CIT v Deutsche Post Bank Home Finance Ltd. (ITA No. 312 OF 2012 (dtd 2.7.2012) (Delhi HC) Background: Assessee is a 100% subsidiary of one BHW Holding AG, Germany (‘Holding Company’) and is engaged in the activity of housing finance. By two letters dated 24.09.2004 and 04.02.2005, the Holding Company granted subvention assistance to the assessee to an extent of Euro two million i.e. equivalent to Rs. 11,22,38,874/-. This was done on the evaluation of the Holding Company, that the assessee was likely to incur losses which would be substantially if not entirely eroded. The AO held that the subvention receipt was by way of casual receipt in order to assist the assessee to continue its business operation and therefore rejected the assessee’s contention. The assessee preferred an appeal to the CIT(A) who accepted the assessee’s contention holding that the money received could not be taxed as it was akin to a gift, and Gift Tax had been abolished. The Revenue appealed to the ITAT. The ITAT held as under:
Business expenditure/income
Harshad J Choksi v CIT (Income Tax Appeal No. 43 OF 1997 dated August 14, 2012) (Bom HC) Background: The assessee is a stock and share broker. During the assessment year 1991-1992, the assessee sought to write off an amount of Rs.47.58 lacs as bad debts, due to breach committed by 3 members of the BSE. The AO held that the assessee was not entitled to claim the benefit of bad debts in respect of Rs.47.58 lacs, as the assessee has not satisfied the condition precedent as provided under Section 36(2) of the Act, which requires that the amount must be offered to tax in an earlier previous year. On Appeal, the Commissioner of Income Tax (Appeals) upheld the finding of the Assessing Officer to the extent of Rs.44.98 lacs after having allowed an amount of Rs.2.60 lacs as a business loss. On appeal before the Tribunal the assessee contended that even if the deduction is not allowable as bad debts under Section 36(1)(vii) of the Act, the aforesaid amount of Rs.44.98 lacs should be allowed as a business loss in computing the profits and gains earned in carrying on a business. The Tribunal held that once an assessee has made a claim for loss on account of bad debts then unless the assessee fulfills the requirements of Section 36(2) of the Act, the benefits of the same cannot be extended to the assessee.
Bad debts if not allowable u/s 36(2), would be allowable u/s 37 – Bombay HC
Sri Venkatesh Paper Agencies (Hyd.) (P.) Ltd. [ITA No.: 636 (Hyd) of 2011] (Hyderabad ITAT) Background: The assessee is engaged in the business of paper and boards. During the course of assessment proceedings, the AO found that the assessee has claimed interest payment of Rs. 3,12,600 to M/s. Sinermas Pulp & Papers Ltd. without deducting tax at source. The assessee contended that the amount of Rs. 3,12,600 was paid as interest on the overdue bills and that the payment of interest was not on a deposit or loan but on purchases. Therefore, it is not required to deduct tax at source. The AO however, did not accept the explanation of the assessee and disallowed the sum of Rs. 3,12,600 u/s. 40(a)(ia) on the reasoning that whether the assessee paid the interest in respect of delayed payment of purchases or deposits or loans it has to deduct tax at source as per the provisions of the Act. CIT(A), came to held that the definition of the term interest as given in section 2(28A) of the Act would mean interest payable in any manner in respect of any monies borrowed or debt incurred and held that the definition of interest is wide enough to take within its ambit the debt owed by the assessee on account of overdue bills.
Interest on trading liability not subject to TDS u/s 194A – Hyderabad ITAT
DCIT v Prithvi Prakashan (P.) Ltd. IT Appeal NO. 5189 (MUM.) OF 2006 (Mumbai ITAT) Background: The assessee had purchased 17 Iron Rolls used in Steel Industries from M/s. Indore Steel & Iron Mills Ltd. (ISIM) for a sum of Rs. 34,97,500/- on 25.3.1993. These rolls had been purchased by ISIM for a sum of Rs. 36,88,540/- in 1991. The assessee vide lease agreement dated 27.3.1993 had leased these rolls to ISIM for a period of three years commencing from 27.3.1993. At the time of original assessment dated, the AO noted that there was no physical movement of iron rolls which remained with ISIM. No physical possession was handed over by ISIM to the assessee. Further, prior to the purchase by the assessee these were heavily depreciated due to use by ISIM. The assessee had claimed depreciation of Rs. 17,48,750/- @ 50% of the normal rate for 100% of depreciation The AO held that it was a case of simple loan transaction which had been given the colour of lease transaction to reduce tax liability of the assessee. In appeal, the CIT(A) allowed claim of depreciation in order dated 28.6.1996. In further appeal, the Tribunal in the order dated 30.1.2004 in ITA No. 5840/Mum/2006 noted that the authorities below did not examine as to what happened to the leased assets on expiry of lease period and therefore, set aside the order of CIT(A) and restored the matter to the file of AO for passing a fresh order.
Mumbai ITAT lays down tests for determining whether sale & leaseback is a sham transaction!
CIT v HSBC Securities & Capital Markets India (P.) Ltd. [ITA No: 657 OF 2007] (Bombay HC) Background: The assessee filed its return of income showing loss of Rs. 1,65,29,711 comprising of loss of Rs 1,72,31,711 arising out of the purchase and loss of shares and income from other sources of Rs 7,02,000. The AO passed assessment order under section 143(3) holding the aforesaid loss as speculation loss by virtue of explanation to section 73. Before the CIT(A), the assessee argued that “the explanation refers to the words “income which is chargeable under the heads” and since in the Appellant’s case, the only income which is included in gross total income is dividend income, the gross total income mainly consists of “Income from other sources” and therefore, explanation does not apply to Appellants case.“ The CIT(A) partly allowed the assessee’s appeal. However, the ITAT reversed the claim of assessee and invoked explanation to section 73 to treat the aforesaid loss as speculation in nature.
Bombay HC clarifies position on applicability of Explanation to S. 73
Krishak Bharati Cooperative Ltd v DCIT [IT APPEAL NO. 205 OF 2010 dtd 12.07.0212] Delhi High Court Facts of the case: The assessee had entered into a lease agreement with NOIDA on 06.01.1989 by which the land in question was demised for a period of 90 years. The assessee was entitled to construct an office complex on the land. The assessee was required to pay premium of Rs. 2,53,96,993/- to NOIDA at the time of the allotment, or demise. In addition, under the lease deed, the assessee had to pay annual lease rent @ 2.5 per cent of the premium. The lease rent could be enhanced after 12 years. The assessee amortized the expenditure by way of premium over the period of lease, and claimed deduction of Rs. 2,75,045/- in the assessment year. The AO held that lease of land for 90 years conferred a benefit of enduring nature to the assessee, particularly in the light of the definition of the expression “immovable property” furnished in section 269UA(d)(i) and, consequently, it was in the nature of capital expenditure. This amount was, as a result not allowed as deduction.
Lease premium paid in respect of 90 years’ lease is not a revenue expenditure – ...
UE Trade Corporation (India) Ltd v DCIT [ITA No.2303/Del/2011] (Delhi ITAT) Background: The assessee was engaged in trading in agricultural products. During the course of assessment proceedings from the tax audit report in Form No.3CD, the Assessing Officer noted that the tax auditor had quantified the amount of 40,41,233/- disallowable under sec. 40(a)(ia) of the Act. However, in computation of income the assessee had added back only Rs.20,16,778/-. The remaining amount of Rs.20,24,455/- was therefore, disallowed by the Assessing Officer.
No disallowance u/s 40(a)(ia) for short deduction of TDS – Delhi ITAT
ACIT v Result Services (P) Ltd [IT Appeal NO. 2846 (DELHI) OF 2011] (Delhi ITAT) Background: The assessee company is a 100% subsidiary of the holding company M/s McCann-Erickson (India) Pvt. Ltd. M/s McCann Erickson has taken on rent office premises in Delhi and Mumbai vide separate lease deeds with the landlords. M/s McCann has permitted common use of the above premises by the assessee company. The full rent for the premises have been paid directly by the holding company to the landlords after deducting tax at source u/s 194-I of the Act. During the year under consideration, the assessee paid Rs. 56,23,456/- to M/s McCann towards its portion of rent on account of the above use of office premises. The AO has disallowed the above payment u/s 40(a)(ia) by holding that TDS should also have been deducted by the appellant company on the above amount u/s 194-I of the Act.
Reimbursement of rent not subject to TDS u/s 194-I – Delhi ITAT
M/s Spencer & Co Ltd v ACIT [2012-TIOL-370-ITAT-MAD-TM] (Chennai ITAT) Background: The asseessee M/s Spencer and Company Ltd, had filed its return of income u/s 139(1) for assessment year 2002-03, on 30.10.2002. M/s. Spencer Industrial Fund Ltd. (SIFL) was amalgamated with the assessee company with effect from 1st April, 2001. Consequently, the assessee company revised its return u/s 139(5) by filing a return on 23.11.2003 disclosing information regarding amalgamation of SIFL with it. The AO observed that there was a direct nexus between loans obtained and investments made, expenditure incurred in relation to exempt income was not deductible u/s 14A. The assessee’s income was subject to income escapement proceedings and, a notice u/s 148 was issued. Pursuant to the amalgamation, the assets and liabilities of SIFL got vested with the assessee company and were recorded at their fair values. The excess of fair value of net assets over the paid up value of allotted equity shares worked out to Rs. 2,899.68 lakhs. This surplus amount was transferred by the assessee to its General Reserve Account. The CIT observed that this surplus amount of Rs. 2,899.68 lakhs was not subjected to tax as business income under section 28(iv) and thereafter, initiated revision proceedings u/s 263.