consolidated digest of case laws

302 Pages·2012·1.43 MB·English

CONSOLIDATED DIGEST OF CASE LAWS (JANUARY 2012 TO JUNE 2012

(Journals Referred: ACAJ /AIR/AIFTPJ/ BCAJ / BLR / IT Review//Comp Cas/CTR / DTR
/E.L.T./GSTR/ ITD / ITR / ITR(Trib) /JT/ SOT /SCC / TTJ /Tax LR /Taxman / Taxation / Tax
World/ VST/ www.itatonline.org)

S.2: Definitions - S.2(IA) – Definitions - Agricultural income - Cultivation of palm - Product
fit for marketing is agricultural income and extraction of oil from fruit / kernel is an
industrial activity and assessable as business income. [S. 28(i)].
The assessee is a plantation company which is engaged in cultivation of oil and processing and
extraction of crude palm oil from fruit as well as from the kernel. The Assessing Officer held that
part of income earned by assessee from sale of palm oil as business income by applying Rule 7 of
the income –tax rules . In appeal the view of Assessing Officer was confirmed. On further appeal,
the High Court held that the processing covered by item(ii) of section 2(IA)(b) is only so much of
process which a cultivator ordinarily engages to make product for marketing, therefore income
that is attributable to agricultural operations is the market value of palm fruit with pulp and
kernel. Activity carried out by assessee in extraction of oil from fruit /from kernel is an industrial
activity and therefore income from such activity is assessable as its ‘profits and gains of business’
under section 28(i). Appeal was decided in favour of revenue.(A.Ys 1997-98 to 2006-07)
Oil Palm India Ltd v. ACIT ( 2012) 206 Taxman 1 (Ker.) (High Court)
S.2(1A): Definitions-Agricultural income- Seeds-Company- Company supplying seeds to
farmers under agreement income derived by company is not agricultural income. [S.10(1)]
The assessee company is in the business of cultivation, production and marketing of open-hybrid
seeds both for the domestic and international market and entered in to agreement with the farmers
for production of open –hybrid seeds for its own benefit or on behalf of its overseas principals.
Assessee Company supplied the seeds & supervised the cultivation of seeds. After harvesting, the
company purchased from farmers at fixed price. Assessee company has done the process of
cleaning, grading and converting into certified seeds. Assessee has claimed entire income as
exempt under section 10(1). Assessing Officer denied the exemption. On appeal before the
Tribunal the tribunal opined that 10 percent of the net profit should be treated as business income
and balance 90 percent of the net profit as agricultural income exempt from tax. On appeal to
High Court by revenue the court held that the income is not agricultural income.( A.Y. 1998-99 to
2004-05)
CIT v. Namdhari Seeds P. Ltd ( 2012) 341 ITR 342 (Karn.) (High court)
S.2(1A)(b)(ii): Definitions- Agricultural income- Seeds-Conversion-Conversion of raw peas
into pea seeds constitute agricultural income.
Assessee is engaged in cultivating and growing raw peas and also in the process of converting
them into pea seeds so as to render them fit for sale and also selling seeds in the market and to
various godowns. Income derived from pea seeds constituted agricultural income.(A.Y.1997-98)
CIT v. Rana Gurjit Singh (2012) 340 ITR 108 (P&H.)(High Court)
S.2(1A): Definitions - Agricultural income – Compensation received on demolition of
borewell is agricultural income .
Compensation received on account of demolition of borewell and godown on agricultural land is
agricultural income. (A.Y.2007-08 )
Ghanshyam Mudgal v. ITO (2012) 143 TTJ (UO) 60 (JP), BCAJ Pg. 43, Vol. 44-A Part 1, April
2012(Jaipur) (Trib.)
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S. 2(14): Definitions- Capital assets- Capital gains- Controlling interest-Controlling interest
cannot be treated as capital asset(S.45)
Controlling interest is not an identifiable or distant capital asset independent of holding of shares
and therefore does not satisfy definition of a ‘capital asset’ within the meaning of section
2(14).On the facts extent of ‘control’ of parent is no more than a persuasive position, it not being
a legally enforceable right cannot be treated as a ‘capital asset’ within the meaning of section
2(14).
Vodafone International Holdings B.V. v. UOI (2012) 341 ITR 1/247 CTR 1/66 DTR 265/ 204
Taxman 408 / Vol. 42 Tax L R 305 (SC)
S. 2(14): Definitions- Capital assets-Agricultural land- Barren land-Barren land is not
agricultural land hence liable to capital gains. (S. 45)
Assessee sold the land and claimed the exemption on the said transaction treating the same as
agricultural land. Tribunal held that land in question was a barren land surrounded by rocky
mountains and not fit for agricultural operations. Sale of the said land was not for agricultural
purpose but for purpose of construction of flats, therefore the land in question is capital asset and
liable to capital gains tax. (A. Ys. 2002-03 to 2007-08).
Suresh Kumar D.Shah v. DCIT (2012) 49 SOT 341 (Hyd.)(Trib.)
S.2(15):Definitions- Charitable purpose – Publication of books, booklets as reference
material by the public as well as the professionals in respect of bank audit, tax audit etc
cannot be construed as commercial activities-hence approval under section 80G(5) cannot
be denied (S.80G(5) ).
The assessee trust is a society. One of the objects of the trust is to publish books, booklets etc. on
professional subjects. The assessee trust filed an application in Form 10G for grant of renewal
under section 80G of the Act. The renewal was rejected on the ground that the assessee was
publishing and selling books of professional interest and its activities are commercial in nature.
On appeal the Tribunal held that the activities of selling books could be considered as a part of
ongoing education of chartered accountants , which in turn would help the society to get better,
well-equipped and skilled set of chartered accountants for maintaining audit quality. The
Tribunal allowed the appeal and held that the assessee is entitled to approval under section 8OG.
On appeal by revenue the Court up held the order of Tribunal and held that activities of the
assessee trust in publishing and selling books of professional interest which are meant to be used
as reference material by general public as well as the professional in respect of bank audit, tax
audit etc. cannot be construed as commercial activities and therefore, assessee trust formed with
the object inter alia to conduct periodical meetings on professional subjects is entitled to
approval under section 80G (5).
DIT v. The Chartered Accountants Study Circle ( 2012) 70 DTR 219( Mad.) (High Court)
S. 2(15): Definitions – Charitable Purpose – Expression “education” – Coaching class by
open university or distance education cannot be construed as “education” for charitable
purpose. (S. 11, 12A)
A mere coaching class for preparing the students to attend the examination conducted by open
university or by the other university or distance education cannot be considered to be regular and
systematic schooling within the meaning of Section 2(15). For the purpose of section 2(15), the
assessee has to necessarily conduct a regular school/ college in which the students are imparted
education, knowledge, training which result in of degree or diploma by government or
government agency or university. Activity of coaching classes cannot be considered as Charitable
activity within the meaning of section 2(15), therefore the assessee is not entitled to exemption
under section 11. (AY 2005-06)
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Dy. DIT v. Kuttukaran Foundation (2012) 51 SOT 175 ( Cochin) (Trib.)
S. 2(17): Definitions-Company-Free Zone Entity(FZE)-Income of Vega cannot be assessed
as taxable income in India under section 5 (1) of the Income-tax Act.(S.5(1))
The assessee company has made outward investment in Emirates of Ajman in the form of a Free
Zone Entity (FZE) ‘ Vega’ in the Ajman Free Zone . The assessee is the sole shareholder having
100 percent shareholding. The income of the said entity was not an income of the assessee. The
assessing Officer has held that as the said entity did not have a separate legal identity vis –a-vis
its sole shareholder and for any non compliance the owner is responsible legally where as under
Indian Companies Act ,1956, shareholders are not legally liable for any act of the company or its
board of directors . On this basis the assessing Officer treated the income of the Vega as income
taxable in India in the hands of the assessee under section 5(1). In appeal before the Tribunal, the
Tribunal held that as per memorandum of incorporation , Vega UAE was established with
corporate entity and independent and separate entity, merely because Amiri Decree (No (3) of
1998) specifies a situation where the owner will be treated as personally responsible , it could not
be said that Vega UAE was not a separate legal entity . On facts Vega UAE had to be accepted as
a company within definition of section 2(17) , and therefore addition made by the assessing
officer by holding that Vega UAE was a sole proprietorship concern of assessee was not
sustainable. Hence the addition was deleted.(A.Y.2006-07)
AIA Engineering Ltd v. ADCIT ( 2012) 50 SOT 134 (Ahd.) (Trib.)
S. 2(22): Definitions-Dividend-Buy back shares-Capital gains- DTAA- India-Mauritius-
Scheme for buy back shares to avoid tax in India - Profits arising to be treated as deemed
dividend and taxable in India - Hence liable to deduct tax at source [S. 46A, 115-O, 195,
245R (2), DTAA-article 10(2), (4), 13(4)]
The applicant is a company incorporated in India , 48.87 percent , of whose shares were held by
a group holding company in the U.S.A, 25.06 percent by a group holding in Mauritius , 27.37
percent by a group holding company in Singapore and 1.76 percent by the general public. On
June 15 , 2010 , the board of directors of the applicant passed a resolution proposing a scheme of
buy back of its shares from its existing share holders in accordance with section 77A of the
Companies Act 1956. Mauritius company which acquired the shares sought advance ruling on
whether the capital gains that may arise , were chargeable to tax in India in the context of the
Double Taxation Avoidance Agreement between India and Mauritius and whether it would
have the obligation to with hold the tax in terms of section 195 of the Income-tax Act ,1961.The
authority for advance ruling while admitting the application under section 245R(2) of the Act for
a ruling, held that the Authority can look into avoidance of tax and whether the transaction is
colourable. On the facts of the case the Authority held that the applicant had not paid dividend to
any of the share holders after April 1, 2003 ,on which date section 115-0 of the Act was
introduced. Neither the holding company in the U.S.A .nor that in Singapore accepted the offer of
buy- back for obvious reasons that it would have been taxable in India as capital gains .There was
no proper application on the part of the applicant as to why no dividends were declared
subsequent to 2003, when the company was regularly making profits and when dividends were
being distributed before the introduction of section 115-O of the Act. Therefore, the proposal of
buy-back was a scheme devised for avoidance of tax, a colourable devise for avoiding tax on
distributed profits as contemplated in section 115-O of the Act. The arrangement could only be
treated as a distribution of profits by a company to its share holders satisfying the definition of
dividend which includes any distribution by a company of accumulated profits to its share
holders. The payments in question would also satisfy the definition of dividend in the Article
10(4) of the DTAA between India and Mauritius. Under Article 10(2) of the DTAA, dividend
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paid by a company which is a resident of India, to a resident of Mauritius, may also be taxed in
India, according to the laws of India but subject to the limitation contained therein. The proposed
payment would be taxable in India in terms of article 10(2) of the DTAA between India and
Mauritius hence the applicant was required to withhold tax on the proposed remittance of the
proceeds to the Mauritius company.
XYZ India,In re ( 2012) 343 ITR 455 / 206 Taxman 631 (AAR)
S. 2(22)(e): Definitions- Dividend - Deemed dividend – Credit balance-Credit balances in
the normal course of business cannot be assessed as deemed dividend.
Assessee has filed the confirmation and copies of accounts showing that the amounts representing
in the accounts were receipts due to the appellant, in the normal course of business dealings with
these companies. The Court held that receipts from these companies cannot be treated as deemed
dividend. (A. Y. 2003-04).
CIT v. Francies Wacziarg (2012) 66 DTR 453 / (2011) 203 Taxman 391 (Delhi)(High Court)
S. 2(22)(e): Definitions-Dividend-Deemed dividend-Loan to partnership- Since the
partnership firm which has purchased the shares through its partners though not
registered share holder , being beneficial owner is to be treated as share holder and loan
advanced by company to such partnership is liable to tax as deemed dividend.
The Assessing Officer has held that loan received by partnership firm from Bharti Enterprises (P)
Ltd should be treated as deemed dividend as two partners hold more than 10 percentage shares
in Bharti Enterproses (P) Ltd . CIT (A) and Tribunal decided the issue in favour of assessee. On
appeal, the High Court following the Judgment in National Travel services (2012) 249 CTR 540
(Delhi ) held the issue in favour of revenue holding that partnership firm is to be treated as the
share holder and it is not necessary that it has to be “registered shareholder”. The question was
answered in favour of revenue. As regards the accumulated profits the matter is set aside to the
Tribunal by giving a reasonable opportunity to both the parties. (A.Y. 2004-05)
CIT v. Bharati Overseas Trading Co. (2012) 249 CTR 554/70 DTR 336 (Delhi) (High Court)
S. 2(22)(e) : Definitions-Dividend- Deemed dividend- Unsecured loans from other Company
- Provisions of section 2(22)(e) cannot be invoked if the assessee does not possess the
prescribed voting rights in that company
S. 2(22)(e) cannot be invoked in respect of the unsecured loans taken by the assessee from the
other company if the assessee does not possess the prescribed voting rights in that company;
shareholding of the common shareholder or director cannot be taken into consideration for the
purpose. (AY 1994-95, 1996-97 & 1997-98)
CIT v. Gopal Clothing Co. Ltd. (2012) 71 DTR 358 (Delhi)(High Court)
S. 2 (22)(e):Dividend- Deemed Dividend-Partnership firm-Shares held by partners on
behalf of partnership firm is to be treated as shareholder.
A partnership firm which purchases shares of a company through its partners, though not
registered shareholder, being beneficial owner, is liable to be treated as shareholder for the
purpose of section 2 (22)(e) of the Act.
CIT v. National Travel Services (2012) 70 DTR 321 / 249 CTR 540 (Delhi)(High Court)

S. 2(22)(e): Definitions-Dividend-Deemed dividend-Journal entries-Journal entries could
not be said to be credit entries hence can be assessed as deemed dividend.
The accounts of directors were credited with various amounts by passing journal entries. The
Assessing Officer treated the same as deemed dividend. In appeal Commissioner (Appeals) held
that the amount credited by journal entries could not be held to be deemed dividends in the hands
of assessee. On appeal to the Tribunal by revenue, the Tribunal held that, it is not proper on the
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part of the Commissioner (Appeals) to hold that credit entries made in accounts of the assessee by
the company would not fall under section 2(22)(e), only on the reasons that the credits were
provided through journal entries, which may not be proper. An assessee may avail benefit either
by direct transfer of funds or by conferring credit by passing journal entry or through any other
lawful method and still such benefit would amount to deemed dividend. As the assessing
authority, Commissioner (Appeals) have not undertaken any such enquiry or verification, the
matter is remitted back to the Assessing Officer to re examine the nature and character of the
journal entries passed by the company.(A.Y.2008-09)
ACIT v. Gurbinder Singh ( 2012) 50 SOT 263 (Chennai) (Trib.)
S. 2(22)(e): Definitions- Deemed Dividend – Loan- Subsidiaries-loan received from some
subsidiaries, distributed amongst other subsidiaries in the course of ordinary business
cannot be treated as deemed dividend.
Assessee company was a holding company of 11 subsidiary companies. The assessee company
managed the financial affairs of its subsidiary companies in the ordinary course of its business.
The assessee as a part of its role arranged short term and long term funds for its subsidiaries.
Thus, it was held that the activity of taking loan from the subsidiaries and advancing it to other
subsidiaries in ordinary course of its business cannot be treated as deemed dividend. (A.Y. 2003-
04, 2004-05)
Farida Holding P. Ltd v. Dy. CIT (2012) 51 SOT 452 (Chennai) (Trib.)
S.2(24): Definitions – Income – incentive prize – Not income
The Assessee subscribed to PPF which formed part of Small Savings Scheme encouraged by
Government of Punjab. The Govt issued lucky coupon on every investment of Rs.5,000/-. The
Assessee also received lucky coupon which won the prize of 1kg gold. The Assessing officer held
that the price money won by assessee fell within the meaning of section 2(24)(ix) and made
addition as income. On Appeal, the CIT(A) as well as the Tribunal deleted the addition. On
appeal, the High Court, confirmed the view of the Tribunal and held that incentive price received
by assessee on account of coupon given on the strength of small saving certificate would not fall
within the definition of lottery and would not be included as income as per section 2(24)(ix).
(A.Y. 1996 – 97).
CIT v. Tilak Raj Kalra (2012) 206 Taxman 126 / 249 CTR 205/69 DTR 363(P&H.)(High Court)
S.2(24): Definitions- Income – Capital receipt –TDR- TDR-Gains on housing society
redevelopment is not-taxable as it is a capital receipt. [S. 4,45]
The assessee was the member of a housing society. The housing society and it’s members entered
into an agreement with a developer pursuant to which the developer demolished the building
owned by the housing society and reconstructed a new multistoried building by using the FSI
arising out of the property and the outside TDR available under Development Control
Regulations. The assessee, as a member of the housing society, received a larger flat in the new
building, displacement compensation of Rs. 6 lakhs (at Rs.34,000/- p.m. for the period of
construction of the new building) and additional compensation of Rs.11.75 lakhs. The Assessing
Officer &CIT(A) held that the said “additional compensation” was assessable as income in the
assessee’s hands. On appeal by the assessee, held allowing the appeal:
In principle, though the scope of “income” in section 2(24) is very wide, a capital receipt is not
chargeable to tax as income unless there is a specific provision to that effect. As the residential
flat owned by the assessee in the society’s building was a capital asset in his hands, the
compensation was a capital receipt. The department’s argument that the cash compensation was a
“share in profits earned by the developer” is not acceptable because it proceeds on the fallacy that
the nature of payment in the hands of the payer determines the nature in the hands of the
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recipient. However, as the said receipt reduced the cost of acquisition of the new flat, it had to be
taken into when computing the gains from a transfer thereof in the future.( A.Y.2007-08)
Kushal K. Bangia v. ITO(2012) 50 SOT 1 (Mum.)(Trib.)
S.2(24)(iv): Definitions-Income-Deemed income- Interest on interest free deposit-Interest on
interest free loans availed by assessee from two companies in which she was director could
not be treated as deemed income.
The assessee has availed interest free loans from two companies. Assessing Officer taxed the
alleged interest as deemed benefit under section 2 (24)(iv) of the Act, which was confirmed by
the Commissioner (Appeals). Tribunal deleted the addition. On appeal by revenue the court held
that the interest on interest free loans availed by assessee from two companies in which she was a
director could not be treated as her deemed income in terms of section 2 (24)(iv) of the Act.
(A.Ys 1990-91 to 1995-96)
CIT v. Madhu Gupta ( 2012) 205 Taxman 303 / 71 DTR 385 (P&H.) (High Court)
S. 2(47)(v): Definitions – Transfer –Possession-Capital gains-Conditions of execution of a
written agreement and handing over possession have to be cumulatively satisfied.
The Twin conditions of execution of a written agreement and handing over possession have to be
cumulatively satisfied in order to bring case within the ambit of Section 2(47)(v), read with
Section 53A of the Transfer of Property Act, 1882. None of the conditions are satisfied in the said
case i.e. neither the agreement to sale the land was signed nor the possession of the land had been
delivered. Since the transaction of the transfer has not taken in that year, thus nothing could be
brought to tax. (A.Y. 2006-07)
ADCIT v. Delhi Apartment P. Ltd. (2012) 135 ITD 441/147 TTJ 451 (Delhi)(Trib.)
S. 2(28A): Definitions-Interest-Allotment of flats- Delayed payment-Delay in allotment
payment is not interest.
Interest on amount deposited by allotment on account of delayed allotment of flats does not fall
under section 2(28A).
CIT v. H. P. Housing Board (2012) 340 ITR 388 / 67 DTR 113 (HP.)(High Court)
S. (2)(28A): Definitions- Interest- Official liquidator- Lump sum consideration is received-
cannot be assessed as income from other sources, it is assessable as capital gains.(S. 45, 56)
The amount received by the official liquidator in terms of orders of company court, though
referred to as interest, for the purpose of assessment of income-tax it was part of the sale
consideration and therefore, could not be treated as income from other sources under section 56,
the amount is assessable as capital gains under section 45. (A.Y. 1995-96)
Cauvery Spinning and weaving Mills Ltd. (In liquidation) v. Dy. CIT (2012) 340 ITR 550/ (2011)
238 CTR 55 / 50 DTR 218 (Mad.)(High Court)
S. 2(28A): Definitions- Interest- Debenture- Non-resident- DTAA-India –Mauritius-Sale of
investment to holding company before conversion into equity, gains arising on sale of
debentures is to be taxed as interest . ( Art.11(4), 13(4) .
The applicant sought an advance ruling on the questions whether gains arising to the applicant on
sale of equity shares and compulsory convertible debentures held by the applicant in S Ltd were
exempt from capital gains tax in India under article 13(4) of the Double Taxation Avoidance
Agreement between India and Mauritius .The Authority for Advance Ruling held that, the term
“interest” has been defined in the Income-tax Act , 1961 and in the DTAA to mean any type of
income payable on a debenture. Sale of investment to holding company of Indian company
before conversion of debentures in to equity , debentures remain debt till discharged. Convesion
rate determined on basis of period of holding, hence gains arising on sale of debentures to be
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taxed as interest. The entire gains arising to the applicant on the sale of shares and compulsory
convertible debentures were not exempt from capital gains tax in India under the DTAA with
Mauritius. The gains arising on the sale of compulsory convertible debentures being interest
within the meaning of section 2(28A) of the Act and article 11 of the DTAA was taxable as such.
Z, In re (2012) 345 ITR 11 / 69 DTR 329/249 CTR 225/206 Taxman528 (AAR)
S.2(42A):Definitions- Long term or short term-Period of holdings-The date of transfer or
sale is treated as a cut-off point to apply the test of period of holdings. [S.10(38), 54EC,
General Clauses Act, 1897 S. 3(35)]
The issue for consideration was whether the asset must be held for a period of more than 36
months or 12 months plus one day i.e. the date when transfer is made .The date on which the
transfer is made has to be excluded .The contention of revenue was based on the language of
section 2(42A) and the words “more than” used therein along with the expression “immediately
preceding the date of transfer”. The court held that the term “month” has not been defined in the
Act ,therefore one has to rely upon the words “calendar month” as defined in the General Clauses
Act , 1897 . Section 3 (35) of the said Act defines a “month” to be month reckoned according to
nd
the British calendar .Thus if an assessee acquires an asset on 2 January in a preceding year , the
nd
period of 12 months would be complete on Ist January , next year and not on 2 January. If it is
nd
sold on 2 January and if the proviso to section 2(42A) applies , it would be treated as a long
term capital gains. Accordingly the appeal of the assessee is allowed. (A.Y. 2006-07)
Bharti Gupta Ramola v. CIT (2012) 72 DTR 387/251 CTR 139 (Delhi)(High Court)
S. 2(43): Definitions- Tax- Education cess - Foreign company-DTAA-India-Singapore-
“Education cess” is “additional surcharge” & is included in “tax” under DTAA. If DTAA
caps the rate of “tax” payable, cess is not payable by foreign assessee. (S. 2(23A), Art, 11, 12
)
The assessee, a Singapore company, offered interest and royalty income to tax at the rate of 15%
& 10% as specified in Articles 11 & 12 of the India-Singapore DTAA respectively. The AO held
that the assessee was also liable to pay surcharge and education cess in addition to the tax. The
CIT (A) upheld the assessee’s claim that surcharge was not leviable though he rejected the claim
with regard to cess. On further appeal by the assessee. Held, allowing the appeal:

Articles 11 & 12 of the DTAA provide that the “tax” chargeable in India on interest and royalties
cannot exceed 15% and 10% respectively. The expression ‘tax’ is defined in Article 2(1) to
include ‘income tax’ and includes ‘surcharge’ thereon. Article 2(2) extends the scope of the ‘tax’
by laying down that it shall also cover “any identical or substantially similar taxes which are
imposed by either Contracting State after the date of signature of the present Agreement in
addition to, or in place of, the taxes referred to in paragraph 1”. “Cess” was introduced by the
Finance Act, 2004 and it is described in s. 2(11) of the Finance Act 2004 as “additional surcharge
for purposes of the Union, to be called the “Education Cess on income-tax”. Accordingly, the
“education cess” is in the nature of an “additional surcharge” and is covered by Article 2.
Accordingly, education cess cannot be levied in respect of the assessee’s tax liability.(A.Y .2009-
10 )
DIC Asia Pacific Pvt. Ltd v. ADIT (2012) 147 TTJ 503/74 DTR 140 (Kol.)(Trib)

S.2(47): Definitions-Transfer-Capital gains- Family arrangement- Since partition is not a
transfer and what is recorded in family arrangement is nothing but a partition , there is no
transfer liable to capital gains. (S. 45 )
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The family members of the assessee were holding the family properties and shares in different
business concerns. There was disputes and the arbitrator suggested a settlement , which the
assessee and family members agreed. Consequence to family arrangement the assessee resigned
from a partnership firm and transferred his share of profit /loss in the firm to a family member
for a consideration of Rs 35,000 being the capital balance of the firm. The assessing Officer held
that there was a capital gain in the hands of the assessee and was liable to pay capital gain tax.
On appeal Commissioner (Appeals) up held the order of the Assessing Officer. Tribunal held that
there was no transfer and not liable to capital gain tax. On appeal by revenue the Court held that
since partition is not a transfer, there was no liability of assessee to pay capital gain
tax.(A.Y.1993-94)
CIT v. R. Nagaraja Rao (2012) 207 Taxman 236 (Karn.) (High Court)
S.2(47)(v): Definitions-Transfer-Immoveable property- Possession-Possession of
immoveable property by way of lease on facts held is not transfer - Transfer of Property
Act, 1982.(S.45)
Possession of the mill was transferred to the purchaser by way of lease and not in terms of the
Transfer of Property Act. Therefore, there was neither actual transfer nor artificial transfer of title
on account of the transfer of possession. Such transfer of title took place only on payment of the
entire amount by the purchaser and only after the sale certificate was issued by the competent
court.(A.Y. 1995-96)
Cauvery Spinning and weaving Mills Ltd. (In liquidation) v. Dy. CIT (2012) 340 ITR 550/ (2011)
238 CTR 55 / 50 DTR 218 (Mad.)(High Court)
S.4: Charge of income –tax--Subsidiary-Subsidiary and its parent are totally distinct tax
payer, profits assessable on stand alone basis.
Subsidiary and its parent are totally distinct taxpayers and therefore entities subject to income-tax
are taxed on profits derived by them on stand alone basis, irrespective of their actual degree of
economic independence and regardless of whether profits are reserved or distributed to share
holders / participants. Principle of Lifting of corporate veil can be applied in cases of holding
company–subsidiary relationship, where, in spite of being separate legal personalities, if facts
reveal that they indulge in dubious method of tax evasion.
Vodafone International Holdings B.V. v. UOI (2012) 341 ITR 1/ 204 Taxman 408/ 247 CTR 1/ 66
DTR 265 / Vol. 42 Tax LR 305 (SC)
S.4: Charge of income-tax- Capital or revenue-Non-compete fee-Non-compete fee is capital
receipt.
st
Non–compete fee received by the assessee prior to 1 April 2003, has to be treated as capital
receipt. Department has not doubted the genuineness of transaction before lower authorities,
hence the Tribunal cannot contend before the High Court that the transaction is sham.(A.Y.1997-
98)
Hari Shankar Bhartia v. CIT (2012) 65 DTR 380/ 247 CTR 611 (Cal.)(High Court)
S. 4: Charge of income –tax- Capital or revenue receipt –Award- Acquisition of land –
Interest received till date of award is capital receipt.
The assessee’s land was taken by the agreement on October 31, 1998 and the award was passed
on March 29, 1992. The Assessing Officer took the view that interest was a revenue receipt. The
Commissioner (Appeals) and Tribunal held that the interest was a capital receipt. On appeal to the
High Court, the Court held that the interest paid, for the period 1-11-1998, upto date of award (i.e.
20-3-1992) must be treated as a capital receipt.
CIT v. V. Subbaraju (2012) 341 ITR 584 (AP)(High Court)
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S. 4: Charge of income –tax- Contingent deposit - Sales tax - Collection of contingency
deposit against sales tax liability is revenue receipt.
The High Court in CIT v. Southern Explosives Co. (2000) 242 ITR 107 (Mad.), has held that the
receipt of the amount for payment of sales tax and keeping it in deposit would amount to a
“revenue receipt” and it would form part of the assessee’s income, hence the collection of
contingency deposit against payment of sales tax would form revenue receipt, the matter decided
in favour of revenue. (A. Ys. 1996-97 & 1997-98).
CIT v. Sundaram Finance Ltd. (2012) 205 Taxman 37 / 67 DTR 117 (Mad.)(High Court)
S. 4: Charge of income –tax- Capital or revenue – Subsidy-Subsidy for power consumption
is revenue receipt.
Power subsidy received by the assessee for encourage setting up of new industries in backward
areas Assessee treated the said subsidy as capital receipt. The Court held that subsidy was given
for five years at a particular percentage on the total consumption is a revenue receipt. Decided in
favour of revenue. (A. Y. 1995-96).
CIT v. Karaikal Chlorates Ltd. (2012) 341 ITR 624 (Mad.)(High Court)
S.4: Charge of income-tax- Diversion by overriding title- Amount transferred to Transport
Infrastructure Utilisation Fund did not stand diverted at source by way of overriding title
and it is includible in the taxable income of the assessee.
The assessee was given license to conduct and carry on liquor trade in Delhi. On the basis of the
minutes of the meeting construction of flyovers etc was a precondition or an obligation imposed
and had to be complied with to enable the assessee to conduct business of sale of country liquor
in Delhi.
The assessee on the directions of the Delhi Administration had got flyovers and infrastructure
facilities constructed . As per resolution, 95 paisa out of Re 1 the assessee was entitled to retain
and keep. The balance 5 paise per bottle was to meet the administrative expenses including
corporate expenses . The said 95 paise was not transferred or paid by the assessee to the Delhi
Administration. Accordingly the Court held that the amount standing in TIUF was not diverted at
source by way of overriding title and it was to be included in the taxable income of the assessee.
The interest earned on amount transferred to TULF is also income and is taxable. (A.Ys. 1990-91
to 1992-93, 1994-95 & 1996-97)
CIT v. D.T.T.D.C. LTD (2012) 71 DTR 115 / 206 Taxman 507 (Delhi) (High Court)
D.T.T.D.C. LTD v.CIT (2012) 71 DTR 115 / 206 Taxman 507 (Delhi) (High Court)
S.4: Charge of income-tax- Diversion by overriding title- Sale proceeds deposited in other
general economic service fund did not have the character of income earned by the assessee
and it has to be excluded from the profit.
The assessee was given license to conduct and carry on liquor trade in Delhi. On the basis of the
minutes of the meeting construction of flyovers etc was a precondition or an obligation imposed
and had to be complied with to enable the assessee to conduct business of sale of country liquor
in Delhi.
The assessee on the directions of the Delhi Administration had got flyovers and infrastructure
facilities constructed . As per the terms of letter the sale proceeds under the head Other General
Economic Services (OGES) head was transferred to the Delhi Administration. Till the said date,
the amount under OGES was retained by the assessee. The Court held that these receipts did not
have character of income earned by the assessee and it has to be excluded from the profit. (A.Ys.
1990-91 to 1992-93, 1994-95 & 1996-97)
CIT v. D.T.T.D.C. LTD (2012) 71 DTR 115 / 206 Taxman 507 (Delhi)(High Court)
D.T.T.D.C. LTD v.CIT (2012) 71 DTR 115 / 206 Taxman 507 (Delhi)(High Court)
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S.4: Charge of income-tax- Undisclosed income- Search and seizure-On money- Paper
seized from third party addition is deleted.(S. 132)
In the course of search and seizure action against third party, from the Director of the said
company certain loose papers were seized which recorded the alleged payments to artists. One of
the name was of the assessee. On the basis of said paper the assessment of the assessee was
reopened. Assessing Officer treated the said amount of Rs. 20 lakhs as undisclosed income of
assessee. In the course of cross examination the director of the company has stated that he did not
recollect the year of payment either 1996 or 1999 nor the person to whom he has given the
money. The Tribunal held that under the circumstances the statements given by Director had no
evidentiary value, hence the addition could not be taxed in the assessment year 1999-2000. (A. Y.
1999-2000).
Saif Ali Khan Mansuraliv.v. ACIT (2012) 13 ITR 204 (Mum.)(Trib.)
S.4: Charge of income-tax-Capital or revenue receipt- Subsidy-Sales tax subsidy is capital
receipt.
Subsidy given under dispersal of Industries scheme as incentive to set up industries in areas other
than Mumbai, Pune and Thane is capital receipt. (A.Ys. 2004-05, 2005-06, 2006-07).
Dy. CIT v. Cosmo Films Ltd. (2012) 13 ITR 340 (Delhi)(Trib.)
S.4: Charge of income-tax-Diversion by overriding title- Infrastructure fund-Infrastructure
fund retained can not be held as diversion by overriding title.
Assessee is a development authority created under the provisions of UP Urban Planning &
Development Act, 1973. 90 percent of the amounts collected by the assessee by way of
development fees, conversion charges of land user, stamp duty and fees on regularization of
colonies were retained in the infrastructure fund account. As per office memorandum assessee has
power to collect the fees/charges for functioning. The amount collected by office memorandum
not being a separate independent entity of the assessee and the said memorandum having not
created any overriding title of the State Government at source of collection of the specified fees/
charges, which have to be applied towards fulfillment of assessee’s object, there is no diversion
of income by overriding title as regards the amounts credited to the infrastructure fund.(A.Y.
2006-07 &2007-08)
Mussore Dehradun Development Authority v. Addl. CIT (2012) 65 DTR 297 / 143 TTJ 395 / 16
ITR 358 (Delhi)(Trib.)
S.4: Charge of income-tax-Salary –Performance incentive-Appeal- Same income cannot be
assessed twice, and claim of assessee has to be allowed as mistake apparent on record ,
though the income was offered by assessee in the return of income .(S., 139.154, 246A).
The assessee while filing the return for the assessment year 2007-08 in addition to regular income
also admitted a sum of Rs 4,28,750/- as performance incentive from his employer. The
assessment was completed under section 143 (3), which were accepted by the assessee. In the
assessment year 2008-09 after going through the TDS certificates, the assessee realized that the
correct assessment year should be assessment year 2008-09 and offered for taxation in the
Assessment year 2008-09, which was accepted by the tax department. The assessee filed an
appeal to Commissioner (Appeals) for the assessment year 2007-08, which was dismissed by
Commissioner in-limine as appeal is not maintainable. The assessee preferred an appeal before
the Tribunal. As there was difference of opinion the matter was referred to third member. The
third member held that the Act does not authorize levy of tax on same amount more than once,
therefore, when amount of performance incentive had been assessed for assessment year 2008-09,
assessment of same amount for impugned assessment year 2007-08 was a mistake apparent on
records. Accordingly the claim of assessee was allowed. (A.Y 2007-08)
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