VOLUME 205 ISSUE 3I
w w w . t a x m a n n . c o m
Price : ` 100
MODE OF CITATION [2012] 205 TAXMAN...(...)
ISSN 0972-8198
...
BREAKING NEWS IX
CIT v. Tyco Electronics Tools India (P.) Ltd.
[2012] 18 taxmann.com 329 (Karnataka)
Profit for purpose of...
X BREAKING NEWS
- [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS] [ASSESSMENT YEAR 1996-97]
[IN FAVOUR OF ASSESSEE...
BREAKING NEWS XI
TAX ACT, 1961 - CAPITAL GAINS - SLUMP SALE, COST OF ACQUISITION IN CASE OF]
[ASSESSMENT YEAR 1994-95] [IN...
XII BREAKING NEWS
Assessing Officer any number of times whenever situation for it occurs -
[SECTION 153B, READ WITH SECTIO...
BREAKING NEWS XIII
80HHC, READ WITH SECTION 28(iiid), OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS -
EXPORTERS] [ASSESSMENT YE...
Contents A-1
COntents
STATUTES
NOTIFICATIONS
- Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/Au...
A-2 Contents
SUBJECT INDEX
Business disallowance
Certain deductions to be allowed only on actual payment
- Assessment year...
Contents A-3
further submitted that as per accounting policy followed by assessee, such expenses were
booked in year in wh...
A-4 Contents
such shareholders, amount was paid by company to concern -Held, yes -CITv. Hotel Hilltop
(Raj.)(Mag.) 91
Depr...
Contents A-5
and would be taxable in India under section 44BB -Held, yes - Whether if during activities
of installation, i...
A-6 Contents
- Held, yes - Whether, therefore, it is not possible to divorce software from intellectual
property right of ...
Contents A-7
- Section 44BB 273
- Section 45 77
- Section 80HH 75
- Section 80HHE 251
- Section 80-IB 72
- Section 115JB 7...
A-8 Contents
under section 44BB, but contends that since its vessels were not in India for more than 183
days, it would no...
Contents A-9
premises of respondent No. 3 there was interrogation carried out for 42 hours commencing
at 9.30 a.m. on 8-9-...
2012] 9Notification
(ix) Investment on built up space for : Rs. 8,26,67,565
Industrial use (Amount in Rupees)
(x) Investme...
10 Taxman - Statutes [Vol. 205
NOTIFICATION
Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory body/
Auth...
2012] 11
(a) long-term or short-term capital gain out of investment in an organisation
for skill development;
(b) dividend...
12 Taxman - Statutes [Vol. 205
RULES/AMENDMENT RULES
Income-tax (Appellate Tribunal) Amendment Rules, 2012 - Amendment in
...
2012] 13
of such No., the date of filing of the appeal shall be
mentioned in the covering letter.
(3) No cognizance of cha...
14 Taxman - Statutes [Vol. 205
The existing proviso to Rule 34A(3) is deleted.
Deletion of proviso to Rule 35A Procedure f...
2012] 219
Subsequent to the search proceedings, the respondents-assessees filed revised
returns twice surrendering the inc...
220 Taxman - Tax Reports [Vol. 205
7. As against this, the learned counsel Mr. Chaitanya appealing for the respon-
dents-a...
2012] 221
provisions of the Act are relevant for considering the substantial questions of
law raised in the above appeals....
222 Taxman - Tax Reports [Vol. 205
(b) for any previous year which is to end on or after the date of the search, then,
not...
2012] 223
with the department, the same was declared as undisclosed income. According
to the representatives of the respon...
224 Taxman - Tax Reports [Vol. 205
17. So far as imposition of penalty on the amount surrendered as commission,
therespond...
2012] 225
penalty under that provision is a civil liability They further opined that wilful
concealment is not an essentia...
226 Taxman - Tax Reports [Vol. 205
mens rea of a quasi-criminal offence regarding the intentional or deliberate
concealmen...
2012] 227
27. He also places reliance on the decision in the case of Gebilal Kanhaialal
(HUF) v. Asstt. CIT [2004] 270 ITR...
228 Taxman - Tax Reports [Vol. 205
67. ‘Concealment of income’ and ‘furnishing of inaccurate particulars’ are
different. B...
2012] 229
2. That any money, bullion, jewellery or other valuable article or thing found
in his possession or under his co...
230 Taxman - Tax Reports [Vol. 205
asked details pertaining not only to himself but also all other family members.
It is n...
2012] 231
ing that if a declaration is made under section 132(4) along with the taxes
together with interest payable is pa...
232 Taxman - Tax Reports [Vol. 205
[2012] 205 TAXMAN 232/18 taxmann.com 70 (Patna)
HIGH COURT OF PATNA
Chief Commissioner ...
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  1. 1. VOLUME 205 ISSUE 3I w w w . t a x m a n n . c o m Price : ` 100 MODE OF CITATION [2012] 205 TAXMAN...(...) ISSN 0972-8198 VOL.205ISSUE3MARCH10,2012nn T H E T A X L A W W E E K L Y TOTAL NO. OF PAGES INCLUDING COVER 164 Log on to www.taxmann.com FOR FULL DETAILS FOR THE WEEK OF MARCH 10 - MARCH 16, 2012 RELEASED ON MARCH 10 Cash credit Section 80-IB deduction Capital gains Search and seizure • • • • • Entire share capital cannot be added to assessee's income under section 68 only because some of shareholders did not respond to notices issued to them Deduction under section 80-IB has to be worked out from date of commencement of commercial production in industrial undertaking and not from date of grant of licence to start business operations Where subject-matter of transfer was business undertaking as a whole and said undertaking consisted not only of tangible items but other intangibles transaction involved a slump sale under section 50B Payment made by assessee to canteen owner on sale of a cinema hall to vacate said premises would be set-off against sale consideration for computation of capital gains Benefit of period of 60 days in terms of proviso to Explanation to section 153B for completing assessment under section 153A can be availed by Assessing Officer any number of times whenever situation for it occurs [61-94]MAGAZINE[9-14]STATUTES [219-322]TAX REPORTS e-Journal Soft copies/electronically downloadable version of is also available Exemption under section 10(46) to Competition Commission of India and National Skill Development Corporation 10 Search and seizure Fees for technical services Repairs Method of accounting Income-tax (Appellate Tribunal) Amendment Rules, 2012 12 Club membership Interest free loan Royalty n n n n n n n If required, search and seizure can continue for days but at same time due regard to human dignity and value cannot be ignored (Patna) 232 Subscription amount paid by a company for obtaining corporate membership in a club is revenue expenditure (Kar.) 250 Payment made by Indian company to British group company for availing general business support services is in nature of 'fees for technical services' (AAR - New Delhi) 288 Interest on interest-free loan availed by assessee from a company in which she was a director, could not be treated as her deemed income under section 2(24)(iv) (Punj. & Har.) 303 Cost of repair/reconstruction of tenanted premises is revenue in nature and allowable as deduction under section 30(a)(i) (Bom.) 309 Payment received by applicant, an Australian company, from its Indian distributor for sale of applicant's software product in India is royalty (AAR - New Delhi) 320 Assessing Officer cannot disregard method of accounting for lease followed by assessee on basis of Guidelines of ICAI (Delhi) 257 from taxmann.com 20 LATEST ORDERS
  2. 2. BREAKING NEWS IX CIT v. Tyco Electronics Tools India (P.) Ltd. [2012] 18 taxmann.com 329 (Karnataka) Profit for purpose of deduction under section 10A should be allowed without setting off of unabsorbed loss and depreciation - [SECTION 10A, READ WITH SECTION 72, OF THE INCOME-TAX ACT, 1961 - FREE TRADE ZONE] [ASSESSMENT YEARS 2001-02 AND 2002-03] [IN FAVOUR OF ASSESSEE] Link Line Enterprises v. Asstt. CIT [2012] 18 taxmann.com 332 (Kerala) Order of Chief Commissioner granting waiver of interest in ignorance of conditions of notification issued under section 119(2)(a) would be rectifiable under section 154 - [SECTION 154, READ WITH SECTION 119, OF THE INCOME-TAX ACT, 1961 - RECTIFICATION OF MISTAKES - APPARENT FROM RECORDS] [ASSESSMENT YEARS 1989- 90 TO 1995-96] [IN FAVOUR OF REVENUE] Mohanlal Punamchand (HUF) v. ITO [2012] 18 taxmann.com 336 (Karnataka) Validity of addition under section 68 vis-a-vis amount credited in books of account by assessee on sale of diamonds and gold ornaments - [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS] [ASSESSMENT YEAR 1998-99] [MATTER REMANDED] CIT v. Nilchem Capital Ltd. [2012] 18 taxmann.com 350 (Gujarat) Entire share capital cannot be added to assessee’s income under section 68 only because some of shareholders did not respond to notices issued to them FROM www.taxmann.com For Full Text of Orders/Judgments log on to www.taxmann.com TAXMAN MARCH 10 - MARCH 16, 2012 1
  3. 3. X BREAKING NEWS - [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS] [ASSESSMENT YEAR 1996-97] [IN FAVOUR OF ASSESSEE] Sterilite Industries (India) Ltd. v. Asstt. CIT [2012] 18 taxmann.com 351 (Madras) Deduction under section 80-IB has to be worked out from date of com- mencement of commercial production in industrial undertaking and not from date of grant of licence to start business operations - [SECTION 80-IB OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INDUSTRIAL UNDERTAK- INGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS] [ASSESSMENT YEARS 2002-03 TO 2004-05] [IN FAVOUR OF ASSESSEE] Director of Income-tax v. Society for Development Alternatives [2012] 18 taxmann.com 364 (Delhi) Where assessee carrying on charitable work received grants for specific purposes from certain agencies, these grants could not be considered volun- tary contribution as per section 12 - [SECTION 12 OF THE INCOME-TAX ACT, 1961 - CHARITABLE OR RELIGIOUS TRUST - VOLUNTARY CONTRIBUTIONS] [IN FAVOUR OF ASSESSEE] CIT v. Luwa India Ltd. [2012] 18 taxmann.com 365 (Karnataka) Royalty paid for know-how and technology granted to assessee as licence for ‘use’ only is allowable - [SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABILITY OF] [ASSESSMENT YEAR 1997-98] [IN FAVOUR OF ASSESSEE] CIT v. Polychem Ltd. [2012] 18 taxmann.com 366 (Bombay) Where subject-matter of transfer was business undertaking as a whole and said undertaking consisted not only of tangible items but other intangibles transaction involved slump sale under section 50B -[SECTION50BOFTHEINCOME- TAXMAN MARCH 10 - MARCH 16, 2012 2
  4. 4. BREAKING NEWS XI TAX ACT, 1961 - CAPITAL GAINS - SLUMP SALE, COST OF ACQUISITION IN CASE OF] [ASSESSMENT YEAR 1994-95] [IN FAVOUR OF ASSESSEE] Anand Education Society v. DGIT (Exemptions) [2012] 18 taxmann.com 374 (Delhi) While deciding application for grant of approval under section 10(23C)(vi), prescribed authority has to keep in mind principles laid down by Supreme Court in case of American Hotel & Lodging Association, Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 -[SECTION 10(23C) OF THE INCOME-TAX ACT, 1961 - CHARITABLE/RELIGIOUS INSTITUTIONS] [ASSESSMENT YEAR 2008-09 ONWARDS] [MATTER REMANDED] DIT v. Aparna Ashram [2012] 19 taxmann.com 11 (Delhi) Wheremembersofanassociationofpersonsdidnothaveanyrightorshare in income or assets of said association either on date of its formation or at any time thereafter, association of persons was not liable to wealth-tax under provisions of section 21AA - [SECTION 21AA READ WITH SECTION 3, OF THE WEALTH- TAX ACT, 1957 - ASSESSMENT - WHEN ASSETS ARE HELD BY CERTAIN ASSOCIATION OF PERSONS] [ASSESSMENT YEARS 1988-89 AND 1989-90] [IN FAVOUR OF ASSESSEE] CIT v. Eagle Theatres [2012] 19 taxmann.com 7 (Delhi) Payment made by assessee to canteen owner on sale of a cinema hall to vacate said premises would be set-off against sale consideration for compu- tation of capital gains - [SECTION 48 OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS - COMPUTATION OF] [ASSESSMENT YEAR 2007-08] [IN FAVOUR OF ASSESSEE] CIT v. Ulike Promoters (P.) Ltd. [2012] 19 taxmann.com 8 (Delhi) Benefit of period of 60 days in terms of proviso to Explanation to section 153B for completing assessment under section 153A can be availed by TAXMAN MARCH 10 - MARCH 16, 2012 3
  5. 5. XII BREAKING NEWS Assessing Officer any number of times whenever situation for it occurs - [SECTION 153B, READ WITH SECTION 142, OF THE INCOME-TAX ACT, 1961 ASSESSMENT IN CASE OF SEARCH - TIME-LIMIT FOR COMPLETION OF ASSESSMENT] [ASSESSMENT YEARS 1998- 99 TO 2001-02] [IN FAVOUR OF REVENUE] CIT v. Sambhav Media Ltd. [2012] 19 taxmann.com 12 (Gujarat) Dismissing of appeal of revenue by Tribunal on ground of low tax effect not justified where notional tax effect exceeded monetary limit prescribed by Board - [SECTION 268A OF THE INCOME-TAX ACT, 1961 - APPEALS - FILING OF APPEALS OR APPLICATION FOR REFERENCE BY INCOME-TAX AUTHORITY] [ASSESSMENT YEAR 2004-05] [MATTER REMANDED] CIT v. Bangalore Leather & Leather Crafts Ltd. [2012] 19 taxmann.com 21 (Karnataka) Where to tide over financial crisis, assessee received excess cash in several instalments less than Rs. 20000 each from sister concern for which only it was manufacturing, such excess cash cannot be treated as loan under section 269SS - [SECTION 269SS OF THE INCOME-TAX ACT, 1961 - DEPOSITS - MODE OF TAKING/ACCEPTING] [ASSESSMENT YEAR 1997-98] [IN FAVOUR OF ASSESSEE] Pramod Mittal v. CIT [2012] 19 taxmann.com 24 (Delhi) In view of provisions of section 78(2), loss suffered by an erstwhile partner- ship firm in which assessee was a partner, could not be set off against his individual income - [SECTION 78 OF THE INCOME-TAX ACT, 1961 - LOSSES - CARRY FORWARD AND SET OFF OF, IN CASE OF CHANGE IN CONSTITUTION OF FIRM OR ON SUCCESSION] [ASSESSMENT YEAR 2005-06] [IN FAVOUR OF REVENUE] Vikas Kalra v. CIT [2012] 19 taxmann.com 25 (SC) Sale value less face value of DEPB would be profit on transfer of DEPB and would fall under section 28(iiid) for purposes of section 80HHC - [SECTION TAXMAN MARCH 10 - MARCH 16, 2012 4
  6. 6. BREAKING NEWS XIII 80HHC, READ WITH SECTION 28(iiid), OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - EXPORTERS] [ASSESSMENT YEARS 2001-02 AND 2004-05] [IN FAVOUR OF ASSESSEE] CIT v. Kamdhenu Steel & Alloys Ltd. [2012] 19 taxmann.com 26 (Delhi) Once assessee has prima facie discharged its burden of proving identity of shareholders, genuineness of transaction and creditworthiness of sharehold- ers, revenue cannot invoke section 68 without any additional material to support such a move - [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDITS] [ASSESSMENT YEAR 2004-05] [IN FAVOUR OF ASSESSEE] CWT v. Sohna Forge (P.) Ltd. [2012] 19 taxmann.com 29 (Delhi) Property used in business, would be exempt from wealth-tax -[SECTION 2(ea) OF THE WEALTH-TAX ACT, 1957 - ASSETS] [IN FAVOUR OF ASSESSEE] Manohar Dairy & Restaurant v. ITO [2012] 19 taxmann.com 30 (Madhya Pradesh) Rejection of books of account in case of incorrect and incomplete details regarding stock, cash sales, production yield, etc., is justified - [SECTION 145 OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - REJECTION OF ACCOUNTS] [ASSESSMENT YEAR 2006-07] [IN FAVOUR OF REVENUE] CIT v. Mulberry Silk International Ltd. [2012] 19 taxmann.com 31 (Karnataka) Amount of share capital contributed by sister concern of assessee could not betreatedasassessee’sundisclosedincomeundersection68whenassessee’s sister concern had accepted to have contributed said amount - [SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CREDIT] [BLOCK PERIOD 1989-90 TO 1999-2000] [IN FAVOUR OF ASSESSEE] TAXMAN MARCH 10 - MARCH 16, 2012 5
  7. 7. Contents A-1 COntents STATUTES NOTIFICATIONS - Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/Authority/ Board/Commission - Notified body or authority - Competition Commission of India 10 - Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/Authority/ Board/Commission - Notified body or authority - National Skill Development Corporation 10 RULES/AMENDMENT RULES - Income-tax (Appellate Tribunal) Amendment Rules, 2012 - Amendment in rules 2, 4A, 9, 26 & 34A; deletion of proviso to rule 35A and substitution of words ‘Income Tax Officer’ and “Appellate Assistant Commissioner” 12 TAX REPORTS TABLE OF CASES Airport Authority of India v. CIT (Delhi)(FB)(Mag.) 84 CTCI Overseas Corporation Ltd., In re (AAR - New Delhi) 297 Citrix Systems Asia Pacific Pty. Ltd., In re (AAR - New Delhi) 320 CIT v. Century Flour Mills Ltd. (Mad.)(Mag.) 93 CIT v. Duroflex Coir Industries Ltd. (Ker.)(Mag.) 75 CIT v. Gokuldas Exports (Kar.)(Mag.) 77 CIT v. Hotel Hilltop (Raj.)(Mag.) 91 CIT v. Hotline Electronics Ltd. (Delhi) 245 CIT v. Infosys Technologies Ltd. (Kar.) 250 CIT v. Madhu Gupta (Punj. & Har.) 303 CIT v. Modipon Ltd. (No. 1) (Delhi)(Mag.) 89 CIT v. Modipon Ltd. (No. 2) (Delhi)(Mag.) 79 CIT v. Talathi and Panthaky Associated (P.) Ltd. (Bom.) 309 CIT v. Tidel Park Ltd. (Mad.)(Mag.) 71 CIT v. Virtual Soft Systems Ltd. (Delhi) 257 CIT v. Wipro Finance Ltd. (Kar.) 317 CCIT v. State of Bihar Through The Chief Secretary (Patna) 232 Global Industries Asia Pacific Pte. Ltd., In re (AAR - New Delhi) 273 Indian Additives Ltd. v. Dy. CIT (Mad.)(Mag.) 72 Minda HUF Ltd. v. Union of India (Delhi)(Mag.) 81 SDB Cisco (India) Ltd. v. Asstt. CIT (Mad.)(Mag.) 70 Shell India Markets (P.) Ltd., In re (AAR - New Delhi) 288 TAXMAN MARCH 10 - MARCH 16, 2012 7
  8. 8. A-2 Contents SUBJECT INDEX Business disallowance Certain deductions to be allowed only on actual payment - Assessment year 1989-90 - Whether an assessee is entitled to claim deduction on account of excise duty paid in advance as business expenditure - Held, yes - Whether, therefore, revenue’s objection that it was only on removal of goods that amount credited to personal ledger account could be claimed as deductible under section 43B, could not be accepted - Held, yes - CIT v. Modipon Ltd. (No. 2) (Delhi)(Mag.) 79 Business expenditure Allowability of - Assessment year 1999-2000 - Whether amount paid by assessee-company towards sub- scription for obtaining corporate membership in club was allowable as revenue expendi- ture - Held, yes - CIT v. Infosys Technologies Ltd. (Kar.) 250 - Assessment year 1999-2000 - Assessee-company made provision for post sale customer service and claimed same as expenditure - Assessing Officer disallowed claim of assessee as actual expenses had not been incurred by assessee during relevant assessment year - However, on appeal, Tribunal allowed assessee’s claim - It was found that Supreme Court in case of Rotork Controls India (P.) Ltd. v.CIT [2009] 314 ITR 62/180 Taxman 422 had laid down conditions which are required to be satisfied for making claim in respect of post sale customer service and had laid down principles relating to same - Benefit of said decision ofSupremeCourtwasnotavailabletoTribunalondatewhenitpassedimpugnedorderand Tribunal had only considered past experience and expenses incurred in previous year, on basis of which claim was made - Whether matter should be remanded to Tribunal to pass fresh orders in accordance with law laid down in Rotork Controls India (P.) Ltd.’s case (supra) - Held, yes - CIT v. Infosys Technologies Ltd. (Kar.) 250 - Assessment year 2003-04 - Assessee claimed royalty payment as revenue expenditure which, Assessing Officer observed, was allowable as capital expenditure - Assessing Officer initiated reassessment under section 147 - It was found that nature of expenditure had already been discussed during original assessment - Whether since Assessing Officer had not verified facts, and there was no specific denial of fact that during course of original assessment proceedings, assessee had filed reply before Assessing Officer on whether or not payment of royalty were revenue expenditure in nature, it was to be held that there was only change of opinion subsequently and, hence, reassessment proceedings were not valid - Held, yes - Minda HUF Ltd. v. Union of India (Delhi)(Mag.) 81 - Assessment years 1996-97 onwards - Assessee-authority, engaged in management of certain airports and allied services, had been making provisions for incurring expenditure towards removal of illegal encroachments in and around security area of airports and towards rehabilitation of encroachers - Assessing Officer disallowed said provision holding that expenditure, if any incurred, was of capital nature - Whether expenditure so incurred was to facilitate smooth functioning of assessee’s business, i.e., in relation to carrying on business in a profitable manner, and, therefore, it was revenue in nature - Held, yes - Whether, however, deduction was to be allowed on actual payment basis only - Held, yes - Airport Authority of India v. CIT (Delhi)(FB)(Mag.) 84 Year in which deductible - Assessment year 2004-05 - During relevant assessment year, assessee claimed certain expenses as business expenditure - Assessing Officer was of view that a part of expenses claimed related to prior period and as assessee-company was following mercantile system of accounting, said expenses should have been claimed in previous year - On appeal before Tribunal, assessee’s case was that those expenses were not booked earlier due to non- receipt of details and information thereof on time which was beyond its control - It was TAXMAN MARCH 10 - MARCH 16, 2012 8
  9. 9. Contents A-3 further submitted that as per accounting policy followed by assessee, such expenses were booked in year in which they were settled for payment - Tribunal having gone into details of each and every such expense, recorded a finding of fact that all those expenses were settled during relevant year - Accordingly, Tribunal allowed assessee’s claim - Whether on facts,nosubstantialquestionoflawarosefromTribunal’sorderand,thus,revenue’sappeal was to be dismissed - Held, yes - CIT v. Modipon Ltd. (No. 1) (Delhi)(Mag.) 89 Capital gains Chargeable as - Assessment year 1995-96 - Assessee-firm, by making a book entry on 29-3-1995 allowed its partners to withdraw individual properties contributed by them and, thereafter, firm was converted into joint stock company on 3-4-1995 - Assessing Officer held that transaction would amount to transfer of capital assets which would attract capital gain under section 45(4) - Commissioner(Appeals) upheld order of Assessing Officer - However, on second appeal, Tribunal, relying upon decision rendered by Tribunal in Asstt. CIT v. Unity Care & Health Services [2006] 103 ITD 53 (Bang.), held that there was no transfer of capital asset and, therefore, provisions of section 45(4) would not be attracted - Whether facts in Unity Care and Health Services case were entirely different from one in instant case and, therefore, Tribunal was not at all justified in relying upon said decision -Held, yes - Whether sincequestionastowhethertherewastransferofimmovablepropertywhichwouldattract capital gain under section 45(4) was a pure question of fact and same was to be decided by Tribunal, matter was to be remitted to Tribunal for fresh disposal in accordance with law - Held, yes - CIT v. Gokuldas Exports (Kar.)(Mag.) 77 Circulars & Notifications - Circular No. 621, dated 19-12-1991 321 Deductions Profits and gains from export of computer software - Assessment year 1999-2000 - Whether exchange rate variation gain has to be excluded from total turnover and export turnover for computation of deduction under section 80HHE - Held, no - CIT v. Infosys Technologies Ltd. (Kar.) 250 Profits and gains from hotel or industrial undertakings, etc., in backward areas - Whether deductions under section 80HH and section 80-I have to be granted with reference to gross total income arrived at after allowing deduction under section 35(2) - Held, yes - CIT v. Duroflex Coir Industries Ltd. (Ker.)(Mag.) 75 Profits and gains from industrial undertakings other than infrastructure development undertakings - Whether assessee, engaged in manufacture and selling of additives on commission basis, was not entitled to deduction under section 80-IB in respect of service income and commission because those incomes were not derived from activity of industrial undertak- ing - Held, yes - Indian Additives Ltd. v. Dy. CIT (Mad.)(Mag.) 72 Deemed dividend - Assessee-firm had received certain amount as an advance from a company under an agreement to handover management of firm’s hotel to said company - Partners of assessee- firm were also shareholders in said company - Assessing Officer treated said amount received by assessee-firm as deemed dividend under section 2(22)(e) in hands of assessee and assessed same to tax - Whether it was not assessee-firm which was shown to be shareholder of company but in fact it was its partners who were holding more than requisite amount of shareholding in company and were having requisite interest in firm - Held, yes - Whether, therefore, aforesaid amount received by assessee would not be deemed dividend in hands of assessee-firm, rather it would obviously be deemed dividend in hands of individuals (partners), on whose behalf, or on whose individual benefit, being TAXMAN MARCH 10 - MARCH 16, 2012 9
  10. 10. A-4 Contents such shareholders, amount was paid by company to concern -Held, yes -CITv. Hotel Hilltop (Raj.)(Mag.) 91 Depreciation Allowance/rate of - Assessment year 1998-99 - There was a search and on basis of material found during search assessment was made for block period - Said block assessment order was now pending for consideration in appeal before Commissioner (Appeals) - In regular assessment for assessment year 1998-99, assessee had claimed depreciation in respect of plant and machinery, which had been leased out by assessee - Assessing Officer as well as Commis- sioner (Appeals) rejected assessee’s claim - However, Tribunal held that claim now made was for year 1997-98, which was beyond block period; that depreciation had been claimed in regular assessment and, thus disallowance of depreciation for relevant assessment year was erroneous - Whether Tribunal could not have jumped into conclusion that deprecia- tion which was now sought for was beyond period of search as even according to assessee year of acquisition was 1997-98 and in absence of any material to show date of acquisition of property and fact that said acquisition was made beyond block period - Held, yes - Whether, therefore, order of Tribunal could not be sustained - Held, yes - Whether since block assessment order is pending for consideration before first appellate authority, matter regarding claim of depreciation on leased assets should be remanded to first appellate authority - Held, yes - Whether contention as to whether acquisition of leased asset in respect of which depreciation was claimed for assessment year 1998-99 would be covered in block assessment or should be in regular assessment was kept open to be urged before first appellate authority as assessee had to produce relevant material in that behalf - Held, yes - CIT v. Wipro Finance Ltd. (Kar.) 317 High Court, appeal to - Whether when Court is satisfied that case involves not only the substantial question of law formulated, but also other substantial question of law not formulated by it, it can hear such questions on reasons to be recorded - Held, yes - Indian Additives Ltd. v. Dy. CIT (Mad.)(Mag.) 72 Income Concept of real income - Assessment years 1996-97 onwards - Whether if income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a hypothetical income which is not materialized - Held, yes - Assessee-authority had been providing space at airports managed by it to various Government agencies like Customs, Immigration, Meteorological Department, Post Office, Police Agencies, etc., for performance of their duties - No payment was made by those Government agencies for space occupied by them - However, on advice of CAG assessee had been raising proforma invoices - Assessing Officer treated amount of those invoices to be income of assessee on ground that assessee was following mercantile system of accounting - Whether on application of ‘real income’ theory no income had accrued to assessee in respect of Government agencies, like Police, Customs, etc., who had never paid any amount to assessee - Held, yes - Airport Authority of India v. CIT (Delhi)(FB)(Mag.) 84 Deemed to accrue or arise in India - Applicant is a Singaporean company - It entered into a contract with IOCL to execute work of ‘Residual offshore construction work at Paradip, in east coast of India Installation of SPM Including anchor chains, floating and subsea hoses’ - For undertaking above opera- tions resources including vessels were mobilized to India - Character of amount payable under contract is linked to nature of work and amount is not lump sum for whole contract - Lump sum amount is fixed only for mobilization and demobilization - Whether parties can enter into a contract which provides for mobilization and demobilization for a separate consideration though they are meant to be utilized in process of installation of SPM buoy TAXMAN MARCH 10 - MARCH 16, 2012 10
  11. 11. Contents A-5 and would be taxable in India under section 44BB -Held, yes - Whether if during activities of installation, income in nature of royalty or fees for technical services or interest or of any other nature arises, then such an income has to be assessed under that head of income - Held, yes - Whether payment for mobilization and demobilization relates to use of equipment for undertaking installation work and falls under definition of royalty under article 12.3(b) of DTAA -Held, yes - Whether as installation is ancillary and subsidiary to use of equipment or enjoyment of right for such use, payment for installation would fall under definition of ‘fees for technical services’ as per article 12.4(a) of DTAA - Held, yes - Global Industries Asia Pacific Pte. Ltd., In re (AAR - New Delhi) 273 - Applicant is an Indian company having network of retail fuel stations in India - SIPCL is group company of applicant which is incorporated in UK and is in business of providing consultancy services to various group companies - Applicant has entered into Cost Contribution Agreement (CCA) with SIPCL for provision of General Business Support Services (BSS) - Though applicant construes General BSS as management support services of advisory nature, it appears from CCA that applicant receives services in form of general finance advice, taxation advice, legal advice, advice on information technology, media advice, assistance in contract and procurement and assistance in marketing - Whether nature of General BSS, viewed as such, is of consultancy services and since while providing General BSS, SIPCL works closely with employees of applicant and supports/advises them, it is clear that General BSS is made available to applicant - Held, yes - Whether on facts payment made by applicant to SIPCL for availing General BSS under CCA would constitute income in hands of SIPCL and is in nature of fees for technical services within meaning of Article 13.4(c) of DTAC between India and UK -Held, yes - Whether, on facts, such payment can be said to be in nature of royalty within meaning of term inExplanation 2 to clause (vi) of section 9(1) and under Article 13 of DTAC - Held, no - Shell India Markets (P.) Ltd., In re (AAR - New Delhi) 288 - Applicant is a Hong Kong company and is in business of engineering, procurement and construction of petroleum, petro-chemical and power plants - With a view to execute a project awarded by Petronet, it has formed a consortium with CINDA, an Indian company, to develop a terminal for receipt and storage of liquefied natural gas at Kochi - As per terms of contract, applicant is responsible for offshore supplies and services and CINDA is responsible for onshore supplies and services - Whether under section 2(31), consortium of CINDA and applicant forms an Association of Persons (AOP) to carry out the project awarded by Petronet and applicant can be said to have a business connection in India for purpose of application of section 9(1) -Held, yes - Whether however, since applicant has not carriedoutanypartofbusinessrelatingtooffshoresuppliesinIndiainasmuchasright,title, payments, etc., in supplies have passed on to Petronet, which is importing these supplies, outside India, amount received by applicant from Petronet for offshore supplies in terms of aforesaid contract is not taxable in India - Held, yes - CTCI Overseas Corporation Ltd.,In re (AAR - New Delhi) 297 - Applicant is an Australian Company engaged in business of providing software services - It has appointed ‘I’, an Indian company, as non-exclusive distributor for sale of its software products in India - It is contended by applicant that under agreement, software products are purchased by distributor from applicant and sold by distributor - In respect of certain software products such as Citrix XenApp, distributor places order of purchase with applicant and makes payment for same to applicant and thereafter applicant transmits a Key to end-user customer and on receipt of said Key, end-user customer downloads software from applicant’s server - Applicant submits that right acquired by purchaser from sale is only to use copyrighted article and not right to use copyright embedded in software and, therefore, sum received by applicant from distributor from sale of software is nature of sale revenue and cannot be classified as royalty as defined in section 9(1)(vi) and/or under Article 12 of Indo-Australian tax treaty - Whether whenever a software is assigned or licensed for use, there is involved an assignment of right to use embedded copyright in software or a license to use embedded copyright, the intellectual property right in software TAXMAN MARCH 10 - MARCH 16, 2012 11
  12. 12. A-6 Contents - Held, yes - Whether, therefore, it is not possible to divorce software from intellectual property right of creator of software embedded therein - Held, yes - Whether, therefore, applicant’s argument that licensing of a software for use by end-use customer, is mere sale of a copyrighted article and does not involve grant of a right to use copyright in software, cannot be accepted -Held, yes - Whether in view of above, it has to be ruled that payments received by applicant from distributor for sale of software product is in nature of royalty within meaning of section 9(1)(vi) -Held, yes - Whether since Article 12.3 of DTAA between India and Australia defining royalties also ropes in payment of consideration for use of a copyright in addition to consideration paid for right to use a copyright, covered by definition in Income-tax Act, payment received by applicant from distributor is to be treated as royalty within meaning of Article 12 - Held, yes - Citrix Systems Asia Pacific Pty. Ltd., In re (AAR - New Delhi) 320 Definition of - Assessment years 1990-91 to 1995-96 - Whether 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) -Held, yes -CITv. Madhu Gupta (Punj. & Har.) 303 Income from house property Deductions - Assessment years 1996-97 to 2000-01 - Whether ICAI is, recognized as body vested with authority to recommend ASs for ultimate prescription by Central Government in consul- tation with National Advisory Committee of Accounting Standards, for presentation of financial statements and fact that opinion of ICAI regarding accounting for lease was expressed in a Guidance Note which had not attained a mandatory status, would not provide a basis to Assessing Officer to disregard books of account of assessee and in effect method of accounting for leases followed by assessee on basis of guideline recommended for adoption by ICAI -Held, yes - Whether lease equalization charge is result of adjustment, which assessee has to make whenever amount put aside towards capital recovery is not equivalent to depreciation claimed by assessee and in effect debits or credits its profit and loss account with a lease equalization charge depending on whether or not depreciation claimed is less or more than capital recovery - Held, yes - Whether thus, lease equalization charges is a method of re-calibrating depreciation claimed by assessee in a given account- ing period and method employed over full term of lease period would result in lease equalization amount being reduced to a naught, as debit and credits in profit and loss account would square off with each other - Held, yes - Whether, therefore, lease equaliza- tion charges debited to profit and loss account could not be disallowed while computing taxable income of assessee - Held, yes - CIT v. Virtual Soft Systems Ltd. (Delhi) 257 Income-tax Act, 1961 - Section 2(22) 91 - Section 2(24) 303 - Section 5 85 - Section 9 273, 288, 297, 320 - Section 24 257 - Section 30 309 - Section 32 317 - Section 36(1)(iii) 93 - Section 37(1) 250, 251, 81, 84, 89 - Section 41(1) 245, 81 - Section 43B 79 TAXMAN MARCH 10 - MARCH 16, 2012 12
  13. 13. Contents A-7 - Section 44BB 273 - Section 45 77 - Section 80HH 75 - Section 80HHE 251 - Section 80-IB 72 - Section 115JB 71 - Section 132 232 - Section 145 70 - Section 260A 73 Interest on borrowed capital - Assessment year 1991-92 - Assessee-company entered into an agreement for purchase of land owned jointly by ‘P’, managing director of assessee-company, and also ‘N’ - As per agreement, a sum of Rs. 20 lakhs was given as advance to managing director - Said agreement was renewed year after year - Due to some unavoidable reasons, sale could not be effected - Accordingly, managing director refunded amount of advance received from assessee-company - Assessee’s claim for deduction under section 36(1)(iii) in respect of interest paid on money borrowed was rejected by Assessing Officer holding that assessee had given said amount as advance to managing director - On second appeal, Tribunal held that revenue had not established nexus between borrowed funds and advanced money with managing director - Tribunal accordingly allowed assesee’s claim - Whether since amount was given only for purchase of land and it was for benefit of business, it could not be concluded that payment in question was for non-business purpose -Held, yes - Whether, therefore, Tribunal was justified in allowing assessee’s claim - Held, yes - CIT v. Century Flour Mills Ltd. (Mad.)(Mag.) 93 Method of accounting Change of - Assessment year 1991-92 - Assessee was following cash system of accounting - However, for purpose of preparing annual return for submission to members in Annual General Meeting and for filing necessary returns under Companies Act, 1956, mercantile system was adopted - Took a view that assessee had to compute its income for purpose of Act on accrual basis - Whether, on facts, impugned order passed by Tribunal was to be upheld - Held, yes - SDB Cisco (India) Ltd. v. Asstt. CIT (Mad.)(Mag.) 70 Minimum alternate tax - Assessment year 2002-03 - While computing book profits under section 115JB, assessee- company changed its method of computing depreciation from straight line method to written down value method - There was also a resolution passed by board of directors for changing existing rates of depreciation for purpose of books depreciation - Excess amount of depreciation so calculated was debited in profit and loss account, which was audited, certified and filed with registering authority - Whether so long as compliance in regard to submission of accounts had not suffered any statutory defect, revenue authorities had to accept authenticity of accounts submitted in accordance with provisions of Companies Act, 1956 - Held, yes - Whether therefore, impugned change in method of computing depreciation was to be allowed - Held, yes - CIT v. Tidel Park Ltd. (Mad.)(Mag.) 71 Non-residents Mineral oil, business for prospecting /exploration, etc., in case of - Applicant is a Singapore company - On 23-4-2008, it was awarded a sub-contract by Larsen & Toubro (L&T) to execute work of installation and construction services for Single Point Mooring (SPM) in waters of Mumbai High South field - For undertaking construction work vessels were mobilized to India - Applicant accepts that receipts under contract are taxable TAXMAN MARCH 10 - MARCH 16, 2012 13
  14. 14. A-8 Contents under section 44BB, but contends that since its vessels were not in India for more than 183 days, it would not have a PE in India in view of article 5.5 of DTAA and, therefore, liability is attracted under section 44BB - Whether article 5.5 is a deeming provision and its import is such that said article can be attracted even on provision of services simpliciter without presence of an office building in country where services are being provided - Held, yes - Whether since services and facilities being rendered by applicant go beyond installation and include pre-installation services, post-installation services, procurement and transpor- tation, duration of those of services cannot be excluded while calculating duration of provision of services or facilities under article 5.5 - Held, yes - Whether therefore, even if applicant was not mobilizing any vessel, it has a PE in terms of article 5.5 as it has provided services or facilities in connection with exploration, exploitation or extraction of mineral oils for more than 183 days during fiscal year - Held, yes - Whether therefore, income derived by applicant in respect of contract with L&T is taxable in India under section 44BB - Held, yes - Global Industries Asia Pacific Pte. Ltd., In re (AAR - New Delhi) 273 Remission or cessation of trading liability - Assessment year 2005-06 - Whether unpaid liabilities cannot be added to assessee’s income under section 41(1) merely because they remained unpaid for a sufficiently long time and it is required of revenue authorities to show that liability to pay creditors has ceased or has been remitted by creditors - Held, yes - CIT v. Hotline Electronics Ltd. (Delhi) 245 - Assessment year 2003-04 - Assessing Officer reopened assessment observing that assessee had, in its computation of income, deducted Rs. 42,73,617 being amount written back credited to profit and loss account and out of said sum assessee had considered only Rs. 32,29,341 as income under section 41(1) while excess deduction of Rs. 10,44,276 had escaped assessment - Assessee had already explained that excess of Rs. 10,44,276 had already been added back in computation of income of two preceding assessment years 2001-02 and 2002-03 - In these years Rs. 5,87,617 and Rs. 17,19,837 were added back as bad and doubtful debts - On other hand, revenue failed to show and establish whether Rs. 10,44,276 was in fact not added back in earlier years - Whether since there was no material and ground to reopen assessment on account of reason in respect of taxability of profit under section 41(1) and reason recorded was a mere suspicion, it had no foundation or prima facie basis - Held, yes - Minda HUF Ltd. v. Union of India (Delhi)(Mag.) 81 Rent, rates, taxes, repairs and insurance for buildings - Assessment year 2003-04 - Assessee-company was carrying on its business in a building takenonrent-BuildingwasdeclaredtobeunsafeforoccupationbyMunicipalCorporation - Consequently, an agreement was entered into between owners, tenant, other occupants and a developer, under which developer was to repair and reconstruct building at its own cost, and, after that certain area was to be handed over to co-owners - Assessee was also given its equivalent portion on condition that it would contribute towards cost incurred on repair and reconstruction - Assessee’s share of cost was arrived at Rs. 1.50 crores; said agreement also provided that there would be no increase in rent payable by assessee - On above facts, Assessing Officer held that assessee had secured rights over portion of building on payment of Rs. 1.50 crores which constituted deemed ownership of building - Accord- ingly, Assessing Officer held expenditure of Rs. 1.50 crores to be capital in nature and disallowed it - Commissioner (Appeals) and Tribunal reversed order of Assessing Officer - Whether by contributing an amount of Rs. 1.50 crores towards re-construction, assessee obtained a commercial advantage of securing tenancy of an equivalent area of premises on same rent as before -Held, yes - Whether since there was no acquisition of a capital asset and occupation of assessee continued in character of a tenancy, expenditure of Rs. 1.50 crores could not be regarded as capital in nature but revenue to be allowable by way of deduction - Held, yes CIT v. Talathi and Panthaky Associated (P.) Ltd. (Bom.) 309 Search and seizure - Whether if required, search and seizure can continue for days, but at same time due regard to human dignity and value cannot be ignored - Held, yes - During search conducted at TAXMAN MARCH 10 - MARCH 16, 2012 14
  15. 15. Contents A-9 premises of respondent No. 3 there was interrogation carried out for 42 hours commencing at 9.30 a.m. on 8-9-2010 till 3.30 a.m. on 10-9-2010; respondent No. 3 and his family members were made to remain awake when it was time for sleep - Respondent No. 3 made a complaint before Human Rights Commission alleging that during search and seizure operation raiding party committed various acts of omission and commission including violation of his human rights - Commission allowed complaint of respondent and held that respondent/complainant would be entitled to monetary compensation and asked depart- ment to submit its response as to why monetary compensation be not awarded to complainant recoverable from salary of concerned officials of department - Whether since there was no possible justification to continue interrogation and keep respondent No. 3 awake till 3.30 a.m. on second night of search; and since no reason had been assigned as to why interrogations could not have been deferred till morning of next day, order passed by Human Rights Commission as to violation of human rights of respondent No. 3 was to be upheld - Held, yes - Whether however, since no opportunity was given to officials to countenance charge of violation of human rights, in absence of an opportunity to defend themselves against such charge in an enquiry, Commission erred in issuing notice to officials to show cause or respond as to why penalty may not be levied for awarding compensation to complainant - Held, yes - CCIT v. State of Bihar Through The Chief Secretary (Patna) 232 MAGAZINE FEATURES - Non-compete fee receipt - Whether 2003 amendment in section 28(va) is clarificatory// GOPAL NATHANI, Chartered Accountant 61 - Vodafone’s case - No capital punishment for capital investment//DINDYAL DHANDARIA, Chartered Accountant 65 Back years’ volume Rs. 500 per volume for paper back and add Rs. 75 per volume for Hard case binding. Taxman weekly is published on every Saturday.NON-RECEIPT OF PART MUST BE NOTIFIED WITHIN 60 DAYS OF THE DUE DATE. Editor does not necessarily agree with the views expressed in magazine section of Taxman weekly. Material published in this part is the exclusive copyrighted property of Taxman and cannot be reproduced or copied in any form or by any means without written permission of publisher. This publication is sold with the understanding that authors/editors and publishers are not re- sponsiblefortheresultofanyactiontakenonthe basis of this work nor for any error or omission to any person, whether a purchaser of this publica- tion or not. All disputes are subject to jurisdiction of the Delhi High Court. Address your editorial and subscription correspondence to Taxmann Allied Services (P.)Ltd.,59/32,NewRohtakRoad,NewDelhi- 110005 Printed and Published by Amit Bhargava on behalf of Taxmann Allied Services (P.) Ltd. and Printed at Tan Prints (India) Pvt. Ltd., 44 Km. Mile Stone, National Highway, Rohtak Road, Village Rohad, Distt. Jhajjar (Haryana) and Published at 59/32, New Rohtak Road, New Delhi-110 005 Editor : Rakesh Bhargava Phone : 91-11-45562222 Fax : 91-11-45577111 Email:sales@taxmann.com ISSN : 0972-8198 MODE OF CITATION [2012] 205 Taxman...(...) TOTAL PAGES INCLUDING COVER [164] FOUNDER EDITOR U.K. BHARGAVA EDITOR RAKESH BHARGAVA HONY. COORDINATING EDITORS Dr. Ashok Bhargava, Dr. Vinod K. Singhania and Vinay Jain REPORTERS Amit Negi, Indira Bali, Niyati K. Shah, Ram Kumar Mishra, Ranka (J.K.), Sahasranaman (P.B.), Sanjay Bansal, Prabha Murthy (Mrs.), Dilip Shah, Gopi Kishore (J.). Taxman weekly comes in Eight volumes. Annual Subscription : Rs. 5,975 for Eight volumes for the year 2012. Single copy is Rs. 100 only. TAXMAN MARCH 10 - MARCH 16, 2012 15
  16. 16. 2012] 9Notification (ix) Investment on built up space for : Rs. 8,26,67,565 Industrial use (Amount in Rupees) (x) Investment on Infrastructure Deve- : Rs. 10,52,24,434 lopment including investment on built up space for industrial use (Amount in Rupees) (xi) Proposed date of commencement of : 30-11-2005 the Industrial Park 2. Necessary approvals, including that for foreign direct investment or non-resident Indian investment by the Foreign Investment Promotion Board or Reserve Bank of India or any authority specified under any law for the time being in force, shall be taken separately as per the policy and procedures in force. 3. The tax benefits under the Act can be availed of only after the number of units indicated in Para 1 (vii) of this Notification, are located in the Industrial Park. 4. M/s. Prasad Technology Park Pvt. Ltd., Bangalore, shall continue to operate the Industrial Park during the period in which the benefits under clause (iii) of sub-section (4) of section 80- IA of the Income-tax Act, 1961 are to be availed. 5. In case the Industrial Park did not commence by 31-3-2006, fresh approval will be required under the Industrial Park Scheme, 2008 subject to the applicability under that Scheme for availing benefits under sub-section 4(iii) of section 80-IA of the Income-tax Act, 1961. 6. The approval will be invalid and M/s. Prasad Technology Park Pvt. Ltd., Bangalore shall be solely responsible for any repercussions of such invalidity, if (i) the application on the basis of which the approval is accorded by the Central Govern- ment contains wrong information/misinformation or some material information has not been provided in it. (ii) it is for the location of the industrial park for which approval has already been accorded in the name of another undertaking. 7. In case M/s. Prasad Technology Park Pvt. Ltd., Bangalore, transfers the operation and maintenance of the industrial park (i.e., transferor undertaking) to another undertaking (i.e., the transferee undertaking), the transferor and transferee shall jointly intimate to the Entrepreneurial Assistance Unit of the Secretariat for Industrial Assistance, Department of Industrial Policy and Promotion, Udyog Bhawan, New Delhi-11 along with a copy of the agreement executed between the transferor and transferee undertaking for the aforesaid transfer. 8. The conditions mentioned in this notification as well as those included in the Industrial Park Scheme, 2002 should be adhered to during the period for which benefits under this scheme are to be availed. The Central Government may withdraw the above approval in case M/s. Prasad Technology Park Pvt. Ltd., Bangalore, fails to comply with any of the conditions. 9. Any amendment of the project plan without the approval of the Central Government or detection in future, or failure on the part of the applicant to disclose any material fact, will invalidate the approval of the industrial park. TAXMAN MARCH 10 - MARCH 16, 2012 17
  17. 17. 10 Taxman - Statutes [Vol. 205 NOTIFICATION Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory body/ Authority/Board/Commission - Notified body or authority - Competition Commission of India NOTIFICATION NO. 12/2012 [F.NO.142/15/2011-SO (TPL)]/S.O. 344(E), DATED 28-2-2012 In exercise of the powers conferred by clause (46) of section 10 of the Income- tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the Competition Commission of India, a Commis- sion established under sub-section (1) of section 7 of the Competition Act, 2002 (Act 12 of 2003), in respect of the specified income arising to the said Commis- sion, as follows:- (a) amount received in the form of Government grants; (b) fee received under the Competition Act, 2002; and (c) interest income accrued on Government grants and interest accrued on fee received under the Competition Act, 2002. 2. This Notification shall be applicable for the specified income of the Compe- tition Commission of India for the financial year 2011-12 to financial year 2015- 16. 3. The Notification shall be effective where- (i) the activities and the nature of the specified income of the Competition Commission of India remain unchanged throughout the financial year, and (ii) the Competition Commission of India files return of income in accordance with clause (g) of sub-section (4C) section 139 of the Act. NOTIFICATION Section 10(46) of the Income-tax Act, 1961 - Exemptions - Statutory Body/ Authority/Board/Commission - Notified body or authority - National Skill Development Corporation NOTIFICATION NO. 11/2012 [F.NO.142/15/2011-SO (TPL)]/S.O. 343(E), DATED 28-2-2012 In exercise of the powers conferred by clause (46) of section 10 of the Income- tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the National Skill Development Corporation, a body constituted by the Central Government, in respect of the specified income arising to the said Corporation, as follows:- TAXMAN MARCH 10 - MARCH 16, 2012 18
  18. 18. 2012] 11 (a) long-term or short-term capital gain out of investment in an organisation for skill development; (b) dividend and royalty from skill development venture supported or funded by National Skill Development Corporation; (c) interest on loans to Institutions for skill development; (d) interest earned on fixed deposits with banks; and (e) amount received in the form of Government grants. 2. This Notification shall be applicable for the specified income of the National Skill Development Corporation for the financial year 2011-12 to financial year 2015-16. 3. This notification shall be effective where- (i) the activities and the nature of the specified income of the National Skill Development Corporation remain unchanged throughout the financial year; and (ii) the National Skill Development Corporation files return of income in accordance with clause (g) of sub-section (4C) section 139 of the Act. Notification TAXMAN MARCH 10 - MARCH 16, 2012 19
  19. 19. 12 Taxman - Statutes [Vol. 205 RULES/AMENDMENT RULES Income-tax (Appellate Tribunal) Amendment Rules, 2012 - Amendment in rules 2, 4A, 9, 26 & 34A; deletion of proviso to rule 35A and substitution of words ‘Income Tax Officer’ and “Appellate Assistant Commissioner” NOTIFICATION NO. F. 71-AD(AT)/2012, DATED 7-2-2012 In exercise of the powers conferred by sub-section (5) of section 255 of the Income Tax Act, 1961, the Appellate Tribunal hereby makes the following rules further to amend the Income Tax (Appellate Tribunal) Rules, 1963, namely :- Short title and Commencement (1) These rules may be called the Income Tax (Appel- late Tribunal) Amendment Rules, 2012. (2) These rules shall come into force with effect from the date of their publication in the official Gazette. Amendment in Rule 2 Definitions. For the existing Rule 2(ii)(b), the following shall be substituted:- “(b) in relation to an income-tax authority who is a party to any proceedings before the Tribunal - (i) a person duly appointed by the Central Board of Direct Taxes as “authorised representative” to appear, plead and act on behalf of the income- tax department; and (ii) a person duly authorised by the Chief Commis- sioner of Income-tax to appear, plead and act on behalf of the income-tax department.” Amendment in Rule 4A Powers and functions of the Registrar. For the existing Rule 4A(2)(i), the following shall be substituted:- “to receive all appeals, miscellaneous applications, stay petitions as well as other documents including applica- tions for early hearing, transfer of appeals, applications for adjournment;” Amendment in Rule 9 What to accompany memorandum of appeal? In Rule 9, the words “Income Tax Officer” may be substituted by the words “Assessing Officer.” After existing Rule 9, the following shall be inserted as Rule 9A :- “9A (1) In the event of change in the address of the parties to the appeal as provided in column Nos. 10 & 11 of Form No. 36, the appellant should file a revised Form No. 36 duly filled up giving the new address of the party, duly verified in the same manner as required by Rule 47 of the Income Tax Rules, 1962. (2) The revised Form No. 36 shall specify the appeal No. asoriginallyassignedor,intheeventofnon-availability TAXMAN MARCH 10 - MARCH 16, 2012 20
  20. 20. 2012] 13 of such No., the date of filing of the appeal shall be mentioned in the covering letter. (3) No cognizance of change of address of the parties shall be taken for any purpose, unless a revised form as per sub-rules (1) and (2) is filed. (4) The address furnished in the revised Form No. 36 shall be deemed to be the address of the parties for the purpose of service of all notices/orders.” Amendment in Rule 26 Continuation of proceedings after the death or insol- vency of a party to the appeal. For the existing Rule 26, the following rule shall be substituted:- “Where an assessee whether he be an appellant or the respondent to an appeal dies or is adjudicated insol- vent or in the case of a company being wound up, the appeal shall not abate and may, if the assessee was the appellant, be continued by, and if he was the respon- dent be continued against, the executor, administrator or other legal representative of the assessee or by or against the assignee, receiver or liquidator, as the case may be: Provided that: (i) The assessee files a revised Form No. 36 duly filled up giving revised name of the party duly verified in the same manner as required by Rule 47 of Income Tax Rules, 1962; (ii) The revised Form No. 36 shall specify the appeal number as originally assigned or, in the event of non-availability of such number on the date of filing the appeal shall be mentioned in the cover- ing letter to enable the Registrar to place fresh Form No. 36 in the original file.” Amendment in Rule 34A Procedure for dealing with applications under section 254(2). For the existing Rule 34A(2), the following shall be substituted:- “Every application made under sub-rule (1) shall be in triplicate and the procedure for filing of appeals in these rules will apply mutatis mutandis to such appli- cations. The Applicant shall also state whether any Miscella- neous Application under section 254(2) was filed ear- lier before the Tribunal against the same order and if so, the fate of such application. Copies of the orders passed by the Tribunal on such applications shall also be filed before the Tribunal in triplicate along with the Miscellaneous Application.” Rules/Amdt. Rules TAXMAN MARCH 10 - MARCH 16, 2012 21
  21. 21. 14 Taxman - Statutes [Vol. 205 The existing proviso to Rule 34A(3) is deleted. Deletion of proviso to Rule 35A Procedure for filing and disposal of stay petition. The existing Rule 35A(3) is deleted. Further amendments Wherever the words“Income Tax Officer”exist in the ITAT Rules, the same shall be substituted by the words “Assessing Officer.” Likewise, wherever the words “Appellate Assistant Commissioner” exist in the ITAT Rules, the same be substituted by the words “CIT(Appeals)”. TAXMAN MARCH 10 - MARCH 16, 2012 22
  22. 22. 2012] 219 Subsequent to the search proceedings, the respondents-assessees filed revised returns twice surrendering the income brought to tax, during the course of search. After assessment of revised returns, the assessing authority proceeded with the assessment and passed orders in the year 2005. Subsequently penalty proceedings came to be initiated. The Assistant Commissioner of Income Tax rejecting the defence taken by the respondents-assessees proceeded to impose of penalty on all the assessees under Sec. 271(1)(c). 4. Aggrieved by the order of imposing penalty, appeals came to be filed before the Commissioner of Income Tax (Appeals) for the above assessment years and the first appellate authority by common order dated 16.5.2006 held that as the assessees proceeded to declare the entire amount as their income pursuant to search in order to buy peace with the department and for the reasons stated in the order, held levying of penalty was not justified. All the appeals filed by different assessees came to be allowed and penalty order came to be set aside. 5. Aggrieved by the same, the Revenue went in appeal before the Income Tax Appellate Tribunal in ITA Nos. 659-666/B/06. The Tribunal held that penalty in respect of commission paid by the assessees for securing the gifts was leviable. However in respect of the gift amounts, which were found to be the income of the assessees pursuant to the search, the Tribunal upheld the finding of the AppellateCommissionerbyacommonorderdated13.12.2007.Aggrievedbythe said order, the Revenue is before us raising the above substantial questions of law. 6. According to the learned counsel for the Revenue Mr. Sheshachala, once the amount shown as gift received in the original return was found to be incorrect as per material detected in the search and which was undisclosed by the assessee in their return of income, the Assessing Officer was justified in levying penalty under Section 271(1)(c) of the Act. According to the learned counsel, after insertion of Explanation to Section 271(1)(c) of the Act in the light of the judgment of the Apex Court in K.P. Madhusudhanan v. CIT [2001] 251 ITR 99/ 118 Taxman 324, the law relied upon by the Tribunal and the Appellate Authority in CIT v. Sureshchandra Mittal [2001] 251 ITR 9/119 Taxman 433 (SC),CIT v.Suresh Chandra Mittal [2000] 241 ITR 124/[2002] 123 Taxman 1052 (MP) andSir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC) is not good law. According to Mr. Sheshachala, the appellate authority committed an error by accepting the explanation offered by the assessees that the entire income detected was declared in the revised return, which was factually incorrect. According to the learned counsel, the defence of the respondents-assessees was different from time to time, which is evident from the defence raised before the first appellate authority and the new defence raised by them before the Tribunal. Once theExplanation 5 to Section 271(1)(c) is not to the satisfaction of the Assessing Officer, question of extending the benefit would not arise. Therefore the orders of the Commissioner of Income Tax (Appeals) and, the order of the Tribunal deserves to be set aside confirming the order of the Assessing Officer. CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 23
  23. 23. 220 Taxman - Tax Reports [Vol. 205 7. As against this, the learned counsel Mr. Chaitanya appealing for the respon- dents-assessees contends that once statement is recorded while conducting search as provided under sub-section (4) of Section-132 and when all the questions were answered and when the letter dated 26.2.2004 given by all the assessees is referred to in the statement, the object and the purpose with which Explanation-5(2) of Section 271(1)(c) giving immunity to such persons has to be extended and object cannot be frustrated. When perversity in appreciating the material on record by the appellate authorities being not the ground of challenge, the Revenue cannot question the same is his contention. According to him, application of Explanation (5) is not a question of law, which entirely depends on question of fact and the same is dealt with by a final fact finding authority and Revenue cannot agitate the same again and again. According to him, search team having chosen to take the statement in the format or fashion which they have takeni.e. by putting question and answer, it is binding on all the members who have signed confirming that they abide by the same. The questionsandanswersdonotrelatetoanyindividualpersoni.e.Mr.Sridharand all the questions were answered for the entire amount disclosed during the searchrelatingtoentirefamily.TheentireamountdisclosedbyMr.Sridharwas accepted and subjected to tax. Therefore there is no ground available to the appellant-Revenue to challenge the same in the present appeals. 8. In reply, the learned counsel for the Revenue Mr. Sheshachala has taken us through paragraphs 21, 26 and 27 of the order of the Tribunal to contend that derival or origin of undisclosed income explained by one individual Mr. Sridhar could be at the most accepted for himself and it cannot be an explanation or answer in respect of others. Therefore there is non-compliance of Section 132(4) of the Act so far as all other assessees except Mr. Sridhar. He strenuously contends that Explanation 5(2) of Section 271(c) is not applicable to other assessees except Sridhar if no reason is disclosed. The statement of the party relating to the business affair is part of return of income. Till revised returns filed, income was not shown as income, but they were purposely shown as gift. Therefore the appeals deserve to be allowed. 9.Learned counsel for the respondents-assessees in reply further contends that as notice was given to Prakash Tea Agency Group, Mr. Sridhar on behalf of all the persons of group has given the statement on 27.2.2004 after oath being administered to him. Therefore it is as good as explanation on behalf of all the persons pertaining to Prakash Tea Agency group. He further contends that Mr. N. Shashindra, Smt. Vani Shashindra, Mr. Muktha Sridhar have stated that statement given by Mr. V.N. Sridhar was in their absence and they abide by what has been stated by Mr. V.N. Sridhar. Therefore according to him, the statement recorded under section 132(4) of the Act is as good as statement of others and even otherwise letter dated 26.2.2004 has been signed by all the assessees and as such Expln. (5) is applicable to them also. 10. From the material placed before the Court and also the submissions of the learned counsel appearing for the Revenue and the respondents-assessees, two TAXMAN MARCH 10 - MARCH 16, 2012 24
  24. 24. 2012] 221 provisions of the Act are relevant for considering the substantial questions of law raised in the above appeals. They are sections-132(4) and 271(1)(c) Expla- nation-(5). It is useful to extract the said provisions here: Section-132: (1) Where the [Director General or Director] or the [Chief Commissioner or Commissioner] [or Additional Director or Additional Commissioner] [or Joint Director or Joint Commissioner] in consequence of information in his possession, has reason to believe that - (a) & (b)** ** ** (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property [which has not been, or would not be, disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property). (4) The authorised officer may, during the course of the search or seizure, examine on oath any person, who is found to be in possession or control of any books of account,documents,money,bullion,jewelleryorothervaluablearticleorthingand any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income tax Act, 1922 (11 of 1922), or under this Act. [Explanation.-For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.] 271. (1) If the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person - (a) & (b)** ** ** (c) has concealed the particulars of his income or [***] furnished inaccurate particulars of such income, (d) ** ** ** he may direct that such person shall pay by way of penalty- [Explanation 5. - Where in the course of a [search initiated under section 132 before the 1st day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income - (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 25
  25. 25. 222 Taxman - Tax Reports [Vol. 205 (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, [unless,- (1) such income is, or the transactions resulting in such income are recorded, - (i) in a case falling under clause (a), before the date of the search; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the [Chief Commissioner or Commissioner] before the said date; or (2)he,inthecourseofthesearch,makesastatementundersub-section(4)ofsection 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in [***] sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.] 11. The department launched action against Prakash Tea Agency group of cases in pursuance of search conducted under Section-132 of the Act between 6.1.2004 and 27.2.2004. The abovementioned respondents-assessees filed re- vised return of income once and again another revised return of income was filed. Some of the assessees had filed returns in their individual capacity and also as members of Hindu Undivided Family. Assessment orders in favour of the above respondents-assessees also came to be passed. Amounts represent credits in the capital account of assessees during the previous year alleged to have been received by way of gifts. During the course of search, it was established that such gifts are not genuine and the assessees agreed to offer the same for tax by treating them as income. As already stated above, additional income also came to be declared by revised returns. 12. During the course of hearing before the Assessing Officer, the main person of Prakash Tea Agency group by name Sri V.N. Sridhar had admitted paying commission for organizing the gifts. Therefore in the returns subsequently filed,theexpenditureinthenatureofcommissiontoanextentof3%inobtaining such gifts was also revealed. Taking into consideration all these facts, assess- ment orders came to be passed and these gifts were treated as undisclosed income of the assessee and it was brought to tax. Quantum proceeding has reached finality and same has been accepted by the assessees. 13. Subsequently, penalty proceedings under Section 271(1)(c) of the Act came to be initiated against the respondents-assessees. Before the authority con- cerned, the assessees denied furnishing of inaccurate particulars or conceal- ment of income and further contended that though the donors of the gifts are all identifiable and available to confirm the gifts, only with a view to buy peace TAXMAN MARCH 10 - MARCH 16, 2012 26
  26. 26. 2012] 223 with the department, the same was declared as undisclosed income. According to the representatives of the respondents-assessees, imposition of penalty cannot be automatic as there being no mens rea or guilty mind on the part of the respondents conceal the income. 14. Ultimately rejecting all the contentions, the authority concerned passed an order holding that statements recorded during the course of search reveal that gifts were agreed as not genuine and therefore the income has been offered to tax. It was further opined that the assessee group has neither established the existence of the donors or their creditworthiness. It was also opined that the assessee group has organized non-genuine gifts for the purpose of converting unaccounted income and bringing the same into the books without payment of tax only with an intention of avoiding payment of tax. The authority opined that the material confirms the state of mind, which is guilty of evasion of tax. 15. The respondents-assessees went up in appeal before the Commissioner of Income Tax (Appeals). The respondents-assessees contended that gift amounts were already disclosed to the department in the respective returns filed before the date of search and during the assessment proceedings and with a view to end the proceedings and on the understanding that no penalty will be levied, they agreed for subjecting all the amounts to tax. By placing reliance onSuresh Chandra Mittal case (supra) and also CIT v. Shyamlal M. Soni [2005] 276 ITR 156/144 Taxman 666 (MP), the appellate authority held that no penalty under Section 271(1)(c) could be levied in a case where income returned in revised return is accepted even though revised returns were filed after search and subsequent to inquiries. The material for this conclusion was disclosure of gifts to the department in the returns filed before the date of search and appellate authority accepted the defence that only in order to buy peace and with an understanding that no penalty would be levied, the assessees had agreed to file revised returns. According to the first appellate authority, no enquiries were conducted by the department and it was due to candid admission on the part of the respondents-assessees these gifts were brought to tax as income. The Appellate Authority opined that all the particulars are available in the return and to buy peace, the respondents filed revised returns of income and therefore in the light of the observations made in the above decisions, it held that the imposition of penalty was not justified. 16. Challenging the order of the first appellate authority, the Revenue went in appeal before the Appellate Tribunal. The Appellate Tribunal has gone into all the material facts with reference to several precedents relied upon by both Revenue and respondents-assessees and ultimately opined that unexplained gifts have been found to be recorded in the regular books of account and such gifts were disclosed in the returns filed, therefore Explanation 5(2) to Section- 271(1)(c) is complied with and hence there cannot be imposition of penalty on the gifts. It further opined that commission for arranging gifts was also surrendered in the revised returns and same is subject to penalty as per Explanation (5). CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 27
  27. 27. 224 Taxman - Tax Reports [Vol. 205 17. So far as imposition of penalty on the amount surrendered as commission, therespondents-assesseeshavenotchallengedandthesaidfindinghasreached finality. So far as the other finding that no penalty could be imposed on the unexplained gifts in view of surrendering the same in the revised returns which was already recorded in the books of account, the Revenue has come up in these appeals. 18.Explanation-5 to Section-271(1)(c) depends upon the particulars found with the assessee at the time of search under Section-132 of the Act. As a matter of fact, Explanation-5 to sub-section (1) of Section-271 was inserted by amend- ment. This new explanation is a special provision applicable to cases when assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing revealed in the course of a search under Section-132 of the Act. If the assessee asserts and claims that the abovementioned assets were acquired by him by utilising (wholly or in part) his income for the previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared in the return, the assessee shall be liable for payment of penalty under section 271(1)(c) of the Act and such income is deemed to have been concealed or inaccurately furnished. However the income referred to above if declared by the assessee in any return of income furnished by him, on or after the date of search will not provide any immunity to the assessee unless the conditions indicated in clause-(2) of Explanation-5 are fulfilled. 19. Learned counsel for the Revenue emphasises that in the present case, the conditions in Clause-2 to Explanation-5 of Section 271(1)(c) of the Act are not completely fulfilled. Therefore both the appellate authorities were not justified in setting aside the order of imposition of penalty. 20. Learned counsel for the Revenues relied upon the decision of the Apex Court in the case of K.P. Madhusudhanan (supra) to contend that when the assessee is put to notice under Section-271 of the Act that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, then deemed provision regarding concealing the particulars of his income or furnishing inaccurate particulars of income could be drawn. In the said case. Their Lordships opined that after the introduction of Explanation-5, there is no question of proof of mens rea. He also places reliance on the decision of the Hon’ble Supreme Court in the case ofUnion of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 to contend that provisions of Section-11AC inserted with the intention of imposing mandatory penalty on persons who evaded payment of tax cannot be read to contain mens rea as an essential ingredient and there is no discretion with the authority competent to impose penalty to levy penalty below the prescribed minimum. Their Lordships further opined that the object behind enactment of Section 271(1)(c) read with Explanation indicate that the said section has been enacted to provide for a remedy for loss of revenue and TAXMAN MARCH 10 - MARCH 16, 2012 28
  28. 28. 2012] 225 penalty under that provision is a civil liability They further opined that wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section-276C of the Act. In this context, they proceeded to hold that in the case of Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218 (SC) the conceptual and contextual difference between Section 271(1)(c) and section 276-C of the Act was lost sight of. He places reliance on the decision in the case of Ashok Kumar Gupta v. CIT [2006] 287 ITR 376/157 Taxman 339 (Punj. & Har.) to contend that concession given in Explanation-5 to Section 271(1)(c) is meant for the persons who after surrendering the undisclosed income pay the amount of tax along with interest, if any, on such income before the due date and such benefit cannot be extended to an assessee where he comes up with a plea of non-availability of funds for payment of tax on surrendered income. Their Lordships further opined that only circum- stances that could be explained for absolving the payment of penalty are indicated in Explanation-5 itself. He also relies on the decision in the case of P. K. Metrani v.CIT AIR 2007 SC 386 to contend that Section-132 being a complete code by itself, it cannot intrude into any other provisions of the Act. Similarly, other provisions of the Act cannot interfere with the scheme or the working of Section-132 or its provisions. The learned counsel places reliance on this decision to contend that the statement given by Mr. V.N. Sridhar if accepted could be accepted only as a statement given by him and it cannot be held as a valid statement in so far as other members of his family. In that context, learned counsel contends that there has to be strict compliance of Section-132 of the Act. He places reliance on the unreported decision of this Court in the case of CIT v.J. Alexanderin ITRC No. 64/1999 disposed of on 19.6.2008. In this case, the oath was not administered as required under Section-6 of the Oaths Act. Therefore Their Lordships held that the statement of the Officer concerned, which is recorded without administering oath has no evidentiary value and in the eye of law, it is not at all an evidence and hence there is no evidence to conclude that the amount of the fixed deposits belonged to the assessee therein. He also places reliance on another unreported decision of this Court in the case of CIT v. Sunrise Industrial Syndicate in ITRC No. 246/1998 disposed of on 14.2.2005 to contend that if an addition is made and if there is no proper explanation for such addition, it would amount to concealment of income and the authorities under the Act are justified in levying penalty. 21. According to the learned counsel for Revenue Mr. Sheshachala, after the decision in K.P. Madhusudhanan’s case (supra) the Supreme Court has clearly distinguished and has in fact observed that the observations made in the case ofSir Shadi Lal Sugar & General Mills Ltd. (supra) was prior to the introduction ofExplanationtoSection-271oftheAct,thereforethesaiddecisiondonotcome totheaidofassesseeafterintroductionofExplanationtoSection-271oftheAct. From K.P. Madhusudhanan’s case (supra), what we notice is after sirShadi Lal Sugar & General Mills Ltd.'s case (supra), Explanation to Section-271 was introduced and therefore the Revenue was no longer required to prove the CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 29
  29. 29. 226 Taxman - Tax Reports [Vol. 205 mens rea of a quasi-criminal offence regarding the intentional or deliberate concealment of the amount. As a matter of fact, the word, ‘deliberately’ is removed from sub-section (c) of Section-271(1). It only says, concealing the particulars of his income or furnishing inaccurate particulars of such income. The assessee would get the immunity from paying the penalty if he is able to explain the causes as stated in clause (1) or (2) of Explanation-5. 22. The respondent’s counsel relied on various decisions so far as Clause-2 of Explanation-5 to Section-271 of the Act. 23. He places reliance on the decision in the case ofCIT v.MishrimalSoni [2007] 289 ITR 77/162 Taxman 53 (Raj.) to contend that expression ‘possession’ used in clause (2) of Explanation 5 to Section 271 is not confined to physical possession, but extends to other type of possession which is capable of being held. It was further held that as long as the assessee comes with a clean breast of his undisclosed income represented by assets found to be in possession of the assessee, he is not deemed to have concealed his income or concealed particu- lars thereof. 24.He also places reliance on the decision in the ofCIT v.E.V.Balashanmugham [2006] 286 ITR 626 (Mad.) to contend that the statements made by the assessee during the course of search under Section-132 of the Act can be taken note of and the explanation offered by the assessee in such statement in the opinion of the officer concerned is acceptable, question of imposing of penalty would not arise. In other words, it means in the opinion of the officer, if the explanation is acceptable, imposition of penalty is not justified. 25. He also places reliance on the decision in the case of CIT v. S.D.V. Chandru [2004] 136 Taxman 537 (Mad.) to contend that the statement of the assessee recorded under Section 132(4) of the Act followed by filing of Returns by the assessee for the earlier assessment year admitting large income and also paying the tax together with interest, such income will get immunised from the levy of penalty. 26. He also places reliance on the decision in the case of CIT v. Radha Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 (All.). In this case, Revenue contended that though the assessee made the statement recorded under Section 132(4) that unexplained cash and unexplained jewellery were undis- closed income, the manner in which such income was derived has not been disclosed in the statement and therefore immunity under Explanation 5 to Section 271(1)(c) was not applicable. Their Lordships held that in case there is nothing to the contrary in the statement recorded under Section 132(4) of the Act, in the absence of any specific statement about the manner in which such income has been derived, it can be inferred that such undisclosed income was derived from the business which the assessee was carrying on or from other sources. They further opined that much importance should not be attached to the statement about the manner in which such income has been derived. TAXMAN MARCH 10 - MARCH 16, 2012 30
  30. 30. 2012] 227 27. He also places reliance on the decision in the case of Gebilal Kanhaialal (HUF) v. Asstt. CIT [2004] 270 ITR 523/[2005] 143 Taxman 42 (Raj.). In this case it was held that when once in the statement under Section 132(4), the assessee has disclosed particulars of concealed income and surrendered it for tax and tax has been paid along with interest, imposition of penalty was not warranted. 28. He places reliance on the decision in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305/172 Taxman 58 (Guj.). It was held in this case that there is noprescriptionastopointoftimewhentaxhastobepaidquaamountofincome declared in statement made under Section 132(4) of the Act. It was held that it would be sufficient compliance of provision if tax is shown to have been paid before assessment was completed. It was further held that Explanation -2 of Explanation 5 itself specifies payment of tax together with interest, if any indicatingthatLegislaturedidnotstipulateanyspecifiedtimelimitforpayment of tax. Referring to Radha Kishan Goel’s case (supra). Their Lordships pro- ceeded to hold that once income is declared and tax thereon is paid, it would amount to substantial compliance not warranting any denial of benefit under Explanation 5 of Section 271(1)(c) of the Act. 29. He further places reliance on the decision in the case of CIT v. Manmohan Goel [2005] 149 Taxman 578 (All.). In this case, a search was conducted in the residential as well as business premises of the assessee in which cash, jewellery and other valuable articles and things were found and seized and subsequently, assessee declared his income under Section 132(4) and moved application for settlement. Assessment was completed on disclosed income of the assessee and thereafter penalty proceedings were initiated. Held on facts conditions laid down inExplanation 5(2) to Section 271(1)(c) were fulfilled and no penalty was leviable. Their Lordships held that the basic idea or intention behind providing Explanation 5(2) of Section 271(1)(c) is to avoid litigation by the Department and to get the maximum tax at the earliest from the person whose business as well as residential premises are searched. This was also a case of whole group which had made an application for settlement, a little more than the original surrender and far less than the subsequent surrender. In that context, Their Lordships held that imposition of penalty was not justified. 30. He also places reliance on the decision in the case of CIT v. Mahesh Chand Agrawal [2006] 157 Taxman 539 (All.) wherein relying on the earlier decision in Radha Kishan Goel’s case (supra) held that no penalty was leviable. 31. He places reliance on the decision in the case of Sudarshan Silks & Sarees v. CIT [2008] 300 ITR 205/169 Taxman 321 (SC). In this case, Their Lordships held that Tribunal being the final Court of fact, decision of the Tribunal on facts can be gone into by the High Court only if a question has been referred to it which says that findings arrived at by the Tribunal on facts are perverse, in sense that no reasonable person could have taken such a view. 32. A reference is also made to the decision in the case ofDilip N. Shroff (supra) on the aspect of concealment of income and furnishing of inaccurate particu- lars, wherein it is held as under: CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 31
  31. 31. 228 Taxman - Tax Reports [Vol. 205 67. ‘Concealment of income’ and ‘furnishing of inaccurate particulars’ are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars. 83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations. 84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. [See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]. 33. He also places reliance on the decision in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) wherein it is held as under: 8. ...... The basic reason why decision in Dilip N. Shroff’s case (supra) was overruled by this Court in Dharamendra Textile Processors’ case (supra), was that according to this Court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in case of Dilip N. Shroff (supra). However, it must be pointed out that in Dharamendra Textile Processors’ case (supra), no fault was found with the reasoning in the decision inDilip N. Shroff’scase (supra), where the Court explained the meaning of the terms “conceal” and “inaccurate”. It was only the ultimate inference in Dilip N. Shroff’s case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff’s case (supra) was overruled. 34.He also places reliance on the decision in the case ofNew Sorathia Engg. Co. v.CIT [2006] 282 ITR 642/155 Taxman 513 (Guj.) wherein when the order of the authority concerned showed that no clear-cut finding had been reached as to whether penalty under section 271(1)(c) was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished, order of penalty could not be sustained. 35.According to the learned counsel for the Revenue, clause (2) toExplanation 5 of Section-271(1)(c) can be divided into five parts as mentioned below: 1. He (assessee) in the course of search makes a statement under sub-section (4) of section-132, TAXMAN MARCH 10 - MARCH 16, 2012 32
  32. 32. 2012] 229 2. That any money, bullion, jewellery or other valuable article or thing found in his possession or under his control has been acquired out of his income. 3. Which (income) has not been disclosed so far in the return of income to be furnished before the expiry of time specified in sub-section (1) of Section 139. 4. And also specifies in the statement the manner in which such income has been derived. 5. And pays the tax together with interest if any in respect of such income. 36.Learned counsel for the Revenue contends that if tax together with interest, if any in respect of such income is not paid, as stated above, no benefit could be extended. In order to understand what exactly explanation given by the assessee, one has to see 132(4) statement given by the assessee. According to the learned counsel, 132 statement was given by one Mr. V.N. Sridhar is applicable only to him and not to other family members as the said statement does not cover the statement of other family members. 37. On perusal of this statement recorded under section-132(4), we note that oath was administered to the deponent Mr. V.N. Sridhar on 27.2.2004. It is in the formofquestionsandanswers.Theofficerputsaquestiontohiminaparticular way and the deponent gives the answer. The statement, of Mr. V.N. Sridhar dated 27.2.2004 is placed on record. The notice for recording this statement is dated 27.2.2004 wherein it is stated that Mr. V.M. Sridhar was required to personally attend in respect of proceedings in the case of M/s Prakash Tea Agency Group. Question No.4 in the statement pertains to undisclosed income of Sri V.N. Sridhar, his business and his family members. He has given the details not only relating to himself, but also other family members. He also refers to a joint letter dated 26.2.2004 signed by all the family members which was already submitted to the concerned authorities indicating that all the details are already mentioned. He has stated in the statement the manner in which the income was derived i.e. the tea business of the family. He has also disclosed the details of the income were shown in the respective returns and it is offered for taxation in the respective years in the hands of the concerned persons. He also answers the question No.6 saying that the amount shown against M/s Prakash Tea Agency is out of the income of the tea business of the firm and the income shown by him and Mr. Shashindra is the professional income of tea testing and similarly the income received by others is on account of undisclosed income earned by them. 38. Apparently the oath would be administered to the deponent by the officer concerned from the department. It is at the option of the concerned officer such statement would be recorded. If no statement is recorded under section 132(4) of other persons, there is no procedure to compel the officer to record statements of all other persons. Though learned counsel for Revenue contends that individual notices were sent, we do not have such records before us. The very questions and answers under section 132(4) indicate the deponent was CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 33
  33. 33. 230 Taxman - Tax Reports [Vol. 205 asked details pertaining not only to himself but also all other family members. It is not the case of the department that other than the statement of Mr. V.N. Sridhar, any other statement was recorded under Section 132(4) and it is in existence. There is only one statement of Mr. V.N. Sridhar recorded under Section 132(4) and endorsed by 3 other assessees. As a matter of fact, Mr. N. Shashindra, Smt. Vani Shashindra and Smt. Muktha Sridhar at the end of the statement of Mr. V.N. Sridhar have also stated that the said statement was given in their presence and they abide by what has been stated by Mr. V.N. Sridhar. During the search proceedings between 6.1.2004 and 27.2.2004, the statement of V.N. Sridhar was recorded. The manner in which the questions were put to this deponent indicates that he was expected to answer for himself and all his family members. It would be at the option of the officer what has to be asked by way of question and it would be at the option of the deponent what should be deposed. If the deponent had made clear that statement was only on his behalf and not for other family members, he would not have made statement explaining the details of others. Once the concerned officer of the department chose to record the statement in the above fashion indicating that Mr. V.N. Sridhar had to answer all the questions on behalf or Prakash Tea Agency Group now they cannot turn round and say the details given in the statement of Mr. V.N. Sridhar under section 132(4) holds good only for Mr. V.N. Sridhar and not for others. It was the concerned officer who recorded this statement who has to explain why he did not choose to record the statement of others. Having chosen to discharge the duty of recording the statement under section 132(4) in the above fashion, now the Revenue cannot find fault with the respondents-assessees contending, it would not bind others. Even otherwise, letter submitted on 26.2.2004 by all the assessees which has been referred to in the statement is signed by all the family members and a reference is made to this letter not at one place but at several places in the statement recorded under section 132(4). 39.It is now well-settled that themens rea regarding concealing and inaccurate particulars need not be established by the department. It is also not in dispute that the immunity from imposing penalty available under two clauses of Explanation (5) can be extended to the respondents - assessees depending upon the facts and circumstances of each case if the explanation offered is to the satisfaction of the officer concerned. This Court can refer to the facts only if the Tribunal on facts has proceeded to give a perverse finding. In the present case, we are not faced with such a situation. The facts have to be referred because of the stand of the Revenue in these appeals contending that the benefit of statement of Mr. V.N. Sridhar cannot be extended to other respondents- assessees. Before concluding the search, a declaration was obtained from this group on 26.2.2004 and surrender of undisclosed income was made vide the statement dated 27.2.2004 recorded under section 132(4) of the Act. The search commenced on 6.1.2004 and the statement under section 132(4) of the Act was obtained. Under these circumstances, naturally the assessee would start think- TAXMAN MARCH 10 - MARCH 16, 2012 34
  34. 34. 2012] 231 ing that if a declaration is made under section 132(4) along with the taxes together with interest payable is paid, no penalty would be imposed. The department would also be keen to get declaration under section 132(4) so as to collect tax and avoid litigation. Only with this view, the exception was created in Explanation 5 to Section 271(1)(c) under clauses (1) and (2) to give immunity to assessee from levy of penalty. During the course of search, if the assessee surrendered the income agreeing to pay the tax and interest and if explanation is given to the satisfaction of the officer concerned, assessee would be under the impression that no penalty would be levied which would be subject to explana- tion offered. In the present case, records reveal that the unexplained gifts were treated as income and reference of such gifts is recorded in the regular books of account which were disclosed in the returns filed. As a matter of fact, after surrendering the income, they offered the said income to tax along with interest and in fact they have paid the tax and interest on such income. We also note that apart from surrendering the gifts so received as income, the assessees have surrendered the expenditure incurred in the form of commission for arranging such gifts. This resulted in imposition of penalty on the amount surrendered as commission and the assessees have not challenged the same. 40. In view of the above discussion and reasoning, we are of the opinion that all the amounts referred to as gifts were surrendered by assessees offering to pay tax. Subsequently tax was also paid alongwith interest and the revised returns were filed. In that view of the matter, we are of the opinion the substantial questions have to be answered against the Revenue and in favour of the respondents - assessees. Accordingly, appeals are dismissed. CIT v. Smt. Mukta Sridhar (Kar.) TAXMAN MARCH 10 - MARCH 16, 2012 35
  35. 35. 232 Taxman - Tax Reports [Vol. 205 [2012] 205 TAXMAN 232/18 taxmann.com 70 (Patna) HIGH COURT OF PATNA Chief Commissioner of Income-tax (CCA) v. State of Bihar Through The Chief Secretary SAMARENDRA PRATAP SINGH, J. CIVIL WRIT JURISDICTION CASE NO. 10707 OF 2011 FEBRUARY 2, 2012 Section 132 of the Income-tax Act, 1961 read with sections 2(d), 12 and 16 of the Protection of Human Rights Act, 1993 - Search and seizure - Whether if required, search and seizure can continue for days, but at same time due regard to human dignity and value cannot be ignored - Held, yes - During search conducted at premises of respondent No. 3 there was interrogation carried out for 42 hours commencing at 9.30 a.m. on 8-9-2010 till 3.30 a.m. on 10-9-2010; respondent No. 3 and his family members were made to remain awake when it was time for sleep - Respondent No. 3 made a complaint before Human Rights Commission alleging that during search and seizure operation raiding party committed various acts of omission and commission including violation of his human rights - Commissionallowedcomplaintofrespondentandheldthatrespondent/complainant would be entitled to monetary compensation and asked department to submit its response as to why monetary compensation be not awarded to complainant recoverable from salary of concerned officials of department - Whether since there was no possible justification to continue interrogation and keep respondent No. 3 awake till 3.30 a.m. on second night of search; and since no reason had been assigned as to why interrogations could not have been deferred till morning of next day, order passed by Human Rights Commission as to violation of human rights of respondent No. 3 was to be upheld - Held, yes - Whether however, since no opportunity was given to officials to countenance charge of violation of human rights, in absence of an opportunity to defend themselves against such charge in an enquiry, Commission erred in issuing notice to officials to show cause or respond as to why penalty may not be levied for awarding compensation to complainant - Held, yes [Partly in favour of assessee] FACTS The Income-tax Department had conducted search operation in premises of respondent No. 3. Respondent No. 3 made a complaint before the State Human Rights Commission alleging that during the search and seizure operation the raiding party committed various acts of omission and commission including TAXMAN MARCH 10 - MARCH 16, 2012 36

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