ITO(TDS) v Jet Airways (India) Ltd. [IT APPEAL NOS. 7439, 7440 & 7441 (MUM) OF 2010] dtd 26.06.13 Mumbai ITAT Background: The assessee is a company engaged in the business of aviation. A survey action u/s 133A of the Act was carried out. After survey, proceedings were initialed u/s 201(1)/201(1A) of the Act in connection with the applicability of TDS on amounts retained by the banks in respect of air tickets booked through credit cards. Assessee during the course of proceedings stated that provisions of section 194H of the Act are not applicable on the above mentioned amounts retained by the banks as the amounts retained by the banks is in the nature of discounting in consideration of immediate payment made by the banks to the assessee.
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Oasis Securities Ltd. v DCIT IT APPEAL NO. 8009 (MUM.) OF 2011 dtd 20.02.13 (Mumbai ITAT) Background: The assessee company is engaged in the activity of stock broking and providing financial services. The assessee earned tax-free dividend income of Rs. 1,73,580 and the same has been claimed as exempt. The AO has stated that assessee has not allocated any expense incurred for earning of such tax-free income. Assessee stated that no expenditure has been incurred to earn the exempted income. However, AO did not agree with above contention of assessee and by applying r. 8D disallowed the same as per sec. 14A of the Act.
14A not applicable where dividend is received from shares held as stock-in-trade – Mum ITAT
McKinsey & Company (Thailand) Co. Ltd. v DDIT IT APPEAL NO. 7624 (MUM.) OF 2010 (Mumbai ITAT) Background: The assessee is part of McKinsey group of entities, the primary business of which is to render strategic consultancy services to their clients. The receipts amounting to Rs. 79,99,272 in the instant year for such services rendered by the assessee to its Indian counterpart were claimed as having been performed outside India and since these were rendered in the ordinary course of business, the same qualified to be a ‘business receipt‘. In the absence of the assessee having any Permanent Establishment (PE) in India, it was argued that no incidence of tax arose in India on this account. The AO treated this amount as ‘Fees for technical services’ and hence chargeable to tax under Article 12 of the DTAA.
In the absence of FTS clause in India-Thailand DTAA, consultancy services cannot be treated as ...
Hathway Investments Pvt. Ltd vs. ACIT (ITAT Mumbai) The assessee, an investment company, bought electric meters from the Gujarat State Electricity Board (GSEB) which were leased back to GSEB simultaneously. The assessee claimed 100% depreciation on the purchase cost of the meters. The AO and CIT(A) rejected the claim on the ground that the circumstances like no physical possession of the meters given etc showed that the transaction of ‘sale and lease-back’ was a “sham” and that it was one merely of giving finance and that the assets were held as a security for the finance given. On appeal by the assessee to the Tribunal HELD: A distinction between an ‘operating lease’ and a ‘finance lease’ has been made by the Special Bench inIndusInd Bank 135 ITD 165 (Mum) (SB) on the basis of which it can be said that a ‘finance lease’ is a ‘sale’ which is given the colour of a ‘lease’ by the parties for their mutual benefit and to avoid tax. In such transactions, it has to be seen whether the sale transaction is a real transaction or a sham transaction with the object of enabling the alleged purchaser to claim himself as the owner of the goods, which are further claimed to be leased back to the original owner of the goods. In a sham transaction of sale and lease back the ownership of the goods is not transferred to the alleged lessor, but is shown to be done, so as to enable the purchaser to claim ownership for the goods for the purpose of tax relief. On facts, the ‘sale and lease back’ transaction is a sham transaction done with the object to facilitate the benefits of depreciation to a person who otherwise is not eligible to claim the same. The intention of the parties was not that of sale or lease but was a loan transaction. The rates of interest/ rental have been fixed taking into consideration that the equipments are eligible for 100% depreciation and it is provided that if the claim of depreciation is changed, the rental in the shape of interest will accordingly change. Such clauses cannot be a part of any lease agreement but finance agreement only because in a normal lease agreement, the lessee is not concerned as to what benefits are available to the owner/ lessor under the Income-tax Act. The contention that as the transaction is with a State Government undertaking, it would be highly improper to impute any collusiveness or colourable nature of the transaction is misconceived. The argument that there is no bar for the assessee for making tax planning so as to reduce its taxes, provided it is within the framework of the law, is also not acceptable as u/s 23 of the Indian Contract Act, even if the consideration or object of an agreement may not be expressly forbidden by law, but if it is of such a nature that, if permitted, it would defeat the provisions of law, the same will not […]
Sale & Leaseback transactions are collusive & tax evasive tools – Mum ITAT
SARGENT & LUNDY v ADIT [ITA No.8986/Mum/2010 (Mum ITAT)] dtd 24.07.2013 Background: The assessee is tax resident of USA. It is a consulting firm engaged in providing services to the power industry by providing engineering based services. The assessee received a sum of Rs.2,22,16,154/- from L&T Limited for rendering consulting and engineering services in relation to Ultra Mega Power projects. The assessee entered into agreement to provide ‘consulting and engineering services’ required by L&T “in the preparation of technical designs” for Ultra Mega Power Projects. L&T was to bid for setting up power projects. It engaged the services of the assessee for technical evaluation and preparation of necessary designs and documents. The assessee did not offer this income in the return on the pretext that such sum was not taxable as the services do not make available technical knowledge, experience, skill or know how within the meaning of FIS as per Article 12(4) of the DTAA between India & USA. However, the AO held that the services rendered were in the nature of ‘consulting and engineering services in preparation of the technical designs basis in the form of review of designs for Ultra Mega Power Projects and therefore was covered u/s 9(i)(vii) of the Act as well as includible in the scope of ‘Fees for included services’ under Article 12 of the DTAA.
FTS: Services for future use can be regarded as ‘made available’ under Article 12 of ...
Gitanjali Exports Corporation Ltd v DCIT ITA Nos.6947&6948/Mum/2011 dated 08-05-2013 (Mum ITAT) Background: Assessee had SEZ units which were engaged in the business of trading in jewellery and diamonds. Assessee claimed the profits therefrom as exempt u/s 10AA in the return of income. The AO disallowed the deduction under section 10AA by observing that the exemption claimed u/s. 10AA is applicable only for manufacturing unit as per the Act, whereas the assessee was involved in trading activities. AO observed that for the purpose of Section 10AA of the Act, manufacture is defined under clause (iii) in Explanation 1 that “(iii) ‘Manufacture’ shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act 2005”. However, there is no such definition for services.
Mumbai ITAT confirms trading activities (import for the purpose of re-export) to be eligible u/s ...
ITO v VEEDA CLINICAL RESEARCH PVT LTD ITA No.1406/Ahd/2009 (dated 28 June 2009) – Ahmedabad ITAT Background: During the year, the assessee made payments of GBP 35,600 to Veeda Clinical Research Ltd UK, for providing in-house training of its employees, and of GBP 8,500, made to Steve Matheson UK, for providing market awareness and development training to its employees. The payment was made without deducting tax at source under section 195 of the Act. The Assessing Officer disallowed the same under section 40(a)(i) of the Act. The CIT(A) also upheld the order of the AO.
FTS can be ‘made available’ only if the technology is transferred – Ahd ITAT
CBDT issued a Circular dated 16th July 2013 giving its view on the controversial issue as to whether the profit of a unit eligible for deduction u/s 10A/ 10B has to be first set-off against the loss suffered by an ineligible unit before computing the available deduction u/s 10A/10B.
CBDT revamps settled position on inter-unit setoff of non-10A loss against 10A profits
CIT v M/s MANSUKH DEYING & PRINTING MILLS (Income Tax Appeal No.1133 of 2008 dtd 24/06/2013) Bombay High Court Background: During the assessment proceeding for the AY 1992-93, the AO had assessed an amount of Rs.2.63 Crores being goodwill as chargeable to capital gain tax on account of the fact that the above amount was debited to partners capital accounts during the AY 1992-93. The AO while passing the assessment order also directed that penalty proceedings be initiated under Section 271(1)(c) of the said Act against the assessee.