PR CIT Vs MAKINO INDIA PVT LTD: SUPREME COURT OF INDIA (Dated: January 27, 2017)
Income tax - The Revenue had preferred the present appeal challenging the judgment, whereby the High Court had confirmed the order of ITAT in allowing of set off of the losses pertaining to non-10A unit against profit of 10A unit, by holding that when the question was already covered by the decision of the Court, no substantial question of law would arise for consideration.
On appeal, the Supreme Court though condones the delay, however grants leave to Revenue to defend their case against the assessee for non-allowance of losses pertaining to non-10A unit against profit of 10A unit.
Leave granted
2017-TIOL-47-SC-IT
CIT Vs MONOFLEX INDIA PVT LTD: SUPREME COURT OF INDIA (Dated: January 27, 2017)
Income Tax - recovery of taxes - leased property - unearned increase amount & clear title
Whether where property auctioned by Tax Recovery Officer is a leased one, the right in the said property can only be transferred after payment of unearned increase payable to lessor of property - YES: SC
Whether the purchaser can be held liable to pay unearned increase amount on the leased property, even if no such conditions were imposed during auction proceedings - NO: SC
In an auction, assessee purchased a property through its director in their individual capacity which was on lease under a perpetual sub-lease for recovery of tax dues and TRO confirmed the sale called upon the lessor and assessee to get the sale certificate registered – lessor claimed 50% unearned increase for mutation. The main issue is whether or not unearned increase is payable and if payable, whether the same is payable by purchasers or by the appellant or by the original sub-lessee.
On appeal, the HC held that it was only on payment of 50% unearned increase that an effective transfer can be made by sale certificate. In these circumstances, it was for the assessee to make payment of unearned increase. Of course, in case its dues were still payable, it was open to them to take appropriate proceedings against the defaulter assessee in accordance with law.
Having heard the matter, the Apex Court held that,
++ condonation of delay in filing of appeal is being granted. The directions contained in the impugned judgment have already been complied with. Therefore, leaving the question of law open, the special leave petition is dismissed.
Revenue's SLP dismissed
2017-TIOL-46-SC-IT
JCIT Vs SARDAR SAROVAR NARMADA NIGAM LTD: SUPREME COURT OF INDIA (Dated: January 27, 2017)
Income Tax - Section 57
Keywords - construction - project - borrowing cost & interest
Whether for the purpose of construction of Dam Project, phase-wise completion has to be considered for providing tax benefits - YES: SC
Whether expense incurred against interest income earned on borrowings, raised by the assessee for Dam construction, is allowable as deduction u/s 57 - Yes: SC
The assessee company was entrusted with the work of execution of the "Sardar Sarovar Project", which mainly consists of construction of a terminal major Dam on river Narmada in Gujarat. For the purpose of executing Project, a "Nigam" was formed by State Government, which executed a part of Project. As the Project was under construction, the assessee did not file returns of income for the subject AYs. Therefore, proceedings under the Income Tax Act were initiated. AO did not accepted the case of assessee. Ultimately, appeals were preferred before Tribunal, who also refused to accept the say of assessee.
On appeal, the High Court held that considering the different categories of work, it cannot be said that assessee's objects could be achieved without contemplating different stages of completion. It was thus concluded that when the assessee had set up its project phase wise, it cannot be deprived of the benefits of fiscal legislation in disregard of the well settled principles on the issue. The HC also held that interest expenditure paid on borrowings raised by assessee for the purpose of construction of Dam would be allowable deduction since the purpose of expenditure is manifest and there was a nexus between incurring os that expense with that of income earned by assessee.
Having heard the matter, the Apex Court though condones the delay, however confirms the decision of High Court and dismisses the SLP.
Revenue's SLP dismissed
2017-TIOL-45-SC-IT
BALAKRISHNAN Vs UoI: SUPREME COURT OF INDIA (Dated: January 11, 2017)
Income tax - Section 10(37) - Land Acquisition Act - Sections 4(1) & 5A
Keywords - TDS refund - transfer of agricultural land - compulsory acquisition
The assessee was the owner of 27.70 Acres of agricultural land in paddy field of Attippra village in Thiruvananthapuram District. During the subject year, the Government of Kerala sought to acquire the aforesaid property for the development of Techno Park'. For this purpose, Notification u/s 4(1) of Land Acquisition Act was issued. Immediately thereafter, declaration u/s 6 of LA Act was issued wherein the Government had declared that it was decided to acquire the land for the aforesaid purpose. After this acquisition, the Acquisition Collector passed the award fixing the compensation at Rs. 14,36,616/-. Since such compensation was not acceptable to assessee, it was agreed by the Techno Park to pay a sum of Rs. 38,42,489/-. After this amount was agreed upon between the parties, the assessee agreed to execute a sale deed in favour of Techno Park. While disbursing the amount of sale consideration, the Techno Park deducted 10% of the amount of TDS and it was later refunded to assessee, by opining that no capital gain was payable on the aforesaid amount as the same was exempted u/s 10(37). Subsequently, a notice was issued to the assessee u/s 148 on the ground that the amount of compensation received by assessee against the aforesaid land was not the result of compulsory acquisition and therefore, the provisions of Section 10(37) were applicable on the same. The JCIT therefore directed the AO to compute the income accordingly. When the matter reached High Court, the petition was dismissed relying upon the earlier judgment of the same High Court in case of Info Park Kerala vs. Assistant Commissioner of Income Tax.
On appeal, the SC held that,
Whether mere agreement between parties regarding quantum of compensation, would alter the character of acquisition from that of 'compulsory acquisition' to 'voluntary sale' - NO: SC
++ insofar as acquisition of the land is concerned, the same was compulsorily acquired as the entire procedure prescribed under the LA Act was followed. The settlement took place only qua the amount of the compensation which was to be received by the assessee for the land which had been acquired. It goes without saying that had steps not been taken by the Government u/ss 4 & 6 followed by award u/s 9 of the LA Act, the assessee would not have agreed to divest the land belonging to him to Techno Park. He was compelled to do so because of the compulsory acquisition and to avoid litigation entered into negotiations and settled the final compensation. Merely because the compensation amount is agreed upon would not change the character of acquisition from that of compulsory acquisition to the voluntary sale;
++ this Court has doubts about the correctness of the judgment in the case of Info Park Kerala vs. Assistant Commissioner of Income Tax. The High Court in the said case took the view that since the title in the property was passed by the land owners on the strength of sale deeds executed by them, it was not a compulsory acquisition. However, in the present case, it is clear that but for Notification u/s 4 and Award u/s 9 of the LA Act, the assessee would not have entered into any negotiations for the compensation of the consideration which he was to receive for the said land. As far as the acquisition of the land in question is concerned, there was no consent. The assessee was put in such a condition that he knew that his land had been acquired and he cannot reiterate the same. He therefore, only wanted to salvage the situation by receiving as much compensation as possible commensurate with the market value thereof and in the process avoid the litigation. If for this purpose the assessee entered into the negotiations, such negotiations would be confined to the quantum of compensation only and cannot change or alter the nature of acquisition which would remain compulsory. As a result, the proceedings u/s 148 is quashed.
Assessee's appeal allowed
2017-TIOL-44-SC-IT
CIT Vs ICICI PRUDENTIAL INSURANCE CO LTD: SUPREME COURT OF INDIA (Dated: January 23, 2017)
Income tax - Sections 10(34), 14A, 44 & 115B
Keywords - actuarial surplus - dividend income - income from other sources - life insurance business - net surplus & negative reserve
The assessee company was engaged in business of insurance. The counsel for Revenue submitted that Tribunal had failed to appreciate that negative reserve had an impact of reducing the 'taxable surplus' and therefore corresponding adjustment for "negative reserve" need to be made to arrive at "taxable surplus".
On appeal, the High Court held that none of the authorities under the Act nor even before the High Court, had urged that the assessee was carrying on separate business other than life insurance business. Accordingly, the order of Tribunal holding that income from shareholders' account was also to be taxed as a part of life insurance business, was not required to be interferred with.
Having heard the parties, the Apex Court condones the delay in filing of present appeal and directed to grant leave for hearing of this petition along with Civil Appeal No. 4745 of 2016.
Leave granted
2017-TIOL-43-SC-IT
PR CIT Vs LUHAR BHUPENDRASINGH HAKAMSINGH: SUPREME COURT OF INDIA (Dated: January 27, 2017)
Income tax - Sections 271D & 273B
The Revenue had preferred the present SLP challenging the judgment, whereby the High Court had held that mere involvement of cash transactions between two related persons, would not lead to imposition of penalty u/s 271D, when the amounts were required for meeting business expenses and the repayments were made through cheques.
On appeal, the Supreme Court though condones the delay, however dismisses the SLP by upholding the findings given by High Court that involvement of cash transactions between two related persons, would not lead to imposition of penalty u/s 271D, when the amounts were required for meeting business expenses and the repayments were made through cheques.
Revenue's SLP dismissed
2017-TIOL-42-SC-IT
ARAVALI INFRAPOWER LTD Vs DCIT: SUPREME COURT OF INDIA (Dated: January 27, 2017)
Income Tax - Sections 147 & 148
Keywords - reopening of assessment - escapement of income - failure to furnish true particulars & tangible material.
A notice u/s 148 was served upon the assessee on the ground that a survey was conducted on the corporate office of assessee during which certain incriminating documents were found and impounded. AO held that assessee was not able to prove genuineness of transactions entered into with companies from whom it had received share capital and identity and creditworthiness of such companies. Hence, there was escapement of income. The assessee had not disclosed fully and truly all material facts before AO resulting in under assessment of income.
On appeal, the High Court held that there was no complete disclosure of facts by the assessee during the initial assessment proceedings. Thus the case was considered fit for reopening of assessment.
On further appeal, the Apex Court confirmed the decision of High Court, whereby it was held that reopening of assessment is justified, when the bank statements as well as the ITR form disclosing returns, raises more questions than satisfying the queries already raised.
Assessee's Petition dismissed
2017-TIOL-41-SC-IT
ITO Vs ANIL GIRISHBHAI DARJI: SUPREME COURT OF INDIA (Dated: January 27, 2017)
Income Tax - Sections 153C & 254(2A)
Keywords - grant of stay - outstanding demand - disputed tax & power of extension.
Whether Tribunal has the authority to extend stay beyond the period of 365 days from the date of initial stay, after recording satisfaction as to compliance of payment conditions of disputed tax, and after recording that non-disposal of appeal is not attributable to assessee - YES: HC
The assessee, an individual, had sought extension of stay of demand. On appeal, the High Court had confirmed the order of Tribunal and held that the Tribunal while extending the stay beyond the period of 365 days from the date of initial stay, had recorded satisfaction as regards compliance of the conditions of payment of disputed tax as stipulated under the stay order and had also recorded a finding that non-disposal of appeal was not attributable to the assessee.
Having heard the parties, the Apex Court condoned the delay by the Income Tax Officer in filing of the present appeal and directed to issue notice.
Leave Granted
2017-TIOL-209-HC-ALL-IT + Story
CIT Vs UPCOM CABLES LTD: ALLAHABAD HIGH COURT (Dated: January 9, 2017)
Whether when the assessee is to return the technical knowhow to the foreign collaborator after termination of the agreement after five years, the royalty paid as certain percentage of the sale price of the product is to be treated as revenue expenditure - YES: HC
Assessee entered into an agreement with M/S CEAT, CAVI Italy for providing technical know-how in the manufacture of its products and agreed to pay one time Technical know-how fee of Rs. 18,20,227/- and 'Royalty' at 2 per cent of net ex-factory selling price of the product.
The 'Royalty' was payable to Foreign Company for a period of five years from the date of commencement of production. Assessee commenced its production on 23.03.1987 and account for the first time were closed on 31.12.1987. The disputed assessment therefore is for the period from 23.03.1987 to 31.12.1987 (Assessment Year 1988-89). Assessee filed return declaring loss of Rs. 4,58,24,694/-. The return was filed as per Section 115J of Act, 1961 declaring book profit of Rs. 1,48,880/-. The assessment order was passed under Section 143(3) on 08.03.1991. The assessee had claimed payment of 'Royalty' of Rs. 18,20,227/- as 'revenue expenditure' but the Revenue treated it as 'Capital Expenditure' and added to the total income.
On appeal, the CIT(A) reversed the view of the AO and the Tribunal concurred the view of the CIT(A).
On appeal, the HC held that,
++ the question as to whether a particular payment made towards technical know-how fee or royalty to a Foreign Company in lieu of an Agreement will be a "capital expenditure" or "revenue expenditure" would depend upon facts of individual case, and, in particular, various terms of Agreement involved therein;
++ a concurrent finding has been recorded by CIT(A) and Tribunal both that on termination of Agreement, which was for a period of five years, Assessee would return all relevant material relating to know-how acquired through Agreement. This is one of the relevant consideration observed in Alembic Chemical works Ltd. Vs. CIT(A) to hold that in such a case, payment towards 'Royalty' would be 'Revenue expenditure' and not 'Capital'. The agreement also shows that it was not an exclusive right available to the Assessee, inasmuch in para 13 of Annexure, of foreign collaboration, approval accorded by Government of India provides that in case item of manufacture is one which is patented in India, payment of 'Royalty’/lump sum made by Indian Company to Foreign collaborator, during period of agreement shall constitute full compensation for use of patent right till expiry of life of patent and Indian Company shall be free to manufacture that item even after expiry of the collaboration agreement without making any additional payments. Assessee claimed that royalty payment is part of percentage of selling price of product and not for acquiring technical know-how of manufactured licensed product having enduring benefit. These facts available on record have not been disputed and we have not been shown any authority so as to justify to take a different view than what has been taken by Tribunal.
Assessee's appeal allowed
