My Presentation on Recent Judgements on Direct taxes presented in Lko Branch of ICAI on 26th Feb 2016

1. CA Ashok Seth
126th Feb 2016

2. PRECEDENT
 A judgment of SC is binding. It is the
principle laid down in the judgment, and
not every word appearing therein, that
becomes the law of the land.
 Between two decisions of benches of
equal strength of the Supreme Court,
the later decision should be followed,
provided the earlier decision is
considered
26th Feb 2016 CA Ashok Seth 2

3. Acceptance or Rejection of SLP
by SC
SC dealt the effect of acceptance or
rejection of a SLP in Kunhayammed v.
State of Kerala, (245 ITR 360) and held
that when there is a refusal of SLP in non -
speaking order, it does not amount to a
declaration of the law as laid down by the
SC. If the refusal is a speaking order, it
then becomes a declaration of law.
26th Feb 2016 CA Ashok Seth 3

4. Reliance of Decision
 Sun Engineering Works Pvt. Ltd. (198
ITR 297) SC observed
 It is neither desirable nor permissible to
pick out a word or a sentence from the
judgment of the Supreme Court divorced
from the context of the question under
consideration and treat it to be the
complete law declared by the court.
26th Feb 2016 CA Ashok Seth 4

5. Contd.
 The judgment must be read as a whole and
the observations from the judgment have to be
considered in the light of the questions which
were before the court. A decision of the
Supreme Court takes its colour from the
questions involved in the case in which it is
rendered and, while applying the decision to a
later case, courts must carefully try to
ascertain the true principle laid down by the
decision.
26th Feb 2016 CA Ashok Seth 5

6. Ratio Decidendi, Obiter Dicta, and
Casual Observations
The question which was necessary for
determination of the case would be the
ratio; the opinion of the court on the
question which was not necessary to
decide the case would be only obiter
dictum. ‘casual observations’ of the SC is
that observation are made on points which
do not arise for the determination of the
court at all.
26th Feb 2016 CA Ashok Seth 6

7. S. 41(1) Perfect Paradise
Emporium (ITAT Delhi)
 S. 41(1)/ 68: Unclaimed liabilities to
creditors, even if fictitious and bogus,
cannot be assessed u/s 41(1) in the
absence of a write-back. The bogus
credits can be assessed u/s 68 only in
the year the credits were made and
not in the year they are found to be
not payable
26th Feb 2016 CA Ashok Seth 7

8. 2(47)- Fardeen Khan .v. ACIT
69 SOT 109 (URO) MUM ITAT
 Pursuant to amendment to S. 53A of
Transfer of Property Act-Non-
registered development agreement
does not result in transfer u/s
2(47)(v)- Law in Chaturbhuj
Dwarkadas Kapadia v.CIT 260 ITR
461 (Bom.) does not apply after
amendment to S. 53A
26th Feb 2016 CA Ashok Seth 8

9. Contd.- Section 53A of the
TOPA-
 Cumulative conditions application of
doctrine of 'part performance':—
 Written signed contract for consideration;
 should pertain to transfer of immovable
property;
 the transferee should have taken
possession
 the transferee should be ready and willing
to perform his part of contract and
26th Feb 2016 CA Ashok Seth 9

10. Contd.
 the contract should be registered under
The Registration Act (introduced wef
Sept 2001).
26th Feb 2016 CA Ashok Seth 10

11. Section 17(lA) of the
Registration Act: -
 "The documents containing contracts to
transfer for consideration, any immovable
property for the purposes of Section 53A
of Transfer of Property Act, 1882 shall be
registered if they have been executed on
or after the commencement of the
Registration and Other Related Laws
(Amendment) Act, 2001 and if such
documents are not registered they shall
have no effect for the purposes of said
Section 53A."
26th Feb 2016 CA Ashok Seth 11

12. 10(23C)(iiiad): Queen’s Educational
Society 372 ITR 699 (SC)
 Where an educational institution
carries on the activity of education
primarily for educating persons, the
fact that it makes a surplus does not
lead to the conclusion that it ceases
to exist solely for educational
purposes and becomes an institution
for the purpose of making profit.
26th Feb 2016 CA Ashok Seth 12

13. S. 12AA- Non disposal of
application for registration
 The Alld HC 171 Taxman 113 has taken
the view that once an application is
made under the said provision in case
the same is not responded to within 6
months, it would results in deemed
grant of registration
 CIT vs. Society For The Promotion Of
Education, Adventure Sport &
Conservation Of Environment (SC)
26th Feb 2016 CA Ashok Seth 13

14. S. 147- n case of Intimation u/s
143(1)
 DCIT vs. Zuari Estate Development
and Investment Co 373 ITR 661
(SC)- as assessee's return was
accepted under section 143(1),
question of change of opinion did not
arise
26th Feb 2016 CA Ashok Seth 14

15. S. 147- of Intimation u/s
143(1)- Contd.
 Khubchandani Healthparks Pvt. Ltd
vs. ITO (Bombay High Court)- Zuari
Agro Differentiated- It is open to the
assessee to challenge a notice issued
u/s 148 as being without jurisdiction
for absence of reason to believe even
in case where the assessment has
been completed earlier by Intimation
u/s 143(1) of the Ac
26th Feb 2016 CA Ashok Seth 15

16. 271(1)(C)- Surrender of
Income- Survey- Return filed
 Mak Data P. Ltd 358 ITR 593 (SC)
 Penalty is not leviable on income
declared during survey and offered in
return. Law laid down in Mak Data
358 ITR 593 (SC) is distinguishable
on facts and not universally
applicable. – CIT v Hira Lal Doshi (Bo
HC)
26th Feb 2016 CA Ashok Seth 16

17. S. 263- Amendment in Expl. 2
 which supersedes the law that there
is a difference between "lack of
inquiry" and "inadequate inquiry") is
"declaratory & clarificatory" in nature
and is inserted to provide clarity on
the issue as to which orders passed
by the AO shall constitute erroneous
and prejudicial to the interests of
Revenue- Crompton Greaves Ltd vs.
CIT (ITAT Mumbai)
26th Feb 2016 CA Ashok Seth 17

18. S. 36(1)(iii)- Hero Cycles Ltd –
SC 236 Taxmann 447
 Once it is established that there is
nexus between the expenditure and
the purpose of business (which need
not necessarily be the business of the
assessee itself), the Revenue cannot
put itself in the arm-chair of the
businessman or in the position of the
Board of Directors and assume the
role to decide how much is
reasonable expenditure
26th Feb 2016 CA Ashok Seth 18

19. Contd.
 It further held that no businessman
can be compelled to maximize his
profit and that the income tax
authorities must put themselves in
the shoes of the assessee and see
how a prudent businessman would
act. The authorities must not look at
the matter from their own view point
but that of a prudent businessman
26th Feb 2016 CA Ashok Seth 19

20. S. 143(2)/ 292BB
 Pr. CIT vs. Shri Jai Shiv Shankar Traders
Pvt. Ltd (Delhi HC) 64 Taxmann.com
220
 Failure to issue a s. 143(2) notice
renders the reassessment order void. S.
292BB saves a case of "non service" of
the notice but not a case of "non issue"
 The non-issue of the said notice is fatal
to the order of re-assessment
26th Feb 2016 CA Ashok Seth 20

21. Depreciation- Victory Aqua Farm
Ltd (SC) 61 Taxmann.com 166
 The "functional" test has to be
applied to determine whether an
asset is "plant". Even a pond
designed for rearing prawns can be
"plant"
 Anand Theatres 224 ITR 192
Differentiated. Held - It is difficult to
read the judgment in the case of
Anand Theatres so broadly.
26th Feb 2016 CA Ashok Seth 21

22. 50C- Chandra Narain Chowdhary
219 Taxman 60 (All)
 the AO has to apply his mind on the
validity of the objection and may
either accept the valuation of the
property on the basis of the report of
the approved valuer filed by the
assessee or invite refer the valuation
of the capital asset to the DVO
26th Feb 2016 CA Ashok Seth 22

23. S. 41(1) Perfect Paradise
Emporium Pvt. Ltd (ITAT Delhi)
26th Feb 2016 CA Ashok Seth 23
 S. 41(1)/ 68: Unclaimed liabilities to
creditors, even if fictitious and bogus,
cannot be assessed u/s 41(1) in the
absence of a write-back. The bogus
credits can be assessed u/s 68 only in
the year the credits were made and
not in the year they are found to be
not payable

24. Transfer S 2(47) Sec 54
 Sanjeev Lal & Ors 365 ITR 389 (SC)
 Agreement to sell in Dec 12 15 Lacs
received. (Possession not transferred)
 Sale Deed on Sept 14- Possession Tfd
 Appellant purchased New Residential
Property on April 2013.
 Issue of whether eligible for benefit
u/s 54
26th Feb 2016 CA Ashok Seth 24

25. Contd.
 Issue boils down to whether Trf. took
place in Dec 12 or Sept 14.
 HC held that in absence of delivery
before Sept 14 the Trf took place in
Sept 14 hence 54 not eligible as no
rights were transferred in favour of
purchaser in Dec 12.
 Matter before SC
26th Feb 2016 CA Ashok Seth 25

26. Contd.
 Appellant pleaded before SC that
there was extinguishment of rights in
property hence trf. u/s 2(47)(ii) in
Dec 12.
 SC said by executing agreement to
sell a right in personam is created in
favour of purchaser
 S. 2(47)(ii)- “extinguishment of any
right in such capital assists.”
26th Feb 2016 CA Ashok Seth 26

27. Contd.
 SC- on entering into the agreement
to sell, some rights in respect of the
capital assets was extinguished and
accordingly, transferred in favour of
the vendee.
 SC used purposive and harmonious
interpretation to held sec 54 relief
was eligible.
26th Feb 2016 CA Ashok Seth 27

28. Issues emerging
 Extinguishment of “Some rights”
whether such right could be
considered “Land” or “Building” for
purposes of 50C
 Whether trf of “some rights” could
mean trf of residential house within
meaning of sec 54
 How to value/ measure “some rights”
and calculate Gain.
26th Feb 2016 CA Ashok Seth 28

29. Issues emerging- Contd.
 Can such incentive provision mould
the definition of transfer.
 Can a definition which is basis of
charging section be interpreted
“liberally” just because an assesse
may loose benefit of incentive
provision
26th Feb 2016 CA Ashok Seth 29

30. Safina Hotels Private Limited
vs. CIT (Karnataka)
 S. 271(1)(c)/ 271(1-B): If the notice is
issued without application of mind (by
striking out the relevant part in the
notice), the penalty proceedings are
invalid
 assessment order should contain a
direction for initiation of proceedings.
Merely saying that the penalty
proceedings have been initiated would
not satisfy the requirement
26th Feb 2016 CA Ashok Seth 30

31. Interest on partners' capital
allowable under section 24(b)
 Siroya Holdings v. Additional
Commissioner of Income Tax (Mum
Trib)
 Following Sane & Doshi Enterprises v.
ACIT 232 Taxman 452 (Bom)
26th Feb 2016 CA Ashok Seth 31

32. 143(2) Notice Service
 Income Tax Officer v. Rajesh Agarwal
Lko ITAT
 Notice under 143(2) issued by speed
post on the last day of limitation at
15:19 hours, there was no possibility of
its service on the same day -assessment
was illegal and void ab initio. Moreover,
notice served by affixture was not valid
as not satisfied the conditions
contemplated by order V, rule 17 read
with rule 20 of CPC
26th Feb 2016 CA Ashok Seth 32

33. S. 271C: Penalty for failure to
deduct TDS
 CIT vs. Bank Of Nova Scotia 380 ITR
550 (SC)
 cannot be levied if Dept is unable to
show contumacious conduct on the
part of the assessee
26th Feb 2016 CA Ashok Seth 33

34. Hiralal Chunilal Jain vs. ITO
(ITAT Mumbai)
 Bogus Sales/ Purchases: Addition
solely on the basis of information
received from the sales-tax
department is not sustainable.
Suspicion of the highest degree
cannot take the place of evidence
26th Feb 2016 CA Ashok Seth 34

35. Prakash vs. Phulvati (SC)
 The Hindu Succession (Amendment Act),
2005 which came into effect on
09.09.2015 by which daughters in a
HUF, governed by Mitakshara law, were
granted statutory right in the
coparcenary property (being property
not partitioned or alienated) of their
fathers applies only if both the father
and the daughter are alive on the date
of commencement of the Amendment
Act
26th Feb 2016 CA Ashok Seth 35

36. Prakash vs. Phulvati (SC)
 An amendment of a substantive
provision is always prospective unless
either expressly or by necessary
intendment it is retrospective
26th Feb 2016 CA Ashok Seth 36

37. THANK YOU
26th Feb 2016 CA Ashok Seth 37