessee's case was fit where doctrine of forced meajure might be applied as it was impossible for the assessee to move out of country and, therefore, doctrine of impossibility of performance was also applicable.

5)The stay of assessee was to be calculated after exclusion of days of wrongful impounding of his passport, which constituted forced stay in India. Thus, assessee's residential status was to be held as 'non-resident'. – SURESH NANDA V. ACIT [2014] 45 taxmann.com 269 (Delhi - Trib.)

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)