Tax updates may 19

TAX UPDATES – MAY ‘19 ROUND UP
BY CA. REETIKA G AGARWAL
NEWS
DIRECT TAX
1. CBDT notifies TIEA between India-Marshall
Islands.
[Notification no 40/2019/F.No. 503/1/2018-FT
& TR– IV]]
2. Form 15H can be furnished if no tax payable on
income after sec. 87A rebate.
[Notification No. 41/2019/F. No.
370142/5/2019-TPL]
3. CBDT releases draft notification proposing new
audit report Form for Trust/Institution.
[NOTIFICATION F.NO. 370142/6/2019-
TPL, DATED 21-5-2019]
4. CBDT further deferred furnishing of GST &
GAAR details in Form 3CD till March 31, 2020.
[CIRCULAR NO. 9/2019 [F.NO. 370142/9/2018-
TPL], DATED 14-5-2019]
5. CBDT notifies tax exemption to Rolls-Royce
Defense Services Inc on income arising from
royalty/FTS from India.
[Notification No. 39/2019/F.No.200/53/2015-
ITA.I]
UN
1. UN Publishes working methods and practices of
Committee of Experts on International
Cooperation
[https://www.un.org/]
OECD
1. International community agrees on a road map
for resolving the tax challenges arising from
digitalization of the economy.
[http://www.oecd.org/tax/international-
community-agrees-on-a-road-map-for-
resolving-the-tax-challenges-arising-from-
digitalisation-of-the-economy.htm]
2. United Arab Emirates deposits its instrument of
ratification for the Multilateral BEPS
Convention.
[http://www.oecd.org/tax]
3. Albania signed the Multilateral Convention to
Implement Tax Treaty Related Measures to
Prevent Base Erosion and Profit Shifting.
[http://www.oecd.org/tax/albania-signs-
landmark-agreement-to-strengthen-its-tax-
treaties.htm]
*******

DOMESTIC TAX CASE LAWS
SUPREME COURT
1. Where High Court held that assessee was a
trust eligible for registration under section 12AA
and, thus, as a natural corollary, assessee's
application under section 80G(5) also deserved
to be allowed, SLP filed against High Court's
order was to be dismissed. [CIT v Lok Sewa
Sansthan Samiti Sonebhadra [2019] 105
taxmann.com 203 (SC)]
2. Where Assessing Officer initiated reassessment
proceedings on ground that subsidy received by
assessee from Government was directly
credited to capital reserve account which
resulted into non-consideration of such amount
for computation of assessee's book profit,
however, said proceedings were quashed by
High Court by holding that there was sufficient
disclosure in return filed by assessee with
respect to entry in question, SLP filed against
decision of High Court was to be dismissed. [Dy.
CIT v Pandesara Infrastructure Ltd. [2019] 105
3. Where High Court upheld Tribunal's order
holding that once registration was granted to
assessee trust under section 12A, then it was
not open to Assessing Officer while examining
compliance with section 11 to revisit objects of
assessee again, SLP filed against decision of
High Court was to be dismissed. [DIT v
Gemological Institute of India [2019] 105
deleting addition made under section 68 on
ground that assessee had discharged onus that
was placed upon it to disclose identity of share
applicants and genuineness of money infused,
SLP filed against said order was to be dismissed.
[Pr. CIT v E Smart Systems (P.) Ltd. [2019] 105
5. SLP dismissed against order of High Court that
placement fees/carriage fees paid by assessee-
company, engaged in business of distribution of
television channels, to cable operators/
MSO/DTH operators were payments for work
contract covered under section 194C and not
fees for technical service under section 194J.
[CIT v Times Global Broadcasting Co. Ltd.
[2019] 105 taxmann.com 314 (SC)]
6. SC dismissed SLP filed against HC's order
allowing claim for bad debts due to low tax
effect. [Pr. CIT v Gujarat Lease Financing Ltd.
[2019] 105 taxmann.com 157 (SC)]
deleting penalty under section 271(1)(c) on
ground that addition on account of alleged
stock was not as a result of purchases made
outside books of account, but was only on
account of wrong entries in books of account,
SLP filed against said decision was to be
dismissed. [Pr. CIT v Deccan Mining Syndicate
(P.) Ltd. [2019] 105 taxmann.com 138 (SC)]
8. SC dismissed SLP against HC's order that
demurrage charges hadn't accrued to assessee.
[CIT v Rajasthan Small Industries Corporation
Ltd. [2019] 105 taxmann.com 82 (SC)]
9. SLP dismissed against High Court order that it
would only be net of interest excluding
expenditure incurred in earning such interest
income which should be excluded for purpose
of deduction under section 80-IA. [Pr. CIT v
Gujarat Paghuthan Energy Corporation (P.) Ltd.
[2019] 105 taxmann.com 84 (SC)]
10. Where the assessee, a non-banking financial
company, whose principal business activity was
of trading in shares and securities, incurred loss
(speculative loss) as a result of its activity of
trading in shares, said loss was not capable of
being set off against the profits which it had
earned against the business of futures and
options since the latter did not constitute
profits and gains of a speculative business.
[Snowtex Investment Ltd. v Pr. CIT [2019] 105

11. SLP dismissed against High Court ruling that lack
of declaration in Form No. 10 regarding specific
purpose for which funds were being
accumulated by assessee-trust, would not be
fatal to exemption claimed under section 11(2).
[CIT v Bochasanwasi Shri Akshar Purshottam
Public cable Trust [2019] 105 taxmann.com 97
(SC)]
12. SLP dismissed against order of High Court
allowing assessee to carry forward and set off
unabsorbed depreciation of assessment years
1997-98 to 1999-2000 against profits of
assessment year 2008-09. [CIT v Associated
Cables (P.) Ltd. [2019] 105 taxmann.com 114
(SC)]
allowing assessee's claims under section 80-IB
by holding that where assessee had undertaken
development of housing project at their own
risk and cost, merely because land was held in
name of original owner when housing
development project was executed, it would
not be detrimental to assessee's claim of
deduction under section 80-IB(10), SLP filed
against said decision of High Court was to be
dismissed. [Pr. CIT v Green Associates [2019]
105 taxmann.com 80 (SC)]
deleting penalty levied under section 271AAA
on ground that assessee during course of
assessment proceedings had submitted several
documents/communications to substantiate
manner in which undisclosed income was
derived, SLP filed against said decision of High
Court was to be dismissed. [Pr. CIT v Bhavi
Chand Jindal [2019] 105 taxmann.com 78 (SC)]
15. SLP dismissed against High Court ruling that
where assessee filed instant petition
challenging validity of Tribunal's order under
section 254(2), in view of fact that Tribunal had
accepted additional evidence without
complying with provisions of rule 29 of ITAT
Rules, impugned order passed by Tribunal
became defective and, thus, same was to be set
aside. [Dy. CIT v Radhika Roy [2019] 105
payment for delayed allotment of plot of land
by Housing Corporation was not 'interest' under
section 2(28A). [Pr. CIT v West Bengal Housing
Infrastructure Development Corporation Ltd.
[2019] 105 taxmann.com 64 (SC)]
where there was no evidence on record that
order passed by Tribunal was infact served on
Director (International Taxation), which is
mandatory requirement of section 260A(2)(a),
appeal filed by revenue could not be dismissed
being barred by limitation. [Hyundai Heavy
Industries Co. Ltd. v DIT [2019] 105
18. Tax effect being less than Rs. 1 crore,
Departmental appeal filed before Supreme
Court to be disposed of as per Instruction No. 3
of 2018, dated 11-7-2018. [CIT v Mereena
Creations [2019] 104 taxmann.com 334 (SC)]
*********

HIGH COURT
1. Situs of AO is irrelevant to determine
jurisdiction of HC over order of ITAT. [Pr. CIT v
Sungard Solutions (I) (P.) Ltd. [2019] 105
taxmann.com 67 (Bombay-HC)]
2. Where investment in assessee-company was
made by US based global private investment
group with permission of Government
authorities, same could not be branded as sham
transaction merely because it involved huge
investment and investor would not earn any
dividend income immediately and investment
was divested to group companies by assessee-
company. [Pr. CIT v Aditya Birla Telecom Ltd
[2019] 105 taxmann.com 206 (Bombay-HC)]
3. Where AO made addition to assessee's income
under section 69 in respect of advance rent
received, since source was clear and there was
proper explanation for amount in question in
books of account, impugned addition was to be
deleted. [CIT v Amritha Cyber Park (P.) Ltd
[2019] 105 taxmann.com 229 (Kerala-HC)]
4. Repairs of office building using POP to be
treated as capital expenditure. [South India
Corporation Ltd. v Asst. CIT [2019] 105
taxmann.com 205 (Kerala-HC)]
5. By introduction of Explanation to section
10(23C) w.e.f. 1-4-2015, it has been clarified
that if grant from Government is in excess of 50
per cent of its total receipts, it is to be taken as
substantially financed by Government and
'substantially financed' in terms of Explanation
to section 10(23C) means i.e., qua total receipts
and not qua total expenditure. [DIT v Tata
Institute of Social Science [2019] 105
6. Where assessee filed writ petition contending
that impugned assessment order and
subsequent recovery proceedings were to be
set aside as there was no valid service of
assessment notice upon assessee, since
alternate efficacious statutory remedy of filling
appeal to Commissioner (Appeals) was
available, instant writ petition could not be
entertained. [Camelot Enterprises (P.) Ltd. v
TRO [2019] 105 taxmann.com 155 (Bombay-
HC)]
7. Black Money Act has no retro-effect; no action
against VVIP Chopper Scam accused ‘Gautam
Khaitan’. [Gautam Khaitan v UOI [2019] 105
taxmann.com 276 (Delhi-HC)]
8. Where assessee-builder claimed proportionate
deduction under section 80-IB(10) in respect of
those residential units only which had area less
than 1500 sq. ft. and Assessing Officer after
conscious application of mind allowed same,
reassessment after 4 years would be
impermissible. [Dy. CIT v Visvas Promoters (P.)
Ltd. [2019] 105 taxmann.com 65 (Madras-HC)]
9. No denial of approval u/s. 35(1)(iii) just because
there was no commercial success of research
activities. [Manipal Academy of Higher
Education v CIT [2019] 105 taxmann.com 101
(Delhi-HC)]
10. When an application for stay of demand is filed
before Assessing Officer, he has to apply his
mind to said application and pass appropriate
orders having regard to facts and circumstances
of case but, it does not mean that Assessing
Officer has to impose a per se condition that
pending consideration of application for stay of
demand, certain minimum amount has to be
deposited. [Turner General Entertainment
Networks India (P.) Ltd. v ITO [2019] 104
11. Claim of weighted deduction u/s 35(2AB)
allowable, though Govt. approval for R&D
facility was awaited. [CIT v TVS Electronics Ltd.
[2019] 105 taxmann.com 36 (Madras-HC)]
12. Conversion of paddy into rice is manufacturing
activity; eligible for sec. 80-IA/80-IB deduction.
[CIT v Muthuramalingam Modern Rice Mill

13. In terms of section 245D(2C) Settlement
Commission can declare an application for
settlement invalid, but such order has to be
passed within prescribed time and under no
circumstances, Settlement Commission can give
retrospective effect to order invalidating
settlement application of assessee. [Pr. CIT v
Income tax Settlement Commission, Mum.
14. Where assessee entered into agreement for use
and purchase of a windmill plant for power
generation, amount forfeited by seller upon
failure to pay full instalments within stipulated
time period would be capital expenditure.
[Nandkishor Motilal Shah v CIT [2019] 104
15. Where retiring partners were paid sums on
reconstitution of assessee-partnership firm in
proportion of their share in partnership
business/asset, no transfer of assets being
taken place, no capital gains would arise. [Pr.
CIT v Electroplast Engineers[2019] 104
16. Where excess jewellery found during search
proceedings belonged to partners of assessee-
jewellery firm, no addition was to be made in
hands of firm treating same as firm's
undisclosed income. [Sri. Kavitha Jewellers v
Dy. CIT [2019] 104 taxmann.com 445 (Madras-
HC)]
17. Where assessee, a shipping agent, received
amounts from its customers towards ground
rent payable to Port Trust as storage charges for
containers of its customers but did not pay
same to Port Trust for reason that ground rent
charges were in dispute and Tariff Authority for
Major Ports (TAMP) had not finally fixed rent
charges and same was shown as liability in its
books of account, in view of fact that TAMP had
passed final order fixing rent charges and,
therefore, liability of assessee to pay back to
customers had ceased, addition under section
41(1) was justified. [CIT v Chakiat Agencies (P.)
Ltd. [2019] 104 taxmann.com 430 (Madras-
HC)]
18. Where a company made provision for payment
of managerial remuneration to assessee, same
created an obligation on assessee to bear tax
liability on salary. [V. Ramakrishnan v Dy.CIT
19. Where assessee purchased property in name of
Secretary and Manager of society for running a
school, it could be concluded that acquisition of
property in name of individuals was indicative
of fact that profits of institution was being used
for self aggrandizement and, thus, assessee's
claim for exemption order section 10(22) was to
be rejected. [Sree Chithra Educational Cultural
and Film Society v Dy. CIT [2019] 104
taxmann.com 433 (Kerala-HC)]
20. Where AO made addition to assessee's income
on ground that there was mismatch between
assessee's consumption of raw material and
output of various drugs manufactured by
assessee, in view of fact that finding of AO was
based on detailed appreciation of evidence on
record, impugned addition was to be
confirmed. [Paras Organics (P.) Ltd. v Addl. CIT
*******

INCOME TAX APPELLATE TRIBUNAL
1. Where assessee company had received share
capital of huge amount from several companies,
in view of fact that share applicants had very
meagre income, thus, they did not have
creditworthiness for making such huge
investments and genuineness of transactions
were also not established from documentary
evidences shown by assessee, addition under
section 68 in respect of share capital was
justified. [ITO v Synergy Finlease (P.) Ltd [2019]
105 taxmann.com 208 (Delhi - Trib.)]
2. No sec. 271AAB penalty if income surrendered
during search didn't result in undisclosed
income. [Smt. Aparna Agrawal v Dy. CIT [2019]
105 taxmann.com 233 (Jaipur - Trib.)]
3. Standard deduction u/s 24 not allowable on
rental income earned by charitable trust.
[Nandlal Tolani Charitable Trust v ITO [2019]
105 taxmann.com 232 (Mumbai - Trib.)]
4. Interest payment to creditors couldn't be
disallowed merely because no interest was
charged from debtors. [Aditya Medisales Ltd. v
Dy. CIT [2019] 105 taxmann.com 209
(Ahmedabad - Trib.)]
5. Where Assessing Officer rejected assessee's
claim for deduction under section 54F on
ground that at time of sale of capital asset,
assessee was owner of more than one
residential house properties, in view of fact that
one residential property was co-jointly owned
in name of assessee and his wife and he could
not be treated as 'absolute owner' of said
property, deduction under section 54F could
not be denied to him. [Ashok G. Chauhan v
Asst. CIT [2019] 105 taxmann.com 204
(Mumbai - Trib.)]
6. Commissioner (Appeals) rightly confirmed
addition of Short Term Capital Gain on sale of
premises of assessee in Amarnath Tower as
block of asset ceases to exit. Other Property of
assessee was self occupied property, hence, it
could not enter into block of depreciable asset.
Further, plea to add purchase of new flat into
block of assets can't be accepted as income
from same was taxable as house property
income. [Sonu Nigam v Asst CIT [2019] 105
taxmann.com 331 (Mumbai - Trib.)]
7. In case of assessee, an asset management
company, date of approval given by SEBI was to
be regarded as date on which assessee set up
its business and was ready to commence said
business and, therefore, expenses incurred for
purpose of business after said date of approval
were eligible for deduction under section 37(1).
[Dy. CIT v PPFAS Asset Management (P.) Ltd.
[2019] 105 taxmann.com 103 (Mumbai - Trib.)]
8. Where executives of account department and
one of directors were available to carry
business of assessee-company, reason that
assessee was indulged in criminal proceedings
and only a director was ill, could not be cited as
a reasonable cause for long delay in complying
audit obligation; penalty was to be levied.
[Haldar Foods (P.) Ltd. v ITO [2019] 105
taxmann.com 99 (Amritsar - Trib.)]
9. Where assessee paid hiring charges for use of
cranes, such simpliciter payments, being not
contractual payments, could not be brought
within sweep of definition of term 'work' as
envisaged in section 194C. [Bhangal
Construction Co. v ITO [2019] 104
taxmann.com 363 (Amritsar - Trib.)]
10. Notice issued in name of deceased person isn't
binding on legal heirs. [Aemala Venkateswara
Rao v ITO [2019] 105 taxmann.com 14
(Visakhapatnam - Trib.)]
11. Merely because assessee charitable educational
institution was prosperous and failed to state as
to why there was need for donations and it
failed to submit list of proposed donors,
approval under section 80(5)(vi) could not be
denied merely upon possibility of misuse of
donations. [Adesh Foundation (Regd.) v CIT

(Exmp) [2019] 105 taxmann.com 13 (Amritsar -
Trib.)]
12. No cancellation of registration as cash
deposited in old denomination notes was from
fees collected from students. [St. Wilfred
Educational Society v Pr. CIT [2019] 104
taxmann.com 387 (Jaipur - Trib.)]
13. Where assessee sold a residential property and
invested sale consideration in new residential
flat and made payment to developer within
prescribed time, merely because assessee could
not obtain possession and got purchase deed
executed within period of three years as
Consumer Redressal Commission had put stay
on developer, assessee's claim for exemption
under section 54 could not be denied. [Bal
Kishan Atal v Asst. CIT [2019] 104
taxmann.com 432 (Delhi - Trib.)]
14. Where assessee-company had been
consistently determining fair market value of
shares as per 'Discounted Cash Flow' method
which was accepted by revenue, Assessing
Officer was unjustified in adopting 'Book Value'
method in current year; addition on account of
premium on issue of share, thus made, was to
be deleted. [Asst. CIT v Enterprises Business
Solutions (P.) Ltd. [2019] 104 taxmann.com
362 (Amritsar - Trib.)]
15. Where assessee made payments to
transporters toward freight without deducting
TDS on such payments, since assessee was in
receipt of details about PAN of transporters at
time of payment of freights and, thus, complied
with provisions of section 194C(6), no
disallowance could be made under section
40(a)(ia). [Asst. CIT v Arihant Trading Co. [2019]
104 taxmann.com 336 (Jaipur - Trib.)]
16. CIT (A) has no power to declare TDS return filed
by assessee as non-est. [Manoj Kumar Jaiswal v
Asst. CIT [2019] 104 taxmann.com 372
(Bangalore - Trib.)]
17. In terms of section 206C(1A), any person
responsible for collecting taxes under section
206C(1) need not to do so if he obtains a
declaration from buyer that he is purchasing
goods for reuse in manufacturing process or
producing article or things. [Asst. CIT v Bansal
Ship Breakers (P.) Ltd. [2019] 104
taxmann.com 399 (Ahmedabad - Trib.)]
**********

TRANSFER PRICING CASE LAWS
1. When there is a difference in level of capacity
utilization of assessee and level of capacity
utilization of comparable, then adjustment
would be required to be made to profit margin
of comparable on account of difference in
capacity utilization in terms of rule 10-B
(1)(e)(iii). [CIT v Petro Araldite (P.) Ltd. [2018]
93 taxmann.com 438 (Bombay-HC)]
2. Where Tribunal approved TP adjustment as
proposed by TPO only on basis of one
comparable which was objected to by assessee
on account of its being functionally different
from assessee, since entire TP adjustment has
hinged only on one comparable and difference
in functionality of assessee and said company
was not discussed by Tribunal, entire issue of
determining TP adjustment should be
considered afresh by TPO. [Pyramid IT
Consulting (P.) Ltd. v Addl CIT [2019] 105
3. No taxes to be withheld from cost apportioned
by foreign AE which has no profit element.
[Organon (India) Ltd. v Addl. CIT [2019] 105
taxmann.com 249 (Kolkata - Trib.)]
4. Interest on outstanding receivable is an
international transaction as per amendment
brought under Explanation to section 92B by
Finance Act, 2012 retrospectively and assessee
is liable to be visited with T.P. adjustment on
account of interest short charged/uncharged.
[Open Text Technologies India (P.) Ltd. v Dy.
CIT [2019] 105 taxmann.com 163 (Hyderabad -
Trib.)]
*********
INTERNATIONAL TAXATION CASE LAWS
1. Where Assessing Officer failed to demonstrate
through prima facie material that entire
transaction of sale of shares of an Indian Non-
banking Financial Company by assessee
promoter a Mauritian Company through IPO
was sham and colourable device and a bogus
transaction to simply avoid tax, Assessing
Officer's section 197 order denying 'Nil'
withholding tax certificate to assessee was to
be quashed and revenue was to be directed to
release the withheld payment subject to
adjustment in the assessment. [Indostar Capital
v Asst. CIT [2019] 105 taxmann.com 96
(Bombay-HC)]
2. Assessee who is a resident but not ordinarily
resident would be entitled for tax credit under
section 91 in respect of federal as well as state
taxes paid by him in USA. [Aditya Khanna v ITO
(Intl Taxn) [2019] 105 taxmann.com 323 (Delhi
- Trib.)]
3. Where services were rendered outside India,
payments were made outside India and there
was no permanent establishment or business
connection of payees in India, commission paid
to non-resident agents was not liable to tax
under provisions of Act. [Dy. CIT v Jay Chemical
Industries Ltd. [2019] 105 taxmann.com 41
(Ahmedabad - Trib.)]
4. Where customer did not acquire any copyright
in software, rather there was mere transfer of
copyrighted software, consideration would not
amount to 'royalty' or fees for 'included
services' or 'technical services' and, therefore,
would not be taxable. [Sandvik Tooling Sverige
AB v Dy. CIT [2019] 105 taxmann.com 37 (Pune
- Trib.)]
********
Disclaimer: Above said information are taken
from publically available resources and
believed to be accurate.

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