TAXATION IN INDIA : some landmark cases and judgements
DR. T.K. JAIN
AFTERSCHO ☺ OL
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My word..... Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from any expert. I wish that more people should become entrepreneurs, rather than becoming an expert in avoiding taxation. Let us wish that some person should simplify our taxation system. I have tried to simplify Indian legal system and taxation system for Indian entrepreneurs – but it is so complicated that even if you simplify it, it will remain complicated. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes force him to adopt unfair means ..
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K. Lakshmansa & Co. v. CIT (1981) Is rearing silk worms agriculture : a farmer grew mulberry leaves and fed the same to silk-worm, it was held that the income derived from rearing of silk-worms was not agricultural income because the silk cocoons produced by silk-worms did not bear any character of an agricultural produce or as a marketable form of mulberry leaves.
CIT v. Kamakshya Narain Singh (1948) interest on arrears of rent payable in respect of agricultural land is not agricultural income because the source of income (interest) is not from land but it is from rent which is a secondary source of income and is taxable under income from other sources.
Mustafa Ali Khan v. CIT Is every land agricultural land? : Unless there is some measure of cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Act.
Triveni Engg. Works Ltd. v. C.I.T. (Delhi) 1985 Appreciation in the value of foreign currency held on capital account is not treated as Income
Egyptian Hotels Ltd. v. Mitchell What is the place of business ? : It is not where the directors have power to do, but where from they actually do, that is of importance in determining the question of the place where the control is exercised.
C.I.T. v. Ramakrishna Deo (1959) In case of exempted income, the assssee has to prove that his income falls under Section 10. (sec. 10 is about exempted incomes )
C.I.T. v. B. Gopalkrishna Murthy (1971) The payment of gratuity by the Life Insurance Corporation of India under the Staff Regulations is wholly exempt from tax under Section 10(10), as the object and purpose of the gratuity scheme of the Life Insurance Corporation of India and the Revised Pension Rules of the Central Government are the same
Digvijay Woollen Mills Ltd. v. Mahendra Prataparai Buch (1980) wages of fifteen days or seven days (for the calculation of gratuity), as the case may be, will be calculated by dividing the monthly wages last drawn by 26, i.e. maximum number of working days in a month
Gestetner Duplicators (P) Ltd. v. C.I.T. (1979) Salary for sec. 10(10AA) for the purpose of encashment of earned leave means, Basic salary and includes dearness allowance if terms of employment so provide. It also includes commission based on fixed percentage of turnover achieved by an employee as per terms of contract of employment
Addl. C.I.T. v. A.K. Mishra Any special allowance in cash or the value of any benefit granted by the employer to an employee with the specific object of enabling the employee to meet the expenses incurred by him in the performance of the duties of his office or employment of profit, is exempt from tax to the extent to which such expenses are actually incurred for that purpose. This allowance may include TA, CA etc., but it does not include entertainment allowance, perquisites and the allowance to meet personal expenses like. City Compensatory Allowance
CIT v. Tejaji Farasram Kharawalla Ltd. (1968) Out of the special allowances received by the employee, if any surplus remains in the hands of the assessee out of a lump sum paid to him by the employer for the purpose, the surplus would be taxable in the hands of the assessee as income. (sec. 10 (14))
C.I.T. v. Mehar Singh Sampuran Singh Chawla (1973) No tax exemption is available for surrender of salaries. If this surrender of salary represents a donation for charitable purpose, the employee may qualify for deduction from gross total income under Section 80G
Reade v. Brearley (1933) Is fictional salary taxable : when there is only book entries and no money is actually paid to employeethe fictional salary would not be taxable
Brooke Bond Employees Union v. Union of India (1989) Dearness allowance is taxable as part of salary only when form part of retirement benefit otherwise not
M.C. Muthanna v. CIT (1989) Interest income in excess of permissible limit (i.e. @12%) credited to the P.F. account of an employee, is to be treated as ‘Salary’ for purposes of Sections 15 and 16
Kashi Pd. Kataruka v. C.I.T. (1975) For annual value of House property, we have to find fair rent. The fair rent arrived at for this purpose would be normally based upon various circumstances such as local conditions, demand for houses in that locality,valuation by the local authority etc., etc. However, if the fair rent of the property is fixed under the Rent Control Act of the State concerned, it shall be taken into account.
M.V. Sonavala v. CIT (1989) Income from house property has to be computed on the basis of sum for which property might reasonably be let out from year to year and not at amount received by assessee as actual compensation or rent
CIT v. K.K. Dhanda (HUF) (1989) Loss relating to self-occupied house property could be set off against income from other sources
CIT v. Smt. Sreelekha Banerjee (1989) In determining annual value of house propoerty salary paid to caretaker cannot be taken into account
C.I.T. v. L. Kuppu Swamy Chettiar (1981) If tax on property is enchanced with retrospective effect by municipal or local authorities and the enhanced tax relating to the prior year is demanded during the assessment year, the entire demand is deductible in the assessment year
Clive Buildings Cola Ltd. v. CIT (1989) fire tax, conservancy tax, education, water tax, etc. levied by any municipality or local authority & actually paid in respect of any house property are allowed as deductible taxes
C.I.T. v. Dewan Chand Dholan Das (1981) A partnership firm using its own building for the residence of its partners cannot claim the concessions in respect of self-occupied residential house
D.R. Sunder Raj v. C.I.T. (1979) Concessions of self occupied property are not available in a case where the assessee lets out his house to his employer and employer allots the same to the assessee for his residential purposes. In such a case, the assessee occupies the house not as an owner but as a sub-tenant of his employer
Nathmal Bankat Lal Parikh and Company v. C.I.T. (1980) Replacement of an old diesel engine by a new engine in a motor van used for business purposes was done with a view to preserve and maintain the asset in existence and, as no enduring benefit was derived by the assessee, the expenditure was allowed under Sec. 31 as normal repairs and maintenance expenditure.
C.I.T. v. Alps Theatre (1967) When we talk of depreciation allowed under sec. 32, building refers only to the super- structure and not the land on which it is erected
C.I.T. v. Kalyani Spinning Mills Ltd. (1981) Depreciation under sec. 32 is available on Roads to residential quarters for employees at the rates applicable to first class building
Following have been held to be plant : - 1. In a hotel, pipe and sanitary fittings : C.I.T. v. Taj Mahal Hotel (1971) 2. In an electric supply company, mains service lines and switch gears : C.I.T. v. Warner Hindustan Limited 3. Well. 4. for manufacturer of oxygen, gas-cylinder for storing gas. 5. Technical know-how in the form of blue prints, instruction, technical manuals. C.I.T. v. Festo Elgi Pvt. Ltd. (1981) . 6. Thermocole insulation. (C.I.T. v. Yamuna Cold Storage (1981) ) 7. Data Processing Machines. C.I.T. v. I.B.M. World Trade Corporation (1981)
Challapali Sugar v. C.I.T. (1973) interest paid on the loan taken for purchase of plant / machinery upto the date of commencement of production will be capitalised and treated as part of the actual cost of the plant on which depreciation and investment deposit benefits will be allowed.
Shree Vallabh Glass Works Ltd. v. C.I.T. (1981) preliminary expenses of revenue nature necessary for putting plant and machinery in working condition are part of actual cost of plant and machinery.
P. Alikunju M.A. Nazeer Cashew Industries v. CIT (1987) Capital gain on Compulsory acquisition and capital gain (sec. 54D) : running of a lodge’ can also be said to be an ‘industrial undertaking’ within the meaning of Section 54D.
Durga Narain Singh v. CIT (1947) Rent as agricultural income : recipient of rent or revenue should be the owner of the land. The expression revenue is used in the broader sense of: return, yield or income, and not in the sense of land revenue.
C.I.T. v. Pangal Vittal Nayak & Co. Pvt. Ltd. (1969) If an assessee earns commission on speculative transactions, he is not entitled to set-off under section 70 against speculative loss as there is no element of speculation in the commission
C.I.T. v. Handicraft Handloom Export Corporation (1982) Under section 70, if loss incurred by a wholly owned subsidiary company is reimbursed by the holding company, the subsidiary company cant carry forward and set-off the loss. Loss of subsidiary cant be set off with profit of holding company.
Dwarkadass Leeladhar v. CIT (1963) Normal losses cant be set off by someone else other than assessee. However, exceptions are : accumulated business loss of an amalgamating company under Section 72A & the share of loss of partnership taken over by one of its partners can be set-off by the partner
Keshrichand Bhanabhai v. CIT (1951) 20 ITR 201 (Bombay) However, loss incurred by HUF cannot be carried forward and set-off after its partition against income of firm formed thereafter by certain coparceners
Union of India v. Gosalia Shipping (P) Ltd. (113 ITR 307 (S.C.) ) As per sec. 172, Ships have to pay tax @ 7.5% on carriage, before they leave a port from India. However, no tax is payable, if a non-resident company hires a ship from another non-resident and loads the ship with own goods in India, neither the owner of the ship nor the lessee receives any amount on account of the carriage of the goods.(Section 172(2))
Commissioner of Income-tax v. Kashi Nath & Co. (1988) Commissioner of Income tax can give best judgement assessment as per sec. 142 and revise assessment as per sec. 263, but this power of revision is quasi-judicial in character. He must give reasons in support of his conclusion that the assessment order is erroneous