P.T. McKinsey Indonesia v DDIT IT APPEAL NO. 7625 (MUM.) OF 2010 (dtd 16.1.2013) (Mum ITAT) Background: Assessee, a foreign company, engaged in the business of providing Strategic Consultancy Services filed its return of income on 27-10-2007 declaring NIL income. During the assessment proceedings, AO found that assessee had claimed to have received a sum of Rs. 23.41 Lakhs under the head ‘Business Receipts’. AO held that the payments received by the assessee were in the nature of consideration received for rendering of technical and consultancy services so as to make available technical knowledge, skill, know how, experience or process and thus was in the nature of fees for included services as covered by Article 12 of the DTAA between India and Indonesia’.
Monthly Archives: January 2013
India Capital Markets (P) Ltd v DCIT IT Appeal No. 2948 (Mum.) of 2010 dtd December 12, 2012 (Mum ITAT) Background: Assessee is a share broker and the main source of income is generated through brokerage. During the year, the assessee has purchased entire clientele business of M/s. Ashmavir Financial Consultants Pvt. Ltd. (AFC) by assigning all clients to the assessee for a consideration of Rs. 2.50 crores . Assessee booked these expenses as purchase of goodwill and has claimed 25% of depreciation amounting to Rs. 62,50,000 thereon. After considering the provisions of section 32, AO was of the opinion that in the said provision, it is apparently clear that goodwill as such does not find any reference and accordingly, disallowed the claim of depreciation on account of goodwill at Rs. 62,50,000.
Purchase of clientele data is intangible/ goodwill eligible for depreciation – Mum ITAT
Natco Pharma Ltd v DCIT [ITA No 377 (Hyd) of 2009 & 487 of 2010] (Hyderabad ITAT) Background: Assessee has written off a sum of Rs. 5,70,09,063 towards creditor advances pertaining to 461 parties. During the assessment proceedings, the assessee could furnish the desired details sought for by him only in respect of two parties. In respect of the remaining 459 parties, the assessee merely furnished the names of those parties. It could not furnish the address of those parties. The assessee has submitted that advances were made to those parties either for supply of material or for rendering services. The assessee has claimed that those parties have failed to supply goods/render services and the advance amount could not be recovered from them. The AO held that the said amounts are not bad debts and hence provisions of section 36(2) are not applicable to the same. Further, the assessee has not filed account copies of those parties and therefore, the claim of the assessee for deduction of the amount of Rs. 5,21,62,330 cannot be allowed.
Bad debts: Mere write-off in the books is not sufficient – Hyderabad ITAT
LG Electronics India Pvt Ltd v ACIT (Delhi ITAT) (SB) Background: L.G. Electronics Inc, a Korean company, set up a wholly owned subsidiary in India (the assessee) to which it provided technical assistance. The assessee agreed to pay royalty at the rate of 1% as consideration for the use of technical know how etc. The Korean company also permitted the assessee to use its brand name and trade marks to products manufactured in India on a royalty-free basis. The AO, TPO & DRP held that as the Advertising, Marketing and Promotion (“AMP expenses”) expenses incurred by the assessee were 3.85% of its sales and such percentage was higher than the expenses incurred by comparable companies (Videocon & Whirlpool), the assessee was promoting the LG brand owned by its foreign AE and hence should have been adequately compensated by the foreign AE.
TP: Landmark judgement for benchmarking advertising exp – Del ITAT (SB)
Shri Irfan Abdul Kader Fazlani vs ACIT I.T.A. NO.8831/M/2011 (Mum ITAT) Background: Assessee is a shareholder in M/s. Kamala Mansion Pvt. Ltd (KMPL). Along with other shareholders of this company, the assessee sold his shares for a consideration of Rs. 37.51 lakhs and capital gains were offered on that basis. KMPL owns two flats in a building known as Om Vikas Apartments situated at Walkeshwar Road, Mumbai and the said flats are regularly given on rent and the rent is declared by KMPL as ‘income from the house property’. Assessee sold his 306 shares for a sum of Rs. 37,51,369/ and earned long term capital gains. AO held that by engineering the sale of the shares of all other shareholders of M/s. KMPL, the assessee effectively transferred the immovable property belonging to the assessee, therefore, it is an indirect way of transferring the immovable properties for lesser consideration and, therefore, the provisions of section 50C of the Act have application to the facts of the case and consequently, AO applied the guideline prices of the flats and worked out the capital gains. Further, AO treated this case as an eligible case for piercing of corporate veil. He accordingly ‘pierced the corporate veil, invoked s. 50C and computed the capital gains by adopting the stamp duty value of the flats.
50C is not applicable where property is indirectly sold by way of trf of shares ...
Shavo Norgren (P) Ltd Vs DCIT ITA No.8101/Mum/2011 dtd 14.12.2012 [Mumbai ITAT] Background: Assessee had taken a plot of land on lease from MIDC in the year 1967 for a lease of 95 years commencing from 1st January, 1967. Assessee had also paid premium to MIDC as per their rules prevalent at that time. In the previous year 2007-08 assessee entered into a MOU for transfer of part of the said land on 9th April 2007, received an advance of Rs.30 lacs and applied to MIDC for their consent. The two plots together with Building thereon were transferred for a total sum of Rs.2,01,57,606. Assessee worked out capital gain of Rs.1,60,38,687 after deducting the value of building at Rs.14,30,220/- and the market value as on 1/4/1981 increased by indexation cost to Rs.26,88,699. The AO applied Sec. 50C of the Income tax Act and considered the market value of the plot of land at Rs.2,39,91,000 and considered this as long term capital gain for the purpose of computation of income.
Section 50C applicable on transfer of leasehold rights over land – Mumbai ITAT
Woodland Associates (P.) Ltd. v ITO [ITA No. 5031 (Mum.) of 2011] Mumbai ITAT Background: Assessee during the year had credited the sum of Rs. 4,52,000/- on account of rent. The flats had been let out to Ms. Rekha Jalan, Managing Director of the company for a sum of Rs. 26,000/- per month and Ms. Snehal Jalan who is her daughter at a monthly rent of Rs. 12,000/-. Ms. Rekha Jalan held 81.71% shares in the company whereas Ms. Snehal Jalan held 13.33% shares. The assessee had declared income from property as business income and the actual rent received had been shown as annual value. The property had been held as a business asset and as per memorandum of association, it was business of the company to let out properties. The AO stated that leasing out the property could not be considered as trade or commerce. AO referred to the judgment of Hon’ble Supreme Court in the case of Shambhu Investments (P.) Ltd. v. CIT [2003] 263 ITR 143/129 Taxman 70. He, therefore, assessed the rental income under the head “house property”. As regards the fair rental value, the AO contended that letting out the flats to the persons who were controlling the company was only an arrangement to reduce tax. AO after analyzing the comparative rates observed that the average rent charged in respect of similar flat in the same society was 125 per sq.ft. According to the AO, annual value which is defined as sum for which property may be let out from year to year would be the fair rent available in the market. CIT(A) held that the property was covered under Maharashtra Rent Control Act, 1999 and, therefore, Annual letable value had to be taken as standard rent and therefore, the AO was not justified in taking the market rent.
Rent from let out of flat to a director is Business Income – Mumbai ITAT
Rallis India Ltd v Additional CIT [IT APPEAL NO. 2464 (MUM.) OF 2010] (Mumbai ITAT) Background: The assessee-company declared short term capital gains on sale of flats u/s. 50 of the Act. Out of the flats sold, a flat was sold for a consideration of Rs. 1,65,00,000. The AO addressed a letter, u/s. 50C of the Income Tax Act, to Joint Sub-Registrar, Department of Stamp and Registration, Worli to furnish the value adopted by the Stamp Valuation Authority. The Joint Sub-Registrar informed that the stamp value of the said property was Rs. 1,86,01,380/-. Since section 50C of the Act speaks of the value adopted for stamp duty purposes, the addition of Rs. 21,01,380/- was made by the AO and the same was confirmed by learned CIT(A).
Stamp duty valuation u/s 50C applicable even in cases of depreciable assets – Mum ITAT
No deduction in certain cases – Specified payment under section 197A(1f) NOTIFICATION NO. 56/2012 [F. NO. 275/53/2012-IT(B)], DATED 31-12-2012 In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely:- (i) bank guarantee commission; (ii) cash management service charges; (iii) depository charges on maintenance of DEMAT accounts; (iv) charges for warehousing services for commodities; (v) underwriting service charges; (vi) clearing charges (MICR charges); (vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank. 2. This notification shall come into force from the Ist day of January, 2013.