The CBDT has issued Circular (No: 10/DV/2013) dated 16/12/2013 providing ‘Departmental View‘ on the controversial issue surrounding section 40(a)(ia) of the Income-tax Act, 1961. In case of Merilyn Shipping & Transports v Addln CIT /[2012] 136 ITD 23 (VISAKHAPATNAM), it was held that: “The word ‘payable’ used in section 40(a)( ia) is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words ‘amount credited or paid’ to ‘payable’. Hence, it has to be concluded that provisions of section 40(a )(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS.”
Yearly Archives: 2013
ITO v SMT BINA GUPTA [ITA No.4074/Del/2012 (dtd 18/10/2013) (Delhi ITAT)] Background: Assessee sold house on 13.06.2008 on which long term capital gain was shown at Rs.31,00,369. Deduction u/s 54 was claimed for entire capital gain on a/c of investment in house. Assessee has also sold a plot at Sradhapuri, Meerut on 10.11.2008 on which Long Term Capital Gain is shown at Rs.19,89,914/-. Deduction u/s 54F has been claimed for this entire amount on a/c of investment in the same houseas mentioned above. The AO found that the assessee had advanced monies to the builder on agreement and deposited money in capital gains scheme. The AO held that since no house had been purchased till the date of assessment order as two years period had lapsed, deduction u/s 54 and 54F was to be disallowed.
Deduction u/s 54-54F allowed if delivery of house could not be obtained but entire payment ...
eBay International AG v DDIT [IT APPEAL NO. 8907 (MUM.) OF 2010 dated 11.09.13] Mumbai ITAT Background: The Assessee is a company incorporated under law of Switzerland and is a tax resident of Switzerland. The assessee operated India specific websites (www.ebay.in and www.b2motors.ebay.in) that provides an online platform for facilitating the purchase and sale of goods and services to users based in India. The assessee has entered into marketing support agreements with eBay India and eBay Motors which are eBay group companies, for availing certain support services in connection with its Indian specific websites. Assessee earned revenues amounting to Rs. 12,00,39,045/- from the operations of these websites during the year. The assessee contended that these revenues are taxable as business profits in India as per the provisions of Article 7 of the Treaty only if the assessee has a permanent establishment (‘PE’) in India as per provisions of Article 5 of the Treaty i.e. DTAA. The assessee contended that did not have any PE in India and as such no amount would be taxable in respect of the consideration received from the operations of the above mentioned websites.
Distinction between ‘Dependant Agents’ & ‘Dependant Agent PEs’ brought out in eBay case – Mum ...
D. H. Securities Pvt. Ltd vs. DCIT (ITAT Mumbai) (Third Member) Background: The assessee claimed that as it was engaged in the business of trading in shares, its main object is to earn profit on purchase and sale of shares and not to earn dividend income from such shares. It claimed that the accrual of tax-free dividend on such shares was merely incidental to the holding of shares as stock-in-trade and that no disallowance could be made u/s 14A and Rule 8D. It also claimed that though the assessee had not incurred any direct or indirect expenditure to earn the said dividend, the AO had made the disallowance on a presumptive basis. The Division Bench referred the dispute to a Third Member in view of the difference of opinion between the Benches. Before the Third Member, the assessee relied on CCI Ltd 71 DTR (Kar) 141 , India Advantage Securities, Yatish Trading etc in which the law had been laid down that s. 14A & Rule 8D does not apply to securities held as stock-in-trade. The department reied on Godrej & Boyce Manufaturing Co 328 ITR 81 (Bom) (where it was held that Rule 8D is mandatory) and Daga Capital 117 ITD 169 (Mum) (SB) (where it was held that s. 14A applies to stock-in-trade).
Disallowance u/s 14A applicable even if shares are held as stock-in-trade – Mum ITAT (TM)
DIT vs. Infrasoft Ltd (Delhi High Court) Background: The assessee, a USA company, set up a branch office in India for the supply of software called “MX”. The software was customized for the requirements of the customer (not “shrink wrap”). The Indian branch imported the software package in the form of floppy disks or CDs and delivered it to the customer. It also installed the software and trained the customers. The AO & CIT(A) held that the software was a “copyright” and the income from its license was assessable as “royalty” under Article 12 of the India-USA DTAA. On appeal by the assessee, the Tribunal held, following Motorola 270 ITR (AT) (SB) 62, that the income from license of software was not taxable as “royalty”. Before the High Court, the Department argued that in view of CIT vs. Samsung Electronics345 ITR 494 (Kar), the right to make a copy of the software and storing it amounted to copyright work u/s 14(1) of the Copyright Act and payment made for the grant of a license for the said purpose would constitute royalty.
Non-transferable license to use software not taxable as “royalty” under Article 12 of India-USA DTAA ...
CIT v Gujarat State Fertilizers & Chemicals Ltd [Tax Appeal No. 126 of 2013 dated 25/06/2013] Gujarat High Court 14A Disallowance Background: The assessee earned dividend income from certain investments. The Assessing Officer stated that the onus was not discharged by the assessee to establish that the investment from where dividend has been received was out of its own funds and no borrowed funds have been utilised for making such investment on the basis of cash/fund flows statement. The AO on an estimated basis deducted 10% of the total dividend income as expenditure including the interest in relation to earning of exempt income and the sum of Rs.1,14,43,040/- was disallowed as per the provision of Section 14A of the Act.
No 14A disallowance of interest exp where owned funds exceed amount of investments & other ...
MAK Data P. Ltd vs. CIT [CIVIL APPEAL NO. 9772 OF 2013 (dated 30/10/2013)] – Supreme Court Background: Assessee filed his return of income for the AY 2004-05 declaring an income of Rs.16,17,040. During the course of assessment proceedings, AO sought specific information regarding the documents pertaining to share applications found in the course of survey, particularly, bank transfer deeds signed by persons, who had applied for the shares. The assessee made an offer to surrender a sum of Rs.40.74 lakhs with a view to avoid litigation and buy peace and to make an amicable settlement of the dispute. AO after verifying the details and calculations of the share application money completed the assessment and a sum of Rs.40,74,000/- was brought to tax, as “income from other sources”. The department initiated penalty proceedings for concealment of income and not furnishing true particulars of its income under Section 271(1)(c) of the Income Tax Act and imposed a penalty of Rs.14,61,547. The assessee challenged that order before the CIT (Appeals) which was dismissed.
Income offered to “buy peace” no longer a pretence to avoid penalty – Supreme Court
CIT v I.T.C. Ltd [IT APPEAL NO. 44 OF 2002 dated 4.09.13] – Allahabad High Court Background: Assessee was deducting tax on the estimated income of the employees including the travelling allowance upto January, 1993. For a period of two months, the assessee stopped deducting the amount on the ground that he held discussions with the Income Tax Officer. Assessee was treated as assessee in default u/s 201(1A) and was made liable to pay the interest on the amount of income tax, which was not deducted by the assessee from the conveyance allowance given to its employees under Section 192 (1) of Income Tax Act.
If tax is not deducted under a bonafide belief, payer cannot be treated as ‘assessee ...
CIT v Bikaner Cuisine Pvt Ltd [ITA No. 475/2013 dated 04.10.13] (Delhi HC) Background: Assessee – M/s Bikaner Cuisine Pvt. Ltd. was not a shareholder of BIPS Systems Ltd. The latter company i.e. BIPS Systems Ltd. had granted unsecured loan of Rs.49,25,000/- to the assessee. The Assessing Officer invoked provisions of section 2(22)(e) of the Income Tax Act, 1961 and made an addition of Rs.33,84,290/- as deemed dividend in the hands of the assessee. The reason given was that the assessee and BIPS Systems Ltd. had common shareholder, namely, Narender Goel, who held more than 10% shares in BIPS Systems Ltd. and more than 20% voting rights in Bikaner Cuisine Pvt. Ltd. However, the accepted and admitted position is that the company is not a shareholder in BIPS Systems Ltd.