Interest paid on refundable deposits of tenants is allowable u/s 24 if deposits are used to repay housing loan

Interest paid on refundable security deposits received from tenants is allowable under section 24(b) if deposits are used to repay loan taken for purchase of house property.

Facts: a)The assessee had purchased immovable property after utilizing the unsecured loan taken from Reliance Industries ltd.

b)Thereafter, properties were let out and in terms of agreement refundable security deposits were received from tenants. These deposits were interest bearing where the assessee had to pay interest @ 6%. These deposits were utilized for the repayment of loan taken form the Reliance industries.

c)Assessee claimed deduction under Section 24(b) for interest paid on refundable deposits received from tenants on the ground that it was borrowed capital utilized for the repayment of old loan.

d)The Assessing Officer disallowed interest under section 24(b) but the CIT(A) allowed the claim of assessee. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)In order to decide issue of allowance under Section 24(b) it had to be decided as to whether refundable deposits received from tenants could be reckoned as "borrowed capital" within the meaning of section 24(b)?. The word "borrow" as defined in Law lexicon (2nd edition) means to take or receive from another person as a loan or on trust money or other article of value with the intention of returning or giving an equivalent for.

2)A person can borrow on a negotiated interest with or without security. If the deposits are interest bearing and are to be refunded back, then debt is created on the assessee which is liable to be discharged in future.

3)Here the concept of debt had to be understood as per the terms of the parties. If the deposits had been security deposits simplicitor to cover the damage of the property or lapses on part of the tenant either for non-payment of rent or other charges, then such a deposit could not be equated with the borrowed money, because then there was no debt on the assessee.

4)The moment a deposit is accepted on interest, then it partakes the character of borrowed money. It was an undisputed fact that these interest bearing deposits had been utilized for repayment of borrowed capital. Thus, interest paid on refundable deposits would be deductible under Section 24(b). – ITO V. STRUCTMAST RELATOR (MUMBAI) (P.) LTD. [2015] 56 taxmann.com 107 (Mumbai - Trib.)

No disallowance of loss claimed in return filed u/s 153A after the due date prescribed under sec. 139(1)

Where assessee did not file its return under section 139(1) as he was statutorily required to file its return under section 153A, loss claimed by assessee could not be disallowed on ground that return was filed after due date prescribed under Section 139(1).

Facts:

a)A search and seizure operation was carried out by the department on assessee. Pursuant to the search, notice under Section 153A was served.

b)Assessee had not filed any return of income under Section 139(1) for the reason that assessment proceedings had abated in view of the second proviso to section 153A(1).

c)The assessee had claimed loss in the return filed under Section 153A but such claim was disallowed by Assessing Officer ('AO') by observing that business loss was not allowed to be carried forward since the return was filed by assessee after the due date prescribed under Section 139(1).

d)On appeal, the CIT (A) upheld the order of the AO and the aggrieved assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:

1)Section 153A provides that where a search is initiated under section 132, AO shall issue notice to assessee requiring him to furnish the return of income in respect of six assessment years.

2)It is specifically prescribed that the provisions of Section 153A, so far as may be, apply accordingly as if such return was a return required to be furnished under section 139.

3)The second proviso to section 153A(1)(b) provides that if on the date of search or requisition under section 132 or 132A any assessment or re-assessment proceedings relating to that particular assessment year falling within the six assessment years is pending, then the pending proceedings for the regular assessment shall stand abated and fresh assessment can be done only under section 153A.

4) The legislature has particularly used the words 'shall abate' and specifically it is also mentioned that return has to be filed under section 153A(1)(a) and such return is to be treated as the return of income required to be furnished under section 139.

5)In such circumstances, assessee was not supposed to file its return of income under section 139(1) because he was statutorily required to file return of its income in response to notice under section 153A.

6)Therefore, loss claimed by assessee could not be disallowed on ground that return was filed after due date prescribed under sec. 139(1).- MAITHANISPAT LTD. V. DEPUTY CIT - (2015) 55 taxmann.com 444 (Kolkata - Trib.)

Cash award received by editor for excellence in journalism is tax-free as it is a capital receipt

Rs. 1 lakh received by the assessee as an award from B.D. Goenka Trust for excellence in Journalism would be a capital receipt and, hence, not taxable.

Facts: a)Appellant-assessee was editor-in-chief of a reputed English magazine and derived income from salary, interest, dividend and property.

b)He claimed exemption of Rs.1 lakh received by him as an award fromB.D. Goenka Trust for excellence in Journalism.

c)The Assessing Officer (‘AO’) disallowed claim for exemption on the ground that it didn't satisfy conditions of section 10(17A) which exempts from tax awards instituted by Central/State Govt in public interest.

d)On appeal, the CIT(A) allowed claim of assesseebut same was reversed by ITAT. Aggreived-assessee filed the instant appeal before High Court.

The High Court held in favour of assessee as under:

1)The primary reason of giving award in the assessee’s case was not directly related to the carrying on of vocation as a journalist or publisher.The award for excellence in Journalism was directly linked with the personal achievements and personality of the assessee. Further, payment in the instant case was not of a periodical or repetitive nature.

2)The paymenthad been made by a third person andnot made by an employer, who was not concerned with the activities or associated with the "vocation" of the appellant.

3)It being a payment of a personal nature, should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo. The impugned prize money was paid to the assessee on a voluntary basis and was purely gratis. 4)Hence, cash award of one lakh received from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and would not be taxable under Income Tax Act. - AROONPURIE V. COMMISSIONER OF INCOME-TAX [2015] 56 taxmann.com 80 (Delhi)

Institute providing coaching to students appearing for competitive exams is eligible for sec. 10(23C) relief

A coaching institute imparting coaching to students for various competitive examinations is eligible for exemption under section 10(23C)(iiiad)

Facts:

a)The assessee-society was registered under section 12A with the object of providing coaching and training to students appearing in competitive examinations.

b)It claimed exemption under Section 10(23C)(iiiad) which was rejected by the Assessing Officer ('AO').

c)The AO opined that assessee-society could not be classified as a charitable institution as it was not created for imparting a systematic education.

d)On appeal, the CIT (A) held that the activities of the assessee were covered under the realm of 'education' and it was eligible for exemption under section 10(23C)(iiiad). The aggrieved-revenue filed the instant appeal before Tribunal

The Tribunal held in thefavour of assessee as under:

1)On examination of the definition of 'charitable purpose' under section 2(15), it is clear that education is one of the activities coming within the meaning of charitable purpose. It is a fact that the Supreme Court in case of Sole Trustee, LokaShikshana Trust v. CIT (1975) 101 ITR 234 observed that 'education' as used in section 2(15) could not be interpreted in a manner to mean that the expression 'education' envisaged under section 2(15) had to be given a restricted meaning and would only mean the education as imparted in schools and colleges.

2)If education was considered to mean training and developing the skill, knowledge, mind and character of students, then the activity of the assessee could be termed to be coming within the expression 'education' as used in section 2(15).

3)The provision contained under section 10(23C)(iiiad) uses the words 'Any University or other Educational Institution' solely for educational purpose and not for the purpose of profit. Thus, if the activities of the assessee' society had to be considered, it would be considered as other educational institution existing solely for educational purpose and without profit motive.

4)Thus, the coaching institute providing coaching to students appearing for competitive exams would be eligible for exemption under section 10(23C)(iiiad). - ADIT V. HYDERABAD STUDY CIRCLE - (2015) 55 taxmann.com 379 (Hyderabad - Trib.)

Marker and highlighter are 'pens' and exempt under Rajasthan Sales Tax Act, 1994; eraser and carbon paper are stationery and taxable

a)The assessee was engaged in the business of manufacturing (i) Marker or highlighter, (ii) Carbon paper, (iii) Stamp pad and ink of stamp pad (iv) Covert (eraser).

b)The assessing authority held that

a.Marker or highlighter would fall in the category of stationery, liable to be taxed at the rate of 4 per cent.

b.Carbon paper, Stamp pad, ink of stamp pad and Covert (eraser) would fall in the general category and liable to be taxed at the rate of 10 per cent.

c)The first appellate authority held that

a.Marker or highlighter would fall within the definition of a pen and, therefore, no tax was leviable thereon.

b.Other three items would fall within the category of stationery and were liable to be taxed at the rate of 4 per cent/8 per cent. d)The Rajasthan Tax Board sustained the order of the first appellate authority.

e)Revenue argued that marker/highlighter was only for the purpose of highlighting a portion or marking a portion for the benefit of a reader; one could not write words or figures with marker/highlighter as a pen could do and therefore, it could not fall within the category of 'pen'.

High Court held in favour of assessee as under:

1)Earlier, the category for classification of goods under Rajasthan Sales Tax Act, 1994 was 'all types of fountain pens, ball pens and accessories thereof' and afterwards it was exchanged to 'all types of pens including parts and accessories thereof, drawing materials and poster colours'. Therefore, the scope of pen was enlarged and marker or highlighter fell within the meaning of a pen. By highlighter or marker one could certainly write. Though the flow by writing from marker or highlighter might not be to that extent, but it was definitely instrument of writing. The Apex Court in the assessee's own case, titled as Camlin Ltd. v. CCE 2009 (11) VAT 28, observed that the fountain pens, marker pens, croquill lettering pens, sketch pens, etc. were definitely the instruments of writing.

2)The other category was 'all kinds of paper, stationery, greeting/wedding and other printed cards'. Therefore, the other three items, namely, Carbon paper, Stamp pad and ink of stamp pad and Covert (eraser) would fall within the category of stationery. The sales tax enactment was one which touched the common man and his everyday life. Therefore, the terms in the said enactment must be in the manner in which the common man would understand them.

3)In common parlance (i) Carbon paper, (ii) Stamp pad and ink of stamp pad and (iii) Covert (eraser) could certainly be called to be the items of stationery. These items would be available in a stationery shop alone. If one had to purchase such items, one would have to go to a shop of stationery only to get those items rather than from a textile or a grocery shop. Therefore, all these items formed part of stationery items and could not be termed as failing within the general category.

4)In view of the aforesaid, the order of the Tax Board deserved to be upheld - Assistant Commissioner, Anti Evasion, Rajasthan-I v. Camlin Ltd. (2015) 55 taxmann.com 369 (Rajasthan).

Non-furnishing of PAN by NR doesn't attract higher TDS rate of 20% u/s 206AA if tax rate under DTAA is beneficial

Where payment has been made to non-residents who did not have PAN and tax has been deducted on the strength of the provisions of DTAAs, the provisions of section 206AA could not be invoked by the AO to insist on the tax deduction at 20% having regard to overriding nature of Section 90(2).

Facts:

a)Assessee made payment of royalty and fee for technical services to non-residents after deducting tax at source in accordance with the rates provided under DTAAs.

b)It was noted by the AO that on account of payment of royalty and fee for technical services in case of some of the non-residents, the recipients did not have PANs. As a consequence, AO treated such payments, as cases of 'short deduction' of tax in terms of the provisions of section 206AA of the Income-tax Act (‘the Act’).

c)The AO contended that assessee was under an obligation to deduct tax at higher rate of 20% following the provisions of section 206AA, hence he raised demand relatable to the difference between 20% and the actual tax rate provided under the DTAAs.

d)Onappeal, the CIT(A) deleted the demandas he was of the view that Section 206AA would not be applicable in case of non-residents as the DTAA overrides the Act. The aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)Section 206AAof the Act prescribes that where PAN is not furnished by recipient of income on which tax is deductible the payer would be required to deduct tax at the higher of the following rates:

- At the rate prescribed in the relevant provisions of the Act; or

- At the rate/rates in force; or

- At the rate of 20%

2)Further, Section 90(2) of the Act provides that the provisions of the DTAAs would override the provisions of the Act in cases where the provisions of DTAAs are more beneficial to the assessee.

3)Thus, there could not be any doubt to the proposition that in case of non-residents, tax liability in India is liable to be determined in accordance with the provisions of the Act or the DTAA between India and the relevant country, whichever is more beneficial to the assessee, having regard to the provisions of section 90(2) of the Act.For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation.

4)It would be incorrect to say that though the charging section 4 and section 5 of the Act are subordinate to the principle enshrined in section 90(2) of the Act but the provisions of Chapter XVII-B governing tax deduction at source are not subordinate to section 90(2) of the Act. Notably, section 206AA of the Act is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source.

5)Therefore, where the tax has been deducted on the strength of the beneficial provisions of section DTAAs, the provisions of section 206AA of the Act could not be invoked by the AO to insist on the tax deduction at 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act. -DEPUTY DIRECTOR OF INCOME-TAX V. SERUM INSTITUTE OF INDIA LTD.[2015] 56 taxmann.com 1 (Pune - Trib.)

Discount allowed by ONGC to Oil Marketing Cos. for sale of petroleum products would not form part of sale price

Gujarat VAT - Where assessee for first quarter of April, 2014 to June, 2014 had given discount to Oil Marketing Companies on sale of its petroleum products by way of credit note, amount of discount would not form part of sale price as directed by Government of India.

a) The assessee was engaged in exploration, development and production of the petroleum products. It was obliged to act as an instrument to implement the policy of the Central Government subject to such directives as might have been issued by the President from time-to-time with a view to exercise control over strategic areas of economy and to serve public interest.

b) For the first quarter of April, 2004 to June, 2004, the assessee had given discount to the Oil Marketing Companies (OMCs) on the sale of its petroleum products as directed by the Government of India in its letter dated 27-8-2004 by way of a credit note dated 13-9-2004. It claimed that the amount of such discount would not form part of taxable turnover.

c) The assessing authority held that the discount given by the assessee to the OMCs on the sale of petroleum products was not an admissible deduction. The assessee was required to pay the tax inclusive of such discount.

d) Both, the First Appellate Authority and the Tribunal upheld the order of the Assessing Authority.

High Court held in favour of assessee as under: 1) The assessee could charge only such rate from the OMCs as Government of India directed.The broad formula adopted for such purpose was the crude price in international market minus the last discount which would prevail for a quarter. At the end of the quarter after, taking into consideration all the relevant factors, the Government of India would declare the final price.

2) Since for the petroleum products already supplied by the assessee to the OMCs during such quarter the invoices would have been raised on the basis of provisional discount, the adjustment would have to be done on the basis of final discount declared by the Government of India. Though in most of the cases, the final discount might have been higher than the provisional discount earlier declared, it was entirely possible that in some cases such final discount might have been lower than the provisional price. The assessee would eventually adjust its accounts with the OMCs by raising either the debit note or credit note, as might be required.

3) Perhaps it is a misnomer, though consistently so referred to by the Government of India as well as by the assessee, to term this component as discount. A discount is reduction in catalogue price for any reason recognised by the trade. In the instant case, there was no prefixed price which as per the trade practice was reduced by a discount given by the seller to the purchaser. It was a case where under a price control regime under the directives of Government of India, the assessee was obliged to sell its products at lesser than the market price. These terms were determined even before the sale. Initial invoices at the time of actual supply of petroleum products by the assessee were merely provisional. They were based on provisional price fixation by the Government. They were never meant to reflect final sale consideration for the goods sold. They were always subject to adjustment once the Government of India finally declared the reduced rate of specified petroleum products. Comparing the invoiced price with the finalised price after adjustment was a complete fallacy. Even invoiced price whenever based on provisional price fixed by the Government was always below the market price which the assessee could have fetched.

4) Therefore, the amount of discount given by the assessee to the OMCs on sale of its products would not form part of sale price. The assessee was not required to pay tax on such discount - ONGC Ltd. v. State of Gujarat - (2015) 55 taxmann.com 297 (Gujarat).

Dividend paid by foreign Co. abroad for shares deriving substantial value from Indian assets not taxable: CBDT

The existing provisions of Section 9 of the Act deal with cases of income which are deemed to accrue or arise in India. Sub-section (1) of the said section creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of said sub-section provides that all income accruing or arising, whether directly or indirectly, through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India.

The Finance Act, 2012 inserted an Explanation 5 to section 9(1)(i) to clarify that an asset or capital asset, being any share or interest in a company or entity registered outside India, shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.Further, the Finance Bill, 2015 clarified the meaning of the term "substantially", thereby putting to rest the never ending controversy and providing a stable taxation regime. However, apprehensions have been expressed about the applicability of the Explanation 5 to the transactions not resulting in any transfer, directly or indirectly of assets situated in India. It has been pointed out that such an extended application of the provisions of the Explanation 5 may result in taxation of dividend income declared by foreign company outside India, in respect of shares deriving substantial value from assets located in India. This may cause unintended double taxation and would be contrary to the object and purpose of amendment made by the Finance Act, 2012.

TheExplanation 5sought to clarify the source rule of taxation in respect of income arising from indirect transfer of assets situated in India.Thus, declaration of dividend by foreign company outside India does not have the effect of transfer of any underlying assets located in India. Therefore, CBDT has clarified that dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets located in India would not be deemed to be income accruing or arising in India by virtue of provisions of the Explanation 5 to Section 9(1)(i).

SEBI notifies revised delisting norms

In order to make delisting more effective, the SEBI has notified revised regulations for delisting process through the reverse book-building route that would make the delisting easier for companies. Under the revised norms the timeline for completing the process has been reduced. It provides for relaxation of rules on a case-to-case basis. The key features of amendment are as under:

i. Timeline for completing the delisting process has been reduced to 76 working days from 137 calendar days.

ii. Now stock exchanges would be given five working days to give their in-principle approval for delisting.

iii. SEBI has retained the reverse book building process for determining the price of shares for the purpose of delisting. However, delisting would be considered successful only if at least 25 % of the public shareholders would participate in the reverse book building process. Further, the shareholding of the acquirer, together with the shares tendered by public shareholders, should be 90 % of the company's total share capital.

iv. To ensure that a delisting plan has been decided in a fair manner, company's board would have to approve of it only after a due diligence process, for which it can appoint a merchant banker on behalf of the firm and the promoter.

v. Further, the company's board would have to certify that the company is in compliance with applicable securities law and that it would be in the interest of shareholders.

vi. Companies having paid-up capital of not more than Rs 10 crore, and networth that does not exceed Rs 25 crore as on the last day of the previous financial year are exempted from following the Reverse Book Building process.

vii. The exemption would be available only if there is no trading in the shares of the company in the last one year from the date of the board's resolution authorising the company to go in for delisting, and trading of shares of the company has not been suspended for any non-compliance during the same period.

Sec. 54 relief allowed on cap gain from land, viz, long-term asset, though flat that existed on it was short-term asset

Where assessee constructed a building on land, which was long-term capital asset even though said building was short-term capital asset, assessee was entitled to claim benefit of section 54 to the extent capital gain attributable to land.

Facts:

a)Assessee transferred a building (used for residential purposes) within 3 years of its purchase which was constructed on a land, viz, long-term capital asset.

b)Assessee claimed exemption under Section 54 in respect of investment made by him in another residential house to the extent capital gain attributable to sale of land.

c)The Assessing Officer (AO) opined that capital gain as was attributable to long-term capital asset, viz, land would not qualify for relief under section 54 as the building which existed on the same was a short-term capital asset.

d)The appellate authorities upheld the order passed by the AO. Aggrieved-assessee filed the instant appeal before the High Court. The High Court held in favour of assessee as under:

1)The legislature has defined the meaning of house property as ‘building or land appurtenant thereto’. In view of the aforesaid definition of house property, a land appurtenant to a residential house is entitled to benefit under Section 54. Therefore, if a land appurtenant to a residential house could be entitled to benefit under Section 54, it was difficult to accept that the land on which the residential building was constructed would not be entitled to the said benefit.

2)When a property, i.e., residential house is sold, the sale consideration includes the value of the land and the value of the construction. The AO treated the capital gain on sale of land (on which the residential house was constructed) as a long-term capital gain while the capital gain on sale of building was treated as a short-term capital gain. Therefore, if, for levying tax under the Act, such a distinction could be made, one failed to understand why that distinction would not be kept in mind in extending the benefit under section 54.

3)Therefore, the assessee was entitled to the benefit of section 54 to the extent capital gain attributable to land. - C.N. ANANTHARAM V. ASSISTANT CIT [2015] 55 taxmann.com 282 (Karnataka)