Recent Judgements in Direct Taxes presented in Lucknow Branch on 27th Feb 2015

1. CA Ashok Seth
127th Feb 2015

2. PRECEDENT
 A judgment of SC is binding. It is the
principle laid down in the judgment, and
not every word appearing therein, that
becomes the law of the land.
 Between two decisions of benches of
equal strength of the Supreme Court,
the later decision should be followed,
provided the earlier decision is
considered
27th Feb 2015 CA Ashok Seth 2

3. Acceptance or Rejection of SLP
by SC
SC dealt the effect of acceptance or
rejection of a SLP in Kunhayammed v.
State of Kerala, (245 ITR 360) and held
that when there is a refusal of SLP in non -
speaking order, it does not amount to a
declaration of the law as laid down by the
SC. If the refusal is a speaking order, it
then becomes a declaration of law.
27th Feb 2015 CA Ashok Seth 3

4. Reliance of Decision
 Sun Engineering Works Pvt. Ltd. (198
ITR 297) SC observed
 It is neither desirable nor permissible to
pick out a word or a sentence from the
judgment of the Supreme Court divorced
from the context of the question under
consideration and treat it to be the
complete law declared by the court.
27th Feb 2015 CA Ashok Seth 4

5. Contd.
 The judgment must be read as a whole and
the observations from the judgment have to be
considered in the light of the questions which
were before the court. A decision of the
Supreme Court takes its colour from the
questions involved in the case in which it is
rendered and, while applying the decision to a
later case, courts must carefully try to
ascertain the true principle laid down by the
decision.
27th Feb 2015 CA Ashok Seth 5

6. Ratio Decidendi, Obiter Dicta, and
Casual Observations
The question which was necessary for
determination of the case would be the
ratio; the opinion of the court on the
question which was not necessary to
decide the case would be only obiter
dictum. ‘casual observations’ of the SC is
that observation are made on points which
do not arise for the determination of the
court at all.
27th Feb 2015 CA Ashok Seth 6

7. Sec 147-The Indian Hume Pipe
Co Ltd (S.C.)- Dt 19-2-2015
 Indian Hume Pipe Co Ltd 348 ITR 349
(Bom.)reversed Held as under by HC
 “Full and true disclosure of material
facts” means that the disclosure should
not be garbled or hidden in the crevices
of the documentary material which has
been filed by the assessee with the AO.
The assessee must act with candor. A
full disclosure is a disclosure of all
material…
27th Feb 2015 CA Ashok Seth 7

8. 115JB- Difference – Reserve &
Provision
 Srei Infrastructure Finance Ltd vs.
ACIT – Delhi HC (still not reported
decided 11th Feb 2015
 Statutory reserve created u/s 45-IC
of RBI Act is not a "diversion of
income at source
 GN of ICAI refereed to by HC
27th Feb 2015 CA Ashok Seth 8

9. Registration U/s 12AA-
Violation of 13(1)(b)
 Kul Foundation v. CIT - (2015) 54
taxmann.com 143 (Pune - Trib.)
 S. 12AA/80G(5): CIT, while granting
registration or renewal, can only look
at the nature of activities and is not
concerned with potential violation of
s. 11(5) or s. 13. Registration cannot
be denied on ground that activities
have not commenced
27th Feb 2015 CA Ashok Seth 9

10. Development agreement, real
income theory
 CIT v Chemosyn Ltd (Bom HC)
 Even if gains have accrued on
execution of the development
agreement as per Chaturbhuj
Dwarkadas, the subsequent
modification/ supercession of the
agreement means that gains are not
taxable as per real income theory
27th Feb 2015 CA Ashok Seth 10

11. CIT vs. Excel Industries Ltd.
358 ITR 295 (SC)- Real Income
 Accrual of Income- Test- Whether
income accrued to assessee is real or
hypothical, whether corresponding
liability to pay of other party and
probability of realisation- seen from
practical point of view.
 AO to take pragmatic view rather
than pedantic approach.
27th Feb 2015 CA Ashok Seth 11

12. Accrual of Income
 Vinay Vasudeo Kulkarni BCAJ–June P
26 (Pune)(Trib.)
 Income is taxable in the year when
right to receive accrues-Commission
[S.4].
27th Feb 2015 CA Ashok Seth 12

13. Contd.
 Though the Schedule VI requires income
accrued but not due as part of profit, for
income tax purpose ‘income accrued but
not due‘ is a contradiction terms , since
what was not due could not have
accrued. What is not due cannot be
subjected to legal action to enforce
recovery and hence , income in legal
sense could not be treated as accrued so
as to require its inclusion in taxable
income.
27th Feb 2015 CA Ashok Seth 13

14. Real Income Theory
 Excess Bill- Not an income
 Tyco Sanmar Ltd 370-ITR 173 (Mad)
27th Feb 2015 CA Ashok Seth 14

15. “Charitable Purpose” S. 2(15)/
10(23C)(iv)
 India Trade Promotion Organization vs.
DGIT (E) (Delhi High Court)
 If the definition of "charitable purpose"
is construed literally, it is violative of the
principles of equality & unconstitutional.
If the dominant object is not to carry on
business or trade or commerce, then an
incidental or ancillary activity for which
a fee is charged does not destroy the
character of a charitable institution
27th Feb 2015 CA Ashok Seth 15

16. Deemed Dividend 2(22)(e)
 CIT vs. Jignesh P. Shah (Bombay High
Court) Held: -
 S. 2(22)(e) has to be construed strictly.
If assessee is not a shareholder of
lending co, s. 2(22)(e) does not apply
even if funds are ultimately paid by Co
in which assessee is a shareholder –
 Vatika Township (1) SCC 1, Universal
Medicare Pvt. Ltd. 324 ITR 263 Impact
Containers Pvt. Ltd. 367 ITR 346
followed
27th Feb 2015 CA Ashok Seth 16

17. 54 taxmann.com 67
(Allahabad) February 21, 2015
 AO couldn't make partial disallowance
of exp. After accepting the
genuineness
 Where Assessing Officer had accepted
genuineness of payment of
consultancy charges to architect,
entire amount should have been
allowed and allowing part payment
was not justified
27th Feb 2015 CA Ashok Seth 17

18. Claim for Bad Debts- [2015] 54
taxmann.com 28 (Gujarat)
 Once amount of bad debt is debited
to profit and loss account and
simultaneously reduced from asset
side, same is to be allowed; it was
not necessary for assessee to close
individual account of each of its
debtors in its books
27th Feb 2015 CA Ashok Seth 18

19. Service of Notice- Affixture
 Godavari Electrical Conductors
(Andhra Pradesh High Court)
 Issue of notice straightaway through
affixture is not proper & renders
proceedings void.
27th Feb 2015 CA Ashok Seth 19

20. 142-A Reference to VO- Nirpal
Singh 220 Taxmann 152 (P&H)
 Reference by AO to valuation officer
without rejecting books of account or
referring to any material/ evidence/
information on basis of which it could
be said that investment reflected by
assessee was understated or
suppressed, reference was not
justified
 Section amended w.e.f 1-10-2014
27th Feb 2015 CA Ashok Seth 20

21. Re-assessment
 CIT v P.N. Sharma All HC 43
Taxmann.com 131
 Where no assessment order was
passed either u/s 143(1)(a) or 143(3)
or 144 there was no occasion to pass
re-assessment order u/s 147
 Followed UP Rajya Utpadan Nigam
202 ITR 93 (All)
27th Feb 2015 CA Ashok Seth 21

22. Capital Gain- Holding Period
 Smt Rama Rani Kalia 221 Taxman 72
(All)
 Conversion from Lease Hold to Free
Hold
 Entire period to be seen
27th Feb 2015 CA Ashok Seth 22

23. Holding Period- K Rama
Krishnan 225 Taxman 123 (Del)
 A plot allotted on 3-08-1999, a
conveyance deed and possession of plot
was given on 12-12-2005- sold plot
through registered sale deed on 9-01-
2008- jitendra Mohan v/s ITO [2007] 11
SOT 594 (Delhi),
 It is date of allotment which is relevant
for purpose of computing holding period
and not date of registration of
conveyance deed- Held, yes
27th Feb 2015 CA Ashok Seth 23

24. Addition on AIR information
 M/s. ANS Law Associates vs. ACIT
(ITAT Mumbai)
 Additions made solely on the basis of
AIR information are not sustainable in
law. The AO has to prove that
assessee has received income from a
particular source. The assessee
cannot be expected to prove the
negative
27th Feb 2015 CA Ashok Seth 24

25. 50-C
 Pradeep Steel Re-Rolling Mills (P.) Ltd
61 SOT 104 (URO)
 section 50C applies only to capital
assets being land or building or both;
it does not in terms include leasehold
rights in land or building within its
scope
27th Feb 2015 CA Ashok Seth 25

26. 50C- Chandra Narain Chowdhri
219 Taxman 60 (Alld)111
 Where assessee objects before
Assessing Officer that value adopted by
stamp valuation authority under section
50C(1) exceeds fair market value of
property on date of transfer, Assessing
Officer may either accept valuation of
property on basis of report of approved
valuer filed by assessee or he may refer
question of valuation of capital asset to
DVO in accordance with section 55A
27th Feb 2015 CA Ashok Seth 26

27. Property Trf. by Partner to firm
 M/s. Chakrabarty Medical Centre vs.
TRO (ITAT Pune)
 Property introduced by a partner into
firm becomes the asset of the firm even
if there is no registered deed. Though
the asset is held by the firm as a
depreciable asset and though the
investment in s. 54EC bonds is made in
the names of the partners, the firm is
eligible for s. 54EC exemption
27th Feb 2015 CA Ashok Seth 27

28. Institute’s Publication
 CIT vs. Virtual Soft Systems Ltd 18
Taxman 119 (Delhi)
 Method for accounting for lease rentals
was based on the Guidance Note
“Accounting for Leases” issued by the
ICAI, the AO was not entitled to
disregard the same. The Guidance Note
reflects the best practices adopted by
accountants the world over and the fact
that it was not mandatory is irrelevant
27th Feb 2015 CA Ashok Seth 28

29. Development Agreement
 CIT v Ved Prakash Rakhra 370 ITR
762 (Kar)
 Exchange Value- How determined
 Should be estimate cost of
construction.
 Where development agreement
specifies a figure as a cost of
construction to be incurred by
developer, it could be taken as basis
27th Feb 2015 CA Ashok Seth 29

30. THANK YOU
27th Feb 2015 CA Ashok Seth 30