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).
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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.
Deemed dividend provision is a legal fiction; but does not enhance the definition of shareholder ...
Cairn UK Holdings Ltd v DIT [2013] 38 taxmann.com 179 (Delhi) IT/ILT : Proviso to section 112(1) doesn’t deny benefit of lower tax rate of 10% on long-term capital gains from sale of listed securities to a non-resident investor availing benefit of exchange rate neutralization under first proviso to section 48. The said benefit of lower tax rate of 10% can’t be denied on the ground that indexation benefit under 2nd proviso is not applicable. It is incorrect to say that 10% rate under proviso to section 112(1) applies only where indexation benefit under 2nd proviso to section 48 applies and still assessee opts to not avail it
Benefit of first proviso to sec. 48 r.w. sec. 112 concessional rate is available to ...
ADIT v WNS North America Inc [ITA No 2944/Mum/2012 (Mum ITAT) dated 31.07.2013] Background: The assessee is a foreign company and tax resident of United State of America. The assessee is inter alia engaged in the business of rendering marketing and management services to WNS Global Services Pvt. Ltd. which is its associated enterprise in India. The assessee has entered into marketing and management services agreementwith WNS India. During the year under consideration the assessee has received an amount of Rs.68,15,11,339 towards marketing and management services rendered by it to WNS India. Since the assessee’s employees visited India for providing managerial services, therefore WNS India constitutes service PE under Article 5(2)(1) of Indo-USA DTAA. Accordingly an amount of Rs.6,52,13,074/- has been attributable to such service PE for managerial service rendered in India and which has been declared by the assessee in its return of income for the year under consideration.
Management & marketing services do not make available technical services & therefore, not taxable – ...
M/s GOLDEN TOBACCO LTD v Addln CIT ITA No.3198/Mum/2011; ITA No.5213/Mum/2010 dtd 26.06.2013 – Mum ITAT Background: Assessee has given interest-free advances to various sister concerns or other concerns totalling to Rs.2,68,61,882. Assessee during the course of assessment proceedings these advances are for business expediency or given out of its own funds. The AO did not accept the explanation of the assessee and observed that no explanation has been given in respect of Luster Print Media Limited and Dalmia Fresenius Limited. The AO considered these interest free loans as given for the purpose other than business. In respect of other parties also the A.O. noticed that the assessee has not given satisfactory reply in respect of interest free advances / loans. Therefore, he disallowed at the rate of 20% on the interest-free loans.