Jafferali K. Rattonsey v DCIT [IT APPEAL NO. 5068 (MUM.) OF 2009 dated 25.1.2012] (Mumbai ITAT) Background: The assessee had claimed exemption for Long Term Capital Gain of Rs. 4,94,51,910/- on account of sale of shares u/s.10(38) of the I.T. Act. During the course of assessment, the assessee furnished demat account, brokers’ note and bank account statements to substantiate his claim u/s 10(38). AO noted that shares are dematerialized immediately before the date of sale i.e. either on the same date of sale or 2 to 3 days before the sale of shares. The AO contended that the date of purchase can be considered only as date of dematerialization in the Demat Account with Techno Shares and Stocks Ltd. Price of the shares on the date of dematerialization would then become the purchase price of the assessee. The sale was held to be short term capital gains. CIT(A) upheld the decision of AO in this context
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Prakash Leasing Ltd v DCIT [ITA Nos 301,302 & 491 OF 2007] (Karnataka High Court) Background: The assessee was a non-banking financial company. The assessee received a sum of Rs. 11.84 crores as the lease rentals. The assessee had deducted a sum of Rs. 4.35 crores representing the lease equalization account from lease rentals of Rs. 11.84 crores. It contended that the lease equalization charges should not be added as income. The assessing authority disallowed the said claim on the ground that the same was neither a liability, nor an allowance and nor an expenditure. He held that same was just a matching entry for the purpose of tallying the accounts with regard to the assets leased out. He was also of the opinion that the said claim was made for the first time during the year and also that the depreciation was provided in the books and the lease income was recognized.
Lease Equalisation Charges – Accounting standards of ICAI to be followed – Karnataka HC
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.
Surplus on amalgamation not taxable u/s 28(iv) – Chennai ITAT
The Director General of Income-tax has issued draft guidelines in respect of the General Anti-Avoidance Rules (GAAR) vide letter dated 28.06.2012. GAAR is scheduled to become applicable with effect from 1 April 2013. The guidelines contain procedures for implementation of GAAR and illustrations to clarify the application of GAAR provisions. Click here to download the draft guidelines
Draft GAAR guidelines providing procedures and clarifications/ illustrations dtd 28.06.2012
CIT v Epsilon Advisers (P.) Ltd. [IT APPEAL NO. 23 OF 2006 dtd. 13.06.2012] Karnataka High Court Background: The assessee is a private limited company providing consultancy services in electronic and telecommunications. In the return filed for AY 2001-02, the assessee had claimed deduction for write-off of Rs 75.00 lakh as inter-corporate deposit (deposited with M/s BPL Wireless Telecommunication Services Ltd (BWTL) and the Rs 5.34 crore as interest free advance. As M/s BWTL has closed down its business, the assessee-company had claimed bad-debts u/s 36(1)(vii) for the aforesaid amounts. The assessee held substantial interest by way of investment in sharesin BTWL. The AO allowed the amount of inter-corporate deposit of Rs 75 lakhs as an amount irrecoverable and but did not agree for allowing the balance of Rs 5.34 crore also as bad debt for the reason that amount cannot be considered as part of an advance made in the course of money lending activity. The AO also reasoned that there was no semblance of a lending activity for this advance is concerned. The advance was not evidenced by way of any supporting documents and no security or surety had been obtained. Even the shares held by the assessee-company in M/s BWTL were not treated as part of stock-in-trade, but as long term investment in that company and therefore lending of a sum of Rs 5.34 crore by the assessee company cannot be considered as part of any business activity.
Write-off of loans to sister concern not allowable u/s 36(1)(vii) unless it is a business ...
CIT v Bovis Lend Lease (India) (P.) Ltd. IT Appeal Nos. 15 to 22 of 2010; IT Appeal Crob. NoS. 2 to 9 of 2011† [Karnataka High Court] Background: The assessee, a private limited company, carrying on the business of project and construction management entered into a management services agreement LLAH, Singapore. Under the agreement, LLAH was to provide services like administration, personnel, legal, finance and accounting information, marketing support, insurance matters, treasury management and information technology to the assessee. LLAH filed applications under Section 197 of the Act. LLAH furnished copies of the invoices raised by them to the AO. It was contended that the consideration paid under the agreement is by way of reimbursement of actual expanses. The assessing authority issued certificates authorizing the payment without deduction of tax. Later, the Authority issued a notice under Section 201 calling upon the assessee to show cause as to why he should not be treated, as an assessee in default under Section 201(1) and also why interest should not be levied under Section 201 (1A) as the assessee has not deducted tax as required under Section 195(1) of the Act at the time of making a credit entry. The assessing authority held that the intention of the assessee was to get the benefit of LLAH’s expertise and experience in management services. The consideration was paid for such services.
NIL-Deduction Certificate issued u/s 197 provides immunity to the payer, even if the sum is ...
Mainetti India (P.) Ltd. v. ACIT [IT APPEAL NO. 1789 (MDS.) OF 2011] Chennai ITAT Background: The assessee is in the business of manufacturing plastic garment hangers. As the assessee is a part of the Mainetti global group, it used to buy and sell the hangers from/ to its group concerns. The assessee has purchased from its AE in Hongkong, Srilanka, Malayasia, Pakistan and RANDY Asia and has sold to its AE in Srilanka, Korea, Hongkong, Gulf, Egypt, Bangladesh, Malayasia, Taiwan, UK and Pakistan. On the purchase, the assessee has a positive differential i.e. the assessee purchases at a lower price from its AE than the non-AE and when its sales to the AE, its selling price is lower than the selling price as compared with the non-AE When computing the ALP, the AO had taken into account only those transactions where the sale price to Associate Enterprise (AE) was lower than the sale price to non-Associated Enterprise (non-AE) and ignoring the instances where the purchase-price from and sale price to AE exceeded the purchase-price from and the sale price to non-AE. Thus, while applying CUP method for determining the ALP, TPO had considered only positive deviations and had ignored negative deviations.
TP Update: Both positive & negative adjustments to be considered while computing ALP – Chennai ...
Dongfang Electric Corporation v DDIT (I.T.A. No.: 833/Kol/2011) Kolkata ITAT Background: The Assessee, a Chinese company, had entered into contracts with Indian entities for setting up of turnkey thermal power projects. Each of these contracts were divided into two parts – one for supply of equipment and materials of thermal power plant and second for erection and services of units of main plant along with some common facilities.The Assessee had a project office in India which constituted a permanent establishment (PE) for the assessee in India under the India-China DTAA. The consideration receivable by the assessee was separately provided in respect of (i) offshore supply of equipment, spare parts and tools outside India (offshore supply) and (ii) for local supply, design, engineering, construction, erection, installation, testing and commissioning of thermal power units (onshore activities).
Taxation of composite contracts including offshore supply of equipments – Kolkata ITAT
DCIT v Spark Hotels (P.) Ltd. IT Appeal NO. 4631 (DELHI) OF 2011] (Delhi ITAT) Facts of the case The assessee company was engaged in the business of running hotel. Assessee derived income only from interest and dividend in the year under consideration while the assessee paid salary of Rs. 36 lacs to its director Shri Patanjali Keswani, Director @ Rs. 3 lacs per month. The AO disallowed an amount of Rs. 30 lacs, invoking the provisions of sec. 40A(2)(a) of the Act, considering the salary of Rs. 50,000/-pm paid to shri Keshwani, reasonable.