Apoorva Patni v ACIT IT APPEAL NOS. 192, 193, 239 & 273 TO 276 (PN) OF 2011 (Pune ITAT) Background: The assessee filed her return of income for the assessment year 2006-07 declaring a total income of Rs 13,95,40,653/- under various heads of income, viz. income from house property, business income, capital gains and income from other sources. The income declared under the head capital gains included short term as well as long term capital gain on investments made through the PMS providers. Besides, the assessee has also declared capital gains, both long term and short term, from direct dealing in mutual funds, investments also. Apart from the aforesaid dealings in shares and securities, the assessee also had a portfolio wherein income from share and securities transactions was declared as business income. In this factual background, the Assessing Officer treated the short term as well as long term capital gain earned through the investments made through PMS providers amounting to Rs 3,86,38,849 as income which was liable to be assessed as ‘business income’ and not under the head ‘Capital gains’. The Commissioner of Income-tax (Appeals) has, however, upheld the contentions of the assessee that the gain from investments made through the PMS provider was assessable under the head capital gains.
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Armstrong World Industries Mauritius Multiconsult Ltd., In re A.A.R. NO. 1044 OF 2011 (dtd 22.08.2012) Background: Armstrong World Industries Mauritius Multiconsult Ltd (Armstrong Mauritius) is a wholly owned subsidiary of Armstrong World Industries Limited United Kingdom (Armstrong UK). Armstrong UK in turn is a fully owned subsidiary of Armstrong USA. The Armstrong Mauritius was incorporated in Mauritius in the year 1999. It is a tax resident of Mauritius. Armstrong World Industries India (Pvt.) Limited (Armstrong India) was incorporated in India in the year 1999 as a wholly owned subsidiary of Inarco Ltd., an Indian company. Inarco Limited was engaged in the business of production of textile machine parts and floorings. Armstrong UK, through the applicant, was holding 50% of the share capital in Inarco Limited. Pursuant to a scheme of amalgamation, approved by the High Court of Bombay, the flooring business of Inarco Limited was transferred to Armstrong-India. In consideration of that transfer of business, Inarco Limited was allotted 3,60,000 shares of the value of Rs. 10/- each in Armstrong India. Subsequently, Inarco Limited transferred to Armstrong Mauritius 36,00,000 shares of Rs. 10 each of Armstrong India. This resulted in Armstrong Mauritius holding 99.97% of the share capital of Armstrong India. The other 0.03% of the shares therein are held by Armstrong UK.
AAR disregards Revenue’s arguments for treating Mauritian company as conduit company
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!
DCIT v KRA Holding & Trading Pvt. Ltd. (ITA NO. 240/PN/2011) [ITAT Pune] Background: The assessee during the year under consideration had claimed an amount of Rs. 2,11,95,334 as portfolio management fees paid to the portfolio managers. The same was made in terms of investment management agreement made on 01-01-2005. During the course of assessment proceedings, the AO was not convinced with the explanation given by the assessee and noted that similar issue was decided against the assessee for assessment year 2004-05 to 2006-07 wherein the payments has been disallowed and added back to the business income of the assessee. Therefore, he disallowed the payment treating the same as termination fees computed on profit sharing basis and not specifically provided in the agreement and not as per SEBI rules and regulations. The CIT(A) observed that the assessee has not shown the fees paid to the portfolio managers as an expenditure in the P&L account. The same has been loaded on the purchase price of shares, which are either sold or carried forward to next year and concluded that these expenses are not allowable under either of the heads for the reason that they are against the guidelines of the SEBI and are also not allowable under the head ‘capital gains’.
PMS Fees are allowable as deduction from capital gains – Pune ITAT
CIT v Vaibhav j Shah (HUF) [Tax Appeal No: 77/78 of 2010] [Gujarat HC] Background: The assessee offered the gains from buying and selling shares as LTCG/ STCG. The AO held that the assessee was “dealing heavily in shares” with high frequency and magnitude and that the gains were assessable as business profits. This was reversed by the CIT (A) and Tribunal.
Tests for determining taxability for dealing in shares as Capital Gains OR Business income – ...
DIT v Credit Suisse First Boston (Cyprus) Ltd. [IT APPEAL NO. 1026 OF 2011] (Bombay HC) Issue 1: Whether Interest accrued but not due on the balance sheet date is taxable Background: The assessee is a company incorporated in and is a tax resident of Cyprus. It carries on business of banking and was, at the relevant time, registered in India with the Securities & Exchange Board of India (SEBI) as an approved sub-account of Credit Suisse First Boston, a Foreign Institutional Investor (FII). SEBI had permitted the assessee to invest in India exclusively in debt-securities, including Government securities. The assessee follows the mercantile system of accounting. The assessee filed its return of income for the assessment year 2001-2002 on 31st October, 2001, declaring a total income of Rs.5,94,28,493 comprising of interest income from securities and claimed exemption in respect of income on sale of securities. The AO held that Rs.1,21,57,517/- is required to be taxed as interest accrued though not due on securities held by the assessee as on 31st March, 2007, being the last date of the financial year. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted both the additions. The ITAT upheld the order.
Taxability on “Interest accrued but not due”; Excess amt received on sale of govt securities ...
Jeans Knit (P.) Ltd v DCIT [ITA No: 19 & 23 (BANG.) OF 2010] (Bangalore ITAT) Background: The assessee is a 100% export oriented undertaking and is engaged in the business of manufacturing and export of garments. During the relevant financial year, the assessee made remittances to M/s Sharp Eagle International Ltd. (SEL), a non-resident company incorporated in Hongkong. The AO observed that the assessee made these remittances without deduction of tax at source as per provision of sec. 195(1) read with sec. 9(i)(vii) of the Act. The assessee submitted that SEL was acting on directions of the assessee for inspection of fabrics, timely dispatch of material etc. and for these services, the assessee paid 12.5% of imported value as charges to the non- resident company. The AO held that the charges paid to the non-resident company are fees for technical services (FTS) as defined in explanation 2 to sec. 9(1)(vii) and therefore, held the assessee to be defaulter u/s 201(1A) for non deduction of tax. The assessee filed an appeal before the CIT(A) and the CIT(A) also upheld the order of the AO.
Payment to overseas agent is not FTS – Bangalore ITAT
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.