Yearly Archives: 2012

My Home Power Ltd v  DCIT [ITA NO. 1114 (HYD.) OF 2009 dtd 2.11.2012] Hyderabad ITAT Background: Assessee had filed return of income for the assessment year under consideration on 28.2.2008 showing a loss of Rs. 86,54,970. The company is engaged in the business of power generation through biomass power generation unit. During the year under consideration it has received 1,74,037 Carbon Emission Reduction Certificates (CERs) popularly known as ‘carbon credits’ for the project activity of switching off fossil fuel from naphtha and diesel to biomass. It has sold 1,70,556 CERs to a foreign company M/s. Noble Carbon Credits Ltd., Ireland and had received an amount of Rs. 12.87 crores. The assessee had accounted this receipt as capital in nature and had not offered the same for taxation. The AO dealt in detail the taxability of sale proceeds arising out of the sale of CERs and held the same to be a revenue receipt since the CERs are a tradable commodity and even quoted in stock exchange. The CIT(A) confirmed the order of the AO and also gave a finding that the said income of the assessee cannot be considered as income from business for the purpose of entitlement for deduction u/s. 80IA of the Act. 

Carbon credits are not taxable – Hyderabad ITAT

Genesys International Corpn. Ltd. v ACIT [ITA No.6903/Mum/2011 dtd 31.10.2012] Mumbai ITAT Background: Assessee has two undertakings, one located at SEEP2, Mumbai which is a SEZ unit and other located at Bangalore which is STPI unit. Both units are eligible for tax benefit under section 10A of the Act. The Finance Act, 2007 amended section 115JB with effect from 2008-09 for bringing the amount of income to which provisions of section 10A or 10B apply within the purview of MAT. Further, provisions of sub-section (6) of Section 115JB of the Act were inserted by Special Economic Zone Act, 2005 (SEZ Act) w.e.f. 10.2.2006 which provides that provisions of MAT would not apply to income from any business carried on by an entrepreneur or a developer in a unit or SEZ, as the case may be. The assessee reduced the income u/s 10A from MAT computation. The AO did not accept said contention of the assessee and held that the scope of Minimum Alternate Tax (MAT) was widened by including the income exempt u/s.10A/10B of the Income tax Act in the book profit. The AO stated that section 115JB(6) is applicable to an assessee claiming deduction under section 10AA of the Act and not an assessee claiming deduction under 10A of the Act. Ld CIT (A) after considering the submissions of assessee has confirmed the action of AO. 

10A & 10B benefit available even under MAT computation (prior to 1.4.2012) – Mum ITAT

Section 145 of the Income-tax Act, 1961 provides that the income of a person under the heads ”profit and gains of business or profession” or “income from other sources’ shall be computed in accordance with either cash or mercantile system of accounting that is regularly employed by the person. It further provides that the Central Government may notify in the Official Gazette, from time to time, accounting standards to be followed by any class of taxpayers or in respect of any class of income. Since the introduction of this provision in the Act, the Central Govt has notified two standards in 1996: (a) Accounting Standard I, relating to disclosure of accounting policies; and (b) Accounting Standard II, relating to disclosure of prior period and extraordinary items and changes in accounting policies. Subsequently, CBDT constituted the Committee to harmonize the Accounting Standards issued by ICAI with the provisions of the Act and also to suggest amendments to the Act necessitated by transition to IFRS. 

Tax Accounting Standards: Key Differences

Apollo Consulting Services Corporation v DIT [ITA No: 2983 (Mum) of 2010 dtd 27 July 2012] Mumbai ITAT Background: M/s. Apollo Consulting Services Corporation (hereinafter referred to as ACSC) is a non-resident company incorporated in USA. ACSC and IBM (based in USA) had entered into a Global Agreement which is also known as ‘Base Agreement’ on 11.01.2002. By virtue of this agreement, ACSC agreed to provide IBM, USA and its global subsidiaries certain services. In the background of the Base Agreement, IBM India made deal with ACSC through IIC Systems Private Limited, India (hereinafter referred to as ISPL) for the services to be performed in the USA. During the previous year, as per the agreement between IBM India and ISPL, ACSC provided technical manpower to IBM in USA according to its requirements. Thus, the link between the three entities was that, purchase orders are issued by IBM to ISPL who in turn passed that to ACSC. The entire arrangement was for providing skilled manpower in USA. 

Recruitment service is not “Technical Service” – Mumbai ITAT

Based on the recommendations of Supreme Court in the case of CIT Vs. Glaxo SmithKline Asia (P) Ltd. (195 Taxman 35) (SC), Finance Minister introduced transfer pricing regulations applicable to specified domestic transactions in Finance Act, 2012. Please find attached in the link below an overview of the Domestic Transfer Pricing regulations applicable with effect from Assessment Year 2013-2014 Click here to download the overview

Domestic Transfer Pricing Overview

DDIT v Lucent Technologies International Sales Ltd [IT Appeal No. 4054 (Delhi) of 2011 dtd 24.08.2012] Delhi ITAT Background: During the year under consideration, the assessee supplied telecom equipments to various companies. In its return of income for A.Y. 2006-07, the income from services rendered in India was offered to tax. However, income from offshore supplies made to Indian customers was not offered to tax. A survey u/s 133 A of the Act was carried out on 22.2.2009 at the office premises of Alcatel Lucent India Ltd. located at New Delhi and Gurgaon. Based upon the documents found, statement recorded during and after the survey and subsequent discussions, it was held in the assessment order of Alcatel Lucent France, for assessment year 2006-07 that various Alcatel Lucent Overseas entities including the assessee had a permanent establishment (PE) in India. The AO determined net income chargeable to tax as attributable to PE in India @ 2.5% of the sales made by the assessee in India. Accordingly, assessment was framed at an income of Rs.6,55,033/- and also levied the interests u/s 234A, 234B and 234C. Before the CIT (A), the assessee questioned the levy of interest u/s 234B by the AO at Rs. 3,46,360/-. The CIT(A) being convinced with the contention of the assessee has deleted the interest levied u/s 234B.

Advance tax not required to be paid (for 234B calculation), if the payer defaults in ...

CIT v Pelican Investments (P.) Ltd. [ITA No: 3424 of 2010 dtd 21 August 2012] Bombay High Court Background: The assessee by an agreement dated 7th November, 1984 with Hotel Leelaventure Limited (HLL) was granted a licence to occupy a shopping arcade for a period of 11 years. The assessee was required to pay to HLL, compensation for the said licence commencing from the date of occupation certificate, at the rate of Rs. 150/- per sq. mtr. per month during the period of the licence. Thereafter, the assessee and HLL entered into a fresh agreement dated 24th January, 1999, by which HLL granted the assessee further licence in respect of the same premises for a period of 10 years. The assessee filed its return of income on 29th October, 2006 for , declaring a total loss of Rs. 48,626/-. The AO made an order under section 143(3). The annual value under section 23(1)(a) was computed at Rs. 60,27,027/-. A deduction under section 24 at 30% amounting to Rs. 18,08,108/- was allowed. The AO, accordingly, assessed a sum of Rs. 42,18,919/- to be income from house property.

In the absence of renewal clause in the lease agreement, subsequent agreement cannot be merged ...

Justice Sam Bharucha v Addln CIT [ITA No. 3889/Mum/2011 dtd 25/07/2012] (Mum ITAT) Background: During the year (AY 2006-07), the assessee has earned dividend of Rs 30,43,306 from mutual funds and Rs 6,71,468 from shares besides interest on RBI ta-free bonds of Rs 13,73,750 which are exempt income. The AO disallowed a sum of Rs2,26,581 under section 14A by applying RUle 8D by following decision of Mumbai ITAT in the case of Daga Capital Management Pvt Ltd. On appeal, the CIT(A) confirmed the disallowance made by the AO.

If no expense incurred in relation to exempt income, no 14A disallowance – Mum ITAT

Sonata Information Technology Ltd. v DCIT [ITA NO. 1507 (MUM.) OF 2012 dated 7.9.2012] (Mum ITAT) Background: The assessee is a company engaged in the business of purchase and sale of software. Assessee made a payment of Rs. 199,79,11,595/- for purchase of software from persons who are resident in India. The Assessee did not deduct tax at source while making payment towards such purchases.  According to the AO, the payment is in the nature of Royalty because it was for a right to use software and therefore the Assessee ought to have deducted tax at source and since the Assessee had not so deducted tax at source, the sum in question was not allowed as deduction under the provisions of Section 40(a)(ia) of the Act. The CIT(A) also confirmed the addition.

Amendment in definition of royalty does not extend to disallowance u/s 40(a) – Mum ITAT