CIT Vs P ASHOK KUMAR: MADRAS HIGH COURT (Dated: January 2, 2019)

Income tax - agricultural land - exemption from capital gains - distance from municipality

THE assessee, an individual, had sold a piece of land and claimed exemption from capital gains on such sale by urging it to be an agricultural land. This claim was however denied by the AO during course of assessment. When the matter reached the CIT(A), he called for a remand report from the AO as to the distance between the property in question and the outer limit of the notified municipality. The AO thereafter conducted inspection of the property in the presence of Revenue officials and submitted a remand report, in which, it was categorically stated that the land was situated at a distance of more than 8 kms away from the outer limits of St.Thomas Mount Cantonment Board. Apart from that, CIT (A) also referred to the certificate issued by the Tahsildar and one of the important entry in the said certificate was by stating that the lands were classified as agricultural lands.

On appeal, the HC held that,

Whether a claim of exemption from capital gains tax on sale of agricultural land, need not be denied, when there is nothing on record to show that the land in question was put to use for any non-agricultural purposes - YES: HC

++ though the certificate issued by Tehsildar may state that there is no cultivation carried on the lands as per the land records, there is nothing on record to show that the land in question was put to use for any non-agricultural purposes. Apart from that, the assessee has also paid taxes which has been recorded by the CIT(A). Thus, the concurrent factual findings recorded by the FAA and the Tribunal does not call for any interference.

Revenue's appeal dismissed

2019-TIOL-230-HC-MAD-IT

DIT Vs UNITED WAY OF CHENNAI: MADRAS HIGH COURT (Dated: January 2, 2019)

Income tax - Sections 2(15), 12AA & 80G

Keywords - exemption benefit - grant of registration - charitable nature

THE Revenue Department preferred the present appeal challenging the action of ITAT in finding that the assessee was entitled to the benefits available u/s 12AA and Section 80G contrary to the proviso of Section 2(15). In short, the Tribunal had set aside the order passed by the Director of Income Tax (Exemptions) rejecting the claim made by assessee for registration u/s 12AA on the ground that the activities of assessee as contained in the Memorandum could not be called as charitable in nature as defined u/s 2(15).

On appeal, the HC held that,

Whether a mere terminology contained in Memorandum, is no basis to decide authenticity of charitable nature, without reading the same along with the objects enumerated in Rules & Regulations of the trust - YES: HC

++ it is seen that the DIT(E) in his order came to a conclusion solely based on Clause xvi of the Rules and Regulations of the assessee and held that it speaks about conducting programmes for raising funds or otherwise. The DIT observed that the term 'otherwise' is vague and cannot be called as charitable purpose. The Tribunal while deciding the correctness of the said order, rightly held that the expression 'otherwise' has to be read along with the objects enumerated in the Rules and Regulations of Assessee, which was found to be charitable in nature and of public cause. It would be well open to the AO to take note of the same while completing the assessment. Thus, the order passed by the Tribunal is perfectly legal and valid.

Revenue's appeal dismissed

2019-TIOL-229-HC-MUM-IT + Case Story

PR CIT Vs DHARTI ENTERPRISES: BOMBAY HIGH COURT (Dated: January 16, 2019)

Income tax - Sections 80IB(10), 147 & 148

Keywords - delayed attributable to competent authority - occupancy certificate - development project

THE Assessee is a builder/developer. For the subject A.Y, the assessee filed its return declaring income as 'Nil', after claiming deduction u/s 80IB(10) in respect of its development project. The returned income was also assessed u/s 143(3) at NIL. Later on, the AO issued a notice u/s 148, seeking to reopen the assessment, on the ground that the commencement certificate for the project in respect of which benefit of Section 80IB(10) as claimed, was received on Jan 19, 2005 whereas the Occupation Certificate was not obtained till Mar 31, 2009. Thus, disentitling the assessee to the benefit of Section 80IB(10). Thus, the assessee's income was determined at Rs.6.35 Crores.

On appeal, the CIT(A) held that the assessee was entitled to the benefit of Section 80IB(10) as the delay in issuing the occupancy certificate was on account of the time taken by the competent authority to issue the certificate when the Applicant had submitted all necessary documents for the issuance of certificate much before the expiry of four years from the end of the financial year in which commencement certificate was obtained. On further appeal, the Tribunal concurred with the opinion of CIT(A) and concluded that the assessee builder could not be penalized for the delay by the Competent Authorities in issuing the completion certificate.

On appeal, the HC held that,

Whether a builder/developer can be penalized for the delay attributed to Competent Authorities in issuing completion certificate - NO: HC

++ the present issue is no longer res integra as it stands concluded against the Revenue and in favour of the assessee by the decision of this Court in CIT v/s. Hindustan Samuh Awas Ltd., 377 ITR 150. In the said case, it has been held that whether the project is completed within the time framed provided u/s 80IB(10), and an application for issuance of completion certificate is filed within time, then delay on account of the competent authority in issuing completion certificate would not deprive the Assessee, the benefit of Section 80IB(10). To the same effect the decision of the Gujarat High Court in CIT v/s. Tarnetar Corporation 362 ITR 174. In the present case on facts, it is found that not only the project was completed within time and an application for granting of certificate was also made well within the time. Thus, the assessee should not suffer on account of the delay at the hands of the Competent Authority issuing the certificate.

Revenue's appeal dismissed

2019-TIOL-228-HC-MUM-IT

PR CIT Vs MAGNA CASTING AND MACHINE WORKS PVT LTD: BOMBAY HIGH COURT (Dated: January 21, 2019)

Income tax - Sections 10B, 147 & 148

Keywords - profit from export business - scrutiny assessment - reasons for reopening

THE assessee is 100% Export Oriented Unit. While filing its return, the assessee had claimed deduction of profit derived from such export business in terms of Section 10B. A part of such claim of Rs. 4.26 Crore related to the assessee's sale of goods to another EOU. Through the process of reassessment, the AO desired to disallow such claim of assessee. When the matter reached Tribunal, it was held that the notice of reassessment was invalid in view of the fact that said claim was examined by AO during original assessment proceedings. Accordingly, the Tribunal came to the conclusion that the issue was examined during original scrutiny assessment and therefore, could not be subject to reassessment proceedings.

On appeal, the HC held that,

Whether an attempt on part of the AO to disallow a claim during reassessment, which was previously examined during original assessment proceedings, would amount to mere change of opinion - YES: HC

++ it is seen that the Tribunal has correctly placed reliance on a decision of Supreme Court in the case of CIT Vs. Kelvinator of India Ltd - 2010-TIOL-06-SC-IT-LB holding that even post amendment in Section 147 w.e.f. 1.4.1989, the concept of change of opinion would continue to apply. In the present case, the AO had examined entire claim of deduction u/s 10B. This included the claim made by the assessee to another EOU. This element of claim was also examined by AO during original assessment order. Any attempt on his part to disallow the claim would now be based on mere change of opinion.

Revenue's appeal dismissed

2019-TIOL-227-HC-MUM-IT

PR CIT Vs ND NISSAR: BOMBAY HIGH COURT (Dated: January 21, 2019)

Income tax - allowable expenditure - insurance policy - interest of partners

THE assessee, a partnership firm, had filed its return claiming expenditure in relation to the payments made towards Keyman Insurance Policy. The AO was however of the opinion that the policy of insurance taken out by the partnership firm for the partners, could not be categorized as Keyman Insurance Policy at all. On appeal, the CIT(A) reversed this decision of AO holding as a fact that the policy was Keyman Insurance Policy and that the AO did not have any material to hold to the contrary. On further appeal, the Tribunal upheld the decision of CIT(A).

On appeal, the HC held that,

Whether policy of insurance taken out by a partnership firm for the interest of its partners, is an allowable expenditure - YES: HC

++ the issue of allowance of expenditure toward Keyman Insurance Premium taken out by the partnership firm in case of its partners, is no longer res integra. This Court in the case of Commissioner of Income Tax Vs. B.N. Exports - 2010-TIOL-259-HC-MUM-IT has examined such an issue and held that the insurance policy taken out to protect the interest of partnership firm against disruption in case of sudden death of partner, would be an allowable expenditure. The Tribunal had in fact relied on this decision while dismissing the Revenue's appeal. In view of the decisions of various High Courts, the CBDT had also issued a Circular bearing No. 38/16 dated Nov 22, 2016 accepting such a view, making a particular reference to the decision of Punjab & Haryana High Court in case of M/s. Ramesh Steels - 2016-TIOL-2846-HC-P&H-IT. Essentially, therefore, the Revenue's objection in law is not sustainable.

Revenue's appeal dismissed

2019-TIOL-226-HC-MUM-IT

CIT Vs NIMBUS COMMUNICATIONS LTD: BOMBAY HIGH COURT (Dated: January 18, 2019)

Income tax - Sections 194H & 201(1A)

Keywords - guarantee commission - tax at source

THE Revenue Department preferred the present appeal challenging the action of ITAT in holding that the payment of Guarantee Commission by assessee company to the Banks was not covered under "Commission or brokerage' as defined u/s 194H and hence assessee was not liable to deduct Tax at source in respect of such amount.

On appeal, the HC held that,

Whether guarantee commission paid to banks for availing some banking services, does not attracts TDS liability u/s 194H - YES: HC

++ the counsel for Revenue has fairly pointed out that the similar questions were considered by this Court in case of Commissioner of Income Tax (TDS)-1 Vs. Larsen & Toubro Ltd - 2018-TIOL-2612-HC-MUM-IT and it was observed that the bank guarantee commission is not in the nature of commission paid to an agent but it is in the nature of bank charges for providing one of the banking service. The requirement of Section 194H therefore, would not arise. In the result, the questions are answered in favour of assessee.

Revenue's appeal dismissed

CIT Vs SHIPPING CORPORATION OF INDIA LTD: BOMBAY HIGH COURT (Dated: January 21, 2019)

Income tax - ancilliary profits - core activity - business of operation of ships - benefit of tonnage tax provisions

THE Revenue Department preferred the present appeal challenging the action of ITAT in holding the profits on Bar / shop sales of Rs. 4,82,654/- and Directors fees of Rs. 12,03,547/- holding it as relatable to core activity of the operation of qualified ships ignoring the fact that the receipts were ancillary profits beyond the first degree nexus and therefore, not entitled for being considered as the profits from the business of operation of ships, hence, not eligible for the benefit of tonnage tax provisions.

On appeal, the HC held that,

Whether refund of director's fees giving rise to accounting adjustment against the expenditure for such fees that would have been claimed while computing income, is eligible for tonnage tax provisions - YES: HC

++ the question relates to the Revenue's objection to the profits on bar / shop sales of Rs. 4.82 lacs and directors fees of Rs. 12.03 lacs being eligible for benefit of tonnage tax provisions contending that the same do not arise out the assessee's core activity of operation of ships. The disputed amount under the head "profits on bar / shop sales" is extremely small. With respect to the director's fees, the Tribunal by its decision has recorded that such fees would have been allowed as an expenditure and therefore, refund of the same should be treated as income directly relatable to the core activity. It would appear, therefore, that the refund of the director's fees would only give rise to the accounting adjustment against the expenditure for such fees that the assessee's would have claimed while computing its income eligible for tonnage tax provisions. No question of law in this context, therefore arises.

Revenue's appeal dismissed

CIT Vs UTV NEWS LTD: BOMBAY HIGH COURT (Dated: January 18, 2019)

Income tax - Sections 194C & 194J

Keywords - placement fees - payment to cable operators - tax at source

THE Revenue Department preferred the present appeal challenging the action of ITAT in holding that the placement fees/carriage fees paid to cable operators/MSO/DTH operators are payments for work contract covered u/s 194C and not fees for technical services u/s 194J, without appreciating that the services received by assessee were technical in nature.

On appeal, the HC held that,

Whether placement charges paid by distributor/TV channel to cable operators/MSOs for placing signals on a preferred band, is part of broadcasting covered by clause (iv)(b) of the explanation to Section 194C - YES: HC

++ the counsel for Revenue very fairly states that the issues raised herein stand concluded in favour of the assessee and against the Revenue by the decision of this Court in case of Commissioner of Income Tax, TDS-2, Mumbai Vs. UTV Entertainment Television Ltd - 2017-TIOL-2417-HC-MUM-IT. In view of the fact that the issues stand concluded by the decision of this Court, the questions as proposed do not give rise to any substantial question of law.

Revenue's appeal dismissed

2019-TIOL-223-HC-DEL-IT

PR CIT Vs DLF UTILITIES LTD: DELHI HIGH COURT (Dated: January 18, 2019)

Income tax - Section 36(1)(iii)

Keywords - commercial expediency - loan & advances - notional interest

THE assessee company, which is engaged in generating power through gas turbines and gas engines, is also engaged in running of multiplex theatres, distribution of natural gas etc. During the course of its scrutiny assessment, the AO noticed that assessee had obtained loans aggregating to Rs.1613 crores on which interest of Rs.43 crores was paid. It was found that the assessee had invested and given out interest through loans and advances, whereas its funds indicated surplus of Rs.259 crores. The AO therefore disallowed the amount of Rs.2.75 crorer u/s 36(1)(iii).

On appeal, the CIT(A) held that the loan and advances had been given on account of "commercial expediency" and no notional interest could be charged on such advances given for the purpose of business. This finding of CIT(A) was affirmed by the ITAT.

On appeal, the HC held that,

Whether commercial expedience is sufficient criterion to dictate the nature of transactions carried out by a taxpayer - YES: HC

++ the grounds of commercial expedience are now well established in tax jurisprudence. The position of the CIT(A) and its affirmation by the ITAT are essentially based upon a fact appreciation that the assessee forewent interest. As to whether there was an element of sacrifice and if so, for what purpose, is not for the Court to consider, given that the loans obtained by the assessee were for its business purposes. There is nothing on record to dispel/undermine the findings of the Appellate Authorities that commercial expedience dictated the nature of the transactions.

Revenue's appeal dismissed