CIT(A) should adopt market rates in valuers directory/stamp duty reckoner in absence of sale instances in same area

Where no sale instances were available of same area, Fair Market Value of land could be determined by relying upon rate mentioned in Indian Valuers Directory and Reference Book and Stamp Duty Ready Reckoner and by adopting annual rate of appreciation method

Facts

a)The assessee-company sold its factory land. The assessee reported fair market value (FMV) of land as on 1-4-1981 at Rs. 14.12 crore on the basis of report of a registered valuer and, accordingly, it computed the capital gains;

b)As no instances of sale of similar property in same area were available, registered valuer determined the value of property by presuming the value it would fetch if residential flats were constructed and sold on that land in 1981, utilising the maximum Floors Space Index (FSI);

c)The Assessing Officer (AO) referred matter to Departmental Valuation Officer (DVO) who determined the value of land, taking into account rate of land in undeveloped industrial area as on 1-4-1981 as per Indian Valuers Dictionary and Reference Book (IVDRB), at Rs. 1.7 crore;

d)The Commissioner (Appeals)rejected the valuation made by registered valueras he determined the value of land on the basis of some imaginary situations. He also did not agree with the DVO’s valuation as land was situated in a developed industrial area;

e)The CIT(A) taking into account the rate quoted in IVDRB and Stamp Duty Ready Reckoner and by adopting annual rate of appreciation method worked out FMV at Rs. 2.78 crore;

f)Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of revenue as under:

1)It is true that for valuation purposes some kind of assumption has to be taken especially if valuation is to be done in the year 2001 for the year 1981. But, assumption should have some basis. In the instant case, the very base adopted by the valuer was totally improper as concept of FSI was not prevalent in the year 1981;

2)The value determined by DVO was also improper as land was situated in developed industrial area and not in under-developed industrial area;

3)CIT(A) determined the value of property by referring to IVDRB and stamp duty Ready Reckoner and by adopting annual rate of appreciation method. So, the method adopted by him was a better 'guess work' than the guess work done by the registered valuer. His estimation was also very near to the valuation made by the DVO;

4)Therefore, FMV adopted by the CIT(A) was more reasonable as compared to the FMV quoted by the registered valuer- PFIZER LTD. V. DCIT [2015] 56 taxmann.com 260 (Mumbai - Trib.)

No denial of sec. 54F relief on pretext of two houses when assessee had gifted one of them orally under Muslim law

Facts:

a)The assessee had sold a vacant site and purchased another vacant site. She deposited the balance capital gain in the Capital Gains Account Scheme to claim deduction under section 54F.

b)The Assessing Officer (AO) denied relief under Section 54F on the ground that the assessee was owner of two residential houses at the time of sale of vacant land.

c)The assessee contended that she was not owner of two houses as she had made an oral HIBA by which one of the properties was given as a gift to her daughter before the date of transfer of land.

d)The AO rejected the explanation taking a view that gift had not been executed by a registered document.On appeal, the CIT (A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:


2)However, the assessee herein was a Muslim andunder the Mohammedan Law, essentials of a gift are declaration of gift by the donor and acceptance of the gift by the donee and delivery of possession. This rule of Mohammedan Law was unaffected by the provision of section 123 of the Transfer of Property Act, 1882.

3)Thus,oral gift made by the assessee could not be disregarded by the revenue authorities.The requirements of a valid gift as per Mohammedan Law were duly satisfied inasmuch as there had been a declaration of gift by the donor and acceptance of gift by the donee and delivery of possession. The delivery in this case would only be constructive.

4)Since the gift satisfied all the requirements of Mohammedan law it had to be held as valid in law. Assessee could not be regarded as owner of two properties as one of themwas gifted by him before the transfer of vacant land. Thus, restriction placed under the proviso to section 54F(1) would not be attracted in the instant case - SMT. SAJIDA BEGUM V. ITO[2015] 56 taxmann.com 269 (Bangalore - Trib.)

Sec. 11 relief available to Indian Medical Association if it was endorsing health products to promote public health

Where assessee, Indian Medical Association, engaged in promoting public health, endorsed products of various companies due to their health and nutritional benefits, said activity could not be regarded as violative of provisions of section 2(15) and, thus, assessee's claim for exemption of income was to be allowed.

Facts:

a)The assessee-society was formed to promote public health and medical education in India.

b)The Assessing Officer (AO) noticed that assessee had received endorsement money for making endorsement of products of various corporate entities. Thus, he took the view that assessee society failed to comply with requirements of section 2(15) and rejected its exemption claim.

c)The CIT (A) opined that assessee had been able to demonstrate that it was engaged in promotion and advancement of the public health. Hence, its activities fell within the meaning of section 2(15).

d)The Aggrieved-revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under :

1)It was not the case of revenue that endorsement of healthy nutrition wasn't medically/scientifically incorrect. The assessee as per the mandate of its objects had endorsed products due to their health and nutritional benefits.

2)Therefore, activities of assessee to promote public health by endorsing products of various companies due to their health and nutritional benefits could not be said as violative of provisions of section 2(15).

3)Accordingly, assessee's claim for exemption of income was to be allowed. - ADIT V. INDIAN MEDICAL ASSOCIATION - (2015) 56 taxmann.com 271 (Delhi - Trib.)

Parking charges collected on vacant land were taxable even if developer was following project completion method

Where assessee-developer was following project completion method for payment of taxes, parking charges collected by him on vacant land had nothing to do with the completion of his project; he was obliged to pay on parking charges in year of receipt of parking charges.

Facts:

a)The assessee, being a builder and developer was following project completion method for purposes of paying taxes.

b)He had generated income in assessment year 2000-01 on account of parking charges collected on the vacant land. Since assessee had not filed his return of income of AY 2000-01, a notice under section 148 was issued and income received from parking charges was assessed to tax.

c)On appeal, the CIT (A) set-aside the order of AO on the ground that the amount earned by assessee by exploiting vacant land was an amount relatable to costs of the project and therefore, was taxable in subsequent years. Further the Tribunal set aside the order of the CIT(A)

d)Consequently, AO charged interest u/s 234A and 234B in respect of default in payment of advance tax for the assessment year 2000-01. CIT (A) and Tribunal upheld AO action of AO. The aggrieved-assessee filed the instant appeal before High Court.

The High Court held in favour of revenue as under :

1)The non-filing of return of income by assessee was on the ground that the income earned on parking charges would have to be returned when the project would be completed. This was not accepted as the amount received on account of parking charges was not a part of any project. Thus parking charges was brought to tax in Assessment Year 2000-01.

2)It had been held by the Tribunal that the amount received on parking charges had nothing to do with the appellant's project and was assessable to tax in Assessment Year 2000-01. This has been accepted by the assessee. Thus, the assessee was obliged to pay advance tax and non-payment of the same would carry with it the further burden on interest under Section 234B of the Act.

3)Therefore, the AO was right in charging interest in respect of default in payment of advance tax for the assessment year 2000-01. - SUDHIR G. BORGAONKAR V. ACIT - (2015) 56 taxmann.com 188 (Bombay)

Even investment in name of partners would provide sec. 54EC relief to partnership firm

Facts: a)Partners of assessee-firm introduced land and building as their capital contribution to firm.

b)The firm carried out its operation from such land and building after its formation. Subsequently, firm sold said land and building and earned capital gain.

c)Sale consideration of property was credited directly to bank account of partners of firm and bonds specified under Section 54EC were also purchased in names of those partners.

The issues that arose before the Tribunal were as under:-

I.Whether capital asset introduced by partners could be said to be the property of the firm and, thus, capital gain arising on sale of such building was taxable in hands of firm?

II.Whether a firm could claim exemption under section 54EC where specified bonds were purchased in name of partners?

On the first issue the Tribunal held that:

By relying upon the judgment of Allahabad High court in the case of K. D. Pandey v. CWT [1977] 108 ITR 214, it was held that where partners of firm introduced land and building as their capital contribution to firm, said land and building would become property of firm and, therefore, capital gain arising on sale of said property was taxable in hands of firm.

On the second issue the Tribunal held that:

1)Partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner, though not specifically defined in terms of their shares.

2)It was not disputed that the sale consideration was directly credited to the Bank accounts of the partners and firm was immediately dissolved subsequently. Therefore, whatever amount was invested by the partners in specified bonds in their individual names was, in fact, from the funds of the firm.

3)Hence, benefit of section 54EC could not be denied to the assessee-firm,even though the bonds were purchased in the name of partners- CHAKRABARTY MEDICAL CENTRE V. TRO [2015] 56 taxmann.com 76 (Pune - Trib.)

Snippets of New ITR Forms and e-Filing requirements: Assessment year 2015-16

CBDT has amended Rule 12 of Income-tax Rules, 1962 relating to return of income which shall be applicable for the assessment year 2015-16 vide Notification No.4, dated 15-4-2015. Several changes have been made in the conditions prescribing the mode of filing of return of income by different categories of taxpayers. CBDT has also notified new ITR-1, ITR-2 and ITR-4S for the Assessment Year 2015-16.The key changes are as under:-

1)Compulsory e-filing to claim tax refund : Till assessment year 2014-15, individuals or HUFs, who were otherwise not liable to file return of income electronically, could claim tax refund by filing return of income in physical form. However, the new provision makes it mandatory for every taxpayer to file return of income electronically so as to claim refund of tax from the department. However, an option is given to super senior citizens claiming income-tax refund, to file return of income in physical form, provided return is furnished in ITR- 1 or ITR- 2.

2)Mandatory reporting of details of bank accounts in India : In new ITR forms, an assessee is required to report details of all bank accounts held by him in India at any time (including opened/closed ones) during the previous year. Further assessee is also required to report the closing balance of accounts as on 31st march of the previous year.

3)Reporting of details of foreign travel : Now details about overseas travel are also required to be furnished in new ITR Forms.

4)Details about foreign income : The new ITR forms seeks more details about the foreign assets. Now details about income from any source outside India are also required to be furnished in new ITR forms.

5)Compulsory e-filing of ITR-3 and ITR-4 : Every individual or HUF who is required to file return in form ITR-3 or ITR-4 shall file the same electronically.

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Now banks can issue FDs exceeding 15 lakhs without option of pre-mature withdrawal at differential interest rates

Earlier, banks were allowed to offer differential rates of interest on term deposits on the basis of tenor of deposits less than Rs. 1 crore and on the basis of quantum and tenor of term deposits of Rs. 1 crore and above. In the sixth bi-monthly monetary policy review held on February 3,2015 the RBI had decided to introduce the feature of early withdrawal in case of term deposits as a distinguishing feature for offering differential rates of interest.

Accordingly, RBI has given discretion to banks to offer differential interest rates based on whether the term depositsare with or without the premature withdrawal facility, subject to riders that:

I.Bank shall provide premature withdrawal facility for Fixed deposits made by Individuals (whether held jointly or singly) for an amount uptoRs. 15 lakh;

II.For fixed deposits above Rs. 15 Lakh, banks can offer deposits without the option of premature withdrawal as well (However, it would be obligatory on part of such banks to provide an option to customers to choose between term deposits either with or without premature withdrawal facility);

III.Banks should disclose in advance the schedule of interest rates payable on deposits; and

IV.The banks should have a Board approved policy relating to interest rates on deposits, including deposits with differential rates of interest and ensure that the interest rates offered are reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required.

Govt. notifies income computation and disclosure standard for purpose of Section 145; effective from April 1, 2015

Section 145(2) of the Income-tax Act (‘the Act’) provides that the Central Government may notify Accounting Standards (‘AS’) for any class of assessees or any class of income. In 1996, two AS relating to ‘disclosure of accounting policies’ and ‘disclosure of prior period and extraordinary items and changes in accounting policies’ were notified.

In December, 2010 the CBDT has constituted the Committee to harmonize the AS issued by the ICAI with the provisions of the Act for the purposes of notification under the Act and to suggest amendments to the Act. The Committee recommended that some of the AS issued by ICAI related to ‘disclosure’ requirement, whilst some other contained matter are adequately dealt within the Act. In view of this, the Committee formulated the drafts of only fourteen Tax Accounting Standards (‘TAS’) issued by the ICAI. It submitted its final report along with draft of TAS in August, 2012 which was placed in public domain for comments.

After examining the comments, the CBDT has revised the draft of twelve TAS submitted by the Committee and it has withdrawn draft of TAS which correspond to AS-4 on "Contingencies and Events Occurring After the Balance Sheet Date" and AS-5 on "Net Profit or Loss for the Period, Prior Period Items and changes in Accounting Policies". The Committee reiterates its stand taken in previous report that that the TAS notified under the Act is applicable only for computation of income chargeable under the head "profit and gains of business or profession" or "income from other sources" and not for the purpose of maintenance of books of accounts. It further reiterates that in the case of conflict between the provisions of the Act andtheseAccounting standards, the provisions of the Act shall prevail tothat extent.

The CBDT invited comments and suggestions on new draft of standards by February, 8, 2015. The CBDT has now notified the Income Disclosure and Tax Accounting Standards vide notification no. 32/2015, F. No. 134/48/2010-TPL, dated March 31, 2015.

No TP addition for variation between actual price and ALP of fixed asset but depreciation to be re-computed on ALP

The international transaction of purchase of fixed assets is required to be benchmarked as per the most appropriate method. An increase in the value of the fixed assets after application of ALP, being a capital transaction in itself, will not give rise to anyaddition towards transfer pricing adjustment, but the depreciation on such assets, being a revenue offshoot of the capital transaction, will be requiredto be recomputed on such revised value.

Facts:

a)Assessee had made international transaction of purchase of fixed asset from its AE.

b)TPO made addition on the value of international transaction of the purchase of fixed assets. The counsel of assessee contended that the TPO was not justified in proposing the transfer pricing adjusting w.r.t. the value of purchase of fixed assets. It was argued that only the depreciation element of such adjusted value of the international transaction of purchase of fixed assets would call for adjustment to the operating profits.

c)Aggrieved-assessee filed the instant appeal

The Tribunal held in favour of assessee as under:

1)Section 92 is not a charging provision, but it is a procedural provision for recomputing the income arising from an international transaction having regard to its ALP. Before applying the mandate of this provision, it is of utmost importance that there should be some existing income chargeable to tax, which is sought to be recomputed having regard to its ALP.

2)If there is an international transaction which in itself gives rise to income that is chargeable to tax, then its ALP shall constitute a basis for making of addition on account of difference between the assigned value and ALP of such international transaction as per the relevant provisions. But if there is an international transaction in the capital field, which does not otherwise give rise to any income in itself, then even though its ALP may be computed in consonance with the provisions, but no adjustment can be made for the difference between the declared value and the ALP of such international transaction.

3)It does not mean that the computation of the ALP of such an international transaction in the capital field is just a ritual and should not be embarked upon. In fact, such a computation is necessary because of the impact of such a transaction of capital nature on the transactions of its revenue offshoots.

4)In the instant case, the international transaction of purchase of fixed assets was required to be benchmarked as per the most appropriate method. The application of the ALP, if required, would give rise to the re-computation of the revised value of the purchase of fixed assets. Such an increase in the value of the fixed assets, being a capital transaction in itself, would not give rise to anyaddition towards transfer pricing adjustment, but depreciation on such assets would be required to be recomputed on such revised value.

5)Therefore, addition made by TPO due to the determination of the ALP of purchase of fixed assets was required to be set-aside and AO was directed to compute depreciation on such fixed assets on adjusted value. - HONDA MOTORCYCLE & SCOOTERS INDIA (P.) LTD. V. ACIT - (2015) 56 taxmann.com 237 (Delhi - Trib.)

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.)