AO is to abide by SetCom's order; he can only raise consequential demand to give effect to same, says HC

The Assessing Officer cannot go beyond order passed by Settlement Commission and he could only raise a consequential demand while giving effect to order passed by Settlement Commission.

Facts:

a)The assessee-company filed the Settlement application. The Settlement Commission (‘SetCom’) passed the final order on the issues raised by the assessee.

b)The Assessing Officer (‘AO’) had calculated tax and interest payable by assessee after giving effect to the order passed by the SetCom. The assessee disputed period of interest under section 220(2) and submitted the miscellaneous application before SetCom which was rejected by it.

c)Thereafter, the assessee submitted the application under section 154 before the AO which was dismissed by him.

d)Further, the appeal filed before the CIT(A) and ITAT were dismissed. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of revenue as under:

1)It was not in dispute that the Assessing Officer originally passed the order considering the order passed by the Settlement Commission under section 245D(4). Therefore, as such the Assessing Officer had given effect to the order passed by the SetCom.

2)The AO could not go beyond the order passed by the SetCom and he could only raise a consequential demand after giving effect to the order passed by the SetCom under section 245D(4).

3)Thus, no substantial question of law arose in the instant case. Hence, the instant case was to be dismissed.- MAHAVIR ROLLING MILL (P.) LTD. V. ITO [2014] 45 taxmann.com 431 (Gujarat)

CBDT notifies new Wealth-tax return form– Mandates e-filing except for those individuals or HUFs who not liable to tax audit

Earlier return of wealth-tax was required to be filed by individuals, HUFs and Companies in paper format alongwith certain documents(in specific cases) in Form BA. The CBDT has now notified new Form BB for filing of wealth-tax returns. The new provisions for filing of Wealth-tax return shall be as under:

a)E-filing of wealth tax returns: Taxpayers shall file return of wealth-tax electronically in new Form BB from Assessment Year 2014-15. However, individuals or HUFs can still file return in paper format if they are not liable for tax audit under Section 44AB of Income-tax Act, 1961.

b)Paperless return – Requirement as to furnishing of following documents alongwith return of wealth-tax has been dispensed with:

• Statement showing computation of tax payable;
• Proof of tax and interest paid;
• Any document or copy of any account, and
• Form of report of valuation by Registered Valuer.

No registration to a trust if its financing activities weren’t carried out for furtherance of its objects

Principal activities of metropolitan development authority were to be ascertained before denying it registration under section 12A on account of financing and rental activities.

Facts:

a)The assessee, a city metropolitan development authority under section 12, was established under a State Act, viz., MMRD Act. The assessee was claiming exemption under section 11.

b)It earned interest on sums lent to various organizations and lease rental of its property. The DIT(E) cancelled/withdraws its registration under Sec. 12A on the ground that activities carried out by it were commercial in nature.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)There was no finding that interest and rent receipts were integral to the assessee's functioning or its principal objects, so as to be considered as arising on account of activities necessary for the furtherance of the objects of assessee.

2)There ought to have been some principal activities for financing and rental activities to be considered as necessary and incidental thereto. The physical and/or functional correlation between the two would decide this aspect of the matter.

3)Such a finding was necessary to satisfy conditions stipulated under section 12AA(3). Thus, as the issue of applicability of section 12AA(3) in the instant case being factually indeterminate, the case was to be restored to the DIT(E) for passing a speaking order in accordance with law. - MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY V. DIT(E) [2014] 45 taxmann.com 354 (Mumbai - Trib.)

No business income if shares held as investments were sold within short span for better returns

Merely because assessee liquidated its investments within a short span, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investment in equity shares, but was actually intending to trade in shares.

Facts:

a)The assessee was engaged in the activity of investing in shares and showed the said shares as investments in the audited balance-sheet. Consequently, as and when the shares were sold, profit arising thereon was offered as capital gains.

b)However, during the year under consideration, the Assessing Officer did not treat the gain on sale of investment as 'capital gains' and instead treated it as 'business income'.

c)On appeal, the CIT(A) allowed assessee's claim. The Aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The treatment given by the assessee in its books of account was one of the decisive factors to find out whether the shares were held as investments or stock-in-trade. If the shares were bought with the intention of earning capital gains and dividend by keeping it as investment, the gain arising therefrom was to be treated as capital gains.

2)On the other hand, if the shares were purchased with the intention to earn profit thereon and the same was treated as stock-in-trade in the books of account, the profit arising on their sales would be liable to be treated as business income.

3)Merely because the assessee liquidated its investment within a short span of time, which had given better overall earning to the assessee, it would not lead to the conclusion that the assessee had no intention to keep them as investments.

4)The assessee had been consistently investing in shares and income arising from transactions of sale and purchase of shares had been shown as capital gains. Analysis of balance sheet of assessee reflected holding of shares as investments.

5)In the instant case, the assessee had made investment in shares with an intention to earn dividend income. Therefore, it could not be said that the assessee was doing business. Thus, resultant gains on sale of shares were to be taxed as capital gains instead of business income.- DY. CIT V. E-CAP PARTNERS [2014] 45 taxmann.com 342 (Mumbai - Trib.)

Even genuine transactions go through rigours of sec. 50C; provision applicable if stamp value exceeds actual price

Stamp duty value shall be deemed to be full value of consideration where consideration stated by assessee is less than stamp duty value and section 50C would operate, whatever may be the problems faced by an assessee.

Facts

a)The assessee sold her property below the market value adopted by the Registration Authorities . By invoking provisions of Section 50C, the Assessing Officer (‘AO’) had brought the difference (i.e., difference between actual price of property and value adopted by registration authorities) to tax.

b)The assessee substantiated her claim on the ground that the property was sold for lesser price on account of pending litigations with the tenants. On appeal, the CIT(A) deleted addition made by AO. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)Section 50C states that the stamp duty value shall be deemed to be the full value of the consideration where the consideration stated by the assessee is less than the stamp duty value. Being a deeming provision of Section 50C, it has to be strictly applied without widening its scope.

2)If the assessee had not been satisfied with the value adopted for the stamp duty purposes, the assessee could request the Assessing Officer to refer the matter to the DVO for valuation but assessee had not done so.

3)The misfortunes happened to the assessee or the difficulties faced by the assessee or the matter of distress sale, etc. could not be a ground to modify the valuation. If such extraneous factors were relied upon, the deeming provision of law stated in section 50C would be contravened.

4)Being so, the Assessing Officer had to complete the assessment as per the provisions of section 50C and whatever problem might have been faced by assessee, in reality; those reasons could not be permitted to go beyond the scope of section 50C- ITO V. SMT. CHITTI PARVATHA VARDHANAMMA [2014] 45 taxmann.com 327 (Hyderabad - Trib.)

ITAT finds objective of development and propagation of Islam as ‘charitable’; registration allowed

Facts:

a)The assessee-Waqf (Shia Dawoodi Bohra Jamaat Waqf) was created vide indenture dated 9-7-1920 and was duly constituted waqf under Waqf Act, 1995.

b)It applied for registration under section 12AA. The DIT(E) denied registration on ground that assessee was not brought into existence either as trust or society.

c)The Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The object of assessee-Waqf was as under:

a)To advance, promote, propagate and preach the religion of Islam amongst the Dawood Bohras,

b)To develop, expand, renovate and maintain masjids, madresa, jamatkhanas, etc.

2)Waqf was created by Customs and tenants of Dawoodi Bohra community well before the enactment of the Income Tax Act, 1961. As the Waqf was existing prior to Income-tax Act, 1961, the object beneficial to a section of the public was an object of "general public utility".

3)To serve as a charitable purpose, it was not necessary that the object must be to serve the whole mankind or all persons living in a country or province. Even if a section of the public is benefited, it cannot be said that it is not a trust for charitable purpose in the interest of public.

4)For granting registration it would be sufficient if the object was beneficial to a section of the public, who were Muslims. Thus, there was no merit in the order of the DIT(E) for denial of registration under section 12AA. - SHIA DAWOODI BOHRA JAMAAT WAQF V. DIT(E) [2014] 45 taxmann.com 340 (Kolkata - Trib.)

TARC key recommendations –Abolition of post of Revenue Secretary, merger of CBDT-CBEC and no retro amendments

Key Recommendation of TARC is as under:

1)Merger of CBDT and CBEC: Taxpayer service delivery will be located under one umbrella for large taxpayers, i.e., the CBDT and CBEC will jointly function for large taxpayers through Principal DG (LBS). For other taxpayers, i.e., medium and small, the operations of the CBDT and CBEC will continue in separate chains;

2)Pre-filled tax returns: Pre-filled tax returns should be provided to all individuals. The taxpayer will have the option to accept the tax return as it is or modify it. In either event, the filing process would be completed with the submission of the tax return electronically.

3)Abolition of post of revenue Secretary: The post of revenue secretary should be abolished. The present functions of the Department of Revenue should be allocated to the two Boards. This would empower the tax departments to carry out their assigned responsibilities efficiently

4)Dispute management: Following recommendations made for dispute management: a)Retrospective amendment should be avoided as a principle.

b)The current practice of raising demands irrespective of merits should be discontinued.

c)The jurisdiction of AAR should be made available for domestic cases also. More benches of AAR should be established at specified locations.

5)Widening the use of PAN: The present PAN should be developed as a Common Business Identification Number (CBIN), to be used by other government departments also such as customs, central excise, service tax, DGFT and EPFO.

6)One Registration for excise and service-tax: Both central excise and service tax should be covered under a single registration as both the taxes are administered by the same department and cross utilisation of credit is permitted between central excise and service tax under the CENVAT credit rules.

7)Filing of return:

a)I-T returns should also include wealth tax return so that the taxpayer need not separately file wealth tax returns. These returns should also be processed together in the CPC at Bengaluru.

b)The disclosures in the return should include a brief mention of the issues on which there has been an on-going litigation between the tax administration This is to protect taxpayers from allegation of non-disclosure, suppression, escapement of income, etc., which often results in the initiation of penal provisions.

8)Constitution of centralized processing units of CBEC: The CBEC should set up centralized processing units in line with the CPC, Bengaluru, and CPC-TDS at Ghaziabad for processing central excise and service tax returns.

9)Single return for service tax and excise: There should be a common return for excise and service tax.

10) TDS:

a)The insistence on manual filing of TDS certificates before AO for verification of refunds claim should be done away with.

b)The CPC-TDS should allow correction in the name of the deductees to avoid multiple submissions of TDS forms.

c)Once TDS is deducted from a payment, TDS should get credited to the taxpayer’s account. This should be like an account with running balance, to be utilized by the taxpayer at his option to set off his tax liabilities.

11)Refund

a)Refunds sanctioned should be paid along with the applicable interest automatically as is done in the case of income tax and not on demand by the taxpayers.

b)As in the case of direct taxes and customs duty drawback, the refund and interest payment should be directly credited to the bank account of the taxpayer.

c)The rate of interest on refunds should be the same as the interest charged by the tax department. This would ensure equity between the two interests and would not disadvantage the taxpayer unduly.

12)Foreign Tax credit (‘FTC’): The CBDT should come out with clear FTC guidelines, which should also cover the timing differences between different tax jurisdictions.

Interest earned from investment of grant isn’t taxable if it is repaid to grantor or reduces future grants

Interest earned on investment of grant could not be said to have accrued to assessee if the Govt. had given instruction that such interest had either to be refunded back to it or had to be adjusted against future grants.

Facts:

a)The assessee-company was a Special Purpose Vehicle (‘SPV’), created for implementing the projects funded under the Industrial Infrastructure Up-gradation Scheme (IIUS) by the DIPP, Ministry of Commerce.

b)It had received grant from the Govt. and kept said amount in short-term deposits in bank. It earned interest income on such deposits. During assessment, the Assessing Officer (‘AO’) treated the impugned interest as income from other sources. On appeal, the CIT(A) upheld the order of the AO.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)The Central Government, through DIPP, had issued a letter to all the SPVs implementing the IIUS projects, giving certain instructions. The Government had given a clear instruction that interest on short-term deposits either had to be refunded back to the Government or had to be adjusted against the future grants to be released for implementing the project.

2)The interest earned on fixed deposits would be reduced from the grants. Therefore, the interest on short-term deposits would partake the character of grants, unless it was refunded back to the Government.

3)In either case, interest earned on short-term deposits could not be said to have accrued as income to the assessee. The instruction issued by the Government also made it mandatory that the SPV would not utilize the interest earned on the grant for any purpose.

4)The interest earned on short-term deposits could not be treated as income of the assessee, when the assessee had no domain over such income. If the interest income was adjusted against future grant, it would partake the character of the grant itself and it could not be treated as income of the assessee.

5)The AO was required to decide the instant issue after verifying whether the interest earned on short-term deposits had been refunded to the Government or had been adjusted against any future grant.- HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. V. ADIT (International Taxation) [2014] 45 taxmann.com 339 (Hyderabad - Trib.)

No capital gains when revaluation reserve is credited to partner’s capital account; not taxable under sec. 45(4)

Where revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio did not entail any transfer as defined under section 2(47), gains on revaluation could not be brought under tax net.

Facts:

a)The assessee was a partner in Cable TV advertising business. The partnership firm had revalued network rights and corresponding credit in respect thereof was given to the partners including the assessee.

b)After revaluation of network rights, revaluation reserve was credited to partners' capital account and the assets account was debited in the books of the partnership firm. The Assessing Officer (‘AO’) held that the revalued sum was to be charged to tax as the assessee had earned short-term capital gain.

c)On appeal, the CIT(A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal

. The Tribunal held as under:

1)Crediting the amount of revaluation reserve to partner's capital account does not amount to transfer of partnership firm's assets to the individual partner. As per settled principle of law of partnership, during continuation of partnership, partners do not have separate rights over the assets of firm in addition to interest in the share of profits;

2)After revaluation also, there would neither be division of assets nor any realization of assets. Networking rights were property of partnership firm until date of its conversion into a company as per Part IX of Companies Act. Provisions of Section 45(4) would not be applicable to firm or to partners as there was no official dissolution of firm and distribution of assets of firm among partners.

3)Revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio would not entail any transfer as defined under section 2(47), hence, gains on revaluation could not be brought under tax net

4)Thus, there was no merit in the action of the lower authorities in bringing gains on revaluation under the tax net. – RAVINSHANKAR R. SINGH V. ITO [2014] 45 taxmann.com 359 (Mumbai- Trib.)

Sum paid to unrelated party via banking route after deduction of tax at source couldn’t be treated as bogus

The sums paid to unrelated parties could not be treated as bogus if they were paid through banking channel after deduction of tax thereon.

Facts:

a)The Assessing Officer disallowed consultancy charges paid by assessee by treating them as bogus expenditure.

b)He made the disallowance on ground that consultancy was not provided by parties, as no reply was received from them in respect of letters issued to them.

c)On Appeal, the CIT (A) deleted such additions. Further, the Tribunal held in favour of assessee. The Aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The Tribunal, after taking into account substantiating material produced before it, rightly concluded that it was difficult to believe that any assessee would claim such bogus expenditure, when it was eligible for 100% deduction under section 80IA;

2)In addition, even otherwise, the services rendered by Consultants were not found to be doubtful. The doubt was only with regard to the quantum of services rendered by them;

3)However, when payment was made to unrelated parties through the baking channel after deduction of tax, the appellate authorities had rightly addressed the instant issue;

4)Thus, the sums paid to unrelated parties could not be treated as bogus if it they were paid through banking channel after deducted of tax thereon. – CIT V. MUNDRA PORT AND SEZ LTD [2014] 45 taxmann.com 361 (Gujarat)