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Discussion < Exams < Summary of Case Laws of DT for May 2012 Exams
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CA Adarsh Agrawal

[ Scorecard :2927 ]

1.             Shree Balaji Alloys v. CIT 2011 (J&K)                                                     .           

Assessee received Excise Duty refund & interest subsidy in pursuance of the New Industrial Policy in J&K. These were not granted for creation of new assets and the incentives would be available only on commencement of commercial production. HC observed that these were NOT THE SOLE CRITERIA for determining the nature of subsidy.

The fact that such incentives were PROVIDED TO ACHIEVE A PUBLIC PURPOSE should also be considered & hence, such subsidy could not be construed as operational incentive for the assessee.

Hence, such incentives are capital receipts not liable to tax.

CA Adarsh Agrawal

[ Scorecard :2927 ]

2.             Joseph George and Co. v. ITO 2010 (Kerala)                                        .

Receipts from lodging business will be chargeable to tax under the head Profit & Gain from Business or Professional. However, letting out of its building to the bank on long-term lease will be RENTAL INCOME to be assessed as Income from House Property.

CA Adarsh Agrawal

[ Scorecard :2927 ]

3.             CIT v. Yamaha Motor India Pvt. Ltd. 2010 (Delhi)                               .

Issue – Whether depreciation is allowable on WDV of ENTIRE Block which includes some discarded machines & hence, cannot be put to use during the relevant previous year.

Decision – "Used for the purpose of the business" in Sec 32 in respect of discarded machineries would mean the use in business in earlier financial years. Hence, the depreciation can be claimed provided the block continues to exist in the relevant previous year.

CA Adarsh Agrawal

[ Scorecard :2927 ]

4.             B. Raveendran Pillai v. CIT 2011 (Kerala)                                              .

Assessee purchased a Hospital which was running in the same building, in the same town, in the same name for several years. Previous owners transferred the right TO USE THE NAME & the goodwill to the assessee. Assessee derived benefit of retention of continued trust of the patients of previous owners. Thus, it was paid for ACQUIRING BUSINESS AND COMMERCIAL RIGHT and comparable with trade mark, franchise, copyright etc. referred to in Sec 32(1)(ii). Hence, depreciation is allowable on such goodwill being a commercial right.

CA Adarsh Agrawal

[ Scorecard :2927 ]

5.             Federal Bank Ltd. v. ACIT 2011 (Kerala)                                                .

There is no ground to treat the communication devices (e.g. EPBAX & Mobile Phones) as Computers. Hence, Communication devices are not entitled to higher depreciation at 60%.

CA Adarsh Agrawal

[ Scorecard :2927 ]

6.             CIT v. Priya Village Roadshows Ltd. 2011 (Delhi)                                .

Assessee, engaged in running cinemas, incurred expenditure towards architect's fee for examining the technical viability of proposal for takeover of cinema theatre & converts it into multiplex theatre (for existing business with a common administration and common fund). This project was dropped due to lack of financial & technical viability. The expenditure were of REVENUE NATURE as there in no creation of new asset.

HC says that the relevant factor is whether or not a new business / asset comes into existence.

CA Adarsh Agrawal

[ Scorecard :2927 ]

7.             Echjay Forging Ltd. v. ACIT 2010 (Bom.)                                               .

The company incurred expenditure on higher education of the director's son abroad be claimed as business expenditure u/s 37 on the contention that he was appointed as a trainee in the company under "Apprentice Training Scheme", where there was no proof of existence of such scheme. There was no nexus between the education expenditure incurred abroad for the director's son and the business of the assessee company. Therefore, the aforesaid expenditure was not deductible.

CA Adarsh Agrawal

[ Scorecard :2927 ]

8.             Iskraemeco Regent Ltd. v. CIT 2011 (Mad.)                                          .

The Company took loan for purchase of Capital Asset. The waiver of a portion of principal of the loan would not amount to remission of trading liability to attract the provisions of Section 41(1).

Such waiver will also not be treated as benefit ARISING OUT OF BUSINESS for the purpose Sec 28 (iv).

CA Adarsh Agrawal

[ Scorecard :2927 ]

9.             Global Geophysical Services Ltd., In re 2011 (AAR)                            .

The Seismic Data (in processed form) is used to create highly accurate images of the earth’s sub-surface which in turn are used by the exploration and production companies (like ONGC, Cairn Energy) for locating potential oil and gas reserves based upon the geology observed.

The said activities and services of the applicant clearly fall within the description of Section 44BB.

CA Adarsh Agrawal

[ Scorecard :2927 ]

10.             DIT v. DSD NoeII GmbH 2011 (Delhi)                                                     .

The assessee is a German Company providing engineering and technical services for various turnkey projects eligible for PRESUMPTIVE TAXATION SCHEME u/s 44BBB. Assessee fulfils all the conditions of Sec.44BBB(1) & thus, the provision of Sec 28 to 44AA would not be applicable for computation of business income and a sum equal to 10% of the amount paid or payable to the assessee would be deemed as its business income.

The assessing officer CANNOT bring to tax the actual profit as per books of accounts, even if the same is higher than 10% of receipts which are deemed to be the profit u/s 44BBB in case of foreign company engaged in turnkey project.

CA Adarsh Agrawal

[ Scorecard :2927 ]

11.             CIT v. Smt. K. G. Rukminiammma 2011 (Kar.)                                     .

Builder, on his own expenses, constructed eight flats on the land of the assessee & handed over four flats to the assessee. The assessee will be entitled to get exemption u/s 54 in respect of ALL FOUR FLATS as all these flats are situated in the same residential building & hence, will constitute A SINGLE RESIDENTIAL HOUSE for the purpose of Sec 54.

[Same Judgement was given in Anand Basappa 2009 (Kar.) ]

CA Adarsh Agrawal

[ Scorecard :2927 ]

12.             CIT v. Parle Plastics Ltd. 2011 (Bom.)                                                     .

The factors to be considered for determining "substantial part of the business", for the purpose of Sec 2(22), are –

*Major Part that constitutes majority of the whole

*Substantial Part of Turnover

*More than 50% of Total Profit

*Percentage of Manpower used

*Capital Employed for specific division

*Substantial part of total assets


In this case, 42% of the total asset of the lending company, were deployed by it by way of loans and advances to the assessee which could not be regarded as dividend u/s 2(22).

CA Adarsh Agrawal

[ Scorecard :2927 ]

13.             CIT v. Chiranjjeevi Wind Energy Ltd. 2011 (Mad.)                              .

Different parts procured, could not be treated as a windmill individually. After ASSEMBLY of these different parts, they got TRANSFORMED into an ultimate product, known as Windmill. Thus, such an activity would amount to MANUFACTURE as well as PRODUCTION of a thing or article to qualify for deduction u/s 80-IB.

Reference :

1.       India Cine Agencies v. CIT 2009 (SC) : Test of activity of 'Manufacture' = NEW and DIFFERENT goods should emerge having DISTINCTIVE NAME, USE AND CHARACTER.

2.       CIT v. Sesa Goa Ltd. 2004 (SC) : The word 'Production / Produce' means bringing into existence new goods by a process, which MAY or MAY NOT AMOUNT TO MANUFACTURE. It also covers all the by-product, intermediate products and residual products, which emerge in course of manufacture of goods.

CA Adarsh Agrawal

[ Scorecard :2927 ]

14.             Praveen Soni v. CIT 2011 (Delhi)                                                             .

An Assessee, not claiming deduction u/s 80-IB in initial years, CAN CLAIM SAID DEDUCTION FOR THE REMAINING YEARS DURING THE PERIOD OF ELIGIBILITY, if the conditions are satisfied. (Because there is no such condition in Sec 80-IB.)

CA Adarsh Agrawal

[ Scorecard :2927 ]

15.             CIT v. Jaswand Sons 2010 (P&H)                                                             .

Income derived from sale of export incentive cannot be said to be income "derived from" the industrial undertaking and therefore, such income is not eligible for deduction under section 80-IB.

CA Adarsh Agrawal

[ Scorecard :2927 ]

16.             CIT v. Meghalaya Steels Ltd. 2011 (Gauhati)                                       .

Transport Subsidy and Interest Subsidy were REVENUE RECEIPTS which were granted after setting up of the new industries and after commencement of production, as these had no direct nexus with profit or gain derived from industrial activity. Hence, these subsidies were not eligible for deduction u/s 80-IB

However the payment of excise duty & refund of excise duty had a direct nexus with manufacturing activity, being a profit-linked incentive. Since, payment of excise duty would not arise in absence of any industrial activity, therefore the refund of excise duty had to be taken into account for the purpose of Sec 80-IB.

Similar ruling in case of CIT v. Gheria Oil Gramudyog Workers Welfare Association 2011 (HP) – Interest Subsidy.

CA Adarsh Agrawal

[ Scorecard :2927 ]

17.             Joint CIT v. Rolta India Ltd. 2011 (SC)                                                    .

In case of failure in payment of advance tax u/s 207 during the FY, on the total income chargeable to tax for the AY immediately following that FY, the assessee will liable to pay interest u/s 234B & 234C.

U/s 115JB(1), the Book-Profit would be deemed to be total income.

Hence, the interest u/s 234B & 234C can be levied where a company assessee is assessed on the basis of book profit u/s 115JB.

CA Adarsh Agrawal

[ Scorecard :2927 ]

18.             Madras Gymkhana Club v. DCIT 2010 (Mad.)                                      .

Interest earned from investment of surplus funds in the form of fixed deposits with INSTITUTIONAL MEMBERS (CORPORATE MEMBERS OF THE CLUB) does not satisfy the principle of mutuality and hence cannot be claimed as exempt on this ground. Therefore, the interest earned in taxable.

CA Adarsh Agrawal

[ Scorecard :2927 ]

19.              CIT v. Bharti Cellular Ltd. & Hutchison Essar Telecom Ltd. 2011 (SC)    .

Delhi HC concluded that Sec194J would not attract on payment to MTNL/other Co. for services provided through Interconnect / Port / Access / toll etc because such services DIDNOT involve any HUMAN INTERFACE & so it could not be regarded as Technical Services u/s 194J.

SC remitted the matter to AO, directing him to further examine that whether any human invention takes place during traffic of calls or whether any human intervention is required for "additional capacity" when the "capacity" gets exhausted. Final decision is awaited.

CA Adarsh Agrawal

[ Scorecard :2927 ]

20.             CIT v. Qatar Airways 2011 (Bom.)                                                          .

Issue - Airline company solds tickets to agents at a fixed minimum commercial price & permits them to sell these tickets at a higher price , however, upto maximum of published price. Commission @9% of actual published price was payable to the agents. Whether the difference between published price and fixed minimum commercial price amounts to additional special commission in the hands of agents to attract the provision of Sec 194H.

Decision - Company would have no information about exact price at which the tickets were sold by its agents & it is also impracticable & unreasonable to expect the assessee to to get feedback from its numerous agents in respect of each tickets sold. Thus, NO TDS on difference, even though it is taxable in the hands' of agents.

CA Adarsh Agrawal

[ Scorecard :2927 ]

21.             Vodafone Essar Cellular Ltd. v. ACIT (TDS) 2011 (Kerala)                  .

SIM Card links the subscribers to the assessee company for rendering services & Re-charge coupons were only air time charges collected from subscribers in advance under prepaid scheme. The distributors acted only as a middleman on behalf of the assessee for procuring and retaining customers and therefore, the DISCOUNT GIVEN TO HIM WAS WITHIN THE MEANING OF COMMISION u/s 194H on which TAX WAS DEDUCTED.

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